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Mastercard’s shares decline despite upbeat results

 

Friday, January 27, 2023

The news shaping the markets today

At least 11 people were killed in Russia’s missile strike on Ukraine on Thursday. The attack came after the US and Germany announced plans to provide battle tanks to Ukraine. The safe-haven US dollar index remained flat this morning.


New Zealand’s ANZ Business Outlook Index rose 18 points to -52 in January, versus a record low of -70.2 in the previous month, lending support to the NZD/USD forex pair.


South Korea’s Business Survey Index for the manufacturing sector declined to 66 in January, from 71 in the prior month. Despite this being the lowest level since August 2020, the KRW/USD pair rose in forex trading this morning.


Australia’s final demand producer price index rose by 0.7% in the final three months of 2022, slowing from the 1.9% increase in the third quarter, which lent support to the AUD/USD forex pair.


Singapore’s private home prices increased 0.4% in the fourth quarter, versus a flash reading of a 0.2% rise, which sent the SGD/USD pair higher in forex trading this morning.

 

What’s happening: Shares of Mastercard edged lower on Thursday, after the company released results for its fourth quarter.

What happened: The card company reported earnings that exceeded market expectations.

However, the company issued weak growth forecast for the current quarter for one of its key metrics.

How were the results: The Purchase, New York-based company reported growth in earnings for the three months ended December.

  • Net revenues surged 12% to $5.82 billion, beating Wall Street expectations of $5.79 billion.
  • Adjusted earnings rose 13% year-over-year to $2.65 per share, ahead of the consensus estimates of $2.58 per share.

Why it matters: US economic growth slowed after the Federal Reserve increased interest rates through last year. Although higher rates are generally positive for credit card payment processors, they also negatively impact consumer spending.

However, Mastercard has a higher exposure to the Asia-Pacific region than rival Visa, which resulted in the company benefitting from borders reopening and acceleration in travel demand.

Mastercard’s gross dollar volumes climbed 14% through the first three quarters of last year to $6 trillion. The company said its gross dollar volumes grew 8% to $2.1 trillion, while purchase volumes increased 11% during the latest quarter.

This marked seven straight quarters of earnings growth and eight quarters of surging revenues for the company. However, growth in earnings slowed from the prior four quarters, with sales growth slowing over the previous seven quarters.

“We closed out the year with strong financial results and notable wins which will help us capitalize on the tremendous secular shift to digital payments,” Mastercard’s CEO Michael Miebach said during the earnings call. “As we look at the broader economy, we see the continued recovery of cross-border travel, with volumes up 59%1 versus a year ago and we’re encouraged by Asia opening up further,” he added.

Management projected first-quarter revenue growth in the “high-end of high-single digits range,” compared to expectations of 10.7% growth.

How shares responded: Mastercard’s shares fell 1.3% to close at $377.24 on Thursday, following the release of quarterly results. The stock has gained around 10% over the past six months.

What to watch: Investors will focus on the Fed’s policy tightening and covid-19 situation in China, which could impact the company’s results this year.

The markets today

US stocks will be in focus today ahead of a basket of economic reports

Context: Wall Street recorded gains on Thursday, following the release of economic data.

Details: Data released on Thursday showed decelerating growth in the US economy, along with easing inflation, both of which signalled that the impact of the Fed’s aggressive rate hikes had started kicking in.

The Fed is scheduled to meet next week, and markets expect the central bank to increase rates by 25 bps, which is smaller than the ones announced at its prior meetings.

The Commerce Department said that the US economy expanded 2.9% during the final three months of 2022, versus market expectations of 2.6% growth. Consumer spending grew 2.1% in the fourth quarter, down from 2.3% in the prior quarter, while the GDP price index slowed to 3.5%.

Durable goods orders also surpassed market estimates, while initial jobless claims surprisingly declined to nine-month lows in the latest week. Wholesale inventories grew 0.1% in December, while trade deficit in goods widened to $90.3 billion last month.

Shares of Tesla jumped around 11% on Thursday, after the electric vehicle maker reported stronger-than-expected results for the fourth quarter. American Airlines Group also reported upbeat earnings.

The Dow Jones index gained 205.57 points, or 0.61%, to close at 33,949.41, while the S&P 500 added 1.10% to 4,060.43 on Thursday. The Nasdaq 100 jumped 2% to settle at 12,051.48.

What are expectations: Investors await economic reports on core PCE Price index, personal income, personal spending, and University of Michigan consumer sentiment from the US today. The core PCE annual rate, which is the Fed’s preferred inflation gauge, fell to a four-month low of 4.7% in November and is expected to decline further to 4.6% in December. Analysts expect personal income to rise 0.3%, with personal spending projected to decline 0.1% in December. The University of Michigan consumer sentiment is expected to improve to 64.6 in January, from 59.7 in the previous month.

Other Markets: European indices closed higher on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 up by 0.21%, 0.34%, 0.74% and 0.42%, respectively.

Support & resistances for today

Technical Levels News Sentiment
EUR/USD  – 1.0886 and 1.0894 Positive
EUR/GBP – 0.8777 and 0.8782 Negative
Silver – 23.978 and 24.046 Positive
WTI Crude Oil – 81.16 and 81.27 Negative
Nikkei 225 – 27333.50 and 27391.00 Negative

Market snapshot

Futures at 0400 (GMT)
EUR/USD (1.0885, -0.06%) Dow ($33,998, -0.07%) Brent ($87.45, 0.2%)
GBP/USD (1.2401, -0.07%) S&P500 ($4,065, -0.26%) WTI ($81.22, 0.3%)
USD/JPY (129.70, -0.39%) Nasdaq ($12,043, -0.52%) Gold ($1,928, -0.1%)

What else to watch today

France’s consumer confidence, Spain’s GDP growth rate, Eurozone’s loans to households, loans to non-financial corporations and money supply M3, Italy’s industry sales, India’s value of deposits, foreign exchange reserves and value of loans, Mexico’s balance of trade, Brazil’s value of loans and net payrolls, US pending home sales and Baker Hughes crude oil rigs, Argentina’s consumer confidence indicator, as well as Canada’s government budget value.


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