Coinbase and Cardano Call on Hackers to Plug Security Gaps

Cybercrime surged in 2021 and hackers and other cyber criminals are looking for another bumper year this year. As cyber criminals become more sophisticated, crypto platforms need to be even smarter to protect investors and users from hacks and other types of criminal activity.

Ransomware, Hacks, and other Illicit Activity Hurt Digital Asset Value

Late last week, we reported on prelim ransomware numbers for 2021 and likely finalized numbers. Based on prelim figures and upward revisions to 2020 numbers, ransomware alone could hit more than $1bn in 2021. There was also news of North Korea funding its missile program with stolen crypto.

With the likes of North Korea actively hitting the crypto market for source of funds, government scrutiny has also increased. In late January, the White House announced an imminent crypto executive order to task agencies with crypto oversight in the interest of national security.

As governments and regulators look to take a more active role in the crypto market, crypto platforms will also need to step up or face the wrath of regulators.

The issue doesn’t just lie with crypto exchanges, however, with the NFT marketplace and the Metaverse also considered as a medium for illegal activity. China, India, the UK, and a number of other governments have highlighted the need to clamp down on illicit activity.

Cardano and Coinbase Look Outside to Tighten Security

This week, the Cardano Foundation (ADA) announced a 6-week promotion running from 14th February to 25th March. The Foundation doubled its bounty amounts for the period. Hackers can earn up to $20,000 for identifying critical Cardano Node security vulnerabilities. The security community can also earn up to $15,000 for identifying critical Cardano-Wallet security vulnerabilities.

Coinbase was also in the news this week, with a lone hacker reportedly assisting Coinbase with a security flaw. A hacker going by the name Tree of Alpha tweeted over the weekend of a “potentially market-nuking” security flaw. Tree of Alpha tweeted a submission of a hacker1 report but also the pressing need for direct contact with the Coinbase team.

Hackerone is a platform started by hackers and security experts with the aim of making the internet a safer place. The platform partners with hackers to uncover security issues for customers before they are exploited by criminals. Users include Starbucks, Nintendo, PayPal, Spotify, Toyota, the European Commission, among others.

The collaboration and effectiveness of Hackerone was evident in the Coinbase fix. Brian Armstrong himself replied directly to Tree of Alpha to give thanks.

Inflation: The Fed’s Guiding Light and the Biggest Worry for Investors

While indexes did manage to make small gains yesterday, they remain in negative territory for the year. The “buy-the-dip” trading mentality that helped indexes swiftly rebound from downturns the past couple of years has mostly been smothered by uncertainty about Federal Reserve monetary policy in the months ahead.

In other words lots of people are freaked out and a bit nervous about how stocks might perform in a rate hiking environment.

Just keep in mind, from June 2004 to June 2006 Fed Funds went from 1.00% to 5.25%. There were a total of 17 rate increases across this period, each 25 basis points and stocks did not get hammered.

Inflation

Today, inflation seems to be the Fed’s guiding light and investors are extremely concerned that data between now and the central bank’s next meeting on March 15-16 will fail to show any signs that price pressures are easing. That’s largely due to fallout from the Omicron Covid wave that further exacerbated supply chain dislocations and labor shortages.

Those two issues have been key drivers of escalating inflation which has pushed higher nearly every month since June of 2020. The only exceptions are October, when CPI came in flat, and November when it dipped a puny -0.1%.

Data to watch

Upcoming data to watch includes the January Consumer Price Index (CPI) tomorrow, the PCE Prices Index for January on 2/25, the February Employment Situation on 3/4, and March CPI on 3/10.

Today, investors will be scrutinizing the Energy Information Administration’s Petroleum Status Report. The report last week showed an unexpected decline in U.S. crude inventories, as well as raw oil at the Cushing, Oklahoma delivery point for WTI. Cushing inventories stood just above 30 million barrels as of January 28—down from 60 million barrels at the start of 2021, and down from 37 million barrels at the end of 2021. U.S. distillate levels are particularly concerning, with inventories as of January 28 falling to the lowest seasonal level in eight years.

The low inventories, which were -26 million barrels (-17%) below the pre-pandemic five-year average, are likely the result of booming manufacturing and freight demand. The American Petroleum Institute yesterday estimated that distillate inventories declined last week by -2.2 million barrels while U.S. crude supplies likely dipped by over -2 million barrels.

Most oil insiders believe the world oil market is under-supplied with OPEC+ struggling to meet production targets and economic activity rapidly rebounding from the Omicron wave that swept the entire globe.

Analysts think that signs of easing tensions between Russia and the West could stall the current rally in oil prices but it will likely only be temporary as supply concerns escalate.

On earnings front, today’s highlights include Bunge, Cerner, CVS, Disney, GlaxoSmithKline, Honda, Mattel, MGM Resorts, Motorola, O’Reilly Automotive, Toyota, Twilio, and Uber.

Wall Street Week Ahead Earnings: KKR, Walt Disney, Coca-Cola, Twitter and PepsiCo in Focus

Investors will focus on December quarter earnings for stocks that are economically sensitive, which should show better profits than technology stocks. Increasing Treasury yields and risk aversion could hit the stock market hard over the coming months. In addition, investors will closely monitor the latest news on the rapidly spread Omicron coronavirus variant to see how it impacts earnings in 2022.

