Good morning. Happy Friday.
The Asian/Pacific markets leaned down. Japan, Malaysia and Thailand did well; China, Hong Kong, South Korea, India, Australia and Indonesia were weak. Europe, Africa and the Middle East are currently mixed. Norway, Portugal, Saudi Arabia and the Czech Republic are up; Denmark, Poland, France, Germany and Switzerland are down. Futures in the States point towards a positive open for the cash market.
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The dollar is up. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is flat.
Stories/News from Seeking Alpha…
The last couple of months haven’t been great for the U.S. job market, but many are hoping February will have turned out to be better. The first non-farm payrolls report of the Biden administration will be released this morning as congressional Democrats rush to approve a massive economic relief package. While there are many disagreements over how much aid the country currently needs, today’s jobs report is not expected to trigger renewed debate.
“The Senate is going to move forward with the bill,” Majority Leader Charles Schumer said on Thursday. “No matter how long it takes, the Senate is going to stay in session to finish the bill this week.”
Bigger picture: Much like last month’s release, forecasts are all over the place for this morning’s jobs numbers. Morgan Stanley estimates a gain of 60,000, while Bank of America sees a rebound of 225,000, though consensus estimates are somewhere in the 180,000 range. That pace is not nearly fast enough to quickly help the world’s largest economy recover from COVID-19, but it’s still better than January’s addition of 49,000 jobs. The U.S. remains 9.9M jobs short of its pre-pandemic employment level, while about 18M Americans are on some form of unemployment aid. Last month’s jobless rate is expected to hold at 6.3%, above the 50-year low of 3.5% seen in February 2020.
Go deeper: Economists will also be eyeing the breakdown of job gains/losses by sector, looking for trends and remaining pandemic effects, especially on the high-contact services industry. Take a recent note from Nomura’s Lewis Alexander: “As the pace of new COVID-19 cases steadily declined, restaurant activity accelerated in February, suggesting an increase in food service employment. That strength continued into March based on preliminary data, consistent with our view that private employment growth should begin to recover more rapidly in the late spring as vaccinations continue and restrictions are eased.”
Powell fails to reassure investors
Fed Chair Jay Powell vowed to keep monetary policy steady on Thursday even as the economy improves from the pandemic and inflation begins to rise. The remarks echoed comments he made on Capitol Hill last month, as well as a similar stance he’s taken during much of the coronavirus crisis. A selloff in equities still ensued as benchmark 10-year Treasury yields jumped another 7 basis points to 1.55%, the highest since mid-February last year.
What happened? While Powell didn’t say anything different, markets focused on what he didn’t say, as the backdrop for financial markets has changed quite drastically since he last made a public appearance. Treasury yields have spiked, along with a broader rise in borrowing costs, and the big concern is that these moves could be destabilizing. Powell did say that if things get disorderly, the Fed has the tools to deal with them, but investors were likely looking for something that was more specific.
Others are flagging comments he made about pressure on prices. Even if the economy sees “transitory increases in inflation… I expect that we will be patient,” Powell added, but that had many investors getting nervous. “The market’s translation of ‘patient’ is that patient doesn’t mean ‘never,’ and that Powell is indicating that easy money will at a certain point come to an end,” said Mike Loewengart, managing director of investment strategy at E-Trade Financial.
Fiscal side: The Senate is also moving forward with President Biden’s mega stimulus proposal. Investors have been pricing in this package for some time – and more clearly since Democrats won both Senate seats in the Georgia Senate runoff elections – which gave the party full control of government spending powers. The $1.7T price tag for the bill, along with the trillions in stimulus released in 2020, is really what’s behind the surge in inflation expectations, as well as the backup in Treasury yields. How long will the selloff continue without specific measures from the Fed?
OPEC+ keeps things steady
Oil prices jumped another 2.5% to over $65 a barrel overnight after OPEC+ decided not to unleash millions of barrels on to the market. The main debate at the meeting was whether to go forward with a collective production increase and if the Saudis would return the 1M bbl/day they voluntarily took offline. Analysts had expected there would be some level of increase prior to the gathering – given the extraordinary level of cuts made since the outbreak of the pandemic – before reports surfaced that the group would stand down.
Thought bubble: OPEC+ is not behaving as it did in the past, where members would meet once or twice a year. The group is now holding monthly get-togethers, giving it more immediate power to meet current market conditions, as well as room to maneuver. It’s also a signal that OPEC+ producers are wary about how things might play out in the months to come.
Outlook: Much of the current surge in prices was due to Saudi Arabia’s unilateral action to cut Q1 production. One key question is how long the Kingdom is prepared to pay to preserve the peace within OPEC+ given the oil price war that erupted between Riyadh and Moscow last year, while tensions could also return on the way out of the COVID-19 pandemic. “The longer prices stay up, the greater the likelihood we will eventually see a supply response from the U.S. But, it’s not going to be as immediate as it would have been in the past,” added Bill O’Grady of Confluence Investment Management.
Chinese growth targets
China’s National People’s Congress has officially convened its “Two Sessions” annual parliamentary gathering which sets economic and political priorities for 2021. Nearly 3,000 lawmakers descended on Beijing, where the nation’s rubber-stamp parliament laid out targets for GDP, employment, inflation and other growth goals. The meeting took on additional importance this year as it marked the beginning of China’s five-year development plan (the 14th in its history), as well as the 100th anniversary of the ruling Communist Party.
Highlights: Premier Li Keqiang said the country would target GDP growth of 6% or more this year, a figure that was lower than most economists’ expectations of around 8%. It’s also surprising given that it was the only major world economy to grow in 2020. China recovered relatively quickly from the initial coronavirus outbreak centered in the Chinese city of Wuhan and ended up with 2.3% growth for the year.
