Good morning. Happy Friday. Happy Quad Witching Day.
The Asian/Pacific markets were mixed. Hong Kong and Malaysia did well; Japan, Indonesia and the Philippines were weak. Europe, Africa and the Middle East are currently down big. The UK, France, Turkey, Germany, Russia, Greece, South Africa, Finland, Norway, Hungary, Spain, the Netherlands, Austria, Israel, Portugal and the Czech Republic are all posting big losses. Futures in the States point towards a moderate gap down open for the cash market.
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VIDEO: How to Play Bottoming Patterns
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The dollar is up. Oil and copper are down. Gold and silver are up. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
New federal holiday
President Biden signed a bill on Thursday to make Juneteenth a national holiday after the measure passed the Senate unanimously and was approved 415-14 in the House. The day commemorates the 1865 date when Union General Gordon Granger arrived with federal troops in Galveston, Texas, and issued an order freeing the last of America’s slaves. “Great nations don’t ignore their most painful moments,” President Biden said during a ceremony at the White House. “They embrace them.”
Corporate action: Spurred by the George Floyd protests in 2020, many companies already marked Juneteenth last year, expanding awareness of the holiday. Some 200 firms made the day a paid holiday, including Twitter (TWTR), Square (SQ), Nike (NKE) and Spotify (SPOT), as well as Adobe (ADBE), Altria (MO), Lyft (LYFT) and Uber (UBER). JPMorgan Chase (JPM) also closed its bank branches early, while the Detroit Three – GM (GM), Ford (F) and Chrysler Stellantis (STLA) – held moments of silence.
The new federal law will prompt many other American employers, which peg their holiday schedule to the federal calendar, to decide whether to give their workers a paid day off. Many of those decisions will take place next year, given the last-minute signing of the bill. U.S. stock and bond markets will also remain open today due to the advanced notice needed to coordinate holiday closures.
Outlook: It took 15 years for the major exchanges to close in observance of Martin Luther King Jr. Day, which was the last federal holiday passed in 1983. However, many are expecting quicker decision-making this time around. SIFMA and CME Group (NASDAQ:CME) have already incorporated the holiday into their schedule next year, while the New York Stock Exchange (NYSE:ICE) and Nasdaq (NASDAQ:NDAQ) will rely on input from the financial industry – like banks, broker-dealers and regulators – on whether to close for Juneteenth in 2022.
Pricing it in
Some peculiar market activity has been taking place since the latest Fed meeting, with investors unwinding some of this year’s dominant reflation trades and the tech-heavy Nasdaq 100 rising to a record high. Commodities are also stumbling, with oil on the decline and gold tumbling to below $1,800 an ounce. Soybean futures have meanwhile wiped out their gains for 2021, while the rallies in corn, lumber, platinum and nickel are losing steam.
Many are pointing to a Federal Reserve that recognizes it might have to raise rates – earlier than expected – to deal with a possible inflationary threat. While the current dot plot signals hikes that are two years away, the sentiment may be helping undercut the reflation trade that had been dominant since January. Overnight, Dow and S&P 500 futures hugged the flatline, while contracts tied to the Nasdaq rose 0.2%.
Weren’t higher rates supposed to dent growth and tech? Why are they on the way up? Investors could be honing in on the pace at which rates are expected to rise, which the central bank signaled would be slow even after 2023. The fact that Powell also did not discuss tapering (even taking it out of the vocabulary), could signal expansionary policy is here to stay for the next while. That’s in addition to the “transitory” inflation outlook, which is starting to take root among the investing community.
Go deeper: Over the last two sessions, the spread between 5- and 30-year Treasury yields continued to widen and is now below where it started the year. That news helped drive cyclical shares to the backseat, with money flowing into defensive names like healthcare and consumer staples. Tightening from the Fed could also temper GDP growth, a concern expressed by Goldman Sachs. “Investors may be interpreting the Fed’s hawkish tilt Wednesday as a sign that an extended U.S. post-pandemic economic expansion may be a bit harder to achieve in a potentially emerging environment of less accommodative monetary policy.”
ACA survives latest challenge
In a 7-2 ruling, the U.S. Supreme Court has upheld the constitutionality of the Affordable Care Act, marking the third time the High Court has upheld the law that went into effect in 2010. Justices Samuel Alito and Neil Gorsuch were the two dissenters, who accused the majority of ducking constitutional issues. “In all three episodes, with the Affordable Care Act facing a serious threat, the court has pulled off an improbable rescue… it follows the same pattern as installments one and two.”
Backdrop: The case was brought by Texas and other Republican-leaning states, which had sought to strike down the law on technical arguments after Congress reduced the penalty for failing to buy health insurance to zero. The decision, written by Justice Stephen Breyer, concluded that none of the plaintiffs were hurt from eliminating the fine and thus lacked legal standing to bring the lawsuit in the first place. The decision largely left aside addressing the core of the law.
“A big win for the American people,” President Biden tweeted after the ruling. “With millions of people relying on the Affordable Care Act for coverage, it remains, as ever, a BFD. And it’s here to stay.”
Statistics: According to a report last month from the Department of Health and Human Services, 31M Americans had health coverage through the Affordable Care Act, including 11.3M people enrolled in the Obamacare exchanges and 14.8M who received coverage under the law’s expansion of Medicaid. Another 1.2M Americans chose policies this year during a special enrollment period that Biden launched in mid-February to expand coverage to the uninsured (it runs until August).
Different type of models
Shares of L Brands (NYSE:LB) slumped 5% on Thursday, amid selling in the broader market and following the latest steps to turn around Victoria’s Secret. The lingerie brand is ditching its “Angels” supermodels to embark on a new journey of becoming a leading “advocate” for female empowerment. The new crew, called the VS Collective, will consist of women like actress Priyanka Chopra Jonas and transgender model Valentina Sampaio, as well as soccer star and gender equity campaigner Megan Rapinoe.
