Good morning. Happy Friday. Happy Employment Numbers Day.
The Asian/Pacific markets leaned down. China, New Zealand and Australia posted gains; Hong Kong, South Korea, Taiwan, Malaysia, India, Singapore and Thailand closed down. Europe, Africa and the Middle East are currently mixed and little changed. Norway and Hungary are up; Spain and Israel are down. Futures in the States point towards a positive open for the cash market.
VIDEO: Playing A-B-C Patterns with MACD and Stochastic
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Jobs, Jobs, Jobs
Today’s monthly jobs report will provide more clarity on the current economic landscape, with the prior two accounts telling very different stories. Payrolls were forecast to have risen by nearly 1M in April, only to come in at a mere 266K (the biggest downside miss in decades), after the employment number increased by 770K in March, which suggested a strong rebound from the pandemic. Fresh figures for May will shed further light on the true state of the recovery, influencing policymaking on both the fiscal and monetary fronts.
By the numbers: Economists expect the report to show that non-farm payrolls increased by 650,000 jobs, marking a significant acceleration from last month’s tepid gains. The unemployment rate is also expected to have fallen to 5.9%, from 6.1% in the prior month, while average hourly earnings likely rose 0.2%, after gaining 0.7% in April. The jobs report will follow a robust economic picture seen yesterday as initial jobless claims fell below 400,000 for the first time since the onset of the coronavirus pandemic in March 2020.
Strong increases in employment creation could ease some concerns about labor shortages, which have been seen across the country as the economy reopens at a record pace. While there are many reasons for the hiring scarcity, Republicans have pointed to programs like enhanced unemployment benefits, while Democrats have flagged items like childcare responsibilities and lingering COVID-19 worries.
Outlook: “A repeat of April’s weak report could mean the Fed will not taper back its bond purchases until sometime next year,” according to economists at Citigroup. “However, a stronger increase (+1M) would keep the June FOMC meeting on the table for a possible signal ‘well ahead’ of tapering later this year.” The Fed is currently buying $120B of Treasurys and mortgage securities each month, and has said it would slowly wind down its purchases before raising interest rates.
Meme trade falters
U.S. stock futures inched between slight gains and losses overnight after the major averages trended down in Thursday’s session as the meme trade faltered (more on that below). Other social media sensitive areas of the market, like crypto, also headed lower, with Bitcoin (BTC-USD) slipping 6.6% to $36,510. The culprit? Elon Musk tweeted a meme about a couple breaking up, adding the hashtag #Bitcoin and a broken heart emoji.
What happened to the meme trade? Just a day after taking a renewed embrace of retail traders, offering them special screenings and free popcorn, AMC Entertainment (AMC) used the spike in its stock to raise even more capital by selling 11.5M shares. It also came with a stark warning: “The market prices and trading volume of our shares of Class A common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our Class A common stock to incur substantial losses.” Meanwhile, Jefferies and Raymond James blocked sales of AMC shorts, adding to the news that saw the stock tank 18% during the session, and fall another 5% premarket to below $50.
The tumble back to earth was set to happen sooner or later, with Wall Street pros cautioning that these swarms only survive until the last “gambler” is left holding the bag. AMC’s plunge was felt across the broader meme sector, with Bed Bath (BBBY), Koss (KOSS) and GameStop (GME) sinking 27%, 24% and 8%, respectively. BlackBerry (BB) was one of the only names to buck the trend, rising 4% on Thursday.
YouTube appearance: In an interview last night, Aron said proceeds from another equity sale, if approved, would be used to reduce debt and to help the company negotiate with landlords who are owed $400M. The funds will also go to chase acquisitions. “If you arm us with the tool, meaning stock as the tool, to go find value-creating opportunities for AMC shareholders, we can do that,” he told Trey’s Trades. “If we are not armed with this tool, then you’re tying our hands behind our back and you’ll make it just that much harder for us to land some of these attractive opportunities that could benefit us all.”
No more exceptions?
Facebook (FB) plans to end its special treatment rules for politicians, according to The Verge, leaving behind an approach that was upended in the last days of the Trump administration. Going forward, elected officials will face rules in a manner similar to any other user on the platform, which could have big ramifications for how world leaders use the network. The decision follows criticism from Facebook’s quasi-independent Oversight Board back in May that took aim at the handling of content regulation.
Disclaimer: Facebook will still be able to flag when it uses a “special newsworthiness exemption” to keep up content from politicians and others that would otherwise violate its rules.
The company will also offer more transparency on its secretive system of strikes it gives accounts for breaking its content guidelines. That will include letting users know when they’ve received a “strike,” which could lead to penalties or an eventual suspension.
How did we get here? Facebook created the Oversight Board to insulate itself somewhat from what were becoming thorny decisions about content regulation during a time when the president’s controversial posts became one of the most significant social issues of the Internet era. In what became an indefinite suspension, Facebook stopped Trump from posting to 35M followers after the storming of the US Capitol on Jan. 6. It subsequently referred the decision to its Oversight Board, which supported the verdict, but did ding the company for inconsistent application of its rules and directed that it revisit and clarify the nature of the ban.
