Wall Street Breakfast

Author: bmotrader   |   Latest post: Thu, 25 Feb 2021, 9:31 AM


Wall Street Breakfast: Going Big On Stimulus

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The Biden administration is moving full speed ahead on a $1.9T coronavirus economic relief plan after House Democrats adopted a budget resolution that would enable a bill to pass with a simple majority (VP Kamala Harris would cast a tie-breaking vote). Despite a public debt load of $27T, the consensus stance from the Democratic camp is not making the case for fiscal restraint at this stage in the recovery. Stocks have been buoyed by the stimulus efforts in recent days, with the major averages set to open in the green for the fourth straight session.

New thinking in economics? The idea here is that with interest rates at essentially zero, any growth seen from the measures will pay back the borrowing, while it would cost the economy more if the government does not go through with the spending. Economic policymakers from Treasury Secretary Janet Yellen to Fed Chair Jay Powell have also urged the administration to "act big," believing in the long run that the "benefits will far outweigh the costs." Republicans meanwhile want something more targeted and are seeking to ensure the funding from Congress' most recent stimulus package is fully spent first. Their bill also doesn't include state and local aid, paid sick leave, a $15 minimum wage and expansion to the child tax credit.

Flashback: Biden likely remembers President Obama's first term in office, when he spent much time trying to secure GOP support for additional stimulus measures during the global financial crisis. Obama pushed for a $1T stimulus package, or roughly 25% bigger than the record-setting legislation that ultimately got through Congress, though this time around, the Republican proposal is less than a third of Biden's planned $1.9T proposal.

While President Biden has signaled some areas of compromise, and met with GOP senators over a smaller $600B offer, he won't ditch an overall package for the sake of bipartisanship. "Time is a luxury our country does not have," Senate Majority Leader Chuck Schumer said before moving forward with the budget process. Some concessions may be seen with stimulus checks, and Biden has indicated the direct payments could be sent to a smaller group of Americans. Previous checks were given to citizens making under $75,000 per year, but that is now likely to be reduced to $50,000, which would cut the total price tag of the COVID aid bill.

Covid - Vaccine cocktail

Given the scarce supplies across the world, a new vaccine trial being launched in the U.K. will explore whether using different coronavirus jabs works for first and second doses. The trial, led by the University of Oxford and run by the National Immunisation Schedule Evaluation Consortium, will last for 13 months and recruit 820 participants over the age of 50. It's being backed by £7M of government funding from the Vaccine Taskforce, which was set up by the U.K. last April to research and produce a coronavirus vaccine.

Quote: "If we do show that these vaccines can be used interchangeably in the same schedule this will greatly increase the flexibility of vaccine delivery, and could provide clues as to how to increase the breadth of protection against new virus strains," said Matthew Snape, chief investigator on the trial and associate professor in Paediatrics and Vaccinology at the University of Oxford.

The trial will specifically examine the immune responses of an initial dose of Pfizer's (NYSE:PFE) vaccine followed by a booster of AstraZeneca's (NASDAQ:AZN) - and vice versa - with intervals of 4 and 12 weeks. Researchers will measure antibody and T-cell responses, as well as monitor for any unexpected side effects.

Go deeper: The biggest advantages of the AstraZeneca/Oxford shot are price and storage. It does not need to be kept at ultra-low temperatures and costs about $4 a dose, compared to the $20 per vial from Pfizer and $33 for Moderna's (MRNA) jab. A vaccine milestone was also seen yesterday as the number of global inoculations surpassed the total number of confirmed cases of COVID-19.

Automotive - EVs and chip shortages

There's a lot of rumblings in the auto sector, especially surrounding EVs and a chip shortage that's hitting the industry. Strong demand across the U.S. and China continue to be received favorably by investors, triggering a broad rally yesterday across the EV landscape. According to data from Edmunds, EV sales in in the U.S. climbed 4% Y/Y in 2020, outperforming the auto market (down 15% Y/Y), mostly from the introduction of the Model Y. Tesla (NASDAQ:TSLA) also extended its sector domination with 79% of all BEV (battery electric vehicle) sales. Other happenings:

Apple Car - Reports suggest the company is close to finalizing a deal with Hyundai-Kia to manufacture an Apple-branded autonomous electric vehicle at the Kia assembly plant in West Point, Georgia. The vehicle would go into production in 2024 and would be designed to operate without a driver and focused on the last mile (delivery, robotaxis?). "Smartphones are a $500B annual TAM (total addressable market). Apple has about one-third of this market. The mobility market is $10T. So Apple would only need a 2% share of this market to be the size of their iPhone business," wrote Morgan Stanley analyst Katy Huberty.

Rivian - A year and a half after announcing it would buy 100K Rivian electric trucks to reduce its carbon footprint, Amazon (NASDAQ:AMZN) has begun using prototype vehicles for deliveries in Los Angeles. The e-commerce giant plans to expand its testing to 15 more cities this year as part of a broad goal to be net zero carbon emissions across its operations by 2040. Rivian is meanwhile looking to start production by the end of this year and shake up the market in 2022 and beyond.

Chip crunch - Ford (NYSE:F), Toyota (NYSE:TM) and Stellantis (NYSE:STLA) have already idled some plants due to a shortage of semiconductors, and General Motors (NYSE:GM) is joining them in taking production offline for a week. The downtime was scheduled at four assembly plants, including three in North America, though GM hasn't revealed how much volume it expects to lose or which supplier was directly affected. "Despite our mitigation efforts, the semiconductor shortage will impact GM production in 2021," spokesman David Barnas said in a statement.

Tech - Tensions Down Under

Australia's Prime Minister Scott Morrison has finally spoken with Alphabet (GOOG, GOOGL) CEO Sundar Pichai amid friction over the country's media bill that was introduced in December. The legislation would force digital platform companies to pay for news content in feeds or search results, meaning Google would have to shell out cash to local media outlets and publishers for linking to their content. In response, Google has threatened to shut its search engine in Australia and has been lobbying strongly against the proposal.

Transcript from the call: "I thought it was a constructive meeting," said Morrison. "I have been able to send them the best possible signals that should give them a great encouragement to engage with the process and we discussed some of the specifics of elements of the code. But at the end of the day, they understand that Australia sets the rules for how these things operate. And I was very clear about how I saw this playing out."

If the law were to pass, Facebook (NASDAQ:FB) has also threatened to stop allowing Australians to share local and international news on the social network and Instagram. "The proposed law is unprecedented in its reach... and would force Facebook to pay news organizations for content that the publishers voluntarily place on our platforms and at a price that ignores the financial value we bring publishers," the company last said in a blog post.

Go deeper: Standing to gain from the fallout, Microsoft (NASDAQ:MSFT) has slammed Google for threatening to leave the country and offered to fill the gap left by the exit with its own search engine - Bing. "We believe that the current legislative proposal represents a fundamental step towards a more level playing field and a fairer digital ecosystem for consumers, business, and society," Microsoft President Brad Smith declared. To put it in perspective, Google has more than 94% of the search market in Australia, while Bing has less than 4%.


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