Market Update
Impact of Strong Dollar and Rising Rates on Earnings In Focus Ahead of Results
Barry Adams
06 Feb, 2023
New York City
U.S. stocks struggled to advance in the face of rising Treasury yields for the second day in a row.
Stocks faced headwinds for the second trading day in a row after bond yields rose 12 basis points after rate worries resurfaced following an unexpected surge in the non-farm payrolls in January.
The U.S. dollar index advanced against a basket of major currencies and rose above 105 and traded near the level seen in early January.
Markets are also awaiting earnings from about 500 companies this week including quarterly results from Chipotle, PepsiCo, Uber and Walt Disney.
Investors are looking to get insights in how companies are navigating a strong dollar, rising input costs and managing labor costs ahead of the possible economic slowdown.
Dell Inc was the latest tech company to announce a layoff and the maker of computers said it plans to lay off about 5% of its staff.
The maker of personal computers is struggling with a sharp fall in PCs and laptops but server sales are holding up better-than previously anticipated.
U.S Indexes In Review
The S&P 500 index fell 0.6% to 4,111.08 and the Nasdaq Composite index declined 1.0% to 11,887.45.
Crude oil gained $1.12 to $74.15 a barrel and natural gas rose 7 cents to $2.48 a thermal unit.
The yield on 2-year Treasury notes inched up to 4.47%, 10-year treasury notes edged higher to 3.67% and 30-year Treasury notes traded up to 3.68%.
U.S. Stock Movers
Dell Technologies Inc declined 3% to $40.99 after the maker of personal computers announced a plan to lay off about 5% its staff.
The company expects to recognize expenses associated with these actions in the fourth fiscal quarter of fiscal 2023, according to a regulatory filing with the Securities and Exchange Commission.
"The steps we’ve taken to stay ahead of downturn impacts – which enabled several strong quarters in a row – are no longer enough. We now have to make additional decisions to prepare for the road ahead," Vice Chairman and Co-chief Operating Officer Jeff Clarke said.
"Unfortunately, with changes like this, some members of our team will be leaving the company," Clarke added.
Energizer Holdings dropped 5.3% to $35.29 after the battery maker reported weaker-than-anticipated quarterly results.
Sales in the fourth quarter or the fiscal first quarter ending in December decreased 9.6% to $765.1 million from $846.3 million a year ago.
Net income dropped to $49 million from $60 million and diluted earnings per share decreased to 68 cents from 83 cents a year ago.
The company reiterated its fiscal 2023 outlook, , with organic revenue expected to increase low single digits, adjusted EBITDA in the range of $585 million to $615 million, and adjusted earnings per share in the range of $3.00 to $3.30.
"We still expect low single digit declines for reported revenues with currency headwinds of approximately $50 million and anticipate negative currency headwinds on pre-tax earnings of approximately $20 million and $0.23 per share, based on current rates," the company said in the earnings release.
ON Semiconductor Corp declined 0.6% to $80.39 after the company said revenue in the fourth quarter increased 14% to record $2.1 billion.
Net income in the period rose to $604.3 million from $425.9 million and diluted earnings per share increased to $1.35 from 96 cents a year ago.
The company also announced a new share repurchase program with authorization to repurchase up to $3 billion of shares of the company's common stock through December 31, 2025.
Euro Area Retail Sales Fell In December
The seasonally adjusted retail sales volume in the Euro Area decreased 2.7% in December after rising 1.2% in November, according to an estimate from Eurostat, the statistical office of the European Union.
The retail sales declined 2.8% on an annual basis in December from a year ago.
For all of 2022, retail sales in the Euro Area barely increased 0.7% and rose 1.1% in the European Union.
German Factory Orders and Sales In Focus
Separately, the Destatis or the Federal Statistics Office of Germany said seasonally and price adjusted factory orders rose 3.2% on a monthly basis in December after falling 4.2% in November.
December orders declined 0.6%, excluding large orders for electric utilities and aircraft and internal combustion engines.
On a yearly basis, December orders declined 10.1% in December.
German factory orders adjusted on a calendar basis in December are slightly ahead of pre-pandemic level by 1.2% from December 2019.
However, sales of manufacturing companies fell 1.7% in December from November and rose 1.9% from a year ago.
European Indexes Trend Lower
European market indexes traded lower after stronger-than-expected U.S. jobs data for December dashed hopes that the U.S. Federal Reserve may pause its rate tightening cycle soon.
