Good morning. Happy Friday.
The Asian/Pacific markets leaned down. Japan, Taiwan, Australia, Singapore and the Philippines were weak; Malaysia and Indonesia did well. Europe, Africa and the Middle East are currently weak. Denmark, Poland, France, Germany, Norway, Hungary, Singapore, Italy and Austria are down 1%. Futures in the States point towards a flat open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil is up; copper is down. Gold is flat; silver is down. Bonds are down.
Stories/News from Seeking Alpha…
Theory of Trussonomics
Weekend Bite, a Seeking Alpha Original Series: In this episode, we’re joined by Seeking Alpha Contributor Leo Nelissen, who tells us which stocks he has been buying “on the dip.” Plus, Kim Khan discusses this week’s Catalyst Watch and the new poll of the week.
What a difference 24 hours can make. It was only a day ago that U.K. Prime Minister Liz Truss said she was “a fighter not a quitter,” before the reality set in that she would need to step down after only 45 days on the job. “I came into office at a time of great economic and international instability,” she said in front of No. 10 Downing Street. “We set out a vision for a low-tax, high-growth economy that would take advantage of the freedoms of Brexit. I recognize, though, given the situation, I cannot deliver the mandate on which I was elected by the Conservative party.”
What happened? Truss saw her leadership flounder after the introduction of her mini-budget that called for big spending to help with the surge in cost of living while at the same time proposing a number of big tax cuts. Along with approaching QT from the Bank of England, the budget spurred a liquidity crisis in the U.K. bond market. Chaos ensued with the effect on pension funds and the mortgage market forcing the BoE to step in and buy long-dated debt. The 30-year gilt yield even topped 5% and the pound approached parity with the greenback, touching $1.03.
Truss tried to right the ship, replacing her Chancellor of the Exchequer. New finance minister Jeremy Hunt rolled back almost all the tax cuts and the markets steadied, but the political damage was already done. She fired her Home Secretary on Wednesday and faced other resignations, leading to a loss of confidence across the Conservative Party. She will remain prime minister until a successor is chosen, but will go on record as the shortest-serving premier in the 300-year history of the office.
Go deeper: Whoever will replace Truss will come in learning an important fiscal lesson. Political leaders are no longer able to promise growth by borrowing money without detailing how they will repay it. Long gone are the days where governments had the support of quantitative easing, as central banks tighten policy to stave off inflation. In terms of candidates, the latest contest is likely to pit ex-finance chief Rishi Sunak against House of Commons leader Penny Mordaunt, but could also see the return of Boris Johnson, who was ousted as prime minister in July. (218 comments)
Growth story no longer
Social-media stalwarts slipped after the bell on Thursday in the wake of Snap’s (SNAP) most disappointing revenue growth rate ever. The company posted 6% sales growth as it wrestled with the well-documented ad-industry recession, its worst quarterly growth number and short of 6.4% expectations. The stock plunged after the announcement to weigh on the broader tech industry, slumping nearly 27% and bringing its YTD losses to over 80%.
Quote: “Our business continued to face significant headwinds this quarter,” CEO Evan Spiegel said on the earnings call, while recapping that the company has focused on three strategic priorities: growing community and deepening engagement; reaccelerating and diversifying revenue growth; and investing in augmented reality.
When it comes to the overall ad approach, Snap is focused on “increasing our share of wallet as growth in the overall digital advertising segment slows.” That will be achieved by working to increase the return on spend generated by its direct response ad platform “as we believe these are the most defensible advertising budgets in a challenged economic environment.” Newly promoted COO Jerry Hunter also emphasized “lower-funnel objectives to drive more conversions, and innovating on our advertising formats” in order to make them more engaging.
Outlook: Snap did highlight a few positive metrics – it beat on profitability measures, authorized a $500M stock buyback and outpaced expectations for user growth (+19% Y/Y to 363M daily active users). However, the company notably declined to provide any expectations for revenue or EBITDA for Q4, though it is expecting to grow seasonally “at a pretty good clip.” Will Facebook-parent Meta (META) and Google-parent Alphabet (GOOG, GOOGL) flag similar problems to Snap when they report next week, or have they diversified their businesses enough to shield themselves from advertising devastation? (59 comments)
Replacing with bots?
Tesla (TSLA) CEO Elon Musk told prospective investors in Twitter (TWTR) that he plans to cut the social media giant’s employee count by about 75%, according to the Washington Post, which cited interviews and related documents. That would reduce the headcount of Twitter’s 7,500 employees down to just over 2,000 in the coming months. Twitter’s workforce reportedly reacted to the news with “anger and resignation on internal Slack groups, supporting each other and making jokes about the turmoil of the past few months.”
Bigger picture: The report comes after Musk said on Tesla’s earnings call that he and other investors are going through with the transaction in good faith despite months of legal wrangling. “I think it’s an asset that has sort of languished for a long time, but it has incredible potential. The long-term potential for Twitter is an order of magnitude greater than its current value, although obviously, myself and the other investors are obviously overpaying for it right now.”
