Daily Market Report | March 14, 2022
US FINANCIAL MARKET
Stocks Rise, Oil Falls as Investors Track Ukraine Negotiations – Wall Street Journal, 3/14/2022
- Stocks climbed and oil prices tumbled Monday, easing fears that a surge in commodity prices could stall the U.S. economy as investors awaited a likely interest-rate increase by the Federal Reserve later this week.
- Investors said positive comments from both Ukrainian and Russian officials about a round of negotiations boosted markets Monday. The technology-focused Nasdaq Composite Index added 0.4%.
- Shares of Apple fell 1% as a Covid-19 outbreak in China disrupted manufacturing by a key supplier in the city of Shenzhen.
- While falling oil prices could ease fears that consumer spending will slow down amid record-high gasoline prices, one likely cause of oil’s decline—the Covid-19 outbreak in China—could renew concerns about potential supply-chain snafus and ensuing the impact on the U.S. economy.
- Shortages of everything from computer chips to chocolate have hampered grown for months as the Omicron variant scrambled business plans and raised costs for big and small businesses.
- The potential economic toll could tamper expectations for interest-rate increases by the Federal Reserve later this year, he said.
- Investors are turning their attention toward the Fed’s monetary-policy meeting, which wraps up Wednesday.
- The central bank is expected to raise its benchmark rate for the first time since 2018 as officials look to cool demand and control inflation.
- China’s Shanghai Composite Index dropped 2.6% after Shenzhen went into lockdown to contain the coronavirus.
- In Europe, the Stoxx Europe 600 rose 0.9%, led by shares of auto makers and banks.
- The lockdown could knock oil demand, and Brent-crude futures, the international benchmark, fell 5.6% to $103.19 a barrel.
- A week ago, Brent prices hit $139 a barrel, the highest level since 2008, as the war in Ukraine disrupted global commodity markets.
- Elsewhere in commodity markets, nickel trading remained suspended on the London Metal Exchange, which stopped the market last week to contain a huge run-up in prices.
Investors Dash to Haven Assets During Ukraine Crisis Market Turmoil – Wall Street Journal, 3/14/2022
- The Russian invasion and the ensuing jump in commodities prices have sent investors barreling into gold and government bonds and scooping up bets that will pay out if they keep rising.
- Shares of utilities companies within the S&P 500 are up 3.6% so far this month, while the broader index has fallen 3.9%, extending its decline for the year to 12%.
- The rush for shelter comes as commodity prices around the globe have soared, stoking inflation fears.
- Oil prices rocketed to trade at times last week above $130 a barrel, the highest level since 2008, while prices of wheat and corn have recorded some of their biggest moves in history.
- The WSJ Dollar Index, which measures the greenback against a basket of 16 other currencies, closed Friday at its highest level since June 2020. The dollar is seen as a haven because of its status as the world’s reserve currency.
- Almost two years of chip shortages have had an unexpected upside for the semiconductor industry: It is better prepared to manage the turmoil caused by Russia’s invasion of Ukraine.
- Production of vital raw materials for chip making is concentrated in Russia and Ukraine.
- The countries are a major source of both neon gas, needed to feed lasers that print minute circuitry onto silicon, and the metal palladium used in later manufacturing stages.
- About a quarter to a half of the world’s semiconductor-grade neon comes from Russia and Ukraine, while roughly a third of the world’s palladium comes from Russia, analysts and industry consultants estimate.
- Companies have moved to shore up supply chains amid the upheaval, in some cases adding alternative suppliers to gain options.
- They stocked up on neon and other important chip-making materials, and now typically have a six-week to three-month reserve, said Mark Thirsk, the managing partner of Massachusetts-based Linx Consulting Inc., an electronic materials consultant.
- Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker, ensured it had alternate supplies of neon after Russia amassed a force along the Ukrainian border, threatening a conflict, according to a person familiar with TSMC’s strategy. It now doesn’t anticipate supply problems, the person said.
Ford Revs Up EV Plans in Europe – Wall Street Journal, 3/14/2022
- Ford Motor said Monday it plans to invest $2 billion in the production of two new fully electric vehicles in Germany and build an electric-car battery plant in Turkey as part of its drive to produce solely electric vehicles in Europe by 2035.
- Stuart Rowley, president of Ford’s European business, told reporters that the company would launch seven new fully electric vehicles by 2024 that would all be produced in Europe, and that the company had to respond to growing demand for fully electric vehicles in the region.
