LONDON — Former British Prime Minister Liz Truss argued the U.K. should have “done more earlier” to counter Vladimir Putin’s rhetoric before he invaded Ukraine, and said the West depended on Russian oil for too long.
Truss — the U.K.’s shortest-serving prime minister who resigned amid market turmoil last year — was speaking in a House of Commons debate about Ukraine, her first contribution in the chamber as a backbencher since 2012. She has been increasingly vocal on foreign policy since leaving office.
The former prime minister, who as served foreign secretary for Boris Johnson before succeeding him in the top job, recalled receiving a phone call at 3.30 a.m. on the morning of the invasion, and told MPs: “This was devastating news. But as well as being devastating, it was not unexpected.”
Truss praised the “sheer bravery” of Ukrainians defending their country, as well as Ukrainian President Volodymyr Zelenskyy and his Cabinet for not fleeing the country in the aftermath. “I remember being on a video conference that evening with the defense secretary and our counterparts, who weren’t in Poland, who weren’t in the United States,” she said of Ukraine’s top team. “They were in Kyiv and they were defending their country,” she added.
But while Truss argued Western sanctions had imposed an economic toll on Putin’s Russia, said urged reflection. “The reason that Putin took the action he took is because he didn’t believe we would follow through,” she argued, and said the West should “hold ourselves to high standards.”
Ukraine, she said, should have been allowed to join NATO.
“We were complacent about freedom and democracy after the Cold War,” she said. “We were told it was the end of history and that freedom and democracy were guaranteed and that we could carry on living our lives not worrying about what else could happen.”
Truss urged the U.K. to do all it could to help Ukraine win the war as soon as possible, including sending fighter jets, an ongoing matter of debate in Western capitals despite Ukrainian pleas.
And the former U.K. prime minister said the West should “never again” be “complacent in the face of Russian money, Russian oil and gas,” tying any future lifting of sanctions “to reform in Russia.”
Paxos has been ordered by New York regulators to stop issuing the Binance USD (BUSD) stablecoin.
Jakub Porzycki | Nurphoto | Getty Images
The U.S. Securities and Exchange Commission could be gearing up to take action against Paxos, a company that issues a type of cryptocurrency called stablecoin.
The move will have major implications for the $137 billion market, experts told CNBC.
Stablecoins are a type of cryptocurrency designed to mirror real-world assets such as the U.S. dollar.
These stablecoins are often backed by real assets such as bonds or cash in reserve. They have become the backbone of the crypto market as they allow people to trade in and out of different coins quickly without having to convert in and out of fiat currency.
Paxos issued a digital currency called Binance USD or BUSD. It is a stablecoin associated with Binance, one of the world’s biggest cryptocurrency exchanges. BUSD is pegged one-to-one with the U.S. dollar.
Separately, Paxos said that the SEC had issued it a notice that the regulator is considering recommending an action alleging that BUSD is a security. Paxos said the notice suggests Paxos should have registered the offering of BUSD under federal securities laws.
The SEC hasn’t started official action. But the agency’s actions are being watched closely because if it starts an official procedure, it could have huge implications for all stablecoins including tether and USDC, the two largest which combined are worth $110 billion.
“If the SEC charges Paxos, any other issuer of stablecoins should register or prepare for a court fight with the SEC,” Renato Mariotti, a partner at law firm BCLP, told CNBC.
While the SEC has not yet come out with specific charges, the notice to Paxos focuses on the question of whether stablecoins are securities or not.
For its part, Paxos said it “categorically disagrees with the SEC staff because BUSD is not a security under the federal securities laws.”
The SEC uses the Howey test to determine what is deems a security or an “investment contract.” There are four criteria to determine whether something is an investment contract as part of the Howey test, for example, if there is an expectation of profit from the investor.
It’s possible that Paxos aggressively litigates against the SEC, but the cost of doing so would be significant.
Renato Mariotti
partner, BCLP
If BUSD is deemed a security by the SEC then the regulator would have oversight over the stablecoin. Whatever company issues BUSD would need to register with the SEC and accept more stringent regulation.
Another implication is that other stablecoins will also be given the same label.
“The basis for that action will necessarily be fact-specific to the Paxos BUSD structure but will likely have wide ranging implications for other stablecoin issuers selling coins into the U.S.,” Townsend Lansing, head of product at CoinShares, told CNBC.
There are a number of different scenarios that might play out. It will depend on what the SEC alleges against Paxos and how the two sides move forward.
“I believe that it is likely that the SEC reaches a settlement with Paxos in which Paxos concedes that that BUSD is a security, leading other stablecoins to follow suit and register,” Mariotti said.
“It’s possible that Paxos aggressively litigates against the SEC, but the cost of doing so would be significant,” Mariotti said.
“Litigation would take years and the risk of losing to the SEC would be significant. The mere fact that Paxos was fighting against the SEC would create risk and potentially make BUSD less attractive to the marketplace.”
Read more about tech and crypto from CNBC Pro
Another outcome, according to Mariotti, is that the SEC may regulate what assets are used to back stablecoins and the requirements for issues of the digital currency to make disclosures to the market.
CoinShares’ Lansing said that what the SEC considers a security or investment contract actually extends beyond just the Howey test and the agency has “extensive knowledge of how to apply both the law and judicial precedent.”
“Absent a successful fight, it is most likely BUSD will no longer be sold into the U.S. or be available on U.S.-based digital asset exchanges,” Lansing said. “It is very possible that other stablecoins will have follow suit.”
It will depend on what the SEC’s allegations against Paxos and BUSD are.
