Today’s Big Picture Asia-Pacific equity indexes ended today’s session mixed as India’s Sensex and China’s Shanghai Composite declined 0.20% and 0.25%, respectively, while Hong Kong’s Hang Seng rose 0.20%, Korea’s KOSPI gained 0.21%.Japan’s Nikkei added 0.94% and Australia’s ASX All Ordinaries advanced 1.03%.Taiwan’s TAIEX led the way, closing 1.50% higher on the strength of technology stocks.By mid-day trading, major European equity indices are up modestly, and U.S.futures point to a soft market open later this morning.
After yesterday’s retail-backed rally, futures are pointing to a more muted day in the markets, especially after Fed Chair Powell’s remarks yesterday that the Fed’s mindset is that rates will continue to go up until inflation comes back down to earth.By the Fed’s own admission, and if history is any guide, managing inflation through controlling the demand for goods and services is difficult, takes time, and more often than not involves some level of recession.It’s almost as if the Fed is telling the markets that “beatings will continue until morale improves,” but as rates go higher and impacts demand, it will be those names that have the strongest fundamentals including balance sheets, debt to equity ratios and the ability to generate cash flow that will be the relative winners.
Our take is that days like today are when the markets go about doing the work to find these names by taking a lot of companies down a peg, reevaluating them, and bidding up the strong ones.
Data Download International Economy
Last night saw the preliminary release of Q1 Japanese GDP at -1.0% as that country’s Service Sector was hit with Covid-19 restrictions and rising commodity prices took their toll on overall spending.The result was a positive surprise against expectations of a 1.8% decline but significantly contrasted the 5.4% increase seen in Q4 of 2021.
April YoY UK CPI (9.0%), Core CPI Ex-Energy & Food (6.2%), and PPI (14.0%) were released this morning with CPI and Core CPI essentially in line with expectations and higher than the previously reported 7.0% and 5.7%, respectively.PPI surprised considerably, 7.4% over expectations and also higher than the previously reported 11.9% offering a clear sign that energy input prices are continuing to weigh significantly on production.
Overall Final Eurozone YoY CPI for April was announced at 7.4% and came in 0.10% under the preliminary reported 7.5%, a record high for the region.
Domestic Economy
This morning saw the release of the Mortgage Brokers Association (MBA) latest weekly update which printed at -11.0% meeting expectations and significantly lower than the previous 2.0% growth figure posted previously.Relatively high borrowing rates are the clear catalyst behind this slump.
8:30 AM ET will see the release of Housing Starts for April which are expected to have declined to 1.765 million from the previous 1.793 million as relatively high mortgage rates have started to impact the residential real estate market.
Markets
The S&P 500 rebounded 2.0% yesterday while the Nasdaq Composite climbed 2.8% and the small-cap heavy Russell 2000 added 3.2%).The Dow Jones Industrial Average lagged on the day, rising “just” 1.3%.Ten of the 11 S&P 500 sectors closed higher by at least 1.0%, including five sectors with gains over 2.0%.The lone holdout was the consumer staples sector, which fell 1.2%, dragged down by the 11% drop in Walmart ( WMT ) shares.
Helping fuel the market’s move, Shanghai reported no new COVID cases for three straight days outside quarantined zones, further supporting its reopening initiative.
On a related note, Hong Kong plans to relax coronavirus restrictions later this week, while Japan plans to allow small groups of tourists to enter the country this month.At a Wall Street Journal virtual event, Fed Chair Powell said the Fed will be more aggressive with rate hikes if inflation doesn’t come down in a clear way, but he did preface that comment by sharing that the Fed can be less aggressive if inflation does clearly come down.
Including yesterday’s moves, here’s how the major market indicators stack up year-to-date :
Dow Jones Industrial Average: -10.14% S&P 500: -14.21% Nasdaq Composite: -23.40% Russell 2000: -18.04% Bitcoin (BTC-USD): -36.02% Ether (ETH-USD): 44.37% Stocks to Watch Before trading kicks off, Analog Devices ( ADI ), Lowe’s ( LOW ), Target ( TGT ), and TJX Companies ( TJX ) are expected to report their quarterly results.
Doximity ( DOCS ) shares were under pressure last night despite the company reporting better than expected top and bottom-line results.What weighed on the shares was the weaker than expected revenue outlook for the current quarter of $88.6-$89.6 million vs.the $96.9 million consensus.
Shares of application software company Appian ( APPN ) rose in after-hours trading following the company reaffirming its guidance for the second quarter and full year.Alongside that news, Appian also shared its Chief Revenue Officer would be leaving the company.
Shares of Booz Allen Hamilton ( BAH ) inched ahead in after-market trading last night after the company was awarded a cybersecurity and privacy enterprise solutions contract from NASA with a total potential value of $622.5 million.
Renewable Energy Group ( REGI ) said its shareholders approved Chevron’s ( CVX ) acquisition of the company, which is expected to close in mid-2022.
IPOs
No new IPOs are expected to start trading this week.
Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page .
After Today’s Market Close
Bath & Body Works (BBWI), Cisco (CSCO), and Trip.com (TCOM) are among the handful of companies slated to report their latest quarterly results.
Investors should remain on watch for companies that pre-announce their March quarter results.Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar .
On the Horizon Thursday, May 19
US: Weekly Initial & Continuing Jobless Claims US: Philadelphia Fed Index – May US: Existing Home Sales – April US: Leading Indicators – April US: Weekly EIA Natural Gas Inventories Friday, May 20
Japan: CPI – April Germany: PPI – April UK: Retail Sales – April Eurozone: Consumer Confidence – May Thought for the Day “It’s easy to solve a problem that everyone sees, but it’s hard to solve a problem that almost no one sees.” ~ Tony Fadell
Disclosures Cisco (CSCO) is a constituent of the Tematica BITA Digital Infrastructure & Connectivity Index Target (TGT), Lowe’s (LOW) are constituents of the Tematica Research Thematic Dividend All-Stars Index .