(Boursier.com) – Wall Street corrects this Wednesday, following the recent surge, and after the publication of contrasting consumption figures. The S&P 500 dropped 0.85% to 4,268 pts, the Dow Jones lost 0.57% to 33,958 pts and the Nasdaq stumbled 1.44% to 12,914 pts. Minutes from the Fed’s latest FOMC meeting, which may provide additional guidance on the direction of monetary policy, will be released this evening. The markets estimate the probability of a rise limited to 50 basis points in the rate of the fed funds on September 21 at 49.5% (between 2.75 and 3% therefore), against 50.5% for a rise of three-quarters of a point (between 3 and 3.25%), according to the CME Group’s FedWatch barometer.
Crude prices are recovering on Wednesday. A barrel of WTI crude advanced 2% to $88.2. An ounce of gold fell 0.5% to $1,780. The dollar index rose 0.2% against a basket of benchmark currencies.
Oil prices rebounded strongly after the announcement of a very sharp drop in black gold reserves in the United States last week. According to the US Department of Energy, domestic crude inventories, excluding strategic reserves, fell by 7.1 million barrels during the week ended August 12 to 425 mb. And this while US crude exports have reached a new record. The consensus was for a slight drop of 0.3 mb. Gasoline inventories fell by 4.6 million barrels (-1.1 mb consensus), and those of distilled products increased by 0.8 million barrels (+0.4 mb consensus).
According to today’s report on Wednesday, US retail sales for July 2022 were stable compared to the previous month, while the FactSet consensus was +0.2%. A month earlier, US consumption had increased by 0.8%. Excluding autos, however, retail sales rose 0.4% compared to June, while the consensus was for stability, after a gain of 0.9% a month before. Finally, excluding automobiles and gasoline, sales rose 0.7%, against 0.3% consensus.
Activity in the euro zone grew slightly less than expected in the second quarter. GDP, adjusted for seasonal variations, thus increased by 0.6% over the period, against an increase of 0.7% expected by economists, and after an increase of 0.6% in the first quarter. According to Eurostat’s preliminary estimate, GDP rose by 3.9% year-on-year after +5.4% in the previous quarter. The consensus was at +4%.
As anticipated, consumer prices continued to rise sharply in the United Kingdom. According to data released by the National Statistics Office, annual inflation stood at 10.1% in July after 9.4% the previous month, and against a consensus of 9.8%. Inflation had not reached such a high level for 40 years across the Channel. The Central Bank expects inflation to top 13% later this year when regulators allow energy bills to rise again. Annual ‘core’ inflation, which excludes the most volatile elements, stood at 6.2% against 5.8% in June, and 5.9% expected. Sequentially, the ‘core’ CPI rose 0.3% against 0.2% consensus.
The FOMC Minutes, minutes of the Fed’s latest monetary meeting, will be revealed at 8 p.m. In business news, Cisco (after closing), Lowe’s, Analog Devices, TJX, Target Where Nio Inc.unveil their latest quarterly financial results.
Target, the US discount retailer, fell 3% on Wall Street after posting quarterly profit below market expectations. Pressure on margins is therefore confirmed for the brand, with increased promotions. In terms of activity, like-for-like growth was 2.6%. The operating margin rate is only 1.2%, against 2% of ‘guidance’ and 9.8% a year earlier, with actions aimed at reducing excess inventory, as well as increases in freight and transport costs. GAAP earnings per share fell 89% year-on-year to 39 cents. Adjusted EPS is also 39 cents, while total revenue rose 3.5% to $26 billion. Like-for-like digital sales only increased 9%.
Despite the promotions, inventories rose 1.6% at the end of the quarter, compared to the previous quarter, to 15.3 billion dollars. The Minneapolis retailer nevertheless confirmed its intention to return to an annual operating margin of around 6%. However, we remain cautious regarding demand for discretionary products.
Lowe’s (+2%), the American specialist in the distribution of construction and gardening equipment, beat the profit consensus for the quarter, even if its like-for-like sales are somewhat disappointing. The company reported earnings of $4.67 per share in the second quarter ended July 29, beating estimates that averaged $4.58, benefiting from lower costs. Selling, general and administrative expenses as a percentage of sales were 16.2% for the quarter, compared to 17% last year. The group has nevertheless reported a decline of 0.3% of its sales on a comparable basis, while investors were anticipating an increase. Quarterly net profit was $3 billion, in line with last year’s levels. Total sales fell very slightly to $27.5 billion.