“We still don’t know the exact basis on which the SEC is alleging the violations, so we don’t know the extent to which those allegations will extend to other industry participants,” Lansing said.
Carol Alexander, professor of finance at Sussex University, said the U.S. regulator’s action is “more a move against Binance than stablecoins.”
Alexander said “Binance is causing increasing concern for regulators around the world” in areas from money laundering to violating securities laws. That could be one reason the SEC has targeted BUSD, she said.
The Justice Department is investigating Binance for suspected money laundering and sanctions violations, Reuters reported last year. Bloomberg reported in 2021 that U.S. officials were looking into whether Binance employees engaged in insider trading.
Binance did not immediately respond to CNBC’s request for comment.
A Binance spokesperson said at the time that the firm has a “zero-tolerance” policy for insider trading and a “strict ethical code” to prevent any misconduct, according to Bloomberg.
The dash for trash has hit a speed bump. Stocks faltered again this past week as the early-year rally, led by rebounds in 2022’s speculative-grade losers, ran into resistance from higher expected interest rates from the Federal Reserve in the wake of persistent inflation readings and few signs that growth is faltering.
Economists at an array of major Wall Street banks, including Goldman Sachs, Bank of America, and Citigroup, lifted their forecasts of the eventual peak in the central bank’s target range for the overnight federal-funds rate, to 5.25% to 5.50%, effectively bringing them in line with the fed-funds futures market. Deutsche Bank now is expecting a 5.6% single-point peak, up a half-percentage-point from its previous estimate, and among the highest forecasts.
The Federal Reserve’s latest meeting minutes will be a key focal point for investors in the week ahead, as they seek clarity on the central bank’s interest rate hiking path. Stocks ended the week on a mixed note. The Dow Jones Industrial Average is down 0.13% for the week. The 30-stock index notched its third negative week in a row, which is its first since September. Meanwhile, the Nasdaq Composite is up 0.59% for the week, and the S & P 500 is down 0.28%. Some Fed commentary this week suggesting higher rates for longer, following a series of surprisingly strong economic data, weighed on markets. On Friday, Federal Reserve Governor Michelle Bowman said the central bank still has a long way to go to reach its 2% inflation target. On Thursday, the producer price index gained 0.7% last month , greater than the 0.4% consensus estimate from Dow Jones. PPI tracks wholesale prices. On Tuesday, the consumer price index showed i nflation rose 0.5% in January, which was also higher than economists were expecting. January retail sales data also smashed expectations . Meanwhile, bond yields surged this week, with rates on the benchmark 10-year Treasury and the 2-year Treasury reaching their highest levels since November. “I think that the the narrative of the market has shifted a little bit over the past couple of weeks from the positives from disinflation, and better than expected economic data that led to maybe the idea of a soft landing becoming more likely, which is positive for risk assets, to the economy maybe being so strong that the Fed would need to perhaps raise rates a few more times than what’s expected,” said Ed Clissold, chief U.S. strategist for Ned Davis Research Group. “So, I think what the markets can be focused on over the next week is to see just how strong the economic data is,” he added. Fed meeting minutes For Wall Street, there will be greater emphasis next week on the minutes from the Fed’s latest meeting, which are set to be released Wednesday. Following some recent comments from central bank officials suggesting greater rate hikes ahead, investors will parse the meeting minutes for further signs of hawkishness. “We’ve recently started to hear from some members that there was some advocating for 50 basis points at the last meeting. So this will give us a rundown of how large that cohort is, and if any of them are voters,” said Art Hogan, chief market strategist at B. Riley Financial. In fact, the likelihood of a 50 basis point hike is now 18.1%, which is double what it was one week ago, according to data from CME Group . Hogan is also anticipating some additional insight into the Fed’s Summary of Economic Projections, or where the central bank believes the terminal rates will stand. Other forthcoming data will give investors further insight the strength of the consumer. January’s data for existing home sales will be released Tuesday, possibly showing investors a continued improvement in the housing industry. The Fed’s favorite inflation gauge — personal consumption expenditures — will be out Friday. Economists polled by Dow Jones predict core PCE gained 0.5% in January and rose 4.4% on an annual basis. February’s final reading of consumer sentiment data from the University of Michigan is also due Friday. Retail earnings Meanwhile, a slate of retail earnings will show Wall Street how household names such as Home Depot and Walmart are managing their inventories. The results will also give investors the latest read into the state of the U.S. consumer. Other notable earnings include Nvidia. The semiconductor stock has emerged as an investor favorite to play the recent hype around artificial intelligence , because of its software and hardware capabilities. The stock is up more than 50% this year. Week ahead calendar Monday The NYSE is closed for Presidents’ Day. Tuesday 9:45 a.m. ET: S & P Global Composite PMI (February) 10 a.m.: Existing home sales (January) Earnings: Home Depot , Walmart , Coinbase , Toll Brothers Wednesday 2 p.m. ET: Fed minutes 5:30 p.m. ET: New York Fed President John Williams speaks Earnings: Baidu , eBay , Nvidia Thursday 8:30 a.m. ET: Chicago Fed National Activity Index (January) 8:30 a.m. ET: Jobless claims (week ending Feb. 11) 8:30 a.m. ET: Q4 GDP (second reading) 11 a.m. ET: Kansas City Fed Manufacturing Index (February) Earnings: Alibaba , Beyond Meat , Block , Booking Holdings , Warner Bros Discovery Friday 8:30 a.m. ET: Personal consumption expenditures (January) 10 a.m.: Consumer sentiment (February) 10 a.m. ET: New home sales (January)
Coca-Cola is a stronger company post-Covid, according to Citi. Analyst Filippo Falorni named Coca-Cola as one of his top buy-rated picks in the U.S. beverages and household products sector. Falorni set his price target at $68, implying a 14.8% upside from Thursday’s closing price of $59.22. Coca-Cola is one of the “names that have de-rated on near-term temporary concerns, offer[ing] a gross margin improvement story with declining commodity prices,” the analyst wrote in a Thursday note. He added that the beverage giant “can navigate well through weaker macro conditions, and/or offer compelling long-term growth stories” at a reasonable valuation. Coca-Cola on Tuesday reported a fourth-quarter revenue beat , driven by higher prices for its drinks, while per-share earnings came in line with analysts’ expectations. The company noted that while European consumer demand is more muted due to soaring inflation, China’s reopening will likely boost sales this year. “KO has emerged as a stronger company post-COVID with a more effective networked organizational model aiding market share gains and innovation, and an improved margin structure with a more efficient advertising spend,” Falorni wrote. The analyst added, “Near-term, we also see potential topline/EPS upside with momentum exiting Q4, strong pricing power, solid emerging markets growth. We view KO’s valuation close to the average of mega-cap peers as compelling given a stronger topline growth and higher margin profile.” Coca-Cola shares rose 7.4% in 2022, but the stock has fallen nearly 7% since the start of the year. —CNBC’s Michael Bloom contributed to this report.
