Early Morning Call: China indices outperform while USD strength persists
Indices in China outperform as the PBoC cuts Loan Prime Rates. USD continues to strengthen ahead of the Jackson Hole Symposium. On the corporate front, Zoom will report Q2 earnings after market closes tonight.
Equity market overview
US equity markets ended the week on a negative note, with technology stocks leading losses, while it was a mixed session overnight in the APAC region.
China indices outperformed after the People's Bank of China (PBoC) cut its key rates for the second time this year, in an effort to revive an economy hit by a property crisis and a resurgence of COVID-19 cases. The Bank lowered its one-year Loan Prime Rate (LPR) by 5-basis points (bps) to a record low of 3.65%. The 5-year LPR, to which the pricing of home mortgages is linked, decreased by 15-basis points to 4.30%.
The move didn't come as a surprise. A Reuters poll conducted last week showed that 25 out of 30 respondents predicted a 10-bps reduction to the one-year LPR. The decision of a larger cut of the 5-year LPR makes sense according to economists’ comments, as it is meant to boost long-term financing demand.
This week, all eyes will be on Federal Reserve (Fed) chair, Jerome Powell. On Friday morning, he will deliver his 'Economic Outlook' speech at the 2022 Jackson Hole Economic Policy Symposium, which could give further indication as to how high US interest rates may go, and for how long.
For the moment, the market is still pricing Fed rates to peak at around 3.65% early next year, expectations that haven't changed in the last two weeks. But what has changed is the amount of rate cuts expected between March and December next year. Reuters data shows that rates are expected to go down by 40-bps during that period, down from 60-bps two weeks ago.
Corporate news outlook
On the corporate front, Zoom Video Communications Inc is set to report its fiscal second-quarter (Q2) earnings after market closes tonight. Analysts expect earnings of 93 cents per share. For the same quarter last year, the company reported earnings of $1.36 per share. Revenue is forecast to rise by 9.4% to $1.12 billion.
While Zoom Video Communications thrived during the pandemic, consistently beating earnings and sales estimates every quarter, and continuing to raise guidance, the group is now struggling to maintain its pace of growth. It had to make strategic decisions and is now focusing on business customers who will make up an increasingly larger share of revenue. It is also selling technology solutions that improve meetings involving remote and in-office workers.
Otherwise, very few earnings reports of importance are expected this week. On Wednesday, NVIDIA Corp (All Sessions) is forecast to post earnings of 53 cents per share on revenue of $6.83bn, which is higher than the group's own revenue forecast.
Earlier this month, the largest US-based chipmaker warned that because of the slowdown in the PC market it won’t be able to meet its earlier revenue forecast. NVIDIA now expects revenue of $6.7 billion for the quarter, 17% below its previous forecast.
On Thursday a few retailers are due to report quarterly earnings, and one to watch out for is Gap Inc. Analysts anticipate a loss of 5 cents per share. Sales of the clothes retailer are expected at $3.82bn.
Oil prices are down this morning, putting an end to three consecutive days of gains.
Last Friday, Baker Hughes said total rig count in the US decreased by 1 to 762, due to a decline in gas rigs in operation. Working oil rigs remained at 601.
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