Early Look

Tuesday, December 20, 2022

Stock markets are mixed, while Treasury yields rose (10-yr up at 3.65%) after the Bank of Japan surprised markets with a hawkish move that lifted the yen to its highest in more than four months and sent domestic bond yields 20 basis points higher. The surprise move weighed on the US dollar, lifting commodity prices and sunk equities initially before rebounding. The S&P 500 comes into the day trying to snap a current 4-day losing streak as recession fears mount and investors worried time is running out for a year-end rally. In Asian markets, The Nikkei Index tumbled -660 points or 2.46% to 26,568, the Shanghai Index fell -33 points to 3,073, and the Hang Seng Index dropped -258 points or 1.33% to 19,094. In Europe, the German DAX is down -42 points to 13,900, while the FTSE 100 is down -5 points to 7,355. Yesterday the Dow declined -0.5% to 32757, the S&P 500 retreats 0.9% to 3817 with all 11 sectors lower and the Nasdaq drops 1.5% to 10546. That’s the fourth straight losing session in a row for all three indexes. Tonight, we get earnings from Dow component Nike (NKE) and package delivery giant Fed-Ex (FDX). Overnight the Bank of Japan made a surprise decision to let a benchmark interest rate rise to 0.5% from 0.25%, pushing the yen higher and ending a long period in which, it was the only major central bank not to increase rates. Gold prices rise as the dollar drops after the Bank of Japan’s surprise policy tweak, while markets also weighed the outlook for the U.S. Federal Reserve’s interest rate strategy. Oil prices rise after U.S. authorities announced plans to start refilling its Strategic Petroleum Reserve after tapping into it earlier this year. WTI crude prices also rise.

Market Closing Prices Yesterday

·     The S&P 500 Index dropped -34.70 points, or 0.90%, to 3,817.66

·     The Dow Jones Industrial Average fell -162.92 points, or 0.49%, to 32,757.54

·     The Nasdaq Composite slid -159.38 points, or 1.49%, to 10,546.03

·     The Russell 2000 Index declined -24.84 points, or 1.41% to 1,738.58

Economic Calendar for Today

·     7:45 AM ET          ICSC Weekly Retail Sales

·     8:30 AM ET          Housing Starts M/M for November

·     8:30 AM ET          Building Permits M/M for November

·     8:55 AM ET          Johnson/Redbook Weekly Sales

·     4:30 PM ET          API Weekly Inventory Data

Earnings Calendar:

·     Earnings Before the Open: FCEL FDS GIS

·     Earnings After the Close: AIR CAMP CVGW EMKR EPAC FDX JOB NKE WOR

World News

·     The Bank of Japan (BOJ) said the yield on the 10-year Japanese government bond could rise as high as 0.5% from a previous cap of 0.25%. The central bank has set a target range around zero for the benchmark government bond yield since 2016 and used that as a tool to keep overall market interest rates low.

·     Reserve Bank of Australia board members are prepared to consider a range of options for Australia’s cash rate when they next convene in February, including raising it by more than 25 basis points, according to the minutes of their Dec. 6 meeting

·     The World Bank has cut its China 2023 GDP forecast to 4.3% (from 4.5%); Despite policy support, real GDP growth is expected to slow to 2.7% in 2022, before recovering to 4.3% in 2023 amid a reopening of the economy.

Sector News Breakdown

Consumer

·     Magna International Inc. (MGA) agreed to pay $1.525 billion in cash for the Veoneer Active Safety business from seller SSW Partners, a New York-based investment partnership

·     Lucid Group (LCID) said it completed its previously announced “at-the-market” equity offering program. Through the program, Lucid sold more than 56.2M shares of its common stock for gross proceeds of approximately $600M. The successful capital raise of approximately $1.515B

·     Credit Suisse initiates & assumes coverage of the sector, while most of the assumptions aren’t changed from previous coverage, she has assumed coverage of BJ TGT & HD with downgrades to Neutral from Outperform and lowers tgts on HD to $335 from $390, on TGT to $160 from $165 and lowers PT on BJ to $75 from $80

·     Steelcase (SCS) Q3 adj EPS $0.10 vs. est. $0.18; Q3 revs $826.9M vs. est. $836.4M; sees Q4 adj EPS $0.11-$0.15 vs. est. $0.12 and revs $740M-$765M vs. est. $790.3M

·     Churchill Downs (CHDN) announced that it has entered into a definitive agreement under which CDI would acquire all the outstanding equity interests of Exacta Systems for total consideration of $250M in cash

·     The National Highway Traffic Safety Administration is investigating whether Hertz Global Holdings Inc. (HTZ) rented out certain vehicles without having performed required recall repairs, according to a filing by the agency.

Energy, Industrials and Materials

·     3M Co. (MMM), confronting regulatory pressure and lawsuits that threaten billions of dollars in damages, will stop making so-called forever chemicals and discontinue their use in products by the end of 2025. The industrial conglomerate expects to book pretax charges of $1.3 billion to $2.3 billion as it stops making per- and polyfluoroalkyl substances, or PFAS

·     Exxon Mobil (XOM) is avoiding hiring oil tankers that previously carried cargoes from Russia, putting itself in the same camp as Shell with a move that pressures owners to choose whether to serve Moscow’s interests or not – Bloomberg

·     Heico (HEI) Q4 EPS $0.70 vs. est. $0.69; Q4 revs $609.6M vs. consensus $602.2M

·     Steel Dynamics (STLD) to replace Abiomed (ABMD) in S&P 500 at open on 12/22

·     Nucor Corp (NUE) announced that California steel industries will build a continuous galvanizing line at its mill in Fontana, California; investment is expected to cost approximately $370 mln and take 30 months to construct following regulatory approvals

Healthcare

·     Gilead Sciences Inc (GILD) and Arcus Biosciences (RCUS) reported mid-stage data that showed their combo cancer therapy helped shrink or destroy tumors in 41% of patients, which analysts say missed investor expectations

·     Cannabis stocks fell on Monday (CGC, TLRY GTBIF, CURLF, MSOS) on reports that the SAFE Banking measure has been left out of Congress’s omnibus spending bill. Cannabis advocates had hoped the measure to open the financial system to cannabis companies would be passed during the lame duck session, but it appears to have been left out of the annual spending package

·     Catalyst Pharma (CTLT) to buy U.S. commercial rights for FYCOMPA from Eisai for $160M

·     Nuvation Bio (NUVB) announced it has dosed the first patient in a Phase 1b study of its BD2-selective BET inhibitor, NUV-868, in combination with Olaparib

·     Verona Pharma (VRNA) achieved positive results in the Phase 3 ENHANCE-1 trial evaluating nebulized ensifentrine for the maintenance treatment of chronic obstructive pulmonary disease. The company said it plans an NDA submission in the first half of 2023 for the experimental drug candidate.

Technology, Media & Telecom

·     MKS Instruments (MKSI) upgraded to Overweight from Sector Weight at KeyBanc

·     Super Micro Computer (SMCI) to replace Steel Dynamics in S&P 400 at open on 12/22