should be insulated from any slowdown in the broader economy by increased spending on artificial intelligence, say analysts at Oppenheimer, who lifted their price target for the semiconductor company.
The heightened interest around artificial-intelligence should set investors’ minds at ease ahead of
Nvidia
‘s earnings next week, say the analysts, with the semiconductor maker’s commentary on data-center spending in focus.
(TA) for $86 a share, representing an 84% premium to the average trading price of TravelCenters for the 30 days ended Wednesday. Total equity value of the deal was roughly $1.3 billion.
An art exhibition based on the hit TV series “The Walking Dead” in London, England.
Ollie Millington | Getty Images
For some venture capitalists, we’re approaching a night of the living dead.
Startup investors are increasingly warning of an apocalyptic scenario in the VC world — namely, the emergence of “zombie” VC firms that are struggling to raise their next fund.
Faced with a backdrop of higher interest rates and fears of an oncoming recession, VCs expect there will be hundreds of firms that gain zombie status in the next few years.
“We expect there’s going to be an increasing number of zombie VCs; VCs that are still existing because they need to manage the investment they did from their previous fund but are incapable of raising their next fund,” Maelle Gavet, CEO of the global entrepreneur network Techstars, told CNBC.
“That number could be as high as up to 50% of VCs in the next few years, that are just not going to be able to raise their next fund,” she added.
In the corporate world, a zombie isn’t a dead person brought back to life. Rather, it’s a business that, while still generating cash, is so heavily indebted it can just about pay off its fixed costs and interest on debts, not the debt itself.
Life becomes harder for zombie firms in a higher interest rate environment, as it increases their borrowing costs. The Federal Reserve, European Central Bank and Bank of England all raised interest rates again earlier this month.
In the VC market, a zombie is an investment firm that no longer raises money to back new companies. They still operate in the sense that they manage a portfolio of investments. But they cease to write founders new checks amid struggles to generate returns.
Investors expect this gloomy economic backdrop to create a horde of zombie funds that, no longer producing returns, instead focus on managing their existing portfolios — while preparing to eventually wind down.
“There are definitely zombie VC firms out there. It happens during every downturn,” Michael Jackson, a Paris-based VC who invests in both startups and venture funds, told CNBC.
“The fundraising climate for VCs has cooled considerably, so many firms won’t be able to raise their next fund.”
VCs take funds from institutional backers known as LPs, or limited partners, and hand small amounts of the cash to startups in exchange for equity. These LPs are typically pension funds, endowments, and family offices.
If all goes smoothly and that startup successfully goes public or gets acquired, a VC recoups the funds or, better yet, generates a profit on their investment. But in the current environment, where startups are seeing their valuations slashed, LPs are becoming more picky about where they park their cash.
“We’re going to see a lot more zombie venture capital firms this year,” Steve Saraccino, founder of VC firm Activant Capital, told CNBC.
A sharp slide in technology valuations has taken its toll on the VC industry. Publicly-listed tech stocks have stumbled amid souring investor sentiment on high-growth areas of the market, with the Nasdaq down nearly 26% from its peak in November 2021.
A chart showing the performance of the Nasdaq Composite since Nov. 1, 2021.
With private valuations playing catch-up with stocks, venture-backed startups are feeling the chill as well.
Stripe, the online payments giant, has seen its internal market value drop 40% to $63 billion since reaching a peak of $95 billion in March 2021. Buy now, pay later lender Klarna, meanwhile, last raised funds at a $6.7 billion valuation, a whopping 85% discount to its prior fundraise.
Crypto was the most extreme example of the reversal in tech. In November, crypto exchange FTX filed for bankruptcy, in a stunning flameout for a company once valued by its private backers at $32 billion.
Investors in FTX included some of the most notable names in VC and private equity, including Sequoia Capital, Tiger Global, and SoftBank, raising questions about the level of due diligence — or lack thereof — put into deal negotiations.
Since the firms they back are privately-held, any gains VCs make from their bets are paper gains — that is, they won’t be realized until a portfolio company goes public, or sells to another firm. The IPO window has for the most part been shut as several tech firms opt to stall their listings until market conditions improve. Merger and acquisition activity, too, has slowed down.
