US FINANCIAL MARKET
Stocks Waver After Rally on Fed Interest Rate Hike – Wall Street Journal, 3/17/2022
- U.S. stock indexes wavered Thursday morning as traders refocused on the Ukraine war, which has driven up energy prices and threatened to hamper the global economy’s recent growth.
- The S&P 500 was down 0.2% in morning trading, after the broad-market index closed more than 2% higher in each of the past two consecutive sessions. The tech-heavy Nasdaq Composite Index was recently down about 0.5%.
- The Dow Jones Industrial Average edged down about 0.2%, or 65 points.
- Oil prices rose, with West Texas Intermediate crude adding nearly 8% to once again trade above $100 a barrel.
- Brent crude, the global benchmark, was also above $100.
- Still, the S&P 500 has climbed more than 3% this week, on pace for its best week of 2022. The gains came as the Federal Reserve said it would lift interest rates for the first time since 2018 to combat inflation, which is running at a four-decade high.
- The central bank also penciled in six more rate increases this year.
- The yield on the benchmark 10-year Treasury note moved down to 2.139% from 2.185% on Wednesday, reversing direction after three straight days of rises.
- Selling of shorter-dated bonds, which are more heavily affected by changes in monetary policy, also eased with the two-year yield declining to 1.918% after climbing for eight trading sessions.
- The Bank of England raised its key policy rate to 0.75% from 0.5%, marking its third straight hike in as many meetings.
- The central bank said that economic growth in Britain was likely to slow due to higher energy prices and softened its guidance for further monetary tightening, investors said.
- Traders said they still have concerns about longer-term energy supplies and that the shunning of Russian oil by shipping companies and banks is hitting the market now due to preplanned trades ahead of the invasion.
- The International Energy Agency said in a Wednesday report that sanctions on Russia could create a supply shock.
- Chinese shares rallied for a second day, with Hong Kong’s Hang Seng Index advancing more than 7% and the Shanghai Composite Index rising 1.4%.
- Among big Chinese technology companies, shares in Tencent Holdings gained 6% and Meituan surged 12%.
- Beaten-down property shares also rocketed higher, with Country Garden Holdings adding 28%.
- Key equity indexes in Australia and South Korea gained more than 1% in Thursday’s session, while Japan’s Nikkei 225 surged nearly 3.5%.
Lennar revenue beats on soaring home prices; shares up – Reuters, 3/16/2022
- Lennar beat market estimates for quarterly revenue on Wednesday, helped by record-high property prices as demand continued to outpace supply that was hit by raw material and labor shortages.
- Lennar’s first-quarter revenue came in at $6.20 billion, ahead of analysts’ estimates of $6.08 billion.
- Orders, an indicator of future revenue, rose 1% to 15,747 homes in the reported quarter, while deliveries increased 2% to 12,538 units.
- Net earnings attributable to the company fell to $503.6 million, or $1.69 per share, in the quarter ended Feb.28, from $1 billion, or $3.20 per share, a year earlier.
- The company said it expects second-quarter new orders of between 17,800 and 18,200 homes, barely hours after the U.S. Federal Reserve raised interest rates by a quarter of a percentage point.
- Lennar’s backlogs at the end of the first quarter rose to 27,335 from 22,077 a year ago.
Warby Parker offers weak outlook, reports loss from holiday quarter – CNBC, 3/17/2022
- Warby Parker on Thursday reported continued losses and said its sales were hurt during the holiday quarter due to the omicron variant of Covid-19, which kept people out of the eyewear retailer’s stores.
- Revenue grew to $132.9 million from $112.8 million a year ago.
- Warby Parker booked a net loss in the three-months ended Dec. 31 of $45.9 million, or 41 cents a share, compared with a loss of $4.3 million, or 8 cents a share, a year earlier.
- Analysts were expecting Warby Parker to report sales of $133 million in its fourth quarter on a loss of 9 cents per share, according to Refinitiv data.
- Average revenue per customer increased 13% year over year to $246, the company said.
- In 2021, Warby Parker’s e-commerce sales represented 46% of total revenue, down slightly from 50% in 2020, but up from 35% in 2019.
