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Daily Market Report | February 28, 2022

US FINANCIAL MARKET

Stocks Fall, Oil Leaps as Ukraine Crisis Deepens – Wall Street Journal, 2/28/2022

  • U.S. stocks slid, oil prices jumped and Russian authorities scrambled to keep a grip on domestic markets, as investors rushed to adjust to geopolitical developments including new sanctions against Russia.
  • The S&P 500 index dropped 1.3% in early Monday trading, while the tech-heavy Nasdaq Composite Index declined 0.8%.
  • The Dow Jones Industrial Average fell more than 500 points, or 1.5%.
  • Monday’s declines have helped push the S&P 500 and Nasdaq toward a second consecutive month of losses.
  • They’re both on track for the biggest two-month percentage decline since March 2020.
  • Russia’s central bank opted for an emergency interest-rate hike to combat a collapse in the ruble, more than doubling its benchmark rate to 20%, hours after imposing other restrictions on markets. It also temporarily banned brokers from handling sales of securities by nonresidents and said it would keep the Moscow Stock Exchange closed Monday.
  • The Russian ruble plunged to a record low, trading at 119 rubles to $1 in the European morning before recovering moderately to around 97 rubles to $1. It had briefly rebounded after the rate increase. Market-data services showed limited price updates Monday, suggesting few transactions were taking place.
  • London-listed shares of Russian companies plunged, with Sberbank, the country’s largest lender, down around 69%.
  • Gazprom fell 37% and Rosneft lost 28% in recent trading.
  • Oil prices rebounded, with most actively traded futures for Brent crude, the global oil benchmark, rising 3.5% to $97.39 a barrel.
  • Brent for delivery in April climbed to $100.62.
  • Over the weekend the U.S., European Union, Canada and the U.K. said they intended to cut off some Russian banks from the Swift network, a global payment system that connects international banks and facilitates cross-border financial transfers.
  • The countries also said they would act to stop Russia’s central bank from deploying its more than $600 billion in reserves to aid the Russian economy.
  • In bond markets, the yield on the benchmark 10-year U.S. Treasury note fell to 1.863%, from 1.984% Friday, as investors reached for the safety of government bonds. Yields fall as bond prices rise.
  • Russian sovereign debt sold off heavily, with the yield on a dollar-denominated note maturing in five years surging to 25%, from 9% Friday.
  • Gold prices rose, another indicator of rising risk aversion. Most actively traded gold futures rose 1.5% to about $1,915.75 a troy ounce, close to a 15-month high.
  • Defense stocks rallied, with U.S.-based Northrop Grumman rising 6.8%, making it one of the best performers in the S&P 500. Shares of European companies with sizable operations in Russia extended losses Monday. U.S.-listed shares of Austrian bank Raiffeisen, which had over 20% of its workforce in Russia as of the end of 2021, tumbled more than 15% in recent trading.
  • In Asia-Pacific, stock markets were mixed, with major benchmarks gaining or losing less than 1%.

Russia Sanctions Over Ukraine Largely Spare Energy Sector, Vital to Europe – Wall Street Journal, 2/28/2022

  • The West is rolling out increasingly tough sanctions on Russia but it is going out of its way to preserve the country’s biggest source of revenue: energy exports.
  • In the latest example, the European Union said late Saturday that it had agreed with the U.S., the U.K. and Canada to eject some of Russia’s banks from the global financial system’s payments infrastructure, Swift.
  • The move, if applied to all banks, would be powerful, essentially blocking money transfers in and out of the country.
  • By cutting only some, Western countries are allowing payments, including for energy, to continue through non-sanctioned banks.
  • Russia is one of the world’s top oil and natural-gas producers, and energy exports represent half of the country’s foreign sales. The country, now embroiled in a bitter war in Ukraine, provides around 40% of Europe’s natural gas.
  • A senior Biden administration official said Saturday that officials were carefully selecting which Russian banks to eject from the Swift network to minimize disruption of energy markets.

U.S., Allies Discuss 60 Million-Barrel Oil-Reserve Release – Bloomberg, 2/28/2022

  • The U.S. and its allies are discussing a coordinated release of about 60 million barrels of oil from their emergency stockpiles after Russia’s invasion of Ukraine pushed crude prices above $100.
  • The deliberations are currently focused on a release of 30 million barrels from the U.S. Strategic Petroleum Reserve and an equivalent amount from a group of other countries, according to three people familiar with the matter, who asked not to be identified discussing non-public deliberations.
  • No decisions have been made and the discussions could continue for several more days, with the U.S. coordinating with other members of the International Energy Agency, the people said.
  • The threat of a worsening cost-of-living crisis for millions has jolted the leaders of major energy-consuming nations, who are now considering the first IEA-coordinated release from emergency oil reserves since the Libyan civil war of 2011.

