Today’s Big Picture
Things on Capitol Hill are getting more contentious, if that is even possible. President Biden is blaming Mitch McConnell, the Senate Republican Leader, for what he refers to as a meteor headed for the U.S. economy in the form of a breach of the federal government debt ceiling. When asked during a press conference if he could guarantee the U.S. would not breach the debt ceiling, President Biden said, “No, I can’t.”
We’ve seen this game of Congressional/Presidential fiscal chicken played out before, and previously all the ranting and foot-stomping ended in some sort of agreement. However, investors are understandably concerned.
Additionally, the global shortage of gas and coal is pushing energy prices even higher. European natural gas and power prices have risen to new heights, and China has been struggling with outages as economies around the world emerge from the pandemic, forcing some to cut output while simultaneously dealing with supply chains in utter disarray. The holiday season is at risk.
Equity markets in Asia-Pacific were mixed today, with Japan’s Nikkei 225 losing 2.2%, South Korea’s Kospi dropping 1.9% and Australia’s ASX 200 falling 0.4%. But Hong Kong’s Hang Seng managed to add 0.3%. Markets in China remain closed until Friday. By midday, trading markets in Europe were in positive territory, and U.S. futures point to a rebound at the open.
Data Download
Coronavirus
Southwest Airlines (LUV) will require employees who wish to continue working with the airline to be vaccinated by December 8.
JPMorgan Chase & Co. (JPM) announced it will ban business travel and in-person meetings for employees who aren’t vaccinated against the virus or decline to disclose whether they’ve had their shots.
International Economy
Despite all the furor over rising prices, Japan’s Tokyo CPI was up just 0.3% YoY in September, but that comes after a 0.4% contraction in August. Core CPI accelerated to a red hot 0.1% YoY from 0.0% in August, below the breakneck 0.2% expected pace.
Today brings a slew of Service PMI data for September from around the world, which generally came in stronger than expected:
- Japan rose to 47.8 from 42.9 in August, still in contraction (below 50) but improving
- Spain dropped more than expected to 56.9 from 60.1 versus an expected decline to 58.1
- Italy dropped more than expected to 55.5 from an upwardly revised 59.1 (was 58.0) versus an expected decline to 56.5
- France dropped less than expected to 56.2 from 56.3 versus an expected decline to 56.0
- Germany dropped less than expected to 56.2 from a downwardly revised 60 (was 60.8) versus an expected decline to 56.0
- Eurozone overall dropped less than expected to 56.4 from 59 versus an expected decline to 56.3
- The U.K. dropped less than expected to 55.4 from 55.0 versus an expected decline to 54.6
Domestic Economy
Monday’s report on Factory Orders for August found that they grew more than expected to 1.2% MoM, from 0.4% in July, above the expected increase to 1.0% MoM. New orders continue to rise at a steady mid-double digital rate despite double-digit inventory growth rates on a 3-month over a 3-month rolling basis. Sales are managing to rise even faster than inventory, leading nondurable goods’ inventory-to-sales ratio to hit a new low. Durable goods’ inventory to sales ratio rose but has been making lower highs.
Monday mortgage analytics firm Black Knight released their Monthly Mortgage Monitor report for August, which was the first full month most after the end of the foreclosure moratorium. Foreclosures did hit an 8-month high of 7.1k, but the total number of loans in foreclosure is historically still low at 142k. The delinquency rate dropped to a pandemic low of 4% and just 0.8% above the 3.2% in January 2020.
Later today, we will get the Balance of Trade for August, which is expected to decline from $-70 billion to $-70.5 billion. We will also get Market and ISM Service PMIs, the IBD/TIPP Economic Optimism Index for October, and the usual weekly API Crude Oil stock change report.
Markets
The market opened slightly lower yesterday morning and spent most of the day in negative territory, with the Nasdaq Composite falling 2.1%, The S&P 500 dropping 1.3%, and the Dow losing 0.9% as growth and tech stocks suffered the most. The 5% losses since the September 2 all-time high for the S&P 500 have been driven primarily by the mega-cap tech names. While Apple (AAPL), Alphabet (GOOG), Amazon (AMZN), Facebook (FB), and Microsoft (MSFT) accounted for less than 25% of the S&P 500’s market cap at the peak, they are responsible for more than one-third of its decline. Energy and Utility sectors both rose over 1%.
Oil prices rose to a 7-year high yesterday after OPEC+ agreed to continue increasing production at the previously agreed upon pace, rather than increasing production more aggressively. Representatives ratified the 400,000 barrel per day hike scheduled for November after discussing the possibility of a larger increase.
The CFTC positioning data from Friday’s Commitments of Traders report showed a material rise in net long positioning for both the Dow and the S&P 500, leaving S&P futures net long to the highest degree since November 2020 after being net short just two weeks ago. The rest of the major U.S. indices are still net short, but the Dow is less short than it has been.
Stocks to Watch
Earnings Announcements & Guidance
Before U.S. equity markets open this morning, PepsiCo (PEP) reports its latest quarterly results.
