MARKET WRAPS
Watch For:
Weekly Jobless Claims; 2nd Estimate 1Q GDP; earnings from
Alibaba, Baidu, Macy's, Dollar General, Dollar Tree, Medtronic,
VMware, Costco, Ulta Beauty, Dell, Gap, Royal Bank of Canada,
Toronto-Dominion Bank
Opening Call:
Stock futures wobbled ahead of earnings from large technology
companies and economic data including jobless claims and an updated
reading of first-quarter gross domestic product.
Stocks have swung this week, fluctuating between daily gains and
losses as investors considered the Federal Reserve's next monetary
tightening moves to combat inflation and how much they could weigh
on growth and markets.
"To some extent, markets have been reassured that the Fed isn't
going to tighten more aggressively than what is expected. But
sentiment in the market remains rather stressed," said Luc Filip,
head of investments at SYZ Private Banking. "There is still a lot
of uncertainty about what will happen if inflation stays high."
Investors are awaiting a second reading of gross domestic
product in the first quarter and weekly jobless claims, which are
both set to go out at 8:30 a.m. ET. The first GDP release showed a
1.4% contraction, shrinking for the first time since early in the
pandemic.
"Economic data has come in weaker than expected lately, we do
see this tightening in the economy. How severe the growth slowdown
is what markets are thinking about now," said Shaniel Ramjee, a
multiasset fund manager at Pictet Asset Management.
"We are focusing on earnings and profitability. A lot of stable
companies are reporting lower guidance," Ramjee said. "Even the
tech sector is not immune to margin pressure, especially from input
costs like wages."
In premarket trading, Nvidia declined 6% despite posting record
revenues as its sales outlook for the current quarter came in below
Wall Street's estimates. Williams-Sonoma jumped 10% after posting
profit that beat analysts' expectations.
Overseas, the pan-continental Stoxx Europe 600 ticked up 0.2%
and in Asia, major benchmarks were mixed.
Economic Insight:
The probability of a recession in the U.S. over the next year
remains close to zero, according to Capital Economics' own
composite model.
The only indicator which signals recession levels is consumer
confidence, while most leading indicators such as ISM new orders
index and building permits are showing resilience, said Capital's
senior U.S. economist Michael Pearce. Recession risks have also
declined as the bond yield curve has un-inverted, he added.
"The recent un-inversion of the 10y-2y curve still leaves it
consistent with elevated recession risks, but below the 30%
threshold which has been reached ahead of every recession since the
1960s."
Forex:
The dollar should recover after recent falls as expectations for
Fed interest rates are re-priced higher, said ING analysts.
Wednesday's minutes showed policy makers had nothing but
confidence in the recovery and were "laser-focused on getting the
policy rate to neutral as quickly as possible." Markets have
reduced their pricing of Fed rate-rise expectations by 25-35 basis
points since early May, but higher levels could easily be put back,
supporting the dollar, ING said.
"We prefer to see the recent 3% DXY % dip as a bull market
correction and favor a near-term recovery to the 103.30 area."
---
The yuan weakened against the dollar in onshore and offshore
markets over fears of a slowdown in China's economic growth.
Chinese leaders have continued to warn about significant growth
risks and have called for implementation of more stimulus measures,
said Ken Cheung, chief Asian FX strategist at Mizuho Bank, noting
Premier Li Keqiang's recent comments.
The leader's message to support growth should reinforce the
PBOC's easing bias, and the widening monetary policy divergence
between PBOC and other major central banks will probably leave yuan
on the back foot, the strategist said.
---
The Hong Kong dollar's peg to the dollar is likely to remain
"highly credible" given that the city's de facto central bank has
ample resources to defend it, said Bank of Singapore's currency
strategist Sim Moh Siong. The HKD's fundamentals are sound, given
massive external surpluses, a stable banking system and low
inflation, he added.
Although capital outflow pressures caused by a faster Fed
tightening and China's sluggish growth have driven recent HKD
weakness, investors "should avoid being overly alarmist" even as
USD/HKD tests the top side of the 7.75-7.85 band repeatedly.
Other News:
Russia's central bank cut its key interest rate for a third time
since early April as it sought to steady a strengthening ruble and
support a faltering economy.
The Bank of Russia Thursday lowered its key interest rate to 11%
from 14%. Following two rate cuts in April, that largely reverses a
doubling of the key rate in the immediate aftermath of Russia's
invasion of Ukraine and the Western sanctions that it provoked.
Read more here.
Bonds:
The deeply discounted dollar bonds of some private Chinese
developers that haven't defaulted are now offering "exceptional
value" as Beijing has rolled out easing measures to aid the
beleaguered property sector, said Michael Kelly, global head of
multi-asset at PineBridge Investments.
