Before the Open (Sep 12-16)

Good morning. Happy Friday.

The Asian/Pacific suffered big losses. Japan, China, Hong Kong, South Korea, India, Taiwan, Australia, New Zealand, Indonesia and Thailand all participated. Europe, Africa and the Middle East are currently down big. The UAE is up, but Denmark, Poland, France, Germany, Russia, South Africa, Finland, Norway, Hungary, Spain, the Netherlands, Italy, Austria, Sweden and the Czech Republic are down. Futures in the States point towards a relatively big down open for the cash market.

————— VIDEO –>> Why Did the Market Tank in Response to the CPI Numbers? —————

The dollar is up. Oil is up; copper is down. Gold and silver are down; Bonds are down.

Stories/News from Seeking Alpha…

Rough week

Weekend Bite, a Seeking Alpha original series: This week, we’re joined by Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown. She shares her thoughts on the European energy crisis, if Bitcoin and Ethereum are still in play, and a reminder that investors need to hear from time to time. Kim Khan also shares the Catalyst Watch for next week on what is certain to move markets.

Stock index futures point to another decline this morning following a tough past four sessions, with the market set to record its fourth down week out of the last five. The benchmark S&P 500 (SP500) is off 4% going into the last trading day of the week, while the Nasdaq (COMP.IND) and Dow (DJI) are down 4.6% and 3.7%, respectively. It’s also quadruple witching day, which refers to the simultaneous expiration of market index futures, stock futures, market index options and stock options. The event can lead to higher volatility, which is not the greatest recipe in the current environment.

Catalyst: FedEx (FDX) sent shudders down traders’ spines late Thursday after sounding the alarm on macro weakness and withdrawing its full-year guidance. CEO Raj Subramaniam said he expects the economy to enter a worldwide recession, and would have to implement cost-cutting initiatives (closing 90 offices and five corporate locations, freezing hiring, reducing flights, etc.) to deal with softer global shipment volumes. FDX shares tumbled nearly 20% in response, and the sentiment was seen elsewhere, with the company serving as a barometer for “everybody else’s business.”

“The [Federal Reserve] might have a hard choice to make,” noted Anastasia Amoroso, Chief Investment Strategist at iCapital. “Before they were saying, we’re going to try to have a soft landing and bring down inflation. Now they may have to make a choice. It’s either a soft landing or bringing down inflation. In other words, they may have to engineer more of a crackdown on economic growth to bring down inflation.”

Next up: Bulls defended the important S&P support level of 3,900 again on Thursday, but a close below that level today could open the gates for further drawdowns – especially in the traditionally weak second half of September. Meanwhile, the University of Michigan is set to release its preliminary measure of September consumer sentiment at 10:00 a.m. ET, which could shift direction shortly after the start of trading. Economists expect the index to rise to 59.7 from 58, and inflation expectations will be watched to see if they drop from 4.8%. (7 comments)

Securing the grid

Things are coming thick and fast as Germany attempts to avoid a collapse of its energy market. The government is now looking to take control of some domestic players to ensure critical supplies following a sanctions war sparked by Russia’s invasion of Ukraine. Flows across the Nord Stream 1 pipeline have been cut off, while a crude import ban will go into effect later this year, threatening power stations, factories and even the heating of homes.

The latest: Germany has already conducted a series of government bailouts and rescue loans for energy firms, but the need to source alternative supplies is racking up losses to the tune of hundreds of millions of euros per day. Controlling stakes and further capital injections seem like the only way out of the bind, with an outright nationalization of key energy assets even on the table. “Things are complex, we are working it through very carefully,” declared German Economy Minister Robert Habeck.

In the latest move, Berlin said it would take over Rosneft’s (OTC:RNFTF) German unit, including stakes in three crude refineries that account for 12% of the country’s oil processing capacity. The subsidiary of the Russian oil giant was placed under trusteeship on Friday, giving it federal regulatory control of the facilities in Schwedt, Karlsruhe and Vohburg. The move was executed through the German Energy Safety Act and can be renewed every six months.

Outlook: Germany is also in advanced talks to take state ownership of Uniper (OTC:UNPPY) and two other large gas importers known as VNG and Securing Energy for Europe (formerly Gazprom Germania). The three are central pillars of the country’s key energy infrastructure, managing, storing and directing flows. Teams of traders at the companies also buy and sell billions of euros in energy contracts each year to keep the market humming and stable. (3 comments)


Traders are not a fan of Adobe’s (ADBE) new acquisition, as selling continues into premarket trading this morning. The stock already plunged over 16% on Thursday to $309, after Adobe – the owner of platforms like Photoshop, Illustrator, Acrobat and XD – announced the purchase of a design software firm known as Figma. The $20B transaction will be financed by an equal mix of cash and stock, with Figma CEO Dylan Field and company employees receiving 6M additional Adobe restricted shares that will vest over four years.

Bigger picture: Figma specializes in what it calls a “web-first collaborative design platform” that allows employees to use digital tools together on various types of projects. It’s a relatively unknown company, but its cloud-based collaboration tools have gained a faithful following among developers and product managers. Figma was only valued at $10B last year, and had been expected to see annual recurring revenue of $400M for 2022, which is only 2% of its sale price.

