Thursday Morning Reads
- Doom Crypto?
- Bitcoin and Meme Stock Traders
- Traders Rush to Dump China
- China Factory Inflation Surge
- It’s a Lehman Moment
- Debt Ceiling, Meet Domestic Forever Wars
- From 4% to 45%
- Investors Betting on ‘Stable’ Choice
- Building A More Sustainable Car
- The Mighty Pickup Slims Down
- Global Real Estate Bets
- A Major Decision From The FDA
- How the Pandemic Turned Humble
September 9, 2021, may go down as a day of reckoning for the vaping industry, with the FDA set to decide whether and how e-cigarette companies may keep selling their products in the U.S. The biggest impacts could be felt by Vuse, which is owned by Reynolds American (NYSE:BTI), and Juul, in which Altria (NYSE:MO) has a 35% stake. Some other companies like Philip Morris (NYSE:PM), Swedish Match (OTCPK:SWMAF) and Imperial Brands (OTCQX:IMBBY) could also see a significant competitive advantage if their product is approved, or could get hit if rejected.
Backdrop: Last September, all U.S. e-cigarette manufacturers were required to take their vaping products off the market or submit them for FDA review. Scientific evidence was required to demonstrate that each product was less harmful than traditional cigarettes and that cigarette smokers would be more likely to stop smoking if they used it. Since then, more than 500 companies have filed applications for some 6.5M products, while the FDA enacted temporary restrictions on some sweet and fruity products to curb youth vaping.
Today's decision will likely come down to whether e-cigarettes have a net positive or negative effect on American public health. Is there enough data that supports the potential good of adult cigarette smokers switching to a less harmful option? Can a case be made that vaping is more detrimental than smoking due to young people getting hooked on nicotine? Stricter controls may also be implemented on the way e-cigarettes are marketed and sold, while manufacturers might have to submit future marketing campaigns to the FDA.
Outlook: While the agency won't be able to render decisions on every single product by today's deadline, it is fast-tracking those with the largest market share. The FDA has already blocked the sale of 55,000 flavored vape products from three companies that did not meet its standards and more crackdowns may be on the way. In April, the FDA announced plans for a proposal that would ban menthol cigarettes and flavored cigars, and is also reportedly considering whether to seek limits on nicotine levels in cigarettes to reduce their addictive potential. (21 comments)
Another day of losses may be in store for the U.S. stock market, with futures contracts tied to the Dow, S&P 500 and Nasdaq falling another 0.3% overnight. The major averages have slid over the last three consecutive trading days as investors question valuations amid worries about Fed tapering and the Delta variant. Recovery optimism was also thrown a curveball last Friday, with a jobs report that showed a sharp slowdown in the pace of hiring in the U.S.
Strange anomaly: 8.4M Americans are still unemployed across the country despite fresh figures yesterday that showed 10.9M job openings for July (the most on record dating back to 2000). Companies are even raising pay and bonuses to people who accept job offers or recruit their friends, but that doesn't seem to be helping. While many businesses have blamed enhanced unemployment benefits, economists at J.P. Morgan have found "zero correlation," at least so far, between job growth and state decisions to drop federal unemployment aid.
Whatever the case may be, a delay in the return of millions to the workforce could weigh on GDP and the recovery. In fact, overall growth has already "downshifted slightly to a moderate pace," according to the latest Beige Book, which was published on Wednesday. Investors this morning will also be watching the latest weekly jobless claims report, a metric that's seen as a proxy for layoffs, for a better look at the employment picture.
Lingering concerns: The potential tapering of central bank stimulus is not limited to the U.S. The ECB today determines whether the recovery is strong enough to warrant a pullback in monetary stimulus despite supply chain bottlenecks and the rapidly spreading Delta variant. "The real unknown is if the ECB will revise its inflation and growth forecast," said Agnes Belaisch, strategist at the Barings Investment Institute. "If it raises its inflation forecast closer to 2%, that will make markets wonder if it could overshoot and if the ECB could have to raise interest rates."
