Friday Morning Reads

Friday Morning Reads








Jobs, Jobs, Jobs

Today's monthly jobs report will provide more clarity on the current economic landscape, with the prior two accounts telling very different stories. Payrolls were forecast to have risen by nearly 1M in April, only to come in at a mere 266K (the biggest downside miss in decades), after the employment number increased by 770K in March, which suggested a strong rebound from the pandemic. Fresh figures for May will shed further light on the true state of the recovery, influencing policymaking on both the fiscal and monetary fronts.

By the numbers: Economists expect the report to show that non-farm payrolls increased by 650,000 jobs, marking a significant acceleration from last month's tepid gains. The unemployment rate is also expected to have fallen to 5.9%, from 6.1% in the prior month, while average hourly earnings likely rose 0.2%, after gaining 0.7% in April. The jobs report will follow a robust economic picture seen yesterday as initial jobless claims fell below 400,000 for the first time since the onset of the coronavirus pandemic in March 2020.

Strong increases in employment creation could ease some concerns about labor shortages, which have been seen across the country as the economy reopens at a record pace. While there are many reasons for the hiring scarcity, Republicans have pointed to programs like enhanced unemployment benefits, while Democrats have flagged items like childcare responsibilities and lingering COVID-19 worries.

Outlook: "A repeat of April's weak report could mean the Fed will not taper back its bond purchases until sometime next year," according to economists at Citigroup. "However, a stronger increase (+1M) would keep the June FOMC meeting on the table for a possible signal 'well ahead' of tapering later this year." The Fed is currently buying $120B of Treasurys and mortgage securities each month, and has said it would slowly wind down its purchases before raising interest rates.

Meme trade falters

U.S. stock futures inched between slight gains and losses overnight after the major averages trended down in Thursday's session as the meme trade faltered (more on that below). Other social media sensitive areas of the market, like crypto, also headed lower, with Bitcoin (BTC-USD) slipping 6.6% to $36,510. The culprit? Elon Musk tweeted a meme about a couple breaking up, adding the hashtag #Bitcoin and a broken heart emoji.

What happened to the meme trade? Just a day after taking a renewed embrace of retail traders, offering them special screenings and free popcorn, AMC Entertainment (AMC) used the spike in its stock to raise even more capital by selling 11.5M shares. It also came with a stark warning: "The market prices and trading volume of our shares of Class A common stock have recently experienced, and may continue to experience, extreme volatility, which could cause purchasers of our Class A common stock to incur substantial losses." Meanwhile, Jefferies and Raymond James blocked sales of AMC shorts, adding to the news that saw the stock tank 18% during the session, and fall another 5% premarket to below $50.

The tumble back to earth was set to happen sooner or later, with Wall Street pros cautioning that these swarms only survive until the last "gambler" is left holding the bag. AMC's plunge was felt across the broader meme sector, with Bed Bath (BBBY), Koss (KOSS) and GameStop (GME) sinking 27%, 24% and 8%, respectively. BlackBerry (BB) was one of the only names to buck the trend, rising 4% on Thursday.

YouTube appearance: In an interview last night, Aron said proceeds from another equity sale, if approved, would be used to reduce debt and to help the company negotiate with landlords who are owed $400M. The funds will also go to chase acquisitions. "If you arm us with the tool, meaning stock as the tool, to go find value-creating opportunities for AMC shareholders, we can do that," he told Trey's Trades. "If we are not armed with this tool, then you're tying our hands behind our back and you'll make it just that much harder for us to land some of these attractive opportunities that could benefit us all."

No more exceptions?

Facebook (FB) plans to end its special treatment rules for politicians, according to The Verge, leaving behind an approach that was upended in the last days of the Trump administration. Going forward, elected officials will face rules in a manner similar to any other user on the platform, which could have big ramifications for how world leaders use the network. The decision follows criticism from Facebook's quasi-independent Oversight Board back in May that took aim at the handling of content regulation.

Disclaimer: Facebook will still be able to flag when it uses a "special newsworthiness exemption" to keep up content from politicians and others that would otherwise violate its rules.

The company will also offer more transparency on its secretive system of strikes it gives accounts for breaking its content guidelines. That will include letting users know when they’ve received a "strike," which could lead to penalties or an eventual suspension.

How did we get here? Facebook created the Oversight Board to insulate itself somewhat from what were becoming thorny decisions about content regulation during a time when the president's controversial posts became one of the most significant social issues of the Internet era. In what became an indefinite suspension, Facebook stopped Trump from posting to 35M followers after the storming of the US Capitol on Jan. 6. It subsequently referred the decision to its Oversight Board, which supported the verdict, but did ding the company for inconsistent application of its rules and directed that it revisit and clarify the nature of the ban. (71 comments)

Ackman eyes Universal Music

Hedge fund billionaire Bill Ackman's special-purpose acquisition company is finally nearing a deal, after much speculation surrounding the vehicle since its launch last year. It's pursuing a tie-up with Vivendi (OTCPK:VIVHY) over the French media conglomerate's Universal Music Group (UMG), the world's largest music company. According to current discussions, Pershing Square Tontine Holdings (PSTH) would acquire 10% of the ordinary shares of UMG for about $4B - implying an enterprise value for UMG of about $42.4B - and distribute those UMG shares to its own shareholders later this year. PSTH would remain a publicly-traded company with $1.5B in cash and it would also look for a new business combination with another partner.

Why it's notable: The deal would be the largest SPAC transaction on record, topping the $35B that ride-hailing app Grab was recently valued at in a similar transaction with Altimeter Growth Corp. (AGC). It also come at a time when the SPAC market is cooling. Issuances have slowed following a record first quarter, while the industry hit a roadblock after the SEC proposed an accounting change that would classify SPAC warrants as liabilities instead of equity instruments.

In fact, SPAC sentiment traditionally saw the vehicles surge after a deal announcement, but many of those have turned south recently given nervousness over lofty financial targets and regulatory scrutiny. Pershing Square Tontine Holdings is down 7.3% premarket to $23.22/share.

Quote: "Universal Music Group is one of the greatest businesses in the world," Ackman declared. "Importantly, UMG meets all of our acquisition criteria and investment principles as it is the world's leading music company, with a royalty on the growing global demand for music. We are delighted to work with Vivendi on this iconic transaction, and look forward to its consummation." (19 comments)

Going supersonic

United Airlines (UAL) is looking to the future with plans to bring back supersonic travel with a new jet. The airline said it plans to buy 15 jets from Boom Supersonic with an option for 35 more jets after the startup company successfully designs a plane that flies faster than the speed of sound and also matches the required safety and environmental standards. Service is initially planned for 2029.

Climate concerns: United has pledged to reduce its greenhouse gas emissions 100% by 2050 so the new supersonic jet would be optimized to use 100% sustainable aviation fuel.

While there have been many supersonic military aircraft, the only models to carry civilian passengers were the Concorde and the Russian-built Tupolev Tu-144. The Concorde went out of service in 2003, weighed down by high expenses and a fatal crash in 2000 that prompted the model to be grounded, while the Tu-144 had limited service and retired in 1999. Commercial supersonic travel was such a hot topic when it developed in the 1960s that Seattle named its NBA franchise the "SuperSonics" after Boeing's (NYSE:BA) supersonic transport project, which was later canceled.

Fast forward: The main companies currently in the race are Boom Supersonic and Aerion, which are going full throttle with plans to bring supersonic airplanes to the skies by the mid-2020s. Boom is working with Collins Aerospace (NYSE:RTX), Japan Airlines (OTCPK:JAPSY) and Rolls-Royce (OTCPK:RYCEY) for propulsion systems, and plans to introduce a demonstrator aircraft in October, though recent reports suggested Boeing and Spirit AeroSystems (NYSE:SPRdisbanded engineering teams designing Aerion's AS2 business jet as a way to conserve cash during the coronavirus pandemic. Developers are also working on ways to make supersonic aircraft quieter as the loud sonic booms of existing models led FAA to prohibit commercial supersonic flight over land in 1973, severely restricting the areas in which they could fly.

What else is happening...

Biden order bans American investment in 59 Chinese tech/defense companies.

U.S. donating 75% of unused vaccine doses to COVAX sharing effort.

Auto parts stocks jump after GM (NYSE:GM) boosts vehicle deliveries.

Tesla (NASDAQ:TSLA) spins lower on report of large drop in China sales.

Costco (NASDAQ:COST) reports May comparable sales increase of 22.8%.

U.S. will treat ransomware like terrorism after Colonial Pipeline, JBS attacks.

New Exxon (NYSE:XOM) board will speed up energy transition - Morgan Stanley.

Smucker (NYSE:SJM) expects to pass higher prices to consumers.

U.S. Football League, an '80s relic, trying a rebirth on Fox Sports.

Thursday's Key Earnings

Broadcom (NASDAQ:AVGO) -0.2% as investors shook off strong revenue guidance.
CrowdStrike (NASDAQ:CRWD) unchanged following a beat-and-raise quarter.
DocuSign (NASDAQ:DOCU) +5.5% AH beating expectations, upside outlook.
J.M. Smucker (SJM+1.4% battling through tough pandemic comp sales.
Lululemon (NASDAQ:LULU) -0.3% AH reversing gains after powerhouse quarter.
Slack (NYSE:WORK) -0.3% AH despite 39% user growth and Q1 beats.

Today's Markets

In Asia, Japan -0.4%. Hong Kong -0.1%. China +0.2%. India +0.3%.
In Europe, at midday, London -0.3%. Paris -0.1%. Frankfurt flat.
Futures at 6:20, Dow -0.1%. S&P flat. Nasdaq flat. Crude +0.5% to $69.16. Gold flat at $1873.30. Bitcoin +6.9% to $56312.
Ten-year Treasury Yield unchanged at 1.62%

Today's Economic Calendar

Auto Sales
7:00 Powell: "Central Banks and Climate Change"
8:30 Non-farm payrolls
10:00 Factory Orders
1:00 PM Baker-Hughes Rig Count

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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