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Daily Markets: Can the Economy Withstand the Fed’s Growing Efforts to Rein in Inflation?

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Today’s Big Picture

Asia-Pacific equity indexes ended today’s session down across the board except for China’s Shanghai Composite which managed to recover slightly from yesterday’s selloff, gaining 0.23%. In other markets, Hong Kong’s Hang Seng declined 0.21%, Taiwan’s TAIEX fell 0.60%, Korea’s KOSPI dropped 0.86% and India’s Sensex and Australia’s ASX All Ordinaries closed down 1.23% and 1.51%, respectively. Japan’s Nikkei led the way, giving back 1.63% on the day. By mid-day trading, European equity indices were down across the board, and U.S. futures point to a soft market open later this morning. Contributing to this global market action are increasingly hawkish sentiments coming from both the U.S. and European central banks.

While we had a somewhat slower pace of corporate earnings reports, investors will be contemplating the resetting of expectations and implications at Gap (GPS) and Corsair Gaming (CRSR) — see Stocks to Watch below. They will also be reading into what the April Flash PMI data tells us about the global economy’s ability to withstand efforts by the Federal Reserve and other central bankers to rein in inflation. At stake is the balance between expectations for the growing likelihood the Fed will front-load more pronounced interest rate hikes in the near term to quash inflationary pressures and the economy’s ability to withstand those efforts without being sent into a tailspin. Offering some hope, the S&P Global Flash Eurozone Composite PMI rose to 55.8 in April, topping the consensus forecast of 53.9 vs. March’s 54.9 reading. We will see what the analogous data for the U.S. shows shortly after the U.S. equities begin trading today. 

Data Download

International Economy

Last night saw the release of March YoY CPI for Japan with top-line CPI advancing 1.2%, slightly ahead of expectations and the previously reported 0.90% figure while Core CPI (Ex Energy and Fresh Food) continues to register YoY declines as it has throughout the past 18 or so months.

Also released last night was the Preliminary reading of April Japanese Manufacturing PMI at 53.4, which although below the previously reported 54.1, was almost a point higher than expectations. A reminder that PMI metrics are sentiment surveys and results above 50 points to growth and below 50 signals contraction.

Today saw the release of German, French, and Eurozone Manufacturing and Services PMI figures. Across the board, Manufacturing results were lower than previously reported and Services figures were higher than previous numbers. UK PMI figures were also released with Manufacturing surprising to the upside and Services coming in lower than expectations and the previously reported figure.

March YoY UK Retail Sales were released, showing slight growth of 0.90%, almost 2% lower than expectations and taking a big step back from the previously reported 7.2%.

Domestic Economy

At 9:45 AM ET, we will see the release of preliminary U.S. Manufacturing and Services PMI figures with manufacturing expected to dip slightly to 58.0 from the previous 58.8 figure and Services to remain steady at 58.

Raising rates seems to be the one thing that is expected to help tame inflation, and that plus the Fed deleveraging its balance sheet, have served to strengthen the dollar as higher rates attract investors, creating demand, and the Fed decreases its balance sheet effectively, reducing supply taking dollars out of the system. This is setting the stage for some pain for overseas borrowers and could create some additional pain overall going into and through this tightening cycle.

Markets

The combination of rising interest rates and an increasingly hawkish tone from Fed Chair Powell weighed on stocks yesterday with the S&P 500 falling 1.5%. Declines were widespread with all 11 S&P 500 sectors closing lower led by the energy and communication services sectors. The Nasdaq Composite shed 2.1%, Dow Jones Industrial Average lost 1.1%, and Russell 2000 fell 2.3%. Including yesterday’s moves, here’s how the major market indicators stack up year-to-date:

  • Dow Jones Industrial Average: -4.3%
  • S&P 500: -7.8%
  • Nasdaq Composite: -15.8% 
  • Russell 2000: -11.3%
  • Bitcoin (BTC-USD): -15.4%
  • Ether (ETH-USD): -20.4%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, American Express (AXP), Kimberly Clark (KMB), SAP SE (SAP) and Verizon (VZ) are expected to report their quarterly results. 

