US FINANCIAL MARKET
Stocks Move Higher Ahead of Fed Meeting Today – Wall Street Journal, 1/26/2022
- U.S. stocks posted strong gains ahead of a Federal Reserve announcement that is expected to provide more clarity on coming interest-rate increases—the prospect of which has spooked markets this year.
- The S&P 500 added 0.9% in morning trading Wednesday. The broad index fell Tuesday and has declined in five of the past six trading days.
- The tech-focused Nasdaq Composite Index rose 1.4%, while the Dow Jones Industrial Average gained 0.4%, or 151 points.
- Economists expect the Fed to confirm expectations that it will start raising rates in March when it releases its statement at 2 p.m. ET. Traders in interest-rate futures markets are betting that the Fed will increase rates four or five times this year, according to CME Group.
- Tech stocks lifted markets Wednesday, with the S&P’s tech sector recently up 2.5%. Microsoft shares rose 4.3% after the software giant said its earnings continued to grow as its cloud-services business stayed strong.
- Semiconductors also advanced: Nvidia rose 3.9%, Micron Technology added 2.8% and AMD gained 1.8%.
- Investors are also monitoring rising tensions between Russia and Ukraine that have drawn the focus of NATO allies.
- Geopolitical turbulence has buoyed oil in recent days, pushing it to the highest levels since 2014.
- The VIX, a measure of expected volatility that is sometimes dubbed Wall Street’s fear gauge, ticked down 1.09 points to 30.07. The gauge has climbed this week as stock markets fell.
- Earnings season continues, with Tesla and Intel slated to report after markets close. Tesla shares added 2.3%.
- In bond markets, the yield on the benchmark 10-year Treasury note crept down to 1.783% Wednesday from 1.784% Tuesday.
- Brent crude, the international oil benchmark, added 1.9% to $88.80 a barrel.
- Overseas, the pan-continental Stoxx Europe 600 jumped 2%, with the biggest gains in the travel and leisure sector.
- Stock indexes in Asia closed mixed.
- China’s Shanghai Composite and Hong Kong’s Hang Seng added 0.7% and 0.2%, respectively.
- Japan’s Nikkei 225 and South Korea’s Kospi each declined 0.4%.
Omicron Deaths in U.S. Exceed Delta’s Peak as Covid-19 Optimism Rises in Europe – Wall Street Journal, 1/26/2022
- More signs emerged that the Omicron wave is taking a less serious human toll in Europe than earlier phases of the pandemic, while U.S. data showed daily average deaths from the disease exceeding the peak reached during the surge driven by the previously dominant Delta variant.
- In Western Europe, where vaccination rates are generally higher than the U.S., a record surge in cases hasn’t generated the proportionate increase in hospitalizations and deaths that were seen earlier in the pandemic.
- Even as Covid-19 cases hit record highs, the Netherlands eased restrictions imposed last month in the face of Omicron—as Covid-19 hospitalizations and deaths remained subdued. Bars, restaurants, cinemas and theaters can reopen from Wednesday, with some continuing restrictions including that they close by 11 p.m.
- Germany recorded a record 164,000 new cases in 24 hours on Wednesday, an increase of 46% compared with last week and bringing the seven-day daily average to more than 120,000 cases.
- Coronavirus-related mortality is however declining: on Wednesday, 166 deaths were reported in connection with Covid-19, a drop of 31% compared with last week and the lowest since November.
- Confirmed new Covid-19 infections in Italy, Spain and Greece are declining from the pandemic records hit earlier this month. The pressure on healthcare systems is also easing, with hospital admissions beginning to decrease in all three countries, a sign that the worst of the current wave of infections may be over.
- In the U.S., the seven-day average for newly reported Covid-19 deaths reached 2,258 a day on Tuesday, up about 1,000 from daily death counts two months ago, data from Johns Hopkins University show.
- That is the highest since February 2021 as the country was emerging from the worst of last winter’s wave.
Microsoft Earnings Grew Last Quarter With Demand for Cloud Services – Wall Street Journal, 1/26/2022
- Microsoft said its earnings continued to grow last quarter as its cloud-services business stayed strong.
- On Tuesday, the Redmond, Wash., software giant said its sales in the quarter ended in December hit $51.7 billion, up 20% from a year earlier. Its net income rose 21% to $18.8 billion.
- The results beat predictions from analysts, who were expecting $50.7 billion in revenue and $17.5 billion in net income, according to FactSet.
- Microsoft’s overall cloud revenue increased 32% from the year-earlier quarter to $22.1 billion.
