>>> What to look at today - 7th of July 2022

The technology sector lifted Asian stocks on Thursday, the dollar dipped and oil stabilized as the prevailing concerns in markets about high inflation and the risk of recession eased a little. MSCI Inc.’s Asia-Pacific share index added more than 0.5%, aided by a rally in chipmakers after a positive reception for Samsung Electronics Co.’s results. US and European futures were in the green following gains on Wall Street. Crude oil snapped a slide that’s become emblematic of economic growth worries, but remained below $100 a barrel. A dollar gaugeedged down and commodity-linked currencies like Australia’s pushed higher. Investors earlier had been focused on the Federal Reserve’s determination to tackle inflation even at the expense of slower economic activity. The minutes of the Fed’s June meeting flagged the possibility of “even more restrictive” monetary policy to prevent entrenched inflation. That triggered a slide in Treasuries on Wednesday led by shorter maturities, but they pared some of that move in Asian trading. The latest market gyrations extend a period of volatility across assets as investors grapple with threats from elevated price pressures and a parlous economic outlook amid tightening monetary settings in much of the world. Markets see another 75 basis point Fed hike in July. The peak of the tightening cycle in early 2023 is now seen at about 3.4% from around 3.2% earlier. US yield curve inversions are among the signs that higher rates could spark a recession and a reversal by the Fed in favor of looser policy later next year. In China, Shanghai reported the most virus infections since late May, fueling concern it may find itself back in lockdown in pursuit of Covid Zero. For now China’s central bank looks set to withdraw cash from the financial system in a sign that it’s moving toward normalizing monetary policy. The pound pared losses sparked by the continuing political drama in the UK. Boris Johnson told Cabinet colleagues he will not resign as Conservative leader and prime minister, despite a slew of ministers quitting and some of his closest allies demanding he go. US After Hours 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.

Nikkei +1.27% Hang Seng -0.32% CSI +0.32% Shanghai +0.23% Shenzen +0.75%

Eur$ 1.0211 CNH 6.70000 CNY 6.6993 JPY 135.90 GBP 1.1949 CHF 0.9692 RUB 62.8721 TRY 17.2513 WTI$ 98.75 +0.22% Gold 1,745.10 +0.36% BTC 20,272 -0.53% ETH 1,162.72 +0.18%

S&P +0.30% Nasdaq +0.41% EuroStoxx +1.23% FTSE +1.18% Dax +1.06% SMI +0.61%

Macro :
- Euro Slides to Edge of Dollar Parity as Pros Call It ‘Unbuyable’
- Pound Needs to Price for Big Deficit Less Boris: Markets Live

Keep an eye on :
- YOU GY : About You Maintains FY Adjusted Ebitda Loss Forecast
- BARN SW : Barry Callebaut’s Head of Innovation, Quality to Leave Sept. 1
- IAG LN : British Airways Is Said Close to Deal With Union Averting Strike
- CLASB SS : Clas Ohlson June Sales SEK714M
- COFB BB : Cofinimmo to Buy Care Home Project in Madrid for About EU12m
- EDF FP : Electricite de France Chief Levy to Step Down, Le Figaro Reports
- G IM : Generali to Start Buying Remaining Cattolica Shares July 11
- MDC LN : Billionaire Rupert, MSC Said to Prepare Higher Mediclinic Bid
- NDX1 GY : Nordex 2Q Order Intake of 1.8 GW Vs 1.5 GW Year Earlier
- SGEN US : Merck in Advanced Talks to Buy Seagen for Above $200/Share: WSJ
- SKAB SS : Skanska Signs Additional Contracts in US Worth About SEK670m
- SZU GY : Suedzucker 1Q Sugar Unit Revenue Beats Estimates
- SUSE GY : SUSE 2Q Adjusted Ebitda $58.6M Vs. $48.2M Y/y
- TIT IM : Telecom Italia Is Set to Match Fastweb’s $2.8 Billion Cloud Bid
- TIT IM : Telecom Italia: ‘NetCo’ Organic Ebitda AL Abt EU2.2b in 2025
- TIT IM : Telecom Italia Board Gives Mandate to CEO to Spin Off Network
- UCB BB : UCB Gets Only Sell Rating as Citi Sees Risks Skewed to Downside
- VK FP : CDC Stake in Vallourec Has Fallen Below 5%: AMF

