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Daily Market Report | May 11, 2022

US FINANCIAL MARKET

Stocks Climb on Inflation Data – Wall Street Journal, 5/11/2022

  • Stocks swung between gains and losses Wednesday after fresh data showed inflation eased slightly in April but not as much as economists expected.
  • The S&P 500 rose 0.4% in morning trading. The index snapped a three-day losing streak Tuesday, hitting pause on a stretch of pressure that came as investors braced for the Federal Reserve to keep raising interest rates to curb decades-high inflation.
  • The Dow Jones Industrial Average added 0.6%, while the technology-focused Nasdaq Composite was down 0.5%.
  • The yield on 10-year Treasury notes—which underpins borrowing costs throughout the economy—edged higher to 2.996% from 2.990% at Tuesday’s settlement. Earlier in the morning, yields had moved as high as 3.074% before retreating.
  • Yields and bond prices move in opposite directions.
  • The consumer-price index increased 8.3% in April from the same month a year ago, decelerating from an 8.5% annual rate in March but above the 8.1% expected by economists.
  • Lower annual inflation last month marks the first monthly easing of price increases since August 2021.
  • Elsewhere, strong earnings reports from some companies drove gains. Shares of Electronic Arts rose 11% after the videogame company said revenue in the latest fiscal year rose 24% to $6.99 billion.
  • Doughnut chain Krispy Kreme logged a 6.9% rise after reporting earlier Wednesday that net revenue jumped 16% year over year in the three months through March.
  • Shares of Coinbase slid 17% after the cryptocurrency exchange said its users declined from the previous quarter.
  • Shares of Unity Software plunged 30% after the videogaming software developer widened its loss and gave second-quarter revenue guidance below analysts’ expectations.
  • Overseas markets were broadly higher. The Stoxx Europe 600 gained 0.7%, led by shares of auto and real-estate companies. In Asia, Hong Kong’s Hang Seng gained 1% and the Shanghai Composite Index added 0.8%.

GlobalFoundries Reports Strong Earnings. The Chip Shortage Is Helping Margins. – Barron’s, 5/11/2022

  • GlobalFoundries posted better-than-expected first-quarter financial results, as the contract chip manufacturer saw profits soar amid ongoing shortages of many semiconductor components.
  • For the quarter, GlobalFoundries posted revenue of $1.94 billion, up 37% from a year ago, and ahead of the company’s guidance range of $1.88 billion to $1.92 billion.
  • Wafer shipments were up 14% in the March quarter from a year earlier.
  • Adjusted profits were 42 cents a share, well above the company’s target range of 21 to 27 cents, as gross margin reached 24.2%, up from 7% a year earlier, and ahead of the company’s projection of 20.9%.
  • Adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization, was $698 million, up 137% from a year earlier; adjusted EBITDA margins expanded to 36%, from 20.7% a year ago.
  • For the second quarter, GlobalFoundries is projecting revenue between $1.955 billion and $1.985 million, ahead of the Wall Street consensus forecast for $1.92 billion.
  • The company sees gross margin of 25% in the quarter, or 26% on an adjusted basis. GlobalFoundries projects profits for the quarter of 43 cents to 48 cents on an adjusted basis, well above the Wall Street forecast of 26 cents.

Roblox expects losses for ‘foreseeable future’ as pandemic demand wanes – Reuters, 5/11/2022

  • Roblox said it expects net losses to continue for the “foreseeable future”, after higher expenses and a slowdown in demand from pandemic-era highs dragged bookings in the first quarter.
  • First-quarter bookings fell 3% to $631.2 million, while analysts had expected $645.3 million, according to IBES data from Refinitiv.
  • In the United States and Canada, it saw a decline in hours spent, although strength in other markets helped overall daily active users grow 28% to 54.1 million in the quarter.
  • Total hours spent on the platform reached 11.8 billion hours, a 22% rise.
  • Roblox, one of the first companies to focus on the metaverse, said investments in developing its platform sent total cost and expenses up about 32% in the quarter.
  • On an adjusted basis, Roblox lost 27 cents per share in the quarter ended March 31, higher than estimates of 21 cents.

