Sandoz calls time on watchmakers Vaucher and Parmigiani
The Hermès-backed movement provider Vaucher Manufacture Fleurier, the independent watchmaker Parmigiani Fleurier and several other watch component suppliers have been put up for sale by their parent Sandoz Family Foundation, sources with first-hand knowledge said.
Now is a good time to sell, they say. Parmigiani has stopped losing money since last year and analysts believe demand for luxury watches should improve in the second half of 2024. The luxury watch industry has been through a painful downturn in the past 12 months as consumers seek better value for money after the pandemic-led shopping euphoria and are less inclined to invest in high-end pieces by brands few people have heard of. Megabrands such as Rolex, Audemars Piguet (AP) and Patek Philippe, meanwhile, have continued to win market share.
Deloitte have been appointed as advisers to coordinate the bidding process and test buyers’ appetite for the Parmigiani brand, as well as for Vaucher Manufacture and other suppliers, several industry sources said.
Deloitte would not deny on the record that it had been retained. The Sandoz Family Foundation declined to comment.
The Foundation already tried to find a buyer for its watchmaking hub several times, including once three years ago, but discussions failed to produce a deal. Parmigiani Fleurier and Vaucher Manufacture Fleurier and its other suppliers may be rare assets – it is not every day that such a vertically integrated brand is put on the market – but the sale process is far from straightforward. There are many vested interests and no clear buyer for the entire watchmaking hub has emerged yet, industry sources say. The Parmigiani brand may interest a private equity firm or a family office, but no bidder will have the means to compete against big brands such as Hermès or AP for some of the production assets. It’s unlikely the industry leaders Swatch Group, Richemont or LVMH would want to bid since they have their own production facilities, industry sources say.
The Sandoz Family Foundation, one of the richest in Switzerland, owns several luxury hotels, including the Beau-Rivage Palace in Lausanne, and finances many cultural institutions and events such as the Montreux Jazz Festival.
It belongs to the descendants of Edouard Sandoz, co-founder of Sandoz SA, today known as Novartis, a pharmaceutical group based in Basel. The Sandoz Family Foundation is the biggest shareholder in Novartis with a 3.45 percent stake and receives hundreds of millions of euros a year in dividends. According to its website, it aims to help preserve Swiss know-how and encourage “entrepreneurial commitment through long-term holdings in companies in various sectors”.
For many years, the Foundation was led by Pierre Landolt, one of Edouard Sandoz’s great-grandsons. Now it is managed by a small group of people including the lawyer Monika Matti. Sources in Switzerland say members of the younger generation are trying to reform the way the Foundation runs things, with more focus on profitability and return on investment. In the past, it was known for not really caring about the losses its various investments incurred.
Watchmaker Michel Parmigiani used to repair and restore the Sandoz family’s old clocks and historic watches. In 1996, the family helped finance the launch of his brand. Over the past 30 years, not only has it mopped up his brand’s losses, estimated to total several hundred thousand Swiss francs, but also those of many of its many suppliers. Some industry sources estimate that the foundation lost more than one billion Swiss francs overall in its watchmaking investments.
The initial goal was to develop the brand of Michel Parmigiani, a family friend, and create an haute horlogerie rival to Patek Philippe and AP. The strategy was to invest in the production know-how and tools necessary to safeguard its supply chain and strengthen its image. The family aimed to tap into consumers’ growing appetite for high-end mechanical watches that were produced in-house and named after master watchmakers, just like F.P. Journe.
VAUCHER MANUFACTURE
One key asset is Vaucher Manufacture. Founded in 2003, it provides a vast range of mechanical watch movements and has supplied not only Parmigiani and Hermès since its early days, but also other major brands such as Richard Mille and AP. AP owns 20 percent of Richard Mille, the industry’s most profitable watchmaker.The two brands work together on research and development in various areas from materials to movements.
Hermès has injected more than €120 million in Vaucher Manufacture to keep it afloat financially and retain its 25-percent stake, industry sources say. The French luxury brand, which started investing in Vaucher Manufacture in 2006, made an offer several months ago to buy the remaining 75 percent, but the Foundation rejected it as too low, they said.
A spokeswoman for Hermès wrote in an email to Miss Tweed. “I can confirm that we do not wish to comment on such news, but that we reaffirm our attachment to Vaucher Manufacture Fleurier and our position as a strategic shareholder with the rights that go with it.”
The Vaucher Manufacture is strategic for Hermès which is why it has been trying to buy it for many years. Until a decade ago, Hermès was known mainly for its popular watches with quartz movements and double bracelets retailing for €2,000-€3,000. In the past few years, it has been introducing more high-end pieces costing more than €12,000 paying great attention to design and innovation in terms of “poetic” complications and sophisticated movements. Vaucher Manufacture gives it legitimacy and plays an important part in its watchmaking narrative.
Last year, Hermès made €611 million in watch sales, up 23 percent at constant exchange rates.
The maker of Kelly and Birkin handbags reported some of the strongest results in the luxury industry earlier this month, with total revenue up 20.6 percent at constant exchange rates. If Hermès wants to buy Vaucher, it has the cash. The Paris-based company had €10.6 billion on its balance sheet as of Dec. 31.