“While we think the acquisition makes strategic sense, let’s be honest. It feels like Adobe was losing some momentum to Figma and it was better to buy them out and combine forces,” said Evercore analyst Kirk Materne. “We think the company overpaid for Figma,” added Oppenheimer analyst Brian Schwartz, noting that the high price tag “indicates it was a defensive move, and the deal adds another layer of execution risk over the next few quarters.”

Bottom line: Adobe expects Figma to add to earnings by the third year after the deal’s completion, suggesting that company profits may see a negative impact from the deal for the next two years (at least). However, Figma does have gross profit margins of about 90% and operating cash flow is positive. Adobe also reported earnings yesterday that beat estimates, though guidance was mixed for the current quarter. (131 comments)

Regional trade shift

China’s warming ties to Russia are on full display at a meeting of the Shanghai Cooperation Organization ((SCO)) in Uzbekistan. The relationship between the countries had been growing over the past decade, as the two nations seek to counter the power and economic strength of the U.S. and its allies. In terms of size, the SCO is one of the world’s largest regional organizations, covering nearly 60% of the area of Eurasia, 40% of the world population, and more than 30% of global GDP.

Snapshot: “In the face of historical changes in the world and times, as major countries, China is willing to work together with Russia to play a leading role and to inject stability into the turbulent world,” President Xi Jinping declared at the start of the two-day conference. Bilateral trade between the nations, which topped $140B last year, grew by nearly a third in the first seven months of 2022, with commodities like heavily-discounted Russia oil making up a significant amount of the cross-border flows. Natural gas being transported via the Power of Siberia pipeline also hit records this summer, and China even announced that it would start paying for gas in rubles and yuan as the countries shun the U.S. dollar’s reserve currency status.

Meanwhile, Vladimir Putin praised China’s “balanced position” on the war in Ukraine, with many Chinese companies – from semiconductors to automakers – taking advantage of the exodus of Western brands from Russia. “We understand your questions and concerns in this regard,” Putin continued, adding that details of the war would be explained during meetings at the summit. In turn, Xi expressed appreciation for “Russia’s adherence to the one-China principle and stressed that Taiwan is a part of China,” especially after House Speaker Nancy Pelosi’s visit to Taipei in August.

Go deeper: Putin last met with Xi during a visit to Beijing for the Winter Olympics in February. At that gathering, the two authoritarian leaders framed their “no-limits” partnership and shared their opposition to the “further enlargement of NATO.” There’s also some new interesting dynamics at play, as India – which is a member of the Quadrilateral Security Dialogue and the Shanghai Cooperation Organization – has been scooping up cheaper Russian oil and much-needed weapons, while Iran just signed a memorandum to become a permanent member of the SCO. (4 comments)

Today’s Economic Calendar
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
4:00 PM Treasury International Capital

What else is happening…

Boeing (BA) said to divert jet orders from China amid global tensions.

GE (GE) CFO points to supply-chain pressures on cash flow.

Economy: Retail sales rose slightly more than expected in August.

Takeover speculation hits Roku (ROKU) after severance amendment.

Rumble SPAC (CFVI) falls amid holders approval for deal to go public.

The Gap (GPS) and Kanye West formally terminate relationship.

Texas Instruments (TXN) raises dividend, authorized $15B buyback.

Uber (UBER) responding to ‘cyber incident’ after hacker claims access.

Sternlicht says economy is ‘braking hard,’ sees major ‘housing crash.’


Good morning. Happy Thursday.

The Asian/Pacific markets leaned down. Hong Kong did well, but China, South Korea and Taiwan were weak. Europe, Africa and the Middle East currently lean down. The UAE, Russia and the Czech Republic are up; Denmark, France, Turkey, Hungary and Austria are down. Futures in the States point towards a slight down open for the cash market.

————— VIDEO –>> Why Did the Market Tank in Response to the CPI Numbers? —————

The dollar is down. Oil and copper are down. Gold and silver are down; Bonds are down.

Stories/News from Seeking Alpha…

The Merge

The crypto community is celebrating a milestone for the Ethereum blockchain, which just transitioned from the proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) model. The move is aimed at reducing the power needed to secure Ethereum by around 99.95%, easing the concerns of those worried about the environmental impacts of crypto (Ethereum currently emits as much carbon as Singapore and its total energy consumption is similar to the Netherlands). ETH (ETH-USD) issuance will also decrease (a.k.a. Triple Halving), while industry players will further decentralize the network by securing Ethereum at home, taking some control away from the institutions and sophisticated miners.

Backdrop: Ethereum researchers and developers decided to ease the transition into two steps, after the Beacon Chain successfully executed in December 2020. The update formed a separate parallel PoS chain – that could be tested in production without having a direct impact on the existing PoW network. It also grew the amount of staked ETH, so that it would be large enough to secure the network before the “Merge.” The second step happened early Thursday, as the consensus layer of the Beacon chain was combined with the Ethereum PoW chain, and from the look of it, the transition was a success. At the time of writing, (ETH-USD) is trading around $1,600.

