Good morning. Happy Friday.
The Asian/Pacific markets suffered big losses. Japan, China, Hong Kong, South Korea, India, Taiwan and Australia – all down big. Europe, Africa and the Middle East are currently weak. The UK, Poland, France, Turkey, Russia, South Africa, Finland, Norway, Hungary, the Netherlands, Portugal, Austria and the Czech Republic are down more than 1%. Futures in the States point towards a positive open for the cash market.
VIDEOe: How to Manage Trades When the Market Weakens
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down big.
Stories/News from Seeking Alpha…
Stock markets obeying the yield sign
Wall Street looks to get its sea legs back at the open today after being whipsawed by interest rates. U.S. stock index futures are mixed, while Treasury yields are easing early following a spike yesterday that unnerved equity investors. S&P futures +0.2% are slightly higher and Nasdaq 100 futures +0.1% are slightly higher. The Nasdaq Composite had its worst performance in nearly four months yesterday. Asian markets followed the U.S. selling, with Tokyo’s Nikkei tumbling nearly 4%. European markets are down, but the drop is tamer as yields have dipped. The 10-year Treasury yield is down 4 basis points to 1.47%. Yields on the 10-year raced higher in the previous session, topping 1.6% following a disappointing auction of 7-year Treasuries that prompted traders to push longer-term yields higher as the curve flattened. As much as $50B was unwound after the auction, according to Bloomberg. Overall, the bond market has been pricing in a hotter economy as vaccine programs progress and more stimulus is set to hit the U.S. economy. But Fed officials stressed yesterday they didn’t see inflation as a problem and that a hotter economy might not even bring about corresponding inflationary pressures for a while.
Australia first in Asia-Pacific to lift Boeing 737 MAX ban; 777 makes emergency landing
Australia is lifting its ban on flights to and from the country using Boeing’s (NYSE:BA) 737 MAX aircraft after nearly two years. It’s the first country in the Asia-Pacific region to do so. And while Australia’s airlines don’t fly the plane, Fiji Airways and Singapore Airlines (OTCPK:SINGF, OTCPK:SINGY) do fly it into Australia and are looking to other regulators in order to resume using the craft. Also, a Boeing 777 on cargo service has made an emergency landing in Moscow due to engine issues – not quite a week after a similar Boeing craft shed engine debris over Colorado neighborhoods.
Minimum wage can’t be part of $1.9T stimulus bill in Senate
The proposed hike in the minimum wage to $15 an hour will have to be dropped from the Democrats’ $1.9T COVID relief bill, a Senate parliamentarian rules. The White House now looks like it will pursue other avenues for the boost in wages. President Joe Biden is “disappointed in this outcome” but “urges Congress to move quickly to pass the American Rescue Plan,” a White House statement said.
GameStop rises premarket, but squeeze trade eases off
GameStop (NYSE:GME) went through a wild day of trading yesterday, as much as 100% higher before seeing sharp selling in the last hour of trading to end up 18.5%. GME is up 10% premarket, but trading is naturally volatile. AMC (NYSE:AMC) is down 4% before the bell. Koss (NASDAQ:KOSS) is down 9% premarket. The second squeeze looks to be spurred by another round of huge buying in out-of-the-money, near-term call options. But it hasn’t had the legs of the first round, with short positions greatly reduced.
AT&T spinning off DirecTV in multibillion-dollar deal with TPG
AT&T (NYSE:T) is spinning off DirecTV as part of a deal with private equity firm TPG Capital. The deal implies an enterprise value for the new DirecTV of $16.25B, and after the transaction, AT&T will own 70% of common equity and TPG will own 30%. AT&T expects to apply $8B from cash proceeds to reduce debt. Not moving over in the deal: any of HBO Max or AT&T’s regional sports networks.
Salesforce full-year profit forecast disappoints
Salesforce.com (NYSE:CRM) reported a record fourth quarter but guided a downside profit forecast for the fiscal year. Revenue was up 20% on the year to $5.82B. Subscription and support revenue gained 20% to $5.48B. For the full year, it guided revenue of $25.65-25.75B, above the $25.45B estimate. But EPS guidance of $3.39-3.41 was below consensus of $3.61.
Beyond Meat goes mainstream with huge McDonald’s and Yum Brands deals
Beyond Meat (NASDAQ:BYND) announced a three-year global strategic agreement with McDonald’s (NYSE:MCD). It will be McDonald’s preferred supplier for the patty in the McPlant burger. Beyond Meat also announced a global strategic partnership with Yum Brands (NYSE:YUM) to co-create items that can only be found at KFC, Pizza Hut and Taco Bell.
What else is happening…
Tesla (NASDAQ:TSLA) shares now below high hit ahead of S&P entry.
Lucid Motors (LUCIDM) aims to start production in second half of 2021.
Airbnb (NASDAQ:ABNB) gains after confident post-vaccine outlook.
Thursday’s Key Earnings
Groupon (NASDAQ:GRPN) +13% AH amid surprise Q4 profit, softer revenue landing.
Sprouts Farmers Market (NASDAQ:SFM) +7.2% AH after Q4 earnings beat.
Etsy (NASDAQ:ETSY) +6.8% AH on topping estimates, guides for strong growth in Q1.
