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Daily Market Report | March 22, 2022

US FINANCIAL MARKET

U.S. Stocks Rise After Powell Says Fed Is Ready to Be More Aggressive – Wall Street Journal, 3/22/2022

  • U.S. stocks rose and government-bond yields jumped Tuesday, as investors continued to digest Federal Reserve Chairman Jerome Powell’s more aggressive tone on reining in inflation.
  • The morning’s moves had all three U.S. indexes up at least 2% for the month so far, building on last week’s gains.
  • They finished Monday lower after Mr. Powell said the Fed was prepared to raise interest rates in half-percentage-point steps if needed to tamp down inflation.
  • The Dow Jones Industrial Average rose 225 points, or 0.7%, in morning trading.
  • The S&P 500 climbed about 1% and the Nasdaq Composite added 1.7%.
  • Nike advanced 3.5% after the big apparel maker reported revenue that beat analyst expectations.
  • In the U.S. Treasury market, a selloff in government bonds intensified, sending the yield on the 10-year U.S. Treasury note climbing to 2.377%, from 2.315% Monday.
  • The yield on the benchmark note is now around its highest level since May 2019, before the Covid-19 pandemic upended financial markets.
  • Many investors are keeping a close watch on the so-called yield curve, which measures the spread between short- and long-term rates and is often seen as a strong indicator of sentiment about the prospects for economic growth.
  • Recently, the gap between yields on shorter-term and longer-term U.S. Treasury bonds has been shrinking, stirring anxieties that the bond market is close to signaling a potential recession.
  • The two-year Treasury yield—which is especially sensitive to changes in monetary policy—climbed to 2.187% Tuesday, from 2.132% Monday.
  • Shares of banks rose, tracking similar moves in Europe. Financial stocks led the S&P 500’s early gains, with the sector rising about 2%.
  • Wells Fargo jumped 4.8%, Signature Bank and Charles Schwab, the brokerage firm, rose 4.2%.
  • In Europe, Société Générale advanced 0.9% and Deutsche Bank jumped 3.6%.
  • In Europe, the pan-continental Stoxx Europe 600 increased 0.5%, putting it on pace to rise for a fifth consecutive session.
  • In Asia, major indexes also largely ended higher. Hong Kong’s Hang Seng gained about 3.2%, while Japan’s Nikkei 225 rose 1.5%. China’s Shanghai Composite advanced 0.2%.

Nike Sales Rise as It Navigates Supply-Chain Snarls – Wall Street Journal, 3/21/2022

  • Nike sales grew in the latest period as the sneaker giant benefited from gains in its digital business while navigating supply-chain snarls and efforts to boost production in Asia.
  • The company posted revenue of $10.9 billion in the quarter ended Feb. 28, up 5% from the same period a year earlier.
  • Analysts expected revenue of $10.6 billion.
  • Nike recorded year-over-year increases in sales in North America as well as two other divisions—Europe, Middle East and Africa; and Asia Pacific & Latin America.
  • In Greater China, overall sales fell 5% to $2.16 billion.
  • Profit was roughly flat compared with a year earlier at $1.4 billion, or 87 cents a share.
  • Nike said Monday that consumer demand continues to outpace inventory supply.
  • While the company said it expected supply-chain constraints to normalize in future quarters, other issues from rising inflation to the Russia-Ukraine crisis could hurt its sales in the short term.
  • The company said its inventories were up 15% due to extended lead times.

Carnival forecasts loss in 2022 on surging fuel prices – Reuters, 3/22/2022

  • Carnival, on Tuesday forecast a loss for the year as the U.S. cruise operator’s efforts to gradually restart operations after a long pandemic-led hiatus face a setback from a surge in fuel prices due to the Russia-Ukraine war.
  • The cruise operator’s revenue rose to $1.62 billion in the reported quarter, from $26 million a year earlier, below analysts’ average estimate of $2.26 billion, according to IBES data from Refinitiv.
  • Excluding items, the company posted a loss of $1.66 per share, compared with analysts’ expectation of a loss of $1.26.
  • The company said it had resumed 75% of its guest cruise operations capacity, and expects to have its full fleet back in the summer with a positive monthly adjusted earnings before interest, taxes, depreciation, and amortization.
  • The owner of Cunard and Holland America cruise lines reiterated a net loss for the second quarter, but forecast a return to profit in the third quarter as it resumes to full capacity and booking trends improve.

