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Daily Intelligence Briefing

Wednesday, October 2, 2019

Identifying Change-Driven Investment Themes – Five sections, explained here.

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I. Today’s Thematic Investment Idea

A deep dive into a market driver with alpha generating potential.

UPS Granted Unlimited Drone Clearance, but Alphabet, Amazon, Walmart, and Uber Are on its Heels →

Summary: UPS received a brand new FAA-sponsored license to operate a virtually unlimited fleet of drones this week, now boasting a solid lead in the race for widespread drone delivery. Although this is a huge step forward for UPS, it likely means that competitors are also prepared to accelerate. Alphabet’s drone delivery unit, Wing, could be right behind after acquiring its own approval last month for food deliveries in rural Virginia. Meanwhile Uber launched drone delivery trials in San Diego this past summer as part of its Uber Eats division. Read more +

II. Updates of Themes on MRP’s Radar

Follow-up analysis of key market drivers monitored by MRP.

Plastics: Modi Wants to Take Away India’s Plastic Bags and Spoons

Fed: Fed’s Charles Evans Says U.S. Still on Path for ‘Solid’ 2.25% GDP This Year

Semiconductors: Global Semiconductor Sales Down 15.9 Percent Year-to-Year in August

Airlines: Southwest Air Pilots Say Boeing 737 Max May Not Return to Skies Until March

Aluminum: Falling output and stocks fail to halt aluminum price slide: Andy Home

CRISPR: CRISPR gene editing startup Beam Therapeutics plans $100M IPO

III. Joe Mac’s Viewpoint

Founder Joe McAlinden’s big-picture analyses of macro issues. More about him here.

August 30, 2019: The Booming Buck →

July 26, 2019: Spiking the Punch Bowl →

June 28, 2019: A Review of MRP’s Change-Driven Themes →

June 7, 2019: India’s “Watchman” Keeps His Post →

IV. Active Thematic Ideas

MRP’s active long and short themes, with an archive of follow-up reports.

See Them Here →

V. Macroeconomic Indicators

Key data releases relevant to MRP’s Active Thematic Ideas.

See Them Here →

TODAY’S MARKET INSIGHT

UPS Granted Unlimited Drone Clearance, but Alphabet, Amazon, Walmart, and Uber Are on its Heels

Summary: UPS received a brand new FAA-sponsored license to operate a virtually unlimited fleet of drones this week, now boasting a solid lead in the race for widespread drone delivery. Although this is a huge step forward for UPS, it likely means that competitors are also prepared to accelerate. Alphabet’s drone delivery unit, Wing, could be right behind after acquiring its own approval last month for food deliveries in rural Virginia. Meanwhile Uber launched drone delivery trials in San Diego this past summer as part of its Uber Eats division.

United Parcel Service Inc. (UPS) said its drone unit, Flight Forward, obtained an immediate green light from the FAA to fly an unlimited number of drones with an unlimited number of remote operators in command. It can expand its delivery services to new location while focusing on shipping medical products and specimens in North Carolina across various hospital campuses. But the broad approval for an entire fleet of future drones and pilots on the ground―going beyond what the FAA approved previously―opens the door for many other types of longer-range applications spanning rural and suburban areas.

 

The FAA’s move comes months after it gave Alphabet Inc.’s Wing Aviation unit received initial authorization to fly a fleet of drones for consumer-goods deliveries, which MRP covered back in April. Wing has already seen success in delivering a variety of small products, including coffee, food, and pharmacy items throughout Helsinki, Finland as well as an Australian suburb earlier this year. They’ve now teamed up with FedEx, Walgreens and local Virginia retailer Sugar Magnolia to do the same in the town of Christiansburg, Virginia beginning this month.

 

This project signifies a huge step for Walgreens and other retailers like it. Walgreens has said that 78% of the US population lives within 5 miles of one of its stores, while Wing’s drones can currently make a round-trip flight of about 6 miles, traveling 60 miles per hour, and can carry around 3 lbs of payload.

