A daily market update from FS Insight — what you need to know ahead of opening bell

“For better than never is late; never to succeed would be too long a period.” — Geoffrey Chaucer

Over the Weekend

Drones hit Zaporizhzhia nuclear power plant in Russian-occupied Ukraine, raising risk of a “major nuclear incident” per the International Atomic Energy Agency (Semafor)

Turkey joins NATO allies in suspending Europe Arms Treaty that imposed armaments limits (BBG)

House Rules Committee to debate legislation Tuesday to reform and reauthorize FISA Section 702, allowing warrantless spying on foreign targets overseas, sans provision to block data brokers from selling Americans’ data to law enforcement (Semafor)

The Biden administration is announcing a $6.6 billion grant to TSMC this morning for three chip facilities in Arizona (Semafor)

Jersey Mike’s in talks with Blackstone for a deal worth $8 billion (WSJ)

Recent moves by Robinhood hint at ambitions in wealth management (WSJ)

Samsung doubles down on Texas as U.S. chip center, ramping up investment to $44 billion for hub near Austin making advanced semiconductors (WSJ)

GE Aerospace raises dividend by 250% as part of management’s plans to return ~75% of free cash flow to shareholders (Barron’s)

The market looks for Europe’s Magnificent Seven, with Novo Nordisk, LVMH, and ASML Holding drawing the broadest agreement among strategists (WSJ)

White House overhauls federal grant rules to simplify them for issuers (BB)

Maryland Gov. Wes Moore says it was “realistic” to predict that the Baltimore port could be functioning again by the end of May (CBS)

Federal prosecutors charge a man with setting fire at Sen. Bernie Sanders’ Burlington, Vt. office last week (WSJ)

Donald Trump’s plan to end Russia’s war in Ukraine rapidly would involve “pushing Ukraine to cede Crimea and the Donbas border region to Russia” (WP)

A Brazilian Supreme Court justice has ordered an investigation into Elon Musk after he said he would reactivate X accounts that the judge ordered to be blocked (RT)

Big tech has a big cash problem (WSJ)

AustralianSuper said now is the time to buy private assets (BBG)

Top U.K. banker warns of bleak outlook for London IPOs (FT)

Tech stock inflows in Q1 were the third largest on record (RT)

Global equity funds see outflows amid uncertainty on rate-cut timing (RT)

U.S. banks warn Paris that cost of dismissing traders will harm financial hub ambitions (FT)

Investors are unwinding ‘buy India, sell China’ stocks trade (BBG)

HSBC seeks to expand wealth business in China and India (BBG)

Buffered ETFs make gains in retirement portfolios (FT)

Goldman and BofA target Australian pensions for hedging business (BBG)

Hedge funds are pouncing on struggling U.K. investment trusts (FT)

RBC fires CFO over undisclosed relationship (CNBC)

ISS urges BofA to split CEO and chairman roles (RT)

Morgan Stanley boosts executive pay by 13% (RT)

Boeing awards outgoing CEO 45% pay rise (FT)

Trafigura’s CFO and executive director will exit in second recent shake-up (FT)

PBOC to lend $69B to boost science and technology sectors (BBG)

Yet another Boeing plane suffers an accident (RT)

German railway Deutsche Bahn asks bidders to submit non-binding offers for its DB Schenker logistics unit, valued at up to $16B (BBG) 

Johnson & Johnson agrees to acquire medical device maker Shockwave Medical in a  ~$13.1B cash deal (BBG) 

Skydance Media’s potential $26B merger with Paramount Global could involve a $2B cash payment to major Paramount shareholder National Amusements followed by a $5B all-stock merger of Paramount Global and Skydance (WSJ) 

Naturgy Energy Group shelves plans to sell $2.6B of Australian assets of its renewable energy unit Global Power Generation due to valuation concerns (BBG) 

Israeli insurance software firm Sapiens International, with a market value of ~$2B, explores options, including a potential sale (RT) 

Warner Music Group drops plans to bid for French digital music company Believe for $1.8B (RT) 

A consortium led by Macquarie Group agrees to acquire part of Digi Communications’ fiber networks in Spain for $813M (BBG) 

Australian PPE manufacturer Ansell to acquire Kimberly-Clark’s PPE business in a $640M cash-deal (WSJ)

