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Daily Market Report | April 13, 2022

US FINANCIAL MARKET

Stocks Waver as Earnings Season Kicks Off – Wall Street Journal, 4/13/2022

  • U.S. stock indexes notched slight gains in early trading as the first earnings reports from major companies began to roll in and investors considered the highest inflation in four decades.
  • The S&P 500 was up less than 0.4% on Wednesday morning, after it closed down 0.3% on Tuesday.
  • The Nasdaq Composite rose about 0.5%, and the Dow Jones Industrial Average was up about 0.1%.
  • Shares of Delta Air Lines jumped 3.3% Wednesday morning after it reported a quarterly loss, but said it returned to profitability in March and expects to report a profit in the second quarter.
  • JPMorgan Chase declined 3% after it posted first-quarter profit that came in below Wall Street’s estimates.
  • Retailer Bed Bath & Beyond fell 4% after it reported a quarterly loss, saying it was hit by supply chain disruptions.
  • Goldman Sachs, Citigroup, Morgan Stanley and Wells Fargo are set to report earnings on Thursday.
  • The U.S. producer-price index, another gauge of inflation, rose by 11.2% in March compared with a year ago, coming in above expectations. That marked the largest gain since records began in 2010.
  • The sharp rise in producer prices indicates that disruptions to key supply chains continue to drive up prices.
  • The yield on the benchmark 10-year Treasury note edged down to 2.676% from 2.724% on Tuesday, extending its decline into a second day. Yields fall when prices rise.
  • Oil prices rose, with global benchmark Brent crude adding 2% to trade at $106.65 a barrel. Traders are assessing energy demand in China, as some lockdown measures in Shanghai eased but more factories in the region, including two run by Apple suppliers, halted production.
  • Further disruptions to energy supplies are expected, according to the International Energy Agency. It said on Wednesday that oil output from Russia was likely to fall by nearly 3 million barrels a day from May, a bigger decline than other analysts had predicted.
  • Overseas, the pan-continental Stoxx Europe 600 slipped 0.9%. British supermarket chain Tesco declined 4.4% after it said it expects lower profit as rising prices change shoppers’ habits.
  • In Asia, major benchmarks were mixed. The Shanghai Composite Index fell 0.8% and Hong Kong’s Hang Seng Index ticked up 0.3%.

JPMorgan Profit Sinks 42% After a Pandemic Boom – Wall Street Journal, 4/13/2022

  • JPMorgan Chase’s first-quarter profit dropped 42%, weighed down by lower Wall Street fees and higher expenses.
  • Revenue fell 5% to $30.72 billion, ahead of analyst expectations for $30.59 billion.
  • Total loans increased 6%, a welcome sign after two years of sluggish loan growth. The bank’s net interest margin, a measure of what it collects on loans minus what it pays for deposits, rose to 1.67% from 1.63% at the end of December.
  • In consumer banking, revenue fell 2% while profit dropped 57%, hurt particularly by the credit comparison to a year ago.
  • Consumer spending on credit cards rose 29% and credit-card loans increased 15%.
  • Though card loans remain below prepandemic levels, the increase is a sign that customers have started to burn through stimulus funds that buffered them throughout the pandemic.
  • Mortgage originations dropped 37% from a year ago, largely due to rising interest rates.
  • In the corporate and investment bank, revenue dropped 7% and profit fell 26%.
  • Trading revenue fell 3% from the year earlier, when corporate debt sales, initial public offerings and an army of individual investors powered a stock-market boom. Fixed-income trading was down 1% and equities trading was down 7%.
  • Total investment banking fees fell 31%, with declines in debt and stock underwriting.
  • Profit in the commercial bank fell 28% to $850 million. In asset and wealth management, profit dropped 20% to $1 billion.
  • Total expenses, which investors were watching closely, rose 2% to $19.19 billion in the quarter, roughly in line with expectations.
  • JPMorgan took $1.5 billion in total credit charges for the quarter; a year ago, the bank got a $4.2 billion boost from freeing up money it had earlier set aside for potential defaults.
  • The bank said it budgeted $900 million for higher credit losses this quarter because of economic challenges such as inflation and the war in Ukraine, and to account for its exposures in Russia.
  • The nation’s biggest bank earned $8.28 billion, or $2.63 per share, compared with $14.3 billion, or $4.50 per share, a year ago. Analysts had expected $2.72 per share, according to FactSet.
  • “We remain optimistic on the economy, at least for the short term,” Mr. Dimon said in a release, citing the financial health of consumers and businesses.
  • But Mr. Dimon said he also sees “significant geopolitical and economic challenges ahead.”