Earnings Calendar For The Week Of February 7

Monday (February 7)

TICKER COMPANY EPS FORECAST
ACM AECOM $0.77
CHGG Chegg $0.13
HAS Hasbro $0.85
LEG Leggett & Platt $0.73
ON ON Semiconductor $0.94
THC Tenet Healthcare $1.49
TSN Tyson Foods $2.01

 

Tuesday (February 8)

IN THE SPOTLIGHT: KKR

The U.S.-based investment firm KKR & Co is expected to report its fourth-quarter earnings of $1.02 per share, which represents year-over-year growth of over 108% from $0.49 per share seen in the same period a year ago.

The company that manages multiple alternative asset classes would post revenue growth of 17% to $784.8 million. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

“Strong near-term growth with fundraising supercycle and GA accretion coming into earnings, but we see this reflected in the price at the current valuation for a business model with greater earnings contribution from the balance sheet (40%). While strong investment performance could drive upward estimate revisions, we have less visibility on more episodic investment income gains,” noted Michael Cyprys, equity analyst at Morgan Stanley.

“Mgmt’s increased focus on expanding the platform with adjacent strategies and scaling successor funds should drive higher fee-related earnings (FRE).”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 8

TICKER COMPANY EPS FORECAST
BP BP $1.18
IT Gartner $2.47
HOG Harley-Davidson $-0.37
LYFT Lyft $-0.46
PFE Pfizer $0.85

 

Wednesday (February 9)

IN THE SPOTLIGHT: WALT DISNEY

Walt Disney, a family entertainment company, is expected to report its fiscal first-quarter earnings of $0.68 per share, which represents year-over-year growth of over 112% from $0.32 per share seen in the same period a year ago.

The family entertainment company would post revenue growth of over 30% to $21.15 billion. The company has beaten earnings estimates in most of the quarters in the last two years, at least.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 9

TICKER COMPANY EPS FORECAST
AFG American Financial Group $2.98
CVS CVS Health $1.56
HMC Honda Motor $0.95
RDWR Radware $0.13
SGEN Seagen $-0.74
TM Toyota Motor $3.76
UBER Uber Technologies $-0.33

 

Thursday (February 10)

IN THE SPOTLIGHT: COCA-COLA, TWITTER, PEPSICO

COCA-COLA: The world’s largest soft drink manufacturer is expected to report its fourth-quarter earnings of $0.41 per share, which represents a year-over-year decline of over 12% from $0.47 per share seen in the same quarter a year ago. However, the company’s revenue would grow nearly 4% to $8.94 billion.

TWITTER: The social media giant is expected to report its fourth-quarter earnings of $0.35 per share, which represents year-over-year growth of about 8% from $0.38 per share seen in the same period a year ago.

The company would post revenue growth of over 21% to $1.57 billion. Twitter expects revenues of approximately $1.5 billion to $1.6 billion in the fourth quarter of 2021. GAAP operating income is expected to range from $130 million to $180 million, according to ZACKS Research.

With a focus on engineering and products, Twitter expects to increase headcount and costs by 30% or more in 2021. In 2021, the company expects total revenues to grow faster than expenses.

“Lack of Negative Revisions and Relative Valuation: Valuation continues to be expensive, but we think investors are likely to continue to pay a premium for Twitter (TWTR) given 1) continued turnaround progress and 2) platform scarcity,” noted Brian Nowak, equity analyst at Morgan Stanley.

“Execution Risk Remains Around Driving Advertiser ROI: Advertiser ROI has clearly improved on Twitter, but the company needs to improve ad targeting and measurability to compete with the larger players. To do that it will have to further personalize the content that users see and use its data more effectively, both of which remain key strategic challenges (and priorities) for management.”

PEPSICO: The Harrison, New York-based global food and beverage leader is expected to report its fourth-quarter earnings of $1.52 per share, which represents year-over-year growth of over 3% from $1.47 per share seen in the same period a year ago.

The U.S. multinational food, snack, and beverage corporation would post revenue growth of about 9% to $24.35 billion. It is worth noting that the company has consistently beaten consensus earnings estimates in the last two years, at least.

The company revised its organic revenue growth to 8% from 6% previously. The company estimates core earnings of $6.20 per share for 2021, compared to $5.52 in 2020, according to ZACKS Research.

PepsiCo struggles with supply-chain headwinds that have caused it to increase costs and limit its output. Investors will want to know whether the beverage company is winning this battle when it reports its financial results for the fourth quarter of 2021 on Thursday, February 10.

“For the quarter, we are expecting PepsiCo (PEP) to deliver EPS of $1.47, which implies flat YoY growth and is 4 pennies below consensus EPS of $1.51. Our $1.47 4Q21 estimate implies FY21 EPS of $6.20, which is at the low end of management’s expectation to deliver “at least” $6.20 in EPS and may ultimately prove conservative given PepsiCo’s (PEP) history of outperforming expectations. Since 1Q18, we can see that PEP’s reported EPS has come in above consensus in 14 out of the past 15 quarters, with an average upside surprise of+5%,” noted Vivien Azer, equity analyst at Cowen.

