Wall Street Breakfast: Ready For Takeoff

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Ready for takeoff

Air travel continues to return with a vengeance as many look to take a long due summer vacation or see family for the first time in more than a year. Another high mark was set on Sunday despite a renewed threat from rising coronavirus case numbers fueled by the Delta variant. More than 2.2M people went through airport checkpoints nationwide, according to the Transportation Security Administration, notching the highest number since Feb. 28, 2020.

Thought bubble: Not only does the U.S. have a strong vaccination rate (it just reached 70% of all adults), but the country also has a strong domestic market. Contrast that to nations that rely more on international travel, or require digital health passes or negative PCR tests to board a plane. For the broader market, airline industry executives are relying on the easing of travel restrictions for things to snap back and some say consolidation may be in the cards post-pandemic as carriers look to shore up their balance sheets.

Meanwhile, the resurgence of travel, coupled with bad weather, has led to delays and flight cancellations. Airlines are struggling to rebuild networks and have been caught short-staffed after urging employees to take buyouts or leaves of absence to cut labor costs during the pandemic (they still received $54B in taxpayer money). Sen. Maria Cantwell (D-Wash), chair of the Senate Commerce Committee, is even questioning airlines to explain the high numbers of flight delays and cancellations.

Case in point: American Airlines (NASDAQ:AAL) scrapped hundreds of flights on Monday following disruptions caused by severe thunderstorms that swept through its Dallas/Fort Worth International hub. Florida-based discount carrier Spirit Airlines (NYSE:SAVE) additionally canceled about one-third of its flights and is "working around the clock to get back on track." At least 40% of Southwest (NYSE:LUV) and Spirit flights were also delayed on Sunday, which created long lines at ticket counters at Orlando International Airport. (3 comments)

'Spiritual opium'

Thought the Chinese crackdowns were over? Guess again. The online gaming sector might be the next target in Beijing's crosshairs after a strongly worded article from an affiliate of the state-backed Xinhua newspaper took aim at the industry. Phrases like "spiritual opium" and "electronic drugs" were referenced in the since deleted post by Economic Information Daily, though the story remains available in the print version. The article also flagged "widespread gaming addiction" among children, which could "negatively impact their growth."

Market movement: The news sent tremors through the gaming arena, with shares of Tencent (OTCPK:TCEHY) tumbling as much as 11% in Hong Kong and wiping nearly $60B off its market capitalization. A steep selloff was also seen at gaming companies NetEase (NASDAQ:NTES) and XD Inc. (OTCPK:XDNCF). Tencent went on to pledge limits on play time for minors - to just an hour during weekdays and no more than two hours during vacations and holidays - as well as forbidding in-game purchases (and a possible total ban) for kids under the age of 12.

"You can never pay too little attention to any Xinhua story," said DZT Research analyst Ke Yan. "The word choice of spiritual opium is especially harsh, it would be surprising if the regulators won't do anything about this."

Flashback: While Beijing has come down hard in recent weeks on e-commerce, ride-hailing and online education industries, gaming has been in its sights for quite some time. In 2018, China froze new game approvals for ten months, costing Tencent more than $1B in lost sales and a slump in its share price. In 2019, China also brought in rules that banned those under 18 years from playing online games, and last month it installed facial recognition systems for certain titles to prevent kids from using their parents' IDs for in-game purchases. (41 comments)

Delta shadows

Investors are still sizing up recent developments surrounding the Delta variant, with the S&P 500 ending lower on Monday amid concerns over a slowing U.S. economic recovery. While stock futures turned higher overnight, things were also looking positive heading into Monday's session. At the time of writing, Dow and S&P 500 futures were ahead by 0.4%, while contracts linked to the Nasdaq pointed 0.2% higher.

Quote: "Delta is now rapidly spreading in the U.S. and a modest pullback in activity can't be ruled out," said Solita Marcelli, CIO Americas at UBS. "But any potential slowdown should be somewhat muted."

Growth worries also prompted a drop in Treasury yields on Monday, with the benchmark 10-year Treasury note sinking as much as 8 basis points to 1.15%. Fresh data further showed that the U.S. manufacturing sector expanded at a slower pace than a month ago, hitting economically sensitive stocks like materials and industrials, while inflation is running at 30-year highs, according to the Fed's preferred gauge.

Elsewhere: Earnings season continues today with Q2 results from Alibaba (BABA), Amgen (AMGN), Eli Lilly (LLY), Lyft (LYFT) and Under Armour (UAA). The Treasury Department has also begun conducting emergency cash-conservation steps to avoid busting through the federal borrowing limit. A two-year suspension of the debt ceiling expired at the end of July and the measures will permit Treasury to pay off government bills without floating new debt for two to three months.

