US EARLY MORNING: Index futures slide amid continued concerns about growth and inflation; Fed Chair Powell's due to speak later today

MARKETS SNAPSHOT: US equity futures are lower. YM -1.6%, ES -1.9%, RTY -2.0%, NQ -2.2%. US Treasuries are rallying by 4-9bps, with much of the rally in the long end, while major curve spreads are mixed. Global risk sentiment has soured once again, and while there is not a specific headline catalyst, concerns continue to centre around the rising rate environment to contain surging consumer prices and the negative impact that this will have on growth. Many trading desks have noted that selling bounces in risk sentiment has proven a profitable strategy, with this dynamic only likely to fade once there is more confidence that inflation has peaked out and policymakers can pivot back towards more growth-friendly policies. Crude oil is sliding­, and again, there is no single headline catalyst; analysts are pointing to the negative risk mood and concerns around the demand side given expectations of the growth slowdown. President Biden is reportedly mulling a suspension of the federal gasoline tax, but some analysts have mocked the idea given it is only likely to support demand at a time when supply is constrained.

POWELL AHEAD: Fed Chair Powell will begin his dual semi-annual testimonies to lawmakers today. These events often take a more political angle, and the Chair will have to reconcile how the Fed is able to contain surging consumer prices without dragging the economy into a recession. Officials downgraded their growth view for this year, but Powell and Co. still believe that they can engineer a ‘soft landing,’ although external influences may make this more challenging. This view is being subject to increasing scepticism, with major banks all warning that US recession risks were increasing as the Fed focuses more on managing price pressures. And this is reflected in a small statement tweak where the Fed removed language that “with appropriate firming in the stance of monetary policy, the Committee expects inflation to return to its 2% objective and the labour market to remain strong,” replacing it with “the Committee is strongly committed to returning inflation to its 2% objective.” Some Fedwatchers, like SGH Macro’s Tim Duy, have argued that this is an acknowledgement that both sides of the Fed’s mandate (of pursuing maximum employment and price stability) are no longer possible in the near term. The Fed raised the Federal Funds Rate target by 75bps last week, and it is clear from the economic projections that policymakers think rates will need to be lifted above the neutral interest rate (estimated to be around 2.5%) and into restrictive territory. Traders will also be looking for any hints on the size of the July rate rise. The updated forecasts see rates rising to 3.25-3.50% by the end of this year, implying the possibility of a 75bps hike in July, followed by a 50bps hike in September, and then 25bps at its November and December meetings; however, it could also be interpreted as three 50bps rate rises followed by a 25bps move; Powell is likely to suggest that incoming data on inflation will guide officials in July. That said, some are already tilting towards the latter scenario after Chair Powell said he did not expect moves of 75bps to be common, but either 50bps or 75bps in July would seem most likely. Analysts at Barclays, who were the first major bank to call for a 75bps rate rise in June, noted that the increment was a strong move from the central bank, calling it a “statement hike,” but believes the FOMC will move to a 50bps rate rise at the July meeting given the challenging conditions the economy is seeing, particularly within the housing sector. (Our full recap of the June FOMC meeting and Chair Powell’s post-meeting press conference can be accessed here).

DAY AHEAD: Other than the Fed Chair, Fed's Barkin, Evans, Harker will give remarks. On the data front, EU flash consumer confidence for June and Canadian CPI data for April are on the slate. After hours, the API will release its gauge of energy inventories. On the supply front, German 2038 debt and a US 20yr will be sold. Full Day Ahead here.

EQUITY NEWS:

TECH:

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  Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA), Apple Inc. (AAPL) - Meta, Microsoft, NVIDIA, and others formed a Metaverse Standards Forum aiming to drive open interoperability, making it easier for developers to build across platforms, TechCrunch reported. However, Reuters noted that Apple, which is eventually expected to become a dominant player in the metaverse, was conspicuously missing from the member list.


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  SoftBank Group Corp. (SFTBY) - UK officials weigh national security grounds to force London IPO for Arm, FT reported. The plan has drawn criticism within government circles and tensions with SoftBank over lobbying effort, the paper added.


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  Uber Technologies, Inc. (UBER), Lyft, Inc. (LYFT) - A group of drivers claimed that Uber and Lyft are engaging in anticompetitive practices by setting the prices customers pay, limiting drivers’ ability to choose which rides they accept without penalty, NYT reported.


