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Daily Market Report | May 12, 2022

US FINANCIAL MARKET

Stocks Wobble as Inflation Weighs on Markets – Wall Street Journal, 5/12/2022

  • U.S. stocks wavered between small gains and losses Thursday, extending a streak of volatility in a market driven by worries that the Federal Reserve will hamper growth in its effort to bring inflation under control.
  • The S&P 500 slipped 0.2% after the broad-market index closed down 1.6% on Wednesday.
  • The Dow Jones Industrial Average fell 0.5%. The Nasdaq Composite Index added 0.5%.
  • All three indexes are on track for weekly losses of more than 3%.
  • The yield on the benchmark 10-year Treasury note declined to 2.859% from 2.918% on Wednesday, edging down for a fourth consecutive trading session. Bond yields and prices move in opposite directions.
  • The producer-price index, another inflation metric, rose by an annual rate of 11% in April. That marked a decline from the previous month, but still ahead of the predictions of economists.
  • Weekly jobless claims came in at 203,000, nearly unchanged from the previous week.
  • The dollar strengthened, with the ICE U.S. Dollar Index rising 0.6% to the highest level since 2002. The index measures the greenback against a basket of other currencies.
  • In corporate news, Beyond Meat ticked up 7.1% after the meat-alternative company reported a wider-than-expected loss in the last quarter due to higher spending.
  • Coinbase gained 4.8%, after losing more than a quarter of its value on Wednesday.
  • Shares of WeWork added 11% after reporting a narrower loss and raising its guidance.
  • Walt Disney declined 0.6% after the company reported higher operating losses and said it may not maintain its current growth rate in streaming subscribers.
  • Oil prices gained after U.S. crude inventories rose more than expected.
  • Global benchmark Brent crude added 0.7% to $108.25 a barrel.
  • Prices were also weighed down by slow progress on European Union negotiations to potentially ban Russian crude imports, according to analysts at ANZ.

Disney Reports Jump in Disney+ Subscribers in Latest Quarter – Wall Street Journal, 5/12/2022

  • Walt Disney reported better-than-expected subscription numbers for its Disney+ streaming service in the most recent quarter, avoiding a slowdown that dogged streaming rival Netflix.
  • Revenue for the quarter was $19.25 billion, compared with $15.61 billion a year earlier.
  • For the company’s fiscal second quarter, Disney reported 7.9 million new Disney+ subscribers to reach 137.7 million subscribers, up from 129.8 million in the prior quarter. Analysts polled by FactSet had expected the company to add 5.2 million net new subscribers to the platform, for a total of about 135 million.
  • Christine McCarthy, the company’s chief financial officer, said that about half of the 7.9 million net new subscriptions it added came from subscribers to Disney+ Hotstar, its Indian streaming service, which is in the midst of its final year of a five-year deal to broadcast the sport. Disney+ Hotstar customers account for about 50 million of the total Disney+ subscriptions.
  • The average monthly revenue for a paying subscriber to Disney+ Hotstar was 76 cents in the quarter, the company said. A U.S. Disney+ subscriber’s average monthly revenue was $6.32 in the quarter.
  • Despite the better-than-anticipated subscriber growth, Disney saw losses widen dramatically at its direct-to-consumer segments, which also include the general entertainment streaming platform Hulu and streaming sports network ESPN+.
  • Operating losses grew to $887 million in the quarter, compared with $290 million in the same period one year ago.
  • Sales at its theme parks and consumer products division—which includes Walt Disney World and Disneyland resorts—logged $6.65 billion in the quarter ended April 2, above analysts expectations of $6.29 billion.
  • The world’s largest entertainment company posted earnings of $470 million, or 26 cents a share, for the second quarter, down from $901 million, or 49 cents a share, a year earlier. Adjusted earnings were $1.08 a share, below analysts’ expectations of $1.19.
  • Chief Executive Bob Chapek reaffirmed Disney’s targets of signing up between 230 million and 260 million subscribers to Disney+ and having the streaming video-on-demand business achieve profitability by September 2024, saying both goals were “very achievable.”
  • Spending on programming, production and marketing on content rose in the quarter, Mr. Chapek said, with roughly one-third of Disney’s $32 billion content budget this year devoted to acquiring sports rights.

