Friday Morning Reads
- Weaning Economy Off Stimulus
- China Crushed Jack Ma
- China’s Ban Forces Some Bitcoin Miners to Flee
- Bitcoin to Become Legal Tender
- Job Hole or Inflation?
- Can’t Quit Listening to Larry Summers
- Phantom Goldman Banker
- Panasonic (PCRFY) aiming to sell stake in Tesla (TSLA) for $3.6 bln. FT
- Australia to look at claim that Facebook (FB) refused to negotiate licensing deal. Reuters
- Bitmain suspends sales of crypto mining machines (BTBT, MSTR, MARA, SQ, PYPL, TSLA, GBTC, COIN, RIOT, OSTK, CRYPTO). Reuters
- Tesla (TSLA) was sued regarding charging station fees. Bloomberg
- Credit Suisse (CS) mulling merger with UBS (UBS), Reuters
Open Interest Changes:
Big banks could be on the verge of delivering tens or even hundreds of billions of dollars to investors following results from the Fed's stress tests today. In March, the central bank said it will end the temporary restrictions on returning capital after June 30, assuming the institutions pass the CCAR round of tests. Plans for stock buybacks or dividends are likely to be announced on Monday after the banks tinker with their proposals following the regulatory results.
Bigger picture: Massive support from the Fed last year helped U.S. lenders fare far better than feared at the start of the coronavirus pandemic. The sector also amassed its biggest loan loss reserves since the financial crisis in 2008 as most of those losses didn't pan out. Meanwhile, the capital cushions kept growing larger as banks were forced to suspend buybacks and freeze dividends.
In a report titled Save Your (CCAR) Fears for Another Day, Evercore ISI analysts led by Glenn Schorr expect trust banks to have the highest payouts, followed by universal banks, regionals & brokers, and cards/consumers. Leading their respective subsectors: Bank of New York Mellon (BK) (127%), Bank of America (BAC) (138%), Wells Fargo (WFC) (167%), Goldman Sachs (GS) (112%), and Discover Financial (DFS) (100%). Evercore sees total payout ratios rising across all subsectors with the group average at ~2x that of last year to 109%.
Go deeper: The supplementary leverage ratio may also constrain some banks like JPMorgan Chase (JPM) and Morgan Stanley (MS), points out Wolfe Research's Steven Chubak. Even with the SLR constraint, Morgan Stanley, as well as Goldman Sachs and BofA screen best for capital return capacity. Jefferies' Ken Usdin and other analysts additionally calculated banks' share repurchase capacity. By total amount, JPMorgan comes out on top with $7.5B, and by percentage of market cap, Santander Consumer USA's (SC) $347M buyback capacity amounts to 2.9% of its valuation. (69 comments)
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While the S&P 500 snapped a two-day winning streak on Wednesday, momentum continued overnight, with futures tied to the benchmark index - as well as the Dow and Nasdaq - climbing 0.5%. It comes ahead of the latest round of jobless claims that will likely show a drop in new unemployment filings (+380K) following last week's unexpected rise (+412K). We'll also get the latest round of bank stress tests after the bell, as well as earnings from Nike (NKE), FedEx (FDX) and BlackBerry (BB).
How long is transitory? On Wednesday, Atlanta Fed President Raphael Bostic and Fed Governor Michelle Bowman both said that while they believed price pressures would be temporary, they now think inflation could remain higher for longer than previously anticipated. The forecast even prompted Bostic to pull forward his projection of an interest rate hike to 2022. "Temporary is going to be a little longer than we expected initially... Rather than it being two to three months it may be six to nine months," he said in an interview on NPR's Morning Edition.
Meanwhile, Treasury Secretary Janet Yellen asked a Senate Appropriations subcommittee to approve billions in funding earmarked for her department to support components of the $1.9T American Rescue Plan passed in March. "In order for relief dollars to effectively reach their intended targets, we have to stand up and manage new federal programs," she told lawmakers. "Our challenge is that while our portfolio has grown to match the urgency of this moment, our annual budget has not grown in tandem, and the funding provided to administer new programs is temporary."
Go deeper: Tech shares have also outperformed this week, with traders dipping back into the growth sector, which has underperformed YTD. While some rotation is taking place, a number of strategists are cautioning not to abandon the value trade. "They [value stocks] had a big run this year, but they've trailed for about 14 years, so we've had a long underperformance cycle," declared Keith Lerner of Truist Advisory Services. "And the second part is, why did they underperform for so long is because we had really slow economic growth. This year and next we expect above-trend economic growth, and the earnings momentum and the earnings leverage for these areas is still positive."
Resorts World Las Vegas unlocks its doors today in what will be the biggest casino property opening on the Strip in more than a decade. The $4.3B Resorts World Las Vegas property, the most expensive property ever developed in Sin City, features 3.5K hotel rooms. It also has a large theater where Celine Dion and Katy Perry will be in residency later this year, while the timing of the opening is advantageous given the huge traffic expected on the Strip during the 4th of July weekend.
