Friday Morning Reads
- Bitcoin Critics
- Bitcoin Can’t Be Shut Down
- Markets Eerily Silent
- A Reckoning Decades In The Making
- Three Exxon Refineries Top the List of U.S. Polluters
- Where’s the Help?
- Limited Success
- Short Sellers With $1.3 Billion Loss
- How to Buy Happiness (Responsibly)
President Biden is scheduled to release his fiscal year 2022 budget today at 2 p.m. ET, which will serve as a blueprint for the administration's fiscal priorities. Documents obtained by the NYT showed a proposal that totaled $6T, which would take the U.S. to its highest sustained levels of federal spending since World War II. Funding for the agenda would be obtained by raising taxes on corporations and the ultra-wealthy, while consumer prices wouldn't rise faster than 2.3% per year and the Fed would slowly raise rates from their current rock-bottom levels.
What's in the request? The package is being driven by the American Jobs Plan and American Families Plan - two proposals that are estimated to cost more than $4T. The first piece of legislation centers around physical infrastructure like roads, bridges, broadband internet and EV charging stations. The second covers what the administration calls "human infrastructure," or social programs, such as affordable childcare, universal prekindergarten and a national paid leave program. It would also increase federal spending to $8.2T per year by 2031, meaning annual deficits of over $1.3T (and $1.8T in 2022).
The budget additionally contains funding for scientific research combating climate change, as well as investments in public service agencies like the CDC and EPA. Defense spending would also grow, especially the military's cyber force, though it would decline as a percentage of the overall economy. With regards to student loan forgiveness, Biden excluded the campaign promise from the proposal despite pressure from progressives to cancel up to $50,000 in debt per borrower.
Outlook: With Democrats in control of both chambers of Congress, Biden has better odds than any president in recent history for passing his agenda, especially if he can negotiate with lawmakers on parts of his infrastructure package. This time around, Democrats might also seek to pass the legislation under budget reconciliation if members in the House and Senate can pass an identical package. That would allow the budget to sail through the Senate via a simple majority, rather than the 60 votes needed for most bills or spending measures.
Is travel making a comeback? It sure looks like it, based on forecasts for Memorial Day weekend. More than 37M Americans are expected to travel from Thursday to Monday, which is up 60% from last year, according to AAA. The need to get out follows a successful coronavirus vaccination campaign, as well as a reduction in COVID-19 cases, and comes despite gas prices that have skyrocketed across the country (90% of travelers will be driving).
Bigger picture: Security lines have been stretched at the busiest U.S. airports, with 2.5M people expected to travel this weekend. Helping supply the ferocious demand is the launch of new U.S. budget carriers: Avelo Airlines and Breeze Airways. The two are targeting smaller airports and underserved routes, and could put more pressure on larger carriers like JetBlue (NASDAQ:JBLU), Southwest (NYSE:LUV), American (NASDAQ:AAL) and Delta (NYSE:DAL) if they survive. The last U.S. airline to launch, Virgin America, folded in 2018.
"It is night and day, compared to 2020," said Henry Harteveldt, an airline industry analyst at Atmosphere Research Group. "Hotels are booked full, companies like Airbnb (NASDAQ:ABNB) and Vrbo (NASDAQ:EXPE) say they are sold out in many communities, and rental cars are all but impossible to find."
Market movement: General Electric (GE) shares notched their highest close in three years on Thursday, surging 7.1% to lead the S&P 500, as Boeing (BA) and its suppliers rallied in response to news that rival Airbus (OTCPK:EADSY) was preparing to gear up production of its A320-series jets beyond pre-pandemic levels. Boeing is GE's second-largest customer while Airbus ranks third. The broad aerospace rally also touched Triumph Group (TGI), Spirit AeroSystems (SPR), Honeywell (HON), L3Harris (LHX) and Raytheon (RTX).
The stock market continued to tick higher on Thursday, and the gains held overnight, as the number of weekly jobless claims came in lower than expected. The U.S. Labor Department said there were 406,000 initial jobless claims last week, below the 425,000 figure forecast by economists. Dow Jones futures are currently ahead by 0.5%, while contracts linked to the S&P 500 and Nasdaq are up 0.4% and 0.3%, respectively. Meanwhile, the Russell 2000 is set to close out May with its eighth straight monthly win as small-caps continue to shine in the post-pandemic recovery.
