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Daily Market Report | August 10, 2022

US FINANCIAL MARKET

Stocks Roar as Wall Street Cheers CPI Surprise: Markets Wrap – Bloomberg, 8/10/2022

  • Stocks surged and bond yields sank as softer-than-expected inflation data fueled bets the Federal Reserve could pivot to a smaller pace of hikes — a view taken with a grain of salt by market watchers saying officials may still be a long ways from achieving their goal.
  • Traders went risk-on Wednesday, with the S&P 500 on pace for its highest level since May.
  • A surge in the Nasdaq 100 drove the tech-heavy gauge 20% above its June low.
  • The Cboe Volatility Index slumped below 20, a level last seen in April.
  • Short-dated Treasury yields led the slide, with the two-year rate at one stage plummeting nearly 20 basis points to 3.07%.
  • For a market plagued by fears about the Fed’s struggles to tame sky-high inflation, the July consumer price index brought a sigh of relief — with both core and overall measures coming in below forecasts.
  • As a result, swaps are now suggesting a move of 50 basis points as more likely than a repeat of the 75-basis-point increases that officials have opted to implement at their past two meetings.
  • In corporate news, Tesla climbed after Elon Musk offloaded $6.9 billion worth of stock in the electric-vehicle maker, saying he wanted to avoid a sudden sale in the event he’s forced to go ahead with his deal to acquire Twitter.

Fox Posts Higher Revenue on Ad Sales Strength – Wall Street Journal, 8/10/2022

  • Fox’s sales rose 5% in the recently ended quarter as the advertising market showed signs of strength despite macroeconomic worries.
  • The company posted revenue of $3.03 billion for the three months ended June 30, below Wall Street expectations for revenue of $3.05 billion. Fox posted revenue of $2.89 billion a year ago.
  • The company said advertising revenue rose about 7%, primarily due to stronger pricing and higher ratings at Fox News Media, higher political advertising revenue at the Fox Television Stations and continued growth at its ad-supported streaming service Tubi.
  • In Fox’s cable network programming business, revenue rose 4%, boosted by advertising strength at Fox News Media, which was partially offset by the impact of higher pre-emptions associated with breaking news coverage, due to fewer ads as the network covered the war in Ukraine, for instance.
  • Affiliate revenue rose 2%, mostly due to contractual price increases.
  • Fox’s television business posted 5% growth in revenue as affiliate fee revenue rose 7%, boosted by higher average rates at owned and operated TV stations and higher fees from third-party Fox affiliates.
  • Overall for the fiscal fourth quarter, Fox posted a profit attributable to stockholders of $306 million, or 55 cents a share, compared with $253 million, or 43 cents a share, a year earlier.

Coinbase shares drop on billion-dollar loss in second quarter and revenue miss – CNBC, 8/10/2022

  • Coinbase shares dropped in extended trading on Tuesday after the crypto exchange reported a loss of over $1 billion in the second quarter and missed analysts’ estimates for revenue.
  • Coinbase’s revenue declined nearly 64% as investors exited the crypto market after last year’s dramatic run.
  • Retail transaction revenue came in at $616.2 million, down 66% and below the $667.1 million consensus among analysts polled by StreetAccount.
  • Coinbase reported a $1.1 billion net loss, compared with $1.59 billion in net income in the same quarter last year, according to a letter to shareholders. One factor was a $377 million noncash cryptocurrency-related impairment charge.
  • Coinbase updated its outlook for the full year. It now expects 7 million to 9 million monthly transacting users, down from a range of 5 million to 15 million three months ago.
  • Management said it expects average transaction revenue per user in the low $20 range, rather than pre-2021 levels.

Roblox misses on top and bottom, shares dip 12% – CNBC, 8/10/2022

  • Roblox reported results on Tuesday that missed analyst estimates on the top and bottom lines.
  • Revenue: $639.9 million vs. $644.4 million expected, according to Refinitiv.
  • Bookings declined by 4% year over year.
  • Roblox reported 52.2 million average daily active users, about a million shy of the StreetAccount consensus. That figure is up from 21% a year earlier, but down from the 54.1 million daily active users it reported in the first quarter.
  • Users spent more than 11 billion hours engaged in Roblox during the second quarter.
  • Roblox said average bookings per daily active user was $12.25, down 21% year over year.
  • Loss per share: 30 cents vs. 21 cents expected, according to a survey of analysts polled by Refinitiv.
  • The company also offered a peek into the third quarter. It said July daily active users hit a record high of 58.5 million, up 26% year over year. And bookings for the month fell between $243 million and $247 million, up 8% to 10% from July 2021.

Norwegian Cruise Line shares fall as revenue, outlook lag pre-pandemic levels – CNBC, 8/10/2022

  • Shares of fell more than 10% on Tuesday after the company reported second-quarter results that lagged pre-pandemic levels and warned of persistent volatility ahead.
  • The company reported revenue of $1.19 billion and an adjusted loss per share of $1.14 for the period, improvement from the second quarter of 2021 before voyages had resumed, but still far short of the $1.66 billion in revenue and earnings per share of $1.30 from the same quarter in 2019.
  • It expects third-quarter revenue between $1.5 billion and $1.6 billion, down from $1.9 billion in Q3 2019, and still anticipates a net loss due to costs associated with the Covid-19 pandemic, Ukraine-Russia conflict, inflation, fuel prices and foreign exchange.
  • The cruise company also reported a nearly 20% jump in revenue per passenger cruise day compared with 2019.
  • Norwegian expects cruise occupancy to be in the “low 80% range” in the current quarter, up from 65% during the second quarter.

Elon Musk Sells Nearly $7 Billion Worth of Tesla Stock Amid Twitter Uncertainty – Wall Street Journal, 8/10/2022

  • Elon Musk sold nearly $7 billion worth of Tesla stock in recent days, regulatory disclosures show, amid uncertainty over the fate of his $44 billion deal to buy Twitter.
  • Mr. Musk, Tesla’s chief executive and largest shareholder, sold around 7.9 million shares between Friday and Tuesday, the disclosures show, leaving him with a 15% stake in the company.
  • The Tesla boss has been on a selling spree over the past year, during which he has cashed out roughly $32 billion worth of shares in the electric-vehicle maker.
  • That includes around $8.5 billion of sales in April, while Mr. Musk was lining up financing to take over Twitter.

Political Ad Spending Soars for Midterms – Wall Street Journal, 8/10/2022

  • A top advertising-industry observer projects political ad spending during the current two-year election cycle will more than double as compared with the 2018 midterms and even exceed dollars spent in 2020 when the White House was in play.
  • AdImpact, a company based just outside Washington, says in a report that total spending is on pace to reach close to $9.7 billion. That compares with about $4 billion in the 2018 cycle and about $9 billion in the 2020 cycle, it said.
  • So far this cycle, AdImpact says roughly $5 billion in ads have already run or are booked to do so between now and the Nov. 8 election. A campaign’s final three months typically account for about two-thirds of total spending, and many expected ad buys haven’t yet been placed.
  • AdImpact predicts almost $4.3 billion will be spent on House and Senate races, while $2.4 billion will go to campaigns for governor. A further $3 billion is expected to be spent on other down-ballot races.

US ECONOMY & POLITICS

US Inflation Runs Cooler Than Forecast, Easing Pressure on Fed – Bloomberg, 8/10/2022

  • US inflation decelerated in July by more than expected, reflecting lower energy prices, which may take some pressure off the Federal Reserve to continue aggressively hiking interest rates.
  • The consumer price index increased 8.5% from a year earlier, cooling from the 9.1% June advance that was the largest in four decades, Labor Department data showed Wednesday.
  • So-called core CPI, which strips out the more volatile food and energy components, rose 0.3% from June and 5.9% from a year ago. The core and overall measures came in below forecast.
  • Gasoline prices fell 7.7% in July, the most since April 2020, after rising 11.2% a month earlier.
  • Utility prices fell 3.6% from June, the most since May 2009.
  • Food costs, however, climbed 10.9% from a year ago, the most since 1979. Used car prices decreased.
  • Shelter costs — which are the biggest services’ component and make up about a third of the overall CPI index — rose 0.5% from June and 5.7% from last year, the most since 1991.
  • That reflected a 0.7% jump in rent of primary of residence. Hotels, meanwhile, fell 3.2%.
  • Elsewhere in leisure, airfares dropped 7.8% from the prior month, the most in nearly a year.

