Good morning. Happy Friday.
The Asian/Pacific markets did great. Japan, China, Hong Kong, South Korea, India, Taiwan and Indonesia each gained more than 1%. Europe, Africa and the Middle East are currently doing well. Denmark, Poland, Russia, Greece, South Africa, Norway, Spain, the Netherlands, Portugal and Austria are up more than 1%. Futures in the States point towards a mixed open for the cash market.
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The dollar is unchanged. Oil and copper are up. Gold is down; silver is up. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Win for the banks
Following the completion of the current round of stress tests, the Federal Reserve Board will end its temporary restrictions on most banks paying dividends and buying back shares after June 30. Firms with capital levels above those required by the stress test will no longer have to face the curbs, while banks with capital levels below those required will remain subject to the limitations. In premarket trading: JPMorgan Chase (NYSE:JPM) +1.3%, Bank of America (NYSE:BAC) +1.1%, Citigroup (NYSE:C) +1.2%, Wells Fargo (NYSE:WFC) +1.3%, Morgan Stanley (NYSE:MS) +1.2%, Goldman Sachs (NYSE:GS) +0.7%.
“The banking system continues to be a source of strength and returning to our normal framework after this year’s stress test will preserve that strength,” Vice Chair for Supervision Randal Quarles said in a statement.
Backdrop: The central bank had prohibited the largest U.S. banks from buying back stock in order to conserve capital as the pandemic tore through the U.S. economy. The full restrictions were set to expire on March 31 after being enacted in June of 2020. Last week, the Fed also announced that the temporary change to its supplementary leverage ratio rule, which was implemented during the coronavirus crisis, would expire at the end of this month.
Go deeper: The Fed had previously allowed banks to restart buybacks in the first quarter, though the banks couldn’t return to shareholders more than they have been making in profit over the past year. The latest announcement will provide more clarity for investors and to a financial sector that has become one of the biggest stock market leaders. The group is up 14.7% year to date on the S&P 500, while the SPDR S&P Bank ETF (NYSEARCA:KBE) is more than 20% higher YTD.
Proceed with caution
Equities notched a green session on Thursday, while stock index futures rose by another 0.3% overnight, though caution still reigns high in the current trading environment. If bond yields are still part of the equation, the rate on the 10-year Treasury tacked on another 6 bps to trade at 1.67%. Markets could also be driven by a number of end-of-quarter trades, though analysts noted that some headlines were mostly supportive for stocks.
Examples: Americans are increasingly back to work and returning to old spending habits. U.S. Labor Department data on Thursday showed claims for unemployment benefits dropping to a one-year low as stronger hiring and consumer outlays drove an economic revival. Worker filings for unemployment benefits fell to 684K last week from 781K a week earlier, below the pre-pandemic high of 695K.
Consumer snapshot: Darden Restaurants (DRI), owner of Olive Garden, closed up 8% on Thursday after posting a robust forecast for its current quarter. It even said restaurant sales were stronger than even 2019 levels in its most recent week, while raising its dividend by ~138% and approving a new $500M buyback program.
Elsewhere, WTI crude oil futures (CL1:COM) sold off nearly 5% on Thursday, reversing Suez-inspired gains, but rebounded 2% overnight on word that it could take weeks to dislodge the ship blocking the canal. Meanwhile, Bitcoin (BTC-USD) is holding steady at the $53K level after a recent selloff, though futures contract rollover suggests the crypto could face more downward pressure in the near term.
The Big Tech boxing ring
The latest round of Big Tech vs. Congress took place yesterday in a nearly six-hour virtual hearing with the House Energy and Commerce Committee. The lineup featured the CEOs of Alphabet (GOOG, GOOGL), Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) and started with some big blows. “It is now painfully clear that neither the market nor public pressure will force these social-media companies to take the aggressive action they need to take to eliminate disinformation and extremism from their platforms,” Committee Chair Frank Pallone Jr. (D-NJ) said in opening remarks. “And, therefore, it is time for Congress and this Committee to legislate and realign these companies’ incentives to effectively deal with disinformation and extremism.”
“The [Capitol Hill] attack started and was nourished on your platforms. Your business model itself has become the problem,” Pallone continued, adding that the companies in the past have just “shrugged off billion dollar fines.” Other representatives also took some jabs. “These platforms are hotbeds of disinformation despite new policies,” said committee member Jan Schakowsky (D-IL), while Doris Matsui (D-CA) declared, “Big Tech is handing our children a lit cigarette and they become hooked for life.”
Is regulation in the cards? At least two pieces of legislation are in progress, with the “Protecting Americans from Dangerous Algorithms Act” being reintroduced this week. It seeks to narrowly amend Section 230 of the Communications Decency Act, which provides a liability shield for social media companies, by holding platforms liable “if their algorithms amplify misinformation that leads to offline violence.” Another bill, called the “Online Consumer Protection Act,” could also hold tech companies more accountable.
Outlook: While efforts toward regulating Big Tech under the Trump administration focused on antitrust law and the censorship of views, Democrats have expressed fears over disinformation, hate speech and conspiracy theories. Regulation faces a long road ahead given the economic engines provided by Big Tech, their global reach and lobbying efforts within Washington. The transformation of society’s relationship to these companies is also unprecedented, with the products used to manage most of people’s professional and private lives, and have only gained in importance during the coronavirus era.
President Biden has set a new goal of administering 200M COVID-19 vaccine doses by the end of April, doubling his target for his first 100 days in office. The objective is doable at the current pace of inoculations and may even exceed Biden’s new target as manufacturers ramp up production. Johnson & Johnson (JNJ) is poised to sharply increase shipments after its vaccine was given emergency use authorization by the FDA a month ago, while Pfizer (PFE) and Moderna (MRNA) have also steadily increased their production.
