Weekly Market Update: Major central banks start cutting rates; Fed lags behind as data remains inconclusive
Stocks and risk sentiment in general held onto positive momentum this week as the run of incoming weak US data renewed concerns about the growth outlook. Markets moved back to pricing in two Fed rate cuts by year end-2024, helped in some part by the Bank of Canada and ECB which each jumped into the pool by cutting rates for the first time in years. The ECB cut was portrayed in a hawkish light after reports suggested the hawks had their arms twisted by the forward guidance already priced into the market when they voted to support a rate cut on Thursday. Separately, oil prices after falling for 5 straight sessions, found some footing mid-week, moving up from the lowest prices since February in the wake of OPEC+ extending oil production cuts by 3 months through the end of 2025.
Nvidia served as the poster child for risk on sentiment, surpassing $3T in market cap ahead of the stock split set to take effect after the close of trade on Friday. GameStop, on the other hand, suggested some caution maybe warranted on exuberance. Shares surged back towards the meme stock highs from a few years ago after Keith Gill (aka Roaring Kitty) appeared to disclose a large options position on social media. Shares would whipsaw around on Friday after the company announced a large secondary offering ahead of a rambling YouTube presentation from Gill in which he reiterated his support for GameStop management but admitted "I could be wrong about stuff." For the week, the S&P gained 1.3%, the DJIA edge up 0.3%, and the Nasdaq added 2.4%.
US Treasury yields fell to the lowest levels in the last 2-months. Economic data supported the expanding narrative that higher rates have finally started to bite into growth. JOLTS job openings decelerated noticeably in April to the lowest level since early 2021. ADP employment data pointed to noticeable deceleration in wage gains for jobs changers, as well as, notable pockets of weakness tied to both producers and consumers. May ISM manufacturing data missed expectations and new orders fell to the lowest levels in nearly a year. ISM Services data was better than expected, as prices paid came in, offsetting some of the growing concerns around growth and sticky inflation. Nevertheless, softer economic readings were paired with additional corporate commentary which highlighted growing pockets of deflation that executives are being forced to deal with particularly when it comes to discretionary spend and low-income consumers.
The hints of softness in the secondary labor market indicators seen early in the week did not carry over to the May BLS employment report. The head scratching dichotomy between the establishment and household surveys remained patently evident with non-farm payrolls topping all analysts’ expectations at +272K, as the household survey saw a decline of 408K jobs. While the unemployment rate rounded up to 4.0%, average hourly earnings surprised on the high side. Treasury yields backtracked higher in the wake of the data alongside a move higher in the dollar. Futures markets saw the odds of a September Fed cut fall to 60% from 80%.
MON 6/3
(DE) GERMANY MAY FINAL MANUFACTURING PMI: 45.4 V 45.4E (confirms 23rd month of contraction); New Orders highest in 2 years
(IT) ITALY MAY MANUFACTURING PMI: 45.6 V 48.0E (2nd month of contraction and lowest since Dec 2023)
(US) Citi Early-June Economic Surprise Index -4.1 v -10.9 prior (continue to bounce from the lowest level since Sept 2022 reached in early May)