Arch Insurance North America to acquire some of Allianz’s US insurance business for $450M (BBG)

Ares Management and Blue Owl Capital lead a group of private credit lenders providing $4.8B of debt financing for Novo Holdings’ $16.5B acquisition of pharmaceuticals manufacturer Catalent in one of the largest private-credit financings on record (BBG)

Telecom Italia signs a $1.6B bridge loan to cover refinancing needs until it closes the sale of its mobile network to KKR (BBG) 

Cruise operator Viking Holdings’ IPO filing reveals 50% revenue jump but a $1.9B net loss on one-time costs (RT)

China Construction Bank files liquidation petition against Chinese property developer Shimao in Hong Kong over a $202M financial obligation in a rare state-owned bank first (RT)

American Home Fitness, a smaller peer to Peloton, files for Chapter 11 reorganization (TS)

First news

• Saudi Arabia and Kuwait diversify out of oil, but in very different ways
• Germany is finally, gingerly joining the European fray
• Is Apple trying to make itself feel better about the EV snafu by rushing into robotics?

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Last week was a “stress test” of sorts for equity markets. The combination of “hot” ISM, coupled with Fed members (Kashkari) speaking of no cuts (even hikes) in 2024 and the very “hot” jobs report, caused many pundits to turn cautious. Stocks fell -1% last week and the S&P 500 briefly fell below the 50 DMA (day moving average). But to us, this was a “head fake” and, in the coming week, probabilities favor equities as set up for a positive surprise.

The S&P 500 fell -1% last week, the worst week since the start of 2024, when S&P 500 fell -1.5% to start the year. At the start of 2024, the initial wobble of equities was enough to turn many investors negative and many pundits declared trouble ahead for stocks (at that time).

Recall, stocks roared +2% higher the following week and went on to gain during 5 consecutive weeks.

Click HERE for more.

TECHNICAL

Despite the past week’s minor weakness in U.S. Equities, it’s worth remembering that U.S. markets had only experienced five down weeks in the last five months. Friday’s rally helped SPX recoup about half of the week’s early decline and seems to have repaired the minor technical damage caused by Thursday’s drop.

Large-cap Technology continues to hold up quite well despite QQQs underperformance vs. SPY in recent months, and Friday’s strength looked like an important signal that a bottom to this recent consolidation could be at hand.

SPX managed to successfully recoup the area near 4/2 intra-day lows of 5184 that had been violated. This is a bullish development, which technically should begin to lead prices back up toward this past week’s highs.

The two key areas in question lie at 5257 on the upside and 5146 on the downside. Our thinking is that, next week, these resistance highs should be challenged and exceeded.

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CRYPTO

Miners have certainly been underperforming year-to-date (YTD), and there’s no denying this fact. Ahead of the upcoming halving, a cloud of uncertainty looms over shareholders as block rewards for miners will be reduced by 50%, potentially affecting margins negatively. However, the current price levels should be sufficient for profitable miners to remain operational.

In our view, the most significant factor negatively affecting miner share prices is the current interest rate environment. Unlike Bitcoin, which benefits from its status as a commodity driven by straightforward supply and demand dynamics, miners are subject to a cost of capital. Their cost of capital increases with higher interest rates, as the risk premium on these stocks remains unchanged.

This explains why, when expectations for rate cuts are delayed and interest rates rise, miners typically underperform compared to Bitcoin.

Click HERE for more.

FIRST NEWS

AI and U.S. Are Better than Oil. Sanabil, the venture capital arm of Saudi Arabia’s sovereign wealth fund, is actively pursuing direct stakes in startups as part of the kingdom’s broader strategy to build its own artificial intelligence (AI) capabilities. Behind the scenes, Saudi Arabia has even grander plans to make a significant impact in the AI space, as the Saudi government considers launching a massive AI-focused fund in partnership with VC firm Andreessen Horowitz. The proposed fund’s size would rival Saudi Arabia’s $45 billion investment in SoftBank’s Vision Fund, potentially shaking up the AI landscape.

