Good morning. Happy Friday.
The Asian/Pacific markets suffered stiff losses. Japan, China, Hong Kong, South Korea, India, Taiwan, Malaysia and Thailand – all down big. Indonesia did well. Europe, Africa and the Middle East are down big. The UK, Denmark, Poland, France, Turkey, Germany, Greece, South Africa, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Austria, Sweden and the Czech Republic are down big. Futures in the States point towards a moderate negative open for the cash market.
————— VIDEO: What’s on the Other Side of this Bear Market —————
The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Time for payrolls
It’s the final monthly employment report before the FOMC gathers for its upcoming March meeting. Consensus economist forecasts see a gain of 400K non-farm payroll additions last month, compared to the 467K gain in January, leaving employment only 2.5M jobs below its pre-pandemic level (those jobs losses are expected to be fully recouped this year). February’s unemployment rate is also anticipated to fall 0.1 percentage points to 3.9%, while worker scarcity likely pushed up average hourly earnings by 0.5%, or 5.8% Y/Y. Stay tuned for the release of the report by the Labor Department at 8:30 a.m. ET.
Tough time: Payroll forecasts haven’t exactly had a great track record over the past six months, with actual figures coming in at least 200K more or less than consensus estimates. Even today’s payrolls projections range from as low as 200K at Deutsche Bank to as high as a 730K jobs gain at Morgan Stanley. It’s been hard to estimate the data during the pandemic, with shifts in seasonal patterns and distorted measurements, while collecting timely employment data has also been a problem.
With all the things going on in the world, a strong American labor market should provide some optimism about the economy. In mid-February, the U.S. even recorded the smallest number of people on state unemployment benefits since 1970, though it’s important to note there are downside risks as well, especially if today’s jobs number comes in softer than expected. An ISM survey on Thursday showed a measure of services sector employment contracting in February, manufacturing employment growth slowed last month, while “widespread strong demand for workers remained hampered by equally widespread reports of worker scarcity” according to the Fed’s Beige Book on Wednesday.
Policy path forward: “I think because we saw [Fed Chair Jay] Powell say, uncharacteristically frankly, specifically say that the planned to support a 25-basis point hike, that speculative thinking may be a little bit more anchored at a 25-basis point hike even if we do see a stronger-than-expected report,” said Lauren Goodwin, economist at New York Life Investments. “Even 5.8% wage growth is a wage cut if inflation is creeping up above 7%.”
Russia roundup
Europe’s largest nuclear power plant, located in Enerhodar, Ukraine, came under attack from Russian shelling overnight, sparking a blaze and raising fears of a nuclear disaster. Ukrainian President Zelenskyy even spoke with President Biden, telling him that “if it blows up, it will be 10 times larger than Chernobyl,” before the fire was extinguished and Russia took control of the facility. Stock futures whipsawed on the news, with the International Atomic Energy Agency saying “essential” equipment was not impacted and there had been no change to reported radiation levels.
Financial fallout: Russia today is keeping the Moscow Exchange closed for a fifth straight day, trying to shield stocks from a potentially brutal selloff. Over in the U.S., FINRA halted OTC trading in several Russian stocks, while the London Stock Exchange suspended trading in more than 50 Russian securities to “maintain orderly markets.” Another wave of sanctions has also hit Russian oligarchs and Vladimir Putin’s inner circle, ratcheting up financial pressure in response to Moscow’s “destabilizing foreign policy.”
The corporate pullout is accelerating at the same time, with Airbnb (NASDAQ:ABNB) announcing it would suspend all operations in Russia and Belarus. Earlier in the week, it offered to house 100K refugees for free in rentals listed on its platforms in countries that neighbor Ukraine. Google (GOOG, GOOGL) is also pausing all ads in Russia across YouTube, search and outside publishing partners, while “anything goes” Reddit even banned links to Russian state-sponsored media outlets like RT and Sputnik.
Big rally: Commodities prices have been on a rip this week, with the war in Ukraine continuing to fuel fears of supply crunches. Examples: Wheat soared to the highest level since 2008 (Ukraine and Russia account for a quarter of the world’s exports), while crude and natural gas are up more than 20% this week as many spurn Russian energy sales. In response to the current environment, the EU went as far as to say it intended to more than double the amount of gas in storage before next winter to reduce its reliance on Russian supplies. (14 comments)
Chinese targets
China’s National People’s Congress will convene its annual parliamentary gathering on Saturday, setting economic and political priorities for 2022. Nearly 3,000 lawmakers will descend on Beijing, where the nation’s rubber-stamp parliament will lay out targets for spending, employment, inflation and other growth goals. In recent years, President Xi has also used the NPC to further legitimize governance decisions, like the lifting of presidential term limits in 2018 and Hong Kong’s sweeping national security law in 2020. Could this year’s conference make a reference to Taiwan?
Snapshot: The fiscal and economic projections of the NPC are the most anticipated indicators on the direction of China’s economy. This year, the Communist Party leadership is expected to lay out its lowest economic growth goal in more than three decades, adopting a GDP target of between 5% and 5.5%, according to analysts at BNP Paribas. That would be the first time since 1991 that the figure fell below 6%, so watch for a possible release of additional tax cuts and stimulus measures.
“Infrastructure seems to be the only sector that policy makers can boost,” added Nomura economists led by Lu Ting. “But this would only fill a small part of the gap left by slowing export growth, the large property sector contraction and the rising costs of China’s zero-Covid strategy.” During the Central Economic Working Conference in December, Chinese leaders also expressed the need to tackle a “contraction of demand, supply shocks and weaker expectations.”
