Good morning. Happy Friday.
The Asian/Pacific markets leaned down. New Zealand did well, but Japan, Hong Kong, South Korea, Malaysia, and the Philippines were weak. Europe, Africa and the Middle East are currently very quiet and little changed. Denmark, Turkey, Russia and Austria are down. Futures in the States point towards a moderate gap up open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil is up; copper is flat. Gold is flat; silver is down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Winds of inflation
The biggest economic release for financial markets has traditionally been Jobs Day, but in recent months, CPI Day has taken the spotlight. That’s because the U.S. economy is nearing full employment, while the labor force participation rate has climbed out of its pandemic-era hole. While the strong recovery is a great sign for the economy, that doesn’t mean all is well for the average American.
Rearing its ugly head: Headline inflation today is forecast to show growth of 6.8% Y/Y in November, which would be the highest level since the summer of 1982, and overtake the 6.2% increase seen in October. Core CPI is also expected to come in at a flaming 4.9%, prompting Fed Chair Jerome Powell to recently ditch his outlook of “transitory” inflation. Contributing to the surge is resilient demand and unprecedented stimulus, as well as transportation logjams and shortages of both supplies and labor.
The worsening price environment is likely to prompt FOMC officials to accelerate stimulus withdrawal or deliver swifter policy tightening. It also signals a big pivot for the central bank, which until now had been more worried about the “maximum employment” side of its dual mandate, compared to “stable prices.” Current market pricing is for the Fed to announce its first 25-basis point rate hike in May or June of 2022, while a high inflation reading could hasten the taper of its $120B monthly bond-buying program, possibly ending it in March.
How to play markets? “What we’ve seen this year, which is likely to persist into at least the beginning part of next year… is the rapid fire sector rotations,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “Take advantage of these greater swings by upping the pace of rebalancing, and trimming or taking profits where you get some short-term strength and vice versa.”
First labor union
A Starbucks (SBUX) store in Buffalo has become the first location in the country to unionize after employees voted by a margin of 19 to 8 to join the Workers United Union. Two other stores in the region also voted on Thursday, but one said no, while results at the third location weren’t conclusive. Never in the coffee chain’s 50-year history has it relied on union workers to serve up its lattes among its 9,000 corporate-run stores across the U.S.
What it means: Analysts are sizing up what kind of tipping point could be in store as this is the first-ever labor foothold to hit Starbucks. Three more locations in Buffalo are also heading towards union elections, as well as another store in Mesa, Arizona that just filed for a vote. The fact that there was also a win in the restaurant industry – where there are almost no unions – could heat up labor movements and advocacy across the country.
The union drive has preoccupied Starbucks executives for months and the company even unveiled a wage increase in October that would raise the average barista’s salary to nearly $17 an hour (from $14) by next summer. “This win is the first step in changing what it means to be a partner at Starbucks, and what it means to work in the service industry more broadly,” said Michelle Eisen, a barista who works at the now-unionized Elmwood location in Buffalo. “With a union, we now have the ability to negotiate a contract that holds Starbucks accountable to be the company we know it can be, and gives us a real voice in our workplace.”
Go deeper: Brett Levy of MKM Partners noted that unionizing move won’t have an immediate impact on Starbucks’ strategy or financial results, but if the trends were to spread, the firm would be better positioned to absorb higher costs than its industry peers. In recent months, employees have gone on strike at Deere (DE), Mondelez (MDLZ) and Kellogg (K), as workers find themselves with increased leverage due to a massive labor crunch. President Biden has also promised to be the “most pro-union president in American history,” declaring that “unions built the middle class,” while there have also been union votes in at Amazon (AMZN), the second-largest private employer in America.
T+1 by 2024
The securities settlement process is set to get even faster after the Investment Company Institute (ICI), the Securities Industry and Financial Markets Association (SIFMA) and the Depository Trust & Clearing Corporation (DTCC) laid out a new goal of getting the industry to “T+1.” Currently, market players are required to physically deposit stock in an account within two days of making a transaction in a process known as “T+2.” During that time, brokers have to post collateral to the DTCC because equity prices can fluctuate over those 48 hours and some buyers/sellers are using margin/borrowed shares, so the lag can make sure everything turns out all right.
Backdrop: For many years, markets operated on a “T+5” settlement cycle, when security transactions were done manually. In the 1990s, the SEC shortened the settlement cycle to three business days, which reduced the amount of money that needs to be collected at any given time. It was only in 2017 that the commission moved to “T+2,” calling the previous standard an outdated “settlement cycle” due to improvements in technology, emerging new products and growing trading volumes.
“Shifting to ‘T+1’ will strengthen the financial system and offers tangible benefits to investors by reducing their risk exposure and enabling them to more quickly leverage investment opportunities,” said ICI President Eric Pan. The extensive overhaul would cover settlement infrastructure, changes to business models and system requirements and improvements. Implementing “T+1” in the first half of 2024 will “allow enough time for firms to assess the changes they need to undertake, for the industry to conduct comprehensive testing, and for regulators to make the necessary regulatory changes.”
