Weekly Market Update: Slowing economic activity and persistent hawkish rhetoric outweigh constructive inflation tea leaves
US stock markets came into the week riding a wave of momentum after last week’s slowdown in inflation sent stocks ripping higher and the dollar and bond yields into retreat. Hopes that the Federal Reserve will back off its campaign of aggressive interest-rate increases faded though as the week progressed. Despite benign October US PPI data which complimented last week’s CPI, and a series of weaker than expected economic readings, a chorus of US and EU central bankers reiterated their belief that rates still need to move higher to tame inflation. Fed maverick Bullard spooked investors on Thursday when he suggested that the Fed's policy rate could rise “significantly” higher than both traders and futures markets were expecting. Not overly surprisingly then, recession worries remained clearly prevalent in the minds of traders. Deteriorating economic readings came alongside a slew of corporate earnings reports which painted a worsening picture for the US consumer who has become stretched in dealing with stubbornly high prices and tightening financial conditions. The inversion between the long and very short end of the US Treasury yield curve deepened to new cycle highs. The US 2-10-year spread neared -70 basis points for the first time since 1980. The historically dependable recession predictor 3-month 10-year spread popped below -40 bps. Oil prices started to decline on Wednesday after it became clear that an explosion that killed two people near the Ukraine border in Poland was not a deliberate attack by Russia. On Friday the lingering global growth concerns and a worsening Beijing Covid outbreak helped push WTI crude prices below $80/barrel after the front month futures contract moved into contango for the first time in over a year. Stocks traded in a narrowing range this week, with the S&P slipping 0.7%, the DJIA unchanged, and the Nasdaq off 1.6%.
Big box retailers were the headliners in earnings news this week. Walmart impressed the market with substantial top and bottom line beats as it works through inventories. Target and Kohl’s couldn’t keep pace as the former saw profits and demand softening, while the latter said demand has become unpredictable and withdrew guidance. Home Depot was more down the middle, reporting somewhat better than expected results while reaffirming its fiscal year forecast, implying a softer Q4. Micron issued the latest warning in the semiconductor industry, sounding the alarm about deteriorating market conditions heading into 2023 and sharply reducing wafer starts.
SUN
(US) Fed's Waller (voter): Given level of inflation, rates are not that high; CPI report was "just one data point" and markets are "way out in front"; Rates will not fall until there is "clear, strong evidence" inflation is falling; market over reacted to one CPI data point; looking at a possible 50bps next meeting
(US) Democrats maintain control of the US Senate, to have at least 50 seats following victory in Nevada; Control of the House still remains uncertain - press
MON
8306.JP Reports H1 Net ¥231.1B v ¥781.4B y/y, Op ¥591.1B v ¥986.0B y/y, Rev ¥4.31T v ¥2.96T y/y; To buy back ¥150B in shares (2.4% of total) and cancel them
(US) President Biden: US and China should play key roles addressing challenges and manage differences without conflict; Ready to work with China if that is what China seeks
(RU) Russia and US delegations said to be holding some previously unannounced talks in Ankara, Turkey - Russian press
(US) Goldman Sachs analysts expect a significant decline in US inflation in 2023; Expect the core PCE measure to decline to 2.9% by Dec 2023 v 5.1% currently
