Market Watch 24.10.2021

Snap’s Weak Outlook Weighs on Tech Giants. On Thursday, Snap released its third quarter earnings, beating expectations in EPS and just fell short in revenue. However, their expected Q4 revenue was only between $1.16bn and $1.2bn, well below the expected $1.4bn. This caused the share price to plummet and close at -26.59% on Friday from a range of negative factors. Firstly, CEO Evan Spiegel, said Apple’s new privacy policy made it increasingly difficult for advertisers to interpret campaign success. The changes require apps to obtain consent from users to be tracked for advertising algorithms and mean advertisers no longer get real time data, but instead need to wait 72 hours to find out their ads performance. Spiegel said, “This has definitely been a frustrating setback for us,” however, “We’ve certainly seen some early signs of success but it’s going to take a little while.


The underlying performance of the advertising platform is still very strong.” Furthermore, labour shortages and global supply chain interruptions also fuelled the negative outlook. Snap’s warning affected almost all social media, erasing a total of $142bn of market value from itself and rivals. Facebook suffered a 5.05% loss, Twitter fell 4.83%, Pinetest dropped 5.36% and Alphabet lost 2.93%. Many analysts expect the impacts to be detrimental to the advertising industry, however, Spiegel is optimistic this will be resolved. Last month Facebook said it was now “harder to measure campaigns on our platform” and approximated it was “under-reporting iOS web conversions by approximately 15 per cent”. Facebook reports its Q3 earnings this Monday and its forecasts will be highly anticpipated.



ECB’s Lagarde Believes Inflation is ‘Largely Transitory’. Last Saturday during the 2021 Per Jacobsson Lecture at the International Monetary Fund, European Central Bank President Christine Lagarde said the current spike in inflation is unlikely to persist. However, the ECB is concerned about wage negotiations and other potential effects that would push prices higher, to where they would likely remain. September saw consumer prices increase by 3.4% in the Euro-area, the highest rate in 13 years. Because the ECB believes inflation is transitory, “Monetary policy will continue supporting the economy in order to durably stabilize inflation at our 2% inflation target over the medium term,” said Lagarde.


This monetary policy is not only expected to continue but increase if the ECB lifts its cap on purchases of EU bonds. The European Commission intends to increase the €800bn of bonds it plans to issue through the NextGenerationEU recovery fund, a fund in response to the pandemic. Head of macro research at BlackRock, Elga Bartsch said; “Lifting the limit on supranational purchases would be a way for the ECB to generate more room for manoeuvre on government bond purchases and to also show support for this important EU programme”. Buying additional EU bonds would further aid financial markets.


However, the ECB cannot own more than a third of a country’s government debt and many analysts think some countries limits will be reached by 2023, including the Netherlands and Germany. Next Thursday, President Lagarde’s message will be examined by investors for any hints on a rate hike, which is currently expected by 2023

Evergrande’s Sale of Services Plan Collapses. Evergrande shares fell by 12.5% on Thursday when the world’s most indebted property developer resumed trading following a 2 week suspension. The fall came when the Chinese real estate developers deal to sell 50.1% of the property services division to Hopson Development Holdings for $2.6bn fell through. On Wednesday Evergrande said the deal came to a halt after they “had reason to believe” Hopson Development Holdings had “not met the prerequisite” to propose an offer. Hopson said it was “prepared to complete the sale” but would not pay until obligations were finalised.


Additionally, Hopson stated on Thursday in a legal statement they believed the deal was legally binding. The real estate group missed its first of many missed payments on the 23rd of September and was given a 30 day grace period. After Evergrande’s first missed payment developers Sinic Holdings and Fantasia have defaulted and Chinese issuers yields on dollar bonds have reached their highest point in over a decade. There was some positive news, when last Thursday Evergrande repaid a missed interest payment on a dollar bond of $83.5mn to investors, days before the grace period ended. Evergrande’s failure to close the deal means the possibility of defaulting continues to grow.



Main Events


  • ECB Rate Decision & EU CPI

On Thursday, the European Central Bank will release its decision for the benchmark interest rate. Currently, the interest rate set by the ECB stands at 0%. As the base rate has a direct impact on the overall economy, a minor deviation from the expectations would have a vast impact on the European markets, concerning both equities and currencies. However, central banks offer a form of signalling prior to a major rate change and therefore it is most likely that the rate will remain intact as current news from the ECB has remained stagnant.


On Friday, the ECB will release inflation data, in the form of the Consumer Price Index (CPI). With a figure of 3.4% given last month, the current expectations from the markets are a substantially rise to 3.7%.This forecast is recurrent in other parts of the world with inflation continuing to climb as a response to the economic recovery.


  • US GDP

The highlight of the week will come on Thursday, as the Gross Domestic Product reading for the United States will be released. This inflation-adjusted figure gives an insight into the goods and services produced in the country, being the benchmark measure of the economic recovery strength from the Covid-19 crisis. The analysts’ expectation is a slower growth of 3.2% compared to the last quarter’s growth of 6.0%. If this expectation will be met it would be a significant reduction. As the markets returned to the pre-pandemic levels and the Federal Reserve’s tapering talks heightened, the GDP figure will be closely monitored by investors in order to measure the macroeconomic outlook of the US.


Economic Calendar 25th October – 29th October


MONDAY

· Data: German IFO Business Climate, Chicago FED National Activity Index

· Events: BoE Tenreyro Speech, Bank of Brazil Focus Market Readout


TUESDAY

· Data: ECB Bank Lending Survey, US Housing Price Index (MoM), US New Home Sales Change (MoM), US CB Consumer Confidence

· Events: RBA Meeting Minutes


WEDNESDAY

· Data: Australia CPI (QoQ), US Durable Goods Orders, US Crude Oil Inventories

· Events: Bank of Canada Monetary Policy Report & Interest Rate Decision


THRUSDAY

· Data: US GDP (Q3), BoJ Interest Rate Decision, ECB Interest Rate and Deposit Facility Rate Decision, German Unemployment Change, US Initial Jobless Claims

· Events: Bank of Japan Monetary Policy Statement & Outlook Report, ECB Press Conference


FRIDAY

· Data: EU CPI (YoY), US Personal Income & Spending (MoM), Australian Retail Sales, German and Canada GDP

· Events: -



Thank you to Cameron Barker, George Fol and Mihai Golumbeanu for your in-depth analysis!

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