Morning Reads





Canada is moving forward with a comprehensive plan to ban "harmful" single-use plastics, in a sweeping effort to fight pollution and keep them out of the environment. Most plastic bags, disposable cutlery and plastic straws would fall under the new ban, as well as stir sticks, cups and six-pack rings that hold cans together. Few exceptions have been made for medical needs and accessibility reasons, or other recognized specific cases.

Timeline: The order will phase in over the next several years, starting with a ban on the manufacture and import of single-use plastics from December 2022. Sales of the items will be prohibited the following year, while the measure will put an end to the export of Canadian plastics by the end of 2025. "Over the next 10 years, this ban will result in the estimated elimination of over 1.3 million tons of plastic waste and more than 22,000 tons of plastic pollution," tweeted Prime Minister Justin Trudeau. "That's equal to a million garbage bags full of litter."

Banning single-use plastics will be a complex task given that they are abundant, convenient and cheap. Businesses that heavily rely on the material will also need to come up with new solutions, like the restaurant sector, where plastic takeout containers, cutlery and bags are the norm. Many problems have also plagued the global supply chain since the pandemic, so tracking down plastic alternatives and procuring them can be a daunting task especially for industries where margins are not all that high.

Go deeper: Other countries which have put in place various bans on single-use plastic include Chile, the U.K. and the European Union. However, Canada's neighbor to the south, the United States, ranks as the world's leading contributor of plastic waste by generating about 287 pounds of plastics per person annually. Some piecemeal efforts have been put in place by some states like New York and California, but the most action taken at the federal level has been to increase the U.S. recycling rate to 50% by 2030 and the phasing out of single-use plastic products in national parks and other public lands by 2032. (18 comments)

Rally fizzles

That didn't last long. U.S. stocks pulled off a strong rebound yesterday, with the S&P 500 advancing 2.5% for its strongest showing since late May. However, persistent worries about inflation and a potential recession still remain a concern for investors, leading many to describe the rally as a "dead cat bounce." Bear market blues quickly returned overnight, with the futures contracts linked to the S&P benchmark index falling 2%, meaning stocks have a very good chance of erasing all of Tuesday's gains during today's session. Bitcoin also fell under the key $20,000 level again, tumbling as much as 6% to $19,949.

Commentary: "It's conceivable to expect continued market volatility until it becomes clear that the Fed is not going to force the U.S. economy into contraction in order to tamp down persistent levels of inflation," noted David Chao, global market strategist at Invesco.

Fed Chair Jerome Powell will be back in the hot seat on Wednesday as he delivers his semi-annual monetary policy testimony before the Senate Banking Committee. Many will be looking for further clues about the current economic environment after the central bank raised benchmark interest rate by 75 basis points for the first time in nearly three decades. Powell also laid out an aggressive path of coming rate increases to cool red-hot inflation, though it will be a careful balancing act as economic growth slows and puts financial pressure on many Americans.

Outlook: President Biden on Monday reiterated that a U.S. recession isn't "inevitable" following a conversation with former Treasury Secretary Larry Summers, but the high-profile economist continued warning about the risks of stagflation at a speech later in London. "We need five years of unemployment above 5% to contain inflation - in other words, we need two years of 7.5% unemployment, or five years of 6% unemployment, or one year of 10% unemployment," he declared. "There are numbers that are remarkably discouraging relative to the [Fed] view. Is our central bank prepared to do what is necessary to stabilize inflation if something like what I've estimated is necessary?" (13 comments)

'Unlocking our full potential'

Kellogg (K) is the latest storied food producer to split up its 116-year-old business by announcing a break into three separate companies. One firm would consist of plant-based products, like MorningStar Farms and Gardenburger. Another would take its traditional cereal products, such as Frosted Flakes, Froot Loops and Rice Krispies. The final grouping would include the current company's global snacking brands, like Cheez-It, Pringles, and Pop-Tarts.

Strategic rationale: An accompanying document explained that the newly-formed global snacks business is anticipated to be a "higher growth company" compared to the combined unit, with scale in emerging markets being a significant growth lever left to pull. Kellogg is also seeking to stabilize its cereal business that has declined in recent years, with a team that could dedicate a specific focus on the "continued turnaround." A spinoff of its plant-based foods division would also create a new pure play to rival industry incumbents like Beyond Meat (BYND).

"Bigness for bigness sake doesn’t make a lot of strategic sense," CEO Steve Cahillane declared, saying it was the "next step in unlocking our full potential." Following the split, Cahillane will head the $11.4B snacks unit, which accounted for 80% of Kellogg’s net sales last year.

Commentary: Analysts applauded the move, with Kellogg's stock finishing the session 2% higher on Tuesday. "The breakup will allow each entity to focus on their distinct strategic priorities with financial targets appropriate for the profile of each business," wrote Stifel strategist Christopher Growe. UBS analyst Cody Ross largely reinforced this view, pinpointing prospective comparisons with Mondelez (MDLZ), Utz (UTZ), and PepsiCo (PEP), and advising that a higher multiple would be appropriate for the snacks business once it operates as a standalone operation. (106 comments)

Bipartisan Safer Communities Act

Weeks after the tragedies in Buffalo, New York, and Uvalde, Texas, the U.S. Senate has taken initial steps towards passing the first major gun legislation in decades. The package cleared a procedural threshold hurdle in a 64-34 vote, marking a rare display of compromise from a chamber that has been at loggerheads on almost every issue. Agreement on the bipartisan 80-page gun violence bill could potentially tee up final passage by week's end, before Congress goes on a two-week recess for July 4.

What's in the bill? Federal background checks for gun buyers aged 18 to 20 would include examination of the purchaser's juvenile and mental health records, while beefing up penalties on gun traffickers. It would also close the so-called boyfriend loophole by blocking gun sales to those convicted of abusing unmarried intimate partners (gun rights would be restored after five years if they didn't commit another serious crime). A $750M fund would also be established to help states put in place red-flag laws, while millions more would be allocated to community behavioral health centers, training first responders, and investing in school safety and mental health services.

Estimates of the cost of the bill range in the billions of dollars, but lawmakers aren't demanding a formal estimate before voting on the legislation. Lead Democratic bargainer, Sen. Chris Murphy of Connecticut, said it would be fully paid for, with some expecting to cover costs by continuing to delay the end of a Trump-era rule surrounding rebates that drugmakers give to Medicare middlemen. While the rule never went into effect, it was expected to cost the government money, so Congress can claim the additional savings.

What's not in the bill? The legislation stops short of banning assault-style weapons or raising the age limit for purchasing the guns from 18 to 21. Both shooters in Uvalde and Buffalo were 18-year-olds who used assault rifles they bought themselves, a profile that matches many recent mass shooters. The new measure also won't prohibit high-capacity magazines, do away with the internet and gun show loophole, or amend/repeal the federal liability shield that protects gun manufacturers from being sued for violence. (9 comments)

Today's Markets

In Asia, Japan -0.4%. Hong Kong -2.6%. China -1.2%. India -1.4%.
In Europe, at midday, London -1.1%. Paris -1.5%. Frankfurt -1.8%.
Futures at 6:20, Dow -1.6%. S&P -1.8%. Nasdaq -2%. Crude -4.3% to $104.82. Gold +0.1% to $1840.60. Bitcoin -2.4% to $20,585.
Ten-year Treasury Yield -10 bps to 3.20%

Today's Economic Calendar

7:00 MBA Mortgage Applications
9:00 Fed's Barkin Speech
9:30 Jerome Powell Speech
11:30 Results of $22B, 2-Year FRN Auction
12:00 PM Fed's Barkin Speech
12:55 PM Fed's Evans Speech
1:00 PM Results of $14B, 20-Year Bond Auction
1:30 PM Fed's Harker Speech
1:30 PM Fed's Barkin Speech

Companies reporting earnings today »

What else is happening...

U.S. oil industry extends another olive branch to Washington.

DOJ settles with Meta (META) in landmark suit over housing discrimination.

CRISPR Therapeutics (CRSP) drops nearly 8% on Innovation Day.

Leaving Spotify (SPOT), Obamas find new home at Amazon's (AMZNAudible.

Russia vows to respond to Lithuania's ban on goods transit.

Another record: U.K. inflation rate hits new 40-year high of 9.1%.

DocuSign (DOCU) CEO resigns in wake of weak earnings and outlook.

Tesla (TSLA) vehicles are banned in China near political retreat.

La-Z-Boy (LZB) shares surge on record sales and operating income.

Morgan Stanley sees travel plans easing and these ETFs may take notice.

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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