FT : Conte warns Draghi over any shift on financial aid to Italian people

Conte warns Draghi over any shift on financial aid to Italian people
Tension within Rome coalition as Five Star tries to defend flagship policy from business criticism

Italy’s populist Five Star Movement has demanded the national unity government of prime minister Mario Draghi provide more help to families and small businesses hit by rising food and energy prices.

The populist grouping reaffirmed its support for the cross-party ruling coalition but in a reflection of growing tensions within Draghi’s administration, Five Star leader Giuseppe Conte warned the premier against taking any steps to curb the so-called “citizens income” poverty-relief programme that began in 2019.

One of Five Star’s flagship policies, the scheme is being blamed by many employers for creating acute labour shortages in critical sectors of the Italian economy as it recovers from the pandemic. Businesses have been pushing for alterations to it to nudge people back into the labour force.

“We are willing to share government responsibility as we have done so far in a loyal and constructive way, but we want major changes,” said Conte after an hour-long meeting with Draghi on Wednesday. “We will no longer permit the citizen’s income to be questioned on a daily basis.”

Conte’s discussion with his successor as prime minister comes after the Five Star party was hit by a dramatic split. Foreign minister Luigi Di Maio walked out of the group last month with around 60 of its 227 members of parliament amid sharp tensions over Rome’s response to the war in Ukraine.

While Di Maio has stood solidly behind Draghi’s support for Kyiv, Conte has been critical, suggesting arming Ukraine merely prolonged the conflict. Withdrawing from Five Star at a press conference last month, Di Maio said he could no longer be part of a party that had failed to fulfil its “duty to support the government without ambiguity” in the face of Russia’s aggression in Europe.

While the split over Ukraine prompted speculation that Conte may withdraw support from Draghi’s government, foreign affairs did not figure at the meeting on Wednesday evening. Conte focused instead on favourite Five Star socio-economic policies, including taxes on labour and controversial incentives for the construction industry.

With polls suggesting Five Star has the support of less than 15 per cent of the electorate compared with a peak of 33 per cent in 2018, analysts say few of its remaining lawmakers are eager to trigger early elections at this point.

But Conte’s political machinations — and his attempts to criticise the government from within the coalition — point to the kind of drama that analysts say will become ever more frequent as next year’s elections draw closer.

Daniele Albertazzi, a professor of politics at the University of Surrey, said the populist Five Star and Matteo Salvini’s League were trying to position themselves for the coming contest with the rightwing Brothers of Italy, the only Italian political party to remain outside Draghi’s coalition and which polls show is now Italy’s most popular.

“There is this impossible game [Five Star and the League] are trying to play: to look responsible while bouncing back from a state of constant shrinking to which they have been relegated by Brothers of Italy,” he said.

But he dismissed the prospects of the immediate collapse of the government, as Italy awaits the next instalment of its EU Covid recovery funds. “Until Italy gets the second tranche of money from the EU, and we are beyond the summer, there is no way anybody is going to pull the plug,” he said.

>>> US After Hours Summary: GME +7.4% jumps on 4-for-1 stock split announcement;

After Hours Summary: GME +7.4% jumps on 4-for-1 stock split announcement; USNA -9.8% falls on weak guidance; VERU +18.9% extends move after hours

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: SLP +1.4%

Companies trading higher in after hours in reaction to news: VERU +18.9% (extends momentum from +13% move during regular session), GME +7.4% (announces 4-for-1 stock split), BBBY +5.8% (interim CEO purchases 50,000 shares), SPCE +4.7% (chooses BA unit to design and manufacture next generation motherships), CPG +2.1% (increases dividend), SHBI +1.7% (authorizes new $5 mln share repurchase program), GVA +1.3% (secures $55 mln for improvements to major Alaskan roadway), CWT +0.9% (receives approval from commission to acquire assets of HOH Utilities), RKLB +0.5% (introduces Responsive Space Program), BX +0.2% (invests $400 mln in Xpansiv)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: USNA -9.8% (guides Q2 EPS and revs below consensus; lowers its FY22 outlook), ABBV -0.1%

Companies trading lower in after hours in reaction to news: CTMX -26.9% (Phase 2 results for praluzatamab ravtansine), ATRA -6.1% (to announce completion of ATA188 Phase 2 EMBOLD Study interim analysis), NAPA -6% (files mixed securities shelf offering; also selling stockholder to offer 5 mln shares), CLVS -1.4% (FDA will require an advisory meeting is sNDA filed, which co intends to do in Q3), SBOW -1.3% (stock offering), OIS -0.2% (stock offering), WDFC -0.1% (names new CFO), CBOE -0.1% (reports June monthly trading volume)

>>> US Close Dow +0,23% S&P +0,36% Nasdaq +0,35% Russell -0,79%

Closing Stock Market Summary

The stock market exhibited a bit of volatility today in the face of general growth concerns. The major indices were trading lower most of the day before closing with modest gains after a late session rally attempt. 

