Good morning. Happy Friday.
The Asian/Pacific markets leaned up. Hong Kong, Taiwan, Australia, and the Philippines did well while China and Indonesia were weak. Europe, Africa and the Middle East are currently mixed. Turkey, Russia and South Africa are up; Denmark, Poland, Greece and Italy are down. Futures in the States point towards a down open for the cash market.
————— VIDEO –>> Using the AD Line to Determine Market Conditions —————
The dollar is down. Oil and copper are up. Gold is down; silver is up. Bonds are down.
Stories/News from Seeking Alpha…
Powell in the hot seat
Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium today is expected to convey the central bank’s resolve to push inflation down closer to its 2% goal, even at the risk of raising the unemployment rate, currently at 3.5%, a 50-year low. To provide some context, two years ago at the Wyoming gathering of monetary policy wonks, Powell introduced the central bank’s new inflation averaging policy that would tolerate inflation running above its 2% goal for some time in order to push the unemployment rate lower. That was when inflation had been stubbornly lagging the Fed’s goal for years.
Fast forward to 2021: Powell said the bank’s test for inflation was met and the economy had made “clear progress” toward maximum employment, before ditching the “transitory” thesis and getting aggressive. Since then, the Fed started shrinking its balance sheet and raised its policy rate four times, bringing the federal funds rate target range to 2.25%-2.50%, the same level it was in May 2019 at the height of the last tightening cycle. Now traders, are betting on a third 75-basis-point rate hike in a row, with sentiment shifting from 50 bps over the past week, according to the CME FedWatch tool.
Investors, portfolio managers and economists will all tune for clues as to whether Powell expects to pause the rate hikes, though that doesn’t appear to be in the cards. “Chair Powell is likely to give the marketplace a dose of reality as he expresses that inflation must be the Fed’s main priority rather than growth,” said José Torres, senior economist at Interactive Brokers. “Since the July meeting, financial conditions have loosened significantly which counters the Fed’s goal of lower inflation. Chair Powell is likely to be tougher this time around to not make the same mistakes of the July meeting which mirror the mistakes Arthur Burns made in the 1970s.”
Data dependent: As usual, expect Powell to say the Fed officials will base their decisions on incoming data. Note that by the time Powell speaks at 10 a.m. ET, July’s personal consumption expenditures – the Fed’s favorite inflation gauge – will have been reported (core PCE is expected to rise 4.7% Y/Y, while headline PCE consensus is +6.3% Y/Y). Powell is also likely to repeat that many of the factors that drive inflation are outside of the Fed’s control. While the central bank can only influence the demand side of the equation, the supply side has been impacted by post-pandemic supply chain disruptions and geopolitical factors like the war in Ukraine. (6 comments)
Satellite service
After hinting to a technology alliance earlier this week, Elon Musk has announced a new venture that will involve a partnership with U.S. telecom company T-Mobile (NASDAQ:TMUS). The plan aims to eliminate “dead zones” by using large antennae on SpaceX’s (SPACE) second generation of Starlink (STRLK) satellites to transmit directly to consumer cell phones. Most current smartphones will work with the new service, which is expected to be included for free on T-Mobile’s most popular monthly plans.
Specifics: “This won’t have the kind of bandwidth a Starlink terminal will have, but this will enable texting, it will enable images and if there aren’t too many people in the cell zone, you can even potentially have a little bit of video,” according to Musk. “We will no longer read about these tragedies that happened where people got lost and if only they could have called for help they’d be okay.”
Hurdles remain as the FCC still needs to sign off on SpaceX’s use of T-Mobile’s wireless spectrum. Musk is also known to tout grandiose visions way before a project can be rolled out to the market, like Tesla’s network of autonomous taxis, timelines of the Semi and Cyber trucks, installing 1,000 solar roofs per week, mass transit tunnels, etc. This time around, texting services in the beta phase of the Starlink/T-Mobile plan are only expected to roll out by the end of next year, and much can happen before then.
Outlook: Whether or not the cell service gets off the ground, Starlink is handily outpacing its rivals. Facebook (META) abandoned plans for its Aquila solar-powered internet drones in 2018, while Alphabet (GOOGL) pulled the pin on internet balloon project Loon last year. The future definitely seems to belong to low-Earth-orbiting satellites, though Amazon’s (AMZN) Project Kuiper is mostly on paper and competitor OneWeb has only launched 218 satellites (compared to the 3,000 that are currently supporting the Starlink network). AST SpaceMobile (ASTS) is also building a global cellular broadband network in space, but its first scheduled launch will only happen in September. (5 comments)
Higher and higher
British energy regulator Ofgem is raising the country’s price cap on consumer energy bills by 80% to £3,549 ($4,200) a year, exacerbating a cost-of-living crisis in the U.K. The latest increase will come into force from Oct. 1, though costs could get drastically worse over the next year. Consultancy Cornwall Insight forecasts the cap could rise to £4,650 in Q1 of 2023 and to £5,340 in Q2, up from an average £1,400 annual bill in October 2021.
Snapshot: Ofgem is now recalculating price caps every three months rather than every six months to reflect volatility in the wholesale market and other industry costs. It comes amid higher demand, supplier bankruptcies and as Russia “slowly and deliberately” turns off the gas supplies to Europe. The situation has even prompted the government to pay a £400 grant to all households over six months from October – with another one-time £650 payment going to 8M low-income households – but many are still waiting on a more decisive plan from lawmakers.
“A catastrophe is coming this winter as soaring energy bills risk causing serious physical and financial damage to families across Britain,” said Jonny Marshall, senior economist at the Resolution Foundation. “We are on course for thousands to see their energy cut off entirely, while millions will be unable to pay bills and build up unmanageable arrears.”
Over in the U.S.: 1 in 6 American homes have fallen behind on their utility bills, according to the National Energy Assistance Directors Association (NEADA). It’s the worst crisis the group has ever recorded, with households owing a combined $16B in unpaid bills, about double the pre-pandemic total. (4 comments)
Omicron boosters
“All adults should stay up to date with COVID-19 vaccination,” the CDC has declared, after releasing a study that centers around coronavirus hospitalization this past spring. “Among hospitalized non-pregnant patients [from the end of March until the end of May], 39.1% had received a primary vaccination series and 1 booster or additional dose; 5.0% had received a primary series and ≥2 boosters or additional doses. In May 2022, the monthly population-based, ‘age-adjusted’ hospitalization rate among unvaccinated adults aged ≥18 years was 3.4 times as high (95% CI = 3.2–3.6) as rates among vaccinated adults who had received ≥ 1 booster or additional dose.”
Other findings: The total number of hospitalizations remained much lower than when the Delta variant was rampant last fall, when vaccinations were more effective at preventing hospitalization. Those over the age of 65 were hit the hardest, while those with two booster shots were less likely to be hospitalized than those with just one during the BA.2 period.
The data could hasten approval for Omicron-specific COVID-19 boosters. Pfizer (PFE) and German partner BioNTech (BNTX) submitted an application for FDA emergency use approval of the shots on Monday, while Moderna (MRNA) followed suit on Tuesday. The New York Times this week also reported that the Biden administration is eying a campaign to begin the rollout of updated vaccines shortly after Labor Day.
Coming soon: FDA Commissioner Robert Califf said yesterday that the agency would not hold a vaccines advisory committee meeting on Moderna and Pfizer’s new emergency use requests, as it feels “confident” in the extensive discussion that was held in June. “The Vaccines and Related Biological Products Advisory Committee voted overwhelmingly to include an Omicron component in COVID-19 boosters. FDA has no new questions that warrant committee input. Bivalent and multivalent vaccines are very common and modifying a vaccine to include different virus strains often does not require a change in other ingredients.” (258 comments)
Today’s Economic Calendar
Jackson Hole Economic Symposium
8:30 International Trade in Goods (Advance)
8:30 Personal Income and Outlays
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 Consumer Sentiment
10:00 Jerome Powell Speech
1:00 PM Baker-Hughes Rig Count
What else is happening…
Bridgewater expects up to 25% drop in stocks, bonds on Fed tightening.
Judge favors Twitter (TWTR) in ruling, calls Musk requests ‘absurdly broad’.
Trump SPAC (DWAC) dips on report Truth Social isn’t paying web vendor.
Chipotle (CMG) restaurant in Michigan becomes chain’s first to unionize.
Peloton (PTON) erases Amazon (AMZN) gain on potential saturation issue.
Gap (GPS) trades higher after better-than-feared earnings report.
New government stimulus spending helps out Chinese tech stocks.
Warner Bros. Discovery (WBD) taps Dan Lin to take charge of DC brand.
Bed Bath & Beyond (BBBY) to update on strategy during call next week.
—————
Good morning. Happy Thursday.
The Asian/Pacific markets had a great day. Japan, China, Hong Kong, South Korea, Taiwan, Australia, Malaysia and the Philippines posted solid gains. Europe, Africa and the Middle East are currently doing well too. Denmark, Poland, Turkey, South Africa, Hungary, Austria, Saudi Arabia and the Czech Republic are up. Futures in the States point towards a positive open for the cash market.
————— VIDEO –>> Using the AD Line to Determine Market Conditions —————
The dollar is up. Oil and copper are up. Gold is up; silver is down. Bonds are down.
Stories/News from Seeking Alpha…
Hey, Oh, Jackson Hole!
The bookies are cuing up the spreads for Jackson Hole, and investors are taking note. The annual economic symposium has increased importance this year given the current macro-driven market, as well as the cohesive swings being seen among asset classes like stocks, bonds and commodities. While tomorrow’s edition of Wall Street Breakfast will feature a full breakdown of what to look out for in Fed Chair Jay Powell’s speech, here are some analyst calls ahead of the conference and what that might mean for market movement.
Powell is no Volcker: “I think he will lay out a case, as he did in his last press conference, for slowing the pace of increases. We had two 75-basis-point moves. Our expectation would be, barring significant data surprises, that the September move is 50,” said Jan Hatzius, chief economist at Goldman Sachs. “I don’t think he will be specific about the number, but I do think he will be saying there is a risk of over-tightening, and therefore it makes sense to go a little bit more slowly than the outsized increases.”
