DAX:
- BASF (BAS TH) -1.5%
MDAX:
- Hugo Boss (BOSS TH) +1.7%
- Hugo Boss Boosts FY Sales Forecast, Beats Estimates
- Hugo Boss 2Q Beat Shows Strategy Is Paying Off: Street Wrap
- Evotec SE (EVT TH) +1.1%
- Nemetschek (NEM TH) -1.4%
- Nemetschek Raised, Software AG Cut, MS Positions For Tough Macro
SDAX:
- Heidelberger Druck (HDD TH) -1.1%
After Hours Summary: TBPH +25.7% and INVA +9.6% jump on deal to sell Trelegy assets; AZTA -11% falls on weak guidance; NVAX -0.9% vaccine gets approvedAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: None
Companies trading higher in after hours in reaction to news: TBPH +25.7% (TBPH to sell all of its units in Theravance Respiratory to RPRX for over $1.5 bln), INVA +9.6% (INVA sells its 15% economic stake in Theravance to RPRX for $282 mln), GRBK +7.7% (to join S&P SmallCap 600), VCTR +2.8% (reports June AUM), HASI +2.5% (responds to Muddy Waters shor report), ANGI +2% (report June performance metrics), HTA +1.9% (to join S&P MIdCap 400 following its acquisition of HR), HIVE +1.9% (expects to complete its annual filings on or before July 18), EGO +1.7% (announces Q2 preliminary gold production), RC +1.2% (forms new JV to originate circa €300m of new commercial real estate loans), ESTC +0.5% (announces enhancements to its cross-cluster search and replication capabilities), WBA +0.2% (increases dividend), MN +0.1% (reports June AUM)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: AZTA -11% (lowers guidance for JunQ revs), HMN -4.8% (trims its FY22 earnings guidance), WELL -0.2%, WAFD -0.1%
Companies trading lower in after hours in reaction to news: CFRX -77.2% (independent DSMB recommends Exebacase Phase 3 DISRUPT Study be stopped), BLU -6.5% (stock offering), COKE -2.5% (to move to S&P MidCap 400 from SmallCap 600), FLYW -1.8% (acquires Cohort Go), NVAX -0.9% (FDA authorizes NVAX's COVID-19 vaccine for adults), RPRX -0.8% (TBPH to sell all of its units in Theravance Respiratory to RPRX for over $1.5 bln; also INVA sells its 15% economic stake in Theravance to RPRX for $282 mln), BRDG -0.5% (expands into solar energy via partnership with Lumen Energy), TSLA -0.5% (Tesla Autopilot exec to step down), WDAY -0.3% (achieves FedRAMP authorized status at the Moderate level), MOH -0.3% (to acquire My Choice Wisconsin for $150 mln)
Fed Model Shows S&P 500 Is Cheap, It May Get Cheaper
The selloff in US stocks this year means that they are now more attractive relative to bonds, according to the Fed Model. Still, the S&P 500 Index may get even cheaper if slowing growth and burning inflation mean corporate earnings trend lower while the Fed keeps raising rates.
The estimated earnings yield on the S&P 500 is about 5.95%, meaning that investors in stocks get to earn some 300 basis points more than what they get from 10-year Treasuries
Given that spread, the Fed Model would posit that stocks are undervalued. However, as the chart shows, the gap widened far more emphatically in the aftermath of the recession triggered by the financial crisis, and the current spread is less than the average of 380 basis points since then.
The Fed Model fails to address the premium that investors require to hold riskier equities rather than Treasuries that are, to all intents and purposes, free from default risk.
In fact, given the current macroeconomic backdrop, investors may decide that a more demanding risk premium may be appropriate.
The estimated earnings per share on the aggregate of the S&P 500 is around $241 in the four quarters that began in July, which may be at risk of being lowered should fears about a slowing economy prove well-founded.
Even such a scenario is unlikely to deter the Fed from continuing to raise rates and run off its balance sheet given how much higher inflation is running above its target. In other words, the discount rate used to assess the intrinsic value of stocks is likely to trend higher.
A downward revision in earnings and an upward revision in the discount rate will pose a double-whammy to stocks.
How far could we plumb lower though?
