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Daily Market Report | July 14, 2022

US FINANCIAL MARKET

Dow Falls 400 Points, With Stocks Sliding as Banks Kick Off Earnings Season – Wall Street Journal, 7/14/2022

  • U.S. stocks fell, putting the S&P 500 on course for its fifth consecutive day of losses, as earnings reports from financial behemoths spotlighted concerns about the economic outlook.
  • The S&P 500 dropped 1.3% in late-morning trading Thursday. The blue-chip Dow Jones Industrial Average lost 1.4%, or roughly 400 points, while the technology-heavy Nasdaq Composite Index shed 1.1%.
  • Major benchmarks fell Wednesday after data showed inflation at a fresh four-decade high.
  • The second-quarter earnings season ramped up Thursday with reports from JPMorgan Chase and Morgan Stanley.
  • JPMorgan Chase shares fell 4.5% after the bank said it set aside another $428 million to cover possible future loan losses, suggesting it had grown more dour about the U.S. economy. The stock led decliners on the Dow.
  • Morgan Stanley shares slipped 1.6% after it said profit slumped 29% in the second quarter.
  • Both banks reported earnings per share that missed analysts’ forecasts, suggesting that earnings estimates are too optimistic.
  • Investors also parsed another inflation reading Thursday showing producer prices picked up in June.
  • The producer-price index, which generally reflects supply conditions in the economy, increased to 11.3% last month from the year prior, according to the Labor Department.
  • The yield on the 10-year Treasury note jumped to 2.966% from 2.904% on Wednesday, while the yield on the two-year bond yield also rose. Bond yields rise as prices fall.
  • Jobless claims edged up last week to the highest level this year, data released Thursday showed. The figures, though low by historic standards, have trended higher in recent weeks.
  • In commodity markets, Brent crude dropped 2.5% to $97.12 a barrel Thursday.
  • Energy stocks were the worst-performing sector in the S&P 500, down 3.7%. Marathon Oil and Diamondback Energy both lost at least 4%.
  • Other commodity-related companies also fell Thursday. Fertilizer stocks CF Industries Holding and Mosaic each dropped at least 6%, among the biggest losers on the S&P 500.
  • Conagra Brands saw the steepest decline on the S&P 500 after the food company’s latest earnings report, sinking 8.7%.
  • The maker of Duncan Hines cake mixes and Slim Jim meat snacks said it plans further price increases in the coming months as it races to offset double-digit cost inflation.
  • In Europe, Italian stocks led losses as political turmoil threatened to topple Prime Minister Mario Draghi’s coalition government. Italy’s FTSE MIB fell 3.7%, while the pan-continental Stoxx Europe 600 declined 1.8%.
  • In Asia, stock markets were mixed. Japan’s Nikkei 225 rose 0.6% while Hong Kong’s Hang Seng edged down 0.2%. In mainland China, the Shanghai Composite Index shed 0.1%.

JPMorgan Profit Drops 28% as Bank Signals Concern on Economy – Wall Street Journal, 7/14/2022

  • JPMorgan Chase reported a 28% decline in its second-quarter profit Thursday.
  • Revenue rose 1% to $30.72 billion. That missed the $31.81 billion analysts had expected.
  • In the corporate and investment bank, revenue fell 10% while profit dropped 26%
  • Fees from Wall Street trading rose 15% thanks to volatile markets and interest-rate swings. Investment banking fees dropped 54%, reflecting a slowdown in corporate dealmaking and stock sales from last year’s feverish pace.
  • Revenue increased 8% in the commercial bank and 5% in asset and wealth management.
  • In the consumer bank, revenue fell 1% and profit dropped 45%, largely reflecting a release of funds set aside for soured loans in the second quarter of 2021.
  • Spending on Chase credit cards rose 21% from a year ago and 15% from the first quarter, but fees collected on cards dropped.
  • Bigger-ticket loans slumped, with mortgage originations down 45% and auto loan and lease origination down 44%.
  • The bank’s net interest margin, a measure of what it collects on loans minus what it pays for deposits, rose to 1.80% from 1.67% at the end of March.
  • The nation’s biggest bank set aside another $428 million to cover potential future loan losses, a signal it has grown more dour on the U.S. economic outlook.
  • That dragged down profit, which fell to $8.65 billion, or $2.76 per share, falling short of the $2.89-per-share forecast by analysts surveyed by FactSet.

