Weekly Market Update: Peak inflation debate rages on amid fresh recession signals and mixed earnings reports
Fri, 28 Oct 04:10 PM EST/09:10 PM GMT
US stock markets opened the week looking build on Friday’s momentum while rates held below cycle highs. On Monday, sovereign bond yields dropped across Europe, led by the Gilt markets, after it became clear Rishi Sunak would become the next PM. As expected, President Xi tightened his grip further at a key China Communist Party meeting. After eliminating influence of opposition and moderating voices, and signaling to markets there won’t be any change in direction on economic, tech, or COVID policies, Chinese stock markets came under significant pressure. Regardless US stock prices held up well heading into a key stretch of corporate earnings reports.
US stocks largely continued to track higher mid-week, headlined by the Dow as it neared 6-week highs. Earnings standouts like Coca-Cola, Caterpillar, and GM, helped in large part by their continued ability to pass along and benefit from price increases, offset disappointing results and weak outlooks from a host of mega-cap tech bellwethers. Also, economic data continued to soften, supporting those who believed the Fed was nearing an inflection point where they could slow the pace at which they raise rates into the end of the year. The Bank of Canada raised rates less than expected, while other central banks that led the way into this rate hike cycle also offered slightly more dovish signals, along with a bit more two-sided commentary from some Fed officials. Nevertheless, markets flashed further signals that damage may have already been done. The US 10-year yield dropped below 4% resulting in the curve inverting below that of the 3-month T-bill rate. This classic recession signal was last seen in March of 2020.
Rates popped back up on Friday after a string on shockingly high EU CPI readings. That trend was moderated somewhat by two constructive pieces of US inflation data: Both the year over year September PCE deflator and the University of Michigan 1-year inflation outlook came in one-tenth lower than expected, sparking renewed hopes that ‘peak inflation’ may have been reached. Oil prices moved a bit higher during the week, but natural gas slipped modestly lower. For the week, the S&P gained 3.9%, the DJIA surged 5.7%, and the Nasdaq rose 2.2%.
Tech earnings took center stage in corporate news this week. Alphabet posted its lowest revenue growth since 2020 as economic weakness continued to hamper online ad spend. Microsoft saw its weakest sales growth in five years amid a drop in demand for its Windows OS. Meta’s share price dropped to its lowest level since 2016 as CEO Zuckerberg continues the pursuit of his costly Metaverse venture despite declining revenue. Amazon shares tumbled after giving a dour revenue outlook for its holiday quarter as it gets set to ‘tighten its belt.’ Amid this tech gloom and doom, Apple stock propped up the markets on Friday, surging after the consumer tech giant posted beats on its top and bottom line despite seeing some weakness in iPhone sales and services. Intel shareholders also recouped some losses as the chipmaker laid out significant cost-cutting plans amid a reduction to its FY22 forecast as it reported an earnings beat.
