US FINANCIAL MARKET
Stocks Waver as Investors Cut Risk – Wall Street Journal, 1/21/2022
- Stocks wavered Friday as investors grappled with the prospect of higher interest rates and disappointing results from popular consumer tech stocks.
- The S&P 500 and the Dow Jones Industrial Average pared some earlier losses. The S&P 500 fell 0.1%, while the Dow rose 0.2%. The Nasdaq Composite declined 0.4%.
- Investors’ increasing conviction that the Federal Reserve will have to raise interest rates several times this year to combat inflation has pressured stocks. Last week, Fed Chairman Jerome Powell called rapid inflation a “severe threat” to a full economic recovery, and data showed consumer prices soaring 7% on the year in December.
- This has hit growth stocks and put the Nasdaq in correction territory, as investors are dumping shares of unprofitable companies. Tensions between Russia and NATO are also weighing on market sentiment, investors said. The S&P 500 is on track for its worst weekly performance since Oct. 2020.
- Netflix shares plunged 23% after the company said it expected a slowdown in subscriber growth. Peloton rose 4.5%, recouping some losses after the stock tumbled nearly 24% Thursday on reports that the connected-fitness company was halting production. Its chief executive refuted these claims.
- he yield on the 10-year Treasury inflation-protected security rose as high as minus 0.526% Friday, the highest level since June 2020, before easing slightly to minus 0.557%. The yield on the benchmark 10-year Treasury note edged down to 1.761% from 1.833% Thursday.
- Cryptocurrencies tumbled, with bitcoin losing 7.1% compared with its level at 5 p.m. ET Thursday, trading around $38,400. Ether fell 9.5%.
- Oil prices also declined. Global benchmark Brent crude fell 1%, trading at $87.48 a barrel, weighed down by a surprise increase in U.S. crude stockpiles, according to analysts at RBC Capital Markets.
- Shares in Asia-Pacific and Europe broadly retreated. The pan-continental Stoxx Europe 600 fell 2%, while China’s Shanghai Composite Index and Japan’s Nikkei 225 declined 0.9%.
London Bankers Return to Office; WHO on Boosters: Virus Update – Bloomberg, 1/21/2022
- Among omicron cases with known outcomes in Europe, just 0.06% of the patients diagnosed with the variant died, the European Centre for Disease Prevention and Control said on Friday. The ECDC said that 1.14% of the confirmed cases were hospitalized, and 0.16% required ICU support.
- A World Health Organization panel recommended the Pfizer Inc.-BioNTech SE vaccine for children aged 5 and older. The recommendation is for a reduced dosage, according to the Strategic Advisory Group of Experts on Immunization, which met on Wednesday.
- Separately, a panel is following the data emerging from a limited number of countries, especially Israel, on second boosters, but isn’t endorsing them due to lack of evidence.
- China’s capital reported a growing Covid-19 cluster linked to imported frozen food and international mail, putting greater pressure on authorities to contain the spread two weeks before the start of the Winter Olympic Games.
- Meanwhile, about 1.5% of athletes and others entering Beijing for the Winter Olympics are testing positive for Covid, with all of the infections caught within five days of arrival, the International Olympics Committee’s Covid-19 support team said.
- Hong Kong is locking down about 2,700 residents for five days, the first time it’s closed off an apartment building for more than 48 hours, in the hope of containing a superspreader event that has already led to at least 16 people testing positive for Covid.
- Local cases, while comparatively low, are hitting levels not seen in nearly a year. There are several undetectable chains of transmission and the city’s top virus expert warned one set of infections — tied to hamsters — may contain a novel mutation, justifying an urgent containment effort that includes the culling of thousands of pets.
- The Biden administration is monitoring real-time data obtained from businesses operating in China to determine whether outbreaks of the omicron variant of coronavirus pose a risk to U.S. supply chains, an administration official said.
- It’s too early to tell whether there will be any impact on the American economy from the variant’s spread in China or from aggressive efforts by officials there to stamp it out, the official said.
