(ZH) 500Bps Of Rate Cuts On Deck

500Bps Of Rate Cuts On Deck

By Simon White, Bloomberg Markets Live reporter
Powell Is Fighting Weight of History With "Higher for Longer"
The inverted yield curve shows why Fed chair Jerome Powell is fighting a losing battle in his desire to keep policy restrictive for an extended period. Without a radical re-upping of the Fed’s hawkish ante, pressure is likely to remain on Eurodollar spreads and the yield curve.
Like an obstreperous child, the Fed sometimes has a hard time getting the market to do what it wants (and sometimes enlists journalists to help). In its aim to keep rates for higher for longer, the market has listened to the Fed on the first part by bringing forward the expected peak funds rate and pushing it higher, but it has resolutely ignored it on the second part -- pricing in deep cuts that happen soon after rates are expected to peak.
This is keeping pressure on the yield curve, leading to the deepest inversion in 2s10s since the early 1980s. I looked at this last week and there is a strong relationship between the peak size of the curve inversion and the subsequent total Fed rate cuts (this time adding in the two 1970s recessions).
When lowering rates, of course the Fed can cut more if the starting rate is higher. We can account for this for by looking at the percentage cut from the peak rate. This leads to a weaker but still non-trivial relationship. It also leads to a negatively sloping line as falls from lower starting points (such as the 2007 and 2020 cutting cycles) are large in percentage terms.
Nonetheless, the current inversion of 2s10s is historically consistent with 65% of cuts from the expected peak Fed Funds (~5%), i.e. 325 bps, if we get a recession.
There is a tautological aspect to this: a more inverted curve gives the Fed more “room” to cut. The Fed raises the stakes by saying it’ll keep rates high for a prolonged period, but the market calls its bluff and says the economy can’t handle it and bids up longer-term bonds, flattening the curve. Ultimately, though, in a self-fulfilling manner, the market wins and the Fed cuts, re-steepening the curve.
Both relationships would infer (but not necessarily predict) much deeper Fed cuts than the ~160 bps currently priced in by the Fed Funds curve if we get a recession (which looks highly likely). As long as the Fed keeps on insisting on higher rates and inflation keeps falling, history favors a larger Fed pivot and continued pressure on the yield curve.

Business Of Fashion : Can the Right Accessory Take Crypto Mainstream?

Can the Right Accessory Take Crypto Mainstream?
Ledger, a maker of hardware wallets for crypto and digital assets, has teamed with the creator of the iPod for a new product it believes could make the technology more desirable to consumers.
Ledger Stax. (Ledger)

During a year in which cryptocurrency and NFT values plunged, the crypto market suffered one of its biggest blows last month with the collapse of FTX, a crypto exchange previously seen as one of the more stable and reputable companies in the space. For crypto sceptics, it raised still more questions about the long-term future of digital assets.
Ian Rogers, the former chief digital officer of LVMH and now chief experience officer of Ledger, a maker of hardware wallets for crypto assets, is not among them.
“We’re concerned that people have been defrauded and lost money. We’re concerned that the market may cool off and it might take people a while to come back in. Am I concerned that maybe we won’t have digital assets over the long term?” Rogers said. “Not the slightest bit.”
The company imagines a future where everything from a Soho House membership card to your passport will one day be a digital document secured and carried in a hardware wallet. In an effort to bring that vision to life, Ledger has teamed with Tony Fadell, the former Apple designer and engineer credited with creating the iPod and co-creating the iPhone, on a new product Rogers and Fadell tout as having the potential to put digital assets in the pockets of mainstream consumers around the world, much like the iPod did for digital music. Called Stax, it’s a hardware wallet planned for release in early 2023 and a bet that, despite the events of this year, crypto and digital assets could still become widely used with the right product.

