TechCrunch : Hyperloop’s loss is high-speed rail’s gain

Hyperloop’s loss is high-speed rail’s gain

In 2013, Elon Musk published a white paper that teased the idea of zipping from Los Angeles to San Francisco in just 35 minutes through a vacuum-sealed tube — a system he called hyperloop. The idea “originated out of his hatred for California’s proposed high-speed rail system,” according to his biographer Ashlee Vance.

Ten years later, the most high-profile startup that tried to follow in Musk’s footsteps — Hyperloop One — is closing its doors. And the news of its demise broke less than two weeks after the Biden administration announced $6 billion in funding for high-speed rail projects across California.

It’s a big win for public transit advocates, many of whom have spent decades stumping for not just high-speed rail, but better rail service overall. (Biden’s announcement also included funding for a slew of other rail projects around the country.) But it’s not a clean victory by any means.

For one thing, many cities and states were lulled by the hyperloop siren song and were subsequently left adrift. I still vividly remember reporting out a story in 2018 about the collapse of Arrivo (another hyperloop startup created by one of Hyperloop One’s co-founders) and calling Colorado’s Department of Transportation to ask about the company going under, only to realize on the call they had no idea it had happened.

Colorado was not alone. Hyperloop One once promised West Virginia that it would build a $500 million test and certification facility in the state. It also built a test track near Las Vegas where it did, briefly, move some people through a tube — enough of an accomplishment, apparently, for then-CEO Jay Walder to claim it was the “first new form of mass transportation in over 100 years.”

Other hyperloop projects and companies remain, though largely outside of the United States. Thankfully this country was already building momentum back up for investing in its rail system, with a focus on faster trains.

The most high-profile effort is Brightline, a company that recently extended its existing service in Florida all the way to Orlando, allowing passengers to travel there from as far as Miami.

Brightline is also building what it calls “the nation’s first true high-speed rail network” between Los Angeles and Las Vegas. That project received $3 billion of the funding recently announced by the Biden administration, and is expected to break ground in early 2024.

Building high-speed rail will take more than just money. There are deeply rooted problems standing in the way stemming from years of deregulation. Projects of this size also struggle to stay on time and on budget. The other big recipient of the newly announced federal funding — another $3 billion — is a high-speed rail project slated to run the spine of California that was the original source of Musk’s ire.

Could high-speed rail’s revival run the risk of a rematch with the world’s richest man? Perhaps, though train fans can take solace in how distracted Musk has become since that 2013 white paper.

Besides, outside of a handful of engineering contests held by SpaceX, Musk only ever entertained his own hyperloop projects at a superficial level.

Musk once tweeted that he had “verbal govt approval” to build “an underground NY-Phil-Balt-DC Hyperloop.” It was never built. In April 2022 he claimed his tunneling effort The Boring Company would “attempt to build a working hyperloop.” The following day the company tweeted “Hyperloop testing at full-scale begins later this year.” That also never happened.

Musk spent the last decade barely engaging with the hyperloop, essentially outsourcing his attempt to kill high-speed rail. With Hyperloop One’s death casting a pall on that premise, it looks increasingly like the billionaire has a decision to make: Does he care enough to find the time to finish the job himself?

FT : The easy dream of someone else’s dollars

The easy dream of someone else’s dollars
There is no simple solution to monetary governance

In April of 1835, Edmund J Forstall in New Orleans wrote a letter to Thomas Baring in London. Over a long career, Forstall had a finger everywhere in commercial Louisiana — importer, banker, legislator and sugar planter with enslaved labour. For Baring, he was a correspondent, advising on opportunities in New Orleans.

The city was approaching what would turn out to be the top of a cycle of explosive export-driven growth, where flatboats carrying wheat and hogs for Havana and the Caribbean met steamboats packed with cotton for Liverpool and sugar for Philadelphia.

In his letter, Forstall pitched the bonds of the Citizens’ Bank, “bound upon the best property of the country”, he wrote, which “must ultimately succeed”. He made an argument for the bank — and for Louisiana — familiar to anyone urging the dollarisation of economies today. The banks of New Orleans had good loans, and the city’s exports guaranteed plentiful reserves of silver Mexican dollars, the hard global currency of the day. But they came to grief anyway after the Panic of 1837 — of 16 banks in the city before the panic, there were six left by 1843.

The Citizens’ Bank landed in receivership. Its bonds, guaranteed by the State of Louisiana and backed by mortgages on sugar plantations that included lists of the enslaved as assets, remained subject to negotiations with Dutch investors into the early 20th century.

