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

“All growth is a leap in the dark, a spontaneous unpremeditated act without benefit of experience.” — Henry Miller

Overnight

Oil prices nudge higher after third straight weekly loss (MW)

Gas prices see ‘ultra-rare’ drop to start summer (MW)

Boeing woes weigh on credit rating as specter of junk status looms (FT)

A new way to make green steel (WSJ)

LME aluminum queue jumps to five months on Trafigura inflow (BBG)

Wall Street backers hope greenwashing scandals and sagging prices are in the past, see breakthrough moment for carbon offsets (BBG)

FuelCell’s stock rises above $1 delisting threshold after upbeat earnings report (MW)

Southwest Airlines’ stock surges after activist Elliott seeks c-suite shakeup, says stock can soar 77% (MW)

Takeover battle over Remington ammunition heats up after a new $2bn approach (FT)

Charting trade chokepoints: a how-to guide (FT)

Dockworkers cancel bargaining, threaten strike at U.S. seaports (WSJ)

Ukraine’s top reconstruction official quits in new blow for Zelenskyy (FT)

FDA advisors recommend Eli Lilly’s Alzheimer’s drug donanemab, paving way for approval (CNBC)

Moderna hails successful trial of combined Covid and flu shot (FT)

Edgar Bronfman eyes $2 billion-plus bid for company that controls Paramount (WSJ)

The richest league on Earth is tearing itself apart (WSJ)

The shortcut that allows risky startups to raise billions from rookie investors (WSJ)

OpenAI hires Sarah Friar (ex-Nextdoor) as CFO, Kevin Weil (ex-X) as Chief Product Officer (TI)

Apple partners with OpenAI to bring ChatGPT to its devices (FT)

Apple Introduces Apple Intelligence, a systemwide software update that reportedly emphasizes privacy, can retrieve information across apps (WSJ)

Apollo, Coinbase, Palantir, and Workday could be the next additions to S&P 500 (Barron’s)

Hedge funds are dumping chip stocks for software (BBG)

U.K. poised to approve biggest overhaul of IPO regime in 40 years (FT)

Morgan Stanley CEO says AI could save advisers 15 hours a week (RT)

Moelis places banker on leave as it investigates NY altercation (FT)

BP toughens workplace intimacy rules in wake of CEO sacking (FT)

Singapore ramps up scrutiny of hedge funds and family offices (BBG)

Investors reduce exposure to long-term U.S. Treasuries ahead of rate decision (RT)

BlackRock cautious on long-term U.S. Treasuries ahead of elections (RT)

Outstanding zero-coupon Treasury bonds rose to a ~$500B high (BBG)

ECB could wait several meetings between rate cuts (RT)

Elliott seeks new leadership and strategy for Southwest Airlines (FT)

Nvidia stock split sparks speculation of Dow inclusion (RT)

CalSTRS will oppose Musk’s ~$50B pay package (CNBC)

Mexico investors worry lopsided vote could threaten rule of law (RT)

JPMorgan names ex-PayPal exec Sri Shivananda as new CTO (RT)

Mnuchin’s Liberty Strategic Capital reports a 7.7% stake in NYCB (RT)

Shopping center vacancy hits two-decade low as retail makes comeback (NYT)

‘Promotion recession’ adds woes to entry-level job seekers (BBG)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Today we discuss how the soft data shows inflation expectations are back at pre-pandemic levels, as seen in both U Mich/NY Fed consumer surveys and even the ISM’s prices. Also, rising odds of a cut favor small-caps, which have lagged.

Click HERE for the video.

TECHNICAL

As discussed in Monday morning’s Flash Insights, U.S. Equity markets remain keenly focused on the FOMC’s Dot plot, with 35 bps of cuts priced into the market right at the moment. This favors a more dovish tilt, as the FOMC won’t wish to shift from three interest-rate reductions priced into the market down to one, then be forced to backtrack on any evidence of weaker data this summer.

Accordingly, our view is that the economic data, along with the Fed messaging, should help both U.S. Dollar and U.S. Treasury yields build on the technical breakdown that happened earlier last week. Such a move would be favorable to risk assets, as it would provide more clarity on the Fed’s view while helping the market align itself with what the Dot plot suggests.

At present, Technology has certainly taken the lead role in strengthening, as it led all other sectors in trading on Monday, with gains of +1.11%, including strong performance from Solar names, along with 3%+ gains out of LRCX 0.85% , MPWR 1.35% , and STX.

Click HERE for more.

CRYPTO

Bitcoin miner Bitfarms is attempting to block a hostile takeover from competitor Riot Platforms through a “poison pill” strategy. In April, Riot proposed an acquisition of Bitfarms at a 24% premium, which Bitfarms ultimately rejected. Riot then accumulated approximately 12% of the BITF N/A% shares over the last two weeks, making them the largest shareholder, with intentions of calling a special shareholder meeting to introduce independent directors to the Bitfarms board. Riot believes that Bitfarms’ board members are not acting in the best interests of shareholders. To preserve the integrity of Bitfarms’ strategic alternatives review process, the Bitfarms board has approved a poison pill strategy. Under the plan, if a single entity accumulates more than 15% of the company between June 20th and September 10th, the company will issue additional stock, diluting the entity’s stake. Bitfarms hopes the new issuance plan will deter Riot from acquiring more shares and allow them to pursue their own directives.

