- Slowing Growth, Rising Inflation
- More-Aggressive Interest-Rate Increases to Reduce Inflation
- Shale Companies Drilling More
- Bitcoin Miners Want to Recast Themselves
- East Coast Ports Rushed to Attract Mega Ships
- Sweeping Climate Disclosure Rule
- ‘Essential’ Is a Loose Term
- LME in Talks with Governments
- Arcelormittal Removes Russian Materials
- How One Oligarch Used Shell Companies
- Cattle Ranchers Take Aim at Meatpackers
- Buffett Thumbs Nose at Goldman Bankers
- Alibaba Upsizes Share Buyback
- ‘Red Flags’
- Boeing Faces New Upheaval
A bond selloff is deepening after yesterday's comments from Jerome Powell, which said the Fed is prepared to act even more aggressively to tackle inflation. The yield on the 10-year Treasury has soared 20 basis points to 2.32% since the remarks, leading to the worst month for the asset class since 2016. Meanwhile, the 2-year Treasury yield broke above 2%, jumping almost 24 bps over the past 24 hours to reach 2.19%, as the yield curve hurtles towards an inversion (or one of the best indicators of a coming recession). Stocks are hanging in there despite the latest comments - closing in positive territory yesterday - while futures linked to the major averages are up another 0.4% this morning.
Quote: "If we determine that we need to tighten beyond common measures of neutral (i.e. an interest rate that neither hinders nor fuels economic growth) and into a more restrictive stance, we will do that," Jerome Powell announced during a speech at the National Association for Business Economics. He even went as far to say that the central bank is prepared to raise interest rates by 50 basis points at the next policy meeting. Consumer prices took a turn for the worse in February as CPI growth rose by 7.9%, representing the largest 12-month increase since January 1982.
What happened to transitory? "In my view, an important part of the explanation is that forecasters widely underestimated the severity and persistence of supply-side frictions, which, when combined with strong demand, especially for durable goods, produced surprisingly high inflation," Powell declared at the conference. However, he's somewhat optimistic that central bankers will be able to engineer a so-called soft landing, in which the rate is raised high enough to keep the economy from overheating but not so much that it triggers a recession. "While some have argued that history stacks the odds against achieving" this, there are three episodes - in 1965, 1984, and 1994 - where the Fed "significantly" raised rates without a downturn. "I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context - very little is straightforward in the current context."
Analyst commentary: "Investors are taking Powell's transparency as a step further to say 'he's just preparing us for the worst,' whereas, the bond market is saying, 'no, no, he's telling you he's going to do at least seven [rate hikes], and you aren't listening,'" said Shannon Saccocia, chief investment officer at Boston Private. "For the long term, 2.3% on the 10-year is not such a high figure at all," added Linda Duessel, senior equity strategist at Federated Hermes. "What spooks the market is when you have very quick moves, such as what we're having now." (8 comments)
Shares of Nike (NKE) rose 5.5% in after-hours trading on Monday as the sneaker giant posted a set of impressive results. Revenues climbed 5% Y/Y to $10.9B during the holiday quarter (beating estimates of $10.6B), while adjusted EPS came in at $0.87 (topping expectations of $0.72). In terms of guidance, the company anticipates revenue for FY22 to grow mid-single digits versus the prior year, though specifics will be provided next quarter given "several new dynamics creating higher levels of volatility."
By the numbers: A drop in revenue in Greater China (-5%) was more than offset by gains in Asia Pacific & Latin America (+11%), North America (+9%) and Europe, Middle East, & Africa (+7%). Footwear sales were up 2% to $6.7B, while apparel sales rose 9% to $3.2B. Nike Direct sales rose 15% during the quarter to $4.6B and were up 17% on a currency-neutral basis.
"Fueled by deep consumer connections, compelling product innovation and an expanding digital advantage, we have the right playbook to navigate volatility and create value through our relentless drive to serve the future of sport," said CEO John Donahoe.
