Morning Reads
- ‘Roller Coaster’ Talks
- BOJ Maintains Ultra-Low Rates
- Russia Slashes Gas Flows
- High U.S. Fuel Exports Are Contributing to $5-a-Gallon Gas
- One of China’s Most Famous Hedge Funds
- U.S. Economic Growth Shows Signs of Slipping
- Wall Street Shudders as Focus Returns to Recession Risks
- By Design, the Fed May Be Tightening Too Much
- This Is Going to Hurt
- One More Sign the Housing Market is Cooling Off
- Gun Control Advocates
- Amazon CEO Andy Jassy’s First Year on the Job
- Why Amazon Isn’t Expecting a Robust Prime Day
- Elon Musk Talks Staffing, Free Speech, Remote Work
- Free-Wheeling Texas
- Landed Google in a Lawsuit
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Another bloodbath rocked Wall Street yesterday as traders fully digested what an aggressive Fed will mean for the markets. The odds of a recession are rising fast with Jay Powell attempting to tackle inflation by reducing demand in a supply-constrained world (and risking labor market gains in the interim). The shakeup saw the Dow Jones Industrial Average tumble below the key 30,000 level for the first time since January 2021, while the S&P 500 and Nasdaq plunged further into bear market territory.
Quote: "It's about time we exit this artificial world of predictable massive liquidity injections where everybody gets used to zero interest rates, where we do silly things whether it's investing in parts of the market we shouldn't be investing in or investing in the economy in ways that don't make sense," said Mohamed El-Erian, Chief Economic Advisor at Allianz. "We are exiting that regime and it's going to be bumpy."
The Fed isn't alone. The Bank of England raised rates for the fifth time in a row on Thursday as it tries to get inflation under control. The Swiss National Bank also hiked its benchmark for the first time since 2007, showing how the trend towards raising rates is catching on across the globe.
Don't forget Juneteenth! Today will be the last trading session before a three-day weekend, with a new market holiday being adopted by the NYSE and Nasdaq. Juneteenth commemorates the end of slavery in America, but it wasn't observed last year as President Biden signed a bill making it a federal holiday two days before June 19. On that day in 1865, Union General Gordon Granger read the Emancipation Proclamation to the public in Galveston, Texas, which was last corner of the defeated Confederacy to be secured following the Civil War. Wall Street Breakfast won't be published with markets closed on Monday, but tune back in Tuesday. (29 comments)
Support for Ukraine to join the European Union is intensifying following a high-profile gathering with Volodymyr Zelenskyy in Kyiv. Leaders of France, Germany, Italy and Romania were on the ground to pledge support for the country's war effort as heavy fighting continues in the eastern Donbas region. It comes before a meeting of the European Commission next week that will decide on recommending Ukraine's "EU candidate status" - the first step for a country to enter the bloc.
How it works: Joining the EU is a process that usually takes years, or even decades, but Zelenskyy is hoping to fast-track the negotiations. Countries have to meet strict criteria, from economic stability and a functioning market economy to rooting out corruption and respecting human rights. Candidate status is conferred by the European Council, following which there are extensive talks on the reforms needed before a nominee could be considered for membership by all 27 EU governments.
"The path from EU candidate to member is a path, not a point. It is a road that will have to see profound reforms of Ukrainian society," Italian Prime Minister Mario Draghi declared. "Every day, the Ukrainian people defend the values of democracy and freedom that are the basis of the European project. We cannot delay this process. We must create a community that unites Kyiv with Rome, Paris, Berlin and all the other countries that share this project."
Go deeper: Accession of new member states to the European Union has slowed tremendously in recent years. No new country has been admitted since Croatia in 2013 and the U.K. became the only member state to leave the bloc in January 2020. While necessary reforms to align Ukraine with EU standards are likely to take a significant amount of time, the mere approval of candidate status is aimed at sending a strong message to Moscow that the bloc has no intention of giving in to the demands of Vladimir Putin. (1 comment)
In a big show of unity for the World Trade Organization, several deals were inked deep into overtime at the group's twelfth ministerial meeting in Geneva. "The outcomes demonstrate that the WTO is in fact capable of responding to emergencies of our time," announced Director-General Ngozi Okonjo-Iweala. It took nearly five days of wrangling, but delegates cheered after they passed a package of six agreements, which could put renewed momentum behind the $28T global trading system.
Highlights: Under an arrangement known as compulsory licensing, member countries agreed to a vaccine patent waiver as a way to boost supplies of COVID-19 shots to lower income countries. Companies like Pfizer (PFE) had fought the stance in the past, calling IP rights the "blood of the private sector." It also wouldn't solve supply problems or allow for quality checks, according to the company, though proponents say that is not the case, and the current framework is leading to global vaccine inequality.
Another deal was reached on overfishing after India insisted on a 25-year exemption based on its status as a developing country. Nations will be prohibited from providing subsidies for illegal or unreported fishing, as well as financial aid to vessels fishing in unregulated international waters. The agreement was especially momentous as it was the culmination of two decades of negotiations and the first regulated trade deal ever reached at the WTO on sustainability grounds.
Other areas: Trade ministers temporarily extended duty-free trade in digital products like music and movies. Without renewing the 1998 accord, higher prices could have been in store for cross-border purchases made by customers of Amazon Prime (AMZN), Apple Music (AAPL) and Netflix (NFLX). The meeting was also notable at a time of major geopolitical tensions - such as the war in Ukraine, which has driven a wedge between the West and autocratic governments, as well as the coronavirus pandemic, which exacerbated the divide between richer and poorer countries.
There has been a lot of uncertainty about whether the $44B deal is happening, but presumptive Twitter (TWTR) buyer Elon Musk discussed his vision for the company yesterday during a virtual all-hands meeting. Here are some excerpts from the Q&A session moderated by Twitter chief marketing officer Leslie Berland.
Why do you love Twitter? And also, why did you and do you want to buy Twitter? Some people use their hair to express themselves, I use Twitter. So you know, I find it's the best forum for communicating with a lot of people simultaneously... not through the lens of the media. I think it's essential to have free speech and to be able to communicate freely.
Can you share what your point of view is on remote work, and specifically for Twitter? Now Tesla (TSLA) makes cars and you cannot make cars remotely, obviously. [But] there are some roles at Tesla where the work can be done remotely, like, say, software or design. I think that's still a case where you want to aspire to do things in person, but if somebody is exceptional at their job, then it's possible for them to be effective, even working remotely.
Can you speak to how you're thinking about layoffs at Twitter? Well, I think it depends on, you know, the company does need to be - to get - healthy. So I mean, right now, the costs exceed the revenue. So that's not a great situation to be in. And so there would have to be some rationalization of headcount and expenses to have revenue be greater than cost. Otherwise, Twitter is simply not viable or can't grow.
You're obviously learning and gaining information as we get closer to this deal being closed. What do you feel that you have deep understanding and grasp of? What I have less understanding of is this sort of bot spam or multi-user account - basically, anything that affects the monetizable daily user number, that's probably my biggest concern. Because that's really what drives advertising revenue, as well as subscription revenue. And really, Twitter's revenue is going to be subscription, advertising - I think payments would be an interesting thing to do, as well. But all of those things are only relevant as a function of how many unique humans are on the system.
How if at all do your political views play into the leadership of the companies that you currently run? How would it affect Twitter, if at all? Well, my political views, I think, are moderate, at least as would be, you know, as if you said, like, what is the center of the normal distribution of political views in the country, I think that'd be pretty close to the center. But I'm allowing people who have relatively extreme views to express those views within the bounds of the law. So that's, you know, as I said publicly, I think if, let's say, the far left 10% and far right 10% were equally upset on Twitter, then that would probably be a good outcome.
There's been some discussion about will you be CEO, will you not be CEO? Well, I guess I'm not hung up on titles, but I do want to drive the product in a particular direction. So, you know, it could be like ... I don't really care about being CEO. In fact, I renamed myself "Techno King" at Tesla in an official SEC filing. So, I mean, what I really just want to do is, like, drive the product and improve the product, and then it's like, basically, software and product design. So you know, I don’t mind doing other things, you know, related to operating the company, but there are chores. There are a lot of chores to do as CEO. And all I really want is to make sure that the product evolves rapidly and in a good way. (139 comments)
Today's Markets
In Asia, Japan -1.8%. Hong Kong +1.1%. China +1%. India -0.1%.
In Europe, at midday, London +0.8%. Paris +1.3%. Frankfurt +1.3%.
Futures at 6:20, Dow +0.7%. S&P +0.9%. Nasdaq +1.1%. Crude -1.1% to $116.36. Gold +0.1% to $1850.80. Bitcoin -1.4% to $20,917.
Ten-year Treasury Yield -9 bps to 3.21%
Today's Economic Calendar
8:30 Powell Speaks
9:15 Industrial Production
10:00 Leading Indicators
1:00 PM Baker-Hughes Rig Count
Companies reporting earnings today »
What else is happening...
No relief for Adobe (ADBE) after software company's guidance disappoints.
More earnings: Kroger (KR) beats estimates and raises outlook.
Walgreens (WBA) launches clinical trials to expedite drug development.
Buckling under debt, cosmetics firm Revlon (REV) files for bankruptcy.
Ethereum's Vitalik Buterin says cryptos likely won't replace fiat money.
AMD (AMD), Qualcomm (QCOM) plunge as chips fall on recession risks.
Energy crisis: White House weighs oil product export restrictions.
It's time for energy investors to talk about demand destruction.
Tesla (TSLA) raises prices across car models in the U.S. - Reuters.
Boeing (BA) is 'almost there' on returning the 787 Dreamliner to service.