Junk In The Trunk

CPI inflation for May comes out at 830am. Here are Wall Street estimates:

• GOLDMAN SACHS: 4.2% 

• UBS: 4.1% 

• MORGAN STANLEY: 4% 

• JP MORGAN: 4.2% 

• BARCLAYS: 4% 

• VISA: 4% 

• BLOOMBERG: 4%

• ME: Still too damn high

Market

Prices as of 4 pm EST, 6/12/23

Macro

The US government spent more than it earned in May…by a lot.

• Revenues fell 21% YoY to $307 billion while outlays–led by Medicare spending–rose 20% to $548 billion.

• The resulting $240 billion budget deficit for the month was more than double the deficit in May 2022.

• For the fiscal year, the gap has widened to $1.16 trillion, a 191% jump from a year ago.

This year has already seen more debt defaults in the US junk loan market (in number and total value) than all of 2021 and 2022…combined.

• A rapid rise in interest rates over the past year has left junk-rated companies–many of which had loaded up on leveraged loans at floating rates–facing higher interest payments as slowing economic growth caps earnings.

• Last month alone saw $7.8 billion in defaults, the highest since the pandemic.

• Looking ahead, more defaults are expected as the Fed keeps interest rates higher for longer.

Consumers are becoming more optimistic about inflation.

• The NY Fed’s Survey of Consumer Expectations for May revealed short-term (1-year ahead) inflation expectations dropped to the lowest since May 2021 at 4.1%.

• Medium- (3-year) and long-term (5-year) expectations, on the other hand, ticked up by 0.1% each to 3% and 2.7%, respectively.

• The survey also showed consumers are less optimistic about wages with one-year expected earnings falling to 2.8% from 3%.

• Meanwhile, their expected odds of being laid off dropped by 1.3% to the lowest since April 2022.

Stocks

Shares of Tesla advanced for the 12th straight day yesterday, marking the stock’s longest daily winning streak ever.

• Driving the gains were announcements from three charge makers–ChargePoint, EVgo, and Blink Charging–who say they will adopt the EV maker’s charging technology.

• This comes after GM and Ford recently agreed to embrace Tesla’s North American Charging Standard (NACS).

• However, according to industry body CharIN–which promotes the Combined Charging System (CCS) standard–Tesla’s charging model is not yet a standard because it doesn’t provide an open charging ecosystem for the industry.

A pair of index-outperforming sectors are poised for continued gains, according to analysts.

• Still well below their pre-pandemic highs, cruise line stocks are gaining momentum.

  • Analysts from BofA and JPMorgan point to pent-up demand and strong bookings across the cruise industry coupled with low cancellations as reasons for continued outperformance among cruise operators.

• Among the year’s leaders, homebuilder stocks are also expected to build on their strong YTD performance.

  • Analysts at Citigroup cite strong buyer demand, stable home prices, tight inventories, and a potential pause in rate hikes as catalysts for the group.

The S&P 500 and Nasdaq closed at their highest levels since April 2022 yesterday.

• The rally is forcing investors off the sidelines, lest they miss out (aka FOMO is kicking in).

• According to Deutsche Bank, positioning among discretionary investors has emerged into overweight territory for the first time in more than 16 months.

• The same can be said for consolidated equity positioning which is now in the 54th percentile.

• Pair that with increasingly bullish investor sentiment and “risk-on” has been activated across many corners of the market.

Goldman Sachs

Energy

Oil traders are still ignoring Saudi Arabia’s production cuts.

• Front-month Brent futures fell yesterday to their lowest since December 2021 as better-than-expected production and weak demand weigh on prices.

• Prices for WTI crude are down ~11% since the end of March (just before OPEC’s surprise production cut).

• Meanwhile, the EIA predicts US oil output will reach a new record in July, rising to 9.38 million barrels per day.

John Kemp

Earnings

Yesterday’s highlights:

Oracle ORCL: $1.67 EPS (vs. $1.58 expected), $13.84 billion in sales (vs. $13.74B expected).

• The company offered quarterly revenue guidance above analysts’ expectations but fell short of their consensus for earnings.

• Board chairman and CTO Larry Ellison said Oracle would introduce a generative AI cloud service–similar to Microsoft’s Azure OpenAI Service–in partnership with startup Cohere.

What we’re watching today:

• Burford Capital BUR

• Top Headlines

• Survey says: BofA’s latest Global Fund Manager Survey reveals long Big Tech is by far the most crowded trade.

• Next-gen: Shares of Toyota popped after the company announced plans to introduce a full lineup of EVs with next-generation batteries.

• Google ads: EU antitrust regulators are exploring a breakup of Google’s ad-tech business as part of a new antitrust complaint.

• ESG talk: The number of SPX companies mentioning “ESG” on earnings calls has reached its lowest point since Q2 2020.

• Cardboard indicator: Shipments of empty boxes fell 11% YoY in March, pointing to a slowdown in consumer spending.

• JPM settles: JPMorgan agreed to a $290 million settlement with Jeffrey Epstein victims.

• Growth concerns: China’s central bank surprised markets by cutting a short-term policy interest rate.

• BoE pressure: A surprise jump in UK wage growth and employment puts pressure on the Bank of England to raise interest rates to battle inflation.

Crypto

Prices as of 4 pm EST, 6/12/23

• Dwindling: Binance.US’ market share has plummeted to 5% from 20% in April.

• Delisting: Investing platform eToro will delist 4 major cryptocurrencies for US users next month in response to recent SEC actions against Coinbase and Binance.

• Client distributions: BlockFi is planning to enable customer withdrawals this summer.

• Volumes: Crypto trading volumes on Robinhood were down 43% MoM and 68% YoY in May.

• Tokenized T-bills: Finblox is partnering with OpenEden to bring tokenized US Treasury bills to emerging markets in Southeast Asia.

Deals

• Biotech: Novartis has agreed to acquire US biotech firm Chinook Therapeutics for up to $3.5 billion.

• MSFT x ATVI: The FTC will seek to block Microsoft’s $68.7 billion acquisition of Activision Blizzard.

• O&G M&A: NextTier Oilfield Solutions and Patterson-UTI Energy are in talks for a potential merger.

• Anchor investor: SoftBank is in talks with Intel and others to anchor its upcoming $10 billion Arm IPO.

• Agriculture: Bunge and Viterra closed their $18 billion merger, creating one of the world’s biggest agriculture trading firms.

Meme Of The Day