World Markets Face Rising Interest Rates

World markets remained focused on the U.S. Federal Reserve as investors shift focus to interest rate regime. 

Financial markets in India were closed to mark Ramzan Eid. 

U.S. Fed policy committee is scheduled to meet on Wednesday and financial markets are anticipating interest rate hike of at least 0.5%, the first such increase in 20 years.  

The Fed has been severely lagging in taming inflation after saying that last two years of energy price increases are transitory. 

U.S. consumer prices are rising at the fastest pace in four decades and annual inflation is hovering between 8.5% and 10%. 

10-year U.S. Treasury yield is trading at 2.89%, resulting in a negative interest rate of as much as 7%. 

The Bank of England is scheduled to lift its interest rate to the highest since 2009 on Thursday.  

The Reserve Bank of Australia lifted the cash rate for the first time since 2011.

The central bank raised the rate by 0.25 percentage point from record low of 0.1% in 2020 to 0.35% and said additional rate hikes are likely to follow. 

Australian market indexes closed higher and banks closed down 1%. 

The central bank rate decision was announced after the market closed. 

In Asian markets, Hang Seng index gained 0.06% and markets in Japan, China, and India were closed.  

The Bank of Japan is the only central bank sticking to its ultra-low rate policy and said last week it will support 10-year Japanese government bond at 0.25% yield. 

European markets traded higher and market indexes in Germany and in France gained 0.1% but in London eased 0.75% ahead of the rate decision on Thursday. 

Chegg Inc Sharply Lowers Annual Revenue Guidance

Chegg Inc reported first quarter 2022 revenues increased 1.9% to $202,1 million and swung to net income of $5.7 million compared to a loss of $65.2 million. 

Diluted earnings per share in the quarter was 4 cents compared to 49 cents loss a year ago. 

After adjusting for stock-based compensation and other items, adjusted earnings per share rose to 32 cents from 28 cents a year ago and above the average estimate of 24 cents set by analysts according to FactSet.   

Chegg Services revenue growth in the quarter plunged to 13.8% from 61.8 % in the year ago. 

The company ended the quarter with 5.4 million Chegg services subscribers, an increase of 12% from a year ago. 

The total subscriber count included 0.6 million subscribers of the newly acquired language services provider Busuu for $422 million. 

Guidance and Outlook 

The company guided second quarter revenues between $188 million and $192 million and gross margin between 73% and 74%. 

The company also estimated adjusted EBITDA between $66 million and $68 million. 

For the full-year 2022, the company estimated revenues between $740 million and $770 million compared to the previous estimated range of $830 million to $850 million. 

Gross margin to hover in the range of 73% to 74%. 

Adjusted EBITDA to fall between $220 million and $235 million or 30% adjusted EBITDA margin.  

The company also anticipates capital expenditure in the year between $120 million and $130 million. 

U.S. Construction Spending Inches Higher 0.1% in March

Construction activities inched up modestly in March according to the latest data released by the Commerce Department. 

U.S. construction spending rose 0.1% in March to $1.73 trillion annual rate from the upwardly revised 0.5% spending in February. 

 Residential construction rose 1.0% to a rate of $882.0 billion, but spending on non-residential construction dropped 1.2% to a rate of $497.6 billion. 

Public construction eased 0.2% to $351 billion. 

Late Afternoon Reversal Lifts Stocks In Volatile Session, Bond Yield Reaches 3%

U.S. indexes closed higher but swung in choppy trading with the S&P 500 index reaching a new intraday low before the market reversal in the late afternoon. 

The S&P 500 index rose 0.6% to 4,155.05 and the Nasdaq Composite index jumped 1.63% to 12,536.02.  

The S&P 500 index touched a new intra-day low. 

Construction activities inched up modestly in March according to the latest data released by the Commerce Department. 

U.S. construction spending rose 0.1% in March to $1.73 trillion annual rate from the upwardly revised 0.5% spending in February. 

 Residential construction rose 1.0% to a rate of $882.0 billion, but spending on non-residential construction dropped 1.2% to a rate of $497.6 billion. Public construction eased 0.2% to $351 billion. 

The market indexes extended losses after the 10-year U.S. Treasury bond yield reached 3% for the first time since 2018 ahead of Fed policy meeting on Wednesday. 

Nearly 1,500 companies have reported quarterly results and most companies are reporting strong growth deceleration. 

The consumer products makers, retailers, and manufacturing companies are reporting weaker-than-expected earnings for the rest of 2022. 

Market indexes in Paris dropped 1.7%, in Frankfurt fell 1.2%, and in London edged up 0.5%.   