Outlook: Some have even called for real-time settlement, like Robinhood (NASDAQ:HOOD) CEO Vlad Tenev, whose firm had to restrict trading earlier this year during the notable short squeeze of GameStop (GME). However, that’s unlikely to happen anytime soon, as it would require expensive updates to almost all market infrastructure, hamper margin purchases of stock and erase most of the benefits of netting, which provide liquidity and minimize risk. Instead, the next realistic target would likely be “T+0.5,” where trades are settled same day.
Evergrande fallout?
Fitch has become the first to label China Evergrande’s (OTCPK:EGRNF) overseas bonds as “in default” after the heavily-indebted property developer missed coupon payments totaling $82.5M when a grace period expired on Monday. “There has been no announcement from the company or the trustee. In addition, the company did not respond to our request for confirmation,” the credit ratings agency wrote in a press release. Overnight, Evergrande said there was “no guarantee” it could meet its debt repayments as it entered a restructuring process with assistance from local government officials.
The downgrade by Fitch could trigger cross defaults on the developer’s $19.2B of outstanding debt across international bond markets. It also raises concerns for what it will mean domestically for China’s $5T property sector and the potential impact on the nation’s economy. In response, China’s central bank has freed up 1.2T yuan ($188B) of liquidity for the banking system – by cutting the reserve requirement ratio by 50 bps – and pledged to maintain “flexible” monetary policy in the coming year.
Too big to fail? One of the biggest questions surrounding the entire saga was if the government would let Evergrande collapse, or rescue it due to its leverage and systematic risk (real estate accounts for a quarter of Chinese GDP by some metrics). That dilemma seemed to be answered by PBOC Governor Yi Gang, who said the inability to meet obligations is a market event and will be dealt with in a market-orientated way. Cue the massive restructuring and deep haircuts for investors given Evergrande’s $300B in total liabilities.
Commentary: “I’ve actually been surprised how little reference there is to the 1997 Asian Financial Crisis and the Guangdong housing market turmoil in that context,” added Isabella Weber, Professor of Economics at UMass and political economist working on China. “So I think that to some degree, we see something very similar happening where there is a sense that the situation of the real estate sector has become exceedingly dangerous. And as many people have been saying for a long time… there’s an attempt of basically letting go of Evergrande before the whole forest catches fire.”
Today’s Economic Calendar
8:30 Consumer Price Index
10:00 Consumer Sentiment
10:00 Quarterly Services Report
1:00 PM Baker-Hughes Rig Count
2:00PM Treasury Statement
What else is happening…
Concentration risk? Cathie Wood defends her innovation investment thesis.
Bitcoin hash rate recovers to nearly same level before China’s crackdown.
Amazon (NASDAQ:AMZN) fined $1.3B for abusing online market power in Italy.
Lululemon (NASDAQ:LULU) tops estimates, but cuts forecast for MIRROR sales.
Meta (NASDAQ:FB) opens VR/metaverse space Horizon Worlds to public.
Intel (NASDAQ:INTC) sees company turnaround taking at least five years – WSJ.
SEC Chair Gary Gensler seeks tougher SPAC disclosure, liability rules.
American (NASDAQ:AAL) to cut some international flights due to Dreamliner delay.
Strong demand has Ford (NYSE:F) stop taking reservations for F-150 Lightning.
Meanwhile… GM (NYSE:GM) shoots for all-electric Silverado in early 2023.
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Good morning. Happy Thursday.
The Asian/Pacific markets mostly did well. China, Hong Kong, South Korea, Malaysia, Indonesia and the Philippines moved up; Japan and New Zealand were weak. Europe, Africa and the Middle East currently lean down. Denmark, Turkey, Russia and the Czech Republic are up; Poland, South Africa, Finland, Norway, Hungary, Spain and the Netherlands are down. Futures in the States point towards a down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Smoke-free generation
In one of the toughest crackdowns on the tobacco industry, New Zealand has announced plans to prevent young people from ever being able to buy cigarettes. The initiative would create a “smoke-free generation” by 2027, ensuring that anyone born after 2008 will not be able to purchase cigarettes or tobacco products in their lifetime. The level of nicotine in cigarettes available to older people will also be reduced by 2025, while the number of retailers able to sell cigarettes will be slashed from 2024 (from 8,000 to under 500).
Flashback: The government first introduced its smoke-free goal back in 2011 to ensure that the national smoking rate was reduced to less than 5% by 2025. Another law in 2018 was subsequently passed requiring tobacco products to be sold in dark brown/green colored packaging, with no company logos and the same font for all brands. Taxes were also raised on the products, though the country did adopt vaping as a pathway to help smokers quit tobacco.
“This is a historic day for the health of our people,” said Dr. Ayesha Verrall, associate health minister. “We want to make sure young people never start smoking so we will make it an offense to sell or supply smoked tobacco products to new cohorts of youth.” The age-based ban would increase annually, prompting investors to keep an eye on their stakes in Altria (NYSE:MO), Philip Morris (NYSE:PM) and British American Tobacco (NYSE:BTI).