Ackman eyes Universal Music
Hedge fund billionaire Bill Ackman’s special-purpose acquisition company is finally nearing a deal, after much speculation surrounding the vehicle since its launch last year. It’s pursuing a tie-up with Vivendi (OTCPK:VIVHY) over the French media conglomerate’s Universal Music Group (UMG), the world’s largest music company. According to current discussions, Pershing Square Tontine Holdings (PSTH) would acquire 10% of the ordinary shares of UMG for about $4B – implying an enterprise value for UMG of about $42.4B – and distribute those UMG shares to its own shareholders later this year. PSTH would remain a publicly-traded company with $1.5B in cash and it would also look for a new business combination with another partner.
Why it’s notable: The deal would be the largest SPAC transaction on record, topping the $35B that ride-hailing app Grab was recently valued at in a similar transaction with Altimeter Growth Corp. (AGC). It also come at a time when the SPAC market is cooling. Issuances have slowed following a record first quarter, while the industry hit a roadblock after the SEC proposed an accounting change that would classify SPAC warrants as liabilities instead of equity instruments.
In fact, SPAC sentiment traditionally saw the vehicles surge after a deal announcement, but many of those have turned south recently given nervousness over lofty financial targets and regulatory scrutiny. Pershing Square Tontine Holdings is down 7.3% premarket to $23.22/share.
Quote: “Universal Music Group is one of the greatest businesses in the world,” Ackman declared. “Importantly, UMG meets all of our acquisition criteria and investment principles as it is the world’s leading music company, with a royalty on the growing global demand for music. We are delighted to work with Vivendi on this iconic transaction, and look forward to its consummation.”
United Airlines (UAL) is looking to the future with plans to bring back supersonic travel with a new jet. The airline said it plans to buy 15 jets from Boom Supersonic with an option for 35 more jets after the startup company successfully designs a plane that flies faster than the speed of sound and also matches the required safety and environmental standards. Service is initially planned for 2029.
Climate concerns: United has pledged to reduce its greenhouse gas emissions 100% by 2050 so the new supersonic jet would be optimized to use 100% sustainable aviation fuel.
While there have been many supersonic military aircraft, the only models to carry civilian passengers were the Concorde and the Russian-built Tupolev Tu-144. The Concorde went out of service in 2003, weighed down by high expenses and a fatal crash in 2000 that prompted the model to be grounded, while the Tu-144 had limited service and retired in 1999. Commercial supersonic travel was such a hot topic when it developed in the 1960s that Seattle named its NBA franchise the “SuperSonics” after Boeing’s (NYSE:BA) supersonic transport project, which was later canceled.
Fast forward: The main companies currently in the race are Boom Supersonic and Aerion, which are going full throttle with plans to bring supersonic airplanes to the skies by the mid-2020s. Boom is working with Collins Aerospace (NYSE:RTX), Japan Airlines (OTCPK:JAPSY) and Rolls-Royce (OTCPK:RYCEY) for propulsion systems, and plans to introduce a demonstrator aircraft in October, though recent reports suggested Boeing and Spirit AeroSystems (NYSE:SPR) disbanded engineering teams designing Aerion’s AS2 business jet as a way to conserve cash during the coronavirus pandemic. Developers are also working on ways to make supersonic aircraft quieter as the loud sonic booms of existing models led FAA to prohibit commercial supersonic flight over land in 1973, severely restricting the areas in which they could fly.
What else is happening…
Biden order bans American investment in 59 Chinese tech/defense companies.
U.S. donating 75% of unused vaccine doses to COVAX sharing effort.
Auto parts stocks jump after GM (NYSE:GM) boosts vehicle deliveries.
Tesla (NASDAQ:TSLA) spins lower on report of large drop in China sales.
Costco (NASDAQ:COST) reports May comparable sales increase of 22.8%.
U.S. will treat ransomware like terrorism after Colonial Pipeline, JBS attacks.
New Exxon (NYSE:XOM) board will speed up energy transition – Morgan Stanley.
Smucker (NYSE:SJM) expects to pass higher prices to consumers.
U.S. Football League, an ’80s relic, trying a rebirth on Fox Sports.
Thursday’s Key Earnings
Broadcom (NASDAQ:AVGO) -0.2% as investors shook off strong revenue guidance.
CrowdStrike (NASDAQ:CRWD) unchanged following a beat-and-raise quarter.
DocuSign (NASDAQ:DOCU) +5.5% AH beating expectations, upside outlook.
J.M. Smucker (SJM) +1.4% battling through tough pandemic comp sales.
Lululemon (NASDAQ:LULU) -0.3% AH reversing gains after powerhouse quarter.
Slack (NYSE:WORK) -0.3% AH despite 39% user growth and Q1 beats.
Today’s Economic Calendar
7:00 Powell: “Central Banks and Climate Change”
8:30 Non-farm payrolls
10:00 Factory Orders
1:00 PM Baker-Hughes Rig Count
Good morning. Happy Thursday.
The Asian/Pacific markets leaned up. Japan, South Korea, India and Indonesia did well; China, Hong Kong and the Philippines were weak. Europe, Africa and the Middle East currently lean down. Poland and Hungary are up; The UK, Turkey, Russia, Greece, South Africa, Spain, Portugal and Israel are down. Futures in the States point towards a moderate gap down open for the cash market.
VIDEO: Playing A-B-C Patterns with MACD and Stochastic
The dollar is up. Oil is up a small amount; copper is down. Gold and silver are down. Bonds are flat. Bitcoin is up.
