Inflation information

The day has finally arrived... Investors this morning are set to get a better take on whether inflation is here to stay, or if price pressures could threaten the market rally, with major averages hovering near record highs. The consumer price index for May will be published at 8:30 a.m. ET, and is expected to show headline inflation rising by 4.7%. That would mark the biggest year-on-year increase since 2008, when energy prices went through the roof, and would follow the sizzling 4.2% advance seen in April. Core consumer inflation, which excludes food and energy, is anticipated to jumped 3.5% Y/Y, the highest level since 1993.

Quote: "It will be hot. It could be up to 5%," said Diane Swonk, chief economist at Grant Thornton. "The worst of the heat is going to be the second quarter in terms of headline. It will be interesting to see what it looks like when you strip out the extremes. I think we're still going to have a warm summer when you have surge pricing kicking in for everything from airfares to hotels."

While the Fed has pledged not to hike interest rates before 2023, some economists say that is wishful thinking if these levels of inflation keep up. U.S. stock index futures were mixed before the latest CPI, with the Dow up 0.2% and Nasdaq off by the same amount (contracts linked to the S&P were flat). On the other side of the debate, the Fed believes rising price pressures will be "transitory," and many portfolio managers are riding that train, feeling inflation fears have already been priced in.

Also on the calendar: The Labor Department will publish its latest weekly jobless claims numbers at the same time the CPI is released. The figures are expected to fall to a seasonally adjusted 370K for the week ended June 5, compared to the 385K seen last week, which marked the lowest level since March 2020. It would also be the sixth consecutive weekly decline as the U.S. economy rebounds from the coronavirus pandemic.

Keystone X-ed out

TC Energy (TRP) and Alberta's provincial government have officially terminated the $9B Keystone XL pipeline project, a foregone conclusion after President Biden revoked a key permit on his first day in office. The 1,179-mile pipeline would have shipped over 800K barrels of crude a day to Steele City, Nebraska, from Hardisty, Alberta, giving Canadian oil companies a new route to refineries on the U.S. Gulf Coast. The decision was cheered by environmentalists who for a decade have made Keystone XL a lightning rod of broader political battles over energy and climate change.

"When this fight began, people thought Big Oil couldn't be beat," said Bill McKibben, the founder of environmental group 350.org. "But when enough people rise up, we’re stronger even than the richest fossil-fuel companies." Other organizations, which targeted Keystone XL, are also putting pressure on Wall Street to take climate action and were a force behind activist investors' recent board seat wins at Exxon Mobil (XOM).

As for TC Energy, the company said it will "continue to progress $20B of secured growth projects, $7B of projects under development, and numerous additional initiatives." It also announced that going forward it would build out businesses that include shipping and storing natural gas, liquid fuels and power to meet rising demand for cleaner fuels. "We value the strong relationships we’ve built through the development of this Project and the experience we’ve gained," TC Energy CEO François Poirier declared.

Outlook: While the U.S. oil industry is under pressure to slash carbon emissions, Russia and OPEC have subsequently announced production increases. Just last week, President Biden suspended oil leases in Alaska's Arctic National Wildlife Refuge, while Michigan Gov. Gretchen Whitmer attempted to revoke a permit that allows Enbridge (ENB) to transport oil under the Great Lakes. The goal here is to wean the U.S. economy off of fossil fuels before irreversible climate effects take hold, or at least diversify the energy mix until then. Others argue that U.S. fossil fuel production needs to accelerate to satisfy ever-growing demand, and barring some technological breakthroughs, the U.S. risks once again becoming dependent on OPEC+. (31 comments)

GameStop turnaround?

The original meme stock, GameStop (GME), reported results after the bell yesterday, highlighting a quarter where sales rose 25% to $1.28B on the back of new PlayStation and Xbox consoles. Adjusted EBITDA meanwhile fell to -$0.7M, compared to -$75.5M a year earlier. On the balance sheet, GameStop had $771M in cash at the end of the quarter, as well as no borrowings under its asset-based revolving credit facility and no long-term debt.

Despite the news, the stock slumped as much as 12% AH to $265, after the retailer held back on issuing any formal guidance due to the pandemic. The company also filed a prospectus with the SEC to sell up to 5M shares of its stock from time to time, in "at-the-market" offerings. Looking ahead, GameStop still expects Q2 sales trends to reflect continued momentum, with May total sales increasing approximately 27% compared to last year.

Ryan Cohen's turnaround plan: Alongside the report, GameStop announced the appointments of Matt Furlong and Mike Recupero as CEO and CFO, respectively. The two join GameStop from Amazon (AMZN), where they held senior roles and oversaw various growth initiatives during their respective tenures. GameStop has hired three former Amazon executives over the past few months, including COO Jenna Owens, CTO Matt Francis and Chief Growth Officer Elliott Wilke, as well as tapping Ryan Cohen, who helped build Chewy (CHWY) into a digital commerce juggernaut, to lead its e-commerce efforts.

Meme disclaimer: GameStop disclosed that it received a request from the SEC last month. While the letter asked for the voluntary production of documents and information concerning an investigation into the trading activity of GME shares - and the securities of other companies - the video game chain said it does not expect to be adversely impacted by the inquiry. (69 comments)

Gensler gets going

SEC Chairman Gary Gensler went on a media blitz yesterday to push for updated regulation on making markets "as efficient as possible." Specific areas he and his staff are looking at include best execution, Regulation NMS, payment-for-order-flow, minimum pricing increments and national best bid and offer. It's part of an overall thrust toward a "freshening up" of the SEC's guidelines in light of a fast-changing market environment.

Crypto crosshairs: Gensler warned traders that Bitcoin (BTC-USD) markets don't have the same governmental oversight as more traditional ones, like those for stocks and commodities. Referring to them at one point as "cooked-up currencies," he said the area required more attention and called for more clarification about the regulatory regime. While Bitcoin is regulated by the CTFC and tokens fall under SEC authority, Gensler expressed concern that there wasn't enough oversight over all aspects of the crypto market.

Gensler also highlighted two key components of the recent meme-stock revolution - gamification of trading and pay-for-order-flow business models. On PFOF, Gensler argued that an inherent conflict of interest could exist between this method of generating revenue and a broker's responsibility to provide best execution, as well as the cheap-trading structure that has underpinned activist retail investing. "It's not free trading," he said bluntly, noting that someone is paying for the trader's data and order flow.

Market movement: Shares of Virtu Financial (VIRT) slumped 7.7% after Gensler's comments at the Piper Sandler Global Exchange and FinTech Conference. Virtu processes between 25% and 30% of retail trader order flow in the U.S., and its stock has soared during the waves of meme mania. Citadel Securities is the only wholesaler with a bigger market share, but it is not publicly traded. (42 comments)

What else is happening...

Facebook (NASDAQ:FB) plans two-camera smartwatch for next summer.

JBS (OTCQX:JBSAY) paid $11M in Bitcoin to resolve ransomware attack.

Moderna (NASDAQ:MRNA) talking with U.S. on vaccine doses for the world.

Will the ECB maintain a higher pace of emergency asset purchases?

Tune in... Tesla (TSLA) hosts Model S Plaid delivery event.

Billionaire space race: Richard Branson looks to top Jeff Bezos.

AMC (NYSE:AMC) reports 4.1M retail investors ahead of company meeting.

Interactive Brokers (NASDAQ:IBKR) plans to start crypto trading in coming months.

El Salvador first country to make Bitcoin (BTC-USD) legal tender.

Mega sales increase projected by World Semiconductor Trade Statistics.