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Daily Market Report | February 14, 2022

US FINANCIAL MARKET

Dow, S&P 500 Fall, Bond Yields Tick Up on Fear of Ukraine War – Wall Street Journal, 2/14/2022

  • The Dow Jones Industrial Average and S&P 500 fell on Monday as investors assessed the possibility of war between Russia and Ukraine.
  • The Dow fell 342 points, or about 1%, in morning trading. The S&P dropped 0.6%.
  • The technology-heavy Nasdaq Composite ticked up 0.3%.
  • European markets were hard hit by the threat of a possible ground war in Ukraine.
  • The pan-continental Stoxx Europe 600 was recently down 1.9%, led lower by banks and travel and leisure companies.
  • The index pared losses after Russian Foreign Minister Sergei Lavrov, speaking in a meeting with Russian President Vladimir Putin, suggested Moscow should continue talks with the U.S. and its allies.
  • After initially falling as investors reached for the safety of U.S. Treasurys, yields bounced back on Mr. Lavrov’s comments.
  • The yield on 10-year Treasury notes was recently 2.007%, up from 1.951% Friday. Bond yields and prices move in opposite
  • Oil prices held steady on Monday, after jumping on concern a war would curtail supplies of Russian crude amid a lack significant spare supplies. Futures on Brent, the benchmark in energy markets, slipped less than 0.1% to $94.47 a barrel, holding near its highest level since 2014.
  • Prices for natural gas, of which Russia is the single biggest exporter globally, rose on both sides of the Atlantic.
  • In the U.S., benchmark gas prices jumped 4.8% to $4.13 per million British thermal units.
  • Prices in Europe, which depends on Russia for much of its gas—a chunk of it flowing through Ukraine—climbed 3.4%.
  • St. Louis Fed President James Bullard told CNBC on Monday that the Fed should “front-load” its planned rate increases to combat higher-than-expected inflation, warning that the central bank’s credibility was on the line.
  • Among individual U.S. stocks, Splunk rose 6.8% after The Wall Street Journal reported that Cisco Systems had made a takeover offer worth more than $20 billion for the software maker.
  • Shares of airlines were hammered in Europe after reports that several were avoiding Ukraine’s airspace. Budget carrier Wizz Air dropped 6.8%, British Airways owner International Consolidated Airlines Group lost 5.3% and Deutsche Lufthansa fell 3.8%.

3M Sees Falling Mask Demand Slowing Sales Growth – Wall Street Journal, 2/14/2022

  • The easing Covid-19 pandemic is expected to reduce demand for medical masks this year, 3M said Monday, a trend that America’s largest manufacturer of respirators projected will dent its earnings.
  • That trend, 3M forecast, will eat into its per-share profit by about 45 cents.
  • Overall, 3M is projecting per-share earnings between $10.15 and $10.65 in 2022, a range roughly in line with Wall Street analysts’ forecasts, according to FactSet.
  • After accounting for lower mask uptake, sales will grow by 2% to 5% organically this year, the company estimated.
  • Last year, 3M recorded $1.5 billion in sales from N95 masks and other masks, after notching $1.4 billion from such sales in 2020. In 2019, before the pandemic struck, 3M’s mask sales were $600 million.

People Are Going Out Again, but Not to the Office – Wall Street Journal, 2/14/2022

  • Americans are dining again in restaurants, attending sporting events, and flying throughout the country. But most are still steering clear of their office building, a sign that more than health concerns are keeping workers away.
  • Thousands of companies that closed their offices in March 2020 have yet to announce return plans. An average of 33% of the workforce returned to the office during the first week of February in the 10 major cities monitored by Kastle Systems, which records building-access-card swipes.
  • The number has been slowly rising from 23% during the first week in January, when even companies that had brought back workers were sending them home because of renewed health risks.
  • But the latest return rate is still well off the high of 41% in the first week of December, before the full force of the Omicron variant hit. That is true even in cities like New York, where the infection rate is closing in on the level it was at before Omicron.
  • Meanwhile, the return rate to movie theaters in the first week of February was 58% of what it was before the pandemic, according to a Kastle analysis of industry statistics.
  • Restaurants were nearly three-quarters as full as they were before Covid-19, and air travel had recovered to about 80%.
  • Attendance at National Basketball Association games was 93% of what it was in February 2020, Kastle said.

