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

“You can bet against the U.S. political system. Don’t bet against the U.S. economy.” — World Bank chief economist Indermit Gill

Overnight

The FTC bans noncompete contracts for most workers that restrict them from joining rivals (Axios)

Tesla shares jumped ~12% despite missing Q1 earnings and revenue estimates and reiterating a pessimistic FY outlook, as Musk announced plans to pull forward production of a new affordable EV (CNBC) 

Visa beat Q2 analyst estimates as consumers shrugged off worries of a slowing economy to swipe cards on everything from travel to dining (RT)

Spotify shares jumped 11% after beating Q1 estimates, swinging to a profit as it implements its ‘efficiency’ strategy (YF) 

PepsiCo beat Q1 earnings and revenue estimates as growth in international markets offset weaker demand in its North America market (CNBC)

The drink-and-snack company’s Quaker Foods unit suffered a sharp drop in revenue and earnings after a recall due to possible salmonella contamination (-2.9%) (PepsiCo)

GE Aerospace shares rose ~8% on a beat-and-raise thanks to strong sales from commercial aircraft engines and services (BBG) 

General Motors shares rose ~4% after on a Q1 beat-and-raise thanks to strong North American operations, driven by truck sales (CNBC) 

JetBlue Airways shares tumbled ~19% after lowering Q2 and FY revenue forecasts as it attempts to return to profitability (CNBC) 

The shipping giant’s revenue fell 5.3% in the first quarter, compared with a year earlier, but cost cuts helped offset the decline (+2.4%) (UPS)

The automaker raised its 2024 profit outlook as it benefits from renewed interest in traditional gas-powered trucks (+4.4%) (GM)

iHeartMedia and Deep Blue Sports + Entertainment are launching the Women’s Sports Audio Network, the first-ever audio platform dedicated strictly to women’s sports (Axios)

Apollo sells stake in asset-backed lending unit to insurer MassMutual (FT)

Ardian’s £2bn UK music console maker deal marks buyout activity revival (FT)

Fund offering ‘VC’ exposure sends investors on meme-like ride (RT)

Jamie Dimon cautions over soft landing for ‘unbelievable’ U.S. economy (FT)

Global EMN hedge funds report best quarter in 24 years (RT)

U.S. oil and gas M&A hit a record high $51B in Q1 (RT)

Blinken in China today through Friday (DoS)

Chinese speculators super-charge gold rally (FT)

JPMorgan AM surges to dominance in Europe active ETF market (FT)

JPMorgan named new heads of China securities unit (RT)

Cathie Wood’s popular ARK funds are sinking fast (WSJ)

U.S. business activity cooled to a four-month low (RT)

Eurozone business activity rose to an eleven-month high (FT)

FDIC ponders tighter checks on big ‘passive’ investors in U.S. banks (FT)

U.S. new home sales rebounded to a six-month high (RT)

U.S. will sanction Chinese banks aiding Russia War effort (WSJ)

TikTok spent $7M on lobbying and ads to combat potential U.S. ban (CNBC)

Microsoft launched a lightweight AI model (RT)

Advisers on trillions in IRAs must now put your interest first (WSJ)

Amazon launched a grocery subscription (TC)

NBA TV rights are up for grabs (TA)

Oracle is moving its world HQ to Nashville (CNBC)

IBM is in advanced talks to acquire $5.9B software company HashiCorp (BBG) 

Ithaca Energy agreed to acquire almost all of Italian energy company Eni’s UK oil and gas fields in a ~$940M stock deal (FT) 

Coffee roaster Luigi Lavazza agreed to buy vending machine maker IVS Group in a  $697M cash deal (BBG) 

Metaverse firm Infinite Reality acquired the Drone Racing League for $250M (BBG) 

Redwood Capital Investments nearing deal to acquire BDT & MSD Partners’ majority stake in Marquette Transportation (BBG)

Allfunds Group abandoned discussions over a potential sale of the European fund distribution platform (BBG) 

Microsoft-backed cloud and data security startup Rubrik’s $713M IPO is ~20x oversubscribed (BBG)

Goldman Sachs held talks with private credit lenders to help shore up Beyond Meat liquidity and is seeking ~$250M (BBG) 

Fisker may file for bankruptcy protection in 30 days amid debt obligations (RT)

Venezuela hired Rothschild & Co. to advise on its $154B foreign debt obligations (BBG)

U.S. prepares to sanction China over its support for Russian war effort (Semafor)