Stories/News from Seeking Alpha…
AMC on fire
The meme trade has been resurfacing in recent weeks, but really picked up pace in the last few sessions, as retail favorite AMC Entertainment (NYSE:AMC) continues to make headlines. A 95% gain to $62/share on Wednesday – following four trading halts – left the movie theater chain with a market capitalization of $31.3B, making it more valuable than half of the companies in the S&P 500. That follows a 23% climb on Tuesday, a 200% advance in the last week and 3,600% return since the beginning of the year. For the record, the stock is up another 20% premarket to $75.
Diving deeper: Much of the price gains have been attributed to swarm trading, as well as gamification, where traders pile into popular names, ignoring fundamentals, technicals and other catalysts. We’ve seen the trend many times over the past year, ranging from the GameStop short squeeze frenzy (AMC was also involved then) to the Hertz (OTCPK:HTZGQ) bankruptcy bid-up and Kodak (KODK) craze that preceded it. Many Wall Street pros point out that these swarms only survive until the last “gambler” is left holding the bag, but these recent moves are also influencing real-world capital, as well as fresh ways for companies to trend in the markets.
Consider the fact that AMC CEO Adam Aron is embracing retail traders, rewarding his investor base yesterday with special screenings and free popcorn. Contrast that with ex-GameStop CEO George Sherman, who stayed largely quiet while his company’s stock price soared in late January. Earlier this week, AMC also capitalized on its gains by raising $230M directly from creditor Mudrick Capital Management, saying it plans to use the cash to “go on offense” with opportunistic acquisitions. While Mudrick subsequently jettisoned its stake, retail traders are still buying the struggling movie chain story and making loads of cash in the interim.
Will the narrative play out elsewhere? AMC’s Aron additionally revealed that retail investors “own more than 80%” of the company at the last count, meaning a non-institutional base now owns a super-majority of AMC shares. “We work for them. I work for them… and their ambitions and passions are important to me,” he added on a recent earnings call. Besides taking out the shorts, other CEOs may look to create a relationship with this mighty group of shareholders, with other meme plays skyrocketing in the last few sessions. In premarket trade: BlackBerry (NYSE:BB) +30%; Koss Corporation (NASDAQ:KOSS) +10%; GameStop (NYSE:GME) +2%.
Elsewhere on Wall Street
Things are remaining quiet for the broader market as the meme trade picks up steam, with sentiment shifting to a small group of names led by AMC Entertainment (AMC). Major averages closed marginally higher on Wednesday and U.S. stock futures inched lower overnight, falling 0.3% in another languid session. Meanwhile, the short squeeze at AMC is really picking up pace, with volumes soaring to unprecedented levels.
Inflicting pain: Short-sellers betting against AMC have lost $2.8B in recent sessions, according to S3 Partners. That means YTD losses of more than $5B. As shares keep rallying, short sellers are forced to buy back the stock to cut their losses, sending prices even higher.
For those still interested about economic news, worker filings for unemployment benefits likely fell again last week. Economists anticipate weekly jobless claims published by the Labor Department this morning to show a decline to 390,000, from 406,000 recorded in the prior week. That’s the fewest claims since the coronavirus crisis began in March 2020 and the fifth consecutive week claims have reached a fresh pandemic low.
Quote: “We’ve heard a lot about workers being slow to rejoin the workforce and some reluctance to take the jobs that are available, but on the other side of that, the recovery is proceeding [and] layoffs are declining,” said Nancy Vanden Houten, lead economist at Oxford Economics. “It’s still a significant amount of progress from where we were… and in a short time too.”
Unwinding pandemic support
The Fed will soon begin offloading the corporate bonds and ETFs it bought last year during the onset of the coronavirus pandemic. The Secondary Market Corporate Credit Facility was created to bring down borrowing costs for companies reeling from the crisis and was one of a dozen emergency measures the Fed implemented to support the financial system. SMCCF held $5.2B of bonds from companies like Walmart (WMT), Visa (V) and Whirlpool (WHR) as of April 30, as well as $8.6B of corporate debt funds, such as the Vanguard Short-Term Corporate Bond ETF (VCSH).
Bigger picture: Usage of the SMCCF and a related vehicle, the Primary Market Corporate Credit Facility, quickly restored investor confidence in major corporations’ ability to issue debt. As a result, the latter vehicle never made a purchase, and the SMCCF’s holdings peaked at around $14.2B last year, under 2% of the $750B available. That means the Fed’s actual presence in the market was quite limited, and the facility had been shut to new purchases since the end of December, following a decision by former Treasury Secretary Steven Mnuchin.
“MCCF portfolio sales will be gradual and orderly, and will aim to minimize the potential for any adverse impact on market functioning by taking into account daily liquidity and trading conditions for exchange traded funds and corporate bonds,” the Fed said in an accompanying statement. Sales should be completed by the end of this year and net proceeds will be remitted to the Treasury Department. The New York Fed, which manages the SMCCF, will provide additional details before the sales begin.
