Before the Open (Oct 4-8)

Good morning. Happy Friday. Happy Employment Numbers Day.

The Asian/Pacific did well overall. Japan, China, Hong Kong, India, Australia and Indonesia posted solid gains; Taiwan and the Philippines were weak. Europe, Africa and the Middle East are currently mixed and little changed. Poland and Greece are up; Portugal and Sweden are down. There’s very little net movement. Futures in the States point towards a slight positive open for the cash market.

————— Masterclass Overview –>> here —————

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

Stories/News from Seeking Alpha…

Hiring pickup?

The biggest news for investors this morning will be the non-farm payrolls report for September, which will shed light on the economic recovery and much more. The U.S. only added a mere 235K jobs in August – following the big gains seen over June and July (+850K and +943K) – meaning the latest numbers will determine if August was a blip or a sign of bigger problems. The figures will also be key for monetary policy as the central bank plans to slow its $120B-per-month bond buying program.

What to watch: Economists forecast the U.S. added 500K jobs last month as COVID cases trended downward and enhanced unemployment benefits expired. The unemployment rate is also expected to tick down to 5.1% (from 5.2%), while average hourly earnings are seen rising by 0.4% (from 0.6%). Other important figures include how people are entering the workforce amid a labor shortage, as well as what sectors are hiring or experiencing slowdowns.

While inflation and supply chain risks remain big headwinds for the market, today’s data will shed light on the No.1 risk going forward: tapering. “A steadily improving U.S. labor market and solid U.S. economic growth should provide the Federal Reserve with the green light to start curbing its quantitative easing program,” UBS wrote in a research note. Fed Chair Jerome Powell even provided some color about what that would look like at his last press conference on Sept. 22.

Quote: “So, you know, for me, it wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met. And others on the Committee, many on the Committee feel that the test is already met. Others want to see more progress. And, you know, we’ll work it out as we go. But I would say that, in my own thinking, the test is all but met. So I don’t personally need to see a very strong employment report, but I’d like to see a decent employment report.” (4 comments)

Moving to Texas

Tesla (TSLA) is relocating its headquarters to Austin, Texas, from Palo Alto, California, as the great exodus from the Golden State continues. The announcement from Elon Musk came at the company’s 2021 annual shareholder meeting, though he still detailed hopes that production at Fremont, along with Giga Nevada, would still be expanded (even by 50%). “It’s tough for people to afford houses, and people have to come in from far away… There’s a limit to how big you can scale in the Bay Area.”

Flashback: On an earnings call in April 2020, Musk called California’s COVID-related restrictions “fascist” in an expletive-laced rant. Last year, he also personally relocated to the Austin area from Los Angeles, where he had lived for two decades. The move allowed him to lower his personal tax burden and be closer to the SpaceX (SPACE) launch site in Boca Chica, Texas.

Tesla isn’t the first company to move its headquarters out of California to Texas. Hewlett Packard Enterprise (HPE) and Oracle (ORCL) have shifted their base from Silicon Valley to Houston, while Charles Schwab (SCHW) relocated its HQ to the Dallas area from San Francisco. Texas lawmakers have been encouraging migration from the coasts through a combination of lower taxes, financial incentives and a business-friendly environment.

What else happened at the meeting? Musk said Tesla is likely to begin producing its Cybertruck late next year as it works through supply chain challenges. He also hopes the company will manufacture its long-delayed semitrailer truck and a revamped version of its Roadster sports car in 2023. Shareholders additionally re-elected Musk’s brother Kimbal and James Murdoch to the board (Institutional Shareholder Services had advised against the re-election). (255 comments)

Grab the chips

Even if you weren’t living under a foundry for the last year and a half, you probably noticed that there is a major chip shortage taking place across the globe. Prices on everything from electronics to autos have risen in response, given the tremendous demand for silicon and the lack of supply. However, those shortages are turning into big profits for some semiconductor giants, like Samsung Electronics (OTC:SSNLF).

By the numbers: The world’s largest memory chip and smartphone maker estimated a 28% jump in its third-quarter operating profit. At 15.8T won ($13.3B), it would be Samsung’s highest quarterly profit since the third quarter of 2018. The chip division’s operating profit could even be 79% higher from a year earlier, according to analysts, with semiconductors accounted for about half of Samsung’s operating profit in the first half of the year.

It’s not all rosy. Samsung shares have slid more than 20% from their January peak due to concerns that the semiconductor industry could be entering a prolonged downturn. The stock “is under pressure due to worries that the semiconductor cycle will peak out and the company’s pricing power could be undermined by increasing inventories of customers,” noted Kim Dong-won, analyst at KB Securities. Losses accelerated in September, when rival Micron Technology (NASDAQ:MU) said its memory chip shipments would slip in the near term because of part shortages.

