Before the Open (Sep 19-23)

Good morning. Happy Friday.

The Asian/Pacific markets suffered big losses. China, Hong Kong, South Korea, India, Taiwan Australia, Malaysia and Singapore dropped 1% or more. Europe, Africa and the Middle East are currently down big. The UK, Denmark, Poland, France, Germany, Russia, Greece, South Africa, Finland, Sweden, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Austria, Sweden and the Czech Republic are down 1%, 2% or 3%. Futures in the States point towards a big gap down open for the cash market.

————— VIDEO –>> Let’s Talk About Inflation and Why Prices Will Not Drop – Ever —————

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

Stories/News from Seeking Alpha…

Tougher sanctions

European Union member states are rushing to complete the eighth round of sanctions against Moscow following an escalation of its war in Ukraine. Vladimir Putin this week announced a “partial mobilization” that will conscript as many as 300,000 troops, while voting just began to annex the four regions of Luhansk, Donetsk, Kherson and Zaporizhzhia, which represent about 15% of Ukrainian territory. The referendums are due to run from Friday to Tuesday, and may be used by Russia to justify further escalations to defend its newly incorporated provinces.

Snapshot: There are many measures being pitched in the latest EU sanctions package, but it could be hard to find a consensus among all 27 members of the bloc. The penalties include removing more Russian banks from the SWIFT international payment system, as well as targeting Russia’s tech, cybersecurity and software industries. Other ideas on the table could center around banning luxury goods and diamond imports, but perhaps the most hard-hitting and controversial sanction would be to impose a price cap on Russian oil.

Details are still being discussed, but the plan aims to cap prices at a level close to the cost of Russian production to dent Kremlin finances. To accomplish this, Europe would restrict the availability of transport and insurance services to shippers that agree to observe the price ceiling (~95% of the world’s oil tanker fleet is covered by the International Group of P&I Clubs in London and companies based in continental Europe). Another proposal is to limit the usage of U.S. financial services that could benefit from the scheme, but many are skeptical about its effectiveness, with some big Russian buyers like China already paying in yuan and rubles.

Tensions: While hawkish countries like Poland and the Baltic states are demanding the new measures, others feel that it could be tough to get anything more than a limited set of penalties. The last attempt to pass a big sanctions package in June led to infighting in the bloc, as countries led by Hungary refused to sign up to a Russian crude embargo until they were granted an exception for pipeline oil. Things may not be better this time around, as EU legislators just voted to declare that Budapest was no longer a “full democracy,” though some say the latest package could get over the line, as it would have much less of an impact on the Hungarian economy than the crude embargo. (13 comments)

Another losing week

Echoes from the hawkish FOMC meeting are still reverberating through markets, with Jerome Powell set to take the stage for the second time this week. The Fed Chair will deliver opening remarks at a “Fed Listens” event at 2 p.m. ET, after doubling down on a “whatever it takes” policy stance to get inflation under control. Fed Vice Chair Lael Brainard and Governor Michelle Bowman will also be at the show in Washington, moderating conversations with leaders from a variety of industries.

Market movement: Going into today’s session, the Nasdaq Composite is down 3.3% for the week, the S&P 500 is 3% lower and the Dow is off 2.4%. Things don’t look any better in the premarket session, with futures tied to the major averages sliding another 1%, while bonds continue to be hit by a brutal selloff. The 10-year Treasury yield is up 7 basis points to 3.78%, on a pace for its biggest weekly rise since April, while the 2-year yield (US2Y) is up 6 basis points to 4.19%, having breached 4.20% earlier.

Resetting expectations: “The forward paths of inflation, economic growth, interest rates, earnings, and valuations are all in flux more than usual with a wider distribution of potential outcomes,” wrote Goldman Sachs strategist David Kostin. On that note, the bank slashed its year-end target for the S&P 500 to 3,600 from 4,300, and said the benchmark could even fall to as low as 3,150 in the event of a serious recession.

Don’t get emotional: “You’ve just got this volatility that nobody seems to be able to get their head around,” said Tim Lesko, Director at Mariner Wealth Advisors. “At some point, they’ll figure out that recession doesn’t mean the end of the world, and they’ll start getting constructive on stocks again, but right now, we’re acting as if the sky’s falling.” (6 comments)

TNF’s (AMZN) initial exclusive Thursday Night Football broadcast – between the Los Angeles Chargers and Kansas City Chiefs – drew in 13M viewers last week, according to analytics firm Nielsen. While the data can be compared to several metrics (same week last year, similar matchups, season averages, etc.), the bottom line is that the online audience figures are roughly in line with those that compare to traditional TV. Amazon is the first streaming service to hold exclusive rights to an NFL game package, in a deal that will cost the tech giant about $1.2B per year through 2033.

Quote: “By every measure, Thursday Night Football on Prime Video was a resounding success,” said Jay Marine, global head of Amazon’s sports division. “The audience numbers exceeded all of our expectations for viewership.”

