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Daily Market Report | Mar. 15, 2021

Cyclical Stocks Climb to Power Dow – Wall Street Journal, 3/15/2021

  • The Dow Jones Industrial Average inched higher, led by advances in shares of manufacturers and consumer companies.
  • The blue-chip index rose 143 points, or 0.4%, to 32921 shortly after the opening bell, adding to gains after finishing last week at a record. The S&P 500 fell less than 0.1%, and the Nasdaq Composite declined 0.2%.
  • Later this week, investors will parse the Federal Reserve’s monetary policy statement for further guidance on policy makers’ views on rising bond yields and inflation prospects.
  • Government bonds strengthened, with the yield on the 10-year U.S. Treasury note ticking lower to 1.620%.
  • It ended Friday at 1.634%, the highest since Feb. 6, 2020. Yields fall as bond prices rise.
  • Over the weekend, bitcoin crossed $60,000 for the first time. On Monday, it fell back to trade near $55,810.67.
  • Major equity benchmarks in Asia ended the day on a mixed note. The Shanghai Composite Index fell almost 1% and South Korea’s Kospi closed 0.3% lower. Japan’s Nikkei 225 rose 0.2% and Hong Kong’s Hang Seng Index gained 0.3%.

Covid-19 Live Updates: New Reported U.S. Cases at Lowest Since Early October – Wall Street Journal, 3/15/2021

  • Newly reported Covid-19 cases in the U.S. were down from a day earlier, dropping below 40,000 for the first time since early October, as the government’s top infectious-disease expert, Dr. Anthony Fauci, warned against lifting restrictions too soon.
  • There were 38,222 new cases reported in the U.S. for Sunday, according to the latest data compiled by Johns Hopkins University. That was down from 53,215 for Saturday and 40,966 a week earlier.
  • There were 572 deaths reported for Sunday, according to Johns Hopkins data, a significant drop from the 1,725 reported a day earlier. The number is also down from 678 reported a week earlier.
  • While Covid-19 deaths head lower, states around the country are steadily finding previously unreported deaths that are causing data confusion.
  • The issues largely involve systems that states are using to try to report Covid-19 data in near real time, and not deaths reported more slowly through death certificates.

Germany Becomes Latest European Country to Suspend Use of AstraZeneca’s Covid-19 Vaccine – Wall Street Journal, 3/15/2021

  • Germany on Monday became the latest European country to suspend use of the vaccine made by AstraZeneca following a handful of instances of blood clotting in people who had received the shot.
  • The decision by the government was made following advice by the country’s medicines agency, which will investigate the incidents, according to a healthcare ministry spokesperson.

U.S. airlines see recovery signs, United expects to end cash burn in March – Reuters, 3/15/2021

  • U.S. airlines pointed on Monday to concrete signs of an industry recovery as a slowing COVID-19 pandemic helps leisure bookings, and United Airlines said it expects to halt its cash burn in March.
  • “I do think we’re near the end of the virtual world,” United Chief Executive Scott Kirby said at a J.P. Morgan conference.
  • Kirby said he expects core cash burn to be positive in March.
  • That is expected to continue after March, assuming the current bookings trajectory remains in place, he said.
  • Delta Air Lines, Southwest Airlines and JetBlue Airways each said first-quarter revenue would decline at the low end of projections or less than previously forecast as vaccine rollouts accelerate and more people plan vacations or visits to friends and relatives
  • Delta, which said it will use cash for aircraft purchases in the second quarter, expects its first-quarter revenue decline to be at the low end of its forecast for a 60% to 65% decline from the same quarter in 2019, before the onset of the pandemic.
  • Southwest forecast lower cash burn in the first quarter on Monday and a lower decline in operating revenue for February and March than previously forecast.
  • JetBlue also forecast a slowing pace in its first-quarter revenue drop, projecting a decline of between 61% and 64%, compared with the same period in 2019. It had previously forecast a fall in revenue of 65% to 70%.

