Friday Morning Reads
- Another Blow To Supply Chain
- Choking the World’s Supply of Natural Resources
- Could Slow the Sales of Electric Cars
- Riddled With Risks For Western Banks
- China’s Information Dark Age
- High Gas Prices May Be a Breaking Point
- $3.5 Trillion ‘Triple Witching’ Event
- The King of Block Trades
- Significant Challenge From New European Law
- Amazon Closes Deal to Acquire MGM
- GameStop Shares Fall on Surprise Loss
- Next Pillar of Work to Fall
U.S. President Joe Biden will talk with China President Xi Jinping this morning and Biden is expected to impress upon the Chinese leader that there will be consequences for involvement in the Russia-Ukraine conflict. Biden will “make clear that China will bear responsibility for any actions it takes to support Russia’s aggression, and we will not hesitate to impose costs,” Secretary of State Antony Blinken said Thursday.
The message doesn’t vary from that conveyed in talks between senior officials of the two countries on Monday. China has denied it has been asked to assist Russia militarily and maintained that it’s completely impartial, but U.S. diplomats have reportedly told allies that Beijing has indicated it could help Russia with weapons. The call is expected to take place at 9 a.m. ET.
China may be reluctant to court an economic battle with the West, though, given problems it’s facing domestically that have forced the government to reassure risk markets, not to mention its continued battle to contain COVID. Widely followed J.P. Morgan strategist Marko Kolanovic wrote in a note yesterday that economic tail risks from China likely won’t materialize.
"During the Cold War, peace was preserved by the virtue of 'mutually assured destruction'; for the time being, the current relationship with China may be preserved by the equivalent of economically assured destruction," he said.
Biggest rally in decades: Stock markets in Shanghai (SHCOMP) and Hong Kong (HSI) are taking a breather today after the biggest two-day rally in 1998. BTIG said China stocks saw the volume and velocity of a “washout,” but warned that 9% gains weren’t usually indicative of a low. The buying of the beaten-down shares was spurred by a government pledge for stock-friendly policies that would stabilize markets, stimulate the economy and not expand a trial of property tax reform.
“This ‘equity put’ saw Vice premier Liu’s all-in attempt to try to clear up all investor concerns in one go, from ‘as soon as possible’ end to tech sector crackdown, to a commitment to resolving property developer risks,” eToro strategist Ben Laidler said. “We see little appetite from the authorities to provoke more trade disruption,” he added. “As the world’s largest manufacturer and exporter they have the most to lose. The market is one of the world’s cheapest, with a P/E ratio of 9x.”
Kolanovic said he is still bullish on Chinese equities “as the fiscal carry-over for 2021 allows for the front-loading of stimulus in 2022.” In the latest BofA fund manager survey, only 1% saw a China credit event as tail risk.
COVID crackdown tweaks: Xi signaled for the first time yesterday that the government is willing to make adjustments to its COVID-zero policy that is putting more strain on the economy. Shenzhen, a vital tech hub, is still under lockdown amid a new outbreak.
China will “strive to achieve the maximum prevention and control effect at the least cost and minimize the impact of the epidemic on economic and social development,” Xi told the Politburo standing committee, according to Bloomberg.
Morgan Stanley said there would be a hit on global oil demand if China’s COVID policy “ultimately were to be unsuccessful.” (2 comments)
GameStop (GME) slumped in extended-hours trading after the retailer posted a mixed earnings report that included an unexpected loss for the quarter.
Revenue rose 6.21% to $2.25B. Hardware and accessories sales accounted for 52.7% of total sales vs. 54.8% a year ago, while software sales rose to 34.9% from 34.4% last year. Collectibles revenue was 12.4% of the total vs. 10.8% a year ago. (68 comments)
FedEx (FDX) traded lower after FQ3 profit missed expectations. Higher purchased transportation costs and wage rates were a profit headwind during the quarter.
FedEx Ground operating results declined primarily due to increased rates for purchased transportation and employee wages, network inefficiencies, and expansion-related costs. These costs were partially offset by higher revenue per package, a boost from two additional ground commercial operating weekdays, and a net fuel benefit. FedEx Freight third quarter operating income nearly tripled, driven by a continued focus on revenue quality and profitable growth. (27 comments)
The struggle for Cathie Wood’s ARK Innovation ETF (ARKK) continues. Wood’s ETF is -36% YTD and is currently working towards its fifth-straight downward month. Meanwhile, this week has been particularly difficult, as 23 of its 35 holdings fell to 52-week trading lows, about two-thirds of the total. (154 comments)
Newly introduced Sprott Uranium Trust (OTCPK:SRUUF) units allowed retail investors to indirectly purchase physical uranium; the trust acquired ~52M lbs of uranium in the past nine months, or around a quarter of global annual demand. Caxton Associates, a multi-billion-dollar macro hedge fund, filed to disclose that the company owns over 18M of the Trust's 209M units. (3 comments)
The Federal Reserve's forecast of seven quarter-point interest rate hikes "is not so hawkish," as real (inflation-adjusted) yields are "still negative to the horizon," Goldman Sachs Senior Chairman Lloyd Blankfein wrote in a Twitter post. (3 comments)
JPMorgan Chase (JPM) has processed funds allocated for interest payments on dollar bonds held by the Russian government and transmitted the money to Citigroup (C), Bloomberg reported. JPMorgan was the correspondent bank Russia used to send the payment to Citi, which is acting as payment agent on the bonds. (36 comments)
In Asia, Japan +0.65%. Hong Kong -0.41%. China +1.1%. India closed.
In Europe, at midday, London -0.25%. Paris -0.72%. Frankfurt -0.83%.
Futures at 6:20, Dow -0.55%. S&P -0.63%. Nasdaq -0.67%. Crude -0.85% to $102.10. Gold -0.65% to $1931.00. Bitcoin -0.8% to $40,512.
Ten-year Treasury Yield -3.5 bps to 2.157%
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