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Wall Street Breakfast: Energy Showdown

Apr. 01, 2022 7:49 AM ET65 Comments
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Energy showdown

Check out original Seeking Alpha show The Weekend Bite! This week's episode explores current market dynamics amid pressure on the tech sector. Fundstrat's Mark Newton and Interactive Investors' Victoria Scholar discuss being positioned diversely and defensively.

It doesn't look like the Russian gas taps going to Europe will get turned off today, though there is always the possibility of some surprises. Germany and Austria have already begun preparations for rationing, while the bloc of EU countries warned that they were preparing for all contingencies. Russian gas sales to Europe are estimated at $350M a day, and unlike oilfields, gasfields are relatively easy to turn on and off without damaging them.

Backdrop: When Vladimir Putin first announced a ruble payment demand from "unfriendly countries" last week, G7 nations rejected it, saying it would violate contract terms. Since then, the Kremlin has outlined a payment mechanism that would allow foreign buyers to convert their dollars and euros via non-sanctioned Gazprombank. The state-controlled institution would send along rubles to energy giant Gazprom (OTCPK:OGZPY), which has a monopoly on Russian gas exports by pipeline. Putin said the goal was to prevent western governments from seizing payments made in foreign currency and strengthen Russia's sovereignty.

"For us, with regard to Putin's threat or announcement or plan - one doesn't really know what to call it anymore - to get paid in rubles, the main point is that the contracts are being kept," German Economy Minister Robert Habeck declared. "In any case, it remains the case that companies want to, can and will continue to pay in euros," added Chancellor Olaf Scholz. Germany is the biggest importer of Russian gas in the European Union, which gets around 40% of its natural gas needs from the now heavily-sanctioned nation.

Go deeper: "I think ultimately Russia wanted to send a message that as long as its gas is being paid for in time and in full [irrespective of which currency is used] the gas will continue to flow," said Katja Yafimava, Senior Research Fellow at the Oxford Institute for Energy Studies. "If Europe were to lose supplies of Russian gas it would be not because of Russia cutting them off but because of Europe not paying for them." (13 comments)

Non-farm payrolls

The second quarter is kicking off with the closely-watched jobs report and strong figures could give the Fed more impetus to continue on a rate hike cycle that it hopes will cool inflation. Non-farm payrolls are expected to show 490,000 jobs were added in March, following a 678,000 gain in February. The unemployment rate is expected to fall to 3.7% from 3.8%, while wages are forecast to rise 0.4% M/M and 5.5% Y/Y (from 0.0% and 5.1%).

Snapshot: Positive jobs growth in March would mark the fourteenth consecutive month of expansion for the U.S. workforce and bring the number of employed Americans closer to pre-pandemic levels. Non-farm employment is now only down by 2M payrolls, or 1.4%, compared to its 152M level notched in February 2020. At the height of the COVID employment crisis in April that year, non-farm payrolls slumped to 130M nationwide.

"Transportation still seems to be pretty hot, certainly the hospitality sector, but over the last couple of months, it's been pretty widespread. We're seeing jobs gains across most of the jobs sectors," explained Marvin Loh, senior global macro strategist at State Street. "I would look at retail because when you get these higher gas prices it's the consumption categories that get hit first."

Market reaction: Futures linked to the major indices are around 0.5% higher this morning after closing out their worst quarter in two years. The Dow and S&P 500 fell 4.6% and 4.9% during Q1, while the Nasdaq slumped more than 9%. There's been somewhat of a rally in recent weeks, but fears of inflation, inverted yield curves, oil prices and the war in Ukraine continue to rattle investors.

Union drives

Corporations are still debating how to approach intensifying labor campaigns across the country as the union drives draw some serious media attention. More than 130 Starbucks (SBUX) locations across 26 states have filed for union recognition since the first victory seen in Buffalo in December. Battles are also heating up at Amazon (NASDAQ:AMZN), with union votes held at warehouses in New York and Alabama in recent weeks.

