Friday Morning Reads
- Selloff deepens on Mideast strike; Oil +3.6%
- Record year for Tesla in Norway
- Tesla slashes price of China-made Model
- Judge likely to block T-Mobile/Sprint - Cowen
- Goldman U-turns on U.S. economic forecast
- Top Iranian general killed in U.S. airstrike; Iran vows revenge; oil gains (updated)
- Goldman likes Humana in premarket analyst action
- Brussels pushes for plastic waste tax
- Investors start the year selling REITs
- Beyond Meat lands on Pollo Tropical's menu
- L Brands +2% after BAML lift
- New all-time high as Apple tops $300
A shot of Chinese stimulus triggered global stock markets to leap at the start of 2020, but the New Year's party has come to an end. A 400-point opening decline is in store for the DJIA after the U.S. took out one of the most senior and revered generals in Iran, Qassem Soleimani (top Iraqi paramilitary commander Abu Mahdi al-Mohandes was also killed). Oil is moving in the opposite direction amid supply disruption fears, with crude futures ahead by 4% to $63.61/bbl, while safe haven gold is up 1.5% to $1551/oz to its highest level in almost four months. Iran's supreme leader, Ayatollah Ali Khamenei, has vowed that "severe retaliation" awaits Soleimani's killers, while the U.S. embassy in Baghdad urged all citizens to depart Iraq immediately.
Crude prices "will likely hold" around $70 a barrel, "but could make a run at $80 if the conflict spreads to the oil fields of southern Iraq or if Iranian harassment of commercial shipping intensifies," analysts at Eurasia Group wrote in a research note. "We expect moderate to low-level clashes to last for at least a month... Iranian-backed militias will attack U.S. bases and some U.S. soldiers will be killed; the U.S. will retaliate with strikes inside of Iraq." Iraq is the second largest producer in OPEC and exports about 3.4M barrels per day of crude mostly from southern Basra port.
Go deeper: 'Gearing Up For An Ever-Changing Energy Market' by SA Marketplace.
This afternoon, the Fed will publish the minutes from its December meeting, when it held interest rates after three cuts earlier in the year. The release may shine some light on what central bankers are thinking about the repo market, where the Fed has been active over the last several months in an effort to control overnight interest rates. Investors will also look for hints on what it would take to shift the consensus view among officials that interest rates will remain on hold for all of 2020.
Go deeper: 2019 should be remembered as the year of repo, writes Jeffrey Snider.
Apple (NASDAQ:AAPL) is looking to continue its outsized gains after skyrocketing 86% in 2019 for its best year in a decade. Shares of the iPhone maker rose 2.3% on Thursday to close above $300 for the first time (on a split-adjusted basis), amid predictions for a robust holiday quarter, demand for wearables and planned services including streaming TV. The advance contrasts sharply with Apple's dismal start last year after the company cut its sales forecast for the first time in almost two decades.
Go deeper: Apple hires HBO's Plepler for TV+ lineup.
Facing persistent and potentially insurmountable headwinds from regulators, Illumina (NASDAQ:ILMN) and Pacific Biosciences of California (NASDAQ:PACB) have mutually agreed to terminate their merger agreement announced on November 1, 2018. The FTC had said it would block the deal, alleging that Illumina was unlawfully seeking to maintain its monopoly in the U.S. market for next-generation DNA sequencing systems. Illumina will pay Pacific Bio a $98M termination fee under the terms of the contract. PACB +4.5% premarket.
Go deeper: PacBio remains a highly speculative call, according to Stephen Simpson.
The FDA has officially banned the sale of flavors (except menthol and tobacco) in pod-based e-cigarettes, though the restriction won't apply to open-tank vaping devices, which allow users to mix their own nicotine liquids. Companies that do not comply within 30 days risk enforcement action. The policy, intended to curb a surge in underage vaping, deals a severe blow to an industry estimated to have $9B in annual revenue and places more pressure on manufacturers already facing a May 12 deadline for federal review of their products.
American Airlines (NASDAQ:AAL) plans to share with employees part of the compensation it receives from Boeing (NYSE:BA) for the nearly 10-month grounding of the 737 MAX, a disruption that carriers have said cost them more than $1B in revenue. Several other MAX customers, including Icelandair, Turkish Airlines and Southwest Airlines (NYSE:LUV), have recently reached compensation agreements with Boeing, but the final amounts aren't yet clear because the grounding is ongoing. Boeing already took a $4.9B aftertax charge in Q2 to compensate airlines for the situation.
Fully electric cars made up 42.4% of sales in Norway last year, a global record, rising from a 31.2% market share in 2018 and just 5.5% in 2013, according to the Norwegian Road Federation. The Nordic nation currently exempts battery-powered vehicles from the taxes imposed on petrol and diesel engines as it seeks to become the first country to end the sale of fossil-fueled cars by 2025. The country's best-selling car in 2019 was Tesla's (NASDAQ:TSLA) Model 3 sedan (with an 11% market share), though competition is expected to accelerate from rival automakers in 2020.
Go deeper: Tesla slashes price of China-made Model 3.
Efforts are again underway for an EU-wide tax on plastic waste. Officials and diplomats have told the FT that members are ready to agree to duties on non-recyclable plastic, though tough negotiations still lie ahead. The proceeds would go directly into the common budget, rather than the government that collected the tax, and may go a long way in plugging a €15B hole that will be left once the U.K. leaves the EU.
It was only months ago that most on Wall Street worried that a recession was around the corner, but those fears are fading fast. "Overall, the changes underlying the Great Moderation appear intact, and we see the economy as structurally less recession-prone today," Goldman economists Jan Hatzius and David Mericle wrote. "While new risks could emerge, none of the main sources of recent recessions - oil shocks, inflationary overheating, and financial imbalances - seem too concerning for now. As a result, the prospects for a soft landing look better than widely thought."
What else is happening...
China not likely to change inflation target in 2020.
In Asia, Japan closed. Hong Kong -0.1%. China -0.3%. India -0.4%.
In Europe, at midday, London -0.5%. Paris -0.5%. Frankfurt -1.7%.
Futures at 6:20, Dow -1.4%. S&P -1.5%. Nasdaq -1.7%. Crude +4% to $63.61. Gold +1.5% to $1551. Bitcoin +2.5% to $7314.
Ten-year Treasury Yield -7 bps to 1.71%
Today's Economic Calendar
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
11:05 Fed's Barkin: ”Is a Recession Around the Corner?”
1:00 PM Baker-Hughes Rig Count
1:15 PM Fed's Evans: “Women in Central Banking”
1:15 PM Fed's Brainard: “Women in Central Banking”
2:00 PM FOMC minutes
3:30 PM Fed's Kaplan: “Navigating the Crosscurrents: the Outlook for the Global Economy”
1:15 PM Fed's Williams Speech on Sunday