U.S. and European Markets Diverge On Different Outlooks for Rates and Earnings

Barry Adams
17 Feb, 2023
New York City

Falling energy prices and worries of rising rates drove market sentiment on the final day this week. 

On the light day but busy week of corporate earnings releases, market sentiment swung between resilient consumer spending and weakening corporate earnings outlook. 

Tight labor market conditions are supporting consumer spending despite the eight interest rate increases over the last twelve months. 

But, higher rates have a lagging impact on the broader economy and so far the rate hikes of more than 400 basis points have failed to dampen consumer demand. 

Moreover, the supply chain issues that drove consumer price inflation to a 4-decade high in 2020 and 2021 are not the drivers of inflation as price increases have seeped into the services sector which dominates the economy. 

Energy sector stocks led the decliners in Friday's trading after crude oil prices neared the pre-Ukraine war levels and natural gas prices dropped near a 30-month low. 

 

U.S. Markets 

Benchmark indexes opened lower and dropped to the low by midday but indexes managed to trim losses as the market weakness failed to broaden beyond tech and energy sectors. 

The S&P 500 index decreased 0.3% to 4,079.22 and the Nasdaq Composite index declined 0.6% to 11,787.27. 

For the week, the S&P 500 index declined 0.8% and the Nasdaq Composite index eased 0.2%. 

Year-to-date, the S&P 500 index has gained 6.6% and the Nasdaq Composite index has advanced 13.5%. 

The yield on 2-year Treasury notes increased to 4.62%, 10-year Treasury notes edged lower to 3.81% and 30-year Treasury bonds closed down at 3.87%.  

Natural gas prices closed down below $2.30 a unit and fell to the low last seen in September 2020 amid weak demand on warmer-than-usual weather and elevated supplies. 

Natural gas prices in Europe also traded near 18-month low on falling demand after warmer weather conditions eased energy crisis in the region.  

Crude oil declined $2.11 to $76.37 a barrel and natural gas futures for immediate month delivery fell 11 cents or 4.7% to 11,787.272.27 a thermal unit. 

 

U.S. Movers 

AutoNation Inc increased 9.5% to $154.90 after the automobile dealer reported better-than-expected sales of new vehicles. 

AutoNation said fourth quarter revenue decreased 2% to $6.7 billion and net income declined 26% to $286.4 million from $ 387.1 million and diluted earnings per share declined to $5.72 from $5.87 a year ago. 

In the quarter, new vehicle unit sales increased 4% to 60,074 and used vehicle sales declined 9% to 67,608.

Deere & Company increased 5.9% to $426.89 after quarterly income more than doubled. 

Deere & Company said revenue in the fiscal first quarter ending in January increased 32% to $12.6 billion and net income jumped 117% to $1.95 billion from $903 million and diluted earnings per share rose to $6.55 from $2.92 a year ago.

DoorDash Inc declined 5.9% to $62.94 after the delivery service provider said quarterly loss expanded. 

DoorDash said revenue in the fourth quarter increased 38% to $1.8 billion and net loss expanded to $659 million from $157 million and diluted loss per share increased to $1.65 from 45 cents a year ago. 

In 2022, revenue increased 34.6% $6.6 billion from $4.9 billion and net loss increased to $1.4 billion from $468 million or $3.68 from $1.39 a share.

Hyatt Hotels Corporation declined 2.4% to $114.10 after the hotel and resorts operator reported weaker-than-expected quarterly earnings. 

Hyatt Hotels said revenue in the fourth quarter increased 49% to $1.59 billion and the hotel operator swung to a profit of $294 million from a loss of $29 million and diluted EPS was $2.74 from ($0.26) a year ago. 

In 2022, revenue increased 97% to $5.9 billion from $3.0 billion and swung to a profit of $455 million from a loss of $222 million or $4.09 from ($2.13) a share a year ago.

By the end of 2022, the company had a pipeline of approximately 580 hotels with 117,000 rooms.

 

 

 

European Markets Extend Weekly Advances

European markets faced headwinds but managed to trim losses after stronger corporate results provided support for riskier assets. 

Benchmark indexes were under pressure after two Federal Reserve officials called for strong rate hikes at the next policy meetings in March after wholesale inflation and retail sales were ahead of expectations. 

Loretta Mester and James Bullard supported the case for a larger rate increase of 50 basis points. 

Investors stepped up stock exposure after banks, insurance and industrial companies and logistics and transportation companies generally reported better-than-expected results. 

Investors also reviewed the latest earnings from Allianz SE, Daimler Benz AG, NatWest, SEGRO and Air France KLM. 

For the week the DAX index gained 1%, the CAC-40 index advanced 2.6% and the FTSE 100 index rose 1.5%.  

 

Weaker Energy Prices Drag German PPI Down to 17-month Low  

Germany's producer price index decreased for the fourth month in a row and declined to the level last seen 17 months after natural gas prices steadily declined. 

The producer price index eased to 17.8% in January from 21.2% in December, data from Destatis or Federal Statistics Office showed Friday. 

The latest inflation rate was the weakest since August 2021, when prices had rose 14.2% from a year ago.  

 

French Consumer Inflation In January Reaffirmed 

Consumer price inflation in January rose slightly as previously estimated, the final data from the statistics office INSEE showed Friday. 

Consumer price index increased 6.0% from a year ago in January after rising 5.9% in December, matching the previous estimate released on January 31. 

Energy price inflation accelerated to 16.3% in January from 15.1% in December and food prices rose 13.3% from 12.1%. 

