Weekly Market Update: Better inflation data in the US overshadows more cautious Fed policy forecast and political jitters in France
This week opened and ended with political turmoil in Europe weighing on markets there. Specifically, President Macron’s call for a snap election led to a surge in the polls for both the both the far-right and far-left in France, squeezing Macron’s centrists. The French CAC came under pressure along with EU banks in general. The spreads between French and German government bond yields widened to levels not seen since 2017. The Euro slumped to the lowest levels in more than a month. Macron’s Finance Minister exacerbated uneasiness with pre-election rhetoric warning of potential financial crisis if the election were to force France to exit the EU. Separately, the G-7 met in Italy and agreed on a plan to support Ukraine with frozen Russian assets.
The S&P and NASDAQ broke out to fresh all-time highs on Wednesday after annualized core CPI rose at the slowest pace in three years. Notably, some of the softness was due to declines in categories such as airfares and auto insurance that do not carry over to the PCE calculations. Meanwhile, the critical shelter cost components remained sticky, but the closely followed supercore fell m/m. The data was welcomed by the Fed and Chairman Powell, and overshadowed the latest iteration of the dot plot which took officials' prior projection of three rate cuts this year down to just one. In his press conference, Powell reiterated that policy remains squarely data dependent and that the Fed is still ready to adjust policy once it has more confidence inflation is on track to move down towards the 2% target. The following session, PPI was negative m/m and core was flat, supporting a resurgent disinflation narrative. Also, weekly jobless claims jumped to the highest reading since last August, causing some to argue that the FOMC’s overall message was a bit more hawkish than needed given the increased signs of softening. By Friday, US Treasury yields fell to the lowest levels since early August while the US dollar index was at a 1-month high. For the week, the S&P gained 1.6%, the DJIA slipped 0.5%, and the Nasdaq surged 3.2%.
In corporate news this week, largecap tech continued to show its muscle, driven by the mad dash to upgrade AI systems. Oracle and then Broadcom were the latest AI-related companies to see their stock accelerate to new highs on the back of strong earnings reports. Oracle touted its Remaining Performance Obligation up 44% to $98B, while Broadcom noted that in FY24 it expected revenues from AI at over $11B, more than 20% of overall revenues. Buyers came back into Apple after it announced its stepped up AI effort called ‘Apple Intelligence’, which will rely in part on integrating ChatGPT into Siri and MacOS and iPhoneOS platforms. That collaboration sparked outraged comments from Elon Musk who called it an “unacceptable security violation.” Meanwhile, Tesla shares saw a small relief rally as stockholders gave in to Musk’s compensation demands, and he reaffirmed his vision for producing an army of humanoid robots as the next pillar of Tesla’s growth plan. Separately GM indicated the auto industry remains strong, announcing expectations that Q2 earnings will show sequential improvement. Industrial tools supplier MSC Industrial injected a note of caution to the space, issue much lower than expected Q3 guidance. And in M&A news, National Amusements said it was not able to reach deal terms with Skydance Media, sending Paramount shares plunging.
MON 06-10
(EU) EU Parliament Elections Summary: French Pres Macron called for snap elections after his party losing to Marine Le Pen's National Rally (first snap elections for France since 1997); German Chancellor Scholz’s SPD party had its worst ever result, coming third behind the far-right Alternative for Germany (AfD); Belgium PM Croo resigned
(EU) EURO ZONE JUN SENTIX INVESTOR CONFIDENCE: +0.3 V -1.7E (1st positive reading since Feb 2022); Notes its inflation barometer indicates an unfavourable inflation environment
(RU) Russia Pres Putin said to visit North Korea and Vietnam in coming weeks - Russia press
(US) Citi Mid-June Economic Surprise Index -5.5 v -4.1 prior (update)
AAPL Announces 'Apple Intelligence' suite of AI features – WWDC
AAPL Elon Musk: If Apple integrates OpenAI at the OS level, then Apple devices will be banned at my companies; This is an unacceptable security violation
UUUU Achieves commercial production of separated neodymium-praseodymium ("NdPr") at its White Mesa Mill in Utah; Simultaneously advancing Uranium production, preparations are being made to commence a uranium ore and alternate feed uranium-bearing material processing campaign in Q3 2024
TUES 06-11
(CN) CHINA MAY CPI Y/Y: 0.3% V 0.4%E
(CN) China official: EU's probe into EVs is trade protectionism
(CN) US Indo-Pacific chief Paparo: I want to turn Taiwan Strait into ‘unmanned Hellscape’ if China invades; US has plans to deploy thousands of lethal drones if mainland China invades Taiwan – SCMP
