Early Look

Monday, May 23, 2022

U.S. stock futures are firmly higher, with the S&P up about +0.8% to 3,932 (off overnight highs of 3,955.50 and lows 3,910.25), building on the late Friday push higher as President Biden said he’ll review China tariffs imposed by the Trump administration. European Central Bank President Christine Lagarde outlined a plan to start rate hikes in July and exit sub-zero territory by the end of September. After briefly falling more than 20% from its all-time highs, the S&P 500 surged in the final hour of trading late Friday, erasing its losses and eked out a gain of 0.01% late in the session after being down for most of the day. Even with Friday’s slight uptick, the market recorded its seventh weekly decline, the longest losing streak since the dotcom bubble more than two decades ago (Nasdaq also posted its 7^th straight weekly loss and the Dow its 8^th). Concerns about an economic slowdown and a possible recession has worried investors while several retailers last week signaled the mounting impact of high inflation on margins. In Asian markets, The Nikkei Index rose 262 points to 27,001, the Shanghai Index was little changed at 3,146, and the Hang Seng Index fell -1.19% or 247 points to 20,470. In Europe, the German DAX is up about +0.58% to 14,060, while the FTSE 100 gains +0.95% to 7,458. The U.S. dollar index (DXY) tumbles roughly 1% to 102.15, now nearly 300bps off its 20-year highs just 2-weeks ago above the 105 level as investors bail on haven assets and go bargain hunting for U.S. stocks. The late day rally in U.S. stocks Friday, narrowly avoiding an official “bear market territory” by closing less than 20% below ATH’s, extended into Asian and European stocks. Data and Fed speakers are light today with Chicago Fed Nat Activity Index for April is due at 8:30. And Fed Bostic discusses the economic outlook at 12:00. Helping overseas averages, U.S. President Biden said China tariffs imposed by the Trump administration are under consideration. The EUR gained after an unexpected improvement in Ifo confidence numbers and as ECB President Lagarde hinted at a lift off on rates in July with another move in September. Bitcoin prices rebounding 4.7% to $30,400 and $ETH Ethereum +5.75% to $2,070 as riskier assets are rebounding

Market Closing Prices Yesterday

·     The S&P 500 Index edged higher 0.57, or 0.01%, to 3,901.36

·     The Dow Jones Industrial Average rose 8.77 points, or 0.03%, to 31,261.90

·     The Nasdaq Composite dropped -33.88 points, or 0.30%, to 11,354.62

·     The Russell 2000 Index declined -2.96 points, or 0.17% to 1,773.27

Economic Calendar for Today

·     8:30 AM ET                  National Activity index for April

·     12:00 PM ET                Fed’s Bostic discusses the Economic Outlook

·     7:30 PM ET                   Fed’s George gives speech at Agricultural Symposium

Earnings Calendar:

·     Earnings Before the Open: HLGN, RSLS, SNDA

·     Earnings After the Close: AAP, CRMT, CSWC, NDSN, NLS, SKY, TRNS, XELB, ZM

Other Key Events:

·     Berenberg Annual Conference USA 2022, 5/23-5/25, in NY

·     JPMorgan Global Technology, Media & Communications Conference, 5/23-5/25, in Boston

·     UBS Global Healthcare Conference, 5/23-5/25, in NY

World News

·     Moody’s cuts Ukraine’s rating to Caa3, third-lowest level, “While Ukraine is benefitting from large commitments of international financial support, helping to mitigate immediate liquidity risks, the resulting significant rise in government debt is likely to prove unsustainable over the medium term”

·     World Health Organization confirms 92 cases of monkeypox with outbreaks in 12 countries; WHO said that as of Saturday it has confirmed around 92 cases and 28 suspected cases of monkeypox, with recent outbreaks reported in 12 countries.

