US EARLY MORNING: Stocks lower on global recession fears; Fed Chair Powell's Friday speech at Jackson Hole is the main event of the week

SNAPSHOT: US equity futures are lower, with the growth style coming under pressure amid global growth concerns. YM -0.9%, ES -1.1%, RTY -1.1%, NQ -1.4%. Overnight, Asia-Pac stocks were mostly lower amid headwinds from global inflationary concerns and power restrictions in China, while participants also digested the latest PBoC rate actions where it asymmetrically lowered LPR rates following cuts to MLF and RRP rates last week, as policymakers attempt to support the economy after weak July activity data. European equity indices open lower at the start of the week; gas prices are surging on news that Russia’s Gazprom will shut down the Nord Stream 1 pipeline for three days at the end of the month to conduct an unscheduled maintenance, exacerbating recession fears, while participants are concerned whether flows will resume after this period, despite Gazprom’s assurances that it would. Crude oil prices, meanwhile, as easing amid hopes that an Iran nuclear deal could help offset the absence of Russian barrels on the international markets, although Iranian officials on a deal caution that ‘nothing is done until everything is done’. The fixed income complex is bid as risk sentiment comes under pressure, with Treasury yields narrowing by 1-3bps, with most of the rally being seen in the belly; 2s yields are a little higher as concessionary dynamics play a role ahead of this week’s shorter dated US supply.

GROWTH VS VALUE: The FT reports that large investors have been favouring the growth style over value in recent months driven by shifting views on interest rates, inflation and the threat of a US recession; value strategies have been underperforming since mid-June when US stocks began a rebound. The sell-side commentary over the weekend has been attempting to dissect whether the recent upside in stocks is indeed a catching the Fed pivot, or whether it is a bear market rally. Goldman Sachs’ analysts says the recent performance resembles both bear market rallies and end of Fed hiking cycle: The bank points out that recent sector and factor performance closely resemble the historical patterns around the actual end of Fed hiking cycles; “Cyclicals have outperformed defensives by a median of 2ppts following the end of Fed hiking cycles, and since the June trough, cyclical industry groups have outpaced defensive ones by 6ppts,” it writes, “momentum has reversed and small cap companies have outperformed large ones, both matching the median historical experience.” By sector, GS observes that Tech is outperforming, while Energy, Staples, Communication, Health Care have all lagged, similar to the usual rotations when the Fed stops hiking rates. Nevertheless, recent performance has differed from the typical end of Fed hiking cycles in a few ways, GS says, as Financials and Industrials have failed to outperform like they historically have. It goes on to note that the S&P rebound also resembles bear market rallies: “We analysed 6 bear markets and 17 rallies since 1981,” GS says, “during that time frame, the average bear market rally lasted 43 days and saw the S&P 500 rebound by 14%, the index’s 17% appreciation during the last 63 days looks similar to this pattern.” And the factor performance also resembles that of a bear market rally, with cyclicals outperforming defensives by about the same magnitude as the median experience, where Growth has outpaced Value, as it historically has during these rallies, and Momentum has reversed. “While the index, sectors, and factors behave similarly in both situations, the 2000 experience illustrates the risk that the market could decline even after hiking stops if the US economy enters a recession,” it writes, “by contrast, if inflation surprises to the upside and requires the Fed to tighten more aggressively than our economists expect, we would expect equity valuations to compress as a result.” In terms of what this means for traders, GS argues that given this macro backdrop, upside seems limited while downside risks loom.

DAY/WEEK AHEAD: The economic docket is light for today (full day ahead here), but the highlight of the week is Fed Chair Powell's remarks at Jackson Hole on Friday. Traders will naturally be looking for some steer on the increment by which the FOMC will lift rates on September 21st; the current expectation is that 50bps is more likely than 75bps, although Powell will reiterate that it will depend on incoming data (NFP on 2/Sep, CPI on 13/Sep). Q3 macro indicators have been constructive, dismissing Q2 recessionary signal (NFP upside surprise, CPI downside, ISMs), and has allowed the Fed to lean back against the policy pause narrative, but still gives cover for a downshift to 50bps. Perhaps more useful, however, is the debate surrounding the terminal rate. More specifically, where officials estimate it is (the June SEP forecast 3.75-4.0%; market view is around 3.5-3.75%), when we will get there (before the end of the year is likley), and how long will the Fed be able to hold rates at Terminal. BMO Capital Markets offer us some historical context, noting that the Fed has typically stayed at terminal for between 3-15 months, with the average being around 6.5 months. The upshot is that if terminal is achieved by year-end, it could imply a rate cutting cycle will begin in H2-2023. Week Ahead preview here.

ENERGY:

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  Russia - Russia is to shut the Nord Stream 1 pipeline for three days from August 31st; Gazprom said this was due to unscheduled maintenance being required for the pipeline’s only remaining compressor, according to Reuters.


