Daily Analysis 17 August 2022 (10-Minute Read)

Hello there,

A wonderful Wednesday to you as markets wind themselves through another midweek rudderless.

In brief (TL:DR)

  • U.S. stocks were mixed on Tuesday with the Dow Jones Industrial Average (+0.71%) and the S&P 500 (+0.19%) up, while the Nasdaq Composite (-0.19%) was down.

  • Asian stocks rose on Wednesday amid speculation that China may roll out more stimulus to shore up its ailing economy and as some robust U.S. earnings delivered a boost for sentiment.

  • Benchmark U.S. 10-year Treasury yields rose one basis point to 2.82% (yields rise when bond prices fall).

  • The dollar was steady.

  • Oil partially bounced from a recent slump but was still in sight of a more than six-month low with September 2022 contracts for WTI Crude Oil (Nymex) (+1.10%) at US$87.48.

  • Gold rose slightly with December 2022 contracts for Gold (Comex) (+0.34%) at US$1,795.70.

  • Bitcoin (-0.64%) fell to US$23,847 as investors took some money off the table for trades.


In today's issue...

  1. Resilient Sales at Biggest U.S. Retailers Ease Recession Fears

  2. Let the Chips Lie where they Fall and Where they Fall, so does the Global Economy

  3. Embattled Crypto Lender Celsius Network is trying to Revive


Market Overview

The revival in stocks from bear-market lows is a contentious bet that inflation and central bank hawkishness are peaking, making a recession less likely. The latest U.S. Federal Reserve minutes Wednesday may test those wagers.

In China, where challenges from a property-sector slump and Covid curbs are multiplying, Premier Li Keqiang asked local officials from six key provinces that account for 40% of the economy to bolster pro-growth measures.

Asian markets were mostly higher on Wednesday with Tokyo's Nikkei 225 (+1.17%), Hong Kong's Hang Seng Index (+0.79%) and Sydney’s ASX 200 (+0.35%) up, while Seoul's Kospi Index (-0.77%) was down.



1. Resilient Sales at Biggest U.S. Retailers Ease Recession Fears

  • On Tuesday, Walmart reported stronger sales and profits than expected in the three months to July and forecast a smaller decline in full-year earnings than it had warned investors before

  • Home Depot, the DIY chain, reported its highest quarterly sales and earnings on record, saying that consumers were spending on home improvement despite high inflation and mortgage rates, with its business accelerating in recent weeks.

For some time, record inventories at some of America’s largest big box retailers, was raising concerns that the U.S. may already be in a recession, at a time when lower demand was meeting overstocked warehouses, a relic from pandemic overbuying.

Two profit warnings from Walmart (+5.11%), the world’s largest retailer, since May have rattled investors looking for clues about how U.S. consumers have adapted to historically high inflation and rising interest rates.

But on Tuesday, Walmart reported stronger sales and profits than expected in the three months to July and forecast a smaller decline in full-year earnings than it had warned investors before.

Walmart executives also said they had seen glimmers of improvement in recent weeks despite its most price-sensitive shoppers trading down to cheaper groceries.

Because shoppers’ gas and grocery bills have risen, many have cut spending on discretionary items such as clothing and non-essential merchandise.

Lower-income consumers were also seen to be trading down from deli meats to cheaper hot dogs, canned tuna and chicken.

But tougher times have also been a boon for Walmart, which has been seen gaining market share as higher-income shoppers, who would typically shop at places like Target, turned to its stores and e-commerce services to save money.

Home Depot (+4.06%), the DIY chain, reported its highest quarterly sales and earnings on record, saying that consumers were spending on home improvement despite high inflation and mortgage rates, with its business accelerating in recent weeks.

Investors welcomed the improved outlook from two of the largest U.S. retailers, pushing Walmart shares 5.1% higher and Home Depot’s shares up 4.1% on Tuesday, helping to lift other retail stocks as well.



2. Let the Chips Lie where they Fall and Where they Fall, so does the Global Economy

  • In recent weeks, major chip manufacturers Micron Technology, Nvidia, Intel and Advanced Micro Devices have warned of weaker export orders.

  • South Korea’s technology exports slipped in July for the first time in over two years, with memory chips leading the falls adding to signs of trouble for a global economy facing headwinds from geopolitical risks and higher borrowing costs.

