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Stock futures are flat after Dow, S&P post fourth day of losses

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U.S. stock index futures were little changed during overnight trading on Thursday, after stocks registered a fourth-straight day of losses.

Futures contracts tied to the Dow Jones Industrial Average advanced 10 points. S&P 500 futures and Nasdaq 100 futures were slightly higher.

During regular trading the Dow shed roughly 150 points, or 0.43%, while the S&P slid 0.46%. It was the fourth consecutive day of losses for each. The Nasdaq Composite dipped 0.25% for its second straight day of losses. It’s the first time since the middle of August that the tech-heavy index has registered back-to-back losses.

All three indices are on track to end the week in the red.

A better-than-expected weekly jobless claims number capped Thursday’s losses. The Labor Department said that first-time unemployment filings during the prior week dropped to 310,000, the lowest level since the pandemic took hold. Economists surveyed by Dow Jones were expecting a print of 335,000.

For the holiday-shortened week, the consumer discretionary sector is the best-performing S&P group, up about a quarter of one percent. The other ten sectors are all in the red. Industrial and real estate stocks are the biggest losers, with each sector down more than 2%.

Markets are in somewhat of a holding pattern until there’s more clarity around the Federal Reserve’s next move. The central bank kicks off a two-day meeting on Sept. 21, and the Street will be watching for an update on the Fed’s bond-buying program. On Thursday the European Central Bank left its monetary policy unchanged, but said that it will slow the pace of its asset-purchase program.

“The pace of policy changes will be gradual enough not to derail the economic recovery or the equity rally, while the differences between the more hawkish and more dovish central banks will create opportunities,” said Mark Haefele, UBS Global Wealth Management chief investment officer.

“We expect major central banks to remain supportive of growth, keeping rates lower for longer. This is positive for equity markets, particularly cyclical and value areas of the market,” he added.

Despite Thursday’s losses the major averages are still hovering around their all-time highs. The Dow is roughly 2% below its record, while the Nasdaq and S&P are about 1% from theirs.

“New highs in the market are not an issue as long as they are supported by fundamentals,” Keith Lerner, co-chief investment officer at Truist, wrote in a recent note to clients. “The biggest driver behind stock returns this year has been earnings, with a capital E. This is consistent with one of our key themes over the past year, that the earnings power of corporate America was underappreciated,” he added.

Second-quarter earnings season is largely in the rearview mirror. But earnings reports are still trickling out, with Kroger on deck before Friday’s opening bell.

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First bitcoin futures ETF to make its debut on the NYSE Tuesday, ProShares says

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Chinnapong | iStock Editorial | Getty Images

This is a developing story. Check back for updates.

The first bitcoin-linked exchange-traded fund will make its debut officially on Tuesday.

The much-anticipated ETF from ProShares, which will track the bitcoin futures market, will begin trading on the NYSE Tuesday under the ticker ‘BITO,’ the company confirmed.

“We believe a multitude of investors have been eagerly awaiting the launch of a bitcoin-linked ETF after years of efforts to launch one,” ProShares CEO Michael L. Sapir said in a statement Monday. “BITO will open up exposure to bitcoin to a large segment of investors who have a brokerage account and are comfortable buying stocks and ETFs, but do not desire to go through the hassle and learning curve of establishing another account with a cryptocurrency provider… or are concerned that these providers may be unregulated and subject to security risks.”

The price of bitcoin was around $60,000 Tuesday morning after rallying as high as $62,000 over the weekend, according to Coin Metrics, in anticipation of the ETF.

Bitcoin futures ETFs will also be a big regulatory feat for the still young crypto industry, which has long struggled to cement crypto’s place in the highly regulated financial world. Four others are hoping to move forward with theirs this month. Invesco’s could come as soon as this week.

“This will be probably the biggest endorsement from the SEC for crypto,” said Ian Balina Bio, CEO of the data and analytics firm Token Metrics, who also noted that regulators globally have been at odds with the crypto industry for years and “impeded the acceptance of crypto” by retail investors. “This will be a floodgate of new capital and new people into the space.”

Since 2017 at least 10 asset managers have sought approval to launch spot bitcoin ETFs, which would give investors a vehicle through which to buy bitcoin itself, rather than derivatives tied to it. They were all rejected by the Securities and Exchange Commission, then headed by Jay Clayton, which maintained none of them were able to show the market is resistant to market manipulation. In an August speech, SEC chair Gary Gensler said he would favor investment vehicles that include futures, and a rush of bitcoin futures ETF applications followed.

