Before the Open (Jun 27-Jul 1)

Good morning. Happy Friday.

The Asian/Pacific markets did poorly. Japan, South Korea, Taiwan, New Zealand and Indonesia dropped more than 1%. Europe, Africa and the Middle East are mixed and little changed. Turkey and Finland are up; Greece, the Netherlands and the Czech Republic are down. Futures in the States point towards a down open for the cash market.

————— PODCAST: Chat With Traders —————

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

Stories/News from Seeking Alpha…


Seeking Alpha wishes our subscribers a beautiful holiday weekend and a Happy Fourth of July! Wall Street Breakfast won’t be published with markets closed on Monday, but tune back in Tuesday.

Also check out original Seeking Alpha show The Weekend Bite! This week we’re joined by Michael A. Gayed, CFA., Founder of The Lead-Lag Report. We discuss the macro environment, is it the perfect time to go risk-on, and why Michael doesn’t see cash as an asset class.

Investors are proceeding into the second half of 2022 with caution after the worst first six months to a year in decades. Risk-off sentiment was seen in most areas of the market, fueled by soaring inflation and the Fed’s aggressive monetary policy to fears of slowing growth and increased borrowing costs. A much hoped-for “soft landing” also hit some turbulence, with Fed Chair Jay Powell remarking this week “there is no guarantee that we can do that and it’s obviously something that’s going to be quite challenging.”

Perfect storm: The S&P 500 (SP500) has plunged 21% since January, losing more than $9T in market capitalization and suffering its worst first half of a year since 1970, while the Nasdaq Composite (COMP.IND) and Dow Jones (DJI) fell 16% and 30%, respectively. The 10-year Treasury yield climbed from 1.50% to around 3.00%, and Bitcoin (BTC-USD) has tumbled nearly 56% YTD to under $20,000. One of the only pockets of the market that gained in the first-half was commodities, with crude oil going from $75 to well over $100 a barrel and U.S. gas prices nearly tripling before falling back in recent weeks.

Heading into H2, many are worried that central bank actions could push the global economy into a downward spiral. The latest reading from the Atlanta Fed’s GDPNow tracker is now in negative territory, predicting Q2 real GDP growth of -1.0% as of June 30, down from +0.3% on June 27. If that print comes to fruition, it would mark two straight quarters of negative real GDP growth (-1.6% in Q1) making it a technical recession.

More volatility ahead? Earnings season, which kicks off later this month, could present the next trading risk, though you never know when buy-the-dip institutional managers and retail investors will step in and gain control of the markets. “If we have any words of comfort, it is that universal losses at this pace rarely take place in successive quarters, but this is not the same as saying that further losses should not be anticipated,” said Michael Shaoul, CEO of Marketfield Asset Management. “This still very much looks to be the middle of the story, the period in which a previously ‘pacific’ outlook is replaced by something far stormier, and we are yet to see any signs that the weather is about to turn for the better.” (25 comments)

Pass the chips

Micron Technology (MU) reported earnings after the bell on Thursday, providing clues to the latest happenings in the chip industry. However, things don’t look any better than a few months ago, with the memory maker publishing mixed FQ3 results and issuing guidance that was well below consensus forecasts. Revenue of $6.8B-$7.6B is expected in the coming quarter, compared to analyst estimates of $9.05B, prompting shares of Micron to slide 5% in extended trading.

Quote: “Recently, the industry demand environment has weakened, and we are taking action to moderate our supply growth in fiscal 2023,” CEO Sanjay Mehrotra declared. “We are well-poised to emerge stronger on the other side of this downturn, so we are really executing well, working closely with our customers to understand the latest demand trends and various end-market segments, and adjusting our plans as necessary and as fast as we can.”

Micron specializes in DRAM, which is used in PCs and servers, as well as NAND memory, which is used in smaller devices like smartphones and USB drives. Chip prices surged during the pandemic amid heavy demand for stay-at-home electronics, but the industry is beginning to see signs of easing as inventories build and companies plan for a decline in consumer spending. There have also been efforts to reshore more of the crucial supply chain to the U.S., with legislation to support foundries and incentives for semiconductor manufacturing and R&D.

China competition bill: The measure, which includes $52B for the domestic chip industry, is facing uncertainty in Congress amid controversy over it being tied to a broader spending package. “Let me be perfectly clear: there will be no bipartisan USICA as long as Democrats are pursuing a partisan reconciliation bill,” tweeted Senate Minority Leader Mitch McConnell. “Senate Republicans are literally choosing to help China outcompete the U.S. in order to protect big drug companies,” responded White House Press Secretary Karine Jean-Pierre. “This takes loyalty to special interests over working Americans to a new and shocking height. We are not going to back down in the face of this outrageous threat.” (206 comments)

Connectivity boost

In a big win for Elon Musk’s Starlink (STRLK) network, the Federal Communications Commission has approved the company’s plan to expand broadband offerings to vehicles in motion. “Authorizing a new class of [customer] terminals will meet the growing user demands… whether driving an RV across the country, moving a freighter from Europe to a U.S. port, or while on a domestic or international flight,” wrote Tom Sullivan, International Bureau Chief of the FCC. Starlink also made headlines during the war in Ukraine, with President Volodymyr Zelenskyy praising Musk for helping the country stay online and conduct military operations.

