Good morning. Happy Friday.
The Asian/Pacific markets leaned up. India, Malaysia and Singapore led while South Korea was weak. Europe, Africa and the Middle East are doing well. Denmark, Poland, Turkey, Russia, Greece, Norway and Sweden are up 1% or more. Only Finland is down much. Futures in the States point towards a flat open for the cash market.
————— BLOG: Stan Weinstein’s Stage Analysis —————
The dollar is unchanged. Oil is down; copper is up. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
The rate hike club
A big central bank meeting is on tap in Europe as inflation roils the continent and the euro remains on the backfoot. The ECB has been hesitant to get too aggressive on the monetary policy front – especially in comparison to the Federal Reserve – fearing a looming recession that was exacerbated by Russia’s invasion of Ukraine. That stance may be changing, however, as the bloc clearly sees Moscow in the driver’s seat in terms of natural gas supplies and even higher energy prices that could put it further behind the inflation curve.
Bigger picture: While the Fed began its latest rate hike cycle back in March, the ECB has yet to raise rates as it sought to prioritize economic growth. In fact, the last time the central bank raised rates was in 2011, in the aftermath of the European debt crisis. Over the past few months, the ECB warmed to the idea by telegraphing a 25 basis point hike, though a bigger 50 bps move has not been ruled out (and would be seen as a very hawkish signal by the markets).
Unlike the U.S., which makes up one large jurisdiction, the ECB’s decision today will reverberate through 27 different member states and their economies. That could expose more indebted countries like Italy to financial trouble and weigh on peripheral bond yields as a whole. The situation remains even more precarious on word that Italian Prime Minister Mario Draghi (a former ECB president) would resign, prompting Italy’s 10-year government bond yield to jump above 3.5% and the iShares MSCI Italy ETF (NYSEARCA:EWI) to slide 4.2% during yesterday’s session.
Anti-fragmentation tool: Seeking to limit the spreads between yields across the eurozone, the ECB is also poised to unveil a new stimulus plan during today’s meeting. Investors will be paying close attention to the details of the new bond-purchase program, including what assets policymakers are considering buying and under what circumstances. “While ECB President [Christine] Lagarde is likely to stress the temporary nature of the instrument – owing to the exceptional circumstances the euro area finds itself in – she will also underline the ECB’s determination to secure the integrity of the monetary union, thereby trying to evoke a ‘whatever it takes’ spirit,” wrote Dirk Schumacher, head of European macro research at Natixis. (5 comments)
Musk takes the mic
Tesla (TSLA) weaved in and out of traffic in after-hours trading on Wednesday, ultimately settling up 1.5% at $753/share. The electric vehicle maker posted stronger than expected financials, with adjusted EPS of $2.27 (+57% Y/Y) on revenue of $16.9B (+42% Y/Y). The strong bottom line figure appeared to put to rest some concerns about the “gigantic money furnace” gigafactories in Austin and Berlin, while free cash flow rose above estimates at $619M (vs. consensus forecasts of $500M).
Changing lanes: While prices for Tesla cars are up 25% to 30% from a year ago, the firm’s automotive margins compressed to 27.9% in Q2. The margins also fell below the 32.9% number that impressed in the first quarter, and 28.4% notched in 2021. The EV maker previously reported a disappointing quarterly delivery figure of 254,695 vehicles and is facing headwinds that include higher raw material and logistics costs.
“We’ve raised our prices quite a few times. They’re frankly at embarrassing levels. But we’ve also had a lot of supply chain and production shocks, and we’ve got crazy inflation,” Elon Musk announced on a conference call. Tesla will also have to jack up production by 70% in the second half of 2022 to meet its annual delivery goal of 1.5M vehicles in the face of China’s zero-COVID strategy and supply chain crises impacting all automakers. Musk didn’t give a production forecast for the rest of the year, but he said the company was likely to achieve “record” output.
HODLer? Tesla sold 75% of its Bitcoin (BTC-USD) stake to maximize liquidity given the COVID situation in China, though Musk related that it shouldn’t be taken as “some verdict on crypto.” Total sales of the cryptocurrency amounted to $936M, prompting Bitcoin to retreat below $24K following a big rally earlier in the week. “The Bitcoin losses point out an important part of the Tesla investment case – its eccentric owner,” noted Laura Hoy, analyst at Hargreaves Lansdown. “While Musk’s impressive innovation has served the company well, his personal flair is starting to raise governance questions.” (160 comments)
The housing story
The overheated U.S. housing market is starting to cool down in what some in the industry are calling a real estate shakeout. Sales of previously owned homes fell 5.4% M/M in June to 5.12M units, according to the National Association of Realtors, and were 14.2% lower when compared to the same month a year ago. At those levels, sales fell to their slowest pace since June 2020, when buying activity dropped briefly at the start of coronavirus pandemic.
Bigger picture: Surging inflation is hammering potential buyers’ purchasing power and rising interest rates aren’t helping the situation. In fact, mortgage applications fell to a 22-year low last week, with the 30-year mortgage rate rising to 5.82% (compared to 3% at the start of the year). At the same time, the median existing-home price of all housing types climbed to $416K in June, from $407K in May (and surging from $285K just two years ago).
“It is clearly due to the plunging affordability,” explained National Association of Realtors Chief Economist Lawrence Yun. “We have never seen mortgage rates shoot up this fast at this magnitude. Even people who want to buy, they are priced out.”
Future construction: Single-family housing starts came in at a two-year low in June, down nearly 8% for the month and about 16% lower Y/Y. Things didn’t look any better in terms of single-family permits, which were off by similar percentages. That sentiment is being displayed in the markets, with the SPDR Homebuilders ETF (XHB) sliding 28% YTD, and the latest snapshot of the industry will come today as D.R. Horton (DHR) kicks off the big builder earnings reports.
Emergency or not?
President Biden unveiled a series of executive actions yesterday aimed at fighting climate change, but the announcements fell short of issuing a formal climate emergency declaration sought by some Democrats. “Let me be clear: Climate change is an emergency,” he said at a former coal-fired power plant in Massachusetts. “In the coming weeks, I’m going to use the power I have as president to turn these words into formal, official government actions through the appropriate proclamations and regulatory power that a president possesses.”
Snapshot: The latest steps were declared after Biden’s aggressive climate agenda unraveled in Congress, with Senator Joe Manchin saying he would not support major environmental provisions in the budget reconciliation bill. That effectively doomed Biden’s Build Back Better Act, which hoped to invest more than $500B in new programs to cut emissions in support of new technologies like EVs. It has also put a spotlight on solar and wind stocks, as well as other industries in the renewable energy sector.
“The U.N.’s leading international climate scientists called the latest climate report nothing less than, quote, ‘code red for humanity,'” Biden continued. “It’s not a group of political official – elected officials. These are the scientists… Our national security is at stake as well. Extreme weather is already damaging our military installations here in the states, and our economy is at risk, so we have to act.”
Initiatives: For now, Biden directed the Interior Department to propose new offshore wind areas in the Gulf of Mexico, and advance wind energy development in the waters off the mid and southern Atlantic Coast. He also unveiled $2.3B in funding for a FEMA program to help communities prepare for disasters by expanding flood control and retrofitting buildings. New guidance was issued for helping low-income families pay for heating and cooling costs, while additional actions will be announced in the “coming weeks.”
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening…
United Airlines (UAL) turns a profit in Q2, but misses expectations.
Ford (F) plans up to 8,000 job cuts to help fund EV investment.
GameStop (GME) is outpacing Coinbase (COIN) on NFT volume.
Robinhood behind a mystery surge in Berkshire A share (BRK.A) trading.
Cathie Wood closes the doors on its ARK Transparency ETF CTRU.
Natural gas gains 10% to $8/MMBtu as heatwave batters the U.S.
Abbott (ABT) ups guidance with COVID-19 testing sales driving Q2 beat.
Sign of the times? Google (GOOGL) said to pause hiring for two weeks.
Shares of cruise-operator Carnival (CCL) slide on $1B stock offering.
No steering wheel: Baidu (BIDU) unveils Apollo RT6 autonomous vehicle.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets leaned up. South Korea, India, Taiwan and Malaysia did well; China and Hong Kong were weak. Europe, Africa and the Middle East lean up. Denmark, the UAE, Greece, Finland, Hungary, Spain, the Netherlands, Israel, Austria and Saudi Arabai are up; Poland, Russia, Norway, Italy and Portugal are down. Futures in the States point towards a positive open for the cash market.
————— BLOG: Stan Weinstein’s Stage Analysis —————
The dollar is unchanged. Oil and copper are down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
The rate hike club
A big central bank meeting is on tap in Europe as inflation roils the continent and the euro remains on the backfoot. The ECB has been hesitant to get too aggressive on the monetary policy front – especially in comparison to the Federal Reserve – fearing a looming recession that was exacerbated by Russia’s invasion of Ukraine. That stance may be changing, however, as the bloc clearly sees Moscow in the driver’s seat in terms of natural gas supplies and even higher energy prices that could put it further behind the inflation curve.
Bigger picture: While the Fed began its latest rate hike cycle back in March, the ECB has yet to raise rates as it sought to prioritize economic growth. In fact, the last time the central bank raised rates was in 2011, in the aftermath of the European debt crisis. Over the past few months, the ECB warmed to the idea by telegraphing a 25 basis point hike, though a bigger 50 bps move has not been ruled out (and would be seen as a very hawkish signal by the markets).
Unlike the U.S., which makes up one large jurisdiction, the ECB’s decision today will reverberate through 27 different member states and their economies. That could expose more indebted countries like Italy to financial trouble and weigh on peripheral bond yields as a whole. The situation remains even more precarious on word that Italian Prime Minister Mario Draghi (a former ECB president) would resign, prompting Italy’s 10-year government bond yield to jump above 3.5% and the iShares MSCI Italy ETF (NYSEARCA:EWI) to slide 4.2% during yesterday’s session.