BlackRock Profit Increases 20% – Wall Street Journal, 4/13/2022

  • BlackRock reported higher quarterly profit even as market volatility lowered the investment firm’s assets under management to $9.6 trillion.
  • Revenue rose 7% to $4.7 billion, slightly below analysts’ estimates of $4.76 billion.
  • With inflation climbing to its highest levels in the past four decades, investors’ faith in the markets is low as evidenced by slowing inflows of $86 billion, down from $172 billion last year.
  • The world’s largest asset manager reported net income of $1.4 billion, or $9.35 a share, in the first quarter of 2022 ended March 31, up 20% from $1.2 billion in the same period a year earlier.
  • BlackRock exceeded analyst expectations of a per-share profit of $8.60, according to analysts polled by S&P Global Market Intelligence.

Delta Says Travel Rebound Is Keeping Pace With Surging Fuel Costs – Wall Street Journal, 4/13/2022

  • Delta Air Lines said that surging travel demand is helping offset a sharp rise in the price of jet fuel, as the airline anticipates a bustling summer.
  • Delta reported operating revenue of $9.3 billion during the first quarter, including nearly $1.2 billion in third-party sales from the oil refinery it owns.
  • Delta on Wednesday reported a $940 million loss over the three months ended March 31, but said it returned to profitability during March, despite soaring fuel prices, and expects to report a profit in the second quarter.
  • Delta reported a 33% increase in jet-fuel prices during the first quarter, to $2.79 a gallon. The company said it expects the price to climb to as high as $3.35 a gallon, including a 20 cent-a-gallon benefit from its refinery, in the second quarter.
  • Delta said it has been successful in recouping the higher fuel prices, and expects its revenue in the second quarter to reach 93% to 97% of 2019 levels.
  • Delta plans to operate at 84% of its 2019 capacity levels in the second quarter, a level of flying that Mr. Bastian described as “disciplined,” as the airline tries to avoid the growing pains and staffing shortfalls that have led some rivals to cut schedules in recent weeks.

Bed Bath & Beyond warns of slowing consumer demand after posting weak holiday-quarter results – CNBC, 4/13/2022

  • Bed Bath and Beyond’s shares fell Wednesday as the home goods retailer reported a holiday-quarter loss, spoke of struggles with low inventory and congested ports, and warned that consumer demand is slowing.
  • Sales fell 22% to $2.05 billion from $2.62 billion a year earlier. That fell short of estimates for $2.07 billion.
  • Same-store sales, a key retail metric, dropped 12% across Bed Bath’s business compared with the year-ago period. Same-store sales declined 15% for the Bed Bath & Beyond banner and grew by low single digits for the BuyBuy Baby banner.
  • Digital sales declined by 18% compared with the year-ago period, which partially reflects the shift back to stores and normalizing e-commerce levels.
  • The company’s net loss grew to $159 million, or $1.79 per share, from net income of $9 million, or 8 cents a share, a year earlier.
  • CEO Mark Tritton said out-of-stock merchandise caused the company to miss out on about $175 million in fiscal fourth-quarter sales. That’s higher than the prior quarter, when supply chain bottlenecks cost the company about $100 million.
  • So far in the first quarter, he said same-store sales are down by about 20% — a deeper decline than the prior three months.