However, relations between the Sandoz Family Foundation and Hermès have been fraught. A few years ago, the head of Vaucher Manufacture was sacked without consulting Hermès. The move infuriated the French luxury brand. The person in charge of the brand’s watchmaking investments and operations is Guillaume de Seynes, a descendent of Emile Hermès who is in charge of investments at Hermès and vice-president of the Manufacture.
Vaucher Manufacture’s other important client, AP, may also be bidding for the provider of high-end movements, industry sources say. However, AP needs it much less than Hermès since it has invested in a major new production facility that should be operational this year, producing more than 70,000 watches when it reaches full capacity. That could happen as early as next year.
PARMIGIANI
The deal to sell the watchmaking hub of the Sandoz Foundation is a complex one. Ideally, the foundation would like to find a buyer for the whole thing, but that is unlikely since only Hermès and AP would be interested in Vaucher Manufacture, industry sources say.
The Parmigiani brand itself is not a big player in the industry. Last year, it is estimated to have generated just over 65 million Swiss francs in revenue in 2023 – up from 26 million Swiss francs in 2019 – and aiming for further steady growth this year. “Parmigiani is for sale because it stopped losing money,” one of the sources said. The watchmaker is still burning a little cash but at least it is breaking even, several sources said.
That is partly why now is a good time to sell the brand and its suppliers, they explained. Under the leadership of Guido Terreni since early 2021, Parmigiani has enjoyed a revival. The brand has narrowed its focus on its best-selling model, the Tonda PF which has a minimalist and recognizable integrated design. Steel models start at around 20,000 Swiss francs.
The brand has won several watchmaking prizes in recent years. In July 2023, Terreni told watch trade magazines he tripled the brand’s sales in two years. Parmigiani has benefited from a shortage of popular models such as AP’s Royal Oak and Patek Philippe’s Nautilus which cost about the same and have similar designs. Consumers bought a Parmigiani Tonda PF instead, watch retailers say. Parmigiani is distributed mainly by third-party retailers. It has not invested in its own network of boutiques.
One element complicating the sale of the Parmigiani brand is the fact that it does not own the intellectual property (IP) of its movements. Those belong to Vaucher Manufacture. “This means that whoever buys Parmigiani, is buying a brand without the IP of its movements,” one former watch luxury executive told Miss Tweed on condition of anonymity.
Also for sale are the brand’s suppliers including Atokalpa, a provider of key elements such as balance wheels and springs, and Elwin, which supplies hardware for mechanical movements. Industry sources say Patek Philippe and Chopard are shareholders in both companies. Neither brand replied to Miss Tweed’s requests to verify this.
Part of the Sandoz Foundation’s watch producing hub is Quadrance & Habillage, a specialist maker of watch dials with expertise in guilloche and engraving. The watch suppliers work for many of the world’s top watch brands. Together with Vaucher Manufacture, they employ more than 500 people, spread between Alle in the canton of Jura, la Chaux-de-Fonds and the Vallée de Joux, three of Switzerland’s most important watchmaking hubs.
The board of Parmigiani Fleurier recently welcomed Philippe Peverelli, who headed Rolex sister brand Tudor for many years. Peverelli is meant to strengthen Parmigiani’s leadership and help the company find new investors. “Peverelli gives more credibility to the board as the company is now on the market,” one industry source said. Michel Parmigiani, 73, is still a small shareholder and is consulted about design, but he has not been involved in the brand’s day-to-day operations for many years.
Barron’s Weekend Summary: Videogame makers have embraced a more sober approach to gambling
Cover:
-Videogame makers have embraced a more sober approach to gambling, one that allows players to place their first-ever wagers through their games. However, these games, often played by young consumers, have become the source of a booming underground betting economy, where players can convert virtual items purchased for use in videogames into digital currency at specialized online gambling sites. This has raised concerns about the financial and mental health of millions of underage gamers worldwide. A Barron's investigation found at least 73 gambling websites linked to Counter-Strike: Global Offensive, a popular game. Big Tech platforms have also fueled the issue by hosting videostreams sponsored by skin gambling sites.
Interview:
-This week, Barron’s features Suni Harford, president of UBS's $1.6 trillion asset-management business, is a trailblazer in the finance industry. She was the first woman to return to work at Salomon Brothers after taking maternity leave and rose through the ranks after the 2008-09 financial crisis at Citigroup. Harford was contemplating retirement in 2017, but was called to run investments by UBS in 2019. She was named president of asset management in 2019 and added the role of head of sustainability and impact. Harford is officially retiring, effective on March 1, after a 40-year career that touched nearly every sector of finance. She believes her 40 years in finance, including sales, trading, and advisory, are the right time for her retirement.