Virgin Galactic Holdings (NYSE:SPCE) -13.5% AH after pushing test flight to May.
Workday (NASDAQ:WDAY) -7.7% AH after forecasting decelerating subscription revenue.
STORE Capital (STOR) -2.5% AH after Q4 earnings miss.
Today’s Economic Calendar
8:30 International Trade In Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
8:30 Personal Income and Outlays
9:45 Chicago PMI
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices
Good morning. Happy Thursday.
The Asian/Pacific markets did great. Japan, Hong Kong, South Korea, Taiwan, Malaysia and Singapore posted big gains. Europe, Africa and the Middle East are currently mostly up. Denmark, Greece, South Africa, Finland, Norway, Hungary, Spain, Portugal and the Czech Republic are up 1% or more. Futures in the States point towards a down open for the cash market.
VIDEO: How to Manage Trades When the Market Weakens
The dollar is down. Oil unchanged; copper is up. Gold is down; silver is flat. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
It was the catalyst the WSB/Reddit crowd had been waiting for… GameStop (NYSE:GME) announced Wednesday that its chief financial officer Jim Bell would resign on March 26. Several sources indicating that the board pushed him out to execute its turnaround more quickly, but an outsized reaction ensued amid a sudden burst of activity. Shares surged more than 104% following two afternoon halts, and even rose another 83% in AH trading to $168.13, before paring some gains to $130.58 in today’s premarket session.
When all was said and done, more than 82M GameStop shares traded hands on Wednesday, the highest level since January 27. Derivatives trading also seemed to exacerbate the move in GameStop, according to Susquehanna’s Christopher Jacobson, with some 262,000 call options contracts trading hands. Looking back, another management change prompted all the activity back in January. The appointment of Ryan Cohen (co-founder of Chewy) to the GameStop board helped drive shares heavily upward and eventually resulted in the epic short squeeze that saw retail traders inflict severe losses on hedge funds. The stock still has significant short interest at nearly 42%.
Note: The new advance came after Barstool Sports founder Dave Portnoy faced off with Robinhood’s (RBNHD) Vlad Tenev over the GameStop saga. Reddit also went down after GameStop shot up, sparking a range of theories. While subreddit r/WallStreetBets, which has championed the stock, seemed to be getting a lot of heavy traffic right before the crash, it’s unclear if the two were related. Last week, GameStop bull Keith Gill, also known as Roaring Kitty, shared a screenshot showing he had doubled his long position to 100K shares.
On the move: Other meme stocks also took off on the developments, with AMC Entertainment (NYSE:AMC) soaring 18% (it’s up another 15% premarket) and Koss (NASDAQ:KOSS) skyrocketing 55% (ahead by an additional 50% in premarket trade). Some of the usual suspects also got a lift yesterday, including American Airlines (NASDAQ:AAL) +5.6%, BlackBerry (NYSE:BB) +5%, Bed Bath & Beyond (NASDAQ:BBBY) +9%, Express (NYSE:EXPR) +41%, Naked Brand (NASDAQ:NAKD) +31%, Nokia (NYSE:NOK) +4.7%, Sundial Growers (NASDAQ:SNDL) +15%, Tootsie Roll (NYSE:TR) +2%, Trivago (NASDAQ:TRVG) +15%.
Yields, reflation, stimulus, earnings
Another market record for 2021 was seen Wednesday as the Dow Jones Industrial Average surged 424 points to a new record close. Rotation players were also happy to see the index as the only major average in the green this morning, with contracts linked to the benchmark up 0.2%. While the S&P 500 and the Nasdaq also climbed 1% yesterday, futures trading shows them down 0.2% and 0.6%, respectively. Treasury yields climbed another 6 bps to 1.45%, while oil prices extended gains for a fourth session to reach the highest levels in more than 13 months.
Doubling down: As he did before the Senate Banking Committee, Jay Powell further told the House Financial Services Committee that the Fed is in no rush to raise interest rates or begin trimming its $120B in monthly bond purchases (about 7% of GDP on an annualized basis). He also doesn’t see any indication inflation could race out of control. While prices might pick up in the coming months, Powell said those increases are expected to be temporary given supply chain constraints.
Meanwhile, President Biden’s $1.9T coronavirus relief plan is gaining traction. CEOs from more than 160 companies have voiced support for the aid package, including Goldman Sachs’s (GS) David Solomon, Google’s (GOOG, GOOGL) Sundar Pichai and Intel’s (INTC) Pat Gelsinger. “Congress should act swiftly and on a bipartisan basis to authorize a stimulus and relief package along the lines of the Biden-Harris administration’s proposed American Rescue Plan,” they said in a letter to Congressional leaders.
Go deeper: It’s also busy day on the economic front. Initial jobless claims numbers will be released at 8:30 a.m. ET, along with the second estimate for fourth-quarter GDP. Traders will additionally be watching earnings from companies like Best Buy (BBY), Papa John’s (PZZA), Salesforce (CRM), Etsy (ETSY) and Beyond Meat (BYND). Newly public companies Airbnb (ABNB) and DoorDash (DASH) are also set to report results after the closing bell.
