Morning Reads
- River Slows US Food Exports When World Needs Them Most
- Price of Diesel, Which Powers the Economy, Is Still Climbing
- Why Inflation Has Lasted for So Long
- What Happens When Americans’ Cash Runs Out
- As the Fed Raises Rates, Worries Grow About Corporate Bonds
- Regulators Look to Lessen Treasury Market Reliance on Big Bank Dealers
- FTX Hurtles Toward Bankruptcy With $8 Billion Hole, US Probe
- Is This Crypto’s Lehman Moment?
- When Tech Stocks Sputter, the Entire Stock Market Sinks
- Tech’s Talent Wars Have Come Back to Bite It
- When Your Layoff Has a Hashtag
- Work From Anywhere! (Well, Not Really)
- Musk’s First Email to Twitter Staff Ends Remote Work
- Rivian’s Losses Mount as It Continues to Burn Through Cash
- Nio Reports Strong Third-Quarter Revenue as It Gears Up for a Big Year-End Production Push
- Carvana’s Earnings Crash Spurs Bond Selloff
- Redfin Shuts Home-Flipping Business, Lays Off 13% of Staff in Slumping Housing Market
- Disney Has a Disney World Problem, Too
- Goldman Sachs’s 80 New Partners Are the Happiest People on Wall Street Today
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With inflation being the Federal Reserve's biggest worry, October's Consumer Price Index has the potential to rattle markets again today. The headline number, released at 8:30 a.m. ET, is expected to increase 8% Y/Y, compared to 8.2% in September. Meanwhile, core CPI, which strips out the volatile prices of food and energy, is forecast to rise 6.5% Y/Y vs. the 6.6% pace seen in the previous month.
Snapshot: Recent data shows just how far the cost of goods and services has climbed above the Fed's target of 2%. In an effort to rein in the rising prices, the central bank has ratcheted up its key policy rate by 375 basis points since March to 3.75%-4.0%, exceeding the previous cycle's peak of 2.25%-2.5% in December 2018. A fifth consecutive 75 bps rate hike is also on the table at the Fed's meeting next month, especially if today's figures come in higher than expected.
Pay particular attention to interest-sensitive sectors in the CPI report as higher borrowing costs make consumers and businesses more cautious about making purchases. Shelter is again expected to be the primary driver of October's core reading, with housing making up nearly a third of the basket for consumer price inflation. Gasoline prices are also predicted to put upward pressure on the headline figure, as well as higher airfare and auto rental prices, though medical care costs may have declined.
Commentary: "It isn't just the ongoing pace of increase that is troublesome but the pervasiveness of surging prices across various spending categories that has scarred household budgets," said Greg McBride, Chief Financial Analyst at Bankrate.com. "Despite a half-dozen interest rate hikes by the Federal Reserve, any broad-based, significant, and sustained easing of inflation pressures remains elusive." (34 comments)
Just a day after Binance founder Changpeng "CZ" Zhao announced he would bail out Sam Bankman-Fried's "SBF" FTX.com, CZ has backed out of the agreement due to fund mishandling and regulatory issues. It's no surprise, given the fact that the agreement was non-binding, while Binance said the deal was pending due diligence and didn't announce any takeover terms. The two have also been long-time rivals, leading some to speculate that CZ may have just been taking a jab at SBF on his way to the top of the cryptoverse, or checking out the internal state of the rival exchange as concerns bubble about the health of the overall sector.
What's next? Sam Bankman-Fried has told investors that FTX would need to file for bankruptcy without a cash injection. The crypto exchange faces a shortfall of up to $8B and needs $4B to remain solvent, and is attempting to raise rescue financing in the form of debt, equity, or a combination of the two (what about crypto?). The De-Fi label is also not stopping the Feds from getting involved, with U.S. Justice Department reportedly looking into the liquidity crisis that sparked FTX's collapse and the SEC analyzing a space Chairman Gary Gensler has previously described as the Wild West.
Some say that the cratering crypto environment is spilling over to tech and broader markets, with a correlation between the industries described as shady, real and triggering much of the speculative investment that has occurred over the past few years. A "cascade of margin calls" is likely underway in the rest of the crypto ecosystem, according to J.P. Morgan's Nikolaos Panigirtzoglou, while "the number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking." That could ultimately push the price of Bitcoin (BTC-USD) down to the $13,000 level.
