Highlights

Several factors have been mentioned regarding last week’s pullback, including some profit taking following the big bounce over the prior two weeks.

  • Concerns re Apple iPhone demand was a major driver of the latest pull back in the tech sector.
  • Market seems sceptical that the Trump-Xi meeting later this month will produce anything more than a “ceasefire”.
  • Big oil selloff has exacerbated worries about softer/desynchronised global growth.
  • China growth concerns evidenced by weaker October money and credit data.
  • Hard Brexit and Italian budget concerns in Eurozone probably not a factor anywhere else.

Still some U.S. markets closed higher on Friday, partly boosted by positive comments on U.S.-China trade talks. Trade will remain a market issue however.

Winners for the week include Brazil, Hong Kong, and China.

Earnings

U.S. Reporting season just about complete. Pretty decent overall.

From FactSet: “For Q3 2018 (with 92% of the companies in the S&P 500 reporting actual results for the quarter), 78% of S&P 500 companies have reported a positive EPS surprise and 61% have reported a positive sales surprise. The blended earnings growth rate for the S&P 500 is 25.7%. If 25.7% is the actual growth rate for the quarter, it will mark the highest Y/Y earnings growth since Q3 2010.”

Tencent reports: Investors relieved

Tencent’s Q3 net profit rose 30% Y/Y and beat estimates with a reported 23.3B yuan (consensus: 19.32B yuan). Revenue was in-line with a 24% growth to 80.6B yuan ($11.59B). Revenue from value added services (VAS) increased 5% to 44.05 yuan with online games down 4% Y/Y mainly due to PC game approval delays, partly offset by smartphone game strength. Social networks increased 19% driven by digital content services. Online ad revenue increased 47% to 16.25B yuan with social and others up 61% and media advertising up 23%.

Last quarter, Tencent reported its first quarterly profit drop in over a decade and cut its gaming marketing budget. China’s crackdown on the gaming industry has led to age-related gameplay time caps, sudden license losses, and the pulling of a popular poker game. Despite the government crackdown, Tencent had 15 approvals and 10 titles released in the quarter.

We believe 2019 will be a better year for Tencent.


Global Markets

Global Market Returns - 19 November 2018

Source: Bloomberg


Rates and Commodities

10-Year Treasury yield: 3.06% (down 12bp for the week)

WTI crude oil: closed at US$56.46 (down 6.2%) for the week
U.S. oil prices ended flat Friday but sharply lower for the week after an earlier selling frenzy amid worries of a global surplus of crude oil and weaker demand. Analysts are expecting OPEC will agree to cut output at their meeting in December in order to stabilise the market and prevent a supply surplus.

AUD: $73.13 (up 1.95% for the week)


Notable U.S. economic stats this week

U.S Inflation

October headline CPI up 0.3% m/m, in line with consensus but higher than September’s 0.1% rise. CPI now up 2.5% Y/Y.

Gasoline prices responsible for over a third of October’s overall increase. Used-car prices rebounded sharply after sliding in the prior month. Some possible tariff impacts on higher furniture prices. Analysts noted these areas unlikely to see a repeat in the remainder of the year.

CPI ex food and energy up 0.2% m/m, in line with consensus. Inflation data unlikely to alarm the Fed.


The Week Ahead

Short week in the U.S due to Thanksgiving holiday (Thursday 22 November, then “Black Friday” make or break for U.S. retailers (Black Friday is an informal name for the day following Thanksgiving. Traditionally it’s the beginning of the country’s Christmas shopping season).

Hard to believe it will be disappointing. See chart below.

Real Personal Income Retail and Food Sales Chart

Source: St. Louis Fed

U.S. Economic Calendar

US durable goods are worth watching this week.

Week Shares Forecast November 19 - 23Source: www.briefing.com


Chart of The Day

Goldman Sachs’ global economic estimates (note consensus) show no recession in sight although slower growth flagged into 2020.

Goldman Sachs’ global economic estimates

And also from Bloomberg – 2019 probably more important since we are almost there.

Economies to watch 2019 by Bloomberg Chart

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