The deal is already bearing fruit, with Amazon Prime signups going through the roof during the three-hour period of the game. In fact, the new subscriber additions beat those that took place on Prime Day, Black Friday and Cyber Monday – combined. Amazon also partnered with DirecTV (T) in a multiyear agreement for the satellite TV provider to air TNF in more than 300K bars, restaurants, hotels and casinos.

Joining the game: Apple (AAPL) is also upping its sports streaming efforts as it looks to generate more cash flow from an expansion into online services. Tonight’s matchup between the New York Yankees and Boston Red Sox will only be streamed on Apple TV+, meaning users will need an Apple ID to watch the game (which is still being broadcast for free for a limited time). Besides being one of the fiercest rivalries in all of American sports, the Yankees just clinched a playoff spot and slugger Aaron Judge is closing in on a home run record. (48 comments)

Plugging in

Electric vehicle investors are gleaning some important data from the latest update to the IEA’s “Tracking Clean Energy Progress.” The annual report assesses 55 components of the energy system – sectors, technologies, infrastructure and mitigation strategies – to evaluate progress towards reaching key medium-term milestones by the end of the decade. It’s part of a broader effort of “Net Zero Emissions by 2050” that seeks to limit the rise in global temperatures to 1.5°C through innovation, behavioral change, sustainable bioenergy and international collaboration.

Snapshot: EV sales doubled worldwide last year to account for almost 9% of the total car market. The trend is picking up again this year as 2M EV sales were recorded during the first quarter, marking a 75% increase compared to the first three months of 2021. In fact, the IEA expects to “see another all-time high for electric vehicle sales [in 2022], lifting them to 13% of total light duty vehicle sales globally.”

“Electric vehicles are the key technology to decarbonize road transport, a sector that accounts for 16% of global emissions,” according to the report. “The Net Zero Emissions by 2050 Scenario sees an electric car fleet of over 300M in 2030 and electric cars accounting for 60% of new car sales.”

Other highlights: The global EV fleet in 2021 displaced around 0.3 Mb/d of oil by consuming about 50 TWh of electricity, which accounts for less than 0.5% of current total final electricity consumption worldwide. The energy density of EV batteries has also been rising over the past year, while there has been a doubling in the market share of lithium iron phosphate cathodes, which require no nickel or cobalt. Meanwhile, deployment of publicly available EV charging points increased by close to 40% in 2021, with 500K public charging points installed, or more than the total stock of chargers available in 2017. (25 comments)

Today’s Economic Calendar
9:45 PMI Composite Flash
1:00 PM Baker Hughes Rig Count
2:00 PM Jerome Powell Speech
2:05 PM Fed’s Brainard and Bowman Speech

What else is happening…

30-year fixed mortgage rates jump to 6.29% – highest since 2007.

Apple (AAPL) replaces Pepsi (PEP) as Super Bowl halftime show sponsor.

Costco (COST) earnings in-line, tops comparable sales expectations.

Deutsche Bank voices doubts on cost-saving plans for FedEx (FDX).

Raytheon (RTX) beats rivals for $1B hypersonic cruise missile award.

Boeing (BA) settles SEC charges related to 737 MAX crashes.

Cathie Wood steps back from two ARK funds – PRNT and IZRL.

Credit Suisse (CS) weighs plan to split investment bank into three.

U.K. scraps corporate tax hike to boost faltering economy.


Good morning. Happy Thursday.

The Asian/Pacific markets closed mostly down. Thailand did well, but China, Hong Kong, South Korea, Taiwan and the Philippines were weak. Europe, Africa and the Middle East currently lean to the downside. Turkey, Russia and the Czech Republic are up; Denmark, France, Germany, Greece, South Africa, the Netherlands, Portugal, Israel, Austria and Sweden are down. Futures in the States point towards a positive open for the cash market.

VIDEO –>> Let’s Talk About Inflation and Why Prices Will Not Drop – Ever

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

Stories/News from Seeking Alpha…

No blinking

Expectations for a soft landing have gone out the window following the latest FOMC meeting on Wednesday. The question, now, appears to be how hard of a hard landing will there be. Things couldn’t have been more hawkish with the Fed’s “dot plot” showing a benchmark interest rate of 4.4% by the end of this year, as well as a terminal rate of 4.6% in 2023 (up from 3.25% and 3.8%, respectively). Lower growth forecasts and higher inflation estimates were also included in the projections, with the unemployment rate going up to 4.4% and leading to job losses of more than 1M (assuming no change in the size of the U.S. workforce).

Transcript highlights: “We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Fed Chair Jerome Powell declared. “Reducing inflation is likely to require a sustained period of below-trend growth and there will very likely be some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run. We will keep at it until we’re confident the job is done.”

While a small relief rally took place after the Fed hiked rates by a whopping 75 basis points – instead of a colossal full percentage point – the sentiment did not last. The major stock averages closed the session down 1.7%, as the 10-year Treasury yield spiked 7 bps to 3.64% and the rate on the shorter-dated 2-year popped 15 bps to 4.11%. Futures weren’t any less volatile overnight, whipsawing between gains of 0.7% and losses of nearly 2%, as investors fret over the state of the economy and the Fed willing to tolerate a painful recession as a key trade-off to keep a lid on inflation.

