Good morning. Happy Friday.
The Asian/Pacific markets did well. China, Hong Kong, South Korea, Taiwan, Singapore and the Philippines led, while Japan was weak. Europe, Africa and the Middle East lean down. Denmark and South Africa are up; Poland, Finland, Portugal, Sweden and the Czech Republic are down. Several markets are closed. Futures in the States point towards a moderate gap down open for the cash market.
————— VIDEO –>> What do the First 5 Days of the Year Tell Us —————
The dollar is up. Oil is up; copper is down. Gold is up; silver is down. Bonds are down.
Stories/News from Seeking Alpha…
‘Tis the earnings season
Earnings season is kicking off today, on Friday the 13th, but many are hoping for better luck as the biggest U.S. banks start the festivities. Set to report are Wall Street heavyweights JPMorgan Chase (JPM) and Bank of America (BAC), as well as Citigroup (C) and Wells Fargo (WFC). ETF behemoth BlackRock (BLK), and trust bank, Bank of New York Mellon (BK), will also disclose Q4 results.
Snapshot: As the Federal Reserve continues to raise rates, banks would be expected to see their net interest income rise in Q4 2022, but the earnings impact from higher rates isn’t quite that simple. As rates rise, so do banks’ costs on deposits. In addition, the increased cost of money has put a damper on new stock and debt issues, and mergers and acquisitions, which are businesses that Wall Street banks traditionally earn hefty fees.
Taking a broader view, the Fed’s aggressive tightening raises the risk that the economy will fall into a recession (the inverted yield curve already warns of such an outcome). With a dimmer economic outlook, banks are bracing by increasing their reserves for expected losses as credit quality typically suffers during economic downturns. With inflation raising wages and other costs, the estimates for banks’ Q4 earnings are mostly lower than the year-ago results, according to Wall Street consensus estimates, while analysts have also been lowering their expectations more than they’ve been increasing them.
Commentary: Morgan Stanley analyst Betsy Graseck forecasts that reserve ratios will increase by a median of 4 basis points Q/Q, “with provisions above the Street for every large cap bank that we cover.” Banks sensitive to the front end of the yield curve could produce further NII surprises. Due to inflation, Graseck also expects large cap banks to guide to 2023 median expense growth of ~4%, above consensus of 3%, noting that “fully 55%” of bank expenses are personnel costs. (10 comments)
Getting to the core?
The major averages recorded modest gains on Thursday, extending a rally seen in the previous session, as investors bet new inflation statistics will allow the Fed to slow the pace of its interest rate hikes. The Nasdaq Composite (COMP.IND) and Dow (DJI) both rose 0.6%, while the S&P 500 (SP500) finished the day 0.3% higher. Eight of the 11 S&P sectors also ended with gains, led by the greater-than-1% advances in Real Estate and Energy.
Quote: “Market participants are now pricing in just two more 25 basis point rate hikes, which means the market believes that the Federal Reserve will soon change its outlook,” analyst Leo Nelissen told Seeking Alpha, but said that the expectations were a “dangerous game.” Inflation is only coming down in select categories, like energy and vehicle prices, while other areas, like wages and housing, remain major issues the Fed will be forced to address to avoid a 1970s-style inflation rebound. “Any hawkish comments from the Fed or a reiteration of its outlook could be bad news for bulls.”
Specifically, the headline CPI slowed to a 6.5% annual increase in December, compared to the 7.1% seen in the prior reading. The core figure, which excludes the volatile food and energy sectors, showed a 5.7% rise, exactly matching projections. However, some “supercore” estimates, like the one that strips out things like medical insurance and airfare, still showed a 6.5% annualized pace.
Outlook: As everyone talks about eggs, markets are now pricing in a 96% probability of a 25 bps hike at the end of the month, compared to the 77% chance that was seen prior to the data release, according to the CME’s FedWatch Tool. (16 comments)
Compensation is cooking
Say-on-Pay votes rarely get internalized by company executives and the board, but something new is brewing at Apple (NASDAQ:AAPL). The compensation committee and CEO Tim Cook have decided to reduce his annual compensation by 40% for 2023 in response to shareholder criticism. While his $3M base salary and $6M bonus will remain the same, the total amount of equity awards available will decrease from $75M to $40M, putting his total payout target at $49M.
Other changes: The percentage of Cook’s stock units linked to Apple’s performance will make up 75% of his overall equity award, up from 50% in 2022. That will more closely align his incentives with future growth performance instead of time spent at the company. Apple also lowered the number of restricted stock units Cook would receive if he retires before 2026.