“As we are already almost a month into the new year, all eyes will be on PepsiCo’s (PEP) initial FY22 guidance. As a reminder, on the last earnings call management noted that at the time they expected FY22 performance to be in line with its stated long-term targets, which means MSD (+4-6%) organic revenue growth and HSD core constant currency EPS growth.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE FEBRUARY 10

TICKER COMPANY EPS FORECAST
AZN AstraZeneca $0.78
EXPE Expedia Group $-0.01
GDDY GoDaddy $0.41
K Kellogg $0.8
MCO Moody’s $2.3
PEP PepsiCo $1.52
TWTR Twitter $0.16
WU Western Union $0.53

 

Friday (February 11)

TICKER COMPANY EPS FORECAST
APO Apollo Global Management $1.08
D Dominion Energy $0.93
FTS Fortis $0.58
MGA Magna International $0.81

 

Supply chain disruption: is the worst over?

By Stefano Rebaudo

(Reuters) – As companies, investors and policymakers fret over port logjams, freight costs and chip shortages, some indicators are starting to signal that global supply chain stress may be on the wane.

Supply chain glitches dominated the latest company earnings season, with mentions of the issues by chief executives jumping 412% from last year, according to a BofA tally.

The coming months will show if the snarl-ups portend a toxic scenario of stagflation for the world economy or are just a bump in the road to recovery. They will also determine how inflation expectations, monetary policy and corporate earnings pan out.

Here are some indicators that may show the problems easing:

1/SHIPS AND PORTS

Cargo shipping costs tracked by the Baltic Exchange Dry index are down a third in the past month after hitting their highest since 2008 in October.

Further out, data from shipbroker Alibra Shipping shows six-month contracts for Atlantic and Pacific Ocean routes cost $54,000 and $52,500 a day respectively for capesizes, the largest dry cargo vessels. For contracts in 12 months, Pacific routes slip to $36,000 and then $26,000 two years out.

“This could mean the market doesn’t anticipate that the port congestion situation will be as big a problem next year,” Alibra’s head of research Rebecca Galanopoulos said.

Port congestion has eased at most Chinese ports but the giant Los Angeles/Long Beach container port still has a backlog of 222,0000 TEUs (twenty-foot equivalent unit), RBC analyst Michael Tran said.

RBC’s Time of Turnaround metric for the key U.S. port is at 7.5 days compared with 3.5 days before the coronavirus pandemic and Tran doesn’t expect normality to be restored until May 2022.

(GRAPHIC: Baltic Dry index – https://fingfx.thomsonreuters.com/gfx/mkt/znpnekdlavl/Pasted%20image%201635937608713.png)

2/INVENTORIES

Purchasing managers say delivery times for manufacturers worldwide are deteriorating, with the global delivery time index down to 34.8 last month. Any number below 50 shows deliveries are taking longer and October’s reading was the worst on record.

Jefferies analysts expect shortages to intensify at the end of 2021 before demand shifts towards services. They said that should ensure supply chain bottlenecks begin to clear by the first quarter of 2022 as seasonal demand drops sharply and inventories are rebuilt.

The purchasing mangers orders-to-inventories ratio in the euro zone has been declining and some manufacturers are already bracing for shortages to turn into gluts.

“Today’s level of durable goods demand is unsustainably high,” said Paul Donovan, chief economist at UBS Global Wealth Management, who expects consumers to switch away from buying goods to buying more services.

(GRAPHIC: global PMI – https://fingfx.thomsonreuters.com/gfx/mkt/byvrjrznqve/global%20PMI.JPG)

3/CHIPS

The outlook for semiconductors is murkier.

Chip shortages will cut global light vehicle production by 5 million this year, IHS Markit estimates, while some carmakers warn that constraints could last through much of 2022.

Toyota executive Kazunari Kumakura, however, said the worst was over.

Asset manager Capital Group says carmakers who cancelled orders when the pandemic hit were then caught out as spiralling chip demand from the gaming and cloud computing sectors gobbled up available semiconductors.

“Since it takes about four months to manufacture auto chips, the situation is likely to correct itself by the end of this year,” the asset manager wrote in August.

While Malaysian chip suppliers predict it will take two to three years for the market to normalise more broadly, the industry is also boosting production with Q3 sales rising to $145 billion, the Semiconductor Industry Association says.

(GRAPHIC: semiconductorsales – https://fingfx.thomsonreuters.com/gfx/mkt/znpnekdkavl/semiconductorsales.JPG)

4/WOOD, PAPER, METAL

China’s growth slowdown may play against further commodity price rises, with the Fitch agency noting that weaker property markets are “resulting in a plunge in the price of iron ore”.

Beijing has also moved to tame energy prices after power shortages shuttered swathes of factories and mines. Those steps knocked coal futures off record highs and also hit metal prices.

Similarly, China’s record paper pulp market rally early this year sent prices sky-rocketing globally, causing shortages of packaging materials. But since May, Shanghai-traded wood pulp futures are down 30%.

