EM To Overtake US Market By 2030

It’s been an amazing first half of the year for the NASDAQ. The NASDAQ 100 index is on track for best first half to a year ever.

Can the run continue?

Market

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

Macro

Vladimir Putin had quite the weekend.

• On Friday, Yevgeny Prizogozhin, the leader of Russia’s private militia, released a video accusing Russia—among other things—of deliberately attacking his forces, known as Wagner Group.

• He also warned Putin that “25,000 of us” were marching on Moscow to “sort things out”, aka a mutiny was underway.

• After 24 hours of confusion and uprising, Putin struck a deal at the eleventh hour and avoided an attack.

• The rebellion represents the biggest challenge to Putin’s power in his nearly 25 years as Russia’s president.

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For the first time since 2021, residential investment is projected to make a positive contribution to GDP in Q2.

• With new construction activity at its highest in more than a year, the 8-quarter contraction in residential investment appears to be over.

• The rise in activity is attributed to declining material costs, improving logistics, and limited availability of existing homes.

• Still posing risks, however, are rising interest rates and the possibility of a decline in construction as backlogs ease.

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Business activity in the US grew at its slowest pace in 3 months in June.

• S&P Global’s flash purchasing managers index was mixed with services remaining strong while manufacturing contracted further.

• The latter fell to its lowest level of the year.

• Global surveys of manufacturing purchasing managers revealed a similar trend with factory activity declining as the effects of central banks’ tightening slow economic growth.

@macro84

Stocks

Instability and higher rates are making it more expensive for small banks to hold on to depositors.

• As a result, Treasury Secretary Janet Yellen says she expects more consolidation in the sector.

• That means we could see a rise in bank mergers this year, especially among smaller players.

• The catalyst may be upcoming bank earnings, which are expected to be weak, particularly for those with heavy exposure to office building loans.

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Corporate defaults in the US have totaled 41 this year.

• That’s more than twice as many defaults as in the same period last year.

• Low-rated companies are still finding ways to borrow money, however.

• So far this year, 62% of junk bonds issued by companies have been secured—i.e., fully collateralized—the highest percentage since at least 2005.

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Goldman Sachs expects emerging market stock capitalization to become larger than that of the US by 2030.

• The bank predicts EM’s share of the global equity market will rise to 35% in 2030, 47% in 2050, and 55% in 2075.

• The current share is ~27%.

• The United States’ share, meanwhile, is expected to decline from 42% in 2022 to 35% in 2030, 27% in 2050, and just 22% in 2075.

Goldman Sachs

Energy

US oil & gas activity has fallen to a standstill.

• A Dallas Fed survey of ~150 US O&G companies posted a zero for business activity growth in Q2.

• That’s the lowest since 2020 (chart).

• Data on Friday also showed rig counts in the US dropped for the 8th consecutive week.

Financial Times

Earnings

Friday’s highlights:

CarMax KMX: $1.44 EPS (vs. $0.79 expected), $7.69 billion in sales (vs. $7.49B expected).

• Despite a 17% YoY drop in revenue, the used-car seller topped estimates thanks to cost-saving measures like pausing buybacks, lowering headcounts, and cutting ad spend.

• Selling, general and administrative (SG&A) expenses fell 5.7% and have posted YoY declines in back-to-back quarters.

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What we’re watching today:

• Carnival CCL

Top Headlines

• Bearish talk: Wall Street’s biggest bear, Mike Wilson, says stock risks have rarely been higher.

• Bullish actions: Investors, meanwhile, are buying more bullish call options on chip stocks than ever before.

• Oil demand: OPEC predicts global oil demand will reach 110 million bpd by 2045, a 23% increase in the world’s energy demand.

• Job cuts: Goldman Sachs is cutting approximately 125 managing directors worldwide as part of a cost-saving initiative.

• Last mile: Amazon is launching a local business delivery network across the US to deliver its packages.

• Google games: YouTube is internally testing a new product called Playables that would let users play and share online games.

• Weak consumer spending: China’s recovery is losing momentum as consumers spend less on travel, cars, and homes.

• Panama Canal: A severe drought at the Panama Canal is jeopardizing a shipping route through which 40% of all US container traffic flows.

Week Ahead

• Monday: Dallas Fed Manufacturing Index

• Tuesday: Durable goods orders, Redbook, S&P/Case-Shiller Home Price Index, FHFA House Price Index, CB Consumer Confidence, New home sales, Richmond Fed Manufacturing Index, Dallas Fed Services Index

• Wednesday: Goods trade balance, Retail inventories, Wholesale inventories, EIA crude oil inventories, Bank stress test

  • Fed talk: Powell

• Thursday: GDP Price Index, GDP Deflator, Initial jobless claims, Pending home sales, EIA natural gas inventories

  • Fed talk: Powell, Bostic

• Friday: Personal income/spending, PCE prices, Chicago PMI, University of Michigan Consumer Sentiment

Crypto

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

• Crypto side door: Traders are using “digital residency” in a small Pacific island nation as a side door into crypto.

• Coinbase win: The US Supreme Court upheld Coinbase’s ability to use arbitration to handle customer and employee disputes in a 5-4 ruling.

• BITO inflows: ProShares’ Bitcoin Futures ETF (BITO) saw its largest weekly inflow in over a year.

• Leveraged ETF: The first leveraged Bitcoin futures ETF is launching tomorrow courtesy of Volatility Shares.

• Coin Services: JPMorgan completed its first blockchain transaction for corporate clients in Europe using its own token.

Deals

• Automation: IBM is in talks to acquire software company Apptio for around $4.5 to $5 billion.

• Rocket raise: SpaceX is looking to raise its valuation to $150 billion by offering insider shares at $81 apiece.

• PE dealmaking: Private equity deal volumes fell to a 4-year low due to high interest rates, recession fears, and weak corporate earnings.

• Semis loan: An Apollo-led group is lending up to $2 billion in private financing to semiconductor firm Wolfspeed for its US expansion.

• Groceries merger: JD.com plans to merge its 7Fresh supermarket chain with other online services to create an independent unit called Innovative Retail.

Meme Of The Day