8/19/2022 4:01:52 PM
Markets came into the week riding a wave of momentum spurred by a revival of animal spirits as evident by a gathering, resurgence in both ‘Meme’ stocks and cryptocurrency markets. Treasury yields remained subdued, capped in part by growth worries emanating out of China as well as an ongoing belief that after some recent constructive inflation data the Fed could ultimately be successful in orchestrating a “softish” landing without needing to raise rates as aggressively as once universally thought. By mid-week the S&P tested its key 200-day moving on several occasions, albeit in a very thin late summertime trading environment.
Wednesday saw the S&P 500 top out at 4325 in the moments following the release of what were generally viewed as dovish FOMC minutes, at least relative to expectations. From there the bears gained the upper hand. Valuation began to come under closer scrutiny because many acknowledged there was little to no room for error for an S&P 500 trading at 18x a likely over-generous 2023 earnings forecasts. Also quarterly retail earnings reports were offering a familiar refrain, namely corporate financial outlooks and margins that were coming under pressure due to macro headwinds faced by consumers and rising promotional activity by industry competitors. Persistent inflationary readings coming out of the EU and UK and surging natural gas prices resulted in growing consternation. Those invigorated inflation worries were married with Fed officials whose comments continued to tamp down expectations of any looming Fed pivot.
By Friday, the party in the Meme stocks left a nasty hangover for investors in Bed Bath and Beyond as shares plunged after RC Ventures’ Ryan Cohen confirmed he liquidated his entire 11% position just days after igniting a feeding frenzy through an updated 13D holdings filing at the SEC. As stocks lost favor, Treasury yields moved noticeably higher and by Friday the benchmark US 10-yield was pushing back towards 3% for the first time nearly a month. For the week, the S&P 500 lost 1.2%, the DJIA was off 0.2%, and the Nasdaq dropped 2.6%.
Corporate earnings season wound down early this week with a few last highlights. Kohl’s beat expectations but saw negative same store sales and slashed its guidance as it reported high inflation was dampening consumer spending. Walmart’s earnings report was more impressive, beating top and bottom line estimates as it strove to improve supply chain costs, work down inventories, and noted a solid start to the back-to-school season. Home Depot share built some momentum as it put together record Q2 results reflecting continued strength in demand for home improvement projects. GM heartened investors by reinstating its dividend with a 1% implied yield as well as boosting its buyback program as it affirmed plans to invest over $35B in growth through 2025. Occidental shares flowed higher on Friday as the FERC revealed that Berkshire Hathaway was granted approval to accumulate as much as 50% of the oil major (from its current 18.72% stake).
SUN 8/14
ARAMCO.SA Reports Q2 (SAR) Net 181.6B v 95.5B y/y, Rev 562.1B v 312.4B y/y; To pay $18.8B in dividends during Q3
(CN) Shanghai to reopen all schools including kindergartens, primary and middle schools on Sept 1st - press
(CN) China PLA Eastern Theater Command likely to conduct strong & powerful military operations in the waters & airspaces around the island of Taiwan as countermeasures to latest US lawmakers' visit to the island - Global Times
*(CN) CHINA PBOC CUTS 7-DAY REVERSE REPO RATE TO 2.00% FROM 2.10% [1st cut since Jan]
