Good morning. Happy Friday.
The Asian/Pacific posted big losses. Japan, South Korea, Taiwan, Australia, Malaysia, Indonesia and Singapore were all weak into the weekend. Europe, Africa and the Middle East are currently mixed. Poland, Greece, Hungary and Saudi Arabia are up; the UK, Denmark, Saudi Arabia, Sweden and the Netherlands are down. Futures in the States point towards a positive open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil is down; copper is up. Gold is down; silver is up. Bonds are up. Bitcoin is up huge.
Stories/News from Seeking Alpha…
Buckle up
U.S. stock index futures are trading down 0.6% following another rough session on Thursday as market closed out September and the third quarter. The S&P 500 finished the month off 4.8%, while the Dow and the Nasdaq slipped 4.3% and 5.4%, respectively. The losses – triggered by fears of inflation, slowing growth and rising interest rates – even led the S&P 500 to notch its worst monthly performance since the pandemic took hold in March 2020.
Currents from the sea of red are also spreading outside of the U.S. Over in Asia, the Nikkei 225 closed down 2.3%, while in Europe, the pan-European STOXX 600 fell 1.5% and major bourses slid into negative territory.
Analyst commentary: “For most of the last two or three decades, central banks have had a relatively easy task because every time we come up to a crisis, they have been free to ease policy considerably because of downward inflationary pressure,” said Deutsche Bank strategist Jim Reid. “The problem now is that a lot of the exogenous forces at the moment are inflationary, whether it’s supply chains or stimulus. This raises the risk of a policy error, but the problem is we don’t know which way that policy error is. Is it to do too much (i.e. to keep stimulus going for too long), or is it to tighten policy with all the inflation around and risk choking off the recovery?”
On the economic calendar: Traders will be closely watching key inflation data set to be published at 8:30 a.m. ET. The core personal consumption expenditures price index, which surged an unexpected 1.1% in July, is expected to slow to a gain of 0.2% in August, but any more unforeseen surges could cause some panic. The inflation figure, which measures price change from the perspective of the consumer, is of utmost importance as the Federal Reserve uses it to set policy.
Facebook grilling
During a three-hour Senate hearing on Thursday, Facebook (FB) came under fire from lawmakers who were upset about the revelations brought to light by The Wall Street Journal’s “Facebook Files.” Internal documents showed that Instagram makes body image issues worse for a substantial minority of teen girls and was blamed for increases in anxiety and depression. With the company on the defensive (and minimizing its own research), it looks to be signaling new enthusiasm among Senators for regulatory proposals that had stagnated a bit.
Criticism from both sides of the aisle: “We now have deep insight into Facebook’s relentless campaign to recruit and exploit young users. And we now know it is indefensibly delinquent in acting to protect them,” said Sen. Richard Blumenthal (D-CT). “Facebook is incapable of holding itself accountable.” Senator Marsha Blackburn (R-TN) was also quick to admonish the tech giant. “We do not trust you with influencing our children.”
Some, like Sen. Ed Markey (D-MA), even compared the social network to Big Tobacco, which “pushes a product that they know is harmful to the health of young people.” He also announced plans to reintroduce legislation that would regulate a number of features, including follower counts, autoplay videos, and marketer and influencer promotions on apps aimed at young children.
Go deeper: Facebook on Monday said it would pause work on a controversial effort to build an Instagram for those under 13 (currently prohibited from joining the service). During the hearing, however, Antigone Davis, Facebook director of global safety, was noncommittal about whether the company would shelve Instagram Kids for good. “Sen. Markey, those are the kinds of features that we will be talking about with our experts trying to understand in fact what is most age appropriate and what isn’t age appropriate, and we will discuss those features with them of course.” (55 comments)
Deal is off
It was set to be the second biggest tech deal of the year, but Zoom Video Communications (ZM) and Five9 (FIVN) are calling off their $14.7B merger. Zoom had hoped the all-stock transaction would build on the explosive growth it experienced during the pandemic as it became a household name in a world without social contact. Five9 is a provider of cloud-based call center technology, which allows representatives to do their jobs from home.
What happened? Five9 stockholders still had to approve the deal, but it did not receive the requisite number of votes. Proxy advisory firm ISS previously recommended FIVN holders vote against the tie-up on the grounds that a decline in ZM’s share price has dragged down the value of the deal. Last week, Zoom also disclosed that a DOJ-led panel has been investigating the agreement over national security risks given Zoom’s ties to China.
Buying Five9 “presented an attractive means to bring to our customers an integrated contact center offering,” Zoom CEO Eric Yuan wrote in a blog post. “That said, it was in no way foundational to the success of our platform, nor was it the only way for us to offer our customers a compelling contact center solution.”
