Good morning. Happy Friday.
The Asian/Pacific markets leaned up. South Korea, India, Taiwan and Indonesia led. Europe, Africa and the Middle East are mixed and little changed. Greece, Hungary, Austria and the Czech Republic are up; Denmark, Norway and Spain are down. Futures in the States point towards a down open for the cash market.
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The dollar is flat. Oil is up; copper is down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Jobs day
Check out original Seeking Alpha show The Weekend Bite! We are joined by Samuel Smith (High Yield Investor) and William Huston (CIO, Bay Street Capital Holdings) to discuss investing in high-yielding dividend stocks, and why William is favoring the luxury real estate market in this environment.
Investors this morning will be looking at the Labor Department’s view of how much hiring took place in June and what it says about the temperature of the overall economy. FOMC policymakers will also be watching the data, with Fed Chair Jay Powell recently calling the labor market “unsustainably high.” By tapping the economic brakes with restrictive policy, Powell hopes inflationary pressures will subside, while reducing risks of a wage-price spiral that fueled double-digit inflation in the 1970/80s. According to consensus estimates, the NFP report (released at 8:30 a.m ET) is expected to reveal 268,000 new jobs for June, down from the 390,000 jobs added in May.
Bigger picture: The CPI report has dominated non-farm payrolls over much of the past year as inflation became a much more important theme for the economy. However, with recession fears clouding the outlook and the yield curve inverting this week, the jobs report is set to regain its prominence. As markets “increasingly focus on risks of a steeper growth slowdown, employment figures will likely be the most important activity data released each month,” wrote Citi economists Veronica Clark and Andrew Hollenhorst.
Other important items in the report will include the unemployment rate, which likely remained unchanged at 3.6%, and average hourly earnings, which are expected to gain 0.3%. Many are also hoping to get greater clarity following a mixed bag of recent employment data that saw 32,500 job cuts announced in June, up from 20,700 in the previous month. At the same time, businesses are scrambling for workers, with 11.3M job openings at the end of May, translating into 1.9 available jobs for every unemployed person.
Staying hawkish: “It’s very, very difficult to get a recession with so many job openings,” noted Jonathan Golub, chief U.S. equity strategist at Credit Suisse. “In reality, a recession, more than anything else, is a collapse in the labor market, a spike in the unemployment rate, and right now, we’re not seeing anything that looks like that at all.” That means the Fed is likely to tighten policy by another 75 basis points this month – barring a really bad NFP number – which could push it to lean towards a 50 bps hike instead.
Abe assassination
Japan’s former prime minister, 67-year-old Shinzo Abe, has died after being shot at a campaign event in the city of Nara. Abe was at the political gathering to give his support for his former party, the Liberal Democratic Party, with upper house elections in Japan due to take place on Sunday. A 41-year-old man who lives in the Nara is in police custody following the assassination, and local media reports suggested he had disagreements with Abe’s policies and decided to attack him.
Snapshot: Abe remained a powerful figure in Japan despite stepping down from the prime minister post in 2020 for health reasons. Not only was he the longest-serving prime minister, in 2006 and then again from 2012 to 2020, but he comes from a political family with his grandfather serving as prime minister and father holding office as a senior politician. World leaders issued their condolences overnight, with U.S. Secretary of State Antony Blinken saying he was “deeply saddened” on the sidelines of G20 meetings in Bali.
Prior to his death, Abe wielded a lot of influence over the current administration, with the most recent example emerging following Russia’s invasion of Ukraine. Shortly after Abe came out and announced that Japan needs to increase its military spending, current Prime Minister Fumio Kishida began to echo those calls. Kishida has also been working with the U.S. and its allies to put pressure on Russia, building on Abe’s push to scrap Japan’s pacifist constitution that has been in place since WWII.
Abenomics: On the economic front, Abe was best known for his efforts to revive Japan’s economic growth through a range of hyper-easy monetary policy, fiscal spending and structural reforms. While the strategy aimed to boost productivity and lower the nation’s debt over the long term, economists have recorded mixed results for the world’s third-largest economy. Abenomics largely stayed in place after Abe stepped down and even after other central banks started raising interest rates this year to stem soaring inflation. (9 comments)
Looking for a deal
Twitter (TWTR) shares fell as much as 7% AH on Thursday, following a Washington Post report that said Elon Musk’s $44B deal to acquire the social network is in “serious jeopardy.” The deal is on the rocks due to Musk’s skepticism over the prevalence of spam accounts on the platform and he is expected to take “potentially drastic action” at this point in the process. Twitter has repeatedly said that bots represent less than 5% of its total user base, but the Tesla (TSLA) CEO has complained that the number is much higher.
