Monday Morning Reads
- China’s ‘Belt and Road’ With Own Infrastructure Plan
- ECB’s Lagarde Foresees July Policy Shift
- China’s Slowing V-Shaped Economic Recovery
- Bond Market Junks ‘New Paradigm’ Talk
- Crypto Exchanges Have a Plan to Beat Binance
- Wall Street Sees Blowout Profits Ahead
- Bank Profits Are Poised to Surge
- Dealmakers See M&A Rush
- Bull’s Eye On ‘Big Rail,’
- Ways That Businesses Can Make Your Life Miserable
- BioBonds to Fund Medical Research
- Flipkart Raises Funding at $37.6 Billion Valuation
- Nordstrom, Eyeing 20-Somethings
- Facebook Wants to Court Creators
- Richard Branson’s Space Jaunt
Open Interest Changes:
The 70-year-old founder of Virgin Galactic (NYSE:SPCE) rode the VSS Unity into the lower reaches of space on Sunday morning following a 17-year quest towards suborbital space tourism. "For the next generation of dreamers, if we can do this, just imagine what you can do," he said before unlatching his seat belt. Branson can now claim victory in the "billionaire space race" by riding his own spacecraft, though Blue Origin's (BORGN) Jeff Bezos will take his own ride to space next week, while Elon Musk has been in a class of his own by concentrating on the orbital arena and beyond via SpaceX (SPACE).
Bigger picture: Branson believes that there is a market to carry as much as 2M people on suborbital spaceflights priced in the $250,000 to $500,000 range, meaning a $1T market at the upper level. The industry could also expand. "There's room for 20 space companies to take people up there," Branson said in a recent interview. "The more spaceships we can build, the more we can bring the price down and the more we'll be able to satisfy demand and that will happen over the years to come."
Responding to the latest developments, Virgin Galactic has opened the week in the ionosphere, with shares soaring 10% premarket to $54. Galactic was among the recent generation of space companies to go public via a SPAC in 2019, but it hasn't stopped there. Over the past two months, rocket builder Astra Space (NASDAQ:ASTR) and satellite broadband firm AST SpaceMobile (NASDAQ:ASTS) have begun trading, while companies like Rocket Lab, BlackSky, Spire Global and Momentus are expected to follow suit.
What to watch next: Jeff Bezos will make a run at suborbital space on July 20, launching aboard Blue Origin's New Shepard rocket. The system launches vertically from the ground, compared to Virgin Galactic's SpaceShipTwo/VSS Unity, which is released mid-air and glides back to Earth for a runway landing. Blue Origin has also emphasized that it's flying above the Karman Line, a boundary 62 miles above sea level that's commonly referred to as the beginning of space (Galactic's flight only reaches 50 miles up, an area the FAA says still makes you an astronaut).(15 comments)
You may have to go back some years to remember the history, but in 2016, Tesla (NASDAQ:TSLA) scooped up another Musk-led company called SolarCity, in a deal Elon hailed at the time as a "no brainer." He said the purchase would lead to a broader array of products by combining the leading maker of electric vehicles with a solar panel company that can charge EVs, though many were critical of the $2.6B purchase. Today, in the Delaware Court of Chancery, Elon Musk will testify about the deal in a shareholder lawsuit that alleges the acquisition was plagued by conflicts of interest, fundamental weaknesses and failed to produce the highly-promised profits.
The lawsuit: Musk owned 22.1% of Tesla common stock at the time of the transaction, and 21.9% of SolarCity, according to a filing with the chancery court. Shareholders allege the deal amounted to a SolarCity bailout that enriched the billionaire and his family more than it did Tesla. Over the years, Tesla has also repeatedly delayed mass manufacturing of its hyped Solar Roof tiles, though its energy storage products are on a tear due to demand for low-cost renewable electricity. Musk will argue that the deal hasn't harmed shareholders and that they voted overwhelmingly to approve the acquisition in June 2016 (TSLA shares have since risen from $44 to $657 - and that's after a five-for-one stock split).
Legal troubles aren't new to Elon Musk. The SEC sued him for fraud in 2018 after he tweeted about taking Tesla private for $420 a share and sent TSLA's stock price soaring (Musk and Tesla settled for $20M each). In another case, he emerged unscathed after caving expert Vernon Unsworth said Musk had defamed him when the Tesla CEO called him a "pedo guy" over Twitter (Unsworth previously deemed Musk's miniature submarine a "PR stunt" in the Thailand cave rescue). Other lawsuits are still outstanding, including one over Musk's CEO compensation package and a number of federal investigations.
Analyst commentary: Last August, a judge approved a $60M settlement that resolved all SolarCity claims made against the directors of Tesla's board, but Musk refused to settle. It's a "clear black eye" for him and Tesla, writes Wedbush analyst Daniel Ives, largely because SolarCity has failed to turn a profit. "It basically was putting good money after bad. For all the successes and all of the unimaginable heights Musk has achieved, this is one of the lowlights." While Musk could be on the hook for a $2B payout should he lose the suit, Ives said it won't seriously affect his wealth (he's worth $163B), though it would damage his reputation for choosing acquisitions.