The DAX index decreased 0.9% to 15,335.39, the CAC-40 index declined 1.5% and the FTSE 100 index dropped 0.9% to 7,825.82.
The yield on 10-year German Bunds inched up to 2.28%, French bonds increased to 2.73%, UK Gilts to 3.26% and Italian bonds to 4.14%.
Brent crude oil fell 4 cents to $79.89 and the Dutch TTF Spot price inched lower 71 euro cents to Є57.18 per MWh.
The euro declined to $1.07, the British pound edged lower to $1.205 and the Swiss franc eased to 92.75 U.S. cents.
Europe Movers
Aurubis AG declined 4.8% to €96.44 after the German copper smelter reported a sharp fall in earnings.
Revenue in the fiscal first quarter ending in December 2022 declined 7% to Є4.1 billion.
Net income dropped to Є57 million from Є301 million and diluted earnings per share plunged to Є1.31 from Є6.89 a year ago.
Higher energy and other input costs negatively impacted quarterly results.
Diageo Plc declined 0.2% to 3,572.15 pence after the British spirits maker launched a partial offer to increase its stake to 65% from the current stake of 50% in East African Breweries Plc.
The tender offer price is Kenyan Shillings 192.00 per ordinary share and the maximum number of shares subject to the tender offer is 118,394,897.
The tender offer period will run from 6 February 2023 to 17 March 2023, Diageo said in a statement released today.
Weaker Yen Drags Tokyo Stocks
Asian markets also cooled in overnight trading following the Friday's release of U.S. jobs report.
The yen fell 1% after the U.S. dollar advanced in the region's trading on the hopes of a continuation of the tightening cycle by the Federal Reserve after the jobs report signaled tighter-than-expected labor market conditions.
The Nikkei 225 average increased 0.7% to 27,693.65 and the yen weakened to 132.78 against the U.S. dollar.
Rising U.S.-China Tensions Knock China Stocks Lower
Markets in Mainland China and Hong Kong were under pressure after tensions between the U.S. and China rose after the U.S. shot down a Chinese spy-balloon off the coast of North Carolina.
Secretary of State Antony Blinken also canceled his visit to Beijing after the Pentagon's discovery of the alleged spy-balloon.
Chinese authorities said that China came to know that one of its "weather monitoring balloons" had drifted in the U.S. airspace only after it was informed by the United States.
“China is a responsible country. After the United States notified China, we immediately checked and gave feedback, and clearly requested the United States to act calmly, professionally, and handle it in a restrained manner,” China's foreign ministry spokeswoman Mao Ning said.
The Shanghai Composite index decreased 0.7% to 3,238.70 and the Hang Seng index fell 2% to 21,222.16.
Weaker Rupee and Adani Group Worries Overshadow India Stocks
Stocks in Mumbai traded lower after the U.S. dollar rose and U.S.-China tensions rose and Adani Group stocks fell for the third week in a row despite supportive comments from the government and business leaders.
The Sensex index decreased 0.5% 334.98 points to 60,506.90 and the Nifty index dropped 0.5% or 89.45 points to 17,764.60.
Movers: Align Tech, Catalent, Children's Place, Dell, Energizer, ON Semi, T Mobile, Tyson, Under Armour
Scott Peters
06 Feb, 2023
New York City
Align Technology, Inc declined 0.2% to $342.58 after the maker of digital scanners and restorative dental accessories announced $250 million accelerated stock repurchase agreement with Citibank N.A.
The latest plan its a part of its $1.0 billion stock repurchase plan announced on May 13, 2021.
Catelent Inc soared 19.5% to $67.0 after Danaher showed an interest in acquiring the pharmaceutical contract manufacturing company, according to Bloomberg News.
Children's Place Inc declined 3.9% to $44.84 after the apparel retailer announced a loss in the fourth quarter based on the preliminary assessment.
Fourth quarter revenue is expected to fall between $454 million and $456 million, a decline between 10.2% and 10.6% from the previous year.
Loss per share for the fourth quarter of 2022 is expected to be in the range of $4.24 to $4.63 and adjusted loss per share is expected to be in the range of $4.02 to $4.41 after excluding approximately $3.6 million of adjustments.
The company previously guided adjusted earnings per diluted share of $0.50 to $0.75.
Dell Technologies Inc declined 3% to $40.99 after the maker of personal computers announced a plan to lay off about 5% its staff.