 

Promotions Drove UK Retail Sales Rebound In January 

UK retail sales unexpectedly increased 0.5% in January from the previous month driven by sales promotion, the Office for National Statistics reported Friday. 

January sales rose following a 1.2% decline in December and 0.6% fall in November after promotions brought back consumers to stores. 

Excluding auto fuel, retail sales rose 0.4%, reversing 1.4% decline in December. 

 

Swiss Industrial Production Expands In Q4 

Swiss industrial production expanded in the fourth quarter at a slightly faster pace than in the third quarter, Federal Statistics Office data showed Friday. 

Industrial production increased 6.0% in the final quarter of 2022 from 5.9% in the third quarter. 

Manufacturing sector expanded 7.9%, while the mining and quarrying segment shrank 3.0% and electricity supply declined 10.3%. 

 

Europe Markets Review 

The DAX index fell 0.3% to 15,482.00, the CAC-index declined 0.3% to 7,347.72 and the FTSE 100 index eased 0.1% 8,004.36. 

The euro inched higher to $1.068, the British pound edged up to $1.202 and the Swiss franc traded near 92.56 U.S. cents. 

The yield on 10-year German Bunds increased to 2.43%, French bonds closed down at 2.89%, the UK Gilts at 3.50% and Italian bonds at 4.27%. 

Brent crude oil declined $2.90 to $82.21 a barrel and the Dutch TTF natural gas futures dropped to Є49.40 per MWh.   

 

Europe Movers 

Allianz SE declined 1.9% to €216.95 after the insurance and asset management group reported a decline in its assets under management and in non-life operations. 

Daimler Benz Group AG increased 2.4% to €74.64 after the vehicle maker reported better-than-expected financial results and said it plans to repurchase Є4 billion of its stocks over the next two years. 

Sika AG increased 4.9% to  Sfr276.90 after the Swiss chemical company reported fiscal year 2022 net income increased 11%. 

Swiss Re AG was nearly unchanged at 96.14 after the Swiss reinsurance group reported a decline in fiscal 2022 earnings. 

Air France KLM SA increased 5.3% to €1.76 after the French-Dutch airline forecasted higher margin and strong bookings in 2023. 

NatWest Group Plc declined 6.5% to 285.62 pence despite the British bank reporting stronger operating results in 2022. 

SEGRO PLC increased 0.9% to 843.57 pence after the UK-based warehouse company reported a rebound in operating results in 2022. 

Smith & Nephew Plc declined 0.2% to  1,154.93 pence after the UK-based prosthetic devices maker nominated a new chairman. 

 

Asian markets fell across the region on the worries of higher U.S. interest rates inflicting another round of currency devaluation in the region.  

Benchmark indexes fell after two U.S. Federal Reserve officials called for strong rate hikes at the next policy meetings in March after wholesale inflation and retail sales were ahead of expectations. 

Loretta Mester and James Bullard supported the case for a larger rate increase of 50 basis points. 

Stocks in Japan closed lower on the uncertainties about the future direction of the Bank of Japan's yield curve control policy. 

Softbank led the decliners after tech stocks faced renewed selling following the prospect of larger increases in interest rates in the U.S. 

Mainland China and Hong Kong stocks declined on the weakness in tech stocks and home builders. 

For the week, the Nikkei edged down 0.6%, the Shanghai Composite declined 1.1%, the Hang Seng index dropped 2.2% and the Nifty and the Sensex indexes rose 0.6%. 

 

China's New Home Prices Extend Losses to 9th Month 

New home prices in China declined for the ninth month in a row after buyers stayed away from new purchases, the National Bureau of Statistics reported Friday. 

The average price of a new home in 70 large and medium sized cities declined 1.5% from a year ago in January, matching the rate in December. 

Home prices in January increased 0.1% from the previous month, the first rise in a year. 

 

Singapore's International Trade Shrank On Weak Global Demands

Singapore's non-oil exports declined for the fourth month in a row in January, Enterprise Singapore said in a report Friday. 

Non-oil exports declined 25% in January, larger than the 20.6% fall in November, the government data showed. 

Exports declined 9.3% and imports fell 11.7% in January, resulting in a 10.4% decline in total international trade. volume.    

 

Asian Markets Review 

The Nikkei 225 index fell 0.7% to 27,513.13 and the yen declined to 134.18 against the U.S. dollar. 

The Shanghai Composite index fell 0.7% to 3,224.02 and the Hang Seng index declined 1.3% to 20,719.81. 

The Sensex index decreased 0.5% or 316.94 points to 20,719.81 and the Nifty index declined 0.5% or 91.65 to 17,944.20. 

The Indian rupee weakened to 82.72 against the U.S. dollar and the yield on 10-year Indian government bonds traded near 7.34%. 

 

Asia Movers 

Tech stocks led the decliners in Tokyo trading. 

Advantest Corp fell 1.7% to ¥10,050.0, Tokyo Electron Ltd declined 1.7% to  ¥46,190.0 and Screen Holdings dropped 1.7% to ¥10,290.0. 

China Renaissance Holdings Ltd plunged 28% after the company said it is not able to contact its chief executive office and the controlling shareholder Bao Fan. 

Samsung Electronics, LG Energy Solution and Samsung SDI fell between 2% and 4%. after the Kospi index in Seoul decreased 1% to 2,451.21. 

Adani Enterprises Ltd declined 4.5% to ₹1,719.0 and extended year-to-date losses by 55% following a negative report from the U.S.-based short seller Hindenburg Research.