Investors Unimpressed by American Airlines Report

The news shaping the markets today

Japan’s consumer prices rose by 0.8% year-over-year in December, following a 0.6% increase a month ago. Despite consumer prices rising for the fourth consecutive month, the JPY/USD forex pair rose after the news.

UK’s GfK consumer confidence indicator fell to -19 in January, its lowest level in eleven months, which sent the GBP/USD pair lower in forex trading this morning.

New Zealand’s number of visitor arrivals rose by 3.8% year-over-year in November, amid the easing of pandemic-related travel restrictions. However, the NZD/USD forex pair remained under pressure.

Argentina recorded a trade surplus of $371 million in December, versus a $364 million deficit in the year-ago month. Despite this ARS/USD pair declined in forex trading this morning.

US crude oil inventories grew by 0.515 million barrels in the week ending January 14, recording the first rise since November, which sent the WTI crude oil prices lower this morning.

What’s happening: Shares of American Airlines fell on Thursday despite the company reporting a smaller-than-expected loss for its fourth quarter.

What happened: Apart from narrowing its losses in the fourth quarter, American Airlines said it expects to swing to profits in March.

However, management warned of revenues continuing to be impacted by the spread of the Omicron variant in the current quarter.

How were the results: The Texas-based carrier reported strong growth in revenues and a narrower loss for the fourth quarter.

• Operating revenues climbed to $9.43 billion, from $4.03 billion in the year-ago quarter, beating the consensus estimate of $9.37 billion.
  The company reported a loss of $1.42 per share, versus a loss of $3.86 per share in the fourth quarter of 2020. The figure was also better than the Street expectations of a loss of $1.48 per share.

Why it matters: US airline companies saw a rebound in air travel in the last two months of 2021. Although demand remained strong during the holiday season, there were flight cancellations towards the end of the year due to harsh weather conditions and rising Omicron cases among employees. The rollout of the 5G network also forced some flight cancellations due to safety concerns.

“Over the past year, we have experienced periods of high travel demand countered by periods of decreased demand due to new COVID-19 variants. This volatility has created the most challenging planning environment in the history of commercial aviation,” American Airlines CEO Doug Parker said during the earnings call.

Management said they expect rising covid-19 cases, higher wages, and rising fuel prices to exert pressure on earnings in the near term. The company is looking to hire another 18,000 employees this year, following the addition of 16,000 members in 2021.

Fuel and related taxes more than tripled from the year-ago levels to $2.2 billion. Cost per available seat mile came in at a net $13.14, compared to $17.59 in the year-ago quarter.

For the January to March quarter, the company projected revenues to be 20% to 22% lower than the same period in 2019 when it recorded revenues of $10.6 billion. Management also expect capacity to contract by 8% to 10%.

How shares responded: Shares of American Airlines fell 3.2% to close at $16.76 on Thursday following the release of quarterly results. The stock has lost more than 21% over the last six months.

What to watch: Investors will continue to monitor the spread of Omicron in the US. Markets will also keep an eye on wages and oil prices.

The markets today

European stocks will be in focus today ahead of consumer confidence data from the common bloc

Context: European stocks closed mostly higher on Thursday, with investors brushing off inflation concerns.

Details: Investors have been focusing on rising US Treasury yields and heightened inflation concerns in the UK this week. The 10-year US Treasury yields surged to a high of 1.9%, after starting the year near 1.5%. UK’s inflation rate climbed to a 30-year high of 5.4% in December, amid rising energy costs and continuous supply chain concerns.

The annual inflation rate in the Eurozone surged to a record high of 5% in December, from 4.9% in the previous month, driven by rising oil and natural gas prices.

Investors also monitored earnings reports from several companies. Shares of Zur Rose Group gained more than 5% on Thursday, after the Swiss online pharmacy reported strong earnings.

The pan-European Stoxx 600 rose 0.51% to close at 483.35 on Thursday, after a volatile session. Travel and leisure stocks were among the top performers, while auto stocks fell around 1%. The FTSE 100 edged lower by 0.06% to 7,585.01, amid inflation concerns.

France’s manufacturing climate indicator surged to 112 in January, the highest level since February 2018. French CAC 40 rose 0.3% to settle at 7,194.16.

Spain recorded a trade deficit of €4.2 billion in November, versus a €0.6 billion gap in the year-ago month. Spain’s IBEX 35 Index gained 0.35% on Thursday. Construction output in Italy grew 13.2% in November, compared to 14.6% growth in the previous month. Italy’s FTSE MIB Index gained 0.7%.

What to watch: Traders await data on consumer confidence from the Eurozone today. The bloc’s consumer confidence indicator is expected to decline to -9 in January, from -8.3 in December.

Other Markets: US indices closed lower on Thursday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.89%, 1.10% and 1.34%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Turkey’s consumer confidence indicator, UK’s retail sales, India’s foreign exchange reserves, Argentina’s leading economic index, Canada’s retail sales, new home prices and wholesale sales, US CB leading index and Baker Hughes crude oil rigs, as well as Australia’s new home sales.