Contagion risks scare off investors in French banks
The major Eurozone economy has been mired in political turmoil
Investors abhor uncertainty. They may not have much nice to say about Emmanuel Macron either. After the French president’s Renaissance party suffered in the European parliamentary elections, his call for a snap election knocked the prices of local stocks and bonds. A good performance by Marine Le Pen’s far-right Rassemblement National (National Rally) party has raised the risk of a split in the Euro’s support.
Investors fear an overall majority for the RN party and a surge of anti-EU sentiment. Share prices of French banks, holders of regional debt and dependent on the euro, have fallen sharply in response.
Fears in the government debt markets have pushed the yield on French 10-year bonds to as high as 3.2 per cent, the highest since 2012’s euro debt crisis. A previously narrow spread against equivalent German Bunds has opened up by 25 basis points this past week alone suggesting nervousness. Shares in BNP Paribas and Crédit Agricole have fallen 11 per cent since the election announcement last week and Société Générale shares are down 14 per cent, all down much more than the broader equity market.
Still, markets have priced in plenty of gloom. Opinion polls suggest that the RN could win at most 40 per cent of seats, large but not a majority. Assuming Macron continues as president until 2027, key foreign policy and defence issues remain in his hands. But there’s no doubt his power would be weakened.
Similarities with the rise of rightwing parties in the 2018 Italian elections are noteworthy. Spreads on Italian bonds then too jumped to historically high levels and have since narrowed. The EU has since added the “transmission protection instrument” to its toolkit where it can buy regional bonds to control the risk of fragmentation.
All three of the big French banks sit on the Financial Stability Board’s list of Global Systemically Important Banks. These require higher capital buffers to ensure no contagion follows from any mishaps. After years of risk weighted asset inflation, their shareholders may not welcome more regulatory scrutiny.
Most of this year’s price rally in French banks has dissipated in recent weeks. On current valuations BNP and Crédit Agricole offer a total yield -with buybacks — of 10 per cent and 8 per cent respectively over the next two years, using Visible Alpha estimates. Shares in the two are being more heavily shorted than Soc Gen, according to S&P data.
Macron has gambled that his mandate with French voters can withstand this latest threat. For contrarian investors, bank stocks offer a good way to follow that bet.
5 Stocks Account For 60% Of The S&P's YTD Return: Charting The S&P 5 vs The S&P 495
Nvidia (NVDA) accounts for 34% of the 14% SPX year-to-date gain, and five stocks have accounted for 60% of the S&P 500 total YTD return; MSFT, NVDA, GOOGL, AMZN, and META have collectively surged by 45% and now comprise 25% of the S&P 500 equity cap.
A key reason for this unprecedented outperformance is that these five companies posted Q1 EPS growth of 84% YoY vs 5% for the typical S&P 500 stock. Furthermore, strong results for the past four quarters have prompted analysts to raise their 2024 EPS forecasts by 38% for these five Tech stocks. In contrast, the profit forecast for the other 495 stocks in the index have been reduced by 5%.
That said, while consensus 2024 forecasts imply a 31% gap between EPS growth for these five stocks and the median S&P 500 firm (37% vs. 6%) the gap is expected to narrow to 8% in 2025 and only 4% in 2026.
The performance gap between the SPX cap-weighted and equal-weight indices over the last two years is the widest in nearly 24 years. In fact, the equal-weighted index is now unchanged since the start of 2022.
The consequences are clear: breadth is catastrophic, and according to Morgan Stanley, one month breadth just hit a new low, with the percentage of stocks outperforming the S&P reaching the lowest level on record.
That has not stopped the cap-weighted SPX to officially be back in "overbought" territory with RSI at 75 but only 49% of S&P companies are above their 50dma.
Within the broader S&P, the six mega-caps with $1+ trillion market caps are up an average of ~11.5% in Q2. The remaining 490+ stocks in the index are down an average of ~3% in Q2.
