Weekly Market Update: November starts with ‘reality check’ on inflation and rate policy
Monday saw the Dow Jones Industrial average finish out October with the best monthly gain since 1976, with a 14% rise. Strong overseas trading, helped in large part by speculation China’s government could signal its willingness to begin shifting away from some ‘zero Covid’ measures, foreshadowed a theme that would remain prevalent as the week progressed. Sellers re-emerged after Tuesday’s JOLTS data surged by 1M more than consensus expectations. Wednesdays ADP employment was also stronger than expected which further dampened investor enthusiasm ahead of the FOMC announcement. Quarterly earnings reports were also bit more alarming overall, suggesting the consumer is starting to feel the headwinds induced by central bank tightening. US rates remained elevated as key portions of the US Treasury curve stayed stubbornly inverted as Fed officials gathered.
On Wednesday, the FOMC raised rates 75bps, but also as speculated, hinted they would consider adjusting the speed at which they will be hiking them further in the future. Initially stocks rose and yields dipped before Chairman Powell delivered the real news at his press conference. By emphasizing it was very premature to think about pausing rate hikes and that ultimately rates will likely have to move higher than most Fed officials thought just six weeks earlier, the Chairman deliberately pushed up market expectations for the terminal fed funds rate. The US 2-year yield climbed above 4.7% while futures markets quickly priced in the funds rate topping out north of 5.15% by next summer. Alternatively, the message from the Bank of England on Thursday was decidedly different: After hiking by 75 bps, too, BOE Governor Bailey noted that rates will likely rise by less than markets were currently projecting. Cable slumped more than 1.5% amid continued broad dollar strength in the wake of the Fed decision.
Economic data releases did little to push back on the post-Fed press conference narrative. Preliminary Q3 productivity data disappointed markets again, weekly jobless claims unexpectedly fell, while October ISM topped expectations and included a m/m rise in prices paid. Friday’s October jobs report cemented the ‘higher for longer’ mantra. Nonfarm payroll growth continued to roll along at a rate higher than the demographic trend, though the household survey data did offer a more mixed take. The report didn’t appear to change the Fed outlook greatly, and that notion was reinforced by several Fed speakers following the release. Imperatively, the labor market remains too strong to ease the upward pressure on prices. Nevertheless, US indices opened higher on Friday on the back of significant overseas strength in the wake of recirculating speculation that China will signal a shift in its draconian Covid policies. German Chancellor Scholz visiting China revealed that Beijing agreed to approve BioNTech SE's Covid-19 vaccine for foreign residents in what would mark the first approval of an mRNA vaccine for use in China. Crude prices jumped 4% amid broad commodity strength while the US dollar came under pressure. For the week, the S&P sank 3.3%, the DJIA was down 1.4%, and the Nasdaq tumbled 5.7%.
In corporate news this week, earnings season continued apace. AMD missed on profit and guided below expectations amid weak PC sales, but results in all four of its business segments were better than had been forecast back in October. Logistics giant Maersk posted strong results though warned of ‘dark clouds’ on the horizon for the world economy, cutting its FY22 global container demand view. Qualcomm stock fell to its lowest level in two years as it forecast smartphone market shortfalls carrying over into 2023.
Starbucks shares rose after the coffee purveyor brewed up record sales while cafe upgrades and higher employee wages weighed down profits. Kellogg raised forecasts and said it has seen consumers accept higher prices for their staple foods, as the CEO scoffed at the notion that current inflation was every considered ‘transitory.’
J&J announced it would acquire heart-pump manufacturer Abiomed for $17B in an effort to improve growth in its medical devices division. CVS, Walmart, and Walgreens confirmed a tentative agreement to pay $13.8B to settle thousands of local and state opioid claims in the US.
