Peak Interest Rates Level and Duration Worries Added to Lackluster Corporate Results

Barry Adams
09 Feb, 2023
New York City

Stocks ended lower after afternoon selloff wiped out morning gains and benchmark indexes dipped in negative territory. 

The interest rate worries overshadowed latest corporate earnings after some investors focused on the appropriate level of interest rates before policymakers pause. 

Initial jobless claims edged up slightly but bounced around historically low levels reflecting tight labor market conditions but corporations are signing to different tunes in the latest earnings releases. 

Disney announced a cost cutting program of multi-billion dollars but MGM and Wynn reported a rebound in bookings and casino revenues in Las Vergas in the fourth quarter. 

Hilton also reported a systemwide double-digits increase in room rates and reiterated its plan to add 50,000 rooms in 2023 despite the looming economic slowdown.  

While traders on Wall Street debated the path and the level of peak interest rates, corporations trimmed capital expenditures, accelerated layoffs and increased dividends and stock buybacks.  

On Wall Street, airline stocks closed at one-month lows and oil services accelerated recent declines after crude oil prices showed no signs of rebounding from one-year low. 

After the close of regular trading, Lyft dropped as much as 30% after the online ridesharing platform forecasted cautious 2023 outlook. 

PayPal said president and chief executive Dan Schulman will retire the company by the year's end but will continue to serve on its board. 

The payment processor also reported 7% increase in revenue to $7.4 billion and earnings per share of 81 cents.  

Expedia plunged as much as 10% before recovering to 2% loss after the travel company said fourth quarter revenue increased 15% to $2.6 billion and net income plunged 36% to $177 million or $1.11 a share. 

 

U.S. Indexes In Review 

The S&P 500 index decreased 0.9% to 4,081.50 and the Nasdaq Composite index fell 1% to 11,789.58. 

Crude oil decreased 9 cents to $77.53 a barrel and natural gas futures rose 4 cents to $2.44 a thermal unit. 

The yield on 2-year Treasury notes rose to 4.49%, 10-year Treasury notes closed higher at 3.66% and 10-year Treasury notes advanced to 3.73%.   

 

U.S. Jobless Claims Inch Higher 

Initial jobless claims increased in the week ending on February 4th from the nine-month low reached in the previous week. 

Despite the rise, jobless claims stayed historically low reflecting tight labor market conditions. 

Seasonally adjusted initial claims of jobless benefits increased to 196,000 from 183,000 

The 4-week moving average, which smoothes week-to-week volatility, declined to 189,250, the lowest level since last April.

On a seasonally unadjusted basis, the number of claims increased 10,000 to 235,000. 

The claims rose the most in California by 7,6000, Ohio by 3,400 and Illinois by 1,600. 

 

U.S. Movers 

The Walt Disney Company increased 2% to $113.97 after the company announced its plan to control costs and focus on improving earnings after the release of the fourth quarter results.

Disney said in a conference call it plans to cut $5.5 billion costs, $3 billion from non-sports content and $2.5 billion from non-content expenses and plans to eliminate 7,000 jobs.

Disney said revenue in the December quarter increased 8% to $23.5 billion and net income increased 11% to $1.3 billion from $1.1 billion and diluted EPS rose to 70 cents from 63 cents a year ago.

PepsiCo, Inc increased 1.3% to $173.40 after the beverage and snack food maker said price-hike supported revenue gains and the company also increased its annual dividend. 

PepsiCo said revenue in the fourth quarter increased 10.9% to $28 billion and net income dropped to $535 million from $1.3 billion and diluted earnings per share fell to 37 cents from 95 cents a year ago.

PepsiCo increased its annual dividend by 10% to $5.06 from $4.60 with the dividend expected to be paid in June 2023.

 

European Indexes Close at 10-month High 

European markets advanced to 10-month highs after Germany's inflation index rose less-than-expected. 

Consumer price index for Germany rose to 8.7% in January from a four-month low of 8.6% in December, DeStatis or Federal Statistics Office data showed today. 

The CPI index advanced 1.0% from the previous month in January, reversing 0.8% decline in December. 

The DAX index increased 0.7% to 15,523.42, the CAC-40 index advanced 1% to 7,188.36 and the FTSE 100 index closed higher 0.3% to 7,911.15. 

The dollar traded lower following a rise in the previous three sessions. 

The euro closed up at $1.073, the British pound edged higher to $1.211 and the Swiss franc strengthened to 92.23 U.S. cents. 

The yield on 10-year German Bunds rose to 2.34%, French bonds inched down to 2.76%, the UK Gilts to 3.29% and Italian bonds to 4.13%. 

Brent crude oil fell 95 cents to $84.13 a barrel and the Dutch TTF natural gas Spot Price fell 2% Є57.13 per MWh. 

In the corporate news, Credit Suisse AG dropped 15% after the troubled Swiss bank reported its worst loss since 2008 and the company warned of another year of "substantial losses" in 2023. 

Credit Agricole said quarterly profit increased because of lower loan loss provisions  and a strong performance in its investment banking business. 

Unilever said underlying quarterly sales growth was ahead of expectations.  

 

China Balloon Network Draws Global Scrutiny 

Asian markets closed mixed and benchmark indexes in China and India advanced but In Japan closed nearly unchanged. 

Market indexes in Japan recovered losses of the day and closed nearly unchanged and the yen weakened. 

The Nikkei 225 index fell 22.11 points to 27,584.35 and the yen weakened to 131.57 against the U.S. dollar. 

Stocks in Shanghai and Hong Kong advanced after domestic banks revised 2023 economic growth projections higher on the hopes of a faster recovery in consumer spending. 

Despite the ending of "Zero-Covid" restrictions and lockdowns, hospitals and emergency clinics are overburdened and crowded with the steady flow of elderly patients in Shanghai and Beijing and several other large metro areas. 

Small businesses are also closing down at a rapid pace ahead of the expected increase in rents and little or no support from banks and local governments. 

Investors overlooked tough comments delivered by the U.S. President Joe Biden during the State of the Union. 

U.S. President Biden said that the nation would act if China would threaten its sovereignty following the alleged Chinese balloon incident. 

U.S. officials said Chinese spy balloon was capable of monitoring U.S. communications and the defense officials "recently" concluded that China uses balloons for global spying.   

 

China Wins Largest Share of Smaller Shipbuilding Orders 

China won the largest number of new shipbuilding orders in January but the orders plunged from a year ago, according to data released by Clarkson Research, the UK-based shipping market analysis company. 

China won 40 ship building orders for 1.1 million compensated gross tonnage of the total global 72 orders for 1.96 CGT in January.   

South Korea, the distant second, won 12 orders for 0.64 CGT but attracted technologically more complex jobs.  

Overall orders were down 63% from a year ago and fell 22% from December after interest rates advanced and the global economic backdrop weakened. 

The Shanghai Composite index increased 1% to 3,270.38 and the Hang Seng Index added 1.6% to 21,624.36. 

The Indian rupee weakened to 82.48 against the U.S. dollar. 

The Sensex Index increased 0.2% or 142.43 points and the Nifty index added 0.1% or 21.75 points to 17,893.45.