Morning Reads
- Oil Price Faces Hurdle of Global Enforcement
- West’s Challenges in Tackling Russia Exposed at G-7
- ECB’s Chief Economist Sees Double-Sided Risk
- Recession Risk
- Large Rate Rise in July as Possible
- Copper Crushed
- Can Regulators Catch Up to Crypto?
- “Secretly Insolvent”
- As Prices Skyrocket, Coupons Are Harder to Find Than Ever
- This Is What Happens
- Byju’s Said to Offer More Than $1 Billion for 2U to Expand in US
- F.T.C. Accuses Walmart of Facilitating Consumer Fraud
- Rural Counties Are Booming, But Can It Last?
- Disney Board Renews Bob Chapek as C.E.O.
- Pinterest CEO Is Stepping Down
- Deal that Could Transform Hollywood Representation
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Following 16 hours of negotiations, the European Union has agreed to a framework to eliminate carbon emissions from new cars and vans by 2035, effectively closing the chapter on the internal combustion engine. Many automakers are already in the process of switching over to cleaner fleets, but the industry will now face some pressure to hit the accelerator. The bloc's proposal was first raised in July 2021, but with the final endorsement in the bag, it will be up to members of the European Parliament to get the deal over the finish line.
Areas of compromise: Environment ministers extended a CO2 exemption granted to so-called "niche" manufacturers - or those producing less than 10K vehicles per year - until the end of 2035. Italy, home to Ferrari (RACE) and Lamborghini (OTCPK:AUDVF), also gave up demands for a five-year delay in the EU's plan for carmakers to clean up their fleet. Meanwhile, alternative technologies like synthetic fuels and plug-in hybrids may be included in the future if they can achieve the complete elimination of greenhouse gas emissions.
"This is a big challenge for our automotive industry," announced Agnes Pannier-Runacher, the French Minister of Energy Transition who chaired the meeting. "I have full confidence that the European car industry can manage," added Frans Timmermans, Vice President of the European Commission. "Our carmakers are among Europe's industrial leaders and they can continue to be that as they embrace this global shift."
Other EV news: Electric vehicle makers have not emerged unscathed in the recent supply chain crisis, especially given the rising costs of raw materials like lithium, nickel, cobalt and palladium. The deteriorating environment even prompted a warning from Tesla (NASDAQ:TSLA) CEO Elon Musk earlier this month, telling top managers he had a "super bad feeling" about the economy and the company would slash its workforce by about 10%. The latest round of layoffs came last night, with Tesla shuttering its office in San Mateo, California, and cutting around 200 employees who were working on Tesla's Autopilot driver-assistant system. (73 comments)
Heavy selling pressure continues to plague stock markets as more signs continue to point to an economy in trouble. An attempted rally for risk assets fizzled out on Tuesday after The Conference Board's consumer confidence index for June fell to 98.7, the lowest level since February 2021. The Nasdaq Composite concluded the session down 3%, while ten of the 11 S&P sectors finished in the red (energy was the sole gainer).
Commentary: In an interview on CNBC, Cathie Wood, CEO of ARK Invest, admitted that she got the inflation picture wrong and it had pummeled her disruptive technology darlings. “We think we are in a recession... can't believe it's taking more than two years [to resolve the supply chain] and Russia's invasion of Ukraine of course we couldn't have seen that. We think a big problem out there is inventories - the increase of which I've never seen this large in my career... and I've been around for 45 years." Wood went on to state that ARK is still "dedicated completely to disruptive innovation" and has seen significant inflows into its flagship ARK Innovation ETF (ARKK) despite being down 56% in 2022.
Not helping the situation were comments from Cleveland Fed President Loretta Mester, who is a voting member on the Federal Open Market Committee. If elevated inflation conditions remain the same in July, Mester said she would support another 75 basis point hike to aggressively rein in the soaring price pressures. Fed Chair Jerome Powell is also due to give a speech at the European Central Bank forum at 9 a.m. ET after acknowledging last week that steep rate hikes may tip the economy into recession.
