Wall Street Breakfast

Author: bmotrader   |   Latest post: Fri, 10 Jul 2020, 7:55 AM


Wall Street Breakfast: Too Far, Too Fast?

Author:   |    Publish date:

U.S. stock index futures, along with global stocks, are taking another turn for the worse as investors cash out of an extraordinary rally following the latest comments from Fed Chair Jerome Powell. While he vowed to continue aggressive stimulus "and keep interest rates near zero for years," he struck a cautious note on jobs, undercutting the hopes for a V-shaped recovery. "My assumption is that there will be a significant chunk, well, well into the millions of people who don’t get to go back to their old jobs and there may not be a job in that industry for them for some time. It could be some years before we get back to those people finding jobs."

On the economy

The Fed sees GDP plunging 6.5% in 2020 (before bouncing back to a 5% gain in 2021) and the unemployment rate to be 9.3% at year's end. A clearer picture may arise today as the Labor Department reports weekly jobless claims following last Friday's surprise of a 2.5M increase in nonfarm payrolls for May. Meanwhile, a resurgence in COVID-19 infection rates is also hitting states that have recently reopened, prompting concern about a potential second wave as the total number of U.S. cases topped 2M.

Big Tech gets even bigger

While the broader market sold off yesterday, a surge into tech stocks ensued in the face of economic uncertainty and social unrest. The market caps of both Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT) crossed $1.5T for the first time ever, while Amazon (NASDAQ:AMZN) reached a market valuation of $1.3T and Alphabet (GOOG, GOOGL) topped the $1T level for the first time since February. Driving the excitement has been an acceleration in the adoption of e-commerce, a shift to cloud computing and remote work, as well as the companies' rock-solid balance sheets and global user bases.

Getting hungry

Grubhub (NYSE:GRUB) plans to merge with Just Eat Takeaway.com after talks with Uber (NYSE:UBER) fell through amid antitrust scrutiny. The deal would combine two of the top food delivery services in the U.S. and Europe and create the world's biggest food delivery company outside of China. Grubhub shareholders would receive 30% of the combined company via an all-stock transaction worth $7.3B. GRUB +7.6% premarket.

Over $1,000

Elon Musk could've been popping champagne bottles yesterday as Tesla (NASDAQ:TSLA) shares topped $1,000 for the first time ever, though instead he wrote to employees that it was "time to go all out" and put its Semi into volume production. It seems timely, given the hype surrounding newly listed Nikola (NASDAQ:NKLA), an EV truck maker that has seen its shares take off to dizzying levels. A rally of about another 11% in Tesla shares could see it become the world's most valuable carmaker, taking the crown currently worn by Toyota (NYSE:TM).

Facial recognition

A day after IBM (NYSE:IBM) said it would exit the facial recognition business, Amazon (AMZN) announced it would ban the use of its facial recognition software by police for one year. "We hope this one-year moratorium might give Congress enough time to implement appropriate rules, and we stand ready to help if requested," the company said in a statement. Organizations focused on stopping human trafficking will still be permitted to use Rekognition, a product AWS launched in 2016.

Other controversy

Zoom's (NASDAQ:ZM) ties to China are under the microscope after it banned a group of prominent U.S.-based Chinese activists following a videoconference on the 1989 Tiananmen Square massacre. "When a meeting is held across different countries, the participants within those countries are required to comply with their respective local laws," the company told various media outlets. While it has since reactivated the account, Zoom has previously acknowledged that much of its product development has been based in China, and that some Zoom calls were mistakenly routed through Chinese servers.

5G fortunes at stake

Suffering from product design delays and higher costs to supply equipment, Nokia (NYSE:NOK) is continuing a C-suite overhaul to catch up with rivals Ericsson (NASDAQ:ERIC) and Huawei in the 5G race. Marco Wiren will join the company as CFO on Sept. 1, the same day Pekka Lundmark starts as chief executive. Sari Baldauf took over as chairwoman last month, succeeding Risto Siilasmaa who chaired the Finnish firm for eight years. NOK -1.8% premarket.

Unilever makes second attempt at unification

"After a comprehensive review over the last 18 months, the board continues to believe that moving from the current dual-headed legal structure to a single parent company will bring significant benefits," Unilever (UN, UL) said in a statement. The move, which would combine its U.K. and Dutch arms in a single British parent company, would result in one class of shares and a single pool of liquidity. A previous attempt to consolidate in the Netherlands drew fierce opposition from U.K. shareholders. UN +3.6% premarket.

Boost for Hong Kong

The city's status as a destination for major Chinese technology companies got a lift overnight amid recent tensions over U.S. listing requirements. Shares of mobile games group NetEase (NASDAQ:NTES) jumped nearly 10%, with the retail portion of the stock sale more than 130 times oversubscribed, while e-commerce company JD.com (NASDAQ:JD) fixed a price for its own $3.9B offering. The moves are likely to increase inflows and strengthen the local dollar at a time when China's national security law has raised concerns about Hong Kong's future as a financial hub.

Today's Markets

In Asia, Japan -2.8%. Hong Kong -2.3%. China -0.8%. India -2.1%.
In Europe, at midday, London -2%. Paris -2.1%. Frankfurt -2.3%.
Futures at 6:20, Dow -2.5%. S&P -2.1%. Nasdaq -1.5%. Crude -3.2% to $38.33. Gold +1.1% to $1739.40. Bitcoin +0.6% to $9809.
Ten-year Treasury Yield -4 bps to 0.71%

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 Producer Price Index
10:00 Quarterly Services Report
10:30 EIA Natural Gas Inventory
1:00 PM Results of $19B, 30-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

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