Daily Markets: Fed's Balancing Act Begins Today

Today’s Big Picture

Equity indices in Asia finished today mixed with Japan’s Nikkei, Hong Kong’s Hang Seng, and China’s Shanghai Composite finishing unchanged while India’s Sensex fell 1.1% and South Korea’s Kospi moved 0.6% lower. By mid-day trading equity indices in Europe are also mixed as are U.S. equity futures.

Following today’s March Housing Starts data, the regular weekly EIA Crude Oil Inventory report, and a 10-year Treasury yield that inched higher once again in early trading today, investors will be waiting for the 2 PM ET hour when the Federal Reserve will issue its latest FOMC policy statement and conduct its follow-on presser. Federal Reserve Chair Powell will need to convince economists and investors that its current policy is the right path to follow amid rising concerns for inflation, an improving economy, and the unleashing of the Biden COVID-19 relief plan. While the odds of a broad change in policy are extremely low, Powell will once again have to choose his words carefully to win over investors and economists. As that audience digests and interprets Powell’s language, they will also examine the Fed’s latest set of economic projections for context as well as confirmation.

Data Download

International Economy

South Korea, which is a good proxy for global trade, saw its unemployment rate in February drop to 4.0% from 5.4% in January, beating expectations for a decline to 4.8%.

Japan’s exports in February fell 4.5% YoY after rising 6.4%, well below expectations for a decline to -0.8% YoY.

The Eurozone saw its headline inflation rate climb 0.9% YoY in February matching expectations as well as the 0.9% increase recorded in January. Construction Output in the region fell 1.9% YoY in January following a revised flat reading for December and marks the fifth consecutive month of no growth in the construction sector.

Domestic Economy

Tuesday’s Retail Sales report was a major disappointment, with headline sales falling 3% MoM for the fifth-worst print in the history of the report, which started in 1992. The only months that saw bigger declines were in 2008 (twice) and 2020 (twice). On a more positive note, January’s headline number was revised upward from 5.3% to 7.6%, which was the third strongest print since 1992. The three-month average through February is 2.2%, which is still very strong despite February’s plunge. Back to the bad news, it was read across the board with just one sector, Gas Stations, seeing growth over the month.

The National Association of Home Builder’s measure of homebuilder sentiment declined 2 points in March to 82, putting it 8 points below the November 2020 record high and still a few points higher than the pre-pandemic record high.

U.S. export prices rose 1.6% MoM after January’s 2.5% increase, which was the largest increase in the data going back to 1988. Prices rose 5.2% YoY, the largest such increase since June 2018. We caution that YoY comparisons for the coming months are going to be messy given the devastation that occurred in 2020, so be careful putting too much stock into the numbers.

The American Petroleum Institute reported a draw of 1.05M barrels of oil for the week ending March 12. Gasoline inventories reportedly show a draw of 926K barrels, distillate inventories show a build of 904K barrels, and Cushing inventories show a draw of 246K barrels.

U.S. import prices rose 1.3% MoM, slowing from the 1.4% increase in January, but coming in above the expected 1.2% increase. Prices rose 3% YoY, the largest increase since October 2018. Prices for import filed rose 11.1%, the biggest increase since July 2020.

Industrial Production in the U.S. fell 4.2% YoY in February, accelerating from the 2% decline in January amid the exceptionally cold weather in parts of the nation. This was the 18th consecutive decline in industrial output. Auto assemblies fell 13% MoM due to supply problems in the semiconductor sector. Auto sales in February fell almost 6% thanks to the supply chain problems amidst strong sales. In fact, the inventory to sales ratio for new cars is at a record low at 27.8% of sales in January according to data from the Bureau of Economic Analysis.

Later today we will get Building Permits and Housing Starts for February, the usual weekly EIA Energy Stocks report as well as the Federal Reserve’s Interest Rate decision.

Markets

After hitting a record high the previous day, yesterday the Dow Jones Industrial Average fell 0.4%, snapping a 7-day winning streak. The S&P 500 dipped 0.2% after having hit a record high during intraday trading. The tech-heavy Nasdaq Composite finished the day up 0.1% while the small-cap heavy Russell 2000 dropped 1.7%. The Nasdaq 100 rose 0.5% but remains below its 50-day moving average.

