Good morning. Happy Friday.
The Asian/Pacific markets were weak. Japan, South Korea, Australia, Singapore and the Philippines posted the biggest losses. Europe, Africa and the Middle East are currently down big. The UK, Poland, France, Turkey, Germany, Greece, South Africa, Switzerland, Norway, Hungary, the Netherlands, Italy, Portugal and the Czech Republic are posting big losses. Futures in the States point towards a big gap down open for the cash market.
————— Cyber Week Special —————
The dollar is up. Oil is up; copper is down. Gold and silver are down. Bonds are down.
Stories/News from Seeking Alpha…
State of the labor market
The release of November’s non-farms payroll report at 8:30 a.m. ET is expected to show that jobs growth is continuing to slow as the Fed’s aggressive rate hike path starts to rein in consumer and business spending. Economists expect 200K jobs will be added during the month, down from 261K in October, while the unemployment rate is expected to stay at 3.7%, near a 50-year low. Some other recent economic reports back up the expectation for a slower increase in jobs – the ADP November report, October JOLTS, and an increased number of firing announcements.
Quote: “As high-profile layoffs surge through the U.S. tech industry, the broader private sector is still creating jobs, but at a slower pace, while job openings are still high,” said José Torres, senior economist at Interactive Brokers. “These factors imply that the Federal Reserve’s tightening campaign is helping to slow the economy and inflation, but the challenging war against increasing prices is far from over.”
Indeed, traders don’t see the Fed pivoting anytime soon, though, as Fed officials have been indicating, they’re betting on smaller rate hikes going forward. The CME FedWatch Tool puts a 75.8% probability on a 50 basis point increase at the Dec. 13-14 Fed meeting, down from the 75 bps hikes at each of the past four meetings. For the February meeting, traders see a 48.2% probability of a 25-bp hike and put the odds of a 50-bp hike at 43.0%.
Inflation watch: Workers’ average hourly earnings are expected to increase 4.6% Y/Y, easing from the 4.7% increase in October, both below current inflation rates. Core PCE, a key gauge the Fed watches, rose 5.0% Y/Y in October, in the most recent inflation report, still more than double the central bank’s 2% target. As inflationary pressures from supply bottlenecks and commodity prices ease, “wage increases are probably going to be a very important part of the story going forward,” Fed Chair Jay Powell said Wednesday. “Of course, we want wages to go up, but they have to be consistent with the goal of 2% inflation.” (7 comments)
Rail strike avoided
The Senate has passed a bill by an 80 to 15 margin that will avert a rail strike, only a day after it passed in the House. The measure now goes to the desk of President Biden, who had urged Congress to act quickly before a Dec. 9 strike deadline. The legislation enacts a new contract that provides railroad workers with a 24% increase in wages from 2020 through 2024, immediate payouts averaging $11,000 upon ratification, as well as an additional paid day off on top of existing vacation time.
Snapshot: By some estimates, the railroads impact about a third to about 45% of all freight in the U.S., meaning a strike could trigger knock-on effects for many industries and become another inflationary threat. It would also likely cost the nation $2B in economic output per day if things went off the rails. To prepare for a shutdown, railroads even stop accepting security-sensitive shipments, such as chemicals to treat drinking water.
A separate vote on adding seven days of paid sick leave to the agreement failed in the Senate, which had been one of the main sticking points during negotiations between the railroads and unions. Arguments against stated that congressional modifications to the contract would set a dangerous precedent, though others felt that it should finally be a standard practice for the sector. “I have long been a supporter of paid sick leave for workers in all industries – not just the rail industry – and my fight for that critical benefit continues,” President Biden declared, though it’s unclear what actions he might take on the contentious issue.
Related Tickers: Canadian Pacific Railway (CP), Canadian National Railway (CNI), CSX Corp. (CSX), Union Pacific (UNP), Berkshire Hathaway (BRK.A, BRK.B) and Norfolk Southern (NSC). (43 comments)
B-21 Raider
It’s a bird, it’s a plane… Wait! Where did it go? The U.S. Air Force today will unveil the most advanced aircraft on the planet and its first stealth bomber in over three decades. The B-21 Raider, built by Northrop Grumman (NYSE:NOC), has been in development since 2015 after the defense giant won a contract to design and produce the plane. Currently, six bombers are being built in Palmdale, California, at cost of around $2 billion per aircraft, which are expected to begin flying in 2023.
What we know so far: The Air Force has called the B-21 a sixth-generation aircraft, meaning it would likely surpass the flying technology of its newest combat fighter, the F-35, which entered service in 2015. It’s set to replace the aging B-1 and B-2 bomber (also designed by Northrop), to become the “backbone” of the U.S. Air Force bomber fleet. The Raider will also be significantly cheaper to maintain, requiring less money, maintenance and resources to keep it airworthy.
Investors will get more details later today, but the plane is expected to be dual-capable, meaning it can launch nuclear or conventional bombs and missiles. “Open architecture” will allow for easier and quicker upgrades, in addition to new stealth features and materials. Reports also suggest that it has the potential to fly autonomously without a crew, and can transmit and share vast amounts of data to make it a strategic offensive or defensive weapon.
