Good morning. Happy Friday.
The Asian/Pacific markets leaned up. Japan, South Korea, Australia, New Zealand and the Philippines did well; India and Malaysia were weak; China and Hong Kong were closed. Europe, Africa and the Middle East are currently little changed. Denmark, Greece, South Africa and the Czech Republic are up; Russia and Italy are down. Futures in the States point towards a moderate gap down open for the cash market.
————— VIDEO: Trading Ideas Going Forward —————
The dollar is up. Oil is down; copper is up. Gold is down; silver is up. Bonds are down. Bitcoin is down.
Stories/News from Seeking Alpha…
Greener pastures?
Upstate New York has long been a destination for the crypto mining industry due to the region’s abundance of hydroelectric power, favorable climate for cooling rigs and the cheapest electricity prices in the Northeast. In recent years, many shuttered power plants with unused electric infrastructure have been converted into mining centers, even before the exodus from China in 2021. However, the industry’s foothold in New York could be coming to an end following a bill that passed early Friday in the New York State Senate.
What happened? While the new legislation is still waiting for the signature of Governor Kathy Hochul, it calls for a two-year moratorium on proof-of-work mining that utilizes energy from carbon-based sources. Proof-of-work is used for validating transactions and mining new tokens, but requires sophisticated gear and a whole lot of electricity. The law would exempt operations that have already secured permits, though new entrants would be barred from coming online and existing licenses wouldn’t be renewed unless the facilities use renewable power.
At issue is New York’s Climate Leadership and Community Protection Act, which requires steep emissions reductions over the next decade. As a result, lawmakers set their sights on energy intensive proof-of-work mining, which has become synonymous with Bitcoin (BTC-USD), though Ethereum (ETH-USD) has also used this method (and will continue to do so for at least another few months). “If it passes, it would make New York the first state in the country to ban blockchain technology infrastructure,” said Perianne Boring, founder and president of the Digital Chamber of Commerce.
Outlook: The latest development could have a domino effect across the U.S., which is at the forefront of the global crypto mining industry. The country accounts for 38% of the world’s miners, and companies may seek to relocate their operations to the less-greener pastures of Kentucky, Georgia and Texas. At the federal level, the Biden administration is formulating its own policy on crypto mining, with recommendations on how to mitigate the sector’s energy consumption due out in September. (9 comments)
Oil drama
Crude prices weren’t helped out from a decision by OPEC+ to turn on the taps, with a barrel of WTI climbing another $5 to the $117 level on Thursday. The oil group agreed to raise production by 648K barrels a day in both July and August, compared with 432K bpd each month per an earlier pledge. That’s only a drop in the bucket (648K barrels is equivalent to 0.7% of daily global demand) and most OPEC members (except Saudi Arabia and the UAE) are already pumping at capacity. Russia’s output has also fallen by about 1M bpd following Western sanctions over its invasion of Ukraine, and that could drop further to as much as 2M-3M.
Commentary: “It’s like the group is firing rubber bullets at the oil market,” explained Christyan Malek, head of oil and gas equity research at J.P. Morgan. “It’s a cosmetic increase.”
“The U.S. will continue to use all tools at our disposal to address energy prices pressures,” White House Press Secretary Karine Jean-Pierre said in somewhat of a contrast, recognizing OPEC+ chair Saudi Arabia in “achieving this consensus.” The Saudis had previously rebuffed all requests by the U.S. to increase production as the Biden administration approached the royal family at an arm’s length amid strained relations over the war in Yemen and the killing of U.S.-based journalist Jamal Khashoggi. Attempts have been made in recent weeks to repair the longstanding tensions as U.S. gasoline prices hit record highs and President Biden seeks to visit the Kingdom during a trip to the region later this month.
Elsewhere: National Economic Council Deputy Director Bharat Ramamurti revealed that the White House was considering a “windfall” profits tax for U.S. oil and gas producers, following a similar tax announcement in the U.K. and a proposal in the U.S. Senate. However, some strategists caution against taxing “windfall” profits in good times as it could discourage investment in the cyclical energy cycle and intensify prices at the pump. Since Monday, the national average for a gallon of regular gasoline has increased by $0.14 to $4.76, according to motoring group AAA. (128 comments)
Jobs report
The number of U.S. jobs added in May is expected to moderate from recent months as the Federal Reserve hikes rates to cool the economy. It’s on a mission to bring down price pressures that are being felt almost everywhere, with Vice Chair Lael Brainard seeing the tightening campaign continuing through the summer. As for today’s print (released at 8:30 a.m. ET), economists estimate that 325,000 non-farm payrolls were added in May, down from the 428,000 increase in April. The unemployment rate is forecast to improve slightly to 3.5%, from 3.6% last month, which was already near 50-year lows.