What is Starlink? Operator SpaceX (SPACE) has launched a constellation of 2,700 Starlink satellites since 2019, blasting batches of them into low-Earth orbit on its Falcon 9 rockets. The service is meant to deliver high-speed internet with few delays, and has FCC approval to expand its network to 12K satellites. As of June, operator SpaceX told the agency that Starlink had more than 400K subscribers, including many who pay $110 a month for broadband internet using $599 self-install terminal kits.

Contracts in recent years have focused on remote and rural users, though business clients are starting to be drawn in. Delta Air Lines (DAL) is testing the service, while Hawaiian Airlines (HA) and charter provider JSX are adding it to their routes. That has raised the alarm for the competition, including OneWeb, Viasat (VSAT) and Jeff Bezos’s Kuiper project, which is planning a similar network to Starlink with the first prototype satellites to launch later this year.

Can Tesla (TSLA) drivers expect Starlink internet in the future? Back in March, Elon Musk tweeted that such a plan is not in the works since “our terminal is much too big” and would be more suitable for large trucks & RVs. He has also said that Starlink would IPO “once we can predict cash flow reasonably well” and suggested that retail investors will get “top priority” in the coming offering. (3 comments)

More expensive

84% of Americans plan to celebrate Independence Day this weekend, according to the National Retail Federation, though inflation will add to the cost of cookouts and festivities. Those who have plans for the holiday are forecast to spend over $84 for food items on average (up $4 from last year and $10 from 2020) for a total of $7.7B. More than half of consumers are planning a BBQ or picnic, and 26% of those celebrating expect to purchase additional patriotic items.

Snapshot: Ground beef prices are up 36% from a year ago, per the American Farm Bureau Federation, while the cost of chicken breasts and pork have increased by more than a third. Fuel, fertilizer and other key farming inputs were already under pressure before the invasion of Ukraine, which further disrupted the global agriculture supply chain. Anyone hitting the road this weekend will also face near record high prices at the pump and good luck to those traveling by plane as airport numbers reach pre-pandemic levels.

“Airlines are learning the hard way that there is a severe price for over-optimism,” noted Joseph Schwieterman, a transportation expert at DePaul University. “They are on the edge of a cliff this holiday.”

Chasing the Mustard Belt: Around 35,000 people are estimated to convene on the corner of Surf and Stillwell avenues in Coney Island to watch the Nathan’s Famous (NATH) Fourth of July Hot Dog-Eating Contest. Millions more will watch the ESPN telecast of the event, which has been formally going on since 1972. Keep an eye on defending men’s champion, Joey “Jaws” Chestnut, who ate 76 hot dogs during last year’s showdown. Nathan’s stock has also had some luck in 2022, with shares recently rebounding to $58 – the same price where they started the year – despite a broader market downturn.

Today’s Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
1:00 PM Baker-Hughes Rig Count

What else is happening…

Restart delay at Freeport LNG export terminal sends natural gas plunging.

Kohl’s (KSS) terminates deal talks with Franchise Group (FRG).

Walgreens (WBA) reports decline in FQ3 sales amid waning COVID impact.

ECB prepping rate hike as eurozone inflation hits a record 8.6% in June.

Coinbase (COIN) is selling geolocation data to U.S. immigration enforcement.

FTX nears deal to buy crypto lender BlockFi for pennies on the dollar.

eToro said to terminate agreement to go public through SPAC (FTCV).

Facebook parent Meta Platforms (META) anticipates ‘fierce’ H2 headwinds.

American Airlines (AAL) offers to boost pilot pay 17% by the end of 2024.


Good morning. Happy Thursday.

The Asian/Pacific markets did poorly. Japan posted a decent gain, but China, South Korea, Taiwan, Australia, Singapore, Thailand and the Philippines dropped more than 1%. Europe, Africa and the Middle East are down big. The UK, Denmark, Poland, France, Germany, Greece, Russia, South African, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel, Austria, Sweden, Saudi Arabia and the Czech Republic are down 1% or more. Futures in the States point towards a a relatively big down open for the cash market.

————— PODCAST: Chat With Traders —————

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

Stories/News from Seeking Alpha…

Crypto crash

Things are looking pretty shaky in the cryptoverse as a continuous flow of damaging headlines continues to rock the sector. The staunch believers are calling it a “crypto winter” before things heat up again, while the naysayers are pointing to the final demise of “tulip mania” they have been warning about for years. Those in between are acknowledging that a shakeout is underway, but feel that only the strongest players will survive in a similar fashion to the aftermath of the dot-com crash. Bitcoin (BTC-USD) is trading under $20,000 again on the developments, and only time will tell which camp prevails.

The latest: The failure of the TerraUSD “stablecoin” project in May sent shockwaves through the crypto market, while the Celsius Network froze accounts and now is preparing for a possible bankruptcy. Popular crypto-focused hedge fund Three Arrows Capital was also ordered to liquidate on Wednesday and crypto exchange CoinFLEX issued new “Recovery Value USD” tokens in an attempt to resume withdrawals. Meanwhile, Coinbase (NASDAQ:COIN) and BlockFi have said they would slash their workforces by a fifth, though others remain undeterred, like MicroStrategy’s (NASDAQ:MSTR) Michael Saylor, who scooped up another 480 Bitcoins for $10M despite undergoing massive unrealized losses.

Growing concerns over the industry even prompted the SEC to deny an application to convert the Grayscale Bitcoin Trust (OTC:GBTC) – which has $13B of assets under management – into the first spot ETF. The move would have potentially led to more institutional investment, but instead turned into another negative headline surrounding the sector. Grayscale is suing the SEC in response, after the agency felt that its product failed to meet requirements “designed to prevent fraudulent and manipulative acts… and protect investors and the public interest.”

