Markets React to Jobs Data
Asian stocks gave up gains, and US equity futures fell in light trading as investors evaluated the Federal Reserve’s policy following Friday’s US jobs data. US stock contracts declined, and Treasury yields dropped across the curve in Asia after jumping Friday. The US monthly payrolls data boosted bets on a Fed rate increase in May, but the numbers also eased concerns about the world’s biggest economy heading for a recession. Trading volumes are expected to be light as several markets, including Hong Kong and Australia, are shut for Easter holidays, and most of Europe remains closed on Monday.
S&P 500 Earnings to Decline
According to FactSet, analysts expect a second consecutive decline in quarterly earnings for companies in the S&P 500 (SPI:SP500). First-quarter profits are projected to drop 6.8% from the same period a year earlier. US companies have been fighting several challenges, including inflation and rising interest rates, and recently, the health of the financial system following the two biggest bank failures since the 2008 financial crisis. However, the S&P 500 has risen 6.9% this year, despite these challenges.
US Watchdog Withdraws Waiver
Main US watchdog brushed aside pleas for a second extension to a temporary waiver, and big Wall Street banks are struggling to respond to rules governing investment research. After July 3, US broker-dealers are set to lose the protection of a five-year “no action” letter from the Securities and Exchange Commission, which covered them against having to register as investment advisers. This waiver stemmed from the EU’s 2018 Markets in Financial Instruments Directive, requiring investors to pay separately for investment research and trading services. However, US regulations consider brokers to be investment advisers if they charge specific fees for research rather than bundling it as a service with sales and trading.
FTSE 100 CEO Pay Rises
Median overall pay for FTSE 100 chief executives increased by 12% to £4.15mn, according to Deloitte’s compiled data from the first 55 companies to publish 2022 annual reports. The median annual bonus payout of 76% of the maximum award possible was lower than the 85% level reached the previous year due to companies hitting lower targets set during the pandemic. However, many top executives benefited from strong share price performances at the end of 2022, which boosted payouts made under long-term incentive plans. This increase in pay comes at a time when many employees face cost-of-living pressures, leading to further scrutiny from shareholders.
Tesla to Build Shanghai Factory
Tesla (NASDAQ:TSLA) plans to build a factory in Shanghai to produce its Megapack energy storage system, as CEO Elon Musk resists rising opposition in Washington to US technology companies investing in China. Tesla’s Megapack system provides lithium-ion battery packs to store renewable energy for electricity grids and represents a crucial driver for its energy storage and generation business. The factory’s construction is planned for the third quarter of this year, with production scheduled to begin in the second quarter of 2024. Tesla expects the factory to produce about 10,000 Megapack units a year, equivalent to about 40 gigawatt hours of energy storage.
Private-Equity Funds Buy Food Companies
Private-equity funds purchased a record 786 food and beverage companies worth $32 billion in 2021, using bundles of debt to pay for their purchases. The funds projected that staple goods would keep making profits no matter how the economy fared. However, the forecast changed, and the food industry soon faced higher labor costs, supply-chain disruptions, and surging inflation. Now, food manufacturers are earning less cash to cover their heavy debt loads, leading to further price hikes that have skyrocketed over the past year.
Speculators Bet Against Treasuries
The recent US payrolls data has led speculators to add the most to their bets against benchmark Treasuries in over a year. Leveraged fund positions in 10-year futures climbed by almost 150,000 contracts, with Treasuries tumbling on Friday following the data, increasing expectations of a quarter point hike by the Federal Reserve in early May. This marks the largest bearish shift since March 2022, according to the Commodity Futures Trading Commission.
Traders Seek Protection in Regional Banks
Investors are seeking protection against potential financial turmoil in US regional bank stocks. Traders are buying record amounts of options tied to midsized lenders that had some of the highest volatility. Regional bank share prices have stabilised since the collapse of Silicon Valley Bank led to a mid-March slide. Several banks that were badly hit in the recent volatility, including Citizens Financial (NYSE:CFG), Charles Schwab (NYSE:SCHW) and KeyBank, have seen options interest hit record levels, while many more are at multiyear highs. Pricing of the contracts suggests investors expect stock swings for some banks to be up to three times normal levels, according to analysis by RBC Capital Markets.
Campaigners Demand Tax Transparency
Campaigners are seeking increased tax transparency by making companies publicly disclose the amount of tax they pay on a country-by-country basis. Such disclosures could curb international tax avoidance and reduce the risks of damaging disputes with local authorities. A coalition of investors and activists is seeking shareholder support for increased tax transparency at the annual meetings of several of the largest US companies. Some of the largest fund management groups in the US remain opposed to the idea, as they believe such transparency could open companies up to hostile scrutiny that could end up increasing their tax bills around the world.