Tech Trader:
-Nvidia has surpassed its rivals in the artificial intelligence market, with its fiscal fourth quarter revenue growing by 265% year-over-year to $22.1B. The company's data-center business, primarily driven by AI chip demand, was even more impressive, up 409% from last year, reaching $18.4B. Nvidia's guidance for the current quarter was strong, with a revenue forecast range of $24B at the midpoint, which is way above the Wall Street consensus of $22.2B. This growth is unprecedented for a tech company as large as Nvidia, and it speaks to the power of AI. The rise in data-center results reflects growing shipments of its Hopper GPUs used for running large language AI models and generative AI applications. Large cloud-computing providers like Amazon AWS, Microsoft Azure, and Google Cloud accounted for more than half of the data-center revenue for the quarter. Nvidia's performance and strong outlook highlight its advantages, including its prowess in managing its manufacturing supply chain and its ability to innovate faster than its rivals.
The Trader:
-The recent stock market rally, which sent stocks to all-time highs, was not solely based on hype about artificial intelligence. The rally spread beyond AI, with three sectors hitting new highs: tech, healthcare, and industrials. Financials and materials are less than 5% away from their peaks. The market has persisted despite its original justification, which was premised on the Federal Reserve cutting interest rates starting in March or May. However, recent comments from Fed members and signs of persistent inflation suggest that the first cut could come in June or even later. J.P. Morgan strategist Marko Kolanovic found current market developments odd, questioning how far-fetched applications of AI will lift the broader economy. Other economic indicators, such as home sales and corporate earnings, have held up well, with 78% of companies reporting earnings this quarter beating analysts' estimates, a rate better than the historical average.
-Oil and oil stocks have been in a tight price range this year, with Exxon Mobil up 2% in 2024 and down 4% in the past year. Natural gas prices have been more combustible, with prices dropping to their lowest levels since June 2020 due to warm weather. Chesapeake Energy's announcement to cut production expectations to reduce oversupply soared natural gas prices 13%, boosting stocks in the industry. However, this is not a buy signal for most stocks, as gas resumed its downward trend, falling 2%. The longer-term bull case for natural gas depends on expanding U.S. exports, as Europe is moving away from Russian natural gas and Asia uses more gas for electricity generation. By the end of this year, new LNG export terminals will open on the Gulf Coast to supply these markets. By 2028, U.S. export capacity is expected to double again, giving natural-gas producers access to new markets willing to pay a premium for gas.
Features:
-Nvidia's earnings report, which saw revenue more than tripling year over year, sparked a buying spree in shares of companies remotely connected with AI, driving the Nasdaq Composite up 3%. However, Palo Alto Networks, a leading player in the cybersecurity software sector, unveiled quarterly results and forward guidance that generated much concern among investors. Palo Alto Networks shares plunged 28%, vaporizing almost $34 billion in market value. The company raised concerns about a potential slowdown in growth in security software spending and unveiled a new strategy to gather more customers, focusing on ROI and total cost of ownership. CEO Nikesh Arora said that customers are facing spending fatigue in cybersecurity and are asking for ways to get a lower total cost of ownership across their enterprise and better ROI. He believes that the focus is more on optimizing current cybersecurity budgets rather than there being no demand.
-Investors – from a portfolio perspective - should ignore the 2024 US presidential and Congressional elections, as there are numerous factors and trends that matter more to the stock market's direction than the outcome. Factors include economic growth, inflation, Federal Reserve interest-rate cuts, artificial intelligence, and foreign conflicts. The election is not a top concern for most professional investors, as it is listed as the fifth-greatest risk to markets this year. Historically, stock returns in presidential election years haven't been significantly different from the average year, with the S&P 500 gaining an average of 6.8% since World War II. Despite the conventional belief that Republicans are more business-friendly, the S&P 500 has averaged a higher return under Democratic administrations over its history. Differences in Congressional control have no significant impact historically.
Europe:
-The US is attracting more European companies to sell their shares, with UK's Flutter Entertainment, parent of sports betting company FanDuel, making its debut as a secondary listing in New York. Other companies include Finnish sports-brand firm Amer Sports, German sandal maker Birkenstock, and British chip designer Arm Holdings. The percentage of foreign-domiciled companies on the New York Stock Exchange rose to 25% last year from 18% in 2020. The US's larger capital markets, retail investing culture, and record of investment performance make it attractive. The S&P 500 has outperformed the MSCI World Index over the past five years, and the gap between the S&P and the UK's FTSE 100 or Euro Stoxx index is even more pronounced.
Emerging Markets:
-No update this week
Commodities:
-BP and Shell, two of Europe's largest oil-and-gas companies, face a valuation problem that they haven't been able to solve for decades. Both trade at about a one-third discount to their U.S. peers, with Exxon trading at 12X forward earnings and Chevron at seven. This conundrum is a challenge for Shell CEO Wael Sawan and BP CEO Murray Auchincloss, as their latest strategies diverge from American counterparts and each other. American firms are increasing production, while BP and Shell have remained on the sidelines of the recent merger frenzy and set more aggressive targets for the energy transition away from fossil fuels. To close the gap, Shell and BP may need to engage in megadeals or engage in megadeals themselves.
