Morning Reads
- Shock of War
- Global Growth Will Be Choked
- Elevated Inflation to Persist
- The Economy May Be Slowin
- London Asset Hunters
- Surging Gas Prices Top $5 in 13 States and Counting
- Wall Street Regulator
- Crispin Odey Hedge Fund’s 110% Gain
- Hedge Fund D1 Borrowed Billions
- Funding Squeeze
- JetBlue’s CEO Says Its Offer to Buy Spirit ‘Makes the Most Sense’
- Chicken Company Foster Farms Sold to Private Equity Firm
- WalMart ExpandsTransportation Partnerships with Electric, Hydrogen Vehicle Pilots
- The Pain After the Gain
- Microsoft’s Augmented-Reality Chief Plans to Leave Company
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Europeans will soon be able to have one charger for all of their gadgets, in a world first that may spread elsewhere. The standardization follows EU agreement on a single charging port for phones, tablets, e-readers, cameras, videogame consoles and speakers under legislation that will take effect by fall 2024. USB-C connectors won out as the shared feature across those devices, with the ports already supported by a network of over 700 companies and most Android-based platforms.
Bigger picture: Brussels said the move will save consumers around €250M per year and a whole lot of added stress. It will prevent "more than 1,000 tons of electronic waste per year, in addition to an annual reduction of 200 kilos of CO2, which is the equivalent of 10M smartphones," Internal Market Commissioner Thierry Breton declared. "It will also allow new technologies, such as wireless charging, to emerge and to mature without letting innovation become a source of market fragmentation and consumer inconvenience."
Still using Lightning charging cables, Apple (NASDAQ:AAPL) is not likely to be happy about the ruling, arguing in the past that the standardized move will stifle innovation. However, there could be a silver lining, with the decision potentially persuading consumers to upgrade to a new phone sooner. "Existing consumers can still use the Lightning cable, but maybe there would be less purchases of older products on third-party platforms," explained CFRA Research analyst Angelo Zino.
Some history: Apple switched from a 30-pin charging connector to its compact Lightning in 2012, which was a groundbreaking technology at the time (USB-C was only finalized in 2014). However, Apple did embrace some USB-C technology starting in 2015, when it began including the ports on its iPads and Macs, but kept Lightning on other devices and more importantly its iPhone. As it tries to maintain control over its revenue streams and design, will Apple create a specialized iPhone for Europe or change all of its smartphones globally? Wireless charging? (45 comments)
Fears of stagflation continue to surface as multiple entities caution about rocky upcoming months or even years ahead. The latest warning came from the World Bank, which downgraded its estimate for 2022 global growth to 2.9%, from a forecast of 4.1% back in January. Among the factors were surge in energy and food prices, the toll from war in Ukraine and COVID-19 pandemic, as well as a push by central banks to speedily raise rates from rock-bottom levels. The OECD overnight also slashed its GDP growth estimate to 3% for 2022, marking a 1.5 percentage point decrease from its last projection issued in December.
Quote: "For many countries, recession will be hard to avoid," said World Bank President David Malpass. "Markets look forward, so it is urgent to encourage production and avoid trade restrictions." The institution also warned of a "protracted period of feeble growth and elevated inflation with potentially harmful consequences for middle- and low-income economies alike."
Stagflation, the combination of stagnant economic growth and high inflation, triggers memories of the 1970s, when an oil price shock and sluggish economy led to a so-called double-dip recession by the early 1980s. The current juncture resembles the era in several key aspects, according to the World Bank, given prospects for weakening growth and vulnerabilities, as well as persistent supply-side disturbances that were preceded by a protracted period of highly accommodative monetary policy. Things are also different this time around due to a strong dollar, robust bank balance sheets and clear mandates for price stability.
Outlook: Many high-profile names have issued warnings about the economy in recent weeks. JPMorgan's Jamie Dimon referred to it as a "hurricane" on the horizon, Tesla's Elon Musk said he had a "super bad feeling" and BlackRock's Larry Fink predicted that the spikes in inflation will "last for years." The Atlanta Fed's GDPNow tracker also shows the U.S. economy on the brink of recession, pointing to an annualized gain of just 0.9% in Q2, down from an estimated 1.3% increase less than a week ago. (6 comments)
The SEC is reportedly considering some changes to stock-market rules that would make trading firms directly compete to execute trades from retail investors. No announcement has been made yet, and the details are still being worked out, but Chairman Gary Gensler could outline some of the plans today at Piper Sandler Global Exchange Conference. Closely watching the speech are online brokers like Robinhood (HOOD), TD Ameritrade (SCHW) and E*TRADE (MS), as well as the New York Stock Exchange (ICE) and Nasdaq (NDAQ).