CNN+ struggles to lure viewers in its early days, drawing fewer than 10,000 daily users – CNBC, 4/12/2022

  • Fewer than 10,000 people are using CNN+ on a daily basis two weeks into its existence, according to people familiar with the matter.
  • To put that daily user number in perspective, CNN’s cable network suffered a sharp decline in viewership last year but still rang up an average of 773,000 total viewers a day.
  • Axios reported earlier Tuesday that new leadership at Warner Bros. Discovery plans to cut hundreds of millions of investment dollars for the service given concern over its future.
  • Incoming CNN chief Chris Licht will join Warner Bros. Discovery on May 1 and will make decisions on how best to proceed, two of the people said.

Google to Invest $9.5 Billion in U.S. Offices, Data Centers – Wall Street Journal, 4/13/2022

  • Google plans to invest about $9.5 billion in U.S. offices and data centers this year, up from $7 billion in 2021, as it opens new branches and expands existing facilities.
  • Alphabet Google said Wednesday that the investment in more than a dozen states will create at least 12,000 new full-time jobs by the end of the year.
  • The search-engine giant plans to open a new office in Atlanta, boost its presence in New York, build out its campus in Boulder, Colo., and invest in data centers across the country, it said.
  • Over the past five years, Google has invested more than $37 billion in offices and data centers in 26 states, it said.

Meta to take nearly half of sales made by its metaverse creators as fees – Reuters, 4/13/2022

  • Facebook parent Meta Platforms will charge creators around 47.5% on sales of digital assets and experiences made inside the company’s virtual reality platform Horizon Worlds.
  • The overall charge comprises of 30% hardware platform fee for sales made through Meta Quest Store, where it sells apps and games meant for its virtual reality headsets, and a further 17.5% cut as its Horizon platform fees, a Meta spokesperson told Reuters on Wednesday.
  • Meta chief executive officer Mark Zuckerberg has been a critic of Apple’s app store fees of 30%, but Meta’s latest move to charge creators nearly half their sales on its own platform has angered many of them.

IEA Cuts Oil Demand Forecast as China Reimposes Lockdowns – Bloomberg, 4/13/2022

  • The International Energy Agency cut its forecast for global oil demand this year after China reimposed lockdowns to contain the spread of a resurgent coronavirus.
  • With the weaker demand outlook and the massive release of emergency oil reserves by IEA members, the agency now sees global markets in balance for much of the year.
  • The Paris-based agency, which advises most major economies, lowered projections for world fuel consumption this year by 260,000 barrels a day, with a particularly steep reduction of 925,000 a day for China in April. Still, global demand remains on track to increase this year.
  • World oil consumption will expand by 1.9 million barrels a day to average 99.4 million a day this year, according to the IEA.
  • The IEA also dialed back estimates for the loss of Russian supplies from an international boycott over its military aggression. Production in April may be 1.5 million barrels a day lower than the prior month — roughly half the drop that was previously expected. Those losses may still double in May, the IEA said.

Record Permian Well Permits Point to Growing U.S. Oil Supply – Bloomberg, 4/13/2022

  • Drilling permits for new wells have spiked to unprecedented levels in the Permian Basin, signaling crude oil suppliers in America are finally responding to higher prices, according to Rystad Energy.
  • A total of 904 horizontal drilling permits were awarded last month in the shale patch that lies beneath Texas and New Mexico, an all-time-high, Rystad said. The four-week average of 210 approved permits for the week ending April 3 was also a record.
  • Texas wildcatters have been saying that higher costs on labor and equipment and investors’ pressure to keep spending under control limits their ability to expand production.