SUN 10/30
(BR) BRAZIL PRESIDENTIAL ELECTION RESULTS: Lula elected with 50.8% of the vote - Electoral Court
(HK) Chinese residents can apply for electronic travel permits to Macau from Nov 1st; China notes it will adjust border restrictions with Macau based off of the situation
*(CN) CHINA OCT MANUFACTURING PMI (GOVT OFFICIAL): 49.2 V 49.8E (moves back into contraction)
2317.TW Reportedly may see up to 30% of Nov iPhone shipments at Zehngzhou plant [its largest with ~300K workers] impacted due to coronavirus restrictions - press
MON 10/31
(HK) Hong Kong Q3 Advance GDP Q/Q: -2.6% v +1.3%e; Y/Y: -4.5% v -0.8%e
*(IT) ITALY Q3 PRELIMINARY GDP Q/Q: 0.5% V 0.0%E; Y/Y: 2.6% V 2.0%E
*(EU) EURO ZONE OCT CPI ESTIMATE Y/Y: 10.7% V 10.3%E; CPI CORE Y/Y: 5.0% V 5.0%E
*(EU) EURO ZONE Q3 ADVANCE GDP Q/Q: 0.2% V 0.1%E; Y/Y: 2.1% V 2.1%E
(RU) Russian missile shot down by Ukrainian air defences reportedly fell on the territory of a village in northern Moldova; No casualties reported - press
(DE) German Gas Commission: Next 2-3 winters could be critical but high gas prices also expected beyond that
ON Reports Q3 $1.45 v $1.31e, Rev $2.19B v $2.12Be
*(US) OCT CHICAGO PURCHASE MANAGER’S INDEX (PMI): 45.2 V 47.0E
*(US) OCT DALLAS FED MANUFACTURING ACTIVITY -19.4 V -18.5E
(US) Reportedly President Biden to float windfall tax on energy producers - press
(US) Treasury quarterly financing estimates: to borrow $550B in Oct-Dec quarter v $525Be (vs prior $400B estimate)
2330.TW Said to have cut up to 50% of some procurement orders with certain suppliers; Partially related to canceled order for 3nm chips by undisclosed top client, which also was a reason for FY22 Capex cut in Oct - Taiwan press
*(AU) RESERVE BANK OF AUSTRALIA (RBA) RAISES CASH RATE TARGET BY 25BPS TO 2.85%; AS EXPECTED
TUES 11/1
(HK) Macau Oct Casino Rev (MOP) 3.90B v 3.0B prior; Y/Y: -10.7% v -49.6% prior
(RU) Russia Pres Putin: To conclude a peace deal with Ukraine, we must first start negotiations; Now Ukraine has forbidden itself to negotiate with us, so we will wait for the conditions to change; Our goodwill is known
ARAMCO.SA Reports Q3 (SAR) Net 159.1B v 114.1B y/y, Op 300.2B v 295.7Be, Rev 543.7B v 359.1B y/y; To pay $18.8B in dividends in Q4
6758.JP Reports H1 Net ¥482.2B v ¥424.9B y/y, Op ¥651.0B v ¥598.5B y/y, Pretax ¥637.1B v ¥566.3B y/y, Rev ¥5.06T v ¥4.63T y/y
(CN) Traders circulating unverified chatter that Chinese 'Reopening Committee' has been formed, led by Wang Huning, Politburo Standing Member. The Committee is reviewing COVID data from US/HK/SG to assess various reopening scenarios; Reportedly target for 'conditional reopening plan' is Mar 2023
BP.UK Reports Q3 adj Net $8.15B v $3.32B y/y, Rev $57.8B v $57.5Be; To buy back additional $2.5B in shares (1.9% of market cap); Raises FY22 production and Capex outlook
*(UK) OCT NATIONWIDE HOUSE PRICE INDEX M/M: -0.9% V -0.3%E; Y/Y: 7.2% V 8.2%E (1st monthly fall since July 2021 and 4th straight decline in annual pace)
(US) US and UAE said to invest $100B to produce 100GW in clean energy projects by 2035 - press
ABMD To be acquired by JNJ for $380/shr cash in $16.6B deal; Abiomed shareholders will also get non-tradeable CVR to receive up to $35.00/shr in cash
PFE Reports Q3 $1.78 v $1.47e, Rev $22.6B v $21.0Be; Raises mid-points of FY22 outlook
AGCO Reports Q3 $3.18 v $3.12e, Rev $3.12B v $3.28Be; Continue to expect strong demand in Q4
TDY FLIR Defense launches MUVE R430 drone remote Radiation detection sensor
(UR) US military personnel said to be on ground in Ukraine to track weapons and equipment - NBC
*(US) OCT ISM MANUFACTURING: 50.2 V 50.0E (lowest since May 2020); PRICES PAID: 46.6 V 53.0E (lowest since May 2020)
*(US) SEPT JOLTS JOB OPENINGS: 10.717M V 9.750ME
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -3.9% v -4.6% prior
