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Futures Sink To Session Lows As Sentiment Sours

Futures Sink To Session Lows As Sentiment Sours

US equity futures dropped to session lows, and surrendered earlier gains of as much as 0.2%,…



Futures Sink To Session Lows As Sentiment Sours

US equity futures dropped to session lows, and surrendered earlier gains of as much as 0.2%, setting up Wall Street stocks to extend Wednesday’s weakness, with traders assessing comments from Fed officials about the path of rate hikes amid earnings reports (such as those from Target) confirming that the US consumer is hunkering down for a recession.  S&P 500 futures were 0.8% lower and those on the Nasdaq 100 dropped 0.6% at 7:30 a.m. in New York, with treasury yields bouncing after yesterday’s decline.  10-year Treasury yields rose, following indications from Fed officials on Wednesday that policy would tighten further. The dollar rallied half a percent against a basket of currencies.

Traders got mixed signals from policy makers, with Fed hawk Christopher Waller saying recent data have made him more comfortable with a moderate interest-rate increase of 50 basis points next month, but left the door open to a sequence of such increases if needed to curb inflation. Meanwhile, San Francisco Fed President Mary Daly said a pause in rate hikes was “off the table,” and New York Fed President John Williams said the central bank should avoid incorporating financial stability risks into its considerations.

“All this Fed talk in recent weeks starting with Powell’s press conference after the last meeting, they are indicating they are going to slow the pace of hikes,” Patrick Armstrong, CEO at Plurimi Wealth told Bloomberg TV, adding that he expected a 50 basis-point increase at the next meeting.

In premarket trading, Cisco Systems rose after the communications equipment company reported first-quarter results that beat expectations and raised its full-year forecast. Nvidia was also on the rise after topping estimates, lifting semiconductor peers AMD and Marvell. NetEase shares fell as the video game maker plans to end a 14-year partnership with Blizzard Entertainment. Bath & Body Works shares jumped the company boosted its full-year profit forecast. Here are the other notable premarket movers:

  • Ardelyx soars ~77% in premarket trading after its kidney disease therapy won the backing of a majority of a panel of FDA advisers. The response from analysts was mostly positive, with Piper Sandler upgrading the stock to overweight, saying it will be hard for the Food and Drug Administration to justify a rejection of the drug based on the advisory committee’s positive feedback.
  • Bath & Body Works shares jump ~21% in premarket trading after boosting its full-year profit forecast due to a focus on innovation and cost control. Analysts found the results to be impressive overall, noting the print was “strong” with the company reporting beats across the top line.
  • Elevate shares rise ~67% in premarket trading to ~$1.77 after it entered into a definitive agreement to be acquired by an affiliate of Park Cities Asset Management LLC for $1.87/share in cash, implying value of $67m.
  • NetEase shares fall in US premarket trading as the video game maker plans to end a 14-year partnership with Blizzard Entertainment after January, suspending services to licensed games that represented low-single-digit percentage of its revenue and net income in 2021.
  • Norwegian Cruise Line is double- downgraded to underperform from outperform at Credit Suisse, with the broker seeing downside risk to estimates and preferring the firm’s peers. Norwegian Cruise shares fall ~4% in US premarket trading.
  • Principal Financial drops ~2.4% in premarket trading after both Evercore and Morgan Stanley downgrade the stock, citing its high valuation.
  • Robinhood Markets shares gain ~1.4% in US premarket trading after the broker gave an operating update for October, with analysts positive on the company’s better performance during the month and early indications of stronger trading volumes for November.
  • Sonos jumped in postmarket trading after the speaker company reported fourth-quarter revenue that beat expectations and gave a full-year revenue forecast that is ahead of the analyst consensus.

US equities have marked a pause this week after the S&P 500 rallied 10.5% over the past month, while the Nasdaq 100 rose about 9.4% during the same period, with slowing inflation weighed against stronger-than-expected US economic data. “The market is likely to experience quite a few false bottoms” as seen in the IT sector at the moment, Jefferies strategists led by Sean Darby wrote in a note.

“We are cognizant that each time global markets attempt to rally on the back of speculation that the end of the Fed’s tightening intentions may be in sight, FOMC officials come out with a new paragraph of hawkish narrative, to tamp down any prospect of irrational exuberance,” Simon Ballard, chief economist at First Abu Dhabi Bank, wrote in a note to investors.

In Europe, the Stoxx 600 also erased gains to trade lower 0.4%. Basic resources and utilities underperformed, while food and consumer product stocks rose. The Dax outperformed while the FTSE 100 underperformed regional peers, while gilts 2-year yields rise above 3% and 10-year yields trade around 3.15%, both within Wednesday’s range. Investors braced for the release of the UK budget later in the day, while European Central Bank policy makers were said to consider a slowdown in interest-rate hikes, with only a 50 basis-point increase next month. Here are the biggest European movers"