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Cyclicals or growth? While the two industries continue to battle over who will lead the market higher, both sectors appear to be doing quite well as investors head into the second half of the year. The major averages rallied on Friday, all finishing the day up about 1% to reach fresh all-time highs, though the three indexes are starting the week on a mixed note. Nasdaq futures are ahead by 0.2%, while contracts linked to the Dow and S&P 500 are off by 0.4% and 0.2%, respectively.
Snapshot: The movement comes before the second quarter earnings season, which will keep traders busy over the next several weeks. Profits of S&P 500 companies are expected to be up 65% from the same quarter a year ago, according to Refinitiv, rebounding from the worst of the coronavirus pandemic. It would also be the strongest earnings growth since Q4 of 2009, when stocks recovered from the global financial crisis.
"Analysts are still under-appreciating how much profits have improved and how much they will improve," wrote Jim Paulsen, chief strategist and economist at the Leuthold Group. "We had dramatic overreaction from policy officials. They addressed the collapse, but created a massive improvement in fundamentals. This is still playing out in terms of the recovery in profits."
On the economic calendar: The latest figures on inflation and growth will be front and center this week. The June consumer price index will be published tomorrow, while the producer price reading will be announced on Wednesday. Fed Chair Jerome Powell is also due to give his semiannual monetary policy report before the U.S. House and Senate on Wednesday and Thursday, while the June retail sales will be released on Friday.
"After many years of discussions and building on the progress made last year, we have achieved a historic agreement on a more stable and fairer international tax architecture," financial leaders from the G20 said in a communique on Saturday. The group was meeting in Venice, Italy, with Treasury Secretary Janet Yellen representing the U.S. Next steps include work on key details at the OECD and then a final decision at the G20 gathering of presidents and prime ministers scheduled for Oct. 30-31 in Rome.
Fine print: The latest pact would establish a global minimum corporate tax of at least 15%. It would also mean companies like Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB) and Google (GOOG, GOOGL) would partly pay taxes on where they sell their services, instead of the location of their headquarters. Implementation could happen as early as 2023, but would depend on action at the national level.
Several European countries continue to object to the minimum tax rate, saying it would remove a tool for encouraging foreign investment. Among them are Ireland, Hungary and Estonia, which will all need to be encouraged to sign up to the deal by October. Resistance from any EU nation could prevent the 27-member bloc from going ahead with the plan or at least force the bloc to resort to novel legal maneuvers that have yet to be tested.
Other obstacles: The new tax approach could also run into opposition in the U.S., where Yellen needs to sell the deal to Congress. The changes could require the U.S. Senate to alter existing tax treaties, which would take a two-thirds vote and at least some GOP support. Republicans have already expressed opposition to any rise in taxes, while some lawmakers have condemned the idea of ceding taxing authority to other governments. Business groups have additionally complained that higher taxes could threaten the economic recovery as American companies navigate their way out of the coronavirus pandemic. (144 comments)
The movie industry is undergoing a major turnaround as Black Widow, the first Marvel movie released in two years, posted some big numbers over the weekend. The Walt Disney (NYSE:DIS) superhero pic generated an estimated $80M in ticket sales in North America, compared to the previous pandemic record holder - Universal's (NASDAQ:CMCSA) F9 - which debuted to $70M a few weeks ago. Black Widow also brought in $78M from international theaters and at least $60M in Disney+ Premier Access rentals (more on that below) for a total of $215M.
Quote: "Hollywood blockbusters continue to gain ground at the box office with each successive release, and that bodes very well for the many films lined up for exclusive worldwide theatrical release this fall and beyond," said Rich Gelfond, CEO of IMAX (NYSE:IMAX).
For the first time, Disney busted out the stats on Premier Access, which lets Disney+ subscribers stream select new movies for $30 the day they debut in theaters. The program began during the pandemic, but with 2M people renting Black Widow, it remains to be seen if Disney will continue the scheme. It could herald the beginning of a broader hybrid strategy, though Jungle Cruise is the only Premier Access film that remains in the pipeline (for now).
Other statistics: 81% of North American theaters are currently open and most are operating at full capacity. Films this weekend grossed a total of $117M, marking the first time since the beginning of the pandemic the industry has surpassed $100M.
In Asia, Japan +2.3%. Hong Kong +0.7%. China +0.7%. India flat.
In Europe, at midday, London -0.75%. Paris -0.5%. Frankfurt -0.2%.
Futures at 6:20, Dow -0.4%. S&P -0.2%. Nasdaq -0.2%. Crude -1.6% at $73.35. Gold -0.6% at $1799.70. Bitcoin +0.5% at $33860.
Ten-year Treasury Yield -2 bps to 1.33%
Today's Economic Calendar
What else is happening...
The most volatile stocks for earnings season: Sector Watch.
Latest White House order includes reining in Big Tech.
Highest since May... Daily COVID cases exceed 48,000 in the U.S.
Oregon wildfire knocks out 5,500 MW of power to California.