Streetwise:
-Jack Hough urges investors to engage in some financial nudism, that is: investors need almost nothing to be successful. A simple mix of high-quality stocks and bonds with low fees, like the iShares Core S&P 500 ETF and the Vanguard Total Bond Market ETF, is enough. It is essential to have ample cash to cover spending in a prolonged emergency. Some asset classes are fine for speculation or investment but not necessary for long-term savers. Stocks are better than commodities as they represent companies that turn stuff into profits. Real estate investment trusts, options, private equity, and bonds are not necessary for long-term savings. The right mix of stocks and bonds depends on how soon you might need to spend the money and your age. Additionally, target-date funds are not necessary.
Weekend Papers Summary
FINANCIAL TIMES
-The "Granolas" group, consisting of 11 companies, has boosted European stocks to a record high, resembling the "Magnificent Seven" in the US. The group, which includes pharma companies GSK and Roche, Dutch chip company ASML, Switzerland's Nestlé and Novartis, Danish drugmaker Novo Nordisk, France's L'Oréal and LVMH, the UK's AstraZeneca, German software company SAP, and French healthcare firm Sanofi, has accounted for 50% of gains on the Stoxx Europe 600 index in the past 12 months and for about half of all mergers over the past five years.
-Nvidia's sales to data center customers increased five times due to widespread use of its chips for training large language models in generative AI. After-tax profits soared from $1.4B to over $12B, exceeding even optimistic forecasts. These results pushed Nvidia to an intraday valuation of $2T, making it the third most valuable tech company after Apple and Microsoft. The earnings also triggered a wider stock market rally, pushing the S&P 500 index to a new record high.
-Goldman Sachs CEO David Solomon is facing a new wave of unrest within the Wall Street bank, threatening a fragile peace among its partners. Solomon's decision to accept a 24% pay rise last week, despite presiding over the bank's worst annual earnings for four years, has been controversial. The departure of longtime lieutenant Jim Esposito has allowed simmering tensions to boil over in Goldman's London office. The turmoil comes as Goldman's share price edges towards an all-time high. Solomon appeared to have strengthened his position after 12 months of critical coverage of his leadership style and appeared more relaxed at a partners' meeting in Miami Beach.
-Former Austrian chancellor Sebastian Kurz has been found guilty of perjury in a politically charged trial that has lasted six months. The verdict, delivered in Vienna, handed Kurz an eight-month conditional sentence with a three-year probationary period. The judgment will not have legal effect until Kurz's appeals are exhausted. The case against Kurz, which began over two years ago, revolved around statements he made in 2020 to a parliamentary investigative committee probing corruption in his government. Kurz's lawyer said he would appeal against the verdict.
-EU President Ursula von der Leyen has emphasized the EU's commitment to Ukraine's war against Russia, stating that the EU stands firmly by the country financially, economically, militarily, and morally until the country is finally free. This comes as the G7 nations prepare to hold a meeting in Kyiv. EU support for Ukraine is crucial due to the near-halt in US aid and uncertainty over the US presidential election in November. Ukraine's top general, Oleksandr Syrskyi, thanked Kyiv's western partners for their support.
-The German central bank has burned through €19.2B of provisions and €3.1B reserves to absorb losses from higher interest costs last year. The Bundesbank is expected to make another significant loss this year, exceeding €700M of remaining reserves. The downturn is embarrassing for the country's respected institution, especially due to the European Central Bank's bond-buying program, which Bundesbank officials opposed. The losses stem from a divergence between the higher interest rate the bank pays to commercial banks and returns from its vast portfolio of government bonds. The bank plans to carry forward any losses to be offset by future profits, as it did in the 1970s.
-Top Republican lawmakers have called for McKinsey to be banned from securing federal contracts in the US due to the revelation that a think-tank led by the consulting firm gave policy recommendations to the Chinese central government. Marco Rubio, the vice-chair of the Senate intelligence committee, and Michael McCaul, the chair of the House foreign affairs committee, said McKinsey had undermined US security through its role in developing Beijing's 13th five-year plan in 2015. The report also revealed that the Chinese government's central planning agency had commissioned a McKinsey-led think-tank called the Urban China Initiative to produce research for Beijing's 2016-2020 five-year plan.
-Israel has unveiled its plans for Gaza after hostilities end, presenting a proposal that contradicts the US objectives. The one-page document, released by Prime Minister Netanyahu's office, does not mention the Palestinian Authority's role and rejects unilateral international steps towards recognition of a Palestinian state. It also foresees a security buffer within the besieged enclave, which the US opposes. The Israeli document, "The Day After Hamas Principles," divides Gaza's future into near, medium, and long-term phases, indicating that Israel will continue its blockade and will remain involved in civilian life there.
-France's CMA CGM has warned of a volatile year ahead due to the Red Sea crisis, causing increased costs for container shipping companies. The crisis has caused diversions around the Cape of Good Hope, adding up to two weeks to journeys between Asia and Europe and creating extra charges. Despite a surge in freight rates since mid-November, the extra costs may outweigh the benefits. CMA CGM predicts an additional 8% in container shipping capacity will come online in 2024, similar to last year's levels. Most container ships are avoiding the route and the Suez Canal due to Houthis attacks.
