US EARLY MORNING: Index futures are trading with slight losses after notching up fresh YTD highs; BoC rate decision ahead, with traders split on the prospects for a hike

US PRE-MARKETS: US equity futures are trading with slight losses, Treasury yields are a couple of basis points lower, but near the highs for the session, while the Dollar Index is around flat. Crude futures are lower by around 60c. We've seen disappointing China trade data overnight (see our recap below), soft German industrial orders in the European morning, while in the UK, Halifax reports annual house price growth went negative in May. For US traders, next week's FOMC and CPI remain the near-term catalysts, but before then, a BoC meeting today will be eyed to see if the central bank's 'conditional pause' is jettisoned after strong data signals potential further inflation upside. Currently, the probability of a BoC hike today is around 50/50, according to money market pricing. We have further thoughts in the Day Ahead section, below. Any BoC rate hike would follow the RBA's surprise move this week too, and while the rationale may be flawed, some may extrapolate that this makes a Fed hike next week more likely, since G10 central banks would clearly be showing an ability to resume tightening policy in the face of a potential resurgence in inflation.

JPM'S BULL VS BEAR CASE: As the S&P 500 rises to fresh YTD highs, the debate on whether this is a bear market rally or a new bull market continues. Today, we look at JPM's view. Summarising the bull case, JPMorgan believes that achieving economic growth without inflation is crucial to overcome concerns about stagflation and recession. It suggests monitoring the ISM and CPI data, with expectations of positive trends. The bank says that, if the Fed pauses on interest rate increases next week, it could lower yields and benefit stocks, especially in the technology sector. JPMorgan says this may prompt investors to rethink whether 2023 is part of the post-COVID cycle or the beginning of a new business cycle. The bank says that an improved earnings outlook is expected ahead, with forecasts showing potential upgrades for 2024 earnings. On the other side of the coin, JPMorgan highlights that the upcoming Treasury General Account refill could reduce liquidity in the system, potentially impacting the returns of the S&P 500 index. The bank says that although the expected decline in lending supply has not materialised yet, these factors could lead to a credit crunch, where any expectation of reduced credit access could lead to an accelerated timeline for a recession, resulting in increased layoffs and reduced consumer spending. The bank suggests that the challenging profitability environment, rather than default risk, may be responsible for losses in the banking sector. It also notes the possibility of increased inflation, which could make the Fed more uncomfortable.

GS TALKS AI STOCKS: Goldman Sachs says investors are debating how the rise of generative AI will impact revenue growth, profitability, and stock valuations. GS says the S&P 500 could see further upside if potential productivity and profit boosts from AI adoption are priced in. However, the timing and ability of companies to generate profits from AI remains uncertain, and near-term investor expectations may not fully account for it. Goldman notes potential factors that could affect the impact of AI, which includes productivity scenarios, policy responses (such as higher corporate tax rates), interest rates, and cyclical dynamics. The bank tells us that the Dot Com Boom serves as a reminder of the risks associated with high investor expectations, and while optimism on AI adoption is not extreme, GS says valuations of AI beneficiaries like Nvidia (NVDA) are comparable to those seen during the Dot Com era.

TODAY’S AGENDA:

• Our interactive online calendar is here; a PDF version can be found here.


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  OVERNIGHT RECAP: US stocks closed higher on Tuesday as investors await next week’s inflation data and the Fed's policy meeting. The S&P 500 reached YTD highs, and is now up nearly 20% from October lows, boosted by mega-cap gains, and as traders hope for end to interest rate hikes. The VIX slumped to a 14-handle for the lowest since early 2020. Large-cap names like Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA) showed weakness, with Nvidia experiencing its third consecutive day of losses from all-time highs. Coinbase (COIN) faced a major setback with a lawsuit from the SEC, while Bitcoin recovered slightly from recent selling. Our US wrap is here. APAC stocks traded mixed despite Wall Street's positive performance. Chinese trade data was weaker than expected and showed a wider-than-expected contraction in exports, limiting gains. Aussie shares were lower alongside weak Australian GDP. Japan's Nikkei 225 was the regional laggard with losses of 1.8%. Our APAC wrap is here. European indices opened around flat. Data from Germany showed industrial output up 0.3% M/M in April (exp. 0.6%, prev. -2.1%); ING said "without any significant pick up in activity, the German economy's recession could continue in the second quarter." In the UK, house price data from Halifax showed no growth in May, while the annual gauge slumped to -1.0% Y/Y, the first annual fall since 2012. Our European cash open note is here.