DeFi outlook: Sam Bankman Fried, the 30-year-old billionaire founder of FTX, believes that more failures among crypto exchanges are coming amid the ongoing slump that has wiped off $2T in market value since November. “Some third-tier exchanges are already secretly insolvent,” he told Forbes in an interview. Increasing worries are also enveloping the broader DeFi industry, such as crypto lenders whose loans are backed by little collateral and lack access to liquidity in the event of a downturn. “It’s just a risky structure,” said Eric Budish, an economist at the University of Chicago Booth School of Business. “It strikes me as diversified as the same way that portfolios of mortgages were diversified in 2006. It was all housing – here it’s all crypto.” (28 comments)

ECB Forum

How is the economy going to deal with a possible onslaught of interest rate hikes? That’s a question Jay Powell was asked at the ECB Forum on Wednesday as inflation risks continue to mount across the globe. Other central bankers also attended the annual forum in Sintra, Portugal, but most appeared to indicate that a new regime of monetary policy could make a “soft landing” quite challenging. Let’s hear what they had to say:

Fed Reserve Chair Jerome Powell: “We are raising interest rates, and the aim of that is to slow growth down so that supply will have a chance to catch up. We hope that growth could still remain positive. But if you look at the strength of the economy, households are in very strong financial shape, they’ve still got a lot of excess savings – from forced saving of not being able to travel and things like that – and fiscal transfers. The same thing is true with business, with very low rates of default and lots of cash on the balance sheet. The labor market is also tremendously strong, still averaging very high job growth per month. Overall, the U.S. economy is in the position to withstand tighter monetary policy, we think.”

ECB President Christine Lagarde: “I don’t think we are going to go back to that environment of low inflation. There are forces that have been unleashed… that we’re facing now that are going to change the picture and the landscape within which we operate. Certainly in this part of the world, the energy shock that we have suffered, are suffering, and will continue to suffer has had a major impact. I think this is not specific to Europe, but there is certainly a dependency of European countries and the euro area to external supply from foes. That is certainly a strong driving force of inflation on the price of energy and food… as well as supply shocks.”

Bank of England Governor Andrew Bailey: “I think the U.K. economy is probably weakening rather earlier and somewhat more than others. Unfortunately, there is going to be a further step-up in U.K. inflation later this year because that’s a product of the way the energy price cap interacts with the energy prices we have observed over the last few months. I would imagine that will put a bit more persistence [on the U.K. inflation rate] and we will have to explain that.” (4 comments)

20% off

Disappointing earnings and a major leadership shakeup sparked selling in Bed Bath & Beyond (BBBY) on Wednesday as the home products retailer saw its stock slide almost 24% to under $5. The retreat is part of a longer-term downtrend for the shares, which made a recovery attempt during late February and most of March, but have since plunged by over 80%. It is also a notable shift for the once high-flying meme stock, which saw spurts of inflated trading activity over the past 18 months, along with GameStop (GME), AMC (AMC) and others.

Snapshot: Bed Bath CEO Mark Tritton is stepping down from his position, with independent board member Sue Gove taking over on an interim basis. Tritton tried to engineer a quick turnaround after taking the helm in 2019, by cleaning up crowded aisles, scaling back coupons and making big bets on private-label brands that didn’t pay off. Private-labels generally require longer lead times than products from national brands, since the retailers need to develop designs and contract with the factories themselves.

In fact, Bed Bath’s net loss widened to $358M (from $51M) in Q1, with sales tumbling 25% Y/Y and gross margins contracting significantly amid broader supply chain problems. The recent troubles even prompted activist investor Ryan Cohen, founder of Chewy (CHWY), to get involved after a similar campaign at GameStop landed him a chairman role. Bed Bath added three directors to the board in March, with two overseeing a committee to explore strategic alternatives for its “buybuy Baby” chain.

Next steps: Interim CEO Sue Gove gave some hints about what’s next for the company on a conference call following the dismal Q1 results. “The customer wants to see more of an optimal balance of national brands, direct-to-consumer brands and company-owned brands, so we’re focused on improving the category mix. The [buybuy Baby] business is [also] a very attractive business, and we’re not alone in appreciating its value. We know there is interest.” (8 comments)

Is TikTok safe?

Flagging “patterns of surreptitious data practices” and “serious” threats to national security, FCC Commissioner Brendan Carr has sent letters to Apple (AAPL) and Google (GOOGL) to remove TikTok from their respective app stores. The allegations are similar to those made by former President Donald Trump, who issued an executive order against Chinese-owned TikTok, before President Biden revoked the ban last year and opted for an investigation (which is still ongoing). Carr’s claims follow a recent BuzzFeed report that stated U.S. TikTok user data had been “repeatedly” accessed in China, citing leaked audio from 80 internal meetings at the company.

Tweetstorm: “TikTok is not just another video app. That’s the sheep’s clothing,” Carr wrote on Twitter. “TikTok doesn’t just see its users’ dance videos. It collects search and browsing histories, keystroke patterns, biometric identifiers, draft messages and metadata, plus it has collected the text, images, and videos that are stored on a device’s clipboard.”