AAPL was up 8% last week, adding $260B in market cap this week alone after a flood of stock buybacks, a burst of retail buying...
... and a gamma squeeze, all of which combined to help the (formerly) world's biggest company soar nearly 30% from its year-to-date lows as Tim Cook was hell-bent to reverse the narrative after dismal initial reception to the "Apple Intelligence" WWDC day.
The question rings louder with every record the market breaks. Momentum tends to carry on for a long time until something stops it, but it’s very rare for such a rally to persist as long as this one.
The one snag with momentum strategies is that when they reverse, they can do so in a very serious way. There hasn’t been a momentum crash for a while; the closest approach came when tech stocks sold off on April 19 after results from Netflix that were better than official forecasts but disappointed the market.
This was nothing compared to sharp moves in response to dovish signals from inflation data or from the Federal Reserve earlier in this cycle.
The biggest momentum reversal this decade came on the day in November 2020 when the results of Covid-19 vaccine tests convinced investors that the worst of the pandemic could be over much earlier than thought.
The reshuffle in the stock market was spectacular.
The Problem With Momentum - When it reverses, it can do so in a big way
Source: Bloomberg
With the same winners winning day after day, largely on growing enthusiasm rather than their results, it does make sense to fear a big reverse at some point, or indeed a bubble.
It’s perhaps even more concerning that the force driving the winners on is mostly valuations; it’s not about any great momentum in growing earnings, even though several companies have very much shown it.
The S&P 500 Momentum index’s earnings multiple tripled after plumbing its lowest point in over a decade only last May.
Over that period, its multiple growth has far outstripped that of the Magnificent Seven — although it’s obvious that the AI craze has a stake in this:
Source: Bloomberg
As one veteran trader remarked (while we note he admits participating tactically in this farce):
Russian billionaire Alisher Usmanov sues UBS over German probe
Lawyers for sanctioned tycoon accuse Swiss bank of triggering investigation
Alisher Usmanov has filed a lawsuit against UBS, accusing the bank of triggering a German investigation into the Uzbek-Russian billionaire by submitting “unsubstantiated reports” about his transactions.
The tycoon’s lawyers on Monday said the Swiss bank had submitted “absurd and unsubstantiated, if not knowingly false” reports between 2018 and 2022 to Germany’s Financial Intelligence Unit, the agency in charge of anti-money laundering.
“UBS violated the confidentiality of client data, spread misleading allegations about the client and grossly violated the general personality right,” they wrote in a statement, saying the billionaire had filed a lawsuit against the bank in Frankfurt on June 7.
Under German law, banks are required to file suspicious activity reports if they spot potential red flags that may point to money laundering. Lenders do not generally receive feedback over the quality of such reports and several have been fined for filing them too late.
Usmanov was among dozens of Russian businessmen to be hit by western sanctions following the invasion of Ukraine, with the EU describing him as having “particularly close ties” to President Vladimir Putin, something the billionaire denies.
The Frankfurt district court confirmed to the Financial Times that a lawsuit against UBS had been filed but said payment to the court, which is required under German law, had not yet been received.
Usmanov is suing UBS for damages, although a number has not yet been placed on the amount being sought, his lawyer told the FT.
UBS declined to comment.
Usmanov scored a legal victory last year when a court in Frankfurt ruled searches of his property in Germany were unlawful. The searches were carried out by German law enforcement as part of a money-laundering investigation into the billionaire.
The tycoon has previously categorically rejected any allegations of money laundering or tax evasion.
In their statement on Monday, Usmanov’s Munich-based lawyers described the raids as “theatrical” and claimed media reports about them were then used to justify the EU’s imposition of sanctions, leading to financial losses and reputational damage.
“The [Frankfurt prosecutors] and the Council of the EU have issued numerous erroneous decisions for which UBS is partly responsible, in particular, due to the use of its suspicious transaction reports as an instrument for the purposes of criminal prosecution and EU sanctions policy,” Peter Gauweiler, representing Usmanov, said in the statement.
