Good morning. Happy Friday.
The Asian/Pacific markets leaned to the upside. Japan, South Korea, India, Taiwan, Indonesia and the Philippines did well; China and Hong Kong were weak. Europe, Africa and the Middle East currently lean down, but movement is small. Hungary is up the most; Denmark, France, Turkey, and Spain are down. Futures in the States point towards a slight up open for the cash market.
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VIDEO: August Stats and What They Tell Us About the Future
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The dollar is down. Oil is up; copper is down. Gold and silver are up. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Bad news is good news
Seeking Alpha wishes our subscribers a great Labor Day Weekend! Wall Street Breakfast won’t be published with markets closed on Monday, but tune back in Tuesday.
After squeaking out another round of record closes on Thursday, U.S. stock index futures are ahead by 0.2%, before a jobs report that many are seeing as the next catalyst for the market. Forecasts from economists suggest the U.S. added 750K jobs in August, after rising by 943K in July, while the unemployment rate is expected to inch down to 5.2%, from 5.4% the previous month. Yesterday, new weekly jobless claims weighed in at 340K, which was better than analysts had expected and marked a new low in the pandemic era.
Snapshot: The report could end up being more interesting than Jackson Hole, with fresh data on non-farm payrolls providing a better timeline for the end of the Fed’s $120B/month bond buying program. The central bank has related that tapering will start before interest rates are raised, so investors will be closely watching that front. If the jobs report comes in stronger than expected, a tapering announcement could happen in November, but if the numbers are weak, the end of asset purchases could be pushed off.
“We are in the weird world where bad news is good news in terms of risk appetite. Anything that says we might see a more hawkish central bank, that’s bad news,” said Lee Ferridge, head of macro strategy for North America at State Street Global Markets.
Outlook: A big wild card in the data is the surging Delta variant, which has kept some unemployed people at home and frustrated efforts by employers to boost hiring. Despite the flare-up in cases, the leisure and hospitality sector likely accounted for a big chunk of payroll gains last month, though factory hiring was probably constrained by input shortages. If growth in August meets expectations, it would leave the level of U.S. employment about 5M jobs short of its peak in February 2020.
Coming to an end
In an irony that coincides with Labor Day, enhanced pandemic unemployment benefits will be coming to an end this weekend. The assistance, which helped out-of-work Americans during the pandemic, were distributed under several programs created by the CARES Act. Among them: Pandemic Unemployment Assistance, Pandemic Emergency Unemployment Compensation and Federal Pandemic Unemployment Compensation.
Historic safety net: States issued $794B in combined state and federal unemployment benefits from March 2020 through July 2021, according to the Labor Department. That included weekly bonus payments, which were raised by $600/week and then lowered to $300/week, as well as unemployment insurance and assistance for gig workers. The long-term unemployed also collected federally financed weeks of benefits when state aid was depleted.
A year into the pandemic, up to 46.2M people had received at least one week of benefits, amounting to about a quarter of the U.S. workforce, per an estimate from The Century Foundation. About half of U.S. states also ended their involvement in some or all federal unemployment programs in June or July, before their official expiration this weekend.
Go deeper: While it’s hard to make direct comparisons, the $794B pandemic figure weighs up against the $128B in unemployment benefits distributed in 2009, the year which unemployment peaked during the Great Recession. Back in 2009, only 14.5M Americans collected at least one benefit payment, which was less than a third of the pandemic annual total. The latest figures are even likely to be understated because some states haven’t filed regular data for Pandemic Unemployment Assistance.
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Texas abortion law
The never-ending legal war over abortion in America is spilling into the corporate sphere after Texas’ SB8 law was allowed to go into effect this week by the Supreme Court. The 5-4 ruling saw a conservative bloc of justices hold sway over dissenting views from Chief Justice John Roberts and the court’s liberal minority. Also known as the heart-beat bill, the law will ban abortion after six weeks, making exceptions for medical emergencies but not cases involving rape or incest.
Bigger picture: The legislation allows private individuals to sue anyone who “aids or abets” an abortion after six weeks, with the ability to collect at least $10,000 in damages for a successful lawsuit. Over the past decade, many similar state laws were struck down by federal courts on grounds that they conflicted with Roe v. Wade. The next flashpoint will shift to Mississippi, where Supreme Court justices have agreed to consider a law that bars most abortions at 15 weeks.
It’ll also be interesting to see the reaction of the business community to SB8, but many are choosing to stay on the sidelines given the backlash it could have on their companies. Notable provocateur Elon Musk, who recently moved to Texas, is sitting this one out, saying he’d “prefer to stay out of politics.” But some of the largest dating apps in the country are responding with a pledge to create funds for employees and dependents that need to travel outside of Texas to seek abortions.
Quote: “As I have said before, the company generally does not take political stands unless it is relevant to our business. But in this instance, I personally, as a woman in Texas, could not keep silent,” Match Group (NASDAQ:MTCH) CEO Shar Dubey said in a memo. The firm, which is based in Dallas, owns a number of dating companies, including its namesake app Match along with Hinge, Tinder and OkCupid. “Bumble (NASDAQ:BMBL) is women-founded and women-led, and from day one we’ve stood up for the most vulnerable. We’ll keep fighting against regressive laws like #SB8,” added the company, which is located in Austin, and went public earlier this year.