Australia’s Crown Resorts Agrees to $6.3 Billion Blackstone Takeover – Wall Street Journal, 2/14/2022

  • Crown Resorts, one of Australia’s biggest casino operators, said Monday that it agreed to a $6.3 billion takeover by Blackstone, following a roughly yearlong effort by the U.S. private-equity giant to acquire the company.
  • Blackstone will pay 13.10 Australian dollars (US$9.35) a share in cash for Crown, which runs casinos in Melbourne and Perth and is preparing to open a new casino on the waterfront in Sydney. Shareholders are expected to vote on the Blackstone deal in the second quarter of this year. Regulators will also need to approve the deal.
  • Crown said the Blackstone deal offers shareholders certainty at a time when the company’s business practices are being investigated by regulators, which could strip Crown of its licenses to operate its casinos. One probe by regulators in Western Australia state, which includes Perth, is scheduled to hand down its final report next month.

Lockheed Martin Scraps Aerojet Rocketdyne Deal – Wall Street Journal, 2/14/2022

  • Lockheed Martin on Sunday said it had scrapped plans to buy Aerojet Rocketdyne Holdings after federal antitrust overseers last month sued to block the proposed $4.4 billion deal.
  • Lockheed Martin, the world’s largest defense company by sales, had hoped to add Aerojet’s expertise in building rocket motors for its own missile and space systems.
  • The proposed deal drew fire from the Federal Trade Commission and rivals that said they believed the combination could hinder competition.
  • El Segundo, Calif.-based Aerojet is the only large, independent U.S. producer of engines for rockets and missiles.
  • The FTC alleged that allowing Lockheed to buy Aerojet would give the defense giant the ability to deny other defense contractors access to critical components needed to build competing missiles and space systems.

Ford suspends or cuts output at plants due to chip shortage – Reuters, 2/14/2022

  • Ford Motor said on Monday it will continue idling some of its assembly plants in the week of Feb. 14 due to the global semiconductor shortage.
  • The U.S. automaker will idle production at its Ohio Assembly Plant as well as the production line for the Transit van at its Kansas City Assembly Plant, spokeswoman Kelli Felker said in an email. It also will operate with reduced shifts at its Kentucky Truck, Chicago and Dearborn (Michigan) Truck assembly plants.
  • Last week, Ford suspended or cut production at eight plants in North America due to the shortage. Ford previously said the current quarter would be its low point for vehicle production due to the chip shortage.

AMD closes record chip industry deal with about $50-bln purchase of Xilinx – Reuters, 2/14/2022

  • Semiconductor designer Advanced Micro Devices Inc said on Monday it has finalized the purchase of Xilinx in a record chip industry deal valued at about $50 billion.
  • The closing of the deal comes on the heels of Nvidia abandoning its plans to buy SoftBank-owned Arm, citing regulatory hurdles.
  • The purchase of Xilinx helps AMD “capture a larger share of the approximately $135 billion market opportunity we see across cloud, edge and intelligent devices,” said AMD CEO Lisa Su in a statement.

Intel’s Mobileye to launch self-driving shuttles in U.S. in 2024 – Reuters, 2/14/2022

  • Intel’s Mobileye unit plans to build and deploy self-driving electric shuttles with its partners in the United States in 2024, in a bid to scale up its automated driving system beyond taxis and delivery vehicles, executives told Reuters.
  • Mobileye, Benteler EV Systems and Beep will launch the on-demand driverless shuttles, which will feature 12 to 14 seats and no steering wheel or pedal.
  • The vehicles will be operated in “contained geo-fenced areas” where speed limits are 35 miles an hour or less, Hinrich Woebcken, advisory board member for Beep, a mobility service provider, said.

