Quarterly Earnings Preview: Alibaba, Eli Lilly and Fidelity

Alibaba Group (#Alibaba), a Chinese multinational technology company with market cap of over $530B, specializing mainly in core commerce (retail and wholesale operating platform), cloud computing (big data analytics, machine learning platform, database, storage and content delivery network, security, management and application), and digital media and entertainment (Youku, Tudou etc), is scheduled to announce its earnings for the fiscal Quarter ending June 2021 on 3^rd August, before market open.

Figure 1: Reported Sales and EPS versus Analyst Forecast for Alibaba, by quarterly and annually

Despite suffering the first-ever losses from operations due to the anti-monopoly fine levied by the government in China, Alibaba Group continued to surpass consensus estimates in many aspects in the quarter ended March 31^st this year. This includes annual active consumers and mobile monthly active users (MAUs) exceeding 800 million (an increase of 32 million (q/q) and 85 million (y/y)) and 900 million (an increase of 23 million (q/q) and 79 million (y/y)) respectively, $28.60B in revenue (an increase of 64% compared to the same period last year), as well as non-GAAP net income and diluted earnings per share (EPS) achieving an increase of 18% (y/y) and 12% (y/y). Adjusted EBITDA has also recorded gains of 18% (y/y) to $4.563B.

Market participants remain optimistic over the upcoming quarterly earnings announcement. Consensus estimates for sales stood at 209.1B, up 11.58% (q/q) and 35.96% (y/y) respectively. In addition, EPS is expected to hit $14.32, up 38.76% (q/q), but slightly below the same quarter in the previous year, by 3.37%. Nevertheless, taking into consideration the positive factors such as strategic business model for consumer growth and retention, new retail strategy which involves seamlessly online and offline digital commerce infrastructure and high-frequency delivery fulfilment services, improved domestic and international logistics and consistent growth of international commerce retail business (Lazada, Ali Express) and so on, market participants remain positive towards the outlook of the Alibaba Group.

Even so, it is still important to keep in mind that some negative factors that could provoke international tensions and block the expansion of Chinese tech companies, as well as the company’s rocky political standing which may hinder its future growth, should also not be ignored.

The weekly chart shows that the #Alibaba share price is traded within a descending wedge, leaving the highest point at $319.27 seen on 27^th October 2020, and consecutively lower highs at $274.27 (or FR 23.6%) and $230.86 (near FR 50.0% and SMA-100). Breaking below these points, the company’s share price continues its losses to below FR 61.8%, or $202.20. Both RSI and Stochastics Oscillator display that the price remains stable in a range below 50.0, but above the oversold zone.

From the Daily chart, the #Alibaba share price remains pressured below resistance zone $202.00 (or FR 61.8%) and $207.50 (FE 61.8%; all FE levels are constructed following connection of the highest point seen last year, $319.27, the subsequent lowest point seen in late December of the same year, $211.19, and a rebound high at $274.27 (also corresponds to the weekly FR 23.6%).

Based on the estimates offered by analysts, the #Alibaba share price is just slightly above the low estimate ($192.33), and over 80% have voted for a “Buy” in a poll since July. If the price breaks above $202.00-$207.50, with a bullish candlestick closing strongly above the upper line of the descending wedge as well, there is potential for the price to extend towards the next resistance $224.50 (FR 50.0%) and $246.90 (FR 38.2%).

Nevertheless, if the said resistance zone remains, $166.20-$170.40 may serve as a critical support to watch. A successful bearish breakout will also mean a break to the price structure, thus opening up an opportunity for another slump towards the psychological price level $150.00 and the low seen in May 2019, $147.91.

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Eli Lilly

Eli Lilly and Co. (#EliLilly) is an American pharmaceutical company with a diversified drugs profile which was founded in 1876. Similar to Alibaba Group, it is set to release its earnings report on 3^rd August, before market open.

Figure 2: Reported Sales and EPS versus Analyst Forecast for Eli Lilly, by quarterly and annually.

In general, Eli Lilly does not seem to be a compelling candidate in terms of sales and EPS growth. In the previous quarter, both reported sales and EPS missed consensus estimates, with the former stood at $6.8B (versus $6.9B) while the latter stood at $1.87 (versus $2.12). Despite being involved in selling a wide range of drugs, lower realized prices driven by increased competition among peers and increased rebates to gain wide commercial access, lower-than-expected demand for its Covid-related drugs, reducing price in international markets as well as continued negative impact from the pandemic has curbed the company’s growth.

Market expectations remain flat for the upcoming Q2 announcement. Sales is expected to achieve $6.6B, down 2.94% (q/q), but up 20% (y/y); EPS, on the other hand, is expected to hit $1.89, up slightly from the previous quarter by 1.07%, but remaining flat as in the same quarter last year. It is currently ranked as #4 (Sell) by Zacks.

In near term, following the FDA’s emergency approval to supply a wider range of antibody medicine for Covid-19, the number of sales of these drugs remains on an observation list in which a better-than-consensus performance may improve market sentiment. Any development in the pandemic situation shall also directly affect the company’s performance.

From technical perspective, the points $101.18 (2019 lows) and $129.16 (the lowest seen in the latter half of 2020), together with the January 2021 high $217.73 and the $178.52 (resistance turned support), form bigger and smaller (aqua) Fibonacci expansion trend levels respectively. Currently, the #EliLilly share price is traded within an ascending wedge, slightly below $250 (median estimate of 17 analysts, or bigger FE 61.8%). Breaking above this level, the share price may extend higher to test the two FE 100.0%, first the smaller FE ($267.10) and next the bigger FE ($295.10) to the high estimate of the analysts, $300.00.

Oscillator indicators in both Weekly and Daily chart display the #EliLilly share price at an overbought zone. The downside risk is that the earnings result will not perform up to par, which may lead to the share price tumbling towards $233.25 (smaller FE 61.8%). Breaking this level may indicate the possibility for the share price to extend its losses towards $217.73 (or January 2021 high), $210.00 and $195.00 (or the low estimate offered by analysts, $190.00).