Musk is planning to close the $44B deal, valued at $54.20/share, by next Friday. The billionaire plans to double revenue in three years and triple the number of daily users that can view ads in the same period, but has not yet offered a clear strategy on how to accomplish those objectives. “The easy part for Musk was buying Twitter and the hard part is fixing it,” wrote Wedbush Securities analyst Dan Ives. “It will be a herculean challenge to turn this around.”
Go deeper: The Biden administration is said to be weighing if some of Musk’s deals should be subject to national security reviews, including his purchase of Twitter and SpaceX’s Starlink satellite network. Among the concerns reported by Bloomberg are Musk’s recent threat to stop supplying the Starlink service to Ukraine and his stance on Russia. His plans to buy Twitter also includes a group of foreign investors like Saudi Prince Alwaleed bin Talal, Qatar’s sovereign wealth fund and Binance Holdings (which is run by Chinese native Changpeng Zhao). (221 comments)
4.5% within sight
Longer rates are heading even higher this morning, with the 10-year Treasury yield up 6 basis points to 4.29% in early trading. It follows a major milestone in the previous session, when the 10-year closed at its highest level since 2008, following a drop in jobless claims and more hawkish Fed chatter. In fact, Treasury prices are now on their longest decline since 1984, when inflation slayer Paul Volcker was at the helm of central bank and carrying out rapid rate hikes.
Commentary: On the heels of the fresh moves, fed funds futures broke new ground, pricing in a terminal rate for 2023 above 5% for the first time this cycle. “Bear in mind that on the day of Chair Powell’s hawkish Jackson Hole speech in late-August they closed at 3.78% for the March meeting, so the stronger-than-expected inflation prints over the last couple of months have led to a big reappraisal in how hawkish the Fed and other central banks are expected to be,” wrote Deutsche Bank strategist Jim Reid.
There is little in the way of continued Treasury selling that would push yields up further, with markets seeing a “pain trade” of higher rates and tighter market conditions. “With the effective fund rate now discounted at 5%, there is a path for the U.S. 10yr to get to 4.5% (with 50 bps through at the extreme in the past, when the funds rate peaks),” ING economists said in a note. “It does not need to go much above this, provided the terminal rate discount does not continue to ratchet higher, and there are no guarantees there.”
Stock washout? Higher yields put sharp pressure on growth stock valuations, though there was a recent flash of equity resilience early this week, or what some strategists are calling a bear-market rally. The S&P 500 has successfully challenged its 200-week moving average and 50% retracement levels around 3,600-3,500, but round numbers do tend to matter to the market and megacaps, with their outsize influenced susceptible to rising rates. Just a year ago, Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG, GOOGL) and then-Facebook (META) moved into correction territory as the 10-year yield rose 30 basis points to 1.5% in a single month (over the past month, the same yield is up nearly 70 bps). (8 comments)
Today’s Economic Calendar
9:10 Fed’s Williams Speech
1:00 PM Baker-Hughes Rig Count
What else is happening…
Existing home sales slump for eighth straight month in September.
Intel (INTC) CEO says job cuts coming, more details next month.
Bumper Q3 results propel AT&T (T), analysts flag cash flow.
Verizon (VZ) earnings: Can it break the subscriber exodus?
Lockheed Martin (LMT) tops list of Pentagon contract recipients at $39B.
CDC panel recommends adding COVID shot to regular immunizations.
Texas sues Google (GOOG, GOOGL) over biometric data collection.
SL Green (SLG), Caesars (CZR) hope for Times Square gaming license.
Strong demand: American Airlines (AAL) posts record quarterly revenue.
Meme favorite Revlon (REV) suspended from trading by NYSE.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned down. Malaysia, Indonesia and Thailand did well, while Japan, China, Hong Kong, South Korea, Australia, New Zealand and the Philippines were weak. Europe, Africa and the Middle East lean up. Poland, Turkey, Russia, Hungary, Saudi Arabia and the Czech Republic are up, while South Africa, Finland and Sweden are down. Futures in the States point towards a positive open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down.
Stories/News from Seeking Alpha…
Tesla siesta
A top line miss from Tesla (TSLA) sent shares of the EV maker down 6.3% AH on Wednesday, dinging more investor confidence amid a rout in tech stocks. TSLA last hit the $208 level in June 2021 – when factoring in the summer split – and shares are now down nearly 50% since the beginning of the year. Production bottlenecks were cited as causes for the sales miss, as well as logistical issues with deliveries and battery supply chain pressures.
Quote: “There weren’t enough boats, there weren’t enough trains, there weren’t enough car carriers. Tesla got too big,” Elon Musk said on a conference call. “I can’t emphasize enough we have excellent demand for [the fourth quarter] and we expect to sell every car we can make as far in the future as we can see. To be frank, we’re very pedal to the metal come rain or shine. We are not reducing our production in any meaningful way, recession or not recession.”