Rivian CEO Says Its Chip-Shortage Problems Will Ease This Year – Wall Street Journal, 5/12/2022

  • Electric-vehicle startup Rivian Automotive maintained its production forecast for 2022, with executives saying the supply-chain problems that have stifled its factory output in recent months are expected to ease later this year.
  • Rivian, which reported quarterly results after the market close Wednesday, said revenue for the first quarter was $95 million, below Wall Street expectations.
  • The company manufactured 2,553 vehicles and delivered 1,227 of them to customers during the three-month period.
  • Rivian reported an adjusted loss of $1.43 a share for the first quarter, compared with analysts’ expectations of a loss of $1.37 a share.
  • The company’s net loss nearly quadrupled to $1.6 billion for the January-to-March period, compared with $414 million in the prior-year quarter, as the company continued to spend heavily on R&D and manufacturing of its first vehicles.
  • At the end of the first quarter, Rivian had $17 billion in cash and liquidity, a sizable pile for an electric-vehicle startup.
  • About $12 billion was raised through its IPO.

Beyond Meat shares tumble after jerky launch leads to wider-than-expected loss – CNBC, 5/12/2022

  • Beyond Meat on Wednesday reported a wider-than-expected loss for its first quarter as the launch of its new plant-based jerky weighed heavily on margins.
  • Net sales rose 1.2% to $109.5 million, falling short of expectations of $112.3 million.
  • Total volume, which strips out the impact of pricing or currency fluctuations, increased 12.4% in the quarter. However, net revenue per pound shrank by 10%.
  • Outside of its home market, Beyond’s revenue shrank 6.2%, although the company said it sold more pounds of its meat substitutes in both international grocery stores and food service outlets.
  • Beyond reported first-quarter net loss of $100.5 million, or $1.58 per share, wider than its net loss of $27.3 million, or 43 cents per share, a year earlier.
  • The company reiterated its full-year revenue forecast of $560 million to $620 million.

Coach owner Tapestry sees gradual recovery in lockdown-hit China – Reuters, 5/12/2022

  • Tapestry said it was confident that demand for its luxury bags and apparel in China would recover after the key growth market lifts COVID-19 curbs, easing worries over a forecast cut and sending the Coach owner’s shares 11% higher.
  • Net sales jumped 13% to $1.44 billion, beating analysts’ expectations of $1.42 billion, as consumers returning to parties and other social events after two years of the pandemic splurged on high-end fashion despite runaway inflation.
  • Adjusted profit came in at 51 cents per share, beating estimates of 41 cents, according to Refinitiv IBES data.
  • Greater China revenue for Tapestry is expected to decline 35% in the fourth quarter, assuming lockdowns in Shanghai end at the start of June.
  • That pushed the company to lower its full-year profit projection to $3.45 per share, from a prior estimate of $3.60 to $3.65 a share.

WeWork Loss Narrows as Desk Sales Reach Prepandemic Levels – Wall Street Journal, 5/12/2022

  • WeWork’s first-quarter loss narrowed sharply as gross desk sales reached prepandemic levels with the gradual return of employees in the U.S. to in-person work.
  • Revenue rose to $765 million in the quarter, just under Wall Street forecasts of $768 million but ahead of the company’s earlier projection.
  • The shared-office company said Thursday its top line rose 28% from a year ago, with 166,000 desks sold, the highest level since the first quarter of 2020.
  • The company’s total expenses fell to $1.1 billion from $2.1 billion a year earlier, aided by a $130 million gain from lease terminations.
  • In the first quarter, which ended March 31, the reduced costs substantially cut down on the company’s net loss, which came in at $435 million, or 57 cents a share, compared with a loss of $2 billion, or $14.34 a share, a year earlier.
  • WeWork raised the low end of its second-quarter revenue guidance to $800 million from $775 million, and upped the low end of its expected full-year revenue by $50 million to $3.4 billion.

More Than $200 Billion Wiped Off Cryptocurrency Market in a Day – Bloomberg, 5/12/2022

  • A massive sell-off in cryptocurrencies wiped over $200 billion of wealth from the market in just 24 hours, according to estimates from price-tracking website CoinMarketCap.
  • The broad plunge in the crypto complex, driven by the collapse of the TerraUSD stablecoin, hit major tokens hard.
  • Bitcoin plunged by as much as 10% in the last day to its lowest level since Dec. 2020, while Ethereum dropped as much as 16%.
  • The carnage showed signs of spreading further Thursday as crypto-related stocks in Asia also cratered. Hong Kong-listed fintech firm BC Technology Group closed down 6.7%. Japan’s Monex Group — which owns the TradeStation and Coincheck marketplaces — ended the day down 10%.

