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Daily Market Report | March 21, 2022

US FINANCIAL MARKET

Dow Industrials Move Lower After Last Week’s Rally – Wall Street Journal, 3/21/2022

  • U.S. stocks edged lower and oil prices rose after major indexes notched their strongest week since November 2020.
  • The S&P 500 traded down less than 0.1% Monday in early trading. The tech-focused Nasdaq Composite Index declined 0.6% and the Dow Jones Industrial Average receded about 150 points, or 0.4%.
  • In bond markets, the yield on the benchmark 10-year Treasury note rose to 2.248% from 2.146% Friday—its highest level since May 2019, according to Tradeweb.
  • In individual stocks, Boeing shares fell 4.5% after a Boeing 737 passenger plane operated by China Eastern Airlines carrying more than 130 people crashed in southern China.
  • Shares of Nielsen Holdings dropped 8.8% after it rejected a roughly $9 billion takeover offer from a private-equity consortium, saying that the offer undervalued the TV-ratings company.
  • Shares of insurer Alleghany soared 25% after Berkshire Hathaway said it agreed to buy the company for about $11.6 billion in cash.
  • Brent-crude futures, the international benchmark, added 5.7% to $114.16 a barrel. Their U.S. counterpart (WTI) was up 5.4% to just below $110 a barrel.
  • Elevated oil prices have prompted concerns of sustained high inflation and lower economic growth in the U.S. and Europe, as gas and energy prices eat away at household spending on other goods and services.
  • The pan-continental Stoxx Europe 600 traded flatly Monday. Russia’s stock market remains closed, but trading of Russia’s local-currency government bonds resumed Monday.
  • Russia’s central bank said it would purchase government bonds. Gov. Elvira Nabiullina said last week that the Moscow Exchange would reopen gradually but provided no details beyond the bond buying.
  • The Egyptian pound fell by more than 13% against the dollar Monday after Egypt’s central bank raised its key interest rate at a meeting of policy makers that was brought forward by three days, citing the pickup in inflation pressures it sees following Russia’s invasion of Ukraine.
  • As with many countries in Africa, Egypt has relied heavily on Ukraine and Russia for its imports of wheat. According to the United Nations, more than 80% of its wheat imports came from the warring countries between 2018 and 2020.
  • Major indexes in Asia closed with mixed performance. South Korea’s Kospi fell 0.8% and Hong Kong’s Hang Seng declined 0.9%. China’s Shanghai Composite edged up 0.1%. Markets in Japan were closed for a holiday.

China Eastern Airlines Boeing 737 Crashes in China With 132 People Aboard – Wall Street Journal, 3/21/2022

  • A Boeing 737 passenger plane operated by China Eastern Airlines carrying 132 people dropped from the sky and slammed into the mountains of southern China, according to officials and flight-tracking data.
  • China Eastern Flight 5735 crashed in the Guangxi region as it was flying from the southwestern city of Kunming to the southern metropolis of Guangzhou on Monday afternoon, the Civil Aviation Administration of China said in a statement online.
  • Video footage circulated by state media showed a plume of gray smoke emerging from the crash site and what appeared to be a wing fragment lying along the side of a mountain trail with the Chinese characters for “China Eastern” partly visible.
  • The plane was carrying 123 passengers and nine crew members, the regulator said. If all aboard are confirmed dead, it would mark China’s deadliest crash in nearly three decades.
  • China’s state broadcaster, citing a China Eastern source, reported that the airline has grounded all of its 737-800 aircrafts.

Oil Surges With Growing Supply Fears as EU Considers Russian Ban – Bloomberg, 3/21/2022

  • Oil rose for a third day as the war in Ukraine neared the one-month mark with no conclusion in sight.
  • Futures in New York rose as much as 6.5%, trading near $111 a barrel. Several European Union countries are pushing for a fifth round of sanctions on Russia, though some remain opposed to including oil in those measures.
  • The Kremlin said an EU ban on oil imports from Russia would have a profound effect on the global crude market and hit the continent the hardest.
  • The rally in oil prices has spurred importing nations to pressure other producers to step up supply, including members of the Organization of Petroleum Exporting Countries.
  • During the weekend, Japan urged the United Arab Emirates to increase exports. Meanwhile, oil giant Saudi Aramco plans to raise spending as it seeks to boost output.

