Daily Deck: 06/15/2022
FOMC Meets Today; ECB Emergency Meeting; China Home Sales Improved
Daily News Snapshots
ECB meets to tackle rout in bond market amid echoes of debt crisis https://www.reuters.com/markets/europe/ecb-hold-unscheduled-meeting-discuss-market-rout-2022-06-15/
European central banks’ policy makers were holding a rare, unscheduled meeting on Wednesday to discuss a blowout in borrowing costs for some euro zone nations, fanning speculation the bank may be gearing to act to calm the markets. Yields of bonds issued by Italy and other debt-laden nations have risen sharply since the ECB flagged a series of rate hikes last Thursday and wound down a debt buying program in the face of soaring inflation. Facing the threat of a repeat of the debt crisis that almost brought down the single currency a decade ago, ECB’s policy setting governing council was meeting to discuss how to respond to recent market turmoil.
China Home Sales Post First Month-on-Month Gain Since December https://www.bloomberg.com/news/articles/2022-06-15/china-home-sales-post-first-month-on-month-gain-since-december?srnd=premium-asia
China’s property market showed a tentative sign of improvement in May, with new home sales posting the first month-on-month gain this year.
Residential sales rose 26% from April, the first increase since December. From a year earlier, sales dropped 42% in May, easing from 49% decline in previous month.
U.S. Retail Sales Barely Edged Higher in May, Economists Estimate https://www.wsj.com/articles/us-economy-retail-sales-may-2022-11655238895?mod=hp_lead_pos4
American’s retail spending slowed to a crawl in May, economists estimate, as consumer felt the pinch from inflation, higher gasoline prices and rising interest rates that make it more expensive to buy a car.
Economists surveyed expects that retail sales – a measure of spending at stores, online, and in restaurants – rose seasonally adjusted 0.1% in May from the previous month, easing from April’s 0.9% increase.
Here’s What Powell Means by ‘Clear’ Vow on Prices, Survey Says https://www.bloomberg.com/news/articles/2022-06-11/here-s-what-powell-means-by-clear-vow-on-prices-survey-says?srnd=economics-vp
Federal Reserve Chair Powell’s goal of having “clear and convincing” evidence inflation is coming down – leading to a slowing of interest rate increases – seems far away with price pressure hitting a fresh 40year peak.
A majority of economists say Powell’s threadhold for trigger a down shift in the pace of policy tightening will be several month inflation reports of 0.2% or less for the personal consumption expenditures measure of inflation, excluding volatile food and energy prices.
China Rally Stands Out as Global Stocks Fret Over Fed Hikes https://www.bloomberg.com/news/articles/2022-06-15/china-stocks-power-ahead-as-losses-in-global-equities-deepen?srnd=premium-asia
Chinese stocks rallied to the highest in three months, extending their recent outperformance over global peers, as the country’s growth focused policy lures investors seeking a reprieve from the widespread market meltdown.
Bets that China’s policy support will help revive the covid-hit economy got a boost Wednesday from better-than-expected May data on industrial output and retail sales. having been hammered during weeks-long lockdown in key cities, Chinese equities have shown extraordinary resilience during the latest global sell off.
Regulation Lies in Bitcoin’s Future, Clouding Its Current Value https://www.wsj.com/articles/regulation-lies-in-bitcoins-future-clouding-its-current-value-11655216885
With bitcoin trading more than 65% below its peak, the debate sparked by previous down cycles about whether it can be a reliable long-term store of value will continue. Of course, one bitcoin is still worth over $20,000—and traditional reserves such as gold have had their own peaks and plunges. But the value proposition for now still lies in a series of speculative bets: that bitcoin will prove out as a store of value through future cycles; that it is a risk asset that can offer competitive returns compared with assets like stocks; or that it will turn out to be actually useful in important and sustainable ways.
What is concerning about this cycle, though, is that the world of bitcoin and crypto has evolved quite a bit since the last one, yet a crash is still happening. And this drop comes in the midst of perhaps the broadest U.S. regulatory push since crypto’s inception. One part of becoming a store of value is being very widely held, across a diversity of owners, and thus becoming less vulnerable to shocks. But bitcoin’s path there still goes through Washington.
