Today’s Big Picture
Equity indices in Asia ended the day’s trading lower across the board following news that China’s fertilizer producers will suspend exports, tax rebates on certain steel products will be removed and export tariffs for certain products will increase on August 1. Also weighing on those indices is Japan announcing that it will extend Tokyo's state of emergency until August 31. By mid-day trading, equity indices in Europe were also lower across the board following a disappointing initial Q2 2021 GDP print for Germany even though aggregated GDP for the region topped the consensus expectation. U.S. futures are in the red this morning given not only the above news but the June quarter revenue miss and weaker than expected guidance issued by Amazon (AMZN) last night.
This morning, U.S. investors will digest Amazon's news as well as the rash of earnings reports and economic data, before turning their attention to Washington as the debt ceiling comes back into force this weekend following a two-year suspension. The deadline will curb the Treasury's capacity to issue new debt unless lawmakers can reach an agreement, which seems rather unlikely given the disposed positions of the Republicans and Democrats. Starting at noon today, the Treasury will use the first of its "extraordinary measures" that will suspend sales of securities that help states and municipalities invest bond proceeds. As a reminder, the Congressional Budget Office predicts the Treasury will run out of cash starting in October or November, and we see yet another political game of chicken ahead before a resolution is reached. Our advice is to maybe skip the Sunday morning political talk shows this weekend to avoid what will likely be a lot of political finger pointing and chin wagging.
South Korea’s Industrial Production, which is a good proxy for global trade, rose 2.2% MoM in June after falling a downwardly revised -1.0% in May. On a YoY basis, IP was up 11.9% in June, slowing from 15.3% in May and beating expectations for a 9.3% increase.
Japan’s unemployment rate fell to 2.9% in June from 3% in May, where it was expected to remain. Industrial Production rose 6.2% MoM after falling a downwardly revised 6.5% in May, from which it was expected to reverse to a 5.0% increase. On a YoY basis, IP rose 22.6% YoY in June from a 21.1% increase in May.
France’s preliminary inflation rate for July rose at a slower 1.2% YoY after rising 1.5% in June but came in a tick hotter than the expected 1.1%.
The unemployment rate in Italy declined to 9.7% in June from a downwardly revised 10.2% in May, well below market forecasts of 10.4%.
We also have Q2 GDP estimates from Europe which showed significant growth year-over-year and were mostly stronger than expected:
- France’s GDP for Q2 rose 0.9% from a revised 0.0% in Q1, modestly topping the expected +0.8%
- Spain topped the expected +19% YoY increase with a +19.8% GDP print for Q2.
- Q2 GDP for Germany rose 9.2% YoY, missing the +9.6% consensus, but well ahead of the -3.1% print in the year-ago quarter.
- Italy’s Q2 GDP preliminary print came in at a better than expected +17.3% YoY vs. the +15.6% consensus and the Q2 2020 reading of -0.7%.
- Looking at the Eurozone in full for Q2, its preliminary GDP reading came in at +13.7% YoY, topping the expected +13.2% increase.
The big economic news yesterday was the Bureau of Economic Analysis’ first release of Q2 GDP, which came in at 8.4% QoQ SAAR (Seasonally Adjusted Annualized Rate), missing expectations by nearly two percentage points. The second quarter put the U.S. economy back above Q4 2019 levels, marking a full recovery to pre-Covid levels, but it is still below the pre-pandemic trend line.
Digging into the GDP details, consumer spending added 7.8% to GDP, which is the fourth-highest number in the history of the data, putting consumer spending nearly back to the pre-Covid trend. Housing investment was actually a 0.5% drag on Q2 GDP as starts crashed over concerns of an over-extended market. Equipment investment added 0.7% with categories such as IP on media, patents, and R&D outsized versus historical norms.
Yesterday’s weekly jobless claims report was another disappointment, following last week’s increase to 419,000, with this week’s initial claims coming in at 400,000, versus expectations for a decline to 385,000. Additionally, last week’s claims were revised up 5,000 to 424,000. Continuing claims rose to 3.269 million from 3.262 million, snapping a 3-week streak of declines.
Later today, we will get data on Personal Income & Spending, PCE Price Index, Employment Cost Index, Chicago PMI, and the University of Michigan Consumer Sentiment report.
A confluence of factors including the Fed’s dovish policy stance, better than expected quarterly earnings, weaker-than-expected GDP, and confirmation the Treasury will make $100 payments for every newly vaccinated American, helped the S&P 500 and Dow Jones Industrial Average finish up 0.4% yesterday. Yes, you read that right. People who have not yet been vaccinated can get $100 for getting vaccinated now. Those who have already been vaccinated are out of luck. Granted both were off their highs, but both outperformed the 0.1% gain posted by the Nasdaq Composite Index. The winner of trading yesterday, however, was the Russell 2000 and its 0.7% gain.
