US EARLY MORNING: Stock futures are below neutral; weekend newsflow generally leans cautious

SNAPSHOT: US equity futures are trading with a modest negative tone, perhaps taking a pause after the solid rally seen in wake of lower-than-expected US inflation data in October. The weekend was dominated by the FTC collapse, though this is not having any systemic fallout and financial market functioning has been uninterrupted, though will still herald a more activist regulatory stance; Democrats retain the Senate, though the House will likely flip to the GOP; the Treasury Secretary is already warning on the debt ceiling; there were also a number of reports focussing on job losses in the tech sector, while other pockets are also seeing pockets of layoff announcements (DIS on Friday, for instance). Treasury yields are rising 3-8bps, with cash markets having reopened after the Veteran’s Day holiday on Friday. The Dollar Index is trading above neutral, but remains capped by 107.00; activity currencies are mixed, as are EMFX majors; China’s yuan may be influencing the landscape, as the PBoC set the yuan fix at the strongest vs the USD since late September. China themes will remain at the forefront amid some pushback from officials that the country is on the cusp of jettisoning its COVID zero policies, while a meeting between Presidents Xi and Biden is scheduled to take place later this morning.

OUTLOOK: While there is an outsized amount of attention on the crypto complex in wake of the collapse of exchange FTX, it is worth noting that the broader financial market functioning has not been hit. And the news flow has taken the shine off a huge risk rally which has seen the ES bounce back towards 4,000 (fleetingly topping that level) as traders dovishly reprice the trajectory of Fed rate hikes after the lower-than-expected inflation data for October – many see lower inflation continuing: Goldman Sachs now sees a significant decline in inflation next year, and thinks that core PCE will pare back to 2.9% Y/Y in December 2023 from current levels around 5.1%. And fund managers are now reportedly increasing efforts to woo investors back into bonds, FT reports, noting that fixed income outflows have slowed as inflation eases and hopes rise of an end to jumbo Fed interest rate rises. Additionally, the FT reports that US companies are also rushing to raise cash as a steadier stock market and softer inflation data open a rare window to sell bonds and shares; last week was one of the busiest in months for bond markets, with about USD 2bln of shares sold in secondary deals; FT said that industry players were predicting the burst of activity would continue. Nevertheless, Bloomberg says that analysts are still pessimistic about what is to come; BBG says analysts have cut S&P 500 earnings estimates for nine straight weeks, and now see negative earnings growth in Q4, where they predict earnings will decline 0.4% Y/Y; when asked in August, these analysts were looking for +6% Y/Y in Q4. And JPMorgan CEO Dimon reiterated his downbeat view on the global economy, warning that the conditions for an economic storm, adding that we could see more surprises like the near meltdown of UK pension funds. Dimon told Nikkei that “the storm I was talking about [recently], or the potential storm, includes inflation, higher rates, global tightening, quantitative tightening and the effect of the war on the global economy, particularly oil prices, food prices, supply chain issues,” adding that “those things have all kind of happened.” He went on to say that “these are very serious issues we have had to deal with” and “we still don’t know what the outcome will be.” Companies are also responding to the uncertainty with job cuts; The Washington Post notes that in the last week, US tech companies have laid off 20k workers, ramping-up job cuts and hiring freezes that have been ricocheting through the tech industry for months, while others like Google and Amazon have recently instated hiring slowdowns and freezes.

DAY AHEAD: There is not much by way of scheduled data releases due on Monday, with only the Eurozone industrial production numbers for September standing out. Even the central bank speakers slate is quiet, with ECB's vice president de Guindos and Panetta to speak again, but both spoke last week and will likely have little to add. Fed's Williams makes an appearance after hours. On the supply front, the BoE short-term Gilt sale will be eyed. Leaders have begun arriving for the G20 summit, due to take place on Tuesday and Wednesday; we expect a lot of geopolitical headlines, though leaders will reiterate known positions: Russia is expected to be condemned over its invasion of Ukraine, there will be additional headlines on the oil price cap; US-Sino relations will be in focus as leaders Biden and Xi meet on Monday; Biden will raise North Korea, and tell Xi that if North Korea continues firing missiles, there will be more enhanced US military presence in the region; Taiwan will likely also get a mention, as will bilateral trade (we cover the themes in our weekly note, which can be accessed here). Elsewhere, this week, we'll get US retail sales, the UK Autumn Statement (expect tax increases and lower spending, with forecasts looking similar to the BoE's recent projections), and China activity data. Full Day Ahead schedule here.

