Good morning. Happy Friday.
The Asian/Pacific markets closed mostly down. China and Thailand did well, but Japan, Hong Kong, South Korea, Taiwan, Australia, New Zealand, Malaysia were weak. Europe, Africa and the Middle East are currently posting big gains. The UK, Poland, France, Turkey, Germany, Greece, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Portugal, Austria, Sweden and the Czech Republic are up big. Futures in the States point towards a moderate gap up open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down slightly. Oil is down; copper is up. Gold and sivler are down. Bonds are down. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
Inflation gets worse
Check out Wall Street Breakfast’s new Seeking Alpha show The Weekend Bite! On this week’s episode we discuss the one stock to buy right now (hint: it’s in the semiconductor space) with Steven Cress, Head of SA’s Quant Strategy, and take a deep dive into current employment trends with Indeed.com’s Head of Research Nick Bunker.
Inflation took a turn for the worse in February as U.S. consumer price growth rose by 7.9%, representing the largest 12-month increase since January 1982. Core CPI, which excludes volatile food and energy – and is the Fed’s preferred gauge of inflation – even advanced 6.4% Y/Y, according to the Labor Department’s Bureau of Labor Statistics. All the numbers were gathered before the supercharged commodity rally driven by Russia’s invasion of Ukraine, suggesting the red-hot inflation figures are nowhere close to peaking.
Aggressive tightening? Some had thought that central banks would slam the brakes after the conflict erupted, but the market reaction has been just the opposite. A hefty series of quarter point rate hikes are now on the table, with markets appearing to accept a coming period of “stagflation” (that’s when sustained inflation is coupled with lower economic growth). It’s a delicate balance for the Fed as tightening policy too sharply risks undercutting the economy and possibly triggering a recession.
“I don’t want to make a prediction exactly as to what’s going to happen in the second half of the year,” said Treasury Secretary Janet Yellen, former chair of the Federal Reserve (current Chair Jay Powell is under a blackout period before the FOMC’s meeting next week). “We’re likely to see another year in which 12-month inflation numbers remain very uncomfortably high,” she added, stating the Fed was looking at the data carefully and will take an actionable response.
Over in Europe: The ECB on Thursday cut its growth forecasts and raised inflation predictions, against the backdrop of the war in Ukraine. President Christine Lagarde even called the conflict a “watershed” moment for the continent, but would do whatever it takes to pursue price stability. She also said the ECB will scale back its bond-buying program “shortly” before raising rates, and with net purchases likely stopping in Q3, the market is pricing in a rare ECB quarter-point hike for October. (11 comments)
Going downhill
President Biden will tack on to the “mother of all sanctions” today, calling for an end to normal trade relations with Moscow. The decision, which will be taken along with the European Union and G7 countries, will revoke Russia’s “most favored nation” status, clearing the way for increased tariffs on imports. Russia sells about a third of its exports to the EU, compared to around 5% to the U.S., according to data from the International Monetary Fund.
Fighting back: Moscow announced an export ban on more than 200 products, ranging from fertilizer and agricultural machinery to telecoms and turbines. However, it stopped short of limiting sales of energy and raw materials, the nation’s largest contribution to global trade. Vladimir Putin additionally said he would find “legal solutions” to seize assets based in the country from international groups that have decided to close their operations, like “introducing external management and then transferring these enterprises to those who actually want to work.”
“Our economy is experiencing a shock impact now and there are negative consequences, they will be minimized,” Kremlin spokesman Dmitry Peskov told reporters. “This is absolutely unprecedented. The economic war that has started against our country has never taken place before. So it is very hard to forecast anything.”
Elsewhere: The U.S. Senate last night voted 68 to 31 to approve $13.6B for humanitarian and military aid for Ukraine (it passed alongside a $1.5T government funding bill). “Currently around 50% of our businesses are not operating, and those which are still operating are not operating at 100%,” said Oleg Ustenko, chief economic adviser to Ukrainian President Volodymyr Zelenskyy. “The situation in terms of economic growth, is going to be really very depressing, even if the war immediately stops,” he added, noting that $100B worth of infrastructure assets have been destroyed since the invasion. (19 comments)
Delisting fears
Chinese stocks listed in the U.S. had a bad day on Thursday, as the SEC named five companies from China that could be delisted for failing to abide by American accounting regulations. YumChina Holdings (YUMC), BeiGene (BGNE), Zai Lab (ZLAB), ACM Research (ACMR) and Hutchmed (HCM) have been cited for not adhering to the Holding Foreign Companies Accountability Act, which became law in December 2020. That statute gives the SEC the power to delist firms if they fail to allow U.S. regulators to review their audits for three years in a row.
Bigger picture: It’s not the first time the SEC has warned companies that their shares are at risk of being delisted, but the reaction was swift across Wall Street. The selloff spread to the ADRs of Chinese internet players like JD.com (JD), Alibaba (BABA) and Baidu (BIDU), leading the sector to suffer their worst selloff since 2008. The Invesco Golden Dragon China Portfolio ETF (PGJ), which is based on the Nasdaq Golden Dragon China, even plunged 10% to its worse level since 2013.
