Earnings vs. Geopolitics

00:00:00: Hi and welcome to Swisscodes, daily market talk.

00:00:03: It's Monday the thirteenth of July.

00:00:05: earning season begins this week against a much tougher macroeconomic backdrop that investors had anticipated just weeks ago as Middle East tensions flare up again pushing oil prices and global yields higher.

00:00:20: So this week attention turns to major US banks, ASML and TSMC earnings where strong results may not be enough if expectations remain too high.

00:00:30: And geopolitical headlines are too hectic.

00:00:33: so we will talk about that more.

00:00:35: but before.

00:00:50: So last week ended with SK Heinecks making history, with a record debut in US trading for foreign company.

00:00:57: The stock rallied thirteen percent on Friday as investors rushed to buy one of the hottest stocks off the moment in an exchange.

00:01:05: mainly because even after past years more than seventeen hundred percent rally, SK Heines remains cheaper then some U.S counterparts.

00:01:14: His P-Ratio today stands near eighteen only versus Markham that currently has a P ratio of around twenty-two.

00:01:23: Unfortunately though, SK Hynex is down by more than thirteen percent in South Korea today from a technical perspective it's now getting ready to test critical Fibonacci support which the major thirty eight point two percent Fibona retracement on April.

00:01:42: Really, that should distinguish between the continuation of the actual positive trend and a medium term bearish consolidation which would obviously call for deeper downside correction in the coming months.

00:01:54: Now reason why this stock along with other marriage maker stocks has gone parabolic is because the AI demand somehow brought along an idea among investors would stay in the boom cycle forever.

00:02:13: And SK Hynex, because we are talking about this company today is planning to double its capacity within the next five years to catch up with their rising demand for AI and AI infrastructure all data centers that are being built today.

00:02:27: The company's CEO said in a Bloomberg interview that they'd better multiply capacity by four or five to meet the increasing demand.

00:02:35: But he also says, He doesn't know just doesn't.

00:02:38: what will happen.

00:02:39: and coming years we could eventually see technology progress because you more efficient AI models That would demand less memory needs are simply slow down AI infrastructure investment.

00:02:50: that could suddenly flip the table And bring this market into the oversupply again?

00:02:57: because it takes time and investment obviously to build these fabs that built all of the ships.

00:03:03: And its very, very difficult to meet supply demand in this industry because of this delay.

00:03:09: Because demand is here today but the supply will arrive when new fabs will be up & running.

00:03:14: So on this time we'll tell how-and-when the two will meet.

00:03:18: what would happen if they met.

00:03:19: But What can you say about the volatility in the membership stock prices?

00:03:24: It's too high.

00:03:26: action sustainable.

00:03:27: The prices must come down if nothing due to the parabolic rise that we saw over the past

00:03:32: months.".

00:03:32: Now of course, the stock market volatility is a boon for banks trading desks and this is exactly what we will discover in a few days when U.S.

00:03:40: big banks start releasing their second quarter earnings!

00:03:44: They're expected to print strong results on back-of-the-high stock market volatility but also SpaceX IPO

00:03:51: e.g.,

00:03:51: higher for longer interest rates.

00:03:53: I guess quite sure thing.

00:03:55: health is worrying right now, even more as the tensions in the Middle East are re-escalating again.

00:04:01: Pushing oil and energy prices higher but trading!

00:04:04: And net interest income revenue expected to amply make up for weaker consumer.

00:04:10: Besides the banks, ASML and TSMC will also announce their earnings this week.

00:04:14: And we'll probably print strong, strong results given AI spending and demand for chips.

00:04:20: But The question is not whether they're earnings will be strong.

00:04:23: There will be.

00:04:23: Question is how the markets will react?

00:04:25: Because remember last week Samsung lost almost ten percent after printing a nineteen hundred-percent profit growth last quarter and has kept falling since then.

00:04:35: Therefore, the market's reaction to technology earnings will be more important than their figures themselves.

