Morning Reads

Morning Reads





Battle for the skies

The aerospace and travel industries are setting their sights on the Farnborough Air Show, which takes place this week for the first time since the pandemic. More than 80,000 people are expected to attend the five-day event, where more than a thousand exhibitors will showcase their products and aviation services. With demand for flights soaring this summer, much of the focus will be on manufacturing giants Boeing (NYSE:BA) and Airbus (OTCPK:EADSY), which hope to pick up some big orders as airline passenger numbers bounce back.

Backdrop: It's been a bruising past few years for the aviation titans, but Boeing is clearly coming into the contest on the back wheel. Even before the pandemic, the U.S. manufacturer was in crisis mode following two fatal crashes of the 737 MAX in 2018/19, and the plane is still awaiting approval to return to the Chinese market. Boeing is also dealing with quality issues related to its 787 Dreamliner (deliveries have been largely halted since late 2020), while it's unlikely that the stretched 737 MAX 10 variant - which is coming to Farnborough - will be certified by regulators by the end of the year.

On the other side of the aisle, Airbus has moved up to business class, according to aviation data provider Cirium, conquering nearly 60% of the narrow-body segment with its A320. The French planemaker has also scored 259 total orders this year, compared to the 186 of its U.S. rival. All those dynamics can be clearly seen in their stock prices, with Boeing shares plunging 60% since the Paris Air Show in June 2019 (which alternates every year with Farnborough) and Airbus shares off by 20% over the same period.

Go deeper: The aviation titans will be asked how well they can make good on delivery commitments as engine and parts shortages become the latest challenge in ramping up output. Make sure to tune in at the end of the week as there are generally last-minute announcements that can change the order tally and possibly offer Boeing an opportunity to turn the corner. Decarbonization strategies will also be in the spotlight at the show, with several panels focusing on sustainable fuels, low-emissions technology and electric vertical take-off and landing (eVTOL) aircraft.

Chip funding

The Senate could vote on a slimmed-down measure to boost the U.S. semiconductor industry as soon as this week as lawmakers struggle to compromise on broader legislation targeting Chinese competitiveness. The scaled-back bill would likely provide $52B in grants, tax credits and other financial incentives to build out the American chip sector, but until now, it has been held up over R&D subsidies, as well as the possibility of it being attached to a broader reconciliation package. Congress will need to kick things into high gear before the August recess, which is only several weeks away.

Quote: "If we don't pass this, we're going to wake up, other countries are going to have these [chip] investments, and we're going to say, 'why didn't we do it?'" U.S. Commerce Secretary Gina Raimondo declared, urging lawmakers to pass the legislation. "We want as robust of a bill as possible, but all options are on the table because we're out of time."

Funding is even more critical to corporate investment plans, with Intel (NASDAQ:INTC) recently threatening to ditch its ambitious $20B foundry project in Ohio if the bill remains in limbo. "We've made super clear to McConnell, to the Democrats, to the Republicans, that if this doesn't pass, I will change my plans," announced CEO Pat Gelsinger. "The Europeans have moved forward very aggressively, and they're ready to give us the incentives that allow us to move forward." According to the Semiconductor Industry Association, the U.S. share of global chip-making capacity has tumbled from 37% in 1990 to 12% at the present.

Should you buy chip stocks? Market direction has been uncertain in recent weeks, though some buyers seem to be keen on the advancing chip legislation. Last Thursday, it was revealed that House Speaker Nancy Pelosi and her husband, exercised 200 call options (20,000 shares) in Nvidia (NASDAQ:NVDA), which is one of the world's largest semiconductor companies. The stake, which could be worth up to $5M, comes at a time when Congress is debating whether its members and spouses should be allowed to trade individual stocks, though a vote on such bills has not yet been scheduled. (22 comments)

Global health emergency?

As the number of monkeypox cases rises in the U.S., requests for vaccines are increasing, and in many areas, there are even reports of demand greatly outstripping supply. In response, the federal government has ordered an additional 2.5M Jynneos doses from Bavarian Nordic (OTCPK:BVNKF), which is the only FDA-approved product against monkeypox. As of July 15, there were 1,814 confirmed cases across the country, with all but seven U.S. states recording cases of the disease.