Electronic Arts sees sales below estimates as pandemic boom fades – Reuters, 5/11/2022

  • Electronic Arts on Tuesday forecast first-quarter adjusted sales below estimates, as it braces for weaker sales of its video gaming titles in a post-lockdown world.
  • For the fourth quarter ended March 31, adjusted sales stood at $1.75 billion, slightly below estimates of $1.78 billion.
  • However, live services revenue, which makes up most of EA’s sales, rose to $1.39 billion in the quarter from $1.1 billion a year earlier.
  • On an adjusted basis, the company earned $1.46 per share, compared with the estimates of $1.43 per share, according to Refinitiv data.
  • EA forecast current-quarter adjusted sales of between $1.20 billion and $1.25 billion, compared with analysts’ average expectations of $1.44 billion, according to Refinitiv IBES data.

SoFi stock falls after fintech firm accidentally releases first-quarter report early – CNBC, 5/11/2022

  • Shares of SoFi fell sharply on Tuesday and were halted for nearly three hours after the company accidentally released its first-quarter results early.
  • For the quarter, SoFi reported a loss of 14 cents per share, compared with an expected loss of 15 cents per share, according to analysts surveyed by Refinitiv.
  • The company also beat revenue expectations, reporting $322 million versus a $286 million estimate.
  • However, its second-quarter revenue forecast was weaker than expected, at $330 million to $340 million.
  • Analysts, on average, were estimating revenue of $343.7 million, according to FactSet’s StreetAccount.

Coinbase revenue drops 27% from a year ago, stock slides – CNBC, 5/11/2022

  • Coinbase reported first-quarter results that missed analysts’ revenue estimates after the bell on Tuesday. Shares fell more than 15% in after-hours trading, building on a drop of 12.6% during regular trading hours before the results dropped.
  • Revenue fell 27% from a year ago, and it also reported a net loss of $430 million in the first quarter.
  • Overall, usage on Coinbase declined from the fourth quarter. Retail monthly transaction users (MTUs) fell to 9.2 million, down from 11.4 million in the fourth quarter, while total trading volume dropped from $547 billion in Q4 to $309 billion.
  • Overall operating expenses came in at $1.72 billion, outstripping revenue for the first time since the company began reporting finances publicly.
  • General and administrative expenses were $414 million, up 39% compared to the prior quarter. Coinbase attributed the rise to higher expenses related to full-time and contractor-related headcount.

Wendy’s reports bleak sales as inflation hurts customer spend – Reuters, 5/11/2022

  • Wendy’s missed Wall Street estimates for quarterly results on Wednesday, as rising inflation kept customers from splurging on the company’s bacon-loaded sandwiches and drinks.
  • Total revenue rose 6.2% to $488.6 million, also missing estimates of $496.9 million.
  • U.S. same-store sales at the company rose 1.1% in the first quarter ended April 3, compared with analysts’ average estimate for a 2.28% increase, according to Refinitiv IBES.
  • Its company-operated restaurant margin fell to 11.6% from 17% a year earlier.
  • Excluding items, Wendy’s earned 17 cents per share, missing estimates by 1 cent.

Used-car retailer Carvana to lay off about 12% of workforce – Reuters, 5/11/2022

  • Carvana would lay off about 2,500 employees, or 12% of its workforce, the company said on Tuesday, as the online used-car retailer works to get back to profitability weeks after it reported dismal results.
  • The company, in a securities filing on Tuesday, said it plans to move operations away from its inspection center in Euclid, Ohio and a few logistics hubs.
  • The move will result in Carvana restoring a better balance between its sales volumes and staffing levels, it added.
  • The company also said that its executive team would forego their salaries for the remainder of the year.

Boeing delivered 28 737 MAX jets in April -data – Reuters, 5/11/2022

  • Boeing said on Tuesday it had delivered 28 of its cash cow 737 MAX single-aisle jets to customers in April, seizing on rebounding air travel even as the U.S. planemaker battles industrial and regulatory hurdles across its jet portfolio.
  • Five of the 737 MAX jets Boeing handed to customers were for Irish budget carrier Ryanair, while United Parcel Service took its last hump-backed 747-8 and Thai Airways took three 777-300ER jets, Boeing said.
  • The 35 overall deliveries in April was down from the 41 jets it handed over in March but more than double the 17 planes in the year-ago period.
  • For April, Boeing booked 46 gross orders – including 44 for its 737 MAX from leasing companies and unidentified customers, and two 777 freighters, it said.
  • For the year through April, Boeing booked 213 gross orders, or 157 after cancellations and conversions.
  • After accounting adjustments, Boeing recorded 98 net orders for the year so far.
  • Overall, Boeing’s order backlog rose to 4,218 from 4,176, Boeing said.

