Weekly Market Outlook

The highlights for this week are almost evenly distributed by days, but Friday wraps off with the most, three important events in the focus. Monday will start with China’s Q3 GDP and retail sales. On Tuesday, Netflix Q3 data will come into the centre of attention. Wednesday will bring Tesla’s Q3 earnings report. Thursday will put Microsoft Q1 figures in the focus. Friday is the richest in significant events. The day will start with the flash PMIs of Germany, France and the UK, followed by the UK retail sales. Eventually, we will close the week with Amazon’s earnings report.

China Q3 GDP (Monday)

Following the 10% economic slump in the first quarter, Q2 brought an 11.5% rebound. The annualised recovery raised the percentage from -6.8% to 3.2%. But going deeper into the data by components which have come out since April will make the picture questionable, as there is a large discrepancy between them and the headline figures. Both imports and exports have had hard times, and retail sales marked a positive development in August only. In the Chinese economy, services have expanded to take up almost 50% of economic activity. This does not seem plausible, even provided the recent figures have shown a large improvement compared to February/March lows, and industrial production has come back to pre-pandemic levels. Growth is likely to have continued in Q3, with a 3.3% rise in GDP forecasted by analysts.

China September Retail Sales (Monday)

As China started to recover after the lockdown at the end of February, positive figures were brought in the auto sector. But overall, Chinese retail sales had a rough period and only managed to get back to positive levels in August. So far, retail sales have been down by over 8%, and although March was the beginning of post-lockdown recovery, last month’s rise was a meagre 0.5%. Yet that was the first positive item of data for this year, and it gave rise to the hope that September would bring a rebound of 1.9%.

Netflix Q3 Results (Tuesday)

The year has posed a problem for Netflix, with the entry of a raft of new content providers on the market. For this reason, the company is facing the risk of not being able to expand its subscriber base much internationally. The launching of Apple TV+ and Disney+ made Netflix the most expensive streaming provider. This not only limited the potential of Netflix for making its prices higher, but also exposed the need for adding significantly to the service value, to justify the price and not only retain existing customers, but also attract new ones. Currently, the limitation of content provided by Apple TV+ and Disney+ makes Netflix subscription worthwhile for the premium price. 

Another strong advantage of Netflix is its pretty large non-English content, which makes it popular internationally. The pandemic lockdown came as yet another benefit for the business, which managed to keep its leadership, together with Amazon Prime. 

The first two quarters saw a comprehensive rise in subscribers, and hence brought record revenues. Compared to 2019, when it attracted 27.8m subscribers, Netflix added 25.8m more subscribers in the first two quarters of this year alone. Expectations for Q3 are not that optimistic, as there is the concern that with the easing of lockdown restrictions the number of subscribers would not grow so fast. The estimates of new subscribers are in the ballpark of 2.5m, and the revenue estimates are for $6.33bn.

Tesla Q3 Results (Wednesday)

Tesla’s Q2 data showed a profit of $104m, which marked the fourth successive quarter of profits, an absolute record in the company’s history so far. The pandemic disrupted the company’s vehicle manufacturing, with only 88,000 vehicles sold in Q1. In the second quarter, sales rose to 90,650 vehicles, and revenues spiked to $6.04bn.

Tesla CEO Elon Musk has stated that the company will succeed in hitting its delivery target of 500,000 for 2020, after missing it in 2019. The opening of the new Chinese factory in the beginning of the year will contribute to that. Last year, Tesla managed to offset the poor first half by performing much better in the last two quarters. This year, the pandemic has made the conditions much different, so the quarterly profit per share is anticipated to be $0.57.

Microsoft Q1 Results (Thursday)

Microsoft has marked a rise in revenues in the past three years, from below $100bn to $141bn annually. The business succeeded in expanding its user base, by making it subscription-based. The purchases of off-the-shelf products by consumers has guaranteed a steady cash flow too. With more remote working, the rise in demand for PCs has been another boost for the company’s income. With more people working from home, the interest in Microsoft Teams spiked as well.

Gaming brought the highest spike in revenues, 64%, whereas Azure cloud computing growth slowed down and marked just a 47% rise. With the new Xbox Series X due to be released next month, the gaming segment is set to outperform. The profit per share is anticipated at $1.54.

Germany, France and UK October Flash PMIs (Friday)

In Germany, the September services PMI showed a slowdown to 50.6, following the strong data for July. In France, the development was similar, with July’s 57.3 followed by a slowdown of 47.5. Unlike services, manufacturing in both Germany and France has been going strong, thus offsetting the slowdown to a certain extent. In the UK, perhaps with the later coming out of the countrywide lockdown, and also due to the government’s discount scheme for eating out applied in August, the economy has been more resilient.

Despite the prospect of a no-deal Brexit, the UK economy has continued its strong performance post lockdown, with decent September data. The country’s economy did very well in Q3, with 54.1 for manufacturing PMI and a slight slowdown to 56.1 for services PMI. The trend is unlikely to continue through Q4, owing to the poor communications policy on part of the UK government, with a host of different new rules for lockdown in the hospitality sector.

UK September Retail Sales (Friday)

Summer sales have contributed to the recovery in the UK economy in the past four months. For August, a rise of 0.8% was marked in retail sales. After the solid third quarter, there is some hesitation as to whether September data will extend the gains further. If recent PMI data are used as the basis, the answer could be yes. It remains to be seen though, whether the optimism will be justified.

Amazon Q3 Results (Friday)

The lockdown brought incentives for online shopping, so Amazon’s Q2 profit figures spiked. The spikes were still ahead of the mounting costs for safeguarding measures for the company’s staff, which amounted to the impressive $4bn. Amazon had to hire 175,000 more new employees, as it grew its grocery delivery capability by 160%. The sales for the third quarter are forecasted to reach between $87bn and $93bn. The Amazon Web Services division marked hefty gains too, reaching an operating income of $3.4bn, up 60% on an annual basis. Revenues, however, have started to grow at a slower pace, owing to the emergence of new players in the cloud-computing field.