Weekly Market Update: Debt ceiling truce gives markets some relief, though energy crunch and supply chain problems still loom
Stock volatility remained elevated coming into this week as a surge in global energy prices compounded inflationary concerns that could stall the economy's post-pandemic recovery. The Atlanta Fed cut is Q3 GDP forecast to a paltry 1.3%. With oil prices trading at the highest levels in seven years, thanks in part to price spikes in coal and natural gas, benchmark government bond yields moved higher in response to the anticipated inflationary effects of the growing energy crunch. In the UK, where the nation's power grid relies heavily on natural gas imports, prices surged by 37% on Wednesday alone to a fresh record high of more than $40 per British Thermal Units, a level that is around eight times higher than spot prices in the United States. Inflation and supply chain concerns were further aggravated by Beijing stepping up rhetorical threats toward Taiwan alone with its now daily military incursions into Taiwanese airspace.
Worries over whether the US Treasury would be able to raise money to pay its bills also weighed heavily on investors this week. By Thursday though, Democrats and Republicans reached a truce that would extend the debt ceiling into December. That news along with a roll over in natural gas prices, and other key input costs measures like freight benchmarks convinced investors to get more aggressive ahead of the September employment report. Friday’s payroll number was the second disappointing reading in a row, though still robust enough to keep expectations on track for the Fed to launch its QE tapering plan in November. With relief rallies in the latter part of the week, the S&P gained 0.8%, the DJIA rose 1.2%, and the Nasdaq edged up 0.1%.
In corporate news this week, ongoing global distribution hitches continued to weigh on outlooks. Home construction firm Hovnanian cuts its full year outlook amid supply chain delays. Marvell’s CEO forecast that the semiconductor shortage could extend through 2022. Defense manufacturer Oshkosh cut its outlook following significant materials and logistics disruptions. For the airline sector, Delta’s CEO affirmed its Q3 earnings guidance and noted that bookings bottomed out in September and have been improving. Kellogg workers announced they would go on strike at all US cereal facilities, though later in the week the company countered it was readying to restart plant operations with salaried employees and third-party workers. Sweden paused its Moderna COVID-19 vaccine rollout for people under 30, citing rare side effects from the injection. Shares in pharma company ChemoCentryx ripped almost 90% higher after the FDA approved the first drug in a decade to treat the autoimmune disease vasculitis. Twitter agreed to sell its MoPub monetization solution for app publishers to AppLovin for $1.1B in cash.
SUN 10/3 TSLAReports Q3 deliveries 241.3K v 221Ke v 201.3K q/q DALCEO Bastian: Affirms Q3 earnings to be within guidance; bookings bottomed out in Sept and have been improving (HK) Hong Kong Govt adviser David Hui: Reopening border with China will take 4-5 months of talks - SCMP (UK) Brexit Min Frost said to be planning to issue a threat that the UK was prepared to trigger Article 16 unless the EU agreed to replace the Northern Ireland Protocol; Talk of early NOV deadline - UK press (TW) China sent 77 warplanes into Taiwan defense zone over the past 2 days - Taiwan press citing Govt (HK) Macau halts border resumption plan with China Zhuhai city (Guangdong Province) 6666.HKHopson Development to acquire 51% stake in Evergrande's Property management unit Evergrande Real Estate for HK$40B (~$5.0B) - Chinese press
MON 10/4 BNTXCEO: a new COVID-19 vaccine version is likely to be needed by mid-2022 to protect against potential virus mutations - FT interview (TR) Turkey Sept CPI M/M: 1.3% v 1.3%e; Y/Y: 19.6% v 19.7%e (ES) ECB's De Guindos (Spain): Forward looking indicators shows that expansion has lost some momentum due to supply constraints, higher energy costs and bottlenecks (UK) Brexit Min Frost: Northern Ireland protocol is not working and needs to change; cannot wait forever; Triggering Article 16 may be only way to protect UK (in line with speculation) MRVLCEO: Chip shortage could extend through 2022 - press interview DVAXCollaborates with US DoD to develop an adjuvanted plague vaccine using CpG 1018 adjuvant; Anticipates Phase 2 trial will commence in 2022 KRTRaises Q3 sales $102-103M (prior $100-102M) v $101Me, initial FY21 sales $365-368M v $368Me; Cites strong SEP demand Reportedly OPEC+ ministers agree to maintain existing policy of increasing production by 400K bpd in Nov, in line with the JMMC recommendation – press (CN) China Foreign Min: China will take all necessary measures to resolutely crush any Taiwan independence plots 1777.HKMisses $206M principal payment on 2021 notes due Oct 4th; shares halted until further notice (US) Fed's Bullard (non-voter, hawk): Inflation is higher than the US has seen for a decade; Concerned about inflation risks are to the upside (TW) China again sent 56 warplanes into Taiwan air defense zone Monday, Taiwan called on China to stop "irresponsible provocative actions"
