Wall Street Breakfast

Author: bmotrader   |   Latest post: Mon, 25 Jan 2021, 9:24 AM


Wall Street Breakfast: Job Market Recovery?

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The upbeat mood on Wall Street is likely to outshine any weak job numbers seen today as equities continue to tack on record highs. A huge negative miss in the ADP's private payrolls figure already seen Wednesday did little to impact market sentiment as traders bet a new Democratic-controlled government would lead to robust fiscal stimulus to support the country's economic recovery. Futures also marched higher overnight, advancing another 0.3%, after a stellar session on Thursday.

Forecasts: Consensus estimates see 75,000 jobs added last month, less than a third of November's gains, as the coronavirus spread rapidly across the U.S. A number of Wall Street firms even see negative job growth, with predictions from Goldman Sachs, JPMorgan, Credit Suisse and Barclays ranging from a loss of 25,000 to 50,000 positions.

Quote: "I think it's 50/50 whether it's going to be up 50,000 or down 50,000. We're kind of on the knife’s edge between creating additional jobs and the recovery falling back a step," added Chris Rupkey, chief financial economist at MUFG Union Bank. "Nobody is going to be rushing to hire back more people at this stage, and certainly for leisure and hospitality. There's a risk jobs fall further in next month's report because of further lockdowns."

Meanwhile, the unemployment rate is expected to increase slightly to 6.8% in December from 6.7% in the previous month, while average hourly earnings are seen falling 0.2% (from 0.3% in November). For the entire 2020, average hourly earnings are anticipated to remain stable at 4.4%.

Economy - Tariffs and taxes

The U.S. has backed off a threat to slap tariffs of 25% on French luxury goods, valued at around $1.3B annually, in response to France's digital service tax (DST) on companies like Google (GOOG, GOOGL), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB). The suspension was welcomed by U.S. importers and retailers that had criticized such punitive tariffs as a tool that aims to protect one industry at the expense of another, while hurting American consumers.

Backdrop: In August 2019, President Trump and French President Emmanuel Macron reached a deal by promising that the French government would scrap the French tax as soon as the OECD found a way to properly tax tech companies. In December 2019, the U.S. promised 100% tariffs on French wine, cheese and handbags because the previous deal wasn't good enough, while in January 2020, the two sides agreed to wait a little bit to see if the OECD framework would materialize.

What they're saying: France and other countries feel American companies are profiting enormously from local markets while making only limited contributions to public coffers. Paris has offered to withdraw the tax as soon as an OECD deal is reached, while other countries are looking at implementing their own DST. The USTR has indicated it wants to coordinate its response in similar disputes with other nations, but gave no time frame for further action.

The decision puts the responsibility of the tax disputes on the incoming Biden administration. "America is going to have to respond," declared Sen. Ron Wyden (D., Ore.), the likely next chairman of the Senate Finance Committee. "Many of these unilateral taxes have been designed to target American companies that are generating high-skill, high-wage jobs."

On The Move - Tesla drives past Facebook

The certification of President-elect Joe Biden and Democrat wins in the Georgia Senate races have combined to put more charge in battery packs of the electric vehicle rally on expectations for heightened industry support. Tesla (NASDAQ:TSLA) printed a new high of $816.99 yesterday, enough to make Elon Musk the richest person in the world, and the EV mother ship recharged overnight to hit over $850 in premarket trade.

Some stats: Musk's net worth totaled around $195B on Thursday, up from roughly $30B a year ago and topping Amazon's (NASDAQ:AMZN) Jeff Bezos by about $10B, according to the Bloomberg Billionaires Index. "How strange," the outspoken entrepreneur tweeted. "Well, back to work..." Musk's wealth is largely connected to Tesla, whose stock has skyrocketed more than 700% in the last year to become the world's most valuable carmaker. It also overtook Facebook (NASDAQ:FB) by market value on Thursday, making it the fifth-largest company in the U.S.

