US EARLY MORNING: Equity futures are higher but remain in bear territory; speculation rises that the Fed will consider a 75bps rate hike

SNAPSHOT: After the benchmark S&P 500 closed in a technical bear on Monday, US equity futures are trading with gains this morning, but remain in bear territory (for the ES, the bear market line is 3846.6). NQ +1.4%, ES +1.2%, RTY +1.1%, YM +0.9%. The VIX is lower by just over a vol at 33.0. Treasuries are rallying by between 2-9bps, with most of the outperformance in the belly, while major curve spreads are bull steepening, a reprieve from the aggressive flattening seen in wake of Friday’s CPI data. The 2s10s part of the curve stands at around 3bps, just exiting the inversion it fell into again on Monday. For some context, Bank of America’s latest Fund Manager Survey notes that the S&P 500 has now officially entered its twentieth bear market in the last 140 years. The bank points out that the average peak to trough of the bear decline has been 37.3% and has lasted an average 289 days. “History is no guide to future performance but if it were, today’s bear market would end on October 19th, 2022, with the S&P 500 at 3,000; on a more positive note, for next bull market average duration is 64 months with 198% return.” Intriguingly, the survey also notes that fund managers see the top three tail risks (in order) as 1) hawkish central banks, 2) global recession, and then 3) inflation.

FED: The apparent stability in equities this morning comes in wake of multiple reports on Monday (see Axios, Bloomberg, NYT, and WSJ) that the Fed was likely to consider a 75bps rate rise this week vs the 50bps rate hike that officials guided to before they went into the pre-meeting blackout period. As Bloomberg’s venerable commentator John Authers notes that none of these reports have any on-the-record quotes from Fed officials, but instead seem to be framing recent commentary from officials in the context that the central bank has room to move by 75bps. Authers says, “we can assume that this was a coordinated attempt to guide the market through trusted journalists, while just about staying in purdah,” adding that “this is one of those times when you can believe what you read in the papers.” In fact, the folks at Goldman Sachs have updated their Fed call, and now projects that the FOMC will move rates higher by 75bps tomorrow – their rationale is the same as Authers. With a specific reference to the WSJ article, Goldman writes that it was “a departure from another article that [author] Nick Timiraos published [on Sunday] that characterised such a move as ‘unlikely’,” and adds “our best guess is therefore that the article is a hint from the Fed leadership that a 75bp rate hike is coming at the June FOMC meeting on Wednesday.”

KOLANOVIC IS STILL BULLISH: Analysts note that given equities have been pressured recently due to fears of surging consumer prices, signals that the world’s most important central bank was becoming even more aggressive to cap consumer prices was welcome news. The idea is that lower inflation helps to protect the real value of company’s future income streams, but some remind us that if the Fed became too aggressive, lifting rates above neutral and into restrictive territory–as it has threatened to do if the data demands–then lower levels of activity may become a detriment to corporates’ earnings ahead. JPMorgan strategist Marko Kolanovic – who has been super bullish on equities amid their recent slide – thinks the US will avoid a recession, re-emphasising his recent arguments that consumer strength, Covid reopening and recovery, as well as policy stimulus in China will provide support. Kolanovic also said “Friday’s strong CPI print that led to a surge in yields, along with the sell-off in crypto over the weekend, are weighing on investor sentiment and driving the market lower,” adding “however, we believe rates market repricing went too far and the Fed will surprise dovishly relative to what is now priced into the curve.” For the sake of fairness, it may be worth noting that Kolanovic’s note was published before the latest developments. His position also differs from that of the JPM chief US economist Michael Feroli, who does look for a 75bps; Kolanovic has also differed from his boss Jamie Dimon on the prospects of the US and global economy, as has been heavily reported recently.

