Stocks rise with regional banks while Dollar dips on weak survey data

Snapshot

: Equities up, Treasuries down, Crude up, Dollar down.

REAR VIEW

Survey: NY Fed Manufacturing Industry. McCarthy is pessimistic about the debt ceiling. Gensler says SEC will not consider a ban on stock short-selling. EU approves MSFT's acquisition of ATVI. Heavy corporate issuance slate. NEM to acquire Newcrest, OKE to acquire MMP. US to buy 3mln bbls of oil for SPR. Survey; Lots of Fed Speak. McCarthy is pessimistic about the debt ceiling. Gensler claims that SEC will not consider a ban on stock short-selling. EU approves MSFT's acquisition of ATVI. Heavy corporate issuance schedule. NEM to purchase Newcrest. OKE to purchase MMP. US to buy 3mln barrels of oil for SPR.

Coming Soon

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The following are some of the most effective ways to reduce your risk.

: Chinese Retail Sales, UK Unemployment, EZ Employment/GDP Flash Estimate, German ZEW, US Retail Sales, Industrial Production

Speakers

Williams, Mester Barr, Logan, Bostic; Lagarde, ECB

Earnings

Euronext; Imperial Brands, Home Depot.

PREVIEW OF THE WEEK Ahead

Highlights: US retail sales; China activity data; Japan CPI; and jobs data for the UK and Australia. Download the report.

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CENTRAL BANKS - WEEKLY

Reviewing BoE, BoJ and Riksbank Minutes. Download the report.

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Estimates of US Earnings Weekly

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MARKET WRAP

Risk assets were bid up Monday by a short squeeze on US regional banks (RUT >NDX >SPX), despite the lack of new catalysts in the sector. Stocks rose, supporting broader risk assets like oil and activity currencies. The DXY fell on the day. Treasuries fell on the back of corporate issuance, and inflation concerns (uni of Michigan Friday and lack progress in prices according to Empire State survey). The Empire State Manufacturing data was a bearish sign for the economy. The latest survey was pessimistic, and Speaker McCarthy warned of the wide gap between the parties. The Fed's slew was net hawkish as well, with Goolsbee's cautious remarks being offset by the hawkish Bostic, Kashkari, and Kashkari statements. Bostic, however, did later say that if he were to vote, he would choose a pause, but there are still a lot more data to be released. Fed pricing is hovering between 10% and 20% implied for an increase in June.

US

EMPIRE STATE

The NY Fed's manufacturing survey showed a sharp fall in business activity for May. The NY Fed's manufacturing survey showed a dramatic drop in business activity during May. The headline index, which is not a sub-index but its own question, plummeted to -31.8, from +10.8 in April. This was well below the expected decline of -3.75 and the second lowest post-COVID reading after January's 32.9. It is a volatile survey, and April's jump to a positive reading was always tempered with the knowledge of the manufacturing sector's malaise. In the same vein, both new orders (-31.8, compared to prior +25.1), and shipments (16.4, compared to prior +23.9) reversed April's spike, while unfilled order, delivery time, and inventory all decreased, which is a positive sign for supply chain recovery, but not new information. Inflationary trends were also unchanged, with both prices received and paid remaining in the positive zone. Both employment and hours of work on the labour market have been declining for four consecutive months. The NY survey was hotter than other regionals recently in this area. The future business conditions index climbed to 9.8, indicating a marginal improvement. New orders, shipments and employment will also improve.

DEBT CEILING

The US Treasury said on Friday that it had USD 88bln of extraordinary measures available under its 34.1trln limit. This figure was down from USD 110bln the week before. Biden's meeting with Congressional leaders last week failed to resolve the impasse. However, Biden will be holding further talks on Tuesday and he remains optimistic about talks. Biden stated that the talks are progressing and we will learn more in the coming days. Adeyemo, Deputy Treasury Secretary, said that the ongoing debt ceiling negotiations are constructive for all parties. McCarthy, House Speaker, did not share this optimism on Monday and said he was not confident of a deal being reached by the end of the week. He believes that a deal is necessary to pass a bill in Congress, which would prevent a default. Washington Post reported on the weekend that the markets do not expect a US default. However, some companies have prepared by selling short term Treasury bills and corporate bond maturing around the 1st of June, when the government may run out cash. They are also buying money market funds, even though they offer a lower rate, to cover payroll.

FED

Goolsbee

Speaking to CNBC he was once again cautious. He warned that the effects of rate increases are still in the future and we should be monitoring more data than usual. He doesn't feel that we are in the same crisis as 2008, but he does think there is some stress in certain parts of the financial industry. He noted the impact of banking stress on the GDP is not insignificant and we should take it into consideration and keep an eye on it. Goolsbee said the Fed needs to be extra careful, as they are trying to bring inflation back on track without causing a recession. He's trying to determine where we are on the business cycle which is unlike any other. In the meantime, regarding the rate hike in May, he said it was close due to the question marks about credit conditions.