“Investors recently have been nervous from many regulatory uncertainties in China, geopolitical risks involving China/U.S. and multiple SEC-related inquiries involving Chinese stocks, all of which have increased uncertainty on China stocks,” said Jefferies analyst Michael Yee.
Outlook: China has blocked domestic companies and their local auditors from complying with audit requests of foreign regulators, though it hopes a solution can be achieved. “We believe the two sides can reach an agreement that aligns with the law and regulation of both countries that protects global investors,” China Securities Regulatory Commission declared, saying it “opposed the politicization of securities regulation by some forces.” U.S.-listed shares worth over $2T hang in the balance. (165 comments)
Second pandemic anniversary
Mask mandates on airplanes, buses, trains and car share services have remained in place even after the CDC loosened guidance last month to drop indoor face coverings. Having been extended twice before, the federal mask requirement (first implemented in 2020 to prevent the spread of COVID-19) has now been extended for a third time until April 18, though it may be coming to an end soon. During the period of the latest extension, the CDC will work with government agencies on a revised policy framework for when mask requirements can be lifted.
Quote: “We have to look not only at the science with regard to transmission in masks but also the epidemiology and the frequency that we may encounter a variant of concern or a variant of interest in our travel corridors,” said CDC Director Dr. Rochelle Walensky. Remember another speech from President Biden last July, which declared that the U.S. had achieved “independence” from the coronavirus, before a fourth and fifth wave of COVID swept across the nation.
Some corporations are also making moves. Citing a steep decline in cases, United Airlines (NASDAQ:UAL) will allow unvaccinated workers to return to their jobs starting March 28 (roughly 2,200 workers are still on unpaid leave, while another 200 were fired). It’s a big shift from a company that had one of the strictest inoculation mandates in the country, though “of course, if another variant emerges or the COVID trends suddenly reverse course, we will reevaluate the appropriate safety protocols at that time,” explained Kirk Limacher, United’s VP of Human Resources.
Two long years: On March 11, 2020, the World Health Organization said that COVID-19 “could be characterized as a pandemic,” which went on to upend the lives of everyone on the globe. The impacts on many individuals’ and society’s physical and mental health is yet to be fully be realized, while the full effects of the virus are still being investigated by scientists. (2 comments)
Today’s Economic Calendar
10:00 Quarterly Services Report
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
What else is happening…
Biggest bond deal in years: AT&T-Discovery (T, DISCA) raise $30B.
Rivian (RIVN) slides to new low after halving production outlook.
Oracle (ORCL) plunges as fiscal Q3 results miss expectations.
After Amazon (AMZN), these companies could follow a stock split wave.
Boycott: Disney (DIS) pauses all business in Russia.
Moderna (MRNA) begins dosing in Phase 2 of Omicron-specific trial.
New plans? Peloton (PTON) considers major pivot under new CEO.
Ford (F), PG&E (PCG) test new F-150 EV as power source for homes.
DocuSign (DOCU) slips after issuing weak revenue guidance.
Post-earnings: J.P. Morgan downgrades Asana (ASAN) on slowing growth.
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Good morning. Happy Thursday.
The Asian/Pacific markets posted solid gains. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, New Zealand, Malaysia, Singapore and the Philippines did great. Europe, Africa and the Middle East are currently posting big losses. The UK, Denmark, France, Germany, Greece, Hungary, Spain, Italy, Portugal and Israel are down more than 1%; South Africa is up. Futures in the States point towards a big gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil and copper are down. Gold and sivler are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Amazon split
Shares of Amazon (AMZN) jumped as much as 10% AH on Wednesday as it announced a rare 20-for-1 stock split alongside a $10B buyback authorization. The last time the company split its shares was before the dot-com bubble in 1999, and since then, the stock has returned over 4,500%. Alphabet (GOOG, GOOGL), Apple (AAPL) and Tesla (TSLA) have also turned to splits recently, with the trend making somewhat of comeback during the COVID-19 pandemic.
Snapshot: While Amazon’s decision doesn’t affect any fundamentals, it does make the stock (or options contracts) more affordable for retail investors or those that don’t want such a holding to be a large portion of their portfolios. A lower price can also mean the stock will be eligible for inclusion in the price-weighted Dow Jones Industrial Average. Amazon further alluded to the benefits for its worker purchase program, saying “this split would give our employees more flexibility in how they manage their equity in Amazon.”
Amazon shareholders of record as of May 27 will have 19 additional shares for every one share in June (with trading expected to begin on a split-adjusted basis on June 6). AMZN shares have recently lagged behind other tech companies as the pandemic surge in online shopping and cloud computing eased over the past few months. After touching a record high of $3,773 in November, the stock has fallen back 26% to $2,785.
Buyback plans: As mentioned above, Amazon’s board of directors also approved a $10B buyback authorization, marking the largest share repurchase plan in the company’s history. It replaces the repurchase approval of $5B that was established in 2016, though only $2.12B was spent on that effort thus far. Amazon didn’t buy back any stock in 2019, 2020 or 2021, but has repurchased 500K shares for $1.3B in 2022. (253 comments)
Volatility remains
Investors witnessed a big comeback for stocks on Wednesday, with the S&P 500 and Nasdaq gaining 2.5% and 3.6%, respectively, though cautious sentiment is lingering due to the ongoing conflict in Ukraine. While U.S. equity indices snapped a four-session losing streak, and energy prices eased, stock futures fell again overnight, down about 1% at the time of writing. Some are calling yesterday’s rally a dead-cat bounce, while others are strongly buying into the dip, but whatever the case may be, traders should know that there is still plenty of volatility out there.
