Newsletter - April 5, 2022
Oil / Commodities
- Oil rose Monday as the U.S. and Europe prepare to impose more sanctions on Russia following alleged atrocities against Ukrainian civilians. WTI climbed toward $105 a barrel after closing 4% higher on Monday, the biggest gain in two weeks. Washington is slated to announce additional sanctions this week according to National Security Advisor Jake Sullivan, who said these may contain curbs on energy. European policy makers including French President Macron also flagged scope for further steps. Oil rallied to the highest level since 2008 in the first quarter as Russia’s invasion disrupted supplies in an already tight market faced with roaring demand and dwindling stockpiles. The U.S. and the U.K. have already moved to bar Russian oil and there is gathering momentum for some form of similar actions from the EU, although its dependence on flows is higher. The possibility of new curbs on Russian energy is offsetting the impact in the global crude market of a vast release by the U.S. from the nation’s Strategic Petroleum Reserve in a bid to tame prices, ease the burden on consumers, and peg back inflation. Other countries have said that they will also make drawdowns. Futures remain in backwardation where near-term prices remain above longer-dated ones. Brent’s prompt spread – the gap between its two nearest contracts – jumped to $1.66 a barrel from $1.53 on Monday. In a further sign of tightness, Saudi Arabia has raised prices for all regions while demand from Mideast cargoes surge as buyers shun Russia. Saudi Aramco increased its Arab Light crude for May shipments to Asia to $9.35 a barrel above the benchmark it uses, a record differential. Goldman Sachs estimates the market to have likely had a deficit of 1.5 million barrels a day in recent weeks, with inventories at the lowest in recent history on a demand-adjusted basis. The most compelling short-term opportunities were in distillates such as diesel and jet fuel.
o https://www.bloomberg.com/news/articles/2022-04-04/oil-pushes-higher-on-specter-of-fresh-sanctions-against-russia
Tech
- Shareholders who intend to remain passive – those who do not seek to influence or change control of a company – file a shorter form with the U.S. SEC called a 13G. Those angling for board seats or seismic shakeups typically files a longer and more in-depth form 13D within 10 days of buying their stake. The rule applies to anyone acquiring 5% or more of a public company’s stock. On Monday, Elon Musk announced his 9.2% stake in Twitter by filing the 13G. But Musk is not exactly known for one to stay passive. Musk had repeatedly called out Twitter for failing to adhere to free speech principles and the need to root out cryptocurrency scams that are prolific on the social media platform. Musk is also among Twitter’s most watched users, with more than 80 million followers. Late Monday, he had asked his followers through a Twitter poll if they wanted an edit button – a feature that many users of the platform have long requested. The poll continues to underscore the unlikeliness for Musk to stay a passive investor in Twitter for long. Twitter is particularly vulnerable to outside pressure because unlike Alphabet, Meta Platforms, Amazon and Snap, the company’s founders do not have special voting control over its future. The size of Musk’s recent stake purchased in Twitter means he can wield enormous sway if he wishes to do so. At the moment, many are suspecting Musk’s move as a strategy for advocating change, and not control. Cathie Wood also speculated that Elon Musk’s new ownership stake in Twitter might open the door to a management shakeup at the social media company.
o https://www.bloomberg.com/news/articles/2022-04-04/musk-s-twitter-move-follows-hint-at-umbrage-with-dorsey-s-exit?srnd=technology-vp
- By disclosing that he had bought a sizable share in Twitter, Elon Musk triggered the biggest rally in the social media platform’s shares since its debut in 2013, with nearly every other growth stock tailing on those gains Monday. Sentiment was also buoyed by Tesla, whose shares rose 5.6% after posting record first quarter deliveries over the weekend that bolstered investor confidence that the company can power through a series of industry-wide disruptions. The moves added up to a strong start for U.S. stocks in April – the month that has been the best for the S&P 500 in the past 25 years. Hopes are high that stocks will get a further boost this month even as U.S. companies start to report what damage has been done to earnings margins by decades-high inflation.
