The rise in tech shares has continued to be the fuel that has powered US markets back to record levels, in the case of the Nasdaq, and to new record closes for the S&P500 and Dow Jones.
In the case of the S&P500 and Dow we haven’t, as yet matched the record peaks we saw back in September last year, and as such this is likely to introduce an element of caution to some investors mindsets.
Asia markets did start off on a positive note, however they were unable to sustain this momentum probably due to disappointing numbers from display and screen maker LG Display who posted a bigger than expected loss in Q1, of $115m, following in the footsteps of Samsung earlier this week who also posted disappointing numbers for Q1. This divergence in performance between US and Asia tech is a worry and could suggest some underlying weaknesses that US investors don’t appear attuned to.
As a result of the weakness in Asia, European markets have opened slightly softer after their multi-month peaks yesterday.
The DAX is outperforming, helped by some decent gains from SAP and Wirecard, with Wirecard shares gaining on reports that Softbank has agreed to invest €1bn in the company in the form of convertible bonds.
SAP is higher on the back of reporting better than expected Q1 numbers, and boosting its profit outlook. It has also been disclosed that activist investor Elliott Management have taken a stake in the business, saying that the business is undervalued.
As in most quarters the latest update from Associated British Foods tends to focus on its retail business, rather than its grocery and sugar businesses, given the difficult current consumer environment.
Statutory profit before tax came in at £515m, a decline of 15%, even as group revenues rose by 1% to £7.53bn, with the sugar business once again acting as the weak link, as revenues there showed a decline of 13% to £769m.
The Primark business has remained robust with total revenues of £3.63bn, and sales up by 4%, while adjusted operating profits here rose by 25% to £426m. As far as the outlook was concerned management remained upbeat saying that they expected profits to grow further as it reduces markdowns and cuts back on inventory.
Despite having no online presence Primark has shown that there is money to be made in the retail sector if your know your market and maintain control of your costs and inventory.
On the other side of the coin online retailer Boohoo Group, who don’t have Primark’s overheads of retail floor space has seen pre-tax profits come in below expectations of £67m to £59.9m, despite posting better than expected revenues of £856.9m.
Despite the high expectations these are still a decent set of numbers with profits still up by 38% as the sub brands continued to add value with PrettyLittleThing posting some decent growth in sales and profits.
It’s been good news for Credit Suisse this morning after the bank saw net profits rise by 8% in the first quarter, helped by a 12.5% increase in quarterly revenues to Sfr5.4bn. Having spent the last three years restructuring the business to focus on areas like wealth management and paring back the higher risk trading business, this focus appears to be reaping dividends.
The investment banking division is still underperforming, not too much of a surprise given the weakness seen in recent updates from its US peers, nonetheless there is no escaping the fact that having returned to annual profit last year the business appears to be heading in the right direction, even if trading conditions still remain challenging.
The bigger question is whether this improvement for Credit Suisse is the canary in the coalmine for European banks, with more reports out later this week, or a notable exception?
US markets, having posted record closes, may well open slightly lower later today however the earnings announcements will still be coming thick and fast, with the latest numbers from Boeing, before the bell, as well as Microsoft, Tesla and Facebook, after the bell, likely to be the pick of the bunch.
Today’s Q1 update should be instructive from Boeing in the context of how much financial damage the 737 MAX 8 problems have had on the company’s revenues, and forecasts. The company has already slowed down production of the aircraft and may well have to set aside large sums in respect of grounded aircraft, as well as compensation in respect of litigation over the coming months. The likelihood of the plane getting back in the air anytime soon has diminished in recent weeks, due to the enormous brand damage recent events have done.
Last year Boeing’s commercial airplanes business delivered a record 806 aircraft last year with an expectation that 2019 would be even better, with up to 900 aircraft expected to be delivered, with China expected to be a key market. That target looks increasingly unlikely now and given that the plane makes up to 30% of the company’s profits, the ongoing lack of confidence in the aircraft, is likely to see that percentage significantly reduced. Investors now slowly appear to be waking up to this which means a downgrade to the company forecasts could well see the shares decline sharply.
Tesla’s numbers after the bell will be equally instructive in terms of its delivery targets for its cars in Q1, as well as the rest of this year. We already know that the company will miss its delivery target for cars in Q1.
Today’s Q1 update is expected to confirm by how much, with 63k, even though it produced 77,100 cars during the period. Despite the fall in deliveries Tesla insisted that it will still meet its annual target of between 360k and 400k cars for 2019, which is still a significant improvement on 2018. It’s still a big ask to hit that target as Tesla would have to deliver at least 100k cars each quarter, for the next three quarters. This would be a record, and well above the previous record of over 90k cars in Q4 last year. Expectations aren’t being helped by CEO Elon Musk’s continued Twitter interventions that 500k cars is possible for 2019. This week we’ll find out how Tesla intends to work through its delivery backlog as well as fulfilling its annual target, whether it be Musk’s 500k target, or managements more conservative 400k one.
The Bank of Canada is expected to keep interest rates unchanged when it meets later today, having seen the Canadian economy stall in the first part of this year. The central bank adopted a much more dovish tone at its most recent rate meeting. Canadian policymakers also removed a reference that rates might need to rise further over time, and this month’s meeting is likely to remain dovish. The inflation outlook has continued to show no signs of picking up, currently at 1.5%, while consumer spending has remained muted with retail sales declining three months in a row, though we did see a rebound in March. As such rates are likely to stay where they are, particularly since Governor Poloz suggested in recent comments that interest rates warrant a level below neutral.
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