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Fidelity National Information Services

Fidelity National Information Services, Inc. (#FIS) has been established for over 50 years, engaging in the segments merchant (electronic payments, eCommerce and mobile wallet), banking (digital solutions, fraud and risk management, payment network, item processing and output services solutions) and capital markets (buy-and sell-side solutions) in over 140 countries. The company will also release its earnings report for the fiscal quarter ending June 2021 on August 3^rd, before market open.

Figure 3: Reported Sales and EPS versus Analyst Forecast for FIS, by quarterly and annually.

In Q1 2021, FIS reported sales revenue at $3.2B, slightly down 3% from the previous quarter, but up 5% as compared to Q1 2020. The figure is at par with market expectation. Most of the revenues came from the software license fees and processing, transaction fees, technology and professional services that it provides.

On the other hand, EPS stood at $1.30, exceeding consensus estimates by $0.05. FIS has been doing well in the last year, with reported sales revenue at 12.6B (same as consensus estimates) and EPS at $5.46 versus consensus estimates at $5.41.

For the upcoming announcement, sales revenue is expected to hit $3.4B, up 6.25% (q/q) and 13.33% (y/y), respectively. As for EPS, according to Estimate Momentum, analysts’ sentiment remains optimistic as it has been projected at $1.55 for the past month and kept unchanged. If this scenario happens, the EPS would be up 19.23% (q/q) and 34.78% (y/y), respectively.

A buy rating is given by a majority of analysts on FIS stocks. Fundamentally speaking, the company is seen as undervalued at a more than 25% discount to the current market price, by using the Discounted Cash Flow (DCF) model.  Looking forward, as its cryptocurrency exchange continues to expand, FIS will also benefit from its card-to-crypto processor Worldpay. In addition, its Modern Banking Platform which offers advanced components that serve open, powerful and scalable banking systems has helped banks to continue staying ahead of market changes. This suggests that market demand towards services offered by the company may increase further in the future, thus benefiting its stock price.

The weekly chart shows that the #FIS share price remains traded within an ascending triangle, with the recent highest point formed at $158.18 seen in the week of 9^th February last year. Together with $160.50 (or FE 61.8%), these price levels contributed to a major resistance.

In general, $89.88 (lowest low formed on 15^th March last year), $121.66 (higher low formed on 24^th January this year) and the latest, highest low $141.42 (which also corresponds to 100-SMA) contribute to the three key points which connect together to form an ascending trendline of the triangle. Currently, the company’s share price is traded at the low estimate ($150.00) as offered by 29 analysts. RSI remains neutral (55.13) while Stochastics oscillators approach the overbought zone.

In between FE 0.0% ($119.20) and FE 61.8% ($160.50), prices are subdivided into Fibonacci retracement levels, which extend from the lowest seen in late January ($121.66) to the session high formed in late April ($155.93) this year. The level at which FR 23.6% and SMA-100 meet is the nearest support. If the bears successfully break the support, the next support levels to focus on are $145.00, $141.42 (highest low of weekly ascending triangle structure), $142.85 (FR 38.2%), and $138.80 (FR 50.0%).

At the upside, a break above the resistance $151.50 may indicate the share price will extend its bullish momentum towards the highest point of the year ($155.93), and later on the weekly FE 61.8% ($160.50).

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Larince Zhang

Regional Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Dollar Weakens Ahead of Key Payrolls Data

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Daily Market Outlook, August 2nd, 2021

