Morning Reads








After closing out a year in which the S&P 500 dropped nearly 20%, Wall Street extended its gloomy demeanor into the start of 2023, with stocks edging lower amid retreats in some high-profile names. The Nasdaq Composite (COMP.IND) led the declines among the major averages, closing the session down 0.8%, while the S&P 500 (SP500) fell 0.4% and the Dow (DJI) finished fractionally lower. As mentioned in recent editions of Wall Street Breakfast, volatility is likely to remain a big theme for markets this year as economic uncertainty lingers and each data point becomes an opportunity for a clearer picture.

Commentary: "Markets stumbled into 2023 on the first trading day as the markets awaited Wednesday's release of the December FOMC meeting minutes," Marketplace author Andrew Hecht told Seeking Alpha. "The price action indicates that the market's sentiment is for a continuation of hawkish squawking from the central bank. Meanwhile, industrial and agricultural commodity prices were mostly lower, while gold, silver, and platinum prices increased."

Energy marked the worst sector performer on the session, falling 3.6% after crude oil dropped to around $77 a barrel, though tech was also a notable decliner. Six of 11 S&P segments finished the day lower, but futures linked to the benchmark index turned green overnight, and the question now is if that can hold.

On the move: Tesla (TSLA) suffered additional downward pressure on Tuesday, continuing a slide that forced the stock sharply lower during December. Hurt by a disappointing deliveries report, shares of Elon Musk's EV maker plunged another 12% to set another 52-week low at $108 (TSLA has tanked 73% over the past year). Apple (AAPL) also staged a notable retreat, with shares slumping nearly 4% following a report that it might be cutting production levels of the MacBook and Apple Watch. The iPhone maker's market capitalization dipped below $2T during the session, exactly a year after it first notched the $3T milestone. (19 comments)

Euro adoption

The eurozone is bringing in the new year with a new member, marking a symbolic sign of European unity as Russia continues its war against Ukraine. Croatia is now the 20th country to adopt the euro, marking a milestone for the nation of nearly 4M people. Croatia, which has sought out closer ties since its EU accession in 2013, will also join the border-free Schengen area - a bloc of 26 countries that has enabled a population of 420M to move freely among members - making it the largest border-free area in the world.

The transition: The kuna can still be used until Jan. 15, though anyone paying in the old currency will receive their change in euros. After that date, bills and coins will be permitted to be exchanged at any Croatian post office until June 30, and at any Croatian bank until the end of 2023. For those taking longer to part with their cash, kuna coins can be exchanged at Croatia's central bank until December 2025 and banknotes until further notice.

"Croatia is the country that stands to profit the most from entry into the eurozone," noted Boris Vujcic, governor of the Croatian central bank. "When your currency depreciates against the euro it means your debt is worth more, so your borrowing costs as a country are higher to reflect this risk." At the time of writing, the euro is up 0.6% at $1.0610.

Go deeper: Croatia already relies on the euro for more than half of its foreign trade and for nearly three-quarters of its tourists. Joining Schengen is likely to support the country's tourism industry, which accounts for over 20% of GDP, though there are more mixed feelings with regards to euro adoption. Many say it will usher in a period of economic stability and safety, especially as inflation soars across Europe, while others say it would only benefit larger countries like France and Germany. (1 comment)

Not guilty

In a statement that was widely expected, Sam Bankman-Fried, the disgraced co-founder and CEO of the now-bankrupt FTX cryptocurrency exchange, has pleaded not guilty to all criminal charges in federal court. The one-time billionaire entered his plea to eight criminal counts ranging from wire fraud to conspiracy to pursue money laundering before U.S. District Judge Lewis Kaplan in Manhattan. Kaplan was said to have set an Oct. 2 trial date and a federal prosecutor noted that the SBF trial could last about four weeks.