Fun fact: The B-21 Raider is named in honor of the Doolittle Raid in 1942, when 80 airmen, led by Lt. Col. James “Jimmy” Doolittle, and 16 B-25 Mitchell medium bombers set off on a mission that changed the course of World War II. The actions of the 80 volunteers were instrumental in shifting momentum in the Pacific theater, with the raid being marked as a catalyst for future progress in U.S. air superiority from the land or the sea.
Softening stance
A lot has happened since protests erupted across China last week in response to zero-COVID policies. A relief rally took hold on Tuesday after a Chinese State Council press conference signaled that further changes to current measures might be in the making, while top leaders continue to signal a more pragmatic approach. “With the decreasing toxicity of the Omicron variant, the increasing vaccination rate and the accumulating experience of outbreak control and prevention, China’s pandemic containment faces a new stage and mission,” Vice Premier Sun Chunlan told the National Health Commission.
Policy watch: A landmark shift has already begun in Beijing, which will permit low-risk people with COVID to isolate at home for a week if they desire. The new stance will start in the Chaoyang district, which contains the city’s growing central business district and many foreign embassies, and is likely to serve as a model for other areas. A previous approach mandated that COVID positive individuals be sent to government quarantine sites – regardless of severity – to stop community transmission as soon as it was detected.
Earlier this week, health authorities released a plan to boost elderly vaccination, while closely watching the virus as “it evolves and mutates.” Officials also relaxed lockdown measures in the northeastern city of Jinzhou and the southern hub of Guangzhou, as well as Xinjiang’s capital of Urumqi. The city was the site of a deadly fire that killed 10 people, and first triggered the nationwide protests featuring blank sheets of white paper that were raised as a symbol of defiance.
Commentary: Recent developments are “not a sign that China is ready to transition to living with COVID, but a sign that the virus has slipped out of control and that the government is unable to return to a zero-COVID environment,” said Nicholas Thomas, Associate Professor at the City University of Hong Kong.
Today’s Economic Calendar
Auto Sales
8:30 Non-farm payrolls
9:15 Fed’s Barkin: “Is a Labor Challenge Coming”
10:15 Fed’s Evans: “The Role & Effectiveness of Financial Regulation”
1:00 PM Fed’s Evans Speech
1:00 PM Baker-Hughes Rig Count
What else is happening…
Supreme Court to hear case on Biden’s student loan forgiveness plan.
Details scarce as Tesla (TSLA) delivers first electric semi to Pepsi (PEP).
Coinbase (COIN) forced by Apple (AAPL) to stop NFT transfers.
Blackstone (BX) to sell stakes in MGM Grand, Mandalay Bay hotels.
To-go orders: McDonald’s (MCD) tests new smaller restaurant concept.
Ulta Beauty (ULTA) boosted by big profit beat, raised forecast.
Crude scores fourth straight gain as EU nears $60 price cap.
Fed’s Michael Barr signals stricter capital rules for big banks.
Twitter suspends Kanye again; Ye terminates Parler merger.
Inflation starts to ease as expected in October, with 6% Y/Y PCE print.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned to the upside. Japan, China, Hong Kong, Taiwan and Australia led, while Indonesia and the Philippines lagged. Europe, Africa and the Middle East are currently doing great. Denmark, Poland, Turkey, Germany, Greece, Finland, Switzerland, Hungary, Spain, the Netherlands, Italy, Portugal, Israel and Sweden are posting solid gains. Futures in the States point towards a positive open for the cash market.
————— Cyber Week Special —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
Bear no longer
Volatility predicted, and volatility there was. A speech from Fed Chair Jay Powell on Wednesday sent markets flying amid signals that the central bank could begin slowing its aggressive interest rate increases. When the dust settled at the end of the session, the Nasdaq Composite (COMP.IND) closed up a whopping 4.4%, while the S&P 500 (SP500) and the Dow (DJI) finished the day ahead by 3.1% and 2.2%, respectively.
Snapshot: While Powell warned that the Fed might have to retain restrictive policy for some time – as policymakers needed to see “substantially more evidence” of falling inflation – he buoyed markets with a less-hawkish stance on the pace of interest hikes and by raising hopes that a soft landing was “very plausible.” “It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down. The time for moderating the pace of rate increases may come as soon as the December meeting,” the Fed chief said in prepared remarks for an event hosted by The Brookings Institution.
“Despite some promising developments, we have a long way to go in restoring price stability,” Powell continued. “My colleagues and I do not want to overtighten because… cutting rates is not something we want to do soon. The truth is that the path ahead for inflation remains highly uncertain. That’s why we’re slowing down and going to try to find our way to what that right level is. It can’t be that we can go on for five years at a very high level of inflation and that it doesn’t work its way into the wage and price setting process pretty quickly. That’s a serious concern.”