Bigger picture: Musk’s team has even stopped engaging in certain discussions around funding the deal, including with one likely backer. The moves could potentially trigger a heated legal battle as Musk committed himself to buy the company at $54.20 per share (with the stock is now trading around $37). “It’s fairly obvious that Musk has buyer’s remorse and he is trying whatever to get a reduction in price, and I think he may succeed,” noted Dennis Dick, a prop trader at Bright Trading.
From a legal perspective, the only way Musk could abandon the deal is a refusal from the banks to provide financing or regulators block the transaction. Lawyers could be trying to link the bots issue to Musk’s ability to secure financing, allowing him to walk away by paying a $1B breakup fee. However, Twitter’s disclaimers used in its projections on spam accounts and a “specific performance” clause could give it protection against potential lawsuits, and Musk would have to prove that he was willfully misled (which is a high legal threshold).
Outlook: Twitter intends to enforce the merger pact on the agreed-upon terms, but could renegotiate if it sees a protracted legal battle, or maneuvering for Musk to wiggle out of a deal. If that were to happen, Twitter shares could sink further and make it an even more interesting case as Musk didn’t want to do any extensive due diligence when abruptly announcing the deal back in April. Twitter shareholders are not the only ones watching the show as Tesla investors also have an indirect financial interest in the outcome of the corporate drama. (169 comments)
Found guilty
Former Theranos (THERA) president Ramesh “Sunny” Balwani has been convicted of fraud, in connection with his role at the disgraced blood testing startup founded by his former girlfriend Elizabeth Holmes. He was found guilty on all 12 criminal charges, including counts against both patients and investors, compared to four counts of wire fraud in the verdict for Holmes. The two will be sentenced in the fall, though legal experts expect them to appeal their convictions, sentences, or both.
Backdrop: The two Silicon Valley execs claimed that Theranos had developed a device that could test a single drop of human blood for multiple diseases at once, but the product didn’t actually work, and “misleading results” were eventually run on conventional equipment. At its peak, Theranos was valued at over $9B, with Holmes and Balwani’s stake worth $4.5B and $500M, respectively. The scheme also bilked nearly $1B from funders like Oracle’s Larry Ellison, media mogul Rupert Murdoch and Walmart’s Walton family, before the investments were completely wiped out.
Following the collapse, a debate ensued over the due diligence of high-profile backers, as well as Silicon Valley’s “fake-it-until-you-make-it” culture. “I don’t think a verdict is going to change the way founders and VCs work in the ecosystem,” noted Angela Lee, a professor who teaches venture capital at Columbia Business School and runs an investment network called 37 Angels. “I can’t tell you how many times I hear, ‘So-and-so is in this deal, they’re a name-brand VC, you have five days – are you in or are you out?”
Go deeper: Holmes and Balwani face a maximum sentence of 20 years in prison and a fine of $250,000 plus restitution for each count. Balwani’s conviction might also impact the sentencing of Holmes, who is 38-years-old and had a baby last year, but is being sentenced for near-identical crimes. “If [the judge] gives her a big break, he is going to think, how will it look if he sentences Balwani differently,” said Andrey Spektor, a defense attorney and former federal prosecutor in the Eastern District of New York. (2 comments)
Today’s Economic Calendar
8:30 Non-farm payrolls
8:30 Fed’s Williams Speech
10:00 Wholesale Inventories (Preliminary)
11:00 Fed’s Williams: U.S. Monetary Policy
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit
What else is happening…
Spirit (SAVE) said to postpone Frontier (ULCC) shareholder vote again.
Levi Strauss (LEVI) shakes off inflation backdrop to post strong quarter.
Buffett backs up the truck with 12M more Occidental (OXY) shares.
Fire out after Energy Transfer (ET) pipeline explosion in Texas.
On the move: AMC Entertainment (AMC) CEO tweets on short ‘pounce.’
