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.