Daily Market Report | August 27, 2021
US FINANCIAL MARKET
Stocks Rise Ahead of Powell Comments – Wall Street Journal, 8/27/2021
- Stocks rose at the open Friday as investors awaited Federal Reserve Chairman Jerome Powell’s speech at Jackson Hole, seeking clues about when the central bank might start to scale back its easy-money policies.
- In the bond market, the yield on 10-year Treasury notes ticked down to 1.336% from 1.342% Thursday.
- Major stock indexes are close to all-time highs, powered by expectations that strong economic growth will extend a surge in corporate profits.
- A spurt of inflation has prompted some central-bank officials to push for stimulus to be dialed down soon.
- All 11 sectors of the S&P 500 were in positive territory Friday, with energy stocks posting the strongest gains.
- Ahead of the bell in New York, Peloton Interactive skidded more than 8%.
- HP lost more than 5% after the company said supply-chain difficulties had stopped it from meeting demand for computers.
- VMware fell over 6% after revenue growth in its cloud-computing business fell short of analysts’ expectations.
- Futures on Brent crude added 1.9% to $71.54 a barrel.
- China’s Shanghai Composite Index rose 0.6%. Japan’s Nikkei 225 fell 0.4% and Hong Kong’s Hang Seng slipped less than 0.1%.
HP’s Revenue Misses Estimates as Chip Shortages Hit Production – Bloomberg, 8/26/2021
- Revenue in the third quarter was $15.3 billion, up 7% but less than the average analyst estimates of $15.9 billion, according to data compiled by Bloomberg.
- Still, profit topped estimates, and the company gave an upbeat outlook for earnings thanks to higher PC prices.
- Profit is outperforming the company’s and Wall Street’s predictions because of HP’s emphasis on selling more expensive machines, raising prices and cutting back on spending on promotions, CEO Enrique Lores said in an interview.
- Profit excluding some items in the period that ended in April rose to $1 a share. Analysts projected 84 cents.
- Fiscal fourth-quarter profit, minus certain items, will be 84 cents to 90 cents a share, the Palo Alto, California-based company said Thursday in a statement. Analysts, on average, estimated 80 cents.
- Revenue from Personal Systems, mostly computers, fell about 1% to $10.4 billion in the period ended July 31. Printing sales climbed 24% to $4.9 billion.
Dell Sales, Profit Top Projections on Persistent PC Demand – Bloomberg, 8/26/2021
- Fiscal second-quarter sales rose 15% to $26.1 billion, the Round Rock, Texas-based company said Thursday in a statement.
- That compares with analysts’ average estimate of $25.6 billion, according to data compiled by Bloomberg.
- Profit, excluding some items, was $2.24 a share. Analysts projected $2.03.
- For now, Dell still gets more than half of its revenue from corporate and consumer PC purchases, and has gotten a boost in the past year from demand for updated equipment that’s been driven by the shift to remote work and school.
- Net income in the period, which ended July 30, fell to $880 million, or $1.05 per share.
- Revenue from PCs rose 27% from a year earlier to $14.3 billion, a quarterly record.
- Sales to consumers were up 17%, compared with a 42% expansion in the prior period. PC sales to business and government agencies were up 32% to $10.6 billion.
Peloton Tumbles on Downbeat Forecast, Accounting Problem – Bloomberg, 8/26/2021
- Peloton slumped in late trading after the fitness company warned that a price cut would hurt its bottom line this year and that it found a problem with the way it accounts for inventory.
- The price cut, also announced Thursday, will lower the cost of Peloton’s most popular bike by $400 to $1,495, part of a bid to make the upscale product more mainstream.
- In addition, Peloton is now offering financing plans that last as long as 43 months, up from 39 months, which will lower monthly payments for both of its bike models and treadmill.
- The company warned that its adjusted loss would be $325 million in the current fiscal year, and its sales this quarter will miss Wall Street estimates. Peloton expects to return to profitability by fiscal 2023.
- Revenue rose 54% to $936.9 million, compared with an average estimate of $929 million. Roughly two-thirds of sales come from its fitness product line, with subscriptions making up the rest.
- Peloton posted a net loss of $313.2 million, or $1.05 a share, in the quarter, compared with net income of $89.1 million, or 27 cents, a year earlier.
- The company expects an adjusted loss of $285 million in the current quarter, with $800 million in revenue.
- Analysts had projected sales of $1 billion on average.
- Connected fitness subscribers — people who subscribe to content on a Peloton machine — reached 2.33 million last quarter. Wall Street estimated 2.28 million.