Morgan Stanley Profit Falls 29% – Wall Street Journal, 7/14/2022

  • Morgan Stanley said Thursday its second-quarter profit fell 29% from a year ago, reflecting a drop in corporate deal making.
  • Revenue fell 11% to $13.1 billion in the quarter, which also missed expectations of $13.39 billion.
  • Investment-banking revenue, including fees from mergers and acquisitions, dropped 55%.
  • Wealth-management revenue was $5.7 billion in the quarter, down 6% from a year earlier. That unit accounted for 44% of total company revenue.
  • The number of retail-trading clients at Morgan Stanley was 7.8 million at the end of June, up from 7.6 million in the first quarter. The average daily number of retail trades the company handled was 880,000, down 13% from the first quarter.
  • Investment-management revenue fell 17% from a year earlier.
  • The New York bank posted a profit of $2.5 billion, or $1.39 a share. Analysts polled by FactSet had expected $1.56 a share.

World’s largest chipmaker TSMC posts record profit allaying fears over semiconductor headwinds – CNBC, 7/14/2022

  • TSMC, the world’s biggest chipmaker, posted record net profit in the second quarter, helping assuage fears over weak demand from high inflation and a glut of some semiconductors on the market.
  • Revenue of 534.14 billion Taiwanese dollars ($18.16 billion), a rise 43.5% year-on-year. That beat the 524.02 billion Taiwan dollar average from analyst estimates compiled by Refinitiv.
  • Net income of 237.03 billion Taiwanese dollars, up 76.4% year-on-year and ahead of estimates. That was a record quarter in terms of net income for TSMC.
  • The company which is Apple’s most important chip supplier, said it expects revenue to be between $19.8 billion and $20.6 billion in the third quarter, surging from $14.8 billion in the same period last year.
  • However, TSMC CEO CC Wei said that some of the company’s capital expenditure would be “pushed out into 2023.” He cited “greater challenges in the supply chains” which is extending delivery times for some chipmaking equipment.
  • The company said it saw weakness in the consumer market such as smartphones and PCs but its data center and automotive business remained “steady.”
  • But TSMC’s Wei said he sees inventory levels reducing and said the current adjustments being made resemble a “typical cycle” for semiconductors.
  • “We believe the current semiconductor cycle will be more similar to a typical cycle, with a few quarters of inventory adjustment likely through the first half 2023,” Wei said.

Experian first-quarter revenue rises on robust credit demand – Reuters, 7/14/2022

  • Experian reported higher first-quarter total revenue on Thursday, as the world’s largest credit data firm benefited from a robust demand in demand and supply of credit, mainly in North America.
  • The company, which lets 122 million people their credit scores and eligibility, posted a 7% increase in organic revenue from North America for the quarter ended June 30, while flagging a fall in demand for mortgage credit.
  • The data firm also saw robust demand in its consumer services unit, and reiterated its full-year organic revenue outlook of 7-9% rise for the whole group.

Conagra forecasts profit below estimates as demand dampens, costs spiral – Reuters, 7/14/2022

  • Conagra Brands forecast annual earnings below Wall Street expectations on Thursday, as price hikes dent demand for its frozen foods and snacks while mounting costs crimp margins.
  • Net sales rose 6.2% to $2.91 billion in the fourth quarter ended May 29, missing analysts’ average estimate of $2.93 billion, according to Refinitiv IBES data.
  • Conagra, known for brands such as Birds Eye and Chef Boyardee, said its volumes fell 6.4% in the fourth quarter, as consumers showed signs of pushing back against price increases.
  • Net income attributable to Conagra declined to $158.9 million, or 33 cents per share, from $309.5 million, or 64 cents per share, a year earlier.
  • Conagra said it expects full-year adjusted profit per share to grow by 1% to 5% compared with analyst expectations of an 8.26% growth, as the packaged food maker anticipates gross inflation in the low-teen percentage range for the year.

