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Debt drama

Gear up for the next big spectacle in Washington as the debt ceiling comes back into force this weekend following a two-year suspension. The deadline will curb the Treasury's capacity to issue new debt unless lawmakers can reach an agreement, which seems far-fetched at the moment due to the Republican position. GOP leadership contends that Democrats are in a spending free for all and will only support raising the debt ceiling if they promise major spending reforms and cutbacks.

Analyst commentary: "It is a very slow moving train wreck," outlined Gennadiy Goldberg, rates strategist at TD Securities. "The longer they delay raising the debt ceiling, the more Treasury has to [reduce] bill supply leaving less debt to invest in, particularly on a short-term basis. What you are going to see is more and more pressure on money market rates, which in turn will put pressure on money market funds."

It's already having some effects. Starting at noon today, the Treasury will use the first of its so-called "extraordinary measures," which will suspend sales of securities that help states and municipalities invest bond proceeds. Others will take months to kick in, and starting in October or November, the Congressional Budget Office predicts the Treasury will run out of cash. While raising the debt ceiling has turned into a bitter partisan issue in recent years, both sides have always reached a late deal to avoid the country going into default.

Outlook: Many expect a similar scenario this time around and the game of chicken could continue in the coming months. However, if Democrats can't get support from ten Republican senators, they may be forced to increase the debt limit via an upcoming budget reconciliation bill (which only needs a simple majority). They could also advance a vote to raise the debt ceiling along straight party lines before the August recess or tie the debt ceiling to a must-pass funding bill at the end of September.

Not enough

Amazon (AMZN) reported quarterly earnings after the bell on Thursday, with revenues that were 25% higher than the same period last year. While that's pretty impressive in its own right, the percentage wasn't high enough to match analyst expectations. The e-commerce behemoth finished the quarter with $113B in revenue, compared to consensus estimates of $115B, prompting shares to slump 7% in AH trading.

What it means: Amazon has historically exceeded expectations, so the revenue miss (the first since 2018) triggered some alarm on Wall Street. Amazon also said it would continue to see difficult comparisons to the pandemic quarters of 2020, meaning the era of the company's bumper results may be slowing. It comes as people turn to their old shopping habits like traveling and dining out, which could weigh on the company's rapid growth recorded through the pandemic.

"It's still phenomenal growth when you think of the sheer size of the business," said Brian Yarbrough, an analyst with Edward Jones. "Obviously the pandemic helped them, but they're not going to be able to grow that rapidly on top of those numbers."

Still doing quite well: Investors overlooked better-than-expected profits, as well as a strong performance in the advertising business and cloud division. Amazon Web Services sales increased 37% to $14.8B, above the $14.1B estimate, while the "Other" unit, which is primarily made up of advertising, grew revenue by 87% Y/Y to $7.9B. The numbers come just weeks after Andy Jassy, formerly chief executive of AWS, took the reins of the company, which has been growing exponentially and even more complex. (194 comments)

Closing out July

It's the final trading day of the week (and month), but equities are not wearing their party hats. Nasdaq futures led the declines overnight, falling 1.2% after Q2 revenues at Amazon (AMZNfell short, while the retail giant gave a weaker outlook. Pinterest (PINS) is also down 20% premarket after losing monthly users during the three months ended June 30 (and don't forget the disappointing IPO from Robinhood (HOOD)).

Rally growing fragile? GDP data on Thursday suggested the pace of growth may be slowing. The U.S. economy expanded at a 6.5% annualized rate in Q2, but that was discouraging given expectations for 8.4% growth. Some are looking further into the data, seeing a larger-than-expected drag from the global supply chain shortages, which could mean an economic boom when the issues are finally ironed out.

"There are so many crosscurrents going on at the moment influencing markets," said Sebastian Mackay, a multi-asset fund manager at Invesco. "We've entered a more volatile period for markets, but markets will continue to move higher because we're still seeing economic growth."

