Wall Street Breakfast: Rattling Supply Chains

Prime Day - Consumers continue to fill up their shopping carts on Amazon (NASDAQ:AMZN) Prime Day, with under 24 hours to go for the two-day event. Discounts are available on more than 2M items for shoppers in 20 countries, including "Lightning Deals" that sell out fast or expire in just a few hours. While Amazon never discloses the full financials of Prime Day, market research firm e-marketer forecasts sales from the shopping bonanza will grow 19% to $11.8B versus a year ago.Y/Y comparison: While that figure marks significant growth, it would be less than the exponential rate seen in years past. The date shift into the third week of June this year also puts Prime Day in Amazon's second quarter, which was a period in 2020 that saw sales surge due to pandemic spending (Prime Day usually takes place in October). Company guidance has already factored in the site-wide sale, calling for $110B-116B in revenue for the June quarter, with operating income ranging from $4.5B-$8B (with $1.5B in COVID-19 related costs).Prime Day is usually a non-event for investors, given the lack of real financials. It even dented sentiment last year - and triggered some panic selling - when Amazon failed to claim it was the largest shopping event in company history. While Amazon's stock climbed 4% last week, it's only up 7% in 2021, compared to the 11% gain for the S&P 500. Shares are still only 1.3% below their all-time peak reached in September 2020.Supply chain disruption: Amazon sellers aren't likely to catch a break this year as the retail industry grapples with widespread supply chain issues. The bottlenecks are making it more challenging to stock distribution facilities and warehouses, while demand soars due to padded wallets from stimulus checks and the economic reopening. Many businesses have even attempted to stock up on as much inventory as they could ahead of Prime Day, but "most sellers don't have the cash to bring in the inventory three months before," declared Freightos CEO Zvi Schreiber, adding that 70% of Amazon's third-party sellers are anticipating inventory shortages. (3 comments)

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Consumer Prime Day Shutterstock Consumers continue to fill up their shopping carts on Amazon (NASDAQ:AMZN) Prime Day, with under 24 hours to go for the two-day event. Discounts are available on more than 2M items for shoppers in 20 countries, including "Lightning Deals" that sell out fast or expire in just a few hours. While Amazon never discloses the full financials of Prime Day, market research firm e-marketer forecasts sales from the shopping bonanza will grow 19% to $11.8B versus a year ago. Y/Y comparison: While that figure marks significant growth, it would be less than the exponential rate seen in years past. The date shift into the third week of June this year also puts Prime Day in Amazon's second quarter, which was a period in 2020 that saw sales surge due to pandemic spending (Prime Day usually takes place in October). Company guidance has already factored in the site-wide sale, calling for $110B-116B in revenue for the June quarter, with operating income ranging from $4.5B-$8B (with $1.5B in COVID-19 related costs). Prime Day is usually a non-event for investors, given the lack of real financials. It even dented sentiment last year - and triggered some panic selling - when Amazon failed to claim it was the largest shopping event in company history. While Amazon's stock climbed 4% last week, it's only up 7% in 2021, compared to the 11% gain for the S&P 500. Shares are still only 1.3% below their all-time peak reached in September 2020. Supply chain disruption: Amazon sellers aren't likely to catch a break this year as the retail industry grapples with widespread supply chain issues. The bottlenecks are making it more challenging to stock distribution facilities and warehouses, while demand soars due to padded wallets from stimulus checks and the economic reopening. Many businesses have even attempted to stock up on as much inventory as they could ahead of Prime Day, but "most sellers don't have the cash to bring in the inventory three months before," declared Freightos CEO Zvi Schreiber, adding that 70% of Amazon's third-party sellers are anticipating inventory shortages. (3 comments)       Stocks Awaiting Powell Following a big day for U.S. equities on Monday, where the Dow took back its lead to close nearly 2% higher, stock index futures are debating their next direction. The wary atmosphere comes before Powell makes his next appearance, this time testifying in front of Congress at 2 p.m. ET. He's set to reiterate job growth will pick up in the coming months and price pressures should ease, but may invite fresh talk about interest rate hikes or the Fed's bond-buying program. Bigger picture: "The market is in a very fragile, emotional state," said Altaf Kassam of State Street Global Advisors in Europe. "It will be a rocky road, it will be bumpy and pronouncements from central bankers are going to get very quick, knee-jerk responses." Over in Washington, President Biden held separate infrastructure talks on Monday with two key Democratic senators - Joe Manchin and Kyrsten Sinema. While he was encouraged by the proposal, Biden "still has questions about the policy as well as the means for financing the bipartisan group's proposal," according to the White House. Manchin and Sinema have been noncommittal when asked if they would support a reconciliation bill, which could pass parts of the broader infrastructure package via a simple majority. Don't forget Bitcoin: The crypto has formed a death cross, meaning its average price over the last 50 days fell below that of its 200-day moving average. Overnight, Bitcoin (BTC-USD) slipped another 2.8% to $31,652, spooked by renewed crackdowns from China. Beijing even summoned officials from its largest banks and Alipay (BABA) to reiterate a ban on providing crypto services, a day after cracking down on mining operations in Sichuan. "It basically says now OTC transactions are not legitimate... we are not allowed by the banks to transfer money for cryptocurrency purchases and sales," said Bobby Lee, formerly CEO of BTC China, China's first Bitcoin exchange.       Sponsored By Yieldstreet Power Your Portfolio with Alternatives Looking to build wealth beyond the stock market? Gain access to alternative investment opportunities once reserved for the ultra-wealthy with Yieldstreet. Build a diversified portfolio with investments such as real estate, art, commercial finance and other alternatives typically with low stock market correlation and targeting annual yields of up to 15%. Get in on the action today. Energy Solar in America? The broader solar industry is coming off a record year of installations, but the potential threat to supplies could hurt the supply chain that is already slowing projects and raising costs. According to a report from Politico, the Biden administration is considering barring imports of polysilicon from Xinjiang, China, which produces about 45% of the world's supply of solar-grade polysilicon. A ban could also undermine Biden's aggressive goal of placing the U.S. on a path to eliminate carbon dioxide emissions from the power grid by 2035. Backdrop: Just before leaving office, the Trump administration announced an import ban on all cotton and tomatoes produced in Xinjiang over allegations that they are made with forced labor from detained Uighur Muslims. Since then, a group of bipartisan lawmakers has pushed President Biden to impose import restrictions on polysilicon, allowing Customs and Border Protection to seize at U.S. ports any imports it suspects of being made with forced labor. Western companies have also wrestled with what to do in Xinjiang, with Nike (NKE), H&M (OTCPK:HNNMY) and Burberry (OTCPK:BURBY) recently facing backlash over statements they made about practices in the region. Could solar be made in America? First Solar (NASDAQ:FSLR) just committed to building a new $680M panel factory in Ohio. It's seeking to "reshore" manufacturing that has moved outside the United States, bolstered by President Biden's clean energy goals. While solar wasn't yet named as a manufacturing priority by the administration, it supports extending tax credits for solar panel purchases or to require federal contractors to purchase many solar panels from U.S. suppliers. It won't be easy: First Solar also backs tariffs to fight low-priced goods from abroad. Economists and industry specialists say hefty subsidies via tax breaks would be needed in addition to the tariffs, but even then it might be a long shot to get the sector off the ground. "China heavily subsidizes whatever strategic industry it chooses to focus on," First Solar CEO Mark Widmar declared. "How does any American company ever compete?" (15 comments)

