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Futures Slide As Tech Giants Shed $300 Billion; Dollar Tumbles For 2nd Day

Futures Slide As Tech Giants Shed $300 Billion; Dollar Tumbles For 2nd Day

US index futures are lower this morning, set to give back some…

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Futures Slide As Tech Giants Shed $300 Billion; Dollar Tumbles For 2nd Day

US index futures are lower this morning, set to give back some of Tuesday’s 1.6% sharp rally as technology giants’ earnings and outlook disappointed investors, stoking concerns about the industry’s profitability and raising new doubts over whether this year’s $5.5 trillion selloff is nearing a bottom.

S&P 500 futures dropped as much as 1.2%, and were down 0.7% at 7:30am while Treasuries extended gains, with the 10-year yield falling to around 4.05%. Nasdaq 100 fell more than 1.5% as megacap stocks tumbled in premarket trading after Alphabet's 3Q miss and disappointing outlook from Microsoft and Texas Instruments weighed on the cohort, which is set to lose approximately $300 billion in market value if losses hold at open.  The combined weight of the three companies amounts to more than 19% of the Nasdaq 100.

“Google and Microsoft reversed the joyful Tuesday sentiment,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. She added that “there is nothing official pointing at a potential softening tone from the Fed just yet. Hence, the recent fall in the US dollar, and rebound in equities may not last.”

S&P 500 futures had rallied 1.6% on Tuesday, closing at the highest in over a month as yields pulled back amid growing speculation the Treasury will anounce buybacks soon. The dollar and the yield on 10-year Treasuries fell for a second day after a report that US home-price growth slowed by the most on record as a doubling of borrowing costs saps demand. The Bloomberg dollar index tumbled for a second day to its lowest level in three weeks...

... following apparent massive intervention by state banks in China seeking to stabilize the plunging yuan which surged by a record 1.8% against the dollar. Alas just like Japan, expect this intervention to fizzle soon as absent a Fed pibot, the yield differentials remain just too strong to swim against the strong USD current.

It wasn't just the yuan that bounced: a near 5% rebound in a gauge of US-listed Chinese stocks on Tuesday helped claw back some of the record loss suffered in the wake of President Xi Jinping breaking with China’s collective leadership. Hong Kong’s tech gauge made strong gains for a second day but was still short of recouping Monday’s near 10% slide.

Meanwhile, the British pound held an advance against the greenback after the government said a much-anticipated fiscal statement will be delayed until November. Sterling rallied earlier after New Prime Minister Rishi Sunak named an experienced Cabinet to lead the UK through what he called a “profound economic crisis.”

In premarket trading, megacap stocks tumbled after disappointing quarterly updates from Alphabet (which missed across the board) and Microsoft (which had a lackluster forecast for sales growth in its Azure cloud-computing services business) wiped out about $295 billion in market value from the biggest US companies. Meanwhile, Twitter is set to open at the closest to Elon Musk’s offer since he launched his takeover bid in April. Among other tech stocks falling in sympathy: Apple -0.8%, Amazon.com -3.8%, Meta Platforms -3.9%, Adobe -1.3%, Oracle +0.8%, ServiceNow -6.7%, Workday -1.2%, Intuit -0.8%, Datadog -6.2%, Snowflake -5.7%. On the other end, bank stocks are mostly higher in premarket trading putting them on track to gain for a fourth straight session. In corporate news, Barclays traders beat estimates in the third quarter, offsetting steep declines for its investment bankers. Meanwhile, Goldman Sachs’s China-focused stock hedge fund clients had their second-worst trading day this year during Monday’s sell-off. Here are the most notable premarket movers:

  • Alphabet shares are down 6% in premarket trading after the tech juggernaut’s search-based ads business, which had largely dodged the digital-ad slowdown that hit rivals earlier this year, no longer seemed immune to macro headwinds. Among other megacaps Amazon -3.6%, Apple -0.6%, Tesla -1.2%, Meta -3%
  • Microsoft falls 6% after the software company reported its weakest quarterly sales growth in five years and gave a lackluster forecast for sales growth in its Azure cloud-computing services business.
  • Enphase Energy’s rises 5.6% as the solar firm’s quarterly results were strong and analysts retain confidence the company can continue to deliver robust growth and margins.
  • Texas Instruments falls 4.2% after the chipmaker’s fourth-quarter outlook signaled that the semiconductor industry’s slump is spreading beyond PCs and smartphones to the once-healthy industrial segment.
  • Chip stocks drop in US premarket trading after a disappointing quarterly forecast from Texas Instruments. Nvidia -2.4%, Qualcomm -0.8%, Advanced Micro Devices -1.9%, Intel -0.6%
  • Twitter is set to open at the closest to Elon Musk’s offer since he launched a bid in April, with shares trading as high as $53.18 against the offer price of $54.20, signaling investors’ confidence to see a deal get over the line on time is growing.
  • Skechers (SKX US) slumps 14% after the footwear brand reported weak 3Q EPS as well as 4Q profit and sales outlook. Morgan Stanley said “unique” pressures from freight and logistics offset the company’s top-line strength.
  • Invesco (IVZ US) falls 1.5% as Credit Suisse downgrades to underperform from neutral following the company’s third- quarter earnings, saying there are “too many adverse moving parts.”
  • Mattel (MAT US) slid 5.5% in US postmarket trading on Tuesday after the toymaker cut its adjusted EPS guidance for the year citing a “challenging macroeconomic environment.”
  • Juniper Networks (JNPR US) analysts were encouraged by the internet infrastructure company’s results and outlook for the fourth quarter. Juniper’s shares rose more than 4% in US afterhours

Stocks had been buoyed in recent days by mostly solid earnings and speculation the Federal Reserve may curb the pace of rate increases amid evidence its aggressive tightening is starting to weigh on the economy.  About a quarter of S&P 500 companies have reported third-quarter results, with more than two-thirds beating (sharply lowered) analysts’ estimates despite the big-tech setback. But concern is mounting that slowing output will dent corporate profits in coming months.

