Daily Deck: 07/14/2022
JPM Profit Down 28%; CPI Print @9.1%; More Troubles Ahead for Retail
Daily News:
Fed Could Weigh Historic 100 Basis-Point Hike After Inflation Scorcher https://www.bloomberg.com/news/articles/2022-07-13/fed-could-weigh-historic-100-basis-point-hike-after-cpi-scorcher?srnd=premium-asia
Cleveland Fed President Loretta Mester, speaking Wednesday evening in an interview on Bloomberg Television, declined to say if she favored going bigger at the July meeting, noting there were important data releases between now and then. But she said there was “no reason” for raising rates by less than the 75 basis points that policy makers delivered last month.
“What I take from the report, and it was uniformly bad -- there was no good news in that report at all -- is that inflation remains at an unacceptably high level,” she said. “We at the Fed have to be very deliberate and intentional about continuing on this path of raising our interest rate until we get and see convincing evidence that inflation has turned a corner.”
San Francisco Fed chief Mary Daly, speaking in a separate interview with the New York Times late Wednesday, said that “My most likely posture is 0.75, because of the data I’ve seen,” adding that she had expected the CPI number to be high: “I saw that data and thought: This isn’t good news. Wasn’t expecting good news.”
Yellen Says She Will Push China to Restructure Debts of Developing Countries https://www.wsj.com/articles/yellen-says-she-will-push-china-to-restructure-debts-of-developing-countries-11657793674?mod=hp_lead_pos6
Treasury secretary Janet Yellen said she would pressure China to restructure loans to countries that face unsustainable debt burdens during the meeting of finance ministers from the group of 20 major economies this week. Although China says it plans to support Sri Lanka through international monetary fund program and the coming debt restructuring talks, Beijing has signaled that it isn’t pleased with the government’s decision making and has rescinded Sri Lanka’s access to a $1.5bn swap line as well as the planned $2.5bn credit facility as of March.
Amazon acts to end EU antitrust investigations, avoid fine https://www.reuters.com/technology/amazon-offers-concessions-end-eu-antitrust-investigation-2022-07-14/
Amazon has offered to halt online selling and marketing practices EU antitrust regulators regard as anticompetitive to try to end two investigations and avoid a possible hefty fine. The European commission had previously charged Amazon with using its size, power, and data to push its own products and gain an unfair advantage over rival merchants that also uses its platform. The US online retail giant has offered to refrain from using sellers’ data for its own competing retail business and its private label products. it will also treat sellers equally when ranking their offers for the ‘buy box’ on its websites that generates the bulk of its sales.
From Gap to Dollar General, Retail Chiefs Exit as Challenges Grow https://www.wsj.com/articles/from-gap-to-dollar-general-retail-chiefs-exit-as-challenges-grow-11657791180?mod=hp_lead_pos3
On Monday, GAP Inc, replaced CEO Sonia Syngal after more than two years on the job., On Tuesday, Dollar General long time CEO stepped down. Those announcements follow the recent exits of CEOs at companies such as Bed Bath & Beyond, and Under Armor, etc. Analysts are warning retailers are dealing with new sets of complications with the onset of covid pandemic, from supply chain bottleneck, to inflation, to staff shortages, to increasing crimes at retail locations. The landscape of retailing also changed during the covid era. The skills necessary for CEO to succeed has become much broader. We should expect more CEO turnovers as companies avoided change in leadership during Covid.
Retailing has been a particularly volatile sector through the pandemic. The industry first suffered from temporary closures as brick-and-mortar, it then delt with product shortages and supply chain issues. Most recently, they’re sitting on too much inventory as consumption shifted from home-oriented products to post-pandemic occasions products. People are also spending more money on travel, dining out, and other entertainment leading to lower disposable income for retail goods.
EXCLUSIVE Alibaba cuts a third of deals team staff after regulatory crackdown-sources https://www.reuters.com/technology/exclusive-alibaba-cuts-third-deals-team-staff-after-regulatory-crackdown-sources-2022-07-14/
Alibaba has reduced its strategic investment team of more than 110 people by over a third to 70 after Beijing sweeping regulatory crackdown on its deal making pace. It was said that the job cut involved mainly mid-level and senior employee in the mainland. Alibaba and Tencent have already previously planned to cut tens of thousands of jobs combined this year as one of the biggest layoff rounds in history due to both crackdowns and China’s covid curb. Byte Dance also shrunk investment team and dissolved a sub-group to focus on financial returns.
JPMorgan profit falls 28%, Dimon cautious on global economy https://www.reuters.com/business/finance/jpmorgan-profit-falls-higher-soured-loan-reserves-2022-07-14/
JP Morgan reported bigger than expected 28% fell in second quarter profit as the bank set aside $1.1bn in provision for credit losses compared to last year when it released $3bn from its reserves. The bank’s share slid more than 4%. Analysts expect the four biggest US banks to record $3.5bn of loss provisions for the quarter as they brace for economic slowdown as the federal reserve aggressively raise interest rates to control inflation.
Morgan Stanley Profit Falls 29% https://www.wsj.com/articles/morgan-stanley-profit-falls-29-11657799679
Morgan Stanley profit for second quarter fell 29% from a year ago, reflecting a drop in corporate deal making. The New York bank posted profit $2.5bn, or $1.39 per share. Analysts had originally expected $1.56 per share. Revenue fell 11% to $13.1bn missing consensus of $13.39bn. Investment banking revenue, including fees from M&A fell 55%. Trading business however benefited from the volatile times; revenue rose 21% from a year ago.
Calendar Events Today:
8:30am Producer Price index Final Demand
8:30am Initial Jobless Claims
8:30am continue jobless claims
Commentary:
Economics Calendar:
CPI yesterday printed above analysts’ consensus, but equity market remained relatively unchanged. While the inflation data printed above official consensus, many economists previously already raised forecast to above 9%, therefore, the beat on consensus didn’t come as much of a surprise. What’s troubling though however, was the month-over-month core CPI that feds committee gauge as inflation momentum also printed at an accelerating speed at 0.7% vs. consensus at 0.5% vs. prior month at 0.6%.
For today, consensus expects initial jobless claims to improve compared to prior week and print at 234k vs. 235k.
Equity Market:
$NDX closed relatively flat yesterday by -0.14%, to 11,728 following a hotter-than-consensus inflation print. While momentum has improved, the tech market index continues to trend down. We think the upcoming thesis will be – month over month inflation decelerates from July forward which offers headroom for feds to pivot i.e., to slow or stop at once on rate hikes.
The decline yesterday was led by underperforms of long duration names such as $ZOOM -6.5% and $MTCH -3% but offset partially by $TCOM +6% and $JD +2.6%.
$HSI closed flat for the day also, down -0.22%, to 20,751. We’re currently at a resistance at today’s close. We think the market offers good risk/reward opportunity. Our prediction range: top 23,000; bottom 20,800.
Underperformance in the Chinese market today was led by financial names as investors fear the Chinese credit concern continues to worsen, e.g., Ping An -5.4%, CM Bank -4%, etc.
Rates Market:
Nm.