Kashkari

Speaking at an industry conference, said that inflation was much higher than it should be, but is starting to fall. The Fed still has work to do, and warns that we shouldn't be fooled just by a few good months of data. He said that the labour market was not as frothy nine months ago but it is still strong in general.

Bostic

The Fed could have to raise rates, but the current situation is where the dot of his dot plots appears. Bostic said that the best policy was to wait and watch the effects of tightening. He warned there is a risk of recession, but it would not be long or deep. In a Bloomberg interview, he added that he doesn't rule out rate hikes but if he voted now for June, it would be a hold. The committee is still deciding what to do because there are many data points to come. He expects inflation to be in the "high threes" by the end of the year and that it would have to fall more rapidly to even consider a cut. He expects the inflation rate to decline steadily, but not rapidly.

Barkin (2024 voter)

He told the FT that he does not see any barrier to raising rates if inflation continues or accelerates. Policymakers must be aware of financial stability risks but they should not override their fight against inflation. Barkin stated that he would support a steady rate path that would reduce the impact of any over-correction. However, he did not believe that a higher rate would pose a threat to financial stability. He also does not think it necessary to make a change in decision because of financial stability concerns. He didn't give a preference to June due to the lack of data and uncertainty surrounding bank credit and debt ceiling. However, he told Reuters that he was very comfortable with a data dependent approach even though he wasn't yet convinced inflation would be on a downward path.

Fixed Income

T-NOTE (M3) FURNITURES SETTLED DOWN 6+ TICKS AT 115-07+

Treasuries fell sharply on Monday due to a heavy corporate supply, and stagflationary data.

2s -0.2bps @ 4.002%; 3s +0.0bps @ 3.669%; 5s +1.1bps @ 3.462%; 7s +2.4bps@ 3.479%; 10s (+3.7bps@ 3.500%); 20s (+5.6bps@ 3.922%); 30s+5.8bps@ 3.835%.

Inflation breakevens

5yr BEI -0.8bps, 10yr BEI -1.5bps, 30yr BEI -0.6bps, 2.255%.

TOKYO/LONDON

T-Notes were traded extremely tightly during APAC trading on Monday. The rise in UoM expectations for inflation that occurred Friday capped any recovery above 115-15. Asia risk assets have been boosted by PBoC's liquidity support, and the initiation China-Hong Kong Swap Connect programme. Both are seen as opening up access to foreign investors. Europe hit the bid upon arrival in govvies with 11508+ as support for the NY handover.

NEW YORK

The Pfizer deal chatter on Tuesday was accompanied by a slew of announcements for Monday (13 IG & 2 SSA). T-Notes printed lows of 115-05, and the cash 10yr yield flirted back above 3.50%, amid rate lock-related hedging flows (Tsy selling/swap paying). The Pfizer chatter on Tuesday was accompanied with a slew announcements (13 IG and 2 SSA). T-Notes printed lows of 115-5, while the cash 10-yr yield was flirting above 3.50% amid rate lock related hedging flows. The Empire State Manufacturing tumble caused a spike in price. Survey, but contracts quickly pared back to their lows (115-55) amid heavy corporate supply and lack of progress in survey's sub-indices of prices paid or received, adding to'stickyflation" woes caused by Friday's surge in consumer inflation expectations. (Uni. of Michigan). The contracts remained near the lows until settlement. However, the front end of the market was slightly supported in the afternoon hours of NY despite the hawkish comments from Fed's Bostic & Kashkari.

This Week's Supply

US will sell USD 15bln 20yr bonds to settle May 31st. They will also sell USD15bln 10yr TIPS to close on May 18th to settle May 31st.

This Week's Calendar

(Tuesday) Chinese retail sales (and IP), UK employment (and GDP), EZ CPI, German ZEW (final), US Housing Starts, 20yr Auction; (Wednesday) Japanese GDP (final), Australian wage/price Index (final), US Housing Starts, 20yr Auction; (Thursday) Japanese Trade Balance, Australian Labour Report, Philly Fed Manufacturing. IJC survey, existing home sales auction, 10yr TIPS, Banxico. (Fri), G7 Summit, SARB, Japanese CPI. Williams and Powell at Fed conference.

STIRS

:

SR3H3 flat at 95.058, M3 -1.5bps at 94.91, U3 -1bps at 95.215, Z3 flat at 95.515, Z3 -0.5bps at 95.67, H4 flat at 96.21, M4 +0.5bps at 96.66, U4 +0.5bps at 96.955, Z4 +1bps at 97.125, H5 +1.5bps at 97.21, H6 +0.5bps at 97.21.