Critical supply chain review
President Biden has signed a fresh executive order mandating a 100-day review of critical product supply chains in the U.S., focused on semiconductors, key minerals and materials, active pharmaceutical ingredients and advanced batteries like the ones used in electric vehicles. “There is strong bipartisan support for fast reviews of these four areas because they’re essential for protecting and strengthening American competitiveness,” he told a press conference. The order will also initiate a long-term review, to be completed within one year, that takes a look into fortifying six industry-specific sectors including defense, public health and biological preparedness, communications technology, transportation, energy and food production.
Backdrop: The order is part of the administration’s effort to secure domestic supply chains in the wake of the COVID-19 pandemic that highlighted several vulnerabilities. The U.S. struggled to get the personal protective equipment needed for health care workers early on in the pandemic, relying on China and other nations for the critical supplies. There has also been an ongoing shortage of semiconductor chips (especially for automobiles), while reports suggest China is exploring whether it can hurt U.S. defense contractors by limiting the export of rare earths.
Response from Beijing: Chinese Foreign Ministry spokesman Zhao Lijian said the measures would “not help solve domestic problems” and only harm global trade. “China believes that artificial efforts to shift these chains and to decouple is not realistic. We hope the U.S. will earnestly respect market laws and free trade rules and uphold the safety and reliability and stability of global supply chains.”
While the order doesn’t directly call out China or any specific country, White House officials have said an overreliance on Beijing for critical goods was a key risk. The Biden administration may also work with a “carrot and stick” approach, meaning financial incentives for companies that manufacture items domestically or limiting some imports for those who don’t. In a letter to Biden, Sens. Marco Rubio (R., Fla.) and Chris Coons (D., Del.) recommended he invoke the Defense Production Act to “incentivize or, if necessary, require American companies to retain their domestic capacities during this time.”
5G spectrum auction
The FCC has announced the winners of a wireless airwave auction it conducted over the past few months which racked up a record $81B in bids. The mid-band spectrum, sometimes called the “Goldilocks band,” is well-suited for 5G networks because it is able to transmit large amounts of data on a wavelength that can travel long distances. The 280-megahertz spectrum is also especially important to wireless giants who have been trying to fill out their spectrum portfolios.
The big winners? Verizon (NYSE:VZ) – via its Cellco Partnership subsidiary – bid nearly $45.5B on the airwaves. AT&T (NYSE:T) – through AT&T Spectrum Frontiers – bid $23.4B, while T-Mobile (NASDAQ:TMUS) bid $9.3B (it already acquired some mid-band through its merger with Sprint). The results were in line with industry expectations and reflect how important securing licenses for the airwaves is for the carriers.
“These record-breaking results highlight the demand and critical need for more licensed mid-band spectrum and demonstrate the importance of developing a robust spectrum auction pipeline,” said Meredith Baker, CEO of CTIA (a trade group that represents the wireless industry). The bidders are still under a quiet period, so they are not permitted to comment publicly.
Outlook: The COVID-19 pandemic has shown just how critical our connectivity is given remote work and remote learning trends that have led to a boom in broadband-powered services. 5G will not only lead to eye-popping speeds, but more people can be on a network simultaneously with less drop-offs. However, performance of 5G remains dependent on the type of spectrum a carrier has available, with mid-band providing a strong combination of fast speeds and broad coverage.
What else is happening…
Charlie Munger hits out against brokers ‘luring gamblers.’
Lucid talk on the valuation for Churchill Capital IV (NYSE:CCIV).
Moderna (NASDAQ:MRNA) to begin clinical trials of COVID variant boosters.
FDA staff finds J&J (NYSE:JNJ) COVID vaccine effective ahead of review.
Facebook (NASDAQ:FB) to invest $1B in news industry after Australia row.
Wednesday’s Key Earnings
Booking Holdings (NASDAQ:BKNG) +0.5% AH expecting a strong travel recovery.
L Brands (NYSE:LB) +3% giving a robust profit outlook.
Lowe’s (NYSE:LOW) -3.7% cautioning some DIY trends could decline.
ViacomCBS (NASDAQ:VIAC) -0.9% AH posting mixed earnings before Paramount+ rollout.
Nvidia (NASDAQ:NVDA) -2.2% AH downplaying business of selling processors to crypto miners.
Teladoc (NYSE:TDOC) -6.2% AH announcing softer guidance.
Today’s Economic Calendar
8:30 Durable Goods
8:30 Initial Jobless Claims
8:30 GDP Q4
8:30 Fed’s Bostic Speech
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
11:10 Fed’s Quarles: “Stress Test”
12:00 PM Fed’s Bostic Speech
1:00 PM Results of $62B, 7-Year Note Auction
4:30 PM Fed Balance Sheet
Good morning. Happy Wednesday.
The Asian/Pacific markets were weak. Japan, China, South Korea and Hong Kong posted big losses; India and Singapore did well. Europe, Africa and the Middle East currently lean to the upside. Poland, Germany, Greece, South Africa, Switzerland, Hungary and the Czech Republic are doing well; Turkey, the UAE and Russia are weak. Futures in the States point towards a flat open for the cash market.
Online Course: Masterclass in Trading
The dollar is up. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Back in January, we saw the GameStop (GME) phenomenon disrupt traditional trading patterns, though the saga ended quite quickly despite warnings of shifting power dynamics on Wall Street. Over the last week, we’ve seen new fears spread over market – inflation and rising bond yields. Could those also prove fleeting as “buy the dip” trends on Twitter?
