US EARLY MORNING: US index futures are seeing upside at the start of the week, but we are off highs

US equity futures are trading higher (RTY +0.8%, NQ +0.7%, ES +0.7%, YM +0.6%)–but off highs–after the S&P 500 slumped to its seventh weekly lost on the trot, just avoiding a close in technical (and arbitrary) bear market; weekend press reports have been focussing on the bear case (we recap the main arguments in the “Bear market” section, below). Once again, we are contending with the same catalysts that we have been in recent weeks: central banks determined to tighten monetary policy to control surging consumer prices, signs that the consumers are now feeling the impact of sharp price rises in an indication that higher prices are starting to hit activity; these come amid a background of heightened geopolitical tensions (which are essentially inflationary and harmful to supply chains, whether were are looking at Russia-Ukraine or even China’s zero COVID policies); lofty valuations have also made it more difficult for investors to buy-the-dip. This week, the FOMC meeting minutes mid-week and PCE data for April at the end of the week (we’ve already had the CPI and PPI reports for the month, note, but this is the Fed’s preferred gauge – more in our weekly here) should keep the theme of tightening policy in the face of price pressures in focus. So far, Fed officials have held their nerve in the face of the sell-off in risk assets, and many think they will continue to do so until the war against prices has been won (in fact, officials have suggested as much); any cracks in this view, however, could be positive for risk assets. The day ahead is thin, but as Davos comes into focus, we expect there will be much jawboning from officials this week. Day ahead calendar here. 

BEAR MARKET TERRITORY:

• The FT again asks if the world is heading towards a recession, arguing that “the outlook is deteriorating because of the Covid outbreak in China, rising US interest rates and a cost of living crisis in Europe.”


• WSJ, meanwhile, framed last week’s price action as the “recession Trade” which is now “on”, with the market pain spreading beyond tech. WSJ also ran another piece on the weekend arguing that conditions were ripe “for a deep bear market,” adding that “the risk is a series of bear-market rallies that don’t last, hurting dip buyers and further damaging investor confidence.”


• Apparently, Wall Street is as “baffled” by the tape action now “as it has ever been,” Bloomberg writes, which notes that there is a large gap between strategists’ highest and lowest S&P 500 targets (37%, the wire said). BBG adds that there is “evidence of investor befuddlement” everywhere (and goes on to cite the choppy tech trade last week, while staples are also joining in).


• Barron’s, in a weekend piece titled “the stock market has avoided a bear, but the selloff isn’t over”, notes that sharp declines in the shares of winners “could be good news, if it means that investors are finally capitulating and bringing the market closer to that elusive bottom. “


• So far, the sell-off has resulted in American’s total decline in net wealth of around USD 5trln, according to JPM, with the bank warning this could deepen to USD 9trln by the end of the year. JPMorgan thinks that this all amounts to “a wealth shock that is set to drag on growth in the coming year.”


• From a technical perspective, a BofA analysis looking at 19 bear markets over the last 140yrs finds average declines of 37.3% lasting 289, which suggests S&P 500 could yet fall to around 3,000.

US EQUITY KEY LEVELS (per Credit Suisse):

• 
  SPX: 3800, 3815, 3844, 3859/54, 3884, 3977, 4017, 4052, 4062/69, 4091.


• 
  NDX: 11467, 11565/12, 11624, 11692, 11768, 12196, 12390, 12510, 12573, 12694.


• 
  RUT: 1652/42, 1670, 1697, 1705/01, 1748/39, 1796, 1818, 1825/29, 1839/41, 1852.

CHINA:

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  COVID - China NHC Official said the COVID situation was overall showing a steady declining trend. Analysts noted mixed updates on China's COVID situation over the weekend, including: Beijing reporting total new cases at a new record and individuals being relocated to quarantine hotels; but Beijing is reportedly considering easing some quarantine requirements, SCMP said; in Shanghai, the Jingan district is to require all supermarkets/shops to close while residents will have to remain at home and be subject to mass testing between May 22nd-24th.