Quote: “We’ve enjoyed 12 consecutive months of payroll growth north of 400,000, but that streak is close to an end,” said Bankrate Chief Financial Analyst Greg McBride. “Job growth will continue but at a more modest pace in the months ahead as the Federal Reserve works to slow the economy and corral inflation.”
Keep in mind that the strong jobs growth over the past couple of years was digging out of the hole caused by the pandemic in March and April 2020, when 22M people lost their jobs. Those positions have largely come back. According to the U.S. Bureau of Labor Statistics, the number of long-term unemployed people was 1.5M in April, little changed from March, but 362,000 higher than February 2020. Wage growth will be another area where investors can track inflation, with average hourly earnings reaching $31.85 in April, up 0.3% from the previous month and up 5.5% Y/Y.
Go deeper: Economists will also be keeping an eye on the labor participation rate, which has stayed below pre-COVID numbers. April’s 62.2% is 1.2 percentage points lower than the figure seen in February 2020, but the future trajectory will depend on whether workers come off the sidelines. “With almost two open jobs for every unemployed worker, seeing the labor force participation rate get closer to pre-pandemic levels would be a welcome sight,” McBride added in a note. (1 comment)
Robotaxi revolution
General Motors’ (NYSE:GM) Cruise has become the “first and only company to operate a commercial, driverless ride-hail service in a major U.S. city” after inking the appropriate permits in San Francisco. The green light was granted by the California Public Utilities Commission, allowing the GM subsidiary to charge a fare for its driverless rides. Cruise’s cars are also fully electric and battery-powered, a big win for reducing emissions in the climate conscious San Francisco.
Bigger picture: “Crossing the threshold into commercial operations isn’t just big news for Cruise alone. It is a major milestone for the shared mission of the AV industry to improve life in our cities,” the company wrote in a blog post. “And it’s a giant leap for our mission here at Cruise to save lives, help save the planet, and save people time and money.”
Cruise has defended its safety track record by noting that its vehicles understand complex social dynamics and take safety actions as a default. Even San Francisco officials have conceded that the driverless Cruise AV appears to generally operate as a “cautious and compliant defensive driver.” According to a tally by Reuters, Cruise AVs suffered 34 accidents involving bodily harm or over $1,000 in damage across nearly 3M miles of driving during a four-year span.
The competition: Alphabet’s (GOOGL) Waymo began offering free autonomous rides to a limited number of SF natives last August and recently ditched the safety drivers on board. It has also completed “tens of thousands” of rides without a driver behind the wheel in the East Valley of Phoenix, Arizona. Meanwhile, Tesla’s (TSLA) Elon Musk has often touted ambitious timeframes for the company’s much-vaunted robotaxi (most recently promised for 2024), but the vehicle technology has yet to be fully delivered. (2 comments)
Today’s Economic Calendar
8:30 Non-farm payrolls
9:45 PMI Composite Final
10:00 ISM Service Index
10:30 Fed’s Brainard Speech
1:00 PM Baker-Hughes Rig Count
What else is happening…
Super bad feeling: Musk wants to cut 10% of the jobs at Tesla (TSLA).
Stellantis (STLA) signs 10-year lithium supply deal with California’s CTR.
Frontier (ULCC) sweetens Spirit (SAVE) deal to include reverse termination fee.
Forex troubles prompt Microsoft (MSFT) to cut FQ4 guidance.
Lululemon (LULU) gains on earnings beat and raised guidance.
Sycamore Partners, Franchise Group submit bids for Kohl’s (KSS).
COVID vaccines for children under 5 to start as early as June 21.
Amazon (AMZN) to close Kindle e-bookstore in China next year.
CFTC charges crypto exchange Gemini over Bitcoin futures case.
