MARKET WRAPS
Watch For:
Wholesale Inventories for September; Canada Building Permits for September; Fed speak from Jerome Powell, John Williams, Michael Barr, Phillip Jefferson; Earnings from Disney, Warner Bros, Lyft
Today's Top Headlines/Must Reads:
- China Is Becoming a Problem for Investors
- We're Producing Too Much Coal, Oil and Gas, Report Says
- Same Drug, Two Prices: Why The Higher Price Prevails
Opening Call:
Equity futures edged lower on Wednesday as traders took stock following the longest winning run in two years.
Fundstrat said a period of consolidation for stocks was understandable given the extent of recent gains and the lack of important macroeconomic news this week.
"But...given the bearish positioning by both institutional and retail investors, we believe stocks likely levitate on the absence of macro news," it added.
Given the light calendar of economic data, traders' focus has turned to central bankers for hints on whether the Federal Reserve is done hiking rates.
In Europe, Bank of England's Andrew Bailey is also due to speak on Wednesday.
Premarket Movers
Array Technologies was falling 13% after the solar tracking solutions company issued weak guidance for the full year. For 2023, Array said it expects revenue in the range of $1.525 billion to $1.575 billion while analysts had been forecasting revenue of $1.64 billion.
Lucid Group's third-quarter sales missed Wall Street estimates and the electric-vehicle start-up reduced production guidance to a range of 8,000 to 8,500 vehicles this year from about 10,000. Shares fell 3.3%.
Microsoft was down slightly in premarket trading after shares of the software maker closed at an all-time high of $360.53 on Tuesday.
Occidental Petroleum reported third-quarter earnings that fell from a year earlier but profit on an adjusted basis that topped analysts' estimates. The stock was up 1.5%.
Rivian Automotive raised its production guidance for 2023, saying it now expects to produce 54,000 cars, up from previous guidance of 52,000. The company also reported a narrower third-quarter loss. The stock was up 6%.
Robinhood Markets missed Wall Street's third-quarter revenue expectations as transaction revenue and monthly active users both slowed. Shares fell 7.8%.
Sleep Number was down 26% after the mattress maker posted a surprise third-quarter loss and predicted a loss for the full year of 70 cents a share that includes restructuring charges from job cuts and store closures the company announced Tuesday.
Toast said it expects full-year revenue of $3.83 billion to $3.86 billion, narrower than a previous forecast of $3.81 billion to $3.87 billion. Shares were down 17%.
Upstart Holdings fell 22% after the company posted an adjusted loss of 5 cents a share in the third quarter while analysts were expecting a loss of 2 cents. Revenue of $135 million missed forecasts of $140 million. Its revenue outlook for the fourth quarter was also shy of estimates.
Upwork rose 21% after third-quarter earnings and revenue at the platform for freelancers topped Wall Street estimates.
Tuesday's Post-Close Movers
eBay said late Tuesday that it swung to a profit in the most recent quarter but provided disappointing forecasts for the rest of the year. Shares fell close to 7%.
Kyndryl raised its full-year targets for cost savings after it made progress on turnaround efforts in the second quarter. The International Business Machines spinoff posted a narrower loss in the quarter despite a drop in revenue. Shares rose 13%.
Forex:
The dollar turned higher as recent comments by Fed officials stressing that the fight against inflation isn't yet over countered the dollar's recent weakness, Commerzbank said. This includes Michelle Bowman who on Tuesday said interest rates may need to rise further.
The dollar fell to its lowest in more than six weeks against a basket of currencies earlier this week following Friday's weaker-than-expected jobs data, but one data point following a string of strong data "should not constitute a trend reversal," Commerzbank said.
Fed speakers on Wednesday could debate again about possible further rate hikes, it added.
Barclays Research said a credit-driven widening in yield spreads between Italian and German government bonds could be negative for the euro.
It has calculated that if the 10-year Italian BTP-German Bund yield spread is above 200 basis points then the impact on the euro is statistically significant.
This would mean EUR/USD could fall by 1.5%-2% from a spike in this spread to 250bp, all else equal, taking it through 1.05 and "adding to geopolitical and U.S. exceptionalism-led pressure."
Bonds:
Year-to-date performance in bond markets has so far been underwhelming as yields continued to rise but the case for owning longer-duration bonds is stronger as the metrics are stacked more in investors' favor, SEI said.