“Yes we’re seeing earnings beats at the moment,” Mike Ingram, a senior market strategist at ActivTrades, said on Bloomberg TV. “But where I do start to have a bit of a problem at this juncture is that some earnings expectations going into next year are looking still a bit punchy.”

Goldman strategists said conditions for a trough in US equities are not visible yet as the asset class doesn’t fully reflect the latest rise in real yields and odds of a recession. None of the US assets tracked by Goldman are fully pricing in a recession, with equities factoring in the lowest odds of a “severe hawkish scenario,” the strategists wrote.

While the recent US data haven’t changed expectations that the Fed will hike interest rates by 75 basis points next month, they’re fueling speculation that an end to aggressive tightening may come next year. Analysts are also projecting challenges for now in Europe, with a jumbo hike of 75 basis points expected from the European Central Bank on Thursday. That’s even as many economists now reckon a recession has begun in the euro region.

“Sentiment’s still incredibly fragile. We do expect to see further market volatility,” Catherine Yeung, investment director at Fidelity International, said on Bloomberg Radio. “All eyes are still on the rate cycle globally speaking as well as where inflation does go. I think going into the end of the year, again, it’s going to be volatile.”

In Europe, the Stoxx Europe 600 index fluctuated and pared losses amid a raft of mostly positive earnings from heavyweights including Barclays Plc, Deutsche Bank and Mercedes-Benz. The technology sector dropped more than 1%, weighing on the benchmark, while brewer Heineken NV plunged after missing analysts’ estimates for volume growth; construction and miners leading while food and beverages, personal care and tech lag. Here are the biggest European movers:

  • UniCredit climbed as much as 4.2% after the Italian lender boosted its guidance for a second quarter, which Intesa analysts said could lead to an increase in consensus estimates.
  • Assa Abloy rises as much as 3.8% after 3Q Ebit and sales came in ahead of consensus owing to strong demand across all of the Swedish lockmaker’s geographies, further fueled by a sharp recovery for Global Technologies.
  • BASF rises as much as 2.2% as 3Q results contain few surprises following its pre-release and the share response is likely to be subdued, analysts say.
  • Skanska rises as much as 6.0% as co. saw a big beat on profitability in the third quarter, with stronger construction helping to offset weaker residential, Morgan Stanley writes.
  • ASM International’s shares slump as much as 10% after the semiconductor-equipment firm warned that the impact of sanctions on China could hurt more than 40% of its sales in that country. Peer ASML also declines.
  • Reckitt shares drop as much as 5.0%, underperforming the FTSE 100 Index, after a decline in 3Q sales volumes in the consumer goods company’s hygiene business -- which had previously benefited from the increased focus on cleanliness during the pandemic -- overshadowed a beat in total like-for-like sales.
  • Heineken falls as much as 11%, the most since March 2020, after reporting 3Q organic beer volume that missed estimates and as the brewer noted greater reasons to be cautious on the macroeconomic outlook
  • Santander shares declined as much as 5.0%, the most in a month as analysts flagged higher-than-expected costs and growing non-performing loans in Brazil and the US, which outweighed earnings that beat estimates.

Earlier in the session, Asian stocks climbed for a second day, as Chinese authorities sought to boost investor confidence and the dollar fell alongside Treasury yields. The MSCI Asia Pacific Index rose as much as 1.3%, with most markets advancing in the region as local currencies strengthened versus the dollar. Tech stocks were among the top sectoral gainers, bolstered by a slide in benchmark borrowing costs.  Stocks in Hong Kong and China rebounded following a rout earlier in the week, as Chinese authorities said late Tuesday that they would ensure a healthy development of financial markets. The gauges pared gains as a lockdown in one of Wuhan city’s central districts reinforced investor concerns about China’s strict Covid Zero policy.   The earnings season also gave a boost to tech stocks, including heavyweight chip shares. SK Hynix shares climbed even after an earnings miss, as traders reacted positively to the Korean firm’s announcement of a cut in capital expenditure. Samsung SDI’s quarterly profit beat estimates on robust electric-vehicle battery sales. 

“We are likely going into a period when very bad earnings in Asia may be good news for some ‘optically cheap’ stocks as it might imply that earnings expectations also get washed out completely - on top of already low valuations,” said Chetan Seth, Asia Pacific equity strategist at Nomura Holdings Inc. “Low earnings expectations and low valuations is a good sign for eventual bottoming out in some of these stocks,” he added.  More than 200 of the MSCI Asia index members tracked by Bloomberg have reported earnings so far, as analysts watch for the impact of China’s Covid lockdowns and the dollar’s strength on corporate profits. India markets are closed Wednesday.  Overall, the Asian gauge remains down for the month and has lost almost 30% this year, hammered by risks including China’s slowdown and global monetary tightening.  

