MARKET WRAPS
Watch For:
Zoom earnings; JPMorgan, Ford investor days; Canada Financial Markets Closed for Victoria Day Holiday
Today's Top Headlines/Must Reads:
- Biden, McCarthy Attempt to Revive Budget Talks as Debt Default Looms
- Bank Runs Trash Long-Held Assumption on Deposits
- Stock Prices of Office Landlords Plummet as Short Sellers Pile In
- Biden Sees Potential Thaw With China After Tough G-7 Statement
- Beijing Bans Micron as Supplier to Big Chinese Firms, Citing National Security
- Meta Fined $1.3 Billion Over Data Transfers to U.S.
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Opening Call:
Stock futures were lower on Monday as government debt-ceiling wrangling continues.
"Broader market sentiment will likely tango to the mood music in Washington as the debt ceiling discussion evolves. President Joe Biden and House Republican Speaker Kevin McCarthy will meet after a reportedly 'productive' phone call on Sunday as the president returned from the G7 summit," SPI Asset Management said.
Also helping to underpin sentiment are hopes for cooling tensions between the U.S. and China, after Biden over the weekend said he expected relations should improve "very shortly."
This may have been counteracted somewhat by news that Beijing had banned Chinese companies from using Micron chips. However, investors appeared sanguine about how this may impact the broader tech sector with China exposure, and Nasdaq futures have recovered an early session dip.
Stocks to Watch
Foot Locker fell 1% in premarket trading. The footwear retailer slashed its earnings and sales guidance for the fiscal year. Williams Trading downgraded the stock to a Sell from Hold with a price target of $25, down from $38, the Fly reported. Nike was also downgraded to Sell from Hold at Williams Trading. Nike was down 1% after falling more than 3% on Friday.
GoHealth confirmed it received a proposal from Centerbridge Partners and NVX Holdings, its two largest shareholders, to acquire all outstanding Class A common stock and LLC interests that those shareholders don't already own. Shares edged down 2% in aftermarket trading.
Meta Platforms suffered a record fine from European regulators of $1.3 billion for sending user information to the U.S.
Micron Technology fell almost 6% in premarket trading after Beijing banned companies involved in China's critical information systems from buying chips from the U.S. chip maker, saying they posed a major national-security risk.
Tanger Factory Outlet Centers' board authorized the repurchase of up to $100 million of the company's outstanding shares. Shares moved up 0.5% in aftermarket trading.
Viasat's proposed acquisition of Inmarsat was approved by the Federal Communications Commission, leaving the European Commission's competition review as the key ongoing regulatory process related to the deal. Shares ticked down 0.6% in after-hours trading.
Economic Insight
The latest G-7 meeting in Japan is likely sending signals of a less aggressive stance toward China by the U.S. and its allies, Jefferies said.
The wording of several joint statements have been "moderate in tone," Jefferies said. "This implies U.S. allies in G7 favor a less aggressive approach to China, to avoid overly or accidentally provoking China and create a war."
This may lead President Biden to adopt a " less confrontational" approach to U.S.-China issues in order to "keep the western coalition together," Jefferies projects, suggesting this could mitigate geopolitical uncertainties for the equities market in China and Hong Kong.
Forex:
The dollar edged lower after Powell didn't push back strongly against market expectations for interest-rate cuts by the end of the year in remarks Friday, MUFG Bank said.
Powell also refrained from giving strong indications for a rate rise at the June meeting, MUFG added.
"The U.S. rate market has since pared back expectations for a hike in June and is now only pricing in around 2 basis points of hikes."
Another dollar setback was a breakdown in debt ceiling talks although that proved short-lived as President Biden said a phone call with House Republican speaker Kevin McCarthy "went well," MUFG said.
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Data on Wednesday are expected to show a sharp fall in U.K. headline inflation in April due to lower energy prices but are unlikely to ease fears over underlying price pressures and that could support sterling, MUFG Bank said.
"If underlying inflation pressures keep alive expectations for the Bank of England to deliver multiple further [interest rate] hikes it will offer support for the pound in the week ahead."
The main "downside risk" for the pound would be if underlying and food price inflation ease alongside an expected slump in energy price inflation, it added.
