Delta Air Lines Shares Take off After Strong Q4

The news shaping the markets today

China’s trade surplus widened to a record high of $94.46 billion in December, from $75.8 billion in the year-ago month. Although the figure exceeded market views of $74.5 billion, the CNY/USD forex pair remained under pressure.

The Bank of Korea announced a hike in its base rate by 25bps to 1.25% at its January meeting. However, the KRW/USD pair declined in forex trading this morning.

Japan’s producer prices rose 8.5% year-over-year in December, following a 9.2% rise in the previous month. The latest reading came in below market expectations of 8.8%, lending support to the JPY/USD forex pair.

Argentina’s monthly inflation rate accelerated to 3.8% in December, from 2.5% in the prior month and above the consensus estimate of 3.6%. However, the ARS/USD pair remained flat in forex trading this morning.

Brazil’s industry confidence indicator slipped by 0.7 points to 56 in January. However, the latest reading remained above the 50 mark, providing support to the BRL/USD forex pair.

What’s happening: Shares of Delta Air Lines gained on Thursday, after the company reported upbeat results for its fourth quarter.

What happened: Delta Air Lines is the first major US airline to report results for the quarter, a period that was impacted by flight cancellations to various destinations.

Although the company exited Q4 in the black, management warned that performance in the quarter to March could remain under pressure due to the spread of Omicron.

How were the results: The Atlanta, Georgia-based company swung to profits in the fourth quarter, with both top- and bottom-line metrics exceeding market views.

• Group revenues jumped 138% to $9.47 billion, beating the consensus estimate of $9.14 billion. However, the latest reading was still 17% below the $11.44 billion recorded in the final quarter of 2019.
• Adjusted earnings came in at 22 cents per share, versus a year-ago loss of $2.53 per share, ahead of the Street expectations of 14 per share.

Why it matters: The airline industry is facing disruption due to the spread of Omicron and a number of winter storms, which have resulted in several flights being cancelled. Around 8,000 employees of Delta Air Lines have tested covid-19 positive over the past four weeks.

There were more than 31,000 flight cancellations in the US since Christmas Eve, with Delta being forced to cancel over 2,000 flights. However, the company said that its operations have somewhat stabilisation over the past week.

Delta’s adjusted pre-tax profits came in at $170 million, below its own guidance of $200 million that it had issued in December.

Management projected a loss for the first quarter of 2022, warning of a delay in travel recovery. However, CFO Dan Janki said, “Despite expectations for a loss in the March quarter, we remain positioned to generate a healthy profit in the June, September and December quarters, resulting in a meaningful profit in 2022.”

Delta projected a rebound in revenues in the first quarter to as much as 76% of the 2019 figure. The company also expects capacity to restore up to 85% of the 2019 levels in the quarter.

Analysts at Susquehanna upgraded their rating for Delta Air Lines from Neutral to Positive and raised the price target from $45 to $50 early Thursday, before the company released earnings.

How shares responded: Delta’s shares gained 2.1% to close at $41.47 on Thursday, following the release of quarterly results. The stock had added around 2% over the past six months.

What to watch: Investors will keep an eye on the spread of Omicron, with infections expected to peek soon. Covid-19 infections have surged past 320.8 million globally.

The markets today

US stocks will be in focus today ahead of a basket of economic reports from the country.

Context: US stocks closed lower, with tech stocks recording a sharp downturn on Thursday.

Details: Technology shares have recently been volatile, after the US Federal Reserve signalled earlier than expected interest rate hikes in its bid to control inflation.

After recording gains over the past couple of sessions, the Nasdaq came under pressure on Thursday due to weakness in some of the largest tech stocks, including Amazon and Microsoft.

Sentiment was supported by the strong earnings reported by Delta Air Lines and KB Home. Moreover, the producer price index increased only 0.2% in December, versus market expectations of 0.4%.

However, consumer prices accelerated 9.7% month-on-month in December. The consumer price index increased 7% year-over-year, hitting the highest annual reading since 1982. Investor risk appetite was also hurt by an increase in initial jobless claims to 230,000 for the week ending January 8, which came in higher than the consensus estimate of 200,000.

The Dow Jones index shed around 177 points to close at 36,113.62 on Thursday, after jumping more than 200 points earlier in the session. The S&P 500 fell 1.42% to 4,659.03, while the Nasdaq 100 plummeted 2.57% to settle at 15,495.62.

What to watch: Traders await the release of economic data on retail sales, import prices, export prices and industrial production from the US. Retail trade had grown 0.3% in November and is expected to remain flat in December. The price index for imports and export prices are both projected to rise by 0.3% in December. Analysts expect industrial production to rise 0.3% in December, following 0.5% growth in the previous month.

Markets will also keep an eye on earnings reports from various major banks, including JPMorgan Chase, Citigroup and Wells Fargo, scheduled to be reported today.

Other Markets: European indices closed mostly higher on Thursday, with the FTSE 100, DAX 40 and CAC 40 up by 0.97%, 0.56% and 0.25%, respectively, and the STOXX Europe 600 index lower by 0.03%.

Support & resistances for today

Market snapshot

What else to watch today

India’s wholesale price inflation rate, value of deposits, foreign exchange reserves and value of loans, UK’s balance of trade, monthly GDP, goods trade balance, industrial production, manufacturing production and construction output, France’s inflation rate and government budget value, Spain’s inflation rate, Germany’s full year GDP growth, Eurozone’s balance of trade, Turkey’s total motor vehicles production, Russia’s total vehicle sales and foreign exchange reserves, Brazil’s retail sales, as well as US manufacturing production, University of Michigan’s consumer sentiment index, business inventories and Baker Hughes crude oil rigs.