China’s Covid-19 lockdown of Shanghai saw oil prices slump overnight, as investors fretted about more sweeping containment measures, which would negatively impact China’s energy consumption. Brent crude and WTI plummeted over 8.0% in overnight trading, although the rot had started earlier in the day in Asia. Oil’s volatility continues to make eye-watering viewing, but increasingly, the moves are being driven by falling liquidity in the futures markets, and the exchanges’ itchy trigger fingers on raising margins.
Also assisting the negative sentiment in energy markets, which is positive for the rest of us, is the first meeting in Turkey today by Ukrainian and Russian representatives. Markets are always keen to price in the prospect of a peace deal, if one could call it that, with what might be hints of concessions by both sides. Comments out from both sides though late in the day, suggest an agreement will be as elusive as ever. If there is a break though, watch out for sub-USD 100 Brent, a mad rush into the euro and European equities, and a slump in the US dollar and gold. Asian equities should catch a nice tailwind as well.
US yield curve causing jitters
US bond markets continue to send negative signals, with swaths of the yield curve flirting with inversion overnight. Unsurprisingly, financial stocks, along with energy producers, were two of the least favourite sectors in New York trading. For all the talk of the yield curve signalling a recession, equity markets continue their recovery, led by tech overnight, thanks to a Tesla share split announcement. A cynic could argue that given how far the Fed was behind the “transitory” inflation curve, they would also make a dog’s breakfast of sorting the mess out, accidentally tipping the US economy into a recession.
Analysts seem to be in a race to price in 0.50% hikes by the FOMC now, in stark contrast to the end of December. I’m waiting for the 0.75% predictions to start if this Friday’s US Non-Farm Payrolls is particularly strong. The pressure is mostly being felt in the 3-month to 10-year part of the curve, hence the inversions, but I do believe that there is still plenty of room for the curve as a whole to move higher as the Fed plays catchup. Eventually, that should weigh on equities.
Threats of higher US rates are making themselves felt most noticeably in Japan, where the USD/JPY rose almost 300 points overnight to 125.00 before falling to 123.90. The Bank of Japan didn’t get any bang for its buck yesterday, placing an unlimited bid in the 10-year JGB market to cap yields at the top of the acceptable range at 0.25%. That bid has been extended until tomorrow. Meanwhile, Japanese officials have gained some temporary respite by making USD/JPY comments this morning and oil falling overnight. The yen’s woes will likely be reflected elsewhere in Asia this year, where regional central banks appear happy to accept inflation as the price of growth. They have bulging currency reserves. It is not at all clear though, whether they will spend them to prop up their national currencies.
Australia releases its federal budget this evening and is likely to hand out plenty of pre-election goodies ahead of an expected May election. Like countries everywhere, Australians are facing a soaring cost of living on multiple fronts, as the Ukraine war and the downstream effects of ham-fisted quantitative easing mean the piper finally has to be paid. Voters will naturally blame the government now that the party is over. Although the budget will be significant for the embattled Morrison government’s hopes of re-election, its impact on markets will be modest. It may give President Biden a headache though as he ponders mid-terms in November and a lame-duck presidency.
Australian Preliminary Retail Sales rose 1.80% in Feb, better than expected but old news considering events since. South Korean March Consumer Confidence held firm at 103.20, while Japan’s Unemployment for February dropped to 2.7-%, both a pleasant surprise given the events of February. Whether that trend continues is another thing altogether. German Consumer Confidence for April is likely to slump for obvious reasons this afternoon.
In the US, we have three Fed presidents speaking, and some closely watched data. The S&P/Case-Schiller Home Price MoM for January will be watched for more signs the housing market is topping out, although it is a lagging indicator. We also have the February JOLTS Job Openings. A fall below 11 million open positions could give some temporary respite to the bond market, hinting that the US labour crunch is starting to ease. That’s a reach though. President Biden will also make a 2023 budget speech. Preliminary details yesterday targeted rate hikes for the rich and spending increases. I can’t see it moving the needle on the mid-terms and I believe it will remain stuck in Congress for a long time.