*(CN) CHINA JULY RETAIL SALES Y/Y: 2.7% V 4.9%E; YTD Y/Y: -0.2% V +0.1%E
MON 8/15
(IR) Iran Foreign Ministry: Nuclear talks progress does not fully meet our expectation, but some of our expectations have been met; Basis exists for signing JCPOA nuclear deal in very near future
(DE) Rhine river level at key German point Kaug (between Frankfurt and Dusseldorf) drops to 30cm v 40cm last week and ~150cm needed to carry fully loaded vessels
*(US) AUG EMPIRE MANUFACTURING: -31.3 V +5.0E (3rd negative reading in 4 months and lowest since May 2020)
*(US) AUG NAHB HOUSING MARKET INDEX: 49 V 55E
CAH Elliott reportedly has taken a 'large position' in Cardinal and nominated five directors to the board in early Aug - press
TUES 8/16
3690.HK Tencent said to plan sell all or bulk of its 17% stake in Meituan as early as this year; The stake said to be valued at ~$24B - press
NYR.BE Said to shut down major Buden zinc smelter in Nethelands amid energy costs from Sept 1st; To place Buden zinc smelter on care and maintenance - press
HD Reports Q2 $5.05 v $4.95e, Rev $43.8B v $43.3Be
(US) US military conducted a 'routine test' of unarmed Minuteman III intercontinental ballistic missile; Test showed readiness of US nuclear forces - Pentagon statement
WMT Reports Q2 $1.77 v $1.60e, Rev $152.9B v $151.4Be; Notes work is ongoing to improve costs in its supply chain
Redfin report: ~63K US home-purchase agreements fell through in July (16.1% of homes that went under contract that month, highest rate in more than two years)
*(US) JULY HOUSING STARTS: 1.446M V 1.527ME; BUILDING PERMITS: 1.674M V 1.640ME
*(CA) CANADA JULY CPI M/M: 0.1% V 0.1%E; Y/Y: 7.6% V 7.6%E (moves off recent cycle highs)
*(US) JULY INDUSTRIAL PRODUCTION M/M: 0.6% V 0.3%E; CAPACITY UTILIZATION: 80.3% V 80.2%E
(NZ) Fonterra Global Dairy Trade Auction Dairy Trade price index: -2.9% v -5.0% prior
(US) US govt announces 2023 water cuts to states that rely on Colorado River; Lake Mead expected to be projected to shrink to 'dangerously low levels' - press
A Reports Q3 $1.34 v $1.20e, Rev $1.72B v $1.64Be; Raises FY outlook
WEDS 8/17
NHY.NO Slovalco will stop primary aluminium production
*(UK) JULY CPI M/M: 0.6% V 0.4%E; Y/Y: 10.1% V 9.8%E (12th month above target and highest annual pace since Feb 1982)
700.HK Reports Q2 (CNY) adj Net 28.1B v 34.0B y/y, Rev 134.0B v 138.3B y/y (first quarterly revenue drop since 2004 listing)
(EU) Daily 3-month Euribor Fixing: 0.351% v 0.333% prior (highest since 2012)
OPEC Sec Gen al-Ghais: Open for dialogue with US; Spare capacity about 2-3Mbpd is running on thin ice
ADI Reports Q3 $2.52 v $2.43e, Rev $3.11B v $3.06Be; Notes economic uncertainty beginning to impact bookings, demand continues to outpace supply
*(US) JULY ADVANCE RETAIL SALES M/M: 0.0% V 0.1%E; RETAIL SALES (EX-AUTO) M/M: +0.4% V -0.1%E
(US) Association of American Railroads weekly rail traffic report for week ending Aug 13th: 503K total units, -0.3% y/y
(US) Atlanta Fed GDPNow: Cuts Q3 GDP to 1.6% from 1.8% prior
(US) TREASURY $15B 20-YEAR BOND AUCTION DRAWS 3.380% v 3.290% prior, BID-TO-COVER 2.30 v 2.50 PRIOR AND 2.40 OVER LAST 4 AUCTIONS
(US) CDC Director Rochelle Walensky announces major modifications to CDC’s structure, including staffing changes and efforts to improve public messaging; CDC currently has a $12B annual budget
*(US) FOMC JULY MEETING MINUTES: OFFICIALS SAW ONGOING RATE HIKES AS APPROPRIATE; SAW RISK IF PUBLIC QUESTIONS FED'S INFLATION RESOLVE; 'at some point' it would be appropriate to slow pace of increases
