Saturday, July 2, 2022

Stagflation signs sting sentiment Weekly Market Update: Stagflation signs sting sentiment

7/1/2022 4:03:04 PM

An extremely painful Q2 drew to a close this week for investors, as the Fed-led global policy tightening and its negative implications for growth remained the largest overhang to sentiment. Even a significant decline global commodity prices and a retracement in global interest rates were unable to spark any real momentum in equity markets consumed with stagflation fears. Growth worries were fanned by softening US manufacturing data which did come alongside a welcomed undershoot in May PCE readings. Meanwhile Euro Zone June CPI hit a record 8.6% y/y, and the Atlanta Fed dropped its Q2 GDP forecast to -2.1% on Friday, portending a recession if the forecast holds. A barrage of commentary out of the ECB's Sintra conference underscored the extent to which policymakers have prioritized combating inflation, even if it means risking recession. Despite the chorus of central bank rhetoric, global bond markets saw an aggressive repricing and yields slumped along with market based measures of inflation expectations. The US 5-year breakeven moved to the lowest levels of the year, while expectations for another 75 bps hike in July came out of the futures markets, which are now pricing in a reversal to rate cuts by June 2023. By Friday, the US 2- and 10-year yields traded well under 3.00%. The US dollar continued to garner safe haven flows despite the move lower in yields. For the week, the S&P lost 2.2%, the DJIA was off 1.3%, and the Nasdaq fell 4.1%.

This week’s corporate news made it evident that even the most celebrated firms are finding it difficult to escape the pinch between higher operating costs and slowing growth. Micron reported a grim outlook amid supply issues in China and weakening smartphone and PC sales. Asian press reported that some major clients of Taiwan Semi have cut their chip orders for 2022, which may potentially impact the manufacturer’s revenue forecast. General Motors disclosed that it has almost 100K vehicles in its Q2 inventory that were made without certain semiconductor components due to supply chain disruptions, but the automaker affirmed its full year outlook despite near term problems. Luxury furniture store RH, which managed to thrive during the pandemic, trimmed its FY22 outlook again after cutting it a mere three weeks ago, citing a deteriorating macro-economic environment and with the expectation that demand will continue to slow.

Nike earnings came in largely in line but its margin outlook concerned investors as Chinese market woes persist. Bed Bath and Beyond shares plunged after reporting a disastrous quarter due to an ‘acute shift in customer sentiment,’ and the retailer also announced a management shakeup. Universal Health Services cut its FY22 outlook on lower-than-expected patient volumes at its acute care facilities amid the decline in COVID. One glimmer of positivity came for global freight carrier Maersk, which said it is not seeing signs of global recession in its shipping data thus far.

SUN 6/26
(US) Pres Biden confirms G7 to announce ban on Russian gold imports; To be formally announced on June 28th - press
(RU) Belarus President Lukashenko: Lithuania's isolation of Kaliningrad is actually a declaration of war
(US) German govt official: G7 considering ways of capping Russian oil price; We are on a good path to reach an agreement - financial press
(CN) Shanghai said to gradually resume restaurants' dine-in reopening in low-risk areas from June 29th - Chinese TV
(RU) Russia is few hours away from default (the first one since 1998 and first foreign debt default since 1918) if it fails a June 26th deadline to make its $100M US-denominated debt interest payment in US dollars
(EC) Ecuador Energy Ministry: Oil production could stop in 48 hours amid escalating protests
(RU) Russia defaults on sovereign debt for the first time since the 1917 Bolshevik Revolution (grace period ended Jun 26th)
(HK) Macau to extend the suspension of public sector activities, except for emergency services, until at least July 1; negative covid tests required to enter casinos; 3rd round of mass testing to take place
(UR) US expected to announce purchase advanced medium to long range surface to air defense systems NASAMS for Ukraine during the week - CNN

