Wall Street Breakfast: Alibaba Relief
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Shares of Alibaba (BABA) are rising in China trading after the government's decision to fine the company 4% of 2019 revenue allows it to move forward. The State Administration for Market Regulation (SAMR) said Saturday that it had determined that Alibaba had been abusing market dominance since 2015 by forbidding its merchants from using other online e-commerce platforms.
Alibaba said in a statement that it accepts the penalty and “will ensure its compliance with determination.” The $2.75B fine was the highest-ever antitrust penalty imposed by China. But investors are bidding the stock higher, with the fine not material to the company's finances and the cloud of regulatory action removed.
Shares are up 8% in China. “Despite the record fine amount, we think this should lift a major overhang on BABA and shift the market’s focus back to fundamentals,” Morgan Stanley wrote in a note on Sunday, CNBC reports. “The final ruling leans significantly towards what investors had been considering the best case outcome,” Macquarie says.
Bullish for U.S. techs? U.S. mega-cap tech companies are also facing investigations into their practices, with the Department of Justice filing an antitrust suit against Alphabet's (GOOG, GOOGL) Google in October, the FTC and state attorneys general filing against Facebook (FB) in December and the FTC also launching an inquiry into techs over privacy and data protection in December. Last week, DataTrek Research listed tech regulation as one of five scenarios that could be the catalyst for a bear market.
It noted that Alibaba and Tencent (OTCPK:TCEHY) haven't really underperformed the broader Chinese market, but rather “the Chinese government’s sudden increase in tech sector regulatory scrutiny is hitting overall investor confidence.”
The relatively benign outcome for Alibaba could increase confidence for U.S. Big Tech to weather any political storm from Washington.
The mega-cap stocks enjoyed strong gains last week, led by Apple (AAPL), which rose 8%. Amazon (AMZN) and Alphabet each gained more than 6%.
Alibaba also notched a win as authorities declined to demand any divestiture of non-core assets, but the "all clear" may not have been sounded just yet, Seeking Alpha contributor ALT Perspective writes.
“There is no guarantee that Alibaba can make adjustments to the satisfaction of the regulators. SAMR might also find issues with the self-generated compliance reports. Nonetheless, suffice to say, the greatest heat on the company has been alleviated.” (18 comments)
Powell sees ‘inflection point,’ yields dip
Federal Reserve Chairman Jerome Powell sounded a little more optimistic on U.S. economic prospects in his interview with 60 Minutes, but also cautious enough to keep a lid on any pop in Treasury yields.
The economy seems to be at an "inflection point" with "strong growth" and employment prospects starting "right now," he said.
Private forecasters are seeing between 6% and 7% GDP growth this year, with the growth in H2 being very strong.
That's not to say the Fed's key interest rate will be increased any time soon. When asked about the possibility that rates could be increased this year, Powell answered that it's "highly unlikely" such an action would be taken this year.
"It's going to take some time" for the part of the economy hurt most by the pandemic — such as restaurants, hotels, and travel — to recover completely and for all of those jobs to return, he said.
Treasury yields are lower in early trading. The benchmark 10-year Treasury yield is down 1 basis point to 1.65%, while the 5-year yield, more closely associated with Fed rate forecasts, is down 1 basis point to 0.86%.
Stock index futures are down slightly. European markets are down across the board, showing little enthusiasm for the reopening moves in England, which includes shops, gyms and pub gardens.
Powell also said the collapse of Archegos Capital Management raised concerns about one firm causing so much damage, but he didn’t think it raised questions about overall financial stability. “We’re determined to understand what happened and make sure that whatever happened doesn’t happen again,” he said. (69 comments)
Microsoft sets sights on Nuance
Microsoft (MSFT) is in advanced talks to buy Nuance Communications (NUAN), Bloomberg reports. Those talks could value the company at $56/share.
Nuance closed Friday at $45.58, implying about a 23% premium. A deal could come as soon as this week, according to the report.
Nuance uses artificial intelligence solutions to offer speech recognition and natural-language interfaces through a variety of fields, particularly medicine. It has a market capitalization of about $13B. (70 comments)
With the COVID-19 pandemic bringing previously unseen levels of streaming entertainment consumption, along with a corresponding slowdown/shutdown of content production while new entrants continued to launch their services, the question arose in some quarters whether the fat pipe of new content might finally run a bit thinner.