U.S. futures for lumber, a key housebuilding component, are also 60% below springtime highs.

(GRAPHIC: supplyshock – https://fingfx.thomsonreuters.com/gfx/mkt/zgpomkwkqpd/supplyshock.JPG)

5/COVID

Vaccination rates against COVID-19 are creeping higher in key manufacturing nations, especially chip suppliers such as Malaysia and Taiwan, making production disruptions less likely.

UBS estimates vaccination rates in Vietnam, Taiwan and Malaysia should reach 80% by January 2022.

Jack Janasiewicz, portfolio strategist at Natixis, is optimistic about supply chains, as long as COVID-19 is tamed.

“If we can’t keep COVID under control, we’re going to end up having the same issues again and again. They’re going to keep coming in waves,” he said.

(GRAPHIC: lumber – https://fingfx.thomsonreuters.com/gfx/mkt/znvnekdjopl/lumbercorrected.JPG)

(GRAPHIC: shippingindex – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwexgxmvw/shippingindex.JPG)

 

(Reporting by Stefano Rebaudo; Additional reporting by Saikat Chatterjee; Editing by Sujata Rao and David Clarke)

Tesla Price Prediction: A Blow-off Top Followed by Epic Collapse

  • Hertz Announced an initial order of 100,000 Tesla’s to be filled by year-end 2022.
  • Tesla skyrocketed from a $913-billion market cap (October 22, 2021) to $1.21 trillion.
  • The bullish response added $300 billion, implying a $3-million price tag per vehicle ordered (not sold).

Tesla Daily Chart

Tesla shares skyrocketed above $1000 on the Hertz announcement. Tesla is now worth more than all the auto manufacturers combined. More on that later.

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Tesla Market Cap

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https://ycharts.com/companies/TSLA/market_cap

Gross Profit

Let’s say Tesla makes a generous $20,000 profit per vehicle ($20,000 X 100,000). That indicates a gross profit of $2 billion, far shy of the $300-billion increase. What is going on here?

Ford Motor Company

By comparison, Ford Motor Company currently sports a $72-billion market cap, so Tesla adding $300 billion in market cap is like adding four (4) Ford Motor Companies.

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https://ycharts.com/companies/F/market_cap

Major Auto Companies by Market Cap

Below is a quick rundown of all major auto manufacturers by current market cap. Tesla is worth more than all and sells less than 1% of the vehicles.

With a market cap of $1.21 trillion, TSLA is trading at a 25% premium above all auto manufacturers on the planet!

Tesla looks, acts, and smells like a bubble. The question is…when will it pop?

AG Thorson is a registered CMT and expert in technical analysis. He believes we are in the final stages of a global debt super-cycle. For regular updates, please visit here, or follow AG on Twitter at https://twitter.com/ag_thorson

International Opposition Mounts Over Proposed U.S. EV Tax Credit

A group of 25 ambassadors to Washington wrote U.S. lawmakers and the Biden administration late Friday saying “limiting eligibility for the credit to vehicles based on their U.S. domestic assembly and local content is inconsistent with U.S. commitments made under WTO multilateral agreements.”

The U.S. Congress is considering a new $12,500 tax credit that would include $4,500 for union-made U.S. electric vehicles and $500 for U.S.-made batteries. Only U.S. built vehicles would be eligible for the $12,500 credit after 2027, under a House proposal released this week.

Canada and Mexico have issued separate statements in the last week opposing the plan. The U.S. State Department declined to comment Saturday and the White House did not immediately respond to a request for comment.

The proposal is backed by President Joe Biden, the United Auto Workers (UAW) union and many congressional Democrats, but opposed by major international automakers, including Toyota Motor Corp, Volkswagen AG, Daimler AG, Honda Motor Co, Hyundai Motor Co and BMW AG.

A dozen foreign automakers wrote California’s two senators on Friday urging them to abandon the plan that they said would discriminate against the state.

UAW President Ray Curry said the provision will “create and preserve tens of thousands of UAW members’ jobs” and “would be a win for auto manufacturing workers.”

The EV tax credits would cost $15.6 billion over 10 years and disproportionately benefit Detroit’s Big Three automakers – General Motors, Ford Motor and Chrysler-parent Stellantis NV – which assemble their U.S.-made vehicles in union-represented plants.

The ambassadors that also include Poland, Sweden, Spain, Austria, Netherlands, Belgium, Cyprus, Ireland, Malta, Finland, Romania and Greece said the legislation would harm international automakers.

They said it “would violate international trade rules, disadvantage hard-working Americans employed by these automakers, and undermine the efforts of these automakers to expand the U.S. EV consumer market to achieve the (Biden) administration’s climate goals.”

The letter added it “puts U.S. trading partners at a disadvantage.”

Autoworkers at the foreign automakers in the countries that wrote are nearly all unionized but not in the United States.

“Our governments support workers’ right to organize. It is a fundamental right and should not be used in the framework of tax incentives, setting aside the opportunities for nearly half of America autoworkers,” they wrote.

