Highlights

Wall Street Breakfast

Author: bmotrader   |   Latest post: Thu, 2 Jul 2020, 7:42 AM

 

Wall Street Breakfast: House Hearing On Pandemic Response

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After testifying before the Senate last month, Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin are in the hot seat again today as they appear before the U.S. House of Representatives Financial Services Committee. Testimony will cover the coronavirus response detailed in the CARES Act, under which the Fed set up several new lending facilities to bolster the economy (of particular note will be the PPP and Main Street Lending Program). In prepared testimony released on Monday, Powell noted that the economic recovery had begun sooner than expected, but the path forward is "extraordinarily uncertain and will depend in large part on our success in containing the virus."

Closing out the second quarter

U.S. stock futures drifted overnight, though equities are still set to end the quarter having erased most of the losses accrued in the first three months of the year. It's still been quite a volatile June for the markets, with shares rallying yesterday - as certification flights began for Boeing's (NYSE:BA) 737 MAX - after a steep selloff on Friday. Fresh data overnight also pointed to a strengthening recovery for China's manufacturing sector, while investors stay tuned for the latest on the earnings front, with results today from FedEx (NYSE:FDX) and Conagra Brands (NYSE:CAG).

Ignoring threats to impose security law

China's top legislative body has approved a landmark national security law for Hong Kong on the eve of the 23rd anniversary marking the territory's return to Chinese rule. The new law puts limits on civil liberties and Hong Kong’s independent judicial system, which has helped attract hundreds of international companies and could endanger the city's appeal as a financial hub. The U.S. on Monday began eliminating Hong Kong's special trading status, halting defense exports and restricting the territory’s access to high technology products. "Any action on sanctions will not scare us," declared Hong Kong Chief Executive Carrie Lam, while Beijing announced a visa ban on U.S. citizens who interfere with the legislation.

How severely has the coronavirus crisis hit Big Oil?

Here's a clue: Royal Dutch Shell (RDS.A, RDS.B) is writing down between $15B-$22B of assets in the second quarter. The pandemic has hammered every part of the energy giant's sprawling business including oil production, fuel sales and shipments of everything from LNG to petrochemicals (it even predicts that Oil Products sales volumes will be 3.5M-4.5M barrels a day in Q2, down from 6.6M a year earlier). Looking to counter the pain, the company in April cut its dividend for the first time since WWII and announced a goal to reduce greenhouse gas emissions to net zero by 2050.

Bank dividends maintained

Dividend investors are breathing a sigh of relief after most of largest U.S. banks said they scored well enough on the Fed's most-recent stress test to maintain their current quarterly payouts. Among them are Goldman Sachs (NYSE:GS), Bank of America (NYSE:BAC), Morgan Stanley (NYSE:MS), JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C), who were quick to drop stock buybacks at the onset of the coronavirus pandemic. Only Wells Fargo (NYSE:WFC) said the Fed's assessment will result in a reduction to its quarterly dividend.

Go public or be acquired?

There might be some big plans in store for Postmates (POSTM) amid a surge in demand for food delivery services due to the coronavirus pandemic. Just Eat Takeaway.com's (OTCPK:TKAYY) $7.3B deal to acquire GrubHub (NYSE:GRUB) earlier this month, as well as recent fundraisings by peers, convinced the company the time had come to press ahead with an IPO, according to Reuters. Meanwhile, the NYT reported that Uber Technologies (NYSE:UBER), which lost out to Just Eat Takeaway.com in its bid to acquire GrubHub, has also made an offer to buy Postmates. The company was last valued at $2.4B and accounts for 8% of the U.S. meal delivery market.

Space a target for cloud expansion

Amazon Web Services (NASDAQ:AMZN) will formally establish a dedicated segment, called Aerospace and Satellite Solutions, at an online summit today focused on business with the public sector. The group will be run by retired Air Force Maj. Gen. Clint Crosier, who, until recently, was in charge of setting up the Space Force, the newest branch of the U.S. military. "Amazon is anticipating a huge increase in space-related cloud-computing contracts globally with a market size estimated at hundreds of billions of dollars," said Teresa Carlson, AWS's vice president in charge of public sector business. AWS has faced increasing pressure from rivals, and last year lost out to Microsoft (NASDAQ:MSFT) for the Pentagon's JEDI cloud computing contract - a deal that could be worth up to $10B over 10 years.
 

'Go all out'

"Breaking even is looking super tight. Really makes a difference for every car you build and deliver. Please go all out to ensure victory!" Elon Musk wrote in an email to employees on Monday. It's not clear whether "breaking even" refers to the company’s profit margin, or another metric, like production numbers. Tesla (NASDAQ:TSLA) is expected to report its Q2 vehicle output and delivery figures this week, while a profit would be a major surprise for Wall Street, which is currently estimating a quarterly loss of $1.45 per share. Turning a profit for Q2 would also see the company eligible for inclusion in the S&P 500, which requires a minimum of four consecutive quarters of profitability.

Monday's Key Earnings

Micron (NASDAQ:MU) +4.8% AH posting quarterly beats, upside outlook.

Today's Markets

In Asia, Japan +1.3%. Hong Kong +0.5%. China +0.8%. India -0.1%.
In Europe, at midday, London -0.5%. Paris +0.1%. Frankfurt +0.3%.
Futures at 6:20, Dow -0.2%. S&P -0.1%. Nasdaq +0.1%. Crude -1.2% to $39.21. Gold +0.1% to $1783.40. Bitcoin +0.6% to $9155.
Ten-year Treasury Yield +2 bps to 0.64%

Today's Economic Calendar

8:55 Redbook Chain Store Sales
9:00 S&P Corelogic Case-Shiller Home Price Index
9:45 Chicago PMI
10:00 Consumer Confidence
11:00 Fed's Williams: "U.S. Recession and Policy Response"
11:05 Fed's Brainard: "A Decade of Dodd-Frank"
12:30 PM Powell Testify Before House Financial Services Committee
2:00 PM Fed's Bostic: "Race, Mobility, and Fairness in the U.S. Economy"
2:00 PM Fed's Kashkari: "Race, Mobility, and Fairness in the U.S. Economy"
3:00 PM Farm Prices

 

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