Morning Reads
- Morgan Stanley (MS) to eliminate 3000 jobs. Bloomberg
- IBM (IBM) aiming to pause hiring fir jobs than can be done with artificial intelligence. Bloomberg
- Airbus (EADSY) new longer range jet is running over a year behind schedule. Bloomberg
- Masimo (MASI) trade secret case against Apple (AAPL) ended in a mistrial. Reuters
- Tesla (TSLA) increased prices in US, China, Japan, and Canada. Reuters
- United Healthcare (UNH) lost legal case against KKR (KKR) doctor group. FT
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Hundreds of Credit Suisse bondholders sued the banking regulator over $1.7 billion losses
Australia’s central bank surprised the market by raising interest rates, and signals further hikes
Underlying euro zone inflation eased in April, backing a slowing in the pace of tightening by the region’s central bank
Tesla has raised the prices of its Model 3 sedan and Model Y sports car in the US and China
UK lender reports first gain in house prices in in eight months in April
First Republic’s demise may not be the end of the banking turmoil
Google’s promise to defund climate lies falls flat, as ads keep coming
- Jeopardizing an Economic Lifeline for Ukraine
- Trickling Tax Revenue Complicates Debt Limit Talks
- The Air Has Come Out of the Dollar
- Fed Set to Raise Interest Rates to 16-Year High and Debate a Pause
- Here’s What Treasury, Fed Might Do in a Debt Ceiling Crisis
- Morgan Stanley’s Wilson Says Hawkish Fed Could Damp Stock Rally
- JPMorgan to Acquire Failed Regional Bank First Republic
- U.S. Treasury Encouraged by First Republic Resolution, Says Banking System Remains Sound
- Bank Failures, Broken Markets Loom Over Milken’s Capitalist Utopia
- Hedge Funds Bet Dollar to Erase Hike-Cycle Gains as Fed Peaks
- Buffett Will Beat the Market as Recession Looms, Investors Say
- Bitcoin on Course for Longest Streak of Monthly Gains Since 2021
- ‘The Godfather of A.I.’ Leaves Google and Warns of Danger Ahead
- When A.I. Chatbots Hallucinate
- The Building Boom Is Prolonging Market Pain
- California’s Housing Crisis Leaves College Students Eager to Live in Trailers
- The Subtle Strategy Behind Elon Musk’s Price Cuts at Tesla
- Indeed’s Price Changes Leave Small Businesses Feeling Burned
- Adidas Targets Basketball, Soccer to Drive Post-Yeezy Rebound
- Writers, Seeking Pay Change for the Streaming Era, Prepare to Strike
- ESPN’s Jimmy Pitaro Will Decide the Fate of Cable Television
Todays Open Interest Change
PREMIUM
Prepper
The battle over the debt ceiling has been kicked up a notch after a warning from Treasury Secretary Janet Yellen saying that extraordinary measures to pay the government's bills could run out as early as June 1. That contrasts with her update in January that estimated it was unlikely to run out of cash before early June. As part of the extraordinary measures, the Treasury is suspending the issuance of State and Local Government Series Treasury Securities, which will deprive states and municipalities of an important tool to manage their finances.
Quote: "Given the current projections, it is imperative that Congress act as soon as possible to increase or suspend the debt limit in a way that provides longer-term certainty that the government will continue to make its payments," Yellen declared. "We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States." Yields on the short side of the Treasury curve spiked sharply on the news, with the 1-month Treasury bill (US1M) jumping 44 basis points overnight to 4.81%.
While raising the debt ceiling has turned into a bitter partisan issue over the years, even prompting a credit rating downgrade of U.S. government debt in 2011, both parties have always reached a late deal to avoid the country going into default. Last month, House Speaker Kevin McCarthy introduced a bill that proposed raising the $31.4T debt ceiling by $1.5T - along with limiting federal spending - but tensions are on full display, with Republicans and Democrats remaining far apart. Following the latest news, President Biden invited McCarthy and other congressional leaders to a meeting on May 9, but only a handful of rejections could derail any deal, and concessions may be a lot harder to come by - especially with extreme flanks enveloping both sides of the debt limit debate.
