Daily Market Report | February 24, 2022
US FINANCIAL MARKET
Russian Attack on Ukraine Roils Markets – Wall Street Journal, 2/24/2022
- Investors pushed down stocks and lifted the prices of oil, gold and government bonds, after Russian missiles and airstrikes hit Ukraine’s capital, Kyiv, and more than a dozen other cities across the country.
- The Dow Jones Industrial Average fell about 630 points, or 1.9%, on course to close in correction territory.
- The S&P 500 dropped 1.3%; it reached correction territory earlier in the week.
- The Nasdaq Composite, which was recently off 0.8%, was earlier on pace to close in bear territory.
- The Cboe Volatility Index rose to the highest level in over 15 months.
- The Russian attack, which was swiftly condemned by President Biden, heightens the pressure on a global economy already reeling from snarled supply chains and some of the highest inflation in years, with Europe likely to bear the brunt of the economic impact. Investors are worried that a war between Russia and Ukraine could threaten returns on their investments.
- The pan-continental Stoxx Europe 600 fell about 3%. The MOEX benchmark for Russian stocks tumbled 35%, putting it on course for its biggest drop on record. Asian stock indexes also fell sharply.
- Ukraine’s foreign-exchange market suspended its operations under martial law measures, according to a statement from its central bank. The country’s stock exchange also said it was postponing activity.
- Brent crude oil, the global benchmark, topped $100 a barrel for the first time since 2014, with the front-month contract more recently rising 5.6% to $99.64. Prices for its U.S. equivalent, West Texas Intermediate, also jumped.
- Natural-gas futures in Europe surged 40% and benchmark prices for aluminum and nickel, two metals of which Russia is a major producer, rose to their highest levels in about a decade. Wheat and corn futures advanced to multiyear highs, since both Russia and Ukraine are major grain producers.
- Gold and U.S. Treasury bonds, which both typically rally in times of stress, rose in price. The most actively traded gold futures contract rose 1.7% to about $1,942.40 a troy ounce, the highest level in over a year.
- The yield on the benchmark 10-year U.S. Treasury note declined to 1.903% from 1.976% on Wednesday.
- European government bonds also rallied, with the equivalent German bund yield falling as low as 0.111%.
- Market expectations for a 0.5 percentage point increase at the Fed’s meeting next month, rather than a more standard 0.25 percentage point increase, declined Thursday.
- Market pricing showed the probability fell to 17% from 34% the day before, according to CME Group data.
- Hong Kong’s Hang Seng Index dropped over 3%. Japan’s Nikkei Stock Average closed at its lowest level since November 2020.
Booking Falls After Pace of Travel Revival Disappoints – Bloomberg, 2/24/2022
- Booking Holdings reported gross bookings in line with estimates, but room night reservations on the online travel company’s platforms fell far short of expectations during the holiday period as the omicron variant continued to disrupt global travel.
- The company’s gross bookings, which represent all travel services excluding cancellations, increased 160% to $19 billion, according to a statement Wednesday. Revenue more than doubled to $2.98 billion.
- Analysts, on average, projected gross bookings of $19 billion and sales of $2.88 billion, according to data compiled by Bloomberg.
- Room nights booked were 151 million in the period ended Dec. 31, compared with analysts’ estimates of 165.9 million.
- The company reported 191 million room nights booked in the fourth quarter of 2019.
- Profit, excluding certain costs, was $15.83 a share, compared with the analyst estimate of $13.50 a share.
EBay stock sinks after the company gives disappointing guidance – CNBC, 2/24/2022
- Shares of eBay slid as much as 11% in extended trading Wednesday after the online marketplace posted its fourth-quarter earnings and gave guidance for the first quarter that fell short of Wall Street’s expectations.
- Revenue was $2.61 billion, in line with Wall Street’s estimates.
- Annual active buyers declined 9% during the quarter to 147 million, well short of the 156 million active buyers forecast by analysts, according to FactSet. Annual active sellers also slid 8% to 17 million.
