Mint Market Watch - 20 Oct 22
JPY trades past >150; UK inflation soars >10%; Tesla revenues up 55%; Strong USD hurting US firms.
JPY trades past >150; UK inflation soars >10%; Tesla revenues up 55%; Strong USD hurting US firms.
Japan trade deficit narrowed to 2.09T Yen (2.17T E). The Yen traded past 150 v/s the dollar, reaching levels unseen since 1990.
IBM reported EPS of 1.81 (1.79 E) on rev of $14.11B ($13.54B E), up 6% YoY. IBM booked net loss of $3.2B (v/s $1.1B profit last year).
Tesla delivered EPS of 1.05 (1.03 E) on revs of $21.45B ($22.5B E), up a stunning 55% YoY. Q3 Net was $3.29B up from $1.62B last year. Elon believes that Tesla could be more valuable than Apple & Aramco put together.
P&G, Nestle, and Elevance top earnings expectations due to higher pricing but volumes shrink.
Strong USD hurting. P&G expects it to cost them $1.3B in 2022. IBM expects a 7% revenue decline as a result. Nasdaq takes a $22M hit from FX fluctuations.
HKEX rev of HK$3.94B down 23% YoY. Profits slumped to HK$2.26B compared to HK$3.25B last year. In first 9 months, weak cash markets with volumes down 31% and fund raise at $8.8B (v/s 37B LY).
Click here to read previous Mint Market Watch edition
Tesla beats on profits but misses revenue expectations
Tesla reported adjusted EPS of 1.05 (1.03 E) on revenue of $21.45B ($22.5B E), up 55% YoY. Net income for Q3 was $3.29B or 0.95 per share up from $1.62B last year. Gross automotive margins remained unchanged at 27.9%. Tesla’s energy unit generated $1.12 billion in revenue for the quarter. Operating margin increased both sequentially and year-over-year to 17.2% from 14.6% respectively. Tesla’s automotive regulatory credits made up 1.5% of automotive revenues at $286 million for the quarter.
Tesla said profits were squeezed by increases in raw material costs as well as issues ramping up production at its Germany and Texas factories as well as 4680 battery cell production. Tesla also cited a strengthening dollar as another factor in its third quarter results.
Tesla had previously stated that its deliveries for Q3 reached 343k and vehicle production reached 365k which was a significant rebound from Q2 but slightly below analyst estimates. The gap between deliveries and production could point to demand concerns. Tesla reaffirmed its delivery target of 50% YoY increase but stated that supply chain risks could be out of their control.
The company reiterated that deliveries of its Semi electric heavy-duty truck will begin in December
Elon Musk stated that Tesla is likely to do a “meaningful buyback” next year, potentially between $5 billion and $10 billion pending board approval. (TechCrunch, CNBC, Marketwatch)
BHP Group reports coal production fell last quarter while iron ore, nickel, and copper increased
BHP Group production report shows that Iron Ore production increased 3% YoY to 65.1M tons with strong operational performance at its Western Australia mining operations.
Copper production increased 9% YoY to 410.1K tons. Nickel output increased 16% to 20.7k tons. However, coal production fell 1% YoY to 6.7M tons due to disruptions caused by wet weather. Its thermal-coal production was down 38%, at 2.6 million tons, which the company also attributed to wet weather as well as labor shortages.
BHP’s iron ore production guidance for fiscal 2023 is 249-260 Mt. WAIO production is expected between 246 Mt and 256 Mt. BHP expects copper production within 1,635-1,825 kt. Production guidance for Metallurgical coal is 29-32 Mt, while for energy coal is 13-15 Mt. Nickel production is expected between 80 kt and 90 kt. (Marketwatch, Nasdaq)
P&G beats earnings due to higher pricing
P&G reported adjusted EPS of 1.57 (1.56 E) on revenue of $20.6B ($20.37B E), up 1.3% YoY. Net income fell to $3.94 billion, or $1.57 a share, from $4.11 billion. Volume declined 3%, and foreign currency translation reduced sales growth by 6%. However, the pricing increase of 9% helped offset these losses and delivered higher sales.
The gross margin contracted to 47.4% from 49%, weighed down by higher freight and commodity costs. P&G executives said they’ve seen commodity costs fall but their suppliers are still charging higher prices for packaging material and other items.
P&G expects the strong dollar to cost them $1.3B in 2022 up from previous guidance of $400M. P&G’s expects net sales for the year to decline 1% to 3%, lower than its previous outlook of flat to up 2%. It now forecasts earnings per share to be on the low end of its prior range of flat to up 4%. (Marketwatch, CNBC)
Nestle reports higher revenue on higher prices
Nestle reported sales of CHF 69.1B (CHF 68.9 E) up 9% YoY in the 9-months upto September. Organic sales growth was 8.5%, with real internal growth of 1%, the company said. Pricing increased to 7.5%, reflecting significant cost inflation. As a result, most of the higher revenue came from higher pricing.