Ain’t over yet: “It’s safe to assume one of Powell’s objectives will be to communicate that there remains work to be done to combat inflation and the hiking cycle isn’t nearing its end,” wrote Ian Lyngen, rates strategist at BMO Capital Markets.
Turbulence ahead? “Throughout this year, what we’ve seen is the volatility around the Fed-funds rate has created market volatility,” noted Michael Arone, managing director at State Street Global Advisors. “I think that all of this ‘trying to find that level’ has induced this volatility, and I think the markets are underestimating where the Fed will end up.”
Ironing itself out: “We maintain that inflation will resolve on its own as distortions fade, and likely drive a Fed pivot,” related Marko Kolanovic, chief global markets strategist at J.P. Morgan. “In Chair Powell’s remarks, we do not expect him to tip his hand on the size of the next move, which will depend on upcoming releases, but we believe he will push back against the idea that a dovish policy pivot is coming soon.” (4 comments)
The EV age
California’s Air Resources Board this afternoon is expected to ban the sale of new gasoline cars by 2035, while setting interim targets to phase the vehicles off the road. The decision will have major ramifications for the auto industry given California’s massive economy, which would rank as the world’s fifth largest if it were a sovereign nation. In the past, more than a dozen other U.S. states have also opted to use stricter emission standards set by California under a federal waiver of the Clean Air Act (which was revoked by President Trump, only to be restored by President Biden).
Details: The rules would focus on sales of new models – not used vehicles – by setting interim quotas. Starting in 2026, 35% of new passenger cars, SUVs and small pickup trucks sold in California would have to be zero-emission vehicles. The measure would then increase each year, reaching 51% of all new car sales in 2028, 68% in 2030 and 100% in 2035 (only 20% of zero-emission cars sold could be plug-in hybrids).
The proposed rules come shortly after the signing of the Inflation Reduction Act, which involves tens of billions of dollars for spending on the electric vehicle transition. Provisions include new tax credits aimed at incentivizing EV sales, as well as benefits for carmakers shifting production to the U.S. to shore up the domestic supply chain. Last year, the Biden administration also issued stricter nationwide tailpipe for new vehicles and SUVs made through 2026.
Can the auto industry hack it? “Despite this positive trend, California’s EV sale mandates are still very aggressive – even in California with decades of supportive EV policies – and will be extremely challenging,” said John Bozzella, CEO of the Alliance for Automotive Innovation. “That’s just a fact.” The state’s objectives depend on many factors, such as “inflation, charging and fuel infrastructure, supply chains, labor, critical mineral availability and pricing, and the ongoing semiconductor shortage.” (2 comments)
ESG blacklist
In the latest example of how politics hits the investing sphere, Texas is conducting a counter “ESG” crackdown. It says the move is in response to top financial services firms’ targeting of the fossil fuel industry, which is big business in the Lone Star State. Wall Street has been watching the case as a bellwether for how aggressively Republican state officials will go after expanding ESG campaigns or the socially “woke” policies of big corporations.
Backdrop: In 2021, Texas passed a law that mandates state pension and local governments divest shares they hold in financial groups that “boycott energy companies.” It specifically defines the rule as “refusing to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with a [fossil fuel] company” that hasn’t made specific environmental promises. In order to carry out the legislation, state pension funds are required to disclose their direct and indirect holdings, or must explain their relationships if the divestments would conflict with their fiduciary responsibilities.
“The ESG movement has produced an opaque and perverse system in which some financial companies no longer make decisions in the best interest of their shareholders or their clients, but instead use their financial clout to push a social and political agenda shrouded in secrecy,” declared Texas comptroller Glenn Hegar.
In the crosshairs: BlackRock (BLK), the world’s largest money manager with $8.5T in total assets, is the most prominent financial firm to be mentioned by Texas. For its part, Blackrock says “this is not a fact-based judgment” and “investing over $100B in Texas energy companies on behalf of our clients proves that.” Other companies subject to divestment include BNP Paribas (OTCQX:BNPQF), Credit Suisse (CS) and UBS (UBS). (103 comments)
Wish You Were Here
Private equity firm Blackstone (BX) is among potential buyers of Pink Floyd’s back-catalog, according to the FT, in a deal that could value the band’s music at almost a half billion dollars. The transaction would include master recordings and copyrights to the songs, which include rock classics like “Another Brick in the Wall,” “Comfortably Numb” and “Money.” KKR (KKR)-backed BMG, Warner Music (WMG), Sony Music (SONY) and Oaktree-funded Primary Wave are also vying for the catalog.
Turning up the volume: Last year, Blackstone took a majority stake in Hipgnosis Song Management, a firm founded by Elton John’s former manager Merck Mercuriadis. After the investment in HSM, the private equity firm set up Hipgnosis Songs Capital, which has already bought $341M of back catalogs from Justin Timberlake, Nile Rodgers, Leonard Cohen, Nelly Furtado and Kenny Chesney.
Any agreement would show Blackstone’s love for the industry, with the latest Pink Floyd deal worth more than all of those titles combined.
