Gapping down
In reaction to earnings/guidance:
- PLCE -16%, CSCO -11.1%, VIPS -8%, BBWI -6.4%, KSS -4.6%, EXP -2.7%
Other news:
- ENTA -15.1% (reports top-line data from RSVP study of EDP-938; study did not meet primary endpoint)
- UAA -5.6% (CEO to step down; also downgraded to Equal-Weight from Overweight at Morgan Stanley)
- CIEN -5.2% (in sympathy with CSCO earnings/guidance)
- TRQ -4.5% (Rio Tinto amends funding plan with Turquoise Hill Resources)
- JNPR -3.8% (in sympathy with CSCO earnings/guidance)
- AVGO -3.6% (in sympathy with CSCO earnings/guidance)
- ANET -3.5% (in sympathy with CSCO earnings/guidance)
- HCI -2.2% (announces $150 mln convertible offering)
- NOK -2.1% (in sympathy with CSCO earnings/guidance)
- TSLA -1.7% (NHTSA has opened a special investigation on a crash in CA according to Reuters)
- EXTR -1.4% (in sympathy with CSCO earnings/guidance)
- BB -1.4% (provides its long-term financial goals)
- LITE -1.3% (in sympathy with CSCO earnings/guidance)
- GMED -1.1% (first surgeries performed with the Excelsius3D imaging platform performed)
- CS -0.8% (Fitch downgrades Credit Suisse Group to 'BBB+'; Stable Outlook)
Analyst comments:
- UNP -2% (downgraded to Neutral from Buy at Citigroup)
- CSX -1.7% (downgraded to Neutral from Buy at Citigroup)
- NSC -1.6% (downgraded to Neutral from Buy at Citigroup)
- LSI -1.5% (downgraded to Market Perform from Outperform at BMO Capital Markets)
- PEAK -1.4% (downgraded to Neutral from Buy at BofA Securities)
- TGT -0.9% (downgraded to Hold from Buy at Stifel)
Gapping up
In reaction to earnings/guidance:
- GOOS +9.4%, BJ +4.7%, SQM +4.6%, SNPS +3.9%, WMS +2.9%, GDS +1.6%, CPRT +1.4%, WNC +1.4% (longer term guidance), HWKN +0.9%, MNRO +0.8%
Other news:
- RCKT +10.5% (Presents Positive Top-line Data from Severe Leukocyte Adhesion Deficiency-I Program at the 25th Annual Meeting of the American Society of Gene and Cell Therapy)
- SIGA +6.4% (FDA approves Intravenous (IV) Formulation of TPOXX (tecovirimat) for the treatment of smallpox)
- KOD +5.3% (Baker Brothers affirms increased active stake following recent purchase ~457K shares (5/16-5/18 transaction dates))
- MRSN +4.9% (granted orphan drug designation to XMT-2056)
- KBR +3.5% (awarded two task orders under the Department of Defense Information Analysis Center's multiple-award contract vehicle totaling $106 mln for the Air Force Life Cycle Management Cente)
- CDEV +2.9% (Centennial Resource Development and Colgate Energy Partners III to combine in merger of equals)
- DMTK +1.8% (presents new research differentiating atopic dermatitis and psoriasis)
- AUR +1.7% (AUR expands autonomous commercial linehaul trucking pilot with FDX)
- FYBR +1.7% (updates shareholders at MoffettNathanson Conference; plans to exceed fiber build target in 2022)
- CURO +1.4% (agrees to sell legacy U.S. direct lending business for $345 mln; acquires First Heritage Credit for $140 mln)
- KDNY +1.3% (Presents Updated Data from BION-1301 Phase 1/2 Trial)
- HSTM +1.1% (acquires CloudCME)
The Swiss Connection: How Russia Is Weathering Tough Sanctions
- Continued oil and gas exports as well as a propped-up ruble, have allowed Moscow to weather Western sanctions.
- JPM has backtracked on its earlier forecasts of a 35% contraction in Russian GDP in the second quarter.
- The lion's share of Russian raw materials is traded via Switzerland and its nearly 1,000 commodity firms.
