Daily Markets: Inflation Report Shapes Day's Trading

Today’s Big Picture

Asia-Pacific equity markets ended today’s session up across the board. India’s SENSEX gained 0.26%, China’s Shanghai Composite rose 0.30%, Australia’s ASX All Ordinaries advanced 0.50%, South Korea’s KOSPI was up 0.76% and Taiwan’s TAIEX and Japan’s Nikkei closed 1.05% and 1.18% higher, respectively. Hong Kong’s Hang Seng continued to post gains, rising 2.32% on another broad rally let this time by Financials as inflation was reported in line with expectations. By mid-day trading, major European equity indices are up across the board.

U.S. futures have dropped after the release of the November Producer Price Index (PPI) reports shows at 8:30 AM ET. The report showed an increase of 0.3% for the month against expectations of a 0.2% gain, and excluding food and energy, core PPI was up 0.4%, also against a 0.2% estimate. This brings prices up 7.4% for the year. This hotter-than-expected set of PPI prints is stoking worries the Fed is at risk of torpedoing the economy as it continues to wage war on inflation. While the stock market reacts to the November PPI print, we’d remind readers the November Consumer Price Index (CPI) will be reported early next week, before the Fed concludes its December monetary policy meeting. Typically, calmer heads prevail at times like this and that means having as full a picture as possible before anticipating what the Fed is likely to say come next Wednesday afternoon.

Data Download

International Economy

China's annual inflation fell to 1.6% YoY in November from 2.1% in the prior month, matching the market consensus. The November figure was the lowest one since March, mainly due to a sharp slowdown in the cost of food (3.7% vs 7.0% in October). Core consumer prices, excluding the volatile prices of food and energy, rose 0.6%, the same pace as in the prior two months. China's Producer Prices dropped 1.3% YoY in November, the same pace as in the previous month, and just shy of the expected 1.4% fall. This was the second straight month of decline in factory gate prices, amid weakening domestic demand due to strict COVID curbs and falling commodity prices.

Domestic Economy

In addition to the pre-market November print for the Producer Price Index, at 10 AM ET, we’ll get the preliminary December reading for the University of Michigan Consumer Sentiment Index.

Markets

Yesterday saw equities start to counter this week’s drawdown as the Dow gained 0.55%, the Russell 2000 advanced 0.63%, the S&P 500 rose 0.75% and the Nasdaq Composite close 1.13% higher. All sectors were up except for Communication services (-0.20%) on a weak showing from Alphabet (GOOG) and Energy (-0.45%) as oil prices continued to fall. As indicated by the broad indexes, Technology was the biggest gainer (1.64%) as Nvidia (NVDA), Microsoft (MSFT) and Apple (AAPL) combined to contribute to just over 50% of the sector’s return. In individual names, Avery Denison Corp (AVY) fell 6.54% yesterday after updating guidance that the company is “activating our recession scenario plan” according to the CEO.

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

• Dow Jones Industrial Average: -7.04%
• S&P 500: -16.84%
• Nasdaq Composite: -29.17%
• Russell 2000: -19.02%
• Bitcoin (BTC-USD): -68.85%
• Ether (ETH-USD): -65.25%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, the only company expected to report its quarterly results is Li Auto (LI).

Broadcom (AVGO) reported better than expected October quarter results for both its top and bottom lines. The company shared revenue from its semiconductor solutions business rose 26% YoY while its infrastructure software revenue climbed 4% vs. year ago levels. Driving its chip business was continued growth across hyper scale, service providers, and enterprise as well as the sequential ramp in new wireless platforms. For its January quarter, Broadcom sees revenue of ~$8.90 billion, little changed QoQ but ahead of the $8.76 billion consensus. In addition to boosting its quarterly dividend by 12% to $4.60 per share, Broadcom announced it will resume its authorized share repurchase program that has ~$13 billion remaining. Reports indicate Broadcom is expected to see an in-depth European antitrust review of its planned $61 billion acquisition of VMware (VMW).

Taiwan Semiconductor (TSM) reported its November rose 50.2% YoY to NT$222.71 billion, up 5.9% vs. October.