Anti-fragmentation tool: Seeking to limit the spreads between yields across the eurozone, the ECB is also poised to unveil a new stimulus plan during today’s meeting. Investors will be paying close attention to the details of the new bond-purchase program, including what assets policymakers are considering buying and under what circumstances. “While ECB President [Christine] Lagarde is likely to stress the temporary nature of the instrument – owing to the exceptional circumstances the euro area finds itself in – she will also underline the ECB’s determination to secure the integrity of the monetary union, thereby trying to evoke a ‘whatever it takes’ spirit,” wrote Dirk Schumacher, head of European macro research at Natixis. (5 comments)
Musk takes the mic
Tesla (TSLA) weaved in and out of traffic in after-hours trading on Wednesday, ultimately settling up 1.5% at $753/share. The electric vehicle maker posted stronger than expected financials, with adjusted EPS of $2.27 (+57% Y/Y) on revenue of $16.9B (+42% Y/Y). The strong bottom line figure appeared to put to rest some concerns about the “gigantic money furnace” gigafactories in Austin and Berlin, while free cash flow rose above estimates at $619M (vs. consensus forecasts of $500M).
Changing lanes: While prices for Tesla cars are up 25% to 30% from a year ago, the firm’s automotive margins compressed to 27.9% in Q2. The margins also fell below the 32.9% number that impressed in the first quarter, and 28.4% notched in 2021. The EV maker previously reported a disappointing quarterly delivery figure of 254,695 vehicles and is facing headwinds that include higher raw material and logistics costs.
“We’ve raised our prices quite a few times. They’re frankly at embarrassing levels. But we’ve also had a lot of supply chain and production shocks, and we’ve got crazy inflation,” Elon Musk announced on a conference call. Tesla will also have to jack up production by 70% in the second half of 2022 to meet its annual delivery goal of 1.5M vehicles in the face of China’s zero-COVID strategy and supply chain crises impacting all automakers. Musk didn’t give a production forecast for the rest of the year, but he said the company was likely to achieve “record” output.
HODLer? Tesla sold 75% of its Bitcoin (BTC-USD) stake to maximize liquidity given the COVID situation in China, though Musk related that it shouldn’t be taken as “some verdict on crypto.” Total sales of the cryptocurrency amounted to $936M, prompting Bitcoin to retreat below $24K following a big rally earlier in the week. “The Bitcoin losses point out an important part of the Tesla investment case – its eccentric owner,” noted Laura Hoy, analyst at Hargreaves Lansdown. “While Musk’s impressive innovation has served the company well, his personal flair is starting to raise governance questions.”
The housing story
The overheated U.S. housing market is starting to cool down in what some in the industry are calling a real estate shakeout. Sales of previously owned homes fell 5.4% M/M in June to 5.12M units, according to the National Association of Realtors, and were 14.2% lower when compared to the same month a year ago. At those levels, sales fell to their slowest pace since June 2020, when buying activity dropped briefly at the start of coronavirus pandemic.
Bigger picture: Surging inflation is hammering potential buyers’ purchasing power and rising interest rates aren’t helping the situation. In fact, mortgage applications fell to a 22-year low last week, with the 30-year mortgage rate rising to 5.82% (compared to 3% at the start of the year). At the same time, the median existing-home price of all housing types climbed to $416K in June, from $407K in May (and surging from $285K just two years ago).
“It is clearly due to the plunging affordability,” explained National Association of Realtors Chief Economist Lawrence Yun. “We have never seen mortgage rates shoot up this fast at this magnitude. Even people who want to buy, they are priced out.”
Future construction: Single-family housing starts came in at a two-year low in June, down nearly 8% for the month and about 16% lower Y/Y. Things didn’t look any better in terms of single-family permits, which were off by similar percentages. That sentiment is being displayed in the markets, with the SPDR Homebuilders ETF (XHB) sliding 28% YTD, and the latest snapshot of the industry will come today as D.R. Horton (DHR) kicks off the big builder earnings reports.
Emergency or not?
President Biden unveiled a series of executive actions yesterday aimed at fighting climate change, but the announcements fell short of issuing a formal climate emergency declaration sought by some Democrats. “Let me be clear: Climate change is an emergency,” he said at a former coal-fired power plant in Massachusetts. “In the coming weeks, I’m going to use the power I have as president to turn these words into formal, official government actions through the appropriate proclamations and regulatory power that a president possesses.”
Snapshot: The latest steps were declared after Biden’s aggressive climate agenda unraveled in Congress, with Senator Joe Manchin saying he would not support major environmental provisions in the budget reconciliation bill. That effectively doomed Biden’s Build Back Better Act, which hoped to invest more than $500B in new programs to cut emissions in support of new technologies like EVs. It has also put a spotlight on solar and wind stocks, as well as other industries in the renewable energy sector.
“The U.N.’s leading international climate scientists called the latest climate report nothing less than, quote, ‘code red for humanity,'” Biden continued. “It’s not a group of political official – elected officials. These are the scientists… Our national security is at stake as well. Extreme weather is already damaging our military installations here in the states, and our economy is at risk, so we have to act.”
Initiatives: For now, Biden directed the Interior Department to propose new offshore wind areas in the Gulf of Mexico, and advance wind energy development in the waters off the mid and southern Atlantic Coast. He also unveiled $2.3B in funding for a FEMA program to help communities prepare for disasters by expanding flood control and retrofitting buildings. New guidance was issued for helping low-income families pay for heating and cooling costs, while additional actions will be announced in the “coming weeks.” (48 comments)
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
What else is happening…
United Airlines (UAL) turns a profit in Q2, but misses expectations.