TJX (stable), the American retail chain, announced for the second quarter of its lagged fiscal year 2023 a pre-tax margin of 9.2% higher than its plans, as well as a diluted earnings per share of 69 cents at the top of guidance range. However, like-for-like US sales declined 5% year-on-year. Like-for-like growth for Marmaxx, in clothing, was slightly positive. The group lowers its guidance for annual earnings per share between $2.87 and $2.95. Adjusted EPS estimates now range from $3.05 to $3.13, again a downward revision. Finally, annual comparable US sales are now expected to decline by 2 to 3%, whereas the group previously envisaged growth.
Krispy Kreme, the American restaurant chain specializing in donuts, plunged 14% on Wall Street, while quarterly sales and profits missed the consensus. For the second fiscal quarter, the North Carolina group posted revenue growth of 7.5%, with organic expansion of 8.9%. The group is trying to calm the markets by adding that at this point in the third quarter, revenues have climbed 8% with organic growth of 10%. In the quarter ended in early July, revenues were $375 million, which still reflects a 50% increase in two years. The net loss for the quarter ended, in GAAP, was 2.4 million dollars, against 15 million dollars of deficit a year earlier. Quarterly diluted adjusted earnings per share were 8 cents, compared to 13 cents a year earlier, due, the group explains, to the dilution following the IPO. Quarterly adjusted EBITDA was 47.4 million.
Analog Devices (-6%), one of the major American semiconductor players, published for its third fiscal quarter 2022, ending at the end of July, revenues of 3.11 billion dollars (3.06 billion consensus) with double-digit growth in all its end markets, as well as record revenues in the industrial, automotive and communications segment. Operating cash flow reached a record $4.3 billion, while free cash flow totaled $3.7 billion. Revenues soared 77% year-on-year, but the operating margin rate fell to 28.7% from 34.7% a year earlier. Diluted earnings per share rose timidly 7% to $1.44. For its fourth fiscal quarter, the group is planning revenues of 3.15 billion, plus or minus 100 million, as well as an operating margin of 33.7%, plus or minus 130 bps and an adjusted operating margin of 50, 3% plus or minus 70 bps. Adjusted earnings per share are expected at $2.57, plus or minus 10 cents. For the past quarter, adjusted operating margin was 50.1%, up 650 bps.
Agilent (+6%), the American giant of measuring instruments, exceeded market expectations for its third fiscal quarter and further raised its forecasts. The California lab equipment star earned $329 million, or $1.10 a share, in the quarter, compared with $264 million a year ago. Adjusted for non-recurring items, Agilent posted earnings of $1.34 per share. Revenue rose 8% to $1.72 billion. Analysts had expected adjusted EPS of $1.20 on sales of $1.64 billion. Agilent raised its full-year revenue forecast to a range between $6.75 billion and $6.775 billion. Orders “continue to outpace revenue,” the company said. Agilent also raised adjusted EPS guidance for the year to between $5.06 and $5.08. For the fiscal fourth quarter, the company said it expects revenue of between $1.750 billion and $1.775 billion and adjusted EPS of $1.38 to $1.40.
Apple (stable) is reportedly leading talks to produce its Apple Watch and MacBook in Vietnam for the first time, the Nikkei understands. People with direct knowledge of the matter said that Luxshare Precision Industry and Foxconn had thus launched a test production of Apple Watch in northern Vietnam. The sources told the Nikkei that Apple is also talking with suppliers to set up test production lines for HomePod smart speakers in the Southeast Asian nation. Apple also reportedly asked its suppliers to build a test production line for the MacBook in Vietnam. Foxconn is also now said to help produce more iPads in Vietnam after Shenzhen firm BYD first helped move production from China.
Bed Bath & Beyond, the ‘same stock’ of the moment on Wall Street, jumped 20%. Its share price doubled over five sessions and quintupled over a month, without a rational fundamental explanation. The drugstore distribution group has become something of a “new GameStop”. Small US holders are indeed gathering on the forums to massively buy the title and cause panic redemptions by short sellers. It is one of the most “shorted” titles in the American market.