Nestle raised its full-year outlook, saying it now expected organic growth of around 8% for 2022, up from a 7% to 8% increase previously. Nestle confirmed underlying trading operating profit margin is seen at around 17%, while underlying earnings per share in constant currency and capital efficiency are expected to increase.
Nestle also announced on Wednesday a deal to buy the Seattle's Best Coffee business from Starbucks. (Reuters, Marketwatch)
Abbott Labs sales and earnings drop but company raises guidance for full-year
Abbott Labs reported adjusted EPS 1.15 (0.95 E) on revenue of $10.4B ($9.63 E), down 4.7% YoY. Net income was $1.44B or 0.81 per share down from $2.1B last year. The company said that without foreign-exchange effects, sales would have increased 1.3% year-over-year.
Abbott reported $3.62 billion in overall medical device sales, down 0.5% from last year, as the company faced supply challenges due to lockdowns in China. COVID-19 test kit sales were $1.7 billion, compared to $2.3 billion in the second quarter, as testing declined amid a slower pace of infections. Abbott said it expects around $7.8 billion in COVID-19 test sales this year compared to the $6.1 billion it had forecast earlier, with $500 million in the fourth quarter.
Abbott now expects annual earnings of $3.75 to $3.81 a share, compared with its prior forecast of at least $3.50. Adjusted earnings are now projected to be in the range of $5.17 to $5.23 a share for 2022, up from Abbott's previous guidance of at least $4.90 a share. (Reuters, Marketwatch, Marketwatch)
Baker Hughes reports loss but perform better than analyst expectations
Baker Hughes reported adjusted EPS of 0.26 (0.25 E) on revenue of $5.37B ($5.44B E), up 5% YoY.
Baker Hughes reported a third-quarter loss of $17 million due to restructuring and impairment charges relating to the oilfield services provider's latest reorganization. (Marketwatch, Oilprice)
ASML reports strong quarter due to limited impacts from US China sanctions
ASML reported revenue of EUR 5.7B (EUR 5.41B E) up 10% YoY. Net profit totaled 1.7 billion euros versus forecasts of 1.42 billion euros, a 2.2% YoY decrease but slightly better compared to last quarter. ASML reported record bookings of EUR 8.9B for the quarter, however it is unable to keep up with demand as ASML's backlog is now at 38 billion euros, and it is seeking to expand its own production capacity by 2025.
ASML said the impact of the new U.S. regulations that restrict exports of semiconductors to China appears limited given that it is a European company with few U.S. parts used in its machines. "We can continue to ship non-EUV (less advanced) lithography tools out of Europe to China," the company said.
ASML shares jumped 6% on the news. (CNBC, Reuters)
Elevance Health reports higher earnings and revenue due to increased premium rates and membership growth
Elevance Health reported adjusted EPS of 7.53 (7.16 E) on revenue of $39.96B ($39.26B E), up 11% YoY. They reported a net profit of $1.62B or $6.68 per share up from $1.51B last year.
Operating revenue was driven higher by membership growth in Medicaid, which factors in its acquisitions of Integra Managed Care and Paramount Advantage, growth in Medicare Advantage and premium-rate increases that covered overall costs trends. (Marketwatch)
IBM beats earnings expectations and reports upbeat full-year forecast
IBM reported adjusted EPS of 1.81 (1.79 E) on revenue of $14.11B ($13.54 E), up 6% YoY. Revenue in the company’s software segment grew 7.5% to $5.81B. IBM reported a net loss of $3.2 billion, or $3.54 per share, compared with a $1.1 billion profit last year.
Consulting revenue rose 5.4% to $4.7B, while the company’s infrastructure segment jumped 14.8% to $3.35B. Revenue from IBM’s z Systems line of mainframe computers jumped 88%
IBM stated that foreign exchange costs would result in 7% decline in revenue for the entire year. (Marketwatch, CNBC)
Prologis reports rising revenue boosted by higher occupancy levels
Prologis reported adjusted EPS of 1.36 (1.34 E) on revenue of $1.75B ($1.2B E), up 48% YoY. net income attributable to shareholders rose to $1.01 billion, or $1.36 a share, compared with $722.0 million last year.
Rental revenue increased 12% to $1.16B as average occupancy increased 0.3% to 97.7%.
Prologis also signaled that they would take a more cautious approach in the tough economic environment as they shift away from speculative projects. Prologis trimmed its plans for new development starts for this year to a range of $4.2 billion to $4.6 billion, from a projected range of $4.2 billion to $5 billion the prior quarter. (WSJ, Marketwatch)
Crown Castle miss earnings expectations
Crown Castle reported adjusted EPS of 0.97 (0.98 E) on revenue of $1.57B ($1.73B E), down 9% YoY. Crown Castle said it had funds from operations of $804 million, or $1.85 per share, in the period. Net income was $419 million, or 97 cents per share.