• 
  Trade Wars - US President Biden said the US was mulling reducing tariffs on China.


• 
  Taiwan – US President Biden said US policy towards Taiwan had not changed, wants to see no unilateral changes to the Taiwan status quo, but added that the US would be willing to use force to defend Taiwan. China's Foreign Ministry said it deplores and rejected the US comments from President Biden on Taiwan, and warned that the US should not defend Taiwan's independence, adding that China will take firm actions to safeguard its sovereignty and interests.


• 
  Inflation - EU Diplomats are behind closed doors beginning to question the real motives of China, suggesting that its COVID lockdowns may be intentionally fuelling Western inflation, Politico reported.


• 
  Alibaba Group Holding Limited (BABA), Tencent Holdings Limited (TCEHY) - China’s SCMP reports staff reductions at various departments in Tencent and Alibaba, as China’s Big Tech sector sees a new wave of job cuts as COVID lockdowns weigh. SCMP also notes that the deepening cuts come amid regulatory uncertainty in the tech sector too.

TECH:

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  Apple Inc. (AAPL) - Has told suppliers it wants to manufacture more in India and S.E. Asia as it looks to increase production outside of China, WSJ reported.


• 
  Oracle Corporation (ORCL) - Larry Ellison joined a November 2020 call about contesting Trump’s loss, Washington Post reported.

ENERGY:

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  OPEC - US President Biden said he wanted OPEC to raise oil production.


• 
  OPEC+ - Saudi Arabia signalled it will stand by Russia as a member of OPEC+ amid mounting pressure from sanctions, FT reported.


• 
  Saipem (SAPMY) - Has proceeded with its previously announced reverse stock split.

CONSUMER CYCLICAL:

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  Amazon.com, Inc. (AMZN) - Looks to sublet at least 10mln sqft of warehouse space, could vacate even more by ending leases as it is left with too much warehouse capacity now the pandemic shopping pslurge has faded, Bloomberg reported citing sources. 


• 
  Peloton Interactive, Inc. (PTON) - WSJ negative piece talks about how PTON “mismanaged the pandemic” by adding extra manufacturing to respond to COVID-fueled demand while other manufacturers were hedging their bets.


• 
  The Gap, Inc. (GPS) - Negative mention in WSJ; said its Old Navy unit’s move to make clothes for women of all body types backfired, since it resulted in holding too many extra-small and extra-large items, and too few of the rest; WSJ said that was “a mismatch that frustrated customers and contributed to falling sales and a management shake-up.”


• 
  Kohl’s Corporation (KSS) - Potential bidders are moving towards the sidelines over difficulties in getting financing for any deal, CNBC reported.


• 
  American Axle & Manufacturing Holdings, Inc. (AXL) - Auto parts supplier American Axle has reportedly hired an adviser and is exploring a potential sale, Bloomberg said.


• 
  Gambling Names - UK gambling regulator said breaches of social responsibility and money-laundering rules will be subject to significantly higher fines, based on a proportion of customer takings, Times reported.


• 
  THG (THGHY) - CEO would back an offer of GBP 3bln for THG, ThisIsMoney said; a bid of GBP 2.50/shr (vs Friday’s close of GBP 1.45), would be enough. Has also rejected an offer by Belerion Capital.


• 
  Ted Baker (TBAKF) - Has initiated due diligence process following takeover offers, process likely to take several weeks. Has confirmed that Sycamore Partners is no longer partaking in the sales process.

INDUSTRIALS:

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  Hyundai Motor Co (HYMLY) - Will invest USD 5bln in the US developing mobility solutions such as autonomous driving and robotics, CNBC reported, adding that the investment was part of a larger push by Hyundai to advance mobility electrification more broadly.


• 
  The Boeing Company (BA) - Starliner reaches ISS two years later than hoped; if it returns to Earth successfully, the space taxi built for NASA could carry astronauts to orbit later this year, NYT said.


