>>> What to look at today -16th of September 2022

Equities extended their decline, with US and European futures pointed lower and Asian shares on course for a fifth week of losses while Treasury yields rose, reflecting bets for outsized Federal Reserve interest rate hikes. Stocks slumped from the open in Japan, Australia and Hong Kong following the S&P 500 Index’s lowest close in about two months. Mainland China equities also slumped, with little impact on sentiment from industrial production and retails sales data that beat expectations. The offshore yuan remained on the weaker side of 7 to the dollar, even as the People’s Bank of China set the reference rate for the currency stronger-than-forecast for a 17th straight day. The greenback fluctuated and policy-sensitive two-year Treasury yields held near the highest since 2007. The latest US economic data painted a mixed picture for the economy that backed the view for hawkish monetary policy. The market weakness follows data showing applications for US unemployment insurance fell for a fifth straight week, suggesting demand for workers remains healthy. Retail sales indicated spending on goods is moderating. Other figures showed factory production rose slightly in August while total industrial production, including mining and utilities, fell. University of Michigan data Friday will be parsed for clues on inflation expectations. Oil was poised to fall for a third week amid the deteriorating global economic backdrop, which has fueled demand concerns at a time when the buoyant dollar makes crude more expensive for most buyers. US After Hours FDX -15.1% on guidance; UPS -5.5% in sympathy with FDX; RBLX -1.8% on August metrics, BOWL +7.9% on earnings and stock offering

Nikkei -1.06% Hang Seng -0.56% CSI -1.57% Shanghai -1.44% Shenzen -1.28%

Eur$1 CNH 7.0186 CNY 7.0090 JPY 143.34 GBP 1.1466 CHF 0.9617 RUB 59.7892 TRY 18.2527 WTI$85.18 +0.09% Gold 1,,64.98 -0.1% BTC 119,793.50 -0.30% ETH 1,476.50 -1.78%

S&P -0.77% Nasdaq -0.94% EuroStoxx -0.90% FTSE -0.61% Dax -1.01% SMI -0.51%

Macro :
- SocGen Says S&P 500 to Hit New Low, Sees Zero EPS growth in 2023
- Ether Falls as Ethereum Revamp Turns Into ‘Sell-the-News’ Event

Keep an eye on :
- ARIS IM : Ariston to Buy Centrotec Climate Systems For EU1B: M&A Snapshot
- ASSAB SS : Assa Abloy Will Contest DOJ Block of Spectrum Brands Takeover
- BAYN GY : Brazil Fertilizer Retailer Lavoro Eyes Expansion After SPAC Deal
- BOL FP : Bouveret Takes Over Bollore’s Reorganized E-Mobility Business
- COLR BB : Virya Energy Said to Start Sale of Offshore Wind Firm Parkwind
- 05G GY : CPI Property Group Starts Asset Revamp After Austrian Deals
- DHER GY : Stricken Food-Delivery Orders Face Shaky Road: 2Q Earnings Wrap
- DPW GY : FedEx Sinks After Withdrawing Earnings Forecast; UPS Falls (1)
- ENGI FP : Engie Has Taken FID in Australia Renewable Hydrogen Project
- GTT FP : GTT Holder Engie Offers 2.2m Shares
- JUP LN : Jupiter Asset Plans Restructure in Operational Review: FT
- PAH3 GY : Porsche IPO to Comprise 911m Shares in Nod to Famous Model: Rtrs
- RHM GY : Slovenia to Abandon Purchase of Boxer Armored Vehicles
- ROSN RM : Germany Takes Control Over Rosneft Deutschland
- SAS SS : SAS Confident for Winter as Funding Approved and Travel Rebounds
- SW FP : Sodexo Expands Partnership With Ardent Health Services in US
- UN01 GY : Germany in Talks for Historic Rescue of Gas Firms: Energy Update
- VWS DC : Vestas Considers Developing Wind Farms as Demand Skyrockets: JP
- VIRP FP : Virbac Sees FY Organic Revenue at Constant FX +5% to +10%
- VTWR GY : PE Pursuit of Vantage Stake Is Boon for Vodafone: Street Wrap
- VOW3 GY : Europe Car Sales Return to Growth After Painful Year of Declines

FT : Silver Lake ups stake in Manchester City owner

Silver Lake ups stake in Manchester City owner
Renowned tech investor has turned its sights on sport and is now second-largest shareholder in City Football Group

US private equity group Silver Lake has increased its stake in the parent company of Manchester City Football Club, making it the second-largest shareholder in the business behind its Abu Dhabi owners.