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  Occidental Petroleum Corporation (OXY), Berkshire Hathaway Inc. (BRK.B) - US FERC regulator Friday gave Berkshire Hathaway permission to buy up to 50% of oil company Occidental Petroleum’s common stock, Reuters reported. However, Berkshire is not expected to bid for control of Occidental, according to the WSJ.

INDUSTRIALS:

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  Ford Motor Company (F) - A USD 1.7bln jury verdict against Ford involving a fatal truck crash called into question the roof strength of older-model Super Duty pickups sold by the company over a roughly 17-year period, WSJ reported.


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  Tesla, Inc. (TSLA) - CEO Musk tweeted that after wide release of FSD Beta 10.69.2, the price of FSD will rise to USD 15k in North America on September 5th. The current price will be honoured for orders made before Sept 5th, but delivered later, he added.


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  Volkswagen (VWAGY) - Porsche expects to produce a similar number of EV and ICE versions of its Macan model, according to Automobilwoche.


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  General Electric Company (GE), The Boeing Company (BA), Raytheon Technologies Corporation (RTX), Lockheed Martin Corporation (LMT) - Companies among those who have won awards as part of USAF Next-Gen Adaptive Propulsion contract for USD 975mln.

MATERIALS:

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  Glencore Plc (GLNCY) - Positive mention in Barron’s; argued that coal was in hot demand, and that is good news for Glencore’s stock.


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  Norsk Hydro (NHYDY) - 30 Industri Energi members are to strike at Hydro Sunndal, production ramp down will be implemented. The strike will initially lead to a gradual shut down of 20% of production withn four-weeks, if strike continues another 10% of production will be shut each week.

CONSUMER DISCRETIONARY:

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  Amazon.com, Inc. (AMZN) - Amazon is adding revenue streams ahead of the holiday season to help it counter inflationary pressures and other rising costs and as it recalibrates following a pandemic boom, WSJ reports. AMZN is passing on some costs to the sellers that use its e-commerce platform and plans to hold a second deals event for Prime members. Elsewhere, CNBC reports that Amazon’s ‘Thursday Night Football’ begins a new era of streaming for the NFL; Amazon paid USD 1bln for the rights to be the exclusive provider of ‘Thursday Night Football,’ and has developed new statistics technology and other broadcast features it hopes will delight fans; the report adds that around 80mln US Prime Video subscribers watched the app at least once in the last year. The Times reports that Amazon has halted the aggressive expansion of its checkout-free convenience stores, amid disappointing sales and a bleak economic outlook, and is understood to have walked away from talks on dozens of sites for new hi-tech Amazon Fresh stores, and called off the search for more locations.


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  Bed Bath & Beyond Inc. (BBBY) - Some Bed Bath & Beyond suppliers are restricting or halting shipments altogether after the home-goods retailer fell behind on payments, sources told Bloomberg, complicating the company’s scramble for liquidity.

COMMUNICATIONS:

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  TikTok - NYT reported that the web browser used within the TikTok app can track every keystroke made by its users, according to new research that is surfacing as the Chinese-owned video app grapples with U.S. lawmakers’ concerns over its data practices. The research from Felix Krause, a privacy researcher and former Google engineer, did not show how TikTok used the capability, but said the development was concerning because it showed TikTok had built in functionality to track users’ online habits if it chose to do so.


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  Twitter, Inc. (TWTR) - Twitter warned staff that the size of bonus payments this year was at risk because of financial difficulties, adding to belt-tightening measures tech companies are implementing during an economic downturn, WSJ reported.


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  T-Mobile US, Inc. (TMUS) - In total, at least 25 hedge funds had 5% or more of their equity investments in TMUS stock, according to a Bloomberg analysis of quarterly 13F filings. The stock has gained 26% so far this year, outpacing the performance of broad markets, where the Nasdaq 100 is down 19% so far.


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  Walt Disney Company (DIS) - CEO Bob Chapek’s decision to hike Disney+’s price by USD 3/month runs counter to the strategy his predecessor Bob Iger had set in place, CNBC reported. Chapek’s pricing decisions were his alone, sources said, and the new strategy emphasises profitability over subscriber additions.


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  Manchester United plc (MANU), Apollo Global Management, Inc. (APO) - Apollo is not interested in taking a stake in Manchester United FC, a source told Bloomberg, distancing it from a report it was in exclusive talks with the Glazer family about buying into one of the biggest brands in world sports.


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  DoorDash, Inc. (DASH), Walmart Inc. (WMT) - DoorDash is ending its partnership with Walmart next month after more than 4 years of delivering products to the retail giant’s customers, Business Insider said. A source close to the issue said DoorDash made its move to focus on long-term customer partnerships. Walmart said its continuing to grow its Spark network, which accounts for most Walmart deliveries.


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  Match Group, Inc. (MTCH) - Tinder is struggling to attract younger users who are starting to abandon the world’s dominant dating app, FT reported, adding that young users appear to be shifting to alternatives to Tinder in the hunt for romance. Downloads of Tinder dropped 5% in 2021 to 70.7mn, while rivals have enjoyed consistent growth, according data from app market researchers data.ai.