GameStop (GME) fires CFO and announces layoffs in aggressive turnaround.
Trump reportedly removed himself from DWAC board before subpoenas.
Chinese tech giants pop with $220B stimulus under consideration.
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Good morning. Happy Thursday.
The Asian/Pacific markets did great. Japan, China, South Korea, India, Taiwan, Australia, Singapore and Thailand rallied more than 1%. Only the Philippines dropped much. Europe, Africa and the Middle East are currently posting solid gains. The UK, Poland, France, Germany, Greece, South Africa, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Israel, Austria and Sweden are up 1% or more. Futures in the States point towards a positive open for the cash market.
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The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are down.
Stories/News from Seeking Alpha…
Calls to quit
Following a wave of resignations from ministers in his government and a call from key allies to step down, U.K. Prime Minister Boris Johnson is set to resign this morning. Sterling regained some lost ground on the reports, with traders pricing in an end to the chaotic situation on Downing Street. On Wednesday, Johnson saw more resignations from his Conservative government in one day than any other prime minister in history, but was defiant and stressed his intention to stay on as leader as of late last night.
Commentary: “The U.K. political soap opera doesn’t matter much for sterling unless it opens a door to easier fiscal policy (sterling-positive) and allows a more constructive approach to trade relations,” wrote Kit Juckes, chief FX strategist at Societe Generale.
Johnson has faced increasing pressure to resign after a series of scandals, including “Partygate” and allegations of misleading the public over the appointment of former deputy chief whip Chris Pincher. The momentum to oust Johnson grew with the resignations of Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid on Tuesday, but quickly escalated into a full scale party mutiny. Nadhim Zahawi, who was appointed as Sunak’s successor, even issued a letter this morning saying the prime minister must go following an announcement last night that he and Johnson would detail a plan to combat economic problems in the U.K.
What’s next? A Tory leadership contest will now ensue, with bookmaker William Hill putting Sunak as the favorite at odds of 4-1. The new prime minister will have to contend with a troubled economy, with persistently high inflation that reached 9.1% in May. A spike in energy costs from the war in Ukraine is plaguing many industries, while the country is still dealing with the full impacts of Brexit more than two years after leaving the European Union. (58 comments)
Inflation or growth?
U.S. equity indices finished Wednesday’s session with modest gains, as Wall Street reacted positively to details about the Feds strategy to contain inflation. Investors cheered signs that the central bank was committed to preventing price pressures from becoming entrenched, even if that came at a cost of slowing the U.S. economy. Seven of the 11 S&P sectors finished the session higher, but “Utilities” was the only one to post a gain of as high as 1%, as fears of recession continue to linger in the background.
The minutes: FOMC policymakers judged that an increase of 50 or 75 basis points “would likely be appropriate at the next meeting” given the current economic outlook. They also “recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.” With the potential for the firmer policy to slow growth, Fed officials also removed language from the June policy statement that “indicated an expectation that appropriate policy would result in a return of inflation to 2% and a strong labor market.”
There was also discussion on steps to shrink the central bank’s balance sheet, a strategy known as quantitative tightening. The FOMC projected that net income in its System Open Market Account would decline or potentially turn negative as the increased rate target range lifted interest expenses on some liabilities. “This eventually could result in a deferred asset entry” on the balance sheet, but neither unrealized losses on its existing securities portfolio or negative net income would result in changes to monetary policy implementation.
Commentary: ING expected the Fed to retain its hawkish stance, with tomorrow’s nonfarm-payrolls becoming the next major data point in determining how stridently policymakers will rachet up rates at upcoming meetings. “In fact we even expect a 75 bps hike in July, barring a sharp weakening in employment indicators in this Friday’s report,” ING wrote in a note. “If Powell’s recent remarks are anything to go by, the tone of the FOMC minutes will cause cognitive dissonance, with markets now openly questioning how far and how long the Fed can tighten policy before having to reverse course.” (57 comments)
Merck-Seagen
M&A hasn’t been so hot recently with dealmakers and companies getting nervous about a coming recession. Kohl’s (KSS) just called off its sale to Franchise Group (FRG) following months of negotiations, while Walgreens Boots Alliance (WBA) scrapped plans to sell U.K. pharmacy chain Boots. Rising borrowings haven’t helped the situation by making financing more expensive, while a downturn in equity markets have hurt company valuations.