Dry Weather in West Africa Pushes Up Cocoa Futures – Wall Street Journal, 2/14/2022

  • Dry weather in West Africa has lifted cocoa futures, with supply concerns boosting a commodity that saw prices fall in 2021.
  • November to March is the dry season in the Ivory Coast, by far the world’s largest exporter of cocoa beans.
  • But it has been particularly dry in recent weeks, according to analysts and traders, which has investors betting on a diminished crop and sustained price rises ahead.
  • Most-actively traded cocoa futures have risen about 12% this year—and 11% in February alone—to $2,811 a metric ton, on pace for the highest monthly level since April 2018.
  • That has added to the challenges facing chocolate makers and sellers, which have complained about rising labor and other costs.
  • Cocoa beans, which finished 2021 down 3.2% as supply levels remained steady, are one of several commodities to see prices climb recently.
  • Sugar, another key ingredient in chocolate, is near four-year highs, while soybeans are edging back toward highs registered last year. Arabica coffee is up 11% in 2022.

Americans Feeling the Pain as Pump Prices Hit Highest Since 2014 – Bloomberg, 2/14/2022

  • Rising energy prices mean Americans are paying more at the pump, which could ultimately curb consumer spending — creating risks for both the financial markets and the Federal Reserve.
  • National gasoline prices have ticked higher, once again, according to the American Automobile Association, reaching the highest since August 2014.
  • On a state-by-state basis, the highest prices are in California, where the regular grade costs $4.702 per gallon.
  • If crude hits $100 per barrel by the end of February, that would lift inflation by about half a percentage point in the U.S. and Europe in the second half of the year, according to Bloomberg Economics.

US ECONOMY & POLITICS

Fed’s Bullard Urges Front-Loading Hikes to Ensure Inflation Credibility – Bloomberg, 2/14/2022

  • Federal Reserve Bank of St. Louis President James Bullard said the U.S. central bank needs to move forward its plans to raise interest rates to underline the Fed’s inflation-fighting credibility.
  • “I do think we need to front-load more of our planned removal of accommodation than we would have previously,” Bullard, who votes on monetary policy this year, said in an interview on CNBC on Monday. “These are numbers Alan Greenspan never saw,” Bullard said, referring to the former Fed chairman. “Our credibility is on the line here and we do have to react to data.”
  • Bullard repeated his view that the Fed should raise interest rates by 100 basis points by July 1, and start shrinking its balance sheet in the second quarter, in response to the strongest inflation in 40 years.
  • The Federal Open Market Committee next meets March 15-16, and Bullard said he would defer to Chair Jerome Powell on whether the initial increase should be a quarter point or half point.

Central Bank Should Weigh Asset Sales to Curb Inflation, Says Fed Official – Wall Street Journal, 2/14/2022

  • A top Federal Reserve official said the central bank should consider selling bonds from its $9 trillion asset portfolio to address high inflation and guard against harmful effects that can result from raising short-term rates above long-term rates.
  • In an interview Friday, Kansas City Fed President Esther George said one drawback of expanding the Fed’s asset portfolio to stimulate the economy in downturns, a process sometimes called quantitative easing, is that officials may now face more complications in removing stimulus by using two policy tools—interest rates and the bond portfolio.
  • “There was an explicit recognition that introducing quantitative easing was going to complicate monetary policy,” she said. “So I don’t think we can avoid the complexity that has come with a decision to deploy this tool. At the same time, she added, “what you don’t want to do is oversteer here.”
  • “My guess is with a $9 trillion balance sheet pushing down on long-term rates, we’re going to have to face some considerations about how much downward pressure” is being placed on various maturities of Treasury securities, she said.
  • Actively selling mortgage securities could provide one way to reduce such stimulus, but it is something the Fed never did during an earlier effort, between 2017 and 2019, to shrink its holdings.

Record job-switching rates are pushing U.S. inflation higher, Chicago Fed study finds – Reuters, 2/14/2022

  • Record job-switching rates are pushing U.S. inflation higher, Chicago Fed study finds
  • An increase in the share of people who searched for jobs while they were employed helped boost inflation by about 1 percentage point throughout much of last year, according to a paper released on Monday by the Chicago Federal Reserve.
  • That suggests job-switching at times accounted for roughly 20% of the price growth seen in 2021.
  • Job switching took off last year as job postings soared and the number of people quitting reached record levels.
  • Nearly 4 million Americans on average quit their jobs each month last year – often in search of better pay or more flexibility.
  • If job-switching dies down as the pandemic recedes, that could help to ease inflationary pressures.
  • But if people continue to change jobs in search of better pay or new opportunities, those inflationary pressures could continue, researchers said.