“Tony saw an opportunity coming from his experience for something that was much more beautiful, much more desirable and also more mainstream” than Ledger’s previous devices, Rogers said.
To understand why Ledger sees Stax as a step forward for digital assets, it helps to understand how a crypto wallet works. Despite the name, it doesn’t hold any assets itself. Those are stored on the blockchain. It’s really a private key for your blockchain address. But a wallet connected to the internet is vulnerable to hacking — a rampant problem in the crypto world — while one that’s not is more secure but also more difficult to use.
Ledger’s hardware wallets try to offer the best of both options. They’re a bit like USB drives that can store your private key and let you complete transactions within the device. According to Rogers, they’re far more secure than a phone or computer for holding digital assets, and for that reason will only become more important as more of our stuff becomes digital. In his view, the luxury industry will be affected by digital assets more than most, because as more of our lives take place online, our status symbols will be increasingly digital as well. Ledger even collaborated with Fendi on a hardware wallet earlier this year.
What was missing from Ledger’s lineup, in the opinion of Rogers and Fadell, was hardware that could draw in the average consumer — much as the iPod wasn’t the first mp3 player on the market but was the one to spark the boom in digital music.
Where Ledger’s previous products tend to look like USB drives, Stax is a roughly credit card-sized gadget with a wraparound e-ink screen — so you can tell what’s inside — and embedded magnets that make them easily stackable. In hand, it’s a bit like a mini hard drive with a satisfying weight, and the different displays the e-ink screen allows make the devices feel like trading cards if you’ve got more than one. Ledger sees it as the foundation for an ecosystem of products, again like the iPod, which wasn’t an overnight success.
A stack of Stax. (Ledger)
Fadell came up with the design after surveying all the hardware wallets on the market and finding them to be mostly plain black devices that didn’t communicate anything about the assets they held, which was a problem. Ledger has found many customers buy multiple wallets to store different types of assets, keeping the bulk of their cryptocurrency in one wallet, for instance, while using another for collectable NFTs. Fadell found a flexible e-ink screen that allowed for an always-on display without using much power. From playing with his kids’ Magna-Tiles building sets, he got the idea to use magnets to make them stack easily.
“You have to have a blend of rational and emotional,” he said, adding it’s the combination that enables a connection with a large set of consumers.
Whether digital assets will follow the path of digital music is yet to be seen. When Apple first announced the iPod, co-founder and then chief executive Steve Jobs introduced it by saying music is a part of everyone’s life and will always be around.

“This is not a speculative market,” he said.
Financial speculation, however, has been a driving force in the market for crypto and NFTs. The trajectory of that market this year has likely deterred plenty of curious consumers from jumping in.
Fadell compared the current moment to the late 1990s and early 2000s, when the Dot-com bubble swelled and burst but ultimately gave rise to much of the internet and technology of today. Amid the current tech turmoil, Ledger hopes to be one of the companies to come out stronger on the other side.

Business Of Fashion : Why Prada Is Hiring a New CEO

Why Prada Is Hiring a New CEO
Patrizio Bertelli and Miuccia Prada are stepping down as the group’s co-CEOs, passing the reins to former Luxottica chief Andrea Guerra and hiring a new leader for their flagship Prada brand.

KEY INSIGHTS
  • Prada is proposing Andrea Guerra, former CEO of Luxottica and of LVMH's hospitality unit, as its group CEO. A new brand CEO, also from LVMH, is set to be announced soon, sources said.
  • The appointments follow changes to Prada's governance as co-CEOs Miuccia Prada and Patrizio Bertelli transition control to the next generation.
  • Recruiting top managers to support Prada's succession could reassure investors as the company explores raising €1 billion-plus with a second listing in Milan.

Former Luxottica boss Andrea Guerra is set to become Prada’s new group CEO, as co-chief executives Miuccia Prada and Patrizio Bertelli prepare their succession. The company said Tuesday it would propose Guerra’s appointment at a board meeting in January 2023.

Bertelli, who built the brand into a global name alongside Miuccia Prada, will remain active in the company as chairman of the board. Mrs. Prada will relinquish her role as co-CEO but remain creative director of Miu Miu and co-creative director of Prada (alongside Raf Simons).

The group is also preparing to name a new brand CEO for its flagship Prada label, tapping Gianfranco d’Attis, most recently Americas CEO for LVMH’s Christian Dior Couture division, sources familiar with the matter said. Prada declined to comment.