CPI Day: Another curveball could be on tap for today as the Labor Department publishes fresh Consumer Price Index data. The release, expected to show inflation coming in at a flaming 7.9% Y/Y in February, will be the last before the Fed gathers for its March meeting next week. Before entering the FOMC blackout period, Chair Jerome Powell said he planned to propose a quarter percentage point rate hike, but some surprises may present themselves in the current environment.
Meanwhile, the European Central Bank will gather today, and is anticipated to stress flexibility in the face of stagflation fears. There are further bets that EU leaders will take action to limit the economic impact of Russia’s invasion of Ukraine at a separate meeting in Versailles. Among the topics to be discussed are common debt issuance, or maximizing the use of existing facilities, to fund a collected response to the crisis which is weighing heavily on the energy landscape in the Europe.
More volatility: Crude futures on Wednesday plunged by the most since November after the UAE’s ambassador to Washington said it would urge OPEC+ members to boost oil output, before Energy Minister Suhail Al-Mazrouei dampened those comments over Twitter. Looking to plug a gap made by its ban on Russian oil, the U.S. is urging the Saudis to release spare capacity and entertaining the idea of easing sanctions on Venezuela. Talks with Iran are also running into trouble in Vienna, but it could lead to more crude supply if a nuclear deal is struck with Tehran. (9 comments)
Nickel crisis
Things are getting crazy in commodity markets as prices go into overdrive. The London Metal Exchange (LME) was forced to suspend all trading in its nickel contracts (LN1:COM) on Tuesday, saying it wouldn’t reopen things until March 11 at the earliest as it balances its books and returns stability to the market. The cost of LME three-month nickel, the key pricing benchmark for the global physical supply chain, shot up to $101,365 a ton on Tuesday, up from $30,000 just sessions earlier.
The big short: It’s an unfolding story that reportedly involves China’s Tsingshan Holding Group, the world’s biggest producer of nickel used in stainless steel and EV batteries. The firm apparently made a sour nickel bet by building up a massive short position, but now faces $8B in paper losses due to an influx of margin calls (it has since secured loans from JPMorgan and China Construction Bank). Nickel was already on a rip due to the commodity rally turbocharged by the conflict in Ukraine when the historic short squeeze pushed things over the edge.
“This has never happened before in the history of the nickel market,” Guy Wolf, the global head of market analytics at Marex. “‘Unprecedented’ is an overused word, but this actually is.” The closest thing that may come to it is the “Tin Crisis” of 1985, which pushed many brokers out of the industry and saw the LME suspend trading in the metal for four years. Morgan Stanley is even saying the effects of nickel’s jump on EV prices and sales could be significant over the next couple of years.
Fun fact: The remarkable rally in nickel prices has pushed the price of an actual nickel, a $0.05 piece, way above its worth. While only 25% of a nickel is made from the actual metal, at Tuesday’s prices, it would be worth $0.125 (that’s without the rest of the valuable copper that makes up the coin). While the strange price point has occurred many times throughout history, don’t get too exciting about starting a melting operation. It’s illegal to extract the raw materials in pennies and nickels with the intent of selling them for profit. (6 comments)
Xenotransplantation
The first person to receive a heart transplant from a pig, 57-year-old David Bennett, has died two months after the landmark surgery at the University of Maryland Medical Center. He had agreed to receive the genetically modified heart after failing to secure a human heart through several waiting lists. While doctors did not cite a specific reason for the death, they said his condition had started to deteriorate several days ago (a thorough postmortem examination is underway).
Quote: “There was no obvious cause identified at the time of his death,” a hospital spokeswoman noted, while Bennett’s son thanked the hospital for conducting the highly experimental surgery as a last resort. “We are grateful for every innovative moment, every crazy dream, every sleepless night that went into this historic effort,” David Bennett Jr. said in a statement. “We hope this story can be the beginning of hope and not the end.”
Several biotech companies are developing pig organs for human transplant, with the heart used in the most recent operation coming from Revivicor, a subsidiary of United Therapeutics (UTHR). The organ was altered to make it more acceptable to a human, including removing and inserting 10 genes to keep the heart from growing after transplant. The team at the University of Maryland Medical Center also used a new drug made by Kiniksa Pharmaceuticals (KNSA) to help prevent the organ from being rejected by the patient’s body.
Eye on the future: A total of 106,657 people are currently on the U.S. transplant waiting list, and more than 6,200 patients die each year before getting one. In 2021, more than 40,000 organ transplants were conducted nationwide, including a record 3,800 heart transplants. (3 comments)
Today’s Markets
Today’s Economic Calendar
8:30 Consumer Price Index
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
1:00 PM Results of $20B, 30-Year Note Auction
2:00PM Treasury Statement
4:30 PM Fed Balance Sheet
What else is happening…
Citigroup’s (C) plan to sell its consumer bank in Russia stalls.
Starbucks (SBUX) workers at 3 more Buffalo stores vote to unionize.