Go deeper: The chip industry is still on a massive spending spree. Samsung is planning to invest $17B in a new Texas chip plant, Intel (NASDAQ:INTC) is building new chip factories in Europe valued at up to $95B, while Taiwan Semiconductor Manufacturing (NYSE:TSM) is spending a record $100B over the next three years to increase production capacity. The “painful period” of the semiconductor shortage could even extend beyond 2022, according to Marvell Technology (NASDAQ:MRVL) CEO Matt Murphy, who added that he’s never seen anything like this during his “27 years in the business.” (3 comments)

Global tax deal

Ireland has finally come around to a global minimum tax plan that G7 and G20 nations hope will combat tax evasion and standardize rules across the world. The country will give up its treasured 12.5% corporate tax rate by joining a group of 140 nations that have agreed to an effective levy of 15% on major multinationals. The new rate will affect 1,556 companies in Ireland employing 500K people, including tech giants like Apple (NASDAQ:AAPL), Google (GOOG, GOOGL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB), and will end up costing the country about €2B in lost revenues.

What happened? Dealmakers crossed out two words that changed the country’s mind. The initial text mentioned a minimum corporate tax rate of “at least” 15%, but that was updated to just 15%, meaning the rate wouldn’t be pushed up at a later date. Ireland was also given assurances that it could keep its lower rate for smaller companies operating in the country, ahead of an OECD meeting in Paris this weekend.

“In joining this agreement, we must remember that there are 140 countries involved in this process and many have had to make compromises,” said Paschal Donohoe, Ireland’s Finance Minister. “This is a difficult and complex decision but I believe it is the right one.” Over the past five years, hi-tech companies have accounted for the majority of Ireland’s €5B-€7B/year in foreign direct investment.

Outlook: The last remaining holdout for the deal in the EU is Hungary, after Estonia joined Ireland overnight in signing up to the accord. Over in the U.S., President Biden and Treasury Secretary Janet Yellen are also on board, though they face challenges of getting the agreement through Congress. The changes could require the Senate to alter existing tax treaties, which would take a two-thirds vote and at least some GOP support. Republicans have already expressed opposition to any rise in taxes, while some lawmakers have condemned the idea of ceding taxing authority to other governments. (38 comments)

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

Companies reporting earnings today »

What else is happening…

Senate passes short-term increase to the debt limit.

Bitcoin (BTC-USD) rally reflects increased use as inflation hedge – JPMorgan.

Pfizer (NYSE:PFE) asks FDA to authorize COVID vaccine for children ages 5-11.

Long holiday… Chinese stocks rise on return to trade.

Chubb (NYSE:CB) to acquire Cigna’s (NYSE:CI) Asian life and A&H businesses for $5.75B.

Alibaba (NYSE:BABA) extends gains as it tops WallStreetBets mentions.

Conagra (NYSE:CAG) flags price increases to combat inflation impact.

Sundial Growers (NASDAQ:SNDL) buys Alcanna in C$346M all-stock deal.

IBM (NYSE:IBM) mandates fully vaccinated employees or face unpaid suspension.

Turkey requests to buy 40 Lockheed Martin (NYSE:LMT) F-16 jets and modernization kits


Good morning. Happy Thursday.

The Asian/Pacific did well overall. Hong Kong, South Korea, India, Taiwan, Australia and Thailand posted solid gains; New Zealand and the Philippines were weak. Europe, Africa and the Middle East are currently up big. The UK, France, Germany, Turkey, Russia, Greece, South Africa, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Portugal, Israel and Sweden are up 1% or more. Futures in the States point towards a big gap down open for the cash market.

————— VIDEO: Current Breadth Readings —————

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

Stories/News from Seeking Alpha…

Debt drama

Tensions over the debt ceiling will likely be punted to December after Senate Republican leader Mitch McConnell offered to raise the limit to avoid an immediate risk of default. While Democrats and the GOP are still working on an agreement, any deal would set up another bruising political fight for the end of the year. Earlier on Wednesday, Defense Secretary Lloyd Austin warned that a default would “threaten national security” and America’s ability to defend itself.

Market movement: As it looked like the U.S. was moving closer to a default on Wednesday, all 11 sectors of the S&P 500 were flashing red. However, as soon as top Senate Republicans proposed the short-term debt limit extension, the major indexes turned around to close the day in the green. Some strategists, like Wells Fargo’s Paul Christopher, still caution that while the debt ceiling drama could spark more market volatility, the “economic expansion ultimately will be the main influence on equity and bond prices through next year.”

“Basically, I’m glad that Mitch McConnell finally saw the light,” said Senate Budget Chair Bernie Sanders. The Republicans “have finally done the right thing and at least we now have another couple months in order to get a permanent solution.” “This will moot Democrats’ excuses about the time crunch they created,” McConnell fired back, adding it would “give the unified Democratic government more than enough time to pass standalone debt limit legislation through reconciliation.”

