Today’s Big Picture
Yesterday, U.S. equity markets snapped a 5-day losing streak as investors rethought growth prospects for the remainder of the year. Equity indices in Asia closed today’s trading mixed, with Hong Kong’s Hang Seng dropping 1.2%, China’s Shanghai Composite losing 1.4%, Japan’s Nikkei adding 0.7%, and South Korea’s Kospi gaining 0.7%. By mid-day trading, the major equity indices in Europe were mostly lower as investors await U.S. inflation data, and U.S. futures are little changed from Monday’s close.
The big news of the day will likely come from Cupertino, where Apple (AAPL) is hosting its seventh virtual launch (virtual due to the pandemic), during which it is expected to announce new iPhones, Apple Watch and AirPods. Before that event that kicks off at 1 pm ET, investors will be digging into the August Consumer Price Index report that will hit the tape at 8:30 am ET, looking to see if and to what degree companies are attempting to pass on rising input and transportation costs to consumers. A hotter than expected print could lead investors to question consumer purchasing power ahead of the all-important holiday shopping season, another potential blow to an economy that is already coming up short relative to expectations.
While plans for Covid-19 booster shots have been making headlines lately, a group of leading U.S. and international scientists yesterday said in the peer-reviewed journal The Lancet that Covid-19 booster shots are not currently needed for the general public. The group of scientists included two senior Food and Drug Administration officials and the World Health Organization. If there is one thing this pandemic is not lacking, it is a plethora of divergent opinions. Shares of Pfizer (PFE), BioNTech (BNTX), and Moderna (MRNA) fell 2.2%, 6.3%, and 6.6%, respectively, on the day.
The final estimate for Industrial Production in Japan for July came in, as expected, at -1.5% MoM from 6.5% MoM in June. On a YoY basis, July Industrial Production rose 11.6%, slower than the 23% YoY gain recorded the prior month.
The Unemployment Rate in the UK dropped, as expected, to 4.6% in July from 4.7% in June, from which it was expected to improve slightly to 4.6%.
The release of the monthly Cass Freight Index report showed continuing recovery in shipping amidst ongoing supply chain logistical nightmares. On the plus side, the Shipments component rose 12.3% YoY in August and is now up 3.7% from August 2019 - healthy volume growth. On the negative side, there is a backlog of around 125 container ships anchored off North American ports, and Southern California just hit a record high of 49 ships waiting for their turn to drop off; this explains why that new couch is taking longer than the gestational period of an elephant. Shipping capacity remains constrained by a shortage in intermodal chassis thanks to a dismal level of production and a shortage of drivers. The Expenditures component rose 42% YoY after rising 43% YoY in July. Expenditures are up 35% over August 2019 levels, 90% of which is caused by higher rates (ouch) and the rest due to volume.
Restaurants such as McDonald’s (MCD) are slowing the reopening of their dining rooms as the Delta variant is driving a surge in Covid-19 infections, making consumers once again wary of dining inside. After having struggled through eighteen months of pandemic-driven disruptions, data from Black Box Intelligence revealed that restaurant sales have fallen once again over the past five weeks; talk about not being able to catch a break. This is supported by the latest JOLTs report from the Bureau of Labor Statistics, which saw a loss of 41,500 jobs in bars and restaurants in August, the largest monthly decline of any sector for the month, and the first decline for the sector since December.
Yesterday House Democrats outlined a series of proposed tax increases on corporations and the wealthy to fund their $3.5 trillion spending program. The plan includes top corporate and individual tax rates of 26.5% and 39.6% and an additional 3% “surcharge” on individual incomes over $5 million, and a capital gains tax of 25%. For those living in high individual income tax areas, such as New York City, the combined city, state, and the federal income tax rate would hit 61.2%. Those in the top bracket in California would face a combined marginal tax rate of 59.7%, New Jersey would see 57.2%, and Hawaii 57.4%. We suspect this plan isn’t going to be a slam dunk.
Later today, we will get the inflation rate for August, which is expected to slow slightly to 5.3% YoY from 5.4% in July. Core Inflation is also expected to decline modestly from 4.3% to 4.2% YoY. With inflation continuing to run hotter than the Fed’s target 2% while jobs growth is stuttering, the Fed is likely to find itself in between a rock and a hard place this fall. Today also brings the usual weekly API Crude Oil Stock report.
The U.S. equity markets were a mixed bag yesterday, with the Nasdaq Composite falling 0.1%, the S&P 500 added 0.2%, and the Dow was the big winning with a 0.8% gain, while the CBOE S&P 500 Volatility Index (VIX) fell 7.5%. Eight out of the eleven S&P sectors closed in the green with energy and reopening beneficiaries gaining traction, such as Marathon Oil (MRO), Delta Air Lines (DAL), and Carnival Corp (CCL). The MSCI World Index was little changed yesterday, as was the Bloomberg Dollar Spot Index, the euro, and the British pound. The yield on the 10-year Treasury declined two basis points to 1.32%, while Germany’s 10-year was little changed at -0.33%. The Bloomberg Commodity Spot Index reached a new 10-year high. Yesterday saw shares of Marathon Oil gain 7.2% as WTI broke above $70 a barrel. Occidental Petroleum (OXY) enjoyed similar moves, adding 6.7%.
The price of Litecoin spiked early in trading yesterday on the false news via GlobeNewswire at 9:30 am ET of a partnership with retail giant Walmart (WMT). The cryptocurrency gained as much as 30% on the rumor but then quickly retreated after Walmart confirmed that the press release was not authentic. The creator of Litecoin, Charlie Lee, said the false press release was not connected to the cryptocurrency nor the Litecoin Foundation, which is a nonprofit that manages it as a software project. GlobeNewswire issued a written statement that the release should be disregarded and stated that it would work with authorities to facilitate an investigation into how the incident occurred.
