Barrons : Utilities Stocks Have an AI Edge Over Bonds

Utilities Stocks Have an AI Edge Over Bonds

Electric-utility stocks around the globe have been poor performers this year. Both the Dow Jones Utility Average and iShares Global Utilities exchange-traded fund are flat this year, missing the broader market rally.

For many investors, utilities are nothing more than bond proxies, stocks to own because of their high dividend yields. With the U.S. 10-year Treasury note now yielding just north of 4.4%, some would argue that there’s no need to own utilities when you can buy bonds, instead.

But growing hopes that inflation pressures are close to peaking could push interest rates and bond yields lower in the U.S. and Europe at some point later this year…and that might brighten the outlook for utilities once more.

“The utilities sector’s poor performance has likely gone too far. If yields
fall, as is our core view, that should help the sector,” equity strategy analysts for J.P. Morgan Securities in London wrote in a report Monday.

Utility stocks pay rich dividends, and the average yield for the 15 stocks in the Dow Jones Utility Average is nearly 3.7%. If the Federal Reserve begins cutting interest rates later this year (Fed-funds futures are pricing in an almost 70% chance of easing in late July, and nearly 90% probability of a rate cut in September) then investors seeking more income will pour into companies and sectors that pay higher yields.

“Defensive, income-oriented sectors…should respond favorably to a less restrictive Federal Reserve (Fed) interest-rate stance,” U.S. Bank Wealth Management chief equity strategist Terry Sandven wrote in a report last week, noting that many utilities and other high-yielding sectors such as real-estate investment trusts and consumer-staples firms “lagged during last year’s rising interest-rate environment.”

Add in the fact that analysts are expecting steady rates of annual earnings growth in the mid-single digits this year and for the next few years for top utilities such as Duke Energy, FirstEnergy, and Exelon, and potential total returns approach 10%. That would likely outperform Treasury bonds and other fixed income investments, especially if the 10-year yield is close to peaking.

Also, some utility stocks are performing more like high-momentum tech stocks, thanks to the artificial-intelligence boom, since AI data centers need a lot of energy.

“We would consider adding exposure to utility stocks as the second derivative of AI, since AI development is expected to drive increasing demands for power,” Richard Saperstein, chief investment officer with Treasury Partners, an investment firm with $9 billion in assets under management, wrote in a report Monday.

AI has already given a particularly big boost to utilities in the nuclear power sector. Constellation Energy stock, for example, is up more than 65% this year—the third-best performer in the S&P 500 for 2024, trailing only shares of AI darlings Super Micro Computer and Nvidia.

Nobody is going to start confusing sleepy utility stocks for the Magnificent Seven of the Nasdaq anytime soon. But there still could be some more upside for the sector ahead thanks to AI and big dividends.

Barrons : Smartphones Are About to Get an AI Boost. Here Are the Stocks to Play

Smartphones Are About to Get an AI Boost. Here Are the Stocks to Play the Revolution.
AI could give consumers new reason to upgrade their mobile phones. What it means for investors.

The smartphone market needs a lift. Consumers are holding on to their phones for longer, with each new device looking much like the next, even as prices for the latest flagship phones continue to rise.

Global smartphone shipments declined 3.2% to 1.17 billion units in 2023, according to research firm International Data Corporation. Part of that decline was due to a particularly sluggish Chinese market, but there’s a sense of a greater malaise.

“You could almost argue that the smartphone is becoming a little bit closer to a washing machine than the cutting-edge, rapidly changing device category that it used to be,” says Ben Wood, chief analyst at CCS Insight, a technology research firm.

Samsung Electronics and Alphabet’s Google, which have spent years partnering on mobile phones—and the Android software that powers them—see a silver bullet in the form of artificial intelligence.

“This new era of AI is a profound opportunity to make smartphones truly smart,” Sameer Samat, Google’s vice president of product management for Android, said during the Google I/O developers conference on Tuesday.

During its event, Google showed off AI assistants that use the phone’s camera to interpret the world and log scenes that can later be recalled by the user. Chatbots on phones, meanwhile, continue to promise additional tasks, from solving complex math problems to telling bedtime stories on the fly.

”Our phones have come a long way in a short time, but if you think about it, it’s been years since the user experience has fundamentally transformed. This is a once in a generation moment to reinvent what phones can do.”

Samsung advertises its new Galaxy S24 Ultra flagship phone with the tagline “Welcome to the era of mobile AI,” with features such as “Circle to Search,” real-time translation, and AI-assisted note-taking. Google’s Pixel 8 is sold as “AI in your hands.”

There are some signs the pitch is working. Samsung’s Galaxy S24 series—which has AI capabilities partially reliant on Google’s models—outsold its predecessor by 8% in its first three weeks of availability, according to Counterpoint Research. Growth in the U.S. was in the midteens percentages.

“Considering we’re still really at the beginning stages of the coming GenAI smartphone boom, there is plenty of runway for more growth,” wrote Jeff Fieldhack, Counterpoint’s research director for North America.