The moves come as Bertelli, aged 76, and Mrs Prada, 73, prepare to pass control of the company to the family’s next generation. Their son Lorenzo Bertelli, aged 34, joined the company in late 2017 and has taken on key responsibilities managing the group’s marketing, digital communications and sustainability efforts. At an investor day in November 2021, Bertelli signalled that the family’s plan for Lorenzo to eventually take the reins of the company could go into effect within a few years.

“This is a fundamental step we have decided to undertake, while completely engaged in the company, to contribute more to the evolution of the Prada Group and to ease the succession of Lorenzo Bertelli, the future leader,” Prada and Bertelli said in a joint statement.

From 2004 to 2014, Andrea Guerra led Luxottica through a period of rapid expansion as the group — which owns Ray-Ban, Oakleys and Sunglass Hut as well as licensing the Prada and Armani names — expanded its grip on the eyewear category. Since leaving the company, he’s held roles as executive chairman of Eataly and CEO of LVMH’s hospitality division.

Working under billionaires like Leonardo Del Vecchio at Luxottica and Bernard Arnault at LVMH, Guerra has “shown entrepreneurial skills in businesses where the founders are present and engaged, blending their culture and the needs of a company continuously evolving and active on international markets,” Prada’s statement said. Massimo Vian, the company’s chief operating officer since 2020, is also a Luxottica veteran.

Beefing up the Prada Group’s ranks with external talent could ease the transition to a new generation, as well as reassuring investors conscious of the central roles played by its founders.

“The market is likely to react positively to the management changes. While Lorenzo Bertelli has been instrumental in some of the initiatives of the group… it would have likely been too early for him to take on the role as group CEO,” UBS analyst Susy Tibaldi said. “Guerra has a proven track record.”

After meeting in the late 1970s, Miuccia Prada and Patrizio Bertelli worked together to acquire a controlling interest in the leather goods house founded by Prada’s grandfather in 1913. The pair sought to avoid the fusty, conservative perception that then bedevilled Italian heritage houses, instead positioning the brand as the fashion embodiment of Milan’s cutting-edge authority in design, architecture and manufacturing. The pair grew the company into a global powerhouse and household name while continuing to challenge the codes of the luxury industry, offering sporty nylon rucksacks, sneakers and ugly-chic prints alongside its sleek leather bags.

The group made significant strides toward putting in place a creative succession plan in 2020 by hiring star designer Raf Simons as co-creative director of Prada. The designer said in November he was shutting down his namesake label.

Prada’s first-half retail sales rose 26 percent year-on-year to 1.7 billion, up 38 percent compared to 2019′s pre-coronavirus levels, the Milan-based group said in August. The brand is expected to close the year with over €4 billion in annual sales — beating for the first time its 2013 revenue peak (while the brand has maintained cultural relevance and prestige, sales struggled for years to make up for the waning popularity of the hit Galleria handbag).

Other recent steps taken to bolster succession planning at Prada have included putting in place a potentially lucrative beauty deal with L’Oréal — which launched Prada’s first major fragrance in years, Paradoxe, this year — as well as hiring two Goldman Sachs veterans in key roles: chairman Paolo Zannoni and new chief financial officer Andrea Bonini. Zannoni will become deputy chairman to make room for Bertelli as chairman of the group’s board, Prada said.

Prada, which is traded on Hong Kong’s stock exchange, floated the idea of a second listing at its 2021 investor day. On the back of strong growth for the luxury industry since the pandemic, the group is now said to be working with Goldman Sachs to seek as much as $1 billion through a second offering in Milan. That could bolster Prada’s financial war chest to invest in future growth as well as providing a payout for Miuccia Prada and her family, who still control 81 percent of the group’s shares.

Preparing Lorenzo as a future leader, nabbing top managers, signing the L’Oréal beauty deal and exploring the second listing have all been positioned as strengthening the company as an independent operation. Still, takeover speculation continues to swirl following reports that Prada and Bertelli met with top leaders from Kering and Richemont in 2019, as well as signs of rapprochement with LVMH. (Before hiring Guerra and D’Attis from LVMH, Prada companies worked with the French conglomerate to co-found a consortium focused on developing blockchain technology’s use in the luxury industry.)