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  CHINA TRADE REVIEW: China's trade surplus narrowed in May to USD 65.81bln (exp. 92.00bln, prev. 90.21bln); Imports -4.5% Y/Y (exp. -8.0%, prev. -7.9%), while Exports were -7.5% Y/Y (exp. -0.4%, prev. 8.5%). China's exports contracted in May for the first time in three months, which analysts said indicated subdued global demand for Chinese goods; imports, however, reached an 18-month high, suggesting the reopening recovery remains on track. The data also showed crude oil imports rose significantly in May. Despite the temporary boost in export figures, the decline is expected to continue before stabilising later this year, Capital Economics said; it added that with interest rates near a peak outside China, developed economies may experience mild recessions, impacting activity, which could impact China's trade stats. Still, the import recovery is expected to continue in the coming quarters due to the ongoing reopening, CapEco thinks.


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  AUSTRALIA GDP REVIEW: Australia's economy grew at a sluggish pace, with Q1 GDP up 0.2% (exp. 0.3%) and annual growth at 2.3% (exp. 2.4%). Weakening domestic price growth and declining household savings indicate softness in the economy. Consumer spending remained weak, with only a 0.2% rise. Analysts said the data suggests ongoing challenges for the Australian economy, with borrowing costs and global growth slowdown posing further risks, and also amid concerns that increasing labour costs may keep inflation elevated. Rising prices led to the Reserve Bank of Australia raising rates this week, and markets are pricing another hike in July with around 60% probability.


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  EUROPE DAY AHEAD: ECB speakers will be in focus: Vice President de Guindos will speak at a conference, ECB’s Knot will brief the Dutch parliament on financial sector stability, and ECB’s Panetta will appear on a panel. On the supply front, Germany will sell EUR 1bln of 2025 Green BOBLs, and the UK will sell GBP 4.0bln of 2025 debt. UK PM Sunak will meet with President Biden in Washington. Sweden’s PM meets the Japanese Foreign and Defence Ministers.


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  NORTH AMERICA DAY AHEAD: The BoC rate decision is the main event (our preview is below); Canada will also release its trade balance figures. From the US, weekly MBA mortgage applications data and international trade data are the highlights. Elsewhere, US Secretary of State Blinken visits Saudi Arabia.


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  BOC PREVIEW (15:00BST/10:00EDT): The Bank of Canada is seen keeping rates unchanged at 4.5%, though there is a possibility of a 25bps rate rise in wake of stronger-than-expected GDP and CPI metrics released recently, as well as robust labour market data; currently money markets are split around 50/50. The GC discussed a rate hike at the April meeting, minutes revealed. Some suggest we could see a hawkish hold on Wednesday, with the BoC keeping the door open to a possible July hike. (Newsquawk)


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  ENERGY: The weekly DoE energy inventory data will be released; for reference, the API data reportedly showed Crude -1.7mln (exp. +1.0mln), Cushing +1.5mln, Gasoline +2.4mln (exp. +0.9mln), Distillate +4.5mln (exp. +1.3mln); Citi said that the build in product inventories may have taken the market by surprise, but it’s a common seasonal outcome as refiners typically cut back on shipments over the Memorial Day holiday.

EQUITY NEWS:

TECH:

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  Nvidia (NVDA) - Director Harvey Jones sold 70,205 shares on June 2nd at USD 405/shr (which matched the high price in that session).


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  Alphabet (GOOG) - Alphabet’s Waymo autonomous vehicle involved in accident, kills dog in San Francisco. Collision deemed unavoidable based on incident report, TechCrunch reports.