New rescue strategy? "Further to my announcement to stand behind all Tron token (TRX-USD), (BTT-USD), #JST, #SUN, (HT-USD) holders on #FTX, we are putting together a solution together with #FTX to initiate a pathway forward," tweeted Justin Sun, the founder of the Tron cryptocurrency network. "The ongoing liquidity crunch, despite short term in nature, is harmful to the industry development and investors alike. My team has been working around the clock to avert further deterioration. I have faith that the situation is manageable following the wholistic approach together with our partners. Stay tuned." (17 comments)
The firing of 13% of Meta Platforms' (META) workforce has also brought the tech and economic outlook back into the spotlight. In addition to the layoffs, the company is extending a hiring freeze through the first quarter of 2023, and will "roll out more cost-cutting changes" in the coming months. Shares of Meta climbed 5% on Wednesday in response to the news, but remain off 70% YTD amid worries over the platform's pivot to the metaverse and reckless spending.
Quote: "I know there must be just a range of different emotions. I want to say up front that I take full responsibility for this decision," Zuckerberg said on a video call after announcing the layoffs. "I'm the founder and CEO, I’m responsible for the health of our company, for our direction, and for deciding how we execute that, including things like this, and this was ultimately my call."
"And it was one of the hardest calls that I've had to make in the 18 years of running the company. And a lot of why it's hard is, obviously, it has a big impact on your lives, but also for our mission. We're losing people who... you've really put your heart and soul into this place. No matter what team you may have worked on, each of you played a role in contributing to the products that billions of people use to connect every day."
Outlook: Meta kept its Q4 revenue guidance of $30B to $32.5B unchanged, which is in line with analysts' consensus estimates of about $31.6B. The 2022 and 2023 expense forecasts provided on the Q3 earnings conference call also factored in the financial impact of the layoffs. Going forward, investors will be keeping an eye on moderating growth and operating margins, as well as additional weakening in the company's core advertising business. (74 comments)
An interesting dynamic is playing out in fuel markets, especially as inflation remains on the radar. While gasoline prices have come down from the records notched in June, diesel prices have remained uncomfortably high, contributing to additional price pressures and shipping costs. In fact, on a year-over-year basis, gas prices are up 11% and diesel has soared 47%, to $3.80 and $5.36, respectively.
Quote: "The economic impact is insidious because everything moves across the country powered by diesel," said Tom Kloza, co-founder of the Oil Price Information Service. "It's an inflation accelerant, and the consumer ultimately has to pay for it."
Not only does diesel power trucks and trains, but also tractors and construction equipment. That translates into profound inputs for the economy and affects the cost of nearly every product. Many of those fees are now getting tacked on as fuel surcharges, while some market watchers are even worrying about potential inventory shortages.
Demand for diesel: American refineries tend to do maintenance at this time of year, but it's coinciding with an industry that is at max capacity. Some refineries have never come back online after COVID-19 and analysts even link the shortages to closures that took place before the pandemic (or the lack of investment). Some factors are also seasonal, like increased demand during the agricultural planting and harvesting seasons, while a ban on Russian imports - and the U.S. exporting lucrative diesel products abroad - aren't helping the situation.
Today's Markets
In Asia, Japan -1%. Hong Kong -1.7%. China -0.4%. India -0.7%.
In Europe, at midday, London -0.2%. Paris -0.7%. Frankfurt -0.2%.
Futures at 6:30, Dow +0.1%. S&P +0.1%. Nasdaq +0.3%. Crude -1.3% to $84.75. Gold -0.3% to $1709.30. Bitcoin -7.9% to $16,270.
Ten-year Treasury Yield -4 bps to 4.10%
Today's Economic Calendar
2:00 Fed's Waller Speech
8:30 Consumer Price Index
8:30 Initial Jobless Claims
9:00 Fed's Harker Speech
10:30 EIA Natural Gas Inventory
1:30 PM Fed's George Speech
2:00 PM Treasury Statement
4:30 PM Fed Balance Sheet
6:35 PM Fed's Williams Speech
Companies reporting earnings today »
What else is happening...
Trump SPAC (DWAC) drops 20% as 'Red Wave' doesn't happen.
Beyond Meat (BYND) misses expectations amid weakening demand.
Rivian (RIVN) recoups some losses after holding production guidance.
Europe moves toward deal for €6B satellite Internet system - Reuters.
Roblox (RBLX) plunges as mixed Q3, weak EBITDA spooks investors.
Wix.com (WIX) reports Q3 beat, raises revenue outlook for FY22.
Marriott (MAR) unveils new apartment-style renting business.
Bumble (BMBL) plummets as revenue results and forecast stumble.
AstraZeneca (AZN) boosted by sales of cancer drugs and EPS outlook.
DraftKings (DKNG) declines as voters reject sports betting propositions