When you are a taker of someone else’s dollars, all the macroadvantages of an exporter don’t matter if local banks and local governments scratch each others’ backs. Like the rest of America, money in New Orleans rested on a hard foreign currency standard. But that did not fix Louisiana’s governance problem. Powerful legislators in the state were too dependent on the state’s private banks to be able to regulate the bank dollars of the country’s then most important port.

Economic historians often say that the US in the early 19th century was on a bimetallic standard — the dollar was defined as a specific weight and fineness of both silver and gold. This is true, legally. Practically, however, the US was on a single, foreign standard, over which it had no control. Until just before the Civil War, when Americans referred to a “dollar”, what they meant was a Spanish milled dollar or, after independence, a Mexican dollar — a large silver coin that had become a global standard for long-distance trade. 

America was a taker of foreign dollars. In theory, this shouldn’t have posed a problem. Countries bring in specie — money in the form of coins — in proportion to the goods they can sell on global markets. In New Orleans in particular, the produce coming down the Mississippi created a trade surplus that guaranteed a better supply of silver dollars than any other American port.

In his letter, Forstall explained that the city’s banks all carried at least a third of the value of their notes and deposits in precious metals. “Indeed,” he wrote, “no part of the commercial world can boast of a sounder paper currency than the city, for it is wholly based upon specie.”

We are familiar with the problems an external supply of dollars poses for an emerging market — such as Argentina today or the US in the early 19th century. When they flow in, as they did in the early 1830s, credit expands. If there’s ever an interruption in credit, as there was when cotton prices collapsed in 1836-37, merchants and planters will start to fail, creating a temptation to make bad loans in bad times. Forstall was right — at first. The Citizens’ Bank was well prepared for the panic, but then succumbed to a self-reinforcing cycle of corruption.

As the historian Sharon Murphy has pointed out in her book Banking on Slavery, Citizen’s wouldn’t always foreclose on its powerful sugar planters, sparing them (and the enslaved on their land) the liquidations that could have cleared its balance sheet. It also continued to make new mortgage loans to get planters through several years of low sugar prices. And as loan quality deteriorated, it remained in the interests of the planters, the state, the investors in Europe to keep the bank open, hoping it might work out.

Nothing about the restraint of silver dollars from Mexico spared the city of New Orleans or the State of Louisiana from the pain of bank failures. No matter how many hard silver dollars came in through trade, the city still had to create a supply of its own domestic bank dollars. And the reliability of these dollars improved only slowly, through painful governance reforms — after 1837, for example, regular disclosures to a board of examiners and a legal mandate that banks had to keep a reserve of silver or gold equal to a third of their deposits and circulating banknotes.

It is tempting still today to think of someone else’s dollars as a corset, a way to force yourself to suffer discomfort. But you fix a governance problem by fixing the governance problem. The arbitrary restraint of someone else’s dollars can’t do it for you.

FT : Falling US inflation boosts stocks and hopes of soft landing for the econom

Falling US inflation boosts stocks and hopes of soft landing for the economy
S&P 500 inches towards record as Joe Biden hails ‘milestone’ in fight to quell price pressures

US inflation cooled again in November, providing more hope that the Federal Reserve has engineered a soft landing for the world’s biggest economy and sending stocks closer to a new record high.

The S&P 500 rose by 0.2 per cent after federal data showed that prices increased more slowly than expected in November, putting Wall Street’s benchmark share gauge within 1 per cent of the all-time closing high it reached in January 2022.

The index has notched up eight straight weeks of gains — a record last achieved in 2017 — and is heading for its third-best year in the past decade after a volatile 12 months.

“There is mounting evidence that the post-pandemic inflation scare is over and we expect interest rates to be cut significantly next year,” said Andrew Hunter, economist at research firm Capital Economics.

President Joe Biden hailed Friday’s report from the Bureau of Economic Analysis as a “significant milestone” in efforts to return inflation back to its pre-pandemic levels.

“As we head into the holidays, prices are down from a year ago on important items including a gallon of gas, a gallon of milk, toys, appliances, electronics, car rentals and airline fares,” Biden said.

The BEA release showed that November’s core PCE inflation reading — economists’ preferred measure because it strips out volatile energy and food prices — rose by just 0.1 per cent month on month, lower than expected.

The figure takes the six-month annualised rate down to 1.9 per cent, just below the Fed’s official 2 per cent inflation target.

The latest fall in so-called core inflation comes just over a week after the central bank surprised markets by signalling that it would begin cutting interest rates next year after a much rosier than expected 2023.

“Once the Fed pivoted, that really put investors into a positive frame of mind,” said Tim Murray, capital markets strategist at T Rowe Price. “We got a rally as a result and its hard to argue with that.”

Futures markets are now pricing in bets that the Fed will cut interest rates as many as six times in 2024, bringing its target rate down from the current 22-year high of 5.25 per cent to 5.5 per cent.

