Weekly Market Update: Amid Central Bank Jawboning Stocks Falter Badly, Led By the NASDAQ
US stock markets came out of the Easter holiday break on fairly solid footing, perhaps boosted by the end of tax season selling. Also, early season earnings reports provided some optimism, particularly among the industrials and other sectors closely attuned to the economic environment. Many firms posted surprisingly strong revenue beats, spurred by price increases, but remained cautious in terms of EPS, margins, and their near-term outlooks, despite highlighting a very robust demand environment. Sentiment was also potentially helped by a federal court ruling that cleared the way for the CDC to take down mask mandates, serving as major sign post that the US, at least, continues to move past the pandemic stage of Covid-19. Momentum reversed though, quite abruptly, following a debacle of an earnings report from Netflix which, along with another surge in global interest rates, brought about a significant sell-off in the NASDAQ that was never really able to regain any stability.
Another leg higher for global bond yields weighed on risk appetite heavily through the latter half of the week. The US 10-year yield approached 3% on a few occasions but was unsuccessful in breaching that mark for the first time since 2018. Nevertheless, rising inflation expectations spurred another bout of hawkish central bank speak on both sides of the Atlantic. Some ECB officials suggested a rate hike could be in the cards as early as July, signaling a hawkish shift, while the BOE opened the door to debating a 50 bps move at their next meeting. Fed officials, most notably Chairman Powell, remained vociferous ahead of their quiet period to take effect next week. By Friday, futures markets were pricing in three 50 basis point hikes at the next three consecutive FOMC meetings, while pundits begun to talk up the possibility of a 75bps move in May. Inflation expectations remained on the rise, signified by the US 10-year breakeven rate hitting another record high above 3%. The S&P fell back into correction territory and Dow dropped more than 1000 points on Friday as the VIX jumped more than 20% back above 25. The surge in volatility came after a particularly wild US trading session on Thursday, which saw S&P futures trade both above and below each of the 50-, 100-, and 200-day moving averages. The last time this occurred was in late 2007 in the lead-up to the Great Recession. For the week, the S&P fell 2.75%, the Dow lost 1.9%, and the NASDAQ slumped 3.8%.
In corporate news this week, Bank of America saw a Q1 profit drop but an increase in loan demand across all segments and a boost in card customer travel spend. American Express saw a similar boost to T&E spending in the quarter after the Omicron variant faded away, as the credit card provider posted a beat on its Q1 top and bottom line. Netflix shares were crushed after the streaming giant projected losing customers in the Q2, with executives pointing to account-sharing and the departure from Russia as headwinds. Tesla once again posted record profits as the EV maker was able to outflank supply chain issues that have hampered the auto sector overall.
United Airlines shares lifted after the company said it’s seeing the strongest demand environment in decades. Snap reported weaker than expected profit as its leadership warned forward visibility is ‘as difficult today, or perhaps more difficult, than at any point in recent memory.’ Gap weighed on the retail sector after cutting its Q1 sales growth outlook and announcing changes at its Old Navy unit.
SUN 4/17 (EU) EU Commission President Von der Leyen: 6th package of sanctions against Russia to include oil sanctions and additional measures against Russian banking sector, in particular Sberbank - German press interview (RU) Traders circulating video fragments from Russian state TV political shows that included some criticism of Russian Defense Ministry actions (including flagship Moskva sinking) and voiced calls not to prolong the war for the first time since invasion began on Feb 24th (UR) Ukraine President Zelenskiy: Any Ukraine-Russia peace talks will end if Moscow eliminates Mariupol city fighters; Ukraine can fight Russia even for 10 years (US) US and European countries working on new long-term strategy on relationship with Russia actively seeking its isolation and weakening - US press (US) Interior Department Announces Significantly Reformed Onshore Oil and Gas Lease Sales; Raises royalty rate to 19% for first time in decades (JP) Bank of Japan (BOJ) Gov Kuroda: Recent drop in JPY currency (Yen) has been 'very rapid'; Weak Yen is positive for the economy as a whole, rapid weakness drives negative effects