DAY AHEAD: There is key ECB speak due today from the ECB’s Schnabel, and traders will be on the lookout for any details about the fragmentation plan the central bank is formulating, although reports seem to suggest that the ECB wants to be coy with the details. The US day will feature IBD/TIPP economic optimism, which will be in sharp focus after the University of Michigan’s gauge of consumer sentiment slumped to a record low in June; the US day will also see the release of PPI data for May – we already know consumer prices surged to a 40yr high in the month, and this may be reflected in today’s data too – while some have played down the link between PPI and CPI, it still may offer insight into how corporate margins will be impacted. After the bell, the API will release its private inventory report for the week. Full Day ahead here.

EQUITY NEWS:

TECH:

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  Oracle Corp (ORCL) - Added 15% after hours as earnings and revenue topped expectations, while exec said it saw a major increase in demand in its infrastructure cloud business. Q4 adj. EPS 1.54 (exp. 1.37), Q4 revenue USD 11.8bln (exp. 11.66bln). Q4 Cloud License And On-Premise License: 2.54bln (exp. 2.19bln). Q4 Cloud Services and Licenses Support: 7.6bln (exp. 7.77bln). Q4 Total Hardware Revenues: 856mln (exp. 857.71mln). Q4 Total Services Revenues: 833mln (exp. 847.89mln). Says it added USD 15.8bln after Cerner acquisition, expects cloud business to grow by over 30% in FY23. Sees Q1 EPS between 1.04-1.08 (exp. 1.13), and sees Q1 revenue including Cerner to grow 17-19%.


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  Alphabet Inc. (GOOG), Meta Platforms, Inc. (META), Twitter, Inc. (TWTR) - Tech companies will have to take measures to counter deepfakes and fake accounts on their platforms or risk hefty fines under an updated European Union code of practice, Reuters reported citing an EU document. The updated code of practices set to be published on Thursday, Reuters said. Separately, Reuters said that dozens of companies and business organisations sent a letter to US lawmakers urging them to support a bill that would rein in the Big Tech.


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  Samsung Electronics (SMSN) - Galaxy Watch 5 appears to have doubled its charging speed to 10W, according to 9To5Google.


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  Affirm Holdings, Inc. (AFRM), Booking Holdings Inc. (BKNG) - Affirm to partner with Agoda, part of Booking Holdings.


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  Braze, Inc. (BRZE) - Q1 adj. EPS -0.19 (exp. -0.21), Q1 revenue USD 77.5mln (exp. 72.6mln). Exec said it was off to a great start in FY23, Q1 saw robust demand. Given its strong momentum, it raises its FY outlook. Sees Q2 adj. EPS between -20c and -19c (exp. -0.21), and sees Q2 revenue between USD 80.5-81.5mln (exp. 80.1mln). Lifts FY23 EPS outlook to -82c to -78c (exp. -0.83, prev. -84c to -80c), and lifts FY23 revenue outlook to between USD 345-349mln (exp. 340.3mln, prev. 338-342mln).

COMMUNICATIONS:

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  Twitter, Inc. (TWTR) - Elon Musk will attend a virtual Twitter staff meeting this week, speaking to staff for first time since launching his USD 44bln acquisition, Business Insider said, adding that many workers have expressed frustration and disappointment with Musk as their would-be owner. Separately, the automaker is considering sites for a new factory in Canada and Mexico, along with the US.


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  AMC Entertainment Holdings, Inc. (AMC) - Theatres admissions revenue for weekend of June 9-12th was 15% higher than same period in 2019 as moviegoers flocked to ‘Jurassic World Dominion’ and ‘Top Gun: Maverick’.


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  DoorDash, Inc. (DASH) - Announced it was introducing new features for consumers to easily discover food outlets in their neighbourhood.


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  ITV (ITVPY) - Acquires Plimsoll Productions for GBP 103mln.

CONSUMER STAPLES:

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  Coty Inc. (COTY) - Affirmed FY22 EPS outlook between 0.23-0.27 (exp. 0.27), and continues to expect low double digits LFL sales growth in Q4, with FY22 LFL sales growth at the upper end of its guidance range of low-to-mid teens. Adjusted EBITDA expected to be USD 900mln in FY22.


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  Philip Morris International Inc. (PM), Kaival Brands Innovations Group, Inc. (KAVL) - Kaival reaches agreement with Philip Morris for international electronic nicotine delivery system product distribution.