(US) MAY ISM MANUFACTURING: 48.7 V 49.6E; PRICES PAID: 57.0 V 59.5E
AIR.FR Reports May deliveries 50 v 61 m/m; May YTD deliveries 253 (Note: FY24 guidance of 800)
INTC Unveils flagship processor for the next generation of AI PCs, Lunar Lake, expected to ship in Q3 2024; Also unveils new Xeon 6 data center processors with more efficient cores and Intel Gaudi 3 accelerators, projected to offer up to 40% faster time-to-train versus the equivalent size Nvidia H100 GPU cluster
MAERSKB.DK Raises FY24 EBITDA $7-9B, EBIT $1-3B, FCF ~$1B (prior: EBITDA $4-6B, EBIT -$2B to $0B, FCF -$2.0B or higher); Seeing additonal increase in container freight rates
JBLU Raises lower-end Q2 ASMs -4.0% to -2.0% (prior -5.0% to -2.0%), Rev -9.5% to -6.5% (prior -10.5% to -6.5%); Continues to experience healthy overall demand trends, in-line with expectations
TSM *CEO/Chairman: Affirms Q2 and FY24 outlook; Weighs raising production fees for Nvidia; Reiterates 'healthy' growth year expected for 2024; Does not want to buy back stock or do stock split; Had conversions with customers about moving fabs due to China-Taiwan tensions - shareholders' meeting
TTF Recent strength in gas futures being attributed to Norwegian gas system operator Gassco increased planned gas outage due to some incident at the Sleipner Riser platform on June 2nd; It may be linked to a section of pipeline that needs to be replaced
TUES 6/4
(EU) ECB will demand more CRE loan provisions from some German banks – press
(DE) GERMANY MAY NET UNEMPLOYMENT CHANGE: +25.0K V +7.0KE; UNEMPLOYMENT CLAIMS RATE: 5.9% V 5.9%E
(DE) Parts of the river Rhine in south Germany remained closed to cargo shipping on June 4th after heavy rain in south Germany increased water levels; Shipping on northern sections of the river is operating normally – press
(IN) India SENSEX and Nifty 50 indices -5%; Adani falls -15%, Adani Power -17%, Adani Ports -20% on India election jitters
(IN) India SENSEX and Nifty 50 indices continue selloff, down -7% as updated election polls indicate closer result for Modi than initially thought
(JP) JAPAN APR LABOR CASH EARNINGS Y/Y: 2.1% V 1.8%E
(JP) BOJ REPORTEDLY TO CONSIDER CUTTING BOND PURCHASES AS EARLY AS JUNE 13-14TH'S MEETING; to watch markets until the last moment before deciding on bond purchases – press
(US) Atlanta Fed GDPNow: Cut Q2 GDP forecast to 1.8% from 2.7% prior and 4.2% month ago (update)
(US) APR FACTORY ORDERS: 0.7% V 0.6%E
(US) APR FINAL DURABLE GOODS ORDERS: 0.6% V 0.7%E; DURABLES (EX-TRANSPORTATION): 0.4% V 0.4%E
(US) US Pres Biden: Reiterates his stance will Not rule out using US forces to defend Taiwan; Peace looks like making sure Russia never, never, never, never occupies Ukraine - Time interview
(US) Tier1 analysts on call with Associated General Contractors of America to discuss construction outlook: Have been getting back to period where input costs have bene rising and bid costs have been declining over the past 12 months; Leading producers indicating prices to continue increasing in July
CRWD Reports Q1 $0.93 v $0.89e, Rev $921M v $905Me; Raises outlook
GTLB Exec: There weren't any major macro changes from Q4 to Q1. Sales cycles and discounting were consistent. The macro continues to be cautious - conf call (update)
NVDA CEO: My interest remains in using Intel fabs for Nvidia chips; Working on qualifying Samsung and Micron HMB; Refutes Samsung HBM has failed any Nvidia tests - Computex conf comments [***Note: Nvidia has so far exclusively sourced HBM3E chips from SK Hynix]
