US EARLY MORNING: US equity futures and Treasuries have given up overnight gains; more central bank updates ahead

Equity futures and Treasuries have given up overnight gains. The Fed was not as hawkish as it could have been, but will still lift rates into restrictive territory by the end of the year. The SNB surprised with a rate hike this morning, and there is a whole lot more central bank updates due later today. 

SNAPSHOT: US equity futures and Treasuries have given up overnight gains. YM -1.2%, RTY -1.6%, ES -1.7%, NQ -2.1%). Yields are now mixed, and major curve spreads are tilting towards flattening. The FOMC rate decision on Wednesday was not as hawkish as feared, with Chair Powell tempering expectations of a 75bps move in July; nevertheless, its rate projections were raised, and the Committee is expected to take the FFR target above neutral by the end of this year, which will likely weigh on economic growth (we recap the Fed meeting in more detail below). Central banking themes have remained front and centre since the FOMC: the BCB raised rates by 50bps, in line with expectations, and some see the end of the cycle near; the SNB surprised with a 50bps rate rise on Thursday morning and warned that further hikes cannot be ruled out; the Bank of England will likely raise rates by 25bps later today, and although there are risks of a larger 50bps move here, analysts have noted that the BoE is already ahead in the hiking cycle, and the UK economy faces pressures ahead, which may keep the Old Lady a little more restrained (our BoE preview is here).

FED: The Federal Reserve lifted the Federal Funds Rate target by 75bps to 1.50-1.75%, in line with the recent reports heading into the meeting, and continues to anticipate that ongoing increases in the target range will be appropriate, adding that it was strongly committed to returning inflation to its 2% objective. Esther George–who typically sits on the hawkish-end of the spectrum–dissented against the size of the move, preferring a 50bps rate rise; some analysts speculated that this may be an attempt by her to maintain credibility in the Fed’s forward guidance, which had signalled a 50bps move was coming in June, before last week’s hot CPI data caused a rethink. NOTE: Fed dissenters typically release a statement on the Friday following the meeting explaining their dissent, which we await eagerly. Within Wednesday’s policy statement, there was no explicit signal regarding the size of the Fed’s July move, although analysts note that the updated projections 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 December meetings; however, it could also be interpreted as three 50bps rate rises followed by a 25bps move – this suggests that incoming data on inflation is likely to guide officials in July. Already however, some analysts are tilting towards the latter 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. Either way, the messaging seems to be that the decision will be guided by incoming inflation data, as it was in June. The new forecasts see interest rates peaking at 3.75-4.00% in 2023, implying a front-loaded hiking cycle with the prospect of a further two 25bps rate rises next year. The Fed then envisages rates falling back in 2024. The Committee raised its estimate of the neutral rate to 2.5% from 2.4%, which implies that policy will move into restrictive territory by the end of this year; accordingly, the FOMC revised down its projections of growth to 1.7% this year vs its 2.8% forecast made in March, and has pencilled in growth at the same rate next year, before rising in 2024 to the longer-run growth rate of 1.9%. There is also an allusion to the impact of slower growth on employment; within its statement, the Fed removed language that it “expects the labour market to be strong,” and now projects unemployment at 3.7% at the end of this year (from its previous 3.5% forecast), rising to 3.9% in 2023 (prev. 3.5% and 4.1% in 2024 (prev. 3.6%), but still sees the longer-term unemployment rate at 4.0%. Meanwhile, its core inflation view was raised by 20bps this year to 4.3%, before easing to 2.7% next year, and then 2.3% in 2024. 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.

DAY AHEAD: Initial jobless claims, Building permits and housing starts, Philly Fed June manufacturing report, weekly NatGas inventories are the highlights stateside. We’ll also be on the lookout for any unscheduled Fedspeak; we are expecting Fed’s George will release a statement on her dissent, perhaps on Friday. Adobe (ADBE) reports after the close. In Europe, the BoE meeting (preview here), ECB speak (we’ve already had Visco, Villeroy, Panetta, de Guindos, and we are due to hear again from Knot, Centeno, de Cos and ECB Makhlouf) and an EU Finance Ministers meeting are the highlights. Full Day Ahead here.

EQUITY NEWS:

TECH:

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  Alphabet Inc. (GOOG) - Russian information policy lawmaker said Russia had no intention to block YouTube.


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  Atos (AEXAY), Microsoft (MSFT) - Atos drops GBP 854mln claim against the Met Office in the UK High Court. Had claimed its failure to win a GBP 1.2bln contract, which was awarded to Microsoft (MSFT), broke procurement laws, Telegraph reported.


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  Samsung Electronics (SMSN) - Has temporarily reduced procurement amid inventory pressure, Nikkei reports; has asked component makers and others to delay shipments.


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  Capgemini (CGEMY), Intel Corporation (INTC) - Capgemini said it intends to open semiconductor design service centres across Europe, to support Intel’s chip programme.


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  Toshiba (TOSSY), Sony (SONY) - Toshiba and Sony EU cartel fines have been upheld by an EU court.


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  Zeta Global Holdings Corp. (ZETA), Williams-Sonoma, Inc. (WSM) - Has appointed Williams-Sonoma executive Jeanine Barnett Silberblatt to its Board.