Bonds:
The recent bond selloff suggests the Fed's June meeting is a "live" one-with the decision open on whether the Fed will raise rates or not, ING said, describing this as an entry opportunity.
"We, and probably a majority in the market, think the outcome will be no hike but the Fed clearly doesn't want to rule anything out," ING added.
Ten-year Treasury yields are at their highest level post-Silicon Valley Bank collapse as regional banking and debt ceiling fears fade into the background, ING said, adding that they would use a selloff to be long bonds.
Energy:
Oil prices slipped for a third trading day in Europe as U.S. debt ceiling talks remained in focus.
President Biden is set to meet with House Speaker Kevin McCarthy later Monday, resuming negotiations to avoid a default which look set to go down to the wire. "They will likely strike a last-minute deal to avoid a catastrophic outcome," Swissquote Bank said.
Supply tightness continues to add upward pressure to prices. Wildfires in Canada continue to pose a threat to Alberta's oil and gas output.
Metals:
Base metals and gold prices were falling in early London trade, pressured by weak demand in China and worries over the global economy.
"Industrial metals have come under significant pressure through the second quarter, with an average 10% decline quarter-to-date," Goldman Sachs said.
China's slower-than-expected recovery from Covid-19 and Western macroeconomic worries have helped pressure prices, GS added.
"Industrial metals are likely to remain pressured until price-related physical responses - either from China import buying or supply cuts - provide a floor to the price."
Thermal-Coal
Thermal-coal prices are likely to fall further, according to Morgan Stanley, who said the commodity's fortunes hinge on Chinese import demand.
"With the gas price weighing on the coal market and China's import demand potentially unable to maintain its recent strength, the question is how low the price could go?"
Seaborne thermal-coal prices have historically found support from the marginal cost of supply--which is currently just under $100 a metric ton--at times of slowing Chinese imports, it added.
That "means downside risk vs our 3Q23 Newcastle price target of $160/ton, " say the analysts, who add that their 4Q forecast of $180/ton also looks "a bit rich" right now.
Lithium
M&A is likely to continue in the lithium industry as producers seek access to certain markets, like the U.S. and Europe, and look to expand their capabilities, Macquarie said.
"Vertical integration could continue given the strong refining capacity growth prospects outside of China," it said, adding that "companies with downstream processing knowledge could be interesting to follow."
Although a recent rebound in lithium prices may weaken the appeal of bolt-on takeovers for some. "We expect acquirers to increasingly favor early-stage developers from a valuation perspective," Macquarie said.
TODAY'S TOP HEADLINES
Meta Fined $1.3 Billion Over Data Transfers to U.S.
Facebook owner Meta Platforms was fined $1.3 billion by European Union privacy regulators for sending user information to the U.S., according to people familiar with the matter, a record for the bloc.
The ruling, expected to be announced later Monday, raises pressure on the U.S. government to complete a deal that would allow Meta and thousands of multinational companies to keep sending such information stateside.
Beijing Bans Micron as Supplier to Big Chinese Firms, Citing National Security
China is banning major Chinese firms from buying from Micron Technology, saying its products pose a major national-security risk. The move caps an investigation that underscores strained relations between Beijing and Washington.
The Cyberspace Administration of China said Sunday its review of Micron products found "significant security risks" that would affect national security and warned operators of key Chinese information infrastructure-such as telecommunications firms and state-owned banks-against purchasing the company's goods.
Applied Materials to Build $4 Billion Chip Research Facility in Silicon Valley
WASHINGTON-Applied Materials said it would invest up to $4 billion in a new California facility to conduct research on tools for making semiconductors, adding to a wave of chip-industry projects in the U.S. spurred on by federal government subsidies.
The Santa Clara, Calif.-based company, a leading maker of machines used to make advanced chips increasingly seen as crucial to modern economies and geopolitical power, will invite chip makers and universities to collaborate and experiment with its equipment at the facility, which is expected to be complete by 2026.
Disney's ABC, ESPN Weakness Adds Pressure to Make Streaming Profitable
Disney's traditional television business has gone from superhero to weak link in just a few short quarters.
Income from its TV networks has dropped faster than expected as the world's largest entertainment company struggles to boost its share price and get its streaming-video business to profitability.
Exxon Joins Hunt for Lithium in Bet on EV Boom
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05-22-23 0619ET
