Tag: finance

The first time we mentioned the smaller rival of China’s giant property developer Evergrande, Modern Land, was two weeks ago when we reported that the developer of real estate projects that use green technologies asked investors to push back by three months a $250 million bond payment due on Oct. 25 in part “to avoid any potential payment default” (just days later, the company scrapped the plan to seek investor consent to extend bond maturities by three months, saying doing so was not in the best interests of it and its stakeholders, because maybe bankruptcy was in their best interests.) This – we noted – was not expected, and Modern Land’s various bonds immediately plunged more than 50% to 30 cents on the day.

In retrospect the sharp plunge in Modern Land bonds on October 8 saved bondholders some pain today because, after investors refused to push back the company’s coupon due on Monday, the company today defaulted on said bond payment, becoming the latest Chinese property developer to do so, adding to worries about the wider impact of the Evergrande debt crisis and weighing on shares in the sector.

Having already plunged earlier this month, there was little more for Modern Land’s bonds to drop, and its 11.8% February 2022 bond was down 1.6%, a discount of over 80% from its face value, yielding about 1,183%.

Beijing-based Modern Land said in a filing on Tuesday that it had not repaid principal and interest on its 12.85% senior notes that matured on Monday due to “unexpected liquidity issues.” (as a reminder, “adverse liquidity issues” are never expected). The bond, as noted above, had outstanding principal of $250 million. Modern Land is working with its legal counsel Sidley Austin and expects to engage independent financial advisers soon, the filing said.

Fitch Ratings downgraded Modern Land to restricted default from C late Tuesday following the payment miss. Like Evergrande, the developer tried divestitures, borrowing and adding strategic investors and like Evergrande, it failed to succeed in any of its last ditch ventures before not making the payment, reported Chinese financial platform Cailian. It last week terminated a proposal to extend the bond’s maturity by three months.

The news of the latest default hammered shares of property developers, which were also hurt also by concern over China’s plans to introduce a real estate tax over the next five years. China’s CSI 300 Real Estate Index fell 2.8%, and the Hang Seng Mainland Properties Index dropped 4.3%. The broader Hang Seng index edged down 0.4% while China’s CSI300 index slipped 0.3%.

The prospect of contagion and more defaults have weighed on the sector in a major setback for investors: Chinese Estates Holdings Ltd said it would book a loss of HK$288.37 million this fiscal year from its latest sale of bonds issued by Chinese property developer Kaisa Group Holdings Ltd

This latest failure means that Chinese borrowers have now defaulted on a record $9 billion of offshore bonds this year, with the real estate industry accounting for one-third of that amount. That’s come as authorities clamp down on excessive leverage in the real estate sector amid a crisis at China Evergrande Group that has left many investors around the world on edge.

A bulk of 2021’s defaults took place in the past month, although the biggest risk, Evergrande, made a last minute coupon payment last Friday just hours before the grace period expired. Still, Evergrande’s creditors are bracing for an eventual debt restructuring that would rank among the largest ever in China.

One thing is certain: many more defaults are coming. Rating agency downgrades of Chinese developers have accelerated further in October, hitting a record high for a second straight month and as the chart below shows, there were 44 cuts in the sector by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings as of Oct. 21, after 34 downgrades for all of September, according to Bloomberg-compiled data.

Ratings reductions surged in the third quarter as Evergrande’s troubles fueled broader debt-related worries. Ongoing downgrades, occurring as developers face heavy operational and refinancing pressure, “will worsen their capability of raising funds,” said Ma Dong, a partner with Chinese bond firm BG Capital Management.

This month, Fantasia Holdings Group defaulted on a maturing dollar bond that heightened concerns in international debt markets, already roiled by worries over whether Evergrande would meet its obligations.

To be sure, Beijing is trying to prevent a default avalanche (and while it has talked up a strom, it has actually done far less than many have expected). Earlier today, we reported that in a radical “modest proposal” to restructuring the restructuring process itself, Chinese authorities told billionaire Hui Ka Yan to use his personal wealth to alleviate Evergrande’s deepening debt crisis.