Tesla delivered nearly half a million vehicles globally last year and was included in the S&P 500 index in December. Investors see Elon Musk screaming future not only with Tesla, but many of his other high-profile startups like SpaceX (SPACE), The Boring Company and Neuralink.

Late to the party: Long-term bear RBC Capital Markets just upgraded its recommendation on Tesla, admitting it had misjudged the growth opportunity, positioning and valuation of the EV maker.

Aviation - Supersonic travel

Nearly a week after the FAA launched new drone rules that could help open the skies for widespread commercial deliveries, the agency has issued guidelines to facilitate the safe development of civil aircraft at speeds greater than Mach 1. New developments in engine technology, lighter-weight carbon fiber structures and precision electronics have all led to a wave of projects for newer supersonic planes.

Backdrop: While there have been many supersonic military aircraft, the only models to carry civilian passengers were the Concorde and the Russian-built Tupolev Tu-144. The Concorde went out of service in 2003, weighed down by high expenses and a fatal crash in 2000 that prompted the model to be grounded, while the Tu-144 had limited service and retired in 1999. Commercial supersonic travel was such a hot topic when it developed in the 1960s that Seattle named its NBA franchise the "SuperSonics" after Boeing's (NYSE:BA) supersonic transport project, which was later canceled.

Fast forward: The main companies currently in the race are Boom Technology and Aerion, which are going full throttle with plans to bring supersonic airplanes to the skies by the mid-2020s. Boom is working with Collins Aerospace (NYSE:RTX), Japan Airlines (OTCPK:JAPSY) and Rolls-Royce (OTCPK:RYCEY) for propulsion systems, and plans to introduce a demonstrator aircraft in October, though recent reports suggested Boeing (BA) and Spirit AeroSystems (NYSE:SPR) disbanded engineering teams designing Aerion's AS2 business jet as a way to conserve cash during the coronavirus pandemic. Developers are also working on ways to make supersonic aircraft quieter as the loud sonic boom of existing models led the FAA to prohibit commercial supersonic flight over land in 1973, severely restricting the areas in which they could fly.

Joining the future sector are SpaceX (SPACE) and Virgin Galactic (NYSE:SPCE), which are not only exploring supersonic flight, but how point-to-point travel - which includes trip to the outer edge of Earth's atmosphere - could turn long-haul flights into shorter, regional trips.

Media - Boundaries of speech

Simon & Schuster, a unit of ViacomCBS (NASDAQ:VIAC), has decided to cancel publication of Senator Josh Hawley's forthcoming book, The Tyranny of Big Tech, after "witnessing the disturbing, deadly insurrection that took place on Wednesday in Washington, D.C." The publisher said it "will always be our mission to amplify a variety of voices and viewpoints," but "at the same time we take seriously our larger public responsibility as citizens, and cannot support Senator Hawley after his role in what became a dangerous threat to our democracy and freedom."

Response from Hawley: "This could not be more Orwellian. Simon & Shuster is canceling my contract because I was representing my constituents, leading a debate on the Senate floor on voter integrity, which they have now decided to redefine as sedition. Let me be clear, this is not just a contract dispute. It's a direct assault on the First Amendment. Only approved speech can now be published. This is the Left looking to cancel everyone they don't approve of. I will fight this cancel culture with everything I have. We'll see you in court."

Backdrop: In December, Hawley became the first senator to announce he'd bring forth a challenge of Electoral College votes as part of an effort to overturn the results of the 2020 presidential election. Congress formally certified the outcome on Thursday, but the process was interrupted by a mob that stormed the U.S. Capitol in a riot that resulted in several deaths.

Yesterday, Facebook (NASDAQ:FB) blocked President Trump from accessing his accounts indefinitely, citing "risks of allowing the president to continue to use our service during this period are simply too great." First Amendment constraints don't apply to private platforms, the Supreme Court affirmed back in a case from 2019, though the recent moves are sure to make debate over the boundaries of public speech extend into 2021.

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