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Amazon Shares’ Underperformance May Help It Dodge Earnings Selloff

3 Feb 2022 4 Feb 2022

(Bloomberg) — Wall Street favorite Amazon.com Inc. could be the next technology giant to flag that pandemic-era growth is fading, but the stock’s sideway travel for many months is likely to lessen any post-earnings blow.

PayPal Holdings Inc. and Netflix Inc. are among the online companies warning in recent days that their businesses are cooling off because economies have reopened. The slowdown sent their shares plunging, denting hopes for a recovery in high-growth stocks after the Federal Reserve tightening shocks.

Amazon also saw a boom in business from people who were cooped up during lockdowns, a trend that’s taken a U-turn as less-severe Covid-19 infections led to people going back to in-store shopping. There’s one other headache: being one the largest U.S. employers, it has been facing pressures from wage inflation and shortage of labor.

Still, analysts haven’t budged. All 59 of them covering the stock stamp a buy on it, making it one of the most highly rated in the S&P 500. With Amazon shares down about 5% on Thursday after Meta Platforms’ earnings flop, the average price target implies a 44% gain from current levels. While the shares have bounced around as the market has swung, they’re trading now at about the same level as mid-July 2020.

For some, like Ross Sandler, an analyst at Barclays Plc, the underperformance is part of the attraction.

“With most of the street braced for another guide-down, we think Amazon shares are poised for a bounce,” he wrote in a research note. “We expect the tone to turn more upbeat and aggressive.”

Indeed, Amazon shares have fallen 14% in the past year compared to an 18% gain in the S&P 500 Index. The stock has become cheaper too, at 42 times estimated earnings versus the 2020 high of 70 times.

Given rising labor costs, Wall Street is projecting earnings per share to contract 73% for the December quarter. Concerns about higher costs have crept into 2022 profit estimates, too, with analysts steadily cutting projections for the first three months of the year. The average estimate has slipped to $9.09 a share from about $10.50 over the past month, according to data compiled by Bloomberg.

Tech Chart of the Day

Facebook parent Meta Platforms Inc. is set to shed about $200 billion in market value, in what would be one of the biggest one-day wipeouts in market value for any company on record. The stock is taking a hit after the company’s forecast for the first quarter missed estimates amid stagnating user growth and increasing competition from TikTok.

Dog Walking App Wag! to Go Public in SPAC Deal With CHW

3 Feb 2022 4 Feb 2022

(Bloomberg) — Wag Labs Inc., the developer of dog-walking app Wag!, has agreed to go public through a merger with a blank-check company.

San Francisco-based Wag and CHW Acquisition Corp. will have a value of about $350 million as a combined company, according to a Thursday announcement confirming a Bloomberg News report. The company, to be named Wag! Group Co., is expected to be listed on the Nasdaq under the symbol PET.

The company has raised an equity placement at $10 a share from existing investors including Battery Ventures, ACME Capital, General Catalyst and Tenaya Capital. The transaction also includes $30 million in debt financing from Blue Torch Capital.

Wag in 2019 repurchased a 50% stake in itself from SoftBank Vision Fund, which first invested $300 million in the company in 2018.

In addition to dog walking, Wag provides on-demand services such as pet sitting, training and drop-in checks. It offers a monthly subscription for these services in 50 states.

Pet Parents

One in five households in the U.S. adopted a pet since the coronavirus pandemic started in March 2020, said Wag Chief Executive Officer Garrett Smallwood.

New pet owners are the best-performing clients for Wag’s platform, having spent much of the past two years locked down with their pets and now leaving them for the first time as the world returns to normal, he said.

“They have a lot of guilt for leaving their pets for the first time,” Smallwood said. “We think the next 12 to 24 months will be a phenomenal time for the business as we return to normal.”

CHW, a special purpose acquisition company, or SPAC, is led by President Paul Norman, a former Kellogg Co. executive, and co-chief executive officers Jonah Raskas and Mark Grundman. CHW raised $125 million in an August initial public offering and had planned to target a merger in the consumer and retail sector.

Oppenheimer & Co. advised Wag on the transaction, while CHW was advised by Chardan.

More stories like this are available on bloomberg.com

DeFi Project Known as Wormhole Hit With a Potential $320 Million Hack

3 Feb 2022 4 Feb 2022

(Bloomberg) — Wormhole, a communication bridge between Solana and other decentralized-finance blockchain networks, said all funds have been restored and the platform is back up after hackers stole about $320 million in cryptocurrency.

