Head of Equity Strategy
Summary: This week's earnings are all about Chinese technology earnings with the key earnings to watch being Alibaba on Thursday and JD.com on Friday. We also discuss the extraordinary rally in global steelmakers being close to overtake e-commerce stocks as the pandemic winner as government stimulus and low interest rates have caused a demand surge for steel. Finally, we discuss the Biden administration's remarks last week about waiving the intellectual property rights on Covid-19 vaccines.
Earnings releases are continuing this week at a blistering pace with focus shifting away from the US towards Europe and especially Chinese technology earnings as data shows that Ark Invest has increased their allocation to Chinese companies such as Alibaba and JD.com. Q1 earnings have been strong and global corporate earnings are well ahead of pre pandemic levels with the biggest recent surprise being global earnings growth outside broader US equities and US technology sector. The rally in commodities and higher interest rates are driving the current rotation out of growth and into value stocks which benefits Europe and emerging markets on a relative basis.
The list below shows the most important earnings to watch this week and the ones in bold are those that can move market sentiment or at least their industry group. The key earnings day will be on Thursday with many key earnings in the technology industry from both China and the US. Airbnb will be interesting because many travel related stocks have not been aggressively bid during Q1 as many of the companies in this industry have signaled slower rebound pace in travel activity than expected a few months ago. In terms of electric vehicles demand out of China Li Auto and Xpeng will be key to watch, and especially for those with exposure in Tesla as China is the US carmaker’s most important market. Today, Panasonic has already reported its FY21 earnings (ending 31 March), which we cover in today’s Saxo Market Call podcast, showing strong outlook for its barriers under the Automotive segment.
Steelmakers are almost a bigger winner than e-commerce
As we talk about in our podcast today, iron ore prices were limit up in China today and it seems the demand is not only speculative but that of real demand, but even more importantly, steelmakers are able to pass on the rising input costs to customers. This paves the way for even higher iron ore prices. Global steelmakers are up 248% since 23 March 2020 compared to 276% for our e-commerce basket suggesting that the big winners of the pandemic might soon be shifting from the digital to non-digital parts of the economy. Who would have thought? The chart below shows global steelmakers’ total return performance relative to that of the MSCI World.
S&P 1200 Global Steel Sub-Industry vs MSCI World Index (total return in USD)
Will public health crisis squash private property rights?
Last week was brutal for vaccine winning companies such as Curavac, Moderna, and BioNTech, as the Biden administration announced last Wednesday that it supports waiving intellectual property protections for Covid-19 vaccines. It would correctly speed up production, but it would also undermine a key leap in medical technology and economically punish the intellectual breakthrough of the biotechnology companies. With BioNTech alone expected to profit $5.75bn in 2021 the political system has these companies on their target as the vaccine rollout as been slow. Merkel’s government has rightly said that a waiver is not the right solution, and we guess the US government is playing a political game to get better terms from BioNTech and Moderna. Our thinking is that the model going forward could be something like forcing these companies to lower their prices, but then helping them get public subsidies for expanding production capacity. This model would protect the mRNA IP which these companies can use for other key drugs in the future, but also ensure lower prices for the developing world and faster production ramp-up.
The end of the road
Emboldened by surging crude oil prices, Saudi Arabia makes waves on the international stage, as Crown Prince Mohammed bin Salman manages to create a World Champions League, after buying the UEFA Champion League franchise.
As the world embraces GLP-1 obesity wonder drugs, the people next in line to get a prescription stop caring about dieting and exercising, figuring that the drug will later solve all of their weight-related health problems.
With the US budget deficit spiraling above 10% of the GDP, the government is desperate to foster demand for US Treasuries. Under intense pressure from the White House, Congress makes income from government bonds tax-free.
After a criminal group deploys the most deceptive AI deepfake ever seen, generative AI becomes a national security threat. With public distrust soaring, governments crack down with harsh new laws, puncturing the AI hype.
To fix the divergence in the global trade and financial system, the largest deficit countries unite to negotiate new world trade terms. For surplus countries, the reset of the global economic model is a painful adjustment.
As discontent with Biden and Trump rises to fever pitch, Robert F. Kennedy Jr sees his support rising inexorably in the polls. On November 5, Kennedy wins the US presidential election, ushering in a new era in US politics.
Stepping up Japan's economic transformation in 2024, PM Kishida brings in a host of populist policies to boost domestic demand. As the GDP growth rate hits 7%, the BoJ is forced to abandons its yield curve control policy.
As people wake up to how little tax Europe’s billionaires are actually paying, the EU Commission implements a wealth tax of 2%. The tax sends shockwaves through Europe's luxury industry, with luxury giant LVMH plunging 40%.
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