Tuesday Morning Reads
- FANGS and BATS Sell-Off
- U.S. Fuel Supplies Tighten
- What We Know
- It’s Time For A Supply-Side Resurgence
- Inside the Secretive Swiss Bank
- Elon Musk Sending Dogecoin Into Space
- ‘There’s No Going Back’
- Push for Chip Funding
- Best to Worst
- We Need to Build More Houses
A flurry of inflation jitters clobbered tech stocks on Monday as the Nasdaq dropped 2.4% for its worst day since March. The yield on the 10-year Treasury note also rose 3 bps to 1.6% - hitting growth names that depend on low rates to fuel their expansions - while the DJIA snapped a 5-session winning streak after pushing above the 35,000 milestone. Things don't look better this morning, with Nasdaq futures off 1.4% and weighing on the broader market. Contracts linked to the Dow and S&P 500 are 0.6% and 0.9% lower, respectively, while most of Europe and Asia are also in the red.
Time to buy puts? Shares of semiconductor companies were among the biggest decliners, along with cloud companies, while Big Tech stocks came under pressure. Facebook (FB) is down 2% premarket to $300/share, after tumbling 4% on Monday, while Tesla (TSLA) slid another 3.5% to $606/share after sinking 6.5% in the previous session. The plunge is also weighing on Cathie Wood's ARK Innovation ETF (ARKK) - in which Tesla is the top holding - as the notable growth fund slipped another 3% premarket to the $100 level (it fell 5% on Monday and is off 35% from its peak).
Meanwhile, prices are rising everywhere. Some are tied to commodities, which are getting scooped up at a record pace as the global economy emerges from the coronavirus pandemic. Consumer products are rising for the same reason, but have also been affected by supply chain shortages and logistical logjams. While some spikes could be temporary, like gasoline futures that whipsawed due to the closure of the Colonial Pipeline, economists hope the same will occur for the broader industry as supply moves to match demand.
Get ready for CPI: Inflation data will come tomorrow, but economists are already penciling in a price rise of 3.5% in April. While consumers and investors might be alarmed, the Federal Reserve isn't. The central bank has said it is comfortable allowing inflation to run past its 2% target for a while as it views the pickup in prices as "transitory." Others are more concerned about the outlook, fearing a sooner-than-expected interest rate rise, and equities may be at a disadvantage given the uncertainty. (15 comments)
The FDA, for the first time, has cleared a coronavirus vaccine's use in adolescents aged 12 to 15, paving the way for many to be immunized before summer camp and the new school year in the fall. "The light at the end of the tunnel is growing, and today it got a little brighter," President Biden said in a statement. At least 55M people in the U.S. have so far been vaccinated with Pfizer-BioNTech's (PFE, BNTX) jab, according to the CDC, including about 2M 16- to 18-year-olds.
The next step will see a committee of experts - that advise the CDC - meet tomorrow to review Pfizer's study data and decide whether to recommend the shot for youths. The federal government is meanwhile working with states, pediatricians and pharmacy chains to determine the logistics of administering the vaccines to children.
Data: Pfizer's shot demonstrated 100% efficacy in an ongoing placebo-controlled trial with 2,260 participants between the ages of 12 and 15 years old. Pfizer also recently said it expects to ask the FDA in September to authorize its vaccine's use in children 2 to 11 years should ongoing studies prove positive. Moderna (MRNA) is also studying its vaccine in children and J&J (JNJ) has said it is in talks with regulators to do so.
Go deeper: The expansion would be a major development in the country's vaccination campaign, but is likely to divide parents between those who are eager to expand the level of immunity and those that are skeptical about long-term side effects (the shots are currently authorized for emergency use rather than fully approved). With much of the world banking a surplus of vaccines made in the U.S., the use also raises questions about whether the supply should be targeted to an age group that so far appears to be mostly spared from the severe effects of the disease. (18 comments)
China's population growth is expanding at its slowest pace since the 1950s, according to census data from the past decade, with the numbers on mainland China increasing 5.38% to 1.41B. The working-age population - people aged 15 to 59 - is on the decline as well, after hitting a 2011 peak of 925M, while the fertility rate was only 1.3 children per woman during 2020, missing a target of 1.8 that Beijing had set in 2016 (after replacing its one-child policy). China's statistics agency even took an unusual step by announcing that the population did grow in 2020, but gave no total, prompting some to speculate it was an effort to pacify investors and corporations.
Race against time: At issue is whether the world's second-largest economy may already be in irreversible population decline before accumulating the household wealth of G7 nations. While China has eased birth limits, couples have been put off by the high cost of living (especially in cities), cramped housing (many share apartments with their parents) and career choices (job discrimination faced by mothers). Childcare is also expensive, maternity leave is short and most single mothers are excluded from medical insurance or social welfare payments.
Thought bubble: Japan, Germany and other rich countries face similar challenges of supporting aging populations with fewer workers, but services play an important part in their economies and they have spent decades of investment on factories, technology and foreign assets. On the other hand, China is a middle-income economy that is highly based on manufacturing and labor-intensive farming. While the ruling Communist Party has proposed a series of economic reforms, it's not yet clear if they will be large enough to ease strains on the nation's underfunded retirement system.