(US) Atlanta Fed GDPNow: Cuts Q4 GDP forecast to 2.6% from 3.1%
DVN Reports Q3 $2.18 (ex-items) v $2.13e, Rev $5.43B v $4.91Be
AMD Reports Q3 $0.67 v $0.67e, Rev $5.57B v $5.58Be; Cuts FY22 outlook; Notes softening PC market and substantial inventory reduction actions across the PC supply chain
WEDS 11/2
MAERSKB.DK Reports Q3 underlying Net $8.82B v $8.00Be, EBITDA $10.9B v $6.94B y/y, Rev $22.8B v $16.6B y/y; Affirms FY22 financial outlook, but cuts FY22 global container demand view
GSK.UK Reports Q3 Adj EPS 46.9p v 37.4p y/y, Rev £7.83B v £6.67Be
MAERSKB.DK CEO: Clearly global trade volumes are down; See Europe in recession soon, hard to be optimistic in Europe right now - post earnings comments
FUN Reports Q3 Net $333.0M v $148.0M y/y, Rev $843M v $856Me; Notes pace through Oct supports expectations to achieve new all-time highs for Rev and adj EBITDA in 2022
*(IT) ITALY OCT MANUFACTURING PMI: 46.5 V 46.9E (4th straight contraction and lowest since May 2020)
*(DE) GERMANY OCT NET UNEMPLOYMENT CHANGE: +8.0K V +12.5KE; UNEMPLOYMENT CLAIMS RATE: 5.5% V 5.5%E
(RU) Reportedly some senior Russian military leaders in mid-Oct had conversations to discuss when and how Russia might use a tactical nuclear weapon in Ukraine; Pres Putin said to have not participated in such discussions - NYT
(TR) Turkey President Erdogan: Russia told us that grain corridor will continue
CVS Confirms agreement in principle to pay $5B for global opioid settlement; Payments to be made over the next ten years beginning in 2023
WBA Confirms to pay ~$4.8B over 15 years to resolve a substantial majority of opioids-related lawsuits filed against the Company by the attorneys general of participating states and political subdivisions and litigation brought by counsel for tribes - filing
ATI Reports Q3 $0.53 adj v $0.52e, Rev $1.03B v $898Me
*(US) OCT ADP EMPLOYMENT CHANGE: +239K V +185KE; Seeing early signs of Fed-driven demand destruction; Notes hiring was not broad-based; Pay growth eased again in Oct
(US) Treasury quarterly refunding: To sell $40 3-year notes, $35B 10-year notes, $21B 30-year bonds
(CN) China National Health Commission (NHC) reiterates adherence to 'COVID zero' policy - press
(US) Association of American Railroads weekly rail traffic report for week ending Oct 29th: 514K total units, +0.8% y/y
*(US) FOMC RAISES TARGET RANGE BY 75BPS TO 3.75-4.00%; AS EXPECTED; NEED ONGOING HIKES UNTIL RATES ARE SUFFICIENTLY RESTRICTIVE; PREPARED TO ADJUST POLICY AS APPROPRIATE; WILL TAKE CUMULATIVE TIGHTENING AND POLICY LAGS INTO ACCOUNT
(US) Fed Chair Powell: Need to see inflation coming down decisively but do not need inflation to come down to slow pace of increases; Policy stance must be sufficiently restrictive - post decision Q&A
QCOM Reports Q4 $3.13 v $3.15e, Rev $11.4B v $11.4Be
COST Reports Oct total SSS +6.7% (ex-gas and FX)
LUMN Reports Q3 $0.14 v $0.36e, Rev $4.39B v $4.41Be; Board elimates annual $1.00/shr dividend going forward, authorized an up to $1.5B, two-year share repurchase program
ALB Reports Q3 $7.50 v $6.84e, Rev $2.10B v $2.12Be
2282.HK Reports Q3 (HK$) adj EBITDA -353.5M v +100.5M y/y; Rev 686.6M v 2.25B y/y
*(CN) CHINA OCT CAIXIN PMI SERVICES: 48.4 V 49.0E (2nd straight contraction, lowest reading since May)
THURS 11/3
(SI) ECB's Kazaks (Slovenia): Reiterates Council stance that inflation is very high in the region; Rates need to go much higher; No need for pause at turn of the year
BMW.DE Reports Q3 EBIT €3.68B v €3.52Be, Rev €37.2B v €35.5Be; Expects deliveries to increase significantly in Q4 q/q, but warns rising inflation and interest rates would start to weigh on sales in the coming months
SBRY.UK Reports H1 Rev £16.4B v £15.9Be; Notes trading momentum has remained strong in the first few weeks of H2; Expects to deliver over £1.3B in cost savings in three years to FY24