Drew Blackard, vice president of mobile product management at Samsung Electronics America, told Barron’s that Samsung is aiming for double-digit percentage growth for its S24 series from the S23, year over year, and said the company is pleased with its progress so far. Samsung is aiming to bring its Galaxy AI software to more than 100 million users by the end of this year, according to Blackard.

In the short term, the loser could be Apple, which has been tight-lipped about its own AI plans. Apple’s iPhone shipments dropped almost 10% in the first quarter, according to IDC, while Samsung took the top spot among all manufacturers, with its own shipments down less than 1% from 2023 levels.

During its keynote event this week, Google repeatedly noted that its Android software would be the best, and sometimes only, way to experience Google’s Gemini AI features.

“We’ve embarked on a multiyear journey to reimagine Android, with AI at the core,” Google’s Samat said.

Chip Stocks Set to Benefit
The exact definition of an AI smartphone is still a work in progress. But the key is likely the ability to run a large AI model on the device itself. That means hosting an AI model that has been trained on a sufficiently large database that it can generate humanlike responses, even without an internet connection. It will need powerful chips.

Research firm IDC defines “next gen” AI smartphones as those where the chips contain a neural processing unit that can perform at least 30 trillion operations per second, a measure of AI chip performance. IDC’s preliminary forecast suggests 170 million next-gen AI smartphones will be shipped in 2024, representing almost 15% of total smartphone shipments.

Qualcomm has staked out an early position in the market by providing a chip—the Snapdragon 8 Gen 3—which powers Samsung’s top-of-the-line S24 Ultra, as well as a range of premium handsets from Chinese manufacturers. The company is working with the developers of AI models to optimize large language models for its chips, recently saying that Meta Platforms’ latest-generation Llama 3 would be accessible on devices powered by coming Qualcomm Snapdragon platforms.

Qualcomm’s second-quarter revenue from handsets grew 1.2% from the year-earlier period to $6.18 billion. The company says its latest Snapdragon chips will help its handset business grow at a high-single-digit to low-double-digit percentage rate in 2024. That would outpace the 3% global smartphone growth that Counterpoint estimates.

Qualcomm is battling alongside rival chip makers including Taiwan’s MediaTek, as well as in-house chips from the likes of Google and Apple. But Qualcomm chips dominate the higher end of the market outside of iPhones, and are expected to be used in more than half of all generative AI–equipped smartphones shipped in 2024 and 2025, according to Benchmark Research. It recently initiated coverage on Qualcomm stock with a Buy rating and a $200 target price, roughly 7% above its current level.

“Qualcomm probably has the best road map,” says Ted Mortonson, a technology sector strategist for investment house Baird. “[It’s] very hard to displace just because of their engineering prowess and their leadership on licenses.”

Beyond the chip manufacturers, there is one company that could get an even more pronounced boost from the rise of AI-enabled smartphones: chip designer Arm Holdings.

Arm makes money by licensing its chip designs to semiconductor companies and hardware makers. Its stock surged earlier this year when it said that its latest advanced chip technology, called Armv9, generates double the royalty rates of its previous generation.

Arm CEO Rene Haas recently told Barron’s that new premium Android smartphones are “mostly all” based on Armv9 chips. Qualcomm’s Snapdragon 8 Gen 3 chip incorporates Arm’s v9 technology, as does Google’s Tensor G3, which powers the Pixel 8.

In its latest fiscal quarter, Arm’s royalty revenue grew 37% from the prior year to $514 million, which the company said reflected increasing sales of Armv9 chips. Analysts at Mizuho Securities estimate the company’s mobile revenue could grow at an annual rate of more than 30% over the next few years.

The Risks
To be sure, AI expectations for mobile devices could fail to live up to expectations. Users may not notice or care whether all the AI capabilities of the phone are being carried out on the device or in the cloud. If consumers are happy connecting to a ChatGPT-style bot or an image generator via an app, they might not see an immediate need to upgrade their phones. That could kill hopes of a new upgrade cycle to premium AI-enabled phones.

However, consumers might be drawn to phones that are able to process as much AI as possible on the device itself because of enhanced privacy and speed. “Offering on-device AI is important for many consumers and critical for most enterprises,” says Samsung’s Blackard, noting security concerns.

Meanwhile, manufacturers are incentivized to provide on-device AI due to energy and cost savings compared with processing in the cloud.

“With the implementation of generative AI, the power and the energy component cannot be a second thought,” says Lucas Keh, semiconductor analyst at global research firm Third Bridge. “This is something that needs to be put at the forefront of the design, which is why companies like Arm and Qualcomm—with strengths in lower-power design—are being recognized.”

The Mobile Phone Disruptors
The other worry for the mobile phone industry is that AI ushers in the end of the smartphone era. New AI-equipped devices—including smart glasses, championed by Facebook parent Meta Platforms; virtual-reality headsets, and wearable brooches—are seeking to displace the smartphone, although chip makers would be largely insulated since the devices still need processors.

Breaking the addiction to smartphones might sound unlikely but there’s serious money trying to make it happen. Humane, a San Francisco–based start-up, has raised $241 million, according to PitchBook. It recently launched its first wearable computer, the $700 Ai Pin.

