Wall Street Breakfast

Author: bmotrader   |   Latest post: Tue, 2 Jun 2020, 9:57 AM


Wall Street Breakfast: Negative Rates?

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Investors will be closely monitoring today's speech from Jerome Powell as he discusses current economic issues in a webcast hosted by the Peterson Institute for International Economics. President Trump piled pressure on the Fed Chair on Tuesday, saying the U.S. should accept the "gift" of negative interest rates, as Fed Fund futures begin to price in a chance of America following the ECB, Japan (and maybe the U.K.) in going sub-zero. The view on the unconventional monetary policy spans the spectrum, with some market players cautioning they would be fatal and others arguing they are inevitable. "When you have negative rates, you wind up creating downward pressure on bank profitability, which limits credit expansion," Powell said in congressional testimony back in November, but given the current environment, that sentiment could change.

Heading higher

It didn't take long for markets to resume their climb upwards as U.S. stock index futures advanced 0.7% overnight to rebound from yesterday's selloff. Major indices slumped 2% on Tuesday amid fears about a second wave of coronavirus infections. In his testimony to the Senate, Dr. Anthony Fauci warned lawmakers that a premature lifting of lockdowns could lead to additional outbreaks of COVID-19, which has so far killed 80,000 Americans and ravaged the economy.

Expanded coronavirus vaccine trials

Pfizer (NYSE:PFE) is currently testing four different coronavirus vaccine variations and plans to expand human trials to thousands of test patients by September. The pharma giant, which is working alongside German drugmaker BioNTech (NASDAQ:BNTX), injected doses of its potential vaccine, BNT162, into the first human participants in the U.S. last week. If a vaccine proves safe, Pfizer "will be able to deliver millions of doses in the October time frame" and expects to produce hundreds of millions of doses in 2021.

Investment war?

The Trump administration has directed the U.S. federal employee retirement fund to scrap the placement of more than $4B into Chinese investments, a decision it had intended to boost returns. At issue is whether the Thrift Savings Plan should track an index that includes some China-based stocks like Aviation Industry Corp of China, which supplies China's military, as well as Hangzhou Hikvision, which was sanctioned by Washington for human rights abuses. "Using the excuse of national security to restrict access to China's markets goes against economic rules and damages U.S. investors' own interests," responded Chinese foreign ministry spokesperson Zhao Lijian.

Another month without an airliner order

Boeing (NYSE:BA) recorded zero orders for the second time this year in April and customers canceled another 108 orders for the grounded 737 MAX, further whittling down the company's backlog of planes to 4,834 planes - its smallest since 2013. The company delivered just six planes last month, bringing the YTD total to 56, down 67% from a year earlier. Airbus (OTCPK:EADSY) meanwhile received orders for nine planes in April, bringing its 2020 total to 299 planes, and had a backlog of 7,645 jets.

End to the standoff in Fremont

Health officers for Alameda County said Tesla (NASDAQ:TSLA) can open its sole U.S. car factory in Fremont if it adopts extra recommendations to battle the coronavirus in its safety plans. Minimum business operations would begin this week in preparation for a possible reopening as soon as next week. "Provided that the data show progress with our COVID-19 indicators during this two week period, we would allow additional approved activities for local businesses, including Tesla," read a tweet from the Alameda County Public Health Department. TSLA +2% premarket.

Self-driving fundraising

Waymo has raised a further $750M for its first external fundraising round, pushing the total to $3B thanks to some additional investors. The new cash is sure to be welcome news to the finance department. Waymo is said to be costing Alphabet (GOOG, GOOGL) nearly $1B compared to the revenue it makes from its limited commercial robot taxi service in Phoenix, Arizona. Prior to the pandemic, the company said it was facilitating 1K–2K ride-hailing trips in Arizona a week, 5%-10% of which were without human backup drivers.


Shares of Grubhub (NYSE:GRUB) and Uber (NYSE:UBER) soared on Tuesday following reports of a merger. A deal would give Uber Eats' money-losing restaurant delivery service a leg up on market leader DoorDash (DOORD) at a time when the coronavirus pandemic has upended Uber's core business of ride-hailing. The two companies are still haggling over the deal's stock exchange ratio, though some say the tie-up could be finalized this month.

Watching the ad industry

Big advertisers like General Motors (NYSE:GM), PepsiCo (NASDAQ:PEP) and General Mills (NYSE:GIS) are seeking to take advantage of options that became available May 1 to cancel up to 50% of third-quarter TV spending, writes WSJ's Suzanne Vranica. That doesn't bode well for owners of broadcast and cable networks, from Comcast (NASDAQ:CMCSA) and NBCUniversal to ViacomCBS (NASDAQ:VIAC) and Walt Disney (NYSE:DIS). Where's the money going? Much of it will likely be aimed at shoring up the firm's balance sheets, while some is shifting to areas like digital video and e-commerce.

Stay in your pajamas

Tech may be leading the way in turning remote work into the new norm after the coronavirus pandemic. Expanding on a recent trend seen at major tech companies like Facebook (NASDAQ:FB), Alphabet (GOOG, GOOGL) and others, which have announced work-from-home setups until 2021, Twitter (NYSE:TWTR) has upped the ante to "forever." The option wouldn't apply to those required to make a physical appearance, like certain maintenance staff, but instead would apply to those who can perform their job functions remotely.

Tuesday's Key Earnings

Duke Energy (NYSE:DUK) +0.3% maintaining earnings guidance.
Honda (NYSE:HMC) -5.3% following a profit plunge.
Macerich (NYSE:MAC) -2% giving back "reopening" gains.

Today's Markets

In Asia, Japan -0.5%. Hong Kong -0.3%. China +0.2%. India +2%.
In Europe, at midday, London -0.8%. Paris -1.7%. Frankfurt -1.5%.
Futures at 6:20, Dow +0.6%. S&P +0.7%. Nasdaq +0.7%. Crude +0.4% to $25.88. Gold flat at $1707.40. Bitcoin -2% to $8956.
Ten-year Treasury Yield -3 bps to 0.66%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 Producer Price Index
9:00 Jerome Powell Speech
10:00 Atlanta Fed's Business Inflation Expectations
10:30 EIA Petroleum Inventories
1:00 PM Results of $22B, 30-Year Note Auction


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