Market Wraps
Watch For:
PPI for April; Weekly Jobless Claims; speeches by Fed’s Kashkari, Waller
Today’s Headlines/Must Reads
– Yellen Doubts Biden Administration Can Avoid Default Without Congress
– Biden, Republicans Dig In on Debt Ceiling
– China’s Consumer Inflation Slows to Lowest in Two Years
– Energy Stocks in Doldrums After Last Year’s Big Rally
– The Executive Keeping Tesla Rolling Isn’t Elon Musk
Opening Call
Wall Street was looking to extend its latest gains, with Nasdaq in line for a fresh nine-month high, as investors continued to welcome evidence that inflation is cooling and that the Federal Reserve’s raising of borrowing costs was at an end.
“From a market perspective, several details in the [CPI] report pointed to a more durable slowdown in inflation, which was music to investors’ ears after having repeatedly underestimated its persistence over the last couple of years,” Deutsche Bank said.
With hopes the Fed may even begin cutting rates by the end of the year, the S&P 500 is once again moving up toward the top of the 3,800 to 4,200 range it has inhabited for about six months.
However, some analysts noted that any new advance for U.S. equities may be constrained by lingering concerns about the health of the banking system and the looming debt ceiling deadline.
“While moderating inflation is good news for U.S. stocks, there is far too much background noise, including debt ceiling risks and lingering U.S. regional banking concerns, for investors to get their mojo on truly, ” SPI Asset Management said.
Overseas stocks were mixed. The Stoxx Europe 600 rose 0.4%, while in Asia, Hong Kong’s Hang Seng index was off 0.1% and Japan’s Nikkei 225 was flat.
Stocks to Watch
Applovin said it expects second-quarter revenue of $710 million to $730 million, higher than analysts’ predictions of $695.7 million. The stock rose 14% in premarket trading.
Beyond Meat’s losses in the first quarter narrowed and while revenue declined as the company sales topped forecasts. The company also issued full-year revenue guidance of $375 million to $415 million vs. expectations of $390.1 million. The stock fell 2% in premarket trading.
Robinhood Markets reported first-quarter results that exceeded expectations and the stock was up 5% in premarket trading.
Sonos fell 26% after it slashed guidance for fiscal 2023, with the CEO saying the company was reducing “expectations for the second half of fiscal 2023 due to softening consumer demand and channel partner inventory tightening.
Walt Disney reported fiscal second-quarter earnings and sales that matched Wall Street estimates but the stock was down 5% in premarket trading after a surprise decline in Disney + subscribers.
Unity Software reported a first-quarter loss that was narrower than analysts expected and its revenue forecast for the second quarter exceeded estimates. Shares rose 9%.
Economic Insight
U.S. luxury spending maintained its decline in April, with the lower end particularly under pressure, Citi said, citing its credit-card data.
Spending on luxury goods in the country was 18% lower in April than the same period last year, Citi said, marking the same rate of decline as the previous month.
The lower spend matches recent first-quarter results by luxury-goods makers, with the U.S. a weak point in generally good performances, Citi said, though it noted that higher-end players like Hermes were more resilient to the slowdown.
“Whether European local demand will follow the same path and how much developed-market weakness can be offset by Chinese demand…will be key, ” Citi said.
Forex:
The dollar edged higher after falling on Wednesday following the inflation data.
Commerzbank said inflation remains stubborn with price pressures falling “very, very slowly” so market expectations for imminent interest-rate cuts seems premature, adding that it seems the market is a little hasty if it sells the dollar but that mistake has already been reversed to some extent.
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Sterling was a touch lower against the broadly stronger dollar but rose versus the euro, ahead of an expected interest-rate rise by the Bank of England.
“A 25 basis points rate hike to 4.50% is expected and sterling’s reaction will therefore likely mostly depend on the message that BOE Governor Andrew Bailey conveys in his press conference,” UniCredit Research said.
