Washington, we have a problem
With markets laser-focused on the situation in Ukraine this week, investors seemed to shrug off the latest figures on red-hot inflation. Stocks powered higher yesterday despite a PPI that showed U.S. wholesale prices in January soaring 9.7% from a year ago, more than twice analyst estimates and just short of the largest jump on record seen in May 2021. A slew of more important data is on tap for today, like retail sales, industrial production, the housing market index and FOMC minutes, which could shed further light on how price pressures are impacting the economy.
No peak in sight: “The latest inflation data continue to decimate the ‘inflation is purely transitory’ theory,” noted Michael Cembalest, chairman of market and investment strategy at J.P. Morgan Asset Management. “After pricing in less than one Fed hike as of last September, markets and Fed watchers now expect between 6 and 7 hikes over the next year, with some arguing for a 50 basis point move and not just 25.”
Besides causing a stir at the Federal Reserve, Congress is starting to prepare for some action on the fiscal side, though things are getting partisan ahead of midterm election campaigns. Democrats have introduced legislation that would suspend the federal $0.18 per gallon gas tax until next year and are considering pulling some pieces out of the stalled Build Back Better agenda to address prescription drug prices and childcare costs. However, Republicans were quick to criticize the gas-tax holiday, saying Democrats now realize that they were on the wrong side of the energy issue as well as “dumping trillions of dollars in left-wing spending on a recovering economy that already had the preconditions for some inflation.”
Soaring everywhere: One example of how inflation is affecting the housing market can be seen on Airbnb’s (NASDAQ:ABNB) earnings call yesterday, with co-founder and CEO Brian Chesky saying the current landscape may “empower more individuals to become hosts as a source of earning additional income.” Heineken (OTCQX:HEINY) also issued a warning in its quarterly report, outlining that price pressures are “off the charts.” “In my 24 years in the business I’ve never seen anything like it, not even close,” CEO Dolf van den Brink said on a call. “Across the board we are faced with crazy increases, so it’s anybody’s guess what the impact is going to be on volumes. There’s no model that can handle this kind of inflation.”
Things are getting even more heated on Capitol Hill as a Republican refusal held up a Senate committee vote on the appointment of Sarah Bloom Raskin and Federal Reserve Chair Jerome Powell. Raskin was slated to become the Fed’s Vice Chairwoman of Supervision, or the government’s most influential overseer of the American banking system. The GOP flagged concerns about her business dealings, and their absence from the vote meant the necessary quorum was not there to confirm the nominees.
Quote: “Important questions about Ms. Raskin’s use of the ‘revolving door’ [between politics and corporate interests] remain unanswered largely because of her repeated disingenuousness with the Committee,” declared Senate Banking Committee ranking member Pat Toomey (R-Pa). “Committee Republicans aren’t seeking to delay her vote. We’re seeking answers.” He specifically flagged concerns about Raskin’s prior work for Reserve Trust, a fintech where she worked after departing the Obama administration.
The delay not only affects Raskin, but prolongs the confirmation process for Jerome Powell’s second term – as well as Lisa Cook and Philip Jefferson for Fed governor seats – as the country deals with soaring inflation. Democrats had hoped to confirm all of them as a package, but the latest delay could theoretically push the Biden administration to ditch Raskin. If the GOP indefinitely holds up the committee vote, she could be “discharged” without recommendation, and force the White House to go for a less controversial pick.
What’s the issue? After leaving her role as Treasury’s deputy secretary, Raskin went on to lobby Kansas City Fed President Esther George in 2017 on behalf of fintech Reserve Trust, looking to score a special account at the central bank (it previously denied access to its payments system). Following her personal intervention, the Kansas City Fed approved the company’s second request in 2018, but it maintains the reversal was not the result of Raskin’s call. Having a “master account” still remains Reserve Trust’s largest selling point to customers and it even advertises as such on the homepage of its website.
