Samsung down despite strong beat

00:00:00: The week started on a positive note for technology stocks until the ugly market reaction to Samsung's blockbuster earnings turned sentiment.

00:00:08: Sour.

00:00:09: Again, Samsung was heavily sold today despite a nineteen-fold increase in its quarterly profit and strong earnings speeds.

00:00:18: Meanwhile the re-escalation of tensions on the straight-off homes led to a modest rebound oil prices this morning.

00:00:25: But the move was tempered by news that Saudi Arabia has now sharply cut their price for Asian buyers To help market absorb ample oil supply.

00:00:36: So welcome to Swisscodes.

00:00:37: Daily Market Talk is Tuesday, July the seventh.

00:00:41: I'm Ipe Goskar Deshkaya and we will talk about global macroeconomics and technology.

00:00:46: but before we do as always please keep in mind that opinions are my own.

00:01:01: So the week started on a cautious note in Europe, but only better mood in US technology heavy indices.

00:01:08: NASDAQ hundred for example advanced more than one percent all Monday with chip makers in U.S leading gains.

00:01:15: Broadcom jumped three point seventy per cent yesterday after announcing that it extends an agreement to provide new custom chips through Apple through two thousand and thirty-one while then XMI conductor ETF added another Samsung Electronics earnings announcement.

00:01:33: that was due today, but the latter didn't go well.

00:01:36: I mean it did go well looking at raw numbers really!

00:01:40: Samsung actually delivered very strong and more importantly stronger than expected results today is operating profit rose to nearly ninety trillion won.

00:01:50: That's the equivalent of fifty eight billion US dollars.

00:01:53: His quarterly profit search, nineteenfold and a profit margin for the membership business was around eighty percent also showing incredible pricing power that company has today thanks to their booming AI demand.

00:02:08: yet some song shares tank nine percent in South Korea after an announcement of the results pulling the Korean Cosby Index Eight percent lower with it.

00:02:17: Yes, the Korean Cosby Index is down almost as much.

00:02:20: a single company stuck in there.

00:02:23: just how much to.

00:02:24: Korean Cospy index has become overly dependent on two companies health Trading their stock again today to give the market room for breath and investors calm down a little bit.

00:02:35: Elsewhere, the chip-and-chip related stocks in Asia pulled back severely as well.

00:02:39: Keoxia Holdings in Japan which is direct competitor of Samsung's non flash memory business lost more than ten percent while Tokyo Electron is down by three and half per cent at that time.

00:02:52: I'm talking here this morning.

00:02:54: So the question is, how did this happen despite a decent earning speed from Samsung?

00:02:59: Well.

00:02:59: The answer it's quite simple Is that their real expectation for investors or so called WESPA number was even higher than what analysts had penciled in.

00:03:10: The whisper number is the unofficial earnings target that circulates among investors, traders and portfolio managers ahead of companies' results.

00:03:19: And here's a catch!

00:03:19: The whisper numbers always circulate but in some periods like during the dot-com bubble or seemingly these times, these unofficial expectations become almost more important than Wall Street forecasts.

00:03:34: Companies could beat analyst estimates and by far, still see their shares tumble simply because they failed to meet what the market at investors had quietly convinced themselves was achievable.

00:03:47: Unsurprisingly, so when valuations become the stretch investors stop asking whether earnings are good or a blockbuster.

00:03:53: they simply ask if they're good enough to justify their price already paid for these companies.

00:04:00: Everybody agrees I guess that a nineteen-fold profit growth is exceptional but the stock price of Samsung was multiplied by more than seven fold in the past year.

00:04:12: So here's the result.

00:04:13: In summary todays ugly reaction to exception.

00:04:17: So today... European and US futures are looking quite cautious, suggesting a pullback in today's trading session.

00:04:44: Lower technology appetite is coupled to day by slight rebound in oil prices.

00:04:48: on New Zealand two ships have been attacked under straight off hormones.