(Reporting by David Shepardson; editing by Diane Craft)

Germany’s Auto Show Tries for More Climate Friendly Image

This year’s IAA show, the first major motor industry event worldwide since the COVID-19 pandemic, wants to be about mobility in general, from bikes to e-scooters to cars.

“Climate-friendly engines, the digital connectivity of transport – that’s what this fair is about,” Hildegard Müller, president of industry association VDA, which organises the bi-annual show, said at a pre-event press conference last week. “The goal of climate protection is guiding us.”

The show, which has shifted this year from Frankfurt to Munich and is themed “Mobility of the Future”, is a far cry from its usual format showcasing the biggest and mightiest cars on the market. The pandemic and growing concern over climate change have cast an uncomfortable shadow over the event, already under pressure from waning attendance numbers in previous years – from 930,000 in 2015 to just 560,000 in 2019.

Indeed, many industry stalwarts have decided against showing up: Toyota, Jaguar’s Land Rover, Stellantis – including its German brand Opel – and Ferrari, to name a few.

Yet, as construction workers scrambled on Sunday to put up remaining exhibition booths ahead of the official opening on Tuesday, cars were clearly still the dominant feature. A lone CANYON e-bike tent was distinctly outnumbered by far larger, glitzier carmaker stands from Mercedes-Benz, Audi, MINI and others.

Activists and environmental groups, too, point out that for all the talk of mobility and diversified transport, automakers still make the vast majority of their money from fossil-fuel emitting SUV sales.

“Adding ‘mobility’ to the event’s name and pushing their e-models to the fore won’t do the trick as long as they keep selling primarily gas-guzzling combustion engines,” Marion Tiemann, transport expert for Greenpeace in Germany, said, branding the event a “greenwashing bonanza”.

Environmental groups including Friends of the Earth Germany and Greenpeace plan a major demonstration on Saturday against the greenwashing of the auto industry and for a faster shift to sustainable mobility. Activist organisation Sand im Getriebe (‘Sand in the Gears’), which smashed up 40 luxury vehicles at a dealership near Frankfurt before the last IAA in 2019, has promised “mass civil disobedience” at this year’s event.

Up to 4,500 police will be on site during the show which ends next Sunday, the biggest police presence for an event in Munich in 20 years.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Victoria Waldersee, Nick Carey, Writing by Victoria Waldersee, Editing by Susan Fenton)

Delta Blow Knocks Wind out of Asia’s Economic Recovery

The rapid spread of the highly infectious Delta variant of the novel coronavirus and low vaccination rates have caught  much of the region off-guard, especially in emerging markets, even as economies in Europe and North America reopen.

“It’s clear that economies across the region are suffering more from COVID-19 than they previously did. The biggest factor is that Asia is poorly vaccinated,” said Rob Carnell, Asia-Pacific head of research at ING in Singapore.

While year-on-year corporate and economic indicators continue to show strong recovery, flattered by comparisons with 2020’s sharp declines, quarter-on-quarter indicators reveal flagging momentum.

Asia’s biggest firms are likely to post their first quarter-on-quarter profit decline in six quarters in July-September, falling 6.19%, showed a Reuters calculation based on Refinitiv Eikon analyst data of 1,069 companies with market capitalisation of at least $1 billion.

“There’s no mistake there will be a slowdown in the third quarter,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

In the near-term, much depends on vaccination progress in Southeast Asia – a major production base – and whether China takes extra steps to support its economy, Fujito said.

Vehicle sales in China, the world’s second-largest economy, slipped 11.9% in July versus the same month last year, falling for a third consecutive month amid virus outbreaks and a global semiconductor shortage which is curbing output.

Toyota Motor Corp, the world’s largest automaker by sales volume, said last week it would cut September production by 40%  from its previous plan due to the chip crunch, though it retained production and sales targets for its fiscal year.

Regarding broader parts supply, Toyota executive Kazunari Kumakura said, “The spread of the coronavirus and lockdowns in Southeast Asia had a major impact.”

SUPPLY HEADACHES

In Southeast Asia, soaring COVID-19 cases and subsequent lockdown measures have hit economic activity in both the services and manufacturing sectors.

Factory activity in the region contracted in July at the fastest pace since June last year, IHS Markit data showed.

“That’s quite a strong signal that economic momentum in Southeast Asia will slow in the third quarter,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit in Singapore.

Delta outbreaks in Southeast Asia have caused supply chain headaches  for many of the world’s largest manufacturers, many of which rely on auto parts and semiconductors made in low-cost bases such as Thailand, Vietnam and Malaysia.

Mitsubishi Motors Corp Chief Financial Officer Koji Ikeya said the COVID-19 resurgence will depress demand, the chip shortage would have a lengthy impact on production, and prices of steel and other materials are set to rise.

“Because of those risks, the environment surrounding us remains unstable,” Ikeya said.

BASE EFFECT

In Malaysia and Vietnam, lockdown measures and cases of infection have forced factories to suspend operations.

“Of course, governments are trying to put in place better protection for essential workers … for example, giving them priority for vaccination,” said IHS Markit’s Biswas.

The extent of any economic slowdown in Asia will not be fully known until governments release third-quarter gross domestic product (GDP) estimates later this year.

