* Dow, S&P 500 slightly red, Nasdaq slips, now up ~0.4%
* Energy weakest major S&P sector; Healthcare leads gainers
* Dollar, crude down; gold edges up; Bitcoin falls
* U.S. 10-Year Treasury yield ~1.65%
May 18 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
BIG-NAME COMPANIES TEST IPO APPETITE (1345 EDT/1745 GMT)
The IPO market faces a big test as high-profile firms look
to go public amid lackluster deal performance.
Oprah Winfrey-backed vegan milk maker Oatly is
aiming for a $10 billion valuation with its prospective IPO this
week, while software provider Squarespace Inc
seeks the increasingly popular direct listing
alternative to public markets.
But the backdrop for new listings has soured recently as
some offerings have disappointed in debut, and a
few have been postponed.
Currently, the average return of this year's roughly 140
IPOs is barely above 1%, based on a Reuters study. This as
shares of noteworthy firms such as dating app Bumble Inc
and Honest Company, the consumer goods
business founded by actress Jessica Alba, have fallen below
their respective IPO prices after initial pops.
On the direct listing front, crypto-exchange operator
Coinbase Global has seen its stock drop about 35% from
its opening price.
And SPAC (special-purpose acquisition companies) returns
have also lagged as retail investors temper interest.
Below is the near-term calendar of IPOs (direct listings
also noted), by expected debut date and approximate deal size:
May 19:
Squarespace (website development, hosting) Direct listing
May 20:
Oatly Group AB (plant-based foods) (~$1.4B)
Procure Technologies (construction
software)(~$600M)
May 26:
Flywire (payments software) (~$200M)
Paymentus (payments software) (~$200M)
ZipRecruiter (online jobs site) Direct listing
(Lance Tupper)
*****
COMMODITIES HAVE BEEN ON A RUN, BUT CAN THEY GO THE
DISTANCE? (1238 EDT/1638 GMT)
Saira Malik, CIO and head of global equities at Nuveen, is
out with some remarks this week on commodities and inflation.
Malik notes commodity prices have been on a run since the
2020 pandemic-driven lows. The supply of agriculture products,
metals, lumber and basic chemical products had all fallen off in
anticipation of a sharp reduction in demand that never
materialized. In fact, demand actually rose in some cases, such
as for lumber and paint for residential construction projects.
With this, Malik says there have now been inflation spikes
along with increased market volatility. She expects that demand
for certain commodities will likely remain high due to a variety
of circumstances, such as "high growth levels of Chinese
livestock that consume large amounts of agricultural goods or
the growth of electric vehicles that require the use of
specialty metals."
Additionally, prices may remain elevated in some cases as a
result of inherently slower “restocking” processes, such as with
soybeans and corn. Overall, however, Malik expects the effects
of commodity-driven inflation to be limited.
Though the extent and time span of this inflation spike may
be greater than originally anticipated, Malik thinks it should
ultimately "prove transitory." She expects price pressures
should dissipate as supply chains rebuild and discretionary
income shifts toward services and experiences, leading to a
"cooling of peak spot prices and a reduction in equity market
volatility."
Separately, here is a monthly bar chart of the
Refinitiv/CoreCommodity CRB index. It recently hit a
6-year high:
(Terence Gabriel)
*****
TEMPERATURE CHECK SUGGESTS BIG TECH STILL TROUBLED (1205
EDT/1605 GMT)
Lori Calvasina, head of U.S. equity strategy at RBC Capital
Markets, is out with a temperature check on big tech.
Indeed, Calvasina notes that along with corporate taxes, the
style rotation in the U.S. equity market - from growth to value
- has been an especially hot topic in recent RBC investor
meetings.
With this, Calvasina believes that the pain in growth's main
driver, big tech, has not yet fully played out.
First, she says Nasdaq positioning among asset managers
doesn’t appear washed out. In fact, she says "on a dollar-value
basis, the latest readings are still well above the lows seen in
2009 and 2018."
Calvasina also continues to keep a close watch on "TIMT"
(Tech + Internet + Media + Telecom) valuations within the S&P
500. According to her work, as of mid-May 2021, the
"weighted median P/E for TIMT was still at 25.2x, well above its
long-term average of 18.4x as well as its post-2004 average of
16.8x."
