Daily Markets: Markets Taking a Breather Amid Renewed Inflation and Growth Fears

Today’s Big Picture

After multiple days of new record highs, markets are taking a breather today. The main equity indices in Asia-Pacific closed in the red today. Hong Kong’s Hang Seng lost 1.6%, China’s Shenzhen dropped 1.1%, the Shanghai Composite fell 1.0%, South Korea’s Kospi lost 0.8%, and Japan’s Nikkei 225 dropped 0.03%. The sole gainer on the day, and not by much, was Australia’s ASX 200, which rose by less than 0.1%. By midday trading, the main European equity indices were all in negative territory, and U.S. equity futures point to declines at the open.

The yield on short-dated U.S. Treasury bonds rose this morning to the highest level since March 2020 on further inflation fears following the news that Australia’s inflation rate has reached its central bank’s target for the first time since Q4 2015, prompting markets to price in a rate hike.

Even crypto is getting hit today, with bitcoin falling 5% this morning, dropping to under $59,000 and reaching its lowest intraday price in nearly two weeks as it breaks below its 20-day moving average. Ethereum also dropped around 5%, with Dash and EOS falling over 10%.

Data Download

Coronavirus

The FDA Vaccines and Related Biological Products Advisory Committee voted 17-0 to recommend PFE COVID-19 vaccine for kids 5-11; a full FDA decision is the next step, then comes the CDC committee next week.

The UK just reported its worst daily death toll from the coronavirus since the start of March, with steadily rising hospitalizations and death rates. Expectations are that another round of restrictions is coming.

International Economy

Australia’s inflation rate for Q3 slowed more than expected to 3.0% YoY from a 12 1/2 year high of 3.8% in Q2, from which it was expected to slow to 3.1% YoY. The Royal Bank of Australia’s Trimmed Mean CPI rose 2.1% YoY in Q3, the most since Q4 2015 after a 1.6% rise in Q2.

Germany, always the overachiever, saw GfK Consumer Confidence for November was expected to drop to -0.5 from +0.3 but instead rose to +0.9. France saw its Consumer Confidence drop to 99 from a downwardly revised 101, where it was expected to remain.

Where Germany is not overachieving is in growing its economy. This morning, the government cut its 2021 outlook for just 2.6% growth, compared to an estimate for 3.5% at the end of April. According to Economy Minister Peter Altmaier, the cuts are driven primarily by supply bottlenecks in areas such as construction materials and microchips on top of rising energy prices.

Yesterday the U.S. Federal Communications Commission voted 4-0 to cancel permission for a unit of China Telecom to operate in the U.S., adding further fuel to the political tensions between the U.S. and China. The rationale for the decision is that it posed a national security risk because China Telecom is under the control of the Chinese government. President Biden and China’s Xi Jinping and expected to have a virtual meet-up later this year.

Domestic Economy

Yesterday’s S&P/Case-Shiller Home Price index rose less than expected in August. Home prices were up 0.9% MoM, down the 1.5% MoM pace in July, which was expected to hold through August. Prices were up 19.7% YoY, down from July’s 20% pace, which was also expected to hold.

New home sales in September rose 14% to a seasonally adjusted annual pace of 800k from a downwardly revised 702k in August, well above the expected increase to 760k. This was the highest read in the past six months as the new home sales market remains very supply-constrained. New home sales not started were down 17.6% YoY while those under construction were down 2.9% and completed were down a whopping 35.9% YoY. House hunters across the country are groaning.

The Conference Board’s Consumer Confidence for October unexpectedly rose to 113.8 from 109.8 in September versus expectations for a decline to 108.3. Lynn Franco, who runs the survey, said, “The proportion of consumers planning to purchase homes, automobiles, and major appliances all increased in October—a sign that consumer spending will continue to support economic growth through the final months of 2021.” Bulls everywhere just high-fived.

Democrats in the House are waiting for more details on President Biden’s plan before supporting a vote on the infrastructure package that the Senate already passed. Speak Nancy Pelosi is in the hot seat to get the package passed in the coming days, else there is a risk that weight the stimulus package nor the infrastructure bill will get passed by the end of the month. House Democrats also released details of a proposed tax on those who for three consecutive years have had assets worth at least $1 billion or who have earned at least $100 million three years in a row. This threshold means that about 700 people would be affected by the plan, which would tax unrealized gains. One slight hiccup we might mention in the plan is that there is currently no requirement for people to report their net worth to the IRS.

Today brings Durable Goods Orders for September, Wholesale Inventories for September, and Goods Trade Balance for September.

Markets

Stop us if you have heard this one before: The S&P 500 and the Dow both closed at new record highs, the third consecutive closing high for the Dow as it eked out a whopping 0.04% gain, and the S&P added 0.2% - small, but it counts! The Nasdaq was right there with them, rising 0.06%, and is now less than 1% from its September high. It was an amazingly meh day of market moves in light of having at least 36 S&P 500 companies reporting.