The buoyant mood on Wall Street, coupled with the US’s low unemployment rate, has led analysts to predict that the economy is now set for a soft landing after soaring inflation forced the Fed to raise rates to levels economists expected would trigger a recession.

The most recent gross domestic product data showed that the US economy expanded by an annualised rate of 4.9 per cent in the third quarter, with rate-setters and economists now expecting growth to slow only modestly in 2024.

The figures mean the US has been the strongest performing large economy in the world, recording faster growth and sharper declines in price pressures than most European nations. The Fed is widely expected to cut rates before either the European Central Bank or the Bank of England.

In a boost for Biden’s election prospects, Americans are turning less gloomy about the economy just as the 2024 presidential race gets under way.

Consumer sentiment soared by 14 per cent in the past month, according to a closely watched poll from Michigan university, pointing to growing confidence among the public that the worst bout of inflation for a generation is behind them.

Fifty-five per cent of respondents now expect their incomes to rise at least as fast as prices over the coming year, up from 49 per cent in October.

“Sentiment rose across the population, with increases among consumers of all ages, incomes, education levels, political affiliations and regions of the country,” Michigan’s report said.

Some of the improvement in headline inflation stems from a sharp fall in US petrol costs in recent months, which has pushed average prices to their lowest since the summer of 2021.

While the numbers cheered Wall Street, economists at Citi cautioned against an overly optimistic interpretation of the data, saying prices were still rising too quickly in the services sector.

“Core inflation is weaker because of a major disinflation in goods. That may keep core readings softer in coming months but is not a sustainable way to return inflation to target,” said Andrew Hollenhorst, an economist at the bank.

He also warned of risks that could ruin the outlook, such as disruption to global trade through the Red Sea — where Houthi rebels have launched missiles and drones at commercial vessels.

Fed rate-setters expect to make three rate cuts next year — a sharp reversal for central bank officials who spent months insisting they would not begin loosening monetary policy until they were certain that inflation had been vanquished.

Barrons : UBS Can Be Morgan Stanley, Says Activist

UBS Can Be Morgan Stanley, Says Activist

An activist investor has bold ambitions for UBS, arguing that the Swiss bank could soon resemble Wall Street titan Morgan Stanley.

On Tuesday, Cevian Capital said it paid $1.3 billion for a 1.3% stake in UBS. The move comes after UBS was forced to acquire rival Credit Suisse in the wake of banking turmoil last spring. UBS stock has surged more than 60% this year, with essentially all of that gain after the acquisition closed in June. Cevian sees more upside.

“Strengthened by the acquisition, UBS is the largest global wealth manager with unique market positions and financial strength,” Cevian co-founder Lars Förberg said on Tuesday. “If the valuation gap to Morgan Stanley at two times price to tangible book is closed, the UBS share is worth CHF50 ($58.10).” UBS stock, now at about $31, trades at 1.2 times tangible book value.

UBS declined to comment on Cevian’s stake. The stock rose 5% on Tuesday on the news.

It is easy to see why Morgan Stanley would be a model for UBS. Morgan Stanley struggled through the 2008-09 financial crisis, but it smartly pivoted afterward to focus on wealth management rather than on trading and investment banking.

As of the third quarter, UBS derived 56% of its revenue from wealth and asset management, compared with 52% at Morgan Stanley. But UBS has a valuation more in line with European peers than U.S. banks, despite its hefty footprint in the U.S.

While UBS has the pieces in play to be considered a rival to Morgan Stanley, putting them together will be slow and complicated. Cevian may have to wait.

Barrons : Emerging Market Bonds Are Rallying. Where to Invest.

Emerging Market Bonds Are Rallying. Where to Invest.

Bond markets everywhere are hot, anticipating interest rate cuts from the Federal Reserve and other central banks. Emerging market bonds are on fire.

The iShares J.P. Morgan USD Emerging Markets Bond exchange-traded fund has climbed 11% over the past two months. Spreads, the average premium in emerging market yields compared with U.S. Treasuries, have compressed by 150 basis points, says Samy Muaddi, portfolio manager for emerging market bonds at T. Rowe Price.

Investors can still profit going forward, if they look past the low-hanging fruit of dollar bonds from investment-grade sovereign borrowers. “Hard currency is looking picked over except for some distressed names,” Muaddi says.

He is focusing instead on local-currency bonds, particularly from the Latin American giants Brazil and Mexico. Both enacted epic rate increases to fight inflation—Brazil hiking from 2% to 11.25%, Mexico from 4% to 11.25%. With inflation in retreat, central banks can loosen again, music to bondholders’ ears.