The company expects to recognize expenses associated with these actions in the fourth fiscal quarter of fiscal 2023, according to a regulatory filing with the Securities and Exchange Commission.
"The steps we’ve taken to stay ahead of downturn impacts – which enabled several strong quarters in a row – are no longer enough. We now have to make additional decisions to prepare for the road ahead," Vice Chairman and Co-chief Operating Officer Jeff Clarke said.
"Unfortunately, with changes like this, some members of our team will be leaving the company," Clarke added.
Energizer Holdings dropped 5.3% to $35.29 after the battery maker reported weaker-than-anticipated quarterly results.
Sales in the fourth quarter or the fiscal first quarter ending in December decreased 9.6% to $765.1 million from $846.3 million a year ago.
Net income dropped to $49 million from $60 million and diluted earnings per share decreased to 68 cents from 83 cents a year ago.
The company reiterated its fiscal 2023 outlook, , with organic revenue expected to increase low single digits, adjusted EBITDA in the range of $585 million to $615 million, and adjusted earnings per share in the range of $3.00 to $3.30.
"We still expect low single digit declines for reported revenues with currency headwinds of approximately $50 million and anticipate negative currency headwinds on pre-tax earnings of approximately $20 million and $0.23 per share, based on current rates," the company said in the earnings release.
ON Semiconductor Corp declined 0.6% to $80.39 after the company said revenue in the fourth quarter increased 14% to record $2.1 billion.
Net income in the period rose to $604.3 million from $425.9 million and diluted earnings per share increased to $1.35 from 96 cents a year ago.
The company also announced a new share repurchase program with authorization to repurchase up to $3 billion of shares of the company's common stock through December 31, 2025.
PayPal Holdings Inc declined 3.7% to $82.36 after Raymond James lowered its rating on the payment processor's stock to "market perform" from "outperform."
Paypal is scheduled to release its latest quarterly earnings later in the week and in November the company reported third quarter revenue increased 11% to $6.85 billion and net income per share rose about 25% to $1.13 from 92 cents a year ago.
T. Mobile US Inc declined 2.2% to $141.97 after the independent research boutique MoffettNathanson downgraded the company's stock to "market perform" from "outperform."
Tyson Foods, Inc declined 5% to $60.77 after the company reported weaker-than-expected quarterly results.
Revenue in the fiscal first quarter increased 2.5% to $13.2 billion.
Net income plunged to $320 million from $1.1 billion and diluted earnings per share fell to 88 cents from $3.07 a year ago.
The company also guided fiscal 2023 revenue in the range of $55 billion and $57 billion and capital expenditure of $2.5 billion.
The company repurchased 4.9 million shares for $313 million the quarter ending in December.
Under Armour Inc declined 3.7% to $12.18 despite positive comments from Baird on the sports apparel retailer's business.
Baird said in a note to clients that the sales are likely to recover towards the year's end on the prospects of the economy avoiding a deep recession.
Under Armour stock has jumped 20.5% in the year so-far.
Europe Movers: Aurubis, Banco BPM, Banca Monte, Diageo, EABL, Novartis, Rovio
Bridgette Randall
06 Feb, 2023
Frankfurt
Aurubis AG declined 4.8% to €96.44 after the German copper smelter reported a sharp fall in earnings.
Revenue in the fiscal first quarter ending in December 2022 declined 7% to Є4.1 billion.
Net income dropped to Є57 million from Є301 million and diluted earnings per share plunged to Є1.31 from Є6.89 a year ago.
Higher energy and other input costs negatively impacted quarterly results.
Banco BPM SpA increased 2.7% to €4.22 after the Italian bank's chief executive Guiseppe Castagna said that the bank is not interested in acquiring the rival Banca Monte dei Paschi di Siena.
Banca Monte dei Paschi di Siena SpA declined 4.7% to €2.37.
Diageo Plc declined 0.2% to 3,572.15 pence after the British spirits maker launched a partial offer to increase its stake to 65% from the current stake of 50% in East African Breweries Plc.
The tender offer price is Kenyan Shillings 192.00 per ordinary share and the maximum number of shares subject to the tender offer is 118,394,897.
The tender offer period will run from 6 February 2023 to 17 March 2023, Diageo said in a statement released today.
Rovio Entertainment Oyj rose 14.5% to €8.74 after the popular Angry Birds mobile game maker headquartered in Finland said it has launched a strategic review and preliminary non-binding talks with potential suitors.