Still on the hunt: Reports suggest that Merck (MRK) is in advanced discussions to acquire Seagen (SGEN) and is hoping to finalize an agreement to buy the cancer-focused biotech in the next few weeks. A potential deal could be worth about $40B or more, though there is still uncertainty about whether the companies will reach an agreement. Shares of Seagen (SGEN) already spiked when news of the potential takeover interest from Merck (MRK) first surfaced in June, but the advanced talks boosted the stock by another 5% premarket.
A deal would broaden Merck’s lineup of cancer drugs, which is currently being led by blockbuster immunotherapy Keytruda. The treatment brought in $17.2B in sales last year, but analysts see Keytruda sales approaching 40% of Merck’s revenue in 2027 and losing its patent protection in late 2028. Products from Seagen could help diversify things, including Adcetris, which helps treat adults with certain lymphomas, and Padcev, a drug for urothelial cancers of the bladder and other organs.
Outlook: Even if it goes through, the transaction is expected to face heightened regulatory scrutiny, with BMO Capital and Cowen seeing “a high likelihood” of litigation from the Justice Department or Federal Trade Commission. (12 comments)
Chinese dominance
Many in the West are fearful of losing a global technology race to Chinese dominance, especially with regards to the transition to cleaner energy. The International Energy Agency was the latest to warn about the consequences in a special report on the solar sector, a key element in plans for the world to reach net zero emissions by 2050. In fact, China’s share in all the manufacturing stages of solar panels currently exceeds 80%, and for key elements including polysilicon and wafers, it is set to rise to more than 95% in the coming years.
Quote: “The world will almost completely rely on China for the supply of key building blocks for solar panel production through 2025,” the agency wrote in the report. “This level of concentration in any global supply chain would represent a considerable vulnerability.”
It’s not the only area of concern. China’s BYD (OTCPK:BYDDY) just dethroned Tesla (TSLA) as the world’s biggest electric vehicle maker and surpassed South Korea’s LG as the planet’s second-largest producer of EV batteries. The development comes as much of the West rolls out policies to convert their ICE fleets to EVs in the near future, but those initiatives will depend on raw materials processing that are highly concentrated in Asia. China’s market share for battery components even climbed from 43% in 2014 to 60% in 2020 due to tight control of critical elements like lithium, nickel, cobalt and palladium.
Go deeper: The worries aren’t limited to the energy landscape of the future. The war in Ukraine has seen power prices in Europe soar to record highs this week as the effects of Russia’s gas supply cuts ripple through the continent. German power, the European benchmark, rose to a record of €337/MWh ($343.25), while French prices neared an all-time high of €398, triggering real fears for manufacturing and heavy industry. The U.S. is also discussing price caps on Russian oil and gas with its allies, but the concept would need to garner widespread adoption to be effective, while Vladimir Putin could cut supplies even further if he felt that Moscow was being threatened. (17 comments)
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 Initial Jobless Claims
8:30 Goods and Services Trade
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
1:00 PM Fed’s Waller: U.S. Economy and Monetary Policy
1:00 PM Fed’s Bullard: U.S. Economy and Monetary Policy
4:30 PM Fed Balance Sheet
What else is happening…
U.S. job openings fall in May, but remain relatively high at 11.3M.
Intel (INTC) officially acquires land for Ohio semiconductor fab.
U.S. weighs capping Russian oil at $40-$60 to cut war financing.
Apple (AAPL) ‘Lockdown Mode’ will protect devices from state hackers.
BioNTech (BNTX) threatens CureVac (CVAC) with action over vaccine IP.
Meme-stock GameStop (GME) gains after setting four-for-one stock split.
Netflix (NFLX) plans ‘Stranger Things’ spinoff following viewing record.
Rivian Automotive (RIVN) rallies after releasing Q2 production tally.
Virgin Galactic (SPCE) partners with Boeing (BA) to build motherships.
American Air (AAL) averts cancellation crisis after glitch drops 12K flights.
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Good morning. Happy Wednesday.