“TikTok’s pattern of misrepresentations coupled with its ownership by an entity beholden to the CCP has resulted in U.S. military branches and national security agencies banning it from government devices. Bipartisan leaders in both the Senate and House have flagged concerns. Numerous provisions of Apple’s & Google’s policies are relevant to TikTok’s pattern of surreptitious data harvesting – a pattern that runs contrary to its public representations. And there’s plenty of precedent for holding TikTok accountable by booting it from these app stores.”

Response: Following the BuzzFeed report, TikTok sought to dispel fears that American user data could be passed on to the Chinese communist government by saying it had completed the process of routing all of its U.S. traffic through Oracle’s (ORCL) cloud infrastructure. “We employ access controls like encryption and security monitoring to secure user data, and the access approval process is overseen by our U.S.-based security team,” the company added in a statement. “TikTok has consistently maintained that our engineers in locations outside of the US, including China, can be granted access to U.S. user data on an as-needed basis under those strict controls.” (109 comments)

Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Personal Income and Outlays
9:45 Chicago PMI
10:30 EIA Natural Gas Inventory
3:00 PM Farm Prices
4:30 PM Fed Balance Sheet

What else is happening…

Q1 GDP declined by more than initially thought as inflation soared.

Snap (SNAP) to start rollout of Snapchat Plus subscription this week.

Winter is coming, and Europe may be out of gas when it arrives.

General Mills (GIS) beats on higher pricing, boosts dividend.

LVMH (OTCPK:LVMHF) buys iconic Napa Valley winery Joseph Phelps.

Spirit Airlines (SAVE) pushes off shareholder meeting to discuss bids.

Shopify (SHOP) slides despite completion of 10-for-1 stock split.

BioNTech (BNTX) to begin testing a pan-coronavirus vaccine in H2.

Bill Ackman to Fed: Killing inflation will boost consumer confidence.


Good morning. Happy Wednesday.

The Asian/Pacific markets did poorly. Japan, China, Hong Kong, South Korea, Taiwan, Australia and Indonesia dropped more than 1%. Europe, Africa and the Middle East are mostly down. Denmark, France, Germany, Russia, Finland, Spain, the Netherlands, Portugal, Austria and Sweden are down 1% or more. Futures in the States point towards a positive open for the cash market.

————— PODCAST: Chat With Traders —————

The dollar is up a small amount. Oil and copper are up. Gold and silver are up. Bonds are up.

Stories/News from Seeking Alpha…


Following 16 hours of negotiations, the European Union has agreed to a framework to eliminate carbon emissions from new cars and vans by 2035, effectively closing the chapter on the internal combustion engine. Many automakers are already in the process of switching over to cleaner fleets, but the industry will now face some pressure to hit the accelerator. The bloc’s proposal was first raised in July 2021, but with the final endorsement in the bag, it will be up to members of the European Parliament to get the deal over the finish line.

Areas of compromise: Environment ministers extended a CO2 exemption granted to so-called “niche” manufacturers – or those producing less than 10K vehicles per year – until the end of 2035. Italy, home to Ferrari (RACE) and Lamborghini (OTCPK:AUDVF), also gave up demands for a five-year delay in the EU’s plan for carmakers to clean up their fleet. Meanwhile, alternative technologies like synthetic fuels and plug-in hybrids may be included in the future if they can achieve the complete elimination of greenhouse gas emissions.

“This is a big challenge for our automotive industry,” announced Agnes Pannier-Runacher, the French Minister of Energy Transition who chaired the meeting. “I have full confidence that the European car industry can manage,” added Frans Timmermans, Vice President of the European Commission. “Our carmakers are among Europe’s industrial leaders and they can continue to be that as they embrace this global shift.”

Other EV news: Electric vehicle makers have not emerged unscathed in the recent supply chain crisis, especially given the rising costs of raw materials like lithium, nickel, cobalt and palladium. The deteriorating environment even prompted a warning from Tesla (NASDAQ:TSLA) CEO Elon Musk earlier this month, telling top managers he had a “super bad feeling” about the economy and the company would slash its workforce by about 10%. The latest round of layoffs came last night, with Tesla shuttering its office in San Mateo, California, and cutting around 200 employees who were working on Tesla’s Autopilot driver-assistant system. (73 comments)

Red flags

Heavy selling pressure continues to plague stock markets as more signs continue to point to an economy in trouble. An attempted rally for risk assets fizzled out on Tuesday after The Conference Board’s consumer confidence index for June fell to 98.7, the lowest level since February 2021. The Nasdaq Composite concluded the session down 3%, while ten of the 11 S&P sectors finished in the red (energy was the sole gainer).

Commentary: In an interview on CNBC, Cathie Wood, CEO of ARK Invest, admitted that she got the inflation picture wrong and it had pummeled her disruptive technology darlings. “We think we are in a recession… can’t believe it’s taking more than two years [to resolve the supply chain] and Russia’s invasion of Ukraine of course we couldn’t have seen that. We think a big problem out there is inventories – the increase of which I’ve never seen this large in my career… and I’ve been around for 45 years.” Wood went on to state that ARK is still “dedicated completely to disruptive innovation” and has seen significant inflows into its flagship ARK Innovation ETF (ARKK) despite being down 56% in 2022.

Not helping the situation were comments from Cleveland Fed President Loretta Mester, who is a voting member on the Federal Open Market Committee. If elevated inflation conditions remain the same in July, Mester said she would support another 75 basis point hike to aggressively rein in the soaring price pressures. Fed Chair Jerome Powell is also due to give a speech at the European Central Bank forum at 9 a.m. ET after acknowledging last week that steep rate hikes may tip the economy into recession.