TD Expands U.S. Footprint With $13.4 Billion Acquisition of First Horizon – Wall Street Journal, 2/28/2022

  • Toronto-Dominion Bank’s chief executive, Bharat Masrani, has finally made a big deal in the Southeastern U.S., announcing a $13.4 billion all-cash purchase of Tennessee-based First Horizon Monday.
  • Toronto-based TD said it would pay $25 a share in cash for Memphis-based First Horizon, representing a 37% premium over First Horizon’s share price at Friday’s close.
  • TD said the deal is immediately accretive to adjusted per-share earnings and is expected to result in a return on invested capital of 10% in 2023.
  • The deal is expected to close during TD’s fiscal first quarter, which ends on Jan. 31, 2023.
  • It will take the bank into new markets in Louisiana, Tennessee, Texas and Georgia.
  • TD said it would become the sixth-largest U.S. bank by assets, with business in 22 states, after the deal closes.

Chevron raises clean energy bet with $3 billion Renewable Energy Group deal – Reuters, 2/28/2022

  • Chevron is buying biodiesel maker Renewable Energy Group for $3.15 billion, in its biggest bet so far on alternative fuels.
  • The second-biggest U.S. oil and gas producer said on Monday it would pay $61.5 in cash for each share of Renewable Energy, a premium of over 40% to the company’s Friday close. Renewable Energy shares rose more than 37% in premarket trading.
  • Major oil firms are facing increasing pressure from governments and investors to shrink their carbon footprint and join the fight against climate change, given their large contributions to global emissions.
  • Chevron has set a target to cut operational emissions to net zero by 2050 and in September pledged to invest $10 billion to reduce its carbon emissions through 2028, with about $3 billion earmarked for renewable fuels.

Auto and truck makers suspend some business in Russia following invasion – Reuters, 2/28/2022

  • Global auto and truck makers, including Sweden’s Volvo Cars and Germany’s Daimler Truck, on Monday suspended some business in Russia following that country’s invasion of Ukraine.
  • Russian forces invaded Ukraine last week, marking the biggest attack by one state against another in Europe since World War Two. Many firms have idled operations in Russia following Western sanctions against Russia.
  • Energy giant BP, Russia’s biggest foreign investor, abruptly announced over the weekend it was abandoning its 20% stake in state-controlled Rosneft at a cost of up to $25 billion.
  • On Monday, Swedish automaker Volvo Cars said it would suspend car shipments to the Russian market until further notice, becoming the first international automaker to do so as sanctions over the invasion continue to bite.
  • Earlier on Monday, RIA news agency reported Volkswagen had temporarily suspended deliveries of cars already in Russia to local dealerships, citing a company statement.
  • Daimler Truck said on Monday it would freeze its business activities in Russia with immediate effect, including its cooperation with Russian truck maker Kamaz.

Lordstown Motors expects to sell 500 Endurance pickup trucks in 2022 – Reuters, 2/28/2022

  • Electric vehicle startup Lordstown Motors said on Monday it expects to manufacture and sell its first 500 Endurance electric pickup trucks this year followed by a five-fold increase in 2023.
  • Net loss in the fourth quarter widened to $81.2 million as the automaker said it incurred a total of $115 million in expenses, some related to the commercial launch of Endurance.
  • Lordstown’s Chief Executive Officer Dan Ninivaggi said the company’s discussions with Foxconn are focused on reaching an agreement for the joint development of future vehicles and a funding structure to raise capital.

Norwegian Air leases 10 new Boeing MAX aircraft – Reuters, 2/28/2022

  • Norwegian Air has signed lease agreements with AerCap for 10 new Boeing 737-800 MAX 8 aircraft ahead of the European summer season of 2023, the airline said on Monday.
  • The deal means Norwegian Air will have 80 aircraft in operation during next year’s high season, up from the current 51 and the 70 it plans to have later this year.
  • The aircraft lessor was one of the major creditors when the budget airline underwent a financial restructuring last year to avoid collapse amid the coronavirus pandemic.

A New Brand of Sticker Shock Hits the Car Market – Wall Street Journal, 2/28/2022

  • How hard is it to buy a car today? For Kevin Peters, it recently involved a one-way flight and 330-mile road trip to avoid overpaying for a new truck.
  • Many dealers say they must make do with their scant vehicle supplies and be realistic about what the market will bear, especially for high-demand models. In extreme cases, dealerships are charging $35,000 to $40,000 above the manufacturer’s suggested retail price, or MSRP, on luxury cars that normally sell for $80,000 or more.
  • Before the pandemic, practically nobody paid above the sticker price for a new car.
  • Last month, an unprecedented 82% of buyers did, according to consumer research site Edmunds.com.
  • The number of cars and trucks on dealership lots hit a record low of about 973,000 in September 2021, according to research firm Wards Intelligence. Vehicle stocks were about 1.1 million last month, roughly one-third the historical norm.
  • Buyers last month paid an average of $728 above the sticker, or 1.6% on average. That represents a reversal from a year earlier, when vehicles sold for an average of $2,152 below MSRP, according to Edmunds.