- Its cloud-infrastructure service, called Azure, grew by 46%, down slightly from the prior quarter’s 48% growth
- Windows licensing revenue from PC makers increased 25% in the latest quarter, while the company’s Surface computer sales rose 8%.
- Microsoft’s gaming revenue in the quarter grew 8% from a year earlier, with its hardware sales advancing 4% on demand for the latest Xbox consoles. Revenue from gaming content and services climbed 10%.
- Microsoft’s subscription-gaming service, Game Pass, hit 25 million subscribers recently, up around 39% from a year ago.
- For the period, Microsoft expects sales of $48.5 billion to $49.3 billion, compared with analyst expectations of $48.1 billion, according to FactSet.
Boeing Reports Loss as 787 Charges Mount – Wall Street Journal, 1/26/2022
- Boeing said production problems and delivery delays with its 787 Dreamliner jet would cost it another $4.5 billion as the plane maker reported its third annual loss in a row.
- Sales fell 3% to $14.8 billion.
- Boeing on Wednesday reported a loss of $4.3 billion for 2021 after a $4.16 billion deficit in the final quarter, following a year when it slowly increased production of new jets but struggled to deliver them.
- The latest charge includes $3.5 billion to compensate customers for the delays, with unanticipated production costs now forecast to double to $2 billion over the next two years as Boeing slowed output.
- Boeing also took another $402 million charge on its KC-46A tanker jet.
- Boeing stopped short of issuing formal guidance but did forecast higher 737 and 787 deliveries in 2022 compared with last year, saying it expects to improve the stability of its operations.
- Boeing said its supply chain would be a watch item for future production rates. It said it would increase production this year of its wide-body 777 to three planes a month. It said it was on track to produce 31 of its 737 MAX jets a month early this year, up from 26 currently.
AT&T Logs Wireless Gains as It Preps WarnerMedia Split – Wall Street Journal, 1/26/2022
- AT&T swung to a fourth-quarter profit as the company improved its wireless revenue and shed the burden of its customer-losing pay-TV business in 2021.
- Overall revenue fell to $41 billion from $45.7 billion a year earlier, reflecting the satellite-TV operations’ absence.
- After issuing preliminary results earlier this month, AT&T on Wednesday reported a final net gain of 884,000 postpaid phone subscribers over the December quarter, leading the wireless industry.
- The company previously reported that its HBO unit, which includes HBO Max, ended 2021 with 73.8 million subscribers world-wide. That figure topped the target of 70 million to 73 million subscribers issued earlier in the year.
- The HBO unit’s domestic subscriptions hit 46.8 million at the end of the year.
- In the December quarter, AT&T’s overall profit rose to $5.0 billion, or 69 cents a share, compared with a year-earlier loss of $13.89 billion, or $1.95 a share.
- A $15.5 billion accounting charge from the write-down of the telecom giant’s DirecTV unit skewed the year-earlier result.
- On Wednesday, AT&T projected overall 2022 revenue will grow in the low single digits above last year’s $153.2 billion benchmark, which excludes its already-divested pay-TV business. This year’s revenue target assumes a full year of WarnerMedia ownership.
- AT&T plans to divest WarnerMedia before then, though its shareholders will retain a 71% ownership stake in the new company, which will be called Warner Bros. Discovery.
- The media division set a full-year revenue target between $37 billion and $39 billion.
- The telecom company also forecast annual capital expenditures in the $20 billion range with free cash flow in the $23 billion range.
- AT&T expects to cut its annual dividend payment to between $8 billion and $9 billion after the separation of its media unit, down from the roughly $15 billion it paid out last year.
Anthem quarterly profit beats estimates as COVID costs subside – Reuters, 1/26/2022
- Anthem beat quarterly profit expectations on Wednesday as the U.S. health insurer spent less on COVID-19 related healthcare services and recorded solid membership growth for its government health plans.
- Anthem said its benefit expense ratio – the percentage of premiums paid for medical services – worsened to 89.5% from 88.9% a year earlier. Analysts on average expected 89.45%, according to Refinitiv data.
- Adjusted for the repeal of the industry-wide health insurance fee last year, the ratio decreased nearly 1%, helped by lower spending on COVID-19 related services.
- Excluding special items, Anthem earned $5.14 per share in the quarter ended Dec. 31, ahead of the analysts’ average estimate of $5.11.
General Dynamics beats profit forecasts on higher aerospace sales – Reuters, 1/26/2022
- General Dynamics missed analyst revenue estimates on Wednesday, but beat fourth-quarter profit forecasts as its aerospace business grew strongly despite supply chain bottlenecks and lingering labor shortages.
