Markets

Daily Markets: Is There Inflation Relief in Oil Reserves?

Oil barrels
Credit: Shutterstock

Today’s Big Picture

Asian markets closed down across the board today with the exception of Taiwan’s TAIEX posting a 0.44% gain while Japan’s Nikkei 225 closed off 0.30%, the Shanghai Composite was down, 0.47%, Korea’s KOSPI index was lower by 0.51%, and Hong Kong’s Hang Seng dropped 1.29% on the day. Midday trading in Europe is currently mixed with France and Germany showing gains while virtually all other regional markets are in the red. U.S. futures are currently pointing to a positive open.

In a move to help ease global energy prices (and by extension, inflation pressures), the Biden administration has reportedly reached out to various countries including China, India, South Korea, and Japan to release some part of their strategic reserves. Given that the latest CPI release showed “Fuel Oil” and “Gasoline (all types)” posting YoY increases of 59.1% and 49.6%, respectively, this type of relief can not come soon enough for consumers. Assuming the bid is successful it should ease short-term price pressure at least long enough for OPEC to fulfill its expectation of an oil surplus by the end of 2021.

Data Download

International Economy

In another sign of just how much the global auto industry is struggling with supply chain challenges, new passenger car registrations in the Eurozone plummeted 30.3% YoY in October to 655,001 units. This comes after the 23%% YoY drop in September and marks the fourth consecutive month of declines.

Domestic Economy

President Biden has promised a decision concerning the Federal Reserve’s next leader and as we get closer to that date, it is looking less likely that Jerome Powell will be re-nominated.

Yesterday, Housing Starts in October fell for the third time out of the past four months, coming in slightly lower than expected at 1.52 million from the prior 1.53 million and well below the expectation for an increase to 1.576 million. Single-family housing starts fell to the lowest levels since August 2020.

Building permits came in higher than expected, rising to 1.65 million from 1.586 million, well above the 1.638 million expected.

Later today we will get the usual weekly jobless claims and Philadelphia Fed Manufacturing Index.

Markets

It was a down day in markets Wednesday with the Dow losing 0.6%, its fifth decline over the past seven trading days. The Nasdaq Composite and the S&P 500 both fell 0.3%, while the Russell 2000 lost 1.2%. Real Estate and Consumer Discretionary were the two strongest sectors, both gained 0.6%, while Energy and Financials were the weakest, dropping -1.7% and -1.1% respectively.

Crude oil dropped 3% to finish the day at $78.36.

Sterling (GBP) reached its strongest level against the euro since February 2020 yesterday

Stocks to Watch

Nvidia (NVDA) reported October quarter results that topped bottom line expectations as the company’s top line rose 50.3% year over year to $7.1 billion, well ahead of the $6.8 billion consensus forecast. Data center revenue of $2.94 billion rose 55% vs. the year ago quarter, marking yet another record. Gaming revenue for the quarter also marked a new record, rising 42% year over year to $3.22 billion. Nvidia issued upside guidance for the current quarter with revenue of in the range of $7.25-$7.55 billion vs. the $6.84 billion consensus.

October quarter results at Cisco Systems (CSCO) came in mixed with better than expected bottom line results even though the company’s top line, which rose 8.1% year over year to $12.9 billion came up short of the $12.98 billion consensus. Of note, Total Annualized Recurring Revenue was $21.6 billion for Q1, up 10% year over year, and margins came in ahead of guidance. For the current quarter, Cisco sees EPS of $0.80-0.82 vs. the $0.82 consensus with revenue growth for the quarter in the range of +4.5-6.5%, which implies a sequential down tick to $12.50-12.74 billion, below the $12.8 billion consensus. While management shared order demand was robust, supply constraints are preventing the company from fully turning product orders into revenue. Like many other companies, Cisco is taking multiple steps to mitigate component shortages, including paying significantly higher logistics costs, modifying designs, and using alternative suppliers. Cisco shared it sees its fiscal 2022 EPS in the range of $3.38-3.45, bookending the $3.43 consensus and in a sign it sees the supply chain woes improving in the coming quarters it reiterated its fiscal 2022 revenue growth forecast of +5-7%, which suggests $52.3-53.3 billion in revenue vs. the $52.8 billion consensus.

