Market Insights Today: US stocks fell and bonds rallied on growth concerns - 17 Nov 2022
APAC Strategy Team
Summary: The hotter-than-expected US retail sales data and hawkish-leaning comments from Fed officials weighed on equities but boosted buying of long-dated bonds as investors focused on the likelihood of Fed overdoing in monetary tightening and triggering a recession. Target disappointed with Q3 miss and weak Q4 sales guidance, highlighting the pain of the US retailers and consumers. Nvidia's results beat expectations, moving its shares up after hours.
What’s happening in markets?
The Nasdaq 100 (NAS100.I) and S&P 500 (US500.I) retreated on strong retail sales and hawkish Fedspeak
The Good news is bad news phenomenon persists. The hotter-than-expected 1.3% rise in October retail sales, followed by several hawkish-leaning comments from Fed officials triggered concerns that the Fed would overdo monetary tightening and bring about a recession. The fall in yields at the long end of the US treasury curve did not lend support to the equity market as in recent months as stock investors took it as a sign of bond market pricing in a higher recession risk. Nasdaq 100 fell 1.5% and S&P500 declined 0.8%, with 68% of S&P 500 companies and 9 out of 11 sectors closing lower. Energy, consumer discretionary, and information technology led the benchmark index lower while the defensive utilities sector and consumer staples sector managed to finish the session with modest gains.
Target (TGT:xnys) fell 13% following the retailer reported a large miss on earnings and cut its outlook for the current quarter far below analyst estimates. Lowe’s (LOW:xnys) gained 3% after reporting better-than-expected comparable sales and raising full-year earnings guidance. Micron (MU:xnas) dropped 6.7% as the chipmaker said it was cutting DRAM and NAND wafer production. After the market closed, Nvdia (NVDA:xnas) and Cisco (CSCO:xnas) reported earnings beating analyst estimates. Nvida rose 1.3% and Cisco gained 3.9% in the extended hours trading.
US treasuries (TLT:xnas, IEF:xnas, SHY:xnas) rallied with yields in the long end of the curve falling most on recession concerns
The US treasury yield curve bull flattened, with the 2-year yield edging up 2bps to 4.35% while the 10-year yield fell 8bps to 3.69%. The much-watched yield curve inversion between the 2-year and the 10-year widened to 67bps, the most invested since February 1982, and heightened the growth scare among investors. The market has largely priced in a 50bps hike in December but is unwinding some of the post-CPI optimism that the Fed may do less next year, after Fed’s George, Daly, Waller, and Williams pushed back on the notion of pausing. The strong results from the 20-year bond auction on Wednesday helped supported the outperformance of the long ends.
Hong Kong’s Hang Seng (HISX2) and China’s CSI300 (03188:xhkg) took a pause
Hong Kong and China stocks consolidated and took a pause on the strong rally since last Friday, with Hang Seng Index losing 0.5% and CSI 300 Index sliding 0.8%. Chinese property names retreated, following new home prices in the 70 major cities of China falling 1.6% Y/Y in October, the largest decline in seven years, and Agile (03383) announced that the developer will sell new shares at an 18% discount. Agile tumbled 23%. Country Garden (02007:xhkg), which also announced share placement earlier, plunged 15%. Investors also became increasing concerned about the rising trend in new Covid cases in mainland China, which having gone above 20,000 for the first time since April. In New York hours, the ADRs of Tencent (00700:xhks) rose 3.4% versus their Hong Kong closing level after reporting earnings beating estimates while Meituan (03690:xhkg) dropped 6.7% from Hong Kong closing as Tencent said it would disburse its stake on Meituan to shareholders.
What to consider
U.S. Retail sales hotter-than expected
U.S. headline retail sales grew by 1.3% M/M in October (consensus: +1%, Sep: 0%). The control-group retail sales increased by 0.7% M/M (consensus: +0.3%, Sep: +0.4%).
U.K. headline CPI jumped to 11.1% in October, the highest in 41 years
U.K’s October headline CPI came in at 11.1% Y/Y (vs consensus 10.7%), the highest in 41 years. Core CPI remained at 6.5%.
Australia’s unemployment falls, employment rises more than expected in October, following Australian wage growth growing more than expected; AUDUSD trades flat
Australia’s jobless rate fell to 3.4%, from 3.5% last month, which supports the RBA continuing to rise rates, and not pause on rate hikes at their next meeting in December. Australian employment rose by 32,200 month-on-month in October, almost double the 15,000 jobs expected to be added to the economy. Job growth is also up markedly from the tiny 900 jobs that were added the month prior. The AUDUSD is staying range bound for now.
Target reported Q3 earnings miss and full-year guidance reduction
Target’s Q3 adjusted EPS fell to USD1.54, nearly 30% below the median of analyst estimates. The retailer is predicting a drop in comparable sales for the first time in five years and estimating operating margins will shrink to about 3%, which is half of its previous forecast. Target is looking to axe $3 billion in costs, but says there will be no mass layoffs. This highlights the pain of the US retailers and also the consumer – who is reluctant to spend on non-essential items in the face of rising interest rates and inflation.
Nvidia earnings beat
Software graphics giant Nvidia (NVDA) reported revenue for the third quarter that beat analyst estimates. Revenue fell 17% y/y to $5.93 billion, beating the expected drop of 18% y/y to $5.84 billion. NVIDIA’s outlook for the fourth quarter was a bit vague though, but more or less points to improvements in revenue, citing revenue is expected to hit $6.00 billion, plus or minus 2%. Nvidia said Microsoft will use its graphics chips, networking products, and software in Microsoft’s new AI products.
Nickel Miners could be under fire
Profit taking in oil equites is likely with the after the oil price fell on reports the Druzhba pipeline carrying Russian oil to Europe had restarted, WTI Crude Oil fell 1.9%. Elsewhere, Nickel miners shares could be under fire today move after Nickel futures fell 9% on Wednesday. LME is said to be stepping up surveillance of sharp swings earlier in the week on supply fears. Keep an eye on Australia’s Nickel Mines (NIC) and IGO, Japan’s Pacific Metals, Sumitomo Metal Mining, and Indonesia’s Vale Indonesia, Aneka Tambang.
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