After Hours Summary: NTNX +15.1%, ESTC +9.6%, DELL +7.7%, MDB +5%, LULU +1.8% higher on earnings; PD -5.2%, AVGO -4.2% lower on earnings; EOSE +52.3% pops on expansion programAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: NTNX+15.1% (also authorizes new $350 mln share repurchase program), ESTC +9.6%, DELL+7.7%, MDB +5%, LULU +1.8%, S +1.3%, OXM +0.1%
Companies trading higher in after hours in reaction to news: EOSE +52.3% (announces $500 mln expansion program to scale annual production to 8 GWh storage capacity by 2026), ME +31% (granted new FDA clearance), QSR+1% (authorizes new $1 bln share repurchase program), LDOS +0.7% (awarded $7.9 bln U.S. Army contract), ROST +0.4% (Board Chairman stepping down), SHOP +0.3% (launches TikTok Shop integration, according to The Information), AVA +0.1% (increases rates in Idaho)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: PD -5.2%, AVGO -4.2%, HCP -4%, VMW -1.6%, IOT-1.4%
Companies trading lower in after hours in reaction to news: MLTX -10.5% (files $1 bln mixed shelf securities offering)
Laurent Chekroun Equity Sales
Makor Securities London Ltd. | Makor Group
E: LCHEKROUN@makor-cm.com
M: +41 79 350 71 09
O: +33 1 42 33 02 05
W: www.makor-group.com
This message has been sent by Makor Securities, London, part of Makor Group, which is authorised and regulated by the FCA (625054). This message is for professional clients and eligible counterparties only, not intended for "retail clients". The information contained in this message is confidential and is for the exclusive use of the intended recipient. If you receive this message in error please inform us and delete all copies of it. The information is not intended as an offer or solicitation to buy or sell any financial instrument. All comments and statements are to be considered the opinions of the author not the Company and are not intended to be relied upon. We cannot guarantee that this message or any attachments are virus free and accept no liability for any viruses or the consequences thereof. v20230124
Closing Stock Market SummaryThe market's winning streak was broken today. The market initially moved higher before upside momentum slowly dissipated. The S&P 500 and Dow Jones Industrial Average both closed with a loss near their worst levels of the day while the Nasdaq eked out a slim gain. The muted price action was due to a lack of conviction on either side of the tape.
In general, big moves were reserved for individual stocks with catalysts. Retailers Dollar General (DG 138.50, -19.16, -12.2%) and Five Below (FIVE 171.96, -10.99, -6.0%) sank after reporting quarterly results that featured below-consensus guidance. CrowdStrike (CRWD 163.03, +13.85, +9.3%) and Dow component Salesforce (CRM 221.46, +6.42, +3.0%), meanwhile, registered sizable gains after their earnings reports.
Relative strength in mega cap stocks offered a measure of support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) logged a 0.1% gain while the Invesco S&P 500 Equal Weight ETF (RSP) fell 0.4% and the market-cap weighted S&P 500 fell 0.2%.
Seven of the 11 S&P 500 sectors registered a loss with health care (-1.2%) and utilities (-1.0%) showing the steepest declines. The consumer discretionary sector (+0.5%) saw the biggest gain, bolstered by a nice move in Amazon.com (AMZN 138.01, +2.94, +2.2%).
Market participants were digesting some otherwise pleasing data that corroborated the understanding that the U.S. economy is not tracking currently at a hard landing pace.
Specifically, initial jobless claims - a leading indicator -- were just 228,000 for the week ending August 26, and personal spending increased at a healthy 0.8% clip in July. The PCE Price Index and core-PCE Price Index were both up 0.2%, and although that translated into an uptick in their year-over-year readings to 3.3% and 4.2%, respectively, the news was tolerated well because that was exactly what was expected ahead of the report.
Expectations for additional rate hikes before the end of the year were little changed after this morning's data. The probability of a 25 basis points rate hike in November is 45.4% now versus 48.9% before the data, according to the CME FedWatch Tool.
On a related note, Atlanta Fed President Bostic (2024 FOMC voter) said that he feels the Fed's monetary policy is appropriately restrictive, but that doesn't mean he is in favor of easing anytime soon.