Crown Castle expects full-year funds from operations to be $7.36 per share. (ctpost)
NASDAQ Inc. earnings top expectations, meanwhile HK Exchange profits drop 30% on weaker trading and listing
NASDAQ inc. reported adjusted EPS of 0.68 (0.65 E) on revenue of $1.56B, up 14% YoY. It posted a profit of $294 million, or 59 cents a share, compared with $288 million last year. Nasdaq said revenue grew organically by $77 million, which offset a $22 million hit from foreign-currency fluctuations and a $3 million negative impact from an acquisition and divestitures.
Solutions segment sales were up 8% and its market services unit's top line rose 4%, the company said.
Hong Kong Exchanges and Clearing reported revenue of HK$3.94B, 23% lower YoY. The profit attributable to shareholders slumped to HK$2.26 billion ($287.91 million) from HK$3.25 billion the same period last year.
The drop was due to weaker cash market turnover linked to tighter market liquidity and sluggish trading. Average daily turnover in Hong Kong's securities market declined by 31% in the first nine months to HK$124 billion, as market sentiments waned. Additionally, only $8.8 billion has been raised in the first nine months of this year via IPOs compared to $37B last year. (Marketwatch, NASDAQ)
UK Inflation reaches 10.1% on soaring food prices
UK CPI reached 10.1% YoY (10% E) in September up from 9.9% in August and back to the 40-year high from July. Inflation increased 0.5% MoM (0.4% E). The largest contribution to the annual rate in September 2022 is from housing and household services.
The second largest contribution came from food and non-alcoholic beverages, which has overtaken that from transport. Food and non-alcoholic beverages prices rose 14.5% YoY. Core inflation, which excludes food and energy, also rose to 6.5% YoY from 6.3% in August. Core CPI increased 0.6% MoM.
The annual rate for housing and household services increased by 0.1 percentage points to 9.3% in September 2022. Housing and household services costs increased by 0.3% on the month in 2022. Despite electricity and gas prices remaining unchanged, the cost for delivered kerosene increased by 13.6% between August and September 2022. Inflation rate for transport eased for the third straight month to 10.9% from its peak of 15.2% in June. Fuel prices increased by 26.5% in the year to September 2022, down from 32.1% in August.
Short-dated British government bond yields, which are sensitive to changes in interest rate expectations, rose strongly in early trading. The pound slipped below $1.13 on the news and was last down 0.2% on the day.
Meanwhile, Eurozone CPI for September was also released. It showed inflation quickened to 9.9% YoY from 9.1% in August. Still, the final figure was slightly lower than the preliminary estimate of 10%. (Reuters, ONS)
US Housing market starts to retreat in September
US Housing starts which measures construction on new US homes fell 8.1% in September to 1.44M. This marks a sharp reversal from August when housing starts increased 13.7%. On a year-on-year basis, housing starts are down 7.7% in September. New single-family home projects fell 4.7% to an annual rate of 892,000. Multi-unit projects fell 13.1% following a 30% increase last month. Multi-unit constructions remain well above pre-pandemic trends. Multi-unit starts are 16.5% higher YoY.
Still, Building permits for new homes rose 1.4% to 1.56 million. The gain was mostly in multi-units permits for which rose 8.2%. Single family permits fell 3.1%.
Meanwhile, mortgage rate in the US rose to a 20-year high. The 30-year fixed mortgage rate averaged 6.94% last week up from 6.81% in the prior week. MBA’s Weekly Mortgage Applications Survey showed an overall decrease in mortgage applications, including a drop-off in refinancing.
The current 30-year fixed rate is now well over three percentage points higher than a year ago, and both purchase and refinance applications were down 38 percent and 86 percent over the year. High mortgage rates have significantly reduced demand for housing especially for single-family homes. (Marketwatch, Reuters, The Hill)
Canada CPI eases to 6.9% in September but food prices surge 11.4%
Canada CPI eased to 6.9% YoY in September (6.8% E) down from 7% in August. Core CPI rose to 5.4% YoY from 5.3% in August. On a monthly basis, CPI increased 0.1% in September. The easing of CPI in September was mostly due to falling gasoline prices.
Prices for food purchased from stores grew 11.4 percent, the fastest pace year over year since August 1981. Prices for food purchased from stores have been increasing at a faster rate than the all-items CPI for 10 consecutive months, since December 2021.
Prices for durable goods, such as furniture and passenger vehicles, grew at a faster pace in September compared with August. Homeowner replacement costs, tied to the price of new homes, slowed to 7.7% in September.