Strong vehicle pricing still helped Tesla generate nearly $3.3B in quarterly profit, almost matching the company’s record in Q1, though it expects to finish the year just shy of its 2022 target of boosting vehicle deliveries by 50% Y/Y. In order to do so, the automaker would have to hand over 500K cars in the final three months of the year, which would be 45% more than its prior record for quarterly deliveries. Musk also floated the idea of a stock buyback of around $5B-$10B in 2023, and sees a potential path for Tesla (whose market cap is now under $700B) to be worth more than Apple (AAPL) and Saudi Aramco combined (they are currently valued at $2.3T and $2.1T, respectively).
Elsewhere: Musk commented on his pending $44B acquisition of Twitter (TWTR) after recently changing course to follow through on his purchase agreement. “I am excited about the Twitter situation,” he declared, calling it “an asset that has sort of languished for a long time but has incredible potential.” “The long-term potential for Twitter is an order of magnitude greater than its current value, although obviously, myself and the other investors are obviously overpaying for it with Twitter right now.” (75 comments)
Storm clouds
Americans should brace for a recession, according to Amazon (NASDAQ:AMZN) founder Jeff Bezos, who has become the latest to warn about doom and gloom on the horizon. “Yep, the probabilities in this economy tell you to batten down the hatches,” he wrote on Twitter, in response to a CNBC interview of Goldman Sachs’ (GS) CEO. In the clip, David Solomon cautioned businesses to think more cautiously and to factor volatility into their economic outlooks.
Snapshot: Many have recently been warning of a coming U.S. recession, like JPMorgan (JPM) CEO Jamie Dimon, who said that the storm could arrive in the next six to nine months amid “very serious” headwinds like inflation, rising interest rates, quantitative tightening and the war in Ukraine. “The worst is yet to come,” the IMF added last week, saying the U.S. economy will continue to stall. Even President Biden conceded that a recession is a possibility, but only expects it to be “very slight” if it occurs.
Many company executives are likely to internalize Bezos’ message as he is someone who clearly has his finger on the pulse of many parts of the economy. Not only can he size up transactions taking place in the retail space, but Amazon Web Services (responsible for the bulk of the company’s profits) supports nearly a third of all cloud businesses worldwide.
Outlook: The U.S. is already in a technical recession following two straight quarters of negative real GDP growth (-1.6% in Q1 and -0.6% in Q2). Any decision on a formal recession is left up to NBER’s Business Cycle Dating Committee, which has been responsible for setting the dates of peaks and troughs of the U.S. economy since 1978. The funny thing is that the committee generally waits a while after a recession has begun to officially pronounce it, and on occasion, even after it is already over.
At a crossroads
An escalation of Russia’s war in Ukraine is showing no signs of cooling down even as the two sides prepare for a grueling and long cold winter. Vladimir Putin has declared martial law in the four regions of Ukraine that Moscow recently annexed, giving local governors emergency powers that could lead to sweeping restrictions on travel and property seizures. The decree also orders the creation of territorial defense forces in Luhansk, Donetsk, Kherson and Zaporizhzhia, while tightening security at key facilities and checkpoints.
Quote: “We are working to solve very difficult large-scale tasks to ensure Russia’s security and safe future, to protect our people,” Putin said in televised remarks. “Those who are on the frontlines or undergoing training at firing ranges and training centers should feel our support and know that they have our big, great country and unified people behind their back.”
More sanctions could also be in the works on word that Russia has deployed Iranian-made Shahed-136 “kamikaze” drones to bolster its efforts on the battlefield. Western powers say usage of the UAVs would violate U.N. Security Council Resolution 2231, which restricted certain transfers from (or to) Iran. More than 220 drones targeting critical infrastructure have reportedly been shot down over the past month, while Kyiv has invited UN Secretary-General Antonio Guterres to inspect some of the remains it has collected.
At risk? Iran has repeatedly denied supplying any military hardware to Russia, while the Kremlin has warned the United Nations against investigating its use of drones in Ukraine. “Otherwise, we will have to reassess our collaboration with them, which is hardly in anyone’s interests,” Russia’s Deputy U.N. Ambassador Dmitry Polyanskiy declared. The events are playing out as U.N. officials negotiate with Moscow to extend and widen a July 22 deal that resumed Ukraine Black Sea grain and fertilizer exports (the pact could expire in November if an agreement is not reached).
Perfect timing
More investigative journalism from the Wall Street Journal is reporting on how federal officials working on the government response to COVID-19 made some “well-timed financial trades” when markets tanked and rallied at the beginning of the pandemic. In fact, March 2020 was the most active month for trading by officials across the federal government, including the Department of Health and Human Services, while some officials even started trading in January 2020, when the U.S. public was largely unaware of the threat posed by the coronavirus.
