Good morning. Happy Friday.
The Asian/Pacific markets were mixed. Japan, Hong Kong and Taiwan did well; Australia, India and Singapore were weak. Europe, Africa and the Middle East are mixed and quiet. Turkey, Germany and Saudi Arabia are up; Denmark, Greece and South Africa are down. Futures in the States point towards a positive open for the cash market.
————— VIDEO: The Market is in Great Shape – Here are Recent Trades —————
The dollar is up. Oil and copper are down. Gold is flat; silver is up. Bonds are up.
Stories/News from Seeking Alpha…
Crisis on the Rhine
An economic slowdown in Germany is now more likely than ever as fresh troubles on the Rhine River pose a headache for shipping and heavy industry. Levels at Kaub, a key point on the waterway west of Frankfurt, are poised to breach 40 centimeters (15.75 inches) on Friday, and will continue to dwindle in navigability in the coming days. Below that marker, it’s not economical for many barges to transit the river, which is used to ship everything from oil & gas and coal to chemicals and grain.
What happened? Weeks of dry weather have weighed on Europe’s major waterway, with shallow depths preventing barges from loading their full volumes. The effects could ripple through the continent for months, just as the region is on the brink of recession from the war in Ukraine and untamed inflation. Economists estimate the Rhine disruption could knock half a percentage point off Germany’s growth this year, adding to the significant price pressures seen across many Western European countries.
“We’re expecting this situation to continue towards the end of the year,” noted Toril Bosoni, head of the IEA’s oil market division, adding that conditions could be more precarious for landlocked countries in central and eastern Europe that normally get energy deliveries via the Rhine.
Making preparations: Chemical maker BASF (OTCQX:BASFY) hasn’t ruled out production cuts as it placed orders for shallow-water barges and uses more rail to transport goods. Utility Uniper (OTC:UNPPY) warned that it cannot bring enough coal by train to run its plants at full capacity for an extended period of time, threatening output at Germany’s coal-fired power stations. Crisis teams at Thyssenkrupp (OTCPK:TKAMY) are also meeting daily as the steelmaker uses ships with lower drafts to keep up supplies.
Big Mac comeback
Nearly six months ago, McDonald’s (MCD) closed all of its restaurants in Ukraine due to the Russian invasion. Now, it’s planning on reopening them, following in the footsteps of other Western brands that unlocked their doors earlier this month, like KFC and Pizza Hut owner Yum! Brands (YUM). To restart its 109 locations across the country, McDonald’s is working with suppliers to get products to restaurants, while launching stronger safety protocols as the war still rages in Ukraine’s east.
Quote: “We’ve spoken extensively to our employees who have expressed a strong desire to return to work and see our restaurants in Ukraine reopen,” said Paul Pomroy, corporate senior vice president of international operated markets. “In recent months, the belief that this would support a small but important sense of normalcy has grown stronger.”
McDonald’s has continued to pay its more than 10,000 employees in the country throughout the crisis, and established an employee relief fund several months ago. The latest move seeks to help restore a “small but important sense of normalcy” and will be conducted as part of a phased reopening in Kyiv and across western Ukraine. The decision by McDonald’s will also help out the Ukrainian economy, which is expected to contract 35% this year, according to the IMF.
Over in Russia: McDonald’s and other global brands found themselves in a pickle after suspending operations due to the humanitarian crisis and unpredictable operating environment caused by the Kremlin. In response, Mickie D’s sold its businesses to an existing licensee in May, offloading a portfolio of 850 restaurants to local franchise owner Alexander Govor, who renamed the chain “Vkusno & Tochka.” Prior to the sale, McDonald’s noted the closure of its Russian locations had been costing the business around $55M per month. (5 comments)
Rivian Automotive
Will Rivian (RIVN) eventually become a formidable competitor to Tesla (TSLA)? Investors are trying to size that up following the EV maker’s Q2 results. Shares wobbled between gains and losses after-hours, though largely remained near the $40-level, in a similar story that has taken place since the company went public in November. IPO hype initially saw the stock hit as high as $180, before starting to gradually decline to a lower evaluation, even touching lows of under $20.
Mixed sentiment: First off, Rivian lost $1.7B during the quarter, which is a great deal of money even for a company that is in the early stages of production. That puts it in a place to conserve cash and hustling to fill customer purchases, with around 98,000 pre-orders on its books from customers in the U.S. and Canada. With regards to guidance, Rivian still expects to record a whopping $5.5B EBITDA loss in 2022, up from the $4.8B estimate it disclosed three months ago.
“We’ve seen unprecedented levels of inflation, especially across our raw material inputs and lithium prices,” announced CFO Claire McDonough. “We’ve also experienced increased costs in regard to our expedited freight expenses.”