MON 6/27
PRX.NL Reports FY22 Net €3.7B v €4.9B y/y, Rev €35.6B v €28.8B y/y; Announces open-ended share repurchase program; Sells 4% stake in received from Tencent for $3.67B to fund the program
(CN) BBC's China correspondent McDonell tweets: Beijing City Government announced “Zero Covid” will be maintained for the next five years
(G7) White House G7 statement: Finalizing plans for a price cap on Russian oil; US to impose blocking sanctions on major Russian state-owned defense enterprises
(LY) Libya National Oil Corp (NOC) said to consider force majeure and suspend exports in Gulf of Sirte [where many of the country's ports are] in the next three days amid a worsening political crisis - press
(UR) Ukraine Pres Zelenskiy: Want to end war by winter 2022; Now is not the time for negotiations with Russia - virtual G7 Summit address
6488.TW Said to invest around $5B in new Texas plant to manufacture silicon wafers - US financial press
Voyager Digital operating subsidiary issues notice of default to Three Arrows Capital
(US) May Pending Home Sales M/M: +0.7% v -3.9%e; Y/Y: -12.0% v -11.5% prior
*(US) JUN DALLAS FED MANUFACTURING ACTIVITY INDEX: -17.7 V -6.5E (lowest since May 2020)
(EU) EU Energy Commissioner Simson: Halt of Russia gas supplies may mean EU storage will be below 75% by Nov 1st
NKE Reports Q4 $0.90 v $0.81e, Rev $12.2B v $12.1Be; Authorizes new 4-year, $18B plan to buy back Class B stock (10% of market cap)
JPM To maintain current $1/shr dividend for Q3 following CCAR results 'in light of higher future capital requirements' - filing
3333.HK Notes wind up petition (first official one) filed by Top Shine Global on June 24th in Hong Kong over HK$862.5M obligation
(CN) China State Planner (NDRC) Vice Sec General Ou: China facing new challenges in stabilizing jobs and prices due to coronavirus and Ukraine war

TUES 6/28
(HK) Hong Kong said to be considering cutting hotel quarantines to 5 days for inbound travelers (currently 7) and would be followed by 2 days home quarantine - press
DIS Shanghai Disneyland theme park to reopen on June 30th with limited traffic - Weibo
(EU) Details of the new anti-fragmentation tool said to likely drain cash from the banking system to offset any bond purchases made to cap borrowing costs from high debt countries
(RU) G7 statement: Confirm agreement to study potential price caps for Russian oil and gas
(EU) ECB's Kazaks (Latvia, hawk): Frontloading rate hikes with 50bps in July is reasonable; Fragmentation risk can't impede monetary policy
(EU) EU Official: G7 declaration set to include push to ban import of Russian gold
(EU) ECB chief Lagarde: Need to act in a determined and sustained manner; Reiterates plans to hike 25bps at July's meeting as inflation in region is undesirably high
(RU) According to Politico sources, G7 states reached a broad agreement to seek ways to impose a price cap on Russian oil; G7 members could use their cartel power as buyers to push for a lower price - press
PTR Reportedly considers sale of Australian and Canadian assets in order to to stem losses and divert funds to more lucrative sites in the Middle East, Africa and central Asia - financial press
(RU) Russia govt spokesperson Peskov: Gazprom may ask for contractual terms to be revised if G7 proposal for price cap comes into force
SBRY.UK CEO: UK consumer market to deteriorate further in the fall 2022; Shoppers visiting stores more often but buying less on each trip
(US) Treasury Sec Yellen to vist G20 Foreign Ministers summit next week in Indonesia
VOW3.DE CEO: Chip shortage is easing; Volkswagen is earning more than ever; Sees a strong H2 2022 and expects progress in catching up with Tesla
(UK) Scotland First Min Sturgeon: Formally announces plans for a new referendum on Scotland independence for Oct 19th, 2023; Calls on UK PM Johnson to allow an independence vote, we are ready to negotiate terms
(US) May Industrial Production M/M revised lower to +0.1% (prior +0.2%), Capacity Utilization revised higher to 80.8% (prior 79.0%)
(FI) Finland President Niinisto: Turkey has agreed to support Finland and Sweden membership of NATO