Outlook: Several Fed officials have already begun discussing trimming other emergency measures put in place during the pandemic, including the central bank’s monthly purchase of $120B in government and mortgage debt. “We’re talking about talking about tapering, and that is what you want out of us. You want to be long-viewed here,” San Francisco Fed President Mary Daly said last week. Fed Vice Chair Richard Clarida has also suggested that the appropriate timing of scaling back should be discussed at upcoming policy meetings (the next one is slated for mid-June).
Prices are rising everywhere
It’s becoming harder to find goods and services that haven’t increased in price in recent months, with the U.S. Consumer Price Index rising by another 4.2% Y/Y in April. Case in point: Kimberly-Clark (NYSE:KMB) began June by raising prices on consumer goods by 4% to 9%, Scotts Miracle-Gro (NYSE:SMG) will follow suit this summer, and Procter & Gamble (NYSE:PG) has said it will mark up prices in the fall. Price tags on appliances from Whirlpool (NYSE:WHR) and others have meanwhile risen by double-digit percentages from a year ago, while Costco (NASDAQ:COST) is raising labels by 20% or more for beef and up to 10% for clothing. Restaurant costs are rising too – Chipotle (NYSE:CMG) just upped delivery prices by 4% – while raw materials like lumber, steel and semiconductors are still near record highs.
What’s happening? Many consumers are emerging from the pandemic with padded wallets, thanks to stimulus checks and savings that were accumulated during coronavirus lockdowns. In a simple sense, that’s creating more demand for many items than industries can currently supply, and subsequently created a “reopening theme” that has drifted into the stock market. That’s not all. A combination of rock-bottom interest rates and aggressive fiscal spending may be compounding the problem, against a backdrop of labor shortages, surging transportation costs and supply chain disruptions that have been seen across many areas of the economy.
While manufacturers have been hesitant to pass on rising costs to consumers – especially in the thick of the pandemic – others have been less hesitant to do so in recent months as COVID-19 cases decline nationwide. Another trend being seen in the retail sector is known as “shrinkflation,” where companies slim down their product sizes but keep prices the same. “Consumers check the price every time they buy, but they don’t check the net weight,” said Edgar Dworsky, a consumer advocate and former assistant attorney general in Massachusetts.
How long will it last? “Policymakers at the Fed and in the [White House] need to recognize that the risk of a Vietnam inflation scenario is now greater than the deflation risks on which they were originally focused,” declared former Treasury Secretary Lawrence Summers, who served under the Clinton administration. “Whatever was the case a few months ago, it should now be clear that overheating – not excess slack – is the dominant economic risk facing the U.S. over the next year or two.” Current administration economists feel different, anticipating near-term bursts of inflation that will recede as the economy returns to normal. President Biden is also not holding back on additional stimulus, unveiling a $6T budget for FY2022 last Friday that would translate into annual deficits of over $1.3T (and $1.8T in 2022).
What else is happening…
Third Engine No. 1 nominee poised to win Exxon (NYSE:XOM) board seat.
Facebook’s (NASDAQ:FB) ‘F8 Refresh’ sets sharp business-customer focus.
A link between Pfizer (NYSE:PFE) vaccine and myocarditis cases?
European consumer lobby joins EU antitrust case against Apple (NASDAQ:AAPL).
Tesla (NASDAQ:TSLA) recalls hundreds of Model 3 cars that were shipped to China.
Failed drug test… Churchill Downs (NASDAQ:CHDN) suspends horse trainer Bob Baffert.
Twitter (NYSE:TWTR) moves ahead with Birdwatch crowd-sourced fact checks.
Snap’s (NYSE:SNAP) head of original content is exiting the company – Variety.
Again? J.P. Morgan’s Steve Tusa takes aim at General Electric (NYSE:GE).
Leading U.S. car-wash chain Mister Car Wash files for IPO.
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
9:45 PMI Composite Final
10:00 ISM Services Index
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
12:30 PM Fed’s Bostic Speech
1:50 PM Fed’s Harker Speech
3:05 PM Fed’s Quarles Speech
4:30 PM Fed Balance
Good morning. Happy Wednesday.
The Asian/Pacific markets leaned up. Japan, Australia, Malaysia, Indonesia and the Philippines did well; China, Hong Kong and Singapore closed down. Europe, Africa and the Middle East currently lean to the upside but are mostly quiet. Poland, Russia, Greece, Finland and Saudi Arabia are up; Denmark and Portugal are down. Futures in the States point towards a positive open for the cash market.
VIDEO: Playing A-B-C Patterns with MACD and Stochastic
The dollar is up. Oil is up big; copper is down. Gold is up; silver is down. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
The latest cyberattack on an American supply chain was felt yesterday as JBS (OTCQX:JBSAY) – the biggest meat producer in the U.S. (and the world) – reported a ransomware breach that shut down all its beef facilities. The company’s meatpacking plants also experienced some level of disruption due to the hack which was attributed to a notorious criminal gang based out of Russia. JBS sells beef and pork under the Swift brand, and is also the owner of Pilgrim’s Pride (PPC), the second-largest U.S. chicken producer.
Just in time for grilling season… Meat market analysts say plant closures from the JBS hack could soon lead to higher consumer prices, which have increased for many cuts this year because of high demand, labor shortages and high transportation costs. In fact, cattle-futures trading in Chicago fell on Tuesday, with the most-active contract closing down 1.9% to nearly $1.17 a pound. It also prevented the U.S. Department of Agriculture from releasing daily wholesale prices for beef and pork that are heavily relied on by agriculture markets.
