Good morning. Happy Friday.
The Asian/Pacific markets got hit hard. Japan, China, Taiwan, Australia, New Zealand and the Philippines suffered big losses; India did well. Europe, Africa and the Middle East currently lean up but are mostly quiet. Finland, Norway, Hungary, Saudi Arabia and the Czech Republic are up 1% or more. Futures in the States point towards a positive open for the cash market.
————— VIDEO –>> Oil is Leading the Market Lower —————
The dollar is up. Oil is down; copper is up. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
I am Optimus
Weekend Bite, a Seeking Alpha Original Series: This week we’re joined by Michael Kramer, founder of Mott Capital Management, to dive into sticky inflation, nominal GDP growth, and a bottom to watch for the S&P 500. Plus, Kim Khan gives the heads up on what to watch next week in Catalyst Watch.
All eyes will be on Tesla (TSLA) tonight as the company holds its highly-anticipated AI Day. The event is set to stretch over six hours (from 5 PM to 11 PM PT), at least according to the invitations, and be full of robotics and artificial intelligence initiatives. Note that the live event/webcast hasn’t yet been posted on YouTube or the company’s investor relations page, meaning there could still be some of Tesla’s usual surprises. Here’s what to expect:
The bots: One of the main highlights is likely to be the unveiling of the company’s humanoid bipedal robot called Optimus. While the concept was presented last year, many are hoping that this time around a demo will show progress of an actual functioning prototype. The robot – which has a height of 5’8′ and a weight of 125 pounds – may have some practical uses in warehouses and manufacturing sites, with an ability to carry as much as 45 pounds at a walking speed of 5 mph (it uses Autopilot cameras and software to navigate the physical world).
Pedal to the metal: Expect some discussion to center around robo-taxis and self-driving cars, specifically the FSD (Full Self-Driving) software system. Despite its name, the option does not yet allow cars to drive themselves automatically, a feature that Elon Musk has been promising for years. Tesla recently raised the price of its FSD Beta package to $15,000 – including sophisticated features like automatic lane-changing and parking, stop light recognition and “Smart Summon,” as well as Autosteer on city streets and stop sign control. When will users be able to finally let go of the wheel?
Other things: AI Day may also include an update on Tesla’s Dojo Chip, which is the in-house supercomputer announced by the firm last year that is being designed to power many future Tesla products. The actual AI computing power of the Dojo Chip is considered key by Wedbush Securities analyst Dan Ives in terms of how close self-driving cars are to becoming a reality. Tesla stock has shed about 33% in value this year, compared with losses of 24% for the benchmark S&P 500. (64 comments)
Downsizing
The slowdown in tech went on full display after Facebook parent Meta Platforms (META) announced plans to reduce headcount for the first time ever. Macroeconomic headwinds are clearly hitting the sector, as well as an advertising slump that was exacerbated by Apple’s (AAPL) iOS privacy changes. Meta is also waiting for its big investments in virtual reality (Oculus), the metaverse (Horizon Worlds) and short-form video (Reels) to bear fruit, as growth peaks across Facebook, Instagram and WhatsApp.
Quote: “I had hoped the economy would have more clearly stabilized by now,” CEO Mark Zuckerberg told a weekly Q&A session with employees. “But from what we’re seeing it doesn’t yet seem like it has, so we want to plan somewhat conservatively.”
Budgets will be further tightened across “all teams,” even among those that are growing, while priorities will be realigned to factor in the trimmed expenses. Meta, whose shares are down 60% YTD, is not alone in its downsizing efforts, with many companies implemented similar decisions over the summer. Twitter (TWTR) froze hiring in May, Snap (SNAP) slashed 20% of its staff in August, while Alphabet (GOOGL) announced it would slow hiring in the second half of 2022.
More tech trouble: Apple dragged down the Nasdaq on Thursday as the iPhone maker slumped following a rare downgrade by Bank of America. “We see risk to this outperformance over the next year, as we expect material negative [estimates] revisions driven by weaker consumer demand (Services already in slowdown and we expect products to follow),” analyst Wamsi Mohan wrote in a note to clients. Shares were lowered to Neutral from Buy (PT to $160 from $185), prompting the stock to drop 5% and erasing over $100B of market value. (62 comments)
‘Elevated risks’
Volatility has returned to the stock market with a vengeance as Fed policymakers remain adamant about monetary tightening to stave off inflationary pressures. On Thursday, St. Louis Fed President James Bullard said the markets have “digested” the message on rate hikes and that “seems to be the right interpretation.” Another voting member of the FOMC, Cleveland Fed President Loretta Mester, also said that officials are steadfast in their mission to raise rates to a level seen as restrictive.
