Nuthin' but an ESG Thang

Last week Refinitiv hosted our Americas region Sales kickoff, and we heard about many of our company successes from 2021 and what we’re looking forward to in 2022. The best part, hands down, was the talk we had from Debra Searle. Debra crossed the Atlantic Ocean in a rowboat all by herself. She was absolutely amazing to listen to. Instead of putting her in the ‘One for the Road’, which usually ends my posts. I’m putting her story front and center, right at the top. Here is her story from a Ted talk in 2012. I cannot recommend this enough.

Choose Your Attitude: Debra Searle at TEDxSalford - Listen time: 21 minutes

On to the rest of the post. This weekend I listened to some old songs from high school. Listening to Dr. Dre’s 'Nuthin’ but a G thang', I found the title for this post. You’ll see below, but the first two articles shared are around energy and ESG. We’re seeing the move to the next generation of energy creating all sorts of changes around the globe. A comment from Jeff Currie, Goldman Sachs Global Head of Commodities Research, stood out. He essentially said until a problem comes to your back door, you really don’t realize how big a problem it is. These lyrics from the title song are sort of like the changes needed in energy.

“Well I'm peepin' and I'm creepin' and I'm creepin'
But I damn near got capped 'cause my beeper kept beepin'
Now it's time for me to make my impression felt
So sit back, relax, and strap on your seatbelt
You never been on a ride like this before”

The ESG problem is creeping up on us. Many have nearly died, because we’re busy paying attention to other things. Now, it's time to get to work and it’s going to be a wild ride, so strap on your seatbelt, because you’ve never done anything like this.

US equity markets ended the week on a positive note, but were down pretty big for the week. Energy was the strongest sector well in the green and Telecom squeaked a positive week out. Asian and European markets were down for the week, but had vastly different daily swings. There were a few equity markets up this week. Canada rose slightly, Argentina and Brazil were up about 2%, South Africa and the FTSE were also up about 2%. The strongest markets were Hong Kong, up 4%, and India, up 5%. Commodities were up and also volatile. Nat Gas continues to be one of the more volatile markets. Front month futures ended the week up about 8%. Gasoline and Crude were up big as well. Metals performed decently. US Treasuries continue to sell off and the yield curve saw a slight shift higher. On the FX front, the US dollar continues its selloff. The DXY is on a four week negative streak, and it seems it's mostly the Euro and GBP driving that. On the Crypto front, Bitcoin and Ethereum paused their recent downtrends to end the week slightly higher. They’ve both been higher only a few weeks in the last ten and they are off more than 30% from their November highs.

In last week’s post, I alerted you to some names with unusual options activity going into the JP Morgan Healthcare conference. There were a bunch of names sharing market moving information, but two stood out. Charles River Labs (CRL) and Illumina (ILMN.O) were up 8% and 9% respectively. Both companies reported positive guidance for their financials and it took the news outlets a few minutes to post on these. Using Refinitiv alerts on event transcripts would have given readers a leg up there. Reading the transcripts live or listening, would have given even more of an advantage.

US Markets are closed Monday for Martin Luther King Day. On the Economic front, we have real estate based numbers. Housing starts, building permits, and existing home sales are all due. With the FOMC on the schedule for next week, Fed officials will be hushed.

Earnings Watch

Last Week

I told you to watch Tilray last week and it did not disappoint me. The Predicted Surprise was negative going into the week and the company came in with a huge beat and flipped to positive EPS. The stock opened up 11.5% on huge volume. It then traded up as much as 22% on Monday, but was mainly downhill from there. It still ended the week up about 7%. The big banks' performance was mixed. JP Morgan, Citigroup, Wells Fargo all beat the top and bottom line estimates, but only Wells ended up in positive territory. Another mover this week was KB Homes. KBH had a decent EPS beat and ended the week up by more than 15%.

This Week

Now we start to get into the meat of Earnings Season. We’ll get the rest of the US mega banks this week, a bunch of regional banks, plus many others. We’ll hear from about 8% of the S&P 500, but the midcap and small caps names start off the season slow. My screenshot is a little smaller font this week, because of all the $20B plus names and I wanted to highlight M&T Bank. This is my name to watch this week. It shows a 12% Predicted Surprise, some nice dispersion, three positive Bold estimates, and an EPS that has gone up by 35% in the last month. This week the stock was up by 6.6%. My one worry is the -5.5% Predict Surprise on Revenue. That would impact any positive stock results. 

Equity Capital Markets

The team at IFR noted that last week was another sign that raising capital will be much different than in the past year or two. IPO filings have slowed and some that were planned are being pushed back. US IPOs and follow-ons raised $5.6B over the first couple of weeks and that is down 60% from that same period last year. In the JPM earnings call last week, their CFO said he was expecting some reversion to the mean from investment banking in 2022. According to Refinitiv data, JPM was third in the equity league tables. We’re scheduled to hear from Goldman and Morgan, numbers one and two respectively this week.

TPG had a nice debut pricing its $1B IPO, but the stock fell 3.6% in the second day of trading. This week we have one three small IPOs scheduled. All are under $300M.