Amazon Prime Day Pushed Web Sales Up 8.5% to $11.9 Billion – Bloomberg, 7/14/2022

  • Online spending in the US rose 8.5% to $11.9 billion during Amazon.com’s two-day Prime Day promotion, according to Adobe, helping boost traffic on competing sites such as Walmart.com and Target.com that held their own sales.
  • Amazon sold more than 300 million items over two days, more than any previous Prime Day, the company said Thursday.
  • The average Amazon order during the event was $55.26, up 16.8% from Prime Day in 2021 which was held in June, according to Numerator, which based its calculation on 58,934 orders from 21,306 households.
  • Two-thirds of shoppers didn’t seek better prices on other websites and did all their shopping on Amazon, according to the retail consulting firm.

Amazon Proposes Settlement of EU Antitrust Charges on Seller Data – Wall Street Journal, 7/14/2022

  • Amazon.com has proposed concessions to settle two antitrust cases against it in the European Union, a fresh sign of changing strategy from big tech companies after the bloc passed a strict new digital-competition law.
  • The U.S.-based online retailer has promised not to use non-public data about sellers on its marketplace, after the EU accused Amazon of violating competition law by using non-public information from merchants to compete against them.
  • The European Commission, the bloc’s top competition regulator, on Thursday said it was seeking feedback on commitments offered by Amazon to settle the cases.
  • As part of the settlement offer, the commission said Amazon has proposed to refrain from using the non-public data it gets from third-party marketplace sellers—such as sales terms, revenue and seller performance—to compete with them.

Crude Erases War-Driven Gains as Recession Fears Hammer Markets – Bloomberg, 7/14/2022

  • Oil dropped to levels not seen since before Russia’s invasion of Ukraine as record US inflation and disappointing earnings from Wall Street intensified fears of a recession.
  • The global crude benchmark fell as much as 5.1% to trade under $95 a barrel, touching its lowest level since late February.
  • Nonetheless, global oil supply remains tight, as can be seen in time spreads showing a wide premium for immediately available barrels.
  • Goldman Sachs Group said the market is “screaming” tightness and that this week’s selloff has been driven by low liquidity and technical factors.
  • There were signs that high US gasoline prices are starting to take their toll on consumption.
  • US gasoline demand fell to the lowest level for this time of year since 1996, even slipping below the same week in 2020, according to the Energy Information Administration.
  • The four-week rolling average of gasoline demand was the lowest on a seasonal basis since 2000. Crude stockpiles rose by 3.25 million barrels.

Ford, SK On finalize U.S. EV battery joint venture – Reuters, 7/14/2022

  • Ford Motor and South Korean battery maker SK On Co along with its subsidiary on Thursday finalized setting up a joint venture for building and operating battery production facilities in the United States.
  • The JV, BlueOval SK LLC, will establish a battery plant for electric vehicles (EV) in Tennessee and two other facilities in Kentucky, the U.S. automaker said in a regulatory filing.
  • Both the companies had signed a memorandum of understanding for the JV in May last year. BlueOval SK is expected to produce about 60 gigawatt hours of power annually that could be raised further.

US ECONOMY & POLITICS

Producer Price Gains Accelerated in June – Wall Street Journal, 7/14/2022

  • U.S. suppliers’ price increases picked up in June and remained near historic highs as pressure from high energy prices persisted.
  • The Labor Department on Thursday said the producer-price index, which generally reflects supply conditions in the economy, increased to 11.3% on a 12-month basis in June.
  • That marked its seventh consecutive double-digit gain, and compared with a revised 10.9% increase in May, and signaled upward price pressures continue to move through the economy.
  • On a one-month basis, producer prices increased a seasonally adjusted 1.1% in June from the prior month, marking an acceleration from the revised 0.9% gain in May.
  • June’s rate of increase was higher than the average monthly gain of 0.2% in the two years before the pandemic.
  • The so-called core price index—which excludes the often-volatile categories of food, energy and supplier margins—slowed last month, climbing 0.3% in June from a month earlier, after gaining 0.4% in May.
  • Producer prices for goods, excluding food and energy, rose 0.5% in June from a month earlier—slowing slightly from May’s 0.6% rise, and down considerably from the 1.1% gain in both March and April.
  • Services producer prices decelerated to 0.4% last month from June, down from 0.6% the prior month.