Ford (F) plans up to 8,000 job cuts to help fund EV investment.
GameStop (GME) is outpacing Coinbase (COIN) on NFT volume.
Robinhood behind a mystery surge in Berkshire A share (BRK.A) trading.
Cathie Wood closes the doors on its ARK Transparency ETF CTRU.
Natural gas gains 10% to $8/MMBtu as heatwave batters the U.S.
Abbott (ABT) ups guidance with COVID-19 testing sales driving Q2 beat.
Sign of the times? Google (GOOGL) said to pause hiring for two weeks.
Shares of cruise-operator Carnival (CCL) slide on $1B stock offering.
No steering wheel: Baidu (BIDU) unveils Apollo RT6 autonomous vehicle.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets did great. Japan, China, Hong Kong, South Korea, India, Austria, Indonesia and Singapore posted solid gains. Europe, Africa and the Middle East are split. The UAE, Russia, Greece, Norway, Israel and Saudi Arabia are up; Germany, South Africa, Finland, Spain and Italy are down. Futures in the States point towards a flat open for the cash market.
————— BLOG: Stan Weinstein’s Stage Analysis —————
The dollar is down. Oil is down, copper is up. Gold and silver are down. Bonds are up.
Stories/News from Seeking Alpha…
Netflix picks
There was a lot of positive momentum going into yesterday’s quarterly report from Netflix (NFLX), as stocks soared in a broad-based rally with earnings season not as worrisome as initially feared. Netflix benefited from the sentiment by climbing 5.6% during the session, and tacked on another 7% AH to firmly trade above the $200 level. There had also been some alarm about a saturated streaming market and price hikes during a period of inflation, but Netflix was able to assuage those concerns with an upbeat outlook of an imminent comeback.
By the numbers: The streaming pioneer saw a net drop in 970K subscribers in the second quarter after warning shareholders of an enormous 2M figure plunge. It’s also forecasting a return to growth in Q3, with guidance of 1M net additions. Netflix further beat profit expectations, reporting EPS of $3.20 per share vs. expectations for $2.95 per share, on revenues that largely came in line with expectations at just under $8B. While forex effects were worse than expected (Netflix makes about 60% of its money outside the U.S.), revenue growth was 9% but would have been 13% on a constant currency basis.
“Losing a million [subscribers] and calling it success is tough, but really, we’re set up very well for the next year,” co-CEO Reed Hastings said on a conference call. “If there was a single thing [that boosted performance], we might say Stranger Things. We’re executing really well on the content side. We’re [also] in a position of strength given our $30B-plus in revenue, $6B in operating profit last year, growing free cash flow and a strong balance sheet.”
Outlook: Looking to reclaim subscriber growth, Netflix is targeting early 2023 for a cheaper ad-supported version of its service. It’s a big U-turn for a company that has spent years shunning advertisers in favor of a pure subscription model, and even recently inked a partnership with Microsoft (MSFT) to support the placement of such advertisements. The company also plans to earn more by limiting password-sharing, and disclosed some options for Latin America where it will offer new payment plans for users who split an account. On the earnings front today, electric vehicle maker Tesla (TSLA) will be the one to make headlines after the closing bell. (75 comments)
Chips for America Act
Semiconductor stocks were electrified on Tuesday ahead of 64-34 vote in the Senate over subsidizing domestic chip production. The bill would provide around $52B to encourage manufacturers to build foundries, and broadly invest in the sector, in the U.S., which both parties agree is a national security necessity. While the measure has cleared its first procedural hurdle, other details of the legislation are still being worked out.
What’s at stake? The Chips for America Act is a slimmed-down version of a larger competitiveness package called the United States Innovation and Competition Act (USICA). It specifically authorizes grants and loans for chip-making, as well as 25% investment tax credits for semiconductor manufacturing. While lawmakers agree that the U.S. needs more domestic capacity – to counter supply chain issues in the aftermath of the pandemic – there is still disagreement on adding other provisions to the bill like scientific funding.
Some controversy has also been seen in the industry itself, with chip designers like Nvidia (NVDA), Qualcomm (QCOM) and AMD (AMD) saying it disproportionately benefits manufacturers like Intel (NASDAQ:INTC), Micron (MU) and Texas Instruments (TXN). Actual funding could subsequently slip to $38B (from $52B) when factoring in federal research programs and administrative overhead expenses, but investors are still welcoming any reshoring of the critical U.S. sector. According to Capital Alpha analyst Robert Kaminski, final passage of the Chips Act could come as early as next week.
