Before the Open (Aug 2-6)

Good morning. Happy Friday.

The Asian/Pacific did poorly. China, Hong Kong, Taiwan and Indonesia were weak. Europe, Africa and the Middle East are currently mixed France, Italy, Austria and Saudi Arabia are up; Denmark, Turkey, Greece Russia and Sweden are down. Futures in the States point towards a flat open for the cash market.

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Masterclass Overview
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The dollar is up. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is up.

Stories/News from Seeking Alpha…

Eyeing payrolls progress

The Federal Reserve wants to see “substantial progress” in the economy before it makes any move towards removing accommodation. They haven’t specifically defined what that is, but they’ll know it when they see it.

But if Fed Chairman Jerome Powell has used his press conferences for anything, it’s to hammer home the point that he’s still very concerned about the labor market, one-half of the Fed’s dual mandate. “I’d say we have some ground to cover on the labor market side,” Powell said after July’s decision dropped. “I think we’re some ways away from having had substantial further progress toward the maximum employment goal.”

The July employment report arrives today at 8:30 a.m. ET, with economists, on average, looking for nonfarm payrolls to rise by 870K, compared with 850K in June. The jobless rate is seen dropping to 5.7% from 5.9%.

A very strong payrolls gain could lead to the Fed hinting at tapering as early as the Jackson Hole symposium this month, Jennifer Lee, senior economist at BMO says, although she is looking for a below-consensus gain of 775K. “As long as we continue to see over 500K or 600K every month, steady gains, cutting away at those losses… that to me would be ‘steady progress,’” Lee said on Bloomberg.

Anybody’s guess: Looking more closely at payrolls expectations, it’s clear that once again Wall Street is all over the map. Forecasts range from up 350K to up 1.6M, according to Reuters.

Data points this week have been mixed. Jobless claims, while not part of the survey period, are trending in a direction that points to an improving labor market, falling to 385K, but ADP’s measure of private sector payrolls came in at a relatively anemic 330K, less than half of what was expected.

In the more bearish camp, BofA Securities is looking for a 750K rise in payrolls, which it says reflects the “relatively softer high frequency data.” “Since the July employment week, the Homebase data continue to suggest labor market conditions are softening,” BofA economist Stephen Juneau writes in a note. ”Indeed, the employees working index averaged -16.3% during the week ending August 1, nearly 1.8% below the prior week’s reading.”

“It’s likely this gets revised up but it appears that small business employment growth is slowing despite more and more states opting out of unemployment benefits and overall robust demand,” Juneau says.

“The end of the month, UKG (Ultimate Kronos Group) data suggest that shift work employment actually declined in July,” he adds. “Indeed, the series shows a 0.6% drop from June. We think this drop could be partially seasonal as it may reflect summer production slowdowns.” “Additionally, UKG found that the decision of states to opt out of unemployment insurance benefits did not yield faster employment growth in an analysis of their data. This is consistent with what we’ve seen in the claims data.”

Jefferies Chief Economist Aneta Markowska is much more bullish, calling for a rise in payrolls “well above” 1M and closer to 1.5M, citing expiring UI benefits and seasonal factors. “Aggregating claims based on program expiration dates shows that the most meaningful declines occurred in the second and third weeks after the last enhanced UI payments,” she writes in a note. “This implies a sizable NFP increase in July and even larger gains in Sep/Oct.”

Will substantial progress stymie stocks? All things being equal, recovery in the labor market toward pre-pandemic levels should be bullish for equities, further boosting the potential for earnings growth. But with the historic amount of Fed easing involved, the stock market could be back to a good-news-is-bad-news scenario.

“A stronger than expected number is likely to encourage additional members of the Committee to make a hawkish pivot, raising the chances of a taper sooner than the market expects,” Caxton senior analyst Michael Brown writes. “As such, good news on the economy is likely to be bad news for risk assets in the aftermath of the report.”

Fed speakers this week have floated the idea that the FOMC could be ready to start tapering in September. “There’s no reason you’d want to go slow on the tapering to prolong this. You want to get it done and get it over with,” Fed Governor Christopher Waller says. Tapering would likely push Treasury yields higher, removing a key reason for the path of least resistance for stocks still being up and to the right, even at record levels.

This week, Citi downgraded U.S. equities to Neutral, calling for the 10-year Treasury yield (NYSEARCA:TBT) (NASDAQ:TLT) to rise to 2%, with a 70 basis-point rise in real yields, which are now at record lows. Global equity strategist Robert Buckland writes that Citi’s rate strategists “attribute much of the move to technical factors. Most notably, U.S. treasury issuance has dropped over the summer, but will rise again later in the year. They think that this, along with ongoing economic recovery and likely QE tapering, will push 10-year bond yields back towards 2.0%.”

Goldman Sachs just boosted its 2021 target for the S&P 500 (SP500) (NYSEARCA:SPY) to 4,700 from 4,300 in part due to the lower-than-expected rates. But strategist David Kostin says that rates above 1.6% would cut fair value back down to 4,350, below current levels.