Outlook: Beijing is unlikely to ditch its coronavirus policy based on lockdowns, but policymakers might call for less severe restrictions as the world adjusts to a post-pandemic environment. Some even expect further rate cuts or another reduction of the bank reserve ratio after similar measures in 2021 saw GDP growth expand by 8.1% (if the numbers can be believed). Other topics that may be addressed include the country’s tumbling birth rate and tighter tech regulation that has wiped out billions of dollars in stock market value. (5 comments)
More EVs
Everyone is trying to get into the crowded EV industry these days, no matter if you’re a traditional automaker, startup or even a tech company. The latest industry tie-up saw Sony (SONY) join hands with Honda Motor (HMC) to develop and sell battery electric vehicles. Chinese tech giants Baidu (BIDU) and Xiaomi (OTCPK:XIACF) also recently formed electric vehicle divisions, while rumors abound about self-driving electric cars from Apple (AAPL).
More details: The joint venture is expected to be established later this year, with sales of the first vehicle due to start in 2025. With over seven decades of experience in car making, Honda will be responsible for the manufacturing side of the business, while Sony will develop the mobility service platform for the new company. Other details of the agreement are still being ironed out.
“Although Sony and Honda are companies that share many historical and cultural similarities, our areas of technological expertise are very different,” Honda CEO Toshihiro Mibe declared. “Therefore, I believe this alliance, which brings together the strengths of our two companies, offers great possibilities.”
On watch: At the Consumer Electronics Show in January, Sony showed off an electric concept SUV called the Vision-S 02, but it’s unclear how and if the idea would be part of the new Honda partnership. The prototype was based on an earlier Vision-S 01 concept sedan that Sony unveiled at CES 2020. (6 comments)
Today’s Economic Calendar
8:30 Non-farm payrolls
8:45 Fed’s Evans Speech
1:00 PM Baker-Hughes Rig Count
What else is happening…
Russian ETFs continue their downward spiral; RUSL will de-list.
Best Buy (BBY) raises dividend, pointing to future growth potential.
Gap (GPS) soars after full-year profit outlook beats expectations.
Broadcom (AVGO) pops as Q1 results, guidance top estimates.
Musk says Tesla (TSLA) would not stop union vote in California.
Bumble (BMBL) drops 15% for worst day in months, ahead of earnings.
Purdue Pharma, Sacklers reach new $6B opioid settlement with states.
Kroger (KR) notches fresh 52-week high following earnings topper.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets were mixed. Japan, South Korea, Malaysia and the Philippines did well; China and India were weak. Europe, Africa and the Middle East are mixed. Denmark, Turkey, Hungary, Austria, Saudi Arabia and the Czech Republic are up; the UK, Germany, Finland, Norway, Spain, Portugal and Sweden are down. Futures in the States point towards a positive open for the cash market.
————— VIDEO: What’s on the Other Side of this Bear Market —————
The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is flat.
Stories/News from Seeking Alpha…
A quarter point
In his testimony to Congress on Wednesday, Fed Chair Jay Powell ditched the ambiguous lingo by confirming his support for a 25 bps interest rate hike at the FOMC’s next meeting in two weeks. While rate rises are not particularly friendly to stocks, markets have been pricing in the new monetary cycle for months and were happy to hear that a half point move wasn’t in the cards. Going through with the removal of easy pandemic-era support also signaled that the Fed wasn’t too concerned about the economic fallout from the war in Ukraine, prompting the S&P 500 to end the session up nearly 2%.
Bigger picture: Despite the advance, all three major averages are off more than 4% over the past month, with the Nasdaq Composite still in correction territory. Powell also didn’t rule out a larger move in the future if inflation continues to come in hot, with the next CPI data being released on March 10 (just days before the upcoming Fed meeting). A lot could also take place on the geopolitical stage before then, with Powell acknowledging that the Russian invasion could lead to the reshaping of Western economies due to the effects of financial sanctions.
Over in oil markets, WTI crude touched as high as $116 a barrel. That could be music to OPEC+’s ears, especially key member Russia, which has been facing escalating sanctions. A high-profile meeting of the alliance yesterday saw producers leave plans in for raising collective oil output by 400K bpd in April, with no suggestion of additional increases. Remember, it wasn’t easy to bring Russia back into the group during the pandemic, when a disagreement with kingpin Saudi Arabia turned into an oil price war. Crude is now up over 50% YTD, a massive increase, given that we are only two months into the year.
Go deeper: The West has so far avoided sanctioning Russia’s energy sector, which is responsible for much of the country’s exports and economic growth, but momentum is building. Proposals from Sens. Joe Manchin (D-WV) and Lisa Murkowski (R-AK), as well as Ed Markey (D-MA), are making rounds on Capitol Hill that would give President Biden the power to levy an oil and natural gas embargo on Moscow. While the U.S. doesn’t use much Russian crude (it only accounts for 3% of American imports), the sentiment is spreading to Europe where it could be a lot more damaging. Western refiners, shippers and banks are already stepping away from Russia energy, helping attribute to the elevated prices seen over the past week. (105 comments)
Ford split
In a major restructuring that’s being noted across the auto industry, Ford Motor (F) has confirmed plans to create distinct internal combustion and electric vehicle businesses. “Ford Blue” will build out company’s portfolio of ICE vehicles with a goal to drive growth and profitability, while “Ford Model e” is said to be aimed at accelerating innovation and delivering breakthrough EVs at scale while developing software and connected vehicle technologies. The separation aims to streamline its growing electric vehicle business and maximize profit.