COMMUNICATIONS:

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  US Carriers - FCC Chair told lawmakers it had found deficiencies in two-thirds of applications under a USD 1.9bln programme to reimburse US carriers for removing equipment from Chinese companies deemed national security threats, Reuters reported.


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  Verizon Communications Inc. (VZ) - Verizon’s cheapest unlimited plan will soon include some mobile hotspot data, The Verge reported. 5G Start plans will get 5GB of mobile hotspot data.


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  Spotify Technology S.A. (SPOT) - Spotify is slowing hiring by 25%, according to CNBC which cites an email by CEO to staff. CNBC said it was the latest signal that companies across tech are cutting back on staff growth as economic uncertainty looms.

CONSUMER CYCLICAL:

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  Tesla, Inc. (TSLA) - At a virtual meeting with Twitter staff, Elon Musk is expected to reiterate his intentions to purchase Twitter, clarifying his thoughts on remote work and strategy for the social media company, WSJ says, adding that the call is likely to take place on Thursday morning, West Coast time. Separately, the automaker has raised US prices for all vehicles, according to its website, confirming an earlier report in Electrek.


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  McDonalds (MCD) - Will reportedly pay EUR 1.25bln to settle a French criminal case, Bloomberg reported.


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  Dutch Bros Inc. (BROS) - CEO told CNBC that the costs of building materials were coming down, will evaluate price actions in the Autumn. Also noted that consumers faced headwinds, and demand levels were not where the company wanted them to be.


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  Allison Transmission Holdings, Inc. (ALSN), Cummins Inc. (CMI) - Announced that in partnership with GILLIG and Cummins, the first buses equipped Allison’s eGen FlexTM electric hybrid propulsion system have arrived at the Indianapolis Public Transportation Corporation.

INDUSTRIALS:

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  General Motors Company (GM) - General Motors will invest more than USD 81mln in its Global Technical Center in Michigan to prepare the campus to build the Cadillac CELESTIQ.


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  Boeing Company (BA) - Boeing is making progress with regulators on its 737 MAX 10 aircraft, but did not offer a clear timeline on when it expects to win approval, Reuters reported. The jet maker has until December to win approval for its 737 MAX 10, or it must meet new requirements under a 2020 law, unless Congress waives it.


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  Canadian National Railway Company (CNI) - IBEW union, representing around 750 workers, could potentially go on a strike on June 18th, Reuters reported; CNI is confident that a deal can be reached.


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  Airbus (EADSY) - Air India is considering ordering circa. 20 A350s, according to sources; currently, polling pilots on whether they want to be trained for this craft.

MATERIALS:

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  BHP (BHP) - To retain New South Wales Energy Coal; a trade sale process was conducted, but this did not result in a viable offer. The intention to continue operating the site until FY23 is subject to relevant approvals.


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  Mining Names - China will set up a centralised iron ore buyer to counter the dominance of Australia, FT reported.

ENERGY:

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  Oil Majors - US President Biden pushed energy companies to raise capacity, and once again criticised profits that they were making, and said he was ready to use emergency measures to raise output if necessary, WSJ reported, adding that the President was facing pressure to act on gasoline prices.

FINANCIALS:

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  US Banks - Many major US banks have lifted their prime lending rates by 75bps, matching the Federal Reserve’s Wednesday rate hike of the same increment.


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  Credit Suisse (CS) - Intends to call its USD 1.5bln 7.125% high-trigger Tier 1 capital instrument for redemption on the first optional redemption date of July 29th 2022.


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  Associated Banc-Corp (ASB) - Derek Meyer to join as CFO in August, succeeding Christopher J. Del Moral-Niles, who will retire. Bryan Carson will to assume the role of Chief Product and Marketing Officer in July.


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  W. R. Berkley Corporation (WRB) - Raises dividend +15.3% to USD 0.40/shr.

HEALTH CARE:

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  Biogen Inc. (BIIB), Karyopharm Therapeutics Inc. (KPTI) - Biogen informed Karyopharm that it was to terminate its asset purchase agreement. As a result of the termination, Karyopharm is not entitled to receive any milestone payments or royalties under the agreement (it had received an upfront payment of USD 10.0mln in 2018, was eligible to receive additional payments of up to USD 207mln based on the achievement by Biogen of future specified development and commercial milestones).


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  Moderna, Inc. (MRNA), Pfizer Inc. (PFE), BioNTech SE (BNTX) - FDA vaccine advisers voted unanimously in favour of expanding the EUA for the Moderna and Pfizer/BioNTech Covid-19 vaccines to include children as young as 6 months, CNN reported.


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  Roche (RHHBY) - Crenezumab did not slow or prevent cognitive decline in those with a specific genetic mutation that causes early-onset Alzheimer’s. Trial did not demonstrate a statistically significant clinical benefit in co-primary endpoints.

REAL ESTATE:

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  Ladder Capital Corp (LADR) - Raised quarterly dividend +10% to USD 0.22/shr in Q2.

16 Jun 2022 - 09:36- Data- Source: Newswires