Former BOE member Sushil Wadhwani said lifting rates to 5% as reflected by the U.K. forward overnight index swap curve would be unwise but the BOE may not deliver guidance and stress data dependence for future decisions, which might not offer sterling much support either.
Read BOE Decision Seen Having Contained Impact on Sterling
Metals:
Base metals prices were close to 2% lower in London, with gold futures slightly weaker, as the dollar strengthened, and as traders looked to today’s PPI data, after Wednesday’s CPI print pointed to a softening in headline inflation.
“PPI usually plays second fiddle to CPI data but a significant PPI drop towards 2% year-on-year today would drive Fed interest rate expectations lower, weaken the dollar, and boost commodities,” Peak Trading Research said
Today’s Top Headlines
The Executive Keeping Tesla Rolling Isn’t Elon Musk
Tesla had been bleeding money for more than a decade when Zach Kirkhorn became finance chief. At the end of a quarterly analysts’ call four years ago, Tesla Chief Executive Elon Musk said his new CFO would be “Zach,” without giving his last name. Some on the call had never heard of him.
Mr. Kirkhorn hasn’t done much to raise his profile since, despite having helped make the electric carmaker into a profit machine. While Mr. Musk, who also runs SpaceX and Twitter, blasts his pronouncements to more than 137 million Twitter followers, Mr. Kirkhorn keeps his account, with 63 followers, locked from public view.
SoftBank Trims Overall Loss After Topsy-Turvy Fiscal Year
TOKYO-Masayoshi Son’s SoftBank Group posted a nearly $4 billion gain on investments for the recent quarter and said the adjusted value of its stake in Chinese e-commerce company Alibaba Group stood at roughly a seventh of what it was a year earlier.
Gains related to the valuation of SoftBank holding company investments helped offset losses stemming from SoftBank’s startup investment funds, known as the Vision Funds, during the January-March quarter. Losses on investments at the Vision Funds totaled $2.3 billion for the quarter.
Private Consortium to Buy Publicly Traded Syneos Health in $7.1 Billion Club Deal
Private investment firms Elliott Investment Management, Patient Square Capital and Veritas Capital have struck a roughly $7 billion deal to acquire biopharmaceutical contract-research organization Syneos Health.
The proposed acquisition of Syneos Health comes just days after private-equity firms Advent International and Warburg Pincus agreed to buy medical-products maker Baxter International’s contract-manufacturing unit. The transaction would cap Syneos Health’s run as a public company, which followed the 2017 merger of publicly traded INC Research Holdings with Advent International and Thomas H. Lee Partners-owned inVentiv Health in a deal that valued the combined company at about $7.4 billion, including debt, at that time.
Robinhood to Launch 24-Hour Trading on Weekdays in Stocks and ETFs
Users of Robinhood Markets’ popular app will soon be able to trade Tesla shares in the middle of the night.
Robinhood said Wednesday that it will offer 24-hour trading of selected stocks and exchange-traded funds, five days a week. The move is part of a growing push in parts of the financial industry to expand trading beyond traditional Wall Street operating hours.
Coca-Cola Trials Turning Hard-to-Recycle Plastic Into Bottles
Coca-Cola is trialing technology in Europe that turns hard-to-recycle plastic into new bottles, as part of its effort to meet its sustainability goals.
The company’s biggest European bottler, Coca-Cola Europacific Partners, is funding a startup in the Netherlands that will produce food-grade recycled plastic from plastics that usually get sent to landfill or are incinerated-such as films, trays, clothing and colored packaging. It will create an additional source of recycled material. Current supplies of recycled plastic are costly and limited, which is keeping companies hooked on abundant and cheaper oil as a key ingredient in the production of packaging.
Tucker Carlson’s Twitter Show Complicates Elon Musk’s Bid to Win Back Advertisers
Tucker Carlson’s announcement that he is moving to Twitter isn’t getting an enthusiastic reception on Madison Avenue, as many advertisers are already skittish about spending on the Elon Musk-owned social-media platform.
