IQ Weekly Takeaways for 26 July 2020

July 26, 2020 IQ Weekly Takeaways, Macro Musings

1) Week in Review: IQ Articles Published this week

2) Sign Up to IQ’s Whatsapp Broadcast for Instant Updates!

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3) US-China Relations at Lowest Point in Decades after Forced Consulate Closures

Extract from The J.P. Morgan View: It is reasonable to downplay these tensions as a durable driver of markets when the confrontation tactics seem chosen to minimize economic and financial consequences. (Using IQ’s normal speak…it means don’t worry too much)

4) Intel Considers Outsourcing Manufacturing, Stock Plummets 16% on Friday

The InvestQuest’s View: We have been seeing a number of analyst downgrades on Intel post-earnings, bringing down the consensus target price to $60. At 10.5x forward earnings, Intel stock isn’t expensive but we wouldn’t jump in to buy immediately given the high concentration of tech sector stocks reporting earnings for the upcoming week.

5) Gold is 1% away from Record Price Levels

The InvestQuest’s View: We think that the rally in precious metals can be sustained in the medium term. There is an expectation for the next round of monetary stimulus measures in the US to be announced soon, funded by more sovereign debt issuance. Separately, Goldman Sach published on Friday that they are forecasting a 5% depreciation in the trade-weighted USD over the next 12 months. If you think of precious metals and USD as currency pairs, we should see more upside to the former.

6) Market Monitors: Short-term Overbought and Oversold Stocks

7) Market Monitors: Corporate Earnings Releases in the Week Ahead

8) Market Monitors: Country Macro Data Releases in the Week Ahead

1) Week in Review: IQ Articles Published this week

Preparing For Kids: Should You Buy Stocks, REITs, or Bonds?
Next Week’s Dramatic Corporate Earnings Calendar and Why You Should Care

2) Sign Up to IQ’s Whatsapp Broadcast for Instant Updates!

Get real-time updates whenever new articles are published (possibly 2-3 times per week) by subscribing to our Whatsapp Broadcast! It is not a mass chat, so don’t worry about being spammed.

To subscribe to the Broadcast, Send a Whatsapp Message “Hello IQ!” to our Mobile Number (+65 8840 2520), so we know to add you to the broadcast list.

3) US-China Relations at Lowest Point in Decades after Forced Consulate Closures

The Trump Administration ramped up its confrontation with Beijing this week, ordering the Chinese consulate in Houston to close over concerns about economic espionage.

The move triggered retaliation from Beijing: it ordered the US to close its consulate in the western Chinese city of Chengdu, dealing a further blow to the diplomatic infrastructure that channels communication between the two countries.

https://www.bbc.com/news/world-us-canada-53517439

We highlight extracts from the J.P. Morgan View (24 July) that we find relevant to this news.

“These week’s developments around geopolitics and US activity data are incremental rather than abrupt, so should be considered in context. The US-China conflict has been escalating almost weekly since May, in part linked to the US election calendar.

Notable elements have included the Administration’s prohibition of US federal pensions funds from investing in China; US revocation of Hong Kong SARs special trade status; US sanctions on Chinese officials plus numerous companies on human rights grounds; US rejection of China’s maritime claims in the South China Sea; US (and UK) actions against Huawei; China sanctions on a US aerospace company; and the ordering of US/China consulate closures in Houston and Chengdu.

Asset price reactions around most of these announcements, have tended to be local (mainly CNY and China/Hong Kong Equities) and intraday or intra-week, for several reasons. 1) Financial and economic consequences of each individually and all cumulatively is small, 2) military conflict has always been and remains unlikely, 3) a possible Biden victory in November should deliver a less-impulsive and antagonistic US foreign policy.

