Monday, September 5, 2022

Headwinds grip markets again, capped by Russia gas supply antics, overshadowing a constructive jobs report Weekly Market Update: Headwinds grip markets again, capped by Russia gas supply antics, overshadowing a constructive jobs report

9/2/2022 4:02:25 PM

After finding resistance at the declining 200-day moving averages in mid-August, US stock markets continued to backtrack heading into September. By mid-week indices had retraced nearly half way back to the June lows and were trading below their 100-day moving averages which many opined was typical bear market behavior. Chairman Powell’s blunt message from Jackson Hole continued to reverberate globally with expectations for ECB and BOE tightening ratcheting higher which in turn pushed interest rates up and propelled the US dollar to new two decade highs. The US 2-year yield topped 3.5% for first time in 15-year years and the benchmark 10-year climbed to 3.25%. Geopolitics continued to add to the wall of worry as well. New China Covid lockdowns were introduced while Taiwan tensions festered and the US imposed a new license requirement for the export of high end semiconductor chips. The Russian war in Ukraine showed no signs of cooling as Gazprom’s “maintenance” on the Nord Stream 1 pipeline continued to halt the flow of gas into Europe. Also, rhetoric picked up from both sides heading into a G-7 meeting where leaders were set to introduce a price cap on Russian oil. Adding to the ominous landscape were a slew of PMI readings in Asia and Europe suggesting economies there remained in contraction territory.

The August US employment report was encouraging on several fronts, resulting in a rebound in risk appetite on Friday after buyers emerged late in the previous (Sept 1st) session. Fed officials will likely be pleased with the moderation seen in wage growth and perhaps the uptick in the unemployment rate. Reassuringly though, that unemployment rise was accompanied by a 0.3% rise in the labor force participation rate, providing some reason to hope that rising supply can be at least part of the solution to the current supply/demand imbalance in the labor market. Nevertheless, the data is unlikely to alter the Fed’s message, namely it will remain singularly focused on bringing inflation back under control by lifting the funds rate towards or above 4% into next year. Friday also saw European natural gas prices continue to back away from the current cycle highs, which have been inversely correlated with risk assets of late. For the week, the S&P lost 3.3%, the DJIA was off 3%, and the Nasdaq dropped 4.2%.

In corporate news this week, Nvidia shares dropped after it disclosed the US set new imits on exports of two of its most advanced AI chips to China, which could cost the chipmaker $400M in potential sales in Q3. Seagate slashed its Q1 outlook amid weaker economic trends in Asia and more supply chain disruptions. Netflix reportedly is setting ad prices for its new ad-supported tier at levels substantially higher than other platforms, as the streaming giant aims to launch the new offering to customers on the first of November. FDA authorized next-generation Omicron-specific COVID boosters this week, as it plans to roll out a combined 175M doses from Moderna and Pfizer-BioNTech this fall. Royal Caribbean, in an industry-first, said it planned to use SpaceX's Starlink to provide high-speed internet onboard its full cruise fleet.