Shale Companies Drilling More, but Oil Output Growing Little – Wall Street Journal, 3/21/2022

  • American frackers are raising the number of drilling rigs in oil fields by more than 20%, but don’t expect a similarly sized increase in production.
  • Though the number of active U.S. oil-directed rigs has grown by roughly one-fifth in the past six months, much of the new activity is to make up for a depleted inventory of wells drilled before the pandemic, executives said.
  • Frackers brought the best of those online last year instead of drilling new ones and will have to drill more than usual this year to offset those lost wells.
  • Another significant constraint is the loss of thousands of ready-to-go wells, known as drilled but uncompleted wells, or DUCs, which companies had amassed last decade, then used up to survive the pandemic.
  • Those wells could have helped speed the industry’s response to high oil prices by several months, executives and analysts said.

Berkshire Hathaway to Buy Insurer Alleghany for $11.6 Billion – Wall Street Journal, 3/21/2022

  • Berkshire Hathaway on Monday said it agreed to buy insurer Alleghany for about $11.6 billion, as billionaire Warren Buffett’s investment vehicle puts some of its massive cash pile to work in a deal that bolsters its insurance arm.
  • Berkshire said it will pay $848.02 a share in cash for Alleghany, a 25.3% premium to Friday’s closing price of $676.75 and a multiple of 1.26 times the New York company’s book value at the end of 2021.
  • Alleghany is best known for its core property and casualty insurance businesses but has also accumulated a diverse group of increasingly profitable noninsurance divisions and has been likened to a mini Berkshire.

Nielsen Rejects Roughly $9 Billion Takeover Offer From Private-Equity Consortium – Wall Street Journal, 3/21/2022

  • Nielsen Holdings rejected a roughly $9 billion takeover offer from a private-equity consortium, saying that it undervalues the TV-ratings company.
  • The Wall Street Journal reported last week that Elliott Management Corp. was part of a private-equity group in advanced talks to buy Nielsen for roughly $15 billion including debt. Nielsen said Sunday it wouldn’t proceed with a bid that would have valued the company at $25.40 a share, without naming members of the consortium.
  • Nielsen said that WindAcre Partnership, which has a roughly 10% stake and additional exposure of 14% through swaps, had told the company that if it were to accept the proposal, the Houston investment firm would block the transaction.
  • Nielsen said WindAcre was considering joining the buyer group but ultimately decided against it, believing the proposal undervalued the company.

Cash Crunch Drives Wild Moves in Commodities – Wall Street Journal, 3/21/2022

  • Commodity traders are being hit by huge cash requests from banks and exchanges, propelling whipsaw moves in markets and hindering the movement of materials beyond Russia and Ukraine.
  • Exchanges and the brokerage arms of banks are demanding big down payments, known as margin, from traders in futures contracts linked to commodities such as oil, wheat and natural gas.
  • To avoid the expense of holding on to positions in markets, some companies are unwinding trades, fueling further price moves.
  • A prominent sign that higher margins are hurting activity: the number of outstanding benchmark Brent and West Texas Intermediate futures falling by more than half this year.
  • That has fed into wild swings in the price of oil. Brent-crude futures have risen or fallen by 4% or more on nine trading days since Russia invaded Ukraine on Feb. 24.
  • Prices shot to a 14-year high of almost $140 a barrel before skidding below $100 a barrel after margin payments prompted traders to unravel positions.
  • Brent rose back above $110 a barrel Monday after Saudi Arabia said Houthi forces in Yemen had attacked facilities belonging to state oil company Aramco.

