Weekly Market Update: Brief bout of risk aversion quickly reverses
This week’s trade opened amid a step sell off in global equity markets. Worries about a jump in global Covid cases, predominately attributed to the Delta variant induced the most aggressive one way stampede out of risk assets in months. Adding to the consternation were continued worries about rising inflation and the likely lingering effects on the supply chain another wave of the pandemic could exacerbate. Also, an intensifying crack down by Beijing on US-listed Chinese stocks continued to weigh heavily on that sector. Global interest rates plumbed to levels not seen since February highlighted by the US 10-year yield which briefly dipped below 1.15%. Oil slumped along with equities and the VIX surged 30%. Ultimately though, as seen several times since the very beginning of the pandemic, the bleeding stopped abruptly. The S&P tested the 50-day moving average and stocks quickly found support despite continued softness in yields. Mega-cap tech names were the stabilizer yet again, as strength there masked significant weakness in the Russel 2000 as a strong rebound ensued for the overall market.
Separately, earnings season picked up momentum and clear lines emerged. Managements that illustrated their ability to offset supply constraints and input cost pressures saw their shares outperform after releasing results. Economic data was mixed as preliminary looks at global July PMI readings held at robust levels, but US weekly jobless claims ticked unexpectedly higher and housing data indicated some moderation due to the surge in prices. The ECB met and adjusted its forward guidance to calibrate to the recently updated inflation target. Lagarde acknowledged the statement was not unanimously supported, but the revised forward guidance underscored the ECB’s commitment to maintaining an accommodative stance by keeping rates at their present or lower levels until inflation reaches target and maintains it for some time. By Friday, US treasury yields had nearly returned to where they ended last week and US indices outside of the small caps were in positive territory. For the week, the S&P rose 2%, the DJIA added 1.1%, and the Nasdaq was up 2.8%.
In corporate news this week, earnings season ramped up with some major names releasing their quarterly results. IBM saw its revenue rise for a second consecutive quarter and confirmed its FY outlook, though higher expenses weighed on earnings year on year. Netflix notched its lowest subscriber additions in several years and disappointed investors with a modest Q3 outlook. Intel beat on top and bottom line, but its continued loss of market share to AMD weighed on investors’ minds, and the CEO warned the semiconductor shortage could take a couple years to fully heal. Chipotle posted a big beat as customers returned to its restaurants this quarter and its digital sales continued a strong growth trajectory. Coatings giant PPG guided Q3 input and logistics costs higher sequentially and said it will continue to raise prices in order to offset expenses. On the airlines front, both American and Southwest posted their first monthly profits without government help since pre-COVID times. Investors saw a lot to like in Twitter’s quarter, as its advertising initiatives led to an unexpected bounce in revenue and its outlook beat street estimates. Snap posted its best quarter in four years, reporting strong growth in its daily active user and average rev per user metrics.