However, Chinese leaders scrapped a five-year GDP target, saying only that they would plan to keep the economy running “within a reasonable range.” In the 2016-20 plan, the target was “more than 6.5%.” Instead, they are aiming to cap the surveyed urban unemployment rate at 5.5%, with labor productivity growth outpacing overall GDP growth. The county also plans to increase its urbanization rate to 65%, from 60.6% in 2019.
Go deeper: The conservative GDP growth targets indicate more restrained monetary and fiscal policies are coming in 2021 (contrast that with the U.S.). Policymakers have further put a recent focus on reining in debt and combating an emerging bubble in the real estate market. In the annual report, the government also said it would seek to cut the fiscal deficit target to 3.2% of projected GDP this year (vs. 3.6% in 2020), and plans to reduce the amount of debt raised by local governments.
What else is happening…
Shutterfly in talks to go public via SPAC merger – WSJ.
Wedbush calls EV stock selloff a massive buying opportunity.
Square (NYSE:SQ) takes majority stake in Tidal, adds Jay-Z to board.
Utilities see continued place for gas during green transition.
U.S. suspends tariffs on U.K. goods in planemaker dispute.
Mizuho’s talk with Cathie Wood covers Bitcoin (BTC-USD), payments sector.
Thursday’s Key Earnings
Broadcom (NASDAQ:AVGO) -2.6%
AH as investors disregarded double-digit chip growth.
Costco (NASDAQ:COST) -2.1% AH despite a comp sales expansion of 13%.
Gap (NYSE:GPS) +3.1% AH forecasting a return to sales growth in 2021.
Kroger (NYSE:KR) +2.5% on earnings beat, positive outlook.
Slack Technologies (NYSE:WORK) -1.3% AH reporting a loss for the quarter.
Today’s Economic Calendar
8:30 Non-farm payrolls
8:30 Goods and Services Trade
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit
3:00 PM Fed’s Bostic Speech
Good morning. Happy Thursday.
The Asian/Pacific markets posted big losses. Japan, China, Hong Kong, South Korea, India, New Zealand, Taiwan and Indonesia all dropped more than 1%. Europe, Africa and the Middle East currently lean down, but there are few big losers. Denmark, Finland, Hungary and the Netherlands are down more than 1%. 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 down. Gold is flat; silver is down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Oil market rebalancing
Oil prices are on the rise for a second straight session following reports that OPEC and its non-OPEC partners, an energy alliance referred to as OPEC+, might decide against increasing output at a key meeting today. Until now, the consensus view among the group appeared to be that the market can absorb extra barrels, given the increased demand from economic reopenings and recent resilience of crude prices. Oil has even tracked back to the $60/level, in large part due to the alliance’s cutbacks, as well as a broader vaccine rollout and increased popularity of commodities as a hedge against inflation.
Backdrop: OPEC+ initially agreed to cut oil production by a record of 9.7M barrels per day in 2020, before easing cuts to 7.7M and eventually 7.2M from January (about 7% of global supply). At that meeting, a clash ensued, triggering Saudi Arabia to unilaterally slash 1M barrels per day in production in February and March, while Russia and Kazakhstan said they would increase their output by a combined 75,000 bpd.
Riyadh painted the decision as some kind of leadership position, saying it was a sovereign political move to support the Saudi economy, members of the OPEC+ group, as well as the wider industry. However, OPEC’s de facto leader may still want to return those 1M barrels to market, while others, like non-OPEC leader Russia, were also thought to have wanted a 500K bpd collective increase for April. Remember, the breakeven price for Russia’s budget is much lower than that of Saudi Arabia, and questions remain over exactly how much output will be affected and which countries will be involved.
Go deeper: Some surprises may also be in the making. Last month, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman reportedly said to those trying to forecast next move from OPEC+: “Don’t try to predict the unpredictable.” The recent energy crisis in Texas, as well subsequent halt of gas exports, also led Abdulaziz to consider reversing production cuts, though he left oil watchers on edge. “We are in a much better place than we were a year ago, but I must warn, once again, against complacency. The uncertainty is very high, and we have to be extremely cautious.”
Twist and Shout
Stock futures inched between gains and losses overnight following another session that saw the major averages finish in the red across the board. The heavy losses continued to inflict pain on investors spooked by rising bond yields, as the 10-year Treasury made its way to nearly 1.5% before easing back. The developments could hurt high-growth companies dependent on easy borrowing, while tech names were dealt a one-two punch, with cyclical plays supported by economic reopenings and broader vaccine rollouts.
What’s next? Markets are laser-focused on Jerome Powell’s next move. The Fed Chair is due to speak today at a Wall Street Journal conference (starting 12:05 p.m. ET), which will be his last outing before the FOMC convenes on March 16-17. Investors will look for any hints of concern about the recent jump in bond yields, especially given the Q&A format. The last time we heard from Powell was in front of Congress, when answers to politicians were likely more calculated.
Steps that could be taken: Some are talking about reviving Operation Twist as the yield curve steepens. That’s where the Fed buys longer-dated bonds and sells shorter-dated bonds to bring down rates at the longer end. It would be Operation Twist Part 3, with the first coming in 1961 in an effort to strengthen the dollar and stimulate spending, and the second in 2011 to push down longer-term rates with the fed funds rate at zero. Other policy tweaks at Powell’s disposal include an increase in rates on excess reserves or overnight repo operations.
Mark Cabana, head of U.S. rates strategy at BofA Securities, wrote recently in favor of bringing back Operation Twist, saying “the Fed is simultaneously losing control of both the U.S. front end and back end rates curves.” Operation Twist Part 3 “kills three birds with one stone: It pulls up front end rates, it stabilizes back end rates, and it does so in a reserve neutral way that lessens bank (statutory liquidity ratio) pressure to hold more capital.”
