US EARLY MORNING: US equity futures and Treasuries are rallying as traders return from the long weekend; Biden-McCarthy strike debt ceiling deal, but passage through Congress may be a challenge; ISM and NFP this week

OVERNIGHT: Asia-Pacific stocks had mixed trading with rangebound price action. The ASX 200 and Nikkei 225 experienced losses, while KOSPI outperformed. Hang Seng and Shanghai Composite were pressured. Traders are watching tomorrow's China PMI data releases, and how European and US cash markets react to the US debt ceiling agreement. Our APAC wrap is here. European equity markets startED Tuesday trade in A choppy fashion with traders returning from the long weekend. Data out of Spain showed flash HICP -0.2% M/M in May, lower than the expected +0.3%; the annual measure cooled to 2.9% Y/Y (exp. 3.4%) from 3.8%; the core reading printed 6.1% Y/Y, down from 6.6%. INE said 12-month inflation had not fallen to the lowest levels since July 2021. Bunds rallied on the lower than expected reading ahead of German releases due Tuesday. In the UK, data from the BRC showed UK shop price inflation rising to its highest level since 2005, with prices in supermarkets and retail chains increasing +9.0% Y/Y in May. However, food price inflation slowed to +15.4% Y/Y. Our European morning cash open note is here. 

US PRE-MARKETS: US equity futures are higher after a deal was struck between President Biden and House Speaker McCarthy on the US debt ceiling; many note that its passage through Congress could still be a challenge given the extreme positions on both sides of Congress, and the Bill will need bipartisan support. We have further analysis below. Treasuries are rallying, likely also assisted by European peers after Spanish inflation metrics surprised to the downside, which augurs well for the German data released on Wednesday and the Eurozone data out on Thursday. In FX, the Dollar Index is higher, just beneath 104.50; the main story has been from Asia, however, with the CNH weakening above 7.10 against the buck to a new five-month high; the PBoC is seen to be tolerant of the yuan's moves, as long as they are gradual. Japanese officials are not so sanguine, however, and are holding late meetings after USDJPY vaulted 140.00; officials will give a press conference after their meeting, and are expected to warn on rapid currency moves. In energy, crude futures have tilted to the downside despite initially rallying on the week's reopen following the debt ceiling news; the mixed tone in Asia, and the negative tone in Europe may be contributing, while reports suggest that ahead of the June 4th OPEC+ meeting, Saudi Arabia and Russia are experiencing tensions as Russia continues to flood the market with cheap oil, undermining Saudi efforts to stabilise prices; elsewhere, OPEC SecGen said the cartel will welcome the return of Iran to oil markets when sanctions are lifted, adding that Iran had the capacity to bring significant production volumes in a short period of time.

DEBT CEILING DEAL: President Biden and House Speaker McCarthy have struck a deal over the debt-ceiling. The agreement would avert a US default, suspend the debt ceiling until 1st January 2025, cap federal spending for the next two years, claw back unused COVID funds, hasten the permitting process for some energy projects, and include extra work requirements for food aid programmes. The plan now faces a push through Congress, where it will likely face objections from both sides of the aisle. Lobbying is already underway to secure votes; Biden staff have already contacted many Democrats, McCarthy expects the majority of Republicans in the House will vote for the bill, while Republican Senate Leader Mitch McConnell has also backed the deal. Secretary Yellen suggested it is likely that the Treasury would have enough funds to make around USD 130bln of payments due Thursday and Friday, but said that the US will run out of money to cover its obligations on time by 5th June, and subsequently the Treasury could begin missing payments, though it is unclear which ones. Ratings agency Moody’s has previously said that missing the X-date would see them reassess US ratings, but so long as interest and principal on bonds was being paid, a default may be avoided. Analysts at Goldman Sachs said that “reaching a deal between leaders had been the highest hurdle and this agreement eliminates most of the uncertainty regarding the impending debt limit deadline, though the legislation must still pass the House and Senate,” Goldman Sachs said, noting that the House is slated to vote Wednesday (May 31st) while the Senate could vote by Friday (June 2nd), though it would not be surprising to see procedural delays push the vote into the weekend. “Regardless, the chances that Congress allows the June 5th deadline to pass without action now appear very low, GS said, adding that the deal itself is expected to trim GDP spending by 0.1-0.2% annually in 2024 and 2025, but FY23's funding boost may keep overall discretionary spending slightly higher next year.

