Before the Open (Jan 18-21)

Good morning. Happy Friday.

The Asian/Pacific markets did very poorly. Hong Kong and Indonesia did well, but Japan, China, South Korea, India, Taiwan, Australia and New Zealand suffered big losses. Europe, Africa and the Middle East are currently down big. The UK, Denmark, Poland, France, Turkey, Germany, Greece, Russia, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel and Sweden – all posting big losses. Futures in the States point towards a moderate gap down open for the cash market.

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

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

Stories/News from Seeking Alpha…

Digital dollar

As it looks to keep up with global financial innovation, and preserve dollar supremacy, the Federal Reserve has finally released a long-awaited paper discussing the pros and cons of a potential U.S. central bank digital currency (CBDC). While the 40-page document doesn’t take a stance on any specific policy, it will open the discussion between the central bank and stakeholders, as well as solicit public comment. Some upsides include faster and safer payment options, though risks like privacy protection and financial stability would have to be addressed.

How do CBDCs differ from electronic cash? When you deposit money into a bank account, the commercial entity takes responsibility for the sum. The cash is then held in electronic form and can be used across a variety of platforms, but it’s limited to the bank’s ledger. Companies like Venmo can even track electronic transactions on their own internal ledger system, but the money is still being held and tracked by a commercial bank provider. In the case of CBDCs, the government is the counterparty and takes liability for the money, while the ledger that’s being used (known as the rails) can be a very different structure than a commercial institution.

Definitions first… While there are many descriptions of “digital currencies,” they are broadly broken down into three categories: CBDCs, cryptocurrency and stablecoins. Check out the other two types below:

Decentralized crypto: These are unregulated offerings like Bitcoin (BTC-USD), Ethereum (ETH-USD) and Dogecoin (DOGE-USD). Since they are issued by a network, and not any central authority or government, they are often volatile, but can also be exchanged for goods or services like traditional currencies. Cryptos often use distributed ledger technology (like blockchain) that can confirm valid tokens and log transactions.

Stablecoins: These also use distributed ledger technology, but they attach the value of tokens to something that already exists. By pegging the asset to the dollar, a basket of currencies, or commodities like gold, these currencies are more grounded and reduce volatility. The most famous example of this is Meta Platforms’ (FB) Diem project, formerly known as Libra, which has had a tough time getting off the ground due to regulatory and technological hurdles.

Netflix nervousness

Fears of a Netflix (NASDAQ:NFLX) slowdown sent shares cratering 20% AH on Thursday, erasing $45B of market value as investors prepare for a new phase of slower growth. While the streaming giant beat on both the top and bottom lines, and reported 8.28M global paid net subscriber additions in Q4, its guidance is what really hit sentiment. Netflix expects to add just 2.5M subs this quarter, short of the 3.98M it added in Q1 of 2021, and far below the nearly 7M expected by analysts. It would also mark the slowest start to a new year for the company in at least a decade.

Struggles: “Consumers have always had many choices when it comes to their entertainment time – competition that has only intensified over the last 24 months as entertainment companies all around the world develop their own streaming offering,” Netflix said in a statement. “While this added competition may be affecting our marginal growth some, we continue to grow in every country and region in which these new streaming alternatives have launched.”

In the past, Netflix has also said services like Disney+ (DIS), HBO Max (T), Paramount+ (VIAC) and Peacock (CMCSA) “wouldn’t materially affect growth,” but that appears to be no longer the case. Netflix subscribers had widely been expected to stabilize after the appearance of some hit content toward the end of 2021, including heavily watched films Red Notice and Don’t Look Up, as well as new seasons of Ozark, Bridgerton and Stranger Things. The lower first-quarter guidance, though, “reflects a more back-end weighted content slate” for Q1, with Bridgerton Season 2 and original film The Adam Project launching in March.

