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Daily Market Report | August 11, 2022

US FINANCIAL MARKET

Stocks Climb as Inflation Data Lift Investors’ Hopes – Wall Street Journal, 8/11/2022

  • U.S. stocks rose Thursday as producer-price data buoyed investors’ hopes that inflation may be peaking, potentially slowing the Federal Reserve’s pace of interest-rate increases.
  • The S&P 500 added 0.8%, and the Dow Jones Industrial Average rose 244 points, or 0.7%, to 33554.
  • The tech-focused Nasdaq Composite Index also advanced 0.8%.
  • A rally in technology shares Wednesday pushed the Nasdaq Composite back into a bull market.
  • Money managers are hoping that the easing inflation data for July will be the start of a trend, though the path of inflation will be affected by the Ukraine war and nations’ responses to Covid-19.
  • Fresh data Thursday bolstered those hopes, showing that prices paid by U.S. suppliers fell in July from the prior month.
  • The Labor Department said Wednesday that the pace of consumer-price increases slowed in July.
  • In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 2.765% from 2.786% Wednesday.
  • Overseas, the pan-continental Stoxx Europe 600 was muted.
  • While investors may be optimistic that U.S. price pressures may be peaking, Europe’s sensitivity to changing energy supplies due to the Ukraine war has caused some investors to be more nervous about the continent’s prospects for inflation and economic growth.
  • In Asia, major indexes closed with gains.

Disney Reports Earnings Surge, Reduces Long-Term Forecast for Disney+ Subscribers – Wall Street Journal, 8/11/2022

  • Walt Disney reported a better-than-expected 26% jump in revenue Wednesday, driven by record results at its theme parks division and the addition of more new subscribers than projected to its flagship streaming video platform Disney+.
  • Revenue increased to $21.5 billion, above the average analyst estimate of $20.99 billion on FactSet.
  • In the three-month period ended July 2, Disney+ gained 14.4 million new subscribers, bringing its global total to 152.1 million subscribers. Analysts were expecting 10 million additions, according to FactSet.
  • Wednesday’s report brings Disney’s total subscriber base to 221.1 million customers across all of its streaming offerings, including ESPN+ and Hulu, surpassing Netflix, its chief streaming rival, in total customers.
  • Sales at the parks, experiences and products division—which includes Disneyland, Walt Disney World and four resorts in Europe and Asia and has historically been Disney’s most profitable segment—reached $7.4 billion for the quarter, a record, and was up 70% from a year earlier.
  • The division posted profits of $2.2 billion for the quarter, up from $356 million a year ago.
  • Disney’s direct-to-consumer segment, which includes video streaming, lost $1.1 billion in the third quarter, widening from a loss of $293 million a year earlier.
  • Disney+’s average monthly revenue per paid subscriber—a key metric in streaming businesses—stood at $6.27 in North America, compared with $6.29 internationally, excluding Asia’s more inexpensive Disney+ Hotstar service.
  • Overall, for the third quarter, the world’s largest entertainment company reported profits of $1.41 billion, or 77 cents a share, up from $918 million, or 50 cents a share, in the year-ago period.
  • On Wednesday, Chief Financial Officer Christine McCarthy said Disney’s estimate for overall spending on content for fiscal 2022 had fallen slightly, from $32 billion to $30 billion.
  • The price of the ad-free stand-alone Disney+ service will rise from its current level of $7.99 a month in the U.S. to $10.99 a month, or $109.99 a year. The new, basic Disney+ service with ads will cost $7.99 a month.
  • The premium Disney streaming bundle, which includes ad-free versions of Disney+ and Hulu, as well as a version of sports-focused ESPN+ with ads, will remain at its current price of $19.99 a month in the U.S., while a bundle that includes all three services, but with ads on Hulu, will rise in price by $1 a month, to $14.99.

Six Flags’ Revenue Falls, Dragged by Low Attendance – Wall Street Journal, 8/11/2022

  • Six Flags Entertainment said attendance fell 22% in the second-quarter from a year ago, even as other theme-park operators have seen visits nearly return to prepandemic levels.
  • The regional theme-park chain, based in Arlington, Texas, posted revenue of $435.4 million, below the $518.5 million expected by Wall Street.
  • Six Flags is getting visitors to spend more. It reported a 23% jump in guest spending to $63.87 per visitor. Mr. Bassoul said per-capita spending is up more than 50% from prepandemic levels.
  • Overall for the quarter ended July 3, Six Flags posted a profit of $45.4 million, or 53 cents a share, compared with $70.5 million, or 81 cents a share, a year earlier. Analysts surveyed by FactSet were expecting a profit of $1.01 a share.
  • The results come as Chief Executive Selim Bassoul mounts a turnaround effort that includes raising prices, attracting a more premium customer base and improving guest experiences by reducing overall attendance.