- Tech companies including Yelp, Match Group and Spotify are urging users to write their representatives encouraging them to pas slaws in a package of bills designed to curb the power of giant internet companies. The coalition is focusing on two pieces of legislation – the Open App Markets Act and the American Innovation and Choice Online Act. The first would open up app stores operated by Apple and Google, while the second is designed to prevent large internet platforms like Amazon from giving priority to their own products and services. The Justice Department’s antitrust chief Jonathan Kanter wished viewers of the “Antitrust Day” light show art installation to debut tonight in Washington a “Happy Antitrust Day” during a speech at an enforcers’ summit Monday, underscoring his support. Lobbying around the tech-focused antitrust bills is peaking as the window closes for major legislation before the start of midterm campaigns. While the conflict in Ukraine, a Supreme Court vacancy, energy policy, and other items have all understandably been priorities for lawmakers in the last month, this week could be a good window to put competition back on everyone’s radar.
- Palantir has launched its first satellite this month allowing information to be processed in orbit instead of being gathered and sent back to Earth, a step toward broadening the applications of the data analysis software. The company is working with the Earth-mapping company Satellogic Inc. Palantir said its software will improve the speed and quality of data collected from space. Palantir, a longtime government contractor, has some experience beyond Earth. It works with the military’s Space Systems Command, among other Pentagon agencies. It is investing in the space industry and said its software can run on drones, aircraft and now satellites. The recent war in Ukraine has also highlighted Palantir’s work with the U.S. government and its allies. The company was able to grow because the U.S. took an interest in software and understood its potential to reshape national defense and that European nations should follow suit. In a recent interview with Bloomberg, Palantir Chief Operating Officer Shyam Sankar said European governments and groups are using tis software to organize the distribution of materials such as food and beds to Ukrainian refugees who fled during the war. Palantir’s software is also being used to power military responses to Russia’s invasion of Ukraine.
- Intel CEO Pat Gelsinger continues to visit customers and suppliers in Asia in an attempt to shake up an industry that has fallen victim to a global pandemic and geopolitical ructions. Gelsinger is on the way to Japan, Taiwan and India. As part of the trip, he will meet with TSMC, the world’s foremost contract chipmaker and now counts Intel as a client. In addition to TSMC, Gelsinger will also be visiting key suppliers in Taiwan and Japan, including Tokyo Electron (supplier for chipmaker equipment), as well as Ibiden Co. and Unimicron Technology (supplier for Ajinomoto build-up film substrates used in the packaging process). Intel is looking to increase local engagements with employees, customers, partners, suppliers and other key stakeholders in various regions around the world, which will be vital for driving innovation and restoring balance and resilience to the global supply chain.
- User authentication services software provider Okta does not yet know how many of its customers were affected by a January data breach that the company waited nearly two months to make public. Okta revealed last month that it had been hacked in January by Lapsus$ after the latter posted screenshots that appeared to show access to Okta accounts. The company, which provides services for over 15,000 companies, cited the event a “big deal”. The hackers used an unnamed competitor’s software to break into a third-party call center, where about 40 people acted as support agents for Okta to provide help to customers. Hackers took screenshots of what the support agents were doing on their computers and posted them. Okta said as many as 366 customers were potentially affected, but the investigation has yet to determine the exact number. The company cited the technical impact to the customers as a result of the breach is near zero. Okta is also preparing to release a report to customers including more details about the incident. The company no longer works with the call center where the compromise occurred.
- AMD is acquiring closely held Pensando Systems to add chips and software used to route information inside computer systems. AMD will pay about $1.9 billion, before working capital and other adjustments. The acquisition is expected to close in the second quarter. Pensando’s customers include Goldman Sachs, Microsoft’s Azure, Hewlett Enterprise and Oracle’s cloud unit. Under CEO Lisa Su, AMD has resurrected its data center chip business where it is the chief rival to Intel in providing microprocessor that run corporate networks and the internet. Su is adding new capabilities – programmable chips, graphics parts and now data packet processing chips – to beef up the company’s offerings and satisfy more of the growing demand for machinery that controls and makes sense of internet data. The Pensando team is expected to bring world-class expertise and a proven track record of innovation at the chip, software and platform level which expands AMD’s ability to offer leadership solutions for its cloud, enterprise and edge customers according to Su.