In the past two to three years, a flood of new venture funds have emerged due to a prolonged period of low interest rates. A total of 274 funds were raised by VCs in 2022, more than in any previous year and up 73% from 158 in 2019, according to numbers from the data platform Dealroom.
LPs may be less inclined to hand cash to newly established funds with less experience under their belt than names with strong track records.
“LPs are pulling back after being overexposed in the private markets, leaving less capital to go around the large number of VC firms started over the past few years,” Saraccino said.
“A lot of these new VC firms are unproven and have not been able to return capital to their LPs, meaning they are going to struggle mightily to raise new funds.”
Frank Demmler, who teaches entrepreneurship at Carnegie Mellon University’s Tepper School of Business, said it would likely take three to four years before ailing VC firms show signs of distress.
“The behavior will not be as obvious” as it is with zombie firms in other industries, he said, “but the tell-tale signs are they haven’t made big investments over the last three or four years, they haven’t raised a new fund.”
“There were a lot of first-time funds that got funded during the buoyant last couple of years,” Demmler said.
“Those funds are probably going to get caught midway through where they haven’t had an opportunity to have too much liquidity yet and only been on the investing side of things if they were invented in 2019, 2020.”
“They then have a situation where their ability to make the type of returns that LPs want is going to be close to nil. That’s when the zombie dynamic really comes into play.”
According to industry insiders, VCs won’t lay off their staff in droves, unlike tech firms which have laid off thousands. Instead, they’ll shed staff over time through attrition, avoiding filling vacancies left by partner exits as they prepare to eventually wind down.
“A venture wind down isn’t like a company wind down,” Hussein Kanji, partner at Hoxton Ventures, explained. “It takes 10-12 years for funds to shut down. So basically they don’t raise and management fees decline.”
“People leave and you end up with a skeleton crew managing the portfolio until it all exits in the decade allowed. This is what happened in 2001.”
Bitcoin has had a strong start to the year with the cryptocurrency seeing a huge rally.
Jakub Porzycki | Nurphoto | Getty Images
Crypto markets rallied on Thursday, shrugging off a tougher regulatory stance from the U.S. government.
Bitcoin surged 11% to $24,655.94 at around 3:36 a.m. ET while ether was up more than 8% at $1,684.59, according to CoinDesk.
The value of the entire cryptocurrency market rose more than $84.8 billion in the 24 hours before 3:39 a.m. ET.
There are ” increasing signs that the market bottomed last November and has turned bullish,” Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, told CNBC.
“We are gaining in momentum here and any bad news is being shrugged off, typical signs that the market believes the worst is over.”
Crypto markets were on edge earlier this week following increased regulatory scrutiny from U.S. authorities on digital currencies.
On Monday, the New York State Department of Financial Services told Paxos to stop minting new Binance USD, or BUSD, stablecoins. A stablecoin is a type of cryptocurrency pegged to a real-world asset and some are backed by assets such as bonds or cash. BUSD is pegged one-to-one to the U.S. dollar.
Paxos also confirmed that the Securities and Exchange Commission has notified the company that the agency could recommend an action that alleges BUSD is a security. The SEC has not yet formally levelled any charges against Paxos.
Bitcoin’s price on Thursday sat at its highest level since mid-August 2022. Last year, nearly $1.4 trillion was wiped off the crypto market after turmoil which saw bankruptcies, failures of projects and companies. All that was topped off by the collapse of major exchange FTX.
Yuya Hasegawa, an analyst at Japanese crypto firm Bitcoin Bank, said there is a shift from so-called altcoins, or alternative coins, to bitcoin in the wake of the regulatory action.
“Wednesday’s crypto rally was a bit of a surprise but one thing stood out: it was led by bitcoin,” Hasegawa told CNBC.
“The current regulatory environment surely looks like a headwind for the crypto market, but it seems like some money is moving from altcoins to bitcoin, since bitcoin is the only cryptocurrency that is labeled ‘commodity’ by the SEC chair. Consequently, bitcoin’s market dominance is on the rise.”
Gary Gensler, chair of the SEC, reiterated last year that the agency views bitcoin as a commodity rather than a security. Commodities are assets like gold whereas stocks are considered securities. They are regulated differently.
Rising interest rates from the Federal Reserve designed to fight inflation also weighed on crypto markets. Bitcoin is also closely correlated to equity markets and in particular the tech-heavy Nasdaq index. The Nasdaq is up about 16% year-to-date. Bitcoin has outperformed the index and is up 49% this year.
Bullish sentiment in risk assets has been aided by a view that the economic downturn might not be as bad as expected, and the Fed might slow down the pace of interest rate hikes.
“In general, the markets like the fact that inflation is coming down, interest rate hikes are slated to ease from here, but also that we may end up with either no big recession or something very mild,” Ayyar said.
Are the knives coming out for Goldman Sachs CEO David Solomon? With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Steve Grasso, Guy Adami and Jeff Mills.
Philadelphia Eagle Ndamukong Suh discusses his forays into the investment world. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Steve Grasso, Guy Adami and Jeff Mills.
