Apple Warns On Revenue Due To Coronavirus

Okay, very good morning, Tuesday the 18th of February. Hope everyone is doing well. It's just me on the briefing this morning, so what my intention is, is I'll cover up the— or cover over the news in a bit more detail, give a bit of a view about what's happened overnight, how the charts look this morning. Morning, uh, and then perhaps after the briefing Alex can jump on and add a few more levels that he's looking at across different products in regards to the technicals. But this is kind of the big headline that people are looking at this morning. If you haven't already caught it, well, let me just get you up to speed. There was news out overnight, Apple saying that it does not expect to meet its revenue guidance. For March quarter because of work slowdowns and lower smartphone demand. In regards to the virus outbreak in China, it's taking a bigger toll basically on their predictions than they had originally anticipated. The company, uh, which obviously a lot of weight is put on the iPhone given the proportionate sales that that makes up for the company, and given the fact that that manufactured in China, that's where the problems are lying. it's temporary or temporarily constraining due to production ramping up more slowly than anticipated. They said back in January originally that the guidance was that factories were going to be reopening beginning February 10th, but as we've seen with how the Chinese state have been looking to kind of control any further outbreak of the virus by slowly drip-feeding workers back into factories, for example, and so that's been has had a knock-on effect for Apple. Now, why Apple's had such a big reaction for just generally markets across the board, you can see index.futures down, a gap down overnight. If— let me just have a look at the S&P here just to make it a little bit more clear. So yeah, there's the gap down. You can see an incredibly tight range that was seen in yesterday's session, as you would expect given a U.S. market holiday. Wasn't here in the afternoon, but I did have a glance at the P&Ls and some of the new traders going live yesterday. I mean, obviously wasn't here to see every trade that you did, but I saw quite a lot of activity, which I thought was quite unusual for the fact that US markets were closed. So again, when we've gone over those kind of judgments of market sentiment, market condition sessions that I've done with you, just be reactive. Not every day is the same, and definitely when there is a US market holiday, you can see from the type of range that we were trading in the S&P there, very narrow and restricted and respectful of levels given the lack of real market participation in those types of sessions. Here though, you've got the gap down and we've had a little push in the S&P down towards what would have been Friday's low before the bounce came and the kind of ramp into the US close, if you like. And so even with the S&P, and I'll just have a look at other assets first before I give my broad kind of view about what I think about this recent move this morning, but I think there is a little bit of a danger if you're a new trader coming in this morning, and it's a little bit of FOMO almost. There's been big moves overnight. You've seen oil down, equities down, T-notes, gold bid, and then there's quite a tendency, I think, to just come in this quite blinkered and quite narrow focus and just want to hit that continuous trend. But majority of the move, I'd say, probably has already happened for this morning. And when the US come in, I think that's when it's going to be potentially then the next phase of the move. And it's not our place to speculate whether we think, well, this is the entry point now for the low to get long again, or whether to get short for the secondary phase of continuation of the move. I think just plan accordingly, just be patient and wait, and let's see how the market unfolds and then look to act accordingly. Here though, I mean, even if we did— if we were looking at the day as a whole and we did come further down, I still think that, you know, given the fact that, you know, just put it into a little bit of context for a second, the S&P is— was trading at record highs. So a little bit off the top I don't think is that big a deal, to be quite frank, and it doesn't really change the Apple situation what I feel generally, that if we did come down, and let's say the next kind of levels here to be looking out for would be around this kind of area, and then on the intraday, uh, daily pivots you've got the S2, and then you've got the next level of the lows here which bring in that low point we had back on last Thursday. So if we did go lower down, I still think there's decent areas underlying strong support in this equity market irrespective of the bump down that we've had overnight. The other asset classes, generally what we're seeing then, WTI crude following suit with the general kind of risk-off that we've observed in the overnight session. You can see that in the short-term price action, the S1 providing a level to watch. You can see we just broken through then what was Friday's bounce, pretty similar, mimicking the equity move that we had late on the evening on Friday, and then the retest that we had in the overnight session, the eventual break. And you've seen, came back up to test around that level, and it's had a bit of a, another push down. Now looking at the, the technicals here, just responding to some of the, the previous lows that we've seen in the overnight session going back from Thursday to Friday last week. And, you know, on the much longer time frame. Again, I'd say we've kind of now got our new range for oil for the moment, which is basically around— if we just stick with that same chart we've