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Global markets are mixed despite blowout earnings from Big Tech companies.
 
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The Express | Insight Before the Bell

By Caleb Silver, Editor in Chief

& Deborah D'Souza, News Editor

 Friday's Headlines

1. Global markets mixed despite blowout results from Big Tech

2. Chevron reports an $8 billion loss

3. European regulators eye Google's attempt to buy Fitbit

4. Inside Big Tech's earnings reports

5. Europe suffers its worst economic contraction on record

 
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Markets Today

Global markets are mixed this morning with Japan’s Nikkei down nearly 3% while European markets and U.S. futures point to slight gains. Earnings from the big tech giants, released yesterday, were impressive as expected, helping to drive Nasdaq futures higher, but the euphoria is just not what it used to be. They’ve set the bar pretty high, and investor expectations are tough to satisfy these days.

 

The European economy suffered its worst contraction on record last quarter, plunging 12%, even worse than the U.S., but the recovery has been swifter, especially up North. Southern countries like Spain and Italy have a long way to go.

 

Earnings reports from industrial and oil giants are coming in this morning as Chevron and Caterpillar are among the companies reporting results. They are the mirror opposite of what we are seeing in technology and stay-at-home stocks, and these companies, which were the giants of the turn of the century, have fallen out of favor among the masses, maybe forever. 

 
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Chart courtesy YCharts

Headlines

  • Sanofi and GlaxoSmithKline are receiving $2.1 billion from the U.S. government for the development, manufacturing and delivery of 100 million doses of their COVID-19 vaccine candidate. The Phase 1/2 study is expected to start in September. GSK stock is 1.6% higher this morning.
  • A panel of international health experts said Gilead Sciences' remdesivir is worth prescribing for patients with severe COVID-19, although evidence of its benefits remains inconclusive, according to the British Medical Journal. The effectiveness of most interventions with remdesivir is uncertain because most of the trials so far have been small and have limitations, the authors said in a review for the journal. The European Commission signed a 63 million-euro ($74 million) contract with Gilead this week for batches of the drug to be made available in European Union countries from early August.

  • The European Commission will launch a full-scale antitrust investigation next week into Google's bid to buy Fitbit, reports Reuters. The company that is synonymous with fitness trackers is set to be acquired for $2.1 billion in a deal announced in November. Google has said it will not use Fitbit's health and wellness data to target ads and plans to give users the choice to review, move, or delete their data, but evidently this is not enough.
  • Chevron reported an $8.3 billion loss in the second quarter as the pandemic "significantly reduced demand." As oil prices dropped, the company’s average price per barrel of oil and natural gas liquids dropped more than 60% year-over-year. Chevron lost $1.59 per share on an adjusted basis, while revenue came in at $13.49 billion. In the same quarter a year ago the company earned $2.27 per share on $36.32 billion in revenue.

  • Caterpillar reported that cost reduction and prioritized spending helped it offset a $1.4 billion decline in dealer inventories during the second quarter and post better-than-expected results. The heavy equipment maker posted adjusted per-share earnings of $1.03 on revenues of $10 billion. Analysts were expecting revenue of just $9.38 billion for the quarter. Despite that, the $10 billion in sales represented a 31% decrease compared with the $14.4 billion the company reported in the second quarter of 2019.

  • Xpeng Motors, one of Tesla's rivals in China, is in talks to raise around $300 million in funding from Qatar’s sovereign wealth fund among others, according to CNBC. It has also confidentially filed for an IPO in the U.S., but has not decided on which exchange to list on yet.
  • Twitter says the hack and bitcoin scam conducted on July 15 was the result of a phone spear phishing attack. Using the credentials of employees with access to tools, the attackers targeted 130 Twitter accounts, ultimately Tweeting from 45, accessing the DM inbox of 36, and downloading the Twitter Data of 7. 
  • It's Harry James Potter's 40th birthday. The Boy Who Lived defeated Voldemort, is at the heart of one of the most successful franchises ever, and even has a stock index named after him. Raise a butter beer in his honor. 
 
