US FINANCIAL MARKET
Stocks Edge Slightly Lower After Jobs Report – Wall Street Journal, 1/7/2022
- U.S. stocks fell and Treasury yields jumped after the monthly jobs report, capping a volatile week to kick off the new year.
- The S&P 500 slipped 0.5%, after closing down 0.1% in Thursday’s choppy session.
- The Nasdaq Composite Index shed 1.1% and the Dow Jones Industrial Average lost 0.2%.
- The tech-heavy Nasdaq Composite has lost around 4% this week and is on track for its worst week since at least February 2021. It underperformed its peers on Friday.
- As of Thursday, the S&P 500’s growth index was also headed for its worst weekly performance since at least February 2021.
- The yield on the benchmark 10-year Treasury note swung sharply in early trading Friday and recently hovered at 1.767%, after four consecutive days of rises. Yields increase as bond prices decline.
- The yield on the 10-year Treasury note jumped as high as 1.769% after the latest monthly jobs report, hitting its highest intraday level since January 2020, according to Tradeweb.
- The jobs report showed that the U.S. added 199,000 jobs in December, below the 422,000 expected.
- Still, 2021 concluded with the U.S. adding a record number of jobs last year. The jobless rate fell to 3.9%.
- Meme stock GameStop surged around 18% after The Wall Street Journal reported the company was planning to enter the cryptocurrency and nonfungible token markets. AMC Entertainment, another company popular with retail traders, advanced 4%.
- Global benchmark Brent crude rose 0.8% to $82.63 a barrel in recent trading, the highest level in over eight weeks.
- Oil supply could potentially be lower due to cold weather in North Dakota and Alberta, Canada, and if protests in crude producer Kazakhstan affect output, according to analysts at ING.
- Overseas, the pan-continental Stoxx Europe 600 ticked down 0.3%.
- European government bond yields rose, with the 10-year German bund yield climbing to minus 0.1%. If it surpasses 0, it will be in positive territory for the first time since 2019.
- In Asia, major stock benchmarks were mixed. The Shanghai Composite Index fell 0.2%, while Hong Kong’s Hang Seng Index rose 1.8%, led by gains in technology stocks. South Korea’s Kospi Index rose 1.2%.
Global Covid-19 Cases Cross 300 Million Mark – Wall Street Journal, 1/7/2022
- The number of Covid-19 cases world-wide crossed the 300 million mark, according to Johns Hopkins University, as the U.S. Supreme Court prepared to hold a special session Friday to consider the Biden administration’s vaccine rules for private employers and healthcare workers.
- The global case-number milestone, reached Thursday, has been accelerated by the Omicron variant’s rapid spread. Weekly cases have jumped at the start of this year to almost 10 million from 5.5 million at the end of last month, according to Johns Hopkins.
- In Germany, the government is meeting Friday with the leaders of the 16 federal states to draft new rules for dealing with the continuing wave of coronavirus infections driven by the Omicron variant. One of the new measures expected to be adopted is tightening the rules for visiting bars and restaurants, which, at present, can only be visited by people who can show proof of vaccination or recent prior infection.
- Under the new proposal, only people who have received their third, or booster dose, would be allowed into indoor venues, while those who had been fully vaccinated without a booster would have to also show a negative test to dine indoors.
- In France, the Senate is expected to vote next week on a bill that stops the unvaccinated from entering restaurants, cafes and other public places.
- The legislation is part of President Emmanuel Macron’s strategy of annoying the unvaccinated to the point they feel compelled to get the shot.
Supreme Court to Weigh Vaccine Requirements for the Workplace – Wall Street Journal, 1/7/2022
- The Supreme Court will hold a special session Friday to consider whether the Biden administration can enforce vaccine-and-testing rules for large private employers and a vaccine mandate for most healthcare workers.
- The issues come to the court on an emergency basis during a record increase in U.S. Covid-19 infections. In a departure from its usual procedures, the court is hearing arguments on cases that haven’t been fully aired in lower courts.
- The Supreme Court’s conservative majority is skeptical of broad claims of federal power and has been considering arguments for reining it in, said Michael Greenberger, a law professor and director of the Center for Health and Homeland Security at the University of Maryland.
- But with the vaccine cases, the justices “are walking into the jaws of the pandemic,” he said. “And there may be enough justices who would worry that pulling back [the mandates] in the middle of the pandemic is a dangerous thing to do.”
- One federal appeals court blocked the rules nationwide in November, but another court reinstated the requirements last month.
- The challengers argue that Congress never granted the power for such mandates to the secretaries of labor and of health and human services.
- For support, they look to the Supreme Court’s decisions last year that terminated a moratorium on evictions ordered by the Centers for Disease Control and Prevention, on the grounds that the ban exceeded the agency’s authority.
- A Kaiser Family Foundation survey in November found that 49% of employees in relevant workplaces in November opposed the federal vaccine-or-testing mandate and 49% supported it.
- A far higher proportion of Democrats and vaccinated employees backed the measure.
Snowstorm Quickly Pushes U.S. Airline Cancellations Past 2,000 – Bloomberg, 1/7/2022
- Airlines canceled 2,274 U.S. flights early Friday as a winter storm shut government offices in Washington, closed schools in Boston and blanketed the rest of the Northeast.
- The cancellations marked the fifth day this month with more than 2,000 scrubbed flights, as a jump in coronavirus infections made it especially difficult for airlines to keep operations fully staffed.
- Since Dec. 24, more than 25,800 have been scrapped, according to FlightAware.com.
- A third of flights at New York City’s LaGuardia Airport already had been canceled by 8:20 a.m. Friday, along with 28% at Boston’s Logan International.
- John F. Kennedy International in New York City and nearby Newark Liberty International in New Jersey each had 19% canceled.
- Southwest Airlines parked 518 flights, or 17% of its service for the day. Alaska Air Group grounded 19% and JetBlue Airways 17%.
Number of Nasdaq Stocks Down 50% or More Is Almost at a Record – Bloomberg, 1/7/2022
- A near-record number of tech stocks have plunged by some 50% in an echo of the dot-com crash.
- Roughly four in every 10 companies on the Nasdaq Composite Index have seen their market values cut in half from their 52-week highs, while the majority of gauge members are mired in bear markets, according to Jason Goepfert, chief research officer at Sundial Capital Research.
- Another way of thinking about the tech wreck: At no other point since the bursting of the dot-com bubble have so many companies fallen like this while the index itself was so close to a peak.
- “Valuations are at historical highs, companies are raising billions based on fairy dust, and the Fed is signaling a tightening cycle,” Goepfert said. “All of these are scaring investors that we’re on the cusp of a repeat of 1999-2000.”
- The Nasdaq Composite index is on pace for its biggest weekly decline since November, even as it rose in the New York afternoon trading session Thursday. A 3.3% fall Wednesday marked its worst single-day session since February last year.
Global equity funds attract big inflows at start of new year -Lipper – Reuters, 1/7/2022
- Global equity funds attracted massive inflows for a third straight week in the seven days to Jan. 5, as world stocks started the new year on a solid footing, shrugging off worries over the Omicron coronavirus variant and higher inflation.
- Investors purchased global equity funds worth a net $19.01 billion in the period, data from Refinitiv Lipper showed, although that was down from $29.45 billion in the previous week.
- MSCI’s global equity index hit a record high this week, with strong gains across the board from the United States to Asia.
- U.S. equity funds attracted a net $8.98 billion in the week to Jan. 5, while European and Asian equity funds drew $7.25 billion and $0.43 billion respectively.
- Financial funds drew $1.21 billion and healthcare received $564 million but tech funds saw a net outflow of $303 million in a third straight week of selling.
- Investors purchased global bond funds worth a net $14.95 billion, their biggest weekly net buying in four months.
- Global money market funds received inflows of $19.53 billion, a 51% decline from the previous week.
GameStop Stock Jumps After Company Enters NFTs – Wall Street Journal, 1/7/2022
- GameStop shares jumped about 15% on Friday, extending the videogame retailer’s volatile ride into this year.
- GameStop plans to develop a marketplace for nonfungible tokens and establish cryptocurrency plans, an area that has been popular among individual investors.
- The new division is the latest in a string of moves that company executives have made to overhaul the retailer. The company has specialized in selling hard copies of games even though many consumers are opting to download and stream games over the internet.
- GameStop was one of many companies hurt during the pandemic as businesses around the country were shut down.
Investors Brace for Slowing Corporate Bond Sales – Wall Street Journal, 1/7/2022
- Investors expect a pandemic borrowing boom by U.S. companies will continue to cool in 2022.
- Analysts at banks including Citigroup, Bank of America and Deutsche Bank are forecasting U.S. companies will issue around $1.3 trillion or $1.4 trillion worth of investment-grade-rated bonds this year, including debt sold by financial institutions.