(CN) US reportedly weighs more limits on China's access to chips for AI - press
(FR) French Pres Macron: Election result will not affect my position
(FR) Follow Up: A person close to French Pres Macron camp reportedly denies earlier reports of his potential resignation – press
(FR) French Pres Macron said to be discussing potential resignation with his close circle in case of possible right-wing victory in early parliamentary elections - French radio
OPEC Monthly Oil Report (MOMR)
(US) BOFA INSTITUTE: MAY TOTAL CARD SPENDING +0.7% Y/Y V +1.0% AVERAGE IN APR; Notes consumer spending momentum continues to appear soft but stable; There are signs of increased financial pressures for some in the younger generations
(US) Data provider to homebuilders Zonda: May/early June trends below April; According to Zonda's survey, 33% of builders said demand is on track with expectations in May v 57% in March
(US) International Longshoremen’s Association (ILA) union representing dockworkers at East and Gulf Coast container ports has suspended labor contract negotiations set for Tue, June 11th due to the automation issue - press (update) [**Note: current ILA contract set to expire on Sept 30th, 2024]
(US) TREASURY'S $39B 10-YEAR NOTE REOPENING DRAWS 4.438% V 4.560% PRIOR; BID-TO-COVER RATIO: 2.67 V 2.34 PRIOR AND 2.48 OVER LAST 8 REOPENINGS
GM CFO: Expects Q2 earnings better q/q (implies >$2.62 v $2.59e) - DB conf
ORCL Guides Q1 EPS $1.31-1.35 ($1.33-1.37 cc) v $1.32e, Rev +5-7% (+6-8% cc) v +7.2%e; Have increased confidence that revenue will grow and accelerate - earnings call
ORCL Reports Q4 $1.63 v $1.64e, Rev $14.3B v $14.6Be; Expect double digit Rev growth in FY25 with acceleration every Q; In Q4 alone, signed over 30 AI sales contracts totaling >$12.5B
PARA National Amusements said to stop discussions with Skydance – press
WMT Exec: Still seeing consistent consumer overall; Market remains a bit more promotional - Oppenheimer's 24th Annual Consumer Growth and E-Commerce Conference
WED 06-12
(AU) AUSTRALIA MAY EMPLOYMENT CHANGE: +39.7K V +30.0KE; UNEMPLOYMENT RATE: 4.0% V 4.0%E
(FR) France Fin Min Le Maire: France could face a ‘Liz Truss scenario’; France would be plunged into a debt crisis if far-right leader Marine Le Pen were to win snap elections and implement her economic program (update)
(FR) French Pres Macron: Absurd to think I will resign before 2027; EU vote was clear, could not be ignored; Snap elections was only way possible
(IN) INDIA MAY CPI Y/Y: 4.8% V 4.9%E
(US) Atlanta May Sticky-CPI annualized 2.4% v 4.6% m/m, Core 2.2% v 4.6% m/m (update)
(US) Adobe Analytics May Digital Price Index (DPI) -0.6% m/m v -0.5% prior (update)
Comparative Analysis of current vs prior FOMC statement: Saw modest progress on inflation target (vs 'a lack of further progress' in May); Rest of the statement is unchanged
(US) DOE CRUDE: +3.7M V -1ME; GASOLINE: 2.6M V 0ME; DISTILLATE: 0.9M V +1ME
(US) Fed Chair Powell: Today was certainly a better inflation report than most anyone expected; Hope we have more like it, not able to give specific number of good reports needed - Q&A
(US) MAY CPI M/M: 0.0% V 0.1%E; Y/Y: 3.3% V 3.4%E (lowest annual pace since Feb 2024 and first flat M/M print since Oct 2023)
(US) FOMC SUMMARY OF ECONOMIC PROJECTIONS (SEP) FOR JUNE: Raises long run rate forecast for second consecutive time; Cuts median forecast projection to 25bps of rate cuts in 2024 (prior 75bps)
(US) USDA WORLD AGRICULTURAL SUPPLY AND DEMAND ESTIMATES (WASDE) CROP REPORT
AXP CFO: Seeing relative strength in the consumer space; Q2-to-date trends are similar to Q1 - conf comments
DIS Central Florida Tourism Oversight District said to give Co locked-in, long-term plan for expanding Disney World; Said to reach agreement with Gov Desantis – NYT
IEA Monthly Oil Report (OMR); Cuts 2024-2025 global oil demand growth forecasts citing muted economy
JPM Exec Rohrbaugh: Q2 Investment banking rev could be up by 25-30% y/y (prior expected ~mid-teens y/y); Q2 trading rev is tending slightly better than mid-single digit growth guidance - MS conf
OXM Reports Q1 $2.66 v $3.78 y/y, Rev $398M v $420M y/y; Cuts FY guidance citing consumer sentiment has dropped meaningfully from early 2024 and has driven the consumer to become more cautious; Q2-to-date comp sales trend is positive
PLAY Reports Q1 $1.12 v $1.56e, Rev $588M v $614Me
TSLA CEO Musk: Both Tesla shareholder resolutions are currently passing by wide margins - X post
UMI.BE Cuts FY24 Adj EBITDA €760-800M (prior €900-950M); Notes slowdown in EV growth significantly impacts 2024 and volumes for a Chinese battery OEM not materializing in 2024; Started a process of re-assessing growth projections post 2024
VRA Reports Q1 -$0.21 v -$0.09 y/y, Rev $80.6M v $94.4M y/y; Notes reduced visits and spending across "all household incomes and channels at Vera Bradley, especially in the under $75K households", To unveil strategic plan Project Restoration in mid-July
THRS 06-13
TTN Research Alert: At yesterday presser. Powell said there are continuing financial pressures on low-income people; Which US firms would agree with him during last few weeks?
