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Daily Market Report | October 22, 2021

US FINANCIAL MARKET

Stocks Waver After S&P 500 Record – Wall Street Journal, 10/22/2021

  • U.S. stocks wavered Friday but headed toward a third consecutive week of gains.
  • Stocks have risen in recent days after strong earnings results from some of the biggest U.S. corporations.
  • Most S&P 500 companies that have reported earnings have beat analysts’ expectations, and corporate profits are expected to jump around 35% in the latest quarter from the prior year, according to Refinitiv data.
  • On Friday, American Express shares rose 5.1% after the credit-card company posted a rise in earnings that beat analysts forecasts, in part helped by more consumers dining out.
  • Snap shares fell 22.9% after the social-media company said changes to Apple’s privacy rules would hurt its ad business.
  • Other technology shares also slipped, with Facebook falling more than 5%, and Google parent company Alphabet down 2.6%.
  • The yield on the benchmark 10-year Treasury rose to 1.679% Friday from 1.674% Thursday, its highest close in five months.
  • In commodity markets, Brent crude, the international oil benchmark rose 0.4% to $85.00 a barrel.
  • Gold prices rose 1.8% to $1,813.50 a troy ounce.
  • Overseas, the pan-continental Stoxx Europe 600, rose 0.6%, led by its technology sector.
  • Asian stock markets were mixed. Japan’s Nikkei 225 rose 0.3%. In Hong Kong, the Hang Seng Index rose 0.4%, while in mainland China, the Shanghai Composite Index fell 0.3%.

Intel Earnings Dented by Component Shortages, China’s Videogaming Crackdown – Wall Street Journal, 10/22/2021

  • Intel disappointed investors even as it posted stronger third-quarter earnings as component shortages weighed on computer shipments and China’s crackdown on computer gaming hurt server-chip sales.
  • Intel, which powers many personal computers, Thursday reported third-quarter sales of $19.2 billion, up 5% from the year-ago period, generating net income of $6.8 billion.
  • Adjusted sales, stripping out revenue from memory operations Intel is selling to South Korea’s SK Hynix, came in at $18.1 billion, below the $18.2 billion Wall Street forecast.
  • Sales fell 10% for the unit that includes chips that go into notebooks. The impact was offset partly by strength in Intel’s desktop business and higher prices amid strong demand as vendors shipped higher-value devices.
  • The chip maker said sales in its data-center unit rose 10% to $6.5 billion, in part driven by the recovery from the economic effects of the pandemic. The result fell short of Wall Street forecasts, though.
  • Intel, for the current quarter, said it expects sales of $19.2 billion.
  • Wall Street is forecasting sales of $19.4 billion in the period. Full-year sales should reach $77.7 billion, Intel said.
  • Mr. Davis, on the call, said adjusted sales next year should reach at least $74 billion, above analysts’ expectations, with revenue growth accelerating in subsequent years.
  • Profitability, he said, would affect margins over the next two to three years as the company invests before growing again.
  • Capital expenditure could reach $28 billion in 2022, he said, and potentially increase further in following years.

Snap’s Stock Plummets as It Blames Apple’s Privacy Changes for Hurting Its Ad Business – Wall Street Journal, 10/22/2021

  • Snap said Thursday it expects growth to slow in the current quarter because of recent changes to Apple’s App Store privacy rules, sending Snap’s stock tumbling more than 20% in after-hours trading and highlighting the impact of the iPhone maker’s new policy on digital advertising.
  • The social-media company said revenue rose 57% for the three months ended Sept. 30, slightly below analysts’ expectations and its own guidance, but it expects expansion to slow.
  • Daily users rose 23% to 306 million.
  • The company also said it narrowed its loss to $72 million from $200 million a year earlier.
  • Analysts were expecting a loss of $156 million.
  • “While we anticipated some degree of business disruption, the new Apple-provided measurement solution did not scale as we had expected, making it more difficult for our ad partners to measure and manage their ad campaigns for iOS,” Snap said.
  • U.S. users opt into tracking only about 16% of the times they encounter the Apple privacy prompt, according to mobile-app-analytics provider Flurry.
  • Snap, based in Santa Monica, Calif., said Thursday that it projects revenue for the quarter ending Dec. 31 to range between $1.17 billion and $1.21 billion, which would be up from $911 million a year earlier but below the $1.36 billion that analysts polled by FactSet were expecting.

