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Daily Market Report | August 9, 2022

US FINANCIAL MARKET

Stocks Slip Amid Mixed Corporate Results – Wall Street Journal, 8/9/2022

  • Indexes have settled into an August lull as investors await consumer-price data on Wednesday that could set expectations for how the Federal Reserve will approach monetary policy at its coming meetings.
  • Earnings season is winding down, though some major companies are still set to report figures. Roblox, Coinbase, and Wynn Resorts will release results after markets close.
  • Ahead of the opening bell, Novavax slumped 32% after cutting its sales forecasts due to poor uptake of its Covid-19 vaccine.
  • Clover Health Investments fell 11% after delivering a mixed earnings report and saying its chief executive was stepping down.
  • Norwegian Cruise Line fell 8.4% premarket after reporting a wider-than-expected quarterly loss.
  • Hyatt Hotels rose 2.2% after beating its earnings and revenue targets.
  • Unity Software rose 10% premarket after Applovin submitted an unsolicited bid to buy the company in an all-stock deal.
  • Data released Tuesday showed U.S. labor productivity declined for a second straight quarter.
  • In commodity markets, Brent crude rose 1.4% to $97.99 a barrel after Moscow cut the flow of oil through a pipeline to Europe.
  • The yield on the benchmark 10-Year U.S. Treasury note edged up to 2.796% from 2.763% on Monday.
  • In Asia, stock markets were mixed. In Japan, the Nikkei 225 fell 0.9% while in China, the Shanghai Composite Index rose 0.3%.

Chipmaker Micron Tempers Forecast as Demand Weakness Deepens – Reuters, 8/9/2022

  • Memory-chip maker Micron Technology cut its current-quarter revenue forecast on Tuesday and warned of a negative free cash flow in the following quarter as demand for chips used in personal computers and smartphones continues to drop.
  • Fourth-quarter revenue may come in at or below the low end of its prior forecast, the company said, sending its shares down about 5% in premarket trading.
  • Its earlier estimate of $7.2 billion, plus or minus $400 million, had missed Wall Street targets in June.
  • Data indicates the DRAM memory market will be severely oversupplied at least in 2023, according to research firm TrendForce.
  • Micron’s forecast cut comes after it announced a $40 billion investment in memory chip manufacturing, which would boost its U.S. market share from 2% to 10%.

Take-Two Stock Drops After Disappointing Earnings – Barron’s, 8/9/2022

  • Take-Two reported Monday a fiscal first quarter net loss of $104 million, or 76 cents a share.
  • Non-GAAP earnings were 71 cents a share, compared with Wall Street’s expectations for 87 cents a share, according to FactSet.
  • Net bookings, a form of adjusted revenue, grew 41% to $1 billion.
  • Analysts polled by FactSet were looking for net bookings of $1.11 billion.
  • Take-Two stock was down 7.2% in Monday’s extended trading session following the release.
  • The company’s full-year forecast, which now includes contributions from Zynga, calls for net bookings between $5.8 billion and $5.9 billion.
  • Analysts polled by FactSet had been forecasting full-year bookings of $6.22 billion.

Ralph Lauren Stock Jumps After Earnings That Topped Expectations, Upbeat Growth Outlook – MarketWatch, 8/9/2022

  • Shares of Ralph Lauren rallied 2.8% toward a two-month high in premarket trading Tuesday, after the premium apparel, accessories and fragrances company reported fiscal first-quarter earnings that beat expectations, amid strength in overseas same-store sales, and provided an upbeat current-quarter outlook.
  • Net income for the quarter to July 2 fell to $123.4 million, or $1.73 a share, from $164.7 million, or $2.18 a share, in the year-ago period.
  • Excluding nonrecurring items, adjusted earnings per share of $1.88 beat the FactSet consensus of $1.71.
  • Revenue grew 8.3% to $1.49 billion, above the FactSet consensus of $1.40 billion.
  • In retail, same-stores sales for North America were up 5%, for Europe increased 34% and for Asia rose 19%.
  • Cost of goods sold grew more than sales, rising 19.8% to $489.2 million as gross margin contracted to 67.2% from 70.3%.
  • Looking ahead, the company expects fiscal second-quarter revenue growth “centered around” 11%, while the current FactSet revenue consensus of $1.59 billion implies 5.4% growth.

Norwegian Cruise Says Return to 2019 Occupancy Levels Still a Year Away – Reuters, 8/9/2022

  • Norwegian Cruise Line reported second-quarter results worse than estimates and forecast a return to pre-pandemic occupancy levels in the same period next year, sending its shares down nearly 7% premarket on Tuesday.
  • Norwegian Cruise reported occupancy of 65% in the quarter, compared with 107.3% in 2019.
  • In contrast, rival Royal Caribbean had recorded 82% occupancy in its estimate-beating results last month and said it would reach triple-digit occupancy by the end of this year.
  • Norwegian also blamed higher labor and fuel costs for a fourfold increase in total cruise operating expenses to $1.07 billion.
  • Its adjusted loss was $1.14 per share for the second quarter ended June 30, larger than analysts’ estimates of 86 cents, according to Refinitiv IBES. Adjusted core loss was $184.5 million.
  • However, the company forecast slightly positive adjusted core earnings in the second half of 2022, with occupancy expected in the low 80% range for the third quarter as customers spend more on board its upscale cruises.

