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

“One of the frustrating things for people who miss the first rally in a bull market is that they wait for the big correction, and it never comes. The market just keeps climbing and climbing.” — Martin Zweig

Overnight

Port of Baltimore fully restored after Key Bridge collapse (WSJ)

Container lines’ shares tumble on possible easing of Red Sea hostilities (WSJ)

Oracle jumped 9% despite missing Q4 earnings and revenue estimates on new Google and OpenAI cloud deals and a double-digit sales growth forecast (CNBC) 

Apple shares hit record high and push valuation back above $3tn (FT)

Apple Intelligence: A guide to Apple’s AI-in-everything strategy (WSJ)

What the Apple-OpenAI deal means for four tech titans (WSJ)

Twenty states now involved in U.S. monopoly lawsuit against Apple (RT)

Elon Musk withdraws suit against OpenAI, Sam Altman (WSJ)

Mistral AI secures €600mn funding as valuation soars to almost €6bn (FT)

Javier Milei pitches Argentina as low-regulation AI hub (FT)

SEC charges founder of AI-powered hiring startup Joonko with fraud (WSJ)

Raspberry Pi shares jump more than a third on first day of trading (FT)

GameStop uses its Roaring Kitty spotlight to build a cash hoard (FT)

White House prepares to tap derivatives regulator to oversee FDIC (WSJ)

Trio of new Citigroup executives stirs succession talk on Wall Street (FT)

Internal Citi documents cite multiple problems inside $515 billion wealth unit (Barron’s)

Bond investors are paying up again for active fund managers (WSJ)

Sen. Warren’s bill would jail buyout execs whose ‘looting’ of hospitals caused death (WSJ)

~$40 billion in tips a year could go untaxed under Trump’s proposal (WSJ)

GM board approves new $6 billion stock buyback (WSJ)

The brash CEO leading the quest to arm Ukraine (WSJ)

Wells Fargo exec sees the most loan stress in older office buildings (MW)

One city’s downtown plan: convert empty office space too cheap to pass up to residential (WSJ)

Solar-powered planes take flight (WSJ)

E.U. secures 40mn doses of bird flu vaccine as cases rise (FT)

Hedge funds pile into copycat quant trades they once mocked (BBG)

PE firms poised to own one in three top U.S. accounting firms (FT)

Catastrophe bond issuance hits a record high (BBG)

Traders unwind long Treasuries bets ahead of Fed meeting and CPI release (BBG)

U.S. equities made up half of global ETF flows in May (FT)

Bond investors are flocking to active fund managers (WSJ)

U.K. smashes bond demand record with $140B orderbook (BBG)

Invesco shutters its U.K. equities team (FT)

Banks say CRE pain is confined to offices (BBG)

Ryan Cohen beats Bed Bath & Beyond shareholder lawsuit (RT)

Ex-NatWest CEO Alison Rose joins U.K. PE firm Charterhouse (FT)

Wall Street backers see breakthrough moment for carbon offsets (BBG)

Google debuts streaming ad network (TV)

BNY Mellon will rename itself ‘BNY’ (RT)

Hong Kong’s identity crisis fuels $270B property wipeout (BBG)

EV trade war could spread to luxury cars (WSJ)

Data leak at SoftBank joint venture sparks blame game between Japan and South Korea (FT)

Redstone’s National Amusements ends discussions with Skydance (WSJ)

Graduate jobseekers navigate AI effect on gender equality (FT)

‘Anti-woke’ shareholders are going after corporate boards (WSJ)

SEC fines short-seller over secret payments to publisher of bearish reports on cannabis stocks (MW)

Slumping ridership tips bus operator Coach USA into bankruptcy (WSJ)

Invitae advances plan to pay trade creditors before bonds (WSJ)

GPB Capital founder David Gentile’s criminal trial set to open (WSJ)

Frontier emerging markets lure investors back with high yields (FT)

Zelenskiy appeals for urgent help to restore energy network at the latest forum on Ukrainian reconstruction

Economists predict uncertainty as Mexico’s president-elect vows to press ahead with controversial judicial overhaul (FT)

Russia taps unlikely allies to help ship sanctioned oil (WSJ)

Russian navy to visit Cuba as cold war allies draw closer (FT)

A hoard of silver coins from c. The Thirty Years’ War (1618-48) found in Germany (LS)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Equity markets have been treading water this week, waiting for today, when both May CPI and the June FOMC interest rate decision are released. As is typical when markets lack visibility, negative views and concerns prevail, and that is why equities have been drifting lower since Friday. Still, we believe today will mark a positive turning point for stocks.