*(AU) AUSTRALIA JULY EMPLOYMENT CHANGE: -40.9K V +25.0KE (First decrease since Oct 2021); UNEMPLOYMENT RATE: 3.4% V 3.5%E (Lowest since Aug 1974)
THURS 8/18
(DE) ECB's Schnabel (Germany): Favor another large interest rate increase in Sept even as recession risks harden; Inflation is going to increase further, outlook hasn't improved
(CN) China's banking regulator CBIRC said to be probing property sector loan portfolios of some local and foreign lenders to assess systemic risks - financial press
*(PH) PHILIPPINES CENTRAL BANK (BSP) RAISES OVERNIGHT BORROWING RATE BY 50BPS TO 3.75%; AS EXPECTED
(DE) Rhine river open one way after barge blocking it after engine failute has been towed away - press
(CN) China Ministry of Commerce (MOFCOM) official: Reiterates stance to take forceful measures to safeguard its legitimate rights when necessary - speaking on US CHIPS act
(UR) Russia reportedly changed its position on potential meeting between Pres Putin and Ukraine Pres Zelenskiy; Putin and Zelenskiy may meet before the negotiators finish a roadmap towards the potential peace deal - CNN Turk
(UK) Bank of England (BOE) sets out final operational details ahead of the start of programme of sales of corporate bonds held in the Asset Purchase Facility in the week beginning Sept 19th
(DE) German Chancellor Scholz: To temporarily cut VAT on gas from 19% to 7%; effective Oct 1st until end of March 2024
TPR Reports Q4 $0.78 v $0.78e, Rev $1.62B v $1.64Be; Raises Quarterly dividend 20% to $0.30 from $0.25 (indicated yield 2.69%)
KSS Reports Q2 $1.11 v $1.08e, Rev $4.09B v $4.07Be; Cuts sharply FY22 outlook, taking actions to reduce inventory; $500M accelerated share buyback and remains firmly committed to current dividend
*(US) INITIAL JOBLESS CLAIMS: 250K V 264KE; CONTINUING CLAIMS: 1.437M V 1.45ME
*(US) AUG PHILADELPHIA FED BUSINESS OUTLOOK: +6.2 V -5.0E (1st positive reading in 3 months)
*(US) JULY EXISTING HOME SALES: 4.81M V 4.87ME
*(US) JULY LEADING INDEX: -0.4% V -0.5%E
OPEC Sec Gen al-Ghais: Policymakers and lawmakers are to blame for high energy prices
(US) Fed’s Bullard (voter, hawk): Leaning towards supporting 75bps hike in Sept; Front-loading rate hikes this year gives Fed options in 2023; Fed can get inflation down over a roughly 18-month period
AMAT Reports Q3 $1.94 v $1.78e, Rev $6.52B v $6.26Be
BBBY RC Ventures (Ryan Cohen) confirms liquidated stake - 13D filing
(UK) Aug GfK Consumer Confidence: -44 v -42e (Record Low)
USD/CNY (CN) China PBOC sets Yuan reference rate: 6.8065 v 6.7802 prior (weakest fix since Sept 2020)
FRI 8/19
(UK) JULY RETAIL SALES (EX-AUTO/FUEL) M/M: +0.4% V -0.3%E; Y/Y: -3.0% V -3.1%E
(DE) Germany July PPI M/M: 5.3% v 0.7%e; Y/Y: 37.2% v 31.8%e (highest annual pace in 70-years and biggest monthly increase on record)
(DE) Rhine river water level forecast to hit 148cm at Kaub point on Aug 23rd v 40cm w/w and ~150cm needed to carry fully loaded vessels – press
DE Reports Q3 $6.16 v $6.62e, Rev (Equipment Ops) $13.0B v $12.9Be
(CN) China launches measures to secure house delivery as fund pressure remains; To support construction and delivery of unfinished residential projects through special loans schemes from policy banks - Chinese press
GM Reinstates quarterly dividend at $0.09/shr, 1% implied yield (suspended $0.38/shr in Apr 2020); Increases buybacks by $1.7B to $5.0B (8.8% of market cap); Affirms to invest more than $35B through 2025 to advance its growth plan
OXY FERC document shows Berkshire requested and was approved to accumulate up to 50% stake in OXY (from current 18.72% stake)
