Good morning. Happy Friday. Happy Employment Numbers Day.
The Asian/Pacific markets did well. Japan, China, Hong Kong, South Korea and Taiwan posted strong gains; the Philippines were weak. Europe, Africa and the Middle East are currently mixed. The UAE, South Africa, Hungary and Portugal are up; Denmark, Russia, Greece and Sweden are down. Futures in the States point towards a relative big gap down open for the cash market.
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The dollar is up. Oil and copper are up. Gold and silver are flat. Bonds are down.
Stories/News from Seeking Alpha…
Cyber Roundup
Jobs day
Investors and the Federal Reserve will get another glimpse into how strong the labor market is this morning when the Department of Labor releases its “employment situation” report at 8:30 a.m. ET. Economists expect non-farm payrolls to expand by 250K jobs in July, lower than the 372K seen in the previous month, and bringing down the rolling three-month average to 333K (from 375K in June). The unemployment rate is expected to stay at 3.6%, near its all-time low.
Interesting dynamics: If the July numbers are soft, “I think the markets will cheer it,” as that could be viewed as a reason for the Fed to pause its tightening, Sumit Handa, managing director at Pennington Partners, told Seeking Alpha. Indeed, the job openings and labor turnover report for June showed a decline in the number of openings – falling from 11.3M in May to 10.7M. The four-week moving average for initial jobless claims also edged up to 254,750 the week ended July 30, from 248,750 in the previous week.
“I think we’re starting to see cracks in the labor market,” Handa continued. “It started with a number of the technology companies from Google (GOOGL) to Tesla (TSLA) to Microsoft (MSFT) to even Apple (AAPL) freezing hiring and even layoffs.” In addition, companies that originate and refinance mortgages have been cutting jobs as higher interest rates constrain demand. By contrast, hiring in leisure and hospitality sector should remain strong as travel rebounds from the pandemic, in yet another contrasting indicator for the economy.
By the paycheck: With inflation a chief concern, consumers and the Fed will be on the lookout for what’s happening with wage growth. Average hourly earnings, which stood at $32.08 in June, are expected to rise 0.3%, about the same increase as in June. So far, Fed officials say they’re not seeing signs of the dreaded wage-price spiral. (20 comments)
A crystal ball
Not everyone is optimistic about the recent trading sentiment hitting markets, with the benchmark S&P 500 rallying 13% from its bottom in mid-June. Famed “Big Short” investor Michael Burry is out with his latest cryptic tweet about impending doom, and as per usual style, he deleted it just hours after posting.
Quote: “The Silliness is back. After 1929, after 1968, after 2000, after 2008, the strain of Silliness that transformed bulls into bubbles completely and utterly disappeared. But that familiar COVID-era Silliness is not dead yet. Like 2001 before Enron, before 9/11, before WorldCom,” he wrote on Twitter.
Recall that Burry has been predicting a market plunge for years, and appeared to be on track after the S&P 500 recorded its worst first half since 1970. “Greatest speculative bubble of all time in all things. By two orders of magnitude,” he tweeted in June 2021, following up with similar rhetoric like “the mother of all crashes.” This past June, Burry continued the gloom, noting, “as I said about 2008, it is like watching a plane crash,” and asking in July, “S&P 500, is it 2001 or 2022?”
Time will tell: Elon Musk has compared Burry to “a broken clock,” with his recent forecasts similar to the repeated “superbubble” warnings touted by famed fund manager Jeremy Grantham. Burry (along with Grantham) is still known for calling the U.S. housing market crash, and he made billions of dollars betting against those subprime mortgages. Crying wolf, or should we all be concerned? (20 comments)
It’s an emergency
The Biden administration has declared the current monkeypox outbreak a public health emergency in a bid to marshal resources and raise awareness to contain the virus. The designation will allow the FDA to speed up the authorization of measures to prevent and treat monkeypox – such as tests, therapeutics, and vaccines – and was a provision the agency relied on heavily during the COVID-19 pandemic. Cases of the virus have topped 6,600 across 48 states, Washington, D.C., and Puerto Rico.
Quote: “We’re prepared to take our response to the next level in addressing this virus, and we urge every American to take monkeypox seriously,” Health and Human Services Secretary Xavier Becerra said at a briefing.
Monkeypox is an orthopoxvirus that is mostly spread by close physical contact and results in similar symptoms to smallpox. Men who have sex with men are at highest risk right now, but anyone can catch the virus, which could start to spread more broadly and has already been seen in children. People who contract the monkeypox experience flu-like conditions and a blistery rash that lasts anywhere from two to four weeks, though a very small percentage develop sepsis or other life-threatening reactions.