“In view of this, and taking into account the damage to Mr Usmanov’s reputation and the value of the worldwide assets affected thereby, the effects for UBS may be “tsunami-like” in nature,” he added.
Usmanov, 70, is one of the world’s richest people, with an estimated fortune of almost $19bn, according to the Bloomberg billionaires index for 2024. He started accumulating his wealth while a senior director at Russian state gas group Gazprom in the 1990s, before building a business empire with holdings in some of the country’s largest mining, industrial and telecoms companies.
A former top shareholder in Apple, Facebook and Twitter, he also controls prominent Russian business newspaper Kommersant and is tied to the biggest super yacht ever built, the $600mn Dilbar, which is held by a trust.
This yacht and other properties linked to the billionaire were searched by German authorities in 2022 but a Frankfurt court subsequently revoked all the search warrants, with judges criticising investigators’ reliance on a video investigation into Usmanov by Russian opposition activist Alexei Navalny to justify their probe. The Frankfurt prosecutors’ criminal investigation into alleged money laundering is still ongoing, the law enforcement authority told the FT.
Numerous Russian oligarchs and businessmen have filed lawsuits in the EU in an attempt to annul the sanctions imposed on them by the bloc after the full-scale invasion of Ukraine. A handful have been successful.
The FT reported in 2022 that Uzbekistan was lobbying the EU to lift the sanctions on the tycoon, which include an asset freeze and travel ban. The European Court of Justice in February rejected Usmanov’s appeal against his inclusion on the EU sanctions list.
Tesla Sues EV-Battery Supplier Over Alleged Disclosure of Trade Secrets
Tesla claims Matthews International improperly filed patent applications incorporating the electric-car maker’s trade secrets
Tesla TSLA 5.30%increase; green up pointing triangle has sued Matthews International MATW -7.11%decrease; red down pointing triangle, a supplier of electric-vehicle batteries, for allegedly disclosing its confidential trade secrets to other companies, including competitors.
According to the lawsuit, filed on Friday in the Northern District of California, Matthews breached its contract and allegedly improperly filed patent applications incorporating Tesla’s trade secrets without the electric-vehicle maker’s consent.
Matthews said that the claims are without merit and that it intends to defend itself against them. Matthews alleges that the lawsuit is intended to bully the company and “improperly take” its intellectual property.
Tesla said that, unless Matthews is enjoined from continuing its allegedly unlawful actions, Tesla would suffer immediate and irreparable harm. Tesla claims the monetary damages owed would likely exceed $1 billion.
In 2019, Tesla selected Matthews to be one of its suppliers for equipment that it used to refine its dry-electrode-battery manufacturing and put it into mass production.
Tesla said that, since discovering Matthews’s alleged improper conduct, the company has been working to block and/or delay publication of the affected applications. Only a subset of Tesla’s confidential information regarding dry-electrode manufacturing has been published so far, according to the lawsuit.
Matthews refuted Tesla’s allegations and said the complaint attempts to restrict the company from realizing the value of its intellectual property. Matthews also said that it continues to work with Tesla as a trusted supplier.
After Hours Summary: LZB +10.7% energetic response to AprQ results; CHGG +23.1% soaring on restructuring news; LEN -1.6% slipping following MayQ results
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: LZB +10.7%
Companies trading higher in after hours in reaction to news: CHGG +23.1% (restructuring plan), PRCT +2.4% (AMA establishes new CPT Category I code), CTMX +2.1% (names new CFO), SIGA +1.6% (to expand access to TPOXX to ASEAN member states), KYTX +1.2% (first-in-disease use of Kyverna Therapeutics' KYV-101), LNG +0.9% (increasing repurchase plan and dividend), MRK +0.4% (FDA approves KEYTRUDA plus other medication; also approves CAPVAXIVE), ET +0.2% (submits premerger notification), IBP +0.1% (acquires Thrice Energy Solutions and Gutter Pro Enterprises), CAAP +0.1% (reports May passenger traffic data), INTT +0.1% (launches tech for EV battery testing)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: LEN -1.6%
Companies trading lower in after hours in reaction to news: VRE -6.9% (stock offering), NEE -3.9% (to sell $2.0 bln of equity units), BWXT -2.5% (awarded contract with Wyoming Energy Authority), URGN -2.5% (stock offering), PAAS -0.2% (provides mid-year exploration update)
DeepMind’s new AI generates soundtracks and dialogue for videos
DeepMind, Google’s AI research lab, says it’s developing AI tech to generate soundtracks for videos.