The online thieves made away with 120,000 wETH, or so-called wrapped Ether, the project’s team said on Twitter Wednesday. On Thursday morning, the team said “all funds have been restored,” without specifying the source of the funding. Earlier, the project pledged to add Ether to ensure the wETH is backed one-for-one.

The vulnerability has been patched, Wormhole management said on the project’s Telegram channel on Thursday, reassuring users that funds are safe. It added an official statement and incident report would be issued in due course.

The hack is one of the largest thefts from a DeFi protocol, which bill themselves as allowing users to bypass traditional intermediaries to borrow and lend digital assets with the added feature of anonymity.

“This demonstrates once again that the security of DeFi services has not reached a level that is appropriate for the huge sums being stored within them,” said Tom Robinson, co-founder of blockchain analysis firm Elliptic. “The transparency of the blockchain is allowing attackers to identify and exploit major bugs.”

Wormhole developers offered the hacker a $10 million bug bounty for exploit details and the return of the funds.

Jump Trading Group announced in August that it bought Certus One, which helped develop Wormhole. Jump has said it is a founding code contributor to Wormhole. Certus One offers infrastructure services for proof-of-stake blockchains and has been an active participant in decentralized networks including Cosmos, Terra, Solana and next-generation Ethereum.

A representative for Jump Trading didn’t respond to a request for comment on Wednesday.

The Wormhole hack adds to a slew of problems for Solana, the blockchain that brags lower transaction fees than main rival Ethereum. Last fall, Solana was down for 17 hours after attacks by trading software bots. Bots also degraded the network’s performance recently.

Solana’s SOL token is down 11% in the last 24 hours, according to tracker CoinMarketCap.com.

(Adds in the first paragraph that the project said all funds are restored.)

More stories like this are available on bloomberg.com

Raskin Signals She Won’t Target Energy Industry in Fed Role

3 Feb 2022 4 Feb 2022

(Bloomberg) — The Federal Reserve’s chief bank watchdog shouldn’t tell lenders what sectors they can do business with, Sarah Bloom Raskin told the Senate committee weighing her confirmation as the most important U.S. supervisor of Wall Street banks.

Raskin has drawn Republican opposition over her past remarks on climate change, and her remarks prepared for a Thursday hearing appear to address that criticism. Raskin said that bank regulators must not be distracted by “short-term political agendas or special interest groups,” so they can focus on big-picture risks, including “from nature and cataclysmic weather-related events.” But, she also said that the supervision role isn’t about picking favorite industries.

“The role does not involve directing banks to make loans only to specific sectors, or to avoid making loans to particular sectors,” she said in written testimony for the Senate Banking Committee.

The Washington insider, who has held senior posts at the Treasury Department and the Fed, is up for the role as the Fed’s next vice chairman for supervision — a position created after the 2008 financial crisis. She must clear Senate confirmation before the full weight of the administration’s banking agenda can be felt, and she’s expected to be questioned Thursday about her positions on climate-change, cryptocurrencies and bank mergers.

She’s also likely to be grilled about how she plans to treat the biggest U.S. banks as their most prominent supervisor. Raskin was pushed by liberal Democrats as a champion of tighter regulation for Wall Street.

In opening remarks at the hearing, Sherrod Brown, the Ohio Democrat who chairs the panel, touted Raskin’s qualifications and said that there was a “a coordinated effort by some to paint her as a radical.” He said that such assertions require “a suspension of common sense” to be believed.

Biden’s other Fed nominees — including Lisa Cook and Philip Jefferson — face a confirmation made more challenging by the 50-50 split in the Senate. Raskin, now a Duke University law professor, has drawn much of the ire from Republicans who were already expected to oppose her. On Thursday, all eyes will be on moderate Democrats, who have so far signaled support.

Senator Joe Manchin, the West Virginia Democrat who has opposed some of Biden’s big-picture initiatives, said Tuesday all three Fed candidates are “extremely qualified.” Jon Tester of Montana said his recent conversation with Raskin “went well.” Brown has been marshaling support for all three nominees.

Global Warming

The primary line of attack from the GOP and business groups has been about Raskin’s views on what the Fed should do about global warming. Raskin has been accused of pushing extreme ideas for advocating the Fed use its powers to steer the U.S. toward a greener economy.

“She’s repeatedly, publicly, and forcefully advocated for using financial regulation —- including the Fed —- to allocate capital and de-bank energy companies, Senator Pat Toomey, the banking panel’s ranking Republican, said in opening remarks. He said he fears she’d abuse the central bank’s authorities by intervening in the industry.

Raskin’s defenders argue her views on climate align with others at the Fed and in the finance industry. Her critics have invented an “inflammatory position,” that Raskin doesn’t actually advocate, according to Dennis Kelleher, president of Better Markets, a progressive group.

