Market Update
Debt Ceiling Uncertainties Keep U.S. Stock Averages On Tight Leash
Barry Adams
15 May, 2023
New York City
Beyond rhetoric, there was little to drive stocks on Wall Street as lawmakers of both parties jockeyed to get upper hand in media attention.
Stocks on Wall Street lacked direction as investors awaited a resolution to debt ceiling negotiations as neither party is conceding its position to move discussion forward.
With each passing day, investors are worried that a last minute deal may be more elusive than previously expected and avert the Federal government shutdown as early as two weeks from today.
Benchmark indexes traded sideways after two down weeks in a row after the ongoing rate path and inflation worries were replaced by the debt ceiling uncertainties and regional bank fallout.
President Joe Biden is expected to meet top Congressional leaders on Tuesday but both parties are sending mixed signals and lowering expectations of an agreement.
The Treasury Secretary Janet Yellen said in an interview with the Wall Street Journal on Saturday offered hope.
"I'm told they have found some areas of agreement," Yellen said while attending a meeting of G7 finance ministers in Japan.
Despite the positive tone, two sides remain apart in how to limit federal government spending and the debt limit increase and duration.
The Treasury Secretary had said earlier that the U.S. government is expected to run out of cash as early as June 1 if the debt ceiling of $31.4 trillion is not lifted.
U.S. Indexes & Yields
The S&P 500 index increased 9.87 points to 4,133.44 and the Nasdaq Composite increased 72.07 points to 12,352.86.
The yield on 2-year Treasury notes increased to 4.00%, 10-year Treasury notes edged up to 3.50% and 30-year Treasury bonds held at 3.80%.
Crude oil rose $0.98 to $71.05 a barrel and natural gas prices rose 10 cents to $2.46 a thermal unit.
U.S. Stock Movers
Newmont Corporation increased 1.4% to $46.60 after the company and Australia-based Newcrest Mining Ltd reached a binding agreement to proceed with the proposal to acquire 100% of Newcrest.
Newmont agreed to pay 0.4 of Newmont share for each Newcrest share held and shareholders will be entitled to receive a special dividend of up to US$1.0 a share just ahead of the completion of the deal.
After considering the full amount of the special dividend, the deal value Newcrest Mining at A$29.27 a share an implied equity value of A$26.2 billion and enterprise value for Newcrest of A$28.8 billion
Newcrest shareholders will own 31% of the combined group and value the company at a 30.4% premium to Newcrest’s closing price of A$22.45 per share on February 3, before the first announcement of the deal.
Microsoft Corp increased 0.1% to $309.40 after the European Union's regulatory arm approved the purchase of Activision Blizzard for $69 billion.
Activision Blizzard Inc increased 1.1% to $78.27.
European Markets Advanced On Growth Outlook Revision
European markets advanced after the European Commission revised higher its economic growth outlook for 2023.
Benchmark indexes traded higher in France and Germany traded higher after the EC lifted its annual economic growth estimate for the European Union to 1.0% from the previous estimate of 0.8% and for the Euro Area to 1.1% from 0.9% respectively.
Investors overlooked the sharp decline in industrial production in the region in March and the decline in wholesale prices in April.
Euro Area industrial Output Dropped In March
Seasonally adjusted industrial production in the Euro Area declined 4.1% in March from the previous month, Eurostat reported Monday.
On a monthly basis, in the Euro Area, production of capital goods fell 15.4%, intermediate goods 1.8%, energy 0.9% and non-durable consumer goods 0.8%, while production of durable consumer goods rose 2.8%.
On an annual basis in the Euro Area, production of energy fell 6.1%, intermediate goods 4.7%, capital goods 2.1% and durable consumer goods 0.8%, while production of non-durable consumer goods rose 6.8%.
Industrial output dropped the most since 2020, driven by a significant decline in production of capital goods.
Germany's Wholesale Prices Declined In April
Germany wholesale prices declined 0.5% in April from a year ago, the first fall since December 2020, the Federal Statistics Office reported Monday.
On an annual basis, the wholesale price index in March increased 2.0% and in February jumped 8.9%.
The annual price decline was mainly driven by the price decrease of mineral oil products by 15.7%, scrap and residual materials 31.5 %, cereals, raw tobacco, seeds and feedstuff 25.2%, ores, metals and semi-finished metal products 20.5% and chemical products 5.4%.
However, the selling prices in wholesale trade for fruit, vegetables and potatoes surged 22.0%, building materials and elements 13.9% and living animals 11.4%.
The wholesale price index declined 0.4% in April from the previous month reversing the 0.2% increase in March.
Europe Indexes & Yields
The DAX index increased 0.2% or 35.26 points to 15,949.29, the CAC-40 index rose 0.4% or 29.78 points to 7,443.59 and the FTSE 100 index advanced 0.5% or 35.67 to 7,790.29.
The yield on 10-year German Bunds inched down to 2.29%, French bonds traded slightly lower to 2.88%, the UK gilts inched lower to 3.78% and Italian bonds decreased to 4.18%.
The euro edged higher to $1.087, the British pound to $1.250 and the Swiss franc to 89.60 cents.
Brent crude increased 20 cents to $74.27 a barrel and the Dutch TTF natural gas increased €0.27 to €32.50 per MWh.
Europe Stock Movers
Siemens Energy increased 3.3% to €23.01 after the maker of capital equipment for the power sector revised higher its 2023 outlook.
Diploma plc increased 2.4% 2,920 pence after the UK-based company reported higher-than-expected pre-tax profit and revenue growth in the first-half.
British American Tobacco increased 0.3% to 2,717.0 pence after the company appointed finance director Tadeu Marroco as its chief executive officer.
AXA SA gained 0.3% to € 27.56 after the French insurer reported an increase in gross premium in the first quarter.
Movers: Activision Blizzard, Microsoft, Magellan Midstream, Newmont Corp, OneOK, shake Snack
Scott Peters
15 May, 2023
New York City
Newmont Corporation increased 1.4% to $46.60 after the company and Australia-based Newcrest Mining Ltd reached a binding agreement to proceed with the proposal to acquire 100% of Newcrest.
Newmont agreed to pay 0.4 of Newmont share for each Newcrest share held and shareholders will be entitled to receive a special dividend of up to US$1.0 a share just ahead of the completion of the deal.
After considering the full amount of the special dividend, the deal value Newcrest Mining at A$29.27 a share an implied equity value of A$26.2 billion and enterprise value for Newcrest of A$28.8 billion
Newcrest shareholders will own 31% of the combined group and value the company at a 30.4% premium to Newcrest’s closing price of A$22.45 per share on February 3, before the first announcement of the deal.
Microsoft Corp increased 0.1% to $309.40 after the European Union's regulatory arm approved the purchase of Activision Blizzard for $69 billion.
Activision Blizzard Inc increased 1.1% to $78.27.
Shake Shack Inc soared 9.5% to $71.26 after activist investor Engaged Capital acquired 6.6% stake in the company and the investor is looking to plan a proxy request to add three seats on the company board.
The news was first reported by the Wall Street Journal.
Magellan Midstream Partners LP jumped 13.6% to $63.04 after the company agreed to be acquired by OneOk, Inc for about $18.8 billion.
OneOk, Inc declined 8.5% to $58.18.
OneOk agreed to pay $25.0 in cash and 0.6670 shares of ONEOK common stock for each outstanding Magellan common unit, representing a current implied value to each Magellan unitholder of $67.50 per unit, a 22% premium, based on May 12 closing prices.
The transaction is expected to be earnings per share accretive beginning in 2024 with EPS accretion of 3% to 7% per year from 2025 through 2027, and free cash flow per share accretion averaging more than 20% from 2024 through 2027.
The combined company is estimated to generate an average annual $1.0 billion in free cash flow in the first four years following the close of the transaction.
Newmont Sealed $19 Billion Deal to Buy Australia Based Newcrest Mining
Scott Peters
15 May, 2023
New York City
Newmont Corporation increased 1.4% to $46.60 after the company and Australia-based Newcrest Mining Ltd reached a binding agreement to proceed with the proposal to acquire 100% of Newcrest.
Newmont agreed to pay 0.4 of Newmont share for each Newcrest share held and shareholders will be entitled to receive a special dividend of up to US$1.0 a share just ahead of the completion of the deal.
After considering the full amount of the special dividend, the deal value Newcrest Mining at A$29.27 a share an implied equity value of A$26.2 billion and enterprise value for Newcrest of A$28.8 billion
Newcrest shareholders will own 31% of the combined group and values the company at a 30.4% premium to Newcrest’s closing price of A$22.45 per share on February 3, before the first announcement of the deal.
Stocks Meandered Amid Debt Ceiling Turmoil, EU Approves Microsoft's Acquisition of Activision Blizzard
Barry Adams
15 May, 2023
New York City
Stocks on Wall Street lacked direction as investors awaited a resolution to debt ceiling negotiations.
Benchmark indexes traded sideways after two down weeks in a row after the ongoing rate path and inflation worries were replaced by the debt ceiling uncertainties and regional bank fallout.
President Joe Biden is expected to meet top Congressional leaders on Tuesday.
The Treasury Secretary Janet Yellen said in an interview with the Wall Street Journal on Saturday offered hope.
"I'm told they have found some areas of agreement," Yellen said while attending a meeting of G7 finance ministers in Japan.
Despite the positive tone, two sides remain apart in how to limit federal government spending and the debt limit increase and duration.
The Treasury Secretary had said earlier that the U.S. government is expected to run out of cash as early as June 1 if the debt ceiling of $31.4 trillion is not lifted.
U.S. Indexes & Yields
The S&P 500 index increased 0.82 points to 4,124.78 and the Nasdaq Composite increased 46.30 points to 12,330.26.
The yield on 2-year Treasury notes increased to 4.00%, 10-year Treasury notes edged up to 3.50% and 30-year Treasury bonds held at 3.80%.
Crude oil rose $0.98 to $71.05 a barrel and natural gas prices rose 10 cents to $2.46 a thermal unit.
U.S. Stock Movers
Newmont Corporation increased 1.4% to $46.60 after the company and Australia-based Newcrest Mining Ltd reached a binding agreement to proceed with the proposal to acquire 100% of Newcrest.
Newmont agreed to pay 0.4 of Newmont share for each Newcrest share held and shareholders will be entitled to receive a special dividend of up to US$1.0 a share just ahead of the completion of the deal.
After considering the full amount of the special dividend, the deal value Newcrest Mining at A$29.27 a share an implied equity value of A$26.2 billion and enterprise value for Newcrest of A$28.8 billion
Newcrest shareholders will own 31% of the combined group and value the company at a 30.4% premium to Newcrest’s closing price of A$22.45 per share on February 3, before the first announcement of the deal.
Microsoft Corp increased 0.1% to $309.40 after the European Union's regulatory arm approved the purchase of Activision Blizzard for $69 billion.
Activision Blizzard Inc increased 1.1% to $78.27.
European Markets Advanced On Growth Outlook Revision, Euro Area Industrial Output Dropped
Bridgette Randall
15 May, 2023
Frankfurt
European markets advanced after the European Commission revised higher its economic growth outlook for 2023.
Benchmark indexes traded higher in France and Germany traded higher after the EC lifted its annual economic growth estimate for the European Union to 1.0% from the previous estimate of 0.8% and for the Euro Area to 1.1% from 0.9% respectively.
Investors overlooked the sharp decline in industrial production in the region in March and the decline in wholesale prices in April.
Euro Area industrial Output Dropped In March
Seasonally adjusted industrial production in the Euro Area declined 4.1% in March from the previous month, Eurostat reported Monday.
On a monthly basis, in the Euro Area, production of capital goods fell 15.4%, intermediate goods 1.8%, energy 0.9% and non-durable consumer goods 0.8%, while production of durable consumer goods rose 2.8%.
On an annual basis in the Euro Area, production of energy fell 6.1%, intermediate goods 4.7%, capital goods 2.1% and durable consumer goods 0.8%, while production of non-durable consumer goods rose 6.8%.
Industrial output dropped the most since 2020, driven by a significant decline in production of capital goods.
Germany's Wholesale Prices Declined In April
Germany wholesale prices declined 0.5% in April from a year ago, the first fall since December 2020, the Federal Statistics Office reported Monday.
On an annual basis, the wholesale price index in March increased 2.0% and in February jumped 8.9%.
The annual price decline was mainly driven by the price decrease of mineral oil products by 15.7%, scrap and residual materials 31.5 %, cereals, raw tobacco, seeds and feedstuff 25.2%, ores, metals and semi-finished metal products 20.5% and chemical products 5.4%.
However, the selling prices in wholesale trade for fruit, vegetables and potatoes surged 22.0%, building materials and elements 13.9% and living animals 11.4%.
The wholesale price index declined 0.4% in April from the previous month reversing the 0.2% increase in March.
Europe Indexes & Yields
The DAX index increased 0.2% or 35.26 points to 15,949.29, the CAC-40 index rose 0.4% or 29.78 points to 7,443.59 and the FTSE 100 index advanced 0.5% or 35.67 to 7,790.29.
The yield on 10-year German Bunds inched down to 2.29%, French bonds traded slightly lower to 2.88%, the UK gilts inched lower to 3.78% and Italian bonds decreased to 4.18%.
The euro edged higher to $1.087, the British pound to $1.250 and the Swiss franc to 89.60 cents.
Brent crude increased 20 cents to $74.27 a barrel and the Dutch TTF natural gas increased €0.27 to €32.50 per MWh.
Europe Stock Movers
Siemens Energy increased 3.3% to €23.01 after the maker of capital equipment for the power sector revised higher its 2023 outlook.
Diploma plc increased 2.4% 2,920 pence after the UK-based company reported higher-than-expected pre-tax profit and revenue growth in the first-half.
British American Tobacco increased 0.3% to 2,717.0 pence after the company appointed finance director Tadeu Marroco as its chief executive officer.
AXA SA gained 0.3% to € 27.56 after the French insurer reported an increase in gross premium in the first quarter.
Global Markets On Edge With Both Sides Holding Firm In Debt Ceiling Negotiations
Barry Adams
12 May, 2023
New York City
Markets are finally focusing on the lack of progress in finalizing the U.S. Federal government debt ceiling as lawmakers of both parties remain at odds.
President Joe Biden and congressional leaders postponed the closely watched meeting on Friday because neither side saw the reason to meet.
The U.S. lawmakers raised the debt limit by $2.5 trillion to a total of $31.4 trillion on December 16, 2021.
On January 19, 2023, that limit was reached, and the Treasury announced a “debt issuance suspension period” and began using “extraordinary measures” to borrow additional funds without breaching the debt ceiling.
The U.S. Treasury is expected to exhaust all measures sometime in the first two weeks in June, and if the debt limit is not increased or suspended the U.S. government will default on its obligation.
That default will not send the U.S. stock market in tailspin but also spike Treasury yields and send shockwaves to financial markets with unpredictable consequences.
"If the debt limit remains unchanged, there is a significant risk that at some point in the first two weeks of June, the government will no longer be able to pay all of its obligations, said the nonpartisan Congressional Budget Office.
The extent to which the Treasury will be able to fund the government’s ongoing operations will remain uncertain throughout May, even if the Treasury ultimately runs out of funds in early June.
That uncertainty exists because the timing and amount of revenue collections and outlays over the intervening weeks could differ from CBO’s projections," added the CBO in its latest report released Friday.
At heart of the impasse is the lack of agreement in which government programs should be funded and which programs need to be cut or completely eliminated.
President Joe Biden has insisted on raising the debt limit without any preconditions and House Speaker Kevin McCarthy has demanded cuts in government spending paired with the debt ceiling revision.
Markets are hoping that the both sides may work out a small deal to avert government default that will keep the U.S. government functioning till the year-end.
With no debt deal in sight, Treasury yields are expected to surge and stocks face more headwinds next week.
U.S. Import and Export Prices Rebounded In April
U.S. Import prices in April rose 0.4% form the previous month, the U.S. Bureau of Labor Statistics reported Friday.
Import prices rose for the first time in four months and increased to the most since May 2022. Import prices of fuel increased 4.5% after 5.7% higher petroleum costs and 17.4% decline in natural gas prices.
On a yearly basis, import prices declined 4.8% in April, matching the rate in March.
Nonfuel import prices were unchanged in April, after decreasing 0.5% the previous month. Foods, feeds, and beverages prices increased 0.2% in April following a 0.9% decline in March.
U.S. export prices increased 0.2% in April, after declining 0.6% in the previous month.
Higher prices for nonagricultural exports and agricultural exports in April each contributed to the overall increase.
The price index for U.S. exports fell 5.9% from a year ago in April, the largest over-the-year drop since a 6.7% fall in May 2020.
U.S. Indexes & Yields
The S&P 500 index increased 0.5% to 4,111.18 and the Nasdaq Composite increased to 0.7% 12,248.02.
The yield on 2-year Treasury notes increased to 3.99%, 10-year Treasury notes edged up to 3.46% and 30-year Treasury bonds held at 3.78%.
Crude oil fell $0.87 to $69.99 a barrel and natural gas prices rose 8 cents to $2.27 a thermal unit.
U.S. Stock Movers
Regional banks were in focus on the final day of the week as they have been for the last two months.
PacWest Bancorp fell 2.5% to $4.60, Western Alliance Bancorp increased 0.4% to $27.01 and Zions Bancorporation dropped 1.5% to $22.30.
On Thursday PacWest reported additional 9.5% deposit outflow in the second quarter to May 10 after the closure and sale of First Republic Bank.
Tesla Inc edged up a fraction to $172.0 after chief executive Elon Musk appointed a new chief executive for Twitter Inc.
NBC Universal chief Linda Yaccarino is expected to lead Twitter in six weeks and Elon Musk will remain as chairman and chief technology officer of the social media platform.
Musk has been under fire from Tesla shareholders for handling multiple companies and being distracted from managing the electric vehicle maker.
First Solar Inc soared 22.6% to $224.46 after the company agreed to acquire Sweden-based Evolar AB for up to $80 million.
The company makes thin films used in solar panels to improve efficiency.
The efficiency of conventional silicon-based solar cells has stagnated at around 20% and the market has become highly commoditized over the last decade.
Evolar claims its PV Power Booster increases solar cell efficiency by 25% compared with conventional silicon-based solar panels,
Luxury and Financial Stocks lift European Indexes
European markets traded higher on the final day of a volatile week.
Benchmark indexes hovered near record highs supported by advances in financial and luxury products makers.
Trading sentiment was also supported by optimism that the U.S. Federal Reserve would pause rate hike at its next meeting in June after consumer price and wholesale price indexes cooled in April.
Luxury products makers traded higher after Richemont SA reported record quarterly results on the back of a sharp rebound in China.
Insurance companies traded higher after strong quarter results lifted stocks of special insurance and property and casualty companies.
French Consumer Inflation Accelerated In April
In domestic economic news, French consumer prices accelerated in April to 5.9% from 5.7% in March.
The French statistical agency INSEE confirmed the preliminary estimate in a release Friday.
This increase in inflation resulted from an acceleration in prices of energy to 6.8% from 4.9% in March, services to 3.2% from 2.9% and tobacco to 9.4% from 7.8%.
On the other hand, the prices of manufactured goods slowed to 4.6% from 4.8% in March and food to 15.0% from +15.9% respectively.
On a monthly basis, price increase slowed to 0.6% in April from 0.9% rise in March.
Core inflation, which excludes food and energy, increased to 6.3% from 6.2% in March.
UK Economy Barely Expanded In First Quarter
The U.K. economy expanded for the second quarter in a row matching the growth rate in the previous quarter, the Office for National Statistics reported Friday.
GDP rose 0.1% in the first quarter from the fourth quarter of 2022, matching the rate in the previous quarter.
Construction sector led the growth with a rise of 0.7% followed by a 0.5% increase in manufacturing and 0.1% in the service sector.
Consumption remained weak after aggregate household spending was unchanged because elevated inflation squeezed income.
However, gross fixed capital formation increased 1.3% but public expenditure declined 2.5% and weak international trade after exports fell 8.1% and imports declined 7.2%.
Europe Indexes & Yields
The DAX index increased 0.5% or 87.02 points to 15,921.90, the CAC-40 index rose 0.9% or 65.08 points to 7,446.09 and the FTSE 100 index advanced 0.3% or 24.63 to 7,755.15.
The yield on 10-year German Bunds inched down to 2.24%, French bonds traded slightly lower to 2.82%, the UK gilts inched lower to 3.74% and Italian bonds decreased to 4.13%.
The euro edged higher to $1.091, the British pound to $1.253 and the Swiss franc to 89.28 cents.
Brent crude increased 26 cents to $75.23 a barrel and the Dutch TTF natural gas increased €0.74 to €34.25 per MWh.
Europe Stock Movers
Allianz SE increased 0.1% to €211.90 after the German insurance company reiterated its full-year 2023 outlook and reported a rise in first quarter net income.
Societe Generale SA increased 1.3% to €22.13 after the French bank reported a decline in French retail banking business but international business advanced at a faster pace.
SCOR SE jumped 9.6% to €25.79 after the French property and casualty reinsurance company reported better-than-expected earnings.
Beazley PLC advanced 4.7% to 614.0 pence after the specialist insurance company reported high gross written premium in the March quarter.
Richemont SA gained 5% to CHF 156.95 after the Swiss luxury watch company reported record annual earnings from continuing operations after sales rose in all regions of the world.
Nordex SE decreased 0.9% to €10.62 after the German wind turbine company reported a wider first quarter loss because of higher operating costs.
THG PLC plunged 9.7% to 67.32 pence after the e-commerce company ended its talks to go private with Apollo Global Management.
Movers: First Solar, JD.com, News Corp, Regional Banks, Tesla
Scott Peters
12 May, 2023
New York City
Regional banks were in focus on the final day of the week as they have been for the last two months.
PacWest Bancorp gained 0.2% to $4.70, Western Alliance Bancorp increased 0.4% to $27.01 and Zions Bancorporation dropped 1.5% to $22.30.
On Thursday PacWest reported additional 9.5% deposit outflow in the second quarter to May 10 after the closure and sale of First Republic Bank.
Tesla Inc edged up a fraction to $172.0 after chief executive Elon Musk appointed a new chief executive for Twitter Inc.
NBC Universal chief Linda Yaccarino is expected to lead Twitter in six weeks and Elon Musk will remain as chairman and chief technology officer of the social media platform.
Musk has been under fire from Tesla shareholders for handling multiple companies and being distracted from managing the electric vehicle maker.
First Solar Inc soared 22.6% to $224.46 after the company agreed to acquire Sweden-based Evolar AB for up to $80 million.
The company makes thin films used in solar panels to improve efficiency.
The efficiency of conventional silicon-based solar cells has stagnated at around 20% and the market has become highly commoditized over the last decade.