Shares of Virgin Galactic (SPCE) shot into the stratosphere on Tuesday, with the stock skyrocketing 32% to end the session at $10.74. The catalyst was the opening of ticket sales to the general public for the first time, which will move the company closer to spaceflight commercialization. It was a much-needed boost for the stock, which has been battered over the last year, and has dropped over 80% from a high of nearly $56 seen in June 2021.
Bigger picture: CEO Michael Colglazier said Virgin Galactic aims to have its first 1,000 customers on board at the start of commercial service later this year, which he called an “incredibly strong foundation” as the company begins regular operations and scales its fleet. Spaceflight reservations will command a price tag of $450,000 (following an initial deposit of $150,000, customers will make their final payment before their flight).
Morgan Stanley also weighed in on the development by saying the additional ticket sales continue to prove that there is demand for space tourism, but warned that it does not change the execution risks facing the company. The ability for Virgin Galactic to deliver on the backlog depends on delivering reliable operations at scale, according to the firm, which also noted that the Eve mothership is still grounded for its 8-month enhancement period and Galactic has been “assessing the strength margins of materials for potential technical issues.”
Analyst Kristine Liwag: “In our view, demand is not a limiting factor for SPCE. Instead, we see the core challenge for Virgin Galactic centering on execution of its plans to scale operations to 400 flights per year per spaceport. While the opening of SPCE’s ticket window is encouraging, we continue to monitor for updates related to ongoing spacecraft enhancements and development of the company’s Delta class spaceship and next-gen mothership.”
Super ratings & gambling
It’s already a few days after Super Bowl LVI, when the LA Rams defeated the Cincinnati Bengals, but the statistics surrounding the big game are just starting to pour in. The matchup drew some 112M viewers, up about 14% from last year, boosted by remarkably close playoff games, as well as the Rams representing a major media market. About 99.2M viewers tuned in on NBC’s main delivery channel, with another 11.2M on streaming (including NBCUniversal’s Peacock), and about 2M on the Telemundo Spanish network.
Increased competitiveness: The figures wrap up a strong season for the National Football League. Viewership in the regular season rose 10% Y/Y to its highest point since 2015, and the two conference championship games each averaged nearly 50M viewers. NBC was part of the NFL’s landmark 11-year media rights deal reached last spring, netting the league more than $100B long-term and keeping most of the games on traditional TV through 2033.
Gambling on the Super Bowl this year also leaped to fresh records as legalized sports betting continues to boom across the U.S. According to the American Gaming Association, 45M more people had access to legal sportsbooks in their home states this year after 10 additional states gave a green light to the industry. Companies like DraftKings (NASDAQ:DKNG), FanDuel (DUEL) and BetMGM (MGM, OTCPK:GMVHY) are duking it out on the freshly cut field, with the hopes of being able to throw a stiff-arm or strip away market share.
Outlook: GeoComply, which monitors the sports betting industry, logged more than 80M transactions over Super Bowl weekend, more than double that of last year. It also recorded 5.6M unique accounts that accessed legal online sportsbooks, a 95% increase from 2021. Industry analysts say that sports betting and casino-style games are even poised to become as much as a $40B market as online gambling ads dominate TV, podcasting and streaming platforms.
In Asia, Japan +2.2%. Hong Kong +1.5%. China +0.6%. India -0.3%.
In Europe, at midday, London -0.3%. Paris flat. Frankfurt flat.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.1%. Crude +1.2% $93.13. Gold flat at $1856.30. Bitcoin -0.1% to $44,212.
Ten-year Treasury Yield unchanged at 2.04%
Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Retail Sales
8:30 Import/Export Prices
9:15 Industrial Production
10:00 Business Inventories
10:00 NAHB Housing Market Index
10:00 Atlanta Fed’s Business Inflation Expectations
10:30 EIA Petroleum Inventories
11:00 Fed’s Kashkari Speech
1:00 PM Results of $19B, 20-Year Bond Auction
2:00 PM FOMC Minutes
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