The major U.S. equity averages finished the last session of Q3 with another day of losses on Friday, adding to recent weakness. With investors still concerned about aggressive Federal Reserve policy, the Dow and S&P 500 touched new lows for 2022. Trading took place amid PCE price data that rose more than forecasters expected. Meanwhile, comments from a top Fed official continued to point to a hawkish stance from the central bank. While the Dow and S&P 500 both set intraday 52-week lows during the session, the Nasdaq remained just off its previous 2022 low of 10,565.84, set back in June. Still, this represented the lowest closing price for the Nasdaq since July 2020. Ten of the 11 S&P sectors finished in the red during the last session of the quarter. In a signal to what to expect in Q4, Federal Reserve Vice Chair Lael Brainard signaled that the central bank was not planning to return to an accommodative stance in the near future. Read a preview of next week's big events in Seeking Alpha's Catalyst Watch.
Following a cable crash earlier in the week, U.K. bond turmoil forced the the Bank of England to step into the market as government borrowing costs surged amid fears of the government's tax-cutting plans. The central bank suspended the planned start of its gilt selling next week and said it would temporarily buy long-dated bonds, scooping them up on "whatever scale is necessary." The yield on the 10-year gilt tumbled in response, falling 36 basis points to 4.15%, while pound sterling rose above $1.08, before quickly wiping out those gains.
Backdrop: Gilt yields were on track for their sharpest monthly rise since at least 1957 after Prime Minister Liz Truss unveiled her so-called "mini-budget." The plan included sweeping tax cuts for individuals, businesses and house purchases, while subsidizing soaring energy costs. The Treasury even forecast that it would wipe £45B off government revenues over the next five years, sending shock waves through financial markets.
"Were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy," the Bank of England said in a statement. "In line with its financial stability objective, the BoE stands ready to restore market functioning and reduce any risks from contagion to credit conditions for U.K. households and businesses."
Go deeper: In a rare rebuke of a G7 country, the IMF is urging Truss to "re-evaluate" the tax cuts, warning that the new measures are likely to fuel a cost-of-living crisis. "Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy. Furthermore, the nature of the UK measures will likely increase inequality." (155 comments)
The Nord Stream pipeline system that transports Russian gas to Europe reported "unprecedented" damage on Tuesday, with management saying it was impossible to predict when operations would resume. Both Europe and Russia said sabotage cannot be ruled out for the cause of the destruction, and Swedish authorities said two powerful underwater explosions were detected in the same area of the Baltic Sea where gas had bubbled to the surface.
Price movement: Benchmark Dutch natural gas front-month futures closed the session up 7% to €186.10/Mwh, while U.K. natural gas futures jumped by as much as 34% before settling 6.2% higher at £255.65/MWh. European leaders have previously accused Moscow of weaponizing energy - citing the use of maintenance issues as pretexts for limiting flows - while the new leaks guarantee a shutdown of gas flows to Germany this winter.
The developments follow an escalation of the war in Ukraine, with Vladimir Putin announcing a "partial mobilization" that will conscript as many as 300,000 additional troops. Russia has also declared victory in a series of referendums that took place over the past week in the Donetsk, Luhansk, Kherson and Zaporizhzhia regions. "As for the risk of Russia using these votes and subsequent annexation of those territories as a pretext for nuclear strikes - we are conscious of this risk, we understand that it is real," said Yuriy Sak, an advisor to Ukraine's Defense Minister Oleksii Reznikov.
Note: Nord Stream 1 stopped pumping gas earlier this month, with Moscow claiming that sanctions prevented it from carrying out vital maintenance work, while Nord Stream 2 has never opened, as Germany did not certify it for commercial operations due to Russia's invasion of Ukraine. (129 comments)
Floridians were urged to evacuate before Hurricane Ian crashed into Cayo Costa as a Category 4 hurricane on Wednesday afternoon. Storm surges reached as high as 18 feet in some coastal areas, while maximum sustained winds hit 150 mph, leaving people that didn't evacuate stranded in their homes. Extensive infrastructure and property damage were also recorded in areas like Fort Myers and Cape Coral, while nine deaths have been reported amid ongoing rescue efforts.
Snapshot: Electricity for around 2.5M customers in Florida were knocked offline, while personnel were evacuated from 14 Gulf Coast rigs, halting about 11% of the region's oil output. Meanwhile, widespread transportation disruptions were recorded, including airport closures and over 2,000 flight cancellations on Wednesday. Florida's biggest seaport in Jacksonville, known as Jaxport, as well as Port Canaveral, also joined Port Tampa Bay in shutting down completely.
"You're looking at a storm that changed the character of our state," Governor Ron DeSantis declared, referring to Ian as a "500-year flood event."