Paid the ransom? JBS has made “significant progress” to resolve the cyberattack and will have the “vast majority of [its] beef, pork, poultry and prepared foods plants” operational on Wednesday. “Our systems are coming back online and we are not sparing any resources to fight this threat,” the company added in a statement. According to Steiner Consulting Group, which researches the meat industry, “even one day of disruption will significantly impact the beef market and wholesale beef prices.”
Go deeper: The JBS attack comes just three weeks after Colonial Pipeline Co., operator of the nation’s biggest gasoline pipeline, was targeted in a ransomware attack, which crippled fuel delivery and sent prices soaring in the U.S. Southeast. It’s an even bigger problem when hackers target industries dominated by one of a handful of companies (JBS, Cargill and Tyson control about two-thirds of America’s beef). While the White House has advised companies in the past not to pay criminals over ransomware attacks, that stance may be changing given vulnerabilities in the supply chain and the lack of investment in robust cybersecurity. The federal government’s own agencies were hacked not too long ago, in the SolarWinds (SWI) attack that penetrated thousands of organizations.
Looking for direction
U.S. stock futures were muted again overnight following a flat session for Wall Street on Tuesday. The “sit tight” mentality is being reflected in the broader market as traders continue to ponder inflation risks, rebounding consumer demand, supply bottlenecks and red-hot manufacturing. Some other catalysts might be seen in the coming sessions, when the Labor Department releases its jobs report on Friday, before a high-profile FOMC meeting set for in mid-June.
“Yes, inflation will overshoot in the short term but the Fed is cognizant of that risk and they are looking at a dual target of full employment and inflation,” said Carlos Casanova, senior Asia economist at Union Bancaire Privee in Hong Kong. “So that has made investors less concerned potentially about the pace of Fed tapering this year, focusing more on the pace of reopening this year and leaving that concern about tapering for next year or beyond.”
It’s not quiet everywhere… The meme trade is back in full force as the retail bros return to pumping stocks via WSB/Reddit. AMC Entertainment (NYSE:AMC) is taking big swings this time around, with the stock up another 33% premarket to nearly $43, following a 23% advance on Tuesday. The stock is even up 200% in the last week, giving some big returns to those who got in early on the swarm. Many are moving in and out of the stock at a quicker pace, like Mudrick Capital, which offloaded 8.5M shares on Tuesday just hours after it acquired them.
On the economic calendar: Investors will be eyeing the Fed’s Beige Book this afternoon. The report offers a view on how businesses are faring and current industry conditions, such as an overheating economy or inflationary pressures. This book is produced roughly two weeks before the Fed meets to set monetary policy, which is the single most influential event for the markets.
Amazon rolls a fatty
Cannabis legalization efforts continue to expand across the United States and the movement just won another big backer: Amazon (NASDAQ:AMZN). The nation’s second-largest employer will no longer screen its workers for the drug (except for positions subject to regulation by the U.S. Department of Transportation) and will drop weed-testing requirements for recruitment. The news follows a lawsuit from March, in which a New York man sued Amazon over a rescinded job offer because he tested positive for marijuana (NYC banned employers from testing job applicants for cannabis in 2020).
No smoking at work: “We will continue to do impairment checks on the job and will test for all drugs and alcohol after any incident,” Amazon wrote in a blog post.
The e-commerce giant is also throwing its weight behind federal legalization, with its public policy team actively supporting the Marijuana Opportunity Reinvestment and Expungement Act of 2021. Besides legalization, the MORE Act, which was reintroduced in the House last month, would expunge criminal records related to cannabis and invest in impacted communities. 17 states have so far legalized pot use for adults and over 30 states have allowed some form of medical marijuana.
Other changes: Amazon has long tracked the productivity rates among its warehouse workers, recording the number of packages they pick, pack and sort each hour. The workplace policy has been controversial due to what some say forces employees to work at a breakneck speed. As a result, Amazon is making another policy modification in response to the criticism. “Starting today, we’re now averaging Time off Task over a longer period to ensure that there’s more signal and less noise-reinforcing the original intent of the program,” said Dave Clark, CEO, Worldwide Consumer.
Zoom bets on hybrid workplace
While earnings season is winding down, investors focused in on one big name yesterday that made big waves during the pandemic. Shares of Zoom Video (ZM) rose 2% in after-hours trading following Q1 results that exceeded estimates across the board. Profits reached more than $227M, from about $27M a year ago, while revenue topped $956M, up from $328.2M a year earlier.
By the numbers: Zoom Phone, which includes cloud-based phone services along with video calls and other capabilities, tripled in growth to 1.5M seats at the end of April, from 1M in January. The work-from-home darling also saw customers with more than 10 employees reach about 497K in the latest period, about 30K more than the previous quarter. Meanwhile, clients that generated more than $100K over the past 12 months reached 1,999, up about 22% from the prior three-month period and doubling over the past year.
“The hybrid model is here to stay,” CEO Eric Yuan declared on the post-earnings conference call, though the whopping percentage growth may cool in the coming quarters. Full-year guidance now stands at revenue of $3.98-3.99B (prior: $3.76-3.78B; consensus: $3.82B) and adjusted EPS of $4.56-4.61 (prior: $3.59-3.65; consensus: $3.77). “We are energized to help lead the evolution that allows greater flexibility, productivity, and happiness to both in-person and virtual connections,” Yuan added.