Why does the U.S. have a debt ceiling? The U.S. first instituted a statutory debt limit with the Second Liberty Bond Act of 1917, setting the aggregate amount of debt that could be accumulated through individual categories like bonds and bills. Later in 1939, Congress instituted the first limit on total accumulated debt over all kinds of instruments. The debt limit exists to ensure the “power of the purse” stays with the legislative branch and frees up Congress from approving each individual expenditure, though most countries do not have a limit and debate the funding of their spending during the budgetary process. (7 comments)

Wild ride

There are some wild swings going on in the energy market as traders seek to capitalize on shifting sentiments amid a global energy crisis. Yesterday, European benchmark TTF natural gas futures jumped as much as 40% to a record €162.125/MWhr – in the span of a few minutes – after closing 20% higher on Tuesday. But the rally didn’t hold as Vladimir Putin chose a timely moment to leverage his nation as an oil and gas superpower.

Snapshot: The Russian leader proposed to stabilize the environment with an offer to export record volumes of vital fuel to the continent. The advance could pressure European officials and regulators into approving Nord Stream 2, a controversial pipeline linking Russia and Germany that is close to launching. Flows of Gazprom (OTCPK:OGZPY) gas to Europe have been analyzed by many energy traders as winter approaches, and the high prices there have spilled over to the U.S.

Meanwhile, U.S. Energy Secretary Jennifer Granholm raised the prospect of releasing crude oil from the government’s strategic petroleum reserve at the FT Energy Transition Strategies Summit. “It’s a tool that’s under consideration,” she declared, as average prices at the pump hover around $3.19/gallon – the highest in seven years. Granholm also didn’t rule out a ban on crude exports, saying it was an additional tool that could calm markets and bring oil prices down.

Outlook: As mentioned on SA earlier this week, some are calling the current situation the first major energy crisis of the clean power transition, with President Biden setting a goal to decarbonize the economy by 2050. J.P. Morgan’s Marko Kolanovic suggests following coal prices to determine supply, demand and cost of capital for other fossil fuels, which if stay at elevated levels, could lead to inflationary pushback to ESG investing. “The most likely outcome of the current energy crisis is increased production at significantly higher energy prices, which would stabilize the global economy and energy infrastructure, but also temporarily slow down the energy transition.” (27 comments)

Doubling down

General Motors (GM) has announced ambitious plans to take on EV market leader Tesla (TSLA), as well as traditional rivals Ford (F) and Toyota (TM), which are electrifying their lineups. GM intends to double revenue by the end of the decade by expanding beyond traditional auto manufacturing to embrace new products. The company already announced plans for high EV volumes last November, targeting 30 new models by 2025.

Flashback: Some may remember GM’s speed bumps in the EV space with the Chevy Bolt, which was subject to a number of recalls due to its battery pack. In August, GM even issued a statement to customers recommending they park their Bolts in open areas, and at least 50 feet away from other vehicles, due to the possibility of catching fire. The latest drive may go a long way to relate how GM is improving its image and its plans going forward.

CEO Mary Barra specifically cited software and services as contributing a “substantial portion” of its planned revenue growth. Another “substantial portion” would come from commercializing Cruise, the GM-backed autonomous car startup, as well as top-line growth from ride-sharing and hauling tied to these self-driving capabilities. The company will also build new EV manufacturing plants if demand rises quickly and will retrofit current facilities to make the products.

By the numbers: It’s a pretty long-range financial goal, but GM hopes its efforts will boost operating margins to 12%-14% by 2030, from 7.9% last year. Annual revenue is expected to double to $280B, from a five-year average of about $140B. (59 comments)

Biden to meet Xi

It looks like the U.S. is going back to top-level engagement with China as President Biden and Xi Jinping agreed to hold a virtual summit this year. It will be part of an effort to manage competition between the two countries, but details of the gathering are still being worked out. Xi hasn’t left China since the start of the pandemic and does not plan to attend any overseas events in the near future, including the G20, COP26 and APEC.

Movement: The news sent the iShares China Large-Cap ETF (NYSEARCA:FXI) up 2.6% premarket. Chinese markets are closed for most of the week due to holidays.

The latest meeting was brokered by Jake Sullivan, U.S. national security advisor, and Yang Jiechi, China’s top foreign policy official. The two met in Zurich this week for talks that were described as “productive” compared to the gathering that took place in Anchorage back in March. Sullivan raised further concerns about a range of issues that have affected U.S. investment, including the crackdown on the pro-democracy movement in Hong Kong, the treatment of Uyghurs in Xinjiang and Chinese military activity around Taiwan.

Outlook: Trade will also be at the top of the agenda with China following comments made by U.S. Trade Representative Katherine Tai earlier this week. She vowed to enforce Phase 1 of a trade deal in which Beijing pledged to buy at least $200B more U.S. goods and services over 2020 and 2021, compared to 2017. However, China had only reached 62% of that target as of August, based on export data compiled by the Peterson Institute for International Economics. Tai additionally said there were “serious concerns” about the country’s “state-centered and non-market trade practices,” which were not addressed under the current framework. (2 comments)

Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
11:45 Fed’s Mester: “Inflation: Drivers and Dynamics Conference 2021”
3:00 PM Consumer Credit
4:30 PM Fed Balance Sheet
4:30 PM Money Supply

Companies reporting earnings today »

What else is happening…

Highest level since mid-May… Bitcoin (BTC-USD) retakes $1T market cap.