Treasuries had a muted response to this morning's data, but drew some modest selling interest during the cash session. The 2-yr note yield fell two basis points to 4.86% and the 10-yr note yield fell three basis points to 4.09%.
- Nasdaq Composite: +34.1% YTD
- S&P 500: +17.4% YTD
- Russell 2000: +8.9% YTD
- S&P Midcap 400: +7.9% YTD
- Dow Jones Industrial Average: +4.8% YTD
Reviewing today's economic data:
- Weekly Initial Claims 175K vs consensus of 235K; Last Week was revised to 232K from 230K
- Weekly Continuing Claims 160K; Last Week was revised to 1.697 mln from 1.702 mln
- The key takeaway from the report is that initial claims -- a leading indicator -- continue to run at levels that are indicative of a tight labor market that goes hand-in-hand with an economy that is definitely not in a hard-landing pattern.
- July Personal Income 0.3% vs consensus of 0.3%; June was 0.3%
- July Personal Spending 0.8% vs consensus of 0.7%; June was revised to 0.6% from 0.5%
- July PCE Prices 0.2% vs consensus of 0.2%; June was 0.2%
- July PCE Prices - Core 0.2% vs consensus of 0.2%; June was 0.2%
- The key takeaway from the report would have to be the uptick in the year-over-year inflation readings. They weren't of the eye-popping variety; however, they should catch the Fed's eye as a basis not to cut rates anytime soon.
- August Chicago PMI 48.7 vs consensus of 45.0; July was 42.8
Looking ahead to Friday, market participants will receive the following economic data:
- 8:30 ET: August Nonfarm Payrolls (consensus 175,000; prior 187,000), Nonfarm Private Payrolls (consensus 160,000; prior 172,000), Unemployment Rate (consensus 3.6%; prior 3.5%), Average Hourly Earnings (consensus 0.3%; prior 0.4%), and Average Workweek (consensus 34.3; prior 34.3)
- 9:45 ET: Final August S&P Global U.S. Manufacturing PMI (prior 47.0)
- 10:00 ET: July Construction Spending (consensus 0.6%; prior 0.5%) and August ISM Manufacturing Index (consensus 46.7%; prior 46.4%)
Laurent Chekroun Equity Sales
Makor Securities London Ltd. | Makor Group
E: LCHEKROUN@makor-cm.com
M: +41 79 350 71 09
O: +33 1 42 33 02 05
W: www.makor-group.com
This message has been sent by Makor Securities, London, part of Makor Group, which is authorised and regulated by the FCA (625054). This message is for professional clients and eligible counterparties only, not intended for "retail clients". The information contained in this message is confidential and is for the exclusive use of the intended recipient. If you receive this message in error please inform us and delete all copies of it. The information is not intended as an offer or solicitation to buy or sell any financial instrument. All comments and statements are to be considered the opinions of the author not the Company and are not intended to be relied upon. We cannot guarantee that this message or any attachments are virus free and accept no liability for any viruses or the consequences thereof. v20230124
lululemon athletica beats by $0.14, beats on revs, comparable store sales of +7%; guides Q3 EPS in-line, revs above consensus; raises FY24 EPS and revenue guidance above consensus
Reports Q2 (Jul) earnings of $2.68 per share, excluding non-recurring items, $0.14 better than the FactSet Consensus of $2.54; revenues rose 17.8% year/year to $2.2 bln vs the $2.17 bln FactSet Consensus.
Total comparable sales increased 11%, or 13% on a constant dollar basis.
Comparable store sales increased 7%, or 9% on a constant dollar basis.
Direct to consumer net revenue increased 15%, or 17% on a constant dollar basis.
Co issues guidance for Q3, sees EPS of $2.23-$2.28 vs. $2.23 FactSet Consensus; sees Q3 revs of $2.165-$2.190 bln vs. $2.15 bln FactSet Consensus.
Co raises guidance for FY24, sees EPS of $12.10-$12.17 vs. prior guidance of $11.74-$11.94, above the $11.93 FactSet Consensus; sees FY24 revs of $9.510-$9.570 bln vs. prior guidance of $9.44-$9.51 bln, above the $9.5 bln FactSet Consensus.
Dell beats by $0.60, beats on revs; co tends to guide on call
Reports Q2 (Jul) earnings of $1.74 per share, excluding non-recurring items, $0.60 better than the FactSet Consensus of $1.14; revenues fell 13.2% year/year to $22.93 bln vs the $20.86 bln FactSet Consensus.