“If you’re a big company and you’re planning on investing millions of dollars in Web3 opportunities, whatever those might be, you want to know that the technology you’re building on is going to be consistent over time,” said Alex Tapscott of Ninepoint Partners. “Ethereum is clearly the leader of smart contracting platforms through a community-driven effort. And if all of a sudden there’s a deluge of big companies [that] are building on this new platform, you might think that seems like a pretty good investment opportunity.”

Explainer: In the PoW model, the Ethereum network is secured by miners, who have to buy and run mining hardware. The miners consume a lot of electricity in exchange for block issuance and a portion of the transaction fees. In the PoS model, the network is secured by validators who have to stake their own stash of ETH to validate the network, which is much cheaper and makes Ethereum more energy efficient (think laptops and desktops instead of powerful computer GPUs). It also makes Ethereum more secure, and lays some of the groundwork for enabling scalability and sharding down the line (which are extra chains used to circulate the network’s transactional load). (12 comments)


Railway workers and companies have finally come to a tentative labor agreement that would avert a strike, which was set to go into motion shortly after midnight. The Association of American Railroads said the deal would give rail employees a 24% wage increase during the five-year period from 2020 through 2024, as well as an immediate payout that averages around $11,000. While the contract covers around 60,000 workers, it still needs to be ratified by the holdout unions, and a sick-leave policy needs to be ironed out.

Quote: “The tentative agreement reached tonight is an important win for our economy and the American people,” President Biden wrote in a statement. “It is a win for tens of thousands of rail workers who worked tirelessly through the pandemic to ensure that America’s families and communities got deliveries of what have kept us going during these difficult years.”

The last-minute deal averts a strike that could have halted shipments of key goods, and disrupted the flow of commodities across the country. About 40% of long-haul trade is transported by rail, and a strike could have idled more than 7,000 trains, while costing the U.S. economy an estimated $2B per day.

Premarket: Canadian National Railway (CNI) +2%, CSX Corporation (CSX) +2.5%, Union Pacific (UNP) +4% and Norfolk Southern (NSC) +2.5%. (7 comments)

New energy

Big Oil chief executives seldom serve longer than a decade, and Ben van Beurden is no different. The CEO of Shell (SHEL) is stepping down after nine years in the role, which saw him oversee a period of tremendous change within the oil-and-gas industry. Taking the reins is Wael Sawan, director of integrated gas, renewables and energy solutions, and has been a member of Shell’s executive committee for three years.

Backdrop: Van Beurden was a 30-year veteran of Shell when he was promoted to CEO in 2013. His first big move came a year later, when he led the $52B takeover of rival BG Group, which tested Shell’s finances during the oil price slump of 2014-2016, as well as historic energy collapse resulting from the COVID-19 pandemic. Nevertheless, the decisions seemed to pay off in the long run, as natural gas prices skyrocket and Shell rakes in record profits, while keeping investors happy with buybacks and hiking dividends.

Shell has also sought to balance its traditional business with renewable-energy initiatives under van Beurden, facing intensifying investor pressure to achieve net-zero carbon emissions by 2050. Some criticism has ensued, however, as Shell relocated its headquarters from the Netherlands to London (and ditched the “Royal Dutch” name) following a court ruling last year that required Shell to cut emissions faster. In any event, Sawan is expected to oversee Shell’s next phase of transition and growth, pivoting from fossil fuels to cleaner sources of energy.

Timeline: Van Beurden will continue to work as an advisor to Shell’s board through June 30, after which he will leave the company. Sawan will move to London when he takes over as CEO on Jan. 1, 2023. (3 comments)

Deals fizzle

Trouble is brewing in the investment banking sector as clients stay wary about the current economic environment. An aggressive Fed and the potential for a recession are weighing on corporate dealmaking, while soaring inflation continues to dim the outlook. IPOs have also hit the brakes this year as the market recorded its worst first half to a year since 1970.

Storm clouds: JPMorgan’s (JPM) revenue from underwriting debt and equity and advising on deals could drop 45%-50% in the third quarter from a year earlier, according to President and COO Daniel Pinto. That compares to the $3.3B in revenue the division achieved in Q3 2021, but was eventually followed by a 44% plunge in the first six months of 2022. The estimates are notable as banks are heading into the coming earnings season next month, with JPMorgan announcing its quarterly results on Oct. 14.

Some fear that the forecast could trigger a series of layoffs, similar to the ones recently reported at Goldman Sachs (GS), but Pinto said the bank will take a measured response. “You need to be very careful when you have a bit of a downturn to start cutting bankers here and there because you will hurt the possibility for growth going forward,” he told the Barclays Global Financial Services Conference in New York. “The banking business has a big component of variable compensation, so therefore you can adjust not just letting people go, you can adjust by reducing comp.”

Not all doom and gloom: JPMorgan sees markets revenue (the money it makes from trading) increasing by 5% in the third quarter – from a record of $6.3B notched a year ago – as robust fixed income activity offsets any weakness in equities.

Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
8:30 Retail Sales
8:30 Empire State Mfg Survey
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Business Inventories
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet

What else is happening…

Major averages eke out small gain amid declining PPI report.

Disney (DIS) CEO: Banking on ESPN, ready for ad-free streaming.

Danaher (DHR) rises on revenue growth guidance, spinoff plans.

Verizon (VZ) slips further as it expects wireless subscriber decline.

Tesla’s (TSLA) Gigafactory expansion in Germany delayed indefinitely.

President Biden to announce approval of $900M in EV charging funding.

Twilio (TWLO) restructures by cutting about 11% of its workforce.

Instagram (META) launches payments in chat feature for businesses.

California sues Amazon (AMZN) over anti-competitive pricing practices.


Good morning. Happy Wednesday.

The Asian/Pacific markets were very weak. Japan, China, Hong Kong, South Korea, Taiwan, Australia, New Zealand, Malaysia and the Philippines dropped more than 1%. Europe, Africa and the Middle East are currently weak. The UK, Turkey, Germany, Russia, Finland, Switzerland, Hungary, Israel, Austria, Sweden and Saudi Arabia are down more than 1%. Futures in the States point towards a positive open for the cash market.

————— VIDEO –>> Group Strength Does Not Support the Market’s Recent Run —————

The dollar is down. Oil and copper are down. Gold is down; silver is up; Bonds are down.

Stories/News from Seeking Alpha…

On recession’s doorstep

Traders are hoping for some calm after the worst day for markets since the steep pandemic-driven volatility seen in 2020. The Dow (DJI) plunged nearly 1,300 points on Tuesday, leaving the index down 14% in 2022, while the benchmark S&P 500 (SP500) and tech-heavy Nasdaq (COMP.IND) tanked 4.3% and 5.2%, respectively, leaving them off 17% and 26% YTD. The broad selloff accelerated into the afternoon, in a force some attributed to outsized options activity, pulling every asset class deep into negative territory from stocks and oil to crypto and gold.

What happened? There were hopes that inflation would come in weaker than expected, meaning the Fed could (eventually) ease up on its quantitative tightening cycle, but by the way things look now, it may double down on its aggressiveness. The CPI print rose 8.3% Y/Y in August vs. the 8.1% consensus forecast, while core CPI – which strips out volatile food and energy prices – rose more than expected to 6.3%, from 5.9% in July. That’s despite gas prices that have come down tremendously over the past 13 weeks, suggesting that price pressures are seeping into more parts of the economy, like housing, college tuition and medical services.

The inflation report is one of the last the Fed will see before its September meeting next week, but it did enough damage to already worrisome policy expectations. According to the CME’s FedWatch Tool, there is now a 1 in 3 chance the FOMC will raise rates by a monster full percentage point, while the probability of a half percentage point fell to zero (meaning 75 bps is a given). If that’s the case, a full-fledged recession could be around the corner, with rapidly rising borrowing costs pushing any prospects for a “soft landing” off the table.

Response from the White House: “Today’s data show more progress in bringing global inflation down in the U.S. economy,” President Biden wrote in a statement. “Overall, prices have been essentially flat in our country these last two months. Gas prices are down an average of $1.30 a gallon since the beginning of the summer. This month, we saw some price increases slow from the month before at the grocery store. And real wages went up again for a second month in a row, giving hard-working families a little breathing room. It will take more time and resolve to bring inflation down, which is why we passed the Inflation Reduction Act to lower the cost of healthcare, prescription drugs and energy.” (6 comments)

‘Working on the Railroad’

As mentioned earlier this week, another inflation threat is in the works, with a Western-style showdown threatening the U.S. economy. A duel between 60,000 rail workers, their unions and some of the largest U.S. railroad operators is already having impacts, but the worst is yet to come. A 12:01 a.m. Friday deadline to agree to new work terms hangs in the balance, with the gunslinging likely to cost the nation $2B in economic output per day if things go off the rails.

What’s at stake: There are already reports of railways stopping to take grain and animal-feed shipments, while most of them have already put a halt to ammonia fertilizer and hazardous items to ensure that sensitive cargo is not left unsecured. Other raw material deliveries are also facing uncertainty, like coal transports that could be interrupted ahead of pre-winter stocking, which could subsequently trigger an increase in gas power demand. By some estimates, the railroads in the U.S. impact about a third to about 45% of all freight in the U.S., meaning there can be knock-on effects for many industries.

“Almost all ethanol is moved via rail and it is produced in the Midwest,” noted Debnil Chowdhury of S&P Global Commodity Insights. “There is no easy substitute for rail and the U.S. government will have to make decisions around blend targets if ethanol movement to demand centers are constrained due to a strike.” Ethanol currently accounts for around 10% of U.S. gasoline volume, and prices for the commodity have already been raised at several marketplaces with sellers facing interruptions.