Asian economies that were moving from a state of relative openness to lockdown will probably see their GDP contract quarter-on-quarter, said ING’s Carnell.

ING has already trimmed its growth forecasts for Thailand, Malaysia, Indonesia, the Philippines and Australia, he said.

“You’re seeing 30-40% (year-on-year) export growth in many cases but you’ve got very strong base effects working through those things,” Carnell said.

(Reporting by Daniel Leussink and Gaurav Dogra; Additional reporting by Maki Shiraki, Eimi Yamamitsu and Tom Westbrook; Editing by Sam Holmes and Christopher Cushing)

Toyota Motor Powers to Record High with Cyclical Shares Back in Demand

By Hideyuki Sano and Fumiya Mizuno

Toyota’s shares rose as much as 2.6% to 8,869 yen, surpassing their 2015 peak, and closed up 2.0%.

“With earnings out of way, the market trend has clearly shifted in favour of value stocks from growth stocks which had been bought only based on expectations (of future growth),” said Hiroyasu Mori, strategist at Okachi Securities.

“There’s no doubt that Toyota, once called an eternally cheap stock, is a leader in this.” he said.

Toyota, the top Japanese company by market capitalisation and the world’s biggest automaker, has weathered a global semi-conductor chip shortage better than many of its rivals and is forecasting a return to pre-pandemic profit levels this year.

“As supply chain disruptions due to the chip shortage hamper the automaker industry, Toyota has been regarded as the automaker investors can buy,” Nobuhiko Kuramochi, senior strategist at Mizuho Securities, said.

Toyota’s gains also reflect investors’ renewed interest in traditional automakers, which have valuations below those of electric vehicle makers such as Elon Musk’s Tesla.

Shares of Volkswagen have gained nearly 40% this year, while Stellantis has risen 28%.

In contrast, Tesla shares have dropped 18% and Nikola’s 15% since the start of 2021.

Although Toyota has been regarded as a rare winner in an industry squeezed by competition from electric vehicle manufacturers, shares of rival Honda Motor shares also rose 3.3%, outperforming a broader market that was up about 1.5%. [.T]

Steelmakers, financials and retailers also gained sharply.

Nippon Steel rose 4.5% while Dai-ichi Life Insurance jumped 5.8% and Isetan Mitsukoshi gained 3.6%. All three trade far below their book value.

“Value stocks, which had underperformed until recently, look more attractive now,” said Taku Ito, chief portfolio manager at Nissay Asset Management.

“Last year, I didn’t change my allocation that much. But recently I am quite busy as the shares that were doing well last year are no longer doing well.”

($1 = 109.18 yen)

(Reporting by Hideyuki Sano; Editing by Himani Sarkar, Kirsten Donovan)

Toyota Expects Profit Rebound, Shrugs Off Pandemic Slump and Chip Shortage

By Eimi Yamamitsu

The world’s biggest automaker by vehicle sales expects renewed demand in the United States, its biggest market, to drive that recovery and forecast overall sales to grow 6.4% to 10.55 million vehicles for the year.

“Due to the spread of COVID-19 in each region, sales volume declined significantly in the 1st half of the fiscal year. But in the 2nd half of the fiscal year, sales volume increased in many regions compared to the previous fiscal year,” CFO Kenta Kon told a press briefing.

Toyota shares reversed course to rise 2.1% after the results on Wednesday, contrasting with a 10% tumble for smaller rival Nissan whose guidance disappointed investors.

Toyota surprised rivals and investors last quarter when it said its output would not be disrupted significantly by ongoing chip shortages even as Volkswagen, General Motors, Ford, Honda and Stellantis, among others, have been forced to slow or suspend some production.

The global auto industry has been grappling with that chip shortage since late last year, which was worsened in recent months by a fire at a chip plant in Japan and blackouts in Texas where a number of chipmakers have factories.

Analysts have said Toyota has so far been largely unscathed likely due to its chip stockpiling policy.

The maker of the RAV4 SUV crossover and Prius hybrid almost doubled its fourth-quarter operating profit to 689.8 billion yen, beating an estimate of 641.5 billion yen from 10 analysts compiled by Refinitiv. The profit was 369.9 billion yen in the same period a year earlier.

Its forecast of 2.50 trillion yen for the year that began on April 1, however, was lower than the 2.65 trillion yen average profit forecast from 24 analysts compiled by Refinitiv.

Nissan said on Tuesday it expects to break even this business year, defying expectations for a return to profitability, as the global chip shortage and commodity price hike curb the car maker’s recovery from a record annual operating loss.

Japan’s second-biggest automaker Honda, which is due to report annual results on Friday, said in February it expects a 520 billion yen profit for the year that ended in March.

($1 = 108.8500 yen)

(Reporting by Eimi Yamamitsu; Editing by Tom Hogue and Muralikumar Anantharaman)

Earnings to Watch Next Week: Marriott, Electronic Arts, Alibaba and Walt Disney in Focus

Earnings Calendar For The Week Of May 10

Monday (May 10)

IN THE SPOTLIGHT: MARRIOTT

Marriott International, an American multinational diversified hospitality company, is expected to report its first-quarter earnings of $0.03 per share, which represents a year-over-year decline of over 88% from $0.26 per share seen in the same quarter a year ago.