Will the forecast lead to more traction? Zoom’s stock has dipped about 3% since the start of 2021 as the tech trade remains on the back burner (it soared over 400% in 2020). However, some, like SA author Larry Cheung, say shares could pick up again if the company transforms itself into a “social platform.”
Shadows of the trade war
Economists are already debating whether, or to what degree, stimulus spending is fueling inflation, with consumer prices rising by a whopping 4.2% in April. Prices of lumber, steel and semiconductors are also at record highs, given historically low inventories and surging demand. Port congestion and rising freight costs are meanwhile adding to price pressures amid a scarcity of shipping containers, as well as dwindling warehouse space.
Another culprit? Some businesses are pointing fingers at the import tariffs that were first implemented by the Trump administration and kept in place under President Biden. The levies were initially intended to shield American firms from a flood of cheap imported products from China, though some manufacturers say they make their companies less competitive at a time of red-hot domestic demand. Tariffs are paid to the U.S. government by importers, which look to manage the duties in several ways, including discounts, alternative sourcing, lower profit margins, cutting company costs or raising retail prices.
Tariffs on Chinese imports aren’t the only duties under the microscope. Homebuilders and lawmakers have urged Biden to eliminate tariffs imposed in 2017 on Canadian softwood lumber, which is part of a decades-long dispute between the two countries. However, instead of lifting the duty, the Commerce Department sought to double the levy to 18% after concluding that Canadian imports were heavily subsidized. A final decision will be made before November, but in the meantime, the tariffs still remain at 9% – despite record high lumber costs.
Outlook: Some economists feel that tariffs have had only muted effects on prices and that their removal won’t result in significant downward pressure. This is because tariffs only affect imports, which generally represent a small share of the domestic market, and not all of them are taxed the same (or at all). For example, steel imports make up about a third of total American demand, but supplies coming from Canada, Mexico and Brazil – the largest steel exporters to the U.S. – are exempt from the duties.
What else is happening…
Higher demand? Oil jumps as OPEC+ confirms gradual production increase.
Biden freezes Alaska refuge oil leases, reversing Trump sale.
Going after Gen Z… Etsy (NASDAQ:ETSY) buys fashion app Depop for $1.6B.
Amazon (NASDAQ:AMZN) sets Prime Day shopping event for June 21-22.
Facebook (NASDAQ:FB) livestreams its F8 Developers Conference, called ‘F8 Refresh.’
EU rolls out digital Covid certificates to ease travel – NYT.
Coinbase (NASDAQ:COIN) card can be used with Apple and Google Pay.
SEC says Tesla (NASDAQ:TSLA) failed to oversee Elon Musk’s tweets.
SoFi Technologies (NASDAQ:SOFI) gets Outperform rating as stock begins trading.
Supreme Court rejects Johnson & Johnson (NYSE:JNJ) appeal in baby powder case.
Tuesday’s Key Earnings
Ambarella (NASDAQ:AMBA) +4.2% AH posting Q1 beats, upside sales outlook.
Canopy Growth (NASDAQ:CGC) -6.9% on widening losses for FY21.
HP Enterprise (NYSE:HPE) -1.5% AH amid lackluster profit forecast.
Zoom Video (NASDAQ:ZM) +2% AH beating top- and bottom-line estimates.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:55 Redbook Chain Store Sales
12:00 PM Fed’s Evans: U.S. Monetary Policy
12:00 PM Fed’s Harker: “Entrepreneurship and Minority-Owned Business”
12:00 PM Fed’s Harker: U.S. Economic Outlook
2:00 PM Fed’s Beige Book
6:05 PM Fed’s Kaplan Speech
Good morning. Happy Tuesday. Hope you had a good weekend.
The Asian/Pacific markets closed mostly up. Hong Kong, New Zealand and Thailand gained more than 1%. Europe, Africa and the Middle East are currently up big. The UK, Denmark, France, Germany, the UAE, Russia, South Africa, Finland, Switzerland, Norway, Hungary, the Netherlands, Italy, Austria and Sweden are up 1% or more. Futures in the States point towards a moderate gap up open for the cash market.
VIDEO: Playing A-B-C Patterns with MACD and Stochastic
The dollar is up. Oil is up big; copper is down. Gold and silver are up. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
The latest OPEC+ gathering takes place via videoconference today as pandemic travel continues to prevent the usual meeting spot in Vienna. The group is now holding monthly meetings, giving it more immediate power to make decisions on current oil 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 as they try to balance expectations of a recovery in demand against a possible supply increase from Iran, the world’s fourth-largest crude producer.
Backdrop: OPEC+ decided in April to return 2.1M barrels per day to the market from May to July, anticipating rising global demand despite surging COVID cases in India. Since the announcement, crude prices have risen from $60 toward the $70 level, and are up more than 30% in 2021 alone. Oil has still been trading in the tight $60-70 range for the past three months as talks continue on the future of the JCPOA (a deal revival would lead to higher Iranian output). WTI crude futures (CL1:COM) climbed another 3.1% overnight to $68.34/bbl ahead of the OPEC meeting.