Cooler Inflation Takes Next Fed Rate-Hike Size Down to the Wire – Bloomberg, 8/10/2022

  • Economists are divided on whether slower US consumer-price growth for July means the Federal Reserve could ease its aggressive rate-hiking program, making 75 basis-point moves less definite.
  • The consumer price index increased 8.5% from a year earlier, cooling from the 9.1% June advance that was the largest in four decades, Labor Department data showed Wednesday.
  • Markets are now pricing in the likelihood of a 50 basis-point increase in September rather than 75 basis points, and less than 100 basis points of hikes over the next two meetings.
  • Fed officials who’ve spoken in recent days have effectively pushed back against a narrative in financial markets that policy makers are envisioning a pivot away from tightening amid evidence of a turn in the economy, saying that returning price growth to the goal of 2% remains a priority.

Social Security Benefits Are Heading for the Biggest Increase in 40 Years – Wall Street Journal, 8/10/2022

  • Social Security recipients are on track to receive the highest cost-of-living increase in more than four decades next year.
  • If inflation remains at the current level, on average, over the next two months, the approximately 70 million retirees and disabled people who receive Social Security benefits could see their monthly checks rise by about 9.6% in 2023, according to estimates from the nonprofit Senior Citizens League, which advocates for protecting and strengthening Social Security and Medicare benefits.
  • Next year’s COLA increase is on track to be the highest since 1981, when Social Security benefits rose 11.2% to keep pace with inflation. The highest cost-of-living increase on record was 14.3% in 1980.
  • With a COLA of 9.6%, the average monthly Social Security check for retired workers would rise by about $160 in 2023, to $1829 in January from $1669 this year.

EUROPE & WORLD

China Ends Taiwan Drills – Wall Street Journal, 8/10/2022

  • China declared an end to its military exercises around Taiwan but reaffirmed its willingness to use force to take control of the self-ruled island while withdrawing an earlier pledge to not send troops to Taiwan if Taipei were to submit peacefully to Beijing’s rule.
  • The Eastern Theater Command of the People’s Liberation Army, China’s military, said Wednesday that it had successfully completed several days of live-fire military drills around Taiwan, bringing to an end a week of military exercises in response to a visit by House Speaker Nancy Pelosi to the island, which China’s Communist Party claims as part of its territory.
  • The drills, originally slated to last four days, were extended indefinitely on Monday before coming to a close days later. The PLA said Wednesday it would continue regular patrols in the Taiwan Strait.
  • As China wound down its maneuvers Wednesday, China’s Taiwan Affairs Office issued its first policy paper on Taiwan in 22 years, reaffirming its openness to using military force to bring the island under its control, if necessary.
  • Wednesday’s policy paper removed a clause from versions of the document published in 1993 and 2000 that ruled out the dispatch of Chinese troops and civilian administrators to Taiwan should the island agree to a “One Country, Two Systems” arrangement.

In China, Higher Consumer Inflation Masks Weak Demand – Wall Street Journal, 8/10/2022

  • China’s headline consumer inflation rate surged to its fastest pace in two years in July, but a drop in core inflation points to a different problem: weak domestic demand.
  • After edging up just 0.9% in 2021 and staying largely within the government’s comfort zone since the start of the pandemic, headline consumer prices in the world’s second-largest economy rose by 2.7% in July from a year earlier, accelerating from June’s 2.5% gain, as food prices soared, China’s National Bureau of Statistics said Wednesday.
  • The pace of increase was the fastest in two years, touching a level not seen since July 2020 and approaching the government’s target of around 3%.
  • Still, it fell short of a forecast for a 2.9% increase among economists polled by The Wall Street Journal.
  • Core inflation, which strips out volatile food and energy prices, slowed to 0.8% growth in July, the lowest level in 14 months, due to slack domestic demand.

Foxconn Warns of Slowing Demand for Smartphones – Wall Street Journal, 8/10/2022

  • Foxconn Technology Group, the world’s biggest iPhone assembler, said demand for smartphones and other consumer electronics is slowing, prompting it to be cautious about the current quarter.
  • Revenue rose 12% to the equivalent of $50.3 billion.
  • For the quarter ended in June, Foxconn posted a 12% rise in net profit from a year earlier, driven by solid demand for smartphones and cloud devices.
  • Foxconn slightly raised its full-year revenue forecast after a solid second quarter, saying it expected growth this year instead of roughly flat performance, without giving specific numbers.
  • Foxconn Chairman Young Liu said the smartphone market could stay flat for the rest of the year compared with a year earlier. He listed possible risks including the evolving geopolitical situation, inflation and the pandemic.