Dose-sparing: The FDA is examining ways to maximize limited supplies of the only approved monkeypox vaccine, as well as boost access to antiviral medicines that could see wider use for the virus. That includes giving one-fifth of a full jab of Bavarian Nordic’s (OTCPK:BVNKF) Jynneos between skin layers, as opposed to under the fat layer of the skin. While the method is less protective than a full shot, the strategy was also used during previous shortages of the flu vaccine. (132 comments)
Cyber Roundup
“Welcome to the Giga Texas,” Elon Musk declared as he took the stage at Tesla’s (NASDAQ:TSLA) Cyber Roundup down in Austin. The annual shareholder meeting came just weeks after Tesla reported Q2 earnings, which showed compressed automotive margins even as the company grew year-over-year.
Highlights: “We’re aiming to achieve a 2M vehicle run-rate by the end of the year,” he announced, adding that Tesla just produced its 3 millionth car. Shareholders also approved a 3-for-1 stock split, the second in two years, though it’s not clear when that will take effect. Free cash flow generation was on the radar as well, with Musk pointing to $7B of FCF over the past four quarters, driven by a ramp-up in the Model 3.
“We have autonomy to some degree, but solving autonomy will really be an amplification of free cash flow to a degree that is… you run the numbers and it’s like, wow, could it really be that crazy? It could be that crazy,” Musk continued, jokingly adding “this year I swear.” “We’re now at over 40M miles [on the FSD Beta program] and I suspect by this year we’re gonna have well over 100M miles. We’re still tracking very much to have widespread deployment of FSD beta this year in North America.”
Outlook: “Making macroeconomic prognostications is a recipe for disaster,” but Musk estimates “we are past peak inflation” and likely to see a “relatively mild recession for something like 18 months.” He also teased another factory location this year, saying the company would “end up building at least 10 or 12 Gigafactories.” On the Supercharger front, Musk promised some “cool stuff,” and suggested that Cybertruck specifications and pricing will be different than disclosed back in 2019 due to soaring inflation.
Today’s Economic Calendar
8:00 Fed’s Barkin Speech
8:30 Non-farm payrolls
1:00 PM Baker-Hughes Rig Count
3:00 PM Consumer Credit
What else is happening…
Bank of England raises rate by 50 basis points, warns of recession.
Warner Bros. Discovery (WBD) sets streaming strategy on earnings call.
AMC (AMC) shares fall 11%, going ‘APE’ with preferred-stock dividend.
Beyond Meat (BYND) cuts sales guidance, eliminates 4% of workforce.
Sinema proceeds with Senate climate bill after carried interest pledge.
Despite widening losses, DoorDash (DASH) drives higher on record orders.
Virgin Galactic’s (SPCE) commercial launch timeline pushed back again.
Visa (V) suspends Pornhub advertising arm from payment network.
Block (SQ) stock slides after Square GPV growth seen slowing.
Lyft (LYFT) tops expectations, aided by recovery in active riders.
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Good morning. Happy Thursday.
The Asian/Pacific markets did well. Japan, China, Hong Kong, South Korea, Malaysia, Singapore and the Philippines posted solid gains. Europe, Africa and the Middle East are currently doing well. The UK, Denmark, France, Turkey, Germany, Hungary, Italy and Sweden are leading. Futures in the States point towards a positive open for the cash market.
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The dollar is down. Oil is flat; copper is down. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
Cyber Roundup
Tesla (NASDAQ:TSLA) fans and investors are keenly awaiting the EV maker’s annual shareholder meeting this afternoon, which will kick off at 5:30 p.m. ET. Shares have been on a rip before the event, which was recently rebranded as “Cyber Roundup,” and will take place at the company’s new Gigafactory in Austin, Texas. In fact, the stock (known for its volatility) has rebounded nearly 50% from $620 in late May – several weeks after the meeting was announced – to $922/share as of Wednesday’s close. TSLA +1.5% premarket.
On the menu: At the top of the list is authorization for the company to have more shares outstanding. It’s seeking approval for its second stock split (3-for-1) in two years, following a 5-for-1 transaction in August 2020 (shares are up 130% since that date). “We believe the stock split would help reset the market price of our common stock so that our employees will have more flexibility in managing their equity,” according to Tesla. “The stock split will also make our common stock more accessible to our retail shareholders.”
There are a number of other stockholder proposals up for vote, including shareholder proxy access, disclosure and diversity efforts, ESG, and a collective-bargaining policy. This year’s Cyber Roundup will also conclude the end of a short directorship of Larry Ellison, co-founder of Oracle (ORCL) and friend of Elon Musk. After his departure, Tesla’s board will drop to seven members, and two controversial directors – Ira Ehrenpreis and Kathleen Wilson-Thompson – will be up for re-election (concerns center around the amount of borrowing taking place against Tesla stock).