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  Tesco (TSCDY) - Supermarket Lidl accuses Tesco of seeking “deliberately to ride on the coattails of Lidl’s reputation as a discounter” in relation to a claim that Tesco’s Clubcard Prices logo is too similar to Lidl’s logo, Telegraph reported.

CONSUMER CYCLICAL:

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  Carnival Corporation (CCL) - Rose +0.7% after hours. CEO told BBG that the company was “recession resilient.”


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  Airbnb (ABNB) - Launching a new product aimed at promoting a safe and secure experience for solo travellers.


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  French Names - French Finance Minister said the government was not planning VAT hikes.

FINANCIALS:

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  UK Finance Names - EU to launch three separate lawsuits against the UK after it published plans to override the Northern Ireland Protocol, Telegraph reported. One option could see the EU end financial equivalence for the City of London.


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  Deutsche Bank (DB) - US judge has rules that the bank must face a shareholder lawsuit which alleges that it concealed shortfalls in know-your-customer and money laundering systems when conducting business with Epstein, oligarchs and other risky clients.


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  Lloyds (LYG) - Nearing an agreement to compensate fraud victims GBP 3mln each if they agree to withdraw from redress proceedings. It is unclear how many would accept this, but the total pay-out figure could be in the hundreds of millions, The Times reported.


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  Apollo Global Management, Inc. (APO), KKR & Co. L.P. (KKR) - Apollo to acquire Hispanic grocery chains Cardenas Markets from KKR. Upon completion, Apollo’s Tony’s Fresh Market will combine with Cardenas Markets.


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  AssetMark Financial Holdings, Inc. (AMK) - The turnkey asset management programme operator will buy Adhesion Wealth from Vestmark, Barron’s reported. Once combined, AssetMark will have about USD 100bln of assets on its platform. Terms for the deal were not disclosed.

HEALTH CARE:

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  Pfizer Inc. (PFE), MorphoSys AG (MOR), Incyte Corporation (INCY) - Pfizer, MorphoSys, Incyte enter into clinical trial collaboration for Monjuvi (tafasitamab-cxix) in combination with TTI-622, a fusion protein directed against CD47.


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  Johnson & Johnson (JNJ), Evotec (EVO) - Evotec enters into a drug discovery collaboration with JNJ’s Janssen.


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  Atos (AEXAY) - Atos is studying a possible separation into two publicly listed companies. Additionally, has appointed Nourdine Bihmane and Philippe Oliva as Deputy CEOs, current CEO to step down. Elsewhere, it has concluded the sale of its entire stake within Worldline.


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  CONMED Corporation (CNMD) - Has completed its previously announced acquisition of privately held In2Bones Global Inc. Will provide additional guidance regarding the impact of the transaction on financial results in late July.

INDUSTRIALS:

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  Boeing (BA) - Ryanair CEO said there had been no progress in talks with Boeing over a new plane order.


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  General Motors Company (GM) - At the automaker’s annual meeting, CEO said it was selling every truck it can build, and was expanding North American truck-building capacity.


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  Beacon Roofing Supply, Inc. (BECN) - Enters into an accelerated share repurchase agreement with Citibank to repurchase USD 250mln of shares. This agreement is in addition to the USD 125mln accelerated share repurchase agreement announced in March. Expected to be settled by the end of June.

ENERGY:

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  Shell (SHEL) - Intends to supply clean power to 5mln households/EV drivers by 2030 (1.5mln currently), as part of a broader diversification from fossil fuels, the Telegraph reported.


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  Saipem (SAPMY) - Signs MOU with Trevi for foundation drilling solutions/services for offshore wind projects.

REAL ESTATE:

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  Unibail-Rodamco Westfield (URMCY) - To sell Almere Centrum for EUR 155mln; upon closing, will have completed EUR 2.7bln of the EUR 4.0bln of planned disposals.

14 Jun 2022 - 09:25- EquitiesResearch Sheet- Source: Newsquawk