Quote: “The way in which interest rates have risen is not the type of rise that we would naturally associate with weakness in the equity market,” said Morgan Stanley’s Matthew Hornbach. “We’re not seeing interest rates spike higher, we’re not seeing a taper tantrum like we did in 2013, when interest rates rose 150 bps in the span of three months.”
Many have also been touting the “equity rotation” as an uptick in bond yields caused stress in high-flying growth plays. Technology has been having a rough few weeks, along with momentum trades, which is one of the most crowded in the bull market. Drivers of the rotation into cyclical picks have been economic reopenings and broader COVID vaccine rollouts, though with many growth stocks on the backfoot, it may pay to put some cash into the sector.
Quote: “I’m happy to entertain the idea that you need to ring the register here, but I happen to like growth stocks in a reflation scare. I like growth stocks when risk is on. I like growth stocks when risk is off,” Jim Cramer said on Mad Money. “For the better growth stocks, down more than 10% from their highs, call me a buyer. Not all at once, not big, but a buyer nonetheless.”
Powell returns to Capitol Hill
Reassuring comments from Jerome Powell helped stocks recover on Tuesday following steep losses earlier in the day. The Nasdaq ended the session down 0.5%, after falling as much as 4%, while the Dow staged a massive 360-point comeback and closed nearly 16 points higher. The Fed Chair told the Senate Banking Committee that the central bank would keep its foot on the gas pedal as the pandemic recovery path remains “highly uncertain,” though he forecast a return to more normal and improved economic activity later in the year.
Bigger picture: Powell’s visit to Capitol Hill continues today as he addresses the House of Representatives Financial Services Committee. Stock index futures pulled off their overnight lows ahead of the testimony and are pointing to a green session at the open: Dow +0.1%; S&P 500 +0.2%; Nasdaq +0.2%. It’s important to note that Powell also played down inflation worries from another big fiscal stimulus package and called the recent run-up in bond yields “a statement of confidence” in a strong economic outlook. Not only did he help backstop the market, some other influential names lent a hand to notable names that came under pressure.
As electric vehicle stocks tumbled, Cathie Wood bought more shares of Tesla (TSLA) (for a second day running), adding 11,893 shares to the ARK Autonomous Technology & Robotics ETF (ARKQ), 177,214 shares for the ARK Innovation Fund (ARKK) and 51,441 shares for the ARK Next Generation Internet ETF (ARKW). During an interview on Bloomberg Radio, Wood said she loves the liquidity that the shakeout in the market brings in general and sees a $7T opportunity in the autonomous car industry.
Go deeper: The crypto washout also deepened, with Bitcoin (BTC-USD) sinking to $45,000, but it rapidly made its way back to the $50,000 level. MicroStrategy (MSTR) CEO Michael Saylor was not bothered by the shaky price action, noting that the crypto became a $1T digital monetary network in just a dozen years, way faster than other $1T club members like Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), and Google (GOOG, GOOGL). Meanwhile, Jack Dorsey’s Square tripled its last investment in Bitcoin via a $170M purchase of 3,318 tokens, while Cathie Wood said she was “very positive” on the crypto and welcomed its “healthy correction.”
The southwestern Chinese city of Chengdu is handing out another $6M in the latest test of the central bank’s digital currency. The scale of the trial is much larger than one conducted in Beijing earlier this month, which aimed to distribute $1.5M to 50,000 applicants. Other cities, like Shenzhen and Suzhou, have held their own tests of the People’s Bank of China’s digital currency in the last few months.
What’s happening? China is racing to become the first big economy to introduce a centralized digital currency. One of the most notable features of the currency is the ability to conduct transactions without internet, unlike China’s hugely popular Alipay (NYSE:BABA) and WeChat Pay (OTCPK:TCEHY). It also won’t require a bank account to access funds, helping the 20% of adults in China without bank accounts. China already leads the world in digital payments, accounting for 44% of the globe’s total value of such transactions.
Thought bubble: The digital renminbi is an attractive tool for a government that is highly concerned with social control. China doesn’t want decentralized cryptos, and even some from private companies – like Facebook’s (NASDAQ:FB) Diem (formerly known as Libra) – to become a medium of exchange inside the country. It also offers a series of surveillance functions, where China’s central bank can monitor every transaction that is using the currency in real time.
In fact, automatic vending machines in some metro stations in Beijing can now accept digital yuan as part of the offline application scenarios being promoted across the city. China is even hoping to showcase the tender at the 2022 Winter Olympics in Shanghai. The event is expected draw a large number of domestic and foreign spectators, driving up demand for payment services in the Chinese capital.
Sanctions over SolarWinds hack
The Biden administration is preparing sanctions to punish Moscow for the sprawling SolarWinds (NYSE:SWI) cyber espionage campaign, which compromised nine U.S. government agencies and 18,000 public and private sector customers. That’s according to The Washington Post, which said other measures would target Moscow due to a “range of malign cyber activity and the near-fatal poisoning of Russian opposition leader Alexey Navalny.” The moves would be the first costs levied on Russia by President Biden (the State Department drew up options for retaliation last year under the Trump administration, but they were never imposed).