Otherwise, we should all be watching our news providers for breaking news on a breakthrough in Ukraine-Russia negotiations, or not.recession unemployment covid-19 yield curve equities stocks fomc fed housing market currencies us dollar euro congress containment lockdown recovery unemployment gold oil japan european russia ukraine china
Fighting the Surveillance State Begins with the Individual
It’s a well-known fact at this point that in the United States and most of the so-called free countries that there is a robust surveillance state in…
Stock Market Today: Stocks turn higher as Treasury yields retreat; big tech earnings up next
A pullback in Treasury yields has stocks moving higher Monday heading into a busy earnings week and a key 2-year bond auction later on Tuesday.
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Forget Ron DeSantis: Walt Disney has a much bigger problem
The company’s political woes are a sideshow to the one key issue Bob Iger has to solve.
Walt Disney has a massive, but solvable, problem.
The company's current skirmishes with Florida Gov. DeSantis get a lot of headlines, but they're not having a major impact on the company's bottom line.
DeSantis has made Walt Disney (DIS) - Get Free Report a target in what he calls his war on woke, an effort to win right-wing support as he tries to secure the Republican Party nomination for president.
That effort has generated plenty of press and multiple lawsuits tied to the governor's takeover of the former Reedy Creek Improvement District, Disney's legislated self-governance operation. But it has not hurt revenue at the company's massive Florida theme-park complex.
Disney Chief Executive Bob Iger addressed the matter during the company's third-quarter-earnings call, without directly mentioning DeSantis.
"Walt Disney World is still performing well above precovid levels: 21% higher in revenue and 29% higher in operating income compared to fiscal 2019," he said.
And "following a number of recent changes we've implemented, we continue to see positive guest-experience ratings in our theme parks, including Walt Disney World, and positive indicators for guests looking to book future visits."
The theme parks are not Disney's problem. The death of the movie business is, however, a hurdle that Iger has yet to show that the company has a plan to clear.
Disney needs a plan to monetize content
In 2019 Walt Disney drew in more $11 billion in global box office, or $13 billion when you add in the former Fox properties it also owns. In that year seven Mouse House films crossed the billion-dollar threshold in theaters, according to data from Box Office Mojo.
This year, the company will struggle to reach half that and it has no billion-dollar films, with "Guardians of the Galaxy Vol. 3" closing its theatrical run at $845 million globally.
(That's actually good for third place this year, as only "Barbie" and "The Super Mario Bros. Movie" have broken the billion-dollar mark and they may be the only two films to do that this year.)
In the precovid world Disney could release two Pixar movies, three Marvel films, a live-action remake of an animated classic, and maybe one other film that each would be nearly guaranteed to earn $1 billion at the box office.
That's simply not how the movie business works anymore. While theaters may remain part of Disney's plan to monetize its content, the past isn't coming back. Theaters may remain a piece of the movie-release puzzle, but 2023 isn't an anomaly or a bad release schedule.
Consumers have big TVs at home and they're more than happy to watch most films on them.
Disney owns the IP but charges too little
People aren't less interested in Marvel and Star Wars; they're just getting their fix from Disney+ at an absurdly low price.
Over the past couple of months through the next few weeks, I will have watched about seven hours of premium Star Wars content and five hours of top-tier Marvel content with "Ahsoka" and "Loki" respectively.
Before the covid pandemic, I gladly would have paid theater prices for each movie in those respective universes. Now, I have consumed about six movies worth of premium content for less than the price of two movie tickets.
By making its premium content television shows available on a service that people can buy for $7.99 a month Disney has devalued its most valuable asset, its intellectual property.
Consumers have shown that they will pay the $10 to $15 cost of a movie ticket to see what happens next in the Marvel Cinematic Universe or the Star Wars galaxy. But the company has offered top-tier content from those franchises at a lower price.
Iger needs to find a way to replace billions of dollars in lost box office, but charging less for the company's content makes no sense.
Now, some fans likely won't pay triple the price for Disney+. But if it were to bundle a direct-to-consumer ESPN along with content that currently gets released to movie theaters, Disney might create a package that it can price in a way that reflects the value of its IP.
Consumers want Disney's content and they will likely pay more for it. Iger simply has to find a way to make that happen.
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