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  Salesforce (CRM) - Salesforce is undergoing a management shakeup, as CEO Marc Benioff brings back former executives from Amazon and Oracle, Business Insider reports. The changes are aimed at strengthening the company's leadership team, and hint at a succession plan, with Brian Millham potentially being positioned as Benioff's successor, the report said.


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  MongoDB (MDB) - CTO Mark Porter sold 2,669 shares on June 2nd for a total USD 1.02mln.


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  Couchbase (BASE) - Q1 EPS -0.48 (exp. -0.32), Q1 revenue USD 41mln (exp. 39.7mln), Q1 subscription revenue +21% Y/Y at USD 38.5mln. Sees Q2 revenue between USD 41.2-41.8mln (exp. 43.3mln), and sees FY24 revenue between USD 171.7-174.7mln (exp. 173.4mln).


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  Yext (YEXT) - Q1 adj. EPS 0.09 (exp. 0.05), Q1 revenue USD 99.5mln (exp. 98.6mln). CEO noted a strong start to the year. Sees Q2 adj. EPS between USD 0.06-0.07 (exp. 0.05), and sees Q2 revenue between USD 101.5-102.5mln (exp. 100.1mln). Lifts FY24 adj. EPS outlook to between USD 0.28-0.29 (exp. 0.21) from 0.22-0.23, and lifts FY24 revenue outlook to between USD 404-407mln (exp. 403.6mln) from USD 402-406mln.


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  Sterling Check (STER) - Announces the offering of 8mln shares of common stock. Sterling is not selling any shares, and will not receive any proceeds from the sale.


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  Credo Technology (CRDO) - Director Lip Bu Tan sold 343.1K shares on June 2nd for a total USD 5.6mln.


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  Thoughtworks (TWKS) - Rachel Laycock named Chief Technology Officer.


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  Bentley Systems (BSY) - Named Allen Li as General Manager of China.

COMMUNICATIONS:

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  Vodafone (VOD), Hutchinson (CKHUY) - The two agree to merge UK operations, Reuters reports; could happen by as soon as this week.


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  Meta Platforms (META) - Instagram is reportedly testing AI chatbot feature for direct messages. Users may soon be able to ask questions and seek advice from the chatbot, according to ZDNet.


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  Netflix (NFLX) - Netflix introduces new games including The Queen’s Gambit Chess and LEGO Legacy, expanding its line-up to over 60 titles, catering to puzzle, chess, and LEGO enthusiasts.


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  Nintendo (NTDOY) - Nintendo’s “The Legend of Zelda: Tears of the Kingdom” dominated UK game sales in May, boosting the market by almost 30% Y/Y, Gamesindustry.biz reports.


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  Dave & Buster’s (PLAY) - Q1 EPS 1.45 (exp. 1.24), Q1 revenue USD 597.3mln (exp. 601.7mln), pro forma combined comparable store sales -4.1%.

ENERGY:

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  API Inventories - Crude -1.7mln (exp. +1.0mln), Cushing +1.5mln, Gasoline +2.4mln (exp. +0.9mln), Distillate +4.5mln (exp. +1.3mln). Citi said that the build in product inventories may have taken the market by surprise, but it’s a common seasonal outcome as refiners typically cut back on shipments over the Memorial Day holiday.


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  TC Energy (TRP), Suncor Energy (SU), Imperial Oil (IMO) - TC Energy is reducing staff to optimize value, but the exact number of impacted positions remains undisclosed, Reuters reports. TC’s move follows Suncor Energy’s job cuts last week, and Imperial Oil’s contractor reductions in the oil sands projects earlier this year.


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  Harbour Energy (HBRIY), Talos Energy (TALO) - Harbour Energy is in discussions to merge with Talos Energy, Reuters reports. The deal would give Harbour a chance to list in New York and diversify its operations following a windfall tax on UK oil and gas producers.

INDUSTRIALS:

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  Supply Chains - NY Fed’s global supply chain pressure index hits a record low in May, indicating easing inflation pressures. UK and Taiwan contributed to the decline, while Euro Area showed upward pressure.


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  Boeing (BA) - Boeing may have to delay 787 Dreamliner deliveries due to a new production flaw, Reuters reports. All 90 jets in inventory need inspection. The report adds that it's another setback for Boeing, which has already faced a month-long delivery stoppage and reworking challenges.