-A US court ruling has re-emphasized reproductive rights, prompting Donald Trump to support access to in vitro fertilization. The Alabama Supreme Court ruled that unborn children are considered children without exception based on developmental stage, physical location, or other ancillary characteristics. Critics argue that recognizing unborn children as children threatens women's rights. At least two fertility providers in Alabama have partially halted their treatments due to the ruling, with the University of Alabama at Birmingham putting some treatments on hold.
-China's Communist party has intensified its stance towards Taiwan, putting pressure on the country as President-elect Lai Ching-te prepares to take office in May. Wang Huning, China's senior official in charge of Taiwan policy, emphasized the need for Beijing to fight separatism and achieve the complete unification of the motherland. This tougher language confirms expectations that Beijing will push Taiwan towards unification after Lai's victory in the January 13 presidential election. The ruling Democratic Progressive party, which insists Taiwan is an independent country, has won an unprecedented third term in office. Beijing claims Taiwan as part of its territory and threatens to take it if Taipei resists.
THE NEW YORK TIMES
-The war’s cost has been brutal, but many Russians feel optimistic. Two years into its invasion of Ukraine, Russia has suffered enormously by some metrics. But it is faring better than expected by others.
-In May 2023, Senator Charles E. Grassley revealed a document in the FBI's possession that could reveal a criminal scheme involving then-Vice President Biden. Grassley, an Iowa Republican, suggested that the FBI was covering up corruption allegations against Biden. This led to the Republican push to impeach Biden as a payback for Democrats' treatment of former President Donald J. Trump. The document, known as an F.B.I. Form 1023, was the central accusation of Biden taking a $5 million bribe from the executive of Ukrainian energy company, Burisma.
-Alabama lawmakers are considering legislation to protect in vitro fertilization after a State Supreme Court ruling led some clinics to halt treatments and left many women in limbo. The ruling declared frozen embryos should be legally considered children, causing a scramble among leaders to preserve access to this crucial reproductive treatment for families struggling with infertility and LGBTQ couples seeking to have children. At least three major fertility clinics in Alabama have halted treatments as doctors and lawyers assess the possible consequences of the ruling.
-Former President Donald Trump has called on the Alabama Supreme Court to protect in vitro fertilization treatments, which he believes should remain legal in every state. Trump broke his silence on the ruling, which has highlighted divisions in the Republican Party between those who believe life begins at conception and those who want to protect reproductive services like IVF. He emphasized the need to make it easier for mothers and fathers to have babies, including supporting the availability of fertility treatments like IVF in every state in America. The ruling has sparked backlash from a broad spectrum of Americans who support IVF treatments.
-A Manhattan jury has found the National Rifle Association, the nation's most prominent gun rights group, guilty of financial misconduct and corruption. The former leader, Wayne LaPierre, used NRA funds for personal expenses, while two other top executives failed to fulfill their duties. The case, brought by New York's attorney general, Letitia James, involved the group's former treasurer, Wilson Phillips, and general counsel, John Frazer. The NRA was found to have ignored whistle-blower complaints and submitted false filings to the state. The NRA has been a powerful lobbying group in American politics.
-US Secretary of State Antony J. Blinken has reaffirmed the US's stance on Israeli settlements in Palestinian territories, stating that they are "inconsistent with international law." This follows a policy change under the Trump administration, which he described as a return to a decades-long US stance on the issue. Blinken expressed disappointment at Israel's announcement of thousands of new residences in settlements, stating that such expansion weakens Israel's security.
-The first private spacecraft on the moon, Odysseus, has toppled over, according to the company that built it. The spacecraft, which was the first U.S. vehicle to land softly on the moon since Apollo 17, is in good condition but has toppled over. The spacecraft's antennas are not pointed directly at Earth, limiting the amount of information that can be sent back and forth. Odysseus has not sent back any photographs since landing, but engineers at Intuitive Machines are still trying to extract more information from the spacecraft. The landing was salvaged through serendipity and frantic work. The spacecraft was supposed to enter a circular orbit about 62 miles above the surface, but due to inaccuracies in its trajectory, it ended up in an elliptical orbit. Flight controllers turned on laser range finders to check the spacecraft's altitude during landing, but discovered that one laser had not fired and safety switches on the two range finder lasers were still enabled when Odysseus went to space.
THE NEW YORK POST
-Former Vice President Joe Biden allegedly told Russian billionaire Yelena Baturina and her husband, ex-Moscow Mayor Yuri Luzhkov, to "be good to my boy" during a 2014 speaker phone conversation. Jason Galanis, a federal inmate who defrauded an American Indian tribe, testified that Biden called into a party in Brooklyn featuring his son, Devon Archer, and the Russian power couple. Biden called his father, Hunter Biden, and put the call on speakerphone. Biden and his friends were told to gather at a restaurant to call his father. Biden called his father, and Biden said "hello" and "good luck." Biden responded with "everything is good," and Biden said he would call his father later. The House impeachment inquiry is ongoing.
-Yale University will reinstate standardized testing requirements for incoming students, joining a few elite schools that have abandoned the controversial test-optional policy during the pandemic. The Ivy League school argues that the current policy disadvantages students from low-income, first-generation, and rural backgrounds. Well-resourced high schools have substitutes like advanced courses and extracurriculars.