Vaccine hat trick
White House chief medical advisor Dr. Anthony Fauci would not be surprised if the recommended full regimen of COVID vaccines from Pfizer-BioNTech (PFE, BNTX) and Moderna (MRNA) becomes three doses instead of two. According to Fauci, who heads the National Institute of Allergy and Infectious Diseases (NIAID), giving an additional dose or perhaps a final dose for fully vaccinated people a few months after their initial vaccine regimen will help the immune system to mature. The remarks come before the U.S. is set to roll out COVID-19 booster shots for all Americans in a few weeks.
Cue the debate: For complete immunization, people get three or more doses of polio and diphtheria-tetanus-pertussis vaccines. Vaccinations for hepatitis B and HPV also require third doses, with several months between the second and third shot.
Fauci also presented data from Israel that showed waning coronavirus immunity after about eights months. In Israel, being fully vaccinated now means three jabs (and eligible for its green passport system), with more than 2M of the country’s 9.3M people having received a third shot, including 70% over the age of 60 and nearly half those over 50. Israel struck a vaccines-for-data deal with Pfizer back in January that promised to share vast troves of information from its highly digitized healthcare system in exchange for the continued flow of COVID-19 shots.
Back in the U.S.: The White House is planning to invest $3B in the coming weeks to ensure the country can continue to produce COVID-19 vaccines. The funding will be earmarked to companies making ingredients and inputs that go into vaccine production, as well as facilities that fill and finish vaccine vials. Other areas of focus will include lipids, bioreactor bags, tubing, needles, syringes, and personal protective equipment, before a booster campaign kicks off on September 20.
Today’s Economic Calendar
8:30 Non-farm payrolls
9:45 PMI Composite Final
10:00 ISM Service Index
1:00 PM Baker-Hughes Rig Count
Companies reporting earnings today »
What else is happening…
Manchin throws a wrench into Biden’s $3.5T economic agenda.
Walmart (NYSE:WMT) hikes hourly pay by $1 ahead of the holidays.
FAA grounds Virgin Galactic’s (NYSE:SPCE) spacecraft pending investigation.
Renaissance execs paying $7B in historic tax settlement with IRS.
Netflix (NASDAQ:NFLX), PGA Tour ink deal on episodic golf docuseries.
Nikkei gains with Japan’s Suga to step down as prime minister.
Reddit reportedly looking to hire advisers for IPO at $15B+ valuation.
GM (NYSE:GM), Ford (NYSE:F) halt more production as chip shortage worsens.
Exxon (NYSE:XOM) taps U.S. Strategic Reserve to restart Baton Rouge refinery.
Beijing government looking to take DiDi (DIDI) under state control – Bloomberg.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned to the upside. China, Hong Kong, India, Thailand and the Philippines posted gains; South Korea, Taiwan and Australia were weak. Europe, Africa and the Middle East currently lean up as well. Denmark, Turkey, Finland, Norway and Sweden are up; South Africa is down. Futures in the States point towards a gap up open for the cash market.
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VIDEO: August Stats and What They Tell Us About the Future
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The dollar is flat. Oil is up; copper is down. Gold and silver are down. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Wallet extinction
In a major expansion of its app-based services, Apple (AAPL) has lined up the first U.S. states to allow drivers to store their licenses within the Apple Wallet app. Arizona and Georgia will be the first states to offer the functionality for their drivers, with Connecticut, Iowa, Kentucky, Maryland, Oklahoma, and Utah next in line for the feature. Residents of those states will be able to store their state-issued identification cards in Apple Wallet should they not have a driver’s license.
How does it work? Adding a driver’s license to Apple Wallet will be similar to scanning a credit card for online purchases. A person will use their iPhone to scan their actual driver’s license or state ID card, and take a picture of themself that will be securely provided to their state for verification. Users will also have to complete a set of facial and head movements during the setup process. Once the person is verified by their state, their ID or driver’s license will be added to their Wallet app.
“The addition is an important step in our vision of replacing the physical wallet with a secure and easy-to-use mobile wallet,” said Jennifer Bailey, Apple’s vice president of Apple Pay and Apple Wallet. The company has also lined up the Transportation Security Administration to support the new ID feature on iPhones. The agency will have specific security checkpoints and lanes at participating airports where travelers use their iPhones to show their ID cards before they get on a plane.
Analyst commentary: Dan Ives, who covers Apple for Wedbush, said that with the company already having more than 1B of its mobile devices in use, adding driver’s licenses to Apple Wallet, “is a smart move by Apple, given the digital transformation of consumers in this post-COVID environment.”
Ida destruction
Tornado watches and flash flood warnings have been issued for parts of the Tri-State Area as remnants of Hurricane Ida brought in heavy winds and drenching rains that turned major highways into rivers. Tornados were even confirmed in Mullica Hill and Sewell, New Jersey, which are located just outside Philadelphia. Other videos showed water rushing through Newark Liberty International Airport, canceling all flights there, as the tail-end of the storm dumped a month’s worth of rain that resulted in the deaths of six people.
Focus on infrastructure: Down in Louisiana, the death toll from Ida has also risen to at least six, though that pales in comparison to the 1,800 people who perished during Katrina. While both storms were of nearly equal strength, Congress has funded a massive $14.5B concrete-and-steel project since 2005, called the Hurricane and Storm Damage Risk Reduction System. The 133-mile-long system of levees, floodwalls, floodgates and pump stations was built by the U.S. Army Corps of Engineers, with the advice of some expert Dutch engineering firms.
Along with sustained damage in the Northeast, Ida could mobilize lawmakers to pass the bipartisan $1T infrastructure bill, which is making its way through Congress. “If we are going to make our country more resilient to natural disasters wherever they are we have to start preparing now,” Louisiana Senator Bill Cassidy declared. “We can’t look in the rearview mirror and say ‘boy I wish we were prepared.'” President Biden is set to survey the destruction in Louisiana on Friday, with a million homes and businesses still without power, as well as 600,000 people without water.
Bill comes due: Ida is estimated to have caused almost $18B in damage that’ll be covered by insurers, according to risk-modeling firm Karen Clark & Co. The forecast includes privately insured damage to vehicles, houses and commercial and industrial properties, but does not include boats, offshore properties or losses from the National Flood Insurance Program. Insurers are also up against higher costs more broadly amid a rising consumer price index, with supply shortages, elevated transportation costs and high demand for materials needed to help repair homes.
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Opioid settlement
U.S. Bankruptcy Judge Robert Drain has approved a sweeping settlement for Purdue Pharma, the maker of OxyContin, which would resolve thousands of lawsuits from state and local governments, Native American tribes, unions and others alleging the company fueled the opioid epidemic. The plan will reorganize the drugmaker into a new charity-oriented company with a board appointed by public officials that will funnel profits into government-led efforts to prevent and treat addiction. It will also set up a compensation fund that will pay some victims of drugs an expected $3,500 to $48,000 each.
As for the Sacklers: They will lose ownership of Purdue and pay about $4.5B to settle opioid claims, which will shield members of the family with broad legal protections against future civil litigation. That provision was objected to by nine states and a division of the U.S. Justice Department, as well as Washington State Attorney General Bob Ferguson, who dubbed the order “insulting to victims of the opioid epidemic who had no voice in these proceedings.” Overall, the settlement would allot $10B to fight the opioid crisis which has killed half a million Americans over the past two decades.
While the Sacklers are quitting the drug business, the deal would largely allow them to preserve the bulk of their fortune, worth an estimated $11B. The Sacklers were also not given immunity from criminal charges, though there haven’t been signs that they would face any such suits. “Our family cares deeply that OxyContin was part of the opioid crisis, but it was unintentional,” said David Sackler, the grandson of late Purdue co-owner Raymond Sackler. “We don’t believe our conduct was illegal in any way, and we want to help.”
More settlements: While Purdue was by far the biggest fish to catch, other companies have been also caught in the frying pan. In July, McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC) agreed to pay up to $1.2B to resolve claims by New York state and two of its counties over their role in fueling a nationwide opioid epidemic. The same month, Johnson & Johnson (JNJ) agreed to pay $5B as part of an agreement with state attorneys general over its alleged role in the opioid crisis.
Oral trials
Oral drugs that combat COVID-19 are garnering interest from drugmakers and countries alike, as the coronavirus battle moves beyond jabs and syringes. Pfizer (NYSE:PFE) and Merck (NYSE:MRK) have both announced the start of trials to test oral antiviral medications that target the disease. The race to develop an easy-to-administer treatment comes amid growing interest in the market for coronavirus therapeutics as the threat of COVID-19 sticks around for the foreseeable future.
Pfizer’s latest mid-to-late-stage trial will enroll 1,140 non-hospitalized adults diagnosed with coronavirus infection who are not at risk of severe illness. They’ll be given Pfizer’s pill, known as PF-07321332, as well as a low dose of ritonavir, which is widely used in combination with HIV treatments. Merck’s trial will study the experimental drug molnupiravir for the prevention of COVID-19 among adults who live in the same household as a person with a symptomatic coronavirus infection.
Over in Israel: The country announced in July that it would be the first in the world to test an oral COVID-19 vaccine developed by Oramed Pharmaceuticals (NASDAQ:ORMP). The first trial will involve 24 unvaccinated volunteers, each taking one or two pills, before moving on to larger Phase 3 trials if successful. The vaccine should be “much more resistant to COVID-19 variants,” according to Oramed CEO Nadav Kidron, since it trains the immune system against three viral proteins instead of the single protein targeted by Pfizer and Moderna’s (NASDAQ:MRNA) shots.