Outlook: Despite building fewer than 7,000 vehicles in the first half, Rivian reaffirmed its goal of producing 25,000 EVs this year (a second factory shift will be added by the end of the current quarter). The EV maker also said its current models will not be eligible for new federal tax incentives passed in the Inflation Reduction Act, but it could bag subsidies of up to $40,000 per vehicle for the large electric commercial vans it’s building for Amazon (AMZN). Rivian currently produces the R1T electric pickup, while the smaller and less expensive R2 SUV is due out in 2025. (21 comments)
Easing guidance
The CDC has revised recommendations for COVID-19, easing the guidance on isolation for unvaccinated people upon exposure to the virus. Per the latest advice, the agency no longer recommends unvaccinated individuals to quarantine after exposure, the same guidance previously issued for vaccinated and boosted people who were exposed to COVID. Those who hadn’t been vaccinated or received booster shots can instead wear a mask for ten days and get tested on day five after the exposure.
Snapshot: The update guidance puts more responsibility on individuals, rather than schools, businesses and employers. Americans also no longer have to social distance, or stay six feet away from each other, as 95% of Americans have some degree of immunity, whether from vaccinations, COVID exposure, or both. Immunocompromised people, or those who have had shortness of breath due to the virus, should still isolate from others for 10 days.
“We’re in a stronger place today as a nation, with more tools – like vaccination, boosters, and treatments – to protect ourselves, and our communities, from severe illness from COVID-19,” said Dr. Greta Massetti, chief of the field epidemiology and prevention branch at the CDC. “This guidance acknowledges that the pandemic is not over, but also helps us move to a point where COVID-19 no longer severely disrupts our daily lives.”
Go deeper: The CDC is ending the test-to-stay policy, which allowed the students of close contacts who test positive for COVID to remain in schools only if they tested negative and remained asymptomatic. The agency no longer recommends testing people in schools who don’t have COVID symptoms, which was a previous strategy to head off potential outbreaks. (63 comments)
Today’s Economic Calendar
8:30 Import/Export Prices
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
What else is happening…
Subscriber-only: New York Times (NYT) jumps as activist takes stake.
Energy stocks eye divergent outlooks from the IEA and OPEC.
Marathon (MPV), Valero (VLO) lead buyers in SPR sale.
Six Flags Entertainment (SIX) sinks on lower traffic numbers.
Illumina (ILMN) plunges after blaming macro factors for Q2 miss.
Johnson & Johnson (JNJ) to end sales of talc-based baby powder.
Southwestern Energy (SWN) surges as U.S. natural gas pops 8%.
Shell (SHEL), Chevron (CVX) shut Gulf oil platforms after leakage.
Apple (AAPL) tells iPhone partners to crank up production plans.
Latest foldables seen at Samsung (OTCPK:SSNLF) Unpacked event.
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Good morning. Happy Thursday.
The Asian/Pacific markets did great. China, Hong Kong, South Korea, Taiwan, Australia, Malaysia, Indonesia and the Philippines rallied more than 1%. Europe, Africa and the Middle East are mostly up. Poland, Turkey, Greece and South Africa are up more than 1%; Spain, Italy, Portugal, Austria and Saudi Arabia are also doing well. Futures in the States point towards a positive open for the cash market.
————— VIDEO: Example Trades & Trade Management —————
The dollar is down. Oil and copper are up. Gold and silver are down. Bonds are up.
Stories/News from Seeking Alpha…
Disney edges Netflix
The magic has returned to Disney (DIS) as a vacationer surge back into parks led to a third-quarter earnings upside surprise. Shares climbed nearly 7% to $120 in post-market trading on Wednesday, with revenue for Disney Parks, Experiences and Products jumping 70% to $7.4B and operating income surging to $2.2B. Tech innovations like reservation systems played a role in the parks’ outperformance, while confidence appeared to return after a bruising few months triggered by the “Don’t Say Gay” tussle between Disney (DIS) and Florida’s legislature.
Conference call: CEO Bob Chapek said all of the company’s theme parks are now open, and visits are strong, but cruise ships and international visitors have some recovery ahead. “Even while the average daily attendance at our domestic parks across the first three quarters of this fiscal year was slightly below 2019, we have delivered significantly higher revenue and operating income over that same time period,” added CFO Christine McCarthy. “This approach also provides flexibility with levers we can adjust if demand were to shift.”
Over in streaming, the House of Mouse beat estimates by tacking on another 14.4M users during the quarter for a total of 152.2M Disney+ subscribers (or 221M total streaming subs when factoring in ESPN+ and Hulu). At those numbers, Disney would have a larger base than its closest competitor Netflix (NFLX), though it continues to bleed cash. Disney’s streaming operation lost $1.1B during FQ3, more than triple its loss of $293M a year earlier.
