Weekly Market Update: Markets continue to recalibrate around shrinking accommodation and stubborn inflation
2022-01-14T16:03:16.917
US stock markets, in particular growth and tech, remained under pressure this week amid rising expectations of a more aggressive US Federal Reserve in 2022. Chairman Powell and Vice Chair nominee Brainard appeared on Capitol Hill for their confirmation hearings and presented a united front in their belief the Fed’s key task is now to bring down inflation. Those hearings were sandwiched around a loud chorus of Fed officials who underscored views that it will in all likelihood be appropriate to raise rates 3-4 times this year beginning in March, while simultaneously allowing the balance sheet to start shrinking later this year. December CPI and PPI only reinforced those expectations remaining at multi-decade highs. Also, concerns around the pandemic lingered, particularly with respect to new government mandated shutdowns across portions of China. Reports surfaced of elevated congestion at key Chinese ports adding to jitters surrounding the global supply chain and its potential effects on future inflation.
Another source of uncertainly for investors was growing worries about Russia’s designs on Ukraine. Talks between the US, Russia, and NATO appeared to gain little if any traction towards de-escalation amid reports of a major cyberattack in the former Soviet territory. Earnings season kicked off on Friday as commentary from a few key banks failed to live up to the early 2022 hype seen in their stock prices. Crude prices rose back towards the highs of last fall, fanning inflation worries while the US dollar index fell to a 2-month low. Short rates moved up amid futures markets nearly fully pricing in a fourth Fed rate hike in December. The US 10-year Treasury yield looked to gain a foothold above 1.75%. For the week, the S&P lost 0.3%, the DJIA was off 0.9%, and the Nasdaq dropped 0.3%.
In corporate news this week, bank names kicked off earnings season to mixed reaction. Results from JPMorgan, Citi, and Wells Fargo all topped Q4 EPS estimates, but the magnitudes of all three beats were the smallest of 2021. Citi saw a steep profit drop and reported a trading revenue miss, sending the stock lower on Friday. JPMorgan shares also fell as its expense guidance caused some consternation. Wells Fargo rose after reporting that profit rose 86% in Q4 and revenue beat consensus.
Sherwin Williams cut its outlook again, citing supply side effects and labor headwinds. Delta Airlines reported results above consensus and management said they expect Omicron to temporarily delay demand recovery by 60 days, but remained confident in a strong spring and summer travel season. Taiwan Semiconductor was a bright spot, reporting a strong improvement in year over year metrics and announcing plans for record capex spending in FY22, as much as 10% higher than analysts predicted. A judge rejected Facebook’s effort to dismiss an FTC antitrust lawsuit which if successful could ultimately force the social media giant to sell Instagram and WhatsApp. Take-Two Interactive acquired Farmville developer Zynga for $13B as part of a move into the mobile gaming space. In the latest inflationary sign, it was reported that Netflix will raise subscription prices by about 10% in the US and Canada.
SUN 1/9
(US) Sen Manchin (D-WV) appears to be pulling back support for Build Back Better, thought to have privately said he is not interested in approving the legislation - US press
(CN) China will make it easier for state backed property developers to buy up distressed assets of property developers
MON 1/10
(UK) Brexit negotiator Truss: I will trigger Article 16 if the EU does not cooperate - financial press
(US) Goldman Sachs analysts: Fed will likely raise interest rates four times (Mar/Jun/Sep/Dec) this year and will start its balance sheet runoff process in July, if not earlier
CSGN.CH Recent strength being attributed to press report that Credit Suisse may be looking for merger with other European bank, likely Italian or French
(UA) Ukraine Dep PM Stefanishyna: Have the right to choose our own security arrangements
*(EU) EURO ZONE NOV UNEMPLOYMENT RATE: 7.2% V 7.2%E
(US) Reportedly Washington University's scientific modelling shows Omicron's fatality rate is 97-99% less than for Delta variant, being less deadly than seasonal flu - press
CAH Cuts FY22 Medical segment guidance due to expected additional INFLX impacts and lower volumes & Px hike fails; Sees $0.40-0.45/shr impact to FY22 results vs $5.69e or ~8% cut
ZNGA To be acquired by Take-Two for $9.861/shr in ~$12.7B cash-stock deal
MRNA Reports prelim FY21 Product Sales $17.5B v $17.6Be, Covid-19 Vaccines shipped 807M
(US) Dec NY Fed Survey of Consumer Expectations: Short- and medium-term inflation expectations are unchanged
(US) Atlanta Fed GDPNow: Raises Q4 GDP forecast to 6.8% from 6.7%
ILMN Reports prelim Q4 Rev $1.19B v $1.09Be; Guides initial FY22 Rev $5.15-5.24B v $4.88Be
*(US) FED CHAIR POWELL: FED WILL STOP HIGHER INFLATION FROM GETTING ENTRENCHED - PRE-RELEASED CONGRESSIONAL TESTIMONY
(CN) China Housing Ministry official Pan: China to build ~6.5M new low cost homes by the end of 2025
(US) Puerto Rico judge approves modified debt plan, will approve quickly once board refiles (ahead of Friday deadline)
TUES 1/11
NOKIA.FI Reports prelim FY21 Rev €22.2B (prior guided €21.7-22.7B), comparable Op margin 12.4-12.6% (prior guided 10-12%) citing one-off items related to venture fund investments etc.
