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Daily Market Report | March 8, 2022

US FINANCIAL MARKET

Oil Jumps, Stocks Fall After Dow Enters Correction – Wall Street Journal, 3/8/2022

  • U.S. stocks resumed their slide on Tuesday while bond yields and oil prices rose, a day after fears of oil inflation pushed the Dow Jones Industrial Average into a correction.
  • The S&P 500 fell 0.8% and the blue-chip Dow Jones Industrial Average fell 0.6%.
  • The technology-heavy Nasdaq Composite, the first of the major indexes to fall into bear-market territory, fell another 1.3% on Tuesday morning.
  • U.S. crude oil jumped 7.3% to $128.43 a barrel, after The Wall Street Journal reported that the U.S. was set to imminently announce a ban on Russian oil imports.
  • Despite appetite for assets perceived as havens, investors sold U.S. Treasury notes Tuesday. The yield on the benchmark 10-Year note rose to 1.842% from 1.748% Monday. Bond yields and prices move in opposite directions.
  • Gold rose 2.8% to $2,053.10 a troy ounce, coming within sight of a record closing level.
  • Mandiant fell almost 3.5% ahead of the opening bell after Alphabet’s Google said it had agreed to buy the cybersecurity firm for around $5.4 billion.
  • Uber rose 5.2% after The Wall Street Journal reported that the ride-hailing company was launching a campaign to head off efforts to classify its workers as employees, which would allow them to form unions.
  • In Asia, stock markets slumped, following Monday’s moves on Wall Street.
  • Japan’s Nikkei 225 fell 1.7%, while Hong Kong’s Hang Seng index dropped 1.4% to its lowest level since 2016.

Dick’s Sporting Goods expects more profit momentum after solid holiday quarter – CNBC, 3/8/2022

  • Dick’s Sporting Goods on Tuesday reported profits and sales growth in its holiday quarter that topped analysts’ estimates, as the company laps massive gains from the prior year that were fueled by pandemic purchases of outdoor equipment and fitness accessories.
  • Revenue grew 7.3% to $3.35 billion from $3.13 billion a year earlier.
  • That topped estimates for $3.31 billion. On a two-year basis, Dick’s said it sales climbed 28.5%.
  • Same-store sales, a key metric that tracks revenue online and at stores open for at least 12 months, rose 5.9%, better than the 4.3% increase that analysts had been looking for, according to StreetAccount.
  • The same-store sales gain consisted of a 14% year-over-year increase at Dick’s retail stores, and an 11% decline in online revenue, the company said.
  • Dick’s reported net income for the three-month period ended Jan. 29 of $346.1 million, or $3.16 per share, compared with income of $219.6 million, or $2.21 a share, a year earlier.
  • For the full year, Dick’s sees adjusted earnings per share in a range of $11.70 to $13.10, while analysts had been looking for $11.31, according to Refinitiv.
  • It sees same-store sales for the year down 4% to flat, while analysts had been looking for a 3.6% decline from the prior year, during which Dick’s reported a 26.5% increase.

U.S. and U.K. Poised for Ban on Imports of Russian Oil Today – Bloomberg, 3/8/2022

  • The U.S. and the U.K. will impose a ban on imports of Russian energy on Tuesday without the participation of European allies, according to people familiar with the matter.
  • The U.S. ban will include Russian oil, liquefied natural gas and coal, according to two people, who spoke on condition of anonymity. The decision was made in consultation with European allies, who rely more heavily than the U.S. on Russian energy, another person said.
  • The U.K. move will be done in concert with the U.S. and the ban will be phased in over the coming months, according to the person, who requested anonymity speaking about policy that hasn’t yet been announced.
  • The ban won’t apply to Russian gas, the person said.
  • The White House announced Tuesday that President Joe Biden “will announce actions to continue to hold Russia accountable for its unprovoked and unjustified war on Ukraine,” though didn’t specify the measures.
  • He’s due to speak at 10:45 a.m. in Washington.