Traffic Snarled at Texas-Mexico Border by New Security Measures, Protests – Wall Street Journal, 4/13/2022

  • Two major international bridges were effectively shut down after Mexican truckers blocked lanes in both directions to protest a new border security initiative from Texas Gov. Greg Abbott that forced them to wait hours or days to bring products into the U.S.
  • At the Pharr-Reynosa International Bridge, which spans the Rio Grande, officials scrambled to react Monday morning as truckers obstructed all lanes on the Mexican side.
  • Some 700 miles away, in El Paso, a similar protest by truckers in Mexico forced the Ysleta Bridge to close late Monday afternoon. On Tuesday, it had not reopened.
  • Mr. Abbott had said last week he would dispatch Texas Department of Public Safety troopers to conduct safety inspections on commercial vehicles driving into Texas from Mexico, after they had already passed federal customs. State officials said they don’t need warrants to inspect trucks for safety issues.
  • The move—which has drawn pushback from the business community and threatens the $440 billion in trade that passes over international bridges on the Texas-Mexico border each year—is part of Mr. Abbott’s Operation Lone Star, which has sought to exert more state control over border security.

US ECONOMY & POLITICS

U.S. Producer Prices Jump 11.2% From a Year Ago, the Most on Record – Bloomberg, 4/13/2022

  • Prices paid to U.S. producers jumped in March from a year ago by the most in records back to 2010, topping all estimates and underscoring persistent early-stage inflationary pressures that risk feeding through to consumers.
  • The producer price index for final demand increased 11.2% from March of last year and 1.4% from the prior month, Labor Department data showed Wednesday.
  • Excluding the volatile food and energy components, the so-called core PPI increased 1% from a month earlier and was up 9.2% from a year ago.
  • The headline PPI and core figures well exceeded estimates. The median forecasts in a Bloomberg survey of economists called for a 10.6% year-over-year increase and a 1.1% monthly advance.
  • The PPI data showed prices for transportation and warehousing services spiked a record 5.5% in March. The increase was driven by higher truck transportation of freight costs and airfares.
  • Prices of goods climbed 2.3% in March for a second month. More than half of the increase was due to a 5.7% jump in energy prices. The cost of services, meanwhile, advanced 0.9% after a 0.3% rise in February. More than 40% of the gain in services costs reflected higher margins in trade that includes wholesalers and retailers.
  • Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — rose 0.9% from February, the biggest gain since the start of 2021. The measure rose 7% from a year ago.

U.S. Extends Covid Health Emergency Declaration as Cases Rise – Bloomberg, 4/13/2022

  • Health and Human Services Secretary Xavier Becerra will extend the formal Covid-19 public health emergency by another 90 days, according to an administration official with knowledge of the matter, prolonging special powers as the country grapples with new cases driven by the BA.2 subvariant.
  • Extension of the declaration, first made in January 2020, allows certain emergency powers and programs to continue, such as those that allow free at-home tests for seniors on Medicare or fund certain Covid treatments. Becerra has pledged to give 60 days’ notice of the formal emergency’s expiration, to allow preparation.
  • The official providing the information asked not to be named because it isn’t public. The formal emergency declaration was poised to expire this week.

Yellen Warns China on Russia Tie, Hints at Economic Consequences – Bloomberg, 4/13/2022

  • Treasury Secretary Janet Yellen on Wednesday delivered a pointed warning to China on its alignment with Russia, suggesting potential economic consequences from the international community depending on how it approaches President Vladimir Putin’s invasion of Ukraine.
  • “China has recently affirmed a special relationship with Russia,” Yellen said in a prepared remarks Wednesday to the Atlantic Council — an institution established in the 1960s to foster support for collective international security. “I fervently hope that China will make something positive of this relationship and help to end this war.”
  • “China cannot expect the global community to respect its appeals to the principles of sovereignty and territorial integrity in the future if does not respect these principles now when it counts,” Yellen said.
  • The speech comes a week before finance chiefs from across the globe gather — virtually and in person — in Washington for the spring meetings organized by the World Bank and International Monetary Fund.

