Early Morning Call: easyJet posts H1 loss, but remains confident for 2023

APAC overview

The Nikkei 225 rally continues, despite concerns around the latest Japan trade data. Trade deficit narrowed, but only because imports declined. Economists are concerned that export growth was the weakest it's been in more than two years, as shipments to China, its largest trading partner, fell in April. Weakening exports will put a drag on capital spending, which may sap domestic demand.

Yesterday's better-than forecast growth data was underpinned by a rise in domestic demand. Capital expenditure was also up, but a drop in net exports shaved 0.3 percentage point off of gross domestic product (GDP).

Australian employment unexpectedly fell in April. A drop in full-time employment led to a fall in the overall employment number by 4,300, and a rise of the rate to 3.7%. This follows two months of outsized gains which kept the unemployment rate near 50-year low. Is that a sign the labour market is cooling? The market certainly thinks so, and is now betting on a rate pause next month, but still pricing a rate hike in August or September. This translated into a move lower for the Australian dollar.

The Reserve Bank of Australia's (RBA) tightening campaign has already resulted in a 375-basis point (bp) hike to 3.85%.

Earnings

easyJet posted a first-half (H1) loss before tax of £411 million, in line with its guidance. The airline company is confident about the summer season and expects a profit before tax of at least £80Mln in 2023.

BT profit before tax fell 12% but maintained its full-year dividend at 7p per share.

Burberry maintained its medium-term target after posting adjusted operating profit up 8%.

Cisco Systems beat top and bottom line expectations in its fiscal third quarter, but investors are worried about persistent supply chain constraints. Earnings came in at $1 per share, up 15% from a year earlier, on revenues of $14.6 billion, up 14%, including acquisitions. Analysts expected Cisco earnings of 97 cents a share on sales of $14.40Bln.

The market was waiting for an update on the group's backlog, and it appears that in three months there has not been much improvement. In February investors were worried about the health of the backlog. Supply chain restrictions tend to lead to a decline in orders of new products, and this is exactly what happened here. Cisco's product orders fell 23% in the third quarter.

For the full-year, Cisco forecasts modest revenue growth, between 10 and 10.5%, and expects to end the fiscal year with roughly double its normal product backlog.

Watch out for Micron Technology shares at the open of the IG all-session market at 9am. The stock reacted positively around midnight to the announcement that it plans to invest up to ¥500Bln, that's $3.70Bln, in extreme ultraviolet technology. Micron will get support from the Japanese government to become the first semiconductor company to bring EUV technology to Japan for production. EUV is currently the most advanced technology used in the fabrication of semiconductors.

After Home Depot and Target, it is Walmart's turn at lunchtime today to release its quarterly figures. Earnings expectations illustrate the tricky situation that retailers are trying to handle. Revenue is anticipated to rise 5% to $148.50Bln, reflecting that rise in cost. But the Street expects earnings at $1.30 per share, which means a decline in profit margin.

This week, both Home Depot and Target have described a fragile consumer as higher rates and energy costs have been soaking up any surplus funds. On one hand, retailers are trying to pass on higher costs to their customers, on the other, shoppers are looking for ways to limit spending.