Las Vegas Sands exits the Strip
Las Vegas Sands is selling its iconic operations on the Las Vegas Strip after upending the nature of the casino business there and many other places across the globe. Under a two-part deal, VICI Properties (VICI) will acquire the real estate-related assets of The Venetian and Sands Expo for $4B, while Apollo Global Management (APO) will buy the subsidiaries that hold the operating assets and liabilities of the Las Vegas business for $2.25B. That means the company led by Sheldon Adelson until his death this year will effectively cease U.S. operations.
Backdrop: Starting in the late 1980s, Adelson moved into the casino business, purchasing the Sands Hotel and Casino in Las Vegas for $128M. The deal would eventually launch Las Vegas Sands into a global resort brand, with a string of lucrative casinos in the Chinese gambling enclave of Macao. Adelson built the $1.5B Venetian in place of the Sands building in 1996, while Las Vegas Sands’ most recent construction was the Parisian Macao, a luxury hotel fitted with a half-scale copy of the Eiffel Tower.
“On our SOTP we value the Vegas assets at $4.1B, implying the deal is ~$2-3 accretive given 764M shares and assuming a few $100m tax leakage,” wrote Morgan Stanley analyst Thomas Allen. He also notes that some LVS corporate expenses could shift over to the property, conventions may take longer to return, and with a less firm connection with international properties, it could lose some of that business for the new owner in what could be an opportunity for MGM Resorts (MGM) and Wynn Resorts (WYNN).
Some statistics: Casinos in Las Vegas saw gaming win increase M/M in January, but that was down sharply from the year-ago period as CES went online. Las Vegas Sands was also the only U.S.-based casino company to not lay off employees during the coronavirus pandemic.
It was an exciting day in Boca Chica, Texas, on Wednesday, as SpaceX (SPACE) tested another one of its Starship prototypes that it hopes will launch cargo and people to the moon and Mars. Excluding a heavy booster that creates a two-stage system, the reusable rocket stands at about 150 feet tall, or about the size of a 15-story building, with a 30-foot diameter. The stainless steel vehicle is powered by three Raptor rocket engines, and would be able to carry as many as 100 passengers and 100 metric tons of cargo.
What happened? The SN10 flight was similar to the ones SpaceX performed in December and February, when it test-flew prototypes SN8 and SN9, respectively. Both rockets completed objectives like testing aerodynamics, shutting down the engines in succession, and flipping to orient for landing, but both prototypes exploded on impact as they failed to slow down enough. SN10 landed successfully yesterday after executing a “belly flop maneuver,” but the rocket exploded a few minutes later (due to a suspected methane leak).
“Third time’s the charm as the saying goes,” said SpaceX engineer and live feed narrator John Insprucker. “As a reminder, the key point of today’s test flight was to gather the data of controlling the vehicle while re-entering, and we were successful in doing so. The Texas team has several more suborbital test vehicles in build, with number 11 ready to roll out to the pad in the very near future.”
Outlook: Elon Musk said back in October that he’s 80% to 90% confident that Starship will be ready for an orbital flight this year and will be “safe enough for human transport by 2023.” In the meantime, SpaceX’s worth keeps growing. The firm is said to have completed another equity funding round of $850M in February, sending its valuation skyrocketing to about $74B. That’s a jump of about 60% compared to last August, when SpaceX raised near $2B at a $46B valuation.
Attention, momentum traders!
VanEck plans to launch a new ETF today that aims to track the BUZZ NextGen AI US Sentiment Leaders Index, a measure of stocks that are generating “buzz” on traditional and social media. The Social Sentiment ETF (BUZZ) will trade on the New York Stock Exchange and is getting a big push from Barstool Sports’ “El Presidente” Dave Portnoy, who’s been a major stock market influencer on social media. He’s involved with both the index and the ETF, touting it in an “emergency press conference” posted on BarstoolSports.com.
Quote: “As always I must remind you I am not a financial advisor. Don’t trust anything I say about stocks. Having said that I think you’d be stupid not to invest. But what do I know? I’ve only been right for 20 years straight.”
How does it work? Stocks are selected and scored for the index using artificial intelligence tools like machine learning and natural language processing algorithms, which analyze social media, news and blogs. The BUZZ NextGen AI US Sentiment Leaders Index consists of 75 large-cap U.S. stocks that show the most positive investor sentiment in the media, though it reportedly won’t contain any “meme stocks” like GameStop (GME) and AMC (AMC), nor is it a “meme ETF.”
The BUZZ index has beaten the S&P 500 across a wide range of time periods, from month-to-date to five-year gains. For instance, the index has had three-year annualized returns of 32%. Additionally, it has seen an 89% one-year return. And year to date, the BUZZ index is up 18%. Current holdings include Twitter (TWTR), DraftKings (DKNG), Ford (F), Facebook (FB), Amazon (AMZN) and Apple (AAPL).
What else is happening…
Gold dips below $1,700 to end near nine-month low.
Amazon (AMZN) in talks for more exclusive NFL games.
Stock picks for the zero-emission commercial vehicle transition.
Jeep (STLA) open to dropping Cherokee name from SUVs.
FedEx (FDX) pledges $2B toward carbon-neutral operations by 2040.
Disney (DIS) to close dozens of retail stores in shift toward e-commerce.
Google (GOOG, GOOGL) won’t sell ads based on user Web browsing.
Colin Kaepernick-backed SPAC (MACCU) has flat debut on the NYSE.
Siemens says GE (GE) exaggerating claims of stolen trade secrets.
Facebook (FB) lifts ban on political advertising.
Wednesday’s Key Earnings
Marvell Technology (MRVL) -6% AH on soft Q4 profit and forecast.
Okta (OKTA) -10.4% AH spending $6.5B to acquire rival Auth0.
Snowflake (SNOW) +1.5% AH with beats on revenue and product sales.