“The Compensation Committee balanced shareholder feedback, Apple’s exceptional performance, and a recommendation from Mr. Cook to adjust his compensation in light of the feedback received,” Apple revealed in an SEC filing. “Taking into consideration Apple’s comparative size, scope, and performance, the Compensation Committee also intends to position Mr. Cook’s annual target compensation between the 80th and 90th percentiles relative to our primary peer group for future years.”
Go deeper: Executive compensation was a big discussion at last year’s annual meeting, when Institutional Shareholder Services recommended that Apple shareholders vote against Cook’s pay package. There has been some increasing pressure since then, especially as Apple deals with supply problems in China, weakening tech demand and the possibility of breaking its 3.5-year growth streak over the holiday quarter. While shares of Apple are up 6% YTD, they have fallen 24% over the past year, compared to the 27% decline of the tech-heavy Nasdaq Composite Index. (10 comments)
Unregistered securities
The U.S. Securities and Exchange Commission has brought charges against crypto lender Genesis Global Capital and crypto exchange Gemini Trust over the selling of unregistered securities to retail investors. The enforcement action focuses on Gemini Earn, a high-yield crypto lending product (with interest payments of up to 8%) that both Genesis and Gemini started offering in Feb. 2021.
Backdrop: Under the program, Genesis loaned Gemini users’ crypto and directed some of the profits back to Gemini, which acted as an agent to facilitate the transactions and deducted an agent fee (sometimes as high as 4.29%). In November, Genesis announced that investors would not be able to withdraw their assets because of insufficient liquidity as contagion spread from FTX’s collapse. The program was discontinued earlier this month, but its 340,000 investors participating in the scheme were still unable to withdraw their crypto assets and “suffered significant harm.”
The program was not registered as a securities offering when it clearly should have, as Genesis “exercised its discretion in how to use investors’ crypto assets to generate revenue and pay interest to Gemini Earn investors,” the SEC wrote. “As a result, investors lacked material information about the Gemini Earn program that would have been relevant to their investment decisions.”
Crypto crackdown: “Today’s charges build on previous actions to make clear to the marketplace and the investing public that crypto lending platforms and other intermediaries need to comply with our time-tested securities laws,” SEC Chair Gary Gensler added in a statement. (2 comments)
Today’s Economic Calendar
8:30 Import/Export Prices
10:00 Consumer Sentiment
10:20 Fed’s Harker Speech
1:00 PM Baker-Hughes Rig Count
What else is happening…
Tesla (TSLA) looks for sales rebound by cutting prices in the U.S.
Virgin Galactic (SPCE) expects commercial service to begin in Q2.
Bed Bath (BBBY) rips 50% gain despite talks of bankruptcy loan.
Alphabet (GOOG, GOOGL) unit Verily to lay off 15% of staff.
Warner Bros. Discovery (WBD) mulls music-library sale to ease debt – FT.
Brazil’s Lula reassures markets by pledging policies within 100 days.
China stops clock on Intel’s (INTC)-Tower Semiconductor (TSEM) deal.
Beyond Meat (BYND) chief brand officer next to depart.
Las Vegas Sands (LVS) eyes Long Island for large casino project.
ConocoPhillips (COP) in talks to sell Venezuelan oil in the U.S.
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Good morning. Happy Thursday.
The Asian/Pacific markets leaned up. Hong Kong, Australia, Indonesia and the Philippines led. Europe, Africa and the Middle East are doing great. The UK, Poland, France, Turkey, Germany, Russia, Finland, Norway, Spain, Italy, Portugal, Austria, Sweden, Saudi Arabia and the Czech Republic are leading. Futures in the States point towards a moderate gap up open for the cash market, but this could change as Wall Street reacts to the CPI data.
————— VIDEO –>> What do the First 5 Days of the Year Tell Us —————
The dollar is down. Oil is up; copper is down. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
Simplify the CPI
As the Federal Reserve ratchets up interest rates, inflation has started to cool, according to many recent economic reports. Most recently, wage growth rose less than expected in the December non-farm payrolls report, resulting in further assurance that a wage-price spiral has not developed. Average hourly earnings from previous months also included significant downward revisions, giving hope that price pressures will finally melt away.
Snapshot: Investors today will see if that trend is continuing when the Department of Labor publishes the latest Consumer Price Index. Headline inflation is expected to rise 6.5% Y/Y in December, easing from 7.1% in November, and dropping for the sixth consecutive month. Core CPI – which excludes volatile food and energy prices – is expected to increase 5.7% vs. 6.0% in November, but it comes as a new term emerges for market watchers to focus on – “supercore inflation.”
