Reads
-
Qatar Investment Authority aiming to increase stake in Credit Suisse (CS). FT
China orders 7 day lockdown for area around Foxconn (HNHPF) plant that makes Apple (AAPL) iPhones. Bloomberg
Elon Musk wants to charge $8/month for verified Twitter (TWTR) accounts. WSJ
CVS (CVS), Walgreens (WBA), and Walmart (WMT) will pay $13.8 bln to settle opioid claims. Reuters
Tesla (TSLA) closes first showroom in China. Reuters
China to keep coal price cap in place (KOL, BTU). Bloomberg
Interpublic Group (IPG) recommending that clients suspend advertising on Twitter (TWTR) for at least one week. CNBC Brazil Truckers Block Roads as Bolsonaro Maintains Silence - 2-Minute Showers and a Flotilla of Gas Shipments: Europe Braces for Winter
- Saudi Aramco Reports $42 Billion in Profit as Cash Rolls In
- Biden Accuses Oil Companies of ‘War Profiteering’ and Threatens Windfall Tax
- U.S. Sets Timeline for Oil Price Cap Enforcement
- Higher Interest Rates Fuel Losses at the Federal Reserve
- Bonds Rally With Powell’s Favored Curve Poised for Inversion
Options
Futures
PREMIUM
PREPPER
Another jumbo rate hike from the Fed is on tap this afternoon, with the central bank likely to announce its fourth 75 basis point move of the year. The hikes have so far added 3 percentage points to the federal funds rate in 2022 (which now ranges between 3.00% to 3.25%) and an increase today would bring it close to the 4-point mark that was last delivered in 1979 and 1980. The Fed is also predicted to announce another hefty increase in December to set a new record, though many are debating whether it will signal a downshift in its aggressiveness.
Bigger picture: Traders are divided whether a 75-bps rate hike or a 50-bps boost will happen next month, so pay attention to Jay Powell's press conference at 2:30 p.m. ET. Strong household balance sheets, which have higher savings due to the government's pandemic relief programs, may instead lead the central bankers to stay on their current aggressive rate path, resulting in a higher terminal rate than had been previously anticipated. On the other hand, weakening labor demand, declining rents, and an earnings season that is showing signs of fragility could provide early signs that the economy is weakening, and cause the central bank to tap the brakes.
A recent Seeking Alpha survey explores whether the Fed pivot will be real this time around. About 75% of participants found that "the hawks still rule," while only 25% feel that "smaller hikes are in view." We want to hear what you think, with only a day left to go in the poll. Vote here!
Go deeper: Besides a bigger pace of rate hikes weighing on stock market sentiment, and hopes of monetary easing supporting valuations, the coming Fed decision will impact many key areas of the broader economy. Mortgage rates will be sensitive to any outcome, as well as car loans and credit cards, making it much more expensive or cheaper to borrow cash. However, the hikes do not have a similar impact on the supply side, an area the Fed has largely attributed to soaring gas and food costs, and which are likely to tick up again when the Consumer Price Index is reported next Thursday. (32 comments)
With a mixed bag of economic data only getting more muddled, investors are looking to more specific indicators to assess the health of the overall economy. A.P. Moeller-Maersk (OTCPK:AMKBY), one of the world's biggest shipping companies, is out with its quarterly earnings, which are widely seen as a barometer for global trade and the supply chain. The Danish firm controls about one-sixth of the world's container shipping industry, with offices across 130 countries and more than 100K employees worldwide.
By the numbers: Earnings before interest, tax, depreciation and amortization (EBITDA) soared 60% Y/Y to $10.9B, coming in above consensus estimates of $9.8B. The "exceptional results" were driven by significantly higher ocean freight rates, as well as shipments on routes from Asia to Europe and to North America. Shares of Maersk still tumbled nearly 5% in Copenhagen as worries over shipping rates and volumes sunk the shipper's outlook.
"It is clear that freight rates have peaked and started to normalize during the quarter, driven by both decreasing demand and easing of supply chain congestion. As anticipated all year, earnings in Ocean will come down in the coming periods," CEO Søren Skou said in a statement. Global container demand is estimated to contract between 2% and 4% in 2022, down from a previous projection of +1% to -1%, though Maersk confirmed full-year guidance for underlying EBITDA of around $37B and a free cash flow above $24B.
