Wednesday Morning Reads
- Supply Boost Keeps Prices Volatile
- Recovering Faster Than Expected.
- China Considers Closing Loophole
- Didi Removed
- IMF Chief Sees Risk
- Tilt the Job Market Toward Workers
- Yellen’s Next Test
- Running for Safety
- Amazon Notches Comeback Win
- $3 Billion Fortune for Fintech Founders
- Russia ‘Cozy Bear’
- More Media Merger Mania at Sun Valley
- Violence, Drugs And Fast Food
Open Interest Changes:
More details are coming together in the lead-up to DiDi Global's (NYSE:DIDI) IPO on the New York Stock Exchange. The stock tumbled 20% yesterday to $12.49/share - just three sessions after the company went public - after China began a probe into the firm's data practices and barred new users from its app. DIDI is down another 4% in premarket trade this morning, leading many to question how much was known before the ride-hailing giant raised $4.4B at a $67B valuation?
The underwriters: Wall Street banks including Goldman Sachs, Morgan Stanley and J.P. Morgan made about 2% on the total amount raised, or around $88M when spread out between them. Language about the risks of doing business in China starts on page 7 of the IPO prospectus, while regulatory and anti-monopoly warnings appear on page 11. While some say the disclaimers are enough, others expect a certain amount of deep expertise or specifics about the regulatory environment.
The company: DiDi "forced its way" to go public in New York without completing a thorough data security assessment by the Cyberspace Administration of China, the South China Morning Post reports. That prompted Beijing to suspend it from app stores and put it under a national security review. While the data assessment is not yet an institutionalized part of the listing process, and Didi said it had no foreknowledge about the security review, the company announced it will cooperate with Chinese authorities.
The investors: Should they have done more homework? Ahead of the IPO, several reports suggested China was ramping up pressure on its Internet companies, including DiDi, and was pushing more antitrust scrutiny of its homegrown tech firms. Back in April, Beijing also imposed sweeping restrictions on the fast-growing financial divisions of companies like DiDi, as well as stricter compliance on listing abroad, curbs on information monopolies and the gathering of personal data. (11 comments)
The Nasdaq was the only major average to rise to a fresh all-time high on Tuesday after the S&P 500 snapped a seven-day winning streak. Cyclical shares also pulled back, while Big Tech stocks, like Amazon (AMZN), shined bright. The trend continued overnight, with Nasdaq futures rising 0.5% and contracts linked to the S&P 500 and Dow up 0.2% and 0.1%, respectively.
"It is really the tech space that's been driving the market," said Esty Dwek of Natixis Investment Solutions. "Over the next few weeks and months, hopefully we'll see that U.S. growth is holding up well, that will continue to support markets."
Fed minutes: The next catalyst for stocks and bonds will be released at 2 p.m. ET. The behind-the-door discussions are expected to be dovish as the central bank remains unconcerned about inflation trends and continues to look for progress in the labor market. Any signals of bond tapering will also be watched, which could signal a retreat from current easy policies.
Go deeper: The minutes will also be of particular interest to the bull forces which have taken control of the Treasury market. On Tuesday, the 10-year yield fell to its lowest level since February, while the 30-year yield tested its closely-watched 200-day moving average. At 1.34%, the 10-year yield is now even closer to 1% - than the 2% many analysts had forecast for the end of the year. Are investors pricing in a major risk from the OPEC+ crisis, which could see a price war-induced oil slump weigh on inflation estimates and support bonds?
The Alkaline Water Company (NASDAQ: WTER) is one of the hottest beverage stocks right now. That’s why Shaquille O’Neal just grabbed 7 million shares of its stock. Shaq’s stamp of approval comes as one of the company’s main competitors Essentia was bought out by Nestlé USA just last year. Analysts suspect The Alkaline Water Company could easily be the next big acquisition target for Big Beverage — something that could land investors substantial returns if they get in early enough.
The Pentagon on Tuesday canceled its $10B Joint Enterprise Defense Infrastructure cloud contract, also known as JEDI, which had become a bone of contention between Amazon (AMZN) and Microsoft (MSFT). The deal aimed to provide the Defense Department with a centralized "secure cloud environment to rapidly access computing and storage capacity to address warfighting challenges at the speed of relevance." It would also upgrade its technology for managing data located across thousands of networks and data centers.
Backdrop: Amazon Web Services was considered the frontrunner for the contract before the DoD handed it to Microsoft in 2019. AWS didn't back down. The company alleged in a lawsuit that the award was tainted by then-President Trump's animus against Jeff Bezos and related litigation threatened to delay the deal for years. There was also a slew of objections from Congress, prompting the Pentagon to acknowledge that advances in cloud computing and the timeframe of the contract could render the scheme obsolete.
"The evolving landscape is what has driven our thinking," said John Sherman, the Pentagon's acting chief information officer. "JEDI was the right approach at the time," but with changing circumstances "we're in a different place."
Outlook: The Pentagon is now planning a multi-vendor approach, where more cloud providers including Google (GOOG, GOOGL), Oracle (NYSE:ORCL) and IBM (NYSE:IBM) will be allowed to bid for the new contract. The new deal, known as the Joint Warfighter Cloud Capability, is also scheduled to run no more than five years. Bidders are expected to be identified by about October, with the new contract expected to be awarded in spring 2022. (6 comments)
The White House is planning to publish an executive order this week focused on competition policy, according to several news outlets including the NYT. The action would urge the FTC to ban or limit non-compete agreements and encourage the agency to bar "unnecessary" occupational licensing restrictions. It could also embolden the FTC and DOJ to restrict the ability of employers to share information on worker pay or factor in how mergers might affect the ability to negotiate higher wages.
Fine print: The order hinges on the ability of regulators to write legislation that could survive legal challenges. Labor economists see many of the policies set at the state level - like licensing requirements - meaning they can only have a limited federal role.
"The president made clear during his campaign that he is committed to increasing competition in the American economy, including by banning non-compete agreements for workers and protecting farmers from abusive practices," White House spokesperson Emilie Simons said earlier this month.
Note: While the executive order could be controversial among conservative lawmakers who favor less government intervention, some Republicans have opposed non-compete agreements. In 2019, Florida Sen. Marco Rubio introduced a bill to end the contracts for entry-level, low-wage workers. A labor shortage in the U.S. also has employers looking for millions of new workers, while tougher antitrust measures are receiving growing bipartisan support in Congress (like in the case of Big Tech).
In Asia, Japan -1%. Hong Kong -0.7%. China +0.7%. India +0.4%.
In Europe, at midday, London +0.5%. Paris +0.1%. Frankfurt +0.9%.
Futures at 6:20, Dow +0.1%. S&P +0.2%. Nasdaq +0.5%. Crude +1.8% at $74.67. Gold +0.7% at $1807.30. Bitcoin +1.9% at $34625.
Ten-year Treasury Yield -2 bps to 1.34%
Today's Economic Calendar
What else is happening...
Short Hills' Steve Weiss: 'I would not own Chinese stocks again.'
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Money flowing into oil, gas ETFs at highest rate in a decade.
Vaccines offer 'best of both worlds' for people who had COVID-19 - Scott Gottlieb.