Elsewhere: The World Health Organization is monitoring a new coronavirus variant named “mu,” which, according to the agency, has the potential to escape the immunity gained from COVID-19 vaccines or natural infection. On August 30, WHO has added the “mu” variant, also known as B.1.621 among scientists, to the global agency’s list of variants “of interest.” The strain was first identified in Colombia, but has since been detected in at least 39 countries.
Today’s Economic Calendar
Auto Sales
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
8:30 Goods and Services Trade
10:00 Factory Orders
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening…
OPEC+ agrees to continue gradual monthly oil production increases.
Latest crackdown… China summons 11 ride-hailing firms over misconduct.
ChargePoint (NYSE:CHPT) climbs 14% AH after boosting revenue outlook.
Moderna (NASDAQ:MRNA) seeks FDA authorization for COVID booster shot.
Investment garbage? Bill Gross says bonds are trash now, joining cash.
Report: Twitter (NYSE:TWTR) testing ability for users to send tips with Bitcoin.
Amazon (NASDAQ:AMZN) adding 55,000 tech jobs under new CEO Andy Jassy.
Tesla (NASDAQ:TSLA) hears from regulators with questions on Autopilot.
Google’s (NASDAQ:GOOGL) YouTube Music hits 50M paid subscribers – FT.
Ant Group reportedly teams with Beijing-backed investors to rescue IPO.
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Good morning. Happy Wednesday.
The Asian/Pacific markets were split with big movers in both directions. Japan, China, Hong Kong and Singapore did well; Malaysia, Indonesia and the Philippines were weak. Europe, Africa and the Middle East are currently doing well. The UK, France, Russia, Norway, Spain, Italy and Portugal are leading. Futures in the States point towards a gap up open for the cash market.
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VIDEO: State of the Market
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The dollar is down. Oil is up slightly; copper is down. Gold is flat; silver is up. Bonds are flat. Bitcoin is up.
Stories/News from Seeking Alpha…
Wake me up when September ends
Stocks are going into September on a high, fueled by easy monetary policy from the Federal Reserve and a market still flush with cash. While the major averages fell back slightly on Tuesday, Dow and S&P 500 futures climbed another 0.4% overnight, and contracts linked to the Nasdaq were ahead by 0.2%. Investors are still on the lookout for a correction this month, given that stocks haven’t had a significant pullback since October 2020, which was the last time the S&P 500 fell by more than 5%.
Summer has come and passed: “Although this bull market has laughed at nearly all the worry signs in 2021, let’s not forget that September is historically the worst month of the year for stocks,” said Ryan Detrick, chief market strategist at LPL Financial. “Even last year, in the face of a huge rally off the March 2020 lows, we saw a nearly 10% correction in the middle of September.”
Just to note, many hedge fund managers, traders and analysts have been flagging a correction or a sizable retreat for months. However, any weakness could be short-term, according to Detrick, who feels it could be contained in the 5-8% range. “This bull market is alive and well and we would view any potential weakness as an opportunity.”
Portfolio protection: Demand for protective options rose across the market ahead of historically volatile September, according to the latest data from Bloomberg. The publication cited an elevated options skew, showing outsized demand for protective put contracts relative to bullish calls, as well as rising open interest in puts. If that is the case, “the market is in fact better hedged going into September. That should ultimately mean less market drama than might otherwise be the case,” wrote Michael Purves, CEO of Tallbacken Capital.
Insolvency worries
Social Security benefits are likely to run out earlier than expected, according to newly released estimates that take into account the effects of COVID-19. The annual Social Security trustees report now forecasts retirees and the disabled will only be able to receive full benefits on a timely basis until 2034, one year earlier than predicted last year. After that, the program would have enough income to pay only about 78% of scheduled benefits unless Congress steps in to shore up the program.
Quote: “The pandemic and its economic impact have had an effect on Social Security’s Trust Funds, and the future course of the pandemic is still uncertain,” said the Social Security Administration’s acting commissioner, Kilolo Kijakazi. “Yet, Social Security will continue to play a critical role in the lives of 65M beneficiaries and 176M workers and their families during 2021.”
The bumped-up timeline was triggered by the U.S. economic recession caused by COVID-19, which led to a drop in employment and a decrease in payroll tax revenue. Those developments accelerated the depletion of Social Security’s reserves and trustees even expect the pandemic to have lowered worker productivity and economic output permanently. A silver lining may be higher inflation that could significantly boost benefits in 2021, with Social Security beneficiaries expected to see a 6% cost-of-living increase.
Outlook: While the new report points to the need to fix the program, it is unlikely to spur lawmakers in Washington to act immediately. Many are opposed to increased taxes, reduced benefits or a combination of both, while Congress could step in when the threat becomes more immediate. Over the long term, it’s also possible that COVID mortality rates could limit the number of benefits being paid out via Social Security, or alternatively boost costs of potential beneficiaries that live longer or those who survived with long-term health effects.
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Crude dynamics
OPEC+ will meet today for the first time since July, when the group reached a deal to raise crude production in response to “oil demand showing clear signs of improvement and OECD stocks falling.” Delegates are likely to stick to their guns, pumping an extra 400K barrels a day over the next several months to restore all the cuts they made at the start of the COVID-19 pandemic. “It would hurt OPEC+’s credibility to change the terms after only one month,” said Bob Yawger, director of energy futures at Mizuho.