Japanese stocks climbed for the third day, following a rise in the US cash market overnight as investors continued to monitor the flow of corporate earnings coming out this week.  The Topix Index rose 0.6% to 1,918.21 as of market close Tokyo time, while the Nikkei advanced 0.7% to 27,431.84. Daiichi Sankyo Co. contributed the most to the Topix Index gain, increasing 2.9%. Out of 2,166 stocks in the index, 1,402 rose and 661 fell, while 103 were unchanged. The S&P 500 Index rallied for the third session through Tuesday. US futures slid during Asian trading hours on Wednesday, however, as post-market earnings from tech giants Microsoft and Alphabet disappointed.  “Stock prices tend to settle down when actual earnings seasons begin, once a number of companies that gave out warnings show results that exceed their original forecasts,” said Hideyuki Suzuki, general manager at SBI Securities. “Japanese companies’ earnings will be the key focus this week and early next week as they will be in full swing.”  

Australian stocks also gained for a third day as inflation accelerated. The S&P/ASX 200 index edged up 0.2% to close at 6,810.90, extending gains to a 3rd day and marking the highest close in almost three weeks. The property and utility sectors led the increase. The benchmark index pared some of its earlier gains after Australia’s annual headline inflation accelerated to a 32-year high in the third quarter, validating the Reserve Bank’s rapid policy tightening. Inflation is “public enemy number one” in Australia’s economy, Treasurer Jim Chalmers said.

In rates, Treasury futures were off best levels of the day, although they remain richer by up to 6bp across long-end of the curve which bull flattens. US 10-year yields dropped as low as 4.02%, and were last around 4.055%, close to bottom of Tuesday session range and outperform bunds and gilts by 6.5bp and 7.5bp on the day; long-end led gains flattens 5s30s spread by almost 4bp on the day while 20s outperform further out with 10s20s30s fly richer by 2.4bp. Gains were seen overnight in Treasuries as stocks pared back portion of Tuesday rally following soft earnings from tech giants including Microsoft, Alphabet and Texas Instruments. Auction cycle resumes with $43b five-year at 1pm, follows Tuesday’s soft two-year sale which tailed by 1.2bp -- auctions conclude with $35b seven-year Thursday. US session focused on five-year auction while Bank of Canada rate decision is at 10am New York. Bunds and gilts 10-year yields trim gains, back to unchanged on the day.

In FX, the dollar tumbled for a second day, providing relief across currencies. The pound surges to $1.16; the euro trades above parity against USD, while the yen rises to around 146.71/dollar. Offshore yuan gains 1.7% to 7.1831 per dollar. However, dollar weakness wasn’t able to lift US futures as S&P 500 falls 0.5% while Nasdaq 100 slips 1.4% on disappointing mega tech earnings.

  • The Pound rallied more than 1% to as high as $1.162 as it gained for a second day.
  • Euro advanced past parity with the US dollar for the first time since Sept. 20; overnight volatility in the euro shows traders are preparing for a relatively wide intraday range into the European Central Bank decision.
  • Australia’s dollar advanced, eventually finding traction as short-covering increased on expectation that local yields will recover after third-quarter CPI hit a 32-year high, putting the spotlight back on Reserve Bank pricing.

The yen jumped to 147 per dollar ahead of the Bank of Japan’s policy decision Friday, when monetary settings are expected to be kept unchanged. Meanwhile, the central bank boosted purchases of longer-dated government bonds as rising yields threatened to loosen its grip on the yield curve.

In commodities, oil was steady as an industry report showed a rise in US crude stockpiles and investors fretted about weaker demand amid slowing growth. Crude benchmarks were modestly firmer on the session despite initial downbeat performance in wake of readacross from US after-market earnings and on fresh COVID updates in China alongside the below Private Inventory release. WTI and Brent Dec’22 contracts reside at the top-end of 1.50/bbl parameters though remain capped by USD 86/bbl and USD 94/bbl respectively, buoyed by the USD's pullback. Metals are similarly USD driven, spot gold has surpassed the 10- & 21-DMAs with base metals similarly buoyed. Spot gold rises roughly $20 to trade near $1,673/oz.

Looking to the day ahead, economic data releases will include wholesale and retail inventories, new home sales and advance goods trade balance in the US and consumer confidence in France. In earnings, results will be due from Meta, Thermo Fisher Scientific, Bristol-Myers Squibb, Boeing, Iberdrola, Boston Scientific, Mercedes-Benz, Heineken, Ford, Kraft Heinz, Santander, BASF, Barclays, Telenor and Puma.

Market Snapshot

  • S&P 500 futures down 0.6% to 3,847.75
  • STOXX Europe 600 up 0.2% to 408.51
  • MXAP up 1.2% to 137.05
  • MXAPJ up 1.2% to 436.97
  • Nikkei up 0.7% to 27,431.84
  • Topix up 0.6% to 1,918.21
  • Hang Seng Index up 1.0% to 15,317.67
  • Shanghai Composite up 0.8% to 2,999.50
  • Sensex down 0.5% to 59,543.96
  • Australia S&P/ASX 200 up 0.2% to 6,810.87
  • Kospi up 0.6% to 2,249.56
  • German 10Y yield down 0.4% at 2.16%
  • Euro up 0.7% to $1.0038
  • Brent Futures up 0.2% to $93.68/bbl
  • Gold spot up 1.1% to $1,670.70
  • U.S. Dollar Index down 0.67% to 110.20

Top Overnight News from Bloomberg

  • UK Prime Minister Rishi Sunak may delay an economic plan scheduled for Oct. 31 to give him time to square it with his agenda, Foreign Secretary James Cleverly said.
  • Hedge funds have cut portfolio leverage this year in a conservative turn that has sucked borrowed money from global markets, adding selling pressure to stocks and bonds.
  • Five trillion euros of liquidity is eroding the bridge between European interest-rate policy and borrowing costs in money markets, spurring debate over the kind of toolkit needed to stop the dislocation warping the cost of funding in the wider economy.
  • Australia faces mounting debt and deficits in the years ahead even as Treasurer Jim Chalmers scrimped and saved in his first budget to hold down spending and avoid further fueling inflation.
  • US Treasury Secretary Janet Yellen respects Tokyo’s decision not to disclose whether it has intervened in foreign exchange markets, according to Japan’s top currency official.