"Yields now offer a larger buffer against further rate increases."
A bull case for bonds could materialize if the economy enters a recession and/or equities and other risk assets experience a significant selloff, it said.
SEI believes that the Fed will keep interest rates higher for longer.
Energy:
Oil wavered, having fallen sharply on Tuesday as demand concerns weighed on prices.
"The market is clearly less concerned about the potential for Middle Eastern supply disruptions and is instead focused on an easing in the balance," ING said.
Supply is also rising, with Russian exports picking up, adding further pressure, ING added.
"The weakness seen yesterday is likely to continue today" amid growing crude inventories in the U.S.
Metals:
Base metals prices were mixed, while gold was flat, with a strong dollar adding pressure to commodities backed by the greenback.
A seasonal soft patch for many mined commodities could put downward pressure on prices over the coming weeks, especially if concerns about the Fed's rates outlook and a weaker Chinese economy intensify, Jefferies said.
"We expect commodity prices to drift lower for the very near-term, but we believe the outlook for a 3-plus month horizon in most cases is positive."
Jefferies also said strength in metallurgical coal prices this year can be in big part attributed to demand from India, which now accounts for about 23% of imports globally.
While the urbanization and industrialization of India is likely to be an important demand driver for mined commodities over the decade ahead, "India is still too small of an end market to really matter for now in most cases," with the exception of metallurgical coal.
TODAY'S TOP HEADLINES
Bayer Weighs Structural Changes But Rules Out Three-Way Split
Bayer Chief Executive Bill Anderson said he is looking at options to overhaul the company's structure and remove multiple layers of management in a move that will result in significant job cuts, but ruled out splitting the group into three businesses.
Anderson, who took the helm of the German pharmaceutical and agricultural conglomerate from Werner Baumann in June, said he had engaged a team of advisors to look at various structural options, including the separation of either its crop science or consumer health divisions.
Rivian Plans to Make More EV Trucks, SUVs in 2023
Electric-vehicle startup Rivian Automotive raised its production forecast for the year and said losses narrowed in the third quarter, as the company tries to increase output after a choppy two-year launch.
Rivian also said Tuesday it was no longer required to sell its electric delivery vans exclusively to https://urldefense.com/v3/__http://Amazon.com__;!!F0Stn7g!EXVTrs3pify-yfCY-l_r16Ktk9LInrxdQ6AnAgaWFGHYyfc-3N4RBujBDya5NFXf7PAkXWmdR_CUBGEdENa2rwnRBtiFmvOdymqoKEJ4kuY$ and was in talks with other potential customers. The companies were negotiating an end to the exclusivity part of their agreement after the online retailer's order came in at the low end of a previously communicated range, The Wall Street Journal reported in March. Amazon owns a nearly 17% stake in Rivian.
EBay Stock Slumps as Outlook Disappoints. Europe Is the Worry Spot.
EBay shares are losing ground in late trading after the online e-commerce marketplace provided disappointing forecasts for the December holiday quarter, citing signs of weakness in its European business.
For the third quarter, eBay (ticker: EBAY) posted revenue of $2.5 billion, up 5% and in line with Wall Street estimates. On an adjusted basis, the company earned $1.03 a share, beating consensus estimates by three cents. Under generally accepted accounting principles, the company earned $2.46 a share. Gross merchandise value was $18 billion, up 2%, or flat adjusted for currency.
German Inflation Dipped to 3.8% in October, Confirming Prior Estimates
German inflation fell in October to its lowest rate since August 2021, confirming prior estimates, dragged down by falling energy prices, another indication that the European Central Bank might have reached the peak in its current rate-hiking cycle.
Consumer prices were 3.8% higher in October than the same month a year earlier, compared with 4.5% in September, measured by national standards, data from the German statistics office Destatis showed Wednesday.
Warning on U.S. commercial real estate drags German bank shares lower
Shares of a German lender fell as much as 14% after a profit warning due to the struggling commercial real estate market in the U.S.
Deutsche Pfandbriefbank shares XE:PBB slumped as the German lender late on Tuesday said it would increase its risk provisions due to "persistent weakness in the commercial real estate market." It now sees pretax profits for the year between EUR90 million ($96 million) and EUR110 million, versus its guidance at the beginning of the year for a pretax profit between EUR170 million and EUR200 million. The bank, informally called PBB, also cancelled its special dividend.
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11-08-23 0626ET