Stay flexible

Scores of U.S. companies were planning to return their workforces to the office (if they hadn't already) by the end of the summer, but a surge in COVID cases and ever-changing guidelines is throwing those plans into jeopardy. The seven-day rolling average of new U.S. infections is hovering around 80,000 per day, up nearly 150% from two weeks ago. Workers are also trying to assess new research about how easily the Delta variant can be transmitted or the possibility of breakthrough infections (Senator Lindsey Graham just disclosed a case in Congress).

Glassdoor survey: Of more than 1,000 working adults polled in early July, 35% said they were worried about contracting COVID-19 when returning to the office. About two-thirds said they were still excited to return, but that was down from an April survey in which nearly three-quarters of people said they wanted to go back to the office. Some vaccinated employees are also unhappy about having to wear masks at work full-time and the Slack channel doesn't stop pinging over vaccine mandates.

"Instead of making sweeping declarations about how you're definitely doing things in the fall, start small and experimental and try things to see what works," said Rita King, who advises senior leaders of Fortune 500 companies. "It may turn out that people feel very uncomfortable being masked indoors with each other all day and they don't want to keep doing it, in which case you have data from your experiment."

Outlook: Starting tomorrow, Facebook (NASDAQ:FB) will require all of its employees to wear masks when on its campuses in the U.S., regardless of vaccination status. A string of other high-profile tech companies have also modified their plans. Apple (AAPL) and Google (GOOG, GOOGL) postponed the return to the office until October at the earliest after briefly reopening their campuses in recent weeks.

Today's Markets

In Asia, Japan -0.5%. Hong Kong -0.2%. China -0.5%. India +1.7%.
In Europe, at midday, London +0.4%. Paris +0.9%. Frankfurt +0.2%.
Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.2%. Crude +0.8% at $71.85. Gold -0.5% at $1813.10. Bitcoin -2.5% to $38622.
Ten-year Treasury Yield +3 bps to 1.2%

Today's Economic Calendar

Auto Sales
8:55 Redbook Chain Store Sales
10:00 Factory Orders
2:00 PM Fed's Bowman Speech

Companies reporting earnings today »

What else is happening...

Alibaba (NYSE:BABA) earnings preview: E-commerce offsets regulatory risks.

mRNA boost... Sanofi (NASDAQ:SNY) buys Translate Bio (NASDAQ:TBIO) for $3.2B.

Request filed to extend U.S. tariffs on solar panel imports.

Earnings.... BP (NYSE:BP) raises dividend and confirms share buybacks.

AT&T (NYSE:T) closes spinout of DirecTV, video services units.

General Electric (NYSE:GE) stock above $100 as reverse split takes effect.

Affirm CEO: Square's (NYSE:SQ) Afterpay deal validates the entire industry.

Simon Property (NYSE:SPG) climbs after Q2 earnings beat, lifts 2021 guidance.

Qualcomm (NASDAQ:QCOM) dips as Google to use own chips in new Pixel phones.

Philip Morris (NYSE:PM) buying Altria (NYSE:MO): Morgan Stanley sees possibility.

Comments

[Atom Atom]

I just heard a valid sensible comment: It's hard to ask a person what they think will happen to the Macro outlook because you will only realize how that person sees and thinks, you're more apt to appeal to their personality. ( Not an exact quote).

The market will have pullbacks, then it will surge... It's unrealistic to think this element is a negative event, only for many at occasional times. Where are the buy and hold, longer term value and wealth building comments?

This totally slot-machine society with constant stick and carrot techniques needs to be adjusted.

[Jan Martinek]

I think Linkfire (ticker LINKFI, listed in Stockholm) is the most interesting IPO from Sweden this year.
Today Pareto initiated its coverage for LInkfire with 59 pages report. Below is the summary of the report

seekingalpha.com/...

[LK106218]

Are we getting all of the distribution we should from foreign investments? Is the amount credited to your account just a bit less than the simple calculation of shares times distribution per share? It seems someone may be taking a cut, albeit a small one, as those distributions in a foreign currency are exchanged to US dollars. And why should it take days to clear? Especially if it is an exchange from Canadian dollars or UK pounds. Who is sitting on our money to make a little overnight interest? Is that you Citi? Or maybe Wells Fargo? Or Deutsche Bank? Or HSBC? Who is charging us those hidden fees?

[HereToWin]

So goes,"The Days of Our Lives".