Gap stock jumps 7% after company’s sales top $4 billion – MarketWatch, 8/26/2021
- Gap said it earned $258 million, or 67 cents a share, in the quarter, contrasting with a loss of $62 million, or 17 cents a share, in the year-ago period. Adjusted for one-time items, Gap earned 70 cents a share.
- Sales rose 29% to $4.2 billion, the highest second-quarter sales in more than a decade.
- Sales were 5% higher than in the second quarter of 2019, the company said.
- Net sales for Old Navy and Athleta brands were up 21% and 35% as compared with 2019, while net sales at Gap and Banana Republic were down 10% and 15%, also compared to 2019.
- Online sales rose 65% in the quarter versus the 2019 quarter and represented 33% of the company’s total business.
- Gap raised its full-year EPS guidance to a range between $1.90 and $2.05, and adjusted EPS between $2.10 and $2.25.
- It called for sales growth around 30% for the year.
- Gap earlier Thursday said it had acquired Drapr, an e-commerce startup and online application that enables people to virtually try on clothing.
VMware Stock Slides as Growth of Cloud Business Disappoints – Barron’s, 8/26/2021
- For the quarter ended July 30, VMware reported revenue of $3.14 billion, in line with Street estimates.
- License revenue, from the company’s traditional on-premise software business, was $738 million, up 3%, and ahead of the Street consensus forecast of $699 million.
- The subscription and software-as-a-service revenue—basically the company’s cloud business—was $776 million, up 23%, but below the Street consensus call for $790 million.
- VMware CFO Zane Rowe said that some more conservative customers facing renewals, particularly in Asia, chose to stick to a traditional perpetual license model rather than switch to the cloud.
- The company said remaining performance obligations—a measure of future work—stood at $11.2 billion at quarter end, up 8% from a year earlier.
- Subscription and software-as-a-service annualized recurring revenue rose 26% to over $3.2 billion.
- Profits on a non-GAAP basis were $1.75 a share, ahead of the Street consensus at $1.64 a share. Under generally accepted accounting principles, the company earned $411 million, or 97 cents a share.
Treasuries Rise as Powell Signals Taper on Course for This Year – Bloomberg, 8/27/2021
- Ten-year yields fell 2 basis points to about 1.33% and the yield curve reversed an early-session move that sent it to the flattest level in a year.
- The Fed is currently buying $120 billion a month in bonds, part of emergency measures introduced last year to support the economy and help markets function smoothly.
- The yield curve, as measured by the gap between 5- to 30-year yields, was about 2 basis points steeper than Thursday’s closing levels, at about 111 basis points.
- The curve earlier in the session Friday touched around 107 basis points amid comments from other Fed officials that were deemed on the hawkish side in terms of pushing for a quicker start to tapering.
US ECONOMY & POLITICS
Powell Says Taper Could Start in 2021, With No Rush on Rate Hike – Bloomberg, 8/27/2021
- The economy has now met the test of “substantial further progress” toward the Fed’s inflation objective that Powell and his colleagues said would be a precondition for tapering the bond purchases.
- The labor market has also made “clear progress,” the Fed chief said Friday in the prepared text of a virtual speech at the Kansas City Fed’s annual Jackson Hole symposium.
- Monetary policy makers would like to conclude the purchases before officials begin raising interest rates, and several in June saw a possible need for rate increases as early as 2022 amid inflation that is running above the central bank’s 2% target.
- Powell cautioned that a move to begin winding down the bond-buying program should not be interpreted as a sign that rate hikes would soon follow.
- The Fed chair stuck to the central bank’s message that the current bout of inflation is likely to be transitory, emphasizing that the recent rise “is so far largely the product of a relatively narrow group of goods and services that have been directly affected by the pandemic and the reopening of the economy” and should be expected to dissipate.
U.S. Consumer Spending, Income Grew in July – Wall Street Journal, 8/27/2021
- U.S. household incomes rose by a robust 1.1% in July while consumer spending growth slowed to a 0.3% pace, the Commerce Department reported Friday.
- The increase in spending was less than a third of June’s gain, according to the Commerce Department.
- The gain in income was far bigger than analysts had expected, and suggests the economy could be primed for stronger growth later this year and next.
- Consumer prices rose 0.4% last month, lower than the prior month’s 0.5% gain, according to the Federal Reserve’s preferred inflation gauge.
- Core prices, which strip out food and energy costs, increased 0.3% in July from a month earlier, lower than June’s 0.5% gain.