Stellantis (STLA) -2.7% posting mixed results.
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
10:00 Factory Orders
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
Good morning. Happy Wednesday.
The Asian/Pacific markets posted big gains. China, Hong Kong, South Korea, India, Taiwan, Australia, Malaysia, Spain and Thailand did great. Europe, Africa and the Middle East currently lean down. Denmark, Hungary, Spain, Portugal ad the Czech Republic are weak. Futures in the States point towards a flat open for the cash market.
2-Min Video: My Thoughts on the Current Market
The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
The U.S. will be able to vaccinate its entire adult population by the end of May, according to President Biden, bringing the target forward by two months. That’s largely thanks to a deal his administration engineered between two of the country’s biggest drugmakers. The U.S. government has agreed to provide Merck (MRK) with nearly $270M to help produce a vaccine from Johnson & Johnson (JNJ), which received FDA emergency use approval this past weekend.
Bigger picture: Merck is already one of the world’s largest vaccine makers, but it has fallen behind in the race to develop a jab for COVID-19. It’s instead going to be using the fresh federal funding to produce raw materials, scale up manufacturing capacity and complete the fill-and-finish process. The funding is in addition to Merck’s continued investment in its global vaccines manufacturing network as part of its planned capital investments of more than $20B from 2020 through the end of 2024.
“This is the type of collaboration between companies we saw in World War II,” Biden declared. “I want to thank Johnson & Johnson and Merck for stepping up and being good corporate citizens during this national crisis.” The White House is also boosting the number of vaccine doses being sent to states each week from 14.5M-15.2M, up from 8.6M when Biden took office in January. He also called on states to give priority to teachers, school staff and child care workers.
What else is happening? The remarks came shortly after Texas became the largest state to end its mask mandate and authorized all businesses to reopen “100 percent.” Texas was followed shortly thereafter by Mississippi, where Gov. Tate Reeves said he would end a statewide mask mandate effective Wednesday, adding “It is time!” On the other side of the fence, CDC Director Dr. Rochelle Walensky said she is “really worried about more states rolling back public health measures… At this level of cases, with variants spreading, we stand to completely lose the hard-earned ground we have gained.”
The SEC has been operating under temporary leadership since the end of December, when Chairman Jay Clayton left the agency after 3.5 years in the role. Since taking office, President Biden has been looking to appoint Gary Gensler to lead Wall Street’s chief regulator, prompting the latter to testify before the Senate Banking Committee on Tuesday. He was mainly grilled on tactics used by some online brokerages, given the recent GameStop (GME) trading frenzy and its fallout.
Who is Gary Gensler? He’s a former Goldman Sachs partner and ex-chief of the Commodity Futures Trading Commission (under the Obama administration). Gensler also spent time at the U.S. Treasury in the 1990s and served as the CFO for Hillary Clinton’s 2016 presidential campaign. On the academia front, he’s a professor at MIT’s Sloan School of Management, where he teaches classes on digital currencies and blockchain.
At the hearing, the SEC nominee pledged to analyze the rise of stock trading “gamification” and intervene if necessary. He’ll also “look at market structure in the equity markets around payment for order flow when frankly just a couple – a handful – of financial firms are buying most of the retail flow in America.” Gensler further indicated the agency could soon move to force companies to disclose more about their political spending, climate risks and board diversity.
On cryptos: “To the extent that somebody is offering an investment contract or security that’s under the SEC’s remit, and they have exchanges that operate there, then we have to make sure there’s investor protection. If it’s not that, and it’s a commodity, as Bitcoin (BTC-USD) has been deemed to be, then it’s either a question for Congress or it’s possibly a question for the Commodity Futures Trading Commission.”
After losing its position as Europe’s leading financial capital, the British government is looking toward looser stock listing rules to attract tech firms and SPACs. A surge in blank check companies has short-circuited the traditional IPO process, prompting a need for change to support the U.K.’s financial services sector. New listing rules would also aim to diversify London’s recently struggling stock market, which is skewed toward older areas like banking, energy and mining.
Backdrop: Just weeks after the Brexit transition period ended on Jan. 1, Amsterdam surpassed London as Europe’s largest share trading center, which piled pressure on the city to improve its competitiveness. SPACs have meanwhile surged in popularity during the pandemic, reaching record highs last year and continuing at breakneck speed so far in 2021. In fact, in the first two months of the year, there have been $61B worth of SPAC IPOs globally, almost all listing in the U.S. ($83B worth of deals were recorded in 2020).
Proposals: Current U.K. rules require SPACs to suspend trading once a target is acquired – meaning investors are locked in even if they don’t like the purchase – but new recommendations from the Financial Conduct Authority could lift that requirement. Other changes would make it easier for company founders to list shares without giving up control, including dual-class share structures or reducing the free float requirement. Dual-class share structures have seen the Nasdaq and New York Stock Exchange attract many hot tech IPOs that have served as magnets for new growth companies to list in the U.S.
More pressure from Beijing
One of the most powerful businessmen in the world is Jack Ma – the founder of e-commerce colossus Alibaba (NYSE:BABA) – but he’s found himself at odds with the Chinese government. After he criticized Chinese-state owned banks last year, Beijing retaliated with an antitrust investigation into Alibaba and pulled the listing of Ant Group, set to be the world’s biggest IPO, in which Alibaba owns a one-third stake.
The latest: The financial payments powerhouse, which is also China’s largest holder of consumer credit information, has defied intense government pressure by only giving a small amount of financial data to the country’s central bank, FT reports. Personal credit information is a so-called “public good,” according to the PBOC, and should be kept by a publicly owned entity or government agency. The central bank has long wanted to create a pool of credit data to help state-owned banks gauge creditworthiness due to increasing consumer loan defaults.