Volumes fall from USD 1.410tln to USD 1.372tln, a 5% drop.

Demand for NY Fed RRP Ops at USD 2.221tln. (prev. Prior. 100).

US EFFR is flat at 5.08% while volumes are at record highs of USD 124bln (since 2016 data was available), indicating a strong unsecured financing market.

US sold USD 64bln in 3-month bills, at a rate of 5.060%. The bills were covered by 2.79x. USD 58bln was sold as 6-month bills, at a rate of 4.980%.

CRUDE

WTI (M3) SETTLED $1.07 HIGHER, AT 71.11/BBL. BRENT N3 SETTLED $1.06 HIGHER, AT 75.23/BBL

The oil price rose throughout the session Monday as a result of a broader risk appetite and Dollar weakness. Iraqi supply was also a positive factor.

Prices ended just below their highs. Prices rose gradually throughout the session. They tracked the risk sentiment and were largely driven by regional banks, which led the recovery of stocks, while the Dollar was underperformed. Reuters reports that the flow of crude oil from northern Iraq to Turkey's Ceyhan Port has not resumed after Iraq's request. Operators at Ceyhan have yet to receive the instructions necessary to prepare for a restart, since Turkey halted Iraqi's 450k BPD north exports on the 25th March. Separately Reuters reported that Russian seaborne crude oil exports fell 5% M/M to 11.383mlnT in April, with traders citing an approaching refinery maintenance window and increasing domestic demand.

EQUITIES

CLOSES

: SPX +0.3% at 4136, NDX +0.55% at 13,414, DJIA +0.14% at 33,349, RUT +1.19% at 1,762.

SECTORS

Communication Services – 0.03%; Health Care – 0.16%; Real Estate – 0.24%; Consumer Staples – 0.27%. Utilities -12.4%.

EUROPEAN CLOSES

: Euro Stoxx 50 -0.03% at 4,316, FTSE 100 +0.30% at 7,777, DAX 40 +0.02% at 15,917, CAC 40 +0.05% at 7,418, FTSE MIB -0.37% at 27,245, IBEX 35 -0.35% at 9,201, SMI +0.13% at 11,580.

M&A

:

Newmont (NEM),

Has agreed to acquire Australian competitor

Newcrest (NCMGY).

The gold mining industry's biggest deal ever, at USD 19,2bln.

ONEOK (OKE),

It is possible to acquire

Magellan Midstream (MMP)

In a cash-and-stock deal valued at approximately USD 18,8bln, including assumed debt.

Western Digital (WDC),

Kioxia, a Japanese company, and the No. 2 flash memory maker in the world are intensifying merger talks. A slumping market for flash memory is putting fresh pressure on both companies to consolidate. The No. 2 and No. 4 players in the world are intensifying merger talks. A slumping flash memory market is putting fresh pressure on them to consolidate. Reports said that the combined entity would have 4 players. Western Digital, Kioxia and existing shareholders will own 37% of it.

TPG (TPG),

Angelo Gordon to be acquired in USD 2.7bn cash and equity deal.

NeoGames (NGMS),

Aristocrat Leisure will buy the property for USD 29.50/shr, or approximately USD 1.2 billion. NGMS closed at USD 12.84/shr on Friday.

Heico (HEI)

Wencor Group will be purchased for USD 1.9bln cash and USD 150mln stock.

STOCK SPECIFICS

The EU's antitrust regulators have cleared the

Microsoft's (MSFT)

Acquisition of

Activision Blizzard (ATVI)

The remedies also address the concerns about competition in the cloud gaming industry. The UK CMA is still standing by its decision to reject the Microsoft/Activision merger.

Charles Schwab (SCHW)

Raymond James upgraded the stock; Schwab's core business is strong and could lead to a 30% gain in the stock. Engaged Capital, an activist investor, has acquired a 6.6% stake.

Shake Shack

, including swaps and is planning a proxy battle for three board positions. FDA advisers recommended

Sarepta Therapeutics SRPT

Be granted accelerated approval of its first-of -its-kind DMD gene therapy.

Amazon (AMZN).

Has transformed its logistic network to increase profits and speed up delivery. It has reduced package travel distances and improved inventory management.

SoFi Technologies (SOFI).

Wedbush downgraded the stock; they said that SoFi's revenue may be at a turning point, and it could need to raise capital to support its growth this year. Elliott Investments recommends a renewed focus on leadership, operations and strategy changes.

NRG Energy (NRG)

Castlelake has reached a purchase agreement with up to USD 4bln worth of consumer installment loan originated on

Upstart's (UPST)

platform.