Evolar claims its PV Power Booster increases solar cell efficiency by 25% compared with conventional silicon-based solar panels,
JD.com Inc declined 5% to $35.74 after the China-based e-commerce giant reported better-than-expected quarterly revenue and earnings.
Net revenue in the first quarter increased 1.4% to RMB 243.0 billion or $135.4 billion and net service revenue increased 34% to RMB47.4 billion or US$6.9 billion.
Net income attributable to the company's ordinary shareholders for the first quarter was RMB 6.3 billion or $0.9 billion, compared to a net loss of RMB 3.0 billion for the same period last year.
Diluted net income per ADS for the first quarter was RMB3.93 or $0.57, compared to a diluted net loss of RMB 1.92 for the first quarter of 2022.
The company said current chief executive Xu Lei will step down in June in a surprise corporate reshuffle and said Xu will be replaced by chief financial officer Sandy Ran Xu.
Amid rising competition in its domestic market and weak post-Covid recovery, JD.com stock has dropped 25% in the last twelve months in Hong Kong trading.
News Corp increased 6.0% to $17.75 after the media company reported higher-than-expected quarterly revenue.
Revenue in the March quarter declined 2% to $2.45 billion from $2.49 billion, reflecting 4% negative impact from foreign currency fluctuations.
Net income in the quarter declined to $59 million from $104 million and diluted earnings per share dropped to 9 cents from 14 cents a year ago.
Revenue in the Dow Jones segment increased 9% to $529 million, digital real estate services which includes Realtor.com declined 13% to $363 million and book publishing which includes Harper Collins was flat at $515 million.
Broadcast media residential subscribers declined to 1.37 million from 1.52 million and commercial subscribers fell to 233,000 from 240,000 a year ago.
During the third quarter, total average subscriptions to Dow Jones’ consumer products increased 6% to 5.1 million and digital-only subscriptions to Dow Jones’ consumer products grew 10%.
Total subscriptions to The Wall Street Journal rose 5% compared to the prior year, to nearly 3.9 million average subscriptions in the quarter.
Digital-only subscriptions to The Wall Street Journal increased 9% to 3.3 million average subscriptions in the quarter, and represented 85% of total Wall Street Journal subscriptions.
Debt Ceiling Turmoil and Regional Bank Worries Keep Investors On Defensive
Barry Adams
12 May, 2023
New York City
Stocks traded near flatline as investors debated the health of regional banking and the wider economy and hoped for a decisive resolution to debt ceiling negotiations.
Benchmark indexes traded sideways amid growing uncertainties about the debt ceiling revisions.
The critical meeting between President Joe Biden and congressional leaders was postponed till next week as lawmakers struggled to find a common ground.
Global financial markets are on the hook and stock and bond markets could face significant disruptions if lawmakers fail to lift the current debt ceiling of $31.4 trillion by the end of May.
Markets are expected to turn volatile in the next two weeks after a faction of the Republican party is looking for significant government spending cuts in bargain for higher debt limits.
U.S. Import and Export Prices Rebounded In April
U.S. Import prices in April rose 0.4% form the previous month, the U.S. Bureau of Labor Statistics reported Friday.
Import prices rose for the first time in four months and increased to the most since May 2022. Import prices of fuel increased 4.5% after 5.7% higher petroleum costs and 17.4% decline in natural gas prices.
On a yearly basis, import prices declined 4.8% in April, matching the rate in March.
Nonfuel import prices were unchanged in April, after decreasing 0.5% the previous month. Foods, feeds, and beverages prices increased 0.2% in April following a 0.9% decline in March.
U.S. export prices increased 0.2% in April, after declining 0.6% in the previous month.
Higher prices for nonagricultural exports and agricultural exports in April each contributed to the overall increase.
The price index for U.S. exports fell 5.9% from a year ago in April, the largest over-the-year drop since a 6.7% fall in May 2020.
U.S. Indexes & Yields
The S&P 500 index increased 0.2% to 4,138.53 and the Nasdaq Composite increased to 0.08% 12,342.22.
The yield on 2-year Treasury notes increased to 3.91%, 10-year Treasury notes edged up to 3.39% and 30-year Treasury bonds held at 3.73%.
Crude oil fell $0.55 to $71.41 a barrel and natural gas prices rose 1 cent to $2.20 a thermal unit.
U.S. Import and Export Prices Rebounded In April
Brian Turner
12 May, 2023
New York City
U.S. Import prices in April rose 0.4% form the previous month, the U.S. Bureau of Labor Statistics reported Friday.
Import prices rose for the first time in four months and increased to the most since May 2022. Import prices of fuel increased 4.5% after 5.7% higher petroleum costs and 17.4% decline in natural gas prices.
On a yearly basis, import prices declined 4.8% in April, matching the rate in March.
Nonfuel import prices were unchanged in April, after decreasing 0.5% the previous month. Foods, feeds, and beverages prices increased 0.2% in April following a 0.9% decline in March.
U.S. export prices increased 0.2% in April, after declining 0.6% in the previous month.
Higher prices for nonagricultural exports and agricultural exports in April each contributed to the overall increase.
The price index for U.S. exports fell 5.9% from a year ago in April, the largest over-the-year drop since a 6.7% fall in May 2020.
Europe Movers: Allianz, Beazley, Nordex, Richemont, SCOR, Societe Generale, THG
Bridgette Randall
12 May, 2023
Frankfurt
Allianz SE increased 0.1% to €211.90 after the German insurance company reiterated its full-year 2023 outlook and announced a new stock buyback program of 1.5 billion euros.
Total revenue in the first quarter increased 3.9% to €46.0 billion from €43.3 billion and net income jumped to €2.1 billion from €585 million and core earnings per share increased to €5.43 from €1.02 a year ago.
The insurance company reiterated its 2023 operating profit target of €14.2 billion with a band of €1 billion.
Societe Generale SA increased 1.3% to €22.13 after the third largest French bank reported a rise in overall income in the quarter.