Some examples: Then-Transportation Secretary Elaine Chao scooped up more than $600K in two stock funds while her agency was involved in the pandemic response, while her husband, Republican Sen. Mitch McConnell, led negotiations for a market-enhancing stimulus bill. Similarly, a deputy to top health official Anthony Fauci, Hugh Auchincloss, sold off thousands of dollars in stock funds after learning about pandemic risks in January. Treasury’s Jeff Goettman also bought Boeing (BA) shares while being involved in administering the stimulus package for the planemaker, and invested in GE (GE) before the company secured lucrative contracts to supply ventilators.
To be clear, it is very hard to convict lawmakers of insider trading, as agency ethics officials rarely have a full picture of what employees are working on or the information that they are privy to. Many of the rules center on the types of stocks officials can trade, not when they can trade, and there are no restrictions on diversified mutual funds or funds managed by external accounts. Another hurdle is proving the “material” part of “material non-public information,” as well as events that happen on the macro scale (like the pandemic) or affect entire industries.
Go deeper: Members of Congress have a lot of privileged and classified information that could move stock prices, as well as financial incentives from companies that routinely lobby Congress. Those decisions could also play a role in how much a given stock is worth, and Congress sought to counteract that in 2012 by passing a bill known as the STOCK Act. While the legislation requires lawmakers to disclose trades within 45 days, many say it doesn’t do enough to prevent insider trading and conflicts of interest. Another report by the WSJ last week centered around trades by government officials that invested in companies that lobbied their agencies for favorable policies. (8 comments)
Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
10:00 Existing Home Sales
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
12:00 PM Fed’s Harker Speech
2:05 PM Fed’s Bowman Speech
4:30 PM Fed Balance Sheet
What else is happening…
Biden to effectively swing trade crude, U.S. will fill SPR at ~$70/bbl.
U.S. economic activity ‘expanded modestly’ in latest Beige Book.
IBM (IBM) rises on upbeat outlook and earnings results.
AT&T (T) weighs multibillion-dollar fiber joint venture – Bloomberg.
Philip Morris (PM) raises offer for Swedish Match (OTCPK:SWMAY).
Home Secretary departs U.K. government in a new blow to Truss.
Falling COVID-19 testing and baby formula issue hits Abbott (ABT).
Higher pricing at Procter & Gamble (PG) helps offset forex drag.
Waymo (GOOGL) targets LA as third self-driving ride-share region.
Biden administration to award $2.8B to boost EV battery manufacturing.
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Good morning. Happy Wednesday.
The Asian/Pacific markets leaned down. New Zealand and Malaysia posted gains; China, Hong Kong, South Korea and Taiwan were weak. Europe, Africa and the Middle East are mostly down. Turkey is doing well, but Denmark, Poland, Russia, South Africa, Sweden and the Czech Republic are down. Futures in the States point towards a weak open for the cash market.
————— Masterclass Overview –>> here —————
The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
Crude price action
Oil sales from the U.S. Strategic Petroleum Reserve were only supposed to last until October, and then through November, but the Biden administration today will extend the releases into December. While the time frame keeps getting prolonged, the next 15M barrels coming to market will be part of the original 180M barrel release that was first authorized in March – due to inflationary shocks from the war in Ukraine. So far, 165M barrels have been sold from the SPR this year, bringing volumes in the emergency stockpile to just 405M barrels, marking their lowest level since 1984.
Snapshot: The extension intends to offset any market volatility that is expected once a European oil embargo goes into effect on Dec. 5, and to ensure prices keep falling from the historic highs recorded earlier this year. It also comes after OPEC and its Russia-led allies agreed to slash output by a whopping 2M barrels per day from November. Don’t forget that midterm elections are around the corner, and prices at the pump have been said to be a defining factor of any outcome, especially with voters worried about inflation and the economy.
What remains to be seen is if the administration will go beyond its mega 180M barrel release, and if it does, how much farther will it go (watch President Biden’s speech at 1:15 p.m. ET). Reports suggest that the Department of Energy is also weighing limits on exports, while looking to put a mechanism in place to replenish the reserves at a fixed price. Only time will tell if the “buy low, sell high” strategy will work out, but the plan is to scoop up crude when costs are at or below about $67-$72 per barrel, an approach that “will protect taxpayers and help create certainty around future demand for crude oil.”
Commentary: “The SPR was built for crisis – we’re in a crisis, and it’s not getting any easier,” related Daniel Yergin, Vice Chairman of S&P Global. Others say that the U.S. should be better prepared for a return of sky-high oil prices of over $120/bbl, given new shortfalls from geopolitical tensions, an energy war with OPEC and Russia, and higher global demand as China emerges from pandemic lockdowns. “That’s when you really need the SPR,” noted Neil Beveridge, senior analyst at Sanford C. Bernstein. “And if the SPR has been partially exhausted, it can lead to a steeper escalation in prices.” (10 comments)
Back to the positivity
Great numbers from Netflix (NFLX) sent the stock up 13% after the bell on Tuesday as investors applauded the streamer’s return to growth. The company added 2.41M customers in the third quarter, expanding in every region and topping Wall Street’s expectations. The company also expects additions of 4.5M subs in the fourth quarter, and co-CEO Reed Hastings suggested in his mind, the worst was over.
