US EARLY MORNING: US equity futures are rallying following the extended weekend

INDICES: US equity futures are higher as Americans return from the extended weekend. RTY +2.1%, NQ+2.1%, ES +1.9%, YM +1.7%. The VIX has eased but remains above 30. Yields are higher along the Treasury curve by 4-6bps, and the curve is bear steepening. There does not appear to be a specific catalyst for the more constructive tone of risk trading. European bourses are trading on the front foot after last week’s bruising, and overnight, Asia-Pac stocks were higher, while US futures rallied, and Chinese commodity prices and Bitcoin stabilised after the recent tumult.

RECESSION RISKS VS EQUITIES: Morgan Stanley’s equity strategist Wilson is once again arguing that equities are not pricing in the prospects of a recession, and that the S&P 500 would need to fall to around 3,000 for this risk to be fully reflected. “The bear market will not be over until recession arrives or the risk of one is extinguished,” he wrote. Wilson had previously argued that the index would slump towards 3,400 by the end of Q2 earnings season in mid-August. Meanwhile, analysts at Goldman Sachs were also talking recession risks over the weekend, noting that the near-term prospects of recession was pressuring stocks, and inflation would need to peak before equities can rally. GS is neutral on equities over a three-month window given the uncertainties. It reminds us that following the recent tightening of financial conditions, it lowered its US growth forecast to 1.25% end-2022 Q4/Q4. “Slower growth, flatter yield curve and recessions are all negative for equities and contribute to raise the ERP [equity risk premiums],” the bank explained, “when PMIs fall below 55, the ERP usually widens by about 70bps.” If a recession were to materialise, GS expects ERP to tick higher (noting that it has been falling YTD) which would weigh on equities. “Looking at US recessions since 1973, the equity-bond yield gap usually widens by about 115bps three months after the start of a recession, and equities underperform bonds by 8%,” adding that a flatter yield curve reflects weaker growth prospects, and is negatively correlated with the ERP. But over a 12-month view, GS says it has an overweight recommendation on equities, seeing room for ERP to fall lower. “Assuming the ERP settles somewhere between its post and pre-GFC average, the current ERP of 6% suggests equities look attractive over bonds in the medium-term,” adding that “before the Great Financial Crisis, the ERP had to fall below 2% to signal future negative excess returns of equities.”

DAY AHEAD: US existing home sales and Canadian retail sales are the data highlights. Fed’s Barkin (2024) and Mester (2022) will deliver remarks in the US afternoon, ahead of a packed week of Fedspeak, which includes Chair Powell’s dual testimonies to lawmakers. Full Day Ahead here, and our Week Ahead Preview is here (highlights: Global PMIs, UK Inflation, Norges Bank, CBRT, Banxico), while our Week Ahead calendar is here. On the earnings slate, Lenar (LEN) will report before the open; the highlight of the earnings slate this week is FedEx (FDX) on Thursday.

EQUITY NEWS:

TECH:

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  Cloudflare, Inc. (NET) - A Cloudflare outage hit several popular online services, data vendors and news organisations, TechCrunch reported. Cloudflare said it was investigating the wide-spread issue, adding that a fix had been implemented. Subsequently, some users noted that services had begun to come back online.


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  Intel Corporation (INTC) - Intel has filed a EUR 593mln claim against the EU Commission for interest after Europe’s second-highest court scrapped a EUR 1.06bln antitrust fine, according to Reuters. The report added that Europe’s top court paved the way for such damage demands last year in a landmark ruling which ordered the EU executive to pay default interest on reimbursed fines in annulled antitrust cases.


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  Apple Inc. (AAPL) - Apple workers at Maryland Store vote to unionise, a first in America, NYT reported. Around two-thirds of employees at the store voted to join the union. US President Biden said he was “proud” of the workers who voted to unionise, CNN reported.