Oh, boy! Growth expectations were cut after Disney failed to renew cricket rights for the popular Indian Premier League. Subscriber forecasts for 2024 now range between 215M-245M, down from 230M-260M, prompting the company to unveil a new U.S. pricing structure to make its streaming business profitable. Starting Dec. 8., Disney+ with commercials will cost $7.99 per month – which is currently the price of Disney+ without ads – while the monthly membership of ad-free Disney+ will rise 38% to $10.99. (60 comments)
Markets celebrate
Wall Street saw a stampede of buyers on Wednesday, as signs of cooling inflation sent the major averages soaring. The Dow Jones Industrial Average added more than 500 points, while the S&P 500 rose more than 2%, with all 11 sectors of the benchmark index finishing higher. The tech-heavy Nasdaq Composite also soared, bringing its recent gains to over 20% to enter bull market territory, while adding to the two-month recovery for financial markets.
The data: The rate of annual CPI inflation fell to 8.5% in July, from 9.1% in the previous month. Core CPI rose 0.3%, less than forecast, dropping to 5.9% on an annual pace. Traders now see a 43.5% chance the central bank will hike rate by 75 basis points in September (compared with 68% before the CPI numbers), according to the CME Group’s FedWatch tool, while a 50 basis point hike is shown as a 56.5% probability.
Going deeper into the figures, not everything was so rosy. Grocery prices rose 13% in July from a year ago, marking the fastest pace of inflation since 1979, while dining-out shot up as well. Shelter costs, which make up about one-third of the CPI weighting, also continued their ascent, up 5.7% over the past 12 months. However, gasoline eased down 7.7% in July from the prior month, while used-car prices, airline fares and apparel dropped on a month-to-month basis.
Commentary: “The number is a huge relief because anything that keeps the Fed from doing more damage is a positive for all of us,” explained Bryce Doty, portfolio manager at Sit Investment Associates. “One month doesn’t necessarily make a trend but we are certainly encouraged that inflation is moving in the right direction,” noted Jack Ablin, chief investment officer at Cresset Capital. (164 comments)
Recipe gone wrong
Seven years after entering the Italian market, Domino’s (NYSE:DPZ) is closing up shop in the homeland of pizza. While the company had already stopped offering delivery at the end of July, the last of its 29 local branches just shuttered their doors. Social media is abuzz on the news, with some likening the situation to selling ice in the North Pole, or how the chain could compare their pizza to an authentic Napoletana.
History: Domino’s opened its first outlet in Milan in 2015, via a franchising agreement with a local business called ePizza SpA. At the time, it said it hoped to win over Italian palates with “purely Italian” ingredients like Prosciutto di Parma, Gorgonzola, Grana Padano and Mozzarella di bufala Campana. The biggest catch was a national home delivery model that could take on local artisanal shops and provide an alternative to Italy’s dining out culture.
Cracks in the plan first emerged during the pandemic, especially as delivery became essential during coronavirus lockdowns. Many traditional “mom & pop” restaurants went online, allowing buyers to order quality products and gourmet items straight to their homes. As takeout and delivery models were adopted, increased competition was also seen from a rising number of online platforms like Deliveroo (OTCPK:DROOF), Glovo or Just Eat Takeaway.com (OTC:TKAYF).
Out of toppings: ePizza borrowed heavily for plans to open over 800 Italian stores through 2030, attempting to land a 2% stake of the national pizza market. As recently as April, it filed for protection from creditors, and while the motion was granted for an initial 90 days, there have been no further updates on the court process. According to the latest audited reports, ePizza had €10.6M of debt at the end of 2020, but has since been running out of money and faltering on its debt obligations. (15 comments)
Metallic spoofing
Following a three-week trial and more than eight days of deliberations, two former JPMorgan (JPM) employees have been found guilty in a landmark case over futures market manipulation. Michael Nowak, the former head of the bank’s precious-metals business, was convicted on 13 charges including spoofing and fraud, while his top gold trader, Gregg Smith, was also convicted on 11 charges that included spoofing. A third defendant, Jeffrey Ruffo, who was a salesman on JPMorgan’s precious-metals desk, was acquitted entirely.
What is spoofing? The manipulative tactic, which was outlawed by the Dodd-Frank Act in 2010, involves rapidly placing orders with the intent to cancel them before they trade, creating the illusion of demand and influencing prices.
The case is a big victory for the U.S. Justice Department and marks the most aggressive lawsuit brought to date that targets spoofing. Sentences have not yet been handed down, but Nowak and Smith were acquitted of racketeering and conspiracy allegations that would have charged them as an organized criminal enterprise. Back in 2020, JPMorgan also agreed to pay $920M to settle DOJ spoofing allegations, which is by far the largest fine paid by any bank accused of market manipulation since the financial crisis.
Quote: “Today’s jury verdict demonstrates that those who seek to manipulate our public financial markets will be held accountable and brought to justice,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “With this verdict, the Department has secured convictions of ten former traders at Wall Street financial institutions, including JPMorgan, Bank of America/Merrill Lynch, Deutsche Bank, The Bank of Nova Scotia, and Morgan Stanley. These convictions underscore the Department’s commitment to prosecuting those who undermine the investing public’s trust in the integrity of our commodities markets.” (5 comments)
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Producer Price Index
10:30 EIA Natural Gas Inventory
1:00 PM Results of $21B, 30-Year Bond Auction
4:30 PM Fed Balance Sheet
What else is happening…
Big Oil sees positives in new climate bill, but enthusiasm is not shared.