For now, the smartphone’s dominance looks safe. The Ai Pin, which is capable of answering questions, taking photos, and sending texts, has received lukewarm reviews. Marques Brownlee, an influential technology product reviewer with more than 18.5 million followers on YouTube, called it the “the worst product I’ve ever reviewed,” criticizing its battery life, price point, and occasionally misleading answers.

“The jury is very much out on these AI companion products,” says CCS Insight’s Wood. “The most logical place, you could argue, isn’t a pin on your lapel; it’s the Apple Watch on your wrist, or another smartwatch.”

A Gradual Revolution
Adoption of AI smartphones will take time. Getting consumers to drop more than $1,000 for a new handset is a far bigger challenge than getting them to download an app like ChatGPT.

However, with the biggest smartphone manufacturers throwing much of their resources at developing AI into the next must-have feature, with some producing their own chips, advances could be significant enough to justify upgrades. The cycle of improvements is only set to accelerate, with Apple expected to reveal details of its own AI strategy for the iPhone next month at its annual developers conference.

Picking the winners of the race for market share is a tough task, and first movers aren’t always the long-term victors— BlackBerry is the clear example. Still, it’s a good bet that the AI revolution will mean quicker growth at the premium end of the market, where Apple and Samsung are dominant.

In terms of the chip makers, Qualcomm and Arm will get a disproportionate boost from high-end smartphone sales because of their specialty in the powerful and energy-efficient chips that are needed for the economics of AI to work on smartphones.

AI phones might not mean a return to the 30% annual growth in smartphone shipments seen a decade ago, but it’s the most vibrant area in technology today. Combine AI with the most ubiquitous piece of consumer technology, and the AI rally may just be getting started.

Barrons : Buy Nestlé Stock. Despair Is Turning to Hope.

Buy Nestlé Stock. Despair Is Turning to Hope.
The world’s largest food company has been a sleeping giant. It’s waking up—making its shares attractive once again.

Nestlé is the world’s largest food company—but over the past five years, its stock has been a disappointment. It might be the right time to snap up shares of the 158-year-old Swiss giant.

With its cupboard full of some 30 popular brands that generate over $1 billion each in annual sales—including Perrier, Nescafe, and Gerber—Nestlé shouldn’t have trouble growing its business. But the company, with more than $100 billion in total annual revenue, has reported weak sales volume in recent quarters. A key sales volume measure was down 2% in the first quarter versus the year-earlier period, 1.5 percentage points below the consensus. Pricing was up just 3.4%, compared with 7.5% last year, amid consumer pushback against sharply higher food costs.

It was just the latest disappointment, and sentiment toward the company since 2022 has gone from “hope to despair,” in the words of Bernstein analyst Bruno Monteyne. Nestlé’s U.S. shares (ticker: NSRGY), which trade over the counter, have fallen 15%, to $105.47, during the past year, lagging behind the S&P 500 index, which has gained more than 25%.

There is reason for hope. In a late-April conference call, CEO Mark Schneider said that first-quarter sales were affected by one-time factors, including a drop in U.S. government payments to low-income families, and that volume will rebound in the coming quarters. He was “very confident” about hitting Nestlé’s goals of 4% growth in organic sales this year and a 6% to 10% annual gain in earnings per share, adjusted for currency movements. The company’s adjusted EPS were up 8% in 2023, and this year are expected to be at the lower end of the 6% to 10% range. Making those numbers, particularly at a time when shares no longer trade at a premium to other staples, could get the stock moving in the right direction again.

“The company has missed expectations, management reputation has taken a knock, and the stock has lost its premium, but the company has a good opportunity to get that back by putting up decent results in the second quarter and second half of 2024,” says Jeremy Fialko, an analyst at HSBC in London. He has a Buy rating and target price of about $128 on the U.S. shares, up 21% from Thursday’s close.

Nestlé trades for about 19 times projected 2024 earnings of $5.50 a share, only slightly higher than European rivals Unilever and Danone, while in line with Nabisco parent Mondelez International and below PepsiCo and Coca-Cola. But Nestlé is even cheaper than it looks. Its effective price/earnings ratio is closer to 15 when adjusted for its 20% stake in French cosmetics company L’Oréal, which is worth over $50 billion. Schneider has been noncommittal on the sale of the stake, which has appreciated sharply in the past decade.

A sale of the L’Oréal stake could help fund a big stock repurchase, but such a dramatic move isn’t in keeping with the company’s more deliberate style. Nestlé attracted an activist in 2017 when U.S. investor Dan Loeb of Third Point took a stake of more than 1% and pushed for a sale of the L’Oréal stake. Nestlé sold a 4% interest in L’Oréal in 2021 and kept the remaining 20%.

That’s fairly typical of Nestlé. The conservative company doesn’t like to make major moves, though it has sped up product development in recent years and pivoted more toward health and nutrition via acquisitions—including the purchase of the parent of Nature’s Bounty supplements in 2021, one of a series of smaller deals in recent years. A few have bombed, notably the buy of prepared-meal maker Freshly.

On the company’s April conference call, Nestlé brass was asked about reports of potentially major restructuring actions to cut costs and boost margins. “We’re not into big-style, slash-and-burn restructurings and have no intention of going there,” Schneider said. “We see them as disruptive.”

