Another solid week for global equity markets. A weak Australian dollar supercharged weekly returns in most currencies. Stocks rallied following a set of strong earnings reports and data showing the U.S. domestic economy continuing to grow at a healthy clip, including the strongest pace for consumer spending since late 2017. The Fed is expected to lower rates this week even as the economy and markets are doing well, although a second rate cut seems increasingly unlikely. Meanwhile, solid results from Google and Twitter sparked communication services (+3.3%) to the top of the S&P sector leaderboard.
The S&P 500 reaches an all-time high
Weekly returns to 26 July 2019
(AUD 5-day return far right- hand column)
- 10-Year Treasury yield: +2bp to 2.07%
- Gold: -0.5% to $1,418.6/oz
- WTI crude oil: +1.0% to $56.19/bbl
- AUD/USD: -1.8% to 69.09
The week ahead
It’s the busiest week of earnings season, with 156 S&P 500 components reporting their second-quarter results. Apple, Mastercard and a number of drug makers—including Pfizer, Merck and Eli Lilly — report on Wednesday. General Electric, Qualcomm and Kraft Heinz are on our Thursday, followed by Verizon Communications and General Motors on Friday. Oil majors Exxon Mobil and Chevron close out the week on our Saturday.
Earnings snapshot by sector: Beats and misses:
U.S/China trade talks
A U.S. trade delegation that includes U.S. Treasury Secretary Steven Mnuchin and trade representative Robert Lighthizer is flying to Shanghai to restart talks with their Chinese counterparts, although National Economic Council Director Larry Kudlow cautioned not to expect a grand deal just yet.
Upcoming economic data (U.S.)
It is the largest economic calendar of the year, including the most important reports. Personal income and spending, PCE prices, consumer confidence and the ISM manufacturing index will all give key readings on the economy. And of course, the most significant of all is the monthly employment report (Non-farm payrolls).
FOMC rate decision is also key. The week’s main event will be the Federal Open Market Committee’s July meeting. The market fully expects policymakers to lower interest rates. The committee’s statement will be released at 2 pm on Wednesday, followed by a press conference with Federal Reserve Chairman Jerome Powell at 2:30 pm.
Stocks in focus
Twitter (NYSE: TWTR)
Twitter Inc. posted solid user and revenue growth in its latest quarter.
Profit in the second quarter ballooned to $1.12 billion, its largest ever, in connection with a more than $1 billion one-time benefit from a deferred tax asset, though excluding special items it fell 36% from a year ago to $37 million, or 5 cents a share.
Twitter’s revenue rose 18% to $841 million, helped by stronger advertising sales in the U.S., its largest market. The result exceeded analysts’ projections of $829 million. Twitter has also been benefiting from a healthy advertising market, much like its social media peers such as Snap, Facebook and Alphabet’s Google.
Q2 average monetisable Daily Active Users (DAUs) were 139M versus the 135.4M consensus estimate with 110M International DAUs (consensus estimate: 107.4M) and 29M U.S. DAUs (consensus estimate: 27.97M).
Total ad engagements were up 20% Y/Y. Cost per ad engagement was flat with like-for-like price decreases across most formats. For the third quarter, Twitter expects to log revenue between $815 million and $875 million, compared with analyst expectations of $872 million.
TWTR shares gained nearly 9% Friday to $41.52. Twitter’s shares have gained more than 44% this year in USD. compared with a 21% gain in the S&P 500.
Twitter is held in Macrovue’s Social Media thematic share portfolio.
McDonalds (NYSE: MCD)
McDonald’s experienced sales gains world-wide in the second quarter as it drove bigger orders and continued to nudge up prices, while also making improvements to its stores and digital-ordering capabilities.
Revenue overall was unchanged Y/Y due to the strong dollar, but the chain generated same-store sales growth of 6.5%. The reading, which excludes foreign-exchange effects, was the strongest in two years.
U.S. comparable-store sales were also strong, rising 5.7% and beating expectations for just 5% growth. About a third of the U.S. gain came from higher prices, with the balance driven by increased delivery and new self-ordering kiosks in restaurants. Higher Happy Meal sales following a new branding deal with Walt Disney Co. also boosted sales.
The company reported adjusted earnings per share of $2.05 for the quarter, up 3% from a year earlier with the strong dollar restraining growth. The result was in-line with analysts’ estimates, as was quarterly revenue of $5.34 billion.
McDonald’s expects to open around 1,200 restaurants this year. Meanwhile, it has pushed franchisees to upgrade their stores with new dining rooms and digital kiosks.
The company said it still expects its commodity costs to increase by 2% to 3% in the U.S. this year, but nudged up its growth projection for its five biggest international markets to 2.5%.
Overall a solid result.
McDonalds is held in Macrovue’s High Quality thematic share portfolio.
Chart of the week
1. U.S. stocks versus the world (Returns USD)