Closing Recap

Wednesday, April 12, 2023

Index	Up/Down	%	Last
DJ Industrials	-37.57	0.11%	33,647
S&P 500	-16.82	0.41%	4,092
Nasdaq	-102.54	0.85%	11,929
Russell 2000	-12.89	0.72%	1,773

 

Equity Market Recap

·     After holding higher most of the trading day, stocks slumped into the close, pulling back after minutes from the March FOMC meeting were released, as well as ECB comments on inflation. U.S. stocks opened higher as investors digested fresh data showing headline inflation eased in March, but markets were choppy the remainder of the day, though the S&P 500 (SPX) held the 4,100 into more data tomorrow and Friday. Inflation, as measured by the consumer-price index, rose 0.1% in March for a year-over-year rate of 5%, down from 6% in the 12 months through February and better than estimates. Core CPI, which excludes energy and food prices, increased 0.4% last month though the core rate rose 5.6% y/y, edging up from a 5.5% y/y rate in February. Overall stocks on Wall Street were lower, the dollar fell, and U.S. Treasury prices rose.

·     Minutes from the March Fed 21-22 meeting showed that several Fed officials considered pausing interest rate increases until it was clear the failure of two regional banks would not cause wider financial stress, but even they ultimately concluded high inflation remained the priority. However, those officials, along with others, agreed that actions taken by U.S. policymakers and the Fed had "helped calm conditions in the banking sector and lessen the near-term risks to economic activity and inflation," according to the minutes. They supported a 25-bps hike.

·     Next mkt economic data catalyst, Producer Price Index (PPI) for March tomorrow at 8:30 AM ET. Estimates for March PPI M/M to be unchanged or 0.0% (prior -0.1%) and headline Producer Price Index (PPI) Y/Y to rise +3.0% (prior +4.6%). On a core basis, or Ex: Food & Energy, PPI M/M est. +0.3% (prior 0%) and on a Y/Y basis to rise +3.4% (prior +4.4%). Weekly Jobless Claims also due tomorrow at 8:30, followed by Retail sales on Friday as well as bank earnings.

 

Economic Data:

·     March headline CPI m/m reported at +0.1% vs. est. +0.2% (after +0.4% prior) and headline CPI y/y rises +5.0% vs. est. +5.2% (vs. prior +6%). On a core basis, or ex: food & Energy, CPI m/m rose an in-line +0.4% vs. est. +0.4% (vs. prior month +0.5%) and on a y/y basis rises +5.6%, in-line with est. +5.6% (vs. prior month +5.5%). Food at home prices fell in March q/q for the first time since Sept 2020, as proteins like meats, poultry and eggs saw price drops, with eggs leading the way with a sharp 10.9% drop over the month.

·     U.S. March budget deficit $378 bln (consensus $302.00 bln deficit) vs March 2022 deficit $193 bln; U.S. Fiscal 2023 year-to-date deficit $1.101 trln vs comparable fiscal 2022 $668 bln deficit; March budget outlays $691 bln vs $508 bln in March 2022; receipts $313 bln vs $315 bln y/y.

·     U.S. mortgage market index rises 5.3% to 229.5 in week ended April 7 according to weekly data from the Mortgage Bankers Assoc. U.S. mortgage purchase index rises 7.8% in latest week, refinance index rises 0.1% and average 30-year mortgage rate falls 10 bps to 6.30%.

 

Commodities

·     Gold prices rise $5.90 or 0.3% to settle at $2,024.90 an ounce, moving back near its highest level in 13 months following this morning’s U.S. inflation print. Oil prices finish higher, with WTI crude up $1.73 or 2.12% to settle at $83.26 per barrel and Brent rose $1.72 or 2.01% to settle at $87.33 per barrel despite U.S. crude inventories rising unexpectedly last week, the Energy Information Administration said, helped by release of oil from the U.S. government emergency reserve as well as weaker levels of export. Crude inventories rose by 597,000 barrels in the last week compared with analysts’ expectations for a 600,000-barrel drop. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 409,000 barrels. Stock of crude oil in the SPR declined 1.6 million.

 

Currencies & Treasuries

·     U.S. Treasury yields tumbled after slowing CPI inflation data for March (10-yr low 3.34%), then rebounded late morning this afternoon following 10-year bond auction (3.41%). The U.S. Treasury sold $32B in 10-year notes at a yield of 3.455% vs. 3.435% when issued prior (2-bps tail) as the bid to cover was 2.36 (vs. prior 2.35), direct accepted 19.9% of auction and indirects 63.0% (vs. 62.3% prior auction).