November quarter results at Costco Wholesale (COST) missed consensus expectations with the quarter’s comp sales, excluding the impacts from changes in gasoline prices and foreign exchange, coming in at +7.1% company wide and 6.5% for the US, a tad short of the 6.87% consensus. E-commerce comp sales for the quarter slipped 2.0% YoY while Canada and Other International rose 8.3% YoY and 9.1% YoY, respectively. Currency impacted Costco’s earnings by ~$0.12 per share in the quarter. Average transaction size during the November quarter was up 2.6% worldwide and 6.9% U.S. during the first quarter. In terms of inflation, Costco shared it has seen “some minor improvements in a few areas” and estimates the equivalent year-over-year inflation number in the range of 6%-7%, commenting that the food and sundries segment is still up more than non-foods.

October quarter revenue reported by Chewy (CHWY) rose 14.5% YoY to $2.53 billion, outpacing the $2.46 billion consensus. Autoship sales grew 18.8% YoY to $1.86 billion, reaching 73.3% of total sales. Exiting the quarter, Chewy had 20.5 million active customers 6% QoQ. For its current quarter, Chewy sees revenue of $2.63-$2.65 billion, a tad higher than the $2.63 billion consensus. For 2023, it delivered revenue guidance of $10.02-$10.04 billion vs. the $9.95 billion consensus.

DocuSign (DOCU) crushed October quarter expectations with revenue that rose 18.3% YoY to $645.46 billion, nicely ahead of the $627.23 million consensus. Billings for the quarter rose 17% YoY to $659.4 million well ahead of the $584-$594 million guidance. However, DocuSign issued downside guidance for the current quarter with revenue of $637-$641 million vs. the $641.69 million consensus. On a positive note, it sees billings for the current quarter coming in between $705-$715 million.

Shares of Lululemon Athletica (LULU) traded off following quarterly results that included slightly softer than expected January quarter guidance. Revenue for the current quarter is expected to be $2.605-$2.655 billion vs. the $2.65 billion consensus while EPS is expected to come in between $4.20-$4.30 vs. the $4.30 consensus. Exiting its October quarter, the company’s inventory was $1.7 billion, 85% higher vs. year ago levels.

Shares of Activision Blizzard (ATVI) were volatile following reports Federal Trade Commission filed suit to block Microsoft's (MSFT) $69 billion acquisition of the videogame publisher. The FTC is seeking to block the deal saying that it "would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business."

The Commercial Aircraft Corporation of China (COMCA) delivered its first domestically-developed passenger jet to launch customer China Eastern Airlines (CEA). The C919 is similar to the Airbus (EADSY) A320 and Boeing (BA) 737 narrow-body jet families and brings China one step closer to becoming a global civil aerospace player.

IPOs

As we head into the holiday season the near-term IPO calendar is fairly light so there are no significant IPOs slated to price this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

No companies are expected to report quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Tuesday, December 13

• UK: Average Earnings – October
• Germany: CPI – November
• Germany: ZEW Economic Sentiment – December
• Eurozone: ZEW Economic Sentiment - December
• US: NFIB Small Business Optimism Index - November
• US: Consumer Price Index – November

Wednesday, December 14

• Japan: Core Machinery Orders – October
• Japan: Industrial Production & Capacity Utilization – October
• UK: CPI – November
• Eurozone: Industrial Production - October
• US: Weekly MBA Mortgage Applications
• US: Import/Export Prices – November
• US: Weekly EIA Crude Oil Inventories
• US: FOMC Rate Decision

Thursday, December 15

• Japan: Imports/Exports – November
• China: Retail Sales, Industrial Production – November
• UK: Bank of England Monetary Policy Decision
• US: Weekly Initial & Continuing Jobless Claims
• US: Retail Sales – November
• US: Philadelphia Fed Index – December
• US: Empire State Manufacturing Index – December
• US: Industrial Production & Capacity Utilization – November
• US: Weekly EIA Natural Gas Inventories

Friday, December 16

• UK: Retail Sales – November
• Eurozone: S&P Global Flash PMI – December
• Eurozone: CPI – November
• US: S&P Global Flash PMI - December

Thought for the Day

"It's Friday! Time to go make stories for Monday." —Anonymous

Disclosures

• Li Auto (LI) is a constituent of the Tematica BITA Cleaner Living Index
• Li Auto (LI) is a constituent of the Tematica BITA Cleaner Living Sustainability Screened Index
• Broadcom (AVGO) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index
• Apple (AAPL), Costco Wholesale (COST), Microsoft (MSFT) are constituents 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.

Other Topics

Stocks Economy Central Banks Earnings