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Pelosi discloses exercise of Tesla call options

Tue, 22nd Mar 2022 18:24

March 22 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

PELOSI DISCLOSES EXERCISE OF TESLA CALL OPTIONS (1310 EDT/1810 GMT)

U.S. House Speaker Nancy Pelosi has disclosed a new trade related to electric car maker Tesla.

In a periodic transaction report https://disclosures-clerk.house.gov/public_disc/ptr-pdfs/2022/20020662.pdf signed on Monday, the senior Democrat disclosed that her husband, financier Paul Pelosi, on March 17 exercised call options to buy Tesla shares.

According to the disclosure, Mr. Pelosi's options allowed him to buy 2,500 Tesla shares at a strike price of $500, a transaction totalling $1.25 million. On that day, Tesla's share price ended at $871.60, and the options were set to expire on the following day.

Tesla has gained over 10% since March 17, including a 5.6% rise on Tuesday.

Users on social media platforms including Twitter, Reddit, Youtube and TikTok have increasingly scrutinized Pelosi's trade disclosures in recent months, believing her position as House Speaker gives her an edge.

A 2012 law makes it illegal for lawmakers to use information from their work in Congress for their personal gain. The law requires them to disclose stock transactions by themselves or family members within 45 days.

A multi-millionaire, Pelosi in January signaled that she might be willing to advance legislation to completely ban stock trading by lawmakers. That was a reversal from her previous position defending lawmakers' right to trade stocks.

Pelosi's stock trading performance ranked sixth-best in 2021 in Congress, with Republican Congressman Austin Scott leading the way, according to an analysis by Unusual Whales, a service selling financial data.

In January, she disclosed that her husband exercised call options to buy shares in Apple, Walt Disney and PayPal.

(Noel Randewich)

NOT YOUR FATHER'S BRAND OF STAGFLATION (1341 EDT/1741 GMT)

Stagflation occurs when deteriorating growth and rising unemployment are accompanied by hot inflation. This unusual combination hobbled the U.S. economy in the 1970s.

Despite recent headlines proclaiming or predicting the return of this unwelcome phenomenon, Saira Malik, CIO and leader of the Global Investment Committee at Nuveen, doesn't think 70s-style stagflation is destined for a comeback any time soon.

According to Malik, although growth is moderating from last year’s torrid pace amid strong inflation and an oil price shock that may harken back to the 1973 oil embargo and 1979 energy crisis, the current situation is different.

For example, Malik says that the economy wasn’t just slowing from 1973 to 1975. It was in a recession. Unemployment climbed as high as 9% in 1975 (vs 3.8% today). Moreover, in those days, the United States imported more than a third of its oil from OPEC and other producers, vs only around 20% today.

Lastly, stagflation in the ’70s was precipitated in part by "dubious policy decisions unique to the era, including wage and price freezes enacted in 1971."

In terms of lessons for today, Malik says that recent asset class performance looks a lot like that of the mid-to-late 1970s, when U.S. REITs and equities fared well after the initial commodity shock that kicked off the decade.

For today’s stagflation-wary investors, "this suggests a portfolio with broadly diversified exposure to commodities, real assets and equities."

At the same time, Malik believes that these investors may take comfort in "knowing that today’s Fed is better equipped and more committed than its pre-Volcker counterparts to take an active role in combating higher inflation."

CHIP STOCKS EXTEND RALLY; NVIDIA PITCHES TO ANALYSTS (1215 EDT/1615 GMT)

U.S. chip stocks are rallying on Tuesday, with the Philadelphia Semiconductor Index trading at its highest level since before Russia's invasion of Ukraine threw global markets into a selloff.

The chip index has now gained 14% since Mar. 14, putting it on track to close at its highest level since Feb. 16 and before Russia's military incursion on Feb. 24.

Tuesday's gains are being led by Qualcomm, Broadcom and graphics chip maker Nvidia, which holds developer and investor events on Tuesday, with analysts looking for updates on products related to AI and the "multiverse".

The world's most valuable chipmaker, Nvidia has surged 27% since Mar. 14, but it remains down almost 20% from its record high close last November.

In a research note on Tuesday looking at recently beaten down chip stock valuations, Raymond James sounds a cautious note.

"Current valuations suggest that investors are expecting most of the stocks to see revenue downside compared to current 2023 consensus expectations," Raymond James analyst Chris Caso warns, pointing in particular to Qualcomm, Qorvo and Skyworks Solutions.

