15.07.16 Friday Afternoon

With last week dominated by Theresa May’s speedy ascendance to PM, more Bank of England inaction and the latest tragedies in France this week may struggle to find the same level of direction. The markets do, however, get a couple of data dumps from the UK, while the US Q2 earnings season begins in earnest.

UK
If the first half of last week belonged to the FTSE, which surged past 6700 to hit a new 11 month highs, then the back half belonged to the pound, which at points grazed $1.34 and €1.21 after the Bank of England decided to wait until August to unveil any fresh stimulus measures (be they QE or a rate cut).

One of the reasons why Carney and co. chose inaction is the lack of post-Brexit data; while this week doesn’t exactly rectify that problem, the central bank and investors alike will get a glimpse into how the issue affected UK inflation across the entirety of June when the latest figure is released on Tuesday. May’s jobs report on Wednesday will then see if fears of a Brexit dragged on employment and wage growth, while Thursday brings with it June’s retail sales and public sector net borrowing readings, both of which are likely to have felt the impact of the referendum run-up.

Beyond economic data the UK still has a few big companies set to report this week, even if the earnings spotlight will likely shift to the US. Royal Mail delivers its latest trading statement on Tuesday, while multinational chemical firm Johnson Matthey reveals its first quarter figures on Wednesday. Thursday then sees consumer goods giant Unilever post its second quarter and half year numbers, while AO World, Tate & Lyle and Nichols all also update.

US
While the US remained on the side lines last week it didn’t stop the Dow Jones surging to a new all-time peak, the high being 18560 on Thursday. That’s an undoubtedly remarkable achievement, especially considering the lows struck in February and the market turmoil post-Brexit. Yet realistically the Dow hasn’t had much of a region-specific workout since the Fed seemingly put any further rate hikes on hold.

This week, then, could be key for the US index, as the second quarter earnings season gets into the swing of things. Among those Dow 30 companies reporting are IBM on Monday, Goldman Sachs and Johnson & Johnson on Tuesday, American Express and Intel on Wednesday, Visa and Travelers on Thursday and General Electric on Friday. That’s over a quarter of the Dow’s make-up and could see the index either cement, or fall from, its current highs.

Beyond the Dow 30 there are still plenty of big names reporting this week. Most eye-catching is Netflix on Monday (see below), while there are Q2 updates from Philip Morris, eBay, Morgan Stanley, Chipotle, Starbucks and PayPal. In terms of economic data the building permits and housing starts on Tuesday, Philly Fed manufacturing index and jobless claims on Thursday and the Markit flash manufacturing PMI on Friday.

Eurozone
Has it has done since before the referendum the Eurozone indices largely followed the UK’s lead last week, even if the indices were more robust in their growth, the DAX climbing back above 10000 since the Brexit. This week the Eurozone arguably provides the main event: Thursday’s ECB meeting. With the Bank of England choosing inaction it is hard to imagine Draghi and co. not doing the same; the tone of the statement and post-meeting Q&A will, however, be vital.

Data-wise the German and region-wide ZEW economic sentiment figures are on Tuesday, with the current account and consumer confidence numbers on Wednesday, Spanish unemployment rate on Thursday and a whole host of flash manufacturing and services PMIs on Friday.

Stock of the week: Netflix Inc – Q2 2016 Earnings Release
After a strong Q4 report back in January Netflix bitterly disappointed investors with its first quarter report in mid-April. The actual Q1 numbers were all strong: a 24% rise in revenue to $1.96 billion (a tad lower than expected) and a better than forecast EPS of 6 cents was joined by a 6.74 million increase in subscribers. Yet it was the company’s second quarter projections that caused Netflix to plunge over 15% in the space of 2 trading sessions. It now expects to add 500k US subscribers and 2 million internationally across Q2; while the former figure was only a minor revision, the latter number is 1.45 million lower than Netflix’s initial estimate, and was the main catalyst for investors’ ire.

In terms of the company’s Q2 figures on Monday, then, the reaction will hinge on how close Netflix’s subscription figures are to those forecasts announced back in April. EPS and revenue will, of course, have a role to play in its market movements; subscription growth, however, will provide the real juice for its post-report performance, especially with analysts highlighting Netflix’s increasing competition from the likes of Amazon (worldwide) and Hulu (in the US).

 

(Source: IT-Finance.com 15/07/2016)