Kelly said he expects state-owned developers to gain market
share as the industry consolidates, but their bonds are reasonably
priced for the current stage of the downturn.
In contrast, he said bonds of some "high-quality" private
developers are starting to look attractive. An ICE BofA index of
high-yield Chinese corporate bonds yielded 23.4% as of
Wednesday.
Energy:
Crude futures held modest gains in Europe, with the outlook
remaining uncertain over a potential EU ban on Russian oil.
"The EU agreement is a distraction, given individual member
states and vital corporate buyers in Europe are already phasing out
purchases of Russian oil," said Stephen Innes, managing partner at
SPI Asset Management.
He said the overall stock level is likely to fall because of the
individual cuts.
Metals:
Gold prices were flat following the Fed minutes.
"Members' 'strong commitment and determination' to bring
inflation back under control as well as their willingness to take
monetary policy to a restrictive stance suggest the [FOMC] may fail
to deliver a 'soft landing' for the U.S. economy," said Kristina
Clifton, analyst at Commonwealth Bank of Australia.
Prices for base metals were lower, with recession worries and
China's lockdowns continuing to hurt sentiment, according to
analysts.
"Base metals prices remain in the doldrums," said SPI's Stephen
Innes. He said the decline in prices since the start of March
indicated "pessimism around the global economy and a retreat of
inflation hedges."
TODAY'S TOP HEADLINES
Apple Boosting Pay Budget for Workers Amid Tight Labor
Market
Apple Inc. is boosting pay for workers amid rising inflation, a
tight labor market and unionization pushes among hourly store
employees.
The iPhone maker on Wednesday told employees in an email that
the company is increasing its overall compensation budget. Starting
pay for hourly workers in the U.S. will rise to $22 an hour, or
higher based upon the market, a 45% increase from 2018. Starting
salaries in the U.S. are also expected to increase.
Nvidia Posts Record Sales, Warns of Russia, China Hit
Graphics-chip maker Nvidia Corp. gave a muted sales outlook,
citing supply-chain disruptions in China and reduced business in
Russia, as it posted record sales for the most recent quarter.
Nvidia said sales in the current quarter are likely to come in
at $8.1 billion, missing Wall Street forecasts. The company said it
anticipated a roughly $500 million hit to sales relating to Russia
and Covid-19 lockdowns in China.
Elon Musk Plans to Rely More Heavily on Equity for Twitter
Deal
Elon Musk is committing more of his wealth to finance his $44
billion deal for Twitter Inc. and seeking additional financial
backers amid a sharp decline in Tesla Inc. stock in recent
weeks.
Mr. Musk's funding plan now includes $33.5 billion in equity, up
from $27.25 billion, according to a Wednesday regulatory filing.
The billionaire Tesla chief executive no longer plans to rely on a
margin loan backed by shares of his electric-vehicle company, which
are down by about a third since Twitter accepted his bid in late
April.
Corruption Probe in Anaheim, Calif., Grows, Drawing in
Disney
The Walt Disney Co. has become entangled in a corruption scandal
unfolding in Anaheim, the southern California city where its
Disneyland Resort is based, that this week prompted its mayor to
resign.
In an affidavit filed in a California federal court, federal
investigators describe a "cabal" of business leaders and elected
officials in Anaheim who allegedly meet privately to influence
public policy decisions.
Aramco Approached Valvoline About Potential Takeover of One of
Its Units
Saudi Aramco approached Valvoline Inc. about a potential
takeover of its lubricants business, according to people familiar
with the matter, as the state oil giant looks to diversify.
No deal is imminent, and there are no guarantees there will be
one, the people said. Valvoline has a market value of around $6
billion after its shares closed up more than 12% Wednesday
following The Wall Street Journal's report on the talks.
Lenovo's Fourth-Quarter Profit Jumped 48%
Lenovo Group Ltd. said its fourth-quarter profit rose 48%,
driven by higher revenue and disposal gains.
The world's largest personal-computer maker on Thursday posted
net profit of US$421 million for the three months ended March.
Toshiba Nominates Representatives of Elliott, Farallon to
Board
Toshiba Corp. said Thursday that it is nominating seven new
director candidates, including representatives of major
shareholders Elliott Management Corp. and Farallon Capital
Management LLC.
The Japanese industrial company said it is proposing that
shareholders elect Nabeel Bhanji, senior portfolio manager of
Elliott Investment Management, and Eijiro Imai, managing director
at Farallon Capital Japan, to the board.
Russia Central Bank Cuts Key Rate for Third Time on Stronger
Ruble
Russia's central bank cut its key interest rate for a third time
since early April as it sought to steady a strengthening ruble and
support a faltering economy.