Chipotle’s Profit More Than Doubles as Chain’s Burritos Get Pricier – Wall Street Journal, 10/22/2021

  • Chipotle Mexican Grill said higher menu prices helped boost its profit as the burrito chain deals with increased labor and commodity costs.
  • Sales totaling $1.95 billion established a quarterly record, up 22% from the previous year’s period.
  • On Thursday, Chipotle reported its same-store sales increased by 15.1% in its most recent quarter compared with last year’s period.
  • The Newport Beach, Calif.-based company said Thursday its quarterly net income more than doubled from the same quarter a year earlier, rising to $204.4 million.
  • The chain says it expects same-store sales to increase by 10% or more in its fourth-quarter over last year.

Whirlpool Doesn’t See Appliance Shortage Ending Soon – Wall Street Journal, 10/22/2021

  • Shortages of dishwashers and refrigerators are likely to stretch well into next year, Whirlpool’s chief executive officer said, as supply-chain problems constrain production and consumer demand remains strong.
  • Demand for Whirlpool’s refrigerators, ovens and other appliances lifted the company’s net income 20% higher to $471 million, the company said Thursday, as revenue increased 3.7% to $5.49 billion for the quarter that ended Sept. 30.
  • Whirlpool said revenue in North America, which represents roughly 57% of total sales, rose 5.1% in the third quarter to $3.11 billion, buoyed by homebound consumers who continued to make home upgrades and buy more appliances.
  • At the same time, Whirlpool is paying more for raw materials, labor and transportation.
  • Whirlpool said an adjusted profit measure fell in its latest quarter as higher costs offset increased prices for its products.
  • The company said it expects raw material inflation to be about $1 billion this year, and cut its projected revenue growth for the year to 13%, down from 16% forecast in July.
  • The company told investors it is planning for revenue growth of up to 6% a year in the long run, excluding acquisitions and currency fluctuations, about double its previous estimate.

Honeywell cuts full-year sales target on parts shortage – Reuters, 10/22/2021

  • Honeywell International on Friday cut its full-year sales forecast, as global supply chain disruptions cause a shortage of parts and components for the U.S. industrial conglomerate.
  • Net sales rose to $8.47 billion from $7.80 billion a year earlier, but missed analysts’ average estimate of $8.65 billion.
  • Honeywell said a shortage of parts had curtailed production in its biggest segment, the aerospace unit.
  • It also said an electronic component shortage was hurting its safety and productivity solutions unit, which houses the automation equipment business used by customers including Amazon.
  • Excluding one-time items, Honeywell earned $2.02 per share, beating estimates of $1.99 per share for the third-quarter ended Sept. 30, benefiting from a rise in commercial and business aviation.
  • The company cut its full-year sales estimates to between $34.2 billion and $34.6 billion, compared with its prior forecast of $34.6 billion to $35.2 billion to “reflect the persistent effects of the macro-challenged environment”.
  • Analysts, on average, had expected full-year sales of $35.10 billion, according to Refinitiv IBES estimate.
  • Honeywell also narrowed full-year profit forecast range to $8.00 to $8.10, from $7.95 to $8.10 earlier.

Beyond Meat shares bleed on bleak revenue forecast as retail demand dips – Reuters, 10/22/2021

  • Beyond Meat on Friday cut its third-quarter revenue forecast, blaming a host of factors including a drop in demand from grocery stores and a labor shortage that led to delays in restocking shelves, sending its shares down 15%.
  • The company, which gets the bulk of its revenue from retailing, has suffered from a weakening trend of people stockpiling faux meat burgers and sausages at home as they started dining out.
  • It also said new orders from a distributor servicing one of the company’s large customers did not materialize, while severe weather caused damage to inventory stored at one of its facilities.
  • Beyond Meat said it now expects third-quarter net revenue of about $106 million, compared with its prior forecast of $120 million to $140 million.
  • Beyond Meat, which fell 13% this year up to last close, is due to report its full third-quarter results on Nov. 10.

AmEx beats profit estimates on spending recovery as pandemic curbs ease – Reuters, 10/22/2021

  • American Express on Friday reported a higher profit that topped Wall Street estimates for the fourth straight quarter, underpinning a recovery in spending from consumers emboldened by an easing of COVID-19 restrictions.
  • Excluding interest expense, the company’s total revenue rose 25% to around $10.93 billion.
  • Net interest income, a metric that measures how much credit card companies make from interest payments, rose 6% to $1.99 billion.
  • Net income came in at $1.83 billion, or $2.27 per share, for the quarter ended Sept. 30, up 70% from last year.
  • Analysts were expecting a figure of $1.80 per share, according to IBES data from Refinitiv.
  • The New York-based company released $393 million of reserves in the quarter, reflecting an improved credit outlook overall.