Oracle’s (ORCL) cloud business seen as ‘the driver’ of Q3 results.
Next EV earnings: Rivian’s (RIVN) quarterly report card coming later today.
NIO (NIO) begins trading on the Hong Kong stock exchange.
Campbell Soup (CPB) leans on pricing to offset labor, supply challenges.
Granholm urges U.S. energy companies to boost oil and gas production.
Eye on policy… Washington prepares windfall tax for Big Oil.
Sony (SONY) halts PlayStation sales in Russia amid Ukraine war.
Bayer (OTCPK:BAYRY) to sell pest control business to Cinven for $2.6B.
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Good morning. Happy Wednesday.
The Asian/Pacific markets leaned to the upside. India, Taiwan, Australia, Malaysia, Singapore and Thailand did great; China, Hong Kong and South Korea were weak. Europe, Africa and the Middle East are currently posting huge gains. The UK, Poland, France, Turkey, Germany, Greece, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Israel, Austria, Sweden and the Czech Republic are up; Denmark and the UAE are down. Futures in the States point towards a big gap up open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil and copper are down. Gold and sivler are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Fast exit
Western food diplomacy was one of the first things that flourished in Russia after the Iron Curtain fell in 1989. In fact, the following year’s opening of the first McDonald’s (MCD) in Moscow’s Pushkin Square came to “symbolize the entire opening of the USSR to the West,” according to Marc Carena, former managing director of the company’s Russian operations. The fast-food giant went on to plow millions of dollars into the country, eventually growing into a network of 850 restaurants and 62,000 employees.
Snapshot: Russia’s invasion of Ukraine is threatening to upend three decades of investment in the country as pressure builds on corporations to respond to the conflict. Industries from oil to media have already severed or suspended their operations in Russia, and the burden to act is now spreading to the food business. While the decision may be simple, the effects are quite complex, spreading across manufacturing and supply chains, investors and banks, as well as millions of industry workers.
The Golden Arches has become the latest company to temporarily close all its locations in Russia, and while it will continue to pay its employees in the interim, the firm said it was impossible to predict when stores might reopen. Russian operations only account for 3% of McDonald’s operating income, but make up 9% of its annual revenues. McDonald’s also owns 84% of its restaurants in the country and is the largest taxpayer to Russia in the food industry.
Following in suit: Soon after the McDonald’s decision, other well-known food companies made similar announcements. Starbucks (NASDAQ:SBUX) said it would close all of its locations in Russia, while Coca-Cola (NYSE:KO) and PepsiCo (NASDAQ:PEP) (which has even been there since the 1970s) said it was halting most sales there. Yum! Brands (NYSE:YUM) is also suspending operations at 70 company-owned KFCs and all 50 franchise-owned Pizza Huts in Russia, while consumer and food giant Unilever (NYSE:UL) has paused all imports and exports into and out of the country. (12 comments)
Oil crisis
Calling the sanction “another powerful blow to Putin’s war machine,” President Biden has announced a U.S. ban on Russian oil imports, as well as natural gas and other energy sources. About 8% of American imports of oil and refined products, or about 672K barrels a day, came from Russia last year, according to the Energy Information Administration. Crude continues to soar on the news, while the national average for a gallon of gas has hit $4.25 per gallon, up from $3.65 only a week ago.
CERAWeek: Down at the energy conference in Houston, Texas, Amos Hochstein, the U.S. State Department’s advisor for energy security, said claims that White House policies are holding back drilling are “nonsense,” blaming those on Wall Street who are “insisting on dividends and fiscal discipline in the face of a war in Europe.” The Biden administration is now telling U.S. shale producers they should do “whatever it takes” to increase supply as the risk of recession rises amid a surge in inflationary pressures. “If there’s a bottleneck it is on Wall Street and that’s not a U.S. government problem,” added Hochstein. “They should call their financiers and tell them there’s a war going on. The American public is paying the price.”
On the other side of the discussion, shale executives have pointed to the administration’s freeze on leases for drilling on new federal lands, the rejection of the Keystone XL and Biden’s promise to “transition” away from the oil industry. “The only thing missing here is that stable regulatory environment… a policy environment that actually encourages American energy leadership rather than discourages it,” said Mike Sommers, head of the American Petroleum Institute. Investors are also urging operators to pay back capital burned during debt-fueled production sprees in the leadup to the pandemic oil crash instead of spending the big bucks on new drilling campaigns.
Greener future? Some say the recent rush for energy supply supports the push for renewable energy source in the long term and even underscores the risks of reliance on hydrocarbons. “I think this is the last gasp for fossil-fuel production,” said Cheryl Smith, a portfolio manager for the Green Century Balanced Fund. “I don’t think consumers have forgotten the last hurricane season. I don’t think they’ve forgotten the last flood season. And I think that they kind of see that vulnerability.” However, the ability to source key metals used for alternative energy purposes, such as nickel for batteries, has also been on a rip as of late, and it can take years to develop mines or create enough renewable infrastructure. (14 comments)
Cloud boost
Google (GOOG, GOOGL) is scooping up cybersecurity firm Mandiant (MNDT) for $5.4B in cash, in a big bet on the industry amid an increasing wave of cyberattacks. Upon the close of the acquisition, Mandiant will join Google Cloud, where sales rose by 45% to $5.5B in Q4, or about 7% of the company’s total quarterly revenue. The deal should help Google diversify away from digital advertising by offering a set of security programs to help cloud-computing customers detect and fight cyber intrusions.