Catastrophic damage: Economic losses in the area may exceed $45B if current forecasts come to pass, ranking Ian as the eighth-costliest U.S. hurricane. Ian now heads to the Carolinas, where a state of emergency has been declared over the hurricane and tropical storm conditions. (64 comments)
The slowdown in tech went on full display after Facebook parent Meta Platforms (META) announced plans to reduce headcount for the first time ever. Macroeconomic headwinds are clearly hitting the sector, as well as an advertising slump that was exacerbated by Apple's (AAPL) iOS privacy changes. Meta is also waiting for its big investments in virtual reality (Oculus), the metaverse (Horizon Worlds) and short-form video (Reels) to bear fruit, as growth peaks across Facebook, Instagram and WhatsApp.
Quote: "I had hoped the economy would have more clearly stabilized by now," CEO Mark Zuckerberg told a weekly Q&A session with employees. "But from what we're seeing it doesn't yet seem like it has, so we want to plan somewhat conservatively."
Budgets will be further tightened across "all teams," even among those that are growing, while priorities will be realigned to factor in the trimmed expenses. Meta, whose shares are down 60% YTD, is not alone in its downsizing efforts, with many companies implemented similar decisions over the summer. Twitter (TWTR) froze hiring in May, Snap (SNAP) slashed 20% of its staff in August, while Alphabet (GOOGL) announced it would slow hiring in the second half of 2022.
More tech trouble: Apple also dragged down the Nasdaq on Thursday as the iPhone maker slumped following a rare downgrade by Bank of America. "We see risk to this outperformance over the next year, as we expect material negative [estimates] revisions driven by weaker consumer demand (Services already in slowdown and we expect products to follow)," analyst Wamsi Mohan wrote in a note to clients. Shares were lowered to Neutral from Buy (PT to $160 from $185), prompting the stock to drop 5% and erasing over $100B of market value. (67 comments)
The IPO market may be drying up in the current investing environment, but one company still appears to be driving at its finest. Porsche AG advanced 3% to €85/share during its first trading session in Frankfurt, after parent Volkswagen AG (OTCPK:VWAGY) set the final price for the sports-car maker at the top end of its €76.50-€82.50 marketed range. The listing values Porsche at some €75B, making it Europe's largest initial public offering in a decade despite many challenging market conditions.
Bigger picture: As part of the listing (and a nod to its well-known vehicle line), 911M Porsche shares were divided into 455.5M preferred shares and 455.5M ordinary shares. Only a quarter of the preferred, non-voting shares were sold, while a holding company controlled by the Porsche and Piech families bought 25% of the company - with voting rights - giving them a majority that could halt major strategic decisions implemented by the carmaker's board. Investors in the IPO also included the sovereign wealth funds of Qatar, Abu Dhabi and Norway, as well as mutual fund company T. Rowe Price.
Volkswagen, which will retain a 75% stake in Porsche, is set to raise €19.5B from the IPO. The parent firm plans to distribute nearly half of the proceeds to VW shareholders in the form of a special dividend, while the remaining amount will pave the way for its EV transition and investments in software. In terms of earnings, Porsche recorded a €4B profit last year, on revenue of €33.1B.
Engineered for magic: Porsche hired Italian investment bank Mediobanca - which took Ferrari (NYSE:RACE) public in 2015 - as a financial advisor for the IPO. While the two companies are in the luxury auto business, Ferrari has exclusively focused on expensive sports cars as Porsche expands into the more affordable market and SUVs. Ferrari is also run independently of its former parent Fiat and the Agnelli family, trading freely on the open market, while only 10% of Porsche's shares were offered to retail investors, and do not carry any voting rights. (15 comments)
Dow -2.9% to 28,726. S&P 500 -2.9% to 3,586. Nasdaq -2.7% to 10,576. Russell 2000 -0.7% to 1,667. CBOE Volatility Index +5.7% to 31.62.
S&P 500 Sectors
Consumer Staples -4%. Utilities -8.8%. Financials -2.4%. Telecom -3%. Healthcare -1.4%. Industrials -2.4%. Information Technology -4.2%. Materials -0.7%. Energy +1.8%. Consumer Discretionary -2.4%.
London -1.8% to 6,894. France -0.4% to 5,762. Germany -1.4% to 12,114. Japan -4.5% to 25,937. China -2.1% to 3,024. Hong Kong -4% to 17,223. India -1.2% to 57,427.
Commodities and Bonds
Crude Oil WTI +1.3% to $79.74/bbl. Gold +0.8% to $1,668.3/oz. Natural Gas -2.4% to 6.826. Ten-Year Bond Yield -0.2 bps to 3.829.
Forex and Cryptos
EUR/USD +1.15%. USD/JPY +1.03%. GBP/USD +2.91%. Bitcoin +2.4%. Litecoin -0.1%. Ethereum +0.9%. XRP -2.5%.
Top S&P 500 Gainers
Biogen (BIIB) +35%. Marathon Petroleum (MPC) +9%. Valero Energy (VLO) +6%. Phillips 66 (PSX) +6%. Las Vegas Sands (LVS) +6%.
Top S&P 500 Losers
Carnival Corporation & plc (CCL) -21%. CarMax (KMX) -17%. V.F. (VFC) -16%. Norwegian Cruise Line Holdings (NCLH) -16%. Royal Caribbean Cruises (RCL) -15%.
Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.
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