The Asian/Pacific markets leaned down. India, New Zealand and the Philippines did well while Japan, China, Hong Kong, South Korea, Taiwan, Malaysia and Indonesia. Europe, Africa and the Middle East are currently doing very well. The UK, Poland, France, Germany, Greece, South Africa, Finland, Switzerland, the Netherlands and Sweden are up 1% or more. Futures in the States point towards a slight down open for the cash market.
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The dollar is up. Oil is up; copper is down. Gold is down; silver is up. Bonds are up.
Stories/News from Seeking Alpha…
Slippery when upset
Just hours after telling an energy summit in Abuja that the oil industry was “under siege” from years of under-investment, OPEC’s Secretary-General Mohammad Barkindo has died at the age of 63. Barkindo had served in the role since 2016, though his passing isn’t likely to shake the turbulent oil too hard, as he was due to step down at the end of this month. Recession fears slammed oil prices on Tuesday, with crude tumbling 8% to under $100 a barrel as investors fretted over a soaring dollar and a downturn that could slam demand.
Snapshot: OPEC’s Secretary-General is in constant contact with international bodies, and convenes the group’s meetings, which used to happen twice a year, but now includes almost monthly extraordinary sessions. Haitham al-Ghais, an oil industry veteran and former Kuwaiti governor to OPEC, is due to succeed Barkindo, who is credited with guiding unity among the group’s members. Barkindo was specifically involve in clinching a deal with non-OPEC, energizing the group by bringing Russia and other key producers on board for a series of production cuts since 2017. That agreement shored up the market following the supply glut and oil plunge of 2014-16, while he also kept the alliance together through the coronavirus pandemic, when the price of oil crashed and even briefly went negative.
That doesn’t mean there hasn’t been criticism. Besides the war in Ukraine, the U.S. and other countries have accused OPEC for creating “artificial tightness” in global energy markets, with Washington coordinating a release from the Strategic Petroleum Reserve and taking other measures after OPEC refused to aggressively boost output. For their part, big producers like the Saudis and UAE have said that they are near maximum production capacity, while worsening political crises in Libya and Ecuador have made it challenging for the group to cover its quotas.
Price movement: Energy stocks slid with the price of oil yesterday as S&P 500’s energy sector ended the session down 4%. The biggest losers included Halliburton (HAL), APA Corp. (APA) and ConocoPhillips (COP), which fell 8.1%, 7.6% and 7%, respectively. Oil forecasts for the rest of the year are all over the place, with Goldman Sachs still calling for crude to hit $140 or more, while Citi sees prices falling to $65/bbl if the economy tips into recession. (4 comments)
FOMC minutes
Three weeks ago, the Federal Reserve’s Federal Open Market Committee made news when it announced its biggest rate hike since 1994, in an effort to show markets that it’s serious about taming inflation. Today, the central bank will release the minutes from the June 14-15 policy meeting, giving investors a window into the FOMC’s decision-making process. The details could provide more clues on how the Fed made its decision to go with the three-quarters of a percentage point increase, triple its standard 25-bps increase, and if it will go for another at the end of July.
Bigger picture: The Fed’s policy rate is important because it works its way through the financial system to increase interest rates for everything from credit card rates to mortgages. With higher interest rates, consumers and businesses alike will be more cautious about taking on debt, which is likely to temper demand and reduce inflation. It’s also important to note that the minutes will only reflect Fed officials’ thinking from three weeks ago, and doesn’t take into account data that has been released since then or other market trends, like the latest yield curve inversion that happened on Tuesday.
What we know: Besides the May inflation CPI, showing headline inflation had surged 8.6% Y/Y, consumer sentiment figured into the Fed’s calculus to go with 75 bps. Specifically, the University of Michigan’s Consumer Sentiment reading indicated rising long-term inflation expectations, according to Fed Chair Jerome Powell, increasing the possibility of a wage-price spiral. Kansas City Fed President Esther George was also the only official to vote for a 50-bps hike, though the minutes will show if there were others who voiced the opinion but eventually voted for the 75-bps increase.