Daily Market Outlook, August 2nd, 2021 Overnight Headlines China's July Manufacturing Weakens Amid Export Weakness China Backs State-Owned Enterprises With $32Bln In Rescue Funds China To Keep Open-Up, Ensure Security In Overseas IPO: Xinhua Japan Defence Min Calls For Greater Attention To ‘Survival’ Of Taiwan Australia’s Queensland Lockdown To Be Extended Until August 8th Fed’s Kashkari Warns Delta Variant Could Slow Jobs Recovery Fed’s Brainard: Labor Market Hasn’t Satisfied Goals For Reducing QE Fauci Warns On Covid-19 That ‘Things Are Going To Get Worse’ US Senators Make Final Tweaks To Infrastructure Bill, Passage This Week World’s Biggest Pension Fund Cuts US Bond Weighting By Record Dollar Holds Near One-Month Low As Investors Eye U.S. Jobs, RBA China Government Bond Yields Slip As Coronavirus Concerns Rise Oil Prices Slide On Worries Over China Economy And Higher Crude Output Asian Stocks Climb As China Shares Bounce Back, Japan Rallies HSBC Restores Interim Divi As Q2 Profit Soars On Reserve Releases Square To Acquire ‘Pay Later’ Company Afterpay For $29Bln Vonovia To Make New Deutsche Wohnen Offer At 53 Eur/Shr The Day Ahead Earlier this morning, the release of our July Lloyds Business Barometer survey showed the level of business confidence fall for the first time since the start of the third national lockdown in January. Overall business confidence declined by 3 points to 30%, reflecting a decline in firms’ own trading prospects (28% vs 30%) and a fall in optimism regarding the economy (32% vs 36%). However, a broader sign that firms remained confident about the outlook, albeit a little less than in June, firms’ hiring intentions picked up for a sixth consecutive month – from 17% to 18% – to reach its highest level since November 2018. The first half of the week sees somewhat of a lull in the calendar. July manufacturing PMI readings for the UK, France, Germany and the Eurozone as a whole, are final readings. Revisions are typically not that meaningful and it is likely that the surveys continue to show that rates of activity remain solid, albeit with headwinds from supply chains and labour shortages continuing to persist and resulting in firms not being able to fully meet client demand. Across the pond, the US ISM manufacturing survey is likely to show a similar theme. In June, the headline measures printed an above-60 outturn for a fifth consecutive month – consistent with a rapid pace of activity. However, the employment component dropped below the key-50 level signalling a drop in employment and highlighting the challenges that US manufacturing firms are currently facing in increasing their workforces. The extent to which this dynamic has continued, and is feeding through into inflation, will be closely watched.The Week Ahead Week Ahead-U.S. non-farm payrolls key for market direction The U.S. has a busy data calendar this week, but July non-farm payrolls will be the most important release by far. The market is expecting a strong result, with 900,000 jobs added, unemployment to fall to 5.7% from 5.9% and average hourly earnings to rise 0.3% month-on-month. A stronger-than-expected outcome would fan expectations the Federal Reserve will have to be more aggressive in tapering monetary stimulus, while weaker numbers will fuel concerns that global growth is slowing. Other key U.S. data in the week ahead includes factory orders, ISM manufacturing, ADP jobs, trade data and ISM non-manufacturing. Euro zone data includes final manufacturing and services PMIs, EZ retail sales and German industrial production. UK PMIs will also be released this week.In Japan, PMIs and Tokyo CPI are due. China data includes July Caixin manufacturing and services PMIs following slower growth in the official NBS measures. Chinese July trade and FX reserves data are also due. Australia data includes building approvals, trade and retail sales. New Zealand's main release is Q2 employment, while Canada has PMIs, trade and employment data due. Week Ahead-BOE and RBA meet, China may try to calm markets The Bank of England and Reserve Bank of Australia meet this week in very different settings. The BOE will debate how the opening of the UK economy will impact growth and inflation, while the RBA will discuss what should be done to offset the severely negative impact of the greater Sydney lockdown. Recent data showing UK inflation is rising has convinced some BOE MPC voters to signal policy may have to tighten sooner than later, but the doves on the policy committee are expected to dominate for now. The RBA meets on Tuesday, as Sydney remains in an extended lockdown due to the fast-spreading Delta variant of the coronavirus. The RBA tapered slightly in July, saying that from September they would reduce their bond buying to A$4 billion a week from A$5 billion. The majority of those polled by Reuters believe the RBA will reverse that decision and delay the tapering. Markets were rattled last week when China cracked down on publicly traded companies in the tech and education sectors. Emerging market equities were hit hard, with the EM ETF down over 5% at one stage before recovering most of the lost ground after China regulators tried to allay investor fears. Investors will keep a close eye on developments in China and emerging market moves after a highly volatile week.CFTC Data Bullish USD Speculative Sentiment Builds Data up to Tuesday July 27 and were released on Friday July 30. The tentative step towards building a bullish USD position by speculative traders reporting futures positioning via the weekly CFTC data last week developed more strongly in the reporting week through July 27th. Aggregate net USD longs, reflecting total positioning in the major currencies, rose USD2.6bn to total USD3.56bn. This is the largest aggregate USD long position since early March last year and suggests a broad positioning and sentiment shift is developing in favour of the USD. Investors are turning increasingly bearish on the JPY, AUD and modestly so this week the GBP. Net JPY shorts remain within the range of positioning seen since the spring and increased only modestly this week (USD483mn) to total USD6.8bn. However, the net JPY short represents the biggest single currency position across the currencies we monitor in this report now. Net AUD shorts increased modestly (USD281mn) but represent the second-largest conviction short against the USD at the moment. Net GBP shorts rose USD195mn to USD493mn this week as gross long positioning dropped sharply. Elsewhere, the USD saw a significant short-covering lift against the EUR, with net EUR longs dropping USD1.12bn to USD5.6bn—or the equivalent of 38k contracts (the lowest since last March). Net CAD longs were slashed USD592mn to USD426mn. Gross shorts declined but gross longs fell significantly as investors turned less constructive on the CAD. Modest Net NZD longs were more or less halved in the week (falling USD112mn) to USD99mn. Investors trimmed net MXN shorts slightly, however (falling USD44mn to USD661mn), while net CHF longs (USD1.2bn) increased slightly (USD70mn) after falling in the past three weeks. Beyond the major currencies, speculators added USD394mn to their net gold longs to USD35.9bn (or just under 200k contracts net), keeping positioning within the range seen since February. Meanwhile, natgas net shorts rose to the highest since last March while prices continued to rise to around $4, the highest since late 2018G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby) EUR/USD: 1.1800-15 (1.1BLN), 1.1900 (1.4BLN) USD/CHF: 0.9000 (250M). EUR/GBP: 0.8500 (210M) AUD/USD: 0.7360 (524M), 0.7400 (1.2BLN) NZD/USD: 0.6875 (200M), 0.6900 (209M) USD/CAD: 1.2550 (559M) USD/JPY: 109.50 (225M), 109.75 (310M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.1950 Bullish above EUR/USD opened 1.1864 and traded in a 1.1859/1.1872 range Heading into the afternoon it is trading at the session high Risk assets were buoyant in Asia with the AXJ index +0.65% and Eminis +0.50% EUR/USD support is around 1.1820 where the 10 % 21-day MAs converge Fibo resistance is at the 38.2 of the 1.2266/1.1752 move at 1.1948 EUR/USD likely to consolidate before trending higherGBPUSD Bias: Bearish below 1.40 Bullish above. Touch softer in a tight 1.3888-1.3902 range with only moderate flow Buoyant markets cap USD - E-mini S&P +0.55%, Nikkei +1.7% and AsiaxJP +0.5% UK may offer 32 million vaccine booster shots from September - The Telegraph If true a major weapon in the fight against the Delta variant... Charts; 5, 10 & 21 daily moving averages climb - mixed momentum studies Net bullish setup, despite Friday's dip- 1.3819/21 21 & 10 DMA's key support 1.3981 upper 21 day Bollinger and 1.3991 61.8% June July fall cap at present Break would open the door to 1.4090 76.4% retracement of June July fallUSDJPY Bias: Bullish above 109 Bearish below USD/JPY does little in thin, sluggish trade, range 109.61-77 EBS Spot well within 109.29-110.12 daily Ichi cloud, 100/55-DMAs 109.60/110.00 Some offering interest above, especially pre-110.00, bids towards 109.00 Few notable nearby option expiries today, 109.50-70 total $347 mln only US yields remain soggy, Treasury 10s @1.223%, risk on, Nikkei +1.7@ @27,742 Crosses quiet, EUR/JPY 130.11-20, GBP/JPY 152.26-56, AUD/JPY 80.36-60, heavy Japan July mfg PMI 53.0, flash 52.2, output growth picking upAUDUSD Bias: Bearish below .76 Bullish above AUD/USD opened 0.7340 and traded in a 0.7330/50 range Heading into the afternoon it little changed at 0.7340/45 Dip to 0.7330 was due to the weak Caixin PMI that followed the weaker official PMI China SSEC started off negative before turning around late morning Asian equity markets were buoyant with AXJ index +0.65% and Eminis +0.55% AUD/USD support at last week's 0.7317 low and trend low at 0.7289 Resistance is at the 21-day MA at 0.7411 and break eases downward pressure RBA decision tomorrow a key event as Sydney lockdown weighs on economy