March quarter EPS at Snap (SNAP) came up shy of expectations while revenue for the quarter rose 38.1% YoY to $1.06 billion, a tad below the expected $1.07 billion. Daily Active Users jumped 18% YoY to 332 million, but the company issued downside revenue guidance for the current quarter. The company sees June quarter revenue up 20-25% YoY, which implies $1.18-$1.23 billion vs. the $1.26 billion consensus. Interestingly enough, Snap shared that over 250 million users engaged with AR every day on average. The company is also increasing the automation of its Ad Suite through multi-format ad delivery and is seeing strong adoption of these offerings. Despite reaching almost half of U.S. smartphone users, Snap currently comprises less than 2% of the US digital ad market and less than 1% of the global digital ad market.

Gap (GPS) shares are dealing with the one-two punch associated with Old Navy CEO Nancy Green exiting this week and updating its April quarter sales guidance to low to mid-teens YoY declines from its prior guidance of mid to high single-digit YoY declines. 

Globus Medical (GMED) also announced its CEO would resign. It also cut its outlook for the March quarter. The company now sees revenue of $230.5 million for the recently completed quarter vs. the $236.1 million consensus. 

Corsair Gaming (CRSR) issued downside guidance for its March quarter with revenue now expected to be ~$380 million vs. the $449.7 million consensus.  Per the company, “revenue was lower than we expected, mainly due to a short-term slowdown in consumer spending in Europe. As is now becoming generally apparent, inflation is higher than expected and the Russia and Ukraine conflict has put a strain on consumer confidence.” 

Bloomberg shares Noodles & Co. (NDLS) is going with Impossible Foods over competitors, including Beyond Meat (BYND) for its plant-based breaded chicken that will be offered across the U.S. this year. 

The New York Post reports Elon Musk is in talks with private-equity firm Thoma Bravo about partnering on a possible takeover bid for Twitter (TWTR).

Ferrari (RACE) issued a recall for 2,222 of its luxury sports cars in China citing there may be some problem with the brakes.

Stanley Black & Decker (SWK) announced it has signed a definitive agreement for the sale of its automatic doors business Access Technologies to Allegion plc (ALLE) for $900 million in cash.

IPOs

No companies are expected to price their IPO offerings this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

There are slated to report their latest quarterly results. Investors should remain on watch for companies that pre-announce their March quarter results. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar

On the Horizon

Monday, April 25

  • Japan: Leading Indicators – February
  • Germany: Ifo Current Assessment, Business Climate & Expectations – April

Tuesday, April 26

  • US: Durable Orders – March
  • US: FHFA Home Price Index – February 
  • US: Consumer Confidence – April 
  • US: New Home Sales – March 

Wednesday, April 27

  • Germany: Gfk Consumer Confidence – May
  • France:  Consumer Confidence – April
  • US: Weekly MBA Mortgage Applications
  • US: Pending Home Sales 
  • US: Weekly EIA Crude Oil Inventories 

Thursday, April 28

  • Japan: Japan Policy Rate
  • Eurozone: Business Climate, Consumer Confidence and Economic Confidence – April
  • Germany: CPI – April
  • US: Weekly Initial & Continuing Jobless Claims
  • US: GDP – 1Q 2021
  • US: Weekly EIA Natural Gas Inventories

Friday, April 29

  • Korea: Industrial Production – March
  • China: Markit/Caixin PMI Manufacturing – April
  • France: CPI – April
  • Eurozone: GDP – 1Q 2021
  • Eurozone: CPI – April
  • US: Personal Consumption & Expenditures – March
  • US: Chicago PMI – April
  • US: Michigan Sentiment Index (Final) – April

Thought for the Day

“Expose yourself to your deepest fear; after that, fear has no power, and the fear of freedom shrinks and vanishes.” ~ Jim Morrison

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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