Originally published by Rivkin
U.S. earnings season is in full focus in what looks like it will be the first quarter of positive earnings growth in five quarters.So far a total of 23% of S&P 500 companies have reported third quarter results with 79% of those beating analyst estimates of earnings and 66% beating revenue forecasts. Microsoft (NASDAQ:MSFT) reported earnings on Friday that also beat estimates thanks to demand for their cloud-based software and services. Earnings excluding onetime items was US$0.76 per share surpassing forecasts of US$0.68, the shares gained +4.21% during regular trading.
We also have witnessed some huge corporate activity over the weekend with AT&T (NYSE:T) offering to buy Time Warner Cable for US$86 billion as AT&T seeks to boost growth & retain customers by offering them digital content as they compete with online providers such as Netflix (NASDAQ:NFLX). The deal valued at US$107.50 per share was announced over the weekend so we have not seen the reaction in the share price yet however the stock was up +7.81% at US$89.48 during regular trading on Friday on speculation shown on the first chart below along with the AT&T share price which declined -3%.
Elsewhere London based British American Tobacco (LON:BATS) Plc offered US$47 billion for Reynolds American Inc (NYSE:RAI). which would create the world’s largest publicly traded tobacco company. BATs already owns 42% of Reynolds so the deal will be to acquire the remaining 58% at an offer of US$56.5 per share and Reynolds shares closed +14% higher on Friday just below the offer price of US$53.78 shown on the second chart below.
With the Federal Reserve looking to raise interest rates by the end of 2016 and signs the economy continues to improve perhaps companies are realising that this is as cheap as money is going to get. Hopefully this will become an inflection point that may lead to a rush of corporate activity as companies seek to lock in financing at historically low levels.
The S&P500 reversed initial declines to close relatively unchanged, down just -0.01% at 2,141.16 while the Nasdaq100 was +0.40% higher. The U.S. dollar index gained +0.32% and bond yields were relatively unchanged, the two-year yield gained +0.5% basis points to +0.827% while the ten-year declined -0.5 basis points to +1.740%.
In Europe equity markets swung between gains and losses before closing flat, the Euro Stoxx 600 was unchanged at 344.29 while the DAX was modestly higher, up +0.09%. There was very little in the way of economic data, in the U.K. bond yields rose after the U.K. government increased its net borrowing by more than anticipated. Month-on-month for September the government borrowed £10.6bn with forecasts for only £8.5 billion after raising £10.8 in August. The yield on two-year debt gained +3.4 basis points to +0.247% and ten-year debt gained +0.7 basis points to +1.087%. The GBP/USD declined -0.16% against the U.S. dollar as did both the FTSE100 & 250 indices, down -0.09% & -0.06% respectively.
Crude Oil prices managed to close modestly higher despite an increase in the number of active U.S. oil rigs. Data from Baker Hughes showed that in the week through to the 21st of October the number of active rigs increased by 14 to 553, although still down 234 from a year prior. Recent gains in oil prices have resulted in a steady increase week on week in the number of rigs as it becomes profitable for higher cost producers to come back online. This will continue to increase as prices move towards the US$55-60 per barrel and this should keep prices relatively capped following recent efforts by OPEC to stabilise prices.
Both WTI & Brent crude oil gained +0.83% & +0.78% respectively contributing to a +0.33% increase in the Thomson Reuters CRB commodity index which is weighted more towards oil. Elsewhere copper prices finished -0.33% weaker and natural gas declined -4.71% following a higher than forecast natural gas storage through till October 14th.
Locally the S&P/ASX 200 finished -0.22% weaker and we can expected a flat start to trading this morning with ASX SPI200 futures down -1 point.
Data releases:
- Japan Trade Balance (MoM Sep) 10:50am AEDT
- Japan Nikkei Manufacturing PMI (MoM Oct) 11:30am AEDT
- French Markit Manufacturing, Services & Composite PMI (MoM Oct) 6:00pm AEDT
- German Markit Manufacturing, Services & Composite PMI (MoM Oct) 6:30pm AEDT
- Euro-zone Markit Manufacturing, Services & Composite PMI (MoM Oct) 7:00pm AEDT
- Fed’s Dudley Speaks In New York 12:00am AEDT
- Fed’s Bullard Speaks on Economy in Arkansas 12:05am AEDT
- U.S. Markit Manufacturing PMI (MoM Oct) 12:45am AEDT
- Fed’s Evans Speaks n Chicago 4:30am AEDT
- Fed’s Powell Speaks in New York 5:00am AEDT
This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd.