Nvidia rush orders lifting TSMC 5nm fab utilization

ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) Q1 2023 Earnings Call Transcript May 4, 2023 Operator: Greetings, and welcome to the ChipMOS First Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to Dr. GS […] ChipMOS TECHNOLOGIES INC. (NASDAQ:IMOS) Q1 2023 Earnings Call Transcript May 4, 2023 Operator: Greetings, and welcome to the ChipMOS First Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I would now like to turn the conference over to Dr. GS Shen, of ChipMOS TECHNOLOGIES Strategy and Investor Relations team to introduce the management team of the company in conference. Dr. Shen, you may begin. G.S. Shen: Thank you, operator. Welcome everyone to ChipMOS’ first quarter 2023 results conference call. Joining us today from the company are Mr. S.J. Cheng, Chairman and President; and Ms. Silvia Su, Vice President of Finance and Accounting Management Center. We are also joined on the call today by Mr. Jesse Huang, Spokesperson and Senior Vice President of Strategy and Investor Relations. S.J. will chair the meeting and review business highlights and provide color on the operating environment. After Silvia’s review of the company’s key financial results, S.J. will provide our current business outlook. All company executives will then participate in an open Q&A session. Please note, we have posted a presentation on the MOPS and also on the ChipMOS’ website www.chipmos.com to accompany today’s conference call. Before we begin the prepared comments, we advise you to review our forward-looking statements disclaimer, which is noted as the safe harbor notice on the second page of today’s presentation. As a reminder, today’s conference call is being recorded and a replay will be made available later today on the company’s website. At this time, I’d like to now turn the call over to our company’s Chairman and President, Mr. S.J. Cheng. Please go ahead, sir. S.J. Cheng: Yes, thank you, G.S. We appreciate everyone joining our call today. We are pleased with our results in Q1, as the industry was impacted by macro-economic weakness, inflation and continued inventory adjustments at customers. In terms of Q1 2023, our Q1 revenue was just slightly down 1.7% from Q4 2022. And as you know there are always fewer working days in Q1 due to holidays. Q1 gross margin came in at 12.4%, down 210 basis points, compared to Q4 2022 with net earnings of NT$0.28 in Q1, increased 27%, compared to NT$0.22 of Q4 2022. I am pleased to report that our overall utilization rate increased to 52% in Q1 2023. Assembly utilization was at 42% and testing average was 55%. DDIC increased to 58% and bumping UT level significantly up to 52%. Regarding our manufacturing business, our assembly represented 23.4% of Q1 revenue. Mixed-signal and memory testing represented around 22.3% and wafer bumping represented around 19.6% of Q1 revenue. On a product basis, our DDIC product increased to 35%, with gold bumping representing about 18%. Revenue from DRAM and SRAM represented about 15% of Q1 revenue. Our mixed-signal products represented about 10.8%. As additional color on our business, our memory products represented about 36.3% of total Q1 revenue. Memory product revenue was down about 11.1%, compared to Q4 2022, and down around 38.8% on a year-over-year basis. DRAM revenue represented about 14.6% of total Q1 revenue. Flash revenue represented about 21.3% of Q1 revenue, and this was down 14.7%, compared to Q4. NAND represented about 33.3% of Q1 total flash revenue, and kept flat compared to Q4. Moving onto driver IC and gold bump revenue, it represented about 52.9% of total Q1 2023 revenue and increased 6.7%, compared to Q4 2022. The revenue increase in March was the most significant. Q1 benefited from a product demand rebound in specific areas and customer restocking. The improvement led DDIC revenue and increased about 1.8%, compared to Q4 2022. At the same time, gold bump revenue increased 18%, which was a significant move up, with an obvious reduction in our wafer bank. I am also pleased to report that more than 24% of DDIC revenue came from Automotive panels in Q1, which was also up significantly by nearly 19%. It is early, but we also saw some encouraging signs in COG for small panel, driven by automotive panel, TDDI and OLED demand, which was up over 7%. TDDI revenue increased about 15% and represented around 17% of Q1 DDIC revenue. Regarding OLED represented about 9% of Q1 DDIC revenue. On an end market basis, total revenue from automotive and industrial represented about 23.3% of Q1 revenue and increased about 10.8%. Smartphones and TVs, as an end market, accounted about 29% and about 17%, respectively. Computing represented just about 4.4% and consumer represented 26.3% of Q1 revenue. Now, let me turn the call to Ms. Silvia Su, to review the first quarter 2023 financial results. Silvia, please go ahead. Silvia Su: Thank you S.J. All dollar amounts cited in our presentation are in NT dollars. The following numbers are based on the exchange rates of NT$30.48 against US$1 as of March 31, 2023. All the figures were prepared in accordance with Taiwan-International Financial Reporting Standards. Referencing presentation Page 12 consolidated operating results summary. For the first quarter of 2023, total revenue was NT$4,605 million. Net profit attributable to the company was NT$202 million in Q1. Net earnings for the first quarter of 2023 were NT$0.28 per basic common share or US$0.18 per basic ADS. EBITDA for Q1 was NT$1,383 million. EBITDA was calculated by adding depreciation and amortization together with operating profit. Return on equity of Q1 was 3.2%. Referencing presentation Page 13 consolidated statements of comprehensive income Compared to 4Q22 total 1Q23 revenue decreased 1.7%, compared to 4Q22. 1Q23 gross profit was NT$ 570 million, with gross margin at 12.4%, compared to 14.5% in 4Q22. This represents a decrease of 2.1 ppts. Our operating expenses in 1Q23 were NT$401 million, or 8.7% of total revenue, which is about 3.9% lower compared to 4Q22. Operating profit for 1Q23 was NT$185 million, with operating profit margin at 4%, which is about a 2.6 ppts decrease compared to 4Q22. Net non-operating income in 1Q23 was NT$44 million, compared net non-operating expenses of NT$130 million in 4Q22. The difference is mainly due to a decrease of the foreign exchange losses of NT$173 million. Profit attributable to the company in 1Q23 increased 30.7%, compared to 4Q22. This primarily reflects an increase of net non-operating income of NT$174 million and partially offset by the decrease of operating profit of NT$125 million. Basic weighted average outstanding shares were 727 million shares. Compared to 1Q22, total revenue for 1Q23 decreased 31.5%, compared to 1Q22. Gross margin at 12.4% decreased 12.6 ppts, compared to 1Q22. Operating expenses decreased 14.2%, compared to 1Q22. Operating profit margin at 4% decreased 14.3 ppts, compared to 1Q22. Net non-operating income of NT$44 million in 1Q23, compared to NT$229 million in 1Q22, which decreased NT$185 million. The difference is mainly due to an increase of the foreign exchange losses of NT$187 million from the foreign exchange gains of NT$143 million in 1Q22 to the foreign exchange losses of NT$44 million in 1Q23. Profit decreased 83.5%, compared to 1Q22. The difference is mainly due to a decrease of operating profit of NT$1,047 million and decrease of the net non-operating income of NT$185 million and partially offset by the decrease of income tax expense of NT$210 million. Referencing presentation Page 14 consolidated statements of financial position & key indices. Total assets at the end of 1Q23 were NT$45,710 million. Total liabilities at the end of 1Q23 were NT$20,663 million. Total equity at the end of 1Q23 was NT$25,047 million. Accounts receivable turnover days in 1Q23 were 86 days. Inventory turnover days was 69 days in 1Q23. Referencing presentation Page 15 consolidated statements of cash flows. As of March 31, 2023, our balance of cash and cash equivalents was NT$11,736 million, which represents an increase of NT$1,839 million, compared to the beginning of the year. Net free cash inflow for the first quarter of 2023 was NT$1,033 million, compared to NT$1,536 million for the same period in 2022. The difference is mainly due to the decrease of operating profit of NT$1,047 million and partially offset by the decrease of CapEx of NT$311 million and income tax expense of NT$210 million. Free cash flow was calculated by adding depreciation, amortization, interest income together with operating profit and then subtracting CapEx, interest expense, income tax expense and dividend from the sum. Referencing presentation Page 16 capital expenditures and depreciation. We invested NT$313 million in CapEx in Q1. The breakdown of CapEx in Q1 was 9.6% for bumping, 49.9% for LCD driver, 25.1% for assembly, and 15.4% for testing. Depreciation expenses were NT$1,198 million in Q1. As of April 30, 2023, the company’s outstanding ADS number was approximately 4.3 million units, which represents around 11.9% of the company’s outstanding common shares. That concludes the financial review. I will now turn the call back to our Chairman Mr. S.J. Cheng for our outlook. Please go ahead, sir. S.J. Cheng: Thank you, Silvia. According to the current industry situation and customers’ feedback, we expect Q1 will be the bottom, with operating momentum expected to gradually rebound as we move through 2023. We remain conservative, however, because the headwinds from inflation, inventory adjustments, and macroeconomic pressure remain. In our memory product, we expect the business will continue its momentum in Q2 from Q1 with Memory IDMs lowering their UT level and the short order benefit. This momentum will help offset the impact from customers that continue destocking. In DDIC, automotive panel, TDDI, and OLED demand is gradually rebounding. This results in the need to immediately load new wafers coming in for the gold bumping process. This also leads to the UT level of high-end DDIC test platforms further improving. According to the current situation, we think memory product will rebound later than DDIC and mixed-signal products. As a result, we continue to take a cautious approach with our CapEx budget in 2023. We plan to carefully invest in green energy, AI, and automation. And depends on the UT level and customers’ demand to do suitable capacity plan. Finally, our board approved another dividend. This reflects our balance sheet strength, strong market position, our focus on building shareholder value, and returning capital to shareholders. Pending shareholder approval at our May AGM, we will distribute NT$2.3 per common share. Operator, that concludes our formal remarks, we can now take questions. Q&A Session Follow Chipmos Technologies Inc (NASDAQ:IMOS) Follow Chipmos Technologies Inc (NASDAQ:IMOS) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Thank you. At this time, we will be conducting a question-and-answer session. Our first question comes from Stanley Wang from SinoPack Securities. You may begin. Stanley Wang: Could you comment whether lower gross margin in Q1 is impacted by price cuts from customers or a foreign exchange rate issue? S.J. Cheng: As reported, in Q1, March revenue MoM grew about 28%, which was much better than that of January and February. Therefore, we still suffered from some negative factors to the gross margin. Silvia Su: By the way, our Q1 revenue was also impacted by weaker U.S. dollar comparing to Q4. Stanley Wang: The Q1 tax rate is 11.6%. Would there be a favorable investment tax credit? How would you comment for 2023 full-year tax rate? Silvia Su: Certainly there are unrealized items such as investment by equity method, valuation of financial assets by fair value method and equipment investment tax credit in Q1. Generally speaking, our average tax rate would be in range between 19% to 21%. Stanley Wang: In the revenue breakdown for end applications, smart mobile segment performed QoQ 5.9% growth. Could you give us more color about the result from what kind of end application or customer? Jesse Huang: We saw some encouraging signs driven by TDDI and OLED demand. TDDI demand benefitted from repair market demand. Stanley Wang: Could you provide more color about NOR in Q1? Jesse Huang: Overall, the NOR revenue QoQ declined in Q1. However, we also received some NOR rush orders in March. Operator: Next question comes from Jerry Su from Credit Suisse. You may begin. Jerry Su: Follow up to Q1 gross margin, except foreign exchange rate, due to significant revenue growth from gold bumping, would it be one of the causes for lower gross margin? If yes, please comment how could it be reverted? Secondly, please comment on the price pressure from DDIC? S.J. Cheng: I mentioned earlier on the call that gold bump revenue increased in Q1. That means gold consumption increased in our gold bumping, which led the Q1 raw material cost increase. We would still maintain the price level of high-end tester, due to higher UT rate. For low-end tester and COF, we are taking this on a customer by customer basis and retaining some flexibility in the OEM price to the further improvement of the utilization rate. Jerry Su: As previously mentioned, you could grow QoQ under the conditions of flattish memory and much better in DDIC, would company grow double digits in Q2? S.J. Cheng: Firstly, there has been an obvious reduction in our wafer bank, and customer also started to place new order to foundry in DDIC. Therefore, we expect DDIC revenue could grow significantly. Jerry Su: Any visibility for memory segment business recovery? S.J. Cheng: Because customers’ inventory levels are still high, we expect the recovery would be more obvious starting in Q3. Jerry Su: Please give us more color about memory segment recovery in Q3? S.J. Cheng: It seems NOR, NAND, and niche DRAM would perform better than commodity DRAM. Operator: Thank you. And I am not showing any further questions in the queue. I would like to turn the call back over to G.S. G.S. Shen: That concludes our question-and-answer session. Thank you for participating. I’ll turn the floor back to Mr. S.J. Cheng for any closing comments. S.J. Cheng: Thank you everyone for joining our conference call. Please email our IR Team if you have any more questions. We appreciate your support. Goodbye. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Follow Chipmos Technologies Inc (NASDAQ:IMOS) Follow Chipmos Technologies Inc (NASDAQ:IMOS) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Lear Corporation (NYSE:LEA) Q1 2023 Earnings Call Transcript April 27, 2023 Lear Corporation beats earnings expectations. Reported EPS is $2.78, expectations were $2.58. Operator: Good morning, everyone, and welcome to the Lear Corporation First Quarter 2023 Earnings Conference Call. Please also note today’s event is being recorded. At this time, I’d like to turn the […] Lear Corporation (NYSE:LEA) Q1 2023 Earnings Call Transcript April 27, 2023 Lear Corporation beats earnings expectations. Reported EPS is $2.78, expectations were $2.58. Operator: Good morning, everyone, and welcome to the Lear Corporation First Quarter 2023 Earnings Conference Call. Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Ed Lowenfeld, Vice President, Investor Relations. Sir, please go ahead. Ed Lowenfeld: Thanks, Jamie. Good morning, everyone, and thank you for joining us for Lear’s first quarter 2023 earnings call. Presenting today are Ray Scott, Lear President and CEO; and Jason Cardew, Senior Vice President and CFO. Other members of Lear’s senior management team have also joined us on the call. Following prepared remarks, we will open up the call for Q&A. You can find a copy of the presentation that accompanies these remarks at ir.lear.com. Before Ray begins, I’d like to take this opportunity to remind you that as we conduct this call, we will be making forward-looking statements to assist you in understanding Lear’s expectations for the future. As detailed in our safe harbor statement on Slide 2, our actual results could differ materially from these forward-looking statements due to many factors discussed in our latest 10-Q and other periodic reports. I also want to remind you that during today’s presentation, we will refer to non-GAAP financial metrics. You are directed to the slides in the appendix of our presentation for the reconciliation of non-GAAP items to the most directly comparable GAAP measures. The agenda for today’s call is on Slide 3. First, Ray will review highlights from the quarter and provide a business update. Jason will then review our first quarter financial results. Finally, Ray will offer some concluding remarks. Following the formal presentation, we would be happy to take your questions. Now I’d like to invite Ray to begin. Raymond Scott: Thanks, Ed. Now please turn to Slide 5, which highlights key financial metrics for the first quarter. Lear started the year strong, delivering significant increases in both revenue and earnings in the first quarter compared to last year. Sales increased 12% to $5.8 billion, and core operating earnings increased 43% to $263 million. Adjusted earnings per share increased 54% to $2.78 per share. Slide 6 outlines key highlights for — from the quarter. Both Seating and E-Systems had significant growth over market and higher margins as compared to last year. In Seating, we are excited to announce that the Conquest award we mentioned on our last earnings call is for the Wagoneer and Grand Wagoneer. They will be producing complete seats in key thermal components for these vehicles, with production beginning later this year. This Conquest award is another example of Lear’s strong reputation for quality, operational excellence and product execution, as we expand our strong relationship and partnership with Stellantis. In E-Systems, we continue to increase momentum in electrification with additional awards for 2 of our innovative products. Stellantis recognized our advanced technical capabilities as the premier supplier of high-performance battery disconnect units and selected Lear to supply the BDU for a new electric vehicle. We continue to increase our Intercell connect board backlog with the award of additional volumes from General Motors to support their Ultium Battery platform. Our customers continue to recognize Lear for innovative technology and quality. For the sixth consecutive year, we are recognized as a supplier of the year for General Motors. I’m excited that we completed the acquisition of IGB, which will play a key role in expanding our Thermal Comfort Systems business and increasing our market share and margins in Seating. I want to thank everyone who supported this transaction. There’s a lot of hard work and significant time spent to close this deal. I couldn’t be more proud to welcome the IGB team to the Lear family. Slide 7 provides a business profile of IGB and highlights the benefits of the transaction. IGB brings new technologies to Lear, including active cooling, steering wheel heating and occupant detection sensors. This transaction also complements the product capabilities we acquired from Kongsberg and add scale to our growing Thermal Comfort Systems business. IGB has a well-balanced customer base, consisting of many of the world’s largest global OEMs. This acquisition is the latest and final piece of our comprehensive thermal comfort strategy to extend Lear’s leadership as the most vertically integrated automotive seat supplier, increase market share and further strengthen our industry-leading margin and return profile. Lear is the only company with this expertise to complete incomplete seats as well as comprehensive thermal comfort systems capabilities. These unique capabilities will drive transformation of the thermal comfort systems market by creating innovative designs that will improve performance, efficiency and comfort, while reducing weight and cost. On Slide 8, I will walk you through the evolution of our thermal comfort systems product strategy. Today, many OEMs design and source each thermal component individually and package them together by layering them on top of each other. Several of these features rely on subcomponents that are redundant, increasing the number of parts and requiring more space for packaging. The acquisitions of Kongsberg and IGB as well as the work we have done internally over the last 10 years developing into seating provide a broad-based capability to improve this model. At the time, leveraging best practices across the combined organization will improve efficiency and increase flexibility in our manufacturing facilities. Following the Kongsberg acquisition, our team has been working diligently to design more efficient thermal comfort modules by combining common functions across multiple components. For instance, we’re developing a system that integrates ventilation with the lumbar and the massage modules. We also are developing innovative solutions to move thermal comfort components closer to the occupant by integrating them directly into the trim covers. This will improve the performance of thermal comfort systems by increasing the speed to sensation for the occupant. This also reduces the size of packaging within the seat, which facilitates integration of these features into the rear seats. Another innovative product to be developed is FlexAir, a foam alternative that is 100% recyclable. FlexAir reduces CO2 emissions by up to 50% and mask by up to 20% compared to traditional foam used in today’s applications. These innovations are gaining traction with our customers. We currently have 15 development projects in progress on 41 different car lines, with 7 OEMs for our various thermal comfort systems. Because our customers recognize the benefit of more efficient thermal comfort systems, they have begun to grant sourcing control of these products to Lear. Since Lear is the only JIT supplier with these capabilities, the additional sourcing control is limited just to us. This gives us an advantage in the marketplace, and we can provide higher performing and more efficient solutions to our customers. The final phase of our strategy is to combine our component modular solutions with our FlexAir foam alternative and trim cover capabilities to develop a fully integrated seat module by incorporating all of the thermal comfort components into an efficient modular design. We can drive significant part reduction and mass savings, while enhancing the comfort for the occupant. These improvements will further reduce the cost of the thermal comfort system to our customers, while increasing the value proposition for Lear Corporation. Slide 9 provides a pro forma outlook of our combined thermal comfort portfolio. The addition of the IGB product portfolio gives us strong market position in each of the key thermal comfort categories. We estimate we have a top 3 market position for each major product. Pro forma 2022 revenue for the combined TCS business is $550 million. We expect this to grow to approximately $800 million by 2027. Revenue growth will come from a combination of industry factors and innovation. The overall thermal comfort market is estimated to grow over 2 percentage points faster than the vehicle production. With improved packaging, better performance and reduced costs, we are confident that the market will grow more quickly, as take rates increase and these products proliferate beyond the luxury segment and into the rear seat applications. Historically, our customers granted sourcing control for thermal comfort components on about 30% of the JIT programs. Given our increased capabilities, our opportunity to direct this sourcing has grown. 7 major customers have branded us 100% sourcing control for future thermal comfort systems. The unique competitive advantage we have developed in thermal comfort systems allows us to provide a better value proposition for our customers, which our competitors cannot match. Longer term, in addition to driving higher market share, we believe that our thermal comfort system strategy has the potential to drive our overall seating profitability above our current 7.5% to 8.5% margin target. Turning to Slide 10, I will highlight some key business awards from the first quarter. The Conquest win for the Wagoneer and the Grand Wagoneer is a significant program that was included in our 3-year backlog we announced in February. We also won an award to provide seats on a second program launching in late 2024. We estimate the combined revenue for these 2 programs could reach approximately $600 million in 2027. Since 2019, we have won $2 billion in Conquest awards. It’s a big number, Frank. Given our strong pipeline of Conquest opportunities we are pursuing, we expect this momentum to continue and result in additional market share gains. For each systems, we continue to win awards in electrification as well as for high-voltage and low-voltage wiring and several EV platforms. The pace of new business wins in E-Systems this year is well ahead of where we were last year at this time. Just last week, we were awarded the BDU for the new Stellantis electric vehicle. This win solidifies our position as one of the leaders in high-performance BDUs. The additional volume awarded by General Motors for the ICB is another example of their confidence in our technical capabilities and increasing the value of our overall program. Our expected 2025 revenue on the platform has increased to $50 million to over $100 million. We had expected this program to generate annual revenues of approximately $150 million. With the added volume, we now see peak revenue reaching $250 million. Now I’d like to turn the call over to Jason for the financial review. Jason Cardew: Thank you, Ray. Slide 12 shows vehicle production and key exchange rates for the first quarter. Global production increased 6% compared to the same period last year and was up 8% on a Lear sales weighted basis. Production volumes increased by 10% in North America and by 17% in Europe, while volumes in China were down 8%. The dollar strengthened against both the euro and RMB. Slide 13 highlights Lear’s growth over market. For the first quarter, total company growth over market was 6 percentage points, driven by favorable platform mix and the impact of new business in both segments, with Seating growing 6 points above market and E-Systems growing 4 points above market. Growth over market was particularly strong in Europe and in China. In Europe, sales outperformed industry production by 12 points, with both business segments benefiting from higher volumes on the Land Rover, Range Rover and Defender. New programs such as the BMW 7 Series in Seating and new wiring and electronics content on the Volvo XC40 and XC40 Recharge in E-Systems contributed to the strong growth in the region as well. In China, growth over market of 8 points resulted from strong production on the Mercedes C-Class and E-Class in Seating and the Volvo XC40 and XC40 Recharge in E-Systems. Our North America business lagged industry growth estimates by 1 percentage point. This was driven by unfavorable platform that’s primarily related to the changeover of the Ford Escape in E-Systems, which was partially offset by the benefit of new business. Turning to Slide 14. I will highlight our financial results for the first quarter of 2023. Sales increased 12% year-over-year to $5.8 billion. Excluding the impact of foreign exchange, commodities and acquisitions, sales were up by 14%, reflecting increased production on key Lear platforms and the addition of new business. Core operating earnings were $263 million compared to $184 million last year. The increase in earnings resulted from the impact of higher production on their platforms and the addition of new business, partially offset by the impact from foreign exchange. Adjusted earnings per share improved significantly to $2.78 as compared to $1.80 a year ago. First quarter operating cash flow was a use of $36 million. Operating cash flow was negatively impacted in the quarter by the timing the customers received as compared to last year and a significant increase in sales late in the quarter. Our outlook for full year operating and free cash flow is unchanged. Slide 15 explains the variance in sales and adjusted operating margins in the Seating segment. Sales for the first quarter were $4.5 billion, an increase of $540 million or 14% from 2022, driven primarily by an increase in volumes on Lear platforms and our strong backlog. Excluding the impact of commodities, foreign exchange and acquisitions, sales were up 15%. Core operating earnings improved to $300 million, up $83 million or 38% from 2022, with adjusted operating margins of 6.7%. The improvement in margins reflected higher volumes on their platforms and an improvement in commodity costs, partially offset by higher engineering spending and launch costs to support our strong new business backlog and recent Conquest awards as well as the impact of foreign exchange and acquisitions. Slide 16 explains the variance in sales and adjusted operating margins in the E-Systems segment. Sales for the first quarter were $1.4 billion, an increase of $97 million or 8% from 2022. Excluding the impact of foreign exchange and commodities, sales were up 12%, driven primarily by higher volumes on key platforms and our new business backlog. Core operating earnings improved to $49 million or 3.5% of sales compared to $42 million and 3.2% of sales in 2022. The improvement in margins reflected higher volumes on Lear platforms and our margin-accretive backlog, partially offset by higher commodity costs, net of customer recovery, the impact of foreign exchange and elevated launch costs. Moving to Slide 17. We highlight our strong balance sheet and liquidity profile, a major competitive advantage for Lear in a rising interest rate environment. The acquisition of IGB will be financed with the 3-year fully prepayable term loan. We do not have any near-term outstanding debt maturities. Our earliest bond maturity is in 2027, and our debt structure has a weighted average life of approximately 14 years. Our cost of debt is low, averaging approximately 4%. In addition, we had $2.9 billion of available liquidity. We remain committed to returning excess cash to our shareholders, having repurchased $25 million worth of stock in the first quarter, along with our quarterly dividend. Our current share repurchase authorization has approximately $1.2 billion remaining, which allows us to repurchase shares through the end of 2024. Now turning to Slide 18. This slide highlights the key factors that will impact our financial outlook. While our first quarter results were strong, and industry production volumes are continuing to recover, there is still uncertainty around the pace of the recovery and overall global macro environment. As a result, we are not changing our full year outlook at this time. We expect a modest improvement in industry production levels this year, while remaining well below prior peak levels. We expect a gradual but sustained recovery stretching into 2024 and beyond. The outlook for commodity cost is somewhat mixed. While we did see a significant reduction in steel prices late last year, prices in North America has since rebounded. We are seeing some moderation in select chemical commodity prices as well as freight and logistics costs, but also experiencing higher component costs as our supply base contends with higher labor costs. On the positive side, we expect to largely offset the headwinds we’re facing through improved operating performance and negotiated sharing agreements with our customers. In addition, we’re benefiting from resilient demand on luxury vehicles and other key platforms as well as our margin-accretive backlog. As we weigh these risks and opportunities, we continue to take aggressive steps to improve our competitive position and financial performance. We also continue to make significant progress through our Lear Forward initiatives, including aggressive steps to improve capacity utilization and working capital management and remain on track to meet or exceed our $50 million savings target for the year. These performance improvement actions, coupled with strategic investments in key products such as thermal comfort systems and high-voltage connection systems have positioned both businesses for sustained revenue growth and margin expansion. Now I’ll turn it back to Ray for some closing thoughts. Raymond Scott: Thanks, Jason. Please turn to Slide 20. The first quarter was a great start to the year. Both business segments saw year-over-year margin growth, with strong growth over market. Our Lear Forward plan continues to yield results. The team has identified and implemented actions that will reduce costs and improve operating cash flow. We continue to win business in both Seating and E-Systems, and our pipeline of new opportunities is very strong. Closing the IGB transaction was the final piece required to solidify our thermal comfort systems strategy. With this completed, we are looking forward to giving you a comprehensive update of our Seating business, with a particular focus on thermal comfort on June 27. We’ll be hosting a Seating Product Day on Lear Campus in Southfield, Michigan. We look forward to seeing many of you in person. In closing, I want to thank the Lear team for their tireless efforts that resulted in another strong quarter. I firmly believe we have the best team in the industry, and I am proud to work with you each and every day. Now we’d be happy to take your questions. Q&A Session Follow Lear Corp (NYSE:LEA) Follow Lear Corp (NYSE:LEA) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Our first question comes from John Murphy from Bank of America. John Murphy: Maybe just to ask one simple one first, just on scheduled stabilization. I’m just wondering if you could kind of highlight how much they’ve stabilized in the first quarter, how much sort of the disruption caused to you last year and what do you expect to not reoccur this year? Raymond Scott: Look, actually, this year, I always say everything is all relative. It’s — this year is a lot better year than last year. When we talked about just stable production from our customers, we’re getting a lot better clarity around if there is going to be downtime, so that we can respond a lot quicker in respect to what we can do internally from an efficiency standpoint. So much more clarity around the production environment, although there’s been still some short notice, but much better than it was last year as far as the financial strength. Jason, do you want to add to that? Jason Cardew: Yes. Really, it was — we didn’t see a meaningful premium cost in the quarter. It did improve versus the prior year. We’ve seen a gradual improvement, John, as you look at sort of first half of last year to the second half of last year and then again in the first quarter. As Ray mentioned, we’re still incurring some premium costs. We’re still seeing some stop-start production from our customers, some challenges with some of the new programs that our customers are changing over and some challenges with our supply base, which weighs a little bit on the conversion rates you see with volume in the backlog, but certainly less meaningful than what we experienced over the last 2 years. John Murphy: Okay. And then just a second question on IGB in the acquisition there. Is there a greater opportunity on content with EVs as you’re looking at sort of the in-seat HVAC systems essentially versus what you have on the ICE? And I think you also — I just want to follow up on something I think you mentioned that — you said CD margins, which are targeted 7.5% to 8.5% eventually. There could be upside to that 7.5% to 8.5% because of IGB. And just wanted to kind of clarify that statement as well or confirm it. Raymond Scott: Yes, John, I’m glad you asked the question. One, I couldn’t be more excited. This is a big day for Lear Corporation. This has been 10 years in the works. And going back, we’re just discussing amongst the team here before the call. At 10 years, we looked at the inefficiencies within the seat. And when we talk about these priceable features and content within the seat, how they could be completely revamped and redesigned for packaging and efficiency and cost and mass and weight. And so all those elements are particularly of interest to our customers on EV vehicles. One, just the draw of — and use of the battery consumption, the better use of the combination of HVAC in-seat seed for the occupant. Within the seat, the packaging that we’re going to be able to proliferate these, I think, across multiple different seat sets. And I think equally as important, not just luxury vehicles, but be able to use in a more mid-vehicle ranges because we’re going to have a much more efficient system. So short-term, we’re looking at this thing. It is just we have this in 3 phases. One is just doing a really good job with our purchasing leverage, the ability to scale things properly with our manufacturing facilities on the traditional parts. And they’re both great, great companies, and they complete what we’re really focused on. We also protect ourselves with almost 400 patents on the new design that I was referring to as far as we get into these modular components. And we believe that, that’s going to allow us to grow. And those components that we’re referring to are accretive in respect to margins. So our goal is to offer our customers a great value proposition, but also more importantly to us is expand our margin, and that’s really the intent of this. And it really culminated in the acquisition of IGB. Kongsberg was a great acquisition. IGB is a great acquisition. But now we’re well rounded in what we’re going to do as far as priceable features within the seat system. Jason Cardew: Yes. The only thing I would add, Ray, to what was important about IGB, it brought steering wheel heat and panel heating, which I think also plays an important role as you think about reducing the use of the HVAC and the impact on the battery and shifting that to other parts of the interior that are more efficient for heating and cooling the occupant. So that’s important additional product capabilities that we were after with IGB. Raymond Scott: John, we talked about the Investor Day, we’re going to have 2 — we don’t share a lot publicly for competitive reasons. But when you see what we’re talking about as far as the transformational change of the components, when we put this in front of the customer, Frank’s here, it’s a layup. I mean, it’s amazing. It is — it’s not traditional for us to get 100% of sourcing control on these programs. We’re getting it because of the acquisitions we’ve made and the capabilities we have and the vision of the value that we can create. And so at the Investor Day, we are really excited about being able to disclose a little bit more about what we’ve been working on for over 10 years and the change to the seat system and how we believe that can — I think this $2.5 billion to $3 billion market can grow faster when you actually have a system that creates a significant value for your customers. John Murphy: And if I could just sneak one more in on the IGB Intercell connect boards. You seem like you’re winning more and more on the Ultium platform. I mean that is a platform. So I’m just curious, when you think about that, how much share do you have on that Ultium platform as far as you can tell on what you’ve won so far? I mean, is that being dual sourced? Or are you sole-sourced on that? What’s the story there? Raymond Scott: It’s still sourced today, and we have a strong position with General Motors on that particular component, yes, 50%. Operator: And our next question comes from Rod Lache from Wolfe Research. Rod Lache: So I had a couple of things I wanted to ask about. The E-Systems margins currently running at 3.5%, you had guided to 4.5% for the year. And I was just hoping you could give us a little bit of color on what changes from here, thoughts on incremental margins. Does your guidance still hold? Because the — obviously, the exit rate would be quite a bit higher to make it average that. And then on Seating, is it typical that incremental margins on new business would come in, in the mid-6s? Or is that something that we should extrapolate from? Jason Cardew: I’ll start with the second part of the question first, Rod. So Seating backlog has been rolling out in the 8% to 10% range. And I think if you look out over the next couple of years, we would anticipate that, that’s about the rate it would roll on. Sometimes, you have a blip in a quarter where you have a mix of what has rolled off versus what’s rolled on. But it’s generally in that 8% to 10% range is what we’re seeing. If you look at the last number of quarters, that’s what we’ve converted at. In terms of E-Systems margins, you’re right. We do expect to see higher margins in the second half of the year than the first half of the year, so at 3.5% here in the first quarter. If we look out in the second quarter, the midpoint of our guidance, we would expect similar margins, maybe slightly higher in E-Systems in the second quarter, which means the second half needs to be roughly 5.5%. There’s a number of catalysts to that. One, our launch costs in the first half of the year are much higher than they will be in the second half of the year. We’re going through not just launching the backlog, but we had significant new program changeovers. So the Ford Escape, which we had referenced in the prepared remarks, but also the Colorado Canyon with GM is a big program for E-Systems. So those 2 programs, we had a significant investment in launch costs in the beginning part of the year, and that will be less in the second half of the year. In addition to that, we’re in deep discussions, negotiations with our customers on commodity and inflation recovery. We did a nice job in the quarter, but we have a lot of work to do there. And we’re confident that we’ll achieve the assumptions that we’ve outlined for commodities in E-Systems for the full year. In addition to that, you have your normal seasonality. And so you had the LTA agreements that are contractual that we approved in the first part of the year, first quarter, second quarter that get negotiated throughout the year and then offset through our own cost reduction actions, restructuring actions, normal plant efficiencies, purchase savings with our supply base. And as is typically the case, particularly in E-Systems, you see that stuff sort of layered on throughout the year. And those things taken together, we believe, get us to about 5.5% for the second half of the year. And I would say the range is 5.5% to 6% in the fourth quarter, maybe even a little bit beyond that as we exit the year in E-Systems. Rod Lache: Okay. And I didn’t quite understand kind of the net of the puts and takes that you’re mentioning on commodities. Maybe you could just elaborate on that. And it sounded like the — there’s a little bit of caution in your tone, not surprising just in light of macro, but you had given an indication about potentially coming in at the higher end of your guidance range earlier in the year. Are you seeing anything in terms of customer schedules or mix that is resulting in that? Or is that just conservatism? Jason Cardew: Yes. I would characterize it more as caution and conservatism at this stage. Nothing has changed from when I spoke at an investor conference earlier in the quarter. As we sit here today, if conditions from the first quarter hold up for the balance of the year, and there isn’t a significant pullback in demand that impacts production or disruption due to the labor negotiations in the U.S. and Canada that impacts production, those things don’t happen, then we see the revenue at the high end of the guidance range, maybe even a little bit beyond that. And I’ll provide a little bit more color on that point, it’s kind of an important point. So we have a relatively conservative assumption on foreign exchange at for the full year, at in the first quarter. That implies a little less than $1.05 through the balance of the year. And if you just kind of modeled out the last 5 days average exchange rates, revenue would be about $300 million higher than what we have included in the guidance. And that would convert at the company margin overall. In addition to that, you asked about commodities. One thing that we experienced in the first quarter that we now are expecting to continue is elevated revenue as both our — the directed suppliers, so suppliers that our customers source directly and negotiate pricing directly with, are getting price increases, and we’re just kind of an administrator in the middle passing that through. So you’re seeing additional revenue without earnings as our direct-to-suppliers negotiate with our customers. That’s a new development as we started the year, and that’s nearly $200 million of revenue. And as we’re seeing additional pressure on component cost increases in our business, particularly in E-Systems, we’re negotiating pass-through agreements on that. We see almost $100 million of additional revenue from that. So the commodities and FX taken together and the fact that IGB closed a little bit earlier, we see about $500 million to $600 million of sort of revenue tailwinds that may not have a lot of earnings associated with that. So we may see these conditions hold up consistent with the first quarter revenue that’s at or above the high end of the range with earnings that are at the high end or maybe a little bit lower than that, as some new development staff with commodities. So then speaking specifically about commodities, what’s changed from our original guidance there, we lock in our North America steel price one quarter at a time. And so the first quarter was really based on the fourth quarter. So we saw a nice reduction and nice benefit in the first quarter. Second quarter is based on the average price in the first quarter, so that is going up sequentially. We’ve assumed that, that sort of continues in the second half. And then by the fourth quarter, it comes back down. Based on that assumption, the net effect for steel, instead of being a $30 million benefit, is now about a $20 million benefit. So a little bit of an impact of the — for the unrecovered portion of steel. We’re seeing some favorability in chemical costs, freight and logistics, and that’s helping to offset the higher steel. And then we’re seeing some pressure on component costs, again, more so in E-Systems than in Seating, particularly with insulated wire. That part of the supply base is a bit more challenged. I think you see evidence of that, the challenges with Leoni that are very public. And so we are seeing some pressure on cost there, but we’re also working with our customers on negotiating a sharing pass-through agreement on that. Rod Lache: Just to clarify, no — you didn’t mention any transactional impact from the FX just given your peso exposure. Is that essentially hedged? Jason Cardew: Yes. So for the full year, we’re about 85% hedged on the peso. And most of our currency pairs were 60% to 85% in sort of the range. We were a little less hedged in the first quarter, so we did see a little impact there. We don’t see a significant for the full year at this point in time. And we have a rolling 24-month hedge program. So we flagged in about 40% of that exposure for next year as well, which should help. But — so as we sit here today, it’s not a meaningful issue. It’s maybe $10 million for the full year relative to what we expected at the start of the year. Operator: And our next question comes from Dan Levy from Barclays. Dan Levy: Sorry, I jumped on late, and I know you talked a bit about E-Systems, but maybe you could just address in the quarter the conversion was on volume mix and on backlog, which is meaningfully lower than what you had seen in prior quarters. So maybe you could just get a bit into the conversion on E-Systems within the quarter? Jason Cardew: Yes. Part of that is the mix of revenue by region. And so in North America, where we tend to have a little higher variable margin profile than in Europe and in Asia. And so given the changeover activity on these key platforms like the Ford Escape and the GM Colorado Canyon, it’s a pickup program. So revenue was down on those and up on our European programs and a little bit in Asia. And so that’s really the driver, the sort of mix of program by region. Backlog, as we look out for the balance of the year, we expect that to continue to roll on sort of in the 10% range in E-Systems. So we feel pretty good about how the backlog is rolling on. And you can see that as continuing to be accretive to margins in E-Systems. Dan Levy: Understood. And then just as a follow-up, I know you said that for commodities, you’re now assuming $20 million for the year versus the prior outlook $30 million tailwind. Maybe you could just remind us, within that number, what you’re assuming on recoveries for non-raw material items, be it maybe some of the pass-through components, which you said you’re seeing some recoveries there or freight or most notably labor on Europe. Are you assuming within that recoveries for labor where I know you had assumed that there was going to be some wage inflation on your side? Jason Cardew: Yes. I think, Dan, at this point, we want to be a bit careful on that for competitive reasons, but we are in negotiations with our customer on labor. And oftentimes, in both business segments, we have — we work with models that our customers have. And so the model has the labor rate input. And so that has certainly provided an opportunity for us to have a dialogue with our customers. There’s a certain level of wage inflation that’s our responsibility. We experience that each year, and we offset it through productivity. What we’re after is really the extraordinary wage inflation in places like Mexico, where there was a significant increase in wage costs. Now in terms of the component cost increases and recovery of that, we’re expecting between 90%, 95% of that will be recovered within the year. So we’re not expecting that to be a significant headwind. We’re expecting nearly 100% on the seating side because most of that is on direct components where our customer is negotiating with the supplier directly. The E-Systems where there’s a little less that’s directed, there’s more work to do in those negotiations, but we still see a high level of recovery happening this year. Dan Levy: And can you just clarify within the $20 million if there’s a gross number on that or that’s the net there a gross number? Jason Cardew: Our growth impact for this year that we’re estimating at this point is about $200 million. Operator: And our next question comes from James Picariello from BNP Paribas. James Picariello: So on the E-Systems’ commodities and component sourcing headwind, the 6 — $5 million or $6 million headwind for the quarter, can you just confirm what does that impact look like through the rest of the year for E-Systems? Jason Cardew: Yes. It’s — we see it as a little less for the balance of the year than it was in the first quarter. I think the first and second quarter will be similar. And then more of the recovery will happen in the second half of the year. So for the full year, we don’t expect it to be $25 million. If you were to extrapolate the $6 million, we expect it to be less than that with the benefit of that happening in the second half. James Picariello: Right. And there’s some associated recovery tied to the lessening effect in the second half. Or is this just expectation on pricing? Jason Cardew: It’s recovery that’s — that drives the difference first half to second half. James Picariello: Okay. And then for IGB, will the initial contribution margin for that business trend similarly to what Kongsberg — what we saw with Kongsberg last year, losing about, I don’t know, $5 million a quarter initially? And then just on that point, it’s pretty clear you view thermal comfort as margin additive to Lear Seating business over time. Can you maybe just speak to or confirm the time line on when those businesses can get there? Jason Cardew: Yes. I think that we still have some work to do on the purchase accounting, that could lead to a slight change in this. But we do expect the margins in thermal comfort to be roughly breakeven this year. And we’re going through some restructuring now. Ray referenced the purchasing synergies. We’re seeing some opportunities there. And so we’re on track for the combined business to be profitable next year. We had talked originally about it being accretive to seat margins in ’24. We still see that probably in the second half or towards the tail end of ’24 because it just took longer for the IGB regulatory approval and closing to get over the finish line. So when we talk about ’24 being accretive, we had assumed that, at that point, that it would be kind of the full year this year in our hands, and it’s obviously 4 months later than that. So we still see this business being accretive to seat margins. And I think contribution margins are going to be similar to seating or a little bit higher, so in the 20% range, 20%, 25% even on certain programs. And so over time, as we drill that business, it will — the impact on seat margins will continue to increase and culminate with pushing that 7.5% to 8.5% range above 8.5%. We’ll save some of the details around that for the Investor Day in June. We’re excited to talk about that in a little bit more detail at that point. Operator: And our next question comes from Emmanuel Rosner from Deutsche Bank. Emmanuel Rosner: I was hoping to put maybe a final point on your outlook and, I guess, what’s assumed in there. Q1 played out, I guess, a bit better than expected, and then you were even improving back in March. But now based on the unchanged outlook, you’d be basically assuming some sequential deterioration in profit at midpoint or maybe sort of like stable versus the first quarter at the high end, and that’s despite obviously improving margins in E-Systems, for example. So can you maybe just holistically talk about how you see sort of the rest of the year play out? Where are the areas of caution that would essentially keep you, I guess, a bit more cautious now? Jason Cardew: Yes. I think the caution is just around the production volume assumption that we have a pretty good handle on and the rest of the drivers. And just so mechanically, by holding the full year with such a strong first quarter, what it suggests is that the second quarter will be about 2.5% lower. I think the industry volumes are down about 2.5% in the second quarter from the first quarter. There are fewer work days in Europe, in North America. So we think that makes sense. So say $125 million to $200 million lower than the first quarter revenue. And if that holds, then that suggests a fairly sizable contingency, so to speak, on production volumes for the second half of the year, so it would imply pretty low revenue in the second half of the year. Again, it’s early. There are so many geopolitical, macroeconomic factors in play. We just thought it was prudent to hold serve at this point. And we — if conditions hold up like the first quarter, we would certainly look to raise our outlook in — on the second quarter earnings call. Emmanuel Rosner: Understood. And then I guess one follow-up on the — on E-Systems. So based on your outlook, maybe even like 5.5% margins in the second half, obviously, quite a bit more upside needed towards some of your midterm target. So as we look past, I guess, the second half or the fourth quarter exit rates, is the main driver there just adding more revenues and operating leverage? Or are there any other big factors to get you to your midterm view? Jason Cardew: Yes. We talked about this, I think, on the fourth quarter earnings call. And certainly in other settings, we’ve described sort of that bridge from 4.5% this year to 8% in 2025. So you can look at it two different ways. One way is just looking at sort of volume and backlog. We see that as 250 basis points of the improvement from ’23 to ’25, and then 100 basis points of net performance. So this year, net performance is sort of negligible in both segments. We see it as 50 basis points positive in ’24 and ’25 through a combination of lower inflation, some continued success in passing through higher commodity costs and just fully realizing the benefits of our restructuring program and other cost reduction initiatives without that added weight of extraordinarily high wage inflation that we saw this year. Another way to look and to think about the E-Systems progression from ’23 to ’25, if you look at it by business segment, we talked about 100 basis points of the improvement being driven by the growth in connection systems. And certainly, this additional volume with GM on the Intercell connect board helps there. So we had previously expected $285 million of additional revenue there. It’s going to be a little bit more than that now with the additional volume awarded on that platform. That’s 100 basis points. If you look at our core electronics and what we’re doing with that business, we see 125 basis points of margin growth over that 2-year time period in electronics, and then that sort of leaves 125 basis points for the wire business, which is a combination of net performance and stronger volumes. Operator: And our next question comes from Colin Langan from Wells Fargo. Colin Langan: Just wanted to follow up. I’m not sure if I heard it right. You said there’s $200 million of gross commodity headwind, but you still expect a net positive of $20 million. I guess, I’m a little confused because I thought back in ’21, there was about $450 million, and you got $185 million net. So what gives you — one, did I mishear that? And two, what gives you confidence that you could sort of get that much recovery versus the past? Are the contracts different now given the last couple of years’ changes? Jason Cardew: Well, part of it is the lag effect. So you’re seeing some recovery in the first part of this year, for example, that relates to higher steel costs that existed last year. And so there’s a bit of a lag benefit that we’re seeing. And the balance of it really is we’ve worked hard to get as many of our components on an indexed agreement as we can to try and kind of insulate us from that risk. And so as there are changes that take place, that makes a little bit more straightforward to pass it through. It doesn’t make it easy looking at kind of Frank has certainly a ton of work by the team in both business segments. The other big factor, though, and probably the more important factor is that we see about $180 million of directed supplier increases where it’s just a one-for-one pass-through. So that’s really what’s driving the increase, and so there’s no impact on OI. So it’s 100% pass-through. So it’s a little bit misleading from that standpoint. If you go back to what we anticipated at the beginning of the year, we expected the gross impact to be favorable, so $105 million because of what was happening with steel. And so now that has swung all the away in the other direction where we’re seeing a gross impact that’s unfavorable by $200 million. That’s a $300 million change again and with $180 million of that in seating on directed suppliers has just passed through. Colin Langan: Got it. Okay. And then the last quarter, you talked about $85 million in gross labor cost headwinds. That’s incremental to the $200 million talking about the clients not overlapping. And then any color on how that’s progressing? Has the majority of that already hit, so you’re working to get recoveries through the rest of the year on that? Or does more of that come later in the year? Jason Cardew: The labor inflation on the hourly side, mostly hit beginning of the year. Now some of the salary programs have various effective dates around the world. And — but some are in January and some are later. The discussions that the customers started in the first quarter and will continue, I think, through the balance of the year. It’s not going to be all done in the second quarter. It’s going to take time, and some of that could even leak into next year. So it’s a difficult discussion with the customers. And ultimately, we have to be the most competitive option for them, and we are. We have a world-class footprint in both segments, and I think that’s supportive of our negotiations to pass these excess costs through over time. Colin Langan: And just one quick follow-up. Where does that fall in the walk? Is that under net performance, if I look at Slide 15 and 16? Because I don’t even think there’s net performance on 15. So which bucket does that added cost follow? Jason Cardew: That is in the net performance. You’re correct, Colin. Operator: And our final question today comes from Adam Jonas from Morgan Stanley. Unidentified Analyst: on behalf of Adam. We’re just curious to see if you guys have seen any measurable change or slowdown in the production or orders for EVs by OEMs this year? Raymond Scott: We’re not seeing that. I mean, across the board. It’s still a heavy push from all of our customers on EV, and with some customers even additional capacity and quotes are out for additional volume. So we haven’t seen the demand side change at all from our perspective, particularly with the top of the OEMs. So no changes. Unidentified Analyst: Okay. And then a quick follow-up. Is — can you say that the chip shortage is over now? Or is there still incremental production… Raymond Scott: A little hesitant to say that. Yes. I’m hesitant. I was engraved in me for a long time. I see that we’re in a much better position. What I will tell you is that what we’re experienced is they’re still at the brokers, there’s premium costs that we’re trying to negotiate. There might be chips that are available through other outlets that we can get our hands on, but there’s still premiums associated with those chips. So that hasn’t necessarily dissipated. But I’d say generally, and I think it’s all relative to where we were a year ago, we’re in a much better position. There’s still certain chips that are tougher to get, but I think, holistically, across all chips, we’re in a much better position. Unidentified Analyst: Great. Thank you, so much. Raymond Scott: Yes, thank you. Is that the last one? Okay. So I thank Jason, nice job today. Really a nice job and there is a lot of heavy lifting for you. That’s a nice job, nice job the team here and I appreciate all the hard work for everyone that’s on the phone, the Lear team, incredible quarter. I appreciate all the hard work that you’re doing every single day. Really good work. And again, just so I want to welcome the IGB family into the Lear family. We’re really excited. I mean, this could be a transformational change for us. We’ve been working on this for over 10 years. And I think that the 2 very strategic acquisitions of IGB and Kongsberg were complete. We can now move on this thing and Frank can get those margins up. And so let’s get to work you guys. I appreciate everything. Thank you. Operator: Ladies and gentlemen, with that, we’ll conclude today’s conference call and presentation. We thank you for attending. You may now disconnect your lines. Follow Lear Corp (NYSE:LEA) Follow Lear Corp (NYSE:LEA) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

NOV Inc. (NYSE:NOV) Q1 2023 Earnings Call Transcript April 27, 2023 NOV Inc. beats earnings expectations. Reported EPS is $0.32, expectations were $0.22. Operator: Good day, ladies and gentlemen. And welcome to the NOV First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a […] NOV Inc. (NYSE:NOV) Q1 2023 Earnings Call Transcript April 27, 2023 NOV Inc. beats earnings expectations. Reported EPS is $0.32, expectations were $0.22. Operator: Good day, ladies and gentlemen. And welcome to the NOV First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to introduce you to your host for today’s conference, Mr. Blake McCarthy, Vice President of Corporate Development and Investor Relations. Sir, you may begin. Blake McCarthy: Welcome, everyone, to NOV’s first quarter 2023 earnings conference call. With me today are Clay Williams, our Chairman, President and CEO; and Jose Bayardo, our Senior Vice President and CFO. Before we begin, I would like to remind you that some of today’s comments are forward-looking statements within the meaning of the federal securities laws. They involve risks and uncertainty, and actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or later in the year. For a more detailed discussion of the major risk factors affecting our business, please refer to our latest forms 10-K and 10-Q filed with the Securities and Exchange Commission. Our comments also include non-GAAP measures. Reconciliations to the nearest corresponding GAAP measures are in our earnings release available on our website. On a U.S. GAAP basis, for the first quarter of 2023, NOV reported revenues of $1.96 billion and net income of $126 million or $0.32 per fully diluted share. Our use of the term EBITDA throughout this morning’s call corresponds with the term adjusted EBITDA as defined in our earnings release. Later in the call, we will host a question-and-answer session. Please limit yourself to one question and one follow-up to permit more participation. Now let me turn the call over to Clay. Clay Williams: Thanks, Blake. For the first quarter of 2023, NOV reported revenue of $1.96 billion, down 5% sequentially on seasonality and project timing and up 27% compared to the first quarter of 2022. The company posted fully diluted earnings of $0.32 per share for the first quarter, up $0.45 year-over-year. EBITDA was $195 million or 9.9% of revenue, up $92 million year-over-year. Demand remained strong, our consolidated orders exceeded revenue out of backlog for the eighth consecutive quarter, yielding a book-to-bill of 109%. For most of our business units, it was a good quarter, but overall, EBITDA came in softer than we expected due to a couple of discrete charges when related to an environmental accrual top-up and another related to litigation, along with a significant supply chain issue we encountered in our drill pipe business. This led to an EBITDA shortfall and a significant build in inventory for the Wellbore Technologies segment. Revenues and EBITDA for our other two segments, Rig Technologies and Completion & Production Solutions, were generally in line with our expectations for the quarter. Unplanned events at one of our vendor steel mills within the past few months led to a lack of raw materials for drill pipe, specifically bar stock for tool joint material, which goes into the connections at each end of every joint. Lack of raw materials disrupted our production schedules and impacted our manufacturing efficiency. As we were required to double the number of production line setups, we typically perform each quarter in order to conform our manufacturing schedule to the materials we had on hand. Consequently, we lost valuable manufacturing time and faced higher costs as we scramble to secure more expensive supplies from alternative vendors, which led to far fewer shipments and a roughly $10 million EBITDA shortfall versus our earlier expectations for the unit in the first quarter. Drill pipe inventory increased significantly as green tubes and other raw materials continued to arrive as per our original plan but couldn’t be converted. While some disruptions are continuing to affect the unit’s second quarter results, we are working closely with our vendor to catch up and expect the situation to be resolved by the time we get to the third quarter. Elsewhere around the business, we are generally seeing steady improvement in supply chain challenges as freight reliability and costs have improved and certain raw material supplies are becoming more reliable. While many exceptions to this remain, engines, electrical components, certain elastomers remain scarce and deliveries elongated, for example, other components are catching up quickly. Rig Technologies saw inventory rise as castings and forgings, which are needed to support the group’s high backlog of spare parts, rig refurbishment and equipment repair, begin to flow at a greater rate. This inventory will support revenue growth in the second quarter and beyond. Much of our inventory growth in the Completion & Production Solutions segment came in our flexible pipe manufacturing operation, which was required to buy out the rest of its 2022 allocation from our polymer vendor to secure its 2023 allocation required to meet our 2023 production schedule. These increases, along with other modest growth in Wellbore Technologies apart from drill pipe, are pegged to specific orders and projects that will contribute positively to the remainder of our 2023 performance. Notwithstanding our drill pipe manufacturing challenges, our Wellbore Technologies segment executed very well and has continued to advance several new technologies leading to market share gains in bits and digital products. Customers running our KAIZEN artificial intelligence drilling optimization software are delighted with its results and we are preparing to spud wells for two new wired drill pipe customers in the Middle East. Interest in our new shale shakers and waste management technologies for drill cuttings is rising to as the offshore market puts more rigs back to work. Turning to our later cycle segments. First, Completion & Production Solutions has line of sight on several large projects we are bidding that are tied to higher levels of offshore FIDs expected later this year. We foresee tightening industry capacity and flexible pipe for deepwater developments and rising demand for gas processing technologies from NOV in support of global LNG demand. We continue to see strong demand for Intervention and Stimulation Equipment during the first quarter, with quotations up 31% sequentially, pointing to the need to replenish the industry’s toolkit with higher efficiency, lower emission technologies. Bookings were up 5%, including a lot of interest in our lower emission electric equipment. Our new Max Completions product was introduced during the first quarter to rave reviews as pressure pumpers and their customers are embracing the power of real-time big data to optimize frac jobs. The Rig Technologies segment made significant supply chain strides during the first quarter with record levels of centrifugal pump shipments. Shipments of spare parts into repair jobs and in support of offshore reactivations, as well as spares to support our Arabian rig manufacturing joint venture all accelerated. The segment continues to see growing activity in the offshore space with 55 recertification upgrade and/or reactivation projects now underway in shipyards. The segment posted orders of $251 million and a book-to-bill of 140%, which included $60 million related to an offshore wind turbine installation vessel. Revenues were down sequentially, though, as expected, due to high fourth quarter shipments of jacking systems, the completion of a handful of older offshore projects plus the fourth quarter sale of a land rig out of inventory that did not repeat. Our outlook for the remainder of the year for all three segments is robust, despite recent commodity price weakness. After eight years of capital starvation that saw more than 600 bankruptcies in E&Ps and oilfield service companies, the role is getting back to reinvesting in its critical energy infrastructure. The floating rig count has recovered quickly off the bottom in established during the pandemic and has now recovered more than 35% with the current contracting pace and FID outlook indicating many more needed by 2024. Drillships in good working conditions have already been reactivated, and with the low hanging fruit gone, contractors will have to go deeper into their stack to find rigs to meet growing demand. The complexity and cost of future reactivations will grow, and even more so, if the owner wants to add, for instance, a second BOP stack to comply with BSEE regulations or our PowerBlade technology to reduce OpEx and greenhouse gas emissions. The rising cost of these reactivation projects has led drilling contractors to require both multiyear contracts at higher rates, as well as operator provided financing for reactivation capital and mobilization expenses. As the original OEM for the vast majority of these rigs, NOV plays a critical role in these projects, and as more rigs go back to work, the E&P operators are seeing firsthand how impactful new NOV technology developed and launched during the downturn can be. We are pleased to report that, for instance, ExxonMobil has standardized on NOV’s toolkit for its offshore rigs in Guyana, including our NOVOS operating system with multi-machine control, our condition-based monitoring system and our new automation offerings. We are also pleased to report gathering momentum in the international land market, particularly in the Middle East and expect this to translate into tangible orders in the near future. Unlike North America, which saw its Shale Revolution Miracle preceded by a complete retooling of its land rigs to AC technology, international land markets have seen very little rig replacement higher levels of technology going back decades. That began to change with the decision by Saudi Aramco to establish a joint venture with us to build rigs in the Kingdom a few years ago backed by a contract for 50 newbuild rigs that we are now building. And with production growth targets announced by the national oil companies around the Gulf slated to come from far more complex wells and reservoirs is becoming clear to operators that the region has no choice to upgrade its suite of rigs, Stimulation Equipment, bits and downhole tools. Our customers face lower commodity prices and global recession fears during the first quarter that showed no signs of diminished appetite for the goods we provide. To the contrary, our orders remain strong and customer conversations robust. In all likelihood, North American activity is at best flat for a while, constrained by $2 gas and tepid oil prices, but offshore activity in Brazil, Guyana, the Gulf of Mexico and West Africa, along with land and offshore activity around the Arabian Gulf, point to strong growth over the next several years, underpinned by expected project FIDs and double-digit E&P CapEx growth plans. The focus of the national oil companies has been on satisfying their own local needs for natural gas, the recovery of global oil demand with the reopening of the Chinese economy, their growing confidence that U.S. unconventional growth is slowing significantly and the fact that the world has been under investing in production for nearly a decade. Thus, we believe we are seeing growing confidence from our NOC customer base to make longer dated capital investment decisions. As a leading independent manufacturer of equipment and technology to the oilfield, our business blossoms later in each up cycle than other business models in the oil patch as prosperity cascades through the ecosystem. For now, our consolidated margins remain below what we consider normalized levels due to this late cycle nature, along with the residual pandemic related supply chain disruptions, we continue to battle. As the cycle progresses, we expect supply chain issues to abate, lower margin backlog to burn off and pricing to continue to improve, which will boost our margins and earnings. NOV’s installed base of equipment and new automation and digital technology products introduced through the downturn place it in a uniquely advantaged position to drive higher efficiencies for its customers throughout the oil field as capital spending and activity return. Our mission, one that we are intently focused on is translating that unique competitive advantage into acceptable shareholder returns. We recognize we still have a ways to go on this journey. Before I hand it over to Jose, for those NOV employees listening today, I want to thank you for all that you do to take care of our customers and keep their programs on track, despite cost inflation, labor shortages, broken supply chains and global volatility. You are simply the best and our customers appreciate you and I want you to know that I do too. With that, I will turn it over to Jose. Jose Bayardo: Thank you, Clay. EBITDA in the first quarter of 2023 totaled $195 million or 9.9% of sales, a decrease of $36 million sequentially and an increase of $92 million year-over-year. EBITDA was negatively impacted by supply chain issues and related operational disruptions in our drill pipe business that Clay described, as well as $8 million in charges related to environmental reserves and legal expenses. Cash flow used by operations was $202 million during the first quarter, driven primarily by ordinary Q1 payments associated with and reflected in our accrued liabilities, as well as a sizable increase in inventory. While Clay spoke earlier of the inventory challenges we faced during the first quarter, I think, it’s worth recounting why this was such a significant use of cash during the period. First, in several of our businesses, the limited availability and uncertainty around deliveries of certain raw materials and components prevent us from completing the manufacturing of products in a methodical and efficiently planned process. We are having to set uncompleted products to the side while we await missing materials to finish the project, resulting in excessive levels of work in process or WIP and assemblies in our inventories. Second, we continue working to build buffers of critical materials and components in order to avoid the WIP build situation I just described. Third, while we are still experiencing significant delays of a limited number of materials, the broader global supply chain is healing at an accelerating rate, resulting in certain materials arriving faster and greater quantities than expected, including items for which we had been on limited allocations. Lastly, we are continuing to see growing demand for our products and services and our operations are gearing up for meaningful growth through the back half of the year. The total effect of all this is that we built up $60 million to $65 million of extra inventory during the quarter. While the inventory build was a sizable use of cash during the quarter, we welcomed the accelerated healing of the global supply chain, which will ultimately allow us to more efficiently manage our operations, improve working capital metrics and generate meaningful free cash flow as we work through the remainder of the year. We currently expect free cash flow to total between $100 million and $300 million for the full year. During the quarter, we increased our investment in Keystone Tower Systems, which resulted in NOV obtaining a controlling interest in the business. Accordingly, we have consolidated Keystone’s results into our financial statements in the first quarter. We remain encouraged by the potential for Keystone’s proprietary spiral welded wind tower technology to drive efficiencies in the wind tower space, but the operation remains an early-stage venture that we expect will continue to report losses in the near- to mid-term. NOV’s extensive market presence in wind tower installation offshore, heavy lift cranes and manufacturing makes us uniquely well positioned to capitalize on the efficiencies that taller towers bring through Keystone. Moving on to segment results, our Wellbore Technologies segment generated $745 million in revenue during the first quarter, a decrease of $17 million or 2% compared to the fourth quarter and an increase of 23% compared to the first quarter of 2022. The sequential decline in revenue was driven by seasonal slowdowns in key international markets and shipment delays due to the previously discussed supply chain issues for our Grant Prideco drill pipe business. EBITDA declined $133 million or 17.9% of revenue as the aforementioned disruptions and high margin sales from the fourth quarter that did not repeat, combined to drive outsized decremental flow through. As Clay mentioned, our Grant Prideco drill pipe business experienced supply chain challenges, which disrupted operations during the first quarter. While the issue has not been completely resolved, we expect much improved throughput from the operation in the second quarter and further improved results in the back half of the year. Drill pipe demand remained strong, and orders increased from already high levels in Q4 with an increasingly favorable mix of premium pipe for the Eastern Hemisphere and for offshore markets. Our ReedHycalog drill bit business realized an upper single-digit sequential revenue growth with solid EBITDA flow-through during the first quarter. The strong results were driven primarily by the seasonal recovery in Canada, as well as market share gains and pricing improvement in the Middle East and North America. While the Canadian breakup and slowdown in U.S. gas basins will serve as headwinds for the business in the second quarter, we expect continued market share gains in North America and incremental activity in the Gulf of Mexico and international markets to drive improved results for the unit in the second quarter. Our downhole tools business reported a mid-single-digit sequential decrease in revenue, primarily resulting from large sales of fishing tools and service equipment into the Middle East and Asia-Pacific during the fourth quarter that did not repeat. Partially offsetting the decline was a meaningful improvement in revenue from the operations drilling motor business the result of improved manufacturing throughput of our high-spec stators, which has been constrained due to challenges procuring certain high grade steel and elastomers. These stators power our industry-leading Series 55 motors, one of which was used to drill a 4.7-mile long section of a well in a single run, averaging 188 feet of drilling per hour. Looking ahead, we expect increased activity in the Eastern Hemisphere and our ability to recapture additional high-spec drilling motor market share resulting from the continued ramp in manufacturing capacity to drive solid growth for this business unit in the second quarter. Our M/D Totco business realized a low single-digit sequential decrease in revenue during the first quarter. Market share gains and pricing improvement drove low to mid-single-digit revenue growth in the U.S. for the operations surface data acquisitions offerings, but were more than offset by the seasonal decline in equipment sales into the Eastern Hemisphere. Revenues from the operations eVolve wired drill pipe optimization services were flat sequentially, but the business is preparing to ramp up several new projects, which are expected to commence in the second half of the year. The business unit also expects to continue gaining wider adoption of its digital solutions through arrangements with other customers similar to a recent global agreement signed with a major integrated oil company to provide edge computing, edge-to-cloud and cloud-based solutions that enable real-time insights to drive operational efficiencies for the customer. Our Tuboscope Pipe Coating and Inspection business posted a low single-digit percent increase in revenue with outsized EBITDA flow-through, resulting in the unit achieving its highest level of profitability in the last four years. The businesses coating operations benefited from growing sales in the Middle East, strong backlog in North America and solid global demand for its pipe sleeves and glass reinforced epoxy liners. The unit continues to increase market penetration of its technologically advanced product portfolio in the Middle East and recently won a five-year contract to provide its TK 236 Epoxy Novalac Coating System and Thru-Kote sleeves for joint operations in the Wafra field based on the product’s ability to withstand high pressures temperatures and aggressively sour oil and gas. Our Wellsite Services business posted a small decline in revenue, primarily due to the seasonal falloff in capital equipment sales from Q4 to Q1. Despite softening activity in the Western Hemisphere, the business unit is gearing up for a meaningful ramp in both its solids control and managed pressure drilling businesses with sizable projects scheduled to kick off in the second half of the year. Looking forward to the second quarter for our Wellbore Technologies segment, we expect the recovery in our drill pipe manufacturing operations and activity growth in the Eastern Hemisphere will more than offset headwinds from softening activity in North America, resulting in a sequential revenue improvement in the mid-single-digit percent range. Additionally, improvements in facility absorption, pricing and project mix should yield incremental margins in the mid-40s. Our Completion & Production Solutions segment generated revenues of $718 million in the first quarter of 2023, a decrease of 3% compared to the fourth quarter, but an increase of 35% compared to the first quarter of 2022. EBITDA for the first quarter was $54 million, down $12 million sequentially and up $44 million year-over-year. After the segment achieved its highest quarterly bookings since 2014 and eight straight quarters with a book-to-bill greater than one, orders decreased to $407 million in the first quarter, resulting in a book-to-bill of 96%. The decrease in Q1 order intake is attributed to typical seasonality in certain businesses. Additionally, we are pushing price so that new projects are accretive to project margins in our current backlogs and to drive improving segment margins and returns. One of our business units within CAPS walked away from three projects during Q1 worth over $100 million, where we were the preferred vendor and given the opportunity to match the price of other vendors. Despite this example in a market where global manufacturing availability is mostly absorbed, we are starting to see competitors become more rational in their pricing and those who remain undisciplined will soon exhaust their capacity and likely disappoint their customers. Our Intervention & Stimulation Equipment business posted a low double-digit percent increase in sequential revenue and revenue is up roughly 50% year-over-year. The solid sequential increase in revenue was primarily driven by strong shipments of both conventional DGB and eFrac pressure pumping equipment. During the quarter, we shipped 50,000 horsepower of pressure pumping equipment, including 10,000 horsepower of eFrac units. We also sold and shipped our first all-electric ideal processing plant, which can deliver more than 200 barrels per minute of water and 30,000 pounds per minute of proppant and is equipped with NOV’s latest digital capabilities, making it very simple to configure and operate. On its first day in use, our customer was able to exceed its average number of stages completed in a day. Despite oil price volatility and low natural gas prices, which we believe caused some customers to defer or cancel certain orders we expected, book-to-bill remains north of 100%. Our service provider customers have been running equipment extremely hard, achieving healthier returns and generating more cash, all of which we believe will continue to drive meaningful demand for replacement equipment in the U.S., despite a slowly softening market. While we have seen customers put indefinite holds on plans to add expansion capacity, quoting activity related to replacing tired equipment with new more efficient dual fuel or electric capabilities has remained robust. Our Fiberglass business posted a mid-single-digit sequential decrease in revenue, but was up more than 50% year-over-year. The seasonal decline in first quarter revenue was partially offset by a backlog that remains near record highs and stronger than usual mid-quarter shipments of fuel handling related equipment with customers eager to beat price increases that went into effect on March 1st. Orders came in just shy of 100% book-to-bill with relatively soft orders from U.S. oil and gas customers. Since quarter end, we have seen U.S. customers returned to the table and the outlook remains strong across the businesses various markets. Our Process and Flow Technologies unit posted a mid-single-digit sequential revenue decrease in the first quarter with a strong sequential improvement in its production and midstream operations being more than offset by lower progress on large projects nearing completion within the business units, Wellstream Processing and APL operations. Production in midstream operations benefited from an improving supply chain, which led to improved manufacturing output, allowing the operation to capitalize on its strong backlog and from continued robust order intake of production chokes, pumps and sand traps. In the units offshore-oriented Wellstream Processing and APL operations, order intake has remained soft over the last few quarters as operators have been recalibrating the impact of inflation on projects and as we have passed on low-margin opportunities. However, discussions surrounding large offshore project FIDs accelerated during the quarter and we are gaining confidence in the order outlook for the remainder of the year. Our XL Systems conductor pipe connections business experienced a sizable sequential decrease in revenue after completing several large project deliveries in the fourth quarter. Despite several operators in the Eastern Hemisphere pushing new projects to the right, siting delays and uncertainty on the timing and availability of large diameter casing and wellheads bookings remained solid in Q1. Offshore activity is continuing to ramp, setting a very compelling backdrop for our XL Systems business and we are expecting significant improvement in its results as we move through the year. Our Subsea Flexible Pipe business experienced a mid-single-digit decrease in sequential revenue. Orders for the quarter remained solid, with book-to-bill near 100%. We are continuing to obtain better pricing for new orders as global capacity remains limited and demand for Subsea Flexible Pipe for sanctioned projects remained strong. For the second quarter, we expect our Completion & Production Solutions segment to achieve a mid-single-digit increase in revenue with EBITDA flow-through in the lower 30% range. The quality of our backlog is improving with lower margin projects winding down and higher margin projects coming on, which should result in steadily improving margin progression for the next several quarters and we expect the segment to end the year with an EBITDA margin in the low-double digits. Our Rig Technologies segment generated revenues of $550 million in the first quarter, a decrease of $70 million or 11% compared to the fourth quarter and an increase of 25% compared to the first quarter of 2022. The sequential decline was a result of normal seasonality in our aftermarket operations and a falloff in capital equipment sales, which resulted from the completion of some major projects and the rush to ship equipment at year-end. The 25% year-over-year revenue growth better reflects the strengthening fundamentals we are seeing for our Rig Technologies segment. Adjusted EBITDA declined $19 million sequentially and improved $33 million year-over-year to $69 million or 12.5% of sales. New capital equipment orders totaled $251 million, representing a book-to-bill of 140% and driving total backlog up to $2.88 billion. The recovery in the offshore and Middle East markets is continuing to gain momentum, which helped drive our fourth straight quarter of improved bookings for conventional rig equipment. During the quarter, we received a significant capital equipment order associated with reactivating a seventh generation drillship. The project will include installing a new 165-ton active heave compensated crane and an upgraded control system, which includes a drilling automation system and drill pipe handling tools. We expect improving demand for rig capital equipment to continue. Rising technical and equipment specifications and tenders for the Middle East are acquiring the revitalization of drilling fleets that we have been expecting for some time. Similarly, tendering activity for offshore markets will require the need to continue reactivating rigs and we are beginning to get quite deep into the stack. Simply getting some of these rigs back into working condition is becoming a much bigger job, but most of the rigs also require meaningful upgrades to conform with operator requirements. We expect all of this to translate into a continued improvement in rig capital equipment orders through the rest of the year. Increasing activity, reactivations and upgrades are driving strong demand for aftermarket products and services. During the quarter, our rig aftermarket operations posted a 13% increase in spare part bookings, our fifth consecutive quarter of improved orders and the best spare parts bookings quarter since the third quarter of 2019. We expect demand for our aftermarket operations to remain robust based on the recent bookings and quoting activity we have seen from our field engineering group. Bookings and quotings levels in Q1 increased 31% and 40%, respectively, from average levels we saw during the second half of last year, with customers asking our engineers to help them prepare for reactivations, pressure control equipment upgrades and the addition of enhanced automation capabilities. While we were cautious on the offshore wind market coming into 2023 due to the impact of inflation and project delays, developers appear to have recalibrated time lines and are getting over the sticker shock resulting in more optimism around additional FIDs. During the first quarter, we received an order for the design and jacking system of a large Wind Turbine Installation Vessel, WTIV, for a European client. This is the second order from this customer and the sixth order for our NG-20000 vessel design, which has become the industry standard for the offshore wind installation market. Of the 15 WTIVs ordered globally in the last three years, excluding China, 12 have been based on NOV’s designs and we are optimistic about additional orders later this year as vessel demand for planned projects in the back half of the decade continue to outstrip existing and planned WTIV capacity. Additionally, during the first quarter, we delivered the world’s first telescopic heavy lift crane, capable of lifting 2,500 tons in retracted mode and 1,250 tons in extended mode. The crane was delivered to a Japanese client and is set to install its first offshore wind turbines later this month. We have become the wind turbine installation industry’s leader with a reputation as a dependable supplier with the ability to develop and deliver leading-edge technologies to drive efficiencies within the renewables sector. For our Rig Technology segment, we expect continued improvement in our aftermarket operations and higher levels of capital equipment revenue out of backlog to translate into sequential revenue growth of between 5% to 10% with incremental margins in the mid-20% range. While Rig Technologies is our longest cycle operating segment and is still in the very early stages of its recovery, we believe the Middle East, offshore and wind markets are unfolding in a manner that will allow the segment to drive meaningful growth over the coming years. With that, we will open the call to questions. Hello? Q&A Session Follow Nov Inc. (NYSE:NOV) Follow Nov Inc. (NYSE:NOV) We may use your email to send marketing emails about our services. Click here to read our privacy policy. Operator: Okay. Thank you. And our first question comes from Jim Rollyson with Raymond James. Jim, your line is open. Please go ahead. Jim Rollyson: Hey. Good morning, guys. How are you today? Clay Williams: Good morning, Jim. Jose Bayardo: Hi, Jim. Jim Rollyson: Clay, a lot of talk by yourselves and some of the other large players just around improvements and kind of the outlook for international and offshore, which obviously bodes well for you over time. But curious when you break down kind of what you are seeing between — you have talked about FPSO demand and your role there, obviously, rig reactivations and the fact that, you guys have talked about getting deeper in the weeds and the incremental capital dollars that are required there. Just as you kind of frame out how to think about where are the greatest lots of opportunity as this unfolds over the next several quarters for NOV? Clay Williams: Thanks, Jim. All three of our segments participate in the offshore, and I think it’s fair to say for all three segments as well as our peers in oilfield services, the offshore generally is a higher calorie sort of environment. And so I think why there’s so much enthusiasm across oilfield services with respect to the offshore coming back is the fact that it’s been largely absent since 2014. And so just to run it down, obviously, Rig Technologies as the leading OEM provider of equipment that’s seen on almost all the offshore rig fleet, as those rigs go back to work, we are the kind of the first call, drilling contractors make when it comes to reactivating their rigs to upgrading their rigs, which is why we are seeing rising demand for activity in shipyards around the world. I think I mentioned in my prepared remarks that re-certifications of rigs, special purpose surveys, upgrades and reactivations, we now have 55 projects underway in shipyards to support that effort, along with kind of the day-to-day aftermarket spare parts. And what we are particularly excited about is the adoption of technologies we developed for both land and offshore, but in the offshore and mentioned ExxonMobil standardization on their offshore fleet for the Guyana development. In Completion & Production Solutions, it’s a little more downstream and so the excitement there is really focused on FPSOs. We have a number of conversations underway with producers around our gas processing technology, our swivel turret monitoring systems for FPSOs, lots of areas in that world that we are market leader and then, finally, on Wellbore Technology. As these rigs actually do go back to work, they operate at very high day rates and so efficiency matters a lot. There’s a tremendous amount of focus on efficient wellbore construction operations and I am excited about the technologies that we have in digitally monitoring and optimizing those operations and the impact we are going to have as the rig count gets back to work. So haven’t — if you look at the offshore rig count, the rigs actually turning to the right, we are still not back to where we were in the first quarter 2020, but it’s clear to all of us in the space that the puck is going in the right direction. There’s been a lot of E&P conversations around FIDs on developments that have been — we have all been working on for the past several years that are now finally starting to move forward and excited about the impact on our business. Jim Rollyson: Thanks. That’s very helpful. And then just for one follow-up. On the Well Tech — Wellbore Tech side, obviously, you had some issues this quarter. It seems like the charges were kind of one-off deals. Hopefully, the steel supplier issues, you mentioned getting better in second quarter and should be fully resolved by the third quarter. When we think about the margin progression, obviously, you mentioned what second quarter looks like. But how quickly does Wellbore Tech get back to, because it sounds like everything else outside of that was actually performing quite well, plus or minus the seasonality. So just trying to understand how I think about margin progression there, getting back to where we were in 4Q and then beyond? Clay Williams: It is. As we mentioned, we are going to have a little bit of our drill pipe problems drift over into Q2, but we are pretty confident by Q3 that’s behind us. And so, when we get past — when we get to the end of the year, I think, we are going to have margins in that segment that start with two and feel pretty good about that outlook, Jim. It’s just — you can tell from our prepared remarks and our results, it’s frustrating to continue to have to battle through supply chain challenges and I will credit that team for the yeoman’s work that they did in the first quarter to overcome a pretty extraordinary disruption in a critical component that goes into drill pipe and they are very fully engaged on getting it fixed and behind us, and we are confident we will. Jim Rollyson: Great. Thanks for the answers. Clay Williams: Thanks, Jim. Operator: Okay. Standby while I bring the next caller. And the next question comes from Luke Lemoine with Piper Sandler. Luke, your line is open now. Please go ahead. Luke Lemoine: Hey. Good morning. Clay Williams: Good morning, Luke. Jose Bayardo: Hi, Luke. Luke Lemoine: Clay, your Rig Tech orders have kicked up nicely from year ago levels, been stabilized at a higher level kind of in the mid-$200 million range the last couple of quarters. Clay Williams: Yeah. Luke Lemoine: Do you think there’s now a base you can kind of build-up on and then could you talk about the margin profile of the backlog Rig Tech relative to your current Rig Tech margins? Clay Williams: Yeah. Yeah. We were pleased to see strong 140% book-to-bill in Q1 for Rig Technology. Jose mentioned, we had a pretty sizable wind turbine order in that, but we have had pretty much one of those — one or two quarters, we haven’t had one, but that’s been a pretty nice, steady piece of workforce. And then in addition to that, I think, Jose also mentioned, we had a rig reactivation capital equipment order embedded in there as well and that — for that particular rig, it was, call it, in very rough numbers in the $50 million range. Yeah, we are hopeful that, that we can kind of continue and that this is sort of a new base level, and as we also said in our prepared remarks, our expectation is that rigs are going to get more expensive to reactivate, and we are hopeful that they will also carry more upgrade equipment and replacement equipment as we get deeper into the stack. And so, but I would just point out, as you know, orders are always lumpy and there’s ups and downs and rig certainly benefited from this higher level of sustained demand in the first quarter, but orders are always going to be a little bit volatile for us and completion and production solutions. And so, but on the whole, I think, the level of enthusiasm across the oil and gas space is underpinning a pretty strong and robust outlook for demand for what we make. Luke Lemoine: Okay. Got it. And then maybe just kind of on the margins in the backlogs… Clay Williams: Oh! Sorry. Luke Lemoine: …and just directionally or magnitude? Clay Williams: Yeah. Thank you. Sorry. The second part of your question was margin improvement, and what I am most optimistic about there, frankly, is the sort of evaporation of all of the supply chain challenges that Rig Technology has been dealing with for these past couple of years as well. We have — our number one mission is to make sure that we deliver the spare parts and the consumables that our drilling contractor customers need to execute and they keep their rigs working. And so we in that group, too, have been doing yeoman’s work and moving heaven and earth to make sure our customers have what they need and that’s been a headwind in that business. And we were pleased in the fourth quarter to see in particular more castings and forgings available from foundries that support our operation and a step up in shipments and then even more shipments in the first quarter. So for instance, record shipments of some trifocal pumps. And so it’s kind of the supply chain issues abate, I think, that can kind of give rise to stronger margins in Rig Technologies. But we think that, that business, as we kind of look to the end of the year, we ought to see its EBITDA margins get up into kind of the low- to mid-teens range, let’s say. Jose Bayardo: And so, Luke, I’d add, so specifically related to the backlog, the pricing and the composition of the backlog within rig is quite good. That’s probably even more of a volume issue and some of the other external factors. So here as we have now had four straight quarters in a row of improving bookings specifically related to rig equipment, we feel much better about the absorption of our facilities. And as Clay mentioned, the return to normalization of the supply chain should allow much better margins for Rig Technologies overall. Luke Lemoine: Okay. Great. Thanks, Clay. Thanks, Jose. Clay Williams: You bet. Thanks, Luke. Operator: And our next question comes from Neil Mehta with Goldman Sachs. Neil, your line is open. Please go ahead. Neil Mehta: Good morning, team, and thanks for all the color. The first question is a follow-up to last quarter around free cash flow and I thought it was interesting that, Jose, you made the comment that you expected $100 million to $300 million of positive free cash flow this year, is that right? And given the burn in the first quarter, which I recognize is seasonally weak, maybe you could talk about the cadence of some of the drivers that give you confidence that could flip to positive? Jose Bayardo: Yeah. Sure, Neil. First of all to address the guide on that, yes, it was between $103 million of free cash flow. Clay Williams: $100 million. Jose Bayardo: I am sorry, $100 million to $300 million free cash flow for the full year. So more than offsetting the $256 million of free cash flow — of negative free cash flow in the first quarter. So, yes, as you pointed out, Q1 is always seasonally a very difficult free cash flow quarter and we had expectations that we would have a material consumption of cash in the first quarter of this year related to that seasonality, as well as what we had seen coming from a need to sort of continue building buffers in our inventory and to prepare for what was looking to be a really good year in 2023, particularly as we get back to the back half year. So all of that occurred as expected, plus the laundry list, the four different items I mentioned in my prepared remarks related to supply chain challenges and accelerated recovery of the supply chain, which led to about $65 million more of inventory than what we were expecting three months ago. So looking at the next three quarters of the year, there are always a lot of puts and takes one quarter to the next. The timing of a payment from a customer, a single payment could be plus or minus $50 million and depending on where it hits one quarter to the next is going to make a pretty material swing. So I am not going to give precise guidance for every quarter. But really, if you sort of look at the math on how we get to that free cash flow guidance, what we are looking at is, working capital metrics at the end of this year, and when I said working capital metric, call it, working capital as a percentage of revenue run rate, is really 200 basis points to 300 basis points higher than where we exited last year gets us within the range of that guidance. So these are not Herculean-type assumptions that are built into our expectations for free cash flow. And typically, what happens is Q2 is a slightly positive free cash flow quarter and it improves in the final two quarters of the year. So that’s kind of what my expectations are. Neil Mehta: And how much visibility do you have into that back half inflection at this point in the year, given you are a long cycle business? Is it fair to say it’s something where you have a high degree of confidence interval and to the extent that there would be a downward surprise to that sharp improvement in free cash flow, what is the biggest risk to it? Jose Bayardo: Luke, we feel pretty good about the outlook in the second half of the year and within that outlook is baked in some softness within the North American marketplace. And so really the — I see the bigger risk on the free cash flow really relates to a higher exit rate than what we have dialed in and that’s certainly a possibility. And as I have always said, I would gladly take a higher growth rate and less near-term cash flow to have that higher growth rate that ultimately translates into higher free cash flow down the road. Neil Mehta: Yeah. Clay Williams: Neil, as you know, the business model of providing capital equipment to the oilfield can be pretty. There’s a lot of optionality and can be a lot of pretty explosive growth in that model. And if you look back to the prior super cycle, our topline grew almost seven-fold between 2004 and 2014. And so to Jose’s point, a lot more revenue is a possibility and would require more investments and inventory and working capital to support, but not a bad problem to have. Neil Mehta: Yeah. Those are good problem. Thanks so much, team. Clay Williams: You bet. Jose Bayardo: Thanks, Neil. Clay Williams: Eric, are you there? Jose Bayardo: Eric’s speaker on mute. Clay Williams: Eric, we are ready for the next… Operator: Yes. I am so sorry. Yes. I have brought Stephen Gengaro from Stifel. Your line is open. Please go ahead. Stephen Gengaro: Thanks. Good morning, gentlemen. Clay Williams: Good morning, Stephen. Stephen Gengaro: Two for me. I think, first, we have heard a lot from some of the U.S. pressure pumpers about kind of upgrading assets and really seeing a bifurcation in the market for electric fleets. And I am just curious what you are seeing on that end and how you think about that business potentially picking up over the next several quarters as companies start to see the benefits and probably kind of go get in line for new equipment? Jose Bayardo: Yeah. Stephen, I will start off on that one. So, yeah, I mean, right now the dialogue with our customers for pressure pumping equipment in the North American marketplace remains very positive, very, very constructive. As I mentioned in my prepared remarks, there were some conversations that we are having last quarter with customers about potentially adding what would have been net expansion fleets. Those specific conversations, which were a very limited number of conversations have died off. But I’d say the conversation related to the need to replace and upgrade existing fleets is every bit as strong as it was last quarter, if not stronger. So I think people are really, one, the asset base is tired. It’s been run extremely hard, but maybe even more importantly, to your point, we are seeing more customers really acknowledge that bifurcation that you touched on in terms of the reliability, the quality and the total cost of ownership associated with either state-of-the-art dual fuel or e-fleets. So we expect demand to remain pretty resilient going forward. Plus, honestly, we are also seeing good demand coming from wireline equipment and pressure control equipment, both domestically as well as in international markets. So feel pretty good about the footing of our Intervention and Stimulation Equipment operations. Clay Williams: Yeah. We hear anecdotally that the pressure pumpers customers, the producers are pressing the pressure pumpers to have a plan to reduce emissions and natural gas and electrification is generating a lot of interest around that question. The other data point, I don’t know this in our prepared remarks, but I think our quotations in our business unit were up 30% or 35% sequentially in that area. So a lot of good conversations around the need for Stimulation Equipment. Stephen Gengaro: Great. Thanks. That’s great detail. One quick one on the Rig Tech side, when we think about the order flow you are seeing and sort of the revenue out of backlog numbers as the next several quarters unfold. Is there an inflection point we should be thinking about as far as revenue out of backlog or is it a pretty smooth likely gradually move higher over the next several quarters? Jose Bayardo: Yeah. Stephen, the expectation is it’s more of a smooth progression over the next several quarters. Stephen Gengaro: Okay. Great. Thank you. Clay Williams: Yeah. Thanks, Stephen. Operator: And I am just bringing the next caller forward, Kurt Hallead with Benchmark has the next question. Kurt, your line is open. Go right ahead. Kurt Hallead: Great. Thank you. Hey. Good morning, guys. Clay Williams: Good morning, Kurt. Kurt Hallead: As always good color. Always appreciate it. So, yeah, my initial question here is also on Rig Tech and as you referenced number of potential deepwater rig activation potentially coming over the course of the next 12 months or so to satisfy the incremental demand. Based on the data, I think, I have seen, there is about 14 deepwater rigs that likely to upgraded — that could be upgraded within 12-month period with cost range anywhere between $70 million to $100 million. You have already given some indication that on a rig activation order you booked in the quarter that had about a $50 million ticket size to it. So I guess that answers the question that I had, but is that kind of on average would you or we would expect to be able to get from the rig activation? Clay Williams: Well, I’d be — I am going to caution us all that you are kind of asking how long is a piece of rope, every rig is different and the capabilities of a rig required for a particular drilling program are going to vary by operator. And frankly, nobody is going to mood to spend capital that they don’t have to spend and so what I would tell you it’s hard to give you a clean average it’s going to apply to all of those rigs, they all need the different, well, first of all, we have got a engineers in there on the deck and look around and see what remains to be done. But the general trend and this is the picture we were trying to paint in our remarks is that, as you get deeper into the stack, the rigs are the cheapest and easiest to get reactivated first, get reactivated first. We are getting deeper into the stack and it’s going to take more — increasingly more work and so I am hesitant to generalize and it’s a pretty wide bracket of cost. But on that notwithstanding, yeah, in the market that today has about 80 drill ship drilling, there is about 14 that could, paying how much money they have could be put back into that marketplace. I think there was another four being constructed and that were suspended in those construction activities could pick and shipyard get back to completing those rigs and putting them into the marketplace and then after that, I think, you are going to have to — you would be looking building your rigs and so that’s kind of the extent of capacity that’s out there. Kurt Hallead: Yeah. Got it. Yeah. Great. Thanks. One follow-up, so you guys referenced that, your current EBITDA margins for each of your segments are below what you could see be normalized. So could you give us a refresher on what you consider to be normalized margins for each of those businesses and I probably would then just kind of see if you can give us a perspective as to given the visibility you have, Clay, on how things are unfolding as normalized margin, the prospect for 2024, is it going to maybe take a little bit longer to get there? Clay Williams: Yeah. I would tell you, I am going to give you a consolidated answer rather than go segment-by-segment, but mid-cycle margins here ought to be mid-teens in my view and 9.9% is disappointing. We were knocking on the door in 2018, 2019, and I think, we need to see — the supply chain issues get behind us, we need to continue to push price. We need to burn off some lower margin backlog and that’s the path to get us back to acceptable margins, which is where we ought to be now. And then if you kind of extend the story and you go back to the last super cycle, as we get past the mid-cycle and things really get a little more heated up, margins that start with the two are a possibility. And so that’s really what we are targeting and we are working on improving the margins in all three of our segments and using all the levers we have from improved operational management, along with price increases and that’s what the goal is. Kurt Hallead: Okay. Great. Thanks. Appreciate the color. Clay Williams: You bet. Operator: Okay. Standby for our next caller. It is Marc Bianchi with TD Cowen. Marc, your line is open. Please go ahead. Marc Bianchi: Hey. Great. Thank you. I was curious on the outlook for CAPS orders. So, I mean, thematically, it sounds like things are very, very strong and there’s good levels of inquiry and so forth. But if I just look at first quarter fell off from arguably an exceptional fourth quarter. But maybe in the context of those two data points, how do you see orders developing for the remainder of the year here? Clay Williams: Yeah. Actually, Jose referenced the fact that like in one of our CAPS business units. In the first quarter, we had three different projects we were bidding that exceeded $100 million that the customer came back to us and says, hey, if we want to go with NOV, we recognize NOV superior quality and lower risk and better value, but we have got a competitor of yours that offer at a different price, if you will match their price, we will go with you and we said no. And so the pro forma version of our orders for Q1 with those three orders in them would be a very strong book-to-bill in the 120%, 130% I guess. And so like we need to improve our margins in CAPS, 7.5% EBITDA margins in the first quarter are not acceptable and one of the paths to get there is to get better pricing on what we sell. Marc Bianchi: Hello, Clay? Hello. Operator: I am on the line with you. Is that Marc speaking? Marc Bianchi: Yes. Operator: Yeah. I do not know what just happened to these gentlemen, it looks like they have just gone off-line. If everyone, if you just stand by, I am going to try to get them back on the call. Blake McCarthy: Everyone back Operator: Yeah. Hello. This — hey. Blake, are you back online? Blake, are you back online? Ladies and gentlemen, please standby. I am working to get these folks back online. Thank you for your patience, everyone. Blake McCarthy: Hello. Operator: Yes. You are live. Blake McCarthy: Yeah. Great. Thank you. We still have — Marc, are you still there? Marc Bianchi: Yeah. I am. Clay Williams: I apologize. Marc, I am not sure what happened, but or how much comment you got? Marc Bianchi: Oh! You had mentioned there was work you were bidding on that customer or tendering the customer… Clay Williams: Yeah. Marc Bianchi: … with somebody else and it would have been 120% to 130% kind of book-to-bill. So I guess that kind be the… Clay Williams: No… Marc Bianchi: … conclusion is. Clay Williams: Yeah. Let me just cap it off by saying that no one should look at our CAPS order trend for the first quarter and become alarmed. Our CAPS book-to-bill. 96% is effective replacement of what we ship. We are being more disciplined around pricing and as our competitors fill up their capacity. We feel very good about the outlook. We also have a number of FEED studies with customers in that business that we think will translate to larger orders on down the road and working closely with customers there. Marc Bianchi: Okay. Great. Well, thanks. In the interest time, I will just leave it to one. Clay Williams: Marc. Jose Bayardo: Thanks, Marc. Clay Williams: Operator? Operator: Thank you, Marc. Yes. Jose Bayardo: We know it’s a very busy day. But if people would like to stay on for an extra 5 minutes after the top of the hour, we can do one or two more questions. Operator: Okay. I have got Arun Jayaram with JPMorgan on the line right now. Clay Williams: Hi, Arun. Arun Jayaram: Yeah. Good morning. Yeah. Hi, guys. Clay, I wanted to get maybe some insights on what you are seeing from your OFS customers. I mean you have mentioned historically that the OFS ecosystem is an important part of your revenue base and I wanted to see if you could talk about what trends you are seeing from some of your international offshore focused OFS customers, as well as onshore where some of the land drillers have highlighted reduced CapEx trends as they have gone through the earnings season… Clay Williams: Yeah. Arun Jayaram: … just give on some of the gas risk, I’d love to get your thoughts on that and… Clay Williams: Yeah. I think with respect to your last observation, most of that’s in North America. Well, we tell you it’s a very different picture overseas and so we are very encouraged about interest and demand for land operations both in South America, as well as the Arabian Gulf. And for instance, we have won — there was a land tender by an NOC, land rig tender, pretty good size and we are selling the components into the Asian rig packager that is going to be providing those rigs to that NOC. With respect to our Arabian rig manufacturing joint venture in Saudi Arabia. As you know, we have been delivering rigs to Sunaad there and pleased with the progress there. In addition, we have another drilling contract that we think we are very close to landing a couple of rig order from as well as other drilling contractors in the Kingdom that are talking to us about the need to really upgrade the fleets. And that’s pressure that’s coming from the NOC, happy with the level of efficiency coming out of the old fleets that predominate in those regions or in South America and so I think that’s going to be the engine that it drives upgrade onshore. And then with respect to the offshore, we are hearing this from all over, more offshore rigs going back to work, and we, of course, work closely with the drilling contractors that run those rigs, along with providing services directly to those rigs. And so for instance, our brand business, our waste management, drill cutting processing business, they are rigging up on a lot of offshore rigs and anticipate better things in the second half of 2023 as more rigs spud and these programs get underway and we can provide services directly into those. Likewise, our Tuboscope business, it’s pipe operation here on the Gulf Coast, Amelia, at Sheldon Road or staying a lot more offshore pipe coming in, in support of offshore operations. So really all around the world, everyone is kind of looking at the same data set and seeing growth ahead in the offshore. Arun Jayaram: And real quickly on the Sunaad new builds, how many of those are in backlog and is the opportunity set 50 there? Clay Williams: Yeah. I think we have delivered three, two are working. We are in the process of doing the third. We are building four and five. The total order is 50 rigs. And so remaining would be 50 minus the rigs I just described to you. Arun Jayaram: Sounds good. Really appreciate it. Clay Williams: Yeah. Thank you, Arun. We have time for one… Blake McCarthy: Can you hear us? Operator: Yes. I can hear you. Clay Williams: Hello? Operator: I can hear you. Yes. Tom Curran with Seaport. Your line is open. Tom Curran: Good morning. Can everyone hear me? Operator: You know what, I believe that we have lost NOV again. Tom Curran: Okay. Operator: I am so sorry for the technical difficulties today, folks. Let’s give them a moment to see if they can dial back in. Tom Curran: Sure. Operator: It is. I am unable to connect them from my end. Dial back into call. Tom Curran: I understand. Operator: Okay. Blake? Blake McCarthy: Yes. We are going to go ahead and wrap it up, but let’s pass it over to Clay Williams — we are going to pass it over to Clay Williams, Chairman and CEO, for closing remarks. Clay Williams: Thank you, Blake, and thank you, Operator. Appreciate all everybody joining in on a very busy earnings day. We look forward to updating you on our second quarter results in July. Have a great day. Operator: Thank you everyone for participating in today’s conference. This does conclude the program. You may now disconnect. Follow Nov Inc. (NYSE:NOV) Follow Nov Inc. (NYSE:NOV) We may use your email to send marketing emails about our services. Click here to read our privacy policy......»»

Badger Meter, Inc. (NYSE:BMI) Q1 2023 Earnings Call Transcript April 20, 2023 Badger Meter, Inc. beats earnings expectations. Reported EPS is $0.66, expectations were $0.55. Operator Ladies and gentlemen, welcome to the First Quarter 2023 Badger Meter Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded.It is now my pleasure to […] Badger Meter, Inc. (NYSE:BMI) Q1 2023 Earnings Call Transcript April 20, 2023 Badger Meter, Inc. beats earnings expectations. Reported EPS is $0.66, expectations were $0.55. Operator Ladies and gentlemen, welcome to the First Quarter 2023 Badger Meter Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded.It is now my pleasure to turn the conference over to Karen Bauer, Vice President of Investor Relations, Corporate Strategy and Treasurer. Please go ahead, Ms. Bauer.Karen Bauer Good morning, and thank you for joining the Badger Meter first quarter 2023 earnings conference call.On the call with me today are Ken Bockhorst, Chairman, President and Chief Executive Officer; and Bob Wrocklage, Chief Financial Officer.The earnings release and related slide presentation are available on our website.Quickly, I will cover the safe harbor, reminding you that any forward-looking statements made during this call are subject to various risks and uncertainties, the most important of which are outlined in our press release and SEC filings.On today’s call, we will refer to certain non-GAAP financial metrics. Our earnings slides provide a reconciliation of the GAAP to non-GAAP financial metrics used.With that, I will turn the call over to Ken.Ken Bockhorst Thanks, Karen, and thank you for joining our first quarter earnings call.The Badger Meter team started off the year continuing the exceptional performance of 2022, delivering record revenue and profit while still achieving yet another positive book-to-bill ratio. Operating profit margin improved, benefiting from both gross profit margin expansion and continuing SEA expense leverage.Early in the quarter, we completed the Syrinix acquisition, adding pressure monitoring and acoustic leak detection capabilities to our broad smart water solutions. We’re pleased with the integration progress and the early discussions we’re having with customers about our expanded offerings, reinforcing our views on the complementary and scalable nature of the acquisition.I’ll provide an update on the macroenvironment and outlook later in the call, but for now, I’ll turn the call over to Bob to go through the details of the quarter.Bob Wrocklage Thanks, Ken, and good morning, everyone.Turning to Slide 4. Our total sales in the first quarter were $159 million, an increase of 20% compared to the $132.4 million in the same period last year, representing an all-time record sales quarter for Badger Meter.Total utility water product line sales increased 20% year-over-year, as we experienced continued strong order demand, sequentially improving supply chain dynamics and ongoing price realization. Strong orders and shipments associated with utility cellular AMI adoption, including higher ORION Cellular endpoint and BEACON Software as a Service sales continued. Additionally, we saw increased sales of meters, including E-Series Ultrasonic meters in residential and commercial applications. Finally, while the impact was relatively small, Syrinix sales were included for the full quarter. pipeline,storage tanks and buildings of a refinery – industrial plant for fuel production The strong demand environment resulted in another record utility water backlog exiting the quarter, even with the record top-line sales performance.Sales for the flow instrumentation product line increased an exceptional 22% year-over-year, led by solid demand in water related markets and improved component supply availability. Order trends were strong with our emphasis on water related applications outperforming general industrial end markets.Turning to margins. We are very pleased with the operating margin expansion of 150 basis points in the quarter, with both gross margin expansion and continuing SEA spend leverage contributing to the improvement. Gross profit dollars increased $12 million year-over-year, and, as a percent of sales, improved 120 basis points to 39.5%, at the higher end of our normalized range. The combination of higher volumes, favorable mix, including higher SaaS revenues, value-based pricing and some leveling off of input cost inflation drove the improvement.SEA expenses in the first quarter were $37.8 million, an increase of approximately $6 million year-over-year, due primarily to personnel related costs, including higher headcount, salaries, sales commissions and travel. The addition of Syrinix with its related intangible asset amortization also contributed to the increase. Despite the higher spend levels to support growth, SEA as a percent of sales declined 40 basis points to 23.7% from 24.1% in the comparable prior-year quarter. Note that historically the first quarter tends to be on the higher end for SEA leverage and we would expect modestly improved sequential leverage in the remainder of the year.With higher interest rates, we are seeing some return on our cash balance, as noted in the interest income line. To address the related topical question on the strength of our banking partners, we are not with — involved with any of the named troubled banks, we have no debt, and we’ve reviewed asset makeup and other data with our primary banking partners and do not anticipate any concerns.The income tax provision in the first quarter of 2023 was 24.3% compared to 23.7% in the comparable prior-year quarter.In summary, consolidated EPS was $0.66, a robust 35% improvement from $0.49 in the prior-year comparable quarter.Working capital as a percent of sales was 23.1%, a 100 basis point increase from the record low 22.1% at calendar year end, but still improved from 24.7% in the prior-year comparable period. While working capital did increase to support growth, we continue to carefully manage customer payments and strategic inventory investments.Free cash flow of $13.7 million was improved from a year ago, primarily on higher earnings and reflects the typical seasonality with incentive compensation and retirement plan contributions earned in 2022 based on those strong results and then made in the first quarter.With that, I’ll turn over the call back over to Ken.Ken Bockhorst Thanks, Bob.Turning to our outlook, I remain excited about the opportunities ahead. With continued robust order pacing, a strong bid funnel and record backlog, we remain confident that our exceptional customer support and winning portfolio of digital smart water solutions position us well for sustainable growth.To-date, we’ve seen no evidence that the higher interest rate environment or the banking sector consternation are having an impact on customer budgets. In addition, with 85% of meter volumes being replacement driven, an increasing level of replacement radio volumes and recurring software revenue, we expect very limited impact from any potential moderation in new residential or commercial construction markets.I’m also encouraged by the sequential improvement in supply chain dynamics. Coupled with moderation in the rate of input cost inflation, value-based pricing and continued SEA leverage, we continue to expect gradual operating margin improvement in 2023.Our cash on hand, overall strong free cash flow generation and debt-free balance sheet provide us with ample capacity to further invest in both organic and acquisition-enabled growth.Finally, we were proud to be named for the first time as one of Barron’s 100 Most Sustainable Companies. We have a long history of working to grow our business and our positive impact in the world by enabling our customers to do the same. This type of recognition demonstrates that it is possible to deliver both strong financial and sustainability performance.In closing, I want to thank our team for their ongoing commitment and efforts in serving our customers.With that, operator, please open the line for questions. See also 20 Biggest Power Generation Companies in the World and 16 Largest Grocery Chains in the World. Question-and-Answer Session Operator Certainly. [Operator Instructions] The first question comes from the line of Nathan Jones of Stifel. Please proceed.Nathan Jones Good morning, everyone.Ken Bockhorst Hi, Nathan.Karen Bauer Hi, Nathan.Bob Wrocklage Good morning, Nathan.Nathan Jones Just want to — just going to start with a question around supply chain. Some pretty positive commentary, I think, in your prepared remarks and in the press release this morning. Can you just talk about where supply chain is now compared to, say, where it was last year, where it was in 2019 before COVID? Is it still a problem with throughput, or you kind of back to normal capacity utilization today?Ken Bockhorst Yeah. So, as we’ve talked throughout this entire challenging time was supply chain. We’re still not back to pre-COVID supply chain reliability, but we’re certainly in the best position that we’ve been ever since COVID. So, 2021 was extremely difficult. 2022 remained extremely difficult and started to improve a bit at the end of the year, and certainly Q1 is the best that we’ve seen. Now that doesn’t mean that we still didn’t have some challenges that limited some output, but overall, the way that we’ve thought that it was going to play out is the way that we’re seeing it. We do still think there’ll be some intermittent challenges in the first half of the year, but again still improving. And then, we think towards the back half of the year, it will be perhaps hard to predict, but perhaps back to pre-COVID levels.Nathan Jones Fingers crossed, right? Are metrics like on-time delivery and past due backlog still a little bit below where you would have been in 2019? And it sounds like maybe hoping to be back to that level by the end of ’23.Ken Bockhorst Yeah. So, we have a very high bar in expectations for on-time delivery and past due backlog. And admittedly yes, they’re — on-time delivery is lower than we expect of ourselves and past due backlog is higher, but I definitely think as we start to see supply chain improve, which then also leads to some better efficiency and throughput, that we’ll be making progress in those areas coming forward.Nathan Jones Let’s say hypothetically that the supply chains are back to normal by the end of 2023, is there a meaningful amount of backlog for you to work down? Or is the record backlog more a result of obviously very strong? Or it is — if it’s still going up as supply chains are improving? Just trying to get a sense of how much of that kind of backlog should get worked down, or whether that’s — something that’s going to stay consistently high.Ken Bockhorst Yeah. So, as with many things, it’s a multi-variable situation. So, the backlog is perhaps inflated a bit because demand has been so hot and supply chain has caused some things to be later in backlog. There is the very positive side of it as we’ve talked for years now about growing technology adoption, so now we’re selling a larger portion of radios with meters. So just by pure definition, the backlog is going to be higher than it used to be because of the average sell price of a bundle. So, I think we’re going to continue into the future at an elevated rate versus pre-COVID, but it’s still certainly elevated beyond where I think it will normalize after we get through the supply chain operational challenges.Nathan Jones Great. Thanks for taking the questions. I’ll get back in queue.Ken Bockhorst You bet. Thanks.Operator Thank you. The next question comes from Ryan Connors of Northcoast Research. Please proceed.Ryan Connors Good morning. Thanks for taking my questions, and congrats to the team on another great number.Ken Bockhorst Yeah. Hi, Ryan. Thanks.Karen Bauer Hi, Ryan.Ryan Connors So, my first question was just on — sure. First question was just on price versus volume. I apologize if I missed it, but I didn’t hear any kind of breakdown there. Are you able to provide any breakdown on top-line in that regard?Ken Bockhorst Yeah. So, we haven’t quite disclosed that, but it is certainly much more volume driven than it is price.Ryan Connors Okay. And then, my other question was, as I mentioned, you’ve had great numbers here. You’ve been, I think, kind of outperforming your peers really for the last year or plus. Is it your view that anything is going on here that you’re actually taking share? And what would be your comment on that? Or do you just believe that you’re participating in some more systemic factors in the markets that’s lifting all boats? And just trying to break down the relative contributions there, because certainly you’ve made some good bets on technology with cellular and otherwise.Ken Bockhorst Yeah. So, we generally maintain the Midwest humble approach and usually shy away from making claims about taking share. But I think if you look at our competitors, we clearly have performed and delivered, I think, significantly more than most of them throughout this period and also carry an elevated backlog. So, when you look at some of the areas where we’ve seen the outsized growth, I think being first in Ultrasonic has been extremely beneficial for us. Being on the lead and changing, if you will, the way the AMI market views the value within it, our cellular approach certainly, I believe, is taking share on the AMI side. Coupled that with our best-in-class software package that comes with that and the continued — over the last several years, 45% CAGR on software......»»

Futures Slide After Hawkish Bullard Comments, Red Hot UK Inflation US equity futures fell following hawkish comments from FOMC non-voter Jim Bullard and another double digit CPI print out of the UK; China was weak with property names dropping -2% led by Hong Kong developers which dropped after city leader John Lee dismissed calls by the industry to scrap property cooling measures. Sentiment was also dented by news Tesla cut prices again - just hours before it reports Q1 earnings -which is likely to not be well received by auto sector.  Netflix tumbled as much as 12% on Tuesday before recouping almost all losses after a miss on subscribers but after boosting cash flow. Regional banks within a hair of new lows but WAL numbers overnight should give some support to the sector. Contracts on the S&P 500 fell 0.5% at 7:15 a.m. ET Nasdaq 100 futures slipped 0.8% as the yield on the 10-year Treasury rose to nearly 3.62%, mirroring larger moves in UK gilts following the abovementioned CPI print. The Bloomberg Dollar Spot Index traded near the day’s highs, pressuring most Group-of-10 currencies. Oil, gold and Bitcoin all fall in tandem. In premarket trading, Tesla dropped 2% after further cutting prices on some models in what is an increasingly bitter price war to capture EV market share ahead of first-quarter results due later Wednesday. Netflix dipped after the video-streaming firm added fewer subscribers than anticipated in the first quarter. Here are some other notable premarket movers: Western Alliance rises as much as 18%, boosting shares in fellow regional lenders, as analysts viewed the bank’s balance-sheet repositioning positively, highlighting measures to improve liquidity. The company said deposits rose $2 billion this month through April 14, an encouraging signal given March’s turmoil in the industry following the collapse of SVB. Netflix falls 1.3% after the video-streaming company added fewer subscribers than had been anticipated in the first quarter. However, analysts remain positive on the stock’s long-term prospects as the company raised its full-year free cash flow forecast. UBS upgraded to buy from neutral. Shares of video streaming companies were lower after Netflix added fewer subscribers than had been anticipated in the first quarter. FuboTV -3.2%, Roku -1.3%. Intuitive Surgical jumps 7.1% after the maker of surgical tools reported procedure growth for the first quarter that beat the average analyst estimate, sending analyst price targets higher. Brokers said Intuitive’s results bode well for peers, and show the environment is improving for such companies as they recover from pandemic-related disruptions to medical procedures. United Airlines climbs as much as 0.8% after the carrier reported a narrower-than-estimated loss for the first quarter. Analysts said the company’s outlook was strong and showed that demand for travel is holding up. Riot Platforms and Marathon Digital lead fellow cryptocurrency- exposed stocks lower as Bitcoin records its biggest drop in over a month, falling back below the $30,000 mark. With tax receipts filtering in expect to see a broad based liquidity drain over the next few weeks. CTA positioning is approaching fully long, macro buying has persisted for 6 weeks (nets have crept higher ) and the Goldman trading desk has already seen quite substantial vol control demand with vix back to a 16 handle. Investors are monitoring earnings to assess how companies have grappled with headwinds including slowing demand and higher interest rates. At the same time, they’re looking for clues if and when the Federal Reserve will end its tightening policy amid fears of a recession and more bank failures. “Central banks, for now, will keep hiking until they see more evidence of lower inflation down the road,” Barclays Plc strategist Emmanuel Cau said on Bloomberg Television. “Inflation is still high and to some extent growth is resilient at the same time, so I think the resolve of central banks to hike and to see more evidence of inflation coming down is still here.” Separately, Cau said in a note that there’s scope for first-quarter earnings to beat estimates given that growth momentum has rebounded in China, and held up better than expected in the US and Europe. Globally, volatility has remained at low levels leading many bearish strategists to warn of complacency. Bank of Atlanta President Raphael Bostic said he favors raising rates one more time and then holding them above 5% for some time to curb inflation, while his St. Louis counterpart James Bullard said he prefers getting rates into a 5.5% to 5.75% range. Global markets appear to be overbought and “people should not be too complacent” about the reduced volatility, JPMorgan Asset Management’s Head of Investment Specialists for Asia excluding Japan Jonathan Liang said in a Bloomberg Television interview. He added that a US recession has not yet been priced in. DAX and CAC lose 0.1%, while UK stocks underperformed their regional peers following another month of hotter than expected double-digit CPI, pushing the FTSE 100 down 0.3%. Here are the biggest European movers: Worldline shares jump as much as 9.4%, most since July, after the French payments company launched a joint-venture in merchant payments with Credit Agricole Heineken shares rise as much as 3.9% after 1Q update, with analysts saying the Dutch brewer’s pricing power helped offset some expected but unwelcome volume weakness in key markets Kuehne + Nagel climbs as much as 2.2% after the Swiss logistics giant was upgraded to buy from hold at Deutsche Bank, which cited better freight data National Express shares rise as much as 5.8%, with analysts saying the transport operator delivered a strong first-quarter revenue performance that will underpin its guidance ASML shares fall as much as 3.5% in Amsterdam after the semiconductor-equipment maker reported its lowest quarterly order intake since 2020 amid an industry downturn Renault falls as much as 4.4% was downgraded to neutral from buy at BofA amid higher EV competition and price pressures. Renault is also set to release 1Q sales figures tomorrow Just Eat Takeaway shares dip as much as 6.1% in Amsterdam, paring gains of as much as 5.1%, after the food-delivery company reported first-quarter orders that were below expectations Earlier in the session, Asian stocks fell as Chinese shares struggled to find footing after mixed economic data released Tuesday, while investors parsed the latest comments from Federal Reserve officials on interest-rate hikes. The MSCI Asia Pacific Index dropped as much as 0.9%, led by consumer discretionary and technology shares. Hong Kong and Chinese benchmarks led losses around the region, while South Korea edged closer to a bull market. Australia also advanced. The latest set of Chinese economic data showed an uneven recovery picture, while hopes for further stimulus have been dampened. That has kept a lid on investor enthusiasm as it signals China’s recovery will likely be gradual, even though the worst may be over after its reopening from Covid Zero. Japanese stocks declined, halting an eight-day rally, as investors remained concerned about the risk of higher US interest rates and Chinese equities were hit by shareholders’ plans to trim their stakes. The Topix was virtually unchanged at 2,040.38 as of the market close in Tokyo, while the Nikkei 225 declined 0.2% to 28,606.76. Out of 2,158 stocks in the index, 753 rose and 1,251 fell, while 154 were unchanged. “With the stock indexes at a high level, profit-taking selling is prevailing,” said Hideyuki Suzuki, a general manager at SBI Securities. Australian stocks edged higher, with the S&P/ASX 200 index rising just 0.1% to close at 7,365.50, buoyed by miners as most sectors dropped. Asian shares fell with US stock futures as traders weighed earnings from Wall Street and as Chinese equities were hit by shareholders’ plans to trim their stakes. In FX, the Bloomberg Dollar Spot Index is up 0.3% having risen versus the rest of its G-10 rivals amid some modest risk-off. US and German short-end yields have followed their UK counterparts higher, rising by 7bps and 5bps respectively. “The picture being painted by the data released so far this week will likely be raising concerns inside the BOE,” said Stuart Cole, chief macro economist at Equiti Capital in London. “This likely means a continuation of its hiking cycle, a lengthening that will come at a time when peers such as the Federal Reserve will likely have paused with their own cycle of interest-rate rises.” In rates, treasuries fell, lifting the 10-year yield 6bps higher to 3.63%, the highest since March 22, as BOE and Fed rate hike bets mount following higher-than-forecast UK inflation figures. US yields cheaper by 2bp-7bp across the curve at highest levels this month, with front-end-led losses flattening 2s10s, 5s30s spreads by ~2bp and ~3bp on the day. Money markets price 23bps of Fed hikes next month and 31bps by June; 46bps of easing is priced by year-end. Gilts are sharply lower and the pound has outperformed as traders ramp up bets on additional rate hikes from the Bank of England after UK inflation surprised to the upside. UK two-year yields have jumped 14bps to a six-week high of 3.83% while the pound gains 0.2% versus the greenback. BOE rate hike wagers surge even more, pricing a 5.03% peak rate by November — the highest since October — compared to 4.86% on Monday. Treasury auctions resume with $12b 20-year bond reopening at 1pm; $21b 5-year TIPS new-issue is ahead Thursday In commodities, crude futures decline with WTI falling 1.9% to trade near $79.30. Spot gold is down 1.4% around $1,978. Bitcoin has come under marked pressure this morning, with BTC dropping from USD 30k to a test of USD 29k in minutes. At the time, there was no clear fundamental catalyst with the likes of Coindesk subsequently suggesting it may have been spurred by long-liquidations. US House Financial Services Committee will hold a hearing on stablecoin regulation on Wednesday, according to Cointelegraph. To the day ahead now, and data releases include the UK CPI reading for March. From central banks, the Fed will be releasing their Beige Book, and we’ll hear from the Fed’s Goolsbee, the ECB’s Lane, Knot, de Cos, and Schnabel, as well as the BoE’s Mann. Finally, earnings releases include Tesla, Morgan Stanley and IBM. Market Snapshot S&P 500 futures down 0.4% to 4,162.75 STOXX Europe 600 down 0.3% to 467.44 MXAP down 0.8% to 162.36 MXAPJ down 0.9% to 523.41 Nikkei down 0.2% to 28,606.76 Topix little changed at 2,040.38 Hang Seng Index down 1.4% to 20,367.76 Shanghai Composite down 0.7% to 3,370.13 Sensex down 0.4% to 59,470.47 Australia S&P/ASX 200 little changed at 7,365.54 Kospi up 0.2% to 2,575.08 German 10Y yield little changed at 2.52% Euro down 0.1% to $1.0960 Brent Futures down 1.7% to $83.37/bbl Gold spot down 1.0% to $1,985.90 U.S. Dollar Index up 0.14% to 101.89 Top Overnight News Washington and Beijing tensions continue to creep higher, w/the White House set to unveil stringent new rules limiting American investments on the mainland. Politico South Korea’s CPI for Mar overshoots the St, coming in at +7.1% (vs. the consensus forecast of +6.9% and up from +7% in Feb). BBG India has surpassed China as the world’s most populous country, according to UN data released on Wednesday, marking a historic crossover moment for the two Asian neighbors and geopolitical rivals.  According to the UN’s Population Dashboard, India’s population has surpassed 1.428bn, just overtaking China’s more than 1.425bn people. FT Russian officials quietly raised concerns last year about the risks of becoming too reliant on Chinese technologies after sanctions shut off access to other suppliers. The memo suggests some are worried Chinese firms such as Huawei may come to dominate the Russian market and threaten information security and networks, people familiar said. BBG UK inflation for Mar overshoots the St, coming in at +10.1% on the headline (vs. the St consensus of +9.8% and down only modest from +10.4% in Feb). RTRS Passenger-car registrations across the EU rose in March on the year as each of the bloc’s largest markets saw double-digit growth, the European Automobile Manufacturers Association, or ACEA, said Wednesday. New car registrations, which reflect sales, rose to 1,087,939 units, a 29% increase compared with March 2022, while registrations in the first quarter rose 18% to almost 2.7 million units, the ACEA said. WSJ The EU is storing record levels of natural gas after a milder than anticipated winter, bolstering hopes that the bloc can wean itself off imports from Russia. The bloc’s storage totaled 55.7 per cent of capacity at the start of the month according to the industry body Gas Infrastructure Europe — the highest level for early April since at least 2011. FT US crude inventories fell by 2.7 million barrels last week, the API is said to report. That would take total holdings to the lowest in two months if confirmed by the EIA. Gasoline supplies declined by 1 million, dropping for a ninth week ahead of the summer driving season. Distillate stocks also dropped. Elsewhere in oil, a rush in Asia to secure supplies after OPEC+'s output-cut surprise is fading. BBG CDW a large distributor of IT products, announced a negative preannouncement (they see Q1 revenue of $5.1B vs. the Street consensus of $5.57B and full-year EPS is now seen falling Y/Y vs. the St consensus of +6%). RTRS A more detailed look at global markets courtesy of Newsquawk APAC stocks were lacklustre in the absence of any major positive macro drivers and following the flat handover from Wall St where risk sentiment was clouded amid mixed data releases and earnings results. ASX 200 was kept afloat amid outperformance in the mining and materials sectors although gains were limited by weakness in energy and consumer stocks, as well as uninspiring data with Westpac Leading Index flat. Nikkei 225 declined after the latest Reuters Tankan survey for April showed Japanese manufacturers remained glum with the Large Manufacturing Index stuck in negative territory. Hang Seng and Shanghai Comp were subdued with underperformance in Hong Kong amid losses in autos, property and tech, while the mainland was also cautious ahead of US Treasury Secretary Yellen’s major speech on Thursday regarding US-China Economic ties where she will outline US economic priorities on China. Top Asian News BoJ is reportedly wary of tweaking yield control in April, via Bloomberg; BoJ is reportedly likely to mull of guidance change can wait or not; smoother yield curve is said to suggest no need for a move now; seeing elevated uncertainties after the banking crisis. China's NDRC said it is studying and drafting documents to recover and expand consumption, while it added that it will work hard to stabilise auto consumption, according to Reuters. UBS raises it FY23 Chinese GDP forecast to 5.7% Y/Y from 5.4%. European bourses are in the red, Euro Stoxx 50 -0.4%, after the index's largest weighted component ASML drops post-earnings despite beating estimates as it highlights caution among customers. Elsewhere, the macro backdrop has been influenced by hotter-than-expected UK CPI data with a hawkish move seen in Europe/UK at the time, FTSE 100 -0.4%. Given the above, sectors have a negative skew with Real Estate lagging as yields increase while Tech names slip given ASML, at the other end of the spectrum Food, Beverage and Tobacco outperforms after Heineken's update. Stateside, futures are in the red with the Nasdaq lagging as yields increase while banking names are deriving support from WAL's after-hours update. Netflix Inc (NFLX): Top- and bottom-lines were broadly in line with expectations, although net subscriber  additions were short in the quarter, and guidance for the next quarter was soft relative to analyst expectations; some analysts suggested that the soft subscriber guidance was a result of pushing back the launch of its paid-sharing service into Q2. Western Alliance Bancorp (WAL): The regional bank reported that deposits stabilised in Q1, and profits topped expectations. Top European News Morgan Stanley now expects the BoE to hike rates by 25bps in May vs. prev. view of unchanged. Central London property prices fell nearly 5% in the 12 months to March which is the largest annual decline since 2019, according to FT FX Overall, the session is characterised by broad USD strength which is seemingly being fuelled by yield action and associated JPY underperformance alongside dovish-sounding BoJ commentary. Thus far, the DXY has eclipsed the 102.00 handle to a 102.18 peak from a 101.65 base, with upside initially capped by GBP outperformance after hotter-than-expected CPI data; Cable peaked at 1.2472, but has since been drawn back to 1.2400. Returning to the JPY, USD/JPY has most recently pulled-back from the 135.00 mark to circa. 134.75 after source reports suggest the BoJ is wary of tweaking yield control in April, via Bloomberg. Elsewhere, peers are broadly-speaking softer against the USD with EUR unreactive to final HICP as marked OpEx draws interest while the CHF experienced only a fleeting upside from SNB's Maechler. Note, given the marked crude move petro-FX has been coming under slightly more pressure as the session progressed, with USD/CAD below the 200-DMA and towards its 10-DMA. SNB's Maechler says inflation is back with a vengeance and monetary policy is back to the traditional tools. Ready to sell foreign currencies.. PBoC set USD/CNY mid-point at 6.8731 vs exp. 6.8728 (prev. 6.8814) Fixed Income Gilts once again underperform after hawkish UK data ahead of the May BoE, with 25bp now fully priced compared to circa. 80% before-hand. As such, Gilts have been down to 99.85 with the associated 10yr yield above 3.85% Action which has been seen, though to a lesser extent, in EGBs and USTs and has served as another bout of concession before the well-received Bund outing and the upcoming US 20yr; albeit, limited upside from the German sale. Stateside, USTs remain pressured pre-supply/Goolsbee with the curve elevated and action again most pronounced at the short-end. Commodities WTI and Brent are under marked pressure that has seen the benchmarks move below the last two week's lows amid broad USD strength; note, the move occurred despite a lack of timely drivers and the initial bout did not coincide with Dollar action. Specifically, the benchmarks have moved below USD 79/bbl and USD 83/bbl respectively, from initial USD 81.24/bbl and USD 85/15/bbl peaks. China's NDRC said it will speed up the construction of iron ore projects and will firmly curb an irrational rise in iron ore prices, according to Reuters. China's Huayou Cobalt is looking to build a nickel ore processing plant in the Philippines, according to an industry source cited by Reuters. Spot gold has succumbed to the firmer USD and has surrendered the USD 2k/oz handle to a USD 1972/oz trough, with base metals under similar pressure though ranges are somewhat more contained in the likes of LME Copper. Ukraine's Deputy PM says ship inspections are recommencing under the Black Sea grain initiative and grain transit through Poland is to open overnight Thursday/Friday. Geopolitics US did not issue visas to all members of the Russian delegation going to the UN, according to RIA. UK government cyber defence agency warned of a threat to Western infrastructure from hackers sympathetic to Russia and its war on Ukraine, according to Reuters. South Korean President Yoon said South Korea may consider providing military aid for Ukraine if a large attack on civilians occurs and it will take the most appropriate measures considering battlefield developments in Ukraine. Yoon also commented that he won't hold a summit with North Korean leader Kim for show but the door for dialogue to promote peace remains open, while South Korea is developing ultra-high performance and high-power weapons to respond to North Korea's emerging threats and is discussing extended deterrence plans with the US including information sharing, joint planning and joint execution, according to Reuters. North Korean leader Kim ordered the preparation to launch a military spy satellite as planned and ordered the deployment of a series of spy satellites to boost reconnaissance capabilities, according to KCNA. US House China Select Committee will be war-gaming a scenario of China invading Taiwan, according to Axios A leaked US military assessment stated that China's military could soon deploy a high-altitude supersonic spy drone unit, according to Washington Post. US event calendar 07:00: April MBA Mortgage Applications, prior 5.3% 14:00: Federal Reserve Releases Beige Book Central Banks 14:00: Federal Reserve Releases Beige Book 17:30: Fed’s Goolsbee Interviewed on Marketplace 19:00: Fed’s Williams Speaks in New York DB's Jim Reid concludes the overnight wrap I’m in the US showing off my panda eye ski tan for the rest of the week. Before I left I had the weirdest, nostalgic dollop of deja-vu. Unbeknown to me my wife had bought our five-year-old twins their first Panini football card album. To say they were immediately obsessed was an understatement. It brought back memories of me desperate to swap my excess cards for one Ian Rush sticker over 40 years ago. From my brief interactions before I left it seems they'll do anything for a pack of new cards now to expand their set. So we have a list of chores that completing will gain a set. I've written to Panini to see if they'll do an Investment Bank edition. Imagine the excitement of getting the full house of DB Research professionals' stickers in your book before one of our rivals! The market has been collecting a few duller days of late but it probably wouldn’t want to swap for those seen a month or so ago. The last 24 hours fitted into that narrative with most major assets closing either side of unchanged. We did get several earnings releases to chew over, but they were pretty mixed overall and didn’t point to an obvious conclusion for investors, and it was much the same from yesterday’s limited round of data. So with all said and done, the S&P 500 ultimately ended the day just +0.08% higher, remaining in its narrow band over April that’s left it within a range of little more than 1% either side of its level at the start of the month. With little volatility to speak of, that’s enabled a continued easing in financial conditions, with Bloomberg’s index hitting a post-SVB high yesterday. In fact, it’s now unwound around 90% of the tightening related to last month’s market turmoil, so it’s increasingly feeling like a bad dream with little lasting impact on market based financial conditions. We’ll see from the SLOOS report in a couple of weeks whether there has been scars from bank-based financial conditions. For now the looser market-based financial conditions have helped cement investors’ conviction that the Fed are set to deliver another hike in just two weeks’ from now, which was supported by the latest round of FOMC speakers. For instance, St Louis Fed President Bullard struck a bullish tone on the economy, saying that “Wall Street’s very engaged in the idea there’s going to be a recession in six months or something, but that isn’t really the way you would read an expansion like this.” Later on, Atlanta Fed President Bostic then said that his baseline was for one further hike and then a pause that left them there for “quite some time”. But even as officials offered more signals about another rate hike, 10yr Treasuries reversed a touch to end the day -2.5bps lower at 3.576%. Fed futures ticked slightly lower with the probability of a rate hike next month dropping 2 percentage points to 85.8% but this comes after increasing 64pp since the Monday after SVB failed. When it came to equities, there was a reasonable amount of dispersion given the subdued movements for the broader indices. In fact, there was exactly 50% of constituents higher and lower on the day, with cyclicals outperforming defensives as industrials (+0.46%) and energy (+0.45%) stocks outpaced healthcare (-0.66%), communications (-0.65%) and utilities (-0.51%). In terms of the various earnings reports, the main highlights included Goldman Sachs (-1.70%), whose share price fell back after their FICC sales and trading revenue came in beneath expectations thanks to a -17% decline. Elsewhere, Bank of America’s (+0.63%) trading revenue beat expectations and overall revenue was up 9%. And away from the financials, Johnson & Johnson (-2.81%) was another that struggled, even as they raised their earnings forecast for this year. After the close, NFLX (initially down -12.5% before recovering to unchanged in after-market trading) missed on new subscriber growth (+1.75mn vs +2.41mn estimated) and lowered sales and profit guidance further than analysts expected. United Airlines was up +1.30% in after-market trading after reporting increased international travel that will see stronger 2Q results than analysts expected after posting a first-quarter adjusted loss of $0.63 EPS. Over in Europe, the performance was a bit stronger yesterday, although in part that reflected a catchup to the US rally after Europe went home the previous day. That enabled the STOXX 600 (+0.38%) to hit a 14-month high, and the Euro STOXX 50 (+0.60%) is now just shy of its closing peak from November 2021, which if surpassed would leave the index at its highest level since late 2007. For bonds there was also a bit more of a risk-on tone, and yields on 10yr bunds ended the day up +0.4bps. That followed comments from ECB chief economist Lane that “I think the baseline is that we should indeed increase interest rates in May”. Whilst most sovereign bonds in Europe were fairly steady yesterday, back in the UK, gilts were an underperformer thanks to data that showed stronger-than-expected wage growth, and the 10yr yield climbed +5.6bps on the day. The release showed that growth in average total pay was up +5.9% (vs. +5.1% expected) over the three months to February compared to the previous year. And with upward revisions to the previous month as well, the data added to fears that inflation would prove more persistent than expected, and that the Bank of England would need to hike rates yet further. Indeed, the chances of another 25bp rate hike at the May meeting moved up to 90.1% according to overnight index swaps, the highest level since SVB’s collapse. On that front, the next crucial component will be the CPI release this morning, which should be coming out around the time this email hits your inboxes. Asian equity markets are mostly trading lower this morning following the lacklustre performance on Wall Street overnight. As I type, the Hang Seng (-0.60%) is leading losses across the region, pulled down by technology and real estate stocks, while the CSI (-0.50%), the Shanghai Composite (-0.21%) and the Nikkei (-0.24%) are also in the red amid the prospect of interest rate hikes from the Fed. Otherwise, the KOSPI (+0.23%) is bucking the regional market trend in early trading, albeit only just. Outside of Asia, US stock futures are retreating with those on the S&P 500 (-0.12%) and NASDAQ 100 (-0.16%) inching downward following the latest round of earnings. Running through yesterday’s other data, the German ZEW survey’s expectations component fell back for a second month running in April, with a decline to 4.1 (vs. 15.6 expected). In Canada, CPI inflation declined as expected in March, falling back to 4.3%. And finally in the US, housing starts decelerated in March, falling to an annualised rate of 1.42m (vs. 1.40m expected), with building permits also falling back to 1.413m (vs. 1.45m expected). To the day ahead now, and data releases include the UK CPI reading for March. From central banks, the Fed will be releasing their Beige Book, and we’ll hear from the Fed’s Goolsbee, the ECB’s Lane, Knot, de Cos, and Schnabel, as well as the BoE’s Mann. Finally, earnings releases include Tesla, Morgan Stanley and IBM.         Tyler Durden Wed, 04/19/2023 - 07:45.....»»

/NOT FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/ CALGARY, AB, April 14, 2023 /CNW/ - Cathedral Energy Services Ltd. (the "Company" or "Cathedral") (TSX:CET) announces its consolidated financial results for the three months and year ended December 31, 2022 and 2021. Dollars in 000's except per share amounts. This news release contains "forward-looking statements" within the meaning of applicable Canadian securities laws. For a full disclosure of forward-looking statements and the risks to which they are subject, see "Forward-Looking Statements" later in this news release. This news release contains references to Adjusted gross margin (gross margin plus non-cash items of depreciation and amortization and share-based compensation), Adjusted gross margin % (adjusted gross margin divided by revenues), Adjusted EBITDAS (earnings before finance costs, unrealized foreign exchange on intercompany balances, taxes, depreciation and amortization, non-recurring costs (including acquisition and restructuring costs and non-cash provision for bad debts), write-down of equipment, write-down of inventory and share-based compensation) and Free cash flow (Cash flow - operating activities prior to changes in non-cash working capital, income taxes paid (refund) and non-recurring costs less property, plant and equipment additions, excluding assets acquired in business combinations, cash lease payments offset by proceeds from disposition of property, plant and equipment). These terms do not have standardized meanings prescribed under International Financial Reporting Standards (IFRS) and may not be comparable to similar measures used by other companies, see "Non-GAAP Measures" later in this news release. KEY TAKEAWAYS FOR FISCAL 2022 Consolidated revenue of $298,401 in fiscal 2022 was a record for the Company's 25-year history and up 377% vs 2021. Adjusted EBITDAS for 2022 also posted a new record for the Company at $68,187, which compares to $4,829 in 2021. Adjusted EBITDAS margin % was 23%, up from 8% in 2021. Net income for the year was $18,347 as compared to a loss of $8,626 in 2021 – marking a return to profitability earlier than many companies in the energy service sector. Highest level of quarterly revenue for both the Canadian and U.S. divisions, bettering the individual records set in 2022 Q3. Fourth quarter 2022 Adjusted EBITDAS of $30,284 was the highest for any quarter, exceeding the prior record of $28,065 in 2022 Q3. The Company generated Free cash flow of $20,678 in the fourth quarter demonstrating the efficiency of a business model with lower capital intensity. Cathedral significantly increased its North American footprint and cemented one of the top positions in market share for the onshore U.S. directional drilling market with the acquisition in 2022 Q3 of Altitude Energy Partners ("Altitude") for $124,112. Cathedral also acquired U.S.-based Discovery Downhole Services in February for $20,892. Cathedral acquired Compass Directional in Canada as well as the Canadian operating assets and personnel of Ensign Energy Services' directional drilling business. Cathedral also signed a Marketing and Technology Alliance with Ensign, the second such alliance in Cathedral's portfolio. Canadian directional drilling market share hit a new high watermark in 2022 Q4, averaging 27.8% and up from 24.3% in 2022 Q3. Cathedral's Canadian market share was 18.1% in 2021. The Company closed 2022 with loans and borrowings less cash of $69,360 as compared to $81,786 as at September 30, 2022. The Board of Directors has approved a 2023 net capital expenditure budget of $46,000, increased from $35,000, which was preliminarily approved by the Board of Directors in 2022 Q4 to enable advance orders of strategic equipment for delivery in early 2023. A strengthened U.S. dollar also positively impacted results during fiscal 2022. PRESIDENT'S MESSAGE Comments from President & CEO Tom Connors: The year 2022 was one of the most productive years in the Company's 25-year history.  We continue to differentiate the Company by building a strategic moat around the business through size and scale in the North American directional drilling market. Expanding on our first two consolidation-focused Canadian acquisitions in 2021, Cathedral made five additional acquisitions in 2022 - three in Canada and two in the U.S. The purchase of Compass Directional and the Canadian directional drilling assets and personnel from Ensign Energy Services were the third and fourth consolidation transactions in Canada, ones that pushed the Company's 2022 Q4 directional drilling to a record market share of 27.8% - up roughly ten percent from the previous year. Compass added market share and excellent people in the Montney, Canada's most important natural gas and gas liquids play, while Ensign added key people, new clients and a Marketing and Technology Alliance with a leading land driller. The third Canadian acquisition in 2022 was the purchase of Lexa Drilling Technologies, which added promising Measurement-While-Drilling ("MWD") technology for the U.S. marketplace. While we made substantial strides in the growth of our Canadian business with several acquisitions, the most significant moves in 2022 were made in the U.S. The July acquisition of Altitude Energy Partners, LLC for $124,112 was the largest transaction in Cathedral's history and immediately added strong market share and excellent directional drilling personnel in several key resource plays such as the Permian, U.S. Rockies, the Bakken, and Haynesville. Altitude's executive leadership, based in Houston, also became the go-forward leadership team for Cathedral's legacy U.S. directional drilling business. A key synergy and significant incremental growth opportunity going forward is the ability to replace third-party MWD equipment rentals with Cathedral-sourced technology as Altitude built a successful business while renting MWD technology from third party service providers. Altitude also provided an entry for Cathedral into the U.S. rotary steerable market – one that is outgrowing the underlying directional drilling market and one that offers a much greater revenue capture opportunity for the Company going forward. Altitude enters 2023 with 16 rotary steerable systems ("RSS"), on the way to 20 by year-end 2023. Another significant milestone in our U.S. growth strategy was the acquisition of the operating assets of Discovery Downhole Services for $20,892 in February 2022. Discovery's high-performance mud motor rental business and key people operate out of locations in North Dakota, Texas and Wyoming. Discovery provides a platform to expand our high-performance mud motor offering to a wider customer base by renting both direct to leading exploration and production ("E&P") customers and to our competitors that may lack the appropriate assets. Due to the demand for high performance mud motor technology, Discovery's fleet has maintained high levels of utilization, providing an attractive payback on our investment. With a common fleet of mud motors from the same original equipment manufacturer for both Discovery and Altitude, we will also benefit from operational synergies going forward. We continue to pursue further scale through accretive transactions. Our shareholders will benefit through that expansion as we become more investible to a wider audience, drive margin expansion through lower unit costs, and further differentiate ourselves in the market through the development and sustainment of leading-edge technology. We view the companies we purchase as partners and key members of the Cathedral team with a vested interest in our continued growth and success. To encourage alignment, and enhance longer term returns, vendors take meaningful quantities of equity that vests over time. As we continue to seek out opportunities for growth, we are also always very mindful of the cyclical nature of our business and the importance of maintaining a conservative and flexible capital structure. We continue to support organic growth initiatives in both Canada and the U.S. In Canada, we have deployed an alternative RSS tool that we believe will build an incremental market following as we build on a successful operational track record and introduce the tool to more clients and reservoir types.  In the U.S., there is a sizable Adjusted EBITDAS capture opportunity within our U.S. operations as third party-rented MWD systems can get replaced with Cathedral-supplied systems. Beyond tool development, we also intend to work closely with our technology alliance partners – Precision Drilling and Ensign Energy Services. Both are attempting leading-edge solutions to better integrate directional drilling tools with the increasingly-automated operations of the drilling rig itself. The value capture arises from reducing the human footprint on a wellsite, adding margin for both the contract driller and Cathedral while contributing to reducing our carbon footprint on location. Beyond the upside potential of executing on our company-specific strategy, we also believe in the strength of the macro backdrop in the coming years.  It has become very clear that seven years of underinvestment in the global oil and natural gas business (years 2014 - 2021) is showing the underlying tightness of markets. The onset of the war in Ukraine has laid bare the vulnerabilities of global supply as countries now rush to re-order their domestic energy priorities, ones that will include the need for substantial oil and natural gas for decades at a minimum. Global LNG was already growing in importance and now its importance is accelerating. Canada will have its first major project - LNG Canada - in the coming two years while the U.S. is on pace to become the unchallenged global leader. Cathedral is extremely well-positioned to help develop the necessary supply in both major markets – an exciting long-term, organic growth opportunity. Notwithstanding the current volatility in financial markets, generally, and in the commodity markets more directly, we believe that any capital spending pullbacks by E&P companies will be relatively short-lived. The underlying supply-demand balance for oil and natural is simply too tight.  We enter 2023 – our 25th year as a company - with a strong opportunity set in front of us. We continue to examine ways to add further size and scale in key jurisdictions and with excellent companies, where the potential to be part of a leading consolidator is an attractive next step to an established player in the space. Most importantly, I want to finish by saying a tremendous thank you to all Cathedral staff - longstanding and new - who have helped make 2022 one for the record books.  Strategy is one thing, but it takes a very strong team to deliver - and you delivered in 2022. I can't wait to see what we can achieve together in 2023 and the years to follow. STRATEGIC OVERVIEW AND PROGRESS TO DATE With the completion of a very active and productive year in 2022, it is valuable to review Cathedral's ongoing strategic vision and plan which has allowed for such a dramatic turnaround in the size, scale and financial performance of the Company. Shareholders must note that Cathedral shares had been trading at $0.19 the day prior to February 8, 2021, the date of the appointment of the new CEO. The Company had just completed the 2020 fiscal year, in which it would eventually report revenue of around $40,500 and Adjusted EBITDAS of roughly nil. At that point, Cathedral had survived the brutal, seven-year energy downcycle of 2014 - 2021 (compounded by the effects of COVID-19). The Company needed a new strategy to vault itself back into a position of relevance to our E&P client base as well as to investors who increasingly demand liquidity in their investment portfolios. In a cyclical business, the urgency to achieve our mission of size and scale early in the cycle and harvest later in the cycle was imperative. These past two years, we have focused on actively executing our strategy and delivering on our plan by completing multiple accretive acquisitions in both Canada and the U.S. – the two most important land drilling markets for a Canadian-based energy services company.  The global energy and energy services sectors have made it very clear that size and scale matter more than ever. A slow depletion of tier-one drillable inventory, after so many years of underinvestment, has led E&P companies to combine in order to maximize their production efficiencies, improve their balance sheets and return capital to shareholders. The same E&P companies have demanded, in turn, that energy services companies maximize the efficiencies of their own product, service and technology offerings which further requires, or is best served with the benefits of scale. After two years, we still believe we have more to accomplish and we are proud of the value we have created for shareholders as our strategy bears fruit. Since 2021, we have also grown our analyst coverage from one to five investment banks covering Cathedral, who are now forecasting over $500,000 in 2023 revenue and Adjusted EBITDAS over $130,000. The most visible measure of success of a public company is its equity value per share, and many shareholders have enjoyed tremendous appreciation in their shareholdings since 2021. Indeed, a recent report from one of the covering investment banks put Cathedral as the top performing Canadian energy service investment since February 8, 2021. We are excited about our prospects and opportunities to add further growth and significant scale to our business as we execute on our mission. We are confident that we have the right team and the right strategy in place to continue to deliver shareholder value, again in 2023 and onwards. Specific highlights of the strategic vision include:      The existing board recognized the changing industry dynamics and hired its new President and Chief Executive Officer in February 2021 to lead the initiative to transform Cathedral into a dominant industry player. Since February 2021, Cathedral has completed seven acquisitions and a $26,500 bought deal financing. Cathedral exited 2021 with $4,800 Adjusted EBITDAS, exited 2022 with $68,200 Adjusted EBITDAS, and is forecasted by industry analysts to potentially surpass $130,000 Adjusted EBITDAS in 2023. The Company has established a large U.S. footprint and experienced management team. Management teams are aligned with equity and material ownership in the business. Over 70% of revenue is expected to come from the U.S. market in 2023. The Company has a dominant share of the Canadian market, averaging almost 28% in 2022 Q4. Canadian acquisitions made us stronger by enhancing our management depth and experience. Generated higher levels of free cash flow and steady margin improvement in all markets. Established as a leading industry consolidator. A plan that has delivered industry-leading results to date (see chart, source: Stifel Research, Bloomberg) with a pipeline of potential opportunities for accretive transactions that, if they transpire, could transform the business yet again. FINANCIAL HIGHLIGHTS Dollars in 000's except per share amounts Three months ended December 31 Year ended December 31 2022 2021 % change 2022 2021 % change Revenues $            128,518 $              23,710 442 % $           298,401 $             62,524 377 % Adjusted gross margin % (1) 28 % 17 % 28 % 18 % Adjusted EBITDAS (1) $              30,284 $                1,132 2,575 % $              68,187 $               4,829 1,312 % Adjusted EBITDAS margin % (1) 24 % 5 % 23 % 8 % Cash flow - operating activities $              14,360 $                   601 2,289 % $              23,960 $              (3,499) n/m Free cash flow $              20,678 $               (1,685) n/m $              42,462 $              (2,150) n/m Net income (loss) $              10,270 $               (1,097) n/m $              18,347 $              (8,626) n/m Basic and diluted per share $                  0.05 $                 (0.01) $                  0.11 $                (0.13) Weighted average shares outstanding Basic (000s) 221,475 80,197 162,551 65,031 Diluted (000s) 226,564 81,425 166,129 65,740 December 31 December 31 2022 2021 Working capital $              44,712 $              14,117 Total assets $            353,990 $              75,423 Loans and borrowings, excluding current portion $              64,800 $                5,035 Shareholders' equity $           153,897 $              42,504 (1) Refer to "NON-GAAP MEASUREMENTS""n/m" = not meaningful   2022 ACQUISITIONS A summary of the acquisitions for the year ended December 31, 2022 are as follows:  Discovery   Compass   LEXA   Altitude   Ensign   Total  Consideration: Number of shares issues 5,254,112 6,253,475 1,772,727 67,031,032 7,017,988 87,329,334 Issue price $               0.52 $               0.69 $               0.63 $               0.55 $               0.85 Common shares $             2,732 $             4,315 $             1,117 $           36,867 $             5,965 $           50,996 Settlement of technology license from pre-existing relationship  - - 644 - - 644 Cash 18,160 4,000 - 87,245 - 109,405 Total consideration $           20,892 $             8,315 $             1,761 $         124,112 $             5,965 $         161,045 Allocation of purchase price Cash $                     - $                    - $                  70 $             4,754 $                     - $             4,824 Inventory 3,301 444 - 8,768 1,790 14,303 Other net working capital - - 291 (1,068) - (777) Property, plant and equipment 17,591 8,518 - 43,667 4,175 73,951 Right of use assets 1,579 316 - 2,354 - 4,249 Lease liabilities assumed (1,579) (316) - (2,354) - (4,249) Intangibles - - 1,574 35,720 - 37,294 Goodwill - - - 37,753 - 37,753 Deferred tax liability - (647) (174) (5,482) - (6,303) Total $           20,892 $             8,315 $             1,761 $         124,112 $             5,965 $         161,045   As discussed in the following LEXA section, the consideration and value of intangibles was increased $644 due to the settlement of a technology license ageement due to a pre-existing relationship.                                                                                         Discovery Downhole Services On February 10, 2022, the Company announced the closing of Cathedral's acquisition of the operating assets of Discovery Downhole Services ("Discovery").  The acquisition includes the operating assets and non-executive personnel of Discovery's U.S.- based, high-performance mud motor technology rental business with operations in North Dakota, Texas, and Wyoming.  Cathedral paid $18,160 in cash consideration funded by a new term loan and issued 5,254,112 common shares for a total consideration of $20,892.  In addition to a four-month statutory hold period on the common shares, the parties have agreed to contractual restrictions on resale as follows: 25% are restricted until February 10, 2023; a further 25% are restricted until August 10, 2023; and a further 50% are restricted until February 10, 2024, subject to certain exceptions. For the period from February 10, 2022 to December 31, 2022, the assets acquired generated revenues of $31,841 and operating income before depreciation and interest of $14,357.  For the period from January 1, 2022 to February 9, 2022 revenue was $2,286 and operating profit before depreciation and interest was $717. The Company has expensed $147 in costs related to this transaction. Compass Directional Services On June 22, 2022, the Company acquired the operating assets of Compass Directional Services Ltd. ("Compass"). Compass is a privately-owned, Canadian directional drilling business operating in the Western Canadian Sedimentary Basin, with a focus on the high-activity Montney and Deep Basin plays. Cathedral paid $4,000 in cash consideration and issued 6,253,475 common shares for a total consideration of $8,315.  The common shares are subject to contractual restrictions of resale as follows: 25% are restricted until June 22, 2023; a further 25% are restricted until December 22, 2023; and a further 50% are restricted until June 22, 2024, subject to certain exceptions.  Additionally, 1,389,664 common shares were issued pursuant to an escrow arrangement and are subject to contractual restrictions over four years with one quarter of the shares vesting each year on the anniversary of the purchase.  These common shares are registered to Cathedral's 100% owned subsidiary, 2438155 Alberta Ltd. (held in trust for the beneficiary) and are classified as Treasury shares and will be recognized as compensation expense over the vesting period.  On issuance, these Treasury shares were valued at $959. As the acquired assets were integrated into Cathedral's existing directional drilling operations it is impractical to breakout the revenue and profit or loss of the acquired assets since the acquisition. The Company has expensed.....»»

Futures Tumble, Treasuries And Rate Cut Odds Soar Amid Panic That Deutsche Bank Is The Next To Go Yesterday, while attention was still focused on the US banking system and the ongoing botched response by the Fed and especially the Treasury's senile Secretary, who more than two weeks after SIVB collapsed, have still not been able to stabilize confidence in banks - thereby assuring the US is about to slam head first into a brutal recession, just as Biden ordered to contain inflation, as US consumer spending is now in freefall - we pointed out that something bad was taking place in Europe: the credit default swaps of perpetually semi-solvent banking giant Deutsche Bank were quietly blowing out to multi-year highs. oh... pic.twitter.com/vNXc8ZE3Nm — zerohedge (@zerohedge) March 23, 2023 Well, we didn't have long to wait before everyone else also noticed and this morning it's official: the crisis has shifted to Germany's and Europe's largest TBTF bank, with even Bloomberg now writing that Deutsche Bank "has become the latest focus of the banking turmoil in Europe as ongoing concern about the industry sent its shares slumping the most in three years and the cost of insuring against default rising." The bank - which has staged a recovery in recent years after a series of crises that nearly brought it down - said Friday it will redeem a tier 2 subordinated bond early. And while such moves are usually intended to give investors confidence in the strength of the balance sheet, though the share price reaction suggests the message isn’t getting through, and the stock plunged 13% in German trading... ... while DB's CDS has exploded to level surpassing the bank's near-collapse in 2016, and is about to take out the covid wides. “It is a clear case of the market selling first and asking questions later,” said Paul de la Baume, senior market strategist at FlowBank SA. “Traders do not have the risk appetite to hold positions through the weekend, given the banking risk and what happened last week with Credit Suisse and regulators.” It wasn't just Deutsche Bank: UBS Group AG shares also dropped as Bloomberg reported that it’s one of the banks under scrutiny in a US Justice Department probe into whether finncial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter. In any case, the sudden, violent spike in DB default risk which quickly carried over to all big European banks, and which will not reverse until first the ECB then the Fed both cut rates... ... sent broader risk sentiment reeling with S&P 500 futures at session lows, sliding 1% to 3940. While there was no one big story setting off these moves. It could be a rush to havens heading into the weekend as traders wait for another shoe to drop — which has been a theme during recent weekends. In any case, the latest global equity rout and bank crisis which is now spreading to TBTF banks has sent bond yields crashing with the 2-year US yield plumbing new session lows, breaking down as low as 3.55%, and the resulting shockwave has collapsed odds of another rate hike in May to just 28% while the odds of a rate cut in June have exploded to 83% as the Fed's pivot finally arrives just on time: with the Fed having again broken the global financial system. In premarket trading, First Republic Bank swung between gains and losses as investors digested Treasury Secretary Janet Yellen’s comments about regulators being prepared to take additional steps to guard bank deposits if warranted. Fellow regional banks and bigger lenders decline, and after a volatile session on Thursday took the stock’s March slump to 90%. Block fell another 5%, extending Thursday’s 15% plunge as it announced potential legal action against short seller Hindenburg Research for its report on the payment processor.  Here are some other notable premarket movers: US cryptocurrency-exposed stocks decline, taking a pause from recent gains as the price of Bitcoin falls amid broader risk-off sentiment. Marathon Digital (MARA US) slid 0.9%, Hut 8 Mining Corp (HUT US) -1%, Coinbase (COIN US) -1.9%, Riot Platforms (RIOT US) -1.4%. ReNew Energy Global gains 12% after Bloomberg reported, citing people familiar with the matter, that the Canada Pension Plan Investment Board is exploring buying the shares of the power producer that it doesn’t already own and taking the Nasdaq- listed firm private. Joann slumped 6.2% in extended trading on Thursday after the fabric and crafts retailer reported adjusted earnings per share and Ebitda that missed the average analyst estimates, even as sales topped expectations. Oxford Industries fell 5.5% in postmarket trading after the owner of Tommy Bahama and Lilly Pulitzer issued a forecast for net sales in the current quarter that trailed the average analyst estimate at the midpoint of the guidance range. “Confidence is fragile, market volatility is likely to stay high, and policymakers may have to go further to make sure faith in the global financial system stays solid,” said Mark Haefele, chief investment officer at UBS Wealth Management. “Financial conditions are also likely to tighten, which increases the risk of a hard landing for the economy, even if central banks ease off on interest-rate hikes.” “Credit and stock markets too greedy for rate cuts, not fearful enough of recession,” a team led by Michael Hartnett wrote in a note. The strategist, who was correctly bearish through last year, said investment-grade spreads and stocks will be taking a hit over the next three to six months. Global cash funds had inflows of nearly $143 billion, the largest since March 2020 in the week through Wednesday — adding up to more than $300 billion over the past four weeks, according to the note citing EPFR Global data. European stocks are also plumbing lower, with European bank stocks sliding for a third day, and erasing weekly and yearly gains, as sentiment remains fragile on the sector. Deutsche Bank slumped nearly 15% as credit-default swaps surged amid wider concerns about the stability of the banking sector. The Stoxx 600 Banks Index is 5.3% lower as of 11:20am in London, erasing earlier weekly gains; the index is now -2.8% YTD. Meanwhile, UBS, which is not in the banking sector index, slumped as much as 8.4% as Jefferies cut its rating to hold from buy and it was among the banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions. European oil stocks are also underperforming on Friday, dragging down the regional benchmark, as crude prices slump under pressure from a stronger dollar and concerns about the impact on growth of a fresh bout of stress facing the banking sector. The Energy sub-index slid as much as 4.3%, the most since March 15, while the Stoxx Europe 600 benchmark fell about 2%. Here are some other notable European movers: Casino Guichard-Perrachon SA fell as much as 6% to a fresh record low after Moody’s cut its long-term debt rating on the company further into junk territory Dino Polska drops as much as 5%, after its 4Q report showed that the Polish food supermarket chain is unable to maintain profitability amid inflation pressures Smiths Group gains as much as 2.1%, after the industrial firm beat expectations on Ebita, while also surpassing projections on its full-year sales outlook JD Wetherspoon jumps as much as 9.3% after the British pub operator posted a revenue beat for 1H, with Jefferies analysts noting resilience in like-for-like sales Earlier in the session, Asia equities were set to snap a three-day rally as lingering concerns over the health of the banking sector pushed a gauge of the region’s financial shares lower. The MSCI Asia Pacific Index fell as much as 0.5% before trimming losses, with its 11 sectoral sub-gauges showing mixed moves. Most markets declined, led by Hong Kong’s Hang Seng Index, while Chinese tech shares extended their rally on the back of positive earnings.  An index of Asian financial stocks dropped as much as 0.9%, tracking overnight declines in a measure of US financial heavyweights to the lowest since November 2020. Treasury Secretary Janet Yellen’s comments that authorities can take further steps to protect the banking system if needed failed to fully assuage concerns.  “The unease in the financial space will continue to weigh on the Asian financial sectors,” said Hebe Chen, an analyst at IG Markets Ltd. “The flip-flop in the market this week is seeing overwhelmed investors scratching their heads in the face of the mixed bag from Fed.”  Even with Friday’s lackluster moves, the MSCI Asia benchmark was set to notch its best weekly performance in about two months. The shares rose earlier in the week thanks to assurances from regulators in the US and Europe over protecting the banking sector and the Federal Reserve’s dovish tilt.   Meanwhile, a gauge of tech stocks in Hong Kong advanced for the fourth day close at its highest in a month. Lenovo led the gain, with JPMorgan lifting its recommendation on a bottoming of PC demand. “We like the internet sector, especially within China right now,” Marcella Chow, JPMorgan Asset Management’s global market strategist, said in an interview with Bloomberg TV. “China tech sector is attractive given improving regulatory outlook, leaner and more cost effective cost structure, improving margin.”  Japanese stocks Inched lower as worries linger over the financial sector while investors assess statements made by US Treasury Secretary Janet Yellen. The Topix Index fell 0.1% to 1,955.32 as of market close Tokyo time, while the Nikkei declined 0.1% to 27,385.25. Mitsubishi UFJ Financial Group Inc. contributed the most to the Topix Index decline, decreasing 1.1%. Out of 2,159 stocks in the index, 976 rose and 1,039 fell, while 144 were unchanged. “Assuming that the fallout from the US financial sector woes doesn’t spread significantly, Japanese stocks will likely stop its decline and pick up as the earnings period starts next month,” said Takeru Ogihara, a chief strategist at Asset Management One Australian stocks slumped to post a seventh week of losses; the S&P/ASX 200 index fell 0.2% to close at 6,955.20, with financials the biggest drag, as the malaise hanging over the global banking sector continued to damp sentiment. The benchmark erased 0.6% for the week, the seventh straight decline, maintaining the longest losing streak since 2008.  In New Zealand, the S&P/NZX 50 index fell 0.1% to 11,580.82. Indian stocks declined for a third straight week in the longest losing streak since December spurred by a late selloff in key gauges amid risk-off sentiment in global equities. The Nifty 50 index ended just shy of entering a so-called technical correction given the index’s near 10% drop from its December peak. For the week, the Nifty 50 fell 0.9% while the Sensex declined 0.8%. The S&P BSE Sensex fell 0.7% to 57,527.10 as of 3:30 p.m. in Mumbai, while the NSE Nifty 50 Index declined 0.8% to 16,945.05.  The selloff in small and mid cap counters contributed to the broader losses, with the Nifty Mid cap 100 and Nifty Small Cap 100 indexes ending nearly 2% lower each. Stocks of asset management companies were hammered after the government dropped the benefit of long-term capital gains tax for debt mutual funds in order to ensure parity in tax treatment with other such products. Shares of HDFC AMC dropped 4.1%, Aditya Birla AMC -2%, UTI AMC -4.8% and Nippon Life India AMC -1.2%. Reliance Industries contributed the most to the index decline, decreasing 2%. Out of 30 shares in the Sensex index, six rose and 24 fell In FX, the dollar’s recent weakness, which had supported the outlook for the region’s currencies and other assets, also took a breather on Friday. The Bloomberg dollar index rose 0.3% after a six-day run of declines. The yen rallies to the highest in six weeks amid demand for haven assets due to concerns over the health of the global banking sector. The yen was the biggest gainer versus the greenback among the Group-of-10 currencies. Treasury yields continued to decline reflecting expectations for Federal Reserve rate cuts this year “JPY’s strong performance we believe is driven by the return of its safe haven appeal, especially given that we see that Japanese banks are in a relatively better standing,” said Alan Lau, a strategist at Malayan Banking Bhd in Singapore. “Falling UST yields have also given the JPY support recently. Overall, we are positive on the yen and see the spot being on a downward trend this year with our year-end forecast at 122” In rates, Treasuries front-end adds to Thursday’s gains, with 2-year yields richer by over 20bp on the day, as the yield continues to plumb new session lows, breaking as low as 3.55%, dropping below th 2023 lows, and steepening the curve as traders continue to price out rate-hike premium for the May meeting and start pricing for cuts as early as June. Yields were near lows of the day while rest of the curve is richer by 17bp across belly to 9bp out to long-end; front-end led gains steepens 2s10s, 5s30s by 10bp and 8bp on the day. SOFR white-pack futures surge higher, with gains led by Dec23 contract which rallied 27bp vs. Thursday close; Fed-dated OIS shows just 4bp of rate hike premium for the May policy meeting with almost a full cut then priced into the June policy meeting — around 120bp of rate hikes are then priced into year-end In commodities, oil slipped the most in over a week, with Brent below $75, tracking a slide in equity markets and feeling the effects of a stronger dollar. Aluminum and copper headed toward their biggest weekly gains in more than two months on increasing demand in China and bets on looser Federal Reserve policy. Uranium Energy is among the most active resources stocks in premarket trading, falling about 9%. Gold traded just shy of $2000 and is about to break solidly higher. To the day ahead now, and data releases include the March flash PMIs from Europe and the US, along with UK retail sales for February, and the preliminary US durable goods orders for February. Otherwise from central banks, we’ll hear from the ECB’s De Cos, Nagel and Centeno, the Fed’s Bullard and the BoE’s Mann.   Market Snapshot S&P 500 futures down 1% to 3,940 MXAP down 0.2% to 160.13 MXAPJ down 0.5% to 515.46 Nikkei down 0.1% to 27,385.25 Topix down 0.1% to 1,955.32 Hang Seng Index down 0.7% to 19,915.68 Shanghai Composite down 0.6% to 3,265.65 Sensex down 0.2% to 57,801.12 Australia S&P/ASX 200 down 0.2% to 6,955.24 Kospi down 0.4% to 2,414.96 STOXX Europe 600 down 0.7% to 443.10 German 10Y yield little changed at 2.11% Euro down 0.4% to $1.0791 Brent Futures down 0.6% to $75.46/bbl Gold spot down 0.3% to $1,987.17 U.S. Dollar Index up 0.30% to 102.84 Top Overnight News A Federal Reserve facility that gives foreign central banks access to dollar funding was tapped for a record $60 billion in the week through March 22: BBG Deutsche Bank AG was at the center of another selloff in financial shares heading into the weekend: BBG Credit Suisse Group AG and UBS Group AG are among banks under scrutiny in a US Justice Department probe into whether financial professionals helped Russian oligarchs evade sanctions, according to people familiar with the matter: BBG Japan’s headline national CPI for Feb cools to +3.3% (down from +4.3% in Jan and inline w/the St) while core ticks higher to +3.5% (up from +3.2% in Jan and ahead of the St’s +3.4% forecast). RTRS Copper prices will surge to a record high this year as a rebound in Chinese demand risks depleting already low stockpiles, the world’s largest private metals trader has forecast. Global inventories of the metal used in everything from power cables and electric cars to buildings have dropped rapidly in recent weeks to their lowest seasonal level since 2008, leaving little buffer if demand in China continues to pace ahead. FT Authorities this week raided the Beijing offices of Mintz Group, detaining all five of the New York-based due diligence firm’s staff members in mainland China, the company said—an incident likely to unnerve global businesses operating in the country. WSJ China’s top diplomat Wang Yi urged Europe to play a role in supporting peace talks for Russia’s war in Ukraine, though the US has warned Beijing’s proposals would effectively freeze the Kremlin’s territorial gains. BBG Ukrainian troops, on the defensive for months, will soon counterattack as Russia's offensive looks to be faltering, a commander said, but President Volodymyr Zelenskiy warned that without a faster supply of arms the war could last years. RTRS Europe’s flash PMIs for March were mixed, with upside on services (55.6, up from 52.7 in Feb and ahead of the St’s 52.5 forecast) but downside on manufacturing (47.1, down from 48.5 in Feb and below the St’s 49 forecast). “Inflationary pressures have continued to moderate, with input prices falling sharply in manufacturing… overall input costs rose at the slowest rate since March 2021…the record easing of supply constraints marks a major reversal from the record delays seen during the pandemic” S&P Deutsche Bank was at the center of another selloff in financials. The bank tumbled 11% in Frankfurt and default-swaps on its euro, senior debt surged to the highest since they were introduced in 2019, when Germany revamped its debt framework to introduce senior preferred notes. Other banks with high exposure to corporate lending also declined. Commerzbank slid 9% and Soc Gen 7%.  BBG The Swiss authorities and UBS Group AG are racing to close the takeover of Credit Suisse Group AG within as little as a month, according to two sources with knowledge of the plans, to try to retain the lender's clients and employees. RTRS Citizens Financial is set to submit a bid for SVB's private banking arm, Reuters reported. Customers Bancorp is also said to be exploring a deal for all or part of SVB. Carson Block said depositors at SVB and Signature Bank should have taken haircuts after regulators seized the firms. BBG A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly subdued after the recent bout of central bank rate hikes and choppy performance stateside where Wall Street just about closed higher amid a dovish market repricing of Fed rate expectations.     ASX 200 was lower with risk appetite sapped by weak PMI data which returned to contraction territory. Nikkei 225 lacked conviction after the latest inflation data printed mostly in line with estimates. Hang Seng and Shanghai Comp. retreated after the central bank drained liquidity and as participants digest earnings releases, while it was also reported that the US added 14 Chinese entities to the red flag list. Top Asian News HKMA said Hong Kong has very little exposure to the European and US banking situation, while it needs to monitor the situation carefully for any further volatility but is not concerned about risks to the Hong Kong banking sector. China is to extend some tax relief measures, according to local media. Equities are back under marked pressure as banking sector concern re-intensifies within Europe, Euro Stoxx 50 -2.3% & ES -0.8%. Specifically, the European banking index SX7P -5.0% is the standout laggard amid broad-based pressure in banking names as CDS' for the stocks continue to rise alongside focus on the redemption of notes by Deutsche Bank and Lloyds; currently, Deutsche Bank -12% is the Stoxx 600 laggard. Stateside, futures are pressured in tandem with the above price action though with the magnitude less pronounced ahead of the arrival of US players and as we await potential updates to the regions own banking names. Apple (AAPL) supplier Pegatron (4982 TW) is reportedly looking to open a second factory within India, to construct the latest iPhone models, via Reuters citing sources. Top European News ECB is likely to reassure EU leaders regarding bank stability on Friday and is to call for EU deposit insurance, according to Reuters. ECB's Nagel says it is necessary to increase policy rates to sufficiently restrictive levels, whilst the APP wind down should accelerate from Q3. Domestic price pressures are likely to last for longer, whilst underlying inflation is increasingly concerning. There are signs of second-round effects from inflation-induced higher wage increases. ECB's Nagel says there is often a bumpy road after similar instances in the banking sector, not surprising there have been market moves. On Deutsche Bank's share slide, ECB's Nagel will not comment. BoE's Bailey says rates will rise again if firms hike prices, via BBC; "If all prices try to beat inflation we will get higher inflation," Bank headlines Deutsche Bank (DBK GY) announces a decision to redeem its USD 1.5bln fixed to fixed reset rate subordinated Tier 2 notes, due 2028. Lloyds (LLOY LN) has issued a notice of redemption for the entire outstanding principal amount of the USD 1bln 0.695% senior callable fixed-to-fixed rate notes due 2024. In terms of the accompanying risk-off price action, the desk notes the early redemption(s) can perhaps be taken as a negative if we assume the justification is that the bank(s) expect to see more dovishness/risk-off before the next fixed-to-fixed rate adjustment. UBS Wealth Management head Khan offered a retention package to Credit Suisse's Asia staff in Hong Kong town hall which focuses on stabilising the Credit Suisse Asia team and boosting banker confidence, according to sources. Credit Suisse (CSGN SW) and UBS (UBSG SW) are among the banks facing a US Russia-sanctions probe. Fed Balance Sheet: 8.784tln (prev. 8.689tln); Total factors supplying reserve funds 8.784tln (prev. 8.689tln); Loans 354.191bln (prev. 318.148bln); Bank Term Funding Program 53.669bln (prev. 11.943bln); Other credit extensions 179.8bln (prev. 142.8bln). FX The USD is benefitting from the marked risk-off move with the index surpassing 103.00 from a 102.50 base in short-order and extending further to a 132.25+ peak since. Action which comes to the detriment of peers ex-JPY, as USD/JPY has been lower by roughly a full point at worse (best) given its haven allure and with JPY repatriation factoring. Notably, CHF is outperforming its peers, ex-JPY, but is still softer overall as its proximity/exposure to the European banking situation continues to overshadow traditional haven status vs USD though it is markedly outperforming the EUR as the focus is on EZ banks this morning. As such, EUR is the standout laggard with EUR/USD down to a 1.0722 trough vs initial 1.0830 best, antipodeans are similarly hampered given their high-beta status and after Thursdays firmer action. Cable failed to see a lasting benefit from the morning's retail data while the subsequent PMIs were slightly softer than expected; but, again, the action is very much USD-driven. PBoC set USD/CNY mid-point at 6.8374 vs exp. 6.8367 (prev. 6.8709) Fixed Income Core benchmarks are experiencing a marked bid given the risk-off price action that we are seeing with an accompanying dovish re-pricing being seen for Central Banks. Specifically, Bunds have surpassed 139.50 and USTs above 1.17 with the respective 10yr yields down to 2.02% and 3.29% with market pricing in favour of an unchanged outcome at the next ECB and Fed meetings as such. Gilts are moving in tandem with EGB/UST peers and have eclipsed 107.00; BoE pricing is now heavily in favour of an unchanged outcome at the May meeting. Commodities Commodities diverge given the marked risk-off action with crude and base metals pressured while precious metals glean incremental support as the USD offsets the benefit of haven demand. Specifically, WTI and Brent are under USD 68.00/bbl and USD 74.00/bbl respectively which places them at the mid/lower-end of the current WTD USD 64.12-71.67/bbl and USD 70.12-77.44/bbl parameters. Spot gold is incrementally firmer though is yet to convincingly surpass USD 2k/oz while base metals are dented by the aforementioned tone with 3-month LME Copper slipping further below 9k to a USD 8940 low. Russia could recommend a temporary halt to wheat and sunflower exports, via Vedomosti; due to the sharp decline in prices. US base at North-east Syria's Al-Omar oil field has been targeted in an attack, according to security sources cited by Reuters. UBS maintains a positive outlook on Gold and targets USD 2050/oz by the end of the year. Geopolitics Ukraine's top ground forces commander said Ukrainian troops are to launch a counterassault soon as Russia's large winter offensive weakens without capturing the eastern city of Bakhmut, according to Reuters. Russian Security Council Deputy Chairman Medvedev says cannot rule out that Russian forces will need to reach Kyiv or Lviv to 'destroy the infection', according to RIA. US Pentagon said the US conducted air strikes in Syria which targeted an Iranian-backed group in response to a deadly UAV attack, according to Reuters and Wall Street Journal. US Treasury Secretary Yellen said sanctions on Iran have created a real economic crisis in that country and the US is constantly looking at ways to strengthen Iran sanctions but added that sanctions may not be sufficient to change a country's behaviour, according to Reuters. China's Defence Ministry said it monitored and drove away a US destroyer which entered the South China Sea Paracel Islands on Friday again and sternly demands the US to immediately stop such provocations, according to Reuters. North Korea said it conducted an important weapon test and firing drill from March 21st-23rd, while it added that it conducted a new underwater attack system in which it tested a new nuclear underwater attack drone and launched strategic cruise missiles. Furthermore, North Korea said its leader Kim guided the military activities and that Kim seriously warned enemies to stop reckless anti-North Korea war drills, according to KCNA. South Korean President Yoon said they will step up security cooperation with the US and Japan against North Korea's nuclear and missile provocations, while he said they will make sure North Korea pays the price for its reckless provocations, according to Reuters. US Event Calendar 08:30: Feb. Durable Goods Orders, est. 0.2%, prior -4.5% 08:30: Feb. -Less Transportation, est. 0.2%, prior 0.8% 08:30: Feb. Cap Goods Orders Nondef Ex Air, est. -0.2%, prior 0.8% 08:30: Feb. Cap Goods Ship Nondef Ex Air, est. 0.2%, prior 1.1% 09:45: March S&P Global US Manufacturing PM, est. 47.0, prior 47.3 09:45: March S&P Global US Services PMI, est. 50.2, prior 50.6 09:45: March S&P Global US Composite PMI, est. 49.5, prior 50.1 10:00: Revisions: Wholesale Inventories 11:00: March Kansas City Fed Services Activ, prior 1 DB's Jim Reid concludes the overnight wrap There's a bad bout of conjunctivitis going round the school at the moment and every member of the family has now had it with the last hold out being me until yesterday. So my eyes are a bit blurry this morning looking at screens. One of the twins believes he has conjunctiv"eye-test" as he thinks it's called. If he hadn't given it to me I'd think he was quite sweet. As I was looking at screens last night through weepy eyes, markets looked like they were trying to normalise. However late weakness in financials again was a big drag on the last couple of hours of US trading. Just after the European close, the S&P 500 was up over +1.2% and looked set to reverse a good portion of the previous day’s losses. However by the end of the session, further weakness in banks and cyclicals more broadly left the index only +0.30%, but having been down nearly half a percent with 30 minutes left in trading. The VIX, which intraday was near its lowest level (20.18) since the SVB issues became prominent, ended the day 0.35pts higher at 22.6. Today we'll see if the flash PMIs around the world are impacted by the early part of the mini banking crisis we've seen in the last two weeks. So watch the European and US numbers carefully. The renewed weakness in banks yesterday actually started in Europe with the STOXX Banks index down -2.27%. The STOXX 600 recovered from an intraday low of almost -1.0% to finish -0.21% lower overall. CDS markets highlighted the stress in European financials as the Subordinated Financial CDS index widened (+20bps) for the first time since last Friday – before the CS-UBS merger news – while the Senior CDS index was +9bps wider. In the US, the Regional bank ETF, KRE, was down -2.78% yesterday whilst the broader KBW Bank index was -1.73% lower as liquidity concerns of the smaller banks continue to permeate. Staying with bank liquidity, after the US close last night, the Fed’s weekly balance sheet data showed that the use of the Fed’s discount window was down from $153bn to $110bn, while the credit deployed to SVB and Signature was up from 143bn to 180bn, and lastly the new emergency bank lending facility (BTFP) was up from $12bn to $54bn. So net of the two failed banks there was little change, indicating that banks were not finding it necessary to access cheap capital. The market should look favourably on that from a contagion standpoint. Overnight S&P and Nasdaq futures are both up around +0.2% and 2 and 10yr UST yields are both around -4.5bps lower as we go to press. Far before that balance sheet data came out the S&P 500 opened much stronger, up +1.8% and stayed buoyant through the first three hours of trading, before the weakness in regional banks weighed on overall sentiment throughout the US afternoon. This was most pronounced with a bout of selling just before Treasury Secretary Yellen spoke in front of a House of Representatives subcommittee an hour or so before the US close. The selling might have been nervousness ahead of her remarks, given the negative market reaction to her comments before the Senate on Wednesday. Regardless, the S&P actually saw a +1.0% whipsaw move when Yellen said that the US government was “prepared for additional deposit action if warranted.” This was quickly faded, with the index continuing to trade between smaller gains and losses until it ended the day +0.30% higher. Despite the weakness in banks and Energy (-1.4%) on the back of lower oil prices, the S&P finished in the green thanks to Tech stocks outperforming on the lower rate outlook. The FANG+ index surged by +2.53%, whilst the NASDAQ 100’s gains (+1.19%) mean it’s now up nearly 20% from its lows at the end of December, almost meeting the traditional definition of a bull market. On the rates side, 10yr Treasury yields held up for the most part, with the 10yr yield -0.08bps to 3.427%. Short-dated rates were another story, with 2yr yields -10.4bps lower to 3.833% fully on the back of lower inflation expectations (-13.3bps), while 5yr rates were -7.2bps lower. This saw the 2s10s yield curve normalise a further +9.4bps yesterday to -41.3bps, which is the least inverted the curve has been in over 5 months. This drop in yields led by inflation expectations was also borne out in fed future pricing, where the market now only sees a 40% chance of a 25bp hike during the May meeting. In Europe there was a sharp decline in longer dated yields that accelerated later in the session, with yields on 10yr bunds (-13.3bps), OATs (-12.3bps) and BTPs (-10.4bps) all moving lower. Furthermore, those moves came in spite of some of the ECB’s hawks calling for further tightening. For example, Austria’s Holzmann said that the ECB would “probably have to add” to its rate hikes at the next meeting in May. And the Netherlands’ Knot said that “I still think that we need to make another step in May, but I don’t know the size of that”. Speaking of central banks, we had the Bank of England’s latest decision yesterday, who hiked rates by 25bps as expected. That takes the Bank Rate up to a post-2008 high of 4.25%, and 7 of the 9 MPC members were in support, with the other 2 preferring to remain on hold. Looking forward, the BoE said that they still expected inflation “to fall significantly” in Q2, aided by falling energy prices and the government’s move to extend the Energy Price Guarantee in last week’s budget. And when it comes to inflationary pressures, they said that if “there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” In his review (link here), our UK economist writes that while he sees some upside to growth and pay, there are downsides to services CPI and credit conditions, making the next meeting in May a difficult decision to call. On balance, he sees more downside risks than upside, and holds onto his call for the Bank Rate to remain where it is at 4.25%, with the risks tilted to one further hike. Whilst we’re on central banks, yesterday also saw the Swiss National Bank hike rates by 50bps, taking the policy rate up to 1.5%. There were a number of hawkish-leaning details, including an upgrade in their inflation forecast relative to December, and their statement said that inflation was “still clearly above the range the SNB equates with price stability.” In the meantime, SNB President Jordan said that a “Credit Suisse bankruptcy would have had serious consequences for national and international financial stability and for the Swiss economy” and that “taking this risk would have been irresponsible.” This morning in Asia equity markets are lower with the KOSPI (-0.72%) the biggest underperformer with the Nikkei (-0.41%), the Shanghai Composite (-0.54%), the CSI (-0.27%) and the Hang Seng (-0.21%) trading in negative territory. Data from Japan has shown that consumer price inflation (+3.3% y/y) slowed in line with forecasts but for the first time in 13 months in February, compared to a +4.3% increase in January, mainly due to the effect of government’s energy subsidy program. At the same time, core-core CPI (excluding both fresh food and fuel costs) advanced further to +3.5% y/y in February (v/s +3.4% expected), notching the fastest y-o-y gain since January 1982. It followed a +3.2% increase in January highlighting the underlying inflationary pressures. Staying with Japan, the preliminary estimate for manufacturing PMI showed that sector activity remained in contraction for the fifth consecutive month in March after the reading came in at 48.6, albeit up from the previous month’s final reading of 47.7 as output and new orders remained under pressure. On the contrary, activity in the services sector expanded for the seventh straight month in March as the PMI edged up to 54.2, recording the fastest pace since October 2013, against prior month's reading of 54.0. Elsewhere, manufacturing as well as services in Australia slipped into contractionary territory as the manufacturing PMI fell to 48.7 in March from 50.5 in February with the services PMI deteriorating to 48.2 from the prior print of 50.7. When it came to yesterday’s data, the US weekly initial jobless claims came in at a 3-week low of 191k over the week ending March 18 (vs. 197k expected), pointing to continued strength in the labour market. Continuing claims saw a small increase to 1694k (1690k expected) and remains in a slight up-trend but not at a concerning level yet. Meanwhile, the new home sales data for February showed a modest rise to an annualised rate of 640k (vs. 650k expected), taking them up to a 6-month high. Over in the Euro Area, the European Commission’s preliminary consumer confidence data for March showed a decline to -19.2 (vs. -18.2 expected), marking a reduction after 5 consecutive monthly improvements. To the day ahead now, and data releases include the March flash PMIs from Europe and the US, along with UK retail sales for February, and the preliminary US durable goods orders for February. Otherwise from central banks, we’ll hear from the ECB’s De Cos, Nagel and Centeno, the Fed’s Bullard and the BoE’s Mann. Tyler Durden Fri, 03/24/2023 - 08:09.....»»

Futures Rebound As Yields, Dollar Drop, Fed Minutes Loom After suffering their biggest one-day drop of 2023, US futures rebounded in muted trading on Wednesday, boosted by a drop in rates (the 10Y just hit a session low of 3.92% after rising as high as 3.97%) and weakness in the dollar, even as investors awaited further clues on the direction of monetary policy from the Federal Reserve’s minutes due out at 2pm today. S&P 500 and Nasdaq futures rose 0.3% and 0.4%, respectively, at 7:45am ET; sentiment was boosted by a CNBC appearance of the Fed's "trial balloon" speaker, St Louis Fed president James Bullard, who was hawkish - saying he favors hiking rates to 5.375% as fast as possible, but not as hawkish as some had feared, leading to a sharp bounce in futures just after 7am. Yields dropped, as did the dollar, while oil, gold and crypto erased earlier losses. In premarket trading, CoStar Group led declines in US premarket trading after its annual guidance disappointed analysts and News Corp. said it’s no longer involved in discussions to sell its Move subsidiary to the real estate information and services company. Coinbase Global Inc. declined after the cryptocurrency exchange posted a $557 million loss. Here are some other notable premarket movers: Palo Alto shares rose nearly 10% after the cybersecurity company’s results beat across the board. Several analysts raised their price targets for the stock, saying the firm is managing macro pressures effectively and executing well on its strategy Keep an eye on Constellation Energy as it was cut to neutral from outperform at Credit Suisse as the broker says the green energy group’s shares now look expensive and lack near-term catalysts Watch Nordson after it was raised to overweight from sector weight at KeyBanc, with the broker saying a good entry point for the adhesives and sealants company has materialized following a post-earnings decline in its shares Morgan Stanley is constructive on US software stocks, given that the moderation in forward IT spending growth is likely to prove less severe than feared. Valuations are still near multi-year trough levels and longer-term demand trends are intact Keysight shares fell 7.1% in after-hours trading on Tuesday as the company’s results showed order weakness, and guidance will create cause for concern in the near term, analysts said, though they remain positive on the longer-term outlook for the electronic measurement services firm Meanwhile disappointing earnings projections are seen everywhere. Walmart Inc. reported a weak profit outlook that fell short of analyst estimates, signaling another rocky year for the world’s largest retailer. Home Depot Inc. also released a profit-decline forecast. Only 68% of S&P 500 companies reporting results this season have beaten estimates, compared with about 80% seen during recent quarters. Following strong business activity data on Tuesday, a classic example of "good news is bad news for markets", stocks tumbled as evidence mounted that the Fed may have to hike even more (ignoring for a second the fact that the data is manipulated "strong" for purely political reasons and will soon slump) and prompted fears the powerful stock rally since the start of the year may be coming to an end, as hot economic indicators pressure central banks to keep monetary policy tight. And while until recently investors looked as though they may be pricing in a soft landing for the economy, that may be ending said Stephanie Niven, portfolio manager at Ninety One UK Limited, and hoping strong economic conditions may cushion higher rates. “We will continue to see investors adjust their expectations,” said Niven. “We see a harsher economic cycle into the second half of this year, and we really think a harder landing is the likely outcome here.” In a relatively quiet calendar, today's main event will be the Minutes from the Fed's Jan. 31-Feb. 1 meeting, which while naturally backward looking, may shed light on the path forward. For context, officials at the meeting voted unanimously to raise rates by just 25 basis points, moderating from a half-point hike in December after four 75-bp increases. The policy statement said the “extent of future increases” will depend on a number of factors including cumulative tightening of monetary policy, wording Fed watchers viewed as a signal the central bank may stick with smaller moves. Watch the minutes for insight into whether a larger hike is still on the table, which in turn may mean the Fed’s terminal rate is higher than some expect. “Investors are waking up to a stark realization that the Fed’s work is not done, and that interest rates may have to be hiked even higher to cool hot inflation,” Susannah Streeter, the head of money and markets at Hargreaves Lansdown Plc, wrote in a note. “Waves of exuberance, which have propelled equities higher since the start of the year, have turned into tides of disappointment and apprehension about the difficulties that still may lie ahead for the mighty US economy.” A rocky geopolitical outlook has not helped. President Vladimir Putin said Russia will suspend its observation of the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine. In delayed response to yesterday's US slump, European stocks fall for a second day after disappointing corporate earnings gave investors another reason to be cautious besides the prospect of tighter monetary policy. The Stoxx 600 is down 0.9%, headed for a second-day loss, though it came off the day’s lows. Lloyds Banking Group Plc dropped, weighing on the FTSE 100 Index, after results and guidance for 2023 came in below analyst estimates, despite announcing a £2 billion ($2.4 billion) share buyback. Miner Rio Tinto Plc fell after reporting lower than expected profit and slashing its dividend due to weak demand for metals in China. Here are some of the biggest movers on Wednesday: Lloyds Banking Group shares fall as much as 3% after the lender reported fourth-quarter results and guidance that were mixed with the bank affected by competition in the mortgage market Rio Tinto shares slip as much as 3.2% after the mining conglomerate slashes dividends and reports lower-than-expected profits, hurt by weaker demand and higher costs Grifols shares fell as much as 8.2%, the most intraday in four months, after the Spanish blood plasma company said executive chairman Steven F. Mayer resigned after four months in the job Covivio shares fall as much as 5.4%, the most since December, with analysts saying the French real estate firm’s guidance is soft and that its dividend is lower than expected Korian shares fell as much as 20%, set to close at their lowest level since 2006, after the French care home operator reported 2022 full year results that came short of analysts’ expectations Siegfried shares fall as much as 11%, the most since 2015, after the Swiss pharma company delivered an outlook analysts considered cautious given its strong performance in 2022 Danone shares rise as much as 2.8% in early Paris trading, before paring gains, after reporting full-year recurring operating income that beat estimates Wolters Kluwer shares rise as much as 3.9%, the biggest intraday climb since October, after the information services company forecast organic sales growth this year will be in-line UCB gains as much as 4.9% after the Belgian pharmaceuticals firm reported better-than- expected earnings BE Semiconductor gains as much as 9.9% after reporting fourth-quarter orders that blew past analyst estimates Stellantis shares rise as much as 3.4% to the highest since March 2022 after the carmaker’s full-year results beat expectations and it announced a buyback of as much as €1.5 billion Earlier in the session, Asian stocks declined for a second day after the aforementioned jump in US Treasury yields undermined confidence in the equity market’s advance this year, with shares in Hong Kong falling to the brink of a correction. The MSCI Asia Pacific Index fell as much as 1.4% to its lowest level since Jan. 9, with TSMC and Tencent among the heaviest drags on the gauge. Shares in Australia, Japan and mainland China slipped, while losses in Hong Kong’s Hang Seng Index reached almost 10% since a Jan. 27 peak. Technology stocks dropped after Treasury yields touched new highs for the year amid growing concern the Federal Reserve will continue to raise interest rates. Investors are pricing in the federal funds rate climbing to around 5.3% in June. That compares with a perceived peak of 4.9% just three weeks ago. “We see more signs of a growth slowdown” into year end, Alexander Wolf, Asia head of investment strategy at JPMorgan Private Bank, told Bloomberg Television. Fixed income “still remains our highest conviction call, given what we’ve seen with the move up in yields, you can achieve equity-like returns.”  Read: Investors Stung by Treasuries Rout Brace for Next Fed Blow   A key MSCI gauge of Indian stocks was also on course to enter a technical correction as the selloff in Adani Group shares deepened. Indexes in Vietnam and South Korea were among the biggest decliners in the region as investors awaited the release of Fed minutes from its latest policy meeting.  Japanese equities fell, following US peers lower on concerns of further Fed hikes and after weak corporate forecasts from US retailers Walmart and Home Depot. The Topix Index fell 1.1% to 1,975.25 as of market close Tokyo time, while the Nikkei declined 1.3% to 27,104.32. Sony Group Corp. contributed the most to the Topix Index decline, decreasing 2%. Out of 2,162 stocks in the index, 431 rose and 1,636 fell, while 95 were unchanged. “Expectations for an early halt to US interest rate hikes and cuts have faded, with the landing point for a rate hike higher than what the market expected,” said Kiyoshi Ishigane chief fund manager at Mitsubishi UFJ Kokusai Asset Management.    India’s benchmark stocks gauge posted its biggest single-day slump this year as a selloff across global equity markets extended amid worries over interest rates staying higher-for-longer. Sentiment in India continued to be weighed down by the ongoing decline in Adani shares. The rout triggered by US short-seller Hindenburg Research’s report has now stretched to $144 billion, with the group’s flagship firm Adani Enterprises plunging 11% today. All 10 group stocks declined during the session.  The S&P BSE Sensex fell 1.5% to 59,744.98 in Mumbai, the most since Dec. 23 and is close to erasing its gains for February. The NSE Nifty 50 Index declined by a similar measure. “There is an increasing fear that the Fed may remain hawkish for a longer duration than expected, which may even force RBI to keep interest rates high,” Siddhartha Khemka, head of retail research at Motilal Oswal Financial, said in a note. All 20 sector sub-gauges compiled by BSE Ltd. declined, led by utilities, while 29 out of Sensex’s 30 companies closed lower In FX, the dollar slid against its Group-of-10 currencies, where Sweden’s krona was the best performer followed by the yen while the Australian dollar and British pound are the weakest among. The euro fell a third day, to touch a low of $1.0630. Bund yields were a tad higher, led by longer maturities A German expectations gauge by the Ifo institute rose to 88.5 in February from 86.4 the previous month. That was better than the 88.3 median estimate in a Bloomberg poll of economists The Swedish krona outperformed other G-10 peers against the dollar and neared 11 per euro in the wake of comments from the new Riksbank Governor Erik Thedeen, who described underlying inflation figures in January as worrying. He also said that Sweden is currently not experiencing a housing market crash The pound fell, erasing some of its Tuesday gains, as investors mulled the UK economic outlook following data that showed the nation is weathering the sharpest cost-of-living crisis in generations better than feared. The gilt yield curve bear-flattened, with yields rising 3-6bps The yen advanced as much as 0.3% to 135.06 per dollar as the nation’s benchmark bond yield climbed back above the BOJ ceiling for a second day amid a global bond selloff. BOJ Governor nominee Kazuo Ueda is due to face confirmation hearings in the parliament this week. BOJ Board Member Naoki Tamura says that any decision on conducting a policy assessment will be made by looking at wage growth, prices and the economy. A divergence in the spot and options markets for the dollar-yen pair suggests traders are looking once again to position for possible hawkish signals from BOJ officials The New Zealand dollar was little changed after earlier rising as much as 0.4% to 0.6246 even as the RBNZ hiked rates by 50 basis points as expected and forecasting that it would take longer than previously expected to reach its 5.5% peak rate The Australian dollar was the worst G-10 performer following a smaller-than-expected wages increase in the fourth quarter. Wage price index rose 0.8% q/q (estimate +1.0%) in 4Q In rates, Treasuries held on to modest gains as US trading day begins, after erasing declines that pushed yields to new YTD highs, with the exception of the new 2-year note. Shorter-term Treasuries rose more than longer-dated ones in a choppy session. The two-year rate slid 5 basis points from the highest level since early November. Its 10-year counterpart was 3 basis points lower. The 10-year reached 3.966% before dropping as low as 3.92%. Gilts have led European bonds lower as markets continue to price in higher terminal rates for the Bank of England and European Central Bank. UK two-year yields are up 8bps while the German equivalent adds 2bps. In the US, the Treasury auction cycle continues with 5-year note sale at 1pm New York time, and FOMC releases minutes of Jan. 31-Feb. 1 meeting at 2pm. WI 5-year yield 4.13%; current issue traded as high as 4.185%, still more than 30bp below last year’s multiyear high, as traders are assigning higher odds to more Fed rate increases to follow the 25bp move on Feb. 1. Since then, St. Louis Fed President Bullard — appearing on CNBC — has said he advocated for a 50bp hike and might support one in March, heightening interest in whether the minutes will reveal broader appetite for reacceleration. Oil extended its longest run of losses this year, with West Texas Intermediate contracts falling for a sixth day. The prospect of more aggressive interest-rate hikes from the Fed to quell inflation have kept a lid on prices, despite increasing evidence of a robust recovery in China following the end of Covid Zero. Crude futures decline with WTI down 0.6% to trade around $75.89, off session lows. Spot gold rose to $1,840. Looking to the day ahead. In terms of data releases, we have the German February ifo survey which came in stronger than expected, and the France February business and manufacturing confidence indicators; in the US. the latest MBA mortgage applications dropped -13.3%, following last week's -7.7% slide. For central banks, first and foremost we have the release of the Fed’s FOMC minutes, and we will also hear from the Fed’s Williams. Finally, we will have earnings releases from NVIDIA, TJX, Pioneer and eBay. Market Snapshot S&P 500 futures little changed at 4,004.75 STOXX Europe 600 down 0.9% to 459.50 MXAP down 1.3% to 160.19 MXAPJ down 1.3% to 521.69 Nikkei down 1.3% to 27,104.32 Topix down 1.1% to 1,975.25 Hang Seng Index down 0.5% to 20,423.84 Shanghai Composite down 0.5% to 3,291.15 Sensex down 1.5% to 59,790.65 Australia S&P/ASX 200 down 0.3% to 7,314.50 Kospi down 1.7% to 2,417.68 German 10Y yield little changed at 2.56% Euro little changed at $1.0643 Brent Futures down 1.1% to $82.13/bbl Gold spot down 0.1% to $1,834.10 U.S. Dollar Index little changed at 104.26 Top Overnight News Japan's 10-year government bond yield on Wednesday breached the top end of the Bank of Japan's policy band for a second straight session, prompting the central bank to step into the market with emergency bond buying and offering of loans. RTRS Two of Japan’s biggest automakers (Toyota & Honda) agreed to the biggest wage hikes in decades in an early sign of momentum in annual pay negotiations as the central bank looks for evidence of a wage-price cycle that could lead to policy change. BBG Chinese authorities have urged state-owned firms to phase out using the four biggest international accounting firms, signaling continued concerns about data security even after Beijing reached a landmark deal to allow US audit inspections on hundreds of Chinese firms listed in New York. BBG Missing Chinese investment banker Bao Fan was preparing to move some of his fortune from China and Hong Kong to Singapore in the months leading up to his disappearance, according to four people with knowledge of his plans. FT Investors increase bets on ECB lifting rates to all-time high. Buoyant service sector and wages fuel expectations of further rises in eurozone borrowing costs. FT The Fed minutes may show how many officials pushed for a larger hike and whether they saw the need to take rates higher than anticipated. Markets expect tightening to be extended after stronger economic data and some hawkish messaging, with rates peaking at 5.36% this year. The RBNZ slowed its pace with a 50-bp increase to 4.75% after mulling another move of 75 bps. The projection for peak rates was left unchanged at 5.5%, over a slightly longer timeframe. BBG Authorities accused crypto trader Avi Eisenberg of manipulating token prices on an exchange. Mr. Eisenberg countered, saying he did only what was permitted by the exchange's software code. At the core of this case is the idea held by some crypto enthusiasts that "code is king." WSJ In the hunt for Lael Brainard’s successor, the White House is “focusing in” on Harvard University professor Karen Dynan, Northwestern University finance professor Janice Eberly and Morgan Stanley Chief Global Economist Seth Carpenter. BBG JPMorgan cut staff access to ChatGPT, a person familiar said, confirming an earlier Telegraph report. The move wasn't triggered by any specific incident. BBG Consistent with the increase in leverage, demonstrated hedge fund equity market exposures have begun to rise from the extremely low levels registered late last year. Hedge funds exhibited exceptionally low betas to the equity market in 2022, reaching levels only matched during the last 20 years in 2009. Betas have rebounded in the last few weeks, driven in part by increased net length, but remain well below historical averages. GIR A more detailed look at global markets courtesy of Newsquawk Asia-Pacific stocks were subdued after the declines on Wall St where the major indices were pressured on return from holiday as strong PMI data from Europe and the US spurred hawkish central bank repricing. ASX 200 briefly dipped below 7,300 amid a slew of earnings releases although clawed back most of its losses after weak data releases including a surprise contraction in Construction Work and softer-than-expected Wage Price Index, which removes some of the hawkish impulses for the RBA. Nikkei 225 underperformed and approached closer to testing the 27,000 level to the downside. Hang Seng and Shanghai Comp. conformed to the subdued mood in which weakness in tech briefly pulled the Hong Kong benchmark into correction territory although losses were then pared after the budget announcement which included a giveaway of HKD 5,000 in consumption vouchers and a cut to salary taxes, while there was also strength in HSBC and Hang Seng Bank post-earnings. Top Asian News Hong Kong Finance Secretary Chan delivered the Budget and confirmed the government will provide HKD 5k in consumption vouchers to residents aged 18 years old and above, while they will reduce salaries tax with a ceiling of HKD 6,000 which will benefit 1.9mln taxpayers and lower government revenue by HKD 8.5bln. Chan also noted that the city is at the beginning of a recovery and that GDP contracted by 3.5% in 2022, although the government expects Hong Kong GDP growth of 3.5%-5.5% in 2023. China's top diplomat Wang Yi met with Russia's security chief and said the two sides discussed their willingness to oppose all forms of unilateral bullying and discussed ways to improve global governance. Furthermore, the two sides believe peace and stability in the Asia-Pac region should be resolutely upheld and they oppose the introduction of a cold war mentality, according to Reuters. RBNZ hiked the OCR by 50bps to 4.75%, as expected, while it maintained its view for rates to peak at 5.50% and considered hikes of 50bps and 75bps at the meeting. RBNZ stated that although there are early signs of price pressure easing, core consumer inflation remains too high and the Committee agreed it must continue to raise the OCR to return inflation to the target and to fulfil its remit. European bourses are softer across the board, Euro Stoxx 50 -0.8%, as hawkish price action remains in full swing. Sectors are lower across the board ex-Media following individual earning updates, while Basic Resources lag as underlying commodities are dented. Stateside, futures are flat/negative with the ES holding around the 4k mark having briefly and incrementally dipped below the figure in European trade. Top European News ECB's Villeroy reiterates that there is excessive volatility of the market view on the terminal rate. Already in restrictive territory with a 2.5% rate, ECB is not obliged to hike at every meeting to September, via Les Echos. Remarks which echo his commentary from last Friday. UK PM Sunak reportedly secured the backing of two key Brexiteers for the Northern Ireland trade deal with Heaton-Harris and Braverman getting behind the outline agreement, according to FT. DUP's Donaldson reportedly told an ERG meeting on Tuesday that UK PM Sunak was just halfway to meeting the DUP's seven tests re. N. Ireland Protocol, having made progress towards three or four of them, via Politico citing sources; added that progress towards the remaining DUP tests is critical, telling PM Sunak to abandon the "arbitrary deadline" of April 10th. FX The DXY remains underpinned on haven dynamics and as yields continue to climb across the board, index continues to climb above a 104.00 base with the current high at 104.33 As such, peers are generally softer across the board with the AUD lagging post-data and as the NZD clings onto gains following the hawkish RBNZ announcement; AUD around 0.6810 and NZD near 0.6210 vs USD. EUR was generally unreactive to the morning's Ifo data while dovish commentary from Villeroy prompted some pressure, but this was brief and limited given his remarks are a repeat of Friday's, EUR/USD at the lower-end of 1.0630-1.0663 parameters. JPY and CHF are rangy and narrowly mixed against the USD, after the JPY regrouped on some convergence in JGB-UST yields irrespective of BoJ buying while CHF shrugged off an upbeat domestic investor survey. GBP is giving back some of Tuesday's marked upside, with caution around N. Ireland Protocol progress perhaps weighing though the focus is firmly on BoE-related dynamics; Cable around 20 pips shy of 1.21 though off worst. EUR/SEK continues to test 11.00 with Riksbank's Thedeen assisting while the ZAR is a touch softer heading into the budget announcement from 12:00BST/07:00ET onwards. PBoC set USD/CNY mid-point at 6.8759 vs exp. 6.8776 (prev. 6.8557) Yonhap reports that as USD/KRW soared "the foreign exchange authorities called an emergency market situation inspection meeting this afternoon.". Riksbank's Thedeen says inflation is far too high; January's inflation data was a negative surprise, it is worrying. Fixed Income EGBs have experienced a modest bounce in the wake of well-received EZ & UK supply, with Bunds now back to 104.00 from the new 133.63 YTD low and Gilts firmly above 101.00 in a similar fashion. Prior to this, the complex had been under marked pressure in a continuation of recent hawkish price action with the German 10yr yield as high as 2.57%; though, pre-supply this eased following a rerun of recent dovish remarks from Villeroy. Stateside, USTs have been moving in-tandem with EGBs with specific catalysts thin ahead of FOMC minutes and a 5yr sale, as such USTs are flat within 110.30+ to 111.08 parameters. Commodities Crude benchmarks remain underpressure with specific developments limited and focus on the broader risk tone; WTI & Brent Apr at the lower end of USD 74.96-76.55/bbl and USD 81.70-83.25/bbl intraday parameters respectively. Nat Gas futures are mixed, though remain pressured vs recent levels as desks continue to cite relatively mild weather in the US and Europe. Kazakhstan may send the first batch of oil to Germany in the coming days which could possibly occur today, according to RIA citing the Energy Minister. Morgan Stanley sees Brent trading in a USD 90-100bbl range in H2 vs. its prev. view of USD 100-110bbl; raises estimate for oil demand growth to 1.9mln BPD from 1.4mln BPD. Nigeria raises March Bonny Crude OSP to +0.95/bbl vs dated Brent; Qua Iboe raise to +1.27/bbl vs dated Brent. Spot gold is little changed as any haven allure is offset by the USD's strength, while base metals are lower given the tone and with focus on commentary from Rio Tinto overnight. Ukraine could export a total of 8mln tonnes of agricultural good a month for Odesa and Mykolaiv ports; will talk to UN to extend the grain deal for another year, according to Ukrainian Deputy Minister. Geopolitics Russia reportedly conducted an ICBM test when US President Biden was recently in Ukraine although the test was said to have failed, while an official stated that Russia notified the US in advance of the launch through deconfliction lines, according to CNN. Russian PM Medvedev says Russia is ready to defend itself with any weapon, including nuclear. Russian Foreign Minister Lavrov says relations between Moscow and Beijing are developing despite the tense international situation; China's Top Diplomat says we continue to maintain close communication with Russia, via Sky News Arabia. Subsequently, Russian Kremlin says President Putin is to meet with China's Top Diplomat Wang Yi on Wednesday (as touted). US President Biden’s administration is expected to impose fresh sanctions on about 200 Russian individuals and entities this week, according to WSJ citing sources. North Korea could fire ICBMs at a normal angle and conduct its seventh nuclear test this year, according to South Korean lawmakers citing intelligence officials. US Event Calendar 07:00: Feb. MBA Mortgage Applications, prior -7.7% 14:00: Feb. FOMC Meeting Minutes 17:30: Fed’s Williams Discusses Inflation DB's Jim Reid concludes the overnight wrap I’m still in a bit of a state of shock this morning after the Liverpool / Real Madrid game last night. From wild jubilation to the end of the world within an hour. A Bit like financial markets in the last three weeks. Back before the game when there was still hope in my heart, I released my latest monthly chart book, "Waiting for the lag" that debates the themes around the near-term improvement in the global outlook versus that of the lag of monetary policy. At this stage of a normal hiking cycle, we show that markets and economies are usually fairly benign so don't confuse recent strength in data as a soft landing. It's not until year 2 onwards of the hiking cycle that pain normally starts to be felt. So the real test will be when the lag of monetary policy fully kicks in as it should do over the next few quarters. By March, the ECB will have likely hiked +350bps in 8 months and the Fed +475bps in 12 months. More hikes are likely to come too. Indeed our European economists yesterday lifted our ECB terminal rate call from 3.25% to 3.75% (more below). Until all these hikes on both sides of the Atlantic fully pass through the economy it is impossible to sound the all clear. We've always thought the first few months of the year would be positive with the problems building by year-end, but the extent of the rally in January made us shift back to neutral in credit quicker than we thought we would. Indeed, we think US credit has now passed the tights of the year. See the chart book here for much more. The skinny in markets today is that the week has sprung into action over the last 24 hours after the US holiday on Monday, as a run of better than expected flash global PMIs led to a sizeable global bond sell off (10yr USTs +13.8bps), with the S&P 500 (-2.00%) wiping out its February gains. More on markets later but while we wait for the full lag of policy, the flash PMIs continued to improve yesterday from what were quite stressed levels. Indeed the US composite PMI rose back into expansionary territory at 50.2 (vs 47.5 expected). Much of the strength originated from a strong performance in services, which surprised to the upside at 50.5 (vs 47.3 expected). There was less evidence of a similarly strong improvement in manufacturing as it modestly surprised to the upside at 47.8 (vs 47.2 expected). As we dug into the weeds of the data release, it is clear that whilst input costs rose at a softer pace in February, there was a sharper rise in private sector output charges at both manufacturing and service sector firms. This comes as the pace of increase in selling prices was the quickest it has been since October, as firms reportedly passed through these increases as costs to their customers. This increased the chatter on inflation being sticky. The immaculate disinflation story has had some big blows in the last 2-3 weeks. Markets subsequently moved to price in bets that the Fed will need to keep rates higher for longer, as expectations for the terminal rate for July’s meeting increased by 6.2bps to 5.367%. However, the increase was most evident for December’s meeting, with rate expectations for year-end increasing by 12.5bps to 5.19% since Friday’s close. With uncertainty over terminal back on the agenda, the S&P 500 fell back -2.00% in its largest down move since the day after the December FOMC meeting and erasing its February gains. It was a broad based decline for US equities with every industry group lower on the day as over 93% of index members declined. The NASDAQ retreated further, down -2.50% at the close – also its biggest downside move since December 15. In US fixed income markets, the 10yr US Treasury yield spiked up by +13.8bps to reach its highest level since the second week of November at 3.945%. The 2yr Treasury also saw large moves, as yields rose +10.6bps to 4.723%, the highest level since July 2007. All eyes will be on the release of the Fed’s minutes today, as markets look for guidance on policy going forward. However it's likely to feel a bit dated as a lot has happened in the subsequent three weeks. Over to the other side of the Atlantic, the European PMI releases fitted in with the global pattern of improving services, but limited improvement from manufacturing. The EA services PMI came in above expectations at 53 (vs 51 expected). On the other hand, we had a downward surprise with the manufacturing release which fell to 48.5 (vs 49.3 expected). Resultingly, the composite PMI rose to 52.3 (vs 50.7 expected) and into expansionary territory. Against this backdrop, markets have moved to price in +126bps of rate hikes until hitting terminal at the October meeting (3.658%), up +6.4bps yesterday. As stated near the top, our European economists yesterday lifted their ECB terminal rate call from 3.25% to 3.75%. They had previously expected a 50bp hike in March and a final 25bp in May. Now the baseline is for 50bp hikes at both the March and May meetings followed by a final hike of 25bp in June. See their note here for why a robust European economy and labour market along with hawkish ECB commentary have caused them to upgrade their call. They also explain why the heightened uncertainties make risks fairly balanced for a terminal landing zone between 3.50-4.00%. Narrowing in, the German composite PMI also beat consensus, rising into mildly expansionary territory to 51.1 (vs 50.3 expected). This strong performance largely came from services, which rose to 51.3 (vs 51 expected), whilst manufacturing surprised to the downside at 46.5 (vs 48.1 expected). These releases affirm our expectation that Germany will have a shallow technical recession over the winter half year. For a bit more colour, look at the new Germany: Economic Chartbook from our Frankfurt team for all things Germany related. The beat in German composite PMI also reflects a rosier outlook for the German economy following a warm winter (here), and a significant drop in wholesale gas prices and favourable gas storage levels. Indeed, our German economists confirm the view that they’ll be no gas supply crunch for the country for this winter nor for winter 23/24. See their latest and final European Gas monitor here. Final due to the fact that the supply issue has now been covered. Yesterday, European natural gas futures sat below €50 at €48.54/contract, down -2.67%. France’s PMI’s largely mirrored the broader Euro Area release, with the manufacturing surprising to the downside at 47.9 (vs 51 expected), and services to the upside at 52.8 (vs 49.8 expected). The overall composite PMI rose into expansionary territory to 51.6 (vs. 49.8 expected). Off the back of these upward surprises and expectations of larger rate hikes by the ECB, the 10yr bund yield rose +6.5bps to 2.529%, reaching their highest level since the end of 2022. The policy sensitive 2yr bund also rose by +5.1bps yesterday. The STOXX 600 modestly fell back -0.19%. This morning in Asia equity markets are tracking the US falls with the KOSPI (-1.46%) emerging as the biggest underperformer followed by the Nikkei (-1.30%), the CSI (-0.56%) and the Shanghai Composite (-0.25%). Meanwhile, the Hang Seng (+0.03%) is just above flat after opening lower. In overnight trading, US stock futures tied to the S&P 500 (+0.19%) and NASDAQ 100 (+0.28%) are inching higher. Early morning data showed that Japan’s producer prices index (PPI) rose +1.6% y/y in January, inline with market expectations and slightly higher than December’s increase of +1.5%. Elsewhere, Australia’s wage price index (WPI) for the final three months of 2022 rose +3.3% (+3.5% expected) from an upwardly revised +3.2% in the September quarter, thus slightly easing the RBA’s rate hike concerns. In terms of monetary policy action, the Reserve Bank of New Zealand (RBNZ) hiked interest rates by +50bps (as expected) to a more than 14-year high of 4.75% while highlighting that rates could still rise as inflation remains too high. Following the decision, the New Zealand dollar rose as high as $0.6246, reflecting the hawkishness of the statement before settling to trade at $0.6224 (+0.03%) as we go to press. Back to yesterday, and the same PMI story reverberated in the UK as the composite PMI came firmly in above expectations at 53 (vs 49 expected). There was a big jump in services, which rose to 53.3 (vs 49.2 expected). Manufacturing saw a stronger beat than over in the Continent, with UK manufacturing PMI surprising to the upside at 49.2 (vs 47.5 expected). With concerns over inflations still at large, 2yr and 10yr Gilts rose +16.3bps and +14.3bps respectively. Aside from the rush of the global flash PMIs, we had further developments in the geopolitical space yesterday, as Bloomberg reported that President Putin announced Russia was suspending (but not exiting) its participation in the New Start Treaty, a significant shift in its policy. The Treaty limited each signatory to no more than 1,550 deployed nuclear warheads and 700 deployed long-range missiles and bombers and had been renewed for five years in 2021, as reported by Reuters. We also saw Russia’s Secretary of the Security Council Patrushev meet with China’s Director of Central Commission for Foreign Affairs Wang Yi in Moscow. Yi had previously met on less than amicable terms with US Secretary of the State Blinken last weekend. President Biden reiterated NATO’s resolve at a speech in Warsaw yesterday, saying “there should be no doubt: Our support for Ukraine will not waver, NATO will not be divided, and we will not tire.” This comes alongside the $480mn arms announcement made by the Biden administration in recent days. Looking to other data releases, yesterday also saw the release of Germany’s February’s ZEW investor expectations index, which rose to 28.1 (vs 23 expected). We also had Canadian February CPI data, which decelerated to 5.9% year-on-year (vs 6.1% expected) – a rare recent positive inflation surprise. To the day ahead. In terms of data releases, we have the German February ifo survey, and the France February business and manufacturing confidence indicators. For central banks, first and foremost we have the release of the Fed’s FOMC minutes, and we will also hear from the Fed’s Williams. Finally, we will have earnings releases from NVIDIA, TJX, Pioneer and eBay. Tyler Durden Wed, 02/22/2023 - 08:07.....»»

Futures Rise On China Reopening, End Of Tech Crackdown As Asia Enters Bull Market Futures extended their Friday post payrolls gain on the back of Chine reopening optimism coupled with speculation that China's tech crackdown is finally ending - just as we speculated this weekend when reporting on Jack Ma's ceding control of Ant Financial. S&P futures rose 0.4% as of 7:30 am ET while Nasdaq contracts 100 added 0.5%. And while European stocks were mostly in the green, the bulk of overnight action was in Asia where the Hang Seng Tech Index jumped 3.2% Monday, led by Alibaba Group after a top central bank official said the clampdown on the Internet sector was drawing to a close. The broader market also advanced, with a gauge of Chinese equities listed in Hong Kong rising 2%, helping push the MSCI Asia Index up 20% from its October low, setting it up for a bull market. The dollar weakened to a seven month low and oil rallied. Among premarket movers, Bed Bath & Beyond shares surged as much as 75%, set to rally after losing nearly half of their value in the previous week on bankruptcy worries amid mounting losses, and ahead of the company’s earnings due Tuesday. Coinbase and Riot Platforms led cryptocurrency-exposed stocks higher in premarket trading as Bitcoin rallied to extend gains for a sixth consecutive session — its longest streak in nearly a year. Lululemon dropped after the athletic apparel maker forecast a weaker gross margin. Here are other notable premarket movers: Oracle is upgraded to overweight from neutral at Piper Sandler as its cloud transformation takes hold. The brokerage also noted that fiscal 2024 might be a watershed year for the software company, where growth in operating profits and earnings per share could accelerate to more than 10%. Oracle shares are up 1.3%. Piper Sandler upgrades Uber to overweight and cuts DoorDash to underweight, recommending a pair-trade between the two as it favors ride-hailing over delivery in 2023. Elsewhere, Jefferies starts DoorDash with an underperform rating, with a buy on Uber. Uber shares rose 2.3%. Dash shares down 4.2%. Ally Financial upgraded to neutral from underweight at Piper Sandler, with headwinds seen as now priced into the stock. Shares rise 1.9%. Credit Suisse says fertilizer prices are on a downward trajectory in a note double-downgrading Mosaic (MOS) to underperform. Shares fall 1.1%. Elf Beauty is downgraded to hold from buy at Jefferies, with broker saying risk-reward is balanced for the cosmetics company against an uncertain macroeconomic backdrop. Shares fall 1.1%. Ipsen shares drop after it agreed to acquire Albireo for $42/share in cash plus a contingent value right (CVR) of $10/share related to the U.S. FDA approval of Bylvay in biliary atresia. Albireo shares soar 93%. Jefferies sees another year of uncertainty ahead for US bank stocks, in a note upgrading its ratings on Truist (TFC) and First Republic (FRC) and downgrading both Signature Bank (SBNY) and Regions Financial (RF). TFC falls 0.09%. FRC rises 1.2%. SBNY shares fall 0.4%. RF falls 1%. KeyBanc trims its natural gas price estimates for 2023 following a relatively mild winter to date and cuts its ratings on Comstock Resources (CRK) and Pioneer Natural Resources (PXD). CRK shares rise 0.8%. PXD rises 1%. There is a strong industry backdrop for Harmonic (HLIT), with greater competition in the broadband service market pushing cable multiple-system operators (MSOs) to invest aggressively, Jefferies writes in note that upgrades the stock to buy. Shares rise 1.8%. Lanvin Group is rated neutral at Citi, which initiated coverage on the stock noting that the luxury fashion group has solid brands but clear evidence of a turnaround is required to merit a buy call. Shares rise 3.5%. Markets closed last week solidly in the green, encouraged by Friday's jobs report which showed wage growth slowing, lifting the S&P 500 2.3% to notch its first winning week in over a month. They face another test on Thursday with CPI data that will likely help determine the size of the Federal Reserve’s next interest-rate increase. After the easing in wage inflation, swaps contracts showed investors expect the policy rate to peak at under 5% this cycle, down from 5.06% just before Friday’s jobs report. While traders remain divided about the size of February’s hike, with 32 basis points of tightening priced in, it appears that a quarter-point move is seen as more likely than a half-point increase. While pressure on the Fed to hike by 50 basis points on Feb. 1 has eased, “policy makers appear to be increasingly frustrated by market-pricing at odds with Fed signaling in terms of both the terminal funds rate and timing of initial rate cut,” BNP Paribas economists led by Carl Riccadonna wrote in a note to clients. “This could tilt their bias toward a more forceful response at the next meeting.” And while market pessimism is still dominant, analysts at Wells Fargo said Friday’s gains may be more durable than some expect, being “driven by a pro-cyclical post-jobs report reaction — not by risk/short-covering.” This market action “probably creates some positive investor sentiment since long-only’s are making money and short-sellers are faring better than one might expect.” On the other hand, Morgan Stanley strategists said US equities face much sharper declines than many pessimists expect with the specter of recession likely to compound their biggest annual slump since the global financial crisis. The bank's equity strategist, Michael Wilson, long one of the most vocal bears on US stocks, said while investors are generally pessimistic about the outlook for economic growth, corporate profit estimates are still too high and the equity risk premium is at its lowest since the run-up to 2008. That suggests the S&P 500 could fall much lower than the 3,500 to 3,600 points the market is currently estimating in the event of a mild recession, he said. At the same time, US stocks have been lagging the rebound in European, Asian and emerging-market peers as American equities trade at a hefty valuation premium. European markets also started the week amid a generally buoyant mood, as continental bourses opened higher, after posting the best week since March on optimism about China’s reopening, an easing energy crisis and signs of cooling inflation. Europe’s Stoxx 600 Index climbed 0.5%, touching the highest since mid-December with construction, technology and energy leading gains amid optimism over China’s demand for raw materials.  On the data front, euro zone unemployment was unchanged in November at 6.5% as expected. Here are some of Europe's biggest movers: UCB gains as much as 4.9%, the most in almost 11 months, after the Belgian biopharma company said its 2022 results should come in toward the high end of guidance Geberit shares climb as much as 3.5% after Goldman Sachs raised its recommendation on the Swiss manufacturer to neutral from sell, citing reduced risk related to energy prices BioArctic rises as much as 29% after Eisai and Biogen’s Alzheimer’s drug Leqembi (lecanemab-irmb) received accelerated approval from the FDA. The treatment originates from BioArctic TGS gains as much as 15%, the most intraday since 2020, after a 4Q update that DNB said showed a strong beat on late sales and supportive management comments on order inflow SAES Getters shares surge as much as 36%, the most on record, after SAES Group entered an agreement with Resonetics to sell its Nitinol production business for about $900m in cash AstraZeneca falls after agreeing to buy US biotech CinCor Pharma for as much as $1.8 billion. Analysts say the acquisition is a good fit for the firm’s existing cardiovascular franchise Fresnillo falls as much as 2.5% as RBC Capital Markets downgrades stock to sector perform, as it sees operational momentum widely priced in and expects limited growth in the pipeline Frontier Developments shares fall as much as 42%, its biggest intraday decline on record, after the video-game firm said it no longer expects to meet FY23 consensus expectations Ambea drops as much as 6.9%, the most since Dec. 23, after the Swedish elder care company saw its target price cut at DNB to SEK52 from SEK73 on continued headwinds due to inflation Devolver Digital shares fall as much as 9.5%, dropping to a record low, after downgrading profit expectations for FY22 in a trading update. Goodbody called the update “disappointing.” Earlier in the session, Asia’s benchmark stock index was on track to enter a bull market, as China’s reopening and a weakening dollar lure investors back to the region. The MSCI Asia Pacific Index climbed as much as 1.9% on Monday, taking its advance from an Oct. 24 low to more than 20%. The Asian benchmark is up 3.7% so far in 2023, beating the S&P 500 Index by about two percentage points. That’s after they both slumped about 19% last year, their worst performance since 2008. Gauges in Hong Kong, Taiwan and South Korea led gains in the session, while Japan was closed for a holiday. Strategists have predicted a better year for Asian equities after a dismal 2022, especially as stocks in China, which carry the second-highest weighting in the regional gauge after Japan, turned a corner in November following the nation’s shift away from stringent virus curbs. The bull market milestone comes after the MSCI Asia gauge tumbled nearly 40% from a peak in early 2021. The MSCI Emerging Markets Index is on track to enter a bull market after surging more than 20% from its October low, boosted by Chinese stocks after the nation pivoted on its Covid strategy and offered more policy support for the economy.   “The rally has been fast and furious, so it is only natural to expect some profit-taking,” said Charu Chanana, senior strategist at Saxo Capital Markets Pte. “There are also some risks to keep a tap on, such as BOJ’s hawkish shift and company earnings. But that being said, there is still room for Asian markets to outperform global peers in 2023.” Australian stocks climbed for a fourth day as miners advanced. The S&P/ASX 200 index rose 0.6% to close at 7,151.30, capping four consecutive days of advances. The winning streak is the benchmark’s longest since Nov. 25. The gauge followed Wall Street shares higher after US economic data boosted optimism for slower Fed rate hikes. Miners and energy shares contributed the most to the Australian index’s move. In New Zealand, the S&P/NZX 50 index rose 0.2% to 11,646.45. In FX, the Bloomberg Dollar Spot Index fell to its lowest level since June as the dollar weakened against all of its Group-of-10 peers apart from the yen. It pared the drop in European hours. NOK, NZD are best performers among G10’s. The euro pared gains after rising to $1.07. Bunds and Italian bonds underperformed Treasuries, with the largest losses seen in the belly of curves, while money markets added to peak ECB rate wagers. Focus is also on the EU’s first bond sales of the year The pound advanced, while gilts bear flattened. Bank of England Chief Economist Huw Pill comments are due later Norway’s krone and the Australian dollar led G-10 gains, with the latter climbing to $0.6947, its highest level in more than four months, supported by China’s reopening. AUD curve bull steepens with 3-year yield ~13bps lower Turkey’s lira weakened as investors weighed President Recep Tayyip Erdogan’s signal that general elections will be held in early May, a month earlier than scheduled In rates, Treasuries were pressured lower with losses led by long-end, continuing Friday’s post-payrolls steepening move amid wave of block trades. US yields are higher by as much as 4bp at long-end, steepening 5s30s, 2s10s spreads by around 2bp; 10-year around 3.595%, cheaper by 3.5bp on day but outperforming bunds in the sector by ~2.5bp.  Treasuries took their cue from wider bear-steepening move across core European rates following first EU bond sales of the year. Another heavy IG credit issuance slate is expected this week, which also includes December CPI data Thursday and Fed Chair Powell appearance Tuesday.   In commodities, crude futures advanced, pushing Brent up almost 3.5% to trade near $81.11. Spot gold rises roughly $8 to trade near $1,873/oz while base metals are in the green. In crypto, Bitcoin is firmer and has managed to surpass and gain a more convincing foothold above USD 17k, after fleeting breaches of the figure in recent sessions, with the 16th Dec USD 17524 peak into play The only event on today's quiet calendar is the consumer credit print at 3pm ET. There are two Fed speakers on deck as well, Bostic and Daly, speaking shortly after noon. Market Snapshot S&P 500 futures up 0.4% to 3,932.00 STOXX Europe 600 up 0.5% to 446.56 MXAP up 1.7% to 161.51 MXAPJ up 2.4% to 535.12 Nikkei up 0.6% to 25,973.85 Topix up 0.4% to 1,875.76 Hang Seng Index up 1.9% to 21,388.34 Shanghai Composite up 0.6% to 3,176.08 Sensex up 1.4% to 60,752.44 Australia S&P/ASX 200 up 0.6% to 7,151.33 Kospi up 2.6% to 2,350.19 German 10Y yield little changed at 2.27% Euro up 0.3% to $1.0677 Brent Futures up 3.0% to $80.90/bbl Brent Futures up 3.0% to $80.89/bbl Gold spot up 0.4% to $1,873.06 U.S. Dollar Index down 0.27% to 103.60 Top Overnight News from Bloomberg Central banks aren’t giving up their inflation fight yet with the peak in interest rates still to come in most economies, but pauses will come at some point in 2023 — and perhaps even pivots The ECB predicts wage growth — a key indicator of where inflation is headed — will be “very strong” in the coming quarters, strengthening the case for more interest-rate hikes, the institution said Monday in an article to be published in its Economic Bulletin UK Prime Minister Rishi Sunak is set for talks with the union leaders directing the wave of strikes that have hobbled the UK since the start of the year, as the threat of more widespread action hangs over the country Russian President Vladimir Putin’s plans to squeeze Europe by weaponizing energy look to be fizzling at least for now. Mild weather, a wider array of suppliers and efforts to reduce demand are helping, with gas reserves still nearly full and prices tumbling to pre- war levels The SNB expects an annual loss of about 132 billion francs ($143 billion), more than five times the previous record, it said Monday in preliminary results. The largest part of this, 131 billion francs, stems from collapsed valuations of its large pile of holdings in foreign currencies, accrued as a result of decade-long purchases to weaken the franc A ship has been refloated after running aground in the Suez Canal and briefly disrupting traffic in the waterway that’s vital for global trade Brazil’s capital was recovering early Monday from an insurrection by thousands of supporters of ex-President Jair Bolsonaro who stormed the country’s top government institutions, leaving a trail of destruction and testing the leadership of Luiz Inacio Lula da Silva just a week after he took office Chinese officials are considering a record quota for special local government bonds this year and widening the budget deficit target as they ramp up support for the world’s second- largest economy, according to people familiar with the matter Japanese Prime Minister Fumio Kishida said careful explanation and communication with markets would be part of consideration on monetary policy, when asked about possible future changes in the Bank of Japan’s ultra-loose policy A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks gained with the MSCI Asia Pacific index on course to enter a bull market as the region took impetus from last Friday’s rally on Wall St. ASX 200 was led higher by strength in the commodity-related sectors and with sentiment also helped by China’s border reopening which JPMorgan predicts could boost Australia’s economy by nearly one percentage point over the next two years, although gains are capped following disappointing building approvals data. KOSPI outperformed with the index and shares in LG Electronics unfazed by the Co.’s softer preliminary Q4 earnings. Hang Seng and Shanghai Comp were supported after China’s border reopening over the weekend added to the hopes of an economic recovery and with Alibaba shares spearheading the advances in Hong Kong after Jack Ma ceded control of affiliate Ant Group. Top Asian News Chinese President Xi Jinping stressed the importance of remaining committed to advancing reform, exploring new ground and carrying forward the fighting spirit, in a bid to modernize the work of judicial, procuratorial, and public security organs, according to China Economic Net. PBoC official Guo Shuqing said China’s growth will return to a normal path as China provides further support to households and companies to help recover following the end of the zero-Covid policy, according to People’s Daily. Tens of thousands of travellers began to fly in and out of mainland China on Sunday following the removal of nearly all of China’s border restrictions, according to WSJ. China’s health security administration said talks to include Pfizer’s (PFE) Paxlovid in the drug list for basic state health insurance failed due to the Co.’s high quotation for the antiviral medicine, according to Reuters. Six Chinese cities set GDP targets for this year ranging from 5.5%-7.0%, according to Securities Daily. Japanese PM Kishida said they must choose a successor to BoJ Governor Kuroda best suited for the post at the time when Kuroda’s term ends in April and must discuss with the next BoJ Governor the relationship between the government's and BoJ's policies. Kishida added that the government and BoJ must work closely together and each should play their own roles in achieving sustained price stability, while he noted that the government is ready to respond flexibly using reserves when asked if further steps could be taken to soften the blow on households from rising prices, according to Reuters. China reportedly considering a record special debt quota and a wider budget deficit, via Bloomberg; considering a deficit ratio of circa. 3% for the year. New special bond quota of up to CNY 3.8tln. European bourses are firmer across the board, Euro Stoxx 50 +0.3%, as the constructive APAC tone continues amid a limited European docket. Sectors are primarily in the green, with defensive names lagging somewhat in-fitting with the risk tone. US futures are in the green, ES +0.4%, in-fitting with the above sentiment ahead of Fed speak and a NY Fed Consumer Expectations survey. Apple's (AAPL) iPhone exports from India have doubled to a record USD 2.5bln, via Bloomberg. Top European News BoE’s Mann said energy price caps could be lifting inflation in other sectors by boosting consumer spending and noted it is unclear what would happen to inflation when caps are removed, according to Bloomberg. UK PM Sunak said inflation is not guaranteed to decline this year and that the government will need to be disciplined to ensure inflation is brought down, according to Reuters. In other news, PM Sunak said he was willing to discuss pay increases for nurses in an effort to end strikes as ministers prepare to meet union leaders on Monday, according to FT. Czech Central Bank Governor Michl said they expect a significant drop in inflation from spring and are ready to raise rates further if the baseline scenario of a decline in inflation does not materialise, while he added that policy will be strict until inflation begins declining, according to Reuters. FX   DXY continues to slip below the 104.00 mark between 103.860-420 parameters towards key technical support and its December low (103.380). Action which is benefitting peers across the board ex-JPY, which is suffering amid the easing in USTs/EGBs and a Japanese holiday, with USD/JPY above 132.50. Antipodeans are the current outperformers with AUD surpassing 0.69 and Kiwi eclipsing 0.64 vs USD, before waning slightly. EUR/USD hit, but failed to breach, 1.07 while Cable is off best but still above 1.21 in a 1.2089-1.2174 range. PBoC set USD/CNY mid-point at 6.8265 vs exp. 6.8276 (prev. 6.8912)   Fixed Income EGBs under pressure and continuing to retreat from Friday's best, with Bunds down by nearly 100 ticks and Gilts similarly dented though managing to retain 102.00 at present USTs are similarly softer, though have largely been consolidating towards the APAC trough given the absence of Japanese participants ahead of Fed speak and NY survey, with yields modestly firmer across the curve. Commodities Crude benchmarks are bid this morning, with WTI Feb and Brent Mar posting upside in excess of 3.0% or USD 2.0/bbl respectively. Action has been driven by China’s ongoing reopening and fresh geopolitical headlines, alongside other crude-specific developments (see below). Qatar set February marine crude OSP at Oman/Dubai plus USD 0.75/bbl and land crude OSP at Oman/Dubai plus USD 2.10/bbl. In relevant news, Qatar Energy is to sign Ras Laffan Petrochemicals Complex agreements with the project to cost USD 6bln and it created a JV with Chevron Phillips Chemicals of which it owns 70% and Chevron (CVX) owns 30%, according to Reuters. Iraq’s Oil Minister said the Karbala oil refinery will begin commercial production in mid-March, according to Reuters. US DoE rejected the initial batch of bids from oil companies to resupply a small amount of oil to the SPR in February, according to Reuters. Colonial Pipeline said repairs at the Witt Booster Station were completed and Line 3 returned to normal operations as of 17:51 EST on Sunday, according to Reuters. China has issued a second batch of 2023 crude oil import quotas to independent refiners totalling 111.82mln/T, via Reuters citing sources. Iraq February Basrah medium crude OSP to Asia -USD 1.40/bbl vs Oman/Dubai average, via Somo; to Europe at -USD 8.95/bbl vs Dated Brent. Spot gold is fairly contained around the mid-point of USD 1864-1880/oz parameters, with the yellow metal deriving some upside from the DXY struggling to attain a positive foothold; next resistance mark is USD 1885/oz from the 9th of May. Geopolitics Ukrainian President Zelensky said Ukrainian forces were repelling Russian attacks on Bakhmut in eastern Donbas and were holding position in nearby Soledar under very difficult conditions, according to Reuters. Russia’s Defence Ministry said it struck a building in eastern Ukraine which killed more than 600 Ukrainian troops in retaliation for Ukraine’s deadly strike against a Russian barracks, although Ukrainian officials denied there were any casualties and said the strike by Russia only damaged civilian infrastructure, according to Reuters and ITV. Russia and Belarus will conduct joint air force drills on January 16th-February 1st, according to the Belarusian Defence Ministry cited by Reuters. Russian Kremlin has rejected suggestions from Ukraine that Russian official Kozak is sounding out officials in Europe about a potential peace deal. Swedish PM Kristersson said they have fulfilled commitments made to Turkey at the Madrid summit but noted that Turkey is demanding concessions that Stockholm cannot give to approve its application to join NATO, according to FT. China's military said it carried out combat drills around Taiwan on Sunday, while Taiwan's Defence Ministry stated 28 Chinese aircraft crossed the Taiwan Strait median line and entered the air defence zone in the past 24 hours. Furthermore, Taiwan's presidential office said it condemns China's recent military drills around Taiwan and that Taiwan's position is very clear whereby it will not escalate conflict nor provoke disputes but added that it will firmly defend its sovereignty and national security, according to Reuters. Crypto Bitcoin is firmer and has managed to surpass and gain a more convincing foothold above USD 17k, after fleeting breaches of the figure in recent sessions, with the 16th Dec USD 17524 peak into play. Bafin warns of Godfather malware attack on banking/crypto apps. US Event Calendar 15:00: Nov. Consumer Credit, est. $25b, prior $27.1b Central bank Speakers 12:30: Fed’s Bostic Takes Part in Moderated Discussion 12:30: Fed’s Daly Interviewed in WSJ Live event DB's Jim Reid concludes the overnight wrap I hope your Sunday was more peaceful than mine. I played my first round of golf since back surgery (don't tell my consultant) and got stuck at the golf course afterwards as there was a big police search with helicopters over the area I walk home across. My wife and kids were out in the garden at the time and had to rush in as the copter nearly landed in the adjoining field. So at least they knew I wasn't making up being delayed. Had it not been pouring with rain I would have had time for another 9 by the time I could make it home via a huge detour. To be fair for me there are worst places to be stuck but it was a touch concerning. That capped the end of a week where if you thought 2023 might start calmer than 2022 then you may have wanted to think again as there was plenty to debate and plenty of big swings in markets and data. In fact, after weak European headline inflation last week and a bad miss for the US Services ISM on Friday it was the best week for 10yr German bunds (-35.8bps) since data on Bloomberg starts around reunification in 1990. This week the main highlights are a speech from Powell in Sweden tomorrow morning, US and China CPI on Thursday, and Q4 US earnings season starting in earnest with 3 big financials on Friday. Before we go through things in more detail it's worth recapping Friday's US data which resulted in a major shift lower in yields. Payrolls were firm as expected with the headline at +223k and unemployment unexpectedly falling a tenth to 3.5%, the lowest since Neil Armstrong first walked on the moon. As our US economists discuss here though, there were signs of slowing growth in the report with, for example, hours worked (34.3hrs vs. 34.4hrs) and average hourly earnings (+0.3% vs. +0.4%) declining. These factors led US yields lower after the report but the Services ISM dropping from 56.5 to 49.6 was a bit of shocker, especially when the consensus was at 55. There’s a chance the exceptionally cold weather could have artificially depressed the survey but the associated commentary wasn’t great and new orders fells 10.8 points to 45.2 which outside the pandemic is the lowest since the GFC and levels only previously associated with recessions. 2 and 10yr yields fell -21bps and -16bps on the day but around 15-16bps of both moves came after the ISM which shows its impact. Ironically the S&P 500 climbed +2.28% on the day but c.1.75% of this was after this shocker of a print showing that the influence of rates on equities outweighed the economic concerns. Such an equity move couldn't possibly last if this ISM print heralded in a stream of recessionary data. It can only last if the data suggests an environment weak enough to merit the Fed pausing soon with the economy managing a soft landing. Remarkably European PMIs now stand near a record high relative to the US which is part of the reason for preferring European credit given it still trades wide to the US. A fuller review of the week for assets (a significant one to start the year) can be found at the end as usual. Let's move on to this week now and start with the US CPI print for December on Thursday which will be the pivotal data point in January. In terms of the MoM rate, the headline CPI is expected at -0.15% at DB (consensus 0.0% vs. +0.10% previously) with core CPI expected at +0.22% at DB (+0.3% consensus vs. +0.20% previously). In terms of YoY, headline is expected to drop from 7.1% to 6.3% at DB (6.5% consensus) with core falling from 6% to 5.6% (5.7% consensus). Another inflation-related data point will come from the University of Michigan survey on Friday, where the gauge of consumer inflation expectations will be in focus. Other US data releases will include consumer credit (DB forecast +$30.5B vs +$27.1 in October) today and the NFIB small business optimism index on Tuesday. Central bank speakers will also be in the spotlight with appearances from Fed Chair Powell and BoE Governor Bailey at the Riksbank's International Symposium on Central Bank Independence tomorrow. We will also hear from a number of other Fed and ECB speakers throughout the week (see day by day calendar for the list). In Europe, key data releases will include industrial production and trade data in Germany, France and the Eurozone. Over in the UK, all eyes will be on the monthly GDP report for November on Friday. Elsewhere, retail sales (Wednesday) figures will be published in Italy along with the unemployment rate (today) for November. Over in China, the CPI and the PPI on Thursday will be the standout. Turning to earnings now and some of the largest American banks including JPMorgan, Citi and BofA will kick off the earnings season on Friday. We will also hear from BlackRock and UnitedHealth that day. The day before all eyes will be on results from TSMC as concerns over supply-demand dynamics and US-China tensions continue to weigh on the sector, with the Philadelphia semiconductor index down -35% in 2022. Asian equity markets are continuing their buoyant start to the year overnight and carried on where Wall Street left off it on Friday night. As I type, the KOSPI (+2.33%) is the strongest performer across the region with the Hang Seng (+1.60%), the CSI (+0.67%) and the Shanghai Composite (+0.54%) also edging higher amid receding risk-off sentiment after Hong Kong and China resumed quarantine-free travel over the weekend thereby marking the end of the Covid Zero policy. Elsewhere, markets in Japan are closed for a holiday. Futures on the S&P 500 (+0.36%), the NASDAQ 100 (+0.54%) and the DAX (+0.75%) are trading higher as well. Crude oil prices are also higher with Brent futures (+1.18%) at $79.50/bbl and WTI (+1.25%) at $74.69/bbl as we go to print. Early morning data showed that Australia’s building approvals (-9.0% m/m) dropped further in November compared to a downwardly revised -5.6% decline in October. In the US, the House Republican leadership standoff came to an end over the weekend after Republican Kevin McCarthy was elected as speaker after 14 failed attempts following days of gruelling negotiations. Recapping last week now, and markets put in a strong start to 2023 as signs of economic weakness and declining inflationary pressures raised hopes that central banks wouldn’t be as aggressive as feared on hiking rates. In particular, the aforementioned ISM services index on Friday created a major bond and equity rally to end the week. However ominously it means December was the first month since May 2020 that both the ISM US services and manufacturing components were in contractionary territory. On the back of ISM and payrolls, investors immediately moved to price in a less aggressive pace of rate hikes from the Federal Reserve. For instance, futures pricing for the end-2023 rate came down by -10.3bps over the week (-19.0bps on Friday) to 4.48%. That was a big catalyst for risk assets, with the S&P 500 surging +2.28% on Friday, which brought the index back into positive territory for the week at +1.45%. It also led to a massive decline in Treasury yields, with the 10yr down -31.7bps over the week (-16.0bps Friday) to 3.558%. Over in Europe there was a similarly optimistic picture, aided by the news on Friday from the flash Euro Area CPI release. That showed headline inflation falling to +9.2% in December (vs. +9.5% expected), although core inflation did hit a record high of +5.2%. This backdrop meant equities and bonds surged across the continent, with the STOXX 600 up +4.60% (+1.16% Friday) to mark its strongest weekly performance since March. At the same time, 10yr bund yields fell -35.8bps (-10.5bps Friday), marking their largest weekly decline in records going back to German reunification in 1990. Let's see what week 2 of 2023 brings Tyler Durden Mon, 01/09/2023 - 08:05.....»»

"My right ankle is swollen because I've been standing for long hours and lifting heavy packages, but I know I can't take off," says one Amazon worker. An Amazon warehouse worker says working Prime Day is "crazy."REUTERS/Clodagh Kilcoyne A Staten Island Amazon employee shares how "stowers" prepare for Amazon Prime Day in the warehouse. Full-time employees are expected to work mandatory overtime hours and are paid time-and-a-half. They like the pay, but they said working long hours is hurting their ankles. This as-told-to essay is based on a conversation with an Amazon warehouse worker in Staten Island. They've asked to remain anonymous for professional reasons, but Insider has verified their identity and employment with documentation. The following has been edited for length and clarity.Being a warehouse worker close to Prime Day is crazy. I'm a "stower" at an Amazon warehouse, which means I scan inventory and pack them onto specific shelves. About a week before Prime Day, we make sure that we start the shift with empty pods. Pods are the shelves that items are stacked on. "Pickers" take from these pods while we work.There are more people working than normal because there's mandatory and voluntary overtime. Mandatory overtime is 10 hours — equivalent to one shift — and voluntary is another six hours. I'm on a reduced time schedule, so I usually work 36 hours per week, but with mandatory and voluntary overtime, I'll work a maximum of 52 hours for the week. The best part of working during this period is seeing what everyone is buying People are buying a lot of adult and kids costumes — Halloween stuff. Many people are buying clothes and toys, too. So people are starting their Christmas shopping as early as possible. GI Joes and Barbies are popular this year.Nothing changes about break and lunch time during the Prime-Day period We still have two 15-minute breaks and 45 minutes for lunch. Supervisors don't change anything. It's the same schedule, leading up to Prime Day, just way more work and intensity. You have to know that you're signed up for really long hours, for a lot of days. (Editor's note: Under New York state law, nonfactory workers are entitled to a 45-minute meal break for shifts longer than six hours.)You have more pressure because Prime Day orders are usually "reactive" — or time sensitive — orders. Orders are classified as either reactive or nonreactive, which tells us which order to prioritize. Nonreactive orders have to be mailed out, but there's no rush.Once I got two pallets of reactives, which I had to unload and package for shipment before the end of my shift. That meant I had to do it really fast. If you don't, the system deactivates the item, so we can no longer process it. This stalls complete processing and the customer won't get their stuff. If this happens, you might get written up by the supervisor. If you repeatedly get written up for poor productivity, it can result in a dismissal.The size and weight of the items also affects how fast you work Productivity depends on what items are in the totes or on each pallet — if the items are little or medium-sized. Because more people are working in the warehouse during the Prime Day period, work stations can be affected, which also affects how fast you finish each pallet. The south side of the building is horrible — there's double the work because of increased orders and no help with unpacking. If you work on that side, you usually don't have a water spider. The water spider is the guy that puts your items on the pallet and opens up the boxes. The south side isn't usually staffed with a water spider and that doesn't change during the Prime-Day period. If you're on the south side, you're just going to get the boxes or the totes and you have to open the boxes and load up the stuff prior to doing your regular packaging job as a stower. The water spider doesn't have time to do the south side because it's working on the east side. So if you're there, you're pretty much on your own. People who are late for work during this period usually end up working on the south side and are pretty much screwed.This week, my right ankle is swollen because I've been standing for long hours and lifting heavy packages, but I know I can't take offI basically have no sick leave during the Prime-Day period. There's no way of getting out of it. Workers can take paid-time off, but I'm out of paid-time off. A regular daily shift involves a lot of standing, and I sometimes feel like I'm killing my ankles for more money. We now have to wear certain shoes as part of the safety protocol. Amazon provides the shoes, but the problem is they're causing pain, and there's no support. My doctor gave me special arches that I put inside mine, and they make them more comfortable. We have to wear the shoes when we go into the building. They'll say, "Oh, do you have your safety shoes?" If you don't have them, they'll allow you in, but they'll scan your badge, then tell you to get your safety shoes right away. I think they're going to eventually start writing people up for not having them. You can get a doctor's note and get an exemption, then come with your own shoes, but I haven't done that yet because I've been too busy.When I get really tired, I remind myself that we get paid time-and-a-half and the money is good. Unfortunately, the pain is not.Amazon did not respond to a request for comment by the time of publishing.Are you an Amazon worker with a story to tell? Email mlogan@insider.com.Read the original article on Business Insider.....»»

With orthopedic stocks like Zimmer Biomet (ZBH) are grappling with several issues, it is wise to invest in medical device stocks like TMO, NEOG and CERN instead for 2022. Shares of Zimmer Biomet ZBH have registered an extremely tepid performance so far in 2021, in line with the broader orthopedic industry’s declining volume trend. Through the first half of the year, the situation seemed to improve for Zimmer Biomet on the gradual opening of the economy following the lifting of strict social-distancing norms and increased hospital visits. There was a rush toward earlier-deferred non-COVID elective orthopedic treatments after the widespread vaccination drives.However, this improving scenario did not last long. In the second half of the year, with increasing cases of infections due to the emergence of new virus variants, patients once again started deferring their elective orthopedic surgeries in fear of getting infected by the latest potentially vaccine-resistant strains on hospital visits. Hospitals too were seen to increasingly attend to COVID-19 patients, thereby pushing orthopedic patient admissions to the back. This has significantly hampered 2021 second-half sales of Zimmer Biomet, leading to a bearish run on the bourse for the stock.Year to date, Zimmer Biomet has plunged 17.5% against the S&P 500 index’s growth of 26.9%. Earnings estimates for 2021 and 2022 have decreased by 5.3% and 6.5%, respectively, over the past three months .Given the fact that a meaningful portion of the orthopedic space comprises nonessential, deferrable surgeries, the adverse business impacts are likely to stay in the coming months as well. In such a scenario, we ask investors to avoid orthopedic stocks like Zimmer Biomet, which carries a Zacks Rank of #4 (Sell).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.In contrast, there are a number of medical device players with nonelective, essential and/or COVID-support procedures and treatments, which have confirmed a gradual rebound in their base businesses. We ask investors to capitalize on the sustained uptrend of these medical device stocks like Thermo Fisher Scientific TMO, Neogen NEOG and Cerner CERN that have either well-adapted to the changing consumer preference or have capitalized on growth in COVID-19-based businesses.YTD Price PerformanceImage Source: Zacks Investment ResearchBefore discussing these stocks, let’s delve deeper on the prime factors that are weighing on ZBH stock at present:What’s Weighing on Zimmer Biomet?Zimmer Biomet registered soft sales volume particularly in the America in the last reported quarter. In terms of operating segments, the company’s core divisions like Knees, Hips, and Dental & Spine registered significant year-over-year declines in revenues at CER. In the quarter, Zimmer Biomet continued to face COVID-induced challenges and market pressure. According to the company, the third quarter was full of unexpected negative environmental impacts that were mostly out of control.The quarter brought greater COVID pressure than expected for Zimmer Biomet. The company recognized customer staffing shortages severe than expected and an unanticipated impact of China VBP both of which resulted in lower-than-projected Q3 revenues. According to Zimmer Biomet, the business recovery continued in August but then declined in September as the company saw Delta variant cases and increase in staffing shortage.On the third-quarter earnings call, the company stated that it expects these issues to continue into Q4 as well. In view of a lackluster Q4 projection, Zimmer Biomet also had to slash its 2021 financial guidance. The company even expects these negative trends to persist in early 2022 as well.Why Invest in Medical Device Stocks Now?Despite the ongoing problem of supply disruption and staffing shortage in the face of the emergence of the Omicron variant of COVID-19, which has been identified by WHO, as a variant of concern, a number of medical device companies are experiencing substantial recovery because of their nature of business. Amid the pandemic concerns, there has been rising utilization of minimally-invasive robot-assisted surgeries, self-automated home-based care, use of IT for quick and improved patient care, and shift of the payment system to a value-based model, underscoring the growing influence of AI in the Medical Products space.This apart, amid the rising number of COVID cases, demand for molecular diagnostic and rapid testing, as well as other COVID-19 support products, has surged. The need of the hour is testing, which has led to a shift in the pipeline of IVD products, with a large number of rapid, point-of-care devices going into development. We currently anticipate significant demand for rapid diagnostic testing through 2022 as well.3 Medical Device Stocks Set to Earn Big in 2022Thermo Fisher Scientific: The company has been delivering stable business performance, leveraging on a significant rebound in its base business. Thermo Fisher’s Life Sciences Solutions, Analytical Instruments, Specialty Diagnostics, and Laboratory Products and Services all have registered strong growth in the recent quarters. In the last-reported third quarter, Thermo Fisher generated $2.05 billion in COVID-19 response-related revenues. With the surge in the Delta and Omicron variants, the company projects strong testing demand globally in the fourth quarter. Thermo Fisher is also playing a meaningful role in vaccines and therapies for COVID-19, generating just over $500 million in the last-reported quarter in this space. Year-to-date, the stock has improved 39.7%.The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2022 sales is pegged at $39.83 billion, indicating a 7.3% rise from 2021. Thermo Fisher’s long-term expected earnings growth rate is pegged at 14%.Neogen: Neogen exited the first quarter of fiscal 2022 on a bullish note with better-than-expected revenues and earnings. Top-line growth was led by strength in the company’s Food Safety and Animal Safety business segments. The newly launched AccuPoint Advanced NG contributed to growth in environmental sanitation. The ThyroKare supplement drove revenues in animal care products. The StandGuard product line also contributed to growth. Integration of the Megazyme product offerings into Neogen’s product portfolio looks encouraging. Neogen’s solid domestic and international performance across all businesses buoys optimism as well. Expansion of gross margin is an added advantage. Neogen carries a Zacks Rank #2. Year to date, the stock has improved 12%.The Zacks Consensus Estimate for this Neogen’s fiscal 2022 (ending May 2022) sales is pegged at $527.9 million, indicating a 12.7% rise. The same for earnings of 66 cents suggests growth of 15.8%.  Neogen’s long-term historical earnings growth rate is pegged at 8.6%.Cerner: This healthcare information technology (HCIT) solutions provider registered solid gains in four of the company’s business in the last-reported quarter. Bookings witnessed growth (23%) in the quarter under review. Apart from this, Cerner repurchased shares worth $375 million in the quarter under review. Per management, the solid performance reflected the company’s robust progress in its transformation initiatives, cost control measures and a strong market presence. On the basis of this progress, Cerner increased its earnings outlook for 2021 yet again. Besides, Cerner continued to make substantial progress in its work with the Federal government, which includes expansion of interoperability capabilities that are important for the success of the Veterans Affairs (VA) and the Department of Defense (DoD) programs. This Zacks Rank #2 stock has risen 17.1% year to date.The Zacks Consensus Estimate for Cerner’s 2022 sales is pegged at $6.08 billion, indicating a 4.8% rise. The same for earnings of $3.68 suggests growth of 11.6%.  Cerner’s long-term expected earnings growth rate is pegged at 13.3%. Zacks Top 10 Stocks for 2022 In addition to the investment ideas discussed above, would you like to know about our 10 top picks for the entirety of 2022? From inception in 2012 through November, the Zacks Top 10 Stocks gained an impressive +962.5% versus the S&P 500’s +329.4%. Now our Director of Research is combing through 4,000 companies covered by the Zacks Rank to handpick the best 10 tickers to buy and hold. Don’t miss your chance to get in on these stocks when they’re released on January 3.Be First to New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Cerner Corporation (CERN): Free Stock Analysis Report Thermo Fisher Scientific Inc. (TMO): Free Stock Analysis Report Neogen Corporation (NEOG): Free Stock Analysis Report Zimmer Biomet Holdings, Inc. (ZBH): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research.....»»

Highlights Reported GAAP net loss of $52.1 million, or $1.54 per share; and adjusted net loss(1) of $50.1 million, or $1.48 per share, in the third quarter of 2021 (excluding items listed in Appendix A to this release). In September 2021, Teekay Tankers repurchased six vessels that were previously under higher-cost sale-leaseback financings with $129 million of existing liquidity. In September 2021, Teekay Tankers refinanced two of the above-mentioned vessels and two previously repurchased unencumbered vessels with lower-cost sale-leaseback financings totaling $73 million. In early-November 2021, Teekay Tankers refinanced the remaining four above-mentioned vessels with lower-cost sale-leaseback financings totaling $69 million. In September 2021, Teekay Tankers sold a 2003-built Aframax vessel for $11.7 million. Strong balance sheet with a pro forma liquidity position of approximately $209 million(3) and net debt to capitalization(4) of 39 percent as at September 30, 2021. HAMILTON, Bermuda, Nov. 04, 2021 (GLOBE NEWSWIRE) -- Teekay Tankers Ltd. (Teekay Tankers or the Company) (NYSE:TNK) today reported the Company's results for the quarter ended September 30, 2021: Consolidated Financial Summary   Three Months Ended   September 30, 2021 June 30, 2021 September 30,2020 (in thousands of U.S. dollars, except per share data) (unaudited) (unaudited) (unaudited) GAAP FINANCIAL COMPARISON       Total revenues 115,890   123,420   170,240   Loss from operations (41,494 ) (119,434 ) (29,193 ) Net loss (52,055 ) (129,144 ) (44,434 ) Loss per share (1.54 ) (3.83 ) (1.32 ) NON-GAAP FINANCIAL COMPARISON     Total Adjusted EBITDA (1) (15,787 ) (6,804 ) 46,248   Adjusted net (loss) income (1) (50,147 ) (41,481 ) 3,132   Adjusted (loss) earnings per share (1) (1.48 ) (1.23 ) 0.09   Free cash flow (1) (25,256 ) (14,735 ) 31,178   Net debt (2) 565,011   529,959   502,142   These are non-GAAP financial measures. Please refer to "Definitions and Non-GAAP Financial Measures" and the Appendices to this release for definitions of these terms and reconciliations of these non-GAAP financial measures as used in this release to the most directly comparable financial measures under United States generally accepted accounting principles (GAAP). Net debt is a non-GAAP financial measure and represents short-term, current and long-term debt and current and long-term obligations related to finance leases less cash and cash equivalents and restricted cash. Pro forma for the $69 million refinancing of four unencumbered vessels in November 2021, which were previously under higher-cost sale-leaseback arrangements. These four vessels were acquired along with two other vessels for $129 million in September 2021 with existing liquidity. Net debt to capitalization is a non-GAAP financial measure and represents net debt, as described in note (2) above, divided by the sum of net debt and equity. This measure is used by certain investors and management to evaluate the Company's use of financial leverage. Third Quarter of 2021 Compared to Second Quarter of 2021 GAAP net loss and non-GAAP adjusted net loss for the third quarter of 2021, compared to the second quarter of 2021, were impacted primarily by lower average spot tanker rates in the third quarter of 2021 and the expiration of certain fixed-rate time charter contracts. These decreases were partially offset by lower vessel operating expenses in the third quarter of 2021 compared to the second quarter of 2021. In addition, GAAP net loss in the third quarter of 2021 included a net expense of $0.7 million relating to vessel write-downs and gains on vessels sales, which was lower than the $86.7 million write-down of vessels recorded as part of the GAAP net loss in the second quarter of 2021. Third Quarter of 2021 Compared to Third Quarter of 2020 GAAP net loss and non-GAAP adjusted net loss for the third quarter of 2021, compared to the GAAP net loss and non-GAAP adjusted net income for the third quarter of 2020, were impacted primarily by lower average spot tanker rates in the third quarter of 2021, the expiration of certain fixed-rate time charter contracts, and the sale of three vessels during the first quarter and third quarter of 2021. These decreases were partially offset by lower vessel operating expenses and interest expense in the third quarter of 2021 compared to the same period of the prior year. In addition, GAAP net loss in the third quarter of 2021 included a net expense of $0.7 million relating to vessel write-downs and gain on vessel sales, which was lower than the $45.0 million write-down of assets recorded as part of the GAAP net loss in the third quarter of 2020. CEO Commentary "During the third quarter of 2021, we experienced historically weak crude spot tanker rates due to ongoing OPEC+ production cuts resulting from reduced oil demand related to the COVID-19 pandemic, inventory drawdowns as a result of a backwardated oil price structure, and higher bunker fuel costs," commented Kevin Mackay, Teekay Tankers' President and CEO. "The crude tanker market improved modestly at the beginning of the fourth quarter due to recovering global crude oil trade as the OPEC+ group has been gradually increasing oil supply over the past several months; however, as of October 2021, there are still approximately 4.6 million barrels per day of oil supply cuts remaining in place, relative to pre-COVID-19 production levels," commented Mr. Mackay. "As we enter the winter months, the crude tanker market could see some support from seasonal factors, as well as incremental oil demand as high coal and natural gas prices continue to cause switching to oil for power generation. Looking further ahead, although the near-term outlook is uncertain due to COVID-19, we believe many of the leading indicators for a tanker market recovery continue to improve, including increases in OPEC+ and non-OPEC+ production, rapidly declining global oil inventories, which are well below the 5-year average, and positive tanker fleet supply fundamentals as reflected in a low orderbook, increased scrapping, and a very limited amount of new tanker orders." "As a result of the work we did during last year's market upswing to increase our financial resilience and focus on sustainability throughout the cycle, the Company has maintained a strong financial position with pro forma liquidity of approximately $209 million(1) and net debt to capitalization of 39 percent at the end of the third quarter of 2021," continued Mr. Mackay. "We have completed the refinancing of all eight vessels that were previously under higher-cost sale-leaseback financings with new lower-cost sale-leaseback financings, which are expected to result in interest savings for the first 12 months of approximately $11 million(2). While we anticipate a strengthening of the tanker market as trade volumes continue to recover, we remain financially strong and with the vast majority of the Company's 52 tanker fleet trading in the spot market, we are very well-positioned to benefit from the anticipated tanker recovery," commented Mr. Mackay. Pro forma for the $69 million refinancing of four unencumbered vessels in November 2021, which were previously under higher-cost sale-leaseback arrangements. These four vessels were acquired along with two other vessels for $129 million in September 2021 with existing liquidity. Assuming LIBOR rate of 0.15% in 2021 and 0.30% in 2022. Summary of Recent Events In March 2021, Teekay Tankers declared options to repurchase six vessels that were under higher-cost long-term sale-leaseback financings, which were repurchased in September 2021 for $129 million. In September 2021, two of these vessels along with two previously repurchased unencumbered vessels were refinanced with new lower-cost sale-leaseback financings totaling $73 million. In November 2021, the remaining four vessels were refinanced with new lower-cost sale-leaseback financings totaling $69 million. In September 2021, the Company sold a 2003-built Aframax vessel for $11.7 million, which resulted in a gain on sale of $0.2 million in the third quarter of 2021. Tanker Market Crude tanker spot rates fell to multi-decade lows in the third quarter of 2021. The primary reason was a continued lack of crude oil trade volumes as ongoing OPEC+ production cuts and various non-OPEC+ supply outages, coupled with a continued drawdown of oil inventories due to a backwardated oil price structure, weighed on crude tanker demand. Crude tanker spot rates were also impacted by the Delta COVID-19 variant during the quarter, which led to reduced mobility and lower oil demand in several regions, most notably in Asia. Asian crude oil imports were further impacted by weaker oil demand in China, as the country cut import quotas for independent refiners. Lastly, higher bunker fuel prices, which rose in tandem with crude oil prices, also weighed on crude tanker spot rates during the third quarter. Crude tanker spot rates have shown modest improvement at the beginning of the fourth quarter of 2021 as global crude oil trade volumes have begun to recover. The OPEC+ group has been increasing crude oil supply at a rate of 0.4 million barrels per day (mb/d) per month since August 2021, and this has led to an increase in exports out of key load regions such as the Middle East and West Africa; however, as of October 2021, the OPEC+ group still had an estimated 4.6 mb/d of supply cuts in place. The unwinding of OPEC+ cuts is expected to continue in the coming months which, coupled with rising non-OPEC+ production, should result in an increase in global oil production of 2.7 mb/d between September 2021 and the end of 2021 according to the International Energy Agency (IEA). Global oil demand is expected to increase over the winter, boosted by the ongoing energy supply crisis and record high prices of coal and natural gas, which has encouraged switching to oil for power generation. According to the IEA, oil demand could increase by more than 0.5 mb/d compared with normal winter conditions due to gas-to-oil switching, particularly if the northern hemisphere experiences a cold winter. The above factors, coupled with normal winter market seasonality, could lead to an improvement in crude spot tanker rates through the rest of the fourth quarter of 2021 and into early 2022. Looking further ahead, the recovery in global oil demand is expected to continue in 2022 as increasing vaccination rates are anticipated to result in a higher level of global mobility. The IEA forecasts an increase in global oil demand of 3.3 mb/d in 2022, lifting oil demand above pre-COVID levels. However, some forecasters are more optimistic, with OPEC projecting an increase of 4.2 mb/d next year. With global oil inventories currently well below the 5-year average, more oil supply will be needed in order to meet growing demand. The OPEC+ group announced plans to continue unwinding its supply cuts at a rate of 0.4 mb/d per month next year until cuts are fully unwound by September 2022. In addition, non-OPEC+ supply is expected to increase by just under 2 mb/d next year. This includes higher production from the United States, Brazil, and Guyana, which are key load regions for mid-size tankers. Crude tanker demand is therefore expected to improve during 2022. The outlook for tanker fleet supply continues to look positive. New tanker ordering ground to a virtual halt in the third quarter of 2021 with just 0.75 million deadweight tons (mdwt) of new orders placed, which is the lowest quarterly total since the second quarter of 2009. Elevated newbuilding prices, which are currently the highest since 2009, are expected to limit newbuild orders in the near-term. The third quarter of 2021 also saw an increase in tanker scrapping with 4.7 mdwt removed, the highest quarterly scrapping total since the second quarter of 2018. A combination of low tanker ordering and higher scrapping bodes well for limiting the level of future fleet growth. The Company currently estimates approximately 2 percent tanker fleet growth in both 2021 and 2022, and minimal fleet growth in 2023, as scrapping is expected to largely offset new vessel deliveries. In summary, the tanker market has seen a period of exceptionally low spot rates in 2021 to-date. However, the tanker market is experiencing an improvement at the start of the fourth quarter and increasing trade volumes, coupled with a potential oil demand boost due to the global energy crunch and seasonal weather delays, could support rates further over the winter months. Looking further ahead, tanker supply and demand fundamentals continue to trend in a positive direction, which should lead to higher tanker fleet utilization and improved tanker rates in the future. Operating Results The following table highlights the operating performance of the Company's time-charter vessels and spot vessels trading in revenue sharing arrangements (RSAs), voyage charters and full service lightering, in each case measured in net revenues(1) per revenue day, or time-charter equivalent (TCE) rates, before off-hire bunker expenses:   Three Months Ended   September 30, 2021(2) June 30, 2021(2) September 30, 2020(2) Time Charter-Out Fleet             Suezmax revenue days   —     18     831   Suezmax TCE per revenue day   —   $ 44,202   $ 41,216   Aframax revenue days   257     228     184   Aframax TCE per revenue day $ 23,216   $ 22,901   $ 24,983   LR2 revenue days   —     28     79   LR2 TCE per revenue day   —   $ 28,207   $ 28,638                 Spot Fleet             Suezmax revenue days   2,350     2,206     1,388   Suezmax spot TCE per revenue day (3) $ 6,029   $ 9,797   $ 22,269   Aframax revenue days   1,187     1,185     1,534   Aframax spot TCE per revenue day (4) $ 6,845   $ 9,609   $ 14,802   LR2 revenue days   644     704     865   LR2 spot TCE per revenue day (5) $ 9,358   $ 11,079   $ 14,400                 Total Fleet             Suezmax revenue days   2,350     2,224     2,219   Suezmax TCE per revenue day $ 6,029   $ 10,085   $ 29,366   Aframax revenue days   1,444     1,413     1,718   Aframax TCE per revenue day $ 9,749   $ 11,752   $ 15,892   LR2 revenue days   644     732     944   LR2 TCE per revenue day $ 9,358   $ 11,745   $ 15,592   Net revenues is a non-GAAP financial measure. Please refer to "Definitions and Non-GAAP Financial Measures" for a definition of this term. Revenue days are the total number of calendar days the Company's vessels were in its possession during a period, less the total number of off-hire days during the period associated with major repairs, dry dockings or special or intermediate surveys. Consequently, revenue days represent the total number of days available for the vessel to earn revenue. Idle days, which are days when the vessel is available to earn revenue but is not employed, are included in revenue days. Includes vessels trading in the Teekay Suezmax RSA and non-RSA voyage charters. Includes Aframax vessels trading in the Teekay Aframax RSA, non-RSA voyage charters and full service lightering voyages. Includes LR2 vessels trading in the Teekay Aframax RSA, non-RSA voyage charters and full service lightering voyages. Fourth Quarter of 2021 Spot Tanker Performance Update The following table summarizes Teekay Tankers' TCE rates booked to-date in the fourth quarter of 2021 for its spot-traded fleet only:   To-Date Spot Tanker Rates   TCE Rates Per Day % Fixed Suezmax $ 11,600     50 % Aframax (1) $ 10,300     37 % LR2 (2) $ 10,200     35 % Rates and percentage booked to-date include Aframax RSA, full service lightering (FSL) and non-RSA voyage charters for all Aframax vessels. Rates and percentage booked to-date include Aframax RSA, FSL and non-RSA voyage charters for all LR2 vessels, whether trading in the clean or dirty spot market. Teekay Tankers Fleet The following table summarizes the Company's fleet as of November 1, 2021:   Owned and Leased Vessels Chartered-in Vessels Total Fixed-rate:       Aframax Tankers 2 — 2 Total Fixed-Rate Fleet 2 — 2 Spot-rate:       Suezmax Tankers 26 — 26 Aframax Tankers(1)(2)(3) 12 1 13 LR2 Product Tankers(4) 9 1 10 VLCC Tanker(5) 1 — 1 Total Spot Fleet 48 2 50 Total Tanker Fleet 50 2 52 STS Support Vessels — 2 2 Total Teekay Tankers Fleet 50 4 54         Includes one Aframax tanker with a charter-in contract that is scheduled to expire in August 2023 with an option to extend for one additional year. Excludes one Aframax tanker which is expected to be delivered to the Company in mid-November 2021 under a 24-month time charter-in contract with an option to extend for one year. Excludes one newbuilding Aframax tanker which is expected to be delivered to the Company in late-2022 under a seven-year time charter-in contract with options to extend for up to three years. Includes one LR2 product tanker with a charter-in contract that is scheduled to expire in September 2023 with an option to extend for one additional year. The Company's ownership interest in this vessel is 50 percent. Liquidity Update As at September 30, 2021, the Company had total liquidity of $140.0 million (comprised of $60.7 million in cash and cash equivalents and $79.3 million in undrawn capacity from its credit facilities), compared to total liquidity of $231.4 million as at June 30, 2021. Pro forma for a $69 million refinancing of four unencumbered vessels completed in November 2021, the Company's total liquidity would have been $209 million as at September 30, 2021. Conference Call The Company plans to host a conference call on Thursday, November 4, 2021 at 12:00 p.m. (ET) to discuss its results for the third quarter of 2021. All shareholders and interested parties are invited to listen to the live conference call by choosing from the following options: By dialing (800) 367-2403 or (647) 490-5367, if outside of North America, and quoting conference ID code 3170266. By accessing the webcast, which will be available on Teekay Tankers' website at www.teekay.com (the archive will remain on the website for a period of one year). An accompanying Third Quarter of 2021 Earnings Presentation will also be available at www.teekay.com in advance of the conference call start time. About Teekay Tankers Teekay Tankers currently has a fleet of 49 double-hull tankers (including 26 Suezmax tankers, 14 Aframax tankers and nine LR2 product tankers), and also has two time chartered-in tankers. Teekay Tankers' vessels are typically employed through a mix of short- or medium-term fixed-rate time charter contracts and spot tanker market trading. Teekay Tankers also owns a Very Large Crude Carrier (VLCC) through a 50 percent-owned joint venture. In addition, Teekay Tankers owns a ship-to-ship transfer business that performs full service lightering and lightering support operations in the U.S. Gulf and Caribbean. Teekay Tankers was formed in December 2007 by Teekay Corporation as part of its strategy to expand its conventional oil tanker business. Teekay Tankers' Class A common stock trades on the New York Stock Exchange under the symbol "TNK." For Investor Relations enquiries contact: Ryan HamiltonTel: +1 (604) 609-2963Website: www.teekay.com Definitions and Non-GAAP Financial Measures This release includes various financial measures that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission (SEC). These non-GAAP financial measures, which include Adjusted Net (Loss) Income, Adjusted EBITDA, Free Cash Flow, and Net Revenues, are intended to provide additional information and should not be considered substitutes for measures of performance prepared in accordance with GAAP. In addition, these measures do not have standardized definitions across companies, and therefore may not be comparable to similar measures presented by other companies. These non-GAAP measures are used by management, and the Company believes that these supplemental metrics assist investors and other users of its financial reports in comparing financial and operating performance of the Company across reporting periods and with other companies. Non-GAAP Financial Measures Adjusted net (loss) income excludes items of income or loss from GAAP net (loss) income that are typically excluded by securities analysts in their published estimates of the Company's financial results. The Company believes that certain investors use this information to evaluate the Company's financial performance, as does management. Please refer to Appendix A of this release for a reconciliation of this non-GAAP financial measure to net (loss) income, the most directly comparable GAAP measure reflected in the Company's consolidated financial statements. Adjusted EBITDA represents net (loss) income before interest, taxes, and depreciation and amortization and is adjusted to exclude certain items whose timing or amount cannot be reasonably estimated in advance or that are not considered representative of core operating performance. Such adjustments include foreign exchange gains and losses, write-downs of vessels, gains and losses on sale of assets, unrealized credit loss adjustments, unrealized gains and losses on derivative instruments and any write-offs and certain other income or expenses. Adjusted EBITDA also excludes realized gains or losses on interest rate swaps as management, in assessing the Company's performance, views these gains or losses as an element of interest expense and realized gains or losses on derivative instruments resulting from amendments or terminations of the underlying instruments. Consolidated Adjusted EBITDA represents Adjusted EBITDA from vessels that are consolidated on the Company's financial statements. Adjusted EBITDA from Equity-Accounted Joint Venture represents the Company's proportionate share of Adjusted EBITDA from its equity-accounted joint venture, and as a result, the Company does not have the unilateral ability to determine whether the cash generated by its equity-accounted joint venture is retained within the entity in which the Company holds the equity-accounted joint venture or distributed to the Company and other owners. In addition, the Company does not control the timing of any such distributions to the Company and other owners. Adjusted EBITDA is a non-GAAP financial measure used by certain investors and management to measure the operational performance of companies. Total Adjusted EBITDA represents Consolidated Adjusted EBITDA plus Adjusted EBITDA from Equity-Accounted Joint Venture. Please refer to Appendices C and D of this release for reconciliations of Adjusted EBITDA to net (loss) income and equity (loss) income, respectively, which are the most directly comparable GAAP measures reflected in the Company's consolidated financial statements. Free cash flow (FCF) represents net (loss) income, plus depreciation and amortization, unrealized losses from derivative instruments, write-down and loss on sale of assets, equity loss from the equity-accounted joint venture, and any write-offs and certain other non-cash non-recurring items, less unrealized gains from derivative instruments, gain on sale of assets, equity income from the equity-accounted joint venture and certain other non-cash items. The Company includes FCF from the equity-accounted joint venture as a component of its FCF. FCF from the equity-accounted joint venture represents the Company's proportionate share of FCF from its equity-accounted joint venture. The Company does not control its equity-accounted joint venture, and as a result, the Company does not have the unilateral ability to determine whether the cash generated by its equity-accounted joint venture is retained within the joint venture or distributed to the Company and other owners. In addition, the Company does not control the timing of such distributions to the Company and other owners. Consequently, readers are cautioned when using FCF as a liquidity measure as the amount contributed from FCF from the equity-accounted joint venture may not be available to the Company in the periods such FCF is generated by the equity-accounted joint venture. FCF is a non-GAAP financial measure used by certain investors and management to evaluate the Company's financial and operating performance and to assess the Company's ability to generate cash sufficient to repay debt, pay dividends and undertake capital and dry-dock expenditures. Please refer to Appendix B to this release for a reconciliation of this non-GAAP financial measure to net (loss) income, the most directly comparable GAAP financial measure reflected in the Company's consolidated financial statements. Net revenues represents (loss) income from operations before vessel operating expenses, time-charter hire expenses, depreciation and amortization, general and administrative expenses, write-down and loss on sale of assets, and restructuring charge. Since the amount of voyage expenses the Company incurs for a particular charter depends on the type of the charter, the Company includes these costs in net revenues to improve the comparability between periods of reported revenues that are generated by the different types of charters and contracts. The Company principally uses net revenues, a non-GAAP financial measure, because the Company believes it provides more meaningful information about the deployment of the Company's vessels and their performance than does (loss) income from operations, the most directly comparable financial measure under GAAP. Teekay Tankers Ltd. Summary Consolidated Statements of (Loss) Income(in thousands of U.S. dollars, except share and per share data)     Three Months Ended Nine Months Ended     September 30, June 30, September 30, September 30, September 30,     2021 2021 2020 2021 2020     (unaudited) (unaudited) (unaudited) (unaudited) (unaudited)               Voyage charter revenues (1) 107,079   113,998   125,819   333,278   651,223   Time-charter revenues 6,097   7,065   42,180   41,447   92,733   Other revenues (2) 2,714   2,357   2,241   7,334   14,676   Total revenues 115,890   123,420   170,240   382,059   758,632                 Voyage expenses (1) (78,335 ) (71,773 ) (57,777 ) (219,153 ) (238,576 ) Vessel operating expenses (39,103 ) (43,129 ).....»»

