Tuesday Morning Reads
- Ford (F) Mustang Mac-E will be part of NYC taxi fleet. Verge
- NHL will begin its holiday break early due to coronavirus and will resume practice Sunday (DKNG, PENN, MGM, CZR, WYNN, RSI). NHL
- Dr. Anthony Fauci says US could soon ease travel restrictions from South Africa (JETS, UAL, AAL, DAL, LUV, SAVE, HA, JBLU). Reuters
- Boeing (BA) and Airbus (EADSY) want US to delay 5G deployment. Reuters
- Elliott is patterning with Vista for potential bid for Citrix (CTXS). Reuters
The battle over auto industry emissions is back on after the Biden administration raised fuel-efficiency standards for passenger cars and light-duty trucks to a fleetwide average of 55 miles per gallon by model year 2026. That's a mark up from the 43 mpg standard set by the Trump administration for that year and well above the current 2021 model year average of 40 mpg. The standards will curb pollution from the transportation sector, which is the country's No. 1 source of greenhouse emissions.
Estimates: The EPA forecasts the new rules will save U.S. drivers between $210B and $420B in fuel costs through 2050. It will also save each buyer about $1,000 over the lifetime of their vehicle from model year 2026, even after factoring in higher purchase prices for cleaner vehicles.
"For automakers, this is the future," said Ramón Cruz, president of the environmental organization Sierra Club. "If you want to remain competitive you have to do this."
Outlook: EV startups have been the rage this year as the industry transitions to electric vehicles. Mainstream players are also joining the movement, with Ford (NYSE:F) planning for 40% of global vehicle sales volume to be electric by 2030. While the EPA feels the industry will be able to comply with its new standards without more federal funding from Congress, it would go a long way to help. New funding for a national EV charging network was included in the $1T infrastructure bill passed this fall, though the $20B in tax credits for EV buyers - included in the Build Back Better Plan - may have a harder time getting past the Senate.
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Many were fearful that the strong measures against Omicron seen in Europe could resurface in the U.S., but the country is not trending in that direction (at least on the federal level). A speech from President Biden today won't be "about locking the country down," according to White House Press Secretary Jen Psaki, but will rather outline the "benefits of being vaccinated and the steps we are going to take to increase access and testing." For those who choose to remain unvaccinated, "he'll issue a stark warning and make clear that unvaccinated individuals will continue to drive hospitalizations and deaths."
Quote: "The President will restate that while vaccinated individuals get COVID-19 due to the highly-transmissible nature of Omicron, their cases will likely be milder or asymptomatic," Psaki told reporters. "You are 14 times more likely to die of COVID if you have not been vaccinated. More importantly, he'll restate that we're prepared and that fully vaccinated individuals have the tools they need to protect themselves with a booster shot and masking."
Omicron is spreading like wildfire across the globe, and now represents 73% of sequenced cases in the U.S., up from 13% last week, according to data from the CDC. It's even higher in other areas of the country. Omicron is responsible for an estimated 90% or more of new infections in the New York area, the Southeast, the Midwest and the Pacific Northwest, while the national rate suggests more than 650K Omicron infections occurred in America last week alone.
Interview highlights: "We have had reported deaths of Omicron around the world, although there has been a minority of them, with fewer than we've seen for other variants," CDC Director Rochelle Walensky told CNBC's Shepard Smith. In response to a question about why vaccinated individuals shouldn't live normal lives, Walensky responded, "there are still Omicron studies coming in, and we don't know the long-term manifestations of Omicron - like the long COVID that we've seen with other variants - as well as the fact that you could transmit it to other people."
Nike (NKE) reported a double beat for the fiscal second quarter after the close on Monday, prompting shares to advance 3.5% to $162.50. Strength was seen in North America, Nike's biggest market, where sales climbed 12% and represented the highest growth of all geographies. Gross margin also increased 280 bps to 45.9%, led by margin expansion in the Nike Direct business, which was driven by lower markdowns, a higher mix of full-price sales and changes in foreign exchange rates.
Some challenges: Sales in Greater China fell 20%, though the region has recently taken on a bigger focus for investors and remains key to the sneaker giant's future growth. There was also lost production from Vietnam factory closures due to COVID-19 and higher macro input costs. Supply chain expenses for the fiscal year are expected to be higher than Nike had anticipated three months ago, but the company did not disclose a specific estimate.
Nike continues to expect revenue to grow mid-single digits vs. the prior year, in line with its previous outlook. For Q3, the firm anticipates revenue to grow low-single digits (consensus growth of 2.29%) vs. the prior year. "We are raising our gross margin guidance to expand 150 basis points versus the prior year. We expect to continue benefiting from exceptional demand against the backdrop of lean marketplace inventory".
Into the Metaverse: "We'll invest... to deliver next-generation experiences," CEO John Donahoe said on a post-earnings conference call. He was referring to last week's acquisition of the virtual sneaker company RTFKT (pronounced "artefact"), with which it plans to "extend Nike's digital footprint and capabilities." According to its website, RTFKT makes "NFT collectibles and memes, while merging realities in fashion and gaming."
The iShares MSCI Chile Capped ETF (BATS:ECH) plunged 11% on Monday after the country voted 35-year-old leftist politician Gabriel Boric into office. It's a big pivot for one of Latin America's richest nations, with analysts fearing he could dismantle some of the pillars of the free market-oriented economy. Meanwhile, the peso fell 3.5% against the U.S. dollar on the news, notching an all-time low, while Santiago's stock exchange slid 6%.
Bigger picture: Boric is a former student protest leader - who took down ultra-conservative rival José Antonio Kast - and will take the reins from Sebastián Piñera, a conservative billionaire whose ratings plunged following the uprisings over social inequality in 2019. Boric's supporters hope he will implement a transition to a social-democratic nation along European lines, with public pensions, higher taxes, scrapping student debt and expanded healthcare. Expectations have also risen significantly as the country becomes wealthier, with bigger social aspirations especially among millennials and the younger generation.
In the weeks leading to the election, Boric toned down his earlier calls for a radical economic overhaul, though investors still fear the leftist influence within the new leader's coalition. The President-elect has already promised to halt the $2.5B Dominga mining project, the controversial iron and copper mine approved by a regional environmental commission earlier in the year. That could weigh heavily on Chile, which is the world's largest producer of copper, and also begs questions over the new administration's green goals given that copper is a key piece of the energy transition (batteries, powerlines, etc.).
Risks ahead: Pandemic aid and early withdrawals from the private pension system have driven Chile's GDP growth to 12% this year, though that's expected to pull back to around 2% in 2022. Boric has also supported the withdrawals, which have depleted local capital markets and forced Chile to borrow more abroad. Over $50B has already left the country since social protests erupted in 2019, and more could follow if Boric goes through with a radical overhaul.
In Asia, Japan +2.1%. Hong Kong +1%. China +0.9%. India +0.9%.
In Europe, at midday, London +0.8%. Paris +0.6%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.7%. S&P +0.7%. Nasdaq +0.8%. Crude +1.2% at $69.45. Gold +0.1% at $1796.90. Bitcoin +6.2% at $48693.
Ten-year Treasury Yield +3 bps to 1.45%
Today's Economic Calendar
Turkish lira rebounds from all-time low after Erdogan lays out rescue plan.
Oil & gas industry set to deliver worst exploration year since 1946.
EV stocks pull back after Sen. Manchin rejects Build Back Better Plan.