SUN 10/23 (CN) China Pres Xi obtains the 3rd five-year presidential term (as expected); Li Qiang named new China's Premier; Politburo Standing Committee members cut to 24 from 25 2330.TW Reportedly TSMC has suspended production of advanced silicon for China-based firm Biren Technology to ensure compliance with US curbs - press (RU) Russian state press circulate reports citing 'credible sources in Ukraine and various other countries' that Ukraine is preparing a provocation using a 'dirty bomb' or 'low-yield nuclear weapon'; Russian Defense Min Shoigu held talks with US, UK, French and Turkish Defense Ministers (UK) Chancellor of the Exchequer (Fin Min) Hunt reportedly considers up to £20B in tax rises on high earners in his medium-term fiscal budget announcement due on Oct 31st - UK press *(UK) BORIS JOHNSON PULLS OUT OF UK PM LEADERSHIP RACE - STATEMENT *(CN) CHINA SEPT RETAIL SALES Y/Y: 2.5% V 3.5%E; YTD Y/Y: 0.7% V 1.0%E *(CN) CHINA SEPT TRADE BALANCE: $84.7B V $80.3BE MON 10/24 PHIA.NL Reports Q3 adj EBITA €209M v €512M y/y, Rev €4.3B v €4.3B prelim; Starts restructuring, sees €300M charges in coming quarters; To cut 4,000 jobs globally (~5% of workforce) *(FR) FRANCE OCT PRELIMINARY MANUFACTURING PMI: 47.4 V 47.0E (2nd straight contraction and lowest since May 2020) *(DE) GERMANY OCT PRELIMINARY MANUFACTURING PMI: 45.7 V 47.0E (4th straight contraction and lowest since June 2020) TTF European gas futures extend losses to €100/MW (lowest since early June) amid EU talks to intervene into energy markets and warmer-than-usual temperatures this autumn in Europe *(EU) EURO ZONE OCT PRELIMINARY MANUFACTURING PMI: 46.6 V 47.9E (4th straight contraction and lowest since May 2020) *(UK) OCT PRELIMINARY MANUFACTURING PMI: 45.8 V 48.0E (3rd straight contraction and lowest since May 2020) 7203.JP Said to be considering a reboot of its ~$38B EV strategy announced last year to better compete with rivals like Tesla; Reportedly halted some work on existing EV projects; Targets early 2023 to complete review - press (RU) Russian govt spokesperson Peskov: West's lack of confidence does not mean that the threat of such 'dirty bomb' in Ukraine ceases to exist; The threat presents and this information was brought to the attention of Western defense ministers VSTO Reports prelim Q2 $1.71 v $1.71e, Rev $782M v $753Me; CFO Sudhanshu Priyadarshi to depart; Andrew Keegan named interim CFO, effective immediately (US) DOJ to hold press conference today on 'significant national security matter' (RU) Russian Defense Ministry: Ukraine wants to present the 'dirty bomb' explosion as an abnormal operation of a Russian nuclear weapon - statement LOGI Reports Q2 $0.84 v $0.81e, Rev $1.15B v $1.21Be; CFO to leave the company, but stay on through transition TUES 10/25 5.HK Reports Q3 Net $2.6B v $4.3B y/y, adj Pretax $6.51B v $6.09Be, Rev $14.3B v $13.5Be: CFO to step down, confirms considering sale of Canada unit UBSG.CH Reports Q3 Net $1.73B v $2.28B y/y, Rev $8.24B v $9.13B y/y NOVN.CH Reports Q3 Core EPS $1.58 v $1.57e, Rev $12.54B v $12.9Be SAP.DE Reports Q3 €1.12 adj v €1.28e, adj EBIT €2.09B v €2.05Be, Rev €7.84B v €7.59Be; Expects to accelerate Rev growth and double-digit operating profit growth in 2023 *(DE) GERMANY OCT IFO BUSINESS CLIMATE SURVEY: 84.3 V 83.5E (RU) Reports circulating that a new NOTAM** notice was issued for Oct 26-29th for potential ICBM test launches from Russia's Plesetsk and SLBM test launches from the coast of the Kola Peninsula to the Kura missile range (CN) China issues rules to promote development of individual businesses from Nov 1st; To encourage and guide venture capital institutions and social funds to support development of individual businesses - Chinese press UPS Reports Q3 $2.99 v $2.84e, Rev $24.2B v $24.3Be PII Reports Q3 $3.25 v $2.85e, Rev $2.34B v $2.19Be GE Reports Q3 $0.35 v $0.47e, Rev $19.1B v $19.0Be; Cuts outlook; Plans