Weekly Market Update: Nvidia bolsters the markets and tech after anxiety anticipating earnings
The holiday shortened weak opened amid rising volatility in technology shares as investors anxiously anticipated earnings from Nvidia. A positive print from Walmart and a major M&A announcement in the US credit card industry was overshadowed by what appeared to be profit taking by investors ahead of the AI bellwethers quarterly update. Palo Alto Networks -25% drop after disappointing guidance added to the consternation while weighing heavily on the cyber security space. Once again though, Nvidia came to the rescue by post another breathtaking quarter and guiding well above market expectations. In the afterglow the SMH surged more than 6% and the S&P rose to new all-time highs.
US Treasury yields moved mid-week after a particularly sloppy US 20-year auction. Also, a parade of Fed speakers and the latest FOMC minutes underscored that most Fed officials are still reluctant to begin cutting rates now, and want to see more data for doing so. Natural gas prices bounced following earnings and 2024 production commentary from Chesapeake Energy. Crude oil prices also climbed on the week along with a basket of most other commodities.
Earnings season sallied on with Nvidia beating revenue consensus and rallying to an ATH, with other earnings’ reports being generally optimistic, although Westlake Chemicals had failed to beat consensus, and Intuit was just shy on EPS and revenue estimates. On the positives, Walmart broke revenue consensus with the CFO reporting ‘continued sales growth’ after holiday rush, and Builders FirstSource also beat estimates capped with strong 2024 guidance. Finally, DFS Capital One confirmed acquisition of Discover Financial, while Occidental Midstream explored 49% sale of Western Midstream.
MON 2/19
(CN) CHINA PBOC MONTHLY LOAN PRIME RATE (LPR) SETTING: CUTS 5-YEAR LPR BY 25BPS [more-than-expected, the biggest move on record for the rate and 1st cut since Jun 2023]; Leaves 1-year LPR unchanged
(US) FBI Director Christopher Wray: China is increasingly inserting offensive weapons within our critical infrastructure poised to attack whenever Chine decides the time is right; We are laser focused on this as a real threat (update)
(US) Goldman Sachs analysts raise S&P500 end-2024 target again from 5,100 to 5,200
(US) Law enforcement in US and UK says they have seized cybergang Lockbit ransomware domains - press
(US) Mid Feb Manheim wholesale used vehicle Index at 202.1, -0.9% m/m, -13.8% y/y
(US) US Nuclear Regulatory Commission has formally issued a construction permit for a new type of nuclear test reactor [1st time in 50 years], named Hermes low-power molten salt-cooled (non-water) demonstration reactor
(US) US said to be considering sanctions on Chinese companies it believes are helping Russia fuel its war in Ukraine - CNBC [**Note: it would be the US's first direct penalties against China over its alleged military support for Russia]
(US) US said to be leaning toward providing Ukraine with longer-range version of the ATACMS missile – NBC
DFS Capital One confirms to acquire Discover Financial at EV ~$35.3B in all-stock transaction; Sees to be >15% accretive to adj non-GAAP EPS in 2027; See closing late 2024-early 2025
TUES 2/20
(EU) ECB Q4 Euro-Area Negotiated Wage Rate: 4.5% v 4.7% prior
(CN) China’s two main stock exchanges reportedly froze the accounts of a major quantitative hedge fund Ningbo Lingjun for three days after the money manager dumped CNY2.57B in stocks on Feb 19th – press
(CA) CANADA JAN CPI M/M: 0.0% V 0.4%E; Y/Y: 2.9% V 3.3%E (annual pace moved back within target range
(US) NY Fed takes $530.9B (v $532.1B prior) in RRP program at 5.30%; 90 participating and accepted counterparties
(US) White House's Kirby: To announce major sanctions against Russia on Friday following Navalny's death
TTN Research Alert: FT overnight shared the chatter noting bad property debt exceeds reserves at few of largest US banks, based on FDIC filings; US banks said to have the lowest reserves to absorb potential losses on CRE loans in more than 7 years
ENSU.NO First commercial delivery of the 150,000 unit contract for its world ´s first functional commercial-scale solid-state lithium microbattery is expected in Q2 2024; Expects to close larger technology contracts with partners and customers over the next month
Elon Musk: The first human patient implanted with a brain-chip from Neuralink appears to have fully recovered and is able to control a computer mouse using their thoughts
005930.KR Said to have created a team led by former Google developer in Silicon Valley to develop AI chips – press