- The first new EV is set to go into production at Ford’s plant in the German city of Cologne next year.
- The vehicle will be a sport crossover model with a planned range of 500 kilometers, or 311 miles, on a single charge.
- A second fully electric model is also planned at the facility, but Ford provided no details.
- Both vehicles would be built using technology that Ford licenses from Volkswagen.
- The plan would double the number of electric vehicles to be produced in Europe as part of their alliance to 1.2 million.
U.S. gasoline prices edge lower after hitting record high last week – Reuters, 3/14/2022
- U.S. gasoline prices at the pump edged lower over the weekend after reaching all-time highs last week following Russia’s invasion of Ukraine.
- Retail gasoline prices fell for the second straight day on Sunday to $4.325 per gallon, below a record of $4.331 hit on Friday, according to American Automobile Association data. Russia’s invasion of Ukraine in late February has roiled energy markets worldwide since, bringing more expensive fuel costs to motorists who have also been hit by higher inflation.
- Analysts consider $4 a gallon to be a psychological trigger for consumers filling up at the pump that results in cost considerations for motorists.
- Even with prices edging down, consumer sentiment is unlikely to rise, said Devin Gladden, AAA’s manager for federal affairs.
- “Consumers are looking at the long-term impact, which is going to be an expensive summer.”
Rent-Control Measures Are Back as Home Rents Reach New Highs – Wall Street Journal, 3/14/2022
- Lawmakers across the U.S. are looking to enact rent control, reviving measures largely shunned in recent years in an effort to curb the surge in home rental prices throughout the country.
- These proposals, which would generally allow landlords to boost monthly rents by no more than 2% to 10%, are on the legislative agenda in more than a dozen states.
- Rental prices are up about 18% on average over the past two years, according to real-estate broker Redfin Corp. , hitting record levels across the U.S.
- Large cities like Boston, affluent suburbs like Montclair, N.J., lower-income mobile-home communities in Colorado and fast-growing metros in Florida are among the places now considering rent control.
- Rising rents are a big contributor to the recent surge in inflation that is starting to weigh on the U.S. economy.
- Cost of shelter accounts for 40% of the core Consumer Price Index, CPI’s biggest component.
- Economists at the San Francisco Federal Reserve said in a February inflation forecast that rent increases “point to significant upside risks to the overall inflation outlook.”
Germany to Buy Lockheed F-35 Combat Jets to Replace Tornados – Bloomberg, 3/14/2022
- Germany will purchase Lockheed Martin F-35 warplanes to replace older Tornado fighter-bombers, Defense Minister Christine Lambrecht said.
- The goal is to replace the Tornado fleet by 2030, Lambrecht said Monday at a press conference.
- She didn’t say how many of the $100 million-plus F-35s Germany planned to purchase.
- The country has announced a 100 billion-euro ($110 billion) spending spree to modernize its armed forces, spurred by the threat to stability posed by Russia’s invasion of Ukraine.
- Germany has been weighing a choice between the F-35 and Boeing’s F/A-18 Super Hornet for its “nuclear sharing” role, in which NATO members without arsenals of their own share in the planning and potential use of such weapons.
- The military had always preferred the F-35 for the nuclear role, because it is newer and has greater stealth capability. But as a relatively new aircraft it was also seen as a threat to the viability of the future German-French New Generation Fighter.
US ECONOMY & POLITICS
Fed to Start Rate Hikes With License to Turn Aggressive Later – Bloomberg, 3/14/2022
- The Federal Reserve will this week begin a multi-month campaign to conquer inflation that could see Chair Jerome Powell moving even more aggressively after Russia’s war on Ukraine fanned prices further.
- Already pivoting to tightening monetary policy amid the fastest consumer price gains in four decades, Powell and colleagues now have to deal with the economic fallout of the war, which threatens to deliver the twin blows of weaker growth and even-quicker inflation.
- With a 25 basis-point hike near-certain on Wednesday after Powell took the rare step of publicly backing such a shift, futures markets show around 165 basis points of tightening this year, or the equivalent of at least six quarter-point increases.
- Fed officials will also want to see how their balance-sheet runoff plans impact financial conditions, which have tightened further in the wake of the war.
- They’re expected to announce the pace at which they plan to shrink the balance sheet at this meeting, though they’ve yet to set a start date for the process to commence.