Outlook: Around 13% of New Zealand adults smoke (out of a population of 5M), down from 18% almost a decade ago. However, the current smoking rate among the indigenous Maori population stands at 31%, way higher than the national average. The sweeping crackdown on smoking could also lead to a black market for tobacco, and a statement from the health ministry acknowledges the risk, noting “customs will need more resources to enforce border control”. (29 comments)
A fourth dose?
Three shots against Omicron is equivalent to two shots against the original coronavirus strain, Pfizer (PFE, BNTX) announced after completing its first study on the new variant. That would mean high antibody levels and efficacy of 95%, though the data collected in the study was based on a pseudo-virus, or a strain constructed in Pfizer’s lab to replicate Omicron. Pfizer is looking to produce the same results with the real virus (results will be published in a week or two), but the ultimate proof will come from real-world data at the end of the month.
Snapshot: Once a more accurate picture is assembled, Pfizer will determine if a separate Omicron-specific vaccine is needed. The company is already at work with a jab targeting the variant and said it could be ready by the end of March. CEO Albert Bourla also related that treatments such as Pfizer’s oral antiviral pill, Paxlovid, will help prevent hospitalizations and control COVID-19 during the winter.
As more and more shots are needed, some are even starting to talk about a fourth vaccine dose. Bourla noted that a jab could come “faster” than expected after previously projecting that a fourth shot would be needed 12 months after the third. He also anticipates new variants to emerge in the future and the company will continue monitoring to see if vaccine adjustments are needed.
Go deeper: Israel is already among the first in the world to consider authorizing a fourth COVID booster dose for immunocompromised patients and other at-risk populations. “There are some vaccines that are very efficient, like the ones against childhood diseases. There are also vaccines that need to be administered every year, like the one against the flu,” said Prof. Cyrille Cohen, head of the immunology lab at Bar-Ilan University. “I think that eventually, a mix between vaccines and natural exposure will help us make the coronavirus less threatening. At the moment, vaccines are the best way to fight the pandemic, and we have to be grateful for that.” (48 comments)
GameStop drops
Meme favorite GameStop (GME) reported earnings after the bell on Wednesday, but the company did not get much love from the WSB crowd or others trying to make a quick buck. Shares fell 4.4% to $166 after the video game retailer reported that its losses widened in the fiscal third quarter. Specifically, its net loss grew to $105.4M, or $1.39 per share, from a loss of $18.8M, or $0.29 per share, a year earlier.
Bigger picture: Contributing to the EPS miss were rising inventories, as the company tried to get ahead of supply chain problems and be well-stocked for the holiday season. At the close of the quarter, inventory totaled $1.14B vs. $861M in FQ3 of 2020. GameStop has reported annual losses for three consecutive years, as gamers continue downloading titles over the internet and publishers release more free games on smartphones and tablets.
“Once again these were not great numbers,” declared Loop Capital’s Anthony Chukumba, adding that “the press release was literally six bullet points that didn’t give a lot of details on what the strategy is to turn this business around.” GameStop suspended giving guidance last March, citing pandemic uncertainty, though it still hasn’t resumed the practice.
Transformation attempt: The company has recently been focusing on growing its e-commerce division and improving customer service. Over the summer, GameStop named former Amazon veterans Matt Furlong and Mike Recupero as its chief executive and financial officers, respectively, while shareholders voted Chewy co-founder Ryan Cohen as chairman and elected an entirely new slate of boardroom directors. It has also opened new offices in Boston and Seattle to draw in talent from the tech hubs. (32 comments)
Largest lab-grown steak
There are battles being waged in the #plantbased theater, driven by a shift in consumer appetite toward environmentally friendly products. However, dairy and meat plant-based items aren’t the only alternative protein range. Lab-grown meat, as well as fermentation startups, are still in the early stages, and some have been hit store shelves as they look to ramp up production.
The latest? MeaTech 3D (NASDAQ:MITC) has created the world’s largest lab-grown steak, featuring real bovine cells that mature into muscle and fat. The 3.67 oz steak was made using 3D printing, where stem cells taken from cow tissue were incorporated into “bio-inks” that were then layered and matured in an incubator. The steak was also able to produce grill marks when cooked, and “tastes, smells and feels just like the farmed variety.”
“The breakthrough is the culmination of over one year’s efforts in our cellular biology and high-throughput tissue-engineering processes, as well as our precision bioprinting technology,” CEO Sharon Fima declared. “We believe we have placed ourselves at the forefront of the race to develop high-end, cell-based meat products.” Shares of MeaTech rose 1.7% premarket to $7.75 on the news.
