Weekly Market Update: Monetary policy finally starts to show through in the data
Markets mostly shrugged off political risk in Europe this week and keyed off central bank policy outlooks. Economic readings continued to show the desired effects from ‘higher-for-longer’ monetary policy, namely slower growth but no signs of a collapse. Bond yields tracked lower after US May retail sales missed expectations across the board and April numbers were revised lower. Later in the week, US Housing starts, Philly Fed and weekly claims all continued to show signs of softening. Prices paid in the manufacturing data rose at a faster pace than prices received, signaling potential corporate margin pressure. The Citi Economic Surprise Index recorded its longest continuous stretch of negative US economic data surprises since 2022. European flash PMIs for June were surprisingly weak. All components for the Euro Zone, Germany, and France missed estimates raising the hopes for another ECB cut next month. The Yen hit fresh 34-year low against the dollar after Japan services PMI fell into contraction for first time nearly two years. WTI crude prices continued to lift into the low $80’s, touching levels not seen since late April. For the week, the S&P gained 0.6% and the DJIA added 1.5%, while the Nasdaq was flat.
As expected the BOE kept rates on hold. The announcement was seen with a dovish tilt though, as MPC members now seem to be less concerned about services inflation, opening the door for traders to increase bets on an August rate cut. Also, the SNB surprised markets by cutting rates again becoming the first major central bank to do back to back rate cuts in the current cycle. Various Fed officials expressed their desire to see more encouraging inflation reports like May’s, but also emphasized a growing belief that the aggregate data are coming into much better balance. Several policy makers continued to suggest 1 or perhaps 2 rate cuts are likely later in the year. Corporate signals also continued to provide evidence that the Fed medicine is filtering through to prices consumers are seeing. Starbucks and McDonald’s both confirmed deals to offer discounted and promotional offerings. Kroger noted they are offering low cost meals intended steal market share from restaurants, while the industry in general is increasingly embracing private label brands.
Purveyors of big ticket items indicated that while they are detecting consumers are keeping a tighter grip on their purse strings, they still aren’t shying away from buying cars or houses. CarMax reported weaker than expected results for Q1, and noted price declines continued versus the year ago comparison, though management suggested they were starting to see some stability in pricing. They and other used car dealers also had to contend with a disruption at a key software provider that was overwhelmed by a cyber-attack, creating friction in the sales process this week. Homebuilders Lennar and KB Home both easily topped earnings expectations, and said buyers remain resilient, while rival Darden noted they have seen an uptick in discounting and promotional activity. Steel Dynamics reported preliminary Q2 numbers below analyst expectations, but shook that off with commentary that non-residential construction remains solid, evidenced by the company’s backlog volume for steel joists and decks. Gilead got some much needed positive news, announcing its twice yearly shot for HIV prevention was shown to be 100% effective. In M&A news, Microsoft continued to press ahead in the AI race with reports it is in talks to acquire startup Adept, which builds business-oriented AI tools.
MON 06-17
(CN) CHINA PBOC CONDUCTS CNY182B IN 1-YEAR MEDIUM TERM LENDING FACILITY (MLF) MONTHLY SETTING AT 2.50% VS. 2.50% PRIOR
(US) Citi Economic Surprise Index recorded longest continuous stretch of negative US economic data surprises since 2022 – press
(US) JUN EMPIRE MANUFACTURING: -6.0 V -11.3E (highest since Feb); New Orders: -1.0 v -16.5 prior (highest since Sept 2023); Optimism about the six-month outlook at 2-yr high