to initiate restructuring program across GE Vernova businesses GM Reports Q3 $2.25 v $1.89e, Rev $41.9B v $41.8Be PHM Reports Q3 $2.69 v $2.75e, Rev $3.94B v $4.04Be KO Reports Q3 $0.69 v $0.64e, Rev $11.1B v $10.6Be; Organic Rev +16%; Raises FY22 outlook ADM Reports Q3 $1.86 v $1.42e, Rev $24.7B v $22.9Be VOW3.DE Exec: We have never had the level of shortages in supply chain that we see today ITW Reports Q3 $2.35 v $2.25e, Rev $4.01B v $3.93Be; Organic rev +16%; Raises guidance PCAR Reports Q3 $2.21 v $2.01e, Rev $6.69B v $6.73Be (SA) Saudi Oil Min Abdulaziz: We need to retain spare oil capacity; Having spare capacity pays off; Running out of spare capacity would have a great cost MAERSKB.DK Exec: Congestion on West Coast has eased significantly; NA volumes remain “relatively unchanged” since September *(US) OCT RICHMOND FED MANUFACTURING INDEX: -10 V -5E; New orders: -22 v -11 prior *(US) OCT CONSUMER CONFIDENCE: 102.5 V 106.0E ML.FR Reports 9M Rev €20.7B v €17.2B y/y; Cuts FCF forecast MSFT Reports Q1 $2.35 v $2.29e, Rev $50.1B v $49.5Be GOOGL Reports Q3 $1.06 v $1.25e, Rev (ex TAC) $57.3B v $58.2Be; Notes it is working to realign resources for growth V Reports Q4 $1.93 v $1.86e, Rev $7.79B v $7.55Be; Authorizes $12.0B buyback program; Raises dividend 20% to $0.45/shr MSFT Guides Q2 Rev $52.4-53.4B v $55.5Be - earnings call BMY Reports Q3 $1.99 v $1.83e, Rev $11.2B v $11.0Be *(AU) AUSTRALIA Q3 CPI Q/Q: 1.8% V 1.6%E; Y/Y: 7.3% V 7.1%E (highest annual pace since 1990) WEDS 10/26 *(AU) AUSTRALIA Q3 CPI Q/Q: 1.8% V 1.6%E; Y/Y: 7.3% V 7.1%E (highest annual pace since 1990) DBK.DE Reports Q3 Net €1.12B v €194M y/y, Rev €6.92B v €6.04B y/y MBG.DE Reports Q3 Net €4.00B v €3.52B y/y, adj EBIT €5.34B v €3.11B y/y, Rev €37.7B v €31.65B y/y; Raises FY22 adj ROS outlook BAS.DE Reports final Q3 €1.77 v €1.56 y/y, Adj EBIT €1.35B v €1.35B prelim, Rev €21.9B v €21.9B prelim (DE) German govt reportedly approves China's Cosco to acquire 24.9% of Hamburg port's operator - press BAS.DE CEO: To to cut costs in Europe as quickly as possible and also permanently; Number of retirements in the next few years goes up significantly; Also have positions that are not filled as we have problems getting experts and well-trained people - post earnings comments UMC Reports Q3 (NT$) 2.19 v 1.96e, Rev 75.4B v 72.8Be; Cuts FY22 Capex outlook; Notes softening demand in consumer end markets HLT Reports Q3 $1.31 v $1.25e, Rev $2.37B v $2.37Be BG Reports Q3 $3.45 v $2.44e, Rev $16.8B v $15.6Be; Raises FY22 adj EPS outlook GPI Reports Q3 $11.91 adj v $10.99e, Rev $4.16B v $4.07Be ADP Reports Q1 $1.86 v $1.78e, Rev $4.22B v $4.15Be *(RU) RUSSIA PRES PUTIN HAS TAKEN PART IN NUCLEAR STRATEGIC DETERRENCE FORCES DRILLS (AS SPECULATED) - PRESS BA Reports Q3 -$6.18* v -$0.01e, Rev $16.0B v $17.5Be MNRO Reports Q2 $0.43 v $0.62 y/y, Rev $329.8M v $347.7M y/y; Did not fully pass-through Px inflation in Q2 (CA) Bank of Canada (BOC) Gov Macklem: Seeing early encouraging signs that underlying inflation is beginning to come down but still far from goals; Still not there yet on ending tightening phase but we are getting closer - post rate decision press conference MBLY IPO opens for trade at $26.71 (US) Association of American Railroads weekly rail traffic report for week ending Oct 22nd: 505K total units, -1.1% y/y (US) Atlanta Fed GDPNow: Raises Q3 GDP to 3.1% from 2.9% VERU (US) FDA provides updated agenda for November 9, 2022 Meeting of the Pulmonary-Allergy Drugs Advisory Committee Meeting Announcement; To review EUA for Sabizabulin for hospitalized COVID-19 patients at high risk