>>> Europe : Brokers Upgrades & Downgrades - 7th of July 2022

>>> Up
* AO World Raised to Buy at Numis; PT 60 pence
* *GREENYARD RAISED TO BUY VS HOLD AT BERENBERG, PT EU13.7
* Platzer Raised to Hold at Handelsbanken
* Tenaris Raised to Buy at Jefferies; PT 20 euros
* Tenaris ADRs Raised to Buy at Jefferies; PT $46
* Trainline PT Raised to 532 pence from 424 pence at Peel Hunt

>>> Down
* ArcelorMittal Cut to Neutral at Grupo Santander; PT 29.90 euros
* AT&S Cut to Sell at Berenberg on Oversupply, Capex Concerns
* ING Slaski Cut to Hold at Biuro Maklerskie mBanku
* Rio Tinto Cut to Sell at Berenberg; PT 4,200 pence
* Salzgitter Cut to Hold at Jefferies; PT 23 euros
* Segro Cut to Underperform at Exane; PT 800 pence
* UCB Cut to Sell at Citi; PT 74 euros

>>> Initiation
* ASR Nederland Rated New Buy at ING; PT 47 euros
* Hannover Re Reinstated Outperform at RBC; PT 170 euros
* Munich Re Reinstated Sector Perform at RBC; PT 245 euros
* Sareum Holdings Rated New Buy at Peel Hunt; PT 304 pence
* Scor Reinstated Outperform at RBC; PT 26 euros
* Swiss Re Reinstated Sector Perform at RBC; PT 80 Swiss francs

>>> Call
* Tenaris Raised on OCTG Steel Exposure, Salzgitter Cut: Jefferies

FT : GSK investor support for spin-off vindicates rejection of Unilever bid, say

GSK investor support for spin-off vindicates rejection of Unilever bid, says chief
Vote to separate consumer healthcare paves way for London’s largest stock market listing in a decade

GlaxoSmithKline’s chief executive said a shareholder vote in favour of spinning off its consumer healthcare business vindicated the UK drugmaker’s decision to turn down a £50bn takeover offer from Unilever for its joint venture with Pfizer.

In a ballot at the company’s general meeting, 99.8 per cent of investors who voted backed two resolutions needed to enable the demerger of Haleon, paving the way for the largest London listing in a decade.

The spin-off will take place on July 18, with each GSK investor receiving one share in Haleon for each share they own in the parent.

Chief executive Emma Walmsley said the new FTSE 20 company would build value over time, benefiting shareholders, patients and the UK. “I think it’s good for the country to have new global British-anchored, listed, headquartered companies that are serving a purpose that matters,” she told the Financial Times.

She said the shareholder vote vindicated the decision to reject Unilever’s bid, which both GSK and Pfizer believed “didn’t recognise the full value and prospects of the business”. 

Jonathan Symonds, GSK’s chair, said the spin-off was an important moment in the company’s 300-year history, creating “two new ambitious growth companies”. He said GSK would focus on immunology, genetics and machine learning and artificial intelligence, while Haleon benefited from a unique portfolio of brands and geographic reach.

Haleon, which owns brands including Sensodyne and Panadol, is the combination of the consumer health businesses of GSK, Pfizer and Novartis. The new company will be led by Brian McNamara, who oversaw the joint venture when it was part of GSK. Haleon’s board will be chaired by former Tesco chief executive Sir Dave Lewis.

Walmsley masterminded the spin-off of the consumer unit that she previously led. She must now steer the new slimmed-down GSK, focusing on filling its pipeline with new drugs and vaccines. Over the past year, she has been under pressure from activist investors including US hedge fund Elliott Management.