What about the U.S.? Births in 2020 fell for the sixth consecutive year to the lowest levels since 1979, according to data from the CDC, and the figures probably have little to do with the pandemic (most babies were conceived beforehand). Total fertility rates and general fertility rates have also declined by 4% since 2019, notching record lows. "The United States is presently moving below replacement fertility levels, which is not good for the economy," said Adina Batnitzky, a sociology professor at University of San Diego. "We will eventually have fewer working adults caring for the elderly, which further challenges our Social Security system," added Pamela Smock, a demographer for the University of Michigan-Ann Arbor. (13 comments)
A group of 44 state and territory attorneys general is urging Facebook (FB) CEO Mark Zuckerberg to abandon plans to launch a version of Instagram for children under 13. The AGs, led by New York State's Letitia James, contend that "social media can be detrimental to children for myriad reasons and that Facebook has historically failed to protect the welfare of children on its platforms." Shares of Facebook ended the session yesterday down 4%, but that also came against the backdrop of a broader tech selloff.
Flashback: In March, Facebook confirmed it was working on an "Instagram Kids" product version to tap the under-13 market that can't use regular Instagram due to federal privacy regulations. Facebook had launched a Messenger Kids application in 2017 - a version of its Messenger product tied to parents' Facebook accounts. But Messenger Kids contained a glitch that allowed children to circumvent restrictions and join group chats with strangers, according to the AGs.
"Without a doubt, this is a dangerous idea that risks the safety of our children and puts them directly in harm’s way and in the paths of predators," James declared. "There are too many concerns to let Facebook move forward with this ill-conceived idea, which is why we are calling on the company to abandon its launch of Instagram Kids."
From the SA comments section: "Finally someone calling for some major common sense. Too bad parents aren't as vigilant when it comes to their children's safety and well being," writes John McCoy. "I predict that 20 years from now, social media companies will be looked at the way tobacco and firearm companies are looked at today." Other users see another case of Big Brother. "Are they going to pressure McDonald's to stop selling Happy Meals which may lead to childhood obesity which is an actual health crisis?" replies Fooly Finance. "Don't like it don't use it." (34 comments)
The big miss in non-farm payrolls expectations for April has put increased pressure on the dollar since Friday as the greenback recorded its biggest one-day slide in five months. In fact, the U.S. Dollar Index has fallen decisively below its 2021 uptrend, putting it back to little changed for the year, and has recorded a decline of 10% since March 2020 (just prior to the pandemic). A relief rally starting in 2021 saw Goldman Sachs cancel its short call on the dollar - as many scrambled to cover positions - but the recent downtrend is leaving other Wall Street bears feeling vindicated.
"We continue to see the 'peaking U.S. exceptionalism’ narrative playing out through a weaker dollar over time due to a dovish Fed, benign risk appetite and a global recovery," wrote analysts at Citigroup. Last month, the group said the greenback could fall another 20%, and J.P. Morgan and T. Rowe Price are among others predicting more losses ahead. "We expect the dollar to weaken further, given its diminishing appeal as a safe-haven currency as long as the global economic picture and risk appetite improve further," UniCredit added in a research note.
Some statistics: Aggregate net short positions in the dollar vs. major peers hit $10B last week from $4B in mid-April, according to data from the Commodity Futures Trading Commission. Bearish bets totaled about $31B in January.
Outlook: The next move for the greenback could depend on whether the Fed will let the economy run hot. Last month, policymakers signaled expectations for interest rates that be kept at near zero through 2023, but some money markets are positioning for a rate rise sooner than that. Others suggest that even if the Fed would move early, the relationship has changed, as well as the currency's traditional role with equities. Once upon a time, a weaker dollar was seen as a boon for U.S. equities, but a stronger buck didn't prevent the continuous stock market highs that were notched in the first quarter.
What else is happening...
Colonial Pipeline sees service 'substantially restored' by end of week.
Biden administration planning summit to address global chip shortage.
Monday's Key Earnings
Duke Energy (NYSE:DUK) +2.9% as Elliott Management took a stake.
Marriott (NASDAQ:MAR) -4.1% after EBITDA tally missed estimates.
Novavax (NASDAQ:NVAX) -12.7% AH on delayed regulatory vaccine submission.
Occidental Petroleum (NYSE:OXY) +0.3% AH showing best FCF since 2011.
Roblox (NYSE:RBLX) +3.8% AH as users flocked to videogame platform.
Simon Property Group (NYSE:SPG) -1.8% despite seeing shopper 'euphoria.'
The Trade Desk (NASDAQ:TTD) -26% following a guidance warning.
Tyson Foods (NYSE:TSN) unchanged amid margin pressures.
Virgin Galactic (NYSE:SPCE) -8.5% AH with no date set for test flight.
Wynn Resorts (NASDAQ:WYNN) +0.8% AH separating its online gaming business.
In Asia, Japan -3.1%. Hong Kong -2.2%. China +0.4%. India -0.7%.
In Europe, at midday, London -2.3%. Paris -2.1%. Frankfurt -2.3%.
Futures at 6:20, Dow -0.6%. S&P -0.9%. Nasdaq -1.4%. Crude -0.7% to $64.48. Gold +0.2% at $1840.50. Bitcoin -3.4% to $56048.
Ten-year Treasury Yield +1 bps to 1.61%
Today's Economic Calendar
6:00 NFIB Small Business Optimism Index
8:55 Redbook Chain Store Sales
10:00 Job Openings and Labor Turnover Survey
10:30 Fed's Williams Speech
12:00 PM Fed's Brainard: Economic Outlook
1:00 PM Fed's Daly Speech
1:00 PM Results of $58B, 3-Year Note Auction
1:15 PM Fed's Bostic: Economic Outlook
2:00 PM Fed's Harker: Economic Outlook