Monday Morning Reads
Reads
- Relentless Housing Boom
- Britain Rethinks
- What if Highways Were Electric?
- When the Chips Are Down
- Big Economic Challenges Await
- A Hawkish Bullard
- U.S. Company Profits Even Bigger
- New SEC Boss Wants More Crypto Oversight
- Apple Topples Saudi Aramco
- Tencent Weighs Kids Games Ban
- Alibaba to Face Investors
- The App With the Unprintable Name
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SeekingAlpha
Air travel continues to return with a vengeance as many look to take a long due summer vacation or see family for the first time in more than a year. Another high mark was set on Sunday despite a renewed threat from rising coronavirus case numbers fueled by the Delta variant. More than 2.2M people went through airport checkpoints nationwide, according to the Transportation Security Administration, notching the highest number since Feb. 28, 2020.
Thought bubble: Not only does the U.S. have a strong vaccination rate (it just reached 70% of all adults), but the country also has a strong domestic market. Contrast that to nations that rely more on international travel, or require digital health passes or negative PCR tests to board a plane. For the broader market, airline industry executives are relying on the easing of travel restrictions for things to snap back and some say consolidation may be in the cards post-pandemic as carriers look to shore up their balance sheets.
Meanwhile, the resurgence of travel, coupled with bad weather, has led to delays and flight cancellations. Airlines are struggling to rebuild networks and have been caught short-staffed after urging employees to take buyouts or leaves of absence to cut labor costs during the pandemic (they still received $54B in taxpayer money). Sen. Maria Cantwell (D-Wash), chair of the Senate Commerce Committee, is even questioning airlines to explain the high numbers of flight delays and cancellations.
Case in point: American Airlines (NASDAQ:AAL) scrapped hundreds of flights on Monday following disruptions caused by severe thunderstorms that swept through its Dallas/Fort Worth International hub. Florida-based discount carrier Spirit Airlines (NYSE:SAVE) additionally canceled about one-third of its flights and is "working around the clock to get back on track." At least 40% of Southwest (NYSE:LUV) and Spirit flights were also delayed on Sunday, which created long lines at ticket counters at Orlando International Airport. (3 comments)
Thought the Chinese crackdowns were over? Guess again. The online gaming sector might be the next target in Beijing's crosshairs after a strongly worded article from an affiliate of the state-backed Xinhua newspaper took aim at the industry. Phrases like "spiritual opium" and "electronic drugs" were referenced in the since deleted post by Economic Information Daily, though the story remains available in the print version. The article also flagged "widespread gaming addiction" among children, which could "negatively impact their growth."
Market movement: The news sent tremors through the gaming arena, with shares of Tencent (OTCPK:TCEHY) tumbling as much as 11% in Hong Kong and wiping nearly $60B off its market capitalization. A steep selloff was also seen at gaming companies NetEase (NASDAQ:NTES) and XD Inc. (OTCPK:XDNCF). Tencent went on to pledge limits on play time for minors - to just an hour during weekdays and no more than two hours during vacations and holidays - as well as forbidding in-game purchases (and a possible total ban) for kids under the age of 12.
"You can never pay too little attention to any Xinhua story," said DZT Research analyst Ke Yan. "The word choice of spiritual opium is especially harsh, it would be surprising if the regulators won't do anything about this."
Flashback: While Beijing has come down hard in recent weeks on e-commerce, ride-hailing and online education industries, gaming has been in its sights for quite some time. In 2018, China froze new game approvals for ten months, costing Tencent more than $1B in lost sales and a slump in its share price. In 2019, China also brought in rules that banned those under 18 years from playing online games, and last month it installed facial recognition systems for certain titles to prevent kids from using their parents' IDs for in-game purchases. (41 comments)
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Investors are still sizing up recent developments surrounding the Delta variant, with the S&P 500 ending lower on Monday amid concerns over a slowing U.S. economic recovery. While stock futures turned higher overnight, things were also looking positive heading into Monday's session. At the time of writing, Dow and S&P 500 futures were ahead by 0.4%, while contracts linked to the Nasdaq pointed 0.2% higher.
Quote: "Delta is now rapidly spreading in the U.S. and a modest pullback in activity can't be ruled out," said Solita Marcelli, CIO Americas at UBS. "But any potential slowdown should be somewhat muted."
Growth worries also prompted a drop in Treasury yields on Monday, with the benchmark 10-year Treasury note sinking as much as 8 basis points to 1.15%. Fresh data further showed that the U.S. manufacturing sector expanded at a slower pace than a month ago, hitting economically sensitive stocks like materials and industrials, while inflation is running at 30-year highs, according to the Fed's preferred gauge.
Elsewhere: Earnings season continues today with Q2 results from Alibaba (BABA), Amgen (AMGN), Eli Lilly (LLY), Lyft (LYFT) and Under Armour (UAA). The Treasury Department has also begun conducting emergency cash-conservation steps to avoid busting through the federal borrowing limit. A two-year suspension of the debt ceiling expired at the end of July and the measures will permit Treasury to pay off government bills without floating new debt for two to three months.
Scores of U.S. companies were planning to return their workforces to the office (if they hadn't already) by the end of the summer, but a surge in COVID cases and ever-changing guidelines is throwing those plans into jeopardy. The seven-day rolling average of new U.S. infections is hovering around 80,000 per day, up nearly 150% from two weeks ago. Workers are also trying to assess new research about how easily the Delta variant can be transmitted or the possibility of breakthrough infections (Senator Lindsey Graham just disclosed a case in Congress).
Glassdoor survey: Of more than 1,000 working adults polled in early July, 35% said they were worried about contracting COVID-19 when returning to the office. About two-thirds said they were still excited to return, but that was down from an April survey in which nearly three-quarters of people said they wanted to go back to the office. Some vaccinated employees are also unhappy about having to wear masks at work full-time and the Slack channel doesn't stop pinging over vaccine mandates.
"Instead of making sweeping declarations about how you're definitely doing things in the fall, start small and experimental and try things to see what works," said Rita King, who advises senior leaders of Fortune 500 companies. "It may turn out that people feel very uncomfortable being masked indoors with each other all day and they don't want to keep doing it, in which case you have data from your experiment."
Outlook: Starting tomorrow, Facebook (NASDAQ:FB) will require all of its employees to wear masks when on its campuses in the U.S., regardless of vaccination status. A string of other high-profile tech companies have also modified their plans. Apple (AAPL) and Google (GOOG, GOOGL) postponed the return to the office until October at the earliest after briefly reopening their campuses in recent weeks.
Today's Markets
In Asia, Japan -0.5%. Hong Kong -0.2%. China -0.5%. India +1.7%.
In Europe, at midday, London +0.4%. Paris +0.9%. Frankfurt +0.2%.
Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.2%. Crude +0.8% at $71.85. Gold -0.5% at $1813.10. Bitcoin -2.5% to $38622.
Ten-year Treasury Yield +3 bps to 1.2%
Today's Economic Calendar
Auto Sales
8:55 Redbook Chain Store Sales
10:00 Factory Orders
2:00 PM Fed's Bowman Speech
Companies reporting earnings today »
What else is happening...
Alibaba (NYSE:BABA) earnings preview: E-commerce offsets regulatory risks.
mRNA boost... Sanofi (NASDAQ:SNY) buys Translate Bio (NASDAQ:TBIO) for $3.2B.
Request filed to extend U.S. tariffs on solar panel imports.
Earnings.... BP (NYSE:BP) raises dividend and confirms share buybacks.
AT&T (NYSE:T) closes spinout of DirecTV, video services units.
General Electric (NYSE:GE) stock above $100 as reverse split takes effect.
Affirm CEO: Square's (NYSE:SQ) Afterpay deal validates the entire industry.
Simon Property (NYSE:SPG) climbs after Q2 earnings beat, lifts 2021 guidance.
Qualcomm (NASDAQ:QCOM) dips as Google to use own chips in new Pixel phones.
Philip Morris (NYSE:PM) buying Altria (NYSE:MO): Morgan Stanley sees possibility.