Google to Buy Cybersecurity Firm Mandiant in $5.4 Billion Deal – Wall Street Journal, 3/8/2022

  • Google said it reached a deal to buy cybersecurity company Mandiant for nearly $5.4 billion, aiming to bolster its cloud unit with more cybersecurity offerings at a time when businesses across industries have seen a wave of attacks on their systems.
  • Google, a unit of Alphabet, said Tuesday the deal will allow its cloud unit to offer an end-to-end security operation to customers.
  •  Thomas Kurian, chief executive of Google Cloud, said that Google wanted to draw from the insights of Mandiant’s threat research in how it applies security solutions to its products, and that the computing giant intended to retain the Mandiant brand.

McDonald’s, a Rare Holdout in Russia, Has Been Mum on Its Plans – Bloomberg, 3/8/2022

  • McDonald’s large presence in Russia and Ukraine, where the company has close to 1,000 locations, is creating a thorny situation for the fast-food operator with no easy solutions.
  • The majority of its Russian locations are owned and operated directly by the company, as opposed to franchisees, making them particularly lucrative.
  • While only about 2% of all McDonald’s restaurants are in Russia or Ukraine, they account for about 9% of global revenue.
  • If McDonald’s were to take a step back from Russia, it would mark a historic reversal for the company that’s become a face of globalized business.
  • With its 1990 arrival in Moscow, which was then part of the Soviet Union, the company became a powerful symbol in the ascent of capitalism over communism.
  • A reported 30,000 people lined up at the restaurant on its first day of operations.

Apple expected to upgrade its low-cost iPhone SE at product event – Reuters, 3/8/2022

  • A 5G budget-friendly iPhone and a new iPad top expectations from analysts for Apple’s spring product launch event on Tuesday.
  • 5G capabilities have been a big part of Apple’s focus for the high end of its flagship product as customers look for powerful devices with better connectivity, with the iPhone 13 showing off custom 5G antennas and radio components for faster speeds.
  • With the SE currently priced at $399, a big question is whether Apple will raise the price of the phone, passing on some higher costs from snarled global supply chains.
  • The iPhone maker is also expected to launch a new version of the iPad Air and a high-end Mac Mini, a computer without a monitor that is also a budget-friendly way into the Apple product lineup.

U.S. Pump Prices Hit Record High in Fresh Challenge to Biden – Bloomberg, 3/8/2022

  • U.S. drivers are now paying more for gasoline than at any other time in history as demand surges and the war in Ukraine threatens global oil supplies.
  • Average pump prices in the U.S. are now $4.173 per gallon, the highest level in records going back to 2000, according to auto club AAA.
  • Government data going back to 1990 show prices have never been higher than they are now. In California, the most expensive U.S. state for drivers, prices have surged to $5.444 a gallon.
  • Russian oil made up only about 3% of all the crude shipments that arrived in the U.S. last year, data from the U.S. Energy Information Administration show.
  • But when also including other petroleum products, like unfinished fuel oil that can be used as a feedstock to produce gasoline and diesel, Russia accounted for about 8% of the U.S.’s 2021 petroleum imports.

Visa, Mastercard Prepare to Raise Credit-Card Fees – Wall Street Journal, 3/8/2022

  • Visa and Mastercard are preparing to increase the fees that many large merchants pay when they accept consumers’ credit cards.
  • The fee increases—delayed during the past two years because of the pandemic—are scheduled to kick in next month, according to people familiar with the matter and a document viewed by The Wall Street Journal.
  • Interchange fees account for most of the increase. Merchants pay these fees, which are set by the card networks, when shoppers use their cards. The fees go to the bank that issued the card.
  • U.S. merchants paid card issuers an estimated $55.4 billion in Visa and Mastercard credit-card interchange fees in 2021, more than double the amount in 2012, according to the Nilson Report.
  • They pass along at least some of these costs to the consumer in the form of higher prices.
  • More merchants have started charging consumers extra when they pay with credit cards.