Major ripple: “In a massive growth backdrop for cyber security and further tailwinds seen during this Ukraine invasion from Russia bad actors/nation state attacks, we believe today’s deal is the tip of the iceberg to a massive phase of consolidation potentially ahead for the cloud space,” Wedbush’s Dan Ives wrote in a note to clients. “In a nutshell this deal was a shot across the bow from Google to Microsoft (MSFT) and Amazon (AMZN) with this flagship cyber security acquisition of Mandiant.”
Mandiant developed a reputation in the cyber industry by releasing detailed reports on malicious cyber campaigns and identifying the likely sponsors of the hacks. U.S. intelligence agencies even came to rely on the insights provided by Mandiant, which rose to prominence in February 2013 after releasing a report that directly implicated China in cyber espionage. Later that year, the company was acquired by the cybersecurity firm FireEye, but was spun out of the business last year after a long period of stagnant growth.
Statement: “I don’t look at this as selling my baby. I look at it as moving the mission forward,” declared CEO Kevin Mandia, an Air Force veteran who founded Mandiant in 2004. (18 comments)
Crypto policy
Whoops! Currencies across the cryptoverse took off overnight after the inadvertent publishing of remarks from Treasury Secretary Janet Yellen (see movement below). In a statement that was posted to the Treasury’s website – which has since been deleted – Yellen voiced a balanced approach to the development of the crypto sector, as well as a constructive stance on regulating the industry. The declaration is set to be republished later today, but traders have already made a quick buck off the accidental release.
Excerpt: “A presidential executive order on cryptocurrencies would ‘support responsible innovation’ as it coordinates U.S. policy across agencies. Under the executive order, Treasury will partner with interagency colleagues to produce a report on the future of money and payment systems. As we take on this important work, we’ll be guided by consumer and investor protection groups, market participants, and other leading experts. Treasury will work to promote a fairer, more inclusive, and more efficient financial system, while building on our ongoing work to counter illicit finance, and prevent risks to financial stability and national security.”
Some work to form the government’s crypto policy has already been done, like last year’s stablecoin report from the President’s Working Group on Financial Markets. Congressional committees in recent months have also ramped up hearings on cryptocurrency, but the new executive order will coordinate a broader strategy for the nearly $2T crypto market. The Treasury will also work with international partners “to promote robust standards and a level playing field.”
The gains: Bitcoin (BTC-USD) +8% to $41,791, Ethereum (ETH-USD) +7% to $2,730, Bitcoin Cash (BCH-USD) +6% to $300, Monero (XMR-USD) +23% to $199, Litecoin (LTC-USD) +5% to $106, Terra (LUNA-USD) +20% to $97.23, Solana (SOL-USD) +7% to $89.23, Cardano (ADA-USD) +4% to $0.85 and XRP (XRP-USD) +5% to $0.75. (31 comments)
Today’s Markets
Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 Job Openings and Labor Turnover Survey
10:30 EIA Petroleum Inventories
1:00 PM Results of $34B, 10-Year Note Auction
What else is happening…
New iPhone SE, Friday Night MLB highlight Apple (AAPL) product event.
Lululemon (LULU) rolls into footwear market with women’s-first approach.
LME halted nickel trading after prices spiked above $100K/ton.
Putin signs decree to restrict imports and exports until year end.
Interactive Brokers (IBKR) launches global stock trading app.
Netflix (NFLX) won’t say ‘never’ to ads, as rivals set up cheaper tiers.
DiDi Global (DIDI) drops as Ant Group (BABA) said to delay IPO.
Oil price spike nearing demand destruction levels – ConocoPhillips (COP).
EOG (EOG), Devon (DVN) hold thousands of untapped oil drilling permits.
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Good morning. Happy Tuesday.
The Asian/Pacific markets posted big losses. Japan, China, Hong Kong, South Korea, Taiwan, New Zealand, Malaysia, Singapore and the Philippines – all down big. Europe, Africa and the Middle East lean to the upside. France, Turkey, Finland, Hungary, Spain, Italy, Portugal, Austria and the Czech Republic are up; Denmark, Greece, South Africa, Switzerland and Israel are down. Futures in the States point towards a mixed open for the cash market.
————— VIDEO: What’s on the Other Side of this Bear Market —————
The dollar is down. Oil is up; copper is down. Gold and sivler are up. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
A bear is growling
Fears of an economic downturn sent equities into a tailspin on Monday, triggering a steep selloff on Wall Street as commodities like oil, wheat and nickel powered higher. The S&P 500 plunged 3% for its worst day since October 2020, while the Dow Jones Industrial Average shed 800 points to join the S&P in correction territory for the first time in two years. The Nasdaq even ended the session in bear market territory, casting a dark shadow on March after all three indices fell in each of the previous two months.