Outlook: “It’s definitely frustrating for us, the current slower growth,” co-CEO Reed Hastings announced during a post-earnings interview. “It’s a dynamic market for sure, it may not be as steady as people think about it in terms of we’re gonna add X number every quarter, every month, every week, but there’s no question that’s the direction the business is going in,” added co-CEO Ted Sarandos. Netflix additionally announced price increases last week, with the monthly cost for its U.S. basic plan rising by $1 to $9.99, and standard and premium plans climbing to $15.49 and $19.99 (from $13.99 and $17.99).

Largest chip factory

Seeking to restore its edge in chipmaking technology, Intel (NASDAQ:INTC) has announced a whopping $20B investment for a massive new manufacturing facility near Columbus, Ohio. The company will build at least two semiconductor fabrication plants, or fabs, on the 1,000-acre site, though it has the option to eventually expand it to 2,000 acres and up to eight fabs. Construction will begin this year and the plant should be operational by 2025.

Quote: “Our expectation is that this becomes the largest silicon manufacturing location on the planet,” Intel CEO Pat Gelsinger told Time magazine. “We helped to establish the Silicon Valley. Now we’re going to do the Silicon Heartland.”

The investment plans come as the U.S. pushes to increase domestic manufacturing of semiconductors. Entire industries like auto manufacturing have been crippled over the past two years due to shortages, prompting the Senate to pass the $52B CHIPS for America Act in June (though it still needs to make its way through the House). In fact, the share of chips made in the U.S. has fallen to 12%, from 37% in 1990, according to the Semiconductor Industry Association.

Go deeper: It’ll be tough restarting the chip manufacturing drive in America, where it costs 30% more to build and operate a fab over 10 years than it does in Taiwan, South Korea or Singapore. Moreover, Intel’s chips made in U.S. will initially be sent to Asia for assembly, packaging and testing, though it hopes to bring everything back to the U.S. if the CHIPS for America Act gets funded. “My objective would be sand to product to services, all on American soil,” Gelsinger declared, adding that the sand used to make semiconductors comes from the U.S. South.

Other efforts: Intel previously announced a $20B investment to build two fabs in Arizona, Taiwan Semiconductor Manufacturing (NYSE:TSM) also earmarked $12B to build a semiconductor plant in the state and Samsung (OTC:SSNLF) is dishing out $17B for a chip plant in Texas. Micron Technology (NASDAQ:MU) and Texas Instruments (NASDAQ:TXN) have also recently unveiled investment plans, while GlobalFoundries (NASDAQ:GFS) is building a smaller fab in upstate New York.

Peloton problems

Things don’t appear to be getting better for the Nasdaq, which fell deeper into correction territory on Thursday, and is now down nearly 5% this week alone. Shaky earnings from Netflix (NFLX) and troubling developments from Peloton (PTON) didn’t help sentiment, as investors look towards tighter Fed policy and surging Treasury yields. The selloff hasn’t spared cryptocurrencies, which tend to trade in line with speculative tech stocks, with Bitcoin (BTC-USD) stumbling 8% overnight to $38,767.

What happened to Peloton? The once-celebrated pandemic favorite is temporarily halting production of its connected fitness products due to slowing demand. There has also been chatter over the past few weeks that the company was likely to cut back on supply of bikes and treadmills to control costs. Shares of Peloton plunged on the news, falling 24% to $24.22, and below its $29 IPO price.

It was only a year ago that the stock hit an all-time intraday high of $171.09 on Jan. 14, 2021. At the time, Peloton was reporting triple-digit revenue growth and seeing record-low levels of churn among subscribers. Since then, shares have slumped and exchange officials even plan to remove the fitness equipment maker from the Nasdaq 100 Index next week.

Analyst commentary: Macquarie’s focus on Peloton has been on how the company evolved over the last few years to a “highly-scaled, global, community-based, recognized luxury brand, wellness platform, media platform, and logistics platform,” which it says all still holds true. However, the latest development resets some of the thinking. “Now we see the story in a deeper hole, with the Street potentially turning its focus not to the growth ahead, but first more towards how churn levels evolve, engagement through the NA winter and Omicron (which should benefit indoor activities/ engagement), and then assessing if best to just net COVID-era sales out of pre-COVID estimates for TAM and growth for a clearer picture going forward.”

Today’s Economic Calendar
10:00 Leading Indicators
1:00 PM Baker-Hughes Rig Count

What else is happening…

Jeremy Grantham: Stock ‘superbubble’ will pop, S&P 500 will plunge 45%.

Russia proposes ban on cryptocurrencies, likens to pyramid scheme.

PetSmart is said in talks to go public through SPAC KKR Acquisition.

Google (NASDAQ:GOOGL) working on new AR headset – The Verge.

Coffee jolt: Luckin Coffee (OTCPK:LKNCY) might trade on the Nasdaq again.

American Air (NASDAQ:AAL) to capture pent-up travel once Omicron passes.

Activision (ATVI) CEO says Microsoft (MSFT) committed to retaining workers.

China approval for Xilinx-AMD (XLNX, AMD) deal may come shortly.

Solar shines as White House says clean energy bill is ‘doable.’


Good morning. Happy Thursday.

The Asian/Pacific markets leaned to the upside. Japan, Hong Kong and South Korea did well; India and New Zealand were weak. Europe, Africa and the Middle East are currently mixed. The UAE, Russia, Greece and Sweden are up; Poland, Turkey, Hungary, Austria and the Czech Republic are down. Futures in the States point towards a positive open for the cash market.

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

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

Stories/News from Seeking Alpha…

Tech correction

Technology stocks are officially in correction territory after yesterday’s late Wall Street selloff. The tech and growth focused Nasdaq 100 (NDX) (NASDAQ:QQQ) fell more than 1% in the previous session, bringing the decline from its high to 10.2%, the typical definition of a correction. The S&P Info Tech sector (NYSEARCA:XLK) is down 10% from its high, with key component Apple (NASDAQ:AAPL) falling below its 50-day moving average for the first time since October. The VanEck Vectors Semiconductor ETF (NASDAQ:SMH) is down 10.6% from its high. By comparison, the S&P 500 (SP500) (NYSEARCA:SPY) is down 6%, despite some recent weakness in cyclical sectors.

Bubble or wall? The market’s reliance on tech stocks and other megacaps for broader gains has brought comparisons to the 2000 Dot-com Bubble. If these high-valuation stocks buckle, lower-weighted sectors will have a very tough time picking up the slack. Morgan Stanley says there’s also concern about stocks under the surface, comparing the valuation of the median S&P 500 stock today to that of the Tech Bubble.

But ARK Invest’s Cathie Wood, whose active funds have been hit hard by this selloff in higher-multiple names, says the bubble lies in value stocks. “In our view, the wall of worry built on the back of high multiple stocks bodes well for equities in the innovation space,” Wood says in ARK’s Q4 report. “The strongest bull markets do climb a wall of worry, a fact that those making comparisons to the tech and telecom bubble seem to forget. No wall of worry existed or tested the equity market in 1999. This time around, the wall of worry has scaled to enormous heights.”

Getting real: One of the biggest factors putting selling pressure on tech stocks is the rapid rise in real yields seen since the start of the year. The real 10-year Treasury yield (NYSEARCA:TIP) as measured by the inflation-protected securities now sits at -0.64%, 40 basis points higher from where it closed out 2021. The correlation between Nasdaq 100 performance and the change in the 10-year real yield is -0.5, “about as low as it’s gotten in this post-covid recession period,” Wilson says. “In other words, changes in yields are currently a significant explainer of NDX returns.”

But Wilson does think they will become less of a factor as earnings revisions take more prominence in stock performance over the next few weeks. “At a sector level, we expect continued volatility in the technology sector, but the pressure on the sector from higher yields to abate in the months ahead,” UBS says. “While we see 10-year (nominal) yields climbing modestly higher, from 1.89% at present to around 2% by June and 2.1% by the end of the year, we do not expect a further sharp rise. We think the 2-year Treasury has moved too aggressively in pricing in Fed tightening, and we expect the yield curve to steepen.”