C3.ai (AI)

The Q4 revenue forecast and non-GAAP operating loss view exceeded Wall Street expectations.

Natera (NTRA)

The jury ruled in favor of the company, finding that all patents asserted were valid and Archerdx/Invitae had violated them. It was awarded USD 19,35mln for past damages including royalties and losses. Lennox (LII), a company that produces industrial products, increased its quarterly dividend.

Lattice Semiconductor Corporation (LSCC)

According to a SEC filing, the company is aiming for annual revenue growth between 15-20% in the next three to four years.

US FX WRAP

The Dollar

The dollar was down on Monday, following a disappointing NY Fed Manufacturing Survey and a better risk environment in the afternoon. Debt limit talks are still in limbo, with McCarthy unsatisfied despite the optimism of the White House at the weekend. JPM conducted a survey of clients on the impact of a technical default in the US. The results showed a consensus that the Dollar will depreciate compared to safe-haven currencies. "78% respondents expect the USD to weaken by an average 2.6% against the JPY or the CHF". The Euro is expected to be the most underperformed currency by clients. "72% respondents expect USD to fall relative to EUR on average 1.7%". The USD is expected to outperform EMFX by a modest margin. "62% respondents expect the dollar to gain relative to emerging market currencies by an average 0.2%".

The Euro

The weaker dollar helped EUR/USD trade between 1,0846 and 1,0890, but it failed to rise above the 1.09 mark. This may have been due to a weak industrial output print in March. On Tuesday, the focus will be on the Q1 GDP estimates and the German ZEW report for May. In the US, the retail sales figures are due along with more discussions between congressional leaders about the debt ceiling.

The Yen

The yen was weaker against the dollar after wholesale inflation data for Japan in April slowed again. Analysts consider this a leading indicator to consumer price trends. However, BoJ Governor Ueda stated that they would keep their ultra-easy policies unless the increase in CPI was due to a robust domestic demand and higher wage growth. Japan PM Kishida has ordered the Japanese government to evaluate whether recent wage increases are sustainable. USD/JPY tested overnight lows at 135.61, but failed to hold. It then returned above 136.

The CHF

gained vs the Dollar and marginally gained vs the Euro despite weakness in the Yen, but gold prices saw marginal upside. Looking ahead, Rabobank have lowered their EUR/CHF forecast to 0.97 on a 1-3mth view and to 0.96 by year-end. The desk writes, "Traditionally, the CHF has also behaved as a safe-haven. Although this role may have suffered some damage due to the recent issues in the Swiss banking industry, we expect the CHF to strengthen vs. the EUR in the second half of the year based on our view that the Eurozone economy is likely to stagnate and that there is a lot of positive news baked into the value of the single currency."

Cyclical currencies

The weaker Dollar, and the gains in equity markets, were generally supportive. AUD and NZD were the best performers, with the Aussie outperforming the Kiwi. The AUD/USD pair rose from the lows of 0.6642 to a high of 0.6708, before returning back to the 0.67 round handle as attention is focused on Tuesday's RBA minutes. NZD/USD rose from lows at 0.6186 up to highs at 0.6239, and then remained near the highs until the APAC session began. However, both Kiwis and Aussies will be watching the China economic data on Tuesday. GBP gained against both the Dollar as well as the Euro, with the pound being supported by gains in the equity markets. Pill, the Chief Economist at the BoE, commented on the BoE's performance. He said that he believes the BoE is doing enough, but it is important to monitor risks. CAD was also up, boosted by both the improved risk environment and the higher oil prices. The BoC's financial stability review showed that the bank had confidence in its system at its highest level since 2018. It also noted that the risk of an shock to the Canadian financial system was reduced since the previous survey.

Scandis

Bunge of the Riksbank noted that while it's good to see inflation falling, it still has a long way to go until it reaches 2%. They are not yet at a turning-point in inflation.

EMFX

The results were mixed. BRL, MXN, and COP all gained in LatAm. CLP, however, was down and USD/CLP reached a 3-month high. This is after Chile's Central Bank left its rates at 11.25 percent unchanged on Friday. COP gained on the back of the rise in crude oil prices, while BRL strengthened after Brazil Mines and Energy minister Silveira stated that reversing Eletrobras' (ELET3 SA), privatisation was not on the agenda. The latest Banxico survey shows that 12/15 analysts expect rates to remain unchanged on Thursday. However, three others predict a 25bp increase. The Turkish Lira is weaker against the Dollar after the Sunday election, which was deemed to be too close to call. It will probably go to a second round in two weeks. Anadolu, the state-owned news agency, has Erdogan with 49% of the vote and Kilicdaroglu with 45%. ZAR has seen impressive gains after Bloomberg reported that US sanctions are unlikely in the Russian arms dispute.