Coinbase (COIN) extends hiring pause amid cryptocurrency bear market.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned down. China and India did well, but Japan, Hong Kong, South Korea, Taiwan and Australia were weak. Europe, Africa and the Middle East currently lean up. France, Turkey, Germany, Hungary, Austria and Sweden are posting solid gains; only Saudi Arabia is down much. Futures in the States point towards a positive open for the cash market.
————— VIDEO: Trading Ideas Going Forward —————
The dollar is down. Oil is down; copper is up. Gold and silver are up. Bonds are up. Bitcoin is down.
Stories/News from Seeking Alpha…
OPEC+ meeting
Energy traders aren’t sleeping much these days as headline after headline keeps the industry on its toes. A report from the Financial Times overnight suggested that Saudi Arabia told the West it was prepared to raise oil production if Russia’s output fall substantially under the weight of sanctions. It’s an interesting turn for the Kingdom, which has resisted calls to increase production despite oil trading at decade highs, though crude futures (CL1:COM) still fell nearly 3% to $112/bbl in response.
Snapshot: Earlier this week, EU leaders agreed to ban 90% of Russian crude by the end of the year as part of the bloc’s sixth sanctions package on Moscow. Another report from the Wall Street Journal on Tuesday outlined that OPEC+ could suspend Russia from a supply deal due to economic fallout from the invasion of Ukraine and its ability to pump more crude. The oil group is set to meet today for its June meeting, and while it’s expected to maintain production, leader Saudi Arabia may announce an immediate supply boost or bring forward production increases (previously set for September) if the climate is right.
Before coming into office, President Biden vowed to make a “pariah” out of Saudi Arabia’s ruling family, blaming Saudi Crown Prince Mohammed Bin Salman for the 2018 murder of U.S.-based columnist Jamal Khashoggi. Relations between the two nations haven’t improved since, with the Kingdom rebuffing every U.S. call to pump more crude or dip into its spare capacity. Things have changed in recent weeks, however, as gas prices reached record highs and several high-level U.S. delegations were dispatched to Saudi Arabia to arrange a potential visit by Biden later this month.
Latest statement: “There’s a lot going on right now, but the idea we’re going to be able to, you know, click a switch, bring down the cost of gasoline, is not likely in the near term, nor is it with regard to food,” President Biden told reporters at the White House. “We can’t take immediate action that I’m aware of yet to figure out how we’re going to bring down the price of gasoline back to $3 a gallon, but we can compensate by providing for other necessary costs for families by bringing those down.” In an op-ed on Memorial Day, Biden wrote that the Fed has the “primary responsibility to control inflation” and called the current high-priced environment America’s “top economic challenge right now.” (9 comments)
Stepping down
Sheryl Sandberg, one of the most powerful women in the business world, is leaving her COO role at Meta Platforms (FB), closing out a career at a company that helped transform social media. In the position, she was the longtime lieutenant to Mark Zuckerberg, with the two often appearing together at industry conferences and high-profile events. Meta veteran Javier Olivan will replace her as operating chief, after spending 15 years with the company and most recently serving as chief growth officer.
Quote: “When I took this job in 2008, I hoped I would be in this role for five years. Fourteen years later, it is time for me to write the next chapter of my life,” Sandberg wrote in a statement. “I am not entirely sure what the future will bring – I have learned no one ever is. But I know it will include focusing more on my foundation and philanthropic work, which is more important to me than ever given how critical this moment is for women.”
Sandberg has an impressive resume, building out Facebook’s advertising model that is now the bulk of the company’s revenue (it generated $115B in 2021). Her involvement also spanned functions that related to Instagram, WhatsApp and Messenger, and was often described as the “adult in the room” especially when Facebook was in its early stages. However, she did face some heat over the last few years, especially over the Cambridge Analytica scandal, Russian disinformation and Facebook’s influence on mental health.
Get out while the good is going? Meta’s share price has fallen by over 50% from its peak last year due to struggles in advertising, slowing growth, rising costs and a broader selloff in tech stocks. In the meantime, it’s trying to transform its business model into the metaverse, a collection of virtual worlds that could be a decade away. Sandberg will still serve on Meta’s board of directors, but her direct reports will transition over the next few months and she’ll depart in the fall. (116 comments)
Hurricane warning
Financials dropped the most out of any S&P 500 sector on Wednesday following a stark warning from JPMorgan (JPM) CEO Jamie Dimon. “You know, I said [last month] there’s storm clouds but I’m going to change it… it’s a hurricane,” he declared at the Bernstein Strategic Decisions Conference, referencing a U.S. economy that is struggling with “fiscally induced growth, QT and the war in Ukraine.” Just about every S&P 500 Financial sub-sector also ended the session in the red, including insurance, mortgage REITs, fintech and asset managers.