Here are Wednesday’s biggest calls on Wall Street: Evercore ISI downgrades Marriott to in line from outperform Evercore downgraded the hotel giant mainly on valuation. “Having run through our $180 price target, with shares up 22% YTD (vs. S & P +8%) and +32% since our July ’22 assumption of coverage (vs. S & P +7%) we’re moving to the sidelines and lowering our rating on MAR shares to In-line from Outperform.” Citi downgrades Bath & Body Works to neutral from buy Citi said it sees too many margin headwinds for the stock. ” BBWI is facing significant margin headwinds which we expect to continue into 2023 and potentially beyond.” UBS reiterates Apple as buy UBS said that a foldable iPhone remains possible for Apple after the tech giant filed a recent patent. “In the drawings filed along with the patent application, an electronic device with multiple foldable sections is highlighted, indicating a potential new form factor, while early, is possible.” Morgan Stanley reiterates Amazon as overweight Morgan Stanley said it’s standing by its bullish thesis on shares of the e-commerce giant. “In our view, the slope of AMZN’s Retail EBIT improvement is likely to continue to be driven by improving fulfillment and shipping cost per unit economics as AMZN grows into its logistics overbuild.” Loop initiates Dick’s as hold Loop said in its initiation of Dick’s that it’s waiting for a better entry point. “All that said, we think our bullish fundamental outlook is largely priced in—particularly given our view the core DICK’S Sporting Goods concept has very limited domestic organic square footage growth prospects. We await a more attractive entry point to become more constructive.” RBC upgrades Ecolab to outperform from market perform RBC said in its upgrade of the water treatment company that it’s going on “offense.” “With pricing ‘heavy lifting’ complete, ECL appears to be shifting to offense, focusing on net new business wins with stable retention (~mid 90%’s) despite robust FY22 pricing actions.” Deutsche Bank initiates DigitalBridge as buy Deutsche said it likes the company’s “high-growth” approach. “DigitalBridge’s high-growth, and increasingly asset-light business model represent a unique approach to investing in digital infrastructure.” Read more about this call here. Citi downgrades Upstart Holdings to sell from neutral Citi said it sees a challenging outlook for the lender. “We had concerns for a more challenging outlook going into results, though were still surprised by the company’s indications. We surmise Street estimates for FY’23 revenue will fall similarly as ours (down ~35%) and we do recognize Upstart has at times been overly cautious with its outlook.” Piper Sandler upgrades U.S. Bancorp to overweight from neutral Piper said the bank that is “one of the sturdiest large regional stories in an uncertain environment.” “Specifically, we are raising our rating on U.S. Bancorp from Neutral to OW given what we see as a disconnect between the sturdiness of the earnings/ profitability outlook but a persistent discount valuation.” Mizuho reiterates SoFi as buy Mizuho said SoFi is “resilient” in a challenging environment. “We are also raising our PT from $6 to $9 due to encouraging commentary from management on GAAP profitability by 4Q23 and continued resilience in a challenged environment.” Cowen reiterates Walmart and Target as outperform Cowen said the big box giant’s have “value leadership.” “We appreciate WMT as a ‘retail ecosystem’ inclusive of alternative income streams from digital advertising & Walmart+. TGT ‘s margins & inventory are a work in progress, but we are optimistic for 2023 on multi-category & digital scale.” Jefferies downgrades American Eagle Outfitters to hold from buy Jefferies downgraded American Eagle Outfitters on valuation and “challenges” ahead. “Despite the Better-Than-Expected Holiday Results, Go-Forward Macro Headwinds As Well as the Company’s Current Valuation Lead Us To Shift Our Rating To Hold. Read more about this call here. Barclays initiates Tesla as overweight Barclays said Tesla has the “clear lead” in the global electric vehicle environment. ” TSLA is the company which appears most favorable in our Two Clocks framework, as TSLA is by and large managing to ‘one clock’ – with near-term strength in financials, alongside leading the way on EV and the software transition. Read more about this call here. Tudor Pickering Holt & Co. downgrades Ford to hold from buy Tudor said it’s awaiting better execution from Ford . “Looking forward to incremental transparency at March and May events, but moving to sidelines and awaiting execution to become more constructive.” Gordon Haskett reiterates McDonald’s as a top pick Gordon Haskett said the fast food giant continues to gain share. ” MCD, the lone restaurant company large cap to see upward revisions across the board.” Melius downgrades Southwest to hold from buy Melius said it has strategy concerns regarding the airline. “On the stock-specific calls, we have concerns regarding Southwest’ s strategy in the challenging operating environment and their desire to grow ~20% in 2H23, which could put estimates at risk. Wells Fargo reiterates Goldman Sachs as overweight Wells said it’s standing by its overweight rating on the stock but that it’s cautious heading into the company’s investor day later this month. ” Goldman has good long-term prospects with strong book value growth and share gains. Yet, the Feb. 28 investor day may be a sell-the-news event depending on how well it addresses questions about strategy, returns, and management.” Evercore ISI reiterates Salesforce as outperform Evercore raised its price target on the stock to $200 per share from $175 and said it’s sticking with its outperform rating. “While we expect the F4Q results will illustrate the challenges CRM is facing in terms of the demand environment, we believe this is also the first step in terms of accepting a new economic reality that requires a higher focus on FCF/share growth.”
There’s more bad news for Vladimir Putin. Europe is on course to get through winter with its vital gas storage facilities more than half full, according to a new European Commission assessment seen by POLITICO.
That means despite the Russian leader’s efforts to make Europe freeze by cutting its gas supply, EU economies will survive the coldest months without serious harm — and they look set to start next winter in a strong position to do the same.
A few months ago, there were fears of energy shortages this winter caused by disruptions to Russian pipeline supplies.
But a combination of mild weather, increased imports of liquefied natural gas (LNG), and a big drop in gas consumption mean that more than 50 billion cubic meters (bcm) of gas is projected to remain in storage by the end of March, according to the Commission analysis.
