Wall Street Breakfast: Instant Warning

Instant warning

Stock markets are set to renew their sell-off this morning as a grim forecast from Snapchat owner Snap (SNAP) gave investors another excuse to dump tech stocks. The company warned of a macroeconomic environment that “has deteriorated further and faster than expected”, saying it was unlikely to meet its (already conservative) second-quarter revenue and profit guidance. . Nasdaq futures are the most under pressure, down nearly 2%while contracts linked to the S&P and the Dow Jones slipped 1.2% and 0.8%respectively.

Remark: “$SNAP is down 52% YTD prior to this announcement,” tweeted Stephanie Link, chief investment strategist at Hightower Advisors. “Now 25% more? Why are Price/Sales valuations impossible measures? »

Keep in mind that Snap only reported earnings a month ago, which means the economic landscape appears to have changed drastically over the past few weeks. The company will also slow hiring and postpone some planned staff additions until next year, according to an internal memo, while evaluating the rest of its 2022 budget to seek cost savings. The latest outlook also sent digital advertising stocks tumbling, including shares of Meta Platforms (FB), Pinterest (PINS) and The Trade Desk (TTD).

Next stop: “These are pretty binary markets at the moment,” Deutsche Bank’s Jim Reid explained. “If the United States does not fall into recession in the next 3-6 months, it is easy to see the markets recover during this period. However, if they do, the correction will probably have to continue and move beyond the recession average selloff (which we were close to at the bottom last week) given the high starting valuations.” (6 comments)

Future of globalization?

The latest gathering of the world’s political and business elite, along with the usual handful of celebrities, is taking place this week in the Swiss Alpine resort of Davos. While the annual meeting of the World Economic Forum is usually broadcast in January, it has been delayed several times this year due to COVID-19. As a result, the headlines aren’t making as many of their usual waves, but again, many have already dismissed the wealthy and powerful idealists who gave rise to the terms “Davos Man” and “Davos Woman.”

Instantaneous: This year’s program will focus on six thematic pillars, including promoting global and regional cooperation, securing economic recovery and creating a new era of growth, building healthy and equitable societies, safeguarding the climate, food and nature, driving the transformation of industry and harnessing the power of the fourth industrial revolution. “Global challenges require global solutions,” said Børge Brende, WEF President. “We don’t see these global solutions and that’s where we need to push in Davos.”

However, based on recent corporate earnings calls and investor conferences, things appear to be moving in the opposite direction. Mentions of nearshoring, onshoring and reshoring were at their highest levels since at least 2005, according to data provider Sentieo, with a de-globalisation approach at work amid a strong shift towards nationalism and protectionism. Geopolitical threats and pandemic supply chain shortages have exacerbated these forces, but the people of Davos seem to be warning of further unintended fallout.

Estimate: “If a significant part of the decades of globalization-induced productivity gains were undone in a short period of time, it would lead to higher inflation and lead to a major and prolonged recession,” said Dominik Asam, chief financial officer of Airbus ( OTCPK:EADSY). “Companies are saying I need my production to be closer to my customers,” added Blackstone (BX) chairman Jonathan Gray. “The tension between the United States and China has been accelerated by the pandemic and now this Russian invasion of Ukraine – all of these trends raise serious concerns about a decoupled world,” noted José Manuel Barroso, president. non-executive of Goldman Sachs International (GS). (2 comments)

Crypto Risks

The European Central Bank is stepping up its warnings about the crypto market, further deflating the sentiment that has plagued the industry for the past six months. Flagship Crypto Bitcoin (BTC-USD) slipped another 5% below the $29,000 level overnight, adding to its 57% loss seen from a November high of $67,802. The latest warnings came as part of the ECB’s financial stability review following similar caution expressed by regulators in the UK and US.

Extract: “Investors have been able to manage the €1.3 billion drop in market capitalization of unsecured crypto assets since November 2021 without any risk to financial stability,” the ECB said in a statement. his report. “However, at this rate, a point will be reached where unsecured crypto assets will pose a risk to financial stability. Given the rapid pace of crypto developments and growing risks, it is important to bring crypto assets into the perimeter. regulatory and under surveillance as a matter of urgency.”

Earlier this week, ECB President Christine Lagarde told Dutch television that crypto assets “are worthless, have no backing and there is no underlying asset to act as an anchor. of security”. Last month, ECB leader Fabio Panetta also likened the sector to a Ponzi scheme, calling for a regulatory crackdown to prevent a frenzy of lawless risk-taking. “Such momentum can only continue as long as a growing number of investors believe that prices will continue to rise and that there can be fiat value without any stream of income or collateral. the enthusiasm fades and the bubble bursts.”

Go further: Despite skepticism towards decentralized money and stablecoins, the ECB is still interested in rolling out a digital euro, also known as central bank digital currency. In the case of CBDCs, the government is the counterparty and takes responsibility for the money, “so the central bank will be behind it and I think that’s very different from any of those things,” Lagarde noted. The central bank hopes to build a prototype CBDC for testing by 2023, before deciding to launch it three years later. (13 comments)

Almost everywhere

China’s zero COVID policy has many ripple effects on its economy, as well as multinationals located in the country. Airbnb (ABNB) is closing its nationwide operations starting in the summer, pausing its rental home offerings and experience listings. Other Western companies like LinkedIn (MSFT) and Uber (UBER) have all pulled out of China in recent years, citing a tough regulatory environment and tech crackdowns.

Background : Prior to the coronavirus pandemic, Airbnb had struggled to carve out a niche in the market as local competitors like Tujia, Meituan and Mayi challenged its massive market forays. It even had talks to acquire main competitor Xiaozhu, but things didn’t materialize. Airbnb has recorded about 25 million stays in mainland China since its launch in 2016, although total bookings have accounted for only about 1% of the online travel provider’s overall revenue.

“We will continue to incur significant expenditures to operate our business in China, and we may never achieve profitability or significant supply penetration in this market,” the company’s latest 10-K filing said. adding that the country was not of significant importance to its overall business.

Outlook: Despite its withdrawal from the Chinese market, Airbnb will in no way ignore Chinese travelers or other outbound traffic. “People are going to China, but they’re mostly traveling to China and they’re going to other communities, especially around Asia,” CEO Brian Chesky said on an earnings call earlier this month. . According to data provider Skift, Chinese outbound tourism spending even exceeded $277 billion in 2019 (pre-pandemic), $120 billion more than US spending in the same year. (3 comments)

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