Good morning. Happy Friday.
The Asian/Pacific markets posted big gains. Japan, China, Hong Kong, South Korea, Taiwan and the Philippines each moved up more than 1%. Europe, Africa and the Middle East are currently up big. They UK, Poland, France, Turkey, Germany, South Africa, Finland, Norway, Hungary, Spain, the Netherlands, Italy, Austria, Sweden and the Czech Republic are leading. Futures in the States point towards a big gap up open for the small and mid caps and a moderate positive open for everything else.
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The dollar is down slightly. Oil and copper are up. Gold and silver are down. Bonds are up.
Stories/News from Seeking Alpha…
Jobs Day
The strength of the labor market has, for the most part, been surprising to the upside since the economy rebounded from the pandemic shock in March-April 2020. While that may be good news for workers, it’s not what the Federal Reserve wants. Chair Jerome Powell has emphasized that the labor market remains unsustainably tight, and supply and demand need to get into better balance for inflation to retreat toward the Fed’s 2% goal.
Bigger picture: Some recent data has pointed to a continued robust labor market. Wednesday’s Job Openings and Labor Turnover Report showed an unexpectedly large increase in job openings, and Thursday’s ADP Jobs Report also came in stronger than anticipated. For today’s figures, the economist consensus expects 180K more jobs were added to the U.S. economy in May, which is still strong but a slower pace of growth, down from the 253K added in April. Meanwhile, the unemployment rate is expected to tick up to 3.5% from 3.4% in April, while average hourly earnings are forecast to grow 0.3% M/M.
Even if today’s jobs figure show stronger than expected gains, which has happened nearly every month over the past year, it may not matter – unless the number really blows it out of the water. As mentioned previously on WSB, Fed officials like Patrick Harker and Philip Jefferson are calling for a pause to the rate hiking cycle this month, before making further decisions about the “extent of additional policy firming.” Odds of pause have also rocketed higher on CME’s FedWatch Tool, climbing to nearly 80% yesterday, from only 35% a week ago.
Commentary: While the labor market has remained surprisingly tight since the Fed started raising rates, SA analyst Damir Tokic takes an opposing view, expecting that it will start to turn negative soon. Temporary help service jobs have been falling since December 2022, currently declining at 3%-4% per month, signaling that “it is very likely that we are in a recession, or near one,” he said. “The discretionary sector is likely to sell off as the overly optimistic earnings expectations get revised lower.” (6 comments)
Averting default
Late last night, the U.S. Senate passed a debt ceiling package by a vote of 63-36, sending the legislation to the president’s desk in time to stave off a catastrophic default. The bill suspends the debt limit until Jan. 1, 2025, in exchange for some measures that cap non-defense discretionary spending, stiffen work requirements for some recipients of food assistance, and allow the Mountain Valley natural gas pipeline. “No one gets everything they want in a negotiation, but make no mistake: this bipartisan agreement is a big win for our economy and the American people,” President Biden said via tweet. “Our work is far from finished, but I look forward to signing this bill into law as soon as possible and addressing the American people directly tomorrow.” (70 comments)
Groundwater disappears
In what might be a harbinger for the housing boom in the American West, Arizona is limiting approvals for new developments within the Phoenix area. A study found that around 4% of the area’s demand for groundwater, close to 4.9M acre-feet, cannot be met over the next century, threatening to dampen the explosive development that has made the city one of the fastest-growing metropolitan regions in the country. Besides the groundwater crisis, Arizona has also faced significant shortages of its surface water allocation, with a recent deal cutting usage from the drought-stricken Colorado River. Investing Group Leader Ian Bezek covers the situation in Global Water Resources: Why I’m Not Worried About The Phoenix Housing Downturn. The article on GWRS is from a year ago, but SA users are still discussing it in the comments section.
Reality check
Taking aim at Apple (AAPL) before next week’s expected unveiling of a mixed reality headset, Meta Platforms (META) had its own product announcement to make ahead of WWDC 2023. The company’s Meta Quest 3 offers a slimmer form factor, but also higher resolution, stronger performance and “breakthrough Meta Reality technology.” The 128GB headset will start at $499.99, with an additional storage version also available for purchase. That’s a big price differential from Apple’s headset, which is expected to come in at around $3,000, and be initially aimed at software developers and enthusiasts versus regular consumers. (28 comments)
Today’s Economic Calendar
Auto Sales
8:30 Non-farm payrolls
1:00 PM Baker Hughes Rig Count
What else is happening…
Before OPEC meeting: Oil data continues to fly in the face of skeptics.
