European markets and US futures are trading sharply higher today building on the optimism around the US-China trade talks. We have seen significant increase in the numbers of investors who have added risk assets in their portfolio on the back of this. Just to put things in perspective, the S&P 500 broke its 50-day moving average, a signal that bulls are back in the race and perhaps a bottom is in place as long as we do not move this critical moving average. This all happened after a report which mentioned that the US Treasury secretary Steven Mnuchin has proposed easing Chinese tariffs. Although, the Treasury didn’t confirm this but the market has bought this for now and if this turns out to be a junk, the selloff would be intense.
Another way of looking at the risk on trade is to focus on the global equity market and this shows that the global equities are on track to record four consecutive weeks of gain, something which we have not experienced since July last year. I think investors are also confident because of the recent prints of the US economic data such as the Philadelphia’s factory index which bounced strongly back during the month of January, this is after recording three months of losses. Moreover the upbeat tone from the Chicago’s Fed president also supported the current momentum who has shown no signs of any immediate concern about the US economy.
One of the asset which has taken no time to show the direct reaction because of the possibility of a deal to occur between the US and China is oil. It has extended its third week of gains and the WTI has moved towards the 53 mark. Of course, the move is based on the hopes that improving trade relations between the two biggest economies of the world would only improve the demand for oil because there is no doubt that the Chinese economy has suffered because of the trade war as well as the US economy. The resistance level which we are watching is the high of December, sits at 54.77. The support is at 47.53.
In terms of stocks, it is all about Ryanair and Netflix today and investors are going to keep a close eye on these two stocks which could feel the heat because of the feeble fundamentals. Ryanair has done a downward adjustment to its full year profit guidance, due to the lower winter fares. Given that the earnings are expected to fall to 7 percent which is a lot lower than the previous number of 2 percent, investor are going to react adversely. Adding to their qualm, the company’s has also cut its full year profit to 1 billion euros to 1.1 billion.
Look if you want to keep your investors happy, you need to make sure that you are running your affairs correctly. You cannot just afford battles with unions, or strikes as both of these effect company’s growth number and most importantly you want to show that your customer service policies and the image is friendly and Ryanair really needs to get a good grip on this.
The company which made the headline in terms of burning daily cash is Netflix and investors didn’t like their earning numbers at all. After hour trading session was rough, the company stock sank over 5 percent. Having said this, the volatility which we have experienced last night for the Netflix stock was still relatively on the low side because usually it has the tendency to move 15% in either side.
The company is looking to increase its membership by $1 to 2 (depending what package you have), just to show how the company’s outlook for the coming quarter could be improved. It added 8.84 million new subscriber in Q4 2019 which missed the estimate of 9.4 million and the increase in the subscription fee has added more doubts for its growth in the subscription number especially when the competition is extremely fierce in this space and everyone is fighting for the market growth. It also missed revenue forecast, reported $4.49 billion versus the expectations of $4.60 billion but we don’t think that is such a big deal because the firm is certainly adding mammoth amount of original content.
