Closing Stock Market SummaryThe S&P 500 lost 0.1% on Friday, while the Nasdaq Composite (+0.4%) set intraday and closing record highs as investors continued to bid up the mega-caps amid COVID-19 concerns. The Dow Jones Industrial Average (-0.8%) and Russell 2000 (-0.9%) declined closer to 1.0%.
Faced with rising COVID-19 cases and hospitalizations, Austria announced a nationwide lockdown, starting Monday and lasting for a minimum of ten days. Reports suggested Germany could follow suit with similar measures, exacerbating concerns about slower growth and giving some investors an excuse to avoid cyclical stocks.
Accordingly, investors assumed a defensive mindset that permeated the market: Apple (AAPL 160.55, +2.68, +1.7%) and other mega-caps set record highs, the 10-yr yield dropped five basis points to 1.54%, the U.S. Dollar Index (96.03, +0.49, +0.5%) rose 0.5%, and the S&P 500 information technology sector (+0.8%) finished atop the leaderboard.
Likewise, oil prices ($76.11, -2.81, -3.6%) extended recent losses on the prospects for softer demand and increased supply if countries tap into their oil reserves as speculated. That took a toll on the energy sector (-3.9%), which led all sectors in losses with a 4% decline.
Outside the energy space, the financials sector (-1.1%) was really the only other weak spot with the curve-flattening activity in Treasuries -- the 2-yr yield increased one basis point to 0.51%, narrowing the 2s-10s spread by six basis points. No other sector fell more than 0.7%.
Supportive considerations included the House passing the $1.75 trillion Build Back Better Act and a CDC advisory committee recommending in a unanimous vote for all adults to get COVID-19 booster shots from Pfizer (PFE 50.80, -0.61, -1.2%) or Moderna (MRNA 263.78, +12.37, +4.9%) six months after the second dose.
On a related note, the CBO estimated that the Build Back Better Act would add approximately $160 billion to the budget deficit over ten years when accounting for the revenue from increased tax enforcement. The bill heads over to the Senate, where it will likely be amended, according to media reports.
Shares of Intuit (INTU 692.34, +63.40, +10.1%) rose 10% after providing positive earnings results and upbeat guidance. Applied Materials (AMAT 150.03, -8.71, -5.5%), Workday (WDAY 286.60, -12.49, -4.2%), and Ross Stores (ROST 112.78, -6.74, -5.6%), however, fell between 4-6% following their earnings reports.
Investors did not receive any economic data on Friday. Looking ahead to Monday, investors can expect the Existing Home Sales report for October.
- S&P 500 +25.1% YTD
- Nasdaq Composite +24.6% YTD
- Russell 2000 +18.7% YTD
- Dow Jones Industrial Average +16.3% YTD
Amazon to Stop Accepting U.K.-Issued Visa Credit Cards
Visa says it is trying to resolve the matter so customers can continue using its cards after a Jan. 19 deadline
Amazon. AMZN +0.86% com Inc. said it would stop accepting Visa Inc. V -4.95% U.K. credit cards because of their high fees, a move that marks a major escalation in the retail giant’s yearslong battle with the card network.
Amazon told customers it would stop accepting Visa credit cards issued in the U.K. starting Jan. 19. High interchange fees on credit-card transactions mean higher prices for shoppers, an Amazon spokesman said.
“These costs should be going down over time with technological advancements,” he said, “but instead they continue to stay high or even rise.”
Visa said it is trying to resolve the situation so customers can keep using their U.K. credit cards after the January deadline. “We are very disappointed that Amazon is threatening to restrict consumer choice in the future,” a Visa spokesman said.
Retailers and card networks have been fighting over interchange fees for years.
When a shopper pays with a credit card, the merchant pays a fee to the bank that issued it. Card networks like Visa and Mastercard Inc. set those fees. The fees vary—credit cards that pay out perks like travel rewards are more expensive—but often run 2% or more.
Amazon and other large merchants have sued Visa, Mastercard and large card-issuing banks, alleging they collude to avoid competing over fees. The merchants say card fees are a hidden tax on lower-income consumers, who are more likely to pay with cash and thus don’t reap the benefits of rewards cards.
The fee fight led supermarket chain Kroger Co. to temporarily stop accepting Visa cards at some of its stores a few years ago.
Online retailers like Amazon are more reliant on credit cards and other digital payments and are especially sensitive to interchange fees. Card networks typically impose higher fees on online purchases because they are deemed more vulnerable to fraud.
