Weekly Market Update: Markets stew over how many Fed rate hikes to expect in 2022
2022-01-28T16:07:26.013
A wild trading week kicked off with a bang on Monday as stocks plunged along with most other risk assets including crypto. Investors continued to aggressively prune risk ahead of Wednesday’s FOMC meeting. Major US indices moved into correction territory (down 10%) intraday and the VIX surged near 39, taking out the December high. Volumes jumped and breadth was exceedingly poor, which had traders looking for clues of potential selling exhaustion and perhaps a bottom. Consternation around the Federal Reserve’s designs on pulling back the punch bowl this year were perhaps married with worries about economic growth after US Markit PMI services dropped to 50.9, the lowest levels since January 2020. Volatility was extreme every day this week, though Monday appeared to put in a near term bottom and equities edged higher for the week with the S&P adding 0.8%, the DJIA rising 1.4%, and the Nasdaq about flat.
The choppiness continued right into Wednesday’s FOMC meeting. As expected the Fed left rates unchanged and all but assured liftoff will begin in March. In his press conference Chairman Powell showed no inclination of flinching since his hawkish pivot in back in November. Futures markets quickly began to price in at least five Fed rate hikes in 2022 after he noted they would not rule out another hike in May and adding every meeting going forward would be ‘live’. The US Treasury curve fattened notably post-FOMC, with the 2-/10-year yield spread narrowing some 10+ basis points. The US dollar remained bid and gold was under modest pressure. WTI crude hit a fresh 7-year high which was probably not lost on Chairman Powell and his colleagues. On Thursday, Q4 GDP printed at a whopping 6.9%, but that was pre-Omicron data and was boosted by a large build in inventories. Weekly initial jobless claims continued to illustrate a tight labor market with low layoffs and plentiful job openings.
By Friday, futures were under pressure once again heading into the opening bell. December PCE and Employment Cost Index data resulted in a brief respite of selling as the data met or came in softer than market expectations. Indices continued to vacillate widely, moving in and out of positive territory on several occasions. Traders remained focused on Monday's lows as a key technical gauge heading into the weekly close, while breadth remained decidedly negative, though improving some from the recent highly depressed levels.
In corporate news this week, Apple posted record quarterly profit and revenue, and CEO Cook noted he sees supply issues improving and services continuing to grow strongly. Microsoft’s results and outlook lifted tech stocks mid-week as its earnings continued to rise and its cloud division remained one of the industry’s fastest-growing. Visa shares rose after reporting a beat on profits, with management pointing out it doesn’t believe the current Omicron surge will curtail the economic recovery. Tesla shares fell despite announcing a record annual profit as CEO Musk cautioned that the supply chain issues were a negative factor this quarter and that those holdups are likely to continue through 2022.
Intel stock hit its lowest levels in a year after its revenue and margin outlook disappointed investors. Weak guidance and supply chain disruptions sent Western Digital shares plunging after the manufacturer reported results. Robinhood shares dipped to hit single digits after reporting a big net loss and a reduction in active users in Q4. Nvidia reportedly is preparing to ditch the planned takeover of Softbank’s Arm division as regulatory hurdles appear to be too formidable.
SUN 1/23
(DE) German Navy Chief Schönbach resigns after positive comments on Russian Pres Putin - press
RNO.FR Alliance of Renault, Nissan and Mitsubishi expected to announce plan to invest more than €20B over next five years on EV development - press
MON 1/24
*(FR) FRANCE JAN PRELIMINARY MANUFACTURING PMI: 55.5 V 55.3E (14th month of expansion)