Prada would be a highly desirable target for luxury’s strategic groups as one of just a few remaining independent luxury houses with both significant scale and clear, desirable brand identity.

Bertelli has regularly insisted that he and Mrs Prada have no interest in selling their controlling stake in Prada. In a November 2021 interview with BoF, however, the executive struck a more open-minded tone regarding potential deals. Remaining independent “is not the first objective we would have in mind. Eventually you can own a smaller slice of a bigger cake,” he said.

The plans to name a new group CEO and Prada brand CEO were previously reported by La Repubblica and Miss Tweed, respectively.

WWD : Prada Sets Management Succession Plan

Prada Sets Management Succession Plan
The Italian luxury group confirmed on Tuesday that Andrea Guerra is to be nominated CEO at the next board meeting on Jan. 26, in preparation of Lorenzo Bertelli's rise to that role, and that his father Patrizio will become chairman of the group.

MILAN — Prada has set in motion its succession plan, putting an end to growing speculation about the management and design handover at the Italian luxury company.

On Tuesday, at the end of trading in Hong Kong, where the Prada group has been publicly listed since 2011, the company said that former LVMH Moët Hennessy Louis Vuitton senior adviser Andrea Guerra will be “recommended” as chief executive officer at the next board meeting on Jan. 26.

At the annual shareholders meeting for the approval of the 2022 financial statements, Patrizio Bertelli, who shares the CEO role with his wife Miuccia Prada, will be recommended as chairman and current chairman Paolo Zannoni will be suggested as executive deputy chairman of the board of directors of Prada SpA and, at the same time, chairman of Prada Holding SpA.

Miuccia Prada is confirmed as creative director of Miu Miu and Prada, the latter together with Raf Simons, and board member.

In a statement, Miuccia Prada and Patrizio Bertelli said: “This is a fundamental step we have decided to undertake, while completely engaged in the company, to contribute more to the evolution of the Prada Group and to ease the succession of Lorenzo Bertelli, the future leader of the group. We thank Andrea Guerra for being willing to take the job, with the aim of achieving a steady and sustainable growth. Andrea Guerra, with his long professional experience, has shown entrepreneurial skills in businesses where the founders are present and engaged, blending their culture and the needs of a company continuously evolving and active on international markets”.

This confirms a WWD report last week. Guerra is understood to be tasked with flanking Lorenzo Bertelli ahead of his increased future responsibilities helming the company.

A possible retirement of Patrizio Bertelli, who is 76, has been in the news for a while, further fueled by the executive during Prada’s first Capital Markets Day in November 2021, as he pointed to a potential generational shift in three years.

Patrizio Bertelli’s choice is not a surprise as his son has increased his responsibilities and been a driver of change since joining the company in 2017. He was named group marketing director in 2019 and, additionally, head of corporate social responsibility in 2020. In May 2021, he joined as a director of the board.

Guerra was conscripted in early 2020 as CEO of the newly created LVMH Hospitality Excellence division, but last May he became a strategic and development senior adviser to the group.

He is a former CEO of eyewear group Luxottica, which he left in September 2014 after 10 years working with the founder, the late Leonardo Del Vecchio. He was instrumental in the growth of the company, which became a world leader in its sector through innovation and acquisitions, including the purchase of U.S. sports eyewear firm Oakley in 2007.

After Luxottica, Guerra became a onetime strategic adviser to former Italian Prime Minister Matteo Renzi and then joined Italian high-end food emporium Eataly as executive chairman in 2015.

At LVMH, he took over an entity that encompasses Hôtels Cheval Blanc and the Belmond Hotels & Luxury Trains and also became a member of the luxury conglomerate’s executive committee. Ultimately, his purview was widened to include oversight of the Fendi and Loro Piana businesses, as well as Thélios, the Italian eyewear firm that LVMH took full control of last year.

A graduate of the University of Rome, Guerra started his career in 1989 with hotel group Marriott International. He has also worked in a variety of executive roles at Merloni Elettrodomestici, an Italian maker of household appliances now known as Indesit Co.

The relationship between Patrizio Bertelli and Guerra is a longstanding one, as Luxottica started producing the Prada and Miu Miu eyewear collections in 2003. Also, Luxottica veteran executive Massimo Vian joined Prada as chief of industrial production two years ago.

Last month, Belgian designer Raf Simons, who has been co-creative director with Miuccia Prada of the company’s signature line since February 2020, said he was shuttering his namesake fashion collection after 27 years, leading to speculation about an increased commitment at Prada.

The spring 2023 show staged during Frieze London last month was the designer’s last collection for his own brand.

The Miuccia-Raf collaboration has helped boost the group’s bottom and top lines. As reported in March, Prada returned to profitability in 2021 after a strong second half, driven by increased sales of handbags, footwear and ready-to-wear, which saw a 53 percent jump in revenues compared with 2020 and a 16 percent increase on 2019.

In the first half of fiscal 2022, the group smashed projections.

Retail sales, which account for 90 percent of group revenue, rose 26 percent to 1.7 billion euros, while overall revenue for the period was up 22 percent to 1.9 billion euros.

The gains came from double-digit increases at all the group’s brands, and all the main product categories and geographic regions.

Net income nearly doubled to 188 million euros.

Commenting the first half figures, Patrizio Bertelli said in July the double-digit rise in ready-to-wear sales was a result of the Prada brand “going back to its roots.”

To be sure, for fall, the codesigners put a fresh spin on the brand’s DNA for the streetwear-loving set.

They worked with classic crewneck and geo-pattern knits; finely tuned tailoring; ladylike full skirts; sheer innerwear, and lots of jeweled embellishment.

It was heritage Prada rebooted for a socially savvy generation. In the first half, Prada brand sales were up 28 percent; Miu Miu, 14 percent, and Church’s, 29 percent.

FT : Airbus cuts full-year delivery target amid supply chain woes

Airbus cuts full-year delivery target amid supply chain woes
Final figure is not expected to fall ‘materially short’ of previous target, says world’s largest plane maker

Airbus has abandoned its target to deliver “around 700” commercial aircraft by the end of this year in the latest sign of the supply chain constraints that have dogged the industry’s recovery since the Covid pandemic.

The world’s largest plane maker said that it considered the previous delivery target to “now be out of reach” although it stressed that the final figure was not expected to fall “materially short”. It also stuck to its existing profit and free cash flow guidance for the year.

Airbus delivered 68 commercial aircraft in November, bringing the total number to 565 jets for the year to date, and leaving it 135 short of its goal with just four weeks to go.

It is the second time this year that the company has lowered its target, after originally projecting that it would deliver 720 jets before cutting its guidance in July.

Like other global manufacturers, including US rival Boeing, Airbus has struggled with shortages of raw materials and other components, as well as the availability of labour, just as demand for air travel rebounded in the wake of the pandemic. Soaring energy costs because of the Ukraine war and rising inflation have since added to the pressures.

Bottlenecks in the supply of engines in particular were a source of friction between Airbus and engine makers including CFM International, a joint venture between Safran and GE, earlier this year.

Guillaume Faury, Airbus chief executive, cautioned last week that the crisis was unlikely to get any better until the end of next year.

The company on Tuesday also adjusted the speed of its planned ramp-up of its best-selling A320 family of jets to 65 jets a month for both 2023 and 2024, citing the fact that this “complex environment will persist longer than previously expected” but gave no further details. The company reaffirmed plans to reach 75 jets a month by the middle of the decade.

“It is unfortunate because this is the second time this year that Airbus has had to row back on its delivery target,” said Sash Tusa, analyst at Agency Partners.

The decision “highlights just how unsustainable the aerospace supply chain is and how difficult it is for a manufacturer to push an aggressive ramp-up,” he added. “The entire ramp-up is likely to be significantly slower.”

Shares in Airbus had earlier closed at €110.84 on Tuesday, marginally up on the day, before the announcement was made. The shares are down 4.5pc this year.

WSJ : TikTok National-Security Deal Faces More Delays as Worry Grows Over Risks

TikTok National-Security Deal Faces More Delays as Worry Grows Over Risks
Officials and executives had hoped for year-end deal to address national-security concerns over social-media platform

WASHINGTON—A potential deal between the Biden administration and TikTok—once expected around year-end—has run into more delays, according to people familiar with the situation, as worry grows over national-security concerns that U.S. officials say the popular app poses.

