Wall Street Breakfast: What Moved Markets

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Wall Street Breakfast

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Stocks and U.S. Treasurys fell Friday after a weak jobs report added to speculation about the Federal Reserve's plan to taper its bond-buying program. September was the slowest month for job growth this year, with just 194,000 jobs added compared to consensus estimates for a half-million, signaling a slowing of the labor market recovery and perhaps complicating the Fed's decision on when to begin scaling back monetary support. Inflation concerns pushed long-term interest rates higher, with the benchmark 10-year yield rising to 1.61% after adding 15 basis points on the week. But the three major stock market indexes finished modestly higher for the week, recovering from steep early losses after the U.S. Senate agreed to raise the debt ceiling for at least a few more weeks

Facebook under fire

The pressure on Facebook (NASDAQ:FB) didn't let up following a three-hour Senate hearing last week in which lawmakers grilled the social media giant over its harmful effects on young people. Then over the weekend, a Facebook whistleblower named Frances Haugen - who leaked the docs for the WSJ's "Facebook Files" - accused the company of repeatedly prioritizing profit over clamping down on hate speech and misinformation. Her lawyers have already filed at least eight complaints with the SEC, according to the interview on CBS's 60 Minutes.

Bad timing: Facebook's services went down for six hours on Monday as the social network was getting bad press. Shares fell in tandem, plummeting nearly 5%, with Facebook, Messenger, WhatsApp and Instagram all offline. A change to its backbone routers disrupted services and the company's day-to-day operations, though there were reports that employees could not enter buildings.

Meanwhile, Haugen went as far as to suggest the moneymaking moves contributed to the deadly Jan. 6 invasion of the U.S. Capitol (after the company prematurely disbanded its Civic Integrity team designed to thwart misinformation). She also testified before a Senate subcommittee in a hearing titled "Protecting Kids Online," hoping that her statements result in "regulation being put into place." "When we realized tobacco companies were hiding the harms it caused, the government took action. When we figured out cars were safer with seatbelts, the government took action," she declared in her prepared testimony. "I implore you to do the same here."

Response from Facebook: "Every day our teams have to balance protecting the ability of billions of people to express themselves openly with the need to keep our platform a safe and positive place," Facebook spokesperson Lena Pietsch said in a statement. "We continue to make significant improvements to tackle the spread of misinformation and harmful content. To suggest we encourage bad content and do nothing is just not true." (187 comments)

Wild swings

Energy prices continued to surge to fresh records as renewed fears stoked panic of the worst shortage in decades. India warned that it only had days of coal reserves left, German power plants ran out of fuel and China unloaded an Australian coal shipment despite an import ban and icy relations. Supply is just not there as economies rebound from a pandemic-induced lull, while problems like logistical logjams and transport bottlenecks are adding to the pressure.

Bigger picture: OPEC+ didn't come to the rescue on Monday as the group decided to continue its original plan of gradually releasing 400,000 additional barrels of oil per month. That's despite calls from world leaders, including the White House, to bring more crude on to the market and keep a lid on prices. According to the EIA, average daily crude production in the U.S. has been 6.7% lower than last year, while commercial stockpiles of crude, excluding the Strategic Petroleum Reserve, are off by 15% compared to 2020.

The shortages helped send oil prices to their highest levels in three years, with Brent (CO1:COM) and WTI crude (CL1:COM) touching $82 and $78 a barrel, respectively. This past week, coal from the central Appalachia region also rose $2.20 to $73.25, up 35% YTD and the highest level since May 2019. European benchmark TTF natural gas futures even jumped as much as 40% to a record €162.125/MWhr - in the span of a few minutes - after closing 20% higher on Tuesday. But the rally didn't hold as Vladimir Putin chose a timely moment to leverage his nation as an oil and gas superpower.

Go deeper: The Russian leader proposed to stabilize the environment with an offer to export record volumes of vital fuel to the continent. The advance could pressure European officials and regulators into approving Nord Stream 2, a controversial pipeline linking Russia and Germany that is close to launching. U.S. Energy Secretary Jennifer Granholm also raised the prospect of releasing crude oil from the government's strategic petroleum reserve as average prices at the pump hover around $3.19/gallon nationwide - the highest in seven years. (214 comments)

Sigh of relief

The U.S. will not ban cryptocurrencies like China, SEC Chairman Gary Gensler said at a House hearing on Tuesday, though the agency will focus on ensuring that the industry is fairly regulated. "Our approach is really quite different," he declared, adding that any ban would probably have to be legislated by Congress. The stance is a boon for the crypto world, after Gensler last month said the industry was "rife with fraud, scams, and abuse."

Bigger picture: Jerome Powell seems to agree with Gensler as the Fed boss recently said he has no intention of banning cryptos, but stablecoins need more regulatory oversight. In contrast, China recently declared crypto transactions illegal, but it also seeks to launch its own central bank digital currency dubbed the digital yuan. In September, Beijing issued a sweeping ultimatum against crypto trading, stating all transactions were illegal and aggressively moved to root out token mining.

Speaking of crypto, Bitcoin (BTC-USD) broke above $50K and even touched $56K just a week after the digital token bounced off $41K.