Putting on the cowboy hat: Vying least for attention is Technoking Elon Musk, who will take to the stage to whip up investor enthusiasm. He’s hoped to provide more details on production holdups and supply chain costs after repeatedly saying that Tesla can sell all the vehicles that come off its assembly line. The Q&A session might also reveal how Tesla will meet its battery needs, more defined timelines for the Semi and Cybertruck, and if and how the company is planning for a recession. (3 comments)
BoE on tap
The current rate hiking cycle is showing no signs of letting up as the Bank of England gets ready for its sixth increase since December. This time around, the U.K. central bank is even expected to raise borrowing costs by 50 basis points, or double its previous round of quarter point hikes. It would also be its largest increase in 27 years, lifting key interest rates from 1.25% to 1.75% – to their highest level since the start of the global financial crisis.
Commentary: “We know they’re worried about sterling and in that sense they don’t want to be left as the odd one out by not joining the 50-basis-point club,” said ING economist James Smith.
Meanwhile, the BoE is due to give more details about how it plans to start selling down its massive £844B sheet of government bond holdings. Last month, Governor Andrew Bailey said the central bank could offload £50B-£100B over the course of a year following more than a decade of economic stimulus. The BoE also stopped short of forecasting a technical recession in its last Monetary Policy Report in May, but shifts in language or expectations could change in today’s edition.
Go deeper: Inflation in the U.K. is now running at a 40-year high of 9.4%, triggering a cost-of-living crisis amid surging food and energy prices. The central bank’s inflation-fighting record has also been questioned by Liz Truss, the front-runner to be the next U.K. prime minister. She has pledged to set “a clear direction of travel” for monetary policy, as well as a review of the BoE’s mandate that can lead to greater oversight by members of parliament.
Labor dynamics
Just a week after Walmart (NYSE:WMT) slashed its quarterly and full-year guidance, cuts are coming to the company payroll. The firm is laying off hundreds of corporate employees at divisions related to merchandising, global technology and real estate. Walmart painted the move as an effort to reorganize itself as it marks down apparel and other items that have piled up in its stores.
Bigger picture: Other retailers have also been caught off guard as consumers shifted spending this spring from higher-margin goods that had been in demand for much of the pandemic. Shoppers are now more keen on basics like food and toiletries, as discretionary spending takes a hit from the current inflationary environment. Target (TGT) and Best Buy (BBY) also recently cut their outlooks as they look to right-size their inventory for the remainder of the year, which could lead to further discounts and lower profits.
“The signal this sends is not a good one,” noted Neil Saunders, retail analyst at GlobalData. “This could further sour the economy and consumer confidence with it.”
Is the job market showing cracks? Like many economic indicators these days, it’s a mixed bag of segmented data. Companies are reducing the pace of new hires, and even freezing or cutting roles, but hiring is still taking place in areas that are growing (the latest jobs report is out tomorrow). In the case of Walmart, the retailer even noted that while it is downsizing corporate, the restructuring will create new roles in e-commerce, health and wellness, supply chain services and advertising sales. (6 comments)
FAA wants feedback
The Federal Aviation Administration has begun reviewing airplane seat sizes to assess if a minimum standard should be established. Note that this is not from a comfort perspective, but rather if minimum seat sizes are necessary for passenger safety, like in the case of an emergency evacuation. The public will have 90 days to submit recommendations on existing seat widths and lengths, as well as “pitch,” which is industry jargon for the space between rows.
Backdrop: As airlines have continued to shrink their seat sizes, passenger advocacy groups like FlyersRights.org put forward petitions for minimum standards that were eventually backed by Congress. The FAA was ordered to move forward with size regulations as part of the FAA Reauthorization Act of 2018, but things have gotten delayed since then (the pandemic hasn’t helped the matter), and the notice has just been published for comment in the Federal Register.
While current regulations don’t mandate minimums for seat dimensions, they do require that planes must be able to evacuate within 90 seconds. Many argue that current seats aren’t inclusive to all body types, and there are additional concerns about tightly-packed aircraft, especially in relation to seat sizes that can vary widely among carriers. The FAA is also asking for feedback regarding how seat sizes can impact children, people over 60, and individuals with disabilities.
Commentary: “Seats have continued to shrink by some airlines, and people are continuing to get larger,” wrote Paul Hudson, president of FlyersRights.org. Our estimate is that only 20% of the population can reasonably fit in these seats now. It’s beyond a matter of comfort, or even emergency evacuation; there are serious health and safety issues when you’re put in cramped conditions for hours on end.”