US ECONOMY & POLITICS

Prices in US Outstrip Forecasts in Sign of Inflation Persisting – Bloomberg, 5/11/2022

  • US consumer prices rose by more than forecast in April, indicating inflation will persist at elevated levels for longer and keeping the Federal Reserve on the path of aggressive interest-rate hikes.
  • The core consumer price index, which excludes food and energy, increased 0.6% from a month earlier and 6.2% from April 2021, according to Labor Department data released Wednesday.
  • The broader CPI rose 0.3% from the prior month and 8.3% on an annual basis, a slight cooling but still among the highest readings in decades.
  • The core CPI topped all estimates in a Bloomberg survey of economists, which had a median projection of 0.4%. The headline gauge was seen climbing 0.2%.
  • Food prices rose 0.9% in April, and were up 9.4% from a year earlier.
  • Energy costs declined in April, as gasoline prices fell 6.1% from the prior month in what may prove to be just a temporary reprieve. Gas prices have since rebounded to a record high.
  • Shelter costs — which are the biggest services’ component and make up about a third of the overall index — rose 0.5% for a third straight month.
  • Rent of primary residence climbed 0.6%, while owners’ equivalent rent increased by the most since 2006.
  • In another sign of soaring costs of household necessities, prices for energy services, which includes electricity and natural gas, were up 13.7% from a year earlier in the biggest advance since 2008.
  • Driven by a pickup in travel plans, the cost of hotel stays rose 1.7% while airfares surged a record 18.6% as airlines passed along higher fuel costs to consumers. New-vehicle prices advanced 1.1%, the most this year, while used-auto prices fell 0.4%.
  • Adjusted for inflation, average hourly earnings fell 2.6% in April from a year earlier, marking the 13th straight decline, separate data showed Wednesday.

April Inflation Report Cinches Fed’s Half-Point Rate Rise Path – Wall Street Journal, 5/11/2022

  • Another strong inflation reading in April is likely to keep pressure on the Federal Reserve to continue raising rates in half-percentage-point increments at the central bank’s next two policy meetings and possibly beyond that.
  • Wednesday’s report offers few signs that would give Fed officials comfort to dial back a more aggressive pace of rate increases this summer.
  • Because a decline in 12-month inflation readings have been largely anticipated, the question now shifts to where inflation might settle and whether that level will be unacceptably high for the central bank.
  • While officials seem to have coalesced around the current pace of increases, investors are looking for signs that the Fed might dial up or down that pace.
  • The Fed faces a related and arguably more important question over their ultimate destination for interest rates.

Two-thirds of Americans live paycheck to paycheck as inflation continues to climb – CNBC, 5/11/2022

  • Inflation is showing no signs of slowing down, making it harder for workers to make ends meet.
  • As of March, close to two-thirds, or 64%, of the U.S. population was living paycheck to paycheck, just shy of the high of 65% in 2020, according to a LendingClub report.
  • Consumers who are struggling to afford their day-to-day lifestyle tend to rely more on credit cards and carry higher monthly balances making them financially vulnerable, the survey of more than 2,600 adults found.
  • Overall, credit card balances rose year over year, reaching $841 billion in the first three months of 2022, according to a separate report from the Federal Reserve Bank of New York.

Adjustable-rate mortgage demand surges to 14-year high, as homebuyers try to afford this pricey spring market – CNBC, 5/11/2022

  • Mortgage applications to purchase a home rose 5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
  • Demand was still 8% lower than the same week one year ago, but that annual drop is now shrinking.
  • The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.53% from 5.36%, with points rising to 0.73 from 0.63 (including the origination fee) for loans with a 20% down payment.
  • The rate on a 5-year ARM was 4.47%.
  • While homebuyers are showing more interest, current homeowners have less interest in refinancing. Those applications dropped another 2% week to week and were 72% lower than a year ago.
  • There is simply a very small pool of borrowers left who can benefit from a refinance at the current interest rates.