Four of the 11 S&P sectors finished higher led by Communications Services and Info Tech while Energy was the worst performer for the day. The CBOE Volatility Index fell below 20 and touched its lowest level since February 2020.

Following the $24 billion 20-year bond reopening auction yesterday the 10-year Treasury yield dipped to 1.59% then rebounded to close the day out at 1.623%. While the 20-year bond auction last month was one of the worst since the coupon was reintroduced, yesterday’s was by some measure one of the strongest yet. The coupon yield hit 2.29%, stopping through the when-issued yield by two basis points. The bid to cover rose from a low of 2.15 last month to 2.51, the third-highest bid-to-cover ratio behind May and June of last year. The ratio of accepted to tendered bids for indirects was the lowest on record.

Stocks to Watch

Kingsoft Cloud (KC) reported a December quarter loss of RMB 0.03 per share while revenue for the quarter soared 63.8% YoY to RMB 1.92 billion, a tad below the RMB 1.93 billion consensus. For the current quarter, the company issued downside guidance with revenue in the range of RMB1.83-1.93 billion vs. the RMB 2.07 billion consensus.

Activision Blizzard (ATVI) laid off 50 employees in its esports division that includes the Overwatch League and Call of Duty League as it looks to a future where the business will be less dependent on live events.

Following a UK court ruling and a new legal classification Uber (UBER) announced it will reclassify more than 70,000 drivers in the UK as company workers who deserve a minimum wage, vacation pay, and pension plan access.

JetBlue Airways (JBLU) shared it is recalling flight attendants to meet rising demand.

Citing errors in accounting primarily related to several non-cash items, Plug Power (PLUG) announced it will restate its previously issued financial statements for fiscal years 2018 and 2019 and its quarterly filings for 2019 and 2020, which will be disclosed in the Form 10-K for the year ended December 31, 2020.

Cybersecurity company CrowdStrike (CRWD) reported January quarter revenue and EPS that topped consensus expectations. Revenue for the quarter soared 74.2% YoY to $264.9 million leading Annual Recurring Revenue (ARR)to increase 75% YoY to $1.05 billion exiting the quarter. During the quarter, net new customer growth accelerated with CrowdStrike adding a record 1,480 net new subscription customers. For the current quarter, the company sees EPS of $0.05-$0.06 vs. the $0.04 consensus with revenue in the range of $287.8-$292.1 million, well ahead of the $268.4 million consensus. For the coming year, CrowdStrike sees revenue of $1.31-1.32 billion, above the $1.22B estimate but EPS of $0.27-0.30 that falls short of the $0.33 consensus.

Coupa Software (COUP) reported January quarter EPS of $0.17, substantially ahead of the -$0.11 consensus while revenue for the quarter rose 46.7% YoY to $163.5 million, easily topping the $145.9 million consensus. The company issued mixed guidance for its current April quarter with EPS in the range of $(0.21)-(0.18) vs. the vs. consensus with revenue in the range of $151.5-152.5 million vs. the $148.9 million consensus.

Homebuilder Lennar (LEN) reported February quarter EPS of $2.04, considerably ahead of the $1.74 consensus as revenue for the quarter rose 17.7% YoY to $5.3 billion, beating the $5.2 billion consensus. During the quarter, the company recorded a 19% increase in deliveries to 12,314 homes and booked new orders 15,570 homes, up 26%. For the current quarter, Lennar expects new orders of 16,500-16,700 and deliveries of 14,200-14,400 with an average sales price of $405,000. For full-year 2021, it forecasts deliveries of 62,000-64,000 and an average sales price of $400,000.

Micron (MU) updated its portfolio strategy as it will increase its investment in new memory products that leverage the Compute Express Link (CXL), the recently introduced industry-standard interface that enables the flexible connection between compute, memory and storage. Micron also announced it will cease the development of 3D XPoint and shift resources to focus on accelerating the market introduction of CXL-enabled memory products. The company targets selling the facility in Lehi, Utah, where the 3D XPoint chips were manufactured by the end of 2021.