A more detailed look at global markets courtesy of Newsquawk

Asia-Pacific stocks equities traded higher across the board following the positive lead from Wall Street. ASX 200 opened firmer following the Aussie budget, but gains were capped by hotter-than-expected Australian CPI data which resulted in a modest uptick in RBA pricing for a 50bps hike at the next meeting. Nikkei 225 topped 27,500 with gains led by the pharma and manufacturing sectors. KOSPI held onto mild gains whilst chipmaker SK Hynix missed earnings expectations and cut its 2023 capex by over 50% vs 2022. Hang Seng and Shanghai Comp opened firmer as the bourses conformed to the gains across global peers, while the PBoC also injected CNY 280bln via reverse repo, with the former eventually outperforming.

Top Asian News

  • China's Hanyang district (900k population) in Wuhan city, entered a five-day temporary lockdown until October 30th, according to Chinese press.
  • Universal Studios in Beijing temporarily closed amid COVID measures, according to a notice cited by Reuters.
  • PBoC injected CNY 280bln via 7-day reverse repos at a maintained rate 2.00% for a daily injection of CNY 278bln.
  • BoJ raised the purchase amounts for 10-25yr and 25yr+ JGB maturities in a bid to curb the surge in yields, via Reuters.
  • Japan's Top FX Diplomat Kanda reiterated that they will continue to take bold steps against excessive FX moves, and are in close contact with G7 everyday, including on FX and geopolitics.
  • Japan Chief Cabinet Secretary says it is important to keep enough FX reserves to support its own currency in case of sharp, excessive market volatility, via Reuters.
  • Japanese life insurers' investment plans show a preference to cut holdings of foreign debt, mainly US Treasury bonds, in the second half of the fiscal year ending March amid elevated FX hedging costs, according to Nikkei citing investment plan release.
  • Hong Kong Futures Exchange has temporarily suspended the volatility control mechanism for futures products in derivatives market; halt due to external vendor software issues.
  • Japan is set to lower electricity bills by around 20% in early 2023 under a new package amid accelerating inflation, according to Kyodo News sources.
  • SK Hynix (000660 KS) Q3 2022 (KRW): Revenue 10.98tln (exp. 11.1tln). Operating Profit 1.66tln (exp. 1.87tln). Net Profit 1.1tln (exp. 1.37tln), Q3 average DRAM and NAND selling prices -20%; cuts 2023 investment spending by over 50% vs 2022.
  • Australian Treasurer Chalmers expects inflation to peak at the end of the year.

European bourses are mixed and yet to make much ground either side of the unchanged mark, Euro Stoxx 50 -0.2%; amid numerous European updates and the US tech headwind. Sectors, feature Tech as the main underperformer as such with the broader picture in-fitting with bourses and mixed overall. Stateside, the NQ -1.7% is weighed on by GOOGL and MSFT post-earnings and ahead of further large-cap updates including META after-hours.

Top European News

  • UK medium-term fiscal plan has been delayed until November 17th, via BBC; upgraded to a full Autumn Statement. Subsequently confirmed by Chancellor Hunt
  • Sunak is to meet Chancellor Hunt on Wednesday to discuss proposals to increase taxes and cut public spending, according to The Times.
  • Heineken Warns of Softer Demand as Inflation Hits Drinkers
  • UniCredit CEO Committed to Disengage, Reduce Russia Exposure
  • WPP Raises Sales Forecast After Ad Budgets Prove Resilient
  • European Stock Rally Moderates as Investors Weigh Earnings, ECB
  • Heathrow Ramps Up Hiring, Says It Will Take Years to Recover
  • Traders Price Less Than 150 Bps of BOE Rate Hikes By Year-End
  • Barclays Traders Beat Estimates as Uncertainty Freezes Deals
  • Storebrand Falls After 3Q Solvency II Misses Estimates
  • Major Banks Upbeat on UK House Price Growth Despite Rising Rates

Fixed Income

  • Initial modest upside has waned and been replaced by an incremental negative bias, Gilts are lagging slightly and back below 101.00 post a sub-par 7yr sale and as the UK's fiscal update has been delayed.
  • Amidst this, both Bunds and USTs have slipped though latter remain bid overall in a slight role reversal from recent performance; stateside, the curve is slightly flatter.
  • Finally, within the periphery BTPs have slipped ahead of a Senate vote but the BTP-Bund spread remains relatively narrow and sub-220bp after yesterday's House performance from Meloni.