Fed Chair Jerome Powell mentioned at his December press conference that the services component of inflation, excluding housing, was particularly concerning as that tends to be harder to root out than goods inflation. Some are even going more hardcore, sizing up the figure without housing and healthcare, or even other categories. Also keep in mind that Fed policymakers generally give more weight to core personal consumption expenditures, rather than the CPI, which has diverged more than usual since early last year.
Complicated equation: The reaction from market participants after 8:30 a.m. ET will depend on what they expect the Federal Reserve to do in response to the report. Traditional sentiment would say that a much cooler reading would prompt the central bank to continue tapping the brakes on rate hikes, though others feel that it alone may not be enough to adjust the Fed’s policy path. With the unemployment rate and layoffs remaining low and job openings still high, a “more meaningful softening in labor demand and wage growth will be needed,” said Jim Baird of wealth management firm Plante Moran. “Labor conditions have weakened over the past year, but remain too robust for the Fed’s liking.” (11 comments)
Peltz at it again
A high-profile proxy fight has broken out at Disney (DIS) as activist investor Nelson Peltz attempts to join the company’s board. Peltz is a significant shareholder, with his Trian Fund Management holding around $800M worth of Disney stock, though the House of Mouse has rebuffed his advances. The battle also threatens another chaotic period at Disney following executive shakeups over the last few months.
What does Peltz want? He had previously advocated for the removal of Bob Chapek from the board, which he got after Bob Iger returned as CEO in November. The main thing right now is his own board seat, which was denied by Disney on Wednesday (Nike’s (NKE) Mark Parker was elected to replace Susan Arnold as Disney chair following the company’s next annual meeting). Trian wants to make operational improvements and reduce costs – like possibly cutting streaming losses, spinning off some media divisions, or restricting dealmaking – as Disney’s stock trades near pandemic lows.
“Trian’s objective is to create sustainable, long-term value at Disney by working WITH Bob Iger and the Disney Board,” the firm declared. “We recognize that Disney is undergoing a period of significant change and we are NOT trying to create additional instability.”
Response: “The Walt Disney Company remains open to constructive engagement and ideas that help drive shareholder value,” the board replied in a statement. “While senior leadership of The Walt Disney Company and its Board of Directors have engaged with Mr. Peltz numerous times over the last few months, the board does not endorse the Trian Group nominee, and recommends that shareholders not support its nominee, and instead vote for all the company’s nominees.” (7 comments)
Travel trouble
Major U.S. airlines including Delta (NYSE:DAL), Southwest (NYSE:LUV) and United (NASDAQ:UAL) expect operations to return to normal today after a disruption stranded travelers across the country. When all was said and done, nearly 12,000 flights were delayed or canceled on Wednesday – within, into, or out of the United States. It also appeared to be the first nationwide grounding of domestic traffic in over two decades, with the last following the terrorist attacks of Sept. 11, 2001.
What happened? The Federal Aviation Administration traced the outage to a damaged database file on the computer system that generates alerts called NOTAMs, or Notice to Air Missions. Those notifications must be reviewed by pilots and airline dispatchers before takeoff, as they include details about bad weather, runway closures or nearby airspace activity. Officials also noted that the outage was not the result of a cyberattack, though a similar system interruption occurred in Canada on the same day.
Many of those systems “are old mainframe systems that are generally reliable, but they are out of date,” explained Tim Campbell, a former executive of air operations at American Airlines (NASDAQ:AAL).
Outlook: The U.S. aviation sector is still likely to struggle on Thursday, with 63 cancellations and 527 delays as of 7:00 a.m. ET, but many hope that things will clear up later in the day. The disruption follows another turbulent period for the air travel industry, which resulted in government investigations. Over the holidays, Southwest Airlines canceled thousands of flights over the span of several days, citing problems with a legacy system that couldn’t keep up with crew scheduling changes.
Big stash
Crypto traders are also watching today’s CPI print, with hopes that any cooling on the inflation front could help restore a desire for riskier assets. In fact, Bitcoin (BTC-USD) was bid up overnight to its highest level in nearly a month, climbing over 4% to regain the $18,000 level. Some other notable developments are also hitting the sector following a court hearing on Wednesday for the collapsed crypto exchange FTX.