On the economic calendar: The final estimate for first-quarter GDP will be published this morning, with consensus forecasts coming in at minus 1.4% and setting the stage for a potential recession reading next month. Investors will also get the latest data on mortgage applications – the leading indicator for home sales and housing construction – and corporate profits, which are the lifeblood of investment spending in the U.S. (147 comments)

Switching it up

A panel of outside advisors to the FDA has voted 19-2 in favor of updating COVID-19 booster shots to include protection against Omicron. It’s a significant decision as it marks the first time the panel has proposed that vaccine makers modify their jabs to target a different strain. Alpha, Beta and Delta have already made their way through the world without any updates to the shots, as well as their sub-variants that have caused several big waves of infections.

Fine print: Much of the FDA panel discussion focused on whether the Omicron component should target the “original” strain, BA.1, or newer BA.4 and BA.5 sub-variants, but the voting question did not specifically ask the members to decide between them. The panel was also not asked about whether future boosters should be bivalent – containing protection against the original SARS-CoV-2 variant and Omicron – or just provide protection against the latter. As COVID continues to evolve, the vaccines are said to have become less effective at defending infection and mild illness, but generally protect against severe disease.

Following the committee’s recommendation, the FDA is likely to authorize the vaccine change, meaning a new generation of COVID boosters could be ready by late summer or the early fall. Vaccine manufacturers have already developed Omicron-specific vaccines, but have noted that they tend to generate a lower antibody response against BA.4 and BA.5. If not apparent already, it also appears that COVID is on track to need annual or semi-annual boosters like the flu, compared to viruses like polio and measles, which if vaccinated against as a child, the body will recognize at a much later date.

How have the stocks held up? Pfizer (PFE), which was the first manufacturer to get emergency vaccine approval in the U.S., climbed to a high of $61 after the FDA authorized its boosters in November 2021. Shares have fallen nearly 20% since then to around $50, but are still up more than 20% from before the pandemic. Even bigger swings have been seen with partner BioNTech (BNTX), which surged from $30 before March 2020 to a peak of $464 last summer (shares are now trading around $140). Rival Moderna (MRNA) has also seen some significant movement, going on a rollercoaster ride from $25 to nearly $500, before the stock also headed back to the $140 level. (52 comments)

NATO expansion

Finland and Sweden have taken a major step towards NATO membership after Turkey flipped its position to support the countries joining the world’s most powerful military alliance. President Recep Tayyip Erdogan had previously voiced concerns over the nations’ alleged support of the Kurdistan Workers’ Party, or PKK, which Ankara considers terrorists. However, both Finland and Sweden committed in writing not to provide support to the group, and would work together on extraditions, terrorist financing and related issues.

Quote: “For the Nordic Region, for the Baltic region, this is of particular importance, but this is important for the whole Alliance,” NATO Secretary General Jens Stoltenberg declared. “It also sends a very clear message to President Putin, that NATO’s door is open.”

Public opinion in Finland and Sweden was strongly against joining NATO until the Russian invasion of Ukraine on Feb. 24, when support for membership flipped almost overnight. The military buildup could be another boon for stocks like Lockheed Martin (LMT), which has climbed 20% YTD on the back of the increases in defense spending. All current 30 NATO nations have agreed to spend at least 2% of their GDPs on defense by 2025, and while only a third of those members have met the threshold, the latest developments should accelerate a drive for achieving their targets.

Outlook: Once Finland and Sweden join NATO, the military alliance will expand at Russia’s doorstep, with Moscow threatening to station ballistic and nuclear missiles on its border in response. “He wanted less NATO. Now President Putin is getting more NATO on his border,” Stoltenberg continued at a press conference. Tensions are already high after NATO member Lithuania barred Russia last week from shipping certain goods to its Baltic exclave of Kaliningrad, prompting fears of military action that could trigger Article 5 of the North Atlantic Treaty.

Today’s Economic Calendar
6:30 Fed’s Mester Speech
7:00 MBA Mortgage Applications
8:30 GDP Q1
8:30 Corporate profits
9:00 Jerome Powell Speech
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty

What else is happening…

Final washout? Bitcoin (BTC-USD) battles to hold $20,000 level again.

Exxon (XOM) chief says the cure for high prices will be high prices.

Spirit Airlines (SAVE) rejects sweetened offer from JetBlue (JBLU).

Disney (DIS) board unanimously extends CEO Chapek for three years.

Airbnb (ABNB) outlines policy to make house party ban permanent.

Dealmaking turmoil: Walgreens (WBA) shelves sale of Boots pharmacy.

Altria (MO) watches as Juul pushes to extend stay on FDA e-cigarette ban.

Google’s (GOOGL) Bill Ready takes over CEO post at Pinterest (PINS).


Good morning. Happy Tuesday.

The Asian/Pacific markets did well. Japan, China, Hong Kong, South Korea, Australia, Malaysia, Thailand and the Philippines did great; Taiwan was weak. Europe, Africa and the Middle East are mostly up. The UK, France, Germany, the UAE, South Africa, Finland, Norway, Hungary, Spain, Italy, Israel, Austria, Saudi Arabia and the Czech Republic are leading. Denmark is down. Futures in the States point towards a positive open for the cash market.