Based on current projections of earnings and interest rates, the S&P is likely to trend toward 3,581, implying a further decline of about 7% from Monday’s closing level. For the Nasdaq 100, my calculations suggest a drop of about 10% toward 10,572.
Even with this year’s decline, the aggregate market capitalization of the universe of US stocks to gross domestic product is elevated at 1.60. While that’s a far cry from extremely lofty levels that prevailed earlier this year, they are still elevated, which may make value investors shudder.
What could go wrong with my view? A deeper-than-forecast economic downturn that causes the Fed to pause or abandon its hiking campaign would lower the discount rate applicable to stocks and buoy them from current levels, but as things stand, that prospect looks like a tail risk rather than the base-case scenario.
The S&P has already slumped almost 20% this year and the Nasdaq 100 some 27%, bringing them closer to fair value than they have been in years. Still, the correction has room to run, suggesting that investors should brace for further declines in the months to come.
UK regulator opens probe into groups including BT and Sky over sports broadcasts
Competition watchdog to investigate whether companies fixed pay for freelance workers
The UK competition regulator has opened an investigation into whether BT, IMG Media, ITV and Sky are fixing the rate offered to freelance workers who provide their services at sports broadcasts.
The Competition and Markets Authority on Wednesday said its probe related to the purchase “of freelance services which support the production and broadcasting of sports content in the UK”.
It will focus on the pay offered to highly skilled staff, such as camera operators and sound engineers, who work for a range of broadcasters, said two people briefed on the investigation.
The CMA said it had “reasonable grounds” to suspect at least one breach of competition law. Its investigation will date back to 2015, according to one person briefed on the process.
Camera operators and sound engineers working for broadcasters such as Sky on a freelance basis are paid a flat rate designed to cover travel and expenses as well as their work. One camera operator told the Financial Times that all broadcasters tended to pay the same rate and that it had not changed materially in recent years.
“Everyone wants the rates to go up and we’d love it for [broadcasters] to compete more . . . I don’t think it’s conscious but . . . as soon as one jumps they all jump . . . we’d just like them to make more of a bold jump . . . in seven years [the day rate] has gone up £40 [to £400],” he said.
The CMA’s investigation is the first probe into sports broadcasters since the Office of Fair Trading, the CMA’s predecessor, investigated a media rights deal between the Racecourse Association, Channel 4 and British Sky Broadcasting among others to show horseracing in the UK in the early 2000s. No action was taken following an appeal against the OFT’s decision.
However, it is one of several probes relating to the wider market for sports goods. The CMA is looking at potential price fixing in relation to football shirts and in June provisionally ruled that retailer JD Sports, another retailer, Elite Sports, and Rangers Football Club colluded to fix the price of Rangers replica kits and other merchandise.
The regulator is also weighing a decision on whether or not Leicester City Football Club and JD Sports broke competition law in relation to the sale of Leicester City-branded kit and other merchandise.
BT, Sky and IMG’s premises have been raided in connection with the CMA’s latest investigation, according to people familiar with the situation.
Sky was crucial to the formation of the Premier League in 1992 and remains the biggest broadcaster of the competition in the UK. It also has the UK rights to Formula One car racing. The company said it was “co-operating fully with the CMA”.
Internationally, Premier League Productions distributes and produces content for broadcasters. PLP is operated by the Premier League and IMG. IMG Media confirmed that it had been subject to a site inspection by the CMA and was “co-operating with the CMA in its inspection”.
The Premier League declined to comment.
The company screens the Uefa Champions League, Europe’s most prestigious club competition, Premiership Rugby, and Ultimate Fighting Championship (the mixed martial arts series owned by Endeavor, the parent company of IMG).
BT said in a statement: “It is clear that [the] CMA’s investigation is focused very specifically on the purchase of freelance services and not any other aspects of the BT Sport or wider BT Group business.”
Meanwhile, ITV is known for its horseracing coverage, including marquee races such as the Grand National at Aintree, Royal Ascot and the Epsom Derby. The company said it was “committed to complying with competition law and is co-operating with the CMA’s inquiries”.
The regulator has wide latitude in Competition Act cases and can fine companies up to 10 per cent of turnover if it uncovers wrongdoing.
The CMA is investigating the companies over a potential breach of rules that prevent them from entering into agreements that deliberately thwart competition, including price-fixing scams.