AFX.DE Cuts FY23/24 Rev €2.0B (prior €2.10-2.15B), EBIT 'lower y/y' (prior 'comparable y/y') due to slower than expected recovery of equipment business; Suffering from a restrictive investment climate among key customer groups, particularly in North America
COF Reports May net charge-offs 6.13% v 6.07% m/m; Domestic Card delinquencies: 4.13% v 4.23% m/m
LEN Reports Q2 $3.45 v $3.20e, Rev $8.77B v $8.57Be; Notes macroeconomic environment remained relatively consistent with employment remaining strong
SON Increases prices for all paperboard converted products in North America and Canada by >6%, effective July 10th
STLD Reports prelim Q2 $2.64-2.68 v $2.97e; Notes lower realized pricing offsetting steady shipments; Non-residential construction sector remains solid, steel joist and deck order backlog volume extends into Q4 2024
TSM Said to raise prices for 3nm manufacturing by 5% and also for CoWoS advanced packaging by 10-20% from 2025 as its utilization rate is almost full driven by AI demand - Taiwanese press
TUES 06-18
(DE) GERMANY JUN ZEW CURRENT SITUATION SURVEY: -73.8 V -65.0E (1st M/M drop since Jan); EXPECTATIONS SURVEY: 47.5 V 50.0E
(IL) Israel Military: Operational plans for an offensive in Lebanon were approved and validated
(JP) Japan MOF panel to urge govt to issue shorter-duration debt to reduce interest rate risk - Japanese press, citing a draft proposal
(US) Fed’s Barkin (voter): We're clearly on the backside of inflation
(US) MAY ADVANCE RETAIL SALES M/M: 0.1% V 0.3%E; RETAIL SALES (EX-AUTO) M/M: -0.1% V +0.2%E
(US) Mid-June Manheim wholesale used vehicle Index at 196.8; 0.3% m/m; -8.5% y/y
(US) Goldman Sachs: Our employment survey tracker has fallen to levels consistent with stagnation or slight contraction; The labor market stands at a potential inflection point
(US) Redfin: US home prices rose 0.3% m/m in May (the smallest increase on a seasonally adjusted basis since Jan 2023); Inflation continued to cool in May, which means mortgage rates could decline in late summer or early fall
(US) US and Israeli intelligence agencies reportedly looking into new information about computer modeling by Iranian scientists that could be used for research and development of nuclear weapons – press
(US) Tier1 analysts call summary with CEO & Head of Group at NATM Buying Corporation on trends in the appliance industry: Believes the Memorial Day promotional sales were generally extended into a Father's Day promotion on appliances, which has not historically occurred
TTN Research Alert: Researchers from South Korea successfully observed the movement of quantum waves (or "magnons") that can transmit information without generating heat through electron resistance; The new technology addresses the shortcomings of next-gen semiconductor technologies, spintronics, and orbitronics
AMZN Amazon Pharmacy's RxPass now offers Prime members on Medicare unlimited access to 60 eligible prescription medications for $5/month, plus fast, free delivery
KBH Reports Q2 $2.15 v $1.78e, Rev $1.71B v $1.64Be; Raises FY24 guidance - Buyers remained resilient
KOMN.CH Guides FY24 (CHF) Rev 602M -20% y/y, EBIT 'modestly positive'; Notes its customers are investing less and postponing projects Implements cost reductions due to declining revenues; Acquires 56% stake in Hosver, effective July 1st
WED 06-19
(FR) EUROPEAN COMMISSION CONFIRMS TO PROPOSE PUTTING FRANCE AND ITALY INTO EXCESSIVE DEFICIT PROCEDURE (EDP); Also wants start disciplinary budget steps against Belgium, Hungary, Malta, Poland and Slovakia as their budget deficits above the EU limit of 3% of GDP
(IL) Hezbollah Chief Nasrallah: If war imposed on Lebabon, group will fight with no rules and no ceilings; Hezbollah has new weapons and intelligence capabilities that could help it target more critical positions deeper inside Israel in case of an all-out war
(UK) MAY CPI M/M: 0.3% V 0.4%E; Y/Y: 2.0% V 2.0%E (moves back to BOE target for 1st time in 3 years)
(US) JUN NAHB HOUSING MARKET INDEX: 43 V 46E
(US) Reportedly illegal crossings along the US southern border plunged to roughly 2,000 on June 17th (lowest number since 2020) - CBS News
TTN Research Alert: Goldman Sachs sees US jobs market at a potential inflection point; Which CEOs have recently hinted that US economy might be slowing down ahead of Q2 earnings season next month?
BB.FR Cuts FY24 Net Rev low-single digit (cc), Affirms FCF >€220M (prior "Net Rev +5-7% (cc), FCF >€220M"); Notes from end-May saw deteriorating
DELL CEO: We’re building a Dell AI factory with Nvidia to power Grok for xAI (update)
MAERSKB.DK CEO: Maersk’s strategy shift to focus on end-to-end container transport will start to show its benefits in coming earnings reports - press interview
THRS 06-20
(CH) SWISS NATIONAL BANK (SNB) CUTS POLICY RATE BY 25BPS TO 1.25%; NOT EXPECTED (first major central bank to do back-to-back rate cuts in current cycle)
(US) According to Fox News poll, Biden leads Trump in potential rematch for the first time since Oct 2023
(US) Atlanta Fed GDPNow: Cuts Q2 GDP forecast to 3.0% from 3.1%
(US) Fed’s Barkin (voter): There is no question that frothy asset markets are supportive of spending
(US) DOE CRUDE: -2.55M V -2ME; GASOLINE: -2.2M V 0ME; DISTILLATE: -1.7M V 0ME
(US) JUN PHILADELPHIA FED BUSINESS OUTLOOK: 1.3 V 5.0E
(US) INITIAL JOBLESS CLAIMS: 238K V 235KE; CONTINUING CLAIMS: 1.83M V 1.80ME (highest since early March)
(US) MAY HOUSING STARTS: 1.277M V 1.370ME (lowest since June 2020); BUILDING PERMITS: 1.386M V 1.450ME (lowest since Jan 2023)
Transpacific Eastbound Ocean Freight Bookings volumes remain very strong and exceed last year’s numbers – Flexport
ACN Reports Q3 $3.13 v $3.14e, Rev $16.5B v $16.6Be; Cuts outlook again, generative AI bookings $900M v $600M q/q
CMC Reports Q3 $1.02 v $1.08e, Rev $2.08B v $1.97Be; Notes spring and summer construction season is off to a good start, seeing encouraging signs of increased infrastructure activity driving demand
GILD Sunlenca (lenacapavir) shows 100% efficacy for HIV prevention; Phase 3 HIV trial shows zero infections among 2,134 women
GMS Reports Q4 $1.93 v $2.04e, Rev $1.43B v $1.42Be; Notes it sees recent Steel manufacturer price increases to improve stabilization in pricing to pressure its Q1 performance; Single-family Y/Y Wallboard volume growth turned positive for the first time since the fall 2022
VAR1.DE Cuts FY24 Rev outlook to €820-870M (prior: at least €900M); Cites further significant deterioration in the market environment for energy storage systems, especially in Q2
FRI 06-21
(CN) US releases details on planned outbound restrictions; Proposes rules on outbound tech investments to China, which will focus on chips, Quantum computing, and artificial intelligence
(CN) China MOFCOM: EU actions may trigger a trade war
(FR) FRANCE JUN PRELIMINARY MANUFACTURING PMI: 45.3 V 46.8E (17th straight contraction, below all estimates); Input price inflation at manufacturers quickened to a 17-month high
(UK) JUN PRELIMINARY MANUFACTURING PMI: 51.4 V 51.1E (highest since July 2022); Notes persistent service sector inflation remains evident in the survey
(US) BOFA INSTITUTE: WEEK-TO-JUNE 15TH TOTAL CARD SPENDING +1.5% Y/Y V +0.7% AVERAGE IN MAY; Card spending appears to be robust through mid June
(US) Citi Mid-June Economic Surprise Index drops to -28.1 v -9.3 prior (lowest since Aug 2022)
(US) JUN PRELIMINARY S&P MANUFACTURING PMI: 51.7 V 51.0E
KMX Reports Q1 $0.97 v $1.01e, Rev $7.11B v $7.21Be; Notes continued y/y price declines, ongoing growth in upper funnel demand
LMT China Foreign Ministry has decided to apply countermeasures on Lockheed Martin over Taiwan arms sales - financial press [**Note: China has already sanctioned and fined Lockheed Martin for Taiwan arms sales several times earlier]
OPENAI.IPO Traders circulating interview by OpenAI Chief Technology Officer Mira Murati published on June 20th where she hinted that next big ChatGPT update with "PhD level of intelligence" for specific tasks to be released in around year and a half [**Note: seems to be at higher-end of prior speculated timelime of 9 months to over 1 year]
China’s super-rich are eyeing the exit
But capital controls mean getting money out of the country is no easy task
Chinese call it “runxue” or “run-ology” — the study of escaping China and taking your wealth with you. The word plays on the English verb “run”, which sounds like a Chinese character “run”, meaning profitable. The “ology” hints at the fact that emigrating overseas is no easy task. Working out where to go, how to get there and then finding ways to smuggle your capital out of China can be an obscure science.
The word became popular inside China in 2022, when Beijing’s draconian Covid lockdown incited people to dream of a life abroad. But this year, the “running” has become a concerted sprint for the exit. Record numbers of Chinese millionaires and multimillionaires are expected to emigrate from their homeland this year, building on the record number who left last year, according to a report by Henley & Partners, a UK-based investment migration firm.
The exodus puts China far out in front of a list of countries from which “high net worth individuals” are evacuating for a better life or prospects elsewhere. An estimated 15,200 Chinese millionaires are predicted to emigrate this year, up from 13,800 who actually left China last year, Henley & Partners said.
“This great millionaire migration is a canary in the coal mine, signalling a profound shift in the global landscape and tectonic plates of wealth and power,” says Henley’s Dominic Volek.
China’s loss is mirrored by the net inflows of wealthy people into other countries. At the top of the leaderboard are the United Arab Emirates, the US, Singapore and Canada. Japan, where Chinese billionaire Jack Ma sojourned for some months in 2022 after falling out of favour in Beijing, is also seeing inflows of millionaires.