Mr. Carlson said Tuesday that he is launching a show on Twitter, just weeks after Fox News canceled his nightly telecast. Mr. Carlson was one of Fox’s most popular anchors, but his controversial brand of programming repelled blue-chip advertisers, and he was the target of organized advertiser boycotts.
Disney to Make Hulu Content Available Within Disney+ Platform
Walt Disney Co. said it would make Hulu content available within Disney+ in the U.S. by the end of the year, the latest effort by newly returned Chief Executive Robert Iger to get the company’s streaming business to profitability.
“We will soon begin offering a one-app experience domestically that incorporates our Hulu content via Disney+,” Mr. Iger said during a call with investors to discuss the company’s latest quarterly results.
Yellen Doubts Biden Administration Can Avoid Default Without Congress
NIIGATA, Japan-Treasury Secretary Janet Yellen said it was “legally questionable” whether the Biden administration could rely on the 14th Amendment to effectively ignore the debt limit, pouring cold water on a method favored by some Democrats to avoid a default.
The 14th Amendment to the U.S. Constitution states that American debt authorized by law “shall not be questioned.” President Biden said this week he was considering invoking the amendment as a way to keep paying the nation’s bills if Congress doesn’t raise the debt limit. But he added the issue would be subject to litigation and may not be a solution in the current standoff.
Chinese Consumer Inflation Slows to Lowest Level in Two Years
HONG KONG-Consumer prices in China rose at their slowest pace in more than two years, reflecting uncertainties in the economy that threaten to limit a consumption-led recovery from three years of strict Covid-19 measures.
Consumer prices in the world’s second-largest economy rose 0.1% in April from a year earlier, easing further from March’s 0.7% year-over-year increase, according to data released Thursday by China’s National Bureau of Statistics.
Biden, Republicans Dig In on Debt Ceiling
WASHINGTON-President Biden and Republicans continued to stare each other down over the debt ceiling with just weeks to go until the U.S. potentially defaults on paying its bills, while some Democratic lawmakers floated ways to make progress toward raising the borrowing limit.
House Republicans have demanded spending cuts in exchange for raising the debt ceiling. Mr. Biden and Democrats in Congress maintain that the federal borrowing limit should be raised without preconditions and have called the GOP stance irresponsible.
Biden, Republicans Spar Over Veterans’ Healthcare in Debt-Ceiling Battle
WASHINGTON-Veterans’ healthcare has become a bitterly contested front in the battle over raising the nation’s borrowing limit, with both parties saying they are trying to protect funding and accusing the other of misleading voters.
Democrats charge that Republicans’ current offer on the table-a House bill that couples raising the debt ceiling with sharp cuts in spending-would eviscerate veterans programs. Republican lawmakers angrily deny it. The heated rhetoric culminated this week with House Speaker Kevin McCarthy (R., Calif.) accusing the Biden administration of lying.
Biden Administration Targets Power-Plant Emissions in New Climate Initiative
WASHINGTON-The Biden administration proposed new rules Thursday to drastically reduce greenhouse gases from coal- and gas-fired power plants-measures that will cost billions of dollars but that officials say will curb emissions that are warming the atmosphere and harming human health.
The proposed rules by the Environmental Protection Agency will raise average utility bills by 2% by 2030, declining to less than 1% by 2040, officials estimate.
Pro Take: Can Nickel, Cobalt and Other Battery Metals Be Sourced Sustainably?
As companies and countries withdraw their support for seabed mining, the about-face is raising broader questions about how metals used in battery production are sourced and the scale of the associated environmental costs. The sourcing of nickel particularly has been in the spotlight.Last week, A.P. Moller-Maersk became the latest company to drop its investment in The Metals Company, a prospective seabed miner based in Vancouver, British Columbia. Lockheed Martin and Norway’s Storebrand also have recently sold their interests in deep-sea mining companies. Others including German luxury carmaker BMW have said that, given environmental concerns, they won’t use battery metals sourced from the deep sea. More than a dozen countries are concerned about the environmental impact of the practice and are calling for a moratorium on seabed mining.