U.S. pressure: In recent weeks, the Biden administration has urged OPEC and its allies to boost oil output, in order to combat rising gasoline prices that could threaten the global economic recovery. Some see the request as hypocritical, as the country discourages drilling at home in its fight against climate change, while others see it as a stopgap measure until the U.S. transitions away from fossil fuels toward cleaner energy sources. Biden has set a goal to decarbonize the economy by 2050 and has paused new drilling lease auctions on federal lands pending a review of environmental and climate impacts.
“At a critical moment in the global recovery, [OPEC production] is simply not enough,” National Security Advisor Jake Sullivan declared. “We are engaging with relevant OPEC+ members on the importance of competitive markets in setting prices.” The national average for a gallon of gas stood at $3.174 on Wednesday, according to AAA, up roughly $1 over the past year.
Oil movement: U.S. crude oil closed August with its first monthly loss since March and its biggest drop since last October, as investors weighed the prospect of more OPEC+ production and the restoration of output after Hurricane Ida. October WTI crude (CL1:COM) settled down 1% at $68.50/bbl, capping a 7.4% drubbing this month for the front-month contract. August’s oil price drop is a “correction, since the market had gotten ahead of itself,” according to Velandera Energy Partners CFO Manish Raj.
Migrant crisis
The takeover of Afghanistan by the Taliban following the chaotic withdrawal by the U.S. and allied forces has many countries on alert for a potentially large number of refugees fleeing the Islamist militant group. Many EU capitals are now warning that the bloc must act to prevent a repeat of the European migrant crisis of 2015, which saw more than a million migrants enter Europe due to the war in Syria. That period sparked fractious internal disputes between member states and challenged Brussels’ legal mechanisms for placing people seeking asylum.
Snapshot: EU officials are drafting a proposal to offer about €600M to neighboring Afghan countries to help refugees escape the Taliban. The money could land up in Pakistan, Uzbekistan and Tajikistan, and even Iran, which is under international sanctions. The plan mirrors a financial support package paid to Turkey in exchange for the country absorbing Syrian refugees, which ultimately broke down over Ankara’s response to the 2016 Turkish coup attempt and suspension of EU accession talks.
“We are at the beginning of the budgetary cycle, we’re not scraping the barrel as we were in 2015,'” European Commission Vice President Margaritis Schinas told the FT. “I don’t think money will be the problem.”
Go deeper: The EU has already earmarked €300M in direct humanitarian assistance to deal with the Afghan crisis, most of which is allocated for women, girls and other vulnerable groups in the country. The funds, along with the new €600M for settling refugees, would be part of a broader Afghanistan assistance package worth roughly €1B. The U.N. refugee agency estimates up to half a million Afghans could flee their homeland by year’s end.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Petroleum Inventories
Companies reporting earnings today »
What else is happening…
Apple (NASDAQ:AAPL), Google (NASDAQ:GOOGL) hit by South Korea’s app payment bill.
Ahead of holidays: Walmart (NYSE:WMT) looks to hire 20,000 supply chain associates.
China to consider banning e-commerce companies for IP violations.
CrowdStrike (NASDAQ:CRWD) raises full-year guidance for second time this year.
Intuit (NASDAQ:INTU) eyes $10B deal for email marketing company Mailchimp – Bloomberg.
ARK files for new transparency ETF: no oil, banks, booze, chemicals or candy.
Zoom (NASDAQ:ZM) continues to nosedive as Wall Street slams company’s outlook.
Southwest (NYSE:LUV) sued by pilots union for changing pay during pandemic.
Google (GOOGL) delays office return to January as Delta variant surges.
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Good morning. Happy Tuesday.
The Asian/Pacific markets leaned up. Japan, Hong Kong, South Korea, India and the Philippines did well; China and Singapore were weak. Europe, Africa and the Middle East currently lean down. Poland, South Africa, Portugal, Austria and Saudi Arabia are up; the UK, France, Germany, Russia, Greece, Spain, Israel and Sweden are down. Futures in the States point towards a down open for the cash market.
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VIDEO: State of the Market
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The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are down slightly. Bitcoin is up.
Stories/News from Seeking Alpha…
KaPow!
Jay Powell is clearly the front-runner for another stint as chairman of the Federal Reserve, but he is not assured of a second term. While Powell has the reported support of Janet Yellen and White House aides, President Biden may choose to make his mark on the Fed, especially with the progressive wing of his party demanding a more inclusive American capitalism. Reappointments are also not awarded for past performance in a president’s first term as the focus shifts to electoral prospects, policy goals and perceptions about the economy.
Snapshot: Fed chairs serve a four-year term after being nominated by the president and confirmed by the Senate. They may serve multiple terms (consecutively or non-consecutively), with William McChesney Martin notching the record as longest serving chair from 1951 to 1970 and Alan Greenspan as a close second. Powell was nominated by President Trump on November 2, 2017, and was sworn in on February 5, 2018. While Powell’s term ends in February 2022, Biden is expected to make his decision as early as next month.