- That would nearly match last year’s $1.46 trillion, though still mark a decline from 2020’s record $1.86 trillion, according to Refinitiv.
- One key group expected to slow issuance: banks and financial institutions. Banks have played a greater role in propelling the corporate bond market recently, accounting for more than half of U.S. investment-grade bond sales in 2021, their highest share since 2007.
- That in part stemmed from their need to balance the pandemic’s surge in deposits with requirements they keep a certain share of liabilities in long-term debt.
Roblox takes down China app, says building another version – Reuters, 1/7/2022
- U.S. video gaming platform Roblox, has taken down its Chinese app that fronted its expansion efforts into the country, telling Reuters it was part of “a number of important transitory actions” as it builds its next version.
- The LuoBuLesi app, which Roblox launched in July in partnership with an affiliate of Tencent Holdings, was shut down on Dec. 8, disappearing from mainland app stores. The app now shows users a message thanking them for using the test version when they log on.
- The app’s importance to Roblox’s expansion in China was prominently discussed in the company prospectus for its New York stock exchange listing in March, which saw the gaming platform valued at nearly $30 billion.
- A Roblox spokesperson told Reuters late on Thursday that the move was necessary as it builds the “next version of LuoBuLeSi”, but did not say when the app would return.
US ECONOMY & POLITICS
U.S. Jobs Report Shows Gains Slowed to 199,000 in December – Wall Street Journal, 1/7/2022
- Hiring slowed in December in a sign the economic recovery was moderating ahead of disruptions from the Omicron variant of Covid-19, though declining unemployment and robust wage growth indicate employers are poised to steadily add jobs this year.
- Employers added 199,000 jobs in December, cooling from 249,000 new payrolls in November and 648,000 in October, the Labor Department said Friday. Last month’s payroll gains left the U.S. economy with about 6.4 million more jobs than at the end of 2020—more than in any year on record—but the nation remains 3.6 million jobs short of pre-pandemic levels.
- Leisure and hospitality employers, which were hit particularly hard, have made strides since last January but are still 7% below pre-pandemic payrolls levels.
- The unemployment rate fell to 3.9% last month from 4.2% in November. Nearly 170,000 people joined the workforce but labor-force participation, at 61.9%, remained below its 63.4% level in February 2020 before the pandemic hit.
- A tightening labor market spurred strong wage gains: average hourly wages increased 4.7% in December from a year earlier, holding well above wage growth of roughly 3% preceding the pandemic.
Jobs Report Likely Keeps Fed on Track for Rate Rise in March – Wall Street Journal, 1/7/2022
- Another decline in the unemployment rate in December is likely to keep Federal Reserve officials on track to lift interest rates from near zero as soon as their policy meeting in March.
- Evidence of tighter labor markets and high inflation has provided new urgency for the Fed to begin draining reservoirs of stimulus it pumped into the economy after the pandemic struck nearly two years ago.
- At their meeting last month, Fed officials approved plans to more quickly scale back, or taper, their bond-buying program to end it by March instead of June. They want to stop providing stimulus with those purchases before lifting short-term rates.
- Minutes of that meeting, released Wednesday, showed most officials think the economy will reach conditions consistent with maximum employment soon, and some already believed that goal had been reached last month.
- Friday’s report isn’t likely to change that calculus. Officials have said they would raise rates once that condition is met.
- The minutes also twice referred to labor markets as being “very tight,” which suggests greater conviction that the economy will need higher interest rates to slow down growth and prevent overheating.
Mortgage Rates Hit Highest Levels Since Spring 2020 – Wall Street Journal, 1/7/2022
- U.S. mortgage rates this week rose to their highest levels since May 2020, driving up the costs associated with home buying at a time when home-sales prices are already near record highs.
- The average rate for a 30-year fixed-rate loan was 3.22%, up from 3.11% last week, according to mortgage finance giant Freddie Mac. A year ago, mortgage rates stood at 2.65%.
- Mortgage rates are still low by historical standards, and with strong buyer demand for homes, housing economists don’t anticipate an immediate or significant pullback in home sales.
- Existing-home sales rose in November to the highest seasonally adjusted annual rate since last January, and 2021 was on track to be the strongest year in home sales since 2006.
Mexico Requests USMCA Panel to Resolve Dispute Over Auto Rules – Wall Street Journal, 1/7/2022
- The Mexican government has requested a panel under the U.S.-Mexico-Canada Agreement to resolve a dispute with the U.S. over the interpretation of rules of origin for the auto industry, the Economy Ministry said Thursday.