————— BLOG: Signs Inflation is Subsiding —————

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

Stories/News from Seeking Alpha…

Price caps

Over at the G7 summit in the Bavarian Alps, Western leaders are attempting to find new ways to curb soaring energy costs, especially given the fears of an oncoming recession. The latest idea being pitched is caps on the price of Russian oil and gas, though obstacles remain, and the concept would need to garner widespread adoption to be effective. The Kremlin has already been making some serious dough from surging prices of its commodity exports, which have helped the government weather a continuous slew of hefty sanctions.

How caps would work: Details are still being discussed, but the plan aims to cap prices at a level close to the cost of Russian production – thereby denting Moscow’s finances but still ensuring critical energy flows. To accomplish this, Europe would restrict the availability of transport and insurance services to shippers which only agree to observe the price ceiling (~95% of the world’s oil tanker fleet is covered by the International Group of P&I Clubs in London and companies based in continental Europe). Another proposal would apply similar caps on Russian gas prices, or limit the usage of U.S. financial services that could also benefit the scheme.

Complicating the matter is the fact that EU just agreed to a phased-in ban on seaborne Russian oil shipments, while temporarily allowing crude deliveries via pipeline. Any new agreement would require the bloc to reopen the legal text of its latest sanctions package, which had to overcome significant hurdles and took weeks to approve. Big buyers of Russian crude, like China and India, could also settle for a lower standard of Russian insurance on their oil shipments, while Vladimir Putin may sharply cut supplies if he felt Russia was being threatened (he already turned off some natural gas taps heading to the EU).

On the move: The price of a barrel of oil fell to nearly $100 on June 22, but has climbed around 10% over the past week and is up 50% YTD. Early Tuesday, WTI crude futures (CL1:COM) reached as high as $111.63/bbl, with the market still on edge over supply disruptions that could exacerbate the delicate energy landscape. Not helping the situation are signals that Libya could face limited supply amid a worsening political crisis, the possibility that Ecuador could halt some output due to anti-government unrest, and confirmation from the UAE and the Saudis that they are near maximum production capacity. (17 comments)

Just Do It.

A beat on the top and bottom lines didn’t help Nike (NKE) in Monday’s extended session, with the stock gaining modestly before dropping nearly 3% AH. Quarterly revenue fell 1% to $12.2B and inventories soared by 23% to $8.4B, showing that the company is still attempting to balance demand with a troublesome supply chain. Wall Street was also concerned about overall sales in China, as well as exposure to inflation and foreign exchange impacts.

Quote: “As we move forward, we will stay focused on what we can control,” CFO Matthew Friend announced on a conference call, adding a dose of optimism as the company enters fiscal ’23. “This includes leveraging our scale and financial strength, optimizing supply and demand and most importantly, creating value for our consumer from the products we design to the stories we tell, to the experiences that we deliver.”

The sneaker giant also highlighted three of its foundational elements for long-term value creation, including its global portfolio, consumer-led digital transformation and expanding its direct-to-consumer operational capabilities. Elsewhere, the board approved a new four-year share repurchase program that will allow management to buy back $18B in common stock. The new program replaces a prior $15B share repurchase program that was due for termination in fiscal 2023.

Outlook: “We continue to closely monitor consumer behavior and we’re not seeing any signs of pullback at this point in time,” Friend continued. “In the first quarter, we expect real dollar revenue growth to be flat to slightly up versus the prior year due to COVID disruption in Greater China and more than 500 basis points impact from foreign exchange translation. We expect gross margins to be in the range of flat to declining by 50 basis points versus the prior year with a wider-than-usual range reflecting our consideration of a number of scenarios.” (50 comments)

Ethics exam cheating

The SEC just slapped a record $100M fine on accounting giant Ernst & Young, marking the largest penalty the agency has ever imposed on an audit firm. Reason? Dozens of EY audit professionals sent or received answer keys to CPA ethics exams, while hundreds cheated on continuing professional courses to renew their licenses. KPMG, another Big Four accounting firm, was fined $50M for similar transgressions in 2019, but the EY penalty was doubled because it had withheld information about the misconduct.

Backdrop: EY received a tip from an internal whistleblower in June 2019 that employees were cheating on exams, but failed to inform the SEC, and only disclosed past instances of cheating. In the meantime, EY began its own investigation, trying to learn more about the claim and come up with a plan to address potential issues. However, EY’s lawyers and executives knew within months that “the cheating involved more than a small number of individuals in a single office,” while the dishonest activity – which began in 2017 – continued through 2021.

“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” SEC Enforcement Director Gurbir Grewal declared. “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.” As part of the settlement, EY will additionally be required to pay for two separate compliance reviews by outside firms.

Go deeper: The situation may complicate an effort by top partners at EY to split the company into separate auditing and advising divisions. A potential IPO is seen as one of the options for its advisory unit, and could alleviate regulatory pressure and conflicts of interest. While revenues at the audit division totaled $14B in 2021, EY’s advisory business, which offers tax consulting and advice on deals, generated revenues of nearly $26B.


Shares of Robinhood (HOOD) soared 14% to over $9 on Monday following reports that Sam Bankman-Fried’s FTX was eyeing the trading app. The crypto exchange appears to be on a bit of an acquisition spree of late amid recent reports that it could take a stake in crypto lender BlockFi. In addition, Alameda Research, SBF’s quant trading shop, has reportedly taken a large stake in crypto broker Voyager Digital (OTCQX:VYGVF).

Quote: “We are excited about Robinhood’s business prospects and potential ways we could partner with them,” Sam Bankman-Fried, also known by his initials SBF, said in an emailed statement to Seeking Alpha. “That being said, there are no active M&A conversations with Robinhood.” Yesterday’s outsized move still marked a big session for Robinhood, which has been trading well below its $38 IPO price for most of its first year on public markets.