MON 8/29
European gas futures fell down 13% (most since Apr 2022) after Germany said its gas storage is filling up faster than planned ahead of winter
(DE) German Econ Min Habeck: Gas storage around 83%, we can wait for the market to calm down; Will not have a Lehman effect on gas market
(RU) Pro-Russian Telegram channels confirm Ukrainian counteroffensive in many areas of Kherson region; Notes there is a big risk of losing Kherson, many losses among Russian troops
(CZ) Czech Industry Min: Formally calls for EU emergency energy meeting for Fri, Sept 9th; Propose to cap prices of gas used for power generation
(EU) EU Commission President Von der Leyen: EU preparing power market emergency intervention, working on structural reform of power market
(US) FDA reportedly to authorize next-generation COVID boosters this Weds; Plans to roll out a combined 175M doses of new boosters from Moderna and Pfizer-BioNTech - Politico
TUES 8/30
*(DE) GERMANY AUG CPI NORTH RHINE WESTPHALIA M/M: 0.3% V 1.1% PRIOR; Y/Y: 8.1% V 7.8% PRIOR (highest annual pace since 1963)
(CN) Sichuan and Chonqing provinces in China said to have resumed power for all industrial and business on Aug 30th - press
(IQ) Iraq State Organization for Marketing of Oil (SOMO): Oil exports operations not affected by recent incidents; Have capacity to boost exports, can increase exports to Europe if asked
FSLR To invest up to $1.2B in scaling production of American-made responsible solar by 4.4 GW; To build new, 3.5 GW manufacturing facility in the US Southeast; expected to commence production in 2025
(CN) China's 20th National Congress of the Chinese Communist Party said to be held on Oct 16th - press
BBY Reports Q2 $1.54 v $1.29e, Rev $10.3B v $10.2Be; Commences an enterprise-wide restructuring initiative; Maintains paying quarterly dividend at $0.88/shr
*(DE) GERMANY AUG PRELIMINARY CPI M/M: 0.3% V 0.4%E; Y/Y: 7.9% V 7.8%E (matches highest annual pace seen this year and since start of the monthly statistic in 1963)
(US) Nevada reports Jul casino gaming Rev $1.32B, -3.2% y/y; Las Vegas strip Rev $774M, -2.4% y/y
(EU) EU Commission President Von der Leyen: EU has reached average 80% gas storage target
(US) Joe Biden files papers to run for re-election in 2024 - press
V August US payments volume on a year-over-year basis was up 11%, flat with July, while Credit and Debit grew 17% and 7%, respectively, both up 1 point from July
RCL To use SpaceX's Starlink in an industry first to provide high-speed internet onboard full cruise fleet
HPQ Reports Q3 $1.04 v $1.04e, Rev $14.7B v $15.5Be; Cuts FY outlook
*(CN) CHINA AUG MANUFACTURING PMI (GOVT OFFICIAL): 49.4 V 49.2E (2nd straight contraction)
(JP) Japan PM Kishida: No change in stance to reduce dependence on nuclear; safety remains prerequisite for using nuclear power
WEDS 8/31
*(FR) FRANCE AUG PRELIMINARY CPI M/M: 0.4% V 0.6%E; Y/Y: 5.8% V 6.1%E
(CN) China Foreign Ministry Spokesperson Zhao: China opposes US Arizona governor's visit to Taiwan
(DE) German Chancellor Scholz: Early steps on energy security mean we will get through winter; Will take measures to ensure energy prices do not go through the roof - briefing on energy situation
BBBY Discloses it may offer, issue and sell shares of indeterminate amount - filing
(CN) China reportedly seeks to quicken process of expanding domestic demand; To attract more private investment - press
*(US) AUG ADP EMPLOYMENT CHANGE: +132K V +300KE; Notes job growth slowed for second-straight month in Aug
STX Cuts Q1 EPS meaningfully below $1.20 v $1.41e, Rev $2.0-2.2B v $2.60Be (prior $1.20, Rev $2.35-2.65B); Weaker economic trends in certain Asian regions have amplified customer inventory corrections and supply chain disruptions
(US) Association of American Railroads weekly rail traffic report for week ending Aug 27th: 512K total units, +1.4% y/y
COST Reports Aug total SSS +8.7% (ex-gas and FX); Q4 total SSS +10.4% (ex-gas and FX), Net Sales $70.8B v $61.4B y/y
NVDA US govt imposes a new license requirement, effective immediately, for any future export to China and Russia of A100 and H11 integrated circuits; May impact ability to complete its development of H100 and may require co to transition certain operations out of China - filing
NFLX Aims for Nov 1st launch of ad-supported service; Buyers say ad prices are substantially higher than most other platforms - press
(CN) Chengdu city, China [21M residents] announces lockdown; To conduct mass COVID testing from Sept 1-4th
(HK) Macau Aug Casino Rev (MOP) 2.2B v 0.4B prior; Y/Y -50.7% v -95.3% prior (-47.5%e)
(TW) Taiwan Defence Ministry: Shot down new 'unidentified' civilian drone in Kinmen offshore island [**Note: first reported it was Chinese drone]
*(ES) SPAIN AUG MANUFACTURING PMI: 49.9 V 48.5E (2nd consecutive contraction)
(TW) Taiwan Defense Ministry: China continues to strengthen its combat preparedness for an attack on Taiwan; China's drills have expanded beyond first island chain, aim is to stop foreign forces from interfering in attack on Taiwan
(EU) EU said to be looking at all possibilities to intervene in energy market, including energy price caps, windfall profit taxes and electricity demand reduction tools - press
*(IT) ITALY AUG MANUFACTURING PMI: 48.0 V 48.1E (2nd straight contraction and lowest reading since June 2020)
(DK) Denmark Aug PMI Survey: 48.0 v 38.1 prior
(HK) Macau reportedly plans to gradually reopen the city to foreign travelers - press
(CN) China urges ships to return to ports as Super Typhoon Hinnamnor (equivalent of a Category 5 hurricane) approaching mainland China - press
*(CN) CHINA PBOC CUTS RATE ON STANDING LENDING FACILITY (SLF) BY 10BPS, Effective Aug 15th (first cut since Jan 2022)
HRL Reports Q3 $0.40 v $0.41e, Rev $3.03B v $3.07Be; Cuts FY22 EPS, Raises Rev outlook; Expects elevated cost inflation to persist
(US) Atlanta Fed GDPNow: raises Q3 GDP to 2.6% from 1.6% prior
AVGO Reports Q3 $9.73 v $9.62e, Rev $8.46B v $8.41Be
(IR) US said to call Iran response to the Nuclear talks 'not constructive', cites the US State Dept; Senior Biden administration official said to note negotiation parties appear to be moving backwards [no further details disclosed] - Politico
FRI 9/2
(DE) More German press reports circulating that Germany leans towards extending lifespan of its nuclear plants
UN FAO July World Food Price Index: 138.0 v 140.9 prior (5th straight decline)
(EU) G-7 said to back plan to introduce price cap on Russian oil and announce it this afternoon; To become effective Dec 5th, same day as EU embargo - FT
*(US) AUG UNEMPLOYMENT RATE: 3.7% V 3.5%E; Labor Force Participation Rate: 62.4% v 62.2%e
(US) AUG AVERAGE HOURLY EARNINGS M/M: 0.3% V 0.4%E; Y/Y: 5.2% V 5.3%E
Transport of gas to the Nord Stream pipeline has been completely halted after oil leakage was detected during routine maintenance works; No timeframe for restart of gas supply through the pipeline - Gazprom statement