Ant is China’s largest holder of consumer credit data, while its Alipay app is the country’s biggest payments platform. The company, along with retail behemoth Alibaba, has seen Jack Ma become China’s richest person, though he lost the title this week as his business empire came under regulatory scrutiny.
Thought bubble: Ant will likely cave in because, after all, it is a Chinese company and must listen to the government to stay in business. But Ma’s fight with the authorities is another example of the escalating tensions between the state and China’s private sector as President Xi exerts tighter control over the economy. Another area to consider is consumer trust in Ant Group, with many clients complaining online that they will walk away if their credit info is reported to the government.
At its annual Ignite developers conference, which was a streamed event this year due to the pandemic, Microsoft (NASDAQ:MSFT) joined other tech titans in setting the stage for a mixed reality future. Its new platform called Mesh will allow individuals in different physical locations to participate in a shared holographic experience. Users will initially be able to express themselves as avatars, but over time, Mesh will allow people to project their own image through holoportation.
Quote: “This has been the dream for mixed reality, the idea from the very beginning,” said Microsoft Technical Fellow Alex Kipman. “You can actually feel like you’re in the same place with someone sharing content or you can teleport from different mixed reality devices and be present with people even when you’re not physically together.”
Powered by the Azure cloud platform, Mesh will soon offer developers a full suite of AI-powered tools for avatar creation. Those include session management, spatial rendering, and synchronization across multiple users and holoportation to build mixed reality solutions. The open Mesh standards will also allow developers to design across supported devices, which includes Microsoft’s HoloLens 2 headset, a range of other VR headsets, smartphones, tablets and PCs.
Outlook: Microsoft has already announced two apps built on the platform – Mesh for HoloLens and a Mesh-enabled version of Altspace VR, which essentially allows for holographic work meetings with enterprise-grade security features. The company further hopes there will eventually be a robust portfolio of third-party Mesh apps and integrations within Microsoft products like Teams. It may also soon get a high-priced competitor from Apple (NASDAQ:AAPL), which is reportedly working on a $3,000 mixed reality headset for release as early as next year.
What else is happening…
Number of Lyft (LYFT) riders hits highest weekly growth since pandemic.
CBOE files to list what could be the first U.S. Bitcoin ETF.
Biden backs former President Trump’s stance on solar tariffs.
Instacart (ICART) valued at $39B following latest funding raise.
Facebook (FB) CFO says vaccine progress means ad growth headwinds.
Big day for Rocket Companies (RKT) after Reddit chatter, Jim Cramer plug.
Intel (INTC) must pay $2.2B in damages after patent trial loss.
Inflation expectations are key in a post-Phillips Curve World – Fed’s Daly.
Tuesday’s Key Earnings
Box (NYSE:BOX) +0.8% AH following strong revenue guidance.
Hewlett Packard Enterprise (NYSE:HPE) unchanged AH on profit beat, slight revenue dip.
Kohl’s (NYSE:KSS) +0.7% keeping bull case alive with earnings topper.
Nordstrom (NYSE:JWN) -2.6% AH with sales down 20% in Q4.
Target (NYSE:TGT) -6.8% accelerating spending on new store growth.
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 PMI Services Index
10:00 ISM Non-Manufacturing Index
10:00 Fed’s Harker: “Equitable Workforce Recovery”
10:30 EIA Petroleum Inventories
12:00 PM Fed’s Bostic Speech
1:00 PM Fed’s Evans Speech
2:00 PM Fed’s Beige Book
6:05 PM Fed’s Kaplan Speech
Good morning. Happy Tuesday.
The Asian/Pacific markets were mixed. South Korea, India and the Philippines did well; China and Hong Kong were weak. Europe, Africa and the Middle East are currently doing well. Denmark, Poland, France, the UAE, Greece, South Africa, Switzerland, Spain and Saudi Arabia are leading. Futures in the States point towards a down open for the cash market.
Online Course: Masterclass in Trading
The dollar is up. Oil is unchanged; copper is up. Gold is up; silver is down. Bonds are mixed. Bitcoin is flat.
Stories/News from Seeking Alpha…
A greener world
Petaluma, California – a city of 61,000 residents and 15 square miles in size – has become the first city in the U.S. to permanently halt the construction of new gas stations. The legislation will also outlaw new pumps at existing stations and streamline the process for adding more EV infrastructure like electric charging bays and hydrogen fuel cell facilities. The new prohibition is part of Petaluma’s plan to completely phase out carbon emissions by 2030, though other environmental groups (like CONGAS) are pushing for a ban on the entire Sonoma County, which includes Petaluma and eight other cities.
“The goal here is to move away from fossil fuels and to make it as easy as possible to do that,” said D’Lynda Fischer, the city councilor who introduced the measure. “Right now, we have existing fossil fuel stations, and what we want them to do is add [electric vehicle] chargers and create another source of fueling people can use.”
Bigger picture: There are an estimated 450,000 brownfield sites in the U.S., or areas where expansion, redevelopment, or reuse may be complicated by the presence of a hazardous substance. According to the EPA, approximately one-half of them are thought to be impacted by petroleum, much of it from leaking underground storage tanks at old gas stations. The sites “blight the surrounding neighborhoods, threaten human health and the environment and can contaminate groundwater.”
Outlook: While the latest move is taking place at the grassroots level, there are other developments happening at the state level in California. Last year, the state banned the sale of new gas-powered cars by 2035 and will require 75% of heavy trucks sold locally to be electric by that date. There are also plans to build an electric highway along the Pacific Coast. A host of policies are also being prepared at the federal level, like the Biden administration’s $2T climate and infrastructure plan, which could boost renewables and other sustainable stocks.