New denim styles drive Levi Strauss (NYSE:LEVI) earnings beat and raised outlook.

Nvidia (NASDAQ:NVDA) proposes concessions to EU for $54B Arm (ARMHF) deal.

Palantir (NYSE:PLTR) gets pushback from bearish analysts over Army contract.

Cannabis in spotlight: What to expect from Tilray’s (NASDAQ:TLRY) FQ1 earnings?

Sweden, Denmark halt Moderna’s (NASDAQ:MRNA) COVID shot for younger people.

Electronic Arts (NASDAQ:EA) is the biggest S&P loser on Battlefield bug reports.

Apple (NASDAQ:AAPL) to face EU antitrust charge over NFC chip – Reuters.

Affirm Holdings (NASDAQ:AFRM) skyrockets as Target (NYSE:TGT) promotes partnership.

Twitter (NYSE:TWTR) to sell mobile ad firm MoPub to AppLovin for $1B.

NASA moves two astronauts off Boeing (NYSE:BA) Starliner project to SpaceX (SPACE).


Good morning. Happy Wednesday.

The Asian/Pacific were mixed. Japan, Hong Kong, South Korea and India were weak; Malaysia, Indonesia and the Philippines were strong. Europe, Africa and the Middle East are currently suffering big losses. The UK, France, Germany, the UAE, South Africa, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy and Austria are down 1% or more. Futures in the States point towards a big gap down open for the cash market.

————— VIDEO: Current Breadth Readings —————

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

Stories/News from Seeking Alpha…

Trillion-dollar gimmick

As the debt ceiling crisis escalates on Capitol Hill, a once far-fetched solution to the dilemma has been gaining steam. Talk of a trillion-dollar platinum coin – which would be deposited at the Federal Reserve as an asset swap – could result in an extra $1T to cover a big portion of Washington’s bill. In fact, the coin could be minted “within hours of the Treasury Secretary’s decision to do so,” said Philip Diehl, former director of the U.S. Mint under the Clinton administration.

Backdrop: The concept of a trillion-dollar coin dates back to 1992, when populist presidential candidate Bo Gritz suggested the idea during his second White House run. The idea resurfaced during the debt ceiling crisis of 2013 and the Obama administration even explored the possibility before the impasse came to an end with a continuing resolution. The method results in the U.S. minting more money to pay for its obligations, rather than borrowing through Treasuries (or the collection of taxes).

Can the Fed print as much money as it wants? While the trillion-dollar coin is not illegal, the accounting ploy has been frowned upon as it could threaten the checks and balances of Congress and open a Pandora’s box about all of public finance. It’s based on a loophole from a 1996 bill that discusses commemorative coins. According to Law 31 U.S.C. 5112 (k): “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations and inscriptions as Secretary, in the Secretary’s discretion, may prescribe from time to time.”

Outlook: “I’m opposed to it and I don’t believe that we should consider it seriously. It’s really a gimmick,” Treasury Secretary Janet Yellen told CNBC on Tuesday. The Biden administration has also insisted that the debt ceiling should be raised through bipartisan action, but with a deadline looming for when the government will run out of money, desperate times may call for desperate measures. If the debt ceiling is not resolved by Oct. 18, Yellen has warned that a default would “likely precipitate a historic financial crisis that would compound the damage of the continuing public health emergency, as well as triggering a spike in interest rates, a steep drop in stock prices and other financial turmoil.” (14 comments)

Red lights flashing?

Warnings of a stock market downturn continue to surface amid fears of inflation, slowing growth and rising interest rates. According to a new survey by Allianz Life, 54% of American investors are worried that a big market crash is on the horizon. More than two-thirds of the 1,005 respondents also said they were protecting their money from losses by keeping some of it out of the market as strategists sound the alarm over the current investing environment.

“I think we’ve ultra-accommodative monetary policy for a long time. Anybody that’s managed to put risk on the page in the last 13 years, but more specifically in the last 18 months, has been well rewarded,” said Jonathan Pollock, Elliott co-chief executive officer. “Now, I think the cycle is evolving. I’m not saying that the market’s going to go down 20% tomorrow, but I am saying that there is sensitivity.”

“Everybody on Wall Street, and like you say, an awful lot of people on Main Street, are focused on markets at a top or markets past the top or just about to the top. I think when you get that kind of mentality or that kind of a narrative out there, that’s so popular, you know, you’re probably not there,” added David Hunter, chief macro strategist at Contrarian Macro Advisors. But once the Fed begins to cut back its balance sheet and taper its asset purchases, “we’re going to see more wealth destruction [next year], I think – once we get past this last move – than we’ve ever seen.”

