1. World Themes This week
We’re in for a relatively quiet start to the week with US and Canadian markets closed to celebrate Washington’s birthday and Family Day respectively. The remainder of the week, however, is set to be a hum-dinger.
With US-China trade talks ending on a positive note last week, investors are beginning to price in a resolution in the not too distant future with the Dollar softening on Friday and Asia opening in the green this morning as riskier assets absorbed upbeat investors’ capital. Concrete evidence of progress would buoy global investor confidence and offset some of the concerns about the global slowdown.
In the Eurozone area, more uncertainty regarding Brexit and slowing growth in the region may force a shift in guidance from the European Central Bank (ECB). More signs of financial stress on the EU in the next few weeks could give the ECB no option other than a softer monetary policy outlook to follow many other countries in the recent rate-dropping trend. Lower rates would give equities some room to breathe in the short-term, but without any resolution to its internal and external growth issues, the ECB is just delaying the slowdown’s inevitable return.
On the commodity front, both Brent Crude and WTI have broken through the topside of their sideways ranges thanks to the effects of OPEC supply cuts and sanctions on Iran and Venezuela effectively curbing supply. This week could prove to be a big one for oil bulls as they try to push prices to the $70 per barrel mark.
Are you ready for a big week?
2. Tech Firms Under Fire In New Zealand
And they’re feeling the burn. The Kiwis have signalled their intentions to update their taxation legislation for e-commerce and technology platforms, putting the likes of Facebook, Amazon and Google squarely in its crosshairs.
New Zealand is the latest of many nations on the tax bandwagon trying to capture their fair share of revenue from the tech giants that have, until now, pillaged undisturbed. The current value of cross-border digital services is approximately a whopping $1.86bn or NZ$2.7bn.
The proposed digital services tax (DST) flat rate of 2-3% on the gross revenue of multi-national companies has the potential to raise roughly NZ$30-80 million in annual revenues in New Zealand alone. Many other countries are also hopping on board with DST’s of their own, including the UK, Spain, Italy, France and Australia. Well, it’s about time!
The days of evading taxes seem to be numbered for the tech behemoths, and the momentum of the taxation trend could significantly crimp these companies’ margins going forward. With the official release of the taxation plan scheduled for May 2019 (pending discussion), the clock is ticking for the tech sector to come up with some innovative escape routes. Let’s see if they’ve got any more fast moves left to pull.
2. Company Results Coming Up This Week
Monday – Anglo American, Ambuja Cements, Reckitt Benckiser, Transocean Ltd
Tuesday – HSBC, Walmart, First Energy, APA Group, Danone, Spectris, Advance Auto Parts, Genuine Parts, Medtronic, Devon Energy.
Wednesday – Garmin, Sonic Healthcare, United Technologies, Fresnius Medical Care, Glencore, Lloyds, Iberdrola, CVS Health, Southern Company, GoDaddy Inc.
Thursday – Barclays, Domino’s Pizza, Deutsche Telekom, Baidu, Gazprom, Quantas Airways, Woolworths, Telefonica, BAE Systems, Newmont Mining, Novatek, First Solar, Hewlett Packard, Kraft Heinz
Friday – Re/Max, AutoNation, Galapagos, United Overseas Bank, Pearson, Cabot Oil & Gas, Pinnacle West Capital
Today we are watching…
1. Transocean Ltd (#transo)
Ultra-deep ocean oil-rig producer, Transocean, is looking decidedly shaky ahead of its earnings call today with analysts unsure as to whether the company can beat expectations this quarter. The precipitous drop in oil prices from October-December caused a massive shift from offshore drilling to land-based drilling, impacting the company’s margins significantly. Operational inefficiencies and 37.5% higher expenses are also likely to filter through into a weaker performance for the early part of 2019.
2. Mattel (#mattel)
Mattel’s surge in value following its solid earnings report on the 7th was all but wiped out on Friday as short-sellers erased 17.63% from its share price after the company issued its 2019 guidance. The toy-maker announced that it expected gross sales to remain flat for the year, weighed down by weaker demand from some of its leading products and a stronger Dollar. Even though Mattel’s sales have declined for the past five years running, analysts were expecting the company to beat estimations with an average projection of 3.5% growth. This shortcoming caused the massive sell-off which may continue this week.