Separately, China’s state planner, China’s National Development and Reform Commission, called on companies in “key sectors”, which according to Reuters included property firms, over their foreign debt holdings asking them to “optimize” offshore debt structures and prepare to repay interest and principal on foreign bonds. So China is now suddenly worried about non-repayment of foreign creditors? We somehow doubt it.

Alas, what China’s companies desperately do need – more liquidity – they can’t find. Hindering their capital-raising, and their ability to roll over existing maturities, is the surge in yields on Chinese junk-rated debt, which recently reached their highest in a decade at 20%. As a result, China’s property developers now make up nearly half the world’s distressed dollar bonds. Still, a media representative for Ronshine China Holdings told Bloomberg that the developer paid the $30.2 million of interest due Monday on a dollar bond. Peer Agile Group Holdings Ltd. said it has sufficient funds to meet upcoming debt maturities.

Of course, the real question is not if but when Evergrande will fall. The giant developer, which narrowly averted a costly default last week, is reeling under more than $300 billion in liabilities and has another major payment deadline on Friday. The company said on Tuesday it would deliver 31 real estate projects under construction in China’s Pearl River Delta region by the end of 2021. That number will rise to 40 by the end of June 2022, Evergrande said in comments to Reuters. Evergrande had said on Sunday it had resumed work on more than 10 projects in six cities, including Shenzhen in southern China, after earlier halting them because it was unable to pay contractors. The developer has some 1,300 real estate projects across China in total.

Speaking to Reuters, an investor with exposure to Chinese high-yield debt, said that developers are defaulting “one by one”, adding that “the question is always, who’s next?”

We don’t know, but here is a convenient list of every developer that has an upcoming debt payment:

October

• Yango Group Co. bond with 941 million yuan outstanding, Oct. 22
• Modern Land China Co. note with $250 million outstanding, Oct. 25
• Redsun Properties Group Ltd. bond with $97 million outstanding, Oct. 30

November

• Central China Real Estate Ltd. $400 million note, Nov. 8
• Zhenro Properties Group Ltd. $200 million bond, Nov. 18
• Agile Group Holdings Ltd. $200 million note, Nov. 18
• Yango Group Co. bond with 603 million yuan outstanding, Nov. 19
• Zhongliang Holdings Group Co. $200 million note, Nov. 22
• Rongxin Fujian Investment Group Co. 2 billion yuan note, Nov. 28

December

• Ronshine China Holdings Ltd. $150 million bond, Dec. 3
• Kaisa Group Holdings Ltd. $400 million note, Dec. 7
• Guangzhou Hejing Holding Group Co. bond with 2.26 billion yuan outstanding, Dec. 17
• Jinke Properties Group Co. 800 million yuan note, Dec. 25
• Guangxi Construction Engineering Group Co. 800 million yuan bond, Dec. 28

January

• Xinyuan China Real Estate Ltd. 600 million yuan note, Jan. 4
• KWG Group Holdings Ltd. $250 million bond, Jan. 11
• Yango Justice International Ltd. $200 million note, Jan. 11
• ZhenAn Glory Investment Ltd. $100 million bond, Jan. 13
• Easy Tactic Ltd. $725 million note, Jan. 13
• Fujian Sunshine Group Co. 400 million yuan bond, Jan. 15
• China Aoyuan Group Ltd. $188 million note, Jan. 20
• China Aoyuan Group Ltd. $500 million bond, Jan. 23
• Guangzhou Times Holding Group Co. 1.1 billion yuan note, Jan. 25
• Zhongliang Holdings Group Co. $250 million bond, Jan. 31

February

• Ronshine China Holdings Ltd. $200 million note, Feb. 1
• Jinke Properties Group Co. bond with 350 million yuan outstanding, Feb. 9
• China South City Holdings Ltd. note with $348 million outstanding, Feb. 12
• Yango Cayman Investment Ltd. $110 million bond, Feb. 20
• Modern Land China Co. $200 million note, Feb. 26