Stock movement: Shares of Zoom and Five9 barely budged in premarket trade, suggesting investors had been anticipating a breakup. (5 comments)
Funding, infrastructure and debt
Keeping track of the latest happenings on Capitol Hill can get confusing, especially when deadlines are as close together as they are in the fall of 2021. While it’s still too early to tell how things will play out, investors have been monitoring the events as lawmakers play politics with the nation’s pocketbook. Here are the three big items that are on the radar and how they could impact your portfolio:
Government funding – Congress last night passed stopgap spending legislation to avert a U.S. government shutdown, which was later signed by President Biden. The bill will keep the lights on at federal agencies through Dec. 3, giving Congress nine more weeks to pass a full budget plan. Buzz surrounding government shutdowns can trigger some market volatility, but this is the least likely event to affect investor holdings.
Infrastructure – House Speaker Nancy Pelosi promised to move ahead with a vote on a $1.2T bipartisan infrastructure bill before Democrat progressives said they have the numbers to stall it. They want the Senate to agree to a separate $3.5T social spending and climate policy package (or what the White House terms “human infrastructure”) before pressing ahead on this front. Negotiations are still ongoing, but the developments have the potential to dent some sentiment in the market, especially infrastructure-related names, since the bill was a key part of Biden’s economic agenda.
Debt ceiling – Treasury Secretary Janet Yellen has said the U.S. will run out of funds to pay its bills by mid-October and even called on Congress yesterday to eliminate the mechanism entirely. A default would “likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency,” according to Yellen. It could also “trigger a spike in interest rates, a steep drop in stock prices and other financial turmoil. Our current economic recovery would reverse into recession, with billions of dollars of growth and millions of jobs lost.” (11 comments)
Today’s Economic Calendar
8:30 Personal Income and Outlays
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:00 Consumer Sentiment
11:00 Fed’s Harker: Economic Outlook
1:00 PM Baker-Hughes Rig Count
1:00 PM Fed’s Mester: “Inflation, Employment, and the Federal Reserve”
Companies reporting earnings today »
What else is happening…
Buzz stocks trail in September, but quant analysis plays.
Merck (NYSE:MRK) buys Acceleron (NASDAQ:XLRN) for more than $11B in cash.
CDC director urges pregnant women to get COVID-19 vaccines.
New Gen Z ETF focuses on innovation, disruption and ethics.
Bed Bath & Beyond (BBBY) plummets as supply chain headwinds pile up.
Palantir (NYSE:PLTR) faces loss of pricey government FALCON contract – report.
Scarlett Johansson and Disney (DIS) settle lawsuit over Black Widow.
Cash infusion… Lordstown Motors (RIDE) sells Ohio plant to Foxconn (OTC:FXCOF).
Altria (NYSE:MO), Philip Morris (NYSE:PM) banned from selling IQOS tobacco heating device.
Bitcoin (BTC-USD) erases some losses, then jumps, after Jerome Powell talks crypto.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets were mixed. China, South Korea, New Zealand, Taiwan, Australia, Indonesia and Singapore did well; Japan, Hong Kong, India, Malaysia and Thailand were weak. Europe, Africa and the Middle East lean up. Poland, Russia, Norway, Hungary, Portugal and Saudia Arabia are up; Spain is down. Futures in the States point towards a moderate gap up open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is flat. Oil and copper are down. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Supply crunch
Things appear to be getting worse, not better, along the global supply chain, which was upended by the coronavirus pandemic over a year ago. That means entire companies and industries are going to have to deal with more extremes for the foreseeable future, making business investment a shaky decision that compounds the original problem. The volatility and uncertainty also destroy demand as prices become too high for consumers. The phenomenon, called the “bullwhip effect,” could end up damaging the economy in the short-term, with violent swings in a range of goods.
Warning bells: In an open letter to the United Nations General Assembly, business leaders from the International Chamber of Shipping, IATA and other transport groups (that account for more than $20T of annual global trade) sounded the alarm on the risks of a supply chain meltdown. “We are witnessing unprecedented disruptions and global delays and shortages on essential goods including electronics, food, fuel and medical supplies. Consumer demand is rising and the delays look set to worsen ahead of Christmas and continue into 2022. Our calls have been consistent and clear: freedom of movement for transport workers, for governments to use protocols that have been endorsed by international bodies for each sector and to prioritize transport workers for vaccinations… before global transport systems collapse.”
vSome of the effects were on display this week as three more U.K. energy companies were pushed out of business by sky-high natural gas prices. China is also considering raising power prices for factories as an energy shortage there has unleashed turmoil in commodities markets and prompted silicon makers to dramatically slash production. Over in the U.S., the Commerce Department delayed a decision on solar tariffs with the price of panels set to rise, while Dollar Tree (NASDAQ:DLTR) said it would sell more items above $1 to offset cost increases on a range of goods.
Do something! This time around, higher prices have put central banks between a rock and a hard place. Inflation is traditionally fought off by raising interest rates, but that might not be effective at the present given the supply chain issues taking place across the globe and the stage in the economic recovery. On the other hand, if easy monetary policy is left in place, price pressures could be compounded and result in a reduction in purchasing power or lead the economy to overheat.