- Earnings per share of $1.05 exceeded the $0.99 cents expected.
- EBay predicted first-quarter revenue would come in between $2.43 billion and $2.48 billion, representing a decline of 7% to 5% year over year, while analysts had on average expected revenue of $2.61 billion, according to FactSet.
- The company said it expects $1.01 to $1.05 in adjusted earnings per share in the first quarter, which was below consensus estimates of $1.08 per share, according to FactSet.
Moderna Beats Profit Estimates, Fueled by Vaccine Sales – Wall Street Journal, 2/24/2022
- Moderna posted better-than-expected profits for the last three months of 2021 as the company’s vaccine for Covid-19 continued to power its year-over-year growth.
- In the latest quarter, Moderna’s revenue reached $7.21 billion, with nearly all of that coming from vaccine sales.
- The Cambridge, Mass., company said it distributed a total of 807 million shots last year.
- Moderna posted net income of $4.87 billion in the fourth quarter of 2021, or earnings of $11.29 a share.
- Wall Street analysts surveyed by FactSet had been forecasting sales of $6.8 billion and $9.96 a share in earnings.
- Looking ahead, Moderna said its advance-purchase agreements for 2022 total approximately $19 billion.
- Allbirds shares tumbled in after-hours trading Wednesday as the sneaker retailer revealed mounting costs in the fourth quarter that weighed on profits and overshadowed double-digit revenue growth.
- Revenue grew 23% to $97.2 million from $79.3 million a year earlier, topping estimates for $91.8 million.
- In 2021, Allbirds said its digital business grew 16% from the year-earlier period and accounted for over 80% of total revenue.
- Its physical retail business, meantime, more than doubled, as the company continued to open new stores. It operates 37 locations globally, to date.
- For 2022, Allbirds said it sees revenue ranging between $355 million and $365 million. Analysts were looking for $353 million.
- Adjusted losses, before interest, taxes, depreciation and amortization, are forecast in a range of $9 million to $13 million, including an estimated $8 million of public company costs.
- First-quarter sales are seen ranging between $60 million and $62 million, short of the $63.7 million in revenue predicted by analysts on average.
Nikola Projects Delivering 300 to 500 Electric Trucks This Year – Bloomberg, 2/24/2022
- Nikola said it will start full-scale output of battery-electric trucks next month and deliver between 300 and 500 of the big rigs to customers this year. Its shares rose despite a slump in the broader market.
- Thursday’s announcement that it is moving beyond production of prototypes indicates a touch of progress as Nikola attempts to recover from supply-chain woes that have affected the launch of its products.
- It also faces a credibility crisis after founder Trevor Milton was indicted and accused of lying to investors about the company.
- Nikola on Thursday reported an adjusted loss of 23 cents a share for the fourth quarter, narrower than the 32-cent loss projected by analysts surveyed by Bloomberg.
- The company has yet to generate revenue.
Discovery edges past quarterly revenue estimates on live sports, ad rebound – Reuters, 2/24/2022
- Discovery beat Wall Street’s revenue expectations for its fourth-quarter, buoyed by live sports and higher advertising revenue, as it moves closer to completing its acquisition of AT&T’s WarnerMedia unit.
- Revenue rose 10% to $3.19 billion for the quarter ending in December, slightly above Wall Street’s consensus estimate of $3.12 billion, according to Refinitiv.
- Total paid streaming subscribers including those from Discovery+ reached 22 million at the end of December, up from 20 million in the third quarter, the company said.
- Advertising revenue continued to recover from the pandemic pullback, up 10% internationally from the same time a year earlier. Domestic distribution revenue was also up from a year ago.
- Net income fell to $38 million, or 8 cents a share, from $271 million, or 42 cents per share, a year earlier.
Oil Prices Surge Above $100 a Barrel After Russia Invades Ukraine – Wall Street Journal, 2/24/2022
- A global oil benchmark surged above $100 a barrel for the first time since 2014, and prices for natural gas, metals and grains, key feedstocks for the global economy, vaulted higher after Russia’s invasion of Ukraine threatened to disrupt resource exports from the region.