Stocks to Watch
Before U.S. equity markets open, investors will be treated to a number of quarterly earnings reports, including those from Capri Holdings (CPRI), Caterpillar (CAT), Church & Dwight (CHD), Colgate Palmolive (CL), Proctor & Gamble (PG), Restaurant Brands (QSR) and VF Corporation (VFC).
Yesterday’s much-anticipated IPO for Robinhood (HOOD) wasn’t exactly the fireworks some had hoped for, opening at $38 and then plunging 12%. Shares rebounded later, but closed at $34.82, down 8.4%.
While Amazon (AMZN) delivered better than expected EPS for its June quarter, the big focus was on the revenue miss for the quarter that was entirely due to the $2 billion revenue miss at its online stores business.
On its earnings call, the company shared: “While Prime members continued to spend more with us, growth in Prime member spend moderated compared to spending seen during the peak of the pandemic.”
Amazon went on to share that it expects, “this pattern of difficult year-over-year revenue comps to continue for the next few quarters.”
Revenue at Amazon Web Services rose 37% YoY to $14.81 billion, not only besting the $14.1 billion expectation but up from 32% YoY growth in Q1 2021 and 28% YoY in Q4 2020. For the current quarter, Amazon expects revenue of $106 to $112 billion vs. the $118.7 billion consensus estimate with operating income of $2.5 to $6.0 billion, which is also below the $8.2 billion consensus. We’d also note the company’s cap-ex as a percent of revenues has continued to climb in recent quarters, reaching levels not seen since the early 00’s when the company was still mostly a seller of books -- the paper kind.
RF semiconductor company Skyworks (SWKS) reported June quarter EPS that came in slightly better than expected on revenue for the quarter that rose 51.5% YoY, also modestly beating the consensus forecast. On the company’s earnings conference call, it shared that is “seeing a tipping point with 5G acting as the catalyst transforming entire industries from telemedicine and autonomous driving to factory automation and intelligent energy management.”
For the current quarter, Skyworks sees EPS of $2.53 vs. the $2.47 consensus. In addition, the company’s board boosted its quarterly dividend by 12% to $0.56 per share.
Cybersecurity company Fortinet (FTNT) reported better than expected June quarter results and boosted its outlook both for the current quarter and 2021. Billings for the June quarter rose 35% YoY with product revenue for the quarter and was up 41% YoY, while Service revenue was up 24% YoY. Exiting the quarter, deferred revenue was up 27% YoY to $2.91 billion. For the current quarter, the company sees EPS of $0.90 to 0.95 vs. the $0.94 consensus with revenue in the range of $800 to 815 million vs. the $777.5 million consensus.
June quarter results at Pinterest (PINS) easily beat the top and bottom-line consensus forecasts, however the shares were hit by disappointing user figures as the company reported that its global monthly active users (MAUs) grew by just 9% to 454 million vs. the expected 484.4 million. The company went on to say that "As of July 27, 2021, U.S. MAUs have declined approximately 7% and global MAUs have grown approximately 5% year-over-year."
Pinterest sees its revenue for the current quarter growing in the “low 40% range year-over-year.”
First Solar (FSLR) reported a 2% revenue beat along with EPS that was 38% higher than expected. The company also raised full-year revenue guidance but cut its EPS guidance by 2.3% at the midpoint due to freight costs and almost doubled forecasted cap-ex.
After today’s market close, there are no companies expected to report their quarterly results. It’s Friday afternoon after all. Those looking to get a jump on earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.
On the Horizon
- August 2: Markit Manufacturing PMI, ISM Manufacturing PMI, Construction Spending, Total Vehicle Sales
- August 3: Factory Orders, IBD/TIPP Economic Optimism, API Crude Oil Stocks
- August 4: ADP Employment Change, Markit Services PMI, ISM Non-Manufacturing PMI, EIA Crude Oil Stocks
- August 5: Trade Balance, weekly Jobless Claims
- August 6: Non-farm payrolls, Wholesales Inventories
- August 9: JOLTs Job Openings and Labor Turnover Survey
- August 10: Nonfarm Productivity Q2, Unit Labor Costs, API Crude Oil Stocks
- August 11: Consumer Price Index (CPI), EIA Energy Stocks, Monthly Budget Statement
- August 12: Producer Price Index (PPI), weekly Jobless Claims
- August 13: Import & Export Prices, University of Michigan Consumer Sentiment
Thought for the Day
“People who think they know everything are a great annoyance to those of us who do.” - Isaac Asimov
- Fortinet (FTNT) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
- Skyworks (SWKS) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
- First Solar (FLSR) is a constituent of the Tematica BITA Cleaner Living Index
- First Solar (FLSR) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
- Church & Dwight (CHD), Colgate Palmolive (CL) are constituents of the Tematica Research Dividend All-Stars Index
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.