Case in point: “The deceleration in housing prices that we’re seeing should help bring sort of prices more closely in line with rents and other housing market fundamentals. And, you know, that’s a good thing,” Powell continued. “For the longer term, what we need is supply and demand to get better aligned, so that housing prices go up at a reasonable level, at a reasonable pace, and that people can afford houses again. And I think we – so we probably in the housing market have to go through a correction to get back to that place.” (10 comments)

A defensive consumer

Nearly every sector suffered a downturn following the Fed meeting, but whatever strength there was left appeared in defensive consumer staple industry. In fact, twelve out of the top twenty gainers in the S&P 500 were part of the sector, including names like Kellogg (K), Campbell Soup (CPB), Kraft Heinz (KHC), Hormel Foods (HRL), Conagra Brands (CAG) and J.M. Smucker (SJM). The stocks tend to do better than the broader market during recessions or periods of high volatility.

In first place: Cheerios-maker General Mills (GIS) drove the momentum, finishing the session up 5.7% after a strong beat-and-raise earnings report. Sales rose 4% to $4.72B, in line with Wall Street estimates, helped by lower than expected volume elasticities, strength with the North American retail business, and higher prices, which added 15 percentage points to the top line. Adjusted earnings also came in at $1.11 per share, beating consensus expectations by $0.11.

“Significant inflation and reduced consumer spending power has led to an increase in at-home eating and other value-seeking behaviors,” noted CEO Jeff Harmening. “We continue to deliver strong performance in a highly volatile operating environment.”

Guidance for FY2023: Organic net sales are expected to increase 6%-7%, compared to a previous estimate of 4%-5%, while EPS is forecast to grow +2% to +5% vs. a prior expectation for 0% to +3%. General Mills also sees costs rising as much as 15% due to increases for raw materials, labor, freight and fuel. Food prices in the U.S. climbed 13.5% Y/Y in August, according to the Labor Department, marking the fastest pace since March 1979. (4 comments)

Winding down

It’s the end of the line for Kittyhawk, the secretive flying car company that has been bankrolled by Google (GOOG, GOOGL) co-founder Larry Page. It’s not clear what caused the startup’s demise, but reports over the past few years suggested executive infighting over direction, as well as technical issues, safety problems and unresolved questions about the practical use of its battery-powered aircraft. “We’re still working on the details of what’s next,” the company wrote in a LinkedIn blog post, dashing dreams of a future where users can hail flying taxis like an Uber (UBER).

Backdrop: Kittyhawk was founded as Zee Aero in 2010, when Page hired Sebastian Thrun – known as the godfather of self-driving cars – to start working on electric vertical takeoff and landing aircraft (eVTOL). Kittyhawk became the parent company of Zee Aero in 2016, and later showcased an eVTOL called the Flyer in 2017 (that could hold one person and fly up to 20 miles), but the model was later retired. Over the next two years, Kittyhawk unveiled the Cora and the Heaviside, but what caught investors’ eyes was its flying taxi partnership with Boeing (NYSE:BA) in a joint venture called Wisk Aero.

“Kittyhawk’s decision to cease operations does not change Boeing’s commitment to Wisk [or] affect operations or other activities in any way,” according to a company spokesperson. “We are proud to be a founding member of Wisk Aero and are excited to see the work they are doing to drive innovation and sustainability through the future of electric air travel.” Boeing poured another $450M into Wisk during its last funding round in January and the startup “remains in a strong financial and strategic position.”

Go deeper: Besides developing the technology to enable flying taxis, there are other big challenges that will need to be solved before the industry can take flight. Among them are integrating eVTOL systems into existing air-traffic control and finding enough places for the aircraft to take off and land (vertiports?). “These locations have to be nearby, where the nodes of traffic exist,” explained Erick Corona, Wisk’s Director of Product Management. (6 comments)

Yen intervention

Japan has intervened in the foreign exchange market for the first time since the late ’90s, in an attempt to shore up the battered yen after it breached the key ¥145 level. The currency buying bumped the rate back to ¥140 per dollar, though many caution that the move will only provide a temporary reprieve and may be unsuccessful in the long term. Japanese Finance Minister Shunichi Suzuki also didn’t disclose how much the government had spent buying the yen and whether other countries had consented to the intervention.

What’s happening? Ultra-dovish policies in Japan are keeping the yen under pressure, leading to a strong wave of constant dollar buying in the forex markets. The yen (along with the euro) are by far the most traded currencies against the dollar, so when both are weak, it makes it harder for anything else to rival the greenback. The Bank of Japan also wants to ride out recent price pressures by sticking to its yield curve control policies, hoping that the current levels of inflation aren’t sustainable due to hiccups in the post-COVID recovery.

“I believe we won’t be introducing a rate hike anytime soon,” Bank of Japan Governor Haruhiko Kuroda told a news conference. “We have decided to continue the monetary easing after thoroughly discussing what the most effective monetary policy is by analyzing the Japanese economy, price trends and future development in depth.”