Quotes: “Thank God we’re done with shrinking quarters,” he declared, adding that it’s “a big deal to go back to the positivity.” Fourth-quarter guidance is “reasonable, not fantastic,” but “then we’ve got to pick up the momentum” in all areas. Foreign exchange is a “huge hit” that’s not going to go away, but “other than that, all the stars are lining up very well for us.”
Netflix is still shifting its focus to revenue as its primary top line metric, as it develops new revenue streams – advertising and paid password sharing – where membership is just one component of its revenue growth. Netflix also highlighted its profitability vs. streaming rivals like Disney+ (DIS), Discovery+ (WBD) and Paramount+ (PARA). “Our competitors are investing heavily to drive subscribers and engagement, but building a large, successful streaming business is hard. We estimate they are all losing money, with combined 2022 operating losses well over $10B, vs. Netflix’s $5B-$6B of annual operating profit.”
Outlook: As for $17B in annual content spending, co-CEO Ted Sarandos announced the company is now getting more bang for its buck, noting the popularity of Stranger Things Season 4 and Monster: The Jeffrey Dahmer Story. “Both the scope and scale as well as the range and the cadence of hits is improving,” he said, “so that I feel better and better about that $17B of content spend, because what we have to do is get better and better at getting more impact per billion dollars spent than anybody else.” Spending is “about the right level,” he continued, though as the company reaccelerates revenue, “we’ll revisit that number, of course.” (15 comments)
Double digits
Economic troubles continue to pile up in the U.K. as inflation and a cost-of-living crisis continue to batter households and businesses. The consumer price index soared 10.1% in September, more than five times the Bank of England’s 2% target, with food, energy, transport and household goods all the biggest contributing factors. A double-digit increase was first seen in July, but a return to the 10% mark is another alarm for the BoE, which will likely be forced to act aggressively in November (100 bps hike?).
Bigger picture: U.K. policymakers have already dealt with a financial meltdown over the past month as sterling, gilts and stocks got rocked. The government has since reversed nearly all its proposed tax cuts, as well as less generous relief on household energy costs. The Bank of England still expects to go ahead with its quantitative tightening program from November, though it will only sell short and medium-dated bonds, with the 30-year gilt at the center of the recent fears plaguing the pension industry.
“I understand that families across the country are struggling with rising prices and higher energy bills,” said Jeremy Hunt, the new Chancellor of the Exchequer. “This government will prioritize help for the most vulnerable, while delivering wider economic stability and driving long-term growth that will help everyone.”
How to fund all of this? Looking to bring Britain’s deficit under control, Hunt is reportedly preparing some fresh windfall taxes on banks and extending those imposed on energy company earnings. “I am not against the principle of taxing profits that are genuine windfalls,” he told parliament. “But… in the energy industry, it is very cyclical industry and there are businesses that have periods of feast and famine and you have to be very careful that you don’t tax companies in a way that drives away investment. We have said that nothing is off the table.” (1 comment)
Rolls plugs in
Top luxury automakers are jumping into the EV game by ditching their engines and revving their motors. Rolls-Royce (OTCPK:BAMXF) just unveiled its first electric vehicle called the Spectre, with the first cars slated to come off the assembly line in 2023. The vehicle comes with a whopping price tag of $413,000, making it one of the most expensive EVs on the market, and creates a new auto class the company refers to as “Ultra-Luxury Electric Super Coupé.”
Specs: Sporting a 557-horsepower motor, the Spectre has an estimated range of 323 miles and can go from 0-60 miles per hour in 4.4 seconds. The doors and roof will also feature Rolls’ famous stars, making passengers feel like they are surrounded by lights. However, unlike most other EVs that are controlled by a large touchscreen, the Spectre will rely on manual controls, though its famous “Spirit of Ecstasy” hood ornament was redesigned as a more modern icon.
“It needs to be a Rolls-Royce first,” CEO Torsten Muller-Otvos declared, adding that the company already has hundreds of orders in the U.S. “That means stability, brilliant quality, timeless materials, flight-on-land, silent propulsion. It carries all these genes Rolls-Royce is famous for.”
Elsewhere: Cadillac (GM) this week unveiled its Celestiq electric vehicle, which will start at more than $300,000. Orders are slated to open later this year, followed by production beginning in December 2023.
What else is happening…
7:00 MBA Mortgage Applications
8:30 Housing Starts and Permits
10:30 EIA Petroleum Inventories
1:00 PM Fed’s Kashkari Speech
1:00 PM Results of $12B, 20-Year Bond Auction
2:00 PM Fed’s Beige Book
6:30 PM Fed’s Evans Speech
What else is happening…
Goldman Sachs (GS) soars past consensus; new structure unveiled.
Lockheed Martin’s (LMT) Q3 results, buyback plan send stock flying.