Details: The group will advise the brand, appear in ads and podcasts, and promote Victoria’s Secret on social media. They join a company that has an entirely new executive team and is creating a board of directors in which all but one seat will be occupied by women. L Brands founder Les Wexner, the company’s former CEO, stepped down from the board last May, giving way for seismic shifts at VS, which he bought in 1982.
“The Angels are no longer culturally relevant,” Victoria’s Secret CEO Martin Waters told the NYT. “I’ve known that we needed to change this brand for a long time, we just haven’t had the control of the company to be able to do it. We needed to stop being about what men want and to be about what women want.”
Will ladies buy the vision? The marketing shift is a big one, especially given the fact that Victoria’s Secret is set to be spun off later this summer. Shoppers have already been “responding positively” to the new merchandise, according to the company, which included its first-ever Mother’s Day campaign with a pregnant model. UBS analyst Jay Sole also expects a sustainable comeback, predicting U.S. sales next year to return to the 2016 peak of $7.8B. L Brands has even raised its financial forecasts, citing momentum at Victoria’s Secret, and the stock has risen more than 300% over the past year.
What else is happening…
Cathie Wood’s ARKK has best daily close in over a month.
Plunging interest rates ding banks and mortgage REITs.
A quarter of U.S. TV time is spent on streaming – Nielsen.
23andMe (ME) pops on first trading day following SPAC merger.
U.S. invests another $3B on COVID-19 antiviral development.
Mark Zuckerberg: VR will eventually reach scale of phones, PCs.
Lordstown Motors (NASDAQ:RIDE) tumbles after clarifying it has no binding orders.
TikTok owner ByteDance’s (BDNCE) 2020 revenue jumped 111% to $34.3B.
New York Times (NYSE:NYT) and The Athletic end deal talks – The Information.
“Based on what data?” Musk renews criticism of “greener” Bitcoin.
Thursday’s Key Earnings
Adobe (NASDAQ:ADBE) +2.4% AH on easy FQ2 beats, upside guidance.
Kroger (NYSE:KR) +4.3% as COVID eating habits boosted sales.
Smith & Wesson (NASDAQ:SWBI) +5.4% AH after earnings topper, dividend boost.
Today’s Economic Calendar
1:00 PM Baker-Hughes Rig Count
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Good morning. Happy Thursday.
The Asian/Pacific markets closed mostly down. China did well, but Japan, South Korea, India, Australia, Malaysia, Indonesia, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently mostly down. The UK, Denmark, Poland, South Africa, Finland, Portugal and Israel are down the most. Futures in the States point towards a down open for the cash market.
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VIDEO: How to Play Bottoming Patterns
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The dollar is up big. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Powell avowal
There’s never a dull day when Jerome Powell comes to town, with the market hanging on to his every word from the public square. On Wednesday, the Fed raised its expectations for inflation considerably, saying the headline figure could reach 3.4%, marking a full percentage point higher than its forecast in March. While Powell still feels the price pressures are “transitory,” it may now take some comforting numbers to reassure investors.
Interest rates: The central bank also brought forward the time frame on when it will next raise rates. The so-called dot plot of individual FOMC member expectations pointed to two hikes in 2023, after Powell said in March that he saw no increases until at least 2024. Stocks slumped yesterday in reaction to the news, but rallied off their intraday lows after the Fed Chair said the projections should be “taken with a big grain of salt.”
Stock futures slipped further overnight, with the Dow and S&P 500 down 0.4%, respectively, and the Nasdaq off by 0.6%. Meanwhile, bond yields headed higher after the press conference, while bitcoin sold off, but both have pared much of their recent moves. Interestingly enough, traditional inflation hedge gold tumbled as far as $1,835/oz on Wednesday and fell another 3% overnight to the next support level at $1,800.
Taper talk: Powell did not issue guidance on when the central bank will begin tapering its bond-buying program, though many speculate that could come at Jackson Hole in August. “You can think of this meeting that we had as the ‘talking about talking about’ meeting, if you’d like,” Powell said when asked about tapering. “I now suggest that we retire that term, which has served its purpose.” The FOMC also disclosed it would extend dollar-swap lines with global central banks through the end of 2021, which was one of the last COVID-era programs the Fed undertook to stabilize world markets.
Secondhand stonks?
The meme trade continues to reverberate across the investing landscape and is leading to some interesting fallout for the ETF industry. Like passive smoking in a bar, passive fund investors could be getting the impact of moves in AMC (AMC) and GameStop (GME) – whether they plan to or not. While AMC’s management is warning investors to steer clear of its shares at these levels unless they are prepared to lose it all, the meme stocks are having an outsize influence on indexes.
Popular plays like AMC and GameStop are the largest two holdings in BlackRock’s $17.5B iShares Russell 2000 Value ETF (IWN). The two have a combined weight of 2.1%, despite the fund holding 1,495 companies. “While these numbers may seem small, remember that we’re currently in a low volatility environment (VIX below 20) so every blip that impacts returns is meaningful,” according to DataTrek Research.
Other examples: Russel’s small-cap benchmark is not the only fund experiencing outsized weightings. GameStop accounts for 13.8% of the First Trust Nasdaq Retail ETF (FTXD), 10.9% of the Invesco S&P SmallCap Momentum ETF (XSMO), 8.8% of the Invesco S&P SmallCap Value with Momentum ETF (XSVM) and 7.8% of the Invesco S&P SmallCap Consumer Discretionary ETF (PSCD). Back in January – at the height of the meme stock saga – GameStop accounted for 19.9% of State Street Global Advisors’ SPDR S&P Retail ETF (XRT), way ahead of the combined 11.8% weighting of the rest of its top 10 holdings.
Outlook: Most ETFs are passive index vehicles, meaning there aren’t too many options to retool the fund’s weightings until the next scheduled rebalancing date. What about daily rebalancing? While that could help mitigate the problem, it could raise turnover and increase trading fees. Other ideas include capping the weight of any individual stock or instituting rules that permit a fund to rebalance early in case of emergency situations.
Headset ads
When Facebook (NASDAQ:FB) starts serving up ads in its Oculus headsets it might be a new era for virtual reality. Earlier this year, the company already began testing ads within the Oculus mobile app, but it is now expanding them to actual devices. The ads will first appear in the shooter game Blaston from Resolution Games and will begin showing up in two other Oculus apps over the coming weeks.
Bigger picture: Facebook, which gets more than 97% of its overall revenue from ads, is one of the biggest players in the consumer VR landscape via Oculus Quest 2. It’s also scooped up some studios behind several big VR games, including rhythm app Beat Saber and Battle Royale title Population: ONE. Oculus headset ads could be a significant step for the tech giant as it looks to provide new ways for software developers to generate revenue within the Facebook ecosystem (rather than options like SideQuest).
“This is a key part of ensuring we’re creating a self-sustaining platform that can support a variety of business models that unlock new types of content and audiences,” Facebook said in a blog post. “It also helps us continue to make innovative AR/VR hardware more accessible to more people. Once we see how this test goes and incorporate feedback from developers and the community, we’ll provide more details on when ads may become more broadly available across the Oculus platform and in the Oculus mobile app.”
Disclaimer: The ads will follow Facebook’s advertising principles, giving users the same controls they have on Facebook – like hiding ads or seeing more information about the ads they’re shown. Advertisements also won’t be based on data that’s stored locally on a user’s headset (i.e. movement data or recordings from its voice assistant). However, Facebook will continue to collect info on whether or how a user interacted with an ad, such as clicking it or hiding the banner.
A new space station
Interest in space is heating up in the public markets as companies and countries sink billions of dollars into the next frontier. Just this week, Richard Branson looked to take Virgin Orbit public through a SPAC merger with NextGen Acquisition II, while Jeff Bezos’ Blue Origin (BORGN) auctioned off a seat on its first spaceflight for $28M. Cathie Wood also recently launched the ARK Space Exploration ETF (BATS:ARKX), which includes companies that support products, services or technology that occur beyond the surface of the Earth.
The latest? China this morning launched three astronauts to its upcoming space station called “Tianhe” as it looks to rival the U.S. in space. Beijing will carry out 11 missions over the next two years to complete the construction of the orbital outpost, and expects the three-module station to be fully operational by 2022. It’s part of a broader ramp-up for China’s space program, which continues to operate a rover on the far side of the moon and just put another one on Mars.
China is excluded from the International Space Station coalition, which operates the only other space station in orbit. American law has prohibited NASA and the White House Office of Science and Technology Policy from working with China on space activities since 2011, unless such activity has been approved by Congress. That has fueled Beijing’s drive to create its own space station, which is expected to remain in operation for at least a decade (the ISS could be retired in 2024).
Go deeper: China is also accelerating plans for government-sponsored satellites to beam the internet from space. It’s looking to launch 10,000 satellites in the next five to ten years as part of its “StarNet” constellation, using a similar strategy that it took on Earth with Huawei and 5G. That would put it on course to compete with private sector companies in the U.S. – like SpaceX’s Starlink (STRLK) and Amazon’s (NASDAQ:AMZN) Kuiper – which are looking to blanket the globe with internet connectivity.
What else is happening…
Apple (NASDAQ:AAPL) struggling with healthcare push beyond Watch?
Microsoft (NASDAQ:MSFT) names CEO Nadella to chair the board.
Mining stocks on watch as China releases metal reserves.
Baidu (NASDAQ:BIDU) to launch Apollo Moon robotaxis at affordable prices.
Waymo (NASDAQ:GOOGL) raises $2.5B amid reports of ‘eventual’ IPO.
Ramping up investment, GM tells Musk it wants to be EV leader.
Once a meme stock… Sundial Growers (NASDAQ:SNDL) regains Nasdaq compliance.
Coca-Cola and Heineken snubbed at Euros by soccer superstars.
Regeneron’s (NASDAQ:REGN) antibody cocktail said to cut COVID death risk.
Sports betting revenue forecast to skyrocket as more states approve.
Wednesday’s Key Earnings
Lennar (NYSE:LEN) +0.2% AH as fiscal Q2 earnings thrived, spinoff talk.
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
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Good morning. Happy Wednesday. Happy Fed Day.
The Asian/Pacific markets closed mostly down. South Korea did well, but China, Hong Kong, India, New Zealand Indonesia and Singapore were weak. Europe, Africa and the Middle East are currently mixed and little changed. Denmark, Russia and Portugal are up; the UAE, Greece, South Africa and Hungary are down. Futures in the States point towards a flat open for the cash market.
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BLOG It’s Been a Great Trading Environment – Here are Some of our Trades
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The dollar is down slightly. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Watch ’em dots
Today’s Federal Reserve meeting may be the most watched in recent years, with famed investor Paul Tudor Jones even calling it “the most important in Chair Jay Powell’s career.” With inflation gathering speed and the job market tightening, the FOMC will have to weigh the path for the country’s monetary policy – chiefly the federal funds rate target range (now at 0.0%-0.25%) and asset purchases that continue at a $120B monthly pace. Again, it’s widely expected that no tightening will occur this time around, but investors will be watching closely for any signals that the Fed is setting the stage to become less accommodative.