- Ireland is set to drop most pandemic restrictions, state broadcaster RTE reported. Government medical advisers proposed removing most curbs, including early closing times for bars and restaurants as well as the need for proof of vaccination to enter some businesses. Workers are likely to be allowed return to the office too.
- Japan’s government may expand a state of quasi-emergency to eight more prefectures, covering 24 of the country’s 47 regions in total, the Yomiuri newspaper reported without attribution. The expansion would include Osaka and its vicinity.
Prior Covid-19 Infection Offered Better Protection Than Vaccination During Delta Wave – Wall Street Journal, 1/21/2022
- Surviving a previous infection provided better protection than vaccination against Covid-19 during the Delta wave, federal health authorities said, citing research showing that both the shots and recovery from the virus provided significant defense.
- The data on testing, cases and immunization was collected between May and November, as the Delta variant emerged and became dominant in the U.S., before the more-infectious Omicron variant began to spread widely. The hospitalization data came from more than 50,000 people in just California.
- The CDC also said the timing of the research coincided with many people likely experiencing waning vaccine-induced immunity and occurred before the wider rollout of Covid-19 booster shots.
- Dr. Silk said the research also didn’t apply to the current Omicron wave. “It would be like comparing apples and oranges,” he said.
Netflix Shares Sink as Company Sees Subscriber Growth Slowing – Wall Street Journal, 1/21/2022
- Netflix said it expects to add a much smaller number of subscribers this quarter than it did a year ago as it adjusts to growing competition and lasting disruptions from the coronavirus pandemic, sending the video streamer’s shares down sharply.
- Netflix’s revenue rose 16% to $7.71 billion in the quarter, in line with analysts’ projections.
- It also slightly missed its subscriber estimate for the fourth quarter, adding 8.3 million subscribers instead of the projected 8.5 million.
- A large chunk of the new subscribers were in Europe, the Middle East and Africa, which added 3.5 million subscribers. In the U.S. and Canada, Netflix added 1.2 million, up slightly from the same period a year ago.
- The operating margin for the quarter was 8.2%, down from 14.4% a year earlier—a drop the company attributed to its expensive programming lineup for the previous three months.
- The company’s quarterly earnings were $607.4 million, or $1.33 a share, compared with a profit of $542.2 million, or $1.19 a share, a year earlier. Analysts were targeting 83 cents a share.
- The company on Thursday forecast an increase of 2.5 million subscribers in the current quarter, compared with four million a year earlier.
- Mr. Hastings attributed some of that challenge to Netflix’s lack of live news and sports. He said if the company can land 80% of the U.S. pay-TV market, “that’s a good accomplishment.”
Intel to Invest at Least $20 Billion in Ohio Chip-Making Facility – Wall Street Journal, 1/21/2022
- Intel said it plans to invest at least $20 billion in new chip-making capacity in Ohio, bolstering the company’s semiconductor-production ambitions as greater demand for digital products and a global chip shortage have amplified the need for more manufacturing.
- Intel said Friday it would invest in two new chip factories just outside Columbus, Ohio, to add to Intel’s effort to expand its chip-making business. The company has made more than $100 billion in investment pledges over the past year.
- Intel will make some of its most cutting-edge processors at the new site, Mr. Gelsinger said in an interview.
- Planning for the first two factories will start immediately, with construction expected to begin late in 2022, he said, and production is expected to come online in 2025.
Peloton Warns Staff of Layoffs, Changes to Production – Wall Street Journal, 1/21/2022
- Peloton Interactive’s chief executive officer said the company is reviewing the size of its workforce and resetting production levels as the company adapts to more seasonal demand for its exercise equipment.
- A note from CEO John Foley was sent to Peloton employees Thursday following a news report that Peloton was temporarily halting production of its connected-fitness products. The report caused shares of the company to sink 24%.
- CNBC reported that the company would pause Bike production in February and March and pause production of its Bike+ until June, citing internal documents.
- Peloton won’t manufacture its Tread treadmill machine for six weeks, beginning next month, CNBC reported.