 

A short-distance drone system like this would be a huge aid for similarly distributed nationwide chains like CVS and Walmart. Walmart, with its 5000-store footprint, could transport millions of bags of groceries and other goods in minutes with proper scaling. This potential has not been ignored by the company as Walmart filed 97 new drone patents with the World Intellectual Property Organisation between July 2018 and June 2019, almost double the amount their major competitor, Amazon, filed in that same period.

 

UPS’s license is much broader than Alphabet’s with the Wall Street Journal reporting that there are “no limits on the size or scope of operations”. UPS said it already has started limited flying under the new certification. The company also intends to gradually phase in routine night flights and heavier cargo limits―areas now generally off-limits to most operators. Within months, UPS predicts the first phase could include 100 or more hospital complexes.

 

Amazon.com Inc. and Uber Technologies Inc. are among those companies vying for similar U.S. approvals to potentially transport food and small consumer goods to residential customers.

 

Although Amazon now trails UPS and Alphabet, only receiving regulatory permission for test trials of its drone service at this point, their goals may be the most ambitious. Amazon describes its drone delivery business as “a future delivery system” with the stated goal of getting packages of up to 5 lbs to customers in 30 minutes or less. In June, Jeff Wilke, chief executive of the company’s Worldwide Consumer division, said its drones would make that possible. “Prime Air has great potential to enhance the services we already provide to millions of customers by providing rapid parcel delivery that will also increase the overall safety and efficiency of the transportation system,” the company wrote in a summary of the program.

 

Uber, who has already seen huge success in their courier-based food delivery service, Uber Eats, plans to launch food delivery drones by 2021. They initiated their own trial program last summer, partnering with the city of San Diego and McDonalds to cut down the time it took to deliver Big Macs and other fare to customers’ doors. Uber Eats orders would be ferried by drone to safe landing zones nearest to their final destination and Uber couriers would pick them up there, only having to drive the “last mile”. Uber sees delivery as a crucial line of business since it has been one of the few divisions of the company to make money, reporting revenue of $1.5 billion in 2018, up 150% from the previous year. Optimization will be critical for them to shore up profitability.

 

In 2016, Goldman Sachs research predicted that, by 2020, a $100 billion market opportunity will exist for drones, stemming from pressure of both the commercial and civil government sectors. $70 billion of drone spending will be reserved for defense, $17 billion belongs to the consumer drone market, but a solid $13 billion will be spent between 2016 and 2020 by businesses and governments for commercial use. IP Watchdog reports those figures were mirrored by Adroit Market Research in May when it said that the drone market will grow to hit $144.38 billion by 2025.

 

Investors can gain access to Drones via the ETFMG Drone Economy Strategy ETF (IFLY).

Drones (IFLY) vs UPS (UPS) vs Alphabet (GOOG) vs S&P 500 (SPY)

Source material for today’s market insight…

Drones

UPS Gets FAA Nod for Widespread Drone Deliveries

 

United Parcel Service Inc. said it received the first-of-its-kind federal approval to start setting up a fleet of unmanned aircraft to deliver health supplies and eventually consumer packages potentially throughout the U.S. In the latest regulatory boost for expanded commercial drone services, the company also intends to gradually phase in routine night flights and heavier cargo limits―areas now generally off-limits to most operators.

 

Amazon.com Inc. and Uber Technologies Inc. are among those companies vying for similar U.S. approvals to potentially transport food and small consumer goods to residential customers. Many of those firms have turned overseas to test preliminary delivery systems, citing accelerated regulatory action from Australia to Iceland to Switzerland.

 

Along with all other drone champions, the UPS initiative still faces major hurdles to rapid growth until the FAA establishes industrywide rules allowing flights over urban areas and sets standards for remote identification of drones by law enforcement and air-traffic control. Those long-awaited regulations will be partly based on input from real-world flights and pilot programs championed by the Transportation Department and White House aides.

 

Meanwhile, operators can seek broad certification such as UPS, or take up FAA invitations to apply for more-targeted waivers or exemptions under existing rules.

 

Read the full article from The Wall Street Journal +

Drones

Amazon’s Ambitious Drone Delivery Plans Take Shape

 

The race to be the first U.S. company delivering packages via drone took a new turn earlier this summer, when Amazon’s Worldwide Consumer chief Jeff Wilke unveiled the company’s latest drone model at an event in Las Vegas. He pledged that Prime Air, Amazon’s drone delivery program, would be delivering packages to customers “in months.”

