US EARLY MORNING: US equity futures are around flat; Treasury yields continue upside, with 5s30s latest major curve spread to invert

EQUITIES: US equity futures are trading around flat (YM +0.1%, RTY +0.0%, ES -0.2%, NQ -0.2%). Traders have been asking how equity price action continues to hold up in the face of increasing geopolitical uncertainties, the prospects of COVID lockdowns in the world's second largest economy, combined with a monetary policy tightening cycle where the Fed has threatened to move policy into restrictive territory to contain inflation, possibly hitting economic growth.  Some have explained the recent stock upside as technical, with many names becoming attractive at oversold levels as concerns over COVID in the West ease and supply chain dynamics slowly improve. Others, however, warn that inflation is still at eye watering levels (PCE data later this week, wages data will also be eyed in Friday's jobs data), valuations are still rich, while consumer sentiment is fragile. Goldman Sachs notes that leveraged investors have been cutting risk during the recent sell-off, and says the recent rally in long-duration equities -- which have rallied in the face of higher rates and the prospects of hawkish Fed policy -- has been a function of short-covering. And while institutional leveraged investors have been covering shorts, GS says that retail investors have been actively buying the dip. But ahead, Goldman continues to think that households will continue to pour cash into stocks, while strong buyback activity and slower issuance will drive net demand from corporations. Additionally, the bank argues that "geographic and economic distance from the conflict in Ukraine has made the US an attractive destination for capital allocators despite its premium valuation".

TREASURIES:  Treasury yields are once again rising sharply and the curve is bear-flattening. The underperformance is most notable in the short-end, where 2s yields are up by 10bps before of today's 2s and 5s auctions, and ahead of tomorrow’s 7-year supply, while long-end yields are around flat. Some continue to be concerned by the signalling power of the shape of the curve, where the 5s30s spread is the latest to invert today – these inversions are being taken as a sign of future recessions, given that they have historically portended downturns. However, as we have noted recently, many are more sanguine, and focussed on other parts of the curve, like the 3mth/10yr spread (which is narrowing a touch today, but has recently widened considerably). Morgan Stanley's strategists do not appear to be overly concerned by these inversions. They argue that this time is different: "The rules have changed, at least to some degree," it writes, "as usual, the curve has flattened with this hiking cycle. With the Fed set to hike into restrictive territory, the curve will invert," and while it acknowledges that a policy mistake that causes a recession is clearly possible (Fed making policy more restrictive in the face of slowing growth), its baseline is for an inversion without a recession.

FOREX: The bulk of attention is on the Japanese yen, where the central bank has been in the market twice today offering to buy unlimited amounts of JGBs to keep a lid on yields climbing. The interventions have seen 10yr yields at the 'ceiling' 0.25%, but many desks are questioning the BoJ’s policy efficacy; Nomura’s analysts said "the power of the BoJ's unlimited bond-buy offer is clearly waning." Technicians are arguing that the yen weakness raises risks that the currency can test 2015 highs around 125.86 vs the USD, and the yen has been underpinning the US Dollar on Monday, with the Dollar Index rising to highs just shy of 99.25. The EUR is also dancing to this song, as well as the longer-term theme of policy divergence between the ECB and Fed, has seen the single-currency breach the 1.0960-65 support region, although later garnered support via the EURJPY channel, as fresh highs in the currency saw EURUSD climb back to flat levels for the day just beneath 1.10. Activity currencies are mixed; the AUD is outperforming within the space, which may be due to the downside in NZD after Westpac argued that markets were overpricing the extent of RBNZ rate hikes over the next couple of years. EMFX trades mixed. For today, the data docket is thin ahead of this week's scheduled risk events, and accordingly, the tone of geopolitical commentary, evolving views from the analyst community on the course of Fed policy (the City hawkish Fed call on Friday was being framed as the catalyst for the Treasury sell-off), and technicals may exert influence.

EQUITY NEWS:

KEY LEVELS (via Credit Suisse):

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  SPX: 4418/17, 4424, 4434, 4465/56, 4485, 4522/30, 4550, 4577, 4590/95, 4612.


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  NDX: 14014, 14190/80, 14295, 14385/43, 14448, 14770, 14893, 15037/58, 15117, 15196.


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  RUT: 1946, 1963, 1978, 2027/19, 2047/42, 2084, 2098, 2105/10, 2123/26, 2133/38.

INDICES:

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  Indices - Effective March 30th, Chart Industries (GTLS) set to join S&P MidCap 400, replacing CyrusOne (CONE); Sonos (SONO) and Embecta (EMBC) to Join S&P SmallCap 600 replacing Chart Industries and Barnes & Noble (BNED). (S&P Global)

TECH:

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  Apple (AAPL) - To cut iPhone and AirPods output amid Ukraine war uncertainty and inflation, which are starting to hit consumer demand, according to sources. (Nikkei)


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  Microsoft (MSFT), Okta (OKTA) - London Police arrested seven people for allegedly hacking Microsoft and Okta under the alias "LAPSUS$"; none have yet been charged. Okta on Friday said its service was fully operational, it did not consider the incident to be material, but continues to investigate. (Gizmodo, Okta)


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  Alphabet (GOOG) - Contractors in Kansas City are the first to unionise under Alphabet Worker Union. (CNBC)


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  Uber (UBER) - Has granted two-and-a-half-year licence to operate in London. (BBC)


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  Advanced Micro Devices (AMD), KLA Corp (KLAC) - Goldman Sachs downgrades AMD to Buy from Conviction Buy, upgrades KLA Corp. to Buy from Neutral. (Newswires)

COMMUNICATIONS:

