6/17/2022 4:10:24 PM
It was another harrowing week for investors and their portfolios. The realization that global central banks were accelerating tightening plans in an attempt to ward of surging inflation resulted in further carnage across nearly all asset classes. The die was cast on Monday when the Fed leaked its concerns about last week’s troubling inflation data, effectively greenlighting a 75 bps hike ahead of Wednesday’s FOMC meeting. US Treasury yields surged to new cycle highs and included eye popping jumps at the short end of the US curve, which destabilized stock markets further and induced some hand-wringing around Treasury market functioning. Before Wednesday’s Fed announcement the ECB felt the need to hold an emergency meeting to discuss and underscore its determination to deal with fragmentation though the rate normalization process.
The Fed followed through and did raise by 75 basis points, even though Chairman Powell had essentially ruled out such a large move at the last meeting six weeks prior. Importantly, the dot plot took up the median Fed funds rate forecast significantly. Fed officials singled they now wanted to see rates rise definitively into restrictive territory (~3.4%) by the end of this year, making it clear they are no longer going to be satisfied with stopping at ‘neutral’ to reassess. That did bring the Fed closer to market-based projections for rates and provided a brief respite in the selloff. A host of other global Central banks including in the UK and Brazil also tightened policy this week, but it was a surprise 50 bps hike by the Swiss National Bank that authored another leg lower for risk. The SNB also indicated it could intervene in FX markets both ways and was no longer singularly concerned about Franc strength. The news was not received well by capital markets, which saw another round of intense selling in both equity and bond markets. Some noted that the SNB’s significant holdings of high-profile US equities may have exacerbated the market indigestion.
US economic data added to investors’ jitters after readings for monthly housing starts & permits, the Philly Fed, Empire manufacturing, advanced retail sales, and weekly initial jobless claims all missed expectations by fairly wide margins. The deceleration in the data coupled with the incoming tide of rising rates fanned worries around growth and a possible recession. Those concerns coupled with growing speculation that the severe energy squeeze in Europe could prompt Western officials to put pressure on Ukraine’s Zelensky to come to the barging table. Crude oil prices rolled over and the energy complex served as a further drag on equity markets. The carnage in the crypto markets continued, with Bitcoin testing the $20K handle amid swirling speculation around forced liquidations by key players in the crypto/defi markets. The S&P plunged 5.8% this week, its biggest drop since March 2020, while the DJIA and Nasdaq each lost about 4.8%.
In corporate news this week, Kroger posted a beat on its top and bottom line, but reported shrinking margins as the grocer aimed to attract cost-conscious customers with more deals and private-label products. The real estate sector saw some layoffs, with Compass announcing plans to cut 10% of its workforce and Redfin following suit with an 8% reduction. Chemical products manufacturer Olin said it has experienced weaker than anticipated epoxy resin demand in North America and South America in Q2 and plans to halt production at one Texas facility.
Toyota suspended operations at some domestic plants amid further semiconductors parts shortages, lowering its June production outlook by 50K units. FedEx shares lifted sharply after raising its dividend by 50% and coming to an agreement with activist investor DE Shaw to add three new directors to its board. Warehouse leader Prologis announced it would acquire real estate agency Duke Realty in an all-stock deal valued at $26B as part of a move to gain properties in key markets like Southern California, South Florida, and New Jersey.
SUN 6/12
(CN) China Defense Minister Wei says will "fight to the very end" if anyone dares to try and split off Taiwan from China; China military officials repeatedly stated Taiwan Strait is not in international waters - press
(JP) Japan Chief Cabinet Sec Matsuno: Ready to take appropriate actions on FX market if needed; Nothing new in view expressed in US Treasury Dept latest currency report
MON 6/13
(CN) Beijing Sport Authority has suspended all sports events effective from today (June 13th) due to COVID control until further notice
BTC/USD Crypto lender Celsius pauses withdrawals, swap and transfers between accounts citing ‘extreme market conditions’ - TechCrunch
(FR) French Pres Macron's alliance Ensemble seen to win between 262-301 seats with 289 needed for outright majority following 1st round of legislative elections; Turnout hit a record low of 47%
*(UK) APR MONTHLY GDP M/M: -0.3% V +0.1%E (2nd consecutive contraction)
DPW.DE Said to be raising prices for some parcel categories - press
(CN) Beijing official: COVID-19 bar outbreak still risks spreading to community; Reports 45 local cases by 15:00 on June 13th
- Epidemic control at critical juncture
DRE Confirms to be acquired by Prologis in all-stock deal valued at $26.0B; Deal to create immediate accretion of approximately $310-370M from corporate general and administrative cost savings
(EU) Reportedly ECB increasingly determined not to divulge plans to tackle 'fragmentation' as it remains resolved to address bond market stress - press
(US) NY Fed takes $2.21T in RRP program at 0.80%; 97 participating and accepted counterparties (record high, surpassing $2.160T on Friday)
ORCL Reports Q4 $1.54 v $1.38e, Rev $11.8B v $11.6Be
*(US) CNBC'S LIESMAN: FED "VERY LIKELY" TO RAISE RATES BY 75BPS THIS WEEK
5019.JP Said to be closing unit Seibu Oil Refinery in Yamaguchi by end of March 2024 - press
TUES 6/14
*(UK) APR ILO UNEMPLOYMENT RATE: 3.8% V 3.6%E
AKZA.NL Cuts Q2 outlook citing effect of China lockdowns and the slower start to the EMEA DIY season; Notes negative Op income impact of €40M and says June's rebound is not enough yet; Accelerates adjustments in its cost base for H2
*(DE) GERMANY MAY FINAL CPI M/M: 0.9% V 0.9%E; Y/Y: 7.9% V 7.9%E
(CN) Beijing official: Beijing must go all out, its a race against time to block the spread of bar-linked Covid outbreak
(NL) ECB’s Knot (Netherlands, hawk): ECB must raise rates by >25bps in Sept and not limited to 50bps, if conditions remain the same
*(DE) GERMANY JUN ZEW CURRENT SITUATION SURVEY: -27.6 V -31.0E; EXPECTATIONS SURVEY: -28.0 V -26.8E
(US) As long speculated, US Pres Biden said to be leaning toward removing some products from the Trump administration's China tariffs list; Potential announcement expected as early as in June - Axios
MA Mastercard SpendingPulse forecasts 7.5%* growth for US Back-to-School Retail Sales; Est to be +18.3% vs 2019
CNM Reports Q1 $0.50 v $0.35e, Rev $1.60B v $1.06B y/y; Raises FY22 outlook
(US) White House confirms US Pres Biden to visit Israel and Saudi Arabia on July 13-16th
*(US) MAY PPI FINAL DEMAND M/M: 0.8% V 0.8%E; Y/Y: 10.8% V 10.9%E
WFC CFO: Mortgage banking income could be down 50% v Q1; Q2 trading will be up a little bit y/y - Morgan Stanley conf comments
COMP Said to cut ~10% of workforce due to slowdown in US housing market - press
RDFN Asking ~8% of workforce to leave the Co, could be facing years, not months of fewer home sales; To incur Q2 pretax charge of $9.5-10.5M - filing
OLN Experienced weaker than anticipated epoxy resin demand in North America and South America in Q2; Halts Freeport, TX plant production
*(CN) CHINA MAY INDUSTRIAL PRODUCTION Y/Y: +0.7% V -0.9%E; YTD Y/Y: 3.3% V 3.1%E
WEDS 6/15
(EU) ECB to hold ad hoc governing council meeting on Wed, June 15th to discuss current market conditions and recent sell-off in government bond markets
(CN) Shanghai to conduct mass testings across all districts during every weekend by end-July 2022 - press
NUE Guides Q2 $8.75-8.85 v $8.65e; Continue to benefit from robust demand in nonresidential construction markets
*(US) JUN EMPIRE MANUFACTURING: -1.2 V +2.3E
*(US) MAY ADVANCE RETAIL SALES M/M: -0.3% V +0.1%E; RETAIL SALES (EX-AUTO) M/M: 0.5% V 0.7%E
OMV.AT CEO: The Schwechat oil refinery (200K bpd) is running at ~20% capacity after earlier mechanical incident
(HK) JP Morgan: Macau gaming law largely unchanged from initial draft; low GGR implies bonds could trade more on dollar price than yields
*(US) JUN NAHB HOUSING MARKET INDEX: 67 V 67E (lowest since June 2020)
(US) Association of American Railroads weekly rail traffic report for week ending June 11th: 510K total units, -3.6% y/y
(US) Atlanta Fed GDPNow: Cuts Q2 GDP forecast to 0.0% from 0.9%
*(US) FOMC RAISES TARGET RANGE BY 75BPS TO 1.50-1.75% (AS SPECULATED); BALANCE SHEET REDUCTION TO PROCEED AT ANNOUNCED PACE; SEES ONGOING RATE HIKES TO BE APPROPRIATE