Commodities

  • Crude benchmarks are modestly firmer on the session despite initial downbeat performance in wake of readacross from US after-market earnings and on fresh COVID updates in China alongside the below Private Inventory release.
  • WTI and Brent Dec’22 contracts reside at the top-end of USD 1.50/bbl parameters though remain capped by USD 86/bbl and USD 94/bbl respectively, buoyed by the USD's pullback.
  • Metals are similarly USD driven, spot gold has surpassed the 10- & 21-DMAs with base metals similarly buoyed.
  • US Energy Inventory Data (bbls): Crude +4.5mln (exp. +1.0mln), Cushing +0.7mln, Gasoline -2.3mln (exp. -0.8mln), Distillate +0.6mln (exp. -1.1mln).

FX

  • Scramble to cover Sterling shorts inflicts more pain for the Buck as Cable tops 1.1600 and DXY sinks below 110.000.
  • Euro back above parity vs Greenback, but may be hampered by decent option expiry interest at the strike.
  • Kiwi and Aussie make more headway against their US rival through 0.5800 and towards 0.6500 respectively.
  • Yen probes 147.00 vs Dollar without thrust of obvious intervention and Loonie eyes 1.3500 ahead of BoC amidst split opinions on 50 or 75 bp rate hike.
  • Yuan relieved Buck retreat, stronger than spot PBoC CNY fix and reports of major Chinese bank buying late yesterday.
  • PBoC set USD/CNY mid-point at 7.1638 vs exp. 7.1983 (prev. 7.1668)
  • Major Chinese state-owned banks sold USD in both onshore and offshore markets in late trade on Tuesday to prop up the weakening yuan, according to Reuters sources

Geopolitics

  • Japan's Vice Foreign Minister intends to further deepen trilateral cooperation between Japan, South Korea, and the US.
  • German foreign ministry, in internal paper, said Cosco stake in German ports disproportionately strengthens China's influence on Germany and in Europe, via Reuters.

US Event Calendar

  • 07:00: Oct. MBA Mortgage Applications -1.7%, prior -4.5%
  • 08:30: Sept. Advance Goods Trade Balance, est. -$87.5b, prior -$87.3b
  • 08:30: Sept. Retail Inventories MoM, est. 1.2%, prior 1.4%
    • Wholesale Inventories MoM, est. 1.0%, prior 1.3%
  • 10:00: Sept. New Home Sales MoM, est. -15.3%, prior 28.8%
    • New Home Sales, est. 580,000, prior 685,000

DB's Jim Reid concludes the overnight wrap

Morning from NY. I say morning but I flagged after writing about the weak late US tech earnings below. Jet lag hit so I’m passing this onto Galina to finish off and send in the London morning. Indeed the weaker tech earnings have slightly ruined the joint bond and equity rally that's been in place for several days now.

More specifically, I’m not sure if anyone else is playing this game but we continue to try to work out whether Friday’s WSJ article by Nick Timiraos marks the start of the 6th attempt at a sustained Fed pivot narrative over the last 12 months. If you want to examine the previous 5, see Henry's note earlier this month here for more. After a bit of push / pull on rates after the immediate Timiraos-led move, yesterday saw a fresh rates (and equity) rally on the back of obviously weaker economic data. Before we delve into that remember that from last night, 20% of the S&P 500 report in 48 hours across just 5 mega cap tech stocks. Last night, Alphabet fell -6.7% in after hours after both revenue and earnings missed estimates and the company said it was focusing on costs and constraining hiring. For Microsoft, despite beats on both revenue and net income, disappointing growth forecasts for Azure, its cloud platform, as well as strong dollar, European energy costs and falling demand for PCs weighed on the share price. In after-hours trading the stock also traded -6.7%. Elsewhere, Texas Instruments, which "only" has a market cap of c.$150bn to Alphabets' $1.36tn and Microsoft's $1.87tn, also disappointed the market after-hours due to a soft outlook for the current quarter with the stock -5.2% in extended trading. With its chips used across a variety of goods, the CEO’s comments about weakness in both personal electronics and industrial sectors is telling about demand in the broader economy. This morning we have also heard demand concerns from SK Hynix, a South Korean chipmaker. All this has cast a shadow on futures this morning with S&P 500 and Nasdaq 100 contracts -0.90% and -1.90%, respectively. Watch out for Meta earnings after hours tonight and Apple and Amazon tomorrow.

Back now to that weaker data that created the rates rally and helped tech along the way in normal trading hours. Markets are getting increasingly sensitive to housing at the moment and thus the news that the FHFA house price index surprised on the downside, falling by -0.7% MoM vs -0.6% expected seemed to be the rates catalyst yesterday. This was the lowest reading and the first back-to-back monthly decline since 2011. The S&P CoreLogic Case-Schiller index also fell for a second month with the 20 largest cities falling -1.3% MoM. We also saw consumer confidence miss, coming in at 102.5, falling from 108.0 in September and by more than expected (105.9), with both present situation and expectations declining. Lastly, a miss on the Richmond Fed manufacturing index (-10 vs -5) added to a downbeat message from the data.

As discussed, this softness weighed on US yields, with the 10y dropping by -14.0bps but with 2yrs only -2.8bps lower. Moves in Europe were almost a mirror image with Bunds (-16.0bps) and OATs (-16.1bps) sharply lower and with peripheral yields continuing to outperform (BTPs -20.8bps). Like the US, the front end saw milder moves (Germany 2y -2.6bps, France 2y +1.0bps). These declines in turn translated into around 2-5bps being taken out of both the Fed and the ECB pricing for next year meetings. This morning longer-end US yields continue to trend lower, with 10y down by -1.2bps and the 2y unchanged.