While the cyber attack was discovered in December, hackers had been inserting malicious code into SolarWinds updates since the previous March. U.S. officials have said that the breach was “likely” of Russian origin, but that hasn’t been yet confirmed by intelligence officials. Yesterday, some of the companies affected by the hack told members of the Senate Select Committee on Intelligence that the attack may have also been broader than previously thought.
What happened? Once inside, “the threat actor took advantage of systemic weaknesses in the Windows authentication architecture, allowing it to move laterally within the network” and reach the cloud environment, CrowdStrike (CRWD) CEO George Kurtz said during the hearing. Microsoft (MSFT) President Brad Smith added that approach “was only used by the Russian attackers 15% of the time,” and the hackers may have used “up to a dozen” different methods to gain access to victims’ systems, not just SolarWinds software.
Movement: Cybersecurity stocks trended lower during the panel hearings on Tuesday, including SolarWinds, CrowdStrike, McAfee (MCFE), Zscaler (ZS) and SailPoint (SAIL).
What else is happening…
Snap (SNAP) on track for several years of 50% growth.
Apple (AAPL) plans dividend increases, dismisses antitrust concerns.
Texas freeze shows need for both gas and renewables – Total CEO.
FAA orders Pratt & Whitney (RTX) engines be inspected for cracks.
AstraZeneca (AZN) expects U.S. COVID vaccine authorization in April.
Tuesday’s Key Earnings
Home Depot (NYSE:HD) -3.1% holding back full-year guidance.
Macy’s (NYSE:M) +3.9% after Q4 beat, seeing an apparel recovery.
Medtronic (NYSE:MDT) +1.9% buoyed by procedure volumes, new product launches.
Square (NYSE:SQ) -5.1% AH amid fears of slowing growth.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 New Home Sales
10:00 Powell Testifies Before House Financial Services Committee
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
10:30 Fed’s Brainard: “The Federal Reserve’s Maximum Employment Mandate”
11:00 Survey of Business Uncertainty
11:30 Results of $26B, 2-Year FRN Auction
12:00 PM Fed’s Clarida: U.S. Economic Outlook and Monetary Policy
1:00 PM Results of $61B, 5-Year Note Auction
4:00 PM Fed’s Clarida: U.S. Economic Outlook and Monetary Policy
Good morning. Happy Tuesday.
The Asian/Pacific markets were mixed. Hong Kong, Australia and Thailand did well; China was weak. Europe, Africa and the Middle East are currently down big. Spain and Saudi Arabia are doing well, but Denmark, Poland, Turkey, Germany, South Africa, Finland, Switzerland, the Netherlands, Portugal, Israel and Sweden are down 1% or more. Futures in the States point towards another relatively big gap down open for the cash market.
Online Course: Masterclass in Trading
The dollar is up. Oil is up; copper is down. Gold is up; silver is down. Bonds are mixed. Bitcoin is down big.
Stories/News from Seeking Alpha…
Powell on the Hill
Get ready for Fed Chair Jerome Powell’s semiannual monetary policy testimony before Congress, which will take on additional importance this time around as investors size up the recent run-up in bond yields. Powell will answer questions from the Senate Banking Committee today and appear before the House Financial Services Committee tomorrow. He’s expected to reaffirm his commitment to an ultra-easy monetary policy, as well as the need for more fiscal stimulus, to support the economy as it emerges from the COVID-19 pandemic.
Backdrop: The Fed has run historically loose policy over the past year, lowering its benchmark borrowing rate to near zero and buying at least $120B of bonds each month (about 7% of GDP on an annualized basis). That’s on top of a series of lending and liquidity programs implemented to battle the coronavirus crisis, while Congress has approved trillions of dollars in fiscal stimulus and could pass another $1.9T bill by the end of week. All the stimulus measures have helped boost expectations of faster U.S. growth and inflation, recently driving up government bond yields, particularly further out on the curve.
While the 2-year is unchanged for 2021, the 5-year has risen a quarter percentage point to 0.61%. The benchmark 10-year note has seen its yield jump 44 basis points to 1.37%, an area where it hasn’t been since before the pandemic, while the 30-year rate has climbed 54 bps to 2.19%. ECB President Christine Lagarde even flagged the movement on Monday, saying she is “closely monitoring the evolution of longer-term nominal bond yields.”
Balancing act: A series of disappointing weekly jobless claims and recent monthly jobs reports have pointed to a U.S. labor market that’s still under considerable strain due to the pandemic. That may lead Powell to emphasize robust stimulus measures, which would be typically embraced by investors, but some are now painting the Fed’s situation as caught between a rock and a hard place. If bond yields continue to rise in response, the Fed might be forced to tighten policy too quickly, while a complacent Fed could pose overheating risks that may destabilize the economy over the longer term.
Nasdaq set to continue losing streak
The tech sector looks poised for another down day, fueled by fears about inflation and rising long-term interest rates. That could lower the present value of future earnings and undercut arguments for elevated valuations of high-growth tech stocks. The Nasdaq slumped 2.5% on Monday, while future contracts linked to the index fell another 1.5% overnight. In fact, the Nasdaq 100 has dropped 4.2% over the last five days, the longest consecutive streak of losses since Oct. 19.
