Morning Reads









China COVID curbs return

The return of tight COVID restrictions in a Chinese city many thought to be a test case for a looser policy led to speculation Monday that the country could return to its zero-COVID stance.

Schools and universities in Shijiazhuang are on lockdown and at-risk residents were instructed to stay home for five days, with others advised to stay home "in principle," according to a statement in the Shijiazhuang Daily cited by Bloomberg. A rise in COVID cases and the first deaths reported by official Chinese media since May is dampening optimism that the country had reached an inflection point on policy that has weighed heavily on economic output.

The Beijing Daily reported that three people died in the capital from the disease. They were aged 87 to 91. More than 900 new cases in Beijing were reported on Sunday. The last time a death was reported, Shanghai was in lockdown.

Goldman cuts oil target: Oil futures (CL1:COM) (CO1:COM) (USO) (BNO) were down, but off their lows following the news in China.

Goldman Sachs cut its fourth-quarter 2022 forecast for Brent crude by $10 per barrel to $100, citing the restrictions in China and saying that new curbs could be equal to the recent OPEC+ production cut. The market "had a right to be anxious" about fundamentals in oil going forward, Goldman said. Brent has now wiped out all the gains it had seen since the start of Q4, while WTI is just slightly up since October 1.

More market impact: The Hang Seng (HSI) and the Shanghai Composite (SHCOMP) fell. The dollar (DXY) gained, with a possible resurgence in China growth a big reason for traders to price in lower demand for the greenback.

In the bond market, 22V Research said that surging China COVID cases have been "having an impact on global growth expectations, encouraging deeper yield curve inversion." In the Treasury market, the spread between 2-year (US2Y) and 10-year (US10Y) hit the widest inversion since the mid-'80s and now sits at a cycle-high 72 basis points.

Looking at emerging markets last week, Citi sounded a warning on too much optimism when it came to China and a Fed pivot. "Since COVID remains a big threat to Chinese household confidence, and since we still think the Fed has plenty of work to do, it’s probably wise to take the past week’s optimism with a grain of salt," Citi said. "The path to a full China re-opening remains uncertain and gradual at best." (3 comments)

Bob Iger back

Bob Iger is returning to the CEO position at Walt Disney (DIS) - a shocking development after the surprise exit of Bob Chapek from the top spot. The move is effective immediately, Disney says. Shares are up slightly in premarket trading.

Iger will serve as Disney's CEO for two years, Disney says, "with a mandate from the Board to set the strategic direction for renewed growth and to work closely with the Board in developing a successor to lead the Company at the completion of his term."

Iger departed Disney as executive chairman 11 months ago, though he delayed a long-planned exit from Disney amid the disruption of the COVID-19 pandemic - and his continued tenure at the company reportedly caused friction as Disney tried to move forward with new leadership. He won't retake the chairman's spot, which will remain with Susan Arnold.

A Disney legend, Iger was CEO/Chairman for 15 years (from 2005-2020) and then executive chairman and chairman of the board through 2021. Disney posted a strong earnings report in the fiscal third quarter in June, but the fiscal fourth quarter brought a new stock slide as ongoing parks strength couldn't offset declines in revenues and profits on the media side. (136 comments)

Twitter reinstates Trump

Elon Musk will allow Donald Trump back on Twitter (TWTR) after the former president won a poll run by the billionaire who recently purchased the social media behemoth. Twitter users voted 51.8% to 48.2% to allow Trump back on the social media platform after the Tesla (TSLA) chief conducted a poll that started on Friday night and included more than 15M votes, according to a tweet from Musk. Trump, who was banned from Twitter following the attack on the U.S. Capitol in January of last year, has said that he doesn't plan to come back on the service and instead will use his own platform Truth Social to communicate.

On Saturday, Trump encouraged people in a Truth Social post to vote in the Twitter poll, though he added "but don’t worry, we aren’t going anywhere." Trump also told a Republican Jewish Coalition meeting on Saturday that he sees a lot of "problems at Twitter" and plans to stick with his own platform, according to media accounts of the event. "I don't see any reason for it," Trump said about returning to Twitter. "Truth Social has taken the place for a lot of people and I don't see them going back onto Twitter."

The Twitter news also comes ahead of a Tuesday vote for Digital World (DWAC) holders to approve a year extension to take Trump's social media public through the SPAC. DWAC fell before the bell. (432 comments)

Chip issues

Berkshire Hathaway's (BRK.A) (BRK.B) recently announced stake in Taiwan Semiconductor (TSM), along with Qualcomm's (QCOM) order cut at China's Semiconductor Manufacturing International Corporation, have both been largely seen as "positives" for the semiconductor industry.

However, according to Fubon Research, the chip sector is not out of the woods yet. Analyst Sherman Shang noted that the cycle is likely to bottom out either this quarter or next as days of inventory start to decline, but Shang remains uncertain about whether the recovery will look like the boom the industry just went through.

"The overall semi recovery entering another cycle will depend on the recovery of end demand, which has not been seen based on our checks," Shang wrote in a note to clients. Nonetheless, valuations are now attractive, with Shang pointing to the fact that Taiwan Semiconductor's (TSM) valuation has been "deeply de-rated" over the past six months due to geopolitical risks, and the expectation is that "a re-rating will likely happen in the short term." (6 comments)

Today's Markets

In Asia, Japan +0.16%. Hong Kong -1.87%. China -0.41%. India -0.84%.
In Europe, at midday, London -0.08%. Paris -0.64%. Frankfurt -0.30%.
Futures at 6:30, Dow -0.28%. S&P -0.55%. Nasdaq -0.75%. Crude -0.55% to $79.67. Gold -0.73% to $1741.65. Bitcoin -3.65% to $16,080.8.
Ten-year Treasury Yield +1 bps to 3.83%

Today's Economic Calendar

8:30 Chicago Fed National Activity Index
11:30 Results of $42B, 2-Year Note Auction
1:00 PM Results of $43B, 5-Year Note Auction

Companies reporting earnings today »

What else is happening...

The World Cup is here - watch these stocks.

Silver set to post biggest deficit in a decade.

FTX downfall could extend crypto bear market through end-2023.

Simon & Schuster to let $2.2B sale to Penguin Random House collapse.

Activist investor said to push against potential Fox (FOXA) deal with News Corp. (NWSA).

REITs' FFO growth continues in Q3 2022, showing a 'degree of normalization'.

Meta (META), AbbVie (ABBVamong new names in UBS 2023 stock focus list.

Live Nation (LYV) hit on report of DOJ antitrust probe.

Newly public Grindr (GRND) stock soars as high as 515% following SPAC merger.

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.

More Posts by UPB: View All | Private Twitter Feed: Access Now! (For Diamond Members)