“The recovery is really hitting full steam again, and all of the conditions will be in place for a real, explosive liftoff in the summer when hopefully we’ve reached a higher vaccination threshold,” said Julia Pollak, labor economist at ZipRecruiter.
Across the Atlantic: EU leaders clashed over vaccine distribution at a marathon virtual summit on Thursday and failed to settle a fight about supply of the jabs among member states. Austrian Chancellor Sebastian Kurz criticized the allocation of shots, demanding additional supplies to Vienna, while some brought up the vaccine share of poorer Eastern European states. The countries failed to come to an agreement, but pledged to strengthen vaccine export controls and production on EU soil.
Other happenings: A new study, a pre-proof of which was published in the American Journal of Obstetrics & Gynecology, found the mRNA COVID-19 vaccines made by Pfizer and Moderna are safe and effective for pregnant women. Pfizer also started clinical trials of its COVID-19 vaccine on healthy children aged 6 months to 11. They will begin receiving a 10 microgram dose of the vaccine before progressively moving to higher doses, though the option for 3 microgram doses is also available (vaccines for adults require two shots that contain 30 micrograms per dose).
Under fire in China
Over the past 24 hours, many global brands have found themselves at odds with public sentiment in China due to their participation in the Better Cotton Initiative, an industry body that has been vocal about labor practices in Xinjiang. The region is home to 12M Uighurs, mostly Muslim, and millions of them have been confined to internment camps, according to foreign researchers and governments. Beijing denies any mistreatment, calling the facilities Vocational Education and Training Centers, which are intended to promote economic development and stamp out radicalism.
Why is the backlash happening now? Earlier this week, the EU, the U.S., Britain and Canada imposed travel and financial sanctions on Chinese officials for alleged human rights abuses in the region. Beijing retaliated with sanctions on European lawmakers and institutions, especially hurt by its involvement in the process. Relations with the EU have been somewhat amicable amid tensions with Washington over trade disputes, IP theft and regional positioning.
Past statements made by foreign companies about forced labor in Xinjiang have also been flagged on Chinese social media. As a result, more than 40 local celebrities signaled they would end contracts with brands like H&M (OTCPK:HNNMY), Burberry (OTCPK:BURBY), Adidas (OTCQX:ADDYY), Nike (NYSE:NKE), Tommy Hilfiger (NYSE:PVH), Calvin Klein, Zara (OTCPK:IDEXY), Uniqlo (OTCPK:FRCOY), Converse, Puma, New Balance and Lacoste. Honor of Kings, China’s No. 1 online battle game, developed by Tencent (OTCPK:TCEHY), also ended a partnership with Burberry.
Thought bubble: For years, companies tiptoed around thorny subjects in China, worried about their foothold given its tremendous market size (think back to the NBA-Hong Kong controversy in 2019). Corporations are now worrying about backlash abroad, as concerns over human rights can spread on social media within hours. But a loss of sales in China, the only major economy where consumer spending has rebounded to above pre-pandemic levels, can especially be painful at a time when demand is still weaker across the U.S. and Europe.
What else is happening…
Suez Canal traffic jam sends shipping costs soaring.
GameStop (NYSE:GME) soars 50% to snap post-earnings slide.
Sharp reversal? Top oil lobby group backs carbon pricing.
Berkshire (NYSE:BRK.B) proposes $8.3B fix for Texas electric grid.
Biden administration unveils plan to cut solar costs 60% by 2035.
Disney (NYSE:DIS) expands movie-streaming presence in ratings.
Cathie Wood sees positive deflationary pressures.
Tesla (NASDAQ:TSLA) ordered to have Elon Musk delete anti-union tweet.
Xiaomi (OTC:XIACF) is in talks to make EVs under its own brand.
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
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
Good morning. Happy Thursday.
The Asian/Pacific markets were mixed. Japan and the Philippines did well; Hong Kong and India were weak. Europe, Africa and the Middle East are currently suffering big losses. The UK, Poland, France, Germany, Turkey, Russia, South Africa, Norway, Spain, the Netherlands, Portugal, Israel, Austria and Sweden are down more than 1%. Futures in the States point towards a moderate down open for the cash market.
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Stories/News from Seeking Alpha…
Stuck in Suez
Tugs and diggers have so far failed to dislodge the Ever Given, a massive container ship stuck in the Suez Canal after losing the ability to steer amid high winds and a dust storm. The best chance for freeing the ship may not come until Sunday or Monday, when the tide will reach a peak, according to Nick Sloane, the salvage master who refloated cruise ship Costa Concordia in 2012 when it capsized off the coast of Italy. In response, WTI (CL1:COM) and Brent (CO1:COM) crude prices soared nearly 6% on Wednesday as worries grew over oil shipments.
Broader concerns? Supply chains have already been strained by the coronavirus pandemic, and it’s been harder for suppliers to get their hands on well-priced shipping rates. If the situation in Suez continues for a significant amount of time, rates may rise along with oil prices. Multinationals could also begin worrying about disruptions to their supply chains, and any imported goods from Asia to Europe will see delays.
Experts also say that if the blockage is not cleared within the next 24-48 hours, some shipping firms will be forced to re-route vessels around the southern tip of Africa, which would add roughly a week to the journey. About 12% of global trade and roughly 30% of the world’s shipping container volume transit through the Suez Canal, making it one of the world’s most important waterways. A rough estimate shows the blockage is costing about $400M an hour, based on calculations from Lloyd’s List.
Go deeper: Supply chain disruptions have already been seen across the globe due to pandemic factors like pent-up demand for consumer goods and a growing semiconductor shortage. Difficulties in securing raw materials and other inputs have recently worsened and prompted the Biden administration to mandate a 100-day review of critical product supply chains in the U.S. The executive action issued in February is focused on semiconductors, key minerals and materials, active pharmaceutical ingredients and advanced batteries like the ones used in electric vehicles.