00:04:53: The latter could hint at the possible re-escalation of the Middle East tensions.

00:04:57: which energy prices, but for now the oil market is driven strongly by ample supply story.

00:05:08: The release from the strategic oil reserves and the tepid demand from China since start of the Iranian war led to oversupply in some key markets.

00:05:16: And now the Oil tankers full of oil that were waiting four months To leave the straight-off homes are sailing through looking for buyers.

00:05:25: There is apparently so much oil on sea right now that Saudi Arabia made a big cut to the price of its main crude for Asian buyers and started selling it's oil at a discounted asian benchmark.

00:05:39: And therefore, The very first time since two thousand twenty, the pandemic month where demand for oil remember had dried out so violently that oil prices were trading in negative territory Remember, so we are now in terms of Saudi Arabia and create price.

00:05:55: In a similar situation than that times.

00:05:57: as such oil markets are grappling with two opposite headlines this week.

00:06:01: on one hand We have the rising tensions in the straight-off homes And another hand The big prices count from Saudi Arabia to help market absorb is oil rapidly because there's too much oil on sea.

00:06:11: So I believe at letter the ample supply side off the story will outweigh the price action in the coming days unless Unless the traffic in the Strait of Hormiz comes at a jeopardy, and or US-Iran peace negotiations take a sour turn.

00:06:26: Until then, any price rebound that we might see in oil prices will likely meet sellers.

00:06:31: For U.S.

00:06:32: crude, We'll likely see strong resistance into this seventy dollar per barrel psychological level and above that level to the seventy five dollars per barrel mark which is a two hundred day moving average.

00:06:43: So overall today And In the absence of important economic data The markets Will be digesting the ugly market reaction To Samsung earnings The possibility Of re-escalation of tensions in Middle East And potential implications for the global risk appetite.

00:06:58: In the FX mark, as the US dollar is stronger this morning gold is softer has a sign that yellow metal is still moving in tandem with risk assets instead of negative correlation where it's hedging power therefore not settled just yet.

00:07:15: The euro dollar on other hand being offered above the one fourteen fifty mark while the dollar yen eases below the one hundred and sixty two level on fear debt.

00:07:25: Short positions against Japanese yen may have gone too far, handing out the possibility of a sharp correction in this market especially if it directly affects intervention from the Japanese authorities.

00:07:37: According to the latest CFTC data, leverage funds haven't been this short since.

00:07:46: Meanwhile, the Japanese ten-year yield console is above a two point eighty percent mark this morning.

00:07:52: Still significantly lower than U.S.

00:07:54: Ten Year Yield.

00:07:55: that stands near four and half percent level.

00:07:57: but gap is closing raising with that at one point The Japanese investors will be repatriating their funds back to Japan vacuuming part of roughly ten trillion US dollar worth Of Japanese funds presently hold in foreign assets including several trillion dollars invested overseas.

00:08:17: The amount invested is so huge that even a modest shift of these funds back home could tighten global liquidity, lift overseas bond yields and put pressure on risk assets worldwide.

00:08:27: the weakening Japanese yen, while on the other hand Sanaita Keiichi's government is pushing for ample government spending to lift growth.

00:08:52: In short BOJs stuck between Iraq and a hard place.

00:08:55: The only way to rebalance Japanese markets it obviously by raising normalizing interest rates in Japan And latter would not be painful but could have undesirable ramifications across global financial markets at a time.

00:09:11: Valuations, especially technology valuations look pretty straight.

00:09:15: then we have the ample liquidity from elsewhere that could eventually tamper potential negative impact but the risks are still there to be considered.

00:09:24: so this is all for today.

00:09:25: I'm Yipega Skardeshkaya and thank you for joining me And Thank You For All Your Beautiful And Supportive Comments!

00:09:32: i hope This Episode of Market Talk has been helpful So please do not hesitate to leave your comments, reactions and questions below as usual.

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00:10:03: I will meet again tomorrow and until then... Good day

00:10:22: trading.