US FINANCIAL MARKET
U.S. Stocks Decline, Oil Prices Jump – Wall Street Journal, 3/23/2022
- U.S. stocks opened lower, as concerns about rising energy prices, supply shortages and inflation rattled investors once again.
- Major U.S. stock indexes jumped Tuesday, as investors shrugged off worries that inflation will push the nation’s economy into a recession.
- On Wednesday, however, some of that confidence faded after Brent crude, the international benchmark, moved higher again.
- Futures on Brent crude recently traded at $121.60 a barrel, up 5.3%.
- In trading before the opening bell, futures for U.S. stock indexes wavered and then ticked lower, with losses deepening as oil prices jumped.
- Oil prices rose after Russia said on Tuesday that oil exports via a pipeline from Kazakhstan to the Black Sea may temporarily fall by around 1 million barrels a day—representing about 1% of global oil demand—citing storm damage.
- Repairs could take up to two months, Russian officials said.
- Commodities were snapping higher across the board on a range of issues that threatened to pinch supply chains.
- Aluminum, nickel and steel prices rose on concerns ranging from the war in Ukraine to Covid-19 lockdowns in China.
- Tangshan, the biggest steelmaking city in China, told residents to stay home due to a Covid-19 surge, according to Reuters.
- The city accounts for 58% of China’s strip-steel output, SP Angel said in a Wednesday note.
- A sharp rally in U.S. government bond yields slowed.
- The yield on the 10-year U.S. Treasury note edged lower to 2.357% in recent trading, from 2.375% the day before.
- Shares of Adobe slumped 8.1%. The software company reported higher profit and better-than-expected revenue growth Tuesday, but said it expects a hit to annual revenue from the war in Ukraine.
- On Wednesday, fresh data on inflation showed that consumer prices in the U.K. rose 6.2% in February compared with a year earlier, up from 5.5% in January, marking the highest rate since March 1992.
- In European markets, the Stoxx Europe 600 lost 1.1%, erasing earlier gains once oil prices moved solidly higher.
- London’s FTSE 100 nudged down 0.1%. European oil giants Shell and BP each rose 3.3% or more.
- Russia’s stock market is set to have a partial reopening Thursday, almost a month after it closed trading following the country’s invasion of Ukraine. Investors and analysts expect that the reopening could send Russian stocks into free fall.
Adobe’s Lackluster Forecast Suggests Growing Competition – Bloomberg, 3/22/2022
- Adobe gave a disappointing outlook for the current period, suggesting increased competition is making a dent against the company’s prominent design software.
- In the fiscal first quarter, Adobe’s revenue grew 9.1% to $4.26 billion.
- The sales topped analysts’ estimates, but marked the first quarter since 2015 that Adobe had reported less than double-digit growth.
- Revenue in digital media, the division that includes Photoshop, increased 9% to $3.11 billion in the period ended March 4.
- Meanwhile, revenue from its analytics and marketing software rose 13% to $1.06 billion.
- Revenue will be about $4.34 billion in the fiscal second quarter, the San Jose, California-based software vendor said Tuesday in a statement. On average, analysts projected $4.4 billion, according to data compiled by Bloomberg.
- Adobe said profit, excluding some items, will be about $3.30 a share. Analysts, on average, estimated $3.35 a share.
- Earlier, the company said it expected the war in Ukraine would reduce revenue by $75 million in the fiscal year, which includes a halt to all new product sales in Russia and Belarus.
General Mills lifts sales and profit forecasts on higher prices, demand – Reuters, 3/23/2022
- General Mills raised its full-year core sales and profit forecasts on Wednesday, encouraged by higher prices and strong demand for the Cheerios maker’s cereals, snack bars and pet food, sending its shares up as much as 6%.
- General Mills’ net sales fell short of estimates, but its adjusted profit of 84 cents per share for the quarter ended Feb. 27, topped market expectations of 78 cents.
- General Mills had cautioned in February that supply issues in categories including refrigerated dough, pizza and hot snacks in North America would affect shipments in the third quarter, but measures such as securing alternate supply sources helped the company exceed its expectations for organic sales growth, up 4%.