  • Siemens jumps as much as 8.9% on the European engineering giant’s robust order books and outlook, which Jefferies says were well ahead of expectations and mainly driven by its division that makes factory automation software.
  • Chipmakers may be in focus after Nvidia posted quarterly sales that topped analysts’ estimates and Micron Technology said it was reducing production of chips due to weakening market conditions. ASML shares rose as much as 1.2%.
  • Subsea 7 gains as much as 7.7%, the most since March 7, after the Norwegian offshore energy firm published better-than-expected 3Q results, driven by higher margins and solid performance, Citi says.
  • Ocado drops as much as 9.4% after Kintbury Capital chief investment officer Chris Dale said even its bull case is for 50% downside in the stock, on expectations the UK company will struggle to finance itself.
  • Alstom declines as much as 6.1% -- paring some of its post-earnings gains -- after Morgan Stanley slashed its price target on worries about the French rail equipment maker’s balance sheet and record-low cash-flow guidance.
  • NN Group drops as much as 8.6%, the most since mid-August, after the insurer set new 2025 targets which Citi says may disappoint because of their “conservatism.”
  • Bouygues falls as much as 5.2% in Paris trading as a warning on margins at the Colas constructions unit overshadowed nine-month results from the French conglomerate that beat consensus estimates for operating income.
  • Embracer slides as much as 21%, the biggest intraday decline on record, after the Swedish video-game maker reduced its fiscal 2023 adjusted Ebit target, citing a delay in its Dead Island 2 game, a more challenging macro environment and a mixed reception to some of its key releases.

Earlier in the session, Asian stocks declined amid fears that Federal Reserve’s tightening still has further go to curb inflation after strong US retail sales print.  The MSCI Asia Pacific Index declined as much as 1.3%, its biggest drop in a week before paring losses. Tech drove losses with Meituan, Samsung and Netease leading the gauge lower.   Benchmarks in Hong Kong were notable losers in the region, with the Hang Seng Tech Index sliding as much as 5.6% before reducing the loss. They were down for a second day following rapid gains that put the gauges there into bull market territory. Equities in mainland China and South Korea also dropped while those in Japan, Australia and Singapore were slightly higher.  Tencent Holdings Ltd.’s plan to pay out $20b of stock in Meituan sparked a broad selloff of Chinese internet stocks on Thursday as investors fear more divestments by the online gaming company are on the cards.

The People’s Bank of China warned inflation may accelerate as overall demand in the economy picks up, suggesting it may refrain from adding more long-term stimulus. It did still doubled short-term cash injection Thursday to ease a selloff in sovereign debt. In the US, San Francisco Fed President Mary Daly said the central bank should keep hiking, while New York Fed President John Williams said it should focus on the economy rather than financial risks as it raises rates.  “The hotter-than-expected US retail sales data and hawkish leaning comments from Fed officials weighed on equities,” Saxo Capital Markets strategists including Redmond Wong wrote in a note. US retail sales posted the biggest increase in eight months in October

Japanese stocks traded range-bound as investors worried about further US interest rate hikes after San Francisco Federal Reserve President Mary Daly said that “pausing is off the table.” The Topix Index rose 0.2% to 1,966.28 as of market close Tokyo time, while the Nikkei declined 0.4% to 27,930.57. Sumitomo Mitsui Financial Group Inc. contributed the most to the Topix Index gain, increasing 2.1%. Out of 2,165 stocks in the index, 1,512 rose and 551 fell, while 102 were unchanged. “The US retail sales numbers came out higher than expected, also signaling that inflationary factors remain strong,” said Takeru Ogihara, chief strategist at Asset Management One.

Australian stocks snapped a 3-day losing streak as the S&P/ASX 200 index rose 0.2% to close at 7,135.70, boosted by strength in healthcare shares and banks.  Australia’s jobless rate unexpectedly fell in October as a surge in full-time employment underpinned strong hiring, reinforcing the Reserve Bank’s arguments for further interest-rate increases. In New Zealand, the S&P/NZX 50 index rose 0.6% to 11,294.52.

Stocks in India declined, in line with global peers, as investors sought clarity over the Federal Reserve’s future policy moves and their impact on growth.  Expiry of weekly derivative contracts also weighed on local shares as investors continued taking profits from recent gainers such as banks after conclusion of quarterly results season.  The S&P BSE Sensex fell to close at 0.4%, its biggest drop since Nov. 10, to 61,750.60 in Mumbai, while the NSE Nifty 50 Index declined by an equal measure. For the week, the Sensex and Nifty are little changed. “With the result season now over, we expect the market to track global developments in the near term,” Motilal Oswal Financial Services analyst Siddhartha Khemka said. Mortgage lender HDFC and its banking unit provided the biggest drag to the Sensex. Out of 30 shares in the Sensex index, only eight rose and the rest fell. All but three of BSE Ltd.’s 19 sector sub-gauges closed lower, led by consumer durables stocks.

In rates, 10-year yields TSY yield add 3bps to 3.7%, while bunds 10-year yields drop 2bps to below 2%. Treasuries were cheaper by as much as 2.4bp across 10-year sector, with 3.714% yield vs session high 3.74%, following a more aggressive bear-flattening move in gilts after the UK government released its latest fiscal statement. Bunds outperform by 5bp in the sector while gilts lag by 2bp. UK curve sharply bear- flattens on the day with 2-year yield cheaper by 10bp, back above 3% level.

In commodities, crude benchmarks are under modest pressure given the USD recovery throughout the morning, generally softer APAC tone and a continuing deterioration to the China COVID case count weighing.
Ags. in focus and pressured following a as-expected extension to the Black Sea grain deal.
Currently, the yellow metal is holding around the lower-end of USD 1761-1774/oz parameters, and is thus a similar distance from the WTD peak of USD 1786/oz and the 10-DMA at USD 1738/oz.