What’s going on with the stock market?
Something strange is happening in the equity market. Many have recently pointed to a Treasury yield hostage situation, where stocks have largely moved in response to their fixed-income counterparts. When bond yields moved up, high-growth names sold off, but even as the rates came down over the past three days, the tech sector was still under pressure. Some are even pointing to worries about the Fed hiking rates in far-off 2023, while others are mentioning frothy valuations and a rotation into industrial names, though trading volumes in the sector have also been softer in recent weeks.
Bigger picture: NYSE volumes have been 80% of the 30-day average, while Nasdaq activity has been 90% of its average, remarkably low given the declines in certain sectors. Another example: WSB/Reddit darling GameStop (GME) stumbled 34% after earnings on Wednesday, while only 23M shares changed hands, well short of the 30-day average of 34M shares. “It seems to show that the retail customer has walked away,” said Matt Maley from Miller Tabak. “The question is, why? Is it higher rates? Concerns about lockdowns? Or are they betting on March Madness?”
Bitcoin (BTC-USD) also fell for a fifth day against the dollar, down 6.5% to $52,819, marking its longest losing run since December. The many industry forecasts that government stimulus checks would be spent on crypto appear to be fading, while derivatives expiries are adding to volatility. All of this is on top of the record GDP growth predicted for 2021 (Yellen and Powell reiterated that on Wednesday), though there are still pandemic risks and COVID-19 hasn’t gone away.
Bottom line: Could traders be waiting on the sidelines for better pricing? Are there pockets of the market that are still bubbly? Possibly, especially given the extreme intraday volatility seen over the past couple of weeks. U.S. stock index futures are meanwhile ahead by 0.2% ahead of the open, but a lot can change from now until then. On the economic front, investors will pore over the Labor Department’s latest report on jobless claims this morning, with another 730K Americans likely filing for unemployment. That’s a drop from the 770K figure seen last week, but still a high number compared to pre-pandemic levels.
Dual-listed Chinese companies are extending losses in the premarket session, including shares of Alibaba (BABA), Baidu (NASDAQ:BIDU), JD.com (NASDAQ:JD) and NetEase (NASDAQ:NTES), after the SEC adopted the Holding Foreign Companies Accountable Act. The measure was signed into law by then-President Trump in December, before it was evident how the Biden administration would handle relations with Beijing. It now appears to be taking a similar stance against China following a tense meeting in Alaska, expanded sanctions on Chinese officials and keeping the tariffs imposed during the Trump presidency.
What’s the Holding Foreign Companies Accountable Act? The measure would kick foreign companies off American stock exchanges if they fail to comply with U.S. auditing standards for three years in a row. The rules also require firms prove to the SEC they are not owned or controlled by an entity of a foreign government and to name any board members who are Chinese Communist Party officials.
The move by the SEC adds to the unprecedented regulatory crackdown in China on domestic tech firms. Recent reports suggest that Beijing has even proposed a state-backed joint venture to oversee data collection from e-commerce and digital payment companies. The concerns quoted were that the industry built enough market power to stifle competition, but likely signals further tightening of government control over the tech sector.
Outlook: “It is quite difficult for China to open the accounting of all U.S.-listed companies to U.S. regulatory agencies, especially for some listed companies that involve national security or national data,” said Everbright Sun Hung Kai strategist Kenny Ng. “After the introduction of the final amendments, it is expected that China and the United States will continue to negotiate for a period of time, and the uncertainty during this period will continue to affect the share performance of U.S.-listing Chinese companies.”
Back to the office?
For some working in essential services or consumer-facing businesses, the return to work happened long ago, but for many in those industries, hardship remains. Other parts of the economy are meanwhile debating when to return to the office, which could in turn help out other sectors like restaurants, transportation and small business. The deliberation can be clearly seen in San Francisco and Santa Clara counties, which began allowing offices to reopen in a limited capacity this week.
Backdrop: For more than a year now, the offices in Silicon Valley have been largely empty as techies settled into a new normal of working from home. But as the economy slowly reopens, tech titans are figuring out next steps. At play are models of remote work, a return to the office or a hybrid of the two, though many companies are not rushing to reopen their workplaces.
Cisco (NASDAQ:CSCO), Dropbox (NASDAQ:DBX) and Facebook (NASDAQ:FB) have said their mandatory work from home policies will remain in effect until June, while Pinterest (NYSE:PINS) is not even eyeing a significant reopening until at least August. The reopening at Box (NYSE:BOX) and Google (GOOG, GOOGL) is still scheduled for September, but DocuSign (NASDAQ:DOCU) is waiting until at least October. Meanwhile, Adobe (NASDAQ:ADBE), PayPal (NASDAQ:PYPL), Twilio (NYSE:TWLO), Twitter (NYSE:TWTR), Yelp (NYSE:YELP) and Zoom Video (NASDAQ:ZM) are staying closed, though SAP (NYSE:SAP) is strongly considering partially reopening its Bay Area offices within weeks, while Slack Technologies (NYSE:WORK) is weighing a date to invite back some workers.
What it means: Employers are weighing two important forces – the need for in-person creativity and connections, as well as the flexibility and efficiency in working from home. The future may point to a combined schedule that would see employees work some days from the office and others where they desire. Interestingly enough, employees may be feeling the same. A survey late last year of 9,000 knowledge workers – commissioned by Slack – found 20% wanted to work remotely, 17% in the office, while 63% chose a mix of the two.
What else is happening…
AstraZeneca (NASDAQ:AZN) revises Covid vaccine data with lower efficacy rate.