Infrastructure Solutions Group delivered second quarter revenue of $8.5 billion, down 11% year-over-year and up 11% sequentially. Storage revenue was $4.2 billion, with continued demand growth in PowerStore, the company's leading midrange storage array, and PowerFlex, the company's software-defined storage. PowerFlex has now grown eight consecutive quarters with second quarter demand more than doubling year-over-year. Servers and networking revenue was $4.3 billion, with continued demand growth in AI-optimized servers. Operating income was $1 billion, approximately 12.4% of Infrastructure Solutions Group revenue.
Client Solutions Group delivered second quarter revenue of $12.9 billion, down 16% year-over-year and up 8% sequentially. Commercial client revenue was $10.6 billion, with demand growth in workstations, which help organizations run complex AI workloads locally. Consumer revenue was $2.4 billion. Operating income was $969 million, or approximately 7.5% of Client Solutions Group revenue.
"With a better demand environment and strong execution, we delivered extraordinary Q2 results," said Jeff Clarke, vice chairman and chief operating officer, Dell Technologies. "We continue to focus on the most profitable segments of the market where we have a leading position. Demand for our proprietary software-defined storage solution has now grown eight consecutive quarters. Our client solutions group business was up 8% sequentially with strong attach rates. And AI is already showing it's a long-term tailwind, with continued demand growth across our portfolio."
Chinese Banks Plan Deposit Rate Cuts to Cushion Pain From Faltering Economy
Banks will pay less on deposits to reduce the impact of mortgage-rate cuts
Large commercial banks in China are planning to lower some deposit rates starting Friday, softening the blow of mortgage-rate cuts that will further squeeze their profit margins at a crucial economic juncture.
Major state-owned banks are expected to cut interest rates on time deposits by up to a quarter of a percentage point, according to a Chinese state-media outlet.
A customer-service representative at one of the country’s biggest banks confirmed on Thursday that rates on its one-year deposits would be trimmed by 0.1 percentage point, while those on three- and five-year time deposits would be cut by 0.25 percentage point. One lender, Industrial Bank, announced its new deposit rates late Thursday night.
The deposit rate cuts will help cushion banks from taking another big hit to their profits after regulators pushed through widely-anticipated changes to mortgage rules on Thursday.
Chinese commercial banks can now reduce the rates they charge on existing loans, a move partly designed to discourage a recent trend of Chinese citizens using their money to pay back mortgages rather than spend in restaurants, bars and shops.
The exact size of the cuts will still be left to commercial banks and their customers to negotiate. The central bank has set a floor for how cheap loans can be, compared with a benchmark rate.
The country’s banks have been doling out cheaper corporate and personal loans to help stimulate the flagging economy. The People’s Bank of China has cut a key lending rate twice in the past year, and commercial banks have trimmed loan benchmarks that are used to price mortgages and other debt.
Those moves have come at a significant cost to lenders. Several large banks that released first-half results this week said their net interest margins—which reflect the difference between what they earn from their assets and what they pay for deposits and other funding—dropped to new lows.
Large Chinese banks’ time deposits currently earn 1.25% to 2.5% annually. Many of them have slashed their deposit rates already this year.
Industrial & Commercial Bank of China, the world’s largest bank by assets, reported a net interest margin of 1.72%, which was below regulators’ recommended level of at least 1.8%. ICBC pointed to multiple reductions in the loan prime rate, decreasing loan yields, as well as higher average deposit rates that were a result of more time deposits. The net interest margins of the next three biggest Chinese state-owned banks were also below that threshold at the end of June.
The recent wave of mortgage prepayments has been bad news for banks, because it reduces some of the income they can expect to earn in the future.
Chinese borrowers repaid the equivalent of around $508 billion in mortgages ahead of schedule in the first half of 2023, estimates Zhaopeng Xing, a senior China strategist at ANZ. He said that represents around 10% of Chinese banks’ outstanding mortgage loans.
“That has a very big impact on banks’ profits,” Xing added. He predicted that the coming mortgage-rate cuts may cost Chinese banks $110 billion a year in profits, but a deposit rate cut of 0.1 percentage point will roughly offset that.