Exxon (XOM) is considering expanding its trading operations globally.
Eyes on Rivian (RIVN) production guidance amid supply chain woes.
Nikola (NKLA) CEO to retire, replaced by insider Lohscheller.
Ford (F) to hike price for F-150 Lightning truck by 7%-18%.
The merger of Redbox (RDBX) and Chicken Soup (CSSE) is here.
Bumble (BMBL) plunges as outlook shows forex, Ukraine war impacts.
Apple (AAPL) boosts in-house podcasting after deal with Futuro Studios.
Back in action: Boeing (BA) delivers first 787 Dreamliner since May 2021.
United (UAL) places deposit for 100 of Archer Aviation’s (ACHR) flying taxis.
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Good morning. Happy Wednesday.
The Asian/Pacific markets closed mostly down. Japan, China, Hong Kong and South Korea posted the biggest losses. Europe, Africa and the Middle East lean to the upside. Denmark, the UAE, Greece, Finland, Hungary, Sweden and Saudi Arabia are up; Poland, South Africa and Norway are down. Futures in the States point towards a positive open for the cash market.
————— VIDEO: Example Trades & Trade Management —————
The dollar is down. Oil is down; copper is up. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Inflation peak?
Today’s Consumer Price Index will provide the first look of inflation data for July, with market participants eager to see if the number topped out last month. Economists expect the figure to rise 8.7% Y/Y, down from the 9.1% clocked in June. Core CPI – which strips out volatile components like food and energy – is still expected to increase 6.1% vs. 5.9%, and that number is set to highly impact whether the Federal Reserve raises rates by 50, 75 or even 100 basis points in September.
Snapshot: U.S. national average gas prices are finally close to falling under the $4.00 mark, as commodity costs come down aggressively, though housing and labor costs are still soaring against a contraction in economic output. “Services are going to be challenging… they’re stickier,” noted Jose Torres, senior economist at Interactive Brokers. He’s specifically looking at airfares and food away from home, as well as durable goods indexes and “how wage gains are being passed on to consumers.”
Not everyone is calling a peak in inflation. Dan Varroney, CEO of consulting firm Potomac Core, doesn’t “expect to see a significant reduction in the CPI,” mostly because the June Producer Price Index ran hot at 11.3%. “Input costs remain really high,” he told Seeking Alpha, and while gas prices have declined, “diesel costs haven’t shrunk appreciably.” M2 money supply also isn’t pointing to lower inflation as “the Senate just approved legislation that’s going to increase that amount of cash – and then the CHIPS Act – you’re probably talking in round numbers about another billion in cash.”
What does it mean for markets? Stocks have generally rallied since gas prices peaked in mid-June, while medium- and long-term Treasury yields dropped from their peaks on broad-based expectations of easing inflation. If this morning’s CPI reading (scheduled for release at 8:30 a.m. ET) comes in stronger than expected, that could “shatter market sentiment, along with the strong jobs report on Friday,” according to Torres. The U.S. dollar will also remain sensitive to the data, with investors “deciding whether slowing headline is more important than sticky and strong core,” wrote strategists at TD Securities. (21 comments)
Streaming search
Just weeks after slashing its profit outlook (and sending its stock tumbling 10%), Walmart (WMT) is looking for some new growth drivers to recharge its subscription base. According to the NYT, the company is talking to media giants like Paramount (PARA), Disney (DIS) and Comcast (CMCSA) about including a streaming service in the Walmart+ membership program. The move is part of an effort to expand its relationship with customers beyond its big-box stores, especially as soaring inflation continues to impact spending.
Thought bubble: Paramount, Disney and Comcast each have their own high-profile streaming offerings in an increasingly competitive space, so they may not be inclined to reach a deal unless the price is right. A transaction could further be modeled off how wireless providers including Verizon (VZ) and T-Mobile (TMUS) have bundled streaming subscriptions as an incentive for new customer sign-ups. Whether it licenses a content library or creates more of a channels product, Walmart might also use the partnership to tap into advertising and expose viewers to its shopping ecosystem.
Efforts will clearly be aimed at competing with dominant retail subscription program Amazon Prime (AMZN). The latter has around 160M users in the U.S., and offers free shipping, Prime Video and Music, and other perks like a year of Grubhub delivery in a membership that costs $14.99 a month. In contrast, a Walmart+ membership costs $12.95 per month (and is said to have around 16M members nationwide), which gets users free shipping, discounts on fuel, and a free six-month subscription to Spotify’s (SPOT) Premium music service.