US ECONOMY & POLITICS

US Producer Prices Rise More Than Forecast in Sign of Persistent Inflation – Bloomberg, 5/12/2022

  • Prices paid to US producers rose at a solid pace in April, signaling that elevated consumer inflation could persist for longer than expected, keeping the Federal Reserve geared toward aggressive rate hikes.
  • The producer price index for final demand increased 11% from April of last year and 0.5% from the prior month, driven by goods, Labor Department data showed Thursday. That followed sizable upward revisions to the March figures.
  • Excluding the volatile food and energy components, the so-called core PPI increased 0.4% from a month earlier and was up 8.8% from a year ago.
  • While that measure rose at a softer-than-expected monthly pace, March was revised up to a 1.2% advance.
  • The median forecasts in a Bloomberg survey of economists called for a 10.7% year-over-year increase for the overall PPI and a 0.5% monthly advance.
  • Prices of goods climbed 1.3% in April, including gains in categories like motor vehicles, diesel fuel and eggs.
  • While services inflation was flat, prices for truck transportation of freight rose.
  • Energy, which spiked last month following Russia’s invasion of Ukraine, moderated in April, rising 1.7% compared to 6.4% in March.
  • Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — rose 0.6% from March, and 6.9% from a year ago.
  • Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, increased 2.2% from a month earlier.

U.S. Jobless Claims Rose to 203,000 Last Week – Wall Street Journal, 5/12/2022

  • New applications for unemployment benefits rose for the second week in a row last week but remained near historic lows in a sign of a tight U.S. labor market.
  • Initial jobless claims, a proxy for layoffs, increased by 1,000 to 203,000 last week from the previous week’s revised level of 202,000, the Labor Department said Thursday.
  • Thursday’s report showed continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, fell to 1.3 million for the week ended April 30, the lowest level since January 1970.

Mortgage Rates in US Rise to 5.3%, Highest Since July 2009 – Bloomberg, 5/12/2022

  • US mortgage rates jumped again this week, extending a steep climb that is shutting some would-be homebuyers out of the market.
  • The average for a 30-year loan was 5.3%, up from 5.27% last week and the highest since July 2009, Freddie Mac said in a statement Thursday.
  • At the current 30-year average, a borrower with a $300,000 mortgage would pay $1,666 a month, $384 more than at the end of last year.
  • The current average for five-year ARMs is 3.98%, Freddie Mac said, up from 3.96% last week.

Federal Surplus Reached Record in April as Taxes, Other Revenue Nearly Doubled – Wall Street Journal, 5/12/2022

  • Federal revenue almost doubled in April compared with a year earlier, reaching a record and driving a monthly government surplus of $308 billion, which Treasury officials said also set a record for the largest monthly surplus.
  • Federal outlays in April fell by 16% to $555 billion, the Treasury said, reflecting a decline in pandemic-related spending.
  • Government revenue from taxes and other receipts for the month rose by 97% from a year earlier to $864 billion, not adjusting for calendar differences, the Treasury Department reported Wednesday.
  • Still, the federal government spent 32% more on servicing its debt in April compared with a year earlier as persistently high inflation pushed borrowing costs higher.

EUROPE & WORLD

Finnish Leaders Say Country Should Join NATO, Moving Closer to Membership – Wall Street Journal, 5/12/2022

  • Finland’s president and prime minister on Thursday said they supported the country applying for NATO membership, making it all but certain that the Nordic nation will join the alliance in response to Russia’s invasion of Ukraine.
  • Joining the North Atlantic Treaty Organization would be a major break from decades of Finnish nonaligned defense policy and deal a blow to Russian President Vladimir Putin’s ambition to divide and weaken the Western alliance.
  • Finland and neighboring Sweden have for decades been the two major holdouts among Western nations outside the NATO alliance.
  • Both Nordic countries are likely to apply for membership next week, despite warnings from Russia that such bids would have “consequences.”