U.S. Banks Will Turn Last Year’s Fear Into This Year’s Profits – Wall Street Journal, 3/15/2021

  • In the coming months, banks are expected to free up tens of billions of dollars in reserves they set aside to cover soured loans—losses that still haven’t materialized a year into a pandemic that shut down swaths of the U.S. economy.
  • U.S. banks had $236.6 billion in total reserves in December, according to the Federal Deposit Insurance Corp., nearly double their level from before the coronavirus upended the economy and sent unemployment up sharply.
  • Reserves are meant to cover expected losses on loans.
  • They subtract from a bank’s profit when they are put in place and add to it when they are removed.
  • Analysts now expect the four banks to earn $77 billion in 2021, up from $61 billion last year.
  • Still, reserve releases will provide only temporary relief. Revenue is expected to decline slightly at the four biggest U.S. banks in 2021, a result of an expected drop in lending and a slowdown in market activity.

Junk-Loan Rally Cuts Company Borrowing Costs – Wall Street Journal, 3/15/2021

  • Investors are scooping up low-rated corporate loans, fueling a rally that is lowering borrowing costs for highly indebted companies.
  • Investors poured more than $8 billion into funds of so-called leveraged loans in January and February, according to Lipper data from Refinitiv—the most in more than two years and a notable reversal from more than $26 billion in net outflows last year.
  • That has helped boost loan prices to around their highest levels since November 2018, beating returns on corporate bonds and Treasurys.
  • The rally is notable after loans rebounded from the pandemic more slowly than other assets last year. Now, with junk bond yields still hovering around 4.5%—below their pre-pandemic record lows—investors are turning to leveraged loans because their interest payments increase with short-term rates.
  • Investors, meanwhile, this year have poured more than $8.8 billion into U.S. mutual and exchange-traded funds that buy loans as of March 4, according to Refinitiv Lipper, while pulling $3.7 billion from comparable junk-bond funds during the same period.

IMF research shows top firms becoming more dominant during pandemic – Reuters, 3/15/2021

  • The coronavirus pandemic has significantly strengthened the market power of dominant firms, which could drag on medium-term growth and stifle innovation and investment, the International Monetary Fund said on Monday in a new research paper.
  • Key indicators of market power are on the rise, including price markups over marginal costs, and the concentration of revenues among the four biggest players in a sector, the IMF study said.
  • The report did not name specific firms, but singled out the technology sector as the one showing the most dramatic concentration in market power, with price markups increasing at twice the rate as economy-wide markups over the past 20 years.
  • The market-disrupting companies that displaced incumbent firms two decades ago have become increasingly dominant players that do not face the same competitive pressures from would-be disruptors today, the study said.

GM builds pickups without certain modules due to global chip shortage, hurting fuel economy – Reuters, 3/15/2021

  • General Motors said on Monday that due to the global semiconductor chip shortage the U.S. automaker is building certain 2021 light-duty full-size pickup trucks without a fuel management module, hurting those vehicles’ fuel economy performance.
  • The lack of the active fuel management/dynamic fuel management module means affected models, equipped with the 5.3-liter EcoTec3 V8 engine with both six-speed and eight-speed automatic transmission, will have lower fuel economy by one mile per gallon, spokeswoman Michelle Malcho said.
  • Malcho emphasized all trucks are still being built, something GM has repeatedly stressed it would try to protect as pickups are among GM’s most profitable models. She declined to say the volume of vehicles affected.
  • The change runs through the 2021 model year, which typically ends in late summer or early fall, she said.

Stripe’s value hits $95 billion after payment giant’s latest fundraising – Reuters, 3/15/2021

  • Digital payments giant Stripe’s value soared to $95 billion after it capitalised on a boom in ecommerce with a round of funding that pushed it past Elon Musk’s SpaceX as the most valuable U.S. startup.
  • Founded in 2010 by Patrick and John Collison when the Irish brothers were barely out of their teens, Stripe is used by more than 50 companies each processing over $1 billion annually to receive payments and bill customers.
  • The company said it would use the capital to invest in its European operations – which cover 31 of the 42 countries in which Stripe is active – and expand its global payments and treasury network.
  • At $95 billion, Stripe is now more valuable than any bank in the euro zone.

Fed likely to pen rosier forecasts, but no policy shift expected – Reuters, 3/15/2021

  • Federal Reserve policymakers are expected this week to forecast that the U.S. economy will grow in 2021 at the fastest rate in decades, with unemployment falling and inflation rising, as the COVID-19 vaccination campaign gathers pace and a $1.9 trillion relief package washes through to households.
  • But investors who expect rosier projections to translate to any change in monetary policy when the U.S. central bank’s Federal Open Market Committee ends its two-day meeting on Wednesday will likely be disappointed.
  • The Fed has kept interest rates pinned near zero for the past year, and has promised to keep them there until the economy reaches full employment, and inflation has hit 2% and is on track to exceed that pace for some time.
  • It is also buying $120 billion in Treasuries and mortgage-backed securities and has said it will keep doing so until it sees “substantial further progress” toward its full employment and inflation goals.

