Daily Markets: Global Inflation Picture, Earnings, Fed Meeting Driving Sentiment

Today’s Big Picture

Asia-Pacific equity markets closed down across the board except for India’s Sensex, which eked out a 0.08% gain as embattled conglomerate Adani Enterprises’ follow-on $2.5 billion share offering was well received in the market. Australia’s ASX All Ordinaries declined 0.19%, Japan’s Nikkei fell 0.39%, China’s Shanghai Composite dropped 0.42%, Hong Kong’s Seng was down 1.03%, and South Korea’s KOSPI dropped 1.04%. Taiwan’s TAIEX closed 1.48% lower as the heavily weighted Communications sector dragged down the index. By mid-day trading, European equity indices are down across the board, and U.S. futures point to a lower market open.

As we shared in yesterday’s Daily Markets, the pace of earnings and economic data has and will continue to heat up today as we wait for the conclusion of the Fed’s monetary policy meeting tomorrow. Earlier this morning, the International Monetary Fund (IMF) shared it sees a "turning point" for the global economy, raising its growth outlook to 2.9% this year, 0.2 percentage points more than it forecasted in October.

The catalysts behind that revision are resilient U.S. spending and China’s reopening. While slower than 3.4% in 2022, the IMF said it expects growth will bottom out this year before accelerating to 3.1% in 2024. The IMF also forecasts 84% of countries having lower headline inflation this year; however, it sees that same percentage having both headline and core inflation remaining above pre-pandemic levels even in 2024. That forecast appears to be supported by the sharp rebound in China’s January PMI data released several hours ago. While the IMF’s revised outlook suggests a soft economic landing may be in the cards, the reigniting of China’s economy could extend the timeline for central bankers and their fight against inflation. What the Fed and Chair Powell say following tomorrow’s monetary policy decision will likely determine how the stock market begins the second month of 2023.

Data Download

International Economy

China’s official NBS Manufacturing PMI unexpectedly increased to 50.1 in January of 2023 from 47.0 in the previous month, pointing to the first expansion in the sector since September last year, and beating the market consensus of 49.8. New orders rebounded, the first increase in 7 months (50.9 vs 43.9 in December), with export sales falling at a softer rate (46.1 vs 44.2). NBS Non-Manufacturing PMI for China increased sharply to 54.4 in January 2023 from 41.6 a month earlier. This was the first expansion in the service sector in four months and the strongest growth since June last year, due to lifting its zero-Covid policy.

The Wall Street Journal reports the Biden administration is considering entirely cutting off Chinese telecommunications giant Huawei from U.S. suppliers over national security concerns by tightening export controls targeting the firm.

Preliminary estimates show the Euro Area economy expanded 1.9% YoY in 4Q 2022, below 2.3% the prior quarter but above market forecasts of 1.8%. Retail Sales in Germany decreased 6.4% year-on-year in December of 2022, following a 5.9% drop in November and much worse than market forecasts of a 5.9% drop.

Domestic Economy

At 8:30 AM ET, the Employment Cost Index for 4Q 2022 will be published, and it is expected to inch lower to 1.1% vs. 1.2% for 3Q 2022. The December reading for Consumer Confidence will be released at 10 AM ET and is expected to rise to 109 from November’s 108.3 figure.

President Biden will end COVID-19 public health emergency on May 11.

Markets

Unease about the current earnings season, continued layoffs, and the upcoming Fed meeting put pressure on stocks yesterday. The Dow was down 0.77%, the S&P 500 and the Russell 2000 fell 1.30% and 1.35%, respectively and the Nasdaq Composite closed 1.96% lower. Sectors all closed lower except for Consumer Staples which was a mere 0.12% higher. Similar to Friday, Energy (-2.29%) took the biggest hit while Consumer Discretionary (-1.70) gave back some of its gains. Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 1.72%
• S&P 500: 4.64%
• Nasdaq Composite: 8.86%
• Russell 2000: 7.07%
• Bitcoin (BTC-USD): 37.32%
• Ether (ETH-USD): 30.65%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, Caterpillar (CAT), Corning (GLW), Exxon Mobil (XOM), General Motors (GM), McDonald’s (MCD), Pfizer (PFE), Spotify (SPOT), and UPS (UPS) will be among the companies reporting their quarterly results.

