Delta Air Lines shares shorted despite Q2 profit

The news shaping the markets today

The UN Refugee Agency said that over 9 million people had crossed Ukraine’s border since the invasion of the country by Russia. The continued conflict sent the US dollar index higher this morning.

US government budget deficit narrowed to $89 billion in June, from $174 billion in the same month last year. However, markets were expecting a much lower gap of $76.5 billion, which sent the Dow Jones index lower by more than 200 points on Wednesday.

Australia’s unemployment rate declined to a new record low of 3.5% in June, from 3.9% in the previous three months. Despite the latest reading coming in below market estimates of 3.8%, the AUD/USD forex pair remained under pressure.

Chile’s central bank increased its benchmark interest rate by 75bps to 9.75% at its latest meeting. This was higher than the market expectations of a 50bps hike. The CLP/USD pair declined slightly in forex trading this morning.

US crude oil inventories climbed by 3.254 million barrels during the week ended July 8, following an 8.235 million rise in the prior period. However, WTI crude oil prices rose this morning.

What’s happening: Shares of Delta Air Lines fell on Wednesday, after the company reported weaker-than-expected earnings for its second quarter.

What happened: Although the company reported weak quarterly earnings on rising fuel costs, it was still the airline’s best performance since 2019.

Delta Air Lines also said strong travel demand could result in solid profits in the current quarter.

How were the results: The Atlanta-based carrier swung to a profit in the second quarter, but the figure came in below market expectations.

• Revenues almost doubled from the previous year to $13.84 billion, surpassing the consensus estimate of $13.24 billion.
• Adjusted earnings came in at $1.44 per share, versus a year-ago loss of $1.07 per share, but missed Street expectations of $1.73 per share.

Why it matters: US airlines have been witnessing a sharp rise in bookings in the strongest summer travel season in around three years, with more people beginning to go on vacations after the lifting of covid-19 restrictions.

International traffic is also recovering, with a rise in corporate travel demand amid the reopening of offices. US passenger traffic has climbed 18% year-over-year this summer.

Delta Air Lines has gradually moved towards the pre-pandemic levels, recovering 99% of the operating revenues it recorded in the second quarter of 2019. Domestic passenger revenues grew 3%, while international passenger revenues stood at 81% in the June quarter of 2019.

Total revenue per available seat mile climbed 34% versus 2Q19, up 20.5% on an adjusted basis. Adjusted operating expenses were 5% higher than the second quarter of 2019, while cost per available seat mile, excluding fuel, jumped 22%.

Management said more overtime and higher premium were being incurred to run the company this year, while reassuring investors that these factors were temporary in nature.

For the ongoing quarter, Delta Air Lines guided to total revenue growth of 1%-5% versus Q3 of 2019 and adjusted operating margins of 11%-13%.

How shares responded: Shares of Delta Air Lines fell 4.5% to close at $29.70 on Wednesday and declined further by 0.9% in after-hours trading. The stock has lost around 26% year to date.

What to watch: Investors will keep an eye on rising inflation, which could impact travel spending in the latter half of the year.

The markets today

Gold will be in focus today after closing higher on Wednesday

Context: Gold prices settled higher on Wednesday, following the release of higher-than-expected inflation data from the US.

Details: The US reported a rise in its annual inflation to 9.1% in June, the highest level since November 1981. The figure came in higher than market expectations of 8.8%. Gold prices rose after the release of inflation data, as investors added more safe-haven options to their portfolios.

The yellow metal also received support from a decline in the US dollar. The ICE Dollar Index, a gauge of the greenback’s performance versus a basket of major currencies, declined by around 0.2% on Wednesday.

Gold futures for August delivery gained $10.70, or 0.6%, to close at $1,735.50 an ounce, after declining as low as $1,704.50 earlier in the session. Silver for September delivery gained 24 cents, or 1.2%, to settle at $19.194 an ounce, after closing at its weakest level since July 2020 on Tuesday.

Copper futures for September delivery gained around 1.1% to $3.3225 per pound on Wednesday. Platinum futures rose 1.2% to $837.80 per ounce, while palladium futures slipped 2.2% to $1,971.40 an ounce.

What to watch: Traders will keep an eye on the next inflation report from the US, due to be released today. Annual producer inflation in the US, which eased to 10.8% in May, is expected to decline further to 10.7% in June.

Other Markets: European trading indices closed lower on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.74%, 1.16%, 0.73% and 1.01%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

India’s wholesale price inflation rate, Saudi Arabia’s inflation rate and wholesale price inflation, Turkey’s industrial production, retail sales and foreign exchange reserves, South Africa’s mining production and gold production, Canada’s manufacturing sales, US initial jobless claims, continuing jobless claims and natural gas stocks change, Australia’s new home sales, China’s foreign direct investment as well as Argentina’s inflation rate.