Today’s Economic Calendar
8:30 International Trade in Goods (Advance)
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
12:00 PM Fed’s Mester Speech
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening…
Inventory rise: Oil prices close below pre-Russian invasion levels.
AMD (AMD) slips on weak guidance, but semis see broad-based rally.
eBay (EBAY) exceeds earnings expectations, issues optimistic guidance.
U.S. Senate approves expanding NATO to include Finland and Sweden.
CVS (CVS) gains as all-around performance drives strong Q2 beat.
Snowflake (SNOW) leads software higher as risk-on appetite returns.
Lucid Group (LCID) slides after slashing full-year production guidance.
Preview: Get ready for AMC Entertainment (AMC) earnings after the bell.
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Good morning. Happy Wednesday.
The Asian/Pacific markets did well. South Korea, New Zealand, Indonesia and the Philippines posted gains; China posted a loss. Europe, Africa and the Middle East are currently mostly up. France, Turkey, South Africa, Finland, Hungary, Spain, the Netherlands and the Czech Republic are leading. Futures in the States point towards a moderate gap up open for the cash market.
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The dollar is down. Oil and copper are down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Still hawkish
Hawkish comments from several Fed presidents are countering a recent narrative taking hold of financial markets, in which policymakers would ease up on a recent tightening cycle given expectations of an economic slowdown. Stocks dipped on the remarks on Tuesday, while investors sent the 10-year Treasury yield up 15 basis points to the 2.75% level. The new spate of aggressiveness also saw the safe-haven dollar renew its surge, though there was still plenty of optimism that the U.S. could achieve a soft landing and avoid a formal recession.
St. Louis’ James Bullard: “I think that inflation has come in hotter than what I would have expected during the second quarter. Now that that has happened, I think we’re going to have to go a little bit higher than what I said before.”
San Francisco’s Mary Daly: “[The Fed is] nowhere near almost done. We have made a good start and I feel really pleased with where we’ve gotten to at this point, [but] people are still struggling with the higher prices. My modal outlook, or the outlook I think is most likely, is really that we raise interest rates and then we hold them there for a while at whatever level we think is appropriate.”
Chicago’s Charles Evans: “If we don’t see improvement before too long, we might have to rethink the path a little bit higher. We want to see if the real side effects are going to start coming back in line… or if we have a lot more ahead of us.”
Cleveland’s Loretta Mester: “We have more work to do because we have not seen that turn in inflation. It’s got to be a sustained, several months of evidence that inflation has first peaked – we haven’t even seen that yet – and that it’s moving down.”
China responds
Taiwanese leader Tsai Ing-wen greeted U.S. House Speaker Nancy Pelosi at the presidential office this morning in a high-stakes visit that has enraged Beijing. Pelosi reaffirmed a pledge that the U.S. wouldn’t abandon Taiwan, saying solidarity was more important than ever in a “world [that] faces a choice between autocracy and democracy.” The two also discussed deepening economic cooperation and supply chain resilience, while indexes in Asia rebounded somewhat amid fading risks that the visit will result in a major conflict.
Quote: “The U.S. will certainly shoulder the responsibility and pay the price for undermining China’s sovereignty and security interest,” declared Hua Chunying, spokeswoman at China’s foreign ministry.
Within minutes of Pelosi’s arrival, the People’s Liberation Army announced six exclusion zones encircling Taiwan to facilitate live-fire military drills from Thursday to Sunday. While the size and scope of the areas could disrupt traffic and shipping in the Taiwan Strait – one of the world’s busiest trade routes – the exercises would come after Pelosi’s scheduled departure. Cyber warfare also hit Taiwan before the visit, with the presidential office going dark for 20 minutes due to an alleged distributed denial-of-service attack.
Sanctions: Beijing has moved to ban imports of various goods from Taiwan, from fish and fruit to baby food and cookies. According to Chinese customs data, China’s imports from Taiwan reached $122.5B in the first half of the year, up 7.3% from a year earlier. Exports of natural sand to Taiwan – that are widely used for construction and in concrete – were also banned, while China vowed to take “disciplinary actions” against Taiwanese foundations that engage in pro-independence or separatist activities. (9 comments)
Household debt
U.S. households took on more debt in the second quarter, pushing total household debt up by $312B to $16.2T. That puts balances $2T higher than they were before the pandemic at the end of 2019, according to the Federal Reserve Bank of New York.
Snapshot: Mortgage balances accounted for a large chunk of the increase, rising $207B in the quarter to $11.4T at the end of June. Credit card balances also rose by $46B. While seasonal patterns typically include an increase in Q2, the 13% cumulative jump in credit card balances since Q2 2021 is the largest in more than two decades. Elsewhere, auto loan balances rose by $33B, while student loan balances were roughly unchanged from Q1 2022 at $1.6T.