Bumble Sales Rise On Higher User Spending – Wall Street Journal, 8/11/2022

  • Bumble sales climbed in the latest quarter, driven by higher spending by users on its dating apps as prepandemic conditions have largely returned.
  • The Austin, Texas-based company, owner of its eponymous dating app as well as Badoo and Fruitz, said second quarter revenue rose 18% to $220.5 million. Analysts polled by FactSet expected $219.4 million.
  • Revenue from the Bumble app grew 33% to $169.6 million while revenue from its Badoo app and other sources declined roughly 14% to $50.8 million.
  • Total paying users rose slightly to 3 million from 2.9 million from a year earlier but was flat on a quarterly basis. Average revenue per paying users, a key metric, was $23.65, up from $20.88 a year earlier.
  • Bumble narrowed its loss to $6.4 million from $11.1 million in the year-ago period. Analysts expected a loss of 2.6 million.
  • The company guided for third quarter revenue between $236 million to $240 million, below analysts’ expectations of $244.9 million.

Warby Parker slashes sales outlook for the year as loss widens – CNBC, 8/11/2022

  • Warby Parker on Thursday joined the slew of retailers that have cut their financial forecasts for the year, even as it reported a narrower-than-expected loss in its fiscal second quarter and sales in-line with analysts’ estimates.
  • Sales grew roughly 14% to $149.6 million from $131.6 million a year earlier, boosted in part by loyal customers spending more money on average.
  • The company said its count of active customers increased 8.7% to 2.26 million.
  • Warby’s loss for the three-month period ended June 30 widened to $32.2 million, or 28 cents per share, from a loss of $18.8 million, or 35 cents a share, a year earlier. Excluding one-time items, it lost a penny a share.
  • For fiscal 2022, Warby is now calling for sales to be within a range of $584 million to $595 million, down from a prior range of $650 million to $660 million.
  • It sees its adjusted EBITDA amounting to about $22 million to $26 million, including a $7.5 million hit related to pandemic-related disruptions to its business.

US Gasoline Prices Fall Below $4, Soothing Inflation Pressure – Bloomberg, 8/11/2022

  • US average retail gasoline prices fell below $4 a gallon to the lowest since early March, according to data from AAA.
  • Prices were at $3.99 in figures released Thursday, continuing an eight-week downward trend.
  • New York gasoline futures, the basis of wholesale and retail prices, have gained almost 30 cents a gallon in the past week. The rise followed a similar uptick in oil futures and is in part driven by regional fuel-supply tightness in the New York Harbor area.
  • This could stunt, stall or even reverse the recent decline in pump prices in the days and weeks ahead.

OPEC Cuts Oil-Demand Forecasts as Economic Growth Slows – Wall Street Journal, 8/11/2022

  • Global oil supplies are slowly catching up with flagging demand for crude, leaving the oil market close to balanced, the Organization of the Petroleum Exporting Countries said, suggesting the cartel sees little need in the short term to increase its output further.
  • The Vienna-based producers’ group cut its forecasts for global oil demand this year by 260,000 barrels to 100.03 million barrels a day, citing the impact of slowing global economies.
  • It also cut its demand forecasts for 2023 by the same amount to 102.72 million barrels a day.
  • OPEC lowered its global gross domestic product forecasts for 2022 to 3.1% from the 3.5% growth it expected last month. For the U.S. economy, OPEC cut its growth forecasts to 1.8% this year from 3% and to 1.7% in 2023 from last month’s 2.1% forecast.
  • China, the world’s second-largest economy, is expected to grow by 4.5% this year, 0.6 percentage point less than OPEC was expecting in July.
  • A combination of weaker demand for oil and a steady climb in output from both OPEC and non-OPEC oil producers meant the oil market was close to balanced in the second quarter of the year, with demand exceeding supply by just 50,000 barrels a day.

US ECONOMY & POLITICS

US Producer Prices Fall for First Time Since Early in Pandemic – Bloomberg, 8/11/2022

  • A key measure of US producer prices unexpectedly fell in July for the first time in more than two years, largely reflecting a drop in energy costs and representing a welcome moderation in inflationary pressures.
  • The producer price index for final demand decreased 0.5% from a month earlier and rose 9.8% from a year ago, Labor Department data showed Thursday. The pullback was due to a decline in the costs of goods, though services prices only edged up.
  • Excluding the volatile food and energy components, the so-called core PPI rose 0.2% from June and 7.6% from a year earlier.
  • Both the overall and core figures were softer than forecast.
  • Some 80% of the decline in goods prices was due to a 16.7% plunge in gasoline prices, the report showed.
  • Diesel, iron and steel scrap and grains also decreased.
  • Services prices rose just 0.1% in July, led by an increase in fuel margins and transportation and warehousing.
  • Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — increased 0.2% from June and 5.8% from a year earlier.
  • Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, slumped 2.3% — the most since April 2020.
  • Excluding foods and energy, these costs dropped 0.2%.