March

• Ronshine China Holdings Ltd. bond with $488 million outstanding, Mar. 1
• ZhenAn Glory Investment Ltd. $50 million note, Mar. 6
• Agile Group Holdings Ltd. $500 million bond, Mar. 7
• Greenland Global Investment Ltd. $350 million note, Mar. 12
• Yango Justice International Ltd. $300 million bond, Mar. 18
• Yango Group Co. 500 million yuan note, Mar. 22
• Fujian Sunshine Group Co. 500 million yuan bond, Mar. 22
• Yango Group Co. note with 1.47 billion yuan outstanding, Mar. 24
• Guangzhou Tianjian Real Estate Development Co. 600 million yuan bond, Mar. 28
• Fujian Sunshine Group Co. 500 million yuan note, Mar. 29

Submitted by the Epoch Times,

The largest New York City Police Department union on Monday filed a lawsuit to block a citywide COVID-19 vaccine mandate that’s slated to go into effect by the end of this month.

The Police Benevolent Association union sued over Mayor Bill de Blasio’s COVID-19 vaccine mandate, which goes into effect for all police officers and other city workers on Friday, Oct. 29.

“The City has provided no explanation, much less a rational one, for the need to violate the autonomy and privacy of NYPD police officers in such a severe manner, on the threat of termination,” the lawsuit said, adding that the current policy to either mandate vaccines or testing for COVID-19 is “sufficient enough.”

The current policy requires unvaccinated police officers to be tested weekly for COVID-19, the disease caused by the CCP (Chinese Communist Party) virus.

“There is no evidence of any widespread COVID-19 infection or transmission by or among NYPD police officers since the ‘vax or test’ policy has been in place,” the suit continued to say. “To the contrary, all evidence establishes that the policy has proven effective, and it has struck the appropriate balance between encouraging vaccination and respecting the medical autonomy of the NYPD officers.”

The association’s lawyers further argued that the city’s mandate will also adversely impact officers who have sincere religious or health concerns about COVID-19 vaccines, noting that many of these officers “put their lives on the line” throughout the pandemic.

In a Twitter post, the Police Benevolent Association said it also filed a request for a temporary restraining order to stop the city and the NYPD from implementing the vaccine requirement while litigation is pending.

City workers, including NYPD officers, who do not get vaccinated before the Oct. 29 deadline will be placed on unpaid leave and face termination from their jobs.

A spokesperson for de Blasio’s office told the New York Post that the mayor’s mandate is lawful and claimed it keeps residents safe. The Epoch Times has contacted de Blasio’s office for comment.

“Every effort to stop the city’s vaccine mandates has failed in court, and we believe this suit by the PBA will meet the same fate,” the spokesperson said. “The city’s vaccine mandates are lawful and keep New Yorkers safe. We’ll review the case.”

De Blasio on Monday echoed a previous claim that officials have “contingencies” for the NYPD and other agencies who lose staff over vaccine mandates.

“We’ve seen the mandates move a lot more people to get vaccinated,” he argued.

A lawsuit that was filed by Department of Education staff seeking a temporary injunction against a citywide mandate was rejected by a Manhattan federal judge earlier this month.

One would think that for the world’s foremost international climate summit to be effective or have hopes of making any level of actual impact, the globe’s biggest greenhouse gas emitters would have to be represented. After all, European officials and media are now dramatically dubbing it as humanity’s “last best chance” to reign in the “out of control” specter of incoming climate “disaster”.

Multiple reports this week suggest Chinese President Xi Jinping will not be in attendance at the 2021 United Nations Climate Change Conference (COP26) set for Glasgow, Scotland from Oct. 31 through Nov.12. Putin has also confirmed he’ll be staying at home.

Though other heads of countries deemed the foremost climate-warming emissions producers will be in attendance, for example, Indian Prime Minister Narendra Modi who has days ago committed his attendance, China will merely send vice-environment minister Zhao Yingmin and China’s climate envoy Xie Zhenhua instead.