“The second quarter of 2022 showed robust increases in mortgage, auto loan, and credit card balances, driven in part by rising prices,” said Joelle Scally, administrator of the Center for Microeconomic Data at the New York Fed.
Go deeper: Household balance sheets, overall, appear to be strong, but “we are seeing rising delinquencies among subprime and low-income borrowers with rates approaching pre-pandemic levels,” continued Scally. The share of current debt moving into delinquency also rose for all debt types, though they are still historically low. Meanwhile, the delinquency transition rate for credit cards, auto loans and other debts increased by a further 0.5 percentage points, and for home equity lines of credit increased by 0.7 pp. (16 comments)
Earnings firehose
It was a busy day for earnings on Tuesday, triggering a volatile trading session, though for the most part, the season is turning out much better than feared. More than half of S&P 500 companies that have reported earnings so far have beaten analyst estimates, which is above the long-term average of 47%, but still trails the 62% average pace recorded over the past five quarters. On that note, check out some of the latest headlines on Seeking Alpha:
Uber surges 19% as sales double on mobility strength
PayPal soars after Q2 beat and annual guidance boost
Occidental Petroleum posts $3.6B in profit, slips from Q1 heights
Caterpillar sees slowing China demand and supply chain snarls
Starbucks beats on cold drinks, outlook remains suspended
AMD falls as light guidance outweighs strong Q2 results
SoFi climbs after beat, forecast raised as member numbers grow
Airbnb posts record-breaking revenue, touts resilient travel demand
Robinhood reports early, shows a decline in monthly active users
Match Group tanks on revenue miss, downbeat forecast for H2
Outlook: “We’re still in the very early innings of downturn and estimate cuts,” noted Bank of America strategist Savita Subramanian. “We think the fourth quarter is the most likely time of year when companies will decide to ‘kitchen sink’ the estimates in order to preserve hope for a better 2023,” added Morgan Stanley’s Michael Wilson. While J.P. Morgan also expects earnings to deteriorate in the second half, it’s taking a more contrarian view, with revenues expected to increase significantly and “any earnings weakness unlikely to be material.”
Today’s Economic Calendar
7:00 MBA Mortgage Applications
9:45 PMI Composite Final
10:00 Factory Orders
10:00 ISM Service Index
10:30 EIA Petroleum Inventories
10:30 Fed’s Harker Speech
What else is happening…
Robinhood (HOOD) slashes headcount by 23% in another cost-cutting push.
Meme-stock AMTD Digital (HKD) has surged 15,000% since mid-July.
MicroStrategy (MSTR) CEO Saylor steps down, shifts to executive chair role.
Ackman: Fed rate might need to top 4% for up to 18 months to kill inflation.
Labor slowdown? JOLTS show U.S. job openings falling to nine-month low.
President Biden names team of top officials to lead monkeypox response.
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Good morning. Happy Tuesday.
The Asian/Pacific markets were weak. Japan, China, Hong Kong and Taiwan posted big losses; the Philippines did well. Europe, Africa and the Middle East are currently mostly down. France, Germany, Russia, South Africa, Finland, Switzerland, are posting solid losses; Turkey is doing well. 90 minutes before the open, futures in the States point towards a moderate down open for the cash market.
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The dollar is down. Oil is up; copper is down. Gold is up; silver is down. Bonds are up.
Stories/News from Seeking Alpha…
Dire straits
U.S. House Speaker Nancy Pelosi is expected to land in Taiwan at 10:20 a.m. ET, defying Chinese authorities who have warned of consequences if the trip takes place. The White House has sought to distance itself from the visit, saying it cannot control another branch of government, but it is yet another headache for the administration, which already faces a midnight court deadline to defend $350B of Trump-era tariffs on China. While the U.S. has emphasized the trip does not signal a change in its ‘One China’ policy, Beijing has warned that its militarily will “never sit idly by” and “whoever plays with fire will get burnt.”
Backdrop: The last high-ranking U.S. official to visit Taiwan was then-speaker Newt Gingrich in 1997, which occurred in the aftermath of the Third Taiwan Strait Crisis and the island’s first democratic presidential election in 1996. At the time, the Clinton administration responded to the Chinese military buildup in the Fujian province by sailing all of its most powerful weapons through the Strait of Taiwan and staging the biggest display of American military might in Asia since the Vietnam War. China backed down in response, but a lot has changed in recent decades with a more powerful Chinese military and a new zeal to “reunite” Taiwan with the mainland under President Xi Jinping.