Russia is expected to “seek to accelerate the pace of the ramp up” in output, but the Saudis may call for “keeping the more conservative increase given the high COVID case counts in India and Japan, as well as the looming return of Iranian exports in the back half of the year,” said RBC Capital Markets, outlining that OPEC+ is set to “stick with its cautious production return schedule.” The group is also unlikely to decide on output policy beyond July, since the outlook for Iran is not yet clear and OPEC has another meeting planned for June 24. Yesterday, OPEC’s Joint Technical Committee revised global supply down by 200K bpd, and now expects a deficit of 1.4M bpd in 2021 (from 1.2M bpd previously), meaning inventories will decline faster than expected.
Thought bubble: Western oil majors are under pressure to cut carbon emissions faster, especially after the courtroom and boardroom defeats seen last week at Exxon (NYSE:XOM), Chevron (NYSE:CVX) and Shell (RDS.A, RDS.B). New energy policies proposed by the Biden administration are also discouraging the production of fossil fuels, meaning more business for OPEC+ and the likes of Saudi Aramco (ARMCO), Adnoc and Rosneft (OTCPK:RNFTF). “It looks like the West will have to rely more on what it calls ‘hostile regimes’ for its supply,” joked a high-level executive from Russia’s Gazprom (OTC:GZPMF).
While it will take time to boost America’s renewable power grid – which could lead to higher oil prices in the interim – some say the U.S. may have the last laugh. If fossil fuel-dependent economies fail to shift away from oil and gas in the future, they could be susceptible to economic instability and stagnation in the decades to come. However, many wealthy countries have still outsourced a large chunk of their carbon pollution overseas for quite some time and that could continue in a future world where price differentials play out in the energy mix.
Inflation remains in focus
Traders are returning from Memorial Day with renewed optimism as stock index futures point higher following the holiday weekend. Dow futures are up 0.5%, while contracts linked to the S&P 500 and Nasdaq ahead by 0.4%. More records? While the benchmark S&P 500 is starting June after notching its fourth consecutive monthly gain, the inflation debate continues to remain in the headlines.
Quote: “Overall, given the market’s reaction to [Friday]’s PCE release, investor concerns about inflation may have been exaggerated – or perhaps already priced in,” said Chris Hussey, a managing director at Goldman Sachs. “Consensus may be building that the inflation we are seeing today is ‘good’ inflation – the kind of rise in prices that accompanies accelerating growth, not a monetary policy mistake.”
Many are still concerned about the risks of a market crash. Short interest in SPY recently hit its highest since December and the CBOE Skew Index rose to the highest level since August 2018. Hedge funds have also slashed their holdings in 20 of the 23 commodities tracked in the Bloomberg Commodity Index by the most since November, while the extreme volatility in crypto and tech stocks has sparked worries of a broader selloff.
Up next? May’s non-farm payrolls report, set to be released on Friday, is likely to be the next catalyst for the markets. Depending on the figure, it could support stocks or change perceptions of the economy’s strength or coming stimulus measures. Following the employment number, investors will be watching the Fed’s latest comments about inflation at an FOMC meeting scheduled for mid-June.
Trillion-dollar deficits: Essential or detrimental?
President Biden unveiled his first budget before the weekend that detailed $6T in spending for FY2022, including two infrastructure proposals, an increase in military resources, as well as domestic programs like scientific research and renewable energy. In total, the plan would raise federal spending to $8.2T per year by 2031, meaning annual deficits of over $1.3T (and $1.8T in 2022). While the plan is only a blueprint for the administration’s fiscal priorities – and is subject to Congressional debate – other policy promises that weren’t included in the budget may add to the weighty costs: student loan forgiveness, lowering the Medicare age to 60, creating a public healthcare option and reducing prescription drug prices.
Bigger picture: Long gone are the days of austerity conversations, the Tea Party movements or the balanced budget talk that made some political brownie points. In fact, the U.S. has already returned to the record debt-to-GDP ratio last seen in the aftermath of World War II. One of the biggest fears among stock market investors is if the spending will lead to a sustained rise in inflation, which is hard to get rid of and would require the attention – and possible intervention – of the Federal Reserve.
In the economic textbooks of yesteryear, big deficits were said to lead to price pressures and a possible overheating of the economy. However, a growing number of economists and the White House feel that the current circumstances call for a different economic plan, citing historically low borrowing costs, the need to get millions of Americans back to work and guaranteeing that the nation remains competitive with China. The Fed has also signaled it wouldn’t raise rates before 2024, while investors are still eager to scoop up U.S. government debt and Treasury Secretary Janet Yellen has argued that any risk of inflation and overheating can be controlled.
Quote: “The president’s budget improves the long-term fiscal outlook because his policies are more than paid for over the long run,” Acting Budget Director Shalanda Young told reporters on Friday. “Failing to make these investments at a time of such low interest costs would be a historic missed opportunity that would leave future generations worse off.”
How much is too much? There’s no magic number or level for when a government’s debt begins to hurt its economy. As long as interest rates stay low and the U.S. can borrow cheaply, the country can handle a much heavier debt load than was once thought possible. However, the federal debt cannot grow faster than the economy indefinitely. Once confidence erodes in Treasuries or the dollar’s reserve currency status is threatened, borrowing can get more expensive and servicing that debt would cancel any budgetary forecasts that were made in a previous lending environment. The same scenario could happen if the U.S. would be also forced to raise rates as inflation heats up, or by private borrowing getting crowded out, though we could still be a long way away from that point despite all the doom and gloom.