- The most-widely held futures for Brent crude, which call for delivery of oil in May, jumped 7% to $101.64 a barrel. Natural-gas prices in Europe, which depends on Russia for supplies of oil and gas, leapt by 40%.
- Rising energy prices stand to prolong the inflationary pressures that are pushing the Federal Reserve and other central banks to raise interest rates and wind down easy monetary policies.
- In particular, rising global crude markets have boosted gasoline prices in the U.S., contributing to inflation running there at its fastest pace in 40 years. On average, regular gasoline cost about $3.54 a gallon Thursday, according to AAA, up from $2.66 a gallon a year ago.
- Companies operating in Russia and Ukraine began putting into place contingency plans, as they confronted a host of challenges and sliding share prices following Moscow’s attack.
- Executives began closing offices and factories Thursday, ensuring staff were safe and sending some to the Polish border, while weighing factors likely to hit their businesses, including soaring commodities prices and the potential impact of further sanctions on Russia.
- Carlsberg, the Danish brewer, said it was closing down three breweries in Ukraine and asked employees to stay at home and await instructions from local authorities. One of its breweries, in the city of Lviv, was temporarily closed because of disruption in the supply of natural gas.
- ArcelorMittal, the world’s second-largest steelmaker, said it was slowing production at its large plant in Ukraine and has halted production at its underground mines. The company has a series of contingency plans should the situation escalate.
- Germany’s Hamburger Hafen und Logistik AG , which runs a large container terminal at Ukraine’s Odessa port, said that Ukrainian authorities closed the port Thursday morning, and that its 480 employees had left the site.
- Shares of companies with operations in Ukraine and Russia traded lower Thursday, with ArcelorMittal down more than 7%, Carlsberg around 3% lower and Danone off almost 3%.
Stagflationary Shock May Be Next for Plunging Stock Markets – Bloomberg, 2/24/2022
- For equity markets, rising inflation was already a big concern.
- Russia’s attack on Ukraine means those worries just got a whole lot bigger.
- Vladimir Putin’s move to invade his neighbor led to a surge in the price of everything from oil and food to natural gas and aluminum, spikes that could choke economic activity and exacerbate a market rout.
- The European Union and the U.S. are poised to announce Thursday new packages of sanctions that will curb trade between the West and one of the world’s largest commodity exporters.
- With interest rates at rock bottom, and asset purchases maxed out, central banks have little room for maneuver right now.
- Extending or strengthening stimulus measures may exacerbate price pressures, while stepping on the brakes may sharpen the slowdown, while doing little to address the roots of the inflationary spike.
Crude Oil Traders Pause Buying From Russia Amid Ukraine Crisis – Bloomberg, 2/24/2022
- Some oil traders are pausing purchases of Russia’s crude while they wait to see how the West responds to the nation’s invasion of Ukraine.
- Five crude traders and refinery officials said that there’s currently a hiatus in buying of Russian barrels.
- The pause mirrors what’s happening in the oil-tanker market, where owners are also avoiding offering their ships to transport the nation’s crude.
- The situation has seen traders rushing to secure supplies from elsewhere in the world, according to Frontline, one of the world’s largest owners of supertankers.
Aluminum Jumps to Record as Russian Attack Boosts Supply Risks – Bloomberg, 2/24/2022
- Aluminum rallied to a record in London and nickel surged to the highest in more than a decade, pacing gains in industrial metals markets, as the deepening Ukraine crisis added to supply risks in an industry already facing critical shortages.
- U.S. President Joe Biden warned that Russia faces “severe sanctions” after his counterpart Vladimir Putin ordered a military attack on Ukraine. That raises the possibility of measures that could affect Russian supplies of aluminum, as well as other commodities.
- The gains will heap fresh inflationary pressure on buyers who use aluminum in everything from cables to drinks cans, and the threat of disruption will be particularly troubling for manufacturers in Europe who buy large volumes of specialist products using it that come from Russia.