The other question mark surrounding the recovery centers around inflation. The Fed has said it will let the figure run hot, as rising price pressures would be "transitory," but many investors are still nervous about the prospect of the central bank tightening monetary policy if the economy overheats. The Fed's preferred measure of inflation, Personal Consumption Expenditures, is set to be released this morning, and may go some of the way in clarifying near-term investing sentiment.
What to expect: Core PCE, which excludes volatile food and energy prices, is expected to have climbed 2.9% Y/Y, a sharp increase from the 1.8% figure seen in March. The jump is due in part to base pandemic-related effects from 2020, but would also bring the core PCE well above the Fed's 2% target, and to levels that have not been seen since the 1990s.
Don't forget the meme trade: WSB/Reddit-favorite AMC Entertainment (AMC), soared another 35% on Thursday, putting YTD gains at 1,200%. It's up another 23% this morning at $32.49/share and has dealt investors betting against the movie theater chain roughly $1.3B in losses, according to financial analytics firm S3 Partners. Beyond Meat (BYND) has also joined the party, rallying 12% on Thursday, after appearing on the Reddit Top 20 mentions list in the last couple of weeks.
Boosting U.S. economic competitiveness and confronting China's rise is going hand-in-hand again as the U.S. Senate moves toward passing the U.S. Innovation and Competition Act of 2021 (USICA). The bill would sink more than $100B into U.S. research and development and provide $52B to advance domestic semiconductor manufacturing. It also includes a wide range of measures directly targeting China, such as its human rights record, a day after a Beijing-drafted resolution effectively ended open elections in Hong Kong.
The latest? Taking on China is a rare area of bipartisan support, but some hurdles to the bill's passage remain in the House, as well as a series of amendments under consideration. The Senate has already voted on 18 revisions, 14 of them from GOP senators, but Majority Leader Chuck Schumer still hopes to pass USICA before senators leave Washington for the holiday weekend. President Biden is also ready to sign the bill as the administration wraps up an initial supply-chain review on computer chips, EVs batteries, pharmaceuticals and minerals used in electronics.
Earlier this week, the U.S took a significant policy shift in its approach toward China. "The period that was broadly described as engagement has come to an end," said Kurt Campbell, the U.S. coordinator for Indo-Pacific affairs on the National Security Council, adding that the new "dominant paradigm is going to be competition." Remarks by President Biden over the origins of COVID-19 (jump from animals to humans or lab accident) also angered officials in Beijing.
Excerpt from the bill: "While the U.S. represented 37% of global semiconductor manufacturing capacity in 1990, today just 12% of semiconductors are manufactured in the U.S... The Chinese Communist Party is aggressively investing over $150B in semiconductor manufacturing so they can control this key technology... At the same time, halted domestic production lines for consumer technology, auto manufacturers, truckers, and other critical industries underscores the vulnerability the U.S. faces."
What else is happening...
House committee presses social-media CEOs on COVID-19 disinformation.
Thursday's Key Earnings
Costco (NASDAQ:COST) -0.6% AH despite strong comparable sales growth.
Dell (NYSE:DELL) -0.7% AH even as consumer demand remained strong.
Gap (NYSE:GPS) -0.7% AH as investors ignored a forecast raise.
HP (NYSE:HPQ) -5.9% AH despite FQ2 beats, upside profit guidance.
Salesforce (NYSE:CRM) +4.2% posting the 'best Q1' in company history.
Ulta Beauty (NASDAQ:ULTA) +4.7% AH boosting guidance across the board.
In Asia, Japan +2.1%. Hong Kong +0.1%. China -0.2%. India +0.7%.
In Europe, at midday, London +0.1%. Paris +0.5%. Frankfurt +0.4%.
Futures at 6:20, Dow +0.5%. S&P +0.4%. Nasdaq +0.3%. Crude +0.4% to $67.13. Gold -0.2% at $1895.20. Bitcoin -8% to $35871.
Ten-year Treasury Yield flat at 1.61%
Today's Economic Calendar
8:30 International trade in goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
8:30 Personal Income and Outlays
9:45 Chicago PMI
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices
SIFMA close 2:00 PM