European Union growth is also on the skid after the April estimate of factory activities showed a decline in growth rate from March. 

Crude oil inched higher 32 cents to $105.01 in New York trading and gained 22 cents to $107.36 a barrel. 

In Asia, the Nikkei index declined 0.1% in April and factory activities expanded at a slower rate from the previous month in April. 

The Sensex index in India fell 0.2% on the worries that the rising food and energy prices, largely inflicted by the U.S. and European sanctions, are stoking higher worldwide food prices inflation.  

Hub Group Lifts Annual Outlook On Intermodal Transportation Strength

Hub Group reported first quarter 2022 revenues increased 41% to $1.3 billion and net income surged five-fold to $87.5 million from a year ago. 

Diluted earnings per share increased to $2.58 from 51 cents a year ago. 

Intermodal and transportation solutions revenues increased 35% to $774 million and Intermodal volume increased 4% and revenue per load increased 35%.

Truck Brokerage revenue grew 132% in the quarter to $296 million due to the acquisition of Choptank Transport as well as revenue growth from truckload and LTL.

Logistics revenue increased 6% to $229 million driven by growth in the final mile and consolidation services, as well as the contribution from new managed transportation customer onboardings.

Capital expenditure in the quarter totaled $31 million.

Guidance and Outlook 

The company also guided 2022 revenues between $5.3 billion and $5.5 billion and diluted earnings per share between $9.00 and $10.00. 

Gross margin between 15.6% and 16.0% in 2022 and costs and expenses to range between $440 million and $450 million. 

Capital expenditure to range between $240 million and $265 million. 

National Instruments Quarterly Sales Up 16%, New Orders Jumped 27%

National Instruments Corp said first quarter 2022 revenues increased 16% to $343.6 million and net income surged six-fold to $25.2 million a year ago. 

Diluted earnings per share in the quarter rose to 19 cents from 3 cents a year ago. 

The company also lifted quarterly dividend per share to 28 cents from 27 cents a year ago. 

 Total new orders in the quarter rose 27% driven by a surge of 40% in the Americas 22% in the EMEA region, and 17% in APAC. 

Gross margin in the quarter was 17% and operating margin was 8%. 

As of March 31, 2022, the company had $143 million in cash and cash equivalents. 

During the quarter, the company paid $37 million in dividends and repurchased approximately 772,000 shares of its common stock at an average price of $40.74 per share.

Guidance and Outlook 

The test and measurement system maker estimated 2022 revenues between $370 million and $410 million and diluted earnings per share between 1 cent and 15 cents. 

The non-GAAP diluted earnings per share in 2022 are estimated between 25 cents and 39 cents. 

Movers: Activision, Global Payments, Hub Group, Moody's, National Instruments. Spirit Airlines

Activision Blizzard, Inc jumped 2.8% to $77.75 after Warren Buffett controlled Berkshire Hathaway reported 9.5% stake in the company in the hope that Microsoft will be able to complete its merger offer at $95 a share or $69 billion. 

Global Payments declined 9.5% to $123.85 after the company reported first quarter 2022 revenues increased 8% to $2.16 billion and diluted earnings per share increased to 87 cents from 66 cents a year ago. 

The software company also lifted its 2022 revenues between $8.42 billion and $8.50 billion and adjusted earnings per share between $9.45 and $9.67.  

HSBC Holdings plc traded down 2% in New York but gained 4% in London after China controlled an insurance company and the largest shareholder in the bank proposed a plan to break the company up. 

Ping An, the Chinese insurance giant proposed a plan to separate its Asian business from European and U.S. and said that the global network outside Asia adds little incremental value. 

Hub Group gained 6.7% to $71.72 after the transportation management company reported revenues in the first quarter 41% to $1.3 billion. 

In the quarter, net income increased to $88 million or $2.58 a share from $17 million or 51 cents a share. 

The company also guided 2022 revenues between $5.3 billion and $5.5 billion and diluted earnings per share between $9.00 and $10.00. 

Moody's Corp declined 4.4% to $301.10 after the rating agency reported quarterly profit per share of $2.89 and lowered its annual revenues outlook on the continued market volatility. 

National Instruments declined 4.5% to $34.50 after quarterly revenues rose 15% to $385 million and earnings per share rose to 19 cents from 3 cents a year ago. 

The instrument maker guided 2022 earnings per share in the range between 1 cent and 15 cents. 

Spirit Airlines declined 8.8% to $21.50 after the company rejected a takeover proposal from JetBlue and the company confirmed its plan to merge with rival budget airline Frontier. 