[mdmrjsds]

Go look at this chart of cases and deaths in the US,
www.worldometers.info/...

Delta is *not* going to derail the recovery. In fact, despite all the fear mongering, the US, when taking into account those fully vaccinated, those who have survived covid and have natural immunity, and those under 18, well over 90% of the population is protected from severe disease or death. It's time to turn on the after burners.

[Virtue16]

@mdmrjsds You're completely overlooking the delayed effect of lost wages during the pandemic. Many have taken on debt to survive and it will take years for many to get above water again.

[User 53417748]

@mdmrjsds RE: "Delta is *not* going to derail the recovery."

tell that to Israel

ARTICLE: "Israel Revives COVID Restrictions As Cases Soar, Warns Of Possible Lockdown In September"

www.zerohedge.com/...

[JRHighley]

@mdmrjsds No indeed. The cabal of government and corporate power will combine to do that on their own.

[JAMES CARLINI]

Dying from the Delta Variant is less likely than getting killed by Lightning (according to Doctor on TV) so what is all the Panic about?

If it is so bad, why isn't Fauci and the CDC demanding the Border be closed immediately?? To many people, credibility has been shattered because the people who are supposed to "Follow the Science" have turned into political minions.

Their perspective? No credibility anymore with Fauci and the CDC. People want facts - and they have NOT been forthcoming - especially when it comes to funding the Wuhan Lab. If you have not heard about this issue, it is clear you aren't listening to real News.

1006

[18214212]

@JAMES CARLINI

I've struggled to have even one nano-second of fear since covid began. Like every other species on the Earth. Perhaps we who live without fear are not human ?

[mdmrjsds]

@18214212 You are probably somewhere on the low end of the emotional empathy scale. In psychological parlance, you have a tendency toward psychopathy, or you are a psychopath, as that is one of the defining characteristics. It is arguable whether you are human or not, as emotional empathy is the basis of co-operation, a cornerstone of what makes homo sapiens human. What is not disputed is that those with this characteristic have been fellow travellers with humanity for a long, long time, though not in large numbers. Psychopaths tend to make poor mothers.

They have also been responsible for much of the death and destruction over the course of human history, because their extreme selfishness leads to avoiding any thwarted desires for them being worth any amount of suffering for others. e.g. Kim Jong Un

Or maybe you are enlightened :-), as that is also one of the characteristics of the enlightened. They have no fear because they have seen that they don't really exist, and that in fact nothing exists or doesn't; all phenomena are empty, and yet full.
plato.stanford.edu/...

The Heart Sutra reflects this.
Form is emptiness, emptiness is form.
Form is no different than emptiness, emptiness is no different than form.
...

[18214212]

@mdmrjsds

Interesting deep thoughtful comments. In the Wizard of Oz, the cowardly lion represented fearfulness and anxiety and needed courage to overcome his problem. Paradoxically, what is the one indispensable necessary ingredient to have courage ? What do you have to have, absolutely, before you can have courage ? It is the "sine qua non" of courage, a necessary precondition for courage. That mystery ingredient is, paradoxically, fear. Because it doesn't take any courage to do what one is not afraid to do. Courage exists for those who have fear. My fear is only of fear itself. Faith obliterates the paralyzing strangleholds of traditional fears, phobias, anxieties, restlessness, etc.

[Hadrian Archo]

If you're still ok with investing in Chinese markets, then I don't know what to tell you.

In 2011 and 2012, I was a very young man and I had heard about the extreme double digit economic growth numbers. I was skeptical back then, and was proven right almost decade later when it was discovered that data was exaggerated. I haven't invested in a Chinese company ever since.

The past couple of years should've been eye openers for Chinese investors too. The Lukin coffee fiasco, Chinese government manipulation of COVID data, crypto mining crackdowns, and DiDi controversy should've of been more than enough to show that the country is not worth investing in.

Side note: I was at a talk in my area looking at the raw breakthrough cases from Israel. It's interesting to note that the majority of the breakthrough cases so far in Israel were not from the delta strain, they were from the alpha strain (uk variant).

[From Russia With Love]

@Hadrian Archo Russia is better for investing.

[Phil Dumfee]

Putin hiked rates to 19% years ago.

[john boy]

@Hadrian Archo
The chineese govt is taking a torch to everything middle class investors must be devstated, thegovt does not know the element of starting and keeping business going is raising capital who wants tolend to a whipping boy for the govt

[SqueakyToy]

The consequence of an unrelenting barrage of disinformation is massive increases in painful hospitalizations. It's a clear drag on economic activity, as well.

