US earnings blockbuster - a massive week for markets

From the names seen so far, US quarterly earnings have come in predictably strong. However, they haven’t blown the lights out, with a market trying to understand the macro and downwardly revised global Q3 growth estimates. That should change this coming week and corporate earnings will provide big opportunities on a stock level.

Notably, we look for Tesla’s and Facebook’s numbers, as these a core trader favourites. However, the big day of earnings takes place in the post-market on Tuesday 27 July. It's not often we get three of the world’s biggest names reporting in a 30-minute period, and if we add Visa, we’re looking at close to $7t in market cap reporting here.

This equates to around 20% of the S&P 500 market cap, so this brings in index traders too – so if trading the NAS100, US30 or US500, the 60-minute period after the US cash session close (6:00am AEST) is of interest. When the market has an implied move (on earnings) in Apple of 4.2%, we could see fireworks both at a single stock level and in the various US indices – get them on the radar.

I can’t go past the incredible bull trend in Alphabet (Google) and it's easy to see why the market has a love affair with this name – can the earnings meet the price action?

Apple will likely get the lion’s share of interest from equity traders on this day, and having dropped for the past three quarterly earnings Apple has lost its status as an earnings darling – can it make it a fourth? By way of expectations while we look at trends across the business and geographies, as well as product development these are the consensus numbers to be concerned with:

• Q3 EPS - $1.008 (Q4 consensus is $1.113)
• Q3 revenue - $73.5b (Q4 consensus - $81.23b)
• Q3 Free cash flow - $20.72b (Q4 $22.09b)
• Q3 gross margins – 42.01%, (Q4 40.89%)

The implied move in Microsoft, Alphabet and Visa sits at 2.2%, 4.1% and 2.7%, so that is a lot of market cap, and big weights all expected to move in a very short space of time. Of course, there is no certainty they will all move in the same direction, so we will see offsetting factors at an index level, but it could get a little wild in that hour.

It all leads to lots of opportunities across markets, regardless of timeframe or strategy.

July FOMC meeting

The marquee event of the coming week is the FOMC meeting (Thursday 4:00am AEST / Wednesday 1pm BST), followed by Jay Powell’s press conference 30 minutes later. Since the June meeting, US core CPI has pushed up from 3.8% to 4.45%, and wages are tracking at 3.6%. However, the labour market has only modestly improved, inflation expectations are a touch lower and broad financial conditions are roughly unchanged.

It doesn’t feel like we’re in for a major announcement that shocks the US rates market too intently, causing major gyrations in second-order derivates like the USD, equities and gold. Especially given they have said they will give notice “well in advance”, which suggests they will possibly provide a series of progressively stronger hints that they plan to taper the pace of bond purchases. So, when we finally hear the formal announcement, the market will be so well prepared that it doesn’t blink – or at least that the plan.

Nuance matters though, and single words move markets – or in the case of the June FOMC it was the projections for the fed funds rate – the ‘dot plot’ – which kicked some volatility into markets, with calls for two hikes in 2023. It does not feel like Powell will upset the markets, but any narrative that builds a strong consensus that September could be the date for a formal announcement for tapering, could bring out sellers in US Treasuries (yields higher), which could inject life into the USD and weigh on gold.

Personally, I see the non-farm payrolls print on 6 August as the next big US-centric event, where the consensus should build to expect it to be a biggy.