WTI falls below $85. Spot gold falls roughly $8 to trade near $1,766/oz

To the day ahead now, and a key highlight will be the UK government’s autumn statement. Otherwise, data releases include US housing starts and building permits for October, the Philadelphia Fed’s business outlook index and the Kansas City Fed manufacturing index for November, and the weekly initial jobless claims. Finally, central bank speakers include the Fed’s Bullard, Bowman, Mester, Jefferson and Kashkari, the ECB’s Villeroy, and the BoE’s Pill and Tenreyro.

Market Snapshot

  • S&P 500 futures down 0.2% to 3,960.25
  • STOXX Europe 600 down 0.2% to 429.39
  • MXAP down 0.7% to 152.94
  • MXAPJ down 1.0% to 494.58
  • Nikkei down 0.3% to 27,930.57
  • Topix up 0.2% to 1,966.28
  • Hang Seng Index down 1.2% to 18,045.66
  • Shanghai Composite down 0.1% to 3,115.44
  • Sensex down 0.1% to 61,897.84
  • Australia S&P/ASX 200 up 0.2% to 7,135.65
  • Kospi down 1.4% to 2,442.90
  • German 10Y yield down 0.5% to 1.99%
  • Euro down 0.2% to $1.0378
  • Brent Futures down 0.5% to $92.39/bbl
  • Gold spot down 0.5% to $1,765.56
  • U.S. Dollar Index up 0.27% to 106.57

Top Overnight News from Bloomberg

  • Bank customers are the most enthusiastic about using the British pound for global payments since mid-2016, around the same time the UK voted to quit the European Union
  • President Joe Biden rejected Ukrainian President Volodymyr Zelenskiy‘s assertion that Russia fired a missile that landed in Poland — continuing efforts by the US and allies to de-escalate the deadly episode
  • Chinese regulators asked banks to report on their ability to meet short-term obligations after a rapid selloff in bonds triggered a flood of investor withdrawals from fixed-income products, according to people familiar with the matter
  • China will well implement agreements made by Chinese President Xi Jinping and US President Joe Biden at G-20 summit over economic policy and trade negotiations, Ministry of Commerce says
  • Turns out Chinese President Xi Jinping’s partnership with Vladimir Putin has limits after all: He doesn’t want to follow the Russian leader into diplomatic isolation
  • Brazil President-elect Luiz Inacio Lula da Silva will ask congress to circumvent a key fiscal safeguard by excluding the country’s most important social program from a public spending cap to pay for his campaign pledges

A more detailed look at global market courtesy of Newsquawk

APAC stocks traded mostly lower throughout the session following the downbeat lead from Wall Street. ASX 200 was the relative outperformer with gains lead but the Consumer Staples and IT sector, with no reaction seen in wake of the Aussie jobs data. Nikkei 225 traded on either side of the 28k mark before stabilising under the round figure, with losses modest during the session. KOSPI gave up earlier gains and drifted lower throughout the session with losses led by the chip and IT sectors, whilst sentiment in the region was soured by North Korea firing a short-range ballistic missile. Hang Seng and Shanghai Comp opened with and then extended on losses with the former seeing downside in Meituan, which fell around 6% after Tencent announced a special dividend in the form of Meituan shares, whilst People's Daily also suggested China is able to achieve COVID Zero as mainland cases roses at the fastest pace since April.

Top Asian News

  • China reported 2,388 (prev. 1,623) new confirmed coronavirus cases in the mainland on Nov 16th, via Reuters
  • China is able to achieve COVID Zero, according to People's Daily.
  • China has asked banks to report on liquidity following the sudden bond rout, according to Bloomberg.
  • PBoC injected CNY 132bln via 7-day reverse repos with the rate at 2.00% for a CNY 123bln net injection.
  • Tokyo to raise COVID alert level by one notch amid the recent rise in COVID cases, according to NTV.
  • BoJ Governor Kuroda said it is important to continue monetary easing to support the economy. Kuroda said recent price hikes are due to cost-push factors, according to Reuters. Kuroda said BoJ will closely coordinate with the government to conduct appropriate policy.
  • Senior BoJ official Uchida said it is too early to discuss the exit from monetary stimulus, via Reuters.
  • Saudi Arabia signed USD 30bln worth of investment agreements with South Korean firms, covering clean energy and medical tech, according to the Saudi Investment Minister
  • China's Commerce Ministry, on China-US economic & trade dialogue, says will implement the key consensus reached by leaders, domestic exports/imports will see greater pressure.

Stocks in Europe, Eurostoxx 50 -0.2%, are on a mixed footing after scaling back opening gains with no clear fundamental catalyst driving price action thus far ahead of numerous events. Stateside, futures have similarly pared back initial upside and are near the unchanged mark/marginally lower with the ES back below the 4k figure ahead of data, Fed speak and a few corporate updates.

Top European News

  • COP27 Set for Showdown After Draft Leaves Out Fossil Fuel Pledge
  • China’s Forgotten Covid Zero Lockdown Has Just Hit 100 Days
  • Where European Energy Infrastructure Is Vulnerable to Attack
  • Rusal Asks LME to Disclose Origin of All Metal, Not Russian Only
  • European Stocks Steady as Investors Assess Policy, Growth Risks


  • DXY has seen a intra-day recovery from a 106.08 low to a 106.68 peak, with G10 peers now all pressured vs initial modest upside against the Greenback.
  • Fundamental driver(s) behind the move have been limited, with the sessions main events yet to come in the form of the UK budget and Central Bank speak thereafter.
  • Cable has, given the USD's recovery, experienced a marked pullback from 1.1950+ best to back below the figure and almost a full point lower.
  • Similarly, EUR has moved into the red though this is comparably more contained given its initial upside was capped by EUR/GBP action, action which is now marginally EUR-favourable.
  • USD/CNY has reverted back to initial 7.14+ best levels after pulling back towards the figure, with the region focused on fresh COVID commentary.
  • PBoC sets USD/CNY mid-point at 7.0655 vs exp. 7.0479 (prev. 7.0363)

Fixed Income

  • Gilts unchanged ahead of significant fiscal changes from the UK, USTs await Fed speak post-Waller.
  • Currently, the UK benchmark resides at the lower-end of 106.32-107.17 parameters with the associated 10yr yield at 3.15%; a figure that is only 15bp above the current BoE base rate and significantly shy of the 4.632% peak seen in wake of the former PM/Chancellor’s ‘mini-Budget’.
  • EGBs and USTs are holding in similarly contained ranges around the unchanged mark; currently, +14 and -9 ticks respectively, with focus on the hefty Central Bank docket.
  • Italy maintains the new BTP Italia bond real annual coupon at 1.6%.


  • Crude benchmarks are under modest pressure given the USD recovery throughout the morning, generally softer APAC tone and a continuing deterioration to the China COVID case count weighing.
  • Ags. in focus and pressured following a as-expected extension to the Black Sea grain deal.
  • Currently, the yellow metal is holding around the lower-end of USD 1761-1774/oz parameters, and is thus a similar distance from the WTD peak of USD 1786/oz and the 10-DMA at USD 1738/oz.
  • TC Energy's Keystone oil pipeline issues were resolved after force majeure, but TC Energy will reduce injections for the rest of November, according to Reuters sources.
  • Ukrainian Infrastructure Minister says the Black Sea grain initiative will be extended for 120-days, via Reuters; Russia will not cut off the Black Sea grain deal, via Tass citing the Deputy Foreign Minister.


  • Chinese President Xi may visit Russia in 2023; government heads could have call in December, according to Tass.
  • North Korea fired an unspecified ballistic missile toward East Sea, according to the South Korean military cited by Yonhap.
  • North Korea said the recent South Korea, US, and Japan summit would lead the Korean peninsula to an even more unpredictable situation, according to KCNA.
  • South Korean and US militaries conducted missile defence drills following the North Korean missile launch, according to the South Korean military.
  • UK blocked Chinese takeover of Newport chip plant, ordering Chinese-owned Nexperia to sell at least 86% of the factory in order to mitigate risk to national security, according to FT.
  • China's President Xi said China is willing to increase imports from Italy, according to CCTV.
  • Turkish President Erdogan expects issues around the US F-16 jet purchases to resolve soon, via Reuters.

US Event Calendar

  • 08:30: Nov. Initial Jobless Claims, est. 228,000, prior 225,000
    • Nov. Continuing Claims, est. 1.51m, prior 1.49m
  • 08:30: Oct. Housing Starts, est. 1.41m, prior 1.44m
    • Oct. Housing Starts MoM, est. -2.0%, prior -8.1%
    • Oct. Building Permits, est. 1.51m, prior 1.56m
    • Oct. Building Permits MoM, est. -3.2%, prior 1.4%
  • 08:30: Nov. Philadelphia Fed Business Outl, est. -6.0, prior -8.7
  • 11:00: Nov. Kansas City Fed Manf. Activity, est. -8, prior -7

Central bank speakers

  • 08:00: Fed’s Bullard Discussed the Economy and Monetary Policy
  • 09:15: Fed’s Bowman Discusses Financial Literacy and Inclusion
  • 09:40: Fed’s Mester Speaks at Financial Stability Conference
  • 10:40: Fed’s Jefferson and Kashkari Take Part in Panel Discussion
  • 13:45: Fed’s Kashkari Takes Part in Moderated Q&A
  • 20:05: Powell, Williams and Daly Honor Chicago Fed’s Evans

DB's Jim Reid concludes the overnight wrap

After a strong rebound over recent days, the momentum behind risk assets started to peter out yesterday thanks to some hawkish comments from Fed officials, weak corporate earnings, as well as strong retail sales numbers that dampened hopes about a dovish pivot from the Fed. To be fair it wasn’t all bad news, and fears of a military escalation subsided after NATO leaders said the missile that hit Polish territory on Tuesday evening wasn’t the result of an intentional Russian attack. However, apart from specific assets like the Polish Zloty, that wasn’t enough to boost sentiment more broadly, and the S&P 500 (-0.83%) ended the day noticeably lower.

Running through those specific factors, a key one behind yesterday’s market moves were some fairly hawkish comments from Fed officials. For instance, Kansas City Fed President George cautioned about prematurely ending rate hikes in a WSJ interview, saying that “the more important question for this committee, looking out over next year, is being careful not to stop too soon”. Later on we then heard from San Francisco Fed President Daly , who said that she thought that “somewhere between 4.75 and 5.25 seems a reasonable place to think about” in terms of how high rates could go. Bear in mind that the peak rate priced in by futures is still at 4.92%, so the bulk of Daly’s range is above where pricing currently is. And finally we heard from Governor Waller, who said he was “more comfortable considering stepping down to a 50 basis-point hike” based on the data of recent weeks, but also said that “we still have a ways to go” and that “policy is barely in restrictive territory today”.