Outlook: Japan is growing increasingly isolated on the global monetary policy stage, with most major economies pulling their short-term rates out of negative territory. The Swiss National Bank even raised its policy rate by 75 basis points today, ending years of minus rates that hoped to keep an appreciation of the franc in check. (4 comments)

Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Current Account
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
4:30 PM Fed Balance Sheet

What else is happening…

Tightening cycle: Bank of England boosts rates by 50 basis points.

Warner Music (WMG) names ex-YouTube business chief as next CEO.

U.S. asking rents climbed to record highs in August, growth moderates.

KB Home (KBH) homebuilding revenue guidance trails consensus.

Meta (META) cutting staff with plans to reduce costs by at least 10%.

New goal: Salesforce (CRM) sets $50B revenue target for 2026.

Trump SPAC (DWAC) threatens to sue SEC over delayed deal.


Good morning. Happy Wednesday. Happy Fed Day.

The Asian/Pacific markets are mostly down. Japan, Hong Kong, South Korea, Australia and the Philippines are down more than 1%. Europe, Africa and the Middle East currently lean to the upside. The UK, Denmark, Finland, Norway, the Netherlands, Italy and Sweden are up; the UAE, Russia, Greece, Hungary and the Czech Republic are down. Futures in the States point towards a gap up open for the cash market.

————— VIDEO –>> Let’s Talk About Inflation and Why Prices Will Not Drop – Ever —————

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

Stories/News from Seeking Alpha…

Super Size Me

The Federal Reserve’s policymaking committee appears poised to boost its benchmark rate by 75 basis points today, making it the third straight increase of that size, according to the CME FedWatch tool. The measure, which is determined by trading activity, puts an 84% probability on a 75 bps hike, which would bring the federal funds rate target range to 3.0%-3.25%, and a 16% probability on a full percentage point increase. Indeed, the widely watched 10-year Treasury yield has been climbing in recent days, pushing past 3.5%, its highest level since 2011, while the 2-year Treasury yield hit its highest level since 2007, briefly topping 4.0%.

Commentary: “The Fed has been delivering a ‘tough love’ message that interest rates will be higher, and for longer, than expected,” said Greg McBride, chief financial analyst at Bankrate. “The Fed will continue to hike rates until it actually restrains the economy and intends to keep rates at those restrictive levels until inflation is unmistakably on its way to 2%.” A quantitative tightening program is also in the works to reduce the Fed’s whopping $9T balance sheet, leading to more upward pressure on yields.

Meanwhile, the central bank this afternoon will release its latest economic projections, giving investors a clearer picture of where policymakers expect rates to go through its “dot plot.” The last forecast saw the terminal rate for fed funds to be above 3.25% by the end of the year and at 3.8% in 2023, but most economists now expect the latter to be above 4%. The new projections will also offer a snapshot into the FOMC’s thinking for the last two meetings of 2022, and how high rates could go in November and December.

Outlook: Mihir Kapadia, CEO of Sun Global Investments, observes the expectations’ effects on asset prices. “The more aggressive monetary policy has stoked fears of an impending recession and has led to fall in most asset prices including bonds and stocks. The weakness in stocks has stopped the new issue market and the IPO drought continues. This has clearly impacted performance of banks. Corporate earnings this quarter will be a barometer for the health and resilience of the economy and sentiment.” (56 comments)

‘Partial mobilization’

In his first national address since the invasion of Ukraine in February, Vladimir Putin announced a “partial mobilization” of the population to bolster flagging manpower for Russia’s “special military operation” in the Donbas region. Only reservists will be conscripted, with the Defense Ministry later clarifying that as many as 300,000 troops could be called up. The declaration comes after big battlefield losses for Moscow over the past few weeks, following a counteroffensive by Ukraine that retook more than 10% of the territory held by Russia.

Quote: “When the territorial integrity of our country is threatened, we will certainly use all the means at our disposal to protect Russia and our people,” Putin continued. “This is not a bluff. Those who are trying to blackmail us with nuclear weapons should know that the wind patterns can also turn in their direction. To those who allow themselves such statements, I would like to remind them, Russia also has many types of weapons of destruction, the components of which in some cases are more modern than those of the countries of NATO.”

WTI crude prices advanced on the news, climbing as much as 3.2% to $86.62/bbl, over fears that any escalation in the war could lead to tighter oil and gas supply. While new sanctions could be unveiled, the EU has already banned seaborne imports of Russian crude from Dec. 5, and given the recent aggressiveness of the Federal Reserve, many appear to be more worried about lower oil demand growth amid a global economic slowdown. “It seems like a knee-jerk reaction to a sliver of news and would be liable to further recalibration in the coming hours,” related Vandana Hari, founder of Vanda Insights in Singapore.