A couple of weeks ago, Putin went on record calling the war in Ukraine a "tragedy" and claiming that economic sanctions imposed on his country had "failed." Turns out he wasn't exactly bluffing.
Three months into the most severe and coordinated sanctions by Western governments, Russia's economy is proving to be a hard nut to crack. Continued oil and gas exports as well as a propped-up ruble, have allowed Moscow to weather the West's sanctions much better than expected.
In a note to clients dated last week and made public on Monday, JPMorgan Chase says business sentiment surveys from the country "are signaling a not very deep recession in Russia, and therefore imply upside risks to our growth forecasts. The data at hand therefore do not point to an abrupt plunge in activity, at least for now".
JPM has also backtracked on its earlier forecasts of a 35% contraction in Russian GDP in the second quarter and 7% for all of 2022, now predicting that the recession will be far less severe.
The bank did, however, note that Russia will certainly feel the impact of current and potential sanctions, adding that the Russian economy would be in much better shape if the country had not invaded Ukraine.
Rouble Recovers To Pre-War Levels
Perhaps an even more impressive demonstration of the resilience of Russia's economy is how quickly the country's currency has recovered from its early-year crash. Defying a plethora of energy and financial sanctions, the rouble, Russia's national currency, has staged a surprising rebound and even managed to return to pre-war levels.
The rouble crashed spectacularly in the days immediately after President Vladimir Putin ordered a full-scale invasion of Ukraine, falling as much as 30% against the U.S. dollar. The currency appeared doomed as Western countries slapped Moscow with an increasingly harsh set of sanctions, including measures to restrict the Russian Central Bank's ability to access its vast pool of foreign reserves. Indeed, a cross-section of analysts warned of an inevitable default as Russia ran out of dollars.
However, the rouble was not down for the count for long, and started to bounce back just weeks after its biggest crash. By the end of March, the rouble began to gradually recover; by mid-April, its value hit 1 RUB = 0.013 USD, a level last seen on the eve of the invasion. Currently, the ruble is exchanging for 0.016 USD, a level it last touched in January 2020.
What explains this recovery?
Putin's demand for buyers of Russian gas to pay in rubles was a masterstroke. After initial resistance, western gas buyers are increasingly toeing the line, with one of Germany's largest natural gas importers, VNG, recently opening an account with Gazprombank for payments for Russian gas under Moscow's terms.
According to Maria Demertzis, deputy director at Bruegel, a Brussels-based economics think tank, EU payments for Russian pipeline gas have been playing a big role in propping up the currency.
For all the tough talk about abandoning Russian energy commodities, Russia is still managing to sell a good amount of its oil and gas, thanks to the fact that some of the world's biggest commodity traders have little compunction against financing Putin's war machine.
Indeed, Oleg Ustenko, economic adviser to Ukrainian president Volodymyr Zelensky, has written to the four companies demanding that they stop trading Russian hydrocarbons immediately since export revenues are funding Moscow's purchase of weapons and missiles.
According to ship tracking and port data, Switzerland's Vitol, Glencore, and Gunvor as well as Singapore's Trafigura, have all continued to lift large volumes of Russian crude and products, including diesel.
Vitol has pledged to stop buying Russian crude by the end of this year, but that's still a long way from today. Trafigura said it would stop buying crude from Russia's state-run Rosneft by May 15th, but is free to buy cargoes of Russian crude from other suppliers. Glencore has said it wouldn't enter any "new" trading business with Russia. But the reality is that while the G7 has committed to banning or phasing out Russian oil imports, and while the U.S., Canada, the UK, and Australia have imposed outright bans, the EU is still unable to move forward, with Hungary holding a ban hostage. Meanwhile, India and China are making up for much of the losses for Russia.
Switzerland's Golden Calf
A lot of the blame falls on Switzerland. The lion's share of Russian raw materials is traded via Switzerland and its nearly 1,000 commodity firms.
Switzerland is an important global financial hub with a thriving commodities sector, despite the fact that it is far from all the global trade routes and has no access to the sea, no former colonial territories, and no significant raw materials of its own.