The Silicon Valley-based firm acquired a 4.1 per cent share in City Football Group from China Media Capital, taking its total holding to 14.5 per cent.

Silver Lake, which made a name for itself as a tech investor, has been stepping up its bets on the sports industry, with investments ranging from football and rugby to baseball. This latest deal strengthens its ties to Abu Dhabi’s royal family and Sheikh Mansour bin Zayed Al Nahyan, the billionaire royal who acquired Manchester City in 2008 and established CFG five years later. 

CFG is now one of the biggest sport club owners in the industry, with investments in football clubs ranging from Australia and Japan to Uruguay and the US. Silver Lake bought its original 10 per cent stake in CFG for $500mn in 2019, valuing the business at $4.8bn.

Sheikh Mansour controls CFG through Abu Dhabi-based Newton Investment and Development.

Silver Lake’s growing sports portfolio shows how the balance of power in the industry is changing as private equity groups and billionaires acquire clubs and invest in leagues.

In June, it won approval to invest NZ$200mn in New Zealand Rugby, the organisation behind the All Blacks team, following its acquisition of a minority stake in the Australian Professional Leagues football group.

It is also a shareholder in sports merchandising company Fanatics and in Endeavor, the New York-listed owner of Ultimate Fighting Championship, the mixed martial arts series. In August, it bought Diamond Baseball Holdings, which owns a numbers of clubs in the sport.

Silver Lake bought into City Football Group after Hollywood impresario Ari Emanuel — founder of Endeavor — introduced managing partner Egon Durban to CFG’s Khaldoon al-Mubarak.

The private equity firm has formed deep ties with Abu Dhabi. Mubarak is chief executive of Mubadala, an Abu Dhabi sovereign investment fund that took a stake in Silver Lake in 2020. The following year, Silver Lake paid about $800mn for a stake in G42, an artificial intelligence and cloud computing group with links to Abu Dhabi’s ruling family.

China Media Capital still owns 8.2 per cent of CFG, having originally paid $485mn to amass a 13 per cent stake. That investment, which valued CFG at $3bn, came after China’s president Xi Jinping visited Manchester City’s football academy in 2015.

Chinese investors had bought into a series of European football clubs but many made for the exit after Beijing tightened capital controls in recent years.

Under CFG ownership, Manchester City has won the English Premier League five times and this year overtook rivals to top Deloitte’s annual ranking of the highest revenue-generating football clubs in the world.

FT : Corporate bonds > equities? : A Contrarian Case

Corporate bonds look cheapish

Yesterday Unhedged complained that, given the economic backdrop, stocks looked a little expensive. So what is one to own instead? It is hard to recommend fixed income, given the high volatility — mostly upward volatility — of interest rates. For the first time in a long time, even decent-quality bonds are as scary, or scarier, than stocks.

Another leg up in rates, and leg down in bond prices, cannot be ruled out when no one knows for sure where the Federal Reserve will stop. Flows into bond funds have been deeply and persistently negative all year, except for the brief period this summer when the market saw the mirage of a Fed pivot.

Still, there is a case to be made for buying bonds, and specifically corporate bonds. Here is that case, put very crudely, in a single chart:


That is the yield on bonds from the highest tier of junk-rated bonds, compared to the earnings yield on the S&P 500 (that is, the reciprocal of the price/earnings ratio). Right now, BB bonds yield more. This does not happen very often. The yield differential is about what is was in the acutely frightening early days of the coronavirus pandemic. Are things as bad now as they looked then? There are assorted perfectly technical quibbles that could be raised with this comparison, but it gets to the heart of the argument. Bonds look cheapish, relatively.

Why cheapish, not plain old cheap? A lot of what makes corporates look cheap compared to stocks is higher Treasury yields — a higher risk-free rate. The additional compensation investors are getting for taking on BB default risk, about 330 basis points, is only middling by historical standards. Here is a long-term chart of the spread:

In addition, the compensation for trading down from the lowest rung of investment grade (BBB) to the highest rung of junk (BB) is not all that special. The difference between the BBB and the BB spreads (the spread spread, if you will) stands at 1.4 per cent, just a bit above its 10-year average.

On some measures, high-yield bonds are not cheap at all. Marty Fridson, of Lehmann Livian Fridson, uses a model that shows a fair value spread for the entire high-yield index (BBs and everything junkier) at about 7.2 per cent, well ahead of the 4.8 per cent spread the index currently offers. The main reason is that his model demands more yield when the availability of credit is constrained — as it is now, according to the Fed’s loan officer survey, for example.

During the past few years, most companies pushed their debt maturities years into the future. According to Scott DiMaggio, co-head of fixed income at AllianceBernstein, only about 20 per cent of the bonds in the US market mature in the next three years, “a very manageable number”. But there is more to credit risk than refinancing, as Unhedged recently discussed.

That said, many BB rated bonds are issued by companies that seem very unlikely to default outside of a very severe recession: the index includes Sprint, Ford, Occidental, Yum Brands, T-Mobile and so on.

Interest rate volatility, and the accompanying direction risk, hang over the whole discussion. Investors will remember the brutal 17 per cent fall in the JNK — the largest of the junk-bond exchange traded funds — over the past year. Remember, though, that for most investors duration risk must be weighed against the riskiness of equities and the vulnerability of cash to inflation.

The bonds in the JNK have average maturity of between five and six years. The five-year Treasury has risen almost 2 per cent in the past 12 months. If rates rise another two percentage points, take a moment to think about what that implies about inflation, and what it will do to your stock portfolio.

Finally, the flat yield curve presents an opportunity. Quite good yields are available in bonds with maturities of just a year or two. The yield to worst on Ford’s BB+ bonds maturing in September of 2025 is 6.5 per cent, for example. Sprint’s bonds due June 2024 pay 5.5 per cent.

The corporate bond market is by all accounts very illiquid right now. It is not easy to buy bonds. But I think there is a case to be made for doing so, at the short end, and in the higher reaches of the junk spectrum.

NYPost : Here’s why Patagonia’s billionaire founder Yvon Chouinard is giving awa

Here’s why Patagonia’s billionaire founder Yvon Chouinard is giving away his company

Yvon Chouinard, the billionaire founder of the outdoor apparel brand Patagonia, said on Wednesday he is giving away the company to a trust that will use its profit to fight the climate crisis.

Instead of selling the company or taking it public, Chouinard, who became famous for alpine climbs in Yosemite National Park and has a net worth of $1.2 billion, is transferring his family’s ownership of the company to a trust and a non-profit organization.

“Each year, the money we make after reinvesting in the business will be distributed as a dividend to help fight the crisis,” he wrote in an open letter on the company’s website on Wednesday.

“Instead of extracting value from nature and transforming it into wealth for investors, we’ll use the wealth Patagonia creates to protect the source of all wealth.”

Patagonia will continue to operate as a private, for-profit corporation but the Chouinard family, which controlled the company until last month, no longer own the company, according to the New York Times, which reported the move earlier on Wednesday.

The company’s voting stock is being transferred to the Patagonia Purpose Trust while non-voting stock had been given to the Holdfast Collective, a non-profit dedicated to fighting the environmental crisis and defending nature. The trust will be overseen by members of the family.

While rich individuals often make financial contributions to causes, the New York Times said the structure of the Patagonia founder’s action meant he and his family would get no financial benefit – and in fact would face a tax bill from the donation.seen by members of the family.

>>> US After Hours Summary: FDX -15.1% on guidance; UPS -5.5% in sympathy with F

After Hours Summary: FDX -15.1% on guidance; UPS -5.5% in sympathy with FDX; RBLX -1.8% on August metrics, BOWL +7.9% on earnings and stock offering

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: BOWL +7.9% (reports JunQ results, stock offering by selling shareholders)

Companies trading higher in after hours in reaction to news: GEVO +1.2% (breaks ground on its facility), CELU +0.9% (stock offering), EPC +0.1% (organizational changes)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: FDX -15.1%

Companies trading lower in after hours in reaction to news: UPS -5.5% (trades in sympathy with FDX), RBLX -1.8% (reports August metrics), AMZN -1.7% (trades in sympathy with FDX), MEOH -0.6% (approves share repurchase program), NVTA -0.4% (experts support testing for cancer patients), KRC -0.1% (mixed securities offering)