Rite Aid (NYSE:RAD) plunges after slashing FY 2021 guidance.
Nike (NYSE:NKE) faces backlash in China over Xinjiang statement.
Fidelity latest to seek SEC approval for Bitcoin ETF.
Is another toilet paper shortage on the way?
GOP-led states sue over oil and gas leasing pause.
Facebook (NASDAQ:FB) set to argue for tweaks to liability protection.
Salesforce (NYSE:CRM) faces sex trafficking charges over ties to Backpage.com.
SEC looks into Wall Street’s blank-check IPO frenzy – Reuters.
Cuomo, legislature reach deal for marijuana legalization in NY.
Today’s Economic Calendar
5:30 Fed’s Williams Speech
8:30 Initial Jobless Claims
8:30 GDP Q4
8:30 Corporate profits
10:10 Fed’s Clarida Speech
10:30 Fed’s Williams Speech
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
12:00 PM Fed’s Bostic: “Measuring the Economy in a Time of COVID”
1:00 PM Results of $62B, 7-Year Note Auction
1:00 PM Fed’s Evans: U.S. Monetary Policy
4:30 PM Fed Balance Sheet
7:00 PM Fed’s Evans: Monetary and Fiscal Policy
Good morning. Happy Wednesday.
The Asian/Pacific markets were weak. Japan, China, Hong Kong, India and Indonesia dropped more than 1%. Europe, Africa and the Middle East are currently mixed and little changed. Turkey and Hungary are up; Poland, Germany, Spain and Portugal 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 up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Another market bottom?
Asian markets tumbled again overnight, while stocks in Europe dipped into the red, though things are looking more positive in the U.S. after a late selloff on Tuesday. Nasdaq futures are up by 1%, while contacts linked to the S&P 500 and Dow are ahead by 0.4%, as the latest bull market officially enters its second year. As the pandemic set in February 2020, the S&P 500 plunged nearly 34% over 22 days to a March 23 low, and it took only five months to recoup its losses. The index then went on to notch many record highs, though more recently a rotation to value has taken place, while Treasury yields remain on the minds of many traders.
Some fears resurfaced on Tuesday after Chancellor Angela Merkel called the dominant U.K. variant of the coronavirus a “new pandemic” and outlined tighter shutdown measures in Germany. The Netherlands and France also extended lockdowns and imposed new travel and business curbs. While some remain concerned about the strength of the post-pandemic recovery, others are seeing a different picture.
Quotes: “This is still a young bull market; this is still a young economic cycle of growth. It’s going to be rocky, it’s going to be choppy, it’s not going to be easy. While a pickup in volatility would be normal as this stage of a strong bull market, we think suitable investors may want to consider buying the dip,” said Ryan Detrick, chief market strategist at LPL Financial. Mark Haefele, chief investment officer at UBS Global Wealth Management, also expects risk assets to see more upside as the market enters a “reflation” phase of the recovery.
Outlook: Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen will continue their testimony today on Capitol Hill. In their first joint appearance on Tuesday, the pair acknowledged that “asset prices are high,” but said that they are not worried about financial stability and the economic recovery “looks to be strengthening.” They also emphasized that the $1.9T stimulus package should not lead to a sizable increase in inflation, though if necessary, the central bank has the tools it needs to deal with rising price pressures.
Next rip or further selloff? Traders chose the latter after digesting GameStop’s (NYSE:GME) earnings. Shares of the video game retailer plunged nearly 12% in after-hours trading on Tuesday, bringing the stock back to the $160 level. That followed a rise of as much as 10% in the minutes following earnings and a decline of 6.5% during the regular session.
What happened? While the company achieved its first quarterly sales increase in two years, GameStop missed estimates on both the top and bottom lines. That dose of reality hit sentiment, but the bigger news was a secondary stock offering under consideration. “Since January 2021, we have been evaluating whether to increase the size of the ATM (at-the-market) Program and whether to potentially sell shares of our Class A Common Stock under the increased ATM Program during the course of fiscal 2021, primarily to fund the acceleration of our future transformation initiatives and general working capital needs,” GameStop wrote in an SEC filing.
The equity sale was not mentioned by CEO George Sherman during the Q4 conference call, which many criticized as short, abrupt and having failed to address the trading volatility of GameStop shares. The much-anticipated event also went without a Q&A session, not allowing participants to bring it up.
By the numbers: E-commerce sales jumped 175% over the quarter and accounted for more than a third of GameStop’s sales during the period. February comparable store sales also increased 23%, thanks to strength in hardware sales worldwide, and GameStop ended the quarter with $635M in cash and restricted cash. While the company is continuing to suspend guidance, it updated fulfillment operations to boost the speed of its delivery and services. The video game retailer also named former Amazon (AMZN) and Google (GOOG, GOOGL) executive Jenna Owens as its new chief operating officer.
Firearm laws and mass shootings
The gun control debate is being revived on Capitol Hill following the second U.S. mass shooting in less than a week. President Biden is urging Congress to pass legislation approved by the House earlier this month that would expand background checks, as well as fresh efforts to ban assault-style weapons and high-capacity magazines. White House spokeswoman Jen Psaki additionally told reporters that Biden is “considering a range” of executive actions that would “address not just gun safety measures but violence in communities.” Fear of gun control is sending some firearm shares higher in the premarket session: Smith & Wesson (NASDAQ:SWBI) +1.5%, Vista Outdoor (NYSE:VSTO) +1.5%, Olin Corporation (NYSE:OLN) +1.7%.