A senior European Commission official attributed Europe’s success in securing its gas supply to a combination of planning and luck.
“A good part of the success is due to unusually mild weather conditions and to China being out of the market [due to COVID restrictions],” the official said. “But demand reduction, storage policy and infrastructure work helped significantly.”
Ending the winter heating season with such healthy reserves — above 50 percent of the EU’s roughly 100bcm total storage capacity — removes any lingering fears of a gas shortage in the short term. It also eases concerns about Europe’s energy security going into next winter.
The positive figures underlie the more optimistic outlook presented by EU leaders in recent days, with Energy Commissioner Kadri Simson saying on Tuesday that Europe had “won the first battle” of the “energy war” with Russia.
EU storage facilities — also vital for winter gas supply in the U.K., where storage options are limited — ended last winter only around 20 percent full. Brussels mandated that they be replenished to 80 percent ahead of this winter, requiring a hugely expensive flurry of LNG purchases by European buyers, to replace volumes of gas lost from Russian pipelines.
The wholesale price of gas rose to record levels during storage filling season — peaking at more than €335 per megawatt hour in August — with dire knock-on effects for household bills, businesses’ energy costs and Europe’s industrial competitiveness.
Gas prices have since fallen to just above €50/Mwh amid easing concerns over supplies. The EU has a new target to fill 90 percent of gas storage again by November 2023 — an effort that will now require less buying of LNG on the international market than it might have done had reserves been more seriously depleted.
“The expected high level of storages at above 50 percent [at] the end of this winter season will be a strong starting point for 2023/24 with less than 40 percent to be filled (against the difficult starting point of around 20 percent in storage at the end of winter season in 2022,” the Commission assessment says.
Analysts at the Independent Commodity Intelligence Services think tank said this week that refilling storages this year could still be “as tough a challenge as last year” but predicted that the EU now had “more than enough import capacity to meet the challenge.”
Across the EU, five new floating LNG terminals have been set up — in the Netherlands, Greece, Finland and two in Germany — providing an extra 30bcm of gas import capacity, with more due to come online this year and next.
However, the EU’s ability to refill storages to the new 90 percent target ahead of next winter will likely depend on continued reduction in gas consumption.
Brussels set member states a voluntary target of cutting gas demand by 15 percent from August last year. Gas demand actually fell by more than 20 percent between August and December, according to the latest Commission data, partly thanks to efficiency measures but also the consequence of consumers responding to much higher prices by using less energy.
The 15 percent target may need to be extended beyond its expiry date of March 31 to avoid gas demand rebounding as prices fall. EU energy ministers are set to discuss the issue at two forthcoming meetings in February and March.
LONDON — Barclays on Wednesday reported a full-year net profit of £5.023 billion ($6.07 billion) for 2022, beating consensus expectations of £4.95 billion but suffering a 19% fall from the previous year’s restated £6.2 billion in part due to a costly trading blunder in the U.S.
Fourth-quarter attributable profit was £1.04 billion, above analyst projections of £833.29 million but down 4% from the £1.08 billion posted in the fourth quarter of 2021.
Here are the other financial highlights:
Common equity tier one capital (CET1) ratio was 13.9%, compared to 13.8% in the previous quarter and 15.1% for the final quarter of 2021.
Return on tangible equity (ROTE) was 8.9% for the fourth quarter, compared to 12.5% in the third quarter and 13.4% for the fourth quarter of 2021. ROTE for the full year was 10.4%.
Net interest margin (NIM) was 2.86% for the full year, compared to 2.52% at the end of 2021.
The bank booked £1.2 billion in credit impairment provisions, versus a £700 million charge in 2021.
The British lender took a substantial hit from an over-issuance of securities in the U.S., which resulted in litigation and conduct charges totaling £1.6 billion over the course of 2022.
The British bank announced early last year that it had sold $15.2 billion more in U.S. investment products — known as structured notes — than it was permitted to.
Barclays recognized a net attributable loss of around £600 million relating to the matter over the course of 2022, including a monetary penalty of $200 million following an investigation by the U.S. Securities and Exchange Commission.
On Wednesday, Barclays CEO C.S. Venkatakrishnan said the group performed “strongly” in 2022.
“Each business delivered income growth, with Group income up 14%. We achieved our RoTE target of over 10%, maintained a strong Common Equity Tier 1 (CET1) capital ratio of 13.9%, and returned capital to shareholders,” he said.
“We are cautious about global economic conditions, but continue to see growth opportunities across our businesses through 2023.”
The international unit, which includes Barclays’ investment bank, saw return on equity fall to 10.2% for the full year from 14.4% in 2021, and to 6.4% in the fourth quarter from 9.9% in the same quarter of the previous year. Profits also tumbled in the corporate and investment banking division.
Barclays declared a total dividend for 2022 of 7.25 pence per share, up from 6 pence in 2021, including a 5 pence per share full-year dividend. The bank also intends to initiate a share buyback of £500 million, bringing the total buybacks announced in relation to 2022 to £1 billion, and total capital return equivalent to around 13.4 pence per share.
Barclays shares fell more than 8% shortly after markets opened in London.
U.S. egg prices jumped by two to three times in January.
Fatih Aktas | Anadolu Agency | Getty Images
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U.S. inflation is starting to bite again. But stocks mostly shrugged it off.
January’s U.S. consumer price index rose 0.5%, higher than the 0.4% forecast by economists. On a year-over-year basis, prices increased 6.4%, compared with the expected 6.2%. Egg prices were still sky-high.
U.S. stocks closed Tuesday mixed. The Dow Jones Industrial Average and the S&P 500 edged lower, while the Nasdaq Composite rose. After a positive trading day, Asia-Pacific shares mostly ended lower, with only China’s Shanghai Composite and Shenzhen Component remaining in the green.
Yields of U.S. Treasurys climbed after a hotter-than-expected inflation report. The 6-month Treasury, notably, surged to close at 5.022%, its highest yield since July 2007.
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January’s hotter-than-expected CPI report cast a shadow over U.S. markets yesterday.
Prices in the U.S. last month increased faster than economists had anticipated; they were pushed up by higher food, energy and housing costs. Yet even the core CPI — which strips out the more volatile food and energy prices — saw a monthly bump of 0.4% and a year-over-year jump of 5.6%. Both exceeded respective estimates of 0.3% and 5.5%.
Is the disinflationary process — in the words of Federal Reserve Chair Jerome Powell — still in play in the U.S.? January’s core CPI of 5.6% is a tiny notch lower than December’s 5.7%, which means that prices are still tapering off. But just barely.
U.S. markets reacted accordingly. Treasury yields rose, suggesting that investors are pricing in higher interest rate hikes by the Fed. Stocks fell. The Dow slipped 0.46% and the S&P dipped 0.03%. However, the Nasdaq, traditionally the most interest rate-sensitive index, closed 0.57% higher, buoyed by a 7.51% surge in Tesla and a 5.43% jump in Nvidia.
Though stocks mostly fell, they were remarkably resilient. A team at JPMorgan had forecast that the S&P would sink between 0.75% to 1.5% should yearly CPI come in at 6.4%. The actual drop in the index: only 0.03%.
The strange disconnect between bond markets and stock markets continues. Investors might be optimistic that consumer spending will remain strong even amid rising prices — as Coca Cola’s earnings report indicated — hence allowing the economy to keep growing. As for that theory, Wednesday’s U.S. retail sales report will put it to the test.
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investors may soon get a read on one of the company’s better deals in the past decade—a 2017 purchase for nearly $3 billion of a 38.6% interest in Pilot Flying J, the country’s leading operator of truck stops.
The Berkshire Hathaway (ticker: BRK/A, BRK/B) stake in the company will rise to 80% in the current quarter under the terms of the original agreement reached by CEO Warren Buffett with the founding Haslam family, which will retain the remaining 20% stake.
As Wall Street gears up for key inflation data, Wells Fargo Securities’ Michael Schumacher believes one thing is clear: “The Fed is not your friend.”
He warns Federal Reserve chair Jerome Powell will likely hold interest rates higher for longer, and it could leave investors on the wrong side of the trade.
“You think about the history over the last 15 years. Whenever there was weakness, the Fed rides to the rescue. Not this time. The Fed cares about inflation, and that’s just about it,” the firm’s head of macro strategy told CNBC’s “Fast Money” on Monday. “So, the idea of lots of easing — forget it.”
The Labor Department will release its January consumer price index, which reflects prices for good and services, on Tuesday. The producer price index takes the spotlight on Thursday.
“Inflation could come off a fair bit. But we still don’t know exactly what the destination is,” said Schumacher. “[That] makes a big difference to the Fed – if that’s 3%, 3.25%, 2.75%. At this point, that’s up in the air.“
He warns the year’s early momentum cannot coexist with a Fed that’s adamant about battling inflation.
“Higher yields… doesn’t sound good to stocks,” added Schumacher, who thinks market optimism will ultimately fade. So far this year, the tech-heavy Nasdaq is up almost 14% while the broader S&P 500 is up about 8%.
Schumacher also expects risks tied to the China spy balloon fallout and Russia tensions to create extra volatility.
For relative safety and some upside, Schumacher still likes the 2-year Treasury Note. He recommended it during a “Fast Money” interview in Sept. 2022, saying it’s a good place to hide out. The note is now yielding 4.5% — a 15% jump since that interview.
His latest forecast calls for three more quarter point rate hikes this year. So, that should support higher yields. However, Schumacher notes there’s still a chance the Fed chief Powell could shift course.
“A number of folks in the committee lean fairly dovish,” Schumacher said. “If the economy does look a bit weaker, if the jobs picture does darken a fair bit, they may talk to Jay Powell and say ‘Look, we can’t go along with additional rate hikes. We probably need a cut or two fairly soon.’ He may lose that argument.”
The flurry of unidentified objects that have been shot down over North America this month could bring yet another boost to aerospace and defense stocks, but investors looking to use ETFs should be aware of some key differences between the largest funds. The U.S. shot down a fourth unidentified object on Sunday, as the administration takes a more aggressive stance after a suspected spy balloon from China flew across much of the country during the first days of February. These events are heightening tensions with China and, in turn, easing some fear among investors that the looming debt ceiling fight in Washington will damage the outlook for defense contractors working hand-in-hand with the military. “These incidents raise the likelihood, in our view, defense spending will not be cut, and perhaps be increased,” Roman Schweizer, analyst at Cowen, said in a note to clients on Sunday. Credit Suisse analyst Scott Deuschle, who upgraded the investment outlook for the defense sector to positive on Feb. 6, agreed with that position in a note to clients on Monday. “We believe these events are likely to reduce the willingness of Congress to use the DoD budget for political purposes, and instead drive consensus toward continued budgetary support. Specifically, we highlight that geopolitical tension/anxiety has historically been the driving force behind past defense budget trends, and we expect this time to be no different,” Deuschle said. While defense stocks have outperformed the broader market over the past year, in part due to the war in Ukraine, the latest shoot downs don’t appear to have significantly moved the sector. The three major ETFs in the industry had an average price return of less than 1% last week, albeit in a week when the broader averages declined. Here’s a look at the key differences among these ETFs. The biggest fund on the market is the iShares U.S. Aerospace & Defense ETF (ITA) , with about $5 billion in assets under management. The fund is competitively priced, with an expense ratio of 0.39%, and is weighted by market cap. The fund also hit its highest level since Feb. 2020 on Monday morning. One potential drawback is that the fund is heavily concentrated in just a few stocks. The top five holdings account for more than 50% of the fund, with Raytheon Technologies alone accounting for more than 20%. This means that a company-specific issue at Raytheon could lead the fund to suffer, even if the industry as a whole performs well. Another market-cap weighted fund is the Invesco Aerospace & Defense ETF (PPA) . One key difference for the Invesco fund is that it limits the size of any one stock in the portfolio to 10% at the time of rebalancing. The fund currently has no stock with more than a 10% weight in the portfolio, according to FactSet. The Invesco fund also has more stocks in its portfolio, including truck manufacturer Oshkosh Corp. and industrial company Ball Corp. That greater diversity in the fund does come with a higher price tag, however, as the Invesco ETF has an expense ratio of 0.58%. The third fund on the market is the SPDR S & P Aerospace & Defense ETF (XAR) . This ETF is equal weighted, with no single stock taking up even 5% of the portfolio. While the equal weighted fund does avoid some of the company-specific risks of a more concentrated portfolio, it also gives investors greater exposure to smaller companies that could be heavily reliant on a small number of government contracts. The SPDR fund, with an expense ratio of 0.35%, has the best total return of the group so far this year, at 7.15% — CNBC’s Michael Bloom contributed to this report.
Zillow Group shares could jump more than 40% from here, according to Evercore ISI. Analyst Mark Mahaney upgraded shares to outperform from in line, and nearly doubled his price target, saying investors should buy Zillow ahead of what could be a “rapid recovery” in the housing market. “We are in significant part making a macro call here – that the housing market is either already beginning to recover or will very soon do that,” Mahaney wrote in a Sunday note. “But what hedges that risk – or better put, enables more than just a cyclical fundamentals and stock recovery – is a) the ongoing secular migration of residential real estate to Online channels; b) a large $10B+ TAM and a relatively muted 10% market share by Zillow based on our prior published analysis (here); c) a business model that has proven the ability to sustain strikingly high 40%+ EBITDA Margins; and d) a company that has created optionality for itself through both product development and acquisitions,” Mahaney added. ZG YTD mountain Zillow shares YTD Zillow shares surged 35% so far in 2023. The stock performed dismally for the better part of the pandemic following dramatic moves in the housing market. Shares fell more than 49% in 2022, and more than 54% in 2021. However, the analyst’s $61 price target, raised from $34, suggests the stock can surge another 44% from Friday’s close of $42.22. Shares of the online real estate marketplace advanced about 5% in Monday premarket trading. Mahaney expects that home prices could trough in the first quarter, based on the work of fellow Evercore ISI analyst Steven Kim. That would bolster shares of Zillow, which accounts for greater than half of all online real estate related traffic, Evercore found after analyzing third-party web and app data. “As the consistently leading Online Real Estate information/marketing platform for both consumers and real estate agents, we believe Zillow should fully participate in the real estate market recovery,” Manahey wrote. —CNBC’s Michael Bloom contributed to this report.
Brent Delta Topside oil platform at Seaton Port in the United Kingdom on May 5, 2017.
Ian Forsyth | Getty Images News | Getty Images
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It feels like 2022 again for markets. But investors want a fresh start this year.
Adidas shares tanked 11.64% after the company warned it could lose around 1.2 billion euros ($1.3 billion) in revenue if it can’t clear its Yeezy stock. The German sportswear company ended a partnership with Ye (formerly known as Kanye West), the face of Yeezy, after he made antisemitic comments.
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A selloff in the U.S. markets, rising oil prices and escalating U.S.-China tensions — it feels like we’re back in the worst part of 2022.
U.S. stocks had a terrible week. The Nasdaq dropped 0.61% on Friday, giving it a 2.41% loss for the week. The Dow gained 0.5% and the S&P rose 0.2%, but they still ended the week lower, with the S&P turning in its worst weekly performance in nearly two months.
Higher energy prices are back, too. The Brent contract for April, which covers oil from Europe’s North Sea, hit $86.39 a barrel, having risen more than 8% for the week. U.S. West Texas Intermediate crude futures rose to $79.72 a barrel, an 8.63% increase for the week — its best since October. Those prices spiked about 2% each on Friday after Russia said it would cut oil production next month to retaliate against Western sanctions.
Relations between the United States and China are fraying. After the U.S. shot down a suspected spy balloon last week, the Commerce Department imposed sanctions on six Chinese aerospace companies that it said support China’s espionage program. On Sunday, the U.S. military shot down a fourth unidentified object — following a second object downed on Friday and a third over the Yukon on Saturday. Though the objects’ origins are still unclear, it’s increasingly likely more sanctions will come.
Amid all that, investors are focusing on the upcoming U.S. consumer price index reading for January with renewed intensity. The numbers will indicate whether we’ll be forced to relive the dark days of 2022, or if there’s hope in at least one part of the economy — America’s consumers.
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