Go deeper: The Kremlin is moving ahead with the formal annexation of the so-called Donetsk and Luhansk People’s Republics, as well as the Kherson and Zaporizhzhia regions. The West has called out the referendums, set to be held between Sept. 23-27, as sham votes, and compared them to the illegal one held in Crimea back in 2014. The annexation would be “irreversible” and enable Moscow to use “all possible force in self-defense, according to Dmitry Medvedev, Deputy Chairman of Russia’s Security Council (who also served as the country’s president from 2008 to 2012). (90 comments)


As the screws tighten over the war in Ukraine, the ramifications for those involved are having profound impacts on their economies. Europe is on the frontlines as energy is weaponized on the battlefield, with Russia fully turning off the taps of the Nord Stream 1 pipeline to Germany and beyond. Prior to the invasion, Russia had supplied about 40% of the EU’s natural gas needs, which is used for everything, like cooking and heating for consumers, as well as electricity and power generation for heavy industry.

The latest: Uniper (OTC:UNPPY), Germany’s largest importer of gas, is being nationalized by the government as Berlin attempts to keep the industry afloat in the wake of an energy crisis. Shares of the utility collapsed 35% in Frankfurt on the news, following a 90% tumble since the beginning of the year. The drastic measure follows an earlier €15B bailout that failed to prop up Uniper, which has suffered heavy financial losses after being forced to buy gas in a market where prices have hit record highs.

The specifics of the deal will see the German government take a 99% stake in the energy giant – and inject in €8B – by acquiring the stake of Uniper’s parent company, Finland’s Fortum Oyj (OTCPK:FOJCY). “This step has become necessary because the situation has worsened significantly,” German Economy Minister Robert Habeck announced. “The state will do everything necessary to keep systemically important companies in Germany stable at all times.”

Outlook: While Germany gas storage facilities are currently over 90% full (meaning serious trouble would occur only after this winter), the government is likely to roll out further emergency support until more diversified supplies come online. There are plans to take control of two other large gas importers known as VNG and Securing Energy for Europe (formerly Gazprom Germania). Berlin has also 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. (8 comments)

Playing catch-up

Feeling some serious heat from rival TikTok, YouTube’s (GOOG, GOOGL) short-form video-sharing platform is shifting into overdrive by bringing advertising (and revenue sharing) to popular creators. Until now, the only way to make money in YouTube Shorts was through a $100M Shorts Fund that was launched last year. That compares to YouTube’s main site, where users can run ads in their videos and keep a portion of the revenue.

How it works: Starting in 2023, creators focused on Shorts can apply to the YouTube Partner Program by hitting a threshold of 1,000 subscribers and 10M Shorts views over 90 days. A new level with lower requirements will also offer earlier access to Fan Funding features like “Super Thanks, Super Chat, Super Stickers and Channel Memberships.” As for advertising on Shorts, ads run between videos on the feed, so every month, “revenue from these ads will be added together” and used to reward Shorts creators and cover music licensing costs (creators will keep 45% of the revenue, distributed based on their share of total Shorts views).

“YouTube now offers 10 ways for our over 2M partners to make money. But we’re not done,” the company wrote in a blog post. “Creators are continually testing the boundaries of expression, from 15-second vertical Shorts, to 15-minute videos, to 15-hour live streams. And they’re building their businesses based on diversified revenue streams, from Fan Funding to brand sponsorships.”

By the numbers: YouTube Shorts is seeing 30B views per day and has 1.5B monthly logged-in users. (19 comments)

Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 Existing Home Sales
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

What else is happening…

Credit card behemoths warned to desert gun store merchant code.

Jamie Dimon to push back at higher capital requirements at hearing.

Fast & Furious: Porsche outlines IPO details as offering period opens.

WhatsApp (META)-Salesforce (CRM) disclose business chat integration.

Hertz (HTZ) plans to order 175K EVs from General Motors (GM) by 2027.

Nasdaq (NDAQ) launches digital asset unit to offer Bitcoin, Ether custody.

The Gap (GPS) to cut 500 corporate jobs in cost-cutting measure.

Beyond Meat (BYND) suspends operating chief after weekend arrest.

Spotify (SPOT) launches audiobook sales, facing off with tech rivals.

Amazon (AMZN) announces 71 new renewable energy projects globally.


Good morning. Happy Tuesday.

The Asian/Pacific markets did well. China, Hong Kong, India, Taiwan, Malaysia and Australia led. Europe, Africa and the Middle East are currently mostly down. Turkey and Saudi Arabia are up, but Denmark, Poland, France, Germany, Russia, Finland, Switzerland, the Netherlands, Italy, Portugal and Sweden are down big. Futures in the States point towards a moderate gap down open for the cash market.

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

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

Stories/News from Seeking Alpha…

Rates are rising

The 10-year Treasury yield crossed 3.5% on Monday for the first time since 2011, while the rate on the 2-year Treasury rose overnight to a 15-year high of 3.97%. The deep inversion and bearish run in the bond market is spooking investors ahead of another monster rate hike by the Fed, which meets today for its September meeting. As long as inflation continues to surprise to the upside, the volatility will likely remain, with the central bank now clearly willing to bring down the price pressures at all costs.

Snapshot: Traders are pricing in an 80% chance that the Federal Open Market Committee will lift its overnight lending rate tomorrow by 75 basis points for a third time, according to CME’s FedWatch Tool. That compares with a 20% probability of a more outsized, 100 basis-point rate increase in the wake of August’s hotter-than-expected inflation reading. Other central banks are also taking notice, with Sweden’s Riksbank hiking rates today by a full percentage point, to counter an environment that is “making it more difficult for both companies and households to plan their finances.”

