Morning Reads






The greenback is at its highest level in two decades, climbing another 1% on Thursday to just under 104 in the U.S. Dollar Index, marking its strongest level since 2002. The gauge measures the U.S. currency's strength against a basket of other developed world currencies, including the euro, yen, Canadian dollar and British pound. In fact, the greenback has advanced 7% since the beginning of the year, outpacing many assets from stocks and bonds to gold and bitcoin.

Commentary: "It's clearly a 'U.S. dollar is king' world," said Mingze Wu, a currency trader in Singapore at StoneX Group. "The dollar will continue to strengthen globally as long as rest of the world does not keep up in matching interest rate hikes." The greenback is also getting a haven bid along with Treasuries amid concerns about economic growth and a possible recession.

Speaking of growth, GDP in the U.S. shrank for the first time since the pandemic, contracting 1.4% in the first quarter (vs. +1.1% consensus and +6.9% in Q4). The surprise was exacerbated by a widening trade deficit reflecting supply chain problems, as well as lower private inventory investment and fading government stimulus spending. The Fed is still likely to raise rates by 50 basis points next week amid strong domestic demand, though Treasury Secretary Janet Yellen has warned of further "large negative shocks" that are "likely to continue to challenge the economy."

Growth vs. inflation: Strength in the dollar is also the result of weaker comparative currencies. The euro has been on the back foot due to the war in Ukraine, China's severe COVID restrictions have led to a weaker yuan and Japan's widening policy and trade gap has sent the yen into freefall this year. "We had two decades of the benefits of low inflation, but now central banks are trying to win back their inflation-fighting credibility," noted Jordan Rochester, foreign exchange strategist at Nomura. "But the ECB is facing stagflation and will struggle to keep with the Fed, and the BOJ isn't even coming to the party. With lower exposure to China, and lower exposure to Ukraine, the U.S. stands out as resilient."

Tech industry

A tale of two tech giants hit markets after the close on Thursday as both Amazon (AMZN) and Apple (AAPL) reported first-quarter earnings. Traders were unimpressed by the results (maybe even spooked by them), sending shares of Amazon and Apple down by 9% and 2.2%, respectively, in after-hours trading. The reports are also weighing on the Nasdaq following a big recovery session on Thursday, with futures pointing 1% lower ahead of the open. The tech-heavy index is even on pace for its worst month since March 2020, down 9.5% before the last trading session for April.

Amazon: The e-commerce giant posted its slowest revenue growth on record, recording only a 7.3% Y/Y expansion due to a drop in online shopping, inflation and supply chain problems. Along with a $7.6B write-down of its stake in Rivian, the results led to the company's first quarterly loss since 2015, with $3.8B of red ink (compared to a profit of $8.1B a year ago). A bright spot was company's cloud business, Amazon Web Services, though looking ahead, Amazon said it expects Q2 revenue in a range of $116B to $121B (vs. $125.1B consensus) and CEO Andy Jassy commented on "unusual growth and challenges."

Apple: The iPhone maker initially got a lift after a big earnings beat, before CFO Luca Maestri announced that supply chain issues could cost $4B to $8B in fiscal third-quarter revenue. CEO Tim Cook also noted that Apple could recapture some of the demand lost due to the lockdowns, but some of it may be lost forever. The Cupertino, California-based company still earned $1.52/share on $97.28B in revenue, boosted strength in the iPhone and an all-time high in Services, leading it to raise its dividend by 5% and boost its buyback by $90B.

Commentary: "Everyone is universally bearish [on Big tech stocks]," said Piper Sandler tech analyst Brent Bracelin. "Typically when you have all investors on one side of the boat, that is typically when the boat flips. There is probably more risk for the next two quarters around slight changes to the numbers, factoring in these increasing global risks. But from a sentiment perspective, it's hard to see how things can get more bearish from here." (169 comments)

Up in smoke

A third of all cigarettes sold in the U.S. could be taken off store shelves, according to a national ban proposed by the Biden administration. The measure, which targets menthol stoges and flavored cigars, would be the biggest move the federal government has taken to curb cigarette use since the FDA gained regulatory control over the tobacco industry in 2009. "We know the majority of smokers want to quit," FDA Commissioner Dr. Robert Califf declared. "Prohibiting menthol in cigarettes will give them a better shot."