In a post on its official blog, DeepMind says that it sees the tech, V2A (short for “video-to-audio”), as an essential piece of the AI-generated media puzzle. While plenty of orgs, including DeepMind, have developed video-generating AI models, these models can’t create sound effects to sync with the videos that they generate.
“Video generation models are advancing at an incredible pace, but many current systems can only generate silent output,” DeepMind writes. “V2A technology [could] become a promising approach for bringing generated movies to life.”
DeepMind’s V2A tech takes the description of a soundtrack (e.g. “jellyfish pulsating under water, marine life, ocean”) paired with a video to create music, sound effects and even dialogue that matches the characters and tone of the video, watermarked by DeepMind’s deepfakes-combating SynthID technology. The AI model powering V2A, a diffusion model, was trained on a combination of sounds and dialogue transcripts as well as video clips, DeepMind says.
“By training on video, audio and the additional annotations, our technology learns to associate specific audio events with various visual scenes, while responding to the information provided in the annotations or transcripts,” according to DeepMind.
Link :
Mum’s the word on whether any of the training data was copyrighted — and whether the data’s creators were informed of DeepMind’s work. We’ve reached out to DeepMind for clarification and will update this post if we hear back.
AI-powered sound-generating tools aren’t novel. Startup Stability AI released one just last week, and ElevenLabs launched one in May. Nor are models to create video sound effects. A Microsoft project can generate talking and singing videos from a still image, and platforms like Pika and GenreX have trained models to take a video and make a best guess at what music or effects are appropriate in a given scene.
Link :
But DeepMind claims that its V2A tech is unique in that it can understand the raw pixels from a video and sync generated sounds with the video automatically, optionally sans description.
V2A isn’t perfect, and DeepMind acknowledges this. Because the underlying model wasn’t trained on a lot of videos with artifacts or distortions, it doesn’t create particularly high-quality audio for these. And in general, the generated audio isn’t super convincing; my colleague Natasha Lomas described it as “a smorgasbord of stereotypical sounds,” and I can’t say I disagree.
Link :
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AI
DeepMind’s new AI generates soundtracks and dialogue for videos
Kyle Wiggers
11:03 AM PDT • June 17, 2024
Comment
blue circle, yin yang
Image Credits: Google DeepMind
DeepMind, Google’s AI research lab, says it’s developing AI tech to generate soundtracks for videos.
In a post on its official blog, DeepMind says that it sees the tech, V2A (short for “video-to-audio”), as an essential piece of the AI-generated media puzzle. While plenty of orgs, including DeepMind, have developed video-generating AI models, these models can’t create sound effects to sync with the videos that they generate.
“Video generation models are advancing at an incredible pace, but many current systems can only generate silent output,” DeepMind writes. “V2A technology [could] become a promising approach for bringing generated movies to life.”
DeepMind’s V2A tech takes the description of a soundtrack (e.g. “jellyfish pulsating under water, marine life, ocean”) paired with a video to create music, sound effects and even dialogue that matches the characters and tone of the video, watermarked by DeepMind’s deepfakes-combating SynthID technology. The AI model powering V2A, a diffusion model, was trained on a combination of sounds and dialogue transcripts as well as video clips, DeepMind says.
