Lennar shares rise after quarterly earnings beat

The news shaping the markets today

Russia’s shelling in Ukraine’s eastern Kharkiv region has resulted in the death of 15 people, Governor Oleg Synegubov said. The news sent WTI crude oil futures higher this morning.

New Zealand’s trade surplus shrank to NZ$263 million in May, from NZ$497 million in the year-ago month. Despite this, the NZD/USD forex pair remained elevated.

US existing home sales fell by 3.4% to an annual rate of 5.41 million in May, the weakest since June 2020. However, the figure was broadly in-line with market expectations, which lend support to the Dow Jones index, sending it higher by more than 600 points on Tuesday.

Morocco’s National Bank maintained its benchmark interest rate at a record low of 1.5% at its recent meeting. The MAD/USD pair declined slightly in forex trading this morning.

Canada’s new home prices increased by 0.5% in May, versus a 0.3% rise in the previous month, exerting pressure on the CAD/USD forex pair.

What’s happening: Shares of Lennar Corp gained on Tuesday, after the company reported better-than-expected results for its second quarter.

What happened: The US homebuilder reported growth in orders during the second quarter.

However, the company warned that it might see a downturn in home demand.

How were the results: The Miami-based company reported year-over-year growth in both sales and earnings for the quarter ending May 31.

• Sales grew 30% year-over-year to $8.36 billion, exceeding the consensus estimate of $8.11 billion.
• Net earnings surged to $1.3 billion, from $831 million in the same quarter last year.
• Adjusted earnings came in at $4.69 per share, topping market expectations of $3.98 per share.

Why it matters: In 2021, Lennar had announced the spin-off of its LENx portfolio into a separate company, which is now called Portera. The company expects the spinoff to be completed before yearend.

Lennar’s homebuilding revenues climbed 33% year-over-year, while home deliveries rose 14% to 16,549. Homebuilding costs and expenses also spiked 24.4% to $6.1 billion. New orders rose 4% to 17,792 units, with backlog growing 16% to 28,624 homes.

The recent rate hikes by the US Fed are expected to impact the housing market. Lennar warned of a downturn in demand for homes as surging interest rates keep homebuyers on the sidelines.

“While our second quarter results demonstrate strength and excellent performance throughout the quarter, the weight of a rapid doubling of interest rates over six months, together with accelerated price appreciation, began to drive buyers in many markets to pause and reconsider,” Executive Chairman Stuart Miller said. “We began to see these effects after quarter end.”

For the third quarter, management projected new orders between 16,000 and 18,000, with deliveries of around 17,000-18,500 homes.

How shares responded: Lennar’s shares gained 1.6% to close at $65.65 on Tuesday, following the release of quarterly results. The stock has lost more than 41% year to date.

What to watch: Investors will keep an eye on surging inflation levels and moves by the US Federal Reserve.

The markets today

The British pound will be in focus today ahead of a basket of economic reports from the UK

Context: The GBP/USD forex pair gained on Tuesday, with a rally in equities providing support to the risk-sensitive British pound.

Details: After a three-week losing streak against the greenback, the sterling rebounded from a March 2020 low of $1.1934 reached last week. The US dollar index, which measures the greenback’s performance versus a basket of major rivals, fell around 0.3% on Tuesday.

The British pound also responded to an improvement in the country’s FTSE 100 index, which climbed on Tuesday amid an increase in crude oil prices providing support to energy stocks.

The UK is facing its biggest rail strike in 30 years, with more than 40,000 rail workers walking out in a dispute over pay.

The sterling found support from the Bank of England’s interest rate hikes. The country’s central bank raised its benchmark interest rate by a quarter point to 1.25% at its June meeting. The Bank of England’s chief economist Huw Pill said more rate hikes were needed to combat surging inflation. Markets expect the BoE to raise rates by 183 basis points by December.

The GBP/USD forex pair gained around 0.2% to settle at 1.2278 on Tuesday.

What to watch: Traders await the release of economic data on inflation, retail prices and producer prices from the UK today. The annual inflation rate in the UK, which rose to 9% in April, is expected to accelerate further to 9.1% in May. Analysts expect factory gate prices of goods produced by UK manufacturers to rise 14.7% year-over-year in May, following a 14% increase in April.

Other Markets: European trading indices closed higher on Tuesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 0.42%, 0.20%, 0.75% and 0.35%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Eurozone’s consumer confidence indicator and European Central Bank’s non-monetary policy meeting, Turkey’s consumer confidence indicator, South Africa’s inflation rate, US MBA mortgage applications, Canada’s inflation rate, US Redbook index, Fed Chair Powell testimony and API’s crude oil stocks, Russia’s producer price inflation, as well as Argentina’s balance of trade and retail sales.