Wall Street Lunch: EU interest rate cuts in focus

se-bouali.com06/06/2024

0 0 3 minutes read

Walter Bibikov

Listen below or on the go on Apple Podcasts and Spotify

The European Central Bank cuts interest rates by 25 basis points. (0:23) NIO shares decline after earnings. (2:34) Evercore becomes bullish on Carvana. (3:13)

This is an abridged version of the podcast.

The cutting cycle is in full swing. The European Central Bank cut interest rates by 25 basis points, as expected. This was its first cut in nearly five years amid signs of weakening price pressures.

“Based on an updated assessment of inflation expectations, core inflation dynamics, and the strength of monetary policy transmission, it is now appropriate to ease the degree of monetary policy restrictions after nine months of holding interest rates steady,” the ECB said.

The ECB is the third major central bank to cut key interest rates, following the Swiss National Bank’s move last month and the Bank of Canada’s cut on Wednesday.

Thursday’s policy move raises the marginal lending rate to 4.50%, the main refinancing rate to 4.25%, and the deposit facility rate to 3.75%.

“For the rest of 2024, our rule of thumb is for the ECB to pause in July before cutting rates again in September, October and December,” Wells Fargo says. “However, we believe ECB policymakers would prefer to see a return to an overall bearish trend.” “The trend in wage growth and domestic inflation would be quite comfortable with a further cut in interest rates and thus view the risks as leaning towards less easing.”

On the economic front, initial jobless claims rose by 8,000 for the week ending June 1 to 229,000, compared to 216,000 expected and 221,000 the previous week (revised from 219,000). This is additional data that supports a softer labor market heading into payrolls on Friday.

The four-week moving average was 222,250, down 750 from the previous week’s average of 223,000, which was revised upward by 500.

When looking at the bigger picture, Pantheon Macro says, “there appears to be a steady rise in the underlying trend.”

Moreover, in a weaker jobs market, unit labor costs in the first quarter rose significantly but not as much as feared. The 4% increase was lower than the consensus of +4.7% and higher than the 0.4% rise in Q4 2023. The quarter’s measure reflects a 4.2% increase in hourly compensation and a 0.2% improvement in productivity.

Among active stocks NIO (NIO) fell after reporting a decline in revenue and vehicle deliveries for the first quarter. Revenue fell 7.2% year over year to $1.37 billion during the quarter, missing consensus estimates by $70 million.

The number of vehicles delivered was 30,053 vehicles in the first quarter of 2024, consisting of 17,809 luxury smart electric SUVs and 12,244 premium smart electric sedans, representing a decrease of 3.2% from the first quarter of 2023 and a decrease of 39.9%. For the fourth quarter of 2023.

Carvana (CVNA) shares rose after Evercore ISI added the auto retailer stock to its positive tactical trading list ahead of its appearance at a competitor conference today.

Analyst Michael Montagne raised his estimates for Carvana’s retail used units and EBITDA statistics for the second quarter to reflect continued strength in the company’s latest web traffic tracking report.

CAVA Group (CAVA) is under scrutiny after Artal International SCA filed a notice with the Securities and Exchange Commission regarding a request to sell 3 million shares following the conversion of Series E preferred stock into common stock. Artal International sold 2 million shares earlier in the year at $66.25 per share.

And in other notable news. The US Food and Drug Administration commented on Eli Lilly’s Alzheimer’s drug donanemab ahead of a meeting on its marketing application, proposing a safety warning for the anti-amyloid treatment to highlight its potential adverse effects.

Both Donanemab, as well as Leqembi, a newly approved Alzheimer’s treatment from Biogen (BIIB) and Eisai (OTCPK:ESALF) (OTCPK:ESAIY), are associated with suspected brain hemorrhage, manifested by amyloid-associated imaging abnormalities.

The FDA notes that the drug is also associated with other safety signals, infusion-related reactions, and hypersensitivity.

And in the Wall Street research corner. With Nvidia (NVDA) joining the $3 trillion club, Morgan Stanley Investment Management has released a report on the stocks with the largest market cap in the US from 1950 to 2023.

Michael J says: Mauboussin, head of stable research at Counterpoint Global Morgan Stanley, said that in the 10 years to last year, the concentration of the 10 largest stocks in the US stock market doubled from 14% to 27%.

Magnificent 7 shares alone were responsible for more than half of the S&P 500’s 26.3% gain through 2023.

Before the 27% concentration in 2023, the peak concentration of 30% occurred in 1963. The lowest concentration during this time was in 1993, at 12%. In 2014, there was a concentration of 14%.

These stocks were among the top three by year-end market cap from 1950 to 2023.