Morning Reads
- President Biden will not declare climate emergency, but will issue executive orders on climate change today (TAN, FSLR, SPWR, CSIQ, XLE, USO, XOM, CVX, BP, SHEL, OXY, COP, ED, PCG, KOL, BTU). Politico
- NYC Mayor Eric Adams says his city "may not have central business districts anymore" due to remote work (ESRT, VNO, SLG, BXP). NY Post
- China will fine Didi (DIDIY) $1 bln for alleged data breach issues. Reuters
- Democrats do not have enough votes in House or Senate to pass assault weapons ban (SWBI, RGR). Politico
- Macau to reopen casinos on Saturday following COVID-19 closures (WYNN, MLCO, MGM, LVS, CZR). Reuters
- Chipotle (CMG) to close Maine store where workers were training to form a union. Market Watch
- Airbus (EADSY) expects supply chain issues to last until next year. FT
Key events to watch this week:
- Earnings this week include Tesla
- Bank of Japan, European Central Bank rate decisions. Thursday
- Nord Stream 1 pipeline scheduled to reopen following maintenance. Thursday
Stocks
- Futures on the S&P 500 fell 0.2% as of 7:17 a.m. New York time
- Futures on the Nasdaq 100 fell 0.2%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 fell 0.2%
- The MSCI World index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0207
- The British pound was little changed at $1.1988
- The Japanese yen was little changed at 138.10 per dollar
Bonds
- The yield on 10-year Treasuries declined six basis points to 2.96%
- Germany’s 10-year yield declined seven basis points to 1.20%
- Britain’s 10-year yield declined 11 basis points to 2.07%
Commodities
- West Texas Intermediate crude fell 1.9% to $102.21 a barrel
- Gold futures fell 0.2% to $1,723.80 an ounce
Futures
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Options
PREMIUM
SeekingAlpha
There was a lot of positive momentum going into yesterday's quarterly report from Netflix (NFLX), as stocks soared in a broad-based rally with earnings season not as worrisome as initially feared. Netflix benefited from the sentiment by climbing 5.6% during the session, and tacked on another 7% AH to firmly trade above the $200 level. There had also been some alarm about a saturated streaming market and price hikes during a period of inflation, but Netflix was able to assuage those concerns with an upbeat outlook of an imminent comeback.
By the numbers: The streaming pioneer saw a net drop in 970K subscribers in the second quarter after warning shareholders of an enormous 2M figure plunge. It's also forecasting a return to growth in Q3, with guidance of 1M net additions. Netflix further beat profit expectations, reporting EPS of $3.20 per share vs. expectations for $2.95 per share, on revenues that largely came in line with expectations at just under $8B. While forex effects were worse than expected (Netflix makes about 60% of its money outside the U.S.), revenue growth was 9% but would have been 13% on a constant currency basis.
"Losing a million [subscribers] and calling it success is tough, but really, we're set up very well for the next year," co-CEO Reed Hastings said on a conference call. "If there was a single thing [that boosted performance], we might say Stranger Things. We're executing really well on the content side. We're [also] in a position of strength given our $30B-plus in revenue, $6B in operating profit last year, growing free cash flow and a strong balance sheet."
Outlook: Looking to reclaim subscriber growth, Netflix is targeting early 2023 for a cheaper ad-supported version of its service. It's a big U-turn for a company that has spent years shunning advertisers in favor of a pure subscription model, and even recently inked a partnership with Microsoft (MSFT) to support the placement of such advertisements. The company also plans to earn more by limiting password-sharing, and disclosed some options for Latin America where it will offer new payment plans for users who split an account. On the earnings front today, electric vehicle maker Tesla (TSLA) will be the one to make headlines after the closing bell. (75 comments)
Semiconductor stocks were electrified on Tuesday ahead of 64-34 vote in the Senate over subsidizing domestic chip production. The bill would provide around $52B to encourage manufacturers to build foundries, and broadly invest in the sector, in the U.S., which both parties agree is a national security necessity. While the measure has cleared its first procedural hurdle, other details of the legislation are still being worked out.
What's at stake? The Chips for America Act is a slimmed-down version of a larger competitiveness package called the United States Innovation and Competition Act (USICA). It specifically authorizes grants and loans for chip-making, as well as 25% investment tax credits for semiconductor manufacturing. While lawmakers agree that the U.S. needs more domestic capacity - to counter supply chain issues in the aftermath of the pandemic - there is still disagreement on adding other provisions to the bill like scientific funding.