Oliver Classen, media officer at the Swiss NGO Public Eye, says that "this sector accounts for a much larger part of the GDP in Switzerland than tourism or the machinery industry". According to a 2018 Swiss government report, commodity trading volume reaches almost $1 trillion ($903.8 billion).
Deutsche Welle has reported that 80% of Russian raw materials are traded via Switzerland, according to a report by the Swiss embassy in Moscow. About a third of the raw materials are oil and gas, while two-thirds are base metals such as zinc, copper, and aluminum. In other words, deals signed on Swiss desks are directly facilitating Russian oil and gas to continue flowing freely.
With gas and oil exports coming in as the main source of income for Russia, accounting for 30 to 40% of the Russian budget, Switzerland's role cannot be overlooked in this war-time equation. In 2021, Russian state corporations earned around $180 billion (€163 billion) from oil exports alone.
Again, unfortunately, Switzerland has been handling its commodities trade with kid gloves.
According to DW, raw materials are often traded directly between governments and via commodities exchanges. However, they can also be traded freely, and Swiss companies have specialized in direct sales thanks to an abundance of capital.
In raw materials transactions, Swiss commodity traders have adopted letters of credits or L/Cs as their preferred instruments. A bank will give a loan to a trader and, as collateral, receive a document making it the owner of the commodity. As soon as the buyer pays the bank, the document (and ownership of the commodity) is transferred to the trader. The system gives traders more credit lines without their creditworthiness having to be checked, and the bank has the value of the commodity as security.
This is a prime example of transit trade, where only the money flows through Switzerland, but actual raw materials usually do not touch Swiss soil. Thus, no details about the magnitude of the transaction land on the desk of the Swiss customs authorities leading to highly imprecise information about the flow volumes of raw materials.
"The whole commodities trade is under-recorded and underregulated. You have to dig around to collect data and not all information is available," Elisabeth Bürgi Bonanomi, a senior lecturer in law and sustainability at Bern University, has told DW.
Obviously, the lack of regulation is very appealing to commodity traders--especially those that deal with raw materials mined in non-democratic countries such as the DRC.
"Unlike the financial market, where there are rules for tackling money laundering and illegal or illegitimate financial flows, and a financial market supervisory authority, there is currently no such thing for commodity trading," financial and legal expert at Public Eye David Mühlemann told the German broadcaster ARD.
But don't expect things to change any time soon.
Calls for a supervisory body for the commodities sector based on the model of the one for the financial market by the likes of Swiss NGO Public Eye and Swiss Green Party proposal have so far failed to bear fruit. Thomas Mattern from the Swiss People's Party (SVP) has spoken out against such a move, insisting that Switzerland should retain its neutrality, "We do not need even more regulation, and not in the commodities sector either."
UAE’s Sheikh Mohammed takes power as dynasty speculation swirls
Gulf state buzzes with talk that new president could choose son as heir apparent
As world leaders descended on the United Arab Emirates this week to offer condolences on the death of ruler Sheikh Khalifa, diplomatic circles buzzed with speculation over whether his successor Sheikh Mohammed, known as MBZ, will break with tradition and pick his son as crown prince.
The nomination of a crown prince or heir apparent is used to signal stability in Abu Dhabi, the oil-rich emirate that leads the Gulf monarchy, whose ruler wields power in consultation with his siblings and other powerful clans. The UAE plays an increasingly important role across the Middle East.
The UAE’s founder, Sheikh Zayed — the father of Sheikh Khalifa and Mohammed and other influential officials — had two decades ago indicated that succession should pass through his sons but many anticipate that the powerful Sheikh Mohammed, 61, will instead choose his eldest son, Sheikh Khaled.
“There are obviously concerns that MBZ wants to establish his own dynasty by selecting Khaled. It would be a massive departure from the traditional power dynamics in the UAE,” said Cinzia Bianco, a visiting fellow at the European Council on Foreign Relations. “MBZ is already doing centralisation — this would be hyper-centralisation.”
Sheikh Mohammed’s 18 years as heir apparent transformed Abu Dhabi, from restructuring local government operations to launching diversification programmes to prepare for a post-oil era. He cracked down on domestic dissent and intervened in regional conflicts from Libya to Yemen to prevent political Islam consolidating gains after the Arab spring.