It is offering some customers affected by the U.K. move £20 (or about $27) off a purchase to encourage them to update their payment method to another type of credit card or a Visa debit card. (Debit cards carry lower interchange fees.)
Amazon, with JPMorgan Chase & Co., has its own credit card that runs on the Visa network in the U.S. The card, which offers Amazon Prime members cash back on purchases, is one of the most widely used co-branded credit cards in the U.S., according to a July 2021 report by Packaged Facts, beating out airline and hotel cards.
European regulators cast doubt on Biogen Alzheimer’s treatment
European Medicines Agency panel vote deals a setback to controversial $56,000 a year treatment
A key European Medicines Agency panel has signalled it is unlikely to grant approval to Biogen’s drug for Alzheimer’s disease, adding to the debate surrounding a controversial treatment that retails at $56,000 a year.
On Wednesday, Biogen said the drug it has developed with Japan’s Eisai, Aduhelm, received a “negative trend vote” from the Committee for the Medicinal Products for Human Use panel on its application for marketing authorisation in the bloc. The panel is expected to give its formal decision next month, Biogen said.
New York-listed shares in the drugmaker were down as much as 4.3 per cent before partially paring back losses to 2.7 per cent in morning trading.
Priya Singhal, the head of global safety and regulatory sciences at the company, said Biogen was “disappointed” with the vote, but that it “strongly believe[d] in the strength of our data” and the drug’s ability to make a difference for Alzheimer’s patients.
The EMA did not immediately respond to a request for comment. Biogen said it would continue to engage with the agency as it “considers next steps”.
The drug, which is given as an infusion, was approved by US regulators in June, becoming the first new treatment for Alzheimer’s in almost two decades that purports to slow the development of the neurological disease.
Biogen has said it hopes the treatment will become a blockbuster drug, capable of boosting the company’s revenue at a time when many of its existing products face competition. But Aduhelm’s approval in the US has provoked a wave of controversy, with some scientists arguing there is scant scientific evidence that it actually works.
In August the US health department’s inspector-general announced a review of the FDA’s accelerated approval process for drugs following the controversy over Aduhelm.
US healthcare providers and insurers have been slow to embrace the drug, delaying purchasing decisions amid concerns over its high cost and doubts over its efficacy in treating the disease. Biogen reported third-quarter sales of just $300,000 for the drug, falling far short of analysts’ expectations of $10m. However, the company said it still believes in the long-term potential of the treatment.
Under the terms of its US approval, Biogen has to carry out a confirmatory trial to affirm the drug’s benefit, a process that could take years. It is allowed to market the drug in the meantime.
Alfred Sandrock, Biogen’s head of research and development who led development of Aduhelm, announced his retirement on Tuesday.
Brian Abrahams, analyst at RBC Capital Markets, said given the mixed data on the drug it was not hugely surprising that the EMA panel did not endorse Aduhelm. He said Biogen could appeal the recommendation but successful appeals were rare — about one in five — and it now looked unlikely the drug would make it over the line in Europe with the existing data set.
SSE rejects Elliott’s call to break up
UK energy company focuses on plan to increase investment in renewables to £12.5bn
UK energy group SSE has rejected calls from hedge fund Elliott Management for a break-up, saying it would instead sell minority stakes in its electricity networks businesses to boost investment in “net zero” infrastructure such as renewables.
Elliott has been arguing for a separation or sale of SSE’s renewables business after taking a stake in the FTSE 100 group, which also owns the main electricity grid in the north of Scotland, local networks in areas of England such as Oxfordshire and assets including gas-fired power stations.
A separation would have mirrored moves by companies such as Spanish conglomerate Acciona, which this year floated its renewables arm to access financing to support its growth in areas such as solar and onshore wind. Spanish utility company Iberdrola has also been examining a possible spin-off of its offshore wind business.
SSE said on Wednesday it had “carefully considered” a separation of the renewables division, but had calculated that a break-up would result in “quantifiable dis-synergies” of £95m a year as well as £200m in one-off costs in areas such as IT and financing.
It said separation of the renewables arm would also make it more difficult to fund large projects such as Dogger Bank, a 3.6 gigawatt wind farm SSE is building along with Norway’s Equinor and Italy’s Eni off the north-east coast of England.
“Halving the scale of the company is no way to go about being able to tackle the biggest, most difficult projects this world needs . . . us to do in a way that ultimately enhances value,” said SSE’s longstanding chief executive Alistair Phillips-Davies. A separate renewables arm would have to sell stakes in projects at a much earlier stage and therefore would not achieve such attractive returns, he added.
“Scale is very important,” Phillips-Davies said, adding: “If you’re half the size, you’ll only get half the funding.”
