Good morning. Happy Friday.
The Asian/Pacific markets did well. Japan, Hong Kong, South Korea, Australia and Indonesia posted solid gains. China is still closed. Europe, Africa and the Middle East are weak. Denmark, Poland, France, Germany, Finland, Spain, Italy and Sweden are down more than 1%. Futures in the States point towards a down for the cash market.
————— VIDEO: Most of the Best Companies Will Not Recover for a Long Time —————
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…
Jobs Day
You know it’s likely to be bad when the warnings keep pouring in about the January jobs report. White House Press Secretary Jen Psaki said she wants to “prepare” the public, National Economic Council Director Brian Deese is calling it “confusing” and even Labor Secretary Marty Walsh said to take the figures with a grain of salt. The non-farm payrolls report will come out at 8:30 a.m. ET and investors are bracing for another uncertain number, adding to the volatile market environment.
What’s going on? The Bureau of Labor Statistics collects jobs data during the pay period that includes the 12th day of the month. In January, that week coincided with new Omicron cases peaking in the U.S., when millions were calling out sick, quarantining or caring for others. If staff were not eligible for paid leave, they are going to be marked down as not working. January is also a month with extreme seasonal adjustments (think temporary holiday workers), while household survey data could be affected by new establishments and population controls.
Recall that Federal Reserve Chair Jerome Powell has said he doesn’t place a large amount of importance to any one month of jobs data, as the month-to-month figures can be volatile. The funny thing is, the big misses have happened multiple times in recent months (Dec. 199K vs. 400K, Nov. 210K vs. 550K, Sept. 194K vs. 500K, and Aug. 235K vs. 750K). Paid sick leave is also known to be available to 79% of civilian workers, according to government data, so the forecasts should reflect that. Over the course of 2021, 1.9M payroll additions were still added to the economy, but with severe misses over many months, do we need a better system to calculate non-farm payrolls or estimates?
The good: “As far as [the jobs market] being weak, I don’t know if anyone’s going to give it much credence,” said Jim Paulsen, chief investment strategist at The Leuthold Group. “You’ve clearly got Omicron cases collapsing. You’re seeing some high-frequency data showing some pretty significant pickups. I just think that calms a lot of the marketplace.”
The bad: “A weak jobs report means a longer runway for inflation until workers come back into the workforce to provide relief to widespread shortages,” declared Bryce Doty of Sit Investment Associates.
The ugly: “The January drop in employment is another reminder that the economy will not fully return to normal until the pandemic is over,” added Gus Faucher, chief U.S. economist at PNC.
Analyst estimates: Consensus forecasts from economists anticipate employers only added 150K jobs last month, but some are flagging (much) worse figures. Deutsche Bank sees a gain of 125K, Citigroup sees growth of 70K, while Standard Chartered forecasts a net addition of just 50K. A contraction is also possible, with Capital Economics suggesting that non-farm payrolls may have actually fallen by 200K, Goldman sees a 250K drop, Pantheon Macro puts the decline at 300K and PNC even projects a plunge of 400K. Meanwhile, the unemployment rate is seen remaining unchanged at 3.9%, with average hourly earnings rising by 0.5%, boosting the annual increase to 5.2% from 4.7% in December.
Prime earnings
Facebook is still looking for friends after a massive plunge that saw parent Meta (FB) lose $251B in market value – the biggest single-day equity wipeout ever – but things were more welcoming elsewhere in Big Tech. Amazon (AMZN) reported a set of bumper earnings late Thursday that smashed operating income and EPS expectations, sending shares up 12% after the bell. In fact, the divergence in stock prices saw Mark Zuckerberg lose $29B in net worth, while Jeff Bezos added another $20B to his personal valuation.
Catalysts: Investors cheered news that Prime annual membership will be hiked to $139, a $20 increase from the current subscription fee of $119. The price rise will go into effect on March 25 (and Feb. 18 for new members), reflecting higher wages and transportation costs. Amazon also received a big boost from its investments in electric vehicle company Rivian (RIVN), as well as surging revenue from its AWS cloud computing unit (+40% to $17.8B) and advertising businesses (+32% to $9.7B).
“As expected over the holidays, we saw higher costs driven by labor supply shortages and inflationary pressures, and these issues persisted into the first quarter due to Omicron,” said CEO Andy Jassy. “Despite these short-term challenges, we continue to feel optimistic and excited about the business as we emerge from the pandemic.”
A little short? Even with the forecast, Amazon expects Q1 revenue of $112B-$117B vs. a $121B consensus on Wall Street and operating income of $3B-$6B vs. a $6.35B consensus.
Oil tops $90
With inventory levels in Cushing at multi-year, seasonally-adjusted lows, and prices for the U.S. crude grade encroaching on seaborne levels, WTI is trading above $90 for the first time since mid-2014. Currently, global crude inventories are at unusually low levels, meaning supply increases from OPEC+ and American shale will need to meet post-pandemic demand (if oil prices are to remain at current levels). Unfortunately for consumers and oil-price bears, OPEC+ continues to miss quotas, while shale heavyweights like Conoco (COP), Exxon (XOM) and Chevron (CVX) have all budgeted for flat, portfolio-wide output growth in 2022.
