Markets in absolute mayhem! Meta (+20.4%) soared on its earnings & the Fed PUSHES back on rate cuts!

A very busy one today! In-fact in terms of purely volume of earnings from the US, coupled with the Fed, Bank of England and US NFP - this has got to be the busiest week of the year (so far)!

STOCK SPECIFICS:
Meta, Apple, Hapag Lloyd, H&M

Meta (WTD +20.4%) - Strong earnings across the board for Meta. (1). Beat on EPS + Revenue. (2) Announced 50 billion increase to its share buyback program. (3) Declared quarterly dividend of 50c/shr. (4) Guidance: Raises Q1 Revenue well above Street expectations. The report can be described as an absolute blockbuster - and one of the strongest I have seen in a while! And with 97% of its Revenue coming through advertising, it only solidifies the importance of digital advertising and data. (5) Revenue from its Meta Quest (VR Headset) hit record highs; though also reported higher than expected losses. Ultimately, not too much to be concerned about - Meta will continue to pour money into the R&D - but something to take note in the midst of Apple’s Vision Pro launch.

Apple (WTD -3.2%) - Strong headline earnings, but traders focused on the breakdowns. (1) Beat on EPS + Revenue. (2) Markets focused on the regional / product breakdown. (3) China Revenue missed on Street expectations (and quite significantly at that). (4) Whilst iPhone revenue continued to beat, Mac, iPad and Wearables were all softer. (5) Guidance: Expects March quarter revenues to be similar to prior year. My thoughts? I thought the headlines were strong enough to lead the stock higher, but evidently the focus remained on China. That, coupled with blockbuster earnings from both Meta and Amazon left investors with one option; divert holdings from Apple to the better performers. Materially, Apple continues to be a strong performer - and my expectations is that should Chinese activity data continue to improve, we should also see a similar trend with Apple shares.

Retail / H&M (WTD -13.9%) / Adidas (WTD -0.8%) - Retail shopping is slowing down! (1) H&M significantly missed on its Net Income, and slightly beat on its Revenue metrics. (2) Results that led to a severe drop in its share price, and also weighed on peers such as JD Sports and Inditex. (3) Adidas ended the session only incrementally lower - after dropping 9% on its results (where it missed across the board). (4) The CEO noted that consumer sentiment is “not great“, further adding to themes pointed out by Puma, JD Sports and Nike! My thoughts? With the interest environment looking to ease in the coming months, I expect a resurgence in the Retail space; but ahead of that, it is likely the sector will continue to experience some weakness.

Geopolitics / Hapag Lloyd (WTD -10.7%) - Traders were wrong! (1) Co. missed on EPS, beat on Revenue. (2) More importantly, it noted that the Red Sea conflict negatively impacted transport volumes. (3) Average FY freight rates fell - where the majority of traders priced in higher premiums. You might remember me mentioning this in a prior newsletter. (4) Subsequently, the CEO mentioned that freight rates are rising in Q1’24 against Q4’23; as such, the Co. expects better profit prospects this quarter. (5) Co. notes that it does not believe the Red Sea crisis will be over soon and will “take months“. My thoughts? Traders simply bet to early on how quickly freight rates will increase, but with the CEO noting that it will this quarter, traders will likely position themselves ahead of the next quarters earnings. Keep an eye out on Maersk earnings this week for further commentary!

KEY EVENTS:
Fed, BoE
Fed - Rates unchanged and pushed back on a March rate cut. (1) Removed language to additional rate hikes. (2) Cuts will be implemented once there is confidence that inflation is moving “sustainably“ back to 2%. (3) Almost everyone in on the committee believes it will be appropriate to reduce rates. (4) Does not think March rate cut is likely and not the base case. Stresses data dependency. My thoughts? The perfect presser for Fed’s Powell, it was mixed. If it had to be given a stance, the initial announcement was dovish (removal of hawkish language); and Powell’s push back on March was undoubtedly hawkish. Markets agreed and sold off on those comments. Personally, I felt market pricing was well ahead of itself (see last newsletter) and this only further solidifies that - and the Fed wanted to make the market aware of its actions ahead of March.

BoE - Rates unchanged but a surprising vote split. (1) Removed commentary that had a “tightening“ bias. (2) Three way split! Dhingra voted for cut; Mann and Haskel voted for a hike. Expectations were for a 8-1 split (with only one for a hike). Given the surprise hawkish dissent, markets reacted hawkishly to the the decision.

KEY DATA:
US NFP
US NFP - Very, very hot - but is it really a cause for concern? (1) The headline figure printed at 353k, expectations were for a drop to 180k from 216k. (2) Unemployment Rate fell to 3.7% from 3.8%. (3) Average earnings rose on both MM and YY basis. ING noted that nearly all of the jobs that were added were part-time, whilst avg. workweek fell to 34.1hrs; the bank noted that is indicative of a recessionary territory. Overall, the hot data lends a helping hand to Chair Powell on his call to delay a March cut! But why has stocks continued to trundle higher? Well for starters, inflation has continued to move in the right direction, the economy has showed signs of a recession and jobs continue to remain high. In pure Economics terms, this is exactly what the Fed would want to see! US annual inflation revisions on Friday will be the next data point closely watched to dictate market direction.

LOOK OUT FOR / WHAT YOU SAID:

What to look out for this week? US Inflation CPI Revision, Eurozone Retail Sales, Chinese CPI. Earnings: BP, Eli Lily, Uber, PayPal, Kering, Siemens, Maersk, Disney, Pepsi, and more!

What you said? Thanks again for your comments! Ilyas commented on the release of the Apple Vision Pro. He said, “The small capacity for production will no doubt assist Apple in entirely selling out their range for the next couple of years. However, I feel that the lack of available third-party apps may limit growth, until companies can begin to develop adaptability.“