US FINANCIAL MARKET
Stocks Open Higher After Jobless Claims, Inflation Data – Wall Street Journal, 1/13/2022
- U.S. stocks and bond yields crept higher after fresh data on inflation and the labor market provided a mixed picture of the economic recovery.
- The S&P 500 added 0.2% after the broad-market index closed up 0.3% Wednesday.
- The Nasdaq Composite Index also ticked up 0.2% and the Dow Jones Industrial Average added 0.4%.
- The U.S. producer-price index rose at an annual rate of 9.7% in December, an acceleration from November. New jobless claims came in above economists’ expectations at 230,000, rising from the previous week despite the tight labor market.
- In individual stocks, shares of Delta Air Lines rose 1.2%, despite posting a loss, after the airline’s chief executive said he expected it to quickly recover from the effects of the Omicron variant.
- Home builder KB Home climbed 10% after its earnings came in above analysts’ expectations.
- The yield on the benchmark 10-year Treasury note ticked up to 1.73% Thursday from 1.724% Wednesday, reversing direction after two sessions of declines. Yields rise when prices fall.
- Shorter-dated bond yields also climbed, with the two-year yield reaching 0.915%, up for a third day.
- Federal Reserve officials are signaling that an interest-rate rise could come as soon as March. The Fed’s James Bullard said Wednesday that four rises were likely in 2022.
- Governor Lael Brainard is scheduled to speak in front of the Senate Banking Committee at 10 a.m. ET in her nomination hearing to become vice chair and investors are waiting to hear her views on inflation and the economic recovery.
- Earnings season kicks off this week, with major financial firms including BlackRock, Citigroup, JPMorgan and Wells Fargo set to report Friday.
- The pan-continental Stoxx Europe 600 was relatively unchanged. British home builder Countryside Properties tumbled over 26% after it reported a drop in profit and said its chief executive would step down immediately.
- In Asia, most major benchmarks fell. The Shanghai Composite Index lost 1.2% on concerns about China’s latest Covid-19 outbreak after the port city of Tianjin reported higher infections. Japan’s Nikkei 225 retreated 1%.
- Genting Hong Kong, a cruise-ship operator, plunged 56%. The stock resumed trading Thursday after a German subsidiary filed for insolvency, triggering defaults.
Goldman Delays Return; U.K. Shortens Isolation: Virus Update – Bloomberg, 1/13/2022
- China detected omicron in a second major port city, deepening concern about a wider outbreak at Beijing’s doorstep and raising the prospect that more foreign businesses would halt operations along the northeastern coast.
- Travelers from Canada, Australia and Argentina will no longer be exempted from the European Union’s travel restrictions.
- Member states agreed on Wednesday to remove the trio from a list of countries whose citizens are allowed to enter the bloc under the same conditions as in pre-pandemic times, officials said.
- The U.K. had 3% of its workforce absent due to Covid in late December, the highest level since comparable estimates began in June 2020. Other services, which includes hairdressing and other beauty treatments, reported the highest absence levels at 7%.
- The Philippines’ daily infections reached a new record-high Thursday, with 34,021 reported cases. The percentage of tests turning positive also rose to a new record of 47.9%. Hospital beds across the Southeast Asian nation are nearing half capacity.
- Germany registered 81,417 new cases, a record for a second straight day, as the omicron variant continues to spread rapidly in Europe’s biggest economy.
- The seven-day incidence rate per 100,000 people climbed to 428, closer to the all-time high of 452 scaled at the end of November.
- Chinese officials said Thursday that at least one person was infected with omicron in Dalian, a city of seven million. A second person in Dalian has also tested positive with the virus, but the variant is unknown.
- A broader spread of omicron is bad news for China. With just three weeks to go before the winter Olympics are set to begin in Beijing, China has put in place some of the world’s toughest measures to stamp out the virus.
- Blackstone is requiring U.S. staff to get booster shots to work in the office, joining Wall Street firms stepping up pressure on their workforces to get jabs and take more tests.
- The firm told employees they must get boosters “as soon as practically possible” and office workers will need to be tested on-site three times a week, a spokeswoman said.