More from the conference: “Right now it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this,” he told the room full of analysts and investors. “[But] that hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy or – yes, Sandy or Andrew, or something like that. And it’s – see, you better brace yourself. So, JPMorgan is bracing ourselves, and we’re going to be very conservative in our balance sheet.”
Dimon still predicts that U.S. consumers have some six to nine months of spending power left in their bank accounts as the government’s pandemic stimulus runs out. That may help things in the near-term, but the Fed already “has” to embark on quantitative tightening because of too much liquidity in the system. “We’ve never had QT like this,” he added, saying history books will be written about the new chapter of monetary policy as markets head into uncharted territory.
Outlook: “If you – look, if you go back to 2010 and say, ‘Who are all the major buyers of Treasuries?’ All that time it was central banks, foreign exchange managers, banks who were topping up their liquidity profiles, because we had to for regulations. All three, it’s – it won’t happen, this go-around. Banks are topped up, foreign exchange managers are topped up, the central bank would be selling, not buying, and governments have much for fiscal deficit to finance. That’s a huge change in the flow of funds around the world. I don’t know what the effect of that is. I’m prepared for – and you’re talking about minimum huge volatility.” (96 comments)
Drought worsens
Sweeping restrictions on outdoor water use have gone into effect for Southern Californians as the state attempts to conserve the precious life resource. Declining reservoir levels and reduced snowpack have led to a severe three-year drought and officials fear that some communities won’t even have enough water to get through the summer. “Some would consider this a wake-up call. I disagree,” said California’s Natural Resources Secretary Wade Crowfoot. “The alarm’s already gone off.”
Snapshot: The new limits will depend on locality, but the hardest hit will be the 6M residents across Ventura and northwestern L.A. counties and parts of the San Gabriel Valley and Inland Empire. Households will be forbidden from irrigating their lawns more than once a week to preserve enough supplies for people to cover their basic needs. Outdoor and landscape watering accounts for roughly half of all urban water use, according to California estimates.
Not all counties will be sharing the pain (for now) in a strategy that has divided the experts. The Metropolitan Water District of Southern California has targeted regions that rely heavily or entirely on the State Water Project, while areas that receive water from the Colorado River and other sources will be spared. However, similar restrictions could soon be implemented for those localities as well given that the Colorado River is also suffering from its first-ever shortage.
Go deeper: California authorities have urged people to recycle water, take shorter showers, and only run dishwashers and washing machines when full, but the messaging has fallen on deaf ears. According to State Water Resources Control Board, average urban water use even rose nearly 19% in March, compared to the same month in 2020. If the drought continues, state and local water officials will have to make big investments in infrastructure, like expensive recycling and desalination technology, or risk a longer list of expanding restrictions. (4 comments)
Today’s Economic Calendar
OPEC Meeting
Auto Sales
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
10:00 Factory Orders
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
12:00 PM Fed’s Logan Speech
1:00 PM Fed’s Mester: “What’s ahead for U.S. Monetary Policy?”
4:30 PM Fed Balance Sheet
What else is happening…
AMC (AMC) falls 10% as ‘Top Gun’ effect doesn’t help theater chain.
Apple (AAPL) to shift a portion of its iPad production towards Vietnam.
Mortgage applications drop further amid lowering interest rates.
Chewy (CHWY) surges on surprise profit, stronger than expected sales.
GameStop (GME) frontloads inventory, preps for NFT marketplace launch.
Hot energy: U.S. LNG exports notch second highest monthly record.
General Motors (GM) makes Chevy Bolt the cheapest EV in the U.S.
Elon Musk: Remote work at Tesla (TSLA) is no longer acceptable.
Lumber slumps as housing market bears brunt of rate hikes.
Strong Q1 expected from Lululemon (LULU) amid specialty apparel demand.
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Good morning. Happy Wednesday.
The Asian/Pacific markets leaned down. Japan did well, but China, Hong Kong, Taiwan, Malaysia and the Philippines were weak. Europe, Africa and the Middle East currently lean up. Turkey, Russia, Greece, Hungary, Israel and the Czech Republic are up; South Africa, Norway and Saudi Arabia are down. Futures in the States point towards a moderate gap up open for the cash market.