Robinhood reverse

Robinhood Markets (NASDAQ:HOOD) stock slid 28% yesterday, backtracking from its 50% climb on Wednesday.

Late Wednesday night, Robinhood filed to register almost 100M of shares that some of its pre-IPO investors may sell from time to time. That sent the shares on a downward trajectory. While the stock fell in the first session after the IPO, it closed at $70.39 on Wednesday, 85% above its $38 IPO price, as retail investors piled in, bringing it to meme-stock status.

Amazon worker return

In what may be the biggest sign of corporate America’s concerns about the recent spike in COVID-19 cases, Amazon (NASDAQ:AMZN) has put off plans for employees to return to the office until 2022. According to an initial report in the Seattle Times, Amazon told its technology and office staff to continue to work from home until at least Jan. 3 of next year.

“As we continue to closely watch conditions related to COVID-19, we are adjusting our guidance for corporate employees in the U.S. and other countries where we had previously anticipated our employees would begin coming regularly in the week of Sept. 7,” the company said in a statement provided to Seeking Alpha. “We are now extending this date to Jan. 3, 2022.”

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iPhone scanning

Apple (NASDAQ:AAPL) is said to be about to debut a new software feature that will be able to scan and detect child abuse images on the iPhones of Americans.

According to a report in the Financial Times, the features will use an algorithm that will scan photos on a person’s iPhone, and which have been uploaded to their iCloud account, to look for images that are on the national database of known images of child sex abuse. The images would be flagged and reported to law enforcement authorities if there is a match with those photos in the national database.

The company has used such technology, called “hashing” for photos loaded up to iCloud, but it is believed that this would be the first time Apple would employ hashing directly on users’ iPhones.

M&A anxiety

Spreads of major deals such as AMD’s (NASDAQ:AMD) purchase of Xilinx (NASDAQ:XLNX) and Analog Devices (NASDAQ:ADI) acquisition of Maxim Integrated (NASDAQ:MXIM) narrowed after hitting some of the widest levels ever since the deals were announced.

“I’ve never seen anything like it,” Roy Behren, managing member and portfolio manager at Westchester Capital, said in an interview with Seeking Alpha. “Maybe in March of 2020 with the COVID, other than that, you can tell people are just selling out of positions.”

Behren attributes the recent widening in deal spreads to Aon (NYSE:AON) and Willis Towers Watson’s (NASDAQ:WLTW) decision to terminate their deal last week, which caught risk arb investors by surprise.

Ethereum pops

Ethereum (ETH-USD) rallied as the cryptocurrency’s London hard fork activated yesterday, upgrading the blockchain technology.

The most important part of the change is EIP 1559, a fee reduction feature, Ethereum inventor Vitalik Buterin told Bloomberg News in an interview. The hard fork is “proof that the Ethereum ecosystem is able to make significant changes,” he said.

Today’s Economic Calendar
8:30 Non-farm payrolls
10:00 Wholesale Inventories (Preliminary)
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit

Companies reporting earnings today »

What else is happening…

Novavax (NASDAQ:NVAX) slides after delaying FDA submission for Covid vaccine.

Cloudflare (NYSE:NET) stock pulls back after wider loss forecasts.

Vaxart (NASDAQ:VXRT) again touts benefits of its oral tablet vaccines over viral vector-based ones.

Plug Power (NASDAQ:PLUG) raises full-year gross bookings guidance to $500M.

Cigna shares (NYSE:CI) drop 11% on disappointing Q2 results, dragging down other insurers too.

Check out the ETF (NYSEARCA:KRBN) that returned over 75% and amassed $500M in AUM in its first trading year.

FireEye (NASDAQ:FEYE) stock slides after soft Q2 results following products divestment.

NIKE (NYSE:NKE) CEO: E-commerce business hasn’t slowed since post-COVID reopening.

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Good morning. Happy Thursday.

The Asian/Pacific leaned down. Indonesia did well, but China, Hong Kong, Thailand and the Philippines were weak. Europe, Africa and the Middle East currently lean up. Denmark, France, Turkey, Greece and the Netherlands are up. Futures in the States point towards a positive open for the cash market.

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Masterclass Overview
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The dollar is down slightly. Oil is up; copper is down. Gold is down; silver is up. Bonds are up slightly. Bitcoin is down.

Stories/News from Seeking Alpha…

Robinhood in green

Have you heard the latest joke on Wall Street? “Would investors buy Robinhood shares after a disastrous IPO? Yes, they Sherwood.”

Robinhood Markets (NASDAQ:HOOD) surged 50% yesterday, adding to a big rally the previous day. Shares are down 5% in premarket trading. The stock is now up more than 85% from where it opened on its first day of trading and more than 100% higher from where it closed that day when the IPO broke.

In a storyline worthy of Mary Shelley, the creator has become the target of its creation, although its doubtful insiders are complaining. HOOD is the most-mentioned stock on WallStreetBets, according to Quiver Quantitative. The rally is reminiscent of moves in GameStop (NYSE:GME) and AMC (NYSE:AMC), both of which are on losing streaks since HOOD came to market, leading to some speculation that retail investors are rotating cash from those names. But options experts say the trade in Robinhood stock is different from other meme rallies.

Puts outweighing calls: Like previous retail-driven rallies, the surge in HOOD has been supported by deep-out-of-the-money call buying. The biggest volume of any option was for $70 calls. But that doesn’t necessarily mean a gamma squeeze is in effect, like the original GameStop move. Gamma squeezes occur as the writers, or sellers, of call options buy the underlying stock as a hedge, increasing demand for shares and pushing the price higher. While the $70 call was the most popular single option, bearish puts overall had more volume, Christopher Murphy, co-head of derivatives strategy as Susquehanna, said. The biggest plays were August 20 $30 and $20 puts, Murphy said. “All of it appears to be small lots, but that doesn’t necessarily mean it’s all retail,” he wrote, according to Barron’s. “Because the options are so thin and the volatility is so high, it makes sense all the trading (whether institutional or retail) would be in small lots.” Another sign the rally may stall is that the 10-day moving average of call volume is on a downward trend, according to Bloomberg. And the 10-day average of shares traded on all exchanges is at its lowest level since November.

What next for the stock? Two big names have stepped to the sidelines after yesterday’s big run-up in HOOD. Cathie Wood’s ARK Investment Management was an early fan of Robinhood and bought on the dip as it went public and steadily increased holdings to more than 3M shares for three funds, including the flagship ARK Innovation ETF (NYSEARCA:ARKK). But ARK didn’t accumulate any shares during yesterday’s trading, according to its daily trading statement. Jim Cramer said the stock could be “bought here” on his “Mad Money” show Monday night. But he’s advising locking in some gains.

“Meme stocks are easy money on the way up. But as we’ve seen with GameStop and AMC of late, you have to take profits while you still have them by selling gradually on the way up,” Cramer said last night. “It doesn’t matter how much you love (Robinhood), discipline always trumps conviction, and discipline says you need to take something off the table when you’ve got an 80% gain in two days.” What could separate Robinhood from GameStop, AMC and other WallStreetBets favorites is that it can be a proxy for retail trading for the broader market.

If funds believe that retail enthusiasm is here to stay, they will likely be bullish on HOOD and the potential for higher trading volumes.

Roku tumbles

Roku (NASDAQ:ROKU) slid in extended-hours trading following the company posting second-quarter earnings where revenue easily beat consensus estimates, but active account growth fell short of analysts’ expectations.

Revenue rose 81% overall to $645.1 million, with platform revenues more than doubling to $532.3 million from $244.8 million a year ago.

Platform gross profit rose 149% as well, to $345 million. Platform gross margin rose 820 basis points to 64.8%, and while player gross margin fell 1,350 basis points (to -5.9%), overall gross margin still rose 1,120 basis points to 52.4%. But active accounts grew just 28% to 55.1 million, against expectations that the company would have at least 55.8 million such accounts. Streaming hours in the quarter rose 19%, to 17.4 billion.

Roku has defined an active account as one that has streamed content in the last 30 days. That single account could also include streaming on multiple devices in a household and average revenue per user rose 46% to $36.46.

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Return of Zoom

Zoom Video Communications (NASDAQ:ZM) shares climbed almost 7% Wednesday as the company that has become synonymous with remote meetings and gatherings appeared to benefit from the possibility that many businesses will continue to push back plans for workers to return to the office.

As new cases of COVID continued to rise, along with talk of implementing indoor mask mandates in more areas around the United States, companies with ties to conventions, conferences and business and leisure travel, took hits during the day’s stock market session. On Wednesday, the New York Auto Show was canceled, and brokerage Deutsche Bank said it would move a planned conference online.

Several leading tech companies such as Google (NASDAQ:GOOG), Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) have retreated on plans to have employees back in the office full-time in September and have postponed such plans until October. Some companies, such as Facebook and Google are making Covid vaccinations mandatory for their workers when they do return to company facilities.

Travel trouble

Travel stocks were broadly lower again on anxiety that the full recovery timeline for leisure and business travel is getting pushed back due to COVID restrictions in hotspot areas.

Lodging and airline stocks finished broadly lower in Wednesday’s trading, but investors may be getting ahead of the data as the last tracking by BofA showed strong travel spending is still trending.

Weber IPO

Popular grill maker Weber (WEBR) priced its IPO at $14 a share, below its expected range of $15-$17. The company also downsized its IPO, selling a little fewer than 18M shares, rather than the almost-47M it originally intended to sell.

Weber wrote in its S-1 last week that it expected to net some $712.5M from the IPO if the offering prices at a midpoint $16 a share. Weber disclosed the 69-year-old company is profitable, with revenues expanding at about a 10% compound annual growth rate since 1980. Shares are expected to begin trading today on the NYSE under the ticker “WEBR.”

Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Goods and Services Trade
10:00 Fed’s Waller: “Central Bank Digital Currency”
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet

Companies reporting earnings today »

What else is happening…

Uber (NYSE:UBER) stock slides after Q2 driver costs offset ride-share recovery.

Lemonade (NYSE:LMND) stock falls 9% after Q2 loss matches estimate; no date on car insurance.

Fastly (NYSE:FSLY) stock plunges 19% after outage sinks forecasts.

Nvidia (NASDAQ:NVDA) stock gains after Rosenblatt price target boost.

Fiverr International (NYSE:FVRR) EPS beats by $0.05, beats on revenue.

Etsy (NASDAQ:ETSY) slides after pandemic letdown quarter sees growth decelerate.

WarnerMedia’s (NYSE:T) Zucker to stay put at least until Discovery (NASDAQ:DISCA) merger.

Petrobras (NYSE:PBR) pushes to big Q2 profit, approves early dividend payment.

Ethan Allen (NYSE:ETH) changes symbol to avoid Ethereum confusion.

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Good morning. Happy Wednesday.

The Asian/Pacific closed mostly up. China, Hong Kong, South Korea, India, New Zealand and Singapore did well; Japan and Malaysia closed down. Europe, Africa and the Middle East lean up, but overall movement is minimal. Poland, Turkey, Germany, Norway, Hungary and the Netherlands are leading. Futures in the States point towards a moderate gap down open for the cash market.

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Masterclass Overview
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The dollar is down. Oil and copper are down. Gold and silver are up. Bonds are up. Bitcoin is up.

Stories/News from Seeking Alpha…

Rising COVID restrictions

Companies are taking the lead in adopting mask and vaccine requirements as COVID Delta cases grow and equities remain resilient. A host of headlines about new policies and restrictions hit yesterday, including New York City requiring proof of vaccination for entry to restaurants, gyms and leisure events. But again, most moves came from private companies.

Tyson Foods will require its workforce to be vaccinated, JPMorgan (JPM) is re-evaluating its back-to-the-office policies and Microsoft (MSFT) is requiring vaccinations for its returning workforce. In addition, Google parent Alphabet (GOOG, GOOGL) has approved 85% of employee requests to work from home or relocate once its offices open, Bloomberg reports.

Amid all those moves, Wall Street put together a rally from midday into the close, with recovery sectors leading the way. All the major averages ended higher, with the S&P 500 (NYSEARCA:SPY), Dow (NYSEARCA:DIA) leading the Nasdaq (NASDAQ:COMP.IND). Strength in cyclicals, which would be the hardest hit on worries about a stalled economic reopening, could indicate that investors feel the economy can weather moves to stem the spread of the Delta variant. That would be in contrast to last month, when the Delta spread was a major reason for sell-side strategists to hesitate on new allocations, according to BofA.

Looking for the peak: Thomas Lee of Fundstrat Global Advisors argues the company and locality moves will help by driving up vaccination rates. “Policymaker panic about Delta variant is triggering a vaccination resurgence = good,” Lee writes in a note. “The positive upshot of a panic by policymakers is that more Americans are getting vaccinated. The rise in vaccinations is most evident in states hit hardest by this recent Delta variant. Policymakers panic = good, businesses respond by pushing/mandating masks = good, businesses respond by pushing/requiring vaccinations = good, Americans witness COVID-19 severe illness and get vaccinated = good.” Fundstrat’s base case is that the Delta variant surge in the U.S. will peak in August, which it says should encourage investors.

“Given August is already a poor liquidity month, a buyers’ strike makes markets more turbulent,” Lee says. “But if our base case plays out, August will ultimately be a ‘risk on’ month and we will chop higher. Thus, the July chop will continue into August, but with an upward bias.”

If “the Delta variant does not peak in the next few weeks (as is somewhat expected) then the chances of lockdowns will rise, and that will potentially impact earnings,” Kinsale Trading writes. They point investors to today’s ISM Services numbers, out at 10 a.m. ET, where the index is expected to tick up slightly in July from June. If “the Delta variant is causing any sort of headwind on the economy, it’ll show up in the service sector PMI first, as people pullback on eating out, etc,” Kinsale says.

Wells Fargo says it does not think the Delta variant will be a “game changer” for the U.S. economy and sticks with its portfolio recommendation to favor cyclicals, especially Industrials (NYSEARCA:XLI) and Materials (NYSEARCA:XLB).

Best beats ever

Analysts now expect earnings for S&P 500 (SP500) (NYSEARCA:SPY) companies to be up 90%, up from 65.4% at the start of July, Reuters reports, citing Refinitiv data. And 89% of reports have beaten profit forecasts, the highest ever based on data going back to 1994.

“As we enter the second half of the year, we believe companies will continue to build on the earnings recovery displayed in recent quarters, as more areas of the economy adapt and get closer to normal levels of activity throughout the year,” BMO strategist Brian Belski says. Six weeks ago, analysts were predicting Q2 S&P 500 earnings of $44.59 per share, but they are now up to $50 and on track to hit $51, according to DataTrek Research. That leaves room for more upside revisions, as analysts are “still being overly cautious” as revenue will continue to grow in the second half of this year and 2022 barring an “exogenous shock,” DataTrek says.

Softlines Strength: An expert call on U.S. softlines retailers is giving UBS some confidence that the back-to-school shopping season is reading out “very strong,” offering a bullish catalyst for several stocks. A call with a former chief merchant from a large department store suggests that with some parts of the country ramping up for the school year, sales growth rates are robust and margins are likely to surprise to the upside as well.

For most of the retailers, Q2 has been strong, and they’ve been able to maintain growth rates (vs. 2019) very close to what they saw in the first quarter. And July sales give a good back-to-school read for the earliest school starters (and sales have been good in those areas). Signs suggest back-to-school shopping started early as well. “With inventory levels low, shoppers have realized they need to buy sooner in order to get the goods they want,” analysts Jay Sole and Mauricio Serna write. “Categories such as athletic footwear, apparel, backpacks, and dorm items are all selling very well.”

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Robinhood rally

Robinhood Markets (NASDAQ:HOOD) soared nearly 25% to a post-IPO record high Tuesday as the popular investing app’s shares rose for a third straight session following their weak premiere last week on Wall Street. HOOD rose to as high as $48.59 a share Tuesday before pulling back to end at $46.80, up 24.2% on the day. The rally took shares above their $38 IPO price for the first time since a brief pop on the stock’s first trading day last week.

Robinhood rose on heavy volume of 86.9M shares, exceeding the 55M shares the stock sold through its initial public offering. HOOD was rallying on little apparent news other than positive comments Monday night from CNBC’s Jim Cramer on his widely watched Mad Money show.

“I’m telling you that Robinhood can be bought here,” the market maven said. HOOD has been rebounding ever since the stock fell 8.4% in its first trading session last Thursday. The decline represented a big disappointment for the company, whose IPO was priced at the bottom of its expected $38-$42/share range even though it had been expected to take Wall Street by storm.

Lyft: The reopening of the economy proved to be a boon for Lyft (NASDAQ:LYFT), as the company reported second-quarter revenue that topped expectations as consumers flocked back to its ride-sharing services. The company also said it reached another milestone in the quarter by reporting adjusted earnings for the first time, and ahead of schedule. Lyft said EBITDA came in at $23.8 million, compared to a loss of $280.3 million a year ago. Lyft said revenue for the three months ending June 30 reached $765 million – more than double the $339 million the company reported in the year-ago period – and above analysts’ forecasts of almost $701 million.

Another sign of the company’s recovery could be found in its revenue-per-active rider, which came in at $44.63, compared with $39.06 a year ago, suggesting that riders were taking more and longer rides. Active riders also reached 17.1 million, or nearly twice that in last year’s second quarter, and up from the 13.5 million active riders Lyft reported for the first three months of 2021.

Tutor stocks rebound

Chinese tutoring stocks including TAL Education (NYSE:TAL) gained, possibly on reports that China is ordering mass testing in Wuhan due to a COVID outbreak.

China suspended flights and trains, canceled professional basketball and announced coronavirus testing in Wuhan earlier on widening outbreak of the Delta variant, according to an AP report.

The online tutoring companies may potentially benefit if there are coronavirus-related school closures that force students to go online, a topic that posters were discussing on Stocktwits. The positive moves for the stocks come after the shares have plummeted in recent weeks after China said it would ban for-profit after-school tutoring companies.

Earlier this week, TAL and New Oriental announced they would cancel their earnings releases amid the regulatory developments.

Today’s Economic Calendar
Auto Sales
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 PMI Composite Final
10:00 ISM Service Index
10:00 Fed’s Clarida: U.S. Economic Outlook and Monetary Policy
10:30 EIA Petroleum Inventories

Companies reporting earnings today »

What else is happening…

Occidental (NYSE:OXY) crushes adjusted earnings estimates as oil prices, volumes rise.

Toyota Motor (NYSE:TM) Q1 revenue and earnings beat estimates.

Activision Blizzard (NASDAQ:ATVI) rises 3% on Q2 beat-and-raise.

Amgen (NASDAQ:AMGN) lowers 2021 earnings guidance despite revenue beat.

Lockheed (NYSE:LMT) cuts $4.9B in pension liabilities; CFO Possenriede to retire.

Honda Motor (NYSE:HMC) beats on revenue and earnings, FY22 outlook raised.

Alteryx (NYSE:AYX) stock slumps after lower than expected guidance.

Molson Coors (NYSE:TAP) discontinues Milwaukee’s Best Premium and ten other beer brands in streamlining push.

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Good morning. Happy Tuesday.

The Asian/Pacific leaned up. South Korea, India, Indonesia, Thailand and the Philippines did well; Japan and China posted losses. Europe, Africa and the Middle East lean up, but overall movement is minimal. France, Hungary, Spain and Portugal are up; Israel is down. Futures in the States point towards a positive open for the cash market.

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Masterclass Overview
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The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are unchanged. Bitcoin is down.

Stories/News from Seeking Alpha…

Ready for takeoff

Air travel continues to return with a vengeance as many look to take a long due summer vacation or see family for the first time in more than a year. Another high mark was set on Sunday despite a renewed threat from rising coronavirus case numbers fueled by the Delta variant. More than 2.2M people went through airport checkpoints nationwide, according to the Transportation Security Administration, notching the highest number since Feb. 28, 2020.