Market movement: Despite a partial rebound in the final stages of trading, the major U.S. equity averages finished notably lower on Thursday. The Nasdaq Composite (COMP.IND) tumbled 2.8%, the S&P 500 (SP500) closed down 2.1% and the Dow Jones Industrial Average (DJI) shed over 450 points. The rapid movements have intensified as hedge funds, pensions and institutional investors look to wrap up the end of the third quarter with traditional portfolio rebalancing and some new positioning.
Darker times could lie ahead, according to former Treasury Secretary Lawrence Summers, who served under the Clinton administration. Summers specifically flagged the U.K.’s intervention in the gilt market, uncertainty about the path of central bank policy, “uneasiness” over decades-high price pressures and geopolitical tensions related to the Russia-Ukraine war and China. He is also known for cautioning Fed policymakers about the dangers of inflation in early 2021, when most officials were still touting “transitory” forecasts.
Warning bells: “I do certainly think we’re living through a period of elevated risk,” Summers told Bloomberg. “Earthquakes don’t come all of a sudden, there are tremors first. Most of the time, when there are tremors, they’re just tremors and it goes away, but not 100% of the time. In the same way that people became anxious in August of 2007, I think this is a moment when there should be increased anxiety.” (11 comments)
High-stakes election
Voters in Brazil are heading to the polls on Sunday for a presidential election that will determine the direction of Latin America’s largest economy. President Jair Bolsonaro is running for re-election against his top opponent Luiz Inacio Lula da Silva, who ran the country from 2003-2010. It’s a tense match-up between two polarizing characters, which have checkered histories that have bordered bigotry and racism to corruption scandals and even jail time.
How it works: The president will be elected to a four-year term via a two-round system, with a runoff taking place on Oct. 30 if no candidate wins more than 50% of the vote. Voting in Brazil is also compulsory from the age of 18 to 70, unless explicitly justified to an electoral court. According to the letter of the law, citizens who fail to vote in an election must pay a small fine, or else risk their passport, being employed in the public sector or other severe penalties.
Standing on the opposite sides of the economic spectrum, Bolsonaro and Lula have differing visions on how to jump-start an economy that hasn’t grown over much of the past decade. Bolsonaro has campaigned on pro-business and market-friendly policies, and even eked out some reforms like a pension overhaul and privatizations. On the other hand, Lula wants bigger investments in public infrastructure, while keeping a strong grip on state-controlled oil giant Petrobras (PBR) and playing a part in the clean energy transition.
To invest? Brazil, Russia, India and China, collectively known as the BRIC nations, were all the rage in the early 2000s, when emerging market investors hoped to capitalize on their growth and population expectations, as well as commodity sources and raw materials. Barring China (and possibly India), things haven’t quite materialized, but some say that could make a country like Brazil attractive given its current valuation. Brazil’s Ibovespa Index is even up 3.6% this year, compared to the 24% drop of the S&P 500 in the U.S.
Today’s Economic Calendar
8:30 Personal Income and Outlays
8:30 Fed’s Barkin Speech
9:00 Fed’s Brainard Speech
9:45 Chicago PMI
10:00 Consumer Sentiment
11:00 Fed’s Bowman Speech
12:30 PM Fed’s Barkin Speech
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices
4:15 PM Fed’s Williams Speech
What else is happening…
U.S. GDP estimate stays at -0.6% for Q2, PCE estimate increases.
Google (GOOGL) ditches cloud video gaming by shutting down Stadia.
Bed Bath & Beyond (BBBY) reports 28% drop in quarterly revenue.
Annexation coming: Putin flags independence of four Ukrainian regions.
Apple’s (AAPL) procurement chief leaving after crude remarks on TikTok.
Micron (MU) guidance misses estimates, plans 50% spending cut.
Disney (DIS) sees phased park reopening, names Disney+ president.
September new vehicle sales rise 13% Y/Y, used sales down 11% Y/Y.
Nike (NKE) falls to new low after effort to clear inventory hits margins.
Peloton (PTON) selects Dick’s (DKS) as first retail store partner.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned up. Japan, Australia, New Zealand and the Philippines did well; Hong Kong was weak. Europe, Africa and the Middle East are getting hit hard. Saudi Arabia is up, but the UK, Denmark, Poland, France, Germany, Russia, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Portugal, Israel, Austria, Sweden and the Czech Republic are down big. Futures in the States point towards a relatively big gap down open for the cash market.
————— VIDEO –>> Oil is Leading the Market Lower —————
The dollar is down. Oil is flat; copper is up. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Sizzle or fizzle?
U.S. stocks look ready to sing the bear market blues again this morning after the Bank of England shuffled sentiment with a dominant turnaround. Fearing a breakdown in market stability, the central bank on Wednesday promised to buy long-dated bonds “on whatever scale is necessary,” sending the yield on the 30-year gilt down by a full percentage point in the span of just a few hours. The chorus quickly spread across the Atlantic, with U.S. debt echoing similar moves, as the 10-year Treasury yield fell 26 bps to 3.71% for its largest one-day decline since March 2009.