During the pandemic, demand for chips saw supply chains seize up, affecting everything from electric kettles to electric cars, and manufacturers couldn’t scramble fast enough to make up for the shortfall in semiconductors essential to modern day living.

But Russia’s invasion of Ukraine and rising interest rates have faded tech demand, against a backdrop of overall slowing global demand for goods and painting a darkening economic picture.

North Asia’s high-tech exporters, which historically serve as a bellwether for the global economy, are now expressing concern over rapidly slowing semiconductor demand, a proxy for consumption in a plethora of other goods.

In recent weeks, major chip manufacturers Micron Technology (-1.30%), Nvidia (-0.80%), Intel (-0.41%) and Advanced Micro Devices (-0.80%) have warned of weaker export orders.

Meanwhile, South Korean behemoths Samsung Electronics (-0.33%) and SK Hynix (-0.10%), two of the world’s biggest contract chipmakers, have signaled plans to dial back investment outlays, while across the East China Sea, the world’s biggest contract chipmaker Taiwan Semiconductor Manufacturing indicated a similar expectation.

At the height of pandemic demand, global shortages of graphics cards that power everything from cryptocurrency mining rigs to gaming PCs, and the basic semiconductors that power any form of connected device, saw chipmakers announce a slew of expansion and investment initiatives, to cope with the burgeoning demand.

But chip foundries are notoriously expensive to build and take years to generate a return on investment.

A weakening in demand for chips would make any chipmaker think twice about spending the billions of dollars it takes to set up a foundry, especially if it’s without massive government subsidies, tax breaks and incentives.

In the US$500 billion global semiconductor market, memory chips appear the most vulnerable and responsive to a downturn.

South Korea’s technology exports slipped in July for the first time in over two years, with memory chips leading the falls adding to signs of trouble for a global economy facing headwinds from geopolitical risks and higher borrowing costs as such exports have long correlated with global trade.



2. Let the Chips Lie where they Fall and Where they Fall, so does the Global Economy

  • In recent weeks, major chip manufacturers Micron Technology, Nvidia, Intel and Advanced Micro Devices have warned of weaker export orders.

  • South Korea’s technology exports slipped in July for the first time in over two years, with memory chips leading the falls adding to signs of trouble for a global economy facing headwinds from geopolitical risks and higher borrowing costs.

During the pandemic, demand for chips saw supply chains seize up, affecting everything from electric kettles to electric cars, and manufacturers couldn’t scramble fast enough to make up for the shortfall in semiconductors essential to modern day living.

But Russia’s invasion of Ukraine and rising interest rates have faded tech demand, against a backdrop of overall slowing global demand for goods and painting a darkening economic picture.

North Asia’s high-tech exporters, which historically serve as a bellwether for the global economy, are now expressing concern over rapidly slowing semiconductor demand, a proxy for consumption in a plethora of other goods.

In recent weeks, major chip manufacturers Micron Technology (-1.30%), Nvidia (-0.80%), Intel (-0.41%) and Advanced Micro Devices (-0.80%) have warned of weaker export orders.

Meanwhile, South Korean behemoths Samsung Electronics (-0.33%) and SK Hynix (-0.10%), two of the world’s biggest contract chipmakers, have signaled plans to dial back investment outlays, while across the East China Sea, the world’s biggest contract chipmaker Taiwan Semiconductor Manufacturing indicated a similar expectation.

At the height of pandemic demand, global shortages of graphics cards that power everything from cryptocurrency mining rigs to gaming PCs, and the basic semiconductors that power any form of connected device, saw chipmakers announce a slew of expansion and investment initiatives, to cope with the burgeoning demand.

But chip foundries are notoriously expensive to build and take years to generate a return on investment.

A weakening in demand for chips would make any chipmaker think twice about spending the billions of dollars it takes to set up a foundry, especially if it’s without massive government subsidies, tax breaks and incentives.

In the US$500 billion global semiconductor market, memory chips appear the most vulnerable and responsive to a downturn.

South Korea’s technology exports slipped in July for the first time in over two years, with memory chips leading the falls adding to signs of trouble for a global economy facing headwinds from geopolitical risks and higher borrowing costs as such exports have long correlated with global trade.

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