“By training on video, audio and the additional annotations, our technology learns to associate specific audio events with various visual scenes, while responding to the information provided in the annotations or transcripts,” according to DeepMind.
Mum’s the word on whether any of the training data was copyrighted — and whether the data’s creators were informed of DeepMind’s work. We’ve reached out to DeepMind for clarification and will update this post if we hear back.
AI-powered sound-generating tools aren’t novel. Startup Stability AI released one just last week, and ElevenLabs launched one in May. Nor are models to create video sound effects. A Microsoft project can generate talking and singing videos from a still image, and platforms like Pika and GenreX have trained models to take a video and make a best guess at what music or effects are appropriate in a given scene.
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But DeepMind claims that its V2A tech is unique in that it can understand the raw pixels from a video and sync generated sounds with the video automatically, optionally sans description.
V2A isn’t perfect, and DeepMind acknowledges this. Because the underlying model wasn’t trained on a lot of videos with artifacts or distortions, it doesn’t create particularly high-quality audio for these. And in general, the generated audio isn’t super convincing; my colleague Natasha Lomas described it as “a smorgasbord of stereotypical sounds,” and I can’t say I disagree.
For those reasons, and to prevent misuse, DeepMind says it won’t release the tech to the public anytime soon, if ever.
“To make sure our V2A technology can have a positive impact on the creative community, we’re gathering diverse perspectives and insights from leading creators and filmmakers, and using this valuable feedback to inform our ongoing research and development,” DeepMind writes. “Before we consider opening access to it to the wider public, our V2A technology will undergo rigorous safety assessments and testing.”
DeepMind pitches its V2A technology as an especially useful tool for archivists and folks working with historical footage. But generative AI along these lines also threatens to upend the film and TV industry. It’ll take some seriously strong labor protections to ensure that generative media tools don’t eliminate jobs — or, as the case may be, entire professions.
Today's trade was somewhat mixed despite a solid showing at the index-level. The market-cap weighted S&P 500 extended its record high, climbing 0.8%, and the equal-weighted S&P 500 registered a 0.7% gain. Decliners had a slim lead over advancers, though, at both the NYSE and at the Nasdaq.
The underlying negative bias, driven by consolidation activity, was not enough to offset buying activity in some mega cap stocks.
Outsized gains in Apple (AAPL 216.67, +4.18, +2.0%) and Microsoft (MSFT 448.37, +5.80, +1.3%), which are two of the three stocks with a market cap above $3 trillion, provided some support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) was up 0.9%.
Broadcom (AVGO 1828.87, +93.83, +5.4%) was another top performer today, along with other semiconductor-related names. The PHLX Semiconductor Index (SOX) jumped 1.6%.
Strength in the mega cap and semiconductor spaces also boosted the S&P 500 information technology (+1.2%) and consumer discretionary (+1.4%) sectors to the top of the leaderboard today. These sectors combined comprise 43% of the index.
The rate-sensitive real estate (-0.8%) and utilities (-0.5%) sectors were the top laggards, clipped by a jump in yields.
The 10-yr note yield closed seven basis points higher at 4.28% and the 2-yr note yield settled eight basis points higher at 4.76%.
Today's economic data was limited to the NY Fed Empire State Manufacturing Index, which rose to -6.0 in June (consensus -13.0) from -15.6 in May.
Nasdaq Composite: +19.0% YTD
S&P 500:+14.8% YTD
S&P Midcap 400: +5.0% YTD
Dow Jones Industrial Average: +2.9% YTD
Russell 2000: -0.3% YTD
Looking ahead, Tuesday's economic calendar features the May Retail Sales report at 8:30 ET. Other data include:
9:15 ET: May Industrial Production (consensus 0.4%; prior 0.0%) and Capacity Utilization (consensus 78.5%; prior 78.4%)
10:00 ET: April Business Inventories (consensus 0.3%; prior -0.1%)
16:00 ET: April net Long-Term TIC Flows (prior $100.5 bln)