The Biden administration is poised to overhaul the Fed’s leadership with a more progressive and diverse slate of governors. In addition to the three nominees facing the hearing, his pick for vice chair — current Fed Governor Lael Brainard — and his effort to return Chair Jerome Powell to his seat for another term still await confirmation.

Apart from the hazards of a warming planet, Raskin said bank supervisors “must stay attentive to risks no matter where they come from.” Those include “well-identified asset bubbles or speculation” or “a set of threat actors that launch cyberattacks.”

(Updates with comments from committee’s chair in sixth paragraph.)

More stories like this are available on bloomberg.com

Tech Rout Awaits Traders; Euro Surges on Lagarde: Markets Wrap

3 Feb 2022 3 Feb 2022

(Bloomberg) — U.S. stocks are set to tumble at the open after disappointing results from Meta Platforms Inc. are expected to wipe nearly $200 billion from its value. The euro spiked higher with European bond yields after the region’s central bank signaled concern over persistently high inflation.

Contracts on the tech-heavy Nasdaq 100 Index tumbled 2.6% Thursday, dragged by a 23% premarket rout in Facebook parent Meta Platforms Inc. after a weak revenue forecast. Meanwhile, Treasuries followed the euro zone lower and the dollar fell.

Weak numbers from Meta to Qualcomm Inc. and Spotify Technology SA jolted investors who had bet a strong earnings season would keep equities attractive and counter some of their lingering worries including Federal Reserve tightening and stubborn inflation. That’s stalled the biggest four-day gains in MSCI Inc.’s gauge of world stocks and refueled traders’ switch into less expensive value stocks.

“What people care about is earnings and inflation,” said Ipek Ozkardeskaya, a senior analyst at Swissquote. “Disappointing Facebook results, and a plunge in Meta shares in the afterhours trading calls for a red session in the U.S.”

In Europe, investors focused on interest-rate decisions by the European Central Bank and the Bank of England. The BOE hiked its key rate and signaled it would start running down bond holdings. Meanwhile, the ECB held its interest rates and said net buying under its emergency support program will end in March.

ECB President Christine Lagarde said inflation would remain elevated for longer but the bank was getting “much closer” to its target in inflation. The Stoxx Europe 600 fell below its 100-day moving average.

Poorly received earnings reports from Meta and other U.S. tech giants are a challenge for dip buyers hoping that corporate performance will ease worries about central bank interest-rate hikes. Markets have swung sharply and stocks are nursing losses this year as officials pare stimulus to curb inflation. Amazon.com Inc. is expected to report after the close of markets.

“Volatility is here to stay,” Anna Han, equity strategist at Wells Fargo Securities, said on Bloomberg Television. “Our outlook for 2022 was that we’d see more spikes in volatility. With that choppiness, with that unpredictability, investors are going to express that by compressing multiples.”

Oil fell from a seven-year high as traders waited to see whether OPEC+ can deliver on its latest promised increase in supply.

Elsewhere, data showed U.S. initial jobless claims fell more than expected last week to 238,000. That follows this week’s ADP figures that showed employment at U.S. firms shrank in January by the most since the early days of the pandemic.

For more market analysis, read our MLIV blog.

What to watch this week:

Earnings are due from Amazon, Ford Motor
Fed Board of Governors confirmation hearing, Thursday
U.S. factory orders, durable goods, Thursday
U.S. payrolls report for January, Friday
Winter Olympics kick off in China, Russia’s President Vladimir Putin due to attend opening ceremony, Friday

Some of the main moves in markets:

Stocks

Futures on the S&P 500 fell 1.3% as of 9:09 a.m. New York time
Futures on the Nasdaq 100 fell 2.6%
Futures on the Dow Jones Industrial Average fell 0.3%
The Stoxx Europe 600 fell 1.3%
The MSCI World index fell 0.1%

Currencies

The Bloomberg Dollar Spot Index fell 0.1%
The euro rose 0.6% to $1.1377
The British pound was little changed at $1.3580
The Japanese yen fell 0.4% to 114.88 per dollar

Bonds

The yield on 10-year Treasuries advanced six basis points to 1.84%
Germany’s 10-year yield advanced eight basis points to 0.13%
Britain’s 10-year yield advanced 12 basis points to 1.38%

Commodities

West Texas Intermediate crude fell 0.8% to $87.58 a barrel
Gold futures fell 0.3% to $1,805.60 an ounce

More stories like this are available on bloomberg.com

Monte Paschi Board Will Review Bastianini’s CEO Position at Feb. 7 Meeting

3 Feb 2022 3 Feb 2022

(Bloomberg) — Banca Monte dei Paschi di Siena SpA said it will review the position of its chief executive next week, signaling a response to government pressure to replace him amid talks with the European Union over the nationalized bank’s future. The bank announced late on Wednesday that “an item of corporate governance” concerning Chief …

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Tech Rout Awaits Traders as Nasdaq Futures Plunge: Markets Wrap

3 Feb 2022 3 Feb 2022

(Bloomberg) — All eyes are on the U.S. market opening amid signs a rout in technology stocks awaits traders following disappointing earnings and forecasts from technology bellwethers.