Note: Walmart previously tried to get into streaming with the purchase of on-demand video service Vudu in 2010, but sold that offering to Comcast-owned Fandango in 2020 after it failed to gain wide adoption. (39 comments)
Crypto shocks
The “crypto winter” seen in Q2 overshadowed the quarterly results of Coinbase Global (COIN), which fell 10% during the session on Tuesday and another 6% in AH trading (the stock is down 65% YTD). The crypto exchange guided for less trading volume, alongside a smaller amount of monthly active users, in the wake of a cyclical market rout. It also reported a loss of over $1B for the quarter – some of which reflected impairment charges on its crypto and venture investments – compared to $1.6B in net income recorded in the same period last year.
Statistics: Monthly active users were 9M at June 30, compared to 9.2M as of March 3. Trading volumes slid 30% to $217B, from $309B in Q1. Assets on the platform tumbled 63% to $96B, from $256B in the prior quarter.
“Q2 was a test of durability for crypto companies and a complex quarter overall,” Coinbase said in a letter to shareholders. “Dramatic market movements shifted user behavior and trading volume, which impacted transaction revenue, but also highlighted the strength of our risk management program. While we did see net outflows in Q2, we observed that the majority of this behavior was institutional clients de-risking and selling crypto for fiat as opposed to withdrawing their crypto to another platform.”
Conference call: “Of course, we don’t control the macroeconomic factors or downturn,” CEO Brian Armstrong told analysts, adding that the firm is continuing to focus on expense management and being at the forefront of crypto technology. The comments came after the company extended its hiring freeze into the foreseeable future after cutting 18% of its headcount back in June. (15 comments)
Stock sale
Elon Musk has been on a Tesla (NASDAQ:TSLA) stock selling spree over the past year, cashing out about $32B worth of shares in the electric vehicle maker. The latest round occurred between Aug. 5 and 9, as the Technoking offloaded another 7.9M shares valued at $6.9B immediately after Tesla’s Cyber Roundup event. Musk said the transaction was “important to avoid an emergency sale of Tesla stock in the (hopefully unlikely) event that Twitter forces this deal to close and some equity partners don’t come through.”
The last time, I promise: “No further TSLA sales planned after today,” Elon Musk tweeted on April 28, implying that was the last financing needed to take over Twitter (NYSE:TWTR). At the end of 2021, Musk also sold about 15.8M of Tesla shares, worth about $16B, to help pay a reported $11B tax bill after polling his followers. This time around, Musk has again vowed that he is “done selling,” and would even buy back the Tesla stock if the Twitter deal doesn’t end up closing (he now owns just under 15% of Tesla).
“This stock sale will raise a lot of conversation on Street for bulls/bears in the morning,” tweeted Wedbush Securities analyst Dan Ives. “Musk tweet confirms our thoughts on Twitter. Street will read through this poker move that chances of Twitter deal more likely now.” Under specific performance clauses, Musk is likely on the hook unless he can prove he was misled or a “material adverse event” had occurred at Twitter, or if debt needed to close the deal was no longer available.
Go deeper: In typical PR fashion, Musk overlaid the recent selling with a host of product announcements. As the SEC Form 4 filings were posted, he took to Twitter to announce that the “Tesla 500 mile range Semi Truck starts shipping this year, Cybertruck next year,” as well as fresh milestones for SpaceX’s (SPACE) Starlink and Starship. Asked if he thought about creating his own social platform if the Twitter deal doesn’t go through, Musk replied in the affirmative, pointing to his website domain “X.com.” (39 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Consumer Price Index
10:00 Atlanta Fed’s Business Inflation Expectations
10:00 Wholesale Inventories (Preliminary)
10:30 EIA Petroleum Inventories
11:00 Fed’s Evans Speech
1:00 PM Results of $35B, 10-Year Note Auction
2:00 PM Treasury Statement
What else is happening…
Will streaming, revival in parks help Disney (DIS) beat earnings?
Norwegian Cruise Line (NCLH) sinks as losses projected to persist.
China inflation hits 2-year high on surging pork and food prices.
Biden ratifies NATO membership approval for Finland and Sweden.
Plug Power (PLUG) slips after Q2 miss, offers up 2025 targets.
Bookings decline and user growth misses at Roblox (RBLX).
Albertsons (ACI) gains on speculation about Ahold (OTCQX:ADRNY) deal.
Unity (U) sees revenue growing, stands by ironSource (IS) acquisition.
Micron (MU) issues weak forecast despite signing of CHIPS Act.
The Trade Desk (TTD) jumps 18% as sales, outlook top expectations.
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Good morning. Happy Tuesday.
The Asian/Pacific markets were mixed and little changed. India did well; Japan was weak. Europe, Africa and the Middle East lean to the downside. The UAE, Russia and South Africa are up; Poland, Turkey, Germany, Hungary, the Netherlands, Italy and Sweden are weak. Futures in the States point towards a down open for the cash market.
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The dollar is down. Oil and copper are up. Gold is down; silver is flat. Bonds are are.