How would a ban work anyway? Bringing forth such a measure could be legally difficult for the U.S. government, but even if would go through, enforcing the ban would be the harder part of the equation. Unless the government would exert strict control over the internet, individuals could download Bitcoin wallet software, run a node and complete transactions. That may make the currency out of the realm of widespread adoption, but could also increase its demand for the exact same reason. Over the last decade, Bitcoin has also made inroads in the U.S. financial system, where it is treated as a commodity, so a ban could face other barriers like stymieing innovation and closing down institutions overseeing billions of dollars in crypto assets. (124 comments)

Moving to Texas

Tesla (TSLA) said it would relocate its headquarters to Austin, Texas, from Palo Alto, California, as the great exodus from the Golden State continues. The announcement from Elon Musk came at the company's 2021 annual shareholder meeting, though he still detailed hopes that production at Fremont, along with Giga Nevada, would still be expanded (even by 50%). "It's tough for people to afford houses, and people have to come in from far away... There's a limit to how big you can scale in the Bay Area."

Flashback: On an earnings call in April 2020, Musk called California's COVID-related restrictions "fascist" in an expletive-laced rant. Last year, he also personally relocated to the Austin area from Los Angeles, where he had lived for two decades. The move allowed him to lower his personal tax burden and be closer to the SpaceX (SPACE) launch site in Boca Chica, Texas.

Tesla isn't the first company to move its headquarters out of California to Texas. Hewlett Packard Enterprise (HPE) and Oracle (ORCL) have shifted their base from Silicon Valley to Houston, while Charles Schwab (SCHW) relocated its HQ to the Dallas area from San Francisco. Texas lawmakers have been encouraging migration from the coasts through a combination of lower taxes, financial incentives and a business-friendly environment.

Other notes from the meeting: Musk said Tesla is likely to begin producing its Cybertruck late next year as it works through supply chain challenges. He also hopes the company will manufacture its long-delayed semitrailer truck and a revamped version of its Roadster sports car in 2023. Shareholders additionally re-elected Musk's brother Kimbal and James Murdoch to the board (Institutional Shareholder Services had advised against the re-election). (290 comments)

Global tax deal

Ireland finally came around to a global minimum tax plan that G7 and G20 nations hope will combat tax evasion and standardize rules across the world. The country will give up its treasured 12.5% corporate tax rate by joining a group of 140 nations that have agreed to an effective levy of 15% on major multinationals. The new rate will affect 1,556 companies in Ireland employing 500K people, including tech giants like Apple (NASDAQ:AAPL), Google (GOOG, GOOGL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB), and will end up costing the country about €2B in lost revenues.

What happened? Dealmakers crossed out two words that changed the country's mind. The initial text mentioned a minimum corporate tax rate of "at least" 15%, but that was updated to just 15%, meaning the rate wouldn't be pushed up at a later date. Ireland was also given assurances that it could keep its lower rate for smaller companies operating in the country, ahead of an OECD meeting in Paris this weekend.

"In joining this agreement, we must remember that there are 140 countries involved in this process and many have had to make compromises," said Paschal Donohoe, Ireland's Finance Minister. "This is a difficult and complex decision but I believe it is the right one." Over the past five years, hi-tech companies have accounted for the majority of Ireland's €5B-€7B/year in foreign direct investment.

Outlook: The last remaining holdout for the deal in the EU is Hungary, after Estonia joined Ireland on Thursday in signing up to the accord. Over in the U.S., President Biden and Treasury Secretary Janet Yellen are also on board, though they face challenges of getting the agreement through Congress. The changes could require the Senate to alter existing tax treaties, which would take a two-thirds vote and at least some GOP support. Republicans have already expressed opposition to any rise in taxes, while some lawmakers have condemned the idea of ceding taxing authority to other governments. (71 comments)

U.S. Indices
Dow +1.2% to 34,746. S&P 500 +0.8% to 4,391. Nasdaq +0.1% to 14,580. Russell 2000 -0.3% to 2,235. CBOE Volatility Index -11.3% to 18.77.

S&P 500 Sectors
Consumer Staples +1.4%. Utilities +1.5%. Financials +2.3%. Telecom -0.1%. Healthcare -0.3%. Industrials +1.8%. Information Technology +0.3%. Materials +1.%. Energy +5.%. Consumer Discretionary +0.9%.

World Indices
London +1.% to 7,096. France +0.7% to 6,560. Germany +0.3% to 15,206. Japan -2.5% to 28,049. China +0.7% to 3,592. Hong Kong +1.1% to 24,838. India +2.2% to 60,059.

Commodities and Bonds
Crude Oil WTI +4.9% to $79.58/bbl. Gold -0.1% to $1,757.3/oz. Natural Gas -0.3% to 5.6. Ten-Year Treasury Yield -0.9% to 131.03.

Forex and Cryptos
EUR/USD -0.22%. USD/JPY +1.05%. GBP/USD +0.49%. Bitcoin +14.7%. Litecoin +5.%. Ethereum +5.7%. Ripple +3.6%.

Top Stock Gainers
Voyager Therapeut (NASDAQ:VYGR) +113%. Xenon Pharmaceuticals Inc (NASDAQ:XENE) +111%. Chemocentryx Inc (NASDAQ:CCXI) +109%. Renren Inc ADR (NYSE:RENN) +75%. Nextplay Technologies Inc (NASDAQ:NXTP) +70%.

Top Stock Losers
Macquarie Infrastructure Hldgs Llc (NYSE:MIC) -91%. Prelude Therapeutics Incorporated (NASDAQ:PRLD) -50%. Allogene Therapeutics Inc (NASDAQ:ALLO) -46%. Amplify Energy Corp (NYSE:AMPY) -40%. Nkarta Inc (NASDAQ:NKTX) -33%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

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