Morning Wrap: Massive week for US earnings, Nasdaq tumbles on Snap earnings, ASX to fall

Snapchat pulls tech stocks lower amid soft advertising revenues, US and Eurozone economic data continues to deteriorate, Americans are struggling to pay their phone bills and the Fed is poised to hike interest rates by 75 bps on Thursday.

Let’s dive in.

MARKETS

The S&P 500 briefly rallied above the 4,000 level for the first time since June 10. Then something 'snapped' the market (sorry I had to).

This week is shaping up to be a volatile one amid earnings from big names like Alphabet, Microsoft, Meta Platforms and Mastercard.

• 8 out of 11 US sectors declined

• Utilities, Real Estate and Staples were the only green sectors

• Defensives were relative outperformers

• Communication Services fell an outsized -4.3%

• 63% of US stocks fell 

• 69% of US stocks trade below their 200-day moving average (68% last Friday, 74% a week ago) 

STOCKS

• American Express (+1.9%) smashed second quarter earnings amid a surge in travel-related spending. The credit card giant flagged that loss rates are beginning to rise and set aside US$410m in provisions for credit losses

• Verizon (-6.7%) shares tumbled after missing second quarter earnings expectations and downgrading its full year outlook. The telco said its quarterly cashflow was hurt by customers waiting longer to make their phone payments, increased marketing activity and higher inventory

• Snapchat (-39.3%) shares nosedived on disappointing second quarter results. Poor growth was attributed to a slowing economy, weak demand for its ad services, Apple’s privacy update and competition from companies like TikTok

  • The downbeat commentary about online advertising weighed on peers including Meta Platforms (-7.6%), Alphabet (-5.6%) and Pinterest (-13.5%) 

EARNINGS

US corporate earnings we’re watching next week:

• Monday: Philips, Infosys, Squarespace

• Tuesday: Ups, Coca-Cola, GE, McDonalds, Visa, Alphabet, Microsoft

• Wednesday: Shopify, Spotify, Meta Platforms, Ford, Qualcomm, Etsy

• Thursday: Pfizer, Mastercard, Amazon, Intel

• Friday: Exxon Mobil, Chevron, Procter & Gamble, AstraZeneca  

ECONOMY

• UK retail sales fell -0.1% in June compared to expectations of a -0.3% decline

  • “After taking account of rising prices, retail sales fell slightly in June and although they remain above their pre-pandemic level, the broader trend is one of decline,” said the Office for National Statistics analyst, Heather Bovill

• Eurozone business activity unexpectedly contracted in June

  • S&P Global manufacturing PMI was 49.6 compared to expectations of 51 pts

  • S&P Global services PMI was 50.6 compared to expectations of 52 pts

  • The 50 point level separates contraction from expansion

  • “Forward looking indicators hint at worse to come in the months ahead,” said Chris Williamson, Chief Business Economist at S&P Global

• US services PMI was 47.0 compared to expectations of 52.6 pts

  • This was the weakest level in 26 months

• US manufacturing PMI was 52.3, in-line with expectations of 52 pts

  • “Manufacturing has stalled and the service sector’s rebound from the pandemic has gone into reverse, as the tailwind of pent-up demand has been overcome by the rising cost of living, higher interest rates and growing gloom about the economic outlook,” said Williamson

COMMODITIES

• Iron ore futures rose 1.1% to US$104.5 a tonne

• Oil prices managed to hold up relatively well in the face of bearish headlines including weak European manufacturing activity, contracting US business activity and recovering production from Libya 

• Gold is starting to inch higher as recession fears poise a potential reset for global rate hiking expectations

Wall Street has handballed us a rather bearish session which could impact risk sectors such as tech and lithium. This week is filled with catalysts so brace yourself for volatility.

#1 Tech

Snapchat contagion took a massive toll on the US tech sector, with notable losers including:

• Affirm -10%

• Meta Platforms -7.6%

• Alphabet -5.6%

• Block -4%

• Zoom -3.9%

This could send some negative flows for local tech names.

From a technical perspective, the S&P/ASX 200 Info Tech Index is trying to break out of its channel and push above the 100-day moving average (yellow). It would not be surprising to see if face some resistance at these key levels, especially after a 20% rally since late June.

ASX 200 Info Tech Index chart (Source: TradingView, Annotations by Market Index)

#2 Uranium

The risk-off attitude weighed on the Uranium ETF, which tumbled -3.1%. Though, the selloff was hardly surprising as most ASX-listed uranium stocks fell between 3-10% on Friday.

Fundamentally, uranium spot prices remain stable at US$46/lb.

On a more encouraging note, the German Federal Government signalled its willingness to extend the life of its 3 remaining nuclear power plants - which were planned to be shut down by the end of 2022.

ASX corporate actions occurring today:

• Ex-dividend: PPS

• Dividends paid: TGA

• Listing: None

• Issued shares: BAS, CPM, CQE, DMG, E33, FAR, FOR, FZO, HFY, IMU, JIN, MAN, MAU, MCT, MZZ, NAB, NBI, NWF, OKR, PGD, SZL, UUV, VG1, VG8