Additionally, she says that the rate of upward EPS estimate
revisions for TIMT has been strong, but it appears to be
peaking. With this, she says that TIMT tends to "underperform
when inflation expectations are on the rise, along with other
Growth-oriented sectors."
Finally, she says Tech ETF flows, which "surged from 2015
through 2020, have flattened out, removing an important pillar
of support for the sector."
Thus, Calvasina believes that the rotation out of TIMT and
into cyclical sectors is a "limiting/risk factor for the S&P 500
this year given the heavier weighting of the index to TIMT."
(Terence Gabriel)
*****
BOFA CLIENTS BOUGHT THE DIP LAST WEEK (1145 EDT/1545 GMT)
As the S&P 500 fell 1.4% last week, BofA Securities
clients bought the dip with net buys at the highest level in
more than two months.
Led by institutional clients, purchases of single stocks and
exchange-traded funds (ETFs) were up $1.3 billion, according to
a BofA Global Research report on Tuesday.
Hedge funds, which had been sellers in six of the past seven
weeks, continued to shed single stocks and ETFs, while private
clients were small net sellers for a second week in a row,
ditching single stocks, but buying ETFs.
Stock purchases were led by cyclicals -- consumer
discretionary, industrials, and financials -- along with
technology, with weekly flows into industrials hitting a
post-pandemic high.
"After defensively-oriented flows in recent weeks,
defensives/bond proxies (health care, staples, and real estate),
as well as long duration (communication services) saw the most
outflows," the report said.
As for ETF inflows, equity flows moderated versus the prior
week, while fixed-income flows reached a four-month high.
(Karen Pierog)
*****
HOUSING STARTS: SHOVELS PAUSE AS MATERIALS PRICES GO THROUGH
THE ROOF (1123 EDT/1523 GMT)
As much of the economy stumbled toward recovery throughout
the pandemic, the housing market has been tap dancing center
stage as a homebuyer exodus to the suburbs, fueled by social
distancing concerns and a quest for home office space, put the
sector on an impressive upward trajectory.
But headwinds in the form of depleted supply of homes on the
market and materials to build them have been a fly in the
ointment for months, and was further confirmed by data released
on Tuesday.
Groundbreaking on new U.S. homes dropped significantly last
month. Housing starts dropped 9.5% in April to 1.569
million units at a seasonally adjusted annualized rate,
according to the Commerce Department.
The number came in well below consensus and extended the
previous month's upwardly-revised 19.8% plunge.
Still, housing starts are up 67.3% year-over-year, as
homebuilders struggle to replenish record low inventories while
keeping pace with a persistent demand boom.
That demand is colliding with supply scarcity, which is
sending materials prices - particularly lumber - through the
roof.
"There is a growing backlog of homes already authorized by
permits that haven’t been started, as high prices for and
shortages of building materials are causing some construction
delays," says Nancy Vanden Houten, lead economist at Oxford
Economics. "Strong demand, a need for inventory and homebuilder
optimism will support housing starts over the rest of 2021,
while record-high lumber prices and supply chain bottlenecks may
act as headwinds."
On the plus side, building permits for new
homes, considered a more forward-looking housing indicator,
edged up 0.3% to 1.760 million units SAAR, missing the expected
1.770 by a hair:
Meanwhile housing stocks, which have handily outperformed
the broader market over the past year, have been sputtering of
late:
Wall Street is mixed in late morning trading. The tech-heavy
Nasdaq is higher, while the S&P 500 is
essentially flat, and the Dow is red.
(Stephen Culp)
*****
A HOT INFLATIONARY SUMMER (1006 EDT/1406 GMT)
Goldman Sachs said today it might add "selective exposure to
inflationary hedges" including energy stocks, energy-exposed
currencies and gold.
Market-implied probabilities measured by U.S.
inflation-linked TIPS show "the likelihood of inflation
overshooting the Fed target for longer has surged to a record
high" it adds.
Not entirely surprising; the base effects factor is
well-known and well-anticipated. Many who fully expect inflation
to fade in 2022, have been stockpiling hedges since mid-2020.