>>> US Close Dow -0.56% S1P -1.13% Nasdaq -1.43% Russell -0.72% VIX 26.27 +0.42%

Closing Stock Market Summary

The stock market tried to rebound today but ran into resistance from sellers when the S&P 500 broke below Tuesday's low (3,921). The major indices oscillated around a fairly narrow range throughout the afternoon until the S&P 500 fell below the 3,900 level. It found last minute support from buyers, closing just a hair over 3,900. The Nasdaq Composite lagged the other indices as mega cap stocks weighed on index performance. 

There was a slate of mixed economic data and corporate news ahead of open that was met with mixed reactions from market participants before weakness in mega cap stocks took over as the main driver of price action today. 

The Vanguard Mega Cap Growth ETF (MGK) closed down 1.7%; the Invesco S&P 500 Equal Weight ETF (RSP) closed down 0.8%; the S&P 500 closed down 1.1%.

Many stocks were under pressure today as nine of the 11 S&P 500 sectors closed in the red. Only health care (+0.6%) and financials (+0.3%) could squeeze out a gain while energy (-2.5%), utilities (-2.5%), and information technology (-2.4%) brought up the rear.

Health care sat atop the leaderboard thanks to Humana (HUM 497.24, +38.39, +8.4%), which traded up after raising its FY22 EPS guidance.

Conversely, information technology was weighed down by Adobe (ADBE 309.13, -62.39, -16.8%) after participants reacted negatively to the company's $20 billion cash-and-stock acquisition of Figma.

Energy stocks sold off as energy complex prices fell. WTI crude oil futures settled down 3.9% to $85.11/bbl and natural gas futures fell 8.6% to $8.31/mmbtu. These moves are being attributed to the news that a national railroad workers strike has been averted.

Treasury yields rose noticeably today. The 2-yr note yield rose 11 basis points to 3.87% and the 10-yr note yield rose five basis points to 3.46%.

Looking ahead to Friday, market participants will receive the University of Michigan Consumer Sentiment preliminary September reading (consensus 60.0; prior 58.2) at 10:00 a.m. ET and July Net Long-Term TIC Flows (prior $121.8 billion) at 4:00 p.m. ET.

Reviewing today's economic data:

  • Aug Retail Sales 0.3% vs Briefing.com consensus of 0.0%; prior was -0.4% revised from 0.0%
    • The key takeaway from the report is that the low level of initial claims -- a leading indicator -- is indicative of a tight labor market that will keep the pressure on the Fed to follow through with another aggressive rate hike.
  • Aug Retail Sales ex-auto -0.3% vs  consensus of 0.0%; prior was 0.0% revised from 0.4%
  • 09/10 Initial Claims 213K vs Briefing.com consensus of 233K; prior was 218K revised from 222K
    • The key takeaway from the report is that the low level of initial claims -- a leading indicator -- is indicative of a tight labor market that will keep the pressure on the Fed to follow through with another aggressive rate hike.
  • 09/03 Continuing Claims 1403K; prior was 1401K revised from 1473K
  • Sep Empire State Manufacturing -1.5 vs  consensus of -13.5; prior was -31.3
  • Sep Philadelphia Fed Index -9.9 vs  consensus of 3.0; prior was 6.2
  • Aug Import Prices -1.0; prior was -1.5% revised from -1.4%
  • Aug Import Prices ex-oil -0.2%; prior was -0.5%
  • Aug Export Prices -0.016; prior was -0.037 revised from -0.033
  • Aug Export Prices ex-ag. -0.018; prior was -0.038 revised from -0.033
  • Aug Industrial Production -0.002 vs  consensus of 0; prior was 0.005 revised from 0.006
    • The key takeaway from the report is that there was little growth in manufacturing output, and that little growth wasn't enough to offset a 2.3% decline in the index for utilities.
  • Aug Capacity Utilization 0.8 vs  consensus of 0.803; prior was 0.802 revised from 0.803

Dow Jones Industrial Average: -14.8% YTD
S&P 400: -15.1% YTD
S&P 500: -18.2% YTD
Russell 2000: -18.7% YTD
Nasdaq Composite: -26.2% YTD