May 20th 2021: Market Overview; Pre Opening Bell #31

Everything you need to know to get your day started on the market

Mr. Buyside

May 20, 2021

Equity Markets

US Equity Market

S&P 500 declined 0.3% on Wednesday, although it was down as much as 1.6% in early action and spent most of the session trying rise from its lows
S&P broke its 50dma before just about holding it courtesy of a squeeze into the close
Nasdaq Composite (-0.03%) closed relatively unchanged after being down 1.7% intraday.
Dow Jones Industrial Average (-0.5%) and Russell 2000 (-0.8%) underperformed but also closed off intraday lows.
The weak start was not driven by any specific news, although some pointed to the huge sell-off in the cryptocurrency market as a reminder that it might be a good idea to take some profits for stocks that are still up big this year. Familiar concerns surrounding inflation, valuations, and peak growth were recounted in the early part of the session as investors de-risked.
Profit-taking efforts were mainly concentrated in the S&P 500 energy (-2.5%), materials (-1.5%), financials (-0.6%), and industrials (-0.6%) sectors. The information technology (+0.3%) and communication services (+0.1%) sectors, however, sneaked their way into positive territory on a closing basis. The Philadelphia Semiconductor Index rose 2.0%.
The turnaround in the information technology sector, which was down 1.7% intraday, helped improve risk sentiment, which was further aided by an appreciation that the S&P 500 reclaimed its 50-day moving average (4081) after slipping below it in the morning.
Later in the day, the FOMC Minutes from the April meeting revealed that some participants thought it might be appropriate to start talking about tapering asset purchases in future meetings if the economy continues to make rapid progress towards the Fed's goals on employment and inflation.
The stock market's reaction to this FOMC passage was rather calm, arguably due to a view that it might have been more surprising to see no mention of the need to start talking about tapering asset purchases. Longer-dated Treasury yields moved higher following the Minutes.
S&P futures -16 or -0.4%, vs prior close

European Equity Markets higher

European equity markets higher, which follows a mixed Asian equities session.
Coronavirus news in Europe remains encouraging: in the UK, worries over Indian variants have eased somewhat after UK PM Johnson said he is increasingly optimistic final stage of reopening can go ahead as planned on 21-Jun. Early data suggests Indian variant was not spreading as fast as previously feared. EU agreed to open borders to vaccinated foreigners on Wednesday, as expected
Outperformers: Technology +1.29%, Financial Svcs +1.22%, Ind Goods & Svcs +1.15%, Media +0.82%, Construct & Mtls +0.80%, Persnl & HHold Goods +0.79%, Real Estate+0.78%, Chemicals +0.76%, Health Care +0.73%
Underperformers: Insurance (0.04%), Oil & Gas +0.30%, Utilities +0.31%, Basic Resources +0.35%, Banks +0.44%, Retail +0.46%, Travel & Leisure +0.54%, Food & Beverage +0.61%, Telecom +0.69%, Autos & Parts +0.71

Asia Equity Markets mixed

Asian equites mixed Thursday.
Markets off lows though ASX the only major market in positive territory.
Hang Seng the laggard while mainland China and Japan markets little changed.
Major narrative continues to revolve around perceptions of higher inflation risks, including from supply chain and input cost pressures April FOMC minutes showed a several participants suggested it would be appropriate to begin discussing tapering in upcoming meetings.
Volatility elevated outside of equities with broader crypto space and commodities impacted by latest hawkish regulatory comments out of China.
Japan exports rose at the fastest pace since 2010, manufacturer sentiment hits highest in more than two years (Reuters)
Taiwan to curb water usage in chip-producing hubs (Reuters)