Knee-jerk reaction? Stocks soared higher as bonds surged – just a day after the S&P 500 notched a new bear market low – but many cautioned that the rally was far from sustainable. Futures are reflecting the outlook this morning, with contracts linked to the Dow (DJI), benchmark S&P 500 (SP500) and tech-heavy Nasdaq (COMP.IND) off by about 1% at the time of writing. Many also doubt that the Fed will blink like the Bank of England, which is worried about shoring up investor confidence after a series of planned tax cuts sparked days of turmoil in financial markets.
In contrast, the U.S. central bank is steadfast in its mission to stamp out inflation. It has shown a disregard to the stock crash of 2022, soaring yields and a skyrocketing dollar, especially since it wants prices and consumer spending power to come down. The Fed is also not afraid of the “unwarranted tightening of financing conditions” and “flow of credit to the real economy” that was flagged by the Bank of England, and it would likely take a more serious breakdown in U.S. trading conditions to ignite a reversal of QT policies.
Will the strategy even work? “The BoE’s bond purchases may temper the UK government’s borrowing costs but have not resolved the tensions between fiscal loosening and monetary tightening,” noted Carol Kong, strategist at Commonwealth Bank of Australia. “Sterling is not out of the woods [with] the BoE seen addressing the symptom and not the cause,” added DBS currency strategist Philip Wee. “The government has yet to address the credibility of the tax cut plans, which critics see adding to the inflation woes.” (11 comments)
#HurricanIan
Hurricane Ian was downgraded to a tropical storm this morning, but Florida officials are still warning of serious consequences as it barrels through the state on its way to the Atlantic. Central and northeast Florida are projected to see 12 to 20 inches of rain, with some areas receiving as much as 30 inches, and Ian could pick up speed as it heads back into the ocean. Forecasts show the storm turning further north on Friday, moving into Georgia and the Carolinas.
No power: Around 2.5M customers in Florida are without electricity after the eye of Ian landed around 3 p.m. ET in Cayo Costa as a Category 4 hurricane. Storm surges reached as high as 18 feet in some coastal areas, while maximum sustained winds hit 150 mph, leaving people that didn’t evacuate stranded in their homes. Extensive infrastructure and property damage has also been recorded in areas like Fort Myers and Cape Coral, though the full scope of the impacts will likely be known later today.
“This storm is doing a number on the state of Florida,” Governor Ron DeSantis declared. “After Hurricane Ian passes, be careful going outside. Make sure to avoid downed power lines, avoid standing water, stay clear of trees, do not drive in standing water and keep generators 20 feet outside of your home.”
Go deeper: Widespread transportation disruptions were recorded on Wednesday, including airport closures and over 2,000 flight cancellations. Florida’s biggest seaport in Jacksonville, known as Jaxport, as well as Port Canaveral, also joined Port Tampa Bay in shutting down completely.
Revving up
The IPO market may be drying up in the current investing environment, but one company still appears to be driving at its finest. Porsche AG advanced 3% to €85/share during its first trading session in Frankfurt, after parent Volkswagen AG (OTCPK:VWAGY) set the final price for the sports-car maker at the top end of its €76.50-€82.50 marketed range. The listing values Porsche at some €75B, making it Europe’s largest initial public offering in a decade despite many challenging market conditions.
Bigger picture: As part of the listing (and a nod to its well-known vehicle line), 911M Porsche shares were divided into 455.5M preferred shares and 455.5M ordinary shares. Only a quarter of the preferred, non-voting shares were sold, while a holding company controlled by the Porsche and Piech families bought 25% of the company – with voting rights – giving them a majority that could halt major strategic decisions implemented by the carmaker’s board. Investors in the IPO also included the sovereign wealth funds of Qatar, Abu Dhabi and Norway, as well as mutual fund company T. Rowe Price.
Volkswagen, which will retain a 75% stake in Porsche, is set to raise €19.5B from the IPO. The parent firm plans to distribute nearly half of the proceeds to VW shareholders in the form of a special dividend, while the remaining amount will pave the way for its EV transition and investments in software. In terms of earnings, Porsche recorded a €4B profit last year, on revenue of €33.1B.
Engineered for magic: Porsche hired Italian investment bank Mediobanca – which took Ferrari (NYSE: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 were offered to retail investors, and do not carry any voting rights. (5 comments)
Sanctions in the works
Russia is set to annex nearly 15% of Ukraine in the coming days as Vladimir Putin hardens his response to the recent advances made by the Ukrainian military. He has already ordered a military mobilization of 300K additional troops, threatened to defend Russia with nukes if necessary, and turned off the taps (and possibly sabotaged) the Nord Stream pipeline system that carries natural gas to Europe. Tallies from recent referendums held in the Luhansk, Donetsk, Kherson and Zaporizhzhia regions supported joining Russia, according to the Kremlin, though Kyiv and the West have dismissed the results as coercive, rigged and illegal.
