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Todays Open Interest Change
China had warned of retaliation over the downing of a balloon earlier this month, but the latest salvo in tension-filled U.S.-Sino relations is coming over arms sales to Taiwan. Beijing has imposed sanctions on Lockheed Martin (NYSE:LMT) and a subsidiary of Raytheon Technologies (NYSE:RTX) by adding them to a so-called "unreliable entity list" that aims to punish firms that jeopardize its national security. It comes on top of fines that are based on the contract value of their arms sales to Taiwan, which the Chinese Communist Party considers as part of its sovereign territory.
What it means: Lockheed and Raytheon will be barred from importing goods into China, or making new investments in the country, but the measures are likely to be symbolic given that both companies have little direct exposure to the nation. However, it could impact their civilian businesses in aerospace and other markets, as well as cancel and prohibit work permits for corporate managers, which would ban them from entering the country. The bigger part of the equation will be if the U.S. and China are moving farther apart, or maybe even too far, to resolve their differences.
A gauge for that could be a meeting this weekend between Secretary of State Antony Blinken and his counterpart Wang Yi on the sidelines of the Munich Security Conference. Blinken already canceled a planned trip to Beijing earlier this month following the controversy surrounding the Chinese spy balloon shootdown. Friction between the world's two largest economies also lingers over areas like trade, but bigger economic risks are at stake with a battle over access to key cutting-edge technologies like the escalating semiconductor war.
Go deeper: The Pentagon is now reviewing its arms stockpiles after seeing how fast ammunition has been drained during the war in Ukraine. General Mark Milley, chair of the Joint Chiefs of Staff, said the analysis could result in an increase in the U.S. military's $817B annual budget - especially as concerns grow over the security environment should another war break out in the Taiwan Strait - but SA contributor Zoltan Ban doesn't see that as a reality due to excessive government debt. Earlier this week, NATO Secretary General Jens Stoltenberg further announced that "Ukraine is consuming an enormous amount of munitions and depleting allied stockpiles." This is "many times higher than our current rate of production," he cautioned, and "puts our defense industries under strain." (8 comments)
The U.S. Treasury Department is set to become unable to fully pay its bills sometime between July and September, the non-partisan Congressional Budget Office forecast in its latest economic and budget outlook. That gives lawmakers as little as six months to reach a deal to lift the $31.4T debt limit and ultimately avoid default on its obligations (extraordinary measures are already in place). The public debt-to-GDP ratio, a metric that legendary investor Warren Buffett has repeatedly flagged in recent years, is also expected to reach 118% by 2033, which would be the highest level ever recorded in the U.S. "Debt would continue to grow beyond 2033 if current laws generally remained unchanged," the CBO warned in the report. (9 comments)
Investors appear to be relegating inflation and recession concerns to the back burner again following the latest dose of data on the U.S. economy (Satori's Dan Niles thinks otherwise). Yesterday's retail sales numbers showed that consumers increased their spending in nearly every category the government tracks, while manufacturing and mining figures pointed to further momentum in economic activity. The resilience of the U.S. economy has even overpowered sentiment that might point to higher interest rates, with stocks closing in the green on Wednesday and futures hugging the flatline overnight. More data is on tap for this morning, so keep an eye on housing starts, jobless claims, PPI and the Philly Fed manufacturing index, which will all be published at 8:30 AM ET. (18 comments)
The broad risk-on sentiment is even extending to the riskiest asset classes, with the crypto sector seeing outsized moves to the upside. At the time of writing, Bitcoin (BTC-USD) is trading up 11% to $24,607 despite some new regulatory pressures. A short squeeze has also taken place over the last 24 hours, pushing up the coin's price, according to data from Coinglass. "Sometimes I call it crypto crappo, sometimes I call it crypto sh-t. It’s just ridiculous that anybody would buy this stuff," Berkshire (BRK.B) Vice Chairman Charlie Munger said in response. "I’m not proud of my country for allowing this crap,” he added, doubling down on his opinion that the U.S. should ban crypto like China did in 2021. (42 comments)
In Asia, Japan +0.7%. Hong Kong +0.8%. China -1%. India +0.1%.
In Europe, at midday, London +0.2%. Paris +1%. Frankfurt +0.5%.
Futures at 6:30, Dow flat. S&P flat. Nasdaq flat. Crude +0.6% to $79.06. Gold +0.1% to $1846.50. Bitcoin +11.2% to $24,607.
Ten-year Treasury Yield -2 bps to 3.37%
Today's Economic Calendar
8:30 Housing Starts and Permits
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
8:30 Producer Price Index
8:45 Fed's Mester Speech
10:30 EIA Natural Gas Inventory
1:30 PM Fed's Bullard Speech
4:30 PM Fed Balance Sheet
6:00 PM Fed's Mester Speech
Companies reporting earnings today »
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