Dot plot: Investors will be focused on the central bank policymakers’ summary of economic projections, specifically the dot-plot charts showing expectations on when Fed officials expect interest rates to start rising. More than half of 51 economists surveyed by Bloomberg forecast the median of 18 officials seeing an interest rate hike during 2023, in contrast to the March dot-plot where the median expectation was for a 2024 liftoff. Fed watchers will also be parsing Powell’s comments on whether he softens his insistence that inflation is “transitory.”
Perhaps the most vocal critic of the “transitory inflation” theory is Lawrence H. Summers, former Treasury Secretary and ex-director of the National Economic Council. “I do not see how any responsible policymaker can fail to recognize that overheating is now the largest risk in the near term U.S. macro outlook,” he said via Twitter on June 10. “If overheating takes place in the U.S. and there is an eventual spike in interest rates driven either by the Fed or the markets, there will be enormous risks to an already fragile and over leveraged global economy.” The bond market, however, seems to agree with Fed’s narrative of transitory inflation, with the 10-year U.S. Treasury yield remaining below 1.5%.
Taper talk: Looking to avoid the 2013 “taper tantrum,” when markets were caught by surprise by the Fed’s change in policy, Powell has said the central bank will give advance notice of when it plans to trim its asset purchases. Some 40% of economists in the Bloomberg survey expect the Fed to indicate in late August its intention to start tapering (Jackson Hole?), while some 24% of the economists expect that signal to come in September – with actual reduction of purchases likely to start in early 2023. Recall that many Fed officials have commented that they’re willing to let inflation run hot for a period of time after the measure has lagged its 2% target for years.
Little changed
Traders are in wait-and-see mode before the latest Fed meeting, with U.S. equity futures hovering close to the flatline for most of the night. While the central bank is not expected to take any action, there will be plenty of accompanying commentary when Chair Jerome Powell takes the stage at 2:30 p.m. ET.
Bigger picture: Scott Ruesterholz, portfolio manager at Insight Investment, expects the Fed to strike a “patient tone” at the gathering, “wanting to ensure they do not overreact and slow the pace of recovery.” “There is a tremendous amount of uncertainty: how much of the inflation is being driven by transitory factors, like supply chain disruptions, and how much of the slower job growth is being driven by temporary measures like enhanced unemployment benefits.” Powell’s recent balancing act has emphasized the need for a full rebound before the Fed would consider raising rates, but has also highlighted a strong economic revival, which has maintained investor confidence in the economy.
The latest outlook comes as retail sales dropped in May, marking a shift in pandemic spending, while producer prices rose at their fastest annual rate in nearly eleven years, triggering worries about inflation. Others are less concerned. “On a one-year basis, inflation is indeed high,” declared Brad McMillan, CIO at Commonwealth Financial Network. “On a two-year basis, which captures the downturn and the upturn, inflation is still in the normal range over the past decade. The one-year numbers are simply misleading. When you dig in, on time frame and components, inflation is not nearly as bad as the headline numbers suggest.”
Go deeper: Another area that has been getting a lot of attention is commodities. While everything from lumber to copper and corn have been falling precipitously in recent weeks – denting expectations for a new commodities super cycle – oil continues to hold the line above $70/bbl. That could prompt Chair Powell to say he’s monitoring the situation, or shake it off as another “transitory” event. While some of crude’s rise may be inflationary, there are signs of stronger demand and tight supplies, with many U.S. companies balking at investment given the transition to a greener economy. Shell is said to be selling holdings in its largest U.S. oil field, the Keystone XL pipeline was recently terminated and activist shareholders last month won a board battle at Exxon.
Pressure on Big Tech
Progressive tech critic Lina Khan has been sworn in as chair of the Federal Trade Commission, becoming the youngest commissioner ever confirmed to the FTC. Her 69-28 approval in the Senate also points to some bipartisan agreement among legislators that Big Tech needs some tighter reins. Amazon.com (AMZN), Facebook (FB), Alphabet (GOOG, GOOGL) and Apple (AAPL) are watching closely…
Who is Lina Khan? The 32-year-old is a law professor at Columbia University, specializing in antitrust and anti-monopoly cases, and previously worked as a legal adviser to FTC Commissioner Rohit Chopra. Last year, she served as counsel to a House investigatory panel, conducting a 16-month investigation into large online platforms and recommending action against the companies’ anti-competitive behavior. Coming into focus is also a paper she wrote in 2017, called “Amazon’s Antitrust Paradox,” which made her a well-known figure in antitrust circles.
More on the article: Khan argues that current anti-competition laws are poorly equipped to address e-commerce. This is because the usual framework for evaluating competitive harm is the popular consumer welfare standard, which is often measured based on prices. However, that harm could be discounted in the modern economy, where practices like online predatory pricing lowers costs for consumers in the short term, but equips a company to gobble up market share. Like others, she also flags problems with Amazon owning a marketplace and selling on the same platform.
“Congress created the FTC to safeguard fair competition and protect consumers, workers, and honest businesses from unfair & deceptive practices,” Khan said on Twitter after her confirmation. “I look forward to upholding this mission with vigor and serving the American public.”
RIDE it out
It’s been quite a week for Lordstown Motors (RIDE), whose stock has been a rollercoaster ride over the last few days. Shares plunged 19% on Monday, only to rebound 11% on Tuesday, but are again off 3% in premarket trade. Investors and analysts are still figuring out how to size up the company, which was once hyped to take market share from Tesla (TSLA) and Rivian (RIVN), as well as Nikola (NKLA) – which faced its own crisis in September 2020.
