Macrosynthesis

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Last Week's Recap

U.S. stock markets ended slightly lower on Friday,  due to concerns about stalled U.S. debt limit talks. The Federal Reserve Chair, Powell, acknowledged inflation surpassing the target and committed to reinstating the 2% goal. However, he suggested that due to banking sector stress, raising interest rates more may not be necessary. Regional lenders Western Alliance and PacWest experienced a downturn of 2.4% and 1.9% respectively, notwithstanding their significant 24% growth this week.

Corporate stock of John Deere is not running well, dipping by 1.9% despite better-than-expected earnings and revenue, while Foot Locker's shares got the boot, crashing -27.1% after poor quarterly results. Farfetch saw a 14.7% jump following surprise Q1 revenue. Despite Friday's losses, the Dow Jones, S&P 500, and Nasdaq recorded weekly gains of 0.7%, 1.8% (its best since March), and 3% respectively.

The Week Ahead

US investors will be closely monitoring a lot: debt ceiling negotiations, FMOC meeting minutes, and data on personal income, spending, PCE prices, GDP growth, corporate profits, durable goods orders, services, manufacturing PMIs, and new and pending home sales. Global focus will be on fresh May PMIs for the UK, Australia, Euro Area, Japan, France, and Germany, with inflation rates for the UK and South Africa and monetary policy decisions for multiple countries also awaited.

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Hopes for a quick resolution of debt ceiling negotiations were dashed when Republican negotiators left a meeting, calling White House demands unreasonable. While expectations of another rate hike due to strong data rose, Fed Chair Powell cited banking sector stress as a potential deterrent.

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Results from several major companies, including Zoom, NVIDIA, and Costco are coming.

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Barrel Tales

WTI crude oil futures dipped to $71 per barrel due to concerns over a potential US debt default, despite registering a 1.7% weekly gain. An anticipated oil market deficit and demand surpassing supply, are expected in the 2nd half of 2023, according to IEA projections. Supply disruptions loom due to Canadian wildfires and Iranian tanker seizures.

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He Said, He Said

U.S. House Speaker Kevin McCarthy accused the White House of backtracking on US debt limit talks, expecting no progress until President Biden returns from the G7 summit in Japan. As the June 1 deadline looms, talks have stalled over spending cuts demanded by Republicans. McCarthy insists on less spending next year, while the White House accused Republicans of taking the economy hostage and demanding significant spending reforms without raising taxes or cutting military spending.

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G7

France is set to host the "Summit for a New Global Financial Pact" on June 22-23, where the discussion will focus on reforming multilateral development banks, addressing the debt crisis, financing green technologies, and creating new international taxes and financial instruments.

China's Belt and Road project has led many developing nations, particularly in Africa, to absorb extreme debt levels. The need for a systemic way to handle Africa's debt rather than on a country-by-country basis was underscored.

The Summit will also address the failure of wealthy countries to fulfill their promise of mobilizing $100 billion annually for climate finance. French officials stressed the urgency of collectively rethinking the international financing architecture in the face of evolving global dynamics since its post-WW2 construction.

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Level 2 Trade Preview

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Last Sunday, following a major pivotal event for the company, we initiated a trade alert for TIO.  The stock did not disappoint - it was up 72% last week.

This week's Level 2 alert:

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It's not often that a company halts spending money on ads because demand for their product is already above capacity. But that's exactly what happened to this company. We discuss the company in this week's Level 2 news briefing.

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Last Week's Top Events

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Noteworthy Events  

The Journey

Bond traders are increasingly skeptical that the Federal Reserve will ease monetary policy with rate cuts this year, as the odds of a quarter-point rate hike next month rose to 40% in the past week. This change in sentiment will be challenged by upcoming economic data that will evaluate the country's economic strength. The persistent debate among Federal Reserve officials about the effectiveness of their inflation strategies remains unresolved. Inflation in April was notably higher than the central bank's target.

Zuck vs Musk

META revealed it's releasing a direct competitor to Twitter which is expected to launch in June. A recent poll showed activity on Twitter were down significantly following Musk's purchase of the social media network. With Montana and various colleges recently banning TikTok, META is reemerging as the dominant social media player.

What's Next?

Powell reinforced the Fed's commitment to bringing inflation back to the 2% mark but admitted that it's unclear whether current rates are sufficiently restrictive. He warned that failing to reduce inflation would prolong economic hardships. While he indicated that lowering inflation would require time, market response to his comments led to a decrease in the likelihood of a 25 basis point rate hike in June from 40% to 22%. The speech revealed high volatility in interest rate expectations, signifying uncertainty within the Fed and the futures market about the next steps.

One Love

Warren Buffet's Berkshire Hathaway opened a large position in Capital One last week, sending the stock up 2% on the news.

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CASE STUDY: TuSimple Holdings Inc

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TuSimple Holdings Inc., an autonomous trucking company, announced a new restructuring plan approved by its board of directors. The plan entails the elimination of approximately 300 jobs, which equates to roughly 30% of the company's workforce.

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LevelFields users were alerted to the Mass Layoff announcement at 8:23am on Thursday, resulting in a +14.08% 1D jump in share price.

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Normally, layoffs are a negative event for companies with negative earnings as it indicates problems with the business model and macro environment. However, in the context of a recent CEO hire, the layoffs are seen as part of a turnaround administrated by the new leader.

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Upcoming Catalysts:

Notable Earnings

Monday

• Zoom Video Communication (ZM)
• Nordson (NDSN)

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Tuesday

• Lowe's (LOW) is anticipated to announce its Q1 earnings before the market opens on Tuesday, with average expectations being a 1.7% YoY decrease to $3.45 per share and a decline of 8.5% YoY in revenue to $21.6 billion. Earlier in the week, competitor Home Depot (HD) reported unsatisfactory quarterly results. However, analysts remain generally optimistic about Lowe's, a leading dividend stock, ahead of its earnings report.
• AutoZone (AZO)
• Intuit (INTU)
• Toll Brothers (TOL)
• Vipshop (VIPS)

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Wednesday

• NVIDIA (NVDA)
• Digital Turbine
• Kohl's (KSS)
• Petco (WOOF)
• Analog Devices (ADI)
• Snowflake (SNOW)
• Splunk (SPLK)

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Thursday

• Dollar General (DLTR)
• 23andMe (ME)
• Best Buy (BBY)
• Burlington Store (BURL)
• Gap (GPS)
• Pinduoduo (PDD)
• Royal Bank of Canada (RY)

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Friday

• Booz Allen Hamilton (BAH)
• Hibbett (HIBB)
• Big Lots (BIG)

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Economic Reports

Monday

• Fed Bullard, Barkin, Bostic Speech

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Tuesday

• New Home Sales
• Fed Logan Speech

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Wednesday

• FOMC Minutes

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Thursday

• GDP QoQ
• US Consumer Spending
• PCE
• Jobless Claims

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Friday

• Michigan 5-Year Inflation Est

This is not financial advice. All information represent opinions only for informational purposes.

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The LevelFields Team