SSE is instead increasing the company’s investment in net zero infrastructure, including renewables and electricity networks, to £12.5bn by 2026, up from a previous plan to spend £7.5bn by 2025.
The company, which was one of the sponsors of this month’s COP26 climate summit in Glasgow, said it could deliver a quarter of the UK government’s target to quadruple offshore wind capacity to 40 gigawatts by the end of the decade. Some of the funding would also go towards overseas renewables projects, as SSE tries to expand into European markets such as Denmark, Poland and Spain.
The strategy would be supported by the disposal of 25 per cent stakes in its electricity networks businesses, SSE said.
But it will also be partly funded by a substantial cut in the dividend to 60p from 2023. SSE has said that for the current financial year it expected to recommend a dividend of 81p plus RPI inflation.
Shares were down nearly 5 per cent in early trading in London.
Some analysts have suggested that SSE might need to revisit a break-up strategy if it succeeds in expanding internationally in areas such as offshore wind.
Bernstein analyst Deepa Venkateswaran, who this year published research on the benefits of a break-up, called SSE’s update a “missed opportunity to unlock further value”.
Phillips-Davies said he hoped “all our shareholders will support us” in delivering its latest plans, which were published alongside half-year results showing a 116 per cent increase in half-year pre-tax profit to £1.69bn.
SSE’s statutory results were helped by gains on derivatives contracts, but its adjusted earnings per share, up 44 per cent to 10.5p, were also higher than a previously guided range of 7.5p-10p.
Ailing nuclear power plants propped up by US infrastructure law
Federal grants worth $6bn follow state bailouts for zero-carbon electricity source
As President Joe Biden pushes his climate agenda through Congress, an industry that has been on the back foot for decades is getting a second look — and fresh funding.
Nuclear energy is a steady source of carbon-free electricity. But the US nuclear-generating network has been shrinking for years because of falling power costs that make many plants uncompetitive.
The $1.2tn bipartisan infrastructure bill that Biden signed into law on Monday provides $6bn in grants for struggling reactors. The president’s “Build Back Better” spending bill under debate in Congress would also establish a nuclear power production tax credit worth billions of dollars.
The federal funding follows bailouts in several US states for nuclear generators on the brink of closure.
“The bottom line is that you’ve got a lot of safe and reliable plants out there that are providing zero-carbon electricity exactly when our nation and the world need it most,” said Jeremiah Baumann, deputy chief of staff at the Department of Energy. “We can’t afford to have the setback of losing a lot of carbon-free electricity.”
The US efforts are aimed primarily at propping up its network of 93 working reactors rather than building new ones. Nuclear has provided about a fifth of the country’s electricity for the past three decades and accounts for about half the country’s zero-carbon generation.
But emerging power sources have undercut many nuclear plants. High-efficiency turbines fuelled by cheap natural gas and renewable generators supported by subsidies have driven down wholesale power costs. This has made it difficult for nuclear generators — whose operating costs are largely fixed — to compete.
Since 2013, 13 US reactors have shut down, with New York’s Indian Point becoming the latest in April. California’s Diablo Canyon will join the list in 2025. A recent report from the Rhodium Group found that, under current policy, more than half of the nation’s nuclear plants will be retired by the end of the decade.
Stemming this decline, the Biden administration has made clear, is an essential part of its efforts to decarbonise the US power grid by 2035 and the wider economy by 2050.
“What we’re seeing is a fundamental shift in the recognition of the importance of nuclear energy as a source of . . . large-scale, low-carbon energy generation,” said John Kotek, vice-president of policy development at the Nuclear Energy Institute, a trade association.
“You probably have to go back to the ’60s and ’70s to see this level of support for nuclear energy in the US,” he added. The US nuclear energy industry has fought to counter an unsafe image since a partial meltdown in 1979 at Pennsylvania’s Three Mile Island plant.
Critics argue that government supports amount to an expensive subsidy for an industry that finds it increasingly difficult to survive. A 2018 report from the Union of Concerned Scientists found that more than a third of American nuclear power plants were unprofitable or scheduled to close, and estimated an average cost of $814m annually to bring plants back to a break-even point.
Exelon, a Chicago-based power company which operates the largest US reactor fleet, had threatened to close two nuclear plants in Illinois by the end of this year. But the Byron and Dresden plants avoided shutdown at the last minute when the state legislature approved a $694m aid package in September. The move left four of the six plants in Illinois reliant on state funds.
Four other US states, including New York, New Jersey and Connecticut, have also intervened to help their nuclear generators.