What investors are picking up on is the possibility that
citizens and businesses start embedding higher future inflation
in decision-making.
That can lead to a self-reinforcing cycle of higher wages
and price increases. So the expectations uptick reported in the
recent University of Michigan and Empire State surveys is
crucial.
Additionally, wage inflation tends to be pretty sticky which
makes McDonalds' plan for a 10% wage hike at its U.S.
restaurants interesting -- even if one believes labour shortages
are down to stimulus cheques.
Salman Ahmed, head of macro at Fidelity International, says
consumers will increasingly feel the heat over the summer as
"the whole data chain is burning up -- wages are up, CPI and PPI
are up, they are all interlinked...So if expectations get
embedded that inflation is here to stay, it becomes serious."
Mike Kelly, head of multi-asset at PineBridge is among those
who see structural inflation as years off. He says too TIPS have
a history of over-predicting inflation by 20-30 basis points.
But he has added inflation hedges, noting market-based and
survey-based inflation gauges both tend to overshoot.
We won't know for a while if the inflation spike is indeed
transitory.
What's for sure is the Fed will have to battle ever harder
to convince markets it intends to look through the data. Its
taper warning had been expected this autumn, but many, like
Fidelity's Ahmed, now believe it will come at the Fed's
late-August Jackson Hole meeting.
(Sujata Rao)
*****
COMPETING WITH SLEEP, FOOD AND SHELTER (0913 EDT/1313 GMT)
The media sector is on fire with the plan to merge TF1 and
M6 boosting the shares in both the French broadcasters.
The M&A frenzy in the sector is palpable with reports
Amazon is in talks to acquire the iconic U.S. movie studio MGM
and of course AT&T's deal with Discovery.
The battle for content is relentless as it has become clear
for industry leaders that top TV shows are getting consumers
addicted and are now the name of the game in the business.
"You got to have content that people love so much that they
would run home and pay for before they pay for dinner or the
roof over their head", Discovery's CEO said during a call
presenting the merger with AT&T's media division.
Funny to remember that actually, Netflix had already
identified another of humans' basic needs as a competitor with
its infamous "Sleep is my greatest enemy," tweet in 2017.
(Thyagaraju Adinarayan with Julien Ponthus)
*****
DOW INDUSTRIALS: STILL REELING (0900 EDT/1300 GMT)
The Dow Jones Industrial Average too quite a hit last
week. Indeed, the blue-chip average slid more than 1,500 points,
or 4.4% over just 20 hours of trading:
With this hourly volatility close-to-close jumped to a more
than 2-month high and the Dow quickly became oversold on a
short-term basis. The hourly RSI plunged to a more than 6-month
low.
Since last Wednesday's intraday low, the Dow has bounced
back as much as 899 points, or about 2.7%. With the recovery
into Friday's high, the Dow retraced about 59% of its recent
slide.
Now in the wake of quarterly reports from Home Depot
and WalMart , CBT e-mini Dow
futures are quoted up in premarket, suggesting the DJI
is set to bounce.
However, of note, these two stocks are poised to provide
around 80 points of upside to the DJI, yet the futures are now
just barely positive.
Thus, resistance at last Friday's high (34,454.05) and the
61.8% Fibonacci retracement of the May 10 to May 12 decline at
34,504.68 look to remain hurdles.
Meanwhile, despite the bounce off the lows, the hourly RSI
has so far been unable to move back above the 70.00 overbought
threshold, suggesting strength is likely counter-trend so far.
A Dow break below support at the 38.2% Fibonacci retracement
at 34,142.10 and last Thursday's midday high at 34,140.88 can
suggest the downtrend can intensify again, putting last
Wednesday's 33,555.22 low and below at risk.
A thrust above 34,504.68, however, can see the Dow attempt
to fill last Tuesday's gap, as well as rise to challenge the
76.4%/78.6% Fibonacci retracement band in the 34,72898/34,762.78
area.
Above this resistance, coupled with the RSI reclaiming 70.00
can suggest potential for new highs.
(Terence Gabriel)
*****
FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
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(Terence Gabriel and Lance Tupper are Reuters market analysts.
The views expressed are their own)