It is reasonable to downplay these tensions as a durable driver of markets when the confrontation tactics seem chosen to minimize economic and financial consequences.“

4) Intel Considers Outsourcing Manufacturing, Stock Plummets 16% on Friday

Intel’s share price slumped 16% on Friday, after the company announced that there would be a delay of approximately 6 months to the release of Intel’s next generation 7nm processor (from end-2021 to 2022 or later) and that the company is considering outsourcing its chip manufacturing process.

There are two main parts to Intel’s business: it designs computer chips and manufactures them. Most of its rivals only do one or the other. “By outsourcing leading edge technology, presumably to TSMC, Intel would give up what has been its main source of competitive advantage for 50 years,” research analyst Chris Caso of Raymond James said.

The InvestQuest’s View: We have been seeing a number of analyst downgrades on Intel post-earnings, bringing down the consensus target price to $60. At 10.5x forward earnings, Intel stock isn’t expensive. However, we wouldn’t jump in to buy immediately. There is a high concentration of tech sector stocks reporting earnings in the upcoming week, which may result in sector-wide profit-taking should management guidance prove to be underwhelming.

An alternative way to establish exposure would be to sell put options on Intel that mature on 16 October (ahead of the next expected earnings release on 23 Oct). Selling put options at a strike of $45 at that expiry date, pays the investor about 2.6% in option premiums upfront, offering decent risk-reward in my opinion.

https://www.bloomberg.com/news/articles/2020-07-25/intel-stunning-failure-heralds-end-of-era-for-u-s-chip-sector

https://www.bbc.com/news/technology-53525710

5) Gold is 1% away from Record Price Levels

Both gold and silver have been on a tear this week, leaving gold just 1% shy from breaking the previous record high set in 2011. *For dramatic effect*, it should also be noted that silver prices are currently 90% higher than the price trough reached in March.

This week’s price move was fueled by a weaker USD (the US Dollar Index was weaker by 1.6% this week), and further supported with the conclusion of an EU agreement that added to the already-historic stimulus measures enacted by global Central Banks to soften the economic blow of the coronavirus.

The InvestQuest’s View: We think that the rally in precious metals can be sustained in the medium term. There is an expectation for the next round of monetary stimulus measures in the US to be announced soon, funded by more sovereign debt issuance. Separately, Goldman Sach published on Friday that they are forecasting a 5% depreciation in the trade-weighted USD over the next 12 months. If you think of precious metals and USD as currency pairs, we should see more upside to the former.

https://www.forbes.com/sites/greatspeculations/2020/07/23/gold-is-within-striking-distance-of-its-all-time-high-heres-how-to-play-the-rally/#47f37d14a35b

https://www.cnbc.com/2020/07/24/silver-prices-trader-foresees-30percent-rally.html

6) Market Monitors: Short-term Overbought and Oversold Stocks

The below is a screen of the most technically “Overbought” and “Oversold” stocks from our Global Stock Watchlist, primarily sorted by the stocks’ traded currency.

“Overbought” stocks are those stocks which are currently trading with RSI >70 or have breached their upper Bollinger Band. These are two commonly followed technical trading indicators.

“Oversold” stocks are those stocks which are currently trading with RSI <30 or have breached their lower Bollinger Band.

Source: Bloomberg, retrieved as of 25 July 2020.
Source: Bloomberg, retrieved as of 25 July 2020.


7) Market Monitors: Corporate Earnings Releases in the Week Ahead

Summarizing the date and times of key company earnings for the week of 27 July to 2 August 2020. A more comprehensive list may be found on this page.