- Margins, however, remain pressured across the food industry as pandemic-induced supply chain shortfalls have led to soaring freight and labor expenses, adding on to spiraling costs of packaging material and ingredients.
- The maker of Betty Crocker cake mixes expects organic net sales to rise by about 5% in fiscal 2022, compared with its prior estimate of a 4%-5% increase.
- It forecast adjusted per-share profit between flat and an increase of 2%, compared with its earlier range of a 2% decline to a 1% rise.
This Is Now The Worst Drawdown on Record for Global Fixed Income – Bloomberg, 3/23/2022
- Global bond markets have suffered unprecedented losses since peaking last year, as central banks including the Federal Reserve look to tighten policy to combat surging inflation.
- The Bloomberg Global Aggregate Index, a benchmark for government and corporate debt total returns, has fallen 11% from a high in January 2021.
- That’s the biggest decline from a peak in data stretching back to 1990, surpassing a 10.8% drawdown during the financial crisis in 2008.
- It equates to a drop in the index market value of about $2.6 trillion, worse than about $2 trillion in 2008.
- While there were signs the brutal selloff was easing on Wednesday, rising inflationary pressure around the world is fueling concerns about the ability of the global economy to weather any sustained period of higher financing costs.
- For investors, it means the allure of holding debt — even safe government bonds — is diminishing given how sensitive valuations are to interest rates, a measure referred to as duration.
Oil Extends Gains as U.S. Stockpiles Fall, Vital Terminal Shut – Bloomberg, 3/23/2022
- Oil pushed higher after a government report showed U.S. crude inventories dropped while storm damage to a vital Black Sea export terminal compounded supply risks.
- West Texas Intermediate futures topped $114 a barrel on Wednesday.
- Markets rallied on news that a major Black Sea oil export terminal halted loadings and faces weeks of disruption.
- Exports could be curtailed by 1 million barrels a day, further depriving the European market.
- Further bullish signals came as U.S. crude stockpiles fell 2.51 million barrels last week, according to an Energy Information Administration report Wednesday.
- With the conflict dragging on, the EU is weighing a possible ban on Russian crude imports, though some member states including Germany have opposed such a move.
- Many buyers however are already shunning the nation’s oil, with TotalEnergies saying it will stop purchases by the end of the year, while Japanese refiner Eneos Holdings Inc. will halt new shipments.
Oil Price Rise ‘Trickles Down to Everything,’ Even Your Potato Salad to Go – Wall Street Journal, 3/23/2022
- The headlines about high oil and gas prices seem far away from products like plastic wrap or lawn fertilizer. In reality, though, these everyday items need hydrocarbons to get made, and all across the supply chain, the struggle is on over who will bear the burden of higher costs.
- While many people feel the impact of high crude-oil prices most directly at the gas pump, companies in obscure corners of global supply chains watch the daily gyrations just as closely.
- The plastic that holds an order of potato salad starts with the same petroleum extracted from the ground that is turned into gasoline for a car, container makers say. To make plastic, the petroleum is first refined into naphtha and then into plastic materials such as polyethylene and polypropylene.
- Fertilizer typically includes ammonia or other nitrogen compounds that are made in a process starting with natural gas.
- Norwegian fertilizer giant Yara International AS A said in March it was temporarily curtailing production at plants in Italy and France “as a consequence of record high natural gas prices in Europe.”
- The company said its production of ammonia and urea in Europe was operating at about 45% of capacity.
Okta Says Hundreds of Its Customers May Have Been Caught In Hack – Wall Street Journal, 3/23/2022
- Okta, one of the world’s leading providers of digital identity verification, said that a January data breach revealed by hackers this week may have affected hundreds of customers that rely on its software to manage secure access to their internal computer networks.
- Okta said the attack had affected as many as 366 customers, or 2.5% of the more than 15,000 businesses and institutions it services world-wide.
- The breach, claimed by the Lapsus$ group, originated from the laptop of an engineer employed by a subcontractor, which the hackers had access to between Jan. 16 and 21, Okta said Tuesday.
- Okta said it had contacted customers that were potentially affected.
- Shares of Okta fell 9.2% to $151.12 in morning trading.
Key Nigerian Pipeline Drained by Theft, Sabotage, