Saturday, June 10, 2023

Bank of Canada and RBA issue surprise rate hikes despite some more signs of inflation easing Weekly Market Update: Bank of Canada and RBA issue surprise rate hikes despite some more signs of inflation easing

6/9/2023 4:29:30 PM

Equity sentiment remained resilient this we week. Bulls championed improvement in the breadth of rising stocks away from the mega cap technology names that have powered nearly all the gains seen in 2023. Disinflationary forces continued show up not only in the economic data, but also in quarterly earnings reports and at corporate investor conferences. The prices paid component in the May ISM services data fell to the lowest reading since May 2020. Also weekly jobless claims hit the highest level since Oct 2021, suggesting the Fed's desired slowing of the labor market will lead to softening wage pressures. The notion of disinflation gaining traction overshadowed surprise rate hikes from both the Reserve Bank of Australia and the Bank of Canada with traders turning their attention to next week’s BOJ, ECB and Federal Reserve meetings. Even Saudi Arabia’s unilateral decision to cut oil production further in July had very little lasting effect on crude prices with WTI remaining mired near $70/barrel.

This underlying theme of slowing inflation was married with headlines suggesting China’s government continues to adopt new forms of stimulus to bolster disappointing economic growth, which provided further fodder for the bulls. The US 10-year yield closed the week up a few basis points while futures markets continued to project that the Fed will hold rates steady when the FOMC meeting concludes on Wednesday. By Friday, the S&P had rallied 20% off the October lows causing many Wall Street analysts to revisit their year-end targets, and pundits to ask if we have entered a new bull market. For the week, the S&P gained 0.4%, the DJIA rose 0.3%, and the Nasdaq added 0.1%.

Regulatory action weighed heavily in corporate news this week, particularly in the crypto sector. The crypto-exchange market faced more uncertainty about its future after the SEC sues Binance and its CEO Zhao for violating US securities laws, alleging intermingling of funds. The SEC followed that up with a suit against Coinbase that alleged its acting as unregistered broker, securities exchange, and clearing agency. Several state AGs also piled on to Coinbase with their own legal actions. The long suffering meme stock Game Stop reported results and terminated its CEO in favor of Chairman Ryan Cohen, sending the stock tumbling double digits. Taiwan Semi shares gained ground despite trimming some guidance as a separate press report said the firm plans more price hikes of up to 6% starting early next year. There was volatility in the streaming sector as a report circulated that Amazon is considering an ad-supported tier for Prime Video and is in talks about adding Paramount+ and Max to Prime Video channels. Disney also got a boost by announcing that it would put its streaming service on Apple’s forthcoming AR/MR headset. Apple debuted the Vision Pro headset at its developers conference with great fanfare, showcasing an elegant wearable that appears to be leaps and bounds ahead of current rivals, though Apple shares sold off immediately after it revealed the eye-popping $3,500 starting price tag.

SUN 6/4
OPEC+ agreed to cut overall production targets from 2024 by a further total of 1.4M bpd; Saudi Arabia to voluntarily cut an additional 1M bpd oil production in July
TSM Reportedly plans to again raise prices by 3-6% from Jan 2024, relates to advanced technologies; Notes factors including rising costs - Taiwan press