Net revenue in the first quarter declined 5.3% to €6.7 billion from €7.0 billion and net income increased 7.1% to €1.09 billion from €1.02 billion and return on equity edged lower to 5.0% from 5.1% a year ago.
French retail banking revenue continued to struggle and fell 11% from the previous year's period to €1.9 billion from €2.2 billion because of higher interest rates on regulated saving schemes and the end of the benefit of the TLTRO program run by the European Central Bank.
Group’s common equity tier 1 ratio stood at 13.5%, or around 410 basis points above the regulatory requirement.
Societe Generale announced a €440 million stock repurchase plan.
SCOR SE jumped 9.6% to €25.79 after the French property and casualty reinsurance company reported better-than-expected earnings.
Beazley PLC advanced 4.7% to 614.0 pence after the specialist insurance company reported high gross written premium in the March quarter.
Richemont SA gained 5% to CHF 156.95 after the Swiss luxury watch company reported record sales and earnings on the back of a strong demand rebound in all regions of the world.
Sales in Japan and Europe led the growth with double-digit increase and Asia Pacific region sales rose 6% after demand in China rebounded.
Sales in the full-year ending in March 2023 increased 19% to €19.9 from €16.7 billion and profit from continuing operations soared 60% to €3.9 billion from €2.4 billion and diluted earnings per share declined 54 cents from 36 cents a year ago.
Total profit in the year declined to €301 million from €2.0 billion because of the loss of discontinued operations of €3.6 billion, reflecting the write down of its investment in YOOX Net A Porter.
Richemont announced a plan for CHF 2.50 dividend per Class A share and 10 Class B shares and an additional CHF 1.0 special dividend per class A shares and 10 Class B shares.
Nordex SE decreased 0.9% to €10.62 after the German wind turbine company reported a wider first quarter loss because of higher operating costs.
Revenue in the quarter increased to €1.2 billion compared to €933 million and operating loss expanded to €114.9 million from €88.9 million a year ago.
Nordex installed 276 wind turbines in 19 countries with an aggregate output of 1,319 MW in the first quarter compared to 197 wind turbines with an aggregate output of 867 MW installed in 12 countries in the previous year.
THG PLC plunged 9.7% to 67.32 pence after the e-commerce company ended its talks to go private with Apollo Global Management.
Luxury and Financial Stocks Lift European Indexes, French Inflation Accelerated
Bridgette Randall
12 May, 2023
Frankfurt
European markets traded higher on the final day of a volatile week.
Benchmark indexes hovered near record highs supported by advances in financial and luxury products makers.
Trading sentiment was also supported by optimism that the U.S. Federal Reserve would pause rate hike at its next meeting in June after consumer price and wholesale price indexes cooled in April.
Luxury products makers traded higher after Richemont SA reported record quarterly results on the back of a sharp rebound in China.
Insurance companies traded higher after strong quarter results lifted stocks of special insurance and property and casualty companies.
French Consumer Inflation Accelerated In April
In domestic economic news, French consumer prices accelerated in April to 5.9% from 5.7% in March.
The French statistical agency INSEE confirmed the preliminary estimate in a release Friday.
This increase in inflation resulted from an acceleration in prices of energy to 6.8% from 4.9% in March, services to 3.2% from 2.9% and tobacco to 9.4% from 7.8%.
On the other hand, the prices of manufactured goods slowed to 4.6% from 4.8% in March and food to 15.0% from +15.9% respectively.
On a monthly basis, price increase slowed to 0.6% in April from 0.9% rise in March.
Core inflation, which excludes food and energy, increased to 6.3% from 6.2% in March.
UK Economy Barely Expanded In First Quarter
The U.K. economy expanded for the second quarter in a row matching the growth rate in the previous quarter, the Office for National Statistics reported Friday.
GDP rose 0.1% in the first quarter from the fourth quarter of 2022, matching the rate in the previous quarter.
Construction sector led the growth with a rise of 0.7% followed by a 0.5% increase in manufacturing and 0.1% in the service sector.
Consumption remained weak after aggregate household spending was unchanged because elevated inflation squeezed income.
However, gross fixed capital formation increased 1.3% but public expenditure declined 2.5% and weak international trade after exports fell 8.1% and imports declined 7.2%.
Europe Indexes & Yields
The DAX index increased 0.5% or 87.02 points to 15,921.90, the CAC-40 index rose 0.9% or 65.08 points to 7,446.09 and the FTSE 100 index advanced 0.3% or 24.63 to 7,755.15.
The yield on 10-year German Bunds inched down to 2.24%, French bonds traded slightly lower to 2.82%, the UK gilts inched lower to 3.74% and Italian bonds decreased to 4.13%.
The euro edged higher to $1.091, the British pound to $1.253 and the Swiss franc to 89.28 cents.
Brent crude increased 26 cents to $75.23 a barrel and the Dutch TTF natural gas increased €0.74 to €34.25 per MWh.
Europe Stock Movers
Allianz SE increased 0.1% to €211.90 after the German insurance company reiterated its full-year 2023 outlook and reported a rise in first quarter net income.
Societe Generale SA increased 1.3% to €22.13 after the French bank reported a decline in French retail banking business but international business advanced at a faster pace.
SCOR SE jumped 9.6% to €25.79 after the French property and casualty reinsurance company reported better-than-expected earnings.
Beazley PLC advanced 4.7% to 614.0 pence after the specialist insurance company reported high gross written premium in the March quarter.
Richemont SA gained 5% to CHF 156.95 after the Swiss luxury watch company reported record annual earnings from continuing operations after sales rose in all regions of the world.
Nordex SE decreased 0.9% to €10.62 after the German wind turbine company reported a wider first quarter loss because of higher operating costs.
THG PLC plunged 9.7% to 67.32 pence after the e-commerce company ended its talks to go private with Apollo Global Management.
