Investors On Fence After Consumer Spending and Inflation Eased

Barry Adams
27 Jan, 2023
New York City

U.S. stocks traded higher in volatile fashion as investors reviewed earnings in the oil, financial services and tech sectors. 

Benchmark indexes traded higher and market participants factored smaller rate hikes after the meeting of policymakers next week. 

American Express soared following the positive 2023 outlook and chip stocks advanced despite Intel reporting weak results. 

Market advance was concentrated in a narrow list of large cap stocks and trading activity in small and mid cap stocks was weak.  

Investors turned cautions after December personal spending declined but the key measure of core inflation stayed elevated, highlighting tough road for the policymakers in controlling elevated inflation. 

The core PCE index cooled for the third month in a row to 4.4% but stayed ahead of the Fed's target of 2%, despite seven rate hikes in 2022. 

The decline in inflation gauge was welcomed by investors but consumer spending declined in December, the key driver of the U.S. economy. 

 

Consumer Inflation Cools but Stay Elevated

U.S. personal spending decreased 0.2% in December and personal income rose 0.2% from the previous month, the Bureau of Economic Analysis reported Friday. 

Personal income increased $49.5 billion or 0.2% in December and disposable personal income increased $49.2 billion or 0.3% and personal consumption expenditures or PCE decreased $41.6 billion or 0.2%.

Personal consumption declined for the second month in a row. 

Price consumption index, a measure of inflation faced by consumers, rose 5.0% and the core index increased 4.4% from a year ago.

 

Pending Homes Sales Unexpectedly Rebounded

Pending home sales in December rose unexpectedly in December, the National Association of Realtors said. 

U.S. pending home sales rose 2.5% in December from the previous month after falling 2.6% in November. Sales plunged 33.8% from a year ago.  

Sales in the South increased 6.1% and rose 6.4% in the West but declined 6.5% in the Northeast and eased 0.3% in the Midwest. 

Home sales have been slowing tracking the rise in mortgage rates after the Federal Reserve lifted rates seven times in 2022. 

 

U.S. Indexes In Review 

The S&P 500 index increased 0.2% to 4,068.11 and the Nasdaq Composite index advanced 0.5% to 11,581.43.  

Crude oil fell 92 cents to $80.10 a barrel and natural gas futures was nearly unchanged at $2.84 a thermal unit. 

The yield on 2-year Treasury notes increased to 4.21%, 10-year Treasury notes rose to 3.52% and 30-year Treasury bonds inched higher to 3.63%. 

 

U.S. Stock Movers

American Express soared 12.4% to $175.15 after the financial service company's earnings were ahead of expectations and the company issued an upbeat guidance. 

Fourth quarter total revenue net of interest rates increased 17% to $14.2 billion and net income declined to $1.6 billion from $1.7 billion a year ago. 

Diluted earnings per share fell to $2.07 from $2.18 in the previous year. 

American Express said 2023 revenues are expected to rise between 15% and 17% and earnings per share in the range between $11.0 and $11.40. 

Intel Corporation dropped 10% to $30.09 after the chipmaker reported a sharp fall in revenues and a loss and demand in the PC market is likely to persist in the current quarter.  

Intel said fourth quarter revenue plunged 32% to $14.0 billion and swung to a net loss of $0.7 billion from a profit of $4.6 billion. 

Diluted EPS was a loss of 16 cents compared to $1.13 a year ago.

Mastercard Inc edged slightly lower to $376.91 and the payment processor said cross border volume soared on the back of resilient consumer spending. 

Mastercard said in local currencies cross border volume soared 31% and gross dollar volume increased 8% and repurchased 7.4 million shares at a cost of $2.4 billion and paid $473 million in dividends.

Mastercard said fourth quarter revenue increased 12% to $5.8 billion and net income rose 6% to $2.5 billion and diluted earnings per share increased to $2.62 from $2.41 a year ago.

Visa Inc increased 2.2% to $229.65 after the payment processor said resilient consumer spending in the face of higher prices drove the increase in quarterly transactions. 

Visa Inc said revenue in the December quarter increased 12% to $7.9 billion and net income rose 6% to $4.2 billion and diluted earnings per share jumped to $1.99 from $1.84 a year ago.

 

European Indexes Cautions Ahead of Rate Decisions

European markets advanced in cautious trading ahead of rate decisions from three central banks in the world. 

The European Central Bank and Bank of England are expected to announce rate decisions on Thursday following the rate decisions from the U.S. Federal Reserve on Wednesday. 

The DAX index increased 13.01 points to 15,145.86, the CAC-40 index fell 11.68 points to 7,084.31 and the FTSE 100 index rose 4.04 points to 7,765.15. 

For the week, the DAX increased 0.9%, the CAC-40 rose 1.5% but the FTSE 100 index was fractionally lower. 

LVMH gained after the luxury products maker reported a 9% rise in sales in the fourth quarter and fashion retailer H&M's operating profit misses expectations set by some investors. 

The euro inched down to $1.08, the British pound edged lower to $1.238 and the Swiss franc weakened to 92.06 U.S. cents. 

Brent crude oil edged 64 cents to $86.84 a barrel and the Dutch TTF natural gas futures increased 2.4% to €56.16 per MWh. 

The yield on 10-year German Bunds rose to 2.24%, French bonds increased to 2.70%, UK gilts to 3.33% and Italian bonds to 4.22%. 

 

Shippers and Exports Advance In Tokyo 

Asian markets traded higher following the strong-than-expected fourth quarter U.S. GDP data on Thursday.  

Market sentiment was boosted after the largest economy in the world expanded at 2.9% annual pace in the fourth quarter and increased 2.1% in full-year 2022. 

Shin Etsu Chemical soared 4%, Yaskawa Electric increased 3% and Rakuten Inc increased 2%. 

The Nikkei index increased 19.81 points to 27,382.56 and the yen firmed to 129.91 against the U.S. dollar. 

Shipping companies and exporters were among the leading gainers. 

Nippon Yusen KK Mitsui OSK Lines and Kawasaki Kisen Kaisha increased 3%. 

Panasonic Corp, Fuji Electric, Sony Group and Olympus Corp increased between 1.7% and 3%. 

Mainland China markets were closed on Friday and markets are set to reopen on Monday. 

The Hang Seng index in Hong Kong increased 0.5% to 22,688.90 following the US GDP data report. 

 

India Awaits Union Budget 

Benchmark indexes in Mumbai declined after Adani Group stocks dropped more than 5% for the second day following the negative report released by the U.S.-based short seller Hindenburg Research.

Investors generally ignored the allegations of fraud and tight relationship with government-controlled banks and offshore accounts, which have been widely covered by local media in the past.  

Adani Enterprises is set to complete its $2.5 billion secondary offering in the next two weeks. 

State Bank of India, IndusInd Bank and ICICI Bank declined between 3% and 5% on the worries of debt exposure to Adani Group.  

Investors also looked ahead to the Union Budget and hoped that the government would provide additional incentives for manufacturing companies and increase a minimum threshold for personal income tax.  

The Sensex index dropped 1.5% or 874.16 points to 59,330.90 and the Nifty index declined 1.6% or 287.60 points to 17,604.35. 

The Indian rupee weakened to 81.54 against the U.S. dollar.