Backdrop: Ahmad Al Aliwi Alissa was identified by authorities as the gunman who opened fire at a King Soopers grocery store in Colorado, killing 10 people, including a Boulder police officer. The 21-year-old had purchased a Ruger AR556 (RGR) only a week prior, was found guilty of assault in 2018, and family said he may have been suffering from mental illness. Last week, a gunman also opened fire at three spas and massage parlors in the Atlanta area, killing eight people. Suspect Robert Aaron Long, another 21-year-old, later said he was motivated by a sexual addiction that was at odds with his religious beliefs.
“I don’t need to wait another minute, let alone an hour, to take common sense steps that will save lives in the future, and I urge my colleagues in the House and Senate to act,” Biden said from the White House.
Outlook: Without the support of at least 10 Senate Republicans, gun control bills have no chance of becoming law (as long as the filibuster remains intact). Many in the GOP feel the Democratic proposals would do little to address gun violence, citing Second Amendment rights and many cases where shooters successfully cleared a background check. Democratic Senator Joe Manchin, a swing vote who holds near-veto power over his party’s Senate agenda, also told reporters on Tuesday he does not support the House bills, but instead favors his own legislation, which would allow private sales of firearms without a background check.
Remember the semiconductor shortage? Intel (INTC) is planning a major manufacturing expansion, which will start with a $20B investment in two new chip factories, commonly referred to as fabs (short for fabrication plants). The facilities will be located on the Ocotillo campus in Arizona, while planning and construction will begin this year. Intel also said it will act as a manufacturing partner for chip companies that focus on semiconductor design but can’t make the chips themselves, sending shares up almost 5% premarket.
Thought bubble: The U.S. now accounts for about 12% of global semiconductor manufacturing capacity, down from 37% in 1990 as other countries have subsidized growth of their chipmakers. Over the past year, Intel has lost some market share and seen its stock price slip due to competition, the loss of key customers and troubles in producing next-generation chips. “We are back with a vengeance,” new CEO Pat Gelsinger declared in an interview.
Gelsinger also revealed that Intel’s 7-nanometer chips are on track to hit a milestone in Q2 and that it plans to manufacture the majority of its products itself. However, the company will still increase its use of third-party foundries, including TSMC (TSM) and Samsung (OTC:SSNLF).
Go deeper: Back in February, President Biden signed an executive order mandating a 100-day review of critical product supply chains in the U.S., including semiconductors. “Today’s Executive Order, combined with full funding for the CHIPS Act, can help level the playing field in the global competition for semiconductor manufacturing leadership, enabling American companies to compete on equal footing with foreign companies heavily subsidized by their governments,” Intel said at the time.
What else is happening…
Musk says you can now buy a Tesla (NASDAQ:TSLA) with Bitcoin (BTC-USD).
Oil rebounds after a stuck ship blocks the Suez Canal.
Pfizer (NYSE:PFE) makes progress in early-stage trials for COVID-19 pill.
Same-day debut for Black Widow, Cruella in theaters and on Disney+ (NYSE:DIS).
ViacomCBS (NASDAQ:VIAC) sells off amid risks in $3B share offering.
Robinhood (RBNHD) reportedly files confidential paperwork to go public.
Goldman (NYSE:GS), Citigroup (NYSE:C) make changes to help work/home balance.
Eurozone business activity grows for first time in 6 months.
Fed forms committees to explore climate risks to financial system.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods
8:50 Fed’s Barkin Speech
9:45 PMI Composite Flash
10:00 Powell’s Testimony on Coronavirus Aid, Relief, and Economic Security Act
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $26B, 2-Year FRN Auction
1:00 PM Results of $61B, 5-Year Note Auction
1:35 PM Fed’s Williams Speech
3:00 PM Fed’s Daly Speech
7:00 PM Fed’s Evans Speech
Good morning. Happy Tuesday.
The Asian/Pacific markets leaned down. India, New Zealand and the Philippines did well, but China, Japan, Hong Kong, South Korea, Malaysia and Indonesia were weak. Europe, Africa and the Middle East are currently mostly down. Poland, Russia, Norway, the Netherlands, Italy, Austria and Saudi Arabia are down the most. Futures in the States point towards a down open for the cash market.
VIDEO: State of the Market
The dollar is up. Oil and copper are down. Gold is up; silver is down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
GameStop gets real
After months of market speculation at its utmost, GameStop (NYSE:GME) will give investors something concrete to consider for its stock valuation when it releases earnings, revenue and more details about its business transformation plan today.
GameStop investors will be glued to their screens after the bell on Tuesday as the video game retailer releases results after the bell (the conference call is scheduled for 5:00 p.m. ET). The report follows two months of wild trading and a “meme stock” craze that resulted in an epic short squeeze earlier in the year. It all started when subreddit r/WallStreetBets convinced an entire community of traders to scoop up shares of GameStop and other heavily shorted public companies, triggering losses at major hedge funds, unprecedented brokerage limits, congressional hearings and the development of some Hollywood productions.
By the numbers: The earnings report means that GameStop’s financial performance and fundamentals are returning to center stage. Analysts expect adjusted earnings of $1.42 per share and $2.23B in revenue, which would mark a rise of 1% over the same period last year and an end to an eight-quarter losing streak. The figures will likely be bolstered by a winter holiday shopping season that included the release of next-generation consoles like the PS5 and Xbox Series X. “The fourth quarter is generally their moneymaking quarter,” said Telsey Advisory Group analyst Joe Feldman, though he cautioned that GameStop previously disclosed sales that fell 3.1% for the nine-week holiday period ending January 2.
While the pandemic was a boon for the video game industry, GameStop has struggled with foot traffic to its brick-and-mortar stores, which currently number 4,800. The company initially resisted closing its doors early in the pandemic, saying it was an essential business, before putting a greater focus on e-commerce. It has also been up against a years-long trend of people downloading games over the internet, rather than buying hard copy discs. GameStop shares are now trading around the $200 level, which is more than 10x as much as they were at the start of 2020, though the stock did hit a peak of $483 during intraday trading in late January.
