Weekly Research Briefing: On Speed and On Spot

“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been a lack of further progress toward the Committee's 2% inflation objective.“

Powell on stagflation worries: "I was around for stagflation. It was brutal. Ten percent unemployment. High single-digit inflation. And very slow growth. Right now, we have 3% growth. Which is pretty solid growth, I would say, by any measure. And we have inflation running under 3%. So, I don't really understand where concerns about stagflation are coming from.

Inside the central bank, one camp of officials has been worried about leaving rates too high for too long, especially if inflation and wage growth were decelerating.

Keeping rates at their current level, a two-decade high, for a longer period could cause more pain for regional banks, commercial real-estate investors and other industries that were particularly unprepared for the rapid increase in interest rates over the last two years.

Another camp has seen little need to cut rates this year because the economy is strong. They worried that inflation would get stuck at a level well above 2.5%, when the Fed targets 2%. They have wanted more evidence that the economy is slowing before entertaining rate cuts. The latest data have given more support to that latter group and raised the odds that officials wait to see more evidence of a slowdown—one that is frequently hard to reverse once it starts—before cutting rates.

Nonfarm payrolls rose 175k in April, 65k below consensus and a 6-month low. Job growth remained rapid in the healthcare industry but slowed sharply across leisure and government, raising the possibility that rehiring in those two sectors has mostly run its course. The household survey was soft, with the unemployment rate increasing 0.1pp to 3.9%, driven by a 25k increase in household employment. The underemployment rate also increased. Average hourly earnings rose 0.20% month-over-month, below expectations.

@mark_ungewitter: Bond seasonals turn positive in mid-May, providing an additional tailwind.

@GunjanJS: DB: "The last 2 years have shown repeatedly that it is the vol of rates and not their level that has mattered for equities"

@SamRo: "It's a relatively quiet macro week. Historically, quiet weeks have been the best weeks for stocks. No news is good news." - BofA

@WallStHorizon: Busiest week of the Q1 earnings season on the way with 3,500+ global companies set to report.

@bespokeinvest: The five $1+ trillion market cap companies that have reported Q1 earnings so far posted sales of more than $412 billion combined during the quarter. All five beat both EPS and sales estimates.

• "The demand for cruise vacations continues to be at an all-time high, as evidenced by record booking, record book decision, and record advanced ticket sales as the continued innovation and service delivery on board our ships lead to exceptional guest satisfaction scores." - Norwegian Cruise Line CEO Harry Sommer (The Transcript)
• *WING (Wingstop) 1Q TOTAL DOMESTIC STORES COMP GROWTH +21.6%, EST. +11.8% (BBG)
• “In the first quarter, we delivered our best results in company history, validating our long-held belief that Carvana’s online retail model can drive industry-leading profitability while delivering industry-leading customer experiences,” CEO Ernie Garcia said. (Barrons)
• $CBRE (Commercial RE Services): "Leasing outperformed expectations, driven by office leasing growth globally that reflects a resilient economy and companies making progress on bringing their employees back to the office" (@knowledge_vital)

@TheTranscript_: AWS is now a $100B Run Rate business: "we're seeing strong AWS demand in both generative AI and our non-generative AI workloads, with customers signing up for longer deals, making bigger commitments" - $AMZN CFO

"Last fall in our Q3 2023 earnings call we highlighted the data center market and shared our view that we expected the market to grow at a 16% compounded growth rate between 2022 and 2025. We wanted to provide an update as we have seen continued momentum in this market, driven by the rise of AI, big data, and certainly edge computing…as you know, we have a strong position in the data center market and the data center/IT channel accounted for 14% of our revenue last year." - Eaton CEO Craig Arnold

"For some context, historically, a single data center typically had a demand of 30 megawatts or greater. However, we're now receiving individual requests for demand of 60 to 90 megawatts or greater and it hasn't stopped there. We get regular requests to support larger data center campuses that include multiple buildings and require total capacity ranging from 300 megawatts to as many as several gigawatts." - Dominion Energy CEO Robert Blue

Viking Holdings Ltd. priced its initial public offering near the top of a marketed range to raise $1.54 billion for the luxury cruise operator and two investors.

Viking is offering 11 million shares and the selling shareholders are offering about 53 million for $24 apiece, the company said in a statement, confirming an earlier report by Bloomberg News.

Best known for its art- and history-rich river tours of Europe, Viking had marketed the shares for $21 to $25 each. It increased the number of shares offered by private equity firm TPG Inc. and the Canada Pension Plan Investment Board at the time of the pricing, while the size of the potential over-allotment was also increased to 9.6 million shares.

At the IPO price, Viking will have a market value of $10.4 billion based on the outstanding shares listed in its filings with the US Securities and Exchange Commission.

Spanish beauty and fragrance group Puig Brands SA and its founding family raised €2.6 billion ($2.8 billion), pricing shares at the top end of the marketed range in Europe’s biggest listing so far this year.