Anti-vax content
The biggest social networks banned misinformation about COVID-19 early on in the pandemic, but some are taking further steps to weed out related content. Facebook (NASDAQ:FB) banned misinformation on all vaccines in February, Twitter (NYSE:TWTR) followed in March, while YouTube (GOOG, GOOGL) is now removing content that falsely alleges approved jabs are dangerous and cause severe health effects. That means videos will now be blocked on claims made against shots for diseases like measles or chickenpox, or clips that assert they cause autism, infertility or cancer.
Bigger picture: YouTube is going one step further by taking down the channels of high-profile anti-vaccine activists including Joseph Mercola and Robert F. Kennedy Jr., who experts say are sowing skepticism that’s contributed to slowing vaccination rates across the country. “Free speech is the essential core value of liberal democracy. All other rights and ideals rest upon it. There is no instance in history when censorship and secrecy have advanced either democracy or public health,” Kennedy responded through a representative.
YouTube didn’t act sooner because it was focusing on misinformation specifically about coronavirus vaccines, said Matt Halprin, YouTube’s vice president of global trust and safety. “Developing robust policies takes time… We wanted to launch a policy that is comprehensive, enforceable with consistency and adequately addresses the challenge.”
Exception to the rule: “Given the importance of public discussion and debate to the scientific process, we will continue to allow content about vaccine policies, new vaccine trials, and historical vaccine successes or failures on YouTube.”
Making sense of it all
Continuing some strength seen in the previous session, U.S. stock index futures all climbed another 0.6% overnight following a major selloff seen earlier in the week. The Dow and S&P 500 finished Wednesday up 0.2%, while tech stocks and the Nasdaq closed lower, down 0.2%. Bonds and higher rates are also in the spotlight, with the 10-year Treasury yield pulling back 3 bps to 1.51% after touching an intraday high of 1.56% on Wednesday.
Where do we go from here? “Some investors seem ready to move on from the ‘there is no alternative’ mind-set that has guided their decisions since the 2008 crisis, but TINA may be harder to quit than they think,” writes the WSJ’s Jon Sindreu. Others see pockets of alternative investments that provide a yield, or jumping into attractive individual stocks, with general market returns likely to be much more muted going forward. Looking for some new plays? Check out Seeking Alpha’s Stock Ideas.
Analyst commentary: “The froth has continued. Only time will tell how long that will go,” said Mary Erdoes, JPMorgan Chase head of asset and wealth management. Since the response by central banks to the coronavirus pandemic, “markets are up 30% to 50%, clearly not normal. We’re enjoying it, but this is not a normal time period.”
“If you own entire markets with the view that asset selection doesn’t matter, that’s great when the markets are going up,” added Ashbel Williams, executive director and CIO of the Florida State Board of Administration. “But when things become really tough, and circumstances hit different industries and different companies in different ways… this is a time active management makes sense.”
Trillion-dollar coin
The House on Wednesday passed a bill to suspend the U.S. debt ceiling, though the plan looks doomed in the Senate, with only hours to go before a partial shutdown of the federal government. Treasury Secretary Janet Yellen has also warned that on Oct. 18 the government will run out of money to meet its obligations to debtholders, setting up a drama-filled atmosphere on Capitol Hill. Congress has raised or suspended the ceiling 78 times since 1960, according to the Treasury, with the most recent motion taking place in 2019.
Game of chicken: Democrats are struggling to get the votes needed in the Senate if they go at it alone since they need all 50 senators within their caucus. Friction among party members over the amount of spending, as well as whether to tie the procedure to infrastructure or social programs and climate policy is also creating some theatrics. For their part, Republicans want to tie the debt ceiling increase to Democrats’ massive legislation, which would put a spotlight on the party if they can’t get it together ahead of the 2022 midterm elections (or would take the blame if the U.S. defaults).
“While I am hopeful that common ground can be found that would result in another historic investment in our nation, I cannot – and will not – support trillions in spending or an all or nothing approach that ignores the brutal fiscal reality our nation faces,” critical centrist Sen. Joe Manchin (D., W. Va.) said in a statement.
Has the U.S. ever defaulted? While the technicals are always debated, and some say the U.S. has never formally defaulted, there were some scenarios in the past that could resemble it. The first time was in 1790, when the U.S. defaulted on its external debt obligations, while during the Great Depression in 1933, America had another domestic debt default related to the repayment of gold-based obligations. Some consider President Nixon’s refusal in 1971 to redeem dollars for gold to constitute a partial default, while the U.S. was said to default on some Treasury bills in 1979.
Trillion-dollar coin: Echoing an idea that was originally floated during the debt ceiling crisis of 2011, there has been renewed talk in Washington of producing a very high-value currency to avoid the debt ceiling. Basically, the Treasury would mint a $1T platinum coin (under commemorative clauses), deposit it at the Federal Reserve, and the asset swap would result in an extra $1T to cover a big portion of Washington’s bills. While not illegal, the accounting gimmick would be unprecedented, threaten the checks and balances of Congress and open a Pandora’s box about all of public finance.