- Rules of origin specify how much of a product must originate in the region covered by the trade agreement to be eligible for tariff-free status.
- It is the first time that Mexico has sought a panel to handle a disagreement with its principal trading partner under the USMCA, which replaced the former North American Free Trade Agreement in 2020.
- Mexico’s Economy Ministry said formal consultations with the U.S. failed to resolve differences between the two countries, and that Canada also participated in those talks.
- “The U.S. imposes on auto makers requirements that are incompatible with the USMCA to calculate the regional value content of passenger vehicles, light trucks, and their parts,” the ministry said. “Mexico considers that a panel’s decision would provide certainty to the automotive industry in benefit of competitiveness in the region.”
EUROPE & WORLD
Eurozone Inflation Hits New Record, Further Pressuring ECB – Wall Street Journal, 1/7/2022
- Consumer prices in the eurozone increased at a record pace in the year through December as food prices jumped, presenting a fresh challenge for the European Central Bank as it strives to persuade households and businesses that inflation will return to its target toward the end of this year without a rise in borrowing costs.
- The European Union’s statistics agency Friday said consumer prices in December were 5% higher than a year earlier, a pickup from the previous record of 4.9% in November.
- Economists surveyed by The Wall Street Journal had expected the inflation rate to ease to 4.7%. But while energy prices rose at a slower pace in the 12 months through December, food-price inflation jumped to 4.6% from 1.9% in November.
- The core inflation rate, which excludes highly volatile items such as energy and food, was unchanged at 2.6%.
Samsung Electronics Expects 52% Rise in Quarterly Operating Profit – Wall Street Journal, 1/7/2022
- Samsung Electronics is forecasting a roughly 52% jump in its fourth-quarter operating profit from the year-ago period, lifted by resilient demand for memory chips and improved returns from its contract chip-making business.
- The world’s largest smartphone and memory-chip maker expects operating profit of about 13.8 trillion South Korean won, equivalent to about $11.4 billion, for the quarter ended Dec. 31. That compares with about 9.05 trillion won for the year-earlier quarter.
- The Suwon, South Korea-based company estimates it generated 76 trillion in sales, roughly a 24% gain from a year ago and a quarterly revenue record for the company.
- Prices of memory chips—both DRAM and NAND flash—were expected to drop in the final three months of last year, as the global semiconductor shortage stalls the assembly of various tech products requiring memory.
- But profits held up, as the price decline was smaller than expected due to robust demand for server memory chips in particular, coupled with the gradual easing of the chip shortage, said CW Chung, head of Asia technology research at Nomura Holdings.
Tech company STMicro reports higher than expected Q4 sales, lifting its shares – Reuters, 1/7/2022
- Franco-Italian chipmaker STMicroelectronics said its preliminary fourth-quarter revenues were slightly above the guidance given at the end of October, in the context of a global microchip supply crunch, which gave a lift to its shares.
- Sales for the last three months of 2021 increased by 11.2% sequentially, coming in at $3.56 billion which was above a company forecast of $3.40 billion.
- Full year sales jumped by 24.9% to $12.76 billion, also higher than STMicro’s October 2021 forecast.
- “We ended the fourth quarter of 2021 with net revenues above the outlook range and gross margin at, or slightly above, the high-end of the outlook range, primarily due to better than anticipated operations in an ongoing dynamic market”, said STMicroelectronics president and CEO Jean-Marc Chery.
- STMicroelectronics, whose Paris-listed shares rose 43% in 2021, will publish its detailed Q4 2021 earnings on Jan 27.
Euro zone retail sales growth surges past expectations in Nov – Reuters, 1/7/2022
- Euro zone retail sales surged past all expectations in November, driven by in-store non-food purchases, data from Eurostat showed on Friday, indicating that consumer demand remained healthy even as fresh pandemic-related restrictions were implemented.
- Retail sales, a proxy for consumer demand, in the 19 countries sharing the euro rose 1% by value on the month, defying expectations for a 0.5% drop in a Reuters poll of analysts.
- Compared to a year earlier, retail sales expanded by 7.8%, well ahead of projections for 5.6%, the European Union’s statistics agency said.
- Non-food sales rose by 1.6% on the month while car fuel sales fell by 1.5%, reversing their earlier trend.
Shell Says Trading Results in Gas Stronger, But Oil Weaker – Bloomberg, 1/7/2022
- Royal Dutch Shell said its natural gas trading business overcame supply disruptions to post “significantly higher” earnings for the fourth quarter, but the unit that buys and sells oil fared much worse.