Thought bubble: Not only does the U.S. have a strong vaccination rate (it just reached 70% of all adults), but the country also has a strong domestic market. Contrast that to nations that rely more on international travel, or require digital health passes or negative PCR tests to board a plane. For the broader market, airline industry executives are relying on the easing of travel restrictions for things to snap back and some say consolidation may be in the cards post-pandemic as carriers look to shore up their balance sheets.

Meanwhile, the resurgence of travel, coupled with bad weather, has led to delays and flight cancellations. Airlines are struggling to rebuild networks and have been caught short-staffed after urging employees to take buyouts or leaves of absence to cut labor costs during the pandemic (they still received $54B in taxpayer money). Sen. Maria Cantwell (D-Wash), chair of the Senate Commerce Committee, is even questioning airlines to explain the high numbers of flight delays and cancellations.

Case in point: American Airlines (NASDAQ:AAL) scrapped hundreds of flights on Monday following disruptions caused by severe thunderstorms that swept through its Dallas/Fort Worth International hub. Florida-based discount carrier Spirit Airlines (NYSE:SAVE) additionally canceled about one-third of its flights and is “working around the clock to get back on track.” At least 40% of Southwest (NYSE:LUV) and Spirit flights were also delayed on Sunday, which created long lines at ticket counters at Orlando International Airport.

‘Spiritual opium’

Thought the Chinese crackdowns were over? Guess again. The online gaming sector might be the next target in Beijing’s crosshairs after a strongly worded article from an affiliate of the state-backed Xinhua newspaper took aim at the industry. Phrases like “spiritual opium” and “electronic drugs” were referenced in the since deleted post by Economic Information Daily, though the story remains available in the print version. The article also flagged “widespread gaming addiction” among children, which could “negatively impact their growth.”

Market movement: The news sent tremors through the gaming arena, with shares of Tencent (OTCPK:TCEHY) tumbling as much as 11% in Hong Kong and wiping nearly $60B off its market capitalization. A steep selloff was also seen at gaming companies NetEase (NASDAQ:NTES) and XD Inc. (OTCPK:XDNCF). Tencent went on to pledge limits on play time for minors – to just an hour during weekdays and no more than two hours during vacations and holidays – as well as forbidding in-game purchases (and a possible total ban) for kids under the age of 12.

“You can never pay too little attention to any Xinhua story,” said DZT Research analyst Ke Yan. “The word choice of spiritual opium is especially harsh, it would be surprising if the regulators won’t do anything about this.”

Flashback: While Beijing has come down hard in recent weeks on e-commerce, ride-hailing and online education industries, gaming has been in its sights for quite some time. In 2018, China froze new game approvals for ten months, costing Tencent more than $1B in lost sales and a slump in its share price. In 2019, China also brought in rules that banned those under 18 years from playing online games, and last month it installed facial recognition systems for certain titles to prevent kids from using their parents’ IDs for in-game purchases.

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Delta shadows

Investors are still sizing up recent developments surrounding the Delta variant, with the S&P 500 ending lower on Monday amid concerns over a slowing U.S. economic recovery. While stock futures turned higher overnight, things were also looking positive heading into Monday’s session. At the time of writing, Dow and S&P 500 futures were ahead by 0.4%, while contracts linked to the Nasdaq pointed 0.2% higher.

Quote: “Delta is now rapidly spreading in the U.S. and a modest pullback in activity can’t be ruled out,” said Solita Marcelli, CIO Americas at UBS. “But any potential slowdown should be somewhat muted.”

Growth worries also prompted a drop in Treasury yields on Monday, with the benchmark 10-year Treasury note sinking as much as 8 basis points to 1.15%. Fresh data further showed that the U.S. manufacturing sector expanded at a slower pace than a month ago, hitting economically sensitive stocks like materials and industrials, while inflation is running at 30-year highs, according to the Fed’s preferred gauge.

Elsewhere: Earnings season continues today with Q2 results from Alibaba (BABA), Amgen (AMGN), Eli Lilly (LLY), Lyft (LYFT) and Under Armour (UAA). The Treasury Department has also begun conducting emergency cash-conservation steps to avoid busting through the federal borrowing limit. A two-year suspension of the debt ceiling expired at the end of July and the measures will permit Treasury to pay off government bills without floating new debt for two to three months.

Stay flexible

Scores of U.S. companies were planning to return their workforces to the office (if they hadn’t already) by the end of the summer, but a surge in COVID cases and ever-changing guidelines is throwing those plans into jeopardy. The seven-day rolling average of new U.S. infections is hovering around 80,000 per day, up nearly 150% from two weeks ago. Workers are also trying to assess new research about how easily the Delta variant can be transmitted or the possibility of breakthrough infections (Senator Lindsey Graham just disclosed a case in Congress).