Today’s Economic Calendar
8:30 GDP Q2
8:30 Initial Jobless Claims
8:30 Corporate profits
9:45 Chicago PMI
10:00 Fed’s Williams: “Implications of Federal Reserve Actions in Response to the COVID-19 Pandemic”
10:30 EIA Natural Gas Inventory
11:00 Fed’s Bostic: “Economic Mobility as a Tool for Sustainability”
11:30 Fed’s Harker: “The Federal Reserve in Conversation: Developing Regulation, Sustainable Assets and Financial Markets”
12:30 PM Fed’s Evans Speech
1:05 PM Fed’s Bullard Speech
2:30 PM Fed’s Daly Speech
3:00 PM Farm Prices
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening…
Warby Parker (NYSE:WRBY) pops following direct-listing IPO.
Walmart (NYSE:WMT) to hire 150K associates for holiday season and beyond.
Uber (NYSE:UBER) launches ‘The Holiday Shop’ for on-demand seasonal delivery.
Virgin Galactic (NYSE:SPCE) takes off after FAA ends investigation.
Altria (NYSE:MO) may strategically divest stake in AB InBev (NYSE:BUD).
WSJ report finds Facebook (NASDAQ:FB) was targeting pre-teens for years.
Apple (NASDAQ:AAPL) analysts see early signs of strong iPhone 13 demand.
Elon Musk slams Biden’s EV policy, wants unregulated crypto.
Regulation underway… Bitcoin (BTC-USD) faces biggest monthly decline since May.
AstraZeneca’s (NASDAQ:AZN) COVID-19 jab shows 74% efficacy in U.S. trial – Reuters
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets leaned down. Hong Kong, Indonesia and the Philippines did well while Japan, China, South Korea, Taiwan and Australia dropped more than 1%. Europe, Africa and the Middle East are doing well. The UK, Denmark, Poland, France, Turkey, Germany, Finland, Switzerland, Spain, the Netherlands and Austria are posting solid gains. Only Russia is down much. Futures in the States point towards a moderate gap up open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and copper are down. Gold is flat; silver is down. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
In need of direction
U.S. stock futures turned higher overnight – Dow +0.6%, S&P 500 +0.8%, Nasdaq +1% – following heavy losses seen on Wall Street in the previous session. A spike in bond yields sent equities plunging, with the Nasdaq closing down nearly 3% for its worst day since March. Hardest hit were growth stocks – given their lower relative value of future earnings – as the benchmark 10-year Treasury yield touched a high of 1.567%. Facebook (FB), Microsoft (MSFT) and Alphabet (GOOGL) all lost more than 3%, triggering a tech out that hit the broader markets.
Bigger picture: Inflation and the prospect of higher interest rates are prompting investors to dump government bonds and reposition their stock portfolios. The Fed meeting last week indicated a willingness to respond to growing inflationary pressures by lifting borrowing costs as soon as next year, as well as tapering bond buying as soon as November. Combined with surging prices for oil and other commodities, the rhetoric was enough to send bond yields flying, with the 10-year Treasury climbing 20 basis points over the last week alone.
“The interest rate induced selloff is a reminder of how impactful monetary stimulus has been with the Fed signaling a swift removal of the emergency stimulus measures is coming soon,” noted Charlie Ripley, senior investment strategist for Allianz Investment Management. “This is an uncomfortable period for market participants as the removal of Fed support will be underway soon and equity markets will have to learn how to stand on their own again. However, we should be reminded that it is unlikely the Fed would move forward with tapering bond purchases if they didn’t think the economy was ready.”
Fedspeak: More commentary on the economic landscape will come today as Fed Chair Jerome Powell participates in a policy panel discussion before virtual European Central Bank Forum on Central Banking at 11:45 a.m. ET. It won’t be the only event to watch. Philly Fed President Patrick Harker, San Francisco Fed President Mary Daly, Atlanta Fed President Raphael Bostic and New York Fed President John Williams will give additional perspectives at a series of webinar discussions and virtual speeches throughout the day. (11 comments)
U.S. credit default?
Inflation and tapering aren’t the only forces spooking investors. Debt ceiling drama is intensifying in Washington ahead of a Thursday night deadline, with the risk of a partial shutdown starting Friday morning. Nearly two weeks later, on Oct. 18, the government will run out of money to meet its obligations to debtholders, according to Treasury Secretary Janet Yellen. A separate fight over a $1.2T infrastructure bill and a $3.5T reconciliation bill is also rattling parties and lawmakers, prompting President Biden to cancel a planned trip to Chicago today to save his economic agenda.
Quote: “The only way Congress in this day and age ever gets anything done is by coming very close to deadlines,” declared Capitol Hill strategist Jim Manley. “So far, we as a country have not suffered the economic consequences from such political gamesmanship, but at some point, somebody is going to make a mistake and something bad is going to happen to the country.”
