World Week Ahead: Apple earnings up next

Monday 31st July 2017

Corporate results including from Apple as well as July’s US jobs data top the agenda this week as investors continue to assess whether earnings confirm valuations and what’s ahead for US interest rates.

While the reporting season started off strong, disappointments such as from Amazon and Starbucks, with the stocks closing 2.5 percent and 9.2 percent weaker respectively on Friday, weighed on sentiment.

Investors will scrutinise the latest earnings of Apple, the world’s most valuable company, due on Tuesday. To be sure, beating expectations does not guarantee a lift in share price when it comes to tech stocks.

“Look at some of the businesses, whether it’s Apple or Google, their revenue and profit growth is staggering,” Marshall Front, who manages US$800 million at Front Barnett Associates in Chicago as chairman, told Bloomberg. “But over-concentration (by investors in those stocks) can lead to too much volatility on the downside.”

Pfizer, Time Warner, Kraft Heinz, Tesla and Warren Buffett's Berkshire Hathaway are among other companies set to report in the coming days.

Last week, the Standard & Poor’s 500 Index slipped 0.02 percent lower and the Nasdaq Composite Index slid 0.2 percent. In contrast, the Dow Jones Industrial Average rose 1.2 percent.

“With Amazon’s earnings falling short of estimates, the US market may readjust its expectations,” Hideyuki Ishiguro, a senior strategist at Daiwa Securities in Tokyo, told Bloomberg. “Investors are becoming increasingly wary over the historically low volatility levels, with a host of key economic data coming out in the US.”

Indeed this week’s data include the ADP employment report on Wednesday, weekly jobless claims on Thursday and the government's nonfarm payrolls on Friday.

US employers probably added 180,000 jobs in July, while the unemployment rate is expected to fall to 4.3 percent, according to economists polled by the Financial Times.

Other data set for release this week include Chicago PMI, pending home sales index, and Dallas Fed manufacturing survey, due today; motor vehicle sales, personal income and outlays, PMI and ISM manufacturing indices, and construction spending, due Tuesday; PMI services index, factory orders, and ISM non-manufacturing index, due Thursday; as well as international trade, due Friday.

Last week Federal Reserve policy makers flagged that they will begin to unwind the central bank’s balance sheet “relatively soon.”

Speeches by the Fed’s Loretta Mester and John Williams, both scheduled for Thursday, might offer fresh clues.

When it comes to the recent stumble in tech stocks, there’s no cause for alarm.

"The latest sell-off in the shares of technology firms has made the headlines, as any big drop in the sector generates comparisons with the dot com collapse," according to Capital Economics' Oliver Jones in a note. "However, unlike back then, there’s little sign that technology companies are dramatically overvalued."

"We do not think that there is a bubble in the technology sector, or that recent falls herald the start of much larger falls in the prices of IT shares or equities more generally," Jones noted.

In Europe the Stoxx 600 declined 1 percent last Friday, which gave it a 0.5 percent slide for the week.

The Bank of England is expected to keep its key interest rate steady following its meeting on Thursday.

(BusinessDesk)

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