Ukraine War’s Global Economic Impact to Hit Poorest Hardest, OECD Says – Wall Street Journal, 3/17/2022
- Russia’s invasion of Ukraine will be felt by households around the world through higher energy and food prices, with disruptions to trade and fragile confidence contributing to a significant weakening of global economic growth, the Organization for Economic Cooperation and Development said Thursday.
- The Paris-based research body calculates that global economic growth will be 1.1 percentage points lower, and inflation just short of 2½ points higher than if the invasion had not taken place.
- In late 2021, the OECD forecast the global economy would grow by 4.5% this year, and consumer prices would rise by 4.2%.
- The OECD estimates that the eurozone economy will see growth that is 1.4 percentage points weaker than if the invasion had not taken place, with the U.S. seeing a loss of around 0.9 of a percentage point.
- In its previous forecasts, the OECD had expected the eurozone economy to grow by 4.3% in 2022, and the U.S. economy to grow by 3.7%.
- The OECD calculates that Russia and Ukraine account for 30% of global wheat exports, more than a quarter of world fertilizer exports and almost 15% of maize exports.
- Prices of wheat have almost doubled since the start of the invasion on Feb. 24, while fertilizer prices have risen by more than three-quarters and maize prices by more than 40%.
- The OECD’s worries about the impact of the war on the world’s poorest people and countries was echoed by the United Nations, which in a separate report estimated that more than 5% of the imports of the poorest countries are composed of goods that have seen price rises since the invasion, compared with just 1% of the imports of rich countries.
- The U.N. calculates that in the years 2018 through 2020, 32% of Africa’s wheat imports came from Russia and another 12% from Ukraine. In Somalia and Benin, all imported wheat during those years came from the countries at war.
IMF says Fed tightening appropriate, adds to risks for emerging markets – Reuters, 3/17/2022
- The U.S. Federal Reserve is acting “appropriately” to tighten monetary policy and signal a higher future rate path, but the policy shift does bring risks for emerging market countries dependent on dollar funding, IMF spokesman Gerry Rice said on Thursday.
- Speaking at a regular IMF news conference a day after the Fed raised interest rates by a quarter percentage point for the first time since 2018 read more, Rice said that countries would have a more difficult time assessing the policy impacts of the Fed move, due to widely differing post-pandemic economic circumstances and effects from the war in Ukraine.
- Continuing to give clear forward guidance that reacts proportionately to shifts in the data will help keep inflation expectations anchored, Rice said. “This faster pace of Fed normalization increases the risks faced by other countries reliant on dollar funding, especially in emerging and developing economies.”
Microsoft Faces Antitrust Complaint in Europe About Its Cloud Services – Wall Street Journal, 3/17/2022
- A French cloud-computing company has filed an antitrust complaint in Europe against Microsoft, adding to recent criticism of the competitive practices at a company that has largely avoided the recent regulatory scrutiny aimed at rival tech giants.
- OVHcloud said it filed the complaint with the European Commission, the European Union’s top competition regulator.
- The complaint focuses on the way Microsoft licenses its products, such as its Office productivity suite, that may make it more expensive to use cloud services that compete with Microsoft’s Azure cloud, people familiar with the complaint said.
- The complaint, which OVHcloud filed last summer but which hasn’t previously been reported, also alleges that Microsoft’s software doesn’t work as well on other cloud services, making it harder for them to compete, the people said.
Canadian Pacific Railway Threatens Lockout in Labor Dispute – Wall Street Journal, 3/17/2022
- Canadian Pacific Railway said it would lock out employees on March 20 if the union representing train conductors and engineers fails to negotiate a new contract or agree to binding arbitration.
- The railway has been in contract discussions or mediation since September with the Teamsters Canada Rail Conference, the union representing over 3,000 Canadian Pacific employees.
- The union is seeking a number of wage, pension and benefit improvements.
- A lockout or possible strike action by the union would strand large volumes of shipments of commodities and manufacturing and consumer goods.
- The strike also would delay shipments of fertilizer such as Canadian potash ahead of the spring planting season.
- Demand for Canada’s potash increased significantly after supplies of the commodity from Russia and Belarus were blocked by sanctions.
Nickel Plunges as Traders Fume Over Latest London Metals Mayhem – Bloomberg, 3/17/2022
- Nickel fell by the maximum allowed for a second day as the market seeks to reset from last week’s historic short squeeze, while brokers were left stunned as yet another glitch delayed the start of trading in London.
- Nickel futures on the London Metal Exchange plunged by the 8% daily limit on Thursday to $41,945 a ton, although only a handful of trades were recorded.
- Prices dropped by the previous 5% floor on Wednesday when the market opened from a week-long suspension imposed to try and restore order to the market after an unprecedented spike in nickel caused chaos across the metals industry.
- Speaking privately on Thursday morning, several investors and brokers said they were stunned by the repeated blunders. One usually garrulous hedge fund manager said he was lost for words.
Shoppers Reach Their Limits on Some Price Increases – Wall Street Journal, 3/17/2022
- Apparel retailers and department stores are bumping up against pockets of price resistance, a sign that consumers are curtailing spending as inflation remains at the highest level in four decades.
- Unit sales of general merchandise goods such as apparel, footwear, toys and sports equipment declined in nine of the 10 weeks from Dec. 26 through March 5 compared with the same period a year ago, according to market research firm NPD Group.
- Roughly 43% of consumers surveyed by NPD in February said that if prices continue to rise, they will delay less-important purchases to stick to a budget.
- Analytics company DataWeave Inc. found wide disparities in the price increases by item and gender.
- The average price of skirts is up 31% compared with a year ago, while pants cost only 8.6% more. Women on average are paying an extra 13% for pants, while men are paying an additional 5.3%.
US ECONOMY & POLITICS
Fed Raises Interest Rates for First Time Since 2018 – Wall Street Journal, 3/17/2022
- Federal Reserve officials voted Wednesday to lift interest rates and penciled in six more increases by year’s end, the most aggressive pace in more than 15 years, in an escalating effort to slow inflation that is running at its highest levels in four decades.
- Officials signaled they expect to lift the rate to nearly 2% by the end of this year—slightly higher than the level that prevailed before the pandemic hit the U.S. economy two years ago, when they slashed rates to near zero.
- Their median projections show the rate rising to around 2.75% by the end of 2023, which would be the highest since 2008.
- The Fed’s postmeeting statement hinted at rising concern about inflation that initially appeared last year to be driven by pandemic-related bottlenecks but has since broadened.
- Mr. Powell signaled greater concern that higher inflation might persist due to a hot job market with record job openings and wages up at their fastest pace in years. “That’s a very, very tight labor market—tight to an unhealthy level, I would say,” he said.
- Mr. Powell said that the Fed could finalize a plan to shrink its $9 trillion asset portfolio at its next meeting, May 3-4, and to implement it shortly afterward. The central bank ended a long-running asset-purchase stimulus program last week.
U.S. Factory Output Exceeds Forecast, Rises Most in Four Months – Bloomberg, 3/17/2022
- Production at U.S. factories rose in February by the most in four months, indicating firmer momentum in a manufacturing sector still challenged by supply constraints and higher costs.
- The 1.2% increase followed a revised 0.1% gain in January, Federal Reserve data showed Thursday.
- Total industrial production, which also includes mining and utility output, rose 0.5% last month.
- Capacity utilization at factories rose in February to 78%, the highest since 2018, from 77.1% a month earlier.
- The pickup in manufacturing output was broad-based in February, save for a drop in production of motor vehicles and parts.
- The Fed said that the 3.5% decline reflected ongoing shortages of electronics components.
- Excluding autos and parts, factory output advanced 1.5%.
Housing Starts in U.S. Rebound to Fastest Pace Since Mid-2006 – Bloomberg, 3/17/2022
- New U.S. home construction rebounded in February to the strongest pace since 2006, suggesting builders had greater success navigating material and labor constraints in the month.