“It’s also worth keeping in mind that historically stocks have performed well in the months leading up to the Fed’s first rate hike. Since 1983, the S&P 500 has risen 5.3% on average in the three months ahead of the start of the rate hiking cycle and by a further 5.3% on average in the six months thereafter.” Markets are currently pricing in a first Fed hike in March.

Next stop? Wall Street remains at a historically large split on the direction of the broader market. Stifel is looking for a drop in the S&P to 4,200 as early as Q1 this year, pointing to the impact of real yields.

“Equity Risk Premium (We use a CAPE Operating EPS earnings yield minus 10Y Treasury TIPS real yield) may fall in 2022, which is a bullish offset, but that is likely overwhelmed for Growth stocks by the negative ‘convexity’ of a rising real 10Y TIPS yield (-1.1% at year-end 2021, -0.65% now) pummeling Growth P/E ratios,” Stifel says. Credit Suisse is looking for the S&P to end this year at 5,200 and suggests it may be time to embrace inflation. “Historically, earnings and stock prices have moved directionally with inflation,” strategist Jonathan Golub writes. “Over the past 4-1/2 months, stock prices have risen an average of 32 bps on days when inflation expectations rise, and fall -41 bps on down inflation expectation days.” (2 comments)

Value bubble?

Cathie Wood believes that if a market bubble is growing, it is being created within value stocks and not growth names. “In our view, the real bubble could be building in such so-called “value” stocks with much higher valuations in the context of a five-year investment time horizon as opposed to last year,” Cathie Wood wrote in ARK’s latest quarterly report.

Wood added: “Meanwhile, the valuations of many innovation related stocks have been cut in half.” Moreover, ARK’s quarterly commentary report also states: “In our view, long-term inflation fears are overblown because inventories are stacking up in the face of weak consumption.” (320 comments)

Kolanovic still bullish

J.P. Morgan’s cross asset team stays bullish on risk and continues to expect cyclical to lead. Chief Global Markets Strategist Marko Kolanovic says in a research note they are sticking with an aggressive overweight in equities and commodities funded by large underweight in bonds.

“Bond yields moved higher early this year as the pace of central bank policy normalization was repriced, but yields have further scope to rise in our view,” Kolanovic says. “Higher yields support our calls for rotation into cyclical and value assets, as they reflect the strong growth and inflation impulses policymakers are responding to. However, we believe rates would have to rise substantially further before they present a material headwind to equity markets overall.” (25 comments)

Instagram subscription

Meta Platforms’ Instagram (NASDAQ:FB) is launching a test of subscriptions on the photo-centric social media site today, CEO Mark Zuckerberg says. “This will help creators earn more by offering benefits to their most engaged followers like access to exclusive Lives and Stories,” Zuckerberg posts.

“I’m excited to keep building tools for creators to make a living doing creative work and to put these tools in more creators’ hands soon,” he adds. The company won’t get fees from such subscriptions until 2023 at the earliest, it says. (69 comments)

No lockdown return

At a news conference, President Biden insisted that the nation would not go back to lockdowns in the face of a high number of COVID-19 cases. The president also noted that he sees light at the end of the tunnel in terms of the impact of COVID, saying the country is “moving toward a time when COVID won’t disrupt daily life.”

In December, Biden made a similar vow that the country wouldn’t go into lockdowns despite a surge in cases at the time. Since the 7-day moving average of ~797K cases peaked on Jan. 13, the average is now going down, according to CDC data. Yesterday, the figure stood at ~701K. (53 comments)

Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
10:00 Existing Home Sales
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
4:30 PM Fed Balance Sheet

What else is happening…

Bank of America (NYSE:BAC), Ford (NYSE:F) among Seeking Alpha’s Top Stocks for 2022.

United Airlines (NASDAQ:UAL) falls after capacity, cost guidance rattles investors.

Gold (XAUUSD:CUR), silver (XAGUSD:CUR) rally to two-month highs as yields slip after sharp rise.

Tesla (NASDAQ:TSLA) drops as the top holding from Cathie Wood’s ARKW.

Kinder Morgan (NYSE:KMI) guides for 40% profit boost to $2.5B in 2022.

