Daily Markets: Pace of Earnings Accelerates, Powell and Lagarde on Deck

The big picture today

Asia-Pacific stock indices ended today’s session on a mixed note as China’s policy easing measures were not deemed strong enough for the market, pushing China’s Shanghai Composite lower. down 2.26%, the Hang Seng in Hong Kong at 1.25% and the TAIEX in Taiwan at 0.12%. Outside of these markets, Australia’s ASX All Ordinaries rose 0.22%, Korea’s KOSPI gained 0.35%, Japan’s Nikkei advanced 1.23% and India’s Sensex led the way, closing up 1.53% on the day. By midday, major European equity indices are up across the board, and US futures are pointing to a healthy market open later this morning.

Investors and those equity futures will have to deal with the accelerating pace of March quarter earnings today as well as the real 10-year yield on US Treasuries turning positive yesterday for the first time since March 2020. This real yield move reflects growing bets the Fed will adopt a more aggressive rate hike cycle than expected following the Fed’s latest Beige Book which showed inflationary pressures remain strong. At the same time, however, we are beginning to see companies including Bank of America (BAC) and Nomura Asset Management believe the panic over inflation and betting on rising rates has gone too far.

Following this Beige Book and this morning’s data which showed the final March CPI printout for the Eurozone up 7.4% YoY, we expect the market to lean on the inflation and rate hike comments by Fed Chairman Jerome Powell and European Central Bank President Christine Lagarde at an international conference. Monetary Fund event later today, and Bank of England Governor Andrew Bailey speaking at another event.

As companies took swift action to refrain from doing business in Russia, SAP SE (SAP) being the last to close in Russia after 30 years, the race for countries to become energy independent from Russia is proving more difficult. This should ultimately be a boon for energy companies, especially US natural gas providers, but as we’ll see below, this transition will take time and a lot of planning.

Data download

International economy

Eurozone one-year CPI last March came in at 7.4%, which, despite a 0.1% downward revision from initial estimates, is the highest figure ever achieved in the history of the trading bloc. This record was achieved by ? A 44% year-on-year rise in energy prices due to the Russian invasion and the ongoing war with Ukraine.

Preliminary (Flash) April Eurozone consumer confidence fell to -22.7, below both the expected drop to -20 and significantly below March’s reading of -11.6.

Germany has announced that it will halve its purchases of Russian oil by this summer and stop buying oil from the country by the end of 2022. Russia currently accounts for around 35% of imports of German oil and 55% of German imports of natural gas. The country has accelerated the development of two liquefied natural gas (LNG) terminals and hopes to have them operational within two years, pledging to work at “Tesla speed” to complete the project. It is estimated that the terminals will help offset around 1/3 of Germany’s natural gas demand, so there is clearly more work to be done before the country can at least claim energy independence from Russia.

Domestical economy

8:30 a.m. ET will see the release of weekly initial and continuing claims for unemployment with initial claims expected to fall to 178,000 from 185,000 the previous week and continuing claims expected to be below 1.46 million from 1.475 million previously reported. At the same time, we will also see the April update of the Philadelphia Fed Index, which seeks to track manufacturing activity in the district. Expectations are for a decline to 19.8 from the previously reported 27.4.

Markets

The S&P 500 fell slightly yesterday, down 0.1%, and the Dow Jones Industrial Average and Russell 2000 rose well (+0.4%) outperformed in positive territory, while the Nasdaq Composite fell then that the market was digesting the March quarter results of Netflix (NFLX), which closed down 35% on the day. Gains were recorded in 8 of the 11 S&P 500s. Including yesterday’s moves, here’s how the major market indicators compare so far in 2022:

  • Dow Jones Industrial Average: -3.2%
  • S&P 500: -6.4%
  • Nasdaq compound: -14.0%
  • Russell 2000: -9.2%
  • Bitcoin (USD-BTC): -11.4%
  • Ether (ETH-USD): -17.1%

Stocks to Watch

Prior to the start of trading for stocks listed in the United States, Alaska Air (ALK), American Airlines (AAL), AT&T (T), AutoNation (AN), Dow (DOW), Nucor (NUE), Philip Morris International (PM)and Union Pacific (UNP) are supposed to publish their quarterly results.

Results for the quarter from March to Tesla (TSLA) easily exceeded consensus expectations as the company’s total production of electric vehicles reached 305,407 vehicles, up 69% year-on-year and total deliveries for the quarter reached 310,048, up 68 % over one year. The company also released an optimistic long-term outlook, shared its plans to “expand our manufacturing capacity as quickly as possible. Over a multi-year horizon, we expect to achieve an average annual growth of 50% in vehicle deliveries. The growth rate will depend on our equipment capacity, operational efficiency and supply chain capacity and stability. Our own factories operated below capacity for several quarters as the supply chain became the main limiting factor, which is expected to continue through the end of 2022.”

By comparing, Alcoa (AA) announced mixed results for the March quarter, with EPS beating expectations, while revenue for the quarter, which rose 14.7% year-on-year, was slightly below expectations. For the June quarter, based on current prices, Alcoa expects third-party realized alumina and aluminum prices to be higher than the March quarter, with this advantage partially offset by approximately $115 million in higher energy and raw material costs. The sequential increase in shipments should more than offset residual cost pressures and other factors.

Driven by the 57% year-over-year increase in revenue, results for the March quarter to Steel Dynamics (STLD) exceeded expectations. The company believes market conditions “for domestic steel consumption to continue to be strong this year and into 2023.” According to Steel Dynamics, the automotive, industrial and energy sectors will remain strong consumers of steel this year, with demand from the construction sector leading the way.

Semiconductor Capital Goods Company Lam Research (LRCX) March quarter results missed both revenue and EPS as the company shared its desire to resolve supply issues as quickly as possible to meet strong customer demand. For the June quarter, Lam forecasts EPS of $6.50-8.00 vs consensus of $8.23 with revenue between $3.90-4.5 billion vs consensus of 4, $45 billion.

Rail transport company CSX (CSX) released March quarter results that beat expectations, thanks to revenue for the quarter that rose 21.3% year-over-year to $3.41 billion. An overall increase in revenue per unit of 24% more than offset a 2% decline in volume. The company is targeting double-digit revenue and operating income growth for the full year, with revenue expected to benefit in the near term from high coal prices and fuel surcharges.

United Airlines (UAL) reported a slightly larger earnings loss for the March quarter with revenue growing about 135% year-over-year, but still falling short of the consensus revenue forecast of $7.68 billion for the trimester. On a positive note, the company shared that it views the current quarter as a “historic inflection point” for its business and aims to be profitable for all of 2022.

IPOs

No company is expected to price its IPO offerings this week. Readers who want to dig deeper into the schedule of upcoming IPOs should visit Nasdaq’s Latest and Upcoming IPOs page.

After today’s market close

Boston Beer (SAM), CalAmp (CAMP), PPG Industries (PPG) and Snap (SNAP) are among the companies due to publish their latest quarterly results. Investors should be on the lookout for companies that announce their March quarter results in advance. Those interested in learning more about which companies release their reports when head to the Nasdaq earnings calendar.

on the horizon

friday april 22

  • Japan: CPI – March
  • Japan: Markit/JMMA PMI Manufacturing (preliminary) – April
  • United Kingdom: Retail sales – March
  • Eurozone: S&P Global Manufacturing & Services PMI (preliminary) – April
  • UK: CIPS Manufacturing & Services PMI (preliminary) – April
  • United States: S&P Global Manufacturing & Services PMI (preliminary) – April

Thought of the day

“Where is your will to be weird?” ~Jim Morrison

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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