Rising risk aversion prompted markets to slide overnight in the Asia-Pacific, with some of the sharpest falls seen in Hong Kong (-2.4%), China (-2.3%) and Taiwan (-1.6%). U.S. stock index futures are also in the red, while the unease was most apparent in U.S. Treasuries as the 10-year yield slipped as much as 9 basis points to 2.51%. Taiwan Semiconductor Manufacturing (NYSE:TSM) – which is the island’s flagship company and the world’s largest manufacturer of semiconductor chips – will also be on the radar during the session as analysts debate the repercussions from Pelosi’s visit.
Best case scenario: The saber-rattling continues and the armed responses are restricted to military flexing. Chinese warplanes could fly close to Taiwan’s air defense identification zone, or naval activities could be conducted near the median line that divides the strait. Reactive measures could also be limited to the test-firing of missiles into the sea, while economic retaliation is on the table.
Worst case scenario: President Xi cannot afford to look weak amid slowing growth and a deflating property bubble, and it is indeed dangerous when autocrats feel that they are beginning to lose power. The People’s Liberation Army could send warplanes over Taiwan, prompting the island to decide whether to shoot them down. America and its allies in the region would likely be drawn into the conflict militarily, sparking further global turmoil following the U.S. withdrawal from Afghanistan and Russia’s invasion of Ukraine. (29 comments)
Energized profits
Earnings from the oil majors continue to roll in after Chevron (CVX), Eni (E), ExxonMobil (XOM), Shell (SHEL) and TotalEnergies (TTE) posted a combined $60B in profit for the second quarter. BP (BP) today also announced an underlying Q2 profit of $8.5B, more than three times the number seen a year ago and its highest quarterly profit in 14 years. Similar bumper results are expected on Thursday from ConocoPhillips (COP), which will be the last supermajor to report quarterly numbers.
What’s happening? High commodity prices from the war in Ukraine and strong refining margins due to growing demand are helping propel soaring returns for the world’s largest energy companies. In fact, BP raised its dividend by 10% following the latest results, and said it was committed to buying back $3.5B of shares in Q3 after completing $2.5B of repurchases last quarter. Capital discipline was also displayed, with net debt falling to $23B, down from $33B in the year-ago period.
“Today’s results show that BP continues to perform while transforming,” CEO Bernard Looney said in a statement. “We do this by providing the oil and gas the world needs today, while at the same time investing to accelerate the energy transition.” While investors should be happy with the outsized profits, consumers are not as ecstatic about the rising energy prices, and the topic has become a political flashpoint. In May, BP announced over $20B of planned U.K. investments, but the attempt failed to head off calls for a windfall tax (similar discussions are taking place among progressive lawmakers in the U.S).
Going into August: The S&P 500 Energy Sector is the only one to record significant performance for 2022. The component has risen 39% since January, with the next closest competitor being Utilities, which is up only 3% YTD. The other nine sectors – which span Technology and Consumer Staples to Financials and Real Estate – are all negative for the year. (8 comments)
Flying chaos
Besides long queues and lost luggage, the travel situation doesn’t appear to be getting better anytime soon. Carriers have been trying to recoup the severe losses suffered over the past few years by making as much money as the can from soaring demand as they come out of the pandemic. The problem is that airline and airport staff have not returned to pre-COVID levels, a pilot shortage is exacerbating the issue, while any wrinkles in one division can cause knock-on effects or meltdowns in other areas of the entire flying operation.
Time to act: British Airways has suspended ticket sales for short-haul flights from London Heathrow over the next week, in a move that is likely to push up ticket prices and add to record U.K. inflation. The British flag carrier already announced it would cancel 10,300 flights through September, in response to the airport imposing a cap of no more than 100K departing passengers per day. The news also comes a week after International Airlines Group (OTCPK:ICAGY), BA’s parent, revealed that it had returned to profit for the first time since the pandemic, but warned of “acute” challenges in scaling up performance.
“We’ve decided to take responsible action and limit the available fares on some Heathrow services to help maximize rebooking options for existing customers, given the restrictions imposed on us and the ongoing challenges facing the entire aviation industry,” said a BA spokeswoman.
Will the same happen in the U.S.? This past Sunday, 17 major U.S. airports saw at least 20% of their flights depart late. The worst of the troubles were seen at Charlotte Douglas in North Carolina and at Harry Reid International Airport in Las Vegas, where 38% and 32% of all flights were delayed, respectively.
Publishing battle
The latest high-profile antitrust lawsuit has hit the courtroom as the U.S. Justice Department attempts to stop Penguin Random House from buying rival publisher Simon & Schuster. The $2.2B merger would reduce the “Big Five” industry publishers from 5 to 4, along with Hachette Book Group, Harper Collins and MacMillan. The suit is also part of a broader competition crackdown by the Biden administration, which has beefed up its campaigns following the signing of an executive order on “Promoting Competition in the American Economy” in July 2021.