As Reuters points out, what amounts to a “cold shoulder” and symbolic messaging is huge: “The leaders of most of the world’s biggest greenhouse gas emitters gather in Glasgow from Sunday, aiming to thrash out plans and funds to tilt the planet towards clean energy. But the man running the biggest of them all likely won’t be there.“

The possibility that Xi could address the conference remotely remains. The “official” excuse for his absence will likely hinge on the pandemic: Xi has reportedly not traveled outside China since before the pandemic, instead choosing to make recent major climate announcements virtually.

One analyst representing Greenpeace in Beijing had this to say: “COP26 needs high-level support from China as well as other emitters,” suggesting Xi’s personal absence makes the whole international event somewhat futile in terms of any meaningful change.

Meanwhile ahead of Biden’s trip for the COP26 in Glasgow, the White House is scrambling to put together a clean energy package to be included in a major domestic policy bill so he doesn’t show up to the conference “empty handed”. As The Hill describes:

Next month’s climate summit in Glasgow has significantly raised the stakes for Democrats to reach a deal on President Biden’s social spending measure, which the White House wants to tout as a US achievement on the international stage.

Sending Biden to Scotland without anything close to a deal would land another blow on a president already suffering from falling approval ratings that have not been helped by the Democratic infighting over his agenda.

In China’s absence, and apparently with Beijing unwilling to concede anything further before the UN – also as it struggles with a looming major energy crisis amid a coal shortage – Biden is hoping to show up at the conference with something than can further put China on the defensive, following Beijing rejecting recent Washington efforts to negotiate climate issues as a ‘standalone issue’. But China has insisted it must be treated in connection with broader disputes which have taken the two countries’ relationship to a low-point.

What all of this means for COP26 is more “empty words and promises” (cue Greta-style rant) without any substance or concrete plans. No doubt this will only beget more and more conferences and reasons for international officials to jet set from one European and Asian capital to the next signing vague ‘commitments’. But then again maybe that’s the whole purpose behind the whole high-level climate activism industry and agenda in the first place: more photo-ops and nice meals with powerful people.

Yes, Greta will be in attendance, and as is typical will likely not utter a peep about China and Russia’s glaring absence…

COP26: Greta Thunberg to join Glasgow protest — and backs striking workers | The National https://t.co/lLlgXtJ0LB

— @Camz99 (@Camz99) October 26, 2021

A quote attributed to an official from Swiss multinational investment bank UBS has perhaps put it best:

The imminent COP26 climate change summit has prompted an increase in political rhetoric. Some of this is posturing (the strategy of “hug a tree to hug Biden” continues to play out). 

To underscore yet further that Glasgow looks to be another futile exercise in elderly world leaders getting together for a big photo op with a few cliched climate mantras thrown in between the banquet dinners and cocktail parties, Russian President Vladimir Putin is also expected to be a no-show.

As AFP reported of Kremlin statements last week, “Russian President Vladimir Putin will not go to next month’s landmark UN climate summit, the Kremlin said on Wednesday as the UK stressed the importance of national leaders’ presence.”

Instead Moscow will like China send some lower level officials…

Kremlin spokesman Dmitry Peskov told reporters that “unfortunately Putin will not fly to Glasgow”, while stressing that climate change was “one of our foreign policy’s most important priorities”.

Russia is currently the fourth-highest carbon emitter, and critics say the country is doing far from enough to tackle the environmental crisis.

After days ago the UK indicated that at least 120 world leaders have confirmed their attendance, Prime Minister Boris Johnson is desperately urging countries to be represented at the highest levels of their government.

Johnson said they should be “represented at a senior level” so that the group can make “meaningful pledges when it comes to decarbonization.” But again, it looks yet again to be another futile event robust in political posturing and social media friendly sloganizing, especially without the Chinese and Russian leaders present.

To be sure, as we noted the other day, China is a much bigger offender than Russia…but the Russian Federation still ranks among the world’s biggest sources of emissions.