Quote: “The oil market is so tight that any shock to production is going to send prices soaring,” explained Ed Moya, senior market analyst at OANDA.
Remember, the U.S. coordinated a release 50M barrels of oil from the U.S. Strategic Reserve in November, when prices were still under $80. While the move was meant to lower prices, the volumes announced were much less than the market was expecting and would need to be sustained over a longer period of time. A large portion of the barrels was also set to be exported to China and India, since the supplies comprised of sour crude, a type of oil that many American refiners are avoiding due to its high sulfur content and makes it more expensive to process.
Next stop? A number of Wall Street analysts have already forecast $100 oil, with WTI up nearly 20% YTD, building on 2021’s more than 50% gain. Geopolitical tensions have meanwhile sent jitters through the market, especially the recent standoff playing out between Russia and Ukraine. The trends are also highly inflationary, posing trouble for central bank policymakers around the globe.
vCitius, Altius, Fortius?
The Beijing Winter Olympics officially kick off today, but you wouldn’t know that from the latest slate of advertising campaigns. Many companies are facing pressure to acknowledge China’s abuses of its minority Uyghur population in Xinjiang, along with other human rights issues and authoritarian control. Top American sponsors like Airbnb (NASDAQ:ABNB), Coca-Cola (NYSE:KO), Intel (NASDAQ:INTC), Procter & Gamble (NYSE:PG) and Visa (NYSE:V) are lying low in their Olympic-themed commercials, and there hasn’t been many displayed on TV or social media in the U.S.
Bigger picture: It’s a tough environment to navigate with their consumers and corporations are likely to get far less on their investment return in this situation. In fact, those who are advertising have largely steered clear of mentioning the location of the Games or any hint of politics. An example from Delta Air Lines (NYSE:DAL) saw the “official airline of Team USA” release a commercial spotlighting skiers, snowboarders and figure skaters, but no where is “Beijing” or even a reference to the “Olympics” mentioned in the clip.
While American athletes are free to compete, the U.S. government is boycotting the 2022 Winter Olympics, meaning diplomatic personnel will be barred from the event. No major representatives from U.S.-aligned democratic nations will be present either (though France is sending its sports minister). In fact, Russia’s Vladimir Putin will be among those greeting Chinese leader Xi Jinping today and attending the opening ceremony.
Bottom line: “This is going to be the new-era Olympics, more triumphalist in design and tone,” said Christopher Johnson, president of risk consultancy China Strategies Group in Washington. China’s message is, “We’re here, get used to it.”
Today’s Economic Calendar
8:30 Non-farm payrolls
1:00 PM Baker-Hughes Rig Count
What else is happening…
Divergence: Bank of England hikes rates; ECB stays on hold.
Hong Kong soars 3% as traders return from Lunar New Year.
Snap (NYSE:SNAP) skyrockets on first-ever quarterly net profit.
Pinterest (NYSE:PINS) jumps as revenue, profits easily clear bar.
Clorox (NYSE:CLX) stumbles on narrowing sales, margins and bleak outlook.
Activision Blizzard (NASDAQ:ATVI) misses on earnings, sees user decline.
ConocoPhillips (NYSE:COP) bumps capex and dividends, not production.
End of the boom in sight for U.S. shale drillers – WSJ analysis.
Rivian (RIVN) vs. Lucid (LCID)? Morgan Stanley sees clear EV winner.
—————
Good morning. Happy Thursday.
Among the Asian/Pacific markets that were open, South Korea, Malaysia and Singapore did well; Japan and India were weak. Europe, Africa and the Middle East lean down. Denmark, Russia, Finland, the Netherlands and Sweden are down more than 1%. Futures in the States point towards a big gap down for the cash market.
————— VIDEO: Most of the Best Companies Will Not Recover for a Long Time —————
The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Metaplunge
And just like that, the volatility came back. A tarnished earnings report from Meta Platforms (FB), formerly known as Facebook, dented whatever sentiment the market seemed to take hold of over the last few days following the big reverberations seen in January. Shares of Meta tumbled 23% in after-hours trading on Wednesday, wiping out $200B in market capitalization, while the worries spilled over to Nasdaq futures, which slid more than 2% overnight (that came after the biggest four-day rally since November 2020).
Analyst commentary: “It’s a black eye quarter,” Wedbush’s Dan Ives said following the Q4 results. “It’s a dark chapter quarter at a time when the bulls need to see good news.”
Investors were surprised by weaker user growth (DAUs missed estimates of 1.95B), while Meta gave a disappointing sales forecast for the current period ($27B-$29B vs. $30.3B). Looking under the surface, one can see that the vast majority of Facebook’s revenue comes from targeted advertising, though the company has been severely hurt by Apple’s (NASDAQ:AAPL) privacy changes, which will result in a $10B hit in 2022. CEO Mark Zuckerberg also acknowledged that Meta is facing serious competition for user time and attention (think TikTok and Roblox (RBLX)), causing the company to pivot into a whole new arena: the Metaverse.
Outlook: Meta still has to convince shareholders that its embrace of the Metaverse will pay off, and despite the rebranding, the company at the moment is primarily an advertising company. “They’re a basketball player saying that they’re a skier,” Dan Ives pointed out in an interview. Many say the firm will also have to sink big bucks and capex to get ahead of the curve in developing the Metaverse, where it will have the opportunity to make revenue from transaction-based or token-based sales (like NFTs) and not only from advertising.