These moves represent Saudi Arabia’s efforts to deepen its involvement with tech startups that relied on venture capitalists for investments – and beyond its traditional role as a source of petrodollars. Amid the current AI investment frenzy, the kingdom views its direct engagement with startups as a way of developing homegrown AI technologies. To achieve this, Saudi Arabia is encouraging startups it invests in to establish a physical presence or business dealings within the country, fostering a local AI ecosystem.

In the meantime, Kuwait’s Sovereign Wealth Fund, while also looking to diversify beyond petrodollars, seeks performance outside of the country. The Kuwait Investment Authority (KIA), which manages over $800 billion in government funds, is poised for a banner fiscal year thanks to a strategic bet on U.S. equities. With more than half of its $800 billion portfolio invested in U.S. assets, the KIA has posted double-digit returns in the 11 months leading up to February. Naturally, the surge in the S&P 500 and Nasdaq 100 indices last year played a significant role in driving these impressive returns. The sovereign wealth fund’s substantial exposure to the U.S. market has paid off handsomely, positioning it for one of its best fiscal years on record. The Information, Bloomberg

Germany, Germany, Fighting Alongside All. Germany is weighing the reintroduction of compulsory military service as part of sweeping reforms aimed at bolstering its armed forces’ readiness in the face of potential further Russian aggression in Europe. With one of NATO’s largest militaries, thee country must be prepared “in the event of war” says Defense Minister Boris Pistorius, who has outlined plans to overhaul Germany’s long-neglected military capabilities, which will include a dedicated cyber-warfare division, on par with the navy, air force, and army, underscoring the central role of digital command and control capability in modern conflicts.

The push to enhance military readiness marks a shift from Germany’s current focus on foreign missions – such as the fight against terrorists and pirates [and] the protection of international aid workers in crisis areas. The shift came when Russia launched a full-scale invasion of Ukraine. Understandably mindful of its aggressive past, Germany has been slower than many NATO allies to adapt an active defense posture, with many members beginning to shift strategies after Russia’s annexation of Crimea in 2014.

In recent years, multiple NATO members failed to meet the target of spending at least 2% of their GDP on defense, prompting new spending pledges. With the focus being thee prioritization of homegrown defense technology to avoid overreliance on foreign procurement and falling behind the U.S. in drone and AI-based capabilities.

Several other European nations, including Serbia and Croatia, are also considering reinstating mandatory military service, while Latvia has already reintroduced conscription after Russia’s invasion, urging others to follow suit. German politicians will deliberate on the compulsion policy in the coming weeks, possibly adopting a model similar to Norway’s, where all 18-year-olds are assessed for potential military service, with only a select few chosen, fostering competition and making the slots coveted. This approach recently led to Norwegian Princess Ingrid Alexandra, second in line to the throne, being selected for a year of military service, a move celebrated by her father. Semafor

“Siri, what’s the next big thing?” After its EV project just ran into a wall, Apple is said to be haltingly exploring home robotics as the next big market segment and revenue driver. As the search is on for new growth sources, Cupertino has teams working on automated home devices, investigating mobile robots that can trail users around their homes, as well as advanced tabletop devices with robotic capabilities. The apparent pivot towards robotics as a consolation for its stalled automotive ambitions may be flawed.

Many see the search for new revenue sources as a driving force behind its robotics pursuits. Yet such a rationale may lack strategic insight. For robotics to generate a reliable and profitable revenue stream, it would require sales in the millions – a goal that is likely years, if not decades, away from execution.

Apple’s strength lies in its ability to create seamless, user-friendly experiences with mass consumer appeal. Robotics, on the other hand, remains a niche, highly specialized field that requires long, extensive research and development before achieving mainstream adoption. By diverting resources to an endeavor that deviates from its core competencies, Apple risks squandering its focus and diluting its brand identity. Alternatively, cash-rich Apple could leapfrog the competition by acquiring it.

Still, it’s not clear how effectively and quickly the company could integrate acquisitions into its lineup of sleek products featuring highly integrated hardware and software. One potential acquisition target, Boston Dynamics, was sold by Google to SoftBank, from which it was purchased for $1.1bn in June 2021 by Hyundai, where it remains. As the specialized firm is passed around between tech and manufacturing giants, the plan for bringing polished, profitable products to market is still unclear, as is the role Apple could potentially play in such an endeavor. Bloomberg, TechRadar