Toshiba logs surprise quarterly operating loss as costs surge – Reuters, 8/10/2022

  • Toshiba on Wednesday posted an unexpected operating loss in the first quarter as it grappled with a sharp rise in logistics and raw material costs as well as a global chip shortage.
  • Its 4.8 billion yen ($35.6 million) loss in April-June compares with a profit of 14.5 billion yen a year earlier and a Refinitiv consensus estimate for a 19.4 billion yen profit.
  • Toshiba, however, stuck with its annual profit forecast for a 7% rise to 170 billion yen, saying it aims to pass on more costs in product prices.
  • Chief Financial Officer Masayoshi Hirata told reporters that the conglomerate’s first quarterly loss in two years came amid jumps in prices for steel, copper as well as components sourced from suppliers.

Honda posts 9% fall in Q1 profit, beats estimate – Reuters, 8/10/2022

  • Japan’s Honda Motor on Wednesday posted a better-than-expected 9% drop in first-quarter operating profit, squeezed by COVID-19 restrictions in China that curtailed production and higher material costs.
  • Operating profit for the three months ended June 30 fell to 222.2 billion yen ($1.65 billion), beating an average estimate of 200.2 billion yen in a poll of 10 analysts by Refinitiv.
  • In the same period a year earlier, Honda reported a 243.2 billion yen profit.

China’s Lenovo posts slowest revenue rise in 9 quarters on PC downturn – Reuters, 8/10/2022

  • China’s Lenovo Group recorded its smallest revenue growth in nine quarters as the world’s biggest PC maker saw sales of the devices ease after a pandemic-fuelled boom, and it was also hit by COVID-19 lockdowns at home.
  • Lenovo’s total revenue during the April-June quarter was $16.96 billion, up 0.2% from the same quarter a year ago though it was in line with an average Refinitiv estimate of $16.87 billion drawn from seven analysts. That was the smallest increase since the March 2020 quarter.
  • Wai Ming Wong, chief financial officer of the company, said in an earnings call that the company’s device business saw quarterly revenue decline 3% because of “the weak consumer PC demand and the COVID-led supply constraints.”
  • But he said that non-PC device businesses saw a 12% increase in revenue. Revenue from smartphone sales grew over 20% compared to the same period last year.
  • Yang Yuanqing, Lenovo’s chairman and chief executive, told Reuters in an interview that he expects this year’s global PC shipments to be between 300 million units and 310 million units.
  • That would be a near 10% dip from the figure of 341 million units shipped last year reported by data firm Canalys.

Samsung’s New $1,800 Foldable Galaxy Phone Tests High-End Budgets – Wall Street Journal, 8/10/2022

  • The entire smartphone industry is slumping except for the priciest devices. Samsung Electronics is testing the limits of that high-end demand.
  • On Wednesday, Samsung unveiled its latest models of two of the world’s most-expensive phones. The Galaxy Z Fold 4, which becomes the size of a small tablet when opened, will cost about $1,800. The more compact Galaxy Z Flip 4 will go for around $1,000.
  • Total smartphone shipments slid 8% in the first half of this year versus the same period in 2021, largely because consumers have cut back spending on nonessential goods amid inflation and a shakier economic outlook, according to Counterpoint Research, a research firm.
  • Shipments of “ultra-premium” phones—devices sold for $900 or more—grew by more than 20% during the same period, Counterpoint said.

Factmonster – TODAY in HISTORY

  • Missouri became the 24th state in the United States. (1821)
  • The Smithsonian Institution was established in Washington, D.C., from funds left by British scientist James Smithson. (1846)
  • Franklin D. Roosevelt was stricken with polio at his summer home on Campobello island. (1921)
  • S. forces seized Guam from Japan. (1944)
  • President Reagan signed a bill that awarded $20,000 to each survivor of the Japanese-American internment. (1988)
  • Ruth Bader Ginsburg was sworn in as the second female U.S. Supreme Court justice. (1993)

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