| | Top News Listen on the go! A daily podcast of Wall Street Breakfast will be available by 8:00 a.m. on Seeking Alpha, iTunes, Stitcher and Spotify. Stocks shook off Thursday's selloff with a broad rally to end the week, lifting all three major market averages to new all-time highs. The Dow Jones index jumped 1.3% for the week, the S&P 500 gained 1.1%, and the Nasdaq Composite rose 1%, helped by money moving away from cyclicals to find a home in tech stocks. The megacaps posted a mixed week, with Tesla struggling but Amazon rallying more than 5% and Apple extending its weekly winning streak to six. U.S. Treasury yields rebounded Friday, with the benchmark 10-year yield rising seven basis points to finish the week at 1.36%. But the bounce comes after a surprise drop that has mystified investors, with the 10-year yield falling to as low as 1.25% on Thursday, its lowest level since mid-February. | | Energy Saudi Arabia and the United Arab Emirates headed into the boxing ring for another round on Monday, before OPEC+ called it quits on a production deal. The unresolved spat between the long-time allies saw WTI crude soar to near $77/bbl, further squeezing an already tight oil market and raising concerns over inflation. At issue is the current terms of "baselines," or the measure in which each country calculates its production cuts. The UAE feels its current level of 3.2M bpd from April 2020 is too low - and should be 3.8M bpd when the deal is extended into 2022 - but the Saudis and Russia have rejected any readjustments, fearing that other OPEC members will issue similar demands. What's at stake? Abu Dhabi is attempting to force the group to accept its request or risk unraveling the alliance. At the extremes of the equation, crude prices could make an outsized move in either direction. Failure to reach a deal could mean crude could rise even higher, but OPEC+ unity may also break down, risking a free-for-all that could send prices crashing. That scenario played out last year when a disagreement between Saudi Arabia and Russia prompted an oil price war. Months after the dispute was settled, the UAE stirred things up again by threatening to leave the cartel. "Failing to come to a deal may provide some brief upside to the market, with reports that output would remain unchanged," explained analysts at ING. "However, realistically it could also signal the beginning of the end for the broader deal, and so the risk that members start to increase output." Outlook: The tensions between Abu Dhabi and Riyadh are going beyond oil. While the UAE's Crown Prince Mohammed bin Zayed and Saudi Crown Prince Mohammed bin Salman once had very close relations, the former has been flexing its own geopolitical aspirations via foreign policy moves towards countries like Israel and Yemen. The Saudis have also called for foreign companies to move their regional headquarters to Riyadh (many are now in Dubai), and following the OPEC standoff, the Kingdom moved to restrict citizens' travel to the UAE. ( 267 comments) | | Sponsored By VantagePoint  Artificial intelligence makes trading simple. See what stocks are on the rise this week, and what trades you should probably exit…before it's too late. A.I. can help you fine-tune your trading decisions by giving you up to 72-hour advanced market forecasting. Save your seat at our LIVE online demonstration and see your stock forecasted today. This event is absolutely free. Registrations close after the first 200 guests, so hurry up and save your spot now!It's not magic. It's machine learning. | | On The Move Shares of DiDi Global ( DIDI) fell as much as 20% below their $14 IPO price this week following a Big Data crackdown by Beijing, which ordered U.S.-listed Chinese companies to be removed from app stores worldwide. DiDi said the takedown in "may have an adverse impact on its revenue in China," but is striving to "rectify any problems, improve its risk prevention awareness and protect users' privacy and data security." While existing users can still use the apps, new subscribers have been halted while the Chinese probes are conducted. Bigger picture: Fearful of their growing influence, China is in the middle of a sweeping crackdown on the nation's biggest tech firms. Last November, Beijing pulled the planned IPO of fintech giant Ant Group, and in April, it hit Alibaba ( BABA) with a record $2.8B fine over abusing its market dominance. Didi is the most dominant ride-hailing business in China, accounting for 88% of total trips in the fourth quarter of 2020, but as more details come together, many are questioning how much was known before the ride-hailing giant raised $4.4B at a $67B valuation? The underwriters: Wall Street banks including Goldman Sachs, Morgan Stanley and J.P. Morgan made about 2% on the total amount raised, or around $88M when spread out between them. Language about the risks of doing business in China starts on page 