Covid Loses Most of Infection Capacity After 20 Minutes in Air – Bloomberg, 1/13/2022
- Coronavirus loses most of its ability to infect shortly after being exhaled and is less likely to be contagious at longer distances, a study from the University of Bristol’s Aerosol Research Centre showed.
- Researchers found that the virus loses 90% of its contagion capacity 20 minutes after becoming airborne and that most of that loss happens in the first five minutes of it reaching the air, according to the study, that simulates how the virus behaves after exhaling.
- The findings indicate viral particles rapidly dry out after they leave the moist and carbon dioxide-rich environment of the lungs, curbing their ability to infect other people.
- Air humidity was found to be a determining factor in how fast these particles are deactivated, with shower rooms seeing a slower wind down than offices.
Delta Reports Loss Amid Omicron Surge but Expects to Make Recovery – Wall Street Journal, 1/13/2022
- Delta Air Lines said Thursday it expects to shake off the impact of Omicron, the fast-spreading Covid-19 variant that knocked the airline’s operation off course and damped revenue at the end of the year.
- Delta on Thursday reported a fourth-quarter loss of $408 million, following two profitable quarters.
- For the full year, the airline reported a profit of $280 million.
- Excluding the impact of certain charges and the impact of government aid earlier in the year, Delta reported an adjusted profit of $143 million for the quarter and a loss of $2.6 billion for the year.
- Delta expects Omicron to continue weighing on demand in the near term, delaying demand recovery by 60 days, before the variant’s effects begin to dissipate as quickly as they emerged.
- The airline had previously expected travel appetite in January and February to match that in December, when demand had returned to close to 80% of 2019 levels. Instead, Mr. Bastian said, demand is about 70% of 2019 levels.
- Delta said it sees bookings regaining momentum starting around Presidents Day weekend in February, and the airline expects to become profitable again in March.
- In the first quarter, Delta expects revenue to recover to between 72% and 76% of 2019 levels, compared with 74% in the fourth quarter.
- Delta expects fuel costs to rise to $2.35 to $2.50 a gallon in the first three months of the year, up from an adjusted fuel price of $2.10 a gallon in the fourth quarter.
Inflation Surge Is on Many Executives’ List of 2022 Worries – Wall Street Journal, 1/13/2022
- Concerns about rising prices skyrocketed in the past year, according to a survey of more than 900 global CEOs conducted by the Conference Board, a business research group. More than half of the CEOs expect price pressures to persist until at least mid-2023 after having registered as a low-level worry in the year-ago survey.
- Similarly, European CEOs ranked inflation as the top worry and Covid-19 disruption as 10th, below the expected impact of regulators. But CEOs in both China and Japan see Covid-19 having the greatest impact on their business this year.
- In the Conference Board survey, 82% of CEOs globally said they are facing upward price pressure for inputs into their businesses. In China, producers are facing rising commodity prices in their vast manufacturing base, while Europe is seeing inflation related to energy and food prices.
- In the U.S., 59% of CEOs expect inflation to be elevated until at least mid-2023 or beyond.
- A third of CEOs globally expect at least 40% of their post-pandemic workforces would remain remote, which is defined as working at least three days a week outside of the physical workplace.
- Among U.S. CEOs, 53% expect at least 40% of workers to work remotely.
PC Shipments Faced Tough Fourth Quarter, but Pandemic Supplies a Brace – Wall Street Journal, 1/13/2022
- Shortages and bottlenecks weighed on personal-computer shipments in the fourth quarter, but the pandemic-induced revival of the PC market is expected to continue, according to industry data.
- International Data Corp. and Canalys said PC shipments in the fourth quarter rose about 1%, while Gartner said world-wide PC shipments declined 5% in the December quarter, which it said was the first year-over-year decline after six straight quarters of growth.
- Much of the difference in the tallies from the data providers comes from how each company defines PCs.
- Canalys said PC shipments in 2021 totaled 341.1 million units, while IDC pegged world-wide shipments for the year at 348.8 million units, in both cases a roughly 15% increase from the previous year.
- Meanwhile, Gartner said 2021 shipments reached 339.8 million units, up about 9.9% from the previous year.
- The three firms ranked Lenovo Group as the No. 1 vendor, followed by HP, Dell Technologies and Apple.