Tech trouble
When Facebook (FB) sneezes, it’s no surprise that other social media companies catch a cold. Related stocks crumbled in the AH session on Wednesday, with shares of Twitter (TWTR) declining 8%, Pinterest (PINS) dropping 10% and Snap (SNAP) slumping more than 17%. For good measure, semi-social name Alphabet (GOOG, GOOGL) was also in the red, falling almost 2% even though it flexed its muscles during regular trade following its own upbeat quarterly numbers.
Fallout: Lackluster results from PayPal (PYPL) during the morning may have foreshadowed what was to come after the bell. PayPal shares tanked nearly 25%, notching their worst one-day performance on record and reaching their lowest level since May 2020. Earnings came in soft due to higher expenses, while the company ditched a growth strategy that saw it spend heavily on incentives to attract new users. It was only a short while ago that PayPal had been an investor favorite (pandemic online shopping), though the stock got nailed with several analyst downgrades following the Q4 results.
That wasn’t all. Spotify (SPOT) made waves for the second time this week by plunging as much as 23% AH with an earnings report that rippled through markets. Estimates for user growth in Q1 were barely in line with analyst projections, and the company scrapped annual guidance for the foreseeable future since the “vast majority of our initiatives are multi-year in nature and measured as such.” However, sales outperformed in the current quarter, with subscription-based revenue climbing 22% to €2.3B and advertising revenue surging 40% to €394M.
Go deeper: For the first time, Spotify acknowledged that it might take financial hit from the controversy surrounding Joe Rogan, who signed a reported $100M deal with the streamer back in 2020. It’s “too early to know what the impact may be,” CEO Daniel Ek said on an earnings call, noting that “usually when we’ve had controversies in the past, those are measured in months, not days.” Musicians like Neil Young and Joni Mitchell have already pulled their music from the platform because they believe Rogan’s podcast was spreading false information about COVID vaccines, and they have since been joined by artists like India Arie and Young’s former bandmates Crosby, Stills and Nash.
Hawks and doves?
Pressure is growing on the European Central Bank to raise interest rates as eurozone inflation hit a record 5.1% in January, topping estimates by the most in two decades. Until now, the ECB has lagged other central banks in responding to escalating price pressures, and has said it wouldn’t increase its key interest rate until it ends its net bond purchases, meaning a “very unlikely” hike in 2022. “I don’t think that something happening at the Fed is bound to happen in Europe,” ECB President Christine Lagarde said back in December, though financial markets are now showing a hike of 10 basis points anticipated for September.
Forex: Currency traders are meanwhile preparing for an exciting session today with meetings from both the ECB and the Bank of England. Any signs of a hawkishness from Lagarde could see the euro recover lost ground against the pound, though she may be more hesitant to do so, given that January’s core inflation figure – which strips out volatile components like food and energy – actually eased to 2.3% from 2.6% in December. Contrast that to the U.S., which saw a core inflation figure of 5.5% last month, and an overall headline rate of 7%.
On the other side of the continent, the Bank of England is expected to deliver its first back-to-back interest rate hike since 2004, increasing its benchmark lending rate by 25 bps to 0.5%. If that were to happen, sterling could advance against the euro, approaching some of the strongest levels seen since Brexit. The BOE is also likely to take initial steps toward unwinding some of its £895B stimulus program and investors will be on the lookout for comments from Governor Andrew Bailey.
Over in the U.S.: The greenback is taking a breather from a recent three-day slide, finding some footing as a tech slump didn’t leave much appetite for riskier currencies. “The bigger challenge to the dollar has come from overseas, particularly in Europe,” according to analysts at ING. “Stubbornly high inflation here is prompting a re-assessment of the amount of patience the likes of the ECB can show. And the re-pricing of the ECB cycle is providing support to European currencies in general.”
Climate views
Sarah Bloom Raskin is heading to Capitol Hill this morning for a confirmation hearing to become the Federal Reserve’s Vice Chairwoman of Supervision (i.e. the government’s most influential overseer of the American banking system). She’d also fill one of the three open spots on the central bank’s board of governors, which wields much influence over the world’s largest economy. Her resume features a Fed governor position from 2010 to 2014 before moving on to become former President Barack Obama’s deputy Treasury Secretary.
Bigger picture: Raskin is known as a climate hero in many circles for her calls on financial regulators to use their powers to mitigate the risks of climate-related events. The stance has raised some pushback, with a group of 41 oil-and-gas trade groups urging lawmakers to oppose her confirmation. However, Raskin was careful to address those concerns in prepared remarks, saying she wouldn’t discourage banks from investing in fossil fuels in her capacity at the Fed.
“The role does not involve directing banks to make loans only to specific sectors, or to avoid making loans to particular sectors. And the role exists within the laws passed by Congress that govern the Federal Reserve and its responsibilities.”
Diverse makeover: The hearing today will also cover the Fed board picks of Dr. Lisa DeNell Cook and Dr. Philip Nathan Jefferson. Cook, who has written extensively about the economic consequences of racial disparities and gender inequality, as well as wages, poverty and income distribution, currently serves as a Michigan State economics professor and formerly worked as a senior economist on Obama’s Council of Economic Advisers. Jefferson is a former Fed economist who currently serves as dean of faculty and academic-affairs vice president at North Carolina’s Davidson College.