- The U.S. won’t negotiate exemptions to Ukraine-related sanctions on Russia to save the 2015 Iran nuclear deal and could try to strike a separate accord excluding Moscow, a senior U.S. official said, a diplomatic effort complicated by an Iranian missile attack on Iraq that sent American troops rushing for shelter.
- With one of President Biden’s top foreign-policy goals imperiled, the U.S. official said Washington would start exploring alternatives to the deal over the next week if Russia didn’t back away from its demands for written guarantees exempting Russia from Ukraine-related sanctions that could curtail its future trade with Iran.
- Time is pressing. U.S. and European officials say that Iran’s nuclear work has expanded close to a point that the deal’s main benefit to the West—keeping Iran months away from amassing enough nuclear fuel for a nuclear weapon—would be impossible. Iran is currently just a few weeks from that so-called breakout point.
- Iran’s top paramilitary force claimed responsibility for a missile attack early Sunday that slammed into northern Iraq, sending U.S. troops rushing for shelter, shattering windows and creating new complications for diplomatic efforts to ease tensions with Tehran.
- The Islamic Revolutionary Guard Corps issued a statement through its official Sepha News site saying that it carried out a missile attack in response to recent Israeli actions in the region, which included an airstrike last week in Syria that killed two of the Iranian paramilitary group’s commanders.
- Kurdish officials said that at least 12 ballistic missiles hit the area, creating powerful blasts that damaged a local television station and a palatial compound identified as the home of a major Kurdish businessman.
- The Iranian group said it carried out a missile attack on what it claimed were compounds used by Israeli spies operating in Iraq. Israeli officials declined to comment.
EUROPE & WORLD
- Fallout from China’s race to halt its worsening coronavirus outbreak is growing as authorities order lockdowns and other restrictions across more of the country.
- All 24 million residents of northeastern Jilin province, which borders Russia and North Korea, were in lockdown Monday, the first time since Covid-19 was first detected two years ago in Wuhan that such restrictions have been imposed on an entire province.
- The city of Shenzhen began a weeklong lockdown, closing public transport, nonessential businesses and schools, while companies in Shanghai began shutting down over the weekend.
- Whether authorities can swiftly end the outbreak will not only test China’s pandemic strategies against the more infectious Omicron variant behind the latest wave, but also has major implications for the rest of the world.
- China’s current restrictions have already disrupted global supply chains, including Foxconn Technology plants in Shenzhen that make devices for Apple.
- A surge in Covid-19 cases led Chinese manufacturing hubs Shenzhen and Changchun to lock down in recent days, halting production at many electronics and auto factories in the latest threat to the world’s battered supply chain.
- A number of manufacturers including Foxconn Technology Group, a major assembler of Apple’s iPhones, said they were halting operations in Shenzhen in compliance with the local government’s policy.
- Foxconn’s sites in Shenzhen, in southern China, produce some iPhones as well as iPads and computers.
- The majority of iPhones, however, are made at a factory in central Henan province. Foxconn, formally known as Hon Hai Precision Industry Co., said it would aim to keep up production by shifting work to other plants in China.
- The city is home to many Chinese manufacturing giants including telecommunication equipment maker Huawei Technologies and electric-vehicle maker BYD, which produces electric cars and batteries.
- More than 40 Taiwan-based makers of semiconductors and other electronic components filed announcements with the Taiwan Stock Exchange on Monday saying they were temporarily closing facilities in Shenzhen and nearby Dongguan.
- Officials didn’t say when the lockdowns would end—in Shenzhen, officials said they would decide whether the lockdown needs to be extended after a week based on the state of the pandemic then.
Panic Selling Grips Chinese Stocks in Biggest Plunge Since 2008 – Bloomberg, 3/14/2022
- Chinese stocks listed in Hong Kong had their worst day since the global financial crisis, as concerns over Beijing’s close relationship with Russia and renewed regulatory risks sparked panic selling.
- The Hang Seng China Enterprises Index closed down 7.2% on Monday, the biggest drop since November 2008.
- The Hang Sang Tech Index tumbled 11% in its worst decline since the gauge was launched in July 2020, wiping out $2.1 trillion in value since a year-earlier peak.
- On Friday, the Golden Dragon Index, which tracks American depository receipts of Chinese firms, slumped 10% for a second consecutive day — something that’s never happened before in its 22-year history.
- It fell as much as 13% Monday after posting its steepest weekly decline since at least 2001.