Exxon (XOM) eyes new fracking tech to double oil pumped from shale.
Again! Boeing (BA) further delays crewed launch of Starliner spacecraft.
Google (GOOGL) said to be investing in text-to-video AI name Runway.
Uranium rally: Senate committee fast-tracks advanced nuclear reactors.
Dollar General (DG) slammed following disappointing sales outlook.
Macy’s (M) tumbles after guidance, before turning higher on upgrade.
Some Apple (AAPL) Savings account customers hit snags on withdrawals.
Semiconductor watch: Broadcom (AVGO) reports Q2 results and guidance.
Judge in Disney’s (DIS) free speech case steps aside, slams DeSantis.
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Good morning. Happy Thursday.
The Asian/Pacific markets closed mixed. Japan, China and New Zealand did well; Hong Kong, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently mostly up. Poland, Turkey, Germany, South African, Norway, Spain, Italy and Portugal are leading. Futures in the States point towards a positive open for the cash market.
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The dollar is down. Oil and copper are up. Gold is flat; silver is up slightly. Bonds are up.
Stories/News from Seeking Alpha…
Deep learning
What goes up must come down… unless you have diamond hands. Some cracks are beginning to appear in the recent AI stock rally, with C3.ai (AI) plunging 22% AH on Wednesday after giving a disappointing outlook during its FQ4 results. On an earnings call, CEO Tom Siebel added that the company wasn’t “inclined to change expectations” surrounding its guidance, compared to the major boost that Nvidia’s (NVDA) stock received following its “jaw-dropping guidance” posted last week.
Snapshot: Other AI players and chipmakers also pulled back yesterday following some impressive runups, but the latest movement might suggest that all companies are not equal when it comes to the “AI supercycle.” Investors will have some deep learning to do after being consumed by everything AI this year, especially as they sort through the growing list of companies talking up how they’ve been AI plays all along. The real thing to consider is how much a firm will successfully capitalize and monetize its artificial intelligence offerings after the meme rallies settle down and huge price swings come to a halt.
“The euphoria is rooted in a very promising underlying technology,” noted Robert Schein of Blanke Schein Wealth Management. “Even with the recent market euphoria driven by artificial intelligence, the market is sending a clear signal that artificial intelligence is here to stay, as this technology has the potential to overhaul how companies do business, which has major implications for corporate earnings.”
Do your homework: As an example, the overwhelming majority of Wall Street experts believe that Nvidia (NVDA) remains a clear Buy. Seeking Alpha’s Quant Ratings system views NVDA with a little more skepticism, labeling the stock as a Hold (valuation represents the key headwind, according to the system of grading quantitative measures). SA analysts have also been sizing up the stock in a series of recent articles. See 11 Billion Reasons To Buy Nvidia, And 2.2 Trillion Reasons To Sell, Bulls Are Way Overestimating AI GPU Demand and Unleashing The Power Of Parallel Computing For AI Dominance.
