Investability bulletin 17/02/22: Mud Slinging

Short seller Muddy Waters under investigation, oil slides, and the FOMC minutes surprise no-one

A timid start for equity markets in Europe as investors digest the competing views on the Russian position in Ukraine and the bigger macro picture regards inflation and the Fed. The FTSE 100 was a little lower, shares in Frankfurt and Paris around the flatline. Asian shares were mixed. Minutes from the FOMC’s last meeting revealed it “expects it will soon be appropriate to raise the target range for the federal funds rate”, but there not much more hawkishness than that, underpinning a recovery in US stocks last evening.

As for Russia, the White House remains adamant that claims of troop withdrawals are false. Nato’s secretary general Stoltenberg yesterday said defence ministers have tasked commanders to consider new battlegroups in central and South-eastern Europe. Gold is catching some bid this morning, above $1,885 with reports of an exchange of fire in eastern Ukraine between Russian-backed forces and Ukraine. Ukraine’s military said Russian-occupying forces fired on a village in Luhansk region, a few hours after Russia-backed rebels accused Ukraine of carrying out mortar attacks….drama unfolds. Russia’s RTSI index is off 3.8%, the MOEX down 2.5%, and the ruble fell. Geopolitics is very tricky to trade. 
 
The S&P 500 rose 0.1% but it had been down 0.7% earlier in the session; the Nasdaq and Dow Jones both fell by a similar amount. US retail sales were stronger than expected but indicate no demand destruction yet.  Futures in the US are a tad lighter this morning, with e-minis sitting on the 200-dma again. 
 
Oil tumbled 5% in about 4hrs last evening amid increasing nervousness crude prices are in overbought territory and leaning too heavily on the geopolitical situation regards Ukraine and Russia. WTI bounced hard off $90 and sits just under $93 this morning, having hit a high yesterday at $95 in the wake of the EIA inventory report, which showed stocks at Cushing, Oklahoma were at their lowest since September 2018.  OPEC President Bruno Jean-Richard Itoua said OPEC has no immediate solution to high oil prices…lack of investment in supply constraining members’ ability to open the spigots.
 
Minutes from the FOMC lifted stock markets off their lows of the day. There was not anything in them we didn’t know already and as argued earlier, events have rendered these minutes somewhat backward-looking. Nevertheless, little talk around any need to hike by 50bps in March gave the stock market an excuse to bounce.  There was a degree of urgency about the situation, but hardly anything close to what the market is pricing. “Most participants noted that, if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate,” the minutes said.  
 
But…things have moved on since the last meeting. So what if there no suggestion of inter-meeting hikes or 50bps in March?  
 
Yesterday’s data: US retail sales +3.8%…no signs of demand destruction yet…which implies inflation can go even higher? Import prices rose 2.0% versus 1.3% estimate…export prices also hot…more inflation. Industrial production data was good, +1.4% mom vs the +0.4% estimated. Capacity utilisation jumped. Homebuilders remain more optimistic than at any point in the previous cycle despite rising mortgage rates. 
 
JPM: “We are revising our Fed expectations for this year… to now look for seven hikes this year, up from five in our prior outlook. We continue to look for three hikes next year… We do not see recent Fed rhetoric as advocating a 50bp hike in March.” 
 
Today we are looking to Philly Fed mfg index and US unemployment claims (13:30 GMT) plus more from the Fed’s Mester and Bullard (‘100bps by July 1st’).  
 
Muddy Waters 
 
On this short selling investigation by the Justice Department, Carson Block’s Muddy Waters is being probed…if you are a short-seller you are the natural bad guy…I’ve written about this at length in the past. Suffice to say I am convinced – by inclination and by the evidence– that short selling is an important part of price discovery and often critical in sniffing out frauds. Bill Ackman tweeted: “I can’t think of an example of a regulator finding a public fraud first. It takes well resourced and incentivized market participants, ie, short sellers or whistleblowers.” 
 
According to reports, the DoJ is investigating whether short-sellers conspired to manipulate stock prices by sharing research reports and take part in illegal trading activity. If you were a short seller you wouldn’t put out your research before you took your position would you?  
 
Companies 
 
Earnings continue to trickle through in Europe and the US. 
 
Nestle reported its best growth in ten years with net profits up 38%, but inflation is big factor and guidance for 2022 is pretty cautious; shares a bit weaker. Rising input costs to impact pricing in 2022. Kering shares jumped 7% as the Gucci owner reported a strong rebound for luxury sector. 
 
Standard Chartered shares down as profits miss … costs surge as it boosted the staff bonus pool by 38%; higher labour costs has been a big theme from the big US investment banks, too.  
 
Reckitt Benckiser jumped 4% as it reported quarterly sales that beat estimates and said it sees profit rising despite inflation. Net revenues on a like-for-like basis rose 3.3% with Health +17.5% offsetting the decline in Hygiene (-6.1%). Management target LFL revenue growth of 1-4% in 2022. 
 
Safestore Holdings (SAFE) up a touch this morning as it reported LFL group revenue +16.1%, with UK +19%.
 
Tesla’s (TSLA) decision not to work on a $25,000 car is risky says Bernstein, who say it makes the EV maker more dependent on its Full Self Driving software offered in other cars. Genuine FSD remains years away and Tesla probably “will not be the first company to commercialize a ride-hailing network” using FSD. 
 
Betaverse: Roblox (RBLX) (an ARK fave) tumbled 26% as results missed and showed it’s growing slower than expected, remains unprofitable. Another GoPro? So who’s the big Metaverse play…? Could be Facebook (FB) but chucking $10bn in ebitda at it for the next ten years requires a real long-term outlook. Always beware companies that start renaming pointlessly…yesterday shares fell 2% as it unveiled a new set of corporate slogans… 
 
Airbnb (ABNB) was up 3.65% after earnings were good…also signs of longer-term lets as people continue to work from home, shortage of hotel rooms could be positive too. As noted yesterday though there could be concerns about return of package trips, cruises, hotels – do you stick with private accommodation and the premium that goes with it? 
 
Shopify (SHOP) Another ARK fave, this one tumbled 16% as it warned revenues would slow down in the first half of 2022 as pandemic tailwinds recede. Deceleration in e-commerce spending, higher inflation, end of stimulus cheques all blamed. Etsy declined 5%, Wayfair –8%…all very ugly charts on YTD basis. 
 
DoorDash (DASH) leapt 25% in pre-mkt trading despite a wider-than-expected quarterly loss. Revenues of $1.3bn beat expectations – strength in demand even as restaurants reopen and people go out more.
 
Nvidia (NVDA) down a touch as margin guidance was a little light…still a beat on top and bottom line amid record quarterly sales.

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