Adding to the speculation was a 13D filing filed by SBF last month, which disclosed that a business affiliated with FTX took a 7.6% stake in Robinhood. Around the same time, Robinhood CEO Vlad Tenev declined to say directly if the FTX founder and CEO reached out to him about taking a stake. CNBC also reported that FTX was looking for acquisitions of brokerage startups as the crypto exchange expands into stock trading.

Analyst commentary: “I don’t see this as a fire sale here,” JMP Securities analyst Devin Ryan declared, outlining that FTX would really have to get “Robinhood management on board here at a much higher price.” Separately, Goldman Sachs raised the stock to Neutral from Sell on Monday, while Citi analyst Jason Bazinet has previously said Robinhood may be worth about $15/share in a takeover. Consolidation may also be key to weather the recent “crypto winter,” which has seen panic and an accompanying shakeout hit the industry since last November. (17 comments)

Today’s Economic Calendar
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
12:30 PM Fed’s Daly Speech
1:00 PM Results of $40B, 7-Year Note Auction
1:00 PM Money Supply

What else is happening…

China reduces quarantine time for people arriving from abroad.

Spirit Airlines (SAVE) takes off again as JetBlue (JBLU) sweetens bid.

To raise, or not? Banks unveil dividend policies after stress test results.

CVS (CVS), Walmart (WMT) limit sales of Plan B ‘morning after’ pills.

FDA advisors may change COVID boosters to include Omicron component.

Cannabis legalization has accelerated use and health impacts – UN report.

Commodity boom! Albemarle (ALB) plans major U.S. lithium processing plant.

Berkshire (BRK.B) increases Occidental Petroleum (OXY) stake by $44M.

Expanding role, GE (GE) CEO Larry Culp will head up aviation unit.

Supreme Court ruling sets the table for casino push down in Texas.

Sustainable strategy: Ford (F) will not allow all-electric lease buyouts.

Trump SPAC Digital World Acquisition (DWAC) discloses federal subpoenas.


Good morning. Happy Monday. Hope you had a good weekend.

The Asian/Pacific markets did great. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, New Zealand, Singapore and Thailand all posted solid gains. Europe, Africa and the Middle East leaned to the upside. Denmark, Poland, Germany, Russia, South Africa, Finland, Norway, the Netherlands and Sweden are doing well; Turkey, Greece, Italy Saudi Arabia and the Czech Republic are down. Futures in the States point towards a positive open for the cash market.

————— BLOG: Signs Inflation is Subsiding —————

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

Stories/News from Seeking Alpha…

Russian default

Russia has defaulted on its foreign debt for the first time since the Bolshevik Revolution after a 30-day grace period for the country to disburse two Eurobond interest payments expired on Sunday night. It’s a largely symbolic move given that the Kremlin has enough money to pay off the debt, but is barred from doing so because of the heavy Western sanctions leveled on the government. Last month, the U.S. Treasury Department effectively blocked Moscow from making the payments after letting a sanctions loophole expire that had previously allowed it to transfer cash to debtholders via American banks.

Quote: “Anyone who understands this situation knows that this in no way a default,” Russian Finance Minister Anton Siluanov declared. “There is money and there is also the readiness to pay. This situation, artificially created by an unfriendly country, will not have any effect on Russians’ quality of life.”

While a formal default (by a ratings agency or court) would be another sign of isolation, in this case it doesn’t mean much, as Russia currently cannot borrow internationally. In fact, it doesn’t need to, thanks to surging energy export revenues that have grown even more plentiful since the invasion of Ukraine. The grim status could influence its standing as an economic and financial pariah, however, as more multinationals flee the country or discourage foreign direct investment for the future.

Next steps: Bondholders are likely to take a wait-and-see approach. Claims only become void three years from now and much could change before then in terms of the scope of the war or sanctions. Debtholders may also have a difficult time repatriating the cash since the Kremlin hasn’t waived its sovereign immunity and no foreign court would have jurisdiction there. Note that Russia under Boris Yeltsin also defaulted on its domestic debts in 1998, which led to a wave of inflation and a devalued ruble, but the economy was able to recover quickly due to rising oil prices and international aid. (23 comments)


The U.S. Supreme Court on Friday ruled 6-3 that the constitution does not confer a woman’s right to abortion, overturning the landmark 1973 decision in Roe v. Wade. “It is time to heed the Constitution and return the issue of abortion to the people’s elected representatives,” read the majority opinion written by Justice Samuel Alito. The Guttmacher Institute estimates that 26 states are certain or likely to ban abortion as a result of the ruling, with about a dozen of them already implementing so-called trigger laws, which range from banning abortion completely to outlawing termination after six or 15 weeks.

Backdrop: Roe v. Wade effectively legalized abortion across the United States in 1973 by striking down a Texas law that only permitted abortion for the purpose of saving a woman’s life. The majority opinion at the time declared that a woman’s right to privacy under the 14th Amendment superseded a state’s right to ban abortion and the court set different rules for each trimester. In the years since, Roe has been modified but not overturned, like in the 1992 case of Planned Parenthood v. Casey. In that decision, the court said that restrictions are “unconstitutional” if they place an “undue burden” on a woman, and quickly became the new standard by which new abortion cases were judged.