Muaddi sees another lucrative story in Indonesia, which raised rates from 3.5% to 6%, and has wrestled inflation below 3%.

These markets have already rallied. Investors are pricing in 280 basis points of easing by Brazil, 180 basis points for Mexico, says Edward Al-Hussainy, senior currency analyst at Columbia Threadneedle Investments.

He is a buyer anyway. “My bet is there’s more room for these guys to cut,” he says. “Local currency bonds look much more attractive going into next year.”

Alejandro Arevalo, head of emerging markets debt at Jupiter Asset Management, sees opportunity in emerging market corporates, which actually have twice as much hard-currency debt outstanding as governments, around $3 trillion. The biggest issuers are quasi-sovereign oil or natural resource companies, which can keep pumping profits, and paying off bonds, even if their host country wobbles.

Examples include YPF of Argentina, whose paper yields close to 12% annually, and Colombia’s Ecopetrol, which is paying 7.3%. “You can find good corporate stories even where you don’t like the macro,” Arevalo says.

Then there are those distressed hard-currency sovereign credits. Presidential elections this year brought rays of hope to at least three perennial hard credit cases, Nigeria, Ecuador, and Argentina, says Sergey Goncharov, head of fixed income Americas at Vontobel Asset Management. Bonds from all of them yield well into double digits, so any positive shift in sentiment could prove highly profitable.

He is particularly focused on Nigeria, where President Bola Tinubu has slashed budget-crippling fuel subsidies and axed distorting dual exchange rates since taking office in May. “You’ve got an agile reformist president and an oil story,” Goncharov says.

T. Rowe’s Muaddi adds three other high-yielding African countries to his watch list: Angola, Kenya, and Egypt. Turkey’s dollar debt has moved out of distressed territory since a new central banker started pushing interest rates to 40% to quell inflation. Yields are near 7%, compared with 11% a year ago, Al-Hussainy reports.

Emerging market debt will always be heavily affected by circumstances beyond its control, specifically those made in Washington. “Central bankers have to perform a two-step dance,” Al-Hussainy says. “If they get too far ahead of the Fed on rate-cutting, their currencies will suffer.”

For now, tailwinds look stronger than headwinds. Lower global rates should spur a spate of new issuance in 2024, which could start to lure back capital that has been fleeing emerging market bonds since the pandemic. “This is an under-owned asset class that is still attractive,” Al-Hussainy says.

>>> Weekly Market Update

Weekly Market Update: Holiday spirits remain high on Wall Street, bolstered by constructive data


Investors remained cheery heading into the Christmas holiday. M&A announcements continued to bubble up providing more hope that the deal environment will be substantially improved in 2024. The BOJ offered nothing new on plans to exit NIRP, removing a potential overhang for now. Corporate commentary from the likes of FedEx, Nike and General Mills did offer some caution by illustrating the challenges companies face as macro headwinds have begun to crimp demand while their ability to take additional pricing wanes. Also various central bank officials tried to temper 2024 rate cut expectations with some Fed officials opining the market had gotten over its skis. Nevertheless, Treasury yields stayed under wraps and the underlying bid in equities and risk assets remained in place, largely on the belief interest are coming down in 2024. 

A range of economic readings continued show sustained signs that growth is slowing. UK CPI and German Dec IFO weakness pulled forward expectations for rate cuts there. US Final Q3 GDP was revised lower than expected, Philly Fed revealed a sharp contraction in new orders. Nov US PCE ran cooler than even expected, with core m/m just missing rounding down to zero while headline m/m printed negative for the first time since July 2022. In general, the readings clearly remained supportive to the case for central bank rate normalization, underscoring the belief the Fed is likely to start cutting rates in the first half of 2024. Volumes predictably dried up and trading was choppy into the holiday weekend. Oil prices drifted up on worries surrounding transit in Red Sea. The S&P gained 0.8%, chalking up its eighth straight week of gains and its longest winning streak since 2017, while the DJIA rose 0.2%, and the Nasdaq gained 1.2%. 

Corporate news this week remained decidedly mixed, with definite winners and losers among the earnings reporters. Carnival proved to be a winner, beating quarterly estimates and touting strong bookings over the holiday season. Micron’s Q1 results dazzled investors, sending shares to a 52-week high as the company promised better pricing power for the fiscal year. FedEx missed quarterly expectations and cut guidance as it noted soft US market conditions and peak holiday volumes flat versus last year. Nike shares got kicked to the curb based on its cautious outlook for the second half of the fiscal year as the shoe-dogs observed more cautious consumer behavior developing globally. China regulators announced a fresh crackdown on the online gaming industry, setting time limits and other restrictions to ease video game addiction, and sending gaming stocks like Netease into a tailspin on Friday. 