MON 6/5
US big banks could face 20% boost to overall capital requirements; Regulators might propose the changes by as early as this month – WSJ
SEC sues Binance and CEO Zhao for violating US securities laws
(CH) SWISS MAY CPI M/M: 0.3% V 0.3%E; Y/Y: 2.2% V 2.2%E
2317.TW Reports May (NT$) Rev 450.7B -9.5% y/y; May YTD 2.34B v 2.39B y/y; Affirms Q2 outlook
(RU) Russia Govt Spokesperson Peskov: Ready to talk to US on nuclear arms control
(US) US 5-year Credit Default Swaps (CDS) fall to 34bps from 59bps w/w, following debt limit agreement last week
EPAM Cuts Q2 guidance; Cuts again FY23 outlook; Since May 5th, clients becoming "even more cautious"; Notes changes in its June forecast data
PK Ceased payments towards $725M non-recourse CMBS loan secured by two of its San Francisco hotels; Notes it is in the best interest for Park's stockholders to materially reduce current exposure to the San Francisco market
SLG Signs 31 office leases totaling 300k sq ft in last 60 days; Notes leasing velocity continues to improve
(SA) Saudi Oil Min Abdulaziz: Saudi is fed up with OPEC members not meeting oil production goals - media interview
(US) MAY ISM SERVICES INDEX: 50.3 V 52.5E (lowest print in 5 months)
HLT CEO: Not seeing any signs of a slowdown so far – CNBC
ODFL Reports May Rev/day -15.7% y/y, LTL tons/day -14.4% y/y; Q2 QTD LTL Rev per hundredweight ex-fuel +7.9% y/y
AAPL Introduces new AR/MR headset called Apple Vision Pro
TSM CEO: Affirms H1 Rev -10% y/y; Cuts FY23 Rev to decline by mid-single-digits in USD terms (prior: FY23 Rev falling low-to-mid single digit percent range y/y); Trims FY23 Capex outlook
UR) Ukraine South Military Command: Russia-controlled Nova Kakhovka dam in Kherson region was ‘blown up’ by Russia forces [**Note: according to Russian press, no "critical danger yet" to the Zaporizhzhia nuclear plant]
(CN) CHINA MAY TRADE BALANCE: $65.8B V $95.5BE; Exports Y/Y: -7.5% v -1.8%e [-7.5% is largest decline since Dec 2022]
Business update: Q2-to-date Rev trend improving to negative mid single digit percentage range y/y, led by orders growth turning positive y/y; Driving to adj EBITDA profitability in Q2; Chief Commercial Officer to retire; effective Q1 2024

TUES 6/6
(DE) GERMANY APR FACTORY ORDERS M/M: -0.4% V 2.8%E; Y/Y: -9.9% V -8.4%E
(CN) China said to be asking its biggest banks to cut deposits rates to boost domestic economy - press
(EU) ECB Apr Consumer Expectations Survey: See inflation over next 12 months at 4.1% v 5.0% prior
(UR) Ukraine presidential advisor Podolyak: Russia blows up the Kakhovka hydroelectric power plant and creates the biggest environmental disaster in Europe in decades
(IR) Iran unveils new hypersonic missile Fattah ("Conqueror") capable of traveling at 15 times the speed of sound with a range of up to 1,400 kilometers - local press
COIN COIN SEC sues Coinbase in NY federal court; SEC claims Coinbase acting as unregistered broker, securities exchange, and clearing agency - filing
COIN Ten state AGs issue show cause order to Coinbase ordering them to show why they should not have to cease and desist their 'earn' program in those states
MRK Files lawsuit against US govt in federal court in Washington, claiming the Medicare drug price negotiation program is unconstitutional; Believes provisions in the Inflation Reduction Act (IRA) will negatively impact biopharmaceutical innovation
BA FAA validated Boeing's assessment there is no immediate safety issue for 787 aircraft already in service
BINANCE.IPO SEC seeks temporary restraining order to freeze Binance's US unit assets and repatriate both fiat currency and crypto held by the service’s customers – filing
HUAWEI.CN EU considers mandatory ban on using Huawei to build 5G - FT

