Good morning. Happy Thursday.
The Asian/Pacific markets leaned down but were quiet. Japan and South Korea were weak. Europe, Africa and the Middle East currently lean up. The UK, South Africa, Switzerland, Hungary, Spain, Italy, Portugal and the Czech Republic are doing well. Futures in the States point towards a slight down open for the cash market.
————— Summary of March Trades —————
The dollar is up. Oil and copper are up small amounts. Gold is down; silver is flat. Bonds are flat.
Stories/News from Seeking Alpha…
Spotlight on jobs
Holiday reminder: Wall Street Breakfast won’t be published tomorrow with markets closed for Good Friday.
The U.S. labor market appears to be easing, according to latest jobs data, but investors are awaiting the payrolls report to be released tomorrow for further proof that the Federal Reserve could end its rate-hiking cycle. Jobless claims, expected later today, will also be closely watched. Note that Good Friday is not a federal holiday. The consensus estimate is for nonfarm payroll to increase 239K in March vs. +311K in February, with unemployment rate unchanged at 3.6%. The payrolls report will be the last one ahead of the Federal Reserve’s meeting in May. Fed funds futures show an ~59% chance of no hike and ~42% probability of a 25-basis point increase.
Backdrop: Markets are expecting further easing of the labor market after the latest ADP report showed a slower pace of hiring. “Employers are pulling back from a year of strong hiring and pay growth, after a three-month plateau, is inching down,” said ADP Chief Economist Nela Richardson. In addition, job openings declined more than expected in February’s JOLTS report to 9.931M, marking the first time the number dropped below 10M since May 2021. “This could be the first signs of weakness in the labor market and that is huge,” said Craig Erlam, senior market analyst, OANDA. “Without it, the Fed will find it very hard to make the argument that it is pausing the tightening cycle. Now it needs to be backed up and the jobs report on Friday could start that process.”
Expectations: Deutsche Bank economists expect March numbers to come in stronger than 250K, which would be the second-slowest pace of monthly job growth over the last two years. “Bear in mind however, that even though we’ve had some weak data on the employment side, the January ADP report came in beneath expectations, but nonfarm payrolls went on to surge by +517K on the initial estimate, so there’s still scope for a wide range of outcomes tomorrow,” said strategist Jim Reid.
SA commentary: Lawrence Fuller, leader of the investing group ‘The Portfolio Architect’, said the JOLTS data was exactly what the Fed wants to see. “I see it as reinforcing my outlook for a soft landing later this year, as well as allowing the Fed to end its rate-hike cycle with a terminal rate of 4.75%-5%,” he projected. SA contributor Damir Tokic expects a significant effect on markets if Friday’s jobs report confirms significant weakening. “However, the key indicator going forward will be weekly unemployment claims. Research shows that weekly claims strongly predict the monthly payroll report, especially in a weakening labor market.” (3 comments)
Securities portfolio sale
The Federal Deposit Insurance Agency hired BlackRock (BLK) unit Financial Market Advisory to sell the crippled securities portfolios of failed regional lenders Silicon Valley Bank (OTC:SIVBQ) and Signature Bank (OTC:SBNY). The face values of the portfolios – mostly comprised of agency mortgage-backed securities, collateralized mortgage obligations and commercial mortgage-backed securities – of SVB and Signature stood at $87B and $27B, respectively. First Citizens Bank (FCNCA) is buying Silicon Valley Bank’s deposits and loans at a sizeable discount, while New York Community Bancorp.’s (NYCB) Flagstar Bank is buying Signature’s deposits and some of its loans. The acquirers had rejected the lenders’ securities portfolios as they would have had to realize losses due to elevated rates. (10 comments)
Inflation to normalize
Walmart (WMT) expects inflation to be “more normalized” in 2024 and inventory to fall back toward historical norms as well, it said at its investment community meeting yesterday. The retailing giant’s CFO John David Rainey said supply chains improved considerably, along with inventory levels. Bloated inventory levels had been a persistent problem for major retailers for much of 2022. Rainey expects inflation to remain stubbornly high in 2023 before normalizing into 2024. SA contributor Geoffrey Seiler said Walmart is a solid defensive stock in the event of a recession. “As a low-cost leader, it should regain market share with any economic softness. It is also riding the wave of inflation to generate higher profits.” He said the retailer’s guidance is “pretty cautious” and it should be able to top it in 2023. (13 comments)
Google Chat AI
Sundar Pichai, CEO of Alphabet (GOOG) (GOOGL) announced plans to integrate conversational artificial intelligence features to the company’s flagship search engine following the breakthrough success of Microsoft’s (MSFT) ChatGPT. Such advances in AI could help Google answer queries faster. Even though Pichai declined to comment on the product’s availability without a wait list, he made it apparent that Google would keep improving its Bard chatbot and is also focused on adding AI features that will enhance work-related products such as Gmail. SA contributor Growth at a Good Price believes Bard is no failure. “Rather, it’s an approach to chatbot development that is suitable for Google. Cautious, methodical and prudent, it helps test the waters with mass LLM deployment without risking its juicy search margins.” (1 comment)
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
10:00 Fed’s Bullard Speech
10:30 EIA Natural Gas Inventory
1:00 PM Baker-Hughes Rig Count
4:30 PM Fed Balance Sheet
What else is happening…
Tesla (TSLA) nearly triples total workforce at Austin gigafactory.