MON 4/18 (RU) Russia Central Bank (CBR) Gov Nabiullina: We should be able to lower the key rate faster; Gradually easing capital controls, may ease rules for mandatory FX sales by exporters** by softening timing and volume of mandatory FX revenue sales (RU) Austria Chancellor Nehammer: Pres Putin believes he is winning the war; Putin said it would be better the war ended earlier than later - interview BAC Reports Q1 $0.80 v $0.76e, Rev $23.2B v $23.2Be (LY) Libya official: 535Kbpd of domestic oil production is currently shut down *(US) APR NAHB HOUSING MARKET INDEX: 77 V 77E (US) Fed’s Bullard (voter, hawkish dissenter): Won't rule out 75 bps hike but not my base case; Hopeful balance sheet runoff can start at the coming meeting; Inflation is far too high for comfort JBHT Reports Q1 $2.29 v $1.91e, Rev $3.49B v $3.26Be (UR) Ukraine President Zelenskiy: Confirms active phase of the Russian offensive in Donbas began CDC mask mandate overturned by federal court ruling, DHS will no longer require masks for air travel; Various companies have stopped mask mandate on domestic flights (KR) Bank of Korea (BOK) Gov Nominee Rhee: Rate hikes should continue unless an issue for growth
TUES 4/19 (PL) Poland Central Bank (NBP) member Wnorowski: See no end to rate hikes in coming months; Base Rate may rise to 7.50% (FR) France Fin Min Le Maire: Embargo on Russian oil in the works; Hope to convince EU partners to stop importing Russian oil (RU) Russia Foreign Min Lavrov: Confirms another stage of special military operation is beginning; Russia will only use conventional arms in Ukraine during this stage - Indian tv interview (RU) Russian Defense Min Shoigu: Events in recent months show how important it is for Russia to continue to perfect its army TRV Reports Q1 $4.22 v $3.70e, Rev $8.81B v $8.93Be; Raises Quarterly dividend 5.7% to $0.93 from $0.88 (indicated yield 2.01%) MAN Reports Q1 $1.88 v $1.56e, Rev $5.14B v $5.11Be ACC Confirms to be acquired by Blackstone for $65.47/shr in ~$12.8B deal; Suspends payment of its quarterly dividend, effective immediately PLD Reports FFO Q1 $1.09 v $1.08e, Rev $1.22B v $1.09Be *(US) MAR HOUSING STARTS: 1.793M V 1.740ME; BUILDING PERMITS: 1.873M V 1.820ME *IMF WORLD ECONOMIC OUTLOOK (WEO): CUTS 2022 GLOBAL GDP GROWTH FROM 4.4% TO 3.6% (NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -3.6% v -1.0% prior (US) Atlanta Fed GDPNow: Raises Q1 GDP forecast to 1.3% from 1.1% NFLX Reports Q1 $3.53 v $2.92e, Rev $7.87B v $7.94Be; Plans to accelerate viewing and Rev growth; To present proposal to declassify board in June meeting for Netflix to evolve to a more standard large cap company governance structure RIO.AU Reports Q1 Pilbara iron ore shipments 71.5Mt v 73.1Mte (v 77.8Mt y/y); Pilbara iron production 71.7Mt v 76.4Mt y/y *(CN) CHINA PBOC MONTHLY LOAN PRIME RATE (LPR) SETTING: LEAVES BOTH 1-YEAR AND 5-YEAR RATES UNCHANGED AT 3.70% AND 4.60% RESPECTIVELY [not expected]
WEDS 4/20 ASML.NL Reports Q1 Net €1.73 v €1.60e, Rev €3.53B v €3.48Be; Guides Q2 below consensus BN.FR Reports Q1 Rev €6.24B v €5.66B y/y BN.FR CEO: supply chain issues in North America are stabilizing - post earnings commnets (RU) Reportedly some Kremlin elites realize the Ukraine war is a catastrophic mistake and worry Pres Putin could order a tactical nuclear strike - press (JP) BOJ reportedly set to look past the weakening Japanese yen (JPY) and leave its forward guidance unchanged at the Apr 27-28 policy meeting - MNI News (RU) Russia Foreign Ministry spokesperson Zakharova: Russia has lost confidence in Ukrainian negotiators ANTM Reports Q1 $8.25 v $7.81e, Rev $38.1B v $37.4Be PG Reports Q3 $1.33 v $1.29e, Rev $19.4B v $18.7Be; Sees repurchasing of $10B of shares during FY22 (RU) Reportedly EU preparing impact assessment on Russia oil embargo, talking to suppliers; Germany remains the key opponent to oil ban, suggesting nuclear fuel embargo instead for 6th EU sanction package against Russia - financial press ABT Reports Q1 $1.73 v $1.47e, Rev $11.9B v $11.1Be (DE) ECB's Nagel (Germany, hawk): ECB could raise rates early in Q3; Stagflation scenario must be avoided TATA.IN European unit to stop doing business with Russia; Says they have sourced alternative supplies of raw materials - press *(US) MAR EXISTING HOME SALES: 5.77M V 5.77ME *(US) DOE CRUDE: -8.0M V +2ME; GASOLINE: -0.8M V -1ME; DISTILLATE: -2.7M V -1ME (US) Association of American Railroads weekly rail traffic report for week ending Apr 16th: 490K total units, -8.1% y/y *(US) TREASURY $16B 20-YEAR BOND REOPENING DRAWS 3.095% V 2.651% PRIOR, BID-TO-COVER 2.80 V 2.72 PRIOR AND 2.44 OVER LAST 8 REOPENINGS RAD Reportedly rejected a $14.60/shr takeover bid this month from Spear Point Capital; Spear Point now mulling launching hostile tender offer directly to shareholders - NY Post AA Reports Q1 $3.06 v $2.99e, Rev $3.29B v $3.50Be UAL Reports Q1 -$4.24 v -$4.19e, Rev $7.57B v $7.68Be; Sees strongest demand environment in decades (CN) China President Xi: China to push for free trade agreements with more countries; Global Economic recovery is weak; Calls for coordinated macroeconomic and coronavirus policies among countries - Boao forum comments