Mental-Health Startup Cerebral Investigated by FTC https://www.wsj.com/articles/ftc-launches-probe-of-cerebrals-business-practices-11655241983?mod=business_lead_pos1
The Federal Trade Commission has begun an investigation into mental-health startup Cerebral Inc., according to a letter the FTC sent the company that was reviewed by The Wall Street Journal.
In the letter dated June 1, the FTC said it was investigating whether Cerebral engaged in deceptive or unfair practices related to advertising or marketing of mental-health services. The letter also directed the company to preserve documents.
The FTC’s letter asks Cerebral to answer dozens of questions related to its business. In particular it seeks information related to any programs where Cerebral continues to bill customers a subscription fee until the customer cancels, also called “negative option programs.”
Cerebral said in a statement that it intends to cooperate fully with the FTC and that it is working to improve its service for patients. The company said it has recently undergone an effort to redesign the cancellation process.
Ford Recalls Nearly 49,000 Mustang Mach-E Cars, Stops Deliveries https://www.wsj.com/articles/ford-recalls-nearly-49-000-mustang-mach-e-cars-stops-deliveries-11655231470?mod=business_lead_pos6
Ford Motor Co. F is recalling nearly 49,000 Mustang Mach-E vehicles over a safety issue and telling dealers not to deliver the electric cars made over a two-year span.
The company, in a letter to dealers dated Monday, said it is possible that the car batteries’ main contactors, or the devices for electrical circuits, could overheat and potentially lead to the car losing power or being unable to start.
The Mustang vehicles in question were built between May 27, 2020 through May 24, 2022 and made at the company’s Cuautitlan assembly plant.
The recall affects 48,924 vehicles in the U.S. Dealers can still sell the vehicles, but the repair to the car type must be made before they can be delivered to customers.
Calendar Events Today:
8:30am Retail sales
8:30am Import price index
10:00am Business inventories
2:00pm FOMC statement
Commentary:
Economics Calendar:
Consensus expects headline retail sales to continue show weakness and print at 0.1% vs. prior month at 0.9%. Retail sales excluding vehicles however is consensus to print at 0.8% vs. prior month at 0.6%. This could suggest that analysts expect much of the retail sales underperformance driven by higher energy prices induced decline vehicle sales.
We’re aware that we’re bullish biased. But we do believe that supply chain bottled inflation could be solved by higher prices à lower demand as suggested by decline vehicle sales here.
Business inventories on the other hand is expected to improve compared to prior month and print at 1.2% vs. 2%. More detail will be released during Q2 earnings in a month on whether this improvement is driven by rationalizing supply or recovery in consumer appetite.
Wall Street analysts have almost unanimously raised feds fund expectation from 0.5% to 0.75%.
Equity Market:
$NDX closed +23.27, or +0.21%, to 11,311. The rally was led by the continue bullish momentum from Chinese names such as $PDD +12%, $BIDU +8%, and $JD +6%.
We continue to believe the absolute floor for $NDX in this downward leg is 10,050. We won’t be buying nor selling American names at this time. We are short-term bearish biased as we think raising funds rate by either 50bps or 75bps mean that $NDX would be traded down lower.
Hang Seng index trades up +1.14%, or +240, to 21,308. The outperformance was driven by a basket of Chinese financial names such as Ping An +8%, CG Services +6%, etc.
We continue to think that Chinese market offers better opportunity than the U.S. due to 1) easing policy, 2) reopening SH, and 3) improving Sino-US relationship. However, names that trade on $NDX is likely to get some spillovers from the American market. As we mentioned yesterday, if $HSI continues to hold within 5% of the 21,000 resistances, it’d mark the end to the Chinese bear market. we reaffirm on our previous comment, anywhere under 21,000 to 20,500 offers excellent risk/reward opportunity for basket of Chinese tech names.
Rates Market:
The yield curve widens unmeaningfully yesterday. 10s are trading at 3.48%, and 2s are trading at 3.422%. 10y2y spread is now at 0.058 improved from 0.006 from prior day.
We had the first bear steepening in a long time. The longer end moved relatively faster momentum than the front end. Overall, yield on treasury has likely topped.