Outlook: Some say the company might be too late in the game to insulate itself against long-term industry changes, though others point to turnaround efforts that are underway. Ryan Cohen, the co-founder of Chewy, was recently added to the company’s board, while Matt Francis, a former engineering leader at AWS, was brought on as GameStop’s first-ever chief technology officer. GME is rated with four Holds and three Sells on Wall Street, but that has never stopped the retail crowd and others from buying in.
Another AstraZeneca concern arises
AstraZeneca (NASDAQ:AZN) may have provided the U.S. outdated information that gave an “incomplete” view about the efficacy of its vaccine, according to the U.S. Data Safety and Monitoring Board.
“The DSMB expressed concern that AstraZeneca may have included outdated information from that trial, which may have provided an incomplete view of the efficacy data. We urge the company to work with the DSMB to review the efficacy data and ensure the most accurate, up-to-date efficacy data be made public as quickly as possible,” the National Institute for Allergy and Infectious Diseases, headed by Dr. Anthony Fauci, said in a statement.
“The last thing this vaccine needs is more concern when we kind of thought we were at that point now where we’d put to bed all the other concerns, and then a new one pops up the same day,” Paul Griffin, an associate professor of medicine at the University of Queensland, told Bloomberg.
The European Medicines Agency issued a statement last week that the benefits of the vaccine still outweigh the risks, despite the link to “rare blood clots with low blood platelets.” AstraZeneca shares rose 4% on Wall Street yesterday after U.S. trial data showed a 79% efficacy rate.
Microsoft wooing Discord
Microsoft (NASDAQ:MSFT) is in talks about a possible $10B purchase of video game chat platform Discord, according to several published reports. No deal is imminent, and Discord is talking to other potential suitors and could still decide to eschew a sale and go public.
Discord has more than 100M active users and would likely fit well with Microsoft’s Xbox business. Discord moved above $100M in revenue last year and raised $100M in a $7B valuation.
Big Oil tilts to carbon pricing
In a video conference meeting today with Biden administration officials, executives from 10 of the biggest oil companies, including Chevron (NYSE:CVX) CEO Mike Wirth, offered support for putting a price on carbon emissions as a way to address greenhouse gas emissions that contribute to climate change. The meeting reportedly focused on emissions of methane from oil and gas production and on the industry’s role in the administration’s plans to decarbonize the U.S. economy.
Some execs from U.S. companies warned that the wrong policies would hurt U.S. producers and potentially increase demand for imports of fuel produced abroad under weaker environmental protections. In a statement, the White House said national climate adviser Gina McCarthy “made clear that the Administration is not fighting the oil and gas sector, but fighting to create union jobs, deploy emission reduction technologies, strengthen American manufacturing, and fuel the American economy.”
Channel checks boost iPhone optimism
Wedbush’s supply chain checks in Asia have come out bullish, with three weeks of no changes to builds or demand globally, and no issues arising from current global semiconductor shortages. And that likely means builds for iPhones this quarter have stayed in the 56M-62M range, it says. The firm is buying the dip on Apple (NASDAQ:AAPL) – not entirely a surprise – on expectations the momentum will continue, and has a Street-high price target.
Along with that March quarter forecast, analyst Daniel Ives thinks June quarter builds are basically unchanged in the mid-40M range, meaning the firm’s supercycle thesis is playing out in the first half of this year. “We have not seen a robust launch uptrend such as this in a number of years for Apple and the only iPhone trajectory similar would be the iPhone 6 in 2014 based on our analysis,” he writes. The rest of the Street may be expecting about 220M iPhones this year, but based on the current trajectory, Wedbush expects a bull case would be selling “north of 240M” or even 250M units, which would break the record of 231M units sold in fiscal 2015. It estimates 350M of 950M iPhones worldwide are in the window of an upgrade opportunity, marking an “unprecedented supercycle upgrade cycle.”
Treasury yields still sliding
The 10-year Treasury yield is down 3 basis points to 1.65% after dropping yesterday. It’s now about 10 basis points down from the high it hit last week. The 30-year, down 2 basis points to 2.36%, saw its first back-to-back down sessions since mid-February. “The interest rate move is looking increasingly mature and should see a meaningful decrease in ‘speed’ moving forward, even if absolute direction remains pointed to generally higher rates/steeper curves,” SG Cowen said.
But tech stocks, which have seen an inverse relationship with yields, are edging lower. Nasdaq 100 futures (NDX:IND) -0.2% are off along with S&P futures (SPX) -0.2% and Dow futures (INDU) -0.3%, which have been hampered by cyclical weakness on down-yield days.
Later today, Fed chief Jay Powell and Treasury Secretary Janet Yellen will face lawmakers in congressional testimony about the economic response to COVID. It will be their first joint testimony as they appear before the House Financial Services Committee.
A third wave of COVID that is leading to renewed lockdowns in Europe, and a concern about rising U.S. cases that has paused some reopening plans, could be weighing on stocks and helping bonds as recovery and growth optimism ebbs. New York is now pausing plans to boost restaurant capacity to 50%. Germany is going into a hard lockdown over Easter.
What else is happening…
Researchers from the University of Toronto and WSJ pit Tesla (NASDAQ:TSLA) and Toyota (NYSE:TM) head-to-head on environmental impact.
Apple (AAPL) reveals the retirement of its head of developer relations disclosure ahead of its trial against Epic.
Regeneron’s (NASDAQ:REGN) COVID antibody cuts risk of hospitalization or death by 70%.
Canadian Pacific Railway’s (NYSE:CP) takeover offer for Kansas City Southern (NYSE:KSU) boosts hope for expanded access to U.S. Gulf Coast refineries for Canadian oil producers.