Target to Invest $300 Million to Boost Wages and Benefits This Year – Bloomberg, 2/28/2022

  • Target plans to spend an extra $300 million on wages and benefits this year as the competition for labor heats up.
  • While the lowest starting wage of $15 an hour won’t change, pay for new employees will range as high as $24 an hour depending on the job and the local market, Target said in a statement Monday.
  • In health care, Target will now offer medical plans to employees who average at least 25 hours of work a week, down from the previous requirement of 30 hours.
  • Eligible workers will also be able to access health-care benefits three to nine months more quickly than before, depending on the job.

US ECONOMY & POLITICS

U.S. goods trade deficit hits record high in January – Reuters, 2/28/2022

  • The U.S. trade deficit in goods widened sharply to a record high in January amid an increase in imports as businesses continued to replenish depleted inventories.
  • The pace of inventory accumulation is, however, slowing after accelerating in the fourth quarter. That, together with the surge in the goods trade deficit, could weigh on economic growth this quarter.
  • The goods trade deficit jumped 7.1% to an all-time high of $107.6 billion last month, the Commerce Department said on Monday.
  • Imports of goods increased 1.7%, led by food and motor vehicles.
  • Exports tumbled 1.8%, weighed down by consumer goods, motor vehicles, food and other goods.
  • But exports of capital goods and industrial supplies increased.
  • Stocks at wholesalers increased 0.8%. Retail inventories rose 1.9%, boosted by a 2.4% increase in motor vehicle stocks.
  • Excluding motor vehicles, retail inventories gained 1.7% after advancing 3.9% in December. This component goes into the calculation of GDP growth.

High Food Prices to Pressure Inflation This Year – Wall Street Journal, 2/28/2022

  • Rising food prices are emerging as a significant headwind to the economic recovery from the pandemic this year, particularly in developing countries where food accounts for an important share of household consumption.
  • Russia’s invasion of Ukraine could make those headwinds even stronger.
  • John Allan, the chairman of Tesco PLC, Britain’s largest supermarket chain, told the BBC earlier this month that “the worst is yet to come” for food inflation.
  • Partly because of higher food prices, the World Bank last month raised its forecast for global inflation in 2022 to 3.3% from its estimate last May of 2.3%.
  • Those higher costs are also one reason it projects global economic growth will slow to 4.1% in 2022 from 5.5% in 2021.
  • The effect will be felt most sharply in poorer countries, where food accounts for up to half of household budgets, as opposed to less than 15% in developed countries, and inflation is more closely linked to movements in global food prices.
  • Food prices climbed 49% between May 2020 and January of this year and are now at their highest since 2011, according to the Food and Agriculture Organization of the United Nations.
  • Some commodities saw even steeper increases: Sugar prices are up 66%, and vegetable oils have increased 140%.

Young Workers Rake In Biggest Wage Gains in Tight Labor Market – Wall Street Journal, 2/28/2022

  • The country’s youngest workers are securing the fastest wage increases of any age group, the only one whose gains have outpaced inflation.
  • Median hourly wages for workers age 16 to 24 were 10.6% higher in January than a year earlier, far exceeding the 4% overall gain for all workers, according to Atlanta Federal Reserve Bank data.
  • While young workers typically log faster wage growth because they start from a lower base, the 12-month rate is at its highest in the past 25 years, according to the Atlanta Fed.
  • According to Labor Department data, 46% of hotels and restaurants and 33% of retail businesses say they have raised wages because of the pandemic and related worker shortages.

EUROPE & WORLD

Russia’s Ruble, Financial Markets Are Hammered by Sanctions – Wall Street Journal, 2/28/2022

  • Powerful Western sanctions rocked Russia’s financial system and triggered a spiral in the ruble, drawing the central bank into an emergency doubling of interest rates.
  • The Russian ruble fell as low as 111 to the U.S. dollar from 83 on Friday, a drop of more than 20% before recovering slightly, on track for its biggest single-day fall on record. But trading was spotty, with local onshore markets frozen by the central bank and markets outside Russia reluctant to trade the currency.
  • The Bank of Russia took a raft of measures early Monday to protect Russia’s banking system. It raised benchmark rates to 20% from 9.5% in an attempt to attract savings into banks, the largest of which were targeted by Western sanctions and will be all but cut off from international markets.
  • Investors increasingly priced the chance that Russia won’t be able to, or won’t be willing to pay off its foreign debts.
  • The yield on a Russian dollar bond maturing in June 2027 jumped to more than 24% Monday from just under 10% Friday, according to Tradeweb.

