Profits boom, jobs swoon

00:00:00: Hi and welcome to SwissCodes Daily Market Talk.

00:00:04: It's Monday, August.

00:00:05: the latest data shows that corporate profits are booming on both sides of the Atlantic Ocean while economic data is sending some worrying signals.

00:00:16: But the latter isn't necessarily bad news for the markets as soft-economic data strengthens expectations that central banks around the world could refrain from raising their interest rates longer and giving further support to asset prices.

00:00:32: today that combination of strong profits, strong corporate earnings software economic data and easing global yields is keeping Marcus new record high levels this Monday morning.

00:00:44: And despite persistent oil and geopolitical risks as investors' attention shifting towards the US CPI update let's do this Wednesday so we will talk about all.

00:00:58: Please keep in mind that opinions are my own and this is not financial advice.

00:01:11: So last week's news and data were rather supportive of the market mood because first, the earnings season is going quite well.

00:01:18: I mean much better than already strong expectations.

00:01:22: in the US for example with eighty eight percent off the S&P five hundred companies having already reported their second quarter results The numbers are pointing at an earnings growth rate or fifty point four percent.

00:01:35: if that fifty point Four percent Is the actual growth rate?

00:01:39: It will mark The highest earnings growth rate reported by the index since the second quarter of two thousand twenty one.

00:01:46: at that time we had around ninety-one point six percent earnings growth.

00:01:50: The revenue growth is very strong as well, round fifteen per cent in the Second Quarter.

00:01:54: this year has also the highest earning growth rates since the fourth quarter of Two Thousand Twenty One and energy sector is obviously the biggest winner after a second quarter among other sectors thanks to the soaring energy prices due And that was followed by technology companies.

00:02:18: thirty six percent revenue growth chip makers at performing with a seventy seven per cent in their revenues.

00:02:27: In the second quarter, interestingly though he's walked faster.

00:02:30: results from the chipmakers around the world and South Korea as well remember has mostly failed to impress investors.

00:02:37: this earning season we saw pretty much the same better than expected earnings leading into a notable market sell-off of Korean and U.S.

00:02:45: Chipmakers.

00:02:49: AMD's almost seven percent lost posterior to their earnings announcements.

00:02:54: And this morning, the Korean Cosby index which has become the bellwether of the chip makers while opens a week with little enthusiasm.

00:03:01: The index is actually trading flat this morning.

00:03:04: that's well in contrast with five-to ten per cent intraday moves off past few months as June and July selloff.

00:03:12: we saw there clear speculative positions massively leaving many investors bruised obviously but volatility in the Korean Cosby Index is also coming.

00:03:21: lower.

00:03:22: That's probably a good sign, but we are not there just yet.

00:03:25: elsewhere investors were in better mood actually.

00:03:27: SpaceX for example announced lower than expected loss last week for the second quarter and Investors praised the stock with a twenty percent jump also easily absorbing The additional supply that hit the shore at the end of the first lookup period For space X. Palantir on other hands or nearly forty percent last week after beating earnings.

00:03:48: forecast And letter also improves sentiment broadly across the big technology companies that were earlier battling with uneasy questions regarding their quickly evaporating free cash flow levels.

00:04:02: Funnily on that matter, I left for my summer break about two weeks ago where investors so worried about alphabets' Free Cash Flow turning negative.

00:04:10: they haven't even reacted to the eighty-two percent cloud growth.

00:04:14: Amazon and Meta also printed a sharp decline in their own free cash flows following Alphabet's to massive AI spending, obviously.

00:04:22: Meta's free cash flow was barely positive in the second quarter while Amazon's free-cash turned negative on trailing twelve month basis now The fastest cloud growth and eighteen quarters health amazon stock price gained.

00:04:33: but overall questions were floating.

00:04:37: But as I return to my desk today, well the volatility remains high.

00:04:40: but investors are kind of warning up too.

00:04:43: The idea that extra AR investment will be increasingly relying on debt and if cloud revenues from these big technology companies could eventually justify their heavy spending all the investors would be there to give it another shot.

00:04:57: This is what last week's jumbo bond sale from Alphabet suggested That demand for alphabet bonds was strong four times over subscribed strong and that is obviously a sign that the earnings season hasn't been THAT bad for big technology companies after all.

00:05:14: Here in Europe, the second quarter earning season has also been surprisingly strong!

