Daily Deck: 06/27/2022
Russia default sovereign bonds; Carnival guides profit for Q3; EV makers up prices
Daily News Snapshots
Russia slips into default zone as payment deadline expires https://www.reuters.com/markets/europe/russia-slides-towards-default-payment-deadline-expires-2022-06-26/
Russia is now looking to set its first sovereign bond default in decades as some holders said they had not received the overdue interest payment on Monday following expiry. Since Russia’s invasion of Ukraine on February 24th, sweeping sanctions have effectively cut the country off from the global financial system and rendered its assets untouchable to many investors. The Kremlin has repeatedly said there’re no grounds for Russia default, but it is unable to send money to bond holders because of sanctions – accusing the west of driving it to an artificial default.
ECB’s Pivot Toward Rate Hikes Feeds Fears of New Bond Crisis https://www.bloomberg.com/news/articles/2022-06-27/ecb-s-pivot-toward-rate-hikes-feeds-fears-of-new-bond-crisis?srnd=economics-vp
Lagarde and her team will meet in the resort of Sintra for the European “Jackson Hole” conference. They’re tasked to cool the fastest consumer-price growth in the Euro history without delivery an economic downturn or sparking a 2012-style spike in borrowing costs for Italy and other vulnerable EU nations. Markets are already sending alert on what may lie ahead as Italian bond yields jumped pass 4% this month for the first time since 2014 as investors took fright at EBC’s plan to raise interest rates in July for the first time in a decade.
Interest rate hike has already been locked in with another set to follow in September. Officials are now racing to deliver on their promise of a tool for deployment if yield do surge.
Goldman Sees Emerging-Asia Currencies Coming Under More Pressure https://www.bloomberg.com/news/articles/2022-06-27/goldman-sees-emerging-asia-currencies-coming-under-more-pressure?srnd=premium-asia
“Along with the broader emerging market currency complex, high-yielding currencies like the Philippine peso, Indian rupee and Indonesian rupiah have been under pressure in June,” strategists including Zach Pandl and Danny Suwanapruti wrote in a research note. “In coming weeks, we expect this pressure to continue versus the dollar, in some cases potentially posing upside risks to our dollar-cross forecasts.”
China's May industrial profits slump again despite easing COVID curbs https://www.reuters.com/markets/asia/chinas-industrial-profits-slump-second-month-may-2022-06-27/
Profits at China’s industrial firms shrank at a slower pace in May following a sharp fall in April, as activity in major manufacturing hubs resumed, but covid 19 restrictions still weighed on factory production and squeezed factory margins. Profits fell 6.5% from a year earlier, less than 8.5% decline in April. May’s improvement was driven by surging profits in the coal mining and oil and gas extraction sectors as the Russia Ukraine war sparked a rally in global commodity prices.
Stock Futures Edge Up Ahead of Data https://www.wsj.com/articles/global-stocks-markets-dow-update-06-27-2022-11656315252
US stock futures trade higher, suggesting major indexes will hold onto gains that came last week amid milder expectations for interest rate increases down the road. S&P 500 futures strengthened 0.6% and Dow Jones futures gain 0.3%. European stock market advanced on Monday following a two-day winning streak. Stoxx Europe 600 rose 0.6% in the morning trade led by gains in materials and industrial sectors.
Carnival expects to cruise to core profit as strong demand blunts high costs https://www.reuters.com/business/carnival-corp-misses-quarterly-revenue-estimates-weakening-cruise-demand-2022-06-24/
Carnival forecast core profit for the current quarter as cruise operator returns to full operation even as decade high inflation and surging fuel cost continues to bite. Shares of the company have fell 52% this year. But is now up 10% as Carnival announced their profit guidance and said expected bookings for 2023 to be at the top end of historical range and to benefit from higher prices. US center for diseases control and prevention removed its covid-19 notice against cruise travel in March after almost 2 years. And companies like Carnival now have their majority of fleets back on water. As of Friday, 91% of company’s guest capacity is in cruise operations. Carnival expects positive adjusted earnings before interest, tax, depreciation, and amortization in Q3 compared to -$900mm in Q2. The company’s EBITDA had been negative since the start of the pandemic. However, it still expects a loss for the year as it faces set-back from inflation and surging fuel prices.