Go deeper: The music sector has attracted private equity firms and others in recent years given its consistent returns in a low interest rate environment. In 2021, Sony (SONY) acquired Bruce Springsteen’s recording masters and music publishing for a reported $500M, while Universal Music acquired Bob Dylan’s catalog in 2020. (36 comments)
Today’s Economic Calendar
Jackson Hole Economic Symposium
8:30 GDP Q2
8:30 Initial Jobless Claims
8:30 Corporate profits
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $37B, 7-Year Note Auction
4:30 PM Fed Balance Sheet
What else is happening…
SoFi (SOFI) climbs with clarity around student loan forgiveness.
Nvidia’s (NVDA) Q3 forecast signals ongoing gaming, PC weakness.
Snowflake surges as revenue, guidance soothe investor concerns.
Bed, Bath & Beyond (BBBY) nears $400M loan from Sixth Street Partners.
Salesforce (CRM) stumbles as strong dollar weighs on revenue outlook.
Earnings watch: Peloton’s (PTON) margins and subscription momentum.
Amazon (AMZN) getting rid of telehealth service Amazon Care – WaPo.
Qianshi: Baidu (BIDU) reveals first superconducting quantum computer.
Oil higher as Iran deal remains elusive, U.S. crude stockpiles shrink.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets leaned down. China, Hong Kong and Malaysia dropped more than 1%. Europe, Africa and the Middle East are currently split and void of big movers. Denmark is up; Poland is down. Otherwise there are standouts. Futures in the States point towards a flat open for the cash market.
————— Leavitt Brothers Overview –>> here —————
The dollar is down. Oil and copper are up. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Forgive the students
Reports suggest that the White House will make a long-awaited announcement on student loan forgiveness today, and is leaning toward a plan to cancel up to $10K of debt per borrower for individuals who earn less than $125K per year. Any cancellation would come at a time when the U.S. unemployment rate has fallen to 3.5%, and is even less among college graduates with a bachelor’s degree, with the rate averaging 2.9% in July. The Education Department has also canceled around $25B in student loans since Biden took office, but that has only impacted borrowers defrauded by for-profit schools, disabled students and those enrolled in public service loan forgiveness programs.
Thought bubble: The announcement appears to have already been delayed a number of times over whether the motion could provide a boost or detriment ahead of November’s midterm elections. Some economists warn that student debt cancellation could exacerbate price pressures at a time of record inflation, and it could be flagged as a contributor to higher prices. A backlash could also be seen from voters who chose not to go to college because of the cost, don’t have loans or already paid them off.
Sources recently told the Wall Street Journal that Biden has “nonetheless warmed to the idea in recent months as advocates inside and outside the administration made impassioned pleas for him to take action.” While he has gone on record saying he doesn’t believe a president has the authority to cancel student debt unilaterally, Biden would support the passing of a bill through Congress. He has separately ruled out a proposal backed by Massachusetts Sen. Elizabeth Warren and other progressives that would forgive up to $50K in debt per student borrower.
Go deeper: The Biden administration is also expected to address in the coming days whether it will extend the pause on federal student loan payments again. While the Education Department announced its “final extension” back in January, it has since delayed the moratorium twice, citing threats to Americans’ financial stability. The extensions have been costly for financial companies, with shares of SoFi Technologies (SOFI) plunging back in April after cutting its 2022 guidance. Other related stocks include Sallie Mae (SLM), Navient (NAVI) and Nelnet (NNI). (356 comments)
The Office
While Apple (AAPL) looks to get its employees back to the office, other companies are giving up on their brick-and-mortar institutions. Lyft (NASDAQ:LYFT) just announced that it will rent out nearly half of its office spaces in New York City, Nashville, San Francisco and Seattle, as it doubles down on its “fully flexible” work policy. The ride-hailing firm feels the strategy “strikes the right balance between trust and choice” for its 4,000 employees, “helping us do our best work while attracting and retaining top talent.”
Bigger picture: Lyft intends to sublease about 44% of its combined 615K square feet to other businesses, hoping to cut costs as staff continue to work from home. Software giant Salesforce (CRM) and business review site Yelp (YELP) are among other companies that have also said they plan to sell or rent out parts of their offices. Not everyone is on board the trend, however, with Google (GOOGL) announcing recent plans to spend $1B buying real estate in the West End of London, and shell out another $7B on offices and data centers in the U.S.
“Many of our team members opted to work remotely after we shifted to a flexible workplace strategy,” declared Lyft VP Rachel Goldstein. “As a result, we have identified a significant amount of office space that isn’t being utilized the way it previously was.”
Statistic: The average workplace occupancy rate in the top-10 U.S. metro areas is currently 43.5%, down from over 95% before the pandemic began, according to Kastle Systems, which collects daily data on how many workers swipe into office buildings.
Technosplit
Tesla (NASDAQ:TSLA) shares are about to look a whole lot cheaper, but don’t just look at the ticker tape. The electric vehicle maker’s stock is set to be chopped into three after the close of trading today, though the total value of a shareholder’s holdings will remain unchanged, as well as the company’s market capitalization (meaning its S&P 500 weighted value will remain the same). As of Wednesday morning, TSLA’s market price stood at $889, meaning a 3-for-1 split would leave shares at around $290.
