Head of Saxo Strats
Summary: In our latest assessment of the current corporate earnings season we take a look at three blue-chip bellwethers of the health of the Chinese economy.
JD.com
China’s second-largest e-commerce business is reporting Q3 earnings today before the US market opens. Analysts are expecting EPS of $0.85, down 44% y/y as the US-China trade war is impacting growth in China. Analysts have lowered their Q3 EPS estimate by 49% in the past six months. Revenue is expected to reach CNY 100.8bn, up 26% y/y.
The divergence in top and bottom line growth is an indication of the margin squeeze that many Chinese companies have reported lately. Alibaba’s Q3 earnings also showed weakness so we expect JD.com to show similar trends. JD.com is particularly vulnerable during the US-China trade war due to the larger share of high-end cyclical consumer goods being sold on its platform. The company’s Q3 conference call will be interesting for investors to gauge the softness in the Chinese economy.
Deere
The US maker of farm machinery and equipment reports FY18 Q4 earnings on Wednesday with analysts expecting EPS of $2.45, up 56% (driven by tax reform and share buybacks) but expecting EBITDA of $1.16bn, down 22% y/y due to rising input costs. Revenue is expected at $8.63bn, up 8% y/y. Farm machinery demand is impacted by interest rates and demand for agricultural crops so any indications from management is interesting to listen to in terms of guidance on financial conditions.
Thyssenkrupp
The large German industrial company reports Q3 earnings on Wednesday before the market opens. Analysts are expecting Q3 EPS of €0.59, up 213% y/y with analysts having increased the Q3 EPS estimate 48% in the past six months. Revenue is expected at €10.5bn, up 2%. The company gets around 7.5% of its revenue in China so thyssenkrupp is a good indicator on housing and industrial activity there. This is an important earnings release to gauge the health of the economy related to housing.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
