Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
When growth stocks are no longer growth
Peter Garnry
Chief Investment Strategist
Summary: Amazon's e-commerce business is under massive pressure from rising input costs and overinvestment during the pandemic. Amazon's two segments North America and International posted operating losses that will only get worse in Q2 according to the guidance. This outlook could weigh on equity sentiment today. Apple and Caterpillar results were strong yesterday, but Apple hinted of $4-8bn revenue risk from Chinese lockdowns and Caterpillar said Chinese demand for construction equipment was weaker than in 2019. Finally, we highlight the main conclusions from the Q1 earnings season and the most important earnings next week.
Amazon is under massive pressure from input costs and overinvestment
As we wrote yesterday, Meta’s revenue growth will likely go negative in Q2, and Amazon’s growth was slowing to the lowest levels in 20 years as we wrote in February in relation to their Q4 earnings. In our equity note on Amazon in early February we highlighted that the company had overinvested and that turned out to be the ghost haunting the company in Q1 on top of all the rising input costs. Amazon delivered revenue of $116.4bn, in line with estimates, up 7.3% y/y and based on its guidance for revenue in Q2 revenue growth will slow to 4.8% y/y. The growth stocks of the world are seeing their growth grinding to halt while the value stocks (energy, mining, financials etc.) are beginning to see their revenue and profits growing faster with Exxon Mobil expecting 47% y/y revenue growth in Q2.
What really spooked investors was Amazon’s massive miss on operating profits in Q1 of $3.7bn vs est. $5.4bn and the guidance of $-1bn to $3bn vs est. $6.8bn. How can equity sell-side analysts be so wrong on the underlying business, it is embarrassing. The EBIT margin has already rolled over for Amazon and is now below the pre-pandemic levels. It is also quite amusing to see Amazon saying that demand is not softening when in fact their revenue growth is declining and below many other retailers; in fact it cannot keep up with inflation. The scary story about Amazon is that it generated operating income of $6.5bn in AWS while losing $1.6bn and $1.3bn in its North America and International business segments.
Apple and Caterpillar comments are not good signs on China
Apple earnings for the previous fiscal quarter were as expected with no hiccups, but the outlook for the current fiscal quarter was more uncertain with a potential revenue hit of $4-8bn from Chinese lockdowns impacting supply and potentially also demand in its Chinese market which generated around $18bn in revenue for the previous quarter.
Caterpillar, the world’s largest maker of construction equipment, delivered strong Q1 results beating on both the top and bottom line, but the company is still not providing any guidance which is a legacy from the pandemic, but also something it plans for change going forward. However, in its earnings call with analysts the company said Chinese construction activity weakened in Q1 and that China demand is slightly lower than in 2019.
A louder echo of Caterpillar’s concerns in China was seen in an article in the FT in which private equity firm PAG founder Weijian Shan said that China’s zero-covid policy has resulted in a deep economic crisis saying it is in its worst shape over the past 30 years saying sentiment on Chinese equities is very weak. In the interview he says that China in 2022 feels a bit like Europe and the US in 2008. The chart below showing market to total assets of large banks in the US and China has long been one of our favourite charts to point out the weakening credit cycle in China. Chinese banks continue to extend a lot of credit (increasing assets), but market values continue to grow at a slower pace indicating that investors are worried about credit quality.
Another major week ahead for Q1 earnings
Around a quarter of S&P 500 market value is reporting next week with around 300 companies in our reporting universe on the line. Earnings are down q/q in Q1 while revenue growth is flat based on the data we have now suggesting a real impact from inflation. It is unlikely that next week’s earnings will change that and the outlook for Q2 has so far been mixed to negative from many companies. The key risk for earnings in Q2 is China and to what extent China imposes further lockdowns impacting global supply chains even more.
The most important earnings releases are highlighted below:
- Monday: Nutrien, Moody’s, NXP Semiconductors, Global Payments, Devon Energy
- Tuesday: Thomson Reuters, BNP Paribas, Deutsche Post, BP, Universal Music Group, Pfizer, AMD, S&P Global, Airbnb, Estee Lauder, Starbucks, Marathon Petroleum
- Wednesday: ANZB, Barrick Gold, A.P. Moller – Maersk, Vestas Wind Systems, Pandora, Sampo, Airbus, EDF, Volkswagen, Siemens Healthineers, Enel, Equinor, CVS Health, Booking, Regeneron Pharmaceuticals, Uber, Marriott International, Moderna, Fortinet, Ferrari, eBay, Albemarle
- Thursday: National Bank of Australia, Anheuser-Busch InBev, Shopify, BCE, Coloplast, Credit Agricole, Societe Generale, BMW, Zalando, UniCredit, Shell, ArcelorMittal, ConocoPhillips, Zoetis, EOG Resources, Block, MercadoLibre, Illumina, Lucid Group
- Friday: Macquarie Group, Enbridge, Canadian Natural Resources, Adidas, Intesa Sanpaolo, ING Groep, Cigna
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)