Biden Administration Asks Congress to Approve New Weapons Deal With Turkey – Wall Street Journal, 5/11/2022

  • The Biden administration has asked congressional leaders to approve the sale of advanced weapons and other equipment for Turkey’s fleet of F-16 jet fighters, U.S. officials said, setting up a showdown with lawmakers over a proposal to sell more of the aircraft to Ankara as it seeks to recalibrate ties with Washington.
  • The proposed weapons sale, which was sent to congressional leaders last month, highlights how Turkey is hoping to leverage its role as a facilitator of Russia-Ukraine peace talks and its backing of the Ukrainian military as a way to repair frayed relations with Washington and obtain new weapons.
  • The potential deal would include missiles, radar and electronics for Turkey’s F-16s, representing a significant upgrade for the country’s jet fighters.
  • U.S. officials familiar with the request said the administration could be using the missile deal to gauge the level of support in Congress for a separate proposal to sell 40 new F-16s to Turkey, a North Atlantic Treaty Organization ally that has angered some officials in Washington over its ties to Russia.

Drug-Overdose Deaths Reached a Record in 2021, Fueled by Fentanyl – Wall Street Journal, 5/11/2022

  • Drug-overdose deaths in 2021 topped 100,000 for the first time in a calendar year, federal data showed, a record high fueled by the spread of illicit forms of fentanyl throughout the country.
  • More than 107,000 people in the U.S. died from drug overdoses last year, preliminary Centers for Disease Control and Prevention data released Wednesday showed, roughly a 15% increase from 2020.
  • U.S. deaths linked to heroin have been declining as fentanyl’s profile rises.
  • But deaths linked to synthetic opioids, a category largely made up by fentanyl, climbed 23% last year to about 71,200 while representing about two-thirds of all drug deaths, the preliminary CDC numbers show.

California Legislative Leader Wants to Spend $10 Billion to Help Families Buy Homes – Wall Street Journal, 5/11/2022

  • A top California lawmaker is proposing to spend $10 billion to help families buy homes in the state with some of America’s highest housing prices.
  • Democratic State Senate Leader Toni Atkins on Wednesday unveiled details of a proposal she’s pushing to create a revolving fund that would provide interest-free loans for up to 30% of the purchase price of a home for low- and middle-income households.
  • If implemented, it would be the largest program of its kind in the nation, according to the people who designed it. Proponents hope that it will be included in the state budget that must pass by June 15 and go into effect as soon as January.
  • Under the proposal, California would spend $1 billion a year for 10 years. Participation would be limited to households making 150% of the median income in an area.

EUROPE & WORLD

China Consumer Inflation Accelerates Modestly – Wall Street Journal, 5/11/2022

  • China’s consumer inflation edged up in April and factory-gate price pressures remained elevated as Covid-19 lockdowns jammed up logistics networks and the Ukraine war pushed up global energy prices.
  • China’s consumer-price index in April was up 2.1% from a year earlier, official data showed Wednesday, the fastest pace in five months—accelerating from March’s 1.5% and topping the 2% median forecast of economists polled by the Journal.
  • Inflation in China is running below the official target for the year, which is a rate of less than roughly 3%.
  • The producer-price index, a gauge of factory-gate inflation, was up 8% in April from a year earlier, down from March’s 8.3% but exceeding the economists’ 7.8% forecast.
  • Food prices in April were up 1.9% from a year earlier, led by rises of 24% and 14% in fresh vegetables and fruit, respectively.