Where is it? The casino-resort is located on the north end of the Las Vegas Strip just past and on the opposite side of the street from Wynn Resorts' Encore and Wynn Las Vegas properties.
Hilton Worldwide Holdings (HLT) partnered with Resorts World owner Genting Group (OTCPK:GEBHF) and will operate three hotels on the Resorts World property. The Malaysia-based casino operator said reservations for Resorts World are ahead of schedule and pointed to strong convention bookings for Q4. Another stated goal is for a return of Asian tourists in time for the Chinese New Year in the early part of 2022.
Antivirus software pioneer John McAfee was found dead in his jail cell near Barcelona, Spain on Wednesday, just hours after a Spanish court approved his extradition to the U.S. on tax evasion charges. "A judicial delegation has arrived to investigate the causes of death," according to a statement. "Everything points to death by suicide." McAfee's lawyer, Javier Villalba, said the 75-year-old tech mogul died by hanging as his nine months in prison brought him to despair.
Backdrop: McAfee was arrested last October at Barcelona's international airport and had been in jail since then awaiting the outcome of extradition proceedings. The arrest followed charges the same month in Tennessee for evading taxes after failing to report income from promoting crypto and consulting services (the criminal charges carried a prison sentence of up to 30 years). In 2012, he was also sought for questioning in connection with the murder of his neighbor in Belize, but was never charged with a crime.
Getting conspiratorial... "I am content in here. I have friends. The food is good. All is well. Know that if I hang myself, a la Epstein, it will be no fault of mine," McAfee tweeted in October 2020. His Instagram account also posted a picture of a black letter "Q" minutes after his death in jail was reported.
McAfee history: While John became a controversial character over the years, he founded the company that still bears his name in 1987, but sold off his stake in the 1990s. Intel (INTC) scooped up the business for $7.7B in 2011 and later sold a majority stake in it to private equity firm TPG. The McAfee (MCFE) company went public again last October, with shares climbing over 50% to $28 since the IPO. (19 comments)
While efforts to organize Amazon (NASDAQ:AMZN) warehouse workers in the U.S. have failed repeatedly, the Teamsters are now going after the retail giant. The group is one of the largest labor unions in America - representing 1.4M workers in trucking, warehousing and other logistics industries - and wants to create and fund a dedicated Amazon division to support workers and demand better working conditions. During a virtual convention on Thursday, representatives from about 500 local Teamsters unions will vote on whether to adopt the "Special Resolution; Building Worker Power at Amazon."
Bigger picture: In 2020, the Teamsters appointed a National Director for Amazon called Randy Korgan, who refers to the retail behemoth as "enemy No. 1." In a recent op-ed, he writes: "Amazon claims to be innovative, but its strategies of market dominance and labor exploitation are as old as capitalism itself, and were perfected by predecessors like Standard Oil, General Motors, US Steel, AT&T, Walmart and Microsoft. The Teamsters will make sure that Amazon cannot repeat a history where workers suffered acutely to make ends meet and were frequently injured or even killed on the job while company executives stuffed their pockets with the profits."
The current Teamsters resolution would push for collective action and petitions to get Amazon to the table over working conditions and other demands. It specifically references "shop floor strikes, city-wide strikes and actions in the streets," but does not contain specifics about when the campaign would start, or how much the union would spend in the fight against Amazon. The vote comes as Amazon continues a hiring spree (it added 400K jobs in 2020) and as the company logged billions of dollars in Prime Day sales.
Outlook: Amazon has long been a target of major labor unions, including the United Food & Commercial Workers Union and the RWDSU, but it has emerged successful in many battles since its founding in 1994. While labor unions have organized some of Amazon's workforce in Europe, no American facility has successfully formed or joined a union. Back in April, the company fought off a major unionization effort in Bessemer, Alabama, with fewer than 30% of the facility's votes tallied in favor of joining the Retail, Wholesale and Department Store Union. (8 comments)
What else is happening...
CDC sees 'likely association' of heart inflammation and COVID-19 vaccines.
U.S. to block some solar products from Xinjiang - Bloomberg.
BuzzFeed nears merger deal to go public via SPAC.
EV sector tracks higher after recent selling pressure.
In Asia, Japan flat. Hong Kong +0.3%. China flat. India +0.8%.
In Europe, at midday, London +0.3%. Paris +1%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.6%. S&P +0.6%. Nasdaq +0.6%. Crude +0.1% at $73.13. Gold -0.1% at $1782.10. Bitcoin -2.4% at $33279.
Ten-year Treasury Yield unchanged at 1.49%
Today's Economic Calendar
8:30 Durable Goods
8:30 GDP Q1
8:30 International trade in goods
8:30 Initial Jobless Claims
8:30 Corporate profits
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
11:00 Fed's Williams Speech
1:00 PM Fed's Kaplan Speech
1:00 PM Fed's Bullard: U.S. Monetary and Economic Policy
1:00 PM Results of $62B, 7-Year Note Auction
4:30 PM Fed Balance Sheet