GSK’s remaining business will have a dividend of more than £7bn to invest in research and development and potential deals, as well as a stake in Haleon of up to 6 per cent, which it plans to reduce over time. Pfizer plans to sell its 32 per cent stake in a “disciplined manner”. Both are locked up for several months.

GSK turned down Unilever’s £50bn offer for the consumer business late last year, arguing it undervalued the company. With about £10bn of debt allocated to Haleon, analysts at Credit Suisse recently attached an enterprise value of £44.8bn, and an equity value of £33.1bn, to the company. The analysts said a further bid was unlikely, given that Haleon’s size could present antitrust issues.

Christian Donovan, an individual shareholder, criticised the spin-off at the general meeting and urged others to vote against the proposal. He was concerned about the debt being allocated to Haleon and claimed the Unilever bid had been rejected because of “vanity”.

FT : French state plans to take full control of EDF

French state plans to take full control of EDF
Nuclear investments have saddled power company with debt

France plans to take full control of power group EDF, a nuclear energy specialist that has been grappling with high debt, production outages and conflicting demands from its state shareholder as it gears up to try to process its biggest orders for new reactors in decades.

The takeover, announced by prime minister Élisabeth Borne on Wednesday, would close a rollercoaster chapter for the former monopoly, which has included a shelved government attempt last year to restructure the sprawling company, still 84 per cent controlled by the state.

“I confirm to you today that the state intends to control 100 per cent of EDF’s capital,” Borne told lawmakers as she set out priorities for the new government following Emmanuel Macron’s re-election as president in April and legislative elections in June. She did not detail how the operation would take place, or when.

Shares in the company, which was listed in 2005, soared 14.3 per cent after Borne’s speech. The stock held by minority shareholders is worth roughly €5bn at current market prices.

Known as Electricité de France when the utility was created just after the second world war, EDF’s capital was opened up to private investors with the argument it would bring more financial discipline and transparency to a group with a history of internal quarrels and that is sometimes described as a quasi state-within-a-state.

But its listed status has proved increasingly problematic, including this year when Paris forced EDF to foot the bill for its cap on energy prices to protect households from soaring costs, now exacerbated by Russia’s invasion of Ukraine. The move sparked an outcry from minority shareholders and the stock, which has sunk almost 90 per cent since a 2007 peak, took a hit.

As well as giving the French government greater licence to intervene at EDF, a full renationalisation — which the group’s powerful unions have been in favour of in the past — might allow Macron to score political points. The president’s centrist party lost its majority in the lower house of parliament in June and will now have to wrangle with lawmakers on the left and right to try to pass bills.

“One of the reasons to do this now is for the symbolism of it. A nationalisation in France, even if this isn’t truly one as it is already state-owned, will please some parts of the left and the right,” said one banker who has previously worked with the company.

Financially, full state control would also have the merit of further decreasing EDF’s borrowing costs. The group, which has been tasked by Macron with building six new nuclear reactors in France in the coming years at an estimated cost of about €52bn, will have to find ways to fund the venture, beyond any state financing.

But the move may not resolve all of EDF’s problems. The group has faced cost overruns and long delays at a handful of flagship reactor projects in Britain and France, raising concerns over its ability to build more in future. Corrosion problems at some of its existing 56 reactors in France have torn a hole in its finances as production drops to multi-decade lows — its core profit is due to take a €18.5bn hit from that alone this year.

“It’s a message to the unions and to the left,” Denis Florin of energy consultancy Lavoisier Conseil said of the nationalisation plans. “Beyond that, the question is what it will do to change things operationally, beyond giving EDF a more secure financial structure.”

The French state took part in a recapitalisation of EDF this year. Over the years the company has branched into renewable energy and has sought to export its atomic technology to countries such as Britain and China. It has had to contend with government pressure before, including after being pushed to absorb ailing reactor designer Areva in 2017.