Novavax Tumbles 31% as Waning COVID Vaccine Demand Hits Revenue Forecast – Reuters, 8/9/2022

  • U.S. vaccine maker Novavax slumped nearly 31% on Tuesday as falling demand for its COVID-19 shot from low- and middle-income nations led the company to cut its annual revenue expectation by half.
  • The company now expects 2022 revenue between $2 billion and $2.3 billion, compared with its prior forecast of $4 billion to $5 billion when it was hoping to benefit from the demand for its shots as part of the COVAX vaccine sharing program.
  • Analysts, however, expect the company to capture a small but meaningful share of a fast-developing market for COVID re-vaccination.

Emerson Quarterly Profit Rises on Strength in Automation Unit – Reuters, 8/9/2022

  • U.S. equipment maker Emerson Electric on Tuesday posted a near 47% jump in third-quarter profit benefiting from stronger performance at its automation unit, as companies revamp their assembly lines to offset a shortage of factory workers.
  • The St. Louis, Missouri-based company, which began selling fans and electric motors more than a century ago, has been positioning itself as a technology-focused firm with a string of acquisitions over the last few years.
  • Still, the industrial conglomerate trimmed its full-year net sales growth outlook to a range of 7% to 8% from its prior outlook of 8% to 10%, to reflect impacts from its exit from Russia, deals, and other headwinds related to COVID-19.
  • The company’s net earnings rose to $921 million, or $1.54 cents per share, in the quarter ended June 30, from $627 million, or $1.04 per share, a year earlier.

Tesla Faces Crowded Field in China as New-Energy Car Market Booms – Wall Street Journal, 8/9/2022

  • Tesla’s China unit saw sales fall 14% last month from a year ago to just over 28,000 cars, the association said.
  • Nearly 20,000 of the Shanghai-made vehicles Tesla sold were exported to markets outside China, the group said.
  • A number of lesser-known Chinese startups are also emerging in a wider field of competitors, with some clocking up record sales last month.
  • Hozon Auto, Leap Motor and Seres Group, which codevelops EVs with Huawei Technologies, each sold more than 10,000 cars in July, the companies said.
  • Overall Chinese sales of new-energy cars, which include electric and plug-in hybrids, surged 117% in July from a year ago to 486,000 vehicles, the car association said.
  • It raised its sales forecast for the segment this year to six million vehicles from 5.5 million cars.
  • China’s leaders have been rolling out incentives for car buyers to boost sales as the government looks to the auto industry to help revive China’s slowing economy.

Apple’s Chart-Topping Run Gets a Boost From Retail Investors – Bloomberg, 8/9/2022

  • Since bottoming in mid-June, the iPhone maker’s shares have surged 27%, outpacing the S&P 500 Index and the Nasdaq 100 Index.
  • That’s put Apple back on top as the world’s most valuable company and within sight of turning positive for the year.
  • Apple is now down just 7.4% in 2022, compared with a drop of 20% for the Nasdaq 100.
  • Apple shares benefited from a relief rally after its quarterly earnings were better than feared, and its ongoing buoyancy reflects Wall Street’s confidence in its ability to continue churning out big profits.
  • The average earnings-per-share estimate for Apple next year has fallen less than 1% over the past month, compared with a drop of about 4% for Microsoft and 7% for Amazon., according to data compiled by Bloomberg.
  • Mom-and-pop traders are no doubt attracted to Apple’s massive cash flows that have allowed the company to return more than $80 billion to shareholders in the form of dividends and share repurchases in the first three quarters of this fiscal year.
  • The price for a piece of that cash geyser, however, doesn’t come cheaply.
  • Apple is trading at 26 times profits projected over the next 12 months, well above the 10-year average at 17 times.

FedEx Unit to Test Ford’s Electric Vans for Parcel Delivery – Reuters, 8/9/2022

  • FedEx Office will pilot Ford Motor electric vans to pickup and deliver parcels in some regions, the unit of FedEx said on Tuesday, as part of the delivery giant’s move to cut its fleet’s tailpipe emissions.
  • FedEx, in collaboration with Ford Pro, will test 10 Ford E-Transit vans across its ‘FedEx SameDay City network’ in nine markets.
  • FedEx has set a target of 2040, the year by which it intends to transition its entire pickup and delivery fleet to all-electric zero tailpipe emission vehicles.
  • The company also has a partnership with Ford’s rival General Motors’ BrightDrop unit to add electric vans to its fleet.