Other ways out? "The Treasury could just ignore Congress and issue notes and bonds with coupons well above current yields," writes SA contributor James Baker, referencing a novel solution to the debt crisis. Another one that uses an accounting ploy, called the "trillion-dollar coin," has been previously referred to by Janet Yellen as a "gimmick." Recall, that the first Wall Street Breakfast of the year flagged America's national debt as something that might become a bigger problem in 2023. Take a look back at the risks and opportunities. (39 comments)
Following three bank failures in the past seven weeks, the FDIC has released an overview of the deposit insurance system and suggested three options for reform to address financial stability concerns. As it stands now, the FDIC caps deposit insurance at $250K per account - regardless of whether it is for an individual or a business - but it didn't work that way when it seized First Republic Bank (NYSE:FRC) on Monday. The resolution and sale of assets to JPMorgan Chase (NYSE:JPM) protected all deposits, including uninsured ones, and didn't require a systemic risk exception. While the newly proposed options would require Congressional action, some aspects of the report "lie within the scope of the FDIC's rulemaking authority." (122 comments)
Hollywood writers have gone on strike, marking the first such labor stoppage in the entertainment industry since 2007. The action threatens to slow program production that had recovered from deep COVID-19 pandemic stoppages, with complaints that Netflix (NASDAQ:NFLX), NBCUniversal (CMCSA), Warner Bros. Discovery (WBD) and others created a gig economy inside a union workforce. Writers Guild of America members will be prohibited from working on struck productions, and will be unable to sell and pitch scripts, threatening millions or even billions in lost output. In related news, Vice Media (TPG, DIS) is preparing to file for bankruptcy as it struggles to find a buyer with advertising in the dump. (47 comments)
Artificial intelligence may not yet be causing layoffs, but recent technological advances are starting to pause hiring in certain industries. IBM (NYSE:IBM) CEO Arvind Krishna is tapping the brakes, expecting that 30% of back office functions, like human resources, will be replaced by AI and automation over a five-year period (that could mean letting go of around 7,800 employees). While IBM attempts to capitalize on the new era, the company had been a clear early leader in artificial intelligence and supercomputing. Its Deep Blue chess-playing system beat world champion Garry Kasparov in 1997, while IBM Watson AI won the top prize in Jeopardy back in 2011. Recent Seeking Alpha news on AI also includes Chegg slides with students ramping up usage of ChatGPT and Rising AI enthusiasm continues to benefit Nvidia. (4 comments)
Today's Markets
In Asia, Japan +0.1%. Hong Kong +0.2%. China closed. India +0.4%.
In Europe, at midday, London -0.1%. Paris -0.5%. Frankfurt -0.3%.
Futures at 6:30, Dow -0.3%. S&P -0.2%. Nasdaq flat. Crude -0.7% to $75.15. Gold +0.1% to $1993.20. Bitcoin -2% to $27,998.
Ten-year Treasury Yield -4 bps to 3.53%
Today's Economic Calendar
FOMC meeting begins
10:00 Factory Orders
10:00 Job Openings and Labor Turnover Survey
Companies reporting earnings today »
What else is happening...
WSB survey points to new Wall Street adage: "Go away from sell in May."
Taser-maker AXON to replace First Republic (FRC) in S&P 500.
DeSantis' board plans to counter-sue Disney (DIS) in oversight battle.
FuelCell Energy (FCEL) grabs Exxon (XOM) carbon capture order.
Environmental groups sue FAA over SpaceX (SPACE) rocket launch.
Lordstown Motors (RIDE) plunges after issuing going concern warning.
AMD (AMD) earnings could be a sign of semiconductors' recovery.
U.S. to end COVID vaccine mandates for foreign travelers next week.
Strategic alternatives: BlackBerry (BB) considers breakup of businesses.
Pausing may be harder than central banks think - just look at Australia.