- Sales in General Dynamics’ aerospace unit which makes Gulfstream jets rose to $2.56 billion from $2.44 billion a year earlier, while overall revenue fell to $10.29 billion from $10.48 billion.
- In the quarter the company delivered 39 Gulfstream business jets versus 40 a year ago.
- In October, the company said it planed to deliver 40 in the fourth quarter.
- Net earnings fell to $952 million, or $3.39 per share, in the quarter ended Dec. 31, from $1 billion, or $3.49 per share, a year earlier.
- The company beat its own October annual earnings per share guidance of $11.50 by $0.05.
Abbott’s Rapid Covid-19 Tests Boost Quarterly Sales Growth – Wall Street Journal, 1/26/2022
- Abbott Laboratories, one of America’s largest producers of rapid tests for Covid-19, said that testing-related sales were $2.3 billion globally in the last three months of 2021 but forecast that demand for the tests will slow this year.
- Covid-19 tests contributed to overall sales of $4.47 billion for Abbott’s diagnostics division, up 2.9% year over year.
- Along with growth elsewhere in the company, including in its nutrition and medical-device businesses, that trend helped propel Abbott’s quarterly revenue 7.2% higher, to $11.47 billion.
- Rapid-test sales from Abbott’s BinaxNow, Panbio and ID NOW brands grew to $2.1 billion, from $1.9 billion in 2020’s fourth quarter, as the comparable stretch of 2021 included a spike in world-wide cases from the Omicron variant.
- After factoring in rising costs, Abbott’s net earnings fell to $1.99 billion, from $2.16 billion in the year-earlier quarter.
- The company’s adjusted earnings of $1.32 a share still beat Wall Street analysts’ consensus projections for adjusted earnings of $1.21 a share and sales of $10.71 billion, according to FactSet.
- Looking ahead, Abbott said it expects adjusted earnings of at least $4.70 a share in 2022.
- Analysts had been guessing that Abbott’s 2022 adjusted earnings would come in at $4.78 a share.
- Abbott forecast that Covid-19 testing-related sales will be $2.5 billion in 2022—significantly down from last year’s total of $7.7 billion. Most of this year’s testing sales will likely occur earlier in the year, Abbott said.
Hess profit sails past estimates on surging oil prices – Reuters, 1/26/2022
- U.S. oil producer Hess posted quarterly profit that handily beat Wall Street estimates on Wednesday, boosted by crude prices surging on the back of recovering demand and fears of a supply crunch.
- Oil and gas net production, excluding Libya, fell to 295,000 barrels of oil equivalent per day (boepd), from 309,000 boepd a year earlier.
- The average selling price for Hess’ crude rose 56.8% to $71.04 per barrel, including hedging, while gas prices jumped 42.4% to $4.77 per thousand cubic feet (mcf).
- Adjusted profit came in at $265 million, or 85 cents per share, in the fourth quarter ended Dec. 31, compared with a loss of $176 million, or 58 cents per share, a year earlier.
- Hess on Tuesday forecast higher output and capital spending for exploration and production this year.
Nasdaq profit tops Street views on IPO surge, investment products demand – Reuters, 1/26/2022
- Nasdaq on Wednesday reported a nearly 16% jump in fourth-quarter profit, topping Wall Street estimates, buoyed by the frenetic pace of U.S. initial public offerings, and strong demand for its investment-related products.
- Net revenue rose 12% to $885 million from a year ago.
- Revenue at Nasdaq’s solutions segment surged 19% to $581 million, with its analytics products, which help customers make investment decisions across multiple asset classes, becoming key growth drivers.
- Like other financial institutions, inflationary pressures weighed on Nasdaq, with operating expenses rising 15%, mainly on higher employee compensation.
- Stripping out one-time items, Nasdaq earned $1.93 per share, topping analysts’ mean estimate by 15 cents, according to IBES data from Refinitiv.
Chip Shortage Leaves U.S. Companies Dangerously Low on Semiconductors, Report Says – Wall Street Journal, 1/26/2022
- U.S. manufacturers and other companies that use semiconductors are down to less than five days of inventory for key chips, the Commerce Department said Tuesday, citing the results of a new survey.
- In 2019, companies typically maintained 40 days of inventory for key chips, according to the Commerce Department report. Now for the same chips—defined as 160 products that companies identified as being the most challenging to acquire—companies are operating with fewer than five days of inventory, the report said.
- Commerce Secretary Gina Raimondo said the survey results show the urgency for Congress to approve the U.S. Innovation and Competition Act, which includes $52 billion to boost domestic chip production.