had marked up for a while, it's this kind of activity between $52.76 and then now the low seen around $50.58, which would bring in those summer 2019 lows that will be quite key for the range, I think, in the near term over the coming session or sessions. if you want to look at it that way. Currency markets very quiet, not really moving. The dollar index is basically flat, so currency pairs really not as interesting as some of the, the size of the movement seen in the other asset classes. I was just having a look at gold, obviously has broken a little higher. We've got above the high print that was seen in the overnight Asia-Pacific session, that with the trendline break with what I was just looking at here of the last week's price activity, saw a brief flirt and test of the R1, but we've managed to just come back down. We're settling around that same technical point of significance. So again, any continuation of further run-up in gold, well, you'd want to be seeing a continuation of the risk-off move, and at the moment that's not really happening. If anything, right now as we speak, the market, um, just reversing some of those overnight moves. Albeit I'm just seeing, starting to see now a little bit of currency movement as cable just ticks down a little. Not forgetting we've got the first of the batch of UK data coming out today. So yeah, Apple was the, the kind of catalyst, if you like, but the longevity of that move— there's a couple of points I just want to stress. One is this is kind of Corporate Strategy 101. Apple getting any type of negative news out there as soon as possible. It's kind of a way of just dampening the effect then when they actually release their physical numbers come the end of the quarter in March. So it's quite a prudent way of mitigating any kind of buildup and subsequent latter shock in their share price. So this is quite, quite typical. The fact that the company can kind of blame it on external circumstances, I think, would be quite actually warmly received So I don't really anticipate, even if there is some intraday reaction, too much in the way of a sustained impact on Apple shares. If anything, I think they've kind of cleared the slate now and they've eradicated what would have been quite a big, um, negative for the stock. So again, when they open, it'll be quite interesting. As a point of reference, Apple is about 11.6% index rating of the NASDAQ. 7.5% index weighting of the Dow and just shy of 5% of the S&P 500. Remember, those top companies— when we talk about Amazon, Alphabet, Apple, Facebook— they literally comprise of about 20-odd percent of the entire S&P 500. So when you do get a kind of revenue warning like this from Apple, this is the type of shock that you see in markets in the short term. Okay, the other equity news story you've probably seen this morning is HSBC. Um, just having a look, HSBC shares opening down about 4% this morning. So it probably added to a little bit of the tailwind overnight, um, not only with Apple reaction, but the subsequent, um, supply chain of Apple, uh, was all down overnight in terms of some of those Asian names. HSBC shares lower, they've also opened lower in London this morning. Um, the summary here is they're going to slash about 35,000 of its workforce over a period of a few years. They're going to take a $7.3 billion charge, and they're targeting cost reductions of $4.5 billion at its underperforming units in the US and Europe. So, yeah, quite a severe shakeup and a kind of a refocus of the firm to kind of cut off underperforming parts and look to focus on Asia, which is kind of real core to their business in that respect. So that also probably getting a bit of attention this morning. Just before I move on, I'm going to talk about the RBA minutes. I mean, the reaction now that we're seeing in equities is the exact point that I was kind of referring to. You can see now the DAX, very strong bounce we've just seen to the upside, back up reversing pretty much the entire drop that we've seen when Europe came in. And US equity index futures following suit. So this is what I mean about, you know, when you're a new trader, I understand it can be quite compelling. You read all these negative headlines, you see the reaction in Asia and in futures overnight, and you feel like, wow, I just want to hit it. And you feel like, well, I wish I was in at 5 AM in the morning. But this is where it can be quite devastating because you can get caught short quite badly and you get squeezed out of your position. So, you know, again, it's about, you know, being quite considered. And being realistic and rational about the opportunity at the time when then you're in the marketplace. So as I said, this Apple thing, I don't really see it being too much of an obstacle. The other thing, of course, that people are looking at is the coronavirus. There's been an additional 1,868 cases overnight, 98 deaths, but 1,700 people or patients have been discharged. So yeah, as much as that's still something to be monitored, I don't think that those numbers are really that surprising, to be quite frank, either. Moving on then, let's have a look at the RBA. You've probably seen the Aussie has dropped overnight. So people obviously still monitoring the performance of the Asian indices, of which local markets in Hang Seng and Shanghai Composite were a little bit lower, reversing some of the upside from yesterday. Uh, but the Aussie weaker because we had the RBA minutes come out overnight. Now, to keep things in a summary form, the Australian Central Bank minutes showed that the members in their discussions reviewed the case for further interest rate cut. Remember, it was— there was some prospects that potentially they could have gone for it. They didn't, but it was under discussion, and that in itself