Supply chain threat: The current dispute goes back three years and mainly centers around pay hikes, sick leave and time-off policies. In July, the Biden administration intervened to avert a strike, naming a panel of arbitrators to mediate the contract dispute, but two remaining holdouts – the Brotherhood of Locomotive Engineers and Trainmen and the International Association of Sheet Metal, Air, Rail and Transportation Workers – account for over half of the rail labor force. The Biden administration is now speaking with truckers and air freight companies to assess alternative modes of transportation, but if things get real bad, Congress may be forced to impose contractual terms or send the dispute to forced arbitration. Emergency powers could also be used by the White House for the delivery of critical materials. (7 comments)

Android dominance

The EU’s General Court has upheld an antitrust ruling against Google parent company Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) for imposing unlawful restrictions to consolidate the dominant position of its Android operating system. It’s a major fine at $4.1B, though it was reduced by 5% from the original $4.3B price tag following the appeal. The ruling bolsters the recent crackdown campaigns of European Competition Commissioner Margrethe Vestager, who has forcefully targeted U.S. tech giants over anti-competitive behavior and market dominance.

Backdrop: An initial fine for Android abuse was issued by the European Commission in 2018, and was the biggest of three antitrust penalties totaling more than $8B focused on mobile phones. At issue was Google’s practice of entrenching Chrome and Search on mobile devices, by forcing smartphone players to pre-install them in a bundle within the Play Store. Following the ruling, Google is likely to extend recent compliance efforts, such as offering EU users a selection screen for different search engines.

“The fine is appropriate in view of the significance of the infringement,” according to the General Court, which said Google’s business model was “based first and foremost on increasing the numbers of users of its online search services so that it can sell its online advertising services.”

Response from Google: “We are disappointed that the Court did not annul the decision in full. Android has created more choice for everyone, not less, and supports thousands of successful businesses in Europe and around the world.”

Taking the stand

The U.S. fraud trial of former Nikola (NKLA) CEO Trevor Milton is underway after jury selection began in Manhattan on Monday, followed by opening statements on Tuesday. Milton is facing two counts of securities fraud and two charges of wire fraud, over allegations that he deceived and lied to investors about the hydrogen-powered truck maker’s technology starting in November of 2019. He could face up to 25 years in federal prison if convicted.

Flashback: The company was once an EV darling in the investing community, especially after it announced a SPAC merger in March 2020, with its valuation of $30B even briefly surpassing that of Ford Motor (F). However, the stock fell sharply after Milton was forced out of the company the following September, in the wake of fraud allegations made by short-seller Hindenburg Research. Both the SEC and DOJ opened investigations shortly thereafter, and he was indicted on three counts of fraud by a grand jury in July 2021, while prosecutors added a fourth one this past June.

Milton’s defense is expected to be that he had no intent to defraud investors, and that other top executives approved of his statements about Nikola. The trial is expected to last four or five weeks, though shares are down more than 90% from their 2020 high.

Go deeper: For its part, Nikola paid a civil penalty of $125M last year without admitting wrongdoing to settle a fraud investigation by the SEC. It also began production of its first battery-powered truck model in March, but expects to meaningfully ramp up output in the second half of the year. (8 comments).

Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Producer Price Index
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories

What else is happening…

Twitter (TWTR) shareholders give OK for $44B sale to Musk.

DoubleLine’s Jeff Gundlach sees the S&P 500 falling 20%-25%.

U.S. considering sanctions to deter China from invading Taiwan.

Starbucks (SBUX) bounces on higher forecasts, return of buybacks.

Analysts dig in to Rent the Runway (RENT) after big subscriber drop.

Amazon (AMZN) adds new driver benefits amid union challenge.

Is Microsoft (MSFT) readying antitrust filing for Activision (ATVI) deal?

Biden officials weigh buying oil at $80 to refill reserves – Bloomberg.


Good morning. Happy Tuesday. Happy CPI Day.

The Asian/Pacific markets leaned up. South Korea, India, Taiwan, Australia and Indonesia did well while New Zealand and Malaysia were weak. Europe, Africa and the Middle East currently lean down. The UAE, Saudi Arabia and the Czech Republic are up; Poland, Turkey, South Africa, Finland, Spain, Portugal, Israel, Austria and Sweden are down. Futures in the States point towards a big gap down open for the cash market. S&P futures dropped about 90 after the CPI number was released.

————— VIDEO –>> Day Trading with 5-min Charts —————

The dollar is up. Oil is up; copper is down. Gold and silver are down; Bonds are down.

Stories/News from Seeking Alpha…

CPI update

Economists are forecasting U.S. headline consumer price inflation for August to ease to 8.1% Y/Y from 8.5% in July, in a growing sign that the closely-watched index may have peaked at 9.1% in June. On the other hand, core CPI, which excludes volatile prices and happens to be the Fed’s more preferred inflation gauge, is expected to increase to 6.1% in August from a year before vs. 5.9% in July, as rents and wages show little signs of slowing. Note that the Fed is currently in its blackout period before the big September meeting, so expect all the reactions to come from traders and analysts, not central bank officials.

Commentary: Interactive Brokers Senior Economist José Torres, who is expecting August’s CPI reading to be 8.2% Y/Y and 6.2% for core, believes the upcoming report on consumer prices “will not deter the Fed from their tightening plans as they remain committed to easing price pressures.” Chair Jerome Powell already telegraphed that he’s taking out the big guns next week, so the data is more likely to impact decisions in November and December, if anything. Bear in mind that part of the central bank’s dual mandate is to bring down inflation to its 2% target, which is nowhere near current levels.