• 
  Airbus (EADSY) - Is amassing EUR 10bln as protection against future crises and to prepare for investment when needed in new generation aircraft, according to its chief financial officer, as it wants to be “rock solid” against emergencies like COVID, FT reported citing its CFO.


• 
  3M Company (MMM) - A Florida court ordered 3M to pay USD 77.5mln to an Army veteran who claimed hearing damage as a result of using 3M’s earplugs, the largest award yet for an individual in the litigation over the earplugs, which includes more than 290,000 claims, Reuters reported.


• 
  Genco Shipping & Trading (GNK) - Positive mention in Barron’s; said argued that the company had cleaned-up its balance sheet, and now has a dividend policy that ties payouts to quarterly cash flow, giving investors a “compelling reason to get in now.”


• 
  Siemens Gamesa (GCTAY), Siemens Energy (SMNEY) - Siemens Energy filed a tender offer to buy Siemens Gamesa for EUR 18.05/shr (vs EUR 16.75 Friday close). Siemens Energy CEO said the offer is attractive and the priority is to stabilise Gamesa.


• 
  BMW (BMWYY) - Reportedly exploring investments in solar, geothermal and hydrogen energy to lower its dependence on natural gas amid the uncertainty regarding Russian gas, according to Reuters.

MATERIALS:

• 
  BASF (BASFY) - OKEA acquires a material portfolio of assets from BASF’s “Wintershall Dea” for USD 117.5mln.


• 
  Aurubis AG (AIAGY) - Is confident on the supply outlook for copper smelters; removing Russian supply had no impact.

FINANCIALS:

• 
  Crypto - ECB President Lagarde said crypto currencies were worth nothing, and called for greater regulation. She suggested that a digital EUR would be a swfer store of value.


• 
  Crypto - The WSJ highlights that crypto currencies face insider trading risks, noting that anonymous wallets allegedly buy up tokens right before they are listed and sell shortly afterward.


• 
  Capital Markets - EU policymakers are reportedly renewing efforts to push for real-time databases of stock and bond trading information as they believe that a ‘consolidated tape’ will make EU exchanges more attractive for investors, according to the FT.


• 
  Banca Monte dei Paschi (BMDSD) - Italy expects to cap the bank’s cash needs at around EUR 2.5bln in negotiations with the EU over a new strategic plan, according to Reuters.


• 
  BPER Banca (BPXXY) - Elliott-backed Gardant has teamed up with state-owned rival AMCO to secure the BPER Banca’s bad loan business, Reuters reported; one source said the portfolio could be a total size of EUR 2.5bln.


• 
  BNP Paribas (BNPQY) - Looking to sell its remaining West African units for circa USD 420mln, according to Bloomberg.


• 
  UniCredit (UNCRY) - CEO of its German unit said now was not a good time to commence European consolidation, Handelsblatt reported. Remarks come in the context of recent reports around a potential consideration, that was pushed aside due to COVID, between Commerzbank and UniCredit at start-2022.

HEALTHCARE:

• 
  Abbott Laboratories (ABT) - CEO pens op-ed in WSJ where he apologises for ABT’s role in the US baby formula shortage; said production would ramp up in June.

IPO:

• 
  SpaceX is looking to raise USD 1.7bln in new funding, according to CNBC, which would lift its valuation to USD 127bln.


• 
  Allbirds (BIRD), Poshmark (POSH), Rivian Automotive (RIVN), Robinhood Markets (HOOD), Warby Parker (WRBY) - Barron’s positively mentions these names as “broken” IPO stocks that could be buys.

COMMUNICATIONS:

• 
  Telecom Italia (TIIAY) - Said to be eyeing a prelim agreement with state-lender CDP over plans to merge TIM’s assets with Open Fibre’s, according to Reuters.

23 May 2022 - 09:29- EnergyResearch Sheet- Source: Newsquawk