TSN Reports Q4 $1.63 adj v $1.70e, Rev $13.7B v $13.3Be; Targets $1B in savings, program accelerated ahead of schedule and now expected to be achieved by end-FY23 (prior end-FY24)
(CN) China President Xi: Taiwan question is the first red line that must not be crossed in China-US relations - comments after meeting US Pres Biden
(BR) Brazil Pres-elect Lula's team reportedly considering more conservative spending plans - press
(US) The International Brotherhood of Boilermakers (IBB) has failed to ratify rail union labor agreement (3rd union of 12 to reject the deal brokered by the White House) - press
LPX Berkshire takes new stake; Also a new stake in JEF - 13F filing
CN) CHINA OCT RETAIL SALES Y/Y: -0.5% V +0.7%E; YTD Y/Y: 0.6% V 0.8%E
(FR) ECB's Villeroy (France): Clearly approaching normalization range est ~2.00%; Will probably continue to raise rates, but may do so In a more flexible and possibly less rapid manner
TUES
VOD.UK Reports H1 adj EPS €0.06 v €0.05 y/y, adj EBIITDAaL €7.24B v €7.57B y/y, Rev €22.9B v €22.5B y/y; Cuts FY23 outlook; Announces €1B cost-savings target by FY26
(US) US, Japan and Indonesia unveil $20B deal to wean Indonesia off coal; Said to be largest single climate deal ever – press
AMZN Introduces Amazon Clinic, new virtual health service; Will operate in 32 states, does not yet accept insurance - press citing blog post
IEA Monthly Oil Report (OMR); Raises 2022 global oil demand growth, but cuts 2023 global oil demand growth forecast
(DE) GERMANY NOV ZEW CURRENT SITUATION SURVEY: -64.5 V -69.3E; EXPECTATIONS SURVEY: -36.7 V -51.0E
HD Reports Q3 $4.24 v $4.11e, Rev $38.9B v $37.9Be; Affirms FY22 outlook
WMT Reports Q3 $1.50 v $1.31e, Rev $152.8B v $147.4Be; Announces $20B share buyback (5.3% of market cap); Notes significantly improved its inventory position in Q3
WMT CEO: Focused on bringing our costs and prices down as quickly as possible; m/m inflation levels seen 'less significant'; Guidance assumes consumer could slow spending - conf call comments
(US) NOV EMPIRE MANUFACTURING: +4.5 V -6.0E (1st positive print in 4 months); New Orders: -3.3 v +3.7 prior
(US) OCT PPI FINAL DEMAND M/M: 0.2% V 0.4%E; Y/Y: 8.0% V 8.3%E
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: +2.4% v -3.9% prior
(PL) Social media reports suggest Russia missile strayed over Ukraine border and hitting Polish village (unconfirmed report)
AAPL CEO Cook: Decided to source chips from Arizona plant currently under construction due to open in 2024 - investor meeting comments
(US) Former President Trump has filed to run for President in 2024 (as speculated)
Semiconductor foundries said to prepare for weak sales during Nov and Dec; cites industry sources - Digitimes
WED
ALO.FR Reports H1 Adj Net €179M v €172M y/y, Rev €8.05B v €7.44B y/y
(UK) OCT CPI M/M: 2.0% V 1.8%E; Y/Y: 11.1% V 10.7%E (highest annual pace since Oct 1981)
700.HK Reports Q3 (CNY) adj Net 32.3B v 30.2Be, Op 51.6B v 35.4Be, Rev 140.1B v 141.4Be; Notes it is appropriate time to transfer most of Meituan stake; Declares special interim dividend
AMZN Said to be asking some retail vendors for lump sums of cash to make up for lower profit margins; Also instituted inventory and restock limits on third-party sellers - press
(CN) China govt advisors said to recommend 2023 growth forecast between 4.5-5.5% at Dec meetings – press
TGT Reports Q3 $1.54 v $2.14e, Rev $26.5B v $26.4Be; Notes softening Rev and profit trends that emerged late in Q3 and persisted into Nov; To cut costs $2-3B over 3yrs
Redfin: Asking rents rise 7.8% y/y in Oct, to $1,983, the smallest annual increase since August 2021
(CA) CANADA OCT CPI M/M: 0.7% V 0.8%E; Y/Y: 6.9% V 6.9%E
(US) OCT ADVANCE RETAIL SALES M/M: 1.3% V 1.0%E; RETAIL SALES (EX-AUTO) M/M: 1.3% V 0.5%E
MU Market Conditions further deteriorate; Reducing wafer starts by ~20% v Q4'22; NAND bit supply growth will need to be significantly lower than previous estimate; Market outlook for FY23 has weakened