Tesla, Ford and GM Raise EV Prices as Costs, Demand Grow https://www.wsj.com/articles/tesla-ford-and-gm-raise-ev-prices-as-costs-demand-grow-11656241381?mod=business_lead_pos1
Electric automakers have been raising prices on electric vehicles, partly to offset the soaring costs of materials used in large batteries. Car executives are also capitalizing on strong consumer interest in EVs. In past months, Tesla, Ford, GM, Rivian, and Lucid have all increased prices on certain electric models. GM tacked $6,250 on Hummer pickup, citing increase in commodity and logistic costs. The wait list is now about two years. Tesla, this year, has increased prices three times for performance version of its top selling Y SUV.
Amazon’s Prime Day Isn’t Quite the Blockbuster It Once Was https://www.wsj.com/articles/amazons-prime-day-isnt-quite-the-blockbuster-it-once-was-11656235800
Sales growth for the online shopping giant has lowered and consumers aren’t purchasing orders as large as they once did. Amazon will be holding prime day on July 12 and 13 to continue the recent trend of holding the shopping event longer than a day to maximize revenue. Amazon sales are projected to $7.76bn in the US from Prime Day or about 17% growth more than last year’s event. While the growth will give Amazon the much-needed boost in its third quarter, prime day sales slowed in growth in recent years. Revenue was once growing at 65%. Order size has also decreased; average order size totaled to $54.15 last year vs. prior years’ average at $58.
Juul ban could allow Altria to explore e-cigarette options https://www.reuters.com/business/juul-ban-could-allow-altria-explore-e-cigarette-options-analysts-2022-06-24/
Juul’s US e-cigarette ban could pave the way for Altria to pursue investment in other vaping product or build its own. Despite regulators highlighting the risk of vaping, analyst continue to forecast e-cigarettes as a key to the nicotine industry future. JP Morgan analysts expects the $11bn US retail market to double by 2030. Under the 2018 deal which Altria bought 35% stake in Juul, Altria cannot invest or engage in another e-cigarette business other than through Juul. But Altria’s obligations are voided if the value of its stake in Juul falls by more than 90% from the time it was bought. The valuation of Juul today has plummeted with its value shrink by 87% to $1.6bn as of March 31st.
Apple ready to bargain with its first U.S. store to unionize: source https://www.reuters.com/business/apple-will-not-challenge-maryland-store-unionization-vote-2022-06-24/
Apple accepts the outcome of Maryland store workers to become the first US employees to join Union. Same for companies e.g., Starbucks and Amazon in some locations with workers voted to join a union in recent months. Apple has said its intended to participate in the bargaining process with its employees in good faith. While Amazon challenged the outcome of workers plan to unionize in warehouse in New York City.
Calendar Events Today:
8:30am Durable goods orders
8:30am Core capital goods orders
10:00am Pending home sales index
Commentary:
Economics Calendar:
Analysts expects today’s pending home sales data to further slow and print at -4% vs. -3.9% last month. While durable goods orders are also expected to print lower than previous month; consensus estimates at 0.2% vs. prior month at 0.5%.
We’re now seeing economic data to cool off, including the headline data that the feds committee focuses on. Initial jobless claims last week slow of pace exceeded analysts’ expectations; printed at 229k vs. consensus at 227k. inflation has been sticky, but there’s evident that both growth and demand have now slowed.
Equity Market:
$NDX closed +3.5% up on Friday, to 12,105. The last 15mins +0.6% squeeze before Friday’s close suggests more put options have now expired out of money following the triple-witch event. The rally on Friday was led by the previously heavily shorted names such as security software $OKTA +8.4%, social media/metaverse $META +7%, and SaaS $WDAY +7%, etc.
We are now once again raising the floor for the US tech market index to 11,250 from 11,000. From a fundamental perspective, we think the bottom is near. However, we’re bearish biased this week against $NDX because 12,105 is likely too high of a starting point for the week’s trading without concrete catalysts. Unless there’re hints of surprise pivot (as Powell is speaking on Wednesday), we expect 12,530 as short-term ceiling.
$HSI continues to rally; it trades +2.4% to 22,237 during the Asia trading session today. The rally continues to be led by previously pressured consumer and tech names, which reinforces on our-previously-discussed themes: reopening & improving Sino-US relationships. Xiaomi +11%; Anta Sports +8%; Sunny Optical +9%.
We’ve been calling since June 15th that the Chinese market offer better risk/reward from both fundamental and macro-perspective than US names. But we should clarify that we define this better opportunity – as a short-term opportunity within the next 6 to 12 months window. Also, at current set-up, we’re looking to close our longs at range between 23,150 to 22,500.
Below quoted from June 15th newsletter:
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:
Nm.