Adobe (ADBE) sees sales rising due to ‘massive market opportunity.’
Apple (AAPL) reportedly cuts iPhone 14 Plus production shortly after debut.
Johnson & Johnson (JNJ) weighs job cuts ahead of consumer health spinoff.
Starboard Value takes a “significant” stake in Salesforce (CRM).
Nestlé agrees to acquire Seattle’s Best Coffee brand (SBUX).
United Airlines (UAL) takes off after Q3 topper, outlook optimism.
Intel’s (INTC) Mobileye cuts valuation to $14.4B-$16B in planned IPO.
Fund managers scream capitulation as cash piles echo dot-com crash – BofA.
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Good morning. Happy Tuesday.
The Asian/Pacific markets mostly posted big gains. Japan, Hong Kong, South Korea, India, Taiwan, Australia, Malaysia, Thailand and the Philippines rallied more than 1%. Europe, Africa and the Middle East are currently up big. The UK, Denmark, Poland, France, Germany, South Africa, the UAE, Finland, Switzerland, Norway, Hungary, Spain, the Netherlands, Italy, Israel, Austria, Saudi Arabia and Sweden are up 1% or more. Futures in the States point towards a big gap up open for the cash market.
————— VIDEO: Positive Divergences are Everywhere —————
The dollar is down. Oil is unchanged; copper is down. Gold is down; silver are up. Bonds are up.
Stories/News from Seeking Alpha…
Hear ye, earnings!
Volatility is the name of the game these days as investors try to size up the economic outlook and what it might mean for their portfolios. It hasn’t been easy forecasting where things might go from here, and a raft of mixed data points have led to difficult investing conundrums. As traders size up the latest sentiment, a broad-based rally took hold of equities on Monday, with the Dow Jones (DJI) popping 550 points, the benchmark S&P 500 (SP500) jumping 2.7% and the tech-heavy Nasdaq (COMP.IND) surging 3.4% into the close.
Healthy consumer: Following in the footsteps of JPMorgan (JPM) and Wells Fargo (WFC), Bank of America (BAC) reported earnings that topped expectations despite a slew of worries that continue to spook the economy. Customers are continuing to spend freely, according to BofA, with account balances higher than before COVID-19. Net interest income also jumped 24% to $13.8B, while consumer credit remained strong and late-stage delinquencies were down 40% from pre-pandemic levels.
“Analysts might wonder whether the talk of inflation, recession and other factors could [result] in a slower spending growth,” CEO Brian Moynihan said on a conference call. “We just don’t see [that] here at Bank of America. The customers’ resilience and health remain strong.”
Coming up: While banks benefit from rising interest rates, it remains to be seen if additional companies will fare as well in the current environment. Earnings season will move on from financials this week as high-profile names like Netflix (NFLX), Tesla (TSLA) and others report results. Is the bottom in, or will unchanged fundamentals mean the latest advance could translate into yet another bear market rally? (4 comments)
Trussonomics
Investors are also breathing a sigh of relief as some U.K. drama that hung over financial markets appeared to be resolved. New Chancellor of the Exchequer Chief Jeremy Hunt has reversed nearly all the government’s proposed tax cuts, which had caused an uproar since being unveiled last month. A broad rally in sterling, gilts and stocks ensued, though there are reports that the Bank of England may still delay the unwinding of QE, by postponing the sale of billions of pounds of government bonds until the climate becomes calmer.
Thought bubble: The near total U-turn on the “mini-budget” and “growth plan” calls into question how much longer the new prime minister will be able to survive in government. The tax cuts were part of Truss’s signature economic agenda that was at the core of her run for No. 10 Downing Street. High-profile Conservative Party members, including Hunt, are now said to be angling for the leadership, though the fact that the Tories cannot rally around one single candidate might keep her in the office for longer.
“I’m sticking around because I was elected to deliver for this country, and that is what I am determined to do,” Truss told the BBC. “I do want to accept responsibility and say sorry for the mistakes that have been made. I wanted to act to help people with their energy bills to deal with the issue of high taxes, but we went too far and too fast.”
Elsewhere: First Minister Nicola Sturgeon is utilizing the recent chaos to attempt a fresh push for Scottish independence. A newly released economic blueprint demonstrates how the U.K. constituent could transition to its own currency (Scottish pound) managed by a new central bank, and how it would seek to rejoin the European Union. Scots last voted 55% to 45% to remain in the United Kingdom in 2014, but that was before Brexit. The U.K. government has so far refused to grant Sturgeon another referendum in October 2023, but she is pursuing the plan in the Supreme Court by referring to it as a democratic right.
Record-low levels
While the “Mississippi” has long been used as a filler to count seconds, many are now concerned about counting its feet. Case in point: Levels of the important waterway in Memphis have just hit a new all-time low record of -10.77 feet. The situation is reminiscent of troubles seen on the Rhine River in Europe and the Yangtze in Asia as years of severe drought deliver harmful effects across the globe.
