Weekly Market Update: Markets grow more skittish amid inflation pressures
The third quarter drew to a close with many cautionary factors weighing on the investor outlook after a rally in stock markets for much of the year. In recent weeks, the US Federal Reserve and other global central banks have tilted toward reining in pandemic-era stimulus measures. A recent surge in natural gas prices in Europe and Asia raised concerns that the current bout of inflation pressures will last longer than many market participants and central bankers had expected. Rising energy costs could also be expected to take a toll on growth in the world economy with the Northern Hemisphere head towards winter. Corporate updates remained mired in commentary about supply chain constraints that are not onlynotimproving, but in some areas getting worse. That cocktail of pessimism, along with potential technical factors related to month and quarter end resulted in a significant three day sell off for US equity markets. The major indices finally fell 5% from the recent highs and US Treasury yields moved up to levels not seen since June, with the 10-year yield spending much of the week above 1.50%. The NASDAQ saw lingering relative weakness in part due the persistent upward pressure on rates. WTI crude prices neared levels not seen since 2008 and Brent topped $80 a barrel with host of analysts calling for $100+ oil this winter. For the week, the S&P fell 2.2%, the DJIA lost 1.4%, and the Nasdaq was down 3.2%.
Price pressures and supply chain bottlenecks continued to dominate corporate news this week. Bed, Bath and Beyond shares slid almost 20% after cutting guidance as traffic slowed significantly in August while supply chain and inflation challenges also weighed on the name. Micron Q1 earnings outlook disappointed the Street while analysts worried about a decline in memory pricing. Meanwhile AMD executives said demand for chips has not cooled down, and supply is expected to remain tight into the first half of next year. Automaker BMW boosted its FY guidance, saying it expects that the continuing positive pricing effects for vehicles will overcompensate the negative sales volume effects it has seen in the industry. Merck announced data for a promising new Covid treatment on Friday sending its shares higher while vaccine makers saw their stocks tumble. Merck also entered a deal to acquire Acceleron this week in order to bolster its rare disease drug portfolio.
SUN 9/26 (DE) German Social Democrats (SPD) leads Merkel's CDU/CSU coalition by 2 points in federal elections - ZDF exit polls (US) Speaker Pelosi sets Thursday (Sept 30th) to vote on $1.0T infrastructure bill (v prior vote was scheduled for Monday, Sept 27th) BP.UK Updates on shortage of deliver drivers in UK: 30% of UK fuel stations have nearly no gas to supply, 1.2K locations are running out of the 2 main fuel types (DE) Germany Election Final Results: Social Democrats (SPD) Scholz 25.7%; CDU/CSU Laschet 24.1%; Greens Baerbock 14.8% (Greens best results in national election) - Federal Returning Officer