US banks take $4.6bn revenue hit from equity raising drought – Financial Times, 3/21/2022

  • The biggest US investment banks have taken a $4.6bn revenue hit from the freeze in equity raisings because of recent market volatility, a sharp slowdown for Wall Street which raked in record profits from stock sales last year.
  • Morgan Stanley, JPMorgan Chase, Bank of America, Goldman Sachs and Citigroup have generated a cumulative $645mn from equity capital market (ECM) fees so far this year, according to data provider Dealogic, compared with $5.3bn in the same period in 2021. Industry-wide ECM fees are down more than 75 per cent year on year at $2.7bn.
  • There was not a single traditional initial public offering in the US between February 17 and March 14, the longest drought outside of a holiday season since 2017, according to Dealogic data.
  • Volumes of follow-on share sales and convertible bond issuance have also slowed dramatically, and the dry spell is set to cause a sharp reduction in first-quarter revenues at banks that benefited from a deluge of deals early last year.
  • Only one company — private equity firm TPG — has raised more than $250mn in an IPO this year, compared with 43 in the first 13 weeks of last year, excluding SPACS.
  • The nine-week gap since that deal is the longest period without a $250mn IPO since 2016.

Gas Prices Shoot Up at Fastest Rate on Record – Wall Street Journal, 3/22/2022

  • As summer driving season approaches, average prices for regular gasoline have been at record highs the past two weeks after going up for 11 straight weeks.
  • Prices reached $4.32 a gallon on March 14, according to weekly figures from the U.S. Energy Information Administration.
  • They were $4.24 this past week, according to figures released Monday.
  • Those prices at the pump don’t factor in inflation, though, which reached its highest rate in four decades last month.
  • Inflation-adjusted gas prices are at their highest levels since 2014 and similar to what U.S. drivers saw in the early 1980s.
  • Inflation-adjusted gas prices aren’t at record highs.
  • But if March prices average $4.22 a gallon, as they have so far, they still show that motorists will have been saddled with the biggest month-over-month price increase since EIA records began in the mid-’70s.
  • The next-highest increase was after Hurricane Katrina in 2005.

Canadian Pacific Railway, Union Agree to Arbitration, Ending Work Stoppage – Wall Street Journal, 3/22/2022

  • Canadian Pacific Railway and the union representing its conductors and engineers agreed to shift stalled contract negotiations to binding arbitration, freeing the railway to resume freight shipments after a two-day work stoppage.
  • Details of the agreement weren’t disclosed. Binding arbitration typically allows an employer and union representatives to present their contract demands to an independent arbitrator, who then can decide on such terms as wage increases and benefits.
  • The work stoppage at Canadian Pacific threatened to exacerbate delays that are squeezing supplies and raising prices of commodities—including the fertilizer potash ahead of the spring planting season.
  • Canada is a major producer of potash, and the railway transports the bulk of the commodity to ships destined for foreign buyers.
  • The railway also ships large volumes of Canadian oil, manufactured goods and wheat to the U.S. and other countries.
  • Canadian cattle farmers rely on the Calgary, Alberta-based railway for shipments of cattle feed from U.S. suppliers, a drought in Western Canada last year having reduced domestic supplies.

GM recalls 740,000 U.S. SUVs over headlight glare issue – Reuters, 3/22/2022

  • General Motors said Tuesday it will recall 740,000 U.S. sport utility vehicles to address a headlight glare problems after U.S. regulators rejected its request to avoid calling them back.
  • Earlier this month, the National Highway Traffic Safety Administration denied GM’s 2019 petition to declare the issue inconsequential for GMC Terrain vehicles from the 2010 through 2017 model years.
  • GM said the issue has been corrected in replacement parts and does not affect current generation vehicles. The automaker says it is still developing a fix.

Robinhood ups fintech competition with new debit card launch – Reuters, 3/22/2022

  • Robinhood Markets on Tuesday launched a new debit card that would allow spare change investing as it looks to expand beyond trading and into more consumer finance verticals, heating up competition with fintech giants Chime and PayPal.
  • With the new cash card, users could choose to round up their change to the nearest dollar and invest it in assets of their choice, Robinhood said.
  • The company, known as a pioneer of commission-free trading, would also reward users of this feature with a weekly bonus, it said.
  • The card is being offered by Robinhood Money, a new subsidiary of the online brokerage.

Ford F-150 Lightning’s 320-mile range beats available Rivian electric pickups, but lags GMC – CNBC, 3/21/2022

  • Ford Motor’s 2022 F-150 Lightning pickup will have an electric range of up to 320 miles, according to final Environmental Protection Agency estimates released Monday by the automaker.
  • The top range of the all-electric pickup is 20 miles higher than Ford initially estimated, placing it just above the range of the 2022 Rivian R1T, but still shy of the 2022 GMC Hummer EV.
  • The Rivian R1T with a larger optional battery pack is rated at up to 314 miles.
  • The GMC Hummer Edition 1 pickup is at a GM-estimated 329 miles.
  • Both are the only versions of the vehicles currently available.
  • Overall, the F-150 Lightning will come with a range of 230 miles, 300 miles or 320 miles, depending on model and size of the battery packs in the vehicles.