The arguments: The DOJ maintains that the transaction will hurt industry competition and cut authors advances by “diminishing overall output, creativity, and diversity among books published.” Simply put, Penguin believes the complete opposite. It thinks the deal will “enhance competition” by pooling its resources, as well as offering better deals to authors that’ll force other publishers to “compete harder” for titles.
The trial is taking place in federal district court in Washington, D.C., and is anticipated to last two to three weeks, with a final ruling expected in November. Among those slated to testify on behalf of the DOJ are famed author Stephen King, whose books have been published by Simon & Schuster, as well as other literary agents like Pulitzer Prize-winning journalist Charles Duhigg.
Outlook: If the combination is approved, it could trigger further consolidation in the publishing sector, but if the deal is blocked, Simon & Schuster parent Paramount Global (NASDAQ:PARA) would likely offload the publisher to a private equity firm. Paramount has already committed to divesting the company, which is what triggered the merger with Penguin Random House in the first place.
Today’s Economic Calendar
9:00 Fed’s Evans Speech
10:00 Job Openings and Labor Turnover Survey
What else is happening…
Monkeypox plays rally as New York calls outbreak a public emergency.
Oracle (ORCL) to start laying off U.S. employees – The Information.
Pinterest (PINS) surges 21% after Elliott Management offers backing.
Twitter (TWTR) issues flood of doc requests to Musk associates – WaPo.
Devon Energy (DVN) lifts production guidance, raises dividend 22%.
Is Occidental Petroleum (OXY) set for another earnings beat in Q2?
Apollo-led (APO) group in advanced talks to buy Atlas Air (AAWW).
Nikola (NKLA) buys battery maker Romeo Power in all-stock deal.
SEC charges 11 people in ‘massive’ crypto pyramid, Ponzi scheme.
Amgen (AMGN) is fighting the IRS over a $10.7B tax bill – WSJ.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets did well. Japan, China, India, Australia, Malaysia, Singapore and Thailand all posted solid gains. Europe, Africa and the Middle East are currently doing great. Denmark, Poland, France, Turkey, Germany, Greece, the UAE, Norway, Hungary, the Netherlands, Italy, Austria and Sweden are up 1% or more. Futures in the States point towards a down open for the cash market.
————— VIDEO: This is a Fantastic Time to Learn Trading —————
The dollar is down. Oil and copper are down. Gold and silver are up. Bonds are down.
Stories/News from Seeking Alpha…
Avoiding a food crisis
Resumed grain shipments from Ukraine are being put to the test following a recent deal that was brokered by Turkey and the United Nations. The Sierra Leone-flagged ship Razoni, carrying 26K tons of corn, departed Odesa at 9:48 am local time, becoming the first vessel to leave the port since late February. A Russian naval blockade still threatens Ukraine’s commercial sea routes, while missile strikes have targeted several ports, as well as infrastructure for grain storage.
Quote: “We are ready to export Ukrainian grain,” Ukrainian President Volodymyr Zelenskyy said after his visit to the Black Sea. “It is important for us to remain the guarantor of global food security.”
It’s a big development for Ukraine – which has been traditionally referred to as the “Breadbasket of Europe” – as well as many developing nations that rely on its grain across Africa, the Middle East and Southeast Asia. It has also raised hopes that an international food emergency could be avoided, with prices spiraling in recent months and exacerbating an inflation crisis. Besides freeing up grain that is currently trapped in Ukraine, there is another looming challenge of how to store or export the country’s upcoming summer harvest, which is expected to yield an estimated 65M tons.
What’s next? 16 more grain ships are awaiting departure from Odesa, but much will depend on whether the agreement can hold, or if shipping firms and insurers will risk sending vessels into the mined waters. In anticipation of the deal, prices for wheat futures on the Chicago Board of Trade slid about 13% over the past month, though commodities still remain at elevated levels. A bushel of wheat is now trading around $8, which is more than double the price it was five years ago and about as expensive as late 2010 when high food costs helped spark the Arab Spring. (5 comments)
Rebound positivity
After a brief period of COVID negativity, President Biden tested positive for COVID again over the weekend. However, there was no reemergence of symptoms and the “president continues to feel well,” White House physician Dr. Kevin O’Connor declared, saying there is no need to reinitiate the therapy at this time. Due to the positive COVID test, Biden will also restart the CDC’s recommended isolation procedure for at least five days.