- Shares of DWAC fell in Monday trading following reports that a pair of key executives resigned and Elon Musk bought a sizable stake in social media competitor Twitter. DWAC extended a losing streak for a seventh-straight day as downloads of the Truth Social app dry up. The decline was triggered by a Reuters report that Truth Social’s chiefs of technology and product development Josh Adams and Billy Boozer have resigned. Details surrounding Trump’s media venture have been scarce, but the rollout of Truth Social has been plagued by snags as users were told they could not sign up and others received error messages. Despite being available for more than a month, hundreds of thousands of users who were able to download the app are still on the waiting list without access to its full functionality and the app is not yet available to Android users. Downloads of Truth Social have declined 95% to less than 8,000 per day from an initial boom of 170,000 when it launched in February. Short sellers have seen more than $106 million in mark-to-market gains since shares popped after Truth Social’s debut. Retail traders were not as quick to snap up shares of DWAC, with it ranking just 18th among the most bought assets on Fidelity’s platform. The buying lagged the demand for Twitter, which was the top buy in Monday’s session and the biggest percentage gainer in the S&P 500, rising 27%. On Thursday, DWAC hit yet another sang, saying it was unable to file its form 10K annual report with the SEC within the prescribed time period.
o https://www.bloomberg.com/news/articles/2022-04-04/trump-tied-spac-slides-as-executives-quit-musk-bets-on-twitter
Electric Vehicles
- NASA selected electric truck maker Canoo to build vehicles to carry astronauts to the launchpad for upcoming missions to the moon and Mars, boosting the company’s profile as it grapples with a federal securities investigation and employee exodus. The contract, valued at $147,855, was announced last week on the website for the U.S. General Services Administration. Competing bidders have until alter this month to protest the award. Under the agreement, Canoo would manufacture at least one vehicle to carry astronauts in Artemis missions a short distance from a preparation building to the launchpad during dress rehearsals and on launch day. The agency requested that the vehicle have no emissions, have a minimum range of 50 miles and seat eight people. Crew transport vehicles historically have been used as promotional opportunities. The astronauts who flew on the Space Shuttle missions rode to the launchpad in a modified Airstream trailer known as the “Astrovan”. More recently, Tesla vehicles have been used in launches by SpaceX, while Blue Origin launches have been accompanied by rides in a Rivian vehicle. The NASA contract calls for Canoo’s delivery of crew transport vehicles by June 2023. The first crewed Artemis mission is slated for 2024.
- Renault is exploring a possible breakup and IPO of its EV assets, a move that would transform the French automaker’s ties to Russia. The possibility of a transformational change was outlined in broad terms by the manufacturer in February. During a meeting last week with analysts, top managers including CEO Luca de Meo and CFO Thierry Pieton provided more details, including timing and the potential involvement of a partner. A so-called New Mobility company made up of EV assets and its Mobilize car-sharing unit would be separated from Renault’s legacy assets. An IPO of New Mobility assets could be contemplated for 2023. The possibility of a deep overhaul of Renault is emerging just as the company faces a crisis surrounding tis longstanding business in Russia. Renault last month signalled a retreat from its second largest market by halting operations at its Moscow plant and saying it is assessing available options for its AvtoVaz venture that makes the country’s top selling Lada brand. A move to split the company would serve not only to deflect from a costly pull-out from Russia, but also to raise funds for development of EVs and related technology.
- Ford’s sales tumbled to start the day, led by a 31% first quarter plunge for its F-Series pickup as it continued to struggle with chip shortages. The manufacturer sold 159,328 vehicles in the U.S. in March across its namesake and Lincoln brands, a 26% decline from the previous year. For the full quarter, sales fell 17%. The F-150 was outsold by both the Chevrolet Silverado and Ram 1500 in March. The performance is a particular blow to Ford as it prepares to roll out an electric version of its F-150, which had nearly 200,000 non-binding reservations from potential buyers. The F-Series line is the top-selling vehicle in America and Ford’s most profitable product. The company said it has a high number of F-Series trucks in transit to dealers. Ford cited it saw improvement in March sales with in-transit inventory improving 74% over February. Ford also echoed its peers in reporting sales declines during the start of the year as the war in Ukraine and volatile gas prices add to supply chain challenges and pandemic upheaval for the industry. CFRA Research on Monday lowered its earnings estimate for Ford and cut its 12-month price target by $5 to $25. Still, the firm said Ford’s move to embrace EVs gives the stock expansion potential as it becomes valued less like a legacy auto manufacturer.