(FR) France left wing parties say they have agreed to unite and create a new 'Popular Front' to contest the upcoming snap parliamentary election
(IS) Biden administration has reportedly grown extremely concerned that escalating violence between Israel and Lebanon's Hezbollah in recent days will deteriorate into an all-out war - Axios
(JP) BANK OF JAPAN (BOJ) LEAVES TARGET RANGE UNCHANGED BETWEEN 0.0-0.10%; AS EXPECTED
(JP) BOJ ON GOVT BOND PURCHASES; TO BUY JGB's IN ACCORDANCE WITH MARCH 2024 DECISION UNTIL JULY MEETING (JULY 31st) [**Note: Most analysts expected a cut to JGB purchases at this meeting]
(US) BOFA INSTITUTE: WEEK-TO-JUNE 8TH TOTAL CARD SPENDING +1.6% Y/Y V +0.7% AVERAGE IN MAY; Card spending appears to be off to a solid start in June
(US) Medicare to recalculate quality ratings of Medicare Advantage Plans in an effort that could be announced as soon as today - WSJ
(US) MAY PPI FINAL DEMAND M/M: -0.2% V +0.1%E; Y/Y: 2.2% V 2.5%E (1st negative M/M print since Dec)
(US) TREASURY $22B 30-YEAR BOND REOPENING DRAWS 4.403% V 4.671% PRIOR; BID TO COVER 2.49 V 2.37 PRIOR AND 2.43 OVER LAST 8 REOPENINGS
(US) Tier1 analysts June Spending Survey (conducted June 6-10th): Plans to buy a New Home over the next 12 months remain at 20%+ levels despite the slight decline to 24.0% from 24.3% last month; New Vehicle next 12-month spending expectations remain at an elevated level since last month's sharp increase
(US) S&P Global: GEP Global Supply Chain Volatility Index breaks into positive territory for the first time in 14 months as global manufacturers report stretched capacity; Factory purchasing in Asia rising at the fastest rate since Dec 2021, driven by India, China and South Korea
1929.HK Reports Q1 Mainland China SSS -27.6% y/y (v -2.7% prior), HK/Macau SSS -32.0% y/y (v +4.5% prior)
MA Judge said to likely reject $30.0B Mastercard/Visa swipe-fee deal with retailers; Official decision expected in the coming days - US financial press
MSM Reports prelim Q3 $1.32-1.34 v $1.57e, Rev $978-980M v $1.03Be; Cuts FY24 Guidance due to "ongoing heavy manufacturing softness", slower than anticipated ramp in Core Customer and increased product and customer mix headwinds and unexpected dilution from our web price realignment
Ocean Freight Volumes continue to be very strong and above last year’s numbers on Transpacific while we see structurally blank sailings due to Cape of Good Hope routings and port congestion in Asia and North America. - Flexport
SNOW Reportedly to close hacking probe after attack targeted clients – press
SIG Reports Q1 $1.11 v $1.78 y/y, Rev $1.51 B v $1.67B y/y; Notes notable acceleration from a sluggish Feb to the top half of expectations, with an even stronger May; Sees positive same store sales inflection in H2 FY25
FRI 06-14
(JP) BOJ Gov Ueda: Rate hike in July is naturally possible depending on data
(RU) Russia Pres Putin: Sets out Russia pre-conditions for talks with Ukraine and "complete ending of the conflict"; Demands Ukraine pull out of four Eastern regions entirely - comments ahead of Ukraine's Peace summit in Switzerland
(US) MAY IMPORT PRICE INDEX M/M: -0.4% V -0.1%E; Y/Y: 1.1% V 1.3%E
(US) JUN PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 65.6 V 72.0E
(US) Tier1 week-to-June 13th US Truckload Demand Indicator at 53.1 v 53.4 prior (below 54 avg freight recession level)
NUE Guides Q2 $2.20-2.30 v $3.02e, cites lower average selling prices at steel mills segment
TSCO.UK Q1 Trading Update: LFL UK & ROI +3.6% v +3.4%e; Affirms guidance; Trends in line with expectations