The latest: Bankruptcy attorneys sifting through the rubble left behind by founder Sam Bankman-Fried apparently found more than $5B in liquid assets, like cash and tradeable crypto, that may be sold to help repay creditors. It’s not yet clear where the money came from, and the figure doesn’t include another $425M in crypto held by the Securities Commission of The Bahamas. New FTX CEO, John Ray, has previously said that at least $8B of customer assets were unaccounted for in the worst case of corporate failure he had ever seen.
While FTX has already put some units up for sale since entering Chapter 11, such as LedgerX, Embed Financial Technologies, and FTX Europe and Japan, the selling of the newly discovered stash of crypto could dent prices. “If you try to sell $1B worth of crypto all at once, it’s going to depress the market,” noted Eric Snyder, partner and bankruptcy attorney at Wilk Auslander.
The other side: “We’ve had many negative events transpire over the past year, and if one looks at the price reaction to those events, in general it’s been declining less and less,” said Vijay Ayyar of crypto exchange Luno. It’s an “indication that the market is accepting the news quite well, sell pressure is being absorbed, and hence we’re moving to an accumulation stage. This could also mean that the market thinks the worst is over for crypto and that most negative news is now priced in.”
Today’s Economic Calendar
7:30 Fed’s Harker Speech
8:30 Consumer Price Index
8:30 Initial Jobless Claims
10:30 EIA Natural Gas Inventory
11:30 Fed’s Bullard Speech
12:40 PM Fed’s Barkin Speech
2:00 PM Treasury Statement
4:30 PM Fed Balance Sheet
What else is happening…
Dell Technologies (DELL) may stop using Chinese-made chips by 2024.
What would Steve Jobs say? Apple (AAPL) working on Mac touchscreens.
BlackRock (BLK) next to implement layoffs after 2022 market slump.
It might not be short covering driving the Carvana (CVNA) rally.
Strong earnings from TSMC (TSM), but 2023 will be a ‘slight growth year.’
S&P 500 will rise another 18% in 2023 – Piper Sandler sees opportunities.
—————
Good morning. Happy Wednesday.
The Asian/Pacific markets were mixed. Japan, Hong Kong and Australia did well while China, Indonesia and the Philippines were weak. Europe, Africa and the Middle East lean up. The UK, France, Germany, South Africa, Switzerland, the Netherlands and Sweden are up; Denmark, Turkey and the UAE are down. Futures in the States point towards a positive open for the cash market.
————— VIDEO –>> What do the First 5 Days of the Year Tell Us —————
The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
New mortgage playbook
Once one of the biggest mortgage lenders in the U.S., Wells Fargo (WFC) has unveiled plans to step back from the housing market. Instead of going after the entire industry (its previous goal was a 40%-50% market share), the bank is shrinking its mortgage portfolio by restricting loans to only bank clients and minority borrowers. While the business was one of the company’s biggest profit generators over the years, things have gotten tougher amid regulatory pressure and higher interest rates.
That’s not all: Wells Fargo is shuttering its Correspondent lending business, in which the bank lends capital to other firms that sell mortgages as distinct providers. It’s a big deal, as the division accounted for nearly 40% of its mortgage volume as of Q3 2022. Wells Fargo is also reducing the size of its Servicing portfolio by selling billions of dollars worth of mortgage servicing rights to other players in the sector.
“We are making the decision to continue to reduce risk in the mortgage business by reducing its size and narrowing its focus,” said Kleber Santos, CEO of Consumer Lending. “Mortgage is an important relationship product… and we are acutely aware of Wells Fargo’s history since [the cross-selling scandal in] 2016 and the work we need to do to restore public confidence. As part of that review, we determined that our home-lending business was too large, both in terms of overall size and its scope.”
Go deeper: In August, Seeking Alpha covered reports that Wells Fargo would dramatically reduce the size of its mortgage unit and would retrench from its commitment to be No. 1 in the business. It has also taken other steps to simplify its mortgage division over the past three years, like scaling back the refinancing of jumbo mortgages in 2020. As traditional banks continue to withdraw from the industry (JPMorgan (JPM) and BofA (BAC) surrendered mortgage share after the financial crisis), non-bank entities like Rocket Mortgage (RKT) and United Wholesale Mortgage (UWMC) have filled the void, though they are not as regulated and some say it could expose borrowers to additional risks. (9 comments)
Gloomy growth
The World Bank has slashed its 2023 global growth forecast by almost half – from 3% to 1.7% – as elevated inflation, higher interest rates, reduced investment and Russia’s invasion of Ukraine constrain economic activity. If that wasn’t enough, the Washington-based lender warned that any new adverse shocks could push the global economy into recession, which would mark the first time in more than 80 years that two global recessions occurred within the same decade.
