Weekly Market Update: Higher rates keep markets choppy until late week risk-on surge
US equity market came into the week wobbly and ultimately both stocks and treasury markets finished the month of February in the red. Hotter-than-expected inflation data out of Europe kept upward pressure on EU interest rates, which came alongside generally softer-than-expected US economic readings. Markets continued to price in more central bank policy tightening, while deepening yield curve inversions suggest a heightened risk of a policy mistake.
On Tuesday, China reported significantly stronger than expected PMI data. That was followed by US ISM manufacturing data that missed on the headline, but worryingly the prices paid component unexpectedly rose above 50 for the first time in several months. The next session saw weekly jobless claims print below 200K for the seventh straight week, as well as final Q4 productivity revised lower and labor costs significantly higher. The data forced the US 10-year yield to break above 4% for the first time since November. US terminal rate expectations rose towards ~5.5% while futures markets pushed the ECB’s projected overnight lending rate to go above 4%. The incoming data also kept both Federal Reserve and ECB officials vocal that rates will likely have to move higher and stay there longer than they thought even just a few months ago. Overall US indices remained range bound with the S&P pivoting around its 200-day moving average for most of the week as investors await CPI figures and the Fed announcement later this month. Risk on appetite picked up Thursday afternoon on some dovish commentary from the Fed’s Bostic, who said the central bank could be in position to pause by mid-to-late summer and that momentum carried through to Friday following a solid ISM Services report that noted higher new orders with lower prices paid. With the Friday surge, the S&P gained 1.9% on the week, while the DJIA was up 1.7%, and the Nasdaq rose 2.6%.
In corporate news this week, another batch of earnings reports from big US retailers yielded mixed results. Target beat expectations but provided downbeat guidance for 2023. Kohls missed earnings expectations by a wide margin but eased the blow by affirming long term targets. Macys pleased investors with a strong Q4 earnings beat, though guidance was less than expected for next quarter. First Solar shares soared on a strong earnings report and even stronger guidance for the new fiscal year. Volkswagen led the DAX sharply higher on Friday as the carmaker reported solid numbers for the end of the fiscal year and said EV production was tracking higher as expected.
SUN 2/26
(US) According to revised US Energy Dept report, COVID with 'low confidence' arose from a lab leak - US financial press
MON 2/27
(US) JAN PRELIMINARY DURABLE GOODS ORDERS: -4.5% V -4.0%E; DURABLES (EX-TRANSPORTATION): 0.7% V 0.2%
(US) JAN PENDING HOME SALES M/M: 8.1% V 1.0%E; Y/Y: -22.4% V -34.3% PRIOR
(US) FEB DALLAS FED MANUFACTURING ACTIVITY: -13.5 V -9.3E
(US) Freeport LNG submits FERC request for authorization to progress to full, commercial operations of train 1 and phase 1 of Texas facility
WDAY Reports Q4 $0.99 v $0.89e, Rev $1.65B v $1.63Be; Raises guidance
(JP) JAPAN MOF: DELAYS 2-YEAR JGB AUCTION RESULT ANNOUNCEMENT; cites 'administrative trouble in the procedure'
TUES 2/28
(FR) FRANCE FEB PRELIMINARY CPI M/M: 0.9% V 1.0%E; Y/Y: 6.2% V 6.1%E (annual pace match cycle high)
AAPL Reportedly could face disruptions in supply chain for iPhones as its charging cables supplier Foxlink's India plant said to not be able to resume full operations for two months following fire incident - press
002241.CN Reportedly Apple's AirPods supplier GoerTek invests $280M in a new northern Vietnam plant; Says Apple's Chinese suppliers likely to move capacity out of the country far faster than many expect amid US-China tensions - press
(US) Commerce Sec Raimondo: To prevent companies from using CHIPS act cash for buyback; To limit foreign investments for CHIPS act money recipients; Recipients barred from expanding in China for 10 years - FT
TGT Reports Q4 $1.89 v $1.39e, Rev $31.0B v $30.7Be; Guides Q1 and FY23 EPS weak; Inventories show q/q and y/y improvement
HUAWEI.CN (US) US said to consider revoking all Huawei export licenses - press
(US) Nevada reports Jan casino gaming Rev $1.27B, +18.0% y/y, Las Vegas strip Rev $713.2M, +25.7% y/y