“U.S. stocks may be on the verge of starting the biggest bear market since the Great Depression,” declared Jon Wolfenbarger, CEO of and former equity analyst at Allianz Global Investors. “Now with the Fed talking about tapering and money supply growth slowing significantly from 39% Y/Y in February to only 8% Y/Y in August, perhaps that is enough of a ‘tight monetary policy’ to change investor psychology to a more bearish mood? We will see.” (13 comments)


Norwegian Cruise Line (NCLH) will begin sailing its full fleet of 28 ships by April 1 of next year, according to CEO Frank Del Rio, marking a big milestone for the company since the pandemic slammed its business. The cruise line currently has 8 vessels in operation and hopes 75% of its ships will hit the seas by the end of the year.

Quote: “If anything, the world is opening up, more people are getting vaccinated,” he told CNBC. “Pent-up demand continues to be very, very strong for the sailings we’ve operated thus far. Everything has been going to plan and on-board spending is at an all-time high.”

Norwegian requires its travelers to be fully vaccinated before boarding, but the cruise line is not yet mandating boosters (customers are asking). Del Rio also believes that the current vaccine mandate is a “competitive advantage,” despite the possibility of missing out on some customers. “When we came out with our vaccine mandates in early April, it was heresy back then, we were the oddball, but today everyone has followed suit because of the necessity to protect our society.”

Go deeper: Over the summer, Miami-based Norwegian sparred with Florida Gov. Ron DeSantis over the state’s law banning businesses from demanding proof of customer vaccination. However, the cruise line said on Aug. 8 that a federal judge issued a temporary injunction to preserve its proof of vaccination requirement. (13 comments)

Sigh of relief

The U.S. will not ban cryptocurrencies like China, SEC Chairman Gary Gensler said at a House hearing on Tuesday, though the agency will focus on ensuring that the industry is fairly regulated. “Our approach is really quite different,” he declared, adding that any ban would probably have to be legislated by Congress. The stance is a boon for the crypto world, after Gensler last month said the industry was “rife with fraud, scams, and abuse.”

Bigger picture: Jerome Powell seems to agree with Gensler as the Fed boss recently said he has no intention of banning cryptos, but stablecoins need more regulatory oversight. In contrast, China recently declared crypto transactions illegal, but it also seeks to launch its own central bank digital currency dubbed the digital yuan. In September, Beijing issued a sweeping ultimatum against crypto trading, stating all transactions were illegal and aggressively moved to root out token mining.

Speaking of crypto, Bitcoin (BTC-USD) has broken above $50K and is now approaching $52K just a week after the digital token bounced off $41K.

How would a ban work anyway? Bringing forth such a measure could be legally difficult for the U.S. government, but even if would go through, enforcing the ban would be the harder part of the equation. Unless the government would exert strict control over the internet, individuals could download Bitcoin wallet software, run a node and complete transactions. That may make the currency out of the realm of widespread adoption, but could also increase its demand for the exact same reason. Over the last decade, Bitcoin has also made inroads in the U.S. financial system, where it is treated as a commodity, so a ban could face other barriers like stymieing innovation and closing down institutions overseeing billions of dollars in crypto assets. (97 comments)

Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:00 Fed’s Bostic: “Rural Economics”
10:30 EIA Petroleum Inventories
11:30 Fed’s Bostic: “Public Leadership”

Companies reporting earnings today »

What else is happening…

Pepsi (NASDAQ:PEP) CFO expects more price hikes in early 2022.

Charlie Munger doubled down on Alibaba (NYSE:BABA) as shares dropped.

Visa (NYSE:V) drafts plan to reduce some fees banks pay to Apple (NASDAQ:AAPL).

Both sides of the aisle agree on regulating social networks.

Palantir (NYSE:PLTR) surges after U.S. Army selects for intelligence data fabric.

Johnson & Johnson (NYSE:JNJ) seeks U.S. regulatory nod for COVID booster shot.

Delivery capabilities? Home Depot (NYSE:HD) teams up with Walmart’s (NYSE:WMT) GoLocal.

Oprah Winfrey-backed Oatly’s (NASDAQ:OTLY) stock price sinks to post-IPO low.

Burger King (NYSE:QSR) to sell plant-based chicken nuggets in three-city test.


Good morning. Happy Tuesday.

The Asian/Pacific leaned down. India and Thailand did well, but Japan, South Korea, New Zealand, Indonesia and Singapore were weak. Europe, Africa and the Middle East are currently mostly up. The UK, Denmark, France, Russia, Greece, Spain, the Netherlands, Italy, Austria, Saudi Arabia and the Czech Republic are leading. Futures in the States point towards a positive 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 up.

Stories/News from Seeking Alpha…

Global energy crisis

Energy prices continue to surge to fresh records as renewed fears stoke panic of the worst shortage in decades. India has warned it has only four days of coal reserves left, German power plants are running out of fuel and China just unloaded an Australian coal shipment despite an import ban and icy relations. Supply is just not there as economies rebound from a pandemic-induced lull, while problems like logistical logjams and transport bottlenecks are adding to the pressure.

Bigger picture: OPEC+ didn’t come to the rescue yesterday as the group decided to continue its original plan of gradually releasing 400,000 additional barrels of oil per month. That’s despite calls from world leaders, including the White House, to bring more crude on to the market and keep a lid on prices. According to the EIA, average daily crude production in the U.S. has been 6.7% lower than last year, while commercial stockpiles of crude, excluding the Strategic Petroleum Reserve, are off by 15% compared to 2020.