Bigger picture: The rout weighed on some of best plays of 2020 as Peloton (PTON) plunged 10% on Monday, while DocuSign (DOCU) and Tesla (TSLA) tumbled 8.2% and 8.6%, respectively. The stay-at-home trade that boosted much of the tech sector may also be on the back foot given hopes of a return-to-normal due to a broader vaccine rollout. That’s seeing more money flow into cyclicals, reflecting pent-up expectations for a reopening of the economy.
“Just because long-term rates are ultra-low on an historical basis, we do not believe that they will have to rise as far as most pundits think they do before they impact the stock market,” Matt Maley, chief market strategist at Miller Tabak, wrote in a note. Others think the retreat is a bit overblown. “Definitely, yields are the big thing,” said Randy Frederick, vice president of trading and derivatives at Schwab Center for financial research, but “when you are a tad off record highs, inflation scares or a storm could cause a pullback.”
Other movement: Elsewhere, Bitcoin (BTC-USD) retreated below $50,000 after Treasury Secretary Janet Yellen called the crypto an “extremely inefficient way of conducting transactions.” She also warned about its use in illicit activity and sounded the alarm about its impact on the environment (given the levels of electricity needed to produce new coins). That would be in contrast to a sovereign digital currency, for which Yellen signaled the Biden administration’s support, as well as research into the viability of a digital dollar.
News Down Under
Facebook (FB) has reached an agreement with the Australian government that will restore news pages in the country after the latter proposed amendments to a controversial media bill. The original law, if passed, would leave digital platforms on the hook for news content displayed in search results or feeds, meaning they would have to shell out cash to local media outlets and publishers for linking to their content. Google (GOOG, GOOGL) already agreed to pay for news, but Facebook appears to have held out for a better arrangement.
Under the amendments to the proposed bill, the Australian government will take into account commercial agreements that digital platforms have already made with local news media businesses before deciding if the code applies to the tech giants. The government will also give digital platforms one month’s notice before reaching the final decision and would also include a two-month mediation period that grants the two sides more time to negotiate commercial deals before forcing them into final-offer arbitration.
Quote: “As a result of these changes, we can now work to further our investment in public interest journalism and restore news on Facebook for Australians in the coming days,” Facebook regional managing director William Easton declared.
Go deeper: Microsoft (MSFT), which has previously pitched Bing after Google threatened its search engine Down Under, is joining EU publishers pushing for paid content laws. It’s proposing regulations that “mandate payment” for news content by “gatekeepers that have dominant market power,” which is a shot at Google and Facebook. The coalition would also support a form of arbitration and is looking at Australia’s pending news payment legislation for guidance.
Mega SPAC deal could create Tesla rival
In the latest SPAC deal on the Street, electric vehicle maker Lucid Motors plans to go public at an $11.75B combined equity valuation and $24B pro-forma equity value through a reverse merger with Churchill Capital Corp IV (NYSE:CCIV). The latter is a blank-check company started by veteran investment banker Michael Klein.
Investors had eagerly awaited a possible Lucid/CCIV deal given that Lucid competes with Wall Street darling Tesla (NASDAQ:TSLA), whose stock has risen some 600% over the past 11 months. Former Tesla executive Bernard Tse co-founded Lucid in 2007. CCIV shares are off 35% premarket to $37 following news of the deal, after climbing as much as 279% intraday in recent weeks to $64.86 (from a $17.11 low on Jan. 21). Tesla is down another 6% to $670/share after touching $900 back in January.
What they’re saying: Seeking Alpha contributors are giving Lucid mixed reviews. Columnist Long Term Tips recently called it “the best available investment in an EV manufacturer,” while contributor Jaberwock Research described the automaker as “an interesting company, but not at the price that investors are paying right now.”
Outlook: Lucid is set to deliver its first vehicle, a luxury sedan called the Air, this spring. The company sees the Air as a catalyst for a lineup of future all-electric vehicles, including an SUV starting production in early 2023 and more affordable vehicles down the line. The deal with Churchill Capital will also generate about $4.4B in cash for expansion plans for Lucid, including its current factory in Arizona.
Cherokee name change?
The principal chief of the Cherokee Nation wants Jeep to stop using the tribe’s name on its SUVs, and even held a video call with representatives from Stellantis (NYSE:STLA), the parent company of the Jeep brand since a merger of Fiat Chrysler and Peugeot. He was left with the impression that the representatives were of good faith and wanted to understand the concerns, but no commitments were made regarding the Jeep Cherokee name.
“Financial incentives, things of that nature, to me, don’t remedy the underlying problem,” Chuck Hoskin Jr. declared. “I think we’re in a day and age in this country where it’s time for both corporations and team sports to retire the use of Native American names, images and mascots from their products, team jerseys and sports in general. “I’m sure this comes from a place that is well-intended, but it does not honor us by having our name plastered on the side of a car.”
Response from Jeep: “Our vehicle names have been carefully chosen and nurtured over the years to honor and celebrate Native American people for their nobility, prowess, and pride. We are, more than ever, committed to a respectful and open dialogue with Cherokee Nation Principal Chief Chuck Hoskin, Jr.”
Some history: Jeep first used the Cherokee name in a 1974 two-door wagon, with one trim called Cherokee Chief. It has since built vehicles called Cherokee continuously, although from 2002 through 2013 the cars were known as the Liberty in North America. The Grand Cherokee is Jeep’s best-selling vehicle, and the Cherokee is its third-biggest selling model (the two made up more than 40% of Jeep’s total annual sales in 2020).