————— VIDEO: Comparing Market Tops —————
The dollar is up. Oil is up; copper is down. Gold is up; silver is down. Bonds are down. Bitcoin is unchanged.
Stories/News from Seeking Alpha…
QE to QT
The beginning of so-called quantitative tightening commences today as the Fed lets bonds mature off its $9T balance sheet without replacement. It’s a big step for a central bank that conducted unprecedented bond purchases from March 2020 to March 2022, which were intended to blunt the economic fallout from the coronavirus pandemic. The pullback comes at a time when the Treasury market is already grappling with periods of volatility and low liquidity, and there are many unanswered questions about the effects of the new policy regime.
Snapshot: Yields should technically move higher in response to QT, while the curve should steepen, due to a tightening of financial conditions and money supply. However, the direction of yields is also highly dependent on other economic factors, like expectations of Fed interest rate hikes, the U.S. economic outlook or greater regulatory constraints. Others feel that any outsized impacts will rather show up in money markets or financial market plumbing, or that effects on liquidity are at least a few quarters away.
“It’s going to be very gradual… It’s just too soon to know what if anything the impact is going to be from QT,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “I don’t think we know the impacts of QT just yet, especially since we haven’t done this slimming down of the balance sheet much in history,” added Dan Eye, chief investment officer at Fort Pitt Capital Group. “But it’s a safe bet to say that it pulls liquidity out of the market, and it’s reasonable to think that as liquidity is pulled out, it affects multiples in valuations to some degree.”
Go deeper: The latest central bank story comes as the U.S. grapples with persistent red-hot inflation, which triggered a rare meeting between President Biden and Fed Chair Jerome Powell on Tuesday. Treasury Secretary Janet Yellen, who previously served as Fed Chair under the Obama administration, was also at the gathering, but later admitted that she “was wrong about the path inflation would take” and that it wouldn’t pose a long-term problem. “There have been unanticipated and large shocks to the economy that have boosted energy and food prices, and supply bottlenecks that have affected our economy badly,” Yellen told CNN’s Wolf Blitzer. “At the time I didn’t fully understand, but we recognize that now.” (7 comments)
Lockdown ends
Some celebration rang out in Shanghai this morning as the city of 25M people ended a more than two-month lockdown that was originally supposed to last nine days. The draconian measures have tested the resolve of China’s zero-COVID policy, which seeks to eliminate outbreaks as soon as they occur at just about any cost. China remains one of the only countries in the world to still employ such a strategy, which Communist Party leader Xi Jinping has said is needed to save lives and protect the healthcare system.
Fine print: Hundreds of thousands still remained locked in their homes and Shanghai residents are fearful that restrictions can return. While steps are being taken towards a reopening, things are still far from normal with checkpoints and quarantine centers blanketing the commercial hub. Shops are not operating at full capacity, indoor dining is not allowed, theaters and gyms remain closed and most children are still attending school online.
Meanwhile, Shanghai residents will have to obtain a negative COVID test every 72 hours to take public transport and enter public venues (strict quarantine is in store for anyone testing positive and their close contacts). Any resident traveling to another city in China also faces quarantine of between 7-14 days on their return. Doubling down on a mass testing strategy, tens of thousands of testing booths are additionally being set up across China’s largest cities, while “permanent” coronavirus hospitals are being established for the future.
Economic angle: Business activity and manufacturing in China somewhat recovered in May, but many analysts expect the economy to contract in the second quarter. The domestic recovery for the world’s second largest economy is set to be a grinding process, which will be highly dependent on future COVID developments and the resumption of local consumption. “The sluggish credit demand points to worsening expectations among market entities and slowing business expansion,” added Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group. (2 comments)
World’s #1 CRM
Some earnings optimism was seen overnight as shares of Salesforce (CRM) soared nearly 9% in extended trading following a set of impressive Q1 results. It’s a big vote of confidence for the beaten-down tech sector, which has stumbled for much of the year and saw the Nasdaq enter a bear market. The figures also eased some concerns about demand for business software and overall investment in digital technology in the post-pandemic era.