Explainer: Monkeypox is an orthopoxvirus that is mostly spread by close physical contact and results in similar symptoms to smallpox. People who contract the virus experience flu-like conditions and a blistery rash that lasts anywhere from two to four weeks. A very small percentage of infected people develop sepsis or other life-threatening reactions (only three people have died worldwide from the current outbreak).

The World Health Organization is set to reconvene its expert committee this week to decide whether monkeypox now constitutes a global health emergency. Back in June, a majority of the expert panel felt the situation had not met that threshold, which could release additional resources to combat the crisis. There have been a total of six "Public Health Emergency of International Concern" declarations since 2009, otherwise known as PHEIC, with the last one being proclaimed for COVID-19 in 2020.

Outlook: Even if declared a PHEIC, monkeypox is unlikely to become as devastating as the coronavirus pandemic. It's much less contagious due to its "person-to-person" transmission (rather than spreading through the air). It has also been mostly observed in young urban men who identify as members of the LGBT community, suggesting that it won't cross age and other demographics so easily. Additionally, the fatality rate is less than one death per every 1,000 adult cases, which in perspective, is lower than the percentage of unvaccinated people who die after getting COVID.

Over in Colombo

Things aren't looking better in Sri Lanka as acting President Ranil Wickremesinghe issued orders late Sunday for a fresh state of emergency. The specific legal provisions of the edict have yet to be announced, but in the past it has been used to deploy the military and dampen public protests. It comes ahead of Wednesday's vote in parliament to elect a new president, after Gotabaya Rajapaksa fled to the Maldives (and then Singapore) to escape a widespread uprising against his government.

The candidates: As six-time prime minister, Wickremesinghe is one of the top contenders to take on the presidency, but many protesters want him gone and further unrest could ensue if he is elected. Other leading candidates are Sajith Premadasa, leader of the main opposition Samagi Jana Balawegaya party, as well as Dullas Alahapperuma, a senior ruling lawmaker who previously served as former Cabinet Minister of Information and Mass Media.

Stable leadership will need to be in place before the country can negotiate with the IMF over a bailout to shore up the island's economy. Sri Lanka ran out of money for fuel imports in May, its inflation rate topped 50% in June and it declared bankruptcy in early July. The country is also heavily indebted to China, Japan and India, and recent restructuring talks during the G20 Finance Ministers meeting in Bali, Indonesia, did not appear to yield too much progress.

As mentioned previously on WSB: Sri Lanka could be the first domino to fall in a global economic crisis set to envelop many poorly-managed developing countries. Pakistan is having major problems with its debt, as well as a number of African and Latin nations, spelling trouble across the emerging markets. "With the low-income countries, debt risks and debt crises are not hypothetical," World Bank Chief Economist Carmen Reinhart declared. "We're pretty much already there."

Today's Markets

In Asia, Japan closed. Hong Kong +2.7%. China +1.6%. India +1.4%.
In Europe, at midday, London +1.4%. Paris +1.5%. Frankfurt +1.4%.
Futures at 6:20, Dow +0.9%. S&P +1%. Nasdaq +1.2%. Crude -1.2% to $96.40. Gold +0.7% to $1716.80. Bitcoin +4.7% to $22,262.
Ten-year Treasury Yield +3 bps to 2.96%

Today's Economic Calendar

10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital

Companies reporting earnings today »

What else is happening...

The software slowdown arrives: Here's how investors can deal with it.

GlaxoSmithKline (GSK) spins off U.K. consumer health unit Haleon.

Crypto winter forces Riot Blockchain (RIOT) and others to sell Bitcoin.

After Biden visit, Saudi Arabia says oil decisions to be made by OPEC.

Stellantis (STLA) terminates Jeep venture with China's GAC.

Starbucks (SBUX) explores potential sale of its operations in the U.K.

Elon Musk pushes back at Twitter's (TWTR) request for expedited trial.

Report suggests Disney (DIS) will hike ESPN+ monthly price by 43%.

Novo (NVO), Eli Lilly (LLY) to dominate $54B obesity market - Morgan Stanley.

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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