The words couldn’t ring truer at the current moment as corporate leaders start to sound the alarm over the rapidly approaching debt ceiling deadline. JPMorgan (JPM) CEO Jamie Dimon said the lender has begun to prepare for the “potentially catastrophic event” of a U.S. credit default, while Morgan Stanley (MS) is planning for a similar scenario. The Business Roundtable, one of Washington’s leading business lobby groups, meanwhile announced that a failure to raise the debt ceiling would pose an “unacceptable” risk to the U.S. economy.
Analyst commentary: “Investors should note that there is no clear path to dealing with the debt ceiling,” said Brian Gardner, a policy analyst at Stifel. “It could be a tense few weeks in Washington which could add to market volatility.” (20 comments)
Warby Parker
Investors today will be eyeing the public debut of Warby Parker (WRBY), which will hit the New York Stock Exchange via a direct listing (a cheaper, but less common way of going public). The company is known for its affordable eyeglasses, which start at $95 a pair, and are sold online and through its network of 145 stores. Last night, the NYSE assigned a reference price of $40 to Warby’s 111.5M outstanding shares, giving it a valuation of around $4.6B (during its last fundraising round in August 2020 it was valued at $3B).
Backdrop: Warby Parker was founded in 2010 by four friends at the University of Pennsylvania’s Wharton School: Neil Blumenthal, David Gilboa, Andrew Hunt and Jeffrey Raider. The group desired to create high-quality, affordable glasses by adopting a direct-to-consumer process, while providing the flexibility of free home try-ons and returns. Warby also runs a philanthropic program through which it distributes glasses to someone in need for each pair of eyewear purchased by a customer. Blumenthal and Gilboa are now co-CEOs of the business, while Hunt and Raider remain as directors of the company.
Warby Parker’s growth has been financed by a total of $535.5M in venture capital raised in funding rounds from backers including D1 Capital Partners and T. Rowe Price (NASDAQ:TROW). While the company notched $393.7M in revenue during 2020 – up from $370.5M in 2019 – it posted a net loss of $55.9M, following a breakeven 2019 and a loss of $22.9M in 2018. Warby also had 2.08M active customers as of June 30, up from 1.81M in 2020 (the metric is defined as those who have purchased a pair of glasses in the last 12 months). Some of its publicly traded rivals include National Vision Holdings (NASDAQ:EYE) and France-based EssilorLuxottica (OTCPK:ESLOF), which have both seen share gains of around 50% over the past year.
Outlook: Statistics from the Vision Council of America suggest that Warby Parker is operating in a growth market valued at $35B in the U.S. 75% of American adults use some type of vision correction, and of that number, 64% wear glasses. The eyewear industry is also pretty resilient to economic cycles due to its medical and nondiscretionary nature. However, some still say the company is overvalued despite its well-known brand and visibility, like SA author David Trainer. In an article entitled, See Through This Optical Illusion, he argues that Warby Parker operates in a highly fragmented market with many small private companies, as well as consumers that still favor in-store purchases.
Meet Astro
Amazon’s (AMZN) robot is here after all. Despite conventional wisdom that the announcement would wait a while, the tech giant unveiled its Astro home assistant – a sort of wheeled Echo device that can follow you around. The dog-like product, designed to appear animated and friendly, looks to bring together the company’s strengths in robotics, artificial intelligence, home monitoring and cloud services.
Is it worth $1,000? The robot can be integrated with Amazon’s smart home security subsidiary Ring and patrol a user’s home while they’re away. It’s also equipped with Alexa, the voice assistant that can set reminders, deliver entertainment and control smart home devices. Astro additionally sports a cup holder on its rear and a robot arm that can extend and look at things from up to four feet.
Digital adopters concerned about privacy can be rest assured that Astro’s camera, microphone and motion sensors can be switched off by pressing a button (or at least until the next scandal). Users can also pick “out of bounds zones,” or certain rooms that are off-limits to the robot via mapping software.
Other items announced at the hardware event: Amazon’s first smart thermostat, the Echo Show 15, an Echo partnership with Disney (DIS) and a new Halo View fitness tracker. Amazon also unveiled Glow, an oddity of a chat/videoconferencing device with a built-in tabletop projector that can cast images of games, books or puzzles in a clear target for children. (23 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
9:00 Fed’s Harker: Economic Outlook
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:45 Jerome Powell Speech
1:00 PM Fed’s Daly Speech
2:00 PM Fed’s Bostic: “Inclusive Payments”
5:00 PM Fed’s Williams Speech
Companies reporting earnings today »
What else is happening…
Home prices up a record 19.9% according to Case-Shiller survey.
United Airlines (NASDAQ:UAL) set to fire 593 employees who refused vaccine.
Applied Materials (NASDAQ:AMAT), ASML sink as New Street sidelines semicaps.
Lucid (NASDAQ:LCID) rolls first EV off assembly line, deliveries start in October.
Sen. Elizabeth Warren: Fed Chair Jay Powell is a ‘dangerous man’.