U.S. mortgage interest rates top 5%, buyers look to lock in rates – Reuters, 4/13/2022

  • The average interest rate on the most popular U.S. home loan rose to more than 5% last week, the highest level since November 2018, and homebuyers hurried to make purchases before costs rise further, the latest weekly survey from the Mortgage Bankers Association (MBA) showed on Wednesday.
  • The average contract rate on a 30-year fixed-rate mortgage increased to 5.13% in the week ended April 8 from 4.90% a week earlier. It is up more than 1.5 percentage points since the start of the year as the Federal Reserve has begun to tighten financial conditions to cool demand in the economy amid high inflation.
  • The MBA said its Purchase Composite Index, a measure of all mortgage loan applications for purchase of a single-family home, increased 1.4% on a seasonally adjusted basis to 261.8, while the refinance index fell 4.9%.
  • The MBA’s latest economic forecast was also released on Wednesday, with mortgage originations seen declining 35.5.% in 2022 from a year earlier to $2.58 trillion.
  • Purchase originations are still seen rising and are expected to increase 4% from last year to a record $1.72 trillion in 2022.

Support for Saudi Arabia ‘Counter’ to U.S. Interests, House Democrats Say – Wall Street Journal, 4/13/2022

  • The leaders of the House foreign affairs and intelligence committees and more than 20 other Democrats plan to press the Biden administration to take a tougher stance on Saudi Arabia, citing Riyadh’s refusal to cooperate with Washington over Russia’s invasion of Ukraine and a range of human-rights issues.
  • In a letter reviewed by The Wall Street Journal, the lawmakers issued some of the toughest criticism the Biden administration has faced from Congress over its handling of the U.S. relationship with Saudi Arabia.
  • President Biden described Saudi Arabia as a pariah state during the 2020 campaign and promised to hold the Saudi government accountable for alleged rights abuses, but has taken few concrete steps to do so.
  • The letter, which the lawmakers plan to send to Secretary of State Antony Blinken on Wednesday, follows a rise in tensions between the U.S. and Saudi Arabia over Riyadh’s response to the Russian invasion of Ukraine.
  • The lawmakers note that Saudi Arabia had rejected U.S. calls to produce more oil to lower prices driven up by the war, and that the kingdom had entered talks with Beijing about pricing a portion of oil sales in yuan.

EUROPE & WORLD

U.K. Inflation Jumps More Than Expected to 30-Year High of 7% – Bloomberg, 4/13/2022

  • U.K. inflation surged to a 30-year-high of 7% last month, intensifying a cost of living crisis that threatens to derail the economic recovery.
  • Consumer prices rose by 1.1% in March alone, the fastest increase on record for that month.
  • It adds to pressure on the government and Bank of England to act, with prices set to surge further this month when a 54% increase in energy costs hit household bills.
  • The acceleration was driven by a broad increase in prices across the economy, with motor fuels surging 9.9% from February, the biggest increase in 31 years.
  • The cost of restaurant meals, hotels, furniture, clothing and shoes also made upward contributions.
  • The retail price index, a measure used to set benefit payouts and interest on inflation-linked debt, rose 9% from a year ago, the most since January 1991.
  • Producer prices rose 11.9% from a year ago, the most since 2008.
  • Raw materials costs surged 19.2%, the biggest increase since those records began in 1997.
  • In total, more than a quarter of the ONS’s inflation basket is seeing inflation run above 10%.

China’s imports unexpectedly fall as COVID curbs convulse trade outlook – Reuters, 4/13/2022