Berkshire Hathaway (BRK.A, BRK.B) proposes $3.9B Iowa wind, solar project.

Disney (NYSE:DIS) more than doubled CEO Chapek’s pay in 2021.

President Biden says Fed recalibrating support for economy is ‘appropriate.’

Bank of America (BAC) CEO sees ‘a lot of leverage’ from rising interest rates.


Good morning. Happy Wednesday.

The Asian/Pacific markets posted big losses. Japan, South Korea, India, Taiwan, Australia, New Zealand and Malaysia were weak. Europe, Africa and the Middle East are currently mostly up. The UK, Denmark, France, Turkey, Germany, Russia, South Africa, Hungary, Spain, the Netherlands, Portugal, Saudi Arabia and Sweden are all posting moderate gains. 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. Gold and silver are up. Bonds are up slightly. Bitcoin is flat.

Stories/News from Seeking Alpha…

Microsoft goes gaming

Everybody is still talking about Microsoft’s (MSFT) $69B acquisition of Call of Duty maker Activision Blizzard (ATVI), which would be the biggest deal in its history and more than 2.5x what it paid for LinkedIn five years ago. It would also make Microsoft the world’s No. 3 gaming company by revenue – if regulators permit it – and result in the tech industry’s largest-ever takeover (topping Dell’s (DELL) $67B purchase of EMC in 2016). Activision Blizzard closed the session yesterday up 26% on the news, while Microsoft slipped back 2% in typical M&A fashion.

By the numbers: Despite the record price tag, Microsoft has added $1T in market cap in the last year alone, so the deal would represent only a small piece of the company’s valuation. Before the announcement, Activision Blizzard shares were also off 40% from their February 2021 peak, resulting in an attractive price point to scoop up the video game developer. On top of all this, Microsoft has cash of $130B on its balance sheet, allowing it to fund the deal without needing to raise any debt or issuing stock.

There are several reasons Microsoft is blowing $69B on a future in gaming. It already has a subscription-based game business for Xbox and PC called Game Pass (with 25M subscribers) and is developing a cloud gaming service. Activision could also fill its presence in mobile gaming via popular game studio King, which is the maker of Candy Crush. Many are also touting the deal as a way for Microsoft to get into the Metaverse as global tech giants stake their claims to a virtual future.

Warning label: The purchase of Activision will come with some baggage as the game developer faces many claims of sexual misconduct and discrimination. Reports suggest that several dozen employees have already “exited” the company and 44 have been disciplined in response to the allegations. Microsoft will have to clean up the “frat boy” culture over the next year, with current CEO Bobby Kotick (who has been tied to the reports) scheduled to leave his role once the deal closes.

Some positivity?

The selloff in Treasuries isn’t staying in the U.S. as traders ramp up bets on further bond declines across the globe. Overnight, benchmark German debt yields turned positive for the first time since early 2019, with the rate on the 10-year bund climbing four basis points to 0.02%. While the ECB is currently behind the normalization path of the Federal Reserve and Bank of England, traders are weighing the prospect of tighter policy.

Analyst commentary: “Positive yields are here to stay,” declared Antoine Bouvet, a rates strategist at ING Groep. “It’s a brand new world.”

Eurozone inflation hit a record high of 5% in December, triggering fears of prolonged price pressures across the bloc. Much like the Fed, which ruled out rate hikes through 2023 before its “transitory” forecast was retired, many are now pricing in a more aggressive stance from the ECB. Last month, the central bank said it would cut its monthly asset purchases – but pledged to continue its unprecedented level of stimulus in 2022 – though coming inflation data may change that position.

Hut, hut, hike! In the meantime, predictions surrounding the number of rate increases the Fed will have to implement this year keep going up. Futures markets are now betting on four to five hikes in 2022, up from forecasts of three to four as of Friday. The momentum has seen the U.S. 10-year Treasury yield climb 39 basis points so far in January to 1.9%, pushing the tech-heavy Nasdaq Composite Index to the brink of a correction.