- The broad rout follows a report citing U.S. officials that Russia has asked China for military assistance for its war in Ukraine.
- Even as China denied the report, traders worry that Beijing’s potential overture toward Vladimir Putin could bring a global backlash against Chinese firms, even sanctions.
- Sentiment was also hurt by a Covid-induced lockdown in the southern city of Shenzhen, a key tech hub, and the northern province of Jilin.
- Chinese technology giant Tencent Holdings is facing a potential record fine for violations of some central bank regulations by its WeChat Pay mobile network, as Beijing toughens its regulations for fintech platforms, according to people familiar with the matter.
- Financial regulators recently discovered that WeChat Pay had flouted China’s anti-money-laundering rules and had lapses in compliance with “know your customer” and “know your business” regulations, among other things, some of the people said.
- Tencent’s ubiquitous mobile payments network was also found to have allowed the transfer and laundering of funds with illicit transactions such as gambling, the people added.
- For WeChat Pay, “know your customer” and “know your business” procedures mean it must verify the identities of users and merchants transacting on its platform and the source of funds for those transactions.
- The size of the fine is still under deliberation and it could be at least hundreds of millions of yuan, some of the people said. That would be much larger than the fines regulators typically imposed on nonbank payment companies for anti-money-laundering rule violations in the past.
China’s JD Logistics agrees to buy courier company Deppon – Reuters, 3/14/2022
- Chinese e-commerce giant JD.com on Sunday said that its subsidiary JD Logistics has agreed to buy domestic courier Deppon Logistics.
- Under the deal, JD Logistics will acquire 99.99% equity stake in Deppon Holdco for a total consideration of about 9 billion yuan ($1.42 billion).
- Deppon Holdco owns a total of about 66.50% of Deppon Logistics.
- JD Logistics will then make an offer for all the issued shares of Deppon Logistics not held by Deppon Holdco, for 13.15 yuan per share.
Ukraine to start 2022 spring sowing in coming days, deputy minister says – Reuters, 3/14/2022
- Ukraine plans to start sowing spring grains in the coming days and has enough grain in stocks to ensure the population has enough bread, deputy agriculture minister Taras Vysotskiy said on Saturday.
- He said the country, which consumes 8 million tonnes of wheat a year, had 6 million tonnes in stocks.
- Stocks also include 15 million tonnes of corn and a five year supply of sunflower oil.
European Curbs on Russian Steel to Ramp Up Pressure on Industry – Bloomberg, 3/14/2022
- Europe is moving toward banning imports of key Russian iron and steel products, raising the stakes for industries already under pressure from soaring energy prices following the invasion of Ukraine.
- European Commission President Ursula von der Leyen on Friday announced plans to target Russian shipments, which have already been curtailed by the sanctions imposed on steel tycoons. She didn’t provide further details.
- Those hardest hit could include electric-arc furnaces that rely on Russian hot briquetted iron to produce high-quality steel products for automakers.
- Steel prices in Europe have already surged back to record highs as the war choked off exports from both Ukraine and Russia. The latter accounted for about a fifth of shipments to the region.
- The latest round of restrictions will reinforce existing moves voluntarily to shun Russian steel as Europe’s biggest conflict since World War II threatens economic prosperity.
- Russia is an important supplier of feedstocks like slabs, pig iron and billets, which European mills use to produce finished products. Should a ban be enforced, they will be hard pressed.
Yum China sales suffer as Omicron cases surge – Reuters, 3/14/2022
- Yum China Holdings, said on Monday a COVID-19 resurgence in the country in recent weeks had dented its sales for the first quarter, setting back the recovery of its KFC, Pizza Hut and Taco Bell joints.
- Same-store sales decreased around 20% for the first two weeks of March from a year earlier, after falling nearly 4% for the two months combined in January and February, Yum China said.
- The company projected an operating profit for the first quarter to be in a range of $165 million to $200 million, compared with $342 million a year earlier.
Factmonster – TODAY in HISTORY
- The first town meeting was held in Boston, Massachusetts, at Faneuil Hall. (1743)
- The cotton gin was patented by Eli Whitney. (1794)
- Jack Ruby was found guilty of the murder of Lee Harvey Oswald, alleged assassin of President John F. Kennedy. (1964)
- The Soviet Congress voted Mikhail Gorbachev into the newly-created and powerful position of president. (1990)
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