Backdrop: Lordstown Motors was founded in 2018 by Steve Burns, former CEO of Workhorse Group (NASDAQ:WKHS), and a year later scooped up a GM (NYSE:GM) plant located in Lordstown, Ohio. Lordstown later inked a deal with Workhorse for the intellectual property rights of its W-15 pickup truck by giving the latter a 10% equity stake in the company. Last October, Lordstown reverse merged with a SPAC named DiamondPeak Holdings and became listed on the NASDAQ at an estimated equity value of $1.6B (roughly around its current market cap).
But… Both Lordstown CEO Steve Burns and the CFO Julio Rodriguez resigned on Monday after a board investigation into claims made by Hindenburg Research. While the internal probe found the short-seller’s report “in significant respects, false and misleading,” it did flag “issues regarding the accuracy of certain statements regarding” its pre-orders. The news added to a damaging headline from last week, when Lordstown revealed it was almost out of cash, “creating substantial doubt as to our ability to continue as a going concern.”
Resetting course? While breaking into a competitive and capital-intensive field like EVs is not easy, Lordstown’s new chairwoman feels it can be done. “It’s a new day at Lordstown and there are no disruptions, and there will be no disruptions, to our day-to-day operations,” Angela Strand said in a statement. She also confirmed that the company remains on track to begin limited production in September and there was enough interest from potential buyers to support factory output through the end of 2022.
What else is happening…
Growth ETFs outperform value ETFs over the past month.
Judge blocks Biden’s halt on new oil and gas leases.
$100/bbl crude oil a notion not dismissed by some top traders.
Turning a page… New York, California lift most COVID restrictions.
Southwest (NYSE:LUV) fliers slammed by two days of tech troubles.
Spotify (SPOT) nears exclusive deal for Call Her Daddy podcast.
U.S, EU agree to a truce in planemaker subsidy conflict.
‘Now is the time’ to fight ransomware attacks – Homeland Security.
BTIG says gene therapy space offers a compelling opportunity.
DraftKings (NASDAQ:DKNG) falls after Hindenburg warns of black market links.
More antitrust… Apple-Google mobile ecosystems eyed in the U.K.
Tuesday’s Key Earnings
Oracle (NYSE:ORCL) -4.9% AH despite topping FQ4 estimates.
Roblox (NYSE:RBLX) -8.1% AH amid a decline in users, platform spending.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Housing Starts
8:30 Import/Export Prices
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference
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Good morning. Happy Tuesday.
The Asian/Pacific markets leaned up. Japan, New Zealand, Taiwan, Australia, Singapore and the Philippines did well; China and Hong Kong were down. Europe, Africa and the Middle East currently lean down. The UK, France, Germany and Switzerland are doing well; Poland, Turkey, Russia, Greece, South Africa, Norway, Austria and South Africa are down. Futures in the States point towards a flat open for the cash market.
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BLOG It’s Been a Great Trading Environment – Here are Some of our Trades
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The dollar is up. Oil is up; copper is down. Gold is up; silver is down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Worker shortage
Statistic: Job openings soared to a record 9.3M in April as the economy reopened, according to the latest JOLTS report, but 3.5M Americans are still on weekly jobless benefits and more than 9M remain unemployed.
Go figure… While the numbers sound somewhat contradictory due to the ways they are collected and measured, they mean the U.S. is experiencing high unemployment at the same time as a labor shortage. While there are many reasons for the hiring scarcity like shifting employment choices, Republicans have mainly pointed to programs such as enhanced unemployment benefits, while Democrats have flagged items like childcare responsibilities, lingering COVID-19 worries and the need to raise wages.
“Look, this is the biggest economic challenge of our time,” U.S. Chamber of Commerce CEO Suzanne Clark declared. “I went to Rehoboth [Delaware] over the weekend, took my teenager to the beach. And the number of restaurants, the number of small businesses that have restricted their hours, that aren’t serving lunch, or aren’t open at all because of the workforce shortage is tragic.”
Making moves: As a result, Clark is launching an initiative to address the worker shortage called “Operation Warp Speed for Jobs.” It will advocate for “federal and state policy changes that will help train more Americans for in-demand jobs, remove barriers to work, and double the number of visas available for legal immigrants.” The U.S. Chamber Foundation is also expanding its “most impactful employer-led workforce and job training programs and launching new efforts to connect employers to undiscovered talent.”
Fresh records
The growth trade could be returning as bond yields keep falling, with the rate on the 10-year Treasury falling another 2 bps to 1.48%. The moves helped propel the Nasdaq Composite upward on Monday, closing at a record high as cyclicals took the back seat. Overnight, contracts linked to the index inched higher, while Dow and S&P 500 futures were hovering around the flatline.
This all comes ahead of the Fed’s two-day policy meeting. The gathering kicks off today and will be the focal point of the week for the markets. While the central bank is not expected to take any action, investors will be hanging on to every word that mentions interest rates, tapering plans, and of course – inflation. Transitory?
Speaking of inflation: The Producer Price Index – which measures the average price changes received by domestic producers – is set to be published this morning. The index is forecast to have climbed 0.5% in May, while the core PPI, which excludes volatile items like food and energy, is also estimated to increase 0.5%. Stay on the lookout for retail sales data as well, which will also be released at 8:30 a.m. ET.
On the global front: President Biden is continuing his tour through Europe after meeting with the G7 and NATO leaders. Today, he’ll sit down with Vladimir Putin in Geneva, marking the first time an American president has met with a Russian president in almost three years. As the Biden administration attempts to focus on its domestic agenda, it may look to contain Russia on the global stage, though that may not come easy. Biden has previously called Putin “a killer,” Moscow just categorized the U.S. as an “unfriendly nation” and neither has an ambassador in each other’s country.