• Street consensus is looking for a May core CPI MoM change of +0.28%. This is a modest step down from the +0.29% MoM in April and a meaningful improvement from the +0.36% to +0.39% monthly readings from the start of the year.
• A +0.28% reading, in our view, is a positive, and would likely support a rally in equities. As we mentioned earlier this week, stocks rallied after the most recent 5 of 6 FOMC rate decisions.
  – Post-presser (2:30pm)….5D and 10D gains
  – Nov 1, 2023……+3.8%….+6.6%
  – Dec 13, 2023….+0.0%….+1.8%
  – Jan 31, 2024…..+2.4%….+2.5%
  – Mar 20, 2024…+0.7%….-1.2%
  – May 1, 2024……+2.0%….+4.3%

Click HERE for more.

TECHNICAL

To say this market has been rather unusual in recent months is not to say much at all. AAPL hits new all-time highs on a day where market breadth finishes nearly 3/1 bearish and all 11 sectors are lower.  Furthermore, the 2^nd largest sector within the SPX – Financials – hits new multi-month lows.

Yet the strength of AAPL and NVDA has been helpful in keeping indices afloat, despite some of the strange sector rotation happening of late. While some of the short-term breadth readings have nose-dived based on short-term weakness in a few select sectors, the broader averages remain in very good shape.

Moreover, more than 66% of all NYSE issues remain above their respective 200-day moving averages, which is seen as a sign of market health.

Click HERE for more.

CRYPTO

In our latest video we discuss our views on the recent sharp decline in prices, the rise in the DXY, our outlook on Wednesday’s significant macro data, and the impressive performance of the names in our AI + HPC equities basket.

Click HERE for more.

FIRST NEWS

Springtime for the E.U. It’s probably safe to assume that everyone reading this has seen, or at least heard of The Producers, Mel Brooks’ Oscar- and Tony-winning comedic masterpiece. As you’ll doubtless remember, its plot hinges on the discovery by a mousy accountant forced into an uneasy partnership with a shysterish producer, that a show that had gathered cash in the form of investments and then closed on its first night for credible reasons (the poor quality of its script, bad acting, incompetent directing, audience walkouts, and poor reviews) could make more money than a critically acclaimed popular hit that runs for months. Both the 1967 film and the 2005 Broadway musical were, in addition to their clear artistic merits, an illustration par excellence of the concept of moral hazard, defined as “a risk that a party has not entered into a contract in good faith or a party has an incentive to take unusual risks in a desperate attempt to earn a profit before the contract settles”.

Enter the European Union, which, with a new increase in non-refundable fees, is set to generate millions of euros more from the high rejection rates of visa applications by African visitors than it would if it approved them and then bore the cost of processing the visas.

While citizens of the 26 member states within Europe’s Schengen area have borderless access to countries within the area, most travelers from elsewhere require visas. A 12.5% price hike that took effect yesterday increases the cost of a short-term (90 days) visa application to €90 ($96.50). The rub is that, while the price hike applies equally to all non-E.U. residents who require a Schengen visa, it gives the E.U. the opportunity (see moral hazard, above) to make disproportionately more money from its rejection rates for applicants from Africa. Or, as Leo Bloom, the mousy accountant, croaks in a Eureka moment to Max Bialystock, the shysterish producer, “You can make more money with a flop than with a hit!”

Per London-based research firm LAGO Collective, of the €130 million the E.U. earned in 2023 from rejected visa applications, ~42% was from those applying from Africa,* although the continent accounts for just 24% of Schengen visa applications.

Africa’s high rejection rate is sometimes explained as a function of visitors overstaying their visas. Yet there is no evidence to suggest that a higher rejection rate leads to a decrease in irregular migration or visa overstays. Africans do make dangerous attempts to reach Europe by sea and desert, but most African migration is via regular channels, as noted by the Africa Center for Strategic Studies in Washington DC. Yet Africans applying for visas to visit Europe for short-term stays, e.g. business engagements or conferences, continue to face a stumbling block.

Average rejection rates for African applicants are generally 10 percentage points higher than the global average, with seven of the top ten countries with the highest rejection rates for Schengen visa applications in 2022 being African ones. It’s not just that there is a relationship between the GDP of countries and rejection rates for short-term visas, or that these types of rejections could deepen long-standing inequality between consumers paying for the same service. It’s that, because the visa department of an embassy or consulate need not specify the reason for a rejection, especially when it charges non-refundable fees, and especially when it chooses to raise them – following the path of least resistance, greased by a little moral hazard, leads inevitably to greater revenues.

As they roll in, it may sometimes be easy to forget that the business of granting visas is 1. not exactly like being Visa, i.e. it’s 2. not a business. Semafor

^{* Based on data from the European Commission’s migration and home affairs office, LAGO estimates that prospective visitors applying from Ghana, Senegal, and Nigeria have rejection rates of between 40% and 50%.}