Next moves: MeaTech hopes to start marketing its products in 2022, with a pilot that will sell cultured fat as an ingredient for other products. Down the line, it aims to produce cultured meat at the same cost as conventional meat, but it’s too early to say how long that would take and if it could be scaled up to a reasonable cost. It was only a year ago that Singapore became the first nation to approve lab-grown meat, with “chicken nuggets” made by U.S. company Eat Just served to consumers in the country. (7 comments)
Today’s Economic Calendar
8:30 Initial Jobless Claims
10:00 Wholesale Inventories (Preliminary)
10:30 EIA Natural Gas Inventory
1:00 PM Results of $22B, 30-Year Note Auction
4:30 PM Fed Balance Sheet
What else is happening…
Bernstein picks likely winners in tackling metaverse debate.
Energy crisis… Elon Musk weighs in on nuclear power.
Enterprise Products (NYSE:EPD) could repurpose pipelines for carbon projects.
Southwest Airlines (NYSE:LUV) boosts revenue guidance ahead of investor event.
Kinross Gold (NYSE:KGC) to buy Great Bear Resources (OTCQX:GTBAF) for $1.4B.
Regulatory options restrictions could be a problem for Robinhood (NASDAQ:HOOD).
Apple (NASDAQ:AAPL) issued stay of injunction in Epic Games case.
Facebook’s Meta (FB) says employees can stay at home for longer.
Visa (NYSE:V) launches advisory practice to navigate crypto strategy.
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Good morning. Happy Wednesday.
The Asian/Pacific markets mostly did well. Japan, China, India and Australia posted the biggest gains. Europe, Africa and the Middle East are mixed and quiet. Denmark, Turkey, Switzerland and the Czech Republic are up; Russia and Italy are down. Futures in the States point towards a positive open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil and copper are up slightly. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Network goes down
It only lasted for several hours on Tuesday, but an outage at Amazon Web Services (AMZN) showed just how connected our world really is. The issue primarily affected the “US-EAST-1 Region,” which is hosted in Northern Virginia, but covers cities across the country including Boston, Chicago and Houston. Warehouse and delivery workers, along with drivers for Amazon Flex, couldn’t scan packages or access delivery routes, while some Ring devices went offline, as well as voice assistant Alexa.
What happened? Amazon didn’t reveal the cause of the outage, but others were quick to comment. “More and more these outages end up being the product of automation and centralization of administration,” said Doug Madory, director of internet analysis at Kentik. “This ends up leading to outages that are hard to completely avoid due to operational complexity but are very impactful when they happen.”
Multiple popular websites were also impacted, including those hosted McDonald’s (MCD), Robinhood (HOOD) and Coinbase (COIN). The outage separately took down major streaming services, like Netflix (NFLX) and Disney+ (DIS), and prevented people from getting into Walt Disney’s theme parks. Meanwhile, customers trying to book or change trips with Delta (DAL) had trouble connecting to the airline, Toyota’s (TM) U.S. East Region for dealer services went offline and some smart lightbulbs and Roomba vacuums stopped working.
Market movement: The outage did not impact Amazon shares. The stock finished the session up 2.8% to $3,523, in line with the broader market.
Crypto hearing
The crypto world will tune in to a House hearing this morning, entitled, “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States.” On the witness list are top brass from half a dozen crypto firms, including Alesia Jeanne Haas, CFO of Coinbase Global (NASDAQ:COIN). Lawmakers hope the session will improve their understanding of crypto assets and how the sector fits into existing regulations.
Bigger picture: The executives are expected to highlight the potential upsides of crypto and blockchain technology while downplaying the risks of the sector. They’ll also urge Congress to pass laws which would give crypto regulatory authority to a single federal agency. Under current rules, the SEC oversees spot markets for securities, while the Commodity Futures Trading Commission oversees derivatives markets based on commodities, but neither regulator maintains regular oversight of spot markets for commodities like Bitcoin (BTC-USD) and Ethereum (ETH-USD).
“A successful policy framework would allow crypto platforms to offer both spot and derivatives trading on crypto assets under one unified system, with one rule book and one technology platform to manage risks related to all trading activity in customer accounts,” Sam Bankman-Fried, CEO of FTX, said in prepared remarks to the House Financial Services Committee.
Go deeper: Other topics likely to be discussed are investor protection, accountability of crypto exchanges, stablecoin offerings and emerging fintech products and services. Supporters say crypto can enable faster and cheaper transactions than traditional payment networks, as well as innovation and financial inclusion. However, policymakers have previously voiced concerns over the threat to financial stability, and criminal activity like fraud, tax evasion and money laundering.
Partial protection
In what could be the first lab-based testing on the effectiveness of COVID-19 vaccines against Omicron, researchers at the Africa Health Research Institute in South Africa have found that the variant could partially evade the protection generated by Pfizer-BioNTech (PFE, BNTX) COVID-19 vaccine. Under the experiment, the scientists took 14 plasma samples from 12 participants that had been vaccinated, 6 of whom were previously infected.
