Opening Bell: Dollar Bulls In Control; Global Equities Mixed
Investing.com | Dec 20, 2016 06:08AM ET
by Eli Wright
Trading has been muted this morning and markets have been mixed in the lead-up to the Christmas holidays. Fed Chair Yellen’s speech yesterday, which covered the health of the US economy, the burgeoning US job market, and potential wage growth was primarily geared to her audience, the graduating class of Baltimore University. Nevertheless, her remarks helped fuel investor optimism.
Markets were also boosted by the Bank of Japan, which held steady on rates but raised its assessment of the health of the Japanese economy, the world’s third largest, for the first time in nearly 19 months. However, concerns continue to linger about the political climate in Europe; the attacks yesterday in Berlin, Zurich, and Turkey may have contributed to some of this morning's risk-off sentiment.
In Asia overnight, the Nikkei rose 0.53%, to 19,494.53. However the Shanghai Composite fell 0.51% to 3,102.26. The Hang Seng was half-a-percent lower, as well, down to 21,717.
In Europe, the FTSE is trading 0/17% lower, at 7,005.10; the DAX is flat at 11,427; and the Stoxx 50 is up 0.25% at 3,264.50.
On Wall Street yesterday the Dow and S&P 500 both inched 0.2% higher, to 19,883.06 and 2,262.53 respectively. The NASDAQ gained 0.37%, rising to 5,457.44.
Despite the gains in US equities yesterday, some technical indicators are showing signs that the majors are coiling for a decline. Nevertheless, in pre-market trading the Dow is up 0.12%, the S&P is up 0.14%, and the NASDAQ is up 0.09%.
US Treasurys were also mixed: the 2-year yield remained unchanged, holding steady at 1.24%. Yields for the 10-year and 30-year notes dipped slightly, to 2.577% and 3.156% respectively.
h3 Forex/h3The US dollar remains strong, following last week's selloff. The Dollar Index has moved back above 103.
After the BoJ upgraded its economic outlook, the yen attempted to push higher, but even positive economic news couldn’t stop the dollar bulls. The USD/JPY pair is currently trading above ¥118.
The euro appears to have found some support at $1.0374. However, it’s currently trading precariously close to that level and continues to edge closer to parity. The terror attacks in Europe yesterday could weigh on the single currency today.
The Aussie has been hit especially hard recently. Last week’s unemployment report was disappointing, and the charts are showing a bearish technical bias as well. Australia’s central bank monetary policy statement this evening should shed more light on the state of affairs moving forward.
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Even if global equity markets are showing some propensity toward risk-off sentiment, apparently it’s still not enough to send investors running for safe haven assets. Gold is down 0.77% as of this writing, currently trading at $1,133.95. Silver has fallen as well, down 1.3% to $15.88.
Oil is flat: crude is currently trading at $53.05, while Brent is at $55.02.
h3 Stocks/h3We've entered the time of year when trading traditionally quiets down in advance of low holiday-week volume, but some companies will be releasing earnings reports today:
BlackBerry (NASDAQ:BBRY), the Canadian telecom software and mobile phone company that just refuses to die, will report Q3 2017 earnings before the bell. The smartphones developed by Apple (NASDAQ:AAPL) and Samsung (KS:005930) have not been kind to this once dominant force in the mobile market. Expectations are for a one-cent EPS loss on $489 million in revenue.
This will be BlackBerry's last report to include its hardware segment; last week the firm licensed (most of) the global rights of the BlackBerry brand to Chinese manufacturer TCL. Going forward, the company's focus will be software specific – not smartphones per se, but rather the “smart” technology in phones, automobiles, medical devices, wearable tech, and more.
If you’re actually buying BlackBerry shares right now you’re getting in at rock bottom – the stock closed at $7.71 yesterday, significantly below the $138 per share price at its 2008 peak. And if you are a buyer, you’re betting solely on their software segment, which will focus on security for the Internet of Things. In Q2 2017, software and services revenue increased 111% YoY, but operating income in the segment was only $29 million, or about 18% of revenue, three percent less than in the previous quarter. BBRY will have to prove they can lower operating expenses. Should they manage to do that, there could be a reason to invest in them, after all.
Global courier service FedEx (NYSE:FDX) reports Q2 2017 earnings after the market closes. Expectations are for EPS of $2.89 on $12.43 billion in revenue.
The company, which last quarter saw revenue increase by 17% YoY, up to $14.7 billion, has four main divisions: FedEx Express, TNT Express, FedEx Ground, and FedEx Freight, which together provide a range of transportation, e-commerce and business services.
The Express segment, which is responsible for 45% of the company's revenue, or $6.6 billion, grew by 14% YoY last quarter. Ground, which accounts for 30% of FedEx revenue, brought in $4.29 billion, also up 14% YoY. Freight accounts for 11% of FedEx revenue. That segment earned $1.66 billion last quarter, a YoY increase of two percent. The remaining 14% of revenue comes from TNT, the only segment to show an operating loss last quarter. However, the loss is understandable under the circumstances—that division was acquired during the spring of 2016; it's still undergoing a transformation as it gets absorbed by the parent company.
Shares of FedEx, currently trading at $197.62 as of yesterday's close, are up 38% YTD. There remains room for the company to grow by increasing shipping rates and expanding its international footprint. However, it could be facing increasing pressure from Amazon (NASDAQ:AMZN), which over the past year has put 4,000 of its own trucks on the road and has leased 40 planes from an airfreight company. Coincidentally, though Amazon continues to use FedEx services for some shipments, FDX insists that the business it derives from Amazon represents less than 3% of overall revenues. Additionally, FedEx asserts that Amazon remains light years behind in terms of shipping capacity and capability.
Sportswear giant Nike (NYSE:NKE) also reports earnings after the market closes. Expectations for Q2 2017 EPS are for $0.43 on $7.81 billion in revenue. The company has exceeded earnings expectations by an average of 30% over the past four quarters.
Nike has been hit with growing competition in its footwear and sports apparel divisions from the likes of Adidas (OTC:ADDYY), Under Armour (NYSE:UA), and lululemon (NASDAQ:LULU), but it still dominates the vast majority of the market: 60% of US market share for running gear, and 90% of the basketball shoe market.
Despite its strong US presence versus competitors, Nike shares are more reasonably priced. Its P/E ratio of 22.94 is lower than Adidas at 28.21, Under Armour at 44.23, and lululemon at 32.11. Nike's price per share has fallen by 20% year-to-date; it closed yesterday at $50.83. Yet, with double digit growth in its core segments alongside increasing brand awareness in China where middle class consumers famously love premium brands, this could be a good opportunity to buy.
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