Bigger picture: The news comes shortly after two of Bankman-Fried's associates, Gary Wang, FTX's former CTO and co-founder, and Caroline Ellison, the former CEO of Bankman-Fried's trading firm, pleaded guilty to fraud charges and agreed to cooperate with U.S. prosecutors to build a case against SBF. In her plea hearing on Dec. 19, Ellison admitted that she conspired with others to use billions of dollars of customers' funds from Bankman-Fried's failed trading platform. If convicted, SBF, who has been accused of defrauding investors and FTX customers, could face up to 115 years in prison.

Meanwhile, U.S. financial regulators, in their first statement since the FTX meltdown, advised banks exposed to the cryptocurrency sector to ensure that their activities were "legally permissible." The Federal Reserve, FDIC, and the Office of the Comptroller of the Currency said in a joint announcement they believe that issuing/holding cryptos on an open, public and/or decentralized network is "highly likely to be inconsistent with safe banking practices." The regulators also raised safety and soundness concerns about the business models of crypto-related firms.

Outlook: While they said banking organizations are "neither prohibited nor discouraged from providing banking services to customers of any specific class or type," the group is reviewing how banks can engage in crypto activities while ensuring safety, consumer protection, and compliance with laws. "The agencies are supervising banking organizations that may be exposed to risks stemming from the crypto-asset sector and carefully reviewing any proposals from banking organizations to engage in activities that involve crypto-assets." (8 comments)

Travel restrictions

An explosion of COVID-19 cases across China is overwhelming funeral homes and crematoriums, in a development that brings back flashbacks from the early days of the pandemic. It follows the lifting of China's three-year old zero-COVID policy, which implemented strict restrictions - like quarantine and lockdowns - to stop community transmission as soon as infections were detected. Beijing has even done away with reporting and tracking, prompting worries over the virus' spread, the lack of genomic sequencing data and the potential for a dangerous or super-contagious new variant.

Snapshot: The U.S. and U.K. are reintroducing compulsory pre-flight COVID-19 tests for inbound travelers from China, while countries like Japan and Italy are requiring travelers to test upon arrival (and go into quarantine if they are positive). The EU is also moving toward mandating masks and pre-flight testing on arrivals, with the bloc's Health Security Committee drafting an opinion that includes the recommendations. That's in contrast to a stance from the European Center for Disease Prevention and Control, which thinks the measures aren't justified.

China feels the same way, calling the new testing requirements "discriminatory" and a politically-motivated effort to undermine the government. "We believe that some countries' entry restrictions targeting only China lack scientific basis and some excessive measures are unacceptable," Foreign Ministry spokeswoman Mao Ning said at a press briefing. "We firmly oppose attempts to manipulate COVID prevention and control measures to achieve political goals, and China will take corresponding measures based on the principle of reciprocity in different situations."

Knock-on effects: As COVID-19 upends the world's second-largest economy, China is reportedly moving away from the costly subsidies it has poured into building a domestic chip industry. The mega investments were intended to help it better compete with the U.S., which passed the Chips and Science Act this past summer. The decision could also have ramifications for spending in other critical areas, especially in industries that haven't produced breakthroughs or achieved self-sufficiency of key technologies. (13 comments)

Today's Markets

In Asia, Japan -1.5%. Hong Kong +3.1%. China -0.2%. India -1%.
In Europe, at midday, London +0.6%. Paris +1.7%. Frankfurt +1.6%.
Futures at 6:30, Dow +0.3%. S&P +0.4%. Nasdaq +0.6%. Crude -2.5% to $75.04. Gold +1.2% to $1868.30. Bitcoin +0.7% to $16,843.
Ten-year Treasury Yield -10 bps to 3.69%

Today's Economic Calendar

7:00 MBA Mortgage Applications
10:00 ISM Manufacturing Index
10:00 Job Openings and Labor Turnover Survey
2:00 PM FOMC Minutes

Companies reporting earnings today »

What else is happening...

Lawsuits coming? Southwest (LUV) slides despite shoring up schedule.

Rivian (RIVN) produces 10K vehicles in Q4, short of full-year target.

Mining stocks rally as gold hits highest level since mid-June.

Disney (DIS) executive hired to lead Apple (AAPLTV+ marketing.

Solana's (SOL-USD) price rockets as Bonk airdrop sparks interest.

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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