US EARLY MORNING: Index futures are inching upwards; Biden pledges to boost affordability, productivity, fix supply chains, reduce the deficit and reform the tax code

US equity futures are trading flattish (NQ +0.4%, YM 0.0%, ES 0.0%, RTY 0.0%) after the long-weekend. Overnight, Asia-Pac stocks were mixed at month-end amid a data deluge, including Chinese PMIs (which we recap on below), while the start in Europe has been cautious as EU leaders agree on a plan to ban Russian seaborn oil imports (pipeline exports will not be banned at this stage), which could add an inflationary impulse ahead. Today, Eurozone CPI data will be eyed ahead of next week’s ECB meeting, where officials have been pivoting to a more hawkish stance recently. More domestically in the US, many desks are now beginning to talk about an inflection point where the bearishness seen in recent weeks -- characterised by downside in risk assets as growth projections are cut amid warnings of recession, lowering earnings estimates and price targets -- may be at a turning point. Indeed, JPMorgan tells its clients that the Growth-Policy trade off could become less problematic in the second half of the year. “Relative to what are now commonplace downbeat growth projections, the scope for downside surprise is perhaps diminishing, especially if China support ramps up,” the bank writes, “at the same time, our call of the Fed reaching peak hawkishness relative to what is priced into the futures already, is starting to see traction, with bond yields that are lower, as well as lower Fed futures, and CPI rates are projected to be peaking.” In terms of the implications for US equities, the bank says it has been less comfortable with the US than other markets like the UK, given the heavy Growth tilt in US indices; JPM told its clients that it was maintaining its call for overweighting Value over Growth. “The US still trades less attractively than International stocks, but we do think that in the second half of the year, US equities will be able to move up in absolute terms, and sees the “regional convergence” trade continuing. Ahead German unemployment and Eurozone CPI for May are the highlights ahead of next week’s ECB confab; the North American day sees the release of monthly GDP data out of Canada, house price data out of the US, the Chicago PMI and US consumer confidence. Full Day Ahead calendar can be accessed here.

ECONOMY:

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  Biden Op-Ed - In WSJ op-ed, US President Biden noted US economy faced challenges elevated inflation, energy markets in turmoil, supply chains that have not fully recovered from the pandemic, but said the economy was facing these challenges from a position of strength. Biden reiterated that tackling inflation was his top economic priority, offering a vague three-point plan, which lacked details but touched on familiar campaign pledges: he alluded to the Fed continuing to “control inflation”; he said the administration would take practical steps to boost affordability and productivity over time by fixing broken supply chains, and finally, he would continue to reduce the federal deficit and reform the tax code.


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  Fed - Governor Waller Monday said he supported 50bps rate hikes for “several meetings” (currently, Powell and co. have guided to 50bps rate rises in June and July, and analysts assume they will revert to lower increments after that, or perhaps even pause); Waller said the FOMC should not take 50bps off the table until inflation comes down significantly, warning that core inflation was not coming back to target any time soon. Waller argued that policy rates should be above neutral by year-end to reduce demand (previously in May, he argued that the Fed did not need to tank the economy to bring down inflation). Elsewhere, Waller suggested that balance sheet reduction would be the equivalent to a couple of 25bps rate hikes, whereas many of his colleagues have suggested it could be about 25bps worth over the course of a year. The Fed governor seems confident in the strength of the US economy, noting that it continued to power along at a healthy pace, and he does not expect the Q1 GDP contraction to be repeated.


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  China - China official PMI data for May was better than expected, but still in contraction territory. Manufacturing PMI rose to 49.6 in May (exp. 48.9, prev. 47.4), while the Non-Manufacturing PMI rose to 47.8 (exp. 45.0, prev. 41.9), lifting the Composite measure to 48.4 from 42.7 in April. Capital Economics said that the data “adds to broader evidence that activity has started to rebound as containment measures were rolled back,” but added that “the recovery is likely to remain tepid amid weak external demand and labour market strains.”

ENERGY:

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  Russia Energy - EU agreed on plan to block imports of Russian seaborne crude over the next 6 months, but the ban will not affect pipeline oil after opposition from Hungary (it and other CEE nations are highly dependent on Russian pipeline crude). “In theory, this should mean that around two-thirds of the roughly 2.3mln BPD of Russian oil imported will be affected,” ING wrote, “however, in practice, we believe that volumes will fall even further,” given that Germany and Poland are already committed to reducing Russian imports to zero, and that could mean that the ban targets closer to 90% of Russian energy exports to the EU.


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  Russian Energy, Orsted (DNNGY) - Netherland’s GasTerra said Gazprom had halted gas deliveries over a refusal to pay in Roubles. The Dutch are not yet activating a crisis plan, and does not expect the delivery halt to lead to any physical gas storages. Meanwhile, Denmark’s Orsted also continues to reject demands for RUB gas payments, and raising risks that Gazprom could soon halt supplies to Denmark too since its payment deadline is May 31st; Denmark’s energy agency said it will not have any immediate supply impact if Russia halted gas flows to Orsted.


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  Chevron Corporation (CVX) - Striking workers at its Richmond refinery in California reportedly voted over the weekend to ratify CVX latest contract offer, ending a 10-week strike without achieving their goal of additional pay, according to Reuters.

FINANCIALS:

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  Auto Insurers - Higher premiums are being seen as insurers get state approval for rate increases to offset inflation, as well as an increase in serious crashes, WSJ reported.


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  Credit Suisse (CS) - Is reportedly mulling options to strengthen its capital following recent losses, according to Reuters. The size of the capital increase is likely to exceed CHF 1bln.