Those comments came against the backdrop of some decent retail sales numbers for October, with headline growth up by +1.3% (vs. +1.0% expected). That was the fastest pace of monthly growth since February, and the details looked pretty strong as well, with the measure excluding autos and gasoline up by +0.9% (vs. +0.2% expected). On one level that’s good news of course, but the report was seen as showcasing the strength of the US consumer amidst the ongoing rate hikes from the Fed, which should give them more space to keep hiking over the next few meetings.

With investors pricing in a slightly more hawkish Fed on the day, the 2yr Treasury yield ticked up +1.7bps to 4.35%. However, the broader risk-off tone meant there was a large decline in longer-dated yields on both sides of the Atlantic. In the US, the 10yr yield came down -8.0bps to 3.69%, and yields on 10yr bunds (-10.9bps), OATs (-12.0bps) and gilts (-14.9bps) all saw sharp declines as well. In turn, those moves pushed several yield curves even deeper into inversion territory, with the 2s10s yield curve closing beneath -60bps for the first time since 1982, which is concerning when you consider its historic accuracy as a leading indicator of recessions. Other yield curves also inverted by even more, with the 3m10yr curve down -6.6bps to -54.2bps. And even the Fed’s preferred yield curve (18m forward 3m yield minus the spot 3m yield) has now spent a full week in inversion territory, closing yesterday at -15.3bps, which is the lowest since March 2020. Overnight in Asia, yields on 10yr USTs (+2.8bps) have slightly retraced their moves yesterday, trading at 3.72% as we go to print.

Growing speculation about a recession proved bad news for equities, and the mood was further hit by a weak earnings release from Target (-13.14%), who cut their outlook and saw earnings miss expectations. By the close, that had seen the S&P 500 shed -0.83%, with the losses driven by the more cyclical sectors. Tech was impacted in particular, with the NASDAQ down -1.54% and the FANG+ index down -2.10%. For Europe it was much the same story, with the STOXX 600 (-0.98%) and the DAX (-1.00%) both losing ground on the day, and after the close we then heard a Bloomberg report that suggested ECB policymakers would slow down their rate hikes to a 50bp move next month.

In more positive news, there were strong signs that a military escalation had been avoided after a missile struck Polish territory on Tuesday evening, after both NATO and Poland’s leaders said that it did not look to have resulted from an intentional Russian attack. Polish President Duda said that “most likely, this was an unfortunate accident”, and NATO Secretary General Stoltenberg said that their view was it resulted from a Ukrainian air defence missile that was fired in defence against Russian attacks. The news helped Poland’s Zloty to regain its position prior to the attack, strengthening +1.14% against the US Dollar yesterday.

Looking forward now, attention will be on the UK today as the government delivers their Autumn Statement. That’s set to outline their fiscal consolidation plans for the years ahead, which is part of their plan to regain market confidence following the turmoil in late September and early October. Our UK economist published an update earlier this week on what to look out for (link here) but a key one will be the overall scale of the package, as well as how that’s distributed between spending cuts and tax rises. Keep an eye out as well on what’s announced on energy prices, since the current Energy Price Guarantee is only confirmed until the end of March. Ahead of the statement, data yesterday showed consumer price inflation surprised on the upside in October, coming in at +11.1%. That’s the highest reading since 1981, and is above the consensus estimate of +10.7%, as well as the Bank of England’s projection at +10.9%. Interestingly, the ONS said that without the government’s Energy Price Guarantee, CPI would have been around +13.8%, rather than +11.1%.

Overnight in Asia, the major equity markets are trading lower this morning, including the Hang Seng (-1.49%), the Shanghai Composite (-0.63%), the CSI (-1.01%), the Nikkei (-0.35%) and the KOSPI (-1.10%). Tech stocks are under pressure again as well, with the Hang Seng Tech index (-3.48%) on track for its biggest decline in a couple of weeks. That follows an announcement from Tencent that they’d be distributing $20bn of shares in Meituan. In the meantime, Bloomberg reported that regulators in China had asked banks about their ability to meet short-term obligations, following a bond selloff that triggered investor withdrawals.

Elsewhere overnight, US equity futures are pointing towards gains at today’s open with contracts on the S&P 500 (+0.21%) and NASDAQ 100 (+0.29%) both higher. And we also had an employment report from Australia showing that the unemployment rate fell to a 48-year low of 3.4% in October (vs. 3.5% expected).

Back in the US, we finally got confirmation overnight that the Republicans had gained control of the House of Representatives following last week’s midterm elections. The Associated Press’ count now puts the Republicans at the 218 mark needed for the majority, whilst the Democrats have 211 seats with only 6 districts now outstanding. So that means from January the Democrats will require at least some Republican support to pass legislation.

When it came to yesterday’s other data from the US, it wasn’t as strong as the retail sales numbers, with industrial production contracting by -0.1% in October (vs. +0.1% expected). We also got the latest NAHB housing market index for November, which fell to 33 (vs. 36 expected). If you exclude the pandemic month of April 2020, that’s the lowest reading for that index in over a decade.