That’s helping send oil prices to their highest levels in three years, with Brent (CO1:COM) and WTI crude (CL1:COM) touching $82 and $78 a barrel, respectively. High natural gas prices (NG1:COM) are also prompting American utilities to switch to coal this year, but their supply is constrained by miners that have cut capacity by 40% over the last six years. This past week, coal from the central Appalachia region rose $2.20 to $73.25, up 35% YTD and the highest level since May 2019.

Thought bubble: “Investors are underappreciating the structural changes that have taken place in the North American energy landscape that could lead to these higher prices persisting for some time,” wrote Lucas Pipes, an analyst with B. Riley Securities. Some are even calling the current situation the first major energy crisis of the clean power transition, with President Biden setting a goal to decarbonize the economy by 2050 (power demand is expected to increase 60% by then). “It is a cautionary message about how complex the energy transition is going to be,” added Daniel Yergin, author of The New Map: Energy, Climate and the Clash of Nations. (32 comments)

Six hours of darkness

All of Facebook’s (FB) services are back online after a change to its backbone routers disrupted services and the company’s day-to-day operations. The stock is up 1.5% in premarket trading after plummeting nearly 5% yesterday when Facebook, Messenger, WhatsApp and Instagram all went down. The company said the problem affected internal services, which complicated its attempts to fix the problem, though there were reports that employees could not enter buildings.

Quote: “Our engineering teams have learned that configuration changes on the backbone routers that coordinate network traffic between our data centers caused issues that interrupted this communication,” Facebook said in a statement. “This disruption to network traffic had a cascading effect on the way our data centers communicate, bringing our services to a halt.”

Facebook is already under pressure following a 60 Minutes report that suggested it intentionally boosted politically charged or misleading content as engagement bait. Former Facebook employee and whistleblower Frances Haugen outed herself as the source of The Wall Street Journal’s blistering “Facebook Files” series of exposes, saying the company prioritized profits over safety. Shares of the social media giant are even down nearly 15% from their recent highs and entered oversold territory after yesterday’s drop, according to the relative strength index.

Still under fire: Haugen heads before Congress today in hearing entitled “Protecting Kids Online.” “When we realized tobacco companies were hiding the harms it caused, the government took action. When we figured out cars were safer with seatbelts, the government took action,” she wrote in prepared remarks delivered to the Senate Commerce subcommittee. “I implore you to do the same here.” (10 comments)

Volatility watch

Not a day goes by without action in the stock market, especially during October. Shares of Big Tech companies slid on Monday, taking the S&P 500 to its lowest close since late July. In fact, the benchmark index is now more than halfway toward an official correction, though many of its components, especially tech, are already in a bear market due to tapering and higher rate concerns. Facebook (FB) was among the worst-performing S&P 500 stocks yesterday, slumping nearly 5% as Instagram, WhatsApp and its namesake platform suffered global outages.

Snapshot: Earnings season is just a week away and some analysts don’t like what they see under the hood for the third quarter. Inflationary pressures and supply chain problems are weighing on estimates, which could add to the list of speed bumps heading into year-end. Citigroup’s Global Earnings Revision Index (a global measure of analyst upgrades minus downgrades of earnings expectations) is even on its way toward negative territory after hitting an all-time high in May.

While the equity rout worsened overnight as futures headed even further south, volatile October is putting up a fight. Contracts linked to the Dow, S&P 500 turned 0.3% higher at 3:00 a.m. ET, while the Nasdaq tacked on 0.5%. There’s still a lot to think about: Rosy economic data, like the latest payrolls number on Friday, could be a boon for the recovery, while the “buy the dip” strategy that has been in effect since March 2020 could continue to be a powerful force. “We do not believe the recent bout of de-risking will lead to sustained falls, and maintain the stance to keep buying into any weakness,” said Marko Kolanovic, JPMorgan’s chief global markets strategist.

Over in Washington: Lawmakers are still trying to agree to raise or suspend the debt ceiling to avert a default on the national debt. The Treasury has warned that Congress must act before Oct. 18 or the U.S. will risk honoring its bond payments, but that hasn’t stopped the politics. “Let me be clear about the task ahead of us: we must get a bill to the president’s desk dealing with the debt limit by the end of the week. Period,” Senate Majority Leader Chuck Schumer wrote in a letter to his Democratic colleagues. (4 comments)

Hollywood shutdown?

Off-screen Hollywood workers have voted overwhelmingly to approve a strike against film and television production in the event they can’t come to a last-minute deal in stalled talks with studios. Members of the International Association of Theatrical Stage Employees (IATSE) voted with a 98% margin (and 90% turnout) to approve the strike, should discussions with the Alliance of Motion Picture and Television Producers (AMPTP) fail to produce a new contract. All 36 locals, including 13 on the West Coast, as well as 23 around the country, voted in favor of the authorization.