Goldman sees Fed hiking rates by 50 bps at May, June meetings – Reuters, 3/22/2022

  • Goldman Sachs expects the U.S. Federal Reserve to raise interest rates by 50 basis points each at its May and June meetings, following hawkish remarks by the central bank’s chair Jerome Powell.
  • The Fed must move “expeditiously” to raise rates and possibly “more aggressively” to keep an upward price spiral from getting entrenched, Powell said on Monday.
  • “Our best guess is that the shift in wording from ‘steadily’ in January to ‘expeditiously’ today is a signal that a 50bp rate hike is coming,” the analysts wrote in a report published late on Monday.
  • They anticipate four further 25 basis point rate hikes in 2022, one at each Fed meeting in the second half of this year, and three hikes in 2023.
  • The analysts, however, left their forecast for the Fed’s terminal rate unchanged at 3%-3.25%.

US ECONOMY & POLITICS

Powell Is Ready to Back Half-Point Hike in May If Necessary – Bloomberg, 3/22/2022

  • Federal Reserve Chair Jerome Powell said the central bank is prepared to raise interest rates by a half percentage-point at its next meeting if needed, deploying a more aggressive tone toward curbing inflation than he used just a few days earlier.
  • “If we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so,” Powell said in a speech titled “Restoring Price Stability” to the National Association for Business Economics on Monday.
  • “What would prevent us? Nothing: Executive summary,” he said, drawing laughs from the audience. He added that such a decision had not been made, but acknowledged it was possible if warranted by incoming data.
  • Powell was more hawkish on Monday than at the press conference following last week’s meeting, indicating that if inflation continues to run hot he would favor a more aggressive pace of tightening.
  • Last week he had to speak for the range of views among the 16 policy makers currently on the Federal Open market Committee.

Bullard Says ‘Faster Is Better’ for Fed in Rate-Hike Strategy – Bloomberg, 3/22/2022

  • Federal Reserve Bank of St. Louis President James Bullard said U.S. monetary policy needs to be tightened quickly to stop putting upward pressure on inflation that is already too high, reiterating his call for interest rates to rise above 3% this year.
  • “The Fed needs to move aggressively to keep inflation under control,” Bullard said in an interview Tuesday on Bloomberg Television with Michael McKee. “We need to get to neutral at least so we’re not putting upward pressure on inflation during this period when we have much higher inflation than we’re used to in the U.S.”
  • Asked how quickly the Fed should move, Bullard said “faster is better,” adding that “the 1994 tightening cycle or removal of accommodation cycle is probably the best analogy here.”

Student-Loan Freeze Saves Borrowers Nearly $200 Billion as Biden Considers Extension – Wall Street Journal, 3/22/2022

  • Around 37 million federal student-loan borrowers were spared $195 billion in loan payments since the government froze their payments at the onset of the pandemic, and many of them are likely to struggle with their debts when the moratorium is lifted, according to a report released Tuesday by the Federal Reserve Bank of New York.
  • The bank found borrowers with a certain type of federal loan that is held privately, who didn’t have their payments frozen or had it frozen only briefly by their banks, had a 33% higher delinquency rates on their nonstudent, nonmortgage debt since late 2020 compared with the direct federal borrowers who remained in forbearance.
  • More than 40 million people owe around $1.6 trillion in federal student debt, a sum bigger than credit-card or auto debt.
  • Federal loans make up more than 90% of outstanding student debt.

EUROPE & WORLD

EU Leaders Poised to Support Taxing Windfall Energy Profits – Bloomberg, 3/22/2022

  • European Union leaders will likely give the political green light to a proposal by the bloc’s executive arm to consider a temporary tax on exceptional profits of some energy companies linked to surging gas and power prices.
  • The EU heads of government are due to debate during a two-day summit starting Thursday how to provide further relief to the most vulnerable consumers and to support the region’s companies amid an unprecedented energy crisis, aggravated by Russia’s invasion of Ukraine.
  • They will discuss a set of solutions outlined by the European Commission to cushion the impact of the soaring prices, potentially endorsing the use of a new state aid crisis framework, according to a draft political statement seen by Bloomberg News.
  • “As proposed by the commission, temporary taxation of windfall profits can be a useful source of financing,” they may say in the statement, which could still change before being adopted.
  • Current market conditions could lead to excess profits of up to 200 billion euro ($220 billion) in the EU for gas, coal, nuclear, hydropower and other renewables in 2022, according to the International Energy Agency.