7 of the IPO prospectus, while regulatory and anti-monopoly warnings appear on page 11. While some say the disclaimers are enough, others expect a certain amount of deep expertise or specifics about the regulatory environment. The company: DiDi "forced its way" to go public in New York without completing a thorough data security assessment by the Cyberspace Administration of China, the South China Morning Post reports. That prompted Beijing to suspend it from app stores and put it under a national security review. While the data assessment is not yet an institutionalized part of the listing process, and Didi said it had no foreknowledge about the security review, the company announced it will cooperate with Chinese authorities. The investors: Should they have done more homework? Ahead of the IPO, several reports suggested China was ramping up pressure on its Internet companies, including DiDi, and was pushing more antitrust scrutiny of its homegrown tech firms. Back in April, Beijing also imposed sweeping restrictions on the fast-growing financial divisions of companies like DiDi, as well as stricter compliance on listing abroad, curbs on information monopolies and the gathering of personal data. ( 67 comments) | | Tech The Pentagon on Tuesday canceled its $10B Joint Enterprise Defense Infrastructure cloud contract, also known as JEDI, which had become a bone of contention between Amazon ( AMZN) and Microsoft ( MSFT). The deal aimed to provide the Defense Department with a centralized "secure cloud environment to rapidly access computing and storage capacity to address warfighting challenges at the speed of relevance." It would also upgrade its technology for managing data located across thousands of networks and data centers. Backdrop: Amazon Web Services was considered the frontrunner for the contract before the DoD handed it to Microsoft in 2019. AWS didn't back down. The company alleged in a lawsuit that the award was tainted by then-President Trump's animus against Jeff Bezos and related litigation threatened to delay the deal for years. There was also a slew of objections from Congress, prompting the Pentagon to acknowledge that advances in cloud computing and the timeframe of the contract could render the scheme obsolete. "The evolving landscape is what has driven our thinking," said John Sherman, the Pentagon's acting chief information officer. "JEDI was the right approach at the time," but with changing circumstances "we're in a different place." Outlook: The Pentagon is now planning a multi-vendor approach, where more cloud providers including Google ( GOOG, GOOGL), Oracle (NYSE: ORCL) and IBM (NYSE: IBM) will be allowed to bid for the new contract. The new deal, known as the Joint Warfighter Cloud Capability, is also scheduled to run no more than five years. Bidders are expected to be identified by about October, with the new contract expected to be awarded in spring 2022. ( 42 comments) | | Bonds A prolonged drop in U.S. Treasury yields is catching bond and fixed income traders by surprise, as well as other investors in the broader financial markets. The 10-year U.S. Treasury yield dropped below 1.3% on Wednesday - before attempting a rebound at the end of the week - despite lingering concerns about rising inflation and a gradual removal of Fed stimulus. Treasury yields play an important role in the economy, affecting borrowing costs on everything from mortgages to corporate bonds. What's happening? While the move has mystified many traders, some are ascribing the reverse to changing narratives and new developments. "The market is sort of taking a deep breath," said Subadra Rajappa, head of U.S. rates strategy at Société Générale. "Are those optimistic forecasts [for economic growth and inflation] actually achievable?" "All that seems to be implying that perhaps not only was the inflation transitory, but maybe some of the growth has been transitory," added Kathy Jones, Schwab's chief fixed income strategist. "The muscle memory of markets is that governments will lock down again [due to the Delta variant] if they see cases rise, which means slower growth and that we are caught in a loop," explained Charles Diebel, head of fixed income at Mediolanum International Funds. "Tuesday's [weaker] ISM reading just added more motivation to extend the move in Treasury yields lower," declared Ian Lyngen, interest rate strategist at BMO Capital Markets. "A reduction in the Treasury General Account, which the U.S. government uses to run most of its day-to-day business, is being wound down, shrinking the supply of bonds," proclaimed John Luke Tyner, fixed-income analyst at Aptus Capital Advisors. "A big portion of what we are seeing is a capitulation of the higher rates thesis," J.P. Morgan wrote in a research note. "Some short covering has occurred, but the breadth of bearish duration positions remains on par with 2017-2018." Go deeper: Most analysts