Snapshot: While Tesla’s decision doesn’t affect any fundamentals, it does make the stock (or options contracts) more affordable for retail investors or those that don’t want such a holding to be a large portion of their portfolios. The company even alluded to these benefits when announcing the move back in June. “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 and make our common stock more accessible to our retail shareholders.”
This isn’t the first time Tesla has split its shares, and likely won’t be the last. In fact, the company executed a 5-for-1 transaction back in August 2020 (shares have doubled since that date). Amazon (AMZN) and Alphabet (GOOGL), the parent of Google, also split their stock 20-for-1 in the past few months, while e-commerce giant Shopify (SHOP) completed a 10-for-1 split this summer.
Next catalyst? While Tesla is up about 30% since the electric vehicle maker announced plans to split its stock in June, it’s still off 26% YTD. Some have pointed to recent catalysts like the Inflation Reduction Act, which renews a $7,500 tax credit for Americans to purchase EVs, though several of its models will not qualify given the price ceiling of $55,000 for sedans and $80,000 for SUVs (think Long Range and Performance Model 3s, and Model S and X). Things are also complicated given the requirements to domestically source “critical materials” for batteries, though the company is likely to recover production this quarter after COVID lockdowns hampered output in Shanghai. (18 comments)
War drags on
It’s been a heartbreaking last six months since Russia launched a full-scale invasion of Ukraine, with the tragic half-year milestone falling out today – on Kyiv’s 31st Independence Day from the Soviet Union. While it’s difficult to determine the exact loss of life, Ukraine says it has lost 9,000 members of its armed forces, while Russia has likely recorded around 15,000 troop fatalities. The tally doesn’t include an untold amount of civilians that have been caught or perished in the crossfire, or have been forced from their homes and communities.
War of attrition: The conflict doesn’t look like it will end anytime soon, though expectations have changed drastically since the beginning of war. Many had assumed that Ukraine and the capital would fall within a matter of days, only to be surprised by the army’s capabilities and Russia’s forced pivot to the eastern Donbas region. Moscow has referred to the battle as a “special military operation” to “denazify” Ukraine, though the assault has only strengthened NATO unity and has even led to a possible expansion of the alliance with historically-neutral Finland and Sweden.
The U.S. has provided $10.6B in military assistance to President Volodymyr Zelenskyy’s government since the beginning of the Biden administration, including 19 lots of weapons taken directly from stocks in the Defense Department. Washington today is set to announce another aid package worth about $3B, to train and equip Ukrainian forces to fight for years to come. Meanwhile, international sanctions continue to remain in place on Russia, though analysts feel the damage will be felt over time and the economy is still a long way away from collapsing.
Elsewhere: The war has led to soaring inflation and a cost-of-living crisis in Europe, but rising energy and food prices have yet to undermine Western unity. The euro has even fallen below parity with the U.S. dollar after Russia’s announcement that it would halt gas supplies via the Nord Stream 1 pipeline for three days at the end of August. Investors are nervous that the move can exacerbate an energy crisis that has weighed on the currency, as well as a European Central Bank that is still hesitant to get too aggressive due to fears about a recession.
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods
10:00 Pending Home Sales
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
1:00 PM Results of $45B, 5-Year Note Auction
What else is happening…
Updated COVID boosters expected shortly after Labor Day – NYT.
JD.com (JD) posts quarterly beat, but sees slowing revenue growth.
Macy’s (M) higher after earnings despite battling inventory issues.
Nordstrom (JWN) sinks after late quarter slump, lowered guidance.
Apple (AAPL) to narrow iPhone 14 production lag between China, India.
Intel (INTC) signs $30B Brookfield (BIP) funding deal for expansion.
Judge hands Musk discovery setbacks in case against Twitter (TWTR).
Former head of security at Twitter (TWTR) files whistleblower complaint.
Occidental (OXY) ready to break ground on first carbon capture project.
Malaysian fintech Starbox (STBX) soars over 1,000% in market debut.
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Good morning. Happy Tuesday.
The Asian/Pacific markets were mostly weak. India, Indonesia and Thailand did well, but Japan, Hong Kong, South Korea, Taiwan, Australia, New Zealand and the Philippines were weak. Europe, Africa and the Middle East are currently split. Poland, Turkey, Italy and Austria are up; the UK, Denmark, Switzerland, Hungary and Saudi Arabia are down. Futures in the States point towards a flat open for the cash market.
————— Leavitt Brothers Overview –>> here —————
The dollar is up. Oil is up; copper is down. Gold is flat; silver is down. Bonds are down.
Stories/News from Seeking Alpha…
Shares of AMC Entertainment (AMC) plunged on Monday as a dividend in the form of one AMC Preferred Equity (APE) unit per AMC share arrived in holders’ accounts. While the company vowed that it wasn’t a dilution, and technically it wasn’t a stock split, when taken as a whole, it seemed to weigh on investor holdings. At the close, core theater chain AMC tumbled 42% to $10.46, while APE fell to $5.86, down 12% from premarket quotes. That adds up to around $16 when combined, compared to the $18.02 Friday close for AMC alone (but anything can change in the coming sessions).
