US FINANCIAL MARKET

Stock Indexes Dip in Choppy Trading – Wall Street Journal, 6/1/2022

• U.S. stock indexes retreated in morning trading, suggesting stocks may start June with losses after capping a volatile trading month.
• The S&P 500 fell 0.6% Wednesday, with all three major U.S. indexes handing back early gains. The Dow Jones Industrial Average was off 0.7%, while the technology-focused Nasdaq Composite dipped about 0.2%.
• In economic data, the Institute for Supply Management’s index of U.S. manufacturing activity rose to 56.1 in May from 55.4 in April. Economists surveyed by The Wall Street Journal had expected a decline to 54.5. A reading above 50 indicates expansion.
• The yield on the 10-year U.S. Treasury note advanced to 2.924%, from 2.842% Tuesday. Yields and bond prices move inversely.
• Yields on the benchmark note still remain well below this year’s closing high of 3.124%, but have advanced this week as traders have continued to reassess the path of interest rates.
• Crude prices rose, as investors digested European Union leaders’ plan to impose an oil embargo on Russia and a ban on insuring ships that carry Russian oil.
• Some OPEC members are also exploring the idea of suspending Russia’s participation in an oil-production deal.
• Brent crude, the international benchmark for oil prices, rose 2.4% to $118.31 a barrel. West Texas Intermediate, the U.S. marker, advanced 2.6% to $117.71.
• Though oil prices have fallen from their levels reached shortly after the war began in Ukraine, they have begun to move higher recently, as traders digested European Union leaders’ plans and the easing of Covid-19 restrictions in China.
• Salesforce jumped 13.7% after reporting revenue that outpaced analyst expectations, easing concerns about demand for its business software.
• Shares of Victoria’s Secret rose 9.1% after recording a profit that exceeded analyst expectations.
• Shares of energy companies also climbed, tracing oil prices higher. Marathon Oil advanced 2.6%, while Occidental Petroleum added 1.4%.
• Overseas, the pan-continental Stoxx Europe 600 traded flat.
• In Asia, trading was mixed. China’s Shanghai Composite lost 0.1%, as Covid-19 lockdowns eased in China’s financial capital. Hong Kong’s Hang Seng fell 0.6%. Japan’s Nikkei 225, in contrast, rose about 0.7%.

Salesforce Sales Jump 24%, Easing Concerns About Business Demand – Wall Street Journal, 6/1/2022

• Salesforce posted a better-than-expected 24% increase in fiscal first-quarter revenue, easing concerns about demand for its business software.
• The San Francisco-based company reported revenue of $7.41 billion, up from $5.96 billion in the year-ago quarter and above the estimates by the company and analysts.
• Salesforce reported earnings of $28 million, or 3 cents a share, in the three months through April 30, compared with $469 million, or 50 cents a share, a year earlier.
• After adjusting for items like amortization and stock-based compensation, the company reported adjusted per-share earnings of 98 cents, down from $1.21 in the year-ago quarter.
• The company’s sales outlook for the current quarter fell below Wall Street estimates. Salesforce sees second-quarter revenue of $7.69 billion to $7.70 billion; the average analyst estimate on FactSet was for $7.77 billion.
• Salesforce raised its profit guidance and lowered its sales outlook for the year.
• It said it expects per-share adjusted earnings of between $4.74 and $4.76, up from the range of $4.62 to $4.64 it cited in March.
• Salesforce tempered its sales outlook for the year because of an uncertain macroeconomic environment, including volatile currency rates, dropping it to between $31.7 billion and $31.8 billion from a range of $32 billion to $32.1 billion.

HP Lifts Earnings Outlook Despite Supply-Chain Disruptions – Wall Street Journal, 6/1/2022

• HP offered an upbeat earnings outlook even as ongoing supply-chain disruptions and sanctions against Russia impact its laptop and printing business.
• Revenue rose 3.9% to $16.5 billion. The results beat Wall Street estimates, according to FactSet.
• HP posted profit of $1 billion, or 94 cents a share, for the quarter ended April 30, down from $1.2 billion, or 98 cents a share, in the same period a year earlier. Stripping out one-time items, adjusted earnings in the latest period were $1.08 a share.
• Despite the supply-chain and Russia-related setbacks, HP raised the midpoint of its adjusted annual earnings forecast by 3 cents to $4.31 a share.
• It lowered its nonadjusted annual earnings forecast to a range of $3.79 to $3.93 a share, from a previous forecast of $3.87 to $4.07.