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Market Update – August 2 – USD consolidates at lows

Market News Today – USD up from 1-month lows (USDIndex 92.00 from 91.75 on Friday) – Chinese & Asian stock markets rise, despite weak Chinese PMI and other Asian data. US equity markets closed lower on Friday (-0.54% USA500 4395)  led by -7.56% fall for AMZN. Yields closed the week down at 1.239%. Overnight – HSBC beat earnings significantly, adding to the good news from other European banks. AUD housing market still hot, JPY consumer confidence ticks up and German Retails sales bounce back significantly. Gold is down again at 1808, and USOil is down to, but up from a test of 72.00, earlier.

Week Ahead –  Another key week to start the month – We have the RBA, BOE, CAD Jobs and NFP along with a raft of PMI data.

European Open – DAX and FTSE 100 futures are up 0.5% and 0.4% respectively, U.S. futures are posting gains of 0.5-0.6%, after an upbeat session across the Asia-Pacific region overnight. In FX markets both EUR and Sterling are little changed against the Dollar, with EURUSD at 1.1873 and Cable at 1.3909. China jitters eased and there was some progress on the US infrastructure (much reduced) spending plan, which helped to underpin sentiment. Virus developments in Asia continue to cause some worries, but for Europe at least the hope is that advanced vaccination campaigns will allow economies to get through this wave without the type of restrictions that could seriously hurt the recovery. Central banks are still cautious though as there are still lingering risks and that will likely also keep the BoE in wait and see mode this week.

Today – EU, UK, US Manufacturing PMI (Final), US ISM Manufacturing PMI Earnings: AXA, Heineken,

Biggest FX Mover @ (06:30 GMT) AUDNZD (+0.19%) Has moved up from 1.0517 (2021 and 33 week lows) on Friday. Weak breach of 21 EMA earlier, Faster MA’s aligned higher, MACD signal line & histogram under 0 line but moving higher, RS 55, neutral but rising, Stochs rising and already into OB zone. H1 ATR 0.0008, Daily ATR 0.0051.

Click here to access our Economic Calendar

Stuart Cowell

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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Dollar Down Near One-Month Low Ahead of RBA Policy Decision

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Dollar holds near one-month low as investors eye U.S. jobs, RBA

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George Iacobescu: the man who transformed London

George Iacobescu was in his early forties when his boss, Paul Reichmann, founder of the Canadian developer Olympia & York, sent him to London to investigate the possibility of building in the city’s Docklands. It was 1986, the year of Big Bang, and the area had been designated an enterprise zone by Margaret Thatcher. Iacobescu walked from his hotel in Mayfair, along the river to Canary Wharf, says The Sunday Times. What he found made him think of The Long Good Friday – the gangster movie starring Bob Hoskins and Helen Mirren. “I saw 500 years of history along the Embankment and then I arrived here and there was nothingness,” he relates. “I went back and said: ‘Don’t touch it’.”

An architectural revolution

London’s recent history might have been very different had Reichmann taken his scout’s advice. Indeed, having overcome his initial doubts, Iacobescu became the “visionary” who quite literally put Canary Wharf “on the map”, says the Financial Times – eventually becoming “synonymous with the Docklands financial district”. He transformed London’s skyscape, presiding over what he now calls the biggest architectural revolution in the capital “since John Nash designed the West End”. But, more than that, he helped cement London’s emergence as a modern financial powerhouse to rival Wall Street. Former Lloyds of London chairman Peter Levene compares him to the PM who backed the project. “Rather like Margaret Thatcher, the one person who came up with solutions was George.”

Born in 1945 to a family of dissidents in the oppressive regime of Nicolae Ceausescu’s communist Romania, Iacobescu grew up in a world of such dire economic mismanagement and stark shortages that families “were allowed one light bulb per apartment”, says The Independent. When his mother-in-law went to hospital for an operation, she had to bring her own lightbulb for the operating table. Iacobescu’s father was a doctor who, like most people in the country, failed to prosper and his own career path was set early. His first job involved carrying pails of concrete to the tenth floor of a building site. But, ultimately, “Romania’s economic disaster provided the means of his deliverance.” The need for foreign currency was great and “the country had little to export apart from its people”, fuelling an underground trade. Iacobescu emigrated in 1975, says The Sunday Times. He fled to Montreal and spent another two years lobbying to get his fiancée out, “eventually resorting to a successful hunger strike outside the UN building in New York. “A chance encounter at a party got him a job with Olympia & York.”

Will Canary Wharf survive?

It hasn’t always been plain sailing, says the FT. The Canary Wharf project bankrupted debt-ridden O&Y, but Iacobescu joined the new company that took on the scheme and eventually rose to run it. Now 75, he is preparing to hand over responsibility of the Canary Wharf Group to Shobi Khan, who joined as CEO last year. The cigar-chomping Iacobescu will be a tough act to follow, says The Independent. A courteous, avuncular figure, “he’s the patriarch whom the lowliest security guards approach with problems”.

