Two major events within an hour of last night’s close on Wall Street have caused large moves with the S&P500 first surging higher after the US and EU issued a joint statement effectively calling a ceasefire in their trade war before the futures tumbled after hours as Facebook (NASDAQ:FB) cratered following its latest trading update.
These two effects have seemingly cancelled each other out for the S&P, and while there’s been some mild upside in European shares this morning, the FTSE also trades little changed from Wednesday’s closing level. Shares in German car manufacturers BMW (MI:BMW), Volkswagen (DE:VOWG_p) and Daimler (LON:0NXX) are all making strides higher in Frankfurt, on the hope that recent developments will see the proposed auto tariffs not being implemented going forward.
Bullish sentiment kept in check by FAANG concerns
What seemed like a significant breakthrough in both the US and EU stepping down from the escalating trade tensions of late had the shine taken off of it, by growing concerns that the tech rally in the US is in its final innings. US President Donald Trump and European Commission President Jean-Claude Juncker agreed to put on hold any new tariffs as they look to work together to eliminate transatlantic barriers to trade.
The announcement is largely symbolic at present but it does appear to be another case of the US backing down after insinuating a tough stance.
Trump fancies himself as a top-level negotiator, but the author of The Art of the Deal seems to have a pretty standard tactic in his negotiating position, which begins with a lot of gusto and bluster but ultimately see the President cede substantial ground before declaring the outcome a victory.
European traders will likely now have an eye on the latest ECB rate decision at lunchtime and any further dovish hints from President Draghi could confirm the latest push higher for equities.
Facebook plunges on worrying user growth
A massive drop in the value of Facebook shares in after hours trade last night has caused quite a shock for investors, with the stock plunging over 20%.
Should the stock open around these levels this afternoon it will represent the largest ever drop on an earnings release with almost $150B - the market value of McDonald’s Corporation (NYSE:MCD), Nike (NYSE:NKE) or IBM (NYSE:IBM) - wiped off. The results themselves didn't appear too bad on first glance with a 42% rise in revenue for the 2nd quarter to $13.23B only narrowly missing estimates of $13.36B, although this did represent the first miss for this metric since 2015. Earnings per share also rose strongly, jumping by 32% to $1.74, topping forecasts of $1.72.
The chief cause of the concern is the firm’s prospects going forward with only 22 million new daily active users worldwide in Q2, which represents the lowest quarter-on-quarter jump since at least early 2011. Shares in after hours trade fell almost immediately on this, dropping close to 10% but it was the earnings call where things went from bad to worse with David Wehner, the CFO, forecasting a significant slowing in the second half of the year. The size of the decline, which is expected to cost CEO Zuckerberg $17B, despite pretty solid results is clear evidence of just how high market expectations are for the firm, and it now seems that analysts will deem the stock to be worth far less as they come to the realisation that 40% revenue growth isn’t sustainable long term - as ridiculous as the shock of the assertion seems.