Saturday, June 11, 2022

China emerges from Covid lockdowns; Headline inflation still rising, pushing speculation that central banks will move rates even faster Weekly Market Update: China emerges from Covid lockdowns; Headline inflation still rising, pushing speculation that central banks will move rates even faster

6/10/2022 4:03:59 PM

Heading into this week investors seemed to be riding a wave of cautious optimism. The gradual reopening of the Chinese economy and all signs pointing to continued strength in the US consumer appeared to have put a floor under stocks. The US 10-year treasury yield remained below 3% inducing some bargain hunting in technology shares. The mood soured, however, as oil prices continued to climb and investors refocused on elevated inflation and central bank tightening. Thursday the ECB confirmed they would start raising rates by 25 basis points in July and perhaps boost the pace to 50 bps in September. European Treasury yields began rising aggressively and the Euro sold off. The spread between 10-year Italian and German government bonds, a widely followed barometer of eurozone financial stress, widened to the highest level since May 2020. US stock markets rolled over late in the session as well, after initial jobless claims jumped to the highest level since January, rekindling lingering stagflation worries ahead of key US inflation data.

Friday’s May CPI numbers were the gut punch many investors had feared. Headline consumer prices returned to the highest annual pace since 1981, spurred by surging energy and food prices. Airfares and a rebound in used car prices boosted the core component, but came alongside a sharp acceleration in shelter costs, which may be viewed as a red flag for the Fed. Interest rates led by the short-end popped, resulting in significant flattening and sporadic inversions across the US Treasury curve. The US 2-year yield jumped above 3% for the first time since 2008 and futures markets quickly began pricing in 50 bps hikes at each of the next three FOMC meetings. Equity markets were slammed with the S&P careening back towards 3900 for the first time in weeks. Decliners led advancers by an 11:1 margin on the NYSE while oil prices barely budged. For the week, the S&P lost 5.1%, the DJIA was down 4.6%, and the Nasdaq fell 5.6%, suffering their worst losses since the week ended Jan 21.

In corporate news this week, Target issued a profit warning as it plans to cut vendor orders and slash prices in a move to reduce its bloated inventory amid unusually high transportation and fuel costs. Apple announced it would enter the ‘buy now, pay later’ space, launching the new credit product everywhere Apply Pay is accepted. Scotts Miracle-Gro cut its guidance for the year even amid strong consumer retail sales as it expects declines in its higher margin fertilizer and grass seed units. In the hospitality sector, however, Marriott says it is not seeing any hits to demand from uncertainties surrounding the economy, with its Memorial Day RevPAR rates coming in well above 2019 levels. Airline stocks briefly took off on reports that the CDC will drop requirements for travelers to test Covid negative before entering the US.