Amazon (AMZN) eyes reduced stock awards for employees in coming years.
Costco (COST) comparable sales slow in March, stock falls 3% after hours.
Disney (DIS) changes streaming heads; Perlmutter speaks out on firing.
GSK (GSK) ordered to pay more royalties to AstraZeneca (AZN) on Zejula sales.
AbbVie (ABBV) 2023 earnings guidance range below consensus.
Shell (SHEL) updates expectations for Q1 production, earnings.
Samsung (OTCPK:SSNLF), AMD (AMD) renew GPU architecture pact.
Nvidia (NVDA) slips as Google (GOOG) touts prowess of own custom chips.
AMC (AMC) up, APEs (APE) stumble as court rules against conversion settlement.
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Good morning. Happy Wednesday.
The Asian/Pacific markets were mixed. South Korea and India were up; Japan and Thailand were down. Europe, Africa and the Middle East are currently mostly down. Hungary is doing well, but Poland, Germany, Finland, the Netherlands, Italy, Austria and Sweden are down. Futures in the States point towards a down open for the cash market.
————— Summary of March Trades —————
The dollar is down slightly. Oil and copper are down. Gold is up; silver is down. Bonds are up.
Stories/News from Seeking Alpha…
Legal shield
Johnson & Johnson (JNJ) unit LTL Management, which was created to file for bankruptcy as a way to handle lawsuits related to its talc baby powder, refiled for Chapter 11 bankruptcy protection after its first attempt was thwarted. LTL also offered to pay $8.9B over 25 years to resolve all current and future talc claims, higher than the $2B offer in its first bankruptcy filing in 2021. J&J, which has support from over 60K claimants for the latest offer, clarified that the second bankruptcy filing is not an admission of guilt and it stands behind the safety of its talc products. “Resolving this matter through the proposed reorganization plan allows claimants to be compensated in a timely manner,” said J&J Worldwide Vice President of Litigation Erik Haas.
Background: J&J is facing multiple lawsuits over allegations that its baby powder products contain asbestos, which is known to cause various cancers. The company has maintained that its products are safe and has denied wrongdoing. However, to shield itself from mounting lawsuits, J&J created LTL exclusively to declare bankruptcy as a way to resolve the litigation. Note that J&J will discontinue talc-based baby powder products globally this year, and switch to an all cornstarch-based baby powder portfolio.