Getting technical: Wednesday’s move resulted in the Dow Jones Industrial Average rising more than 20% since Sept. 30 – its lowest point of the year – meaning it is now officially in bull market territory. Elsewhere, the benchmark S&P 500 is up 17% from its YTD low, and while tech-heavy Nasdaq still has some ways to go, it has rebounded nearly 14%. (104 comments)
Meet Semi
It has been quite a long wait, but Tesla’s (NASDAQ:TSLA) electric Semi truck is about to see the light of day. The company first unveiled a concept of the Class 8 tractor in late 2017, with output expected to commence in 2019, but since then the production version has been delayed several times. Today’s event at Giga Nevada, where the Semi will be produced, will see the first electric truck delivered to Pepsi (NASDAQ:PEP), which will use the vehicles at Frito-Lay plants and beverage facilities in California.
Specs: Not too many details have been revealed over the past several years, but the Semi is expected to achieve an efficiency of less than 2 kWh per mile, and have a range of approximately 300 or 500 miles. Remaining to be seen are production targets and configurations, as well as its battery charging capabilities, software, displays and cockpit design. Other big name companies that have put down a deposit for the tractor include Anheuser-Busch (BUD), FedEx (NYSE:FDX), UPS (NYSE:UPS) and Walmart (NYSE:WMT).
When first unveiled in 2017, the 500-mile-range version of the Semi started at $180,000. While the price tag is likely a lot higher today, as an all-electric Class 8 truck, it would qualify for a tax break of up to $40K under the Inflation Reduction Act. Should the Tesla Semi be everything the company says it is, the vehicle could revolutionize the freight transport industry, with its cost savings on diesel fuel and a smaller carbon footprint.
The competition: Other rivals are already getting in on the game, with long-haul cargo truck makers like Daimler (OTCPK:DTGHF) releasing an electric rig. Volvo-owned (OTCPK:VOLVF) Renault Trucks even trolled Tesla in early October, with the release of its “E-Tech D” truck that was delivered to Coca-Cola (NYSE:KO). While the two models aren’t exact competitors, Renault followed up by tweeting a video teaser, “Some talk the talk. Some walk the walk. Ain’t that right, @elonmusk?” (10 comments)
Taylor out
After climbing 5.7% during the regular session on Wednesday, Salesforce (CRM) shares gave back all of their gains, and then some, after plunging 6.9% AH. Third-quarter earnings and sales topped expectations, but traders were looking at another development that could shake things up at the cloud business software company. Co-Chief Executive Bret Taylor will leave the firm on Jan. 31, with founder Marc Benioff taking over as Salesforce’s sole CEO at that time.
Quote: “While there’s absolutely no easy time for a transition like this, I do now feel like it’s time to return to my entrepreneurial roots particularly given the landscape and economy going through such shifts,” Taylor declared, without giving details about his plans following the departure. It’s the second time that the co-CEO structure didn’t last long at Salesforce, with Keith Block ditching the role after 18 months back in 2018.
Benioff called Taylor’s leaving Salesforce “bittersweet”, but that it was “understandable” why he would want to move on. “Bret founded two incredible companies [prior to joining Salesforce]. I’m excited to see his next chapter unfold,” he added. “[Bret] made his mark on Salesforce as an incredible technologist, leader and friend to us all.”
Career highlights: Taylor co-created Google Maps in 2005, and later founded social network FriendFeed, which was acquired by Facebook for an estimated $50M and led it to adopt the app’s game-changing “Like” button. Taylor went on to become CTO at Facebook, but left to found Google Docs competitor Quip, which was bought by Salesforce in 2016. As he worked his way up the Salesforce ranks, he subsequently became a board member and then chairman at Twitter, until the purchase of the company by Elon Musk in October. He is also credited as the architect of Salesforce’s $27.7B purchase of Slack Technologies, which was its largest acquisition ever. (10 comments)
2022 DealBook Summit
Some of the biggest names in business are being interviewed at the annual New York Times DealBook Summit, where “every topic is fair game, and no question is out of bounds.” Amazon (NASDAQ:AMZN) CEO Andy Jassy was the latest to take the stage and go under the spotlight, providing some important insights into the company and the overall economy. Not only is Amazon one of the biggest employers in the country, but it can easily size up trends taking place across the retail space, while Amazon Web Services (responsible for the bulk of the company’s profits) supports nearly a third of all cloud businesses.
Economic environment: “It’s very clear that consumers are spending, but they are being very careful on trying to stretch their dollars. People care a lot about getting a bargain right now. They were attracted to stocking stuffers in an even more pervasive way than normal. In discretionary categories like computers, electronics or TVs, you see consumers trading down models just to try and get more for their money. In difficult and uncertain economies, we’ve found over time that consumers are very careful about who they partner with and they go with companies that are going to provide a great customer experience.”
Layoffs: “It’s the time of year that our leaders take a look at where they want to spend resources and where they should adjust. This year we had the lens of a very uncertain economic environment, as well as having hired very aggressively over the last several years. I think as we went through our plans, you just started seeing pretty similar trends, that the economy was more uncertain and things that were different than before, and we just felt that we needed to streamline our costs. One of the first things we did was to pause incremental hiring, but as we went through the plans, we realized we needed to be more slim on our resources.”
