The Week Ahead: tech earnings, elections, and payrolls
It could be a cautious start to the week for equities as the market focuses on US tech earnings and bank and auto results in the UK and Europe. US stock market futures are pointing to a lower open, however, Asian shares managed to eke out a gain, and European futures are also pointing to a higher open later this morning. The gold price is lower, suggesting that investors are starting to embrace the stock market rally that saw US stocks enjoy their longest winning streak since January.
The US Treasury Secretary has been positive about trade agreements with Asia this weekend, although the administration did not specify any details about negotiations with China. This is enough good news to boost the oil price on Monday, even in the face of OPEC+’s supply increase that is scheduled for next month.
Deliveroo gets an order from DoorDash
Even with the dollar’s woes, it looks like cash rich US companies are still in the mood for UK acquisitions. Deliveroo has received a £2.7bn bid by US rival DoorDash. Deliveroo has said that it is likely to recommend a deal. Deliveroo’s share price could rise this morning, since the bid price is £1.80 per share, vs. the closing price of £1.47. This is still a hefty loss for those who bought Deliveroo shares at its IPO, when shares traded as high as £3.90. Growing competition in the sector and the failure to capitalize on Covid gains, means a takeover is probably the most attractive option for Deliveroo at this stage. Takeovers may also help US companies avoid US tariffs, so we could see more activity in the coming weeks and months.
A wild month for markets
We are coming up to the month-long anniversary of America’s ‘Liberation Day’. Tariffs have dramatically altered the landscape for financial markets. Equities sold off sharply before staging a strong recovery, interest rate futures markets have seen a rush to price in extra rate cuts, especially for the ECB, the BOE and the Fed. The dollar is in the doldrums and has slumped to a 3-year low on the back of President Trump’s unpredictable economic policies. This has led to fears about the end of American exceptionalism, and what this means for Treasuries, the dollar, and US stocks in the long term. Corporate earnings reports have focused on tariff risks and the potential for a recession, and global growth forecasts were revised down by the IMF and the World Bank last week.
Gold: investors press pause on the bullish run
Gold was also in focus last week, as investors pressed pause on its bullish run. Although gold surpassed record highs this month and rose by more than 6%, easily outpacing gains for global stocks and outperforming most other energy and metals prices, questions are emerging about how long its bull run can last. Hedge funds and other speculative traders cut their gold positions further last week, and there has been a decline in some bullish options positions. This could be a sign that the market is getting ready for a dip in the gold price, and we may have seen the peak. While stock markets across the world rallied last week, the gold price fell 0.21% in the last 5 trading sessions, while the price is down more than $100 per ounce since its peak last week.
Gold was one of the key beneficiaries of the tariff-driven bearish view that dominated markets for most of this month. However, now that the net news flow on tariffs is more positive, gold is struggling to attract speculative buyers. Thus, the yellow metal’s price action in the coming week could be a good indicator of overall market risk: if gold falls, then risk sentiment is strong, if it rises, risk sentiment could fall.
The impact of US tariffs start to bite
Risk rallied last week as hopes grew that China, and the US would reach a resolution on their trade standoff. US tariffs on Chinese goods are 145%. There has been no concrete progress made so far, but the impact of the trade war is already being felt. Shein, the Chinese fast fashion giant, announced a raft of price increases for US consumers at the end of last week. Price rises varied by products: women’s clothing prices rose by 8%, the price of beauty products was hiked by more than 50%. Shein may only trade in the low billions of dollars in the US, but it is symbolic of what may happen with other Chinese imports: price rises will start to bite the US consumer.
Already, port authorities in the US and logistics firms are expecting Chinese shipments to fall sharply. Demand for goods from China has plummeted since mid-April, suggesting that US businesses have been quick to adjust to the tariffs. Reports suggest that bookings for containers from China to the US fell by 45% this month compared to a year ago, as the cost of selling into the US soared. This will have a major impact on Chinese businesses. Chinese companies will report results in the coming weeks, it will be worth watching to see the impact of tariffs on their results.
US tech earnings take centre stage
Corporate earnings will be centre stage this week, as US tech firms also report results. Meta, Microsoft, Apple, and Amazon all report results this week. Since tech stocks have been a drag on the overall US index so far this year, their earnings will be scrutinized closely. Apple and Amazon could face even greater scrutiny as some of their business lines are heavily linked to China and are impacted by the US tariffs. Amazon is an obvious example. It has already paused shipments from some Chinese suppliers in recent weeks. The question is, does this have an impact on the company’s bottom line and will it weigh non forward guidance, if Amazon provides it?
Amazon earnings preview
The market is expecting Amazon to report $155.1bn in revenue, for last quarter, and analysts have revised down the company’s earnings per share forecast for Q1 in the past 4 weeks. However, it could be argued that expectations remain too high for big tech for this earnings season.
The market is expecting Amazon to post 8% revenue growth for Q1, with 9.2% expected in Q2. Gross profit margin is also expected to rise to 50.1% for last quarter, up from 47.3% in Q4 2024. These are lofty expectations that rely on 1, Amazon Web Service, its cloud and AI business, to do well and 2, its ecommerce business to continue growing at pace during the tariff turmoil and a collapse in US consumer confidence, which is hovering close to its lowest level in 3 years.
Amazon is not the only tech giant that could suffer from grand expectations. The Magnificent 7 is expected to report a 16% increase in profits this year. Although that is sharply lower than the 37% increase last year, if earnings come in lower than expected, then tech could be on investors’ chopping blocks once again.
