In a rare breach of tradition and secrecy, the U.S. Supreme Court has voted to strike down the landmark Roe v. Wade decision, according to an initial draft majority opinion leaked to POLITICO. Once a public ruling is released, federal protection of abortion rights would come to an end, allowing each state to decide on the legality of abortion and procedures (at least 22 states already have laws on the books in the event the case is overturned). The high court is expected to announce its final decision within the next two months, though deliberations on controversial cases have been fluid in the past and multiple drafts or vote-trading could occur before then.
Some history: Roe v. Wade effectively legalized abortion across the United States in 1973 by striking down a Texas law that only permitted abortion for the purpose of saving a woman's life. The majority opinion at the time declared that a woman's right to privacy under the 14th Amendment superseded a state's right to ban abortion and the court set different rules for each trimester. In the years since, Roe has been modified but not overturned, like in the 1992 case of Planned Parenthood v. Casey. In that decision, the court said that restrictions are "unconstitutional" if they place an "undue burden" on a woman, and quickly became the new standard by which new abortion cases were judged.
"Roe was egregiously wrong from the start. Its reasoning was exceptionally weak, and the decision has had damaging consequences. And far from bringing about a national settlement of the abortion issue, Roe and Casey have enflamed debate and deepened division," Justice Samuel Alito wrote in the initial draft majority opinion. "Roe expressed the 'feel[ing]' that the Fourteenth Amendment was the provision that did the work, but its message seemed to be that the abortion right could be found somewhere in the Constitution and that specifying its exact location was not of paramount importance. The Constitution makes no reference to abortion, and no such right is implicitly protected by any constitutional provision."
Is Corporate America getting involved? You bet, and it has the potential to make bigger waves than the "Don't Say Gay" tussle between Disney (DIS) and Florida's legislature. In 2019, Netflix (NFLX) threatened to pull projects from film and TV hub Georgia over its court-challenged law that would ban abortions as early as six weeks into pregnancy, while Amazon (AMZN) just promised to reimburse employees with $4,000 if they have to travel for procedures like abortions. Other companies also put up money after Texas's Heartbeat Act went into effect last year, with Match Group (MTCH), Yelp (YELP) and Apple (AAPL) promising to help pay for out-of-state abortions, and Lyft (LYFT) and Uber (UBER) pledging legal defense funds for drivers sued under the new law. (117 comments)
The 10-year U.S. Treasury yield has broke above 3% for the first time since December 2018 as the Federal Reserve is poised to hike interest rates and shrink its balance sheet to fight inflation. The recent climb higher has weighed on stocks, which were more attractive when rates were low under the so-called TINA trade (there is no alternative). Higher rates have also pushed up borrowing costs on mortgages and other long-term loans, raising worries about economic growth and a possible recession.
Commentary: "While it's clear that this economy doesn’t need stimulative monetary policy, what is less clear is the speed at which this stimulus should be removed, and the reasons for choosing that speed," said Alex Roever, U.S. rates strategist at J.P. Morgan.
The Federal Open Market Committee convenes today for its May policy meeting, with expectations of a 50 basis point hike coming tomorrow afternoon. Investors will be carefully parsing the language of the central bank's statement for any change in its outlook, though the dip in Q1 GDP is not likely to prompt the Fed to ease up on tightening. Chair Jerome Powell is also set to lay out plans of reducing Treasury and MBS holdings as soon as next month, with the bank only willing to let the assets mature (i.e. "run off") thus far.
Strategies? While rising yields have crushed treasury-related ETFs, there are ways investors can exploit a rising-rate environment. Market participants that are betting on higher yields can invest in inverse ETFs that are designed to bet against bond prices. Four examples and their YTD prices include the ProShares Short 20+ Year Treasury ETF (TBF) +21%, ProShares UltraShort 20+ Year Treasury ETF (TBT) +46%, ProShares UltraPro Short 20+ Year Treasury (TTT) +71%, and the Direxion Daily 20+ Year Treasury Bear 3x Shares ETF (TMV) +71%. (42 comments)
A flash crash on Monday morning that saw the OMX Stockholm 30 Index plunge as much as 8% in just five minutes spilled over into European stock markets, wiping as much as €315B in market capitalization off bourses stretching from France to Poland. Trading was halted momentarily in several locations, though things quickly recovered before finger-pointing ensued. Citigroup's (C) London trading desk eventually claimed responsibility for the knee-jerk selloff and is currently in talks with regulators about the incident.
What happened? "One of our traders made an error when inputting a transaction," a Citi spokeswoman said in a statement. "Within minutes, we identified the error and corrected it."
The mistake could cause some reputational damage to Citigroup, which has had some trouble with untimely errors. In August 2020, Citigroup bankers accidentally paid the bondholders of client Revlon (REV) nearly $900M, while it was ordered by regulators to clean up its safeguards and fined $400M. Meanwhile, the U.S. Office of the Comptroller of the Currency just lifted a 10-year-old consent order that was tied to the lender's compliance with anti-money laundering laws after CEO Jane Fraser pledged billions of dollars to transform its technology and internal systems.
Nerves of steel: "The reason was a sell event by a market participant," said the exchange operator behind Nasdaq Stockholm, Nasdaq Helsinki and Nasdaq Copenhagen. "After review, Nasdaq has not seen any reason to cancel trades that were made during this event." (28 comments)
U.S. tariff relief on China is now under consideration at the White House as the Biden administration confronts the strongest U.S. inflation readings since the early 1980s. At a basic level, some economists have found that Chinese exporters generally didn't lower prices to keep their goods competitive, meaning tariff duties were mostly paid by U.S. companies and consumers. Others say the move would not target inflation at its core (tariffs have been around since 2018) and would do little while rewarding a "human rights-abusing, communist government."
Quote: "Are they on the table or not? All tools are on the table," U.S. Trade Representative Katherine Tai said during an interview at the Milken Institute Global conference in Los Angeles. "The question is 'What do you do with them?'"
Last week, Treasury Secretary Janet Yellen also proposed the phasing out of Trump-era tariffs on merchandise imports from China to provide price relief to Americans. "While they may have created negotiating leverage, they serve no strategic purpose," added Daleep Singh, deputy national security adviser for international economics. "From the beginning of the administration, we talked about how some of the tariffs implemented by the previous administration were not strategic and, instead, raised costs on Americans," White House Press Secretary Jen Psaki further declared at a press briefing. "And our effort - which has been ongoing, of course - has been to ensure current Section 301 tariffs align appropriately with our economic and trade priorities."
Commentary: "The trouble with China is that it continues to act like a small country. Its policies often have the desired effect at home - say, reducing input costs to industry or one set of Chinese farmers or by increasing returns to another," wrote Chad Bown and Yilin Wang, analysts at the Peterson Institute for International Economics. "But they can also be beggar-thy-neighbor, with China selecting the policy that solves a domestic problem by passing along its cost to people elsewhere."
In Asia, Japan closed. Hong Kong +0.1%. China closed. India closed.
In Europe, at midday, London -0.7%. Paris +0.4%. Frankfurt +0.2%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq +0.1%. Crude -0.9% to $104.18. Gold -0.3% to $1859. Bitcoin -0.9% to $38,437.
Ten-year Treasury Yield -1 bps to 2.99%
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