Concerns about Corporate Earnings
April 29, 2022
Led by the tech sector especially pre-open declines of nearly 10% in Amazon and 2.5% in Apple, U.S. stock futures are lower on this final trading session of the difficult month of April. Amazon reported a quarterly drop in earnings, and Apple warned of persistent supply delays.
Having touched a 19-year weighted high on Thursday, the DXY dollar index fell 0.5% overnight and is currently 0.75% below that peak. The retreat has been broadly based with overnight lows of 2.9% against the ruble, 1.0% versus the Australian dollar, 0.8% vis-a-vis sterling, 0.7% relative to the kiwi, 0.6% against the yen and yuan, 0.5% versus the euro and Mexican peso, and 0.4% vis-a-vis the Canadian dollar.
The Golden Week of holidays has begun in Japan with today’s observance of Showa Day. Elsewhere in the Pacific Rim, share prices jumped 4.0% in Hong Kong, 2.4% in China, and 1.1% in Australia and Taiwan but fell 0.8% in 0.8% in India. European stock markets show gains of less than 1% for the most part.
The ten-year Treasury yield is four basis points higher, and prices for gold and oil have risen 1.4% and 1.0%. But Bitcoin dropped 2.2% overnight.
News regarding the Russian-Ukraine war and Covid have been unsettling. Recent Russian data, assuming such are not fabricated, have not reflected devastating damage from Western sanctions, and concern is growth that the conflict will evolve into a wider European war. The Central Bank of Russia felt sufficient room to implement its second 300-basis point cut this month in its policy interest rate, which now becomes 14.0%. U.S. Covid-19 cases, meanwhile, are running 50% higher than two weeks ago and averaged almost 78k over the previous two days. Fortunately, deaths remain low and below 500 per day, but hospitalizations now show an 11% advance from two weeks ago.
The Central Bank of Russia had been expected to reduce interest rates by just 200 basis points. Its statement of explanation touted the ruble’s recovery to pre-war levels and asserted that with”price and financial stability risks no longer on the rise, conditions have allowed for the key rate reduction.” More monetary relief will follow if the respite for market disorder continues, and at 14.0%, the interest rate is still well above the 8.5% level prior to February. In March-through-December 2021, the central bank had previously implemented six rate hikes, doubling the level from a pandemic low of 4.25%. CPI inflation of 16.7% currently is already above the new rate level, but CBR officials are confidently predicting such will recede to at least 7% next year and settle at 4% in 2024.
Economic growth in the euro area remained positive but weak for a second straight quarter, printing at 0.2% after a quarterly 0.3% rise in the final quarter of 2021. The middle two quarters of last year, in contrast, had each experienced a 2.2% (not annualized) rate of economic expansion. Compared to 1Q 2021, GDP was 5.0% higher last quarter.
Among Euroland’s four largest economies, real GDP last quarter fell 0.2% in Italy, flat-lined in France, rose 0.2% in Germany, and increased 0.3% in Spain. Faster expansion rates of 2.6% and 2.5% occurred in Portugal and Austria.
CPI inflation in the euro area did not crest at March’s record 7.4% as analysts were predicting but instead inched up another 0.1 percentage point to 7.5% in April, which compares to 5.0% last December and 1.6% in April 2021.Energy’s year-on-year advance slowed 6.4 percentage points to 38.0%, but food inflation accelerated 1.4 percentage points to 6.4%. A 3.8% rise in non-energy industrial goods was well above the 0.4% on-year rise in April 2021, and service sector consumer price inflation of 3.3% last month was up from 0.9% a year earlier. Inflation is broadening to areas not directly hit by the pandemic or Russian invasion, as attested by a core inflation rate of 3.5%, which was five times greater than in April 2021.
Growth during March in U.S. personal income (0.5% on month) and personal consumption expenditures (1.1%) exceeded analyst expectations. On year growth in the PCE price deflation of 6.6% was the most in over six decades but not as high as many analysts were fearing. The core PCE price deflator climbed 0.3% on month as such had also done in February, which were less than gains of 0.6% in November and 0.5% in both December and January. As a result, year-on-year core inflation did not rise further as assumed but instead decelerated 0.1 percentage point to 5.2%.
The verdict is still out on whether the PCE’s downtick signifies the long-desired cresting of U.S. inflation. A counter-factoid to that hope came from today’s quarter report on employment costs. The U.S. ECI jumped 1.4% on quarter, exceeded expectations and a 1.0% rise in the final quarter of 2021, and that lifted its year-on-year pace by a half percentage point to 4.5%, which is almost two percentage points more than in the first quarter of 2021. Such signs of a very tight labor market have to go away before the Federal Reserve can even consider letting up on the monetary brake. The Fed will be doubling the top of its federal funds rate target range to 1.0% at next week’s policy review.
A sampling of other economic data reported this Friday revealed:
- A two-month low in the British Nationwide house price index to a 12-month 12.1% rate of increase this month following March’s 14.3% pace, which was the most in 208 months.
- A wider $26.4 billion Turkish trade deficit last quarter compared to a deficit of $11.1 billion a year earlier.
- The largest on-year drop in Spanish retail sales (4.2%) in 13 months.
- A 22-year high in French PPI inflation of 26.5% in March and record-high Italian PPI inflation of 36.9%.
- Germany’s largest rate of import price inflation (31.2%) since September 1974. Energy soared 160.5%.
- A return to positive Mexican growth, as GDP rose 0.9% last quarter following no change in the final quarter of 2021 and a 0.4% contraction last summer.
- A 0.4% quarterly drop in Swedish GDP in the first quarter, resulting in year-on-year growth of 3.0%.
- A 53-quarter high in Australian PPI inflation of 4.9% in 1Q 2022 versus 3.7% in the prior quarter, 0.2% in first quarter of 2021, and -0.4% in the middle two quarters of 2020.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Amazon and Apple, Central Bank of Russia, Euroland GDP and CPI, German import prices, U.S. personal income and spending
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