American exceptionalism challenged by earnings reports
The Magnificent 7 group of stocks have been a major drag on stock markets so far this year. These companies saw their market value peak in December last year, back then the Mag 7 accounted for more than 35% of the S&P 500’s market capitalization. Since Donald Trump has taken office, it has been a different story. The S&P 500 is down approximately 5% so far this year, however, without the Magnificent 7, the loss would narrow to just over 1%. However, if big tech fail to follow Google and instead report weaker than expected earnings, on average, for last quarter, this could be problematic for the recovery in US stocks in recent weeks. Although S&P 500 companies excluding tech are expected to see their earnings growth rise to 7.8% from 5% last year, earnings growth could get pushed to the back end of the year, when, hopefully, the tariff concerns are resolved. Thus, this week investors may leave tariff concerns to the politicians, and instead focus on corporate earnings. If companies post weaker than expected earnings reports, this could fuel further volatility in stock markets and weigh on the US dollar, as American exceptionalism is once again challenged.
The outlook for the dollar
The dollar has also been in focus this month. Since ‘Liberation Day’, the USD has fallen 6% vs. the CHF, by 4.7% vs. the euro, and by 3.9% vs. the yen. There are signs that investors are starting to reverse some of their dollar short positions now that news flow is more positive about the outlook for tariffs. The dollar was broadly higher last week, and posted gains of 1.4% vs. the JPY, 1.15% vs. the CHF, and 0.5% vs. the euro. The CFTC positioning data also showed that net long speculative euro positions were cut last week. Positioning in euro longs failed to reach the 2024 high, and although they remain elevated vs. recent months, they have backed away from their recent highs. This could mean two things. 1, the euro and European assets are gaining in attractiveness this year, and after a pause the euro may continue its climb higher, or 2, the euro has run its course, and American exceptionalism is not dead. Time will tell. At the start of this week, the dollar is weaker, the dollar index is lower by 25 points, and it is weaker against all G10- FX currencies apart from the Canadian dollar, which is weighed down by Monday’s election risks.
The White House is said to covet a weak dollar and they have certainly got what they wished for this year. The question now is, did President Trump change his mind about tariffs because of the sharp declines in financial markets? If yes, then will the recovery in financial markets spur him to be less generous in his tariff negotiations? We shall have to see, if financial markets do have the final say on Trump’s economic policy.
Below we look at three other events that are worth watching this week,
1, Elections: political risks rise outside of the US
More politics to digest, but this time they are not linked to Donald Trump. The Canadian elections takes place on Monday. In a stunning reversal of fortune, Canadian Liberals, led by Mark Carney, are expected to win a majority of seats, YouGov predict they could win as many as 204 seats, with a central estimate of 185. This would see Mark Carney, the former governor of the BOE, as PM of Canada. Carney is in a chance of winning thanks to the rhetoric of Donald Trump. However, the outcome of the election may not shift the dial for the CAD, instead the focus could shift to how quickly and effectively a Carney administration can work with team Trump to repair the Canada’s most important economic relationship. Expect volatility for the CAD to pick up this week, with the potential for some weakness especially if the dollar continues its recovery.
Australia will also face an election on May 3rd, with the incumbent Labour party seeking a second term. In the UK, local elections could highlight the split in the electorate. The main parties are now vying with smaller parties for local councils and mayoral races. The Conservatives have hinted that they could join a coalition with Reform, obviously only if Reform do well this week. This could reshape the UK’s political landscape ahead of the next general election and give Labour a scare. The reaction to UK asset prices, especially the pound, is worth watching. Will splintered politics add to the UK’s woes, including fiscal concerns and threats to growth? UK Gilt yields could be in focus this week, if they rise after falling sharply this month, then we could see the pound take a knock, as GBP/USD hesitates ahead of $1.3400.
2, US GDP: assessing the damage done by Trump
Growth will be in focus this week as the Eurozone and the US both release Q1 GDP figures. The US figures are the focus for investors as they try to assess the damage from tariffs on the US economy. The market is barely expecting any growth in the US for last quarter. The rate of annualized GDP is expected to have slowed to 0.4%, down from 2.4% in Q4 2024. The Atlanta Fed GDPNow model is looking for a weaker reading, and it is currently predicting a -2.5% reading. Negagtive growth could reignite fears about a US recession and trigger more market volatility.
Ironically, the trade deficit could be the biggest drag on US growth as businesses rushed to import foreign goods in Q1 before tariffs came into effect in April. This could also have a chilling effect on future demand: consumers may have brought forward purchases, but they will slow down later in the year. Overall, US Q1 GDP could flash another warning sign for markets, especially if the deceleration in growth turns negative.
3, The US jobs data
The end of the week will see US payrolls reports. The market is expecting a 130k gain in payrolls for April, down from 228k in March. However, the risks are to the downside. Pullbacks in transportation and logistics jobs, now that ports are empty as Chinese goods are diverted away from the US due to tariffs, are to be expected. There could also be declines in leisure and hospitality hiring as the consumer reigns in spending, and in government jobs as DOGE continues to take the axe to government departments. The unemployment rate is expected to remain steady at 4.2%, which is a sign that the US labour market is in a downturn, but that it has not yet fallen off a cliff. Payrolls are likely to set the tone on Friday.
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