*(DE) GERMANY JAN PRELIMINARY MANUFACTURING PMI: 60.5 V 57.0E (19th month of expansion and highest reading since Aug 2021)
*(EU) EURO ZONE JAN PRELIMINARY MANUFACTURING PMI: 59.0 V 57.5E (19th month of expansion)
6752.JP Said to start producing new Tesla batteries in 2023; New batteries will reportedly boost Tesla Model S range from ~650km to ~750km - Nikkei
*(UK) JAN PRELIMINARY MANUFACTURING PMI: 56.9 V 57.6E (20th straight expansion, but lowest reading since Feb 2021)
(RU) Russia govt spokesperson Peskov: Blames US and NATO for rising tensions in Ukraine; Sees very high risk of Ukraine offensive in Donbas region
*(US) JAN PRELIMINARY MARKIT MANUFACTURING PMI: 55.0 V 56.7E (Lowest since Oct 2020)
SON Increases prices for paperboard tubes and cores by at least 6% on US, Canadian shipments; Effective Mar 1, 2022
*(SG) SINGAPORE CENTRAL BANK (MAS): TO RAISE SLIGHTLY THE RATE OF APPRECIATION OF THE S$NEER POLICY BAND, Leaves width of band and level at which centered unchanged (intra-meeting move)
*(AU) AUSTRALIA Q4 CPI Q/Q: 1.3% V 1.0%E; Y/Y: 3.5% V 3.2%E
1112.HK Will not proceed with planned 5-year USD bond offering, cites market conditions
TUES 1/25
005380.KR Reports Q4 (KRW) Net 0.55T v 1.38T y/y; Op 1.53T v 1.64T y/y; Rev 31.0T v 29.2T y/y; Chip shortage situation will normalize by July 2022
ERICB.SE Reports Q4 (SEK) Net 10.1B v 7.2B y/y, Adj Op 12.3B v 10.0Be, Rev 71.3B v 68.1Be; Expects fundamentals to remain strong in our core mobile infrastructure business during 2022
*(DE) GERMANY JAN IFO BUSINESS CLIMATE SURVEY: 95.7 V 94.5E (1st improvement in 7 months)
NVDA Reportedly preparing to abandon takeover of Arm as it sees little to no progress in winning regulatory approval - press
GE Reports Q4 $0.92 adj v $0.83e, Rev $20.3B v $21.2Be; Guides FY22 adj EPS weak
JNJ Reports Q4 $2.13 adj v $2.12e, Rev $24.8B v $25.3Be
MMM Reports Q4 $2.31 v $2.03e, Rev $8.61B v $8.60Be
RTX Reports Q4 $1.08 v $1.01e, Rev $17.0B v $17.2Be; Guides initial FY22 short of consensus
VZ Reports Q4 $1.31 v $1.28e, Rev $34.1B v $33.8Be; Sees adj EBITDA growth in 2022 to be offset by headwinds from non-cash items
ADM Reports Q4 $1.50 v $1.36e, Rev $23.1B v $20.4Be; Raises dividend 8.1% to $0.40/shr from $0.37/shr (implied yield 2.3%e)
AXP Reports Q4 $2.18 v $1.78e, Rev $12.1B v $11.6Be
AJRD Lockheed believes it is highly likely that the FTC will vote to sue to block the transaction and expect they will make a decision before Jan. 27th; Lockheed could elect to fight the lawsuit or terminate the merger
*(HU) HUNGARY CENTRAL BANK (MNB) RAISES BASE RATE BY 50BPS TO 2.90%; MORE-THAN- EXPECTED
PCAR Reports Q4 $1.47 v $1.31e, Rev $6.69B v $5.38Be
(US) Jan Philadelphia Fed Non-Manufacturing Index: -16.2 v +27.3 prior
VTNR Reports voluntary termination of asset divestiture agreement with Safety-Kleen Systems from CLH unit
(HU) Hungary Central Bank Gov Matolcsy: To continue with rate hikes on a monthly basis until inflation outlook stabilizes and risks turn balanced - post rate decision statement
*(US) JAN RICHMOND FED MANUFACTURING INDEX: 8 V 14E
*(US) JAN CONSUMER CONFIDENCE: 113.8 V 111.1E
MSFT Reports Q2 $2.48 v $2.29e, Rev $51.7B v $50.1Be
TXN Reports Q4 $2.27 v $1.95e, Rev $4.83B v $4.44Be; Guides Q1 strong
(US) SEMI Dec North America-based Manufacturers of Semi Equipment Billings: $3.92B, -0.5% m/m (+5.0% prior) and +46.1% y/y (+50.6% prior)
MSFT Guides Q3 Rev $48.5-49.3B (implied) v $47.7Be
005930.KR Normalizes chip production operations in China Xi'an after COVID-19 measures ease
WEDS 1/26
066570.KR Reports final FY21 (KRW) Net 1.42T v 2.07T y/y, Op 3.86T v 3.91T y/y, Rev 74.7T v 58.1T y/y
ANTM Reports Q4 $5.14 v $5.11e, Rev $36.0B v $36.4Be; Raises quarterly dividend by 13% to $1.28/shr from $1.13/shr
T Reports Q4 $0.78 adj v $0.76e, Rev $41.0B v $40.4Be
ADP Reports Q2 $1.65 v $1.63e, Rev $4.03B v $3.98Be; Raises guidance
GD Reports Q4 $3.39 v $3.37e, Rev $10.3B v $10.7Be; Notes highest Gulfstream orders in more than a decade
GLW Reports Q4 $0.54 v $0.51e, Rev $3.68B v $3.61Be; Guides Q1 above estimates
BA Reports Q4 -$9.44** adj v -$0.09e, Rev $14.8B v $17.0Be; 787 program recorded $3.5B pre-tax non-cash charge; Raises 737 Max planned output to 26 from 19