Rivian is sued by shareholder after rolling back electric vehicle price hikes – Reuters, 3/8/2022

  • Rivian Automotive has been sued by a shareholder who claimed the company misled investors in its initial public offering about how it had mispriced its electric vehicles, leading to unpopular price hikes that it swiftly rolled back.
  • In a complaint filed on Monday in the U.S. District Court in San Francisco, Charles Larry Crews said Rivian concealed how its R1S SUV and R1T pickup truck were so underpriced that it needed to raise prices not long after its November 2021 IPO.
  • Crews said the increases “would tarnish Rivian’s reputation as a trustworthy and transparent company,” putting a large number of 55,400 preorders dating back to 2018 in jeopardy of cancellation.
  • The lawsuit came after Irvine, California-based Rivian sparked a customer backlash on March 1 by raising the R1S’s price to $84,500 from $70,000, and the R1T’s price to about $79,500 from $67,500.

US ECONOMY & POLITICS

Higher Vehicle, Energy Imports Push January U.S. Trade Deficit to New Record – Wall Street Journal, 3/8/2022

  • U.S. imports of foreign goods rose in January on higher vehicle and energy shipments ahead of the Russia-Ukraine crisis while exports fell, widening the trade deficit to a new record of $89.7 billion.
  • The foreign-trade gap in goods and services expanded 9.4% from the prior month in January, the Commerce Department said Tuesday.
  • Imports increased 1.2% in January, led by shipments of foreign-made vehicles, industrial supplies including crude oil and natural gas, food and capital goods like telecommunications equipment.
  • Exports, meanwhile, fell 1.7%. Exports of consumer goods like pharmaceuticals fell, as did services exports like travel and transport.
  • The U.S. imported about $29.7 billion in goods from Russia in 2021, ranking it 19th among U.S. import partners—just behind Brazil and ahead of Singapore, according to Census data.
  • Oil products accounted for nearly 60% of the value of those imports, followed by precious metals, iron and steel, seafood and fertilizers.

U.S. wholesale inventories increase unrevised in January – Reuters, 3/8/2022

  • U.S. wholesale inventories increased solidly as initially estimated in January, but the pace slowed significantly from the prior month, which could result in inventories making little or no contribution to economic growth this quarter.
  • The Commerce Department said on Tuesday that wholesale inventories rose by an unrevised 0.8% in January.
  • Stocks at wholesalers increased 2.6% in December. Economists polled by Reuters had expected inventories would be unrevised. Wholesale inventories advanced 18.1% in January on a year-on-year basis.
  • Wholesale motor vehicle inventories fell 2.2% after surging by 5.5% in December.
  • Wholesale inventories, excluding autos, increased 1.1% in January. This component goes into the calculation of GDP.
  • Inventory investment surged at a robust seasonally adjusted annualized rate of $171.2 billion in the fourth quarter, contributing 4.90 percentage points to the quarter’s 7.0% growth pace.
  • Sales at wholesalers shot up 4.0% in January after rising 0.8% in December. At January’s sales pace it would take wholesalers 1.20 months to clear shelves, down from 1.24 months in December.

New index shows U.S. inflation expectations shifting higher – Reuters, 3/8/2022

  • One-year U.S. inflation expectations have rocketed higher since Russia’s invasion of Ukraine and the longer-term outlook has begun increasing as well, a development likely to be watched closely by the Federal Reserve as it battles to keep price pressures under control.
  • A new daily index released on Tuesday by the London-based ICE Benchmark Administration (IBA) showed the expected pace of consumer price increases over the next year rising from 3.5% on Feb. 1 to 5.24% as of March 7.
  • The index is based on trading in the roughly $300 billion monthly market for inflation-protected U.S. Treasury securities and in the $100 billion monthly market for inflation swaps contracts.
  • Inflation anticipated over longer 10- and six-year horizons has also turned abruptly higher since the onset of the Ukraine war, with rates as of Monday around 2.43% and 2.73%, respectively, significantly above the Fed’s 2% annual price increase target, the index shows.

EUROPE & WORLD

Global Economy Braces for Impact of Russia’s War on Ukraine – Wall Street Journal, 3/8/2022

  • Soaring commodity prices, sweeping financial sanctions and the potential for a ban on energy imports from Russia after it invaded Ukraine are threatening to hobble a global economy still weakened by the Covid-19 pandemic. They are also complicating the task of central banks that had been preparing to phase out easy money.
  • At rate-setting meetings scheduled over the next week, the European Central Bank and U.S. Federal Reserve had been expected, until recently, to move rapidly to phase out easy-money policies. Both are now likely to be cautious, investors said, reflecting the new economic risks.
  • Fed Chairman Jerome Powell told congressional officials last week that Russia’s invasion of Ukraine was likely to push up inflation, and said he would propose a quarter-percentage-point interest-rate increase at next week’s meeting, effectively ending speculation over a larger, half-percentage-point increase.
  • In Frankfurt, ECB officials have signaled they will move cautiously when they gather on Wednesday and Thursday, despite inflation rising to 5.8% in February, almost three times the ECB’s 2% target.
  • Investors now expect the ECB to increase its key interest rate by 0.1 percentage point by December, to minus 0.4%, rather than the 0.5 percentage point rate boost expected a month ago, according to financial market prices.

China Considers Buying Stakes in Russian Energy, Commodity Firms – Bloomberg, 3/8/2022

  • China is considering buying or increasing stakes in Russian energy and commodities companies, such as gas giant Gazprom and aluminum producer United Co. Rusal International, according to people familiar with the matter.
  • Beijing is in talks with its state-owned firms, including China National Petroleum, China Petrochemical, Aluminum of China and China Minmetals, on any opportunities for potential investments in Russian companies or assets, the people said.
  • Any deal would be to bolster China’s imports as it intensifies its focus on energy and food security — not as a show of support for Russia’s invasion in Ukraine — the people said.
  • The discussions are at an early stage and won’t necessarily lead to a deal, the people said, requesting anonymity as the discussions aren’t public. Some talks between Chinese and Russian energy companies have started to take place, according to separate sources.

Shell, BP to Withdraw From Russian Oil, Gas – Wall Street Journal, 3/8/2022

  • European oil giants Shell and BP said they were stepping back further from doing business with Russia, with Shell saying it will immediately halt all spot purchase of crude from the country and will phase out its other trading and business dealings.
  • A spokesman for BP said it won’t enter into new business with Russian entities or business involving Russian ports “unless essential for ensuring security of supply.”
  • The two made their moves ahead of what people familiar with the matter say is a plan by the Biden administration to ban Russian oil imports into the U.S.
  • The Wall Street Journal reported an announcement on the issue is imminent. The administration’s deliberations about the ban have ramped up as lawmakers of both parties, including House Speaker Nancy Pelosi, called for action on the issue. The White House declined to comment.

Banks in Europe Take Brunt of Market Selloff – Wall Street Journal, 3/8/2022

  • Most banks in Europe have little direct exposure to Russia. Yet that hasn’t stopped investors from fleeing their shares since war broke out in Ukraine.
  • Analysts say the lack of visibility regarding what will come next in the conflict, a spike in oil prices that may slow down Europe’s economy, and indirect exposures that aren’t yet known, are combining to make investors ultra-wary of lenders on the continent.
  • Since the conflict started, the Euro Stoxx banking sub index has fallen by roughly one-quarter.
  • France’s Société Général, Italy’s Unicredit Spa and Austria’s Raiffeisen Bank International, all of which have local operations in Russia, have fallen as much as 35%, 38% and 47%, respectively.
  • They rebounded somewhat Tuesday, but remain well off their post-pandemic highs.

Factmonster – TODAY in HISTORY

  • Russia’s February Revolution, which eventually led to the overthrow the csarist government, began. (1917)
  • The Supreme Court ruled that religious instruction in public schools violated the Constitution. (1948)
  • The Soviet Union claimed to be in possession of the atomic bomb. (1950)
  • First U.S. combat troops arrived in Vietnam. (1965)
  • Baseball Hall of Famer Joe DiMaggio died. (1999)

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