  • China’s imports unexpectedly fell in March as COVID-19 curbs across large parts of the country hampered freight arrivals and weakened domestic demand, while export growth slowed, prompting analysts to expect a worsening in trade in the second quarter.
  • The softer trade figures are likely to reinforce expectations of more policy support from the government, with an adviser on Wednesday calling for cuts in banks’ reserve requirements and interest rates to boost a flagging economy.
  • Inbound shipments fell 0.1% in March from a year earlier, marking the first decline since August 2020, customs data showed on Wednesday. That compared with a 15.5% gain in the first two months of the year and an 8% increase forecast by analysts in a Reuters poll.
  • The decline was broad-based. China’s imports of crude oil tumbled 14% in March and gas import volumes were the lowest since October 2020. Purchases of copper fell 8.8%, as COVID outbreaks hurt manufacturing and industrial demand for some raw materials remained soft.
  • Exports – a major driver of the economy – rose 14.7% in March, beating analyst expectations for a 13% rise, although slowing from a 16.3% gain in January-February.
  • China posted a trade surplus of $47.38 billion in March, more than double the forecast $22.4 billion, thanks to the unexpected decline in imports. It reported a $115.95 billion surplus in January-February.

Tesco warns of lower profits as UK inflation squeeze tightens – Reuters, 4/13/2022

  • Tesco, Britain’s biggest retailer, warned of a drop in profits this financial year as surging inflation piles pressure on the supermarket group and its customers alike.
  • Tesco’s group sales rose 3.0% to 54.8 billion pounds in 2021-22, while UK like-for-like sales rose 0.4% as it gained market share.
  • Tesco reported retail adjusted operating profit of 2.65 billion pounds ($3.45 billion) for the year to Feb. 28, up 36% and in line with guidance.
  • It sees profit of between 2.4 billion pounds and 2.6 billion pounds for 2022-23.
  • Tesco raised its full-year dividend 19.1% to 10.9 pence a share and committed to return a further 750 million pounds to shareholders by April 2023 through a share buyback program.

Stellantis confirms 2022 margin guidance, sees strong U.S. sales – Reuters, 4/13/2022

  • Carmaker Stellantis on Wednesday confirmed its forecast for double-digit operating income margin for 2022 and said its expected sales in North America, especially in its highly profitable U.S. business, should rise 3%.
  • During a presentation at the carmaker’s annual general meeting, Chief Executive Carlos Tavares said the company expects sales to be up or stable in all of its major markets and that it will be cash flow positive this year.

New Zealand Lifts Interest Rate By Half-Point as Inflation Fight Heats Up – Wall Street Journal, 4/13/2022

  • The Reserve Bank of New Zealand raised its benchmark interest rate by a half percentage point, its fourth consecutive increase and the largest in more than two decades, mirroring an increasingly aggressive approach by central banks globally as inflation runs at multidecade highs.
  • New Zealand’s central bank said on Wednesday it had lifted the cash rate to 1.5% from 1.0%. That follows quarter-percentage-point increases at each of its October, November and February meetings. It didn’t hold meetings in December and January.
  • The last time the Reserve Bank of New Zealand raised its benchmark rate by a half percentage point was in May 2000.

Bank of Canada Delivers Jumbo Rate Hike to Quell Inflation – Bloomberg, 4/13/2022

  • The Bank of Canada raised its interest rate by half a percentage point in its biggest hike in 22 years and said it would stop buying government bonds as it moves aggressively to wrestle inflation down from a three-decade high.
  • Policy makers led by Governor Tiff Macklem increased the central bank’s overnight benchmark to 1% on Wednesday and said rates “will need to rise further” as price pressures persist well above target.
  • The bank will stop replacing its holdings of maturing government bonds on April 25, a process known as quantitative tightening that will shrink its balance sheet.
  • In what officials described as a “substantial upward revision,” inflation is now seen averaging near 6% in the first half of 2022, before easing to about 2.5% in the second half of next year and to around its 2% target by the end of 2024.
  • Inflation is projected to average 5.3% in 2022, versus forecasts in January of 4.2%. Price growth will slow to 2.8% on average in 2023, versus previous forecasts of 2.3%.

Factmonster – TODAY in HISTORY

  • Sidney Poitier became the first African American to win the Academy Award for best actor. (1964)
  • Apollo 13 announced “Houston, we’ve got a problem,” when an oxygen tank burst on the way to the Moon. (1970)
  • Tiger Woods became the youngest person to win the Masters Tournament and the first of African descent to win a major golf title. (1997)

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