The savings people can get by renegotiating their interest rates still might not be enough to deter them from paying back mortgages early, said Ting Lu, chief China economist at Nomura, in a research note on Thursday.
Many people who took out home loans in the past few years have been locked into paying higher rates than what banks are offering on newly issued mortgages. Unlike in the U.S., borrowers in China were previously barred from refinancing their mortgages by taking out new home loans at lower rates to pay down the old ones.
In mid-July, a senior official acknowledged that the gap between rates on new mortgages and existing ones has caused some home buyers to repay mortgages early and hinted that the central bank would change that.
The average rate on new residential mortgages in August was 3.9% for new homes, according to Beike Research Institute, which sampled 100 Chinese cities. That is 0.3 percentage point lower than China’s five-year loan prime rate, the benchmark that banks typically use to price mortgages. Mortgage rates in China had been above 5% from mid-2017 to mid-2021, according to Wind data.
Shortly after Chinese regulators pushed through the changes to lower existing mortgage rates, some major banks issued statements saying they were preparing to implement the policy. They included China Construction Bank, which has lent outstanding mortgages worth around $880 billion, and Agricultural Bank of China, which has a $739 billion mortgage book.
Nuclear power’s future is being disrupted
Investor interest in small modular reactors is growing as demand for electricity is set to soar
Last month Sam Altman, the (in)famous founder of OpenAI, posted a picture on social media of an elegant A-frame wooden building in a verdant tropical setting.
It looks like a billionaire’s weekend pad. However, what the image actually depicts is the putative design of a small modular (nuclear) reactor invented by Oklo, a company that Altman has chaired since 2015. And it was posted because Oklo has just merged with a special purpose acquisition company created by Altman and Michael Klein, the Wall Street dealmaker, valuing it at $850mn.
That will make some observers wince. The acronym “Spac” became toxic two years ago because the concept was badly abused during the last credit bubble. Adding “nuclear” into the mix risks making it doubly radioactive, in the public mind, given past accidents at the Chernobyl and Fukushima plants (and current Russian threats to Ukraine’s Zaporizhzhia plant).
Nevertheless, investors and policymakers should pay attention. On Thursday the United States Air Force announced plans to use Oklo’s reactor for the Eielson Air Force Base in Alaska — seemingly the first potential use of commercial SMRs by the Federal Government on American soil.
And activity — and investor interest — around SMRs is rising elsewhere. A rival company called TerraPower, backed by Bill Gates, is also developing reactors. So is NuScale, which listed via a Spac last year and recently received $275mn in funding from variety of governments for a Romanian project.
Industrial giants such as Britain’s Rolls-Royce are jumping into the action while GE Hitachi is building an SMR plant in Canada. And last month Britain launched an international competition for the best SMR design, pledging to take “up to a quarter of the UK’s electricity from homegrown nuclear energy by 2050”.
There are three factors sparking this. One is a recognition that demand for electricity will soar in coming years, because of global growth and the fact that digital innovations such as AI need “a lot” of additional electricity. This creates, as Altman admits, “urgent demand for tons and tons of cheap, safe, clean energy at scale”.
Second, relying on fossil fuels to generate this electricity will exacerbate global warming — but renewable sources, such as wind and solar, cannot plug the gap without major breakthroughs in battery storage.
Third, the nuclear tech has changed. In the 20th century, this was generated in massive power plants that were costly and time-consuming to build. The cost of Britain’s planned Hinkley Point C nuclear power station, for example, has surged to £32bn, while the bill for America’s new Vogtle plants has doubled from $14bn to over $30bn.
But since SMRs are small and use factory-produced designs, they are much cheaper and faster to build, and can be moved close to the electricity demand. Moreover, the tech developed at companies such as Oklo and TerraPower uses recycled nuclear waste as fuel, potentially reducing the waste disposal headache.
Indeed, Oklo’s officials claim that just the “existing inventories of used fuel in the US could power the country’s energy needs for over 150 years” — if their tech is adopted. “It’s the best way to decarbonise,” Jacob DeWitte, Oklo founder, tells me.
Not everybody agrees. Many environmentalists detest nuclear power so deeply that they want to exclude it from green taxonomies. Parts of the traditional nuclear establishment also hate the idea that libertarian “tech bros” — like Altman — are now becoming “nuclear bros”, says Allison Macfarlane, a former head of the US Nuclear Regulatory Commission.