Bigger picture: The special dividend is in line with CEO Adam Aron’s marketing strategy of catering to the retail crowd who call themselves “Apes” (previous benefits included free popcorn and exclusive screenings). The new stock also creates a sort of backdoor to issue more APE shares whenever AMC desires, which could fund acquisitions, raise capital or pay down debt. As a result, whatever price fundamentals were left have gone out the window, making the stock even more subject to the whims of retail investors or bigger players that want to join the party. A similar dynamic played out with Bed Bath & Beyond (BBBY) last week, as meme mania sent the retail favorite on a wild ride before activist investor Ryan Cohen dumped his entire stake.
Some are suggesting that rapid sentiment shifts have also been behind the market rally this summer. The benchmark S&P 500 (SP500) soared 15% over two months, only to snap the winning streak last week and slump over 2% on Monday. Many have pegged the jitters on a fresh hawkish tone that may come at Jackson Hole, but renewed bearish bets that come after a serious short covering streak (and over $2T worth of options that expired on Friday) could make up a bigger part of the equation. “That’s been the problem the last several months in this market,” said Benjamin Dunn, president of Alpha Theory Advisors. “It’s nothing but positioning, almost nothing fundamental.”
By the numbers: According to calculations by Greg Boutle, head of U.S. equity and derivatives strategy at BNP Paribas, net short positions against S&P 500 futures by hedge funds even reached a record $107B last week. In another example, short sales by Goldman Sachs’ hedge fund clients overtook long buys by a ratio of 3-to-1, leading to the largest increase in gross trading activity since the market low on June 16. (4 comments)
OPEC+ action
Speaking of disconnected fundamentals, Saudi Oil Minister Prince Abdulaziz bin Salman thinks similar dynamics may be happening in the crude industry. “Thin liquidity and extreme volatility” in the futures market are moving prices in ways that do not conform to normal supply and demand factors, which may spark OPEC+ to take action. The Saudi-led group could tighten production when it meets next month, doing a U-turn after reversing all of the cuts made during the COVID-19 pandemic.
On the move: Crude oil futures have slumped 27% since mid-June amid concerns about the global economy, surging shipments from Russia and the possibility of more Iranian oil coming back online in the event of a nuclear deal. The WTI benchmark even recently fell under $90 per barrel, but pared losses following the Saudi prince’s comments.
“The paper and physical markets have become increasingly more disconnected,” Abdulaziz bin Salman declared, adding that forces which “undermine the stability of oil markets will only strengthen our resolve.” Efficient price discovery is absent without sufficient liquidity, making it challenging for physical users to handle the costs of hedging or deal with fundamental risk. “Soon we will start working on a new agreement beyond 2022,” he continued, without giving further details.
At issue: “This vicious circle is amplified by the flow of unsubstantiated stories about demand destruction, recurring news about the return of large volumes of supply, and ambiguity and uncertainty about the potential impacts of price caps, embargoes, and sanctions. In a way, the market is in a state of schizophrenia, and this is creating a type of a yo-yo market and sending erroneous signals at times when greater visibility and clarity and well-functioning markets are needed more than ever to allow market participants to efficiently hedge and manage the huge risks and uncertainties they face.” (94 comments)
More flexibility
It’s not looking that easy to ditch working from home. Employees at Apple (AAPL) are pushing back against the company’s return-to-office mandate, which requires staff to come in for a few days per week starting Sept. 5. A petition launched by a group of workers calling itself “Apple Together” demands that the tech titan continue with its flexible work arrangement that began during the pandemic, but was extended several times for a variety of reasons, including rising COVID-19 cases.
The petition: Workers have asked that each employee should speak directly with their immediate manager to determine what kind of flexible arrangement is best for the employee and Apple, and that these arrangements should not require higher approval, complex procedures or providing private information.
On the other side of the fence stands Apple CEO Tim Cook, who wants to preserve the “in-person collaboration that is so essential to our culture.” He has also voiced concerns about remote work, calling it the “mother of all experiments,” and has previously related his preference to the “serendipity” of in-person meetings. Meanwhile, more than 10,000 Apple employees have joined the group “Remote Work Advocacy” on Slack, the internal messaging platform used by the tech giant and many other companies.
Statistic: According to the U.S. Labor Department, 7.1% of employed persons teleworked because of the coronavirus pandemic in July, unchanged from the prior month. (262 comments)
The Dragon roars
Highly promoted Game of Thrones prequel series House of the Dragon has set a launch viewership record for HBO (WBD), drawing 9.986M viewers on its traditional TV distribution and HBO Max platforms on Sunday. That’s the biggest audience for a new original series in HBO’s history. It was also the biggest series launch on HBO Max across the U.S., Latin America, and Europe/Middle East/Africa, with a typical Sunday night viewership representing just 20-40% of a show’s total gross audience.