- Shell’s oil trading and refining unit is track to post a loss, the company said. Earnings were “significantly lower” compared with the third quarter and realized refining margins were hit by extended maintenance at its Scotford refinery in Canada and the impact of Hurricane Ida in the Gulf of Mexico.
- Shell said its fourth-quarter cash flow will be hit by “significant” variation margins — money that the firm received from counterparts in gas and power contracts when prices jumped.
- That is largely expected, with Chief Financial Officer Jessica Uhl warning at the company’s third-quarter earnings that a $4 billion boost from some commodity derivatives would unwind over the coming months.
- The Anglo-Dutch major said it would buy back $5.5 billion of shares “at pace” using the proceeds from asset disposals.
- The share repurchases, first announced last year and funded from the sale of its Permian-basin oil fields in the U.S., were approved by Shell’s board on Dec. 31. Shell has already bought back $1.5 billion of shares with those funds.
- The company didn’t then give a specific buyback timeline and said it would disclose more details when it publishes its earnings on Feb. 3.
Daimler’s Mercedes-Benz sees 5% sales drop in 2021 – Reuters, 1/7/2022
- Daimler’s Mercedes-Benz sold 2.05 million vehicles in 2021, the company said on Friday, losing its crown for the first time in five years as the premium carmaker with the most vehicles sold to BMW.
- The smart brand delivered an additional 38,514 vehicles, while Mercedes-Benz Vans sold 334,210, a 2.5% increase from last year.
- Sales of battery-electric vehicles jumped over 90% to 99,301 vehicles, the company said.
- The biggest drop in passenger vehicles sales over the year was registered in Europe at 11.2%, compared to a drop of just 2% drop in China and a 0.4% increase in the United States.
Aston Martin sales surge, Valkyrie delays hit profit – Reuters, 1/7/2022
- Aston Martin said sales to dealers in 2021 surged 82%, even as the British luxury automaker forecast lower-than-expected annual adjusted core earnings due to delays in shipments of its limited-edition Valkyrie sports car.
- Aston Martin said 10 Valkyries were shipped in the fourth quarter, fewer than previously planned.
- Overall, the company sold 6,182 cars last year, helped by demand for its first sport utility vehicle, the DBX. Shares were up 1.3% in early trade.
- The company said its cash balance at the end of 2021 was around 420 million pounds, higher than anticipated.
Airbus 2021 deliveries hover between 605 and 611 units -sources – Reuters, 1/7/2022
- Airbus delivered at least 605 jetliners in 2021 and the final tally could rise as high as 611 depending on the outcome of a final audit, industry sources said on Friday.
- Airbus will give an update on orders and deliveries after markets close on Monday, with Boeing disclosing data on Tuesday.
- With Airbus confident of beating its 2021 target by up to 11 units, the focus has turned to narrowbody production rates and deliveries in 2022 as the aviation industry tries to re-mobilise a crisis-weakened supply chain.
- Airbus has not given a delivery forecast for 2022, but it is expected to be comfortably higher than 2021, analysts said.
- In May, Airbus had said it was calling on suppliers to secure a firm rate of 64 a month by second-quarter 2023, from a targeted rate of 45 in fourth-quarter 2021.
Kazakhstan’s President Gives Security Forces Order to Shoot to Kill Without Warning – Wall Street Journal, 1/7/2022
- Kazakh President Kassym-Jomart Tokayev said he had given the order to police and army to shoot without warning as the country’s security forces scoured the streets of Almaty and other cities for protesters after days of unrest triggered by a fuel-price increase.
- He said his government had largely restored order and told a meeting of security chiefs Friday that what he called a counterterrorism operation would continue “until the full liquidation of the militants,” who he said were still using weapons. “Law enforcement agencies and the army were given an order by me to shoot at terrorists to kill without warning,” he said, following the arrival of Russian troops to support his government.
- This week’s protests were triggered by fuel-price increases that took effect at the beginning of the year and turned into a broader wave of frustration over the country’s economy and closely controlled political system.
- Kazakh authorities say armed groups have attempted to seize government buildings. Dozens of people have been killed, according to authorities, including law-enforcement officers.
- Harry Truman announced that the U.S. had developed the hydrogen bomb. (1953)
- Vietnamese forces captured the Cambodian capital of Phnom Penh, overthrowing Pol Pot’s Khmer Rouge government. (1979)
- Japan’s Emperor Hirohito died. (1989)
- The impeachment trial of President William Clinton began in the Senate. (1999)