Victoria’s Secret reports better-than-expected profit but warns challenges could persist – CNBC, 6/1/2022

• Victoria’s Secret reported a quarterly profit that topped Wall Street expectations on Tuesday, but warned that it could continue to face supply chain and sales challenges for the remainder of the year.
• Sales fell 4.5% to $1.48 billion from $1.55 billion a year earlier, but were in line with Wall Street forecasts.
• Same-store sales were down 8% in the quarter from 2021.
• Adjusting for last year’s stimulus benefit, the company said same-store sales were down 3%.
• For the three-month period ended April 30, net income was $76.14 million, or 93 cents per share, compared with net income of $174 million, or $1.97 per share, a year earlier.
• Victoria’s Secret ended the quarter with inventory levels up 37% from the prior year, which it said was primarily due to longer transportation times and higher cost of goods stemming from inflation.
• For its fiscal second quarter, Victoria’s Secret expects to earn between 95 cents per share to $1.25 a share, on an adjusted basis. Analysts were looking for $1.19 per share.
• The company forecast sales to be down low-single digits to up low-single digits on a year-over-year basis. Analysts were looking for a 0.8% decline.
• For the year, Victoria’s Secret said Tuesday it still expects total sales to be flat to up low-single digits from 2021. Analysts were projecting a year-over-year increase of 1.7%, according to Refinitiv data.

Delta Falls as Jump in Costs Overshadow Strong Demand, Pricing – Bloomberg, 6/1/2022

• Delta Air Lines fell, leading declines across the airline industry, after saying fuel and a decrease in flying capacity are driving costs higher than what the carrier had expected, overshadowing an otherwise upbeat forecast.
• Costs for each seat flown a mile, an industry gauge of efficiency, will be up as much as 22% this quarter compared to 2019 levels, exceeding Delta’s original outlook for 17% higher, the carrier said in a regulatory filing Wednesday.
• “We’re at the point now, we’re not going to grow any more, probably through the end of this year,” Chief Executive Officer Ed Bastian said at the Bernstein Strategic Decisions Conference.
• Delta will pay as much as $3.70 a gallon for jet fuel, higher than earlier expectations of as much as $3.35. Delta is covering the “historic level” of fuel prices with fare increases, he said.
• “The demand is off the charts,” Bastian said. “Pricing is very healthy. We expect pricing this summer to be up 25% to 30% on average. We’ve never seen anything of that scale.”
• Unit revenue should be as much as 8 percentage points better than an unspecified earlier outlook as the surge in travel allows airlines to boost prices, Delta said.
• Adjusted total revenue, boosted by the strong demand and increased prices, should reach 100% of 2019 levels. Delta originally expected a recovery between 93% and 97% for the measure, which excludes the airline’s refinery.
• Operating margin will be as much as 14%, at the high end of the airline’s initial outlook of 13% to 14%. 

Americans Start Summer Travel Season Beset by Record Gas Prices – Wall Street Journal, 6/1/2022

• Millions of Americans hit the road over Memorial Day weekend, with record-high gas prices pinching their wallets.
• The national average price for a gallon of regular unleaded gas hit $4.62 as of Monday, according to AAA, $1.58 higher than a year earlier and about 12% above the pre-2022 high of $4.11 set in 2008.
• Prices have risen about 11% over the past month, the organization’s figures indicated, and gas was recently above $4 in all 50 states.
• “Folks have decided, ‘Look, I’ve been good. I’ve been hunkering down for two years. I’m gonna go, and I’m gonna go big,’ ” said AAA spokesman Andrew Gross.
• The organization said in May that 34.9 million Americans were expected to travel by automobile during the Memorial Day weekend, up 4.5% from 2021.