Warming to plans on carbon pricing
After hitting a pandemic low in April, global emissions rebounded strongly and were 2%, or 60M tons, higher in December 2020 than they were in the same month a year earlier, according to the latest data from the International Energy Agency. This should serve a “stark warning” that not enough is being done to accelerate clean energy transitions worldwide, added Dr. Fatih Birol, the IEA Executive Director. Major economies led the resurgence as a pick-up in economic activity pushed energy demand higher, while significant measures to boost clean energy were lacking.
Quote: “If governments don’t move quickly with the right energy policies, this could put at risk the world’s historic opportunity to make 2019 the definitive peak in global emissions,” Birol continued. “In March 2020, the IEA urged governments to put clean energy at the heart of their economic stimulus plans to ensure a sustainable recovery. But our numbers show we are returning to carbon-intensive business-as-usual.”
It’s easier said than done. The latest report card from the United Nations showed that 75 signatories to the Paris climate accord – responsible for a third of global emissions – “fell far short” of what is needed to meet the deal’s goals. If those targets were implemented, their combined emissions would fall just 0.5% by 2030 (compared to 2010 levels), which is far lower than the 45% fall in global emissions needed to limit warming to 1.5C. No new commitments have yet been put forward by China, India and the U.S., though the latter is expected to do so before the Biden administration hosts a climate summit on April 22.
New economy? The American Petroleum Institute, one of the most powerful trade associations in Washington, is preparing to endorse setting a price on carbon emissions in what would “lead to the most economic paths to achieve the ambitions of the Paris Agreement.” “API supports economy-wide carbon pricing as the primary government climate policy instrument to reduce CO2 emissions while helping keep energy affordable, instead of mandates or prescriptive regulatory action,” according to a draft statement. A decade ago, API was one of the strongest opponents to a Congressional plan on carbon pricing, though it is now the latest of several to support a “market-based” approach following an announcement from the U.S. Chamber of Commerce in January.
Volatility may be making a comeback on Wall Street as stock index futures fell back overnight, down about 0.5%, following one of the best days since June. On Monday, the S&P 500 climbed 2.4%, the DJIA tacked on another 2%, while the tech-heavy Nasdaq Composite jumped over 3% after shedding 4.9% last week. The 10-year U.S. Treasury note yield, which is keeping investors on edge, also slipped to a session low of 1.41% before drifting toward the flatline.
Cyclical sectors like energy and financials are also continuing to outperform the broader market due to optimism about vaccines and economic resurgence, though some are cautioning the rotation is overdone. “The value side of the equation – the ‘go outside’ trade – has really moved way too far and way too fast for where we are at this stage of the reopening,” said Amanda Agati, who oversees $170B in assets at PNC Financial. “We’ve seen this massive sentiment shift, but at the end of the day, we really haven’t seen the underlying fundamentals improve in a big way.” She’s putting her money in 2020’s winners, like the stay-at-home trade, which includes Big Tech.
Keep on it: “Everyone’s chasing their shadows and saying it’s rates here, it’s inflation there. But those just aren’t real,” added Mike Dowdall, a portfolio manager at BMO Global Asset Management. Monday was a “kind of a reckoning with the reality that the Fed’s not moving anytime soon. It’s really hard to paint a negative picture of this market.”
Warning bells: SA contributor Mott Capital Management feels now is not the time to buy the dip, nor should the recent rally last or be trusted. “The rise in real yields has massively underperformed the rise in 10-year Treasury rates. That has resulted in breakeven inflation rates moving sharply higher, which has helped send the wrong message overall to the equity market. But as real yields begin to play catch-up to the nominal 10-year rate, it’s likely to push those breakeven inflation rates lower, resulting in equity prices following lower, causing massive volatility.”
Signs of reopening
All 270 Apple Stores (AAPL) in the United States are now open for the first time in nearly a year, though some still have restrictions, such as being appointment-only. Stores in Texas were the last to reopen following additional delays caused by an Arctic blast in February. That milestone, along with news that Berkshire Hathaway (BRK.A, BRK.B) is still bullish on its 5.4% stake in the iPhone maker, sent shares of Apple up more than 5% on Monday for their biggest gain in more than four months.
Backdrop: On March 13, 2020, Apple closed all of its retail stores outside of China due to the spreading pandemic. Since then, Apple has opened and closed stores around the world based on local lockdown restrictions and spiking COVID-19 cases. The only Apple Stores that are still closed worldwide are about a dozen in Brazil and France (outlets in Mexico reopen today).
The opening of Apple stores is more an indicator of improving retail health than a financial tailwind for the company. In fact, the retail store closures didn’t even hurt Apple’s sales, with iPhone revenues smashing analyst estimates last quarter, driven by iPhone 12 strength.
Analyst notes: Last month, JPMorgan analyst William Yang said weak demand for Apple’s iPhone 12 mini could lead to a Q2 production halt for the device. Noted Apple analyst Ming-Chi Kuo is now out with a new note predicting the iPhone 13 family will match 12 in the number of devices and sizes, which means a 13 mini will be on offer. He also said that all 2021 models will include a Lightning and a reduced notch area, while the higher-end 13 Pro and 13 Pro Max will have an upgraded ultra-wide camera and LiDAR.
On March 17, the European Commission is set to propose an EU-wide digital certificate that provides the proof of the status of COVID-19 vaccination, Reuters reports. With the “digital green pass,” the 27-member bloc also expects to cooperate with international organizations to ensure that the system also works outside the region. The move is aimed at promoting safer travel within the region as well as abroad for work or tourism, according to Commission president Ursula von der Leyen.
Potential problems? Vaccine distrust is a persistent issue in Europe, with only 59% of people in Western Europe trusting the safety of vaccines compared to 79% worldwide, according to a Wellcome Global Monitor survey in 2018. Compound that with privacy issues, as well as security and patient rights. EU countries would also be free to set their own criteria for entry, but broadly open borders make that a difficult task.