Schlumberger quarterly profit rises as oilfield services demand recovers – Reuters, 10/22/2021

  • Top oilfield firm Schlumberger reported a rise in third-quarter adjusted income on Friday, buoyed by higher demand for its services and equipment, as producers capitalize on a rebound in crude prices.
  • Revenue of $5.8 billion fell short of analysts expectations of $5.9 billion, but was up 11% year-over-year.
  • Schlumberger reported net income of $550 million, or 39 cents per share, for the quarter, edging past Wall Street estimates of 36 cents each, according to Refinitiv IBES.
  • Excluding charges & credits, net income came in at $514 million, or 36 cents per share, for the three months ended Sept. 30, higher than $228 million, or 16 cents per share, a year earlier.

Western Digital-Kioxia Deal Talks Stall – Wall Street Journal, 10/22/2021

  • Western Digital’s talks to merge with Japanese chip maker Kioxia Holdings in a $20 billion-plus deal have stalled, according to people familiar with the matter.
  • The companies, which had been speaking since early this year, were working to finalize a stock deal that would have created a memory-chip powerhouse worth something on the order of $40 billion, The Wall Street Journal reported in August.
  • Though the talks are on hold now, they could still be revived, some of the people said.
  • Kioxia, formerly part of Toshiba and known as Toshiba Memory, was purchased in 2018 by a group led by private-equity firm Bain Capital for around $18 billion. Toshiba retained a 40% stake in the business, which was renamed Kioxia the following year.

Music Publishers Propose Higher Streaming Payments – Wall Street Journal, 10/22/2021

  • The National Music Publishers Association and five major streamers—Spotify Technology, Apple, Amazon.com, Alphabet’s -YouTube and Sirius XM Holdings’ Pandora—this week are duking it out in front of the Copyright Royalty Board, a three-judge panel that sets the statutory licensing rates that digital-service providers pay publishers for on-demand audio streams of their songs.
  • The publishers argued in proposals that were due Wednesday at midnight for nearly doubling the current rate, while the streamers are angling to pay less—rates effectively below 2008 levels.
  • For years, publishers and songwriters have bristled over payments from streaming and say they are paltry—about one fifth what labels and recording artists collect. The NMPA proposed raising the rate to 40% of what labels are paid.
  • The NMPA has proposed that in a given reporting period, streamers pay publishers whichever is the largest of four sums: 20% of their service’s revenue; 40% of what is paid to record labels and other master recording copyright holders; $1.50 per subscriber; or $0.0015 per stream.

Investors Bet Inflation Pressures Will Linger – Wall Street Journal, 10/22/2021

  • A key measure of investors’ inflation expectations has climbed in recent weeks, adding fuel to concerns about rising consumer prices.
  • As of Thursday, the gauge known as the 10-year break-even rate suggested that the consumer-price index will rise by an annual average of 2.64% over the next decade, according to Federal Reserve Economic Data, or FRED.
  • That is up from a recent low of 2.28% in late September and the highest level since 2012.
  • The break-even rate is found by looking at the difference in yields between nominal Treasury bonds and Treasury inflation-protected securities, or TIPS.
  • The rate is so called because TIPS holders can earn the same return as holders of nominal Treasuries if average annual CPI inflation matches that gap over the life of the bonds.

US ECONOMY & POLITICS

U.S. Services Growth Picks Up, Supply Constraints Dog Factories – Bloomberg, 10/22/2021

  • Business activity at U.S. service providers expanded the most in three months, while manufacturing growth cooled on lingering supply and labor constraints that are fueling even greater inflationary pressures across the economy.
  • The IHS Markit flash services purchasing managers strengthened to 58.2 from 54.9 a month earlier, the group reported Friday.
  • The gauge of manufacturing activity slipped to a seven-month low of 59.2. Readings above 50 indicate growth.
  • “However, while manufacturers also continue to report strong demand, factory production remains plagued by constraints, including record supply chain bottlenecks and labor shortages,” Williamson said.
  • As a result, the composite measure of order backlogs increased this month to the highest in data back to October 2009, while manufacturing delivery times were the longest in records to 2007.
  • The IHS Markit composite indexes for input costs and prices received climbed to series highs.
  • Service providers were particularly successful in passing along higher costs as the group’s measure jumped 6 points, the most since November, to a record.