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  Micro Focus International plc (MFGP) - HY revenue USD 1.3bln (prev. 1.4bln), Operating Profit USD 35mln (prev. -155mln), Interim Dividend USD 0.08/shr (prev. 0.088/shr). No changed to FY22 expectations, strategic priorities for FY23 remain unchanged.


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  Viasat, Inc. (VSAT) - Has received the necessary stockholder approvals for the proposed acquisition of Inmarsat. Transaction expected to close in H2, subject to regulatory approvals.

COMMUNICATIONS:

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  Comcast Corporation (CMCSA) - Universal Studios Beijing says it will gradually reopen from June 25th.

ENERGY:

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  Global Energy - IEA chief warns Europe to prepare for total shutdown of Russian gas exports, FT reports, adding that governments should keep ageing nuclear plants open and take other contingency measures.


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  NatGas - The German government is preparing to declare a national gas emergency plan within a few days, according to Welt.


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  Chevron Corporation (CVX), Oil Majors - Chevron CEO called on US President Biden to end hostilities towards Big Oil ahead of a Thursday meeting where oil companies will meet with the US Energy Secretary, Fox reported. Chevron’s CEO said addressing global supply and demand imbalances requires “thoughtful action and a willingness to work together, not political rhetoric,” adding that “we need clarity and consistency on policy matters ranging from leases and permits on federal lands, to the ability to permit and build critical infrastructure, to the proper role of regulation that considers both costs and benefits.”


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  North Sea Oil - UK Chancellor to meet with North Sea producers on Thursday amid discontent over the latest windfall tax, according to Bloomberg sources.


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  Saipem (SAPMY) - Board is exercising authority for a capital increase of EUR 2bln.


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  Delek US Holdings, Inc. (DK) - Announces Special Dividend of USD 0.20/shr.

MATERIALS:

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  BASF (BASFY) - CEO said H2 would likely be more difficult than H1, as BASF will no longer be able to benefit from competitors strained supply chains and elevated energy costs. CEO said it will have difficulty creating margins on top of the elevated energy prices.


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  Anglo American plc (NGLOY) - Value of rough diamond sales for De Beers’ fifth sales cycle of 2022 amounted to USD 650mln (prev. 604mln in Cycle Four). Exec said diamond jewellery demand continued to perform well in the US. The continued strength of US demand for diamond jewellery and the gradual reopening of retail outlets in China following Covid-19-related lockdowns has supported the sales momentum of De Beers Group’s rough diamonds.


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  Enviva Partners, LP (EVA) - Reiterated FY22 adj. EBITDA outlook. Said continued global commitments to the energy transition combined with the current geopolitical backdrop are creating a highly constructive pricing environment for near-term deliveries and long-term contracts at favourable headline pricing levels not previously seen.

INDUSTRIALS:

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  Tesla, Inc. (TSLA) - A black former elevator operator at Tesla’s California assembly plant rejected a USD 15mln award in his lawsuit alleging racial abuse by co-workers, opening the door for a new trial after a judge slashed a USD 137mln jury verdict, Reuters reported. Lawyers said that the award was unjust and would not deter future misconduct by Tesla.


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  Boeing Company (BA) - Boeing CEO, speaking at the Qatar Economic Forum, said that global supply chain constraints would likely continue until at least the end of next year, adding that labour shortages at mid- and sub-tier suppliers remain an issue. Elsewhere, CEO said that demand for freighter jets was not impacted during the pandemic, and he sees demand for air freight continuing for some time.


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  Boeing Company (BA), Carrier Global Corporation (CARR) - David L. Gitlin, currently chair and CEO of Carrier, elected to Boeing’s Board, will join the Aerospace Safety Committee and the Finance Committee.


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  Rolls-Royce (RYCEY) - Labour union Unite rejected Rolls-Royce’s pay offer and GBP 2,000 one-off payment.


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  Toyota (TM) - The automaker expects it will produce around 800k vehicles globally in July. Note, TM reportedly cut production in June by 100k to 850k units due to semiconductor shortages.


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  Volkswagen (VWAGY) - CEO is optimistic that 2022 targets can be attained within China, despite the COVID lockdowns.


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  Lufthansa (DLAKY) - Verdi, union, demands a 9.5% pay rise or at least EUR 350mln more over 12-months for Lufthansa staff.


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  Stellantis (STLA) - Peugeot has announced a new ‘408’ model.