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
9:45 PMI Composite Final
10:00 ISM Service Index
10:00 Factory Orders
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
What else is happening…
Earnings: Can Amazon (NASDAQ:AMZN) maintain its robust financial performance?
Qualcomm (NASDAQ:QCOM) plunges despite strong earnings and outlook.
Energy watch… OPEC+ agrees on 400kb/d output increase for March.
Biden administration pushes again for more EVs in USPS fleet order.
Soaring oil profits prompts Shell (NYSE:SHEL) to lift shareholder returns.
Turnaround? Nokia (NYSE:NOK) reinstates dividend, launches buyback program.
CNN (T) chief Jeff Zucker resigns, citing undisclosed relationship.
New York Times’ (NYSE:NYT) profit soars as subscriptions drive stellar quarter.
Electric Last Mile (NASDAQ:ELMS) plunges 50% as top execs leave amid investigation.
—————
Good morning. Happy Wednesday.
Among the Asian/Pacific markets, Japan, India, Australia, New Zealand and Indonesia did great, while several markets were closed. Europe, Africa and the Middle East are posting solid gains. The UK, Denmark, Poland, France, Greece, South Africa, Norway, Hungary, the Netherlands, Italy, Israel, Austria and the Czech Republic are doing great. Futures in the States point towards a relatively big gap up open for the cash market.
————— VIDEO: Trading Gap Ups —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down slightly. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
Google it!
Google parent Alphabet (GOOG, GOOGL) reported a set of blockbuster earnings late Tuesday, but perhaps the more notable news was a rare 20-for-1 stock split that added to the wave of investor enthusiasm. It’s only the second time the company has split its shares since going public in 2004, and while it doesn’t really affect the fundamentals, the move will make the stock more affordable or easier to execute some options contracts. Shares of Alphabet soared over 10% premarket to regain $3,000 – a level last seen in November – though the split still needs to be approved at a shareholder meeting in July.
More on those results: Earnings rose by a third to $30.69 a share (compared to $22.30 per share a year ago), while revenue of $75B (32% Y/Y) came in more than $3.5B ahead of analyst expectations. The majority of sales came from Google advertising, which includes search, YouTube and the Google network, showing the resilience of advertising despite the pandemic. It also comes in the face of lawsuits and proposing legislation to curtail the tech giant’s dominance, and antitrust lawsuits against its ad technology.
Besides advertising, CEO Sundar Pichai said that Alphabet’s focus for 2022 will be on “evolving our knowledge and information productivity” and that investments in areas such as artificial intelligence “will be key” throughout the year. “We’re deeply investing in AI, and applying that across the company, but particularly in the area of search,” he said on an earnings call. Pichai also made his first public comment on Web 3.0, discussing the blockchain space and how the firm can add value to the development of the technology.
Earnings help: There were worries of a further market selloff last month as a bout of volatility plagued equities. Some strong Q4 reports may help counter that sentiment, especially as traders continue the ride through the Big Tech earnings week. Meta Platforms (FB), formerly known as Facebook, as well as Amazon (AMZN), will publish results in the coming sessions, and Nasdaq futures are pointing solidly in the green – with a 1.7% gain – ahead of the open.
$30T and counting
America’s national debt has topped $30T for the first time, according to the latest figures from the Treasury Department. The record amount of red ink and gloomy fiscal milestone are adding to worries about the long-term economic health of the country, which is grappling with red-hot inflation and a higher interest rate environment, which can make servicing the debt even more challenging. Other factors like an aging population, elevated healthcare costs, and a tax system that doesn’t bring in enough revenue to cover spending are also worrying as the federal government kicks the can down the road.
Quote: “COVID exacerbated the problem. We had an emergency situation that required trillions in spending, but the structural problems we face fiscally existed long before the pandemic,” said Michael Peterson, CEO of the Peterson Foundation, which promotes deficit reduction. “Our current fiscal posture is a result of many years of fiscal irresponsibility from both parties. The polarization of our government and, to some extent, our population, makes implementing solutions more difficult. If we don’t get our fiscal house in order, all these other concerns like climate, inequality and national security will be made more difficult.”
Long gone are the days of austerity conversations, the Tea Party movements or the balanced budget talk that made some political brownie points. Instead, discussions today have shifted to whether the passing of more trillion-dollar spending bills would be a net positive or negative for the overall U.S. economy. In fact, the U.S. has already returned to the record debt-to-GDP ratio last seen in the aftermath of World War II, leaving the nation with a debt burden so large that it would need to spend an amount larger than the entire annual economy in order to pay it off (the debt-to-GDP percentage totaled 125% in 2022).
How much is too much? There’s no magic number or level for when a government’s debt begins to hurt its economy. As long as interest rates stay relatively low and the U.S. can borrow cheaply, the country can handle a much heavier debt load than was once thought possible (and can even use those conditions to remain competitive on the international stage). However, the federal debt cannot grow faster than the economy indefinitely. Once confidence erodes in Treasuries or the dollar’s reserve currency status is threatened, borrowing can get more expensive and servicing that debt would cancel any budgetary forecasts that were made in a previous lending environment.