Evergrande Delays Results as Banks Seize $2 Billion at Unit – Wall Street Journal, 3/22/2022

  • Banks have unexpectedly taken control of more than $2 billion held by one of China Evergrande Group’s key subsidiaries, as the embattled property developer said neither it nor its main listed units could meet an imminent deadline to publish their annual results.
  • The move by lenders adds fresh uncertainty to Evergrande’s restructuring. Global bondholders view its two big Hong Kong-listed subsidiaries, which focus on property management and car making, as important sources of potential value for international creditors.
  • Evergrande Property Services said lenders had enforced their rights over some 13.4 billion yuan, equivalent to $2.1 billion, of bank deposits.
  • It said these had been offered “as security for third-party pledge guarantees,” suggesting the cash was backing debts taken on by another borrower.
  • Evergrande said this was a “major incident” that came to light during a review of the property-services subsidiary’s annual financial report, and it would be probed by independent investigation committees at both companies.
  • The sum is close to the entire 14 billion yuan of total bank deposits and cash that the subsidiary reported as of end-June 2021.

Foxconn Running at Full Capacity in Shenzhen After Covid-19 Restrictions Lifted – Wall Street Journal, 3/22/2022

  • Foxconn Technology Group, the biggest assembler of Apple iPhones, said its factories in the Chinese manufacturing hub of Shenzhen were again running at full capacity Monday after the city wrapped up Covid-19 tests on all its 17 million residents.
  • But while Shenzhen returned to business as usual, more new cases in Jilin, Shanghai and other cities prompted tighter restrictions, highlighting the challenge that China still faces to contain its worst Covid-19 outbreak in two years.
  • On Monday, Jilin City in the northeastern province of the same name, imposed a strict lockdown similar to those seen in Wuhan in early 2020—when Covid-19 first erupted—and in the city of Xi’an this past winter, before the recent Omicron-driven wave.
  • Omicron is also spreading in Shanghai, although only 24 of its 758 locally transmitted cases logged Sunday were symptomatic.
  • China doesn’t include asymptomatic cases in its new infections totals.

Xiaomi beats estimates with 21.4% rise in Q4 revenue – Reuters, 3/22/2022

  • Chinese smartphone maker Xiaomi on Tuesday reported a bigger-than-expected 21.4% rise in fourth-quarter revenue, as industry shipments of handsets slowly tick up following a global chip shortage and the peak of the pandemic.
  • Revenue rose to 85.58 billion yuan ($13.45 billion) in the quarter ended Dec. 31, compared with 70.46 billion yuan in the year earlier period and analyst expectations for 81.80 billion yuan, according to Refinitiv data.
  • Smartphone shipments rose 4.4% to 44.1 million units in the quarter, Xiaomi said in a statement.
  • The company, which gets the vast majority of its revenue from selling mobile handsets, said smartphone revenue rose 18.4% to 50.5 billion yuan ($7.94 billion) in the quarter ended Dec. 31.
  • Net income rose 39.6% to 4.47 billion yuan, also above analyst expectations.
  • In an earnings call, Wang said that ensuring a steady supply of chips was still challenging in the first quarter of 2022, but expected the situation to improve by June.

Alibaba to Buy Back Up to $25 Billion of Stock – Wall Street Journal, 3/22/2022

  • Alibaba Group Holding boosted its share buyback program to $25 billion from $15 billion, in a bid to reassure investors about the company’s prospects after a year in which its stock has fallen by more than half.
  • The potential buybacks are substantial compared with the Chinese e-commerce giant’s market value:
  • As of Monday, it had a market capitalization of about $270 billion, according to FactSet.
  • The modified repurchase program will be effective for two years through March 2024, Alibaba said on Tuesday morning Hong Kong time.
  • It said the 67% increase in the firepower allocated for buybacks was “a sign of confidence about the company’s continued growth in the future.”

Factmonster – TODAY in HISTORY

  • The Stamp Act was enacted on the American colonies by Britain. (1765)
  • Auguste and Louis Lumiere first demonstrated motion pictures using celluloid film in Paris. (1895)
  • The first German concentration camp was opened at Dachau. (1933)
  • The Arab League was formed in Cairo, by Egypt, Iraq, Jordan, Lebanon, and Syria. (1945)
  • Congress approved the Equal Rights Amendment and sent it to be ratified by the states. The amendment would fail to get the required 38 states to ratify it. (1972)
  • Comet Hale-Bopp made its closest approach to Earth in the skies over the northern hemisphere. The comet’s next pass is predicted for the year 4397. (1997)

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