MON 9/27 (CN) Guangdong, China has asked people to turn off lights they don't need and use their air conditioning less as energy crisis spreads from the factories to homes - press (CN) Reportedly some Apple and Tesla suppliers halted production at certain Chinese plants to comply with new tighter energy consumption rules - Nikkei ENOB Successfully completes FDA Pre-IND for a Potential Cure for Hepatitis B virus infection; Company encouraged by clear path following review of FDA’s CBER written comments (US) Fed's Rosengren (non-voter) said to retire on Sept 30th - press *(US) SEPT DALLAS FED MANUFACTURING ACTIVITY INDEX: 4.6 V 11.0E (US) Atlanta Fed GDPNow: Cuts Q3 GDP forecast to 3.2% from 3.7% (US) Dallas Fed's Kaplan to retire on Oct 8th HUN Activist Starboard reportedly builds over 8% stake - press AMD President and CEO: H1 2022 will still likely see tight supply; demand for chips has not 'cooled down'; Sees chip shortage 'less severe' in H2 2022 - US financial press interview F Announces Electric Vehicles Mega Campus in Tennessee and Twin Battery Plants in Kentucky; $11.4B Investment to Create 11,000 Jobs and Power New Lineup of Advanced EVs
TUES 9/28 Jefferies Cuts U.S. Real Estate to Market Weight from Overweight *(DE) GERMANY OCT GFK CONSUMER CONFIDENCE: +0.3 V -1.5E (1st positive reading in 19 months) THO Reports Q4 $4.12 v $2.91e, Rev $3.59B v $3.33Be; Says demand for our RV products remains very robust, continuing to exceed production output; Affirms positive long-term outlook for the RV industry PFE Confirms submission of initial data from Phase 2/3 to US FDA from pivotal trial of COVID-19 vaccine in children 5 to <12 years of age; The 10 µg dose was carefully selected as preferred dose for safety, tolerability and immunogenicity in children 5 to <12 years of age; Expect Topline immunogenicity and safety readouts for children 2 to <5 years of age and children 6 months to <2 years of age by Q4 TTE.FR To increase energy production by 30% from now to 2030; Cuts higher-end Capex target to $13-15B/yr (prior $13-16B/yr); To buy back $1.5B in shares in Q4 - investor meeting *(US) AUG PRELIMINARY WHOLESALE INVENTORIES M/M: 1.2% V 0.8%E *(US) SEPT RICHMOND FED MANUFACTURING INDEX: -3 V 10E; New Orders -19 *(US) SEPT CONSUMER CONFIDENCE: 109.3 V 115.0E BYTEDANCE.IPO Confirms introduction of Tiktok shopping, a suite of solutions, features and advertising tools (US) Senate GOP officially blocks vote to suspend debt ceiling - press PFE Pfizer and BioNTech reportedly may not complete Emergency Use Authorization for COVID-19 vaccine for children until mid-Oct; Authorization may not come until Nov (previously anticipated by end of October) - press MU Reports Q4 $2.42 v $2.33e, Rev $8.27B v $8.11Be; Guides Q1 below consensus; Confirms initiates a quarterly dividend (announced in August) SHW Cuts outlook for second time this month: Q3 $1.80-1.90 v $2.42e, Net sales flat to down slightly y/y; Cites escalating raw material availability challenges and inflation headwinds MU Exec: Shortages are causing adjustments in memory orders; Our outlook is similar to how we viewed Q4. - earnings call and slides 2066.HK Evergrande disposes of 1.75B shares in company for CNY10B (~$1.55B) to Shenyang Shengjing Finance Investment Group [subsidiary of the State-owned Assets Supervision and Administration Commission of Shenyang People’s Government (“Shenyang SASAC”)] MRNA Reportedly FDA is leaning towards an authorization of coronavirus booster shot at half dose (50-micrograms) - US financial press 005935.KR Said to be near picking Williamson County in Texas a site for US Chip Plant worth ~$17B - Press
WEDS 9/29 ASML.NL Targets FY25 Rev €24-30B, gross margin 54-56%; Says significant opportunities are beyond - Investor day *(JP) JAPAN LDP ELECTION 1ST ROUND RESULTS: TO HEAD INTO RUNOFF BETWEEN KISHIDA AND KONO (as expected) *(JP) JAPAN ELECTION RESULTS: KISHIDA TO BECOME NEXT JAPAN PM AFTER VOTE RUNOFF *(ES) SPAIN SEPT PRELIMINARY CPI M/M: 0.8% V 0.4%E; Y/Y: 4.0% V 3.5%E (highest annual pace since Sept 2008) (DE) German Greens Co-leader Baerbock: Aiming for swift coalition talks, should not have a repeat of 2017 lengthy coalition negotiations *(US) AUG PENDING HOME SALES M/M: 8.1% V 1.3%E; Y/Y: -6.3% V -13.8%E *(US) DOE CRUDE: +4.6M V -2.5ME; GASOLINE: +0.2M V +1ME; DISTILLATE: +0.4M V -1.5ME *(CN) CHINA SEPT MANUFACTURING PMI (GOVT OFFICIAL): 49.6 V 50.0E (1st contraction in 18 months)
