Morning Readsnull
- Russia Resumes Nord Stream Natural-Gas Supply to Europe
- U.S. Initiates Trade Fight With Mexico Over Energy Policy
- Japan Leaves Weak Yen Alone Despite Above-Target Inflation
- The Relentlessly Peculiar Notion of Government ‘Fighting’ Inflation
- A Recession Alarm Is Ringing on Wall Street
- U.S. Home Prices Hit Record
- The US Has Lost Its Way on Computer Chips
- How Software Is Stifling Competition and Slowing Innovation
- More Investors Vote Against Corporate Directors Over Climate Change
- Angel Investor Calacanis Rips Into ‘Grifting’
- Loans Could Burn Start-Up Workers in Downturn
- Protesting Truckers Pledge Extended Blockade of Port of Oakland
- Apple Can Hit $3 Trillion on Services Shift, Morgan Stanley Says
- Tesla Ends Streak of Record Quarterly Profits
- Elon Musk Signals Optimism Tesla’s ‘Supply Chain Hell’ Will End
- China Fines Didi $1.2 Billion After Wrapping Year-Long Probe
- Why Netflix’s Earnings Weren’t Enough to Restore Confidence
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A big central bank meeting is on tap in Europe as inflation roils the continent and the euro remains on the backfoot. The ECB has been hesitant to get too aggressive on the monetary policy front - especially in comparison to the Federal Reserve - fearing a looming recession that was exacerbated by Russia's invasion of Ukraine. That stance may be changing, however, as the bloc clearly sees Moscow in the driver's seat in terms of natural gas supplies and even higher energy prices that could put it further behind the inflation curve.
Bigger picture: While the Fed began its latest rate hike cycle back in March, the ECB has yet to raise rates as it sought to prioritize economic growth. In fact, the last time the central bank raised rates was in 2011, in the aftermath of the European debt crisis. Over the past few months, the ECB warmed to the idea by telegraphing a 25 basis point hike, though a bigger 50 bps move has not been ruled out (and would be seen as a very hawkish signal by the markets).
Unlike the U.S., which makes up one large jurisdiction, the ECB's decision today will reverberate through 27 different member states and their economies. That could expose more indebted countries like Italy to financial trouble and weigh on peripheral bond yields as a whole. The situation remains even more precarious on word that Italian Prime Minister Mario Draghi (a former ECB president) would resign, prompting Italy's 10-year government bond yield to jump above 3.5% and the iShares MSCI Italy ETF (NYSEARCA:EWI) to slide 4.2% during yesterday's session.
Anti-fragmentation tool: Seeking to limit the spreads between yields across the eurozone, the ECB is also poised to unveil a new stimulus plan during today's meeting. Investors will be paying close attention to the details of the new bond-purchase program, including what assets policymakers are considering buying and under what circumstances. "While ECB President [Christine] Lagarde is likely to stress the temporary nature of the instrument - owing to the exceptional circumstances the euro area finds itself in - she will also underline the ECB's determination to secure the integrity of the monetary union, thereby trying to evoke a 'whatever it takes' spirit," wrote Dirk Schumacher, head of European macro research at Natixis. (5 comments)
Tesla (TSLA) weaved in and out of traffic in after-hours trading on Wednesday, ultimately settling up 1.5% at $753/share. The electric vehicle maker posted stronger than expected financials, with adjusted EPS of $2.27 (+57% Y/Y) on revenue of $16.9B (+42% Y/Y). The strong bottom line figure appeared to put to rest some concerns about the "gigantic money furnace" gigafactories in Austin and Berlin, while free cash flow rose above estimates at $619M (vs. consensus forecasts of $500M).
Changing lanes: While prices for Tesla cars are up 25% to 30% from a year ago, the firm's automotive margins compressed to 27.9% in Q2. The margins also fell below the 32.9% number that impressed in the first quarter, and 28.4% notched in 2021. The EV maker previously reported a disappointing quarterly delivery figure of 254,695 vehicles and is facing headwinds that include higher raw material and logistics costs.
"We've raised our prices quite a few times. They're frankly at embarrassing levels. But we've also had a lot of supply chain and production shocks, and we've got crazy inflation," Elon Musk announced on a conference call. Tesla will also have to jack up production by 70% in the second half of 2022 to meet its annual delivery goal of 1.5M vehicles in the face of China's zero-COVID strategy and supply chain crises impacting all automakers. Musk didn't give a production forecast for the rest of the year, but he said the company was likely to achieve "record" output.