On the economic calendar: Inflation-focused investors will also get some clarity today. The Fed's preferred inflation gauge, the personal consumption expenditures price index, will be published this morning at 8:30 a.m. ET. In the 12 months through June, the so-called PCE price index likely shot up 4.1%, with the core figure not far behind at 3.7% Y/Y.

Third vaccine dose?

Efficacy of Pfizer's (NYSE:PFE) coronavirus vaccine, which is pegged at 96%, declines an average of 6% every two months, according to the company, and effectiveness in groups like the elderly and immunocompromised diminishes even more quickly. As a result, the drugmaker is recommending a third dose of its vaccine that can "strongly" boost protection against the Delta variant. Preliminary data (that has yet to be peer-reviewed or published) even suggests that levels of antibodies from a third booster increases antibody levels five to 10 times higher over its two-dose shots.

Bigger picture: Other frontrunners in the global immunization drive - AstraZeneca (NASDAQ:AZN) and Johnson & Johnson (NYSE:JNJ) - are yet to see the evidence to support the need for booster shots. The two take a similar approach in their COVID-19 vaccine technology, using viral vectors instead of the mRNA jabs produced by Pfizer and Moderna (NASDAQ:MRNA). "There are two dimensions to immunity - antibodies [which] decline over time, but the second, very important dimension of vaccination is the so-called T-cells. They tend to protect people against severe disease, but they also provide durability," AstraZeneca CEO Pascal Soriot declared. "With the technology we use, we have very high production of T-cells. We're hoping we can have a durable vaccine that protects for a long period of time."

While Pfizer intends to seek emergency use authorization for a third dose as soon as next month, the FDA and CDC currently feel that an additional dose is not necessary since Americans "who are fully vaccinated are protected from severe disease and death." US Surgeon General Dr. Vivek Murthy echoed the view this week, saying, "people do not need to go out and get a booster shot." Should the dose be approved by the FDA, the vaccine would either need to be amended or, if the vaccine were fully FDA approved, a third dose could be given off label.

Will it be the same formula? The July study conducted by Pfizer involved a third dose of its existing vaccine, but the drugmaker is also exploring whether to add an additional dose it has developed to target the Beta variant. Moderna is meanwhile testing three different booster strategies: a half-dose of the existing vaccine, an additional dose of a new vaccine that targets the Beta variant, and another dose that combines the two. Pfizer is expected to generate $33.5B in COVID-19 vaccine revenue in 2021 and Wall Street analysts have already priced boosters into their financial models for the company and BioNTech (NASDAQ:BNTX), which helped develop the vaccine with Pfizer.

Over in Israel: The country's health ministry this week recommended booster shots for older adults and to those with weak immune systems, becoming one of the first nations in the world to formally approve a third dose of Pfizer's vaccine. According to the ministry, a full course of the Pfizer vaccine was just 39% effective at preventing infections caused by the Delta variant, though the vaccine provided high levels of protection against hospitalization (92%) and severe illness (91%). Back in January, Israel struck a vaccines-for-data deal with Pfizer that promised to share vast troves of information from its highly digitized healthcare system in exchange for the continued flow of COVID-19 shots. (15 comments)

Today's Markets

In Asia, Japan -1.8%. Hong Kong -1.3%. China -0.4%. India -0.1%.
In Europe, at midday, London -0.9%. Paris -0.3%. Frankfurt -1%.
Futures at 6:20, Dow -0.3%. S&P -0.7%. Nasdaq -1.2%. Crude -0.3% at $73.38. Gold -0.2% at $1833. Bitcoin -4.3% at $38741.
Ten-year Treasury Yield -2 bps to 1.25%

Today's Economic Calendar

8:30 Personal Income and Outlays
8:30 Employment Cost Index
9:00 Fed's Bullard: U.S. Economy and Monetary Policy
9:45 Chicago PMI
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices
8:30 PM Fed's Brainard Speech

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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