Citi expresses confidence that a crackdown on sharing streaming passwords will gain traction, helping offset billions of dollars of losses for companies like Netflix (NASDAQ:NFLX).
Eastman Kodak (NYSE:KODK) is gaining in extended-hours trading as traders passed around a company blog post about one of Europe’s largest online print shops.
Monday’s Key Earnings
Newtek Business Services (NASDAQ:NEWT) +5% PM after boosting 2021 dividend forecast.
Today’s Economic Calendar
8:30 Current Account
8:55 Redbook Chain Store Sales
9:00 Fed’s Bullard: U.S. Economy and Monetary Policy
10:00 New Home Sales
10:00 Richmond Fed Mfg.
10:10 Fed’s Bostic Speech
11:00 Fed’s Barkin Speech
12:00 PM Powell’s Testimony On Coronavirus Aid, Relief, and Economic Security Act
1:00 PM Results of $46B, 2-Year Note Auction
1:00 PM Money Supply
1:25 PM Fed’s Brainard Speech
2:45 PM Fed’s Williams Speech
3:45 PM Fed’s Brainard Speech
4:20 PM Fed’s Bullard Speech
Good morning. Happy Monday.
The Asian/Pacific markets leaned down. China, Taiwan and Australia did well, but Japan, New Zealand, Malaysia, Indonesia and the Philippines were weak. Europe, Africa and the Middle East are currently mixed and little changed, expect for Turkey, which is down almost 10%. Denmark, Poland, Israel and the Czech Republic are up; South Africa, Spain and Portugal are down. Futures in the States point towards a positive open for the cash market.
VIDEO: State of the Market
The dollar is down. Oil is down; copper is up. Gold and silver are down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Emerging markets are on watch after Turkish President Recep Tayyip Erdogan sacked another central bank governor a few days after a larger-than-expected interest rate hike. It’s the fourth time Turkey’s premier has fired the head of the country’s central bank since taking office in 2014, adding to the drama for both local and foreign investors. The lira responded by tumbling as much as 17% against the dollar, while the BIST 100 plunged nearly 10%, highlighting how money managers can never be too at ease with monetary policy in Ankara.
Backdrop: Turkey’s interest rate currently stands at 19%, which has attracted foreign investors to park their cash in the currency. The lira was at one point the best-performing emerging market currency of 2021, having recovered almost a fifth from a low against the greenback. Naci Agbal, appointed in November, had been raising interest rates to fight an inflation rate running above 15%, and sharply increased the rate last week by 2 percentage points, double what economists expected. That was the final nail in the coffin for Naci, as Erdogan believes in an unconventional approach that higher rates cause inflation rather than prevent it.
Turkey has lost “one of its last remaining anchors of institutional credibility,” wrote Phoenix Kalen, director of emerging market strategy at Societe Generale. Local individual investors are likely to stock up on dollars again and foreign investors could sell Turkish assets, she added, warning, “Turkey may soon be headed toward another currency crisis.”
Outlook: Turkey already spent billions of dollars to support the lira in 2020 due to the economic shutdowns related to the coronavirus pandemic. Interventions could return again if investors continue to pull funds from developing markets. Sahap Kavcioglu, the newly appointed head of the central bank, has defended similar monetary approaches expressed by Erdogan, and was a member of parliament in AKP from 2015 until 2018. “At this point, it doesn’t matter who Agbal’s replacement is or what they say, as it’s clear that Erdogan is running the show,” declared Win Thin, global head of currency strategy at Brown Brothers Harriman.
The bond connection
The relationship between stocks and bond yields couldn’t be stronger, with the two joined at the hip for the last several weeks. Overnight, the yield on the 10-year Treasury note slipped 5 bps to 1.68%, prompting the Nasdaq to advance 0.8%, while the Dow and S&P 500 inched down 0.3% and 0.1%, respectively. Fed Chair Jerome Powell is also scheduled to speak at 9 a.m. today, discussing central bank innovation at an event hosted by the Bank for International Settlements.
Note: Weighing on some value names this morning, like the banks, are recent moves by the Fed to restore some capital requirements that were suspended in the early months of the coronavirus crisis (the decision also weighed on bank shares on Friday). During the pandemic, the Fed allowed banks to exclude Treasury securities they hold, as well as central bank deposits, from their supplementary leverage ratios (SLR). That exclusion now expires on March 31, 2021, lowering the SLR for all banks that are required to report it.
Stimulus checks are also finding their way into various sectors of the market. On Friday, BofA Global Research said that U.S. equity inflows hit a weekly record of $56.76B in the week ending March 17, up sharply from $16.83B a week earlier. A new poll from Mizuho Securities also found that two out of five stimulus check recipients plan to invest at least some part of the proceeds into Bitcoin and stocks, while the Treasury distributed $242B in stimulus checks through March 17, or around 60% of the expected total.
Thought bubble: For now, it appears that growth stocks and value names cannot go up at once. “Either tech stocks get too low… or long-term interest rates get too high. Until that happens, the rotation will just continue to play out,” said Mad Money’s Jim Cramer. “We aren’t there yet, but I’m confident that we’ll get there eventually because that’s what always ends these vicious kinds of rotations.”
Beijing has restricted the use of Tesla (TSLA) cars by military personnel or employees of some state-owned companies over national security concerns, according to reports from the WSJ. The concerns stem from the fact that Tesla vehicles cameras can record images constantly and can obtain data including when, how and where the vehicles are being used, as well as the contact lists of mobile phones synced to them. Beijing is concerned that some data could be sent back to the U.S.