Global Economic Prospects: “The crisis facing development is intensifying as the global growth outlook deteriorates,” explained World Bank Group President David Malpass. “Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change.”
Over in the U.S., the economy is expected to experience 0.5% growth in 2023, 1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970. “There is a lot of debate about whether the U.S. and the eurozone will go into recession,” noted Ayhan Kose, the World Bank economist responsible for the report. “But whether they do or not in technical terms, they are going to feel like they are experiencing a recession.”
Case in point: Mass layoffs continue to come thick and fast. Following its earnings report on Tuesday, Bed Bath & Beyond (BBBY) said it had begun its latest round of job cuts as the home goods retailer teeters on the brink of bankruptcy. Coinbase (COIN) revealed that it would also lay off nearly 1,000 employees, or 25% of its staff, while Goldman Sachs (GS) is expected to announce plans today to cut up to 3,200 jobs, or roughly 6% of its workforce. (3 comments)
Not a climate policymaker
Fed Chair Jerome Powell didn’t make any specific comments yesterday on the U.S. economy or the path of rate hikes, which didn’t come as a surprise, given that the international symposium he attended focused on “central bank independence.” As such, he did say that independence was critical to central banks, especially in times of inflation and when dealing with the price stability part of the central bank’s dual mandate (the other being full employment).
Quote: “Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy. The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors.”
Powell also discussed the Fed’s role in incorporating perceived risks associated with climate change after tiptoeing around the subject in recent years. While he said policies directly addressing climate change should be made by elected branches of government, “the Fed does have narrow, but important, responsibilities regarding climate-related financial risks.” Those are “tightly linked” to its responsibilities for bank supervision.
Fine print: “Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals,” Powell continued. “We are not, and will not be, a ‘climate policymaker.'” (8 comments)
King of the skies
Boeing (BA) delivered 69 commercial airplanes last month to finish the year with 480 deliveries, up 41% from 340 in 2021. That figure wasn’t enough to beat archrival Airbus (OTCPK:EADSY), which delivered 661 aircraft to customers in 2022 and took the crown in the annual contest for the fourth consecutive year. “I do look forward to making it five in the coming year,” Airbus Chief Commercial Officer Christian Scherer said on a conference call.
Backdrop: Boeing has fallen behind in the race for several reasons after decades of dominance in the commercial aircraft market. Two crashes involving its 737 MAX pushed the planemaker into the biggest crisis in its history, while production and regulatory setbacks of the 787 Dreamliner haven’t helped the situation. The coronavirus pandemic also upended supply chains and output of new planes, while resurgent travel has increased the appetite for new jets, making it harder for supply to catch up to demand.
While Boeing shares closed down 1% on Tuesday, the stock has recently been on a rip, soaring about 40% since Nov. 2. That’s when top brass unveiled a turnaround plan to increase free cash flow and pay down debt, while upping production and deliveries. Boeing will still have to play catch-up, with hopes to produce around 47 single-aisle 737 MAX units per month by the end of 2023, compared to Airbus’ monthly production target of 64 A320neo jets.
From the SA comments section: “The more that deliveries exceed production the more the parking lot in Arizona desert gets emptied and production rate will get ramped up,” wrote SA contributor Andrew Shapiro. “Not only better fixed cost absorption and enhanced margin for BA but increased sales and fixed cost absorption and enhanced margin for suppliers like SPR and undervalued micro-cap PFIN.” (9 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
1:00 PM Results of $32B, 10-Year Note Auction
What else is happening…
U.S. stocks’ dividend payouts slow in Q4 as macro concerns mount.
Disney (DIS) eases policies at theme parks after patron complaints.
BofA sees improving story at Warner Bros. Discovery (WBD).
Coca-Cola (KO) and PepsiCo (PEP) could face FTC pricing probe.
Broadcom (AVGO) hit in reaction to Apple’s (AAPL) chip plans.
Bed Bath (BBBY) targets store closings, cost savings as sales crumble.
Amazon (AMZN) to shut three U.K. warehouses, impacting 1,200 jobs.
Tesla (TSLA) preps for huge expansion of Austin Gigafactory.
Rivian Automotive (RIVN) sees several long-time top execs depart.
WHO declares the end of deadly Ebola outbreak in Uganda.
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Good morning. Happy Tuesday.