Organized labor: “This is one of many topics in this country that is very hard to discuss and debate. The truth is, employees get to choose. It’s not up to us, it is up to them. What we tell employees in our fulfillment centers is that we think they are better off without a union for a few reasons. If employees can make the experience better for customers or their fellow teammates – they can go fix it rather than a bureaucratic and slow [process]. We like to hear from all our employees, as opposed to being filtered through one or two voices, and it also champions an ‘us vs. them’ mentality that is not as productive. We have compelling benefits like a $19 minimum wage, full health insurance, 401k, up to 20 weeks of parental leave and a career choice program for an advanced education. In the U.S., only one of our facilities voted for a union in Staten Island. There were a lot of irregularities in that vote and it’s working its way through the legal process.”
Media: “Our Prime Video offering and all of that content is a really important ingredient when people choose to sign up for Prime or not. It’s always something that has driven Prime subscriptions, but increasingly you are seeing more and more people signing up to Prime because of the video content. That’s very attractive, and even when they sign up to Prime for the video content, they tend to spend money with us in our e-commerce offerings. I do think over time, we do have opportunities to make our Prime Video business a standalone business. What we want to do is provide the world with the best selection of streaming content for customers.”
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Personal Income and Outlays
9:25 Fed’s Logan Speech
9:30 Fed’s Bowman Speech
9:45 PMI Manufacturing Index
10:00 Fed’s Kashkari Speech
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
3:00 PM Fed’s Barr Speech
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
All good? Tim Cook gives Elon Musk a tour of Apple’s (AAPL) HQ.
Taiwan Semiconductor (TSM) to build 4nm chips at new Arizona plant.
CNN (WBD) begins layoffs expected to reach hundreds of staffers.
Okta (OKTA) surges as Q3 results, forecast blow away expectations.
Snowflake (SNOW) slips as guidance, revenue shows slowing growth.
U.S. House passes bill by wide margin to avoid a rail strike.
HPE recently held takeover talks with Nutanix (NTNX) – Bloomberg.
GSK is a potential buyout candidate for Novartis (NVS) – Intron Health.
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Good morning. Happy Wednesday.
The Asian/Pacific markets did great. Hong Kong, South Korea, India, Taiwan, Malaysia, Indonesia and Thailand posted solid gains. Europe, Africa and the Middle East currently lean up. The UK, Denmark, the UAE, South Africa, Switzerland, Sweden and Saudi Arabia are leading. Futures in the States point towards a flat open for the cash market.
————— VIDEO: Divergences Point to Longer Consolidation Period —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down.
Stories/News from Seeking Alpha…
Musk vs. Cook
Elon Musk continues to goad Apple (AAPL) by publishing the results of a poll in which he asked his 120M Twitter followers if the world’s most-valuable company “should publish all censorship actions it has taken that affect its customers.” The vote was resoundingly in the affirmative, with nearly 85% of the 2.2M respondents replying “Yes” to the query. Never one to miss a chance to savor a win, Musk followed up by tweeting, “The people have spoken…”
Bigger picture: The poll was the latest in a series of pokes and prods that Musk began making towards Apple over the weekend. He called out Silicon Valley’s biggest name, which controls app distribution to every iPhone, for what he claimed was the deep cutting of its advertising on Twitter. Musk also accused Apple of threatening to pull Twitter from the App Store, as well as for CEO Tim Cook to clarify his company’s moves and justify the 30% cut taken on all digital app sales.
“Apple has mostly stopped advertising on Twitter. Do they hate free speech in America?” Musk wrote in a tweet, suggesting he was “going to war.” “I certainly hope it does not come to that, but, yes, if there is no other choice, I will make an alternative phone.” Separately, Morgan Stanley analyst Adam Jones weighed in on the matter, and said Musk’s activity since he acquired Twitter for $44B has led to a growth in negative sentiment about his main business venture, Tesla (TSLA).
Thought bubble: Musk’s recent mudslinging is reminiscent of a fight once waged by Epic Games over Apple’s steep App Store fees, or what some have described as an illegal monopoly over app distribution. This time around, Musk is coming to battle in need of Twitter advertising dollars – and the ability to make more on subscription fees – at the same time that Apple seeks to preserve its recurring income from the App Store amid slowing demand for its devices. Musk is already trying to trigger a national conversation over Apple’s relationship with free speech and content moderation, but could also appeal to lawmakers that are concerned about antitrust action and the concentrated power of Big Tech. (446 comments)
Full calendar
The mood on Wall Street remains cautious ahead of a slew of economic data due out later in the week. Today will see the latest reading on Q3 GDP and the ADP’s report on private-sector payrolls, after the Consumer Confidence Index slipped further in November amid rising food and gas prices. The Personal Consumption Expenditures Price Index, the Fed’s favorite inflation gauge, will also be released tomorrow, while the highly-anticipated employment report will be published on Friday.
Don’t forget! Federal Reserve Chair Jerome Powell is slated to make remarks today. The big event, at the Brookings Institution, will touch on the economic outlook, inflation and the labor market. It will also be Powell’s last chance to convey the thinking of the central bank before entering a blackout period ahead of the FOMC’s meeting on Dec. 13-14.