- The economy grew at a 6.6% annual rate in the second quarter, a pickup from the first quarter’s 6.3% gain, revised figures from the Commerce Department showed Thursday.
U.S. Supreme Court ends CDC’s pandemic residential eviction moratorium – Reuters, 8/27/2021
- The justices, who in June had left in place a prior ban that expired at the end of July, granted a request by the challengers to lift the moratorium by the CDC that was to have run until Oct. 3.
- The three liberal justices on the court, which has a 6-3 conservative majority, all dissented.
- The White House said it was disappointed by the decision and urged states, local governments, landlords and Cabinet agencies to “urgently act” to help prevent evictions.
- Liberal Justice Stephen Breyer said in a dissenting opinion that the outcome of the case was not as clear cut as the majority suggested and that the court was not justified in ending the moratorium so quickly at a time when COVID-19 cases are surging.
- The latest moratorium covered nearly 92% of U.S. counties – those deemed to have “substantial” and “high” levels of coronavirus transmission.
Texas House Passes Voting Bill – Wall Street Journal, 8/27/2021
- The Texas state House approved a voting bill 79-37 late Thursday night, after walk-outs by Democrats paralyzed the law’s progress for months.
- The bill, championed by Republicans as a way to enhance election security, would broadly tighten voting procedures across the state.
- The bill approved late Thursday grants new allowances to partisan poll watchers, assuring them free movement within a polling location and making it difficult for an election worker to remove them.
- The bill limits early voting hours to between 6 a.m. and 10 p.m.
- It bans public officials from offering people applications to vote by mail unsolicited.
- It also places new requirements on people assisting disabled voters to submit paperwork and take an oath under penalty of perjury.
EUROPE & WORLD
U.N. Security Council condemns Kabul attack as “especially abhorrent” – Reuters, 8/27/2021
- The 15-member council agreed on the statement after a reference to the Taliban – stressing that the Islamist group should not support “terrorists operating on the territory of any country” – was removed at the request of China, diplomats said.
- The Kabul airport attack on Thursday, which killed 13 U.S. troops and at least 79 Afghans, was claimed by Islamic State militants.
- Tens of thousands of people have been fleeing Afghanistan since the Taliban came to power as foreign forces withdraw.
- The U.N. Security Council “called on all relevant parties to respect and facilitate the safe evacuation of civilians.”
- U.N. Secretary-General Antonio Guterres is convening a meeting on Monday on Afghanistan with the U.N. envoys for Britain, France, the United States, China and Russia – the council’s permanent, veto-wielding members – diplomats said.
China Plans to Ban U.S. IPOs for Data-Heavy Tech Firms – Wall Street Journal, 8/27/2021
- In recent weeks, officials from China’s stock regulator have told some companies and international investors that the new rules would prohibit internet firms holding a swath of user-related data from listing abroad.
- The new rules are likely to help Beijing exert more control over the complex corporate structure that China’s biggest tech companies use to sidestep restrictions on foreign investment.
- Chinese technology giants including Alibaba, Didi, and Tencent have used such a corporate structure known as a Variable Interest Entity to attract foreign capital and list offshore.
- Under the new rules, China would also establish a mechanism that requires companies to obtain formal approval for overseas IPOs from a cross-ministry committee that would be set up in the coming months.
- The CSRC plans to implement them around the fourth quarter, and have asked some companies to hold off on overseas IPOs until then.
As China-Taiwan Tensions Rise, Japan Begins Preparing for Possible Conflict – Wall Street Journal, 8/27/2021
- Tokyo officials, normally wary of upsetting Beijing, are speaking openly about preparing for a crisis and supporting Taiwan, a self-ruled island claimed by China, despite Japan’s pacifist constitution.
- Major Japanese military drills starting in September are expected to further help Tokyo prepare for any trouble in areas including Taiwan, current and former Japanese officials say.
- As part of Japan’s coming military drills, thousands of troops will transport weapons and supplies to Japan’s south from September through November, the first such national exercise in almost 30 years.
- Despite support from Japanese leaders, Tokyo is unlikely to take a front-line role in any confrontation over the island.
- Japan’s constitution bars the use of military force to settle disputes, a legacy of World War II.
Factmonster – TODAY in HISTORY
- Edwin Drake drilled the first successful U.S. oil well near Titusville, Pa. (1859)
- The Kellogg-Briand Pact, outlawing war, was signed. (1928)
- U.S. troops began landing in Japan after Japan’s surrender in World War II. (1945)
- The U.S. launched the Mariner II space probe. (1962)
- Mars made its closest approach to earth in 60,000 years. (2003)
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