Some controversy has also been seen in the industry itself, with chip designers like Nvidia (NVDA), Qualcomm (QCOM) and AMD (AMD) saying it disproportionately benefits manufacturers like Intel (NASDAQ:INTC), Micron (MU) and Texas Instruments (TXN). Actual funding could subsequently slip to $38B (from $52B) when factoring in federal research programs and administrative overhead expenses, but investors are still welcoming any reshoring of the critical U.S. sector. According to Capital Alpha analyst Robert Kaminski, final passage of the Chips Act could come as early as next week.
Handouts or a necessity? There's an interesting discussion taking place as national security bumps heads with economic philosophy. While most Congressional lawmakers are calling it a defense imperative, some critics are classifying the bill as corporate welfare, citing billions of dollars in subsidies being granted to profitable domestic corporations. Market competition is also of concern if the bill only benefits a few companies or gives targeted funds to direct competitors. (14 comments)
Google (NASDAQ:GOOGL) is reincarnating its failed Glass project into another augmented reality product, which looks more like a pair of spectacles than something out of a sci-fi movie. Its last initiative died in 2015 (though it did attempt some resurrections since then) as many users considered the device ugly, overly expensive and lacking functionality. Glass also faced a host of privacy concerns due to its ability to record users' surroundings, and in some ways was ahead of its time on the AR/VR front (and years before Facebook (META) jumped into the metaverse).
This time around: Google is marketing its new prototype by "helping us quickly and easily access the information we need." One of its new features puts translation and transcription directly in users' line of sight, meaning they can see conversation subtitles on the lens of their glasses in real-time. Besides breaking down language barriers, the product hopes to further develop experiences like AR navigation, like showing users map directions inside of their lenses, especially in environments like busy intersections or inclement weather.
Similar to the rollout of Google Glass, the company is beginning with small-scale testing in the real world. The AR prototype will first be worn by a few dozen Googlers and select trusted testers, but it could be quite a while until it's available to the public. The revived project comes as Google attempts to stay ahead of the Big Tech competition, with Apple (AAPL) projected to unveil its mixed reality headset next year and Microsoft's (MSFT) Hololens currently the most advanced AR hardware on the market.
Fixing past mistakes: "These prototypes will include in-lens displays, microphones and cameras - but they'll have strict limitations on what they can do," Google wrote in a blog post. "For example, our AR prototypes don’t support photography and videography, though image data will be used to enable experiences like translating the menu in front of you or showing you directions to a nearby coffee shop." (3 comments)
The main artery for Russian gas to European Union, otherwise known as Nord Stream 1, has been offline for most of the past two weeks due to pre-scheduled annual maintenance. However, many Western nations are growing concerned that Moscow could permanently turn off the flows, which are used in everything from heating and cooking to electricity and power generation. Russia supplies the the bloc with 40% of its natural gas imports, and in nations like Germany, that figure is as high as 60%.
The conditions: In comments following his visit to Iran, Vladimir Putin said that Gazprom (OTCPK:OGZPY) - the pipeline operator's majority shareholder - has "always fulfilled its obligations," but warned that sanctions could impact future transfers. He specifically referenced a turbine that was undergoing repairs in Canada (which has leveled penalties on Moscow) and another turbine that will go for maintenance on July 26. Flows could fall to some 20% of capacity if the turbine isn't returned soon, but European officials have dismissed the explanation as a pretext to wreak economic havoc on the continent.
"It's absolutely clear that Moscow is cutting supplies for geopolitical reasons," declared Tim Ash, senior strategist at Bluebay Asset Management. "It wants to create a European gas crisis this winter to bring Europe to its knees to the point where it cuts support to Ukraine."
Go deeper: Gas shortages have already undermined the euro, which is now at parity with the dollar, and added to the risks of a looming European recession. At the same time, the European Commission published plans today to press governments on stepping up their energy conservation campaigns. Countries would be expected to reduce consumption by at least 15% over the next eight months, while switching from natural gas to other energy sources like nuclear and coal. (2 comments)
Today's Markets
In Asia, Japan +2.7%. Hong Kong +1.1%. China +0.8%. India +1.2%.
In Europe, at midday, London -0.2%. Paris -0.3%. Frankfurt -0.3%.
Futures at 6:20, Dow +0.2%. S&P +0.2%. Nasdaq +0.3%. Crude -1.6% to $99.09. Gold flat at $1710.60. Bitcoin +8.1% to $23,628.
Ten-year Treasury Yield -4 bps to 2.98%
Today's Economic Calendar
7:00 MBA Mortgage Applications
10:00 Existing Home Sales
10:30 EIA Petroleum Inventories
1:00 PM Results of $14B, 20-Year Bond Auction