On the economic calendar: The final estimate for first-quarter GDP will be published this morning, with consensus forecasts coming in at minus 1.4% and setting the stage for a potential recession reading next month. Investors will also get the latest data on mortgage applications - the leading indicator for home sales and housing construction - and corporate profits, which are the lifeblood of investment spending in the U.S. (147 comments)
A panel of outside advisors to the FDA has voted 19-2 in favor of updating COVID-19 booster shots to include protection against Omicron. It's a significant decision as it marks the first time the panel has proposed that vaccine makers modify their jabs to target a different strain. Alpha, Beta and Delta have already made their way through the world without any updates to the shots, as well as their sub-variants that have caused several big waves of infections.
Fine print: Much of the FDA panel discussion focused on whether the Omicron component should target the "original" strain, BA.1, or newer BA.4 and BA.5 sub-variants, but the voting question did not specifically ask the members to decide between them. The panel was also not asked about whether future boosters should be bivalent - containing protection against the original SARS-CoV-2 variant and Omicron - or just provide protection against the latter. As COVID continues to evolve, the vaccines are said to have become less effective at defending infection and mild illness, but generally protect against severe disease.
Following the committee's recommendation, the FDA is likely to authorize the vaccine change, meaning a new generation of COVID boosters could be ready by late summer or the early fall. Vaccine manufacturers have already developed Omicron-specific vaccines, but have noted that they tend to generate a lower antibody response against BA.4 and BA.5. If not apparent already, it also appears that COVID is on track to need annual or semi-annual boosters like the flu, compared to viruses like polio and measles, which if vaccinated against as a child, the body will recognize at a much later date.
How have the stocks held up? Pfizer (PFE), which was the first manufacturer to get emergency vaccine approval in the U.S., climbed to a high of $61 after the FDA authorized its boosters in November 2021. Shares have fallen nearly 20% since then to around $50, but are still up more than 20% from before the pandemic. Even bigger swings have been seen with partner BioNTech (BNTX), which surged from $30 before March 2020 to a peak of $464 last summer (shares are now trading around $140). Rival Moderna (MRNA) has also seen some significant movement, going on a rollercoaster ride from $25 to nearly $500, before the stock also headed back to the $140 level. (52 comments)
Finland and Sweden have taken a major step towards NATO membership after Turkey flipped its position to support the countries joining the world's most powerful military alliance. President Recep Tayyip Erdogan had previously voiced concerns over the nations' alleged support of the Kurdistan Workers' Party, or PKK, which Ankara considers terrorists. However, both Finland and Sweden committed in writing not to provide support to the group, and would work together on extraditions, terrorist financing and related issues.
Quote: "For the Nordic Region, for the Baltic region, this is of particular importance, but this is important for the whole Alliance," NATO Secretary General Jens Stoltenberg declared. "It also sends a very clear message to President Putin, that NATO's door is open."
Public opinion in Finland and Sweden was strongly against joining NATO until the Russian invasion of Ukraine on Feb. 24, when support for membership flipped almost overnight. The military buildup could be another boon for stocks like Lockheed Martin (LMT), which has climbed 20% YTD on the back of the increases in defense spending. All current 30 NATO nations have agreed to spend at least 2% of their GDPs on defense by 2025, and while only a third of those members have met the threshold, the latest developments should accelerate a drive for achieving their targets.
Outlook: Once Finland and Sweden join NATO, the military alliance will expand at Russia's doorstep, with Moscow threatening to station ballistic and nuclear missiles on its border in response. "He wanted less NATO. Now President Putin is getting more NATO on his border," Stoltenberg continued at a press conference. Tensions are already high after NATO member Lithuania barred Russia last week from shipping certain goods to its Baltic exclave of Kaliningrad, prompting fears of military action that could trigger Article 5 of the North Atlantic Treaty.
Today's Markets
In Asia, Japan -0.9%. Hong Kong -1.9%. China -1.4%. India -0.3%.
In Europe, at midday, London -0.7%. Paris -1.4%. Frankfurt -2%.
Futures at 6:20, Dow -0.1%. S&P -0.2%. Nasdaq -0.3%. Crude +0.5% to $112.28. Gold -0.2% to $1818.40. Bitcoin -4.6% to $20,069.
Ten-year Treasury Yield -4 bps to 3.17%
Today's Economic Calendar
6:30 Fed's Mester Speech
7:00 MBA Mortgage Applications
8:30 GDP Q1
8:30 Corporate profits
9:00 Jerome Powell Speech
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty