Wall Street Breakfast: Wild Swings

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Bitcoin (BTC-USD) still remains below $50,000, down 2% to $48,298 in overnight trading, but many are hoping prices will stabilize after a big crash over the weekend. Bitcoin plunged all the way down to $44,000 on Saturday, off 17% on the session, triggering a rout in other cryptocurrencies like Ether (ETH-USD), Solana (SOL-USD), Dogecoin (DOGE-USD) and Shiba Inu (SHIB-USD). In fact, the overall crypto sector shed around a fifth of its value, sliding to $2.2T, according to tracker CoinGecko.

What happened? Many attributed the crash to speculation around crypto in general - particularly as it relates to NFTs - which had reached levels that make late-1999 look tame (to paraphrase Charlie Munger). When selling picks up, the momentum names which have benefited most from inflows turn into overcrowded positions as investors rush for the exits. The same kind of sentiment has hit other speculative corners of the market like meme stocks, IPOs and SPACs.

Others are pointing to leveraged trading of crypto derivatives, which have become a big business for firms like Binance. To make returns more attractive, exchanges allow traders to make oversized bets with little money, but when cryptos fall suddenly, margin calls force investors to liquidate. HODLers are still holding strong, with crypto billionaire Mike Novogratz attributing the recent outsized move to a "perfect storm" of a "hawkish fed, omni spiral and weekend liquidity."

Go deeper: Other crypto headlines made waves over the weekend, like the $196M hack of BitMart, which bills itself as the "most trusted cryptocurrency trading platform." If security fears weren't enough, Singapore's financial regulator suspended prominent digital currency exchange Bitget due to a legal tussle involving South Korean K-Pop band BTS. Bitcoin is now 30% off its all-time closing high of $69,000, though it's still up 70% YTD and 158% over the past 12 months.

Covid

Omicron cases have now been identified in nearly a third of all U.S. states, prompting the FDA to speed up conversations about streamlining authorization for revamped vaccines. Agency officials have already met with vaccine makers, working to set guidelines for the type of data that will be needed to quickly evaluate the safety and efficacy of changes to current jabs. It builds on rules established earlier this year, with the new standards likely to be similar to those required for booster shots.

Quote: "The FDA will move swiftly and CDC will move swiftly after," Centers for Disease Control and Prevention Director Rochelle Walensky told ABC's This Week with George Stephanopoulos. "We're every day hearing about more and more cases."

While the FDA is laying the groundwork for a rapid review, new Omicron shots and therapies might turn out not to be necessary. Initial data from South Africa, the epicenter of the outbreak of the Omicron variant, doesn't show a resulting surge of hospitalizations, while other early studies have found a pattern of milder illness than in previous waves of COVID-19. "Thus far, though it's too early to really make any definitive statements about it, it does not look like there's a great degree of severity to it," noted Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases.

Outlook: Pfizer (NYSE:PFE) CEO Albert Bourla announced last week that the company and its partner BioNTech (NASDAQ:BNTX) could have Omicron vaccines ready in 100 days, while Moderna (NASDAQ:MRNA) has said the company can advance new candidates to clinical testing in 60 to 90 days. In terms of policy, the Biden administration today will implement a new requirement that air travelers to the U.S. show a negative COVID test one day before boarding. The FDA is also expected to authorize COVID-19 boosters from Pfizer-BioNTech for use in 16- and 17-year-olds as soon as this week.

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Automotive

The European Union is planning to ban combustion engine cars by 2035, but that may have some knock-on effects on employment across the bloc. In a recent survey of the European Association of Automotive Suppliers, CLEPA, PwC found that the speed of the energy transition would put half a million jobs at risk, causing "social and economic" difficulties that would be hard to mitigate. Union leaders in Europe and North America have also warned of severe job losses, while vehicle quality could suffer as automakers struggle to manage the higher costs of building EVs.

The disruption: There has been a lot of interest in electric cars in Europe due to very generous subsidies in places like Germany. The biggest carmakers, like Volkswagen (OTCPK:VWAGY), have also ruled out splitting their R&D budgets to focus on other technologies like e-fuels and hydrogen, since the barriers of going fully electric are high enough. That has left some suppliers on the line, which have hedged their bets and diversified their offerings.

"We are putting the industry on the limits," Stellantis (NYSE:STLA) CEO Carlos Tavares announced last week. "What has been decided is to impose on the automotive industry electrification that brings 50% additional costs against a conventional vehicle. There is no way we can transfer 50% of additional costs to the final consumer because most parts of the middle class will not be able to pay."

Fine print: The poll by PwC found that 226,000 new jobs would also be created in the manufacturing of electric parts, cutting the net number of job losses to about 275,000 by 2035. However, other jurisdictions have also set goals to end the sale of combustion vehicles, like the 2035 target in California and more ambitious 2030 mark seen in the U.K.

Real Estate

Shares of China Evergrande (OTCPK:EGRNF) ended Monday's session in Hong Kong down 20% to an all-time low of HK$1.81 after the heavily-indebted property developer pushed closer to default. The company already made three 11th-hour coupon payments in the past two months, but faces the end of a 30-day grace period today, with dues totaling $82.5M. As at the end of Asia business hours, two bondholders said they had yet to receive coupon payments, though Evergrande declined to comment.

Before the weekend: China's top-selling developer said creditors had demanded $260M, but it could not guarantee enough funds for coupon repayments. The warning prompted authorities to summon Chairman Hui Ka Yan and send over a team at the developer's request to oversee risk management, strengthen internal control and maintain operations. Evergrande has meanwhile been struggling to raise capital by disposing of assets, and the government has asked its chairman to use his wealth to repay company debt.

A default could have led to the biggest corporate default in Asia, allowing creditors to declare defaults on some of Evergrande's other debts. The firm is one of China's biggest property developers, and its most indebted, with the equivalent of more than $300B in total liabilities. The situation has already led to a string of default announcements and rating downgrades, as well as a rumbling across the $5T Chinese property sector, which accounts for a quarter of GDP by some metrics.

Making moves: Both Chinese Vice Premier Liu He and PBOC Governor Yi Gang feel that Evergrande's risks are controllable and reasonable capital demands from property companies are being met. Further outlining that its troubles could be contained, China's central bank said it would cut the bank reserve requirement ratio "in a timely way" to increase support for the real economy. The politburo also chimed in with a promise to promote healthy development of the property sector.

Today's Markets

In Asia, Japan -0.4%. Hong Kong -1.8%. China -0.4%. India -1.7%.
In Europe, at midday, London +0.9%. Paris +0.7%. Frankfurt +0.3%.
Futures at 6:20, Dow +0.4%. S&P +0.1%. Nasdaq -0.5%. Crude +2.8% at $68.12. Gold -0.1% at $1781.60. Bitcoin -2.2% at $48298.
Ten-year Treasury Yield +5 bps to 1.39%

Today's Economic Calendar

12:30 PM Investor Movement Index

Companies reporting earnings today »

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BuzzFeed begins trading on the Nasdaq under ticker symbol 'BZFD.'

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Trump social media SPAC (NASDAQ:DWAC) confirms $1B PIPE deal.

Citi says China internet selloff overdone on DiDi (NYSE:DIDI) delisting worries.

Top stocks that may be tax loss selling bargains.

Analyst quiet period for Rivian Automotive (NASDAQ:RIVN) expires today.

Activist pushes Kohl's (KSS) to sell or separate e-commerce business.

Alibaba (NYSE:BABA) names Toby Xu as CFO, replacing Maggie Wu.

What's hot? Check out Google search trends for popular retail stocks.

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