Oil supply
WTI crude oil prices are continuing to advance at a rapid pace, climbing 8% over the last week and 18% since the start of the year. In fact, the energy industry is sitting at the top of the S&P’s sector standings, with a 23% gain YTD compared to a 5.4% loss in the broader S&P 500. Oil and gas stocks also posted their best month in nearly a year in January, with crude prices at their highest level since October 2014 and analysts forecasting $100/bbl oil sooner or later.
Next catalyst? The 25th meeting of OPEC+ will convene today, which is typically held in the first week of each month. Officials will review member conformity of output commitments and look to adjust future production in relation to market forecasts for 2022. The group produces over 40% of global crude supply and has faced recent pressure from top consumers like the U.S. to pump more as demand recovers from the pandemic.
“While there is a consensus expectation that the group will maintain status quo and extend gradual production increases [of 400K barrels a day] through March, any comments around their longer-term view can trigger large swings in the market,” explained Robbie Fraser of Schneider Electric. “Similarly, the actual production levels of different members relative to their target should be especially scrutinized in the coming months. Ultimately OPEC+ could again be challenged by individual members cheating [versus] quotas, something that is typically a major issue that the group has largely avoided during this round of cuts.”
Also on watch: A report prepared by the OPEC+ Joint Technical Committee on Tuesday noted a number of risks that continue to linger over the oil market, including central bank policy to counter inflation, restraints on oil production capacity from underinvestment and geopolitical risks. Analysts are particularly eyeing Ukraine, where fears of a Russian invasion are growing as the country amasses more than 100,000 troops near the border. Russia is one of the world’s largest oil and gas exporters, and a supply suspension, energy sanctions or retaliatory measures could quickly spiral out of control.
Digital rupee
India is the latest major economy to embrace a CBDC, or central bank digital currency, announcing plans to launch a digital rupee starting in April. Not too many other details were given, like how it would work or look like, but it will be introduced “using blockchain and other technologies.” As of December 2021, there were 87 countries – representing more than 90% of global GDP – exploring a CBDC, compared to only 35 countries in May 2020 (nine nations have fully launched a digital currency to date).
Quote: “Introduction of a central bank digital currency will give a boost, a big boost to the digital economy,” Finance Minister Nirmala Sitharaman declared as she delivered the country’s annual budget. “Digital currency will also lead to a more efficient and cheaper currency management system.”
That’s not all. India announced it would move swiftly toward legalizing and regulating decentralized crypto, with plans to impose a 30% tax on income from cryptocurrencies and non-fungible tokens. While the step will go some of the way in legitimizing the industry, it would put digital assets in the highest tax band, and losses from a sale could not be offset against other income. Recall in November when the Indian government released a string of bills to ensure regulation for digital asset trading, in addition to banning the use of cryptos as a means of payment.
Outlook: While the U.S. just published a long-awaited paper discussing the pros and cons of a potential CBDC, it remains far behind major economies in the release of a digital currency. China has taken the lead on that front and has been working on a digital version of the yuan since 2014. The country is even planning on promoting the digital renminbi at the upcoming Olympics in Beijing, where athletes and visiting spectators can use it to pay for food, transportation and other shopping needs.
Today’s Economic Calendar
Auto Sales
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
10:30 EIA Petroleum Inventories
What else is happening…
Facebook (NASDAQ:FB) set to report first earnings since metaverse rebranding.
PayPal (NASDAQ:PYPL) drops 12% after soft FQ1, 2022 earnings guidance.
Ford (NYSE:F) plans to increase EV spending by up to $20B – Bloomberg.
Tesla (NASDAQ:TSLA) to recall FSD Beta software that may disobey stop signs.
Exxon’s (NYSE:XOM) Q4 results show monster cash flow beat.
Starbucks (NASDAQ:SBUX) flags inflation costs during holiday quarter.
World’s largest ETF sees most outflows in its nearly 30-year history.
Pinterest’s (NYSE:PINS) revenue chief joins list of departing executives.
Advanced Micro Devices (NASDAQ:AMD) climbs after earnings top expectations.
AT&T (NYSE:T) cuts dividend, spinning off WarnerMedia after Discovery merger.
—————
Good morning. Happy Tuesday.
Among the Asian/Pacific markets, India did well, while several markets were closed. Europe, Africa and the Middle East are posting solid gains. The UK, Denmark, Poland, France, Turkey, Germany, Russia, Greece, South Africa, Finland, Switzerland, Spain, the Netherlands, Italy, Austria and Sweden are up % or more. Futures in the States point towards a flat open for the S&P and an up open for the Nasdaq.
————— My interview with WorldClassPerformer.com —————
The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
How much, how fast?
Many are still trying to size up the Fed’s monetary policy for 2022 as the market heads into February. What we know so far is the central bank will begin hiking rates in March, assuming that the “conditions are appropriate for doing so,” but it’s anyone’s guess how aggressive the FOMC will be after that as it tries to snuff out the strongest pace of inflation in decades. There is also debate over when the Fed will start reducing its balance sheet (May, June or July), though it made clear at its last meeting that pandemic-era bond-buying will come to an end next month.