- There’s also mounting concern about supply from western producers, who face even more extreme spikes in gas and power prices.
- Three-month aluminum jumped as much as 5.7% to $3,480 a ton on the London Metal Exchange, surpassing a previous record set in 2008.
- Nickel surged to the highest since 2011, while copper slipped as the military action sparked a selloff in risk assets across financial markets.
US ECONOMY & POLITICS
Russia Attacks Ukraine, Drawing Broad Condemnation – Wall Street Journal, 2/24/2022
- Russian armored columns pushed into Ukraine and airstrikes hit the country’s capital and dozens of other cities early Thursday after President Vladimir Putin ordered an offensive that he said was aimed at toppling the government in Kyiv and demilitarizing the country.
- Ukrainian officials said Russia had attacked on a wide front along the country’s frontiers from Belarus to the north, Russia to the east and Russian-controlled Crimea in the south. Video posted by Ukrainian authorities showed tanks and armored personnel vehicles streaming through a border checkpoint.
- Russian tanks were deployed on the outskirts of Kharkiv, Ukraine’s second-largest city, which is about 20 miles from the Russian border, witnesses said.
- Another offensive thrust was aimed at Kherson, a city on the Black Sea north of Crimea, Ukrainian officials said, adding that border guards and national-guard units had repelled an attempt by Russian armored units to cross from Belarus on the western side of the Dnipro River to the north of Kyiv.
- The European Union announced sanctions hitting Russia’s financial sector, freezing assets and banning the export of technology to the country.
- The president of the bloc’s executive arm, Ursula von der Leyen, said the sanctions would hit “strategic sectors of the Russian economy” and “weaken Russia’s base and its capacity to modernize.”
U.S. Jobless Claims Fall Amid Tight Labor Market – Wall Street Journal, 2/24/2022
- New applications for unemployment benefits edged lower last week, remaining near historically low levels, reflecting a tight labor market as Covid-19 cases continued to decline.
- Initial jobless claims, a proxy for layoffs, fell by 17,000 to a seasonally adjusted 232,000 for the week ended Feb. 19, down from the revised 249,000 the week before, the Labor Department said on Thursday. The four-week moving average, which smooths out volatility, also fell.
- Continuing claims, a proxy for the total number of people on unemployment rolls through regular state programs, declined by 112,000 to 1.5 million for the week ended Feb. 12—the lowest level since 1970.
- In a separate report Thursday, the Commerce Department said the U.S. economy grew at a 7% annual rate in the fourth quarter of 2021 from the prior quarter, up from its earlier estimate of a 6.9% pace.
- Gross domestic product rose 5.6% in all of 2021, when comparing the fourth quarter of 2020 to the same period a year earlier, up from its prior estimate of 5.5%, the department said.
U.S. New-Home Sales Decline for First Time in Three Months – Bloomberg, 2/24/2022
- Sales of new U.S. homes retreated in January after a flurry of purchases at the end of 2021, indicating a jump in mortgage rates may be starting to restrain demand.
- Purchases of new single-family homes decreased 4.5% to a 801,000 annualized pace following a revised 839,000 in December, government data showed Thursday. The median estimate in a Bloomberg survey of economists called for an 803,000 rate.
- The new-home sales report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home rose 13.4% from a year earlier to $423,300.
- There were 406,000 new homes for sale as of the end of January the most since 2008 — though about 26% of those houses were not yet started.
- At the current sales pace, it would take 6.1 months to exhaust the supply of new homes.
- That compares with 3.6 months a year ago.
Oil-Price Surge Threatens U.S. Growth – Wall Street Journal, 2/24/2022
- For a brief period in the 2010s, high oil prices meant good news for the U.S. economy. Now, they are once again a threat to growth.
- With prices topping $100 a barrel for the first time in nearly eight years, the commodity is set to squeeze American households, push up inflation, dent the economic recovery and create a new headache for the Federal Reserve as it moves to raise interest rates.