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Solar is going to play a massive role in decarbonizing the American power grid, according to a newly released plan by the U.S. Department of Energy. The Solar Futures Study shows that by 2035, solar energy has the "potential to power 40% of the nation's electricity," before ultimately hitting 45% by 2050. Further modeling indicates that the remainder of a carbon-free grid would be supplied by wind (36%), nuclear (11%-13%), hydroelectric (5%-6%) and biopower/geothermal (1%).
How to get there? The U.S. already installed a record amount of solar in 2020 - 15 gigawatts - to total 76 GW, representing 3% of the current electricity supply. In order to accomplish the above-stated goals, the country would need to install an average of 30 GW of solar capacity per year between now and 2025 and 60 GW per year from 2025-2030. Storage will also enable more flexibility and resilience, while advanced tools like grid-forming inverters, forecasting, and microgrids would play a role in maintaining the reliability and performance of a renewable-dominant grid.
"This is code red. The nation and the world are in peril," President Biden said on Tuesday while visiting areas slammed by Hurricane Ida. "Climate change poses an existential threat to our lives, to our economy. And the threat is here. It's not going to get any better."
Go deeper: The bipartisan Infrastructure Investment and Jobs Act passed by the Senate in August includes billions of dollars for clean energy projects. While several big policies were left out, like extending tax credits, those initiatives could still be included in the $3.5T budget resolution approved by the House. The latest study from the DOE also estimates that the transition to a solar-driven grid could "employ as many as 1.5M people in the process - without raising electricity prices." (84 comments)
Treasury Secretary Janet Yellen is urging Congress to raise the government's borrowing limit, noting that lawmakers in recent years have addressed the subject with broad bipartisan support. She already made a statement on the debt limit on Aug. 9 and sent a letter to Congress about the issue in July, but is now stressing a state of urgency. Yellen estimates the Treasury's coffers could run out of cash in October and the administration is worried about a possible debt default.
Quote: "We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States. A delay that calls into question the federal government’s ability to meet all its obligations would likely cause irreparable damage to the U.S. economy and global financial markets."
Since Aug. 1, when the debt limit was reinstated, the Treasury started using certain extraordinary measures to finance the government on a temporary basis. Such measures include suspending certain investments in the Civil Service Retirement and Disability Fund, the Postal Service Retiree Health Benefits Fund, and the Government Securities Investment Fund of the Federal Employees' Retirement System Thrift Savings Plan.
Stalemate: House Speaker Nancy Pelosi has said raising the $28.5T debt ceiling won't be included in the $3.5T reconciliation measure that House Democrats hope to pass this fall. Senior congressional Republicans have also pledged not to vote for an increase of the limit, instead urging Democrats to pass it via reconciliation. The political wrangling and failure to increase the limit could prompt a government shutdown, which has occurred three times over the past decade. (57 comments)
In Asia, Japan -0.6%. Hong Kong -2.3%. China +0.5%. India flat.
In Europe, at midday, London -1.3%. Paris -0.3%. Frankfurt -0.3%.
Futures at 6:20, Dow -0.3%. S&P -0.3%. Nasdaq -0.3%. Crude +0.2% at $69.42. Gold +0.2% at $1797. Bitcoin -0.2% at $46121.
Ten-year Treasury Yield -1 bps to 1.33%
Today's Economic Calendar
8:30 Initial Jobless Claims
10:00 Quarterly Services Report
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
11:05 Fed's Evans: “Exploring Career Pathways in Economic and Related Fields”
11:05 Fed's Daly: “The Economic Gains From Equity”
12:00 Fed's Kaplan: “Next Phase: The Economic Outlook”
1:00 PM Results of $24B, 30-Year Note Auction
1:00 PM Fed's Bowman: “Community Bank Access to Innovation”
2:00 PM Fed's Williams: “Racism and the Economy: Focus on Health”
4:00 PM Fed's Rosengren, Fed’s Kashkari and Fed’s Kaplan participates in President Panel
4:25 PM Fed's Rosengren: “Racism and the Economy: Focus on Health”
4:30 PM Fed Balance Sheet