Before the after-hours fall, US tech stocks rejoiced on the back of those rates moves, with the Nasdaq jumping +2.25%, ahead of the S&P 500 (+1.63%). Sector-wise, of the 10 top level ones only energy (-0.05%) fell despite slight upward moves in oil (WTI +0.87%). Outside of the big tech reports mentioned at the top, notable large-cap earnings beats included Coca Cola (which also had an upward guidance revision), General Motors and UPS. So aside from Fed pivot pricing there was also the fundamentals story feeding into the day time rally.

Over in Europe, it was a quieter day with not much economic data released yesterday. The Ifo survey surprised on the upside on key metrics like business climate (84.3 vs 83.5 expected), current assessment (94.1 vs 92.5) and expectations (75.6 vs 75.0). Combined with falling yields, this turbocharged the Stoxx 600 (+1.44%) for another day of a more than a 1% gain amid gains in real estate (+5.06%), IT (+3.80%) and consumer discretionary (+2.47%) stocks. Undoubtedly, sub-100 euro gas prices (for a second day +0.84%) in Europe on the back of stories about potential LNG glut in the region and falling futures prices have helped.

In the UK, moves were milder as much of the action post-Sunak’s victory already happened yesterday and today’s official ceremonies and cabinet reshuffle didn’t move the markets much. The 2y gilt yield declined by -1.2bps and the 10y yield was down by -10.9bps. GBP rallied +1.72% though most of the move coincided with a big fall in the dollar index at the same time. It ended -0.93%.

Overnight in Asia, major bourses are defying the sell-off in US futures, with the Nikkei (+1.08%) and the KOSPI (+0.79%) in the green. Chinese stocks are having an even bigger rally, with the Hang Seng (+2.17%) and the Shanghai Composite (+1.42%) marching higher after closing in the red yesterday despite gains earlier in the day. In data, we got services PPI from Japan this morning which was in line with expectations at 2.1% (1.9% in August).

To the day ahead now and economic data releases will include wholesale and retail inventories, new home sales and advance goods trade balance in the US and consumer confidence in France. In earnings, results will be due from Meta, Thermo Fisher Scientific, Bristol-Myers Squibb, Boeing, Iberdrola, Boston Scientific, Mercedes-Benz, Heineken, Ford, Kraft Heinz, Santander, BASF, Barclays, Telenor and Puma.

Tyler Durden Wed, 10/26/2022 - 08:05

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Nike Escalates Design Battle Against Lululemon

The sportswear giant is accusing lululemon of patent infringement.

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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."

Lululemon

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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10 Top Penny Stocks To Watch With High Short Interest This Week

More short squeeze penny stocks to watch before February 2023.
The post 10 Top Penny Stocks To Watch With High Short Interest This Week appeared first…

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This week could bring some fluctuations to the stock market. Whether you’re investing in penny stocks or more expensive shares, several key factors will shape the year’s first quarter. Economic data releases, earnings announcements, and the highly anticipated January FOMC meeting are just a few of the things that will play a role. However, it’s worth noting that penny stocks often behave independently of broader market trends.

There has recently been a growing interest in cheap stocks with high short interest. Why does that matter? A short squeeze occurs when investors who have bet against a stock by borrowing shares are forced to buy back those shares at higher prices to cover their losses. This phenomenon can result in a rapid surge in the stock price. Where can you start searching for short-squeeze stocks?

Short interest data is a good starting point. There are no guarantees that stocks with a high level of short interest will squeeze. But they are usually the first ones people will take a closer look at. This article focuses on a list of penny stocks that meet these criteria. Additionally, we will try to find any potential catalysts to provide you with a better understanding of the current market conditions surrounding these companies.

With this information, you can decide whether they are worth adding to your watch list. This is also a continuation of our list of short squeeze stocks from the article “Penny Stocks To Buy: 5 Short Interest Stocks To Watch Now.” The complete list will be provided at the end of the article.

Short Interest Stocks To Watch

Faraday Future Intelligent Electric Inc. (FFIE)

Short Data: Fintel – 18.35%, TDAmeritrade – 29.20%

Faraday Future has been on our list of penny stocks to watch for months, and during that period, FFIE stock has continued climbing. A mix of new milestones, speculative trading action, and support from the Fintwit community have helped breed optimism in the stock market for the EV company.

Faraday Future is a smaller EV upstart that has progressed forward in launching its flagship product, FF 91 Futurist. A rework of its leadership and funding seems to have brought more reassurance to traders watching the company. Most recently, Faraday appointed its GLobal Executive VP of Global User Exosystem, Tin Mok, to the Board of Directors.

The news comes just a few weeks after signing a deal with the City of Huanggang Province in China to relocate its future FF China Headquarters to support the US-China “dual home market” and dual “DNA strategy.” Now, attention is likely on Faraday’s production commencement of the FF 91 Futurist. The company set the end of March to begin production and the end of April (or before) to start rolling out deliveries.

Is FFIE a short-squeeze penny stock? According to Fintel & TD Ameritrade data, the FFIE stock short float seems to be sitting between 18% and 29%.

Sientra Inc. (SIEN)

Short Data: Fintel – 122.36%, TDAmeritrade – 124.06%

Sientra stock has one of the group’s highest listed short float percentages. According to Fintel and TD, that figure is between 122% and 124%. Like all types of data, the accuracy of the actual reporting can come into question at such extremes. Nevertheless, it doesn’t discount the figures shown by these outlets today.