US ECONOMY & POLITICS

U.S. Productivity Falls for Second Straight Quarter – Wall Street Journal, 8/9/2022

  • U.S. nonfarm labor productivity—a measure of goods and services produced in the U.S. per hour worked—fell at a seasonally adjusted annual rate of 4.6% in the second quarter from the prior quarter, the Labor Department said Tuesday.
  • Economists surveyed by The Wall Street Journal had estimated a drop of 5%.
  • Unit labor costs, a measure of worker compensation and productivity, increased at a 10.8% pace in the second quarter from the prior quarter, Labor said. Economists had expected a 9.5% increase.
  • Quarterly productivity figures are volatile but the weak second-quarter number follows a 7.4% pullback in the first quarter, the sharpest drop in 74 years.
  • Together with rising labor costs, the report points to the challenges for the Federal Reserve’s efforts to tamp down inflation that is running at a four-decade high.

Rapid Wage Growth Keeps Pressure on U.S. Inflation – Wall Street Journal, 8/9/2022

  • Average hourly earnings grew 5.2% in July from a year earlier, and annual wage gains have exceeded 5% each month this year, the Labor Department said.
  • The rapid earnings growth adds to other evidence that employers are continuing to increase pay as they try to find and keep workers in a tight job market.
  • Some airlines have negotiated double-digit wage increases for pilots, as carriers struggled to hire enough of them to meet fast-rising demand for flights.
  • The Labor Department releases July consumer-price data on Wednesday, and economists surveyed by The Wall Street Journal think annual inflation cooled to 8.7% in July from 9.1% in June.
  • Wages and salaries for private-sector workers grew 5.7% in the second quarter from a year earlier, the fastest pace for records tracing back to 2001, the report said.

EUROPE & WORLD

Mexico’s July Inflation at Highest Level Since 2000 – Reuters, 8/9/2022

  • Inflation rose to 8.15% in the year through July from 7.99% in June, national statistics agency INEGI said.
  • A Reuters poll of analysts had forecast 8.13% inflation.
  • Consumer price inflation now stands at its highest since December 2000 when it was 8.96%, far above the central bank’s target of 3%, plus or minus a percentage point.
  • July’s inflation numbers reinforce expectations that the Bank of Mexico will raise its key interest rate at its monetary meeting on Thursday.
  • A Reuters poll also showed analysts foreseeing the benchmark rate reaching 8.5% at Banxico’s next meeting.
  • The central bank has increased the key interest rate by a total of 375 basis points over the course of its last nine monetary policy meetings.
  • Mexico’s closely watched core inflation index, which strips out some volatile food and energy prices, rose 0.62% during July. Annual core inflation increased 7.65%.

Russia Says it Won’t Allow U.S. Inspection for Now of Its Nuclear Weapons– Wall Street Journal, 8/8/2022

  • The crisis over Russia’s invasion of Ukraine spilled into the realm of arms control on Monday when Moscow said it won’t support the resumption of inspections of its nuclear arsenal under the New START nuclear arms treaty because of travel restrictions imposed by the U.S.
  • Weapons inspections were paused in 2020 because of the Covid-19 pandemic.
  • The foreign ministry added that Moscow was still committed to adhering to the New START treaty and that its decision to suspend cooperation with U.S. inspectors was temporary.
  • President Biden supported a five-year extension of the New START treaty as one of his first acts in office, which was quickly agreed to by Moscow.
  • The agreement caps the number of nuclear warheads and bombs at 1,550 and includes provisions for on-site inspections to verify its limits.
  • The treaty is due to expire in early 2026. However, since the invasion of Ukraine, Russian and American arms control officials haven’t met to discuss future arms control arrangements.

Taiwan Starts Two-Day Defensive Drills as Tensions With China Remain High – Wall Street Journal, 8/9/2022

  • Taiwan kicked off its two-day military exercise—known as Tianlei, which can be loosely translated as “Heaven’s Thunder”—with an hour-long live-firing drill involving more than 700 troops, according to Taiwan’s Eighth Army Corps, with 38 howitzers firing 114 shells into the waters.
  • The annual drills, while planned months in advance, come amid tensions across the Taiwan Strait that are their highest in decades.
  • In a news release Tuesday, Taiwan’s defense ministry said China extending its drills beyond the original four-day duration showed that the threat of force hadn’t diminished.
  • On Tuesday, 45 Chinese warplanes and 10 warships were involved in a joint operation near Taiwan, Taiwan’s defense ministry said in a release, adding that 16 of the aircraft crossed the so-called median line that bisects the Taiwan Strait, a notional boundary that Taipei says demarcates areas of de facto control but which Beijing says it doesn’t recognize.

Factmonster – TODAY in HISTORY

  • Jesse Owens became the first American to win four gold medals in one Olympics. (1936)
  • The United States exploded a nuclear bomb over Nagasaki, Japan, killing an estimated 74,000 people. (1945)
  • Singapore proclaimed its independence from Malaysia. (1965)
  • Vice president Gerald Ford was sworn in as president following Nixon’s resignation. (1974)

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