The Squad takes aim: Some powerful progressives in Congress already don’t like Powell’s track record on deregulation and weaker bank rules, like Sens. Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts. As members of the Banking, Housing, and Urban Affairs Committee, both have a vote on whoever is nominated as the next Fed chair. Other progressive Democrats even went as far as calling on him to be replaced overnight, saying he has “taken very little action to mitigate the risk climate change poses to our financial system.”
Quote: “As news of the possible reappointment of Federal Reserve Chair Jerome Powell circulates, we urge President Biden to re-imagine a Federal Reserve focused on eliminating climate risk and advancing racial and economic justice,” Reps. Alexandria Ocasio-Cortez, Rashida Tlaib and Ayanna Pressley said in a joint statement. “We urge the Biden Administration to use this opportunity to appoint a new Federal Reserve Chair.” All three sit on the House Financial Services Committee, while another committee member Chuy Garcia, as well as Mondaire Jones, also signed on to the letter.
“At a time when the Intergovernmental Panel on Climate Change is warning of the potential catastrophic and irreversible damage inflicted by a changing climate, we need a leader at the helm that will take bold and decisive action to eliminate climate risk,” they continued. Powell’s leadership has “substantially weakened many of the reforms enacted in the wake of the Great Recession regulating the largest banks, including capital and liquidity requirements, stress tests, the Volcker Rule, and living will requirements.”
Who is the alternative? Many are pointing to Lael Brainard, the one Democrat on the Fed’s Board of Governors and the only non-Trump appointee. Brainard has opposed Powell on numerous occasions, including on matters of big bank oversight, and has found a path to address climate change through the Fed’s financial stability mission. She has also advocated for making the financial system more inclusive and is seen as a safe bet that would continue Powell’s interest rate policy.
A winning August
The calls of a stock market melt-up are getting louder as the major averages posted another round of solid gains on Monday. The S&P 500 has rallied more than 20% this year after scoring its 53rd record close in Monday’s session and is set to close out its seventh consecutive winning month later today. In fact, the benchmark index has scaled the big wall of worry without seeing a 5% pullback for all of 2021.
Adding to the sentiment, U.S. stock index futures climbed higher overnight: Dow +0.2%; S&P 500 +0.2%; Nasdaq +0.4%. Many are banking on an economic recovery, low rates through 2022 and stellar corporate earnings to continue to support the bull market. As earnings season winds down, the S&P 500 is on track to post a Q2 earnings growth rate of 95.4% (compared to the pandemic year in 2020), which would be the fastest pace since Q4 of 2009.
Analyst commentary: “Despite rising geopolitical risks, peak economic growth concerns, and the Federal Reserve moving closer to tapering its asset purchase program, the steady ascent of stocks continues,” said Keith Lerner, chief market strategist at Truist. The market has also been impervious to other bad news, like the Delta variant, higher inflation, Hurricane Ida and the U.S. withdrawal from Afghanistan, which just wrapped up evacuation efforts from Kabul and effectively ended America’s longest war.
Alarm bells? “Be very much aware of the fact that if and when it reverses, the consequences could be severe,” warned long-term bull and BTIG equity and derivatives strategist Julian Emanuel. The market’s record price action is mimicking late 1999, he adds, and could spark a 10% to 20% correction within the next month. “If we had said inflation would be at 30-year highs and [10-year Treasury note] yields would be at 1.3% while the S&P would be at this level a year ago, no one would have believed you, me or anyone else.”
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Indoor dining at risk
The rise in COVID-19 Delta variant cases, combined with a shortage of workers, is putting pressure on restaurant operators at a time when the recovery is supposed to be gearing up. McDonald’s (NYSE:MCD) is advising that franchisees in certain areas close indoor seating, reverting to the drive-thru/pick-up model that nearly all restaurants had adopted earlier this year. On a conference call last week, executives reportedly said franchisees should consider shutting indoor dining in counties where COVID cases are 250 per 100K people – based on a three-week rolling average.
Quote: “We have a much deeper sense of what actions make a difference for the safety of our restaurant teams and crew,” McDonald’s USA President Joe Erlinger said at the meeting, according to materials prepared by the fast-food giant for Delta variant safety and obtained by Reuters.
If other individual and chain restaurants follow suit, it would raise the issue of vaccination policy for customers again. New York City requires all diners to show proof of vaccination (but as discussed on the last Alpha Talks Editors Roundtable podcast, it’s questionable how operators can really verify status).
Filling positions: Restaurants are also having trouble finding staff, with many former workers looking for other opportunities. Health concerns about COVID remain a top reason for that. While the economy keeps adding jobs, the latest JOLTS report showed 10.1M open positions in June, with leisure and hospitality by far the biggest sector needing workers. If the problems with indoor seating persist, the fast-food sector could see an acceleration in building delivery kitchens, a move Wendy’s (NASDAQ:WEN) recently embraced.