CA.FR Reports FY23 adj Net €1.30B v €1.21B y/y, Recurring Op €2.26B v €2.38B y/y, Rev €94.14B v €90.81B y/y; Pricing negotiations with Pepsico are not resolved; Announce €700M buyback program
CHK Reports Q4 $1.31 v $0.42e; Cuts FY24 capex guidance; Given current market dynamics, plans to defer placing wells on production while reducing rig and completion activity
HD Reports Q4 $2.82 v $2.76e, Rev $34.8B v $34.6Be; Guides SSS below consensus; Raises Quarterly dividend 7.7% to $2.25 from $2.09 (indicated yield 2.48%)
HD CFO: Our market is on its way back to normal demand conditions, pressures we saw in 2023 are receding; Demand for home improvement dipped throughout the year as consumers spent more of their dollars on experiences – CNBC
PANW Reports Q2 $1.46 v $1.30e, Rev $1.98B v $1.97Be; Q3 guidance misses estimates
TOL Reports Q1 $2.25 v $1.78e, Rev $1.95B v $1.87Be; Seen a marked increase in demand coinciding with the start of the spring selling season
WES Reportedly Occidental exploring sale of 49% stake in Western Midstream Partners; Company valued ~$18.5B – press
WLK Reports Q4 $0.72 v $0.81e, Rev $2.83B v $2.85Be; Notes thus far in 2024, global macroeconomic conditions are largely unchanged from Q4 2023
WMT Reports Q4 $1.80 adj v $1.65e, Rev $173.4B v $170.6Be; Raises annual dividend 9% to $0.83/shr [post-split]; Reached $100B in annual eCommerce sales
WMT Grocery inflation +LSD in Q4 (but moderated ~150 bps versus Q3); up +high-teens on a two-year stack - earnings slides
WMT *CFO: AFTER HOLIDAY RUSH, SAW CONTINUED SALES STRENGTH; CUSTOMERS HAVE STILL SHOWN DISCRETION WITH PURCHASES. PUTTING FEWER ITEMS IN THEIR BASKETS, BUT SHOPPING MORE FREQUENTLY - PRE-RECORDED MEDIA CALL COMMENTS
WEDS 2/21
*(CN) CHINA SAID TO ENACT NET SALE BAN AT EACH MARKET'S OPEN AND CLOSE – PRESS
(JP) Japan Cabinet Office (Govt) Feb Monthly Report: Downgrades overall economic assessment; Sees gradual economic recovery despite some sluggishness (1st time since Nov 2023)
(JP) Nikkei 225 surpasses all-time closing high in intraday trading (38,915 on Dec 29th, 1989)
(KR) Bank of Korea (BoK) Gov Rhee: Decision to keep policy steady was unanimous; to maintain restrictive policy for sufficiently long period - post rate decision press conference
(RU) Reportedly seizing frozen Russian assets wins endorsement of legal experts – press
TTN Research Alert: According to unnamed US sources, Russia is working on a nuclear weapon that could target satellites from orbit despite the 1967 treaty bars signatories, although it would not be the first time a nuclear weapon was sent to space
(UK) Ministry of Defense: On Jan 30th, Trident nuclear missile misfired and crashed into ocean after anomaly discovered during test launch from submarine near US Florida's Port Canaveral – press
(US) Association of American Railroads weekly rail traffic report for week ending Feb 17th; 474.2K total units, +3.7% y/y (update)
(US) FOMC JAN MINUTES: Some officials saw risk inflation progress could stall; Judged policy rate likely at peak for the cycle
(US) NY Fed takes $574.9B (v $530.9B prior) in RRP program at 5.30%; 96 participating and accepted counterparties
(US) Some House Republicans have reportedly shifted from optimistically cautious to privately expecting US govt shutdown - Axios [**Note: House is on vacation until Feb 28th while Mar 1st is the first deadline to avert US govt shutdown]
(US) TREASURY $16B 20-YEAR BOND AUCTION DRAWS 4.595% V 4.780% PRIOR, BID-TO-COVER 2.39 V 2.58 PRIOR AND 2.56 OVER LAST 8 AUCTIONS
BAC CEO: Still see ability of US consumer to borrow; Commercial clients' line usage flattened out - investor conf
CWH Reports Q4 -$0.47 v -$0.54e, Rev $1.11B v $1.16Be
ENR.DE CEO: Demanding EU action like quotas or other measures to protect EU wind power sector from cheap Chinese competition, or it'll be decimated like the solar sector
GOOGL Releases smaller 'open' AI model for developers, Gemma; Individuals and businesses can build AI software based on its new family of 'open models' for free – press
HST Reports FFO Q4 $0.44 v $0.44e, Rev $1.32B v $1.30Be
HUN Reports Q4 -$0.21 v -$0.14e, Rev $1.40B v $1.32Be
NVDA Reports Q4 $5.16 v $4.54e, Rev $22.1B v $20.3Be; Guides Q1 Rev well ahead of ests; Says accelerated computing and generative AI have hit the 'tipping point'
NVDA CEO: Cannot keep up with demand in the short term as we ramp up; Demand far exceeds supply for next generation products; Expect supply constraints to continue throughout the year - earnings call
RCL Raises FY24 eps $8.80-10.10 v $9.75e; Demand and bookings have exceeded expectations; Expects to achieve all Trifecta goals in 2024