Both messenger RNA-based COVID-19 vaccines from Pfizer-BioNTech (PFE, BNTX) and Moderna (MRNA) have received a regulatory nod in the EU along with the vector-based jab developed by AstraZeneca (AZN) in partnership with the University of Oxford. Meanwhile, a shot from Johnson & Johnson (JNJ) – the latest to receive FDA approval – is likely to undergo European regulatory review early this month.
Elsewhere in Europe: The U.K. has been debating a so-called COVID-19 vaccine passport, which would enable residents to get into bars and grocery stores in the future, according to Foreign Secretary Dominic Raab. “It’s something that hasn’t been ruled out and it’s under consideration, but of course you’ve got to make it workable,” he told LBC Radio in February. Other British officials have pushed back on the possibility. Health Secretary Matt Hancock said the country is exploring vaccine certificates for international travel, but a so-called vaccine passport was not something that would be required to access local services.
What else is happening…
Volvo (OTCPK:VOLAF) is the next automaker to go fully electric by 2030.
Vote of confidence… United (NASDAQ:UAL) buys 25 new Boeing (NYSE:BA) 737 MAX jets.
eBay (NASDAQ:EBAY) will divest U.K. classifieds sites to complete Adevinta deal.
Walmart (NYSE:WMT) poaches two Goldman (NYSE:GS) bankers to build its fintech venture.
SEC says Exxon (NYSE:XOM), Citi (NYSE:C) must let investors vote on ESG issues.
Monday’s Key Earnings
NIO (NYSE:NIO) -4.2% AH posting mixed Q4 results.
Novavax (NVAX) -4.3% despite plans for a vaccine as early as May.
Zoom Video (NASDAQ:ZM) +9.7% on robust guidance, WFH tailwinds.
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
1:00 PM Fed’s Brainard: Economic Outlook and Monetary Policy Outlook
2:00 PM Fed’s Daly Speech
Good morning. Happy Monday.
The Asian/Pacific markets posted big gains. Japan, China, Hong Kong, India, Australia, Indonesia and the Philippines gained more than 1%. Europe, Africa and the Middle East are currently doing great. The UK, Denmark, Poland, France, Turkey, Germany, Greece, South Africa, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Israel, Australia, Sweden and the Czech Republic are up 1% or more. Futures in the States point towards a moderate gap up open for the cash market.
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The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are mixed. Bitcoin is up.
Stories/News from Seeking Alpha…
Which sectors will make it to the Final Four? That’s a question investors are asking as the new month kicks off after things turned south for stocks at the end of February. The biggest monthly rise in bond yields since 2016 injected fresh uncertainty into the market, bruising technology stocks and triggering volatility streaks that saw the DJIA swing more than 1,000 points over three days. Things appear to be turning around this morning as the 10-year Treasury yield fell 4 bps to 1.4%. Futures: Dow +1%; S&P 500 +1.1%; Nasdaq +1.5%.
Quote: “This week is key. I’m expecting turbulence or volatility to remain with us until we have a better understanding of where central banks stand,” said Andrea Carzana, a fund manager at Columbia Threadneedle Investments. “Further consolidation is likely in March, but we expect the market to find support shortly and subsequently challenge the recent highs again,” added Jeff Hirsch, editor of the Stock Trader’s Almanac, noting that April is statistically the best month of the year.
Another area that is taking bets is a potential increase in inflation due to recent stimulus efforts. The House passed President Biden’s $1.9T coronavirus relief bill on Saturday, while the Senate is expected to follow suit shortly. The package includes funding for vaccines and medical supplies, an extension of unemployment benefits, a round of $1,400 stimulus checks to individuals, and financial aid to small businesses and state and local governments. As a result, the U.S. Treasury is expected to sell a huge amount of debt in coming months to pay for the measure aimed at supporting the recovery.
Go deeper: Fed Chair Jay Powell has aligned with the administration in waving off concerns about an over-heated economy, saying the job market has ways to go before inflation fears are justified. The support could trigger a strong period of growth, low unemployment and rising wages, though critics argue that it may lead to a cycle of rising prices, higher interest rates and a ballooning national debt. The views don’t only have investors sizing up March, but also who will be in the championship at the end 2021.
Third coronavirus vaccine
Traders today are also applauding the FDA approval of Johnson & Johnson’s (JNJ) COVID-19 shot, which was the third jab to be approved in the U.S. It’s the first to have a single-dose regimen, a key tool in accelerating the vaccination drive. The decision clears the way for immediate distribution and vaccination of the Janssen vaccine to Americans 18 and older, building on a broader rolloiut that’s currently utilizing jabs from Pfizer/BioNTech (PFE, BNTX) and Moderna (MRNA).
Bigger picture: Shipments from J&J will be limited at first, with just a few million vaccines going out immediately, but the company has a deal to supply 100M doses by the end of June. The single-shot product had an overall efficacy rate of about 66% in the Phase 3 clinical trial, and the U.S. arm of the trial showed an efficacy rate of about 72% and of 85% when protecting against severe or critical disease. The lower efficacy rate compared than rivals is raising concerns that some people may opt to wait for other vaccines, but shares of JNJ are still up 3.5% premarket to $164.
“Be careful when you try to parse this percent versus that,” Dr. Anthony Fauci told NBC’s Meet The Press. “They were not compared head-to-head. They were compared under different circumstances. All three of them are really quite good and people should take the one that’s most available to them.”
Outlook: As of Sunday night, 49.8M people across the U.S. (15% of the population) had received their first coronavirus vaccine, while 24.8M people (7.5% of the population) had received two doses, according to the CDC. J&J has said it plans to ship the vaccine, which contains five doses per vial, at 36 to 46 degrees Fahrenheit. That compares to the ultra-cold freezers that are needed for Pfizer’s vaccine – between minus 112 and minus 76 degrees Fahrenheit – as well as Moderna’s vaccine, which needs to be shipped at 13 below to 5 degrees above zero Fahrenheit.