The fears: “As for the risk of Russia using these votes and subsequent annexation of those territories as a pretext for nuclear strikes – we are conscious of this risk, we understand that it is real,” said Yuriy Sak, an advisor to Ukraine’s Defense Minister Oleksii Reznikov.
As a result, the EU is working on a fresh sanctions package that would set price caps on Russian oil – and ban the import of other products – costing Moscow a total of €7B per year. The bill would additionally bar the sale of key technologies that could benefit Russia’s military, prohibit EU nationals from serving on the boards of Russian state-owned enterprises, and restrict the transfer of Russian wealth via crypto assets and services. Senior Russian ministry officials and individuals (involved with the latest referendums) would also be in the crosshairs of the package.
Outlook: For the new EU sanctions to go into effect, the bloc’s 27 members will need to overcome recent tensions to unanimously approve them, while the United States may also jump aboard. “We will continue to work with allies and partners to bring even more pressure on Russia and the individuals and entities that are helping support its attempted land grab,” State Department spokesman Ned Price told reporters. (6 comments)
Today’s Economic Calendar
8:30 GDP Q2
8:30 Initial Jobless Claims
8:30 Corporate profits
10:30 EIA Natural Gas Inventory
1:00 PM Fed’s Mester Speech
4:30 PM Fed Balance Sheet
4:45 PM Fed’s Daly Speech
What else is happening…
Druckenmiller hopes Fed will ‘stick to its guns’ with hawkish policy.
Alzheimer’s drug developers close higher on latest developments.
Pending home sales fall more than consensus in August.
Warner Bros. (WBD) Discovery’s Zaslav: ‘We are not for sale.’
Amazon (AMZN) boosts wages for warehouse and shipping workers.
Marijuana opposition group wants vote on cannabis research bill.
SEC is looking at conflicts of interest in robo-advisers – Gensler.
Verizon (VZ) pushes home entertainment with hardware, game device.
Ken Griffin: There will be U.S. recession, but it’s a matter of when, how hard.
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Good morning. Happy Wednesday.
The Asian/Pacific posted big losses. Japan, China, Hong Kong, South Korea, Taiwan, Singapore and the Philippines dropped more than 1%. Europe, Africa and the Middle East are mostly down. Russia and Saudi Arabia are up, but Poland, France, Turkey, Germany, South Africa, Norway, Hungary, Spain, the Netherlands, Italy, Israel and Austria are down big. Futures in the States point towards a mixed open for the cash market. This is well above the overnight lows.
————— VIDEO –>> The Good and the Bad of Today’s Market —————
The dollar is up. Oil and copper are up. Gold is up; silver is down. Bonds are up.
Stories/News from Seeking Alpha…
Brace for impact
Florida is preparing for the arrival of Hurricane Ian after the intensifying storm knocked out Cuba’s entire electric grid early on Tuesday. About 2.5M people along the U.S. Gulf coast have been urged to evacuate, with forecasts calling for winds of up to 130 mph and a 6-foot storm surge, potentially leaving some places uninhabitable for weeks or even months. While estimates are being revised by the hour, Ian will likely crash ashore this evening south of Tampa Bay – somewhere between Sarasota and Naples – as a potentially deadly Category 4 hurricane.
Catastrophic damage: Economic losses in the area could exceed $45B if the current forecast comes to pass, ranking Ian as the eighth-costliest U.S. hurricane. It could also exacerbate food inflation if the storm takes a direct hit on key orange-growing producers, so keep an eye on Orange Juice Futures (JO1:COM) and the nation’s largest distributors – Tropicana (NASDAQ:PEP) and Minute Maid (NYSE:KO). Fertilizer-manufacturing zones are also at risk, like Mosaic’s (NYSE:MOS) phosphate facilities east of Tampa, which could further drive up the cost of growing food.
“I do have concerns about complacency,” said U.S. Federal Emergency Management Agency chief Deanne Criswell. “We’re talking about impacts in a part of Florida that hasn’t seen a major direct impact in nearly 100 years. There’s also parts of Florida where there’s a lot of new residents.”