Nestlé’s admirers like this approach. “Nestlé has a portfolio of coveted consumer brands,” says Tom Russo, a managing member of Gardner Russo & Quinn. “It has a management team prepared and willing to make investments for the long-term creation of wealth for shareholders.” He has held the stock for clients for 40 years.

Russo points to the success of Nespresso, its Keurig-like coffee business popular in Europe that uses a razor-and-blade model involving a coffee maker and Nespresso coffee capsules that are typically sold directly to consumers. Nestlé invested several billion dollars to develop Nespresso, which generated $7 billion in sales last year with 20% margins.

HSBC’s Fialko views pet food, sold under brand names like Purina, and coffee as two of Nestlé’s better businesses. Nescafe, the company’s instant coffee, is popular in the developing world, where the company is seeking to lure consumers away from tea. KitKat is the company’s flagship candy, with Nestlé selling the chocolate bar outside the U.S.—including in Japan, where it comes in multiple flavors. Hershey has the rights in the U.S.

Nestlé operates in nearly 190 countries and gets about 40% of its sales from the developing world, where rising wealth and population offer growth opportunities largely absent in the West.

The company also has pursued a strategy of developing higher-priced products in numerous categories, including coffee, pet food, and bottled water, that carry higher margins. Premium products account for over a third of sales, against 11% in 2013.

“Nestlé is a Tier 1 company with a wide moat,” says Ioannis Pontikis, a Morningstar analyst. “It’s one of the highest-quality names in the space. It offers a good total return for long-term investors.”

It has a secure 3% dividend, although U.S. investors can be subject to a withholding tax on it. Nestlé bought back over $5 billion of stock last year, about 2% of the shares outstanding, and similar repurchases are expected this year.

Add it all up and that’s a tasty return.

Barrons : 12 Stocks to Play Growing Energy Demand, From Oil and Gas to Nuclear a

12 Stocks to Play Growing Energy Demand, From Oil and Gas to Nuclear and Solar
Fossil fuels and clean-energy shares are unloved by investors. That’s an opportunity, say our roundtable experts. Why some stocks could double, and then some.

AES (AES US)
Vistra (VST US)
Constallation Energy (CEG US)
Bloom Energy (BE US)
Sunrun (RUN US) *
First Solar (FSLR US)
SolarEdge Tech (SEDG US)
Darling Ingredients (DAR US)
NEste (NTOIY US)
APA (APA US)
Kosmos Energy (KOS US)
Shell (SHEL US)

FT : How long can the good times keep rolling in markets?

How long can the good times keep rolling in markets?
We should at least be alive to the risks of a reckoning

Now that US interest rates seem to have stabilised, there are supposedly way too many deals being cooked up for bankers to take a summer break. As the Financial Times has reported, the joke around Wall Street these days is that August in the tony enclave of the Hamptons on Long Island has been cancelled. “There’s money everywhere,” the co-founder of one alternative asset manager was quoted as saying at this month’s Milken Institute conference.

The Hamptons quip is probably an exaggeration. But it’s certainly fair to say some green shoots are sprouting in the capital markets, at least in the bellwether investment banking products.

For instance, first-quarter M&A deal values in the US and in Europe harked back to the dealmaking enthusiasm of the pandemic years, according to Linklaters. In the US, the value of public M&A deals topped $224.3bn, the highest value of deals since the second quarter of 2022, when the deal values were $260bn. In Europe, deal values reached $47bn in the first quarter — also the highest since the second quarter of 2022 — driven by an increase in dealmaking in the UK.

According to S&P Global, global bond issuance in the first quarter of 2024 increased by 15 per cent, to $2.4tn, from $2tn in the first quarter of 2023. And last week, there was a rush of new issuance in both the investment-grade and high-yield bond markets.

One not so bright spot — initial public offerings. IPO issuance in the first quarter 2024 continued to decline, according to S&P Global, to the lowest level since the second quarter of 2022. But April was the busiest month for IPOs since November 2021, according to Renaissance Capital, which also tracks IPO issuance.

So good times it seems. But all of this raises a question. We are seeing a turn downwards in the interest rate cycle but without the usual painful economic correction that can accompany such pivots. Are we overdue a reckoning? The stock market might be one place to look for signs that things are getting out of hand after the more than doubling of the benchmark S&P 500 from pandemic lows in 2020.

David Einhorn, the reclusive hedge fund manager at Greenlight Capital who correctly predicted the implosion of Lehman Brothers in 2008, is pretty clear that things are not all right. “The stock market is fundamentally broken!” Greenlight declared in its first-quarter letter to his investors. Einhorn’s beef with the equity markets, as the letter outlined, seems to be that investors either don’t “care about valuation” or cannot “figure out valuation”.

He believes that old-fashioned value investing, where investors find stocks that are fundamentally undervalued and hold them until other investors figure out what they have been missing, is all but dead. He thinks index funds are ruling the markets and making the mistake of overinvesting in overvalued stocks and underinvesting in undervalued stocks.