Handouts or a necessity? There’s an interesting discussion taking place as national security bumps heads with economic philosophy. While most Congressional lawmakers are calling it a defense imperative, some critics are classifying the bill as corporate welfare, citing billions of dollars in subsidies being granted to profitable domestic corporations. Market competition is also of concern if the bill only benefits a few companies or gives targeted funds to direct competitors. (14 comments)
Glass successor
Google (NASDAQ:GOOGL) is reincarnating its failed Glass project into another augmented reality product, which looks more like a pair of spectacles than something out of a sci-fi movie. Its last initiative died in 2015 (though it did attempt some resurrections since then) as many users considered the device ugly, overly expensive and lacking functionality. Glass also faced a host of privacy concerns due to its ability to record users’ surroundings, and in some ways was ahead of its time on the AR/VR front (and years before Facebook (META) jumped into the metaverse).
This time around: Google is marketing its new prototype by “helping us quickly and easily access the information we need.” One of its new features puts translation and transcription directly in users’ line of sight, meaning they can see conversation subtitles on the lens of their glasses in real-time. Besides breaking down language barriers, the product hopes to further develop experiences like AR navigation, like showing users map directions inside of their lenses, especially in environments like busy intersections or inclement weather.
Similar to the rollout of Google Glass, the company is beginning with small-scale testing in the real world. The AR prototype will first be worn by a few dozen Googlers and select trusted testers, but it could be quite a while until it’s available to the public. The revived project comes as Google attempts to stay ahead of the Big Tech competition, with Apple (AAPL) projected to unveil its mixed reality headset next year and Microsoft’s (MSFT) Hololens currently the most advanced AR hardware on the market.
Fixing past mistakes: “These prototypes will include in-lens displays, microphones and cameras – but they’ll have strict limitations on what they can do,” Google wrote in a blog post. “For example, our AR prototypes don’t support photography and videography, though image data will be used to enable experiences like translating the menu in front of you or showing you directions to a nearby coffee shop.” (3 comments)
Gas cuts
The main artery for Russian gas to European Union, otherwise known as Nord Stream 1, has been offline for most of the past two weeks due to pre-scheduled annual maintenance. However, many Western nations are growing concerned that Moscow could permanently turn off the flows, which are used in everything from heating and cooking to electricity and power generation. Russia supplies the the bloc with 40% of its natural gas imports, and in nations like Germany, that figure is as high as 60%.
The conditions: In comments following his visit to Iran, Vladimir Putin said that Gazprom (OTCPK:OGZPY) – the pipeline operator’s majority shareholder – has “always fulfilled its obligations,” but warned that sanctions could impact future transfers. He specifically referenced a turbine that was undergoing repairs in Canada (which has leveled penalties on Moscow) and another turbine that will go for maintenance on July 26. Flows could fall to some 20% of capacity if the turbine isn’t returned soon, but European officials have dismissed the explanation as a pretext to wreak economic havoc on the continent.
“It’s absolutely clear that Moscow is cutting supplies for geopolitical reasons,” declared Tim Ash, senior strategist at Bluebay Asset Management. “It wants to create a European gas crisis this winter to bring Europe to its knees to the point where it cuts support to Ukraine.”
Go deeper: Gas shortages have already undermined the euro, which is now at parity with the dollar, and added to the risks of a looming European recession. At the same time, the European Commission published plans today to press governments on stepping up their energy conservation campaigns. Countries would be expected to reduce consumption by at least 15% over the next eight months, while switching from natural gas to other energy sources like nuclear and coal. (2 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 Existing Home Sales
10:30 EIA Petroleum Inventories
1:00 PM Results of $14B, 20-Year Bond Auction
What else is happening…
Judge orders Twitter (TWTR) trial for October in setback to Musk.
Boeing (BA) leads Dow after inking deals at Farnborough Airshow.
Lockheed Martin (LMT) rises despite Q2 miss, guidance cut.
Apple (AAPL) finally settles MacBook ‘butterfly’ keyboard lawsuit.
Strong dollar dings Johnson & Johnson (JNJ), MedTech underperforms.
Cost of living crisis? U.K. inflation jumps 9.4% to fresh four-decade high.
Novavax (NVAX) rebounds as CDC endorses COVID-19 vaccine.
Transaction difficulties: Coinbase (COIN) pauses Bitcoin SV withdrawals.
Chevron (CVX) invests in nuclear fusion startup that’s raised $1.2B.
Hasbro (HAS) teams are ‘executing well to meet demand and drive profit.’
—————
Good morning. Happy Tuesday.
The Asian/Pacific markets were split. Japan, India and Indonesia did well; Hong Kong, Australia and Thailand were weak. Europe, Africa and the Middle East lean up but are mostly quiet. Turkey, Spain, Saudi Arabia, the UAE and Italy are up; Denmark is weak. Futures in the States point towards a positive for the cash market.
————— BLOG: Stan Weinstein’s Stage Analysis —————
The dollar is down. Oil and copper are down. Gold is up; silver is down. Bonds are down.
Stories/News from Seeking Alpha…
Climate emergency
Looking to salvage his environmental agenda, President Biden is considering declaring a national climate emergency as soon as this week, according to the Washington Post. The decision could redirect funds for clean energy projects and restrict offshore drilling, or even curtail the movement of fossil fuels aboard ships, trains and pipelines. Biden may also use the Defense Production Act to ramp up output of renewable energy products and systems, though any executive action would face the reality of high gas prices, as well as a likely court challenge.