Fiscal Responsibility Act
The U.S. House last night easily passed the debt-ceiling relief deal as the Treasury heads toward a June 5 deadline, after which the government won’t have ready funding to pay its bills. The measure now goes to a Senate also working under a tight timetable and preparing for weekend votes. A number of senators have already expressed the wish to amend the bill, meaning it could return to the House for more approval, but the process is expected to get over the finish line in time. With much of the drama in the rear-view mirror, investors have once again set their sights on central bank policymaking, with Fed officials like Patrick Harker and Philip Jefferson calling for a pause this month and assessing the need for future rate hikes thereafter. (104 comments)
Publisher compensation
Meta Platforms (NASDAQ:META) is threatening to pull news links from Facebook and Instagram in California if state lawmakers move forward with the “California Journalism Preservation Act.” The company responded in a similar fashion after a related proposal was tabled in Congress in December, as well as in Canada, and briefly blocked news links in Australia before brokering a deal with the government there. Among the amendments was a clause stipulating that digital platforms and news groups would be required to mediate for two months before subjecting them to mandatory arbitration. Canberra also agreed to take into account existing commercial agreements and give digital platforms a month’s notice before reaching any final decision on the law’s application. Will the same happen again? (4 comments)
Doom and gloom update
While attention has been centered on the remote, but disastrous possibility, of the U.S. defaulting on its debt, investors may want to focus more on corporate bonds. Preparation is underway for a wave of defaults in the high-yield credit markets as the boom-and-bust cycle returns in 2023. Deutsche Bank issued its 25th annual Default Report and sees the default rate on U.S. junk debt spiking to a peak of 9% of issuance by the end of 2024 vs. 1.3% in 2022. See how that compares to other cycle highs like the dot-com crash and the Great Financial Crisis. (47 comments)
Today’s Economic Calendar
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
1:00 PM Fed’s Harker Speech
4:30 PM Fed Balance Sheet
What else is happening…
Has ‘greedflation’ caused corporate profits to increase?
Job openings unexpectedly rise in April, quits rate ticks down
Exxon (XOM), Chevron (CVX) shareholders reject climate proposals.
U.S. crude oil slumps to 10-week low, down 11% for May.
Pfizer’s (PFE) RSV vaccine, Abrysvo, gets a nod from the FDA.
Retail watch: Nordstrom (JWN) gains on unexpected Q1 profit.
Salesforces (CRM) sinks after earnings; so does CrowdStrike (CRWD).
Amazon (AMZN) settles kids’ privacy case and Ring spy claims.
Lucid (LCID) to receive $3B from new investors, including Saudi Arabia.
Ford (F) CEO says EV price parity is unlikely until after 2030.
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Good morning. Happy Wednesday.
The Asian/Pacific markets posted big losses. Japan, China, Hong Kong, South Korea, Australia, New Zealand and Singapore were all down big. Europe, Africa and the Middle East are currently mostly down. Poland, France, Germany, Finland, Norway, Italy, Portugal and Saudi Arabia are down the most. Futures in the States point towards a moderate gap down for the cash market.
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The dollar is down. Oil and copper are down. Gold and silver are up. Bonds are up.
Stories/News from Seeking Alpha…
Common prosperity?
As the world’s two largest economies move increasingly farther apart, companies that fear of getting hurt by the fallout are making moves. Some are diversifying or relocating their business operations to friendlier regions, while others are doubling down on their lobbying efforts to make sure they are not harmed. Tesla (NASDAQ:TSLA) is just one of the firms navigating the tricky waters, and the latest has even prompted Elon Musk’s first visit to the country since a launch ceremony at Giga Shanghai in January 2020 (remember the dance moves?)
Thought bubble: China represents Tesla’s largest market outside the U.S. (22% of its revenue) and is critical in terms of the EV maker’s supply chain (accounting for more than half of its global output). Things like export controls, data security, and restrictions on sensitive technologies can also impact the company’s bottom line and future market share. Teslas were previously banned from Chinese military complexes and housing compounds in early 2021 (and that was expanded in 2022), while a lot of assurances will have to be made with regard to the driving information that’s collected by cameras built into its vehicles.
“The interests of the United States and China are intertwined, like conjoined twins, who are inseparable from each other,” Musk was quoted as saying to Foreign Minister Qin Gang. He also met with China’s commerce and industry ministers, and dined with Zeng Yuqun, chairman of top battery supplier CATL. TSLA shares rallied over 4% on Tuesday after Musk touched down in Beijing, pushing the stock over $200 for the first time since March, but Tesla still faces stiff competition from Chinese rivals like BYD (OTCPK:BYDDY), as well as soaring rates on auto loans and an EV price war, notes SA analyst Wright’s Research in Tesla: Prepare For A Macroeconomic Storm.