Stock NameExchange CountryExpected Release DateRelease Time
(GMT +8, SG Time)
Mapletree North Asia CommerciaSingapore27/7/2020Aft-mkt
LVMH Moet Hennessy Louis VuittFrance27/7/2020Aft-mkt
SAP SEGermany27/7/2020Bef-mkt
    
Kweichow Moutai Co LtdChina28/7/2020 
FANUC CorpJapan28/7/202014:00
Parkway Life REITSingapore28/7/2020Bef-mkt
Starhill Global REITSingapore28/7/2020Aft-mkt
Ascott Residence TrustSingapore28/7/2020 
Reckitt Benckiser Group PLCEngland28/7/2020 
Pfizer IncUSA28/7/2020Bef-mkt
McDonald’s CorpUSA28/7/2020Bef-mkt
Visa IncUSA28/7/2020Aft-mkt
Amgen IncUSA28/7/2020Aft-mkt
Starbucks CorpUSA28/7/2020Aft-mkt
Advanced Micro Devices IncUSA28/7/2020Aft-mkt
    
Kao CorpJapan29/7/202014:00
Sumitomo Mitsui Financial GroupJapan29/7/202015:00
CapitaLand Retail China TrustSingapore29/7/202008:00
Singapore Airlines LtdSingapore29/7/2020Aft-mkt
Dairy Farm International HoldiSingapore29/7/2020 
Frasers Commercial TrustSingapore29/7/2020 
CDL Hospitality TrustsSingapore29/7/2020 
Rio Tinto PLCEngland29/7/202013:15
Barclays PLCEngland29/7/202014:00
GlaxoSmithKline PLCEngland29/7/202019:00
SanofiFrance29/7/2020Bef-mkt
BASF SEGermany29/7/202013:00
General Electric CoUSA29/7/2020Bef-mkt
Boston Scientific CorpUSA29/7/2020Bef-mkt
Mondelez International IncUSA29/7/202004:05
General Motors CoUSA29/7/202020:00
Facebook IncUSA29/7/2020Aft-mkt
PayPal Holdings IncUSA29/7/2020Aft-mkt
QUALCOMM IncUSA29/7/2020Aft-mkt
Equinix IncUSA29/7/2020Aft-mkt
Boeing Co/TheUSA29/7/2020 
    
Panasonic CorpJapan30/7/202014:30
Hitachi LtdJapan30/7/2020 
Far East Hospitality TrustSingapore30/7/2020Bef-mkt
Keppel Corp LtdSingapore30/7/2020 
Singapore Exchange LtdSingapore30/7/2020 
Hongkong Land Holdings LtdSingapore30/7/2020 
Jardine Cycle & Carriage LtdSingapore30/7/2020 
Genting Singapore LtdSingapore30/7/2020 
SATS LtdSingapore30/7/2020 
Frasers Centrepoint TrustSingapore30/7/2020 
Anheuser-Busch InBev SA/NVBelgium30/7/202012:00
AstraZeneca PLCEngland30/7/2020Bef-mkt
Standard Chartered PLCEngland30/7/202012:15
Royal Dutch Shell PLCEngland30/7/202014:00
TOTAL SEFrance30/7/2020 
Airbus SEFrance30/7/2020 
Volkswagen AGGermany30/7/2020 
Procter & Gamble Co/TheUSA30/7/2020Bef-mkt
Mastercard IncUSA30/7/2020Bef-mkt
Kraft Heinz Co/TheUSA30/7/2020Bef-mkt
United Parcel Service IncUSA30/7/202018:00
Apple IncUSA30/7/2020Aft-mkt
Amazon.com IncUSA30/7/2020Aft-mkt
Alphabet IncUSA30/7/2020Aft-mkt
Gilead Sciences IncUSA30/7/2020Aft-mkt
Yum! Brands IncUSA30/7/2020 
    
Jiangsu Hengrui Medicine Co LtChina31/7/2020 
Toyota Industries CorpJapan31/7/202010:00
Takeda Pharmaceutical Co LtdJapan31/7/202014:00
Jardine Matheson Holdings LtdSingapore31/7/2020 
Jardine Strategic Holdings LtdSingapore31/7/2020 
British American Tobacco PLCEngland31/7/2020 
Nokia OyjFinland31/7/2020 
BNP Paribas SAFrance31/7/2020 
Merck & Co IncUSA31/7/2020Bef-mkt
Exxon Mobil CorpUSA31/7/2020Bef-mkt
Chevron CorpUSA31/7/2020Bef-mkt
AbbVie IncUSA31/7/2020Bef-mkt
Ford Motor CoUSA31/7/202004:05
Caterpillar IncUSA31/7/202018:30
    
CapitaLand LtdSingapore1/8/2020 
    
Honda Motor Co LtdJapan2/8/2020 
Source: Bloomberg, retrieved 25 July 2020.