- Late Thursday the company reported preliminary second-quarter revenue of $1.14 billion, which was within the company’s guidance.
- The company also said it had 2.77 million connected-fitness subscribers, slightly below its guided range.
- Peloton reported an adjusted loss before interest, taxes, depreciation and amortization of between $260 million and $270 million, which was a smaller adjusted loss than it had been expecting.
Rate Hikes Are Likely to Help Regional Banks More Than Wall Street Giants – Bloomberg, 1/21/2022
- Bank executives spent earnings season predicting the Federal Reserve will raise interest rates to combat rising inflation. Those hikes are set to benefit regional lenders more than their Wall Street counterparts.
- Financial firms are including about three central-bank increases into their guidance for the year, with Charlotte, North Carolina-based Truist Financial seeing the possibility for as many of four.
- Traditional lending accounts for a greater share of revenue at regional banks than at the Wall Street giants.
- The outlook isn’t without potential pitfalls. For one thing, liquidity in the system and strong overall credit quality have allowed banks to release reserves they’d set aside for a surge in loan defaults that never ended up emerging during the pandemic — a cushion lenders may not be able to depend upon for much longer.
- Bank executives said they now expect credit quality to revert to a more typical level in coming months.
Schlumberger’s profit jumps as higher oil prices spur drilling demand – Reuters, 1/21/2022
- Schlumberger, the world’s largest oilfield services company, reported a rise in fourth-quarter profit on Friday that beat expectations, as higher crude and natural gas prices drove up demand for its services and equipment.
- Fourth-quarter revenue of $6.23 billion also topped analysts’ forecast of $6.09 billion.
- In North America, strong offshore and land drilling activity and an uptick in exploration data licensing for the U.S. Gulf of Mexico and Permian Basin drove a 13% sequential jump in revenue.
- Schlumberger’s fourth-quarter adjusted net income rose to $587 million, or 41 cents per share, above Wall Street estimates of 39 cents per share, according to Refinitiv IBES. The company beat last year’s fourth-quarter earnings of $309 million, or 22 cents per share.
Strike at Kroger’s King Soopers ends after deal with union – Reuters, 1/21/2022
- More than 8,000 workers at nearly 80 Kroger-owned King Soopers stores called off their strike on Friday after reaching a tentative deal with the U.S. retail giant, the United Food and Commercial Workers Local 7 union said.
- The details of the contract would be made public to the union members after a voting by workers beginning Monday, the union said.
- The workers went on a strike on Jan. 12 after rejecting at least two offers from the grocery chain. The union had rejected a $170 million offer made last week by Kroger, which termed it as the “last, best and final offer”.
- The offer proposed wage increases of up to $4.50 per hour depending on job classification and tenure, with the starting rate of pay increased to $16 per hour. The union, however, sought raises of at least $6 per hour for everyone.
IBM Sells Watson Health Assets to Investment Firm – Wall Street Journal, 1/21/2022
- International Business Machines has agreed to sell the data and analytics assets from its Watson Health business to investment firm Francisco Partners, the companies said Friday.
- IBM said that the deal wouldn’t weaken its commitments to other artificial-intelligence technology and to healthcare clients that use its IT services. Terms of the sale weren’t disclosed.
- The Watson Health business uses artificial intelligence to analyze diagnostic tests and other health data and to manage care.
The SPAC Ship is Sinking. Investors Want Their Money Back. – Wall Street Journal, 1/21/2022
- Shares of half of the companies that finished SPAC deals in the last two years are down 40% or more from the $10 price where SPACs typically begin trading, erasing tens of billions of dollars in startup market value.
- Losses top 60% from the peak about a year ago for many once-hot names like the sports-betting company DraftKings and space-tourism firm Virgin Galactic Holdings, founded by British billionaire Richard Branson.
- A number of companies are now withdrawing from previously announced SPAC deals, even though they sometimes have to pay millions of dollars to the SPAC for backing out.
