Thursday Morning Reads
- It Makes Sense
- European Stock Funds
- Cathie Wood’s Bad Sprin
- A Temporary U.S.-China Trade Truce
- Russia Raises Heat on Twitter, Google and Facebook
- HSBC to Exit Most U.S. Retail Banking
- Jeff Bezos Will Step Down
- Offshore Wind
- The Little Engine That Could
- Climate Activists Defeat Exxon
- Rode Out the Pandemic While Rivals Slipped
- “Money Printer Go Brrrr” Meme
The reputation of black gold got more tarnished yesterday as a trifecta of trouble hit the oil industry. While environmental groups and activist investors have stepped up the pressure in recent years to address concerns about climate change and fossil fuels, some of these historic defeats are being looked at as a watershed moment that will shift the oil-and-gas landscape. Shareholders, investment giants and lawmakers are increasingly raising their voices about a sustainable future, while some even see the transition as a way to secure future profits given changing trends and an ESG world.
Exxon - Activist hedge fund Engine No. 1 won at least two board seats on the company's board, which will likely force it to confront growing concerns about climate action. While it's still too soon to gauge what the green-tinged members will do, fundamentally, it was a blow to the oil major and shows that shareholders are no longer buying a permanent future in the oil-and-gas arena. The Exxon (XOM) battle was one of the biggest proxy shocks in Wall Street history, especially for a campaign that only began last December.
Chevron - Shareholders voted 61% to cut emissions from the end-use of its fuels, while the firm barely lost a non-binding vote calling for a report on the business impact of achieving net-zero emissions by 2050. The decision signals a "new sense of urgency," said Mark van Baal, who leads a climate advocacy group that placed resolutions calling for emissions cuts at Chevron (CVX) and elsewhere. Earlier this month, ConocoPhillips (COP) shareholders also rejected the company's board to support a similar push for a full-scope emissions reduction target.
Shell - Emissions goals were deemed insufficient by a Dutch court, which ordered the oil major to curb its carbon outflows by 45% by 2030 compared with 2019 levels. It also said that Shell (RDS.A, RDS.B) was not only responsible for lowering its own direct emissions from drilling and other operations, but also those of the oil, gas and fuels eventually burned by consumers. While Shell said it will appeal the ruling, Rystad Energy feels it has a "negligible chance" in court, and it also raises eyebrows on the company's decarbonization agenda that was considered one of the stricter plans in the industry. (111 comments)
Up, down, up, down... Stock futures are pointing slightly lower this morning, keeping up with a trend seen this week of tepid gains and losses. Nasdaq futures are off by 0.5%, while contracts tied to the S&P 500 and Dow Jones are down 0.3% and 0.1%, respectively. The wavering of equities this week came as fears over runaway inflation eased, but Fed taper talk picked up pace, resulting in mixed sentiment on Wall Street.
Economic data: There's no shortage of figures today that can spark discussion over when monetary stimulus could begin to be scaled back. Durable goods numbers are scheduled to be released at 8:30 a.m. ET and are likely to reflect strong demand for cars, appliances and other factory goods. Initial jobless claims, a proxy for layoffs, will be released at the same time, as well as a revision to the 6.4% annualized GDP growth figure seen in Q1.
"Equity markets are quiet as investors continue to anticipate the Fed's next move," said Mark Hackett, chief of investment research at Nationwide. "Low volatility and low trading volume are a frequent occurrence in the week leading into a holiday."
Don't forget the meme trade! The WallStreetBets crew has returned with fervor, driving up so-called "meme stocks" on Wednesday. Shares of AMC Entertainment (AMC) rose nearly 20% and GameStop (GME) climbed 16%, and the two are up more than 60% and 37%, respectively, this week alone. "These people don't have unlimited firepower," Mad Money's Jim Cramer noted, "but they've got enough firepower to engineer a short-squeeze any time a bunch of professionals decide to bet against this thing."
Amazon (AMZN) is putting up the big bucks in the streaming wars, reaching a deal to acquire MGM (OTCPK:MGMB) for $8.45B. The purchase is the second largest in the tech giant's history, behind its $13.7B transaction for Whole Foods in 2017. With MGM, Amazon will get a library of more than 4,000 films, including franchises like James Bond and Rocky, classics such as The Silence of the Lambs and 12 Angry Men, as well as critically acclaimed shows like The Handmaid's Tale.