What to Watch in Bank Earnings, From Interest Rates to Omicron’s Impact – Wall Street Journal, 1/13/2022
- Big U.S. banks unveil fourth-quarter results starting later this week, with JPMorgan Chase, Wells Fargo and Citigroup slated to report Friday.
- Banks in the S&P 500 are expected to report total profits of about $31.2 billion for the fourth quarter, according to FactSet.
- That would mark a 2.4% decline from a year earlier.
- Spending with Chase credit and debit cards weakened from 21% above 2019 levels in November to 11% above in the last week of December, according to analysts at JPMorgan Chase. The decline in spending on airfare was especially sharp, they said in a research note.
- Adding to the pressure: Banks built up reserves in 2020 when they were expecting big pandemic loan losses. That hit their profits hard. When the economy improved, banks started releasing those reserves, giving their bottom lines a boost. Those reserve releases are expected to be much smaller going forward.
- Yet Wall Street is expecting bright spots as well. Rising U.S. government bond yields could lead to higher lending profits.
- KBW analysts expect adjusted net interest income to rise 8% in the fourth quarter from a year earlier.
- Loan growth is starting to tick higher after a lull through much of the pandemic. Total loans at U.S. banks reached $10.76 trillion at the end of December.
- That is up 2.8% from the end of September and not far from the high reached shortly after the pandemic began in 2020.
TSMC to Invest Up to $44 Billion in 2022 to Beef Up Chip Production – Wall Street Journal, 1/13/2022
- Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, said it would increase its investment to boost production capacity by up to 47% this year from a year earlier as demand continues to surge amid a global chip crunch.
- TSMC said Thursday that it has set this year’s capital expenditure budget at $40 billion to $44 billion, a record high, compared with last year’s $30 billion.
- TSMC is now increasing investments into capacities to build less-advanced chips based on older production technologies. Those chips, widely used in cars, smartphones and other devices, became a supply chain bottleneck last year, including for Apple.
- Mr. Wei called such products a “sweet spot” for the company’s longer-term strategy. Production lines for these less-advanced chips aren’t as expensive, while TSMC’s technology to build these chips are specialized, making it hard for rivals to replace those semiconductors, industry experts say.
- TSMC said revenue from its automotive-related operations, which grew by 51% last year from a year earlier, is expected to be among its fastest-growing business this year. The auto sector is among the hardest hit from global chip crunch.
- Rivals are also aggressively expanding capacity. Samsung Electronics announced a $17 billion investment in Taylor, Texas, in November, while Intel recently pledged to build new chip-making facilities in Europe valued at up to $95 billion.
US ECONOMY & POLITICS
U.S. Jobless Claims Rise to 230,000 – Wall Street Journal, 1/13/2022
- Filings for jobless claims rose to a seasonally adjusted 230,000 last week, an increase of 23,000, as a tight U.S. labor market has kept applications near pre-pandemic lows for the past two months.
- The increase in the Jan. 8 week came as employers dealt with workers calling in sick because of the Omicron variant of Covid-19. The four-week moving average for last week edged higher, the Labor Department said Thursday, to 210,750.
- Continuing claims, which provide an approximation of the number of people receiving benefits, fell by nearly 200,000 to 1.6 million in the week ended Jan. 1, the most recent reading for those figures.
Smaller Gain in U.S. Producer Prices Is Hint of Cooler Inflation – Bloomberg, 1/13/2022
- Prices paid to U.S. producers decelerated in December as two key drivers of inflation in 2021 — food and energy — declined from a month earlier, representing a respite in the recent trend of sizable increases.
- The producer price index for final demand increased 0.2% from the prior month after an upwardly revised 1% jump in November, Labor Department data showed Thursday.
- From a year earlier, the PPI was up 9.7%, the second-largest in figures back to 2010.
- However, excluding the volatile food and energy components, the PPI climbed 0.5% in December and was up a larger-than-projected 8.3% from a year earlier.
- Producer prices excluding food, energy, and trade services — a measure often preferred by economists because it strips out the most volatile components — rose 0.4% from the prior month. Compared with a year earlier, the gauge increased 6.9%.
- Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, declined 0.3% in December, the first decrease since April 2020. Compared with a year earlier, the measure jumped 24.4%.