In M&A news this week, US Steel finally reached a deal, but not with the expected suitor, as Nippon Steel scooped up the US producer for a lofty enterprise value of $14.9B. Elsewhere, the FTC brought an end to Ilumina’s deal for Grail, sending a chill through investment bankers as they attempt to arrange other large deals. Similarly, Adobe broke off its $20B deal with Figma, citing regulatory hurdles, forcing it to pay a $1B breakup fee. 


WEEKEND
ILMN FTC orders Co. to unwind Grail acquisition on antitrust grounds - US press
(CN) Ex-PBOC adviser Yu Yongding reiterates call that China needs to cut US Treasury bond holdings, notes low interest rates and potential risks over US' growing net debt overseas - The Standard 

MON 12/18
(PH) Philippines and Japan start talks on a reciprocal access agreement that would allow the deployment of military forces on each other’s soil
OPENAI.IPO Said to have suspended ByteDance's account it used GPT to train its own AI model; Most of ByteDance’s GPT usage done through Microsoft’s Azure platform - The Verge 
All contracts of Containerized Freight Index Futures hit 10% limit-ups overnight following COSCO Shipping and Evergreen Marine Corp suspended cargo loading in Bab-el-Mandeb Strait and will avoid Suez Canal after recent Yemen attacks
(UK) Reportedly 'strong signal' that UK’ govt is considering social media restrictions for under-16 children - Sky News
(DE) GERMANY DEC IFO BUSINESS CLIMATE SURVEY: 86.4 V 87.7E
JETS According to Tier1 analysts, airlines' system net sales accelerate for the fourth consecutive week during the week ending Dec 10th
X Confirms to be acquired by Nippon Steel for $55.00/shr in an all-cash transaction with EV of ~$14.9B
(US) Fed's Mester (voter in 2024): Markets are 'a little bit ahead' of Fed on rate cuts; Next phase is not when to reduce rates, even thought that is where the markets are at - FT
(US) BoFA analysts now expect the Fed to make 25bps rate cuts in Mar, June, Sept and Dec 2024
ADBE *ADOBE AND FIGMA MUTUALLY AGREE TO TERMINATE $20B CASH-STOCK MERGER AGREEMENT CITING NO CLEAR PATH FOR REGULATORY APPROVALS
(US) DEC NAHB HOUSING MARKET INDEX: 37 V 37E
AAPL Follow Up: Said to plan 'rescue' for its Apple Watch business in US; said to be submitting software workaround to customs agency - US financial press
TSLA Co is planning a 10% or higher pay rate increase for some workers at Nevada battery Gigafactory - US financial press
(US) Pentagon confirmed Prosperity Guardian international mission to counter attacks on commercial vessels in Red Sea; US Central Command confirmed that Yemen's Houthis carried out two attacks on commercial shipping in southern Red Sea on Dec 19 - X post

TUES 12/19
(EU) EU reportedly confirms to extend tariff suspension on US steel and aluminum for 15 months until end of Mar 2025 - press
(JP) BOJ Gov Ueda: Little chance for us to say that we will change policy in Jan 2024; Chances are also low that we will flag rate hike at Jan's meeting; Decision will depend on information by then - post rate decision press conference
(HU) HUNGARY CENTRAL BANK (MNB) CUTS BASE RATE BY 75BPS TO 10.75%; AS EXPECTED
Redfin: Redfin Home Price Index showed that U.S. home-price growth slowed for the third straight month in Nov; New listings climbed 1.3% m/m to the highest level in over a year
(US) NOV HOUSING STARTS: 1.560M V 1.360ME (above all analysts' estimates and six-month high); BUILDING PERMITS: 1.460M V 1.465ME
(CA) CANADA NOV CPI M/M: +0.1% V -0.1%E; Y/Y: 3.1% V 2.9%E
BAC CEO: Consumers remain in good shape, but the overall activity is slowing down; Spending still running +4-5% y/y in Dec, but that's about half the rate it was growing at last year at this time - media interview
(US) Mid Dec Manheim wholesale used vehicle Index at 205.5, +0.3% m/m, -6.3% y/y
(MX) Mexico Pres Lopez Obrador (AMLO): Efforts are underway to challenge to new Texas migration law
(US) Atlanta Fed GDPNow: raises Q4 GDP from 2.6% to 2.7%
MAERSKB.DK CEO: US led Red Sea task force will take a few weeks to get going - CNBC
FDX Notes peak holiday season volume is similar to last year; US market conditions remained soft, with Q2 demand lower than we anticipated; Retains majority of business won from UPS - earnings call comments
(US) Trump to be disqualified from 2024 Republican ballot in Colorado state by vote of 4-3, according to Colorado Supreme court [first court to disqualify Trump from the ballot; the decision is NOT obligatory for other states and does NOT refer to US general election] - CNBC
(CN) CHINA PBOC MONTHLY LOAN PRIME RATE (LPR) SETTING: LEAVES BOTH 1-YEAR AND 5-YEAR RATES UNCHANGED; AS EXPECTED
(MY) Malaysia (~63% Muslim population) to block Israel-based shipping Co. Zim from anchoring; PM says Malaysia will not accept ships bearing Israel flags to dock - financial press