Besides some hawkish comments, several other recent catalysts have the ability to weigh on the major averages. There’s an OPEC+ meeting coming this weekend, protests are escalating in China over COVID-19 lockdowns and there remains continued instability in the cryptocurrency market.
Commentary: “[The S&P 500 was] marginally lower on Tuesday in thin trading conditions as the market awaits significant events over the coming weeks,” analyst Andrew Hecht told Seeking Alpha. “In a year where the leading stock market indices have declined, end-of-the-year tax loss selling could put additional pressure on equities in an environment where low liquidity could exacerbate to impact… Expect volatility, and you will not be disappointed.” (9 comments)
#Railroadstrike
Heading off a nationwide strike by railroad workers, House lawmakers today will take up legislation today to avert a work stoppage and prevent damage to the economy. Senate Majority Leader Chuck Schumer said at the press conference that he and Senate Minority Leader Mitch McConnell would also agree to push for the bill’s quick passage. The Railway Labor Act empowers Congress to require rail companies and unions to accept labor agreements rejected by their members, though lawmakers can order both sides to push back a strike deadline or refer the negotiations to arbitration.
Quote: “I don’t like going against the ability of unions to strike, but weighing the equities, we must avoid a strike,” House Speaker Nancy Pelosi said after meeting with President Biden and leaders from both parties at the White House. “Jobs will be lost. Even union jobs will be lost. Product will not be going to market.”
One of the top industries on watch has been the chemicals sector, which is one of the biggest users of freight rail. According to the American Chemistry Council, the group ships more than 33,000 carloads a week valued at $2.8B and any work stoppage could lead to a recession. To prepare for a shutdown, railroads even stop accepting security-sensitive shipments, such as chemicals to treat drinking water.
Flashback: The last time Congress acted to settle a nationwide railroad dispute was in 1992. Following a strike by the International Association of Machinists, Congress moved to end the industrial action two days later by approving legislation, which was immediately signed by President George H.W. Bush. (56 comments)
NATO membership
At a two-day summit in the Romanian capital of Bucharest, the North Atlantic Treaty Organization doubled down on a vow to make Ukraine a member of the military alliance. It was 14 years ago (in the same city) that foreign ministers first pledged that Kyiv would eventually become a constituent, and they still “firmly stand behind our commitment.” In recent weeks, Russian missile and drone attacks have targeted civilian infrastructure across the country, with strikes that have heavily damaged Ukraine’s power, water and energy infrastructure.
Quote: “NATO’s door is open,” Secretary-General Jens Stoltenberg said before chairing the meeting. “President Putin cannot deny sovereign nations to make their own sovereign decisions that are not a threat to Russia. I think what he’s afraid of is democracy and freedom, and that’s the main challenge for him.”
It’s not yet clear what Ukraine’s borders would look like if it would join the alliance, but the country must now solely focus on defeating Russia. Troops and pro-Moscow separatists are holding parts of the south and east, while the Crimean Peninsula remains annexed and President Volodymyr Zelenskyy says the nation will keep fighting until it recovers all occupied land. NATO promised more arms for Ukraine at the meeting, as well as equipment to help restore power supplies, though the alliance is still debating whether to provide more advanced defense systems like the Patriot.
Go deeper: A military buildup is likely to be another boon for stocks like Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and Raytheon Technologies (NYSE:RTX), which have had a phenomenal year on the back of the increases in defense spending. All current 30 NATO nations have agreed to spend at least 2% of their GDPs on defense by 2025, and while only a third of those members have met the threshold, the latest developments should accelerate a drive for achieving their targets. Finland and Sweden are also poised to become NATO members soon amid concerns that Russia might target them next. (19 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 GDP Q3
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
8:50 Fed’s Bowman: “The Future of Small Banks”
9:45 Chicago PMI
10:00 Job Openings and Labor Turnover Survey
10:00 Pending Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
12:35 PM Fed’s Cook Speech
1:30 PM Jerome Powell: Economic Outlook
2:00 PM Fed’s Beige Book
3:00 PM Farm Prices
What else is happening…
CrowdStrike (CRWD) plummets 19% as sales outlook misses forecasts.
Royal Bank of Canada (RY) to buy HSBC Canada (HSBC) for $10B.
Zero-COVID: China manufacturing sector shrinks most in seven months.
Reopening hopes? Watch these Chinese consumer stocks.
Coinbase Wallet (COIN) to delist Bitcoin Cash, Ripple and Stellar.
Salesforce (CRM) Q3 results come as uncertainty grows over deals.
Netflix (NFLX) stacks up billion-minute shows in streaming ratings.
Kroger (KR), Albertsons (ACI) execs defend merger in Senate hearing.
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Good morning. Happy Tuesday.
The Asian/Pacific markets did well. China, Hong Kong, South Korea, Taiwan, Singapore and the Philippines gained more than 1%. Europe, Africa and the Middle East currently lean up. The UK, Denmark, Greece, Finland, Norway and Israel are leading; South Africa and the Czech Republic are down. Futures in the States point towards a flat open for the cash market.