JPMorgan is stockpiling cash
While Fed Chair Jerome Powell sees current inflation as transient, as supply shocks and reopening demand level out, Jamie Dimon is preparing JPMorgan (JPM) for a different environment.
Quote: “We have a lot of cash and capability and we’re going to be very patient, because I think you have a very good chance inflation will be more than transitory. If you look at our balance sheet, we have $500B in cash, we’ve actually been effectively stockpiling more and more cash waiting for opportunities to invest at higher rates. I do expect to see higher rates and more inflation, and we’re prepared for that.”
Go deeper: Dimon also signaled that the pandemic-era trading boom could be coming to a close, While predicting a 38% decline from a year ago, revenues from fixed-income and equities trading would still be “something a little bit north of $6B.” Net interest income was also pared down to $52.5B (from $55B) following muted loan demand, though investment banking revenue “could be one of the best quarters you’ve ever seen” due to surging M&A activity.
Trade truce
Transatlantic relations are getting a boost with the U.S. and EU on the cusp of a deal to resolve a 17-year dispute over aircraft subsidies. The breakthrough, set to be finalized today during President Biden’s first European meeting in Brussels, would lift the threat of billions of dollars in punitive tariffs via a multiyear accord on subsidy limits. It would also remove a sizable shadow that’s been hanging over the planemaking industry, as well as threats that other consumer goods could be targeted with retaliatory levies.
Backdrop: The dispute is one of the longest-running battles at the World Trade Organization. It started in 2004 when the U.S. withdrew from a 1992 aircraft subsidy pact, alleging that Airbus (OTCPK:EADSF) had managed to equal Boeing’s (NYSE:BA) share of the jet market due to subsidized government loans, while the EU counter-sued over unfair R&D support and subsidized tax incentives. The case wound through the WTO over the years, but in 2019, it awarded partial victories to both planemakers. While they attempted to work things out over the coming years, billions of dollars in tariffs were progressively imposed by each side, until the two suspended the duties in March 2021, setting a four-month deadline to work out a deal.
The current standstill agreement would likely include a five-year suspension of tariffs and remove claims for compensation. The U.S. would also withdraw a demand that would see it get advanced notice of any future public loans to Airbus. Another critical detail is the benchmark to be used when determining whether the interest on a future loan is market compatible.
Competition is rising: The arrangement would arrive as President Biden pledges to reset relations with European partners, while taking a hard-line stance on China. Beijing has its own ambitions to become a global player in commercial aircraft and even plans on delivering its C919 to its first client at the end of 2021. “There’s no question that the rise of China’s aircraft industry is… on everybody’s proverbial radar,” U.S. Chamber of Commerce Senior Vice-President Marjorie Chorlins told reporters on Monday, noting the country’s “heavy subsidization” of its industries and threats posed by its state-driven economic model.
Making inroads
Mixed reviews are pouring in for The Boring Company’s first operational tunnel, which opened last week under the sprawling Las Vegas Convention Center. Teslas shuttle visitors from one end of the complex to the other, reducing a 45-minute walk to a two-minute underground ride that’s surrounded by glitzy lighting. The 1.7-mile stretch (each tunnel is less than a mile) was built at a cost of $47M, plus another $5.5M paid to third-party inspectors. The project could eventually expand along the Las Vegas Strip, and to Allegiant Stadium and McCarran International Airport.
Flashback: The Boring Company started from Elon Musk’s grand vision of revolutionizing transit. In 2016, he got fed up with the gridlock in Los Angeles, tweeting he was “going to build a tunnel boring machine and just start digging.” The idea was to design intra-city transit systems (Loop) for passenger vehicles, which could eventually transition to autonomous cars or Hyperloop-based transportation for longer inter-city routes. The Boring Company was initially formed as a subsidiary of SpaceX, before becoming an independent business in 2018.
When first announced, Musk said the Las Vegas Convention Center (LVCC) Loop system would be able to transport people from Point A to Point B at 125 miles per hour, with no restrictions. However, at launch this past week, the network was transporting cars at around 35 mph. “We simplified this a lot,” Musk said last October. “It’s basically just Teslas in tunnels at this point, which is way more profound than it sounds.” At maximum capacity, Boring hopes to bring in a fleet of 62 Teslas capable of holding five people each, with a transport capacity of about 4,400 people per hour.
Outlook: Projects from The Boring Company have been highly publicized, but many of them have gone up in smoke. Those include the Chicago Express Loop (linking downtown Chicago with O’Hare Airport) and the Baltimore–Washington Loop (linking the two cities with future plans to connect NYC), as well as the Westside tunnel concept in LA (parallel to Interstate 405) and the Dugout Loop (bringing Los Angeles Dodgers fans to the ballpark). Other negotiations and discussions are still underway in Fort Lauderdale, Miami, San Jose and San Bernardino.
While The Boring Company is not yet publicly traded, there are a number of tunneling companies that are listed, including Tutor Perini (NYSE:TPC), Granite Construction (NYSE:GVA), Primoris (NASDAQ:PRIM), EMCOR Group (NYSE:EME) and Great Lakes Dredge & Dock (NASDAQ:GLDD).
What else is happening…
AMC shares surge on #AMCDay; Morgan Stanley warns of ‘recipe for disaster.’
MicroStrategy (NASDAQ:MSTR) completes $500M junk bond offering to buy more Bitcoin.
Lordstown Motors (NASDAQ:RIDE) sinks as leaders depart company after board probe.
Palantir (NYSE:PLTR), Snowflake (NYSE:SNOW) join the Russell 3000.
U.K. analysis shows COVID vaccines are effective against Delta variant.
Novavax (NASDAQ:NVAX) jab more than 90% effective in U.S. trial.
Oatly (NASDAQ:OTLY) stumbles as analyst ratings include some coolish views.