Bloated bonuses

Goldman Sachs (GS) reported some hefty profits on Tuesday, earning nearly $4B in the fourth quarter, or $10.81 a share, but that wasn’t enough for investors. The stock slid 7% for its worst day in 18 months, shedding about $10B in market value since Friday’s close. Don’t forget that it was also a big down day for the market in general, with the Dow Jones and S&P 500 (both of which Goldman is a part of) slumping 1.5% and 1.8%, respectively.

Bigger picture: Not only did Wall Street’s premier investment bank miss Q4 profit forecasts of $4.1B, or $11.81 a share, there were several other areas that dinged sentiment. Compensation costs and bonuses tied to capital markets businesses (like investment banking) caught the Street by surprise, with the expenses rising 33% Y/Y to $17.7B. Trading revenue of $4B also came in below the consensus of $4.2B, while the provision for credit losses totaled $344M in Q4, compared with $293M a year earlier.

“Goldman Sachs had an impressive record year, but a thud of a quarter,” noted David Hendler, analyst at Viola Risk Advisors.

Snapshot: JPMorgan (JPM) and Citigroup (C) topped Q4 estimates last week, but their shares also sold off on higher-than-expected expenses. “Wage inflation everywhere. There’s no question that inflationary pressures around compensation had an impact,” noted Goldman Sachs CEO David Solomon, who is trying to diversify the bank with more consistent revenue streams like consumer banking and asset management. Stay tuned… He also told analysts that specifics of Goldman’s “next phase” strategy would come in February.

5G drama

For the third time in two months, AT&T (NYSE:T) and Verizon (NYSE:VZ) have delayed the implementation of their 5G networks around key U.S. airports. It’s a big decision for the companies, which spent nearly $70B on C-band spectrum rights, though they didn’t provide details on zone size adjustments or how long the suspension might last. While the FAA worries that new cellular frequencies could endanger aircraft by throwing off radio altimeter readings, the FCC and other regulators around the world feel otherwise.

Quote: “We recognize the economic importance of expanding 5G, and we appreciate the wireless companies working with us to protect the flying public and the country’s supply chain,” said Transportation Secretary Pete Buttigieg.

Airlines are still scrambling to retool their schedules as the FAA begins updating its guidance on which airports and aircraft models will be affected by the latest changes (the regulator had previously issued nearly 1,500 notices of 5G restrictions). Dubai’s Emirates has suspended flights to nine U.S. cities, while Japan’s two major airlines, All Nippon Airways (OTCPK:ALNPY) and Japan Airlines (OTCPK:JAPSY), said they would curtail all Boeing (NYSE:BA) 777 flights headed to America. Other carriers that are canceling flights or switching aircraft models include British Airways (OTCPK:ICAGY), Korean Air Lines, China Airlines, Cathay Pacific (OTCPK:CPCAY), Air India and Singapore Airlines (OTCPK:SINGY).

Outlook: “The U.S. made all possible spectrum available on a licensed basis to telecom operators,” said Vivekanand Subbaraman of Ambit Capital. “Other countries have not done that. That’s why it’s turning out to be a U.S.-specific issue.” There is a lot riding on the American rollout of 5G networks, especially with other nations getting a head start on the technology. The Chamber of Commerce even sees 5G as vital for U.S. economic growth over the next few years, and if consumers start feeling there are problems with the technology, it could be a major setback.

Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Housing Starts and Permits
8:55 Redbook Chain Store Sales
1:00 PM Results of $20B, 20-Year Bond Auction

What else is happening…

SoFi (NASDAQ:SOFI) receives regulatory approval to become a national bank.

Mastercard (NYSE:MA) strikes NFT payments deal with Coinbase (NASDAQ:COIN).

Intel (NASDAQ:INTC) to unveil Bitcoin mining chip next month – CoinDesk.

Every holding is red… Cathie Wood’s ARKK closes at an 18-month low.

Key Iraq-Turkey oil pipeline knocked offline by explosion.

Permian crude production rose to new record in December.

Apple (NASDAQ:AAPL) warns legislation would weaken privacy protection tool.