Under pressure elsewhere: Tesla’s strategy in China is critical for its success in the near term, but Musk has a lot on his plate between his work at SpaceX and recently acquired Twitter. In fact, Fidelity Investments – which helped to finance his $44B takeover of the social media platform – said Twitter is now worth just one-third of what Musk paid for it after marking down the value of its equity stake. France has also threatened to ban Twitter across the EU if it doesn’t follow the incoming European Digital Services Act, which goes into effect at the end of August. (12 comments)
Business ties
Joining the business executive tour in China, JPMorgan (NYSE:JPM) CEO Jamie Dimon had his own comments to say about his relationship with the country, as well as company policy going forward. “We tend not to leave unless there is war or a civil war, and we’re not predicting any of that here. There’s always going to be risk,” he told Bloomberg at the bank’s annual Global China Summit in Shanghai. “Obviously, it’s been a far more complex situation and national security will trump all other issues. Over time, there’ll be less trade [in China, but] it’ll take years for this thing to take place. This is not de-coupling, this is de-risking. The world’s changed a little bit.”
To the House!
Treasury yields continue to fall as a debt ceiling deal continues to advance on Capitol Hill. With a default nearly off the cards, the yield on the 10-year (US10Y) dropped 13 basis points on Tuesday to end the session at 3.69%, and slipped another 4 bps overnight to 3.65%. Legislation to lift the current $31.4T debt limit into 2025 and cap federal spending cleared the House Rules Committee last night by a 7-6 margin, sending it to the full House for debate and an expected vote on passage on Wednesday. “We are going to make sure that the votes are there, joining with our Republican colleagues, to get this bill over the finish line,” House Minority Leader Hakeem Jeffries declared. “It will also avoid the country being in this hostage-taking situation for the rest of this Congress.” (12 comments)
Danger or hype?
“Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.” The sentence was featured in a new letter published by the Center for AI Safety, which was signed by OpenAI CEO Sam Altman, as well as executives from Microsoft (NASDAQ:MSFT), Google (GOOG, GOOGL) and several other companies and universities. OpenAI has received billions in funding from Microsoft, which has integrated the popular ChatGPT into many of its products and services. Earlier this month, a poll conducted by Reuters/Ipsos found that nearly two-thirds of Americans think AI poses a risk to humanity. In March, Elon Musk and Steve Wozniak also wrote a letter that called for a six-month pause in the development of many AI tools to develop new safety standards for the technology. (85 comments)
Today’s Economic Calendar
7:00 MBA Mortgage Applications
9:45 Chicago PMI
10:00 Job Openings and Labor Turnover Survey
10:00 State Street Investor Confidence Index
1:30 PM Fed’s Harker Speech
2:00 PM Fed’s Beige Book
3:00 PM Farm Prices
What else is happening…
Nvidia (NVDA) reaches $1T milestone, but pares gains shortly thereafter.
Meet the healthcare spinoff set to join the Nasdaq-100 Index (NDX).
Berkshire (BRK.B) raises stake in Occidental Petroleum (OXY) to ~25%.
Fresh tensions: Spy satellite launch by North Korea ends in failure.
Rates have entered ‘restrictive territory’ – Richmond Fed’s Tom Barkin.
Icahn Enterprises (IEP) looked at asset swaps, fundraising before short call.
Glencore (OTCPK:GLNCY) preparing next bid for Teck Resources (TECK).
New supply… Chile sees lithium swinging into surplus by 2025.
U.S. crude slides below $70; natural gas plunges on record output.
Goldman Sachs (GS) poised to trim more staff amid deal-making drought.
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Good morning. Happy Tuesday.
The Asian/Pacific markets leaned to the downside. South Korea did well, but New Zealand, Malaysia, Indonesia, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently mixed. Turkey, the UAE, South Africa and Italy are up; the UK, Denmark, Poland, Greece, Switzerland, Portugal and the Czech Republic are down. Futures in the States point towards a moderate gap up only for the S&P 500 and a huge gap up for the Nasdaq.
The dollar is down. Oil and copper are down. Gold is up; silver is down. Bonds are up.
Stories/News from Seeking Alpha…
Finish line in sight
Investors are bracing for a week of political wrangling in Washington after President Biden and House Speaker Kevin McCarthy inked a deal on the debt limit. Both sides now have to muster enough votes to win Congressional approval, despite some opposition from the likes of the Republican Freedom Caucus and progressives in the Democratic Party. While enough bipartisan support is expected to be eventually garnered, the measure could still run into some procedural obstacles, as the clock ticks down to avoid a catastrophic default by June 5.