Glassdoor survey: Of more than 1,000 working adults polled in early July, 35% said they were worried about contracting COVID-19 when returning to the office. About two-thirds said they were still excited to return, but that was down from an April survey in which nearly three-quarters of people said they wanted to go back to the office. Some vaccinated employees are also unhappy about having to wear masks at work full-time and the Slack channel doesn’t stop pinging over vaccine mandates.

“Instead of making sweeping declarations about how you’re definitely doing things in the fall, start small and experimental and try things to see what works,” said Rita King, who advises senior leaders of Fortune 500 companies. “It may turn out that people feel very uncomfortable being masked indoors with each other all day and they don’t want to keep doing it, in which case you have data from your experiment.”

Outlook: Starting tomorrow, Facebook (NASDAQ:FB) will require all of its employees to wear masks when on its campuses in the U.S., regardless of vaccination status. A string of other high-profile tech companies have also modified their plans. Apple (AAPL) and Google (GOOG, GOOGL) postponed the return to the office until October at the earliest after briefly reopening their campuses in recent weeks.

Today’s Economic Calendar
Auto Sales
8:55 Redbook Chain Store Sales
10:00 Factory Orders
2:00 PM Fed’s Bowman Speech

Companies reporting earnings today »

What else is happening…

Alibaba (NYSE:BABA) earnings preview: E-commerce offsets regulatory risks.

mRNA boost… Sanofi (NASDAQ:SNY) buys Translate Bio (NASDAQ:TBIO) for $3.2B.

Request filed to extend U.S. tariffs on solar panel imports.

Earnings…. BP (NYSE:BP) raises dividend and confirms share buybacks.

AT&T (NYSE:T) closes spinout of DirecTV, video services units.

General Electric (NYSE:GE) stock above $100 as reverse split takes effect.

Affirm CEO: Square’s (NYSE:SQ) Afterpay deal validates the entire industry.

Simon Property (NYSE:SPG) climbs after Q2 earnings beat, lifts 2021 guidance.

Qualcomm (NASDAQ:QCOM) dips as Google to use own chips in new Pixel phones.

Philip Morris (NYSE:PM) buying Altria (NYSE:MO): Morgan Stanley sees possibility.

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Good morning. Happy Monday. Hope you had a good weekend.

The Asian/Pacific markets posted solid gains. Japan, China, Hong Kong, South Korea, India, New Zealand, Taiwan, Australia and the Philippines did great. Europe, Africa and the Middle East are currently mostly up. The UK, France, Turkey, Russia, Greece, Spain, the Netherlands, Portugal, Israel, Austria, Saudi Arabia and the Czech Republic are leading. Futures in the States point towards a moderate gap up open for the cash market.

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Masterclass Overview
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The dollar is down. Oil is down; copper is up. Gold and silver are down. Bonds are up. Bitcoin is down.

Stories/News from Seeking Alpha…

Debt drama

Infrastructure week

Senators were back on Capitol Hill on Sunday as a bipartisan group of lawmakers put the finishing touches on a $1T infrastructure package. Touting the long-term economic benefits of the bill, key Democratic Senator Joe Manchin said the 2,702-page measure was likely to pass before the end of the week and would “keep us going for five to 10 years.” The plan is one of President Biden’s top legislative priorities and would be the largest investment in U.S. roads, bridges, ports and transit in decades.

What’s in it? The Infrastructure Investment and Jobs Act includes $550B in new spending over five years, on top of $450B in previously approved funds. $110B would be allocated for roads and bridges, $66B for rail, $55B for water and wastewater infrastructure and $39B for public transit. There’s also money for ports, high-speed broadband internet, replacing lead water pipes and building a network of electric vehicle charging stations.

Senators have clashed over how to pay for the package after ideas like raising revenue from a new gas tax were rejected. Current thought is to finance some of the bill through $205B in untapped COVID-19 relief aid, as well as unemployment assistance that was turned back by some states, but those sources might not pass muster with deficit hawks. The Senate could also impose changes that potentially complicate its chances of becoming law, like paying for the bill via tax hikes on corporations and wealthy Americans earning more than $400K per year.

Outlook: GOP Senator Susan Collins believes that at least 10 Republican senators will support the measure, enabling it to clear a 60-vote procedural hurdle. However, the bill would still need to get through the House of Representatives, where some Democratic progressives have suggested that the $1T price tag is inadequate. Democrats also aim to pass the bill alongside a second multi-trillion dollar package on “human infrastructure,” though Biden has confirmed that the “physical infrastructure” proposal would not be dependent on that initiative.

No more lockdowns

The first trading day of August is opening with renewed excitement as U.S. stock index futures begin the month ahead by 0.6%. The major averages already managed to log their sixth month of gains in July, though volatility increased over worries about the rapidly spreading Delta variant. Progress on a massive U.S. infrastructure proposal also boosted sentiment, while concerns eased over China’s recent regulatory crackdown.

Some caution: “Shares remain at risk of a short-term correction or volatility as coronavirus cases rise globally, the inflation scare continues and as we come into seasonally weaker months, but surging company profits in the U.S. and lower bond yields are providing support,” said Shane Oliver, head of investment strategy and chief economist at AMP Capital.