Chip shortage… Ford (NYSE:F) idles plant, Toyota (NYSE:TM) hints at missing guide.

Ford (F) plans to record $8.2B gain on Rivian (NASDAQ:RIVN) investment.

Pfizer (NYSE:PFE): Lab studies indicate COVID pill effective against Omicron.


Good morning. Happy Tuesday. Hope you had a good, long weekend.

The Asian/Pacific markets are mostly weak. China did well, but Japan, Hong Kong, South Korea, India, Taiwan, Malaysia and Thailand were weak. Europe, Africa and the Middle East are currently mostly down. Denmark, Poland, France, Turkey, Germany, Russia, Greece, South Africa, Switzerland, Hungary, the Netherlands, Israel and Sweden are all down big. Futures in the States point towards a big gap down open for the cash market.

————— VIDEO: SPX Full Year Performance as a Function of the First 5 Days —————

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

Stories/News from Seeking Alpha…

5G friction

Do 5G signals affect aircraft equipment? The answer to that question is dividing the telecom and aviation industries, and many consumers are set to get stuck in the middle. At issue are altimeters, or devices that use radio frequencies to measure the distance between aircraft and the ground, and help planes land in bad weather. Aviation officials and the FAA worry that new cellular frequencies could endanger aircraft by throwing off the readings, while telecom-industry representatives say that is not the case, citing the stance of the FCC and other regulators around the world.

What’s happening? AT&T (NYSE:T) and Verizon (NYSE:VZ) are set to deploy their new 5G service on the C-band tomorrow after spending tens of billions of dollars on spectrum auctions (T-Mobile’s (NASDAQ:TMUS) licenses only become available in late 2023). While the C-band auctions took place last October, tensions between the sides are coming to a head now because federal agencies did not act earlier to work through the disagreements. In fact, the drama has already delayed the latest 5G rollout twice, first by 30 days and then by two weeks, but this time around the release looks like it is actually happening.

“Unless our major hubs are cleared to fly, the vast majority of the traveling and shipping public will essentially be grounded,” the CEOs of American Airlines (NASDAQ:AAL), Delta (NYSE:DAL), United (NASDAQ:UAL), FedEx (NYSE:FDX) and UPS (NYSE:UPS) warned in a letter – that referred to a “catastrophic” aviation crisis. “This means that on a day like yesterday, more than 1,100 flights and 100,000 passengers would be subjected to cancellations, diversions or delays. To be blunt, the nation’s commerce will grind to a halt.”

Go deeper: AT&T and Verizon have already agreed to buffer zones around 50 airports to reduce interference risks, as well as other steps to cut potential interference for six months. However, airlines not only feel that the precautionary measures could be limiting, but would also render some aircraft types unusable, like Boeing (NYSE:BA) 787s, 777s and 737s. The battle comes as 5G cellular services are rolled out in several frequencies nationwide to keep the networks from becoming too congested.

Volatility sticks around

The rocky start to 2022 is continuing into earnings season as a jump in Treasury yields continues to unnerve investors. The 10-year Treasury yield climbed 6 basis points overnight to 1.83%, a level last seen two years ago, before the first U.S. COVID-19 case was recorded in Jan. 2020. Fears of tighter monetary policy (and the Fed’s fight against inflation) have already dragged the S&P 500 and Nasdaq down 2.2% and 4.8%, respectively, in the first two weeks of the year, and futures linked to the indexes fell another 1.3% and 1.9% overnight.

Analyst commentary: “It will be interesting to see if investors are tempted back in now that earnings season is underway,” said Craig Erlam, senior market analyst at Oanda. “The emergence of Omicron may mean that many companies don’t enjoy the kind of performance that was expected before, but that doesn’t mean there won’t be plenty of positives to take away.”