Facebook (FB) shares sunk almost 5% yesterday following service outages for Facebook, WhatsApp and Instagram yesterday, cutting Mark Zuckerberg’s personal wealth by $6 billion. According to reports, the company experienced networking and Domain Name Service issues that resulted in Facebook sending a team to a California data center in an effort to manually reset servers. While Twitter (TWTR) reported minor outages yesterday, the afternoon-long outage for Facebook followed comments from a Facebook whistleblower that the company has little oversight.
On the heels of China Evergrande Group’s (EGRNF) debt woes, Chinese developer Fantasia Holdings Group Co.(1777:HK) didn’t repay a $205.7 million bond that was due last night. Separately, property management company Country Garden Services Holdings Co. (6098:HK) said that a unit of Fantasia didn’t repay a 700 million yuan (~$108million) loan that also came due last night.
Yesterday, Ford (F) announced that it delivered 156,614 vehicles in September, more than any other automaker, and a 34.3% increase from August, but a 17.7% decline from September 2020. The company also announced that it had received 150,000 reservations for its upcoming F-150 Lightning pickup that will enter production next year.
Monday, a federal court in San Francisco ordered Tesla (TSLA) to pay a former worker, Owen Diaz, $137 million for enduring a hostile work environment and racist abuse when he worked there as an elevator operator. The jury awarded more than attorneys had asked, including $130 million in punitive damages and $6.9 million for emotional distress. According to the plaintiff’s attorneys, the case was only able to go forward because he had not signed one of Tesla’s mandatory arbitration agreements, which compels employees to settle disputes behind closed doors.
PACCAR Inc. (PCAR) announced the semiconductor shortage will reduce its truck deliveries in the September quarter to roughly 33,000, down from 40,100 vehicles in the prior quarter. The company expects the semiconductor shortage and associated issues to continue into the fourth quarter and remain until “supply chain issues are resolved.”
Last night McCormick & Co. (MKC) CEO Lawrence Kurzius shared that pandemic-fueled logistics complications are challenging the company’s ability to respond to “incredible” demand for its products. According to Kurzius, “Transportation and logistics issues, just getting the product from point A to point B, is our single limiting factor.”
Scientific Games (SGMS) announced it landed a ten-year base contract from the Pennsylvania Lottery that will cover instant games and Scientific Games Enhanced Partnership for lottery instant game services. An additional ten-year base contract will provide lottery gaming systems services across the network of nearly 10K Pennsylvania Lottery retailers in the Commonwealth.
Cybersecurity company FireEye (FEYE) confirmed it will officially change its name to Mandiant Inc. (MNDT) and trade under the new ticker symbol ‘MNDT’ effective today.
IPOs
Rent the Runway (RENT), which counts Bain Capital among its investors and actress Gwyneth Paltrow as a board member, filed its IPO paperwork yesterday and plans to list its shares on Nasdaq.
M&A Activity
Monday, the Swedish automotive tech group Veoneer (VNE) announced that chipmaker Qualcomm (QCOM) and SSW Partners had reached a definitive agreement to buy it for $37.00 per share in an all-cash transaction, giving it a total equity valuation of $4.5 billion. Qualcomm had previously sought to purchase Veonner back in August for an 18.4% premium over a July bid from Canada’s Magna (MGA) that had already been accepted by Veoneer’s board. Magna announced that Veoneer would be a termination fee of $110 million to Magna.
Agrify (AGFY) acquired Precision Extraction Solutions and Cascade Sciences for $50 million with $30 million of the purchase price in cash and the balance in AGFY shares.
Dividends and More
Infineon (IFX) holds its annual Capital Markets Day today, while Richardson Electronics (RELL) and Inter Parfums (IPAR) are scheduled to hold their annual shareholder meetings.
After Today’s Market Close
Saratoga Investment Corp (SAR) is slated to report quarterly results. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.
On the Horizon
- October 6: ADP Employment Change
- October 7: Jobless claims
- October 8: Nonfarm payrolls, Wholesale inventories
- October 12: JOLTs report
- October 13: CPI, FOMC Minutes
- October 14: Weekly jobless claims, PPI, Monthly budget statement
- October 15: Retail Sales, Import & Export Prices, NY Empire State Manufacturing, Michigan Consumer Sentiment(preliminary), Business Inventories
- October 18: Industrial Production, NAHB Housing Market Index, Net Long-term Tic Flows, Foreign Bond Investment, Overall Net Capital Flows
- October 19: Building Permits, Housing Starts
- October 21: Weekly Jobless Claims, Philly Fed Manufacturing Index, Existing Home Sales
- October 22: Markit Service and Marketing PMIs (flash)
- October 25: Chicago Fed National Activity Index, Dallas Fed Manufacturing Index
- October 26: S&P/Case-Shiller Home Price Index, New Home Sales, CB Consumer Confidence
- October 27: Durable Goods Orders, Wholesale Inventories, Durable Goods, Goods Trade Balance
- October 28: Q3 GDP (advance estimate), Weekly Jobless Claims, Pending Home Sales
- October 29: Personal Income & Spending, PCE Price Index, Employment Cost Q3, Chicago PMI, Michigan Consumer Sentiment
Thought for the Day
“Autumn, the year’s last, loveliest smile.” ~William Cullen Bryant
Disclosures
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