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  Apple (AAPL) - Apple TV+ becomes the first streaming service to win Best Picture at the Academy Awards for the Sian Heder film 'CODA'. (Variety)


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  Amazon (AMZN) - Mike Frazzini, who helped start Amazon Game Studios, is stepping down to focus on his family. (Bloomberg)


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  Ericsson (ERIC) - Norway SWF, a top-10 Ericsson shareholder, will at Tuesday's AGM vote against discharging CEO and other directors from liability over its handling of possible payments to the Isis terror group. (FT)


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  Telecom Italia (TIIAY), KKR (KKR) - Received a non-binding proposal from CVC Capital Partners for a minority stake in its enterprise services arm. Talks with KKR of its non-binding EUR 10.8bln offer for the group continue. (Reuters)


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  AT&T (T) - Announced details for completion of spin-off ahead of close of WarnerMedia transaction; declared Q2 dividend of USD 0.2775/shr; amount is consistent with AT&T’s previous announcement that the board had approved an expected post-close annual common dividend of USD 1.11/she per share. (T)

INDUSTRIALS:

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  Automakers, Tesla (TSLA) - NHTSA reinstated penalties for automakers whose vehicles do not meet fuel efficiency requirements for model years 2019 and beyond, a win for Tesla which could cost other automakers hundreds of millions of dollars or more. (Reuters)


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  Tesla (TSLA) - Tesla is suspending production at its Shanghai factory for four days; follows China announcing that Shanghai will be locked down in two stages over nine days to allow authorities to conduct COVID testing. (Reuters, BBC)


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  Tesla (TSLA) - CEO Musk said Tesla Director of AI Andrej Karpathy is on a 4-month sabbatical. (Elon Musk)


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  Tesla (TSLA) - Positive mention in Barron's; after its best daily run since January 2021 ended on Friday, says rising delivery expectations should underpin future gains. (Barron's)


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  Boeing (BA) - Chinese officials said a second flight recorder from the crash of China Eastern Flight 5735 found; cause remains unknown. (NYT)


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  L3Harris Technologies (LHX), Thales (THLLY) - Secures USD 6.1bln contract for SINCGARS modernisation. (Defense Daily)


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  Brady (BRC), Honeywell (HON) - Brady enters into a multi-year agreement with Honeywell International to license patented global shutter technology in barcode scanning devices. (BRC)


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  Rolls-Royce (RR/ LN) - Betaville claims Rolls-Royce is to be involved in a "significant corporate transaction" with an unidentified suitor. (This Is Money)


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  BAE Systems (BAESY) - Awarded a USD 173.6mln US Navy contract modification for Amphibious Combat Vehicles. (DoD)


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  nVent Electric (NVT) - Positive mention in Barron's; says stock is cheap and company is growing quickly, adding it was a time to buy. (Barron's)

FINANCIALS:

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  Berkshire Hathaway (BRK) - Constructive mention in Barron's; says Warren Buffett is doing deals again, and that is good for the stock. Cites an analyst who said Berkshire is undervalued, but less so than in past years given the stock is up more than 50% since year-end 2020. (Barron's)


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  HSBC (HSBC) - The bank has drawn strong complaints from some staff after it softened language relating to the Ukraine 'conflict' in its research. (FT)


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  Credit Suisse (CS) - Shareholders are pressuring the bank over absolving executives on Greensill. (FT)


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  Deutsche Bank (DB) - Appointed James von Moltke as President alongside Karl von Rohr, who has been in this role since 2018. Von Moltke takes up the new position immediately, will also continue to serve as CFO. (DB)


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  NatWest Group (NWG) - UK government sells a further GBP 1.2bln stake, takes share in the bank to below 50% for the first time since the financial crisis. (Gov.UK)

CONSUMER CYCLICAL:

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  Hasbro (HAS) - Turns down settlement offer from Alta Fox Capital Management to have only one nominee added to its board; Reuters says this makes a shareholder vote over the dispute likely. (Reuters)


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  GameStop (GME) - Cautious mention in Barron's; argues that the July launch of NFT marketplace is a significant departure from GME’s core retail business, a gamble that might not add much to revenue, but does adds uncertainty around the stock. (Barron's)


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  Ted Baker (TBAKY) - Rejects Sycamore Partners' GBP 250mln offer; said the proposal undervalues the company. (Sky, Reuters)

CONSUMER STAPLES:

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  Supermarkets - California grocery workers vote to authorise strike. (NPR)


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  Heineken (HEINY) - Following strategic review, concludes that ownership of Russia business no longer viable, therefore has decided to leave Russia. (HEINY)

HEALTH CARE:

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  Johnson & Johnson (JNJ), Moderna (MRNA), Pfizer (PFE) - The three drugmakers are facing investor pressure to widen access for its COVID vaccines. (WSJ)


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  Sanofi (SNY), Regeneron (REGN) - Late-breaking Phase 3 data show Dupixent significantly improved signs and symptoms of prurigo nodularis. (SNY)


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  Eli Lilly (LLY) - Majority of patients treated with Lebrikizumab achieved skin clearance in Lilly's pivotal phase 3 atopic dermatitis studies. (LLY)


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  Incyte (INCY) - 52-Week Phase 3 data evaluating Ruxolitinib Cream found use resulted in further improvement in facial and total body repigmentation. (INCY)


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  UCB (UCBJY) - FDA approves Fintepla Oral Solution for treatment of seizures associated with Lennox-Gastaut Syndrome. (UCB)

UTILITIES:

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  National Grid (NGG) - Sells majority stake in NGG to consortium including Macquarie (implies EV of around USD 12.7bln); deal under attack due to Macquarie's past ownership of key UK infrastructure. (Times)

28 Mar 2022 - 10:02- EquitiesData- Source: Newsquawk