————— Cyber Week Special —————
The dollar is down. Oil and copper are up. Gold and silver are up. Bonds are down.
Stories/News from Seeking Alpha…
Vote of confidence?
The latest indicator about the strength of the U.S. economy arrives this morning at 10:00 a.m. ET. The Consumer Confidence Index provides insight into consumers’ assessments of the labor market, as well as business activity, financial conditions and people’s willingness to spend. More importantly, it provides opinions on both the current state of affairs (Present Situation Index) and future estimates (Expectations Index), which are needed to make any type of investment decision.
Bigger picture: Consumer spending accounts for more than two-thirds of the economy, so it’s important to gauge how individuals might behave in the near future. Banks, manufacturers and retailers are also keen to see changes to the index, which can inform them on whether to take on additional financing, rethink overhead, or advance/delay business investment. Among those that also keep an eye on the figures are government officials and Fed leaders, who factor in whether additional fiscal or monetary action is needed to balance the economy.
Slight month-on-month fluctuations are normal, but index changes of more than 5% – or a continuous trend in one direction – can indicate a likely path of where the economy is headed. The indicator has been steadily decreasing since notching a score above 115 last December, barring two readings in August and September that prompted hopes of an uptrend. Today’s number is forecast to come in at a reduced 100.0, from October’s 102.5, though any figure above 90 generally reflects a healthy economy.
How is it calculated? The Consumer Confidence Index is the result of a survey of 5,000 U.S. households that is prepared by The Conference Board, a non-profit known for its private sources of business intelligence. Survey participants across America, and each of the country’s nine census regions, are asked to answer questions with responses like “positive,” “negative” or “neutral.” Once the data has been collected, a portion known as the “relative value” is calculated for each question (which is compared to the sum of the responses and historical data to produce a final index value).
Relief rally
Will China alter its zero-COVID stance in response to growing discontent? That’s the hot question on traders’ minds, as protests and accompanying crackdowns take place on the streets of Beijing, Shanghai and elsewhere. It will be a delicate balancing act for Xi Jinping to pivot away from the draconian policy, but in some ways he already has, like the recently announced “20 measures” that cut quarantine periods for close contacts of COVID cases and inbound travelers.
Policy watch: Today’s meeting of the Chinese State Council took on extra importance, as the weekly press conference signaled that further changes to current measures might be in the making. “China has been following and is closely watching the virus as it evolves and mutates,” officials said during the briefing, while health authorities released a plan to boost elderly vaccination. China also reported a decline in new COVID-19 infections with 38,645 cases after a record daily high of 40,347 on Sunday.
Markets loved any sign of easing COVID-zero following some nervousness seen in the prior session. The Shanghai Composite closed 2.3% higher, while stocks in Hong Kong rocketed 5.2% and the Hang Seng TECH Index even finished the day up 7.7%. Chinese vaccine developers were also big winners, with shares of CanSino Biologics (OTCPK:CASBF) soaring as much as 18% in Hong Kong.
Why are the protests happening now? Xi Jinping has been at the helm for nearly a decade, but over most of that period, the benefits of a booming economy were widely felt across China. Things have slowed sharply due to zero-COVID policies, and many workers are now finding it difficult to make a living amid severe restrictions and lockdowns. The current measures are also unpredictable and being seen as irrational, especially as the Chinese watch a maskless World Cup and compare it to the strict protocols of the 2022 Beijing Winter Games. (17 comments)
Another collapse
Cryptocurrency lender BlockFi has filed for Chapter 11 bankruptcy protection in the U.S. in an effort to stabilize and restructure its business following the abrupt downfall of crypto exchange FTX. Major digital tokens, like Bitcoin (BTC-USD) and Ethereum (ETH-USD) were dragged lower by the news, but pared some of the losses in overnight trading. BlockFi, which is still operating its business, said it will focus on recovering all obligations by its counterparties, though recoveries from FTX are expected to be delayed given its ongoing bankruptcy process.
Contagion: BlockFi is estimated to have over 100K creditors. One of its largest creditors included FTX US’s business name, West Realm Shires, with a $275M unsecured claim, while Ankura Trust Company was the lender’s largest creditor by a wide margin with a $730M unsecured claim. Reports suggest that BlockFi has begun slashing costs in preparation for a restructuring, including warning two-thirds of its employees about coming layoffs.
BlockFi, which received an outsized credit line from FTX earlier in 2022, was already forced to suspend client withdrawals earlier in November due to the uncertainty surrounding the status of Sam Bankman-Fried’s crypto empire. However, even before the collapse of FTX, BlockFi was struggling to keep afloat following regulatory troubles and a broader market downturn. Crypto lender rival Nexo reportedly offered to buy BlockFi for $850M in July, but BlockFi turned down that offer in favor of a bailout with FTX that never went through due to the recent liquidity crisis.