U.S. Jobless Claims Reach Highest Level This Year – Wall Street Journal, 7/14/2022

  • New applications for unemployment benefits edged higher last week, but still remained near historic lows, suggesting the strong labor market is cooling a bit as the economy slows.
  • Initial jobless claims, a proxy for layoffs, rose slightly to a seasonally adjusted 244,000 last week from 235,000 the prior week, the Labor Department said Thursday.
  • The figure stands a bit above the 2019 prepandemic weekly average of 218,000, when the U.S. labor market was also strong.
  • The four-week moving average for claims, which smooths weekly volatility, inched up to 235,750 last week, an increase of 3,250 from the previous week’s average.
  • Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, fell by 41,000 to 1.3 million in the week ended July 2. Continuing claims are reported with a one-week lag.

Fed’s Bostic: ‘Everything in play’ for July rate hike – Reuters, 7/14/2022

  • Atlanta Federal Reserve Bank President Raphael Bostic on Wednesday stoked rising expectations for more aggressive Fed action ahead, saying higher than expected June inflation might require policymakers to consider a 100 basis point increase at their meeting later this month.
  • “Everything is in play,” Bostic told reporters during a tour of Tampa and St. Petersburg, following release of the latest report, which showed consumer prices surged 9.1% last month, an acceleration from May in a surprise to forecasters.
  • While Bostic said he needed to better study the “nuts and bolts” of the report, he felt “today’s numbers suggest the trajectory is not moving in a positive way … How much I need to adapt is really the next question.”

Fed Governor Waller says he’s open to ‘larger’ rate hike this month than in June – CNBC, 7/14/2022

  • Federal Reserve Governor Christopher Waller said he’s willing to consider what would be the most aggressive interest rate hike in decades at the central bank’s meeting later this month.
  • While Waller said he supports a 75 basis point hike at the July 26-27 meeting, he will be watching data and keeping an open mind about what the Fed should do to control inflation, which is running at its fastest pace since 1981.
  • “My base case for July depends on incoming data,” he said in remarks at an event in Victor, Idaho. “We have important data releases on retail sales and housing coming in before the July meeting. If that data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down.”

Railroad cargo backups threaten new logjam -Los Angeles port chief – Reuters, 7/14/2022

  • Railroads and importers must remove cargo that is stacking up at the nation’s busiest seaport in Los Angeles to avoid exacerbating supply chain congestion, the port chief said on Wednesday.
  • Resulting backlogs at the Port of Los Angeles threaten to undo progress workers have made clearing docks after pandemic-fueled imports inundated the property and left more than 100 ships queueing offshore.
  • More than 29,000 rail containers are sitting on Southern California port docks. That number should not be more than 9,000, Seroka said.
  • Union Pacific and BNSF say they are working to address labor and equipment shortages. They said their operations are dependent on prompt cargo pickups and quick equipment returns.

EUROPE & WORLD

More Chinese Homebuyers Refuse to Pay Mortgage Loans Amid Contagion Fears – Bloomberg, 7/14/2022

  • A rapidly increasing number of disgruntled Chinese homebuyers are refusing to pay mortgages for unfinished construction projects, exacerbating the country’s real estate woes and stoking fears that the crisis will spread to the wider financial system.
  • Homebuyers have stopped mortgage payments on at least 100 projects in more than 50 cities as of Wednesday, according to researcher China Real Estate Information Corp.
  • That’s up from 58 projects on Tuesday and only 28 on Monday, according to Jefferies Financial Group analysts including Shujin Chen.
  • The delayed projects make up about 1% of China’s total mortgage balance, according to Jefferies. Should every buyer default, that would lead to a 388 billion yuan ($58 billion) increase in non-performing loans, Chen said.
  • The report didn’t give any estimate for how many buyers are snubbing repayments.
  • Average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years, Citigroup analysts said in a note on Wednesday.
  • China’s home prices fell for a ninth month in May, with June figures set for release Friday.

China Convenes Banks on Mortgage Boycott Roiling Markets – Bloomberg, 7/14/2022

  • Chinese authorities held emergency meetings with banks after growing alarmed that an increasing number of homebuyers across the country are refusing to pay mortgages on stalled projects, according to people familiar with the matter.
  • The Ministry of Housing and Urban-Rural Development met with financial regulators and major Chinese banks this week to discuss the mortgage boycotts on concern that more buyers may follow suit, said the people, asking not to be identified discussing a private matter.
  • While there was no immediate solution, regulators asked local watchdogs and banks to report the impact, including property projects affected in their jurisdictions, as soon as possible, the people said.