What we don’t know: a) If any official argued for selling securities from the Fed’s balance sheet (a move that would allow it to tighten policy further without the need for larger rate hikes), b) Which risks policymakers are most worried about and how confident they feel about achieving a soft landing (the market is concerned the U.S. economy is heading for a recession), c) If FOMC members are arguing to ease up on subsequent hikes (the CME’s FedWatch tool now assigns an 85.6% probability for a 75-bps rate hike in July). (2 comments)
Dethroned
Tesla (TSLA) is no longer the world’s biggest electric vehicle maker as the EV pioneer takes a backseat to BYD (OTCPK:BYDDY). The Chinese automaker, which is backed by Warren Buffett, sold 641,350 new energy vehicles in the first six months of 2022, representing a 315% increase from the same period last year. Tesla, on the other hand, only delivered a total of 564,743 vehicles in H1 as it contended with supply chain problems, factory lockdowns and sales disruptions in China.
Fine print: BYD’s figures include electric and plug-in hybrid vehicles, while Tesla’s only include battery electric cars (it doesn’t produce a hybrid). The numbers still highlight the trajectory of BYD’s growth, compared to the Elon Musk-run company, which just snapped a two-year streak as deliveries fell 18% last quarter. The developments have also been highlighted in their stock prices, with shares of BYD climbing 15% since the start of the year and Tesla tumbling 42% YTD.
“The performance looks impressive,” said Jeff Chung, an auto analyst with Citi, referring to BYD’s sales growth. The firm has also surpassed South Korea’s LG as the world’s second-largest producer of EV batteries, behind industry leader Contemporary Amperex Technology, known as CATL.
Go deeper: While BYD is also located in China, the carmaker has weathered regional coronavirus lockdowns much better than Tesla. That’s because its factories are largely based away from COVID hotspots like Shanghai, which is the location of Tesla’s Gigafactory 3. The facility accounted for half of Tesla’s global production in 2021, but was shut for 22 days in May and has since struggled to reach pre-pandemic levels due to ongoing parts shortages. (27 comments)
Currency watch
Sterling went on a bit of a ride yesterday, falling to a two-year low against the dollar before rebounding. The movement came alongside a fresh crisis for British Prime Minister Boris Johnson’s government, and put further pressure on a currency already hit by recession fears and a strong greenback. Chancellor of the Exchequer Rishi Sunak and Health Secretary Sajid Javid tendered their resignations within minutes of one another, presenting a serious challenge to Johnson’s ability to hold on to power.
What happened? Both lawmakers are concerned that the U.K. prime minister is leading the country in the wrong direction, especially with regards to the economy and fiscal conservatism. Sunak has been prepared to put up taxes to balance the books of government, compared to Johnson, who is eager to start tax cuts. The risk of Sunak’s point of view is if the government were to slash taxes in the middle of an inflation crisis, the economy can end up in an even worse situation.
Several other Tory lawmakers also made public statements last night, including junior ministers who said they could no longer stay in government due to a series of scandals that have plagued the administration. Johnson still showed determination to hang on to power by appointing Nadhim Zahawi – previously education minister – to the post of Chancellor of the Exchequer (finance minister), as well as filling other vacancies. Remember, Johnson already survived a confidence vote a month ago, and while party rules mean he cannot face another such challenge for a year, some lawmakers are seeking to change those policies.
Coming up: Divisions will be laid bare today as Johnson appears for his weekly question session in the House of Commons, followed by a two-hour grilling in front of senior MPs of the so-called Liaison Committee. He is already under investigation over lying about COVID lockdown breaches, in a scandal known as partygate, and recently attempted to rewrite Brexit and trade in Northern Ireland.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
9:00 Fed’s Williams Speech
9:45 PMI Composite Final
10:00 ISM Service Index
10:00 Job Openings and Labor Turnover Survey
2:00 PM FOMC Minutes
What else is happening…
Commodities rout hits U.S. grain futures as recession fears ramp up.
‘Minions’ prequel sets July 4 record with $125.2M in home ticket sales.
FDA allows Juul to continue selling products while ban is appealed.
No rival offer to Broadcom (AVGO) during VMware’s (VMW) go-shop period.
Roblox (RBLX) surges to double-digit gain alongside retail chatter.
Sonic toothbrush maker Brüush (BRSH) files for proposed U.S. IPO.
Rocket Lab (RKLB) to launch missions for National Reconnaissance Office.
HIVE Blockchain (HIVE) receives notice of deficiency from NASDAQ.
Embattled Crypto broker Voyager Digital (OTCQX:VYGVF) files for bankruptcy.
