After Hours Summary: OXM +6.2%, GEF +4.6%, YEXT +2.7% higher on earnings; FIVE -6.4% falls on miss and guide downAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: OXM +6.2%, GEF +4.6%, AVO +4.1%, BASE +3.3%, YEXT +2.7%
Companies trading higher in after hours in reaction to news: RUBY +1.6% (files for $250 mln mixed securities shelf offering), USFD +1.2% (union warns of possible work stoppages), ICFI +0.8% (to acquire SemanticBits), FLR +0.5% (selected for I-35 Capital Express South project), UPST +0.5% (CFPB to terminate its no-action letter), CNS +0.1% (reports May AUM), TRV +0.1% (files mixed securities shelf offering)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: FIVE -6.4%, ABM -1.7%, SKIL -1.3%
Companies trading lower in after hours in reaction to news: CVAC -4.4% (acquires Frame Cancer Therapeutics for €32 mln), OC -2.5% (forms JV with Pultron Composites for fiberglass rebar), PLUG -1.1% (files mixed securities shelf offering), PARR -0.2% (PARR to jointly explore sustainable aviation fuel with HA), HA -0.2% (PARR to jointly explore sustainable aviation fuel with HA), IGT -0.2% (extends partnership with SuperBook Sports to Tennessee), DVN -0.1% (purchases Williston Basin assets from RimRock Oil & Gas for $865 mln)
Closing Stock Market SummaryToday was hump day and the major indices did not get over the hump. They all fell backward, slipping on rising energy costs and renewed angst about the economic and earnings growth outlook.
A series of headlines ignited the growth concerns, which led to some fairly broad-based selling interest.
- Intel (INTC 41.23, -2.30, -5.3%) said the macro environment has been weaker and that circumstances at this point are much worse than it had anticipated coming into the quarter.
- Scotts Miracle-Gro (SMG 93.24, -8.94, -8.8%) slashed its FY22 (Sep) EPS outlook well below the current consensus estimate, noting its fixed cost structure has seen significantly greater pressure due to replenishment orders from its retail partners not being what it expected since mid-May.
- The OECD cut its 2022 global GDP view to 3.0% from 4.5%.
- The Atlanta Fed's GDPNow model estimate for Q2 was lowered to 0.9% from 1.3%.
- The Reserve Bank of India raised its key lending rate by a larger-than-expected 50 basis points to 4.90% (a 40 bps increase was expected), following suit with the Reserve Bank of Australia's larger-than-expected rate hike on Tuesday.
- The MBA Mortgage Applications Index was down 6.5% week-over-week, driven by a 7% decline in purchase applications and a 6% decline in refinancing applications.
One of the main distracting factors for investors, though, was the continued increase in energy costs. WTI crude futures settled the day up 2.0% at $121.96/bbl. At one point, natural gas futures were up as much as 4.0% to $9.66/mmbtu, yet they hit a wall of resistance late and tumbled into their close, settling the day down 7.2% at $8.67/mmbtu.
The pullback in natural gas prices didn't do anything to stir the conviction of buyers. They held to the sidelines for the most part, biding some time in front of the ECB policy decision on Thursday and the May Consumer Price Index on Friday. Accordingly, volume was on the lighter side today with only 848 million shares traded at the NYSE.
A move in the 10-yr note yield back above 3.00% further dissuaded them. The benchmark instrument settled the day up six basis points at 3.03% in response to inflation worries and a soft 10-yr note auction that saw the high yield of 3.03% tail the when-issued yield of 3.018%.
The growth concerns that prevailed today in the stock market were evident in the tape.
Large-cap stocks outperformed small-cap stocks; value stocks underperformed growth stocks; the Dow Jones Transportation Average dropped 3.8%; the Philadelphia Semiconductor Index slumped 2.4%; and some of today's worst-performing sectors were the economically-sensitive real estate (-2.4%), materials (-2.1%), industrials (-1.8%), and financial (-1.7%) sectors.
Every sector, though, with the exception of the energy sector (+0.2%), finished the day with a loss.
Declining issues outpaced advancing issues by a nearly 3-to-1 margin at the NYSE. Breadth wasn't as lopsided at the Nasdaq, although declining issues outpaced advancing issues by a comfortable margin.
Reviewing today's economic data:
- MBA Mortgage Applications declined 6.5% week-over-week versus a prior decline of 2.3%; purchase applications fell 7% and refinancing applications dropped 6%.
- April Wholesale Inventories increased 2.2% month-over-month (consensus 2.1%) following an upwardly revised 2.7% increase (from 2.3%) in March.