Best of the Week

This one was far outside my comfort zone. I know almost nothing about carbon markets or emissions trading, but that’s why I listen to many of the podcasts I do. Michael Azien is the CEO and founder of Carbon Cap Fund and Management. This conversation is really at the crossroads of a couple of major topics in financial markets today, ESG and a search for yield. Michael walks us through the details around carbon trading and the market structure. Some of the false thoughts about this industry.

Emissions Trading and Carbon Allowance Futures with Michael Azlen - Listening time: 74 minutes

Best of the Rest

Smarter Markets is a newer podcast and it has tended to focus around energy topics. In this week’s episode, Grant Williams talks with Jeff Currie about the challenges in improving the energy transition and climate change. Jeff talks a lot about ESG and the importance of getting the US, China, Europe on the same page. He says ESG imposes a tax on Americans, but it’s taxation without representation, because the benefits are seen elsewhere. He thinks we can learn something from the war on acid rain in the 1970s.

What are SmarterMarkets? Episode 1 : Jeff Currie, Goldman Sachs Global Head of Commodities Research - Listening time: 47 minutes

This article pairs a few of the metrics I like to follow for equity markets, larger market wide technicals and other assets. Advanced-Decline data isn’t as popular as I think it should be. The author here notes that Closed End Bond funds (CEF) are part of the overall NYSE A-D data, and there have been arguments from some technicians that these funds contaminate the data. The author argues that it’s actually the opposite and this subset of data can provide a key indicator on US equity markets. The idea he presents is liquidity has become an issue and it is affecting issues that are more sensitive to liquidity first, which the Bond CEFs are part of.

Bond CEF A-D Line Showing Liquidity Problems

Refinitiv’s parent company, the London Stock Exchange Group, is looking at a new type of market to lure private companies to trade on it’s exchange. It’s not the traditional listing and will not trade in the same way the current members do. Well, they might end up trading a little more similar than you might think. Some of the micro-cap LSE listed names trade quite infrequently. This is a new market all together, so our parent is pushing the envelope, but it makes sense when you think about all the regulatory requirements and costs for a smaller company to list their shares. As the article notes, the U.K. needs something to help its financial markets after Brexit. A lot of the volume and people have left the once dominant London hub.

London Stock Exchange Proposes Special Listings for Private Companies

I'm going to continue to highlight this topic as it continues to drive US equity markets. It’s not the easiest topic to understand, but this Tweet thread is another decent explanation. One fact from this that I found intriguing, the SPX options account for about 16% of the SPX market cap as of last Wednesday.

TO ALL EQUITY PMs: YOU MAY NOT BE INTERESTED IN OPTIONS, BUT OPTIONS ARE INTERESTED IN YOU! 

I previously shared some research I had done around equity trading volumes and how some of the analytics we’re working on at Refinitiv are aimed at helping with that. Last week, my colleague Carl Carrie, who runs our Trading Analytics at Refinitiv, talked to 'The Trade' about all the inputs that go into TCA and how that’s changing. Carl gets into more than just what we’re working in with equities. I love to geek out listening to Carl. He makes me feel like a beginner, but in the end helps me understand some complex topics.

TRADE Calls: Refinitiv – A look at what’s ahead for TCA in 2022 - Watch time: 14 minutes

This article is a highlight of a research paper. It shows that the greater number of Authorized Participants (APs) involved in the creation and redemption process of an ETF, the lower the mispricing, and it’s even more so in times of higher volatility. Another point that was surprising to me was that 15 out of 50 APs are responsible for 98% of all creations and redemptions, and the top 3 are half. I’ve included the table of the top 15 below. The link to the paper is in this summary, and there are dozens of tables that I found informative.

Weak authorised participant networks create ETF mispricings, research finds

Never did I expect to see a headline like this. Ken is a rather young guy at 53, so I would never have expected someone of his wealth to sell off a portion of this business. There’s not much to this Forbes article, besides a lot of big numbers. One thing that caught my attention. The firm’s CEO is quoted as saying this makes them stronger and will help scale the business into new markets. I could only think of one thing here.

Billionaire Ken Griffin's Citadel Securities Valued At $22 Billion After $1.2 Billion Investment From Sequoia, Crypto VC Paradigm

Professor Scott Galloway is hot or cold for some people. His point here is that historically periods following a crisis have been the most prosperous in history. While this isn’t necessarily related to financial markets, some of the ideas might get you thinking about how this has played in our industry. His five opportunities are prisons, food, remote work, simplicity, and health care.

Five Huge Economic Opportunities We’re on the Verge of Unlocking

One of my favorites to read over the years. Our partners at Reuters News put together a book of predictions for the upcoming year. Normally, this is a paperback booklet, but with the limited in-person contacts, we’re giving the PDF out this year. The predictions are broken down into six segments plus an ‘other’ group. My three favorite were ‘Big Quit sends World’s Back Office Back Offshore’ (pg 46), ‘Rise of the Robot Analyst’ (pg 48), ‘Shipping Giants Plot Course for Landbound M&A’ (pg 55).

Reuters_Breakingviews_Predictions_2022

One for the Road

The average US commute pre-pandemic was 54 minutes. Assuming 5-day weeks, that's ~16.3B (billion!) commute hours saved per year, equivalent to: 1.9m years or 23k lifetimes.

As of 2020, the country was saving over 60 million commute hours per day with remote work

Thanks for reading. Have an epic week.

Michael