Eli Lilly Warns Europe
The chief executive of Eli Lilly (NYSE:LLY), one of the world’s largest pharma groups, has warned that Europe could miss out on new drugs for conditions such as heart disease and cancer if it proceeds with a “troubling” new plan. Under the plan, market exclusivity protection for drugs could be reduced from 10 to eight years, and this could make it unprofitable for the industry to pursue treatments for chronic diseases or cancer trials. The draft plan would also affect investment in treatments for Alzheimer’s and obesity, where Eli Lilly has key potential medicines in its pipeline, if generic drugmakers are allowed to create cheaper alternatives earlier.
Nuns call out Citigroup
The Sisters of St Joseph of Peace, who own a small stake in Citigroup (NYSE:C), have called on the bank to repent and change its ways by filing a resolution ahead of its AGM on April 25. The nuns and three co-filers, which are also religious groups, are calling on the board to report on what it is doing to protect indigenous rights affected by its project and corporate financing decisions. The nuns accuse Citigroup of “minimising its role” in providing cash to a company involved in controversial oil pipelines in North America. The pipelines have been linked to oil spills, and projects to replace and reroute the lines have been opposed by indigenous communities.
Big Four accused of law-breaking
Partners at the UK’s Big Four accounting firms are being accused of breaking competition law if they share their audit expertise and technology with smaller rivals. Martin Muirhead, chair of the Association of Practising Accountants, which represents 20 midsized accounting firms, has said that there is not enough knowledge outside of the Big Four, and the lack of knowledge is part of the problem. Deloitte, EY, KPMG, and PwC dwarf their smaller competitors and have invested heavily in improving their audits and modernising their technology.
Divestment tweets impact carbon emitters
New research has revealed that fossil fuel divestment pledges by investors, including sovereign wealth funds, trusts, and foundations that gain traction on social media, have an outsized impact on carbon-intensive companies. The study found that when a divestment tweet went viral, the market value of big carbon emitters fell significantly more than the value of the holding that was due to be sold. The rising number of funds pledging to dump investments in carbon-intensive companies has led to more market participants grappling with the risks of holding fossil fuel assets.
Microsoft fined over sanctions violations
Microsoft Corp. (NASDAQ:MSFT) has agreed to pay over $3 million in fines for allegedly violating U.S. sanctions on Russia and other countries. The U.S. Treasury and Commerce Departments reached a joint settlement with Microsoft over the apparent violations of U.S. sanctions and export controls rules, which the software giant voluntarily disclosed. The sanctions violations, which predate the larger Russian incursion into Ukraine that President Vladimir Putin launched in 2022, occurred between July 2012 to April 2019.
Binance.US struggles to find bank
Binance.US, the U.S. affiliate of global crypto exchange Binance, has struggled to find a bank for its customers’ cash after the failure of Signature Bank (OTC:SBNY) left it without a key banking partner. The failures of Signature and Silvergate (NYSE:SI), both seen as friendly to crypto companies, left many crypto firms rushing to find new banking partners. As a stopgap, Binance.US is using at least one middleman to store funds on its behalf, which can slow down the process of sending and moving funds. The key difficulty for Binance.US is finding a bank to directly hold its customers’ dollars.
First Republic suspends preferred stock dividend
First Republic Bank (NYSE:FRC), beset by concerns over loan values and deposit flight, has suspended payments of quarterly cash dividends on its preferred stock. The bank suspended its dividend on common stock in mid-March after the collapse of Silicon Valley Bank caused First Republic’s customers to pull their deposits over fears about the bank’s financial strength. First Republic’s shares have fallen by nearly 90% since the beginning of March, hit by the failures of Silicon Valley Bank and Signature Bank.
Korean EV battery stocks rally
Korean stocks tied to the electric-vehicles’ battery space have extended this year’s frenzied rally, with market watchers citing a slew of positive developments in the sector. Last week’s better-than-estimated results from battery maker LG Energy Solution Ltd. (KRX:LGES) and a report that some Chinese firms have cut back production of lithium have sparked renewed interest in the sector. Korean retail investors have already been snapping up stocks ranging from lithium suppliers to battery recyclers, helping the smaller Kosdaq index post a world-beating rally.
Emirates Telecom buys Uber stake
Emirates Telecommunications Group will buy a $400 million stake in the super app developed by Uber Technologies Inc.’s (NYSE:UBER) Middle Eastern subsidiary. The telco giant, which is also Vodafone Group Plc’s (NASDAQ:VOD) biggest investor, signed a binding agreement with Uber and its regional subsidiary, Careem, to acquire a 50.03% stake in the super app spin-out. Uber, which acquired Careem in 2020, will remain a shareholder in the new entity and will continue to own all of Careem’s ride-hailing business. All three of Careem’s co-founders will also be shareholders in the super app.