White House Weighs How to Pay for Long-Term Economic Program – Wall Street Journal, 3/15/2021

  • The Biden administration is looking past its $1.9 trillion coronavirus relief bill and starting to consider how to pay for the next round of programs meant to bolster long-term economic growth with investments in infrastructure, clean energy and education.
  • The challenges are twofold. Officials face a decision over how much of the bill to pay for with tax increases and which policies to finance with more borrowing. In a narrowly divided Congress, they must also craft a bill that can win support from nearly every Democrat.
  • Treasury Secretary Janet Yellen said Sunday that the administration hasn’t decided whether to pursue a wealth tax, and that while the administration intends to issue proposals to rein in deficits over time, U.S. borrowing costs are manageable right now.
  • The legislation would create a 2% annual tax on the net worth of households and trusts between $50 million and $1 billion and an additional 1% surtax on those above $1 billion.
  • Mr. Biden never endorsed annual wealth taxes advanced by Ms. Warren and Sen. Bernie Sanders of Vermont, instead offering a suite of tax increases on corporations and high-income households that would be significant but mark less of a structural change in U.S. taxation.
  • Currently, when someone dies with appreciated assets, there are no income taxes due. Their heirs pay capital-gains taxes only when they sell and only on increases in value after the previous owner’s death.
  • Under Mr. Biden’s approach, someone who dies with appreciated assets would be considered to have sold the assets for a taxable gain. He would also raise the top capital-gains tax rate from 23.8% to 39.6%.

Republicans Push Biden to Take Aggressive Stance Toward China – Wall Street Journal, 3/15/2021

  • As President Biden devotes himself to dealing with the coronavirus pandemic, Republicans are striving to elevate China policy as a top issue, pressuring him to take an aggressive stance as Americans’ opinion toward the global rival grows more negative.
  • Republicans positioning themselves as leading critics of Mr. Biden, chiefly those seen as considering a 2024 presidential run, have buffeted his nominees with questions about how they would deal with China.
  • GOP lawmakers are proposing legislation to limit visas given to Chinese nationals and to crack down on American universities’ relationships with China. Some Republicans want the president to boycott the 2022 Winter Olympics in Beijing.
  • The goal, lawmakers and party strategists say, is to maintain pressure on Mr. Biden to confront China—and to make his policies a top issue for voters ahead of the 2022 midterm elections and the presidential race two years later.

EUROPE & WORLD

China’s Economic Activity Soars but Jobless Rate Hits Ceiling Set by Beijing – Wall Street Journal, 3/15/2021

  • Chinese economic activity surged in the first two months of 2021 when compared with the same coronavirus-battered period last year, though the picture was less rosy when weighed against growth momentum in the final months of 2020.
  • Economic data released Monday by China’s National Bureau of Statistics showed industrial production, consumption, investment and home sales in January and February all jumping by more than 30% from the same period a year earlier, when the Chinese economy was largely shut down to contain the fast-spreading coronavirus.
  • Industrial output in the January-February period rose 35.1% from a year earlier while retail sales, a major gauge of China’s consumption, expanded 33.8% over that same time frame. Both indicators topped economists’ expectations.
  • Home sales by volume, an indicator of demand, soared 143.5% in the first two months of 2021 from a year earlier, while property investment by value gained 38.3% over the same stretch.
  • Fixed-asset investment increased 35.0% over that period compared with a year earlier, though economists had predicted faster growth, especially in manufacturing investment.
  • More worrying was China’s benchmark measure of joblessness, the surveyed urban unemployment rate, which ticked higher to 5.5% in February, from January’s 5.4% and December’s 5.2% readings, official data showed Monday.