Fed Leaders, Unswayed by Softer CPI, See Rate Hikes Into 2023 – Bloomberg, 8/11/2022

  • Federal Reserve officials responded to softening inflation data by saying it doesn’t change the US central bank’s path toward even higher interest rates this year and next.
  • Minneapolis Fed President Neel Kashkari, who prior to the pandemic was the central bank’s most dovish policy maker, said Wednesday that he wants the Fed’s benchmark interest rate at 3.9% by the end of this year and at 4.4% by the end of 2023.
  • His Chicago counterpart, Charles Evans, welcomed the news at a separate event Wednesday, but added that inflation remains “unacceptably high.” He said he expects “that we will be increasing rates the rest of this year and into next year to make sure inflation gets back to our 2% objective.”
  • Evans said he expects the target range for the central bank’s benchmark rate — now 2.25% to 2.5% — to rise to 3.25% to 3.5% by the end of the year, and to 3.75% to 4% by the end of 2023.
  • Kashkari will be a voter on the central bank’s rate-setting Federal Open Market Committee next year, while Evans is set to retire early next year.
  • San Francisco Federal Reserve President Mary Daly, in her remarks after the CPI print, said that it was far too early to “declare victory” in the central bank’s inflation fight, according to a Financial Times report.
  • She didn’t rule out a third consecutive 75 basis-point increase in September and pushed back on investor expectations of a turn to rate cuts in 2023, while signaling support for a slowing in the pace of rate hikes.

Federal Budget Deficit Narrowed in July – Wall Street Journal, 8/11/2022

  • The federal deficit narrowed by 30% in July compared with a year earlier, as the government reported a $211 billion monthly gap between revenue and spending.
  • Government outlays fell 15% to $480 billion in July after programs administered last year such as expanded unemployment benefits ended, the Treasury Department said Wednesday.
  • Government revenue, not adjusted for calendar differences, rose 3% to $269 billion.
  • Over the first 10 months of the fiscal year ending Sept. 30, government spending has fallen 18% and receipts have increased 24%.
  • Spending on interest on the public debt rose 43% in July as the cost of inflation-protected securities has weighed on the budget this year.
  • The weighted average yield on outstanding Treasury debt was 1.88% at the end of July compared with 1.61% a year earlier, according to the Treasury official.
  • The deficit this fiscal year so far is $726 billion, 71% lower than the $2.5 trillion deficit the government ran during the same period last year, according to the monthly budget statement.
  • The nonpartisan Congressional Budget Office projects that the deficit will fall to $1 trillion this fiscal year from roughly $2.8 trillion the previous year.

The Snowballing US Rental Crisis Is Sparing Nowhere and No One – Bloomberg, 8/11/2022

  • Rental costs in the US are soaring at the fastest pace in more than three decades, surpassing a median of $2,000 a month for the first time ever and pushing rents above pre-pandemic levels in most major cities.
  • Single-family rents rose by a record 14% nationally in May from a year earlier, according to CoreLogic, a real estate data firm.
  • The increases were even more dramatic in cities that became popular living destinations during the pandemic, including an almost 40% increase in Miami, a 25% rise in Orlando, Florida, and a 17% jump in Phoenix.
  • A recent analysis by Bloomberg Economics found that 19 OECD countries have combined price-to-rent and home price-to-income ratios that are higher now than they were ahead of the 2008 financial crisis, indicating that prices have moved out of line with fundamentals.
  • Some 54% of renters earn less than $50,000, and the annual median household income among renters is about $42,500, below the national median of $67,500, according to Zillow.
  • Some 5.4 million households, or 40% of households that are not current on their rent or mortgage payments, said they were likely to be evicted or foreclosed on in the next two months, according to a Census Bureau survey for June 29 to July 11.

Mortgage Rates Swing Back Up, Hitting 5.22% in Volatile Market – Bloomberg, 8/11/2022

  • US mortgage rates rose back above 5%, ratcheting up pressure on the cooling housing market.
  • The average for a 30-year loan increased to 5.22% from 4.99% last week, Freddie Mac said Thursday in a statement. That’s the first increase since July 21.
  • Freddie Mac’s mortgage data is collected from Monday through Wednesday. On Mortgage News Daily, which updates the figure more frequently, the rate on a 30-year loan hit 5.18% late Wednesday.