The shake-up in its capital structure may have repercussions elsewhere too. Energy experts in the UK said it raised further questions about the speed with which new nuclear projects could move forward in Britain.

A planning decision on EDF’s proposed £20bn plant at Sizewell on England’s east coast is due by the end of Friday.

FT : Fed officials warn entrenched inflation poses ‘significant risk’

Fed officials warn entrenched inflation poses ‘significant risk’
Minutes from June meeting suggest even tighter monetary policy may be required from US central bank

Top Federal Reserve officials now see entrenched inflation as a “significant risk” to the US economy and fear even tighter monetary policy will be needed if price growth exceeds their expectations, according to an account of their most recent meeting.

The minutes of the June meeting, at which the Fed delivered the first 0.75 percentage point rate rise since 1994, also showed policymakers now support raising interest rates to the point at which economic activity is restrained, with the possibility they could become “even more restrictive” if warranted by the data.

“Many participants judged that a significant risk now facing the committee was that elevated inflation could become entrenched if the public began to question the resolve of the committee to adjust the stance of policy as warranted,” the minutes said.

The minutes of the Federal Open Market Committee, which were released on Wednesday, showed the alarm spreading through the top ranks of the US central bank over inflation, which is running at an annual pace of 8.6 per cent. The account also showed the lengths officials are willing to go to in order to ensure prices do not spiral further out of control.

The Fed will decide whether to raise rates by 0.50 percentage points or 0.75 percentage points at its meeting this month, although several officials have indicated their support for the larger increase.

“If inflation becomes entrenched in consumer and business psyches, it will be much more difficult to lower it over the medium term,” said Kathy Bostjancic, chief US economist at Oxford Economics. “That is the breaking point for [the Fed], and they really want to do their best to ensure that it doesn’t happen.”

She added: “The longer inflation remains high, the more it will become embedded in expectations.”

The minutes showed that participants are increasingly aware that their plans to tighten monetary policy will slow the pace of economic growth. Most noted that the risks to the outlook were “skewed to the downside” given the possibility that further tightening could weigh even more on activity.

The minutes echoed recent comments from Fed chair Jay Powell, who has emphasised that the central bank has little room for manoeuvre as it tries to tame inflation without causing widespread job losses.

A US recession is now “certainly a possibility”, and would in large part depend on factors outside of the Fed’s control, he said last month, pointing to the war in Ukraine and prolonged Covid lockdowns in China.

Powell doubled down on that message last week on a panel with other central bankers, when he warned that a failure to restore price stability would lead to an even worse outcome for the US economy.

“The process is highly likely to involve some pain, but the worst pain would be from failing to address this high inflation and allowing it to become persistent,” he said.

The account of the June meeting shed further light on why the Fed abruptly decided to dramatically step up the pace at which it is tightening monetary policy, opting to jettison its previously signalled plans for a second consecutive 0.50 percentage point rate rise.

Instead, a 0.75 percentage point increase lifted the federal funds rate to a new target range of between 1.50 per cent and 1.75 per cent.

The decision followed the publication of two economic reports, one showing a large jump in consumer prices in May and the other a rise in inflation expectations.

Participants expressed concern that the former report suggested inflationary pressures were not yet abating and “[solidified] the view that inflation would be more persistent than they had previously anticipated”, according to the minutes.

The June meeting also featured revised forecasts, which indicated officials envisage rates rising to just under 3.5 per cent by year-end. Further rate increases that push the policy rate to 3.75 per cent are expected next year, before reductions in 2024. Officials also pencilled in higher unemployment and lower growth over that period.

The minutes detailed why the Fed scrubbed an important line in its policy statement last month, in which it had said it expected inflation to fall back to its 2 per cent target and the labour market to “remain strong” as it tightens monetary policy.

“As the further firming in the policy stance would likely result in some slowing in economic growth and tempering in labour market conditions, members also agreed to remove the previous statement language,” the minutes said.

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