Quote: “We have made tremendous progress in a short period of time. We have launched a series of hit products globally and demand for our new EVs like F-150 Lightning and Mustang Mach-E is off the charts,” declared CEO Jim Farley. “But our ambition with [turnaround plan] Ford+ is to become a truly great, world-changing company again, and that requires focus. We are going all in, creating separate but complementary businesses that give us start-up speed and unbridled innovation in Ford Model e together with Ford Blue’s industrial know-how, volume and iconic brands like Bronco, that startups can only dream about.”
On that note, Ford said it will boost spending on EVs to $50B through 2026, up from the previous $30B by 2025. Investors cheered the move, sending the stock up 8.4% on Wednesday, and even higher in after-hours trading. Many on Wall Street have been pressuring legacy automakers for some time to separate or spin off their EV operations, with General Motors (GM) taking a similar move in 2019 to divide engineering of EVs and traditional vehicles.
Outlook: Ford reaffirmed guidance of $11.5B-$12.5B in company adjusted EBIT for 2022. Looking further ahead, the carmaker reiterated its pledge to achieve carbon neutrality by 2050, and to use 100% local, renewable electricity in all of its manufacturing operations by 2035. (124 comments)
Russian isolation
More damaging news keeps flowing in for Russian markets as MSCI (NYSE:MSCI) and FTSE Russell (OTCPK:LDNXF) cut the nation’s equities out of their widely-tracked indexes. The verdict followed two days of deliberations, in which the “overwhelming majority” involved in the consultation had reported that “the Russian equity market is currently uninvestable.” The Moscow Stock Exchange will be closed for the fourth consecutive day on Thursday, while hundreds of millions of dollars in market value of Russia-based stocks and ETFs have already been wiped out in the U.S.
Bigger picture: International sanctions punishing Russia for its invasion of Ukraine have seen a slew of Western companies pull out of Russia and measures targeting the central bank’s reserves have sent the ruble to record lows. The latest? Boeing (BA) and Airbus (OTCPK:EADSY) have suspended parts and maintenance support for Russian airlines, adding further barriers to continue operating their fleets, while Mercedes-Benz (OTCPK:DDAIF) discontinued deliveries to the country. Apple (AAPL) has also halted product sales in Russia, while the tech giant, Google (GOOGL) and Spotify (SPOT) have removed all content from Kremlin-backed RT and Sputnik from their platforms.
The decision by MSCI, which estimates about $16T are linked to its indices, comes after rating agencies Fitch joined S&P Global in cutting Russia’s sovereign debt rating to junk. “Developments will weaken Russia’s external and public finances, severely constrain its financing flexibility, markedly reduce trend GDP growth, and elevate domestic and geopolitical risk and uncertainty,” Fitch wrote in a statement. Moody’s Investors Service followed shortly thereafter, downgrading Russia’s credit ratings deep into junk territory.
Commentary: “Russian assets have become toxic, for a lack of better expression,” explained Marek Drimal, a strategist at Societe Generale. “Onshore markets are barricaded and basically uninvestable, while offshore markets have been hammered. The speed of events as they are happening is just mind-boggling.” (9 comments)
Physical flop
Well, that didn’t work out as planned. Amazon (AMZN) plans to pivot even further away from its small brick-and-mortar footprint after deciding to close all 68 of its physical book stores, pop up shops and 4-star stores in the U.S. and U.K. It will still continue to work on other concepts, such as a fashion store in greater Los Angeles, the cashierless grocery store concept and the Whole Foods grocery chain, though it marks a setback of sorts for the e-commerce giant’s push into the industry.
Flashback: Amazon surprised some retail watchers in 2016 by opening physical stores in large cities to get closer to consumers and compete with Barnes & Noble and electronics retailers in a few high-traffic areas. But the initiative was not enough to stop online shopping trends that Amazon itself helped pioneer. In fact, its “physical stores” revenue only made up 3% of Amazon’s $137B in sales last quarter, and most of that largely reflects spending at Whole Foods, which the company is keeping around.
“Retail is hard, and they’re discovering that,” said Michael Pachter, an analyst at Wedbush Securities.
Another try? Amazon announced its first clothing store back in January, called Amazon Style. The location in Glendale, Calif., will feature men’s and women’s apparel, shoes, and accessories, with prices catering to a wide range of shoppers. It’ll also test whether customers take to a tech-driven shopping experience, like using an app to request items to a changing room.
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 Powell testifies before Senate Banking Committee
10:00 Factory Orders
10:00 ISM Service Index
10:30 EIA Natural Gas Inventory
12:00 PM Fed’s Barkin Speech
4:30 PM Fed Balance Sheet
6:00 PM Fed’s Williams Speech
What else is happening…
Beige Book: Prices rising at ‘robust’ pace amid elevated input costs.
Snowflake (SNOW) plunges as outlook suggests sales growth slowing.
States launch probe into TikTok’s (BDNCE) effect on kids’ health.
Exxon (XOM) faces 1%-2% hit to earnings, production from Russia exit.
Roblox (RBLX) stock has sunk 50% YTD; Is now the time to buy?
Remittances: Walmart (WMT) to only charge $2.50 on transfers to Mexico.
Trump’s Truth Social (DWAC) falls to No. 57 in the App Store.
Apple’s (AAPL) spring event expected to unveil iPhone SE and iPad Air.
Visa (V) discloses 5% of revenues exposed to Russia and Ukraine.
Netflix (NFLX) latest media player to pause Russian projects, acquisitions.
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Good morning. Happy Wednesday.
The Asian/Pacific markets closed mostly down. Japan, China, Hong Kong, India, New Zealand, Indonesia, Singapore and the Philippines all posted losses. Europe, Africa and the Middle East lean to the upside. The UK, Poland, the UAE, South Africa, Norway, Spain and the Netherlands are up; Denmark, Greece, Switzerland 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 up. Oil and copper are up. Gold and silver are down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
OPEC on deck
Oil’s price ascent is showing no signs of slowing down ahead of one of the most important OPEC+ meetings since the beginning of the pandemic. WTI crude futures (CL1:COM) climbed another 6.6% overnight to top $110 per barrel, and that was despite the U.S. and other members of the IEA agreeing to release 60M barrels from the Strategic Petroleum Reserve and other emergency stocks. The coordinated drawdown would be only the fourth in the agency’s history, sending a “unified and strong message to global oil markets that there will be no shortfall in supplies as a result of Russia’s invasion of Ukraine.”
Analyst commentary: “Although the sanctions are still being crafted to avoid energy price shocks, we believe this aggressive-but-not-maximalist stance may not be sustainable, with disruptions to oil and gas shipments looking increasingly inevitable,” Evercore ISI wrote in a note to clients. “Russia is casting a long, dark, unpredictable, and very complicated shadow.” Part of the issue is that many Western banks, shipowners and refiners are hesitant to do business with Moscow, fearing legal/reputational risk, or an eventual sanctioning of Russia’s energy sector.
Meanwhile, the OPEC+ group, which Russia is a part of, commands broad control of the oil market because its members account for more than 40% of global crude production. The alliance has been recently increasing output by 400K barrels per day each month after unwinding historic cuts of nearly 10M bpd implemented in April 2020 due to the pandemic. Despite the current turmoil in energy markets, only a modest increase is expected at today’s meeting – if any at all – which could fluctuate based on the situation in Ukraine or the world’s response to it.
Inflation watch: A general rule of thumb states that for every $10 increase in the price of an oil barrel, U.S. inflation rises by 0.4 to 0.5 percentage points. That’s hammering consumers at the pump, with the national average for a gallon of gas standing at $3.65 per gallon, according to data from AAA. “Global energy security is [also] under threat,” according to IEA Executive Director Fatih Birol, “putting the world economy at risk during a fragile stage of the recovery.” (5 comments)
State of the Union
On Russia: President Biden said that Vladimir Putin will have to “pay a price” for the invasion into Ukraine during his first State of the Union address to Congress. “Throughout our history we’ve learned this lesson – when dictators do not pay a price for their aggression, they cause more chaos. They keep moving. And, the costs and threats to America and the world keep rising.” “Putin’s war was premeditated and unprovoked. He rejected efforts at diplomacy. He thought the West and NATO wouldn’t respond. And, he thought he could divide us here at home. Putin was wrong. We were ready.”
Inflation: Biden also vowed to fight inflation during the speech, with consumer prices soaring 7.5% over the past 12 months. “My top priority is getting prices under control. We have a choice. One way to fight inflation is to drive down wages and make Americans poorer. I think I have a better idea to fight inflation: Lower your costs, not your wages. Make more cars and semiconductors in America. More infrastructure and innovation in America. More jobs where you can earn a good living in America instead of relying on foreign supply chains, let’s make it in America. My plan to fight inflation will lower your costs and lower the deficit.”
Infrastructure: “We’re done talking about infrastructure weeks. We’re going to have an infrastructure decade. We’ll create good jobs for millions of Americans, modernizing roads, airports, ports and waterways all across America. And we’ll do it to withstand the devastating effects of the climate crisis and promote environmental justice. We’ll build a national network of 500K electric vehicle charging stations, begin to replace poisonous lead pipes – so every child – and every American – has clean water to drink at home and at school, provide affordable high-speed internet for every American – urban, suburban, rural and tribal communities.”
Manufacturing: “The revitalization of American manufacturing: Companies are choosing to build new factories here, when just a few years ago, they would have built them overseas. Intel (INTC), the American company that helped build Silicon Valley, is going to build its $20B semiconductor mega site. Ford (F) is investing $11B to build electric vehicles, creating 11K jobs across the country. GM (GM) is making the largest investment in its history – $7B to build electric vehicles, creating 4K jobs in Michigan. All told, 369K new manufacturing jobs are created in America last year alone.”
Taxes: Under my plan, nobody earning less than $400K a year will pay an additional penny in new taxes. Nobody. The one thing all Americans agree on is that the tax system is not fair. We have to fix it. I’m not looking to punish anyone. But let’s make sure corporations and the wealthiest Americans start paying their fair share. Just last year, 55 Fortune 500 corporations earned $40B in profits and paid zero dollars in federal income tax. That’s simply not fair. That’s why I’ve proposed a 15% minimum tax rate for corporations… That’s why I’ve proposed closing loopholes so the very wealthy don’t pay a lower tax rate than a teacher or a firefighter.” (362 comments)
Airspace ban
Following in the footsteps of the EU and Canada, President Biden also announced a ban on Russian aircraft and airlines entering American airspace due to Moscow’s invasion of Ukraine. According to Western military officials, the war is now heading into a new phase, with Russia turning to heavy artillery and the indiscriminate shelling of civilian neighborhoods. The more destructive stage even prompted Ukraine to sell $270M worth of war bonds overnight, ahead of a planned siege on the capital of Kyiv.