Demand shock behind global bottlenecks should ease in months-WTO – Reuters, 2/14/2022

  • Global trade bottlenecks are more the result of demand spikes than supply chain snags, with pressure likely to ease in the coming months, the World Trade Organization’s chief economist said on Monday.
  • The WTO had thought in October that demand for goods would slow early in 2022. However, that was before the Omicron variant of coronavirus led to curbs on activity, including the postponement of the WTO’s ministerial meeting.
  • Chief economist Robert Koopman said consumers had then continued to skew spending towards goods rather than services given they could not or preferred not to dine out or go on holiday.
  • Koopman said that for goods trade, excess demand likely explained two-thirds to three-quarters of apparent shortages.

EUROPE & WORLD

Soaring Inflation Means Britons Face Biggest Fall in Real Incomes in 30 Years – Wall Street Journal, 2/14/2022

  • British households are facing the biggest fall in real incomes in 30 years as inflation gallops ahead of wage growth, a stark illustration of the challenge facing central banks as they try to tame prices without snuffing out recoveries from the pandemic.
  • The Bank of England forecasts that average incomes in Britain after accounting for wage growth, inflation, tax increases and benefit changes will fall by 2% this year—the steepest decline since comparable records began in 1990.
  • The pinch is expected to hold back the broader economy just when it needs all engines firing to propel itself clear of the slump caused by the pandemic.
  • The British economy expanded 7.5% for all of last year, according to data out Friday. However, by the end of 2021, growth had slowed considerably, with output falling by 0.2% in December compared with November, as the Omicron variant surged.
  • Meanwhile, annual inflation in the U.K. was 5.4% in December, and the BOE expects price growth to peak above 7% this spring, easily outstripping wage growth, which it expects to average 3.75% this year.

Chinese Developers’ Sales Tumble in January – Wall Street Journal, 2/14/2022

  • China’s property developers started 2022 with weak sales, as many real-estate companies struggled to rekindle interest from home buyers despite Beijing’s recent attempts to ease some restrictions on the troubled sector.
  • January contracted sales reports released in recent days by more than a dozen Chinese developers showed year-over-year declines ranging from about 10% to more than 80% for some companies.
  • In all, total contracted sales of the country’s 100 largest developers saw a year-over-year drop of nearly 40% in January, according to earlier data from Chinese data provider CRIC. The industry has registered yearly declines for seven straight months, going back to when property giant China Evergrande Group’s financial problems began to spook the market last summer.
  • Evergrande, which has defaulted on its dollar bonds, hasn’t released January figures, but its disclosures earlier this month showed its new home sales largely ground to a halt in the past few months of 2021.

Airbus upbeat on freighter sales, plays down supply chain fears – Reuters, 2/14/2022

  • Airbus voiced optimism on Monday about sales of a new A350 freighter after Boeing launched a competing cargo version of its future 777X jetliner and said it was doing everything possible to shore up fragile global supply chains.
  • Airbus launched the freighter version of its A350 wide-body jet last year to address rising air cargo demand and penetrate a profitable part of the jet market dominated by Boeing, which hit back with a 777X freighter launch order from Qatar Airways.
  • “Yes, you can expect to see more orders for the A350 freighter,” Chief Commercial Officer Christian Scherer said ahead of the Singapore Airshow which runs from Feb. 15-18, but declined to elaborate.
  • Airbus said it had firmed up previously tentative orders for 20 A220 small jets from leasing company Aviation Capital Group, a subsidiary of Tokyo Century Corp, and 28 A320neos from Kuwaiti carrier Jazeera Airways.

Factmonster – TODAY in HISTORY

  • Oregon became the 33rd state in the United States. (1859)
  • Arizona became the 48th state in the United States. (1912)
  • Members of Al Capone’s gang killed rival gang members in the St. Valentine’s Day massacre. (1929)
  • Iran’s Ayatollah Khomeini issued a fatwa, calling for the death of Salman Rushdie, author of The Satanic Verses. (1989)
  • The Kansas Board of Education reversed its 1999 ruling and restored evolution to the state’s science curriculum. (2001)

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