Russia pledges to retaliate against Western efforts to support Ukraine (Semafor)

Africa’s top fintech player is getting ready for an IPO (Semafor)

Oracle met with Senate aides about TikTok data storage after House ban passed (CNBC)

Apple’s Q1 smartphone shipments in China tumble 19%, data shows (RT)

Hong Kong’s biggest IPO of 2024 flops (FT)

Taiwan will tear down all remaining statues — more than 760 — of former president Chiang Kai-shek (Semafor)

Voyager 1 is talking to mission control again, after NASA’s engineers have spent the last several months troubleshooting it. (Semafor)

First news

• Mall landlords seem distractedly happy to continue the practice of purchasing failing tenants
• PE firms extract returns from portfolio companies, but at a cost some may not be ready to bear
• Limits on the pay of Wall Street executives, a requirement of Frank-Dodd, are on the table as an FDIC vote is imminent
• Its profits stuck in the embattled country, Citigroup remains a bank to companies in Ukraine that need its services, and is likely to benefit indeed from Ukrainian reconstruction.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

The S&P 500 and equities rebounded over the past two days, rising >2%, and the S&P 500 closed solidly above the critical 5,019.20 to 5,070.55. In our view, this is confirmation that the worst of this two-week decline is behind us.

Over the last few trading days, we wrote about how the risk/reward had flipped to attractive for equities given multiple factors. To recap:
– first, S&P 500 + Nasdaq 100 (SPY 0.56%  QQQ 0.40% ) are oversold to levels where “bounce” ensues
– second, 1-year inflation expectations, forward 1 year from now, surge to >4.5%
– third, 1Q24 earnings season remains solid and a third report this week
– fourth, our base remains inflation below Street, as median core CPI at 1.76% below LT avg
– fifth, short interest surged = signs de-leveraging near end
– sixth, Mark Newton, our Head of Technical Strategy’s, cycle work shows 4/20 as a turning point.

Click HERE for more.

TECHNICAL

During Tuesday’s session, SPX and QQQ rallied sufficiently to suggest that a short-term low should be in place, which could lead back to new high territory. This is based on wave structure, breadth, momentum, seasonality, and cycles. Furthermore, U.S. Dollar and Yields both began to turn lower Tuesday on April’s sub-par Flash PMI data, which is encouraging for risk assets based on the correlation over the past year. While this move might not prove to be a straight shot higher, it looks right to expect that lows very well could be in place, and higher prices are likely into May. SPX target on this move should materialize near 5400.

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CRYPTO

Bitcoin miners have benefited as rates retreat and transaction revenue remains elevated, with RIOT -3.01% , CLSK, and MARA 0.71%  showing weekly gains of 26%, 16%, and 14%, respectively. Crypto assets are mixed with BTC (-0.18%) holding at $66.7k and ETH (+1.48%) climbing to $3,250. The Akash Network (AKT), a decentralized compute marketplace, is a top performer today, surging over 70% to $7.10 after being listed on Upbit. AKT (+25.88%) has since pared its gains and is trading at approximately $5.25.

The Blockchain Association, an industry non-profit promoting productive digital asset policy, is suing the SEC over its new definition of broker-dealers. In conjunction with the Crypto Freedom Alliance of Texas (CFAT), the lawsuit was filed in the Northern District of Texas, seeking a court order to strike down the new definition. The SEC introduced the new framework in February, defining a dealer as anyone who provides over $50 million in liquidity and acts as a market maker, creating dealer registration and capital requirements for individual defi liquidity providers. The lawsuit claims that the SEC is violating the Administrative Procedure Act by unlawfully expanding the interpretation of “dealer” as defined by the Securities Exchange Act of 1934.  The proposed definition was ridiculed by the industry and those within the SEC, including Commissioners Hester Pierce and Mark Uyeda, who called out the rule’s overreach and contradiction of its prior guidance. The lawsuit comes at a time when a Utah judge criticized the SEC for its “gross abuse” of power in the Debt Box crypto case, resulting in two SEC lawyers’ resignations and yet another example of the SEC losing in court against crypto companies.