Stocks to Watch
Earnings Announcements & Guidance
- Oracle (ORCL)reported August quarter results that topped bottom-line expectations but included in-line revenue for the quarter, with Fusion ERP cloud revenue up 32% and Netsuite ERP cloud revenue up 28%. The company’s two new cloud businesses - IaaS and SaaS cloud - totaled $2.5 billion or 25% of revenue for the quarter. For its fiscal 2022, Oracle sees revenue growth in the mid-single-digits in constant currency and accelerating.
- Before U.S. equity markets open this morning, FuelCell Energy (FCEL) is expected to report an EPS loss of $0.05. Core & Main (CNM), a distributor of water, sewer, storm drain, and fire protection products in the U.S., is also expected to report with consensus EPS at $0.27
- After the close brings earnings reports from Skillsoft (SKIL), a leader in corporate digital learning, with consensus looking for an EPS loss of $0.09. The company delivers its offerings through Percipio, its AI-driven, immersive learning platform.
- Shares of Herbalife Nutrition (HLF) came under pressure last night after the company cut its guidance for both the current quarter and 2021, citing lower than expected levels of activity among its independent distributors.
- Clorox (CLX) shared it continues to see strong demand for its disinfecting products amid lingering consumer concerns about COVID-19. The company also said it has raised prices on about 50% of its portfolio and is taking other mitigation steps to absorb higher input costs.
- At its annual analyst day yesterday, Palo Alto Networks (PANW) said it expects its annual revenue to climb by more than 50% in two years due to ongoing demand among businesses for more security services in their cloud-based computing systems. For its 2024 fiscal year, it expects revenue to reach $8 billion and total billings for that year to hit $10 billion.
Mergers & Acquisitions
- Fox Corp (FOXA) announced that it had acquired the celebrity news-ish platform TMZ from AT&T's (T) WarnerMedia unit. Terms of the deal were not released, but according to people familiar with the matter, TMZ is being valued at less than $50 million.
- Intuit (INTU) has agreed to buy email-marketing giant Mailchimp for around $12 billion in a cash-and-stock deal. This will be Intuit’s largest deal ever. Mailchimp, which was founded in 2001, is currently owned by founders Ben Chestnut and Dan Kurzius and has not taken any outside funding. The company has ~13 million total users globally, 2.4 million monthly active users, and 800,000 paid customers and also brings in data and technology in the form of 70 billion contacts and over 250 tech partner integrations to Intuit.
- ViacomCBS (VIAC) has announced a new management team and operating structure for its Paramount Pictures movies and television production unit that is intended to leave it better designed for the era of streaming content. Amongst the changes expected will be a greater push for exclusive content creation for the Paramount+ streaming service and other ViacomCBS networks and platforms.
- Live Nation Entertainment Inc (LYV) has agreed to acquire Mexican concert promoter OCESA Entretenimiento for around $450 million. If the deal is completed, it would give Live Nation a 51% stake and controlling interesting in one of its largest competitors, which dominates the Latin American market. The deal is expected to close by late this year or early next and is subject to regulatory approval, which was previously granted during the prior negotiations back in 2019 that fell apart as the pandemic obliterated live touring.
- Forge Global, an online marketplace for buying and selling shares of private companies, intends to go public through a merger with the SPAC Motive Capital Corp (MOTV). The deal would value the resulting company at $2 billion and, if completed, would make Forge the first publicly traded dedicated platform for trading shares in private companies. Forge has handled over $10 billion in trades for more than 400 companies since its founding in 2014. Shares of companies such as Lyft (LYFT) and Robinhood Markets (HOOD) have traded on the platform before they went public.
- Akerna Corp (KERN) shares rose more than 22% yesterday in extended trading after the company announced it had agreed to purchase 365 Cannabis, a cannabis business management system built on Microsoft’s (MSFT) Dynamics 365 Business Central, in a $17 million deal. The company will discuss details on a conference call today at 8 am ET.
- Airbnb (ABNB) took a hit after Goldman Sachs (GS) initiated coverage with a sell rating, with shares down 3%. Twitter (TWTR) shares also took a similar hit, falling 3.1%, courtesy of the same move by Goldman. Dell (DELL), on the other hand, rose 3.8% after Goldman added the company to its conviction buy list.
Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.
On the Horizon
- September 15: Export & Import Prices, NY Empire State Manufacturing Index, Industrial Production, EIA Crude & Gasoline Stocks
- September 16: Retail Sales, Weekly Jobless Claims, Philadelphia Fed Manufacturing Index, Business Inventories, Net Capital Flows, Foreign Bond Investment
- September 17: University of Michigan Consumer Sentiment Report and Quadruple witching day for US markets
- September 20: NAHB Housing Market Index
- September 21: Housing Starts, Building Permits, weekly API Crude Oil stocks
- September 22: Existing Home Sales, Federal Reserve Rate Decision
- September 23: Chicago Fed National Activity Index, Weekly Jobless Claims, Markit Manufacturing PMI, Markit Service PMI
- September 24: New Home Sales
Thought for the Day
“Love of beauty is taste. The creation of beauty is art.” ~ Ralph Waldo Emerson
- Palo Alto Networks (PAWN) is a constituent of the Foxberry Tematica Research Cybersecurity & Data Privacy Index
- FuelCell Energy (FCEL) and Herbalife Nutrition (HLF) are constituents of the Tematica BITA Cleaner Living Index
- FuelCell Energy (FCEL) and Herbalife Nutrition (HLF) are constituents of Tematica BITA Cleaner Living Sustainability Screened Index
- AT&T (T), Intuit (INTU), McDonald's (MCD), Microsoft (MSFT), and Walmart (WMT) are constituents of the Tematica Research Dividend All-Stars Index
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.