- Residential starts increased 6.8% last month to a 1.77 million annualized rate, according to government data released Thursday.
- Applications to build, a proxy for future construction, eased to an annualized 1.86 million units, though remained elevated.
- Single-family starts advanced 5.7% in February to an annualized pace of 1.22 million units. Multifamily starts, which include apartment buildings and condominiums, increased to 554,000, the strongest pace since January 2020.
Jobless Claims Edge Lower in Tight U.S. Labor Market – Wall Street Journal, 3/17/2022
- New applications for unemployment benefits edged lower last week, remaining near historically low levels in a robust U.S. labor market.
- Initial jobless claims, a proxy for layoffs, fell by 15,000 to a seasonally adjusted 214,000 for the week ended March 12, the Labor Department said Thursday.
- The four-week moving average, which smooths out week-to-week volatility, decreased to 223,000, compared with the previous week’s revised 231,750.
- Continuing claims, a proxy for the number of people receiving payments from state unemployment programs, fell to 1.41 million on the week ended March 5, down from 1.49 million the week earlier. Continuing claims are reported with a one-week lag.
U.S. Mortgage Rates Jump, Topping 4% for First Time Since 2019 – Bloomberg, 3/17/2022
- Mortgage rates in the U.S. soared, surpassing 4% for the first time in almost three years.
- The average for a 30-year loan was 4.16%, up from 3.85% last week and the highest since April 2019, Freddie Mac said in a statement Thursday.
- Rates haven’t been above 4% since May of that same year.
- While rates are expected to climb in the long-term, the next few weeks will be unpredictable as financial markets continue to churn.
- Meanwhile, inflation and escalating home prices continue to erode Americans’ buying power, putting the dream of homeownership increasingly out of reach for many.
Top U.S. port sets import record, eyes China COVID risk – Reuters, 3/16/2022
- The busiest U.S. seaport expects its robust flow of imports to continue in the near term, but is closely monitoring COVID-19 shutdowns in major cities in China, its executive director said on Wednesday.
- The Port of Los Angeles and the adjacent Port of Long Beach handle more imports from China than any other U.S. ocean gateways. They set a new record for imports in February, handling a combined 814,408 20-foot equivalent units (TEU) – 3.5% more than the year earlier.
- Forty-four ships are already sailing cargo to the Southern California port complex, versus the 30 that are typically seen at this time of the year, Seroka said.
- Meanwhile, China has put millions of people under lockdown in a bid to stop the spread of a highly contagious Omicron variant.
- That action is already impacting factories that make everything from electric scooters to Apple iPhones .
- While major air and sea ports in Shenzhen and Shanghai continue to operate, locals are reporting that trucks are delayed by road and testing restrictions and that some Shenzen warehouses are no longer accepting deliveries.
EUROPE & WORLD
Bank of England Raises Key Rate for Third Time, Cites Ukraine Price Pressures – Wall Street Journal, 3/17/2022
- The Bank of England raised its key interest rate for the third time in as many policy meetings Thursday, a fresh sign that central banks in many parts of the world are giving priority to countering a surge in inflation rather than slowing growth as their economies brace for the negative impact of Russia’s war on Ukraine.
- The BOE’s decision came a day after the Federal Reserve announced its first rate rise since 2018, penciling in six more increases by year’s end, and was made for similar reasons.
- The U.K.’s central bank lifted its key rate to 0.75% from 0.5%, and said further increases might be needed over the coming months, although it added that “there are risks on both sides of that judgment.”
Chinese President Vows to Control Covid Outbreak With Smallest Cost – Wall Street Journal, 3/17/2022
- Chinese President Xi Jinping vowed to reduce the impact of Covid-control measures on the economy and people’s lives, a first acknowledgment from leadership of the costs of China’s stringent policies to rein in outbreaks.
- In a Thursday meeting of the Politburo Standing Committee, the Communist Party’s top decision-making body, Mr. Xi asked officials to minimize the impact on the Chinese economy and people’s lives from Covid-control measures, according to the official Xinhua News Agency.