 

Amazon describes its drone delivery business as “a future delivery system” with the stated goal of getting packages to customers in 30 minutes or less. “Prime Air has great potential to enhance the services we already provide to millions of customers by providing rapid parcel delivery that will also increase the overall safety and efficiency of the transportation system,” the company wrote in a summary of the program.

 

Amazon has made much more progress working with regulators in the United Kingdom, where it also has a vast network of fulfillment centers and retail stores packed with products ready to ship.

 

Read the full article from The Daily Beast +

Drones

Alphabet is partnering with FedEx and Walgreens to bring drone delivery to the US

 

Google sister company Wing announced today that it would be partnering with FedEx and the drugstore chain Walgreens to bring autonomous drone deliveries to the US this month.

 

In April, Wing was certified by the US Federal Aviation Administration (FAA) to become what it says was the first company in the country to be able to offer autonomous drone deliveries. Wing has completed over 80,000 test flights and thousands of deliveries at its facilities in Australia and the US.

 

Wing’s drones don’t actually land on the ground when they make deliveries; instead, they hover about 23 ft (7 m) off the ground, lowering their packages down through a winch cable system.

 

Autonomous drone deliveries could eventually be life-changing. The work that Zipline is doing in Africa, for example, sending critical medical supplies to remote clinics, has proved invaluable. Drones can reach places that most other methods of delivery can’t easily, and it’s easy to see why Google would choose a location near the difficult-to-cover Appalachian Mountains.

 

Read the full article from Quartz +

ACTIVE THEMATIC IDEAS

Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we’ve written about that theme, allowing you to track its progress.

SHORT

Airlines

LONG

CRISPR

LONG

Robotics & Automation

LONG

Solar

LONG

Vietnam

SHORT

Autos

LONG

Electric Utilities

LONG

Silver

SHORT

U.S. Pharmaceuticals

LONG

3D Printing

MACROECONOMIC INDICATORS

1.

US Factory Activity Shrinks the Most in a Decade

 

The ISM Manufacturing PMI in the US dropped to 47.8 in September 2019 from 49.1 in the previous month, missing market expectations of 50.1. The latest reading pointed to the steepest month of contraction in the manufacturing sector since June 2009, amid ongoing trade tensions with China.

 

The production index fell 2.2 points from a month earlier to 47.3, and the employment index dropped 1.1 points to 46.3. In addition, the inventories index slumped 3 points to 46.9, and the supplier deliveries index declined 0.3 points to 51.1. Meanwhile, new orders continued to decline at a sharp rate (+0.1 points to 47.3).

 

Click here to access the data +

2.

US Construction Spending Below Expectations

 

Construction spending in the US increased 0.1 percent from a month earlier at a seasonally adjusted annual rate of USD 1.29 trillion in August of 2019, after showing no growth in the previous month and well below market expectations of a 0.4 percent gain.

 

Spending on public construction advanced 0.4 percent, easing from a 1.4 percent jump in July. Investment in private construction was flat, after a 0.5 percent fall in the prior month, as a 0.9 percent increase in private residential investment, the highest since November 2018, was offset by a second straight monthly decline in outlays on nonresidential projects.

 

Click here to access the data +

3.

German Manufacturing PMI Revised Higher, Still in Contraction

 

The IHS Markit/BME Germany Manufacturing PMI was revised slightly higher to 41.7 in September 2019 from a preliminary estimate of 41.4 and compared to the previous month’s final 43.5. Still, the latest reading pointed to the steepest contraction in the sector since June 2009 as output shrank the most since July 2012 and new orders dropped to the greatest extent since April 2009, leading to a further reduction in backlogs of work.

 

Click here to access the data +

4.

Eurozone September Inflation Rate Unexpectedly Slows

 

The annual inflation rate in the Euro Area is expected to ease to 0.9 percent in September 2019 from 1 percent in the previous month and slightly below market expectations of 1 percent, a preliminary estimate showed. It was the lowest inflation rate since November 2016, amid a slowdown in cost of food, alcohol & tobacco and a further fall in prices of energy.