…the notion that anything “meaningful” will actually happen at this summit is almost laughable. The developed nations of the world haven’t even managed to reach their targets from the last major global climate conclave back in 2015, when the Paris Accords were signed.

The real question is: Why would anybody expect any progress at this meeting while China and Russia – who are two of the biggest offenders and therefore must be part of any global solution – won’t be there.

Authored by Tom Ozimek via The Epoch Times,

Failure on the part of the Fed to toss its stubbornly-held “transitory” inflation narrative and act more decisively to rein in persistently high price pressures raises the likelihood the central bank will need to slam on the brakes of easy money policies much more forcefully down the road, risking avoidably severe disruption to domestic and global markets, according to Queen’s College President and economist Mohamed El-Erian.

“In stark contrast with the mindset of corporate leaders who are dealing daily with the reality of higher and persistent inflationary pressures, the transitory concept has managed to retain an almost mystical hold on the thinking of many policy makers,” El-Erian wrote in an Oct. 25 op-ed in Bloomberg.

“The longer this persists, the greater the risk of a historic policy error whose negative implications could last for years and extend well beyond the U.S.,” he argued.

Consumer price inflation is running at around a 30-year high and well beyond the Fed’s 2 percent target, to the consternation of central bank policymakers who face increasing pressure to roll back stimulus, even as they express concern that the labor market hasn’t fully rebounded from pandemic lows.

The total number of unemployed persons in the United States now stands at 7.7 million, and while that’s considerably lower than the pandemic-era high, it remains elevated compared to the 5.7 million just prior to the outbreak. The unemployment rate, at 4.8 percent, also remains above pre-pandemic levels.

At the same time, other labor market indicators, such as the near record-high number of job openings and an all-time-high quits rate—which reflects worker confidence in being able to find a better job—suggest the labor market is catching up fast. Businesses continue to report hiring difficulties and have been boosting wages to attract and retain workers. Over the past six months, wages have averaged a gain of 0.5 percent per month, around twice the pace prior to the pandemic, the most recent jobs report showed.

Besides measures of inflation running hot, consumer expectations for future levels of inflation have hit record highs, threatening a de-anchoring of expectations and raising the specter of the kind of wage-price spiral that bedeviled the economy in the 1970s. A recent Federal Reserve Bank of New York monthly Survey of Consumer Expectations showed that U.S. households anticipate inflation to be 5.3 percent next year and 4.2 percent in the next three years, the highest readings in the history of the series, which dates back to 2013.

El-Erian, in the op-ed, argued that the Fed has “fallen hostage” to the framing that the current bout of inflation is temporary and will abate once pandemic-related supply chain dislocations will abate.

“It is a framing that is pleasing to the ears, not only to those of policy makers but also those of the financial markets, but becoming harder to change,” he wrote.

“Indeed, the almost dogmatic adherence to a strict transitory line has given way in some places to notions of ‘extended transitory,’ ‘persistently transitory,’ and ‘rolling transitory’—compromise formulations that, unfortunately, lack analytical rigor given that the whole point of a transitory process is that it doesn’t last long enough to change behaviors,” he wrote.

El-Erian said he fears that Fed officials will double down on the transitory narrative rather than cast it aside, raising the probability of the central bank “having to slam on the monetary policy brakes down the road—the ‘handbrake turn.’”

“A delayed and partial response initially, followed by big catch-up tightening—would constitute the biggest monetary policy mistake in more than 40 years,” El-Erian argued, adding that it would “unnecessarily undermine America’s economic and financial well-being” while also sending “avoidable waves of instability throughout the global economy.”

His warning comes as the Federal Open Market Committee (FOMC)—the Fed’s policy-setting body—will hold its next two-day meeting on November 2 and 3.

The FOMC has signaled it would raise interest rates sometime in 2023 and begin tapering the Fed’s $120-billion-a-month pandemic-era stimulus and relief efforts as early as November.