- Hertz plans to buy 65,000 EVs from Polestar over the next five years, betting its renters are both EV curious and eager to drive brands beyond Tesla. The vehicles from Polestar will join some 100,000 Teslas that Hertz has said it is buying for more than $4 billion. The new deal delivered a boost to shares of Hertz and Gores Gugenheim, the SPAC planning to merge with Polestar. Polestar expects to double sales this year, delivering 65,000 vehicles globally. It plans to produce 290,000 EVs a year by 2025, a tally Tesla now reaches in less than three months. For Polestar, the Hertz order provides a sizable, dependable stream of revenue while it is still pushing to open dealerships. The company has only 125 showrooms around the world. Customers will now be experiencing Polestar in different situations than an ordinary test-drive. The starting sticker price of the Polestar 2 sedan is $45,900, meaning the deal would generate almost $3 billion of revenue for Polestar if Hertz pas at or close to that price. The announcement bolsters Polestar as it prepares to debut on the public markets this quarter via the revers SPAC merger with Gores Gugenheim. The companies have said they expect the deal to value Polestar at about $20 billion. The company is also close to unveiling a SUV, its third model and one of three new machines slated to roll out by 2025.
- Nickel has captured much of the limelight among battery metals in recent weeks, and understandably so. Wild price swings, including an unprecedented 250% advance over two trading sessions amid a short squeeze, and concerns tied to Russia’s role as a key supplier have added to longstanding worries among automakers about securing enough of the material. However, it is dwindling lithium supply that is causing headache for China, the world’s largest EV market. China’s government last month hauled in a whole range of market players for two days of talks focused on halting a breakneck run-up in lithium, the metal that is vital for almost all rechargeable batteries and critical to the roll out of emissions-free cars and clean energy. Lithium carbonate in China jumped about 472% from a low last June to a record high on March 15th. China’s Ministry of Industry and Information Technology demanded in a March a “rational return” to more typical lithium prices. Talks with the industry focused on supply bottlenecks, pricing mechanism and what officials described as the healthy development of the country’s new-energy vehicle and battery sectors. Automakers are already grappling with the hikes in raw materials, with some even having raised sticker prices too in response. By making electric models too expensive, they risk slowing the pace of adoption. Cost escalation remains a very strong headwind for the automotive industry according to Xpeng, which raised the price of its vehicles by between 10,100 yuan to 20,000 yuan last month. The sector’s challenges follow decisions to slow or halt expansions and new projects during a two-year lithium price slump through the middle of 2020. That, combined with COVID disruptions, means additions to supply simply cannot keep pace with rising requirements. Demand for lithium will jump fivefold by the end of the decade according to BNEF. Roughly $14 billion of investment is needed to finance lithium resource and refining capacity by 2025, plus another as much as $5 billion by 2030. Rising government policy support underscores acknowledgement to the pressing demand ahead. China’s authorities have called for quicker development of a domestic lithium sector that already dominates world production, highlighting growth prospects in Qinghai, Sichuan and Jiangxi provinces. In the U.S., President Biden last week added battery metals, including lithium, to a list of items covered by the Defense Production Act, meaning companies can access funding to boot output or to study potential new developments.
- BYD said it has stopped production of fossil-fuel vehicles since March to focus on EVs and hybrid cars amid Beijing’s promotion of greener automobiles to cut pollution. The company will still produce and supply components for gas-fuelled vehicles and provide service and after-sales guarantees to existing customers. The company said it was committed to building low-carbon and environmentally friendly vehicles. BYD took to Twitter recently to proclaim its achievement as the first automotive manufacturer in the world to stop the production of fuel combusting vehicles. Battery-powered and plug-in hybrid sales overtook fossil-fuel vehicle sales for the first time at BYD last year. BYD is also the first domestic player in China to sell 100,000 EV or plug-in hybrid cars a month.
- Toyota reaffirmed its commitment to the U.K. after a newspaper reported it may halt making cars in the country because of government plans to shift more rapidly to fully electric vehicles. The Japanese automaker said it is ready to sell only zero-emission cars and reiterated its view that hybrids have a role to play in the transition by 2035 as the U.K. prepares to set new targets for the auto industry. Toyota is focused on achieving a long-term and sustainable future in Europe, including for its British plants. The British government will require that zero-emission vehicles make up a rising proposal of new car sales each year beginning 2024. Manufactures that do not hit targets will have to pay penalties or buy credits from competitors who surpass the thresholds. Details of the mandate are still developing and have not yet bene finalized. Toyota vowed in December to be ready to sell only zero-emission vehicles in Europe by 2035 and set an intermediate goal for them to make up at least half of its sales by the end of the decade. The company announced a more than 240 million pound investment in its plant in Burnaston, central England, in 2017 to start production of Crolla compact cars. It also has an engine plant in Deeside, north Wales. The U.K. plans to ban sales of new cars that run entirely on gasoline and diesel after 2030 and is permitting hybrid sales until 2035.