The move was widely anticipated by investors and the company's board cited antitrust reasons in rejecting the takeover overtures.  

Ping An Suggests Break Up of HSBC

HSBC Holdings plc traded down 2% in New York but gained 4% in London after China controlled an insurance company and the largest shareholder in the bank proposed a plan to break the company up. 

Ping An, the Chinese insurance giant proposed a plan to separate its Asian business from European and U.S. and said that the global network outside Asia adds little incremental value. 

China is also worried about the rising tensions with the U.S. and EU-member nations.

The London-based bank earns about two-thirds of its profit from Asia and 52% of revenues in the region.  

The news was first reported by British media two weeks ago and Ping An's spokesperson confirmed the proposal in a talk with Reuters. 

Stocks in Holding Pattern With Fed Meeting On Wednesday

Futures of U.S. stock indexes show weak opening as investors focus on latest batch of earnings and investors reprice asset prices with economic recession in view. 

The S&P 500 index declined 3.6% and the Nasdaq Composite index fell 4.2% in Friday's trading. 

Both leading indexes closed at their 2022 lows. 

The Fed was also in focus ahead of Wednesday's policy meeting and the Fed is expected to release its plan to lower $9 trillion government bond and mortgage securities.

March construction spending data is scheduled to be released today at 10:00 a.m. ET and economists are accepting 0.8% increase. 

China growth worries also dominated early market sentiment with several large and mid-size cities are in either lockdown or stringent controls. 

On Saturday, China reported a sharp fall in economic activities as measured by the Purchasing Managers' index. Factory orders, inventories, and service activities showed large declines in April. 

In Europe, the DAX index in Germany fell 0.7% and CAC 40 index declined 1.4% after the eurozone manufacturing activities rose at the slowest pace in April in a year. 

The Purchasing Managers' Index declined to 55.5 in April from 56.5 in March on supply shortages and producers passed on higher prices to consumers. 

In Asian markets, the Nikkei index declined 0.1% in April and factory activities expanded at a slower rate from the previous month in April. 

Berkshire Hathaway Net Plunged 54% On Portfolio Losses

Berkshire Hathaway Inc reported first quarter 2022 revenues increased 10% to $70.8 billion and net earnings plunged 54% to $5.4 billion from $11.2 billion in a year ago. 

Diluted earnings per Class A share declined to $3,702 from $7,638 and per Class B share fell to $2.47 from $5.09 a year ago. 

The company repurchased $3.2 billion of Class A and Class B common stock during the first quarter of 2022. 

On March 31, 2022, there were 1,470,875 Class A equivalent shares outstanding. 

The conglomerate operates in four business segments including insurance, railroads, utilities and energy, and manufacturing, services and retail. 

At March 31, 2022, insurance float (the net liabilities we assume under insurance contracts) was approximately $148 billion, an increase of approximately $1 billion since yearend 2021.

Operating earnings were stable at $7 billion from a year ago but net investment income declined to a loss of $1.6 billion from $4.7 billion gains a year ago. 

Manufacturing, services, and retail business segment operating earnings rose 15% to $3.0 billion, railroad rose about 10% to 1,3 billion, insurance investment income was nearly flat at $1.2 billion but underwriting fees plunged 93% to $47 million, and utilities and energy rose 6.6% to $750 million. 

China's Economic Activities Plunge in April On Covid Restrictions

China's economic activities fell sharply in April according to the latest data released by the National Bureau of Statistics today. 

The Purchasing Managers' Index declined for the manufacturing sector falling to 47.4 in April from 49.5 in March. 

A reading above 50 indicates expansion in activities and below shows contraction. 

Economic activities shrank for the second month in a row after China implemented Covid Zero policy in several cities. 

The sub-index measuring production declined 5.1 percentage points to 44.4 and for new orders fell 6.2 points to 42.6. 

The PMI index measuring construction and services declined even deeper to 41.9 in April from 48.4 in March, reaching the lowest since February 2020. 

Fed's Preferred Measure Shows Sustained and Elevated Inflation

On the U.S. economic front, the latest report from the Commerce Department showed personal income rose less than expected but the spending was ahead of expectations. 

Personal income increased 0..5% in March after rising by upwardly revised 0.7% in February. 

Personal spending rose 1.1% in March after climbing by upwardly revised 0.6% in February. 

The latest reading on inflation faced by consumers showed sustained and elevated inflation pressures. 

Personal Consumption expenditures index, the Fed's preferred gauge of inflation, in March increased 6.6% after rising 6.3% in February. 

Core expenditure excluding food and energy rose 5.2% in March after rising 5.3% in February. 

Nasdaq in Bear Zone Again After Friday Sell-off

Stock after gyrating in the early hours of trading developed a downward trend and accelerated declines in the afternoon. 

The Nasdaq Composite declined 4.2% and the S&P 500 index fell 3.6% after the latest batch of earnings fell short of expectations. 

The Nasdaq Composite fell 13.3% in April, its worst performance since October 2008 and the S&P 500 declined 8.8%, the most since March 2020. 

In the year, S&P 500 is down 13.9% and the Nasdaq Composite has lost 22.1%. 

Both indexes closed at their new lows in the year. 

Friday marked the week of a busy earnings season with about 700 companies reporting. 

Nearly 130 companies in the S&P 500 index including leading tech companies dominated earnings news. 

More than 70% of the companies releasing earnings reported better-than-expected results estimated by Wall Street analysts but a familiar theme has started to take hold. 

Companies are battling falling demand volume, rising operating costs, and supply disruptions. 

However, most companies are passing on larger price increases to consumers higher than the increase in input and operating costs resulting in higher earnings. 

This theme was repeated across most of the companies reporting earnings in energy, retail, technology, manufacturing, and food and beverages and consumer products makers. 

The latest reading on inflation faced by consumers showed sustained and elevated inflation pressures. 

The core personal consumption expenditure price index, which measures how consumers spend across a wide range of products and services, increased 5.2% in March after rising at 5.3% in February. 

When compared to the previous core price index increased 0.3%. 

In Europe, market indexes in Paris and London gained 0.5% and in Frankfurt rose 0.8%. 

Crude oil traded higher in the day but closed down 35 cents to $105.02 a barrel. 

The U.S. 10-year bond yield edged up a fraction to close at 2.882%.  

Exxon Mobil Net Doubles Despite $3.4 Billion Russia Exit Charge

Exxon Mobil Corporation reported first quarter 2022 revenues increased 52% to $90.5 billion and net income doubled to $5.4 billion. 

In the quarter, diluted earnings per share increased to $1.28 from 64 cents a year ago.  

Earnings adjusted for identified items increased in the quarter to $8.8 billion and increased nearly $6 billion from a year ago after adjusting for $3.4 billion or 79 cents per diluted share after-tax charge related to the company's Russia Sakhalin-1 operation 

Capital and exploration charged in the quarter declined to $4.9 billion from $5.8 billion a year ago. 

Oil-equivalent production was 3.7 million barrels per day, down 4% from the fourth quarter of 2021 due to weather related unscheduled downtime, planned maintenance, lower entitlements associated with higher prices, and divestments. 

Excluding entitlement effects, government mandates, and divestments, oil-equivalent production was down 2%.

Net Zero Initiative 

The company plans to expand carbon capture capacity at its facility in LaBarge, Wyoming, adding up to 1.2 million metric tons to the nearly 7 million metric tons already captured at LaBarge each year. 

ExxonMobil announced plans for its first world-scale blue hydrogen plant in Baytown, Texas. 

The proposed plant would produce up to 1 billion cubic feet per day of blue hydrogen and include one of the world

Intel Revenues Declined on Weakening Demand, Apple Shift, and Supply Disruptions

Intel Corporation reported first quarter 2022 revenues decreased 7% to $18.4 billion and net income surged 141% to $8.1 billion. 

Diluted earnings per share increased by the same amount to $1.98 from 82 cents.  

In the quarter, the company generated $5.9 billion in cash from operations and paid dividends of $1.5 billion. 

In the quarter, gross margins declined to 50.4% from 55.2% in the previous year. 

Client computing revenues declined 13% to $9.3 billion, Datacenter and AI group revenues rose 22% to $6 billion, Network and Edge Group revenues rose 23% to $2.2 billion. 

Sales in the quarter were down partly because of lower demand for desktop and laptop computers, Apple shifted its chipmaking in-house, and computer device makers lowering inventories level. 

Accelerated Computing Systems and Graphic Group revenues 21% to $219 million and Mobileye unit sales rose 5% to $394 million. 

Intel Foundry Services revenues shot up 175% to $283 million. 

Guidance & Outlook 

For the second quarter, the semiconductor chipmaker guided revenues of $18 billion, gross margin of 48%, and 50 cents earnings per share. 

For 2022, the company guided total revenues of $76 billion, gross margin of 49%, and earnings per share of $4.19. 

For the year, the company plans to spend $27 billion.

The company guided that supply chain problems are persisting longer than anticipated and consumers are holding back from purchasing new computers on rising inflation.