Some Fed officials have said that, if inflation stays high, this supports the case for an earlier rate hike. Fed Governor Christopher Waller recently suggested that the central bank might need to introduce “a more aggressive policy response” than just tapering “if monthly prints of inflation continue to run high through the remainder of this year.”

“If inflation were to continue at 5 [percent] into 2022, you’ll start seeing everybody potentially – well, I can’t speak for anybody else, just myself, but – you would see people pulling their ‘dots’ forward and having potentially more than one hike in 2022,” he said in prepared remarks to Stanford Institute for Economic Policy Research.

The Fed’s dot plot (pdf), which shows policymakers’ rate-hike forecasts, indicates half of the FOMC’s members anticipate a rate increase by the end of 2022 and the other half predict the beginning of rate increases by the end of 2023.

For now the market is pricing in a more hawkish Fed response in 2022

Three key Senate Democrats have unveiled a new plan to enact a 15% minimum corporate tax on declared income of large corporations, according to CNBC.

The proposal, released Tuesday by Sens. Elizabeth Warren (MA), Angus King (ME) and Senate Finance Committee Chair Ron Wyden (OR), would be included as a source of revenue to help fund the Democrats’ massive “Build Back Better” package. It would apply to approximately 200 US corporations.

More via CNBC:

According to a release from the senators, the corporate minimum tax would: 

• Apply only to companies that publicly report more than $1 billion in profits annually for a three year time period.
• Create an across-the-board 15% minimum tax on those profits.
• Preserve “the value of business credits – including R&D, clean energy, and housing tax credits – and include some flexibilities for companies to carry forward losses, utilize foreign tax credits, and claim a minimum tax credit against regular tax in future years.”

The proposal follows an announcement by Sen. Kyrsten Sinema (D-AZ), who said she wouldn’t support raising the current corporate tax rate. 

According to the report, the Democrats did not reveal which tax credits would be preserved – the details of which will likely make a significant impact on the corporations to which they apply.

“The most profitable corporations in the country are often the worst offenders when it comes to paying their fair share. Year after year they report record profits to shareholders and pay little to no taxes. Our proposal would tackle the most egregious corporate tax dodging by ensuring the biggest companies pay a minimum tax,” said Wyden in a statement.

The proposal has yet to get a formal stamp of approval from House and Senate leaders. But Warren said she and her colleagues have “engaged extensively” with the Senate Finance Committee, the White House, and the Treasury Department to develop this updated proposal for inclusion in the Build Back Better bill.

The Senators called out Amazon – which they said paid an “effective tax rate of just 4.3% – well below the 21% corporate tax rate” on $45 billion in reported profits over the past three years.

One quarter ago, we had a clear advance notice that Robinhood’s payment for orderflow – the company’s bread and butter and the bulk of its revenues courtesy of its main client Citadel – would suffer big in Q2 sequentially, because having spread the company’s 606 filings previously, we showed a 34% drop in PFOF in Q2 compared to Q1, and an only modest increase Y/Y thanks to a 48% increase in option trading as revenue from orderflow from S&P and non S&P500 stocks was down 25% Y/Y.

The company’s Q2 results confirmed as much, showing a big sequential drop in total the top line with revenue from cryptos surpassing stocks and options combined. And unfortunately, the company this time has not been able to make it 606 filing in time, so all we knew heading into Q3 earnings was Robinhood’s own warning that results would be ugly, to wit: “for the three months ended September 30, 2021, we expect seasonal headwinds and lower trading activity across the industry to result in lower revenues and considerably fewer new funded accounts than in the prior quarter.”

In retrospect, investors should have paid attention because moments ago Robinhood posted Q3 results and they were ugly.

• Net Revenue $364.9M, huge miss to estimates of $423.9M
• Loss per share $2.06 vs. loss/share $2.160 q/q

It just gets worse from there:

• Transaction-based revenue $266.8 million, down 41% q/q; of this Crypto revenue was $51 million, down a huge 78% from $233MM in Q2. So much for the dogecoin mania.
• Monthly active users 18.9 million, down -11% q/q
• Net cumulative funded accounts 22.4 million, also down -0.4% q/q
• Assets under custody $95 billion, down 6.9% q/q
• Average rev. per user $65, down 42% q/q
• The company did beat on Adjusted Ebitda, which came in at $84 million, beating consensus estimates of $18.8 million, but nobody cares.