Specifics: The laboratory led by Prof. Alex Sigal found that an Omicron infection resulted in a 41-fold drop in virus-blocking antibodies compared with the original strain of the coronavirus detected in Wuhan. Omicron also escaped antibody neutralization “much more extensively” than the Beta variant that was previously dominant in South Africa. Meanwhile, researchers reported that people who had previously been infected with COVID-19 – in addition to having been double vaccinated – retained “relatively high levels” of antibody protection, which would “likely confer protection from severe disease in Omicron infection.”
BioNTech will respond to the publication with its own data later this week, with CEO Ugur Sahin saying, “I would be more optimistic.” Moderna CEO Stéphane Bancel feels differently, warning that the new variant would likely result in a “material drop” in vaccine effectiveness.
Analyst commentary: Evercore ISI is warning against reading too much into a single study, noting there has been significant variability in measuring declines in antibody levels. “Let’s wait for additional studies to draw a mosaic,” declared analyst Umer Raffat. Investors also seem to be reflecting similar sentiment, with the Dow Jones Industrial Average set to record its best start to a December since 1997 following a brief panic over Omicron.
Tightening the grip
China’s crackdown on its technology sector looks set to continue following nearly a year of unwieldy regulatory efforts. It all began in November 2020, when Jack Ma’s Ant Group was forced to cancel what would have been the world’s largest IPO. Regulatory efforts then turned to data security and protection – with large fines imposed on Alibaba (NYSE:BABA) and food-delivery giant Meituan (OTCPK:MPNGY) – and culminated in a New York Stock Exchange delisting announcement last week by DiDi Global (NYSE:DIDI).
The latest: China is said to be drawing up a blacklist that will make it harder for new technology companies to raise foreign funding and list overseas, FT reports. The blacklist could be published as early as this month, and would include startups that use a so-called variable interest entity structure, which is controlled by a company by means other than a majority of voting rights. VIEs have been used for decades by Chinese tech groups, such as Alibaba (BABA) and Tencent (OTCPK:TCEHY), to circumvent foreign investment restrictions and raise funds internationally.
Prompting the decision is the Chinese Communist Party’s move away from the proliferation of the private sector to a more state-owned enterprise economy (or at least having more involvement and control of the business environment). Compared to prior decades, the new economic order is more concerned about the control of data and flows of capital vs. economic liberalization and reforms. The CCP is also fearful that foreign investment could lead to “disorderly capital expansion,” which means that foreign interests influence what goes on inside China.
Thought bubble: The U.S. has taken similar measures to restrict Chinese investment in Silicon Valley startups, though most of those worries come from a place of fear that critical technologies and intellectual property could be stolen. Washington has also beefed up the power of the Committee on Foreign Investment in the U.S., which can block deals on national security grounds. However, some fears surrounding data sharing are more similar, like the executive orders targeting TikTok (BDNCE) under the Trump administration or the investigation of apps tied to foreign adversaries under President Biden.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 Job Openings and Labor Turnover Survey
10:30 EIA Petroleum Inventories
1:00 PM Results of $36B, 10-Year Bond Auction
What else is happening…
American Airlines (NASDAQ:AAL) CEO Doug Parker to retire in March.
BitTorrent (BTT-USD) tokens soar 65% on upcoming mainnet launch.
Intel (NASDAQ:INTC) CEO: Mobileye IPO will create company in Tesla’s league
Palantir (NYSE:PLTR), Merck (OTCPK:MKGAF) partner to tackle chip shortage.
AT&T (T) CFO: Growth is sustainable and consumer healthy despite ‘hand-wringing.’
Kellogg (NYSE:K) workers reject new contract, lengthening two-month strike.
Stanley Black & Decker (NYSE:SWK) to divest Security Business for $3.2B.
Apple’s (AAPL) Chinese success tied to $275B deal spearheaded by Tim Cook.
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Good morning. Happy Tuesday.
The Asian/Pacific markets did great. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, Malaysia, Indonesia and Thailand posted solid gains. Europe, Africa and the Middle East are up big. The UK, Denmark,Poland, France, Turkey, Germany, Greece, Finland, Norway, the Netherlands, Italy, Israel, Austria, Sweden and the Czech Republic are each up at least 1%. Futures in the States point towards a big gap up for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil is up; copper is flat. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Sweeping vaccine mandate
Calling it a “preemptive strike” to head off another surge in COVID-19 cases, NYC Mayor Bill de Blasio said the city will become the nation’s first to impose a vaccine mandate on private sector workers starting on Dec. 27. The order will apply to roughly 184,000 businesses, requiring all workers to get two vaccine doses and leaving no room for a testing option for non-vaccinated employees. Guidance on how it will be enforced – and what sort of penalties businesses could face – will come on Dec. 15.
Bigger picture: New York City is also strengthening vaccine rules for indoor dining, entertainment and fitness to permit access only for those 12 and older who are fully vaccinated (children ages 5 to 11 will need to show proof of one dose). Last week, NYC strengthened its recommendation for residents to wear masks indoors regardless of vaccination status and announced additional vaccine mandates on childcare workers and employees at private and religious schools. Current vaccines approved in the U.S. include Pfizer-BioNTech (PFE, BNTX), Moderna (MRNA) and Johnson & Johnson (JNJ).