The early going was marked by a lack of buyer conviction with declining issues leading advancing issues by an 11-to-5 margin at the NYSE and an 8-to-5 margin at the Nasdaq. Buyers stepped in some by the close, narrowing the spread of decliners to advancers to an 8-to-5 margin at the NYSE and a 6-to-5 margin at the Nasdaq.

The mega caps offered some support to the broader market. The Vanguard Mega Cap Growth ETF (MGK) closed up 0.6% versus a 0.4% gain in the S&P 500. The Invesco S&P 500 Equal Weight ETF (RSP) closed flat.

The top performing S&P 500 sectors today were utilities (+1.0%), information technology (+0.9%), health care (+0.7%), materials (+0.6%), and industrials (+0.6%).

The only three sectors to close in negative territory were consumer discretionary (-0.2%), financials (-0.3%), and energy (-1.7%) which lagged by a wide margin.

Energy futures mostly fell this session. WTI crude oil futures fell as low as $95.10/bbl before settling the session down 0.7% to $98.69/bbl. Unleaded gasoline futures closed near the intraday low, down 3.1% to $3.24/gal. Natural gas futures went against the grain, settling up 0.2% to $5.50/mmbtu.

Treasury yields saw some whipsaw action with the 2s10s spread remaining inverted. The 2-yr note yield settled up 12 basis points to 2.94%, after hitting 2.76% before the open, while the 10-yr note yield settled up ten basis points to 2.91% after scraping 2.74% before the open.

The U.S. Dollar Index closed up 0.5% to 107.06 as the euro continues to slip toward parity with the dollar (EUR/USD -0.8% to 1.0185).

The minutes for the June 14-15 FOMC meeting were released this afternoon. All in all, there was nothing surprising in the minutes, which conveyed the Fed's commitment to restoring price stability.

Reviewing today's economic data:

  • Weekly MBA Mortgage Applications Index -5.4%; Prior 0.7%
  • June IHS Markit Services PMI - Final 52.7; Prior 51.6
  • June ISM Non-Manufacturing Index 55.3% (consensus 54.2%); Prior 55.9%
    • The key takeaway from the June report is that business activity for the non-manufacturing sector was better than expected, although growth slowed for the third straight month as businesses continued to grapple with pricing pressures, supply chain issues, and labor supply constraints.
  • May JOLTS - Job Openings 11.254 mln; Prior was revised to 11.681 mln from 11.400 mln

Looking ahead to Thursday, market participants will receive the weekly initial jobless claims (consensus 234,000; prior 231,000) and continuing claims (prior 1.328 million) as well as the May trade balance (consensus -$84.9 billion; prior -$87.1 billion) at 8:30 a.m. ET, the EIA natural gas inventories (prior +82 bcf) at 10:30 a.m. ET, and EIA crude oil inventories (prior -2.76 million) at 11:00 a.m. ET.

  • Dow Jones Industrial Average: -14.6% YTD
  • S&P 400: -19.8% YTD
  • S&P 500: -19.3% YTD
  • Russell 2000: -23.1% YTD
  • Nasdaq Composite: -27.4% YTD