The review has dragged on amid a range of concerns, including how TikTok might share information related to the algorithm it uses to determine what videos to show users, and the level of trust Washington would need to place in the company, these people said. U.S. officials haven’t returned to TikTok with additional demands to address the recent concerns, some of the people said, leaving the path forward unclear.

A TikTok spokeswoman said the company is looking forward to a “timely conclusion to our agreement with the U.S. government, much of which we have already started implementing in earnest, so that we can put these concerns to rest.” She said the government hasn’t shared any remaining, unmet concerns with the company.

The delay is raising political risks for TikTok and its owner, Beijing-based ByteDance Ltd., as both Biden administration officials and newly-empowered congressional Republicans amp up their rhetoric on the company. ByteDance has spent around $9 million lobbying in Washington over the past two years, according to disclosure reports.

The company had previously reached a tentative deal with the U.S. government this summer, but senior U.S. officials, including at the Justice Department, don’t believe that proposed agreement is adequate, according to people familiar with the matter.

The U.S. side of the negotiations is being led by the Committee on Foreign Investment in the U.S., a secretive government panel that reviews business deals for security concerns. The talks have been aimed at reducing Chinese government influence on the U.S. operation, without completely severing TikTok’s Chinese ties, according to people familiar with the discussions.

Both sides had broadly agreed that TikTok’s data on U.S. users will be stored on Oracle Corp. servers in the U.S., people familiar with the deal said. TikTok has said it expects to delete U.S. users’ private data from its own data centers in Virginia and Singapore as it pivots to fully store data with Oracle cloud infrastructure.

It has also said that access to U.S. data by anyone outside of a newly set-up division that governs U.S. data security would be limited by and subject to its protocols, monitored and overseen by Oracle.

TikTok’s defenders say the agreement would give the U.S. government control of and access to much more information about TikTok than they have with any U.S. social-media company.

But some administration officials have sought to make any TikTok security agreement tougher in some respects in response to what they say are growing concerns over TikTok’s access to consumer data and its potential use for influence operations, according to the people familiar with the matter. Republicans, meanwhile, have begun pushing to ban the app altogether.

TikTok says it doesn’t collect search and browsing history outside the TikTok app, according to the spokeswoman. The company does collect information within the app so it functions correctly, she said, like returning relevant search results and ensuring a user isn’t served up the same videos repeatedly.

>>> US Gapping up

Gapping up
In reaction to earnings/guidance:

  • GTLB +18%, SUMO +9.6%, SIG +6.9%, KDP +0.8% (guidance)

Other news:

  • VVNT +32% (NRG Energy (NRG) to acquire Vivint for $12 per share or $2.8 bln in an all-cash transaction)
  • EDIT +9.4% (safety and efficacy data from the first two patients treated in the RUBY Trial of EDIT-301)
  • CENX +3.9% (moving higher after US and EU weigh new tariffs on Chinese steel and aluminum according to Bloomberg)
  • ZLAB +3.6% (Presents Late-Breaking Results Evaluating Concurrent Adagrasib and Pembrolizumab)
  • LILM +3.5% (releases Q3 Business Update)
  • LQDA +3.3% (collaborating with Sandoz and Mainbridge Health Partners)
  • MNOV +2.8% (Results from Secondary Analysis of Phase 2 Trial of MN-166 (ibudilast) Published in The American Journal of Drug and Alcohol Abuse)
  • AA +1.7% (moving higher after US and EU weigh new tariffs on Chinese steel and aluminum according to Bloomberg)
  • EBS +1.7% (receives FDA acceptance and Priority Review of Supplemental NDA for over-the-counter NARCAN)
  • NWSA +1.5% (News Corp. Special Committee provides update on exploration of combination with Fox (FOX))
  • BHR +1.4% (reports November 2022 RevPAR)
  • GME +1% (begins round of layoffs according to Axios)

Analyst comments:

  • PFSI +1.2% (upgraded to Overweight from Equal Weight at Wells Fargo)
  • ATVI +0.5% (upgraded to Buy from Hold at Edward Jones)