Volatility is also causing chaos in equity markets, with the major averages inching up Monday after an earlier selloff, to only fall again overnight. “All I care about is finding the silver lining window, but that window is getting much more narrow,” noted Louis Navellier, chief investment officer of Navellier & Associates. “The Fed statement will be everything. We need a light at the end of the tunnel.”

Bond strategies? While rising yields have crushed treasury-related ETFs, there are ways investors can exploit a rising-rate environment. Market participants that are betting on higher yields can invest in inverse ETFs that are designed to bet against bond prices and are active again in the premarket session. Four examples and their YTD prices include the ProShares Short 20+ Year Treasury ETF (NYSEARCA:TBF) +29%, ProShares UltraShort 20+ Year Treasury ETF (NYSEARCA:TBT) +65%, Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (NYSEARCA:TMV) +102%, and the ProShares UltraPro Short 20+ Year Treasury (NYSEARCA:TTT) +103%. (4 comments)

Sanctions exemption

Satellite internet is the rage these days after T-Mobile (NASDAQ:TMUS) unveiled a partnership with Elon Musk’s Starlink (STRLK) and Apple (NASDAQ:AAPL) teamed up for emergency services with provider Globalstar (NYSE:GSAT). While satellite technology has been around for more than two decades, service has historically been spotty and was held back by its high price tag. However, the frequencies are starting to change, as newer generation satellites cut down on latency, and bigger constellations rolled out in “low Earth orbit” bring down the prohibitive costs.

Battle for the sky: Services like Starlink are being hailed by the rural population and those living in remote areas, and it’s now available on all seven continents – including Antarctica. Musk’s mission statement for the company was even recently expanded by providing service to the Ukrainian military after Russia severed lines of communication and key infrastructure following its invasion in February. Similar discussions are now taking place as Iran gets hit by widespread protests – over the death of a woman in the custody of the country’s morality police – and subsequent reports that the government once again restricted internet usage to control dissent.

“Starlink will ask for an exemption to Iranian sanctions in this regard,” Musk responded over Twitter after a user asked if it was technically possible to provide the service to the Iranian people. “It could be a game changer for the future,” @erfan_kasraie added in the tweet.

Go deeper: Musk hasn’t provided further details on how things would work, but Iranian users would likely need Starlink antennas and modems to access the broadband service. In the meantime, SpaceX (SPACE) is looking to rapidly expand Starlink with a constellation of up to 42,000 satellites, and is heavily outpacing its rivals. Amazon’s (NASDAQ: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). Other current competitors include HughesNet, which is owned by EchoStar (NASDAQ:SATS), as well as Viasat (NASDAQ:VSAT), which offer download speeds of 25-100 Mbps. (9 comments)

Supply snarls

Shares of Ford (F) slid 5% in premarket trading this morning after the automaker flagged higher supplier costs and parts shortages. The situation, which has been a trademark of the supply chain since the pandemic, will leave the automaker with more unfinished vehicles than it had expected. About 40,000 to 45,000 will remain in its inventory at the end of the quarter that cannot be delivered to auto dealerships.

Bigger picture: Ford expects to incur an extra $1B in costs during the quarter as a result of the supply chain costs, on top of a previous $3B it outlined in July that was due to inflationary pressures. The carmaker still reiterated its full-year guidance, projecting 2022 adjusted earnings before interest and taxes of $11.5B-$12.5B, while EBIT for Q3 was maintained in a range of $1.4B-$1.7B.

Executives will “provide more dimension about expectations for full-year performance” when Ford reports Q3 results on Oct. 26. The automaker’s largest rival, General Motors (GM), also announced similar issues earlier this year, saying it was unable to deliver nearly 100,000 vehicles due to parts shortages of items like computer chips.

Commentary: The update is “evidence that auto parts shortages and supply-chain issues are still ongoing,” said CFRA analyst Garrett Nelson. “Ironically, Ford may have become a victim of its own success in that its recent U.S. sales growth has outperformed peers by a wide margin,” adding that its Q3 output “apparently wasn’t able to keep pace with demand.” (53 comments)

Strategic reserves

Crude sales from the U.S. Strategic Petroleum Reserve were only supposed to last through October, after the Biden administration authorized the release of 180M barrels – or 1M bpd over a six-month period – due to inflationary shocks from the war in Ukraine. Now, another 10M barrels of strategic stocks will be put on the market for delivery in November, adding to the recent bout of emergency sales to tame fuel prices. According to AAA, U.S. gasoline pump prices were averaging about $3.67 per gallon on Tuesday, down from a record of over $5.00 seen back in June, though the drop has been accompanied by recession fears, an aggressive Fed and heavy bearish sentiment.

What it means: The latest announcement will bring the total to 165M barrels out of the 180M barrels that Biden authorized in March to “help address the significant market supply disruption and lower energy costs for American families.” Volumes in the Strategic Petroleum Reserve have subsequently dropped to just 434M barrels, marking their lowest level since 1984. At the start of the year, the SPR contained 593M barrels, and it reached its highest point in 2010, when emergency stocks reached 727M barrels.