News Stories Moving the Markets

Chip crisis in danger zone as wait times reach new record Bloomberg
PayPal faces risk of enforcement action from Australian financial crimes regulator - The Australian
- The Australian reports that Austrac has started a detailed investigation as it scours an independent report into hundreds of millions of potential breaches of the law, after Paypal appointed Ernst & Young as independent auditor to submit four interim reports to Austrac last year
- According to the article, the interim reports are understood to have raised some alarm bells at Austrac which is considering what enforcement action to take
- Sources tell the paper that PayPal's reports were lodged with Austrac's regulatory operations division, and also dispatched by the company to the banking regulator and Australian Securities and Investments Commission
- In a statement, Paypal said that it cannot estimate the potential impact, if any, on its business or financial statements at this time, however in the event an adverse outcome arises from any associated enforcement, proceeding, or other further matter initiated by Austrac, this could result in enforceable undertakings, injunctions, damage awards, fines or penalties, or require the company to change its business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm the company's business
Ford Motor, SK Innovation to announce EV battery JV - Reuters
- People familiar with the matter say an MoU will be announced on 20-May. A jointly-owned plant may be set up to make rechargeable EV batteries
Waymo talking to outside investors about raising as much as $4B in additional capital - Bloomberg
- Citing people familiar with the plans, the article reports that Waymo has discussed plans to eventually list publicly, spinning out from its parent Alphabet
- The article notes that since February Waymo has lost six key executives in rapid succession, and the sources say that outgoing CEO John Krafcik had telegraphed his departure to some although it surprised many at Waymo and others at Alphabet
COIN (Coinbase Global): Priced $1.25B offering of 0.50% convertible senior notes due 2026. Bitcoin and other cryptocurrencies also notably lower yesterday.

Earnings Calendar

Overnight

JD.com Q1 Earnings

Revenue CNY203.18B vs Consensus CNY192.53B

Q1 adj EPS CNY2.47 vs Consensus CNY2.17

CSCO Cisco Systems Q3 Earnings

3Q rev $12.80B above CONS $12.57B
EPS of $0.83 above CONS $0.82
4Q guidance:
- Rev +6- 8% above CONS +5.7%
- EPS $0.81-0.83 below CONS $0.85
- Gross margin 64-65% below consensus 65.9%, op margin 32-33% below consensus 34.3%

This morning

No notable earnings this morning

Today

Notable After-Hours Market Movements

Positive Movements

+11.3% ONCT (Oncternal Therapeutics) -- trial data

Negative Movements

-5.6% CSCO (Cisco Systems) -- earnings

Notable Analyst Upgrades/Downgrades

Initiations

No notable initiation reports

Upgrades

CRM (Salesforce): Upgraded to overweight from equal-weight at Morgan Stanley, target $270.
ADI (Analog Devices) -- to outperform from market perform at Bernstein
CMG (Chipotle Mexican Grill) -- to buy from neutral at UBS

Downgrades

No notable downgrades

Economic News

FOMC Minutes Summary
- Talking about talking about tapering:
  - A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.
- A general sense inflationary pressures may be transitory...:
  - Participants also noted that the expected surge in demand as the economy reopens further, along with some transitory supply chain bottlenecks, would contribute to PCE price inflation temporarily running somewhat above 2 percent. After the transitory effects of these factors fade, participants generally expected measured inflation to ease.
- ...and inflation expectations remained well anchored:
  - Despite the expected short-run fluctuations in measured inflation, many participants commented that various measures of longer-term inflation expectations remained well anchored at levels broadly consistent with achieving the Committee's longer-run goals.
- Even with March acceleration, the economy remains far from the Fed's goals:
  - [T]he acceleration in economic activity reflected positive developments associated with the rapid pace of vaccinations as well as continued support from fiscal and monetary policies. Nevertheless, participants generally noted that the economy remained far from the Committee's maximum-employment and price-stability goals.
- Labor-market pressures from the pandemic may persist:
  - Many participants also remarked that business contacts in their Districts reported having trouble hiring workers, likely reflecting factors such as early retirements, health concerns, childcare responsibilities, and expanded unemployment insurance benefits.... Some of these factors were seen as likely to remain significant while pandemic-related risks persisted.
- But a warning about the Fed possibly underestimating inflation:
  - [A] couple of participants commented on the risks of inflation pressures building up to unwelcome levels before they become sufficiently evident to induce a policy reaction.

US Jobless Claims for w/e 15-May 444K vs. consensus 451

Europe

UK May CBI Industrial Trend Orders 17 vs consensus 0 and prior (8)
Germany April PPI y/y +5.2% vs consensus +5.1% and prior +3.7%

Asia

Japan

April trade balance ¥255.3B vs consensus ¥147.7B and revised ¥662.2B in prior month
- Exports +38.0% y/y vs consensus +30.8% and +16.1% in prior month
- Imports +12.8% y/y vs consensus +9.0% and +5.8% in prior month

March core machinery orders +3.7% m/m vs consensus +5.0% and (8.5%) in prior month
- Q2 survey projection +2.5% vs (5.3%) in prior quarter

Australia

April employment (30.6K) m/m vs consensus +20.0K and +70.7K in March
- Unemployment rate 5.5% vs consensus 5.6% and 5.6% in March
- Participation rate 66.0% vs consensus 66.3% and 66.3% in March