Stocks to Watch

AT&T’s (T) share price has fallen to its lowest level since mid-2010, hasn’t made a new high since 1999, and is down nearly 60% from its high.

Before U.S. equity markets open this morning, ADP (ADP), Boeing (BA), Coca-Cola (KO), Garmin (GRMN), General Dynamics (GD), General Motors (GM), Hilton (HLT), Kraft Heinz (KHC), McDonald’s (MCD), Norfolk Southern (NSC), and Spotify (SPOT) are slated to be among the number of companies expected to report their quarterly results.

Robinhood Markets (HOOD) reported a seriously disappointing quarter in which crypto revenues plunged nearly 80% QoQ, monthly active users fell 11% QoQ, and assets under custody dropped nearly 7%. Crypto activity declined from record highs in the prior quarter, leading to considerably fewer new funded accounts. For the current quarter, Robinhood issued downside guidance with revenue of no more than $325 million vs. the $489.2 million consensus.

September quarter revenue at Alphabet (GOOGL) surged 41% YoY to $65.1 billion, handily topping the $63.35 billion consensus. EPS for the quarter clocked in at $27.99, way better than the $23.37 Wall Street was eyeing. By segment, revenue at Google search and other was up 44% YoY to $37.93 billion; YouTube ads, $7.2 billion (up 43%); Google Network, $8 billion (up 39.8%); Google other, $6.75 billion (up 23.2%); Google Cloud, $4.99 billion (up 44.9%); and Other Bets, $182 million (up 2.2%). When asked about the impact of Apple’s (AAPL) privacy policy changes, Alphabet shared there was a “modest impact” on YouTube revenue, “primarily in direct response” advertising.

September quarter results from Microsoft (MSFT) topped both top and bottom-line expectations with double-digit gains reported at its Productivity and Business Processes, Intelligent Cloud, and More Personal Computing segments. Of note, Office Commercial products and cloud services revenue increased 18% while LinkedIn revenue rose 46% QoQ. Server products and cloud services revenue increased 35% YoY, led by Azure revenue growth of 50% YoY. Search advertising revenue excluding traffic acquisition costs rose 40% YoY while Surface revenue fell -17% YoY. For the December quarter, adding up Microsoft’s segment guidance infers total revenue for the quarter of $50.15-$51.15 billion, nicely ahead of the $48.9 billion consensus.

Twitter (TWTR) reported a September quarter loss of $0.54 per share, well below the expected $0.18 consensus as revenue for the quarter of $1.28 billion matched the consensus forecast. Average monetizable daily active usage was 211 million vs. 187 million in the year-ago quarter. For the current quarter, Twitter sees revenue between $1.5-$1.6 billion vs. the $1.58 billion consensus. The company continues to target $7.5 billion in revenue for 2023 but admits “it’s too early for Twitter to assess the long-term impact of Apple 's privacy-related iOS changes,” even though the impact on the September quarter was lower than expected.

IPOs

Rent the Runway (RENT) will trade for the first time today on the Nasdaq, in an upsized offering of 17 million shares (from the 15 million it marketed) priced at $21, the high end of the $18-$21 target range. This puts the valuation for the company at around $1.3 billion.

For more, visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

eBay (EBAY), Ethan Allen (ETH), Ford Motor (F), iRobot (IRBT), Lending Club (LC), Teladoc (TDOC), Twilio (TWLO), United Rentals (URI), Xilinx (XLNX), and Yum China! (YUMC) are among those slated to report their quarterly results. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• October 28: Q3 GDP (advance estimate), Weekly Jobless Claims, Pending Home Sales
• October 29: Personal Income & Spending, PCE Price Index, Employment Cost Q3, Chicago PMI, Michigan Consumer Sentiment
• November 1: Markit and ISM Manufacturing PMIs, Construction Spending
• November 2: Total Vehicle Sales, IBD/TIPP Economic Optimism, API Crude Oil Stock
• November 3: ADP Employment Change, Markit Services & Composite PMIs, ISM Non-Manufacturing & Composite PMIs, Factory Orders, Federal Reserve Interest Rate decision
• November 4: Balance of Trade, Unit Labor Costs, Nonfarm Productivity, weekly jobless claims
• November 5: Non-Farm Payrolls, Unemployment Rate
• November 9: PPI, API Crude Oil stock change
• November 10: Inflation, Weekly jobless claims, Wholesale inventories, EIA Crude and Gasoline stocks, Monthly budget statement
• November 12: JOLTs report, Michigan Consumer Sentiment

Thought for the Day

“Fall has always been my favorite season. The time when everything bursts with its last beauty, as if nature had been saving up all year for the grand finale.” —Lauren DeStefano

Disclosures

• Microsoft (MSFT) is a constituent of Tematica Research's 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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