>>> US Research Calls

Research Calls

  • Upgrades:
    • A.O. Smith (AOS) upgraded to Buy from Neutral at Longbow; tgt $71
    • Callon Petroleum (CPE) upgraded to Outperform from Sector Perform at RBC Capital Mkts; tgt $75
    • Centennial Resource Development (CDEV) upgraded to Outperform from Sector Perform at RBC Capital Mkts; tgt $11
    • Dun & Bradstreet (DNB) upgraded to Neutral from Underperform at BofA Securities; tgt raised to $17
    • Enanta Pharmaceuticals (ENTA) upgraded to Outperform from In-line at Evercore ISI; tgt $62
    • Mercer Intl (MERC) upgraded to Outperform from Neutral at Credit Suisse; tgt raised to $19
    • Rocket Companies (RKT) upgraded to Overweight from Equal Weight at Wells Fargo; tgt $10
    • Sabre (SABR) upgraded to Buy from Underperform at BofA Securities; tgt $10
    • Sempra Energy (SRE) upgraded to Buy from Neutral at Goldman; tgt raised to $167
  • Downgrades:
    • Azul S.A. (AZUL) downgraded to Underweight from Equal Weight at Barclays; tgt lowered to $7
    • Continental Resources (CLR) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt raised to $80
    • Coinbase Global (COIN) downgraded to Neutral from Overweight at Atlantic Equities; tgt lowered to $54
    • Earthstone Energy (ESTE) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt $21
    • EOG Resources (EOG) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt $150
    • GOL Linhas Aereas Inteligentes S.A. (GOL) downgraded to Equal Weight from Overweight at Barclays; tgt lowered to $4
    • Grocery Outlet (GO) downgraded to Neutral from Buy at DA Davidson; tgt raised to $43
    • HCA (HCA) downgraded to Underperform from Market Perform at BMO Capital Markets; tgt lowered to $160
    • Kornit Digital (KRNT) downgraded to Hold from Buy at Stifel; tgt lowered to $50
    • Littelfuse (LFUS) downgraded to Neutral from Outperform at Robert W. Baird; tgt lowered to $269
    • McKesson (MCK) downgraded to Hold from Buy at Argus
    • Moelis (MC) downgraded to Neutral from Buy at UBS; tgt lowered to $40
    • Pioneer Natural Resources (PXD) downgraded to Sector Perform from Outperform at RBC Capital Mkts; tgt $290
    • RingCentral (RNG) downgraded to Hold from Buy at Needham
    • SAP SE (SAP) downgraded to Equal Weight from Overweight at Barclays
    • Union Pacific (UNP) downgraded to Neutral from Positive at Susquehanna; tgt $235
    • Universal Health (UHS) downgraded to Underperform from Market Perform at BMO Capital Markets; tgt lowered to $90
  • Others:
    • Abbott Labs (ABT) initiated with an Underperform at Wolfe Research; tgt $95
    • BHP Group (BHP) assumed with a Neutral at Credit Suisse
    • Boston Scientific (BSX) initiated with an Outperform at Wolfe Research; tgt $43
    • Definitive Healthcare (DH) initiated with a Buy at Needham; tgt $30
    • Fusion Pharmaceuticals (FUSN) initiated with an Outperform at William Blair
    • Materion (MTRN) initiated with a Buy at CL King; tgt $95
    • Medtronic (MDT) initiated with an Underperform at Wolfe Research; tgt $85
    • POINT Biopharma (PNT) initiated with an Outperform at William Blair
    • Portman Ridge Finance (PTMN) initiated with a Perform at Oppenheimer; tgt $26
    • Rio Tinto (RIO) assumed with an Outperform at Credit Suisse
    • Teleflex (TFX) initiated with an Outperform at Wolfe Research; tgt $300

>>> US Gapping down

Gapping down
In reaction to earnings/guidance
:

  • KRNT -23.5% (issues downside Q2 guidance), RADA -13.7% (guidance), UMC -2.6% (June sales)

Other news:

  • DASH -7.6% (negative reaction to Amazon taking 2% stake in Just Eat Takeaway.com's US food delivery business GrubHub; to offer Prime members service for 1 year)
  • HR -5% (Independent Proxy Advisory Firm Glass Lewis Recommends Healthcare Realty Trust Shareholders Vote for Proposed Transaction With Healthcare Trust of America)
  • UBER -3.3% (negative reaction to Amazon taking 2% stake in Just Eat Takeaway.com's US food delivery business GrubHub; to offer Prime members service for 1 year)
  • OIS -2.4% (names new COO)
  • HIVE -1.8% (to delay annual filing of Form 40-F)
  • FSP -1.7% (adopts a variable quarterly dividend policy)
  • VMW -1.7% (AVGO's deal to acquire VMW will move forward after rival bidder failed to emerge according to Bloomberg)
  • DNMR -1.6% (to submit Part II application for loan guarantee under US DOE loan guarantee program)
  • RKLB -1.3% (next two launches will be responsive space missions for the U.S. govt)
  • VSTO -1.3% (to acquire Irvine Calif.-based Fox Racing a global icon in performance motocross mountain bike and lifestyle gear for $540 mln + potential earnout)
  • STAG -1% (names new CEO)

Analyst comments:

  • AZUL -2.9% (downgraded to Underweight from Equal Weight at Barclays)