Mid-Morning Look

Tuesday, September 24, 2024

U.S. stocks were higher overnight, as Wall Street cheered news out of China that boosted sentiment further. U.S. equity futures tracked a China-led rally in Asia (Shanghai index rose 4.15%) after the PBoC unveiled a broad package of monetary stimulus measures aimed to boost various sectors of the economy. Market strength broad based yet again to start the day, but biggest gains seen in sectors benefitting from China rebound including Industrials, Materials (metals), Energy (rising oil prices), Casinos, and some high-end retail related names. Technology and Financials are lagging a bit early and major averages taking a little profit after the overnight gains, but the S&P 500 (SPX) holding above 5,700 and the Dow making new all-time highs. Economic data weaker with consumer confidence falling and Richmond Fed data missing.

China’s central bank lowered interest rates and the government added stimulus designed to bolster the stock market. China’s Central bank will cut banks’ reserve requirement ratio (RRR) by 50 basis points soon, freeing up about 1 trillion yuan ($142.21B) for new lending. Depending on the market liquidity situation later this year, the RRR May be further lowered by 0.25-0.5 percentage points, PBOC Governor Pan Gongsheng said. PBOC trimmed 7D reverse repo rate 20 bp, boosted liquidity substantially by cutting banks’ RRR, and eased mortgage deposit requirements on second homes. Asian markets’ reaction was overly positive as the Nikkei Index advanced 216 points to 37,940, the Shanghai Index surged 114 points or 4.15% to 2,863, and the Hang Seng Index jumped 753 points to 19,000. Some of the U.S. listed China movers after stimulus headlines: NIO, LI, XPEV, BABA, BIDU, BILI, JD, PDD, NTES, TAL, FUTU, IQ, GITU, TME, YMM, YUMC, among others.

Treasury markets were under pressure initially, as the 10-year yield interestingly has been “higher” every day since the Fed cut rates, rising 15 bps from 3.65% up to 3.81% high this morning and 2sand 10s spread was wider by more than 2bp after exceeding 19bp for first time since June 2022. But after the weaker economic data, bonds have rallied and yields easing with the 10-yr back to 3.75%. Reminder Treasury coupon auction cycle begins at 1pm New York time with $69B 2-year note sale; 5- and 7-year auctions follow on Wednesday and Thursday. Gold new highs, oil rising on China measures boosting commodities.

• Richmond Fed composite manufacturing index drops to -21 in Sept vs -19 in August while Richmond Fed manufacturing shipments index -18 in Sept vs -15 in August.
• S&P CaseShiller CoreLogic data showed US July 20-metro area home prices +5.92% (consensus +5.9%) from year ago vs +6.5% in June; July home prices in 20 metro areas +0.27% seasonally adj (consensus +0.4%) vs +0.47% in June and July 20-metro area home prices non-adjusted +0.04% vs +0.61% in June.
• U.S. home prices +0.1% in July from June; U.S. home prices index 425.2 in July; U.S. home prices +4.5% in 12 months through July – as per US regulator.

• In Casino & Gaming: LNW shares fell after saying it had received an order from the US District Court for the District of Nevada granting gambling machine manufacturer Aristocrat a preliminary injunction relating to L&W’s Dragon Train game. Stocks of Casino operators rise on China’s stimulus plans as China unveils wide-ranging stimulus measures to boost its flagging economy – shares of MLCO, WYNN, LVS which have substantial casino properties in Macau, leading to major dependence on Chinese customers for revenue rallying.
• In Aerospace & Defense: AIR reported Q1 EPS beat of $0.02, top-line growth of 20% y/y (6% organic), OEM aero distribution was a standout, USM was lower, while Government offerings returned to strong growth. TGI was double downgraded from Buy to Underperform at Bank America and tgt cut to $12 from $17 saying positive changes are being overshadowed by TGI’s reliance on uncertain aircraft production rates by Boeing and Airbus. HII Reiterate Buy at TD Cowen but lowering expectations again, into the Q3 print as pared its C24 FCF by $500MM, as it’s unlikely that HII will finalize contracts by 12/31 for the 17 submarines under negotiation with the Navy.

• BABA +5%; along with gains in several US listed China stocks (KWEB, PDD, BIDU, JD, etc.) after China’s central bank unveiled a broad package of monetary stimulus measures aimed to boost various sectors of the economy.
• CRM +1%; was upgraded to Overweight from Equal Weight at Piper and raised PT to $325 from $268 based on a favorable risk-reward given the potential for FCF per share to double to $20+ by F2029 (CY28) from $9.65 in F2024.
• LBRDA +25%; after John Malone’s media company LBRDA said Monday it was considering an all-stock merger with CHTR. A merger would consolidate two public companies in which Malone holds significant interests. He holds a 49% voting stake in Liberty Broadband. Liberty in turn has a 26% interest in Charter https://tinyurl.com/56bmnhay
• LWAY +19%: Danone (DANOY) offered to buy all the outstanding shares of LWAY that it doesn’t already own for about $283.4M; as of August 6, Danone had about 14.8 million outstanding shares, of which about 23%, or 3.45 million, are already owned by Danone, a Paris-based food and beverage company. https://tinyurl.com/43tdfpra
• SMAR +6%; to be acquired by Blackstone and Vista Equity Partners for $8.4B as Smartsheet shareholders to receive $56.50 per share in cash; to get termination fee of $500M if deal terminated under some conditions.
• WYNN +4%; shares of Casino operators rise on China’s stimulus plans as China unveils wide-ranging stimulus measures to boost its flagging economy – shares of MLCO, WYNN, LVS rally.

• HE -9%; 54.05M share Spot Secondary priced at $9.25 for $500M in gross proceeds as the company raised equity to fund part of Maui wildfire settlement.
• LNW -15%; said it had received an order from the US District Court for the District of Nevada granting gambling machine manufacturer Aristocrat a preliminary injunction relating to L&W’s Dragon Train game.
• REGN -4%; shares fall a second day after yesterday a judge denied motion for injunction in a patent case with AMGN Amgen – today was downgraded at Leerink.
• SNOW -2%; announces proposed private placement of $2.0B of convertible senior notes; said expects to use net proceeds from offering to pay cost of capped call transactions.
• V -4%; after Bloomberg News reported that the US Justice Department is set to file a lawsuit as soon as Tuesday accusing the payments company of illegally monopolizing the US debit card market.