China Becomes First Major Economy to Start Withdrawing Pandemic Stimulus Efforts – Wall Street Journal, 3/15/2021

  • As the first major economy to beat back Covid-19, China is now taking the global lead in moving to unwind its pandemic-driven economic stimulus efforts.
  • The shift puts China at the vanguard in confronting a challenge other economies will face in coming years as their economies recover: how to withdraw stimulus without snuffing out growth or causing broader market instability.
  • China’s policy makers have expressed concern about an overheating housing market and want to prevent bigger imbalances. They are also eager to resume a multiyear campaign to curb debt that started building during the previous global recession.

Beijing Asks Alibaba to Shed Its Media Assets – Wall Street Journal, 3/15/2021

  • China’s government has asked Alibaba to dispose of its media assets, as officials grow more concerned about the technology giant’s sway over public opinion in the country, according to people familiar with the matter.
  • Discussions over the matter have been held since early this year, after Chinese regulators reviewed a list of media assets owned by the Hangzhou-based company, whose mainstay business is online retail.
  • Officials were appalled at how expansive Alibaba’s media interests have become and asked the company to come up with a plan to substantially curtail its media holdings, the people said.
  • The government didn’t specify which assets would need to be unloaded.

Chinese Factories Burn in Myanmar’s Deadliest Weekend of Protests Since Coup – Wall Street Journal, 3/15/2021

  • Dozens were killed and several Chinese factories set ablaze in Myanmar on Sunday during the deadliest weekend since the country’s military seized power in a coup last month.
  • At least 38 were killed on Sunday as security forces opened fire on protesters in several cities, according to the Assistance Association for Political Prisoners, a nonprofit monitoring arrests and casualties. An estimated 13 others have been killed since Friday.
  • The biggest flashpoint was in Hlaing Tharyar, a poor, industrial suburb of Yangon, Myanmar’s largest city. At least 22 people were killed there, as several garment factories financed by Chinese owners were vandalized and set on fire.
  • China’s embassy in Myanmar said on Sunday that many Chinese employees were trapped inside and injured as the factories burned. It called on protesters to express their concerns lawfully and urged authorities to punish those responsible.

Germany’s Covid-19 Lockdowns and Slow Vaccine Rollout Dent Appeal of Merkel’s Party – Wall Street Journal, 3/15/2021

  • Impatience at a four-month lockdown and a glacial Covid-19 vaccine rollout have begun to eat away at popular support for German Chancellor Angela Merkel and her conservatives months before a general election.
  • The party suffered a blow on Sunday, recording one of its worst-ever defeats at regional elections in two populous states in Germany’s affluent south, according to preliminary results.
  • In Baden-Württemberg, one of Germany’s industrial powerhouses and an erstwhile conservative bastion, Ms. Merkel’s Christian Democratic Union won only 23.9% of the vote, down from 28% in 2016, according to preliminary results calculated by the ARD broadcaster.
  • In the neighboring Rhineland Palatinate, the party recorded 26.5%, down from 31.8% at the last election. The Green Party took 31.9% of the vote in Baden-Württemberg, while the Social Democrats took 34.2% in Rhineland Palatinate.
  • The ballots were seen as bellwether contests ahead of the federal election in September, which will mark the end of Ms. Merkel’s 16-year-reign as chancellor. They come as a warning to her aspiring successor, CDU Chairman Armin Laschet.

Rogers, Shaw to Combine in $16 Billion Deal – Wall Street Journal, 3/15/2021

  • Rogers Communications has agreed to buy Shaw Communications for about 20 billion Canadian dollars, equivalent to roughly $16 billion, combining two Canadian communications companies as they seek to invest in Canada’s rollout of fifth-generation wireless service.
  • The cash purchase price, at C$40.50 a share, reflects a premium of about 69.5% to Shaw’s closing price Friday. The Shaw family will receive 23.6 million Class B shares of Rogers as part of the deal, making it one of the combined company’s largest shareholders, the companies said.
  • The combined entity will invest C$2.5 billion in 5G networks over the next five years across Western Canada, a move they said would help close the digital divide between urban and rural communities.

Factmonster – TODAY in HISTORY

  • Christopher Columbus returned to Spain after his first visit to the Western Hemisphere. (1493)
  • Nicholas II, the last czar of Russia, is forced to abdicate his throne (March 2, old style calendar). (1917)
  • On the “Ides of March,” Julius Caesar was stabbed to death in the senate house by a group of conspirators led by Cimber, Casca, Cassius, and Marcus Junius Brutus. (1965)

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