·     The U.S. dollar declined following signs of further deflation and expectations the milder inflation will convince the Fed to soften monetary policy soon. Even after today’s “softer” CPI inflation reading, Fed Fund futures still pointing to a 25-bps rate hike in May before cutting at the next meeting. The Dollar index (DXY) fell -0.65% to 101.50, dropping vs. the euro and Pound. The Consumer Price Index (CPI) climbed 0.1% last month, below economists’ expectations for a 0.2% gain, and down from a 0.4% increase in February. In the 12 months through March, the CPI increased 5.0%, the smallest year-on-year gain since May 2021.

 

 

Macro	Up/Down	Last
WTI Crude	1.73	83.26
Brent	1.72	87.33
Gold	5.90	2,024.90
EUR/USD	0.0081	1.0991
JPY/USD	-0.46	133.18
10-Year Note	-0.017	3.417%

 

 

Sector News Breakdown

Consumer

Autos:

·     In electric vehicles, the U.S. Environmental Protection Agency unveiled significant changes to its guidelines for domestic car emissions over the next decade Wednesday in one of the biggest proposals for domestic transportation on record. The EPA says its new model rules for the years 2027 to 2032 would require carmakers to cut their annual emissions by around 15% a year and effectively mean that two of every three cars sold will be all-electric within the next ten years. The new rules would likely cost American carmakers an extra $1,200 per vehicle while saving owners some $9,000 on repair, fuel, and maintenance costs over an eight-year period.

 

Retail, Consumer Staples & Restaurants:

·     In luxury retail, LVMH (LVMUY) reported stronger Q1 results as organic sales grew by 8 % in united states, up 14% in Asia excluding as 1q fashion & leather organic sales +18%, topped Bloomberg est. +9.85%; shares of luxury/cosmetic names TPR, EL, RL, CPRI moved in reaction.

·     ANF downgraded from Buy to Hold at Argus noting the retailer has struggled to expand margins amid inflation and currency headwinds, and cautious consumer spending has weighed on sales growth. In contrast with most peers, ANF also does not pay dividends.

·     PTON web traffic decelerated to -27% y/y in Q3 according to Morgan Stanley without the help of promotions that the fitness company ran during the holiday quarter.

·     SHOP was upgraded to Outperform at JMP Securities with $65 tgt saying after analyzing the OpEx structure across the website builders, assessing third-party website traffic data, and speaking to professional website developers across these platforms, they reaffirm view that Shopify is the leader in commerce enablement and continues to take share.

·     In Q1 Farm & Ranch Retailer Survey (BOOT, YETI, TSCO), Piper said survey shows Q1 comp of -3% to -4%, as weather was called out as a headwind by all retailers. For TSCO, they reduce Q1 comp est. slightly to +5% (but remain slightly above consensus). Looking to Q2, trends have improved significantly with better weather (and pent-up demand), and retailers expect a Q2 comp of +5% (on average). For TSCO, we raise our Q2 comp estimate well above consensus.

 

Energy

·     U.S. Secretary of Energy Granholm says that the US plans to refill the Strategic Petroleum Reserve (SPR). Just a few months ago, the Biden Administration released a statement saying they wanted to refill the SPR at $67-$70. Oil prices are currently trading above $82.00.

·     In weekly inventory data: The EIA reported Crude inventories 597K build vs. consensus of 1.04M draw. Gasoline inventories 330K draw vs. consensus of 1.63M draw. Distillates 606K draw vs. consensus of 509K draw. In E&P: Bloomberg reported last night that FANG is exploring a sale of its Pecos County, TX, assets in the Delaware Basin.

 

Financials

Banks, Brokers, Asset Managers:

·     The biggest US banks are planning to bolster reserves in a move tied to their unusual effort to shore up ailing lender First Republic Bank last month. Some of the banks that contributed the largest chunk of the $30 billion in deposits are planning to set aside about $100 million each, according to people with knowledge of the matter, Bloomberg reported.

·     In brokers, investment advisors: Morgan Stanley upgraded EVR to overweight (tgt raised to $131) and LAZ to Equal weight while downgraded JEF to Underweight saying the rebound pushed out to 2024 as M&A indicators & rising recession risk point to another weak year for capital markets. Rate cuts are not a good outcome if they come with a hard landing. Expect pressures on revenues, comp ratios & multiples. At UBS, they upgraded EVR to Buy from Sell at UBS saying the firm is executing better than expected despite the challenging M&A backdrop. UBS also upgraded GS to Buy from Neutral at UBS saying shares are attractively priced with de-risked outlook.

 

Bitcoin, FinTech, Payments:

·     For credit cards (AXP, COF, MA, V), Bank of America credit and debit card spending per household moderated further in March, to 0.1% y/y, the slowest pace since February 2021. Sequentially, card spending per household fell 1.5% m/m seasonally adjusted.

