Wednesday Morning Reads

Wednesday Morning Reads





Morning Charts:


Sterling slumped 1% to $1.2168 overnight after Boris Johnson said he would ask the Queen to suspend parliament after MPs return from their summer recess in September. The highly controversial move, known as "proroguing," will be seen as an attempt by the government to force through Brexit with or without a deal by Oct. 31, one of Johnson's key promises upon taking power. Breaking from strategies to topple the prime minister, opposition parties on Tuesday signaled intent to unite in creating a law to block a forced no-deal Brexit.

Yield inversion deepens

U.S. stock index futures are wavering between slight gains and losses as the bond market once again sends out warning signals, with the yield curve inverting overnight to levels not seen since 2007 (the premium on two-year Treasury yields over 10-year yields widened to 6.2 basis points, while the 30-year rate hit a fresh low of 1.95%). The debate of when to buy equities - or pull the trigger - has also hit fever pitch. Weighing in on the discussion is JPMorgan, which thinks the time to buy is near and that an upward trajectory will begin again in September. UBS disagrees and went underweight stocks this week, citing trade war concerns and political uncertainty.
Go deeper: Kevin Wilson discusses the bond rally.

Crunch time in Italy

Investors will be watching headlines out of Rome today as President Sergio Mattarella gives Five Star and the Democratic Party a final chance to carve out an agreement. The two have been trying to create a new workable coalition after a challenge from League leader Matteo Salvini, despite having been bitter enemies until just a few weeks ago. If they fail to do so, it will trigger a set of likely market-unfriendly elections, casting uncertainty over the outlook for the eurozone’s third largest economy.

Mega Tobacco

Ex-partners Altria (NYSE:MO) and Philip Morris (NYSE:PM) are considering getting back together in a deal that would reshape the global tobacco market. It would also form an even bigger competitor as companies vie for supremacy in the next generation of vaping and smokeless products. Wall Street is split on the merger, with investors skeptical over the regulatory scrutiny it would face as Philip Morris would likely have to take an ownership stake of 58% in the new company once the deal is finalized.
Go deeper: Valuation metrics of Altria.

Opioid action

Just days after an Oklahoma district court ordered Johnson & Johnson (NYSE:JNJ) to pay $572M over its role in the opioid epidemic, there are reports of more settlements. Purdue Pharma and its owners, the Sackler family, are reportedly offering to resolve more than 2,000 lawsuits against the company for $10B-$12B. The suits allege that Purdue's sales practices were deceptive and at least partly responsible for the opioid crisis, which claimed more than 400,000 lives from 1999 to 2017.

Downgrading trade status

As of 12:01 a.m. Wednesday, Japanese manufacturers must apply for approval for each technology-related contract for South Korean export, such as fluorinated polyimides used for displays. The move could mean more paperwork and on-site inspections for some Japanese exporters and potentially slow supplies of a range of goods. Relations are worsening... Since Japan announced the decision this month, South Korea decided to similarly downgrade Tokyo’s trade status, which will take effect in September.

License requests

The U.S. Commerce Department has so far received more than 130 applications from companies for licenses to sell goods to Huawei, nearly two months after the blacklisting of the Chinese tech giant, Reuters reports. The current number of license applications far exceeds the 50 or so that U.S. Commerce Secretary Wilbur Ross disclosed receiving in July. Out of $70B that Huawei spent buying components in 2018, some $11B went to U.S. firms including Qualcomm (NASDAQ:QCOM), Intel (NASDAQ:INTC) and Micron Technology (NASDAQ:MU).

Diversifying manufacturing

Hasbro (NASDAQ:HAS) shifting its business out of China has been positive for the company, according to CEO Brian Goldner. "We're seeing great opportunities in Vietnam, India and other territories like Mexico," he told CNBC. "We're doing even more in the U.S. We brought Play-Doh back to the U.S. last year." Even before the U.S.-China trade war, Hasbro (since 2012) had been focused on diversifying its manufacturing operations due to "enterprise risk reasons."
Go deeper: Growth grades of Hasbro.

Costco China

Costco (NASDAQ:COST) was forced to close early on its opening day in China after the store was swamped with shoppers. Many are watching the performance to see if there is any consumer backlash from the U.S.-China trade war and as other foreign retailers have struggled to compete with local rivals. While Costco has had an online presence in the country for five years through a partnership with Alibaba (NYSE:BABA), the new brick-and-mortar store in Shanghai marks a significant investment.

What else is happening...

BP's (NYSE:BP) departure signifies Alaska's decline as oil player.

Pentagon talks to Australia about rare earths plant.

Antitrust concerns... European Commission looks into Google Jobs.

Instagram (NASDAQ:FB) testing standalone messaging app called Threads.

Boeing (NYSE:BA) still anticipates 737 MAX return in the fourth quarter.

Latest SpaceX (SPACE) test shows preparation for Mars.

Fitness startup Peloton (PTON) reveals widening losses in IPO filing.

Tuesday's Key Earnings
Bank of Montreal (NYSE:BMO-4.2% hurt by higher loan loss provisions.
Bank of Nova Scotia (NYSE:BNS+0.5% hiking dividend on profit beat.
J. M. Smucker (NYSE:SJM-8.2% on soft quarter, lowered guidance.
Hewlett Packard Enterprise (NYSE:HPE+5.6% AH amid rising margins, profits.

Today's Markets 
In Asia, Japan +0.1%. Hong Kong -0.2%. China -0.3%. India -0.5%.
In Europe, at midday, London +0.4%. Paris -0.5%. Frankfurt -0.6%.
Futures at 6:20, Dow +0.1%. S&P +0.1%. Nasdaq flat. Crude +1.4% to $55.67. Gold +0.1% to $1552.50. Bitcoin +0.1% to $10144.
Ten-year Treasury Yield -2 bps to 1.47%

Today's Economic Calendar
7:00 MBA Mortgage Applications
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $18B, 2-Year FRN Auction
1:00 PM Results of $41B, 5-Year Note Auction
5:30 PM Fed's Daly Speech

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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