Caso sees Broadcom and Intel as positive outliers whose valuations suggest they could beat analyst expectations in 2023.

The SOX is down about 12% year-to-date, but it remains up almost 13% over the past 12 months.

(Noel Randewich)

DEFENSE STOCKS RISE ABOVE FOG OF WAR (1115 EDT/1515 GMT)

Nearly one month after Russian troops flooded over the Ukrainian border, much of the western world has reacted with condemnation, sanctions, and promises of humanitarian aid to Ukraine's civilians.

And of course, military aid to the Ukrainian defenders.

The conflict has sent shockwaves through global markets, adding new fears and uncertainties atop an already growing pile, a pile which includes lingering pandemic fears, a frustratingly slow right-sizing of the global supply chain, decades-high inflation and the measures the Federal Reserve promises to take to contain it.

But war, as Brecht's Mother Courage could tell you, always benefits some. Energy stocks, for example, have handily outperformed as the ongoing strife has send crude prices zooming on supply concerns.

And, unsurprisingly, defense stocks are doing well.

The graphic below shows share prices for Northrop Grumman , Lockheed Martin, General Dynamics and Raytheon, all rebased, along with the S&P 500, to February 24 - the day the invasion began.

All of them have outperformed the bellwether index since that day, with Northrop and Lockheed seeing double-digit gains:

Increasingly, war and geopolitical strife abroad give a bigger boost to the defense sector than the United States' defense budget.

As a percentage of U.S. GDP, 3.7% is spent on defense, translating to a dollar amount that dwarfs military spending by every other country in the world, according to the most recent World Bank data.

Even so, as illustrated by the graphic below, changes in U.S. government defense expenditures do not appear to hold much sway with changes in the S&P 500 Aerospace & Defense index :

(Stephen Culp)

CHINA ADRS POWER ON AFTER ALIBABA'S RECORD BUYBACK, TENCENT MUSIC RESULTS (1030 EDT/1430 GMT)

Shares of U.S.-listed China stocks have resumed a rally on Tuesday with Alibaba leading the charge higher - jumping over 10% - after announcing a record stock buyback.

The $25 billion share repurchase plan, which equates to 9% of the e-commerce giant's market capitalization, "signals that Alibaba's management believes its shares are meaningfully undervalued," said Jason Benowitz, senior portfolio manager at The Roosevelt Investment Group in New York.

"Alibaba's action may reflect its belief that the worst impacts of the heightened regulatory scrutiny are behind the company."

The company has been under pressure since late 2020 when its billionaire founder, Jack Ma, publicly criticised China's regulatory system.

As for the rest of the space, the broader iShares MSCI China ETF is adding more than 3%, whereas internet stocks outperformed with the KraneShares China Internet ETF up more than 6%.

Last week, foreign-listed Chinese shares rebounded strongly after Beijing assured it would roll out support for the economy and keep markets stable, soothing overseas investors' nerves after a sell-off due to worries over differences between China and the West in the Russia-Ukraine war.

Tuesday's rally is a continuation of that momentum, said Jake Dollarhide, chief executive officer at Longbow Asset Management, adding that positive quarterly results from the likes of Tencent Music and Alibaba are further aiding sentiment.

Tencent Music posted quarterly revenue growth, lifting its shares more than 2%. Smartphone maker Xiaomi delivered a bigger-than-expected rise in fourth-quarter revenue, sending its local shares up 6%.

Among other notable movers are online video platform IQIYI , surging 11%, and mobile game publisher Bilibili adding 14%.

(Medha Singh)

U.S. STOCKS RISE, EVEN AS YIELDS RAMP (1015 EDT/1415 GMT)

Wall Street's main indexes are higher early on Tuesday, as bank shares gained on growing bets of aggressive interest rate increases by the Federal Reserve, and sportswear maker Nike rose after upbeat quarterly results.

Meanwhile, the U.S. 10-Year Treasury yield is rapidly nearing the 2.40% level.

Still, stocks are broadly higher with a majority of major S&P 500 sectors gaining. Not surprisingly, with the rise in yield, financials and banks are among outperformers. However, growthier groups like communications services and the FANG stock index are also posting strong gains.

With this, the S&P 500 growth index / S&P 500 value index ratio is hitting a more than one-month high, as growth outperforms value.

Here is where markets stand early in Tuesday's session:

(Terence Gabriel)

STOCKS VS BONDS: WHICH REACTED RIGHT TO POWELL? (1000 EDT/1400 GMT)

Stocks and bonds had quite different reactions on Monday to Federal Reserve chief Jerome Powell's muscular message on the central bank's battle with inflation, according to Miller Tabak chief market strategist Matt Maley.

In the Treasury market, yields shot up after Powell's remarks, with the yield on the benchmark 10-year Treasury note rising above 2.3% for the first time since May 2019, and the closely watched gap between rates for two- and 10-year Treasury notes flattening further.

"In other words, even though the stock market seems to think that Chairman Powell’s comments were not overly compelling, the bond market certainly DID think they were quite important," Maley writes in a morning commentary.

While some believe the reaction by stocks shows a hawkish Fed response is already priced in, Maley posits that "this is likely another example of when the bond market understands a new development in the marketplace before the stock market does."

If the Fed's move to lower interest rates and inject massive stimulus was "the main catalyst for a rally of historic proportions" from March 2020 to January 2022, Maley says, why would "a 180-degree turn on that policy only have a benign impact on the stock market?"

Maley says the stock market may be able to hold up for several weeks but "the bond market is almost always the one that gets it correct whenever we see a divergence in the reaction of these two markets in response to new developments."

COST-OF-LIVING CRISIS: ALL EYES ON SUNAK (0925 EDT/1325 GMT)

With so many European households struggling to pay their energy bills, fill their tanks and their fridges, there's a clear expectation that governments across the region will step up their fiscal response to the current cost-of-living crisis and blur the macro picture further.

France, for instance, has distributed so called 100 euro "inflation checks" to modest households and ordered energy giant EDF to cap bills.

Tomorrow, all eyes will be on Chancellor Rishi Sunak's Spring Statement, but truth be said, there are limited expectations of massive spending in the UK.

"Despite the substantial fiscal headroom on offer, we don’t think the Chancellor will loosen the fiscal taps too much", a note from Monex read.

"We don’t expect the Chancellor to delay recent announcements for tax hikes or scrap the plans entirely", they said.

Berenberg economists were also quite prudent on what to expect.

"Chances are that he will announce only modest measures to ease the pinch on worst affected households", they said, arguing that measures would limit the damage to growth but "would be not a game changer that could fully dampen the shock to come".

Investec looked at the possibilities at hand and found that among the options were a fuel tax cut, a delay in planned raise of National Insurance Contributions, more loans or grants to pay utility bills, local tax rebates and possibly raising taxes on oil and gas producers.

There's also a chance that the UK government could prioritize spending for defense after Russia's invasion of Ukraine.

Citi believes QinetiQ and BAE could be "key beneficiaries" but its analysts expect that "any significant changes will not be announced until the Autumn Budget".

(Julien Ponthus)

NASDAQ COMPOSITE: TROOPS STILL BEHIND THE LINE (0900 EDT/1300 GMT)

The Nasdaq Composite just went through its longest streak of consecutive daily closes below its 30-day moving average (DMA) in nearly 14 years.

However, that streak ended on March 17, and the IXIC has now seen three-straight closes back above its 30-DMA.

If the Nasdaq's daily Advance/Decline (A/D) line can join the Composite back above this shorter-term moving average, it may add confidence in the significance of the IXIC's bullish turn:

From January 5 to March 16 the IXIC ended below its 30-DMA 49-straight trading days. That was the longest run of IXIC closes below this moving average since a 68-trading day streak from September 2, 2008 to December 5, 2008, in the midst of the Financial Crisis.

The Nasdaq daily A/D line has now closed below its 30-DMA for 84-straight trading days. That's its longest run of closes below its 30-DMA since a 136-trading day streak from October 16, 2007 to April 30, 2008, also during the Financial Crisis.

The A/D line ended just shy of its descending 30-DMA on Friday. However, the A/D line ticked down on Monday, keeping it on the defensive.

Traders will be watching closely to see if the 30-DMA, which consistently capped IXIC strength from its early-January breakdown into its mid-March trough, can now act as support. The 30-DMA ended Monday around 13,550.

Additionally, they will look to see if the A/D line can reclaim its 30-DMA, potentially allowing for a coordinated march to the upside.

(Terence Gabriel)

FOR TUESDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT - CLICK HERE:

(Terence Gabriel is a Reuters market analyst. The views expressed are his own)

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