Payment for order flow
Shares of Robinhood Markets (HOOD) stumbled 7% on Monday, and are down 2% premarket, after SEC Chairman Gary Gensler said a full ban of payment for order flows is “on the table.” The controversial practice sends customer orders to wholesale brokers rather than exchanges, which then execute those trades in return for a portion of the profits. It’s one of the main ways Robinhood makes money (80% of its revenue) and was flagged in disclosures when the stock-trading app went public last month.
Bigger picture: The system, which results in a handful of financial firms buying most of the retail flow in America, has “an inherent conflict of interest,” according to Gensler. “They get the data, they get the first look, they get to match off buyers and sellers out of that order flow. That may not be the most efficient markets for the 2020s.”
Proponents of PFOF maintain that it is a way for brokers to make money that doesn’t really hurt consumers, and allows apps to charge zero commissions. “Never before has investing in this country been cheaper,” said Robinhood CFO Jason Warnick. “We’ll be definitely defending our customers and making sure that we don’t put up barriers that have been taken down and kept people out.”
More trouble on the horizon? Reports yesterday suggested that PayPal (PYPL) was exploring a possible stock-trading platform. The payments giant also recently hired Co-founder of online brokerage TradeKing, Rich Hagen, who is now the CEO of Invest at PayPal, which allows him to explore opportunities in the consumer investment business, according to his LinkedIn page. Keep in mind that PayPal has 400M accounts worldwide, implying plenty of demand to meet if the company were to launch the interface.
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
3:00 PM Farm Prices
Companies reporting earnings today »
What else is happening…
Hurricane Ida knocks out 2,000 miles of Entergy’s (NYSE:ETR) high-voltage lines.
Refineries assessing damage; Exxon (NYSE:XOM) shuts Baton Rouge units.
Apple (NASDAQ:AAPL) shares reach all-time high on busy day for tech titan.
Warren Buffett turns 91, prepares Berkshire (NYSE:BRK.B) for tech-driven economy.
COVID-19 booster shots get support from CDC expert panel.
Contamination… Japan suspends another 1M jabs from Moderna (NASDAQ:MRNA).
Zoom Video (NASDAQ:ZM) drops 12% after-hours as soft outlook disappoints.
China’s video game restrictions are “non-event” for U.S. stocks – Jefferies.
U.S. begins blocking solar panel imports over forced labor concerns.
New iPhone (AAPL) satellite features to focus on emergencies only – Bloomberg.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets did well. Japan, Hong Kong, India, New Zealand, Taiwan, Malaysia, Indonesia, Singapore and Thailand posted solid gains. Europe, Africa and the Middle East currently lean up. Poland, Turkey, Russia, Greece, Hungary and Saudi Arabia are leading; South Africa is weak. Futures in the States point towards a positive open for the cash market.
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Masterclass Overview –>> here
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The dollar is flat. Oil and copper are up. Gold is up; silver is. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Harsh As Apple Cider
Hurricane Ida slammed into Louisiana as a Category 4 storm on Sunday, lashing the coast with 150 mile-per-hour winds, torrential downpours and life-threatening storm surges. By nightfall, power was knocked out to the entire New Orleans metropolitan area, according to Entergy (NYSE:ETR), with the failure of all eight transmission lines that deliver electricity to Louisiana’s largest city. The pounding surf even submerged much of the shoreline under several feet of water and reversed the flow of the Mississippi River.
The cost of the storm could exceed $40B and will test the flood defenses installed after Hurricane Katrina in 2005. Ironically, Ida came ashore on the 16th anniversary of Katrina’s landfall, which left the region in shambles and killed more than 1,800 people. Ida has also triggered concerns about hospitals in New Orleans, which are reeling from a fourth wave of COVID-19 patients, though hundreds of emergency responders are in place, as well as the U.S. Army Corps of Engineers to assist in power restoration.
Energy on watch: WTI crude prices (CL1:COM) neared $70/barrel in anticipation of the storm on Sunday, but dropped to $68 overnight as Ida was downgraded to a Category 1 storm on the five-step Saffir-Simpson scale. However, 95% of total U.S. oil and gas production in the Gulf Coast region is still offline, prompting natural gas and gasoline futures to rise, with the “worst case scenario of Ida adding 10 cents to 20 cents to the price of a gallon of gas through September,” per Mark Zandi, chief economist at Moody’s Analytics. Offshore wells in the area account for 17% of total U.S. crude production and 5% of dry natural gas output, while more than 45% of total U.S. refining capacity is along the Gulf Coast.
Impact on the economy? Zandi may shave his forecast for GDP growth in the current quarter by a few tenths of a percentage point, but will likely add the loss back in the fourth quarter growth due to the rebuilding from the storm damage. For the second half of the year, he also expects GDP to expand by 6.5%, matching the average growth seen in the first six months of 2020. “The key channel for Ida to impact the broader economy is through energy prices,” Zandi declared. “We will have to see how much damage occurred to production in the Gulf and how long that production will stay offline.”
Dug out of Jackson Hole
U.S. stock index futures continue to point green, albeit slightly, following an eventful meeting in Jackson Hole on Friday. Investors were quick to highlight the dovish stance of Fed Chair Jerome Powell, who said he was in no rush to raise rates and would be guided by data and risks posed by the Delta variant. That effectively shut out noise from several Fed speakers who had made some hawkish noises within the same time frame.