Porsche and Apple Held Talks Last Year About Undisclosed Projects – Wall Street Journal, 3/21/2022

  • Porsche and Apple have held early discussions about potential joint projects, the sports-car maker’s chief executive said Friday.
  • While Porsche boss Oliver Blume gave no details about the talks—even when pressed by reporters—his comment during the German company’s annual earnings call with journalists could rekindle longstanding speculation about a possible Apple foray into the auto sector.
  • Executives from Porsche traveled to the U.S. late last year for meetings with Apple and other tech companies about potential cooperation, Mr. Blume said.
  • “We already have Apple CarPlay. We will expand on that,” he said of the tech company’s software that connects iPhones to the dashboards of most new cars, adding, “We discussed a range of exciting projects with the Apple [executives].”
  • The meeting between Mr. Blume, Porsche Chief Financial Officer Lutz Meschke and other Porsche board members with still-undisclosed Apple executives took place in November on the sidelines of the Los Angeles Auto Show, a person familiar with the situation said.

Canadian Pacific Railway Work Stoppage Threatens New Supply-Chain Snarl – Wall Street Journal, 3/21/2022

  • Canadian Pacific Railway trains were halted Sunday morning, stalling global shipments of key manufactured goods and commodities such as fertilizers, after an impasse in contract negotiations between the company and its conductors and engineers.
  • Canadian Pacific and the Teamsters Canada Rail Conference, which represents more than 3,000 conductors, engineers and yard workers at the railway, disagreed over what triggered the breakdown in talks. The railway has been in negotiations and mediation since September with the union, which seeks increased wage and pension benefits and more rest times.
  • The Teamsters initially referred to the work halt Sunday as a lockout and later described it as both a lockout and a strike. Patrick Waldron, a spokesman for Canadian Pacific, disputed the characterization that the shutdown was a lockout.
  • Canadian Pacific is the sixth-largest freight railway in North America, shipping goods across Canada and south to central U.S. states. It is the primary shipper of fertilizers such as Canadian potash, which is mined in the province of Saskatchewan.

U.S. Importers Are Trying to Ship Around Potential Labor Disruption – Wall Street Journal, 3/21/2022

  • U.S. importers are already starting to reset their supply chains to avoid disruptions ahead of potentially contentious contract talks this summer between West Coast dockworkers and the companies that manage the flow of goods through ports.
  • Some shippers are pulling forward their holiday-season orders to get them into domestic networks early, logistics operators said, and many are diverting cargo that normally moves through the West Coast to East Coast and Gulf Coast ports. Shipping executives said that is helping spread congestion that has gripped California’s ports of Los Angeles and Long Beach, underscoring the difficulty importers face in reconfiguring supply chains built around the dominant West Coast gateways.
  • Labor talks on the West Coast—covering 22,400 dockworkers at 29 ports from Washington state to Southern California—are expected to begin in the coming months, though no formal start date has been set. The sides will be seeking to replace an agreement that expires July 1.
  • In past years, labor talks have taken months to resolve. During combative negotiations that ran from 2014 to 2015, slowdowns at the ports caused lengthy backups in ships off the Southern California coast.

US ECONOMY & POLITICS

Women Are Winning the Biggest Pay Raises From U.S. Labor Boom – Wall Street Journal, 3/21/2022

  • Wage growth for American women is increasing at a faster rate than for men, a stark shift from earlier in the Covid-19 pandemic.
  • Female wages were up 4.4% in February from a year earlier, compared with a 4.1% rise in male wages, according to the Atlanta Federal Reserve’s wage tracker. That marks the sixth straight month that women’s wage growth outpaced men’s. Female wage gains exceeded male gains by 0.5 percentage point in December, matching the widest margin for records tracing back to 1997.
  • These pay gains are helping women regain ground in the labor market after they endured big setbacks at the start of the pandemic.
  • Women account for a disproportionate share of lower-wage service-sector jobs in personal care, food preparation and healthcare support, which saw steep cuts when the pandemic struck. Businesses in these industries widely reopened last year.
  • Since then, many have struggled to find employees, lifting pay for workers who typically face greater barriers to employment.