HODLer? Tesla sold 75% of its Bitcoin (BTC-USD) stake to maximize liquidity given the COVID situation in China, though Musk related that it shouldn't be taken as "some verdict on crypto." Total sales of the cryptocurrency amounted to $936M, prompting Bitcoin to retreat below $24K following a big rally earlier in the week. "The Bitcoin losses point out an important part of the Tesla investment case - its eccentric owner," noted Laura Hoy, analyst at Hargreaves Lansdown. "While Musk’s impressive innovation has served the company well, his personal flair is starting to raise governance questions." (160 comments)
The overheated U.S. housing market is starting to cool down in what some in the industry are calling a real estate shakeout. Sales of previously owned homes fell 5.4% M/M in June to 5.12M units, according to the National Association of Realtors, and were 14.2% lower when compared to the same month a year ago. At those levels, sales fell to their slowest pace since June 2020, when buying activity dropped briefly at the start of coronavirus pandemic.
Bigger picture: Surging inflation is hammering potential buyers' purchasing power and rising interest rates aren't helping the situation. In fact, mortgage applications fell to a 22-year low last week, with the 30-year mortgage rate rising to 5.82% (compared to 3% at the start of the year). At the same time, the median existing-home price of all housing types climbed to $416K in June, from $407K in May (and surging from $285K just two years ago).
"It is clearly due to the plunging affordability," explained National Association of Realtors Chief Economist Lawrence Yun. "We have never seen mortgage rates shoot up this fast at this magnitude. Even people who want to buy, they are priced out."
Future construction: Single-family housing starts came in at a two-year low in June, down nearly 8% for the month and about 16% lower Y/Y. Things didn't look any better in terms of single-family permits, which were off by similar percentages. That sentiment is being displayed in the markets, with the SPDR Homebuilders ETF (XHB) sliding 28% YTD, and the latest snapshot of the industry will come today as D.R. Horton (DHR) kicks off the big builder earnings reports.
President Biden unveiled a series of executive actions yesterday aimed at fighting climate change, but the announcements fell short of issuing a formal climate emergency declaration sought by some Democrats. "Let me be clear: Climate change is an emergency," he said at a former coal-fired power plant in Massachusetts. "In the coming weeks, I'm going to use the power I have as president to turn these words into formal, official government actions through the appropriate proclamations and regulatory power that a president possesses."
Snapshot: The latest steps were declared after Biden's aggressive climate agenda unraveled in Congress, with Senator Joe Manchin saying he would not support major environmental provisions in the budget reconciliation bill. That effectively doomed Biden's Build Back Better Act, which hoped to invest more than $500B in new programs to cut emissions in support of new technologies like EVs. It has also put a spotlight on solar and wind stocks, as well as other industries in the renewable energy sector.
"The U.N.'s leading international climate scientists called the latest climate report nothing less than, quote, 'code red for humanity,'" Biden continued. "It's not a group of political official - elected officials. These are the scientists... Our national security is at stake as well. Extreme weather is already damaging our military installations here in the states, and our economy is at risk, so we have to act."
Initiatives: For now, Biden directed the Interior Department to propose new offshore wind areas in the Gulf of Mexico, and advance wind energy development in the waters off the mid and southern Atlantic Coast. He also unveiled $2.3B in funding for a FEMA program to help communities prepare for disasters by expanding flood control and retrofitting buildings. New guidance was issued for helping low-income families pay for heating and cooling costs, while additional actions will be announced in the "coming weeks." (48 comments)
Today's Markets
In Asia, Japan +0.4%. Hong Kong -1.5%. China -1%. India +0.6%.
In Europe, at midday, London -0.4%. Paris +0.4%. Frankfurt -0.4%.
Futures at 6:20, Dow -0.3%. S&P -0.2%. Nasdaq flat. Crude -4.3% to $95.63. Gold -1% to $1682.70. Bitcoin -2.5% to $23,024.
Ten-year Treasury Yield +2 bps to 3.05%
Today's Economic Calendar
8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Fed Balance Sheet
Companies reporting earnings today »
What else is happening...
United Airlines (UAL) turns a profit in Q2, but misses expectations.
Ford (F) plans up to 8,000 job cuts to help fund EV investment.
GameStop (GME) is outpacing Coinbase (COIN) on NFT volume.
Robinhood behind a mystery surge in Berkshire A share (BRK.A) trading.
Cathie Wood closes the doors on its ARK Transparency ETF CTRU.
Natural gas gains 10% to $8/MMBtu as heatwave batters the U.S.
Abbott (ABT) ups guidance with COVID-19 testing sales driving Q2 beat.
Sign of the times? Google (GOOGL) said to pause hiring for two weeks.
Shares of cruise-operator Carnival (CCL) slide on $1B stock offering.
No steering wheel: Baidu (BIDU) unveils Apollo RT6 autonomous vehicle.