His control deepened after Sheikh Khalifa suffered a stroke in 2014 and retired from public life. Since then, the ruling family has overseen dramatic domestic reforms seeking to secularise society and torn up the regional rule book by normalising diplomatic relations with Israel.
MBZ’s relative young age would make his sons a more likely choice than his brothers. “MBZ could reasonably expect to be an active leader for at least another two decades, barring ill health or anything unexpected, so my instinct is that he would want to name one of his sons as his crown prince,” said Kristian Coates Ulrichsen, a fellow at Rice University’s Baker Institute for Public Policy.
Educated in the US, Sheikh Khaled, 40, started his formal government career within the security services, graduating to domestic policy in recent years, including oversight of a powerful Abu Dhabi executive agency. His profile has risen in recent years as he took on more senior government roles.
If Sheikh Mohammed elects to follow familial tradition and put forward one of his brothers, the most obvious candidate is Sheikh Tahnoon, the experienced national security adviser, analysts say.
He has played a pivotal role in the country’s regional interventions over the past decade, including military operations in Yemen and Libya, while also building close relations with the security services of western allies and handling delicate diplomacy with rivals, including Iran and Turkey.
Sheikh Tahnoon oversees pillars of Abu Dhabi’s economy, including a state holding company, ADQ, and the country’s largest bank, FAB. He also has sprawling private business interests, including the IHC conglomerate, which has grown from a fish farming firm into one of Abu Dhabi’s largest companies with a flurry of takeovers.
Another brother, Sheikh Mansour, deputy prime minister and owner of Manchester City football club, is also renowned for his extensive commercial interests, but has been associated with financial scandal, most notably the 1MDB fraud. Other brothers in the frame include Sheikh Hazza, who was tipped as a future crown prince a decade ago.
There is no procedure for the selection of a crown prince. Sheikh Zayed appointed Khalifa as crown prince a few years after his ascent in 1966 and before his death named MBZ as deputy crown prince. But some local observers are convinced that, for the sake of stable government, the announcement could be made after the 40-day mourning period.
Christopher Davidson, associate fellow at the Henry Jackson Society think-tank, said MBZ’s strength means he has the freedom to act “tomorrow or next year”, but that he may well allow “the dust to settle”, providing some time for his son’s image to be cemented in the media.
MBZ could also take a leaf out of his father’s playbook, nominating a brother as crown prince and his son as deputy crown prince, or a similar balancing act to give Khaled more time to grow into the role.
“They are considering a few options — one is to have a de jure and a de facto crown prince,” said Bianco. “It’s gaining traction because there is absolutely not a consensus candidate.”
China bull Baillie Gifford warns of growing threat to foreign investors
Fund manager’s caution comes as Scottish Mortgage Investment Trust reveals hit from tech sell-off
Baillie Gifford has warned of the mounting risks to foreign investors in China after a punishing year for the fund manager’s Scottish Mortgage Investment Trust as its bold bets on the country’s growth companies and the global tech sector suffered.
Tom Slater, manager of the £14.4bn Scottish Mortgage trust, which last year added to its Chinese holdings, said the war in Ukraine had worsened US-China relations and that foreign investors needed to reckon with any limits Beijing might impose on their investment gains.
“The challenge now for western investors is twofold: incorporating the low but increased chances of future US sanctions into their evaluation of Chinese investments and considering how the Chinese state may limit the upside in stock prices for the breakthrough winners,” he said.
The verdict is a striking one as Baillie Gifford has been one of the biggest bulls on China in recent years, a strategy that helped turn Scottish Mortgage into the UK’s largest investment trust.
Slater added: “In retrospect, it has been a mistake to reduce our holdings in western online platform companies rather than their Chinese counterparts,” but said the trust’s investments in China were “largely unchanged” this year.
The comments came as Scottish Mortgage’s wagers on Chinese groups and tech companies have been hammered by the sell-off in high-growth shares triggered by rising interest rates and China’s strict zero-Covid approach to managing the coronavirus pandemic. Shares in the trust have fallen by about half since their peak in November.