STLA Reports Q3 Rev €42.1B v €32.6B y/y
*(NO) NORWAY CENTRAL BANK (NORGES) RAISES DEPOSIT RATE BY 25BPS TO 2.50%; LESS-THAN-EXPECTED; Says rate will most likely be raised further in Dec 2022
*(EU) EURO ZONE SEPT UNEMPLOYMENT RATE: 6.6% V 6.6%E
CI Reports Q3 $6.04 v $5.70e, Rev $45.3B v $44.9Be; Raises FY22 outlook
ABC Reports Q4 $2.60 v $2.58e, Rev $61.2B v $60.3Be; Raises Quarterly dividend 5.4% to $0.485 from $0.46 (indicated yield 1.25%)
IRM Reports AFFO Q3 $0.98 v $0.96e, Rev $1.29B v $1.32Be
*(UK) BANK OF ENGLAND (BOE) RAISES BANK RATE BY 75BPS TO 3.00%; AS EXPECTED (biggest hike in 33 years); Says further increases in Bank Rate may be required for a sustainable return of inflation to target, albeit to a peak lower than priced into financial markets
*(UK) BOE VOTED 7-2 TO RAISE BANK RATE BY 75BPS; Tenreyro voted for 25bps hike, Dhingra for 50bps hike as 'UK economy was probably already in recession'
K Reports Q3 $1.01 v $0.97e, Rev $3.95B v $3.78Be; Raises FY outlook
ARW Reports Q3 $5.45 v $5.36e, Rev $9.27B v $9.20Be; Guides Q4 strong; Notes supply is improving modestly
(UR) Russia-installed official of occupied Kherson city: Russian units will likely withdraw from West bank of Dnipro river
(US) October preliminary NA Class 8 Net Orders 43.2K, -23% m/m, +77% y/y - FTRintel.com
*(CZ) CZECH CENTRAL BANK (CNB) LEAVES 2-WEEK REPURCHASE RATE UNCHANGED AT 7.00%; AS EXPECTED
*(US) OCT FINAL S&P/MARKIT SERVICES PMI: 47.8 V 46.6E
*(US) OCT ISM SERVICES INDEX: 54.4 V 55.3E
(US) Atlanta Fed GDPNow: Raises Q4 GDP forecast to 3.6% from 2.6%
SBUX Reports Q4 $0.81 v $0.73e, Rev $8.41B v $8.43Be
FRI 11/4
(CN) US Auditors said to have finished on site China inspections early - press
(CN) More unverified chatters in Chinese social networks that China's COVID policy may soon see a substantial change; Reportedly China National Health Commission's former CDC Chief Scientist Zeng Guang said domestic economic development will be prioritized over COVID prevention
(CN) China said to be working on a plan to scrap COVID flight suspensions in order to normalize air travel - press
(CN) China Health Authorities said to host press conference on 'Targeted Covid Prevention' on Nov 5th at 03:00 ET (07:00GMT); China's Center for Disease Control and Prevention officials and experts will introduce measures for epidemic control
(DE) German Chancellor Scholz: China will allow BioNTech vaccine for expatriates in China, discussed broader approval; China must exert influence on Russia to end Ukraine war; Xi and me have same opinion that nuclear threats are unacceptable - comments after meeting China Pres Xi
AIR.FR Formally signs $17B deal for 140 jets with China as a part of China's order for 292 jets announced in July 2022 - press
HUN Reports Q3 $0.50 v $0.71e, Rev $2.01B v $2.04Be; Notes it reduced production rates to reflect this new reality of slower European demand and higher costs
(IR) Reportedly Iran was asking Russia for help in acquiring additional nuclear materials and with nuclear fuel fabrication; Russia's response on any help in this field said to be unclear - CNN
CAH Reports Q1 $1.20 v $0.96e, Rev $49.6B v $46.9Be
FAST Reports Oct net sales $603.7M +13.6% y/y
(CN) China President Xi: Reiterates stance that global economic recovery momentum is insufficient; country to pursue win-win cooperation as it continues to open up
*(US) OCT CHANGE IN NONFARM PAYROLLS: +261K V +195KE (above all analysts' expectations); Birth-Death Adjustment (unadj): +455K v -172K prior
*(CA) CANADA OCT NET CHANGE IN EMPLOYMENT: +108.3K V +10.0KE; UNEMPLOYMENT RATE: 5.2% V 5.3%E
*(US) OCT UNEMPLOYMENT RATE: 3.7% V 3.6%E
*(US) OCT AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 4.7% V 4.7%E