- Savings and investing app Acorns Grow was the latest to do so, ending its roughly $2.2 billion SPAC agreement on Tuesday and becoming the 10th company to terminate a SPAC deal since early November, according to Dealogic.
- There were 13 SPAC-deal terminations in the first 10 months of last year.
Hong Kong Allows Airlines to Restart Boeing 737 Max Operations – Bloomberg, 1/21/2022
- Hong Kong’s aviation regulator lifted its ban on the Boeing 737 Max, allowing airlines to resume flights almost three years after the jet was grounded.
- Operators that intend to fly the Max in Hong Kong airspace and to Hong Kong International Airport will need to comply with either a U.S. Federal Aviation Administration airworthiness directive from late 2020 or make equivalent design changes, the Director General of Civil Aviation said in circular dated Jan. 21.
- The lifted ban allows airlines in the region to bring Boeing’s workhorse narrow-body plane back to their schedules after a pair of deadly crashes prompted a worldwide grounding in early 2019.
- It could also pave the way for new orders for the aircraft, with Greater Bay Airlines, a new Hong Kong-based carrier with ties to Beijing, said to be considering an order for as many as 30 Max jets.
US ECONOMY & POLITICS
Fed Seen Signaling March Rate Rise and Assets Runoff Soon After – Bloomberg, 1/21/2022
- Federal Reserve officials will signal next week they’ll raise interest rates in March for the first time in more than three years and shrink their balance sheet soon after, economists surveyed by Bloomberg said.
- A majority of the 45 economists in the poll predicted the U.S. central bank will use its Jan. 25-26 policy meeting to telegraph a 25 basis-point increase in its benchmark rate, though two look for a surprise 50-basis-point hike — which would be the largest since 2000 — to combat surging price pressures.
- The economists, surveyed between Jan. 14-19, were about evenly split between expecting the Fed to hike three or four times in 2022 in response to a stronger U.S. labor market and the highest inflation in almost four decades.
U.S. leading economic indicator rises strongly in December – Reuters, 1/21/2022
- A gauge of future U.S. economic activity increased solidly in December, suggesting the expansion would continue despite challenges from the COVID-19 pandemic and anticipated interest rate increases from the Federal Reserve to tame high inflation.
- The Conference Board said on Friday its Leading Economic Index rose 0.8% last month after advancing 0.7% in November. Last month’s increase was in line with economists’ expectations.
- The Conference Board estimated that gross domestic product growth would slow to a 2.2% annualized rate in the first quarter. It is forecasting growth of 3.5% this year.
Democrats Start to Sketch Out Revived Build Back Better Package – Wall Street Journal, 1/21/2022
- Democrats began to revive their efforts to pass a major child-care, healthcare and climate package as lawmakers started to accept that they would have to further cater to Sen. Joe Manchin (D., W.Va.) in hopes of reaching a deal on a scaled-back plan.
- House Speaker Nancy Pelosi (D., Calif.) on Thursday said that Democrats wouldn’t seek to pass multiple pieces of legislation because of the procedural problems it could pose. But the party will likely have to further scale back its ambitions, she said.
- Mr. Biden, White House aides and Democrats on Capitol Hill have started to identify priorities for a revamped package: roughly $500 billion in incentives for reducing carbon emissions, which Mr. Manchin has said he supports, as well as measures aimed at lowering healthcare costs and expanded child care programs.
- The healthcare provisions would likely include extending subsidies for insurance premiums and empowering the government to negotiate the price of some prescription drugs, according to lawmakers and aides. Democrats also see a universal prekindergarten program, along with subsidies for child-care costs, as part of a resurrected effort.
- Such a package could leave out programs from the House-passed version of the plan, including funding for housing and expanding Medicare to cover hearing.
- Democrats have already abandoned a host of proposals, including creating a 12-week paid-leave program and offering free community college, as they tried to tailor the bill to centrist demands.
White House, Democrats Revive Effort to Boost High-Tech Research – Wall Street Journal, 1/21/2022
- A $250 billion spending initiative to boost U.S. investment in high-tech research and manufacturing has stalled in the House, despite lawmakers’ increasing concerns over global competitiveness.