For Xi Jinping, China’s strongman leader, the trend represents a commentary on his rule. His advocacy since 2021 of “common prosperity” included a promise that high-income people will have to “return more to society” for the betterment of those left behind in China’s dash for growth over the past four decades.
On one level, this determination to spread the benefits of China’s rise more evenly was laudable. But the jarring and often arbitrary way it has been pursued — with a crackdown on the property sector, the humbling of private entrepreneurs and official exhortations against “greed” — has swelled the desire to emigrate.
“President Xi Jinping is unfortunately an incompetent leader when it comes to the economy,” says Junhua Zhang of the European Institute for Asian Studies, a think-tank in Brussels. “For wealthy people, if they cannot generate more wealth in the country, then the only solution is to change their location.”
But once they have decided to leave China, wealthy people face a series of trade-offs. Where to go is the first. Preferred destinations in a world riven by conflict should be safe, so geographically remote places such as New Zealand and Australia are sometimes favoured.
Other locations have rolled out the regulatory red carpet. The UAE and Portugal both have “golden visa” systems to fast-track immigration for wealthy investors, a feature that Chinese have found particularly attractive. The US and Canada also have their own distinct draws — good schools and universities, large Chinese communities and civil freedoms. Japan, for its part, has proximity to China, an Asian culture and good social order.
But perhaps the most challenging aspect of “run-ology” is getting your money out with you. To prevent capital flight, Beijing limits the amount that a citizen can take out of the country to $50,000 in foreign currency each year — a paltry sum compared to the cost of starting a new high-end life overseas.
So many would-be migrants are left with little choice but to turn to “underground banks” to help spirit their wealth abroad. These shadowy institutions deploy numerous sleights of hand to transfer money across borders without law enforcement agencies noticing.
One method is known as the “mirror transfer”, under which a sum of money is deposited in one underground bank in China. The same amount is then withdrawn from a reciprocal underground bank in another country. The money never actually moves, leaving little trail for detectives to follow.
The US Department of Homeland Security said in a statement in April that such Chinese money laundering organisations — which have become among the favoured financial conduits for criminal gangs and drug cartels — were also used by ordinary Chinese citizens simply trying to get cash abroad.
But even after such obstacles to migration have been overcome, wealthy Chinese can find life overseas brings a whole new set of unfamiliarities. Adapting to new food, weather and politics can be tricky. But the more intractable problems are societal.
“If you are a social butterfly who cannot live without social activities, then northern Europe will definitely not suit you,” says one Chinese influencer online. “In northern Europe, there is a level of social fear . . . most people stay within a fixed group of a few friends. So it won’t be much fun . . . ”
OnlyFans executive had bank account frozen over platform’s links to adult content
Chief financial officer Lee Taylor is latest to admit he was ‘debanked’ alongside other creators on subscription site
A top OnlyFans executive has admitted that his bank account was suspended, hit by a growing problem faced by those associated with the social media platform used by sex workers.
Lee Taylor, chief financial officer, told the Financial Times’s TNW tech conference in Amsterdam this week: “My bank, where I have my mortgage for my house — where my family and my two children live — froze my account for a month while they went through a compliance procedure.”
He added: “They weren’t very transparent with me, but I later found out . . . that it was the name of the company that was paying my wages that had caused the compliance review.”
His admission comes months after Keily Blair, OnlyFans chief executive, told the FT that her application for a personal bank account had been declined because she works for OnlyFans.
OnlyFans, which rejects the notion it is a pornography site, has struggled to overcome negative perceptions from adult content that dominates the platform. Banks and payments providers have long considered services associated with sex work as high risk, despite such content being legal.
“Reputational risk is a blanket term that they use,” said Taylor, referring to financial institutions.
The two OnlyFans executives declined to name the banks involved in their cases, with Taylor adding: “I don’t want to lose my mortgage.”
The London-based site has campaigned for better treatment from financial institutions for influencers on its platform who have struggled to obtain mortgages or bank accounts, known as “debanking”. More than 80 per cent of members of the Sex Workers Union say they have experienced some form of financial discrimination.
Sex workers have argued that the practice leaves them more vulnerable to financial exploitation.
The financial services group that turned Blair’s application down “would previously have been incredibly keen to have my business”, she said in an interview with the FT in February. “Nothing about me has changed, nothing about my risk profile has changed, but it was very interesting to see that prejudice come up.”
Blair called it a “really good lesson” on some of the issues that OnlyFans’ creators face.
The platform allows creators including adult content stars, musicians and artists to sell videos, images and messages directly to subscribers who pay a monthly fee of between $5 and $50.
OnlyFans takes a 20 per cent commission from that. Its revenues grew more than 17 per cent in the year ending November 2022 to more than $1bn.