Backdrop: West Virginia’s Joe Manchin – a Democrat whose vote is needed to pass legislation in the evenly divided Senate – said last week that he couldn’t support new spending on climate change due to record high inflation. That effectively doomed Biden’s Build Back Better Act, which hoped to invest more than $500B in new programs to cut emissions and support new technologies like electric vehicles. Manchin later expressed an openness to discuss climate spending after economic indicators for the summer were released, but many Democrats fear that it will be tough to push through the legislation following the Congressional recess in August.
“There is probably nothing more important for our nation and our world than for the United States to drive a bold, energetic transition in its energy economy from fossil fuels to renewable energy,” Senator Jeff Merkley (D-OR) told reporters. “This also unchains the president from waiting for Congress to act.”
Outlook: Things are playing out as a punishing “heat dome” descends on the central United States, resulting in the hottest summer on record for some areas. Record temperatures have also been seen this week across parts of western Europe and the British Isles, triggering forest fires and hundreds of heat-related deaths. The continent’s climate plans have already been thrown into disarray due to an energy crisis sparked by Russia’s invasion of Ukraine, while Gazprom (OTCPK:OGZPY) just declared force majeure on some gas supplies to Europe. (22 comments)
Shift into overdrive
Earnings season is kicking into high gear as Netflix (NFLX) reports its Q2 results after today’s closing bell. It’s all going to come down to churn rate over the past three months, with the streamer previously projecting a loss of 2M subscribers for the period. That’s 10 times the 200K net losses it experienced during Q1, when the stock plunged 35% in a single day after posting its first quarterly sub decline in a decade (NFLX shares have cratered 68% YTD).
Bigger picture: With Netflix setting expectations so low, it’s possible that investors might not seek such retribution against the company as they did in April. Wedbush Securities analyst Michael Pachter said that he thinks the firm will actually report fewer subscriber losses than anticipated. For his part, Pachter expects Netflix to say it lost 1.5M subscribers during the second quarter, in part due to “the staggered release date for Stranger Things 4, which has very strong viewership.”
Investors will also be interested in any new information that Netflix has to say about a cheaper ad-supported membership option. Its current standard U.S. plan costs $15.49 a month, making it pricier than most other major streaming services. Netflix recently lined up Microsoft (MSFT) to be its advertising technology sales partner, and is also attempting to crack down on password sharing, but those plans likely won’t kick in until later this year.
On the calendar: Mixed reactions continue to be seen from the earnings parade coming down Wall Street. Goldman Sachs (GS) rose 2.5% on Monday following significantly higher trading activity during Q2, while IBM (IBM) fell 4.5% AH as its free cash flow forecast dented upbeat results. Besides Netflix, investors will size up other big second-quarter reports this week from Tesla (TSLA) and Twitter (TWTR).
Yellow light
Apple (AAPL) appears to be joining a slate of tech giants that, at the very least, are tapping the brakes on their hiring plans due to concerns about a possible economic slowdown. The decision isn’t part of a company-wide policy, but will rather be implemented in different business groups depending on product sales, supply chain issues and consumer demand. Apple still intends for an aggressive slate of product releases through 2023 despite the move to limit job growth and expenditures.
Snapshot: Silicon Valley seems to be increasingly worried about a coming recession and has taken steps to decelerate spending and rein in their budgets. Tech giants – from Alphabet (GOOG, GOOGL) and Amazon (AMZN) to Meta (META) and Microsoft (MSFT) – have all reduced their rate of hiring or altered their employment plans. Microsoft even recently confirmed it had cut a small number of jobs that reportedly totaled less than 1% of its 181K-person workforce.
If things deteriorate further, the tech sector could become susceptible to economic drops the industry has traditionally avoided. In recent months, Tesla (TSLA) has fired hundreds of staff and closed a California office devoted to its Autopilot technology, while Netflix (NFLX) conducted another round of layoffs. The worries have even extended to the startup world, with telehealth unicorn Ro and online education platform MasterClass recently slashing nearly a fifth of their workforce.
Go deeper: In an interview with Reuters, Microsoft President Brad Smith went on to say that U.S. companies were in a “new era” of hiring. The trend of 5M workers entering the U.S. population every five years since 1950 has also been completely upended, with only 2M people joining the nation’s workforce between 2016 and 2020. “That helps explain part of why you can have low growth and a labor shortage at the height at the same time,” continued Smith. “There just aren’t as many people entering the workforce.” (34 comments)
Going hypersonic
Raytheon (RTX) has successfully completed the second flight test of the scramjet-powered Hypersonic Air-breathing Weapon Concept, or HAWC, for the Defense Advanced Research Projects Agency and the U.S. Air Force. It’s the third successful test of the weapons class since 2013, which is being classified as a critical national imperative in the latest superpower arms race. Raytheon – in partnership with Northrop Grumman (NOC) – is competing with Lockheed Martin (LMT) for the final contract award, with the latter successfully testing a hypersonic missile off the California coast last week.
What are hypersonic weapons? Missiles in development, like boost-glide missiles and air-breathing missiles, are being designed to evade defense systems while flying at speeds higher than Mach 5 (a little over a mile per second). The objective is to travel at such a high velocity and low altitude that make them difficult to intercept, while they can maneuver in-flight compared to the fixed sub-orbital trajectories of ballistic missiles. Some ground-based radars can detect hypersonic weapons, but current systems cannot give an early enough warning to respond to an attack.