TODAY’S AGENDA:

• An interactive calendar can be found here; a pdf version can be accessed here.


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  EU DATA/SPEAKERS: Sentiment indicators are due in the morning, with little change expected at the headline level, though traders will be watching out for consumer inflation expectations. Some German regional inflation metrics may be released in the morning, though the national data is due tomorrow. ECB's Centeno (dove) is due to speak in the afternoon.


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  US DATA/SPEAKERS: March housing metrics from the FHFA and Case Shiller; on the housing market, Pantheon Macroeconomics has recently said that the big picture is that home sales are no longer falling, though a sustained rebound from the current lows may be ellusive in absence of an improvement in affordability, adding that "part of that improvement will come via lower home prices; that process is nowhere near complete, but it is well underway, with the Case-Shiller 20-city index down by 4.6% from its summer peak." The Conference Board's gauge of Consumer Confidence for May is expected to ease slightly at the headline level. The Dallas Fed Manufacturing survey for May will be eyed ahead of this week's ISM release. The Fed's Discount Rate Minutes are due for release in the afternoon. Fed non-voter Barkin will make remarks today; at the end of this week, the Fed goes into blackout ahead of its June 14th policy meeting, where expectations are currently split between an unchanged outcome and a +25bps rate rise.


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  US CORPORATE EARNINGS: Hewlett Packard Enterprises (HPE) and HP Inc (HPQ) are due to report after the bell. Daily US Earnings Estimates can be found here. Highlights for the rest of the week include: CRM, CRWD on Wednesday; DG, LULU and AVGO on Thursday. Weekly US Earnings Estimates can be found here.


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  RECAP - SPAIN REGIONAL ELECTIONS: Spain Prime Minister Pedro Sanchez' governing Socialist Workers' Party suffers losses in regional and municipal elections as the conservative Popular Party gains control in several regions, potentially needing support from the far-right Vox. Sanchez has called for snap general elections to be held on July 23rd after his party's heavy losses (Spain had to have an election by the end of this year). It was a boost for PP leader Alberto Nunez Feijoo, however, as his party gains support and absorbs votes from the declining Ciudadanos.


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  RECAP - TURKEY PRESIDENTIAL ELECTION RUN-OFF: President Recep Tayyip Erdogan secures a third decade in power, winning run-off vote with 52% against opposition candidate Kemal Kilicdaroglu. The Turkish lira slid to a record low in wake of the outcome, with uncertainty surrounding Erdogan's economic policies cited. Analysts said Erdogan's victory will likely see continued distortive economic policies and increased macroeconomic instability, risking currency falls and strains on the private sector. Danske Bank warned that in a scenario where Turkey ran out of foreign currency, lira's value would likely collapse, inflation would explode and goods shortages could occur; Turkish corporates with large foreign liabilities would face rising rollover risk.


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  WEEK AHEAD: Highlights include US jobs report, US ISM; China PMI; inflation data from EZ and AUS. Our Week Ahead briefing can be accessed here. The Fed goes into blackout at the end of this week ahead of the June 14th FOMC meeting, where markets expectations are split between an unchanged outing and a +25bps hike.

EQUITY NEWS:

TECH

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  Nvidia (NVDA) - Unveiled more AI products. Announced custom AI model foundry service NVIDIA Avatar Cloud Engine for Games. Nvidia GH200 Grace Hopper Superchip enters full production. Announced a new class of large-memory AI supercomputer, the NVIDIA DGX supercomputer powered by NVIDIA GH200 Grace Hopper Superchips and the NVIDIA NVLink Switch System, created to enable the development of generative AI language applications. Unveiled NVIDIA MGX server specification. It also launched accelerated ethernet platform for hyperscale Generative AI. Separately, it receives a cautious mention in Barron’s; said Nvidia might become the world’s first trillion-dollar chip stock, but it’s not worth chasing after its recent surge.


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  Nvidia (NVDA), SoftBank (SFTBY), WPP (WPP) - Nvidia and SoftBank are collaborating on a platform for generative AI and 5G/6G applications based on the NVIDIA GH200 Grace Hopper Superchip. Separately, WPP and Nvidia partner to build AI-enabled content engine for digital advertising.


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  Micron (MU), Samsung Electronics (SSNGY), SK Hynix (HXSCL) - US Commerce Secretary Raimondo condemned China’s ban on Micron chips, vowing to address economic coercion and work with allies. Separately, South Korea won’t exploit China’s ban on Micron Technology to gain market share, Bloomberg reports, viewing it as a ploy to create a divide between Seoul and Washington. China is a key market for Samsung Electronics and SK Hynix.


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  Arm (SFTBY), Synopsys (SNPS), Cadence Design (CDNS) - Synopsys strengthens its AI-enhanced design collaboration with Arm, as Arm announces its Arm Total Compute Solutions 2023 platform at Computex.  Cadence Design expands collaboration with Arm to advance mobile device silicon successApple (AAPL), Hon Hai (HNHPF) - Apple supplier Foxconn is increasing pay and bonuses for new recruits at its iPhone factory in Zhengzhou, SCMP reports. New hires can receive up to USD 424 in bonuses, while existing workers can earn a referral bonus of USD 71.


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  Sonos (SONO), Google (GOOG) - Google ordered to pay Sonos USD 32.5mln in patent infringement case, the Verge reports. Jury said some Google smart speakers and media players infringed on one of two Sonos patents.


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  New Relic (NEWR) - Francisco Partners and TPG have abandoned plans to acquire New Relic due to insufficient debt financing and disagreement on valuation, Reuters reports, highlighting the challenges private equity firms are facing in leveraged buyouts.


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  Uber (UBER) - Uber is experiencing a surprising increase in European taxi drivers joining its platform, with usage doubling in the past year despite past tensions, Reuters reports.


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  RingCentral (RNG) - Mention in Barron’s, notes RingCentral and 8X8 were experiencing share price increases as an activist investment firm from Hong Kong reveals stakes, prompting consideration of strategic transactions by management.


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  Accenture (ACN) - Accenture to acquire Brazil-based sustainability consultancy Green Domus Desenvolvimento Sustentavel LTDA. Terms not disclosed.


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  StoneCo (STNE) - Mateus Scherer Schwening promoted to the role of Chief Financial Officer, which was previously held by interim CFO Silvio Morais. President Augusto Lins will retire in July.

COMMUNICATIONS:

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  NetEase (NTES) - NetEase Games announced a new game studio named PinCool, based in Tokyo. Will mainly focus on developing titles for game consoles, and planning and producing a range of additional forms of entertainment.


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  Sky (CMCSA) - Sky is to cut hundreds of jobs in the UK, FT reports. Sources said that job losses would not be as extensive as those planned by rivals, with losses expected to be focused on more traditional business areas.


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  WPP (WPP), Nvidia (NVDA) - WPP and Nvidia partner to build AI-enabled content engine for digital advertising.

FINANCIALS:

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  Regional Banks - Investors are now searching for deals among regional lenders affected by Silicon Valley Bank’s collapse, FT reports, noting that the KBW Regional Banking index has started to stabilise and has gained 11% from its lowest point in May.


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  Insurers - State Farm, the largest car and home insurer in the US, is halting the sale of new home insurance policies in California due to wildfire risk and soaring construction costs, WSJ reports.


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  JPMorgan (JPM) - CEO Jamie Dimon denied wrongdoing in lawsuits involving the bank's ties to Jeffrey Epstein, stating he never met or communicated with Epstein and was unaware of discussions about his accounts, the bank said.


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  Cboe Global Markets (CBOE) - Markets director Joseph Ratterman sold 15,000 shares on May 24th at USD 135.96/shr.


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  Coinbase (COIN) - Coinbase chief people officer Lawrence Brock sold 14,207 shares on May 24th at 14.207/shr.

ENERGY:

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  Energy - Saudi Arabia and Russia are experiencing tensions as Russia continues to flood the market with cheap oil, undermining Saudi efforts to stabilise prices, WSJ reports. The dispute comes ahead of a crucial OPEC+ meeting on June 4th to decide on production plans. Russia Deputy PM Novak is to discuss the oil market situation with oil companies later today, Interfax reported.