Over the weekend, Dr. Anthony Fauci said the U.S. will not lock down again to curb COVID-19 but “things are going to get worse” as Delta fuels a surge in cases. “I think we have enough of the percentage of [vaccinated] people in the country – not enough to crush the outbreak – but I believe enough to not allow us to get into the situation we were in last winter.” New coronavirus infections have increased five-fold from just a month ago, with states like Florida recording its highest case numbers for the entire pandemic.

On the economic calendar: The core personal consumption expenditure index, an inflation gauge that Federal Reserve officials keep a close eye on, increased 3.5% Y/Y in June, its fastest rate since 1991. But don’t expect the central bank to take any action soon, with Fed Chair Jerome Powell saying he isn’t going to change course on one month’s data. Meanwhile, earnings season continues this week with results from Alibaba (BABA), General Motors (GM), Kraft Heinz (KHC) and Roku (ROKU). Of the 59% of S&P 500 companies that have reported for the second quarter, 88% have beaten consensus earnings expectations, according to FactSet.

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‘Buy now, pay later’

The payments industry is on fire as fintech companies continue to challenge banks and credit card companies by expanding into the space. A weekend deal saw Square (SQ) scoop up Australia’s Afterpay (OTCPK:AFTPF) in an all-stock transaction valued at $29B as younger buyers eschew traditional credit for installment loans. The tie-up will be integrated within Square’s existing Seller and Cash App and give “buy now, pay later” capabilities to its payments platform.

Quote: “Square and Afterpay have a shared purpose,” Square CEO Jack Dorsey said in a statement. “We built our business to make the financial system more fair, accessible, and inclusive, and Afterpay has built a trusted brand aligned with those principles.”

Following completion of the transaction, Afterpay holders are expected to own approximately 18.5% of the combined company on a fully diluted basis. Afterpay’s technology allows customers to pay for goods in interest-free installments while receiving the goods immediately. Users only pay a fee if they miss an automated payment, which also locks their account until the balance is repaid.

Flashback: Last month, Bloomberg reported that Apple (AAPL) was developing a new service – in partnership with Goldman Sachs (GS) – that would allow consumers to pay for Apple Pay purchases in installments. While the company already offers monthly installment payments through the Apple Card, the new service would allow users to choose any credit card to make their purchases over time. It would also put the tech giant in direct competition with Affirm Holdings (AFRM) and PayPal (PYPL) for “buy now, pay later” options.

What’s next for the housing market?

A tsunami of deferred debt is about to hit homeowners after a national foreclosure moratorium expired on Saturday. According to the Washington Post, 1.8M homeowners are delinquent on their mortgage as the safety net was removed, with around a fifth of them not able to extend their forbearance past September. 1.5M more are at least three months behind on their mortgage without the protection of a forbearance plan.

Bigger picture: Congress has approved $10B in federal assistance to help homeowners pay off debt, but the program is moving so slowly that protections may expire before states figure out how to dispense the money. On July 23, the White House announced that many homeowners with federally backed mortgages may be eligible for a reduction in their monthly mortgage payment, though individuals who are still in forbearance may be evicted or displaced if selling is the only option. An estimated 1 in 10 borrowers in forbearance will not even have enough equity to sell.

Renters are also in the mix: The eviction moratorium put in place under the Trump administration during the onset of the pandemic aimed to shield tenants who missed monthly rent payments from being forced out of their homes (they still owe back rent). It was originally set to expire on Dec. 31, 2020, but Congress stretched the order until late January, and it was then extended several more times under the Biden administration. While the moratorium has protected millions of tenants, it has also resulted in financial hardships for landlords. Property owners, which say they are losing $13B a month in unpaid rent, are still liable for taxes, insurance and maintenance costs tied to their real estate.

New supply on the market? Housing prices have only continued to escalate in 2021, driven by historically low interest rates, savings accumulated during lockdowns and a desire for more space as people work from home. That has triggered increased demand, while supply has lagged due to material prices and labor shortages. In fact, the price of the typical U.S. home rose 13.2% over the past year, per Zillow, marking a record rise since the firm started collecting data in 1996. More supply may help put a lid on a prolonged period of price growth, which if left alone might eventually turn into an unsustainable boom that could push activity into reverse.

Today’s Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending

Companies reporting earnings today »

What else is happening…

Reflation narrative deflates as Fed’s overnight RRP takes up over $1T.

Cathie Wood’s ARK Invest picks up more Robinhood (NASDAQ:HOOD).

Fully vaccinated people made up 74% of cases in Massachusetts outbreak.

FDA to speed up review for full approval of Pfizer (NYSE:PFE) jab – Stat.

Will Jungle Cruise rock Disney’s (NYSE:DIS) online strategy?

Chinese tutor companies cancel earnings releases amid regulatory developments.

Kansas City Southern (NYSE:KSU)-Canadian National (NYSE:CNI) deal likely to be rejected.

Credit card metrics continue to grind lower as forbearance plans end.

Chinese EV startup Li Auto (NASDAQ:LI) shows strong momentum in July.

Metaverse investing: The Internet revolution will not be televised.

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