TUES 10/5 (JP) Japan Fin Min Suzuki: PM has instructed me to be flexible on policy; will seek a new type of capitalism and peruse fiscal health and growth at the same time (FR) FRANCE SEPT FINAL PMI SERVICES: 56.2 V 56.0E (confirms 5th straight expansion but lowest reading since Apr 2021) (DE) GERMANY SEPT FINAL PMI SERVICES: 56.2 V 56.0E (confirms 5th month of expansion but lowest reading since May 2021) (UK) SEPT FINAL PMI SERVICES: 55.4 V 54.6E (confirms 7th month of expansion) (US) SEPT ISM SERVICES INDEX: 61.9 V 59.9E (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: +0.0% v +1.0% prior (US) Atlanta Fed GDPNow: Cuts Q3 GDP forecast to 1.3% from 2.3% KWorkers go on strike at All US cereal facilities - press (US) SEC Chair Gensler: US will not follow China in banning crypto tokens; Does not answer whether the SEC is examining Federal Reserve members' stock trading - press HOVCuts FY21 outlook amid supply chain delays; Cuts Q4 Rev $780-830M v $683M y/y, adj EBITDA $85-100M v $84.5M y/y (prior: Rev $830-880M, adj EBITDA $100-115M) (UK) PM Johnson reportedly plans to announce a 'significant' boost to minimum wage within next few weeks - UK's Times *(NZ) NEW ZEALAND CENTRAL BANK (RBNZ) RAISES OFFICIAL CASH RATE (OCR) 25BPS TO 0.50%; AS EXPECTED (TW) Taiwan Ministry of National Defense (MND): China is unsure if an attack on Taiwan would succeed, could be ready for full scale invasion of Taiwan by 2025 – Taiwanese
WED 10/6 (FR) France govt to present retaliatory measure on UK fishing soon DOWOutlines investment plan: Targets underlying EBITDA >$3.0B, ROIC >13%, adj debt/EBITDA 2.0-2.5x over investment cycle - PR ahead of investor day RPMReports Q1 $1.04 v $1.00e, Rev $1.65B v $1.66Be; Cuts Q2 adj EBIT outlook; Expects raw material, freight and wage inflation to persist in Q2 MRNAReportedly Sweden pauses Moderna's COVID-19 vaccine rollout for people born in 1991 and later citing rare side effects - press (RU) Russia Pres Putin: Country is a reliable gas supplier to Europe and Asia; Russia is increasing its gas supplies to Europe; Have increased transit via Ukraine (US) SEPT ADP EMPLOYMENT CHANGE: +568K V +430KE; Current bottlenecks in hiring should fade as the health conditions tied to the COVID-19 variant continue to improve (PL) POLAND CENTRAL BANK (NBP) RAISES BASE RATE BY 40BPS TO 0.50%; NOT EXPECTED (1st hike since May 2012) SAFMIncreased pay rates for hourly employees to $16.70/hr; Effective Sept 26th (US) DOE CRUDE: +2.3M V 0ME; GASOLINE: +3.3M V 0ME; DISTILLATE: -0.4M V -1ME (US) Fed's Barkin (FOMC voter, hawk): Demand very strong, consumers spending and profits high GMAnnounces Ultra Cruise, enabling true hands-free driving across 95% of driving scenarios NIH's Fauci: Confirms US FDA examining data on mixing and matching boosters (as announced on 10/1) (US) GOP Sen Leader McConnell reportedly just told a closed meeting of Senate Republicans that he would offer a short-term debt ceiling extension today (Defined & fixed Dollar amount) - press (EU) ECB reportedly studying new bond buying plan for when PEPP ends, plan to prevent widening of spreads - press (US) Energy Sec Granholm: Release of crude oil from Strategic Petroleum Reserve is a 'tool that's under consideration' to tame fuel price rises; Does not rule out a ban on crude oil exports - FT interview KSpokesperson: Company is preparing to begin plant operations again amid strike; To use salaried employees and third-party workers to restart facilities COSTReports Sep total SSS +9.4% (ex-gas and FX) vs 5.6% in 2019 TWTREnters into definitive agreement to sell MoPub to AppLovin for $1.05B cash
THRS 10/7 NG.UKReportedly sees UK has enough gas supply capacity to meet demand, but warns of tight electricity supplies this winter - financial press SONImplementing 5th price increase of 2021 of $60/Ton for uncoated recycled paperboard; Cites continued inflationary pressures CAGReports Q1 $0.50 v $0.48e, Rev $2.65B v $2.55Be UALReportedly plans >3.5K domestic flights in Dec (largest domestic schedule since the pandemic star and 91% of 2019 rate) - press (US) INITIAL JOBLESS CLAIMS: 326K V 348KE; CONTINUING CLAIMS: 2.71M V 2.76ME (US) Sen Maj Leader Schumer: Deal has been reached with GOP Leader McConnell on short-term debt ceiling raise until early Dec (US) Energy Dept spokesperson: We are not planning to tap the Strategic Petroleum Reserve or to pursue a ban on crude exports - press (US) AUG CONSUMER CREDIT: $14.4B V $17.5BE TSLACEO Musk: hopeful chip shortage will resolve soon; To volume produce Tesla Semi trucks and Roadster in 2023; No stock split expected any time soon - Annual Meeting 005930.KRReports prelim Q3 (KRW) Op 15.8T v 12.4T y/y (16.1Te), Rev 73.0T v 67.0T y/y (73.5Te) (US) Senate votes 50-48 to increase debt ceiling until early Dec 2021; the measure will now move to the US House; White House has said that President Biden would sign the bill
FRI 10/8 (HU) Hungary Fin Min Varga: Govt has accepted OECD global minimum tax agreement (**Note: move follows Ireland recently) OSKCuts outlook following significant supply chain and logistics disruptions; Guides Q4 $0.90-0.95 v $1.77e; Cuts Q4 Rev ~$2.05B v $2.15Be (prior ~$2.10B); Approves FY change (CN) Global Times' Editorial article: We must resolutely define the US troops deployment in Taiwan as an invasion; The mainland has the right to carry out military strikes against them at any time (US) SEPT UNEMPLOYMENT RATE: 4.8% V 5.1%E (US) SEPT AVERAGE HOURLY EARNINGS M/M: 0.6% V 0.4%E; Y/Y: 4.6% V 4.6%E (US) White House reportedly considering wide-ranging effort on oversight of crypto assets - press