OPEC Weighs Suspending Russia From Oil-Production Deal – Wall Street Journal, 6/1/2022

• Some OPEC members are exploring the idea of suspending Russia’s participation in an oil-production deal as Western sanctions and a partial European ban begin to undercut Moscow’s ability to pump more, OPEC delegates said.
• Exempting Russia from its oil-production targets could potentially pave the way for Saudi Arabia, the United Arab Emirates and other producers in the Organization of the Petroleum Exporting Countries to pump significantly more crude, something that the U.S. and European nations have pressed them to do as the invasion of Ukraine sent oil prices soaring above $100 a barrel.
• OPEC’s 13 members and 10 non-OPEC producers led by Russia are set to meet on Thursday, when they are expected to approve a planned increase of 432,000 barrels a day—part of a series of incremental monthly increases designed to bring production back to prepandemic levels.
• Whatever OPEC does, it is likely to try to keep Moscow as an ally, looking ahead to a day when its production could come back.
• Even with diminished output, Russia pumps more than all countries except the U.S. and Saudi Arabia.
• Still, some members worry that exempting Russia from its targets will undermine cohesion in OPEC+. Russia would retain sway in the group without having to participate in raising or cutting production.

Russian Oil Producers Stay One Step Ahead of Sanctions – Wall Street Journal, 6/1/2022

• Europe just targeted Russian crude with its toughest sanctions yet, but shippers and refiners are getting the oil to market by obscuring its origins. Some fuels believed to be partially made from Russian crude landed in New York and New Jersey last month.
• The cargoes were brought through the Suez Canal and across the Atlantic from Indian refineries, which have been big buyers of Russian oil, according to shipping records, Refinitiv data and analysis by Helsinki-based think tank Centre for Research on Energy and Clean Air.
• Oil is also being transferred between ships at sea, a page out of the playbook used to buy and sell sanctioned Iranian and Venezuelan oil. The transfers are happening in the Mediterranean, off the coast of West Africa and the Black Sea, with oil then heading toward China, India and Western Europe, according to shipping companies.
• Overall, Russian oil exports rebounded in April, after dropping in March as the first Western sanctions took effect, the International Energy Agency said. Russia’s oil exports rose by 620,000 barrels to 8.1 million barrels a day, close to its prewar levels, with the biggest increase going to India.
• India has emerged as a key hub for Russian oil flows. The country’s imports have skyrocketed to 800,000 barrels a day since the war began, compared with 30,000 barrels a day previously, according to commodity-markets data company Kpler.

Missed Payments, Rising Interest Rates Put ‘Buy Now, Pay Later’ to the Test – Wall Street Journal, 6/1/2022

• “Buy now, pay later” companies promised a credit revolution that would change the way people pay for things. Rising delinquencies and a slowing economy are clouding that outlook.
• The buy-now-pay-later business took off in a post-financial-crisis world of cheap funding and low delinquencies.
• They rely less on—and in some cases bypass altogether—traditional credit scores and reports. That makes them appealing to people with limited savings and low credit scores.
• Subprime consumers accounted for about 43% of shoppers who applied for payment plans or loans at retailers’ checkout between the fourth quarter of 2019 and 2021, according to credit-reporting firm TransUnion, though they only made up about 15% of the U.S. adult population.
• At Affirm, about 3.7% of outstanding loan dollars held on the company’s balance sheet were at least 30 days late at the end of March, up from 1.4% a year earlier.
• Affirm said the increase reflects a loosening of underwriting standards that it tightened earlier in the pandemic.
• Afterpay’s losses equaled 1.17% of total payment dollars processed during its latest quarter, compared with 0.9% for its latest full year ended June 2021.
• Zip said its “bad debts and expected credit losses” surged 403% in the last six months of 2021 compared with the same period a year prior. Zip said the increase was in part due to companies it acquired in 2021.

Buick says it will ‘fully electrify’ North American lineup by 2030 – Reuters, 6/1/2022

• General Motors’ Buick brand, once one of America’s pioneer auto companies, said Wednesday that its future North American lineup will be all-electric by 2030.
• That target will make Buick one of GM’s lead brands, along with Cadillac, in pursuing the corporate goal of phasing out internal combustion engines by 2035.
• Buick said it plans to introduce its first EV in 2024, but did not provide specifics.
• Supplier sources said the brand is planning to build at least two electric crossover vehicles in that timeframe, with production sourced in both China and North America.