RIO.AU Reports FY23 underlying Net $11.8B v $13.3B y/y (vs $11.6Be), underlying EBITDA $23.9B v $26.3B y/y (vs $23.6Be), Rev $54.0B v $55.6B y/y (vs $53.8Be)
RIO.AU CFO: FY earnings decline was mostly price driven; China is robust - post earnings comments
SNPS Reports Q1 $3.56 v $3.43e, Rev $1.65B v $1.65Be
VAC Reports Q4 $1.88 v $1.80e, Rev $1.19B v $1.15Be
VRT Reports Q4 $0.60 v $0.54e, Rev $1.87B v $1.89Be; Guides Q1 weak; Notes strong and accelerating trends in the data center market, increasing demand for critical digital infrastructure to support AI deployment at scale
THURS 2/22
(CN) China Jan New Home Prices M/M: -0.4% v -0.5% prior (7th month of declines, but first deceleration in price declines in 10 months)
(EU) EURO ZONE JAN FINAL CPI Y/Y: 2.8% V 2.8%E; CPI CORE Y/Y: 3.3% V 3.3%E
(UK) FEB PRELIMINARY MANUFACTURING PMI: 47.1 V 47.5E (19th consecutive month of contraction); Notes February saw the highest degree of supply chain delays for over one and a half years, linked to Red Sea shipping disruptions
(FR) FRANCE FEB PRELIMINARY MANUFACTURING PMI: 46.8 V 43.5E (14th month of contraction but highest since Mar 2023); New orders index has risen by more than seven points
(DE) GERMANY FEB PRELIMINARY MANUFACTURING PMI: 42.3 V 46.0E (20th month of contraction and below all estimates); Notes after a glimmer of hope in recent months, the German industry is feeling pretty bleak now
(US) JAN EXISTING HOME SALES: 4.0M V 3.97ME
(US) FEB S&P PRELIMINARY MANUFACTURING PMI: 51.5 V 50.7E (2nd month of expansion)
(US) Fed's Jefferson (voter): Likely to be appropriate to cut policy rate later this year: Jan data was disappointing and shows path down likely to be bumpy
(US) Fed's Harker (non-voter): We are close to cutting, just give us a couple meetings; Greatest risk would be cutting rates too soon; May be near point of cutting rates, unsure when it will happen
(US) NY Fed takes $553.2B (v $574.9B prior) in RRP program at 5.30%; 86 participating and accepted counterparties
(US) DOE CRUDE: +3.5M V +3.0ME; GASOLINE: -300K V -2.0ME; DISTILLATE: -4M V -1.5ME
(US) White House's Kirby: Iran providing Russia with a significant number of drones which Russia is using to attack Ukraine
BKNG Reports Q4 $32.00 v $29.72e, Rev $4.78B v $4.66Be; Declares initial dividend of $8.75/shr (annual yield of ~0.9%)
BLDR Reports Q4 $3.55 adj v $2.70e, Rev $4.15B v $4.01Be; Guides init FY24 strong
BN.FR Reports FY23 Recurring EPS €3.54 v €3.43 y/y, Recurring Op €3.48B v €3.38B y/y, Rev €27.6B v €27.7B y/y
HAS.UK Reports H1 Pretax £27.6M v £94.0M y/y, Op £60.1M v £97.0M y/y, Net fees £583.3M v £651.9M y/y; Again notes clear slowdown in most Perm markets in December, while its larger Temp & Contracting business again showed greater resilience
INTU Reports Q2 $2.63 v $2.29e, Rev $3.39B v $3.38Be; Guides Q3 EPS below estimates
IONQ Achieves first known commercial demonstration of ion-photon entanglement, a key technical milestone for networking quantum computers
LUNR Follow Up: Private lunar lander Odysseus has successfully reached the moon and is transmitting data despite weak signal - NASA confirmation to press [**Note: the first US spacecraft to land on the moon’s surface since Apollo 17 in 1972]
LYV Reports Q4 $1.37 v -$1.08e, Rev $5.88B v $4.72Be
NESN.CH Reports FY23 (CHF) Rev 93.0B v 94.4B y/y, Real Internal Growth (RIG) -0.3% v +0.1%e; Guides Organic Rev growth slowdown; Raises div to CHF3.00/shr
T Confirms network outage caused by software update and Not a cyber attack; Restores cell services after hours of outage nationwide - US press
UNH Reportedly suspects nation-state in cyberattack – press
FRI 2/23
(CN) China Securities Regulator (CSRC): To put more resources to identify fraud in listed firms; Will step up on-site inspection of IPO candidates; Vows to crack down market manipulation; Has no plan to review IPOs over past decade
(DE) GERMANY FEB IFO BUSINESS CLIMATE: 85.5 V 85.5
(EU) ECB’s Holzmann (Austria, ultrahawk): Better to cut later and faster than too early; Main risk to rate cuts is Red Sea tensions
(US) Tier1 week-to-Feb 22nd US Truckload Demand Indicator at 54.1 v 50.5 prior (2nd highest print in 80 weeks)
(US) TTN Reminder: According to the recent polls, former governor of South Carolina Nikki Haley is set to lose a primary in her home state on Feb 24th to former Pres Trump by 20-25ppts
(US) NY Fed takes $520.1B (v $553.2B prior) in RRP program at 5.30%; 79 participating and accepted counterparties
BAS.DE Reports final Q4 Adj EBIT €292M v €398Me, Rev €15.9B v €16.2Be; Further program for Ludwigshafen site announced, targeting annual cost savings of €1B by the end-2026
NBSE Board approved dissolution of company - filing