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The Big Story

Tech-Yes Beats (sorry, can't resist)

Earlier this week, CEOs of the most powerful technology companies in the world took some tough antitrust questions from U.S. lawmakers, and then reported blowout second quarter results – all while the U.S. and European economies suffered their worst contractions in history. Shares of Apple, Amazon, Facebook and Alphabet vaulted higher, growing their combined market value by $250 billion overnight, according to Bloomberg.

 

The reports lay bare the extent of our dependence on technology while we found ourselves locked down and afraid. Although this is great news for investors and stock market indices, it's a tough one to celebrate on a human level since it veers kind of close to science fiction plot lines. On a related note, video game company and stay-at-home winner Electronic Arts had the best June quarter in its 38-year history, and is reportedly considering buying Warner Bros.' gaming division. 

 

Here's a quick recap of the highlights:

 

Apple: Revenue of $59.7 billion (gains in every category and record for Q3) and EPS of $2.58. iPhone revenues of $26.42 billion were $4 billion more than analysts expected. The board also announced a four-for-one stock split to boost liquidity. This means Apple shareholders will be given three additional shares for each share they own. Apple's cash pile is now at $193.817 billion, which has given birth to a burgeoning meme format (send us your faves) and even left Nobel prize-winning economist Richard Thaler puzzled.

 
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Image courtesy: Twitter

Alphabet/Google: Revenue of $38.30 billion (-2%, first decline since IPO) and EPS of $10.13. The Board has approved repurchase of up to an additional $28 billion of its Class C capital stock. 4,000 more employees were added during the quarter. Sales were hurt by ad budgets being cut but company is seeing "early signs of stabilization, as users returned to commercial activity online."

 

Amazon: Revenue of $88.91 billion (+40% YOY) and EPS of $10.30. Profit doubled to $5.2 billion from 2019. Online grocery sales tripled from last year, grocery delivery capacity expanded by over 160%. Amazon added 175,000 new jobs since March and bringing 125,000 of these into regular, full-time positions. AWS revenue grew 29%. $4.5 billion spent on COVID-costs and "thank you" bonuses.

 

Facebook: Revenue of $18.7 billion (+11%, slowest growth since IPO) and EPS of $1.80. Daily active users across apps was 2.47 billion for June 2020, an increase of 15% from June 2019. The social media giant said it saw signs of normalization in user growth and engagement as shelter-in-place measures have eased. Revenue growth was slightly lower at 10% in first three weeks of July due to the Stop Hate for Profit campaign, but it's further evidence that the company mainly relies on many smaller advertisers rather than big ones.

 
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Image courtesy: Eurostat

The Big Number: 12.1%

That's how much the 19-member Eurozone's GDP shrank in Q2 compared with the previous quarter, according to preliminary flash data released today. Economic activity in the 27 European Union countries reduced by 11.9%. From the same quarter last year the declines were 15% for the euro area and 14.4% in the EU. All figures are the sharpest quarterly declines since records began in 1995, and although we're used to hearing that for every statistic by now, the extent of damage caused is still staggering. We're truly living through a historic moment.

 

The chart below shows how individual countries fared in Q2 compared to Q1 and year over year. Among the worst were Spain (-18.5%), Portugal (-14.1%), France (-12.4%) and Belgium (-12.2%).  "Spain lagged Italy and France in its recovery of nowcast data during 2Q, but the difference is larger than expected and with reopening measures being locally reversed for 3Q, Spain looks set for a prolonged slump," ING Senior Economist Bert Colijn. He adds that the hard part of the recovery to the pre-crisis era starts now as openings get reversed in places and characteristics of a general economic slump, like cautious increases in unemployment and bankruptcies and weak investment, emerge.

 
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Image courtesy: Eurostat

 

 

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