(US) FEB CHICAGO PURCHASE MANAGER’S INDEX (PMI): 43.6 V 45.5E
(US) FEB RICHMOND FED MANUFACTURING INDEX: -16 V -5E (lowest since May 2020)
(US) FEB CONSUMER CONFIDENCE: 102.9 V 108.5E
FSLR Reports Q4 -$0.07 v -$0.18e, Rev $1.00B v $997Me; Guides FY23 strong
HPQ Reports Q1 $0.75 v $0.74e, Rev $13.8B v $14.1Be
RETA Receives US FDA NDA Type 1 approval for Skyclarys (Omavaloxolone) NDA for patients with Friedreich’s Ataxia
(CN) CHINA FEB MANUFACTURING PMI (GOVT OFFICIAL): 52.6 V 50.7E [2nd month of expansion and highest since Apr 2012]; Composite PMI highest since records started in 2017
(CN) CHINA FEB CAIXIN PMI MANUFACTURING: 51.6 V 50.7E [1st expansion in 7 months and highest since Jun 2022]
(HK) Macau Feb Casino Rev (MOP): 10.3B; Y/Y: +33.1% v +82.5% prior (31.0%e)
WED 3/1
(UK) FEB NATIONWIDE HOUSE PRICE INDEX M/M: -0.5% V -0.5%E; Y/Y: -1.1% V -0.9%E (1st annual decline since Jun 2020 and biggest annual drop since Nov 2012)
(ES) SPAIN FEB MANUFACTURING PMI: 50.7 V 49.0E (1st expansion in 8 months)
(IT) ITALY FEB MANUFACTURING PMI: 52.0 V 51.0E (2nd consecutive expansion and highest since Apr 2022)
(DE) GERMANY FEB PRELIMINARY CPI M/M: 0.8% V 0.5%E; Y/Y: 8.7% V 8.5%E
(US) FEB FINAL S&P/MARKIT MANUFACTURING PMI: 47.3 V 47.8E (5th straight month of contraction but highest since Nov 2022)
(US) FEB ISM MANUFACTURING: 47.7 V 48.0E; PRICES PAID: 51.3 V 45.0E
US 10-year treasury yield tests 4.00% for first time since mid November
(US) DOE CRUDE: +1.2M V +1ME; GASOLINE: -0.9M V +0.5ME; DISTILLATE: +0.2M V -0.5ME
(CN) US said to have begun lobbying allies to sanction China if they provide military aid to Russia - press
CRM Reports Q4 $1.68 v $1.36e, Rev $8.38B v $7.99Be; increases share purchase program to $20.0B
TSLA Exec: Confirms next Tesla assembly plant will be in Mexico; Planning new assembly line process for cars that will reduce production footprint by 40% and increase efficiency and reduce costs - Investor day
THRS 3/2
(EU) ECB chief Lagarde: Reiterates case for 50bps hike at Mar meeting is still on the table; We will follow this path but it is not certain that rates will rise in the coming months as we depend on data; Not clear how long rates will stay at higher levels
(JP) BOJ said to prefer for now watching impact of earlier tweaks it did earlier [**Note: in line with BOJ Gov Nominee Ueda's neutral stance] - press
(EU) EURO ZONE FEB CPI ESTIMATE Y/Y: 8.5% V 8.3%E; CPI CORE Y/Y: 5.6% V 5.3%E (record Core CPI pace)
(EU) EURO ZONE JAN UNEMPLOYMENT RATE: 6.7% V 6.6%E
HLAG.DE CEO: We believe the shipping market likely to remain fairly soft for a number of months now as consumers' destocking continues - post earnings comments
BBY Reports Q4 $2.61 v $2.09e, Rev $14.7B v $14.7Be; Raises Quarterly dividend 4.5% to $0.92 from $0.88 (indicated yield 4.46%); Guides FY23 short of consensus
(US) Freeport LNG export plant reportedly set to pull in 1.2Bcm of natural gas later on Thurs, Mar 2nd - press
(US) Q4 FINAL NONFARM PRODUCTIVITY: 1.7% V 2.5%E; UNIT LABOR COSTS: 3.2% V 1.6%E
(US) INITIAL JOBLESS CLAIMS: 190K V 195KE; CONTINUING CLAIMS: 1.655M V 1.669ME
KR Reports Q4 $0.99 v $0.90e, Rev $34.8B v $34.8Be; Pauses share buyback to prioritize de-leveraging following proposed merger with Albertson
*(US) Fed's Bostic (non-voter): Fed could be in position to pause by mid-to-late summer
COST Reports Q2 $3.30 v $3.21e, Rev $54.2B v $55.6Be
AVGO Reports Q1 $10.33 v $10.16e, Rev $8.91B v $8.89Be
(US) February preliminary NA Class 8 Net Orders 22.8K, +13% m/m - FTRintel.com
(JP) JAPAN FEB TOKYO CPI Y/Y: 3.4% V 3.3%E; CPI (EX-FRESH FOOD) 3.3% V 3.3%E
(CN) CHINA FEB CAIXIN PMI SERVICES: 55.0 V 54.5E [2nd straight expansion, highest since Aug]
(CN) China PBOC Gov Yi Gang: Reiterates to implement targeted and forceful monetary policy, will keep yuan exchange rate stable
(CN) China PBOC Dep Gov Pan: China property transaction activity has improved; property support measures are gaining traction
FRI 3/3
(HK) Macau Q4 GDP Y/Y: -23.4% v -33.4% prior
ODFL Reports Feb Rev/day -2.9% y/y, LTL -12.4% y/y due to decrease in shipments
VOW3.DE Reports final FY22 Net €15.8B v €15.4B y/y, Op €22.5B v €20.1B y/y, Rev €279.2B v €250.2B y/y
V Reports Feb payment volume +11% y/y, global processed transactions +12% y/y; Notes Feb payments volume growth y/y for several key international markets were moderately stronger than prior quarter
US) FEB ISM SERVICES INDEX: 55.1 V 54.5E