Novartis AG declined 0.5% to 79.15 Swiss francs and the Swiss pharmaceutical drug maker's unit Sandoz said it has won an approval from the U.S. drug regulator FDA has accepted its Biologics License Application for proposed biosimilar denosumab.
“In addition to being an important medicine for cancer of the bone, denosumab is critical in the treatment of osteoporosis and potential prevention of osteoporosis-related fractures that so many women over 50 are at risk of,” said Keren Haruvi, President, Sandoz Inc. and Head of North America.
Euro and European Bond Yields Drop to One-month Lows
Bridgette Randall
06 Feb, 2023
Frankfurt
European markets closed down after the U.S. dollar rebounded to a one-month high and the dollar index advanced.
The rising U.S.-China tensions also hovered the trading session after the U.S. shot down the alleged spy balloon from China.
The Euro Area retail sales declined in December after rising in November and barely increased in full-year 2022.
German factory orders fell in December after excluding major orders and sales dropped in December after domestic and foreign orders eased.
European markets accelerated the decline towards the close after traders reassessed the U.S. Fed's policy and the aggressive rate hike policy in the Euro Area.
Euro Area Retail Sales in December Declined
The seasonally adjusted retail sales volume in the Euro Area decreased 2.7% in December after rising 1.2% in November, according to an estimate from Eurostat, the statistical office of the European Union.
The retail sales declined 2.8% on an annual basis in December from a year ago.
For all of 2022, retail sales in the Euro Area barely increased 0.7% and rose 1.1% in the European Union.
German Factory Orders and Sales In Focus
Separately, the Destatis or the Federal Statistics Office of Germany said seasonally and price adjusted factory orders rose 3.2% on a monthly basis in December after falling 4.2% in November.
December orders declined 0.6%, excluding large orders for electric utilities and aircraft and internal combustion engines.
On a yearly basis, December orders declined 10.1% in December.
German factory orders adjusted on a calendar basis in December are slightly ahead of pre-pandemic level by 1.2% from December 2019.
However, sales of manufacturing companies fell 1.7% in December from November and rose 1.9% from a year ago.
European Indexes Trend Lower
European market indexes traded lower after stronger-than-expected U.S. jobs data for December dashed hopes that the U.S. Federal Reserve may pause its rate tightening cycle soon.
The DAX index decreased 0.9% to 15,335.39, the CAC-40 index declined 1.5% and the FTSE 100 index dropped 0.9% to 7,825.82.
The yield on 10-year German Bunds inched up to 2.28%, French bonds increased to 2.73%, UK Gilts to 3.26% and Italian bonds to 4.14%.
Brent crude oil fell 4 cents to $79.89 and the Dutch TTF Spot price inched lower 71 euro cents to Є57.18 per MWh.
The euro declined to $1.07, the British pound edged lower to $1.205 and the Swiss franc eased to 92.75 U.S. cents.
Europe Movers
Aurubis AG declined 4.8% to €96.44 after the German copper smelter reported a sharp fall in earnings.
Revenue in the fiscal first quarter ending in December 2022 declined 7% to Є4.1 billion.
Net income dropped to Є57 million from Є301 million and diluted earnings per share plunged to Є1.31 from Є6.89 a year ago.
Higher energy and other input costs negatively impacted quarterly results.
Banco BPM SpA increased 2.7% to €4.22 after the Italian bank's chief executive Guiseppe Castagna said that the bank is not interested in acquiring the rival Banca Monte dei Paschi di Siena.
Banca Monte dei Paschi di Siena SpA declined 4.7% to €2.37.
Diageo Plc declined 0.2% to 3,572.15 pence after the British spirits maker launched a partial offer to increase its stake to 65% from the current stake of 50% in East African Breweries Plc.
Rovio Entertainment Oyj rose 14.5% to €8.74 after the popular Angry Birds mobile game maker headquartered in Finland said it has launched a strategic review and preliminary non-binding talks with potential suitors.
Novartis AG declined 0.5% to 79.15 Swiss francs and the Swiss pharmaceutical drug maker's unit Sandoz said it has won an approval from the U.S. drug regulator FDA has accepted its Biologics License Application for proposed biosimilar denosumab.
“In addition to being an important medicine for cancer of the bone, denosumab is critical in the treatment of osteoporosis and potential prevention of osteoporosis-related fractures that so many women over 50 are at risk of,” said Keren Haruvi, President, Sandoz Inc. and Head of North America.