Morning Reads







voiding a food crisis

Resumed grain shipments from Ukraine are being put to the test following a recent deal that was brokered by Turkey and the United Nations. The Sierra Leone-flagged ship Razoni, carrying 26K tons of corn, departed Odesa at 9:48 am local time, becoming the first vessel to leave the port since late February. A Russian naval blockade still threatens Ukraine's commercial sea routes, while missile strikes have targeted several ports, as well as infrastructure for grain storage.

Quote: "We are ready to export Ukrainian grain," Ukrainian President Volodymyr Zelenskyy said after his visit to the Black Sea. "It is important for us to remain the guarantor of global food security."

It's a big development for Ukraine - which has been traditionally referred to as the "Breadbasket of Europe" - as well as many developing nations that rely on its grain across Africa, the Middle East and Southeast Asia. It has also raised hopes that an international food emergency could be avoided, with prices spiraling in recent months and exacerbating an inflation crisis. Besides freeing up grain that is currently trapped in Ukraine, there is another looming challenge of how to store or export the country's upcoming summer harvest, which is expected to yield an estimated 65M tons.

What's next? 16 more grain ships are awaiting departure from Odesa, but much will depend on whether the agreement can hold, or if shipping firms and insurers will risk sending vessels into the mined waters. In anticipation of the deal, prices for wheat futures on the Chicago Board of Trade slid about 13% over the past month, though commodities still remain at elevated levels. A bushel of wheat is now trading around $8, which is more than double the price it was five years ago and about as expensive as late 2010 when high food costs helped spark the Arab Spring. (5 comments)

Rebound positivity

After a brief period of COVID negativity, President Biden tested positive for COVID again over the weekend. However, there was no reemergence of symptoms and the "president continues to feel well," White House physician Dr. Kevin O'Connor declared, saying there is no need to reinitiate the therapy at this time. Due to the positive COVID test, Biden will also restart the CDC's recommended isolation procedure for at least five days.

Backdrop: Biden, who is fully vaccinated and received two boosters of the Pfizer-BioNTech (PFEBNTX) vaccine, started a course of antiviral Paxlovid after first testing positive on July 21. He then tested negative for COVID from Tuesday to Friday, but was positive again on Saturday, according to the White House, which added that the case represents "rebound positivity." A similar event also happened to White House chief medical advisor Dr. Anthony Fauci, who tested positive for COVID (with returning symptoms) three days after finishing his Paxlovid regimen.

Commenting on the "rebound" linked to Paxlovid during its recent earnings call, Pfizer said last week that the company and the FDA are working together to design a study targeting patients who might need retreatment. Both Pfizer and the FDA pointed out that only 1%-2% of people in the original Paxlovid study saw their virus levels rebound after 10 days. The rate was also about the same among people taking the medicine or dummy pills, "so it is unclear at this point that this is related to drug treatment."

From the CDC: "Limited information currently available from case reports suggests that persons treated with Paxlovid who experience COVID-19 rebound have had mild illness; there are no reports of severe disease," the agency said in May. "Rebound" cases are said to resurface within two days to eight days after initially testing negative for the virus. (242 comments)

Delisting possibility

Shares of Alibaba (NYSE:BABA) plunged 11% below the $100-level again on Friday as the SEC placed the Chinese e-commerce leader on a list of companies at risk of being delisted in the U.S. At issue is Beijing not allowing American regulators to review the work of Alibaba's auditors and those of other Chinese tech firms. U.S. law gives such companies three years to adhere to the edict or face the potential of being delisted.

The latest: BABA is 2% higher in premarket action as the retail behemoth said it would work to preserve its listings. "Alibaba will continue to monitor market developments, comply with applicable laws and regulations and strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange."

It's a sign of confidence from a company that said last week it would upgrade its secondary listing in Hong Kong to a dual primary listing. Analysts feel the move could leave it in a better position should it be forced to delist in New York, sparking concerns that it could abandon Wall Street altogether. Alibaba also garnered attention due to reports that founder Jack Ma was poised to give up his control of Ant Group, an Alibaba (BABA) affiliate that provides financial services technology.

Market movement: Since a peak in October 2020, Alibaba's New York and Hong Kong-listed shares have plunged more than 70%. ADRs in the U.S. are also off 25% YTD and 55% over the past year.

Further strain

Trouble is also brewing in China's property market, which is coming off a major debt-fueled building boom. A liquidity crisis that was headlined last year by the default of China Evergrande (OTCPK:EGRNF) has only gotten worse, with the country's largest real-estate developer failing to deliver a "preliminary restructuring plan" that it had promised by the end of July. Eroding confidence in the property sector saw sales at the country's top 100 developers plunge nearly 40% last month, according to data from Chinese real-estate provider CRIC.

Snapshot: Millions of people across China are experiencing trouble in their homes being finished on time, and a growing mortgage payment boycott in more than 90 cities threatens to exacerbate the situation. The debt crisis was already unsustainable before the current crunch, with the average mortgage payment making up over half of a buyer's monthly income. Looking to revive the sector, China is now working on a nearly $150B bailout fund to complete stalled property projects and head off a backlash by angry homebuyers.

Interestingly, the bailout isn't aimed at helping highly-indebted developers complete their projects. It is rather targeting local governments (or local government-owned entities) to take over the projects and apply for loans from the PBOC or commercial banks to complete them. Concerns remain over the strategy's efficiency, given the fact that local governments could also struggle with completing projects, or how older creditors (like suppliers, contractors, bondholders etc.) will be stacked up in the event of new financing.

Outlook: Cities in China are already struggling with severe debt loads as they shoulder much of the expenses related to education, infrastructure and healthcare (such as mass COVID testing programs). The property market slowdown can force more local governments to rein in spending, adding yet another drag to China's weakened economy, which expanded by just 0.4% in Q2. "The chance of a vicious cycle - declining housing sales and prices, mounting developers' distress, and deteriorating local government finances - developing is concerning from growth and financial stability perspectives," Oxford Economics wrote in a recent research note.

Today's Markets

In Asia, Japan +0.7%. Hong Kong +0.1%. China +0.2%. India +1%.
In Europe, at midday, London +0.4%. Paris +0.3%. Frankfurt +0.4%.
Futures at 6:20, Dow -0.1%. S&P -0.2%. Nasdaq -0.3%. Crude -1.8% to $96.87. Gold +0.5% to $1789.90. Bitcoin -2.2% to $23,265.
Ten-year Treasury Yield +1 bps to 2.65%

Today's Economic Calendar

9:45 PMI Manufacturing Index
10:00 Construction Spending
10:00 ISM Manufacturing Index
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »

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Delaying strike, Boeing (BA) makes new offer to defense workers.

Australia seeks LNG export curbs to avoid domestic shortages.

Phillips 66 (PSX) maximizing diesel output as fuel demand stays strong.

Vaxart's (VXRT) oral COVID vaccine offers benefits beyond needles.

Stranger Things (NFLX) finale puts up scary streaming numbers again.

Germany factory activity weakens at sharpest pace in two years.

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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