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  Alphabet Inc. (GOOG), Meta Platforms, Inc. (META), Twitter, Inc. (TWTR) - Japan is to levy fines against forty-eight overseas IT giants that have failed to register their overseas HQ in Japan, Nikkei reported. Japanese regulations required overseas companies to register global headquarters in Japan, but these companies maintain that they were providing their services via the internet. Nikkei also said that these companies were also less likely to register because of the small correctional fine of JPY 1mln (USD 7,400).


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  Oracle Corporation (ORCL) - Positive mention in Barron’s, says the tech stock “looks attractive, even in a recession.”

COMMUNICATIONS:

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  Twitter, Inc. (TWTR) - Elon Musk said the Twitter transaction was awaiting shareholder approval, noting again that there were still a few unresolved issues, including the number of spam accounts on the platform, adding that he was awaiting a resolution on this “significant” matter. He also said there were still questions on whether the debt part of the deal will come together.


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  Delta Air Lines, Inc. (DAL), International Business Machines Corporation (IBM), Kellogg Company (K) - Delta, Kellogg joined IBM in pledging to fight biases in online ad targeting, Reuters reported.


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  NetEase, Inc. (NTES) - NetEase delayed the rollout of its video game Diablo Immortal in China three days ahead of its official launch, Reuters reports, with the move coming days after the game’s official account on Weibo was banned from making new posts.


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  Rogers Communications Inc. (RCI), Shaw Communications Inc. (SJR), Quebecor Inc. (QBCRF) - Quebecor has agreed to buy Freedom on a cash-free, debt-free basis at an enterprise value of CAD 2.85bln, subject to regulatory approval.

CONSUMER CYCLICAL:

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  Amazon.com, Inc. (AMZN) - Executives from Amazon will be among those meeting UK Treasury minister this week to discuss a potential tax on digital sales, Sky News reported. A consultation on the launch of a tax on digital sales closed last week, and the divergence of opinions within the retail sector has fuelled concerns among its advocates that the government will use that disagreement as an excuse to abandon plans to overhaul the rates regime.


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  Las Vegas Sands Corp. (LVS), MGM Resorts International (MGM), Wynn Resorts, Limited (WYNN) - Bloomberg noted that Macau casino stocks dropped in Monday trading amid the first COVID outbreak in months, on fears that virus curbs may hurt tourism; schools and non-essential businesses were shut, but casinos stayed open. NOTE: Chinese stocks saw more stable, risk-on trading conditions on Tuesday.


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  Macy’s, Inc. (M) - Launched a Discord channel and a new series of NFTs to celebrate its annual July 4th fireworks event. M said that a limited collection of 10k free “Macy’s Fireworks NFTs” will drop via its new Discord channel featuring “expanded utility including Augmented Reality wearables.”

CONSUMER STAPLES:

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  Mondelez International, Inc. (MDLZ) - Mondelez will buy energy bar maker Clif Bar & Company for USD 2.9bln to expand its global snack bar business, CNBC reported. MDLZ will also pay additional amounts to the sellers depending upon its earnings from Clif Bar.

INDUSTRIALS:

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  Spirit Airlines, Inc. (SAVE), JetBlue Airways Corporation (JBLU), Frontier Group Holdings, Inc. (ULCC) - JetBlue raised its takeover offer for Spirit as it works to convince the carrier to accept its offer over Frontier’s bid, CNBC reported. JetBlue’s new USD 33.50/shr offer represented a 68% premium to the implied value of the Frontier stock and cash transaction. Spirit’s Board said it would review JetBlue’s revised proposal.


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  United Continental Holdings, Inc. (UAL) - CEO expects fuel prices to stay high in the long-term, according to Reuters, and based on current prices, UAL’s fuel bill would total USD 12bln this year. Elsewhere, CEO expects cargo demand to remain robust, and expects freight rates will moderate.


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  Tesla, Inc. (TSLA) - Tesla cars will be prohibited from entering the Chinese district of Beidaihe, a site of a secretive annual summer party leadership conclave, Reuters reports. Decision comes weeks after Tesla cars were also barred from some roads in Chengdu in early June, which coincided with a visit by Chinese President Xi. Separately, former Tesla workers filed a suit alleging its decision to enact mass layoffs violated federal law, as the automaker did not provide advance notice of the job cuts. On Monday, CEO Musk noted that the automaker was reducing salaried employees by 10% over the next three months, which would represent around 3.5% of its headcount.


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  Ford Motor Company (F), General Motors Company (GM), Tesla, Inc. (TSLA) - GM and Ford were turning on each other in attempts to beat Tesla, WSJ reported. The article claims that GM CEO spent weeks preparing for an onstage unveiling of its electric Chevrolet Silverado, as Ford executives were plotting a pre-emptive public-relations strike, announcing a day before GM CEO’s presentation in January, Ford announced it would double factory capacity for its F-150 Lightning electric truck.


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  Airbus SE (EADSY), Boeing Company (BA) - Airbus looks set to win A350 deal From Tata-owned Air India, Bloomberg reported. Pilots were being polled on whether they want to be trained on widebody. Additionally, Air India owners are in talks with Airbus and Boeing for a large order, BBG added.


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  Lockheed Martin Corporation (LMT) - Awarded a USD 578.3mln Navy contract modification.


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  Northrop Grumman Corporation (NOC) - Northrop Grumman - Awarded a USD 458mln Navy contract.

FINANCIALS:

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  Asset Managers, BlackRock, Inc. (BLK), T. Rowe Price Group, Inc. (TROW), Invesco Ltd. (IVZ), AllianceBernstein Holding L.P. (AB), Franklin Resources, Inc. (BEN) - Barron’s argues that stocks will not sink forever, and notes these names as “cheap plays on the market’s recovery.”


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  Citigroup Inc. (C) - Positive mention in Barron’s, says Citi’s stock is the cheapest among big banks, and “it’s ready to take off.”


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  Mastercard Incorporated (MA) - Board declared a quarterly cash dividend of 0.49/shr.

ENERGY:

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  Valero Energy Corporation (VLO) - Issued an all-clear following a fire at its Houston, Texas refinery (205k BPD), stating that the facility has been returned to routine operations.


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  Chevron Corporation (CVX) - Egyptian Natural Gas Holding Company and Chevron signed an MOU to in transporting, importing and liquefying the export of East Mediterranean gas, Egypt Today reported. Chevron plans to drill its first exploration well in its concession area in the Mediterranean Sea next September, and affirmed its readiness to play an active role regarding projects to improve the environmental conditions of the energy industry.

HEALTH CARE:

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  ACADIA Pharmaceuticals Inc. (ACAD) - FDA committee voted against approval of Acadia Pharma’s pimavanserin to treat Alzheimer’s disease psychosis, Pharma Biz reported.


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  Pfizer Inc. (PFE), BioNTech SE (BNTX), Moderna, Inc. (MRNA), Walgreens Boots Alliance, Inc. (WBA) - CDC endorsed an Advisory Committee recommendation that all children 6 months through 5 years of age should receive a COVID vaccine, expanding eligibility for vaccination to nearly 20 million additional children, and means that all Americans ages 6 months and older are now eligible for vaccination. Separately, Walgreens said it was now providing Pfizer and Moderna COVID vaccines to children ages three and older at some locations.


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  Pfizer Inc. (PFE), Valneva SE (VALN) - Pfizer is to invest EUR 90.5mln to buy an 8.1% stake in French vaccine company Valneva, an advancement in their partnership to stop Lyme disease, Fox News reported. Pfizer’s stake in Valneva, which is also working on a coronavirus vaccine, will be purchased for EUR 9.49 per share via a reserved capital increase.


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  Bristol-Myers Squibb Company (BMY) - EMA validates BMY’s application for CAR T cell therapy Breyanzi in relapsed or refractory large B-cell lymphoma after first-line therapy.

21 Jun 2022 - 09:34- EquitiesResearch Sheet- Source: Newsquawk