The criticism isn’t limited to the auto industry. In fact, several companies and sports teams have stopped using brand names and logos that used ethnic stereotypes and caricatures over the past year. Those include Aunt Jemima, Uncle Ben’s, Land O’Lakes and Eskimo Pie, as well as reviews of Mrs. Butterworth’s and Cream of Wheat. Sports teams like the MLB’s Cleveland Indians and the NFL’s Washington Redskins also dropped Native American imagery and names from their franchises.
What else is happening…
Spotify (NYSE:SPOT) plans to launch in over 80 more countries.
FDA feedback encourages Moderna (NASDAQ:MRNA) to increase vaccine supply per vial.
Recreational marijuana laws signed in New Jersey.
Google (GOOG, GOOGL) ending month-long ban on political ads.
State Department report allows Nord Stream 2 to proceed for now.
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
10:00 PM Powell Testifies on Semi-Annual Monetary Policy Report
1:00 PM Results of $60B, 2-Year Note Auction
1:00 PM Money Supply
Good morning. Happy Monday.
The Asian/Pacific markets suffered stiff losses. Japan did well, but China, Hong Kong, South Korea, India, New Zealand, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently mostly down. The UK, Denmark, Poland, Germany, Hungary, Spain, Italy, Israel and the Czech Republic are weak. Futures in the States point towards a relatively big gap down open for the cash market.
Online Course: Masterclass in Trading
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are flat. Bitcoin is down.
Stories/News from Seeking Alpha…
While the S&P 500 is coming off its first losing week in three, the market is going into the final week of February with solid gains. The Dow and S&P 500 have already climbed more than 5% this month, the Nasdaq advanced 6.2% and the small-cap Russell 2000 outperformed with a gain of 9.3%. Some fears of rapidly rising bond yields are still settling in as U.S. stock index futures point to another weak open for today’s session: Dow -0.7%; S&P 500 -1.1%; Nasdaq -1.5%.
Bigger picture: The 10-year Treasury yield jumped 14 basis points last week to 1.34%, close to its highest level since February 2020. It even touched 1.37% overnight, meaning the benchmark rate has moved up 28 basis points so far this month. That could hurt high-growth companies dependent on easy borrowing, while lessening the relative appeal of stocks. However, many on Wall Street still believe the jump in bond yields reflects a sign of growing confidence in the economic recovery and equities should be able to absorb higher rates due to strong earnings.
Quote: “We do not see the recent increase in yields as a threat to the bull market,” said Keith Lerner, chief market strategist at Truist. “Given that we are in the early stages of an economic recovery, monetary and fiscal policy remains supportive, the sharp rebound in earnings, and favorable relative valuations, we maintain our overweight to equities.”
Investors this week will also monitor the latest developments out of Washington, with House Democrats hoping to finalize a $1.9T stimulus package. A pickup in inflation could eventually prompt the Fed to raise short-term interest rates, though most traders don’t see that happening in the near term. Also keep an eye on Jerome Powell, who is expected to reiterate a commitment to super-easy monetary policy in his semi-annual testimony before Congress this week.
The Tesla-Bitcoin connection
Tesla (TSLA) is “on a trajectory to make more from its Bitcoin (BTC-USD) investments than profits from selling its EVs cars in all of 2020.” That’s according to Wedbush’s Dan Ives, which gave the estimate in a research note on Saturday. While he didn’t lay out the numbers, Bitcoin has climbed about 65% since Jan. 31, which would put the profit on Tesla’s $1.5B bitcoin investment at around $975M.
Quote: “We still expect less than 5% of public companies will head down this route until more regulatory goal posts are put in place around the crypto market,” continued Ives. “While the Bitcoin investment is a side show for Tesla, it’s clearly been a good initial investment and a trend we expect could have a ripple impact for other public companies over the next 12 to 18 months.”
Response: Bitcoin’s market cap even hit $1T on Friday as it continued to rally into record territory. The blastoff caught the attention of Tesla’s Elon Musk once again, who said “BTC & ETH do seem high lol,” though it came with a tweet that said “money is just data that allows us to avoid the inconvenience of barter.” In the past, Musk has suggested that “Bitcoin is almost as bs as fiat money.” The key word is “almost,” he added, saying, “when fiat currency has negative real interest, only a fool wouldn’t look elsewhere.”
After surging to a record $58,354 on Sunday, Bitcoin fell as much as 6% to below $55,000 overnight following the comments from Musk. Rival cryptocurrency Ether (ETH-USD) is meanwhile off 7% to $1,798. Disclaimer: Musk’s remarks in the past that Tesla’s share price was “too high” were followed by similar pullbacks, before the stock skyrocketed to new records. Will it happen again?
Engine failure over Denver
A United Airlines (NASDAQ:UAL) Boeing (NYSE:BA) 777-200 bound for Honolulu suffered an engine failure shortly after takeoff from Denver on Saturday, scattering debris across several neighborhoods. Images shared on social media showed the extent of the failure, including an engine cover (called a cowling) in front of a residential house, though the plane was able to safely return and land in Denver. There were reports of property damage, but no one was injured, including the 241 passengers and crew members onboard the flight.