What they want: Negotiations over long on-set hours, wage scales, residuals for streaming and pension/health fund stability have been ongoing since May, according to Variety. The developments could also affect major and “mini-major” film studio stocks including Disney (DIS), Universal (CMCSA), Warner Bros. (T), Sony (SONY), Paramount (VIAC), Lions Gate (LGF.A), Eros STX Global (ESGC) and MGM Holdings (OTC:MGMB).

“I hope that the studios will see and understand the resolve of our members,” said IATSE President Matthew Loeb. “The ball is in their court. If they want to avoid a strike, they will return to the bargaining table and make us a reasonable offer.“ Otherwise, Loeb now has the power to pull 60,000 workers off sets, which would shut down production across the United States

Response from the producer reps: “The AMPTP remains committed to reaching an agreement that will keep the industry working. We deeply value our IATSE crew members and are committed to working with them to avoid shutting down the industry at such a pivotal time, particularly since the industry is still recovering from the economic fallout from the COVID-19 pandemic.” (20 comments)

Today’s Economic Calendar
8:30 Goods and Services Trade
8:55 Redbook Chain Store Sales
9:45 PMI Composite Final
10:00 ISM Service Index
10:30 Fed’s Barkin: “Fed Listens”
1:15 PM Fed’s Quarles: “LIBOR Transition”

Companies reporting earnings today »

What else is happening…

Pfizer-BioNTech (PFE, BNTX) COVID-19 vaccine efficacy wanes after 6 months.

Cathie Wood’s ARK Innovation (NYSEARCA:ARKK) hits four-month low; RSI says it’s oversold.

New BofA crypto coverage includes JPMorgan (NYSE:JPM) and DraftKings (NASDAQ:DKNG).

In time for the chip crunch… GlobalFoundries (GFS) files for initial public offering.

Tusa at it again: GE (NYSE:GE) should be avoided given high expectations.

Mastercard (NYSE:MA), Visa (NYSE:V) dip after Twitter (NYSE:TWTR) adds Bitcoin.

Canada invokes 1977 treaty with U.S. in Enbridge Line 5 dispute.

Southwest (NYSE:LUV) is latest airline to require COVID vaccines for workers.


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

The Asian/Pacific were mixed. India, Australia, Indonesia and Singapore did well while Japan, Hong Kong, South Korea and Taiwan were were. Europe, Africa and the Middle East are currently mixed. Poland, Russia and the Czech Republic are up; the UAE, Finland, the Netherlands and Israel are down. Futures in the States point towards a negative open for the cash market.

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

Stories/News from Seeking Alpha…

Facebook under fire

The pressure on Facebook (NASDAQ:FB) is not letting up following a three-hour Senate hearing last week in which lawmakers grilled the social media giant over its harmful effects on young people. Over the weekend, a Facebook whistleblower named Frances Haugen, who leaked the docs for the WSJ’s “Facebook Files,” accused the company of repeatedly prioritizing profit over clamping down on hate speech and misinformation. Her lawyers have already filed at least eight complaints with the SEC, according to the interview on CBS’s 60 Minutes.

Quote: “The thing I saw at Facebook over and over again was there were conflicts of interest between what was good for the public and what was good for Facebook,” said Haugen, who worked as a product manager on the civic misinformation team. “Facebook, over and over again, chose to optimize for its own interests, like making more money. It is subsidizing, it is paying for its profits with our safety.”

Haugen even went as far as to suggest the moneymaking moves contributed to the deadly Jan. 6 invasion of the U.S. Capitol (after the company prematurely disbanded its Civic Integrity team designed to thwart misinformation). She’ll also testify before a Senate subcommittee tomorrow in a hearing titled “Protecting Kids Online” and hopes her statements will result in “regulation being put into place.” Facebook’s annual revenue has more than doubled from the $56B seen in 2018, when a newsfeed content flow change went into effect. The new algorithm has fostered discord, according to Haugen, while contributing to more divisiveness on a network meant to bring people together.

Response from Facebook: “Every day our teams have to balance protecting the ability of billions of people to express themselves openly with the need to keep our platform a safe and positive place,” Facebook spokesperson Lena Pietsch said in a statement. “We continue to make significant improvements to tackle the spread of misinformation and harmful content. To suggest we encourage bad content and do nothing is just not true.” (18 comments)

Market on edge

Get ready for a volatile October… The month, traditionally known for its ups and downs, didn’t disappoint traders overnight. S&P 500 futures opened the session solidly in the green on Sunday evening, only to fall 0.7%, before heading back to the flatline. Contracts linked to the DJIA moved in line with the benchmark index, while the Nasdaq saw even steeper price swings.

While the main focus this week will be ADP’s September employment report and the non-farm payrolls report for last month, investors are also sizing up what kind of returns could be in store for the rest of the quarter:

The bulls: “Q4 2021 will likely record a higher-than-average return,” noted CFRA chief investment strategist Sam Stovall. “However, investors will need to hang on tight during the typically tumultuous ride in October, which saw 36% higher volatility when compared with the average for the other 11 months.”

