Wednesday Morning Reads
- Digital Currency Risks Loss of Control
- Portugal Is Riding a Boom in Bicycles
- Most-Hated Internet Company Decided to Play Nice
- Cyber Attack on World’s Largest Meat Processor
- Meat Giant Poised to Reopen
- Investors’ Inflation Bet Loses Some Steam
- The $15 Billion Jet Dilemma
- The $10 Billion Bright Spot
- Is $1 Million Still Worth $1 Million?
- If You’re Still Worried, You Aren’t Wealthy
- The Biggest Risk
The latest cyberattack on an American supply chain was felt yesterday as JBS (OTCQX:JBSAY) - the biggest meat producer in the U.S. (and the world) - reported a ransomware breach that shut down all its beef facilities. The company's meatpacking plants also experienced some level of disruption due to the hack which was attributed to a notorious criminal gang based out of Russia. JBS sells beef and pork under the Swift brand, and is also the owner of Pilgrim's Pride (PPC), the second-largest U.S. chicken producer.
Just in time for grilling season... Meat market analysts say plant closures from the JBS hack could soon lead to higher consumer prices, which have increased for many cuts this year because of high demand, labor shortages and high transportation costs. In fact, cattle-futures trading in Chicago fell on Tuesday, with the most-active contract closing down 1.9% to nearly $1.17 a pound. It also prevented the U.S. Department of Agriculture from releasing daily wholesale prices for beef and pork that are heavily relied on by agriculture markets.
Paid the ransom? JBS has made "significant progress" to resolve the cyberattack and will have the “vast majority of [its] beef, pork, poultry and prepared foods plants" operational on Wednesday. "Our systems are coming back online and we are not sparing any resources to fight this threat," the company added in a statement. According to Steiner Consulting Group, which researches the meat industry, "even one day of disruption will significantly impact the beef market and wholesale beef prices."
Go deeper: The JBS attack comes just three weeks after Colonial Pipeline Co., operator of the nation's biggest gasoline pipeline, was targeted in a ransomware attack, which crippled fuel delivery and sent prices soaring in the U.S. Southeast. It's an even bigger problem when hackers target industries dominated by one of a handful of companies (JBS, Cargill and Tyson control about two-thirds of America's beef). While the White House has advised companies in the past not to pay criminals over ransomware attacks, that stance may be changing given vulnerabilities in the supply chain and the lack of investment in robust cybersecurity. The federal government's own agencies were hacked not too long ago, in the SolarWinds (SWI) attack that penetrated thousands of organizations.
U.S. stock futures were muted again overnight following a flat session for Wall Street on Tuesday. The "sit tight" mentality is being reflected in the broader market as traders continue to ponder inflation risks, rebounding consumer demand, supply bottlenecks and red-hot manufacturing. Some other catalysts might be seen in the coming sessions, when the Labor Department releases its jobs report on Friday, before a high-profile FOMC meeting set for in mid-June.
"Yes, inflation will overshoot in the short term but the Fed is cognizant of that risk and they are looking at a dual target of full employment and inflation," said Carlos Casanova, senior Asia economist at Union Bancaire Privee in Hong Kong. "So that has made investors less concerned potentially about the pace of Fed tapering this year, focusing more on the pace of reopening this year and leaving that concern about tapering for next year or beyond."
It's not quiet everywhere... The meme trade is back in full force as the retail bros return to pumping stocks via WSB/Reddit. AMC Entertainment (NYSE:AMC) is taking big swings this time around, with the stock up another 33% premarket to nearly $43, following a 23% advance on Tuesday. The stock is even up 200% in the last week, giving some big returns to those who got in early on the swarm. Many are moving in and out of the stock at a quicker pace, like Mudrick Capital, which offloaded 8.5M shares on Tuesday just hours after it acquired them.
On the economic calendar: Investors will be eyeing the Fed's Beige Book this afternoon. The report offers a view on how businesses are faring and current industry conditions, such as an overheating economy or inflationary pressures. This book is produced roughly two weeks before the Fed meets to set monetary policy, which is the single most influential event for the markets.
Cannabis legalization efforts continue to expand across the United States and the movement just won another big backer: Amazon (NASDAQ:AMZN). The nation's second-largest employer will no longer screen its workers for the drug (except for positions subject to regulation by the U.S. Department of Transportation) and will drop weed-testing requirements for recruitment. The news follows a lawsuit from March, in which a New York man sued Amazon over a rescinded job offer because he tested positive for marijuana (NYC banned employers from testing job applicants for cannabis in 2020).
No smoking at work: "We will continue to do impairment checks on the job and will test for all drugs and alcohol after any incident," Amazon wrote in a blog post.
The e-commerce giant is also throwing its weight behind federal legalization, with its public policy team actively supporting the Marijuana Opportunity Reinvestment and Expungement Act of 2021. Besides legalization, the MORE Act, which was reintroduced in the House last month, would expunge criminal records related to cannabis and invest in impacted communities. 17 states have so far legalized pot use for adults and over 30 states have allowed some form of medical marijuana.