The Barcelona-based firm and its shareholders sold 106.5 million shares at €24.50 apiece, according to a statement confirming an earlier report by Bloomberg News. The price compares with a previous range of €22 to €24.50.

At the IPO price, Puig has a market value of €13.9 billion, according to the statement. The listing drew orders for multiple times the number of shares available.

Swedish private equity firm EQT AB (EQTAB.ST), opens new tab will acquire Perficient (PRFT.O), opens new tab in all-cash deal valued at about $3 billion that will take the U.S.-based digital consultancy firm private, the companies said on Sunday.

EQT will pay $76 for each Perficient share, the companies said in a statement, representing a nearly 58% premium to Perficient's last close on Friday. The deal has been unanimously approved by St. Louis-based Perficient's board and is expected to close by the end of 2024, according to the statement.

Global Infrastructure Partners and Canada Pension Plan Investment Board agreed to acquire Allete Inc., a Minnesota-based utility owner, for about $3.9 billion.

The companies will acquire all the outstanding common shares of Allete for $67 a share in cash, a 19% premium to the utility owner’s closing share price before a media article reported the deal in December, according to a statement Monday. The tie-up is valued at $6.2 billion including the assumption of debt.

The acquisition comes as US electric utilities are facing the biggest demand jump in a generation. Booming interest in artificial intelligence is spurring development of data centers, while new factories and efforts to electrify more of the economy are all taxing the US power grid.

"...in the private equity world, it's all about DPI and getting money back to the LPs. The LP pressure is mounted to the point where they want the capital return. And so we're just going to compress 2.5 years’ worth of deals in one year, 1.5 years. And so there's going to be a lot of activity. Relative to the competition point, because of this, this is our belief, my belief for a window of time here that the asset class of private equity that we compete with is going to be a net seller of assets versus a net buyer here for a period of time." - Roper Technologies CEO Laurence Hunn

@mark_ungewitter: EEM/SPY muti-decade symmetry. Significant?

@carlquintanilla: PIPER, on “Middle America”: “.. Still Our Favorite [Emerging Market] .. continues to enjoy the many secular tailwinds of the Mfg and Energy Renaissances. .. helping keep its unemployment rates the lowest in the country.”

BELLMEAD, TEXAS—As night fades to day on a recent morning, Nichole Hart walks briskly into the Walmart store she manages here, just off the freeway a few miles north of Waco...

Hart is one of Walmart’s 4,700 U.S. store managers, an increasingly important linchpin in the retailing giant’s strategy. Walmart is changing how its stores are run by leaning on managers to use staff to fulfill online orders and technology to automate some work. Plus there are the classic retail responsibilities of managing hundreds of employees, keeping shelves stocked and customers happy, all while increasing sales and profits.

While the demand for hourly retail workers has cooled since the pandemic, finding a store manager that can run a big-box retailer is a challenge. Walmart is offering higher pay, bonuses and more stock options this year to retain and attract more. Some can now make more than $400,000 a year.

“They determine success or failure,” says Kieran Shanahan, chief operating officer for Walmart U.S. As Walmart shifts to automated systems, managing a store is becoming more complex, he says. “It’s hard. You are living in two worlds.”

Galveston, Tex., has experienced an extraordinary rate of sea level rise — 8 inches in 14 years. Experts say it has been exacerbated by fast-sinking land. High-tide floods have struck at least 141 times since 2015, and scientists project their frequency will grow rapidly. Officials are planning to install several huge pump stations in coming years, largely funded through federal grants. The city manager expects each pump to cost more than $60 million — a figure that could eclipse the city’s annual tax revenue...

“The phenomenon is so new, we still don’t necessarily even have the vocabulary for it,” Christopher Piecuch, a sea level scientist at Woods Hole Oceanographic Institution, said of the unrelenting nature of flooding confronting more and more communities. “This is something that quite literally didn’t happen two decades ago.”

But it undoubtedly is happening now. The number of high-tide floods is rapidly increasing in the region, with incidents happening five times as often as they did in 1990, said William Sweet, an oceanographer for the National Oceanic and Atmospheric Administration.

“We’re seeing flooding in a way that we haven’t seen before,” said Sweet, who leads the agency’s high-tide flooding assessments. “That is just the statistics doing the talking.”

Projections suggest that the flooding of today will look modest compared with what lies ahead. High-tide floods in the region are expected to strike 15 times more frequently in 2050 than they did in 2020, Sweet said.

OSAKA -- Kansai International Airport has been responsible for no lost luggage since it opened in September 1994, gaining international recognition for prompt and reliable baggage delivery.

This efficient performance behind the scenes supports a stress-free flow of passengers, and expectations are rising for the role the airport will play as a gateway for visitors to Expo 2025 in Osaka...

To save passengers from stress, CKTS has a goal of getting bags to the baggage claim area within 15 minutes after an aircraft arrives. Staffers place suitcases on conveyor belts so their handles will face toward passengers, easily picked up. They hand over damage-prone items like musical instruments, strollers and skis directly to passengers. Their careful treatment of baggage extends to things like wiping suitcases dry if they get wet in the rain.