Fidelity International has selected JPMorgan’s Onyx Digital Assets as its partner to tokenize one of its money market funds. Fidelity International is a subsidiary of Fidelity Investments based in London, and Onyx is JPMorgan’s private blockchain network that supports its Tokenized Collateral Network (TCN). TCN is an application that connects JPMorgan’s transfer agent and financial institutions, allowing for instant tokenization and transfer of collateral. JPMorgan completed its first tokenized collateral settlement last year, transferring tokenized shares of one of BlackRock’s money market funds to Barclays to serve as collateral for an OTC derivatives trade. Banks and asset management firms continue adopting tokenization strategies to unlock capital efficiency and lower costs. Most tokenization activities have focused on MMFs as collateral, but the goal for Onyx and other tokenization companies is to expand into equities, fixed income, real estate, and other assets to transform how finance is facilitated.  

Click HERE for more.

FIRST NEWS

Ritzy Banking. The new Citibank branch on 64th Street and Third Avenue in Manhattan opened in April 2023 after extensive renovations, unveiling a strikingly different interior design. Gone were the traditional teller windows, replaced by a layout reminiscent of a hotel lobby or upscale cafe. Plush couches, open meeting spaces, and semi-enclosed wooden cubicles greeted customers, who now approach a concierge-style desk instead of lining up behind partitions.

This redesign reflects Citigroup’s broader strategic shift since 2017 toward prioritizing customer relationships and advisory services over basic transactions such as check cashing and money transfers. Tellingly, teller transaction volume has dropped 40% compared to pre-pandemic levels, while scheduled appointments with bankers have tripled in the last two years.

Other major banks are following suit. JPMorgan Chase has renovated 2,300 branches and plans to revamp another 1,700 by 2027, while Bank of America has completed a plan to create spacious waiting areas and align teller staffing with actual transaction volumes, having seen advisory appointments surge 50% since 2017. The era of the traditional bank branch appears to be giving way to a more lounge-like, advisory-centric experience.

The real question is: what are all these clearly mid- to high-rollers – they’re certainly not coming in for a roll of quarters – being advised on these days? If we were stopping by to consult with an advisor at a bank, we’d want to know whether they could get us access to something reasonably bankable, like, say, an ETF rooted in a certain stock list, popular with Fundstrat clients, that everyone and their grandmother could get behind. Bloomberg

“Eighty Percent of People Think They’re Better-Looking Than The Average Person.” Lately, insurance companies have been buying data on people’s driving habits and using it to more efficiently price insurance. We Americans can be a bullish, immodest nation; unsurprisingly, more than half of us rate ourselves above the 80th percentile in driving safety. And yet, the working assumption most Americans have about insurance companies adjusting our rates based on our driving is that it would make us worse off.

Now, an insurance company that successfully targets safer drivers will charge less overall, while earning more. What drivers tend to worry about is that every insurance company will charge them more, which is only a reasonable concern to be riding if they’ve been free-loading on artificially cheap insurance because insurers underestimate how unsafely they drive. But wait – another reason for the underestimation is a spike in accidents and other adverse events that’s too sudden to have been predictable via actuarial tables. The recent anti-police movement has reduced traffic enforcement, resulting in more reckless driving and therefore more accidents. Deaths from alcohol-related crashes are up by a third since 2019 even as arrests for driving under the influence and traffic citations have fallen 20% (see previous sentence).

Litigation abuse is also growing as plaintiff firms sue insurers for inflated damages. In addition to rising medical costs, this is one reason the average bodily injury claim is up by ~80% since 2014. Excessive litigation accounted for about $4 billion in commercial auto insurance claim costs in 2021.

Auto insurance rates are up 46.2% since January 2020 – more than in the eight previous years combined. These rates have increased in tandem with accident claims, and in line with repair costs (up 48%), while exceeding the surge in vehicle values and the price of parts by roughly a factor of two. (Used and new vehicle prices have increased 29.5% and 20.4%, respectively, since January 2020; prices for vehicle parts have risen 21.7%.)

In a less competitive industry, it’s fair to worry that companies would use your data to extract more money from you, although the usual way insurance companies go about it – especially in the wake of the abnormal rise in accidents and costs, detailed above – is to raise prices for everyone and then discount individually through the app. That may not make everyone better off, but it does the next best thing: the person who sees the biggest price hike would be someone who doesn’t patronize the company very much, which means that it’s no huge loss either for the customer or the insurer if they stop buying entirely. It could very well be that they’ve finally had their fill of those insufferable ‘Liberty, Liberty, Liberty’ ads. TheDiff, WSJ, NYT