By the numbers: Adjusted earnings per share came in at $0.98 versus the $0.94 per share forecast by analysts. Revenues soared 24% to $7.4B, up from $5.96B in the year-ago quarter and $30M above consensus estimates. “We see strong demand across our clouds and industry,” co-CEO Bret Taylor declared. “Our products are more relevant than ever. The digital transformation trends that accelerated during the pandemic are moving full steam ahead.”
Saying that the last few months have been a “whirlwind” of business and activity, founder Marc Benioff also touted the business-software company’s resilience on a post-earnings call. Salesforce is “carefully watching the economic data” and that hasn’t seen “any greater impact” from the worldwide economic situation that continues to deal with supply chain issues, COVID-related shutdowns in parts of China, the war between Russia and Ukraine and rising inflation in the U.S. “Salesforce has been through all kinds of crises. We continue to weather this storm.”
Outlook: One thing that is having an effect on Salesforce is currency exchange rates that have strengthened the U.S. dollar. “The dollar might have even had a stronger quarter than we did,” Benioff added after the results. As such, Salesforce is trimming its full-year revenue forecast to a range of $31.7B-$31.8B, from an earlier estimate of $32B-$32.1B. However, traders remained focused on the new profit guidance, which sees 2022 EPS of $4.74-$4.76, up from the $4.62-$4.64 range given last quarter. (25 comments)
Censorship law
In a narrow 5-4 decision, the Supreme Court has blocked a controversial Texas law that would have stopped social media platforms from most content moderation. Texas had argued that limiting the platforms’ ability to moderate content was necessary to protect free speech and prevent the silencing of conservative voices. The legislation would have applied to platforms with more than 50M monthly active users and was centered around discrimination or censoring accounts based on “viewpoint.”
The arguments: “Once these businesses became ‘dominant digital platforms,’ they began to deny access to their services based on their customers’ viewpoints,” contended Texas Attorney General Ken Paxton. On the other side, attorneys for technology groups representing the companies had argued that the Supreme Court has “repeatedly recognized that private entities have the right under the First Amendment to determine whether and how to disseminate speech.”
The law, called HB20, would have fundamentally changed the operations at the biggest social media platforms, including Facebook (NASDAQ:FB), Twitter (NYSE:TWTR) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL), with ripple effects likely for Snap (SNAP) and Pinterest (PINS).
Outlook: Similar battles are also making their way through the courts, including a law in Florida that has been put on hold during litigation. Also don’t forget about the constant gripes over Section 230 of the Communications Decency Act, which provides a liability shield for social media companies. The cases of online speech, along with instances of state regulation, are sure to keep the Supreme Court busy in the coming months and years ahead. (147 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:00 Job Openings and Labor Turnover Survey
11:30 Fed’s Williams Speech
1:00 PM Fed’s Bullard Speech
2:00 PM Fed’s Beige Book
What else is happening…
OPEC+ rumored to exempt Russia, pave way for increased production.
Victoria’s Secret (VSCO) gains on earnings beat and solid forecast.
Report: Meta (FB) to join Broadcom’s (AVGO) $1B custom chip customer club.
GM’s (GM) all-electric Hummer draws rave review from Barron’s.
Spirit Airlines (SAVE) investors urged to reject Frontier (ULCC) deal.
Spinoff: Pfizer (PFE) plans to exit GSK (GSK) consumer health unit Haleon.
Wheat plunges on potential resumption of Black Sea grain shipments.
Despite speculation, Apple (AAPL) mixed reality headset likely to launch in 2023.
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Good morning. Happy Tuesday. Hope you enjoyed your long weekend.
The Asian/Pacific markets leaned up. China, Hong Kong, South Korea, Taiwan, New Zealand, Malaysia and Indonesia did great while Japan, India and Australia were weak. Europe, Africa and the Middle East currently lean down. Norway is up, but France, Germany, Russia, Finland and Italy are down. Futures in the States point towards a moderate gap down open for the cash market.
————— VIDEO: Comparing Market Tops —————
The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down. Bitcoin is up.
Stories/News from Seeking Alpha…
Inflation fight
President Biden is scheduled to meet later today with Fed Chairman Jerome Powell, who was formally sworn in last week for a second term as head of the U.S. central bank. The rare meeting at the Oval Office will focus on inflation and the state of the economy, as prices continue to soar on everything from gasoline and food to transportation and housing. While the Fed has embarked on a cycle of aggressive rate hikes and trimming its massive balance sheet, many have criticized the central bank for being too slow in addressing the price pressures, while others say moving too severely could trigger a recession (or that the U.S. economy is already in one).