had expected 10-year Treasury yields to hit around 2% by this point in the COVID economic recovery, or at least by the end of 2021. In the first quarter alone, the yield soared from 0.9% to nearly 1.75% as the reflation trade took hold of the markets, but it looks like the move lower is now staying firmly in the opposite direction. Longer-term yields are also a closely watched economic barometer, with the rates tending to fall on a weakening growth outlook. ( 202 comments) | | Space The next leg of the billionaire space race commences this weekend, with Sir Richard Branson journeying to the edge of space in Virgin Galactic's (NYSE: SPCE) VSS Unity spaceplane. The flight on Sunday will come just nine days before Jeff Bezos is scheduled to blast into the thermosphere and the rivalry is quickly turning into a cold war. Branson has denied the scheduling was a contest to see who would go up first, while Blue Origin ( BORGN) has said the two companies aren't even after the same prize. "We wish him a great and safe flight, but they're not flying above the Karman line and it's a very different experience," CEO Bob Smith told the NYT. Note: The Karman line is the unofficial altitude at which space begins, and starts at 100 kilometers, or 62 miles, above Earth's mean sea level. The measure is named after Theodore von Kármán (1881–1963), a Hungarian American engineer and physicist who was active in aeronautics and astronautics. While the exact marking is subject to debate, he was the first person to determine the altitude at which the atmosphere becomes too thin to support aeronautical flight. What will the flight look like? The VSS Unity will be carried aboard a so-called mothership aircraft, known as WhiteKnightTwo, which will release the plane at an altitude of 49,000 feet (Blue Origin uses a rocket-launched capsule). At that point, VSS Unity reaches supersonic speed within 8 seconds and climbs vertically until 55 miles above Earth. The plane will then hover at the top of its flight path, giving passengers a few minutes of weightlessness, before re-entering Earth's atmosphere and landing on a runway at Spaceport America, New Mexico. The entire show is expected to take about 90 minutes from takeoff to landing. Sunday's flight will not only be a make-or-break moment for Virgin Galactic, but for the company's shares as well. If all goes well, expect a rocket ride on Monday morning, though there is plenty that can go wrong. The engine could fail, the cabin could lose pressure or Earth's atmosphere could hamper the space vehicle. Back in 2014, the same spaceplane model suffered a crash that killed a test pilot, when a descent mechanism was triggered at the same time the rocket climbing. There's also the threat that the flight gets called off or weather-related issues postpone the takeoff. The stock: Options bets on the outcome of the flight could be risky as shares continue their wild ride. SPCE soared 17% to the $52-level on Thursday after a volatile last few weeks. Wall Street is mixed on the stock, with four out of 10 analysts rating Galactic at Buy, five Neutral and one Bearish on the company. "In general, every mission that goes up, every rocket that's launched, every bit of progress we make does drive down costs, makes space more affordable [and] accessible to everybody," added Shift4 Payments' Jared Isaacman, who is partnering with SpaceX ( SPACE) to lead the first all-civilian mission into orbit later this year. Outlook: Galactic's journey will be the fourth test flight for the company and the first with a crew of four on board. It has about 600 customer reservations on its books, most of which were sold at a price of $200K to $250K per ticket several years ago, but another 400 have expressed an interest in booking when sales fully reopen in 2021. While space tourism is expensive for now, it is seen as a means of getting more people interested in the industry for the long term, as well as investing in satellite infrastructure that could change the way we operate on Earth. ( 18 comments) | | U.S. Indices
Dow +0.2% to 34,870. S&P 500 +0.4% to 4,370. Nasdaq +0.4%, to 14,702. Russell 2000 -1.3% to 2,275. CBOE Volatility Index +7.4% to 16.18.
S&P 500 Sectors
Consumer Staples +0.4%, Utilities +0.9%, Financials -0.6%, Telecom -0.4%, Healthcare +0.4%, Industrials +0.2%, Information Technology +0.9%, Materials +0.2%, Energy -3.4%, Consumer Discretionary +1.5%.
World Indices
London 0.% to 7,122. France -0.4% to 6,529. Germany +0.2% to 15,688. Japan -2.9% to 27,940. China +0.2% to 3,524. Hong Kong -3.7% to 27,274. India -0.2%to 52,386.
Commodities and Bonds
Crude Oil WTI -0.7% to $74.63/bbl. Gold +1.4% to $1,808.6/oz. Natural Gas -0.6% to 3.678. Ten-Year Treasury Yield +0.5% to 133.39.
Forex and Cryptos
EUR/USD +0.11%. USD/JPY -0.79%. GBP/USD +0.58%. Bitcoin -2.8%. Litecoin -4.6%. Ethereum -3.9%. Ripple -6.8%.
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