Futures Slip From All Time High Amid Fresh China, Growth, Valuation Concerns One day after US equity futures hit an all time high, rising to a record 4,590, risk sentiment has reversed and overnight index futures fluctuated and stocks in Europe retreated from a near-record on Wednesday after a flare up in U.S.-China tensions, signs of further regulatory crackdowns from Beijing, a decline in commodity prices, renewed concerns about economic growth and a rise in short-dated U.S. Treasury yields doused the equity market rally on Wednesday. At 7:45 a.m. ET, Dow e-minis were up 27 points, or 0.07%, S&P 500 e-minis were down 2.50 points, or -0.06%, and Nasdaq 100 e-minis were down 15.5 points, or 0.09%. Bonds and the dollar gained and bitcoin stumbled. The overnight losses started earlier in Asia, where tech stocks suffered hefty falls after China’s internet watchdog said it planned stricter registration rules for younger net users, while Chinese tech shares slid on concerns about more scrutiny from Washington after the U.S. banned China Telecom’s American business. U.S. futures also turned negative as the bullish mood over Tuesday’s forecast-beating results from Google owner Alphabet and Microsoft started to wane. Shares of energy firms including Exxon and Chevron tracked lower oil prices, while major lenders such as Bank of America slipped on a flattening U.S. yield curve. Microsoft Corp rose 2.1% in premarket trading after it forecast a strong end to the calendar year, thanks to its booming cloud business. Twitter gained 1.4% after the social networking site’s quarterly revenue grew 37% and avoided the brunt of Apple Inc’s privacy changes on advertising that hobbled its rivals. Google owner Alphabet also reported record quarterly profit for the third straight quarter on a surge in ad sales. However, its shares were down 0.6% after rising nearly 59% so far this year. Here are some of the biggest movers today: Microsoft (MSFT US) shares gain 2.2% in premarket after first- quarter results that analysts said were very strong across the board, showing scale and justifying the valuation of the software giant. Alphabet (GOOGL US) rises 1.3% after 3Q earnings earned a mostly positive reception from analysts, with at least three raising their price targets on the Google parent. Twitter (TWTR US) adds 2% amid resilient third-quarter sales at the social media company as it weathers Apple’s new limits on consumer data collection. Enphase Energy (ENPH US) gains 13% after its 3Q results and 4Q forecasts beat estimates. Analysts await more clarity on supply chain constraints. Robinhood (HOOD US) slumps 12% as some analysts cut price targets after the retail brokerage reported 3Q revenue that missed estimates and flagged further weakness in 4Q. Visa (V US) falls 2.4% as analysts flag a disappointing outlook from the payments company. Texas Instruments (TXN US) declined 4% after a forecast that may disappoint some investors who are concerned about a potential slowdown in demand for electronic components. Watch peers for a readacross. Angion (ANGN US) plunges 55% after company said a kidney transplant drug failed to meet primary end points in a phase three trial. European partner Vifor (VIFN SW) slips 6%. “While some prominent earnings misses have clouded the picture, the reality is that on aggregate, the reporting season so far has been very solid,” said Max Kettner, a multi-assets strategist at HCBC Holdings Plc. “Everyone, literally everyone, in the market right now is worried about supply-chain constraints, higher input costs and the like, so headwinds from this side are now very well reflected in near-term earnings expectations.” Concern over more tension between Beijing and Washington also weighed on markets after the U.S. Federal Communications Commission voted to revoke the authorization for China Telecom’s U.S. subsidiary to operate in the United States after nearly two decades, citing national security. “We have good U.S. data in earnings which is very reassuring but valuation is very stretched in both the value as well as the growth sector,” said Sebastien Galy, senior macro strategist at Nordea Asset Management. “And people are also getting a bit hesitant and are a bit worried because the amount of money that is going through will slow down with the Fed slowly starting to taper - but that is not necessarily a bad thing.” MSCI’s global equity benchmark hovered close to Monday’s seven-week high and is on track for the best month in almost a year. However, European stocks softened, led by a 1.6% drop in mining and resource firms in the Stoxx Europe 600 index as prices of raw materials including aluminum and iron ore fell along with crude oil. Germany’s DAX underperformed after Europe’s biggest economy cut its 2021 growth forecast, citing the lingering effects of the pandemic and a supply squeeze. Bund yields dropped along with those on other European bonds. Bank shares also slipped, with Deutsche Bank down more than 5% despite forecast-beating earnings. Europe's Stoxx 600 dropped about 0.3%, weighed down the most by miners and energy firms. FTSE 100 and DAX both down similar amounts. Here are some of Wednesday’s major earnings and corporate news from Europe Deutsche Bank AG dropped more than 6% after disappointing earnings, while Banco Santander SA declined despite a bullish outlook. Heineken NV fell after reporting a drop in demand for beer. BASF SE slipped after flagging dwindling returns on its core suite of chemical products as sputtering global supply catches up with demand. GlaxoSmithKline Plc rose after improving its profit outlook. Dutch semiconductor equipment maker ASM International NV advanced after revenue forecasts beat analyst estimates. Puma SE gained after raising full-year profit forecasts. Temenos AG surged as much as 16% after Bloomberg reported EQT AB is exploring an acquisition of the Swiss banking software specialist. Earlier in the session, the MSCI Asia Pacific Index was down 0.4% in late afternoon trading, paring an earlier drop of 0.7%, with Tencent, Alibaba and Meituan the biggest drags. Asian equities fell as risk-off sentiment fueled by renewed concerns over Evergrande’s debt woes and an escalation in China-U.S. tensions drove losses in Chinese tech giants. Benchmarks in Hong China and China led declines around the region. The Hang Seng Tech Index plunged as much as 3.9%, the most in over five weeks after Washington moved to ban U.S. business by China Telecom, following previous similar measures against Chinese tech firms including Huawei. Meanwhile, Secretary of State Antony Blinken called for a greater role by Taiwan in the United Nations, raising objections from Beijing. Chinese tech stocks have been rattled this year by a crackdown amid President Xi Jinping’s “common prosperity” campaign. There had been signs of a rebound recently, however, as the government signaled it would limit its restrictions. Investor confidence in beaten-down Chinese tech stocks hasn’t been fully restored “so they rush to dump those stocks at any negative news and signs of flow reversal,” said Castor Pang, head of research at Core Pacific-Yamaichi International Hong Kong. “This round of tech rebound has peaked,” he added. Key equity gauges also fell more than 0.5% in Indonesia and South Korea, while Vietnam’s benchmark climbed more than 2%. Japanese equities fell, though they closed off intraday lows, as electronics makers and telecommunications providers drove losses. Auto and chemical makers provided support for the Topix which closed down 0.2%, paring an earlier drop of as much as 0.7%. The Nikkei 225 closed little changed, with a gain in Fast Retailing offsetting a drop in SoftBank Group. Asian stocks were broadly lower, as the U.S. moved to ban China Telecom and amid renewed concern over Evergrande’s debt woes. Meanwhile, Japan Exchange Group said Tokyo Stock Exchange will extend the trading day by 30 minutes in the second half of the fiscal year ending March 2025.  In rates, the 10Y yield is down 1.2bp at 1.595%, trailing steeper declines for U.K. and German counterparts, which outperform by ~3bp as money markets trim expectations for BOE and ECB rate hikes. Long-end Treasuries continued to outperform vs front-end ahead of 5- and 7-year auctions Wednesday and Thursday, as well as month-end rebalancing expected to favor bonds over equities. Long-end yields are lower on the day by ~2bp, front-end yields higher by similar amounts, following selloff in Australia front-end bonds after strong 3Q CPI numbers. 5s30s curve breached 82bp for first time in a year. Gilts flatten further ahead of a revised gilt remit that is expected to report a GBP33b reduction. U.K. 10-year yield falls 5bps to 1.06%, the lowest since Oct. 14, outperforming bunds by ~1bp. In FX, the Japanese yen strengthened ~0.5% against the U.S. dollar, leading G-10 majors and followed by the Swiss franc. All other G-10 peers are red against the dollar, which is up about 0.06%. The fading risk sentiment meanwhile pushed up the safe-haven Japanese yen which rose 0.4% against the U.S. dollar though the greenback in turn held just off a one-week high versus a currency basket. The euro kept gravitating toward the $1.16 handle as overnight plays in the common currency as well as the loonie took the spotlight before the monetary policy meetings by the Bank of Canada and the ECB. The three-month Euro benchmark funding rate fell to -0.556%, matching the record low set on Jan. 6, as excess liquidity hovers near an all-time high seen earlier this month. The pound slipped and the Gilt curve bull-flattened ahead of the U.K. government’s budget announcement. The U.K. is expected to trim gilt sales to GBP33b, according to a Bloomberg survey of analysts at primary dealers. Commodity currencies, led by the krone, fell and the Australian dollar erased an Asia-session gain in European hours. The Aussie earlier rallied while Australian 3-year yield surged as much as 24bps to briefly top 1% after core inflation accelerated back inside RBA’s target, and taking its game of chicken with the bond market to new heights. Kiwi trailed most G-10 peers following a record trade deficit. The Offshore Chinese renminbi fell against the U.S. dollar amid heightened U.S.-China tensions. Currency and bond traders were looking to a slew of central bank meetings over the coming week for guidance. Canada is first up at 1400 GMT on Wednesday while the European Central Bank meets on Thursday, when the Bank of Japan also concludes its two-day meeting. The Fed has all but confirmed it will soon start to whittle back its asset purchases, though has said that shouldn’t signal that rate hikes are imminent. Nevertheless, Fed funds futures are priced for a lift-off in the second half of next year. “We updated our Fed call to show a hike in Q4 2022 and four hikes in 2023,” analysts at NatWest said in a note. “The inflation overshoot has been persistent,” they said. “There is (only) so much the Fed can tolerate before reacting ... it feels inevitable that that conversation will be brought up more and more as we go into next year.” Commodities are in the red. Brent crude down about 1.3% back to $85 a barrel, while WTI slips 1.7% to $83. Base metals drop. LME aluminium, copper, and nickel decline the most. Spot gold down $5 to trade around $1,787/oz.  The crypto space tumbled sharply shortly after the European close, pushing Bitcoin below $59,000 and wiping out much of the ETF launch gains. No changes are expected from Tokyo, but traders are expecting the ECB to push back on market inflation forecasts and are looking for hawkish clues from the Bank of Canada as prices put pressure on rates. Policymakers are facing a steady drip of evidence that there is no let-up from pressure on consumer prices. The latest came from Australia, where data showed core inflation hit a six-year high last quarter, raising the possibility of sooner-than-planned rate increases. The Australian dollar jumped after the data but soon pared the gains. Looking at today's busy calendar, we will get preliminary September wholesale inventories, durable goods orders and core capital goods orders from the US. In Europe, Germany November GfK consumer confidence, France October consumer confidence and Euro Area September M3 money supply are due. In central banks, monetary policy decisions from the Bank of Canada and Central Bank of Brazil will be released. On the corporate earnings front, companies reporting include Thermo Fisher Scientific, Coca-Cola, McDonald’s, Boeing, General Motors, Santander and Ford. Elsewhere, the UK government announces Autumn Budget and Spending Review. Market Snapshot S&P 500 futures little changed at 4,569.75 STOXX Europe 600 down 0.3% to 474.38 MXAP down 0.4% to 199.65 MXAPJ down 0.8% to 656.34 Nikkei little changed at 29,098.24 Topix down 0.2% to 2,013.81 Hang Seng Index down 1.6% to 25,628.74 Shanghai Composite down 1.0% to 3,562.31 Sensex up 0.2% to 61,468.43 Australia S&P/ASX 200 little changed at 7,448.71 Kospi down 0.8% to 3,025.49 German 10Y yield fell 4 bps to -0.157% Euro little changed at $1.1593 Brent Futures down 1.1% to $85.46/bbl Gold spot down 0.5% to $1,784.14 U.S. Dollar Index little changed at 93.98 Top Overnight News from Bloomberg Chinese authorities told billionaire Hui Ka Yan to use his personal wealth to alleviate China Evergrande Group’s deepening debt crisis, according to people familiar with the matter Germany cut its 2021 growth outlook to 2.6% -- compared with a prediction of 3.5% published at the end of April -- reflecting a scarcity in some raw materials and rising energy prices, particularly for gas, Economy Minister Peter Altmaier said Wednesday in an interview with ARD television China plans to limit the price miners sell thermal coal for as it seeks to ease a power crunch that’s prompted electricity rationing and even caused a blackout in a major city last month The SNB stressed that in light of the highly valued currency and the degree of economic slack, expansive monetary policy needs to be maintained, according to an account of President Thomas Jordan’s meeting with Swiss govt Sweden’s National Debt Office is reducing its bond borrowing in both kronor and foreign currency because central government finances are recovering faster than expected from the pandemic, according to a statement A more detailed look at global markets courtesy of Newsquawk Asian markets adopted a downside bias as sentiment waned following the mild gains on Wall Street, in which the S&P 500 and DJIA eked out record closes after easing off best levels. The US close also saw earnings from behemoths Microsoft, Alphabet and AMD - the former rose 2% after blockbuster metrics, whilst the latter two dipped after-market. Meanwhile, Twitter shares rose almost 4% after hours as the Co. highlighted the lower-than-expected Q3 impact from Apple’s privacy-related iOS changes. On the flipside, Robinhood slumped over 8% after reporting a steep decline in crypto activity. It’s also worth noting that Berkshire Hathaway Class A shares - the world’s most expensive shares - are quoted +51% after-market (+USD 223,614.00/shr); reasoning currently unclear. Overnight, US equity futures resumed trade flat before a mild divergence became evident between the NQ and RTY, whilst European equity futures' losses were slightly more pronounced. Back to APAC, the ASX 200 (+0.1%) was buoyed by its tech sector amid the post-Microsoft tailwinds from the US, but the sector configuration then turned defensive, whilst Woolworths slumped some 4% after earnings and dragged the Consumer Staples sector with it. The Nikkei 225 (-0.1%) saw losses across most sectors, with Retail, Insurance and Banks towards the bottom. The KOSPI (-0.8%) conformed to the downbeat mood, whilst Hyundai shares were also pressured amid its chip-related commentary. The Hang Seng (-1.6%) and Shanghai Comp (-1.0%) declined despite another substantial CNY 200bln PBoC liquidity injection for a net CNY 100bln. The Hang Seng accelerated losses in the first half-hour of trade with Alibaba, Tencent and Xiaomi among the laggards. Meanwhile. PAX Technology slumped 45% after the FBI raided the Co's Florida officers amid suspicion PAX’s systems may have been involved in cyberattacks on US and EU organizations. Finally, 10yr JGBs were lower amid spillover selling from T-notes and Bund futures, whilst the Aussie 3yr yield topped 1.00% for the first time since 2019 as the trimmed and weighted Australian CPI metrics moved into the RBA's target zone. Top Asian News China Agrees Plan to Cap Key Coal Price to Ease Energy Crisis China Tech Stocks Slump as Tensions With U.S. Spook Investors Top Court Orders Probe Of India’s Alleged Pegasus Use Tokyo Stock Exchange to Extend Trading Day by 30 Minutes European equities (Stoxx 600 -0.3%) are trading moderately lower in a session which has been heavy on earnings and light on macro developments. The APAC session saw more pronounced losses in Chinese bourses (Shanghai Comp -1%, Hang Seng -1.8%) compared to peers despite ongoing liquidity efforts by the PBoC with Hong Kong stocks hampered by losses in Alibaba, Tencent and Xiaomi. Stateside, performance across US index futures were initially firmer before following European peers lower with more recent downside coinciding with the US Senate Finance Committee Chairman unveiling a tax proposal focused on unrealised gains of assets held by billionaires and impose a 23.8% capital gains rate on tradable assets such as stocks; ES -0.1%. The US close saw earnings from behemoths Microsoft, Alphabet and AMD - the former rose 2% after blockbuster metrics, whilst the latter two dipped after-market. Meanwhile, Twitter shares rose almost 4% after hours as the Co. highlighted the lower-than-expected Q3 impact from Apple’s privacy-related iOS changes. On the flipside, Robinhood slumped over 8% after reporting a steep decline in crypto activity. In the pre-market, upcoming earnings highlights include McDonalds, Boeing, GM, Bristol Myers and FTSE 100-listed GSK. Back to Europe, sectors are mostly lower with Basic Resources and Oil & Gas names at the foot of the leaderboard amid performance in underlying commodity prices. Banking names are also trading on a softer footing following earnings from Deutsche Bank (-5.4%) which saw the Co. report a decline in trading revenues whilst managing to make a profit for the 5th consecutive quarter. Spanish heavyweight Santander (-2.5%) is also acting as a drag on the sector despite reporting a net profit above expectations for Q3 with some desks highlighting softer performance for its US operations. Elsewhere, Sodexo (+5.6%) is the best performer in the Stoxx 600 after strong FY results, whilst Puma (+3.2%) trades on a firmer footing after reporting a beat on Q3 earnings and raising guidance. To the downside, BASF (-1.0%) shares are seen lower despite exceeding expectations for earnings with the Co. cautioning that the impact from higher Nat Gas prices in the first nine months of the year amounted to EUR 600mln costs and a significant increase in costs is expected following the October price hike. Top European News Deutsche Bank Falls; Results Fail to Provide Fresh Catalyst BASF Points to Chemical Price Surge Easing as Supply Increases SNB’s Jordan Stressed Need for Loose Policy in Govt Meeting U.K.’s Sunak Set to Cut Tax on Domestic Flights: The Independent In FX, nearly, but not quite for the index in terms of turning full circle on Tuesday and matching the prior week high as it fell just shy at 94.024 vs 94.174 on October 18, while also narrowly missing 94.000 on a ‘closing’ basis with a last price of 93.956. Moreover, month end rebalancing factors are moderately bearish for the Greenback against G10 rivals, and especially vs the Yen that has a relatively large 1.6 standard deviation and appears to be playing out in the headline pair and Jpy crosses on spot October 29. Indeed, Usd/Jpy has recoiled further from yesterday’s peak circa 114.31 to sub-113.60 before taking cues from the BoJ tomorrow and Japanese retail sales in the run up, but decent option expiry interest between 113.55-50 (1.8 bn) may underpin and support the DXY by default within a narrow 94.008-819 band. More immediately for the Buck in particular and peers indirectly, US durable goods, advance trade, wholesale and retail inventories. CHF/AUD - Also firmer vs their US counterpart, as the Franc clambers back above 0.9200 irrespective of a deterioration in Swiss investor sentiment and the growing chance that the SNB could be prompted to respond to a retreat in Eur/Chf from 1.0700+ to 1.0637 or so. Elsewhere, the Aussie has pared some of its post-core inflation inspired gains, but is holding close to 0.7500 and still outpacing its Antipodean neighbour as Aud/Nzd hovers around 1.0500. NZD/CAD/GBP - A downturn in overall risk sentiment and the aforementioned cross headwinds are weighing on the Kiwi that has slipped under 0.7150 vs its US namesake, and it’s a similar tale for Sterling that failed to retain 1.3800+ status or breach 0.8400 against the Euro before the latest reports about France preparing retaliatory measures against the UK over the fishing rights dispute. On top of that, Eur/Gbp tides are turning into month end and the usual RHS flows seen into and around fixings, while the Pound may also be acknowledging a pull-back in Brent prices in advance of the Budget, like the Loonie in respect of WTI ahead of the BoC, with Usd/Cad back above 1.2400 compared to 1.2350 at one stage on Tuesday and a tad lower in the prior session. Note, the break-even via implied volatility indicates a 58 pip move on the policy meeting that comes with a new MPR and press conference from Governor Macklem. EUR - Notwithstanding several gyrations and deviations of late, the Euro seems largely anchored to the 1.1600 mark vs the Dollar and yet more option expiries at the strike (1.5 bn today) may well be a contributing factor as the clock continues to tick down Thursday’s ECB convene that is seen as a dead rubber event in passing ahead of the big one in December - check out the Research Suite for a preview and other global Central Bank confabs scheduled this week. SCANDI/EM - Hardly a surprise to see the Nok recoil alongside crude prices, but the Sek is holding up relatively well in wake of an uptick in Swedish household lending and a big swing in trade balance from deficit to surplus. Conversely, the Try’s stoic revival mission has been derailed to an extent by dip in Turkish economic confidence offsetting a narrower trade shortfall, the Rub and Mxn are also feeling the adverse effects of oil’s retracement, the Zar is tracking Gold’s reversal through 200 and 100 DMAs, and the Cny/Cnh have been ruffled by the latest US-China angst, this time on the telecoms front. Last, but not least, the Brl anticipates a minimum 100 bp SELIC rate hike from the BCB, if not 125 bp as some hawkish forecasts suggest. In commodities, a softer start to the session for WTI and Brent seemingly stemming from the cautiously downbeat tone portrayed by broader risk and continuing to take impetus from last night’s Private Inventory report. For reference, the benchmarks are currently lower in excess of USD 1/bbl and WTI Dec’21 has been within touching distance of the USD 83.00/bbl figure, though is yet to test the level. Returning to yesterday’s crude report which printed an above consensus build of 2.318M for the headline print while the gasoline and distillate components were unexpectedly bearish, posting modest builds against expected sizeable draws. Looking ahead, the EIA release is expected to post a headline build. Aside from this, crude specific newsflow has been limited ahead of next week’s OPEC+ gathering though Iran remains on the radar given the latest release of constructive commentary on nuclear discussions. Albeit, we are still awaiting details on a return to full Vienna discussions. Moving to metals, spot gold and silver are softer on the session in a continuation of action seen around this time during yesterday’s session; metals pressured in wake of a choppy, but ultimately firmer, dollar. Elsewhere, China has reportedly agreed to set a price cap for thermal coal sales and comes as part of the ongoing crackdown by China on the commodity which spurred Zhengzhou thermal coal futures to hit limit-down overnight. US Event Calendar 8:30am: Sept. Durable Goods Orders, est. -1.1%, prior 1.8%; 8:30am: Durables Less Transportation, est. 0.4%, prior 0.3% Sept. Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 0.6% Cap Goods Ship Nondef Ex Air, est. 0.5%, prior 0.8% 8:30am: Sept. Retail Inventories MoM, est. 0.2%, prior 0.1%; Wholesale Inventories MoM, est. 1.0%, prior 1.2% 8:30am: Sept. Advance Goods Trade Balance, est. -$88.3b, prior -$87.6b, revised -$88.2b DB's Jim Reid concludes the overnight wrap It’s day 42 out of 42 on crutches without any weight bearing on my left leg. Over that period I’ve been hopping, crawling, sliding, and using the crutches as a pole vault amongst other various forms of self transportation. So sadly today is the last day I get waited on. When I wake up tomorrow I’ll try to walk again and fend for myself. Equities threw away their crutches a couple of weeks ago and haven’t looked back. US Earnings have helped and while they aren’t as good as the headline beats suggest, due to big unwinding of reserves for loan loss provisions at the banks, they are notably better than some of the stagflationary gloom stories that dominated in the weeks ahead of this season. A reminder that our equity guys did their state of play on earnings a couple of days back here. Big tech was always going to be the swing factor between a slightly better than normal level of beats and a more aggressive one. Last night Alphabet, Microsoft, and Twitter all reported after hour. Alphabet and Microsoft beat on both sales and earnings, while Twitter’s revenue just missed expectations but traded higher after hours. Of the 41 S&P 500 companies that reported yesterday, 33 beat estimates. For the earnings season to date, 166 S&P companies have reported, with 139 beating earnings estimates. Prior to this, markets continued to stay in their “new normal” of record or cyclical high equity prices and multi-year breakeven highs. Positive surprises for earnings on both sides of the Atlantic helped yesterday as did strong US consumer confidence numbers. Starting with the US, along with strong earnings, a number of positive surprises in an array of economic data yesterday did just enough to push the S&P 500 (+0.18%) and the DJIA (+0.04%) to new record highs, while the Nasdaq (+0.06%) fell short of beating its record set on September 30th. The FAANG Index lagged on the day, dropping -0.33%, but managed new all-time highs intraday. On the other side of the Atlantic, European equities notched solid gains as well, with most major European markets finishing well in the green territory, lifting the STOXX 600 by +0.75% - a fraction below its record high. All index sectors but energy (-0.29%) finished higher on the back of strong earnings early in the session, particularly from UBS and Novartis. Taking a closer look at the aforementioned economic data, October US consumer confidence came in at 113.8 versus 108.0 expected, while the Richmond Fed Manufacturing index rose to 12, beating expectations of 5. In housing, new home sales for September (800k) surpassed estimates (756k) by a decent margin, whereas the August FHFA House Price Index came in at +1.0% versus +1.5% expected. There were further signs of a tight US jobs market as the labour market differential in the Conference Board index improved to 45.0, the best reading since 2000. Similar to Monday, breakevens climbed as real yields fell in the US and Germany. Nominal 10-year Treasuries were -2.3bps lower, while breakevens increased +2.6bps to 2.69%, still just a hair beneath all-time highs for the series. 10-year bunds declined -0.3bps while the breakeven widened +3.0bps. Breakevens took a breather in the UK, narrowing -8.6bps, whilst 10-year gilts were -3.0 bps lower. In Asia, most major indices are down this morning. The Nikkei 225 (-0.61%), KOSPI (-0.92%), Hang Seng (-1.58%) and Shanghai Composite (-0.92%) are all trading lower. Sentiment soured after the real estate saga continued with Chinese authorities asking companies to get ready to repay offshore bonds, while also urging Evergrande’s founder to employ his own wealth to aid the struggling developer. Additionally, in geopolitics, the US Federal Communications Commission banned China Telecom (Americas) Corp. from operating in the US on the back of national security concerns. Data releases from Asia continued to support the inflationary narrative amid rising commodity prices as we saw a +16.3% YoY growth in China’s industrial profits in September, up from +10.1% a month earlier. Meanwhile, Australia’s trimmed mean CPI (+2.1%) came in above expectations (+1.8%), sending the 3y yield higher by +14.5bps. The S&P 500 mini futures (0.00%) is broadly unchanged with the 10y Treasury at 1.622 (+1.4bps). In commodities, oil futures were mostly mixed yesterday, but both WTI (+1.06%) and Brent (+0.48%) managed to rise by the European close, as Saudi Aramco said earlier in the session that oil output capacity is declining rapidly across the world. On the other hand, European weather forecasts that pointed at lower temperatures starting next week did little to propel natural gas prices, which declined both in the region (-0.33%) and in the US (-0.27%). Briefly taking a look at the virus news, The FDA’s vaccines advisory committee voted 17-0 to back jabs for kids ages 5-11. The dose for the younger cohort amounts to one third of the current one given to those over the age of 12, which means that it could be more quickly distributed if the demand is there. The agency will give its final ruling soon, which is expected to follow the panel’s recommendation, and then the shots could be distributed within weeks to schools, pediatricians, and pharmacies. Elsewhere, Singapore will allow fully vaccinated travelers from Australia and Switzerland to enter without quarantine from November 8. In terms of upcoming data releases today, we will get preliminary September wholesale inventories, durable goods orders and core capital goods orders from the US. In Europe, Germany November GfK consumer confidence, France October consumer confidence and Euro Area September M3 money supply are due. In central banks, monetary policy decisions from the Bank of Canada and Central Bank of Brazil will be released. On the corporate earnings front, companies reporting include Thermo Fisher Scientific, Coca-Cola, McDonald’s, Boeing, General Motors, Santander and Ford. Elsewhere, the UK government announces Autumn Budget and Spending Review. Tyler Durden Wed, 10/27/2021 - 07:53.....»»

Futures Reverse Losses Ahead Of Key CPI Report For the second day in a row, an overnight slump in equity futures sparked by concerns about iPhone sales (with Bloomberg reporting at the close on Tuesday that iPhone 13 production target may be cut by 10mm units due to chip shortages) and driven be more weakness out of China was rescued thanks to aggressive buying around the European open. At 800 a.m. ET, Dow e-minis were up 35 points, or 0.1%, S&P 500 e-minis were up 10.25 points, or 0.24%, and Nasdaq 100 e-minis were up 58.50 points, or 0.4% ahead of the CPI report due at 830am ET. 10Y yields dipped to 1.566%, the dollar was lower and Brent crude dropped below $83. JPMorgan rose as much as 0.8% in premarket trading after the firm’s merger advisory business reported its best quarterly profit. On the other end, Apple dropped 1% lower in premarket trading, a day after Bloomberg reported that the technology giant is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units due to prolonged chip shortages. Here are some of the biggest U.S. movers today: Suppliers Skyworks Solutions (SWKS US), Qorvo (ORVO) and Cirrus Logic (CRUS US) slipped Tuesday postmarket Koss (KOSS US) shares jump 23% in U.S. premarket trading in an extension of Tuesday’s surge after tech giant Apple was rebuffed in two patent challenges against the headphones and speakers firm Qualcomm (QCOM US) shares were up 2.7% in U.S. premarket trading after it announced a $10.0 billion stock buyback International Paper (IP US) in focus after its board authorized a program to acquire up to $2b of the company’s common stock; cut quarterly dividend by 5c per share Smart Global (SGH US) shares rose 2% Tuesday postmarket after it reported adjusted earnings per share for the fourth quarter that beat the average analyst estimate Wayfair (W US) shares slide 1.8% in thin premarket trading after the stock gets tactical downgrade to hold at Jefferies Plug Power (PLUG US) gains 4.9% in premarket trading after Morgan Stanley upgrades the fuel cell systems company to overweight, saying in note that it’s “particularly well positioned” to be a leader in the hydrogen economy Wall Street ended lower in choppy trading on Tuesday, as investors grew jittery in the run-up to earnings amid worries about supply chain problems and higher prices affecting businesses emerging from the pandemic. As we noted last night, the S&P 500 has gone 27 straight days without rallying to a fresh high, the longest such stretch since last September, signaling some fatigue in the dip-buying that pushed the market up from drops earlier this year. Focus now turn to inflation data, due at 0830 a.m. ET, which will cement the imminent arrival of the Fed's taper.  "A strong inflation will only reinforce the expectation that the Fed would start tapering its bond purchases by next month, that's already priced in," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. "Yet, a too strong figure could boost expectations of an earlier rate hike from the Fed and that is not necessarily fully priced in." The minutes of the Federal Reserve's September policy meeting, due later in the day, will also be scrutinized for signals that the days of crisis-era policy were numbered. Most European equities reverse small opening losses and were last up about 0.5%, as news that German software giant SAP increased its revenue forecast led tech stocks higher. DAX gained 0.7% with tech, retail and travel names leading. FTSE 100, FTSE MIB and IBEX remained in the red. Here are some of the biggest European movers today: Entra shares gain as much as 10% after Balder increases its stake and says it intends to submit a mandatory offer. Spie jumps as much as 10%, the biggest intraday gain in more than a year, after the French company pulled out of the process to buy Engie’s Equans services unit. Man Group rises as much as 8.3% after the world’s largest publicly traded hedge fund announced quarterly record inflows. 3Q21 net inflows were a “clear beat” and confirm pipeline strength, Morgan Stanley said in a note. Barratt Developments climbs as much as 6.3%, with analysts saying the U.K. homebuilder’s update shows current trading is improving. Recticel climbs 15% to its highest level in more than 20 years as the stock resumes trading after the company announced plans to sell its foams unit to Carpenter Co. Bossard Holding rises as much as 9.1% to a record high after the company reported 3Q earnings that ZKB said show strong growth. Sartorius gains as much as 5.9% after Kepler Cheuvreux upgrades to hold from sell and raises its price target, saying it expects “impressive earnings growth” to continue for the lab equipment company. SAP jumps as much as 5% after the German software giant increased its revenue forecast owing to accelerating cloud sales. Just Eat Takeaway slides as much as 5.8% in Amsterdam to the lowest since March 2020 after a 3Q trading update. Analysts flagged disappointing orders as pandemic restrictions eased, and an underwhelming performance in the online food delivery firm’s U.S. market. Earlier in the session, Asian stocks posted a modest advance as investors awaited key inflation data out of the U.S. and Hong Kong closed its equity market because of typhoon Kompasu. The MSCI Asia Pacific Index rose 0.2% after fluctuating between gains and losses, with chip and electronics manufacturers sliding amid concerns over memory chip supply-chain issues and Apple’s iPhone 13 production targets. Hong Kong’s $6.3 trillion market was shut as strong winds and rain hit the financial hub.  “Broader supply tightness continues to be a real issue across a number of end markets,” Morgan Stanley analysts including Katy L. Huberty wrote in a note. The most significant iPhone production bottleneck stems from a “shortage of camera modules for the iPhone 13 Pro/Pro Max due to low utilization rates at a Sharp factory in southern Vietnam,” they added. Wednesday’s direction-less trading illustrated the uncertainty in Asian markets as traders reassess earnings forecasts to factor in inflation and supply chain concerns. U.S. consumer price index figures and FOMC minutes due overnight may move shares. Southeast Asian indexes rose thanks to their cyclical exposure. Singapore’s stock gauge was the top performer in the region, rising to its highest in about two months, before the the nation’s central bank decides on monetary policy on Thursday. Japanese stocks fell for a second day as electronics makers declined amid worries about memory chip supply-chain issues and concerns over Apple’s iPhone 13 production targets.  The Topix index fell 0.4% to 1,973.83 at the 3 p.m. close in Tokyo, while the Nikkei 225 declined 0.3% to 28,140.28. Toyota Motor Corp. contributed the most to the Topix’s loss, decreasing 1.3%. Out of 2,181 shares in the index, 608 rose and 1,489 fell, while 84 were unchanged. Japanese Apple suppliers such as TDK, Murata and Taiyo Yuden slid. The U.S. company is likely to slash its projected iPhone 13 production targets for 2021 by as many as 10 million units as prolonged chip shortages hit its flagship product, according to people with knowledge of the matter Australian stocks closed lower as banks and miners weighed on the index. The S&P/ASX 200 index fell 0.1% to close at 7,272.50, dragged down by banks and miners as iron ore extended its decline. All other subgauges edged higher. a2 Milk surged after its peer Bubs Australia reported growing China sales and pointed to a better outlook for daigou channels. Bank of Queensland tumbled after its earnings release. In New Zealand, the S&P/NZX 50 index rose 0.2% to 13,025.18. In rates, Treasuries extended Tuesday’s bull-flattening gains, led by gilts and, to a lesser extent, bunds. Treasuries were richer by ~2bps across the long-end of the curve, flattening 5s30s by about that much; U.K. 30-year yield is down nearly 7bp, with same curve flatter by ~6bp. Long-end gilts outperform in a broad-based bull flattening move that pushed 30y gilt yields down ~7bps back near 1.38%. Peripheral spreads widen slightly to Germany. Cash USTs bull flatten but trade cheaper by ~2bps across the back end to both bunds and gilt ahead of today’s CPI release. In FX, the Bloomberg Dollar Spot Index fell by as much as 0.2% and the greenback weakened against all of its Group-of-10 peers; the Treasury curve flattened, mainly via falling yields in the long- end, The euro advanced to trade at around $1.1550 and the Bund yield curve flattened, with German bonds outperforming Treasuries. The euro’s volatility skew versus the dollar shows investors remain bearish the common currency as policy divergence between the Federal Reserve and the European Central Bank remains for now. The pound advanced with traders shrugging off the U.K.’s weaker-than-expected economic growth performance in August. Australia’s sovereign yield curve flattened for a second day while the currency underperformed its New Zealand peer amid a drop in iron ore prices. The yen steadied after four days of declines. In commodities, crude futures hold a narrow range with WTI near $80, Brent dipping slightly below $83. Spot gold pops back toward Tuesday’s best levels near $1,770/oz. Base metals are in the green with most of the complex up at least 1%. To the day ahead now, and the main data highlight will be the aforementioned US CPI reading for September, while today will also see the most recent FOMC meeting minutes released. Other data releases include UK GDP for August and Euro Area industrial production for August. Central bank speakers include BoE Deputy Governor Cunliffe, the ECB’s Visco and the Fed’s Brainard. Finally, earnings releases include JPMorgan Chase, BlackRock and Delta Air Lines. Market Snapshot S&P 500 futures up 0.1% to 4,346.25 STOXX Europe 600 up 0.4% to 459.04 MXAP up 0.2% to 194.60 MXAPJ up 0.4% to 638.16 Nikkei down 0.3% to 28,140.28 Topix down 0.4% to 1,973.83 Hang Seng Index down 1.4% to 24,962.59 Shanghai Composite up 0.4% to 3,561.76 Sensex up 0.8% to 60,782.71 Australia S&P/ASX 200 down 0.1% to 7,272.54 Kospi up 1.0% to 2,944.41 Brent Futures down 0.4% to $83.12/bbl Gold spot up 0.5% to $1,768.13 U.S. Dollar Index down 0.23% to 94.30 German 10Y yield fell 4.2 bps to -0.127% Euro little changed at $1.1553 Brent Futures down 0.4% to $83.12/bbl Top Overnight News from Bloomberg Vladimir Putin wants to press the EU to rewrite some of the rules of its gas market after years of ignoring Moscow’s concerns, to tilt them away from spot-pricing toward long-term contracts favored by Russia’s state run Gazprom, according to two people with knowledge of the matter. Russia is also seeking rapid certification of the controversial Nord Stream 2 pipeline to Germany to boost gas deliveries, they said. Federal Reserve Vice Chairman for Supervision Randal Quarles will be removed from his role as the main watchdog of Wall Street lenders after his title officially expires this week. The EU will offer a new package of concessions to the U.K. that would ease trade barriers in Northern Ireland, as the two sides prepare for a new round of contentious Brexit negotiations. U.K. Chancellor of the Exchequer Rishi Sunak is on course to raise taxes and cut spending to control the budget deficit, while BoE Governor Andrew Bailey has warned interest rates are likely to rise in the coming months to curb a rapid surge in prices. Together, those moves would mark a simultaneous major tightening of both policy levers just months after the biggest recession in a century -- an unprecedented move since the BoE gained independence in 1997. Peter Kazimir, a member of the ECB’s Governing Council, was charged with bribery in Slovakia. Kazimir, who heads the country’s central bank, rejected the allegations A more detailed look at global markets courtesy of Newsquawk Asia-Pac stocks were mixed following the choppy performance stateside with global risk appetite cautious amid the rate hike bets in US and heading into key events including US CPI and FOMC Minutes, while there were also mild headwinds for US equity futures after the closing bell on reports that Apple is set to reduce output of iPhones by 10mln from what was initially planned amid the chip shortage. ASX 200 (unch.) was little changed as gains in gold miners, energy and tech were offset by losses in financials and the broader mining sector, with softer Westpac Consumer Confidence also limiting upside in the index. Nikkei 225 (-0.3%) was pressured at the open as participants digested mixed Machinery Orders data which showed the largest M/M contraction since February 2018 and prompted the government to cut its assessment on machinery orders, although the benchmark index gradually retraced most its losses after finding support around the 28k level and amid the recent favourable currency moves. Shanghai Comp. (+0.4%) also declined as participants digested mixed Chinese trade data in which exports topped estimates but imports disappointed and with Hong Kong markets kept shut due to a typhoon warning. Finally, 10yr JGBs were steady with price action contained after the curve flattening stateside and tentative mood heading to upcoming risk events, although prices were kept afloat amid the BoJ’s purchases in the market for around JPY 1tln of JGBs predominantly focused on 1-3yr and 5-10yr maturities. Top Asian News Gold Edges Higher on Weaker Dollar Before U.S. Inflation Report RBA Rate Hike Expectations Too Aggressive, TD Ameritrade Says LG Electronics Has Series of Stock-Target Cuts After Profit Miss The mood across European stocks has improved from the subdued cash open (Euro Stoxx 50 +0.5%; Stoxx 600 +0.3%) despite a distinct lack of newsflow and heading into the official start of US earnings season, US CPI and FOMC minutes. US equity futures have also nursed earlier losses and trade in modest positive territory across the board, with the NQ (+0.5%) narrowly outperforming owing to the intraday fall in yields, alongside the sectorial outperformance seen in European tech amid tech giant SAP (+4.7%) upgrading its full FY outlook, reflecting the strong business performance which is expected to continue to accelerate cloud revenue growth. As such, the DAX 40 (+0.7%) outperformed since the cash open, whilst the FTSE 100 (-0.2%) is weighed on by underperformance in its heavyweight Banking and Basic Resources sectors amid a decline in yields and hefty losses in iron ore prices. Elsewhere, the CAC 40 (+0.3%) is buoyed by LMVH (+2.0%) after the luxury name topped revenue forecasts and subsequently lifted the Retail sector in tandem. Overall, sectors are mixed with no clear bias. In terms of individual movers, Volkswagen (+3.5%) was bolstered amid Handelsblatt reports in which the Co was said to be cutting some 30k jobs as costs are too high vs competitors, whilst separate sources suggested the automaker is said to be mulling spinning off its Battery Cell and charging unit. Chipmakers meanwhile see mixed fortunes in the aftermath of sources which suggested Apple (-0.7% pre-market) is said to be slashing output amid the chip crunch. Top European News The Hut Shares Swing as Strategy Day Feeds Investor Concern U.K. Economy Grows Less Than Expected as Services Disappoint Man Group Gets $5.3 Billion to Lift Assets to Another Record Jeff Ubben and Singapore’s GIC Back $830 Million Fertiglobe IPO In FX, the Dollar looks somewhat deflated or jaded after yesterday’s exertions when it carved out several fresh 2021 highs against rival currencies and a new record peak vs the increasingly beleaguered Turkish Lira. In index terms, a bout of profit taking, consolidation and position paring seems to have prompted a pull-back from 94.563 into a marginally lower 94.533-246 range awaiting potentially pivotal US inflation data, more Fed rhetoric and FOMC minutes from the last policy meeting that may provide more clues or clarity about prospects for near term tapering. NZD/GBP - Both taking advantage of the Greenback’s aforementioned loss of momentum, but also deriving impetus from favourable crosswinds closer to home as the Kiwi briefly revisited 0.6950+ terrain and Aud/Nzd retreats quite sharply from 1.0600+, while Cable has rebounded through 1.3600 again as Eur/Gbp retests support south of 0.8480 yet again, or 1.1800 as a reciprocal. From a fundamental perspective, Nzd/Usd may also be gleaning leverage from the more forward-looking Activity Outlook component of ANZ’s preliminary business survey for October rather than a decline in sentiment, and Sterling could be content with reported concessions from the EU on NI customs in an effort to resolve the Protocol impasse. EUR/CAD/AUD/CHF - Also reclaiming some lost ground against the Buck, with the Euro rebounding from around 1.1525 to circa 1.1560, though not technically stable until closer to 1.1600 having faded ahead of the round number on several occasions in the last week. Meanwhile, the Loonie is straddling 1.2450 in keeping with WTI crude on the Usd 80/brl handle, the Aussie is pivoting 0.7350, but capped in wake of a dip in Westpac consumer confidence, and the Franc is rotating either side of 0.9300. JPY - The Yen seems rather reluctant to get too carried away by the Dollar’s demise or join the broad retracement given so many false dawns of late before further depreciation and a continuation of its losing streak. Indeed, the latest recovery has stalled around 113.35 and Usd/Jpy appears firmly underpinned following significantly weaker than expected Japanese m/m machinery orders overnight. SCANDI/EM - Not much upside in the Sek via firmer Swedish money market inflation expectations and perhaps due to the fact that actual CPI data preceded the latest survey and topped consensus, but the Cnh and Cny are firmer on the back of China’s much wider than forecast trade surplus that was bloated by exports exceeding estimates by some distance in contrast to imports. Elsewhere, further hawkish guidance for the Czk as CNB’s Benda contends that high inflation warrants relatively rapid tightening, but the Try has not derived a lot of support from reports that Turkey is in talks to secure extra gas supplies to meet demand this winter, according to a Minister, and perhaps due to more sabre-rattling from the Foreign Ministry over Syria with accusations aimed at the US and Russia. In commodities, WTI and Brent front-month futures see another choppy session within recent and elevated levels – with the former around USD 80.50/bbl (80.79-79.87/bbl) and the latter around 83.35/bbl (83.50-82.65/bbl range). The complex saw some downside in conjunction with jawboning from the Iraqi Energy Minster, who state oil price is unlikely to increase further, whilst at the same time, the Gazprom CEO suggested that the oil market is overheated. Nonetheless, prices saw a rebound from those lows heading into the US inflation figure, whilst the OPEC MOMR is scheduled for 12:00BST/07:00EDT. Although the release will not likely sway prices amidst the myriad of risk events on the docket, it will offer a peek into OPEC's current thinking on the market. As a reminder, the weekly Private Inventory report will be released tonight, with the DoE's slated for tomorrow on account of Monday's Columbus Day holiday. Gas prices, meanwhile, are relatively stable. Russia's Kremlin noted gas supplies have increased to their maximum possible levels, whilst Gazprom is sticking to its contractual obligations, and there can be no gas supplies beyond those obligations. Over to metals, spot gold and silver move in tandem with the receding Buck, with spot gold inching closer towards its 50 DMA at 1,776/oz (vs low 1,759.50/oz). In terms of base metals, LME copper has regained a footing above USD 9,500/t as stocks grind higher. Conversely, iron ore and rebar futures overnight fell some 6%, with overnight headlines suggesting that China has required steel mills to cut winter output. Further from the supply side, Nyrstar is to limit European smelter output by up to 50% due to energy costs. Nyrstar has a market-leading position in zinc and lead. LME zinc hit the highest levels since March 2018 following the headlines US Event Calendar 8:30am: Sept. CPI YoY, est. 5.3%, prior 5.3%; MoM, est. 0.3%, prior 0.3% 8:30am: Sept. CPI Ex Food and Energy YoY, est. 4.0%, prior 4.0%; MoM, est. 0.2%, prior 0.1% 8:30am: Sept. Real Avg Weekly Earnings YoY, prior -0.9%, revised -1.4% 2pm: Sept. FOMC Meeting Minutes DB's Jim Reid concludes the overnight wrap So tonight it’s my first ever “live” parents evening and then James Bond via Wagamama. Given my daughter (6) is the eldest in her year and the twins (4) the youngest (plus additional youth for being premature), I’m expecting my daughter to be at least above average but for my boys to only just about be vaguely aware of what’s going on around them. Poor things. For those reading yesterday, the Cameo video of Nadia Comanenci went down a storm, especially when she mentioned our kids’ names, but the fact that there was no birthday cake wasn’t as popular. So I played a very complicated, defence splitting 80 yard through ball but missed an open goal. Anyway ahead of Bond tonight, with all this inflation about I’m half expecting him to be known as 008 going forward. The next installment of the US prices saga will be seen today with US CPI at 13:30 London time. This is an important one, since it’s the last CPI number the Fed will have ahead of their next policy decision just 3 weeks from now, where investors are awaiting a potential announcement on tapering asset purchases. Interestingly the August reading last month was the first time so far this year that the month-on-month measure was actually beneath the consensus expectation on Bloomberg, with the +0.3% growth being the slowest since January. Famous last words but this report might not be the most interesting since it may be a bit backward looking given WTI oil is up c.7.5% in October alone. In addition, used cars were up +5.4% in September after falling in late summer. So given the 2-3 month lag for this to filter through into the CPI we won’t be getting the full picture today. I loved the fact from his speech last night that the Fed’s Bostic has introduced a “transitory” swear jar in his office. More on the Fedspeak later. In terms of what to expect this time around though, our US economists are forecasting month-on-month growth of +0.41% in the headline CPI, and +0.27% for core, which would take the year-on-year rates to +5.4% for headline and +4.1% for core. Ahead of this, inflation expectations softened late in the day as Fed officials were on the hawkish side. The US 10yr breakeven dropped -1.9bps to 2.49% after trading at 2.527% earlier in the session. This is still the 3rd highest closing level since May, and remains only 7bps off its post-2013 closing high. Earlier, inflation expectations continued to climb in Europe, where the 5y5y forward inflation swap hit a post-2015 high of 1.84%. Also on inflation, the New York Fed released their latest Survey of Consumer Expectations later in the European session, which showed that 1-year ahead inflation expectations were now at +5.3%, which is the highest level since the survey began in 2013, whilst 3-year ahead expectations were now at +4.2%, which was also a high for the series. The late rally in US breakevens, coupled with lower real yields (-1.6bps) meant that the 10yr Treasury yield ended the session down -3.5bps at 1.577% - their biggest one day drop in just over 3 weeks. There was a decent flattening of the yield curve, with the 2yr yield up +2.0bps to 0.34%, its highest level since the pandemic began as the market priced in more near-term Fed rate hikes. In the Euro Area it was a very different story however, with 10yr yields rising to their highest level in months, including among bunds (+3.5bps), OATs (+2.9bps) and BTPs (+1.0bps). That rise in the 10yr bund yield left it at -0.09%, taking it above its recent peak earlier this year to its highest closing level since May 2019. Interestingly gilts (-4.0bps) massively out-performed after having aggressively sold off for the last week or so. Against this backdrop, equity markets struggled for direction as they awaited the CPI reading and the start of the US Q3 earnings season today. By the close of trade, the S&P 500 (-0.24%) and the STOXX 600 (-0.07%) had both posted modest losses as they awaited the next catalyst. Defensive sectors were the outperformers on both sides of the Atlantic. Real estate (+1.34%) and utilities (+0.67%) were among the best performing US stocks, though some notable “reopening” industries outperformed as well including airlines (+0.83%), hotels & leisure (+0.51%). News came out after the US close regarding the global chip shortage, with Bloomberg reporting that Apple, who are one of the largest buyers of chips, would revise down their iPhone 13 production targets for 2021 by 10 million units. Recent rumblings from chip producers suggest that the problems are expected to persist, which will make central bank decisions even more complicated over the coming weeks as they grapple with increasing supply-side constraints that push up inflation whilst threatening to undermine the recovery. Speaking of central bankers, Vice Chair Clarida echoed his previous remarks and other communications from the so-called “core” of the FOMC that the current bout of inflation would prove largely transitory and that underlying trend inflation was hovering close to 2%, while admitting that risks were tilted towards higher inflation. Atlanta Fed President Bostic took a much harder line though, noting that price pressures were expanding beyond the pandemic-impacted sectors, and measures of inflation expectations were creeping higher. Specifically, he said, “it is becoming increasingly clear that the feature of this episode that has animated price pressures — mainly the intense and widespread supply-chain disruptions — will not be brief.” His ‘transitory swear word jar’ for his office was considerably more full by the end of his speech. As highlighted above, while President Bostic spoke US 10yr breakevens dropped -2bps and then continued declining through the New York afternoon. In what is likely to be Clarida’s last consequential decision on monetary policy before his term expires, he noted it may soon be time to start a tapering program that ends in the middle of next year, in line with our US economics team’s call for a November taper announcement. In that vein, our US economists have updated their forecasts for rate hikes yesterday, and now see liftoff taking place in December 2022, followed by 3 rate increases in each of 2023 and 2024. That comes in light of supply disruptions lifting inflation, a likely rise in inflation expectations (which are sensitive to oil prices), and measures of labour market slack continuing to outperform. For those interested, you can read a more in-depth discussion of this here. Turning to commodities, yesterday saw a stabilisation in prices after the rapid gains on Monday, with WTI (+0.15%) and Brent Crude (-0.27%) oil prices seeing only modest movements either way, whilst iron ore prices in Singapore were down -3.45%. That said it wasn’t entirely bad news for the asset class, with Chinese coal futures (+4.45%) hitting fresh records, just as aluminium prices on the London Metal Exchange (+0.13%) eked out another gain to hit a new post-2008 high. Overnight in Asia, equity markets are seeing a mixed performance with the KOSPI (+1.24%) posting decent gains, whereas the CSI (-0.06%), Nikkei (-0.22%) and Shanghai Composite (-0.69%) have all lost ground. The KOSPI’s strength came about on the back of a decent jobs report, with South Korea adding +671k relative to a year earlier, the most since March 2014. The Hong Kong Exchange is closed however due to the impact of typhoon Kompasu. Separately, coal futures in China are up another +8.00% this morning, so no sign of those price pressures abating just yet following recent floods. Meanwhile, US equity futures are pointing to little change later on, with those on the S&P 500 down -0.12%. Here in Europe, we had some fresh Brexit headlines after the UK’s Brexit minister, David Frost, said that the Northern Ireland Protocol “is not working” and was not protecting the Good Friday Agreement. He said that he was sharing a new amended Protocol with the EU, which comes ahead of the release of the EU’s own proposals on the issue today. But Frost also said that “if we are going to get a solution we must, collectively, deliver significant change”, and that Article 16 which allows either side to take unilateral safeguard measures could be used “if necessary”. Elsewhere yesterday, the IMF marginally downgraded their global growth forecast for this year, now seeing +5.9% growth in 2021 (vs. +6.0% in July), whilst their 2022 forecast was maintained at +4.9%. This masked some serious differences between countries however, with the US downgraded to +6.0% in 2021 (vs. +7.0% in July), whereas Italy’s was upgraded to +5.8% (vs. +4.9% in July). On inflation they said that risks were skewed to the upside, and upgraded their forecasts for the advanced economies to +2.8% in 2021, and to +2.3% in 2022. Looking at yesterday’s data, US job openings declined in August for the first time this year, falling to 10.439m (vs. 10.954m expected). But the quits rate hit a record of 2.9%, well above its pre-Covid levels of 2.3-2.4%. Here in the UK, data showed the number of payroll employees rose by +207k in September, while the unemployment rate for the three months to August fell to 4.5%, in line with expectations. And in a further sign of supply-side issues, the number of job vacancies in the three months to September hit a record high of 1.102m. Separately in Germany, the ZEW survey results came in beneath expectations, with the current situation declining to 21.6 (vs. 28.0 expected), whilst expectations fell to 22.3 (vs. 23.5 expected), its lowest level since March 2020. To the day ahead now, and the main data highlight will be the aforementioned US CPI reading for September, while today will also see the most recent FOMC meeting minutes released. Other data releases include UK GDP for August and Euro Area industrial production for August. Central bank speakers include BoE Deputy Governor Cunliffe, the ECB’s Visco and the Fed’s Brainard. Finally, earnings releases include JPMorgan Chase, BlackRock and Delta Air Lines. Tyler Durden Wed, 10/13/2021 - 08:13.....»»