It looks like the recent UAW strike at a number of Deere & Co. (DE) plants is over. By a vote of 61% to 39%, UAW John Deere members ratified a new agreement, which includes an $8,500 signing bonus; 20% increase in wages over the lifetime of the contract with 10% this year; return of Cost of Living adjustments; three 3% lump sum payments; enhanced options for retirement and enhanced CIPP performance benefits. Healthcare remains the same for the life of the agreement.

TJX Companies (TJX), the parent company of TJ Maxx and HomeGoods, rose 4.1% yesterday after reporting third-quarter results that beat Wall Street expectations.

Shares of Moderna (MRNA) rose 3.4% yesterday after asking the FDA to authorize its Covid-19 booster for all adults.

China’s Alibaba Group Holding Ltd (BABA) announced it missed second quarter revenue estimates posting 200.69 billion yuan ($31.44 billion) versus expectations of 204.93 billion yuan ($32.10 billion) on declining sales as well as supply chain constraints.

Shares of Peloton (PTON) dropped 6.8% yesterday after Tuesday’s 15.2% gain on the news that the company intends to sell 24 million shares of its Class A common stock.

Baidu Inc (BIDU) lost 5.5% yesterday after posting earnings that weren’t enough to ease investors’ concerns over the increasingly harsh government regulations.

Target (TGT) shares fell 4.7% after margin concerns overshadowed fiscal third-quarter results and holiday sales guidance that topped analysts’ estimates.

Bloomberg reports Amazon (AMZN) is considering the possibility of switching its co-brand credit card to Mastercard (MA) as its dispute with Visa (V) over credit card fees heats up. The company recently announced it would stop accepting Visa network transactions in the UK beginning January 19, 2022.

Paypal Holdings (PYPL) lost 4.4% yesterday after the investment bank Bernstein cut its rating on PayPal from outperform to market perform and cut its price target on the stock more than 15% to $220 per share.

Earnings Announcements & Guidance

Before U.S. equities begin trading today, Alibaba (BABA), Autohome (ATHM), BJ’s Wholesale (BJ), Kohl’s (KSS), and Macy’s (M) will be among the companies issuing their latest quarterly results.

IPOs

Sweetgreens (SG), the healthier eating restaurant and lifestyle brand, is expected to begin trading today.

Yesterday the yogurt producer Chobani filed paperwork to sell its shares on the Nasdaq.

For more, visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Applied Materials (AMAT), Beacon Roofing Supply (BECN), Farfetch (FTCH), Intuit (INTU), Palo Alto Networks (PAWN), Ross Stores (ROST), and Williams Sonoma (WSM) will be among those companies reporting their quarterly results.

For those looking for more on who is reporting and when head on over to Nasdaq’s Earnings Calendar.

On the Horizon

  • November 22: Chicago Fed National Activity Index, Existing Home Sales
  • November 23: Markit Manufacturing and Service PMIs, API Crude Oil stock changes
  • November 24: FOMC Minutes, Durable Goods Orders, Wholesale Inventories, Retail Inventories, Corporate Profits, weekly jobless claims, 2nd estimate for GDP, Goods Trade Balance, Personal Income and Spending, New Home Sales, PCE Price Index, Michigan Consumer Sentiment
  • November 29: Pending Homes Sales, Dallas Fed Manufacturing Index
  • November 30: S&P/Case-Shiller Home Price Index, Chicago PMI, CB Consumer Conference

Thought for the Day

“We suffer more from imagination than from reality.” ~Seneca

Disclosures

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

Chris Versace

Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.

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Lenore Elle Hawkins

Lenore Elle Hawkins serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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Mark Abssy

Mark Abssy is Head of Indexing at Tematica Research focused on index and Exchange Traded Product development. He has product development and management experience with Indexes, ETFs, ETNs, Mutual Funds and listed derivatives. In his 25 year career he has held product development and management positions at NYSE|ICE, ISE ETF Ventures, Morgan Stanley, Fidelity Investments and Loomis Sayles. He received a BSBA from Northeastern University with a focus in Finance and International Business.

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