Norwegian rescue, earnings to watch, a cautious Buffett and US-China tension on the rise Norwegian rescue, earnings to watch, a cautious Buffett and US-China tension on the rise Norwegian rescue, earnings to watch, a cautious Buffett and US-China tension on the rise

Norwegian rescue, earnings to watch, a cautious Buffett and US-China tension on the rise

Equities 7 minutes to read
Peter Garnry

Chief Investment Strategist

Summary:  Norwegian bondholders and lessors have agreed to debt-to-equity swap rescuing the airliner from immediate bankruptcy and the swap will increase the equity ratio above 8% needed to get a bailout by the Norwegian government. Earnings to watch this week are PayPal, Shopify, Uber and Booking as technology sentiment is still key for equity market to hold the line after the ugly session on Friday. Especially Booking is interesting given its nexus in the global travel industry collapse. The weekend also offered the first virtual AGM at Berkshire with Buffett talking the state of markets and the economy, and rising US-China tensions as US secretary of state, Mike Pompeo, launched into an attack on China.


With global airline industry fighting for its lives the weaker and more indebted airliners have been pushed to the brink of bankruptcies with Norwegian as the most imminent case. But over the weekend bondholders and aircraft lessors have finally agreed to a deal that will be swap around NOK 10bn of debt into equity with potential more debt-to-equity swaps in the future. The deal will push the equity ratio (the amount of equity to total assets) above the 8% required by the Norwegian government to provide state funds through the Government State Aid Package. In addition to the debt-to-equity swaps Norwegian expects to raise NOK 400mn in a public offering of new shares. The entire deal will go to vote on an extraordinary general meeting this morning.

Source: Saxo Group

Last week was the most important one for earnings and ended on a negative note with the disappointment from Amazon and Apple. This week we believe technology sentiment again is the most important to watch and therefore investors should watch earnings from PayPal and Shopify on Wednesday and then Uber and Booking on Thursday. Booking is an interesting earnings release because the company sits in the middle of the travel industry’s collapse and is expected to see revenue decline 40% this year. But expectations from Wall Street analysts are also very optimistic as consensus expect FY21 revenue to reach FY19 levels with even better cash flow generation. In our view this is way too optimistic which means that Booking could get downgraded on Thursday when they update the market on the business situation.

Today the earnings from Itau Unibanco, which is one the largest banks in Brazil, is interesting due to the crisis over COVID-19 and the economic fallout but also because their projections for the economy has implications for Banco Santander that’s also running a large banking operation in Brazil.

While bondholders and lessors have agreed to save Norwegian and the airliner apparently confident in raising additional NOK 400mn in equity in a public offering some must be more positive on airliners than Warren Buffet. On Berkshire Hathaway’s Annual General Meeting this weekend Buffett talked about how the investment company had sold all its stakes in the four major US airliners. He could do it because it was a minority position and went on to say that if Berkshire had owned an airliner 100% it would have been a much more difficult decision; he said that he was unsure of how long Berkshire would have funded operating losses.

Buffett also said that the Fed did the right thing in March but ultimately closed the window for Berkshire to do any acquisitions thereby indicating that he believes the equity market is overvalued. This is also what we have been saying for weeks now and reiterated on this morning’s podcast with the chart showing the fair value in the S&P 500 and how the market is clearly valued above the fair value and even the Dec 2009 valuation which is the comparable level to our analysis on S&P 500 dividend futures for 2021. Buffett said that the event is so unprecedented that Berkshire is just trying to preserve cash and weather the crisis which stands in stark contrast to the buy-the-dip investors in April.

Source: Bloomberg and Saxo Group

Finally Buffett talked about negative interest rates and how this was the biggest unknown for the economy in the future. He also said that is was a clear negative for the insurance industry and that the insurance industry on top of potentially negative rates would experience massive litigations over COVID-19.

Besides monitoring Italian government bonds (BTPs), oil markets and VIX as our risk indicators we have to add USDCNH this morning as this weekend came with rising US-China tensions- The US secretary of state, Mike Pompeo, said on Sunday that there is “enormous evidence” that COVID-19 originated in a Chinese laboratory. The statement came parallel to leaked material from Five Eyes, the anglophone intelligence alliance, stating that China had concealed human-to-human transmission and silenced whistle-blowers.

Chinese media has already refuted the US claims, but the market is already pricing in further tensions with the Chinse currency weakening against USD. A big part of the global economy rest on the US-China economic integration in the global supply chain so further tensions would make the economic recovery more fragile. As the US elections are getting closer we should expect the US rhetoric to hardened against China which will add to the noise in markets. The real threat is if the two countries choose to disentangle from each other over the coming years as it will disrupt the current globally supply chain structure.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

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 may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

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

The information or the products and services referred to on this site 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 are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

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