Advocates argue that while many nuclear plants may struggle to compete, markets often fail to account for their emissions benefits.
“The way I would see it is that nuclear historically has not been compensated for its clean air attributes,” said David Brown, Exelon’s vice-president of federal government affairs and public policy. “So as states and the federal government get more aggressive with their clean air goals they are recognising the importance of maintaining the existing nuclear fleet.”
The federal infrastructure law will allot funds by auction to merchant generators that can prove they are on the brink of closure. Details will be hashed out by the US energy department over the next four months.
Companies are more excited about the Biden spending bill, however, which as drafted would introduce a production tax credit worth $15 a megawatt-hour. Kotek said the tax credit was “an essential step in effectively addressing the economic hurdles”.
The US has little appetite to build new large-scale nuclear plants. The only reactors under construction, at Southern Company’s Vogtle plant in Georgia, have doubled in cost to about $28bn after repeated delays.
Instead, the industry hopes a new breed of small modular reactors — support for which is also provided in the infrastructure law — will play a big role in future generation.
For now the focus remains on extending the life of the existing plants.
“It’ll be a lot easier to get there if we build on top of what we have instead of tearing it down and then fancying that we’re going to have to do a grand campaign to build an alternative again,” said John Parsons, an executive director of the centre for energy and environmental policy research at the Massachusetts Institute of Technology.
UK ad watchdog investigates ‘meme coin’ Floki Inu’s London marketing blitz
Capital’s government under rising pressure to set tighter rules for crypto promotions
The UK advertising watchdog is investigating marketing by ‘meme coin’ Floki Inu on London’s trains and buses as the city’s government faces rising pressure to set tighter boundaries for crypto promotions on public transport.
The Advertising Standards Authority told the Financial Times it has opened a formal inquiry into whether the promotions for Floki Inu, a digital coin inspired by Elon Musk’s dog, breached UK marketing standards.
The regulator’s decision comes as several members of the London Assembly, which oversees the city’s government, backed calls for either a ban on crypto advertising on public services or a review into how Transport for London scrutinises these marketing campaigns.
A spokesperson for London mayor Sadiq Khan, who chairs the TfL, said the government body that runs the city’s Underground and bus network has requested input from both the ASA and the Financial Conduct Authority “for their views on the concerns being raised.”
“Once TfL has that input they will consider what action might be necessary going forward,” they added.
Floki Inu’s marketing blitz appeared across the capital’s transport system last month with adverts displaying the slogan “Missed Doge? Get Floki” splashed across Underground stations and trains, as well as on buses. The campaign, one of several initiated by digital token operators on TfL services this year, highlights how crypto outfits are seeking to tap into growing enthusiasm for trading digital assets.
Most cryptocurrencies’ adverts fall outside the scope of the UK’s specialised rules for advertising financial products that are overseen by the FCA, and are instead supervised by the ASA, an industry self-regulatory body.
The ASA told the FT it was “investigating some aspects” of the Floki ads following a review, but declined to provide details “for fear of prejudicing the investigation”. Floki Inu said its London ads complied with “all laws and regulations. The advertisements were approved by legal and by the governing agency implementing the advertisements.”
TfL said all crypto adverts are already subject to extra review and required to carry disclaimers, and that the Floki ads were cleared by the ASA’s copy advice service. The service allows advertisers “to check how their prospective non-broadcast ads measure up” against relevant marketing rules, according to the ASA.
Liberal Democrat and Green party members of the London Assembly said this week that TfL should not accept any more crypto ads at least until the UK government and FCA set out new guidance on cryptocurrency advertising. The Labour party, the assembly’s largest group, urged TfL to more closely review the crypto ads.
Two conservative members said TfL should continue its current approach. “It’s tempting to ban stuff when you guess people may reach the wrong decision, but if you remove agency from adults you end up infantilising them,” said Assembly member Andrew Boff.
The UK Treasury proposed, in July 2020, to apply the stricter set of rules for financial advertising to most cryptocurrencies. The finance ministry has said it will publish its response to a consultation on the rule change by the end of the year.
Elly Baker, a London Assembly member who serves as Labour’s transport spokesperson, said the situation in London reflected “the government’s failure to regulate cryptocurrency advertising nationally”.
The current rules create a “crazy anomaly between how crypto firms can advertise and the comparatively onerous requirement on firms producing ultimately more vanilla, mainstream investment products”, noted Holly Mackay, chief executive of the personal finance consultancy Boring Money.
Floki Inu’s price has surged more than 5,000 per cent since the summer, according to Coinbase data.