Morning Reads
- ‘Perfect Storm’: Davos Update
- Export Curbs Spread Globally, Adding to Food-Inflation Pressures
- Russia to Service Dollar Debt in Rubles After US Closes Loophole
- Russia Will Start a Pilot Project for ‘Digital’ Rouble from April
- One Man Helped Credit Suisse Make Billions From Russia Tycoons
- Germany Plans to Keep Coal-Fired Plants Ready In Case Russian Gas Is Cut
- Why Has the Inflation Calculation Changed Over Time?
- California Gas Prices in Some Areas Are Higher than Federal Minimum Wage
- New-Home Sales in April See Biggest Monthly Drop Since 2013
- Fed Searches for the Magic Number to Cool a Red Hot Housing Market
- Hedge Funds Brace for $20 Billion of Redemptions, Citco Says
- The Commodities Giant Glencore Will Pay $1.1 Billion to Settle Bribery and Price-Fixing Charges
- Stellantis and Samsung to Spend $2.5 Billion on an Electric Vehicle Battery Plant in Indiana
- Pfizer to Sell Vaccines, Drugs at Low Prices to Poorer Countries
- McDonald’s Poised to Retain Both Seats in Proxy Fight With Carl Icahn
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A mass shooting at the Robb Elementary School in Uvalde, Texas, has rocked the nation, with at least 19 children and two adults slaughtered during the attack. The 18-year-old gunman, Salvador Ramos, shot his grandmother before heading to the school with a handgun and possibly a rifle that he had purchased on his birthday, hinting on social media that "the kids should watch out" ahead of the attack. The gun control debate has resumed following the massacre, with efforts to change any U.S. gun policies waxing and waning in Congress in the years since Sandy Hook.
Statement: "As a nation, we have to ask when in God's name are we going to stand up to the gun lobby. When in God's name we do what we all know in our gut needs to be done," President Biden said in a televised speech. "I am sick and tired of it. We have to act. And don't tell me we can't have an impact on this carnage. I spent my career as a senator and vice president working to pass common sense gun laws. We can't prevent every tragedy, but we know they work and have positive impact. The gun manufacturers spent two decades aggressively marketing assault weapons, which make them the most and largest profit. For God's sake, we have to have the courage to stand up to the industry. It's time to turn this pain into action."
While Democrats have repeatedly tried to enact new gun-control measures, like universal background checks and a renewed assault weapons ban, the restrictions have failed to make their way into legislation. Last year, the House passed a pair of bills to expand background checks on firearms purchases and close the loophole for private and online sales, though it wasn't able to clear the 60-vote filibuster threshold in the evenly divided Senate. Strong Republican opposition has derailed the measures, saying the laws would do little to prevent most of these tragedies and would compromise the Constitutional right of Americans to bear arms. Instead, they advocate for more security on school grounds and better tools to deal with a growing mental health crisis, as well as arming more law-abiding citizens and preventing guns from getting into the hands of criminals.
On the move: Fear of gun control sent firearm shares higher in the post-market session on Tuesday, with some of them since paring their gains. Related stocks include Smith & Wesson (NASDAQ:SWBI), Sturm, Ruger (NYSE:RGR), Vista Outdoor (NYSE:VSTO), Sportsman's Warehouse (NASDAQ:SPWH), AMMO (POWW) and Olin Corporation (OLN). (156 comments)
Any Fed talk these days is being put under the microscope as the central bank embarks on a tightening cycle in its fight against inflation. It was only three weeks ago that the FOMC hiked rates by 50 bps for the first time since 2000, meaning minutes from the May meeting will be released later today at 2:00 p.m. ET. Investors will particularly be watching for any new details and discussions from the officials, which have pledged to raise borrowing costs until it has fully tamed inflation.
On watch: References to "financial conditions" and changed language surrounding the projected path of inflation and risks to the Fed's forecasts. The speed and extent of monetary policy tightening, as well as potential sales of mortgage-backed securities and the shrinking of the central bank's balance sheet. Meanwhile, Fed Chair Jerome Powell has previously used the words "soft" and "softish landing" when referring to engineering the way out of the current inflation situation, but last week he referenced a "bumpy landing" that could lead to "some pain."