Pfizer’s (NYSE:PFE) COVID shot for kids may not get clearance until November.
Micron (NASDAQ:MU) slips as near-term forecast trails expectations in quarterly beat.
Nat gas rally should fade with shale’s return – Pimco analyst.
Ford (NYSE:F) CEO: $11.4B investment boosts EV manufacturing and supply chain.
Buy now, pay later… Affirm (NASDAQ:AFRM) prepares to begin accepting crypto.
—————
Good morning. Happy Tuesday.
The Asian/Pacific markets leaned down. China, Hong Kong and Malaysia did well, but South Korea, India, New Zealand, Taiwan, Australia, Singapore and the Philippines were weak. Europe, Africa and the Middle East are suffering big losses. Denmark, France, Germany, Finland, Switzerland, the Netherlands and Sweden are down more than 1%. Futures in the States point towards a relatively big gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Fed musical chairs
Two regional Federal Reserve bank presidents are leaving their positions early in the wake of controversy over portfolio holdings. Boston Fed President Eric Rosengren and Dallas Fed President Robert Kaplan will depart over the next 10 days.
Rosengren announced his Sept. 30 departure early Monday, saying he needs a kidney transplant. He was due to retire in June next year and at the time of the statement there was speculation his involvement in the controversy over the portfolios and trading of Fed officials played a part in the decision.
Dallas Fed President Robert Kaplan’s announcement that he would leave on Oct. 8 confirmed those suspicions as he said specifically he is leaving to eliminate distractions caused by his trading. Kaplan traded millions of dollars in securities last year, including individual high-valuation megacap stocks that benefit from lower interest rates. Rosengren came under scrutiny for securities tied to real estate and securities the Fed bought last year. Neither ran afoul of any of the current Fed rules on holdings and trading.
Fed Chairman Jerome Powell has opened an ethics panel over the issue and said at his recent press conference changes to current rules must happen. Powell reportedly also held securities that the Fed bought.
Dot plot shuffle: While a rare occurrence, the loss of two regional presidents underscores the dangers of a market trading as though the Fed is a static entity represented by its Summary of Economic Projections rather than a fluid group where minds can change quickly.
Along with the plan for asset tapering, the focus of the last FOMC was on the dot plot of rate forecasts that moved market expectations forward to an initial hike in 2022. Now two of those dots are going away. Rosengren and Kaplan are both in the hawkish camp, with Kaplan considered one of most hawkish voices for the Fed in calling for removal of accommodation. Two dovish replacements could quickly shift the dots back to liftoff in 2023. (District presidents are identified through a search committee formed by the respective bank).
When it comes to FOMC voting on rates, the rotation was set to bring in three hawkish regional presidents next year: Rosengren, St. Louis President James Bullard and Kansas City Fed President Esther George, as well as hawkish-leaning Cleveland Fed President Loretta Mester. And there could be further shifts in the Fed makeup. Powell’s renomination is not secured. Although it looks like the continuity would please the markets, President Joe Biden could ensure more dovish leadership with Lael Brainard (voting members turn dovish in 2023 and Kaplan now won’t be part of that class).
Vice Chairman Richard Clarida, a centrist, sees his term expire on Jan. 31, and Randal Quarles sees his position as vice chairman of supervision end on Oct. 13, although his term ends in 2032.
Markets still see policy on track. While the game of musical chairs is going on, the bond market is still expecting a global move to tightening as yields keep climbing. The 10-year Treasury yield is up 6 basis points to 1.54% this morning. The 5-year yield, most tied to fed funds rate expectations, is setting a new high for 2020, up 3 basis points to 1.03%.
The message coming from Fed speakers is still for tapering to start in November and end in the middle of next year. “Fed presidents exist to provide entertaining and extreme comments to the media, and to dissent from policy decisions only when permitted,” UBS Chief Economist Paul Donovan writes. “New York Fed President Williams is the Fed president with authority (having a permanent vote on policy). Williams reiterated the market base case of a quantitative policy tightening this year, and pointed out that a US default would be less than ideal. Markets are well aware of both of these views.”
In what could be seen as an extreme opinion, Chicago Fed President Charles Evans, who loses a voting slot next year, argued yesterday that the Fed may need to see more inflation. (3 comments)
Natural gas surge
U.S. natural gas prices soared to their highest level in more than seven-and-a-half years, with traders citing contagion fears as gas and other energy shortages sweep Europe and Asia, which is leading to heavier demand for U.S. liquefied natural gas.
Front-month gas futures (NG1:COM) for October delivery settled up 11% to $5.706/MMBtu, the highest closing price since February 2014 and the contract’s biggest daily percentage gain since this February’s Texas freeze.