Growth potential: Given the strong results, Nike was quick to flag that its direct-to-consumer model was working. The strategy was rolled out in 2017, but recently saw Nike even move away from Foot Locker (FL) and DSW (DBI) in favor of its own apps, websites and stores. "Marketplace demand continues to significantly exceed available inventory supply, with a healthy pull market across our geographies," added CFO Matt Friend, in a statement that was noted by investors. (27 comments)
Locating parts of the aircraft wreckage, investigators are working to recover the so-called black boxes of China Eastern (NYSE:CEA) Flight MU5735, which crashed yesterday in a mountainous area near the city of Wuzhou with 132 people on board. The aircraft was a Boeing (NYSE:BA) 737-800 Next Generation, often called the 737NG, which preceded the 737-MAX involved in the two high-profile crashes in 2018/19 that led to the global grounding of the entire MAX fleet. According to aviation consultancy Cirium, the 737NG is known as one of the safest jetliners in the world, with 11 fatal accidents out of more than 7,000 planes delivered since 1997.
Snapshot: A reported video of the crash, posted by Chinese media outlet The Paper, shows an aircraft that was intact on its way down, but too far away to display markings that would identify it as a China Eastern plane. However, radar tracking shows the aircraft descending steeply on an almost vertical trajectory - which would match the video - with the plane disappearing from the flight tracker at 2:22 p.m. local time. Following a 45 second plunge from the skies, the plane actually went up from 7,425 feet up to 8,600 feet in about 10 seconds, but resumed its dive immediately thereafter. The entire incident lasted a minute and 35 seconds, with the plane dropping over 500 feet per second.
The crash is China's first commercial plane disaster in over a decade, and a standout for a country that has a strong record when it comes to aviation safety. As a result, Cowen analysts feel it seems less likely, although not impossible, that the cause would be a manufacturing or design issue. The plane was seven years old and has been in commercial service since 2015, meaning maintenance problems, pilot error or sabotage would likely be the cause of the crash.
It's (really) bad timing: The 737NG crash comes as Boeing seeks to restart 737 MAX deliveries into China following a three-year halt. "A significant delay would likely affect 2022 deliveries and cash flow, as well as production plans, with implications for suppliers like Spirit AeroSystems (NYSE:SPR)," said J.P. Morgan analyst Seth Seifman. Spirit assembles nearly 70% of 737 MAX frame, and shares of the first-tier aerostructure manufacturer slipped 3.5% on Monday (Boeing fell by the same amount). (5 comments)
The Securities and Exchange Commission has unveiled a new proposal that would compel U.S.-listed companies to disclose climate-related risks and greenhouse gas emissions. Firms would not only need to divulge Scope 1 and 2 emissions, or emissions that are generated through the normal course of business, but they would also cover Scope 3. Those are emissions that are "actual or likely" to ensue from the use of products by customers, however, some feel that the category has no clear definition.
Bigger picture: The proposal, approved by a 3-1 margin, is subject to public feedback, but will likely be finalized in 2022. If approved and adopted, companies with over $700M of market capitalization would have the most aggressive phase-in period, with expectations to file climate-related data to the SEC in fiscal year 2023.
"I really do think that the SEC has a role to play here when this amount of investor demand and need is there," said SEC Chair Gary Gensler. Others think the agency is overstepping its mandate, like former Chair Jay Clayton. "Taking a new, activist approach to climate policy - an area far outside the SEC's authority, jurisdiction and expertise - will deservedly draw legal challenges," he declared. "Setting climate policy is the job of lawmakers, not the SEC."
Thought bubble: From an investor perspective, many companies like Exxon (XOM) and Chevron (CVX) already disclose Scope 3 emissions, and few investors will be surprised to find energy companies underperform on climate metrics. Those points could suggest the new reporting requirements are unlikely to have a meaningful impact on share prices going forward. (98 comments)
In Asia, Japan +1.5%. Hong Kong +3.2%. China +0.2%. India +1.2%.
In Europe, at midday, London +0.5%. Paris +0.7%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.4%. Crude -0.6% to $109.29. Gold -0.1% to $1928.50. Bitcoin +3.7% to $42,833.
Ten-year Treasury Yield +3 bps to 2.35%
Today's Economic Calendar
What else is happening...
Chip market FY22 targets growth at 10.4%, down from 26.2% in 2021.
Ukraine would say no to NATO membership in exchange for ceasefire.
Saudis "will not incur responsibility" for oil supply shortage.
N. America's big three fertilizer producers continue to shatter records.
Wall Street banks see revenue drop $4.6B from equity raising drought