Earlier this year, Russia revealed that it deployed its newest Kinzhal hypersonic missile in Ukraine, claiming to have hit a fuel storage site and an underground ammunition depot. Analysts at the time said it marked the first time a hypersonic weapon had been used in combat, though there were reports of the missiles being used during campaigns in Syria. China and Russia first began testing hypersonic weapons in 2014 and 2016, respectively, prompting the U.S. to ramp up its testing programs.
Outlook: Former acting Navy Secretary Thomas Modly has said hypersonic weapons “have already changed the nature of the battlespace, much as nuclear technology did in the last century.” The Pentagon’s FY2022 budget reflected as such, with requests for hypersonic-related research and development pegged at $4B, up from $3.2B a year earlier. “The engineering is not that hard,” added Bryan Clark, a defense analyst at the Hudson Institute. “It’ll just take time and money to make it happen.” (9 comments)
Today’s Economic Calendar
8:30 Housing Starts and Permits
Companies reporting earnings today »
What else is happening…
SoftBank (OTCPK:SFTBY) halt plans for U.K. Arm (ARMHF) IPO – FT.
Big semiconductor names may oppose CHIPS Act for lack of subsidies.
Binance tops Coinbase (COIN) in having the most BTC of any exchange.
Google (GOOGL) fined $387M by Russian court for not removing content.
Pot rally: Canopy Growth (CGC) posts best intraday gain since 2018.
Concerns remain over Novavax’s (NVAX) COVID-19 vaccine sales.
General Electric (GE) introduces new brand names ahead of split.
TC Energy (TRP) declares force majeure on Keystone pipeline.
Buffett edges closer to 20% stake in Occidental Petroleum (OXY).
U.S. home builder index plummets in another sign of softening market.
—————
Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets did great. China, Hong Kong, South Korea, India, Taiwan, Australia and the Philippines posted big gains. Europe, Africa and the Middle East are doing well. The UK, Denmark, Poland, France, Turkey, Germany, Greece, South Africa, Finland, Norway, Hungary, the Netherlands, Italy, Austria, Sweden, Saudi Arabia and Czech Republic are up 1% or more. Futures in the States point towards a positive for the cash market.
————— BLOG: Stan Weinstein’s Stage Analysis —————
Stories/News from Seeking Alpha…
Battle for the skies
The aerospace and travel industries are setting their sights on the Farnborough Air Show, which takes place this week for the first time since the pandemic. More than 80,000 people are expected to attend the five-day event, where more than a thousand exhibitors will showcase their products and aviation services. With demand for flights soaring this summer, much of the focus will be on manufacturing giants Boeing (NYSE:BA) and Airbus (OTCPK:EADSY), which hope to pick up some big orders as airline passenger numbers bounce back.
Backdrop: It’s been a bruising past few years for the aviation titans, but Boeing is clearly coming into the contest on the back wheel. Even before the pandemic, the U.S. manufacturer was in crisis mode following two fatal crashes of the 737 MAX in 2018/19, and the plane is still awaiting approval to return to the Chinese market. Boeing is also dealing with quality issues related to its 787 Dreamliner (deliveries have been largely halted since late 2020), while it’s unlikely that the stretched 737 MAX 10 variant – which is coming to Farnborough – will be certified by regulators by the end of the year.
On the other side of the aisle, Airbus has moved up to business class, according to aviation data provider Cirium, conquering nearly 60% of the narrow-body segment with its A320. The French planemaker has also scored 259 total orders this year, compared to the 186 of its U.S. rival. All those dynamics can be clearly seen in their stock prices, with Boeing shares plunging 60% since the Paris Air Show in June 2019 (which alternates every year with Farnborough) and Airbus shares off by 20% over the same period.
Go deeper: The aviation titans will be asked how well they can make good on delivery commitments as engine and parts shortages become the latest challenge in ramping up output. Make sure to tune in at the end of the week as there are generally last-minute announcements that can change the order tally and possibly offer Boeing an opportunity to turn the corner. Decarbonization strategies will also be in the spotlight at the show, with several panels focusing on sustainable fuels, low-emissions technology and electric vertical take-off and landing (eVTOL) aircraft.
Chip funding
The Senate could vote on a slimmed-down measure to boost the U.S. semiconductor industry as soon as this week as lawmakers struggle to compromise on broader legislation targeting Chinese competitiveness. The scaled-back bill would likely provide $52B in grants, tax credits and other financial incentives to build out the American chip sector, but until now, it has been held up over R&D subsidies, as well as the possibility of it being attached to a broader reconciliation package. Congress will need to kick things into high gear before the August recess, which is only several weeks away.
Quote: “If we don’t pass this, we’re going to wake up, other countries are going to have these [chip] investments, and we’re going to say, ‘why didn’t we do it?'” U.S. Commerce Secretary Gina Raimondo declared, urging lawmakers to pass the legislation. “We want as robust of a bill as possible, but all options are on the table because we’re out of time.”