SON Raises prices for core board and paperboard in the rest of Europe citing input costs have continued to rise beyond its initial estimation; valid for all shipments after 1st July, 2024
WED 6/5
(CA) BANK OF CANADA (BOC) CUTS INTEREST RATES BY 25BPS TO 4.75%; AS EXPECTED
(EU) European Commission is expected to levy provisional duties on made-in-China electric vehicles from July 4th; Rate to be disclosed next week - SCMP [**Note: The legal deadline for introducing provisional measures such as tariffs or quotas is July 4th, nine months after EU Commission began its investigation]
(IT) ITALY MAY SERVICES PMI: 54.2 V 54.5E (5th month of expansion); Notes continued sharp rise in input prices
(RU) Russian Pres Putin: Reiterates Russia will not attack NATO; Russia could arm countries with a view to attacking Western targets; Also Russia could deploy conventional missiles within striking distance of the US and its European allies if they allowed Ukraine to strike deeper into Russia with long-range Western weapons - first face-to-face meeting with senior editors of international news agencies since the war in Ukraine began
(US) DOE CRUDE: +1.2M V -1.5ME; GASOLINE: +2.1M V +1ME; DISTILLATE: +3.2M V +1.5ME
(US) FBI Director Christopher Wray: Now, increasingly concerning is the potential for a coordinated attack here in the homeland, akin to the ISIS-K[horasan] attack we saw at the Russia Concert Hall in March
(US) MAY ADP EMPLOYMENT CHANGE: +152K V +175KE (lowest since Jan); Cites "notable pockets of weakness tied to both producers and consumers"; Says job gains and pay growth are slowing going into H2 2024
(US) MAY FINAL S&P SERVICES PMI: 54.8 V 54.8E (confirms 16th month of expansion)
(US) MAY ISM SERVICES INDEX 53.8 V 51.0E; PRICES PAID: 58.1 V 59.0E
COST Reports May Total SSS +6.5% y/y (ex-gas and FX) v +5.5% prior; US SSS +5.7% (ex-gas and FX) v +5.2% prior
FIVE Reports Q1 $0.60 v $0.62e, Rev $812M v $832Me; Guides Q2 well short and cuts FY24 outlook
ITX.ES Reports Q1 Net €1.29B v €1.17B y/y, EBIT €1.64B v €1.61Be, Rev €8.15B v €7.61B y/y; May 1st-June 3rd Rev (cc) +12% y/y v +7% during Q1
LRCX CFO: Saw early signs of NAND recovery - BoFA Tech Conf comments (update)
NVDA Tier1 analysts on meetings with CFO Colette Kress, VP IR Simona Jankowski and Dir IR Stewart Stecker; Overall tone very positive on demand and expanding customer interest, gated only by supply
ODFL May Revenue per day increased 5.6% y/y; LTL tons per day +1.5% y/y
THO Persistent macroeconomic headwinds continue to impact retail sales in the RV industry; As we look ahead to Q4, we believe dealers will remain hesitant to hold any excess inventory until a sustained positive inflection in retail demand takes hold - prepared remarks
THRS 6/6
(EU) ECB Chief Lagarde: Reiterates not pre-committing to any particular rate path - Prepared Remarks
(EU) ECB UPDATES STAFF PROJECTIONS: Now sees 2025 Inflation above 2% target
(EU) ECB CUTS KEY RATES BY 25BPS; AS EXPECTED; To stay data-dependent, follow meeting-by-meeting approach
(EU) ECB Chief Lagarde: ECB is not close to neutral rate; Not going to tell you until much later in summer if we do something now or at another point in time; Speed and timing is uncertain - Q&A
(JP) Bank of Japan (BOJ) Board Nakamura: Raising rates at next week's meeting would be too early, but hard to say whether it would be premature to taper bond buying at next week's policy meeting; To conduct appropriate policy for price target (2%), though the weak Yen is becoming a 'big issue' - Post speech Q&A
(UK) MAY CONSTRUCTION PMI: 54.7 V 52.5E (3rd month of expansion and 2-year high)