Citi still confident 10-year yield will hit 2% this year.
Uranium stocks slammed as China nuke plant leak hits sentiment.
Today’s Economic Calendar
FOMC meeting begins
8:30 Producer Price Index
8:30 Retail Sales
8:30 Empire State Mfg Survey
8:55 Redbook Chain Store Sales
9:15 Industrial Production
10:00 Business Inventories
10:00 NAHB Housing Market Index
1:00 PM Results of $24B, 20-Year Bond Auction
4:00 PM Treasury International Capital
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets leaned up, but were little changed. Japan and Malaysia were up; China and India were down. Europe, Africa and the Middle East are currently mostly up. Poland, the UAE, South Africa, Norway, Spain, Portugal and Austria are leading. Futures in the States point towards a flat open for the cash market.
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My interview with WorldClassPerformer.com
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The dollar is down slightly. Oil and copper are up. Gold is down; silver is up. Bonds are unchanged. Bitcoin is up.
Stories/News from Seeking Alpha…
Another infrastructure proposal
At a G7 summit over the weekend, President Biden pressed world leaders to take concrete steps to counter China’s rising influence and put a heavy focus on the path toward decarbonization. The result? A global infrastructure project called “Build Back Better for the World” that would kill two birds with one stone. It calls for spending $100B per year to help developing nations’ climate change transitions, while sticking to climate standards and labor practices.
Bigger picture: The plan would specifically create a “higher quality” alternative to China’s Belt and Road Initiative, which has been criticized for its leverage in creating political goodwill, massive debt and a way to spread Beijing’s influence. The new G7 plan, dubbed by some as the “Green Belt and Road” or the “Green Marshall Plan,” would be funded by multilateral development banks like the IMF and World Bank, as well as the private sector (think wind farms, railways and other low-carbon projects). The Biden administration also plans to work with Congress to increase U.S. contributions to the G7’s Development Financing Toolkit.
Quote: “As the G7, we are united in our vision for a cleaner, greener world. A solution to the problems of climate change,” said U.K. Prime Minister Boris Johnson, who chaired the conference. “I think that is what the peoples of our countries now want us to focus on… and that we’re building back better together.”
Response from China: “Those fanning confrontation are definitely on an ill-advised path… Ganging up, pursuing bloc politics and forming small cliques are unpopular and doomed to fail,” Chinese foreign ministry spokesman Wang Wenbin declared. “The days when global decisions were dictated by a small group of countries are long gone,” added a spokesman for the Chinese embassy in London. “We always believe that countries, big or small, strong or weak, poor or rich, are equals, and that world affairs should be handled through consultation by all countries.”
Other headlines at the G7 summit: Leaders vowed to phase out gas and diesel cars and shut down coal plants that do not apply emissions-capturing technology as soon as possible. They also promised to protect 30% of the planet’s land and oceans by 2030. On an interesting note, NATO, which includes many G7 nations, are set to agree on a climate action plan today that would make their armed forces carbon-neutral by 2050.
Extending gains
Traders are beginning the week with the Fed on their minds as the FOMC meets Tuesday and Wednesday to discuss policy monetary. An accompanying press conference from Jerome Powell is likely to reiterate that recent price increases will be “transitory,” though it will be interesting to watch if the concerns will have any effect on the central bank’s forecasts. Another area of note is quantitative easing, and if tapering talk even makes it into the conversation.
Bigger picture: Investors have so far shrugged off inflation concerns, with equities ending at highs last week despite the CPI expanding at a blistering 5% Y/Y in May. Stock futures inched higher overnight, with the Dow and S&P 500 up 0.1%, respectively, and the Nasdaq ahead by 0.3%. “Because the S&P 500 Index reached yet another new record high last week, investors will be watching to see if this signals even higher levels near term,” added Jim Paulsen, chief investment strategist at the Leuthold Group.
Another post-pandemic milestone was notched before the weekend, with more than 2M people passing through U.S. airport security checkpoints on Friday. That’s the first time screenings hit that figure since March 2020 and represents a big turnaround for the travel industry. While still losing money, airlines are recalling employees from voluntary leave and planning to hire small numbers of pilots later this year.
How will the meme trade fare this week? Usual suspects AMC (NYSE:AMC), BlackBerry (NYSE:BB) and GameStop (NYSE:GME) are all up in premarket trade, as well as newcomers Clover Health (NASDAQ:CLOV), Clean Energy Fuels (NASDAQ:CLNE) and GEO Group (NYSE:GEO). While sentiment changes quickly in the sector, WallStreetBets founder Jaime Rogozinski is defending the trade. “I mean what is market manipulation? You have people that are buying and you have people that are selling, right? If you have a fraudulent intent – if somebody goes up there and lies and says oh, BlackBerry has this new hologram cellphone that does whatever and it’s a lie, that is market manipulation. But people coming together and saying let’s just push this price to the moon and being really transparent and no defrauding taking place, that is absolutely what the market is.”
Elon & Bitcoin
Bitcoin (BTC-USD) is on the move again, soaring 10% above $39,000 over the past 24 hours, after Elon Musk confirmed Tesla (TSLA) would resume transactions using the cryptocurrency. The catch? The automaker will only restart customer payments once the crypto “is greener.” According to Musk, that will happen “when there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend.”
Backdrop: Tesla disclosed a purchase of $1.5B worth of Bitcoin in February and announced that it would begin accepting the crypto as a payment method for its products. Fast forward to May… Musk expressed concerns over how crypto mining contributes to climate change. While the topic is controversial and under intense scrutiny, Tesla subsequently stopped car purchases via Bitcoin and sold roughly 10% of its holdings. The move helped Tesla reduce its Q1 operating losses by $101M, though Musk said it was “to confirm BTC could be liquidated easily without moving market.”