“We cannot let those restrictions come back, we cannot have shut downs here in New York City,” de Blasio said during a press conference, just days before he leaves office due to term limits. Meanwhile, a spokesperson for Mayor-elect Eric Adams sidestepped a question on whether he will maintain the mandate, saying he “will evaluate this mandate and other COVID strategies when he is in office.” New York Governor Kathy Hochul separately voiced her support for de Blasio’s move, saying she is deferring to local leaders on whether stricter rules are needed in their communities.
Go deeper: The private sector vaccine mandate caught some businesses by surprise and could face similar court challenges to those faced by the Biden administration. “Inconsistent policies at the federal, state and city levels are not helpful and it is unclear who will enforce a mayoral mandate, and whether it is even legal,” said Kathryn Wylde, CEO of the business group Partnership for New York City. “It is hard to imagine that the mayor can do what the President is being challenged to accomplish.” (12 comments)
Mobileye going public
When taking up the top post at Intel (INTC) earlier this year, CEO Pat Gelsinger pledged to revive the semiconductor giant’s engineering prowess and company fortunes after several years of missteps. A bold step in that direction is in the making, with plans to publicly list shares in its Mobileye self-driving car unit in mid-2022. Shares of Intel rose 9% in premarket trading on the news, as investors clamor for new technology issues and bet on the future of transportation.
What is Mobileye? The firm was founded back in 1999 and went on to specialize in chip-based camera systems that power automated driving features in cars. After going public in 2014, Intel scooped up the business for $15.3B in 2017, marking the largest acquisition of an Israeli company to date. Mobileye’s revenues have tripled since Intel bought it, and recorded $326M of revenue in Q3, marking a Y/Y increase of 39%.
“We didn’t see we were getting the full value of the asset, and taking it public will help unlock it,” said Gelsinger, outlining that the company would retain majority control of the division.
Flashback: Weeks before Gelsinger took the helm out Intel, activist hedge fund Third Point had pressed Intel to make sweeping strategic changes. Reports earlier this year also suggested that Intel was looking into a $30B deal GlobalFoundries (GFS) amid a global semiconductor shortage and chip crisis. While the deal would’ve been its largest ever, GlobalFoundries chose to go public instead and now has a market cap of around $37B. (131 comments)
Against EV subsidies
The Wall Street Journal’s annual CEO Council summit kicked off in Washington on Monday evening, with Elon Musk, founder of Tesla (NASDAQ:TSLA) and SpaceX (SPACE), taking most of the limelight. He discussed a slew of developments such as Neuralink, which he hopes will help the paralyzed walk again, and SpaceX’s Starship rocket, which will be key to making humans a “multiplanetary species.” Also of note were his comments on the Biden administration’s Build Back Better agenda and $1T infrastructure spending bill.
Quote: “Honestly, it might be better if the bill doesn’t pass. We’ve spent so much money, the federal budget deficit is insane. I would say… can the whole bill. Don’t pass it, that’s my recommendation. There’s no need for support [of a charging network]. Do we need support for gas stations? We don’t. So there’s no need for this. I would delete it. Delete. I am literally saying get rid of all subsidies [even for research and development].”
Some of the criticism could also stem from the fact that the bill would give consumers a tax credit of as much as $12,500 if they buy an EV assembled by union workers using American-made batteries. However, vehicles produced in non-union factories, such as Tesla’s, would qualify for a smaller write-off. Tesla has also benefited from billions of dollars in government subsidies in recent years, though Musk pointed out that the company no longer receives a $7,500 federal tax credit that was previously granted to its buyers, unlike most other automakers and recent entrants into the EV sector that are still eligible for the credit.
Market movement: Tesla slid as much as 6.4% to $950.50 on Monday morning, marking a 23% decline from the record closing high of $1,229.91 it touched only a month ago. While the stock is known to be a volatile momentum player, the plunge put shares into “bear market territory,” though they cut most of their losses before the close. Earlier in the day, the SEC said it was investigating the automaker over a whistleblower complaint surrounding the safety of its cars’ solar panel systems, on top of a widely-publicized federal safety probe into accidents involving Tesla’s driver assistant systems. (56 comments)
Olympic boycott
Pointing to China’s “crimes against humanity” and other “human rights atrocities,” the U.S. government is boycotting the 2022 Winter Olympics, which will take place from February 4 to 20 in Beijing. While American athletes will be free to compete, diplomatic personnel will be barred from the event, further straining relations already at their lowest point in decades. The boycott puts corporate Olympic sponsors in “an awkward spot,” but was less concerning than a full measure barring athletes, noted Neal Pilson, a former president of CBS Sports who has overseen Olympics broadcast rights deals.