for acute respiratory distress syndrome until Nov. 9, 2022 F Reports Q3 $0.30 v $0.31e, Rev $37.2B v $38.3Be; Confirms charge related to wind down of Argo Ai META Reports Q3 $1.64 v $1.88e, Rev $27.7B v $27.4Be; Expects Reality Labs operating losses in 2023 will grow significantly y/y (RU) White House is reportedly reworking a plan for a Russia oil price cap; So far only only G7 countries and Australia have agreed to abide by the price cap - press 005930.KR Reports final Q3 (KRW) Net 9.4T v 12.3T y/y; Op 10.9T v 15.8T y/y, Rev 76.8T v 74.0T y/y; Expects demand to recover in 2023, not considering artificial memory production cut; Promotes Jay Y. Lee to Chairman (CN) China Pres Xi: China is willing to find ways to cooperate with the US; Better exchanges will bolster global peace and development - Chinese press THURS 10/27 CSGN.CH Reports Q3 (CHF) Net -4.03B v -505Me v -1.59B y/y, Rev 3.80B v 5.44B y/y; Announces CHF4.0B capital raise; Notes during first two weeks of Oct, amid incorrect market rumors, experienced a significant level of deposit and AuM outflows CSGN.CH Unveils new strategy and transformation plan; Headcount reduction of 2,700 jobs underway in Q4; Radically restructure the Investment Bank to significantly reduce Risk Weighted Assets; To reduce cost base by 15%, or ~CHF2.5B (prior expected by 8%) SHEL.UK Reports Q3 $1.30 v $0.53 y/y, Adj CCS Net $8.10B v -$988M y/y, Rev $95.7B v $60.0B y/y; Announces $4B share buyback for up to 528.9M shares (2% of market cap); to raise dividend by 15% UNA.NL Reports Q3 Rev €15.8B v €15.1Be; Raises FY22 Sales outlook; Sees challenges of high inflation to persist in 2023 TTE.FR Reports Q3 Adj Net $9.86B v $4.77B, adj Op $19.4B v $11.2B y/y, Rev $64.9B v $49.1B y/y; raises dividend 5% to €0.69/shr (RU) Russia Foreign Ministry official: US quasi-civilian satellites may become legitimate targets for a retaliatory strike, if they are involved in armed conflicts (JP) Japan final draft total size of stimulus package of ¥71.6T (~$488B) - financial press LIN.DE Reports Q3 $3.10 v $2.94e, Rev $8.80B v $8.27Be SWK Reports Q3 $0.76 v $0.73e, Rev $4.12B v $4.12Be; Cuts outlook HON Reports Q3 $2.25 adj v $2.16e, Rev $8.95B v $9.08Be CAT Reports Q3 $3.95 v $3.19e, Rev $15.0B v $14.3Be MRK Reports Q3 $1.85 v $1.67e, Rev $15.0B v $14.1Be CAT Reports Q3 dealer statistics: Total machines +7% v -3% prior HON Guides Q4 $2.46-2.56 v $2.51e, Rev $9.1-9.4B v $9.35Be; Expect 2023 growth in top-line with margin expansion - earnings slides CCJ Reports Q3 C$0.03 v -C$0.14 y/y, Rev C$389M v C$361M y/y CAT Guides Q4 Rev to be highest quarter of the year reflecting typical seasonality; Q4 adj Op margin 'strong' - earnings slides CBRE Reports Q3 core $1.13 adj v $1.24e, Rev $7.53B v $7.90Be MCD Reports Q3 $2.68 v $2.57e, Rev $5.87B v $5.71Be CMCSA Reports Q3 $0.96 adj v $0.89e, Rev $29.85B v $29.7Be FISV Reports Q3 $1.63 v $1.70e, Rev $4.52B v $4.27Be (CN) China's Cabinet deploys a package of measures to stabilize domestic economy; Will promote recovery in consumption; Calls for keeping economy within a reasonable range - press 7203.JP Cuts again FY22 global volume 9.5M units +10% y/y (prior <9.7M) - financial press MA Guides Q4 adj Rev low end of low double digits %, adj Rev (CC) high end of mid teens - slides *(EU) ECB RAISES KEY RATES BY 75BPS; AS EXPECTED; Expects to raise interest rates further over next several meetings, deciding meeting by meeting *(EU) ECB DECIDES TO CHANGE TLTRO-III TERMS; From Nov 23rd to maturity or early repayment date, the interest rate on TLTRO III operations will be applicable key ECB interest rate