Quote: “It was wonderful to see millions of Game of Thrones fans return with us to Westeros,” said Casey Bloys, chief content officer for HBO and HBO Max. “House of the Dragon features an incredibly talented cast and crew who poured their heart and soul into the production, and we’re ecstatic with viewers’ positive response.”
The expensive series has gotten HBO’s biggest-ever marketing push, according to Warner Bros. Discovery CEO David Zaslav, and the stakes couldn’t be higher. Cost-cutting measures have been implemented since the April merger between Discovery and WarnerMedia (the latter was spun out of AT&T). In the meantime, analysts and investors will be closely watching House of the Dragon for viewership metrics to see if momentum will continue over the 10-episode series.
Latest measures: As Warner Bros. Discovery aims to save money, it has been looking to consolidate its streaming services and recently went forward with a round of content eliminations. That included pulling the plug on the nearly completed movie Batgirl, and hundreds of episodes of Sesame Street, as well as shelving CNN+ just weeks after its launch. Last week, HBO also reportedly laid off 70 people, or around 14% of its workforce, with the majority of cuts coming at HBO Max. (27 comments)
Today’s Economic Calendar
9:45 PMI Composite Flash
10:00 New Home Sales
10:00 Richmond Fed Mfg.
1:00 PM Results of $44B, 2-Year Note Auction
1:00 PM Money Supply
7:00 PM Fed’s Kashkari Speech
What else is happening…
Preparing for EV transition, Ford (F) cuts 3,000 jobs in restructuring.
Pfizer (PFE) submits application for Omicron-specific COVID vaccine.
Zoom (ZM) outlook suggests growth is getting more challenging.
Intel (INTC) hits lowest level in five years as semiconductors plunge.
Palo Alto Networks (PANW) billings, guidance alleviate slowdown worries.
Legal dispute: Elon Musk subpoenas Twitter (TWTR) founder Dorsey.
Judge rules against Ben & Jerry’s (UL) in fight over Israel sales.
Venezuela ordered to pay ConocoPhillips (COP) $8.7B for asset seizures.
Southwestern Energy (SWN) soars as U.S. natural gas hits more highs.
New products: BlackRock (BLK) unveils BuyWrite fixed income ETFs.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mostly weak. China and New Zealand did well, but Hong Kong, South Korea, India, Taiwan, Australia, Malaysia, Indonesia and the Philippines were weak. Europe, Africa and the Middle East are currently mostly down. Turkey and Russia are up, but Poland, France, Germany, Finland, Hungary, Spain, the Netherlands, Italy Austria, Switzerland and the Czech Republic are down 1% or more. Futures in the States point towards a relatively big gap down open for the cash market.
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The dollar is up. Oil is flat; copper is down. Gold and silver are down. Bonds are up.
Stories/News from Seeking Alpha…
Extreme drought
What do factory shutdowns in China, shipping delays in Europe and reduced agricultural output in the U.S. have to do with each other? They are all being caused by severe droughts impacting the world’s largest economies. Researchers say the dry spells are partly because of seasonal weather patterns like La Niña, but are also related to consequences of land degradation and climate change.
Snapshot: The Chinese province of Sichuan just announced it would extend industrial power cuts and activate its highest emergency response, impacting a number of global manufacturers like Apple (AAPL), Foxconn (OTCPK:FXCOF), Toyota (TM) and Volkswagen (OTCPK:VWAGY). The vital Yangtze, the longest river in Asia, reached its lowest level on record for August, affecting supply of hydropower and causing widespread shortages. Tesla (TSLA) has even asked the government to help ensure its suppliers have a sufficient amount of electricity, with over a dozen of them currently not able to manufacture at full capacity.
Over in Europe, cargo ships have had to reduce their loads due to critically low levels of the Rhine. The waterway is usually occupied with vessels transporting raw materials to power plants and factories, and Italy has even declared a state of emergency along its important Po River. Separately, agricultural forecasters in the U.S. now expect farmers to lose more than 40% of the cotton crop, while many acres of farmland are being left unplanted because of water shortages. In fact, the U.S. Bureau of Reclamation has announced that states like Arizona and Nevada will have to cut their water allocations by up to 21% next year because of the increasing megadrought in the Southwest.
Go deeper: The situation could drive up energy prices as hydro and nuclear power are reduced given the lower levels of water (that cannot sufficiently cool reactors). Higher transport costs and supply chain snarls could also raise food prices, adding to inflationary forces and squeezing a global trade system that was already under pressure from the coronavirus pandemic. (48 comments)
What’s next?
The end of a four-week winning streak is flustering some market participants as stock index futures remain in the red this morning (see movement below). While the S&P 500 has climbed 15% since its low at the beginning of the summer, it is still 11% lower over the course of 2022. The sentiment is causing fewer investors to call a complete market bottom, though there are still plenty of believers that feel the latest setback will prove to be more of a speed bump than serious turbulence.
Quote: “We’re bumping up against the moving average and that is a really convenient place for this to pause,” said Jeff Buchbinder, chief equity strategist at LPL Financial. “Frankly, we think the market has gotten a little bit ahead of itself in the very short term and needs to digest these gains. If the S&P can break its 200-day and hold, that’s when you probably get a lot more people in this market.”
