Tuesday preview: BoJ and Apple could be stock market gamechangers
Tuesday's results from Apple, the biggest company in the world by market cap, could determine the near-term path for global stock markets, while closer to home there are also updates due from UK titans BP, Glencore, Shire and Standard Chartered.
Also on Tuesday, the Bank of Japan's rate meeting follows some speculation that a tweak may be coming for its bond buying program as the economy starts to show signs of higher prices.
On Sunday night, with the yield on 10-year Japanese government bonds hitting 0.110%, up 0.010 from Friday's close and the highest level in a year and a half, the BoJ stepped in for the third time this month to keep the yield under 0.10%, offering to purchase an unlimited amount of them at that level.
Speculation by traders that a shift in policy may be coming has led to recent upwards pressure on bond yields around the world, which in turn had been weighing on share prices. This would make this the first 'live' BoJ meeting since Governor Haruhiko Kuroda adopted his quantitative and qualitative monetary easing strategy in September 2016.
The potential "gamechanger of the week", was how IG market analyst Joshua Mahony described it, though he added that "any monetary tightening would mark an incredible change of tack from a central bank presiding over an economy with a headline inflation of 0.8% and negative growth".
Speculation has built after the Nikkei reported that the central bank is mulling a change to the way it buys domestic equities. Analysts at Sumitomo said the BoJ could reduce its investments in ETFs tracking the Nikkei 225 as these purchases are felt to be having too much of an impact on the constituent companies, and instead buy more funds tracking the broader Topix index.
The Nikkei also suggested that the growing side effects of Governor Kuroda's policies, including declining corporate profitability and distorted market pricing, could lead to some decisive changes, including a possible end to monetary easing - though this was felt to be "unlikely" especially as the BoJ is still far from achieving its goal of 2% inflation.
As well as the Topix shift, analysts at Citi predicted another likely alternative was to introduce more flexibility in controlling the yield curve.
CORPORATE EARNINGS
On Tuesday, almost 13% the FTSE100 by market cap weight is reporting results, with the FTSE 350 listed of scheduled results and updates also including Games Workshop, Centrica, Elementis, Fresnillo, Gocompare.com, Greggs, IMI, Just Eat, Provident Financial, Rentokil, Taylor Wimpey, Thomas Cook, Travis Perkins and Weir.
At 1000 BST there will also be an update from the City watchdog on Royal Bank of Scotland's former GRG unit.
Topping all that on the scale of global interest will be Apple's third-quarter numbers, which are due after the Wall Street closing bell. This earnings update comes amid a fair bit of turmoil for the FAANG stocks, with Facebook and Twitter tumbling more than 20% and Netflix also dragged lower.
"If Apple does not deliver a decent set of earnings when it releases its 3Q earnings on Tuesday, then we could see stock markets start to unravel and volatility start to rise," warned Kathleen Brooks, research director at Capital Index.
The reason for this, she said, is investors violent reaction to disappointing tech earnings this season and the fact that the US stock market has become "extremely reliant", with the sector the key driver of the S&P 500 for most of this year. "If Apple also disappoints expectations then we may see investors lose even more confidence in the sector, and a broader decline occur, at least in the short term."
In May, Apple gave guidance for third-quarter revenue of $51.5-53.5bn, gross margin of 38-38.5% and operating expenses of $7.7-7.8bn. The Street consensus forecast is for revenues to come in at $52bn, up 15% year-on-year, with EPS rising to roughly $2.155.
This quarter is usually the least important for iPhone sales, pointed out market analyst Neil Wilson at Markets.com, though phones still account for the lion’s share of Apple revenues - 62% of sales in Q2, for example. Expectations are for sales to be up a shade at 42m units from 41.03m a year ago, but even a miss is unlikely to matter too much to investors.
"The numbers though are not expected to produce the kind of downbeat surprise we saw from Facebook and Netflix," said . "Instead we expect a steady-as-she-goes performance and some positive guidance for Q4 and beyond."
Most of all, investors focus should be on the guidance for Q4 and FY19, particularly on margins, Wilson added. "We should expect more upbeat commentary on margins as average selling prices firm and Services growth continues apace. And on iPhone sales remember that the guidance will indicate what Apple expects from the next iPhone update. We will await any commentary on the earnings call with regards trade wars but it is unlikely to be materially impactful for shares."
