US FINANCIAL MARKET
Stock Markets Fall as Bear Market Looms Over S&P 500 – Wall Street Journal, 5/19/2022
- U.S. stocks resumed their declines Thursday on growing worries of an economic slowdown that sent investors into the haven of government bonds.
- The S&P 500 fell 0.7%, putting the index close to bear market territory—market shorthand for a 20% fall from a recent high. The index tumbled 4% Wednesday, its biggest one-day retreat since June 2020.
- After that drop, the S&P 500 had retreated more than 18% from its January all-time high.
- The Dow Jones Industrial Average fell about 1.2% Thursday, putting it about 15% below its all-time closing high. The Nasdaq Composite Index, which entered bear-market territory earlier this year, pared early losses and was recently up nearly 0.1%.
- Kohl’s fell 1% after saying sales weakened in April, making it the latest retailer to point to inflationary pressures on demand.
- Walmart and Target this week said higher costs ate into profits in the latest quarter, leading to a selloff of their shares that rippled through the broader market.
- Cisco Systems tumbled 14% after the communication-equipment firm missed analyst expectations for its quarterly results.
- The yield on 10-year Treasury notes fell to 2.814% from 2.884% Wednesday.
- The move put yields, which had shot up for much of the year as the Federal Reserve began to raise interest rates, on course to fall for seven in nine trading days. Bond yields and prices move in opposite directions.
- Meanwhile, the Labor Department said new applications for unemployment benefits rose for the third week in a row. Initial jobless claims, a proxy for layoffs, remain historically low.
- Separately, U.S. home prices reached a new high in April, according to fresh data, but the number of sales fell.
- International stocks retreated, tracking the U.S. selloff. The Stoxx Europe 600 shed 1.6%, led lower by shares of financial-services and food-and-beverage companies.
- Hong Kong’s Hang Seng Index tumbled 2.5% as shares of Tencent dropped 6.5% after the videogame giant reported its worst quarterly profit drop since listing in the city.
- Elsewhere in Asia, the CSI 300 index of the largest stocks listed in Shanghai and Shenzhen edged up 0.2%. Japan’s Nikkei 225 dropped 1.9% and South Korea’s Kospi Composite declined 1.3%.
Cisco shares slump as China lockdowns, Ukraine crisis hit outlook – Reuters, 5/19/2022
- Cisco Systems cut its full-year earnings forecast on Wednesday after COVID lockdowns in China and the war in Ukraine dragged sales below estimates in the third quarter, sending shares down 13% in extended trading.
- Cisco reported third-quarter adjusted profit of 87 cents on revenue of $12.8 billion, compared with expectations of 86 cents on revenue of $13.87 billion, according to IBES data from Refinitiv.
- It also said fourth-quarter revenue would decline by 1% to 5.5%, becoming the latest U.S. company to outline a hit from Beijing’s “Zero COVID” policy that has worsened supply-chain snags and hurt demand amid rising inflation.
- Cisco, which sells networking equipment and software to connect devices to the internet, now expects revenue growth of 2% to 3% in fiscal 2022, compared with an earlier forecast of 5.5% to 6.5%.
- Adjusted profit is estimated between $3.29 and $3.37 per share from $3.41 to $3.46 per share earlier.
Kohl’s First-Quarter Sales Fell as Retailers Struggle With Inflation – Wall Street Journal, 5/19/2022
- Kohl’s reported a 5.2% drop in first-quarter sales, the latest major retailer to struggle as inflation saps consumer spending power and raises costs for doing business.
- Total revenue was $3.5 billion, below analyst estimates for $3.7 billion.
- The department-store chain on Thursday said that sales took a hit as its customers see their disposable income contract from widespread inflation and from a lack of stimulus checks that boosted results last year.
- Its same-store sales rose 14.4% from a year ago, but that was boosted heavily by higher prices for gasoline, which it sells at pumps alongside its warehouse club stores.