The charts are in a word, horrific, starting with MAU which have now peaked…

… going to Assets under custody:

ARPU was an unmitigated disaster, dropping to the lowest level in the past year.

Fewer users and lower ARPU means just one thing: a collapse in revenue, which is now less than the price of a Ken Griffin apartment:

Believe it or not, it actually gets even worse, with the company’s transaction based revenue (i.e., what it actually does) down to $267 MM, or almost down 50% from Q2. But wait, because if one excludes $51MM in crypto revenue, one gets just $216MM in total transaction based revenues, flat since Q3 2020 and below the Q4 2020 total.

That said not everything was plunging: operating expenses more than tripled.

But wait, there’s much more and yes, it’s all ugly: in an echo from 3 months ago when HOOD warned Q3 would be ugly and nobody believed it, this time the company’s terrible guidance will be taken much more seriously:

• Sees 4Q No Greater Than $325M, a huge miss to the est. $500.7M
• Sees Year Rev. Less Than $1.8B, far below the est. $2.03B
• Sees 4Q New Funded Accounts About 660,000

In light of all the catastrophic numbers above, it is a miracle that the stock is down only $3 or 8% after hours.

Oil prices rebounded from weakness yesterday afternoon with WTI testing back above $84.50 ahead of tonight’s API inventory data to seven year highs.

“There is little that can tilt oil prices away from their upwards momentum on the short term, as the only real supply source of significance is OPEC+, and there doesn’t seem to be much mood for policy change on that front for the moment,” said Louise Dickson, senior oil markets analyst at Rystad Energy, in daily market commentary.

“There are only two offramps to the current bout of oil price volatility and one is OPEC+ taking supply action, but the group has repeatedly said it does not plan on altering its strategy,” said Dickson. There’s also the chance that “another round of COVID-19 breakouts and lockdowns could again dim the demand outlook,” she said. “But it seems to be a last resort strategy for many economies that are tired of repeating the unpopular economy-damaging process.”

So all eyes on stocks and supplies…

API

• Crude +2.318mm (-100k exp)

• Cushing

• Gasoline (-2.7mm exp)

• Distillates (-2mm exp)

Last week saw a surprise crude inventory build…

Source: Bloomberg

Refiners “are drawing down on Cushing at a pretty incredible pace right now,” said Flynn. “We’re getting close to empty.”

WTI hovered around $84.50 ahead of the print and dipped on the unexpected build…

The crude market’s pricing structure remains deeply backwardated, a bullish pattern in which near-term prices are more costly than those further out.

Meanwhile, some traders are “wondering if the oil prices have come up too far, too fast,” so they were reluctant to drive prices higher “until we get a better handle on [crude] inventories this week,” said Phil Flynn, senior market analyst at The Price Futures Group..

In a 17-0 vote, the US Food and Drug Administration (FDA) has recommended that the agency authorize the emergency use of Pfizer-BioNTech COVID-19 vaccine for children ages 5 through 11.

One member abstained from the vote.

The decision opens the door for final approval by the FDA, which could come as early as Wednesday, according to the Texas Tribune‘s Karen Brooks Harper.

The panel’s 17-0 vote, with one member abstaining, in favor of emergency use authorization for that age group opens the door for final approval by the FDA, which could come as early as Wednesday, by the FDA.

— Karen Brooks Harper (@kbrooksharper) October 26, 2021

Developing…

Despite some initial volatility, TWTR shares are basically unchanged after-hours following resultrs tha tbroiadly met expectations:

• Revenue: $1.284 billion vs. $1.285 billion as expected.