UK's fast-growing tech story in the last couple of years has been Just Eat, which has built an online marketplace to bring together hungry and immobile customers with local takeaway food providers. The company's directors held a capital markets day in June, half a year months after gaining promotion to the FTSE 100 index, that sent the shares skidding lower after news that a new stage of the growth strategy called for additional investments in the short-term to create value in the medium term.
"Just Eat's recent share price volatility is a reflection of a change in the narrative for the equity story," said analysts at UBS, believing the market is likely to focus around LFL order growth in the UK market, as the market matures amid lingering concerns regarding competition from UberEATS and Deliveroo. The consensus revenue forecast for the full year is £720m. "It is likely that robust order growth would dispel residual concerns of a material slowdown in marketplace growth," analysts said.
A more old-money resident of London's blue chip index, BP impressed investors at its last trading with a 71% rise in first-quarter profits, its best performance since 2014, on the back of a 6% rise in output. However, last week, rival Shell fell short of expectations, hinting at the potential for a downside surprise.
"With a breakeven price below $50 a barrel and oil prices hitting $80 a barrel earlier this year, it would be very surprising if BP weren’t to show a significant improvement in Q2 as it reports on the first half of its financial year," said Michael Hewson at CMC Markets.
Average prices in the second quarter have been over $10 above where they were in first, and while the Gulf of Mexico spill is still likely to act as a drag this year and next, he said BP is "running out of excuses" to start reducing its debt which is now close to $40bn, particularly since it has a host of new projects coming on line which should add to the company’s overall output, while last week the company paid $10.5bn for BHP’s US shale assets.
Travis Perkins, the builder's merchant that owns the Wickes and Toolstation chains, has in recent months been forced to take a sledgehammer to costs, including a third of its head-office jobs, following a poor results in February blamed on weak consumer confidence and a decline in people doing up their homes. Analysts at Barclays forcast like-for-like sales growth of 3.8% in the second quarter, after 3% in the first.
Tuesday July 31
INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Retail Sales (GER) (07:00)
Unemployment Rate (GER) (09:00)
Consumer Price Index (EU) (10:00)
Unemployment Rate (EU) (10:00)
GDP (Preliminary) (EU) (10:00)
Chicago PMI (US) (14:45)
Personal Consumption Expenditures (US) (13:30)
Personal Income (US) (13:30)
Personal Spending (US) (13:30)
UK ECONOMIC ANNOUNCEMENTS
GFK Consumer Confidence (00:01)
FINALS
Games Workshop Group, NWF Group
INTERIMS
4Imprint Group, BP, Centrica, Elementis, Gocompare.com Group, Greggs, IMI, Just Eat , LSL Property Services, Novolipetsk Steel GDS (Reg S), Provident Financial, Rentokil Initial, Sabre Insurance Group, Shire Plc, Standard Chartered, Taylor Wimpey, Travis Perkins, Weir Group
TRADING ANNOUNCEMENTS
Fresnillo, Glencore, Novolipetsk Steel, River and Mercantile Group, Thomas Cook Group, Volex,
GMS
Flying Brands Ltd Units, UK Oil & Gas Investments
SPECIAL DIVIDEND PAYMENT DATE
Billing Services Group Ltd.
AGMS
Aquila Services Group, Bellzone Mining, Boxhill Technologies , Flying Brands Ltd Units, Hibernia Reit , JPMorgan Japan Smaller Companies Trust, Mitie Group, New Trend Lifestyle Group, Photonstar LED Group, Subex Ltd GDR (Reg S), Syncona Limited NPV, Syncona Limited NPV, Taptica International (DI), Tatton Asset Management , Volex
FINAL DIVIDEND PAYMENT DATE
B.P. Marsh & Partners, Cambian Group, Charles Stanley Group, Discoverie Group, Gresham House Strategic , Palace Capital, TR Property Inv Trust
INTERIM DIVIDEND PAYMENT DATE
Bank of Georgia Group, CC Japan Income & Growth Trust, European Investment Trust, Hargreave Hale AIM VCT 1, Marble Point Loan Financing Limited NPV
QUARTERLY PAYMENT DATE
Ediston Property Investment Company, F&C Private Equity Trust, Middlefield Canadian Income PCC, Schroder Income Growth Fund, TwentyFour Select Monthly Income Fund Limited