Fed’s Bostic Favors Six Rate Hikes in 2022, Fewer Than Colleagues – Bloomberg, 3/21/2022

  • Federal Reserve Bank of Atlanta President Raphael Bostic said he favored six quarter-point interest-rate hikes in 2022, a less aggressive approach than most of his fellow officials, in light of increased uncertainty about the outlook following Russia’s invasion of Ukraine.
  • “I penciled in six rate hikes for 2022 and two more for 2023,” Bostic said in a speech Monday to a National Association for Business Economics conference in Washington. “I recognize that I am toward the bottom of the distribution relative to my colleagues, but the elevated levels of uncertainty are front forward in my mind and have tempered my confidence that an extremely aggressive rate path is appropriate today.”
  • “The risks go both ways,” Bostic said. “Should demand falter in the face of economic uncertainty or removal of monetary policy accommodation, then the appropriate path may be shallower than I currently project. But there are other developments, such as shifts in supply strategies, that could mean higher costs and thus motivate a steeper policy path than I expect.”
  • He later told reporters that he’d be prepared to raise rates above neutral but “that is just not my baseline today.”

EUROPE & WORLD

China Evergrande Halts Trading in Its Stocks – Wall Street Journal, 3/21/2022

  • Shares of China Evergrande Group and two key subsidiaries were halted from trading Monday pending the release of inside information, pointing to a potential advance in the planned restructuring of the giant developer.
  • Hong Kong-listed Evergrande, China Evergrande New Energy Vehicle Group and Evergrande Property Services Group were halted from trading before the market opened Monday.
  • None of the three companies gave further detail, and trading of the stocks were suspended through the end of the trading day.
  • Evergrande, which has amassed more than $300 billion in liabilities, defaulted on some offshore debt in December.
  • The developer holds a roughly 58% stake in the property-services unit and nearly 59% of the car company, also known as Evergrande Auto, filings show.
  • Last year, Evergrande and its property-services arm suspended trading amid talks to sell a majority stake in the services unit to rival developer Hopson Development Holdings Ltd. Evergrande later called off the plan.

Saudi Arabia Calls for Help to Tackle Houthi Oil Attacks – Bloomberg, 3/21/2022

  • Saudi Arabia, facing calls from major oil-consuming nations to pump more crude, said it can’t be held responsible for any drop in output if it doesn’t get more help to deter attacks from Yemen.
  • The warning comes after Iran-backed Houthi rebels struck at least six sites across the kingdom over the weekend, the latest in a string of drone and missile assaults on the country in recent years. Any successful attempt to disrupt supply could further tighten a market that’s seen oil soar above $100 a barrel amid Russia’s war in Ukraine.
  • The Saudi government “will not bear any responsibility for any shortage in oil supplies to global markets in light of the attacks,” the state-run Saudi Press Agency reported, citing an official at the Foreign Ministry. There could be “serious consequences for upstream and downstream sectors,” it said.

China’s Pinduoduo misses quarterly revenue estimates – Reuters, 3/21/2022

  • Chinese e-commerce platform Pinduoduo on Monday reported quarterly revenue that missed Wall Street estimates, as it battles fierce competition from Alibaba and JD.com in the rapidly growing online shopping space.
  • U.S.-listed shares of Pinduoduo fell as much as 12% in premarket trading before paring losses.
  • Total revenue was 27.23 billion yuan ($4.29 billion) in the fourth quarter, below estimates of 30.10 billion yuan, according to IBES data from Refinitiv.
  • Gross merchandise value (GMV), a metric widely used at e-commerce companies to measure the total value of sales, reached 2,441 billion yuan last year for the Shanghai-headquartered firm, up 46% from 2020.
  • Net income attributable to ordinary shareholders was 6.62 billion yuan in the quarter ended Dec. 31, compared with a loss of 1.38 billion yuan a year ago.

Factmonster – TODAY in HISTORY

  • The French civil code, the Code Napoleon, was officially put forth. (1804)
  • Police fired on demonstrators in Sharpeville, South Africa, after which the African National Congress was banned. 25 years later, a march marking the anniversary was also disrupted by police fire. (1960)
  • Alcatraz Prison in San Francisco Bay, a harsh maximum security jail which once housed gangster Al Capone, closed. (1963)
  • Martin Luther King, Jr., led the start of a civil rights march from Selma to Montgomery, Alabama. (1965)
  • The House of Representatives passes a bill that will overhaul the American health-care system. The bill, called the Patient Protection and Affordable Care Act, will be sent to President Obama to sign into law. (2010)

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