“Very few of the proposed SMRs have been demonstrated and none are commercially available, let alone licensed by a nuclear regulator,” she noted in a recent essay that decries the Spac structures and hype. “Existing nuclear power plants play a significant role in greenhouse gas reductions and will continue to do so. But the promise of SMRs is questionable.”
She has a point: Oklo’s first US federal licensing application was rejected last year. And while DeWitte tells me he will refile next year, and is optimistic about the result, he also admits that the plants will not start until at least 2027.
But even with these caveats, I personally welcome these initiatives. Yes, SMR tech is still unproven, and Spacs have a mixed record. But the dirty truth is that we urgently need to experiment with all the clean energy ideas we can find, given climate change.
And while it was the US government that initially unleashed nuclear innovation in the west — as seen recently in the movie Oppenheimer — the dismal truth is that public sector agencies have since become lamentably slow-moving and risk averse. Hence why China and Russia are now running the first SMR pilots, along with Argentina.
If nothing else, let us hope that the competitive threat from the “tech bros” will prod western governments and the traditional nuclear establishment into moving faster. And if Oklo’s new recycling tech actually works and can produce clean and safe power, that would be even better — not just for the US air force but for the wider world.
Adani shares slide and politicians demand action after reports on hidden investors
Revelations exposed opaque offshore structures that shielded some of the Indian group’s largest shareholders from public sight
Shares in Indian industrial conglomerate Adani slid and opposition politicians demanded action after the Financial Times and two other media outlets reported new revelations about family-linked shareholders in the company’s stock.
The reports shone a spotlight on Indian institutions and the relationship between the conglomerate’s founder Gautam Adani and Prime Minister Narendra Modi, in a febrile atmosphere ahead of elections early next year.
The value of the group’s 10 listed companies dropped by $4.2bn, or 3.3 per cent, on Thursday after the FT and The Guardian exposed opaque offshore structures that shielded some of the group’s largest shareholders, and their connections to the Adani family, from public sight.
Rahul Gandhi, India’s most prominent opposition figure, said “this is a matter of India’s global reputation and it should be investigated”, at a news conference in Mumbai. “We are trying to show the world and our businesses that India has a level playing field,” he added. India is hosting the G-20 summit on September 9-10.
Adani said it categorically rejected what it called “recycled allegations”, and sought to link the reports to billionaire philanthropist George Soros.
The reports were based on documents obtained by the Organised Crime and Corruption Reporting Project, a global network of investigative journalists that is part funded by Soros’ Open Society Foundations. They also revealed the existence of an investigation of the Adani Group by India’s stock market regulator that was closed after Modi came to power in 2014.
After Hindenburg, a US short selling group, had accused Adani of manipulating its share prices in a report published in January, India’s financial regulator told the Supreme Court there had been no such investigations before 2020.
Hindenburg told the FT: “The independent evidence corroborating our work is overwhelming. All eyes are on Indian regulators to see if they will act on that which is now completely obvious.”
Saket Gokhale, spokesperson for the Trinamool National Congress, an opposition party, said he had written to the chair of the Securities and Exchange Board of India “demanding an urgent probe into these allegations against Adani”.
The Adani Group said: “These news reports appear to be yet another concerted bid by Soros-funded interests supported by a section of the foreign media to revive the meritless Hindenburg Report.”
After Adani was contacted for comment last week, BQ Prime, a financial news website that it owns, published an opinion piece that said “known India and Modi government baiters in foreign shores along with their allied toolkit groups were preparing to make another strike in garb of investigative reportage”.
Soros became unpopular among officials in Modi’s government and its supporters after the 93-year old financier and philanthropist said in February that “Modi and business tycoon Adani are close allies; their fate is intertwined”, predicting that the controversy would weaken the administration.
The Open Society Foundation said it was “proud to be amongst a number of organisations providing support to the OCCRP, which acts entirely independently regarding the issues it chooses to investigate. What we are seeing now in India is a bogus attempt to discredit OCCRP’s work without engaging with its findings.”
Adani’s interests range across infrastructure, power, construction, fuel and media. From a peak market capitalisation of $288bn last year, its 10 listed companies were worth $127bn at the market close on Thursday.