China’s economy expands 4.9% as positive economic signs post Covid-19 continue

By Adam Vettese. Published at Oct 20, 2020, in Market Wrap

China’s economy continued to recover rapidly from the pandemic in Q3, expanding 4.9% year-on-year, adding to the positive signs around the world of numerous economies returning to growth rapidly.

The expansion in gross domestic product missed expectations but was still well ahead of a 3.2% increase in the second quarter, as the country’s industrial production drive helped stoke up the wider economy.

Industrial production was up 6.9% in September, with China emulating positive signs from other countries seen last week.

On Friday, the US Commerce Department reported that retail sales increased 1.9% in September versus the previous month, the fifth straight month of retail sales growth. That was more than double the rate of growth anticipated, with sales of clothing and sporting goods soaring despite the unemployment rate remaining elevated. The positive economic data came at the end of a mixed week for major US stock indices, which all finished marginally higher. Rising Covid-19 case numbers in the US and abroad are giving investors pause, with a “tug of war between rising concerns and encouraging economic data” according to analysts at financial advice firm Edward Jones.

Last week kicked off third-quarter corporate earnings season in the US, with the financials sector dipping by 0.9% after most of the big banks delivered their Q3 updates. While some banks’ profits were buoyed by spikes in trading and investment banking revenues, and loan loss provision were nowhere near as severe as last quarter, there is uncertainty about whether government stimulus has prevented heavy loan delinquencies from hitting entirely, or merely delayed the inevitable.

Pelosi sets 48-hour deadline on stimulus negotiations

The S&P 500, Dow Jones Industrial Average and Nasdaq Composite all made it through the first week of Q3 corporate earnings relatively unscathed, despite an expected 20% decline in S&P 500 company earnings year-over-year (according to FactSet). US Covid-19 cases also surged back to the 60,000-a-day mark, heading back towards July’s peak levels after dropping below 35,000 in mid-September.

Notable over the weekend was a 48-hour deadline set by House Speaker Nancy Pelosi for an agreement on a new stimulus package to be agreed in order for it to be passed before the November 3 presidential election. There remains a substantial gap between Democrat and Republican lawmakers on the contents of a deal, such as the strength of Covid-19 testing and tracing requirements. Markets have swung significantly on the rising and falling prospects of a stimulus package in recent weeks, and the two-day deadline will be watched with interest.

FTSE 100 sinks despite Friday rally

London-listed stocks slumped last week; despite a 1.5% rally for the FTSE 100 on Friday the index closed out the week 1.6% lower. International Consolidated Airlines Group was the week’s biggest loser, falling double digits, while Associated British Foods, BP and Barclays also sank by more than 5% over the course of the week.

The FTSE 250 ended the week 1.4% down, dragged lower by hospitality and travel names that are most at risk from new lockdown restrictions with Covid-19 cases surging. Pub chain JD Wetherspoon, Cineworld and easyJet all fell, with the trio part of a dozen or so names that suffered double-digit losses.

There were some bright spots in the FTSE 100 during the week, however, with online takeaway service Just Eat and airliner engine maker Rolls-Royce both enjoying double-digit gains. Just Eat reported surging online orders in a trading update, while investors have responded positively to Rolls-Royce shoring up its finances.

What to watch

IBM: IBM’s post-market close earnings report today will be an interesting one, after the firm announced on October 8 that it plans to spin off its IT outsourcing business. That division accounts for $19BN of the firm’s $59BN in revenue, according to MarketWatch. It leaves behind a hardware, software and services business which the company plans to target at the hybrid-cloud market, where client companies hand off some of their data to a cloud provider to be stored offsite while keeping some data on their own premises. IBM has both the cloud and hardware capabilities to service both parts of a hybrid arrangement but faces stiff competition, and unlike many other cloud providers its share price is down in 2020. Currently, Wall Street analysts favour a hold rating on IBM stock.