“As several trillion dollars have been redeployed in this fashion in recent years, it has fundamentally broken the market,” according to the Greenlight letter. The firm claims not to be complaining. Rather, it says, it is “excited” to invest at this moment because “once these undervalued stocks underperform long enough, some of them become ridiculously cheap”.

Einhorn might not have had a great 2024 so far. His hedge fund returned 4.9 per cent in the first quarter of 2024 compared with a rise of 10.6 per cent for the S&P 500. But that came after an impressive 2022 and 2023, during which Greenlight made returns of almost 33 per cent and 22 per cent, respectively.

It’s hard to know which camp is right — the Wall Street banking optimists, who get paid to be upbeat, or Einhorn, who has made a fortune on occasion by being pessimistic. But there are substantive issues overhanging markets — the many ongoing global conflicts, the continued uncertainty around the Federal Reserve’s direction of interest rates, and the outcome of the November US presidential election, which could very well return Donald Trump to the White House.

It seems to me we should at least be alive to the risks of a reckoning. Tiff Macklem, the governor of the Bank of Canada, has argued likewise, warning on May 9 that “some indicators of financial stress have risen” and that the valuation of “some financial assets appear to have become stretched”.

“This increases the risk of a sharp correction that could generate system-wide stress,” he said. “What’s most important is that to properly manage risks, financial system participants need to remain proactive. And financial authorities need to remain vigilant.”

>>> US Close Dow +0.34% S&P +0.12% Nasdaq -0.07% Russell -0.03%

Closing Market Summary
The Dow Jones Industrial Average closed above 40,000 for the first time, gaining 0.3% today. The S&P 500 (+0.1%) also closed with a gain and the Nasdaq Composite (-0.1%) settled slightly lower than yesterday.

Today's price action was limited, leading the major indices to trade in relatively narrow trading ranges through the session. Advancing issues led declining issues at the NYSE and declining issues led advancing issues at the Nasdaq.

The performance of the S&P 500 sectors also reflected mixed action. Aside from energy, which closed 1.4% higher, none of the sectors moved more than 0.9% in either direction.

The consumer discretionary sector was another outperformer thanks to a big move higher in shares of Tesla (TSLA 177.46, +2.62, +1.5%) on news that it plans to cut approx. 600 positions in California, according to Forbes. Amazon.com (AMZN 184.70, +1.07, +0.6%) also closed higher.

Treasuries settled with losses today, which kept buying somewhat in check in the stock market. The 10-yr note yield settled four basis points higher at 4.42%. The 2-ry note yield rose three basis points today to 4.82%.

Still, Treasuries settled with solid gains on the week, which acted as support for buying activity in stocks through the week. The 10-yr note yield was eight basis points higher on the week and the 2-yr note yield was five basis points lower.
  • S&P 500:+11.2% YTD
  • Nasdaq Composite: +11.2% YTD
  • S&P Midcap 400: +8.4% YTD
  • Dow Jones Industrial Average: +6.1% YTD
  • Russell 2000: +3.4% YTD
Reviewing today's economic data:
  • April Leading Economic Index -0.6% (consensus -0.3%; prior -0.3%)

Looking ahead, there is no US economic data of note on Monday.

>>> Weekly Market Update

Weekly Market Update: Signs of slowing and CPI support Chairman Powell's messaging

Trading opened this week with Mime stocks “Roaring” back in vogue after a tweet sent Gamestop up more than 100% on no real news. AMC and others tied to the wild volatility from a few years ago also saw outsized gains before faltering later in the week. On Friday GME preannounced lackluster Q1 results while also filing for the sale of up to 45M shares. US Treasury Sec Yellen called out China for unfair trade practices ahead of widely telegraphed Biden tariff announcement on EVs and a host of other industries that source products from China. Separately, China announced several new programs intended to bolster their property markets which helped drive copper prices to new all-time highs.

April PPI data ran hotter than expected, but markets quickly looked past that report after Fed Chairman Powell called the data more “mixed” than “hot”, and emphasized he still does not see the next Fed move as likely to be a hike. April CPI data didn’t likely increase the Fed’s confidence that inflation is returning to target, but was clearly step in the right direction. Numbers mostly met or came in below expectations showing deceleration from the hot readings seen in Q1. Of particular note the rent of primary shelter index saw the smallest gain since August 2021 after that indicator was flagged by Fed officials of late. April retail sales also printed below estimates with significant revision lower for March data. May Philly Fed and housing starts/permits were much weaker than expected too. Stocks jumped on a surge in volumes hitting new all-time highs for the S&P and NASDAQ while the Dow would test 40K for the first time. Treasury prices rose while the US dollar plumbed to fresh 1-month lows. Nevertheless, Fedspeak would continue to push the higher-for-longer message with Mester, Williams and Barkin echoing the view more evidence is needed inflation is progressing towards 2% target. By Friday markets were once again fully discounting a Fed rate cut in November, with 68% chance of a cut in September, the same situation seen ahead of US CPI. For the week the S&P rose 1.5%, NASDAQ gained 2.1% and the Dow added 1.2%.

