Thursday Morning Reads
- Vigorous Growth Momentum
- Oil Extends Losses
- Welcome to the YOLO Economy
- App Store Dominance
- China’s Tycoons Keep Quiet
- The ‘Greening’ of the S&P 500
- An E.V. Start-Up Backed by UPS
- Net Zero Emissions by 2025
- Was It Worth The Price?
- The Dumbest Week Ever
- I Don’t Shop
Bigger picture: The announcement builds on other climate policies Biden has proposed in his first 100 days in office, including a plan to integrate climate risk into the financial system and a $2T infrastructure package. He's also set to issue an executive order on climate disclosure within the capital markets, a move that could shift investments and allocations in the fossil-fuel and renewables sectors. "Suddenly people are going to be making evaluations considering long-term risk to the investment based on the climate crisis," said U.S. climate envoy John Kerry.
It may already be happening. Electric vehicle stocks jumped after the latest climate headlines on Wednesday, as well as shares of solar companies. According to Bank of America, 90% of companies in the S&P 500 also now publish sustainability reports, up from 20% in 2011, suggesting the trend has gone mainstream.
Go deeper: Corporate America is warming up to Biden's new climate target. More than 400 businesses and investors, including Apple (NASDAQ:AAPL), Alphabet (GOOG, GOOGL), Coca-Cola (NYSE:KO), General Electric (NYSE:GE), Unilever (NYSE:UL) and Walmart (NYSE:WMT), have signed an open letter that backed cutting U.S. greenhouse gas emissions by at least 50% below 2005 levels by 2030. Green investing advocate Ceres said the signatories employ a combined 6M American workers across all 50 states and represent more than $4T in annual revenue. (42 comments)
Stocks closed higher on Wednesday following two days of declines, though futures hugged the flatline for much of the overnight session. Traders are meanwhile looking out for more economic data that could give another snapshot of the ongoing recovery. Small caps are also in focus given the strength seen yesterday, with the Russell 2000 ending the session up 2.4% to log its best day since March 1.
On the calendar: The Labor Department is set to release the latest count for new jobless claims. Expectations are for 617,000, but there could be another surprise, following the pandemic low of 576,000 seen the prior week. Another key report is existing home sales for March. The National Association of Realtors is forecast to show sales of previously owned homes slipping half a percent month-over-month in March to a seasonally adjusted annual rate of 6.19M units.
The earnings parade will also continue, with two DJIA members posting results this morning - chip giant Intel (INTC) and chemical maker Dow (DOW). We'll also get numbers from American Airlines (AAL), AT&T (T), Biogen (BIIB), Blackstone (BX), Freeport-McMoRan (FCX), Snap (SNAP), Southwest Airlines (LUV) and Valero (VLO).
Commentary: "Significant stimulus, with more coming from the Biden administration, has driven economic forecasts up and might push overall EPS expectations from the $174 consensus projection currently to $180-$185," Citi's Tobias Levkovich said in a research note. “We think that equities are reflecting something closer to $190, which suggests that much is already priced in and that any shortfall could cause a meaningful pullback."
It would have been one of Credit Suisse's (NYSE:CS) best quarters in history, though it turned out to be one of the worst. Revenue at the Swiss bank soared 31% to $8.3B due to client activity in robust markets, but it logged a net loss of 252M Swiss francs ($275M) due to the Archegos disaster. The damage isn't done. While Credit Suisse has exited 97% of its trading positions related to the collapse of the investment firm, it still predicts an additional loss in Q2 of around 600M Swiss francs ($655M).
Backdrop: In late March, Archegos defaulted on margin calls from several global investment banks, including Credit Suisse, Nomura, Morgan Stanley and Goldman Sachs. The fund had large, concentrated positions in ViacomCBS (VIAC), Baidu (BIDU) and other companies, but its use of total return swaps helped hide its high exposure from the banks. The derivative contracts exposed the firm to severe losses when the trades went sour, and the news came just weeks after Credit Suisse warned of other major losses. Earlier in March, the bank froze $10B in funds connected to client Greensill Capital, after marketing funds that financed the company's operations.
Looking to counter the damage, Credit Suisse intends to raise about $2B (through 203M new shares), shoring up capital via convertible notes. That would help lift its common equity Tier 1 capital ratio, or main measure of resilience, back towards 13% (after slipping to 12.2% from 12.9% at the end of December). The bank also cut its dividend and pushed out its heads of risk, investment banking and equities.