China responds: “If the U.S. is bent on having its own way, China will take resolute countermeasures,” Foreign Ministry spokesman Zhao Lijian said at a press conference. China’s embassy in Washington also called the boycott “political manipulation” that would have no impact on the Games as no invitations had been extended to U.S. officials. The news follows American intelligence reports that found China intends to establish its first permanent military presence on the Atlantic Ocean in Equatorial Guinea.
It’s not the only potential crisis unfolding on the world stage. The U.S. and European allies are weighing sanctions targeting Russia’s biggest banks and the nation’s ability to convert rubles for dollars and other foreign currencies should Vladimir Putin invade Ukraine. President Biden is expected to outline the economic threats in a phone call today, with U.S. intelligence suggesting there could be an invasion involving as many as 175,000 Russian troops in the coming year.
Don’t forget Iran: On Friday, U.S. Secretary of State Antony Blinken said that the seventh round of nuclear talks in Vienna ended because Tehran did not seem serious about returning to the terms spelled out in the JCPOA. “We’re going to be consulting very closely and carefully with all of our partners in the process itself and we will see if Iran has any interest in engaging seriously,” he declared. “If the path to a return to compliance with the agreement turns out to be a dead-end, we will pursue other options.”
Today’s Economic Calendar
8:30 Goods and Services Trade
8:30 Productivity and Costs
8:55 Redbook Chain Store Sales
1:00 PM Results of $54B, 3-Year Note Auction
3:00 PM Consumer Credit
What else is happening…
House Republican Devin Nunes to become CEO of Trump social media company.
Boeing (NYSE:BA), travel related stocks soar as Omicron fears fade.
Toyota (NYSE:TM) to build $1.25B EV battery plant in North Carolina.
Biden calls on Senate to tackle ‘outrageously expensive’ drug prices.
Intercontinental Exchange (NYSE:ICE) names new NYSE president.
Samsung (OTC:SSNLF) merges mobile and consumer electronics divisions.
China Evergrande draws up restructuring plan as coupon grace period ends.
Uber (NYSE:UBER) in talks with Mideast unit about outside investment.
Lucid (NASDAQ:LCID) discloses SEC subpoena involving $24B SPAC deal.
Halliburton (NYSE:HAL) CEO says the world is entering a period of oil scarcity.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mostly weak. The Philippines did well, but Japan, China, Hong Kong, India, New Zealand and Malaysia were posted solid losses. Europe, Africa and the Middle East are mostly up. The UK, France, Germany, the UAE, South Africa, Switzerland, Spain, the Netherlands, Italy, Portugal, Austria and Sweden are leading while Russia and Saudi Arabia are down. Futures in the States are mixed – S&P up, Nasdaq down.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is down big.
Stories/News from Seeking Alpha…
Wild swings
Bitcoin (BTC-USD) still remains below $50,000, down 2% to $48,298 in overnight trading, but many are hoping prices will stabilize after a big crash over the weekend. Bitcoin plunged all the way down to $44,000 on Saturday, off 17% on the session, triggering a rout in other cryptocurrencies like Ether (ETH-USD), Solana (SOL-USD), Dogecoin (DOGE-USD) and Shiba Inu (SHIB-USD). In fact, the overall crypto sector shed around a fifth of its value, sliding to $2.2T, according to tracker CoinGecko.
What happened? Many attributed the crash to speculation around crypto in general – particularly as it relates to NFTs – which had reached levels that make late-1999 look tame (to paraphrase Charlie Munger). When selling picks up, the momentum names which have benefited most from inflows turn into overcrowded positions as investors rush for the exits. The same kind of sentiment has hit other speculative corners of the market like meme stocks, IPOs and SPACs.
Others are pointing to leveraged trading of crypto derivatives, which have become a big business for firms like Binance. To make returns more attractive, exchanges allow traders to make oversized bets with little money, but when cryptos fall suddenly, margin calls force investors to liquidate. HODLers are still holding strong, with crypto billionaire Mike Novogratz attributing the recent outsized move to a “perfect storm” of a “hawkish fed, omni spiral and weekend liquidity.”
Go deeper: Other crypto headlines made waves over the weekend, like the $196M hack of BitMart, which bills itself as the “most trusted cryptocurrency trading platform.” If security fears weren’t enough, Singapore’s financial regulator suspended prominent digital currency exchange Bitget due to a legal tussle involving South Korean K-Pop band BTS. Bitcoin is now 30% off its all-time closing high of $69,000, though it’s still up 70% YTD and 158% over the past 12 months.
Omicron vaccines
Omicron cases have now been identified in nearly a third of all U.S. states, prompting the FDA to speed up conversations about streamlining authorization for revamped vaccines. Agency officials have already met with vaccine makers, working to set guidelines for the type of data that will be needed to quickly evaluate the safety and efficacy of changes to current jabs. It builds on rules established earlier this year, with the new standards likely to be similar to those required for booster shots.
Quote: “The FDA will move swiftly and CDC will move swiftly after,” Centers for Disease Control and Prevention Director Rochelle Walensky told ABC’s This Week with George Stephanopoulos. “We’re every day hearing about more and more cases.”