Fed’s Bullard: Four Interest Rate Rises in 2022 Now Appear Likely – Wall Street Journal, 1/13/22
- Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank will need to move more aggressively on rate rises this year as it seeks to stem an inflation surge, amid a job market that could see the unemployment rate fall below 3% by the end of the year.
- “We want to bring inflation under control in a way that does not disrupt the real economy, but we are also firm in our desire to get inflation to return to 2% over the medium term,” Mr. Bullard said in a Wall Street Journal interview Wednesday.
- Whereas he recently believed the Fed would need to raise rates three times this year, “I actually now think we should maybe go to four hikes in 2022.” He said it is important for the Fed to start raising rates “sooner rather than later” because pulling back on stimulus in the near term and doing so steadily reduces the risk of an even more aggressive path should inflation not moderate back toward the target.
- Referencing the Fed’s bond purchases, “these emergency measures on the balance sheet side have overstayed their welcome” and it appears likely that the buying done during 2021 was more stimulus than the economy needed, he said.
Fed official open to more than three US rate rises this year – Financial Times, 1/13/2022
- Patrick Harker, president of the Philadelphia branch of the Federal Reserve, said he would support more than three interest rate rises this year if inflation surges higher, becoming the latest US central bank official to throw his weight behind an increase in March.
- “I currently have three increases in for this year, and I’d be very open to starting in March,” Harker said in an interview with the Financial Times. “I’d be open to more if that’s required.”
- Harker is one of several Fed officials to signal support for “lift-off” in March, along with regional bank presidents Esther George of Kansas City, James Bullard of St Louis and Cleveland’s Loretta Mester.
- Harker said he would also support fewer rate increases if “inflation does in fact start to come down” as supply chain bottlenecks ease. But few independent economists are forecasting the kind of drop-off in inflation that would prompt the Fed to adopt a more dovish approach.
Fed’s Brainard to Tell Congress That Reducing Inflation Is Top Priority – Wall Street Journal, 1/13/22
- Federal Reserve governor Lael Brainard, the White House nominee to serve as the central bank’s No. 2 official, is set to tell Congress that efforts to reduce inflation are the central bank’s “most important task.”
- Ms. Brainard, who joined the Fed in 2014, was a forceful advocate last year for ensuring that the central bank didn’t prematurely curtail stimulus as part of a focus on spurring a robust labor-market recovery.
- Her prepared testimony, set to be delivered Thursday morning at her confirmation hearing before the Senate Banking Committee, is the latest sign of how the central bank has firmly pivoted toward fighting inflation.
- In her statement released Wednesday, Ms. Brainard calls attention to a swift decline in unemployment. “But inflation is too high, and working people around the country are concerned about how far their paychecks will go,” she says. “Our monetary policy is focused on getting inflation back down to 2% while sustaining a recovery that includes everyone.”
Chuck Schumer Lays Out Plan for Votes on Elections Bills – Wall Street Journal, 1/13/22
- Senate Majority Leader Chuck Schumer (D., N.Y.) laid out a legislative maneuver that allows the Senate to begin debate on Democrats’ elections legislation this week, even as a path to final passage remains elusive.
- His plan, outlined in a memo to colleagues, doesn’t sidestep the main hurdles to passage of the bills, which would still remain subject to the 60-vote filibuster threshold for most legislation in the 50-50 Senate.
- But it does advance the bills to floor debate, a preliminary step that had been repeatedly blocked last year because of strong Republican opposition.
- Democrats would need 50 votes to change the Senate filibuster, with Vice President Kamala Harris breaking a tie, but two Democratic senators, Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, have declined to support proposals to carve out a filibuster exception for voting rights.
- Party leaders have struggled to line up the support within their caucus to rewrite the Senate’s rules to muscle through elections legislation.
- After meeting early Wednesday with other Democrats in Mr. Schumer’s offices, Mr. Manchin emerged to say that there was still no agreement. President Biden is to meet behind closed doors with Senate Democrats on Thursday.
Government Losses on Student Debt Climb Above $100 Billion Amid Pause on Payments – Wall Street Journal, 1/13/22
- The pause in student-debt repayment has cost the federal government more than $100 billion since the start of the pandemic and could cost $4 billion to $5 billion a month until the moratorium is lifted at the beginning of May, according to government estimates.
