Watch Microsoft tonight; Texas Instrument outlook is denting semiconductor sentiment

Equities 5 minutes to read

Peter Garnry

Head of Equity Strategy

Summary:  In today's equity update we talk about Texas Instrument's earnings release last night and how its outlook for Q4 has dented sentiment in global equities. We also look at French business surveys for October and talk about whether global equity markets are actually in some kind of a stealth bear market. Finally we touch on earnings expected today that can move the market.


Earnings releases are published at a racing speed these days and often it’s not easy to gauge which single release gets the market’s attention. Last night’s outlook from Texas Instrument (TXN:xnas) was a massive disappointment for those looking for early signs of a rebound in the semiconductor industry. Texas Instrument guides Q4 revenue in the range $3.07-$3.33bn against analysts estimate of $3.59bn saying economic activity is weakening and trade tensions are holding back investments from customer. The two biggest decliners among their customer segments are carmakers and communication equipment makers. Texas Instrument is saying they will cut production against this weak environment which is a sign that layoffs could also be on the table. European equities are down 0.4% with semiconductors leading the declines down 2%.

Source: Bloomberg

On the macro front French business surveys for October shows the worst confidence in the manufacturing sector since Q1 2015 after being more stable than many other countries in Europe this year. It shows that the downside dynamics in the economy are spreading not turning around. Eurozone consumer confidence numbers (advance) for October are out at 14:00 GMT and is expected to decline a bit from the September reading. As with the US consumer, the European consumer is still quite confident given the clear signs of recession in the manufacturing sector which is most likely due to robust employment as the economic slowdown has still not started widespread layoffs among companies.

Source: Bloomberg

As the frequent reader of our equity updates knows we view the equity market with skeptical eyes as the levels do not fit the overall picture of US-China trade war, 20-month straight economic slowdown, recession in Germany and Sweden, and likely imminent negative profit growth. Wall Street Journal had a great article yesterday questioning whether global equities could be in a stealth bear market. Many equity indices have still not recouped the highs from January 2018 so S&P 500 flirting with all-time highs gives the indication of a strong market, but weakness is evident everywhere. In our Market Call podcast this morning we also discussed the fact that US leveraged loans are not bid indicating risk-off in the far corners of risky assets.

Source: Wall Street Journal

Otherwise all eyes today are on Caterpillar (CAT:xnys) reporting Q3 earnings at 10:30 GMT where analysts are expecting the first negative revenue decline y/y since Q4 2016. Caterpillar is also always an interesting company to follow as its large exposure to Asia Pacific in the construction sector makes it a could indicator on economic activity.

Boeing (BA:xnys) is also reporting Q3 earnings before the US market open, but the time is unspecified, and this is a crucial release for the aircraft maker still embattled in a scandal around its 737 Max plane which a ruling in Indonesia overnight saying that it was Boeing’s faulty 737 Max design that was guilty in the Lion Air Flight 610 crash in October 2018. Any weak guidance will pose a significant downside risk for investors as valuation multiples are still rich given the issues around the 737 Max plane and the fact that revenue growth was -35% y/y in Q2 and expected to be -22% y/y in Q3. Yesterday, European aviation regulators also said that they will not necessarily follow an approval schedule from the US aviation regulator FAA which means that a global return to the skies for the 737 Max could extend well into 2020.

The most important earnings release today is from Microsoft (MSFT:xnas) reporting FY20 Q1 earnings tonight after the close with expectations looking for 11% revenue growth and 9% EPS growth which we believe should be achievable. Microsoft is the biggest component in the S&P 500 Index with a 4.2% weight. Shares are valued at the highest valuation multiple since 2004 so any miss against estimates would most likely be punished by investors and could dent overall sentiment in S&P 500.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Pty Ltd.
Level 25, 2 Park Street
NSW 2000
Sydney
Australia

Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Combined Financial Services Guide & Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.