How many hikes in 2022? Estimates on Wall Street now range from three rate increases all the way to seven, with the federal funds rate projected to end the year in a range of 1.25%-2.00% (the current effective floor is 0.00%–0.25%). Check out some of the forecasts below:
Barclays (3): “With reserves balances over $4T and nearly $1.5T in the [Fed’s reverse repo facility,] we expect it will be difficult for short-term interest rates to trade much above the interest rate floor.”
Morgan Stanley (4): “If they need to hike fast, they will. The Fed is showing urgency and being flexible.”
Goldman Sachs (5): “We see a risk that the FOMC will want to take some tightening action at every meeting until the inflation picture changes.”
BNP Paribas (6): “We read Fed Chair Powell’s comment that this cycle is different from the previous one as an indication that the Fed’s bias is for a steeper tightening than the markets and we had envisaged.”
Bank of America (7): “The Fed has all but admitted that it is seriously behind the curve. With that said, the markets are doing the Fed’s job of tightening financial conditions without an actual hike.”
Hand over the controller
The gaming frenzy is not showing any signs of slowing down as Sony (SONY) announced a $3.6B acquisition for privately held video game developer Bungie. The latter is the beloved maker of multiplayer shooter games like Destiny and Halo, and was bought by Microsoft in 2000 (to develop games for its Xbox console) before splitting off in 2007. The company will continue to operate independently after the deal closes, and will be run by its board and the current management team. SONY +2% premarket.
Bigger picture: Sony’s purchase of Bungie is the third significant videogame acquisition in as many weeks. Take-Two Interactive (TTWO) scooped up mobile game leader Zynga (ZNGA) for $12.7B, while Microsoft (MSFT) bought Activision Blizzard (ATVI) for $69B in the largest-ever takeover in the tech industry. The deal also gave Microsoft the popular Call of Duty series, and Sony may have felt the need to score its own first-person shooter game franchise to stay competitive.
“Sony and Microsoft have been in a multiyear arms race of sorts for talent and developers,” noted Jefferies analyst Andrew Uerkwitz. “Being at a critical juncture in the console cycle and on the cusp of bigger subscription services, first-party titles have never been more important.”
Gamifying: The Bungie deal wasn’t the only one to make headlines, with the New York Times (NYSE:NYT) buying viral sensation Wordle. While the online word-guessing game was only released in October, it has already attracted millions of people who play the puzzle daily. The NYT will add the title to its burgeoning “games” segment – which it currently charges $5 a month for access – though Wordle will be free to play (at least initially) for new and existing players.
‘Mother of all sanctions’
Leaders on both sides of the Atlantic are close to approving an economic and financial package known as the “mother of all sanctions” as Russia continues to boost troop numbers near the border with Ukraine. Among the penalties under consideration are cutting Russia off from international payments network SWIFT, targeting its largest financial institutions, and depriving the country of key technologies like artificial intelligence, quantum computing and semiconductors. Vladimir Putin and Russian oligarchs are also in the line of fire, as well as the nation’s crowned energy sector and even the Nord Stream 2 natural gas pipeline.
Quote: “We cannot have a Munich moment again,” declared U.S. Foreign Relations Chairman Bob Menendez, referring to the 1938 pact that sought to avert war by giving up parts of Czechoslovakia to Hitler (who announced the Sudetenland was his last territorial claim in Europe). “Putin will not stop if he believes the West will not respond. We saw what he did in 2008 in Georgia, we saw what he did in 2014 in pursuit of Crimea. He will not stop.”
The sanctions would only go into effect if Russia invades Ukraine, but there is still discussion on what the triggers would be and how far Moscow would have to advance to see the damaging consequences of the package. The West imposed some sanctions on the Russian economy after the annexation of Crimea in 2014, but those would pale in comparison to the restrictions currently under discussion. A meeting at the United Nations Security Council also didn’t do much yesterday, with both sides accusing each other of being “provocative.”
Thought bubble: The U.S. has to make sure the sanctions don’t end up backfiring, especially if they freeze sales of sovereign bonds, slam the domestic stock market or devalue Russia’s currency. Talk of Western sanctions has already led the ruble to plunge more than 10% against the greenback since October. Washington is also discussing energy reserves in case Moscow freezes exports, while the National Security Council has been in touch with Wall Street’s biggest banks about the stability of the global financial system in the wake of the potential sanctions.
Vaccines under 5
Pfizer (PFE) and partner BioNTech (BNTX) are expected to file a request with the FDA as early as today for emergency-use authorization of their COVID-19 vaccine for children 6 months to 5 years old. The data is based on an approach called “immunobridging,” which is used to show that vaccines work and are safe among other age groups, and typically takes far less time than efficacy trials. An approval, which would be the first vaccine available for the demographic, could happen by the end of February.
Snapshot: The trial was designed to measure if immune responses were comparable to what was reported to be protective in teens and young adults. While the two-shot regimen did create a protective immune response in children 6 months to 2 years old, it was not the case in 2-, 3- and 4-year-olds. The vaccine was still found to be safe among the cohort, but the drugmakers added a third shot to the trial to try to improve the immune response (that data will only be available in late March).