WED 6/7
ITX.ES Reports Q1 Net €1.17B v €1.03Be EBIT €1.48B v €1.35Be, Rev €7.61B v €7.56Be; 5-weeks to June 4th sales +16% (cc) y/y; Notes lower US demand caused by a tougher macro environment
(UK) MAY HALIFAX HOUSE PRICE INDEX M/M: 0.0% V -0.3% PRIOR; Y/Y: -1.0% V +0.1% PRIOR (1st annual decline since Dec 2012)
(TW) Taiwan May Trade Balance: $4.9B v $4.9Be
(US) US TREASURY NOW EXPECTS THAT ITS CASH BALANCE WILL BE APPROXIMATELY $425B AT THE END OF JUNE; Initial increases in bill issuance will be focused on shorter-tenor benchmark securities and cash management bills
Business update: Q2-to-date Rev trend improving to negative mid single digit percentage range y/y, led by orders growth turning positive y/y; Driving to adj EBITDA profitability in Q2; Chief Commercial Officer to retire; effective Q1 2024
005930.KR Reportedly plans to raise NAND wafer prices – DigiTimes
May Manheim wholesale used vehicle prices: -2.7% M/M; -7.6% y/y
(CA) BANK OF CANADA (BOC) RAISES INTEREST RATES BY 25BPS TO 4.75%; NOT EXPECTED (1st hike after ~5 month pause)
(US) DOE CRUDE: -0.5M V +1ME; GASOLINE: +2.8M V +0.5ME; DISTILLATE: +5.1M V +1ME
(US) Atlanta Fed GDPNow: Raises Q2 GDP estimate to 2.2% from 2.0% prior
AMZN Reportedly in discussions to bring ad-supported tiers of Paramount+ and Max to Prime Video channels; Amazon also planning ad-supported tier for Prime Video, which could become its standard streaming offering - press
(US) Reportedly NATO plans to conduct the largest air force wargame exercise in its history called Air Defender 23 next week in Europe - US press
(JP) JAPAN Q1 FINAL GDP Q/Q: 0.7% V 0.5%E; GDP ANNUALIZED Q/Q: 2.7% V 1.9%E

THRS 6/8
(UR) Former NATO Sec General Rasmussen: Group of NATO countries may be willing to put troops on the ground in Ukraine if member states do not provide tangible security guarantees to Ukraine at NATO's summit in Vilnius in July 2023
(CN) China Commerce Ministry: Commences 6-month nationwide promotion to boost vehicle sales; Tells banks to offer credit support for car purchases
SIG Reports Q1 $1.78 v -$1.89 y/y, Rev $1.69B v $1.84B y/y; Cuts FY24 outlook and guides Q2 weak citing recent deceleration of trends persisted into Q2 and a softer than expected Mother's Day
(US) US Senators to introduce a bipartisan AI bill aimed at keeping up with China and establishing an office analyzing how competitive US is in critical technologies like AI - NBC News
(US) Biden administration officials reportedly planning for the possibility that the Supreme Court could strike down Pres Biden’s student loan forgiveness program - US press
(US) Redfin: May typical US home price -1.6% y/y v -3.2% prior (smallest dip in 3 months); New listings of homes for sale fell 25% y/y to their lowest level of any early June on record; Early-stage homebuying demand continues to hold up
(CH) SNB Chairman Jordan: Inflation is more persistent than we thought; Seeing second and third round effects [**Note: 1st Central Bank Gov to mention 3rd round effects]
(CA) Bank of Canada (BOC) Dep Gov Beaudry: Do not have a pre-determined bias towards new hikes, but sees upside risk to neutral rate; April data tipped balance for Canada rate hike; demand has more momentum than expected
(US) Fed releases factors affecting reserve balances (H.4.1): Discount window borrowing fell to $3.2B v $3.97B w/w; Banks have borrowed $100.2B v $93.6B w/w from new BTFP facility [5th week of consecutive increase]
(US) Former Pres Trump confirms Biden Administration has informed his attorneys that he has been indicted on his handling of classified documents and obstruction of justice; Charges include under the Espionage Act; To be summoned to appear at the Miami Federal Courthouse on Tuesday, at 15:00ET
(CN) CHINA MAY CPI M/M: -0.2% V -0.1% PRIOR; Y/Y: 0.2% V 0.2%E

FRI 6/9
VXX VIX futures trade around 15.00 level (lowest since end-2019)
(US) US Democrats said to introduce bill later today, called the Debt Ceiling Reform Act, aiming to overhaul debt-ceiling process to allow US to continue servicing its bills unless the Congress objects it - US financial press
TM Reportedly Toyota and Nissan deliveries improve as chip shortage eases - Nikkei
(US) USDA WASDE CROP REPORT: End 2023/2024 US Stocks (M bu):Soybeans: 350 v 336e; Corn: 2,257 v 2,220e; Wheat: 562 v 568e
(US) Weekly Baker Hughes Rig Count: 695 v 696 prior (-0.1% w/w)
(US) Trump indictment unsealed in Miami federal court; Includes 37 criminal counts including willful retention of national defense information, conspiracy to obstruct justice, false statements, and concealing documents in a federal investigation