Wall Street Breakfast: What Moved Markets

Jul. 09, 2022 8:02 AM ETTSLA, HAL, APA, COP, MRNA, ETSY, PAYC, PHM, ADM, HES, PM, LIN8 Comments
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Stocks closed mostly lower Friday following a strong June jobs report, while still posting gains in the first full trading week of July. The U.S. economy added a stronger than expected 372,000 jobs in June, and the unemployment rate held steady at a healthy 3.6%, giving the Fed no reason to deviate from its plan for aggressive rate hikes. Investors may have backed off a bit from overriding recession fears, as the strong jobs report and a recent sharp decline in prices for oil and other commodities allowed for a somewhat higher possibility that the U.S. economy could achieve a soft landing. The three major market indices finished higher for the week, with the Nasdaq Composite jumping 4.6%, the S&P 500 gaining 1.9%, and the Dow Jones edging 0.8% higher. Next week starts second quarter earnings reports, and investors will examine the effects of commodity price and shipping cost pressures on companies' profit margins.


Tesla (TSLA) is no longer the world's biggest clean vehicle maker as the EV pioneer takes a backseat to BYD (OTCPK:BYDDY). The Chinese automaker, which is backed by Warren Buffett, sold 641,350 new energy vehicles in the first six months of 2022, representing a 315% increase from the same period last year. Tesla, on the other hand, only delivered a total of 564,743 vehicles in H1 as it contended with supply chain problems, factory lockdowns and sales disruptions in China.

Fine print: BYD's figures included electric and plug-in hybrid vehicles, while Tesla's only include battery electric cars (it doesn't produce a hybrid). The numbers still highlight the trajectory of BYD's growth, compared to the Elon Musk-run company, which snapped a two-year streak as deliveries fell 18% last quarter. The developments have also been highlighted in their stock prices, with shares of BYD climbing 15% since the start of the year and Tesla tumbling 42% YTD.

"The performance looks impressive," said Jeff Chung, an auto analyst with Citi, referring to BYD's sales growth. The firm has also surpassed South Korea's LG as the world's second-largest producer of EV batteries, behind industry leader Contemporary Amperex Technology, known as CATL.

Go deeper: While BYD is also located in China, the carmaker has weathered regional coronavirus lockdowns much better than Tesla. That's because its factories are largely based away from COVID hotspots like Shanghai, which is the location of Tesla's Gigafactory 3. The facility accounted for half of Tesla's global production in 2021, but was shut for 22 days in May and has since struggled to reach pre-pandemic levels due to ongoing parts shortages. (29 comments)

Slippery when upset

Just hours after telling an energy summit in Abuja that the oil industry was "under siege" from years of under-investment, OPEC's Secretary-General Mohammad Barkindo died at the age of 63. Barkindo had served in the role since 2016, though his passing isn't likely to shake the turbulent oil too hard, as he was due to step down at the end of this month. Recession fears slammed oil prices on Tuesday, with crude tumbling 8% to under $100 a barrel as investors fretted over a soaring dollar and a downturn that could slam demand.

Bigger picture: OPEC's Secretary-General is in constant contact with international bodies, and convenes the group's meetings, which used to happen twice a year, but now includes almost monthly extraordinary sessions. Haitham al-Ghais, an oil industry veteran and former Kuwaiti governor to OPEC, is due to succeed Barkindo, who is credited with guiding unity among the group's members. Barkindo was specifically involve in clinching a deal with non-OPEC, energizing the group by bringing Russia and other key producers on board for a series of production cuts since 2017. That agreement shored up the market following the supply glut and oil plunge of 2014-16, while he also kept the alliance together through the coronavirus pandemic, when the price of oil crashed and even briefly went negative.

That doesn't mean there hasn't been criticism. Besides the war in Ukraine, the U.S. and other countries have accused OPEC for creating "artificial tightness" in global energy markets, with Washington coordinating a release from the Strategic Petroleum Reserve and taking other measures after OPEC refused to aggressively boost output. For their part, big producers like the Saudis and UAE have said that they are near maximum production capacity, while worsening political crises in Libya and Ecuador have made it challenging for the group to cover its quotas.

Price movement: Energy stocks slid with the price of oil on Tuesday as S&P 500's energy sector ended the session down 4%. The biggest losers included Halliburton (HAL), APA Corp. (APA) and ConocoPhillips (COP), which fell 8.1%, 7.6% and 7%, respectively. Oil forecasts for the rest of the year are all over the place, with Goldman Sachs still calling for crude to hit $140 or more, while Citi sees prices falling to $65/bbl if the economy tips into recession. (10 comments)

Inflation or growth?

U.S. equity indices finished Wednesday's session with modest gains, as Wall Street reacted positively to details about the Feds strategy to contain inflation. Investors cheered signs that the central bank was committed to preventing price pressures from becoming entrenched, even if that came at a cost of slowing the U.S. economy. Seven of the 11 S&P sectors finished the session higher, but "Utilities" was the only one to post a gain of as high as 1%, as fears of recession continue to linger in the background.

The minutes: FOMC policymakers judged that an increase of 50 or 75 basis points "would likely be appropriate at the next meeting" given the current economic outlook. They also "recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist." With the potential for the firmer policy to slow growth, Fed officials also removed language from the June policy statement that "indicated an expectation that appropriate policy would result in a return of inflation to 2% and a strong labor market."