o https://www.bloomberg.com/news/articles/2022-04-02/toyota-threatens-to-pull-out-of-u-k-manufacturing-times?srnd=hyperdrive
Consumer / Retail
China Market
- Shanghai reported more than 16,000 daily COVID cases for the first time, as a sweeping lockdown of its 25 million residents and mass testing uncovered extensive spread of the highly infectious omicron variant. The latest development adds uncertainty to China’s growth outlook and threatens to disrupt the global supply chain. China’s current outbreak is surpassing a level not seen since February 2020, when a one-day correction in the way it tracked cases pushed daily infections past 15,000, largely concentrated in Wuhan. The ballooning number of infections in Shanghai today, despite a city-wide lockdown, underscores the challenge the nation faces in returning to President Xi’s COVID Zero goal. Thousands of medical staff from around China have arrived in the city to help with testing. The People’s Liberation Army has also mobilized more than 2,000 military medics to support Shanghai’s virus control efforts. Businesses and some factories remain shuttered, including Tesla’s Shanghai plant which is entering a second week of disrupted operations.
- China’s breath-taking expansion of its strategic and nuclear arsenal is a quickly escalating risk for the U.S. according to the head of U.S. Strategic Command. China’s first test of an intercontinental ballistic missile-launched hypersonic glide vehicle last July is a technological achievement with serious implications for strategic stability. The hypersonic vehicle flew 25,000 miles for more than 100 minutes, marking the greatest distance and longest flight time of any land attack weapon system of any nation to date. Every operational plan and capability of the Pentagon today rests on the assumption that strategic deterrence, and in particular, nuclear deterrence, will hold, but the head of U.S. Strategic Command warns that the rising threat from Beijing now holds as well. He cited that both China and Russia have the capability to unilaterally escalate a conflict to any level of violence, in any domain, worldwide, with any instrument of national power, and at any time. The U.S. armed forces no longer have the luxury of assuming the risk is always low, particularly during a crisis. China is investing heavily in hypersonic and directed energy weapons technology for global strike and defeat of missile-defense systems, anti-satellite, anti-missile and anti-drone capabilities in recent years. Beijing has also boosted construction of nuclear missile fields in western China, each with about 120 missile silos, allowing the country to have robust ballistic missiles that would be capable of reaching the continental U.S. Other advancements in the past year include ground-based, large phased array radars and at least one geostationary satellite capable of detecting ballistic missile launches.
- The World Bank has lowered its growth forecasts for East Asia and the Pacific to 5% from 5.4% forecast in October, and warned growth could slow to 4% if conditions weaken further. The latest outlook reflects a hit to the region from Russia’s invasion of Ukraine, rising interest rates in the U.S. and slowing growth in China. Ongoing supply chain shocks are continuing to hamper manufacturers and push up prices. China, which accounts for 86% of regional output is tipped to expand by 5% in its baseline scenario and 4% in the downside scenario. For the rest of the region, output is tipped to expand 4.8% in the base case and 4.2% in the downside scenario. The latter outcome would trigger 6 million more people remaining trapped in poverty at the $5.50 per day threshold. The World Bank also said regional firms that had already reported payment arrears will be hit by new supply and demand shocks. At the same time, real income for households will shrink as inflation soars and government debt will limit how fiscal policy makers can response. Rising prices will also limit room for central banks to ease. As a result, the World Bank has developed four types of policy response: (i) targeted support for households and firms to limit pain from shocks and create space for investment, (ii) stress-testing financial institutions to identify risks, (iii) reform of trade-related policies in goods and in still-protected services sectors would enable countries to take advantage of shifts in the global trade landscape, and (iv) improving skills and enhancing competition would strengthen capacity and incentive to adopt new digital technologies.