THURS 4/21 ABBN.CH Reports Q1 $0.31 v $0.29e, Rev $6.97B v $7.09Be NESN.CH Reports Q1 (CHF) Rev 22.2B v 21.7Be (RU) Russia Defense Min Shoigu: Russian forces have captured Mariupol but there are still more than 2,000 Ukrainian fighters in Azovstal steel plant in Mariupol; Agree with Pres Putin to cancel plans to storm the Azovstal plant - meeting with Putin (RU) Austria and its main oil firm OMV stopped importing and refining oil from Russia in Mar - Russian press CON.DE Reports Q1 Rev €9.3B v €8.7Be y/y; Cuts FY22 adj EBIT outlook citing cost inflation *(EU) EURO ZONE MAR FINAL CPI Y/Y: 7.4% V 7.5%E; CPI CORE Y/Y: 2.9% V 3.0%E DOW Reports Q1 $2.32 v $2.02e, Rev $15.3B v $14.4Be (DE) German Foreign Min Baerbock: There are no taboos for Germany with regard to weapons and heavy weaponry which Ukraine needs T Reports Q1 (Ex WarnerMedia) $0.63 v $0.61e, Rev $29.7B v $29.0Be WSO Reports Q1 $2.90 v $1.82e, Rev $1.52B v $1.38Be *(US) INITIAL JOBLESS CLAIMS: 184K V 180KE; CONTINUING CLAIMS: 1.42M V 1.46ME *(US) APR PHILADELPHIA FED BUSINESS OUTLOOK: 17.6 V 21.4E (UK) BOE's Mann (hawkish): Looking at whether a larger than 25bps move is necessary; Key for May meeting is assessing drag on economy TWTR Elon Musk (9.1% holder) discloses has received commitment letters committing to provide an aggregate of ~$46.5B for takeover; Has not commenced or determined to commence any tender offer for shares of Twitter; May take additional steps as appropriate - 13D/A filing (US) Pres Biden: New $800M aid package to Ukraine includes dozens of Howitzers, ammunition, drones, and heavy artillery; Putin will never succeed in occupying Ukraine (US) Fed Chair Powell: Volcker understood role played by price expectations, understood importance of Fed independence (US) Fed's Daly (non-voter, dove): Reiterates rates expeditiously marching towards neutral; Sees likely hiking by 50bps at "couple of meetings" KER.FR Reports Q1 Rev €4.96B v €4.6Be (RU) Russia Central Bank (CBR): Extends measures to soften FX currency controls to all export-focused companies (US) Fed Chair Powell: 50bps hike will be on the table for May meeting; It is appropriate to be moving quickly - IMF panel comments (CA) Canada PM Trudeau to implement two-year ban on foreign home-buying; Also to raise taxes for people who sell their home within a year (UK) Apr GfK Consumer Confidence: -38 v -33e (lowest since July 2008) (CN) Shanghai reports 403 [out of 666] key businesses have resumed production; lockdown will be lifted in batches once zero-COVID is reached at the community level (CN) Reportedly China Securities Regulator (CSRC) has encouraged larger investors in China to purchase more equities in an effort to prop up the market during the sell off; Comments came during a meeting held on Apr 21st - Press
FRI 4/22 (JP) Japan Fin Min Suzuki and US Treasury Sec Yellen said to have likely to have discussed coordinated currency intervention during talks; Sounded as if the US side would consider idea positively - Japanese press RNO.FR Reports Q1 Rev €9.75B v €9.20Be; To provide update to strategy at CMD in fall 2022 SAP.DE Reports prelim Q1 (Non-IFRS) EPS €1.00 v €1.13e, Op profit €1.68B v €1.74B y/y, Cloud Rev +31%, Rev €7.08B v €6.92Be *(UK) MAR RETAIL SALES (EX-AUTO/FUEL) M/M: -1.1% V -0.4%E; Y/Y: -0.6% V +0.8%E *(FR) FRANCE APR PRELIMINARY PMI MANUFACTURING: 55.4 V 53.7E (17th month of expansion) *(DE) GERMANY APR PRELIMINARY PMI MANUFACTURING: 54.1 V 54.5E (22nd month of expansion but lowest since Aug 2020) *(EU) EURO ZONE APR PRELIMINARY PMI MANUFACTURING: 55.3 V 54.9E (22nd month of expansion) (RU) Russia Defense Min Deputy Head Minnekayev: Plan to take full control of Donbas and Southern Ukraine** as part of second phase of military operation; Planning to secure land passage to Crimea *(UK) APR PRELIMINARY PMI MANUFACTURING: 55.3 V 54.0E (23rd month of expansion) (EU) ECB chief Lagarde said to have told Council members to hold back on 'personal dissenting' views on decisions until the Monday after the decisions are published - financial press (CN) China Apr gasoline, diesel and aviation fuel consumption said to have dropped 20% y/y (biggest decline since pandemic) - press SLB Reports Q1 $0.34 v $0.32e, Rev $5.96B v $5.89Be; Sees positive outlook extends further into 2023; Raises Quarterly dividend 40% to $0.175 from $0.125 (indicated yield 1.72%) AXP Reports Q1 $2.73 v $2.44e, Rev $11.74B v $11.7Be