Snapshot: On Friday, data from the Commerce Department showed that personal consumption expenditures, the Fed’s favorite inflation gauge, rose 6.3% in April from a year earlier. While that was a deceleration from the 6.6% pace seen in the previous month, it’s still more than three times the central bank’s inflation target of 2%. Meanwhile, the more closely-watched inflation gauge, the consumer price index, inched down to 8.3% in April (from 8.5% in March), but is still at its highest level since the early 1980s.
A Memorial Day op-ed from President Biden flagged the current high-priced environment, calling it America’s “top economic challenge right now.” In the article, he described that the “Federal Reserve has a primary responsibility to control inflation” and outlined the importance of the institution’s independence, but laid out a three-part plan of things that can be done on the fiscal and executive side. Will it work?
The strategy: 1) “The price at the pump is elevated in large part because Russian oil, gas and refining capacity are off the market. We can’t let up on our global effort to punish Mr. Putin for what he’s done, and we must mitigate these effects for American consumers. That is why I led the largest release from global oil reserves in history. Congress could help right away by passing clean energy tax credits and investments that I have proposed.”
2) “We can also reduce the cost of everyday goods by fixing broken supply chains, improving infrastructure, and cracking down on the exorbitant fees that foreign ocean freight companies charge to move products. My Housing Supply Action Plan will make housing more affordable by building more than a million more units, closing the housing shortfall in the next five years. We can reduce the price of prescription drugs by giving Medicare the power to negotiate with pharmaceutical companies and capping the cost of insulin. And we can lower the cost of child and elder care to help parents get back to work.”
3) “We need to keep reducing the federal deficit, which will help ease price pressures. Last week the nonpartisan Congressional Budget Office projected that the deficit will fall by $1.7T this year – the largest reduction in history. My plan would [also] reduce the deficit even more by making common-sense reforms to the tax code. The Internal Revenue Service should have the resources to collect taxes that Americans already owe. We should level the international taxation playing field so companies no longer have an incentive to shift jobs and profits overseas.” (52 comments)
Oil embargo
Fresh supply concerns in world energy markets sent WTI crude futures (CL1:COM) up 3.5% overnight to $119 per barrel for the first time since March, when sanctions began to target Russia for its invasion of Ukraine. Brent crude (CO1:COM) already touched the new symbolic $120 level on Monday, while U.S. gasoline prices surged to another record, dealing a fresh blow to consumers ahead of the summer driving season and peak energy demand. The national average for a gallon of gas is now hovering around $4.62, according to AAA, as millions of Americans come back from their Memorial Day outings and holiday getaways.
Next shakeup: EU leaders have reached an agreement to ban 90% of Russian crude by the end of the year as part of a sixth sanctions package the bloc is putting together against Moscow. Seaborne deliveries of Russian oil would be forbidden under the new arrangement, though it would include a temporary exemption for pipeline transfers until a solution is found that would meet the energy needs of Hungary and other landlocked countries like Slovakia and the Czech Republic. “This immediately covers more than 2/3 of oil imports from Russia, cutting a huge source of financing for its war machine,” tweeted European Council President Charles Michel. “Maximum pressure on Russia to end the war.”
However, questions are swirling about the effectiveness of the ban, with more Russian oil than ever on board tankers heading to India and China. That crude is now trading at around $90 a barrel, significantly cheaper than the price of Brent or West Texas Intermediate. Estimates vary on how much it costs Russia to produce a barrel of oil, but with Russia’s energy minister deeming crude prices of $55-70/bbl as “optimal” just days before the war, Russia still appears to be making big profits on its sales as long as it can keep finding buyers.