The Bank of Russia Thursday lowered its key interest rate to 11%
from 14%. Following two rate cuts in April, that largely reverses a
doubling of the key rate in the immediate aftermath of Russia's
invasion of Ukraine and the Western sanctions that it provoked.
Bank of Korea Raises Benchmark Rate, Signals More Tightening
South Korea's central bank raised its benchmark interest rate
Thursday and signaled it would tighten policy further as it keeps
up its fight against high inflation.
The Bank of Korea raised its benchmark seven-day repurchase rate
by 25 basis points to 1.75% after an increase of the same size at
the previous meeting in April.
Iranian Officer Killed in Tehran Was Involved in Plot to Kill
Israeli Diplomat, U.S. General
An Iranian Islamic Revolutionary Guard Corps officer shot and
killed outside his Tehran home led the group's efforts to
assassinate opponents of Iran around the world, including recent
failed plots to kill an Israeli diplomat, an American general and a
French intellectual, according to people familiar with the
matter.
The officer, Col. Hassan Sayyad Khodaei, planned kidnappings and
killings for an arm of the IRCG known as Quds Force Unit 840, the
people said. They said he recruited agents to carry out operations
globally, including in Colombia and Cyprus, mostly against Israeli
targets but also aimed at people from other countries viewed as
hostile by Iran.
Texas Gov. Abbott Dismisses Calls for Stronger Gun Laws, Points
to Chicago Violence
Texas Gov. Greg Abbott dismissed calls for more gun regulation
following Tuesday's deadly school attack in Uvalde, stating that
cities with stronger gun laws aren't safer.
The Republican pointed to the number of shootings in Chicago,
Los Angeles and New York during a press conference Wednesday about
the mass shooting at Robb Elementary School in which a gunman
killed 19 children and two adults. The shooter used two
assault-style rifles purchased at a local gun store within a week
of his 18th birthday, officials said.
Big U.S. Cities Lost More Residents as Covid-19 Pandemic
Stretched On
Big-city population declines deepened across the U.S. last year
as the pandemic continued sending Americans in search of more
space, according to census figures released Thursday.
The largest cities lost a greater share of residents than small-
and midsize cities during the year that ended July 1, 2021, new
estimates show. Collectively, in the nine cities with more than one
million people, the population fell 1.7%, a loss of 419,000
residents. Only two cities in that group grew: Phoenix and San
Antonio.
Oklahoma Governor Signs Abortion Ban
Oklahoma's governor on Wednesday signed into the law the
toughest abortion ban in effect in the U.S., outlawing the
procedure at any stage of pregnancy and delegating enforcement to
private citizens.
The law, signed by Republican Gov. Kevin Stitt, takes effect
immediately.
Write to paul.larkins@dowjones.com TODAY IN CANADA
Earnings:
Canadian Imperial Bank of Commerce 2Q
Royal Bank of Canada 2Q
Silvercorp Metals 4Q
Toronto-Dominion Bank 2Q
Economic Indicators (ET):
0830 Mar Retail Sales
0830 Mar Payroll employment, earnings & hours
Stocks to Watch:
ASX-listed Appen received an unsolicited takeover proposal from
Telus International that values the Australian data annotation
firm's equity at $830.7 million.
Appen on Thursday said it has considered the A$9.50-a-share
proposal and is seeking improved terms from the Canadian tech firm.
The stock last traded at A$6.40, down 85% since August 2020.
Appen's board has offered additional business and financial
information subject to Telus agreeing to a confidentiality
agreement. Appen said the proposal is subject to conditions
including completion of due diligence and Telus finalizing its
funding.
Expected Major Events for Thursday
08:00/ITA: May Consumer Confidence Survey
08:00/ITA: May Business Confidence Survey
09:00/ITA: Mar Industrial turnover & orders
12:30/CAN: Mar Retail trade
12:30/US: 05/21 Unemployment Insurance Weekly Claims Report -
Initial Claims
12:30/US: 1Q Preliminary Corporate Profits
12:30/CAN: Mar Payroll employment, earnings & hours
12:30/US: U.S. Weekly Export Sales
12:30/US: 1Q 2nd estimate GDP
13:00/RUS: Weekly International Reserves
14:00/US: Apr Pending Home Sales Index
14:30/US: 05/20 EIA Weekly Natural Gas Storage Report
15:00/US: May Federal Reserve Bank of Kansas City Survey of
Tenth District Manufacturing
20:30/US: Federal Discount Window Borrowings
20:30/US: Foreign Central Bank Holdings
23:30/JPN: May CPI (Tokyo), CPI ex-Food (Tokyo)
23:50/JPN: May Provisional Trade Statistics for 1st 10 days of
Month
All times in GMT. Powered by Kantar Media and Dow Jones.