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  Lockheed Martin Corporation (LMT) - Awarded a USD 130.5mln Air Force contract modification.

CONSUMER CYCLICALS:

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  Kohl’s Corporation (KSS), Franchise Group, Inc. (FRG) - Franchise Group, the preferred bidder to acquire Kohl’s, is in discussions to keep the retailer’s top management team if the planned sale is finalised, Reuters reported.


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  Marriott International, Inc. (MAR) - Average rates over the Memorial Day weekend were +25% vs 2019 levels. CEO said it was not seeing headwinds from inflation in forward booking data yet, but the company is monitoring the situation. Said the pace of the recovery was consistent and encouraging. MAR was seeing more guests combining business and leisure travel, and the leisure market was pricing in recovered markets.


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  Goodyear Tire & Rubber Company (GT) - Exec told CNBC that material costs were continuing to increase, and Goodyear had to recoup that through pricing actions. Exec said this trend will likely moderate soon. Added that Q1 cashflows were usually negative as inventories rise, which is a standard in the industry.


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  Evolution Gaming (EVVTY) - Evolution is to acquire Nolmit City for an upfront consideration of EUR 200mln.


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  Hugo Boss (BOSSY), Frasers Group (SDISY) - Frasers announces further strategic investment in Hugo Boss, stake is now worth a maximum of EUR 900mln. Frasers intends to remain a supportive shareholder.


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  La-Z-Boy Incorporated (LZB) - Gained over 10% after hours following results. Q4 EPS USD 1.07 (exp. 0.92), Q4 revenue USD 684.6mln (exp. 664.9mln). Exec noted that it saw sequential quarterly improvement in operating margin. Expects current macroeconomic and geopolitical uncertainty and its effect on consumer sentiment will likely cause demand trends to remain volatile for the foreseeable future. Q1 revenue seen between USD 560-575mln (exp. 554.2mln).

HEALTH CARE:

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  Enanta Pharmaceuticals, Inc. (ENTA), Pfizer Inc. (PFE) - Enanta filed a patent infringement lawsuit against Pfizer over COVID treatment Paxlovid. Enanta wants unspecified financial damages from Pfizer, including royalties. But it is not seeking to block Pfizer from selling the treatment.


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  AstraZeneca PLC (AZN), Merck & Co., Inc. (MRK) - AstraZeneca and Merck announced that the results from the Phase 3 PROpel trial was published in NEJM Evidence. Results showed that LYNPARZA in combination with abiraterone plus prednisone significantly improved radiographic progression-free survival versus abiraterone plus prednisone, a standard of care, as first-line treatment for patients with metastatic castration-resistant prostate cancer with or without homologous recombination repair gene mutations.


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  BioMarin Pharmaceutical Inc. (BMRN) - Ministry of Health, Labour and Welfare (MHLW) in Japan granted approval of the registration of VOXZOGO (vosoritide) for injection, indicated for the treatment of achondroplasia in children of all ages, whose growth plates are not closed.


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  Moderna, Inc. (MRNA) - UK is collaborating with Moderna to build the country’s first manufacturing centre for messenger RNA vaccines in a deal worth GBP 1bln, FT reported.


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  Precision BioSciences, Inc. (DTIL), Novartis AG (NVS) - Precision announces in vivo gene editing collaboration with Novartis to develop potentially curative treatment for disorders including sickle cell disease. Precision to Receive USD 75mln upfront for a single target, and is eligible to receive up to an additional USD 1.4bln in milestones and royalties.


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  Novartis (NVS) - European Commission gives approval for Tabrecta.

FINANCIALS:

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  Standard Chartered (SCBFY) - Indian unit is looking for buyers for its USD 1.6bln distressed loan portfolio, as part of an effort to clean up its books, according to sources cited by the Economic Times.


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  Credit Suisse (CS) - WRM Group has filed a lawsuit against the bank over claims that it did not disclose funds relating to the Vatican’s investment in the London property market were from donations, FT reports.


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  Credit Agricole (CRARY) - Intends to produce net income over EUR 6bln and strengthen profitability by 2025. Said it was allocating EUR 20bln to software and digital spending, and is targeting one million additional retail customers.


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  First Bancorp (FBNC) - Will acquire GrandSouth in an all-stock transaction with a total current value of USD 181.1mln, or USD 31.43/shr.

22 Jun 2022 - 09:39- Data- Source: Newsquawk