The Eurozone Fails Again
As we exit another week of lockdown, it was a week that was dominated by earnings. But while the corporate world fits to try and show the investors that recovery is possible, there have been aspects of the market that have shown that no matter how much support you receive sometimes there is no compromise.
The ECB and OPEC have in the last couple of weeks both been fighting to save their product, with energy markets drowning in unused oil and the Eurozone trying to fight off the fourth crisis in its short life. It’s hard to believe that the Euro is only 20 years old and has already struggled to fight off the financial crisis of 2008, the Eurozone debt crisis of 2011 and now the Coronavirus Crisis of 2020.
While the Federal Reserve in the US added its third stimulus program, this time of $2.3tn to help small business in the way of loans, finance ministers from Europe, and European heads of government had refused to coordinate their fiscal policies. If you add these two points together you can see that another Eurozone crisis is on the horizon and therefore the future of the Eurozone is more uncertain than ever.
The risks are different this time, the recession is deeper this time and the nerves are worse this time. This time the biggest risk to the Eurozone is the Eurozone itself.
Tuesday saw Europe’s emergency plan to fight COVID-19 unravel just days after it’s agreement. Italy’s prime minister has rejected the central element of the €540bn package as a trap. In fairness, no Italian leader would accept the deal and expect to survive for long, and even if they did it would be immediately rejected in the country’s parliament.
The minimal amount of loans when compared to that of the US, that was unwisely sold by Eurogroup ministers last week as a historic breakthrough barely touches the sides of the cavernous hole the bloc finds itself in now. We also know that a worse situation is just around the corner once the virus goes and the recession hits. One quote about the deal sums it up perfectly “the deal is an admission of European inadequacy”.
Earnings are the Focus
While bailouts had been the early theme of Coronavirus markets, the attention has now switched to earnings. This week saw the beginning of US earnings season and next week sees this continue at pace.
The markets are looking for signs of life after COVID-19, and there is almost an acceptance that the data for Q1 is a lost cause. Investors want to see just how well-prepared companies are, what steps have been taken to ward off the impact of this crisis, and fundamentally whether the company will survive a run through the gauntlet of 2020.
Focus inevitably turns to the FAANG stocks with Facebook, Amazon and Netflix all reporting next week. Expectations for these stocks is fairly steady with Netflix expecting a rise in subscriber numbers due to global lockdown. In the past 2 years, the company has beaten earnings expectations 8 times out of 8 and this time could see that theme continue. Estimates are for $1.65 EPS.
The same could well be said for Amazon, the online retail giants share price has surged, and the initial share price moves have been all but wiped out. Q4 2019 saw EPS at $6.47, and if the Coronavirus impact only sees Q1 2020 data slip to $6.40 then investors will be happy. However, yet again it will be forward guidance that is the focus just what will be the long-term economic impact.
Earnings season is so important over the next couple of weeks, we will either see that corporate America is well placed to deal with the issues the country will face in the next 12-24 months or we will see that it’s totally underprepared, which in turn would lead to the belief that the downside we have seen in markets was just the beginning. This is why Scope Markets are hosting live earnings webinars. Our chief analyst will give our clients an exclusive look at what to expect from some of the major companies reporting, and how that has a knock-on effect on other markets.
Education is key at Scope Markets, and during the lockdown, we are offering our clients daily webinars, in order to keep them up today on the major market moves during this volatile time. We also aim at teaching them some new tips and some important lessons on risk management in order to help keep their money and investments safe.
This article was written by James Hughes, Chief Market Analyst at Scope Markets. Get in touch with James via firstname.lastname@example.org.