The U.S. hotel operator’s revenue would slump about 50% to $2.36 billion. However, in the last quarter, the company has delivered an earnings surprise of over 20%.

“Largest hotel brand company globally creates economies of scale, but the spread of COVID-19 will pressure unit growth. With the stock trading near its historical average multiple, we see too wide a risk-reward to justify recommending, with upside/downside driven by how severe and quick business trends return to normal post-COVID-19,” noted Thomas Allen, equity analyst at Morgan Stanley.

Tuesday (May 11)

IN THE SPOTLIGHT: ELECTRONIC ARTS

Electronic Arts, one of the world’s largest video game publishers, is expected to report its fiscal fourth-quarter earnings of $1.04 per share, which represents a year-over-year decline of over 3% from $1.08 per share seen in the same quarter a year ago.

The world’s largest video game publishers would post revenue growth of about 15% to around $1.39 billion. However, in the last four quarters, the company has delivered an earnings surprise of over 500%.

“For the fourth quarter of fiscal 2021, EA expects GAAP revenues of $1.317 billion, cost of revenues to be $302 million, and operating expenses of $837 million. EA anticipates a loss per share of 7 cents for the fourth quarter. Net bookings are expected to be $1.375 billion, which indicates an increase of $75 million over the prior guidance. For fiscal 2021, EA expects revenues of $5.6 billion, cost of revenues to be $1.477 billion, and earnings per share of $2.54,” noted analysts at ZACKS Research.

Wednesday (May 12)

Ticker Company EPS Forecast
WEN Wendy’s $0.15
WIX WIX -$0.68
DT Dynatrace Holdings $0.14
WWW Wolverine World Wide $0.40
LITE Lumentum Holdings Inc $1.42
DOX Amdocs $1.13
JACK Jack In The Box $1.29
GOCO Gocompare.Com $0.00
SONO Sonos Inc -$0.22
PAAS Pan American Silver USA $0.30
MAURY Marui ADR $0.15
TM Toyota Motor $3.67
AEG Aegon $0.17
BRFS BRF $0.02
EBR Centrais Eletricas Brasileiras $0.27
BAYRY Bayer AG PK $0.73
TCEHY Tencent $0.53
DM Dominion Midstream Partners -$0.13
FLO Flowers Foods $0.37

Thursday (May 13)

IN THE SPOTLIGHT: ALIBABA, WALT DISNEY

ALIBABA: China’s Alibaba Group Holding, the largest online and mobile e-commerce company in the world, is expected to report its fiscal fourth-quarter earnings of $1.82 per share, up over 40% from the same quarter a year ago. China’s biggest online commerce company’s revenue to surge more than 70% to $27.7 billion.

“Heightened investments in Taobao Deal and Grocery for user acquisition in less-affluent regions in China, should support long-term growth in core e-commerce business. Merchants’ marketing budgets will continue to shift online given rising reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized,” noted Gary Yu, equity analyst at Morgan Stanley.

“Digitalization trend in China will also sustain AliCloud’s growth potential. Gradual margin expansion will be a long-term profit driver. We see limited near-term catalysts but F22e P/E valuation remains attractive. We also see further downside support from additional disclosure to separate losses from new investments from profitable core e-commerce businesses.”

WALT DISNEY: The world’s leading producers and providers of entertainment and information is expected to report its fiscal second-quarter earnings of $0.27 per share, which represents a year-over-year decline of over 50%. The Chicago, Illinois-based family entertainment company’s revenue would slump over 10% to $ 16.1 billion.

Disney is building content assets that enable it to take advantage of the significant direct-to-consumer streaming opportunity ahead. Disney’s underlying IP remains best-in-class, supporting long-term content monetization opportunities,” noted Benjamin Swinburne, equity analyst at Morgan Stanley.

“During this period of FCF pressure from Parks closures, ESPN’s FCF generation is key to driving down leverage. Historical cycles suggest a potential return to above prior peak US Parks revenues in FY23.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE MAY 13

Ticker Company EPS Forecast
CELH Celsius $0.00
HAE Haemonetics $0.69
BABA Alibaba $11.80
BAM Brookfield Asset Management USA $0.87
TAC TransAlta USA $0.06
UTZ Utz Brands $0.15
VERX Vertex Inc. Cl A $0.05
FTCH Farfetch -$0.28
DIS Walt Disney $0.27
AMAT Applied Materials $1.50
DDS Dillards $1.20
VNET 21Vianet -$0.02
TEF Telefonica $0.16
PBR Petroleo Brasileiro Petrobras $0.12
NICE Nice Systems $1.50
TYOYY Taiyo Yuden ADR $2.09
IX Orix $1.97
SGAMY Sega Sammy ADR -$0.02
SOMLY Secom ADR $0.27
OJIPY Oji ADR $1.57
SBS Companhia De Saneamento Basico $0.15

Friday (May 14)

Ticker Company EPS Forecast
MFG Mizuho Financial $0.06
CIG Companhia Energetica Minas Gerais $0.08
HMC Honda Motor $0.41
SMFG Sumitomo Mitsui Financial $0.12
RDY Drreddys Laboratories $0.52

 

Bitcoin Mining Adds to Existing Shortage in Semiconductor Market, Chip Prices Surge

Bitcoin is now a trillion-dollar market thanks to an impressive rally that propelled the oldest cryptocurrency to a fresh all-time high at over $61,000. While market participants enjoy the bullish run, some industries are suffering because of the inflated price of chips.