Energy Stocks Are in the Doldrums After Last Year’s Big Rally
Shares of oil-and-gas companies led the market last year. This year, they are the biggest laggards.
Energy stocks comprise the worst-performing sector of the S&P 500 this year, down 9.2%, compared with the broad index’s 7.8% gain. Shares of Chevron are down 12% this year, while Exxon Mobil has shed 2.3%. Warren Buffett’s darling, Occidental Petroleum, has pulled back 9.8%.
Why wheat prices hit their lowest in over a year as key Russia-Ukraine grain-deal deadline nears
Wheat futures have declined so far in 2023, after settling last week at their lowest prices in more than a year, pressured by “abundant” supplies, despite the usual uncertainty surrounding the potential renewal of the Black Sea grain export deal between Russia and Ukraine.
The Black Sea Grain Initiative, brokered by the United Nations and Turkey in July of last year to supply global markets with food and fertilizer as the Russia-Ukraine war led to global shortages and rising prices, is due to expire on May 18. The deal had marked a 60-day renewal on March 18.
Chinese Banks’ New Yuan Loan Issuance Declined in April
New yuan loans issued by Chinese banks in April came in lower than market expectations, which could provide less support to the world’s second-largest economy as its postpandemic recovery starts losing steam.
Chinese banks extended 718.8 billion yuan ($103.67 billion) of new loans in April, down significantly from the CNY3.89 trillion issued in March, according to data released Thursday by the People’s Bank of China.
Migrant Influx Overwhelms Southern Border as Title 42 Winds Down
WASHINGTON-Title 42, the pandemic-era border measure that for three years has served as a blunt border-enforcement tool for two successive administrations, is set to end on Thursday night.
The policy, introduced in March 2020 by former President Donald Trump, allows Border Patrol agents to swiftly expel migrants back to Mexico even if they ask for asylum. Though the policy has in some ways resulted in increasing illegal border crossings, it still served in the eyes of the Border Patrol and many politicians as a reasonably effective tool to deter asylum seekers.
Republicans Seek New Momentum for Biden Family Investigations
House Republicans released a pair of reports Wednesday related to President Biden’s family as they sought new momentum in investigations involving his son, Hunter Biden.
In a memo from a House Judiciary subcommittee and the House Permanent Select Committee on Intelligence, GOP committee staff alleged that an employee of the Central Intelligence Agency inappropriately sought at least one signatory for a letter aimed at helping both Bidens on the eve of the 2020 presidential election.
Trump Mocks Sexual Abuse Case, Repeats False 2020 Election Claims at CNN Town Hall
Donald Trump, appearing in a live CNN town hall a day after a federal jury in New York found him liable for sexual abuse and defamation, blasted the decision, repeated his false claims about the 2020 election and defended his behavior during the Jan. 6 Capitol riot by his supporters.
“They’re doing this for election interference,” Mr. Trump said, nodding to his claims of a vast conspiracy to stop his political career. “This woman, I don’t know her, I never met her,” he said of columnist E. Jean Carroll on Wednesday night from St. Anselm College in New Hampshire, where the nation’s first Republican primary will be held early next year.
George Santos Faces 13 Felony Charges, Including Fraud and Money Laundering
Rep. George Santos, accused of fabricating much of his life’s story to secure public office, was indicted Wednesday on federal charges that he embezzled contributions, fraudulently obtained unemployment benefits and filed false federal disclosure forms.
The New York Republican, who was elected last year to represent parts of Long Island and Queens in Congress, surrendered to authorities Wednesday morning and pleaded not guilty in federal court in Central Islip, N.Y., in the afternoon. A 13-count indictment charged Mr. Santos with seven counts of wire fraud, three counts of money laundering, one count of theft of public funds, and two counts of making materially false statements to the House of Representatives.
Source: Dow Jones Newswires