Our best path forward is to incentivize more people to embrace the safe and effective vaccinations as quickly as possible and ask more folks to be civic minded in wearing a simple mask instead of throwing temper tantrums over something so easy and effective.

“Local doctors said they are seeing more hospitalizations among younger people. They’re treating 20-year-olds, 30-years-olds, patients who we think are the most healthiest, and strongest. No one is invisible to the virus.

The vaccine is free. No IDs are required, either.” www.wfaa.com/...

[reality only]

@SqueakyToy This disease has a virtually zero death rate on anyone under 18. Quit spreading disinformation!

[Mudslinger58]

@SqueakyToy I'm sure you eagerly ingest all virus related news, regurgitating anything that doesn't fit your preconceived opinions on masks, vaccines, disinfecting, social distancing, and the ongoing relentless blah blah blah of the breathless media. Your "disinformation" means anything that doesn't fit what you've decided is true. Well...
I have no intention of getting the vaccine.
I think your 'simple and effective' masks are practically useless. I'm the guy who irritates you by wearing it under my nose.
I know plenty of people who've gotten the virus, including neighbors and family. For the overwhelming majority, it has been a huge nothing-burger. A tiny fraction - maybe 2 out of a hundred - have been hospitalized. There were no bodies piled up in the streets.
We should never have locked down our society. That was worse than letting the virus do what viruses do since the beginning of time.
Stop telling the rest of us what to do. If you're afraid of the virus, stay inside and order your stuff online.

[SqueakyToy]

@reality only One might be forgiven for observing that reading comprehension may not be your strength. Nowhere did I mention death rates. Nowhere did I mention those under 18. Nowhere did I spread disinformation.

But, I understand — it's a desperate ploy to attempt misdirecting from the uncomfortable fact that hospitalizations are climbing because of rampant anti-vaccine disinformation, anti-mask hysteria.

“As hospitals begin to fill up with younger, unvaccinated patients, doctors are stressing that there are new symptoms people should watch for as the highly contagious delta variant spreads. Experts stress that the delta variant spreads easily and it takes less of the virus to make someone sick. This delta variant is more deadly than the original.” fox5sandiego.com/...
.

[Seekingbetaguy]

I hope the 17 million people who moved from California to Dallas due to high taxes and oppressive regulations are enjoying the change in the weather.

[jimoc]

@Seekingbetaguy, 98 in SoCal yesterday.

[freshcupajoe]

@Seekingbetaguy Never sell your CA houses just live out of state part time and change your residence so you don’t pay a dime to the corrupt socialists. Honestly my homeless violent drug addict neighbors in LA have it the best. They don’t pay a dime and they’ve taken over miles of the city!!

[18214212]

@Seekingbetaguy
"I hope the 17 million people who moved from California to Dallas due to high taxes and oppressive regulations are enjoying the change in the weather."

Let's hope they remember the many reasons why they left California when they vote in upcoming elections, lest they convert Texas to blue.

[metalhead]

Airline stocks are down in the 20% range since the peak earlier in the summer.

Despite the summer domestic travel "boomlet" in the US. If you believe the market rises and falls ahead of actual economic data, this fall could be ugly, as business travel doesn't come back and the summer vacations end.

[onion bot]

@metalhead my thoughts exactly.

[VoiceofSanitySometimes]

China is absolutely right about on-line games being "opium" for children. Hopefully they add FB, TikTok, etc to that list as well.

It's no better for adults either, but adults should have the right to ruin their own lives if they choose.

[User 54515773]

"There is a saying among drug dealers: Never get high on your own stuff. Bill Gates, Mark Zuckerberg ban technology for their children but want rest of the world addicted to it. ... CEOs of tech companies and Silicon Valley visionaries don't want their kids to use their own disruptive products even as they hard-sell the same products to the rest of the world." - India Today

[VoiceofSanitySometimes]

@Tomorrow's Politics

My teens are banned from on-line gaming and participating in social media. They gripe about it a little, but every time one of their friends or acquaintances "crashes" from it (all too often, sad to say) they thank me....

[Ben Gee]

@VoiceofSanitySometimes Nobody has the right to ruin their lives. When one person ruin his/her own life, he ruin his/her spouse and children's lives too.

[Political Comments]

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]

@Political Comments - May want to add that purely medical comments will be removed by moderators too.

So many medical experts on here that it is scary.

[Jpokergman]

@deercreekvols Medical became political, because of widespread POTUS hate by irrational players.

SA is one of them.

[deercreekvols]

@Jpokergman

SA may want to set up a medical/COVID comments page and keep these off Breakfast.