Looking to salvage his environmental agenda, President Biden is considering declaring a national climate emergency as soon as this week, according to the Washington Post. The decision could redirect funds for clean energy projects and restrict offshore drilling, or even curtail the movement of fossil fuels aboard ships, trains and pipelines. Biden may also use the Defense Production Act to ramp up output of renewable energy products and systems, though any executive action would face the reality of high gas prices, as well as a likely court challenge.
Backdrop: West Virginia’s Joe Manchin – a Democrat whose vote is needed to pass legislation in the evenly divided Senate – said last week that he couldn’t support new spending on climate change due to record high inflation. That effectively doomed Biden’s Build Back Better Act, which hoped to invest more than $500B in new programs to cut emissions and support new technologies like electric vehicles. Manchin later expressed an openness to discuss climate spending after economic indicators for the summer were released, but many Democrats fear that it will be tough to push through the legislation following the Congressional recess in August.
“There is probably nothing more important for our nation and our world than for the United States to drive a bold, energetic transition in its energy economy from fossil fuels to renewable energy,” Senator Jeff Merkley (D-OR) told reporters. “This also unchains the president from waiting for Congress to act.”
Outlook: Things are playing out as a punishing “heat dome” descends on the central United States, resulting in the hottest summer on record for some areas. Record temperatures have also been seen this week across parts of western Europe and the British Isles, triggering forest fires and hundreds of heat-related deaths. The continent’s climate plans have already been thrown into disarray due to an energy crisis sparked by Russia’s invasion of Ukraine, while Gazprom (OTCPK:OGZPY) just declared force majeure on some gas supplies to Europe. (22 comments)
Earnings season is kicking into high gear as Netflix (NFLX) reports its Q2 results after today’s closing bell. It’s all going to come down to churn rate over the past three months, with the streamer previously projecting a loss of 2M subscribers for the period. That’s 10 times the 200K net losses it experienced during Q1, when the stock plunged 35% in a single day after posting its first quarterly sub decline in a decade (NFLX shares have cratered 68% YTD).
Bigger picture: With Netflix setting expectations so low, it’s possible that investors might not seek such retribution against the company as they did in April. Wedbush Securities analyst Michael Pachter said that he thinks the firm will actually report fewer subscriber losses than anticipated. For his part, Pachter expects Netflix to say it lost 1.5M subscribers during the second quarter, in part due to “the staggered release date for Stranger Things 4, which has very strong viewership.”
Investors will also be interested in any new information that Netflix has to say about a cheaper ad-supported membership option. Its current standard U.S. plan costs $15.49 a month, making it pricier than most other major streaming services. Netflix recently lined up Microsoft (MSFT) to be its advertising technology sales partner, and is also attempting to crack down on password sharing, but those plans likely won’t kick in until later this year.
On the calendar: Mixed reactions continue to be seen from the earnings parade coming down Wall Street. Goldman Sachs (GS) rose 2.5% on Monday following significantly higher trading activity during Q2, while IBM (IBM) fell 4.5% AH as its free cash flow forecast dented upbeat results. Besides Netflix, investors will size up other big second-quarter reports this week from Tesla (TSLA) and Twitter (TWTR).
Apple (AAPL) appears to be joining a slate of tech giants that, at the very least, are tapping the brakes on their hiring plans due to concerns about a possible economic slowdown. The decision isn’t part of a company-wide policy, but will rather be implemented in different business groups depending on product sales, supply chain issues and consumer demand. Apple still intends for an aggressive slate of product releases through 2023 despite the move to limit job growth and expenditures.
Snapshot: Silicon Valley seems to be increasingly worried about a coming recession and has taken steps to decelerate spending and rein in their budgets. Tech giants – from Alphabet (GOOG, GOOGL) and Amazon (AMZN) to Meta (META) and Microsoft (MSFT) – have all reduced their rate of hiring or altered their employment plans. Microsoft even recently confirmed it had cut a small number of jobs that reportedly totaled less than 1% of its 181K-person workforce.
If things deteriorate further, the tech sector could become susceptible to economic drops the industry has traditionally avoided. In recent months, Tesla (TSLA) has fired hundreds of staff and closed a California office devoted to its Autopilot technology, while Netflix (NFLX) conducted another round of layoffs. The worries have even extended to the startup world, with telehealth unicorn Ro and online education platform MasterClass recently slashing nearly a fifth of their workforce.
Go deeper: In an interview with Reuters, Microsoft President Brad Smith went on to say that U.S. companies were in a “new era” of hiring. The trend of 5M workers entering the U.S. population every five years since 1950 has also been completely upended, with only 2M people joining the nation’s workforce between 2016 and 2020. “That helps explain part of why you can have low growth and a labor shortage at the height at the same time,” continued Smith. “There just aren’t as many people entering the workforce.” (34 comments)
Raytheon (RTX) has successfully completed the second flight test of the scramjet-powered Hypersonic Air-breathing Weapon Concept, or HAWC, for the Defense Advanced Research Projects Agency and the U.S. Air Force. It’s the third successful test of the weapons class since 2013, which is being classified as a critical national imperative in the latest superpower arms race. Raytheon – in partnership with Northrop Grumman (NOC) – is competing with Lockheed Martin (LMT) for the final contract award, with the latter successfully testing a hypersonic missile off the California coast last week.
What are hypersonic weapons? Missiles in development, like boost-glide missiles and air-breathing missiles, are being designed to evade defense systems while flying at speeds higher than Mach 5 (a little over a mile per second). The objective is to travel at such a high velocity and low altitude that make them difficult to intercept, while they can maneuver in-flight compared to the fixed sub-orbital trajectories of ballistic missiles. Some ground-based radars can detect hypersonic weapons, but current systems cannot give an early enough warning to respond to an attack.
Earlier this year, Russia revealed that it deployed its newest Kinzhal hypersonic missile in Ukraine, claiming to have hit a fuel storage site and an underground ammunition depot. Analysts at the time said it marked the first time a hypersonic weapon had been used in combat, though there were reports of the missiles being used during campaigns in Syria. China and Russia first began testing hypersonic weapons in 2014 and 2016, respectively, prompting the U.S. to ramp up its testing programs.
Outlook: Former acting Navy Secretary Thomas Modly has said hypersonic weapons “have already changed the nature of the battlespace, much as nuclear technology did in the last century.” The Pentagon’s FY2022 budget reflected as such, with requests for hypersonic-related research and development pegged at $4B, up from $3.2B a year earlier. “The engineering is not that hard,” added Bryan Clark, a defense analyst at the Hudson Institute. “It’ll just take time and money to make it happen.” (9 comments)
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