SUN 6/5
(CN) Beijing to further ease COVID-related curbs, to permit indoor dining on Mon (Jun 6th); the resumption of indoor dining does not apply to Fengtai and certain parts of the Changping district - financial press
*(CN) CHINA MAY CAIXIN PMI SERVICES: 41.4 V 46.0E (3rd straight contraction)
MON 6/6
FAST Reports May net sales $589.2M, +23.5% y/y
AAPL Announces Buy Now Pay Later, will be available everywhere that Apple pay is accepted; Introduces IOS 16, will have new intelligence and personalization - WWDC conf
MAR CEO: Forward bookings in EU are now 50% above 2019 levels; We are not seeing any hits to demand from uncertainties surrounding economy - CNBC
(US) Reportedly SEC's Gensler to outline proposal for significant stock market structure reforms on June 8th - press
(UK) PM Boris Johnson wins Conservative Party confidence vote
TUES 6/7
(CN) Shanghai port's daily container throughput said to have returned to more than 95% of its normal levels; Cargo volume in the sea and airports continue to rise - Chinese press
*(DE) GERMANY APR FACTORY ORDERS M/M: -2.7% V +0.4%E; Y/Y: -6.2% V -4.1%E (3rd decline in a row)
UMC Reports May (NT$) Rev 24.4B, +42.1% y/y; YTD May Rev 110.7B, +37.2% y/y
(EU) EU countries and lawmakers have reached an agreement on single mobile charging port; EU common charging port to become USB-C by fall 2024
TGT Cuts Q2 Op margin ~2% (prior around 5.3%**), Guides H2 Op margin ~6% (prior guided FY22 ~6.0%); Plans to cut prices and address the impact of unusually high transportation and fuel costs
ASO Reports Q1 $1.73 v $1.40e, Rev $1.47B v $1.43Be; Cuts outlook; Authorizes $600M buyback (20% of market cap)
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: +1.5% v -2.9% prior
(US) Energy Dept releases proposal to acquire $4.3B worth of enriched uranium from domestic sources in effort to cut dependence on Russia - press
OI Raises Q2 >$0.65 v $0.58e (prior: $0.55-0.60)
2330.TW Chairman: Guides FY22 Rev +30% y/y (prior above mid to high end 20% in USD terms); Speeding up investment for capacity for advanced and specialty chips due to demand; 2NM chip development on schedule - General Shareholders' Meeting
WEDS 6/8
(RU) Russia said to consider increasing wheat export duties by 10% - Russian press
CSGN.CH Issues trading update: Sees likely loss in Q2; To operate with 13.5% CET1 near term
(UR) Ukraine Agriculture Min Solskyi: Warning of catastrophic food price increases
(CN) Beijing official: Beijing reports zero community COVID cases for 5th straight day; Cut off the current and past transmission chain
(TR) Turkey Foreign Min Cavusoglu: Sees a a will to return to negotiations between Russia and Ukraine; Talks with Russia's Lavrov was fruitful; Turkey ready to adopt UN's reasonable plan regarding Ukraine grain
CF CF Fertilisers UK Announces Proposals to Restructure Operations to Enable Continued Supply of Fertiliser, Carbon Dioxide and Other Industrial Products to Customers in the UK
(IN) India reportedly could soon allow wheat exports of 1.2Mt stuck at its ports - financial press
MRNA Releases new clinical data on its Omicron-containing bivalent COVID booster candidate, mRNA-1273.214; Phase 2/3 trial met all primary endpoints
SMG Cuts FY22 $4.50-5.00 v $7.00e, US consumer sales -6% to -4% y/y (prior adj EPS low end of prior range)
(US) Association of American Railroads weekly rail traffic report for week ending June 4th: 476K total units, -2.8% y/y
(US) Atlanta Fed GDPNow: maintains Q2 GDP forecast at 0.9%
(US) Freeport LNG: Texas Liquefaction facility to be shut for at least 3 weeks following fire (~20% of US production cap)
*(CN) CHINA MAY TRADE BALANCE: $78.8B V $57.7BE; Exports +16.9% v 8.0%e
(CN) Beijing suspends all entertainment in Chaoyang district (largest in the city) citing coronavirus containment - State media; Beijing reports new bar cluster found after testing for COVID, according to later report
(RU) Russia State Duma deputy Delimkhanov: Russian special military operation in Ukraine would be completed by end-2022
(UK) UK Tobacco review confirms to recommend raising the legal smoking age to 21 from 18; Recommends a tobacco licence for retailers
(CN) Reportedly China's financial regulators have started early stage discussions on a potential revival of Jack Ma's Ant Group IPO as another measure to ease crackdown of tech industry - press
(CN) Shanghai City Official: Seven districts will carry out mass covid testing over the weekend
(CN) China Securities Regulatory Commission (CSRC): Not conducting any assessment or research work on reviving Ant Group's IPO; Will support eligible platform companies to list at home and abroad
NVAX Reportedly US FDA decision on Novavax's COVID vaccine may be delayed - CNBC
6688.HK (CN) China central leadership reportedly gave initial nod to Ant Group to revive IPO plans in Shanghai and Hong Kong - press
*(EU) ECB LEAVES 7-DAY MAIN REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED; Signal to hike rates by 25bps at July meeting and 'gradual, but sustained' path of further rate increases beyond Sept 2022 to be appropriate
*(EU) ECB UPDATES STAFF PROJECTIONS: Raises 2022-2024 inflation forecasts, cuts GDP outlook
NTR.CA Plans to increase potash production capability by 18M tons by 2025; Plans additional $2B share buyback; To hire 350 people
*(US) INITIAL JOBLESS CLAIMS: 229K V 206KE (highest since mid Jan); CONTINUING CLAIMS: 1.31M V 1.30ME
(EU) ECB chief Lagarde: Policy is not about catching up to the Fed; Focused on inflation within the region and bringing it back to target in the medium term - Q&A
(EU) Some ECB policy makers said to have wanted a 50bps hike in July; saw no need for spread-fighting tool yet - press
*(US) Q1 FINANCIAL ACCOUNT HOUSEHOLD CHANGE IN NET WORTH: -$0.544T V +$4.86T PRIOR (1st decline since Q1 2020)
(US) NY Fed takes $2.142T in RRP program at 0.80%; 101 participating and accepted counterparties (record high, surpassing $2.140T yesterday)
(KR) Said that striking truckers have stopped and turned around non union truckers that tried to enter into the Petrochemical complex in Ulsan - Press
DOCU Reports Q1 $0.38 v $0.46e, Rev $589M v $581Me; Cuts FY billings outlook
FRI 6/10
TSM Reports May (NT$) Rev 185.7B v 112.4B, +65% y/y
(JP) Japan Top Currency Official Kanda: Will watch FX moves with more urgency and its impact upon economy; To respond appropriately as needed
*(RU) RUSSIA CENTRAL BANK (CBR) CUTS KEY ONE-WEEK AUCTION RATE BY 150BPS TO 9.50%; MORE-THAN-EXPECTED; Brings key rate back to pre-Ukraine war level
(EU) NATO Sec Gen Stoltenberg to visit Sweden and Finland on June 12-13th - press
(US) CDC to lift requirement for travelers to test COVID negative before entering the US, effective June 12th - press
(US) Atlanta Fed May Sticky-CPI annualized 7.5% v 7.1% m/m, core 7.3% v 7.1% m/m
(US) USDA WASDE Crop Report End 2021/2022 US Stocks (M bu): Soybeans: 205 v 217e; Corn: 1,485 v 1,438e; Wheat: 655 v 661e
(SA) CNN reporter: Senior US officials have conveyed to Saudi Arabia that the US is prepared to move forward with a 'reset of the relationship'
(US) NY Fed takes $2.16T in RRP program at 0.80%; 99 participating and accepted counterparties (record high, surpassing $2.140T yesterday)