Big pockets: While Amazon hasn't had the massive creative successes seen at Netflix (NFLX) and newcomer Disney+ (DIS), it does have the spending power to boost its position in the industry. On top of bolstering its Prime Video offerings, Amazon struck a recent deal with the NFL for exclusive rights to Thursday Night Football at a price of $1.2B a season over 11 years. In total, Amazon spent $11B on content last year, up from $7.8B in 2019.
One of the fastest-growing parts of Amazon's business is advertising and the MGM acquisition will allow the company to attach all sorts of ads to its new content. It could also create a fresh vertical with endless possibilities of what Amazon can do with a movie studio. Some say it won't change the face of Hollywood, though others are more skeptical given Amazon's dominance and the sway it has in many marketplaces.
Analyst commentary: In the race for scale that has ensued with every major media company jumping into streaming, the transaction "will likely distance Amazon’s Prime service from rivals that will (or do) offer a similar service," writes Citi's Jason Bazinet. "For a reasonable multiple, the deal ensures that Amazon has access to high-quality content as more media firms accelerate their direct-to-consumer pivot. In the aftermath of several streaming launches, Prime Video, Disney+ and perhaps Paramount Plus (VIAC) are the rivals arguably seen with enough scale to keep up with leader Netflix in the space."
You may be getting a new bank account if you're still a customer at HSBC (NYSE:HSBC). The company is ending its mass-market retail banking business in the U.S., selling much of the operations to Citizens Bank (NYSE:CFG) and Cathay Bank (NASDAQ:CATY), as it pivots towards wealth management and international banking. The change of strategy means HSBC will go from 1.4M customers to about 300K, after expanding into U.S. retail banking in the 1980s to diversify its geographical focus.
Details: The bank will offload 90 of its 148 American branches and wind down another 35 to 40 locations. Two dozen other sites will be converted into international wealth centers that will only service high-net-worth clients with balances over $75,000. HSBC will also sever ties with its retail business customers, meaning it will no longer transact with small businesses that have turnover of $5M or less.
"They are good businesses, but we lacked the scale to compete," CEO Noel Quinn declared. "Our continued presence in the U.S. is key to our international network and an important contributor to our growth plans." The lender lost nearly $550M on its U.S. wealth and personal banking division in 2020, compared to a profit of $573M on its global banking and markets division.
Outlook: HSBC is more than a year into an overhaul to refocus its operations in Asia, where it makes most of its profit and has pledged to invest about $6B over the next five years. It has meanwhile been walking back its U.S. investment over the last decade, selling nearly half of its U.S. branches in 2011 and its credit card business to Capital One in 2012. HSBC has also been looking to sell its French retail banking operations as part of the same strategy and has reportedly entered final negotiations to sell the division to private equity firm Cerberus.
What else is happening...
Gold closes above $1,900 as fundamentals 'have never been better.'
Janet Yellen, a no-show, at House hearing on COVID aid programs.
Wednesday's Key Earnings
American Eagle (NYSE:AEO) +5.7% with teens heading back to the mall.
DICK'S Sporting Goods (NYSE:DKS) +16.9% due to a sports and fitness boom.
Nvidia (NASDAQ:NVDA) -0.9% AH as investors shook off a blowout report.
Okta (NASDAQ:OKTA) -2.8% AH on CFO departure, guidance miss.
Snowflake (NYSE:SNOW) -3.1% AH despite a raised product revenue forecast.
Workday (NASDAQ:WDAY) -1.1% AH as tech fell in extended trade.
In Asia, Japan -0.3%. Hong Kong -0.2%. China +0.4%. India +0.2%.
In Europe, at midday, London -0.1%. Paris +0.5%. Frankfurt -0.3%.
Futures at 6:20, Dow -0.1%. S&P -0.3%. Nasdaq -0.5%. Crude -0.8% to $65.70. Gold -0.1% at $1899. Bitcoin -1.2% to $39217.
Ten-year Treasury Yield +1 bps to 1.58%
Today's Economic Calendar
8:30 Durable Goods
8:30 Initial Jobless Claims
8:30 GDP Q1
8:30 Corporate profits
10:00 Pending Home Sales
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $62B, 7-Year Note Auction
4:30 PM Fed Balance Sheet