Market Overview

19 February 2020

Apple's Warning, Most Likely Has Only Had a Short-Term Bearish Impact on Global Markets

The global high technology Nasdaq 100 stock index completely evaporated the effect of Apple's mini-shock exposure. The futures on the Nasdaq 100 survived safely after a quick sell-off to the 9525 points level during the early Asian hours on Tuesday and posted a new all-time high of around 9650 in the afternoon. The S&P500 index, which includes more "real economy" companies, had a harder impact, but it has also recovered around ten points from the 35 points which were lost the day before. The Japanese Nikkei 225 was wounded by an extremely weak GDP report on Monday and dropped by 2.5% since the beginning of the week and then rose today by 0.89% to the 23400 level.

Apple Co issued a warning yesterday that the coronavirus outbreak may prevent the company from meeting its first-quarter and second-quarter revenue forecasts because of both production postponement and sales slides in China, which serves as a big manufacturing hub and is also the third-biggest market for iPhones. However, it was remarkable, that in the middle of the same day Goldman Sachs published its special note assessing the situation with the following words: "We assume that, as with every other company operating in China, the situation on the ground continues to evolve for Apple. We are reducing our forecasts for both the March and June quarters, but we see this as a temporary issue for Apple".

However, the example of Apple caught the market with worries about a possible revision of targets by other companies later on. At least the Chinese indexes are not feeling so complacent as they are performing rather mixed dynamics.

The Shanghai Shenzhen index (CSI300) was 0.75% higher in the early hours of today, but it finished the day with a -0.15% result after +2.25% gains the day before. The Hang Seng index (HK50) of Hong Kong is +0.46% today after its +1.04% result on Monday and -1.32% result on Tuesday. The mainland Shanghai Composite index (SSEC) performed -0.32% today after its near zero result yesterday, which is still two % higher than it was at last week's close. All these Chinese indexes have outperformed the levels they dwelled before the Lunar New Year ten-day vacation.

"Part of the thinking that is supporting markets is the actions that China takes to support its economy," said Michael McCarthy, chief market strategist at CMC Markets in Sydney. The People's Bank of China (PBoC) not only nourished stocks with enormous volumes of money but also cut the interest rate on its medium-term lending on Monday, which may pave the way for a reduction in the benchmark loan prime rate on Thursday, as the Chinese financial authorities try to ease market tension.

The further development in the stock markets of Asia, America and Europe may be contradictive; this road may be paved with some potholes and dips, bumps and jumps.

Some signs of caution may be seen on gold futures which, again, came very close to six-year January's highs near $1610/toz. If the futures succeed in breaking through the resistance in the next few days, then the chances for a longer correction on the stock markets may be slightly increased. But, if the stock rally accelerates to renew record highs then the safe-haven assets, like gold futures or US Treasuries, may no longer be in high demand.

An interesting gauge of expectations of a certain level of world production could be the behaviour of oil prices. The price of Brent oil yesterday fell from $57.5/bbl to $56.3/bbl following the stocks correction, but later the oil price soared to $58/bbl. If the oil market sustains these gains or if it performs at new heights for quite a while, that may be considered as a sign for the further global economic growth perspective.

One way or another, in a market environment tainted by the virus outbreak, possible favourites may be among the companies that focus on all kinds of remote internet orders or internet services. Their profits are very little related to personal human communications or outer customers' activities; clients of such companies do not need to face the potential risk of infection when they visit an off-line store or office to buy a company's products. This is most evidence in the cases of Netflix, Amazon or Google.

Netflix as was expected , scored a favourable background and broke through $345 per share resistance "threshold" and reached their initial technical targets at the $380-385 area. Some of the big funds raised their target price on Netflix stocks after a very inspiring company's earnings report for the 4Q2019. Netflix shares continued to rise to $388 on Tuesday's closing.

Amazon shares also accommodated to the new higher range of prices above $2000, which potentially could make any further forecasts about possible new growth of Amazon capitalisation more relevant. Google shares were knocked from their former highs to their technical support levels at $1426 on the first week of February and they soared to their new record highs above $1500.

Such kinds of market movements may well continue in the coming months for some other companies with their business closely connected to consumers only in the internet environment. Such shares may be more reluctant to periods of general market corrections.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Indiscriminate reliance on illustrative or informational materials may lead to losses.

Lysakov Sergey
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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