Investing in a futures-based ETF would not be the same thing as investing directly in bitcoin. A futures contract is an agreement to buy or sell an asset at a future date at an agreed-upon price. A futures-based ETF tracks cash-settled futures contracts, not the price of the asset itself.

“The all-in cost of a futures-based ETF could be in the 5% to 10% range once you take into account the annualized roll yield,” said Matt Hougan, chief investment officer at Bitwise Asset Management, which has its own application for a bitcoin futures ETF in line at the SEC.

Annualized roll yield is the return a futures investor captures on top of the change in the price of the underlying asset.

“Futures-based ETFs are also more confusing,” Hougan added. “They have challenges like position limit and official dilution, and they can’t get 100% exposure to the futures market.”

There are four bitcoin futures ETFs lined up for review in October, from ProShares, Valkyrie, Invesco and Van Eck. They’re allowed to move forward and list 75 days after their paperwork is filed, if the SEC doesn’t intervene within that period.

Many hope the allowance of these ETFs will pave the way for a spot bitcoin ETF in the not too distant future. Beyond Gensler’s preference for one based on futures, the market has also become much more developed in the short period since the first wave of ETF applications. The SEC has challenged the crypto industry over the years to prove there’s a large regulated market trading alongside the spot bitcoin market. According to Bitwise research submitted to the SEC last week, it can.

“The bitcoin market has matured to the point where the CME Bitcoin futures market is actually the leading source of price discovery in the entire bitcoin world,” Hougan said. “Prices move on the CME market before they move on Coinbase, Kraken, FTX… and as a result it satisfies the SEC hurdle for the potential approval of a spot-based ETF.”

He added that data also suggests there’s more capital committed to the CME Bitcoin futures market.

“The crypto market was first led by retail exchanges like Coinbase and then dominated by things like BitMEX and Binance, and no one has updated the record or done the homework, and the homework shows the market has changed.”

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Colin Powell dies of Covid complications

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U.S. Secretary of State Colin Powell gestures as he addresses the Security Council February 14, 2003 at United Nations headquarters in New York City.

Stephen Chernin | Getty Images

Colin Powell, the former secretary of State and chairman of the Joint Chiefs of Staff, has died from Covid complications at the age of 84.

Powell was previously diagnosed with multiple myeloma, a type of blood cancer that hurts the body’s ability to fight infections.

“General Colin L. Powell, former U.S. Secretary of State and Chairman of the Joint Chiefs of Staff, passed away this morning due to complications from Covid 19,” the Powell family wrote on Facebook.

“We have lost a remarkable and loving husband, father, grandfather and a great American,” the family said, noting he was fully vaccinated.

Powell, the son of Jamaican immigrants, became the first Black national security adviser during the Reagan administration. President George H.W. Bush tapped Powell to be the youngest and first Black chairman of the Joint Chiefs of Staff.

As chairman, he oversaw America’s Desert Storm operations during the Persian Gulf war. After 35 years of military service, Powell retired from the U.S. Army as a four-star general.

In 2001, he became the first Black secretary of State under President George W. Bush.

This is breaking news. Please check back for updates.

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Supply chain chaos is hitting global growth and could get worse

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Cargo trucks parked at the Port of Los Angeles in Los Angeles, California, U.S., on Wednesday, Oct. 13, 2021.

Kyle Grillot | Bloomberg | Getty Images

Thanks to the rollout of coronavirus vaccines, the global economy is slowly starting to emerge from the pandemic.

But Covid-19 has left one very destructive economic issue in its wake: Disruption to global supply chains.

The rapid spread of the virus in 2020 prompted widespread shutdowns of industries around the world and, while most of us were in lockdown, there was lower consumer demand and reduced industrial activity.

As lockdowns have lifted, demand has rocketed. And supply chains that were disrupted during the global health crisis are still facing huge challenges and are struggling to bounce back.

This has led to chaos for the manufacturers and distributors of goods who cannot produce or supply as much as they did pre-pandemic for a variety of reasons, including worker shortages and a lack of key components and raw materials.