alone was enough to kind of give the cue to the doves to bump the Aussie a little lower overnight. They expect the coronavirus outbreak to subtract from growth in exports over the first half of this year. They acknowledged though that it's difficult to assess potential indirect effects on activity at this point. They maintain their easing bias, reiterating its expectation rates will likely stay low for an, a quote, extended period. But the bank retained a broadly upbeat view of the economy's prospects. And so yeah, all in all, a slight dovish reaction seen in the, in the Aussie overnight. But if markets start to stabilize, perhaps then that provides a bit of a floor in regards to if calmness kind of returns and is restored in respect to the, the outbreak of the virus. In other headlines, so this was the RBA. I just wanted a quick word on the trade negotiations between the US and China. Quite interesting things obviously happening at the moment. This is kind of taken overall as a subject matter a bit of a backseat, just given the emphasis on the containment of the virus. But China said yesterday that it would accept applications for new tariff exemptions of nearly 700 products imported from the US, including key agricultural energy products such as pork, beef, soybeans, liquefied natural gas, and crude oil. Now, I thought that was quite interesting. Obviously, China, um, looking to almost offer the olive branch. The exemptions are the third and most substantial set to be granted to date by China since the start of the trade dispute. It's one of those things now where China really doesn't have much else of a choice, although they can and they will ramp up their fiscal intervention, if you like, and monetary support in the market. They also do not want an additional layer of pressure from the tariff man on top of already the, the impact that the virus is going to have on their economy. So they're looking to kind of ease back, make exemptions, ramp up then the key imports from America, which is agricultural and energy products, hoping then that that appeases the Americans then keep things relatively passive on that front. However, quite the opposite if you were looking from Trump yesterday. He was talking about the US considering a new wave of China tech restrictions, looking at possible bans on GE jet engine exports. The US quite afraid of basically the Chinese receiving receipt, if you like, of the engines and then reverse engineering them to then steal steal the intellectual property of those engines. And then Huawei also always in the spotlight, and some talk about Huawei steps being mulled as well. Decisions are expected towards the end of the month at cabinet-level meeting on China. So yeah, one, one to be watched. Definitely if, if the US do start becoming a little bit more assertive and aggressive again on China, I, I personally don't see see that being the case because of the situation China finds themselves in. I think Trump's gonna get kind of what he wants, which is this one. I mean, if China do start making more exemptions, well, it's kind of a win-win for Trump. He just makes a couple of noises but doesn't actually follow through about more restrictions and being tough on China. But at the same time, China does everything it can to live up to its Phase 1 trade deal and goes a step further by making, uh, the third and most substantial set of exemptions granted since the trade war began. So again, it's another win for Trump with the underlying domestic economy starting to perform a little bit in terms of recent economic data. Uh, so again, a lower risk for markets more generally. Quick look at the calendar. What have we got for today? Well, for this morning, uh, UK jobs data kicks off that sequence. Remember, you got the jobs data from UK today. You then get the CPI Wednesday, you've got retail sales then Thursday, industrial manufacturing production end of the week. So quite a busy week. Keep an eye on cable, um, it is trading a little underperforming this morning, down about 56 pips, um, testing its S2 already this morning. As I said, Alex can come on after me after briefing and talk over some technicals a bit more for those interested. European, European data, you've got the German ZEW figures. I wouldn't be looking at that to be the, the silver bullet, if you like, for dictation of European asset class movement for the day, but certainly something to just monitor. And then going into the US session, there's not really a great deal of major US economic data. We've got the New York Fed manufacturing number at 1:30, but I would say the bigger emphasis is going to be on US interpretation of some of the latest news that's happened overnight with Apple and with the developments with the virus. But as I said, I still feel fairly confident that the market will swallow the Apple news relatively comfortable— comfortably. But even if we did bump lower, I still think that then the, the, in terms of equities, we'll find some strong support lower down. Speaker-wise, ECB's Panetta is speaking at 1:45. Fed's Kashkari, the most dovish member on the FOMC, is speaking at 7 PM this evening. You do have a Schatz auction coming out of Germany for any fixed income traders. And then from pre-market US earnings today, one to look out for is Walmart. I'll give you the full rundown ahead of the release and the times, but it's going to be a few hours time. They are Respective 2.7% of the Dow, so one of the bigger components. All right, gonna leave it at that, let you guys get cracking, and I wish you a good day ahead. I'll be in the chat room all morning, so any help that I can provide, just let me know, and I'll let Alex come on in about 20 minutes' time or so, and he can cover off some of the charts and setups for the day. Thanks very much, guys.