EU cuts euro zone growth forecasts, revises up inflation outlook – Reuters, 7/14/2022

  • The European Commission cut its forecasts for economic growth in the euro zone for this year and next and revised up its estimates for inflation on Thursday largely due to the impact of the war in Ukraine.
  • The EU executive now predicts growth of 2.6% this year for the 19-country currency bloc, slightly less than the 2.7% it had forecast in May.
  • But next year, when the impact of the Ukraine war and of higher energy prices may be felt even more acutely, growth is now forecast to be 1.4%, instead of the 2.3% previously estimated.
  • For the wider 27-country European Union, the growth forecast was unchanged at 2.7% this year, but revised down to 1.5% in 2023 from 2.3%.
  • In a major change, the Commission also raised its estimates for euro zone inflation, which this year is now expected to peak at 7.6% before falling to 4.0% in 2023.
  • Germany, the EU’s biggest economy, would see growth slow to 1.4% this year and 1.3% in 2023. The Commission had in May forecast expansions of respectively 1.6% and 2.4%.
  • France is expected to grow by 2.4% this year, instead of the previously forecast 3.1%. Next year, growth is estimated to slow further to 1.4%, against 1.8% predicted in May.

IMF Urges China to Boost Stimulus, Adjust Covid Steps to Counter Slowdown – Bloomberg, 7/14/2022

  • The International Monetary Fund called on China to expand fiscal support and apply a more flexible Covid-containment strategy to address a slowdown in the world’s second-biggest economy.
  • The IMF welcomed Beijing’s shift to more expansionary fiscal policy earlier this year, but even more support would help to counter the “ongoing growth slowdown,” IMF spokesman Gerry Rice said at a briefing Thursday.
  • Fiscal support would be particularly effective if focused on monetary transfers to strengthen the social-protection system, Rice said.
  • Given China’s low level of inflation, the central bank should also continue providing policy support, he said.

Ericsson Boosted by Demand for 5G Equipment but Warns of Rising Costs – Wall Street Journal, 7/14/2022

  • Swedish telecom-equipment giant Ericsson said its sales and profit rose in the second quarter as wireless carriers snapped up its 5G gear, but warned of higher costs stemming from geopolitical tensions and inflation.
  • Ericsson, one of the world’s three large makers of 5G cellular equipment alongside China’s Huawei Technologies and Finland’s Nokia, said Thursday that sales increased 14% to 62.5 billion Swedish kronor, equivalent to about $5.9 billion, in the quarter ended June 30 compared with the same period last year.
  • The Stockholm-based company said demand for 5G gear was particularly strong in North America, where its sales rose 27% and accounted for more than a third of the company’s overall revenue.
  • Profit rose 19% to 4.7 billion kronor in the quarter.

Sri Lanka’s President Misses Resignation Deadline – Wall Street Journal, 7/14/2022

  • Sri Lankan President Gotabaya Rajapaksa failed to meet a deadline to resign after fleeing the country on a military aircraft, reneging on a commitment made to antigovernment protesters over the weekend.
  • The parliamentary speaker, Mahinda Yapa Abeywardena, a Rajapaksa ally who has served as a conduit for communications from the president in recent days, said on Thursday that he hadn’t received the president’s resignation letter. Earlier, Mr. Abeywardena had said the president would resign on Wednesday.
  • Mr. Rajapaksa remaining in power presents an impasse for political parties working to form a transitional government. The parties had earlier resolved that parliament should choose an interim president on July 20, followed by elections to be held at a later date.

Factmonster – TODAY in HISTORY

  • The storming and destruction of Bastille marked the beginning of the French Revolution. (1789)
  • Congress passed the Sedition Act, making it a crime to publish false, scandalous, or malicious writing about the U.S. government. (1798)
  • In one of the most controversial cases in U.S. history, anarchists Nicola Sacco and Bartolomeo Vanzetti were convicted of two murders and sentenced to death. (1921)
  • In Germany, all political parties except the Nazi party were outlawed. (1933)
  • A military coup overthrew the monarchy in Iraq, killing King Faisal II. General Abdul Karim Kassem becomes Iraq’s leader. (1958)

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