Walmart wowed investors with its Q1 earnings report and raised guidance, powering its shares to all-time highs along with the DJIA. Management allayed some fears about the shape of the US consumer after Home Depot and Under Armour offered up disappointing results. Shares of Deere stumbled after cutting its outlook on softening global demand for agricultural and turf products. China’s Alibaba continued down the road to recovery with solid quarterly results and an announcement that its preparing for a primary listing in Hong Kong, in an effort to capture southbound flows from mainland China investors. OpenAI and Google debuted the latest versions of their AI models with powerful new features that make the AI assistants faster and more helpful to average consumers. Also in the AI realm, Reddit struck a partnership deal with OpenAI, surging the recent IPO’s shares higher. AMAT posted solid results with China sales doubling in Q2. Cisco Q3 number topped estimates and the company raised their FY rev outlook with management talking up stabilization in demand.

MON 5/13
(IN) INDIA APR CPI Y/Y: 4.8% V 4.8%E
(US) Citi Mid-May Economic Surprise Index -18.5 v -7.3 prior (second straight negative print and lowest since Jan 2023)
(US) Redfin: An early look at this year’s data shows that demand for second homes hasn’t picked up in 2024
AAL.UK Rejects ~14.5% raised BHP's all-stock offer of 0.8132 BHP shares for each ordinary share in Anglo American, implying £27.53/shr for AAL and EV of £34B [**Note: prior rejected offer was 0.7097 shares for each share in Anglo American (implied £25.08/shr offer)]
OPENAI.IPO Announces new flagship model GPT-4o (Omni) with AI voice assistant and real time translation capabilities, to be available for free - Spring update event
SDF.DE Reports Q1 EBITDA €200M v €195Me, Rev €988M v €898Me

TUES 5/14
(CN) CHINA PBOC CONDUCTS CNY125.0B IN 1-YEAR MEDIUM TERM LENDING FACILITY (MLF) MONTHLY SETTING AT 2.50% VS. 2.50% PRIOR
(CN) Ex-PBOC adviser Yu Yongding: PBOC should play a more active role in facilitating fiscal stimulus
(DE) GERMANY MAY ZEW CURRENT SITUATION SURVEY: -72.3 V -75.9E; EXPECTATIONS SURVEY: 47.1 V 46.4E
(RU) Russia newly appointed Defense Min Belousov: There will be no mobilization
(US) APR PPI FINAL DEMAND M/M: 0.5% V 0.3%E; Y/Y: 2.2% V 2.2%E (highest annual pace since Sept 2023)
(US) Morgan Stanley: Y/Y growth in card delinquencies slowed across the broader group in Q1, which is encouraging and a clear indication that we are past peak deterioration
(US) NY Fed reports household debt in Q1 rose 1.1%; An increasing number of borrowers missed credit card payments
(US) WHITE HOUSE RELEASES DETAILS ON TARIFFS ON $18B OF CHINESE IMPORTS AHEAD OF BIDEN ANNOUNCEMENT; CONFIRMS TARIFF RATE ON CHINESE EVS TO INCREASE FROM 25% TO 100% THIS YEAR; TARIFF ON SEMICONDUCTORS TO INCREASE FROM 25% TO 50% BY 2025
OPEC Monthly Oil Report (MOMR)
2317.TW Reports Q1 (NT$) Net 22.0B v 29.3Be, Op 36.8B v 35.2Be, Rev 1.32T v 1.37Te; Raises Q2 Rev to rise significantly y/y (prior growth y/y)
6758.JP Reports FY23/24 Net ¥178.3B v ¥937B y/y, Op ¥1.21T v ¥1.21T y/y, Rev ¥13.0T v ¥11.5T y/y; To conduct 5-for-1 stock split at Sep 30th: Announces ¥250B buyback (2.46%)
700.HK Reports Q1 (CNY) adj Net 50.3B v 43.0Be, Rev 159.5B (+6% y/y) v 158.8Be; On track to repurchase over HK$100B of shares in 2024
AMZN Amazon Web Services CEO Adam Selipsky to step down - The Verge citing internal memo
BABA Reports Q1 (CNY) 10.14 v 10.71 y/y, Rev 221.9B v 219.8Be; Approves $4.0B dividend for FY24 ($1.00/ADS regular annual dividend and special $0.66/ADS dividend); Prepares for primary listing in Hong Kong by end-Aug 2024
BABA Exec: We are still seeing good healthy growth domestic eCommerce sales in Apr and May; AI-related Rev rose triple digits y/y - conf call
FDX Affirms FY24 NG EPS $17.25 to $18.25 v $17.70e, Rev 'low single digit rev decline'; Notes muted small package and macro-economic backdrop - Tier1 analysts citing CEO/CFO meeting 31st Annual BofA Transportation, Airline, and Industrials conference
HD CFO: The home improvement customer is extremely healthy from a financial perspective; And so it’s not the case of not having the ability to spend. What they tell us is they’re just simply deferring these projects as given higher rates, it just doesn’t seem the right moment to execute – CNBC
OPENAI.IPO Co-founder and Chief Scientist Ilya Sutskever to leave OpenAI after almost a decade in the company
TRIP Tripadvisor's Summer Travel Index: Nearly all (92%) US respondents plan to spend at least the same amount on travel as last summer, while more than half expect to spend even more than in 2023
VOD.UK Reports FY24 adj €0.07 v €0.11 y/y, adj EBITDA €11.0B v €12.4B y/y, Rev €36.7B v €37.7B y/y