Different parts of the world have experienced supply chain issues that have been exacerbated for different reasons too. For instance, power shortages in China have affected production in recent months, while in the U.K., Brexit has been a big factor around a shortage of truck drivers. The U.S. is also battling a shortage of truckers, as is Germany, with the former also experiencing a large amount of backlogs at its ports.

Read more: As the U.K. battles food, fuel and labor crises, Boris Johnson promises change

Situation ‘will get worse’

Unfortunately, experts like Moody’s Analytics’ Tim Uy say that supply chain problems “will get worse before they get better.”

“As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner,” Uy said in a report last Monday.

“Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not made in time, costs and prices will rise, and GDP growth worldwide will not be as robust as a result,” he said.

“Supply will likely play catch up for some time, particularly as there are bottlenecks in every link of the supply chain—labor certainly, as mentioned above, but also containers, shipping, ports, trucks, railroads, air and warehouses.”

A sea of cargo trucks wait in long lines to enter The Port of Los Angeles as the port is set to begin operating around the clock on Wednesday, Oct. 13, 2021 in San Pedro, CA.

Jason Armond | Los Angeles Times | Getty Images

Supply chain bottlenecks — congestion and blockages in the production system — have affected a variety of sectors, services and goods ranging from shortages of electronics and autos (with problems exacerbated by the well-known semiconductor chip shortage) to problems in the supplies of meat, medicines and household products.

Amid higher consumer demand for goods that have been in short supply, freight rates for goods coming from China to the U.S. and Europe have soared, while a shortage of truck drivers across both the latter regions has exacerbated the problem of getting goods to their final destinations, and has led to high prices once those products hit store shelves.

The pandemic has only served to highlight how interconnected, and how easily destabilized, global supply chains can be.

At their best, global supply chains lower costs for businesses, due to often lower labor and operating costs linked to the manufacturer of the products they want, and can spur innovation and competition.

But the pandemic has highlighted deep fragilities in these networks, with disruption in one part of the chain having a ripple-down effect on all parts of the chain, from manufacturers to suppliers and distributors with disruptions ultimately affecting consumers and economic growth.

Supply chain crisis hits growth

“Manufacturing was hit hard by supply chain disruptions due to Covid as some port operations were hit in the third quarter of 2021, and chip shortages continued in the quarter,” Iris Pang, chief economist of Greater China at ING, noted Monday.

She said that “supply chain disruptions are expected to last as freight rates are still high and chip shortages are still a critical issue for industries like equipment, automobiles and telecommunication devices.” 

Last week, Germany’s top economists warned that “supply bottlenecks will continue to weigh on manufacturing production for the time being” and were likely to hamper growth in export-oriented Germany, Europe’s biggest economy.

Earnings impacted

Experts note that earnings are already starting to show the impact of the supply chain crisis. Invesco’s Global Market Strategist Kristina Hooper noted last week that “supply chain fears are brewing with a number of U.S. companies flagging up warnings about rising costs related to supply chain disruptions and potentially lower earnings.

Hooper believed some of the factors contributing to supply chain issues, such as the labor shortage, will be worked out sooner than others. But she said the problem could have longer-lasting effects on some sectors.

“No matter where companies are, they are likely experiencing supply chain disruptions, higher input costs and some issues sourcing labor,” she said in a note last Thursday.

“However, some companies will be far more impacted than others … A rise in cost will generally have the greatest impact on low-margin companies, which tend to be found in sectors such as transportation, general retail, construction and autos. Companies that should be least impacted are those with wide profit margins, limited raw material costs and small workforces. That should include growth sectors such as tech and health care,” she said, adding that “unfortunately, those sectors’ stock prices may temporarily suffer as bond yields rise.”

“Financials may be the standouts in this environment, especially as these companies would welcome higher yields. Another differentiating factor may be how much investment companies have made in technology to increase productivity.”

Hooper noted that some shortages, of semiconductors in particular, could improve soon, with projections for a return to normal levels of production by the second quarter of 2022. “However, more general supply chain disruptions are likely to continue in the shorter term, especially if there are additional Covid waves,” she added.

“In general, supply chain disruptions and higher input costs seem likely to be relatively transitory … And so, for me, I’ll be paying close attention to this quarter’s earnings season, but I’ll be most concerned about companies’ guidance for the fourth quarter and beyond — especially how long they expect these conditions to last,” she said.

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