Commentary: “It is unfortunate for BlockFi that the white knight [FTX] that had offered them a lifeline back in June, hasn’t managed to stay solvent themselves, in part because of the massive losses accumulated at Alameda Research stemming from the same event – the collapse of Terra Luna and Three Arrows Capital,” said Bradley Duke, founder and co-CEO at ETC Group. (79 comments)
Rail strike
President Biden is imploring Congress to intervene in stalled negotiations between rail unions and operators to prevent a strike ahead of a Dec. 9 deadline. The move would end a long-running labor dispute between the country’s biggest freight railroads and more than 115,000 of their workers by passing a joint resolution under the Railway Labor Act of 1926. That would force employees to accept the contract approved by the Presidential Emergency Board and their unions, which was set up to mediate the dispute this past summer.
Snapshot: The five-year agreement that resulted from previous discussions offered railroad workers a 24% increase in wages from 2020 through 2024. It also granted an additional paid day off, on top of existing vacation time, but sticking points remain over work schedules and paid sick time. By some estimates, the railroads in the U.S. impact about a third to about 45% of all freight in the U.S., meaning there can be knock-on effects for many industries that could result in another inflationary threat.
“I am calling on Congress to pass legislation immediately to adopt the Tentative Agreement between railroad workers and operators – without any modifications or delay – to avert a potentially crippling national rail shutdown,” President Biden said in a statement. “As a proud pro-labor President, I am reluctant to override the ratification procedures and the views of those who voted against the agreement. But in this case – where the economic impact of a shutdown would hurt millions of other working people and families – I believe Congress must use its powers to adopt this deal.”
Related Tickers: Canadian Pacific Railway (CP), Canadian National Railway (CNI), CSX Corp. (CSX), Union Pacific (UNP), Berkshire Hathaway (BRK.A, BRK.B) and Norfolk Southern (NSC). (113 comments)
Today’s Economic Calendar
9:00 S&P CoreLogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
What else is happening…
Disney’s (DIS) Iger says Apple (AAPL) merger talk is ‘pure speculation.’
Mouse House logs a win – and a bomb – at Thanksgiving box office.
Exxon Mobil (XOM) aiming to end oil production in Equatorial Guinea.
Shell (SHEL) to buy biogas producer Nature Energy in $2B deal.
Packaged foods: Nestle (OTCPK:NSRGY) lifts outlook, confirms buyback.
Activision (ATVI) gains on report of Microsoft (MSFT) EU deal concessions.
Apple (AAPL) has threatened to withhold Twitter from App Store – Musk.
Taboola (TBLA) jumps 43% after Yahoo enters commercial pact with stake.
Snap (SNAP) tells staff to be in office 4 days a week starting in February.
Baidu (BIDU) unveils plan to expand fully driverless ride-hailing service.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets were mostly weak. The Philippines did well, but Japan, China, Hong Kong, South Korea and Taiwan posted moderate-to-big losses. Europe, Africa and the Middle East are currently weak. Turkey and Hungary are up, but France, Germany, Greece, the UAE, Russia, Finland, Norway, Spain, the Netherlands, Italy, Portugal, Israel, Austria and Sweden are down big. Futures in the States point towards a moderate down open for the cash market.
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The dollar is down. Oil and copper are down. Gold is flat; silver is up. Bonds are up.
Stories/News from Seeking Alpha…
Blank paper
It’s still too early to tell where things will go as protests against COVID restrictions spread across China. Things escalated over the weekend after a deadly fire killed 10 people in Xinjiang’s capital of Urumqi, with outrage over the incident going viral on social media. People blamed COVID controls for the incident, with reports suggesting that the severe measures obstructed escape and rescue efforts. Authorities denied the allegations, but the demonstrations had already spread across Beijing, Wuhan and Shanghai, where blank sheets of white paper were raised as a symbol of defiance.
Market movement: The Hang Seng Index opened down more than 4% in a knee-jerk reaction before paring losses to trade 1.5% lower, while the Shanghai Composite settled down 0.8%. The bigger move was seen in oil markets, with crude futures (CL1:COM) sliding 3.6% to $73.60 per barrel. As case numbers continue to hit record highs – with over 40,000 new infections recorded on Monday – China’s central bank cut its reserve requirement ratio by 25 basis points, freeing up around $70B in liquidity to support the economy.
Widespread demonstrations are a rarity in mainland China, but protests have escalated amid three years of COVID restrictions that have battered travel, incomes and morale. Last week, unrest spread at the world’s biggest iPhone plant in Zhengzhou, with workers upset about bonuses and conditions in the locked-down factory. Residents in the southern manufacturing hub of Guangzhou also protested restrictions by breaking through metal barriers and demanding an end to lockdowns. To be clear, China has dealt with much larger demonstrations in recent years, like the pro-democracy protests in Hong Kong that brought millions of people on to the streets in 2019.
Go deeper: People’s Daily, the official mouthpiece of the Chinese Communist Party, ran a front page op-ed on Monday that indicated the current thinking on COVID policy. It called for controls that are more targeted – like the recently announced “20 measures” – as well as “improving the effectiveness of anti-epidemic work.” The zero-COVID stance has already had serious implications for the economy, with China’s GDP expanding only 3% at the end of the third quarter, well below the official target of around 5.5% announced in March. (17 comments)
Shopping bonanza
Data released following the Black Friday holiday indicates consumers’ appetite to spend was not curbed amid elevated inflation. While traffic to malls may have been thinner than expected, web traffic remained robust. According to Adobe Analytics, shoppers in the U.S. spent a record $9.12B on Black Friday sales online.