Sector News Breakdown

Consumer

·     American Axle & Manufacturing (AXL), the $773 million auto-parts supplier, is exploring a potential sale, Bloomberg reports late Friday citing people from the process. A leveraged buyout through a private equity firm is a likely option, one person said. No decision has been made and the company could decide to stand pat. https://bloom.bg/3lAQyn6 (note AXL this weekend said “we feel it is important to clarify that we are not engaged in a process to sell company”)

·     Allbirds Inc. (BIRD) appositive mention in Barron’s, noting it is another 2021 debut that may have bottomed, given that the company, with a current market capitalization of about $700 million, has net cash of $240 million

·     Hyundai Motor has reaffirmed its commitment to expanding investment in the U.S. to further its goal to provide sustainable and smart mobility solutions to its U.S

·     Xpeng (XPEV) Q1 non-GAAP EPS loss (-$0.28), in-line with estimates and revs $1.18B vs. est. $1.1B; sees Q2 revenue up 80.8%-99.4% y-o-y to RMB6.8B-RMB7.5B (est. $1.27B); sees q2 deliveries of vehicles to be between 31,000 and 34,000, representing a year-over-year increase of approximately 78.2% to 95.4%

Energy, Industrials & Materials

·     Siemens Energy AG will offer 4.04 billion euros ($4.27 billion) to buy the shares in Siemens Gamesa Renewable Energy SA it doesn’t already own. Siemens Energy has offered 18.05 euros per Siemens Gamesa share to fully acquire the company, it said on Saturday – Bloomberg

·     Dow Inc. (DOW) and LyondellBasell (LYB) both downgraded to Neutral from Overweight at Piper Sandler saying checks in the chemical supply and product chains indicate that parts of the industry, especially olefins and polyolefins, may have entered a period of price and volume weakness which will likely impact margins over the next six months

·     Halliburton (HAL) and Norwegian oil and gas explorer Aker BP have collaborated to develop next generation field development planning software.

Financials

·     JPMorgan (JPM) holding its Investor Day today: raises its 2022 NII guidance; 2022 expense outlook is unchanged at about $77 bln; for 2022, expect charge-offs to return to pre-pandemic levels over time; says U.S economy remains fundamentally strong, despite recent mixed data; on economic conditions, says recent developments have increased the risk of a future adverse outcome; 12.5%-13.0% CET1 target at 1q24; about 17% ROTCE remains target and may be achieved in 2022

·     Bank Of America (BAC) raises U.S. hourly minimum wage to $22

Healthcare

·     Antiviral and vaccine stocks rise in premarket trading amid spreading cases of the monkeypox virus. SIGA Technologies (SIGA); Emergent BioSolutions (EBS); Chimerix (CMRX), Inovio Pharmaceuticals (INO) among movers

·     Biotech stocks have poorly performed this year and more than 120 companies in the sector are trading for less cash than they hold, according to Barron’s citing Jefferies saying Amgen Inc. (AMGN), one of the few gainers this year and the biggest biotech by market capitalization, and Vertex Pharmaceuticals Inc. (VRTX), which has had good drug-development news recently, suggest investors view large biotech’s as defensive plays

·     Align Technology (ALGN), iTero intraoral scanners and exocad CAD/CAM software for digital orthodontics and restorative dentistry, announced an agreement with Asana (ASAN).

Technology, Media & Telecom

·     Broadcom (AVGO) is in talks to acquire cloud service provider VMware (VMW), Reuters reported this weekend, citing people familiar with the matter. Negotiations between Broadcom and VMware are ongoing, and a deal is not imminent, the sources said https://bit.ly/3wLcPU7

·     Corning (GLW) downgraded to Neutral from Buy and tgt to $36 from $47 at Citigroup on lower PC and tablet demand, lower visibility in demand recovery for premium and large size TVs

·     Crowdstrike Holdings Inc. (CRWD), Shopify Inc. (SHOP) and Lyft Inc. (LYFT) are among six stocks whose valuations look less attractive once stock-based compensation is factored into their earnings, according to Barron’s; notes in a falling market, companies will be under pressure to reprice options, grant more shares or pay more cash