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Good morning. Happy Tuesday. Hope you had a good weekend.
The Asian/Pacific markets did well. Japan, South Korea, Taiwan, New Zealand, Indonesia and the Philippines rallied more than 1%. Thailand was weak. Europe, Africa and the Middle East are currently down big. The UK, Denmark, Poland, France, Germany, Greece, South Africa, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Austria nd Sweden are suffering big losses. Futures in the States point towards a relatively big gap down open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up slightly. Oil is up; copper is down. Gold is down; silver is flat. Bonds are up.
Stories/News from Seeking Alpha…
Clouds on the horizon
Stormy predictions are making waves as the market heads into the second half of 2022, with all in agreement that inflation must be brought under control and supply shocks have to come to an end before things can turn around. “We can’t afford to be fooled again on this, or else it’s going to get beyond us,” Chicago Fed President Charles Evans warned last month, fearing dreaded inflation expectations that could make it even harder to bring down prices. While a recent decline in commodities has provided slight optimism, the central bank’s monetary policy will feed directly into investing sentiment over the next six months, as well as the potential for a damaging recession.
Quote: “The good news is that H1 is now over, the bad news is that the outlook for H2 is not looking good,” wrote Jim Reid, global head of credit strategy at Deutsche Bank. “Many of the tailwinds for investment markets are now becoming headwinds. That points to a phase of ongoing market turbulence,” added Joe Little, chief strategist at HSBC. “Investors will need to be realistic about return expectations, and they will need to think harder about diversification and portfolio resilience.”
On the economic calendar this week are minutes from the Fed’s June policy meeting tomorrow and the release of the closely-watched jobs report on Friday. Investors are already on edge following last week’s warning from Facebook-parent Meta (META), which slashed engineering hiring to prepare for “one of the worst downturns that we’ve seen in recent history.” Meanwhile, the Atlanta Fed’s GDPNow forecast for Q2 is now pegged at -2.1%, setting up the perfect storm. It was only four days ago that the GDP tracker predicted a negative print, falling precipitously from an estimate of 2.5% growth in mid-May that flatlined by mid-June.
Tropical depression turned hurricane? “That brings us to the final question: Will equity markets rebound from the current bear market (a decline of at least 20% from the last peak), or will they plunge even lower? Most likely, they will plunge lower,” wrote Nouriel Roubini, professor emeritus of economics at NYU’s Stern School of Business. “After all, in typical plain-vanilla recessions, U.S. and global equities tend to fall by about 35%. But, because the next recession will be both stagflationary and accompanied by a financial crisis, the crash in equity markets could be closer to 50%.” (15 comments)
Fears mount
Trouble is brewing in Europe, where the euro just hit its lowest level against the dollar since 2002. Traders are gauging the amount of hiking the ECB will be able to pull off, given growing fears of a recession that could compound problems resulting from the war in Ukraine. That would translate into a tougher time matching U.S. interest rate hikes, on top of risk-averse investors that continue to pile into the safe-haven greenback (the dollar is up 9% vs. the euro since the start of the year).
Bigger picture: “The question of how the ECB will deal with a potential widening in spreads is set to come increasingly to the fore as they almost certainly embark on their first hiking cycle in over a decade this month,” noted Deutsche Bank’s Jim Reid. “And yesterday we heard some further comments from ECB officials on that hiking cycle, with Estonia’s Muller pushing back against the calls from others to start with a 50bps hike, saying that it was appropriate to begin with a 25bps move in July, and then 50bps in September as they’ve signaled.”
On the geopolitical front, Russia next week will shut down the Nord Stream 1 pipeline for summer maintenance activities, but many regulators and analysts fear the EU’s biggest piece of gas import infrastructure won’t be turned back on. Shares of Uniper (OTC:UNPRF) plunged 28% in Germany on Monday following reports that the gas giant was talking to the government over a potential bailout package worth as much as €9B. Many companies are buckling under the cost of soaring prices for natural gas imports, and crunches could trigger a collapse in the eurozone market.
