Early Look

Monday, October 24, 2022

U.S. futures are bouncing after overnight weakness, while shares of stocks in Hong Kong and Shanghai tumble after the release of delayed economic data was met with skepticism as investors focused on the impact of Premier Xi Jinping’s renewed grip on power, a third term as President, following China’s twice-a-decade Congress in Beijing. China stocks slumped markedly lower in overnight trading, with stocks in Hong Kong suffering their biggest single-day decline since 2008 on the back of Xi’s authoritarian extension of power. Shares of U.S. listed China stocks are point to early weakness: BABA, BIDU, JD, MLCO, NTES, XPEV, NIO and the list goes on. In Asian markets, The Nikkei Index gained 84 points to 26,874, the Shanghai Index fell -61 points to 2,977 after economic data and the Hang Seng Index plunged over 1,000 points or 6.36% to 15,180. In Europe, the German DAX is up 160 points to 12,892, while the FTSE 100 is up a few points to 6,978.

Stocks surged on Friday after Federal Reserve Bank of San Francisco President Mary Daly (one of the Fed’s biggest “doves” said future rate hikes could come in smaller increments to achieve the Fed’s target neutral rate. “The idea that we don’t just keep going up in 75 basis point increments, we actually do a step down,” Daly said. “Step down into increments that are easier to manage, 50, 25 basis points.” Her comments were taken to mean potentially sooner than later but traders cautioned she did not suggest it would happen this year. Meanwhile, the most “hawkish” member of the Fed, Federal Reserve Bank of St. Louis President James Bullard said the strong US labor market gives the central bank room to raise rates so it can curb inflation that’s running near a four-decade high. The U.S. dollar weakened considerably against the yen with Nikkei reporting Japan intervened in the currency markets to support their currency.

Market Closing Prices Yesterday

·     The S&P 500 Index jumped -86.97 points, or 2.37%, to 3,752.75

·     The Dow Jones Industrial Average rose 748.97 points, or 2.47%, to 31,082.56

·     The Nasdaq Composite surged 244.87 points, or 2.31%, to 10,859.72

·     The Russell 2000 Index advanced 37.85 points, or 2.22% to 1,742.24

Economic Calendar for Today

·     9:45 AM ET            S&P Global Manufacturing Flash PMI, Oct

·     9:45 AM ET            S&P Global Services PMI, Flash PMI, Oct

Earnings Calendar:

·     Earnings Before the Open: BMRC BOH CBU DORM DX HNI KEX SCHN SMBK

·     Earnings After the Close: AAN AGNC AIN ARE BRO CADE CALX CATY CCK CDNS CR DFS EFSC HLX HMST HOPE HSTM HXL IBTX KREF MEDP NWE PCH PKG RBB RRC SSD SUI TBI WASH WRB WSFS XM ZION

World News

·     China releases its delayed economic data, which show GDP grew a better-than-forecast 3.9% in the third quarter vs. est. 3.3%. Chinese Trade Balance showed exports rise for Sept +5.7% y/t vs. expected +4.0% and previous +7.1% and Imports for Sept rise +0.3% y/y vs. est. unchanged

·     Chinese President Xi Jinping cemented his status as China’s most formidable leader since Mao Zedong by extending his term as Communist Party chief into a second decade and declining to elevate a clear potential successor – WSJ

·     South Korea fired warning shots after a North Korean commercial ship crossed the Northern Limit Line, the disputed maritime border between the two countries. South Korean Joint Chiefs of Staff said the vessel retreated to the north of the line after the warning was issued – WSJ

·     Officials reported widespread power outages in Ukraine this weekend after new, major Russian strikes early on Saturday morning on energy infrastructure in several cities across the country. President Zelenskiy said Moscow is deliberately slowing exports of grain from Ukrainian ports.

·     Boris Johnson withdrew from Tory party leadership race Sunday leaving Rishi Sunak set to become PM as early as today; nomination close this afternoon

·     Moody’s affirmed the UK AA3 rating, changed Outlook to negative; also changed BOE O/L to negative: change in UK O/L driven by heightened unpredictability in policy making amid weaker growth prospects and high inflation

Sector News Breakdown

Consumer

·     Tesla (TSLA) cut prices for its China-made cars for the first time this year, as it reduced the starter price of its Model 3 sedan by around 5.3%, and cut the cost of its Model Y by 9%, just days after its third quarter earnings reported echoed the impact of rising production costs

·     Tesla Inc. (TSLA) shares could rebound in three months, after Elon Musk finishes selling stock in the carmaker to fund his purchase of Twitter Inc., Barron’s reported. But if the shares fail to hold around $200 through that sale, the downside risk is immense

·     Melco Resorts (MLCO), Wynn Resorts (WYNN) among casinos down sharply overnight after China’s Xi Jinping’s new leadership team raised fears growth will be sacrificed for ideology-driven policies. Hong Kong stocks tumbled over 6%

Energy, Industrials and Materials

·     BP Plc (BP) which has a cheap relative PE can weather declining fossil fuel production while new businesses could reach $10 billion annually by 2030, according to Barron’s says. Meanwhile, Exxon Mobil Corp. (XOM) is valued for less than eight times its expected earnings, about half that of the broad market and aims to become one of the biggest players in carbon capture

·     CNH Industrial (CNHI) downgraded to Neutral from Buy at Goldman Sachs

·     FedEx (FDX) downgraded to Equal Weight, lowers price target to $160 at Wells Fargo

Financials

·     Money managers such as Janus Henderson Group (JHG) and investment firms including Blue Owl Capital Inc (OWL) are weighing potential offers for Credit Suisse Group AG’s (CS) U.S. asset management unit, people familiar with the matter said on Friday. Other asset managers considering participating in Credit Suisse’s auction process include Ameriprise Financial Inc (AMP) and Invesco Ltd (IVZ) https://reut.rs/3gBJuqN

·     Bank of Hawaii (BOH) Q3 EPS $1.28 vs. est. $1.43; Q3 net interest income (NII) was $141.7M, an increase of 6.6% from the second quarter of 2022 and an increase of 11.7% from the third quarter of 2021.

·     Huntington Bancshares (HBAN) downgraded to Equal Weight from Overweight at Stephens

Healthcare

·     Japan’s Sumitovant Biopharma is acquiring the remaining 48% stake in Myovant Sciences (MYOV) for $1.7B, which it currently does not own to take the London-based women’s health company private https://bit.ly/3gFe7fm

·     Hologic Inc. (HOLX) mentioned positively in Barron’s saying it is a rare pandemic- fav that can parlay the Covid boost into long-term growth. The number of Panther machines, which run PCR tests and other diagnostics, installed worldwide has jumped to about 3,200 from 1,700 before the pandemic, and sales for assays to test for other diseases will pick up as Covid demand drops

·     ViewRay (VRAY) announces primary endpoint outcome from first prospective, multi-institutional study to deliver ablative doses of radiation to pancreatic cancer patients; study’s primary objective of low-grade 3+ toxicity was met

·     Teladoc (TDOC) upgraded to Neutral from Sell at Guggenheim

Technology, Media & Telecom

·     Meta Platforms (META) downgraded to Neutral from Buy at Bank America on lower outlook due to ad budget cuts

·     Shares of U.S. listed China stocks are point to early weakness: BABA, BIDU, JD, MLCO, NTES, XPEV, NIO and the list goes on decline amid China leadership headlines overnight

·     AT&T (T) upgraded to Strong Buy from Outperform at Raymond James

·     ServiceNow (NOW) upgraded to Buy from Neutral at Guggenheim

·     Wolfspeed (WOLF) upgraded to Overweight into investor day at JPMorgan