“The idea is, let’s go ahead and start the review of two doses,” per the report in the Washington Post. “If the data holds up in the submission, you could start kids on their primary baseline months earlier than if you don’t do anything until the third-dose data comes in.”
Vaccine eligibility: In the trial of children between 6 months and 5 years old, recipients were inoculated with two doses of 3-microgram shots, three weeks apart. A child-sized version of Pfizer’s vaccine (10 micrograms) is currently available for 5- to 11-year-olds, at a third of the dose given to everyone else 12 and older (30 micrograms). As of mid-January, around 28% of children aged 5 to 11 are at least partially vaccinated, according to the Kaiser Family Foundation.
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:00 Job Openings and Labor Turnover Survey
What else is happening…
Q4 earnings: Will Alphabet (NASDAQ:GOOGL) benefit from digital ad trends?
Exxon (NYSE:XOM) announces sweeping restructuring of its global operations.
Preliminary survey shows OPEC compliance increasing, up 132% in January.
Peloton (NASDAQ:PTON) slashes sales projections for apparel business.
FTC to handle review of Microsoft-Activision Blizzard (MSFT, ATVI) deal.
Novavax (NASDAQ:NVAX) finally files for U.S. authorization of COVID vaccine.
Bitcoin, Ether close out rough month amid Fed pivot; cryptos nosedive.
Boeing (NYSE:BA) clinches deal with Qatar for 50 new freighter jets.
J.P. Morgan’s Kolanovic says we’re in a bear market, so buy the dip.
—————
Good morning. Happy Monday. Hope you had a good weekend.
Among the Asian/Pacific markets Japan and India did well, while several markets were closed. Europe, Africa and the Middle East are doing well. Denmark, Poland, Turkey, Germany, Russia, Greece, South Africa, Finland, Switzerland, Hungary, the Netherlands, Italy and Sweden are up nicely; the UAE and Israel are down. Futures in the States point towards a slightly down open for the S&P and an up open for the Nasdaq.
————— My interview with WorldClassPerformer.com —————
The dollar is down. Oil is up; copper is down. Gold and silver are up. Bonds are down. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
Spotify controversy
Spotify (NYSE:SPOT) is in damage control mode as listeners, creators and shareholders find themselves on different sides of the fence on what to do about controversial content on its platform. The straw that broke the camel’s back was a podcast episode featuring mRNA virologist Dr. Robert Malone on the show of popular host Joe Rogan, who signed a reported $100M deal with Spotify back in 2020. Neil Young, Joni Mitchell and Nils Lofgren have all pulled their music from Spotify in response, while calls to boycott the platform grew on social media with hashtag #DeleteSpotify.
The solution? Looking to pacify both sides of the free speech vs. harmful misinformation debate, Spotify will add a disclaimer to any podcast episode that addresses COVID-19. “This advisory will direct listeners to our dedicated COVID-19 Hub, a resource that provides easy access to data-driven facts, up-to-date information as shared by scientists, physicians, academics and public health authorities around the world, as well as links to trusted sources.” Spotify also published platform rules that will govern what content is and isn’t allowed on its service, which will be updated regularly to reflect the changing safety landscape.
Rogan is a fan. He likes the advisory instead of a ‘misinformation’ ban, saying it would allow users to decide their opinion, even if it goes against the current consensus of medical experts. “The problem I have with the term ‘misinformation,’ is that many of the things we thought of as misinformation a short while ago are now accepted as fact. For instance, eight months ago, if you said ‘if you get vaccinated you can still catch COVID and you can still spread COVID’ – they would ban you from certain platforms. Now, that’s accepted as fact. If you said, ‘I don’t think cloth masks work’ – you’d be banned from social media. Now, that’s openly stated on CNN. If you said, ‘I think it’s possible that COVID-19 came from a lab’ – you’d also be banned. Now, that’s on the cover of Newsweek.”
Go deeper: Shares of Spotify, which commands nearly a third of the global music streaming market, inched into the green overnight, after sliding 12% last week, and erasing more than $3B in market value. The stock has fallen about 26% YTD, 48% over the past 12 months, and hit a 52-week low of $164.41 on Friday amid the controversy. Closest rival Apple Music (NASDAQ:AAPL) was also quick to capitalize on the hullabaloo, highlighting that it was “the home of Neil Young” and his entire catalog was available on the platform.
Supply crunch
Many have been eyeing China’s manufacturing numbers in recent months as an important gauge of what to expect along the global supply chain. A weaker figure can suggest that problems will continue to persist, while a stronger number may signal the opposite. On top of the recent headlines, a severe zero-COVID policy is still being implemented in the country, which has driven some 30% of worldwide growth over the past decade.
Fresh data: The private Caixin Manufacturing Purchasing Managers’ Index (which focuses on smaller export firms) contracted for the second time in three months in January, falling to 49.1, from 50.9, and close to its lowest point since the start of the pandemic. A separate PMI figure from the official National Bureau of Statistics was slightly less troubling, but still fell to 50.1 in January, from 50.3 a month earlier. That’s just above the 50-point threshold that indicates expansion rather than contraction.
“From December to January, the resurgence of COVID-19 in several regions including Xi’an and Beijing forced local governments to tighten epidemic control measures, which restricted production, transportation and sales of manufactured goods,” noted Wang Zhe, senior economist at Caixin Insight Group. “It became more evident that China’s economy is straining under the triple pressures of contracting demand, supply shocks and weakening expectations.”