SA commentary: Mark Roussin, investing group leader of ‘iREIT on Alpha’, believes the lawsuits have added opportunity for long-term investors. “The lawsuits could cost J&J billions, but it is a money printing machine with strong cash flows, making any large settlement something the company can handle,” he said. However, SA contributor Hunting Alpha thinks the talc liabilities – which could be as large as three years of free cash flow – is a major overhang on the stock.(23 comments)
Rates to top 5%
Cleveland Federal Reserve Bank President Loretta Mester is sticking with expectations of rates topping 5% to curb inflation, even after recent banking instability. “In my modal projection, to put inflation on a sustained downward projection to 2% and to keep inflation expectations anchored, monetary policy moves somewhat further into restrictive territory this year with the fed funds rate moving above 5% and the real fed funds rate staying in positive territory for some time,” she said. “Precisely how much higher the federal funds rate will need to go from here and for how long policy will need to remain restrictive will depend on how much inflation and inflation expectations are moving down.” Rida Morwa, investing group leader of ‘High Dividend Opportunities’, is of the view that a soft landing is still possible as recent data does not suggest the need for an enormous amount of additional tightening.(10 comments)
Cloud duopoly
The U.K.’s communications regulator recommended an in-depth probe into the country’s cloud market, as hyperscalers Amazon (AMZN) and Microsoft (MSFT) have cornered the lion’s share of the market, thereby limiting competition. “High levels of profitability for AWS, and substantial consistent growth in Microsoft’s profits, indicate there are limits to overall competition,” said the Office of Communications. “We’re concerned that constraints on customers’ ability to use more than one provider could make it harder for smaller cloud providers to win business.” It cited egress fees, restrictions on interoperability and committed spend discounts as barriers to competition. Ofcom called on the Competition and Markets Authority to investigate the nature and extent of these barriers. Meanwhile, SA contributor Junius believes Microsoft is the better cloud play compared to Amazon, given wide margins and resilient enterprise demand. (8 comments)
BofA’s top 10 stocks
Netflix (NFLX) has outperformed the broader market handily this year, up more than 17%. But bulls can remain confident as its password crackdown leads to more signups, according to Bank of America. Netflix is among the top 10 best ideas BofA’s Alpha Generation Research team has identified for Q2, its list features eight Buys and two Underperforms. Tom Lloyd, leader of the ‘Daily Index Beaters’ investing group, said Netflix’s strong bounce off a deeply oversold bottom has stalled. (2 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 Goods and Services Trade
9:45 PMI Composite Final
10:00 ISM Service Index
10:30 EIA Petroleum Inventories
What else is happening…
Bank of England clears UBS’ (UBS) $3.25B takeover of Credit Suisse (CS) in the U.K.
JPMorgan (JPM) CEO Dimon says repercussions from bank failures will last for years.
SEC charges founder of Frank for misleading JPMorgan (JPM) in takeover deal.
C3.ai (AI) shares drop after short seller warns auditor on alleged accounting issues.
California grid needs $9.3B in upgrades to support shift to renewable energy.
Exxon Mobil (XOM) expects lower Q1 profit as oil and gas prices cooled off.
FedEx (FDX) set to outline plans for billions of dollars in cost-savings today.
U.K. privacy regulator fines TikTok $16M for failing to protect children’s data.
SPAC Digital World (DWAC) drops after Trump’s arraignment, delayed 10-K filing.
Pfizer (PFE), BioNTech (BNTX) sued by Arbutus over COVID-19 vaccine patents.
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Good morning. Happy Tuesday.
The Asian/Pacific markets leaned to the upside. New Zealand and Singapore posted the biggest gains; Hong Kong and the Philippines were weak. Europe, Africa and the Middle East are currently doing great. Denmark, Poland, France, Turkey, Germany, Greece, Russia, South Africa, Finland, Hungary, Spain, the Netherlands, Sweden, Saudi Arabia and the Czech Republic are doing leading. Futures in the States point towards a positive open for the cash market.
————— Chart With Traders Podcast —————
The dollar is flat. Oil is up; copper is down. Gold is flat; silver is up. Bonds are down.
Stories/News from Seeking Alpha…
The doves fly
Are central bank rate hikes coming to an end? It sure is Down Under – at least for now. The Reserve Bank of Australia is pausing its aggressive tightening cycle, holding rates on Tuesday for the first time in almost a year. Policymakers kept the official cash rate at 3.60%, taking a key timeout to size up the latest market happenings and economic developments.
More ammo if required: “The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty,” explained Philip Lowe, Australia’s central bank governor. “Some further tightening of monetary policy may well be needed.”
While keeping the door open for a return to rate hikes, growth and stability concerns might soon overtake inflation threats in terms of central banks’ top priorities. Other global banks have also been tightening at a rapid pace, with the Federal Reserve hiking interest rates by 475 basis points in nine successive meetings. In a new Seeking Alpha article, contributor Trading Ahead highlights What The Fed Really Wants, citing a “window of opportunity this year to cure the macroeconomic problem before it gets worse.”
