Amazon earnings miss; NASDAQ 100 losing steam; IFO expectations showing turning point?

Equities 5 minutes to read

Peter Garnry

Head of Equity Strategy, Saxo Bank Group

Summary:  In today's equity update we obviously talk about Amazon's Q3 earnings result last night that missed on EPS and AWS revenue growth while the real kicker was the Q4 revenue range guidance not even hitting consensus estimate. The shares were down 7% in extended trading and will have an impact on the NASDAQ 100 Index in today's session. This means more pressure on Alphabet, Apple and Facebook to deliver strong earnings next week if equity markets in the US are to print new highs. We also talk about today's IFO survey beating expectations and raising the hope for a turning point in the European economy although many macro indicators are still mixed.


The biggest event in equities happened last night after the US market close when Amazon reported Q3 earnings which missed on bottom line but delivered a small beat on revenue. But even worse, Amazon put forth Q4 revenue guidance with the high range below consensus estimate which turned out to be the kicker sending the shares down 7% in extended trading closing at 1,660 (red line on chart). Adding salt to the wound AWS Q3 revenue missed estimates as well indicating faster growth decline than anticipated by analysts. This could lead to a change in valuation for Amazon. One of the things mentioned in the Q3 report was rising logistics costs as the company is pushing out one-day shipping for Prime customers. There are two things likely at play here. Walmart is intensifying the competition for Amazon’s e-commerce business and Microsoft is becoming a formidable competitor in the cloud business. It was the second straight quarter of EPS missing estimates which is the first time since 2014.

Source: Saxo Bank

Amazon is the third largest component in the NASDAQ 100 Index with a 9% weight so the index will most likely be weighed down by Amazon in today’s session. Even before Amazon’s earnings the index looked like it was losing steam. For NASDAQ 100 to print a new all-time high it requires strong earnings releases from Apple, Facebook and Alphabet, all reporting earnings next week, that combined represent a weight of 25% of the index.

Source: Saxo Bank

Yesterday’s France PMI figures for October indicated that economic activity is stabilizing in Europe and potentially Europe is getting closer to a turning point. The German IFO survey today shows better than expected expectations in October at 91.5 vs est. 91.0 and up from 90.9 in September. Maybe the green shoots are real. However, our view is that macro indicators are still too mixed to be calling for a turning point, so our expectation is still for the global economy to slow down further over the coming months. The potential catalyst for European equities is more momentum in European new car registrations, which just recently turned positive y/y again, and better numbers out of Asia. If the global leading indicators from OECD turn higher then the global economy is entering the recovery phase and as our table below shows, then European and Emerging Market equities are the most likely winners. Especially Swedish equities look interesting given their pro-cyclical nature and the Riskbank’s decision yesterday to take rates to zero which could add further tailwind to SEK in top of gains from a change in the business cycle. For foreign investors, Swedish equities could become one of the best equity markets next year.

Next week is the busiest in the entire earnings season with around 730 companies reporting earnings in the universe we track. The table below shows the 30 largest companies on market value reporting earnings. The key earnings to watch are Alphabet, Amgen, Merck, Pfizer, GlaxoSmithKline, Apple, Facebook, Sanofi, Bristol-Myers, Novo Nordisk and AbbVie. These are the bellwethers of the technology and health care sectors, the two largest sectors in global equity markets, and thus are very important for equity market direction and the potential for new highs.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.