Quote: “We will join our allies in closing off American air space to all Russian flights, further isolating Russia, and adding an additional squeeze on their economy,” Biden exclaimed in his first State of the Union address. The ban, which will take effect by the end of today, will prohibit any plane owned, certified, operated, registered, chartered, leased, or controlled by, for, or for the benefit of a person who is a citizen of Russia from flying over the U.S.
Russia is expected to retaliate with similar measures and may even go after Boeing (NYSE:BA), a major American exporter and one of the world’s two leading aircraft manufacturers. While U.S. carriers don’t operate any non-stop flights to Russia, its airspace is part of a key corridor for many long-haul flights to Asia. United Airlines (NASDAQ:UAL) typically flies over Russia en route to India, while Delta (NYSE:DAL) and American Airlines (NASDAQ:AAL) already suspended flying over Russian airspace earlier this week.
Go deeper: Russia is said to derive a significant amount of money from the fees it imposes to use its airspace, or to land at one of its airports. The new ban will also affect the lucrative air-cargo services markets, impacting operations of carriers like FedEx (NYSE:FDX) and UPS (NYSE:UPS). In fact, cargo flights between Asia and North America account for a quarter of global freight traffic, according to the IATA, putting the supply chain on watch once again. (2 comments)
In the hot seat
Fed Chairman Jerome Powell will walk a tightrope over the next couple of days, addressing separate House and Senate panels as part of biannual hearings on monetary policy. The testimony before Congress will likely be his final public remarks before the FOMC embarks on a rate hike cycle, with inflation running at its highest level since the 1980s. Powell will emphasize his commitment to taming the price pressures, while being mindful of economic growth and geopolitical tensions surrounding Russia and Ukraine (not an easy task). Lawmakers will meanwhile question the Fed’s balance sheet and global dollar demand, as well as labor/supply bottlenecks and financial conditions and stability.
Snapshot: Up until a week ago, markets were pricing in 25 basis point hikes at each of the FOMC’s seven remaining meetings for 2022. There were even expectations of a stronger move this month, with some forecasting a 50 bps increase at the March 15-16 gathering. However, once the crisis in Ukraine erupted, investors dialed back those beliefs, and are now seeing around five hikes this year to bring the Fed funds futures rate up to a range of 1.25%-1.5%, according to CME data.
“Powell has to thread a pretty thin needle. The balancing act is going to be difficult,” explained Mark Zandi, chief economist at Moody’s Analytics. “My sense is he leads with the uncertainty that this all creates given that the Russian invasion could take many different paths, each one darker than the other. He’ll reinforce the point that in a period of such heightened uncertainty, it might make sense for the Fed to be a little more cautious in enacting policy.”
State of the Union: President Biden also made a reference to the central bank in last night’s address, saying “confirm my nominees to the Federal Reserve, which plays a critical role in fighting inflation.” (10 comments)
Today’s Economic Calendar
Auto Sales
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
9:00 Fed’s Evans: U.S. Monetary Policy
9:00 Fed’s Bullard: U.S. Economic and Monetary Policy
10:00 Powell Testifies on Semi-Annual Monetary Policy Report
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
2:00 PM Fed’s Beige Book
What else is happening…
Sales growth and profitability impress at Target (TGT).
Salesforce (CRM) pops as Q4 earnings beat expectations.
Blame Putin: AMD (AMD) tumbles on export control sanctions.
Apple (AAPL) cuts off online sales and product exports to Russia.
Moscow charges Meta (FB), Google (GOOGL) with ‘inciting’ social media war.
Wheat surges near $10/bushel as Russia’s invasion strands shipments.
Kohl’s (KSS) doubles quarterly dividend, announces $3B buyback.
Nordstrom (JWN) skyrockets as retailer issues strong guidance.
Stellantis (STLA) plans to launch Jeep electric SUV early next year.
Exxon (XOM) withdraws personnel, halts drilling operations in Russia.
Chevron (CVX) hikes buyback plans to as much as $10B annually.
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Good morning. Happy Tuesday.
The Asian/Pacific markets did well. Japan, China, Hong Kong, Taiwan, Australia, New Zealand, Singapore and the Philippines posted solid gains; Malaysia was weak. Europe, Africa and the Middle East are split, with some big losers, Turkey, the UAE, South Africa and Norway are up, but the UK, France, Germany, Greece, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy and Austria are down moderately or big. Futures in the States point towards a gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is up.
Stories/News from Seeking Alpha…
SOTU
The war in Ukraine will overshadow President Biden’s first State of the Union address tonight, which is set to be broadcast from Capitol Hill starting at 9 p.m. ET. He’ll take the podium following two years of a pandemic that has killed nearly 1M Americans, as COVID fatigue and the withdrawal of restrictions take shape following a sustained drop in infections from the Omicron wave. Americans from all walks of life will be tuning in the speech, and while the message itself isn’t typically market-moving, comments or legislative priorities could show what is in store for various sectors of the economy.
Snapshot: Consumer prices over the past 12 months have shot up by 7.5% amid soaring inflation at the grocery store, as well as the gas pump. While energy prices have been exacerbated by the Russian invasion, Biden is expected to showcase the efforts he has taken “to rally the world to stand up for democracy and against Russian aggression.” He’s also likely to point to his coronavirus relief package, calling it the catalyst for the fastest job growth in American history and best economic performance since 1984.
With price pressures remaining a big problem, Biden will detail further efforts to tackle the costs. Those include “strengthening the supply chain, reducing the cost of everyday expenses for working families, promoting fair competition and eliminating barriers to good-paying jobs.” Biden also plans to call on Congress to send him legislation combating climate change, but may tread carefully around his “Build Back Better” agenda, which was torpedoed by Republican opposition and key Democratic holdout Sen. Joe Manchin of West Virginia.