Other changes: Amazon has long tracked the productivity rates among its warehouse workers, recording the number of packages they pick, pack and sort each hour. The workplace policy has been controversial due to what some say forces employees to work at a breakneck speed. As a result, Amazon is making another policy modification in response to the criticism. "Starting today, we're now averaging Time off Task over a longer period to ensure that there's more signal and less noise-reinforcing the original intent of the program," said Dave Clark, CEO, Worldwide Consumer. (27 comments)
While earnings season is winding down, investors focused in on one big name yesterday that made big waves during the pandemic. Shares of Zoom Video (ZM) rose 2% in after-hours trading following Q1 results that exceeded estimates across the board. Profits reached more than $227M, from about $27M a year ago, while revenue topped $956M, up from $328.2M a year earlier.
By the numbers: Zoom Phone, which includes cloud-based phone services along with video calls and other capabilities, tripled in growth to 1.5M seats at the end of April, from 1M in January. The work-from-home darling also saw customers with more than 10 employees reach about 497K in the latest period, about 30K more than the previous quarter. Meanwhile, clients that generated more than $100K over the past 12 months reached 1,999, up about 22% from the prior three-month period and doubling over the past year.
"The hybrid model is here to stay," CEO Eric Yuan declared on the post-earnings conference call, though the whopping percentage growth may cool in the coming quarters. Full-year guidance now stands at revenue of $3.98-3.99B (prior: $3.76-3.78B; consensus: $3.82B) and adjusted EPS of $4.56-4.61 (prior: $3.59-3.65; consensus: $3.77). "We are energized to help lead the evolution that allows greater flexibility, productivity, and happiness to both in-person and virtual connections," Yuan added.
Will the forecast lead to more traction? Zoom's stock has dipped about 3% since the start of 2021 as the tech trade remains on the back burner (it soared over 400% in 2020). However, some, like SA author Larry Cheung, say shares could pick up again if the company transforms itself into a "social platform." (29 comments)
Economists are already debating whether, or to what degree, stimulus spending is fueling inflation, with consumer prices rising by a whopping 4.2% in April. Prices of lumber, steel and semiconductors are also at record highs, given historically low inventories and surging demand. Port congestion and rising freight costs are meanwhile adding to price pressures amid a scarcity of shipping containers, as well as dwindling warehouse space.
Another culprit? Some businesses are pointing fingers at the import tariffs that were first implemented by the Trump administration and kept in place under President Biden. The levies were initially intended to shield American firms from a flood of cheap imported products from China, though some manufacturers say they make their companies less competitive at a time of red-hot domestic demand. Tariffs are paid to the U.S. government by importers, which look to manage the duties in several ways, including discounts, alternative sourcing, lower profit margins, cutting company costs or raising retail prices.
Tariffs on Chinese imports aren't the only duties under the microscope. Homebuilders and lawmakers have urged Biden to eliminate tariffs imposed in 2017 on Canadian softwood lumber, which is part of a decades-long dispute between the two countries. However, instead of lifting the duty, the Commerce Department sought to double the levy to 18% after concluding that Canadian imports were heavily subsidized. A final decision will be made before November, but in the meantime, the tariffs still remain at 9% - despite record high lumber costs.
Outlook: Some economists feel that tariffs have had only muted effects on prices and that their removal won't result in significant downward pressure. This is because tariffs only affect imports, which generally represent a small share of the domestic market, and not all of them are taxed the same (or at all). For example, steel imports make up about a third of total American demand, but supplies coming from Canada, Mexico and Brazil - the largest steel exporters to the U.S. - are exempt from the duties. (22 comments)
What else is happening...
Higher demand? Oil jumps as OPEC+ confirms gradual production increase.
Biden freezes Alaska refuge oil leases, reversing Trump sale.
EU rolls out digital Covid certificates to ease travel - NYT.
Tuesday's Key Earnings
Ambarella (NASDAQ:AMBA) +4.2% AH posting Q1 beats, upside sales outlook.
Canopy Growth (NASDAQ:CGC) -6.9% on widening losses for FY21.
HP Enterprise (NYSE:HPE) -1.5% AH amid lackluster profit forecast.
Zoom Video (NASDAQ:ZM) +2% AH beating top- and bottom-line estimates.
In Asia, Japan +0.5%. Hong Kong -0.8%. China -0.8%. India -0.2%.
In Europe, at midday, London +0.2%. Paris +0.3%. Frankfurt +0.1%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq -0.1%. Crude +1% to $68.40. Gold -0.3% at $1899.30. Bitcoin +2% to $37116.
Ten-year Treasury Yield -1 bps to 1.6%
Today's Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:55 Redbook Chain Store Sales
12:00 PM Fed's Evans: U.S. Monetary Policy
12:00 PM Fed's Harker: "Entrepreneurship and Minority-Owned Business"
12:00 PM Fed's Harker: U.S. Economic Outlook
2:00 PM Fed's Beige Book
6:05 PM Fed's Kaplan Speech