• Monetizable daily active users (mDAUs): up 5 million to 211 million vs. 211.9 million as expected

Because of the legal settlement (a one-time litigation-related net charge of $766 million related to an $809.5 million settlement the company announced in September for allegedly misleading investors about user growth), Twitter reported a net loss of $537 million, compared to a profit of $29 million a year ago.

Twitter’s ad revenue rose more than 41% to $1.14 billion, with total ad engagements increasing 6% from a year earlier.

TWTR dropped, then popped, then dropped back to unchanged, before a modest rally lifted it 1%…

The company said it’s expecting revenue, including the MoPub business, of $1.5 billion to $1.6 billion in the fourth quarter. Analysts were projecting sales of $1.58 billion on average, according to Refinitiv.

Additionally, the company says they expect similar user growth in the fourth quarter.

Finally, After Snap’s chaos, Twitter described the impact of Apple’s new privacy/tracking changes as “modest,” adding that the impact was “lower than expected.”

Heading into today’s tech earnings doubleheader which sees FAAMG giants Microsoft and Alphabet both reporting, the results from the two would set the scene for the S&P for the next few days as the pair’s combined profits are expected to account for about 12% of the S&P 500 remaining profits this quarter.

And with Microsoft reporting a beat on the top and bottom line elsewhere, moments ago Google also posted solid Q3 numbers when it beat on both the top and bottom line, with just a small blemish that Google Cloud revenue missed expectations ever so slightly with CapEx also coming in slightly below expectations. Here are the results:

• Revenue $65.12 billion, +5.2% q/q, beating the estimate of $63.39 billion
  • Google Services revenue $59.88 billion, +4.9% q/q, beating estimate $58.16 billion
  • Google Cloud revenue $4.99 billion, +7.8% q/q, missing estimate $5.04 billion
  • Other Bets revenue $182 million, -5.2% q/q, missing estimate $197.1 million
• EPS $27.99 vs. $16.40 y/y, beating the estimate of $23.50
• Operating income $21.03 billion, +88% y/y, also beating the estimate $18.14 billion
  • Google Services operating income $23.97 billion, +7.3% q/q, estimate $21.13 billion
  • Google Cloud operating loss $644 million, +9% q/q, estimate loss $935.2 million
  • Other Bets operating loss $1.29 billion, -7.9% q/q, estimate loss $1.21 billion
• Operating margin 32% vs. 24% y/y, beating estimate 27.8%
• Capital expenditure $6.82 billion, +26% y/y, missing estimate $6.90 billion.

And visually:

As noted above, while Cloud rose 44% Y/Y to $4.99BN, it came in just below the $5.05BN expected and also dropped sequentially; the Street will likely not be too impressed with this disappointment coming at a time when every major FAAMG is rushing to grab market share in the key segment. The silver lining: Cloud did manage to staunch some of its bleeding during the quarter. It reported $644 million in operating losses, down from a $1.2 billion loss last year (yes, Google’s cloud division is still losing money).

Another notable figure: Google’s TAC (its payouts to partners) jumped 40% to $11.5 billion. Google has been trying to curb this number for several years. In other words, while Alphabet’s advertising revenue jumped significantly since last year (to $53.1 billion from $37 billion), so did the price the company pays to partners to aid that growth.

Also worth highlighting: GOOGL’s workforce rose by 18K to just over 150K people. As Bloomberg notes, much of that growth likely went to its cloud division.

And in a potentially troubling development, Google’s “Other” segment which lumps in devices, app store and YouTube subscriptions, only grew 23% to $6.8 billion. That suggests that its app store and hardware sales aren’t going gangbusters.

Commenting on the results, CFO Ruth Porat said: “Our consistent investments to support long-term growth are reflected in strong financial performance, with revenues of $65.1 billion in the quarter. We continued to deliver across our business by providing helpful and valuable experiences for both consumers and our partners.”

Still, after a blowout second quarter, the narrow beat (and in the case of Cloud, miss) investors appear somewhat underwhelmed with the stock swinging afterhours before drifting slightly lower.