Manchin at it again: On the eve of Biden’s SOTU address, Manchin urged the administration to boost domestic energy production, saying he was planning weeks of hearings on energy independence – for both the U.S. and to support NATO allies. “We produce energy cleaner than anybody in the world. We’re buying 650K barrels a day from Russia. It’s ridiculous. Totally ridiculous.” Senator Lindsey Graham (R-SC) also related that Ukraine’s ambassador to the U.S., Oksana Markarova, has asked for Russian oil and gas to be sanctioned. “We’re not using the energy sector as a weapon. We’re not hitting Putin where it hurts most.” (29 comments)
Russian retaliation
As the drumbeat of Western sanctions against Russia gets louder, Moscow is looking to fight back and insulate its economy from the penalties. Vladimir Putin has already hardened capital controls, banning all Russian residents and companies from transferring foreign currency abroad to prop up the plummeting ruble. The steps include a ban on payments of hard currency made to foreigners “in connection with [new] loan agreements,” and some say it could even lead to a default on Russian debt, an occurrence that last happened in 1998 and Russia vowed never to happen again.
Commentary: “Putin is himself now cutting Russia off from international capital markets for a very long time. Russia’s financing costs will stay elevated for a long time – even the Chinese will not lend,” said economist Timothy Ash, a specialist in Russian government debt. The Moscow Stock Exchange was shuttered all day on Monday and it will be closed today as well.
Meanwhile, Russia has barred airlines from 36 countries from its airspace, in an effort to hit back at the widening raft of Western sanctions (even the neutral Swiss have jumped on the train). Russia is also debating whether to retaliate by freezing Western assets and may pull out of the New START nuclear arms control treaty that limits the U.S. and Russian nuclear arsenals. Scrapping the agreement could raise new threats to global security after Moscow’s decision to put its nuclear deterrent forces on “high alert.”
On the ground: Fighting is intensifying across Ukraine as talks on a potential ceasefire ended with no deal on Monday. There were also reports on the use of banned cluster munitions and vacuum bombs amid heavy shelling on civilian areas in Ukraine’s east. Russian ground forces are still massed 16 miles north of Kyiv, and the country is said to be sending a large reinforcement of convoys across the border, in what could be preparation for a renewed push to besiege the Ukrainian capital. (16 comments)
Corporate divestment
Operating in Russia has become increasingly problematic, with the list of companies cutting ties with the country or reviewing their operations growing by the hour. Oil major Shell (SHEL) has joined BP (BP) and Equinor (EQNR) in walking away from Russian domiciled assets, leaving Exxon (XOM) and TotalEnergies (TTE) as the only energy majors to have significant operations in Russia. Corporations poured into Russia after the Soviet Union fell apart in 1991 – seeing a market full of natural resources and millions of new consumers – but the risks associated with the investment have now become apparent following the invasion of Ukraine.
The latest: Netflix (NASDAQ:NFLX) won’t be adding Russian channels to its service under regulations that were to take effect today, while Warner Bros. (NYSE:T) pulled this week’s release of The Batman from Russian screens. Disney (DIS) has also paused theatrical releases in the country and said banking sanctions will cut into revenue from its popular Encanto soundtrack. Elsewhere, Facebook (NASDAQ:FB)-parent Meta and YouTube (GOOG, GOOGL) blocked access to Russian news outlets like RT, and Twitter (TWTR) announced that any link shared by a user to a Russian state media organization’s website will automatically receive a label warning.
Meanwhile, Harley-Davidson (NYSE:HOG) and General Motors (NYSE:GM) are halting shipments to Russia, saying “thoughts are with the people of Ukraine at this time.” Boeing (NYSE:BA) additionally paused operations at its Moscow training campus, while the world’s biggest aircraft leasing firm, AerCap (AER), put a stop to its Russian leases. Fresh sanctions have also seen Mastercard (NYSE:MA) block multiple financial institutions from its payment network and prompted global bank HSBC (NYSE:HSBC) to assess its operations in the country.
Banking clarification: “A sanction – which is very targeted and clean – says I cannot do business with you. A SWIFT thing says I cannot use a communication to do business with you, but I can still do business with you,” JPMorgan (JPM) CEO Jamie Dimon said during an interview with Bloomberg. “There are a lot of workarounds for SWIFT, so there are different tools we use for different reasons. Remember, the government itself wanted to have an open conduit for energy payments. So there are a whole lot of issues they have to work through.” (39 comments)
Sanctions evasion?
Several crazy sessions for cryptos have taken place over the past few days as traders continue to size up Russia’s invasion of Ukraine. There has also been fierce debate whether Bitcoin and related currencies could be used to evade Western sanctions, as well as crypto’s correlation to risk assets. At the time of writing, Bitcoin (BTC-USD) is up 14% to $43,590, after falling under the $35,000-level just days ago.
Quote: “Bitcoin and cryptocurrencies are arguably having their watershed moment against backdrop of global uncertainty and tension related to the Russia-Ukraine crisis,” said Vijay Ayyar, VP of Corporate Development at crypto exchange Luno. “Crypto is decoupling from traditional markets and can be clearly seen in the performance. It’s also being donated to the Ukrainian army, proving that crypto is fundamentally a technology that cannot be ignored.”
