Daily Deck: 06/28/2022
China relaxes quarantine measures; Nike cut guidance; Zomato sheds $1bn
Daily News Snapshots
China Cuts Travel Quarantine in Biggest Covid Zero Shift Yet https://www.bloomberg.com/news/articles/2022-06-28/china-cuts-quarantine-in-half-for-travelers-and-close-contacts?srnd=premium-asia
Travelers to China will now only need to spend seven days in quarantine, then monitor their health at home for an additional 3 days down from 14 days hotel quarantine in many parts of China and the 21 days isolation in the past. This policy change came after Beijing and Shanghai said they had no new locally transmitted covid infections on Monday.
ECB to Activate First Line of Defense in Bond Market on Friday https://www.bloomberg.com/news/articles/2022-06-28/ecb-to-activate-first-line-of-defense-in-bond-market-on-friday?srnd=economics-vp
The European central bank will activate bond purchasing firepower that its earmarked as a first line of defense against a possible debt market crisis on Friday. ECB will apply flexibility to how investments from the 1.7tn Euro pandemic bond buying portfolio are allocated to curb unwarranted turmoil in government bonds.
Larry Summers Nailed Inflation. But Is He Right on What Comes Next? https://www.wsj.com/articles/larry-summers-nailed-inflation-but-is-he-right-on-what-comes-next-11656343688
Nike forecasts downbeat quarterly revenue on lingering China worries https://www.reuters.com/business/retail-consumer/nike-quarterly-revenue-beats-athletic-wear-demand-2022-06-27/
Nike forecast first quarter revenue below estimates as it expects to discount more and wrestles with pandemic-related disruptions in China. The company shares fell 3% to $107 after close. Analysts are mixed about Nike prospects in China this year even as strict pandemic lockdowns have been lifted in several major cities. Chinese are cutting down spending and penchant for home-grown brands such as Li Ning and Anta remains firm.
Nike expects Q1 revenue to flat to slightly up, which is below estimates of 5.1% increase. Gross margin will likely be under pressure due to higher freight and product costs. As it discounts more to sell to seasonal inventories that arrived later due to supply snarls. The company inventories rose 23% to $8.4bn at the end of May as more products remain in transit due to supply disruptions. Nike also forecast a low double-digit growth for 2023 on currency neutral.
China Evergrande says winding-up lawsuit won't impact restructuring https://www.reuters.com/world/china/china-evergrande-faces-winding-up-lawsuit-110-mln-deal-obligation-2022-06-28/
Evergrande confirmed the filing by investment holding firm Top Shine global for not fulfilling financial obligations of HK$862mm.
The developer has over $300bn in liabilities and defaulted on its offshore debt last year. It is expected to announce a preliminary restructuring plan by the end of July.
Japan's state-backed JIC hires SMBC Nikko for potential Toshiba deal -sources https://www.reuters.com/technology/japans-state-backed-jic-hires-smbc-nikko-potential-toshiba-deal-sources-2022-06-28/
State backed Japan Investment Corp JIC hired SMBC as financial advisor to pursuit potential equity investment in Toshiba, which earlier this month said it had received 8 buyout proposals and 2 proposals for capital alliance that would see it remain listed. It plans to shortlist bidders as soon as the selected suitors can start due diligence in July. The company’s shareholders on Tuesday voted in two board directors from activist hedge funds at its annual general meetings.
India's Zomato sheds nearly $1 bln in valuation over two days after Blinkit deal https://www.reuters.com/markets/deals/indias-zomato-sheds-nearly-1-bln-valuation-over-two-days-after-blinkit-deal-2022-06-28/
Shares of Zomato fell as much as 8.2% on Tuesday extending losses for a second straight day as investors questioned the rationale of the company’s deal to buy local grocery delivery startup Blinkit. Issuance of new shares by Zomato to Blinkit employee for stock option would amount to 7.25% dilution of total outstanding post acquisition according to Morgan Stanley.
Calendar Events Today:
8:30am Trade in goods
9:00am S&P US Home price index
10:00am Consumer confidence index
Commentary:
Economics Calendar:
Analyst consensus expects consumer confidence for April to decline and print at 100 vs. 106.4 prior month.
For economic data yesterday, both durable good orders and pending home sales printed above analyst expectations. Consensus forecasted durable goods and pending home sales to print at +0.2% and -4%, but actual printed at +0.7% and +0.7%. The above-consensus economic data strengthens and supports fed’s further rate hike & tightening measures. Current equity market is characterized by good (above consensus) economic data = bad.
And today’s consumer confidence will likely print above consensus unfortunately. We think analyst set the consensus for consumer confidence too low at 100. It is not likely that confidence decline significantly from 106 in March to 100 in April. As long as confidence data prints above 100, equity market likely to underperform today.
Equity Market:
$NDX opened higher at 12,150, but losses its early steam and closed lower by EOD -0.8% to 12,008. We called the market action spot on Monday before open:
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
The rally yesterday was led by Chinese tech & travel names following upgrade profitability from $CCL and record-breaking travel data in the US; $TCOM +4%, BIDU +2.6%, and JD +2.5%.
We’re overall bearish against $NDX this week. But we acknowledge that some economic data this week could come as surprise, which could change our biases. We think $NDX is on a relatively expensive end for the short-term. For single name, $TCOM is a good setup.
Rates Market:
Nm.