Backdrop: The news comes about a year after SEC Gary Gensler said the agency staff would review best execution requirements- which require brokers to process customers' orders at prices advantageous to the customer. Specifically, payment for order flow (PFOF), where brokers farm out retail orders to firms like Virtu Financial (VIRT) and Citadel Securities in exchange for a fee. The scrutiny of the industry grew out of the trading frenzy surrounding GameStop (GME) and other meme stocks in early 2021, triggering discussion over execution quality and price performance.
Online brokers contend that PFOF, which allows commission-free trading, has opened up investing to millions of young people, including women and minorities who hadn't previously invested in the markets. "The current market structure has resulted in tighter spreads, greater transparency, and meaningfully reduced costs," a Citadel Securities spokesperson told Bloomberg. Opponents disagree, saying PFOF includes hidden fees that investors are paying without knowledge and it also gives huge trading firms data on where the market is heading.
Proposals? Gensler may outline a requirement that retail orders be sent to a type of auction to improve execution transparency, lower access fees and allow exchanges to quote shares in increments under one cent. He could also call for improvements to execution rules, which permit brokers to find the best possible terms for their customers. "Efforts to modernize the best execution requirements will be met with some degree of conceptual support, but this issue carries slightly more political and operational baggage than the tick size and access fee proposals," noted BTIG analyst Isaac Boltansky. (25 comments)
Retail earnings have been incredibly scattershot in May and June, with winners and losers seeing wildly differing share reactions and revealing important insights on specific subsectors. One of the biggest losers has been Target (TGT), whose share price has tumbled 30% since reporting Q1 results on May 18. Earnings came in far from the bullseye after higher costs whacked profitability, but the company had another surprise in store for investors after slashing guidance on Tuesday.
Financial front: Target now sees its operating margin rate falling to a range of around 2.0% for Q2 vs. the ~5.3% estimate projected in late May (and 6.5% consensus). That's a drastic drop, though it does hope to jump back to around 6.0% in the latter half of the year. The company also continues to expect full-year revenue growth in the low- to mid-single digit range.
The biggest issue facing Target has been its selection of inventory, which grew 43% Y/Y in the latest quarter. Consumers have been shifting away from higher-margin goods such as kitchen appliances and TVs to basics like food and toiletries, as discretionary spending takes a hit from the current inflationary environment. "We did not anticipate the rapid shifts we've seen over the last 60 days," CEO Brian Cornell said back in May, adding that challenges would persist as Target continues to set prices based on "value and affordability."
Call to action: The retailer announced a series of steps to "right-size" its inventory for the balance of the year, like additional markdowns and order cancellations. The action plan also includes incremental holding capacity near U.S. ports to add flexibility and speed in the portions of the supply chain most affected by external volatility. Other retailers with way too much inventory include Walmart (WMT), which saw a 33% Y/Y increase in merchandise last quarter, and Kohl's (KSS), whose stash of goods rose by 40%. (72 comments)
Today's Markets
In Asia, Japan +1%. Hong Kong +2.2%. China +0.7%. India -0.4%.
In Europe, at midday, London -0.3%. Paris -0.7%. Frankfurt -0.5%.
Futures at 6:20, Dow -0.5%. S&P -0.5%. Nasdaq -0.4%. Crude +1.3% to $120.97. Gold flat at $1852.70. Bitcoin +2.7% to $30,399.
Ten-year Treasury Yield +4 bps to 3.01%
Today's Economic Calendar
7:00 MBA Mortgage Applications
10:00 Wholesale Inventories (Preliminary)
10:30 EIA Petroleum Inventories
1:00 PM Results of $33B, 10-Year Note Auction
Companies reporting earnings today »
What else is happening...
Exxon (XOM) surges within a dollar of its all-time closing high.
U.S. reportedly seeking funds to purchase enriched uranium.
Novavax (NVAX) COVID vaccine endorsed by FDA advisory panel.
Apple (AAPL) seals deal for Brad Pitt Formula 1 movie - Hollywood Reporter.
Why did GameStop (GME) rally on Tuesday? Retail traders strike back.
Starlink (STRLK) IPO likely won't take place for at least three years.
Musk's efforts for new Twitter (TWTR) financing said to be on hold.
J.M. Smucker (SJM) jumps to the upside despite soft guidance.
ISS recommends Spirit (SAVE) holders vote against Frontier (ULCC) deal.