Bally's Corporation (BALY) received a temporary sports wagering permit to conduct online sports betting in the Commonwealth of Virginia.

Sotheby’s (BID) is joining the nonfungible token (NFT) market next month through a partnership with Bak.

Italian infrastructure group Atlantia SpA (ATASY) agreed to extend talks with a consortium led by state lender CDP over the sale of its 88% stake in motorway unit Autostrade per l’Italia to March 27. Atlantia hopes for “substantial improvements” from the consortium’s 9.1 billion euros offer made last month.

Citing the impact from COVID-19, the microchip shortage, congestion at various ports, and severe winter weather over recent weeks, Honda Motor (HMC) announced it will suspend production for a week at a majority of its US and Canadian auto plants. Reports suggest Honda produces ~30K vehicles per week in the US and Canada.

Food ordering platform Olo Inc. (OLO) priced its 18 million share IPO at $25.00 per share, above the expected range of $16-18. Exiting 2020, the company had ~400 brand customers in over 64,000 active locations using its platform. Customers include private restaurant brands such as Chili’s, Wingstop (WING), Shake Shack (SHAK), Five Guys, and Sweetgreen.

Sun Country Airlines Holdings (SNCY), a hybrid low-cost airliner that dynamically deploys shared resources across synergistic scheduled service, charter, and cargo businesses, priced its IPO of ~9.1 million common shares at $24.00 per share.

Jowell Global (JWEL), an operator of one of China's leading e-commerce platforms for cosmetics, health, and nutritional supplements and household products, priced its IPO of ~3.7 million shares at $7.00 per share.

To counter a rival bid from II-VI (IIVI), Lumentum Holdings (LITE) presented a revised offer to acquire Coherent (COHR) for $6.9 billion, ~$220 per share in cash and 0.6100 shares of LITE shares for each COHR share.

After today’s market close, American Outdoor Brands (AOUT), Five Below (FIVE), Guess? (GUES), PagerDuty (PD), Williams-Sonoma (WSM) , and others will report their latest quarterly results. Investors looking to get the nitty-gritty on those reports and the sea of others to be had later today should visit Nasdaq’s earnings calendar page.

On the Horizon

• March 18: Philadelphia Fed Manufacturing, Weekly Jobless Claims
• March 22: Chicago Fed National Activity Index
• March 23: New Home Sales, API Crude Oil Stocks
• March 24: Durable Goods Orders, Markit Manufacturing and Services PMI, EIA Energy Stocks
• March 25: US Corporate Profits Q4, weekly jobless claims,
• March 26: Personal Income & Spending, PCE Price Index, Goods Trade Balance, Wholesale Inventories, Michigan Consumer Sentiment
• March 29: Dallas Fed Manufacturing
• March 30: S&P/Case-Shiller Home Price report, Conference Board Consumer Confidence, API Crude Oil Stocks
• April 1: Alien Nation IPOs on Nasdaq through a Mars Rover SPAC sponsored by the Wormhole Venture Fund led by Jean Luc Picard from Hawkins, Indiana, Weekly jobless claims, Markit Manufacturing PMI, Construction Spending, ISM Manufacturing PMI, Total Vehicle Sales
• April 2: Nonfarm Payrolls
• April 5: Markit Services PMI, ISM Non-Manufacturing PMI, Factory Orders
• April 6: JOLTS Job Openings, IBD/TIPP Economic Optimism, API Crude Oil Stocks
• April 7: Balance of Trade, EIA Energy Stocks, FOMC Minutes
• April 8: Weekly jobless claims
• April 9: PPI, Wholesale Inventories

Thought for the Day

“Life is a balance of holding on and letting go.” ~ Rumi

Disclosures

• II-VI (IIVI), PagerDuty (PD) are constituents of the Tematica BITA Digital Infrastructure and Connectivity Index.
• CrowdStrike (CRWD) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index.
• Williams-Sonoma (WSM) if a constituent in Tematica Research's Thematic Dividend All-Stars 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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