Outlook: Walt Disney World (NYSE:DIS) said its theme parks would close Wednesday and Thursday, while SeaWorld Entertainment (NYSE:SEAS) shuttered Busch Gardens in Tampa through Sept. 29. Commercial airlines also reported more than 2,000 storm-related flight cancellations, heavily impacting carriers like JetBlue (NASDAQ:JBLU), Spirit (NYSE:SAVE) and American Airlines (NASDAQ:AAL). On the energy front, personnel have been evacuated from 14 Gulf Coast rigs, halting about 11% of the region’s oil output. Meanwhile, Duke Energy (NYSE:DUK), which supplies electricity to 1.9M customers in the state, warned of widespread power outages, as well as Florida Power & Light Co., a subsidiary of NextEra Energy (NYSE:NEE). (9 comments)
Above 4%
In case investors didn’t get the message yet, the “Fed put” has officially been retired. As Jerome Powell looks set on vanquishing soaring inflation and entrenched expectations, economic growth and hopes of a soft landing have been thrown into the back seat, with some arguing – maybe a bit too strongly. The crew at the central bank has even promised more rate hikes in November and December, after accelerating the unwinding of its balance sheet this month, and there are fears that the real effects could soon start rippling through the economy.
The latest: The 10-year Treasury climbed 4 basis points overnight to breach the key 4% level. The last time that happened was in 2008, at the height of the global financial crisis. It’s even more astonishing when considering the pace of the yield’s ascent, with the benchmark sitting at only 1.50% at the start of the year.
“Bond yields gravitating toward or above 4% means markets are pricing in tighter policies for longer,” noted Daniel Tenengauzer, head of markets strategy at BNY Mellon. “In my opinion, it’s the realization that bond yields are highly unlikely to revert to a lower range in the medium to longer term, given higher inflation and tighter policy for longer, that’s having an impact.”
Everything bubble deflates: The Dow Jones slipped further into a bear market and the S&P 500 fell to its lowest level in almost two years on Tuesday, while the Nasdaq Composite inched higher, but is still off nearly 32% YTD. Meanwhile, home prices were shown to have fallen for the first time in a decade as demand gets dented amid soaring rates. In another indicator of the times, reports now suggest that Apple (AAPL) is pulling plans to boost production despite raising projections as it headed into the September launch event for the iPhone 14. (10 comments)
Intervention!
Bond turmoil in the U.K. has forced the the Bank of England to step into the market as government borrowing costs surge amid fears of the government’s tax-cutting plans. The central bank will suspend the planned start of its gilt selling next week and temporarily buy long-dated bonds, scooping up “whatever scale is necessary.” The yield on the 10-year gilt tumbled in response, falling 36 basis points to 4.15%, while pound sterling rose above $1.08, before quickly wiping out those gains.
Backdrop: Gilt yields were on track for their sharpest monthly rise since at least 1957 after Prime Minister Liz Truss unveiled her so-called “mini-budget.” The plan included sweeping tax cuts for individuals, businesses and house purchases, while subsidizing soaring energy costs. The Treasury even forecast that it would wipe £45B off government revenues over the next five years, sending shock waves through financial markets.
“Were dysfunction in this market to continue or worsen, there would be a material risk to U.K. financial stability. This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy,” the Bank of England said in a statement. “In line with its financial stability objective, the BoE stands ready to restore market functioning and reduce any risks from contagion to credit conditions for U.K. households and businesses.”
Go deeper: In a rare rebuke of a G7 country, the IMF is urging Truss to “re-evaluate” the tax cuts, warning that the new measures are likely to fuel a cost-of-living crisis. “Given elevated inflation pressures in many countries, including the U.K., we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy. Furthermore, the nature of the UK measures will likely increase inequality.” (29 comments)
No gas this winter
The Nord Stream pipeline system that transports Russian gas to Europe has reported “unprecedented” damage, with management saying it was impossible to predict when operations would resume. Both Europe and Russia said sabotage cannot be ruled out for the cause of the destruction, and Swedish authorities said two powerful underwater explosions were detected in the same area of the Baltic Sea where gas had bubbled to the surface.
Price movement: Benchmark Dutch natural gas front-month futures closed up 7% to €186.10/Mwh on Tuesday, while U.K. natural gas futures jumped by as much as 34% before settling 6.2% higher at £255.65/MWh. European leaders have previously accused Moscow of weaponizing energy – citing the use of maintenance issues as pretexts for limiting flows – while the new leaks guarantee a shutdown of gas flows to Germany this winter.
The developments follow an escalation of the war in Ukraine, with Vladimir Putin announcing a “partial mobilization” that will conscript as many as 300,000 additional troops. Russia has also declared victory in a series of referendums that took place over the past week in the Donetsk, Luhansk, Kherson and Zaporizhzhia regions. The U.S. is busy preparing a new round of sanctions against Russia should it annex the territories, as well as another $1.1B arms package to aid Kyiv.
Note: Nord Stream 1 had stopped pumping gas earlier this month, claiming sanctions on Russia prevented it from carrying out vital maintenance work,while Nord Stream 2 has never officially opened, as Germany did not certify it for commercial operations due to Russia’s invasion of Ukraine. (94 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
8:35 Fed’s Bostic Speech
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:10 Fed’s Bullard Speech
10:15 Jerome Powell Speech
10:30 EIA Petroleum Inventories
11:00 Fed’s Bowman Speech
11:00 Survey of Business Uncertainty
1:00 PM Results of $36B, 7-Year Note Auction
2:00 PM Fed’s Evans Speech
What else is happening…
Sixteen Wall Street firms agree to settle SEC’s texting/email probe.