The pandemic has placed a question mark over the future of Canary Wharf, says The Times. But the man isn’t having any of it. “Working from home is a fad,” he declares. “There is a logic to having an office. There is a culture, there is competition, there is creativity, there is dating, there is learning…We’re all chemically made to be together.”

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How the government can give our start-up businesses a hand up

For three decades, the UK has stuck to the view that the government shouldn’t try to invest directly in companies. It didn’t have the expertise to “pick winners” and was far too easily swayed by political considerations. Over the last year, that has changed. At the height of the Covid-19 crisis the chancellor, Rishi Sunak, decided that, with venture-capital money drying up, he should step in and help companies that otherwise might go bust. The Future Fund ended up spending £1.1bn, taking stakes in more than 1,500 companies. 

What government can offer

The chancellor has decided he likes his new toy so much that he’s going to play again. The Breakthrough Fund will put £375m into start-ups to help them grow and expand. There is nothing wrong with that in principle, but, the exceptional circumstances of Covid-19 aside, there is no shortage of money available for new firms in the UK. In 2020 there was a record £15bn of venture-capital (VC) funding for new businesses. The UK ranks third globally for VC investment, behind only the US and China, and well ahead of India, Germany and France. The money is there if you can make a convincing investment case. The government could instead offer something unique: regulatory and legal reforms. No one else can make that happen. 

Firstly, we could exempt new companies from employers’ national insurance for the first three years. The first three or four staff are often the crucial point at which a new venture transitions from being a hobby, or a form of self-employment, to a properly functioning business. But it is dauntingly expensive, and adding a specific tax onto every staff member’s salary only makes it worse. It would be easy to suspend that for the first three years. While we are at it we could exempt new companies from employment protection as well so founders didn’t have to worry about being hauled before a tribunal if the first few staff didn’t work out. It would encourage firms to hire – as well as creating more jobs. 

Secondly, we could suspend business rates for the first five years to make an office or workshop cheaper. Again, getting an office is a crucial first step in turning a start-up into a proper business, but at precisely that moment we hit new companies with a huge new tax and one that bears no relation to whether they are making any money or not. If we held off for a few years, a lot more companies would have the chance to grow to a size where they could easily afford rates. 

Thirdly, we could introduce start-up visas to make it easier to hire talent from around the world. We are already reforming the immigration rules so that the system encourages higher-earners, with better qualifications, into the country, instead of just anyone who happens to be born in the European Union. We could tweak that so that a start-up could, within its first three years, bring in any staff from around the world that it needed. And while we are at it, we could offer automatic visas to anyone who wanted to come to the UK to start a company, subject only to a minimum amount of investment, or funding from a UK-registered venture-capital firm. There is no point in keeping out people who want to create jobs and wealth in this country. 

A regulatory fast track

Finally, how about fast-track regulatory approvals for start-ups? In many industries, from life sciences, to finance and professional services, to emerging technologies such as artificial intelligence, to robotics, to drones and driverless vehicles, it is getting a product or service through all the regulatory hoops that really takes time. Why not mandate faster approval times for companies less than three years old by simply bumping them to the head of the queue? A fintech launch, for example, might be able to get a banking licence in half the time, or a biotech launch gets its drugs to the market in three years instead of ten. A big company might be able to afford to sit around for years to get all the appropriate licences. A new one could easily run out of cash before it happens.  

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What next for Haiti after its president was assassinated?

What’s happened?

On 7 July Haitian president Jovenel Moïse was assassinated in his bedroom. Haitian authorities say that a group of up to 28, largely Colombian, mercenaries broke into his home near the capital Port-au-Prince. The president was shot 12 times. His wife was also shot in the attack, although she survived. Police have since apprehended most of the alleged attackers and paraded them before the press. Many details of the murder remain unresolved, not least the reason why the president’s own security detail appears to have offered no resistance to the mercenaries. 

Was Moïse popular?

No. A one-time banana exporter, Moïse had assumed office in 2017. Things got off to a bad start after he was implicated in an embezzlement scandal: at least $700,000 of public money had allegedly been diverted to his banana business. Security worsened during his tenure: most of the country is now too dangerous for foreigners to visit due to the risk of kidnapping. Moïse also had an autocratic streak. He refused to hold new parliamentary elections last year and had effectively been ruling by decree at the time of his death. He also insisted that his term should end in 2022, a year later than the constitution seemed to allow. Moïse had made so many enemies that, as Michael Stott puts it in the Financial Times, it is still “not entirely clear which side his bodyguards were on” during the assassination raid. 

Does the country have a history of this?

Haiti is the only state in the world to have been founded by a successful slave revolution. The country gained independence from France in 1804. Over the turbulent centuries since there have been a few constants: coups, foreign intervention, poverty and some astoundingly corrupt and brutal leaders. The country was occupied by the United States between 1915 and 1934. Between 1957 and 1986 it suffered under the successive dictatorships of François “Papa Doc” Duvalier and his son, Jean-Claude “Baby Doc” Duvalier. The pair are thought to have stolen hundreds of millions of dollars of public funds. In 1991 Haiti turned towards democracy, but it has been a rocky ride, with disputed elections and two more coups since then. 

What’s happened since the killing?

Moïse’s assassination created a power vacuum, sparking fears that the country was heading for outright anarchy. For now the elite seem to have coalesced behind new prime minister and acting president Ariel Henry. Elections are due in September, although it is anyone’s guess whether they will happen or not. 

But the country is poor?