8) Market Monitors: Country Macro Data Releases in the Week Ahead

Date / Time
(GMT +8, SG Time)		CountryEventPeriodExpectedPrior Period
(Actual)
07/27 07:50JapanCapital Spending YoY1Q F     —4.3%
07/27 12:30JapanAll Industry Activity Index MoMMay-3.5%-6.4%
07/27 16:00GermanyIFO Business ClimateJul89.386.2
07/27 16:00GermanyIFO ExpectationsJul93.491.4
07/27 16:30Hong KongExports YoYJun4.2%-7.4%
07/27 20:30USDurable Goods OrdersJun P7.0%15.7%
      
07/28 22:00USConf. Board Consumer ConfidenceJul94.498.1
      
07/29 09:30AustraliaCPI QoQ2Q-2.0%0.3%
07/29 09:30AustraliaCPI YoY2Q-0.5%2.2%
07/29 14:45FranceConsumer ConfidenceJul9997
07/29 16:30UKMortgage ApprovalsJun35.0k9.3k
07/29 16:30Hong KongGDP YoY2Q A-7.7%-8.9%
07/29 19:00USMBA Mortgage ApplicationsJul 24     —4.1%
07/29 20:30USWholesale Inventories MoMJun P-0.3%-1.2%
      
07/30 02:00USFOMC Rate Decision (Upper Bound)Jul 290.25%0.25%
07/30 09:30AustraliaBuilding Approvals MoMJun-2.0%-16.4%
07/30 15:55GermanyUnemployment Change (000’s)Jul45.0k69.0k
07/30 16:30Hong KongRetail Sales Value YoYJun-15.1%-32.8%
07/30 19:00BrazilFGV Inflation IGPM MoMJul2.06%1.56%
07/30 20:00GermanyCPI MoMJul P-0.3%0.6%
07/30 20:00GermanyCPI YoYJul P0.1%0.9%
07/30 20:30USGDP Annualized QoQ2Q A-35.0%-5.0%
07/30 20:30USInitial Jobless ClaimsJul 251450k1416k
      
07/31 07:30JapanJobless RateJun3.0%2.9%
07/31 07:30JapanJob-To-Applicant RatioJun1.151.2
07/31 07:50JapanIndustrial Production MoMJun P0.9%-8.9%
07/31 09:00ChinaManufacturing PMIJul50.850.9
07/31 13:30FranceGDP QoQ2Q P-15.2%-5.3%
07/31 13:30FranceGDP YoY2Q P-19.7%-5.0%
07/31 14:00UKNationwide House PX MoMJul-0.1%-1.4%
07/31 14:00UKNationwide House Px NSA YoYJul-0.3%-0.1%
07/31 14:45FranceCPI YoYJul P0.3%0.2%
07/31 16:00ItalyGDP WDA YoY2Q P-17.6%-5.4%
07/31 16:00ItalyGDP WDA QoQ2Q P-15.5%-5.3%
07/31 17:00ItalyCPI EU Harmonized YoYJul P-0.1%-0.4%
07/31 17:00ItalyCPI EU Harmonized MoMJul P-1.4%0.0%
07/31 20:30USPersonal IncomeJun-0.6%-4.2%
07/31 20:30USPersonal SpendingJun5.4%8.2%
07/31 20:30CanadaGDP MoMMay3.5%-11.6%
07/31 21:45USMNI Chicago PMIJul4436.6
07/31 22:00USU. of Mich. SentimentJul F72.873.2
Source: Bloomberg, retrieved 25 July 2020.

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