Backdrop: Biden, who is fully vaccinated and received two boosters of the Pfizer-BioNTech (PFE, BNTX) vaccine, started a course of antiviral Paxlovid after first testing positive on July 21. He then tested negative for COVID from Tuesday to Friday, but was positive again on Saturday, according to the White House, which added that the case represents “rebound positivity.” A similar event also happened to White House chief medical advisor Dr. Anthony Fauci, who tested positive for COVID (with returning symptoms) three days after finishing his Paxlovid regimen.
Commenting on the “rebound” linked to Paxlovid during its recent earnings call, Pfizer said last week that the company and the FDA are working together to design a study targeting patients who might need retreatment. Both Pfizer and the FDA pointed out that only 1%-2% of people in the original Paxlovid study saw their virus levels rebound after 10 days. The rate was also about the same among people taking the medicine or dummy pills, “so it is unclear at this point that this is related to drug treatment.”
From the CDC: “Limited information currently available from case reports suggests that persons treated with Paxlovid who experience COVID-19 rebound have had mild illness; there are no reports of severe disease,” the agency said in May. “Rebound” cases are said to resurface within two days to eight days after initially testing negative for the virus. (242 comments)
Delisting possibility
Shares of Alibaba (NYSE:BABA) plunged 11% below the $100-level again on Friday as the SEC placed the Chinese e-commerce leader on a list of companies at risk of being delisted in the U.S. At issue is Beijing not allowing American regulators to review the work of Alibaba’s auditors and those of other Chinese tech firms. U.S. law gives such companies three years to adhere to the edict or face the potential of being delisted.
The latest: BABA is 2% higher in premarket action as the retail behemoth said it would work to preserve its listings. “Alibaba will continue to monitor market developments, comply with applicable laws and regulations and strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.”
It’s a sign of confidence from a company that said last week it would upgrade its secondary listing in Hong Kong to a dual primary listing. Analysts feel the move could leave it in a better position should it be forced to delist in New York, sparking concerns that it could abandon Wall Street altogether. Alibaba also garnered attention due to reports that founder Jack Ma was poised to give up his control of Ant Group, an Alibaba (BABA) affiliate that provides financial services technology.
Market movement: Since a peak in October 2020, Alibaba’s New York and Hong Kong-listed shares have plunged more than 70%. ADRs in the U.S. are also off 25% YTD and 55% over the past year.
Further strain
Trouble is also brewing in China’s property market, which is coming off a major debt-fueled building boom. A liquidity crisis that was headlined last year by the default of China Evergrande (OTCPK:EGRNF) has only gotten worse, with the country’s largest real-estate developer failing to deliver a “preliminary restructuring plan” that it had promised by the end of July. Eroding confidence in the property sector saw sales at the country’s top 100 developers plunge nearly 40% last month, according to data from Chinese real-estate provider CRIC.
Snapshot: Millions of people across China are experiencing trouble in their homes being finished on time, and a growing mortgage payment boycott in more than 90 cities threatens to exacerbate the situation. The debt crisis was already unsustainable before the current crunch, with the average mortgage payment making up over half of a buyer’s monthly income. Looking to revive the sector, China is now working on a nearly $150B bailout fund to complete stalled property projects and head off a backlash by angry homebuyers.
Interestingly, the bailout isn’t aimed at helping highly-indebted developers complete their projects. It is rather targeting local governments (or local government-owned entities) to take over the projects and apply for loans from the PBOC or commercial banks to complete them. Concerns remain over the strategy’s efficiency, given the fact that local governments could also struggle with completing projects, or how older creditors (like suppliers, contractors, bondholders etc.) will be stacked up in the event of new financing.
Outlook: Cities in China are already struggling with severe debt loads as they shoulder much of the expenses related to education, infrastructure and healthcare (such as mass COVID testing programs). The property market slowdown can force more local governments to rein in spending, adding yet another drag to China’s weakened economy, which expanded by just 0.4% in Q2. “The chance of a vicious cycle – declining housing sales and prices, mounting developers’ distress, and deteriorating local government finances – developing is concerning from growth and financial stability perspectives,” Oxford Economics wrote in a recent research note.
Today’s Economic Calendar
9:45 PMI Manufacturing Index
10:00 Construction Spending
10:00 ISM Manufacturing Index
1:00 PM Baker-Hughes Rig Count
What else is happening…
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50% of gig workers would consider getting paid in crypto.
Delaying strike, Boeing (BA) makes new offer to defense workers.
Australia seeks LNG export curbs to avoid domestic shortages.
Phillips 66 (PSX) maximizing diesel output as fuel demand stays strong.
Vaxart’s (VXRT) oral COVID vaccine offers benefits beyond needles.
Stranger Things (NFLX) finale puts up scary streaming numbers again.
Germany factory activity weakens at sharpest pace in two years.
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