The bears: “We’re headed for some trouble ahead,” declared Wharton finance professor Jeremy Siegel, who’s known for his positive market forecasts. “Inflation, in general, is going to be a much bigger problem than the Fed believes. I do not believe that the market is prepared for an accelerated taper.”

Macro front: Echoes of the trade war were heard overnight as U.S. trade representative Katherine Tai vowed to enforce Phase 1 of the trade deal with China. Under the pact, Beijing pledged to buy at least $200B more U.S. goods and services over 2020 and 2021, compared to 2017, though as of August, China had only reached 62% of that target, based on export data compiled by the Peterson Institute for International Economics. Tai also said there were “serious concerns” about the country’s “state-centered and non-market trade practices” – which were not addressed under the current framework – but would “raise these broader policy concerns with Beijing.”

Vaccine updates

BioNTech (BNTX) CEO Ugur Sahin, whose company developed one of the first COVID-19 vaccines along with Pfizer (PFE), predicts that a new formula may be needed next year to protect against future virus mutations. While current variants, particularly the Delta strain, are leading to a surge in breakthrough cases, he said they’re not different enough to undermine the effectiveness of current jabs. That could change, though, and the company is planning accordingly.

Thought bubble: One of the biggest differences between the flu vaccine and many other vaccines is that the flu evolves much quicker than viruses like polio and measles. If someone was vaccinated as a child against the latter diseases, it’s extremely likely their body will recognize the disease at a much later date. While the scientific evidence is still pouring in on coronavirus, it may be closer to the flu in terms of its adaptability. “I think this virus is here to stay with us and it will evolve like influenza pandemic viruses,” said Dr. Mike Ryan, executive director of the World Health Organization’s Health Emergencies Program.

Sahin also made some other predictions. He sees two main streams of vaccination programs in 2022, including booster shots for those who have been vaccinated, as well as a continued push to vaccinate people who have had minimal access to them. Last month, the U.S. announced it would buy another 500M doses of the BioNTech/Pfizer vaccine at not-for-profit rates to give to lower-income countries. Shares of BNTX have surged more than 200% YTD amid vaccine developments, booster shots and FDA authorization, while PFE has gained around 17%.

Go deeper: Vaccine makers are on the backfoot again this morning after Merck & Co. (MRK) dropped a bomb in the global fight against COVID-19 on Friday. Results from Merck’s experimental pill cut the risk of hospitalization and death from COVID in half, and were so encouraging that it stopped enrolling patients to begin the process of regulatory approval. The pill, which is most effective when given early in course of infection, is also said to work against all COVID variants including Delta. (13 comments)

More oil to market?

An energy supply crunch that has led to gas lines in the U.K. and China to secure supplies “at all cost” is prompting investors to closely watch the sector. The latest headlines could come today as OPEC+ holds a virtual meeting to review its output policy. In July, the group led by Saudi Arabia and Russia agreed to boost monthly output by 400K barrels per day until at least April 2022, phasing out 5.8M bpd in cuts.

Chatter before the gathering: OPEC+ may consider going beyond its existing deal to boost production by another 400K barrels per day. There are even suggestions for an increase of 800K bpd for one month, with zero the next month, while other delegates feel there is currently no need to take extraordinary measures. The nearest month any increase could occur is November since OPEC+’s last meeting decided the October volumes.

“Obviously, the price of oil is of concern,” White House Press Secretary Jen Psaki said this past Thursday, adding that the U.S. was talking to OPEC and looking at every tool to address its cost. 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. President 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.

Elsewhere: One of the largest oil spills in recent Southern California history occurred over the weekend, with at least 126,000 gallons of oil leaking into the waters off Orange County. Local officials are calling it an environmental catastrophe as black globules along with dead birds and fish wash ashore. The spill was caused by a breach connected to the Elly oil rig, which was operated by a California subsidiary of Houston-based Amplify Energy Corporation (AMPY). (13 comments)

Today’s Economic Calendar
Auto Sales
10:00 Factory Orders
10:00 Fed’s Bullard: “Mastering the Economic Revival”
10:00 Fed’s Rosengren: “Racial Disparities in Today’s Economy”
12:30 PM Investor Movement Index

Companies reporting earnings today »

What else is happening…

California to require COVID-19 vaccines for school kids.

Moderna (NASDAQ:MRNA) shot linked to higher rates of heart inflammation.

Five ways to play the worldwide energy crunch – Barron’s.

Instacart? Rivian? IPOs and SPACs seem poised for a hot Q4.

‘Clickbait’ leads streaming ratings for Netflix (NASDAQ:NFLX).

Tesla (NASDAQ:TSLA) tops expectations with Q3 deliveries of 241K.

Moonshot watch: Valuation on Fanatics (FANA) soars off sports betting.

Rocket Lab (NASDAQ:RKLB) #1 industrial gainer thrice in a month.

Shares of China’s Evergrande (OTCPK:EGRNF) suspended in Hong Kong.

Fumio Kishida elected as Japan’s 100th prime minister.


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