There is still a lot to figure out under the new ruling, which has riled the political divide across the country. Will states restrict abortion pills, which accounted for 54% of U.S. abortions in 2020? If they do, could FDA approval of mifepristone, one of the most common pills used for medication abortions, pre-empt state restrictions? How will that impact U.S.-based telemedicine providers, or major insurers like UnitedHealth (UNH), Cigna (CI), Anthem (ANTM) and Aetna (CVS)?

Treading a fine line: Looking to avoid a public backlash, many corporations and business leaders (that are still on the job) have been sitting this one out. Similarly, many pro-choice oriented companies have instead chosen to offer their U.S.-based employees travel reimbursements for out-of-state abortions, in a show of support without touching the hot topic. Disney (DIS), JPMorgan (JPM) and Goldman Sachs (GS) have joined the list of those providing the expenses, as well as Netflix (NFLX), Meta Platforms (META) and Paramount Global (PARA). (565 comments)

Trading blame

2022 is shaping up to be the “Summer of Flight Disruption.” Chances are you have experienced delays if you’ve been to an airport recently, and that’s if you even get on a plane (cancellations have been through the roof). Recent developments have even prompted “camping out at the airport” to trend across the country, while hours-long waits for customer service have left many passengers with a sour taste of the whole traveling experience.

Go for the staycation? Things don’t look like they’ll be getting better anytime soon as airlines and the FAA point fingers at each other ahead of the busy July Fourth weekend. “The industry is actively and nimbly doing everything possible to create a positive customer experience since it is in an airline’s inherent interest to keep customers happy, so they return for future business,” Airlines for America President Nicholas Calio, which represents the largest U.S. carriers, said in a letter to Transportation Secretary Pete Buttigieg. “However, we have also observed that FAA (air traffic control) staffing challenges have led to traffic restrictions under blue sky conditions.”

“People expect when they buy an airline ticket that they’ll get where they need to go safely, efficiently, reliably and affordably,” the agency said in response. “After receiving $54B in pandemic relief to help save the airlines from mass layoffs and bankruptcy, the American people deserve to have their expectations met.” Carriers have already slashed their June-August schedules by 15% compared with their original plans, with United (NASDAQ:UAL) scrapping 50 daily flights from its hub at Newark Liberty International Airport and American Airlines (NASDAQ:AAL) cutting service to four U.S. cities.

Outlook: In truth, a combination of factors has led to severe staff shortages that have never returned from their pre-COVID levels. Demand has bounced back faster than the industry anticipated, many have found permanent jobs elsewhere and the pandemic slowed training of air traffic controllers and pilots. Routine issues like thunderstorms during the spring and summer have also continued to plague key travel routes and new hotspots like Florida along the East Coast, while COVID infections continue to sideline airline and airport employees, further frustrating travelers. (2 comments)

G7 summit

There was a lot of talk about the war in Ukraine at the latest G7 meeting in the Bavarian Alps, with Western leaders committing to provide Kyiv with “financial, humanitarian, military and diplomatic support for as long as it takes,” according to a draft statement. Members also sought a deal to impose a “price cap” on Russian oil, and some even agreed to ban Russian imports of newly mined and refined gold, which is one of the country’s top exports. The annual gathering was called the G8 prior to 2014, when Russia was expelled from the group following the annexation of Crimea.

On to infrastructure: Previously called “Build Back Better World,” or BW3, President Biden followed up on the proposal from last year’s G7 summit by launching a global infrastructure plan to counter China’s influence in the developing world. The “Partnership for Global Infrastructure and Investment” would specifically create an alternative to China’s “Belt and Road,” which has been criticized for its leverage in creating political goodwill, massive debt and a way to spread Beijing’s influence. The U.S. committed $200B in grants, federal funds and private investment to the project over the next five years, and intends to mobilize $600B from the entire G7 by 2027.

“I want to be clear. This isn’t aid or charity. It’s an investment that will deliver returns for everyone, including the American people and the people of all our nations,” Biden declared at the summit. “It will boost all of our economies and let communities from around the world see the concrete benefits of partnering with democracies.” Among the areas that will be targeted include “health, digital connectivity, gender equality, and climate and energy security.”

Response from China: “China continues to welcome all initiatives to promote global infrastructure development,” Foreign Ministry spokesman Zhao Lijian replied when asked for comment. “We believe that there is no question that various related initiatives will replace each other, [but] we are opposed to pushing forward geopolitical calculations under the pretext of infrastructure construction or smearing the Belt and Road Initiative.” (20 comments)

Today’s Economic Calendar
8:30 Durable Goods
10:00 Pending Home Sales
10:30 Dallas Fed Manufacturing Survey
11:30 Results of $46B, 2-Year FRN Auction
1:00 PM Results of $47B, 5-Year Note Auction

What else is happening…

At the weekend: ‘Elvis’ (WBD) and ‘Top Gun’ (PARA) tie for box-office crown.

Federal appeals court puts hold on FDA’s Juul (MO) ban – Reuters.

Monkeypox is not an international health emergency yet – WHO.

Frontier (ULCC) sweetens offer for Spirit (SAVE) ahead of shareholder vote.

Airbus (OTCPK:EADSY) on verge of $5.5B order from India’s Jet Airways.

Chevron (CVX) to downsize in California, move some workers to Texas.

Goldman (GS) aims to raise $2B to buy Celsius’s distressed crypto assets.

Federal gas tax holiday slammed by criticism on all sides.

U.S. keeps top credit rating at Moody’s; outlook stays at stable.

Could the shift to remote work ease pressure on inflation?


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