As a result, markets are betting on another aggressive 75-basis-point rate hike as inflation hovers around a 40-year high. According to CME’s FedWatch tool, traders see a 92% probability that the FOMC will lift its fed funds target range to 3.00%-3.25% from the current range of 2.25%-2.50%, compared to a mere 8% probability of a 50-bps move.

What does it mean for stocks? “In order for the Fed to go slightly slower and for the recent [stock market] rally off of June lows to hold and persist, we need CPI, Core CPI, PPI, and Core PPI to come in below estimates,” wrote Ophir Gottlieb, CEO at Capital Market Laboratories. It’s also important that inflation expectations do not become entrenched, and it seems like things are going okay (for now) on that front, based on the latest Survey of Consumer Expectations from the New York Fed. Median one-year ahead inflation expectations for August fell to 5.7% from 6.2% in the prior month, while implied inflation three years ahead decreased to 2.8% from 3.2%. (25 comments)

Twitter takeover

Early voting suggests that Twitter (TWTR) is set to gain approval of its $44B deal to be acquired and taken private by billionaire Elon Musk. That’s not too surprising, as Twitter’s $41.41 share price still sits at a near-24% discount to Musk’s $54.20 buyout offer. The formal vote will arrive this morning, just as Twitter lawyers rejected a third attempt by Musk to cancel his agreement to buy the social network.

Snapshot: Early indications are that the deal will pass by a wide margin, especially with big shareholders, including index fund managers. Musk himself hasn’t voted his 9.6% stake, and is unlikely to do so given allegations that Twitter breached the merger agreement. While the transaction requires him to vote his share in favor of the deal – and it would be awkward for him to vote his stake against his own takeover – his support isn’t necessary if enough other investors back it.

Even if the agreement gets an overwhelming thumbs up, the biggest wild card is several weeks away. A trial in Delaware Chancery Court over holding Musk to the original terms of his acquisition is set to start on Oct. 17. According to Wedbush analyst Dan Ives, there remains “a high possibility” that some form of negotiated settlement will happen before the parties end up in a courtroom, though the “major X variable” will be the whistleblower claims of former Twitter security chief Peiter “Mudge” Zatko. Last week, it was reported that Twitter reached a $7M settlement with Zatko, and he is set to testify to the Senate Judiciary Committee today.

Four endings: Among the least likely outcomes are that Musk pays a $1B breakup fee – and he and Twitter go their separate ways – or that Musk wins the case and ends up having to pay no breakup fee at all. The most likely result is that the court rules against Musk and requires him to pay “significant damages” to Twitter ranging from $5B to $10B, while the last possible conclusion is the court upholds the “specific performance” guidelines of the deal and Musk buys Twitter at the agreed-upon price of $44B. (13 comments)

Driverless delivery

There’s been some new developments on the self-driving front, with Uber Eats (NYSE:UBER) inking a 10-year agreement with Nuro on autonomous food delivery. The latter has developed driverless delivery robots, which have already been operating on a limited basis in several cities. The latest partnership will kick off this fall with deliveries in Houston, Texas, and Mountain View, California, with a planned expansion into the greater Bay Area.

Bigger picture: Following a deadly crash in Arizona and dwindling R&D funding, Uber gave up its standalone autonomous ambitions in 2020 by selling its self-driving subsidiary to Aurora Technologies. While Uber still holds a stake in the car tech startup, and CEO Dara Khosrowshahi sits on its board, Uber is feeling pressure to invest in an industry which its founder once hailed as critical to the future of the firm. In fact, General Motors’ (GM) Cruise subsidiary just announced that its revenue-generating rideshare service would start operations in Austin and Phoenix within 90 days, which could be seen as a potential threat to Uber and others if it scales rapidly.

“With our unique autonomous delivery vehicles and Uber’s phenomenal scale and reach, we can expand food delivery options from your favorite local mom-and-pop restaurants all the way to nationwide chains,” said Cosimo Leipold, head of partnerships at Nuro.

How it works: Nuro’s second-generation R2 vehicle is about half as wide as a compact sedan, but shorter than most cars. It travels the roads with a top speed of 45 mph, and has space for about 24 grocery bags in its temperature-controlled compartments. R2 is also completely autonomous, meaning customers will have to go down to the street to unlock their “grab-and-go” orders by entering a code into a pad located on the side of the vehicle.

New world order

“The start of the trading week was supposed to be all about the August inflation report, but Kyiv’s sudden momentum has many hoping that this moment is a turning point with the war against Russia,” related Edward Moya, senior market strategist at OANDA. Over the past few days, Ukrainian military forces have retaken nearly all of the Kharkiv region that Russian forces had occupied since the start of the war on Feb. 24, and now appear to be moving ahead carefully and consolidating their gains. While the Russians still have the ability to regroup and hit back, the lightning offensive forced Moscow to make a hasty retreat and could weigh on the morale of Russian troops.