“Unless the Russian companies are on the sanctions list, we can’t see anything that would keep a U.S.-based company from paying a Russian company through crypto to just transact,” added Rance Mashek, president and founder of trading platform iVest+. The Biden administration has also reportedly asked exchanges to ensure that Russian individuals and businesses aren’t using crypto to avoid U.S. sanctions, though a similar request made by Ukraine was not honored by major players like Coinbase (COIN). The EU is meanwhile trying to move quickly to approve cryptocurrency regulation that would give a framework for the industry at the governmental level.
Outlook: Even if Russia would turn to cryptocurrency to evade sanctions, it wouldn’t be able to be used on the scale needed to circumvent the penalties. “I think the issue is a couple of things… the liquidity just simply isn’t there,” explained Ari Redbord, head of legal and government affairs at TRM Labs. “Russia needs a lot more access to funds in order to replace what is being lost here in terms of sanctions, and also fund what is becoming a more and more costly war. In this day and age, you still cannot fund a war or buy weapons – for the most part – with cryptocurrency. So Russia will look to crypto exchanges in order to do that, but the overwhelming amount of liquidity is at the large cryptocurrency exchanges that have robust compliance controls in place.”
Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:00 PM Fed’s Bostic Speech
What else is happening…
MSCI (MSCI) explores Russian removal from indexes on ‘uninvestable’ status.
U.S. and allies considering 60M barrel petroleum reserve release.
Defense stocks spike as Germany pledges to boost military spending.
BP (BP) planning to sell Rosneft (OTCPK:RNFTF) stake to … Rosneft.
Tesla (TSLA) soars on shift away from Russian energy dependence.
FTC preps possible challenge to Amazon’s (AMZN) purchase of MGM Studios.
Chris Licht will lead CNN after Discovery (DISCA) acquires WarnerMedia (T).
Pfizer (PFE) COVID vaccine protection falls rapidly in kids 5 to 11.
Toshiba (OTCPK:TOSBF) CEO to resign, may lead to review of restructure plan.
Disappointing forecast from Zoom (ZM) dings post-COVID growth prospects.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mostly up. Japan, South Korea, India, Australia and Malaysia did well; Singapore was weak. Europe, Africa and the Middle East are mostly very weak. Denmark, the UAE, South Africa and Saudi Arabia did well; the UK, France, Germany, Finland, Hungary, Spain, the Netherlands, Italy, Austria, Sweden and the Czech Republic are down. Futures in the States point towards a moderate gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
Sanctions smackdown
Financial fallout from the crisis in Ukraine is escalating rapidly, along with an intensification of violence and battles throughout the country. Vladimir Putin has put Russia’s nuclear forces on alert, Belarus is preparing to send troops into Ukraine and a convoy of Russian vehicles are surrounding Kyiv, though tougher-than-expected resistance has been seen on the ground. Diplomatic progress is also seen as unlikely as officials from both sides meet today for the first talks since start of the invasion, while the EU upended years of policy by supplying weapons to a “country at war” for the first time in its history.
The latest: Western sanctions have sent the ruble into a nosedive, with the currency tumbling 30% overnight to an all-time low versus the dollar. In response, Russia’s central bank more than doubled its key interest rate to 20%, freed local bank reserves to boost liquidity and ordered exporters to sell 80% of their hard currency revenues. In a bid to shield the nation’s assets, brokers were also banned from handling sales of securities by non-residents, while Russian oligarchs were put on watch by many Western nations.
All the uncertainty has led to renewed risk-off sentiment, with U.S. stock index futures falling as much as 3% after major comeback sessions last week. Concerns over energy disruptions sent crude oil futures in the opposite direction, with the contracts climbing 4% to $95/bbl. Risk aversion was also seen elsewhere, as gold futures rose 1.2% to about $1,910 a troy ounce, the dollar index advanced 0.8% to 97.368 and the yield on the benchmark 10-year U.S. Treasury note fell 7 bps to 1.91%.
“A bank run has already started in Russia over the weekend… and inflation will immediately spike massively, and the Russian banking system is likely to be in trouble,” declared Jeffrey Halley, senior market analyst at OANDA. “These sanctions from the West are likely to eventually hurt trade flows out of Russia [around 80% of FX transactions handled by Russian financial institutions are denominated in USD], which will also hurt the growth outlook of Russia’s key trading partners including Europe and lead to greater inflationary pressures and risk of stagflation, we think,” added analysts at Nomura.
Sanctions buildup: Over the weekend, Western governments said they would cut off a select number of Russian banks from the SWIFT international payment network, and sanctioned some transactions of the Central Bank of Russia. That will make it harder for Moscow to shore up the ruble, its economy and prevent the country from getting around existing sanctions. Russia has meanwhile sought to quell the panic, saying it has necessary resources and tools – like $630B of foreign reserves – to maintain financial stability, though the S&P cut its credit rating to “junk,” dealing a blow to the country’s capital markets. (31 comments)
Corporate action
Governments aren’t the only ones wounding Russia’s economy as a move to divest from the country takes hold among corporations. British oil major BP (BP), the biggest foreign investor in Russia, is selling its 20% stake in Rosneft (OTCPK:RNFTF) – at a cost of up to $25B – after coming under fire from the U.K. government. Up until now, BP has maintained that it was in Russia for business, not for politics, but its 30-year run in the country may now be unfolding.
The campaign spreads: Norway’s Equinor (NYSE:EQNR) is following suit, exiting its joint ventures in Russia and stopping new investments there. “We are all deeply troubled by the invasion of Ukraine, which represents a terrible setback for the world, and we are thinking of all those who are suffering because of the military action,” declared CEO Anders Opedal. In fact, Norway’s government has even ordered its $1.3T oil fund, the world’s largest sovereign wealth fund, to ditch its $3B in Russian investments.