- Excluding fuel, same-store sales rose 4.1% as consumers hunted for deals by buying products in bulk.
- For the quarter ended April 30, Kohl’s reported earnings of $14 million, flat from the prior year.
- Per-share earnings came in at 11 cents. Analysts had been expecting 69 cents a share, according to FactSet.
- The company is now expecting no more than 1% growth in net sales for the year, after previously forecasting that its full-year top line would rise between 2% and 3%. It also expects annual earnings to be between $6.45 and $6.85 a share, marking a 60 cent per-share reduction from the midpoint of its previous guidance.
Bath & Body Works shares fall as retailer cuts profit outlook due to inflation – CNBC, 5/19/2022
- Bath & Body Works shares fell in after-hours trading Wednesday after the retailer cut its profit outlook for the year, in part due to expected increases in inflationary pressures.
- Sales fell slightly to $1.45 billion from $1.47 billion a year earlier. But revenue beat expectations for $1.43 billion.
- For the three-month period ended April 30, Bath & Body Works reported net income of $154.9 million, or 64 cents per share, compared with income of $276.6 million, or 97 cents per share, a year earlier.
- Bath & Body Works, which sells lotions, candles and other bath soaps, is forecasting its fiscal 2022 earnings from continuing operations per diluted share to be between $3.80 and $4.15, compared with a prior range of $4.30 to $4.70.
- Its second-quarter earnings per share are expected to be between 60 cents and 65 cents, compared with 77 cents a year earlier.
- Bath & Body Works now expects to take a hit of between $225 million and $250 million from inflation this fiscal year, or about $75 million more than originally planned.
Boeing Gets Boost With Long-Awaited 737 MAX Deal From British Airways Owner – Wall Street Journal, 5/19/2022
- Boeing won a key order for 737 MAX aircraft from the owner of British Airways, in a boost for the plane maker after losing a series of sales from longtime customers to rival Airbus.
- International Consolidated Airlines Group SA, which owns airlines including BA, Ireland’s Aer Lingus and Spain’s Iberia, said it placed an order for 50 of Boeing’s 737 MAX aircraft, and has options to purchase another 100.
- The aircraft deal is split evenly between the 737-8200, a version of the MAX family of jets with more seats than its popular 737-8, and the 737-10, the biggest variant of the plane that is still awaiting regulatory approval from the Federal Aviation Administration.
- The order is smaller than originally planned. Under former Chief Executive Willie Walsh, IAG signed in June 2019 a letter of intent to buy 200 MAX jets.
- That agreement, although not binding, was seen as a major coup for Boeing at the time, and a vote of confidence in the aircraft type, just months after it was forced to ground the MAX following two deadly crashes.
Harley-Davidson to suspend most vehicle assembly due to parts issue – Reuters, 5/19/2022
- Harley-Davidson said on Thursday the bike maker will suspend all vehicle assembly and shipments for a two-week period, excluding those from its electric vehicle division LiveWire, due to a parts issue related to a supplier.
- The company said it took the decision after a third-party supplier informed Harley about a regulatory compliance matter relating to the supplier’s component part.
Ford recalls 39,000 U.S. SUVs after engine fire reports – Reuters, 5/19/2022
- Ford Motor Company said Thursday it was recalling 39,000 SUVs after reports of 16 fires, and has advised owners to park their vehicles outdoors and away from structures until a fix is completed.
- The recall, which covers some 2021 model year Ford Expedition and Lincoln Navigator vehicles, was prompted as an engine compartment fire could occur while the car is parked or being driven, even with the ignition off, the No. 2 U.S. automaker said.
- This year, Ford has issued 30 recalls in the United States covering 3.5 million vehicles, the most of any automaker.
More Subprime Borrowers Are Missing Loan Payments – Wall Street Journal, 5/19/2022
- Consumers with low credit scores are falling behind on payments for car loans, personal loans and credit cards, a sign that the healthiest consumer lending environment on record in the U.S. is coming to an end.