WED 12/20
(UK) NOV CPI M/M: -0.2% V 0.1%E; Y/Y: 3.9% V 4.3%E (lowest annual pace since Sept 2021, below all analysts' estimates)
Containerized Freight Index Futures hit 10% limit-ups overnight for 3rd consecutive session and closed at the highest levels since debut in Aug
(DE) German 10-year Bund yield below the 2% level for the 1st time since March
(TW) Taiwan Nov Export Orders Y/Y: 1.0% v 5.2%e (1st increase in 15 months); Sees Dec orders -8.0% to -4.2% y/y implying slowest annual growth in 14 years
GIS Expect some of the recent headwinds, such as our competitors’ improved on-shelf availability, to lessen as we exit Q3; Expect contributions from organic price/mix to decelerate but remain positive in FY24 - prepared remarks
SONY Exec: Seeing strong momentum in Nov-Dec for PlayStation 5 console, lifetime sales exceeding 50M units
(RU) US coalition announces revisions to Russia oil price cap compliance regime; To tighten enforcement of Russia oil price cap
(US) NOV EXISTING HOME SALES: 3.82M V 3.78ME
(US) DEC CONSUMER CONFIDENCE: 110.7 V 104.5E
(US) DOE CRUDE: +2.9M V -2.5ME; GASOLINE: +2.7M V +1ME; DISTILLATE: +1.5M V +1ME
(EU) European Finance Ministers (EcoFin) said to have reached an agreement on reform of EU fiscal, debt rules - press
(US) TREASURY $13B 20-YEAR BOND REOPENING DRAWS 4.213% v 5.245% prior, BID-TO-COVER 2.55 v 2.59 PRIOR AND 2.70 OVER LAST 8 REOPENINGS
(US) FAA issues bulletin: Suspect UK supplier handled aircraft parts from additional makers; probe may widen
WBD Reportedly in talks to merge with Paramount - press
MU Reports Q1 -$0.95 v -$0.99e, Rev $4.73B v $4.66Be; Guides Q2 above consensus
MU We have driven a strong inflection in industry pricing this calendar quarter, which will allow us to benefit from higher prices earlier in our fiscal year compared to prior plans - prepared remarks
MU Inventories for memory and storage are at or near normal levels for most customers across PC, mobile, auto and industrial end markets; Smartphone demand is showing signs of recovery; Q1 results reflect Micron’s strong execution combined with improved pricing - earnings deck
(KR) South Korea Dec 1-20th Exports Y/Y: +13.0% v +2.2% prior; Imports Y/Y: -9.2% v -6.2% prior
(TW) China to terminate tariff concessions on some Taiwan chemical products from Jan 1, 2024 - China Finance Ministry