In the coming week, investors will get another chance to see if the summer rally has legs. Earnings from tech names such as Salesforce (CRM) and Nvidia (NVDA), as well as discount stores like Dollar General (DG) and Dollar Tree (DLTR), will provide the latest clues about the health of the overall economy. The release of the Personal Consumption Expenditures Price Index – the Fed’s preferred inflation gauge – and Jerome Powell’s speech at Jackson Hole on Friday are also big events on the economic calendar.
Bear trap? This stock market rally echoes bear market moves going back to the onset of the Great Depression, according to BofA Securities. The average S&P 500 gain in 43 bear market rallies of more than 10% going back to 1929 is 17.2% over 39 trading days, while in this case, it is up 17.4% in 41 days, making it a “textbook” example. This time around, 30% of the S&P’s gain is due to just four stocks – Amazon (AMZN), Apple (AAPL), Microsoft (MSFT) and Tesla (TSLA) – noted strategist Michael Hartnett, adding that another risk for bulls is that whether the “Fed knows it or not, they’re nowhere near done.” (80 comments)
Stage curtains
Bankruptcy fears already swept over the theater chain last week, but Cineworld (OTCPK:CNNWF) has just confirmed that it is preparing to file for Chapter 11. The developments have seen shares of the company plunge heavily following disappointing ticket sales and on news that dealing with a huge debt pile would likely have a big impact on existing stockholders. Things aren’t looking better in the near future as lower ticket levels tied to a limited film slate are expected to continue until November.
Quote: “Cineworld is in discussions with many of its major stakeholders including its secured lenders and their legal and financial advisers,” the company said in a statement. “As previously announced, any deleveraging transaction would, however, result in very significant dilution of existing equity interests in Cineworld.”
In the meantime, the firm’s global theaters are “open for business as usual and continue to welcome guests and members.” While the operation includes Cineworld and Picturehouse theaters in the U.K., as well as a handful of brands in eastern Europe, more than two-thirds of its 751 locations are in the U.S. where it owns Regal Cinemas. COVID-19 and tough competition from streaming services have weighed on America’s second-biggest theater chain, which had net debt of $8.9B at the end of 2021 vs. revenues of $1.8B.
No APEs here: Cineworld’s position (a cash crunch and a film business that isn’t quite back to 2019 levels) is not dissimilar to that of top U.S. chain AMC Entertainment (NYSE:AMC), whose meme stock is down 32% YTD and off another 34% premarket (but that is mainly due to the combination with preferred equity units that begin trading today). (5 comments)
High stakes
Will he, or won’t he? Speculation is swirling around whether Warren Buffett’s Berkshire Hathaway (BRK.B) will make a bid for full control of Occidental Petroleum (OXY) after receiving regulatory approval to buy 50% of the driller. The Federal Energy Regulatory Commission said its authorization was “consistent with the public interest” and subject to various conditions. Following the news, shares of Occidental closed up nearly 10% at $71.29 on Friday, which comes on the heels of a blistering 146% YTD rally that makes it the best performer in the S&P 500 this year.
Backdrop: Buffett appears to be doubling down on the oil and gas – he also has a stake in Chevron (CVX) – at a time when many in industry consider it a dead business. The moves will also help him diversify an energy portfolio that includes several utilities and electricity distributors, as well as renewable power projects. Berkshire began accumulating its Occidental stake back in April after reading through the company’s annual report. The firm’s current 20.2% stake would even rise to nearly 27% if it exercised warrants accumulated during a 2019 deal that helped finance Occidental’s purchase of Anadarko Petroleum.
“No question Buffett goes to 50% from here,” declared Bill Smead of Smead Capital Management, noting that the moves are looking more and more like 2009-10, when Buffett amassed a significant stake in Burlington Northern Santa Fe railroad before buying the entire company. Occidental’s deep spending cuts, aggressive debt repayment and cash generating capabilities – $4.2B in free cash flow in Q2 – have made the company an attractive target for Buffett, added Truist Securities’ Neal Dingmann, saying the stock is “a great sort of hedge against a lot of his other businesses to own such a high free-cash-flowing business.”
Differing views: Others feel that Buffett is unlikely to try to gain full control of the company at current prices as he is typically known as a value hunter, though he may consider making a bid for the entire driller if oil prices fall and Occidental’s stock drops significantly. (46 comments)
Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
What else is happening…
China steps up easing again with cut to benchmark lending rates.
Apollo Global (APO) not interested in Manchester United stake.
Streaming takes over as top use of TV viewing for first time.
FDA expands use of Novavax (NVAX) COVID vaccine for adolescents.
Amazon (AMZN) joins buyout race for Signify Health (SGFY) – WSJ.
Gazprom (OTCPK:OGZPY) to shut Nord Stream for 3 days of maintenance.
Tesla’s (TSLA) ‘Full Service Driving’ price set to rise to $15,000.
Ford (F) to appeal $1.7B jury award for deadly pickup crash .
Wall Street nears $1B settlement over use of banned messaging apps.
Apple (AAPL) warns of security flaw for iPhones, iPads and Macs.
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