Buffett’s annual letter
First things first: Berkshire Hathaway’s (BRK.A, BRK.B) Q4 operating earnings totaled $5.02B, up from $4.42B in the year-ago quarter, bolstered by its railroad, utilities and energy unit and “other businesses.” The conglomerate also bought back $9B of its stock during the quarter (the same amount as Q3), bringing total buybacks for the year to $24.7B. That boosts shareholders’ ownership “in all of Berkshire’s businesses by 5.2% without requiring you to so much as touch your wallet,” Warren Buffett said in his annual letter to shareholders.
The Oracle of Omaha also didn’t reference any elephant-sized acquisitions, but rather stressed the importance of operating earnings. Berkshire’s focus is to “increase this segment of our income and to acquire large and favorably-situated businesses.” “Last year, we met neither goal: Berkshire made no sizable acquisitions and operating earnings fell 9%,” he declared, adding that the company’s intrinsic per-share value increased by retaining earnings and repurchasing about 5% of its shares.
Meanwhile, Buffett seemed to indicate that he’s more content with acquiring stakes in well-run companies than buying them outright. “What’s out of sight, however, should not be out of mind: Those unrecorded retained earnings are usually building value – lots of value – for Berkshire,” he wrote. Those companies that Berkshire invests in “use the withheld funds to expand their business, make acquisitions, pay off debt and, often, to repurchase their stock (an act that increases our share of their future earnings).”
Bottom line: Buffett pointed to Berkshire’s investment in Apple (AAPL) as an example of the power of buying back stock. The company paid about $36B for a 5.2% stake in Apple as of mid-2018. Since then, Berkshire has received regular dividends of ~$775M a year and received an additional $11B by selling a small portion of its position. Even with that sale, Berkshire now owns 5.4% of Apple – an “increase that was costless to us, coming about because Apple has continuously repurchased its shares, thereby substantially shrinking the number it now has outstanding.”
2021 Golden Globes
Shares of Disney (NYSE:DIS) and Netflix (NASDAQ:NFLX) are ahead by 2% and 1.2% premarket, respectively, after the two emerged as top winners at the 2021 Golden Globes. The studios won 15 of the prizes handed by the Hollywood Foreign Press Association in a broadcast hosted by Tina Fey and Amy Poehler. Things were also a little different this year as presenters and winners appeared remotely due to the COVID-19 pandemic.
Awards? Disney scored the top accolade of Best Motion Picture (Drama) for Nomadland, while Netflix dominated television with hits like The Crown and The Queen’s Gambit. Other streaming services also picked up key honors. Borat Subsequent Moviefilm from Amazon Studios (NASDAQ:AMZN) was named Best Picture, Musical or Comedy, and star Sacha Baron Cohen won Best Actor. Daniel Kaluuya meanwhile notched Best Supporting Actor for his work in Warner Bros.’ (NYSE:T) Judas and the Black Messiah (also streaming on HBO Max), while Schitt’s Creek captured the award for Best TV Series, Comedy or Musical.
The supremacy of streaming services vs. traditional studios doesn’t come as a surprise. Over the last year, many theater chains have been shuttered, while the biggest new films have been delayed or put online. Disney+ has gained an explosive 86M subscribers within a year and now expects 230M-260M on its flagship streaming service by 2024. It also temporarily halted its dividend last year following calls from activist Dan Loeb to plunge that cash into original content as it centers its operations around streaming.
Outlook: In its most recent earnings call, rival Netflix revealed that it had surpassed 200M global subscribers for the first time after topping 100M subs in 2017. The streamer additionally detailed plans to be cash flow positive after 2021 and said would no longer need to tap debt markets to fund its programming (it has borrowed $15B to produce original content over the past decade). Netflix is also considering share buybacks, a practice it hasn’t done since 2011, which was the last time the company was cash flow positive.
With 1 in 3 Americans now living in a state where adult marijuana use is legal, Virginia is no longer sitting on the sidelines. Over the weekend, local lawmakers narrowly approved compromise legislation that would make it the first state in the south to allow recreational weed. The bill now goes to Virginia Gov. Ralph Northam (D), who supports legalization, for his signature.
Fine print: The law would legalize the use of cannabis by people over the age of 21. It would also allow possession of up to an ounce by anyone over 21 and establish an agency to oversee regulation of the cannabis market. The state is hoping that its commercial recreational marijuana program could generate nearly $1.5B in annual sales within five years of the scheduled start on Jan. 1, 2024.
Specifics of the regulations were punted until next year, when they’ll be decided by the legislature. Under discussion are the framework and criminal penalties for several offenses, including underage use and public consumption of marijuana. Currently, people under the age of 21 would face a $25 civil penalty and have to undergo treatment.
More details: Part of the bill is aimed at ending disparate treatment faced by people of color in the criminal justice system. The legislation calls for 30% of marijuana tax revenue to go to a fund aimed at communities historically over-policed for marijuana-related crimes. Some lawmakers and advocacy groups also complained the years-long waiting period needlessly extends unjust treatment, though others argued that going ahead without regulations could boost illegal pot sales.
What else is happening…
Rocket Lab nears deal to merge with Vector SPAC (VACQ) – WSJ.
Biden voices support for Amazon (NASDAQ:AMZN) union vote in Alabama.
$15/hour minimum wage cannot be part of stimulus bill in Senate.
SPAC party may come to end soon, hedge fund manager warns.
Digital wallet payments overtake cash for in-store purchases in 2020.
Today’s Economic Calendar
9:00 Fed’s Williams Speech
9:05 Fed’s Brainard Speech
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:00 PM Fed’s Bostic Speech