- The thin inventories are a source of particular concern because of how a single shutdown can then ripple through the supply chain. With these wafer-thin inventories, a closure of an overseas factory earlier in a company’s supply chain, for more than a few days, can cause it to exhaust its inventories.
America’s Roads Are Crammed With Trucks – Wall Street Journal, 1/26/2022
- Trucks are taking over American roads, fueled by a rise in pandemic online shopping and disruptions to global supply chains.
- Truck mileage—tractor trailers and delivery trucks combined—on all roads hit a record of nearly 300 billion miles in the 12 months ending September 2021, roughly 2% above the same period in 2019, before the start of the pandemic, according to data from FTR Transportation Intelligence, a freight forecasting firm.
- Overall traffic, which mostly comprises passenger cars, remained about 3.5% below where it was in the same period of 2019.
- FTR estimates truck mileage will grow 4.5% in 2022 over 2021 and 2.9% in 2023.
US ECONOMY & POLITICS
- Fed Expected to Signal Interest-Rate Increases to Start in March – Wall Street Journal, 1/26/2022
- Federal Reserve officials are set to keep interest rates near zero Wednesday, at the conclusion of their two-day policy meeting, while likely signaling they are preparing to raise rates at their following gathering in mid-March.
- The central bank is also poised to approve one final round of asset purchases and resume deliberations over how and when to reverse the pandemic-driven expansion of its $9 trillion securities portfolio later this year.
- Mr. Powell is likely to be pressed on his inflation outlook, which could shape how many times the Fed lifts rates.
- He provided his latest thinking in testimony on Capitol Hill this month, where he said inflation is high because supply and demand are out of whack.
- The Fed can’t solve shipping or supply-chain bottlenecks, but higher interest rates can eventually cool demand by slowing hiring and income growth. Officials are hoping that inflation declines as the supply problems ease and demand shifts from goods, where prices rose sharply last year, toward services, where inflation has been less extreme.
U.S. New-Home Sales Surge Past Estimates, Reach Nine-Month High – Bloomberg, 1/26/2022
- Sales of new U.S. homes rose in December to a nine-month high, indicating firmer demand at the end of 2021 despite high prices and still-limited inventory.
- Purchases rose 11.9% from a month earlier to an 811,000 annualized pace, government data showed Wednesday.
- The median estimate in a Bloomberg survey of economists called for a 760,000 rate, and the December level exceeded all but one forecast.
- The new-home sales report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home climbed 3.4% from a year earlier to $377,700.
- For the full year, sales decreased to 762,000 from 822,000 in 2020, the report showed.
- At the end of December, there were 403,000 new homes for sale, up slightly from a month earlier.
- At the current sales pace, it would take 6 months to exhaust the supply of new homes, compared with 3.8 months a year ago.
U.S. goods trade deficit hits record high; inventories rise strongly – Reuters, 1/26/2022
- The U.S. trade deficit in goods widened to a record high in December amid a continued rise in imports, suggesting that trade likely remained a drag on economic growth in the fourth quarter.
- The goods trade deficit rose 3.0% to an all-time high of $101.0 billion last month.
- The trade gap is likely to remain large for a while as business continue to replenish depleted inventories.
- Goods imports increased 2.0% to $258.3 billion, likely as the backlog at ports continued to be cleared. The increase in imports was driven by capital goods, motor vehicles and consumer goods. But imports of food and industrial supplies declined.
- Goods exports rose 1.4% to $157.3 billion. There were increases in exports of consumer goods, industrial supplies and motor vehicles. Capital goods exports also rose, but food exports tumbled.
- The Commerce Department report showed retail inventories shot up 4.4% in December after increasing 2.0% in November. Inventories of motor vehicles and parts jumped 6.8% after rising 4.3% in November.
- They had been hampered by a global semi-conductor shortage, which has undercut motor vehicle production.
- Inventories at wholesalers increased 2.1% last month after advancing 1.7% in November. There were increases in stocks of both durable and nondurable goods.
U.S. auto sales to slip in January on slim inventory, higher prices – Reuters, 1/26/2022
- U.S. auto retail sales are expected to dip in January as reduced manufacturing due to the Omicron variant, supply chain constraints and global inflation caused prices to soar amid high demand, consultants J.D. Power and LMC Automotive said.
- Retail sales of new vehicles could fall 8.3% to 828,900 units from a year earlier, according to a report released by the consultants on Wednesday.
- The average new-vehicle retail transaction price in January is expected to reach $44,905, the previous high was in December 2021 at $45,283.
