Woodstock For Capitalists

Good Morning Everyone! Regional bank PacWest is up 34% in pre-market after being up 81% Friday. They slashed their dividend to conserve capital. With a 19% short interest on the stock, there is definitely some short covering going on.

Market

Prices as of 4pm 5/5/23

Macro

“Woodstock for Capitalists” happened over the weekend as 30,000 disciples of the Oracle of Omaha went to watch two old men eat peanut brittle and talk markets. Here are some Takeaways:

• Buffett shut down speculation that Berkshire might make an offer for full control of Occidental Petroleum Corp., after the firm spent months purchasing the energy producer’s shares.

• The banking industry’s recent turmoil has been fueled by a heady combination of contagious fears, skewed regulatory incentives and poor messaging.

• The economic outlook will weigh on profit for his businesses, with an “incredible” period for the US economy waning.

NFP Numbers on Friday came in ahead of expectations

• Number came in at 253k vs. estimates of 185k and prior period of 236k

• Stronger labour market not encouraging for a “go ahead” on rate cuts

• Take this number with a grain of salt - the last print in April was revised down nearly 100k and there have been wide variances in recent revisions

More debt ceiling drama this week and Biden and McCarthy aim to break the standoff.

• President Joe Biden and top Republicans and Democrats from Congress are set to sit down this week to try to resolve a three-month standoff over the $31.4 trillion U.S. debt ceiling and avoid a default before the end of May.

• Biden wants to raise the borrowing limit without any conditions.

• Speaker McCarthy has said his chamber will not approve any deal that does not cut spending to address a growing budget deficit.

Stocks

China Banks go limit up.

• Chinese investors are betting on a pledge by Beijing to let state-owned firms have access to more capital and play a bigger role.

• The CSI 300 Financials Index jumped for a fifth session on Monday to reach its highest level since April 2022, adding $166 billion in market value in the process.

• The gains were led by state-owned lenders including China Citic Bank Corp. as well as Bank of China Ltd., which hit the 10% daily limit-up for the first time since July 2015.

KKR Earnings Sink as Asset Sales Slow

• Earnings fell 26% during the first quarter from a year earlier as a dealmaking drought continued to weigh on the alternative asset manager.

• In an era of ultra-low interest rates prior to last year, private equity grew rapidly as pensions and endowments scouted around for alternative investments with higher returns.

• More recently, institutional investors have hit the limits of what they can invest in private equity — and higher interest rates have put the brakes on borrowing that greases deals

PacWest showing signs of life, up 81% on Friday and 16% this morning. Still down 75% YTD…

• Slashed its quarterly dividend and said business remains “sound.”

• Sell-side Analysts proclaiming “enough is enough” and putting out buy ratings

• Not out of the woods yet…Rating agency Fitch has placed the PacWest ‘Rating Watch Negative.’

Energy

Russia’s energy sector hit as Kremlin forced to increase tax

• Putin raises levies on oil and gas groups after G7 imposes price cap on Russian crude

• Russia’s changes will  undercut the future production capacity of the Russian oil and gas industry by taking away revenues that could otherwise be used to invest in equipment, exploration and existing fields.

Earnings

Here are some of Friday’s highlights:

Enbridge ENB:

• EPS C$0.85 vs. C$0.84 y/y, estimate C$0.84

• Adjusted Ebitda C$4.47 billion, +7.7% y/y, estimate C$4.27 billion

• Cash from operating activities C$3.87 billion, estimate C$3.15 billion

• Reaffirmed 2023 full year financial guidance for EBITDA and DCF and medium-term outlook

• Enbridge anticipates exiting 2023 with its Debt-to-EBITDA metric again within the lower half of the target range while continuing to fund its secured capital growth program within its equity self-funding model.

What we’re watching today:

• Paypal PYPL

• Itau Unibanco Holding ITUB

• KKR KKR

• Suncor Energy SU

• Devon Energy DVN

• Biontech BNTX

• Intl Flavors & Fragrances IFF

• Tyson Foods TSN

• Ventas VTR

• Skyworks Solutions SWKS

• Palantir Technologies PLTR

• Lucid Group LCID

• Aecom ACM

• Essential Utilities WTRG

• Viatris VTRS

• Shockwave Medical SWAV

• Western Digital WDC

Top Headlines

• Jobs Number Doesn’t Mean Hike: Fed's Goolsbee says premature to suggest stronger-than-expected jobs data means Fed will hike rates in June

• Deposits Back in the Headlines: Deposits at US commercial banks fell toward lowest in nearly two years while overall credit provided by banks moved up

• Bank Buyouts: US authorities set an expectation of sweeteners for buyers to offset potential losses on undesirable parts of shuttered banks' portfolios

• Great Divergence: Investors bet on ‘great divergence’ between Federal Reserve and ECB

• Bank Stocks: US financial stocks declined to pre-global financial crisis highs from 2007 and pre-Covid highs from 2019/2020

• Fed Talk: Powell’s Bet Against Recession Looks Good — Minus the Credit Crunch and a DC Standoff

• Hedge Funds v. Treasuries: Hedge Funds Face Into Bank Turmoil With Epic Short Treasury Bets

• Credit Risks: Bond Traders Bet on Biggest Fed Shift in Decades on Credit Risks

Crypto

Prices as of 10:00pm 5/07/23

Binance/Bitcoin: Binance Resumes Bitcoin Withdrawals After Second Pause, Says It's Adjusting Fees and Integrating Lightning Network

Pepecoin: Pepecoin’s Bewildering Rise Turned a Pittance Into an Almost 5,000,000% Meme Coin Profit

Meme Coin Trading: Meme Coin Trading Volume Surges to Two-Year High, Signals Caution for Bitcoin Bulls

Regulators: DOJ investigating whether Binance violated U.S. sanctions against Russia: Bloomberg

Deals

• Proceed with Caution: Rio Tinto Cautions Against Takeover Fever After Lithium's Dramatic Price Slump

• UK IPO Market: ‘A very problematic market’: As Arm shuns London, tech investors question UK as an IPO destination

• Bank Partner Buyout: HSBC reaches deal to buy out China fund partner -source

• Chip Rollup: Qualcomm to acquire Israeli auto-chip maker Autotalks

• Berkshire Trimming BYD: Berkshire Hathaway sells $58.9 mln worth of shares in China's BYD

• HK IPO: Edible Bird’s Nest Maker Yanzhiwu Weighing $200 Million Hong Kong IPO, Sources Say

• Oversight Increased: Japanese companies seeking US deals fear more scrutiny of China link

Meme Of The Day