Go deeper: The financial turmoil erupting from the collapse of Silicon Valley Bank (OTC:SIVBQ), Credit Suisse (CS) and others hasn’t helped the situation, as central banks attempt to engineer a soft landing to avoid a recession. Events in the banking system might also “contribute to significant tightening in credit conditions over time, and in principle, that means that monetary policy may have less work to do,” Jerome Powell noted at the last FOMC meeting, possibly foreshadowing a coming decision. Whether the Fed ends up pulling the trigger on another 25 bps rate hike in May remains to be seen, but according to the CME’s FedWatch Tool, those chances have been split down the middle for much of the past week. (3 comments)
The response
Comments from U.S. administration officials are pouring in following the surprise production cut from OPEC+. WTI crude oil futures (CL1:COM) held on to their gains overnight, climbing 1% to $81.24/bbl. It follows a nearly 5% gain on Monday, and while twelve of the top 15 S&P 500 gainers were seen in the oil and gas sector, not every analyst is seeing $100 oil as imminent. “It’s not going to be as bad as you think,” President Biden said before boarding Air Force One on a trip back to Washington, but check out the other remarks from Treasury Secretary Janet Yellen and National Security Council spokesman John Kirby. (51 comments)
Filing for bankruptcy
Aftershocks from SPAC craze that enveloped Wall Street in 2021 are continuing to be felt in the current market environment, with many investors steering clear of loss-making companies. The latest casualty is Virgin Orbit (VORB), which failed to secure more cash months after a historic mission from British soil ended in failure. Without another funding lifeline, Virgin Orbit filed for bankruptcy late Monday after laying off approximately 85% of its staff on March 30. The firm, which hasn’t turned a profit as a public company, is down 25% premarket to $0.15/share, and said it would continue a sale process. (7 comments)
Worse than ’09?
Bank of America’s Sell Side Indicator, which measures equity allocation recommendations, is below its lows during the Financial Crisis. But as a contrarian indicator, that could be good news for bulls. For those looking for underappreciated stocks, this Raymond James thematic stock pick list has outperformed its benchmark by 30 percentage points since its inception. (51 comments)
Today’s Economic Calendar
10:00 Factory Orders
10:00 Job Openings and Labor Turnover Survey
6:45 PM Fed’s Mester Speech
What else is happening…
Survey results: WSB community is bullish on the energy sector.
Disney’s (DIS) Iger slams DeSantis moves as ‘anti-business, anti-Florida.’
Paris votes to ban e-scooters, possibly setting precedent.
AMC slides, APE rises on filed settlement of stock conversion lawsuit.
Dogecoin (DOGE-USD) spikes after Twitter home button replaced with token’s symbol.
Illumina (ILMN) prepared to divest GRAIL if FTC appeal fails.
FDA poised to authorize second Omicron COVID boosters for some.
Monster Beverage (MNST) expected to make a play for Bang energy drink.
Brookfield (BAM) to sell stake in one of world’s largest wind farms.
DWAC on watch as Trump faces historic criminal charges in New York.
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Good morning. Happy Monday. Hope you had a good weekend.
The Asian/Pacific markets leaned to the upside. Japan, China, Australia, Malaysia and Singapore did well; Thailand was weak. Europe, Africa and the Middle East currently lean to the upside. Poland, the UAE, Greece, South Africa, Norway, Hungary and Saudi Arabia are leading; Denmark, Turkey, Spain and Israel are weak. Futures in the States point towards a down open for the cash market.
————— Chart With Traders Podcast —————
The dollar is down a small amount. Oil is up big; copper is down. Gold and silver are up. Bonds are down.
Stories/News from Seeking Alpha…
Surprise!
Crude is back in the news following a shock oil output cut from major producers in the OPEC+ group. WTI crude futures (CL1:COM) surged past $81 a barrel at the open to its highest price since late January, with the May contract rallying as much as 8%, while June Brent crude (CO1:COM) opened at its best level in nearly a month, advancing by the same percentage to over $86/bbl. The decision comes as the U.S. is still entangled in an environment of high inflation, and has the potential to upend economic policies, as well as monetary decision-making like upcoming Fed rate hikes.
Bigger picture: The output reduction will be led by OPEC kingpin Saudi Arabia, with total production cuts totaling nearly 1.2M bbl/day – that will start in May and last until the end of 2023. Russia’s recent production cuts of 500K barrels per day were also extended, and add to the 2M bpd that were taken offline by OPEC+ in October. Together, the rounds of cuts mean that about 3% of the world’s oil has been removed from the market in the past half a year, helping sustain prices following U.S. actions against Russian crude like sanctions and a price cap.