- With costs mounting, congressional Republicans, led by Rep. Virginia Foxx and Sen. Richard Burr, both of North Carolina, asked the Education Department on Wednesday to release documents related to how the government calculates projected losses from students defaulting on their loans.
- Among the documents requested is an internal report commissioned by Betsy DeVos, former education secretary under the Trump administration, that showed a far more dire picture of taxpayers’ exposure to student-loan defaults than the one presented by the government.
- In fiscal year 2019, the Federal Student Aid office of the Education Department projected the need for a $124.5 billion infusion. In fiscal year 2021, that number had risen to $273.8 billion.
- Roughly two-thirds of that increase can be attributed to the current moratorium: The net cost of the pause came to $98.4 billion for the fiscal years of 2020 and 2021, according to the Education Department’s annual financial report.
- The study requested by congressional Republicans was conducted by a former JPMorgan Chase & Co. executive in early 2020 and has been seen by The Wall Street Journal. It found that Congress, multiple presidential administrations and government watchdogs had systematically made the student-loan program look profitable when in fact defaults were becoming more likely.
- It used a different methodology for calculating borrowers’ ability to repay loans and concluded that they would pay back $935 billion in principal and interest. That would leave taxpayers on the hook for $435 billion.
- All of those estimates reflect pre-pandemic conditions.
Biden Administration Backs Russian Sanctions Bill Contingent on Ukraine Invasion – Wall Street Journal, 1/13/22
- The Biden administration has thrown its support behind a bill that would impose mandatory sanctions against Russian leaders, banks and businesses if Moscow escalates hostilities or further invades Ukraine.
- The endorsement comes as the White House lobbies wavering Democratic senators against another sanctions bill expected to get a Senate vote this week that is sponsored by Sen. Ted Cruz (R., Texas).
- The Cruz bill would initiate sanctions against Nord Stream 2, a pipeline built to deliver Russian natural gas to Germany.
- The Democratic bill, backed by the White House and sponsored by Senate Foreign Relations Committee Chairman Sen. Bob Menendez (D., N.J.) would direct the administration to review its waiver of sanctions against Nord Stream 2’s parent company “in light of the Kremlin’s military buildup and aggression towards Ukraine.”
- The State Department waived sanctions in May on Nord Stream 2’s parent company and chief executive, as the U.S. tried to strengthen ties with its ally Germany. Still, the administration wants to secure assurances that Germany will block the pipeline’s use if Moscow invades Ukraine, said a U.S. congressional aide briefed on the discussions.
EUROPE & WORLD
China Finds Omicron in Another Port City, Further Threatening Supply Chains – Bloomberg, 1/13/2022
- China detected omicron in a second major port city, deepening concern that the vastly more infectious variant could spread quickly across the world’s largest trading nation, upending global supply chains.
- Chinese officials said Thursday that at least one person has omicron in Dalian, a city of seven million.
- A second person also tested positive for the virus, but the variant is unknown.
- Both are college students who returned home for the Chinese holiday season from the city of Tianjin, where at least 137 other cases were traced as of Wednesday.
- Dalian joins Tianjin as the second crucial port city with confirmed omicron cases.
- Their ports are among the twenty largest in the world — processing a combined total of 25 million TEU in 2020 — and serve as major production hubs for foreign companies such as Airbus and Volkswagen.
Shipping Congestion Is Growing at World’s Biggest Port – Bloomberg, 1/13/2022
- Ships looking to avoid Covid-induced delays in China are making a beeline for Shanghai, causing growing congestion at the world’s biggest container port.
- Shipping firms are making the switch to avoid delays at nearby Ningbo, which suspended some trucking services near that port after an outbreak of Covid-19, according to freight forwarders and experts. Ships are also re-routing to Xiamen in the south, Bloomberg shipping data showed.
- In the country’s technology hub of Shenzhen in the south, testing of residents and truckers to contain an outbreak means a queue of ships has formed at the port.
- That’s caused the Shekou terminal to start restricting the acceptance of goods, meaning that from Friday full containers can only be trucked in three days before vessels are due to arrive, the terminal operator said Tuesday.
- Meanwhile, the northern Chinese city of Tianjin ordered workers to take a half-day break for Covid testing as officials try to contain the spread of the omicron variant.
