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Wall Street Breakfast: Alibaba Relief

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Wall Street Breakfast

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Alibaba relief

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)

A streaming drought?

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)

Cathie Wood answers Elon Musk

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 »

This article was written by

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Comments (36)

47977204 profile picture
China’s BABA fine makes sense at 4%.

China needs to fine itself 4% of its 2020 GNP and distribute it to ever country in the world on a basis of loss of life. Obviously the wild type virus escaped from the Wuhan Virological Lab.

Not addressing the issue makes the issue worse, not better. China needs to get over it with this self imposed and final action to close the books on the pandemic.

To suppress a truth gives it a force beyond recognition.
What would be harder to get Regenerons antibody coctail or a vaccine shot and which is cheaper makes me want to go HMMM
WHO estimates that around 7 million people die every year from exposure to polluted air. Ambient air pollution alone caused some 4.2 million deaths in 2016, while household air pollution from cooking with polluting fuels and technologies caused an estimated 3.8 million deaths in the same period.

That's nearly twice as many people who died from Covid over the last year and a half pandemic.

Stop the shutdowns. Fauci is moving the goalposts again. Are we focusing on the right problems?
rlmod profile picture
@Phil Dumfee
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.
This Podcaster is BORING and sluggish to listen to! Put some energy into your delivery or get someone else to do it!😴
E Cline profile picture
Well said @mrsh1
Maybe I'm just naive, but I have to think any self-respecting superpower needs to be wary about US mega-cap tech companies dominating the internet economy -- it's almost like a 21st-century arms race -- so I have to think the Chinese govt long-term sees the continued success and growth of BABA, JD, TCEHY as a vital counterweight to GOOG, AAPL, FB, etc. so worries about BABA and Chinese govt are lots of smoke and posturing.
VoiceofSanitySometimes profile picture
Alibaba pays $2.8B fine. ANT Group IPO aborted, and ANT Group now restructured by the Chinese Govt reducing its value by at least half and possibly as much as 90%.

Anybody thinking about telling the Chinese Govt to be less involved in private business, as Jack Ma did, will likely realize they shouldn't be thinking about it.

And there is no way of knowing if the punishment of Jack Ma is over yet or not... I'm going to guess not...
US growth more than China sometime this year? That would be something.
Ben Gee profile picture
@LK106218 Trump does not know that a 32% growth after a 33% lost is no growth.
blueline profile picture
"Regeneron (NASDAQ:REGN)/Roche's (OTCQX:RHHBY) antibody cocktail reduces risk of COVID-19 infections"

Another money maker for pharmaceuticals?

The article doesn't say what this "cocktail" costs. Remdesivir is around $3K per dose. Most of these pharmaceutical treatments aren't given to people in the first several days of illness, you have to be admitted to the hospital after you are fully infected. One of the treatments that some doctors are prescribing at the first signs of infection is ivermectin. It's been around for decades and is extremely safe and cheap which is why the drug companies/media doesn't want to talk about it.

Almost all Covid patients have very low vitamin D3 levels. Get out side and breath some fresh air without a mask, lose some weight, up you intake of vitamin D3 and magnesium and zinc.
Invader from Earth profile picture
My biggest fear are these COVID-19 variants and the development of a Pfizer “Booster” that addresses these variants. What about Moderna and J&J? How serious are the Brazil and South African variants? I understand that it attacks younger citizens? Horrible. Why are we so sure that our economy is going to safely reopen?
blueline profile picture
@Invader from Earth
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.
VoiceofSanitySometimes profile picture

Because it is random. The real trend in the numbers is toward an even spread. Just look at the US and how tightly banded the states are around the national average of about 175 deaths per 100,000. You are seeing the same thing in Europe, where the standard deviation of the total death rates by country has been declining. Go back and look at the total death rates last summer and look at how much wider the variability was.

Which is exactly as should be expected. In the early stages of a virus like this, there are concentrated pockets and other areas that haven't yet been impacted. So you have wide variation. But as a virus as easily transmitted as this spreads, the statistics become smoother and smoother over time. There will still be short-term pockets where one area is hit harder than another, but it is safe to say that the 5 states commonly listed as the biggest issues right now won't be on that list in a couple of months and a different 5 will take their place.

What you are starting to see now is the decline in death rates being variable based on vaccine adoption. Within the US the impact is small since all states are on a similar track (some are slightly better than others, but not enough to impact the statistics unless you focus on meaningless one week numbers), but globally you are seeing that difference play out. France only has about 1/2 as many people vaccinated as the US, so the risk of further outbreak there has been much higher.

FYI, if you study the history of the Spanish Flu, you will see the exact same pattern.
blueline profile picture
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.
Keep an eye on reopening stocks rebounding. With vaccines rolling out, Europe and UK reopening, stocks such as COTY are due for an upside.
Daytrader77 profile picture
A dead cat bounce.

Alibaba bulls will have a chance to get in at $175.. sooner possibly lower..
Political Comments profile picture
Dear Readers, We recognize that politics often intersects with the financial news of the day, so we invite you to click here - seekingalpha.com/... - to join the separate political discussion. Purely political comments on this Wall Street Breakfast article will be removed by moderators.
deercreekvols profile picture
Open invitation to Brunch.

Hope you are able to stop in after Breakfast.

@Political Comments excellent move for most of us reading these articles are looking for GLOBAL FINANCIAL news. Let the other sites fight it out for the politically interested parties.
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