Germany to Boost Military Spending in Latest Historic Shift – Bloomberg, 2/28/2022

  • Chancellor Olaf Scholz announced plans for a massive boost in defense spending in the latest historic policy shift in Germany triggered by Russia’s invasion of Ukraine.
  • Germany will channel 100 billion euros ($113 billion) this year into a fund to modernize the military, Scholz said Sunday in a speech to a special session of the lower house of parliament.
  • By 2024, the government will spend at least 2% of gross domestic product each year on defense, he added, in line with a NATO target that Berlin has consistently failed to meet.
  • “With the invasion of Ukraine, we are in a new era,” Scholz, the Social Democrat who took over from Angela Merkel in December, told lawmakers. “On Thursday, President Putin created a new reality with his invasion of Ukraine. This new reality requires a clear response. We have given it.”

Gazprom Paves Way to New China Gas Deal as Sanctions Hit Russia – Bloomberg, 2/28/2022

  • Gazprom took a new step toward potentially its biggest-ever natural gas supply deal with China as nations around the world sever economic and political ties with Russia over the country’s invasion of Ukraine.
  • The Russian gas giant signed a contract to design the Soyuz Vostok pipeline across Mongolia toward China, Gazprom said in a statement. If Russia reaches a new supply agreement with China, Soyuz Vostok will carry as much as 50 billion cubic meters of natural gas per year to the Asian nation.
  • A new supply deal with China would also enable Gazprom to build an interconnector between its west- and eastbound pipeline systems, effectively allowing Russia to redirect gas toward China from fields that now only feed Europe.
  • That could ease Gazprom’s reliance on the European continent, currently the single-largest buyer of Russian gas.

Toyota to Shut Down All Japan Plants Tuesday After Supplier’s Computer Problem – Wall Street Journal, 2/28/2022

  • Toyota Motor said it would shut down all 14 of its factories in Japan on Tuesday after a supplier had a computer problem.
  • The supplier, Kojima Industries, said it believed the problem stemmed from a cyberattack or possibly a malicious email with a virus, but it said the exact cause wasn’t known.
  • Kojima, a supplier of plastic parts for car interiors, said it shut down its servers to prevent the problem from spreading, and its website was down.
  • The company said in February that it expected global production of Toyota and Lexus vehicles to total 8.5 million vehicles in the year ending March 2022, down from a production forecast of nine million vehicles issued in November.
  • Japanese factories represent roughly a third of Toyota’s annual production.

Toyota gears up its first EV with safer, longer-lasting battery – Reuters, 2/28/2022

  • Toyota Motor, a late-comer to the battery electric vehicle (BEV) market, is weaving in all efforts to make sure its first mass-market model is safer and lasts longer than rivals’ products when it goes on sale later this year.
  • Toyota said its batteries, developed with Panasonic, contain a special coolant that does not conduct electricity easily.
  • Battery packs are also structured to keep the cells and coolant separated in case of a leak.
  • This and other innovations mean the new BEV series’ batteries would retain more than 90% of their capacity after a decade, Toyota said.
  • Toyota has said it would start selling the SUV model in Japan and other major markets in mid-2022.
  • Toyota has set a goal of selling 3.5 million BEVs annually by 2030 through an 8 trillion yen ($70 billion) investment to electrify its vehicles.

Samsung Has Record Revenues, Now Its Workers Want a Big Pay Bump – Wall Street Journal, 2/28/2022

  • More than 100,000 members of Samsung Electronics’ professional workforce have made a bold ask: Give us a nearly 16% raise.
  • From semiconductor engineers to smartphone designers, Samsung’s South Korea-based employees—nearly half of its global workforce—are asking for their largest base-salary bump in the company’s history, according to current and former employees, plus internal communications among co-workers reviewed by The Wall Street Journal.
  • Staffers point to rising living costs, improved labor productivity and the tech giant’s strong revenues as reasons for wanting an increase of 15.7% in the base wage, according to the internal communications that worker negotiators sent this month to fellow employees.
  • They are also seeking boosts to other employee benefits, such as expanded family healthcare coverage, the message reads.

Factmonster – TODAY in HISTORY

  • The steamship California landed in San Francisco, bringing the first East Coasters to the Gold Rush. (1849)
  • The last British troops left India. (1948)
  • James Watson and Francis Crick described their theory that two DNA strands were coiled in a double helix. (1953)
  • Four federal agents were killed in Waco, Texas, after they tried to serve an arrest warrant for weapons charges on Branch Davidian sect leader David Koresh, starting a 51-day standoff. (1993)

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