Thought For A Day
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rssPBOC rate setting: 1-year LPR 3.7% (prior 3.70%) while 5-year LPR 4.45% (prior 4.60%)
People’s Bank of China benchmark rates setting.
- 1 year at 3.7%, unchanged
- 5 year at 4.45%, a 15bp cut
- In April the one-year loan prime rate was held at 3.70% while the five-year remained at 4.60%. The last time there was a change was when the rates were trimmed slightly in January this year.
The LPRs are benchmark lending rates, set on the 20th of each month. 18 commercial banks in China submit their proposed rates to the People’s Bank of China. The LPRs are based on the current rate charged for the PBOC Medium-term Lending Facility (MLF).
USD/JPY to 150 is “quite possible” says Mr. yen
Bloomberg (link is gated) carry a report with comments from Eisuke Sakakibara, who was Japan’s vice finance minister from 1997-1999 and thus directed multiple rounds of yen FX intervention. He was gvien the nickname Mr Yen.
Sakakibara is now a professor at Tokyo’s Aoyama Gakuin University. He spoke in an interview on Bloomberg TV:
- “Market expectation is that toward the end of the year, it will go between 140 and 150 — so it is quite possible that the yen would reach that level,”
The report goes on:
- The yen’s plunge has sparked verbal intervention by Japanese officials to talk up the currency, though that has done little to effectively halt its slide. It is unlikely that the authorities will intervene on a bigger scale because there’s still a reasonable explanation for the currency’s weakness, Sakakibara said.
- “This has happened because of the difference of the monetary policy,” he said. “I don’t think that neither the Bank of Japan or Japanese government are worried about the current state of affairs with regards to the exchange rate.”
Thought For A Day
Deutsche Bank says S&P500 to 3650, then as high as 4800 by the end of this year
Deutsche Bank with their latest SP500 forecast, says it’ll fall to 3,650
- this would be a 24% decline, which is an average recession decline
DB citing:
- growth is slowing
- thus earnings-led declines for stocks, valuations are vulnerable
DB says that if the labour market can hold up and growth is not hit too hard then they see a year-end rally to 4,700 / 4,800
Weekly S&P500 candles:
US stocks close near session lows and have another horrible day to the downside NASDAQ falls -4.73%
The major US indices are all closing sharply lower as concerns about the economy and inflation way on values.
Target announced earnings before the open and they came in much weaker than expected as higher costs are starting to eat into the margins. The stock is ending the day down -$53.55 or -24.87%. Ouch.
If transportation/employee costs are hurting Target, a company like Amazon must be really feeling the pinch. It’s shares are down $-164 today or -7.12%.
A look at the final numbers are showing:
- Dow industrial average down -1164.52 points or -3.57% at 31490.06
- S&P index down -165.17 points or 4.04% at 3923.67
- NASDAQ down -566.36 points or -4.73% at 11418.16
- Russell 2000 down -65.45 points or -3.56% at 1774.84.
None of the Dow 30 stocks closed positive on the day:
- Walgreens, -8.39%
- Coca-Cola, -6.95%
- Walmart, -6.84%
- Procter & Gamble, -6.15%
- Nike, -5.7%
Verizon was the best performer at -0.14%
Other big losers on the day included:
- Target, -24.87%
- Dollar Tree, -14.42%
- Costco, -12.45%
- Chewy, -11.93%
- Game Stop -8.94%
- DoorDash -8.17%
- AirBNB -8.06%
- FedEx -8.01%
- LYFT, -7.96%
- Snap, -7.42%
- Amazon, -7.16%
All sectors of the S&P are lower today. Consumer staples (6.6%) and consumer discretionary (-6.4%) were the worst performing sectors followed by technology (-4.7%). Utilities were the best of the worst (-1.0%).
After the close, Cisco Systems announce their earnings and revenues for the current quarter. Earnings-per-share came in at $0.87 vs. 86% estimate. Revenues came in at $12.84 billion which was lower than the $13.34 billion estimate. The stock is trading down over 11% in after-hours trading.
“When sorrows come, they come not single spies, but in battalions” – Claudius in Hamlet
PS. The heatmap for the major stocks. Clearly TJ Maxx will have a crappy quarter next quarter….
50(0) shades of red. Ouch that is red hot!
Thought For A Day
Target and Wal-Mart earnings are a dire signal on inflation
Share of Target are down 24.5% in the pre-market after missing badly on earnings despite growing revenue and traffic. The story is rising costs.
“Throughout the quarter, we faced unexpectedly high costs, driven by a number of factors, resulting in profitability that came in well below our expectations, and well below where we expect to operate over time,” said CEO Brian Cornell in the earnings release.
They cited costs related to freight, supply chain disruptions, and increased compensation and headcount in distribution centers.
The company can now either try to tame those costs, and some of them are out of their control like fuel. Or they can raise prices to boost margins.
It’s a competitive marketplace so hiking prices could drive consumers to the competition but Wal-Mart is facing the same issue. Its shares fell 11% yesterday on earnings and are down another 1.6% in the pre-market.
Some will point to inventories and the product mix on shelves but seeing as it happened to both TGT and WMT, that’s tough to swallow.
There’s also this from Wal-Mart CEO Doug McMillon:
“The rate of inflation in food pulled more dollars away from [general merchandise] than we expected as customers needed to pay for the inflation in food.”
Food inflation isn’t improving and I strongly suspect that general merchandise prices are going higher. So while overall revenues held up this quarter, it’s not tough to see a further squeeze ahead.
In the bigger picture
This is increasingly looking like a stagflationary environment. The two largest retailers in the US will be raising prices and consumers will increasingly shift to low-margin purchases like food and fuel.
As those price rises filter through it will keep CPI inflation elevated. Yesterday, Fed Chair Jerome Powell laid out his strategy and that can be summed up as “we need to see inflation coming down in a convincing way” before the hiking abates.
To me, these results from WMT and TGT highlight a longer timeline for high inflation and greater risks of a wage-price spiral. The odds that the Fed pauses at 2.5% are dwindling and the chance of 4% Fed funds is rising.
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