Outlook: "The loss we had in Archegos was unacceptable," Credit Suisse CEO Thomas Gottstein said after the results, but didn't offer his resignation following the Archegos and Greensill cases. "This is the time for solutions. We do not have a risk culture problem." Switzerland's financial regulator, FINMA, still opened enforcement proceedings against the bank over how it handled the recent risks, which could possibly shorten Gottstein's tenure at the helm. He took over only a year ago after his predecessor, Tidjane Thiam, was ousted from the bank following a spying scandal on a recently departed executive. (14 comments)
TikTok is facing a lawsuit over alleged misuse of children's information, which is being backed by Anne Longfield, the former children's commissioner for England. She maintains the social media app has been collecting personal data on millions of children across the U.K. and Europe since May 2018, including phone numbers, videos, locations and biometric information. The app then gives this data to unknown third parties for profit, according to the suit, which is demanding billions of pounds and transparency over what data is collected.
Bigger picture: Longfield is also demanding clarity over what ages the app is meant for (it currently targets people 13 and older). She further cited a government study from Ofcom that showed 44% of 8-12 year olds use the app, calling it a "data collection service that is thinly-veiled as a social network." TikTok has more than 800M users worldwide, with 100M users in Europe alone.
"Privacy and safety are top priorities for TikTok," the company responded in a statement. "We believe the claims lack merit and intend to vigorously defend the action."
Go deeper: This is not the first time TikTok has been in the spotlight over its data practices. Back in 2019, U.S. trade regulators fined TikTok's parent company, Chinese tech firm ByteDance (BDNCE), $5.7M over allegations of illegally collecting personal information on children under 13. The Trump administration also attempted to force a sale of TikTok's U.S. operations to an American company - Oracle (ORCL), Walmart (WMT) and Microsoft (MSFT) were interested - citing national security concerns surrounding data security and privacy. Last December, a U.S. district court judge prevented the Commerce Department from imposing the restrictions on TikTok, though the app has been banned in other countries like India.
A new term is hitting financial markets called "swarm trading." We've seen the trend many times over the past year, ranging from the GameStop (GME) and AMC (AMC) short squeeze to the Hertz (OTCPK:HTZGQ) bankruptcy bid-up and Kodak (KODK) craze that preceded it. Other events that did not fare as well was the highly publicized "Doge Day" (DOGE-USD) this week that was supposed to take the crypto to $1. The tactic sees people pile into these names, ignoring fundamentals, technicals and other catalysts, until the last trader is left holding the bag.
Meet the newest target: Greenlight Capital's David Einhorn cited a deli in New Jersey last week as proof of a "quasi-anarchy" market that's "fractured and possibly in the process of breaking completely." The store, located in a Philly suburb called Paulsboro, generated only $35,748 in sales over the last two years, but is publicly listed as Hometown International (OTCPK:HWIN) and valued at over $100M. "The pastrami must be amazing," Einhorn remarked, as share volumes surged, with swarms of traders adding on the Russian dressing.
"It used to be that people ran away from brewing bubbles, eschewing stocks and other financial assets that seemed massively overvalued or just plain stupid. Nowadays people run towards them," writes Tracy Alloway at Bloomberg.
The latest: Hometown International was delisted from the OTCQB over-the counter market overnight "for not complying with the rules" and was slapped with a warning label, according to the group's CEO Cromwell Coulson. The retail trading sensation is also under the microscope, while its effects are being assessed in relation to market quality. Will newly confirmed SEC Chair Gary Gensler, Wall Street's top cop, make some regulatory moves?
What else is happening...
India records world's biggest single-day rise in coronavirus cases.
ECB likely to keep policy unchanged, but next steps on watch.
Pressure on Biden administration to waive COVID-19 vaccine patents.
Mortgage delinquency rate drops to 5.02% in March.
In Asia, Japan +2.4%. Hong Kong +0.2%. China -0.2%. India +0.8%.
In Europe, at midday, London +0.1%. Paris +0.7%. Frankfurt +0.6%.
Futures at 6:20, Dow flat. S&P -0.1%. Nasdaq -0.1%. Crude -0.5% to $61.04. Gold -0.2% at $1789.60. Bitcoin -1.9% to $54344.
Ten-year Treasury Yield unchanged at 1.56%
Verizon (NYSE:VZ) -0.4% despite Fios strength, fewer postpaid losses.
NextEra Energy (NYSE:NEE) -3.2% on drop in Y/Y renewables sales.
Halliburton (NYSE:HAL) -3.6% hobbled by a slower growth forecast.
Kinder Morgan (NYSE:KMI) +3.1% AH notching gains from Texas freeze.
Chipotle (NYSE:CMG) +0.6% as online sales topped in-person orders.
Las Vegas Sands (NYSE:LVS) -1% AH posting a 15.6% drop in revenue.
Today's Economic Calendar
8:30 Initial Jobless Claims
8:30 Chicago Fed National Activity Index
10:00 Existing Home Sales
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
4:30 PM Fed Balance Sheet