“Spectacular prices around the world are feeding into the sentiment here,” Again Capital’s John Kilduff tells Reuters, adding that “gas as a commodity is getting repriced” and “now that we’ve hit these price heights, it will be easy to do it again.” (107 comments)
NordicTrack IPO
NordicTrack parent iFIT Health & Fitness (IFIT) released details Monday for a planned IPO that could value the firm at up to $6.7B. iFIT said in a revised S-1 filing with the U.S. Securities and Exchange Commission that it plans to offer some 30.8M Class A shares within an $18-$21/share range. It’s also granting underwriters the option to buy as many as roughly 4.6M extra shares for overallotments. Plans call for the stock to list on the Nasdaq under the ticker symbol “IFIT.” (3 comments)
Ford EV bet
Ford (NYSE:F) unveils plans to team with South Korean battery maker SK Innovation to spend $11.4B to build an electric F-150 assembly plant and three battery plants in the U.S., in a substantial acceleration of its push into electric vehicles.
Ford will build two massive battery factories in Glendale, Ky., and a third in Stanton, Tenn., alongside a new truck factory set to begin producing electric F-series pickups by 2025, creating 11K jobs.
The company says the planned $5.8B Blue Oval City complex in Tennessee “will usher in a new era for American manufacturing,” comparing it to the Rouge complex in Michigan a century ago. (69 comments)
Evergrande fallout
China’s central bank said it will protect consumers exposed to the housing market, though it didn’t specifically name debt-laden China Evergrande (OTCPK:EGRNF, OTCPK:EGRNY), Reuters reports, giving investors some confidence that spillover effects from the developer’s liquidity crisis may be manageable. Evergrande missed an $83.5M interest payment on March 2022 bonds on Sept. 23 and is scheduled to pay a $47.5M coupon on Sept. 29.
In addition to the People’s Bank of China statement, the Shenzhen government started investigating Evergrande’s wealth management unit, Reuters reports, citing a letter to investors, another sign that authorities may take some action to contain the fallout from the real estate developer’s troubles. (1 comment)
Today’s Economic Calendar
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
8:55 Redbook Chain Store Sales
9:00 Fed’s Evans Speech
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
1:00 PM Results of $62B, 7-Year Note Auction
1:00 PM Money Supply
1:40 PM Fed’s Bullard Speech
3:00 PM Fed’s Bostic Speech
7:00 PM Fed’s Bullard Speech
Companies reporting earnings today »
What else is happening…
Activision Blizzard (NASDAQ:ATVI) struck a deal with EEOC to settle discrimination claims.
U.S.’s 5.2% unemployment rate is understated; Jerome Powell Senate testimony.
Disney’s (NYSE:DIS) ‘Shang-Chi’ wins fourth week, becomes top 2021 film.
Aurora Cannabis (NASDAQ:ACB) CEO: Focusing on medical revenue rather than chasing recreational business.
Raytheon (NYSE:RTX), Northrop Grumman (NYSE:NOC) successfully test fire hypersonic weapon.
Sanofi (NASDAQ:SNY) reports positive interim results for its first mRNA COVID-19 vaccine candidate.
Merck (NYSE:MRK) closing in on deal for Acceleron (NASDAQ:XLRN) – WSJ.
Facebook (NASDAQ:FB) is unstoppable, even if it’s toxic to our mental well-being – Loup Ventures’ analyst.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets leaned down. Australia and Singapore did well; China, Japan, Indonesia and Thailand were weak. Europe, Africa and the Middle East are currently mixed and little changed. Russia, Spain, Austria and the Czech Republic are doing well; Denmark and Switzerland are down. Futures in the States point towards a down open for the cash market.
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The dollar is flat. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
Debt ceiling and default
The deadline in the debt ceiling showdown in Washington approaches, with a government shutdown possible on Friday, Oct. 1. Democrats in the House have passed a bill that would avert a shutdown and suspend the debt ceiling temporarily, but that will go nowhere in the Senate without support from some Republicans.
Democrats have disagreements within their party as well over a $1.2T infrastructure bill and a $3.5T reconciliation bill. A temporary spending bill would need to pass Thursday night. Congress has raised the debt ceiling more than a dozen times in the last 20 years, with the last major face-off coming in 2011 between the GOP and the Obama administration.
“Today’s macro environment is very different from previous debt ceiling episodes over the past decade,” BlackRock Investment Institute strategists led by Jean Boivin write. “An economic restart is underway in the U.S., and inflation pressure has increased amid pandemic-related supply disruptions.” “This is in contrast with the debt ceiling showdown in 2011 that triggered a downgrade in the United States’ AAA sovereign credit rating by S&P just as the euro area debt crisis and worries about slower growth kept investors on their toes,” Boivin says. “It also differs from 2018, when worries about U.S.-China trade tensions and their impact on the economy were flaring up.”
Technical default: The deadline for the U.S. government defaulting on its obligations is further down the line, but not that far off. Without a suspension or raising of the ceiling, there will be a risk of default between Oct. 15 and Nov. 4, according to the Bipartisan Policy Center.
“Due to the unpredictability of cash flows – and thus, all debt limit projections – policymakers need to act in the coming weeks if they intend to ensure that all obligations of the U.S. government are paid in full and on time,” the center’s report says. That’s something the two parties have never let happen and it’s unclear what the impact would be to the full faith and credit of the United States and the economy.
In a worst-case scenario, Moody’s Analytics says a prolonged standoff would cause another recession, this one akin to the financial crisis, with $15T in household wealth lost and 6M jobs lost.
“We believe Congress will ultimately reach an agreement to raise or extend the debt limit, but likely not until right before the Treasury exhausts its borrowing capacity,” BlackRock’s Boivin says. “The good news: Neither political party wants to see a technical default, and there are no calls for substantive spending cuts,” he adds. “Hence we do not believe the debt ceiling represents a fundamental risk to the market.”
“The risk: The timeline to resolve the debt ceiling is tight,” he says. “Political brinksmanship appears likely, and any miscalculation could lead to a short-lived government shutdown that triggers market volatility.”
Market impact: So far, the debt ceiling debate has taken a back seat on Wall Street to issues like the Fed, rising commodity prices, supply chain issues and China’s Evergrande crisis. The S&P 500 (SP500) (NYSEARCA:SPY) snapped a two-week losing streak last week. And while Treasury yields have been rising, that’s been more to do with the response to global central banks looking to remove accommodation.
“Risk assets could suffer temporary pullbacks after an extended run higher, but we favor looking through any volatility and staying pro risk over the next six to 12 months,” BlackRock, who recently moved to Neutral in U.S. equities, says.
Bloomberg highlights a near-term risk to money market funds, as investors have tended to pull cash from those funds with the increase in risk of technical default that could hit T-bill prices. Those funds could turn further to the Fed’s overnight reverse repo facility, which now stands at $1.28T. (2 comments)
U.K. gas shortage
BP (NYSE:BP) says panic buying has caused 30% of its 1,200 gasoline stations in the U.K. to run out of the two main grades of fuel. A lack of truck drivers began to hit some fueling stations earlier this week, and lines of vehicles formed at stations over the weekend as some motorists waited for hours to fill up tanks.
Royal Dutch Shell (RDS.A, RDS.B) also says it has seen heavy demand across its network, which has caused some stations to run low on some grades.
The government said it would issue temporary visas for 5,000 foreign truck drivers, but business leaders say it is not enough to solve a labor shortage that risks major disruption beyond fuel deliveries, including for retailers ahead of the Christmas season. (77 comments)
Gamification rules
Investor Michael Burry tweeted that his firm received a subpoena from the SEC in regard to GameStop (NYSE:GME). He deleted the tweet later with no explanation. The development adds intrigue to what may happen with the investigation after SEC Chairman Gary Gensler said earlier in the month that the agency was “pretty close” to releasing a report.
Burry-led Scion Asset Management reported owning a 2.4% stake in GameStop at the end of Q3 last year after starting to accumulate a position in 2019. However, Burry called the GME rally in January “unnatural, insane, and dangerous” and his public comments on the retailer supported a long-term bull thesis.
The SEC has been stepping up its focus on what it calls the “gamification” of trading, which some analysts see as a risk to Robinhood Markets (NASDAQ:HOOD). New rules could also slow down some of the meme rallies and the ability of hedge funds to front-run social sentiment moves. (112 comments)
Summers on crypto
“When you have large financial sums in secret, you have risks of money laundering, risks of supporting criminal activity, risk of innocent people being ripped off,” former Treasury Secretary Lawrence Summers told Bloomberg in an interview.
The crypto market shouldn’t be considered a “libertarian paradise” that is immune to government regulations, but enthusiasts would do well to embrace a regulatory framework on the industry, “not just for the protection of consumers but protection of themselves,” Summers said. He compares the crypto industry’s lack of regulatory oversight to that of the airline and automobile sectors, which wouldn’t be viable without being regulated. (26 comments)
Today’s Economic Calendar
8:00 Fed’s Evans: U.S. Economic and Monetary Policy
8:30 Durable Goods
9:00 Fed’s Williams: “Culture: Culture Diagnosis and Behavior Change-Learnings from the Field”
10:30 Dallas Fed Manufacturing Survey
11:30 Results of $60B, 2-Year Note Auction
12:00 PM Fed’s Williams Speech
1:00 PM Results of $61B, 5-Year Note Auction
Companies reporting earnings today »
What else is happening…
How ‘well-anchored’ are long-run inflation expectations? NY Fed analyzes the data.
Standout stocks that broke their earnings streaks.
More ‘Manifest’ pushes Netflix (NASDAQ:NFLX) show to top streaming chart again.
Piper Sandler spies buys in brokers, network security and sells in food.
Meet members of the 2021 IPO class: oncology-focused biotechs.
Big three iron ore producers look cheap after tough month, Jefferies says.
Large-caps could be a ‘raging short’ if earnings estimates are right.
Rolls-Royce (OTCPK:RYCEY) wins Pentagon contract to build new B-52 engines.
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