Asymmetric Research, a blockchain security firm, found a Cosmos ecosystem vulnerability that could have put $150 million at risk. Asymmetric alerted Cosmos to the first reentrancy vulnerability via its bug bounty program, which was patched before anyone could take advantage. A reentrancy attack is when funds are repeatedly withdrawn from a smart contract and sent to an unauthorized contract. If not patched, a hacker would have been able to mint an infinite amount of tokens on any IBC-connected chains and drain defi protocols. Asymmetric clarified that the vulnerability existed in ibc-go, a reference implementation of the Inter-Blockchain Communication Protocol (IBC) since its inception, but recent updates to the Cosmos SDK made the vulnerability actionable. Applications built on CosmWasm would have been directly impacted, with Osmosis being the largest potential victim. ATOM 2.90%  was mostly unaffected following the news and is showing muted losses on the day, declining 0.91%.

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FIRST NEWS

Lording over Them. Mall owners are yet again content to save a bankrupt tenant’s day. Simon Property and Brookfield are buying Express, which joins Forever 21, JCPenney, and Brooks Brothers in the league of “resurrection experiments” by landlords. Simon’s CEO has termed the rescues a ‘distraction’, while saying they’ve mostly been profitable. Semafor

The Cost of Cashback. As the M&A landscape remains sluggish, and the IPO market continues to crawl, private equity firms are increasingly turning to debt financing as a means of extracting returns from their portfolio companies. Data from Pitchbook LCD reveals that dividend recapitalizations, funded by fresh debt, have reached record levels this year. The strategy serves as a temporary fix, allowing PE firms to distribute cash back to their investors, whose patience has been tested by prolonged hold times that now average ~7 years – the highest in two decades. This debt-fueled dividend approach comes with its own set of challenges. The cost of debt in recent deals has skyrocketed, reaching levels twice as high as those seen in 2021. Unsurprisingly, credit ratings have taken a hit, reflecting the increased leverage and financial strain on these companies. Semafor

Third Time’s the Charm. After two previous unsuccessful campaigns, U.S. financial regulators are gearing up for another attempt at regulating Wall Street executives’ compensation – a long-standing requirement under the 2010 Dodd-Frank Act, which has yet to be implemented.

Apparently, the FDIC plans to vote on incentive-compensation rules in the coming weeks. Even if approved, the measure would still need to clear a gauntlet of approvals from at least half a dozen other regulatory bodies before taking effect.

The renewed effort marks the third attempt by financial watchdogs to address the Dodd-Frank requirement, which aims to curb excessive risk-taking by tying Wall Street bonuses to long-term performance. Previous attempts in the wake of the 2008 financial crisis faltered, failing to garner the necessary support among regulators. Bloomberg

A Bank in Need. As the Ukrainian conflict enters its third year, Citigroup finds itself in a precarious yet pivotal position, the only remaining U.S. bank navigating the treacherous landscape while helping global corporations like McDonald’s and Unilever maintain operations in the country.

Citigroup’s identity is deeply rooted in its status as a global banking giant. Multinational corporations rely on its vast network to securely store funds and pay employees across their international operations. With a presence in some 160 countries, few rivals can match Citigroup’s global reach – a reach that lies at the core of Chief Executive Jane Fraser’s strategy to bring the bank back stronger, but also exposes Citigroup to the perils of war, turmoil, dictatorships, disasters, economic booms, and busts.

While Citigroup’s staff in Ukraine have survived thus far, they face constant risks of Russian attacks and frequently take shelter in a bank vault in Kyiv. The bank’s loan portfolio comprises companies that could be decimated or forced to flee advancing tanks. A Russian victory could potentially lead to the loss of Citigroup’s entire Ukrainian operation, forcing the bank to write off exposures and withdraw from the country, mirroring its exit from Russia. (Citigroup’s profits remain trapped within the country due to martial law.)

Conversely, a post-war Ukraine would require an estimated $1 trillion for reconstruction efforts, and Citigroup would serve as the international pipeline for these funds. Should Ukraine succeed in joining the E.U. and NATO, global investment might flood in. There is also a renewed Ukrainian vigor to address a reputation for corruption, which had previously hindered global investment before the war.

For Citigroup executives, remaining in Ukraine and supporting their clients has been the only viable choice. Other foreign banks, including Deutsche Bank, Crédit Agricole, and BNP Paribas, have also maintained operations in Ukraine, with the latter two operating consumer banks, a segment Citigroup does not participate in.

Citigroup’s executives hesitate to make predictions and, like many Ukrainians, are preparing for a protracted conflict, but these aren’t the only long-term plans being made. A surge of NGOs and charities, including World Vision International, a Christian relief organization focused on children, have opened new accounts to enter Ukraine and aid in the nation’s reconstruction efforts. There’s a large interest in post-war Ukraine, and whoever’s on the ground now will likely be the largest private player in the reconstruction. WSJ