Exceptions: The ban won't impact menthol e-cigarettes, while case-by-case exemptions could be applied to certain products like heated-tobacco devices or cigarettes with very low nicotine levels.

The menthol cigarette ban would still take aim at a product representing more than $20B in U.S. annual sales. On watch are British American Tobacco (BTI), which owns Newport, the No. 1 menthol-cigarette brand in the U.S. (as well as Camel Crush), and Marlboro maker Altria (MO), which is the No. 2 seller of menthol cigarettes. About 12.5% of adults in the U.S., or 30.8M people, were cigarette smokers in 2020, according to the CDC.

Go deeper: It would take at least two years for final legislation to go into effect, with the FDA needing public comment on the proposed rules and time to review them. Big Tobacco companies have also indicated that they might sue, which could kick the ban further down the road. "We strongly believe that there are more effective routes to deliver tobacco harm reduction than banning menthol in cigarettes," said Kingsley Wheaton, Chief Marketing Officer at British American Tobacco. "Prohibition, at least through history, hasn’t worked," added Altria CEO Billy Gifford. (142 comments)

Musk sells

In a series of SEC filings published yesterday evening, it was revealed that Elon Musk sold nearly $4B worth of Tesla (NASDAQ:TSLA) stock to fund his $44B deal for taking Twitter (NYSE:TWTR) private. The sales took place on Tuesday and Wednesday, with blocks of stock being sold at prices between $872 to $999 per share. "No further TSLA sales planned after today," Musk tweeted after the filings became public (the 4.4M shares sold equate to 2.6% of his stake in Tesla).

Bigger picture: Musk has promised to chip in $21B of personal equity for the Twitter deal, with the rest of the cash coming from investment banks (after convincing them that Twitter produced enough cash flow to service the debt). $13B in loans will be secured against Twitter, as well as a $12.5B margin loan tied to his Tesla stock, making Musk America's most leveraged CEO. Since banks require a bigger cushion for borrowing against high-beta stocks like Tesla, Musk will need to pledge about $65B in Tesla shares - or about a quarter of his current total - for the loan, on top of existing facilities.

"Pledging of shares by executives is considered a significant corporate governance risk," said Jun Frank, managing director at ISS Corporate Solutions. "If an executive with significant pledged ownership position fails to meet the margin call, it could lead to sales of those shares, which can trigger a sharp share drop in stock price. This exposes shareholders to significant stock price risk due to an executive's personal financing decisions."

In terms of Tesla: Shares have already slipped 15% this week as investors fret over Musk's stock sales and how much time he'll be able to allocate to Tesla while being involved with Twitter's operations and running SpaceX. At the end of last year, Musk also sold about 15.8M of Tesla shares, worth about $16B, divesting 10% of his stake in the EV maker to help pay a reported $11B tax bill. News of "no more Tesla sales" is helping the stock recover this morning, with shares advancing 4% to $913 in premarket trading. (35 comments)

Today's Markets

In Asia, Japan closed. Hong Kong +4%. China +2.4%. India -0.8%.
In Europe, at midday, London +0.2%. Paris +0.6%. Frankfurt +0.8%.
Futures at 6:20, Dow -0.4%. S&P -0.7%. Nasdaq -1%. Crude +1% to $106.40. Gold +1.4% to $1917.70. Bitcoin -1.4% to $39,178.
Ten-year Treasury Yield +1 bps to 2.88%

Today's Economic Calendar

8:30 Personal Income and Outlays
8:30 Employment Cost Index
9:45 Chicago PMI
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices

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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