Snapshot: The record figure came amid deep discounting among many major retailers, which are working through bloated inventory levels. The 2.3% jump in online sales from the prior year more than doubled the expectation for the analytics provider. Additionally, Cyber Monday sales are expected to exceed the performance on Black Friday, with sales slated to top $11.2B and adding to strength in the e-commerce industry.
“With holiday promotions kicking off long before the Thanksgiving weekend, consumers have been shopping strategically for the season’s best deals,” explained Michelle Meyer, U.S. Chief Economist of the Mastercard Economics Institute. “Retailers delivered on Black Friday with deals that enticed consumers to fill their carts despite the inflationary environment.”
Outlook: Adobe expects Cyber Week – the five days from Thanksgiving Day through Cyber Monday – to generate a total of $34.8B in spending online, up 3% compared to 2021. Flexible payment plans have also been used by many shoppers as they deal with high prices and inflation. “Buy Now Pay Later” payments soared by 78% compared with the past week, while “Buy Now Pay Later” revenue is 81% higher for the same period. (121 comments)
Limited authorization
Chinese COVID restrictions and the energy demand outlook for the world’s largest crude importer aren’t the only things weighing on oil prices this morning. EU members have been locked in talks over how strict the G7-led price cap on Russian crude should be, with negotiations set to resume later today. The U.S. also just granted oil major Chevron (CVX) a license to resume “limited” oil production in Venezuela following sanctions that stopped all drilling activities almost three years ago.
Bigger picture: The reprieve came after Venezuela President Maduro’s government and a coalition of political opponents agreed to implement a humanitarian relief program and continue talks in Mexico City on holding free and fair elections. The Biden administration has also been looking for alternative energy sources amid Russia’s war in Ukraine, with the EU set to ban Russian oil imports on Dec. 5 and as elevated prices pose a big problem for global inflation. Venezuela has the world’s largest proven oil reserves and used to pump over 3M barrels per day before mismanagement and hefty sanctions sent production well below 1M bpd.
Investors don’t seem to be excited (yet). No new drilling is authorized, though Chevron will be able to repair and perform maintenance of oil fields, and it will be allowed to resume crude oil exports from the country. Over the next six months, Chevron might only increase output by some 20,000 to 30,000 barrels a day, which won’t make too much of a difference to the global market. It’ll also need to spend heavily to attract talent and get things running again, all while under the threat of its license being revoked due to the actions of the Maduro regime. CVX -2% premarket.
Statement: “The Office of Foreign Assets Control’s decision brings added transparency to the Venezuelan oil sector,” Chevron declared. “We are determined to remain a constructive presence in the country and to continue supporting social investment programs aimed at providing humanitarian relief.” (79 comments)
New licenses
Casino stocks have their chips on the table this morning, with the major players notching broad gains as a major overhang cleared for the sector. The government in Macau has tentatively renewed the casino licenses of MGM Resorts (MGM), Las Vegas Sands (LVS) and Wynn Resorts (WYNN), as well as Melco Resorts & Entertainment (MLCO), SJM Holdings (OTCPK:SJMHF) and Galaxy Entertainment (OTCPK:GXYEF). Only a bid from Genting Group of Malaysia (OTCPK:GEBHF) was rejected.
Backdrop: Sweeping new laws were passed this year that cracked down on casino operations and their role in soliciting high-rollers from mainland China (where gambling is illegal). Prompting the legislation were fears over capital outflow, leading to much uncertainty for existing operators that were already slammed by a drought of tourism. China’s strict COVID measures haven’t made things any easier, with Macau year-to-date gross gaming revenue down 50.5% to 35.7B patacas through October 31.
“The operation and development of our gaming industry has come to a certain scale today, but there are also some problems,” noted Secretary for Administration and Justice Cheong Weng Chon. “For example, the source of our tourists is too concentrated. It’s not healthy.”
Reshaping the area: The awarding of the licenses comes with a commitment from casino operators to help diversify the Macau economy by investing in non-gambling attractions like theme parks, music and sports. As of now, 80% of the local government’s income comes from gambling. The new licenses are expected to take effect at the beginning of 2023 (subject to final negotiations) and run for a maximum term of 10 years. (12 comments)
Today’s Economic Calendar
10:30 Dallas Fed Manufacturing Survey
12:00 PM Fed’s Williams Speech
What else is happening…
Are needle-free vaccines the next step to fight COVID?
Class 8 market: Tesla (TSLA) preps for first Semi deliveries.
Shopify (SHOP) racks up record sales tally for Black Friday.
Twitter to tweak verification system, include gold, grey and blue checks.
Apple (AAPL) may face shortfall of 6 million iPhone Pros amid protests.
Coal forecast: China production set to rise for sixth straight year.
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