Indexes Sink Deeper After a Wild Week, Bond Yields Rise Above 4%

Barry Adams
14 Oct, 2022
New York City

Stocks on Wall Street struggled a day after posting a sharp advance as investors digested the implication of a slight decline in consumer price inflation. 

In Thursday's trading, the latest inflation reports sparked two diverging reactions from stock and bond markets. 

Stock investors hoped that the slight cooling of consumer inflation may be followed by weaker inflation data in the months ahead while bond investors focused on the elevated inflation rate above 8% and surmised that the Fed will continue its aggressive rate hike campaign. 

In Friday's trading, stocks accelerated declines after retail sales in September were flat from August, U.S. Census Bureau reported Friday.  

Retail sales in the month were unchanged from the previous month, below the expectations of at least 0.2% rise, as retail sales for motor vehicles and parts, building materials and electronics and gasoline stores fell. 

Groceries stores sales were up, only supported by a rise in prices. 

The retail sales data are not adjusted for inflation, indicating that consumer spending declined across most categories of goods. 

The yield on Treasuries extended gains to new 14-year highs while major stock averages erased most of Thursday's gains and sank deeper in the year so far. 

The S&P 500 index fell 2.4% to 3,583.08 and the Nasdaq Composite index dropped 3.08% to 10,321.39.

For the week, the S&P 500 declined 1.5% and the Nasdaq Composite index dropped 3.1%.  

Crude oil fell $3.35 to $85.72 a barrel and natural gas dropped 28 cents to $6.45 a thermal unit. 

The yield on 2-year Treasury notes inched higher to 4.50%, 10-year Treasury notes to 4.02% and 30-year bonds to 3.99%. 

 

U.S. Stock Movers 

Albertsons Companies declined 7.4% to $26.50 on news that the company has agreed to be acquired by Kroger for $24.6 billion or $34.10 a share. 

Albertsons owns and operates 2,200 stores in 34 states and Washington D.C. with 290,000 employees. 

Albertsons store network spans 22 brands including Acme, Safeway and Tom Thumb.  

Kroger Co declined 7.7% to $43.99. 

Kroger owns and operates 2,800 stores in 35 states with 420,000 employees. 

Kroger operates a portfolio of 25 store brands including West Coast-based Ralphs and Fred Meyer.   

The acquisition is most likely to draw antitrust scrutiny from regulators as Kroger looks to expand its network and strengthen its position in a market dominated by Walmart and Amazon.  

Beyond Meat Inc dropped 7.8% to $13.64 after the company said it plans to reduce its workforce by 200 employees or 19% of its workforce and take one-time charge of $4 million in the fourth quarter of 2022. 

 The company also guided its third quarter sales to decline 23% to $82 million and fourth quarter sales are estimated to fall between $400 million and $425 million, a decrease between 9% and 14%. 

The food company had previously guided full-year 2022 net revenues in the range of $470 million to $520 million.

Citigroup Inc added 0.8% to $43.30 after the global bank said revenues rose in rising interest rates but earnings fell 25% on weak investment banking revenues and the company increased credit loss provisions. 

Revenues increased 6% to $18.5 billion from $17.4 billion a year ago, primarily on the gain in sale of its consumer business in the Philippines.

Without the transaction, revenue declined 1%  as higher interest income was more than offset by non-interest income decline. 

Net income fell 25% to $3.5 billion from $4.6 billion and earnings per share declined to $1.63 from $2.15 a year ago.  

JPMorgan Chase & Co increased 2.4% to $111.79 after the company said net revenue in the third quarter rose 10% to $32.7 billion. 

Net income plunged 17% to $9.7 billion from $11.7 billion and diluted earnings per share dropped to $3.12 from $3.74 a year ago. 

Net income declined as the bank took credit loss provisions ahead of the expected economic slowdown. 

Net income decline was driven by a net credit reserve build of $808 million compared to a net reserve release of $2.1 billion in the prior year. 

The current quarter included net investment securities losses of $959 million resulting in a decrease of $729 million in after-tax net income. 

Morgan Stanley fell 5.3% to $75.08 after the investment bank reported third quarter revenues declined to $13 billion from $14.8 billion a year ago. 

Net income in the period fell to $2.6 billion from $3.7 billion and diluted earnings per share dropped to $1.47 from $1.98 a year ago. 

Investment banking revenues in the quarter plunged 55% to $1.27 billion from $2.85 billion a year ago. 

Fee-based asset inflow in its wealth management unit declined to $16.7 billion from $70.6 billion and fee-based client assets declined to $1.3 trillion from $1.75 trillion a year ago. 

 

European Markets Log Weekly Advance, Hungary Hikes Rates to 25% 

European indexes trimmed morning gains following the market weakness in New York.

The elevated U.S. inflation report on Thursday sparked a rally in New York and Europe but stocks turned lower after the U.S. consumer spending was flat in September. 

Retail sales in the month were unchanged from the previous month, below the expectations of at least 0.2% rise, as retail sales for motor vehicles and parts, building materials and electronics and gasoline stores fell. 

Groceries stores sales were up, only supported by a rise in prices. 

The retail sales data are not adjusted for inflation, indicating that consumer spending declined across most categories of goods. 

The FTSE index increased 0.6% to 6,893.77, the DAX index jumped 0.7% to 12,437.81 and CAC-40 index advanced 0.90% to 5,931.93.

For the week, the FTSE 100 index decreased 1.9%, the DAX gained 1.3% and the CAC-40 index added 1.0%. 

 

UK Pound Weakens On Government U Turn and Minister Change 

UK Prime Minister Liz Truss fired finance minister Kwasi Kwarteng and reversed corporate tax cuts announced in the mini-budget last month.

Truss doubled down on her growth policies but said corporate tax cut will remain at 29% and reversed the earlier proposal to lower it to 19%.

The U-turn on the unfunded tax reduction proposal is expected to calm volatile Gilt market but questions remain how the government will fund its energy subsidies to households and other measures that are expected to cost the treasury 45 billion pounds. 

Truss announced the appointment of Jeremy Hunt replacing finance minister Kwasi Kwarteng only after five weeks in office. 

The Bank of England is set to end its long-term bond purchase program today, an emergency measure in support of the orderly functioning of the bond market and provide a rare rebalancing opportunity to pension fund managers.

The euro fell 0.5% to 97.24 U.S. cents and the British pound dropped 1% to $1.118.

The yield on 10-year UK bonds increased to 4.21%, German bunds rose to 2.308%, French bonds to 2.908% and Italian bonds to 4.74%.

 

Big Rate Hike in Hungary 

The Hungarian Forint advanced more than 2% and traded near 429 against the dollar after the National Bank of Hungary lifted its overnight collateral lending rate by 950 basis points to 25% in an emergency meeting on Friday.

The central bank lifted rates by a large amount in support of the falling forint and said that the bank will provide foreign currency for energy imports from its reserves.

Hungary, like many countries in Europe, is battling sky-high energy price driven inflation. Consumer price inflation in September surged above 20.0% for the first time since 1996.

The NBH has lifted rates at every policy meeting since June to combat high inflation above its target range between 2% and 4%. 

 

Europe Stock Movers 

TomTom NV dropped 11.7% to