WED 5/15
(AU) AUSTRALIA APR EMPLOYMENT CHANGE: +38.5K V +23.7KE; UNEMPLOYMENT RATE: 4.1% V 3.9%E (Highest unemployment rate since Jan)
(CN) China Foreign Min Wang Yi: US tariffs show that some people in the US have reached the point of losing their minds
(EU) EU Commission Spring Economic Forecasts
(EU) EURO ZONE Q1 PRELIMINARY GDP Q/Q: 0.3% V 0.3%E; Y/Y: 0.4% V 0.4%E
IEA Monthly Oil Report (OMR)
(US) APR ADVANCE RETAIL SALES M/M: 0.0% V 0.4%E; RETAIL SALES (EX-AUTO) M/M: 0.2% V 0.2%E
(US) APR CPI M/M: 0.3% V 0.4%E; Y/Y: 3.4% V 3.4%E (1st deceleration in Y/Y pace in 3 months)
(US) Atlanta April Sticky-CPI annualized 4.6% v 5.0% m/m, Core 4.6% v 5.2% m/m (update)
(US) Atlanta Fed GDPNow: Cut Q2 GDP forecast to 3.8% from 4.2% prior (update)
(US) DOE CRUDE: -2.5M V -1ME; GASOLINE: -0.2M V +0.5ME; DISTILLATE: -0.0M V +0.5ME
(US) MAY EMPIRE MANUFACTURING: -15.6 V -10.0E; Prices Paid: 28.3 v 33.7 prior (lowest since Jan 2024)
(US) MAY NAHB HOUSING MARKET INDEX: 45 V 50E
(US) Tier1 analysts May Spending Survey (conducted May 8-13th): New Vehicle next 12-month spending expectations have increased significantly in May on a sequential and year-over-year basis to highest level since Jan 2023, with 43.0% of respondents expecting to buy a vehicle vs. 35.8% last month and 41.2% last year
(US) Redfin: Real estate investors bought ~44K U.S. homes in Q1 2024, +0.5% y/y (the first increase since Q2 2022)
BRBY.UK Reports prelim FY23/24 £0.74 v £1.26 y/y, Adj Op £418M v £634M y/y, Rev £2.97B v £3.09B y/y; Expect H1 to remain challenging
BRBY.UK CEO: Americas remain quite challenging; Americas decline is broader than aspirational clients - post earnings comments
CBK.DE CEO: No longer expect a recession in 2024 - post earnings comments
COF Reports Apr net charge-offs 6.07% v 6.15% m/m; Domestic Card delinquencies: 4.23% v 4.48% m/m
CSCO Reports Q3 $0.88 v $0.83e, Rev $12.7B v $12.5Be; Raises FY Rev guidance; Seeing stabilization of demand
EOAN.DE Reports Q1 Adj Net €1.05B v €1.03B y/y, adj EBITDA €2.75B v €2.72B y/y, Rev €22.6B v €33.5B y/y
JJC Copper NY futures Comex surge over 4% to record high around $5.10/pound (equivalent to ~$11.2K/ton)
NFLX To launch in house ad technology platform by end of 2025 in pact with TTD
TKA.DE Reports Q2 Net -€377M v -€105M y/y, adj EBIT €268M v €373M y/y, Rev €17.2B v €19.1B y/y; Cuts Net and Rev outlook citing volume reductions and lower prices at Steel Europe and Materials Services
TUI1.DE Reports Q2 Underlying EBIT -€198M v -€242.4M y/y, Rev €3.65B v €3.15B y/y; Bookings for the Summer 2024 season continue to be promising, with 60% of the season sold
THRS 5/16
(CN) Reportedly US to place 25% tariff on China synthetic graphite ending its exemption; Tariff to be imposed in stages over next two years - press [**Note: China produces ~60% of global synthetic graphite]
(CN) China Ministry of Industry and Information Technology said to have asked automakers including SAIC Motor, BYD, Dongfeng Motor, GAC Motor and FAW Group to increase their local procurement of automotive-related chips to 20-25% by next year from ~10% currently – Nikkei
(US) APR IMPORT PRICE INDEX M/M: 0.9% V 0.3%E; Y/Y: 1.1% V 0.4%E
(US) APR HOUSING STARTS: 1.360M V 1.421ME; BUILDING PERMITS: 1.440M V 1.480ME (1-year low)
(US) Atlanta Fed GDPNow: Cut Q2 GDP forecast to 3.6% from 3.8% prior (update)
(US) BOFA INSTITUTE: WEEK-TO-MAY 11TH TOTAL CARD SPENDING +2.3% Y/Y V +0.3% AVERAGE IN APR; Overall, y/y spending growth is likely boosted by the Mother's Day timing mismatch (May 12 in 2024 vs May 14 in 2023)
(US) INITIAL JOBLESS CLAIMS: 222K V 220KE; CONTINUING CLAIMS: 1.794M V 1.78ME
Ocean Freight Bookings remain strong after the Chinese Labor Holiday; Shippers talking up another rate hike for June, following May hikes - Flexport
AMAT Reports Q2 $2.09 v $1.97e, Rev $6.65B v $6.51Be; Sales to China doubles; Some customers that make semiconductors used for ICAPS pausing orders
BIDU Reports Q1 $2.76 v $2.30e (2 est), Rev $4.37B v $4.31Be
BT.A.UK Reports final FY23/24 Pretax £1.19B v £1.73B y/y, Adj EBITDA £8.10B v £8.13Be, Rev £20.8B v £20.9Be
CSCO TTN Earnings Call Quotes summary: "We're getting to the tail end of this supply chain situation that we've been navigating for the last several years"
DE Cuts FY24 US/Canada Global Roadbuilding Equipment -5% to flat y/y (prior flat y/y); Reports Apr (rolling 3-month) US/Canada Combines retail sales 'down double digits'; Apr 2WD Tractors dealer inventories 31% v 29% y/y - earnings slides
DE Reports Q2 $8.53 v $7.86e, Net sales $13.6B v $13.3Be; Cuts outlook again citing global agricultural and turf demand further softens
JD Reports Q1 (CNY) 5.65 v 4.76 y/y, Rev 260.0B v 243.0B y/y; Notes general merchandise category continue to pick up momentum, thanks to the robust recovery of supermarket category
JPM CEO Dimon: Repeats "A lot of inflation forces are in front of us" and may keep rates higher
RDDT OpenAI to bring Reddit content to ChatGPT and OpenAI products; OpenAI to become Reddit advertising partner
ROG.CH Reports positive Phase I results for dual GLP-1/GIP receptor agonist CT-388 in people with obesity; At week 24, 100% of CT-388 treated participants with once-weekly subcutaneous injection achieved >5% weight loss, 70% achieved >15% and 45% achieved >20% weight loss; CT-388 Phase 1 cohort data expected 2H24
SIE.DE Reports Q2 Net €2.20B v €3.55B y/y, Rev €19.2B v €19.4B y/y; Affirm outlook
SIE.DE CFO: Will end up at lower end of FY revenue guidance range (+4-8% y/y); Latest announcement on China tariffs is not helpful - post earnings comments
UA Reports Q4 $0.11 v $0.08e, Rev $1.33B v $1.32Be; Guides FY25 weak; Announces restructuring program and up to $500M share buyback; Notes challenging retail environment that included high inventories and a consistent drumbeat of promotions
WMT Reports Q1 $0.60 v $0.52e, Rev $161.5B v $159.4Be; Raises outlook; Notes US LFL inflation is 'slightly positve'
WMT Grocery inflation +LSD in Q1 but moderated 80bps q/q; Unit volumes in hardlines and home increased - earnings slides
WMT *CFO: WE’VE GOT CUSTOMERS THAT ARE COMING TO US MORE FREQUENTLY THAN THEY HAVE BEFORE - PRE-RECORDED MEDIA CALL COMMENTS
WOSG.UK Q4 FY24 Trading Update: Q4 Rev £380M +5% (cc); Q4 FY24 saw a significant improvement in jewellery performance; US sales remained strong across all regions; FY25 outlook reflects cautious optimism