Snapshot: The Mississippi River is a critical shipping route, especially for farmers and commodity dealers, and the lower water levels have impacted transportation. Estimates vary greatly, but the river is thought to normally carry around 60% of America’s corn and soybean exports. Many farmers are also throwing away their crops instead of harvesting right now, in the hope of better conditions that could still be weeks away.
Meanwhile, companies are not loading as much cargo onto ships – so they can travel safely and not bottom out – while fewer barges are included in each tow. According to the American Commercial Barge Line, the industry has agreed to a 25-barge tow max size, which translates into around a 17-38% reduction in capacity. Dredging by the U.S. Army Corps of Engineers has been helpful to keep the traffic flowing, but new challenging spots can surface any day.
Commentary: “While the public and media generally understand that our economy depends upon viable international ocean shipping, trucking, and rail transportation, the essential role of our inland waterways is often overlooked,” said Peter Friedmann of the Agriculture Transportation Coalition. “Our members depend upon adequate water levels in the Mississippi River system, to reach domestic and international export markets. The low water disruption of the supply chain will be felt not only by our U.S. producers of food, farm, and fiber but also by U.S. and international consumers as well.”
Uber Joints
Pot smokers in Ontario have been able to order weed through Uber Eats (NYSE:UBER) since last November, but until now, items were only available for pickup. That is now changing through a partnership with online marijuana marketplace Leafly. In a program starting in Toronto, residents over the age of 19 will be allowed to place orders from local licensed cannabis retailers, which will send over the goods via certified “budtenders” who will verify age and sobriety before handing over the baggies.
Quote: “We are partnering with industry leaders like Leafly to help retailers offer safe, convenient options for people in Toronto to purchase legal cannabis for delivery to their homes, which will help combat the illegal market and help reduce impaired driving,” said Lola Kassim, Director and General Manager of Uber Eats Canada.
Delivery has been a key focus at Uber, especially since the pandemic changed the way people shop for food, prescriptions and other consumer goods. The company even scooped up on-demand alcohol marketplace Drizly last year for $1.1B, to expand its presence and footprint, and encourage people to use the app more often. Around the same time, CEO Dara Khosrowshahi said Uber could start delivering cannabis in the U.S. once federal legalization comes into play.
Stats: According to the Ontario Cannabis Store, the number of pot shops in the province climbed to 1,460 at the end of March, up from 1,333 at the end of 2021.
Today’s Economic Calendar
9:15 Industrial Production
10:00 NAHB Housing Market Index
2:00 PM Fed’s Bostic Speech
4:00 PM Treasury International Capital
5:30 PM Fed’s Kashkari Speech
What else is happening…
Microsoft (MSFT) lays off 1,000 employees, citing global slowdown.
Permian Basin oil production set to hit all-time high in November – EIA.
Hamm family to buy Continental Resources (CLR) for $74.28/share.
Mastercard (MA) to roll out program that helps banks offer crypto trading.
Roblox (RBLX) surges 20% on big gains in bookings, daily users.
Exxon (XOM) said to exit Russia after Kremlin expropriated properties.
Goldman Sachs (GS) to combine i-banking and trading businesses.
Fox (FOX) and News Corp. (NWS) confirm they are exploring combination.
Commodity risks: Rio Tinto (RIO) warns on iron ore and copper.
Kanye West agrees to buy conservative social-media platform Parler.
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Good morning. Happy Monday.
The Asian/Pacific markets were mixed. Hong Kong, India, Thailand and the Philippines did well; Japan, Taiwan, Australia, New Zealand and Singapore were weak. Europe, Africa and the Middle East are currently up big. The UK, France, Turkey, Germany, Greece, Russian, South African, Finland, Switzerland, Spain, the Netherlands, Italy, Portugal, Austria and Sweden up 1% or more. Futures in the States point towards a big gap up open for the cash market.
————— VIDEO: Positive Divergences are Everywhere —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
China stands firm
China President Xi Jinping stood firm on his policies in a two-hour speech at the 20th National Congress of the Communist Party of China on Sunday. Xi said that per-capita GDP would rise to the level of a “medium-developed country” in a “giant new leap” by 2035. While he did not give a specific number, economists told Bloomberg that would mean doubling GDP and per-capita income, with an average GDP growth rate of 4.7%.
Standing firm: Xi focused on economic development that he said would not sacrifice national security. Importantly, he announced no changes to his Zero-COVID policy. “In responding to the sudden attack of COVID-19, we put the people and their lives above all else and tenaciously pursued a dynamic Zero COVID policy,” Xi said. “We have protected the people’s health and safety to the greatest extent possible and made tremendously encouraging achievements in both epidemic response and economic and social development.” Still, there is a chance that policy evolves.
“What happens to Hong Kong and Macau following the Zero Plus Three initiative may hint at what would likely occur inside China,” Gordon IP, Chief Investment Officer, Fixed Income at Value Partners Group, told Seeking Alpha.