- Trucking capacity is estimated to be half of normal levels, and drivers are required to be tested daily before entering the port, said Alex Hersham, CEO of digital freight-forwarder Zencargo.
- The influx of ships into Shanghai has delayed sailing schedules for container ships there by about a week, said freight forwarders. Those delays may then ripple outward to already backlogged gateways in U.S. and Europe, they said.
- Ships could start skipping Chinese ports soon due to a lack of options, according to Zencargo’s Hersham.
China Looks to Secure Supplies as Strains With U.S. and Its Allies Grow – Wall Street Journal, 1/13/22
- Beijing is trying to fortify the Chinese economy against a prolonged period of tension with the U.S. and other countries, stockpiling some essentials and planning on more domestic production as it accelerates efforts to make China less dependent on the world.
- China’s economic agencies, including the top planning authority, the National Development and Reform Commission, and the ministry overseeing agriculture, recently have singled out “security” as a priority for 2022, according to official releases.
- In particular, authorities are pledging to secure the supplies of everything from grains to energy and raw materials, as well as the processes involved in production and distribution of industrial parts and commodities.
- Having ramped up grain purchases in recent months, China has also detailed plans to set aside arable land to grow soybeans, a crop it had all but abandoned after its 2001 entry into the World Trade Organization.
- The security-oriented economic agenda marks a step-up on a strategy unveiled by President Xi Jinping in 2020 to give priority to domestic suppliers and consumers as the driver of China’s economy over foreign investment and exports—or as Beijing terms the government shift in emphasis, “dual circulation with internal circulation as the main body.”
- The inward pivot appears to have accelerated as China’s relations with much of the developed world have become more strained.
- A host of issues ranging from the Covid-19 pandemic to human rights and Beijing’s claim of sovereignty over Taiwan have pitted the U.S. and many of its allies including Australia, Canada and Japan against China, which has retaliated by restricting imports of some of their products.
- A ban on Australian coal, in particular, worsened a power crunch in many parts of China last year.
Energy Dependence Ties Europe’s Hands in U.S.-Russia Crisis – Wall Street Journal, 1/13/2022
- Europe’s growing dependence on Russian gas and oil is limiting the continent’s room to maneuver in the mounting U.S.-Russia crisis over security in the region and making it highly vulnerable in the event of an escalation.
- Such dependence means European governments aren’t willing to consider sanctions on Russian energy exports—the backbone of the Russian economy—as a possible deterrent against a potential invasion of Ukraine, according to a senior European official involved in discussions on how to respond to the crisis at the border.
- They also are nervous about Moscow retaliating by slashing gas exports to Europe, a concern that has grown more acute in recent days as energy prices have started shooting up again, the official said.
- Despite intense lobbying from the U.S., Germany has yet to say whether it would permanently block Nord Stream 2 if Russia invades its neighbor.
China Evergrande secures payment extension as more developers race to avert defaults – Reuters, 1/13/2022
- China Evergrande Group on Thursday secured a crucial approval from onshore bondholders to delay payments on one of its bonds, as other cash-strapped developers also scrambled to negotiate new terms with creditors to avoid defaults.
- Struggling with more than $300 billion in liabilities, sector giant Evergrande was seeking more time for bond coupon and redemption payments to avoid a technical default that would have complicated its politically sensitive restructuring.
- The deadline to vote on the six-month delay to payments of the 4.5 billion-yuan ($157 million), 6.98% January 2023 bond ended earlier on Thursday. The bond terms gave holders the right to sell it back early to the issuer on Jan. 8.
- In a statement late on Thursday, the developer’s main unit Hengda Real Estate Group said that it had reached an agreement with bondholders to delay payments.
- French writer Emile Zola published his “J’Accuse” letter, accusing the French of a cover-up in the Alfred Dreyfus treason case. (1898)
- Douglas Wilder of Virginia became the first elected African-American governor in the United States. (1990)
- Michael Jordan announced his second retirement from the NBA. He would “unretire” again in 2001. (1999)
- Joseph Darby, a U.S. soldier at Iraq’s Abu Ghraib prison, reported U.S. abuses of Iraqi prisoners to the Army’s Criminal Investigations Division.. (2004)