00:04:40: And because technologies stocks are a price-to-perfection there is some inconvenient truth that investors will be considering that actually come and blur the picture little bit among them The spending is high especially amongst big technology companies and this spending now eating into Big Technologies free cash flow.

00:04:58: Second, so called hyperscalars taking down on their shoulders to finance AI spend.

00:05:04: Third, investors are questioning the size of AI keypacks and return on investment.

00:05:09: Four at a time, borrowing costs also rising due to geopolitical tensions!

00:05:14: And no that because big technology is taking more debt today.

00:05:18: they have more leveraged balance sheets.

00:05:21: They're sensitive too to the borrowing cost That they've been back in two thousand twenty three when the Fed was tightening its policy.

00:05:28: But this being said the S&P five hundredth technology sector still expected to print an estimate year-over-year earnings growth rate of sixty three point three percent according to fact said has up from sixty two percent printed last week and significantly up from forty eight point six per cent since the end of March.

00:05:46: While S&P five hundred is expected to print a twenty three point six percent earning growth in the second quarter this year also up compared to last weeks twenty two percent estimate, say.

00:05:57: expectations are high.

00:05:59: they're quite high and high expectations are harder to beat, obviously.

00:06:02: Yet looking at the big technology on the second quarter was actually marked by a pullback in valuations.

00:06:09: is significant pullback in some places because if you look at Google, for example the sub price retreated more than sixteen percent since its May peak and it's down by around ten per cent today compared to his all-time high level.

00:06:22: that MVDL lost upto twenty percent during the same period.

00:06:26: And he also down by about ten percent today.

00:06:29: compare to this may all time higher level while Microsoft was one of the most better technology sucks and loss more then third office value since last October around thirty percent compared to its all-time high levels today.

00:06:42: This means that the big technology valuations have come down significantly, meaningfully to allow a rebound in these companies stock prices if earnings are strong enough.

00:06:52: There remains this sticky issue on the macroeconomic front obviously and that's rising bargain costs.

00:06:58: The weekend wasn't calm in the Middle East, U.S continues attacks on Iran while the latter attack Gulf countries retaliation.

00:07:05: The US says today that the strait of hormones is open to traffic whereas Iran said it isn't.

00:07:10: First renewed uncertainty is pushing oil prices higher again this Monday morning.

00:07:15: U. S. crit is up by more than four percent at the time I'm talking here.

00:07:20: The higher oil prices in return feel global inflation expectations pushing global yields higher.

00:07:26: In this context, the US two-year yield that best captures the Federal Reserve's expectation jumped to a highs level since February of twenty five while the Japanese ten year yield recovers.

00:07:38: last Friday slump after Katayama called member country's pension funds to invest in domestic assets.

00:07:44: the horror movie for global asset managers.

00:07:47: But anyway, The Hire yields a pressuring risk appetite this morning.

00:07:50: Cosby is down by more than seven percent while Nikkei retrieves.

00:07:59: futures are also in the negative pointing at a very start to the week.

00:08:04: Now we're heading into a week full of earnings, but some important macroeconomic data and events.

00:08:10: so besides bank and technology earnings investors this week will be glued to their screens to see an obviously interpret latest US CPI figures as they watch oil prices come under a positive pressure again since and while the Middle East resolution sails farther away.

00:08:31: Kevin Lawshaw on other hand will be delivering his first my annual testimony before the US Congress, but Stamman will unlikely to say anything different or more insightful than he did future when the future is so uncertain today due to factors that he does not control or can't control with its monetary policy.

00:09:02: As a result, we keep watching the Middle East – impact on global economy and macroeconomy data.

00:09:09: The US dollar will likely follow oil prices higher in the coming days, bond and stocks will like to move lower together while gold will likely test a four thousand dollars per ounce support again with however little conviction from investors that it's So, in my opinion the fence of stocks will likely amass inflows this week.

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00:10:11: So I will meet again tomorrow.

00:10:13: until then good day trading

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