Stories/News from Seeking Alpha…
Revisiting memeland
All aboard! Just don’t be the last one to get off the rocketship. Traders are continuing to buy up tickets to memeland, sending in fairies to circle the usual darlings.
To the moon: Bed Bath & Beyond (NASDAQ:BBBY) is up another 13% premarket to around $13, after popping 40% on Monday (as a record 120.5M shares changed hands) and 30% on Friday. Yesterday, GameStop (GME) was also halted for exchange for volatility, while AMC Entertainment extended another big rally. Further outsized gains were recorded by Express (EXPR), Overstock.com (OSTK), HEXO Corp. (HEXO), Vroom (VRM), Waitr Holdings (WTRH), Wayfair (W) and CarLotz (LOTZ).
The latest catalyst appeared to sprout out of the astounding rise and fall of AMTD Digital (HKD), which surged 32,000% since going public on July 15. The offbeat Hong Kong-based fintech priced its IPO at $7.80, and while it topped out at $2,540 last week, the movement was enough to remind the WallStreetBets crowd of skyrocketing moves. AMC (AMC) also announced plans last week to issue a special dividend via preferred equity units that will trade under ticker symbol “APE,” which is an online moniker for enthusiastic meme traders. Don’t forget the recent rebound on Wall Street that has infused some risk back into the market, while heavy short interest has set the stage for a meme comeback (more than half of Bed Bath shares available for trading are now currently sold short).
Go deeper: A lot of the meme names that are now seeing a resurgence are still down heavily since the initial fever of January 2021. Some still swear by the technicals, which have created countless day trading channels and messaging platforms, while others are quick to point to the eye-popping fortunes being posted online – but don’t forget the whopping losses that get far less coverage. As an outgrowth of the YOLO trade, meming is partly a strategy (short squeeze), partly a gamble (remember binary options?) and partly a middle finger to Wall Street (little guy vs. the suits), which has been compounded by the gamification of stock apps and access to commission-free trading. (4 comments)
Pass the chips
Semiconductor talk is resurfacing this morning ahead of President Biden’s expected signature on the CHIPS and Science Act at 10 a.m. ET. The bill is seen as a competitive win for the industry, especially with regards to China, though it is still unclear how and when the Commerce Department will review grant awards or decide to underwrite projects. The Chinese Embassy in Washington has lobbied against the legislation, saying it “firmly opposed” the bill and it had echoes of “Cold War mentality.”
Latest announcement: Micron Technology (MU) plans to invest $40B through the end of the decade to build leading-edge memory manufacturing in multiple phases in the U.S. The planned investment, the largest in memory manufacturing in American history, will ultimately create up to 40K new jobs including approximately 5K highly paid technical and operational roles. Specific expansion plans and other details will be finalized in the coming weeks.
“This legislation will enable Micron to grow domestic production of memory from less than 2% to up to 10% of the global market in the next decade, making the U.S. home to the most advanced memory manufacturing and R&D in the world,” noted CEO Sanjay Mehrotra.
Another one: Qualcomm (QCOM) has agreed to buy an additional $4.2B in semiconductor chips from GlobalFoundries’ (GFS) factory in New York. The deal specifically covers chips related to 5G wireless transceivers, Wi-Fi, automotive and Internet of Things [IoT] connectivity technologies. It will also more-than-double Qualcomm (QCOM) and GFS’s (GFS) current manufacturing agreement and bring total commitments to $7.4B in purchases through 2028.
Saving local news
M&A has been sidelined by fears of an incoming recession, but some are turning to dealmaking to boost growth in the current environment. Digital-news operation Axios has agreed to sell itself to its most recent lead investor, private media name Cox Enterprises. The cash deal values the company at $525M, which adds up to 5x projected 2022 revenue of more than $100M.
The thinking: Axios began a significant expansion into local news in 2020 at a time when “most commercial investors abandoned local markets.” The current deal is being constructed to ensure investments will continue to flow into local news, with “watchdog journalism so important to the health of any community.” At the moment, Axios Local operates in 24 U.S. cities, but plans to expand its coverage to 30 cities by the end of the year and eventually hopes to be in hundreds of cities.
“This is great for Axios, for our shareholders and American journalism. It allows us to think and operate generationally, with a like-minded partner – and build something great and durable that lives long after we are gone,” Axios CEO Jim VandeHei declared.
Deal structure: Axios co-founders Jim VandeHei, Roy Schwartz, and Mike Allen will continue to run Axios operations and receive financial incentives to stick around. Cox’s four seats mean it would control the board, though Axios will maintain power over Axios HQ, its communications software division that will spin out separately. Axios has been profitable for the last three years, but it is not expected to be profitable in 2022 in part due to HQ investments.