Looking ahead, market participants will receiver the Weekly Initial and Continuing Jobless Claims Report (8:30 a.m. ET) and the EIA's Natural Gas Inventories Report (10:00 a.m. ET) on Thursday. Prior to those reports, the ECB will issue an updated policy directive at 7:45 a.m. ET.
- Dow Jones Industrial Average: -9.5% YTD
- S&P 400: -11.3% YTD
- S&P 500: -13.6% YTD
- Russell 2000: -15.8% YTD
- Nasdaq Composite: -22.7% YTD
US NatGas Plunges On Reports Of Explosion At Texas LNG Export Terminal
Drilling for gas in countryside south of London given go-ahead
Minister overturns council refusal and allows UK Oil and Gas to sink appraisal well on edge of Surrey Hills
The UK government has given the go-ahead for drilling to start to establish the size of a gasfield on the edge of the scenic Surrey Hills countryside just south of London.
The ruling, which was announced in a written statement by housing minister Stuart Andrew, overturns a decision by the local Tory-run council to block the project and angered environmentalists and the Liberal Democrats.
Although the minister agreed that the proposal would cause “significant harms to the character and appearance of the landscape”, Andrew said this was mitigated by the “short-term” nature of the three-year appraisal project.
Gas was first found on the site at Loxley, near Dunsfold, in the 1980s but no further work was done. UK Oil & Gas, the Aim-listed company that bought the rights, has been pressing to be allowed to develop the project since 2020. The application has twice been blocked by Surrey County Council.
The company has estimated the area could hold 43bn cubic feet of gas and the government decision allows it to drill to determine the extent of the reserves. It said it hoped to start work next year on determining whether the prospect was viable.
Stephen Sanderson, chief executive of UK Oil & Gas, said it had been a “lengthy and costly appeal process” but welcomed the decision. “Backing UK domestic gas makes strategic, economic and environmental good sense,” he said. “We look forward to moving the Loxley project forwards and to working constructively with the local community.”
The government has been keen to encourage domestic fossil fuel production to increase the UK’s energy independence in the wake of the war in Ukraine. Last week it gave the go-ahead to the Jackdaw project, a large new North Sea gasfield in waters 250 kilometres east of Aberdeen, which Shell will develop.
But the decisions have provoked anger from environmentalists, who argue that it contradicts the government’s pledge to reach net zero by 2050.
Tom Fyans, director of campaigns and policy at CPRE, the countryside charity, said the decision to approve the drilling in Surrey was “absurd” and “guaranteed to provoke fury and despair”. “It’s extraordinary, given the urgent need to wean ourselves off fossil fuels, that the government sees fit to greenlight a gasfield and damage the setting of an area of outstanding natural beauty.”
Lib Dem leader Sir Ed Davey said it was “shameful that the Conservatives have ignored the concerns of local communities”. “The best way to improve energy security is to wean ourselves off fossil fuels, by investing in renewables and insulating people’s homes.”
UK Oil & Gas is best known for its development of the Horse Hill oil well, on farmland two miles outside the town of Horley, near Gatwick airport, in Surrey. It has a 20-year permit and produced around 170,000 barrels of oil so far but continues to face legal challenges and protests.
Japanese yen slides further against dollar on BoJ policy divergence
Investors assess gloomy outlook for global inflation and economic growth
The Japanese yen fell to a new 20-year low against the dollar on Wednesday, pushed down by expectations that the Bank of Japan will defy global trends and keep monetary policy loose.
The yen dropped as much as 1.4 per cent against the US currency, taking it past ¥134 per dollar. It has declined roughly 4 per cent this month and has in recent days neared its weakest level since early 2002.
The move came after the governor of the BoJ said that consumers had become “more tolerant” of price rises, comments that he later retracted. Speaking at the FT’s Global Boardroom event, Haruhiko Kuroda said that a weakening yen would boost the profits of Japanese companies.
In stark contrast to other major central banks, the BoJ has decided against tightening monetary policy in recent months.
“The dollar has seen a meteoric rise versus the Japanese yen over the past three months as the Bank of Japan maintains a dovish policy stance relative to the Federal Reserve,” strategists at Bespoke Investment Group said on Wednesday.
Investors expect policymakers in the US and eurozone to take a markedly different stance as they attempt to tame inflation, a view that has weighed on government bond prices this year.
That weakness extended on Wednesday, with the yield on the 10-year US Treasury note rising 0.05 percentage points to 3.03 per cent as the price of the debt fell. Money managers are betting the Federal Reserve will lift its policy rate above 3 per cent next year, a shift that has already rippled through financial markets.