WEDS 6/29
HMB.SE Reports Q2 (SEK) Pretax 4.78B v 3.59B y/y, Rev 54.5B v 46.5B y/y; To buy back SEK3.0B in shares; Sees June sales -6% y/y
(CN) China Pres Xi: Domestic development to be more self reliant and wants it to be sound in 2022; COVID zero policy is the most economic and effective way for China
MAERSKB.DK CEO: Doesn’t see signs of global recession; Despite concerns over a potential recession, freight volumes at Maersk do not show any signs of crisis yet
*(ES) SPAIN JUN PRELIMINARY CPI M/M: 1.8% V 0.5%E; Y/Y: 10.2% V 8.8%E (highest annual pace since 1985)
000002.CN Chairman: In the short term, Chinese housing market has bottomed out, but the recovery is a slow and gentle process and will take time
(US) Fed's Mester (FOMC voter, hawk): Want to see US rates above 4% in 2023; I think right now I am advocating 75bps hike - CNBC
HMB.SE CEO: Do not see any big changes in consumer sentiment in June; Ramping up expansion in North and South America; Inflation requires some price adjustments - post earnings comments
(CN) S&P affirms China sovereign rating at 'A+; Outlook stable
(CN) China Finance Ministry: To offer subsidies to refiners if international oil prices rise above $130/bbl
(US) US President Biden: Confirms US is enhancing force posture in Europe; To enhance rotational Baltics deployments and to establish perm 5th army headquarters in Poland - NATO summit comments
RDS.B CEO: LNG can't replace all of Russia pipeline gas supply, sees problematic winter; Oil refining systems are running flat out; Price caps won't work if only US and Europe participate
(EU) EU Commission proposes to ban flavored heated tobacco products - press
(CN) China Finance Ministry to extend tariff waivers on some 124 US goods until Feb 15th, 2023 - press
(UK) UK large retailer Morrisons: UK consumer environment is very fragile and difficult
(RU) Russia official: Russia will look to export its gold supplies to other countries after US ban
(NO) Norway and UK to donate long range rocket artillery to Ukraine
BBBY Reports Q1 -$2.83 v -$1.30e, Rev $1.46B v $1.52Be; Announcing 'aggressive' actions on inventory, cost and Capex
(EU) ECB PEPP reinvestment scheme said not to have targets and thresholds but could be evolved in due course - financial press
EUR/CHF Cross tests parity for the first time since Mar 2022 following mid-June unexpected SNB rate hike
*(DE) GERMANY JUN PRELIMINARY CPI M/M: 0.1% V 0.4%E; Y/Y: 7.6% V 7.9%E (annual pace moved off recent record highs)
MAERSKB.DK Issues June business update: US is experiencing unprecedented consumer demand, while consumer spending Europe and UK has dipped below historic trends; Shanghai situation is stabilizing; General ports in China are 'working well'
*(US) Q1 FINAL GDP PRICE INDEX: 8.2% V 8.1%E; CORE PCE Q/Q: 5.2% V 5.1%E
(EU) NATO Summit communique issued: Have adopted new new strategic concept till 2030; Formally invite Finland and Sweden to join NATO alliance
(EU) ECB chief Lagarde, Fed's Chair Powell and BOE Gov Bailey panel comments from Sintra conference
(US) Association of American Railroads weekly rail traffic report for week ending June 25th: 493K total units, -4.4% y/y
RH Cuts FY22 Rev again 3 wks after reporting to -5% to -2% y/y, adj op margin 21-22% (prior Rev growth +0-2%, adj op margin 23-24%); Expects demand will continue to slow throughout the year
GBTC US SEC has disapproved Bitcoin ETF application from Grayscale
*(CN) CHINA JUN MANUFACTURING PMI (GOVT OFFICIAL): 50.2 V 50.5E (1st expansion in 4 months)