Sound like a case of TikTok? Under the Trump administration, the U.S. pushed the Chinese video sharing app to relocate data on American users to the U.S. It also lobbied allies to shut out Huawei – the leading 5G-equipment maker that was dubbed a Trojan horse which can spy and steal sensitive information once inside critical infrastructure in the West. In 2018, Congress even passed legislation prohibiting federal agencies from buying equipment made by several Chinese firms.
Concerns about commercial espionage have become overblown, CEO Elon Musk declared while pointing to TikTok (BDNCE), which was threatened with a U.S. ban last year despite the platform’s videos mostly showing people “just doing silly dances.” Musk also said Tesla would never provide the U.S. government with data collected by its vehicles in China or other countries. If it did, the company would be shut down everywhere it used its cars, which provides “a very strong incentive for us to be very confidential.”
Go deeper: China has become a vital market for Tesla, accounting for 25% of its global sales of 500,000 vehicles in 2020. The EV maker has also been seen as a model foreign company in China, winning strong support from Shanghai authorities to set up shop in the city, before encountering its first serious run-in with Chinese authorities last month over purported quality issues. But many have still touted Tesla as a tech company, not as an automaker, precisely due to the troves of data it amasses from the millions of miles its cars drive in the real world.
Creating the first rail network linking the United States, Mexico and Canada, Canadian Pacific Railway (CP) has agreed to buy Kansas City Southern (KSU) for $25B in cash and stock. The deal will value Kansas City Southern at $275 a share, sending the stock up 15% in premarket trade. The acquisition would need the regulatory nod from the US Surface Transportation Board, and the companies expect the M&A process to take until mid-2022.
The tie-up is being pitched as a net win for North America by enabling efficient integration of the continent’s supply chains. The U.S., Mexico and Canada replaced NAFTA last year with a revamped regional pact called USMCA, which was expected to encourage trade and investment. “Over the coming months, we look forward to speaking with customers of all sizes, and communities across the combined network, to outline the compelling case for this combination and reinforce our steadfast commitment to service and safety as we bring these two iconic companies together,” said Canadian Pacific CEO Keith Creel.
Some history: Last September, Kansas City rejected a takeover bid valued at roughly $20B from Blackstone (BX) and Global Infrastructure Partners. Canadian Pacific has meanwhile been trying to target a U.S. railroad for years in its quest to create a transcontinental network. It abandoned the two prior efforts in 2014 and 2016, due to resistance from the takeover targets, as well as opposition from rivals, shippers and U.S. regulators.
Outlook: Canadian Pacific Kansas City would operate about 20,000 miles of railway, employ 20,000 people and generate annual revenue of about $8.7B, according to a press release. The transaction is also expected to “create jobs across the combined network, while efficiency and service improvements are expected to achieve meaningful environmental benefits.” It could additionally reduce the need for trucks to link production sites and allow cargo to avoid congested California ports.
Crude optimism sees Aramco defend dividend
Describing the last twelve months as one of the most “challenging years” in recent history, Saudi Aramco (ARMCO) reported net income of 183.76B riyals ($49B) in 2020, down 44% from 330.69B riyals ($88.2BB) the previous year. The result was slightly below analysts’ expectations of 186.1B riyals, but still represents the highest annual profit of any public company globally. Revenues were impacted by lower crude oil prices and volumes sold, as well as weakened refining and chemicals margins.
Bigger picture: Aramco maintained its $75B dividend payout for 2020, despite concerns that it would take on additional debt to maintain it. Free cash flow slumped almost 40% to $49B last year, well below the level of its anticipated dividend. The behemoth state oil firm also cut capital expenditure for the year ahead, lowering its guidance for spending to around $35B from a prior range of $40B-$45B (capex was $27B in 2020).
“With more deployment of the vaccines we will see more demand pickup so we are very optimistic about 2021 in terms of growth in demand, especially in the second half, and we can see the prices so far responding to what we are seeing in the market,” Aramco CEO Amin Nasser declared. “Looking ahead, our long-term strategy to optimize our oil and gas portfolio is on track and, as the macro environment improves, we are seeing a pick-up in demand in Asia and also positive signs elsewhere.”
Go deeper: The outlook could benefit shares of top western oil and gas companies that got hammered in 2020 due to the coronavirus pandemic. Royal Dutch Shell’s (RDS.A, RDS.B) profit tumbled to its lowest in at least two decades, BP (NYSE:BP) dropped to multi-year lows, while Exxon Mobil (NYSE:XOM) posted its first-ever annual loss. As economies reopen with the deployment of more vaccines, crude demand could rebound to pre-pandemic levels, though OPEC+ will still face a balancing act on oil production levels.
What else is happening…
How will the Federal Reserve’s SLR decision affect banks?
Coinbase (COIN) said to have delayed public listing amid CFTC fine.
Renesas (OTCPK:RNECF) warns of hit to global chip shortage after factory fire.
Blackstone (NYSE:BX) offers to buy Australia’s Crown Resorts in $6B deal.
SEC tells ConocoPhillips (COP) to hold shareholder vote on emissions.
Emergency authorization? AstraZeneca (NASDAQ:AZN) vaccine 79% effective in U.S. trial.
Also… Scientists find treatment for Astra (AZN) vaccine blood clots.
Massive NFL deals: Some change, but a lot more of the same.
ARK Invest fires off $3,000 price target on Tesla (NASDAQ:TSLA).
8:30 Chicago Fed National Activity Index
9:00 Powell: “How Can Central Banks Innovate in the Digital Age?”
10:00 Existing Home Sales
10:30 Fed’s Barkin: “Anticipating COVID Scarring”
1:00 PM Fed’s Daly: “The New Future of Work: Future of Education”
1:30 PM Fed’s Quarles Speech
7:15 PM Fed’s Bowman: Economic Outlook