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  MDU Resources (MDU) - MDU Resources’ subsidiary, Montana-Dakota Utilities, approved to provide power for Applied Digital’s data centre in North Dakota. The centre will require 180 MW of electricity and won’t impact other customers.


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  Controladora Vuela Compania de Aviacion (VLRS) - Volaris reports capacity growth of +21.6% Y/Y in May 2023, demand rose +17.1% Y/Y, leading to a load factor decrease, but passenger numbers grew +11.1% Y/Y. Volaris mitigated delivery delays and engine issues by extending leases and adding spare aircraft to maintain capacity growth.


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  ATI (ATI) - Named Kimberly Fields as President and COO, effective July 1st; Fields has been executive vice president and COO since January 2022.

MATERIALS:

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  ArcelorMittal (MT), General Motors (GM) - ArcelorMittal NA to provide General Motors with low-emission XCarb steel, reducing CO2 emissions.


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  Univar Solutions (UNVR), Apollo (APO) - Univar stockholders approve pending acquisition by funds managed by affiliates of Apollo. Univar shareholders to receive USD 36.15/shr in cash. Transaction expected to close in H2.

CONSUMER CYCLICAL:

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  Stellantis (STLA) - Stellantis announces executive team changes: CTO Ned Curic becomes Chief Engineering and Technology Officer, Beatrice Foucher appointed Chief Planning Officer, and Olivier Bourges takes on new roles.


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  Fisker (FSR) - Fisker to begin US deliveries of the Ocean SUV soon and plans to sell emission credits to another automaker, ensuring compliance with regulations and offering competitive choices.


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  Stitch Fix (SFIX) - Q3 EPS -0.19 (exp. -0.30), Q3 revenue USD 394.9mln (exp. 388.9mln), Q3 active clients 3.476mln (-431k Y/Y, or -11% Y/Y), Q3 net revenue per active client USD 502 (-9% Y/Y). Exec said inventory levels will decline in Q4. Is exploring a UK exit in FY24. Saw increased macroeconomic headwinds. Will continue to focus on profitability in the short term. Sees Q4 revenue between USD 365-375mln (exp. 379.4mln).


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  Casey’s General Stores (CASY) - Q4 EPS 1.49 (exp. 1.59), Q4 revenue USD 3.33bln (exp. 3.4bln), Q4 Inside SSS +6.5% Y/Y, +13.6% on a two-year stack basis. Lifts quarterly dividend +13% to 0.43/shr. Board elected President Darren Rebelez as CEO. No share repurchases made in Q4, has USD 400mln remaining under its existing authorisation. Sees FY24 inside SSS up 3-5%.


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  Jack in the Box (JACK) - CEO told CNBC that food costs continued to increase, but it plans to counterbalance that through technology and innovation. Expects to be in all States in the next decade, and is exploring opportunities in Utah and Mexico.

CONSUMER STAPLES:

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  Post Holdings (POST) - Announces a new USD 400mln share buyback programme; it had repurchased around USD 189mln under its previous USD 300mln facility, which was cancelled.

HEALTH CARE:

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  Biogen (BIIB) - Biogen withdraws from Jefferies Healthcare Conference; it had been scheduled to participate on June 7th.


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  Day One Biopharmaceuticals (DAWN) - Announced a USD 150mln stock offering; price ranged from USD 12.50-13.50.


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  Ionis (IONS) - Announced the private placement of USD 500mln convertible senior notes due 2028.


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  Legend Biotech (LEGN) - Legend Biotech submits sBLA to expand CARVYKTI label for multiple myeloma treatment. Supported by CARTITUDE-4 study data, targeting relapsed and lenalidomide-refractory patients who received prior therapy.


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  Ventyx Biosciences (VTYX) - CEO Raju Mohan sold 30K shares on June 5th for a total USD 1.03mln.

UTILITIES:

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  Southern Company (SO) - CEO Kimberly Greene sold 47.3K shares on June 5th for a total USD 3.3mln.

07 Jun 2023 - 09:01- Data- Source: Newsquawk