The Asian/Pacific markets leaned down. Japan did well while India, Indonesia and Singapore were weak. Europe, Africa and the Middle East are mostly down. Denmark, France, Turkey, Finland, Switzerland, Norway, Hungary and Sweden. Futures in the States point towards a moderate gap down 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…
No more pajamas
Less than two months back on the job, Disney (DIS) CEO Bob Iger seems to believe that the office is the Happiest Place on Earth. That’s because he has told employees that they need to be back in their workplaces four days a week. The new requirement will go into effect on March 1, with staff coming in Monday through Thursday.
Quote: “As you’ve heard me say many times, creativity is the heart and soul of who we are and what we do at Disney,” Iger wrote in an all-staff email. “In a creative business like ours, nothing can replace the ability to connect, observe, and create with peers that comes from being physically together, nor the opportunity to grow professionally by learning from leaders and mentors.”
While other companies have also been tightening return-to-office requirements, Iger’s demands fall on the heavier side of such restrictions. Most major media corporations have chosen to compel hybrid workers to come back into office for two to three days per week, and Disney’s policy was also three days for much of the past year.
Go deeper: Iger reclaimed the CEO job from Bob Chapek in a surprise pre-Thanksgiving announcement. With a planned two-year stint, he’s set on making some profound changes including restructuring Disney’s distribution operations. (38 comments)
Fedspeak
Things are getting edgy as traders seek to assess the thinking of the Federal Reserve going into 2023. Chair Jay Powell is set to participate today in an International Symposium on Central Bank Independence hosted by the Sveriges Riksbank in Stockholm, Sweden. While the event, which will start at 9 a.m. ET, may not include any updates to the state of U.S. monetary policy, markets will still be hanging on to every one of his words.
Snapshot: Powell’s speech follows a solid jobs report for the U.S. economy. Wage growth is rising, but cooled enough to bring down inflationary pressures, while employers are still hiring – at a pace of 223,000 in December – but are slowing down from last year’s unsustainable figures. The unemployment rate also came in at 3.5%, marking its lowest level in decades.
Many hope the data shows that a soft landing is still possible, especially when taking into account other economic numbers. The Consumer Price Index will be released on Thursday and is forecast to show the sixth straight month of falling inflation (at a pace of 6.5%). According to CME’s FedWatch Tool, traders are now pricing in a 77.2% chance that the FOMC will only raise its key lending rate by 25 bps at the end of January, continuing to slow its pace of increases.
Outlook: Earnings season also kicks off this week, with results and guidance helping paint a picture of the U.S. economy. A special thanks to everyone who participated in Wall Street Breakfast’s “Survey Monday.” The poll was split pretty evenly among the nearly 500 participants, with 56% believing that S&P 500 companies will report their first losing quarter since 2020, compared to 44% who expect Q4 to still see some earnings growth. (1 comment)
Opposite directions
Shares of Virgin Orbit (VORB) rallied on Monday after the company announced the initial window for its historic flight would officially open later in the day. The “Start Me Up” mission, named after the Rolling Stones song, marked the first international mission for the company and the first commercial launch from U.K. soil (or from anywhere in western Europe). A modified 747 jet dubbed Cosmic Girl hoped to send commercial and government satellites from several nations into space via “air launch,” or launching a rocket from under the aircraft’s wing mid-flight.
Mayday! More than an hour after takeoff, its rocket suffered an “anomaly that prevented us from reaching orbit.” Shares tumbled back to Earth – and then some – falling 8.5% during the session, and tumbling another 24% AH to $1.47. It was only two months ago that Virgin Orbit said in a filing that “our losses from operations and liquidity conditions raise substantial doubt regarding our ability to continue as a going concern.”
While Bed Bath and Beyond (BBBY) is also teetering on the edge of bankruptcy, shares rebounded sharply on Monday. The stock skyrocketed 24%, and another 11% AH, to end the day at $1.80. When all was said and done, over 90M shares traded hands, compared to its average trading volume of around 23M.
What happened? Besides having a reserved place in the notable basket of meme stocks, there was speculation that the struggling home goods retailer might be an acquisition target. It has battled with shrinking sales for years as it competes with online players and other rivals, while inventory problems and its reliance on discount coupons have dented revenues. Many expect some kind of update today as Bed Bath reports earnings, which are expected to show a net loss of $386M for its fiscal third quarter. (15 comments)
Emergency in California
Nearly 200K homes and businesses in California remain without power early Tuesday as massive storms unleashed torrents of rain across the state, causing power outages, landslides and floods. The National Weather Service has warned that northern and central California are still in the path of a “relentless parade of cyclones,” promising little relief until the middle of the week. The storms have so far caused at least 14 deaths, while 34M Californians (or about 10% of the U.S. population) are currently under a flood watch.