- Few economists say the U.S. is in danger of recession because of high oil prices.
- But many expect U.S. growth, which already appears to have lost momentum this year because of the Omicron variant of Covid-19, to slow further if prices continue to increase.
- Consumer spending represents about two-thirds of U.S. gross domestic product.
- Higher oil prices typically lead consumers to spend more on gasoline and home heating oil, money they would otherwise spend on other goods and services, sapping economic activity.
- American households devoted nearly 4% of their living costs to gasoline in December, according to the Labor Department’s consumer-price index.
- Consumers, for now, will likely be able to withstand the blow because they have more than $2 trillion in extra savings above what they would normally have from federal stimulus money and unemployment insurance, economists said.
- But $100 oil would likely complicate the Fed’s plans to withdraw its support from the economy. The central bank has said it plans to raise its benchmark interest rate at its March meeting and has penciled in additional increases later this year.
- Rising prices and snarled supply chains are poised to blunt the impact of the $1 trillion infrastructure law Congress passed with bipartisan support last year.
- How many roads, bridges, railways, fiber optic lines and other types of infrastructure the U.S. can build or fix under the law—a central accomplishment of President Biden’s that experts say is a generational investment—will largely hinge on the extent of increases in everything from the cost of diesel fuel to workers’ wages.
- Elevated costs for materials and labor are already pushing contractors to charge more for construction projects, government data show, increases that economists and industry officials say could reduce the number of infrastructure projects the new federal money can finance.
- State and local officials facing higher prices may give priority to easier, less ambitious projects, and some worry that a rush of government spending could exacerbate inflation in the industry.
Pay Hikes Fail to Lure Millennials Back to Work in Fed Study – Bloomberg, 2/24/2022
- U.S. employers struggling to fill jobs would be better off offering flexible work arrangements and other incentives to younger workers because pay increases aren’t enough to lure them back to the labor market, according to a study by the Federal Reserve Bank of Atlanta.
- Compared with baby boomers of the same age, millennials and Generation X workers are less responsive to wage changes, Atlanta Fed economist Julie Hotchkiss said in research posted Thursday on the Fed bank’s website.
- “These differences are not good news for employers trying to coax workers back into the labor market during a robust pandemic recovery,” the author wrote. “Employers will likely have to also resort to non-wage incentives to entice workers to fill their open jobs.”
- The paper, using 2019 data, compared the responsiveness to pay changes of the various generations when each was 20 to 40 years old. Millennials, defined as those born from 1981 to 1996, are currently roughly in that age bracket. Gen Xers, born from 1965 to 1980, are now in their 40s and 50s.
EUROPE & WORLD
Alibaba’s Quarterly Profit Declines, But Revenue Rises – Wall Street Journal, 2/24/2022
- Alibaba said its quarterly revenue grew about 10%, though profit fell as the Chinese e-commerce giant faced sluggish consumption in China and rising spending to counter local competition.
- The company posted quarterly revenue of $38.07 billion, below the $38.98 billion that analysts surveyed by FactSet were expecting.
- The company’s international commerce segment saw sales rise by about 18% from a year earlier, while the China commerce segment posted revenue growth of about 7%, which Alibaba attributed to slowing market conditions and competition.
- “Our global annual active consumers grew at a solid pace, reaching 1.28 billion on the strength of a quarterly net increase of 43 million,” Chairman and Chief Executive Officer Daniel Zhang said.
- The company’s China commerce businesses had about 882 million annual active consumers as of the end of the year, a quarterly increase of about 20 million, the company said.
- The percentage of new consumers in less developed parts of China is increasing, the company said.
- The company also said revenue from its cloud segment rose 20% to $3.07 billion.
- Alibaba posted a profit attributable to ordinary shareholders of $3.21 billion, down about 74% from a year earlier.
- The company said the drop is mostly due to a $3.95 billion impairment of goodwill the company took in relation to its digital media and entertainment segment.