- The share of subprime credit cards and personal loans that are at least 60 days late is rising faster than normal, according to credit-reporting firm Equifax.
- In March, those delinquencies rose month over month for the eighth time in a row, nearing their prepandemic levels.
- Some 11% of general-purpose credit cards held by consumers with credit scores below 620 were at least 60 days behind on payment in March compared with 9.8% a year prior, according to the latest data available from Equifax.
- Personal loans and lines of credit delinquencies came in at 11.3%, up from 10.4% a year prior.
- Both categories hit Covid-19-era lows of 7.5% and 8.3%, respectively, in July.
- Car loan and lease delinquencies hit a record in February, based on Equifax’s tracking, with 8.8% of subprime accounts behind on payment by at least 60 days. That edged down to 8.5% in March but was still the second highest level on record.
US ECONOMY & POLITICS
U.S. Home Prices Hit New Record in April – Wall Street Journal, 5/19/2022
- U.S. home prices climbed to a record of $391,200 in April, but the number of sales fell as high prices and rising interest rates pushed more buyers out of the market.
- Existing-home sales fell 2.4% in April from the prior month to a seasonally adjusted annual rate of 5.61 million, the weakest rate since June 2020, the National Association of Realtors said Thursday. April sales fell 5.9% from a year earlier.
- The median existing-home price rose 14.8% in April from a year earlier, with $391,200 a record high in data going back to 1999, NAR said.
- There were 1.03 million homes for sale at the end of April, up 10.8% from March and down 10.4% from April 2021, NAR said.
- At the current sales pace, there was a 2.2-month supply of homes on the market at the end of April.
- The typical home sold in April was on the market for 17 days, unchanged from the prior month, NAR said.
- Housing starts, a measure of U.S. home-building, fell 0.2% in April from March, the Commerce Department said this week.
- Residential permits, which can be a bellwether for future home construction, fell 3.2%.
U.S. Jobless Claims Rise for Third Straight Week – Wall Street Journal, 5/19/2022
- New applications for unemployment benefits rose for the third week in a row, amid separate signs that the U.S. labor market remains unusually tight.
- Initial jobless claims, a proxy for layoffs, increased by 21,000 to a seasonally adjusted 218,000 last week from the previous week’s revised level of 197,000, the Labor Department said Thursday.
- Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, declined to 1.3 million for the week ended May 7 from the previous week’s level—the lowest level since December 1969.
EUROPE & WORLD
China Insists Party Elites Shed Overseas Assets, Eyeing Western Sanctions on Russia – Wall Street Journal, 5/19/2022
- China’s Communist Party will block promotions for senior cadres whose spouses or children hold significant assets abroad, people familiar with the matter said, as Beijing seeks to insulate its top officials from the types of sanctions now being directed at Russia.
- The ban, outlined in an internal notice by the party’s powerful Central Organization Department, could play a role in Chinese leader Xi Jinping’s efforts to increase his influence at a twice-a-decade leadership shuffle scheduled for later this year.
- Issued in March, the directive prohibits spouses and children of ministerial-level officials from holding—directly or indirectly—any real estate abroad or shares in entities registered overseas, the people said.
- Senior officials and members of their immediate families would also be barred from setting up accounts with overseas financial institutions unless they have legitimate reasons for doing so—such as study or work—the people said.
China in Talks With Russia to Buy Oil for Strategic Reserves – Bloomberg, 5/19/2022
- China is seeking to replenish its strategic crude stockpiles with cheap Russian oil, a sign Beijing is strengthening its energy ties with Moscow just as Europe works toward banning imports due to the war in Ukraine.
- Beijing is in discussions with Moscow to buy additional supplies, according to people with knowledge of the plan who asked not to be named as the matter is private.
- Details on volumes or terms of a potential deal haven’t been decided yet, and there’s no guarantee an agreement will be concluded, said one person.
- Crude would be used to fill China’s strategic petroleum reserves, and talks are being conducted at a government level with little direct involvement from oil companies, said one person.