IC testing specialist Sigurd Microelectronics has seen its capacity utilization rate rebound to over 80% recently, thanks to a pull-in of short lead-time orders from mainly China, according to industry sources......»»

TSMC has placed rush orders for CoWoS packaging equipment in order to meet surging demand for Nvidia's AI chips, according to sources at fab toolmakers......»»

S&P 500 quickly dipped on NFPs, and was eagerly soon bought. Even 4,283 where I expected some resistance, didn‘t last ... Read more S&P 500 quickly dipped on NFPs, and was eagerly soon bought. Even 4,283 where I expected some resistance, didn‘t last too long. Best of all, it wasn‘t up to tech to do the heavy lifting – the rotations were strong on a daily basis, giving e.g. smallcaps best day in months. Industrials with materials and energy also played their part, making any Friday downswing impossible. The beginning of next week though shouldn‘t be too easy. USD recovered after the debt ceiling bill relief, making for renewed daily rise in yields. The short end of the curve isn‘t indicating the Fed would cut any time soon (this disconnect in the bond market has to be worked on still, but the 6-m is acknowledging no rate cut as remotely near), and 10-y yield took NFPs as no questions asked proof of the real economy not doing so bad (ignore all prior revisions, incl. in hourly earnings). Recession is though still coming – unrevised uneployment rose to 3.7% already, and earlier in the week manufacturing PMIs took another turn for the worse. The wealth of recession indicators agree, from M2, housing, forward earnings, bank lending, slowly deteriorating credit quality, but chiefly still declining LEIs and inverted yield curve. Thus far still, it looks to be a mild one, taking unemployment to high 4% values – unemployment or nominal wage pressures won‘t get as bad as during prior downturns. Market breadth improved a lot on a daily basis, but the whole market remains selective, and in spite of the recent catch up by laggards, and driven by tech (the level of hype isn‘t that bad, but earnings have to play catch up to the elevated valuations, and also the post-debt ceiling deal rotation out of the sector didn‘t yet come even briefly. To be clear, I expect tech FOMO to last a bit longer still), consumer discretionaries (neither AMZN nor TSLA are badly overextended), and communications (META is the prime correction candidate rather than NFLX), and NVDA is in a FOMO and valuation category of its own. Sure that Treasury replenishing its TGA is a negative, but much depends where that bid for fresh Treasuries comes from. If from retail buyers liquidating deposits, then it‘s 100% bearish impact – if from banks drawing down reverse repos, then it‘s neutral. All in all, the net effect is going to be negative over the nearest months, but not nearly as negative as feared – look at the Chicago Financial Conditions Index only slowly rising, and as complacent as VIX. So, there is still more ES upside, and I don‘t want to call for shorts and be forced to hold them just because the overwhelming majority of technical signs favor that (such as extremely poor financials‘ performance) the way I had done with the latest unhappy medium-term short – regardless of the great number of daily bullish calls outnumbering the bearish ones for that trade‘s duration, or the reassessments before the debt ceiling deal or as a minimum hedge call right after its announcement. While this created a rare situation of my swing trades not having the latest one as a truly swing one, I‘ve reflected the situation of not all of you heeding / being practically able to take advantage of all the good calls given in the daily articles and Twitter / Telegram – I‘ll solve this by adding Monica‘s Intraday Signals to the existing line-up of services, which would focus on intraday ES trade calls with much real-time commentary. It‘ll be about tight trade parameters with focus on high confidence setups, giving 2-4 entry – stop-loss – take profit signals (day orders) per week on average on top of commentary powering your own decisions – delivered via Telegram (closed group). Current premium clients and those who left me during this long short, can get free subscription upon mailing me, if interested – details are both on my site and on my Patreon site. All future subscribers to premium daily analyses will get intraday signals on extra advantageous terms. You can tell me already now what you think – I‘ll be grateful for that, my purpose is to serve you better. Let‘s make up for whatever we all lost – and if you were following the daily calls / tweaking them to your ends, let‘s broaden our arsenal! Keep enjoying the lively Twitter feed via keeping my tab open at all times (notifications on aren’t enough) – combine with Telegram that always delivers my extra intraday calls (head off to Twitter to talk to me there), but getting the key daily analytics right into your mailbox is the bedrock. So, make sure you‘re signed up for the free newsletter and make use of both Twitter and Telegram – benefit and find out why I’m the most blocked market analyst and trader on Twitter. Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 6 of them. S&P 500 and Nasdaq Outlook Time for decreasing momentum and consolidation of Friday‘s sharp gains – not yet a turnaround lower, but 4,283 test before heading for the 4,305 resistance (looking for increasingly active sellers there), with 4,335 being the ultimate test of this long advance off Oct lows on overall troubled breadth. Gold, Silver and Miners Gold and silver acted weaker than they should on Friday, but I‘m still not looking for breach of gold $1,930 – $1,950 , or silver $23.15 (I had to update the silver zone of $23.15 – $23.40 to its lower border only thanks to copper weakness). Crude Oil Crude oil recovery needs to continue, taking it above $72.70 decisively – it won‘t be easy as the upside momentum could have been stronger following NFPs lifting up everything in sight. Thank you for having read today‘s free analysis, which is a small part of my site‘s daily premium Monica’s Trading Signals covering all the markets you’re used to (stocks, bonds, gold, silver, miners, oil, copper, cryptos), and of the daily premium Monica’s Stock Signals presenting stocks and bonds only. Both publications feature real-time trade calls and intraday updates. While at my site, you can subscribe to the free Monica‘s Insider Club for instant publishing notifications and other content useful for making your own trade moves. Turn notifications on, and have my Twitter profile (tweets only) opened in a fresh tab so as not to miss a thing – such as extra intraday opportunities. Thanks for all your support that makes this great ride possible! Thank you, Monica Kingsley Stock Trading Signals Gold Trading Signals Oil Trading Signals Copper Trading Signals Bitcoin Trading Signals www.monicakingsley.co mk@monicakingsley.co All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice......»»

Futures Flat With S&P On Cusp Of Bull Market, Oil Jumps After OPEC Production Cut Futures are flat with oil jumping after OPEC+ cut output by an extra 1mm bpd in a unilateral move by Saudi Arabia taking its production to the lowest level for several years.At 7:30am ET, S&P futures were flat, while Nasdaq futures were down 0.2% with some artificial-intelligence exposed stocks like Nvidia Corp. and C3.ai Inc. trading down. In contrast, Apple Inc. surpassed its previous closing record in premarket ahead of what’s expected to be its most significant product launch event in nearly a decade. Oil rose 2%, with oil giants such as Chevron and Exxon up in premarket trading. The Bloomberg dollar index is up as are 10Y yields now that the market's attention turns to the $1+ trillion deluge in new debt issuance. Gold dropped, as did bitcoin after the crypto currency got its usual Asian session rugpull. Oil-related stocks rose in US premarket trading after Saudi Arabia announced it would scale back oil output by a further 1 million barrels a day in July, taking the OPEC+ member’s production to the lowest level for several years after a slide in crude prices. Saudi Energy Minister Prince Abdulaziz bin Salman said he “will do whatever is necessary to bring stability to this market”; with oil prices being weighed down by relentless shorting by hedge funds amid a softer economic outlook.  The rest of the 23-nation OPEC+ group offered no additional action to buttress the current market, but did pledge to maintain their existing cuts until the end of 2024. Chevron, Exxon Mobil and Occidental Petroleum all rise more than 1%, as do Phillips 66 and Schlumberger. Also in premarket trading, Apple rose 0.6% putting the shares on track to reach a new record high. The company is expected to launch a mixed-reality headset at the Worldwide Developers Conference on Monday, marking its most significant product launch in nearly a decade. Here are some other notable premarket movers: Bellerophon Therapeutics shares slid 74% Monday after the company said its phase 3 rebuild study of INOpulse to treat fibrotic interstitial lung disease failed to meet its primary endpoint. Day One Biopharmaceuticals shares rise as much as 35% after the biotech company provided updated data for its drug for the treatment of pediatric low-grade brain tumors that was “highly impressive,” according to a Wedbush analyst. Epam Systems falls as much as 11% after the IT services company cut its adjusted earnings per share forecast for the second quarter. ImmunoGen shares gain as much as 19% in premarket trading on Monday, after the biotech company provided full results from its late-stage trial for its treatment of ovarian cancer. Oil-related stocks rise after Saudi Arabia announced it would scale back oil output by a further 1 million barrels a day in July, taking the OPEC+ member’s production to the lowest level for several years after a slide in crude prices. Palo Alto Networks Inc. (PANW) shares gain 4.9% on Monday, following a Friday announcement that the stock is set to replace Dish Network Corp. in the S&P 500. Southwestern Energy Co. (SWN) rises 2% as it looks like a “logical target” for either Coterra Energy Inc. or Chesapeake Energy Corp., according to Citi. With the debt ceiling now behind us, markets will now prepare for a deluge of issuance; BBG reports that bearish positioning in the S&P is highest since 2007 while bullish bets on NDX are near last year’s highs. Meanwhile, the steamrolling of the bears continues with S&P 500 is just 0.2% short of a 20% gain from its October low in the previous trading session; the Nasdaq 100 is already firmly in a bull market, as traders anticipate a pause in the Federal Reserve’s rate hiking cycle. Expectations that any slowdown in the US would be mild and optimism about developments in AI have also fueled the gains. James Athey, investment director at Abrdn, said the advance toward a bull market focused on the small number of important but highly backward-looking economic readings that suggest the economy is doing well. “The broader data set shows much less strength and much more volatility and vulnerability,” he said. “But until jobs crack, I’m sure equities will choose to ignore.” Strategists are split about the path forward for stocks from here. A Morgan Stanley team led by Michael Wilson said the likelihood of Fed rate cuts in 2023 and durable growth playing out simultaneously is low and they expect a tactical correction in equities before a durable recovery and a real bull market. UBS Global Wealth Management strategists also said the risk-reward balance for stocks, especially in the US, remains unfavorable. On the flip side, Evercore ISI strategists raised their S&P 500 target as inflation easing likely signals a Fed pause. Meanwhile, frustration among bears has rarely been greater with more stocks making new 52-week lows in the S&P 500 than 52-week highs in May.  “Breadth is awful,” Athey said, referring to the limited number of stocks contributing to the rally. “There’s very narrow leadership. It doesn’t look too healthy to me.” In Europe, the Stoxx 50 is little changed while FTSE 100 outperforms peers, adding 0.6%, FTSE MIB lags, dropping 0.3%. Consumer products, tech and travel are the worst-performing sectors. The region continues to lose momentum from being the proxy for China’s reopening boom; do investors buy the dip with China looking to add stimulus? PMIs continue to slow and are at 3-month lows. Value is leading, Momentum is lagging; Defensives over Cyclicals. UKX +0.5%, SX5E -0.0%, SXXP +0.1%, DAX +0.0%. Here are some of the most notable European moves: Energy stocks were among the strongest gainers in Europe Monday as crude advanced following Saudi Arabia’s pledge to make an extra 1 million barrel-a-day supply cut in July, taking its production to the lowest level for several years. Shell rises as much as 1.6%. Shares of European telecom operators rise across the board, rebounding from a selloff on Friday when Bloomberg News reported that Amazon is planning to provide low-cost mobile phone service to Prime members in the US. Deutsche Telekom and Vodafone gain respectively as much as 3.5% and 3.4%. UBS shares gain 1.3% on Monday after the banking giant announced it expects to complete its acquisition of Credit Suisse as early as June 12. ZKB sees this as a positive development, initiating what it sees as a “protracted integration process.” Credit Suisse rises as much as 2.3%. Asos shares jump as much as 14%, the most since Jan. 12, after the Sunday Times reported that the online fast fashion retailer received a takeover approach from Turkish online retailer Trendyol in December. Indivior shares surge as much as 13%, to highest in 15 weeks, after the drugmaker announces it has reached an agreement to resolve antitrust claims brought by the Attorneys General of 41 states and the District of Columbia. Red flags that pricey luxury shares have hit a peak are piling up as conviction on the China reopening trade takes a hit. LVMH shares fall as much as 1.2% Viaplay shares fall as much as 59% to a record low after the Nordic media firm slashed its 2023 guidance, scrapped 2025 targets and said CEO Anders Jensen stepped down with immediate effect. Bollore shares fall as much as 3.7%, after Kepler Cheuvreux cut its recommendation on the French conglomerate to hold from buy, noting the stock’s recent outperformance and the simplified offer. Earlier in the session, Asian stocks were mostly positive amid momentum from Friday's post-NFP gains on Wall Street and as participants digested stronger Chinese Caixin Services and Composite PMI data. Hang Seng and Shanghai Comp. were kept afloat following the encouraging Caixin PMIs but with gains capped amid US-China frictions and after China’s Cabinet noted that the foundation for the economic recovery is not solid, while property names were also pressured despite reports that China is mulling a support package for the property sector and bolster the economy. Australia's ASX 200 was led higher by gains across nearly all sectors with early tailwinds in energy names following Saudi Arabia’s additional 1mln bpd output cut, while the RBA is seen to keep rates unchanged at tomorrow’s meeting. The Nikkei 225 climbed above 32,000 for the first time since 1990 with exporters propelled by a weaker currency. Key stock gauges in India ended with gains mirroring a board-based rally across Asian markets on Monday as investors assess prospects of a pause in rate hikes by the Federal Reserve and easing concerns over a US recession. The S&P BSE Sensex rose 0.4% to 62,787.47 in Mumbai just shy of its all-time closing high levels, while the NSE Nifty 50 Index advanced 0.3% to 18,593.85. Strong automobile sales data triggered buying in auto stocks in India with the Nifty Auto index climbing 1.3%, its best day since May 8. In FX, the Bloomberg Dollar Spot Index gained as much as 0.3%, taking gains into a second day, after last week’s jobs data added to the market’s view that the Fed will raise rates by 25 basis points next month. CAD and EUR are the strongest performers in G-10 FX, with the Canadian currency receiving some support as oil prices advance; SEK and GBP underperforms. BRL (1.1%), COP (1.1%) lead gains in EMFX, TRY (-1.1%) lags. In rates, Treasuries were cheaper across the curve, following bigger losses in core European rates with S&P 500 futures steady near Friday’s highs.  The two-year Treasury yield rises 4 basis points to 4.54%, rising toward a 2-1/2-month high of 4.64% touched just over a week ago. Yields higher by 4bp-6bp on the day with 2s5s30s fly wider by 2bp as belly underperforms; 10-year yields around 3.74% with bunds and gilts cheaper by 2bp and 1.5bp in the sector. Traders are pricing in a near 90% possibility that the Fed will hike rates to 5.5% in July; they see just the prospects of a June rise at around 30%. Elsewhere, gilts bear-flatten, Bunds bear-steepen. Peripheral spreads are mixed to Germany; Italy widens, Spain widens and Portugal tightens. In commodities, Crude oil futures remain higher by about 2% after a 4.6% advance sparked by Saudi Arabia’s output-cut pledge at weekend’s OPEC+ meeting. Spot gold falls roughly $6 to trade near $1,942/oz. US session includes factory orders data and ISM services gauge and Durable Goods/Cap Goods, while Fed speakers are in quiet period ahead of June 13-14 FOMC meeting.   Market Snapshot S&P 500 futures little changed at 4,289.00 MXAP up 0.6% to 163.41 MXAPJ up 0.2% to 514.82 Nikkei up 2.2% to 32,217.43 Topix up 1.7% to 2,219.79 Hang Seng Index up 0.8% to 19,108.50 Shanghai Composite little changed at 3,232.44 Sensex up 0.5% to 62,885.07 Australia S&P/ASX 200 up 1.0% to 7,216.27 Kospi up 0.5% to 2,615.41 STOXX Europe 600 up 0.1% to 462.66 German 10Y yield little changed at 2.36% Euro down 0.2% to $1.0689 Brent Futures up 2.5% to $78.06/bbl Gold spot down 0.3% to $1,941.52 U.S. Dollar Index up 0.24% to 104.26 Top Overnight News 1) Inflation is pushing Japan into a new era that could lift equities by spurring more households to move savings out of low-yielding bank deposits, the head of the country’s stock exchange operator has said. Hiromi Yamaji, president of the JPX group that controls the Tokyo and Osaka exchanges, said he expected many Japanese to stop sitting on so much cash — the country’s households have amassed ¥1 quadrillion ($7tn) in bank savings — and look to stock markets for better returns in response to rising living costs. FT 2) China’s defense minister attacked the US policy in the Pacific, accusing the Pentagon of stoking confrontation (and a Chinese navy ship sailed within 140 meters of a US Navy guided missile destroyer). Worth noting China will soon account for less than 50% of US imports from low-cost countries in Asia as Western firms shift supply chains out of the mainland.  London Telegraph / FT 3) China’s Caixin services PMI for May was strong, coming in at 57.1 (up from 56.4 in April and ahead of the Street’s 55.2 forecast). Also, Indonesia’s CPI for May undershot the Street, coming in at +2.66% (down from 2.83% in April and below the Street’s 2.81% forecast). RTRS 4) Ukrainian President Volodymyr Zelensky said he was now ready to launch a long-awaited counteroffensive but tempered a forecast of success with a warning: It could take some time and come at a heavy cost. “We strongly believe that we will succeed,” Zelensky said in an interview in this southern port city as his country’s military girded for what could be one of the war’s most consequential phases as it aims to retake territory occupied by Russia. WSJ 5) Banks in the US could see their capital requirements jump as much as 20% under new rules being formulated at the Fed (the rules would apply to institutions with assets >$100B, and fee-based activities, such as wealth mgmt. or interchange revenue, will be punished under the new framework). Also, Banks in the US are preparing to sell commercial property loans at a discount even when borrowers are current on their payments as firms rush to reduce their exposure to this segment of the market. WSJ / FT 6) With a debt ceiling deal freshly signed into law Saturday by President Joe Biden, the US Treasury is about to unleash a tsunami of new bonds to quickly refill its coffers. This will be yet another drain on dwindling liquidity as bank deposits are raided to pay for it — and Wall Street is warning that markets aren’t ready. BBG 7) Yesterday’s OPEC+ meeting was moderately bullish, on net, with three main developments. First, Saudi Arabia pledged to deliver an additional 1mb/d unilateral “extendible” output cut in July (bullish). Second, the voluntary cuts from the 9 OPEC+ countries are scheduled to extend until December 2024, from December 2023 previously (somewhat bullish). Third, output baselines will be redistributed in 2024 from countries struggling to reach their targets to those with ample spare capacity (somewhat bearish output effect, but bullish cohesion). GIR 8) Hedge funds accelerated selling in US Energy amid price declines last week. Last week’s notional net selling in US Energy was the largest in 10 weeks and ranks in the 97th percentile vs. the past five years. Info Tech was the most notionally net bought global sector on the Prime book for the 4th straight week. Last week’s net buying in Info Tech was the largest in 5+ months and ranks in the 92nd percentile vs. the past five years. GS PB 9) AMZN wireless story met with skepticism as firms deny involvement (Amazon, T-Mobile, and Verizon all said nothing is in the works) and analysts suggest economics/logistics don’t make sense. Barron's 10) More bank insiders are buying shares in their own companies, a vote of confidence in the industry after a crisis sparked by the collapse of four regional lenders earlier this year. The number of buyers has already jumped to 778 in the second quarter through May 26 from 524 in the first three months of the year, according to research firm VerityData, which said the surge is being driven by small and midsize banks. More purchasers stepped up even as share prices sank to multiyear lows in early May. BBG A more detailed look at global markets courtesy of Newsquawk APAC stocks were mostly positive amid momentum from Friday's post-NFP gains on Wall Street and as participants digested stronger Chinese Caixin Services and Composite PMI data. ASX 200 was led higher by gains across nearly all sectors with early tailwinds in energy names following Saudi Arabia’s additional 1mln bpd output cut, while the RBA is seen to keep rates unchanged at tomorrow’s meeting. Nikkei 225 climbed above 32,000 for the first time since 1990 with exporters propelled by a weaker currency. Hang Seng and Shanghai Comp. were kept afloat following the encouraging Caixin PMIs but with gains capped amid US-China frictions and after China’s Cabinet noted that the foundation for the economic recovery is not solid, while property names were also pressured despite reports that China is mulling a support package for the property sector and bolster the economy. Top Asian News on Friday, while the meeting was said to be candid, constructive and part of ongoing efforts to maintain open lines of communication, according to the Treasury. China is soon to account for less than half of US low-cost imports from Asia in 2023 for the first time in over a decade, according to an annual reshoring index from Kearney cited by the FT. Wuhan Commerce Bureau said initial talks have started with Disney (DIS) for the US firm to start a project in the city, according to Reuters. European equities trade flat with not much in the way of weekend newsflow to guide prices following Friday’s solid session for the region, whilst the FTSE 100 narrowly outperforms. Equity sectors are a mixed bag with Telecoms top of the leaderboard, followed closely by Energy and Real Estate, while Tech, Travel & Leisure, and Consumer Products & Services reside at the bottom. US equity futures are flat following Friday’s session of gains (ES -0.1%, NQ -0.2%, RTY +0.1%) Top European News BoE is looking to broaden reform of the deposit guarantee scheme after the collapse of SVB's UK arm highlighted the weakness of the current regime, according to FT. ECB's Vujcic said Eurozone inflation risks are tilted to the upside; wage pressures are "still very lively", according to Bloomberg. Fitch affirmed the Bank of England at AA-; Outlook Negative. S&P said France's "AA/A-1+" ratings affirmed; outlook remains negative; says tighter financial conditions and still-high core inflation will restrain France's economic activity in 2023 and 2024 FX DXY maintains a bullish momentum above 104.00 in the wake of Friday’s strong US payrolls gain which resulted in a hawkish tilt in Fed pricing. USD/JPY rebounds sharply towards 140.50 from just shy of 140.00 overnight amidst higher Treasury yields and wider spreads to JGBs after slowdowns in Japan’s services and composite PMIs. Euro extends declines against its US counterparts and against the backdrop of mostly sub-prelim or expected Eurozone services and composite PMIs. Aussie straddles 0.6600 on the eve of the RBA that could be a very close call. Yuan weakens irrespective of a firmer than forecast Chinese Caixin services PMI that boosted the composite number along with the manufacturing PMI, as China-US/Canadian/NATO tensions overshadowed the encouraging surveys. PBoC set USD/CNY mid-point at 7.0904 vs exp. 7.0918 (prev. 7.0939) Fixed Income Bunds are off worst levels having pared some losses from 134.81 amidst more mixed Eurozone macro releases including soft PMIs, PPI, Sentix readings vs a healthier-than-expected German trade balance. Gilts have slipped to a new intraday base, albeit marginal at 96.25 in recent trade and probably in recognition of minor upward revisions to the final services and composite PMIs US Treasuries remain underwater, but the curve is a bit more stable after post-NFP flattening in advance of the final PMIs, services ISM and a speech from Fed’s Mester. Commodities WTI and Brent contracts gapped higher upon the return of futures trading following the weekend OPEC+ deliberations (see below). Spot gold is subdued under USD 1,950/oz as the Dollar index remains firmer on the session – with the yellow metal finding support at its 100 DMA (1,939/oz) earlier. Base are mostly subdued but to varying degrees amid the aforementioned APAC growth concerns, although the complex has trimmed losses. Iron ore continued rising overnight. OPEC+ Meeting Saudi Arabia announced it is to cut an additional 1mln bpd of oil output for July in which its output will drop to 9mln bpd and all other OPEC+ producers agreed to extend earlier cuts through to the end of 2024. OPEC+ agreed to a new output target of 40.4mln bpd from 2024 with the output target for 2024 lowered by 1.4mln bpd and said Russia, Angola and Nigeria are to see significant production cuts in 2024, while the next OPEC+ meeting is to take place on November 26th, according to Reuters. Saudi’s Energy Minister said they are not targeting prices and that the extra voluntary cut is a precautionary measure, while they will keep the markets in suspense on whether the additional voluntary cut for July will be extended and will review the extra voluntary cuts every month. Saudi’s Energy Minister said Russia is delivering on its oil output commitments, while the UAE’s Energy Minister said there are some discrepancies in Russian production numbers and they don’t want politics involved in how they look at Russian production numbers, according to Reuters. Russian Deputy PM Novak said OPEC+ agrees total oil output cuts of 3.66mln bpd and that the oil market is more or less balanced, while he added they are seeing oil demand rising and they have the possibility of tweaking decisions. Furthermore, he said they will take decisions so that the oil market is stable and that Russia is fulfilling its obligations in full, according to Reuters. White House officials said they will continue to work with all fuel producers to ensure energy markets support US economic growth, according to Reuters. Tyler Durden Mon, 06/05/2023 - 08:19.....»»

Grab was once known as the Uber of Southeast Asia. Now it's a super-app that helps the financially underserved The lunchtime rush is just bubbling at Kedai Kopi hawker center in Singapore’s Clementi neighborhood when Anthony Tan strolls in. The co-founder and CEO of the ride-hailing firm Grab orders himself a Horlicks malt drink, sits at a Formica table, and takes a sweep of the bustling vendors. One catches his eye: a stall selling nasi lemak, the signature Malay dish of fragrant rice cooked in coconut milk and pandan leaf. Back in 2012, Tan used to offer it to taxi drivers gassing up in his hometown of Kuala Lumpur, pitching his upstart service while they ate. “But because we couldn’t afford to do a deal with the petrol station, they chased us out,” Tan, 40, recalls. He decamped to a nearby sidewalk by fetid monsoon drains. “It was so smelly,” he says. “But it was close enough to shout over, ‘Hey uncle, do you want free nasi lemak?’” [time-brightcove not-tgx=”true”] In the years since, Grab has transformed from a “street fighting” startup, as Tan puts it—scoring Southeast Asia’s biggest Nasdaq IPO in 2021, valued at around $40 billion. But that hasn’t kept Tan sequestered in his office. Opposite the nasi lemak stall is another for fiery Peranakan seafood, where Tan pulled a four-hour shift during the pandemic. With lockdowns decimating Grab’s ride-hailing business, it pivoted to food delivery, and Tan wanted to better understand vendors’ needs. He ended up “cleaning live crabs and absolutely covered in bits of shell and crab juice,” he laughs. “But I saw that when the orders came out in -English, the Chinese-speaking chefs couldn’t understand them. After that we made the tickets in both languages.” Tan’s anecdotes help to explain why Grab, with a market cap of $12 billion, is one of Southeast Asia’s most valuable firms. Its green-attired delivery drivers are ubiquitous in over 500 cities across eight nations. Often compared to Uber, Grab is much more, fast becoming a fully fledged super-app, offering insurance, travel bookings, financial services, and more. Tan envisages making Grab a “triple bottom line” company, measuring success not only by its balance sheet but also by its social and environmental impact, particularly through the financial services it now offers. Southeast Asia may be the world’s fastest-growing region economically, but those gains are uneven and 70% of the population is “underbanked,” not relying primarily on traditional banks. Tan’s pitch is that by bringing more small businesses into the digital economy, he can boost Grab’s earnings while fostering equality. “There are many ways you can build social impact and create financial impact—they’re not mutually exclusive,” he says. “If you don’t build a society that’s stable, and you don’t uplift the bottom, it becomes all of our problem.” Mobility is in Tan’s genes. His great-grandfather was a taxi driver and his grandfather an automotive tycoon. After attending Harvard Business School, Tan decided not to join the family business, Tan Chong Motor, which his father runs, but to go it alone. Inspired by classmate and Grab co-founder Tan Hooi Ling’s horrific experiences with Kuala Lumpur taxis—by some rankings the world’s worst—Tan asked his dad to back their ride-hailing venture but was told “your head is in the clouds,” he says. So he went to his mom, who thought the same but still agreed to back him. “Moms are amazing, right?” Still, for a young man born “with a silver spoon,” Tan admits, the move was scary. “My dad basically disowned me,” he says. “I thought, I’m not going to grovel. I’m going to fight and make sure we win. That was a pivotal moment.” Whereas Uber took a cookie-cutter approach to global expansion, Grab’s growth was rooted in being hyper-local. In Cambodia, it offers tuk-tuks; in Indonesia, users ride pillion on motor-cycle taxis. While Uber launched delivery ice cream, which often arrived in a slushy mess in the unforgiving tropics, Grab rolled out Southeast Asia’s “king of fruits,” durian, which remains a huge money spinner. But like any disrupter, Grab has faced pushback. In Thailand, where it operated illegally until rule changes in 2021, local taxi competitors held protests against Grab, brandishing placards of Tan in a coffin: “This job is not for the fainthearted.” Meanwhile, Grab’s shares now trade at less than a quarter of their IPO price. Tan puts this down to “timing,” given the drying-up of cheap money. These setbacks haven’t deterred Tan. Last August, Grab launched one of Singapore’s first digital banks, in partnership with telecom firm Singtel, and is rolling out more across the region. Interest is paid daily instead of monthly, and small loans can be approved in minutes. For Tan, the need was made plain by a conversation at church. A fellow parishioner confessed to spending a stint in Singapore’s Changi prison for being a loan shark’s goon, who would splash pig’s blood on debtors’ homes to intimidate them. “He said there were thousands of people like him in Singapore,” says Tan. “It’s fundamentally wrong to charge somebody 20% a day interest, because you’re putting them in a real poverty trap.” The pandemic served as another inflection point. While ride hailing ground to a halt, lockdowns also meant that small businesses had no choice but to embrace digitization. Buoyed by government stimulus packages for small businesses, in just one year Grab added over 600,000 merchants across the region, offering everything from dog bowls to apple strudel. “The COVID crisis became an opportunity for us,” says Tan. It was also a lifeline for people like Suparno, 52, who like many Indonesians uses one name. The father of three owns a tiny fruit stall in Bali’s Taman Sari Market, which overflows with lush mangosteen, papaya, and watermelon. When Indonesia shut its borders during the pandemic, tourism-reliant Bali suffered more than most, and Suparno’s trade fell 70%, he says. Struggling to feed his family, he became the first vendor in Taman Sari to join GrabMart. By selling his fruit via the app, and using its data-crunching service to bundle in-demand items together, trade quickly recovered to pre-pandemic levels. Today, practically every business in Taman Sari displays a green GrabMart logo, and Suparno plans to open a third stall. But the leap to digital revealed other benefits. Suparno’s business was previously cash-based, which meant carrying around large wads—a risky proposition—or braving long 9 a.m. queues at the bank before heading to the wholesalers, by which time the best fruit had often been snapped up. Now, any GrabMart sales Suparno makes before midnight appear in his GrabPay account by 4 a.m., meaning he can restock before the bank has even opened. “It helps a lot because mornings are my busiest time,” he says. It demonstrates how better access to digital financial services helps small businesses compete, which Tan hopes will translate into higher revenue for his firm. Grab’s financial-services revenue grew 233% year over year in the first quarter of 2023, with loan disbursements up 45%. In 2022, small merchants on Grab saw a 26% increase in average monthly earnings after a year on the platform. Still, despite boasting over 32 million monthly users and expecting revenue of $2.2 billion in 2022, Grab has yet to turn a profit, with Tan expecting to finally break even by year’s end. “Grab’s success is also their problem,” says Jeffrey Towson, an investor and consultant on digital strategy in Asia. “They’re dominating the market, with high-frequency services, lots of engagement, which means lots of data. But they’re still struggling to get profitability, because that’s just the nature of the business they’re in.” Supplementing the low-margin ride-hailing sector with higher-margin add-ons is a main driver behind Tan’s super-app vision. He says it also helps merchants to boost their income through secondary services. Drivers can earn from deliveries but also by hosting advertising brokered via the app, or wearing a helmet camera funneling data to Grab’s own maps offering, which it sells to third parties like Amazon Web Services. Last year, 72% of Grab’s drivers earned from more than one of its services, while over a million took part in one of its 2,500 training and upskilling courses. “When we create more inclusion, society benefits,” says Tan. “What’s good for society is good for business.”.....»»

"There Is Nothing Encouraging On The Horizon" - Dallas Fed Manufacturing Survey Contracts For 13th Straight Month After tumbling last month, The Dallas Fed's Manufacturing outlook survey was expected top bounce in May... but it didn't. The Texas Manufacturing Outlook survey dropped from -23.4 to -29.1 (vs -18.0 exp). Source: Bloomberg This is the 13th straight month of 'contraction' (below zero) for the index. The new orders index has now been in negative territory for a year and pushed down further from -9.6 to -16.1. The growth rate of orders index also fell, declining 10 points to -20.7, its lowest value since mid-2020. The capacity utilization index moved down from 3.9 to -4.9, while the shipments index was unchanged at -3.0. Perceptions of broader business conditions continued to worsen in May. The general business activity index dropped six points to -29.1, its lowest reading in three years. The company outlook index pushed down seven points to -22.3, also a three-year low. The outlook uncertainty index retreated to 13.4, a reading below average. The respondents' remarks say it all: Chemical manufacturing Volumes have not rebounded at a level we would expect this time of year. Orders seem to be more erratic, which is in line with automotive and building construction markets trending downward as interest rates have deeply impacted both of these key, basic-materials consumer sectors. Computer and electronic product manufacturing It is easier to find qualified employees over the last few weeks. Fabricated metal product manufacturing Our only problem is our inability to hire enough hourly employees at the plant. We have had orders canceled when owners have decided not to proceed with projects. We have a continued focus on clearing the backlog of orders as supply constraints clear. Food manufacturing Order volume has stalled recently. We have different dynamics and drivers in our business. We clearly are moving into a period of stagflation. Machinery manufacturing We are seeing a massive slowdown in business activity. Paper manufacturing We are seeing all indications of a continued slide in demand (three quarters now). Prices are coming down some, but labor costs are still going up. This offsets any reduction in material costs, so margins are down as a result. Primary metal manufacturing Business is slowing down. That is certain. The building and construction industry remains significantly off, primarily residential.  Another very negative factor is the influx of foreign material used in our industry. Printing and related support activities We are fortunate to have been busy with seasonal work the last few months; otherwise, we would have been hurting just living off commercial finishing work. We have a large seasonal job starting in two weeks that will keep a lot of people busy through Labor Day. General activity is definitely slower than it has been. Textile product mills We feel better now than we did a month ago about sales and the general environment. We have seen an increase in sales, particularly in our direct-to-consumer segment, although retail stores are down (retail stores are not a key strategic growth area for us; we’ve seen the writing on the wall for a while with this group). I also think uncertainty has reduced. I feel that we have a better grasp on the “new normal” cost structure and don’t anticipate any new major shocks to the system. Transportation equipment manufacturing There is nothing encouraging on the horizon. The war on fossil fuels and higher interest rates continue to make things worse. Doesn’t the Federal Reserve understand a higher interest rate is crushing banks? Is this what Powell wants to hear? Tyler Durden Tue, 05/30/2023 - 10:40.....»»