To the day ahead now, and a key highlight will be the UK government’s autumn statement. Otherwise, data releases include US housing starts and building permits for October, the Philadelphia Fed’s business outlook index and the Kansas City Fed manufacturing index for November, and the weekly initial jobless claims. Finally, central bank speakers include the Fed’s Bullard, Bowman, Mester, Jefferson and Kashkari, the ECB’s Villeroy, and the BoE’s Pill and Tenreyro.

Tyler Durden Thu, 11/17/2022 - 08:02

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EY Eyes Comeback for Biopharma M&A

EY noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021. The $88 billion accounted for most of the…



A recent trickle of mergers and acquisitions (M&A) announcements in the billion-dollar-and-up range suggests that biopharma may be ready to resume dealmaking this year—although the value and number of deals isn’t expected to return to the highs seen just before the pandemic.

2022 ended with a handful of 10- and 11-figure M&A deals, led by Amgen’s $27.8 billion buyout of Horizon Therapeutics, announced December 13. The dealmaking continued into January with three buyouts announced on the first day of the recent J.P. Morgan Healthcare Conference: AstraZeneca agreed to acquire CinCor Pharma for up to $1.8 billion, while Chiesi Farmaceutici agreed to shell out up to $1.48 billion cash for Amryt, and Ipsen Group said it will purchase Albireo Pharma for $952 million-plus.

Biopharmas generated about $88 billion in M&A deals in 2022, down 15% from $104 billion in 2021. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. The number of biopharma deals fell 17%, to 75 deals from 90. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine. [EY]
EY—the professional services firm originally known as Ernst & Young—recently noted that the total value of biopharma M&A in 2022 was $88 billion, down 15% from $104 billion in 2021 [See Chart]. The $88 billion accounted for most of the $135 billion in 124 deals in the life sciences. That $135 billion figure is less than half the record-high $313 billion recorded in 2019, including $261 billion in 70 biopharma deals.

The number of biopharma deals fell 17% to 75 deals from 90. EY’s numbers include only deals greater than $100 million. The other 49 deals totaling $47 million consisted of transactions in “medtech,” which includes diagnostics developers and companies specializing in “virtual health” such as telemedicine.

We expect this to be a more active year as the sentiment starts to normalize a little bit,” Subin Baral, EY Global Life Sciences Deals Leader, told GEN Edge.

Baral is not alone in foreseeing a comeback for biopharma M&A.

John Newman, PhD, an analyst with Canaccord Genuity, predicted last week in a research note that biopharma companies will pursue a growing number of smaller cash deals in the range of $1 billion to $10 billion this year. He said rising interest rates are discouraging companies from taking on larger blockbuster deals that require buyers to take on larger sums of debt.

“We look for narrowing credit spreads and lower interest rates to encourage larger M&A ($50 billion and more) deals. We do not anticipate many $50B+ deals that could move the XBI +5%,” Newman said. (XBI is the SPDR S&P Biotech Electronic Transfer Fund, one of several large ETFs whose fluctuations reflect investor enthusiasm for biopharma stock.)

Newman added: “We continue to expect a biotech swell in 2023 that may become an M&A wave if credit conditions improve.”

Foreseeing larger deals than Newman and Canaccord Genuity is PwC, which in a commentary this month predicted: “Biotech deals in the $5–15 billion range will be prevalent and will require a different set of strategies and market-leading capabilities across the M&A cycle.”

Those capabilities include leadership within a specific therapeutic category, for which companies will have to buy and sell assets: “Prepared management teams that divest businesses that are subscale while doubling down on areas where leadership position and the right to win is tangible, may be positioned to deliver superior returns,” Glenn Hunzinger, PwC’s U.S. Pharma & Life Science Leader, and colleagues asserted.

The Right deals

Rising interest and narrowing credit partially explain the drop-off in deals during 2022, EY’s Baral said. Another reason was sellers adjusting to the drop in deal valuations that resulted from the decline of the markets which started late in 2021.

Subin Baral, EY Global Life Sciences Deals Leader

“It took a little bit longer to realize the reality of the market conditions on the seller side. But on the buyer side, the deals that they were looking at were not just simply a valuation issue. They were looking at the quality of the assets. And you can see that the quality deals—the right deals, as we call them—are still getting done,” Baral said.

The right deals, according to Baral, are those in which buyers have found takeover targets with a strong, credible management team, solid clinical data, and a clear therapeutic focus.

“Rare disease and oncology assets are still dominating the deal making, particularly oncology because your addressable market continues to grow,” Baral said. “Unfortunately, what that means is the patient population is growing too, so there’s this increased unmet need for that portfolio of assets.”

Several of 2022’s largest M&A deals fit into that “right” category, Baral said—including Amgen-Horizon, Pfizer’s $11.6-billion purchase of Biohaven Pharmaceuticals and the $6.7-billion purchase of Arena Pharmaceuticals (completed in March 2022); and Bristol-Myers Squibb’s $4.1-billion buyout of Turning Point Therapeutics.

“Quality companies are still getting funded one way or the other. So, while the valuation dropped, people were all expecting a flurry of deals because they are still companies with a shorter runway of cash that will be running to do deals. But that really didn’t happen from a buyer perspective,” Baral said. “The market moved a little bit from what was a seller’s market for a long time, to what we would like to think of as the pendulum swinging towards a buyers’ market.”