Samsung (SSNLF) shared that its profit for the December quarter fell 70% as a weak global economy depressed demand for its consumer electronics products and computer memory chips. The company sees demand for semiconductors, smartphones, and TVs to remain sluggish as macroeconomic challenges and fears of a recession continue to hurt sales but shared a recovery could be possible in the second half. Despite its forecast for the coming quarters, Samsung expects to keep its capital expenditure plans for 2023 similar to last year’s as it looks to prepare for mid-to-long-term demand.

NXP Semiconductor (NXPI) reported essentially in-line December quarter results last night and guided current quarter revenue to $2.9-$3.1 billion vs. the $3.18 billion consensus with EPS of $2.82-$3.22 vs. the $3.15 consensus. By end market, the company’s December quarter automotive business was up 17% YoY, Industrial & IoT fell 8%, Mobile rose 9%, and Communications Infrastructure & Other climbed 8%. NXP will hold a conference call later this morning to discuss its quarterly results and outlook.

After expecting to ship 2 million PlayStation VR2 (PSVR2) headsets, reports indicate Sony (SONY) now expects to ship half that figure when the device is released on February 22.

Research firm Gartner sees shipments of personal computers and mobile phones falling for a second straight year in 2023. Mobile phone shipments are projected to fall 4% to 1.34 billion units in 2023, down from 1.40 billion units last year and 1.43 billion in 2021. Personal computer shipments are expected to slide 6.8% this year after falling 16% in 2022. Readers will want to match this outlook against comments from Advanced Micro Devices (AMD), Qorvo (QRVO), Qualcomm (QCOM), and other companies reporting their quarterly results this week.

Reuters reports Bed Bath & Beyond (BBBY) is preparing to seek bankruptcy protection as soon as this week.

Dole (DOLE) agreed to sell its fresh vegetables division to an affiliate of Fresh Express for approximately $293 million in cash.

IPOs

E-bike maker Sondors (SODR) and medical device maker Neuraxis (NRXS) are expected to start trading this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Advanced Micro Devices (AMD), Electronic Arts (EA), Juniper Networks (JNPR), Match Group (MTCH), Mondelez International (MDLZ), Snap (SNAP), and Western Digital (WDC) are slated to report their latest quarterly results after equities stop trading today. We would caution readers to be on the watch for earnings pre-announcements. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Wednesday, February 1

• Japan: Nikkei S&P Global Manufacturing PMI – January
• China: Caixin Manufacturing PMI – January
• Eurozone: Manufacturing PMI – January
• Eurozone: Consumer Price Index - January
• US: Weekly MBA Mortgage Applications
• US: ADP Employment Change Report – January
• US: S&P Global Final Manufacturing PMI – January
• US: Construction Spending – December
• US: ISM Manufacturing Index – January
• US: JOLTs Job Openings Report – December
• US: Weekly EIA Crude Oil Inventories
• US: FOMC Rate Decision

Thursday, February 2

• European Central Bank Interest Rate Decision
• US: Challenger Job Cuts – January
• US: Weekly Initial & Continuing Jobless Claims
• US: Unit Labor Cost & Productivity – 4Q 2022
• US: Factory Orders – December
• US: Weekly EIA Natural Gas Inventories

Friday, February 3

• Japan: Services PMI – January
• China: Caixin Services PMI – January
• Eurozone: S&P Global Services PMI, Producer Price Index - January
• UK: Services PMI – January
• US: Employment Report – January
• US: S&P Global Final Services PMI – January
• US: ISM Non-manufacturing Index – January

Thought for the Day

“Trust is the active engagement with the unknown. Trust is risky. It’s vulnerable. It’s a leap of faith.” ~ Esther Perel

Disclosures

• Advanced Micro Devices (AMD), Juniper Networks (JNPR), Qorvo (QRVO), Qualcomm (QCOM) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• McDonald’s (MCD), UPS (UPS) are constituents of the Tematica Research Thematic Dividend All-Stars Index

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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Economy Stocks Smart Investing Central Banks Earnings