With inflation Worries Receding, Debt Ceiling Negotiations Take Center Stage
Barry Adams
11 May, 2023
New York City
Stocks lacked momentum as investors shifted focus from rate path and inflation worries to bank liquidity and debt ceiling negotiations.
Focus on Wall Street shifted after the second inflation report in as many days showed steady decline in inflation for the tenth month in a row.
Rate path worries receded after wholesale inflation dropped to the lowest level since January 2021 and consumer price inflation held steady near 5%.
Regional bank worries resurfaced after the Los Angeles-based PacWest reported outflow of deposits, following the closure of two California based banks, Silicon Valley Bank and First Republic Bank.
Regional banks are not out of the woods because elevated interest rates have led to large losses in Treasury securities held by financial institutions.
Moreover, partisan divide among lawmakers is holding up the debt ceiling revision negotiations.
For now, markets are hoping that a last minute agreement will avert what could become a crisis with a potential to shut down the federal government and dislocate financial markets beyond the United States.
G7 finance ministers and central bank governors kicked off their meeting in Niigata, Japan on Thursday but focus was on the ongoing discussion between U.S. leaders in finding a compromise in raising the debt ceiling.
U.S. Treasury Secretary Janet Yellen said at a press conference in Japan that the U.S. could run out of money on June 1 if the current debt ceiling of $31.4 trillion is not raised.
Default on financial obligation "would produce an economic and financial catastrophe" and added "there was no good reason to generate a crisis of our own making."
Producer Price Index Extended 10-month Decline In April
Producer price index in April increased 0.2% from the previous month, the U.S. Bureau of Labor Statistics reported Thursday.
The measure of wholesale inflation declined 0.4% in March and was unchanged in February.
The index for final demand goods increased 0.2% and for services rose 0.3% and contributed to an 80% increase in overall index.
Core index, which excludes food, energy and services, increased 0.2% in April after increasing 0.1% in March. On an annual basis the core index advanced 3.4%.
Over one third of the April advance in the index for final demand services can be traced to a 4.1% rise in prices for portfolio management and 8.4% advance in prices for gasoline was a major factor in the April increase in the index for final demand goods.
On an annual basis, the wholesale price inflation index declined for the tenth month in a row to 2.3% from the high of 11.2% in July.
U.S. Indexes & Yields
The S&P 500 index decreased 0.4% to 4,121.59 and the Nasdaq Composite was unchanged at 12,307.14.
The yield on 2-year Treasury notes hovered at 3.82%, 10-year Treasury notes edged up to 3.35% and 30-year Treasury bonds held at 3.74%.
Crude oil fell $1.63 to $70.91 a barrel and natural gas prices fell 1 cent to $2.18 a thermal unit.
U.S. Stock Movers
Walt Disney Company declined 8.8% to $92.29 after the theme park operator and media company reported a significant decline in streaming subscribers even as quarterly loss in the division improved.
Unity Software Inc rose 11.4% to $31.95 after the video game software developer lifted its revenue estimate for 2023.
PacWest Bancorp plunged 19.5% to $4.88 after the regional bank said deposits declined 9.5% for the week ended May 5.
In the first quarter, total interest income increased to $517.7 million from $322.9 million and the company swung to a net loss of $1.2 billion from a profit of $120.1 million and diluted earnings per share was ($10.22) from $1.01 a year ago.
Other regional banks declined on the news and Western Alliance and Zions Bancorp fell 3%.
Alphabet Inc Class A stock gained 5.0%to $117.0 after the company released AI tools at its annual conference for developers in Mountainview, California.
The parent of Google and YouTube also released a foldable phone with AI search tools that cost as much as $1,799.
European Markets Wavered, BoE Revised Higher Year-end Inflation Level
European markets attempted a rebound and investors digested inflation reports from two largest economies of the world and awaited resolution to U.S. debt ceiling negotiations.
The consumer price Inflation in the U.S. cooled for the tenth month in a row and China's consumer prices rose at the slowest pace in more than two years but wholesale inflation fell deeper in the deflation territory.
The falling energy prices and slower increase in food prices slowed the U.S. inflation in April, which may help the Federal Reserve in pausing interest rate hike at the next meeting.
The sharp decline in inflation in China was driven by weak consumer demand for manufactured goods after prices rose sharply in the corresponding moth last year.
China's service inflation was 1.0% because of a stronger rebound in demand for services after travel and leisure activities returned following the end of zero-Covid policy.
The weak inflation data highlighted slow and uneven recovery in China and most economists are estimating between three and five years before China's manufacturing and service activities return to pre-Covid levels.
China's Wholesale Price Deflation Deepened
China's consumer price inflation dropped to near zero and wholesale inflation extended decline for the seventh month in a row.
The consumer price index rose 0.1% from a year ago in April from a 0.7% rise in March, the National Bureau of Statistics reported Thursday.
A high base price in April last year played a key role in comparison, dragging the inflation near zero.
Prices advanced rapidly last year after the ending of zero-Covid policies but the surge in demand put additional pressure on domestic food supply chains.
Core CPI, which excludes volatile food and energy, was unchanged at 0.7%.
Services price index rose at the fastest pace in four months to 1% but the overall weakness indicated sluggish Post-Covid rebound.
In addition, the producer price index, a measure of wholesale inflation, declined at a faster pace of 3.6% in April from 2.5% in March.
Wholesale prices declined for the seventh month in a row, and most economists anticipate recovery to take between three and five years.
BoE Estimated Slower Inflation Decline, Rate Hiked to 4.5%
The Bank of England lifted its key lending rate by 25 basis points to 4.5% as the central bank battled double-digit inflation.
The Monetary Policy Committee voted 7-2 in favor of the rate hike as the central bank reiterated its commitment in fighting high inflation.
The latest rate increase is the 12th rate hike in a row since December 2021 as inflation remained near 10%.