over this period *(US) Q3 ADVANCE GDP ANNUALIZED: Q/Q: 2.6% V 2.4%E (moves out of technical recession); PERSONAL CONSUMPTION: 1.4% V 1.0%E *(US) Q3 ADVANCE GDP PRICE INDEX: 4.1% V 5.3%E; CORE PCE Q/Q: 4.5% V 4.5%E (EU) ECB chief Lagarde: Expect economy to slow down substantially over remainder of year; Growth risks clearly on downside in the short term - Prepared remarks (EU) ECB chief Lagarde: Not done in normalizing policy; More discussions on increases in the future - Q&A (US) Nevada reports Sep casino gaming Rev $1.25B, +7.9% y/y; Las Vegas strip Rev $693M, +8.3% y/y BN.FR Reports Q3 Rev €7.33B v €7.00Be AMZN Reports Q3 $0.28** v $0.23e, Rev $127.1B v $127.9Be INTC Reports Q3 $0.59 v $0.34e, Rev $15.3B v $15.5Be; Details significant cost cutting plans; Cuts FY22 outlook X Reports Q3 $1.95 v $1.92e, Rev $5.2B v $4.91Be INTC CEO: In near term flexible workforce will be impacted; Will be aggressive in cost cutting including headcount - media interview AAPL Reports Q4 $1.29 v $1.26e, Rev $90.2B v $88.5Be AMZN CFO: People's budgets are tight and we are being prudent in hiring; Amazon is preparing for what could be a slower growth period - media interview FRI 10/28 AIR.FR Reports Q3 adj Net €667M v €404M y/y, Adj EBIT €836M v €666M y/y, Rev €13.3B v €10.5B y/y *(FR) FRANCE Q3 PRELIMINARY GDP Q/Q: 0.2% V 0.2%E; Y/Y: 1.0% V 1.0%E SAN.FR Reports Q3 Business EPS €2.88 v €1.85 y/y, Op €4.50B v €3.04B y/y, Rev €12.5B v €10.4B y/y 066570.KR Reports final Q3 (KRW) Net 336.5B v 516.5B y/y; Op 746.6B v 596.8B y/y, Rev 21.2T v 21.2T prelim; Expects demand for home-appliances, IT devices to contract in Q4 ENI.IT Reports Q3 adj Net €3.73B v €1.43B y/y, adj Op €5.77B v €2.49B y/y, Rev €37.3B v €19.3B y/y; Prev announced €2.4B buyback to be completed by year-end (JP) BOJ Gov Kuroda: Reiterates stance that do not expect a rate hike or exit from easing policy any time soon - post rate decision press conference *(FR) FRANCE OCT PRELIMINARY CPI M/M: 1.0% V 0.6%E; Y/Y: 6.2% V 5.8%E *(ES) SPAIN Q3 PRELIMINARY GDP Q/Q: 0.2% V 0.3%E; Y/Y:3.8 % V 3.9%E *(DE) GERMANY Q3 PRELIMINARY GDP Q/Q: +0.3% V -0.2%E; Y/Y: 1.2% V 0.7%E (CN) China banking regulator (CBIRC) official: Chinese yuan (CNY) market position won't change despite some unstable factors in short term; You will regret it in the future for selling CNY now to buy FX *(IT) ITALY OCT PRELIMINARY CPI M/M: 3.5% V 1.1%E; Y/Y: 11.9% V 9.5%E (highest annual pace for Italy on record and highest pace now among top 5 EU economies) CVX Reports Q3 $5.56 v $5.02e, Rev $66.6B v $59.0Be; Repurchased $3.75B of shares during Q3 CVX CFO: Raises FY23 Capex close to $17.0B (prior $15.0-17.0B) v below $15.0B expected for FY22; Expect share buybacks at top end of guidance range of up to $15B - post earnings comments 1211.HK Reports Q3 (CNY) Net 5.72B v 1.27B y/y, Rev 117.1B v 54.3B y/y BAH Reports Q2 $1.34 v $1.12e, Rev $2.30B v $2.24Be ABBV Reports Q3 $3.66 v $3.56e, Rev $14.8B v $14.9Be; Raises Quarterly dividend 5% to $1.48 from $1.41 (indicated yield 3.86%) *(DE) GERMANY OCT PRELIMINARY CPI M/M: 0.9% V 0.6%E; Y/Y: 10.4% V 10.1%E GWW Reports Q3 $8.27 v $7.19e, Rev $3.94B v $3.88Be *(US) Q3 EMPLOYMENT COST INDEX (ECI): 1.2% V 1.2%E *(US) SEPT PERSONAL INCOME: 0.4% V 0.4%E; PERSONAL SPENDING: 0.6% V 0.4%E *(US) SEPT PCE DEFLATOR M/M: 0.3% V 0.3%E; Y/Y: 6.2% V 6.3%E *(US) OCT FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 59.9 V 59.6E *(US) SEPT PENDING HOME SALES M/M: -10.2% V -4.0%E; Y/Y: -30.4% V -22.5% PRIOR (US) Atlanta Fed GDPNow: Forecasts initial Q4 GDP at 3.1% (US) Sep Dallas Fed Trimmed Mean PCE +4.3% v +6.0% m/m