THRS 12/21
(US) Citigroup analysts raise US bank stocks to Overweight; Raise Healthcare sector to Market Weight and Consumer Discretionary sector to Market Weight
(CN) CHINA BANS EXPORT OF SOME RARE-EARTH PROCESSING TECHNOLOGIES; EFFECTIVE IMMEDIATELY - PRESS [**Note: China started to ban rare earths manufacturing technologies in 2022]
UUUU Commences production at three of its U.S. uranium mines, also preparing two mines (Whirlwind and Nichols Ranch) to commence uranium production within one year; Notes its uranium production could be expanded to up to 5M pounds of U3O8 per year in the coming years
KMX Reports Q3 $0.52 v $0.43e, Rev $6.15B v $6.31Be; Resumed share repurchases during Q3 first time in a year
ANGOLA LEAVES OPEC - PRESS [**Note: Angola is the second largest oil producing country in Sub-Saharan Africa with output of ~1.2Mbpd, ~4% of total OPEC production]; Becomes 1st country to leave OPEC since Qatar and Ecuador left in 2019-2020
Redfin: Seen a double-digit annual increase in week to Dec 17th in homeowners contacting its real estate agents for help selling homes, and new listings are up 9% y/y (the biggest annual increase since July 2021)
(US) Reportedly top US and China military officials spoke in sign of warming ties after a 16-month rupture; Video call between generals followed a summit agreement between Pres Biden and China’s Pres Xi - press
(US) Q3 FINAL GDP ANNUALIZED Q/Q: 4.9% V 5.2%E; PERSONAL CONSUMPTION: 3.1% V 3.6%E
(US) Q3 FINAL GDP PRICE INDEX: 3.3% V 3.6%E; CORE PCE Q/Q: 2.0% V 2.3%E
(CZ) CZECH CENTRAL BANK (CNB) CUTS 2-WEEK REPURCHASE RATE BY 25BPS TO 6.75%; AS EXPECTED; 1st rate cut since May 2020
(US) INITIAL JOBLESS CLAIMS: 205K V 215KE; CONTINUING CLAIMS: 1.87M V 1.88ME
(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: -10.5 V -3.0E (lowest since Sept); New Orders: -25.6 v +1.3 prior
CCL Reports Q4 -$0.07 v -$0.12e, Rev $5.40B v $5.32Be
(CN) China reportedly to ban exports of rare-earth magnets with other restrictions on the vital industrial metals - Japanese press
(US) Weekly Baker Hughes Rig Count: 620 v 623 prior (-0.5% w/w)
NKE Reports Q2 $1.03 v $0.84e, Rev $13.4B v $13.4Be; Expects softer H2 rev outlook; Announces plan for $2B in cumulative cost savings over the next three years
NKE Exec: We are seeing indications of more cautious consumer behavior globally; Adjusting channel growth forecasts for rest of FY and stepping up plans to reduce marketpace supply for key franchises; Nike Digital had its strongest Black Friday week ever - earnings call comments
NKE Cuts FY24 Rev +1%, Affirms Gross margin +140-160bps (prior: FY24 mid-single digit growth; gross margin expanding 140-160bps) - earnings call
(JP) JAPAN NOV NATIONAL CPI Y/Y: 2.8% V 2.8%E; CPI EX FRESH FOOD (CORE) Y/Y: 2.5% V 2.5%E (Core CPI rises at slowest annual pace since July 2022)
(CN) China regulator (NPPA) issues draft rules for online game industry to prevent excessive game time; Sets spending limits and bans daily login rewards - China press

FRI 12/22
(UK) Q3 FINAL GDP Q/Q: -0.1% V 0.0%E; Y/Y: 0.3% V 0.6%E; Q2 GDP growth was revised lower to zero growth
(RU) Russia Deputy Foreign Min Ryabkov: US seizing Russia frozen assets could end ties; May take political action in response to US missile deployment in EU and APAC
(JP) Japan Cabinet approves ¥112T ($793B) draft budget for FY24/25 (as expected); Raises FY24/25 assumed interest rates for the first time in 17 years
Containerized Freight Index Futures hit 15% limit-ups overnight for 5th consecutive session, surged 70% this month
(US) NOV PRELIMINARY DURABLE GOODS ORDERS: 5.4% V 2.3%E (biggest increase since pandemic); DURABLES (EX-TRANSPORTATION): 0.5% V 0.1%E
(US) NOV PERSONAL INCOME: 0.4% V 0.4%E; PERSONAL SPENDING: 0.2% V 0.3%E
(US) NOV PCE DEFLATOR M/M: -0.1% V 0.0%E; Y/Y: 2.6% V 2.8%E (1st negative M/M print since July 2022)
(IR) Reportedly Iranian paramilitary vessel has provided intelligence to Houthi rebels in targeting ships in the Red Sea – press
(US) NOV NEW HOME SALES: 590K V 690KE
(US) DEC FINAL UNIVERSITY OF MICHIGAN CONFIDENCE: 69.7 V 69.4E; 5-10 year inflation expectations 2.9% v 2.8% prelim (lowest since Sep 2022)
(US) Atlanta Fed GDPNow: Cuts Q4 GDP from 2.7% to 2.3%
(US) Supreme Court rejects special counsel request in Trump case; Will NOT immediately consider Trump's immunity claim

>>> US Close Dow -0.05% S&P +0.17% Nasdaq +0.19% Russell +0.84%

Closing Stock Market Summary
Today's trade had an overall positive vibe in this lightly traded session ahead of the extended holiday weekend. Advancing issues had a roughly 2-to-1 lead over declining issues at both the NYSE and at the Nasdaq.

Market participants were digesting some economic releases today, which mostly fit with the soft landing narrative. The calendar was headlined by the November Personal Income and Spending report, which contained a healthy 0.4% increase in real disposable personal income, a 0.3% increase in real spending, and disinflation in both the PCE and Core PCE Price Indexes.

Durable goods orders were stronger than expected in November, and consumer sentiment increased while inflation expectations decreased in December.