Musk was responding to a comment made by Magda Wierzycka, a fellow South African billionaire and former CEO of financial services firm Sygnia. On a recent podcast called Money Show with Bruce Whitfield, she highlighted Elon’s outsized influence on Bitcoin prices, likening his tweets to “price manipulation.” Wierzycka even went as far as saying Musk knowingly pumped up prices, then “sold a big part of his exposure at the peak.”
Outlook: Last month, Michael Saylor, who heads up business analytics firm MicroStrategy (MSTR), said he met with Elon Musk and some of America’s largest Bitcoin miners to spearhead an effort on promoting “energy usage transparency and accelerate sustainability initiatives worldwide.” Dubbed the Bitcoin Mining Council, the effort would require participants to publish their renewable energy usage. Some are skeptical, however, with nearly 92% of Bitcoin mined outside the United States, including in countries like China, Russia, Kazakhstan and Iran.
1B vaccines
At the weekend G7 summit, world leaders also pledged 1B vaccines to developing countries over the next year, while backing U.S.-led calls for a probe into the origins of the pandemic and pressing China on human right reforms. The jabs would be distributed directly, or through COVAX, the global vaccine buying system backed by the World Health Organization and Gavi, the Vaccine Alliance. The U.S. will donate nearly half of the shots, with 500M doses of Pfizer’s (NYSE:PFE) vaccine set to be distributed internationally.
“Our values call on us to do everything that we can to vaccinate the world against COVID-19,” President Biden said of the decision. “It’s also in America’s self-interest. As long as the virus rages elsewhere, there’s a risk of new mutations that could threaten our people.”
By the numbers: Digging a little deeper into the vaccine figure, G7 officials included pledges that started back in February. So far, the countries have promised 613M truly new doses, according to Bloomberg, including some funded in part by previously announced aid.
Go deeper: In late May, the WHO urged wealthier countries to contribute more to COVAX and requested at least 1B excess doses by the end of 2021. The facility estimates that it will need 11B doses to vaccinate at least 70% of the world’s population, but has only shipped around 85M shots to date. Whether to waive vaccine patents, or whether it would increase production, was also a debate at the G7, and a similar dispute has played out across government and business in the U.S.
Change in Israel
It’s the end of an era for Israel’s longtime leader, Benjamin Netanyahu, who was replaced on Sunday by Naftali Bennett’s “change coalition.” Netanyahu has been at the helm for a record 12-year run, as well as a 3-year stint in the late 90s, making him the longest-serving Israeli prime minister in history. Also known by his nickname Bibi, Netanyahu has championed a free market economy, security issues and Israel’s diplomacy on the international stage, though many parties have increasingly felt isolated by his grip on power, pointing to divisive rhetoric, underhanded political tactics and ongoing corruption trials.
In order to form a ruling coalition, Israel’s parliament, or Knesset, requires a simple majority of the 120 available seats. The current “change government” is the most fragile in the country’s history, with 60 in favor and 59 opposed (with one abstention). Members of Knesset, otherwise known as MKs, can break ranks over hot-button issues, so this time around, even losing one seat could bring down the entire government. Making the matter worse, the razor-thin coalition is made up of eight parties that span the political spectrum (including an Arab party for the first time), that agree on little beyond their opposition to Netanyahu and another round of elections.
Who is Naftali Bennett? He heads up the right-wing Yamina party and has served as former Minister of Defense, Minister of Education and Minister of Diaspora Affairs (before a rift with Netanyahu). The 49-year-old also served as a commander in the elite IDF Sayeret Matkal and Maglan units, and comes from the tech sector, where he founded and sold anti-fraud software company Cyota for $145M in 2005. He later helped lead cyber software developer Soluto, which was sold for $130M in 2009, and some economists say the experience will help shape his economic policies.
“It gives him a close understanding of the tech world, which is very important for Israel’s economy,” said Daphna Aviram-Nitzan, Council Director of the Israeli Economic Association. “That means he understands the nation’s economic issues from first-hand experience, and that he has a deep understanding of the world of scientists and engineers. That will give him greater strength to push forward on Israel’s economic development.”
Fine print: Due to the fragility of the coalition, the “change government” will attempt to avoid delicate issues such as policy toward the Palestinians, and instead focus on domestic concerns. Those include the education system, lowering housing costs and cutting red tape for businesses, as well as a two-year budget that will help stabilize the country’s finances following the coronavirus pandemic. Under a rotational deal (if the coalition lasts that long), Bennett will be replaced by alternate prime minister Yair Lapid in 2023, a former television host who founded the Yesh Atid party (“There Is a Future”) a decade ago. “The government will work for all the Israeli public – religious, secular, ultra-Orthodox, Arab – without exception, as one,” Bennett said in a statement. “We will work together, out of partnership and national responsibility, and I believe we will succeed.”
What else is happening…
Here’s what to expect at the Fed meeting this week.
Shell (NYSE:RDS.A) weighs sale of holdings in largest U.S. oil field – reports.
Exxon (NYSE:XOM) shares beating Big Oil peers even after losing board fight.
Washington Prime (NYSE:WPG) files for Chapter 11.
Space interest… Virgin Orbit looks to go public via SPAC path.
Blue Origin (BORGN) auctions off seat on first spaceflight for $28M.
Bipartisan group unveils antitrust reform with Big Tech in crosshairs.
Rare cases of heart inflammation linked to all COVID-19 vaccines.
Qualcomm (NASDAQ:QCOM) would invest in ARM if Nvidia (NASDAQ:NVDA) deal falls apart.
Sector Watch: Watch out for the next ‘oil crisis.’
Today’s Economic Calendar
No event scheduled
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