Unvaccinated North Korea Locks Down After Reporting First Local Covid Infection – Wall Street Journal, 5/12/2022

  • North Korea, which hasn’t vaccinated its population against Covid-19, ordered a nationwide lockdown after reporting its first locally transmitted case of the virus more than two years after the country closed its borders in the early days of the pandemic.
  • The Omicron variant was detected May 8 in Pyongyang, and the Politburo of the country’s ruling Workers’ Party passed a resolution to implement an emergency anti-epidemic system, according to a Thursday report in state media.
  • North Korean leader Kim Jong Un directed all cities and counties to “thoroughly lock down,” the Korean Central News Agency said. Factories and residential units were told to close themselves off from each other in a move echoing China’s “closed-loop” strategy to stop the virus spreading.

SoftBank Reports Its Biggest-Ever Full-Year Loss – Wall Street Journal, 5/12/2022

  • SoftBank Group said it would cut back its pace of new investments after a global selloff in tech shares drove the Japanese technology investor to its biggest-ever annual loss.
  • “The world is in a chaotic situation,” said Chief Executive Masayoshi Son, citing Covid-19 and Russia’s invasion of Ukraine. “In this chaotic world, the approach we at SoftBank should take is defense.”
  • The comment came after SoftBank reported a net loss of ¥1.71 trillion, equivalent to $13.2 billion, for the fiscal year that ended March 31. That was its biggest full-year loss, topping a record set two years ago, and followed a nearly ¥5 trillion net profit the previous fiscal year.
  • Mr. Son said the company was making new investments at a slower pace this fiscal year. He predicted that the total for the year would be only a quarter or half the level of the previous year, when SoftBank made about $46 billion in investments through its Vision Fund and Latin American funds.

Foxconn Faces Covid Logistics Disarray in China – Wall Street Journal, 5/12/2022

  • Foxconn Technology Group, the world’s biggest iPhone assembler, said it faces logistics disruptions and other challenges in China stemming from the country’s stringent Covid-19 control measures.
  • For the first quarter, Foxconn’s revenue rose 4.5% from a year earlier, while net profit rose 4.6% to 29.45 billion New Taiwan dollars, or around $989.6 million.
  • In April, the company, formally known as Hon Hai Precision Industry Co., posted a 2.8% drop in revenue. It expects revenue to be flat in the current quarter.
  • Separately, Foxconn said Thursday that it has closed a $230 million deal to acquire the cash-strapped electric vehicle maker Lordstown Motors Corp.’s Ohio factory, securing an automotive manufacturing base in the U.S.
  • Foxconn and Lordstown, through a joint venture, plan to mass-produce electric pickup trucks at the plant from the second half of 2022, Lordstown said.
  • Lordstown said Foxconn would invest $100 million in the joint venture, including a $45 million loan to Lordstown. Mr. Liu said it would cost Foxconn roughly $500 million to alter production lines. It couldn’t be determined whether Foxconn’s $100 million investment into the joint venture was included in the $500 million figure Mr. Liu cited.

Nissan warns of flat profit as chip shortage becomes ‘new normal’ – Reuters, 5/12/2022

  • Nissan Motor expects flat operating profit this fiscal year, far below analysts’ expectations, as Japan’s third-biggest carmaker grapples with a global chip shortage, rising material costs and China’s COVID restrictions.
  • Nissan swung to an operating profit of 56 billion yen in the fourth quarter, helped by cost cuts and a sliding yen, versus a 19 billion yen loss in the same period a year earlier.
  • The result was better than an average 38.3 billion yen profit forecast from eight analysts polled by Refinitiv.
  • Nissan expects sales to rise by 18.7% in the current financial year to 10 trillion yen ($77.6 billion). But operating profit would grow just 1% to 250 billion yen, below the 318.5 billion yen ($2.5 billion) mean estimate from 19 analysts polled by Refinitiv.
  • Nissan said it expected raw material and logistics costs to increase by about 1.5 times to 212 billion yen in the fiscal year that started in April, with more than half due to steel and aluminum.
  • It also projected an additional 45 billion yen in logistics cost increases for the current year.

Factmonster – TODAY in HISTORY

  • The body of Charles and Anne Lindbergh’s kidnapped baby was found. (1932)
  • Axis forces in North Africa surrendered. (1943)
  • The Soviet blockade that prompted the Berlin airlift was ended. (1949)
  • Former president Jimmy Carter became the first U.S. president (in or out of office) to visit Fidel Castro’s Cuba. (2002)
  • Tens of thousands killed and thousands injured when a 7.9 magnitude earthquake strikes Sichuan, Gansu, and Yunnan Provinces in western China. (2008)

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