Everyone is talking about how Bitcoin mining affects the environment due to the huge demand for electricity and the giant carbon footprint. What few people know is that crypto mining impacts the costs of chips, which have been recently booming in price.

Chip Shortages Affecting Entire Industries

Chips are indispensable in so many devices and industries – think about laptops, smartphones, TVs, or cars. The semiconductor industry has already been struggling with supply chain disruptions caused by the COVID-19 pandemic, the winter storm in Texas, and fires at factory sites. But Bitcoin mining is putting even more pressure on the chip market, creating an additional shortage and boosting the price of chips.

The profitability of mining depends on the cryptocurrency’s price, which has rallied for the last few months, surging well above the 2017 peak. The huge competition among miners is prompting an increasing demand for advanced chips. This results in a price boom for chips and thus affects the other industries relying on semiconductors.

CW Chung, head of research at Nomura in Seoul, told Financial Times:

“Added demand from cryptocurrency miners is coming when the chip industry is dealing with simultaneous crises — from supply constraints to a structural shortage of high-end chips. The squeeze should last through the end of the year.”

The problem is so severe that Toyota and Volkswagen – the world’s two biggest carmakers by the number of vehicles manufactured – were forced to cut production due to the shortage of chips. Elsewhere, smartphone makers have no choice but to delay the launches of new devices.

Chung explained that crypto demand might have a great impact on the chip market. For example, during the last Bitcoin rally, demand from miners represented a tenth of the entire sales of TSMC – the third-largest chipmaker in the world.

Nvidia Makes Sure New Chip Is Not Miner-Friendly

The situation is affecting the gaming industry as well, forcing Nvidia to program one of its new chips – GeForce RTX 3060 – to reduce mining efficiency by 50% when it spots mining activity.

Elsewhere, chipmaker Advanced Micro Devices (AMD) told PC Gamer that it had no plans to restrict its graphic cards from being implemented for crypto mining. The truth is that AMD might have no choice at all, as all its drivers are open source.

US/Sino Trade Talks Resume, EU Markets Remain Cautious, Futures Indicate A Flat Open For US Indices

Asian Markets Are Optimistic As Trade Talks Resume

Asian markets were broadly higher on Monday as trade talks resume between the world’s two largest economies. The talks are vice-ministerial level, began today and are being held in Beijing. China’s spokesperson for the Foreign Ministry says both sides have expressed a desire to make a deal and that China is ready to resolve these issues with the US on an equal footing.

China’s equity markets were the least bullish in Monday trading, rising about 0.75% in Shanghai and Hong Kong. In Hong Kong, China Mobile was among the top gainers advancing more than 1.10% on an upgrade from Nomura. Nomura says China Mobile is well positioned to dominate the 5G landscape in the region.

Other indices were more buoyant. The Japanese Nikkei rose nearly 2.45% on the news, led by the auto sector, with Toyota advancing 3.15%. In Korea, the Kospi gained 1.34% with shares of Samsung and Dongbu Steel leading the way. Samsung was up on news it had inked a deal with former rival Apple while Dongbu Steel jumped 30% after it announced a plan to increase investment in its shares.

Traders In EU Remain Cautious Despite Trade Optimism

Traders in the EU remain cautious on global growth concerns, Brexit uncertainty, and the US government shutdown. Slowing global growth is a major cause of the recent equities market correction and remains in the spotlight as data continues to come in weak. In today’s news, German factory orders fell more than expected. Analysts had bee looking for a decline near -0.2%, the actual was -1.0%.

As concerning as the manufacturing data is, it is mitigated by stronger than expected retail sales. Retail sales in Germany grew a full percentage point faster than expected, 1.4%, while YOY sales bucked expectations for a decline with a gain of 1.1%. Retail sales in the broader EU economy were also strong at 0.6% MOM but only as expected. YOY retail sales in the EU came in below consensus. EU equities indices were down across the board at midday, led by the French CAC with -0.65%.

US Futures Flat, Trade, FOMC, And Earnings Are In Focus

US futures indicated a flat open on Monday as traders wait for word on trade. With the US and China discussing the matter right now we can be assured of some headlines in the overnight hours going into Tuesday’s session. Traders are expecting some positive developments although nothing substantive is likely to develop at this time.

On the FOMC front, Fed Chief Jerome Powell did a lot to soothe frayed market nerves last week when he said the committee was patient and ready to alter its course if data supported that idea. In terms of data, Friday’s NFP report showed a massive gain in US employment and hourly earnings, one indication the Fed’s plan to continue hiking rates is still sound. This week’s data includes the FOMC minutes from the last meeting as well as a read on consumer level inflation, due out Friday.