Democrats Weigh Tax Alternatives to Fund $2 Trillion Package – Wall Street Journal, 10/22/2021

  • Democrats worked to quickly find new sources of revenue to pay for their roughly $2 trillion social-policy and climate package, seeking to target businesses and wealthy individuals in novel ways after proposed rate increases ran aground in talks.
  • The continued opposition by Sen. Kyrsten Sinema (D., Ariz.) to any increases in top marginal rates on corporations, individuals or capital gains has emerged as a major hurdle in the party’s quest to reach a new framework on the legislation.
  • A person familiar with Ms. Sinema’s thinking said she has agreed to enough alternative revenue provisions with the White House to cover the full cost of the spending, creating a potential new path for Democrats to try to finance the cost of the package.
  • In a town hall late Thursday, President Biden acknowledged that he wouldn’t have the votes to boost the corporate tax rate but expressed optimism that Democrats would find other ways to raise revenue.
  • Though he wasn’t precise, he cited a potential 15% minimum corporate tax rate, a levy designed to raise taxes on companies that are paying low rates now because of legal use of tax breaks, as well as a 15% minimum tax rate on international profits.
  • But some of the alternatives Democrats are weighing, such as annually taxing billionaires’ unrealized capital gains, face their own dose of skepticism from other centrist Democrats. The legislation will ultimately need the support of every Democrat in the Senate and nearly every Democrat in the House.

Container Ships Headed for U.S. Poised to Worsen Port Bottleneck – Bloomberg, 10/22/2021

  • The backlog of ships outside the twin ports of Los Angeles and Long Beach — America’s largest gateway for ocean freight — is poised to worsen.
  • There’s now a record of 80 container vessels waiting off Southern California, with more on the way from Asia.
  • The bottleneck that started almost exactly a year ago shows little sign of letting up, according to a Bloomberg analysis shipping data.
  • While counts for ships in port remain the same, total counts have ballooned to 112, surpassing Singapore for the world’s third-largest holding area for container ships.
  • Canada’s port of Vancouver is now dealing with its highest volume of containers since Bloomberg started tracking the data in April, as 21 vessels were counted off its coast on Oct. 22.
  • Russia’s port of Vladivostok saw 11 waiting vessels, full with Chinese cargo.
  • Singapore’s anchored container count remained elevated Friday, after the cyclones Kompasu and Chanthu slowed trade in China. The 34 anchored vessels waiting to load marked a 11% increase in congestion.

EUROPE & WORLD

Supply-Chain Bottlenecks Crimp Global Growth, Boost Inflation – Wall Street Journal, 10/22/2021

  • Worsening supply-chain bottlenecks around the world and a record surge in the prices of some raw materials and other supplies for manufacturers is dragging on the world economy, suggesting a slowdown this summer will extend through the end of this year.
  • Surveys of purchasing managers conducted over recent weeks point to a sharp slowdown in European factory activity as businesses reported difficulties getting hold of the parts and raw materials they needed.
  • Private data firm IHS Markit said Friday that its composite Purchasing Managers Index for the eurozone fell to a six-month low of 54.3 in October from 56.2 in September. A reading above 50 indicates growth, while a level below 50 signals contraction.
  • Japanese and Australian businesses also report supply shortages and rising costs, but in both countries the surveys of purchasing managers pointed to a pickup in growth as restrictions imposed earlier in the year were eased.
  • The composite PMI for Japan increased to 50.7 in October from 47.9 in September, indicating a return to growth.
  • The Australian measure rose to 52.2 in October from 46.0 in September, also pointing to a return to growth after the lifting of restrictions.

China Evergrande Makes Overdue Interest Payment on Dollar Bonds, State Media Says – Wall Street Journal, 10/22/2021

  • China Evergrande Group made an overdue interest payment to international bondholders, the state-owned Securities Times reported Friday, an unexpected move that allows the property company to stave off a default.
  • The Chinese real-estate developer on Thursday sent $83.5 million to the trustee for the dollar bonds, and that financial institution will in turn pay bondholders, the Securities Times reported. The financial paper is run by the Communist Party’s flagship People’s Daily newspaper.
  • Evergrande was nearing the end of a 30-day grace period before bondholders could send a notice of default to the company after it failed to make the interest payment on about $2.03 billion of dollar bonds on Sept. 23.
  • A default on those bonds would likely have spiraled into the biggest corporate default in Asia, by enabling creditors to declare defaults on some of Evergrande’s other debts. The company is one of China’s biggest developers, and its most indebted.

Factmonster – TODAY in HISTORY

  • Andre-Jacques Garnerin made the first parachute jump from a balloon. (1797)
  • Sam Houston was inaugurated as the first president of the Republic of Texas. (1836)
  • West Germany joined the North Atlantic Treaty Organization (NATO). (1954)
  • President Kennedy announced an air and naval blockade of Cuba, following the discovery of Soviet missile bases on the island. (1962)
  • Muhammad Reza Shah Pahlevi, the deposed Shah of Iran, was allowed in the United States for medical treatment. This action led to the Iran hostage crisis. (1979)

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