Biogen (BIIB), Eisai (OTCPK:ESALY) tout success in Alzheimer’s drug study.
Foundry features: Intel (INTC) lets developers try chips before they buy.
MP Materials (MP) sees rare earths supply struggling with demand.
Musk and Twitter (TWTR) spar in hearing over whistleblower, soured deal.
Tesla (TSLA) is expected to set a record with Q3 deliveries.
Mashinsky resigns as CEO at troubled crypto lender Celsius Network.
On the move: Atlis Motor (AMV) soars 500% over IPO price.
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Good morning. Happy Tuesday.
The Asian/Pacific markets were mixed. Japan and China did well, while New Zealand, Singapore and the Philippines were weak. Europe, Africa and the Middle East are posting solid gains. Poland, France, Turkey, Germany, Greece, Finland, Hungary, the Netherlands, Portugal, Sweden and Saudi Arabia are up 1% or more. Futures in the States point towards a big gap up open for the cash market.
————— VIDEO: The Good and the Bad of Today’s Market —————
The dollar is down. Oil and copper are up. Gold and silver are down. Bonds are up.
Stories/News from Seeking Alpha…
Dollar vs. Stocks
The U.S. dollar (USDOLLAR) is on the back foot Tuesday morning, but the move down looks more like a one-day reprieve after the jump in the previous session and greenback strength is expected to continue.
Pound sterling hit an all-time low yesterday, but BoE Governor Andrew Bailey ruled out an emergency hike in rates between meetings. In addition, the People’s Bank of China said it is raising risk reserve requirements for banks involved in forward foreign exchange trading to 20% from 0%.
The greenback’s strength is also a problem for stocks, but could hasten the end of the bear market, according to Morgan Stanley.
Crisis: The “recent move in the US dollar creates an untenable situation for risk assets that historically has ended in a financial or economic crisis, or both,” equity strategist Mike Wilson said. “While hard to predict such ‘events,’ the conditions are in place for one, which would help accelerate the end to this bear market.”
“In the meantime, we remain convicted in our eventual low for the S&P 500 (SP500) (SPY) coming later this year/early next between 3000-3400 (in line with our base and bear case tactical views, respectively),” Wilson said.
“On a year over year basis, the DXY is now up 21% and still rising,” he added. “Based on our analysis that every 1% change in the DXY has around a -0.5% impact on S&P 500 earnings, 4Q S&P 500 earnings will face an approximate 10% headwind to growth all else equal.”
“This is in addition to other headwinds we have been discussing for months – i.e., payback in demand and higher costs from inflation to name a few. It’s also important to note that such US dollar strength has historically led to some kind of financial/economic crisis.”
“What’s amazing is that this dollar strength is happening even as other major central banks are also tightening monetary policy at a historically hawkish pace,” Wilson said. “If there was ever a time to be on the lookout for something to break, this would be it. Like our rates team, our currency team raised its forecast for the USD. On a DXY basis, they are now forecasting a year-end target of 118, which means no relief in sight, at least fundamentally speaking.”
“In our view, such an outcome is exactly how something does break, which leads to MAJOR top for the US dollar and maybe rates, too. However, until that happens, we think the screws will only get tighter for earnings growth and financial conditions.”
Capitulation coming? “US rates are rising as the market reprices peak Fed Funds higher, and equities are being repriced lower,” Societe Generale macro strategist Kit Juckes said. “This has all the hallmarks of the start of the final stage of the dollar’s rally (a stage which has the capacity to be violent and volatile).”
From a technical standpoint, BTIG’s Jonathan Krinsky says that the dollar index has room to move up to 120 (it stands below 114 at the moment), but that it at least needs to pause for equities to bottom.
Foreign exchange volume is also at a critical level, Krinsky said.
Volume hasn’t “spent much time above 12 in the last decade,” he said. “Doing so would suggest something might be breaking, but also tends to indicate capitulation ala March 2020.” (0 comments)
DWAC PO Box
Trump SPAC Digital World Acquisition (DWAC), which is taking Trump’s social media company and platform Truth Social public, has changed its listed address to a post office box at a UPS store in Coconut Grove, Florida.
The new address was listed in some of DWAC’s most recent regulatory filings. The address, 3109 Grand Ave., #450, Miami, FL 33133, is listed between an Italian restaurant and a nail salon, according to a Google image search. A person who answered the phone at the UPS store declined to say if #450 was a PO box office at the store. The address change comes as DWAC late Friday disclosed that it has received termination notices from PIPE investors representing $138.5 million of the $1 billion PIPE investment disclosed in December. The investors gave the notices between Monday and Friday, according to an 8-K filing. (146 comments)
Polestar plunge
Polestar Automotive Holding (PSNY) plummeted to a new low on Monday, extending losses for the Swedish EV manufacturer.