New status quo
In response to Nancy Pelosi’s visit to the island, China was scheduled to wrap up military exercises surrounding Taiwan on Sunday. However, China’s Eastern Theater Command announced yesterday that it would conduct fresh drills focused on anti-submarine operations and air-to-sea strikes, suggesting that Beijing will keep up the pressure on Taiwanese defenses. Meanwhile, President Xi Jinping has laid out a template for operating ever closer to “space near Taiwan Island” after warning that its military will “never sit idly by” and “whoever plays with fire will get burnt.”
Thought bubble: A lot has changed in recent decades with a more powerful Chinese military and a new zeal to “reunite” Taiwan with the mainland. Beijing has never ruled out taking Taiwan by force and it subsequently severed some lines of communication with the U.S. – including military and climate change talks – following Pelosi’s tour of the region. China may also begin to restrict Taiwan’s freedom to operate off its shores in the same way that it squeezed the island’s ability to participate in international institutions since President Tsai Ing-wen’s election in 2016.
“I’m not worried, but I’m concerned they’re moving as much as they are,” President Biden told reporters in Delaware, referring to China. “But I don’t think they’re going to do anything more.” In the meantime, the U.S. is keeping aircraft carrier USS Ronald Reagan and its strike group “on station in the general area to monitor the situation.”
Will the tensions impact markets? An additional risk premium could be priced in for stocks related to China, Taiwan and Japan, especially after Tokyo accused Beijing of firing ballistic missiles into its exclusive economic zone. A decoupling from China would also be a lot harder than what was seen following the invasion of Ukraine, if the U.S. decides to go through with similar sanctions on the world’s second largest economy. Any crisis could quickly escalate, disrupting air traffic and shipping, as well as prompting economic warfare from tariffs and expropriations to boycotts and closures. (11 comments)
Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
8:30 Productivity and Costs
1:00 PM Results of $42B, 3-Year Note Auction
What else is happening…
Berkshire (BRK.B) now owns a 20% stake in Occidental Petroleum (OXY).
Lemonade (LMND) soars after earnings beat and strong guidance.
Novavax (NVAX) crashes 33% following massive Q2 topline miss.
Boeing (BA) set to resume Dreamliner deliveries as FAA signals approval.
Tesla’s (TSLA) China production slides due to factory line upgrades.
Nvidia (NVDA) leads semis lower after hit from weak gaming sales.
Cathie Wood: We’re in a recession, ESG has led to capital misallocation.
Compromise on cannabis legislation sends Tilray (TLRY) soaring.
Pfizer (PFE) inks $5.4B deal to acquire Global Blood Therapeutics (GBT).
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were quiet and little changed. India and Thailand posted gains; Hong Kong was weak. Europe, Africa and the Middle East are doing great. Poland, France, Turkey, Germany, Greece, the UAE, Russia, Hungary, the Netherlands, Israel and Sweden are up more than 1%. 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 up. Bonds are up.
Stories/News from Seeking Alpha…
Inflation Reduction Act
After more than 15 hours of amendments and a “vote-a-rama” session that stretched into Sunday afternoon, the U.S. Senate narrowly passed the Inflation Reduction Act. The measure – which aims to cut government deficits and consumer medical bills while boosting climate spending – passed by a margin of 51-50, with Vice President Kamala Harris casting the tie-breaking vote following a year of Democratic infighting. The bill now goes to the House for a vote, which will likely take place on Friday as representatives briefly reconvene during the Congressional summer recess.
Quote: “Today, Senate Democrats sided with American families over special interests, voting to lower the cost of prescription drugs, health insurance, and everyday energy costs and reduce the deficit, while making the wealthiest corporations finally pay their fair share,” announced President Biden following the measure’s passage. “I ran for president promising to make government work for working families again, and that is what this bill does – period.”
The Inflation Reduction Act somewhat embodies earlier incarnations of the Build Back Better plan, albeit with a price tag of around $430B (in place of $3.5T, and a revised version of $2.2T). It also gives Biden a major legislative achievement ahead of midterm elections, and another win for his economic agenda after Congress pulled through on the Chips for America Act. While both sides of the aisle agreed to the semiconductor spending, Republicans slammed the latest bill as “another reckless taxing and spending spree” in an era of “runaway inflation.”
The price tag: Democrats argue that the Inflation Reduction Act will help tame inflation because it dampens medical and energy costs while paying for itself. According to initial estimates, the measure would raise a total of $739B in revenue, and spend a total of $433B, reducing the budget deficit by roughly $300B over a decade. The non-partisan Congressional Budget Office also found that the package would reduce the deficit by about $102B over the next 10 years, and would be in-line with the deficit reductions claimed by Sens. Chuck Schumer and Joe Manchin if revenue from tax enforcement was included in the calculations. (36 comments)
Bill breakdown
Healthcare policies: The measure will cap Medicare recipients’ out-of-pocket prescription-drug costs at $2,000 a year, while Obamacare subsidies will reduce 13M Americans’ annual medical-insurance premiums by $800. The measure also grants Medicare the ability for the first time to negotiate some bulk discounts with drug companies for pharmaceuticals – something many private companies currently do. Meanwhile, the $35 insulin cap for Medicare beneficiaries remains in place, but GOP lawmakers were successful in removing the provision from the private market, which could have impacts for top insulin makers Eli Lilly (LLY), Novo Nordisk (NVO) and Sanofi (SNY).