ABT Reports Q4 $1.32 v $1.18e, Rev $11.5B v $10.6Be
BA Guides initial FY22 Rev 'to improve' y/y; Increasing 777/777X production rate to 3 per month in 2022 - earnings slides
3333.HK Said to have told investors Evergrande is actively in communication with creditors; Plans to have preliminary restructuring plan in 6 months - press
*(US) DEC PRELIMINARY WHOLESALE INVENTORIES M/M: 2.1% V 1.2%E
KNX Reports Q4 $1.61 v $1.43e, Rev $1.82B v $1.72Be
(US) Dec New Home Sales: 811K v 760Ke
(DE) Reportedly Nord Stream 2 operator formally registers a German subsidiary; Unable to say when certification process will be resumed - press
UBSG.CH To acquire automated investment co Wealthfront for $1.4B in cash
(US) Atlanta Fed GDPNow: Raises Q4 GDP forecast to 6.5% from 5.1%
(US) Association of American Railroads weekly rail traffic report for week ending Jan 22nd: 477.5K total units, -9.8% y/y
*(US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 0.00-0.25%; AS EXPECTED; SAYS 'IT WILL SOON BE APPROPRIATE' TO RAISE RATES
(US) Fed Chair Powell: With elevated inflation and strong labor market, Fed will continue to adapt policy; Policy has been adapting to an evolving environment - post rate decision statement
(US) Fed Chair Powell: It is not possible to predict the path of policy rates; Will be guided by data and evolving outlook - post rate decision Q&A
INTC Reports Q4 $1.09 adj v $0.90e, Rev $20.5B v $18.3Be; Raises Quarterly dividend 5% to $0.365 from $0.3475 (indicated yield 2.82%)
TSLA Reports Q4 $2.54 v $2.11e, Rev $17.7B v $16.1Be
STX Reports Q2 $2.41 v $2.36e, Rev $3.12B v $3.11Be
005930.KR Reports final Q4 (KRW) Net 10.8T v 6.6T y/y (v 11.1Te); Op 13.9T v 13.8T prelim (v 9.1T y/y) , Rev 76.6T v 76.0T prelim (v 61.6T y/y)
THURS 1/27
SAP.DE Reports final Q4 EPS €1.86 v €1.64e, Op €2.47B v €2.77B y/y, Rev €7.98B v €7.91Be
DBK.DE Reports Q4 Net €145M v €51M y/y, Pretax €82M v €175M y/y, Net Rev €5.90B v €5.68Be
DGE.UK Reports H1 Net £2.09B v £1.66B y/y, Adj Op £2.74B v £2.24B y/y, Rev £7.96B v £6.87B y/y
(US) Money markets currently pricing 5 rate hikes of 25bps for Fed during 2022
(RU) Russia Foreign Min Lavrov: No positive reaction on main points from US on security proposals, but US response gives hope on starting serious dialogue on secondary issues; President Putin to decide next steps
DOW Reports Q4 $2.15 v $2.04e, Rev $14.4B v $14.3Be; In 2022, expects continued demand strength across its end markets
VLO Reports Q4 $2.47 v $1.79e, Rev $35.9B v $28.9Be; Remains optimistic on refining margins
MCD Reports Q4 $2.23 v $2.31e, Rev $6.01B v $6.03Be
CMCSA Reports Q4 $0.77 v $0.73e, Rev $30.3B v $29.6Be
*(US) INITIAL JOBLESS CLAIMS: 260K V 265KE; CONTINUING CLAIMS: 1.675M V 1.67ME
*(US) Q4 ADVANCE GDP ANNUALIZED Q/Q: 6.9% V 5.5%E; PERSONAL CONSUMPTION: 3.3% V 3.4%E
*(US) Q4 ADVANCE GDP PRICE INDEX: 6.9% V 6.0%E; CORE PCE Q/Q: 4.9% V 4.9%E
(US) Nevada reports Dec casino gaming Rev $1.15B, +68% y/y; Las Vegas strip Rev $650.8M, +123% y/y
*(US) DEC PENDING HOME SALES M/M: -3.8% V -0.4%E; Y/Y: -6.6% V -4.0%E
V Reports Q1 $1.81 v $1.69e, Rev $7.06B v $6.77Be; Do not believe the current surge in the pandemic will curtail the recovery
AAPL Reports Q1 $2.10 v $1.89e, Rev $124.0B v $118.1Be; Expect to reach record Q2 Rev this quarter; Sees less supply chain issues in current quarter, Rev loss expected to be less than $6B
(US) Pres Biden reportedly told Ukraine Pres Zelenskiy that a Russian invasion is now virtually certain once the ground freezes - CNN
FRI 1/28
*(FR) FRANCE Q4 PRELIMINARY GDP Q/Q: 0.7% V 0.5%E; Y/Y: 5.4% V 4.9%E
(RU) Russia Foreign Min Lavrov: Russia does not want war but will defend its interests
*(DE) GERMANY Q4 PRELIMINARY GDP Q/Q: -0.7% V -0.3%E; Y/Y: 1.4% V 1.8%E
CAT Reports Q4 $2.69 v $2.22e, Rev $13.8B v $13.3Be
CVX Reports Q4 $2.56 v $3.06e, Rev $48.2B v $45.0Be; Guides Q1 buybacks to top $3-5B annual guidance range
2866.HK Positive profit alert: Prelim FY21 (CNY) Net 5.8-6.8B +172-219% y/y
*(US) Q4 EMPLOYMENT COST INDEX (ECI): 1.0% V 1.2%E
*(US) DEC PCE DEFLATOR M/M: 0.4% V 0.4%E; Y/Y: 5.8% V 5.8%E