FRI 5/17
(CN) CHINA PBOC ADJUSTS INTEREST RATE FOR COMMERCIAL HOUSING LOANS; SCRAPS NATIONWIDE INTEREST RATES FLOOR FOR 1ST AND 2ND HOMES – PRESS
(US) Tier1 week-to-May 16th US Truckload Demand Indicator at 53.7 v 56.5 prior (back below 54 avg freight recession level)
(UR) NATO allies reportedly inching closer to sending troops into Ukraine to train Ukrainian forces; As a part of NATO, US with other allies would be obligated under the alliance’s treaty to aid in the defense of any attack on the trainers - NYT (update)
(US) Apr Leading Index: -0.6% v -0.3%e
6752.JP CEO: EV market slowdown in US is "steep" and worse than expected – Nikkei
ALK Exec: No demand challenges have been identified and record travel volumes are expected this summer - BoFA conf comments summary
CFR.CH Reports FY23 Net €2.36B v €301M y/y, Op €4.79B v €5.03B y/y, Rev €20.6B v €20.0B y/y; Names Nicolas Bos as CEO; effective June 1st; Increased proposed dividend 10% to CHF 2.75 per 1 ‘A’ share / 10 ‘B’ shares
CVLG *CEO: This is the worst market in my 51 years in trucking; See our recent annual contract renewals down 4-5% v the market's down 8-9%; Do not expect positive contract rates until 2025 - BoFA conf comments summary
GME Files to sell up to 45M common shares (16.8% of total float)
JBLU Exec: Business trends discussed on the Q1 2024 earnings call are intact and there have been no unforeseen changes to business performance Q2-to-date - BoFA conf comments summary
RXO CEO: Somewhat delay the company's expectation for a truckload market recovery from H2 2024 to late H2 2024-early 2025, as the pace of carrier exits slowed - BoFA conf comments summary