Yes. With a GDP per capita of just $1,279, Haiti is the poorest country in the Americas and one of the poorest in the world. The World Bank reports that the poverty rate approached 60% last year as the Covid-19 pandemic worsened an already dire economic situation. Two-fifths of Haitians depend on agriculture, making for a precarious existence in a mountainous country that is prone to natural disasters. Textiles make up the bulk of exports, but the economy is overwhelmingly dependent on external help. More than 20% of the government’s annual budget comes from foreign donors. More than a quarter of GDP comes from remittances from the Haitian diaspora, says Rocio Cara Labrador for the Council on Foreign Relations. Millions of Haitians live and work overseas and send money home. 

Why is it so poor?

Some blame a long history of meddling by the US. Others point to its colonial heritage. In 1825 Haiti was forced to pay a 90 million franc (about $22bn today) indemnity to France in return for recognition of its independence. The debt took more than a century to clear. Yet that doesn’t seem to explain Haiti’s current predicament, says Noah Smith in his Substack newsletter. By 1960, the debt was long paid off and Haiti had a similar living standard to the Dominican Republic, its neighbour on the island of Hispaniola. In the ensuing decades the latter grew rapidly and is today “eight times as rich… Haiti’s standard of living hasn’t advanced at all since 1950”. That is one of the most dramatic economic divergences in recent history, “perhaps surpassed only by North and South Korea”. Some blame environmental degradation – Haiti is heavily deforested. Others argue that while the Dominican Republic has had its own share of brutal dictatorship, its leaders were at least more focused on development and less intent than the Duvalier duo on robbing their own people. All of these factors have probably contributed, but “the short answer is that no one exactly knows” why Haiti’s economy has done so badly. 

What should be done?

Haiti needs stable political institutions and an end to pervasive corruption and organised crime. But previous efforts have achieved little. As the Financial Times notes, the country has been “in essence an international protectorate” for much of this century. UN peacekeepers were present between 2004 and 2017, but accidentally helped spread a cholera epidemic. The international community poured in $13.5bn of aid after an earthquake in 2010 that killed 220,000 people and left 1.5 million homeless. The money helped rebuild damaged infrastructure, but it didn’t build the nation’s institutions. Some argue that too much aid creates perverse incentives, encouraging local elites to focus on the demands of foreign donors at the expense of their own people. As Elise Labott puts it in Foreign Policy, for all the “misbegotten aid” that has been sent over the years, “the one thing the world never taught Haiti was to govern – and make decisions for itself”.

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The charts that matter: bitcoin rises and a mixed week for tech

Welcome back. 

On the cover of this week’s magazine, we’ve got Japan’s stockmarket and why it is looking promising. Japan offers investors access to the Asian growth story combined with the comforts of investing in a developed market, says Alex Rankine.

Meanwhile, our big investment feature this week is how to profit from pampered pets beyond the pandemic. When widespread Covid-19 lockdowns began, many people bought a pet to survive the lack of human interaction. But “the surge in pet ownership induced by the pandemic merely reinforced a long-standing trend,” says Matthew Partridge.

If you’re not already a subscriber, sign up for MoneyWeek magazine now.

This week’s “Too Embarrassed To Ask” video explains what an “index” is. Even if you don’t invest, you have most certainly heard the term. The best-known indexes tend to be the ones that represent individual countries’ stock markets. Here's what it means and why it matters.

And joining Merryn on the podcast this week is AVI Japan Opportunity Trust’s Joe Bauernfreund. They talk about how the Japanese market is valuable despite being hugely under-researched. Find out what Joe has to say here.

Here are the links for this week’s editions of Money Morning and other web articles you may have missed:

• Monday Money Morning: Coal is far from dead. What should investors do about it?
• Web article: Chinese tech firms are moving from listing in New York to Hong Kong. Are they worth buying?
• Tuesday Money Morning: After a stunning 2020, how is 2021 shaping up for investment trusts? 
• Web Article: What’s behind China’s stockmarket meltdown?
• Merryn’s Blog: Signs of a top? One of the world’s oddest bubbles is back
• Wednesday Money Morning: Oil is taking a well-earned rest. But the bull market isn’t
• Web Article: Big tech smashes expectations with bumper profits
• Thursday Money Morning: What does the US dollar’s sudden about-turn mean for the markets?
• Friday Money Morning: Two private equity trusts: one to buy, one to avoid

Now for the charts of the week. 

The charts that matter 

The gold price rose a little after the metal had lost a little ground in the previous week.

(Gold: three months)

(Gold: three months)

The US dollar index (DXY – a measure of the strength of the dollar against a basket of the currencies of its major trading partners) fell week-on-week (which partly explains the slight uptick in gold prices.

(DXY: three months)

The yield on the ten-year US government bond rose after a weak auction on Thursday contributed to risk-on sentiment.

(Ten-year US Treasury yield: three months)

The yield on the Japanese ten-year bond had a volatile week ending slightly higher than where it started.

(Ten-year Japanese government bond yield: three months)

And the yield on the ten-year German Bund fell too.

(Ten-year Bund yield: three months)

Copper rose compared to the previous week as investors bet on strong demand for the metal in the second half of 2021.

(Copper: nine months)

The closely-related Aussie dollar rose a little in the week after the dollar gave up some gains.

(Aussie dollar vs US dollar exchange rate: three months)

Bitcoin rose in the week after news broke out that Amazon may tap into cryptocurrencies.

(Bitcoin: three months)

US weekly initial jobless claims fell by 24,000 to 400,000. The four-week moving average was 394,500, an increase of 8,000 from the previous week's revised average.

(US initial jobless claims, four-week moving average: since Jan 2020)

The oil price rose after US inventories fell below the five-year average.

(Brent crude oil: three months)

Amazon turned sharply lower after China sparked a wider sell-off and after the company was fined €746m by Luxembourg’s officials for breaching EU privacy laws.

(Amazon: three months)

And Tesla rose after posting strong second quarter earnings.

(Tesla: three months)

Have a great weekend. 