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  Paramount Global (PARA) - Paramount has agreed to pay a record USD 1.5bln to extend its US English-language broadcast rights in the US for the UEFA Champions League, in the latest sign that football is making strides in an American market it has historically struggled to crack, FT said.


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  Vodafone (VOD) - Entered into heads of terms with 4IG PLC and Corvinus ZRT, deal regarding potential sale of 100% of Vodafone Magyarorszag Tavkozlesi. For a total cash consideration equivalent to a HUF 715bln enterprise value.

TECH:

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  Apple Inc. (AAPL) - Apple will unveil its new iPhone on September 7th, with sales to begin on September 16th, Bloomberg reported, gearing up to release the new iPhone earlier than usual, which will give its current quarter an extra sales boost. Separately, Apple employees are pushing back against its call for workers to return to the office next month, arguing that they have shown they can perform “exceptional work” during two-plus years of flexible arrangements, FT reported.


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  SoftBank Group Corp. (SFTBY) - SoftBank CFO Said it sold a large part of its stake in Alibaba to “instantly show” investors its finances were solid after logging a record quarterly loss of USD 23bln, FT reported. CFO dismissed market concerns that SoftBank’s continued heavy losses could strain its relationship with lenders.


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  Xiaomi Corporation (XIACY) - Xiaomi cuts over 900 jobs, nearly 3% of its workforce, as revenues shrink 20%, SCMP reported. In the June quarter, net income fell 83.5% to CNY 1.4bln, compared with a profit of CNY 8.3bln Y/Y; smartphone shipments -26.2%, primarily due to global macroeconomic headwinds and the resurgence of Covid-19 in China.

HEALTH CARE:

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  Signify Health, Inc. (SGFY), Amazon.com, Inc. (AMZN), CVS Health Corporation (CVS), UnitedHealth Group Incorporated (UNH) - Amazon is among the bidders for Signify, joining CVS Health and UnitedHealth in an auction for the home-health-services provider, WSJ reported. Auction could value Signify at more than USD 8bln; bids are due around Labor Day, but it was possible an eager bidder could strike a deal before then.


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  Pfizer Inc. (PFE) - Bloomberg reports that Pfizer was ordered by US regulators to test the effects of an additional course of Paxlovid among people who experience a rebound in Covid-19 after treatment, putting the drug through further study as reports of the mysterious phenomenon continue to mount. According to the article, PFE must produce initial results of a randomised controlled trial of a second course of the antiviral by September 30th, 2023.


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  Roche (RHHBY) - Launched a COVID test that detects and differentiates emerging variant of interest BA.2.75.


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  GlaxoSmithKline plc (GSK), Sanofi (SNY), Pfizer Inc. (PFE), BioNTech SE (BNTX), Moderna, Inc. (MRNA) - The FT reports that GSK and Sanofi are setting their sights on ending the dominance of BioNTech/Pfizer and Moderna vaccines, after early data showed their shot had fewer side effects and lasted longer, according to GSK’s new vaccine chief.


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  Haleon plc (HLN) - Positive mention in Barron’s; notes that GSK rejected Unilever’s USD 60bln bid for its consumer healthcare division, saying the price was too low; now that division trades as a standalone company, Haleon, with a market cap of USD 29bln, giving investors a chance to get in at a bargain.


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  Novavax, Inc. (NVAX) - Novavax Saturday announced that its Covid-19 vaccine had been authorised for emergency use by the FDA for adolescents between the ages of 12-17, CNBC reported.

FINANCIALS:

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  Banks - Many big Wall Street banks are nearing agreements to pay as much as USD 200mln each and admit that their employees’ use of personal messaging apps such as WhatsApp violated regulatory requirements, WSJ reported citing sources. The total amount of fines will likely top USD 1bln, and will be announced by the end of September. Banks include Bank of America Corp. (BAC), Barclays PLC (BCS), Citigroup Inc. (C), Deutsche Bank AG (DB), Goldman Sachs Group Inc. (GS), Morgan Stanley (MS), UBS Group AG (UBS); Jefferies Financial Group Inc. (JEF) and Nomura Holdings Inc. (NMR) are nearing settlements, but will pay lower fines, reflecting their smaller size.


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  Credit Suisse (CS) - Senior figures at the Investment Bank say that as much as two-thirds of the unit could be sold, under an extreme scenario, Bloomberg reports. Another possibility is that the Investment Bank unit ceases to exist as an individual unit, and is folded into other units. CS will update on strategic review progress in October.


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  PNC Financial Services Group, Inc. (PNC) - Positive mention in Barron’s, which argued that with loan growth rising, PNC looks like a winner with its 3.4% yield.

CONSUMER STAPLES:

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  Keurig Dr Pepper Inc. (KDP) - Gave a statement on speculation regarding acquisition talks between Keurig Dr Pepper and Bang Energy; said it was not pursuing a partnership with Vita Pharmaceuticals for the Bang brand.

22 Aug 2022 - 09:39- Fixed IncomeExclusive- Source: Newsquawk