Economically speaking: It’s still early to tell how sanctions and economic warfare will affect the outcome of the war in Ukraine, but there will be a clear divide and a decoupling for years to come. The EU now recognizes it must have an energy grid that is independent from Russia supply, while the West won’t be pouring any foreign investment into the country for the near future. The new dynamics are also playing out on the global stage, with old alliances being cemented into place, as well as calls for some new ones.

In fact, President Xi Jinping this week is traveling outside of China for the first time since the pandemic, to meet Vladimir Putin at a meeting of the Shanghai Cooperation Organization. The gathering will take place on Thursday in Samarkand, Uzbekistan, and comes at a time that the two are becoming increasingly reliant on each other for goods and services. China has been buying record imports of low-priced Russian crude, and in Q2, 81% of Russia’s new car imports were Chinese and Xiaomi was its top-selling smartphone maker.

New global order: The two nations touted a “no-limits” partnership following their last meeting earlier this year, but this time around things may go to the next level. “The Chinese side is willing to work with the Russian side to continuously implement high-level strategic cooperation between the two countries, safeguard common interests and promote the development of the international order in a more just and reasonable direction,” declared Yang Jiechi, foreign affairs chief of the Communist Party. “The relationship between the two countries has always been on the right track, and both sides firmly support each other on issues relating to their core interests.” (29 comments)

Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
8:30 Consumer Price Index
2:00 PM Treasury Statement

What else is happening…

Peloton (PTON) founders depart company, rumored to eye stock sale.

Oracle (ORCL) slips as strong U.S. dollar leads to earnings miss.

President Biden criticizes airline policies, promotes airport upgrades.

Intel (INTC) cuts Mobileye valuation to $30B before IPO – Bloomberg.

Goldman Sachs (GS) gets ready to lay off workers as deal activity cools.

Google’s (GOOGL) $5.4B buyout of cyber firm Mandiant is now complete.

Starbucks (SBUX) prepares first investor day after CEO announcement.

Tesla (TSLA) to require Powerwall for solar roof projects – Electrek.

Blue Origin (BORGN) suffers first launch failure, FAA to investigate.

Next up: Rocket Lab (RKLB) preps for milestone satellite launch.


Good morning. Happy Monday. Hope you had a good weekend.

The Asian/Pacific markets did great. Japan, India, Taiwan, Australia, Thailand and the Philippines posted the biggest gains; China, Hong Kong, and South Korea were closed. Europe, Africa and the Middle East are currently up big. The UK, France, Turkey, Germany, Greece, the UAE, South Africa, Finland, Spain, the Netherlands, Italy, Portugal, Austria, Sweden, and the Czech Republic are up 1% or more. Futures in the States point towards a positive open for the cash market.

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The dollar is down. Oil and copper are up. Gold and silver are up; Bonds are up.

Stories/News from Seeking Alpha…

Next inflation threat

Starting today, U.S. freight railroads are poised to cut back on some service with a new union rail contract up for negotiation. The reduced service would come ahead of a potential rail strike date of Sept. 17 if talks fail to progress. While ten of the twelve railroad worker union have struck deals, the holdouts – Brotherhood of Locomotive Engineers and Trainmen and the International Association of Sheet Metal Air, Rail and Transportation Workers – account for more than 90K rail employees.

Quote: “While these preparatory actions are necessary, they do not mean a work stoppage is certain,” the Association of American Railroads said in response to the developments. “The railroads want, and continue to advocate for, a prompt resolution that would provide historic wage increases to rail employees – and allow the railroads to continue servicing customers and prevent further disruption to the struggling supply chain.”

A rail strike could disrupt the retail industry and giants like Walmart (WMT), Target (TGT), and Home Depot (HD) if domestic trucking rates accelerated again. FedEx (FDX) and UPS (UPS) could also be impacted. Economists warn that an extended rail strike could weigh on food prices and be another contributor to inflation in the U.S., while the Association of American Railroads estimates that a strike would cost the economy $2B per day.

Related tickers: Berkshire Hathaway (BRK.B), Brookfield Infrastructure Partners (BIP), Canadian National Railway (CNI), Canadian Pacific Railway (CP), CSX Corp. (CSX), Norfolk Southern (NSC) and Union Pacific (UNP). (97 comments)


The International Organization for Standardization, or ISO, has voted to create a new Merchant Category Code (MCC) for gun stores to use when processing payment card transactions, similar to the ones used for hair salons, bicycle shops and restaurants. The move is set to ignite a political storm over fears of consumer privacy and that the codes could unfairly hinder firearm purchases. Prior to the decision, gun stores sales were classified under categories like “general merchandise” or “sporting goods.”

Backdrop: Amalgamated Financial (NASDAQ:AMAL), which refers to itself as America’s socially responsible bank, kick-started the recent campaign by making an application for the ISO code this past spring. An earlier attempt was rejected, but this time around, the lender argued that it was necessary to identify credit risk. The push also received support from Massachusetts Senator Elizabeth Warren and Democratic lawmakers, as well as NYC Mayor Eric Adams and the California’s teachers’ pension fund.

