I missed the first week of January and along with it a decades worth of news. And if the bombshell statement from the Federal Reserve is any indication, this week promises to be action packed. Read all about the week ahead in my Globe and Mail column.
Here are five things to know today:
Sell America: US futures are under pressure following a bombshell statement from Federal Reserve Chair Jerome Powell on Sunday saying the Department of Justice is threatening a criminal indictment to exert political pressure on interest rates. The word unprecedented is starting to lose meaning in this administration. Powell released an extraordinary video on Sunday which was unusual in how directly he fired back at US President Donald Trump. On Friday, Powell received a subpoena related to his testimony about renovations of the Federal Reserve in the summer. Powell said this is just a ruse to exert pressure. “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions – or whether instead monetary policy will be directed by political pressure or intimidation,” said Powell in the video statement. In addition to stocks trading lower, bonds and the US dollar are under pressure while safe haven gold is at a record nearing $4,600/oz. “If the Fed becomes a political tool, with its chair replaced by a government puppet, that could further weaken appetite for the U.S. dollar and U.S. bonds,” wrote Ipek Ozkardeskaya of Swissquote in a note to clients.
Trump’s America: Credit card companies and banks are under pressure this morning after Trump posted on social media that he is calling for a “one-year cap on Credit Card Interest rates of 10%.” Shares of American Express (-3.5%), Capital One (-7%), Visa (-2%), and Mastercard (-2%) are down while banks like JPMorgan (-2%) and Citi (-3.5%) are also under pressure (the banks are due to report results this week). This might be mostly a knee-jerk reaction give that the President does not have the authority to cap credit card interest rates because it would require an act of congress. “The legislative risk remains relatively low, but clearly higher now that the president has called for this action,” wrote Ed Mills of Raymond James, “The post also highlights “AFFORDABILITY” which is becoming a recurring theme for President Trump as we enter the midterm election year.”
Trump’s Venezuela: Exxon Mobil is modestly lower in the pre-market after the CEO called Venezuela “uninvestible” prompting Trump to say he would be inclined “keep Exxon out” of rebuilding the energy sector in the country. Trump said explicitly he “didn’t like their response.” Chevron, on the other hand, already has a presence in Venezuela and said they are poised to ramp up significantly there. We can forgive Exxon for being shy, they’ve had their assets seized twice in Venezuela and left the country for good with billions still owed to them. Reminder, we did a great episode on Venezuela and the implications for Canadian energy producers. Trump’s agenda to keep oil prices low is being complicated by escalating protests in Iran. The regime has successfully quelled unrest in the past but news media is filled with accounts that suggest this time feels different.
Binge: Eli Lilly is reportedly on the verge of a $17.5 billion acquisition of French biotech Abivax. This would be the largest acquisition in Lilly’s history and be a play for a drug on the cusp of potentially curing inflammatory bowel diseases like ulcerative colitis and Crohn’s disease. Their main drug, which is still in trials and hasn’t been approved, is an experimental pill that is designed to calm down immune responses that cause inflammation. Obviously, if trials are successful this could be successfully applied to other inflammatory diseases. Disclosure, I own Eli Lilly.
Upward facing dog: Luluemon is up modestly in the pre-market after saying profit and sales will be at the higher end of their forecasts for the holiday period at an industry conference. Lulu is going through a period of major change with long-time CEO Calvin McDonald stepping down and founder Chip Wilson and large shareholder along with known activist investor Elliot Management agitating for a board shakeup. While touting optimistic holiday sales should be considered a win, Lululemon usually uses the ICR conference to raise its forecasts according to Michael Binetti at Evercore. “While LULU today didn’t use ICR to raise guidance (like it has historically), expectations here are low and we think the update moving guidance towards the high-end should be sufficient for some stock upside in the near-term,” wrote Binetti in a note to clients, “Longer-term, we continue to think 4Q is relatively immaterial (new/permanent CEO announcement will kick off a whole new set of stock debates). But the ICR update should be solid backstop with near-term trends likely more stable than expected.”
Don’t miss our next episode out tomorrow!