(US) OCT INDUSTRIAL PRODUCTION M/M: -0.1% V 0.1%E; CAPACITY UTILIZATION: 79.9% V 80.4%E
(US) NOV NAHB HOUSING MARKET INDEX: 33 V 36E
(US) Atlanta Fed GDPNow: Raises Q4 GDP forecast to 4.4% from 4.0%
(EU) Reportedly ECB members may decide to move 50bps in Dec rather than another 75bps; Inflation surge could still lead policymakers to go 75bps – press
(US) TREASURY $15B 20-YEAR BOND AUCTION DRAWS 4.072% v 4.395% prior, BID-TO-COVER 2.64 v 2.50 PRIOR AND 2.40 OVER LAST 8 REOPENINGS
(US) Fed's Waller (voter): Fed still has a ways to go on raising rates; Could become more comfortable downshifting to a 50bps hike but that would still be a significant move
TSLA Board Member James Murdoch: Elon Musk identified a potential successor in the last few months – press
(US) Republicans projected to have won majority in the US House with 218 seats (as expected); House Democrats control 210 seats – press
(AU) AUSTRALIA OCT EMPLOYMENT CHANGE: 32.2K V +15.0KE; UNEMPLOYMENT RATE: 3.4% V 3.5%E
THRS
SIE.DE Reports Q4 EPS (pre PPA) €3.59 v €1.61 y/y, EBITDA €4.85B v €2.19B y/y, Rev €20.6B v €17.4B y/y; Raises annual dividend
3333.HK Said to start negotiations on restructuring terms with offshore bondholders in Dec 2022; terms are expected to be finalized in early 2023 - press
(EU) EU27 Oct New Car Registrations: 12.2% v 9.6% prior (3rd straight monthly rise)
BRBY.UK Reports H1 adj EPS 44.3p v 33.5p y/y, Op £238M v £196M y/y, Rev £1.35B v £1.21B y/y; See recessionary risks in Americas and Europe
(CN) China Health Commission official: China drafting plans to accelerate COVID vaccination; Reiterates commitment to targeted COVID prevention; Kids younger than 3 no longer need to show COVID-19 results
UR) Ukraine Infrastructure Min: Black Sea grain initiative to be extended for 120 days until Mar 202
(EU) Goldman Sachs analysts see Europe to end winter with better-than-expected gas storage, near 30% full at the end of Mar 2023 (v prior 21-23% forecast); Expect weak Chinese LNG demand also would mean more supply for Europe
(EU) EURO ZONE OCT FINAL CPI Y/Y: 10.6% V 10.7%E; CPI CORE Y/Y: 5.0% V 5.0%E
(RU) Russia and US to hold new START treaty talks on strategic nuclear stability in Egypt on Nov 29th-Dec 6th (the first time since Ukraine war escalation started in Feb 2022)
Sept Trucking Conditions Index (TCI) -2.35 v -0.25 - FTRintel.com
T CFO: US consumer demand remains healthy; Inflation related costs have added $1B to expenses - investor conf
KSS Reports Q3 $0.82 v $0.81e, Rev $4.28B v $4.29Be; Withdraws FY22 outlook
(UK) DMO REMIT: Plan FY22/23 Gilt Sales: £169.5B v £185BE
(US) Fed's Bullard: Hikes have only had a limited impact so far on observed inflation; Policy not yet at a restrictive level
(US) OCT HOUSING STARTS: 1.425M V 1.410ME; BUILDING PERMITS: 1.53M V 1.514ME
(US) INITIAL JOBLESS CLAIMS: 222K V 228KE; CONTINUING CLAIMS: 1.51M V 1.51ME
(US) NOV PHILADELPHIA FED BUSINESS OUTLOOK: -19.4 V -6.0E (lowest since May 2020)
(US) Fed's Mester (FOMC voter): Inflation is unacceptably high in the US
(US) Atlanta Fed GDPNow: Lowers Q4 GDP forecast to 4.2% from 4.4%
AMAT Reports Q4 $2.03 v $1.72e, Rev $6.75B v $6.38Be
FRI
(UK) OCT RETAIL SALES (EX-AUTO/FUEL) M/M: 0.3% V 0.6%E; Y/Y: -6.7% V -6.8%E
(CN) China PBOC: Issues capital rule for foreign investors in bond market effective from 2023; Will make it easier for foreign investors to repatriate funds from China
(EU) ECB announcement on TLTRO repayments: Banks to repay €296B of TLTRO III funds (lower-than-expected; Estimates were between €0.2-1.5T with median of €0.6T)
(US) OCT LEADING INDEX: -0.8% V -0.4%E
(US) AG Garland appoints war crimes prosecutor Jack Smith as the Special Counsel taking over two major criminal investigations involving former Pres Trump