7 Top Penny Stocks To Watch With Big News This Week

SIEN stock has only recently begun catching attention after hitting fresh 52-week lows last week. The stock slipped following a reverse split earlier this month. Now, however, it looks like traders are starting to speculate on the company’s next move. The medical aesthetics company won approval from the United Arab Emirates Ministry of Health and Prevention to market its smooth surface, High-Strength Cohesive (HSC and HSC+) silicone gel breast implants in the United Arab Emirates.

But the news may be secondary to market data. That doesn’t only include the short interest. Thanks to the reverse split, it could also put SIEN on the list of low-float penny stocks to watch. Lower floats mean less supply in the market and can translate into higher volatility. Keep this in mind if SIEN is on your watch list.

short squeeze penny stocks to buy Sientra Inc SIEN stock chart

Gossamer Bio Inc (GOSS)

Short Data: Fintel – 35.22%, TDAmeritrade – 30.21%

Last year, Gossamer announced Phase 2 trial data in its study of seralutinib for treating pulmonary arterial hypertension. Among several points of focus was a serious adverse event in the seralutinib arm of the study. Overall treatment-emergent adverse events were reported in 86% and 93% of patients in the placebo and seralutinib arms.

Even with that as the case, there was optimism regarding efficacy results. Pulmonary Hypertension Division head at the University Hospital in Giessen explained, “highlit compelling potential differentiation for seralutinib as an anti-proliferative, anti-inflammatory, and anti-fibrotic therapeutic candidate with possible reverse remodeling effects.”

Earlier this month, State Street Corporation and Millennium Management filed Schedule 13Gs showing stakes in GOSS stock ranging from 5.1% to 29.47% (State Street). While those reports have been out for weeks, it may be something traders are paying attention to if GOSS is on their list of penny stocks to watch. In addition, short data from TD and Fintel have the short float percentage on GOSS stock sitting between 30% and 35%.

short squeeze penny stocks to buy Gossamer Bio GOSS stock chart

Pardes Biosciences Inc. (PRDS)

Short Data: Fintel – 24.88%, TDAmeritrade – 8.12%

The short data between Fintel and TD varies right now. Of the two, Fintel’s is the highest, with a PRDS stock short float percentage of nearly 25%. One thing Pardes has experienced that some of the others on the list haven’t is a more prolonged uptrend that began late last year.

The biotech company has been developing its PBI-0451 platform as a potential oral antiviral drug candidate to potentially treat and prevent COVID-19. Despite easing concerns, the virus still exists, and companies are still looking to “build a better mouse trap,” so to speak. In a quarterly update, CEO Thomas Wiggans explained that Pardes “made significant progress in our pursuit to bring a stand-alone, easily administered oral treatment to patients suffering from COVID-19, highlighted by the commencement of our PBI-0451 Phase 2 trial in September 2022,” and that the company looks forward to “sharing the preliminary results from this study in the first quarter of 2023.”

As the clock ticks on this quarter, some speculation has begun to form. Multiple analysts have set price targets much higher than current levels, and the short data has come into focus this week. JMP Securities and SVB Leerink have set $9 price targets for PRDS stock.

3 Hot Penny Stocks Under $1 To Watch For February 2023

short squeeze penny stocks to buy Pardes Biosciences PRDS stock chart

SmileDirectClub (SDC)

Short Data: Fintel – 20.17%, TDAmeritrade – 20.15%

The beaten-down medtech company has faced plenty of headwinds due to its mixed performance. The most recent update from SmileDirectClub prompted a bit more optimism in the stock. It gave an update highlighting a plan to drive profitability and positive cash flow. It also issued preliminary Q4 revenue guidance, which came in below estimates. Even with that as the case, shares of SDC stock woke up after the company presented its cost-saving strategy for the year.

“SmileDirectClub has taken decisive steps over the past year to embed rigorous financial discipline throughout the business and ensure we are positioned to capitalize on the investments we have made to place our company on the leading edge of innovation in oral care technology,” said CEO David Katzman.

Ahead of the official year-end results coming in February, traders are looking at the SDC stock short data. Right now, Fintel and TD both show this at around 20%.

short squeeze penny stocks to buy SmileDirectClub SDC stock chart

List Of Short-Interest Penny Stocks To Watch

  1. Faraday Future Intelligent Electric Inc. (NASDAQ: FFIE)
  2. Sientra Inc. (NASDAQ: SIEN)
  3. Gossamer Bio Inc (NASDAQ: GOSS)
  4. Pardes Biosciences Inc. (NASDAQ: PRDS)
  5. SmileDirectClub (NASDAQ: SDC)
  6. Tattooed Chef (NASDAQ: TTCF)
  7. Aemetis Inc (NASDAQ: AMTX)
  8. Blue Apron Holdings Inc. (NYSE: APRN)
  9. Vroom Inc. (NASDAQ: VRM)
  10. Biora Therapeutics Inc. (NASDAQ: BIOR)

The post 10 Top Penny Stocks To Watch With High Short Interest This Week appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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Australian small companies outlook for 2023

Having not long finished the festive season and commenced a new year, many of us take the moments shortly after to reflect on the year that was, and also…

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Having not long finished the festive season and commenced a new year, many of us take the moments shortly after to reflect on the year that was, and also consider what we would like to see in the year ahead.

With that in mind I thought I would take a look back at 2022. Last year will likely be remembered for three key events, firstly it generally saw the world exit the pandemic cloud of COVID-19. Secondly, we saw the commencement of the war between Ukraine and Russia. Thirdly, we saw inflation return with a vengeance being quickly followed by one of the fastest tightening cycles in history by Central Banks. The official cash rate in Australia increased from 0.1 per cent in April 2022 to 3.10 per cent by the December meeting of the RBA.

