After-hours US earnings announcements have certainly provided some liveliness this week with Tesla’s share price rising 20% in after-hours trading yesterday. Today was Amazon’s turn, but the story didn’t end so well. Amazon missed on earnings as it invests heavily in cloud and delivery systems to enhance the customer experience. Amazon’s shares fell 9.0% or $80 billion of market cap to the rest of us.
It seems like a harsh punishment for a technology titan to be so punished for investing heavily to improve its future business, and a year ago, it would likely have been ignored. Times have changed though, with the global economy, including possibly the US at last, slowing markedly this year and set for further falls in 2020. Sentiment has soured, more so after US durable goods and German PMI both missed badly to the downside overnight. Sentiment has soured, and nervous investors have itchy trigger fingers over the sell buttons these days.
Brexit dramas abated as Europe debates the scale and scope of a Brexit extension. We do appear to be heading towards an election though with PM Johnson looking to call for an early December poll on Monday. Labour has indicated it will vote for that if Europe has granted the UK a Brexit extension by then. Sterling didn’t like it, but the mild sell-off will probably give way to optimism that a hard Brexit is almost of the table, and that Parliament’s three-year impasses could soon be history. Or it could be hopeless naivety on my part.
Vice President Mike Pence expressed optimism over the progress of trade talks overnight. The apparent progression of the mini-trade deal for November’s meeting between President’s Trump and Xi, has had more of a keeping the lights on effect on markets rather than a new bout of economic optimism. Markets will want to something on paper having been led to water too many times this year.
In Asia, trade bellwether South Korea’s run of weak data continued with consumer confidence disappointing at 98.60. Closely watched later today will be data from Malaysia and Singapore. Malaysia Leading Index is released at 1200 SGT and is expected to fall by 0.80%. Singapore releases Industrial Production for September at 1300 SGT and is expected to recover to -0.10% from the giant 7.50% drop last month. Indonesia releases Inward Investment for Q3 at 1400 SGT, expected to show an increase of 5.30%, a decrease from Q2’s 9.50% increase. Therefore, the week should close with a much clearer picture of the effects of the global slowdown in South East Asia.
Germanys IFO at 1600 SGT and US Michigan Consumer Sentiment round out the week’s data points before attention turns to next week’s FOMC meeting. At this stage, I put the chances of another rate cut at slightly less than 50/50 with the Federal Reserve refusing to be cajoled into panic rate cuts and a change to the dot plot. Although US data has slowed somewhat in general, we are certainly not on the cusp of a recession as US earnings are showing. It is my base case that the Federal Reserve will give up the hard-won advantage of a partial interest rate normalisation only grudgingly.
Equities
Equities rose on Wall Street as earnings season continues on a mostly positive note. The S&P rose 0.19%, the Nasdaq rose 0.81%, and the Dow Jones fell 0.11% after a poor 3M result.
The rout of Amazon’s shares after its post-close announcement has tempered enthusiasm by Asia following Wall Street’s headline results overnight. The SHCOMP, Nikkei 225, Kospi, and Bursa Malaysia are all flat on the day with the ASX 200 higher by 0.60% and the Straits Times higher by 0.40%.
There are unlikely to be any fireworks in Asia ahead of the European session although data from Singapore, Malaysia and Indonesia has the potential to unwind any gains made there today.
Currencies
The dollar strengthens mildly overnight in a generally directionless session, the dollar index rising 0.18% to 97.67. Falls in Euro and Sterling drove most of the dollar index gains. Euro fell to 1.1100 following weak German data, and the potential election vote on Monday in London saw GBP fall to 1.2840.
The sell-off in GBP will be fleeting as the market digests the low likelihood of a hard Brexit and some certainty in the Parliamentary process an election will bring for now.
Major currencies are mostly unchanged in Asia with regional currencies edging slightly lower after the dollar strengthened overnight.
Oil
Brent crude and WTI both rallied gently overnight on trade optimism, but in a re-run of yesterday in Asia, profit-taking has seen those gains mostly eroded. Brent crude spot rose 0.70% to $61.70 a barrel overnight but has since fallen 30 cents to $61.40 a barrel. WTI spot rose 0.40% to $56.00 a barrel overnight but has since retreated to $55.80.
Oils recent rally has been built on somewhat shaky foundations. Namely, the hope of further OPEC+ cuts in December and a mini-trade deal in November to boost growth. Both are risky and dubious reasons given the ample supply backdrop on international markets, even without sanctions. That fact should ensure that oil rallies are limited in scope in the near-term.
Gold
Gold rallied 0.75% to $1503.00 an ounce overnight, following weak US durable goods data and the increasing noise of a rate cut at next weeks FOMC meeting. In a directionless pre-weekend session in Asia, gold has edged slightly lower to $1502.00 on no particular news or drivers.
Despite the overnight rally, gold remains a forgotten corner of the world’s financial markets at the moment. It is trapped still in a broader $1475.00 to $1520.00 range. The FOMC could be the catalyst for a breakout one way or the other, but that will have to wait until mid-week.