(US) Fed Chair Powell: We have resolve on price stability; We are moving expeditiously on rates - post rate decision prepared remarks
*(US) FED CHAIR POWELL: DOES NOT EXPECT 75BPS HIKES TO BE COMMON; EITHER 50BPS OR 75BPS RAISE SEEMS MOST LIKELY AT NEXT MEETING - POST RATE DECISION COMMENTS
*(AU) AUSTRALIA JUN CONSUMER INFLATION EXPECTATION: 6.7% V 5.0% PRIOR [highest since at least 2008]
ABT Said to have halted production of Elecare specialty baby formula, due to flooding in Michigan; expects the halt to last for a 'few weeks'
THURS 6/16
ASC.UK Issues Q3 trading update: Q3 Rev £983.4M v £987.9M y/y; Cuts FY22 Rev +4-7% (prior +10-15%)
(RU) Russia govt spokesperson Peskov: Russia and US are now at very, very hot point of confrontation
005930.KR Reportedly temporarily halting new procurement orders and asking multiple suppliers to delay or reduce shipments of components and parts for few weeks citing swelling inventories and inflation concerns - Nikkei
*(CH) SWISS NATIONAL BANK (SNB) RAISES KEY RATES BY 50BPS TO -0.25%; NOT EXPECTED; Do not rule out further rate hikes in foreseeable future to stabilize inflation
(CN) Beijing official: Efforts to contain the bar-linked COVID outbreak in Beijing has shown effect; Reports zero new community COVID cases on June 16th
*(TW) TAIWAN CENTRAL BANK (CBC) RAISES BENCHMARK INTEREST RATE BY 12.5BPS TO 1.50%; LESS-THAN-EXPECTED
(IN) India said to propose settling trade with Russia in Indian rupees (INR); Officials may agree plan as soon as next week - press
*(RU) RUSSIAN OFFICIAL: FURTHER ISSUES WITH GAS TURBINES FOR NORD STREAM 1 GAS PIPELINE MAY LEAD TO ITS SUSPENSION - RUSSIAN PRESS
TM To suspend operations at some domestic plants due to semi conductors parts shortages; Cuts June Production ~750K units (prior 800K units) - press
*(UK) BANK OF ENGLAND (BOE) RAISES BANK RATE BY 25BPS TO 1.25%; AS EXPECTED
*(UK) BOE JUN MINUTES: VOTED 6-3 TO RAISE BANK RATE BY 25BPS; (Haskel, Mann and Saunders dissented for a bigger 50bps hike as during May meeting)
JBL Reports Q3 $1.72 v $1.62e, Rev $8.3B v $8.21Be; Raises FY22 outlook; Notes solid demand in key areas of its business and expects ongoing momentum
KR Reports Q1 $1.45 v $1.28e, Rev $44.6B v $44.2Be; Raises slightly FY22 outlook
VAC Raises FY22 outlook; Continues to see very high owner occupancies at our resorts and expect adj development profit margin to remain strong for FY22
*(US) JUN PHILADELPHIA FED BUSINESS OUTLOOK: -3.3 V +5.0E (1st negative reading since May 2020); New Orders: -12.4 v 22.1 prior
*(US) INITIAL JOBLESS CLAIMS: 229K V 217KE; CONTINUING CLAIMS: 1.31M V 1.30ME
(EU) ECB chief Lagarde: ECB plans to put limit on bond spreads; Crisis tool will address irrational moves; Would kick in if spreads go too far, too fast - comments to Eurogroup ministers
ADBE Reports Q2 $3.35 v $3.30e, Rev $4.39B v $4.34Be; Cuts FY22 Rev and EPS outlook
X Guides Q2 $3.83-3.88 v $3.33e, adj EBITDA $1.6B v $1.29B y/y
FRI 6/17
TSCO.UK Reports Q1 Rev £13.6B, +2.0% y/y (LFL); Sees some early indications of changing customer behaviour as a result of the inflationary environment
(JP) BOJ Gov Kuroda: To continue with Yield Control (YCC) until inflation target is achieved; will not hesitate to ease further if needed - post rate decision press conference
TSCO.UK CEO: Seeing higher frequency of shopping trips but basket sizes are coming down - post earnings comments
(CN) Beijing official: Spreading risks decline for Beijing COVID outbreak
(CN) Shanghai govt offers a CNY10K subsidy to a car owner who scraps an old passenger car and purchases a pure EV from authorized retailers before Dec 31, 2022 - press
*(EU) EURO ZONE MAY FINAL CPI Y/Y: 8.1% V 8.1%E; CPI CORE Y/Y: 3.8% V 3.8%E
(EU) EU Commission confirms its opinion to grant EU candidacy status to Ukraine and Moldova
(RU) Russia Pres Putin: Trust in global currencies has been undermined by our partners - speech at annual economic forum
*(US) MAY INDUSTRIAL PRODUCTION M/M: 0.2% V 0.4%E; CAPACITY UTILIZATION: 79.0% V 79.2%E
*(US) MAY LEADING INDEX: -0.4% V -0.4%E
(US) Fed's George (FOMC voter, dissenter): I dissented at meeting because I viewed 75bps move as adding policy uncertainty simultaneous with start of balance sheet runoff
(US) Fed's Kashkari (dove, non-voter): I supported a 75bps hike in June and could support another 75bps hike in July; We must be cautious about too much front-loading on rate hikes