Analyst commentary: “Not every recession has been caused by an oil price spike but every oil spike has caused a recession. This is likely to be a drawn-out affair and will have a sustained impact on commodity prices,” said Brian O’Reilly, head of market strategy at Mediolanum International Funds. “Perhaps the scary part is that in 1990 [during the Gulf War], the Fed funds rate was 8% and eventually embarked on an easing cycle. Today, the Fed is at the beginning of a hiking cycle. It seems more and more likely a recession is unavoidable,” added Ryan Grabinski, a strategist at Strategas Securities.
It’s a big problem, with the Federal Reserve already stuck between a rock and a hard place in regards to monetary policy. Soaring commodities and red-hot inflation mean the central bank will need to accelerate its tightening, though doing so risks tipping the economy into a recession. On the other hand, taking more of an accommodative state and allowing inflation to rip higher would likely result in the same outcome.
Outlook: Stock futures slowed their descent overnight, hugging the flatline in premarket trade as the Kremlin said it would halt military operations “in a moment” if Kyiv met a list of conditions. Among them are ceasing military action, changing its constitution to enshrine neutrality (eliminate possibility of NATO, EU membership), recognizing separatist republics of Donetsk and Luhansk, and acknowledging Crimea as Russian territory. It’s the most specific statement to date from Moscow on the terms it wants to impose on Ukraine, though a likely rejection by the government in Kyiv could lead to renewed market turmoil. (17 comments)
Energy security
The clean energy debate, as well as industries of the future, has been getting a reality check in recent weeks as crude oil continues to power higher. It’s not that the world won’t eventually transition to cleaner fuels, but more about how long it will take to get there and securing ample energy supplies in the interim. Years of underinvestment in oil means Western nations are having a tough time ramping up supply, while the cuts to production are coming at a time of soaring fossil fuel demand.
Bigger picture: Oil producers are not likely to invest in further supply as they enjoy record high prices that provide their investors with big dividends. Moreover, corporate interests on Wall Street are looking to grow production only modestly due to ESG mandates, activist shareholder proposals and banks avoiding loans to the industry. CEOs of some of the world’s largest oil companies even warned that there were no quick-fix solutions to higher energy prices at the CERAWeek conference in Houston, Texas. Check out some of the top headlines on Seeking Alpha:
Europe energy crisis a ‘big wake up call’ – TotalEnergies
Cheniere’s new LNG capacity sold out through 2040s
U.S., allies should double, then quadruple oil stockpile release – Hess
Natural gas a key component of energy transition – U.S. climate envoy John Kerry
The current environment is also roiling some market predictions that were made not long ago. “I would be surprised if oil hits $70 again,” ARK Invest’s (ARKK) Cathie Wood declared in May 2021, before doubling down on her forecast yesterday by saying crude prices were on their way back to $12. Even Tesla’s (TSLA) Elon Musk tweeted this week, “Hate to say it, but we need to increase oil & gas output immediately. Extraordinary times demand extraordinary measures.” YTD declines: ARKK -40%; TSLA -33% (note that Tesla is ARKK’s biggest holding, making up over 8% of the fund).
Go deeper: The war in Ukraine has shown Germany’s low-carbon energy transition is somewhat reliant on the kindness of Vladimir Putin, and even without restrictions on Russian energy, Germany is generating a majority of its electricity from coal. Amid heavy reliance on fossil fuels, energy prices in Europe have spiraled out of control, with European natural gas trading at ~$62/mmbtu, or translating into $360 oil on an energy equivalent basis. EU leaders will agree this week to phase out dependency on imports of Russian energy sources as Moscow threatens to shutter Nord Stream 1, while the U.K. is seeking self-sufficiency by increasing North Sea oil and gas production. (38 comments)
Meming again
Bucking the big selloff on Monday, shares of Bed Bath & Beyond (BBBY) went into meme mode, closing the session up 34% (after a more than 76% gain in premarket trading). Billionaire Ryan Cohen disclosed a 9.8% stake in the company through his investment firm RC Ventures LLC, urging Bed Bath to explore alternatives, including a full sale or separating the “buybuy BABY” business. He also highlighted that after almost two and a half years into CEO Mark Tritton’s tenure BBBY has underperformed the S&P Retail Select Index by about 58% on an absolute basis.
Flashback: Back in 2019, Bed Bath settled a months-long dispute with a group of activist investors, who slammed the company over its e-commerce presence compared to industry peers like Amazon (AMZN). It ended up adding four new members to its board, and brought on former Target executive Tritton to embark on a new direction. Since taking the helm, Tritton has closed or remodeled hundreds of underperforming Bed Bath stores, debuted new private labels, ramped up share buybacks and sold non-core assets like Cost Plus World Market and Christmas Tree Shops.
The latest saga is very similar to Cohen’s move at original meme stock GameStop (GME). In late 2020, RC Ventures disclosed a nearly 10% stake in the videogame retailer, advocating for an improved e-commerce experience and other tech-driven opportunities. Cohen was added to the board that January – as the meme frenzy was taking off – and eventually rose to board chairman.
