Raphael Stevens

Check out the companies making headlines before the bell:
Kellogg (K) – Kellogg jumped 8.1% in premarket trading after announcing plans to split into three separate public companies. One entity will comprise the snack and international cereal businesses, another the U.S. cereal business and the third will be a pure-play plant-based food producer.

Lennar (LEN) – The home builder reported an adjusted quarterly profit of $4.69 per share, beating the $3.96 consensus estimate, with revenue that also topped forecasts. However, the company said it began to see the impact of higher interest rates and rapidly appreciating home prices toward the end of the quarter.
Spirit Airlines (SAVE) – Spirit rallied 8.1% in premarket trading after JetBlue (JBLU) increased its takeover offer for Spirit by $2 to $33.50 per share. Spirit plans to decide by the end of the month whether to stick with its deal to merge with Frontier Group (ULCC) or to accept JetBlue’s bid. JetBlue rose 1.6%.
Mondelez (MDLZ) – Mondelez is buying energy bar maker Clif Bar & Co. for $2.9 billion with additional payouts possible depending on financial results. The transaction is expected to close during the third quarter.
Valneva (VALN) – Valneva shares soared 81.8% in the premarket after Pfizer (PFE) agreed to buy an 8.1% stake in the French vaccine maker for more than $95 million. Pfizer and Valneva are already joint venture partners in developing treatments for Lyme disease.
Tesla (TSLA) – Tesla added 3.2% in premarket action after CEO Elon Musk gave more details on the planned job cuts announced earlier this month. Musk told Bloomberg the company would cut salaried staff by about 10% over the next three months, resulting in an overall reduction of about 3.5%.

Twitter (TWTR) – In the same Bloomberg interview, Musk said there are still some unresolved matters regarding his deal to buy Twitter, including information about spam accounts and finalizing the deal’s financing. Meanwhile, a new SEC filing from Twitter recommends shareholders vote in favor of Musk’s $54.20-per-share takeover bid. Twitter added 1.2% in the premarket.
Exxon Mobil (XOM) – Exxon Mobil was upgraded to “outperform” from “neutral” at Credit Suisse, which pointed to Exxon’s investments in attractive oil and gas projects. Exxon Mobil added 2.6% in premarket action.
Sunrun (RUN) – The solar power company’s stock rose 2.5% in premarket trading after Goldman said Sunrun remained the best way to invest in residential solar growth. Goldman rates Sunrun “buy” while it downgraded rival SunPower (SPWR) to “sell” from “neutral.” SunPower slid 2.7%.
Charles Schwab (SCHW) – The brokerage firm was upgraded to “buy” from “neutral” at UBS, which called Schwab a quality name well insulated from credit and market risk. Schwab jumped 3.3% in premarket trading.

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Musk is seeking to buy Twitter for $44 billion, a mega acquisition with huge implications for the social media world.
The fate of the deal has become more uncertain in recent weeks after Musk threatened to walk away, citing concerns over fake accounts.
On Tuesday, Musk said there were three “unresolved matters” that will need solving before he can move forward with the takeover.

In this photo illustration, Twitter account of Elon Musk is seen on a smartphone screen and Twitter logo in the background.
Pavlo Gonchar | Lightrocket | Getty Images

Elon Musk says there are three main hurdles to overcome before he can complete his purchase of Twitter.
Musk is seeking to buy Twitter for $44 billion, a mega acquisition with huge implications for the social media world — not least given the Tesla and SpaceX CEO’s contentious stance on content moderation and freedom of speech.

But the fate of the deal has become more uncertain in recent weeks after Musk threatened to walk away, citing concerns over the number of fake accounts on the platform. The billionaire could face a $1 billion breakup fee and possibly even lawsuits if he were to abandon the deal.
Speaking at an event hosted by Bloomberg Tuesday, Musk said there were a number of “unresolved matters” that will need solving before he can move forward with the takeover.

1. Fake accounts

Musk has made no secret of his concerns over the number of fake accounts on Twitter. Attempts to manipulate social media platforms with fake accounts and bots aren’t exactly new, but Musk says he wants more clarity from Twitter on how many of its users are genuine.
Public disclosures from Twitter place the number of false or spam accounts at less than 5% of its “monetizable” daily active users. Musk is doubtful. On Tuesday, he said it’s “probably not most people’s experience when using Twitter.”
“We’re still awaiting a resolution on that matter, and that is a very significant matter,” he said.

Last week, Bret Taylor, Twitter’s independent board chair, said company management remained “committed to the transaction under the agreed upon terms.”

2. Debt financing

The second major roadblock facing the Twitter transaction, according to Musk, is the portion of debt required to finance it.
Musk in May committed to paying $33.5 billion in cash for the company. He has also received $7.1 billion in equity financing commitments from investors including Oracle co-founder Larry Ellison and the crypto exchange Binance.
Musk says the remainder of the funding will come in the form of bank loans, but how exactly this will play out remains uncertain. Despite being the world’s richest man, much of Musk’s wealth is tied up in Tesla stock. He has sold and pledged billions in Tesla shares as collateral for the loans.