- The Senate passed its version—dubbed the U.S. Innovation and Competition Act—last year with bipartisan supporters, saying the U.S. needs to make big investments in science and technology to meet the challenge posed by China and other global rivals.
- But in the House—which has completed only part of its package—many Democrats want the legislation to address broader societal goals, including economic inequality and climate change, potentially risking the loss of some Republican support.
- Some Republicans counter that view, saying the bill should be squarely focused on advancing U.S. technology, including promoting domestic semiconductor manufacturing, and not muddled by what Rep. Cathy McMorris Rodgers (R., Wash.) calls “duplicative government spending.”
- Another critic in the House, Rep. Jim Banks (R., Ind.), the Republican Study Committee chairman, said the Senate bill spearheaded by Senate Majority Leader Chuck Schumer (D., N.Y.) falls short in response to Chinese theft of intellectual property and other misdeeds.
States Are Swimming in Cash Thanks to Booming Tax Revenue and Federal Aid – Wall Street Journal, 1/21/2022
- Numerous states are proposing tax rebates and bonuses for public workers as the fiscal doldrums of early 2021 give way to fat times fueled by booming markets, growing incomes and federal aid.
- State revenues between April and November increased 24% from 2020 to 2021, according to a survey conducted by the Urban Institute think tank.
- Thirty-two states said revenue collections for fiscal years ending in 2022 were ahead of projections, according to the National Association of State Budget Officers, including South Carolina, Minnesota and Washington.
- Along with the tax rebates and bonuses, states are paying down debts and pension obligations and investing in short-term infrastructure projects. In addition, states’ reserve funds have reached a record level of nearly $113 billion for the 2021 fiscal year, the budget officers’ association said.
- Last week, California Gov. Gavin Newsom unveiled a $286.4 billion budget plan. That spending is buoyed by an estimated $45.7 billion surplus in the current and next fiscal year, more than $20 billion of which can be used for discretionary spending. Much of that is due to higher-than-expected tax revenue from the state’s highest-income residents, who are making more money on stocks and investments.
- In Florida, Republican Gov. Ron DeSantis last month proposed a $100 billion budget that includes a gas-tax holiday totaling $1 billion and $238 million for one-time, $1,000 retention payments for teachers and principals.
- Maryland Gov. Larry Hogan, a Republican, on Wednesday proposed a budget that would add $2.4 billion to the state’s rainy-day fund and also begin phasing out income taxes for senior citizens.
- Gov. Kathy Hochul proposed a $216.3 billion budget Tuesday that includes $2.2 billion for one-time property-tax relief checks and $1.2 billion for bonuses of as much as $3,000 for healthcare workers.
Yellen Still Hopes U.S. Inflation Gets Back to 2% by Year-end – Bloomberg, 1/21/2022
- U.S. Treasury Secretary Janet Yellen said she continues to forecast inflation falling close to 2% by the end of 2022.
- “I expect inflation throughout much of the year — 12-month changes — to remain above 2%,” Yellen said Thursday in an interview with CNBC television. “But if we’re successful in controlling the pandemic I expect inflation to diminish over the course of the year and hopefully to revert to normal levels by the end of the year, around 2%.”
- Yellen said inflation is a “shared responsibility” between the administration and the Fed, and expressed confidence the central bank was moving appropriately.
EUROPE & WORLD
Beijing Faces Growing Covid Outbreak Before Olympics – Bloomberg, 1/21/2022
- China’s capital reported a growing Covid-19 cluster linked to imported frozen food and international mail, putting greater pressure on authorities to contain the spread two weeks before the start of the Winter Olympic Games.
- Beijing reported 12 Covid infections on Friday, bringing the total to nearly two dozen since last Saturday. While the number is negligible compared with the rampant infections seen elsewhere in the world, any tiny flareup is met with aggressive containment efforts in the highly guarded city.