WASHINGTON:

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  Midterms - Democrats have won the battle for Senate control after taking Nevada and Arizona, meaning that the Georgia Senate runoff on December 6th will merely determine the margin that Democrats have in the chamber, not its balance of power, Politico reports. Republicans remain favoured to win the House, though by a smaller margin than anyone expected; WaPo, citing a Republican aide, said the majority will be “unworkable” and that “nothing meaningful will get passed.”


• 
  Debt Ceiling - Treasury Secretary Yellen urged lawmakers to raise the statutory limit on US debt, arguing that failure to do so posed a “huge threat” to the US credit rating and the functioning of US financial markets. Yellen said cooperation with Republicans on some issues was possible, but lifting the debt ceiling was a non-negotiable item. Reuters said that without an increase, a potential default crisis might be seen by Q3 2023. Senator Warren backed a plan to get rid of the debt ceiling in the upcoming congressional lame-duck session, telling NBC that she would “get rid of the debt ceiling altogether” if possible. “If the Democrats take the House, then there’s no urgency around this, but no matter what, the US has to honour its outstanding obligations.”


• 
  Ukraine-Russia - There is growing debate inside the US administration over whether Ukraine’s recent gains on the battlefield should spark a renewed effort to seek some sort of negotiated end to the fighting, CNN reports. Top General Mark Milley has in recent weeks been pushing to seek a diplomatic solution, though his position is not widely backed by President Biden’s national security team, who do not believe it is time to make a serious push for talks.

CHINA:

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  China COVID - Beijing authorities said they will further strengthen COVID prevention and control measures, and reminded residents not to go out unless necessary. The measures are seen as a response to the mounting pressure of soaring cases in the city, Global Times said. China reported 1,794 new confirmed COVID cases in the Mainland on Nov 13th (vs 1,711 on Nov 12). Beijing reported the highest number of local COVID cases in over a year, Bloomberg said.


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  Alibaba Group Holding Limited (BABA), JD.com, Inc. (JD) - E-commerce giants Alibaba and JD.com are keeping their Singles’ Day sales figures under wraps amid China’s economic woes, zero-Covid-19 policy, SCMP reports, opting for the first time to not disclose final GMV figures. Alibaba said its final sales tally was in line with its GMV last year, while JD.com said its promotion this year achieved ‘record-breaking’ results.


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  BlackRock, Inc. (BLK) - BlackRock “indefinitely” shelves launch of an exchange traded fund that invests in Chinese bonds, amid growing tensions between Washington and Beijing, and a reversal in the gap between Chinese and US yields, FT reports.

CRYPTO:

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  FTX - FTX US stopped processing withdrawals around midday Friday, CoinDesk said. FTX was reportedly exploring the sale of prized asset LedgerX, Bloomberg said. FTX was subject to a hack with “mysterious” outflows totalling over USD 600mln, CoinDesk reports; FTX confirmed it had been hacked and instructed users not to install new updates and to delete all FTX apps.


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  Robinhood Markets, Inc. (HOOD) - Sam Bankman-Fried tried to sell USD 472mln of Robinhood shares at about USD 9 until Friday afternoon, as his FTX crypto exchange collapsed, FT reported.


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  Regulation - Treasury Secretary Yellen said the collapse of crypto exchange FTX reinforced her view that the market for digital assets required “very careful regulation,” which showed “weaknesses of this entire sector,” Bloomberg reports. “In other regulated exchanges, you would have segregation of customer assets,” Yellen said, “the notion you could use the deposits of customers of an exchange and lend them to a separate enterprise that you control to do leveraged, risky investments -- that wouldn’t be something that’s allowed.” Binance CEO claimed there were still many crypto exchanges that cut corners.


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  Visa (V) - Visa terminated its global debit card agreement with FTX.

HEALTH CARE:

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  AstraZeneca (AZN) - Lynparza combo has been recommended in the EU for MCRPC. Additionally, Imfinzi has been recommended for approval in the EU for BTC.


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  Roche (RHHBY) - Updates on the Phase III graduate programme evaluating Gantenerumab in early Alzheimer’s disease, studies did not meet the primary end point.

TECH/COMMUNICATIONS:

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  Walt Disney Company (DIS) - Disney CEO announced companywide cost-cutting measures, said layoffs were likely, WSJ reports. The measures will include a ban on all but essential work travel, a freeze on non-critical new hires Disney will also review spending on marketing, content and administrative spending.