- China Evergrande Group agreed to pay the adviser fees of a bondholder group working with the cash-starved property developer to restructure debt, and to share more information with the creditors. The creditors, advised by Moelis & Co. and Kirkland & Ellis, began to prepare for negotiations in October, after Evergrande delayed interest payments on one of its offshore bonds and reported that certain asset sale plans had collapsed. A representable for Houlihan Lokey, which is advising the company, declined to comment on the matter. Earlier today, the Wall Street Journal reported details on the fee-paying deal, which is a standard arrangement in most U.S. debt restructurings.
o https://www.bloomberg.com/news/articles/2022-04-04/evergrande-is-said-to-agree-to-pay-offshore-creditor-group-fees
Russia-Ukraine Development
- Foreign Minister Wang Yi reiterated China’s desire for a cease-fire in talks Monday with Ukraine counterpart Dmytro Kuleba, their first such exchange since March 1st. The talks send a fresh signal that President Xi could soon speak with President Zelenskiy for the first time since Russia’s invasion began in late February. However, the Chinese diplomat has made no new commitments toward mediating the conflict. China has come under pressure from the U.S. and others to take a clear line against the invasion, as its diplomats and state media play down civilian casualties and cast President Putin as a victim of NATO expansion. While President Xi has spoken to key players in the dispute including President Putin and President Biden, he has yet to have a conversation with President Zelenskiy. President Zelenskiy had previously told Fox News on Friday that Ukraine wanted Chine among the security guarantors for any deal. Close ties between Beijing and Moscow make China an important player in ensuring a peace deal holds.
- The Pentagon plans to order and send to Ukraine 10 of the newest model Switchblade drones armed with tank-busting warheads in addition to previously announced deliveries of a less powerful version. The new Switchblade-600 weapons are part of $300 million in lethal military assistance announced by the Pentagon Friday night that will be contracted directly from industry instead of drawn from existing stocks. The White House said in mid-March that it was supplying 100 of the drones as part of an $800 million package of weapons and gear taken from U.S. inventories. But those systems are the “Series 300” Switchblade drones designed to attack personnel and light vehicles. The new 50-pound model can fly more than 24 miles and loiter 40 minutes before attacking with an anti-armour warhead. The drone operator uses a tablet-based touchscreen fire-control system with the option to pilot the loitering missile manually.
- President Zelenskiy said he would address the UN Security Council on Tuesday, while a call between top diplomats from Ukraine and China could signal inaugural talks between him and President Xi for the first time since the onset of the Russia-Ukraine war. The U.S. said it might impose further sanctions this week on Moscow following allegations that Russian troops have executed unarmed civilians in Bucha and other Ukrainian towns. The EU also said it would hold Russian authorities accountable for the alleged atrocities, while Russia has repeatedly denied that its forces killed civilians. France and Germany are among EU members that have already expelled Russian diplomats in recent weeks. The Ukrainian Defense Ministry said Russia was regrouping its troops to gain a tactical advantage in the country’s south, storing fuel and organizing hospitals for an influx of the wounded as it prepares for a new offensive. The U.S. Treasury Department had already ratcheted up pressure on President Putin by halting dollar debt payments from Russian government accounts at U.S. financial institutions. The move was designed to force Russia into choosing among three unappealing options – draining dollar reserves held in its own country, spending new revenue, or going into default. Meanwhile, crude oil climbed in Asia trading Tuesday as investors evaluated the prospect of tougher sanctions against Russia for alleged killing of civilians during the war, fuelling renewed fears about supply disruptions.
- President Biden said President Putin could face a war crimes trial and vowed Washington would impose additional sanctions against Russia, as he condemned alleged atrocities committed against civilians in Ukraine. The world has reacted with horror and outrage at the large numbers of civilian casualties in towns surrounding Kyiv that were among the first targets of invading Russian forces. President Biden’s recent comments suggest the fresh revelations of atrocities could spark a new phase in the international response as the war nears the six-week mark. Meanwhile, EU officials have also said they are preparing additional sanctions to penalize Russia. French President Macron called for very clear measures and said the penalties would be discussed over the next few days. Ukraine’s foreign minister, Dmytro Kuleba, on Sunday urged the International Criminal Court to visit liberated cities and villages near Kyiv to collect evidence of Russian war crimes after bodies of civilians who had had their hands tied behind their backs were found in Bucha. The International Criminal Court has opened an investigation into whether Russian forces have committed war crimes, which include wilful killing, torture, rape, forced prostitution, corporal punishment, hostage taking, unlawful deportation, using starvation as a weapon and shooting combatants who have surrendered, among many other acts.