Snapshot: According to PowerOutage.us, PG&E (PCG) was the utility with the most outages – with more than 164K customers without power – followed by Sacramento Municipal Utility District at 13K. The company has called up more than 5,000 dedicated personnel to respond to the storm, including contractors and mutual aid from neighboring states.
“PG&E teams got prepared and in position before the first storm rolled in on New Year’s Eve weekend to lessen the impact of these storms,” COO Adam Wright declared. “As we make assessments, we will restore power as quickly as safety allows. Challenging conditions could delay our efforts and extend our customers’ outages, but we won’t rest until our last customer is safely restored.”
Emergency declaration: President Biden has declared an emergency in California, authorizing the Department of Homeland Security and the Federal Emergency Management Agency to coordinate all disaster relief efforts and provide appropriate assistance for required emergency measures. (10 comments)
Today’s Economic Calendar
6:00 NFIB Small Business Optimism Index
9:00 Jerome Powell Speech
10:00 Wholesale Inventories (Preliminary)
1:00 PM Results of $40B, 3-Year Note Auction
What else is happening…
Apple (AAPL) may soon say goodbye to Broadcom (AVGO) chipsets.
Macy’s (M) drops guidance for holiday quarter due to shopper lulls.
More holiday trouble… Lululemon (LULU) tumbles on soft outlook.
Nvidia (NVDA) pops as investors flock to beaten down tech names.
Product launch wave: Pfizer (PFE) says ‘the best days are ahead.’
Rite Aid (RAD) gains as CEO transition sparks takeover speculation.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets did great. China, Hong Kong, South Korea, India, Taiwan, Malaysia, Australia, Singapore, Thailand and the Philippines all posted big gains. Europe, Africa and the Middle East are also up big. Poland, Germany, Russia, South Africa, Finland, Norway, Hungary, the Netherlands, Sweden, Saudi Arabia and the Czech Republic are leading. Futures in the States point towards a moderate gap up 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…
Chaos in Brazil
Thousands of supporters of former Brazilian President Jair Bolsonaro stormed the country’s government buildings on Sunday, including the Supreme Court, Congress and the presidential palace. Many of the rioters called for military intervention to remove Luiz Inacio Lula da Silva, who took power a week ago in one of Brazil’s closest elections on record. Windows were smashed, art works were destroyed, and computers and desks were overturned, leaving the monumental buildings’ interiors in a state of ruin.
Snapshot: The attack is reminiscent of the storming of the U.S. Capitol on Jan. 6, 2021, with some notable differences. In the leadup to the riots, both former President Trump and Bolsonaro cast doubt on the validity of election voting systems and refused to say they would unconditionally accept the results. However, while January 6th was intended to block President Biden’s certification and happened while Congress was in session, no one was in any of the government buildings in Brazil’s capital at the time of the attack, and Lula wasn’t even in Brasilia.
Riot police began to restore order within hours, arresting about 300 people, but questions remain as to how public security forces in the capital were so unprepared (rioters announced their plans for weeks on social media). Brasilia’s head of public security, Anderson Torres, has since been fired, while da Silva decreed a state of federal intervention in the city. “Peaceful demonstrations, in the form of the law, are part of democracy,” Bolsonaro tweeted from Florida in response to the attack. “However, depredations and invasions of public buildings as occurred today, as well as those practiced by the left in 2013 and 2017, escape the rule.”
To invest? Brazil, Russia, India and China, collectively known as the BRIC nations, were all the rage in the early 2000s, when emerging market investors hoped to capitalize on their growth and population expectations, as well as their sources of raw materials. Barring China (and possibly India), things haven’t quite materialized, and Lula will have a long way to go in dealing with a politically divided nation and a weakening economic outlook. The recent commodities boom could benefit the country, and Lula even leveraged the supercycle in his first two terms to finance social welfare programs and reforms, while driving Brazil’s GDP to the highest in its history. (28 comments)
ETFs: EWZ, BRF, BRZU, EWZS, BZQ, UBR, FBZ
The “right-to-repair” movement is making its way through the agriculture sector, with Deere and Co. (NYSE:DE) giving its U.S. customers the right to fix their own equipment. The company is one of the world’s largest makers of farming equipment, which has increasingly been relying on software and sensors in machinery to boost harvests and planting. Up until now, Deere had required customers to use its parts and service divisions, and only recently allowed authorized dealers rather than cheaper independent repair options.