Employers can require their workers to get vaccinated against COVID-19, according to the latest update to the guidance issued by the U.S. Equal Employment Opportunity Commission. The mandatory vaccination requirement applies to “all employees physically entering the workplace,” with only a few exceptions permitted under law, such as medical reasons, the workforce is unionized, or if taking it is against a “sincerely held” religious belief. Employers must also comply with the reasonable accommodation provisions of the ADA and Title VII of the Civil Rights Act of 1964 and other EEO considerations.
Better to use carrots? Companies can also offer incentives to get workers vaccinated, “as long as the incentives are not coercive,” a move likely to open up a floodgate of lawsuits according to some experts. “What is ‘coercive’ is unclear because, just as with anything else, one person’s view of what is a coercive incentive is not the same as another person’s,” said Helen Rella, an employment attorney at a New York-based law firm. The revised EEOC guidance was issued as the U.S. COVID-19 immunization drive reached a major milestone with more than 50% of the population getting at least one dose.
Meanwhile, the World Health Organization is renaming coronavirus variants after letters of the Greek alphabet, instead of the place of their first discovery. The four types of coronavirus known by the public as the U.K., South Africa, Brazil and India variants have now been assigned the Greek letters Alpha, Beta, Gamma and Delta. Other variants of interest will continue down the alphabet.
Quote: “No country should be stigmatized for detecting and reporting variants,” WHO epidemiologist Maria Van Kerkhove declared. “To avoid this and to simplify public communications, WHO encourages national authorities, media outlets and others to adopt these new labels.”
Married couples in China are now allowed to have up to three children, according to the Communist Party’s Politburo, as the nation looks to mitigate risks to its long-term economic prospects. The policy change will come with “supportive measures, which will be conducive to improving our country’s population structure, fulfilling the country’s strategy of actively coping with an ageing population and maintaining the advantage, endowment of human resources”, per the state-run Xinhua News Agency. The government is also set to gradually raise the national retirement age, but did not provide further details.
Bigger picture: Data published several weeks ago showed China’s population growth expanding at its slowest pace since the 1950s, with the numbers on mainland China increasing 5.38% to 1.41B. The working-age population – people aged 15 to 59 – was on the decline as well, after hitting a 2011 peak of 925M, while the fertility rate was only 1.3 children per woman during 2020, missing a target of 1.8 that Beijing had set in 2016 (after replacing its one-child policy). China’s statistics agency even took an unusual step by announcing that the population did grow in 2020, but gave no total, prompting some to speculate it was an effort to pacify investors and corporations.
At issue is whether the world’s second-largest economy may already be in irreversible population decline before accumulating the household wealth of G7 nations. While China has eased birth limits, couples have been put off by the high cost of living (especially in cities), cramped housing (many share apartments with their parents) and career choices (job discrimination faced by mothers). Childcare is also expensive, maternity leave is short and most single mothers are excluded from medical insurance or social welfare payments.
Investing angle: Consumer companies seen potentially gaining from less restrictive family planning policies include Hasbro (NASDAQ:HAS), Mattel (NASDAQ:MAT), Danone (OTCQX:DANOY), Nestle (OTCPK:NSRGY), Procter & Gamble (NYSE:PG), Kimberly-Clark (NYSE:KMB) and Reckitt Benckiser (OTCPK:RBGLY). Asian companies such as kid-focused Goodbaby International (OTC:GBBYF), Japanese baby bottle producer Pigeon Corp. (OTCPK:PIGEF) and diaper maker Unicharm (OTCPK:UNCHF) may also benefit. Disney (NYSE:DIS) is getting some further attention, while carmakers that sell to the Chinese market may get a boost: SAIC-GM (NYSE:GM), Volkswagen (OTCPK:VWAGY), Geely (OTCPK:GELYF), Li Auto (NASDAQ:LI), Nio (NYSE:NIO), XPeng (NYSE:XPEV), Guangzhou Automobile (OTCPK:GNZUY), BYD Company (OTCPK:BYDDF), Great Wall Motor (OTCPK:GWLLF) and Brilliance China Automotive (OTCPK:BCAUF). Add your own ideas in the comments section.
What else is happening…
White House gives Republicans a week to show infrastructure progress
KKR, Clayton Dubilier & Rice near deal to buy Cloudera (NYSE:CLDR) – WSJ.
Supply chain pressures are leading to Tesla (NASDAQ:TSLA) price increases.
Intel (NASDAQ:INTC) repeats forecast that chip shortage could last several years.
EU to lift quarantine restrictions for vaccinated on July 1 – Guardian.
China’s factory activity slips, consumer spending holds up.
Quiet Place Part II leads pandemic-best box office weekend.
Elliott said to question the future of GlaxoSmithKline’s (NYSE:GSK) CEO.
Are they enough? Texas legislature passes power grid reforms.
Barron’s touts 10 ways to cash in on shortages in materials, labor.
Today’s Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:00 Fed’s Quarles: U.S. Economic Outlook
10:30 Dallas Fed Manufacturing Survey
2:00 PM Fed’s Brainard Speech