“We all have to do our part to stop gun violence,” Amalgamated Bank CEO Priscilla Sims Brown said in a statement. “The new code will allow us to fully comply with our duty to report suspicious activity and illegal gun sales to authorities without blocking or impeding legal gun sales.” Credit card giants Visa (NYSE:V), Mastercard (NYSE:MA) and American Express (NYSE:AXP) are all adding the new merchant category for firearms and ammunition retailers, though big-box stores that sell rifles and handguns will have different MCCs.

Thought bubble: Gun safety activists say the move will help law enforcement officials flag suspicious purchases, while others feel the role of reducing gun violence should be left up to Congress. There are further risks in having payment networks serve as a moral authority for choosing which goods or services will be tagged with a specific code, or how and if the MCC will be shared with law enforcement. While MCCs now exist for nearly every kind of sale, the latest addition could lead to the creation of more ISO codes that could be used to track other politically-charged businesses like abortion providers. (35 comments)

A tough sell

Activist investor Daniel Loeb is backing away from plans to push Disney (DIS) to spin off ESPN, which he hoped could result in new business areas like sports betting and reduce the entertainment giant’s debt load. While ESPN gives Disney a steady cash flow through cable TV licensing agreements, the model has been put under the spotlight given the rising costs of sports broadcast rights. Loeb’s Third Point even took another $1B stake in Disney last month to push for the changes, which included a cost-cutting program, cash dividend suspension and buying out a minority stake in Hulu.

New tweet: “We have a better understanding of @espn’s potential as a standalone business and another vertical for $DIS to reach a global audience to generate ad and subscriber revenues,” Loeb wrote on Twitter. “We look forward to seeing [ESPN Chairman James] Pitaro execute on the growth and innovation plans, generating considerable synergies as part of The Walt Disney Company.”

Over the weekend, Disney CEO Bob Chapek even made a reference to Loeb’s new stance during the D23 Expo in Anaheim, California. He said he has been “deluged” with interest from companies seeking to buy ESPN this year on speculation that the firm may be considering selling the sports network, but related that he has a plan to restore ESPN to its “growth trajectory.” Those talks included “regular conversations” with Third Point, which he described as “very collaborative, non-antagonistic and collegial.”

Mouseverse: Over at the D23 Expo, Chapek fielded a number of questions that surrounded Disney’s future, with some particularly curious if the House of Mouse is heading into the metaverse. “We call it next-gen storytelling,” he declared backstage. “We tend not to use the M word too often, because it has a lot of hair on it. But yes, Disney+ will not just be a movie service platform, but it’s going to become an experiential lifestyle platform. A platform for the whole company to embody both the physical things that you might be able to experience in a theme park, but also the digital experiences that you can get through media.” (21 comments)

ETF rivalry

The ETF sector has experienced a big shakeup since the start of the pandemic as an increasing amount of funds and providers flood the industry. Charles Schwab (SCHW), Fidelity, Invesco (IVZ) and State Street (STT) are all jostling for position, as well as others like ARK Invest that are attempting to disrupt the space and beat the market. It comes amid a long-running battle over cheaper ETF fees, as well as the ever-growing suite of products and investing angles.

Top dogs: BlackRock (BLK) and Vanguard rule more than 60% of a U.S. ETF market, which has expanded by nearly fivefold to $6.6T from $1.35T a decade ago, but the rivalry has grown more intense in recent years. Since the start of 2020, Vanguard has recorded inflows of around $656B vs. the $411B of BlackRock’s iShares ETF unit (which it bought from Barclays in 2009). While BlackRock markets a broader range of ETFs and targets bigger institutional investors, Vanguard has emphasized its standing as a low cost provider to attract retail investors and financial advisors.

“We are playing a different game. We want to lead, but it is also about expanding ETF usage across all client types. That’s more important,” said Armando Senra, Head of iShares Americas. “We are continually looking at expanding the offering, but we will be very judicious,” added Vanguard’s Dan Reyes. “We tend to stay away from thematic or narrowly sliced versions of the universe.”

Who will win? BlackRock’s iShares Core U.S. Aggregate Bond ETF (AGG) is close to being surpassed by the Vanguard Total Bond Market ETF (BND) as the world’s largest bond exchange traded fund. However, Blackrock still has $2.96T in global ETF assets, compared to $2.04T for Vanguard at end of July, though the latter is catching up. Meanwhile, the largest ETF by assets is State Street’s SPDR S&P 500 Trust (SPY), but BlackRock and Vanguard still dominate the next 15 out of 16 rankings. (2 comments)

Today’s Economic Calendar
11:30 Results of $41B, 3-Year Note Auction
1:00 PM Results of $32B, 10-Year Note Auction

What else is happening…

Bears fumble on goal line but are still in the game – BTIG.

JPMorgan Chase (JPM) acquires payments fintech Renovite.

U.S. plans to increase semiconductor export restrictions to China.

New TV hit Sandman keeps Netflix (NFLX) in streaming-ratings lead.

Musk updates his reasoning for terminating $44B Twitter (TWTR) deal.

Amazon (AMZN) buys warehouse robotics maker Cloostermans.

The State of Realized Volatility: Ahead of key inflation figures.


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