Fine print: The memorandum of understanding signed with the American Farm Bureau Federation states that owners and independent technicians cannot risk any safety controls or protocols on the equipment. Deere’s intellectual property, like copyrighted software, will also be protected from infringement, while federal and state emissions requirements cannot be compromised because of modifications or changes made to the machinery.
“This will enable you and your independent mechanics to identify and fix problems,” Farm Bureau President Zippy Duvall declared. “You will have access to the diagnostic tools and information you need. And you’ll get it at a fair and reasonable price.”
Outlook: Many industries have gone through some “right-to-repair” backlash, especially those with highly complex computerized systems. Apple (AAPL) even agreed to let customers fix their own iPhones and Macs in 2021 after the Biden administration ordered the FTC to address “unfair anti-competitive restrictions on third-party repair or self-repair of items.” Companies may be keen to avoid regulation or legislation with their newfound commitments, but only time will tell if that will become a reality. (3 comments)
Giving up control
Shares of Alibaba (BABA) are up 5% premarket after founder Jack Ma eliminated his effective majority control over sister company Ant Group. The affiliate’s effort to go public fell apart back in 2020 when Ma’s criticism of Chinese regulators got both companies in hot water, scuttling what would have been the world’s largest IPO. At the time, Ant was planning a dual listing on the Shanghai and Hong Kong stock exchanges that would have raised a record $34.5B (Alibaba owns 33% of Ant).
Backdrop: The 58-year-old Ma, whose estimated $34B fortune makes him one of China’s richest people, long served as a poster child for the Asian nation’s market economy. He co-founded Alibaba – essentially China’s version of Amazon (AMZN) – in his apartment in 1999 and grew it into one of the world’s largest companies. Alibaba’s mobile-payments platform Alipay is China’s answer to PayPal (PYPL), and it grew so big that Ma eventually set it and other Alibaba fintech units up as a separate company known as Ant Group.
Ma’s fortunes came crashing down days before the Ant IPO after he publicly criticized Communist China’s banking regulators during a speech. Regulators quickly canceled the Ant IPO’s Shanghai leg – reportedly on Chinese President Xi’s personal orders – and the company quickly nixed the Hong Kong IPO as well. China went on to implement a broader crackdown on tech companies, and ended up fining Alibaba a record $2.8B for alleged anti-competitive business practices.
On an upswing? Ma’s relinquishment of Ant Group control could now pave the way for regulators to lessen scrutiny of the company and other Chinese tech firms like Alibaba. It could also open the door for Ant to try to revive its IPO, which would presumably serve as a positive catalyst for BABA. Take a look at a new article from Seeking Alpha contributor Jonathan Weber, who looked at why Alibaba has already rallied more than 75% from its lows in just two months. (22 comments)
Banning noncompetes?
Arguing that the tactics are used to suppress wages and hamper innovation, the Federal Trade Commission last week proposed a rule that will ban employers from imposing noncompete clauses on their workers. The motion could increase wages by nearly $300B a year, according to the regulator, and expand career opportunities for about 30M Americans. It would also impact employers from various industries and job levels, including hairstylists and warehouse workers to doctors and business executives, who are currently using noncompete clauses.
Quote: “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy,” FTC Chair Lina Khan said in a statement. “Noncompetes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
Independent contractors and anyone who works for an employer, whether paid or unpaid, would be included under the proposed framework. It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect. The FTC is asking for public comment, which will be due 60 days after the agency publishes the proposed rule.
Go deeper: The FTC, under Khan’s leadership, has been more aggressive on the antitrust and pro-competition front, filing a lawsuit last month to block Microsoft’s (MSFT) $69B takeover of game maker Activision (ATVI). However, not everyone is happy with the latest proposal, with some calling it “blatantly unlawful.” “Attempting to ban noncompete clauses in all employment circumstances overturns well-established state laws which have long governed their use and ignores the fact that, when appropriately used, noncompete agreements are an important tool in fostering innovation and preserving competition,” the U.S. Chamber of Commerce said in a statement. (85 comments)
Today’s Economic Calendar
12:30 PM Investor Movement Index
12:30 PM Fed’s Bostic Speech
3:00 PM Consumer Credit
What else is happening…
Ship that went aground in the Suez Canal has been refloated.
CinCor (CINC) skyrockets as AstraZeneca (AZN) announces acquisition.
Cost review: Goldman Sachs (GS) to start cutting thousands of jobs.
Slackening labor market to serve as tailwind for restaurants.
WWE is looking to sell. Could Comcast (CMCSA) be the buyer?
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