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July 14, 2022

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TOGETHER WITH

Good morning.

Delta Airlines said Wednesday that it sent an empty plane from Detroit to London's Heathrow Airport, which has been crippled by understaffing amid a global travel surge. Its mission, a success, was to bring back 1,000 bags that were separated from their owners to the United States.

For the less fortunate who flew with other airlines, they're still stuck carrying emotional baggage.

Morning Brief

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Suddenly, markets think a huge full-point rate hike is coming.

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Nike and Fanatics agreed to tackle the collegiate sports market together.

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One bet-maker has picked a favorite in the Elon Musk-Twitter showdown.

US Economy

Fed Could Entertain Full Point Rate Hike in the Wake of Inflation Scorcher

Will the US Federal Reserve really raise interest rates this month by a full point (or one hundred basis points, depending on which sounds more dramatic)? Markets are very suddenly saying yes.

As of early Thursday morning, markets are pricing in a 86% probability of a full point rate hike, according to futures tracked by the CME Group's FedWatch Tool. That would amount to the largest increase since the Fed began using overnight interest rates in the 1990s.

Keep It 100

A scorching hot consumer price index jump of 9.1% — which unexpectedly topped the Dow Jones estimate of 8.8% — changed a lot of minds overnight. On Tuesday, the Fed Funds Futures probability priced in a mere 7% chance that a full point rate would arrive after the reserve bank's governors meet on July 27. In other words, hardly anyone thought that the Fed, while determined to rein in inflation, could crank its next rate hike up to 100. Now, almost everyone does.

A one-point hike wouldn't be the Fed's first sudden, aggressive move. Last month, the central bank raised rates by 75 basis points, the largest hike since 1994, despite earlier hints of just a half-point rise. And the latest consumer price numbers, released by the Bureau of Labor Statistics on Wednesday, pretty much begged for action:

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On top of the 9.1% national increase in living costs recorded year-over-year in June, the fastest pace since November 1981, seven metro areas saw double-digit inflation. So mail a Get Well Soon card — or some frozen gel packs wrapped around a slightly-less-inflated steak — to your friends in Baltimore, Miami, Houston, Seattle, Phoenix, Atlanta, and Anchorage.

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"You have to put 100 on the table for July," Andrew Hollenhorst, Citigroup's chief US economist, told Bloomberg. "Everybody should be quite cautious about calling peak inflation, a few months ago the peak was supposed to be 8.3%."

At the 100th Meridian: If the Fed opts for a full point hike, it won't be alone. On Wednesday, The Bank of Canada — where inflation surged to 7.7% in May — hiked interest rates by a full percentage point to 2.5% in a surprise move. The US Fed funds rate range target is currently 1.5% to 1.75%.

It's a Gas: Yes, fuel prices are still up 47% over the past year, but they have tumbled roughly 38 cents a gallon in the last month. That's your nugget of positive, deflationary news for the day.

Apparel

Nike and Fanatics Ink Collegiate Sports Deal That Casts Both as Winners

Iconic sports apparel maker Nike and rising sportswear manufacturer Fanatics are enrolling in college together. Sort of.

On Wednesday, the two companies announced a long-term deal that will see Fanatics produce Nike-branded replica jerseys, shorts, and other consumer gear for NCAA programs, allowing Nike to focus on developing finely tuned products for athletes. Similar partnerships in pro sports have already netted the pair high marks.

Case in Punt

Fanatics, valued at $27 billion last year, has been expanding its place in college sports since 2017. That's when it bought collegiate licensing company Fermata Partners, which was followed by 10-year licensing deals with high-profile NCAA schools including Texas, Oregon, and Oklahoma. Earlier this year, the company began marketing college athlete jerseys with OneTeam Partners and signed hundreds of licensing deals to launch a collegiate trading card line.

Nike, meanwhile, is a collegiate holy grail. Seventeen of the top 20 schools in last season's final AP college football poll were Nike schools. So were three of the men's Final Four teams. By joining with Fanatics on the NCAA front, the Oregon-based company is rolling out an old play on new turf:

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Nike currently manufactures most of its collegiate merchandise in-house. Under the new agreement, Fanatics will inherit the manufacturing costs and revenue of consumer and fan products, paying royalties to Nike — in exchange Nike gets to focus on marketing its brand and developing on-field products, which entails a lot more sports science than a Longhorns t-shirt.

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Fanatics (which also dabbles in sports-themed auto and home products and is branching into sports betting) already has similar arrangements with Nike for the MLB and NFL teams that use its gear. Adding college products means a significant chunk of commercial Nike goods will be produced under one roof.

Wagon Hitched: Nike reported a record $44.5 billion in revenue last year, an 18% increase. In becoming the exclusive fan apparel licensee for Nike's pro sports and collegiate teams, Fanatics has made itself critical to the business of a sports giant and the multibillion-dollar world of NCAA athletic departments. That's a home run, touchdown, and buzzer beater wrapped in one.

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Legal Disputes

Hindenburg Research Backs Twitter in Elon Musk Lawsuit

(Tesla and SpaceX CEO Elon Musk; Photo by Daniel Oberhaus)

The fight is set: Elon Musk has bowed out of his $44 billion Twitter takeover, and, in response, the social media company is taking the world's richest man to court (the Delaware Court of Chancery, in particular).

One of Wall Street's most famous firms, short-seller Hindenburg Research, has bet on Twitter as the favorite in the legal bout. Markets are already moving.

The Long and Short of It

Hindenburg on Wednesday revealed "a significant long position in shares of Twitter" with, what else, a Tweet. The firm's blunt, character-limited message warned the social media company's "complaint poses a credible threat to Musk's empire." Hindenburg founder Nate Anderson told the Financial Times that Musk "squandered much of his leverage, largely through misadvised and compulsive tweets," and dismissed his pretext for terminating the deal — that Twitter has too many bot accounts.

Ironically, Anderson was in the Tesla CEO's corner as recently as May, when his firm closed a short position on Twitter and said Musk held "all the cards" to reprice the deal from $54.20 per share down to around $48. Hindenberg's sudden about-face adds to a history of feisty agitation, meticulous muckraking, and high-stakes short-selling:

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Last year, amid the wild SPAC boom, Hindenburg established short positions in DraftKings and electric-vehicle makers Lordstown Motors and Nikola. Nikola's founder has since been charged with securities fraud, Lordstown's CEO resigned amid an SEC investigation alleging the company misled investors, and DraftKing's stock has plummeted over 80% since Hindenburg alleged the sports gambling firm has ties to the black market.

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"There are just so many outrageous companies," Anderson, who first made a splash identifying a $1 billion fraud case perpetrated by the hedge fund Platinum Partners, told The New York Times last year. "Some of these companies we have looked at, they don't have any revenues at all."

Twitter's stock jumped around 8% Wednesday after Hindenburg's vote of confidence. Strap in for an exciting few months ahead, or the inevitable Netflix documentary in 6 months.

Extra Upside

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Russia and Ukraine are discussing ways to free up grain exports amid fears of global shortages.

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If you're a Tesla owner in Texas, the company is asking you not to charge your car during peak times due to the current heatwave.

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