What happened? A preliminary examination by the National Transportation Safety Board showed that two fan blades in one of the United aircraft’s engines were fractured – one nearly entirely and the other about half-broken – while the remaining fan blades displayed signs of damage. Such engine failures, in which internal parts shatter the engine’s protective casing, can badly damage planes because debris can hit wings, fuel tanks and the fuselage.
Following the incident, Boeing told airlines to stop flying its 777 aircraft equipped with Pratt & Whitney’s (NYSE:RTX) PW4000 engine, while the FAA ordered immediate inspections of those jets. Regulators in Japan have also told local carriers to stop flying aircraft with the same engine type until further notice. United is the only U.S. operator of the planes, and the only other airlines using them are in Japan and South Korea.
Go deeper: It’s the third failure involving the model in recent years. A Japan Airlines (OTCPK:JAPSY) flight on a 777-200 had an engine failure on a flight to Tokyo in December, while a different Boeing 777 operated by United had an engine failure on its way to Hawaii in February 2018. Following the events, authorities in Japan and the FAA issued directives requiring more regular inspections of planes and fan blades involving the PW4000 engine type. The affected 777-200s and 777-300s are also older and less fuel-efficient than newer models, and most operators are phasing them out of their fleets.
Revising PPP rules
The Treasury Department under the Biden administration is making targeted changes to the Paycheck Protection Program. For two weeks starting on Wednesday, the Small Business Administration will only accept applications for forgivable PPP loans from firms with fewer than 20 employees in an attempt to direct more funding toward smaller, minority-owned firms. The program will also set aside $1B for businesses without employees in low- and moderate-income areas, but that are 70% owned by women and people of color.
Other terms: The SBA will provide new guidance making it clear that U.S. residents who are not citizens, such as green card holders, cannot be excluded from the program. It will also eliminate exclusions that prohibit a business owner who is delinquent on student loans from participating. Other planned changes include allowing broader access to the program for applicants with non-fraud felony convictions.
While the PPP resulted in a drop in the unemployment rate last summer, its limitations became clear when many recipients conducted mass layoffs as soon as their loans expired. Some controversy also ensued surrounding the program’s broad eligibility criteria, which allowed publicly traded companies, fast-food chains and some small wealthy businesses to benefit from funding. The Biden administration has not said whether it will seek to extend the program after the current tranche of funding expires on March 31.
Statistics: The loan program approved a total of 5.3M loans worth about $521B over the course of 2020, of which 1.7M (or $151B) were forgiven. An additional 1.8M in PPP loans totaling $133.5B have been approved so far in 2021, according to data from the Small Business Administration. Most of them were “second-draw” loans granted to businesses that already received loans last year.
More real-world vaccine data
The latest figures from Israel’s Ministry of Health shows that the coronavirus vaccine from Pfizer (PFE) and BioNTech (BNTX) is 98.9% effective at preventing death caused by COVID-19. It is also 99.2% protective against serious illness, reduces morbidity by 95.8% and decreases the chance of hospitalization by 98.9%. “The vaccine dramatically reduces serious illness and death and you can see this influence in our morbidity statistics,” said Health Ministry Director-General Chezy Levy.
Backdrop: In early January, Israel struck a vaccines-for-data deal with Pfizer that promised to share vast troves of information with the drug giant in exchange for the continued flow of COVID-19 shots. “Israel will be a global model state,” Prime Minister Benjamin Netanyahu said at the time. “Israel will share with Pfizer and with the entire world the statistical data that will help develop strategies for defeating the coronavirus.” No funding was allotted for the agreement, while the country even paid a sizable premium for vaccine doses. Helping to demonstrate the impact of the vaccine on an entire population is Israel’s highly digitized universal healthcare system, which requires everyone over the age of 18 to register with one of four HMOs.
So far, 4,250,643 Israelis (47%) have received at least one dose of Pfizer’s vaccine, while 2,881,825 (32%) have received both shots out of a population of about 9M. The latest data from Israel’s Ministry of Health represents citizens who have received both doses of the vaccine, 14 days after their second dose, versus people who have not received any inoculation. Around 3M Israelis (33%) are not currently eligible to be vaccinated, including those younger than 16 and people who have recovered from COVID-19.
Outlook: On Thursday, Israel also launched a COVID passport program that will enable those vaccinated or recovered from the coronavirus to take part in various cultural and public activities. The “green pass” will grant access to gyms, hotels, swimming pools and concerts, while restaurants and bars will be included from early March. Could a COVID vaccine passport be issued in the U.S.? “Anything is on the table,” Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, told Newsweek in January. Over the weekend, he also cautioned against complacency as coronavirus infections come down across the U.S., which just recorded a grim milestone of 500K COVID-related deaths.
What else is happening…
Starboard SPAC (NASDAQ:SVAC) close to deal for data center company Cyxtera.
Texas AG launches investigation into state’s power failures.
Goldman predicts Brent crude at $75 by Q3 as supply lags demand rebound.
A new model shows U.S. could reach COVID-19 herd immunity by July.
Amazon (NASDAQ:AMZN) likely to partner with Dish (NASDAQ:DISH) on mobile service.
Sector Watch: Bank stocks shouldn’t fear Fed’s Powell.
Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
10:00 Leading Indicators
10:30 Dallas Fed Manufacturing Survey