In the accompanying economic update, the central bank said economic activities are expected to be less weak than previous forecasted in April and labor market is expected to remain tighter with jobless rate lower than 4% until the end of 2024.
The U.K. economy is expected to stall the first and second quarter and advance 0.25% in 2023 compared to a 0.5% contraction estimated in February.
The Bank of England estimated a slower inflation decline and revised its estimate of inflation by the end of the year to 5.1% from the previous estimate of 3.9%, and drop further to its target rate of 2% in late 2024.
Europe Indexes & Yields
The DAX index decreased 0.4% or 61.32 points to 15,834.10, the CAC-40 index rose 0.3% or 20.58 points to 7,381.78 and the FTSE 100 index fell 0.14% or 10.75 to 7,730.58.
The yield on 10-year German Bunds inched down to 2.25%, French bonds traded slightly lower to 2.83%, the UK gilts inched lower to 3.75% and Italian bonds decreased to 4.17%.
The euro edged higher to $1.093, the British pound to $1.257 and the Swiss franc to 89.41 cents.
Brent crude fell $1.49 to $74.91 a barrel and the Dutch TTF natural gas increased €0.04 to €34.99 per MWh.
Europe Stock Movers
Energy and mining companies declined after China reported near zero inflation confirming uneven recovery and weak demand for manufactured goods.
Wholesale deflation deepened for the seventh month in a row in April and consumer prices rose 0.1% in the month.
Anglo American, Glencore and Antofagasta declined between 2% and 3% and BP Plc and Shell Plc dropped between 1% and 2%.
Vodafone Group Plc decreased 1.5% to 91.34 pence and the company announced an expanded partnership with Emirates Telecommunications.
Deutsche Telekom AG increased 1.2% to €21.51 after the German telecom group slightly lifted its 2023 profit estimate.
Bayer AG decreased 6.8% to €54.31 after the German drug pesticide maker estimated 2023 earnings to be near the low end of its estimate.
ThyseenKrupp AG declined 2.2% to €6.52 after the German steel maker swung to a loss in its latest quarter and reported a decline in orders.
Engie SA increased 1.1% to €14.84 after the French utility company reported a rise in first quarter net income.
Rolls Royce Holdings decreased 5.5% to 147.78 pence after the aerospace company and defense contractor said it is on track to meet its annual target.
The struggling aerospace company is in the middle of a restructuring and the new chief executive Tufan Erginbilgic has implemented deep cost cuts as a part of his turnaround plan.
Telefonica SA declined 3.5% to €3.89 after the Spanish telecom company reported a 58% decrease in first quarter income on higher debt servicing expenses.
PacWest Struggles Steady Deposit Outflows Since SVB and First Republic Failure
Scott Peters
11 May, 2023
New York City
PacWest Bancorp plunged 19.5% to $4.88 after the regional bank said deposits declined 9.5% for the week ended May 5.
In the first quarter, total interest income increased to $517.7 million from $322.9 million and the company swung to a net loss of $1.2 billion from a profit of $120.1 million and diluted earnings per share was ($10.22) from $1.01 a year ago.
The goodwill impairment charge of $1.38 billion led to a net loss of $1.2 billion in the quarter.
The goodwill charge is a non-cash charge and has no impact on the bank's regulatory capital ratios, cash flows, or liquidity position.
Deposit Outflow Accelerated After SVB and First Republic Bank Closures
The company suffered deposit outflow after the closure and sale of Silicon Valley Bank on March 10.
Total deposits decreased by $5.7 billion or 16.9% in the first quarter and most of the decrease in deposits was from uninsured deposits, which resulted in the percentage of insured deposits to total deposits to increase from 48% at December 31, 2022 to 71% of total deposits at March 31, 2023.
Following the closure and sale of First Republic Bank on May 1, during the week ended May 5, 2023, deposits declined approximately 9.5%, with a majority of that decline occurring on May 4th and May 5th after the news reports on the afternoon of May 3rd when the company was the focus of financial news across the nation.
Total Assets In First Quarter Increased
At the end of the first quarter, the company had total assets of $44.3 billion, including $28.5 billion of total loans and leases, net of deferred fees, $4.8 billion of securities available-for-sale, $2.3 billion of securities held-to-maturity, and $6.5 billion of interest-earning deposits in financial institutions.
At the end of fourth quarter 2022, the company had a total assets of $41.2 billion, including $28.7 billion of total loans and leases, net of deferred fees, $4.8 billion of securities available-for-sale, $2.3 billion securities held-to-maturity, and $2.0 billion of interest-earning deposits in financial institutions.
Total Liabilities Increased On Persistent Deposit Outflow In First Quarter
At the end of the first quarter, the company had total liabilities of $41.5 billion, including total deposits of $28.2 billion and borrowings of $11.9 billion, compared to $37.3 billion of total liabilities at December 31, 2022, including $33.9 billion of total deposits and $1.8 billion borrowings.
The $4.3 billion increase in total liabilities since year-end was due mainly to an increase of $10.1 billion in borrowings, partially offset by a $5.7 billion decrease in deposits.
Net Loss Dragged Equity Lower In First Quarter
At the end of the first quarter, the company had total stockholders' equity of $2.8 billion compared to $4.0 billion at the end of 2022.
The $1.2 billion decrease in stockholders' equity since year-end was due mainly to the net loss of $1.2 billion.
Consolidated common equity Tier 1 (CET1), Tier 1 capital and Total capital ratios increased to 9.21%, 11.15%, and 14.21% at March 31, 2023 due primarily to positive adjusted earnings combined with a decrease in risk-weighted assets.
PacWest funded this decline in deposits with available on-balance sheet liquidity.
As of May 10, 2023, immediately-available liquidity (on-balance sheet liquidity and unused borrowing capacity) was $15.0 billion, which exceeded uninsured deposits of $5.2 billion, representing a coverage ratio of 288%, the bank said in a regulatory filing with the SEC.