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  FTSE 100 Reshuffle, Royal Mail (ROYMY), ITV (ITVPY), Centrica (CPYYY), Johnson Matthey (JMPLY) - Royal Mail and ITV are set to be replaced by Centrica and Johnson Matthey in the quarterly FTSE reshuffle; formal review to take place today using data after the market closes, according to The Times.


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  MoneyGram International, Inc. (MGI) - The US money-transfer company is preparing to launch a service with Stellar blockchain that would allow users to send stablecoins and easily convert them to hard currency, Bloomberg reported, adding that the move comes as remittances become more popular in EMs, and as stablecoins come under heightened scrutiny.

INDUSTRIALS:

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  Tesla, Inc. (TSLA) - Tesla’s Shanghai factory has restored manufacturing capacity to levels seen before the citywide lockdown, according to sources cited by SCMP; the newspaper added that Tesla had lost about 50k vehicles in production due to reduced shifts in Shanghai between the end of March and middle of April. Elsewhere, CEO Musk claimed that investor Bill Gates had a multi-billion-dollar short position in Tesla; Musk claimed that Gates would now need between USD 1.5-2bln to close out his position.


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  Boeing Company (BA) - Barron’s makes cautious mention, says Boeing has not delivered on jets or other recovery requisites. Separately, Norwegian Air has reached an agreement for the purchase of 50 737 Max jets, also includes options for an extra 30 aircraft, Bloomberg reported; expects to finalise order by the end of June.


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  Delta Air Lines, Inc. (DAL) - More than 7,000 flights were cancelled over Memorial Day weekend, CBS reported. Delta Air Lines cancelled the most flights among major US airlines; the airline said around 90% of customers who had flights cancelled were rebooked on a flight later in the day.


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  Northrop Grumman Corporation (NOC) - Awarded USD 254.4mln Navy contract modification.


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  Raytheon Technologies Corporation (RTX) - Awarded USD 624.6mln Army contract modification.

CONSUMER CYCLICAL:

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  Retailers - Reuters commentary over the weekend noted that US retailers are carrying large inventories which could set stage for deep discounts, and could be a sign of possible trouble ahead amid soaring inflation and higher gas prices. On the same theme, WSJ commentary said US shoppers were growing cautious, and many companies were bracing for a shift in spending as inflation rises and stocks wobble, bringing back more bargains, cheaper store brands and rewards programmes.


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  Carnival Corporation (CCL), Norwegian Cruise Line Holdings Ltd. (NCLH) - Cruise companies have been struggling to hire back crew members, Business Insider reports. Carnival has temporarily closed two restaurants on all its ships, while Norwegian and Cunard have capped cruise ship capacities and cancelled sailings.


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  Swatch (SWGAY), Richemont (CFRUY) - Swiss Watch Exports +7.3% Y/Y in April at CHF 1.9bln, (prev. +11.8% Y/Y).


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  Under Armour, Inc. (UA) - Barron’s commentary said that Under Armour’s transformation would take much longer to play out.


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  Chewy, Inc. (CHWY) - Barron’s makes cautious mention, says Chewy earnings might not be so great but stock could take off.

CONSUMER STAPLES:

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  Unilever plc (UL) - Activist investor Nelson Peltz made a non-exec director after building a stake in the company via Trian Fund Management, FT reported. Trian said that it believes Unilever has significant potential.


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  Danone SA (DANOY) - Danone is working with the US FDA to quickly ship the equivalent of five million bottles of medical formula to the US for babies with allergies, WSJ reported.


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  Nestle S.A. (NSRGY) - Nestle in talks to ship more baby formula to the US, according to Bloomberg. CEO does not see significant infant formula shortages in markets outside of the US, said the company was not taking infant formula it ships to US away from other markets.

TECH:

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  Foxconn (FXCNY) - Apple supplier Foxconn said H2 2022 was developing in a better direction, and is confident on supply chain stability in the second half of the year.


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  Alphabet Inc. (GOOG) - The parent company of India’s ShareChat has raised nearly USD 300mln in fresh funding from Google, Times Group and Temasek Holdings, valuing it at nearly USD 5bln, according to two sources cited by Reuters.


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  Alphabet Inc. (GOOGL), Meta Platforms (FB) - Positive commentary in Barron’s; said Alphabet and Meta stocks were both among bargain stocks to buy now. Article also mentioned LRCX, MU, NFLX, TER.


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  NVIDIA Corporation (NVDA) - Recommends shareholders reject Tutanota’s mini-tender offer.


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  Snowflake Inc. (SNOW) - Positive mention in Barron’s, says stock finally looks attractive.

HEALTH CARE:

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  Bristol-Myers Squibb Company (BMY) - FDA approves two Opdivo-based regimens. Separately, Barron’s makes positive mention of BMY, says it is a buy and the rally just getting started.


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  Pfizer Inc. (PFE) - Some doctors are reconsidering Pfizer’s Paxlovid COVID antiviral pills for lower-risk patients after warnings that symptoms could recur after people completed a course of the drug, and that they should then isolate a second time, Reuters reported.


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  GSK (GSK) - To acquire clinical-stage biopharmaceutical company Affinivax. GSK to pay USD 2.1bln upfront and up to USD 1.2bln in potential development milestones.


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  Novartis AG (NVS) - FDA approves Kymriah CAR-T cell therapy for r/r follicular lymphoma.


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  Sanofi (SNY) - FDA accepts Dupixent for priority review in adults with prurigo nodularis.


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  Roche (RHHBY) - FDA approves Roche’s Evrysdi for use in babies under two months with spinal muscular atrophy.

COMMUNICATIONS:

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  Telecom Italia (TIIAY) - Reportedly seeks valuation around EUR 20bln for the landline network, according to Bloomberg. Telecom Italia plans to sell the unit to a state lender and international funds, BBG added.

31 May 2022 - 09:27- EnergyData- Source: Newsquawk