Contracts on the tech-heavy Nasdaq 100 Index tumbled 2%6 Thursday, dragged by a 23% premarket rout in Facebook parent Meta Platforms Inc. after a weaker-than-expected revenue forecast. Meanwhile, Treasuries followed the euro zone lower after hawkish inflation comments from the European Central Bank. The dollar was little changed while the euro ticked higher.

Meta shares, which had plunged 22% in late New York trading, widened its losses in Thursday’s premarket session. Nvidia Corp. and Qualcomm lost more than 2%. Amazon.com Inc., which will post its financial results after U.S. market hours, slid 4%.

In Europe, investors focused on interest-rate decisions by the European Central Bank and the Bank of England. The BOE hiked its key rate and signaled it would start running down bond holdings.

Meanwhile, the ECB held its interest rates and said net buying under its emergency support program will end in March. ECB President Christine Lagarde said inflation would remain elevated for longer. Europe’s Stoxx 600 fell below its 100-day moving average.

The poorly received earnings reports from the U.S. tech giants are a challenge for dip buyers hoping that corporate performance will ease worries about central bank interest-rate hikes. Markets have swung sharply and stocks are nursing losses this year as officials pare stimulus to curb inflation.

Oil fell from a seven-year high as traders waited to see whether OPEC+ can deliver on its latest promised increase in supply.

For more market analysis, read our MLIV blog.

What to watch this week:

Earnings are due from Amazon, Ford Motor
Fed Board of Governors confirmation hearing, Thursday
U.S. factory orders, durable goods, Thursday
U.S. payrolls report for January, Friday
Winter Olympics kick off in China, Russia’s President Vladimir Putin due to attend opening ceremony, Friday

Some of the main moves in markets:

Stocks

Futures on the S&P 500 fell 1.3% as of 8:54 a.m. New York time
Futures on the Nasdaq 100 fell 2.6%
Futures on the Dow Jones Industrial Average fell 0.4%
The Stoxx Europe 600 fell 1.2%
The MSCI World index fell 0.2%

Currencies

The Bloomberg Dollar Spot Index was little changed
The euro rose 0.5% to $1.1356
The British pound was little changed at $1.3575
The Japanese yen fell 0.3% to 114.81 per dollar

Bonds

The yield on 10-year Treasuries advanced four basis points to 1.82%
Germany’s 10-year yield advanced seven basis points to 0.11%
Britain’s 10-year yield advanced 11 basis points to 1.37%

Commodities

West Texas Intermediate crude fell 0.9% to $87.49 a barrel
Gold futures fell 0.4% to $1,803.70 an ounce

More stories like this are available on bloomberg.com

Xi’s Olympic Guest List Is Mostly Leaders of Non-Democracies

3 Feb 2022 3 Feb 2022

(Bloomberg) — Chinese President Xi Jinping will host 21 world leaders at the Winter Olympics, and a majority of them preside over non-democratic regimes. Twelve of the leaders — including Russia’s Vladimir Putin, the most high-profile attendee — rule nations labeled either “authoritarian” or “hybrid regime” in the latest Economist Intelligence Unit Democracy Index. The …

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Pepkor to Buy Brazilian Retailer Avenida

3 Feb 2022 3 Feb 2022

(Bloomberg) — Pepkor Holdings Ltd., Africa’s largest clothes retailer, agreed to buy a majority stake in Brazil’s Grupo Avenida SA for less than 3.2 billion rand ($208 million) to expand into South America for the first time. The deal for 87% of Avenida represents less than 4% of Pepkor’s market value of 80.4 billion rand, …

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South African Excess Deaths Back to Levels Seen Before Omicron

3 Feb 2022 3 Feb 2022

(Bloomberg) — South Africa’s excess deaths, seen as a more accurate assessment of the impact of the coronavirus than official statistics, have fallen to levels last seen before the omicron variant was identified. The number of excess deaths, a measure of mortality over a historical average, fell to 886 in the week ended Jan. 23, …

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