o https://www.bloomberg.com/news/articles/2022-04-04/ukraine-update-more-talks-possible-even-as-bucha-outrage-grows?srnd=premium-asia
Market Update
- Oil climbed as investors evaluated the prospect of tougher sanctions against Russia for alleged atrocities during the war in Ukraine; the EU and the U.S. have both said they are working on new Russian sanctions, with the latter promising further penalties later this week
- U.S. futures were steady in Asia trading Tuesday after the technology sector boosted Wall Street Monday; market moves largely remain shaped by the ramifications of the ongoing Russia-Ukraine conflict and tightening monetary settings as raw material costs stoke inflation, and the Fed minutes to be released later this week will likely guide expectations for how rapidly the U.S. central bank will increase rates and reduce its bond holdings
- Treasuries retreated, with the spotlight remaining on inverted yield curves, which point to an economic downturn should the Federal Reserve deliver a series of aggressive rate increases to quell price pressures
- S&P 500 futures fell 0.1%, while the S&P 500 rose 0.8% to 4,582.61
- Nasdaq 100 futures lost 0.1%, while the Nasdaq 100 rose 2% to 15,159.58
- 10-year Treasury yield rose 2 bps to 2.42%
- WTI crude rose 1.2% to $104.49 a barrel
- Gold was at $1,929.11 an ounce, down 0.2%
- Citigroup is among underwriters that have temporarily paused IPOs of new U.S. SPACs until they get more clarity on the potential legal risks posed by recently proposed rules. The NY-based bank is awaiting feedback from legal advisers regarding underwriter liability among other topics. Last week, the SEC issued a sweeping plan for tightening oversight of SPACs after U.S. lawmakers and investor advocates argued the listings were bypassing rules imposed on traditional IPOs and exposing retail shareholders to risks. The SEC’s proposal would broadly require SPACs to disclose more information about potential conflicts of interest and make it easier for investors to sue over false projections. Citigroup is among the U.S.’ most prolific SPAC underwriters, ranking second in 2020 and first in 2021. Over the two-year period, it raised $31.6 billion from 146 IPOs. This year, issuance has slowed as SPACs have fallen out of favour with investors, in part due to lackluster returns following the consummation of a transaction. Still Citigroup is ranked second behind Cantor Fitzgerald, having raised $1.12 billion from five deals. In the SEC’s latest proposal, the agency deemed the underwriters of a SPAC IPO to also be underwriters of the black-check company’s subsequent purchase of another firm, a deal known as the de-SPAC transaction. The proposed rule aims to better motivate SPAC underwriters to exercise the necessary care to ensure the accuracy of the disclosure in these transactions. The new rule may lead to changes in the practices of investment banks given the heightened risks. Investment banks involved with de-SPAC transactions do not typically conduct the same level of due diligence as they would for a traditional IPO.
o https://www.bloomberg.com/news/articles/2022-04-04/citi-said-to-pause-new-spac-issuance-as-sec-signals-crackdown
Summary
- Micro – The technology sector got a boost during Monday’s regular session, buoyed by sentiment from Elon Musk’s purchase of more than 9% stake in the Twitter social platform, which led to adjacent rallies in peer stocks including SNAP, FB, and PINS. Tesla also rallied following reports of record quarterly deliveries released over the weekend, overshadowing the suspension of productions in Shanghai amid the city’s latest omicron variant outbreak. The rally on Monday adds to a strong start for U.S. stocks in April, which has historically been a month with the best gains observed in the S&P 500 over the past 25 years. Hopes are high that stocks will get a further boost this month even as investors away an earnings season that might shed light on the extent of damage on earnings margins caused by decades-high inflation. Volatility remains the near-term theme, nonetheless, as market moves remain largely sensitive to ramifications of the ongoing Russia-Ukraine conflict and tightening monetary settings as raw material costs stoke inflation. The Fed minutes to be released later this week will likely guide expectations for how rapidly the U.S. central bank will increase rates and reduce its bond holdings, and any commentary pointing to aggressive actions towards quelling inflation may further exacerbate the economy into a protracted slowdown.
- Macro – Oil rallied on renewed fears of supply crunches amid calls by the U.S. and the EU for new sanctions on Russia following allegations of its atrocities against Ukrainian civilians. The rally overshadowed optimism last week following the U.S. announced additional releases from its Strategic Petroleum Reserve to ease rising price pressures, and countered sentiment on slowing demand from China amid rising COVID cases and ensuing restrictions on mobility. Meanwhile, Treasuries continued its retreat with the spotlight remaining on inverted yield curves, which point to an economic downturn should the Federal Reserve deliver a series of aggressive rate hikes to quell price pressures.