Shares of the Gothenburg-based partner of Volvo Cars fell about 5% to an intraday low of $5.65, the lowest on record for the 2022 IPO. The stock has declined over 30% in the past month, leading much of the pack of loss-making EV startups over that span. The decline was only outdone by Canoo (GOEV) in terms of its immediate peers. (17 comments)
S&P struggle
The S&P 500 (SPY) closed Monday at a 2022 low of 3,655.04, but RBC Capital Markets argues the index could shed another roughly 4% to reach 3,500 – or even 3,050 if equities experience a 1970s-style meltdown.
“We think stocks are on the cusp of an important test,” Lori Calvasina, RBC’s head of U.S. equity strategy, wrote in a note. “If the S&P 500 experiences its typical recession drawdown of 27%, the index will fall to 3,501. … A 63% contraction, similar to the 1970s, would take the P/E to 14x, implying a move to 3,052.” (88 comments)
Today’s Market
In Asia, Japan +0.53%. Hong Kong +0.03%. China +1.94%. India -0.05%. In Europe, at midday, London -0.20%. Paris +0.20%. Frankfurt +0.27%. Futures at 6:30, Dow +0.72%. S&P +0.92%. Nasdaq +1.04%. Crude +1.28% to $77.69. Gold +0.52% to $1641.95. Bitcoin +4.46% to $20.144.5. Ten-year Treasury Yield -3 bps to 3.84%.
Today’s Economic Calendar
3:30 Fed’s Evans Speech
6:15 Fed’s Evans Speech
8:30 Durable Goods
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
9:55 Fed’s Bullard Speech
10:00 Consumer Confidence
10:00 New Home Sales
10:00 Richmond Fed Mfg.
1:00 PM Results of $44B, 5-Year Note Auction
1:00 PM Money Supply
8:35 PM Fed’s Daly Speech
What else is happening…
Crude oil sinks deeper into eight-month lows as dollar extends surge.
Ford (F) to seek new trial after $1.7B jury verdict in truck rollover case.
U.S. steel industry activity rate slides to lowest since January 2021.
Exxon (XOM) among top oil ideas at BofA despite stock’s eighth straight daily loss.
Amgen (AMGN), AstraZeneca’s (AZN) Tezspire for severe asthma gets approval in Japan.
U.S. Department of Justice says Biogen (BIIB) agrees to $900M drug kickback settlement.
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Good morning. Happy Monday.
The Asian/Pacific markets suffered big losses. Japan,, China, Hong Kong, South Korea, India, Taiwan, Australia and Singapore dropped 1% or more. Europe, Africa and the Middle East are currently down big. The UK, Poland, Turkey, the UAE, Russia, Greece, South Africa, Norway, Hungary, Spain, Portugal, Saudi Arabia and the Czech Republic are down big. Futures in the States point towards a down open for the cash market.
————— VIDEO –>> The Good and the Bad of Today’s Market —————
The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Goodbye TINA
The latest selloff in stocks and bonds may be signaling the end of one of the best trades of the COVID era. The TINA (there is no alternative) trade has been a reliable support for equities, with the buy-the-dip crowd always willing to come in to help the major averages. But the surge in bond yields and projections for the fed funds rate are giving investors option.
That’s not to say that buy-the-dip is gone. While the Dow (INDU) (DIA) fell to its lows for the year, the S&P 500 (SP500) (SPY) bounced right off the June lows and the Nasdaq 100 (NDX) (QQQ) and Nasdaq Composite (COMP.IND) are also holding above the nadir of the year.
But now investors have an alternative. The 2-year Treasury yield (US2Y) (SHY) can give investors a 4.2% return compared with the S&P’s dividend yield (SPYD) of around 1.7%. The fed funds rate is projected in the latest FOMC dot plot to hit 4.4% by the end of this year. So, money market funds will finally be an alternative again. Cash could also rotate into bond funds if investors think the fixed-income selloff is reaching the end. And it’s not a good outlook for stocks.
“The combination of the S&P 500’s bearish trend and poor seasonals suggests trading conditions are likely to get worse before they get better,” Oppenheimer technical analyst Ari Wald wrote. While “we see an opportunity for the long-term investor, we caution that extreme pessimism can linger over the near term. For the S&P 500, we see near-term downside risk to 3,500 which would mark a 50% bull market retracement.”
Where to look: Goldman Sachs slashed its S&P (SPY) target to 3,600 last week. The equity team recommends defensive positioning amid uncertainty. With surging rates short duration will outperform long duration and investors should own stocks with “quality” characteristics like strong balance sheets, stable sales growth and high returns on capital.