This mix of events led to one of the strongest risk-off years we have seen since the Global Financial Crisis, there are few places for investors to find sanctuary with losses occurring across both growth and defensive assets alike.

Investor sentiment was broadly very negative during 2022, it is always a challenge for any growth (or risk) asset to perform well when the market doesn’t have an appetite for risk of any kind. 

 If we look specifically at the Australian small ordinaries index, its return for the calendar year of 2022 was negative 20.7 per cent. To give this context the ASX 100 declined by 3.9 per cent and the ASX 300 return was negative 6.1 per cent. It is fair to say that the risk on trade in Small Companies over the last few years moved into reverse in 2022. This was a consequence of the above macro factors, coupled with a more bearish investor and market.

What to consider for 2023?

In moving to our outlook for 2023 we need to initially consider the 3 points above and ask where we see them today and where they may evolve to over the next 12 months. With the final question being what impact this will have on equity market performance?

As a starting point it is fair to say that the impact of COVID-19 continues to pass and become more of a memory than a current issue. Even China who were the final strong hold have now moved to accept an existence with COVID-19 and they cope with re-opening and reintegrating with the rest of the world. As it stands today, we would expect the impact of COVID-19 to continue to diminish from here. One datapoint that has been interesting to follow over the pandemic has been a UBS Composite Supply Chain Indicator which is now in a strong downward trend and moving closer to pre-pandemic levels.

Supply chain stress

Source: UBS

A second example where we can see this is in spot indexes for international container freight costs which are now off roughly 80 per cent from their peak 18 months ago. This is interesting as it was one of the early contributors to the increase in inflation. As a leading cause it is positive to see this returning to more normal levels.

Next, we move to the war in Ukraine, which continues to grind along, and will no doubt continue to influence energy prices and broader speculation. Having said that, although the outcome is unknown, this is what at times in markets is called a known unknown. We are all aware of what is happening, many governments and countries are working around it. This is best seen in Europe where they continue to diversify their sources and supply of Energy, along with continued fast tracking of non-Russian dependent infrastructure. Short of a shock surprise, this event we can largely say has been priced into markets.

Finally, inflation and interest rates have been a biproduct of the above two events. These two arguably caused the most disruption to equity markets in 2022. At the time of writing the most recent inflation data for Australia was released last week and came out higher than consensus expectations with trimmed inflation (removing the most volatile items) coming in at 6.5 per cent against an expectation of 6.1 per cent.

At this point most major market commentators have the belief that we are likely to see two further interest rate increases in the first quarter of this year. Post this timeframe the speculation begins to grow; a portion believe inflation is going to be more stubborn and require further effort from Central Banks. Other market commentators believe that the remaining two expected rate increases will be sufficient to manage inflation, particularly given the delayed transmission mechanism we have here due to the nature of Fixed Rates and their term to reset.

Some also believe we may see interest rates start to fall in late 2023, which would become a tailwind for equities, in particular some of the growth names which had the toughest performance over 2022.

What can we expect from small caps?

Looking through all of this noise and to our outlook for Australian Small Companies for 2023 we think as always the starting point is important. At a market level we started 20 per cent cheaper than the same point in the prior year. Further to this we have seen some earnings downgrades in some parts of the market, where others have proven to be far more resilient than expected. Sectors like the Resource sector managed to grow their earnings over 2022. So in some pockets, we find valuations from a fundamental perspective to be very attractive.

While there is a belief that interest rates have further to go, we still see some significant risks in the more speculative parts of the market. This is mainly around companies that will have little control over their earnings power in the next 12 months, or are less mature and as a result less capable to weather the economic conditions ahead. Increasing interest rates are also not favourable for building stocks, or some consumer stocks (although some of the high-quality names will be resilient and based on valuation look interesting).  

Any companies that missed the market’s expectations on earnings were punished, if the company had to go as far as an earnings downgrade the market showed little mercy. We think this trend will likely continue into the February 2023 reporting season. These are risks we are aiming to avoid by assessing the quality of our investments and their earnings streams.

Looking further out, there is an argument that Australian Small Companies offer a significant investment opportunity for investors over 2023 if they wish to add some risk to their portfolios. They were the most sold down part of the market in 2022 so the valuation of this sleeve of the market looks attractive.

History tells us that once the economy has reached peak inflation, the peak of interest rates is usually not too much further into the future. If we do in fact only see two further rate rises from the RBA and inflation is contained then we will start to have a foundation that would be more solid and look to underpin a backdrop that would be conducive to a rally in equity markets.

As always we are not out of the woods and do expect some earnings challenges to come to the fore in February’s interim reporting season. Stock selection and active management will be critical to navigate this.

Should we see an improved outlook and also a reduction in interest rates later in the year we may start to see an improvement in investor and market sentiment. This is likely the final ingredient needed to see capital flows return more strongly to equities and in particular Small Companies.

Overall we continue to have a meaningful exposure to the Resource sector as we think that with China reopening and supply shortages still an issue for Europe in the medium term, coupled with the continued drive of decarbonisation that 2023 should be another supportive year for the sector.

We have quality exposures to structural growth companies that over a medium term investment horizon represent excellent value and are growing quality businesses. We believe we are closer to the end than the beginning of the inflation and interest rate story which over the course of 2023 we think will provide a favourable foundation for the market and the Montgomery Small Companies Fund.   

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