Daily Markets: Stocks Grappling With Energy Shortages, Supply Chain Woes, and Mounting Inflation Concerns

Today’s Big Picture

The major equity indices in Asia finished trading mixed, led by gains in Hong Kong, where the Hang Seng rose 2.0%. China’s Shanghai Composite was just fractionally higher while the Shenzhen Component fell 0.3%. Japan’s Nikkei 225 rose 1.6% but Australia’s ASX 200 fell 0.2%. Taiwan and South Korea’s markets are closed today for a holiday. By mid-day trading, equity indices in Europe were mostly in the red as the Bank of England is signaling interest rates could increase sooner than previously expected with inflation is back on the radar screen.

Banks in the U.S., as well as bond markets, are closed today given the federal holiday, but U.S. stock markets are open and equity futures point to a drop when those markets open later this morning. With no scheduled economic data or earnings reports for today, odds are it will be a quieter day on the news flow front but that doesn’t mean equity trading will be ho-hum. Those markets will be grappling with energy shortages that are adding to existing supply chain woes and mounting inflation concerns. The yield on 10-year Treasuries rose above 1.61% early today, indicating that despite Friday’s disappointing jobs report, investors are prepared for the Federal Reserve to start to taper its asset purchases later this year.

Data Download

International Economy

Bank of England policymaker Michael Saunders told households to get ready for “significantly earlier” interest rate rises as inflation pressure mounts and BoE Governor Andrew Bailey said above-target inflation was concerning.

Over at the European Central Bank, governing council member Francois Villeroy de Galhau said that he expects to see inflation peak in the coming months, then slip back below 2% by the end of next year.

China’s coal futures have hit a record high as floods forced the closure of dozens of mines and displaced over 100,000 people, at a time when the nation is already dealing with power outages. The extreme electricity shortage has already led to production cuts that are likely to not only be a headwind for the global economy, but add to supply constraints for a variety of goods including food, paper, wool, technology, and autos.

Over the weekend, Delhi Chief Minister Arvind Kejriwal warned of a power crisis in the Indian capital due to a coal shortage, which has already triggered electricity cuts in some of the country's eastern and northern states.

Italian Industrial Production in August came in much stronger than expected, rising to 7% YoY versus expectations for a decline to -0.7% YoY.

Domestic Economy

Friday’s jobs report was not only disappointing, it was a big ole mess of conflicting signals that led to even the BLS acknowledging that, “Recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns.”

This was the second consecutive month that saw the headline payroll number come in well below expectations, but Friday’s read was the weakest of the year. At this point, 78% of the 22.3 million jobs lost in 2020 have been recovered. August’s number was upwardly revised to +366k from +235k, but still well below the consensus estimate for +733k. September’s private payrolls rose just +317k versus expectations for +450k. We’d point out that temp-agency employment, which serves as one of the best leading jobs market indicators, fell 5k over the month.

Over the weekend, Goldman Sachs (GS) cut its 2021 GDP forecast to 5.6% from 5.7% and reduced its 2022 GDP outlook to +4.0%, down from +4.4%.

West Texas Intermediate crude oil futures have risen above $80 a barrel for the first time since 2014 as oil prices have enjoyed a serious tailwind driven by natural gas prices spiking and falling stockpiles.

Cotton prices surged to a 10-year high on Friday, reaching $1.16 per pound and touching levels not seen since July 7, 2011. The 6% move in cotton last week led the commodity to close the week up 47% YTD. Meanwhile, the Green Markets North America Fertilizer Price Index soared last week to a new record high of $996.32 per short ton, driving up costs for farmers and threatening to worsen food inflation.

There are no major economic indicators scheduled to be released today.

Markets

Following the weaker than expected September Employment Report, investors contemplated the timing of the Fed’s stated intent to taper its bond buying later this year. The S&P 500 dipped 0.2% on Friday, while the Nasdaq Composite and the Russell 2000 fell 0.5% and 0.8% respectively. The Dow Jones Industrial Average finished Friday’s trading day little changed. Despite Friday’s declines, the Dow managed to close the week up 1.2%, the S&P added 0.8% on the week and the Nasdaq rose 0.1%.

Stocks to Watch

Earnings Announcements & Guidance

Before U.S. equity markets open this morning, there are no companies expected to report their quarterly results.

Southwest Airlines (LUV) canceled 808 flights on Saturday and another 1,006 on Sunday blaming the disruption on air traffic control issues and weather. We’d note that no other major airlines announced a significant pickup in delays or flight cancellations. As of 7 AM ET today, the company canceled 349 flights and delayed another 184 for today.

Yet another Chinese real estate developer, Modern Land (1107:HKG), is in trouble, asking for a three months delay on the repayment of a $250 million bond. In a filing to the Hong Kong stock exchange today, the company reported that it is asking non-U.S. bondholders to extend the maturing from October 25 to January 25, 2022, and is asking to reduce the size of the bond, paying off less than $88 million. This follows last week’s missed payment by Fantasia and the ongoing Evergrande (EGRNY) drama, which saw its shares alongside those of Evergrande Property Services (EVGPF) suspended since October 4 pending an as yet announced deal.

Honda Motor (HMC), Nissan Motor (NSANY), and Toyota Motor (TM) saw their sales in China tumble in September as a chip shortage hit vehicle production in the world's biggest car market.

Automotive technology company Aptiv (APTV) cut its outlook for 2021 and now sees revenue for the year in the range of $15.1-15.5 billion down from $16.1-16.4 billion and the $15.8 billion consensus estimate. Full-year 2021 adjusted operating income margins are now expected to be in the range of 7.6%-8.4% versus the prior 9.9%- 10.2% due to “operating inefficiencies, increased supply chain disruption costs, and other uncertainties.”

In the third quarter of 2021, Niu Technologies (NIU) sold 397,079 e-scooters, representing a 58.3% year-over-year growth. The number of e-scooters sold in China market reached 392,112, representing a 59.9% year-over-year growth.

IPOs

Initial public offerings expected to price this week include those from AvidXchange (AVDX) and Gitlab (GTLB).

M&A Activity

Cleveland-Cliffs (CLF) entered into a definitive agreement to acquire Ferrous Processing and Trading Company for a total enterprise value of approximately $775 million, on a cash-free, debt-free basis and subject to customary adjustments.

After Today’s Market Close

No companies are 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 12: JOLTs report
• October 13: CPI, FOMC Minutes
• October 14: Weekly jobless claims, PPI, Monthly budget statement
• October 15: Retail Sales, Import & Export Prices, NY Empire State Manufacturing, Michigan Consumer Sentiment (preliminary), Business Inventories
• October 18: Industrial Production, NAHB Housing Market Index, Net Long-term Tic Flows, Foreign Bond Investment, Overall Net Capital Flows

Thought for the Day

“Your body is not a temple, it’s an amusement park. Enjoy the ride.” ~Anthony Bourdain

Disclosures

• Niu Technologies (NIU) is a constituent of the Tematica BITA Cleaner Living Index
• Niu Technologies (NIU) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened 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 Earnings Coronavirus Smart Investing