Tax legislation: The bill will impose a 15% corporate minimum tax on large corporations – some of which report significant profits but pay little or nothing in income taxes due to credits and deductions – such as Amazon (AMZN), Nike (NKE) and FedEx (FDX). It would also impose a new 1% tax on corporate stock buybacks, though plans to tax the wealthy were removed, as well as taxing “carried interest” payments of private equity fund managers. $80B of funding was still earmarked to the Internal Revenue Service, with the aim at improving customer service, increasing the number of audits and modernizing technology.
Climate investment: Incentives like a $4,000 tax credit for the purchase of used EVs, and $7,500 for new ones, will drive up interest in companies like Tesla (TSLA) and Ford (F) that are assembling vehicles in the U.S. The new credits would apply to trucks, vans and SUVs priced under $80,000 and cars up to $55,000 (only families with adjusted gross incomes of up to $300,000 would be eligible). There are also energy rebates for heat pumps, rooftop solar, electric HVAC and water heaters, as the U.S. aims to lower carbon emissions by around 40% by 2030. (36 comments)
What is going on?
The jobs report on Friday blew it out of the water, with nonfarm-payrolls expanding by 528,000 in July, more than double expectations of a 250,000 increase. The unemployment rate fell to a further 3.5%, marking its lowest level since 1969, while average hourly earnings grew at 5.2% Y/Y. That data doesn’t look too consistent with the last two quarters of economic contraction, and indeed, it has sparked “recession” talk once again ahead of the CPI report on Wednesday.
Snapshot: While stocks traded mixed on the news, the 2y10y yield curve inverted by the highest margin since the dot-com crash. The thinking here is that the job gains will give the Fed more room to tighten, especially as accelerated wages intensify a threat of more entrenched inflation. The central bank is also trying to restrict monetary policy without negative consequences for the consumer and economy, but the recent figures could complicate its efforts of engineering a more temperate employment environment.
“Jobs haven’t slowed at all in response to Federal Reserve tightening. This is a double-edged sword,” wrote Michael Gapen, chief U.S. economist at Bank of America. While the odds of a “near-term recession is lower… the risk of a hard landing is rising.”
Statistics: Traders now see a 68.5% chance of a third 75-basis-point move in September, according to the CME Group’s FedWatch tool that measures pricing in the fed funds futures markets. (9 comments)
Pain at Softbank
Japan’s SoftBank Group (OTCPK:SFTBY) has posted a record $23B quarterly net loss after its Vision Fund got hammered by a global tech selloff triggered by rising interest rates and soaring inflation. Not helping the situation was a plunge in IPO volumes and China’s tech crackdown, as well as rising skepticism over money-losing startups. It comes as the Japanese conglomerate continues to lose a growing number of top executives, like COO Marcelo Claure and Chief Strategy Officer Katsunori Sago.
Quote: “When we were turning out big profits, I became somewhat delirious, and looking back at myself now, I am quite embarrassed and remorseful,” said Chief Executive Masayoshi Son. “Now seems like the perfect time to invest when the stock market is down so much, and I have the urge to do so, but if I act on it, we could suffer a blow that would be irreversible, and that is unacceptable.”
Instead, the company has pledged to go into “defense” mode by reeling back on investments and preserving cash to weather the downturn. It has also offloaded its stakes in ride-hailing giant Uber (UBER) and home-selling platform Opendoor Technologies (OPEN) for a total of $5.6B. Looking to further appease investors, SoftBank authorized a share buyback program worth up to $3B, and raised over $10B by using its shares in Alibaba (BABA) for prepaid forward contracts.
Go deeper: Softbank is not the only miserable hedge fund in town. Competitor Tiger Global saw its flagship fund plunge 50% in the first half of 2022 after underestimating the tech selloff and surging inflation across the economy.
Today’s Economic Calendar
12:30 PM Investor Movement Index
Companies reporting earnings today »
What else is happening…
Baidu (BIDU) wins China’s first fully driverless robotaxi licenses.
Could mobile advertising be Apple’s (AAPL) next big thing?
CVS Health (CVS) seeking purchase of Signify Health (SGFY) – WSJ.
Carlyle (CG) CEO Kewsong Lee will step down at the end of 2022.
UPS (UPS) nears deal for Italian healthcare logistics provider Bomi.
Musk challenges Twitter (TWTR) CEO to debate over ‘bot percentage.’
Oz Minerals (OTCPK:OZMLF) rejects BHP’s (BHP) A$8.4B takeover bid.
What investments will prosper during stagflation? Look to the ’70s.
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