TSMC Looks to Build Multibillion-Dollar Chip Plant in Singapore – Wall Street Journal, 5/19/2022
- Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, is considering building a semiconductor factory in Singapore to help address a global supply shortage, according to people familiar with the matter.
- A final decision hasn’t been made yet and details of the plan are still under discussion, but preliminary talks involve a major plant whose cost would run into the billions of dollars, one of the people said.
- For the Singapore project, TSMC is studying the feasibility of production lines that would make seven- to 28-nanometer chips, another person familiar with the plans said.
- These chips are based on older production technologies and are widely used in cars, smartphones and other devices.
- TSMC is ramping up investment in these chips, which have caused some of the worst supply-chain bottlenecks, including for Apple Inc.
- Having production sites in more countries brings the company closer to its customers in major markets and is a hedge against pandemic-era travel restrictions and other disruptions, TSMC executives have said.
Canada Goose forecasts upbeat annual sales, profit on China recovery hopes – Reuters, 5/19/2022
- Canada Goose Holdings, on Thursday forecast annual sales and profit above Wall Street expectations on hopes for a recovery in key China market and as demand for its luxury parkas and jackets stays strong.
- Sales of luxury goods have remained robust in North America with shoppers displaying pre-pandemic trends as surging prices of gas and food have not dissuaded affluent consumers from splurging on high-end items.
- Known for its expensive red parkas, Canada Goose has remained insulated from surging supply-chain costs that have rattled the retail industry, and said it does not expect supply challenges to affect the year ahead.
- The company produced around 84% of its products in Canada last year.
- For fiscal 2023, Canada Goose expects revenue to be between C$1.30 billion ($1.01 billion) and C$1.40 billion. Analysts on average expect it to be C$1.30 billion, according to Refinitiv IBES data.
- The company projected full-year adjusted per-share profit of C$1.60 to C$1.90, compared with analysts’ average estimate of C$1.61.
- However, the luxury outerwear maker forecast first-quarter revenue below market estimates due to weakness in the Asia Pacific region.
Grab says worst of pandemic over, forecasts rebound in business – Reuters, 5/19/2022
- Grab Holdings, Southeast Asia’s No. 1 ride-hailing and food delivery firm, on Thursday forecast a rebound in its rideshare and food delivery businesses as economies recover from a pandemic-led slump.
- Revenue for the first quarter rose 6% to $228 million, while loss narrowed to $435 million from $666 million.
- For the second quarter, Grab forecast gross merchandise value (GMV), a measure of transaction volume, for the delivery segment to be between $2.55 billion and $2.65 billion, and between $950 million and $1 billion for the mobility unit.
- GMV for the two units was $2.56 billion and $834 million, respectively, in the first quarter.
- For the year, Grab expects GMV to grow between 30% and 35%.
Polestar cuts 2022 delivery forecast amid China lockdown – Reuters, 5/19/2022
- Swedish electric-vehicle maker Polestar cut its 2022 delivery forecast by 15,000 units to 50,000 vehicles on Thursday, hit by COVID-19 lockdowns in China.
- “The reduction for 2022 is 100% attributable to the lockdowns in China,” the electric-vehicle maker said in a statement.
- Polestar said it had introduced a second shift at its factory and plans to recover some of the production loss later in the year. The company added it was confident of reaching its delivery target from 2023 onwards.
- Anne Boleyn, the second wife of King Henry VIII, was beheaded. (1536)
- The 130-ship-strong Spanish Armada set sail for England; it was defeated in August. (1588)
- Congress passed the Emergency Quota Act, establishing national quotas for immigrants. (1921)
- British author and soldier, T. E. Lawrence, also known as “Lawrence of Arabia,” died from injuries sustained in a motorcycle crash. (1935)
- Marilyn Monroe sang “Happy Birthday” to president John F. Kennedy. (1962)
- The 27th Amendment to the Constitution, which prohibited Congress from giving itself midterm pay raises, went into effect. (1992)