Thursday Morning Reads
- Heavy Blow to Japanese Firms
- German Consumers Face Higher Prices
- China Hurries to Burn More Coal
- Battle to Raise Revenue
- Is the Billionaire Tax Legal?
- The Bitcoin ETF Race Is Over
- Race to Attract New Users
- After Archegos, Credit Suisse Is Gripped by Paralysis and Dread
- Boomer Wealth Is Surging
- Comcast Quarterly Revenue Tops Estimates
- Third Point Has Big Shell Stake
- Hertz Links Up With Uber
- Starbucks Plans Pay Hike
- Facebook Is Bad
- Cigarette Sales Went Up Last Year
A flattening of bond yields took place on Wednesday as rate traders reassessed their expectations of future central bank policy. In the U.S., the 10- and 30-year yields slid 7 basis points and 10 bps, respectively, while the 2-year Treasury yield rose to fresh 19-month highs. Solid demand for a $60B auction of 2-year notes and $60B in 5-year notes added to overall bids in the Treasury market, sending longer-dated yields lower.
Sentiment goes global: Canada's 2/10 Treasury spread flattened by almost 23 bps, marking the largest such move since 2002, while yields on Australia's three-year debt soared as much as 24 bps. Flattening yield curves were also seen in the U.K., Germany, Italy and France. "Even chronically low-demand economies like the eurozone and Sweden are moving towards pricing of tightening," Bespoke Investment Group wrote in a note.
Investors may be looking ahead to key central bank meetings for clues on whether they would consider tightening monetary policy (and tapering). Some also see a period of peak monetary stimulus coming to an end, with the Fed and others set to tap on the brakes as the expansion of economic growth begins waning (not to mention inflation concerns). The loss of momentum is usually associated with flattening yield curves, and at its worst can turn into an inverted curve, which can foreshadow a recession.
Go deeper: Falling yields are usually a net positive for risk assets like stocks. The relationship supports equity valuations given their relative attraction to bonds, but that has mainly been in recent years when the declines were the result of quantitative easing. This time around the movement is being triggered by higher inflation and declining growth expectations, making the correlation a little more complicated.
Get ready for the listing of one of the biggest names in the chip industry at a time when a semiconductor shortage rocks supply chains around the world. GlobalFoundries is set to list on the Nasdaq this morning under ticker "GFS" after pricing its shares in its IPO at $47 a piece. That was the higher end of its targeted price range, which will raise about $2.6B for the company and value it at about $26B.
Bigger picture: Many top semiconductor companies are now "fabless," meaning they only design their chips and the technology inside of them. Other companies, known as foundries, fabrication plants or simply "fabs," are contracted to actually make the chips. GlobalFoundries is part of the latter group, making silicon wafers for companies like AMD (AMD), Nvidia (NVDA) and Apple (AAPL). In fact, the company was spun off AMD in 2009 after the semiconductor firm wanted to get out of the fab business.
Compared to other foundry giants like SMIC (OTCQX:SMICY) and TSMC (NYSE:TSM), GlobalFoundries is billing itself as the largest silicon wafer supplier not dependent on China and Taiwan. That doesn't mean the business will be U.S.-controlled or profitable (Abu Dhabi's sovereign wealth fund Mubadala Investment holds a majority stake). GlobalFoundries also reported a loss of $1.35B in 2020, and has yet to swing to a profit, though it's showing some signs of improvement given the strong chip demand.
Bottom line: GlobalFoundries is one of the marquee listings of 2021, which included names like Affirm (AFRM), Coupang (CPNG), DiDi (DIDI) and Robinhood (HOOD). There have also been a number of companies that have gone public via SPAC or direct listing, including Coinbase (COIN), Roblox (RBLX) and Warby Parker (WRBY). The IPO market is forecast to see around 375 deals this year that would raise $125B, according to Renaissance Capital, topping the $97B raised in 2000 during the dot-com era. However, in terms of returns, the Renaissance IPO ETF (NYSEARCA:IPO) is up only 4% YTD, compared with a 23% gain for the S&P 500.
Dan Loeb's Third Point has taken a stake in Royal Dutch Shell (RDS.A, RDS.B) and wants the company to separate into "multiple standalone" companies. Specifically, the activist investor is pushing the oil major to create a company that houses its legacy refining business and another business that will hold its renewables and other units. Third Point is said to have taken a stake in Shell of around $750M.
Quote: "While daunting, there is perhaps no bigger ESG opportunity than in “Big Oil”, and specifically, at Royal Dutch Shell," Loeb wrote in the letter. "We are early in our engagement with the company but are confident that Shell’s board and management can formulate a plan to accelerate decarbonization while simultaneously improving returns for its long-suffering shareholders."
Shell said that it welcomes open dialogue and that its investor relations team has had preliminary conversations with Third Point. The firm also announced that it had set itself a bigger carbon reduction target after a Dutch court ordered it to take much more aggressive action in early May. The developments come after activist investor Engine No. 3 targeted Exxon Mobil (NYSE:XOM) over ESG concerns, while last week, the WSJ reported that Exxon was even debating whether to continue with several major oil and gas projects.
Market movement: Shell shares rose 2.3% yesterday on the Third Point news, but have taken a spill in premarket trading, sliding 5.5%. The Anglo-Dutch company posted adjusted earnings of $4.1B for the three months through to the end of September, compared to the almost $6B expected by analysts. Of particular note was a roughly $400M hit from Hurricane Ida, as well as "lower contributions from trading and optimization."
Meet Shiba Inu (SHIB-USD), a different puppy-inspired meme coin that has been making waves in recent weeks. A record rally has led the token to become the ninth-most valuable crypto in the world, with a market cap of around $38.5B. It's climbed nearly 26% over the past 24 hours and 1000% over the past month, though the coin is still valued at less than a cent.
Snapshot: A "flippening" of sorts occurred on Wednesday after Shiba Inu undercut Dogecoin (DOGE-USD) in the crypto ranking. However, Doge was quick to bark back, climbing 36% to $0.32. Helping contribute to the Shiba rally was a tweet from Elon Musk, who said SHIB coin was going to the Moon on October 18 (he said the same about Doge). Rumors are also circulating that SHIB will soon be listed on the popular stock trading app Robinhood (HOOD) (Coinbase (COIN) added the token last month).
Outlook: While Shiba Inu may be a meme coin and have little underlying value in most cases, it's been increasingly looked upon as having more advantages over Doge. First of all, SHIB is built on Ethereum, meaning it has the potential for more smart-contracting capabilities (think Shibaswap, a Uniswap-like decentralized exchange, as well as NFTs). SHIB is also a whole lot cheaper than Doge, making it more attractive to crypto traders that want to buy a million of something.
In Asia, Japan -1%. Hong Kong -0.3%. China -1.2%. India -1.9%.
In Europe, at midday, London -0.3%. Paris +0.4%. Frankfurt -0.2%.
Futures at 6:20, Dow +0.2. S&P +0.3%. Nasdaq +0.5%. Crude -1.9% at $81.10. Gold -0.1% at $1801.10. Bitcoin +3.2% at $61027.
Ten-year Treasury Yield unchanged at 1.53%
Today's Economic Calendar
8:30 Initial Jobless Claims
8:30 GDP Q3
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
What else is happening...