(DE) Germany said to miss the 2030 climate target of reducing CO2 level by 65% from 1990 level - financial press
CVS Raises FY21 $8.33-8.38 v $8.03e (prior $8.00), Affirms FY22 $8.10-8.30 v $8.23e - filing
AAL Reports prelim Q4 Pretax -$1.23B to -$1.16B, -13% to -12% y/y, Rev $9.42B v $9.12Be, -17% v 2019 levels (prior guided -20%) - slides
(LT) ECB's Kazaks (Latvia): Reiterates that ECB will act if necessary to address inflation
(US) Fed's George (FOMC voter, hawk): Favors running down Fed balance sheet earlier versus later; It's time to transition policy to more normal posture
(US) Fed Chair Powell: If we have to raise rates more over time, we will - comments to Senate
FB Judge rejects Facebook effort to dismiss FTC antitrust lawsuit; FTC's lawsuit may potentially make Facebook sell Instagram and WhatsApp - press
(HK) Fitch: Gaming operators that have Macau exposure are facing uncertainty
WEDS 1/12
BMW.DE Reports Q4 global deliveries 589.3K -14% y/y; FY21 global deliveries 2.52M +8.4% y/y
VOW3.DE Reports Dec Group deliveries 713.2K -28.5% y/y, cites chip shortage
*(US) DEC CPI M/M: 0.5% V 0.4%E; Y/Y: 7.0% V 7.0%E (highest annual pace since 1982)
*(US) DOE CRUDE: -4.6M V -2ME; GASOLINE: +8.0M V +2.5ME; DISTILLATE: +2.5M V +1ME (Crude oil inventory level lowest since Oct 2018)
(US) Fed's Mester (FOMC voter, hawk): We have moved from pandemic driven inflation pressures to something broader; Would support raising rates in March if the outlook stays the same - press interview
(US) Association of American Railroads weekly rail traffic report for week ending Jan 8th: 441K total units, -16% y/y
*(US) TREASURY'S $36B 10-YEAR NOTE REOPENING DRAWS 1.723% v 1.52% prior; BID-TO-COVER RATIO: 2.51 V 2.58 PRIOR AND 2.47 OVER THE LAST 8 REOPENINGS
*(US) DEC MONTHLY BUDGET STATEMENT: -$21.3B V -$5.0BE
(US) Fed Vice Chair nominee Brainard: Pandemic continues to pose challenges; Slowing too high inflation is Feds most important task; Policy is focused on getting inflation back down to 2% - prepared remarks ahead of confirmation hearings
THRS 1/13
2330.TW Reports Q4 (NT$) Net 166.2B v 142.8B y/y; Op 182.8B v 157.1B y/y; Rev 438.2B v 361.5B y/y; Targets long term Rev CAGR target 10-15% over next few years
(RU) Russia govt spokesperson Peskov: Talks with US and NATO this week were unsuccessful, disagreements on fundamental issues
MAERSKB.DK Exec: 2022 has not started off as we had hoped; At Los Angeles and Long Beach ports, delays for vessel berthing ranged from 28 to 45 days, with all North American west coast ports being either challenging or critical - press interview
BA Reportedly 737 Max to resume service in China as soon as in Jan - press
DAL Reports Q4 $0.22 v $0.14e, Rev $9.47B v $9.24Be; Expects Omicron to temporarily delay the demand recovery 60 days, but confident in strong spring, summer travel season
RNO.FR CEO: Sees chip issues to persist through 2022, but no worse than 2021; Profitability and pricing improving now, met cost goal; To become fully electric by 2030
EMA announces global regulators discuss path towards regulatory alignment on response to Omicron variant; Broad agreement that clinical data are needed for approving a new updated vaccine
(US) INITIAL JOBLESS CLAIMS: 230K V 200KE; CONTINUING CLAIMS: 1.56M V 1.73ME
*(US) DEC PPI FINAL DEMAND M/M: 0.2% V 0.4%E; Y/Y: 9.7% V 9.8%E
(US) Fed Vice Chair nominee Brainard: I supported all the Fed's actions during the pandemic; Our actions will bring inflation down
*(US) TREASURY $22B 30-YEAR BOND REOPENING DRAWS 2.075% V 1.895% PRIOR; BID TO COVER 2.35 V 2.22 PRIOR AND 2.36 OVER LAST 8 REOPENINGS
(US) Supreme Court blocks Pres Biden's workplace vaccine-or-test mandate for larger employers in 6-3 decision; Rule had covered 84M American workers - press
SAP.DE Reports prelim Q4 non-IFRS EPS €1.86 v €1.70 y/y; Rev €8.0B v €7.5B y/y; Expects its cloud growth to continue to accelerate in 2022
(JP) Bank of Japan (BOJ) policy makers said to be debating when to 'telegraph' a rate hike that can come before hitting 2.0% CPI target; notes an actual rate hike is not imminent - financial press
*(KR) BANK OF KOREA (BOK) RAISES 7-DAY REPO RATE 25BPS TO 1.25%; AS EXPECTED
*(CN) CHINA DEC TRADE BALANCE: $94.5B V $74.0BE; 2021 EXPORTS +29.9% Y/Y
FRI 1/14
*(UK) NOV GDP M/M: 0.9% V 0.4%E
EDF.FR Cuts FY22 nuclear output 300-330TWh (prior 330-360TWh), as a result of the extension of the outage period for 5 of EDF's French nuclear reactors; To impact FY22 EBITDA by around €8.4B
(RU) Russia Foreign Min Lavrov: All communications channels with EU are closed; Believes can have a security agreement with US with good will
MAERSKB.DK Reports prelim Q4 underlying EBITDA $8.0B v $7.0Be, Rev $18.5B v $17.5Be; To exceed FY21 guidance
(UK) Brexit negotiator Truss: there is a deal to be done with EU over post-Brexit trade issues
JPM Reports Q4 $2.86 (ex Net credit reserve release) v $2.98e, Adj overhead ratio 61% v 55% y/y; Managed Rev $30.4B v $29.9Be
JPM Guides initial FY22 NII $50B v $52.5B guided for FY21; Adj expense $77B v $71B guided for FY21 - earnings slides
SHW Reports prelim Q4 $1.35 adj v $1.70e, Rev $4.76B v $4.79Be; Increasing prices 12% FEB 1 2022; Raw materials supply challenges to persist
C Reports Q4 $1.46 v $1.39e, Rev $17.0B v $17.1Be
(US) Senate bill said to block defense contractors from using China rare earths in weapons for Pentagon - press
*(US) DEC ADVANCE RETAIL SALES M/M: -1.9% V -0.1%E; RETAIL SALES (EX-AUTO) M/M: -2.3% V 0.1%E
*(US) DEC INDUSTRIAL PRODUCTION M/M: -0.1% V +0.2%E; CAPACITY UTILIZATION: 76.5% V 77.0%E
(US) Fed's Williams (FOMC voter):Expects inflation to drop to around 2.5% this year; Omicron wave to slow growth in next few months
(US) Fed's Kashkari (dove, non-voter): We are seeing very high inflation right now; Surprised by how high and persistent it is
(US) Atlanta Fed GDPNow: Cuts Q4 GDP forecast to 5.0% from 6.8%
Raises monthly prices in US and Canada beginning today; US standard price raised to $15.49/mo (from $13.99/mo); First price hike since Oct 2020 - press