Funding is even more critical to corporate investment plans, with Intel (NASDAQ:INTC) recently threatening to ditch its ambitious $20B foundry project in Ohio if the bill remains in limbo. “We’ve made super clear to McConnell, to the Democrats, to the Republicans, that if this doesn’t pass, I will change my plans,” announced CEO Pat Gelsinger. “The Europeans have moved forward very aggressively, and they’re ready to give us the incentives that allow us to move forward.” According to the Semiconductor Industry Association, the U.S. share of global chip-making capacity has tumbled from 37% in 1990 to 12% at the present.
Should you buy chip stocks? Market direction has been uncertain in recent weeks, though some buyers seem to be keen on the advancing chip legislation. Last Thursday, it was revealed that House Speaker Nancy Pelosi and her husband, exercised 200 call options (20,000 shares) in Nvidia (NASDAQ:NVDA), which is one of the world’s largest semiconductor companies. The stake, which could be worth up to $5M, comes at a time when Congress is debating whether its members and spouses should be allowed to trade individual stocks, though a vote on such bills has not yet been scheduled. (22 comments)
Global health emergency?
As the number of monkeypox cases rises in the U.S., requests for vaccines are increasing, and in many areas, there are even reports of demand greatly outstripping supply. In response, the federal government has ordered an additional 2.5M Jynneos doses from Bavarian Nordic (OTCPK:BVNKF), which is the only FDA-approved product against monkeypox. As of July 15, there were 1,814 confirmed cases across the country, with all but seven U.S. states recording cases of the disease.
Explainer: Monkeypox is an orthopoxvirus that is mostly spread by close physical contact and results in similar symptoms to smallpox. People who contract the virus experience flu-like conditions and a blistery rash that lasts anywhere from two to four weeks. A very small percentage of infected people develop sepsis or other life-threatening reactions (only three people have died worldwide from the current outbreak).
The World Health Organization is set to reconvene its expert committee this week to decide whether monkeypox now constitutes a global health emergency. Back in June, a majority of the expert panel felt the situation had not met that threshold, which could release additional resources to combat the crisis. There have been a total of six “Public Health Emergency of International Concern” declarations since 2009, otherwise known as PHEIC, with the last one being proclaimed for COVID-19 in 2020.
Outlook: Even if declared a PHEIC, monkeypox is unlikely to become as devastating as the coronavirus pandemic. It’s much less contagious due to its “person-to-person” transmission (rather than spreading through the air). It has also been mostly observed in young urban men who identify as members of the LGBT community, suggesting that it won’t cross age and other demographics so easily. Additionally, the fatality rate is less than one death per every 1,000 adult cases, which in perspective, is lower than the percentage of unvaccinated people who die after getting COVID.
Over in Colombo
Things aren’t looking better in Sri Lanka as acting President Ranil Wickremesinghe issued orders late Sunday for a fresh state of emergency. The specific legal provisions of the edict have yet to be announced, but in the past it has been used to deploy the military and dampen public protests. It comes ahead of Wednesday’s vote in parliament to elect a new president, after Gotabaya Rajapaksa fled to the Maldives (and then Singapore) to escape a widespread uprising against his government.
The candidates: As six-time prime minister, Wickremesinghe is one of the top contenders to take on the presidency, but many protesters want him gone and further unrest could ensue if he is elected. Other leading candidates are Sajith Premadasa, leader of the main opposition Samagi Jana Balawegaya party, as well as Dullas Alahapperuma, a senior ruling lawmaker who previously served as former Cabinet Minister of Information and Mass Media.
Stable leadership will need to be in place before the country can negotiate with the IMF over a bailout to shore up the island’s economy. Sri Lanka ran out of money for fuel imports in May, its inflation rate topped 50% in June and it declared bankruptcy in early July. The country is also heavily indebted to China, Japan and India, and recent restructuring talks during the G20 Finance Ministers meeting in Bali, Indonesia, did not appear to yield too much progress.
As mentioned previously on WSB: Sri Lanka could be the first domino to fall in a global economic crisis set to envelop many poorly-managed developing countries. Pakistan is having major problems with its debt, as well as a number of African and Latin nations, spelling trouble across the emerging markets. “With the low-income countries, debt risks and debt crises are not hypothetical,” World Bank Chief Economist Carmen Reinhart declared. “We’re pretty much already there.”
Today’s Economic Calendar
10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital
Companies reporting earnings today »
What else is happening…
The software slowdown arrives: Here’s how investors can deal with it.
GlaxoSmithKline (GSK) spins off U.K. consumer health unit Haleon.
Crypto winter forces Riot Blockchain (RIOT) and others to sell Bitcoin.
After Biden visit, Saudi Arabia says oil decisions to be made by OPEC.
Stellantis (STLA) terminates Jeep venture with China’s GAC.
Starbucks (SBUX) explores potential sale of its operations in the U.K.
Elon Musk pushes back at Twitter’s (TWTR) request for expedited trial.
Report suggests Disney (DIS) will hike ESPN+ monthly price by 43%.
Novo (NVO), Eli Lilly (LLY) to dominate $54B obesity market – Morgan Stanley.
—————