Chinese Student Visas to U.S. Tumble From Prepandemic Levels – Wall Street Journal, 8/11/2022

  • The number of U.S. student visas issued to Chinese nationals plunged by more than 50% in the first half of 2022 compared with pre-Covid levels, with the U.S. losing ground as the most-coveted place for Chinese students to pursue higher education abroad.
  • In the first six months of 2022, the U.S. issued 31,055 F-1 visas to Chinese nationals, down from 64,261 for the same period in 2019, according to data from the U.S. State Department. The drop has hit revenue at big and small colleges and universities around the country, including state flagships.
  • The University of Nebraska-Lincoln enrolled 415 Chinese students in fall 2021, a 66% drop from its peak of 1,234 in fall 2016, and expects numbers to be flat or down slightly this fall.
  • International undergraduate students at Nebraska generally pay out-of-state tuition, which this year is $24,900, compared with the in-state rate of $7,770.

EUROPE & WORLD

Siemens’ posts first quarterly loss in 12 years after write-downs hit Q3 – Reuters, 8/11/2022

  • Siemens said on Thursday it continued to see strong industrial demand during its third quarter, as costs related to its Siemens Energy investment and decision to quit Russia pushed the engineering group into the red for the first time in nearly 12 years.
  • The maker of industrial software and trains reported higher revenue and orders for the three months to the end of June, a positive sign for the health of the broader industrial sector.
  • Orders rose 7% to 22.07 billion euros ($22.8 billion) in the third quarter, while profit at its industrial business rose 27% to 2.88 billion euros.
  • In factory automation, all regions reported orders 20% higher than a year earlier, Siemens said, while elevated component and logistics costs were being tackled by passing on the costs to customers.
  • But it posted a shareholders’ net loss of 1.66 billion euros after taking a 2.7 billion euro non-cash charge for writing down the value of its stake in Siemens Energy.
  • Net profit also took a hit of 558 million euros from Siemens’ decision to quit Russia following the conflict in Ukraine.

Thyssenkrupp’s Q3 operating profit nearly triples on steel price rebound – Reuters, 8/11/2022

  • Thyssenkrupp’s third-quarter operating profit nearly tripled on the back of higher steel prices, the German conglomerate said on Thursday, but it added that it faced headwinds from high raw material prices and rising interest rates.
  • The company’s adjusted earnings before interest and tax (EBIT) reached 721 million euros ($743 million) in the April-June period, up from 266 million in the same period last year.
  • More than half of that, or 376 million euros, came from the company’s steel business, Europe’s second-largest, which benefited from higher selling prices that offset rising energy and raw materials costs, Thyssenkrupp said.
  • Higher interest rates led to impairment losses of around 480 million euros, Thyssenkrupp said, causing it to lower its 2022 net profit outlook, now expected to be in the high triple-digit million euro range, down from at least 1 billion previously.
  • The group, which makes everything from submarines and car parts to fertiliser plants and electrolysers, confirmed its outlook for adjusted EBIT, sales and free cash flow before mergers and acquisitions.

Canada Goose results thrive as luxury demand defies inflation – Reuters, 8/11/2022

  • Canada Goose Holdings on Thursday surpassed Wall Street targets for quarterly results after affluent consumers undeterred by decades-high inflation snapped up its luxury parkas and jackets.
  • The company’s revenue rose 24% to C$69.9 million ($54.75 million) in the first quarter ended July 3, beating analysts expectations of C$62.6 million, according to IBES data from Refinitiv.
  • COVID lockdowns and store closures in top luxury market China sent its Asia Pacific revenue down 6.3% to C$16.1 million, but its stores in the country reopened towards the end of June.
  • Excluding items, it posted a loss of 56 Canadian cents per share, lower than estimates of 61 Canadian cents.
  • Canada Goose has not seen any sign of slowing demand due to inflation, Chief Executive Dani Reiss told Reuters in an interview.
  • Toronto-listed shares of the company rose about 11% in early trade as the midpoint of its second-quarter revenue forecast also came in above estimates on steady demand.

Factmonster – TODAY in HISTORY

  • Arapahoe became the first American ship to use the S.O.S. distress signal. (1909)
  • The first inmates arrived at the federal prison on Alcatraz Island in San Francisco Bay. (1934)
  • King Hussein of Jordan ascended the throne after his father had been declared mentally unfit. (1952)
  • More than seven years of fighting in Indochina formerly ended with the cessation of French control. (1954)
  • Abstract artist Jackson Pollock died in an automobile accident. (1956)
  • Chad gained its independence from France. (1960)

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