Outlook: Things don’t look any better in the foreseeable future. Factories will likely see an output lull in February as workers head home for the Lunar New Year holiday. Industrial activity has also been impacted by the government’s decision to cut steel plant output capacity to reduce air pollution before the Winter Olympics in Beijing. The developments, along with a zero-COVID policy, saw Goldman Sachs cut its 2022 forecast for China’s economic growth last week to 4.3%, down from 4.8% previously.
Cloud buyout
Nearly $1T of U.S. private equity deals were announced in 2021, including buyouts and exits, which is 2.5x the volume of the previous year and more than double the previous peak in 2007. Big leveraged buyouts are continuing apace this year as well, with private equity firms Elliott Management and Vista Equity nearing an agreement to purchase Citrix Systems (CTXS) for about $13B. The company makes software that allows employees of companies to access their network remotely, among other cloud computing capabilities.
Snapshot: As money sloshes around in the markets, private equity institutions have amassed billions of dollars of cash from investors. They need to put that money to work to begin earning fees, and there is no better environment to go big with interest rates still near historic lows. Software companies like Citrix have become desirable targets given their predictable revenue and ability to carry substantial amounts of debt.
Citrix has still had its fair share of difficulties, struggling to transition to a subscription-based model. Converting customers into subscribers (instead of licensees) is better for recurring revenue, though it has had some recent successes, as remote work remains popular even after the pandemic. In November, Citrix reported annualized recurring revenue for its third quarter that expanded 13% Y/Y.
Transaction details: Jointly tapping the loan market, Elliott and Vista plan to fund their cash bid for Citrix at $104 per share. Once taken private, Citrix is expected to be merged with Tibco, another data analytics software firm Vista agreed to buy for $4B in 2014. The combination could attract potential buyers down the line, or shareholders, if the firms decide to return the firm to public markets. CTXS -4% premarket.
Buy the dip?
Stock index futures are mixed ahead of final session for January, with contracts linked to the Dow and S&P 500 inching lower, and the Nasdaq up by 0.4%. A spate of volatility continues to unnerve traders and investors alike on Wall Street, with equities rebounding strongly on Friday, closing decisively in the green. Despite the gains, the Nasdaq Composite is headed for its worst month since October 2008 and the worst first month of the year of all time, prompting many to consider whether it is time to “buy the dip” as we head into February:
For: “While it’s always hard to predict the bottom of any market selloff, we believe the risk-reward for U.S. stocks is getting attractive,” wrote David Lefkowitz, head of equities Americas for UBS Global Wealth Management.
“Market trading is off and the average Nasdaq stock being down over 40% [from last year’s all-time high] could create opportunities,” said Jonathan Gray, president of Blackstone.
“Innovation is on sale and it will be really important to investors to get to move towards the right side of change, given the amount of disruption that we do expect,” according to ARK Invest’s Cathie Wood.
“Many of our best investments have emerged when other investors whose time horizons are short term, discard great companies at prices that look extraordinarily attractive when one has a long-term horizon,” commented billionaire Bill Ackman, head of hedge fund Pershing Square.
Against: “There’s tremendous selling resistance at higher levels because so many people have lost money. And that to me is very similar to the dot-com bubble, and other bubbles,” said Morgan Stanley’s Andrew Slimmon. “Once a very speculative bubble breaks, it’s not a V-bottom because there are too many people looking to get out.”
“The buy the dip mentality has been obliterated in the market,” declared Bill Gross, the founder and former chief investment officer of PIMCO.
“The buy-the-dip reflex should be resisted in the environment we are likely to continue to face in 2022,” added T. Rowe Price CEO Rob Sharps. “Any environment where there is a reversal of accommodating monetary policy makes it more difficult to expect that returns will be robust, and that it is necessarily the right thing to do to buy each pullback.”
“We will have much tougher times ahead with extremely low interest rates and a very high stock market, and with increasing – and in some places, accelerating – inflation, we could see a long period of time with low returns,” noted Nicolai Tangen, head of Norway’s $1.3T oil fund, which is the world’s largest sovereign wealth fund.
Today’s Economic Calendar
9:45 Chicago PMI
10:30 Dallas Fed Manufacturing Survey
11:30 Fed’s Daly Speech
12:40 PM Fed’s George: U.S. Economic and Monetary Policy
3:00 PM Farm Prices
What else is happening…
Worst week since Nov… Goldman, UBS take opposite stands on gold.
Union rejects pay offer in U.S. refinery worker talks – Reuters.
Down 41% YTD, Moderna (NASDAQ:MRNA) slips to bottom of S&P 500.
Walgreens (NASDAQ:WBA) is said to start sales process for U.K. Boots chain.
Two New York nurses incriminated for forging COVID vaccine cards.
T-Mobile (NASDAQ:TMUS) to lay off unvaccinated corporate employees by April.
Apple (NASDAQ:AAPL) and the metaverse: A ‘very interesting’ area.
Netflix (NASDAQ:NFLX) co-CEO buys $20M of the streamer’s beleaguered stock.
Time to double down on sports betting and iGaming shares?
—————