- Total new-vehicle sales for January 2022, including retail and non-retail transactions, are projected to reach 932,099 units, a 15.6% decrease from last year.
- Separately, research firm Cox Automotive said on Wednesday new-vehicle sales in January were expected to reach 1.01 million units, a drop of 8.9% compared to January 2021.
- Despite the added risk, J.D. Power and LMC Automotive expect 2022 global light vehicle sales to improve by 6% to 86.2 million units.
House Speaker Nancy Pelosi to Run for Re-Election, Doesn’t Address Leadership Plans – Wall Street Journal, 1/26/2022
- House Speaker Nancy Pelosi (D., Calif.) said she plans to seek re-election this fall, but gave no indication of whether she wants to remain her party’s leader, as Democrats face an uphill battle to keep control of the chamber in the midterms elections.
- To win backing for the speakership in 2018, Mrs. Pelosi made a deal with party lawmakers that she would serve as speaker for just two more terms. Since then, she has declined to talk about whether she plans to step aside.
- While she has the firm backing of her caucus, many have openly called for a change in leadership.
- Headed into the midterms, House Democrats hold the narrowest majority in decades, with 222 Democrats to 212 Republicans. GOP lawmakers have high hopes that they can win the majority this fall: Historical trends are on their side, as the party in control of the White House often loses seats in the midterms after a new president takes office.
- Their hopes are also bolstered by President Biden’s approval numbers and continued concerns about the Covid-19 pandemic and inflation.
U.S. House speaker Pelosi’s stock trades attract growing following online – Reuters, 1/26/2022
- A year since a Reddit-driven retail trading frenzy rocked the markets and created the ‘meme stock’ phenomenon, leading U.S. lawmaker Nancy Pelosi’s investments have become a meme in their own right.
- Google searches for ‘Pelosi stock trades’ hit a record high earlier this month as users on social media platforms including Twitter, Reddit, Youtube and TikTok scrutinize her investments, believing the U.S. Speaker of the House may have an edge on Wall Street.
- Trade disclosures filed by Pelosi, a multi-millionaire, are shared widely across social media soon after they appear on the House website. Companies she disclosed trades in last year include Apple, Amazon , Tesla and Microsoft.
- On Monday, 27 House members signed a letter calling for a floor vote on recent proposals to prohibit Congress members from owning stocks “in light of recent misconduct.”
EUROPE & WORLD
U.S. Reiterates That Americans in Ukraine Should Weigh Leaving – Bloomberg, 1/26/2022
- The U.S. told its citizens to consider leaving Ukraine now given the continuing tensions with Russia and the “unpredictable” security situation in the Eastern European nation.
- “The security situation in Ukraine continues to be unpredictable due to the increased threat of Russian military action and can deteriorate with little notice,” the U.S. embassy in Kyiv said in a statement on its website. “The U.S. Embassy urges U.S. citizens in Ukraine to consider departing now using commercial or other privately available transportation options.”
- The U.S. has previously advised Americans to consider departing Ukraine, and over the weekend ordered the families of U.S. diplomats to depart. U.S. employees at the embassy in Kyiv were put under “voluntary departure” orders, meaning they can return to the U.S. if they’d like.
WTO Grants China a $645 Million Tariff Weapon Against the U.S. – Bloomberg, 1/26/2022
- The World Trade Organization granted Beijing a new tariff weapon against the U.S. during a politically sensitive moment for the Biden administration — almost a year into a tenuous truce in the trade war between the two largest economies.
- On Wednesday, a panel of WTO arbiters in Geneva said China can retaliate against $645 million worth of annual American exports as part of a decade-old trade dispute over U.S. anti-subsidy duties on Chinese goods.
- The amount was much less than the $2.4 billion that China had initially requested legal authority to target.
- While $645 million pales in comparison to the tariffs China imposed on $110 billion worth of U.S. goods during the Trump administration, it still provides Beijing with a new irritant to pressure President Joe Biden as he seeks to tamp down inflationary headwinds ahead of midterm elections.
- The Biden administration could attempt to head off China’s WTO-authorized tariffs, but to do so it must revise U.S. countervailing duties, which would increase competition for key U.S. manufacturing sectors like steel and aluminum.
- The first European settlers landed in Sydney, Australia. (1788)
- India, three years after gaining its independence from the United Kingdom, formally became a republic. (1950)
- A magnitude 7.7 earthquake rocked the Indian state of Gujarat, killing more than 20,000 people. (2001)
- President Hamid Karzai signed the new constitution of Afghanistan. (2004)