Bud Brewer Buoyed as Drinkers Return to Bars, Order Pricier Beers – Wall Street Journal, 2/24/2022
- Budweiser brewer Anheuser-Busch InBev reported higher fourth-quarter sales, buoyed by drinkers returning to bars and reaching for pricier beers.
- On a reported basis, the company said fourth-quarter revenue rose to $14.2 billion from $12.77 billion a year earlier.
- The world’s largest beer company said Thursday that organic sales grew 12.1% in the last three months of 2021, aided by strong demand for products that it classes as premium and superpremium.
- Overall, AB InBev reported its fourth-quarter volumes up 3.6% on an organic basis, driven by particularly strong growth in the Asia Pacific region.
- In China, volumes grew by 8.5% helped by pricier brands and retailers stocking up ahead of Lunar New Year, which came earlier than in the prior year.
- Net profit fell to $1.96 billion from $2.27 billion a year earlier when AB InBev was boosted by tax credits in Brazil. Higher costs also hit the company’s bottom line.
- For 2022, AB InBev expects its earnings before interest, taxes, depreciation and amortization to grow between 4% and 8%, and its revenue to grow ahead of this driven by both volume and price.
- Russia’s stock market and currency took historic blows in the wake of the invasion of Ukraine, signs that the threat of Western sanctions is inflicting an immediate, though hard to assess, impact on the nation’s economy.
- In the hours after tanks rolled across the border and Russian planes struck targets inside Ukraine, Russia’s stock market lost nearly half of its value before a partial rebound that still left it down by a third.
- The ruble fell 9% against the dollar, its biggest drop since the March 2020 Covid-19 market panic.
- Lines formed at ATMs in Moscow and Sberbank, Russia’s largest bank by assets, tried to reassure customers that their funds were safe despite threats from the U.S. that the bank may be sanctioned next. Sberbank’s shares fell by nearly half.
- To stanch the pain, Russia’s central bank said it would tap its $600 billion-plus reserve chest to prop up the ruble and provide cheap financing for local banks. Regulators also banned short-selling on the stock market.
- Russia has spent the years since the 2014 annexation of Crimea to shore up its finances and reduce its reliance on Western markets. But its role as a major commodities exporter means its economy and finances are still heavily entwined with the West.
- A new round of sanctions on Russian banks could curb their ability to process transactions for energy companies that are the lifeblood of Russia’s economy.
Russian Invasion Scrambles Prospects for Global Economy – Wall Street Journal, 2/24/2022
- Russia’s invasion of Ukraine heaped fresh risks on a global economy struggling with soaring inflation, supply-chain snarls and a rocky recovery from the pandemic.
- The economic impact will depend on the scale of the fighting and the new sanctions that the U.S. and its allies have promised. Those penalties would come on top of the more limited sanctions the U.S., the U.K. and the European Union have already rolled out against Russia in response to the Ukraine crisis.
- Russia and Ukraine together make up a small slice of the world economy and represent only a minor destination of exports for Europe or the U.S. However, Russia is a major supplier of oil, natural gas and other commodities.
- It pumps about 10% of the world’s oil. In turn, the EU relies on Russia for nearly half of its natural gas imports and almost a quarter its oil imports.
- Meanwhile, Ukraine and Russia combined account for nearly 30% of global wheat exports, according to the U.S. Department of Agriculture.
- Wheat prices in the U.S. rose to their highest levels since July 2012 on Thursday.
- Russia and Ukraine are breadbaskets, exporting millions of tons of wheat to fragile economies in the Middle East including Egypt, Turkey and Lebanon.
Factmonster – TODAY in HISTORY
- The Supreme Court ruled in Marbury v. Madison that any act of Congress which conflicts with the Constitution is null and void. (1803)
- Andrew Johnson, 17th president of the United States, became the first president to have impeachment proceedings brought against him by the House of Representatives. (1868)
- Adolf Hitler outlined the basic points of the Nazi party at the Hofbrauhaus in Munich. (1920)
- The U.S. hockey team defeated Finland to win the gold medal at the Lake Placid Olympics. (1980)
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