China Censors WHO Chief’s Call to End Covid-19 Strategy Dubbed Unsustainable – Wall Street Journal, 5/11/2022

  • China’s censors blocked rare public criticism of its zero-Covid strategy by the World Health Organization from social media Wednesday, as officials in Shanghai insisted there would be no change to policies that have locked tens of millions of people in their homes for weeks.
  • WHO Director-General Tedros Adhanom Ghebreyesus said China’s inflexible approach to Covid-19 needs to adapt to the evolving nature of the virus.
  • “When we talk about the zero-Covid strategy, we don’t think that it is sustainable considering the behavior of the virus now and what we anticipate in the future,” Mr. Tedros told a briefing on Tuesday, adding that the WHO has been discussing the issue with Chinese experts.
  • There was no acknowledgment of the WHO’s comments in major state-run media Wednesday, though a spokesman for China’s Foreign Ministry called for Mr. Tedros to avoid making what he called irresponsible comments.
  • At Shanghai’s daily Covid-19 briefing, Wu Huanyu, deputy director of the city’s center for disease control, reaffirmed that China will stick to the policy now dubbed “dynamic zero.”

Ukraine Stops Russian Gas Flowing to Europe Through Key Pipeline – Wall Street Journal, 5/11/2022

  • Ukraine reduced flows of Russian natural gas through its territory to Europe, introducing a new threat to the energy security of a continent already racing to sever its dependence on Russian fossil fuels.
  • The company that runs Ukraine’s pipeline network halted the flow of gas through a major entry point in the east of the country Wednesday, blaming interference by Russian troops with critical gas infrastructure.
  • The border crossing accounts for a third of Russian gas exports through Ukraine to Europe and feeds 3% of the European Union’s overall gas consumption.
  • Ukrainian energy officials say Russia appears to have avoided deliberate strikes on pipelines that bring revenue into Russia’s bruised economy, though extensive damage to Ukraine’s domestic gas network left millions of residents without fuel.
  • Ukraine, for its part, earns transit fees from Moscow for shuttling Russian gas to customers in Europe.

Panasonic sees flat profits amid price rises, shortages – Reuters, 5/11/2022

  • Panasonic on Wednesday forecast flat operating profits this business year as component shortages caused by COVID-19 lockdowns in China and rising material costs following Russia’s invasion of Ukraine pose a risk to earnings.
  • In the three months to March 31, Panasonic posted operating profit of 83.3 billion yen, compared with a profit of 31.8 billion yen a year earlier.
  • That result was worse than a mean estimate of 85.5 billion yen profit from nine analysts surveyed by Refinitiv.
  • The company predicted operating profit of 360 billion yen for the year to March 31, 2023, little changed from the 357 billion in the previous business year. That forecast is 5.9% lower than the mean estimate of 382.7 billion yen from 20 analysts, Refinitiv data shows.
  • Panasonic also noted risks of factory lockdowns by suppliers due to COVID-19 and the “international situation.”
  • “The impact of lockdowns in Shanghai will likely be felt from June,” Hirokazu Umeda, the company’s chief financial officer said.
  • As part of its strategy to move away from making low-margin consumer electronics and household appliances, Panasonic on Wednesday also announced it wanted to list shares of its supply chain software business to raise funds for investment.

Thyssenkrupp shares soar after group raises 2022 outlook – Reuters, 5/11/2022

  • Shares in Thyssenkrupp gained the most in 18 months after the German car parts-to-submarines conglomerate raised its outlook for sales and operating profit in 2022, reflecting a strong recovery rise in selling prices of steel and materials.
  • In the second quarter, adjusted EBIT nearly quadrupled to 802 million euros, while sales increased by nearly a quarter to 10.6 billion as order intake jumped 57%.
  • Adjusted earnings before interest and tax (EBIT) are now forecast to grow to at least 2 billion euros ($2.1 billion), the group said. It previously expected adjusted EBIT of 1.5 billion to 1.8 billion euros.
  • Sales are expected to rise by a low double-digit percentage, compared with a mid single-digit percentage increase expected previously.

Factmonster – TODAY in HISTORY

  • Charges against Daniel Ellsberg for his role in the Pentagon Papers case were dismissed. (1973)
  • Reggae performer Bob Marley died of cancer in Miami at the age of 36. (1981)
  • IBM’s supercomputer, Deep Blue defeated Garry Kasparov, the reigning world champion, in a six game chess match (2 for blue, 1 for Kasparov, and 3 ties). (1997)
  • India set off atomic blasts. (1998)
  • 91% of Lithuanian voters opted to join the European Union—the first former Soviet nation to do so. (2003)

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