Adam Vettese, UK Market Analyst at eToro, has provided his daily commentary on traditional and crypto markets for August 3, 2020.
Despite President Trump telling reporters on Friday night that he intends to ban social media sensation TikTok from operating in the United States, Microsoft is moving ahead with plans to buy the firm’s US operations from Chinese parent ByteDance. Microsoft said on Sunday that it is moving forward with its acquisition plan, after CEO Satya Nadella and President Trump spoke over the weekend, per The WSJ. The software and cloud computing giant said that it will ensure the data of American TikTok users is transferred to the US, in addition to new privacy and security protections, in an effort to allay the fears of Trump and other senior officials.
A successful deal would solve the geopolitical minefield that threatened to throw a spanner in the works of TikTok’s growth plans, while poaching a high profile Chinese technology asset would go down as a win for Washington over Beijing in the continued tensions between the two superpowers. Further news on the deal will likely come sooner rather than later, as Reuters reported on Sunday that Trump has given ByteDance 45 days to make a deal.
Nasdaq rides big tech earnings to close another strong week
The Nasdaq Composite jumped by 1.4% on Friday, after trillion-dollar giants Amazon, Facebook and Apple all saw their share prices jump following expectation-beating earnings updates. Apple enjoyed the best day, closing 10.5% higher after reporting growth in all of its product lines year-over-year, assuaging fears that economic contraction and consumers stuck in lockdown would hurt demand for its products. The company also increased its profit margin year-over-year, despite the additional costs associated with the pandemic. Facebook jumped 8.2% following its earnings report, while Amazon gained 3.7%.
The week was a mixed one for stocks however, with the Dow Jones Industrial Average falling marginally, as investors digested data showing the US economy shrank by more than 30% in the second quarter. In a sign of growing investor fear, the price of gold neared $2,000 an ounce towards the end of the week. Investment firm T. Rowe Price noted that the housing market appears to be a bright spot amid the economic gloom, as pending home sales rose in June for the first time in four months.
S&P 500: +0.8% Friday, +1.3% YTD (+1.7% last week)
Dow Jones Industrial Average: +0.4% Friday, -7.4% YTD (-0.2% last week)
Nasdaq Composite: +1.5% Friday, +19.8% YTD (+3.7% last week)
London-listed shares tumbled last week, with the FTSE 100 sinking by 3.7%, taking its year-to-date loss back past 20%. The postponement of further easing of lockdown restrictions in England was one factor affecting sentiment, as was the news that the Eurozone economy shrank at its fastest rate on record in the second quarter of 2020. A chunk of the FTSE 100’s losses came on Friday, when the index fell 1.5%, dragged lower by 5% plus losses from firms such as International Consolidated Airlines Group (IAG), BT and Rolls Royce. IAG took a hit after announcing it had made a multi-billion pound loss in the first half of 2020 due to the pandemic. One bright spot on Friday came in the form of FTSE 250 constituent Pets at Home Group, which posted a 21.5% share price jump after delivering an earnings report that came in well ahead of expectations. Revenue for the quarter ending July 16 was down just 1% versus the same period last year, with pet care supply sales soaring thanks to doting pet owners stuck at home during the lockdown.
FTSE 100: -1.5% Friday, -21.8% YTD (-3.7% last week)
FTSE 250: -0.5% Friday, -22.6% YTD (-1.9% last week)
What to watch
Global Payments: Financial technology firm Global Payments, an S&P 500 constituent, offers payment services to merchants, a business that has taken a major hit as lockdowns prevented consumers from spending as normal. However, the company’s share price is close to flat year-to-date, as investors look to its presence in e-commerce payment processing, and increasing numbers of software partners, as mitigating factors. The company reports its Q2 earnings on Monday, with Wall Street analysts overwhelmingly rating the stock as a buy.
The Clorox Company: Cleaning product manufacturer Clorox is not a stock that got the blood racing pre-pandemic, having spent the past decade ticking steadily higher. But the company has been thrust into the spotlight by the pandemic, with its share price soaring 54% year-to-date as demand for its products has skyrocketed. In addition to consumer demand, the pandemic has presented other commercial opportunities, such as the company’s partnership with United Airlines to develop the airline’s new cleaning protocols. Coping with demand, the stickiness of newly won customers and the potential for more corporate partnerships are all likely topics of discussion on the firm’s Monday earnings call. Currently, Wall Street analysts favour a hold rating on the stock.
BP: Oil titan BP delivers its earnings report on Tuesday, six weeks after announcing that it wrote down up to $17.5bn in the value of its assets following a cut to its long-term oil and gas price forecasts. The company’s share price is down by close to 50%, which has pushed its dividend yield into double digits. Its commitment to that dividend and the sustainability of the payment will likely be a key feature of the firm’s Tuesday morning (BST) earnings call. BP’s business has many different pieces, some of which are hurt by lower oil prices and some of which benefit, although all segments are likely to have suffered from a drop-off in demand due to the pandemic.
Here comes the dealmaking
One inevitable effect of any industry that goes through turmoil is an increased volume of mergers, acquisitions and spin-offs, as firms try to get themselves into the right shape to survive into the future. In the US, the oil, retail and travel industries are three of the hardest hit by the pandemic, and investors should be keeping a close eye on the deals that companies they own or have an eye on are getting involved in. A well timed opportunistic purchase from a position of financial strength can be the making of a business, but there will also be firms that bite off more than they can chew, or make rash decisions to acquire assets that they will never be able to successfully integrate. One huge deal came out of the energy sector over the weekend, with Marathon Petroleum agreeing to sell its petrol stations to the owners of the 7-Eleven convenience store chain for $21bn.
Crypto corner: Three arrested for Twitter Bitcoin hack, including Brit from Bognor Regis
US officials have arrested three men in connection with the recent Twitter Bitcoin hack, including a 19-year-old from Bognor Regis in the UK, a 22-year-old from Orlando, Florida and a 17-year-old from Tampa, Florida. The charges include organised fraud and fraudulent use of personal information.
The trio allegedly hacked into Twitter’s “god-mode,” where developers can access any account they need, and began spamming a Bitcoin-related scam link to the followers of the accounts. Those hacked included Elon Musk, Warren Buffett and Barack Obama. Speculation among security analysts is that it is unlikely that Twitter’s systems were “hacked,” rather that the criminals stole login information from an employee in order to gain access.
The attack took place over several hours but the scammers supposedly only netted around $120,000-worth of Bitcoin. Despite this, one of the alleged criminals has his own wealth of around $3 million-worth of Bitcoin already, according to Decrypt.
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