THURS 6/30
*(FR) FRANCE JUN PRELIMINARY CPI M/M: 0.7% V 0.7%E; Y/Y: 5.8% V 5.7%E (record high)
*(DE) GERMANY JUN NET UNEMPLOYMENT CHANGE: +133.0K V -5.0KE (1st rise since Apr 2021); UNEMPLOYMENT CLAIMS RATE: 5.3% V 5.0%E
(US) ADP to pause jobs report in July while working on new methodology; Targeting Aug 31st for new national employment report
STZ Reports Q1 $2.66* v $2.51e, Rev $2.4B v $2.19Be
UHS Guides Q3 $2.05-2.15 v $2.60e; Cuts FY22 $9.60-10.40 v $11.38e (prior $11.9-12.90) Rev $13.2-13.4B v $13.5Be (prior $13.4-13.7B) due primarily to lower than expected patient volumes, revenues and income generated at our acute care hospitals (COVID decline)
OPEC+ Monthly meeting said to ratify Aug oil-supply increase (638K bpd), as expected; Have not made any decisions on output beyond August - press
*(US) MAY PCE DEFLATOR M/M: 0.6% V 0.7%E; Y/Y: 6.3% V 6.4%E
(US) Nevada reports May casino gaming Rev $1.30B, +5.7% y/y; Las Vegas strip Rev $732M, +11.6% y/y
(US) Atlanta Fed GDPNow: cuts Q2 GDP forecast from +0.3% to -1.0%
(US) May Dallas Fed Trimmed Mean PCE +5.3% v +2.9% m/m
(US) NY Fed takes $2.33T in RRP program at 1.55%; 108 participating and accepted counterparties (new record high)
MU Reports Q3 $2.59 v $2.44e, Rev $8.64B v $8.66Be; Guides Q4 lower, citing recent weaker demand; Raises Quarterly dividend 15% to $0.115 (indicated yield 0.82%)
MU Exec: Near the end of Q3, we saw a significant reduction in near-term industry bit demand; Data center end demand is expected to remain strong in the H2 - earnings call prepared remarks
(US) Freeport LNG terminal delays plans for partial restart of operations to Oct 2022 (prior estimate mid-Sept); Full production not to end of 2022
(RU) Russia President Putin signs decree to move (nationalize) Sakhalin 2 rights to companies from Russia - Japanese press
TSM Said that major clients have adjusted chip orders down for 2022; this could impact the co's Rev forecast, cites industry sources - Digitimes

FRI 7/1
(HK) Macau Jun Casino Rev (MOP) 2.48B v 3.34B prior; Y/Y -62.1% v -68.0% prior
*(IT) ITALY JUN MANUFACTURING PMI: 50.9 V 50.6E (24th month of expansion but lowest since Jun 2020)
*(EU) EURO ZONE JUN CPI ESTIMATE Y/Y: 8.6% V 8.5%E (record high); CPI CORE Y/Y: 3.7% V 3.9%E
GM Reports prelim Q2 Net $1.6-1.9B, adj EBIT $2.3-2.6B v $3.2B y/y; Affirms FY22 outlook; vehicle wholesale volumes were impacted by the timing of certain semiconductor shipments and other supply chain disruptions
(US) JUN FINAL S&P/MARKIT MANUFACTURING PMI: 52.7 V 52.4E (Confirms lowest reading since July 2020)
(US) JUN ISM MANUFACTURING: 53.0 V 54.5E (2-year low); PRICES PAID: 78.5 V 80.0E
(US) Atlanta Fed GDPNow: Cuts Q2 GDP forecast from -1.0% to -2.1%
(US) Dockworker unions say West coast operations will continue as normal as dockworkers and employers continue talks; Will continue negotiations past July 1st with no contract