·     Financial services/Lending: TRTN to be acquired by BIP for $85 per share, including $68.50 in cash and $16.50 in class A shares of Brookfield Infrastructure. https://bit.ly/3zULmRW

·     In payments: GPN was upgraded to Buy at Goldman Sachs as believe the merchant business is poised to sustain somewhat better than feared trends as currency headwinds fade, aided by a stronger start to the year in 1Q23. Firm says while FISV have large bank technology businesses; GPN has limited exposure here.

 

Healthcare

Biotech & Pharma:

·     IFRX 9.41M share Spot Secondary priced at $4.25.

·     KALA receives FDA fast track designation for KPI-012, a human MSC-S therapy for persistent corneal epithelial defect.

·     NVO said it has signed a collaboration deal with Canada’s Aspect Biosystems that will see the companies develop 3D-printed implants to treat diabetes and obesity.

·     In Med Tech: BDX upgraded to Overweight at KeyBanc with $304 tgt saying after 5 years of being fully range-bound, they believe BDX is finally capable of sustaining a breakout given more consistent execution toward LT financial targets and a reasonable valuation. CUTR tumbles as terminates CEO, executive chairman amid succession battle; withdraws outlook.

 

Industrials & Materials

Transports

·     In transports: airlines fall as AAL said it sees Q1 EPS to be in the range of $0.01-$0.05, below consensus estimates of $0.06 as expected earnings above previous estimates of about break-even. In trucking: Wells Fargo taking down ests, environment is challenging but likely more pain ahead as contract rates still need to normalize, remain biased to LTL w ODFL being top idea; Bank America provides trucking preview for Q1 as they lower Truckload (TL) carrier 1Q23 EPS estimates 10% on average, as a rapid decline in trucking rates to $1.35/mile from $1.65/mile in mid-Feb reflects a softening demand backdrop, a lack of produce season, and weak freight levels at West Coast ports. Reiterate positive thesis on a late ’23 truckload inflection (KNX, JBHT, SNDR, WERN) as capacity is removed and demand begins to draw down high inventory levels.

·     In Industrials: Deutsche Bank placed HON on their near-term catalyst call list as a BUY, noting it has been a material underperformer YTD, as the stock is down 11%, while the firm placed PH on their near-term catalyst call list as a SELL, as think the company could report deterioration in orders to down MSD-HSD this quarter vs. down LSD last quarter. In M&A News, NATI to be acquired by EMR for $60 per share, beating out prior offer from FTV

 

Materials, Metals & Mining

·     In Chemicals: DOW, LYB, WLK and EMN all upgraded to Overweight from Neutral at Piper and raised CE, MEOH to Neutral from Underweight based on the earnings upside they see being generated by the reduced feedstock costs, lower utility costs and the improving operating rates generated, in part, by export opportunities. Said they expect the increasing overall product volume will also have the effect of raising margins through better fixed cost absorption – also raised tgts in space.

 

Technology

Hardware & Software movers:

·     In Comm & Equipment: NATI to be acquired by EMR for $60 per share, in $8.2B offer, beating out prior offer from FTV https://bit.ly/41kDapN ; TESS to be acquired by entities affiliated with Lee equity partners & twin point capital for $9 per share https://on.mktw.net/43D892y . Jefferies was out with an update on the charging infrastructure space following some channel checks saying they prefer component suppliers to charging infrastructure given diverse EV opportunities and prefer LFUS, ST and TEL.

·     In software: MDB upgraded from Equal Weight to Overweight at Morgan Stanley and raise tgt to $270 from $230 saying survey pointing to most optimizations already underway and cloud growth expectations reaccelerating in 2024. CFLT upgraded to Overweight at Morgan Stanley given attractive valuation, a major pivot to profitability and a large growth opportunity that remains intact. AUDC downgraded to Underperform at Bank America and slash tgt to $9.50 from $22 after management cut 1Q23 revenue/EPS estimates by -11%/-68% vs. our prior expectations due to deteriorating macro headwinds.

 

Semiconductors:

·     CRUS shares tumbled after a report by TF Int’l Securities analyst Ming-Chi Kuo said two iPhone 15 Pro models’ removal of solid-state button design negatively affects Cirrus Logic and AAC – tweet by @mingchikuo. Says the latest survey indicates both iPhone 15 Pro and Pro Max models will abandon solid-state button design in favor of traditional button, and it will affect the revenue of CRUS as a controller IC supplier and AAC as a taptic engine supplier.

·     Philly semi index (SOX) quietly pulling back for the 6th time in last 7-sessions, down 1.8% today at 3,050 and down from April highs of 3,222 on April 3^rd

·     INTC said its chip contract manufacturing division will work with U.K.-based chip designer Arm Ltd to ensure that mobile phone chips and other products that use Arm’s technology can be made in Intel’s factories.

·     The European Commission has informed AVGO of its preliminary view that its proposed acquisition of VMW may restrict competition in the market for certain hardware components which interoperate with VMware’s virtualization software.

·     QCOM boosted its quarterly dividend.