BofA’s Bull Bear Indicator hit max bearish at 0 again. But with housing close to traditionally recession levels they spy “diamonds in the rough” in stocks and credit absent a “financial event”: SPDR Homebuilders (XHB), Russell 2000 (RTY), Philadelphia Semiconductor (SOX), emerging markets (VWO) (EEM), investment grade bonds (LQD) and high-yield bonds (HYG).
In bonds, MKM says (TLT) is down “nearly 32% from its level late last year.”
“Some of this was a necessary adjustment as rates were too low and very out of whack with the business cycle last year. What a difference nine months makes: we now have a 4.6% peak Fed funds rate priced into the market (the expectation was for only 75 bps of rate hikes during 2022 at the end of last year), the 10-year Treasury yield has more than doubled (TBT) (TLT), and inflation expectations have been cut by one-third (from their March highs).” (0 comment)
Cable crash
Sterling dropped to its lowest level against the U.S. dollar in history Monday before bouncing back off the lows of the session. The pound (FXB) fell to $1.0350, sliding below $1.04 for the first time ever, before buyers moved in. The cable cross rate is now around $1.07, still -1.3%. The pound is continuing its selloff from Friday after new Chancellor of the Exchequer Kwasi Kwarteng unveiled a budget of tax cuts and spending that worried traders.
“Cable’s ‘flash crash’ to a record low 1.0350 overnight came as a surprise, however the direction of travel did not, given the dim view that the market has taken on UK assets since Chancellor Kwarteng’s fiscal announcements on Friday,” Michael Brown, head of market intelligence at Caxton said. “Clearly, investors are becoming increasingly concerned about the unsustainable path that UK borrowing is now on, and the worsening twin deficit problem that the UK will face.”
The U.K. 2-year gilt yield is soaring 55 basis points to 4.47%. The 10-year yield topped 4% for the first time since 2010. (5 comments)
October Prime
E-commerce giant Amazon (AMZN) has scheduled another big sale on October 11 & October 12 called Prime Early Access. This global shopping event exclusive to Prime members will be held in 15 countries.
The new 48-hour event gives Prime members exclusive early access to discounted holiday deals. The “Prime Early Access Sale” follows Amazon’s annual Prime Day on July 12 and 13. (0 comments)
Musk deposition
Tesla (TSLA) CEO Elon Musk is scheduled to spend the next few days with lawyers for Twitter (TWTR), answering questions ahead of an October trial that will determine whether he must carry through with his $44B offer to acquire the social media platform.
The deposition, planned for Monday, Tuesday and a possible extension on Wednesday, will be behind closed doors. It was not clear whether Musk will appear in person or by video. The trial is set to begin October 17 in Delaware Chancery Court, where it’s scheduled to last just five days. (2 comments)
Bitcoin vs. 4%
As many central banks across the globe further embrace their interest-rate hiking marathon, bitcoin (BTC-USD), a gauge for risk appetite and overall sentiment, could keep seeing downward pressure. The same goes for other risk assets like equities.
“Does it mean cryptocurrency investors need to brace for more than a year of a continuous downtrend? Not at all. On the one hand, the chances that we’re nearing the end of this bear market did get substantially lower,” said Anto Paroian, CEO and executive director at crypto hedge fund ARK36. (24 comments)
I-bank ranks
Investment banks have been facing headwinds in 2022 as climbing interest rates make M&A more expensive and raising capital in the debt markets less appealing. And volatile markets have resulted in some companies delaying IPOs and other equity offerings.
Through Sept. 14, the 10 biggest investment banks generated $56.4B in revenue this year, an almost 39% decline from $92B in the same period a year ago, according to Dealogic. Earlier this month, JPMorgan Chase (JPM) President and Chief Operating Officer Daniel Pinto said at an industry conference that he expects the company’s Q3 investment banking fees to fall 45%-50% from a year ago. And while the fees are declining, the bank isn’t quick to eliminate jobs to match the activity. “You have 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,” Pinto said. (2 comments)
Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
10:30 Dallas Fed Manufacturing Survey
12:00 PM Fed’s Bostic Speech
4:00 PM Fed’s Mester Speech
What else is happening…
Li Auto (LI) narrows Q3 outlook to deliver ~25,500 vehicles amid supply chain constraint.
Shell (SHEL) withdraws from Irish offshore wind projects with Simply Blue.
Europe’s frantic search for gas hurt by unrealistic demands, Total (TTE) CEO says.
The ‘Dr. Copper and Fearful Gold’ indicator says it’s a ‘stellar’ time to buy stocks.
Hologic (HOLX) announces $1B share buyback program.
Jefferies spies large-cap names that trade like small caps.
A ‘broad-based correction’ is hitting some chip stocks, and there is more pain to come.
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