Response from Bed Bath: “The Board and management team maintain a consistent dialogue with our shareholders and, while we have had no prior contact with RC Ventures, we will carefully review their letter and hope to engage constructively around the ideas they have put forth. Our Board is committed to acting in the best interests of our shareholders and regularly reviews all paths to create shareholder value. 2021 marked the first year of execution of our bold, multi-year transformation plan, which we believe will create significant long-term shareholder value.” (21 comments)
Spring product launch
Apple (AAPL) shareholders and the tech industry will be tuning in at 10 a.m. PST to the company’s first product unveiling of 2022. Apple is widely expected to unveil a new iPhone SE with 5G capabilities, as well as a new iPad Air and some Macs using its M-series of chips, all of which Wedbush Securities believes will add to the tech giant’s “monster product cycle.” The iPhone will reportedly feature a faster processor and a better camera, and may even come at a lower cost than the current $399 iPhone SE.
Analyst commentary: Wedbush’s Dan Ives, who rates AAPL at outperform with a $200 price target, notes that Apple is bucking the trend of other tech and automotive firms who have held back production, even introducing fresh products in the wake of supply chain issues, which he believes speaks “to the nearly Teflon-like ability of [Tim] Cook & Co. to navigate this unprecedented supply chain shortage globally.”
On the new iPhone SE, Ives maintains a “conservative” estimate of roughly 30M units sold over the next year due to global pent-up demand for the model based on recent supply chain checks. “For the low price point and new specs/speed with multiple storage capabilities (64GB, 128GB, and 256GB), we believe the value proposition for consumers is a ‘standout’ relative to competitors and could translate into some further Android share gains.”
Other products: Ives notes that the iPad Air is likely to have the A15 chip and is also expecting a 13-inch MacBook Pro with an updated M2 chip and perhaps more Macs to come later in the year, like at Apple’s developer conference in June. “Overall in this volatile geopolitical climate with a general risk-off preference among investors as the horrific and heartbreaking Ukraine invasion causes market jitters, we believe Apple is a safety tech name to own during this market storm,” he adds, referencing Russia’s invasion of Ukraine. (15 comments)
Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
8:30 Goods and Services Trade
8.55 Redbook Chain Store Sales
10:00 Wholesale Inventories (Preliminary)
1:00 PM Results of $48B, 3-Year Note Auction
What else is happening…
Phased withdrawal… Shell (SHEL) apologizes for buying Russian oil.
Intel (INTC) says Mobileye has confidentially filed for IPO.
Moderna (MRNA) will enforce vaccine patents in wealthy countries.
Canadian Pacific (CP) gains after Bill Ackman reports new stake.
10% chance of a nuclear apocalypse in the next year – BCA Research.
Restaurant check: McDonald’s (MCD) faces spillover risks in Europe.
United (UAL) plunges on fears of jet fuel prices cutting into profitability.
Chile edges closer to nationalizing copper and lithium.
Coinbase (COIN) blocks 25K crypto wallets related to illicit Russian activity.
Biden set to sign order on cryptocurrency strategy this week.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets posted big losses. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, New Zealand, Malaysia, Singapore and Thailand – all down big. Europe, Africa and the Middle East lean down, with a wide range of gains and losses. Poland, Turkey and Portugal are up; France, Germany, South Africa, Finland, Hungary, Austria, and the Czech Republic are down. Futures in the States point towards a moderate down open for the cash market, but this is well off the lows from last night.
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The dollar is up. Oil is up, although off its high. Copper is down. Gold is up; silver is down. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Crude through the roof
As pressure builds to sanction Russia, the Biden administration is inching closer towards a ban on the import of Russian oil and energy products. Brent (CO1:COM) touched nearly $140 a barrel on the news overnight, threatening to intensify inflationary pressures, while WTI crude (CL1:COM) soared 12% to $130/bbl for the first time since 2008. House Speaker Nancy Pelosi has already said she would support a crude import ban, as well as move to deny Moscow access to the World Trade Organization, marking an increased effort in Washington to “further isolate Russia from the global economy.”
Quote: “We are now in very active discussions with our European partners about banning the import of Russian oil to our countries while, of course, at the same time maintaining a steady global supply of oil,” U.S. Secretary of State Antony Blinken told NBC’s Meet the Press.
While Russian crude only accounts for 3% of American imports, it’s responsible for over half of Russia’s export earnings. The U.S. may even go at it alone – without the participation of allies in Europe (at least initially) – and is looking to make sure there is enough supply to offset any collateral damage. American officials held face-to-face meetings in previously-sanctioned Venezuela this weekend, with analysts speculating the OPEC member could be a source of incremental supply as gasoline prices in the U.S. topped $4 a gallon nationwide (Biden advisers are also weighing a trip to Saudi Arabia).
$200 oil? “One of the greatest uncertainties is if and how the escalation of economic warfare between Russia and the West will impact the flow of oil and gas,” said Victor Shum, vice president of energy consulting at IHS Markit. “NATO members currently buy more than half of the 7.5M barrels a day of crude oil and refined products that Russia exports, and inventories are already low in the U.S. and at record-low levels in OECD Europe and Asia. The multiple dimensions to this war will lead to unexpected disturbances and outcomes.” (71 comments)
Suspending service
More Western corporations are cutting ties with Russia as the conflict in Ukraine continues to escalate. According to the United Nations, more than 1.5M people have fled the country since the hostilities began on Feb. 24. There were also reports of ongoing attacks in Mariupol and Volnovakha over the weekend despite ceasefire agreements aimed at allowing civilians to leave the two cities.