A series of 50-basis-point rate hikes are now expected over the next several months, triggering fears that the increases could send the world's largest economy into recession. Cooling signals were on full display on Tuesday as new homes sales dropped almost 17% M/M in April due to rising mortgage rates and property prices. It's also making markets a lot more volatile, with the uncertainty translating into outsized losses and rally attempts over on Wall Street.
Commentary: "A slowing economy doesn't mean that the Fed should shift from being hawkish to dovish, but it does raise the question of how much a given level of rates causes activity to slow," noted Standard Chartered strategist Steve Englander. "If the economy is already below potential and is responding to rates of three to six months ago, the slowdown has further to go. The path of rate hikes could be flattened while still putting downward pressure on demand." (2 comments)
Shares of Wendy's (WEN) jumped 15% in after-hours trading on Tuesday after its largest shareholder Trian proposed a potential acquisition of the fast-food chain. Trian Partners, which is run by famed billionaire investor Nelson Peltz, owns a total of 41.6M shares in the company, or a 19.4% stake. Other potential strategic moves could include a business combination (such as a merger, consolidation, tender offer, etc.) or a transaction that would result in the acquisition of control of the company.
Quote: "Wendy's was one of America's most beloved brands, but the business had lost its way after the passing of its founder Dave Thomas," according to a listing on Trian's portfolio page. "Now the largest shareholder with three board seats, Trian has helped implement an operational turnaround focused on improving and growing the core Wendy's brand."
Wendy's will "carefully" review any proposal submitted by Trian, with the goal of "maximizing value for all stockholders." The company's global same-store sales grew 2.4% in the first quarter, but net income fell 10% to $37.4M, or $0.17 per share. It has also recently tried to drive traffic by enhancing its breakfast menu offerings and increasing the number of its locations, but shares have stumbled 32% this year, heavily trailing rivals McDonald's (MCD) and Burger King (QSR).
Long history: Trian and Peltz have been Wendy's investors since 2005 and pushed the company to divest the Tim Hortons brand in 2008. Shortly thereafter, Triarc Cos., the investment arm of Peltz, purchased Wendy's for $2.2B, combining the hamburger chain with Arby's. In 2011, Wendy's sold the majority of Arby's to a private equity firm for $130M, and since then, Trian and Peltz have attempted to implement several operational turnarounds of the core Wendy's brand. (8 comments)
The U.S. Treasury Department does not plan to renew a license that allows Russia to pay its debtholders through American banks, almost guaranteeing the first Russian foreign debt default since the Bolshevik Revolution. Up until now, the Kremlin had been using JPMorgan (JPM) and Citigroup (C) as channels to pay its obligations, but the provision that allows it to do so will expire at midnight. Note that Russia defaulted on its domestic debts in 1998, which led to a wave of inflation and a devalued ruble, but the economy was able to recover quickly due to rising oil prices and international aid.
Snapshot: Institutional investors carrying Russian debt likely sold their holdings before tonight's deadline, according to attorney Jay Auslander, who has previously litigated similar crises like the one in Argentina. Entities that are still holding the bonds are either distressed debt investors or those willing to litigate things in court over the next several years. Russia has also prepaid its two bonds that are due this month, so expect a default around late July, when the grace period for the bonds expires.
Some don't understand the strategy here as sanctions already prevent Russia from borrowing in international markets. Moreover, much of the economic pain that a default can bring to a nation's financial sector has already happened in Russia and it appears that the only ones being hurt in this situation would be U.S. bondholders. Others point out that a sovereign default could elevate Moscow's borrowing costs, putting pressure on its banking system and hurting economic growth in the long run.
Treasury Secretary Janet Yellen: "If Russia is unable to find a way to make these payments, and they technically default on their debt, I don't think that really represents a significant change in Russia's situation," she told reporters last week at a G7 finance ministers meeting. "They're already cut off from global capital markets, and that would continue."
Today's Markets
In Asia, Japan -0.3%. Hong Kong +0.3%. China +1.2%. India -0.5%.
In Europe, at midday, London +0.6%. Paris +0.3%. Frankfurt +0.4%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq +0.1%. Crude +1.5% to $111.44. Gold -0.5% to $1855.30. Bitcoin +1.8% to $29,814.
Ten-year Treasury Yield unchanged at 2.75%
Today's Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $22B, 2-Year FRN Auction
12:15 PM Fed’s Brainard Speech
1:00 PM Results of $48B, 5-Year Note Auction
2:00 PM FOMC Minutes