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​Weekly Live Market & Trade Analysis

Weekly Live Market & Trade AnalysisIn this week's live market and trade analysis session, we opened the session with a review of timing cycles that are in play for the USD and risk assets. We reviewed trades & positions in the S&P500, EURUSD & Gold, we then moved on assessing the technical price patterns and potential set ups for over 20 charts including the DXY, FX majors, global equity Indices, Commodities, Bitcoin. You can watch the recording here.If you are available 1pm UK time join us every Thursday for actionable market analysis, register here!

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/weekly-live-market-and-trade-analysis2930"
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Market Spotlight: Trading Canadian GDP

Canadian GDP In FocusWith the BOC the chief hawk among the G10 central banks, the Canadian Dollar is drawing plenty of attention at the moment. With this in mind, today’s GDP release will be closely watched and has the potential to create market volatility on any surprise reading. The market is looking for an unchanged reading of -0.3%, meaning that the bar for an upside surprise is set relatively low. If data come sin above consensus today, this is likely to refocus the market’s attention on further BOC tapering, leading CAD higher in the near term.Where to Trade Canadian GDP?USDCADGiven the Fed’s muted message this week, the monetary policy divergence between the Fed and the BOC is growing, creating room for further downside in USDCAD. Price has now broken below the rising trend line from YTD lows, suggesting the upward correction is over for now and putting focus back on the downside. With RSI turning lower and MACD bearish, while below the 1.2469 level bears can target 1.2368 and 1.2243 thereafter.

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Two private equity trusts: one to buy, one to avoid

The recent $800m fund-raise by Revolut valued the loss-making digital bank, which was founded just six years ago, at $33bn. 

That’s six times its valuation in early 2020. It’s a stark reminder of the euphoria surrounding tech-related private equity valuations. 

Few ordinary investors will have benefited either directly or indirectly (unless you happened to be one of those who bought and held when the bank initially raised money through crowdfunding sites). 

However, they may have benefited from the huge (but lesser) surges in valuations of other tech-related private equity businesses via two listed funds which floated three years ago: Augmentum Fintech and Chrysalis.

Is now a good time to invest in these trusts, or should you take profits? Let’s have a look.

Augmentum Fintech: a buying opportunity for sceptics 

Augmentum Fintech (LSE: AUGM) initially looked rather too esoteric for private investors. But it has subsequently more than justified the confidence of those who subscribed the initial £94m. 

The trust has returned nearly 45% and has issued additional equity to double in size. The recent 15% drop in the share price provides a great opportunity for the sceptics to jump aboard.

Augmentum Capital was founded in 2010 by Tim Levene, backed by Lord Rothschild. He and his co-founders have an impressive 20-plus year record not just as management consultants but as entrepreneurs, notably having built Betfair into a global business. 

Paul Volcker, former chairman of the US Federal Reserve, said in 2009 that “the most important innovation that I have seen in the past 20 years is the ATM” – but Levene and his team realised that internet technology would have a massive impact on all corners of the financial services sector.

AUGM seeks a portfolio that is diversified both by the market it serves and by the maturity of its companies, which could stretch from venture capital to listed. Levene says, as do others, that “leading fintechs are electing to remain private, leaving public market investors with limited opportunity to participate in exceptional returns.” 

For example, payments company Stripe is now valued at $95bn against an initial funding valuation of $100m while Swedish-based lender Klarna is valued at $31bn against an initial valuation of $11m. Being early to invest can reap enormous returns.

There are 21 investments in the portfolio, the largest being £32.6m in investment platform Interactive Investor. Around 17% of the portfolio is in early stage investments, 18% in mid, and 55% in late stage, with 10% as a cash buffer for unexpected opportunities. 

The portfolio is pan-European but half is in the UK, reflecting UK leadership in the sector rather than manager bias. “Significant businesses are being built in Scandinavia and the Netherlands and then globalised”, says Levene to reinforce the point.

One holding, Dext, was sold after about a year, generating an annual rate of return of 31%. The buyer was HGT, which suggests that there was much more to go for – but Levene says that influence over the company was limited and he wanted to show that “realisations are an important part of the story.”

AUGM targets a 20% annualised rate of return and has achieved 19% so far. This is impressive for a portfolio that is immature, presumably conservatively valued, and with little benefit from uplift on disposals. 

The pipeline of opportunities is “very significant”, with £920m live and £144m being actively pursued. Hence AUGM has recently raised another £55m from investors, which accounts for the drop in the share price.

Competition mainly comes from larger investors, such as HGT and Draper Esprit, but they invest at a later stage in a broader universe. The rapid growth and evolution of the fintech sector is shown by global funding in the first quarter of this year of $29bn, which exceeded the totals for the whole of 2016 and 2017. 

The pandemic has accelerated the adoption of technology – 74% of UK consumers are now using less cash and 20% of daily trading volume on the US stockmarket is now accounted for by retail investors. 

Levene points out that 12% of the UK population has downloaded an online banking app for the first time during lockdown. There are still nearly 10,000 bank branches in the UK, down from over 20,000 in the mid 1980s, but most of them are now smaller and emptier. 

The move of financial services online and the disintermediation of salesmen posing as advisers has much further to go, aided by technology and innovation that Volcker couldn’t have imagined just 12 years ago. While the sector giants of yesterday struggle to adapt and compete, Levene and his team are finding the entrepreneurs cutting the ground from beneath their feet.

Chrysalis: buyer beware

Chrysalis (LSE: CHRY) has been an extraordinary success story. It raised £100m at flotation at £1 a share to invest in “crossover” opportunities. Its share price is now 240p, 10% below a recent high, and its market value, after several further equity issues, is £1.3bn. 

The last published net asset value (as of 31 March) is only 206p. But a flurry of good news, such as the recent flotation of Wise, makes it inevitable that the next quarterly number will be significantly higher.

The inspiration for the trust came from Richard Watts and Nick Williamson, managers of Merian’s (now part of Jupiter) small and mid-cap funds. They recognised that a growing proportion of their performance was coming from newly listed companies such as Boohoo, Fever Tree and Blue Prism – yet these companies were staying private for longer, resulting in more of the benefit of early-stage growth accruing to private equity investors. 

