Mid-Morning Look

Tuesday, June 13, 2023

U.S. stock upward FOMO momentum continues following in-line to slightly better than expected consumer price (CPI) inflation data for May. The Dow Jones Industrial Average on track for 8^th day of gains in nine, the S&P on track for 4-straight wins and the Nasdaq again outperforms early. The S&P (SPX) made a new 52-week high yesterday for the first time in 360 trading days dating back to 1/3/22, ending the longest stretch without a 52-week high since October 2009. US markets extended gains after a cooler-than-expected CPI inflation reading supports views for a Fed “pause” in interest rate hikes at tomorrow’s meeting after 10-straight rate hikes. May’s consumer price index rose 0.1% on the month, below the 0.2% estimate, with the annual inflation rate falling to 4.0%, below estimates expecting an ease to 4.1% from 4.9%. The core CPI, excluding food and energy, rose 0.4%, in line with forecasts, lowering the core inflation rate to 5.3% from 5.5%. But basic needs are still much higher as the US. Shelter inflation still stands at 8.0%, Food inflation is at 6.7% and New Vehicles inflation stands at 4.7% and rent inflation for people renting their primary residence is at 8.7%. Markets are still not showing any concerns about this despite credit card debt at a record $1 trillion. Meanwhile, the Federal Reserve’s two-day meeting also kicks off Tuesday. The Fed is widely expected to skip a rate hike at its two-day policy meeting that wraps up on Wednesday at 2 p.m. ET. Treasury yields higher, with the 2-year note last at 4.58%, and the 10-year note at 3.77%. NYSE breadth strong early 4:1 advancer leading. Small caps leading with the Russell 2000 +1.3% approaching 1,900 (+8.4% MTD).

In corporate news: ORCL earnings help push shares to record high, TSLA on track early for 13^th straight day of gains as is DAL in airlines. Semiconductors making new 52-week highs for the Philly semi-index (SOX). Asian markets rallied, as did US listed China stocks (BABA, BIDU, KWEB) and commodity and industrial metals (AA, FCX, CLF) after China’s Central bank lowered a short-term lending rate for the first time in 10 months. The People’s Bank of China (PBOC) cut its seven-day reverse repo rate by 10 basis points to 1.90% from 2.00%, when it injected 2 billion yuan ($279.97 million) through the short-term bond instrument. Asia also rallied on the back of a Bloomberg report that China is considering a package of stimulus measures.

Economic Data

·     The Consumer Price Index (CPI) M/M rose +0.1% vs. est. +0.2% (vs. prior month +0.4%) and on a Y/Y basis rose +4.0% vs. est. +4.1% (prior month rose +4.9%). On a core basis, ex: food & energy for CPI M/M rose +0.4%, in-line with ests (and prior +0.4%) and Y/Y rose +5.3%, in-line with estimates and vs. prior +5.5%.

Sector Movers Today

·     Industrial metals, energy, and other commodity related prices advanced/leading (FCX, AA, X, CLF, STLD, CENX) after China’s Central banks lowered a short-term lending rate for the first time in 10 months. The People’s Bank of China cut its seven-day reverse Repo rate by 10 basis points to 1.90% from 2.00% on Tuesday, when it injected 2 billion yuan ($279.97 million) through the short-term bond instrument. US listed China stocks also moved higher on the PBOC rate move.

·     Semiconductors hit new 52-week highs, as the Philly semi-index (SOX) takes out prior high of 3,644.86; INTC shares rose on multiple reports that chip designer Arm Holdings, which is majority owned by Softbank, is in discussions with potential strategic investors, including INTC to be an anchor investor in Arm’s initial public offering later this year. In April, Reuters reported that U.K.-based Arm planned to sell shares on the Nasdaq in a bid to raise $8 billion to $10 billion. Semi equipment names lagging early ASML, LRCX.

·     E&P Sector: EOG was downgraded from Buy to Neutral at Goldman Sachs and cut tgt to $130 following 11% relative outperformance to other large-cap peers (PXD, FANG and DVN) since October 18, 2022. TTE said it made an oil and gas Discovery on the OML 102 oil field offshore Nigeria. DVN upgraded from Neutral to Buy w/ $58 PT (from $63) at Goldman Sachs as believes that valuation is becoming more compelling and see potential for well costs to reduce a function of lower raw material costs (tubulars, sand, among others), and modestly lower pricing.

·     In Banks: ZION firm said its second quarter net interest margin is trending toward 2.85%, which analysts described as being weaker than estimates and a downturn from the first quarter. Note yesterday, CFG, KEY, HBAN and TFC all guided down net interest income due to a combination of likely higher than previously expected rates, higher deposit betas & continued deposit remixing. More banks speaking today with USB weighing in at Morgan conference.

Stock GAINERS

·     FWBI +103%; said it achieved the enrollment target for its mid-stage study investigating a treatment candidate for a type of pancreatic disorder associated with cystic fibrosis.

·     HAL +5%; as energy, metals, and commodity prices in general outperform in the S&P after Peoples Bank of China rate headlines overnight; oil prices rebound.

·     INTC +1%; on multiple reports that chip designer Arm Holdings, which is majority owned by Softbank, is in discussions with potential strategic investors, including INTC to be an anchor investor in Arm’s initial public offering later this year.

·     MANU +8%; after a report from Qatar’s Al-Watan that Qatar’s Sheikh Jassim bin Hamad al-Thani will soon be announced as the preferred bidder. He has been battling Jim Ratcliffe for control of the club https://tinyurl.com/ys33psup

·     ORCL +3%; topped quarterly revenue estimates and forecast an upbeat current quarter; delivered a quarter beating in Cloud and guided to a strong Q1 while cash flow and EPS were very strong.

·     PTEN +9%; after the WSJ reported is in discussions with NEX over a potential tie-up that would establish a major player in the oilfield-services industry https://tinyurl.com/yv499kaj

·     THS +3%; reaffirms Q2 guidance while raises and narrows fiscal year 2023 adjusted EBITDA guidance to $355M-$370M from $345M-$365M prior.

Stock LAGGARDS

·     AAPL 0.5%; downgraded to Neutral from Buy but raise tgt to $190 from $180 at UBS owning to softer iPhone & Services growth fundamentals + valuation.

·     BIIB -3%; as top decliner in the S&P 500 early.

·     LITE -1%; after announces $500M convertible note offering.

·     LMT -2%; as defense stocks underperform early (NOC.

·     MEI -17%; after guided FY24 EPS $1.55 -$1.75 below consensus $2.58 and guided FY24 revs $1.15B- $1.2B vs. est. $1.21B citing additional costs to support new program launches and the impact from program roll offs.

·     UNP -1%; after saying it expects a one-time Q2 expense of around $70M from ratification of a new deal with its labor union; said rising labor expenses expected to lead to an increase in UNP’s Q2 operating ratio by about 120 basis points.

·     ZION -1%; said its second quarter net interest margin is trending toward 2.85%, which analysts described as being weaker than estimates and a downturn from the first quarter; note yesterday, CFG, KEY, HBAN and TFC all guided down net interest income.