Xi also hit the regular themes of economic development as a priority and “common prosperity”. “High-quality development is the top priority of building a socialist modern country in all aspects. Development is the party’s top priority in governing. We will promote equality of opportunity, increase the income of low income earners and expand the size of the middle income group. We will keep income distribution and the means of accumulating wealth well regulated.”
Global impact: The speech did little to quell concerns about an adversarial relationship between China and the West. Chip stocks were rattled last week, as companies and investors continued to suss out the implications of new U.S. rules designed to keep certain semiconductor technologies out of the hands of the Chinese military. The regulations that went into effect earlier in the month prevent U.S. companies from working with Chinese chip manufacturers. By midweek, several U.S. chip-equipment makers such as Lam Research (LRCX) and Applied Materials (AMAT) had reportedly begun pausing their operations in China in order to get in line with the new American guidelines. However, despite a brief reprieve on the stock market, the sector swooned on Friday.
SA contributor ZMK Capital wrote Sunday that for “punters looking to take a bet on such a cloudy Sino-economic panorama, Direxion Daily FTSE China Bear 3x Shares (YANG) may be an attractive option.” ZMK is bearish on China, but is neutral on the leveraged YANG, which looks more like a “punctual play” on China downside rather than a long-term investment.
“Despite all the short term negatives, in our view China will continue to grow and develop, albeit at a slower pace than before,” SA Contributor Binary Tree Analytics said. “We are currently experiencing the first innings of a global recession, recession which in our opinion China has been experiencing since the start of 2022.”
ETFs: (FXI), (KWEB), (CQQQ), (MCHI), (ASHR), (YINN), (TDF), (CHIQ), (GXC), (EWH), (KBA), (YANG), (CXSE), (CAF), (CWEB), (PGJ), (KURE), (CHIX), (CYB) (4 comments)
Goldman reorg
Goldman Sachs (GS) will reshuffle its major businesses into three separate divisions, The Wall Street Journal reported Monday. Goldman’s investment banking and trading businesses, the company’s flagships, will combine into one unit, the Journal said, citing people familiar with the matter.
Another division will comprise the asset and wealth management businesses, which will also include the consumer banking business, Marcus. The third division will be made up of financial technology platforms like GreenSky. (1 comment)
‘Cobra-Kai’ packs a punch
HBO Max (WBD) and Amazon Prime Video (AMZN) have a pair of dueling premium-fantasy programs rolling out week by week, but they still have a formidable challenge from Netflix’s (NFLX) binge-it-all approach, lately exemplified by the hit new season of “Cobra Kai.”
The show, an offshoot of the Karate Kid film franchise, repeated atop Nielsen’s most recent weekly streaming ratings (for Sept. 12-18) – and actually grew its audience, streaming 1.918B minutes to easily outpace competition. That competition came from the aforementioned high-profile fantasy series: No. 2 on the list was “The Lord of the Rings: The Rings of Power” on Amazon Prime Video (AMZN), which streamed 988M minutes for the week, just ahead of HBO Max’s “House of the Dragon,” which streamed 960M.
Takeover targets
Couchbase (BASE), Duck Creek Technologies (DCT) and New Relic are viewed as possible takeout candidates in the software space, according to RBC.
The most likely takeover candidates for strategic buyers include Couchbase, Dropbox (DBX), Fastly (FSLY), New Relic (NEWR), Nutanix (NTNX), Qualys (QLYS), Smartsheet (SMAR), Splunk (SPLK), Sumo Logic (SUMO) and Zoom Video (ZM), analyst Rishi Jaluria wrote in a note.
The most likely companies to be targeted by private equity firms include Box (BOX), Coupa Software (COUP), Duck Creek Technologies (DCT), N-able (NABL), New Relic, SolarWinds (SWI) and Teradata (TDC). (2 comments)
Exxon toxic
Exxon Mobil (XOM) is making more money than at any time in its 140-year history, but the company’s “long-simmering toxic culture has employees heading for the exits” to the tune of 12K departures in the past two years, according to a Bloomberg analysis published this week.
An investigation involving interviews with more than 40 current and former employees, as well as reviews of dozens of internal documents, reveals one overriding reason talent is fleeing, according to Bloomberg: “a culture that’s increasingly out of step with the world around it… [an] insular and fear-based culture… [that] has become a drag on innovation, risk taking, and career satisfaction.” (173 comments)
Today’s Economic Calendar
8:30 Empire State Mfg Survey
What else is happening…
Apple (AAPL) pauses plans to implement China’s YMTC chips amid new U.S. export regulations.
Broadcom (AVGO) said to seek early EU approval for VMware (VMW) acquisition.
More front-loading needed after September’s hot inflation print, Fed’s Bullard says.
Citi lists four more value-creating events in biotech for this year.
Murdoch explores recombining Fox (FOXA), News Corp.(NWS, NWSA).
Bill & Melinda Gates Foundation commits $1.2B to end polio.
Apple (AAPL) to benefit from iPhone 14 Pro strength, Credit Suisse says.
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