- Mr. Xi said China must “strive to achieve the biggest prevention and control effect with the smallest cost, and minimize the impact of the Covid situation on economic and social development,” Xinhua reported.
- China is facing the biggest wave of Covid-19 infections since Wuhan became the original epicenter of the pandemic in early 2020. Several local governments have resorted to the same playbook used over the past two years to stamp out outbreaks by ordering large-scale shutdowns and mass testing.
China’s factories opt for isolation bubbles to beat COVID curbs and keep running – Reuters, 3/17/2022
- To keep factory lines open in the face of COVID curbs Chinese firms are asking workers to eat, sleep and work in bubbles isolated from the wider world, sterilizing premises as often as three times a day and testing for COVID daily.
- Dubbed “closed-loop management”, this approach has been part of China’s efforts over the past two years to keep local transmission extremely low by global standards.
- Many of the harshest curbs have been applied in manufacturing hubs such as Shenzhen, Dongguan and Changchun, forcing numerous factories to shut.
- State media outlet Securities Times said on Thursday that television maker TCL, chip fab Semiconductor Manufacturing International Corp, and Apple supplier Shenzhen Deren Electronic Co were keeping factories in affected areas open via closed loop systems.
iPhone Assembler Foxconn Forecasts Tough Operating Environment From Pandemic, Inflation, War – Wall Street Journal, 3/17/2022
- Foxconn Technology Group, Apple’s biggest iPhone assembler, forecast a more challenging operating environment this year, citing the fallout on global supply chains from the prolonged pandemic, geopolitical events and inflation.
- The company also said Wednesday that it has restarted some production at its factories in the southern Chinese city of Shenzhen after a coronavirus outbreak led it to suspend operations there earlier this week.
- Taiwan-based Foxconn, formally known as Hon Hai Precision Industry Co., reported that full-year net profit last year rose 37% to a record NT$139.3 billion, equivalent to $4.9 billion, thanks to robust demand for consumer electronics and cloud and networking products.
- Still, net profit fell slightly by 3% in the October-December quarter from a year earlier.
- On Wednesday, Mr. Liu said Foxconn is ramping up its efforts to manufacture electric vehicles and plans to expand into the vehicle-battery industry.
- In the past, he has said the company aims to supply about 10% of the global market annually by 2027, or about three million electric vehicles.
Japan parts makers halt output after quake, another blow to supply chain – Reuters, 3/17/2022
- Japan’s Renesas Electronics, Murata Manufacturing, Sony Group and other precision parts makers halted some operations on Thursday after an earthquake jolted the country’s northeast, the latest blow to the global supply chain.
- Thursday’s production halt comes after pandemic-related component shortages have already hobbled production of autos and electronics globally.
- Renesas last year emerged as a supply chokepoint after a fire broke out at its Naka plant in Ibaraki prefecture.
- The firm, which makes nearly a third of the microcontroller chips used in cars globally, said on Thursday it had temporarily halted production at two plants and partially stopped output at a third.
- Among them was the advanced 300 millimeter wafer Naka plant.
- Ford Motor said as much as 80% of its lost vehicle production in the second quarter of last year was due to the fire.
- One of Japan’s best known conglomerates, Sony, said it halted production at two factories in Miyagi prefecture and a third factory in Yamagata prefecture producing storage media, laser diodes and image sensors.
Thyssenkrupp drops cash flow forecast, questions steel plans due to Ukraine – Reuters, 3/17/2022
- Germany’s Thyssenkrupp on Wednesday suspended its 2021/22 forecast for free cash flow before mergers and acquisitions for due to the Ukraine crisis and said it was unclear if it would still be able to spin off its steel division.
- Although the group’s sales in Russia and Ukraine are negligible at less than 1% of total sales, Thyssenkrupp said it expected business to be hit by the far-reaching macroeconomic and geopolitical consequences of the war in Ukraine.
- Until the start of the war, business in the first and second quarter of the fiscal year were going according to plan, it said.
- “In March, initial negative effects occurred primarily in the steel and automotive supply businesses,” it said, adding the board still expected adjusted EBIT for the second quarter to be above the previous quarter.
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