• 
  Crescent Point Energy (CPG) - Gave an update on the Alberta wildfires, said that over the last week, it has brought back on stream the full 45,000 boe/d of Kaybob Duvernay production previously shut-in due to the wildfires. No damage has occurred to the company’s assets. Guidance remains unchanged.


• 
  Noble (NE) - CEO Robert Eifler sold 50,000 shares on May 26th at USD 40.21/shr.

INDUSTRIALS:

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  Boeing (BA), Airbus (EADSY) - Boeing is in talks to sell over 150 737 Max jets to a new carrier owned by Saudi Arabia’s sovereign wealth fund, Riyadh Air, Bloomberg reported. Airbus may also secure a portion of the order. Separately, Cathay Pacific is set to order Boeing 777-8F freighters worth USD 2bln, choosing Boeing over Airbus A350 for the partial renewal of its cargo fleet, Reuters reports.


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  Waste Management (WM), Republic Services (RSG) - Waste Management and Republic Services positively mentioned in WSJ, said both were benefiting from the US green push, and are favoured by investors to capitalise on the sustainability trend.


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  TransDigm (TDG) - Announced the upcoming retirement of Chief Operating Officer Jorge Valladares, appointment of Mike Lisman and Joel Reiss as Co-Chief Operating Officers, appointment of Sarah Wynne as Chief Financial Officer.

MATERIALS:

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  Green Plains (GPRE) - President and CEO Todd Becker sold 42,000 shares on May 24th at USD 31.78/shr.

CONSUMER CYCLICALS:

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  Lululemon (LULU), Nike (NKE) - Lululemon receives caution mention in WSJ, says that it faces competition from Alo Yoga, which has gained popularity among influencers and celebrities during the pandemic, expanding into men’s wear and launching new products like sneakers.


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  Ford (F) - Cautious mention in the FT, which said Ford's CEO Jim Farley faces scepticism from investors as the automaker aims to cut costs and transform for the future, with doubts about achieving desired results and timelines.


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  Wynn (WYNN) - Constructive mention in Barron’s; said it was time to roll the dice on Wynn stock, which looks like a good bet.


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  Goodyear Tire (GT) - India unit saw Q4 profit soar as lower raw material costs and increased vehicle demand drive higher revenue and improved profitability, Economic Times reports.

CONSUMER STAPLES:

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  Philip Morris (PM) - CEO said it was looking to become an ESG stock in order to recoup investors which have sold off their stake due to tobacco exclusion policies.


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  Bunge (BG) - Bunge's Brazilian unit launches fintech Fincrop with USD 500mln to fund sustainable deals between farmers and agricultural retailers using risk assessments and barter operations.


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  Estee Lauder (EL) - Constructive mention in Barron’s, which said that better times are ahead for Estee Lauder amid activist attention.

HEALTH CARE:

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  Neuralink - Elon Musk's Neuralink receives FDA approval for human testing of brain-chip implants aiming to restore vision and mobility, but no immediate recruitment plans are announced, BBC reported. Neuralink hopes to use its microchips to treat conditions such as paralysis and blindness, and to help certain disabled people use computers and mobile technology.


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  Eli Lilly (LLY) - Eli Lilly settles class-action lawsuit for over USD 500mln; agreement concludes allegations of insulin overpricing by purchasers.


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  Illumina (ILMN) - Barron’s says Illumina battle with the FTC on its USD 8bln acquisition of Grail could reshape US merger policy. Barron’s thinks the case could reach SCOTUS in the next term.


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  Exicure (XCUR) - Board voices support for CEO in exploration of strategic alternatives.


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  Iovance Biotherapeutics (IOVA) - FDA accepts BLA of Lifileucel for patients with advanced melanoma.


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  Lexicon (LXRX) - Announces FDA approval of INPEFA for treatment of heart failure.

REAL ESTATE:

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  Samhallsbyggnadsbolaget (SBBb) - Swedish property firm SBB, facing a debt crisis, is contemplating a breakup, Bloomberg reports. The strategic review may lead to selling the company, segments, or assets, excluding new shares.

30 May 2023 - 09:05- EquitiesData- Source: Newsquawk