The latest: Payment titans Visa (V) and Mastercard (MA) have suspended operations in Russia, saying they were “compelled to act following the unprovoked invasion of Ukraine, and the unacceptable events that we have witnessed.” Cards issued by Russian banks will no longer be supported by their respective payment networks and cards issued outside of Russia will no longer work in the country. American Express (AXP) and PayPal (PYPL) also announced they would suspend operations, hours after Ukrainian President Volodymyr Zelenskyy called on companies to shelve business in Russia during a video call with U.S. lawmakers.
It doesn’t stop there. Netflix (NASDAQ:NFLX) has halted its service in the country, while TikTok (BDNCE) suspended new content. Two of the Big Four accounting firms, KPMG and PricewaterhouseCoopers, also severed ties with their Russian businesses. Meanwhile, Vladimir Putin has decreed that foreign bondholders must be paid in rubles as a way to service debt while capital controls remain in place.
Sanctions response: “I would advise them not to escalate the situation,” Vladimir Putin said at an Aeroflot training center near Moscow. “These sanctions that are being imposed are akin to a declaration of war, but thank God it has not come to that. I think our so-called ‘partners’ still have an understanding of what those ramifications and threats to everybody can be.” Putin also added that any third-party declaration of a no-fly zone would be considered “participation in the armed conflict.” (4 comments)
National People’s Congress
At an annual parliamentary meeting on Saturday, China set a GDP growth target of “about 5.5%” for 2022, marking the first time in three decades that the figure fell below 6%. Premier Li Keqiang also stressed that “achieving this goal will require arduous efforts” and “evolving dynamics at home and abroad indicates that this year our country will encounter many more risks and challenges.” Nearly 3,000 lawmakers descended on Beijing for the National People’s Congress, where the nation’s rubber-stamp parliament laid out targets for spending, employment and other growth goals.
Among the reasons for the GDP downgrade? China’s zero-COVID strategy, a debt-fueled real estate crisis and “common prosperity” crackdowns (like on tech, education and entertainment sectors).
The world’s second-largest economy bounced back from the pandemic last year, recording GDP growth of 8.1%, and while that was supported by strong industrial activity and exports, it was partly due to the low base of comparison with 2020. Momentum has also been struggling of late, given distress in the property sector and sluggish consumer spending. Many are now cautioning that the country will need more structural reforms or aggressive stimulus measures in the future, while lowering the GDP target could provide some needed breathing room.
Commentary: “It is not about whether the PBOC is easing. The question is how to translate this easing… down to the level of the banking system and to benefit the market and corporates,” explained Raymond Yeung, chief economist for Greater China at ANZ. “This is a balancing act. China knows that they cannot rely on infrastructure investment or property investment forever. It’s the shifting of the growth model that matters more than anything.” (19 comments)
Shipping disruption
The war in Ukraine is also threatening to upend the global shipping industry, which is still trying to recover from the coronavirus pandemic. Two of the largest shipping container groups, Maersk (OTCPK:AMKBY) and Mediterranean Shipping, have already suspended cargo booking to and from Russia, with sanctions are starting to have an impact on trade. Ocean rates could even double or triple from the current $10,000 per 40-foot container, according to Glenn Koepke of supply chain consultancy firm FourKites.
Ripple effect: Cargo checks are now one of the biggest disruptions to shippers, making sure they are not breaking sanctions at ports in the EU and the U.K. Companies are also halting operations due to uncertain waters. For example, a ship laden with crude or LNG could be subject to sanctions just days after embarking on its journey, leaving the cargo stranded and the company forced to swallow the costs.
Things are getting worse with the closure of airspace, which is a key alternative to the seas. The European Union, Canada and the U.S. have closed their skies to Russian carriers, prompting Moscow to retaliate in kind. The country plays a part in the air cargo corridor from the East to the West, with some Japanese carriers already stopped booking for air cargo to Europe altogether. Sanctions are further impacting the Trans-Siberian Railway, which transports goods from China to Europe via Russia.
Staffing problems: Russian and Ukrainian seafarers make up one in seven of the world’s shipping workforce, per the International Chamber of Shipping. These essential workers are not easily replaceable, while airspace bans have compounded issues by making it harder to ferry personnel to and from ports. Ship movements in the Black Sea, a key commodity export route, have also been frozen since Russia’s invasion of Ukraine, and staffing those ports will be a key security concern even if they open in the near future. (5 comments)
Today’s Economic Calendar
12:30 PM Investor Movement Index
3:00 PM Consumer Credit
What else is happening…
The Batman (T) takes shot at Spider-Man’s box-office records.
As COVID continues to wane, will additional booster shots be needed?
Shell (SHEL) buys first post-sanction Russian oil cargo.
Russian ETFs: Crashing prices, halted trading, de-listings. What’s next?
Berkshire (BRK.B) discloses $5B stake in OXY as Icahn pulls out.
Oasis (OAS), Whiting Petroleum (WLL) near all-stock merger – WSJ.
Inflation worsens… World food prices reached record high in February.
Strategic review… Chewy co-founder takes stake in Bed Bath (BBBY).
DoorDash (DASH) held takeover talks with Deliveroo – Sunday Times.
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