     

Top News

Rattling supply chains

Shutterstock

Plagued by the coronavirus pandemic, as well as the Suez Canal blockade, the shipping industry was just getting back on its feet before being dealt another blow. One of the biggest ports in the world called Yantian, was recently shut down because of a COVID-19 outbreak (the Chinese port also happens to export 90% of the world's electronics). It's causing massive headaches across the maritime shipping world, as well as complicating efforts to reopen the global economy.

The impact? While it's difficult to compare the two latest incidents - one is a port, the other is a chokepoint - the amount of cargo that was affected at Yantian was even larger than the Suez obstruction seen in March. The fallout could be another rise in the price of goods, which have already been significantly impacted by inflation in recent months. Container shipping companies have also needed to conduct massive logistical exercises to re-adjust their routes.

As shipping costs skyrocket, so have the stocks that are dominant in the industry. Shares of Danaos (NYSE:DAC), Global Ship Lease (NYSE:GSL) and ZIM (NYSE:ZIM) are up 1,700%, 370% and 278% over the past year. Other shares that have set sail: Navios Maritime Partners (NYSE:NMM), Matson (NYSE:MATX) and Mærsk (OTCPK:AMKBY).

This also comes before the shipping industry enters its peak season, with retailers stocking up before the return to school and year-end holidays. "The ripple effects of this slowdown in Yantian will be felt in about four weeks' time in the United States," said Mirko Woitzik of Everstream Analytics. "Depending on how quickly the West Coast ports can clear the current vessel backlog, the congestion will only get even worse when the Yantian exports start arriving." With ships from Asia taking two weeks to unload, domestic freight like Union Pacific (NYSE:UNP) and FedEx (NYSE:FDX) have even accelerated peak season surcharges by months.

Outlook: "The supply chain disruption issues, especially the congestion affecting our key maritime ports, are causing significant challenges for America's retailers," the National Retail Federation wrote to the Biden administration last week. The group is calling for action on port challenges, with 97% of retailers having been impacted by shipping delays. "As the administration undergoes supply chain reviews for critical sectors, including transportation, addressing the current state of our nation's ports and freight movement needs to be a critical component of the strategy. As trade continues to grow, we need to make sure we have truly 21st century ports and freight movement." (11 comments)

     

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Today's Markets

In Asia, Japan +3.1%. Hong Kong -0.8%. China +0.8%. India flat.
In Europe, at midday, London flat. Paris -0.1%. Frankfurt +0.3%.
Futures at 6:20, Dow flat. S&P flat. Nasdaq flat. Crude -0.5% at $72.78. Gold unchanged at $1782.40. Bitcoin -2.6% at $31789.
Ten-year Treasury Yield -1 bps to 1.47%

Today's Economic Calendar

8:55 Redbook Chain Store Sales
10:00 Richmond Fed Mfg.
10:00 Existing Home Sales
1:00 PM Results of $60B, 2-Year Note Auction
1:00 PM Money Supply

Companies reporting earnings today »

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