Expected Earnings for Thursday
American Eagle Outfitters (AEO) is expected to report $0.26 for
1Q.
American Woodmark Corp (AMWD) is expected to report $0.81 for
4Q.
Anaplan Inc (PLAN) is expected to report $-0.36 for 1Q.
Armstrong Flooring Inc (AFIIQ) is expected to report $-0.26 for
1Q.
Biomea Fusion Inc (BMEA) is expected to report for 1Q.
Bit Digital Inc (BTBT) is expected to report for 1Q.
Brady Corp (BRC) is expected to report $0.76 for 3Q.
Build-A-Bear Workshop (BBW) is expected to report $0.66 for
1Q.
Burlington Stores Inc (BURL) is expected to report $0.61 for
1Q.
Canadian Imperial Bank of Commerce (CM,CM.T) is expected to
report $1.75 for 2Q.
Cavco Industries Inc (CVCO) is expected to report $4.77 for
4Q.
Corvel (CRVL) is expected to report for 4Q.
Costco Wholesale Corp (COST) is expected to report $3.06 for
3Q.
Destination XL Group Inc (DXLG) is expected to report $0.10 for
1Q.
Dollar General (DG) is expected to report $2.36 for 1Q.
Dollar Tree Inc (DLTR) is expected to report $2.04 for 1Q.
Dorian LPG Ltd (LPG) is expected to report $0.59 for 4Q.
Eargo Inc (EAR) is expected to report for 1Q.
Farfetch Ltd (FTCH) is expected to report $-0.36 for 1Q.
Gap Inc (GPS) is expected to report $-0.16 for 1Q.
Genesco Inc (GCO) is expected to report for 1Q.
Hamilton Lane Inc (HLNE) is expected to report $0.74 for 4Q.
Kayne Anderson Energy Infrastructure Fund Inc (KYN) is expected
to report for Full year.
Macy's Inc (M) is expected to report $0.82 for 1Q.
Medtronic plc (MDT) is expected to report $1.28 for 4Q.
Movado Group Inc (MOV) is expected to report for 1Q.
National Energy Services Reunited Corp (NESR) is expected to
report $0.11 for 1Q.
Plantronics Inc (POLY) is expected to report $-0.05 for 4Q.
RBC Bearings Inc (ROLL) is expected to report $1.15 for 4Q.
Red Robin Gourmet Burgers Inc (RRGB) is expected to report
$-0.77 for 1Q.
Republic First Bancorp (FRBK) is expected to report $0.09 for
1Q.
Royal Bank of Canada (RY,RY.T) is expected to report $2.67 for
2Q.
Sanderson Farms (SAFM) is expected to report $7.08 for 2Q.
Silvercorp Metals (SVM,SVM.T) is expected to report $0.04 for
4Q.
Thermon Group Holdings Inc (THR) is expected to report $0.24 for
4Q.
Titan Machinery (TITN) is expected to report $0.54 for 1Q.
Toronto-Dominion Bank (TD,TD.T) is expected to report $1.86 for
2Q.
Waterloo Brewing Ltd (WBR.T) is expected to report for 1Q.
Workday Inc (WDAY) is expected to report $-0.42 for 1Q.
Zscaler Inc (ZS) is expected to report $-0.66 for 3Q.
Powered by Kantar Media and Dow Jones.
ANALYST RATINGS ACTIONS
2U Cut to Underweight From Neutral by Piper Sandler
Air Products & Chemicals Raised to Overweight From Neutral
by Atlantic Equities
ASGN Cut to Underperform From Neutral by Credit Suisse
Best Buy Cut to Equal-Weight From Overweight by Barclays
CME Group Raised to Outperform From Perform by Oppenheimer
Covetrus Cut to Market Perform From Outperform by William
Blair
Devon Energy Cut to Equal-Weight From Overweight by Barclays
Diamondback Energy Raised to Overweight From Equal-Weight by
Barclays
Equitable Raised to Overweight From Neutral by JP Morgan
Essential Props Realty Cut to Neutral From Buy by Goldman
Sachs
Fisker Cut to Hold From Buy by Tudor Pickering
Kilroy Realty Raised to Buy From Neutral by Goldman Sachs
Magellan Midstream Raised to Overweight From Neutral by JP
Morgan
Sabra Healthcare REIT Raised to Buy From Neutral by Mizuho
Univar Solutions Raised to Overweight From Equal-Weight by Wells
Fargo
Verrica Pharmaceuticals Cut to Sector Perform From Outperform by
RBC Capital
This article is a text version of a Wall Street Journal
newsletter published earlier today.
(END) Dow Jones Newswires
May 26, 2022 05:42 ET (09:42 GMT)
Copyright (c) 2022 Dow Jones & Company, Inc.