More energy worries: OPEC+ is scheduled to meet on Thursday, but the producer group still looks set to rebuff Western calls for speeding up increases to their oil output. Markets are also on edge after the Iranian Navy seized two Greek tankers in retaliation over the confiscation of Iranian crude by the U.S. from a tanker held off the Greek coast. “This raises the specter of further disruptions to oil flows through the Strait of Hormuz, which carries a third of the world’s trade,” ANZ Research analysts wrote in a research note. Meanwhile, Denmark and Netherlands are set to join Bulgaria, Poland and Finland in having their gas supplies turned off by Russia after the two nations rejected Moscow’s demands to make payments in rubles. (6 comments)
‘Top Gun’
The theater industry may be in for a comeback after Paramount’s (NASDAQ:PARA) Top Gun: Maverick brought in $156M at the North American box office to notch the best Memorial Day weekend of all-time. The film garnered another $124M internationally (with Monday’s numbers still being tabulated) despite not playing in key overseas markets like Russia and China. That’ll translate into some nice profits for a flick that cost about $150M to make, and was delayed multiple times throughout the pandemic to ensure that it was released with a bang on the big screen.
Quote: “We’ve always believed in theatrical [releases] and this just confirms it,” said Marc Weinstock, Paramount’s head of worldwide marketing and distribution. “Theatrical is not dead – this is a great business.”
Starring in the action-thriller was seasoned stuntman Tom Cruise, who took several decades to appear in a sequel of the popular 1986 film that made him one of Hollywood’s biggest actors. The film also marked Cruise’s first opening to top $100M (his previous record was $65M) and some have even called the production superior to the original movie. The opening-day total of $51.8M was a Paramount Pictures’ record (beating 2010’s Iron Man 2), while the four-day holiday weekend marked the studio’s biggest payoff since Transformers: Age of Extinction was released in 2014.
Outlook: Theaters are hoping to see a revival this summer as audiences take a break from streaming and the coveted older demographic slowly returns to cinemas. Some are even betting big on the sector, like Warren Buffett, whose Berkshire Hathaway amassed a $2.6B stake in Paramount during the first quarter. “The performance of Top Gun: Maverick is a stunning reminder that when you combine one of the last genuine movie stars with great old fashioned storytelling, audiences of all ages will rush out to the theater to be a part of the communal bigger than life moviegoing experience,” added Paul Dergarabedian, senior media analyst at Comscore. (61 comments)
Peltz’s new target
While many were trying to take time off over the holiday weekend, others were busy getting active. Nelson Peltz of Trian Fund Management has been added to the board at Unilever (NYSE:UL) as the company engages with the activist investor to revive its performance. Peltz will take on the role of non-executive director from July 20, and will also be added as a member of Unilever’s compensation committee.
Backdrop: Trian took a 1.5% stake in Unilever back in January, scooping up 37.4M ordinary shares that made it the company’s fifth-largest shareholder. At issue was years of poor returns for investors, especially during COVID lockdowns that should have benefited the company, as well as an increasing emphasis on sustainability over returns. The last blow was a failed effort to buy the consumer division of GlaxoSmithKline (GSK), which angered some shareholders who were already upset about management.
“Unilever has a double problem: structurally low growth categories, and a loss of investor confidence regarding management and the board,” Bernstein analysts led by Bruno Monteyne wrote in a note, adding that Peltz’s appointment gives the firm “a huge amount of credibility.” In fact, shares of Unilever are up more than 7% in premarket trade, which is a notable difference when compared to the 15% loss experienced since Alan Jope became CEO in 2019.
Go deeper: Peltz has previously mounted activist campaigns at Unilever’s rivals, serving on the boards of Heinz (KHC), Mondelez (MDLZ) and Procter & Gamble (PG), but has since relinquished all of those roles. “We look forward to working collaboratively with management and the Board to help drive Unilever’s strategy, operations, sustainability, and shareholder value,” Peltz announced following his latest intervention. Unilever is one of the biggest consumer groups in the world, owning brands like Dove soap, Ben & Jerry’s and Hellmann’s mayonnaise. (1 comment)
Today’s Economic Calendar
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
10:30 Dallas Fed Manufacturing Survey
3:00 PM Farm Prices
What else is happening…
Stock index futures move lower after breaking weekly losing streak.
Coinbase (COIN) violates the most advertising guidelines among rivals.
Number of U.S. births rises for first time in seven years – CDC.
Vaccine push: GSK (GSK) to buy biotech group Affinivax for up to $3B.
Chevron’s (CVX) Venezuela license renewed under same restrictions.
Strategy shift? Biden hunts for oil refining capacity in America.
Top 25 stocks that are down big but have improving earnings – Credit Suisse.
Musk: Bill Gates still has a ‘multi-billion dollar’ Tesla (TSLA) short position.
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