- The outbreak comes just before the official start of the Olympics on Feb. 4th. The city is emerging as the latest virus hotspot in the country after health authorities scrambled to contain omicron’s first domestic spread in Tianjin, a coastal city near Beijing and locked down Xi’an, a western Chinese city of 13 million, in the wake of a delta flareup.
UK shoppers slash December spending after earlier Xmas spree, Omicron – Reuters, 1/21/2022
- British retail sales slumped in December after consumers did much of their Christmas shopping earlier than usual in November and many people stayed at home due to the spread of the Omicron coronavirus variant.
- Economists said the scale of the hit bolstered their expectations that the world’s fifth-biggest economy shrank last month under the strain of Omicron and new government restrictions to slow its spread.
- Sales volumes fell by 3.7% from November, a far bigger hit than the 0.6% decline forecast in a Reuters poll of economists and the biggest fall since January of last year when the country was under a coronavirus lockdown.
- Compared with December 2020, sales volumes were down by 0.9%, the Office for National Statistics (ONS) said on Friday.
- A survey published earlier on Friday showed consumer confidence fell in January to its lowest since February 2021 when the country was under lockdown.
Reliance Profit Tops All Estimates on Retail Surge, Shale Sale – Bloomberg, 1/21/2022
- Reliance Industries, India’s biggest company by market value, posted a better-than-expected quarterly profit, on the back of a one-off gain from the sale of its U.S. shale business and as festive season demand at home boosted its consumer-facing businesses.
- Revenue rose 54% to 1.91 trillion rupees compared to the same period last year, beating consensus. Total costs jumped 53% to 1.73 trillion rupees.
- Net income at the oil-to-retail conglomerate, led by Asia’s richest person Mukesh Ambani, rose 42% to 185.5 billion rupees ($2.5 billion) in the three months ended Dec. 31, according to an exchange filing Friday.
- That compares with the average 152.6 billion rupee profit estimated by a Bloomberg survey of analysts. It recorded an exceptional gain of 28.4 billion rupees.
U.S., Russia Agree to Keep Negotiating to Defuse Ukraine Crisis – Wall Street Journal, 1/21/2022
- Secretary of State Antony Blinken said the U.S. would formally address the Kremlin’s claims that Western powers threaten Russian security, as both sides agreed to continue talks on how to avert a possible Russian invasion of Ukraine.
- Russia has massed about 100,000 troops near Ukraine in response to what it says are threats to its security from the North Atlantic Treaty Organization and Western powers. The move has created one of the worst crises between Russia and the West since the Cold War, with many fearing Russia will invade its smaller neighbor.
- The Kremlin has blamed NATO for endangering its security and requested a written response to its demands that the alliance stop accepting new members and reduce its force posture in Eastern Europe.
- While U.S. and Western officials have rejected those demands, Mr. Blinken agreed to respond in detail to Russia’s concerns and provide written proposals for reciprocal moves to improve security in the region.
Canadian provincial leader wants to pause truckers’ COVID vaccine mandate – Reuters, 1/21/2022
- The premier of Canada’s Alberta province on Thursday called on the federal government to pause a COVID-19 vaccine mandate for cross-border truckers that companies say will disrupt the supply chain and fuel inflation.
- The mandate, imposed by Ottawa to help curb the spread of the coronavirus, has cost Canadian trucking companies about 10% of their international drivers, six top executives said this week. They said they are hiking wages to lure new operators during the worst labor shortage they have experienced.
- As many as 32,000, or 20%, of the 160,000 Canadian and American cross-border truck drivers may be taken off the roads by the mandate, the Canadian Trucking Alliance (CTA) estimates. The industry was short some 18,000 drivers even before the mandate, CTA said.
- King Louis XVI was guillotined for treason. (1793)
- George Orwell died in London. (1950)
- President Carter pardoned most Vietnam War draft evaders. (1977)
- In a 5-4 decision, the U.S. Supreme Court rules in Citizens United v. Federal Election Commission that the government cannot restrict the spending of corporations for political campaigns, maintaining that it’s their First Amendment right to support candidates as they choose. (2010)