Legislative text: The agreement lifts the current $31.4T deal ceiling into 2025, meaning the limit on government borrowing would be extended until after the next presidential election. Non-defense spending will be capped at current levels for the next fiscal year, and only rise by 1% in 2025. Congress would also need to approve 12 annual spending bills or risk facing a snapback to spending limits from the previous year.
Other changes that were central to the compromise included limiting some food stamp provisions to encourage recipients to find jobs. The agreement also halts some funds to hire new IRS agents, claws back billions of dollars in unspent COVID relief, and would speed up big energy projects through permitting reform. In addition, a pause on student-loan repayments will come to an end in August, though Biden’s student loan forgiveness plan will end up being decided by the Supreme Court.
Go deeper: U.S. stock index futures advanced following the release of the bill, with SA Investing Group Leader ANG Traders forecasting new market highs, though Mott Capital Management sees the potential for a deal draining a massive amount of liquidity from the market. The measure will be taken up this afternoon by the House Rules Committee, which will determine the framework for considering the legislation before a vote takes place in the House on Wednesday. If approved, a decision in the Senate would follow, and could happen by the weekend. (17 comments)
$1T market cap club
Building on a meteoric rally, shares of Nvidia (NASDAQ:NVDA) are up another 3.5% in premarket trade, putting the stock over $400 to start the week. It also puts the company above a $1T valuation if the gains will hold, as the stock market darling rides a wave of investor exuberance surrounding artificial intelligence. The chipmaker has responded in kind by refreshing its PR feed, publishing seven separate press releases over the last 24 hours. Among them were a slew of products and services tied to artificial intelligence, like an AI supercomputer platform called DGX GH200, that’s expected to be used by initial customers like Google (GOOGL), Meta (META) and Microsoft (MSFT). Will the rally go on? SA analysts like Vlad Deshkovich and JR Research hash it out in two new articles Long-Term Growth Gets Priced In and Don’t Wait Till Everyone Starts Selling. (12 comments)
Under strain
Tensions are reportedly rising between the world’s biggest oil producers, as Russia continues to pump huge volumes of cheaper crude oil into the market and undermine Saudi efforts to boost prices. Last week, the Kingdom’s energy minister issued a warning to oil speculators, signaling to the market that a further production cut was possible, but Moscow’s deputy prime minister soon contradicted him by expressing doubts about further reductions. Remember that the two OPEC+ heavyweights entered an oil price war in 2020 over proposed crude production cuts, which sent prices crashing. However, don’t count out a resolution, with the ties and relationship able to survive difficult dynamics like Russia’s invasion of Ukraine. (161 comments)
Got a light?
Meet the newest candidate looking to identify as an ESG stock: Philip Morris (NYSE:PM). CEO Jacek Olczak believes that efforts – like pushing away from cigarettes towards devices like its IQOS heated tobacco stick – could set up the tobacco group for inclusion in one of the fastest-growing segments of the investment management industry. In fact, vapor-based nicotine alternatives accounted for about a third of Philip Morris’ revenues in 2022, though others see an ESG classification as an inherent contradiction. Compounding the problem is that there’s no standard framework that defines “environmental, social and governance,” despite developments in areas like Europe, where many asset managers and pension funds have sold off tobacco stocks in response to ESG mandates. (7 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
10:30 Dallas Fed Manufacturing Survey
1:00 PM Fed’s Barkin Speech
What else is happening…
Debt ceiling deal would speed up Mountain Valley Pipeline (ETRN).
REITs continue downward trajectory even as other major indices gain.
Paramount (PARA): Potential merger arbitrage with downside protection.
Concerns over COVID lockdowns in China may be overstated.
Why 2023 is turning into the year of the healthcare spinoff.
Drug pricing watchdog raises alarm over upcoming liver disease meds.
Next set of COVID boosters to target new Omicron variants.
Disgraced Theranos founder Elizabeth Holmes reports to prison.
ZIM (ZIM): A buy-high-sell-low investment strategy isn’t viable.
Rolls-Royce (OTCPK:RYCEY) eyes cutting thousands of jobs in turnaround.
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