We may be there, Next TV suggests. "It's fair to say the content drought is here," says Kasey Moore, editor of online guide What's on Netflix.
He says the number of original series episodes and movies debuting on Netflix (NFLX) is down 12% year-to-date vs. 2020. New programming additions (of any type) are down by more than half: 40 this month vs. 83 in April 2020.
And Bloomberg's Lucas Shaw notes that aside from HBO Max's (T) release of Generation in March, its other March offerings were a recut film (Zack Snyder's Justice League), two documentaries and Godzilla vs. Kong, which was finished before the pandemic began. That's down significantly from HBO's production over the same period in 2020. Meanwhile, Hulu (DIS) had no originals for March, and Amazon Prime Video's (AMZN) biggest release was another closed-cinema unload: Coming 2 America. (57 comments)
ARK Invest CEO Cathie Wood tweeted an answer to Tesla (TSLA) CEO Elon Musk, who asked her last Monday on Twitter: "What do you think of the unusually high ratio of the S&P market cap to GDP?"
Wood, who runs the ARK Innovation ETF (ARKK), along with other managed funds, looked to historical precedents and pointed to deflationary forces present today.
"'This time is different' are dangerous words in forecasting markets. Most forecasters use post World War II history as their guide,” she wrote in a multi-post answer “On that basis, never has the equity market been higher relative to GDP. In the late 1800’s, however, it seems to have been 2-3 times higher." (344 comments)
What else is happening...
Regeneron (REGN)/Roche's (OTCQX:RHHBY) antibody cocktail reduces risk of COVID-19 infections.
DiaSorin (OTCPK:DSRLF) agreed to acquire Luminex (LMNX) for $1.8B.
Aphria (APHA)-Tilray (TLRY) merger to capitalize on changing legal landscape for cannabis use in the U.S.
Millennials increased mortgage refinancing activity in February, ICE Tracker says.
Watch iRhythm (IRTC) after Novitas published updated reimbursement rates.
Lilly's (LLY) Retevmo shows antitumor activity in solid tumors.
Double dose of Spectrum Pharma's (SPPI) poziotinib improves tolerability in NSCLC patients.
Today's Markets
In Asia, Japan -0.8%. Hong Kong -1%. China -1.1%. India -3.4%.
In Europe, at midday, London -0.6%. Paris -0.1%. Frankfurt +0.1%.
Futures at 6:20, Dow +0.7%. S&P +0.6%. Nasdaq +0.5%. Crude +0.3% to $59.51. Gold -0.4% at $1738.70. Bitcoin +1.3% to $60798.
Ten-year Treasury Yield -9 bps to 1.657%
Today's Economic Calendar
1:00 PM Results of $38B, 10-Year Note Auction
2:00 PM Treasury Statement
Companies reporting earnings today »
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Comments (36)
The people exposed to air pollution of any kind will not pass their exposure on to other people and kill them. If nothing was done to prevent the spread of Covid-19 the hospitals would be jam packed to the max with virus carrying patients that would infect the rest of the non infected number of patients in a domino effect of deaths that would be staggering.
You cannot compare the deaths of people killed by non contagious events to the possible amount of deaths caused if we had not been diligent.
No one wants to talk about why some areas of the world have lower infections than others. No one wants to talk about why some areas like Michigan are seeing spikes in cases with strict lockdown while other areas like Florida with no lockdowns are seeing reduced illness.We should be looking at climate, diet, weight, etc. not just vaccines and more vaccines.
It isn't just the rollout of the vaccines. There was a marked decline in serious illness and death in certain areas before the vaccines had any real impact on the illness. Many areas had and have higher natural herd immunity levels while other areas with strict lockdowns had lower herd immunity levels. The introduction of the vaccines has accelerated the herd immunity levels.There is also some evidence that countries like India that used wide spread distribution of hydroxychloroquine and ivermectin was effective in reducing deaths and illness.But yes it does look like regardless of what was done the virus will probably affect everyone evenly in the end.