Goldman Sachs changed its oil production and price forecasts on the latest announcement, which comes before the busy summer travel season. “Winners from the OPEC+ cuts include Saudi Arabia, Warren Buffett and EV manufacturers, while losers include airlines and hopes for an economic soft landing,” Logan Kane writes in a new analysis published on Seeking Alpha. It also comes amid an “ongoing chess match between the Biden administration and the Kingdom of Saudi Arabia,” with reports suggesting that Washington angered Riyadh by declining to refill the Strategic Petroleum Reserve when crude oil prices were low, so the Kingdom “decided to get some payback.” See Saudis say depleting oil reserves could ‘become painful in the months to come’
Go deeper: Following some rushed diplomacy ahead of his trip to the Middle East last summer, President Biden finally met with Saudi Crown Prince Mohammed bin Salman after previously pledging to make a “pariah” out of the Kingdom over the killing of U.S.-based columnist Jamal Khashoggi. There was an apparent understanding that the summit and a notable fist bump would lead to additional Saudi crude production, but things continue to be going the opposite way despite reported assurances. Riyadh first scrapped a paltry bump to OPEC+ production of 100K bpd on Sept. 5, while a month later deepened its cuts by a whopping 2M barrels per day, and will now take another 1.2M barrels offline. The Saudis have painted the move as a “precautionary measure aimed at supporting the stability of the oil market,” while the U.S. doesn’t think cuts are “advisable at this moment given market uncertainty – and we’ve made that clear.” Check out Saudi Aramco racks up record $161B profit for 2022 (225 comments)
Octagon meets the ring
World Wrestling Entertainment (WWE) is reportedly closing in on a deal to be sold to talent-agency company Endeavor Group Holdings (EDR), already the parent of mixed martial arts league Ultimate Fighting Championship. The sale could be announced as soon as today and would result in a new publicly traded company focused on combat sports and entertainment. The proposed transaction would reportedly assign WWE an enterprise value of $9.3B and would mean the end of Vince McMahon’s control of WWE after several decades. Recent weeks have brought increasing sale speculation and CEO Nick Khan said last week the company had seen “robust” interest. (10 comments)
TSLA
Analysts are still arguing over whether Tesla (TSLA) beat or missed delivery expectations for Q1, but the EV maker delivered a record 422,875 vehicles (here’s a quarterly tally by model). “We continued to transition towards a more even regional mix of vehicle builds, including Model S/X vehicles in transit to EMEA and APAC,” noted the company on the production strategy. While Tesla has been charging forward with EVs, Wood Mackenzie says its Solar Roof technology has fallen far short of installation targets, and the latest developments are sure to add more fuel to the constant Tesla debate. Read why Seeking Alpha contributor Robert Honeywill is bullish and why Anna Sokolidou is bearish on the stock. (316 comments)
More layoffs?
McDonald’s (MCD) has reportedly told corporate employees that its U.S. offices will remain closed early this week so the company can announce layoffs as part of a broad restructuring. The fast-food chain beat analyst estimates for Q4 earnings and revenues in January, but spooked the market after management warned that higher input costs meant 2023 operating margins could fall below what were then analysts’ consensus estimates. At the time, McDonald’s also said it would review corporate staffing levels as part of its business strategy. Is the company recession-proof? SA contributor Ironside Research sizes up Mickey D’s current valuation and operating performance. (34 comments)
Today’s Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
12:30 PM Investor Movement Index
What else is happening…
Goldman Sachs leans to growth picks in either recession scenario.
Twitter pulls check mark from main New York Times (NYT) account.
Medicaid insurers underperform as COVID protections lapse for millions.
Lions Gate (LGF.A) files draft registration for Starz spinoff.
First Republic (FRC) is the latest example of corporate confusion.
Bank tumult likely to result in tighter credit – NY Fed’s Williams.
Paramount (PARA) makes splash, breaks into streaming ratings with 1923.
Economic data from China: Factory growth shifts into neutral.
Macau casino gaming revenue hits a post-pandemic high.
Seagen (SGEN)-Pfizer (PFE) deal spread becoming increasingly attractive.
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