While the FDA is laying the groundwork for a rapid review, new Omicron shots and therapies might turn out not to be necessary. Initial data from South Africa, the epicenter of the outbreak of the Omicron variant, doesn’t show a resulting surge of hospitalizations, while other early studies have found a pattern of milder illness than in previous waves of COVID-19. “Thus far, though it’s too early to really make any definitive statements about it, it does not look like there’s a great degree of severity to it,” noted Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases.
Outlook: Pfizer (NYSE:PFE) CEO Albert Bourla announced last week that the company and its partner BioNTech (NASDAQ:BNTX) could have Omicron vaccines ready in 100 days, while Moderna (NASDAQ:MRNA) has said the company can advance new candidates to clinical testing in 60 to 90 days. In terms of policy, the Biden administration today will implement a new requirement that air travelers to the U.S. show a negative COVID test one day before boarding. The FDA is also expected to authorize COVID-19 boosters from Pfizer-BioNTech for use in 16- and 17-year-olds as soon as this week.
Sounding the alarm
The European Union is planning to ban combustion engine cars by 2035, but that may have some knock-on effects on employment across the bloc. In a recent survey of the European Association of Automotive Suppliers, CLEPA, PwC found that the speed of the energy transition would put half a million jobs at risk, causing “social and economic” difficulties that would be hard to mitigate. Union leaders in Europe and North America have also warned of severe job losses, while vehicle quality could suffer as automakers struggle to manage the higher costs of building EVs.
The disruption: There has been a lot of interest in electric cars in Europe due to very generous subsidies in places like Germany. The biggest carmakers, like Volkswagen (OTCPK:VWAGY), have also ruled out splitting their R&D budgets to focus on other technologies like e-fuels and hydrogen, since the barriers of going fully electric are high enough. That has left some suppliers on the line, which have hedged their bets and diversified their offerings.
“We are putting the industry on the limits,” Stellantis (NYSE:STLA) CEO Carlos Tavares announced last week. “What has been decided is to impose on the automotive industry electrification that brings 50% additional costs against a conventional vehicle. There is no way we can transfer 50% of additional costs to the final consumer because most parts of the middle class will not be able to pay.”
Fine print: The poll by PwC found that 226,000 new jobs would also be created in the manufacturing of electric parts, cutting the net number of job losses to about 275,000 by 2035. However, other jurisdictions have also set goals to end the sale of combustion vehicles, like the 2035 target in California and more ambitious 2030 mark seen in the U.K.
Ever struggling
Shares of China Evergrande (OTCPK:EGRNF) ended Monday’s session in Hong Kong down 20% to an all-time low of HK$1.81 after the heavily-indebted property developer pushed closer to default. The company already made three 11th-hour coupon payments in the past two months, but faces the end of a 30-day grace period today, with dues totaling $82.5M. As at the end of Asia business hours, two bondholders said they had yet to receive coupon payments, though Evergrande declined to comment.
Before the weekend: China’s top-selling developer said creditors had demanded $260M, but it could not guarantee enough funds for coupon repayments. The warning prompted authorities to summon Chairman Hui Ka Yan and send over a team at the developer’s request to oversee risk management, strengthen internal control and maintain operations. Evergrande has meanwhile been struggling to raise capital by disposing of assets, and the government has asked its chairman to use his wealth to repay company debt.
A default could have led to the biggest corporate default in Asia, allowing creditors to declare defaults on some of Evergrande’s other debts. The firm is one of China’s biggest property developers, and its most indebted, with the equivalent of more than $300B in total liabilities. The situation has already led to a string of default announcements and rating downgrades, as well as a rumbling across the $5T Chinese property sector, which accounts for a quarter of GDP by some metrics.
Making moves: Both Chinese Vice Premier Liu He and PBOC Governor Yi Gang feel that Evergrande’s risks are controllable and reasonable capital demands from property companies are being met. Further outlining that its troubles could be contained, China’s central bank said it would cut the bank reserve requirement ratio “in a timely way” to increase support for the real economy. The politburo also chimed in with a promise to promote healthy development of the property sector.
Today’s Economic Calendar
12:30 PM Investor Movement Index
What else is happening…
BuzzFeed begins trading on the Nasdaq under ticker symbol ‘BZFD.’
Could PayPal (NASDAQ:PYPL) and Square (NYSE:SQ) replace traditional credit cards?
China poised to create world’s largest rare earths company – WSJ.
Trump social media SPAC (NASDAQ:DWAC) confirms $1B PIPE deal.
Citi says China internet selloff overdone on DiDi (NYSE:DIDI) delisting worries.
Top stocks that may be tax loss selling bargains.
Analyst quiet period for Rivian Automotive (NASDAQ:RIVN) expires today.
Activist pushes Kohl’s (KSS) to sell or separate e-commerce business.
Alibaba (NYSE:BABA) names Toby Xu as CFO, replacing Maggie Wu.
What’s hot? Check out Google search trends for popular retail stocks.
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