Daily Markets: Inflation Numbers Come in As Expected

Today’s Big Picture

Asia-Pacific equity markets ended on a mostly higher note, led by the 1.1% gain in Australia’s ASX All Ordinaries. Hong Kong’s Hang Seng rose 0.4% while South Korea’s Kospi added 0.2% and China’s Shanghai Composite edged up 0.1%. Japan’s Nikkei was unchanged for the day, and India’s Sensex was the lone decliner, shedding 0.3%. By mid-day trading, European equity indices are mostly higher while U.S. futures point to a flat market open later this morning.

This morning saw the release of the December Consumer Price Index (CPI) report; which fell 0.1% for December, in-line with expectations. According to CNBC: "Headline CPI rose 6.5% from a year ago, highlighting the persistent burden that rising cost of living has placed on U.S. households. However, that was the smallest annual increase since October 2021. Excluding volatile food and energy prices, co-called core CPI rose 0.3%, also meeting expectations. It was up 5.7% from a year ago, once again in line."

Now that the numbers have come in, the market will be hanging on the words of St. Louis Fed President James Bullard and Richmond Fed President Tom Barkin, both of whom are making the rounds later today. Investors will be watching for hints on how much longer the Fed can be expected to keep raising the fed funds rate.

Data Download

International Economy

The Economy Watchers' Survey found Japan's service sector sentiment fell by 0.2 points from the prior month to 47.9 in December. This was the lowest reading since August, with worries lingering about a potential global recession this year because of the tightening path from central banks.

Domestic Economy

Today sees some important releases at 8:30 AM ET in the form of December YoY CPI including MoM CPI ex-Food & Energy. Topline CPI is expected to decline to 6.5% from the previously reported 7.1%, driven largely by energy price reductions. Still, December MoM CPI ex-Food & Energy is expected to rise an additional 0.30% which not only puts pressure on the YoY number but also shows some acceleration from the previously reported 0.20% monthly increase.

We will also get the latest Initial Claims results at 8:30 AM ET, which are expected to have risen to 220,000 from the most recent week’s reported 204,000 figure. With layoff announcements seemingly coming from all corners of the economy it will be interesting to see how much of the reaction to these figures is “already priced in.” Our take is that Initial Claims will be a game of give and take as layoffs continue to roll through various industries over the next while.

Markets

Optimism on upcoming CPI releases help push equity indexes higher as the Dow gained 0.80%, the S&P 500 rose 1.28%, the Russell 2000 advanced 1.17%, and the Nasdaq Composite closed 1.76% higher. Interestingly, while equity indexes are powering through this week, yesterday saw the CBOE Volatility Index (VIX) gain an additional 2.48% settling into a 21 handle, as Wall Street likes to say. 21 sees VIX come down from its Q4 34.57 peak, but these levels are still above the long-term average for equity volatility. Sectors were all higher, led by Real Estate (3.63%), and Consumer Discretionary (2.70%). Relative laggers included Energy (0.31%) and Consumer Staples (0.05%).

Here’s how the major market indicators stack up year-to-date:

• Dow Jones Industrial Average: 2.52%
• S&P 500: 3.80%
• Nasdaq Composite: 5.24%
• Russell 2000: 5.33%
• Bitcoin (BTC-USD): 9.96%
• Ether (ETH-USD): 16.93%

Stocks to Watch

As we approach the long weekend, we would caution readers to be on the watch for earnings pre-announcements.

Taiwan Semiconductor (TSM) reported December quarter revenue of $19.93 billion, up 26.77 YoY but down 1.5% QoQ. Looking at the company’s revenue mix for the quarter on a sequential basis, Smartphone fell 9%, High-Performance Computing rose 6% QoQ, IoT fell 21%, and Automotive climbed 18%. Taiwan Semi issued downside revenue guidance of $16.7-17.5 billion for the current quarter vs. the $17.97 billion consensus. The world’s biggest contract chip maker set this year’s capital spending budget between $32-$36 billion vs. the record $36.3 billion spent in 2022.

Citing challenging macroeconomic conditions including a slowdown in sales to enterprise customers, Logitech International (LOGI) issued downside guidance for its December quarter with revenue of $1.26-$1.27 billion vs. the $1.39 billion consensus. It also culled back revenue expectations for its fiscal 2023 to down 13%-15%, roughly$4.66-$4.77 billion, vs. the $4.86 billion consensus. Previously the company called for an 8% revenue decline in fiscal 2023.

Alongside naming its new CFO, Marvell (MRVL) narrowed its guidance for its current quarter. The company now sees revenue of $1.36-$1.44 billion vs. the $1.42 billion consensus and its prior guidance of $1.33-$1.47 billion.

November quarter earnings at KB Home (KBH) missed consensus expectations for both revenue and EPS even though the number of homes delivered increased by 3% to 3,786 and its average selling price rose 13% to $510,400. However, exiting the quarter, its backlog value decreased by 25% to $3.69 billion while its backlog units tumbled by 27% to 7,662. That drop reflects November quarter orders of 692 units vs. 3,529 in the year-ago quarter. For its current quarter, KB sees revenue of $1.25-$1.40 billion, and for 2023, it is calling for $5-$6 billion in total revenue vs. $6.9 billion in 2022 and $5.7 billion in 2021.

Shares of Ubisoft Entertainment (UBSFY) fell more than 13% yesterday following the company slashing its forecast, increased write-downs, and canceled more projects. The company cut its Q3 net bookings target to €725-€830 million and expects full-year net bookings down more than 10% year-over-year, vs. prior expectations for 10%-plus growth.

Coinbase (COIN) is closing the bulk of its operations in Japan as part of a move to adjust international investment amid a slump in the digital-asset sector.

Interfor (IFSPF) shared plans to reduce its lumber production output in the first quarter of 2023 by at least 100 million board feet, or 8% of quarterly capacity.

Forrester Research (FORR) announced it was cutting ~4% of its workforce.

Bloomberg reports Apple (AAPL) is working on adding touch screens to its Mac computers with a potential launch data in 2025.

Trian Fund Management, LP, whose investment funds collectively own approximately 9.4 million common shares of The Walt Disney Company (DIS) is expected to file a preliminary proxy statement with the SEC for the election of Nelson Peltz, its Chief Executive Officer, and Founding Partner, to Disney's Board of Directors at the company’s 2023 Annual Meeting of Shareholders.

Las Vegas Sands (LVS) announced its intention to pursue the development of a multi-billion-dollar flagship hospitality, entertainment, and casino project on Long Island, New York.

IPOs

Outside of the possible pricing for Skyward Specialty Insurance Group (SKWD), the near-term IPO calendar is relatively light. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

Mitek Systems (MITK) and Washington Federal (WAFD) are slated to report their latest quarterly results after equities stop trading. We would caution readers to be on the watch for earnings pre-announcements.

Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Friday, January 13

• UK: Industrial Production, Manufacturing Production, Construction Output – November
• Eurozone: Industrial Production – November
• US: Import/Export Prices – December
• US: University of Michigan Consumer Sentiment (Preliminary) – January

Thought for the Day

“Thursday is how Friday says “Hang on, you’re almost there.’”

Disclosures

• Marvell (MRVL) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
• Apple (AAPL) is a constituent of the Tematica Research 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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