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

“If you want to lift yourself up, lift up someone else.” — Booker T. Washington

Overnight

U.S. GDP growth was slower last quarter on soft consumer spending (BBG)

Eurozone unemployment falls to record low (TG)

Oil prices steady as traders await OPEC+ decision on production cuts (MW)

Trump becomes first former US president to be convicted of felonies (CNBC)

Market maker Citadel Securities lures Goldman Sachs veteran to its ranks (FT)

Bill Ackman Eyes IPO of Pershing Square (WSJ)

KKR’s $23 billion acquisition of Telecom Italia’s broadband network receives EU approval (WSJ)

U.S. Commerce Dept. probes South Korean chip-equipment makers (TI)

UBS splits wealth management role as part of executive reshuffle (RT)

Saudi Arabia readies sale of at least $10bn Aramco shares (FT)

UBS fined by Swiss for failing to report Yemen-linked accounts (BBG)

Skydance sweetens merger offer for Paramount (WSJ)

Japan’s chip supply chain stocks are still a good way to tap AI trends (FT)

U.S. slows plans to retire coal-fired plants as power demand from AI surges (FT)

Sustainability-linked bonds falter amid credibility concerns (FT)

Amazon gets FAA approval allowing it to expand drone deliveries for online orders (USN)

E-grocer Takeoff Technologies files for bankruptcy to sell assets (WSJ)

UBS makes Karofsky and Khan wealth co-heads in management shakeup (BBG)

U.S. close to bankrolling Moderna’s bird flu vaccine as third dairy worker tests positive (IBD)

U.S. to offer Ukraine security pact as tensions rise between allies (FT)

WeWork’s new owner pitches no-drama turnaround for Adam Neumann’s old company (FT)

TikTok is reportedly preparing a U.S. copy of its core algorithm (RT)

Global fund launches in China hit a record high (RT)

China is weighing a record $138M fine for PwC (BBG)

China securities regulator fines Evergrande and founder $586 million (WSJ)

BofA CEO expects 10%-15% jump in IB fees in Q2 (RT)

Zero-down mortgages are making a comeback (CNN)

U.S. pending home sales see largest drop in three years (RT)

U.S. issues guidelines for voluntary carbon market (WSJ)

June to see highest global sovereign debt issuances YTD (RT)

Foreigners pull money from EM portfolios after five months of inflows (RT)

U.S. is slowing AI chip exports to Middle East (BBG)

Ex-Tesla board member Steve Jurvetson’s Future Ventures raises $169 million for new AI-focused fund (SEC)

U.S. expansion worsens credit losses at Klarna (FT)

Future energy demand does not need new fossil fuels (FT)

Americans still prefer gas vehicles over hybrid or EVs (RT)

Walmart managers now making over $500k/year (BBG)

Enormous doctor’s bill? You can thank private equity for that (WSJ)

The four-day workweek is closer than you think: ‘It’s better for humans in general’ (MW)

Exodus of U.S. law firms from Shanghai accelerates (FT)

Killer dog – funded by major venture capital firms, a gun-toting version of a robot dog undergoes testing by China’s army (FT)

Hot dog – that’s inflation! Americans willingly pay $6 for a frank, its price up over 7% in the past year (MW)

And yet – Costco doesn’t raise membership fees, says $1.50 price for hot dogs is safe (MW)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

The S&P 500 is down -1% over the past week. This is a weak finish to what has been a strong month, with S&P 500 on track to gain >5% in May. On Friday, 5/31, April Core PCE (the Fed’s preferred measure of inflation) will be released:

• Since the end of 2022, stocks have generally risen into the PCE release (5D gain into release +0.4%, 75% win ratio). By contrast, the S&P 500 is down -1% in the past week.
• Looking at market reaction to the 16 most recent PCE data releases:
  – S&P 500 1D and 5D post-PCE
  – Median: +0.3% and +0.8%, respectively
  – Win-ratio: 63% and 75%, respectively

Click HERE for more. 

TECHNICAL

Interestingly enough, Friday’s SPX and QQQ performance failed to manifest the internal strength shown by many sectors following a worse-than-expected GDP print.

Eight sectors were positive in Thursday’s session, while just three finished lower. However, Technology was one of these three, and its outsized loss of -0.80% proved to be detrimental to performance in the major U.S. indices.

XLK 0.50% , the SPDR Sector Technology ETF, fell nearly double the amount of the Equal-weighted Technology ETF, RYT, and stocks like CRM -0.42% , NOW 0.65% , INTU 0.84% , ADBE 1.37% , and FI 1.53%  all underperformed sharply as Software woes from Salesforce.com rippled across the Technology sector.

Importantly, the downward revision in the Core PCE Deflator, combined with a lower-than-expected GDP print, helped Treasuries stage a sharp rally following a couple of difficult weeks for Treasuries. Yields fell nearly 1% across much of the curve and many Equity sectors responded positively in Thursday’s session. 

A triangle formation may be underway on the daily chart (shown below) while RSP likely will not weaken materially further in the days to come. The combination of bullish June seasonality and a positive cyclical projection should result in a bottoming out and a turn back higher for U.S. equities in June.

CRYPTO

In our latest video, we discuss changing market dynamics as correlations between Bitcoin and equities rise, as well as macro factors that can potentially fuel further price appreciation.

Click HERE for more.

FIRST NEWS

Come Together, Over Others. Consolidation in the oil patch marches on. Announced this week, the merger of ConocoPhillips and Marathon is creating the third-largest producer of U.S. shale oil and gas. Exxon was recently bolstered by its acquisition of Pioneer. Likewise, Chevron also took a big step this week to complete a takeover of Hess.

Each transaction in this hydrocarbons arms race is catalyzing the next one, and it feels more than a bit like the late 1990s and early 2000s, when returns-focused companies consolidated at a frenzied pace. Those years saw Exxon buy Mobil, Chevron swallow Texaco, and Conoco acquire Phillips. Profits flowed, but the heavy spending that followed in the 2010s destroyed a lot of value.

With a spate of deals completed recently, including Exxon-Pioneer, Diamondback-Endeavor, and Conoco-Marathon, one has to wonder what Devon’s next move is. Semafor

Albany Legislators: We Are the Champerty-ons. For a time, it appeared that lawmakers in New York state might upend the sovereign debt market. Now, it wouldn’t be an overstatement to say that, to the relief of many across the world, a sensible compromise seems the most likely outcome.

Legislators had been making aggressive statements about cracking down on vulture funds – hedge funds that make a habit of buying distressed or defaulted debt at a deep discount, then sue to be repaid in full – with interest. Such tactics have earned some funds billions from cash-strapped governments.

While there’s debate over whether vulture funds are still a major issue, as most modern sovereign bonds contain collective-action clauses forcing minority bondholders (such as vulture funds) to accept restructurings, multiple bills have been circulating in Albany, aiming to overhaul the debt-restructuring processes. Why is Albany suddenly relevant as a global finance capital? Because about half of the market’s bonds are governed by New York law.

Critics warned that the proposed bills could discourage lending to emerging economies. The latest bill, most likely to pass, would allow lawsuits demanding full repayment to be barred on grounds of champerty – a doctrine that prohibits purchasing claims solely to sue over them. 

In 1998, a vulture fund named Elliott Associates was found guilty of champerty in the case of Peru’s debt. A 2004 law exempted claims over $500,000 from the champerty defense, which this new bill would effectively roll back.

The new bill is narrowly focused, ensuring that only vulture funds are targeted while allowing conventional investors to sue for money owed. The structure is quite clever, too: when vulture funds cause no problems, it does no harm. Yet if they pose a threat, the bill has real bite. While broader overhaul bills linger, they will likely not get the support necessary to be passed if this champerty bill succeeds. Axios