Powell also continued to make the case that inflationary pressures were “transitory” and there had been “clear progress” toward maximum employment. While the Fed may start paring its bond purchases in the next few months, Powell didn’t give a specific timeline for scaling back stimulus, and even if it comes this year, it won’t necessarily start the shot clock on hiking interest rates. Traders took the news in stride, with a fresh round of stock market highs.
Quotes: “The central bank has been able to successfully divorce the idea of ‘tapering’ from interest rate hikes in order to avoid a repeat taper tantrum,” wrote Tracy Alloway at Bloomberg, while the WSJ’s Jon Hilsenrath expressed similar sentiment: “The Fed has done a better job of preparing investors for a shift in its policies than it did in 2013 and the market largely agrees with its approach.”
Risks remain: If inflation persists longer than anticipated or if the pressures continue to escalate, the Fed might have to throw out its gradual approach to normalizing monetary policy. That could see a swifter pace of interest rate increases and spark a flashback of 2013. Last time around, there was a two-year gap between when the Fed started winding down QE and when it began upping rates, however, the current time frame could demand a much shorter gap given the sharp rebound in the U.S. economy.
Learn more about how Yieldstreet can start your passive income journey today.
Look out Tesla
Rivian (RIVN) has reportedly filed for an IPO and is looking to go public around Thanksgiving after it lands SEC approval. According to Bloomberg, the electric vehicle startup is looking for a valuation of around $80B, which is an astounding jump from the $27.6B valuation when it raised new funds from T. Rowe Price, Fidelity Investments and Amazon (AMZN) at the beginning of the year. Ford (F) was also an early investor in Rivian.
Sticker shock: The $80B valuation is higher than the market caps of Nio (NIO) $61B, Fisker (FSR) $4B, Canoo (GOEV) $2B, Workhorse Group (WKHS) $1.1B and Lordstown Motors (RIDE) $1.1B – combined.
Last month, Rivian founder RJ Scaringe told customers he expected the company’s truck to ship in September (following supply chain delays) and its highly anticipated SUV to follow soon after. The R1T truck will have an over 300-mile range when it launches, while the R1S SUV will feature towing capacity of 7,700 pounds. Amazon is also tied pretty close to Rivian with a goal to have a delivery fleet of 10,000 Rivian vehicles on the road making deliveries by 2030.
Analyst commentary: “Rivian is one of the best-positioned electric vehicle start-ups,” said Asad Hussain, senior mobility analyst at PitchBook. “The company’s focus on the relatively untapped premium electric truck market should allow it to gain rapid market adoption.”
No longer safe
In a potential blow to the travel industry, the European Union today is expected to recommend that member states reinstate COVID-related travel restrictions and halt nonessential travel from the U.S. That could mean quarantine and testing requirements for unvaccinated travelers, sources told the WSJ. EU officials have been debating the move for much of the last month, with the average U.S. infection rate now above that of the EU.
Fine print: EU countries are not obligated to follow the EU Safe Travel List, which is reviewed every two weeks. However, the list has generally set the pattern over the past few months for who can visit the bloc.
The European Union lifted travel restrictions for U.S. visitors in June, shortly after President Biden visited Brussels to speak with EU leaders. The motion was seen as an effort to reset transatlantic relations, and at the time, European officials said Biden’s team told them they would make it a priority to lift the ban on EU visitors. The latter never arrived, and in early in August, European Commission President Ursula von der Leyen warned that the bloc wouldn’t allow the lack of reciprocity to “drag on for weeks.”
Outlook: Flights between the U.S. and Europe soared after Europe reopened its doors to American visitors at the start of July, especially for visits to Spain and Portugal, according to aviation analytics firm Cirium. EU countries are also eager to keep their doors open during the summer tourist season to bring in whatever revenue they can during the pandemic.
Today’s Economic Calendar
10:00 Pending Home Sales
10:30 Dallas Fed Manufacturing Survey
Companies reporting earnings today »
What else is happening…
U.S. to consider shorter timeline for COVID booster shot – Biden.
Fauci says COVID-19 vaccine mandates in school ‘a good idea.’
Can a hybrid work environment boost Zoom’s (NASDAQ:ZM) FQ2 results?
Salesforce (NYSE:CRM) competitor Freshworks files for U.S. IPO.
Elon Musk is said to oppose Nvidia’s (NASDAQ:NVDA) planned acquisition of Arm.
Watch Globalstar (NYSE:GSAT) on report iPhone 13 may use satellite connectivity.
Could SPACs turn to SPARCs? And what are SPARCs anyway?
Baxter (NYSE:BAX) in talks to acquire Hill-Rom (NYSE:HRC) for about $10B – WSJ.
Southern Co.’s (NYSE:SO) nuclear project in Georgia may see more federal oversight.
How Coinbase (NASDAQ:COIN), Robinhood (NASDAQ:HOOD) and other crypto platforms make money.
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