Average hourly wages rose 5.2 percent on a year-over-year basis in September. Meaning that average wage increases are not able to keep up with inflation.
The higher-than-expected CPI led money market bets to prefer a 75bps rate hike at the next meeting on October 26th. The policy is now expected to peak at 4.25-4.5% next year from its current level of 3.25%. (Reuters, MSN)
Fed Beige Book shows inflation pressure easing but outlook worsening
Key quotes from the report:
Economic activity expanded modestly since the previous report, though the outlook grew more pessimistic amidst growing concerns about weakening demand
Four Districts noted flat activity and two cited declines, with slowing or weak demand attributed to higher interest rates, inflation, and supply disruptions
Some contacts noted solid pricing power over the past six weeks, while others said cost pass-through was becoming more difficult as customers push back
Looking ahead expectations were for price increases to generally moderate.
Wage growth was expected to continue as higher pay remains essential for retaining talent in the current environment
Labor market remained tight though half of Districts noted some easing of hiring and/or retention difficulties
Japan trade balance recovers from record lows but Yen continues to weaken
Japan trade deficit narrowed to 2.09T Yen (2.17T E) from its record high of 2.82T Yen in August.
The improvement was aided largely by a bigger-than expected jump in exports, which rose 28.9% YoY in September (27.1% E, 22% P). Strong shipments of automobiles, electronic components and machinery were the biggest contributors to the rise, as Japan’s manufacturing sector continued to log strong growth despite headwinds from elevated raw material costs.
Still, imports also grew more than expected, increasing 45.9% YoY in September (45% E, 49.9% P). The increase in imports was driven by fuel imports. The cost of petroleum imports more than doubled during September, driven largely by volatility in oil markets and further depreciation in the yen.
The Japanese yen weakened past 150 against the U.S. dollar, reaching levels last seen in 1990. Japan’s 10-year government debt yields breached the 0.25% ceiling that the central bank vowed to defend – last standing at 0.252%.
The Bank of Japan also announced emergency bond-buying operations on Thursday. It offered to buy 100-billion-yen ($666.98 million) worth of Japanese government bonds with maturities of 10-20 years and another tranche worth 100 billion yen with maturities of 5-10 years.
The Bank of Japan’s two-day meeting is slated for next week. Though, policymakers have ruled out a rate hike to defend against further weakening of the currency. (Investing, CNBC)
Australia jobless rate remains steady in September
Australia's unemployment rate was unchanged in September at 3.5%. Employment rose by just 900 people with participation-rate unchanged at 66.6%. Hours worked decreased by 0.6 million hours in September, less than 0.1% overall.
The underemployment rate remained at 6.0%, while the underutilization rate, which combines the unemployment and underemployment rates, increased 0.1 percentage point to 9.6%.
Economists said that while the data shows that the unemployment rate remains near its lowest levels since the early 1970s, the report could signal that the best of recent stellar employment growth numbers is over. (Marketwatch)
PBoC keeps benchmark lending rate unchanged
The People’s Bank of China left its benchmark 1-year prime lending rate unchanged at 3.65% as expected. The 5-year rate was also unchanged at 4.3%. (Marketwatch)
Oil prices edge up as US set to release further 15M barrels from SPR
Brent crude futures for December settlement ended up $2.38, or 2.6%, to $92.41 a barrel. U.S. West Texas Intermediate crude (WTI) for November, which is expiring on Thursday, ended at $85.55 a barrel, up $2.73, or 3.3%.
Biden announced the release of 15M barrels from the SPR to complete the last of its planned sale of 180M barrels.
Biden, in remarks Wednesday, noted U.S. plans to repurchase oil for the reserve if prices fall to $67-72 per barrel.
U.S. crude inventories fell unexpectedly last week - down 1.7 million barrels (+1.4M barrel build expected). SPR levels fell 3.6 million barrels to just over 405 million, the lowest since May 1984. In gasoline stocks, the EIA reported a draw of 100,000 barrels, compared with a build of 2 million barrels for the previous week.
Gasoline production averaged 9.4 million bpd in the week to October 14, compared with 9.2 million bpd during the previous week. In distillate fuels, the EIA reported an inventory increase of 100,000 barrels last week. This compared with two consecutive weekly draws of a combined 8.3 million barrels. (Reuters, Oilprice)
Mint Finance Disclaimer
Mint publications are for informational purposes only and does not constitute financial, investment, risk management, accounting, or tax advice.
Nothing stated here is to be construed as a recommendation, solicitation, endorsement or offer to buy or to deal in any financial products.
Trading and investment in any financial products are exposed to risk. There are no such thing as risk-free returns.
This material has been published for general education purposes only. It does not address specific investment or risk management objectives, financial situation, or needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies.
Past performance is not indicative of future performance.