Now, they are watching for the May US inflation report due on Friday as they assess the state of the economy and impact of rapid price rises on consumers. The figures are expected to show US consumer prices rose 8.3 per cent last month, matching the pace of increases from April.
In the past two days, both the World Bank and the Paris-based OECD have cut their global growth forecasts because of the Ukraine war and higher energy prices.
As growth slows, surging inflation is pushing major central banks to lift borrowing costs and withdraw huge monetary stimulus schemes introduced in the early stages of the coronavirus crisis in 2020.
“We’ve had this huge monetary intervention and we’re just starting to see it unwind,” said Roger Lee, head of equities at Investec. “The idea that the market has priced this correctly seems very optimistic.”
The European Central Bank is expected on Thursday to signal a significant shift away from its long-held policy of keeping interest rates below zero, with markets anticipating that the bank’s main deposit rate will move back into positive territory by September. The ECB introduced negative rates in 2014 to stimulate lending and spending and has not raised borrowing costs since 2011.
The yield on Germany’s 10-year Bund, a benchmark for eurozone debt costs, added 0.06 percentage points to 1.35 per cent, the highest since 2014.
Italy’s equivalent bond yield rose 0.09 percentage points to 3.37 per cent, having almost tripled since the start of the year as traders anticipated that weaker eurozone nations would struggle with economic downturns and higher debt costs.
In equity markets, Wall Street’s S&P 500 share index fell 1 per cent in New York, reversing a two-day rally at the start of the week as nearly 90 per cent of the stocks in the benchmark slid. The technology-heavy Nasdaq Composite declined 0.6 per cent.
Europe’s regional Stoxx 600 share index fell 0.6 per cent, with banks and industrials among the worst performing sectors as investors weighed up the implications of higher rates for economic growth and the eurozone’s weakest borrowers.
Elsewhere, Hong Kong’s Hang Seng index added 2.2 per cent.
Brent crude, the oil benchmark, rose 2.7 per cent to $123.83 a barrel.
SEC chief launches review of ‘uneven’ US equities market
Gensler’s plan to ‘do better for retail investors’ draws fire from brokers and trading firms
The chair of the Securities and Exchange Commission has outlined plans for an overhaul of what he described as an “uneven” and unfair US equity market, drawing fire from traders that have flourished under the current system.
Gary Gensler said on Wednesday that he had asked agency staff to consider a series of significant changes, including a possible auction process to increase competition between services for retail investors.
His push comes after a gradual fracturing of the stock market, with a rising share of trading taking place outside of traditional exchanges.
Retail investors’ participation in markets also grew over the past two years, with wholesale trading groups in some cases paying brokers for batches of retail orders in what is known as “payment for order flow”.
“It’s not clear . . . that our current national market system is as fair and competitive as possible for investors. I think we can do better here for retail investors,” he told a conference hosted by investment bank Piper Sandler.
Gensler repeatedly stressed that the plans were still at a preliminary stage and that the regulator would listen to concerns.
But in a warning to the industry, he added: “We’re representing 330mn Americans, you’re representing . . . frankly, your revenues. We might have a different perspective.”
The most radical proposal in the speech was the introduction of “order-by-order competition”, possibly including auctions, to decide which trading firms would handle orders from retail investors. Currently, more than 90 per cent of retail trades are sent to a small group of wholesale traders.
The suggestions prompted immediate pushback from the trading industry. Douglas Cifu, chief executive of market maker Virtu Financial, said the SEC had provided no proof that the existing system was not working.
“All you have is innuendos and hearsay. The burden is on the regulator to provide data that proves there is a problem for investors, and factually they can’t,” Cifu said.
Joe Mecane, head of execution services at Citadel Securities, warned that “small changes can have very big impacts on the market that are difficult to anticipate”.
“Everyone agrees that retail has an unbelievably good experience in the US, so it’s important to make sure any changes don’t bring the market backwards.”
Wholesalers promise to provide investors with a slightly better price than market quotes, but Gensler said “price improvement without competition . . . isn’t necessarily the best price improvement”, with trading firms potentially “saving more than they’re passing along to investors”.
Gensler dodged questions about whether the plans would lead to a complete ban on payment for order flow, but did say he had asked staff “to make recommendations around how we can mitigate conflicts [of interest]” created by the model.
Other plans outlined in the speech included harmonising the increments in which stocks can be traded to less than a penny across different types of trading venue, and developing a “best execution” rule dictating how brokers decide to carry out customers’ orders.
Brokers follow guidance from the Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board, which are self-regulatory organisations. The SEC does not have its own best execution rule.
Gensler also suggested brokers may have to file monthly public reports on the quality of their order execution as exchanges and wholesalers do, to make it easier for customers to compare the quality of different brokers.