Highlights

Wall Street Breakfast

Author: bmotrader   |   Latest post: Wed, 20 Jan 2021, 8:50 AM

 

Wall Street Breakfast: The Blue Wave?

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Democrat Raphael Warnock, a senior pastor at the historic Black church Ebenezer Baptist Church in Atlanta, has defeated Republican incumbent Sen. Kelly Loeffler in the Georgia Senate runoff elections, according to the Associated Press. The victory puts the Senate 50-49 in favor of the GOP, but Democrats could flip control of the chamber if Jon Ossoff prevails over incumbent David Perdue (that race remains too close to call). Vice President-elect Kamala Harris would be the tiebreaking vote in the Senate, giving the Democratic party control of the White House and Congress, and solidifying President-elect Joe Biden's economic policy platform.

What's moving? Big Tech appears to be getting nervous about possible legislation, with Nasdaq futures off by 1.8%, though the potential of a big fiscal boost saw contracts linked to the Dow rise 0.4% and the S&P 500 remain steady. Knee-jerk reactions are typical following any election, but the key to actual price movement will depend on the final results and how subsequent lawmaking will play out.

Outlook: "For new tech companies, Congressional action could mean opportunity to compete, to innovate, to build products and services without immediately being squashed by one of the giants," political strategist and venture capitalist Bradley Tusk declared. "So while a Democratic Senate is unquestionably bad for Big Tech, it's not necessarily bad for tech overall." He also predicts Democrats would likely enact laws around internet privacy, similar to Europe's GDPR legislation.

As reported yesterday, a repeat of the chaotic vote re-counts that followed the U.S. presidential election in November is likely to ensue. More drama will come today as the House and the Senate formalize Biden's Electoral College win (a group of 13 Republican senators are objecting to the certification).

Energy - OPEC+ unity

Oil prices jumped on Tuesday after Saudi Arabia pledged to slash another 1M barrels per day in production in February and March, while Russia and Kazakhstan said they would increase their output by a combined 75,000 bpd. Energy shares outperformed all other sectors and rose the most since late November on the news, while Moscow hailed the concession a "new year gift" for the crude markets.

What's happening? On the one hand the kingdom is caught in supply/demand fundamentals, but at the same time, Saudi Oil Minister Prince Abdulaziz painted the decision as some kind of leadership position. He said it was a sovereign political move to support the Saudi economy, members of the OPEC+ group, as well as the wider industry.

IPOs - Frothy IPO market pours in Oatly

Oatly (OATLY) is planning a 2021 initial public offering that could raise $1B, sources told CNBC, noting the vegan milk brand's valuation will depend on the status of the pandemic-hit economy. Bloomberg already reported on the potential listing back in September, but the latest account suggests 2021 might be another record year for the IPO market.

Some statistics: During 2020, oat milk sales in the U.S. soared over 300% to $213M, becoming the second most consumed plant milk after almond milk ($1.5B in 2020 sales). Soy milk fell down a spot, with sales declining 4.5% to $202M (a decade ago, they topped $1B).

Oatly's got some big backers betting on shifting consumer preferences. Last summer, Blackstone led a $200M funding round in the Sweden-based brand which saw Oprah Winfrey, Natalie Portman, Jay-Z's Roc Nation and former Starbucks (NASDAQ:SBUX) CEO Howard Schultz come aboard. In fact, Starbucks is launching Oatly in all its U.S. stores this spring following a successful regional trial.

Bigger picture: Led by Gen Z and millennials, trends are moving away from conventional animal products due to environmental, health and ethical concerns. Shares of Beyond Meat (NASDAQ:BYND), an alternative protein supplier, are up 400% since the company went public a year and a half ago.

Real Estate - Rethinking the mall

The coronavirus pandemic is turning struggling malls into new kinds of real estate. Latest? The company behind popular videogame Fortnite, Epic Games, is shelling out $95M for the Cary Towne Center mall in North Carolina, converting it into its new global headquarters. Epic plans to open the new 980K-square-foot campus by 2024, which would nearly quadruple the size of its current property.

Will there be videogame tournaments at the new HQ? Epic hasn't yet offered details, but it's considering including space for use by the local community.

Thought bubble: While many businesses are aiming to downsize their office space and welcome work-from-home policies, others are looking for good deals to make new and larger office locations as a part of their future. Underperforming malls could also become attractive acquisition targets for investors aiming to convert them into residential units or warehouses.

Recent examples: In West Los Angeles, Calif., the Westside Pavilion is undergoing a makeover into an office campus that will be occupied by Google (GOOG, GOOGL), while Urban Edge Properties said this week that it had scooped up the Sunrise Mall in Massapequa, N.Y., and plans to redevelop it for industrial purposes.

Another question... How will all the news impact mall and shopping center players like Simon Property Group (NYSE:SPG), Taubman Centers (NYSE:TCO) and Macerich (NYSE:MAC)?

Regulation - Fresh U.S.-China tensions

Alipay (NYSE:BABA) has been in Washington's crosshairs for months, but the White House just locked on target. President Trump has signed an order banning transactions with eight Chinese payment apps in 45 days, and while he won't be in office by that date, the move will cement his tough-on-China legacy, which has involved a trade war and using national security powers against China's largest technology companies.

Other companies included in the ban are Tencent's (OTCPK:TCEHY) QQ Wallet and WeChat Pay, CamScanner, SHAREit, Tencent QQ, VMate and Beijing Kingsoft Office Software’s WPS Office. The new measure also deals a blow to Ant co-founder Jack Ma, who hasn't been seen in public ever since Chinese regulators halted Ant's $35B IPO and opened an antitrust investigation into Alibaba.

"By accessing personal electronic devices such as smartphones, tablets, and computers, Chinese connected software applications can access and capture vast swaths of information from users, including sensitive personally identifiable information and private information," the executive order states. Such data collection "would permit China to track the locations of federal employees and contractors, and build dossiers of personal information."

Outlook: The directive mirrors executive orders signed in August that aimed to ban downloads and block some U.S. transactions on Chinese-owned WeChat and TikTok. While those restrictions were blocked by courts mainly on freedom of speech grounds, the White House sees the latest executive action standing up to judicial scrutiny as apps like Alipay would struggle to bring a First Amendment case.

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