Most biopharma M&A deals, he said, will be “bolt-on” acquisitions in which a buyer aims to fill a gap in its clinical pipeline or portfolio of marketed drugs through purchases that account for less than 25% of a buyer’s market capitalization.

Baral noted that a growing number of biopharma buyers are acquiring companies with which they have partnered for several years on drug discovery and/or development collaborations. Pfizer acquired BioHaven six months after agreeing to pay the company up to $1.24 billion to commercialize rimegepant outside the U.S., where the migraine drug is marketed as Nurtec® ODT.

“There were already some kind of relationships there before these deals actually happened. But that also gives an indication that there are some insights to these targets ahead of time for these companies to feel increasingly comfortable, and pay the valuation that they’re paying for them,” Baral said.

$1.4 Trillion available

Baral sees several reasons for increased M&A activity in 2023. First, the 25 biopharma giants analyzed by EY had $1.427 trillion available as of November 30, 2022, for M&A in “firepower”—which EY defines as a company’s capacity to carry out M&A deals based on the strength of its balance sheet, specifically the amount of capital available for M&A deals from sources that include cash and equivalents, existing debt, and market cap.

That firepower is up 11% from 2021, and surpasses the previous record of $1.22 trillion in 2014, the first year that EY measured the available M&A capital of large biopharmas.

Unlike recent years, Baral said, biopharma giants are more likely to deploy that capital on M&A this year to close the “growth gap” expected to occur over the next five years as numerous blockbuster drugs lose patent exclusivity and face new competition from lower-cost generic drugs and biosimilars.

“There is not enough R&D in their pipeline to replenish a lot of their revenue. And this growth gap is coming between 2024 and 2026. So, they don’t have a long runway to watch and stay on the sidelines,” Baral said.

This explains buyers’ interest in replenishing pipelines with new and innovative treatments from smaller biopharmas, he continued. Many smaller biopharmas are open to being acquired because declining valuations and limited cash runways have increased investor pressure on them to exit via M&A. The decline of the capital markets has touched off dramatic slowdowns in two avenues through which biopharmas have gone public in recent years—initial public offerings (IPOs) and special purpose acquisition companies (SPACs).

EY recorded just 17 IPOs being priced in the U.S. and Europe, down 89% from 158 a year earlier. The largest IPO of 2022 was Prime Medicine’s initial offering, which raised $180.3 million in net proceeds for the developer of a “search and replace” gene editing platform.

Another 12 biopharmas agreed to SPAC mergers with blank-check companies, according to EY, with the largest announced transaction (yet to close at deadline) being the planned $899 million merger of cancer drug developer Apollomics with Maxpro Capital Acquisition.

“For the smaller players, the target biotech companies, their alternate source of access to capital pathways such as IPOs and SPACs is shutting down on them. So how would the biotech companies continue to fund themselves? Those with quality assets are still getting funded through venture capital or other forms of capital,” Baral said. “But in general, there is not a lot of appetite for the biotech that is taking that risk.

Figures from EY show a 37% year-to-year decline in the total value of U.S. and European VC deals, to $16.88 billion in 2022 from $26.62 billion in 2021. Late-stage financing rounds accounted for just 31% of last year’s VC deals, down from 34% in 2021 and 58% in 2012. The number of VC deals in the U.S. and Europe fell 18%, to 761 last year from 930 in 2021.

The decline in VC financing helps explain why many smaller biopharmas are operating with cash “runways” of less than 12 months. “Depending on the robustness of their data, their therapeutic area, and their management, there will be a natural attrition. Some of these companies will just have to wind down,” Baral added.

M&A headwinds

Baral also acknowledged some headwinds that are likely to dampen the pace of M&A activity. In addition to rising interest rates and inflation increasing the cost of capital, valuations remain high for the most sought-after drugs, platforms, and other assets—a result of growing and continuing innovation.

Another headwind is growing regulatory scrutiny of the largest deals. Illumina’s $8 billion purchase of cancer blood test developer Grail has faced more than two years of challenges from the U.S. Federal Trade Commission and especially the European Commission—while Congress acted last year to begin curbing the price of prescription drugs and insulin through the “Inflation Reduction Act.”

Those headwinds may prompt many companies to place greater strategic priority on collaborations and partnerships instead of M&A, Baral predicted, since they offer buyers early access to newer technologies before deciding whether to invest more capital through a merger or acquisition.

“Early-stage collaboration, early minority-stake investment becomes increasingly important, and it has been a cornerstone for early access to these technologies for the industry for a long, long time, and that is not changing any time soon,” Baral said. “On the other hand, even on the therapeutic area side, early-stage development is still expensive to do in-house for the large biopharma companies because of their cost structure.

“So, it is efficient cost-wise and speed-wise to buy these assets when they reach a certain point, which is probably at Phase II onward, and then you can pull the trigger on acquisitions if needed,” he added.

The post EY Eyes Comeback for Biopharma M&A appeared first on GEN - Genetic Engineering and Biotechnology News.