SUN 7/18 OPEC+ said to agreed to ease oil output cuts from Aug 2021 and to extend supply agreement until the end-2022 - press (CN) China Govt has signaled that Hong Kong is the preferred place for Chinese companies to IPO (not New York) and will exempt any Chinese company from requiring approval from cybersecurity regulatory body if they IPO in Hong Kong v other offshore markets - press (HK) Macau Responsible Gaming Association President Wai-kit: Recent closure of satellite casinos does not imply the start to more wide spread closures; but there will be some difficulty in reaching MOP130B in gaming rev in 2021 - HK press MON 7/19 *(US) JULY NAHB HOUSING MARKET INDEX: 80 V 81E (CA) Canada to begin allowing fully vaccinated US visitors into the country for non-essential travel beginning Aug 9th (DE) US and Germany reportedly to announce deal over dispute regarding Nord Stream 2 nat gas pipeline in coming days - press JBHT Reports Q2 $1.61 v $1.55e, Rev $2.91B v $2.72Be IBM Reports Q2 $2.33 v $2.25e, Rev $18.7B v $18.2Be PPG Reports Q2 $1.94 v $2.19e, Rev $4.36B v $4.42Be; Guides Q3 input and logistics costs higher q/q STLD Reports Q2 $3.40 v $3.43e, Rev $4.47B v $4.17Be BHP.AU Reports Q4 Waio Iron Ore Production: 72.8Mt v 75.6Mt y/y, Attributable Iron Ore Production: 65.2Mt v 66.7Mt y/y AAPL To postpone return to office until earliest October, due to COVID, will give 1 month notice before return - press TUES 7/20 (HK) Macau Jun Visitor Arrivals 528.5K, +2,000% y/y UBSG.CH Reports Q2 Net $2.0B v $1.2B y/y, Adj PBT $2.6B v $1.6B y/y, Rev $8.98B v $7.4B y/y, To buyback $600M in shares in Q3 (under existing buyback program) ALO.FR Reports Q1 Rev €3.70B v €1.51B y/y; Affirms H1 FCF TRV Reports Q2 $3.45 v $2.35e, Rev $8.69B v $8.29Be PM Reports Q2 $1.57 v $1.54e, Rev $7.59B v $7.84Be; Announces up to $7B share buyback; Raises FY21 Guidance HCA Reports Q2 $4.36 v $3.17e, Rev $14.4B v $13.6Be; Raises guidance significantly MAN Reports Q2 $2.02 v $1.42e, Rev $5.30B v $5.17Be; Guides Q3 well-above est's ALLY Reports Q2 $2.33 v $1.49e, Rev $2.09B v $1.86Be *(US) JUN HOUSING STARTS: 1.64M V 1.59ME; BUILDING PERMITS: 1.60M V 1.70ME PPG Exec: Guides Q3 material costs inflated by as much as 20% y/y; Guides Q4 positive cost pass-through offsets - earnings call comments (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -2.9% v -3.6% prior (US) Atlanta Fed GDPNow: raises Q2 GDP forecast to 7.6% from 7.5% ISRG Reports Q2 $3.92 v $3.16e, Rev $1.46B v $1.28Be UAL Reports Q2 -$3.91 v -$4.17e, Rev $5.47B v $5.31Be (US) Weekly API Crude Oil Inventories: +0.8M v -4.1M prior (1st build in 9 weeks) JNJ New study finds one dose of J&J COVID vaccine is less effective against Delta and Lambda variants; adds to evidence that those inoculated with J&J vaccine may need second dose, ideally of mRNA variety - NYT AAPL Said will not introduce new 4G phones or iPhone Mini next year (2022), will only introduce 5G phones - Nikkei WEDS 7/21 NOVN.CH Reports Q2 Core EPS $1.66 v $1.52e, Rev $12.96B v $12.53Be; Affirms outlook SAP.DE Reports Q2 Net €1.40B v €59M y/y Op €1.92B v €1.90Be, Rev €6.67B v €6.74B y/y; Raises outlook DAI.DE Reports Q2 Net +€3.70B v -€1.91B y/y, adj EBIT €5.42B v €5.42B prelim, Rev €43.5B v €42.7Be; Says listing of Daimler Trucks is on track; Comments on chip shortage impact ANTM Reports Q2 $7.03 v $6.34e, Op Rev $33.3B v $33.2Be; Raises guidance JNJ Reports Q2 $2.48 v $2.28e, Rev $23.3B v $22.3Be; Raises FY21 outlook KO Reports Q2 $0.68 v $0.57e, Rev $10.1B v $9.49Be; Raises FY21 outlook (US) Deputy Sec of State Sherman to meet with China's Wang Yi; the talks are expected to be held on Sun and Mon (Jul 25-26th) - financial press (UK) Brexit negotiator Frost: Clear circumstances to justify Article 16, but not there yet; Today's proposals will require a significant change to NI protocol STX Reports Q4 $2.00 v $1.86e, Rev $3.01B v $2.96Be; Guides Q1 well-above ests UAL CEO: Bookings are getting stronger every day, not seeing any impact from Delta variant; Confident United to be profitable in Q3 and Q4 - CNBC KNX Reports Q2 $0.98 v $0.87e, Rev $1.32B v $1.30Be; Raises FY21 EPS guidance for second time (EU) EU spokesperson: We take note of statement made by UK's Frost today; We will not agree to a renegotiation of the Northern Ireland protocol *(US) DOE CRUDE: +2.1M V -3.5ME; GASOLINE: -0.1M V -1ME; DISTILLATE: -1.3M V +1ME (US) TREASURY $24B 20-YEAR BOND REOPENING DRAWS 1.890%, BID-TO-COVER 2.33 v 2.40 PRIOR (US) Fed Chair Powell reportedly has wide support among top Biden aides to be renominated for a second term but advisers have not discussed it with Biden yet; decision on reappointment not expected before Sept - press BHP.AU Reached agreement to supply nickel to Tesla (securing a non-Chinese supply) THURS 7/22 ROG.CH Reports H1 (CHF) Core EPS 10.56 v 10.44 y/y, Core Op 11.7B v 11.8B y/y, Rev 30.7B v 29.3B y/y UNA.NL Reports H1 Net €3.49B v €3.56B y/y; Rev €25.8B v €25.7B y/y V Acquires cloud-based platform for currency exchange services Currencycloud for £700M DOW Reports Q2 $2.72 v $2.48e, Rev $13.9B v $12.7Be T Reports Q2 $0.89 adj v $0.78e, Rev $44.0B v $42.6Be DOW Guides Q3 Rev ~$13.8-14.3B v $12.1Be - earnings slides *(EU) ECB LEAVES MAIN REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED UNA.NL CEO: We expect to grow volumes this year in emerging markets, do not expect collapse in volumes because of price - post earnings comments *(US) INITIAL JOBLESS CLAIMS: 419K V 350KE; CONTINUING CLAIMS: 3.24M V 3.10ME (EU) ECB chief Lagarde: Revised forward guidance to underline commitment to maintain an accommodative stance - Prepared Remarks *(US) JUN EXISTING HOME SALES: 5.86M V 5.90ME (EU) ECB's Weidmann (Germany) and Wunsch (Belgium) said to oppose the ECB's new rate guidance - press INTC Reports Q2 $1.28 v $1.06e, Rev $19.6B v $18.0Be; Guides Q3 Rev well ahead of ests; Raises FY21 again COF Reports Q2 $7.71 v $4.78e, Rev $7.4B v $7.10Be INTC CEO: chip industry could take a couple of years to fully catch up to surging demand for semiconductors - media interview FRI 7/23 PFE Pfizer/BioNTech vaccine was reportedly ~39% effective in protection from delta variant in Israel in recent weeks - press *(FR) FRANCE JULY PRELIMINARY PMI MANUFACTURING: 58.1 V 58.3E (8th month of expansion, but lowest reading since Feb 2021) *(DE) GERMANY JULY PRELIMINARY PMI MANUFACTURING: 65.6 V 64.1E (13th month of expansion) *(EU) EURO ZONE JULY PRELIMINARY PMI MANUFACTURING: 62.6 V 62.5E (13th month of expansion) *(UK) JULY PRELIMINARY PMI MANUFACTURING: 60.4 V 62.4E (14th straight expansion) HON Reports Q2 $2.02 v $1.94e, Rev $8.81B v $8.53Be; Raises guidance KMB Reports Q2 $1.47 v $1.73e, Rev $4.72B v $4.78Be; Says facing significantly higher input costs and a reversal in consumer tissue volumes; Cuts FY21 outlook (US) JULY PRELIMINARY MARKIT PMI MANUFACTURING: 63.1 V 62.0E