Daily Markets: Pace of Earnings Accelerates, Powell and Lagarde on Deck
Today’s Big Picture
Asia-Pacific equity indexes ended today’s session mixed as China’s policy easing actions were deemed not strong enough for the market pushing China’s Shanghai Composite 2.26% lower, Hong Kong’s Hang Seng off 1.25% and Taiwan’s TAIEX down 0.12%. Outside of those 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 mid-day trading, major European equity indices are up across the board, and US futures point to a healthy market open later this morning.
Investors and those equity futures will have to contend with the accelerating pace of March quarter earnings today as well as the 10-year real-yield for U.S. Treasuries turning positive yesterday for the first time since March 2020. That real-yield move reflects growing bets the Fed will adopt a more aggressive than previously expected rate-hiking cycle following the latest Fed Beige Book that showed inflationary pressures remained strong. At the same time, however, we are starting to see firms including Bank of America (BAC) and Nomura Asset Management voice the view that the panic over inflation and rate-hike bets have gone too far.
Following that Beige Book and this morning's data that showed the Final March CPI print for the Eurozone up 7.4% YoY, we expect the market to lean into inflation and rate hike comments from Fed Chair Jerome Powell and European Central Bank President Christine Lagarde at an International Monetary Fund event later today, and the Bank of England Governor Andrew Bailey, who is speaking at a different event.
As companies have taken quick steps to extract themselves from doing business in Russia, SAP SE (SAP) being the latest to shutter business in Russia after 30 years, the race for countries to become energy independent from Russia is proving to be more difficult. This ultimately should be a boon for energy companies, especially U.S. Natural Gas providers but as we discuss below, this transition will take time and a lot of planning.
Data Download
International Economy
Final March YoY Eurozone CPI printed at 7.4%, which despite being revised down 0.1% from initial estimates is the highest this figure has ever been in the trade block’s history. This record high was realized by? A 44% YoY rise in energy prices due to the Russian invasion and ongoing war with Ukraine.
Preliminary (Flash) April Eurozone Consumer Confidence fell to -22.7, lower than both the expected decline to -20 and significantly lower than March’s -11.6 reading.
Germany announced it will cut Russian oil purchases in half by this summer and cease buying oil from the country by the end of 2022. Russia currently accounts for approximately 35% of German oil imports and 55% of German natural gas imports. The country has fast-tracked the development of two Liquid Natural Gas (LNG) terminals and hopes to have them operational within two years, pledging to work at “Tesla speed” to get the project completed. It is estimated that the terminals will help offset approximately 1/3 of German natural gas demand so there is clearly more work to be done before the country can claim energy independence from Russia, at least.
Domestic Economy
8:30 AM ET will see the release of Weekly Initial & Continuing Jobless Claims with initial claims expected to drop to 178,000 from the previous week’s 185,000 and continuing claims are forecasted to be lower at 1.46 million compared to the previously reported 1.475 million. At the same time, we will also see the April Philadelphia Fed Index update, which looks 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 inched lower yesterday, dropping 0.1%, and the Dow Jones Industrial Average and Russell 2000 moved nicely higher(+0.4%) outperformed in positive territory, while the Nasdaq Composite moved lower as the market digested March quarter results from Netflix (NFLX), which closed 35% lower on the day. Gains were registered in 8 of the 11 S&P 500. Including yesterday’s moves, here’s how the major market indicators stack up thus far in 2022:
- Dow Jones Industrial Average: -3.2%
- S&P 500: -6.4%
- Nasdaq Composite: -14.0%
- Russell 2000: -9.2%
- Bitcoin (BTC-USD): -11.4%
- Ether (ETH-USD): -17.1%
Stocks to Watch
Before trading kicks off for U.S.-listed equities, Alaska Air (ALK), American Airlines (AAL), AT&T (T), AutoNation (AN), Dow (DOW), Nucor (NUE), Philip Morris International (PM), and Union Pacific (UNP) are expected to report their quarterly results.
March quarter results at Tesla (TSLA) easily beat consensus expectations as total production at the EV company reached 305,407 vehicles, up 69% YoY and total deliveries for the quarter hit of 310,048, up 68% YoY. The company also issued an upbeat long-term forecast, shared its plans to “grow our manufacturing capacity as quickly as possible. Over a multi-year horizon, we expect to achieve 50% average annual growth in vehicle deliveries. The rate of growth will depend on our equipment capacity, operational efficiency, and the capacity and stability of the supply chain. Our own factories have been running below capacity for several quarters as supply chain became the main limiting factor, which is likely to continue through the rest of 2022."
By comparison, Alcoa (AA) reported mixed March quarter results with EPS coming in ahead of expectations while revenue for the quarter, which rose 14.7% YoY, came up modestly short of expectations. For the June quarter, based on current prices, Alcoa expects both alumina and aluminum realized third-party prices to be higher than those in the March quarter, with that benefit partly offset by approximately $115 million of higher energy and raw materials costs. Higher shipments sequentially are expected to more than offset remaining cost pressures and other factors.
Spurred on by the 57% YoY increase in revenue, March quarter results at Steel Dynamics (STLD) topped expectations. The company sees market conditions “for domestic steel consumption to continue to be strong this year and into 2023.” In its view, Steel Dynamics sees the automotive, industrial and energy sectors remaining solid steel consumers this year, with demand from the construction sector at the lead.
Semiconductor capital equipment company Lam Research’s (LRCX) results for the March quarter missed both the revenue and EPS mark with the company sharing it is focused on resolving its supply issues as quickly as possible to support strong customer demand. For the June quarter, Lam sees EPS of $6.50-8.00 vs. the $8.23 consensus with revenue in the range of $3.90-$4.5 billion vs. the $4.45 billion consensus.
Rail-based transport company CSX (CSX) delivered March quarter results that topped expectations led by revenue for the quarter that rose 21.3% YoY to $3.41 billion. An overall revenue-per-unit increase of 24% more than offset a 2% decline in volume. The company targets full year double digit revenue and operating income growth, with revenue in the near term to benefit from high coal prices and fuel surcharges.
United Airlines (UAL) reported a modestly larger bottom-line loss for the March quarter with revenue that rose ~135% YoY but still missed the consensus revenue forecast of $7.68 billion for the quarter. On a positive note, the company shared it sees the current quarter being a “historic inflection point” for its business and targets being profitable for all of 2022.
IPOs
No companies are expected to price their IPO offerings 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
Boston Beer (SAM), CalAmp (CAMP), PPG Industries (PPG) and Snap (SNAP) are among the companies slated to report their latest quarterly results. Investors should remain on watch for companies that pre-announce their March quarter results. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.
On the Horizon
Friday, April 22
- Japan: CPI – March
- Japan: Markit/JMMA PMI Manufacturing (Preliminary) – April
- UK: Retail Sales – March
- Eurozone: S&P Global Manufacturing & Services PMI (Preliminary) – April
- UK: CIPS Manufacturing & Services PMI (Preliminary) - April
- US: S&P Global Manufacturing & Services PMI (Preliminary) – April
Thought for the Day
“Where's your will to be weird?” ~ Jim Morrison
Disclosures
- Tesla (TSLA) is a constituent of the Tematica BITA Cleaner Living Index
- Tesla (TSLA) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
- AT&T (T), Philip Morris International (PM) 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.
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
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Mark Abssy
Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.
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