Daily Markets: Bank Earnings to Shine Light on Speed of Economic Recovery

Today’s Big Picture

Equity indices in Asia finished the day mostly higher with both Japan’s Nikkei and South Korea’s KOSPI finishing 1.5% higher. Equity markets in Hong Kong were closed and China’s Shanghai Composite finished the day down 0.1%. By mid-day trading, equity indices in Europe were higher across the board and as we write this, U.S. futures point to a positive start to the trading day when those markets open later this morning.

In addition to continued worries over inflation (is it transitory or not?) and global supply chains, this morning brings a bevy of bank earnings. Those results will shape how U.S. equity markets begin the trading day. Following JPMorgan Chase’s (JPM) quarterly results yesterday, which beat expectations primarily due to the credit reserve release booked during the quarter, investors will be sizing up loan growth, credit card, investment banking, and other metrics to determine which bank(s) gained market share during the quarter. We suspect investors will be picking through those results, looking for confirmation for the speed of the economy’s recovery and prospects for consumer spending during the upcoming holiday shopping season.

Data Download

International Economy

Inflation in China for September came in weaker than the expected increase to 0.9% YoY from 0.8% in August, instead of dropping to 0.7% YoY and instead of rising to 0.3% Mom from 0.1%, fell to 0.0% MoM. On the other hand, PPI came in hotter than the expected rise to 10.5% YoY from 9.5%, reach instead to 10.7% YoY. This marked the ninth straight month of increases in producer inflation, which hit the highest level since at least 1996, amid the surging cost of raw materials, particularly coal.

August Industrial Production in Japan fell 3.6% MoM vs. the -3.2% flash figure for the month and the 1.5% drop for July.

Five institutes in Germany - the RWI in Essen, the DIW in Berlin, the IFO in Munich, the IFW in Kiel, and Halle’s IWH - cut their joint forecast for Germany’s 2021 GDP to 2.4% from 3.7%. The group also raised their 2022 forecast to 4.8% from 3.9%

Domestic Economy

Yesterday’s Consumer Price Index (CPI) came in hotter than expected, rising 0.4% MoM versus consensus for 0.3%, and 5.4% YoY versus consensus for 5.3%. Ex food and energy, CPI came in lower than expected at 0.2% MoM and 4.0% YoY versus consensus for 0.2% and 4.0% respectively.

President Biden yesterday unveiled a plan to expand operations of West Coast ports to round-the-clock to address the record-high number of ships waiting in the waters outside of Los Angeles and Long Beach - currently at 60 compared to rarely having even one waiting pre-pandemic. The ports of Long Beach and Los Angeles alone account for around 40% of all shipping containers entering the U.S.

Yesterday the Cass Freight Index for September was released which found that shipment growth slowed to just 0.6% YoY and on a seasonally adjusted basis fell 4.9% MoM after a 4.8% MoM increase in August. Expenditures on the other hand rose 32% YoY in September, which while a big number, is materially less than the 42% YoY pace in August. On a seasonally adjusted basis, expenditures fell 2.5% MoM in September on lower volumes and higher rates after rising 11.3% MoM in August. According to Cass, if the normal seasonality were to play out for the remainder of 2021, the full-year increase for this year would be 34% after a 7% decline in 2020 and flat in 2019.

The FOMC Minutes from the September meeting shed some light on how the Fed would taper asset purchases if begun later this year. Per the minutes, asset purchases would be reduced on a monthly basis by $10 billion - $15 billion in Treasury securities and $5 billion in agency Mortgage Backed Securities until the middle of 2022. On the heels of those meeting minutes, there will be several Fed officials making the rounds with speeches today, and odds are there will be more color to be had on the potential taper timing and sizing.

Today brings the usual weekly jobless claims reports, Producer Price Index (PPI), and the monthly budget statement.

Markets

The S&P 500 shrugged off a weak morning to close yesterday up 0.3%, while the Dow Jones Industrial Average finished flat, and the Russell 2000 tied the S&P 500’s daily performance. Outperforming was the Nasdaq Composite Index, which shrugged off reports Apple (AAPL) will cut iPhone 13 production volumes to close 0.7% higher. From a sector perspective, nine of the 11 S&P 500 sectors closed higher; the two decliners were financials and energy.

Stocks to Watch

Before U.S. equity markets open this morning, Bank of America (BAC), Citigroup (C), Domino’s Pizza (DPZ), Morgan Stanley (MS), Walgreens Boots Alliance (WBA), United Health (UNH), and Wells Fargo (WFC) are expected to report their quarterly results.

Taiwan Semiconductor (TSM) reported better than expected September quarter results for both its top and bottom lines this morning. Revenue for the quarter rose 22.6% YoY with smartphones and high-performance computing accounting for 44% and 37% of revenue, respectively, while IoT, Automotive, DCE, and Others, represented 9%, 4%, 3%, and 3%. For the current quarter, the semiconductor foundry company sees revenue in the range of $15.4-$15.7 billion vs. the $15.3 billion consensus.

CNH Industrial (CNHI) announced it will temporarily close several of its European agricultural, commercial vehicle, and powertrain manufacturing facilities in response to ongoing disruptions to the procurement environment and shortages of core components, especially semiconductors.

The UAW has called a strike against Deere & Company (DE), affecting more than 10,000 workers at 14 facilities across the U.S. Deere does not have an estimate of when employees affected by the strike will resume activities or the timing for completion of negotiations with the UAW.

Hydrogen mobility company Hyzon Motors (HYZN) announced its European facility in Winschoten, The Netherlands expects to increase capacity to up to 1,000 trucks per year in 2022 through operational updates and the addition of a second shift.

Watch for action in names like TPI Composites (TPIC) and Vestas Wind Systems (VWDRY) as the Biden administration unveiled plans to hold as many as seven government auctions of offshore wind development rights in the next four years, including areas that have yet to be developed such as off the coast of California and in the Gulf of Mexico.

GitLab (GTLB) priced its 10.4 million share IPO at $77, well ahead of the targeted $66-$69 range.

UK-based payment processor SumUp acquired Fivestars in a bid to expand its reach across the US and to take on PayPal (PYPL), Square (SQ), and others.

Apple announced it will be holding a special event on Monday, October 18 at 10 AM Pacific Time. The tag line for the event is “Unleashed” and speculation is the company will focus on its M1 powered Mac line and potentially a new model of Air Pods.

After Today’s Market Close

Alcoa (AA) will be among the handful of companies slated to report their quarterly results. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• October 15: Retail Sales, Import & Export Prices, NY Empire State Manufacturing, Michigan Consumer Sentiment (preliminary), Business Inventories
• October 18: Industrial Production, NAHB Housing Market Index, Net Long-term Tic Flows, Foreign Bond Investment, Overall Net Capital Flows
• October 19: Building Permits, Housing Starts
• October 21: Weekly Jobless Claims, Philly Fed Manufacturing Index, Existing Home Sales
• October 22: Markit Service and Manufacturing PMIs (flash)

Thought for the Day

“Your parents programmed you the best way they knew. It is up to you to reprogram yourself as many times as needed until you finally meet you.” ~Nansia Movidi

Disclosures

• PayPal (PYPL), Square (SQ) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• Deere & Company (DE) is a constituent of the Foxberry Tematica Research Sustainable Future of Food Index
• Walgreens Boots Alliance (WBA) is a constituent of Tematica Research's Thematic Dividend All-Stars Index.
• PayPal (PYPL), Square (SQ) are constituents of the Tematica BITA Digital Payments & Fintech Sustainability Screened Index

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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