Cadence Design Systems: California-based Cadence is an engineering firm that provides structures needed to design circuit boards and chips. Along with many chipmakers, its share price has surged in 2020, and is now up more than 65% year-to-date, boosting its market cap past the $30BN mark. According to Zacks Equity Research, it is an expanding customer base that has driven investor optimism about the stock, along with an uptick in chip design activity and an evolution in semiconductor manufacturing processes. Analysts are expecting a Q3 earnings per share figure of $0.61 when the company reports on Monday, versus $0.54 in Q3 last year.

Reckitt Benckiser: London-listed consumer goods firm Reckitt Benckiser sits behind health and hygiene brands including Dettol and Lysol. Its share price has been boosted by 20% in 2020, while the FTSE 100 has fallen dramatically overall, given the demand for some of its products during the pandemic. The company delivers its latest set of quarterly earnings on Tuesday, where a likely focus will be what surging Covid-19 case numbers in Europe and elsewhere mean for the firm’s sales.

All eyes on the tech giants

The S&P 500's five biggest companies – Apple, Microsoft, Amazon, Alphabet and Facebook – now account for 28% of the index's weighting, and have been responsible for 25% of its earnings, Goldman Sachs said earlier this month. Other major stocks, including Netflix and Tesla, have also delivered huge returns for investors this year.

This week the latter two report third-quarter results, with Netflix on Tuesday, Tesla (and Verizon Communication) on Wednesday, and then other notable name Intel on Thursday, before Apple, Amazon, Alphabet, Microsoft and Facebook report the following week.

While many are now questioning their share prices given the meteoric rise we have already seen, others believe selling now would be an error. Michael Farr, president of Farr, Miller & Washington LLC, told Reuters to rotate out of tech because of big gains and some recent volatility would be “a suckers’ trade”. “Reports of their demise have been greatly exaggerated,” he said of the big tech stocks.

Tickers

S&P 500: -0.8%

Dow Jones IA: -1.43%

Nasdaq Composite: -1.65%

ASX 200: -0.26%

AUD: 0.705

All data, figures & charts are valid as of 20/10/2020. All trading carries risk. Only risk capital you can afford to lose

Today's market update is from eToro's market analyst Adam Vettese.


Where to invest $1,000 right now

When the experts at Next Investors have a stock pick, it may pay to listen.

The Next Investors have been investing in ASX small cap stocks for years, with their best small cap picks yielding returns of 1,200%, 1,120%, 900% and 678%.

They have just revealed their hand-picked, FY2021 stock portfolio of high conviction long-term investments.

Click the link below to see what they are currently investing in.


SEE THE PORTFOLIO

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

Publishers Notice

The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

Australian ASX Small Cap stocks | Why Finfeed.com is Australia’s leading small cap publication

Founded seven years ago, Finfeed.com is Australia’s leading and longest standing website for investor and finance news, education and expert opinion.

Published by StocksDigital, Finfeed was created to report daily on the comings and goings of ASX listed stocks in the small cap market.

As the first digital publication dedicated specifically to this space, Finfeed soon became the most trusted publication in the market, quickly garnering over two million page views – a number that continues to rise.

Finfeed.com provides its readers with informative articles that tackle the latest in market moving #ASX small cap news, plus exclusive content you won’t find anywhere else. It is aimed at those with an interest in investing, market education, company performance, start-ups and much more.

Finfeed.com is the only media organisation operating under the strength of a Financial Services License and is backed by leading journalists and analysts all with brands of their own.

The website aims to inform, educate and entertain with content that drills down into the heart of financial matters.

Finfeed is a leading source of investor and market information, with everything investors need to know about how to invest written in a way that anyone can understand. 

Over the years, the website has expanded beyond exclusively reporting on small caps, to profile Australia’s leading ASX listed small, mid and large caps as well as some of the country’s most successful CEOs and business leaders to find out what makes them tick.

Every day you will find fresh content covering:

Fast Facts

Over 4,000 articles published

Over 2.3 Million Page Views and counting

Over 10,000 followers on social media

Subscriber list growing by 2% monthly

Thanks for subscribing!

X