JFK8: An early tally shows a potential victory for organized labor at the Staten Island warehouse, which would create the first-ever union at an Amazon facility in the U.S. At the end of counting on Thursday, the Amazon Labor Union was ahead by a margin of 1,518 votes to 1,154, with the process likely to conclude today. Amazon has worked hard to oppose the effort at its largest fulfillment center in New York, tapping PR firm Global Strategy Group to thwart the effort.

BHM1: Another defeat appears to be in the cards after the National Labor Relations Board ordered a rerun of a vote at the Bessemer warehouse. "No" votes totaled 993 to 875, though 416 ballots remain challenged by Amazon and the RWDSU (meaning things can change in the coming weeks if the NLRB decides to open and count them). The first time around, Amazon was found to have improperly polled workers' union support during mandatory company meetings, as well as installed a mailbox at the facility that could have intimidated workers by giving a false impression that Amazon was conducting the election.

Outlook: Union supporters are calling for higher wages, better health coverage (like more support for injured workers), and a safer and transparent system for monitoring productivity. On the other side of the fence, Amazon feels that unions are unnecessary given its industry-leading healthcare, vacation time and recent move to raise average starting pay to $18 an hour. For both elections, a simple majority of the return vote is needed in order for the union to begin organizing. (4 comments)

Stock split craze

"Come on, shareholders. All the cool megacaps are doing it."

GameStop (GME) is the latest company to publicize its intentions for a stock split following a similar announcement from Tesla this week and recent decisions by Apple (AAPL), Amazon (AMZN) and Alphabet (GOOGL). The split would help "provide flexibility for future corporate needs," according to GameStop, which is looking to increase the number of authorized shares of Class A common stock to 1B from 300M to implement a split in the form of a stock dividend.

Back to the moon? Shares of the meme stock soared 18% to around $200 in premarket trading and up from the $150 level seen at the start of the week. It's also up over 150% from the 52-week low of $78 hit on March 14. The meme craze has surfaced in recent weeks as traders pile back into riskier assets, though things could crash just as fast as they returned. Last week, GameStop Chairman Ryan Cohen increased his stake in the videogame retailer to 11.9% from 11.8% by adding 100K shares at prices ranging from $96.81 to $108.82.

As mentioned previously: Splitting a stock does not affect underlying fundamentals, but it could attract more investors by making shares more affordable for retail investors or those that don't want such a holding to be a large portion of their portfolios. In fact, BofA Global Research notes that splits are "historically bullish" for companies, with their shares marking average returns of 25% one year later versus 9% for the overall market. (28 comments)

Today's Markets

In Asia, Japan -0.6%. Hong Kong +0.2%. China +0.9%. India +1.2%.
In Europe, at midday, London +0.2%. Paris +0.6%. Frankfurt +0.5%.
Futures at 6:20, Dow +0.5%. S&P +0.5%. Nasdaq +0.5%. Crude +0.6% to $100.84. Gold -0.8% to $1938.20. Bitcoin -4.5% to $45,128.
Ten-year Treasury Yield +7 bps to 2.40%

Today's Economic Calendar

8:30 Non-farm payrolls
9:05 Fed's Evans Speech
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
1:00 PM Baker-Hughes Rig Count

Companies reporting earnings today »

What else is happening...

U.S. to sell petroleum reserves, incentivize drilling on public lands.

Biden invokes Defense Production Act to boost EV battery production.

Subscription drive: Apple (AAPL) unveils another service for businesses.

SEC adds China's Baidu (BIDU) to list of firms facing possible delisting.

Walgreens (WBA) indicates slowdown in Q2 growth as COVID impact wanes.

Bill capping insulin cost passes House, fate uncertain in Senate.

Supply chain crisis: Ford (F), GM (GM) halt production at two Michigan plants.

Soybeans slide as USDA sees farmers planting more beans than corn.

Ruble pares all losses seen since the Russian invasion.

Insurance costs from war in Ukraine could reach as high as $35B.

This article was written by

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