THURS 9/30 (US) Sen Maj Leader Schumer (D-NY) says he has agreement with Republicans for stopgap funding bill vote on Thursday (UK) Britain’s biggest retailers said to warn shoppers to expect a “nightmare” Christmas with limited stock on the shelves and higher prices amid labor shortages and shipping problems - financial press *(UK) Q2 FINAL GDP Q/Q: 5.5% V 4.8%E; Y/Y: 23.6% V 22.2%E DGE.UK Issues Q1 Trading Update: strong start to FY22, organic net sales momentum across all regions *(FR) FRANCE SEPT PRELIMINARY CPI M/M: -0.2% V -0.1%E; Y/Y: 2.1% V 2.2%E *(DE) GERMANY SEPT NET UNEMPLOYMENT CHANGE: -30.0K V -37.0KE; UNEMPLOYMENT CLAIMS RATE: 5.5% V 5.5%E *(EU) EURO ZONE AUG UNEMPLOYMENT RATE: 7.5% V 7.5%E *(IT) ITALY SEPT PRELIMINARY CPI M/M: -0.1% V -0.3%E; Y/Y: 2.6% V 2.4%E MKC Reports Q3 $0.80 v $0.73e, Rev $1.55B v $1.56Be; Cuts FY21 guidance citing primarily reflects higher inflation and industry-wide logistics challenges XLRN To be acquired by Merck for $180/shr in $11.5B cash deal BBBY Reports Q2 $0.04 v $0.53e, Rev $1.99B v $2.06Be; Guides Q3 weak and cuts FY21 outlook citing Aug traffic slowed significantly *(DE) GERMANY SEPT PRELIMINARY CPI M/M: 0.0% V 0.1%E; Y/Y: 4.1% V 4.2%E *(US) INITIAL JOBLESS CLAIMS: 362K V 330KE; CONTINUING CLAIMS: 2.80M V 2.79ME *(CZ) CZECH CENTRAL BANK (CNB) RAISES 2-WEEK REPURCHASE RATE BY 75BPS TO 1.50%; MORE-THAN-EXPECTED *(US) Q2 FINAL GDP ANNUALIZED Q/Q: 6.7% V 6.6%E; PERSONAL CONSUMPTION: 12.0% V 11.9%E (US) Nevada reports Aug casino gaming Rev $1.17B, +57% y/y; Las Vegas strip Rev $625.7M, +97.2% y/y *(US) SEPT CHICAGO PURCHASE MANAGERS INDEX (PMI): 64.7 V 65.0E (US) Fed Chair Powell: Fed finds itself in difficult situation in regards to tension between inflation and employment; Inflation is well above target but we are still far away from full employment - House testimony (DK) Denmark Central Bank (Nationalbanken) cuts certificate of deposit rate due to sale of foreign currency; Cuts Certificate of Deposit rate 10bps to -0.60% from -0.50%, Cuts lending rate to -0.45% from -0.35%; Keeps all other rates unchanged (US) NY Fed takes $1.61T in RRP program (record high) at 0.05%; 92 participating and accepted counterparties
FRI 10/1 (EU) EURO ZONE SEPT ADVANCE CPI ESTIMATE Y/Y: 3.4% V 3.3%E; CPI CORE Y/Y: 1.9% V 1.9%E (3rd month above target and (highest annual pace since 2008) Merck and Ridgeback’s Investigational Oral (Pill) Antiviral Molnupiravir reduced risk of hospitalization or death by ~50% compared to placebo for patients with mild or moderate COVID-19 in positive interim analysis of Phase 3 study; Expects to produce 10M courses of treatment by end of 2021, with more doses expected to be produced in 2022 and expects to seek EUA as soon as possible (US) SEPT ISM MANUFACTURING: 61.1 V 59.5E; PRICES PAID: 81.2 V 78.5E GM Reports Q3 deliveries 447.0K, -32.8% y/y v -31.5%e; Affirms FY21 outlook: Semiconductor supply disruptions that impacted Q3 wholesale and customer deliveries are improving (US) Atlanta Fed GDPNow: Cuts Q3 GDP forecast to 2.3% from 3.2% (US) Fed's Mester (non-voter, hawk): Current supply-demand situation is pandemic linked, Expects interest rate lift off in 2022 (US) FDA to hold Oct 14-15th advisory committee meetings to discuss EUA for booster doses; Oct 26th meeting scheduled vaccines for younger children - press