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IMF Upgrades Global Growth Forecast As Inflation Cools

IMF Upgrades Global Growth Forecast As Inflation Cools

The International Monetary Fund published its latest World Economic Outlook on Monday,…



IMF Upgrades Global Growth Forecast As Inflation Cools

The International Monetary Fund published its latest World Economic Outlook on Monday, painting a slightly less gloomy picture than three and a half months ago, as inflation appears to have peaked in 2022, consumer spending remains robust and the energy crisis following Russia’s invasion of Ukraine has been less severe than initially feared.

But, as Statista's Felix Richter notes, that’s not to say the outlook is rosy, as the global economy still faces major headwinds.

However, the IMF predicts the slowdown to be less pronounced than previously anticipated.

Global growth is now expected to fall from 3.4 percent in 2022 to 2.9 percent this year, before rebounding to 3.1 percent in 2024.

The 2023 growth projection is up from an October estimate of 2.7 percent, as the IMF sees far fewer countries facing recession this year and does no longer anticipates a global downturn.

Infographic: IMF Upgrades Global Growth Forecast as Inflation Cools | Statista

You will find more infographics at Statista

One of the reasons behind the cautiously optimistic outlook is the latest downward trend in inflation, which suggests that inflation may have peaked in 2022.

The IMF predicts global inflation to cool to 6.6 percent in 2023 and 4.3 percent in 2024, which is still above pre-pandemic levels of about 3.5 percent, but significantly lower than the 8.8 percent observed in 2022.

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Pierre-Olivier Gourinchas, the IMF’s chief economist, wrote in a blog post released along with the report.

“Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.”

The risks to the latest outlook remain tilted to the downside, the IMF notes, as the war in Ukraine could further escalate, inflation continues to require tight monetary policies and China’s recovery from Covid-19 disruptions remains fragile. On the plus side, strong labor markets and solid wage growth could bolster consumer demand, while easing supply chain disruptions could help cool inflation and limit the need for more monetary tightening.

In conclusion, Gourinchas calls for multilateral cooperation to counter “the forces of geoeconomic fragmentation”.

“This time around, the global economic outlook hasn’t worsened,” he writes. “That’s good news, but not enough. The road back to a full recovery, with sustainable growth, stable prices, and progress for all, is only starting.”

However, just because the 'trend' has shifted doesn't mean it's mission accomplished...

That looks an awful lot like Central Bankers' nemesis remains - global stagflation curb stomps the dovish hopes.

Tyler Durden Tue, 01/31/2023 - 14:45

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Nike Escalates Design Battle Against Lululemon

The sportswear giant is accusing lululemon of patent infringement.



The sportswear giant is accusing lululemon of patent infringement.

The Gucci loafers. The Burberry  (BBRYF) trench coat. When it comes to fashion, having a unique design is everything. This is why brands spend millions both creating and protecting their signature looks and the reason, as in the case of Adidas  (ADDDF) , extricating a brand's design from creators who behave badly is a costly and difficult process.

There is also the constant effort to release new styles without infringing on another group's style. This week, sportswear giant Nike  (NKE) - Get Free Report filed a lawsuit accusing lululemon  (LULU) - Get Free Report of infringing on its patents in the shoe line that the Vancouver-based activewear company launched last spring.

After years of selling exclusively clothing, accessories and the odd yoga mat, lululemon expanded into the world of footwear with a running shoe it dubbed Blissfeel last March. These were soon followed by training shoe and pool slide styles known as Chargefeel, Strongfeel -- all three of the designs (including a Chargefeel Low and a Chargefeel Mid design) have been mentioned in the lawsuit as causing "economic harm and irreparable injury" to Nike.

Nike's History Of Suing Lululemon Over Design

The specific issue lies in the technology used to build the shoes. According to the lawsuit filed in Manhattan federal court, certain knitted elements, webbing and tubular structures are too similar to ones that had been used by Nike earlier.

Nike is keeping the amount it hopes to receive from lululemon under wraps but is insisting the company infringed on its patent when releasing a shoe line too similar to its own. Lululemon had previously talked about how its shoe line "far exceeded" its leaders' expectations both in terms of sales and ability to expand.

In a Q1 earnings call, chief executive Calvin McDonald said that the line "definitely had a lot more demand than we anticipated."

Nike has already tried to go after lululemon through the courts once before. In January 2022, it accused the company of infringing on six patents over its at-home Mirror Home Gym. As the world emerged out of the pandemic, lululemon has been billing it as a hybrid model between at-home and in-person classes. 

The lawsuit was also filed in the U.S. District Court in Manhattan but ultimately fizzled out.

When it comes to the shoe line lawsuit, Lululemon has been telling media outlets that "Nike's claims are unjustified" and the company "look[s] forward to proving [their] case in court."


Some More Examples Of Prominent Design Battles

In the fashion industry, design infringement accusations are common and rarely lead to high-profile rulings. While Nike has gone after the technology itself in both cases, lawsuits more often focus on the style or pattern on a given piece.

Shein, a China-based fast-fashion company that took on longtime leaders like H&M  (HNNMY)  and Fast Retailing  (FRCOF) 's Uniqlo with its bottom-of-the-barrel pricing, has faced numerous allegations from smaller and independent designers over the copying of designs -- in some cases not even from fashion designers but artists painting in local communities.

"They didn't remotely bother trying to change anything," U.K.-based artist Vanessa Bowman told the Guardian after seeing her painting of a local church appear on a sweater on Shein's website. "The things I paint are my garden and my little village: it’s my life. And they’ve just taken my world to China and whacked it on an acrylic jumper."

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