Earnings for S&P 500 companies are expected to rise 22.4% in the fourth quarter, according to data from Refinitiv, which would wrap up a record year where overall earnings soared around 49%. Meanwhile, 26 S&P 500 firms have already reported Q4 results, with 77% of them posting bottom-line results that beat analyst expectations. Reporting this week is Goldman Sachs (GS), Bank of America (BAC), UnitedHealth (UNH), Procter & Gamble (PG), Netflix (NFLX) and Honeywell (HON).

Outlook: More volatility could be in store based on real rates, or bond yields that have been adjusted for inflation. Those have been stuck in negative territory since the pandemic, meaning investors aren’t expecting the upcoming moves from the Fed to make much of a dent on the current inflation landscape. The potential for a market repricing could weigh on sentiment, but that could also mean central bank policy could remain somewhat accommodative in the foreseeable future.

Fourth dose

The results are in for the Sheba Medical Center’s landmark study of a fourth COVID-19 shot, which took place in Tel Aviv with the Pfizer-BioNTech (PFE, BNTX) vaccine. While the trial was many times smaller than traditional studies (just 154 medical staff were given the extra booster in December), it is the only known study of the effects of a fourth dose. The findings are also preliminary and not yet published.

Quote: “The vaccine, which was very effective against the previous strains, is less effective against the Omicron strain,” said Prof. Gili Regev-Yochay, a lead researcher in the experiment. “We see an increase in antibodies, higher than after the third dose. However, we see many infected with Omicron who received the fourth dose. Granted, a bit less than in the control group, but still a lot of infections. The bottom line is that the vaccine is excellent against the Alpha and Delta [variants], for Omicron it’s not good enough.”

As a result, she is recommending a fourth shot be given to those at higher risk, but signaled that the current campaign, which offers the jab to anyone of 60, could be amended to only include even older groups. Regev-Yochay also noted that while the decision to give the fourth vaccine to the most vulnerable was the correct one, the results didn’t support a rollout to the wider population.

Snapshot: Israel was the fastest country to launch initial vaccinations against COVID-19 a year ago, and became one of the first to approve a COVID booster. In clearing a fourth shot, the nation hoped to keep the rapidly-spreading Omicron variant at bay, and avoid overwhelming the hospital system and shutting down businesses. As of Sunday night, over 500K Israelis out of a population of nearly 9.5M have been inoculated with a fourth dose.

Trouble in China?

Fresh data out of China has shown economic growth slowing to a 4% pace in the fourth quarter, from 4.9% Y/Y growth in the Q3, weighed down by property market crisis and new coronavirus outbreaks. While that exceeded economists’ forecasts, it was short of the 6.5% growth recorded over the same period in 2020. “We must be aware that the external environment is more complicated and uncertain, and the domestic economy is under the triple pressure of demand contraction, supply shock and weakening expectations,” the National Bureau of Statistics said in a statement.

Policy action: Following the data, the People’s Bank of China cut key interest rates for the first time since the peak of the pandemic in 2020. Specifically, the rate on its one-year policy loans was reduced by 10 bps to 2.85%, while the same amount was taken off the rate on its seven-day reverse repurchase agreements, which fell to 2.1%. The PBOC made the move while offering 700B yuan ($110B) via its medium-term lending facility – exceeding the 500B yuan coming due – while adding 100B yuan with seven-day reverse repos.

The easing runs counter to the direction of the U.S., which expects quicker rate hikes due to rising inflation. However, China is dealing with other issues, particularly surrounding domestic demand, as it struggles to rebalance its economy. Retail sales growth slumped to 1.7% Y/Y in December and the country’s “Zero Covid” policies are a big headwind to consumer spending. The trends also risk China turning to infrastructure and real estate spending to boost its economy, which are dealing with crises of their own.

Commentary: “While the U.S. and some other economies were moving to gradually close the gap from the pre-pandemic path, China has fallen below [the] pre-pandemic potential path recently after a temporary above-trend growth,” noted Tingting Ge, a greater China economist at JPMorgan Chase. “More stimulus measures [are] likely to be unveiled if domestic and external circumstances remain unfavorable,” added Eswar Prasad, a former head of the IMF’s China division.

Today’s Economic Calendar
8:30 Empire State Mfg Survey
10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital

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