Apple Shares Reverse from Record High

Daily Analysis - 03/05/2017

Quarterly Revenue Results Misses Estimates, Sending the Valuation Lower

Apple Inc reached a new record high during Tuesday trade ahead of the second quarter earnings report before weaker than expected revenue alongside downward revised guidance saw shares tumble in after-hours trading.

Tim Cook Signals Softness Ahead

Apple recorded a fiscal second-quarter profit of $11.03 billion or $2.10 a share, versus $10.52 billion or $1.90 a share reported a year ago while beating the Wall Street consensus of analysts forecasting earnings of $2.02 per share. The technology giant’s sales rose to $52.90 billion from the $50.56 billion last year, narrowly missing analyst projections of $52.97 billion. Apple sold 50.76 million iPhones during the quarter, down from 51.19 million a year ago, and below analysts’ estimate of 52.00 million units.

Looking ahead, Apple expects third quarter revenue between $43.5 billion and $45.5 billion, below the current analyst forecasts of $45.57 billion for the third quarter. During the cash equity session, Apple hit a record high of $148.08 a share before the S&P 500’s biggest component slid -2.00% in afterhours trade as shareholders sold the mixed set of quarterly numbers.

Fed Meeting on Tap

The US Federal Reserve is scheduled to release its policy statement upon the conclusion of its two-day meeting later in the session. While the Central Bank is expected to keep interest rates on hold, analysts will be focusing on any comments on the recent slowdown in US economic activity. According to the advance reading from Friday, US gross domestic product expanded by 0.70% during the first quarter, the slowest growth pace in three years. If the Fed acknowledges a slowdown, rate hike expectations may be lowered for the remainder of 2017 amidst the Central Bank’s first tightening cycle in over a decade.

The current consensus view is that the Fed will lift rates two more times this year, with Fed Funds futures pricing in another increase in 63.20% probability of an increase in June. In the meantime, EURUSD is trading near the highest level since last November, trending around 1.0920.

New Zealand Posts Strong Labor Market Data

According to official figures released early on Wednesday, New Zealand's jobless rate fell to near an eight-year low in the first quarter. The unemployment rate dipped to 4.90%, just above an eight-year low of 4.80% recorded back in the third quarter of 2016. Analysts were expecting the jobless rate to remain unchanged from the fourth quarter figure of 5.20%.

Despite the strong first quarter jobs growth, the Reserve Bank of New Zealand is widely tipped to leave its official cash rate at a record low of 1.75% during its monetary policy decision due next week. Wages increased at a sluggish 0.40% pace on the quarter for an annualized increase of 1.50%, missing analysts' expectations of 0.50% quarterly growth. After rallying overnight, the New Zealand dollar has been pulled back following the robust figures, with NZDUSD flat on the day near 0.6935.

Mexico Factory Activity Slows

Activity in Mexico’s manufacturing sector slowed in April, hurt by a drop is new orders and lower output, a leading survey showed Tuesday. Adjusted for seasonal variations, the Manufacturing Purchasing Managers' Index fell to 50.7 during the month of April compared to the 51.5 reported back in March, underscoring the deceleration. A figure above 50.0 signals growth, while any result below the threshold points to contraction.

The latest PMI data suggests growth in Mexico is labouring to gather momentum, with output tumbling to its lowest level since December while new orders also dropped compared to the prior month. Analysts reckon that uneven demand from the US is weighing on factories in Latin America’s second biggest economy, especially with an upcoming renegotiation of NAFTA expected imminently. USDMXN is higher in early Wednesday trade, with the pair currently hovering around the 18.8150-mark.