“I think the market should be freaking out” about the end of SPR draws, said Phil Flynn, energy market analyst at the PRICE Futures Group. “I think when the releases end, it’s going to have the impact of losing a major producer – it will really tighten supplies.” He even believes it could add another $5 to $10 premium to WTI oil prices.

Some history: Washington has released oil from the SPR roughly two dozen times, but most of them have been on a small scale (around 1M barrels) and in the wake of local disasters or emergencies. Over the past year, however, the Biden administration has coordinated two big releases of 30M and 50M barrels, while the latest 180M was a third. Prior to these, a big drawdown from the SPR was a rare event, only coming after supply disruptions during the Libyan civil war in 2011 and Hurricane Katrina in 2005. (3 comments)

Today’s Economic Calendar
FOMC meeting begins
8:30 Housing Starts and Permits
1:00 PM Results of $12B, 20-Year Bond Auction

What else is happening…

Rumble (RUM) jumps 35% in its first day of trading after de-SPAC.

Bipartisan House bill seeks to up competition in payment card networks.

COVID-19 vaccine makers fall as Biden says the pandemic is over.

Analysts say Take-Two’s (TTWO) ‘GTA’ leak doesn’t mean catastrophe.

Uber (UBER) believes Lapsus$ may have been involved in data breach.

Nikola (NKLA) CEO testifies that company’s founder misstated facts.

Amazon (AMZN) loses PillPack founders four years after acquisition.

Apple (AAPL) raising app store prices in Europe and Asia next month.

Beyond Meat (BYND) COO arrested, accused of biting man’s nose.


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

The Asian/Pacific closed mostly down. China, Hong Kong, South Korea, Taiwan, Malaysia and the Philippines posted the biggest losses. Europe, Africa and the Middle East are currently mostly down. Denmark, France, Turkey, the UAE, South Africa, Finland, Norway, Italy, Portugal, Sweden and Saudi Arabia are leading to the downside. Futures in the States point towards a moderate gap down open for the cash market.

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

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

Stories/News from Seeking Alpha…

Shock waves

There has been a lot of hype over the past couple of years to reintroduce commercial supersonic travel by the end of the decade. One of the most promising contenders, high-flying startup Boom Supersonic, recently inked an agreement to sell 20 Overture planes to American Airlines (NASDAQ:AAL), just a year after signing a similar deal with United (NASDAQ:UAL). The Overture is set to carry 65 to 80 passengers and fly as fast as Mach 1.7 (1,304 mph), cutting trans-Atlantic and trans-Pacific flight times dramatically.

The problem: Finding an engine manufacturer. Rolls-Royce (OTCPK:RYCEY) just announced it would exit the project after having completed various engineering studies. Following the comments, GE Aviation (NYSE:GE), Honeywell (NASDAQ:HON), and Safran Aircraft Engines (OTCPK:SAFRY) also confirmed that they were not interested in making a supersonic engine for Boom. Meanwhile, Raytheon’s (NYSE:RTX) Pratt & Whitney, another company capable of making such an engine, called the plans “tangential” to its business.

“Boom has stated it wants its aircraft to be as environmentally responsible as it can be, which is a noble and critically important objective, but it is already hard enough and expensive enough for Boom to build the airplane,” noted Henry Harteveldt, travel analyst at Atmosphere Research Group. However, if Boom could successfully build both a plane and an engine, the startup could become an acquisition target for aerospace companies like Boeing (NYSE:BA) or Airbus (OTCPK:EADSY). The firm could alternatively sell its engine design for a pretty penny, or cash in on the “boom” by profiting off the resumption in commercial supersonic travel.

Fun facts: While there have been many supersonic military aircraft, the only models to carry civilian passengers were the Concorde and the Russian-built Tupolev Tu-144. The Concorde went out of service in 2003 – weighed down by high expenses and a fatal crash in 2000 that prompted the model to be grounded – while the Tu-144 had limited service and retired in 1999. Commercial supersonic travel was such a hot topic when it was developed in the 1960s that Seattle named its NBA franchise the “SuperSonics” after Boeing’s supersonic transport project, which was later canceled. (2 comments)

Look out below

The market looks set for a lower open on Monday, with stock index futures down another 1% as investors display more nervousness about the Fed decision later in the week. The central bank is expected to raise interest rates by another three-quarters of a point, though there are calls for a 100 bps move, after the August CPI figure showed that inflation has not peaked yet. All of the major averages are coming off their worst week since June, as well as their fourth weekly loss in five weeks, while the benchmark S&P 500 (SP500) just broke below a key support level watched by many traders.

Commentary: “Over the last three years, the level on the SPX with the most amount of volume traded has been 3,900,” wrote BTIG’s Jonathan Krinsky. “It closed below that on Friday for the first time since July 18, which, in our view, opens the door down to the June lows (3,640).”