Additional worries: "With the war in Ukraine, an energy crisis in Europe, high inflation, and a looming global recession there are plenty of dark clouds on the horizon. This weighs on consumer purchasing power which in turn impacts global transportation and logistics demand. While we expect a slow-down of the global economy to lead to a softer market in Ocean, we will continue to pursue the growth opportunities within our Logistics business. As a trusted partner, we are ready to support our customers in rethinking their supply chain needs through what is likely to be a period of a more volatile business environment." (7 comments)
Looking to boost growth at its medical devices unit, Johnson & Johnson (JNJ) has agreed to acquire cardiac pump maker Abiomed (ABMD) for an upfront payment of $380 per share, or a total of $16.6B (including debt and cash). An additional $35 per share will be paid if certain sales and regulatory clearance milestones are reached. Abiomed's stock skyrocketed on the news, surging nearly 50% over the session to close at $378.82 on Tuesday.
Bigger picture: The deal comes ahead of J&J's planned spinoff of its consumer health business, which sells Tylenol and Band-Aids, into a standalone company in 2023. It will leave J&J more focused on its two remaining divisions, pharmaceuticals and medical devices. Abiomed's fast-growing Impella device, billed as the world's smallest heart pump, could provide a boost to the latter unit, with the device used to treat conditions ranging from a heart attack and failure to clogged arteries.
"This acquisition is consistent with that strategy, expanding J&J med tech into high-growth markets, and accelerating revenue growth while advancing the standard of care," CEO Joaquin Duato declared.
Go deeper: J&J is not tightly integrating Abiomed into the rest of its business, and it will operate as a separate entity within its MedTech division. The deal is expected to accelerate its near- and long-term sales growth, and will be slightly dilutive to neutral to its adjusted earnings per share in the first year due to financing impact, but the pharma giant projects the transaction will add nearly $0.05 in 2024 before becoming increasingly accretive thereafter. (28 comments)
One of the most touted investments of the inflation era is in the spotlight after a profound rate reset. Series I savings bonds - better known as I bonds - have been offering some really attractive returns, especially with stocks and other bonds in the doldrums in 2022. I bond pricing is determined by a formula based on changes to the Consumer Price Index and re-adjusts every six months.
Snapshot: Those who bought I bonds from May through the end of October were awarded with an annualized rate of 9.62%. A purchase of $1,000 would have yielded $48 over six months, and that could be rolled into more I bonds over the next period to compound the return. The I bond rate reset yesterday to 6.89% - which is still a great return in the current environment - though many rushed to score more bonds before the Oct. 28 deadline.
In fact, the U.S. Department of the Treasury sold a record of $979M of Series I bonds on Friday, scooping up more I bonds in one day than was purchased during the entire three years from 2018 to 2020. Investors even opened 95,482 new accounts on Friday and ended up crashing the TreasuryDirect.gov website. They also bought more than $3B of I bonds last week and nearly $7B in October, resulting in new weekly and monthly records.
Fine print: Individuals can buy up to $10,000 of I bonds each calendar year, plus an extra $5,000 in paper bonds if they are designated as a federal tax refund. The only caveat is that buyers are locked into their purchase for a full calendar year, and if they are redeemed between one and five years, a penalty equal to three months of interest is applied. I bonds can also be gifted to others, as long as recipients have their own accounts and have not gone over their limit threshold.
Today's Markets
In Asia, Japan -0.1%. Hong Kong +2.4%. China +1.2%. India -0.4%.
In Europe, at midday, London -0.1%. Paris +0.3%. Frankfurt flat.
Futures at 6:30, Dow flat. S&P +0.1%. Nasdaq +0.2%. Crude -0.3% to $88.09. Gold +0.5% to $1658.40. Bitcoin -1.1% to $20,382.
Ten-year Treasury Yield unchanged at 4.04%
Today's Economic Calendar
Auto Sales
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:30 PM Jerome Powell Speech
Companies reporting earnings today »
What else is happening...
AMD's (AMD) revenue outlook gives the chipmaker a lift.
Airbnb (ABNB) slumps on signal of slowing post-pandemic bookings.
Social media gets bump as FCC member urges TikTok ban.
CVS (CVS) and others said to reach $12B opioid settlement.
Uber (UBER): We feel tailwinds in 2023 as consumer remains strong.
SoFi (SOFI) climbs after record quarterly numbers, guidance boost.
Israel election: Netanyahu appears to edge towards victory.
Higher political ad revenues lead to strong profits at Fox (FOX).
Pfizer (PFE) raises outlook even as COVID vaccine sales drop 66%.
Energy Transfer (ET) lifts profit forecast as natgas transport surges.
Walmart (WMT) takes aim at Amazon (AMZN) with half-off subscription deal.