• 
  Tech Jobs - Washington Post notes that in the last week, US tech companies have laid off 20k workers, ramping-up job cuts and hiring freezes that have been ricocheting through the tech industry for months. Twitter, Facebook parent Meta, payment platform Stripe, software service firm Salesforce, ride-hailing company Lyft and a growing list of smaller companies all laid off double-digit percentages of their workers. That means tens of thousands of engineers, salespeople and support staff in one of the country’s most important and highest-paying industries are out of a job. Others like Google and Amazon have recently instated hiring slowdowns and freezes.


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  GlobalFoundries Inc. (GFS) - The largest US-based provider of made-to-order semiconductors GlobalFoundries is beginning job cuts and has enacted a hiring freeze, Bloomberg reports. It did not disclose when these would occur, or which divisions would be affected.


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  SoftBank Group Corp. (SFTBY) - SoftBank lost all the cumulative investment gains it had made through its Vision Fund business as global rate rises and a weakening economic outlook hammered the valuations of portfolio companies, Nikkei reports. The funds’ unrealised gains since the start of investment in 2017 fell to negative USD 1.46bln in Jul-Sep, down from positive USD 8.49bln three months ago (vs peak of USD 66bln in March 2021).


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  Twitter (no longer listed) - The advertiser exodus from Twitter is accelerating, WSJ reports, as it enters the time of year when it normally begins negotiating long-term contracts with its largest advertisers, deals that generate more than 30% of its US ad revenue.


• 
  Bumble Inc. (BMBL) - Positive mention in Barron’s, which said the stock was a buy, and could rise by 30%, adding that the dating-app company looks under priced considering how quickly it’s taking market share in a growing market.

CONSUMER:

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  Walmart Inc. (WMT) - WMT tells suppliers it is not going to pay higher prices anymore, adopting a similar posture to rivals from Target to Amazon. WSJ says large retailers are cancelling orders, resisting price increases and in some cases asking suppliers to provide discounts, putting pressure on product makers that are struggling to adapt to shifting consumer demand. The report adds that it could also contribute to a slowing of inflation.


• 
  Estee Lauder Companies Inc. (EL) - Estee Lauder nears USD 2.8bln deal to buy Tom Ford, according to the FT, and is in exclusive talks to acquire the brand; deal could be announced Monday.


• 
  Tesla Inc. (TSLA) - The automaker will assist Chinese police investigating a crash involving a Model Y car after local media reports said two people had died and three were injured when the driver lost control of the vehicle, Reuters reports.


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  EV Stocks - Cautious mention in Barron’s, which said that EV stocks are facing a reckoning where not all will survive. Barron’s said companies with a higher market capitalisation were more likely to survive, but those with market values of less than USD 1 billion -- like Arrival, FaradayFuture, Canoo, Sono Group -- not so much. (SEV) also have market caps below $1 billion.


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  Hilton Worldwide Holdings Inc. (HLT) - Board approves repurchase of an additional USD 2.5bln under its existing share buyback programme, bringing the new total authorisation to around USD 3.4bln.


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  Home Builder Stocks - Negative mention in Barron’s, which notes that the housing market is in a recession, and it is not the time to buy home builder stocks.

INDUSTRIALS:

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  FedEx Corporation (FDX) - FedEx Freight to furlough an undetermined number of drivers starting in early December for about 90 days, Freight Waves reports, in response to slowing macroeconomic conditions that have impacted LTL demand in recent weeks; the voluntary furloughs expected to affect a small number of drivers, not all facilities will be targeted.


• 
  Stellantis (STLA) - Sevel van producing site in Italy has halted the majority of its operations until Tuesday, due to parts shortages, according to the ULM union.

ENERGY:

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  Crude Prices - JPMorgan expects Brent to re-test USD 100/bbl in Q4-2022 and average USD 98/bbl in 2023. The bank still sees the global oil market in a deficit in Q4-2022, the projected surplus in 2023 has been expanded to 0.9mln BPD. Sees Russian crude production can stabilise around 10mln BPD in H2-2023, following a shallow dip in Q1 2023.

FINANCIALS:

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  JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC) - JPMorgan did not make loans backing takeovers of companies such as Twitter Inc., Citrix Systems Inc. and Nielsen Holdings PLC this year, which fell in value as markets turned choppy, WSJ reports. JPMorgan’s record contrasts with that of Bank of America, which made large loans for buyers of Twitter, Citrix, Nielsen and others.


• 
  Credit Suisse (CS) - Saudi National Bank said it has not come across any information that may raise concern regarding the governance of the bank, and it was supportive of its transformation plan.

14 Nov 2022 - 09:30- Fixed IncomeExclusive- Source: Newsquawk