(US) Atlanta Fed GDPNow: Raises Q2 GDP forecast to 2.6% from 1.8% prior and 4.2% month ago (update)
(US) BOFA INSTITUTE: WEEK-TO-JUNE 1TH TOTAL CARD SPENDING -0.4% Y/Y V +0.3% AVERAGE IN APR; Y/y spending growth in many categories was likely impacted by the shift in Memorial Day observance (5/27/24 vs. 5/29/23)
(US) Q1 FINAL NONFARM PRODUCTIVITY: 0.2% V 0.0%E; UNIT LABOR COSTS: 4.0% V 4.9%E
BIG Reports Q1 -$4.51 v -$4.23e, Rev $1.01B v $1.04Be; Notes continued pullback in consumer spending by its core customers, particularly in high ticket discretionary items
DOCU Reports Q1 $0.82 v $0.79e, Rev $710M v $706Me; Affirms FY24 Guidance; Announces $1B share buyback program
FIVE *CEO: If it really was competition, the bifurcation we saw from the first half of the quarter to the second half would have never dropped off instantly because there wasn't an event that was competitive-driven that happened in the middle of the quarter - earnings call (update)
HOFT Reports Q1 -$0.39 v +$0.13 y/y, Rev $93.6M v $11.8M y/y; Notes ongoing weak demand that’s adversely impacting the furniture industry; Consumer sentiment index fell ~10% in May after holding steady for months; Expects a 10% reduction in overall fixed costs, the largest cut in its history
SMG Cuts FY24 adj EBITDA $530-540M (prior $575M) citing season not meeting operating plan for topline sales and adjusted EBITDA; Affirms FCF target of $1B over 2-years, gross margin improvement of 250bps
SON Sonoco-Alcore to raise prices by 7% on all tube and core grades sold in the company’s EMEA regions; "Forced to pass on cost increases to the market, as unable to absorb them any further"
Transpacific Eastbound Ocean Freight Bookings volumes expected to be +10% higher YoY – Flexport
FRI 6/7
(CA) CANADA MAY NET CHANGE IN EMPLOYMENT: +26.7K V +22.5KE; UNEMPLOYMENT RATE: 6.2% V 6.2%E
(CN) CHINA MAY FOREIGN RESERVES: $3.232T V $3.221TE; Essentially halts gold buying for reservesfor the 1st time in 19 months
(CN) China said to push forward a massive equipment upgrade program in the transportation sector with the aim to increase use of NEVs in public transport, improve the structure of shipping capacity and further reduce carbon emissions in the sector by 2028 – press
(CN) China reportedly asks banks to accelerate lending to developers – press
(IN) INDIA CENTRAL BANK (RBI) LEAVES REPURCHASE RATE UNCHANGED AT 6.50%
(UK) MAY HALIFAX HOUSE PRICE INDEX M/M: -0.1% V +0.1% PRIOR; Y/Y: 1.5% V 1.1% PRIOR
(US) APR FINAL WHOLESALE INVENTORIES M/M: 0.1% V 0.2% PRELIM
(US) Atlanta Fed GDPNow: Raises Q2 GDP forecast to 3.1% from 2.6% prior
(US) MAY AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 4.1% V 3.9%E
(US) MAY CHANGE IN NONFARM PAYROLLS: +272K V +180KE (above all estimates)
(US) May Manheim wholesale used vehicle Index: 197.3 v 198.4 prior; -1.2% m/m, -12.1% y/y (update)
(US) MAY UNEMPLOYMENT RATE: 4.0% V 3.9%E (highest since Jan 2022)
(US) Q1 FINANCIAL ACCOUNT HOUSEHOLD CHANGE IN NET WORTH: $5.12T V $4.839T PRIOR
2330.TW Reports May (NT$) Rev 229.6B, +30.1% y/y (v 236.0B m/m); YTD Rev 1.06T +27.2% y/y v +26.2% prior
CE Declares force majeure and sales control for acetic acid and vinyl acetate monomer (VAM) sold in the Western Hemisphere due to operational failures experienced by multiple suppliers of critical raw materials; Currently expect U.S. gulf coast production of acetic acid and VAM will be negatively impacted by 15-20%
GME Files to sell 75M of common A shares (~27% of total float)
JILL Reports Q1 $1.22 v $0.96 y/y, Rev $161.5M v $150.2M y/y; Raises outlook citing strong end to the period