Joining the campaign to isolate the country, UPS (NYSE:UPS) and FedEx (NYSE:FDX), two of the world’s largest logistics companies, have suspended shipments to Russia. Dell Technologies (NYSE:DELL) has also banned sales to the country due to new export controls that covered computers. Meanwhile, Meta Platforms (NASDAQ:FB) and Twitter (NYSE:TWTR) are in overdrive mode to remove fake accounts, while Apple (NASDAQ:AAPL) is facing growing pressure to cut off Russians’ access to the App Store.
To the skies: Just as air travel was picking up following the latest coronavirus wave, the European Union shut all Russian planes out of its airspace, as well as Canada. “That includes the private jets of oligarchs, and commercial airliners owned, registered or controlled by Russians,” said European Commission President Ursula von der Leyen. Delta Air Lines (NYSE:DAL) has additionally suspended its code-sharing agreement with Russian flag carrier Aeroflot, further choking off Russia’s access to global aviation. (14 comments)
MWC 2022
Techies are gathering in Barcelona for the Mobile World Congress (MWC), which kicks off today and runs through March 3. The trade show brings together mobile operators, device manufacturers, technology providers and engineers to present their latest work and share their vision of the future. This year’s theme is “connectivity unleashed” and is expected to feature some major announcements after the show was canceled in 2020 due to COVID and was a quiet event last year for the same reason.
Quote: “We’re trying to emphasize that we’re moving away from just simple connectivity to meaningful connectivity where we are connecting things and we are using data and everything that benefits from being connected will be connected,” said Mats Granryd, Director-General of the GSM Association which organizes the MWC. “It’s no longer just mobile operators to mobile operators or me connected to you. It is fintech. It’s car manufacturers, it’s utility companies, it’s transport companies.”
Expect to see some ground-breaking products and technologies, as well as creators and innovators in the industry. Chinese smartphone maker Realme is set to unveil the world’s faster smartphone charger – that could enable a device to go from zero to full in just a few minutes – while Samsung (OTC:SSNLF) will show off its Galaxy S22 line of handsets and revamped Galaxy Book 2. Other themes that will be explored include artificial intelligence, IoT, cryptocurrencies and the metaverse.
On the exhibitor list: Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), Huawei, Meta (NASDAQ:FB), Microsoft (NASDAQ:MSFT), Salesforce (NYSE:CRM) and Snap (NYSE:SNAP) – (the Russian Pavilion has been canceled at the “unifying event” due to the crisis in Ukraine).
Spotlight on Buffett
Releasing its quarterly results over the weekend in typical fashion, Berkshire Hathaway (BRK.A, BRK.B) reported operating earnings of $7.29B in Q4, marking a 45% Y/Y jump as insurance underwriting reversed from a year-ago loss. Railroad and utilities earnings also contributed to the gain, specifically BNSF Railway and utility powerhouse BHE. Berkshire’s businesses represent a wide swath of American industry, spanning insurance, transportation, housing and real estate, energy, consumer products and industrial manufacturing.
Snapshot: Similar to many companies that have already reported earnings, supply chain disruptions and other factors pushed up Berkshire’s cost of doing business. “Many of our businesses were negatively affected by ongoing global supply chain disruptions, including those attributable to major winter storms and a hurricane in North America, which contributed to higher input costs,” the firm wrote in its 10-K filing. 2021 total costs and expenses rose 5.5% to $243.9B vs. a 2.5% increase in 2020.
Investing legend Warren Buffett was quick to mention Apple (AAPL) in his annual letter to shareholders, listing the tech giant under the heading “Our Four Giants” and calling the company the second-most important after Berkshire’s group of insurers. He also hailed CEO Tim Cook’s stock repurchase strategy, and raised his stake in Apple to 5.55%, up from 5.39% a year earlier. “That increase sounds like small potatoes. But consider that each 0.1% of Apple’s 2021 earnings amounted to $100M. We spent no Berkshire funds to gain our accretion. Apple’s repurchases did the job.”
Go deeper: Berkshire’s Apple investment is now worth more than $160B, accounting for 40% of its equity portfolio, while Buffett has even followed Cook’s buyback strategy by repurchasing a record of $27B of Berkshire shares in 2021. The reason? Buffett bemoaned the lack of good investment opportunities, noting that both he and longtime right-hand man Charlie Munger found “little that excites us.” Berkshire’s cash pile stood near a record $146.7B at the end of last year, while its stock has risen 6% in 2022, way ahead of the 8% loss recorded by the S&P 500. (196 comments)
Today’s Economic Calendar
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
9:45 Chicago PMI
10:30 Dallas Fed Manufacturing Survey
10:30 Fed’s Bostic: “The Federal Reserve and the Economy”
3:00 PM Farm Prices
What else is happening…
Netflix’s (NFLX) ‘Ozark’ dominates to lead streaming ratings wins.
Nio (NIO) plans secondary listing in Hong Kong for March 10.
U.S. banks prepare for cyber attacks after new sanctions against Russia.
Cybersecurity companies seen gaining from Ukraine crisis.
Will Zoom Video’s (ZM) Q4 earnings take the stock even lower?
Coinbase (COIN) takes on Goldman veteran to run global financial operations.
Elon Musk says Starlink internet satellite service available in Ukraine.
New York City to lift vaccine mandate for restaurants, bars and theaters.
Renewable Energy (REGI) jumps on report of Chevron’s (CVX) $3B acquisition.
BofA picks stocks that could benefit from 10 scarcity themes.
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