Like Baillie Gifford and others, they realised that the solution was to invest in these companies when they were unlisted and hold them through flotation – “crossover” investing. This they could not do in their open-ended funds.

Unlike conventional private equity managers, crossover investors do not seek to control, manage or advise the companies they invest in – they simply tag along for the ride, providing passive equity to private companies intending to float in 2-5 years’ time. 

Chrysalis expects to continue holding its private equity investments after flotation but doesn’t buy listed equities. Given the speed of its investment after the trust’s launch, it clearly had a shopping list ready, investing 65% of the money raised within three months.

This has brought early success. Shares in The Hut Group (an e-commerce company – “we build brands”) soared after its September 2020 flotation, while Wise (formerly Transferwise), which provides online money transfers, floated a few weeks ago. It is now valued at £9.5bn compared with a £4bn valuation in July last year.  

Klarna (online payments offering credit to buyers) is expected to float soon. CHRY has just increased its investment in Starling, the online challenger bank. Wefox, the insurance technology start-up, has recently raised $650m at a $3bn valuation, almost double that in December 2019. You & Mr Jones, “the world’s first global brandtech company” (providing digital and mobile technology for marketers) raised $260m in January to value it at $1.3bn.

These six companies account for nearly 70% of the portfolio and Watts & Williamson report strong progress in all of them.  With the intention of issuing further equity, they have indicated a pipeline of 13 opportunities requiring over £1bn in total as well as £250m of follow-on opportunities, including the recent £35m in Starling. 

The focus is on tech-enabled disrupters rapidly scaling their businesses at the expense of established companies. Early scepticism that they had the network to give access to the best opportunities has been confounded. So what can possibly go wrong?

The potential drawbacks

Watts & Williamson have not had a crisis or  setback in any investment and, without managerial control or private equity experience, it is impossible to know how they would react to a problem;  everybody learns more from their mistakes than from their successes. CHRY’s investments are large, over 15% of the portfolio in at least two cases, so it is vulnerable to problems. Scottish Mortgage’s exposure to Wise and You & Mr Jones is much smaller.

Tom Slater, manager of Baillie Gifford’s Scottish Mortgage Trust, has expressed concern that the aggressive pace of recent flotations is encouraging companies to list too early in their development. They should be thinking longer term and building resilience into their business models. 

The prospect of early flotations may be encouraging crossover investors to overpay, encouraging over-confidence by company managements. Older investors will remember the TMT (technology media and telecoms) bubble of the late 1990s in which companies progressed from start-up to FTSE 100 (or their overseas equivalent) at break-neck speed, supported by impressive financial and business progress, only to then implode. 

Could history repeat itself?

Banking is a mature, highly competitive industry. Does Starling (or Metro, Resolut and Monzo) really have a sustainable edge? They have a proven ability to gain customers but will the services they offer be sufficiently profitable? 

The Hut Group resembles an online Woolworths rather than a haven of quality brands. What does Klarna do that Visa, Mastercard or Apple Pay don’t? The tech boom has fostered many great businesses, but life will be tougher for the next generation.

Caveat emptor.

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HSBC – Earnings Preview

HSBC, Weekly

HSBC Group is considered the largest European bank by assets; however, in recent months it has been affected and under pressure from the tensions it maintains with China and the United States, after apparently declaring itself to be in favour of the Hong Kong security law that seeks to contribute to a stable environment for businesses and strengthen the confidence of investors. Just today, the first Hong Kong resident has been jailed for 9 years for “terrorist activities and inciting secession”. The long-term outlook for the city’s legal and financial framework remain very much in focus.

Given the statements of the president of HSBC where he assured the bank would resume the payment of dividends as soon as possible, the bank’s shares rose 4%. He also said the yield could help to obtain positive returns with a meager dividend of $0.22, offering yields of around 4% at current prices. This positive outlook for the bank could be linked to the increase in the participation of its main shareholders Ping An Asset Management, which has been active since September last year.

For its part, and due to the transition that many banks have decided to initiate towards online banking due to the Covid-19 pandemic, the bank has mentioned that it plans to gradually reduce its investment banking operations and significantly revise its operations in the United States and Europe which would see the headcount reduced by 35,000 with further focus on its main Asia businesses.

This week peers in Europe (Lloyds¹, Barclays², Nat West and UniCredit) have reported good numbers, HSBC report on Monday august 2. Market expectations are for HSBC to follow, although the share price has been in a tailspin for some time. & of 21 analysts have the stock as a Buy or strong buy with 5 of 21 recommending an Underperform or Sell option. Target prices range hugely and the share price reflects that wide range. The 52-week range has been down to 2.40 and as high as 4.62 following the Q1 job cut announcement. Today (July 30) the shares opened lower at 3.9660.

Technically, the share price has been trending lower from the last 2 months, breaking the 21-day EMA on June 4 at 4.434, breaching the key 4.00 level July 17, and has struggled to hold this level in the subsequent 9 trading days ahead on the Earnings release. News flow has been negative too over the last few weeks not adding to investor sentiment.³ Should the import psychological 4.00 level not hold then the next major support levels sit at 3.75, 3.50 and 3.25, round numbers and the key 38.2, 50.0 and 61.8 Fibonacci levels. If 4.00 proves support the resistance will be found at 4.07 (Daily 21 EMA) 4.20 (Weekly 21EMA), 4.35 and the 2021 high at 4.62.

¹https://uk.finance.yahoo.com/news/lloyds-bank-hy-q2-profit-revenue-dividend-embark-071527699.html

²https://uk.finance.yahoo.com/news/barclays-hy-2021-results-profit-revenue-jes-staley-equities-investment-bank-072510493.html

³https://uk.finance.yahoo.com/news/hsbc-faces-questions-over-disclosure-150005127.html

Click here to access our Economic Calendar

Stuart Cowell 

Head Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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