3. Shareholder approval

The final hurdle for Musk to clinch his acquisition is approval from Twitter’s shareholders. Investors are expected to vote on the deal in late July or early August.
Whether or not Musk will get enough shareholder support for the buyout remains unclear. Last month, some Twitter shareholders sued Musk and the company itself over the chaotic handling of the process.
“Will the debt portion of the round come together? And then will the shareholders vote in favor?” Musk said Tuesday.
These — along with the issue of fake accounts — are “the three things that need to be resolved before the transaction can complete,” he added.

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The U.S. Federal Reserve, European Central Bank, Swiss National Bank and the Bank of England all moved to varying degrees to rein in inflation last week.
“One thing is clear: if there is a sudden stop of Russian gas, the likelihood of a recession coming sooner is obviously far higher. There is no doubt,” Sewing told CNBC’s Annette Weisbach exclusively on Monday.

Europe and the U.S. face a high likelihood of recession as central banks are forced to aggressively tighten monetary policy to combat inflation, according to Deutsche Bank CEO Christian Sewing.
The U.S. Federal Reserve, European Central Bank, Swiss National Bank and the Bank of England all moved to rein in inflation last week, albeit to varying degrees.

Consumer price inflation in the euro zone hit a fresh record high of 8.1% in May and the ECB has confirmed its intention to begin hiking interest rates at its July meeting.
Central bank leaders and economists around the world have acknowledged that the aggressive tightening that may be necessary to rein in inflation could risk tipping economies into recession, with growth already slowing due to a confluence of global factors.

A Deutsche Bank AG flag flies outside the company’s office on Wall Street in New York.
Mark Kauzlarich | Bloomberg | Getty Images

Europe’s proximity to the war in Ukraine and its reliance on Russian energy imports render the continent uniquely vulnerable to the conflict and a potential stoppage of Russian gas flows.
“One thing is clear: if there is a sudden stop of Russian gas, the likelihood of a recession coming sooner is obviously far higher. There is no doubt,” Sewing told CNBC’s Annette Weisbach in an exclusive interview.
“But I would say that overall, we have such a challenging situation that the probability of a recession also in Germany, or in Europe in 2023 or the year after, is higher than we have seen it in any of the previous years, and that is not only the impact of this awful war, but look at the inflation, look at what that means for monetary policy.”

Along with inflation stemming from the war in Ukraine and associated sanctions on Russia, supply chains have also been stymied by resurgent post-pandemic demand and a return of Covid-19 control measures, most notably in China.
“That is such a challenging situation that we have three, four drivers which can severely impact the economy, and all of that coming together in one and the same time means that there is enough pressure and a lot of pressure on the economy, and hence the likelihood of a recession coming into Europe, but also in the U.S., is quite high,” Sewing said.

Sewing: Inflation ‘really worries me most’

Given this confluence of challenges, Sewing said he is increasingly reluctant to rely on traditional models as the economy faces a “perfect storm” of “three or four real levers which can cause, at the end of the day, a recession.”
Sewing said inflation was the biggest concern, however.
“I would say that the inflation is something that really worries me most and therefore I do think that the signal which we got from the central banks, be it the Fed but now also the ECB, is the right signal,” he said.
“We need to fight inflation because at the end of the day, inflation is the biggest poison for the economy.”

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Traders on the floor of the NYSE, June 16, 2022.
Source: NYSE

Stock futures rose in overnight trading Monday following a brutal week as investors assessed a more aggressive Federal Reserve and rising chances of a recession.
Futures on the Dow Jones Industrial Average jumped 380 points, or around 1.3%. S&P 500 futures climbed 1.12% and Nasdaq 100 futures also rose 1.14%. U.S. stock markets were closed earlier Monday for Juneteenth.

The major averages just suffered their 10th losing week in 11 on fears that the central bank will hike rates aggressively to tame inflation at the risk of causing an economic downturn. The S&P 500 dropped 5.8% last week for its biggest weekly loss since March 2020, dipping deeper into bear market territory. The equity benchmark is now more than 23% off its record high from early January.
The blue-chip Dow slid 4.8% last week, falling below 30,000 for the first time since January 2021 last week. The tech-heavy Nasdaq Composite slipped 4.8% last week, down 33% from its record high.
“The recent drop in equity markets and inflection in investor attitudes make a bottoming thesis more difficult to make,” said Nationwide’s chief of investment research, Mark Hackett. “Investors are acting emotionally, but the fundamentals are beginning to follow the weakness in the technicals.”
Fed Chair Jerome Powell will testify before Congress Wednesday and Thursday. His appearance comes after a recent rate hike by three-quarters of a percentage point, the central bank’s biggest increase since 1994.
Investors will monitor incoming data, including existing home sales on Tuesday, to gauge the health of the economy. Recent data showing low consumer confidence, falling retail spending and a cooling housing market have fueled recession fears as the Fed battles inflation at 41-year highs.
Meanwhile, cryptocurrencies continued their roller-coaster ride. Bitcoin fell to a new 2022 low of $17,601.58 over the weekend before climbing back above the $20,000 mark on Monday. The world’s largest cryptocurrency by market cap sits 70% below its all-time high hit in November.

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Faced with public uproar about the cost of living, policymakers like to point out that rising prices are a global phenomenon. “Every country in the world is getting a big bite and piece of this inflation,” said President Joe Biden on June 10th, after America reported its biggest bite since 1981 (consumer prices rose by 8.6% in May, compared with a year earlier).It is true that the cost of fuel, fertiliser, grains and other commodities rose everywhere after Russia invaded Ukraine in February. But not everywhere has its mouth full of inflation. Of the 42 big economies featured in the indicators page of The Economist, eight still have inflation below 4%. Six of those eight are in East or South-East Asia (see chart). The region also includes some smaller oases of price stability, such as Vietnam (where inflation was 2.9% in the year to May) and Macau (1.1% in the year to April).What accounts for this Eastern exceptionalism? Part of the explanation lies in the spread of two diseases. An outbreak of African swine fever from 2018 to 2021 devastated the pig population in China, where as many as 200m pigs were culled, according to some estimates. This dramatically increased the price of pork, a food staple in East Asia. The price has subsequently fallen back sharply. In mainland China, for example, the price of pork fell by more than 21% in the year to May. This helped offset inflationary pressures elsewhere in the economy. (It also helps that East Asia, unlike other parts of the world, eats more rice than wheat. The price of rice has risen by 8% since Russia’s invasion of Ukraine, whereas wheat prices have increased by 17%.)The other anti-inflationary disease in the region is covid-19. Many parts of Asia turned to living with the virus more slowly and reluctantly than in the West. Indonesia, for example, did not entirely abandon quarantine for international arrivals until March 22nd. In Malaysia, travel and movement did not return to normal until early May, a full month after the country officially entered its “transition to endemic” phase, according to an index of social restrictions developed by Goldman Sachs, a bank. Taiwan remains cautious even now. Its success in keeping covid at bay in the past has left its population with little natural immunity and less of the West’s fatalism about the disease.China, of course, continues to impose stringent restrictions on people’s movement and gathering wherever infections appear. The recent lockdowns in Shanghai and elsewhere hampered both the economy’s ability to supply goods and its consumers’ willingness to buy them. This twin disruption to supply and demand could in theory move prices either way. But the damage to consumer spending seems to be more severe and persistent. In May, the second month of Shanghai’s lockdown, retail sales fell by almost 10% (in real terms) compared with a year earlier, even as industrial production rose by 0.7%.Limits on cross-border travel have been devastating to the economies of Hong Kong and especially Macau, which relies on visitors from the mainland to fill its casinos. Indeed, Macau’s gdp in the first three months of this year was less than half the size it reached in the same months of 2019. In that context, inflation of 1% does not seem so miraculous. Indeed, it is a wonder that prices are rising at all.In the West, high inflation has forced many economic policymakers to turn hawkish. America’s Federal Reserve, for example, felt compelled to raise interest rates by 0.75 percentage points on June 15th, faster than planned. The Fed’s new haste to combat inflation is complicating East Asia’s fight against the same foe. Higher interest rates in America attract global capital flows, putting downward pressure on Asia’s currencies. Hong Kong, which has pegged its currency to the American dollar, and Macau, which has pegged its currency to Hong Kong’s, were obliged to raise interest rates the day after the Fed did so. Malaysia and Taiwan have also raised interest rates already this year and Indonesia, where interest rates are 3.5%, is forecast to increase them next month, according to JPMorgan Chase, a bank. Malaysia and Indonesia have also experimented with a less orthodox response to rising prices: export bans. Indonesia briefly prohibited the overseas sale of palm oil and Malaysia retains an export ban on live chickens. The aim is to reserve all of the country’s supply for its own people. But the policies can backfire if lower prices prompt local farmers to cut back on production. Such bans also exacerbate inflation elsewhere in the region. Singapore, in particular, depends on poultry imports from its larger neighbour. The pair’s economic intimacy and rivalry is coming home to roost.One exception to this tightening trend is Japan. At its meeting on June 17th, the Bank of Japan reiterated its commitment to buy as many ten-year government bonds as necessary to keep their yields to no more than 0.25%. It resolved to stick to this ceiling, even as the equivalent yields in America have risen sharply to over 3.2%. This yield gap has contributed to a plunging yen, which has fallen to around its weakest levels against the dollar since 1998.A weak yen will push up import prices, contributing to inflation in Japan. If higher inflation persists, people will come to expect it, demanding more generous wages in compensation. Those higher wages will, in turn, push up prices, making the expectations of inflation self-fulfilling.In many parts of Asia, such a wage-price spiral is something to be feared. But in Japan, it is something policymakers have long sought. After years of weak demand and falling prices, inflation expectations had become dangerously low, making it harder for the Bank of Japan to revive the economy in a downturn and forestall a return to deflation. Like everywhere else, Japan is getting a bite of inflation. Its central bankers want to sink their teeth in even deeper. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More