There was also discussion on steps to shrink the central bank's balance sheet, a strategy known as quantitative tightening. The FOMC projected that net income in its System Open Market Account would decline or potentially turn negative as the increased rate target range lifted interest expenses on some liabilities. "This eventually could result in a deferred asset entry" on the balance sheet, but neither unrealized losses on its existing securities portfolio or negative net income would result in changes to monetary policy implementation.

Commentary: ING expects the Fed to retain its hawkish stance, especially after Friday's jobs report came in stronger than expected. "In fact we even expect a 75 bps hike in July," ING wrote in a note. "If Powell's recent remarks are anything to go by, the tone of the FOMC minutes will cause cognitive dissonance, with markets now openly questioning how far and how long the Fed can tighten policy before having to reverse course." (64 comments)

Calls to quit

Following a call from key allies to step down, Boris Johnson resigned from his role as U.K. prime minister, but will stay on as caretaker until October. Sterling regained some lost ground on the news, with traders pricing in an end to the chaotic situation on Downing Street. It came after Johnson saw more resignations from his Conservative government in one day than any other prime minister in history, but was defiant and stressed his intention to stay on as leader as of late last night.

Commentary: "The U.K. political soap opera doesn’t matter much for sterling unless it opens a door to easier fiscal policy (sterling-positive) and allows a more constructive approach to trade relations," wrote Kit Juckes, chief FX strategist at Societe Generale.

Johnson has faced increasing pressure to resign after a series of scandals, including "Partygate" and allegations of misleading the public over the appointment of former deputy chief whip Chris Pincher. The momentum to oust Johnson grew with the resignations of Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid on Tuesday, but quickly escalated into a full scale party mutiny. Nadhim Zahawi, who was appointed as Sunak's successor, even issued a letter Thursday morning saying the prime minister must go, following a prior announcement that he and Johnson would detail a plan to combat economic problems in the U.K.

What's next? A Tory leadership contest will now ensue, with bookmaker William Hill putting Sunak as the favorite at odds of 4-1. The new prime minister will have to contend with a troubled economy, with persistently high inflation that reached 9.1% in May. A spike in energy costs from the war in Ukraine is plaguing many industries, while the country is still dealing with the full impacts of Brexit more than two years after leaving the European Union. (269 comments)

Abe assassination

Japan's former prime minister, Shinzo Abe, died early Friday after being shot at a campaign event in the city of Nara. Abe was at the political gathering to give his support for his former party, the Liberal Democratic Party, with upper house elections in Japan due to take place this weekend. A 41-year-old man who lives in the Nara is in police custody following the assassination, and local media reports suggested he had disagreements with Abe's policies and decided to attack him.

Snapshot: Abe remained a powerful figure in Japan despite stepping down from the prime minister post in 2020 for health reasons. Not only was he the longest-serving prime minister, in 2006 and then again from 2012 to 2020, but he comes from a political family with his grandfather serving as prime minister and father holding office as a senior politician. Many world leaders issued their condolences immediately after the tragedy, with U.S. Secretary of State Antony Blinken saying he was "deeply saddened" on the sidelines of G20 meetings in Bali.

Prior to his death, Abe wielded a lot of influence over the current administration, with the most recent example emerging following Russia's invasion of Ukraine. Shortly after Abe came out and announced that Japan needs to increase its military spending, current Prime Minister Fumio Kishida began to echo those calls. Kishida has also been working with the U.S. and its allies to put pressure on Russia, building on Abe's push to scrap Japan's pacifist constitution that has been in place since WWII.

Abenomics: On the economic front, Abe was best known for his efforts to revive Japan's economic growth through a range of hyper-easy monetary policy, fiscal spending and structural reforms. While the strategy aimed to boost productivity and lower the nation's debt over the long term, economists have recorded mixed results for the world's third-largest economy. Abenomics largely stayed in place after Abe stepped down and even after other central banks started raising interest rates this year to stem soaring inflation. (39 comments)

U.S. Indices
Dow +0.8% to 31,338. S&P 500 +1.9% to 3,899. Nasdaq +4.6% to 11,635. Russell 2000 +2.4% to 1,769. CBOE Volatility Index -7.7% to 24.64.

S&P 500 Sectors
Consumer Staples -0.5%. Utilities -2.9%. Financials +0.5%. Telecom +4.9%. Healthcare +0.8%. Industrials -0.2%. Information Technology +4.3%. Materials -1.5%. Energy -2.4%. Consumer Discretionary +4.6%.

World Indices
London +0.4% to 7,196. France +1.7% to 6,033. Germany +1.6% to 13,015. Japan +2.2% to 26,517. China -0.9% to 3,356. Hong Kong -0.6% to 21,726. India +3.% to 54,482.

Commodities and Bonds
Crude Oil WTI -3.4% to $104.8/bbl. Gold -3.4% to $1,740.9/oz. Natural Gas +5.9% to 6.067. Ten-Year Treasury Yield +0.2 bps to 3.08.

Forex and Cryptos
EUR/USD -2.31%. USD/JPY +0.69%. GBP/USD -0.5%. Bitcoin +13.8%. Litecoin +2.%. Ethereum +18.1%. XRP +10.4%.

Top Stock Gainers
Moderna (MRNA) +23%. Etsy (ETSY) +21%. Paycom Software (PAYC) +15%. Tesla (TSLA) +12%. PulteGroup (PHM) +12%.

Top Stock Losers
Archer-Daniels-Midland (ADM) -5%. Hess (HES) -5%. Philip Morris International (PM) -5%. Halliburton (HAL) -5%. Linde (LIN) -4%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

This article was written by

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