“While it likely won’t be a straight line, we have still yet to see any panic in the VIX (VIX) curve and monthly RSI has yet to get below 46 in this cycle,” he continued. “1987 is the only ‘bear market’ in the last 90 years that didn’t hit sub 42 Monthly RSI. There are areas working, but they are mainly in the defensive low-vol arena. These areas typically outperform until the bear market hits its final low.”

More analyst talk: “As the S&P 500 hovers below the all-important 3,900 level, and the 10-year Treasury yield inches ever closer to 3.5%, the Fed-sensitive 2-year Treasury note flirts with 3.9%, suggesting that the Fed’s aggressive campaign to kill off inflation is to be taken seriously,” noted Quincy Krosby, chief global strategist for LPL Financial. “The canary in the coal mine may not yet be dead, but is probably struggling to breathe.” (10 comments)

Need for speed

Seeking for some financing to help with its EV transition and investments in software, Volkswagen (OTCPK:VWAGY) is taking iconic sports-car maker Porsche public. The deal is set to be Europe’s largest listing in more than a decade, with a valuation of €70B-€75B, and proceeds from the sale totaling €18.1B-€19.5B. Trading is scheduled to begin Sept. 29 on the Frankfurt Stock Exchange.

Snapshot: As part of the listing (and a nod to its well-known vehicle line), 911M Porsche shares will be divided into 455.5M preferred shares and 455.5M ordinary shares. Only up to 113M preferred, non-voting shares will be sold, raising about €9.4B at the top of its range. A holding company controlled by the Porsche and Piech families will buy 25% of the company – with voting rights – at a 7.5% premium. Sovereign wealth funds of Qatar, Abu Dhabi and Norway, as well as mutual fund company T. Rowe Price, will also subscribe to as many as €3.68B worth of preferred shares as cornerstone investors.

“We are now in the home stretch with the IPO plans,” Volkswagen CFO Arno Antlitz declared, noting that a prospectus will be published later on Monday. VW will additionally hold an investor meeting in December to propose distributing 49% of the IPO’s total gross proceeds to shareholders via a special dividend.

Go deeper: Porsche has hired Italian investment bank Mediobanca, which took Ferrari (RACE) public in 2015, as a financial advisor for the IPO. While the two companies are in the luxury auto business, Ferrari has exclusively focused on expensive sports cars as Porsche expands into the more affordable market and SUVs. Ferrari is also run independently of its former parent Fiat and the Agnelli family, trading freely on the open market, while only 10% of Porsche’s shares will be offered to retail investors, and do not carry any voting rights. (45 comments)

Tensions in Europe

The European Union is running out of patience for Hungary to come in line with the bloc’s democratic norms and rule-of-law values. The ex-communist country of nearly 10M people is accused of systemic irregularities in judicial independence, weaknesses in constitutional and electoral systems, and deficiencies in anti-graft measures. EU legislators last week even voted to declare that Budapest was no longer a “full democracy” under the so-called “conditionality mechanism” and have since threatened to freeze €7.5B in funding unless it takes action to stamp out fraud and corruption.

Quote: “It’s about breaches of the rule of law compromising the use and management of EU funds,” said EU Budget Commissioner Johannes Hahn. “We cannot conclude that the EU budget is sufficiently protected.”

Hungary, which joined the EU in 2004, will have one month to respond to the bloc’s new ruling, though the country’s parliament is expected to vote this week on a series of laws aimed at easing the conflict. EU members will also have three months to assess the Commission’s recommendation and could limit any punishment if they find Budapest’s actions are credible. Up until now, the bloc has treaded carefully to win Hungary’s assent on major decisions, but if things go haywire, Hungary could even lose its right to vote in the Council of the European Union.

Outlook: The EU has been already shaken by an unprecedented energy crisis from the war in Ukraine, shortly after the United Kingdom formally left the bloc in 2020. Compounding the problems are populist Prime Minister Viktor Orban’s cozy relationship with Vladimir Putin – and his blocking of further sanctions on Moscow – which could hamper the EU’s ability to respond to the war. Hungary has routinely blocked EU decisions ranging from votes on a global minimum corporate tax to policies surrounding Ukraine’s integration into the West. Other recent tensions that have surfaced include the $5.8B earmarked for Hungary’s COVID-19 recovery fund, which has yet to be signed off by Brussels due to corruption concerns over Budapest’s spending plans. (2 comments)

Today’s Economic Calendar
10:00 NAHB Housing Market Index

What else is happening…

Adobe (ADBE) falls further as analysts downgrade on Figma uncertainty.

Credit card metrics normalize in August as loan growth stays strong.

Warren wants DOT to block JetBlue’s (JBLU) purchase of Spirit (SAVE).

Appeals court upholds Texas’ law restricting social content moderation.

Debt rating of Bitcoin-experimenting El Salvador cut again at Fitch.

Teva (TEVA) expects to finalize nationwide opioid settlement by year-end.

Tesla’s (TSLA) inroads to China offer challenges to match the opportunity.

Biden says U.S. would defend Taiwan against Chinese invasion.

Trump SPAC (DWAC) said to be unable to pay proxy soliciting firm.

No power in Puerto Rico as Hurricane Fiona makes landfall.


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