Positive end to the week, but social media companies get trolled

Europe

The imminent prospect of an Evergrande default appears to have been deferred for another day, after this morning’s report out of Asia, that it had paid the $83.5m interest payment, which was due for payment by tomorrow.

As a consequence, we look set to finish the week in a much better place than when we started it, when we saw some sharp falls, with the FTSE100 and DAX looking set to consolidate the gains that we saw after last week’s strong gains.

Amongst the worst performers have been the London Stock Exchange after reporting Q3 numbers that by and large showed decent growth across all of its divisions, helping to drive a rise in gross profits to £1.55bn. The declines in the share price appear to be down to disappointment over the rise in its data and analytics division which came up short of expectations, rising 6%, however, a decline in revenues of 0.3% in trading and banking solutions appears to have weighed on sentiment.

Investors hoping for a pick-up at Holiday Inn and Crowne Plaza owner IHG don’t appear to be too happy with today’s Q3 update, with the shares sharply lower, after RevPAR fell short of expectations. RevPAR for Q3 saw a rise of 66% from a year ago, and down 21% from 2019 levels, with investors hoping for a 71% increase. It would appear that as feared the Covid outbreaks in China impacted the Greater China business more than expected in August, with RevPAR falling from -6% from 2019 levels to -55%, although September has picked up a bit to be only down 26%. In contrast, the US business managed to hold up fairly well.

On the plus side, JD Sports is amongst the best performers as it further expands its global footprint by announcing a deal to buy 80% of Cosmo Sport in Greece for an unspecified sum.

A rebound in commodity prices and the deferral of a weekend Evergrande default has also helped push the basic resource higher on the day, with the likes of BHP and Rio Tinto rallying on higher gold and copper prices.

US

There seems to be no stopping US markets, having hit new record highs earlier this week the Dow and S&P500 have done it again today on the open, with the Nasdaq underperforming due to weakness in social media companies.

Today’s headlines have been dominated by some big declines for Snap, Intel, and Beyond Meat as their earnings disappoint, as we look ahead to next week and the likes of Alphabet, Apple, Amazon, Microsoft, Twitter, and Facebook all due to report next week.

What this week has taught us is that if companies meet expectations and maintain their outlook, then investors appear encouraged. If, however, companies fall short, or downgrade expectations, the price for missing forecasts can be quite steep, as can be seen from today’s big movers.

Snap shares have plunged on the open after reporting Q3 revenues just shy of expectations, and while that was disappointing it was the Q4 guidance that set the proverbial cat amongst the pigeons. The company revised down its revenues from $1.35bn to $1.19bn and almost halved EBITDA to between $135m to $175m, explaining that along with the changes to Apple’s privacy guidelines, companies were also cutting marketing spend due to product shortages.

Intel has also seen its share price plunge despite beating on Q3 profits but falling short on revenues. The falls were precipitated by CEO Pat Gelsinger downgrading sales prospects for Q4, and admitting that margins were likely to come under pressure as increased spending on manufacturing technology could knock up to 6.5 percentage points off gross margins, reducing EPS by 40%.

Beyond Meat has also seen its shares drop sharply after falling short on revenues for Q3, coming in at $106m, well short of the $143.3m consensuses. The miss was driven by lower-than-expected orders, as well as supply chain challenges.

Tesla on the other hand has continued its gains this week, after a decent set of numbers on Wednesday, hitting a new record high above $900

FX

Currency markets have seen a quiet week, with the US dollar set to fall for the second week in succession. The US dollar has declined across the board, as speculation increases that we could start to see rate hikes from the likes of the RBNZ, RBA, and possibly the Bank of England in the coming weeks in response to rising inflation expectations, with the Federal Reserve widely acknowledged to be behind the curve.

The pound has managed to shrug off another month of disappointing retail sales numbers, with a decline of 0.2%, missing expectations of a gain of 0.6%. Consumer confidence also fell back and for that, it's not hard to see why given the events at the end of September when the petrol pumps ran dry due to panic buying. While that did provide an uplift to fuel sales, it also meant that discretionary spending fell elsewhere, with home goods seeing a decline. I guess you can’t buy a table or chairs if you’re stuck in a petrol queue! Of course, the fact that retail sales growth has been pretty much non-existent since April should augur well for a pre-Christmas rush, assuming that the items that get ordered, arrive on time.

October PMIs on the other hand was better than expected as once again UK data gives conflicting signals about how the UK economy is performing. Reported comments from Bank of England chief economist Huw Pill that November is a “live” meeting for a possible rate rise didn’t provoke too much of a reaction in gilt markets. Some form of movement on rates before year-end appears to be already priced in, which suggests that we could see a 0.15% rise to 0.25%, by year-end, either on 4th November or just before Christmas.

Commodities

Another week of US dollar losses has helped support gold prices this week, with the yellow metal hitting a five-week high, despite US 10-year yields rising to five-month highs. Rising inflation expectations are now starting to exert upward pressure on gold prices, however, it is still being outgunned by bitcoin which is holding quite comfortably above the $60k level and within touching distance of this week’s record highs.

Brent crude prices are on the cusp of finishing higher for the 7th week in a row, however, we are starting to see the first signs that these big increases in energy prices are now starting to see an element of demand destruction. Natural gas prices are also starting to show signs of topping out which will be welcome news for beleaguered consumers if that continues.