00:05:18: The stock's six hundred companies are now expected to deliver around twenty-two percent earnings growth as well as the strongest pace since two thousand twenty-twenty-two and about roughly fourteen and half per cent earnings growth expected by analysts at this start of their earnings season.

00:05:35: Well, energy is doing much of the heavy lifting for European stocks thanks to surge that we saw in oil and gas prices following the Middle East war.

00:05:44: The improvement has also broadened beyond the energy sector despite the energy crisis.

00:05:51: Earnings growth excluding energy is now expected around about twelve percent roughly double the five and a half percent before season kicked off.

00:05:59: So the stock six hundred indexes trading at record higher levels with further potential.

00:06:05: As Europe may be trailing the spectacular fifty percent earnings growth seen in the US, but the direction of travel has been clearly positive here as well and surprisingly positive with companies comfortably beating their relatively cautious expectations they entered the season with.

00:06:22: Of course some specific sectors like airlines are filling the pinch But overall we're having a very strong earning season on both sides of the Atlantic Ocean!

00:06:33: European indices are preparing to kick off the new week near record high levels.

00:06:38: And there is not much to dampen the investor mood today, except for a positive pressure in oil prices.

00:06:45: perhaps US crude may test at dollar per barrel level to the upside again on the Middle East mess as U S is saying that an agreement peace deal is close while Iran is not even willing.

00:07:03: crisis, no tariffs nor overshooting chip prices.

00:07:06: Nothing could derail companies from doing good business.

00:07:10: in contrast though the macroeconomic data is unfortunately telling a completely different story... different however not being necessarily negative for the markets or investors.

00:07:19: because look Friday's jobs report showed that U.S economy and despite that fifty percent earnings growth from S&P five hundred companies the month of july vs.

00:07:33: eighty five thousand job additions penciled in by analysts and wages in the us grew three point two percent over the year only.

00:07:41: that's also slower than three-and a half percent expected by analysts.

00:07:45: now, that's bad news for people but that's quite good news for asset prices hands for investors because people who actually lose their jobs and who see their wages grow slower will be tempted to spend less.

00:07:58: and let it retain inflationary pressures.

00:08:01: Keep the interest rates.

00:08:03: unchanged for longer.

00:08:05: That means that lower than otherwise interest rates makes borrowing cost cheaper and hence it's also sports valuations thanks to softer discount rate, especially true of the big technology companies where valuations rely heavily on future revenue prospects and increasingly on debt.

00:08:22: So this week investors' attention will be shifting to US CPI update.

00:08:27: both headline and core figures may have further ease in July.

00:08:30: according remain persistently higher than the Fed's two percent inflation target.

00:08:36: Now, as usual, their reasoning is the same – a stronger-than-expected inflation report from the US this week will increase expectations of high federal reserve interest rates in coming months and could send yields lower.

00:08:51: A softer than expected figure on the other hand would soothe the hawkish Fed expectations and keep market mood in actual sweet spot.

00:09:00: The activity on funds futures today assesses no more then a forty-five percent chance for September rate hike from Federal Reserve, that's down from sixty per cent before last week Soft Jobs report landed on the market and US two year yield is now easing its July peak levels by the building dovish federal reserve expectations today.

00:09:23: The Fed does also being bolstered, but increasing questions regarding the new Fed Chair Kevin Walsh's real intentions regarding the Federal Reserve monetary policy a discussion that I will keep for another time.

00:09:37: So coming back to softer US dollar and rising questions regarding Kevin Warsh's real monetary policy intentions, his real relationship with White House is helping gold recover these days.

00:09:49: The four thousand dollar psychological level there acted as a solid support earlier this summer suggesting that the market will eventually turn constructive if positive pressure on yields remains contained.

00:10:01: And finally in the FX space of software U S dollar house major pairs recovered their risk and weaknesses, the euro dollar is testing top of year to date descending channel these days while the dollar yen is regaining its post intervention losses.

00:10:16: And speaking that joint US-Japan action last week as in previous episodes of Direct FX Interventions well benefits will last only so long if policy rates don't get adjusted in Japan.

00:10:35: enough to stop the yen from bleeding back toward a one hundred and sixty level against the US dollar.

00:10:41: So this is all for this Monday, I'm Ipeko Skardishkeyaa And thank you for joining me today!

00:10:47: I hope that episode of Market Talk has been helpful... ...and it's been insightful.

00:10:52: so please do not hesitate to leave your comments, reactions or questions below.

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00:11:17: So I will meet again tomorrow and until then good day trading!

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