 

The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, is likely to increase to 1 percent from 0.9 percent in the prior month in line with market forecasts.

 

Click here to access the data +

5.

Australia Cuts Rates to All-Time Low

 

The Reserve Bank of Australia lowered its cash rate by 25 bps to a new record low of 0.75 percent during its September meeting, the third rate cut this year, aiming to support employment and income growth and to provide greater confidence that inflation will be consistent with the medium-term target. Policymakers also signalled the need for an extended period of low interest rates, while saying the central bank is prepared to ease monetary policy further if needed.

 

Click here to access the data +

6.

UK Housing Price Growth Slows

 

The Nationwide’s House Price Index in the UK increased by 0.2 percent year-on-year in September 2019, the least since January, after a 0.6 percent rise in the previous month and below market consensus of 0.5 percent. House price growth remained below 1 percent for the tenth month in a row.

 

Click here to access the data +

MARKET INSIGHT UPDATES: SUMMARIES

Politics & Policy

Plastics

Modi Wants to Take Away India’s Plastic Bags and Spoons

 

India has a mammoth plastic waste problem and no easy way to dispose of the 9.4 million tons it generates each year. Prime Minister Modi is now aiming to limit the consumption of single-use plastic — bags, cups, straws, disposable cutlery — and eliminate its use by 2022.

 

The government’s ban on plastic items will disrupt the supply chain, raise the cost of goods from milk to biscuit packets, and impact the food processing and consumer goods industries, said Ankur Bisen, senior vice president with consultancy firm Technopak Advisors Pvt. in Gurugram, near New Delhi.

 

Industry lobby groups argue the move will affect small retailers, leading to the closure of plastic industries and result in job losses, while some companies are seeking government exemptions and subsidies to help them shift to alternatives

 

More than 60 countries have so far introduced bans and levies to curb single-use plastic waste.

 

Read the full article from Bloomberg +

Monetary Policy

Fed

Fed’s Charles Evans Says U.S. Still on Path for ‘Solid’ 2.25% GDP This Year

 

The U.S. economy should grow by around 2.25% this year, which is “a solid number, as it exceeds my view of the economy’s long-run potential growth rate,” Chicago Fed President Charles Evans said in the text of a speech to be delivered in Frankfurt. Mr. Evans expects the jobless rate to stay at a level just under 4% and he sees inflation slowly moving up to the central bank’s 2% target over the next several years.

 

Mr. Evans, who is a voting member of the rate-setting Federal Open Market Committee, said that to keep the economy on this path, he had to revise his outlook for rate policy. “Within six months, I went from thinking it appropriate to eventually take policy rates 50 basis points above neutral to one where 50 basis points below neutral was in order,” Mr. Evans said.

 

Mr. Evans noted that the stability in his outlook owes to the fact that the economic fundamentals remain “solid.” He added that “most of the concerns over growth are about potential risks that could be costly, but also may never occur.”

 

Read the full article from The Wall Street Journal+

Technology

Semiconductors

Global Semiconductor Sales Down 15.9 Percent Year-to-Year in August

 

The Semiconductor Industry Association (SIA) today announced worldwide sales of semiconductors were $34.2 billion in August 2019, a decrease of 15.9 percent from the August 2018 total of $40.7 billion but 2.5 percent more than the July 2019 total of $33.4 billion.

 

“While worldwide semiconductor sales remain well behind the totals reached in 2018, month-to-month sales increased in two consecutive months for the first time in nearly a year,” said John Neuffer, SIA president and CEO. “Sales into the Americas market were mixed, decreasing significantly year-to-year but increasing more than any other region on a month-to month basis.”

 

Read the full article from Design & Reuse +

There is much more to this report! McAlinden Research Partners offers Hedge Connection members weekly access to the Daily Intelligence Briefing research for free – click here to view. (You must be logged in first). Not a member? Join today. McAlinden Research Partners is offering a complimentary one-month subscription to receive the Daily Intelligence Briefing – to Hedge Connection clients/friends. Activate yours by contacting Rob@mcalindenresearch.com and mentioning “Sent by Hedge Connection”

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