After record returns last year, the trust on Thursday reported its performance lagged behind the wider market in the 12 months to the end of March, with a drop of 9.5 per cent against a 13 per cent rise for its benchmark FTSE World Index.
Scottish Mortgage’s early and tenacious backing of innovative companies such as Tesla, Tencent and Moderna has made it one of the UK’s best-performing investment vehicles in recent years, with an army of loyal followers among small investors.
The results came on the heels of the departure of James Anderson, who over more than 20 years at the helm of Scottish Mortgage became one of the UK’s best-known tech investors. In November, he urged investors not to “give up on China”.
Anderson, who announced plans to step down last year, had co-managed the trust with Slater since 2015.
Even after the recent fall, the 113-year-old trust has returned 697 per cent, measured in share price total return, over 10 years against a 231 per cent rise in its benchmark index. Edinburgh-based Baillie Gifford is known for its long-term investment philosophy and urged investors to look past the short-term pain.
“Genuine long-term investing requires not just patience but the ability to endure periods of intense discomfort,” said deputy manager Lawrence Burns.
Early premarket gappers
- Gapping up:
- DMTK +10.1%, SQM +5.3%, RCKT +4.9%, SNPS +3.8%, KBR +3.5%, HWKN +3.5%, KDNY +1.7%, FYBR +1.7%, SMR +1.5%, NTR +1.4%, AUR +1.4%, CURO +1.4%, CPRT +1.4%, GDS +1.3%, PKG +0.8%
- Gapping down:
- ENTA -15.1%, CSCO -12.6%, BBWI -7.9%, ANET -7.3%, JNPR -6.7%, VIPS -6.6%, CIEN -6.2%, UAA -5.6%, VUZI -5.6%, GMED -5%, TRQ -4.5%, AVGO -4%, BB -2.4%, TSLA -2.4%, HCI -2.2%, NOK -2.1%, CS -2%, EXTR -1.4%, LITE -1.3%, DISH -1%
- Orpea (OPA TH) +4.1%
- Orpea Hasn’t Identified Material Hit From Fraudulent Activities
- Orsted (D2G TH) +1.2%
- Utilities on Life Support Until High Power Prices Fuel Earnings
- Nibe (NJB TH) +0.6%
- Evotec SE (EVT TH) +0.3%
- Evotec, Almirall Form Alliance in Medical Dermatology
- Nokia (NOA3 TH) -1.9%
- Siemens Gamesa (GTQ1 TH) -1.9%
- Siemens Healthineers (SHL TH) -2.1%
- ASML (ASME TH) -2.1%
- Watch European Tech Stocks After Nasdaq’s 5.1% Slump Wednesday
- EDF (E2F TH) -2.3%
- Equinor (DNQ TH) -2.4%
- K+S (SDF TH) -2.5%
- AMS-Osram (DQW1 TH) -2.5%
- OMV (OMV TH) -2.6%
- Adyen (1N8 TH) -3.1%
- Watch European Tech Stocks After Nasdaq’s 5.1% Slump Wednesday
DAX:
- BMW (BMW TH) -1.6%
- Bayer (BAYN TH) -1.6%
- Daimler Truck (DTG TH) -1.7%
MDAX:
- Evotec SE (EVT TH) +0.8%
- Evotec, Almirall Form Alliance in Medical Dermatology
- Lufthansa (LHA TH) -1.6%
- ProSieben (PSM TH) -1.8%
- Thyssenkrupp (TKA TH) -1.8%
- K+S (SDF TH) -2.1%
- Aixtron (AIXA TH) -2.1%
SDAX:
- SGL (SGL TH) +1.7%
- Hamborner REIT (HABA TH) +1.4%
- Nordex (NDX1 TH) +1.1%
- LPKF (LPK TH) +0.2%
- Heidelberger Druck (HDD TH) -0.1%
- Vitesco (VTSC TH) -0.9%
- Deutsche Euroshop (DEQ TH) -1.3%
- SAF-Holland SE (SFQ TH) -1.5%
- Instone Real Estate (INS TH) -2.1%
- Schaeffler (SHA TH) -2.