The aforementioned reports overshadowed the disappointing 12.2% month-over-month decline in new home sales in November, although with the recent drop in mortgage rates, participants seemed willing to believe that sales activity will rebound smartly in December.

The three major indices traded with modest gains for most of the session, but hit an air pocket a little after 2:00 p.m. ET that brought the indices below yesterday's closing levels. The short-lived deterioration did not have a specific news catalyst to account for the activity. The S&P 500 (+0.2%), Nasdaq Composite (+0.2%), and Dow Jones Industrial Average (-0.1%) all climbed off their session lows, but the Dow couldn't manage a positive finish.

A big loss in NIKE (NKE 108.04, -14.49, -11.8%), which reported fiscal Q2 earnings and disappointing guidance, contributed to the relative underperformance of the DJIA.

NIKE's decline also weighed on the S&P 500 consumer discretionary sector (-0.7%), which was the only sector that closed lower today.

Meanwhile, economically-sensitive sectors and value stocks outperformed due to the positive sentiment around the economic outlook. The material (+0.6%) and industrial (+0.4%) sectors were among the winning standouts, and the Russell 3000 Value Index registered a 0.4% gain versus a 0.1% gain in the Russell 3000 Growth Index.

The health care (+0.5%) was another outperformer, propped up with some M&A activity that featured Bristol-Myers (BMY 52.29, +1.03, +2.0%) acquiring Karuna Therapeutics (KRTX 317.85, +102.66, +47.7%) for $330.00 per share in cash for a total equity value of $14.0 billion. The acquisition price is a 53% premium over Thursday's closing price for KRTX.

The 2-yr note yield settled unchanged from yesterday, and down ten basis points this week, to 4.33%. The 10-yr note yield rose one basis point today, and declined two basis points this week, to 3.90%.

As a reminder, markets are closed on Monday for Christmas Day.
  • Nasdaq Composite: +43.3%
  • S&P 500: +23.8%
  • Russell 2000: +15.5%
  • S&P Midcap 400: +14.7%
  • Dow Jones industrial Average: +12.8%

Reviewing today's economic data:
  • Personal income increased 0.4% month-over-month in November, as expected, following an upwardly revised 0.3% increase (from 0.2%) in October. Personal spending was up 0.2%, also as expected, following a downwardly revised 0.1% increase (from 0.2%) in October. The PCE Price Index declined 0.1% month-over-month (consensus 0.1%), taking the year-over-year change to 2.6% from 2.9% in October. That was the first decline in the PCE Price Index since 2020. The core PCE Price Index, which is the Fed's preferred inflation gauge, increased 0.1% month-over-month (consensus 0.2%), taking the year-over-year change to 3.2% from 3.4%.
    • The key takeaway from the report is that it threads the needle for a Fed aiming to bring down inflation with higher rates, but not tank the economy in the process. The 0.3% month-over-month jump in real PCE combined with a 0.4% increase in real disposable personal income and the disinflation in the PCE Price Indexes is the stuff that soft landings/no landings are made of.
  • Durable goods orders surged 5.4% month-over-month in November ( consensus 2.5%) following an upwardly revised 5.1% decline (from -5.4%) in October. Excluding transportation, durable goods orders were up 0.5% month-over-month (consensus 0.2%) following a downwardly revised 0.3% decline (from 0.0%) in October.
    • The key takeaway from the report was found in the reading for nondefense capital goods orders excluding transportation -- a proxy for business spending. It was up 0.8% month-over-month on the heels of a 0.6% decline in October, connoting a welcome reacceleration in order activity that will mesh with a soft landing outlook.
  • The final reading for the University of Michigan Consumer Sentiment Index for December came in at 69.7 (Bconsensus 69.7) versus the preliminary reading of 69.4. That was up nicely from the final reading of 61.3 for November, and it marked a recovery of all declines from the previous four months. In the same period a year ago, the index stood at 59.8.
    • The key takeaway from the report is the linkage between the increase in sentiment and the decrease in inflation expectations. The latter set the tone for improved attitudes across age, income, education, geography, and political identification.
  • New home sales decreased 12.2% month-over-month in November to a seasonally adjusted annual rate of 590,000 units (consensus 689,000) from a downwardly revised 672,000 (from 679,000) in October. On a year-over-year basis, new home sales were up 1.4%.
    • The key takeaway from the report is that new home sales activity slumped badly in November, paced by the largest region for new home sales (the South) where prices are generally more affordable. The weakness speaks to supply constraints for lower-priced homes and general affordability constraints created by high mortgage rates and high prices relative to median prices for existing homes.

Tuesday's economic calendar features:
  • 9:00 ET: October FHFA Housing Price Index (Prior 0.6%); October S&P Case-Shiller Home Price Index (Prior 3.9%)