Across the channel: The Bank of England also sounded the alarm in its latest financial stability assessment published this morning, warning that the outlook for the economy has “deteriorated materially” and is “very uncertain.” “Given this, we expect households to become more stretched in the coming months,” according to the report. “They will also be more vulnerable to further shocks.” (3 comments)
Tariff talk
Chinese tariff relief appears to be back on the table at the White House as the Biden administration continues to confront red-hot inflation readings. At a basic level, some economists have found that Chinese exporters generally didn’t lower prices to keep their goods competitive, meaning U.S. importers passed the duties on to American consumers. Others say the move would not target inflation at its core (tariffs have been around since 2018) and would do little while rewarding an authoritarian government.
Snapshot: Reports suggest that a tariff rollback could come this week, though a decision isn’t final and any announcement could be postponed. Possible steps include lowering duties on several categories of consumer goods, ranging from clothing to school supplies. A broad framework to allow importers to request tariff waivers could also be launched, as well as a fresh probe under Section 301 of the Trade Act focused on China’s industrial subsidies.
Any easing would coincide with the end of a comment period for businesses that have benefited from the levies. The U.S. Trade Representative, which is conducting a mandatory four-year review of the Trump-era tariffs, collected industry feedback on the first batch of Chinese industrial imports valued at $34B from May 7 until July 5, while a second round covering $16B in imports will be compiled from June 24 to August 22. “The first step in the process is notifying representatives of domestic industries which benefit from the trade actions, as modified, of the possible termination of the actions, and of the opportunity for these representatives to request continuation of the actions,” according to a notice in the Federal Register.
Thought bubble: The Biden administration has been divided over the matter, with Treasury Secretary Janet Yellen calling for the reduction of “unnecessary burdens,” and the USTR’s Katherine Tai and NSA’s Jake Sullivan viewing tariffs as economic leverage to get concessions out of Beijing. “From the domestic political perspective, there are two very strong, competing concerns. One is the need to be perceived as fighting inflation. And the other is the need to be seen to be very strong in standing up to China,” explained Claire Reade, former Chief Counsel for China Trade Enforcement. “The question is how do you take all of these divergent concerns and harmonize them into one policy?” (10 comments)
Bezos vs. Biden
Speaking of inflation, another Twitter feud erupted over the weekend between the White House and Jeff Bezos, who is increasingly becoming vocal on social media (shades of Musk?). The Amazon (AMZN) founder already criticized the Biden administration for rising price pressures back in May, saying the failed “Build Back Better” bill and proposed $3.5T to federal spending would have only exacerbated the current inflationary environment. Bezos has also taken issue with claims that “wealthy companies do not pay enough in tax,” and is likely upset at Biden’s support for organized labor given recent unionization efforts at Amazon that have been building since he took office.
The latest: “My message to the companies running gas stations and setting prices at the pump is simple: this is a time of war and global peril. Bring down the price you are charging at the pump to reflect the cost you’re paying for the product,” President Biden tweeted on Saturday, before Bezos took to Twitter with a response. “Ouch. Inflation is far too important a problem for the White House to keep making statements like this. It’s either straight ahead misdirection or a deep misunderstanding of basic market dynamics.”
“Oil prices have dropped by about $15 over the past month, but prices at the pump have barely come down. That’s not “basic market dynamics.” It’s a market that is failing the American consumer,” White House Press Secretary Karine Jean-Pierre wrote, wading into the tussle. “But I guess it’s not surprising that you think oil and gas companies using market power to reap record profits at the expense of the American people is the way our economy is supposed to work.” According to AAA, the price for a gallon of regular gas now averages $4.80 nationwide, around $1.70 higher than a year ago, but down 4% from the record high of $5.02/gallon seen on June 14.
Go deeper: Pump prices can vary tremendously by location, and currently span several dollars even based on the state due to taxes and fees. Some point out that gas station operators have very small profit margins on their gas (making the bulk of their money from in-store purchases), though refiners and oil-and-gas companies can have influence on those final prices. Looking to alleviate pain for U.S. drivers and the economy, the Biden administration has already tapped the U.S. Strategic Petroleum Reserve and is seeking to enact a federal gas tax holiday. It has also lobbied the G7 to impose a cap on Russian oil exports, tried to increase the global production of OPEC producers and just proposed a drilling plan that could allow limited leasing off Alaska and in the Gulf of Mexico. (143 comments)
Today’s Economic Calendar
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12:30 PM Investor Movement Index
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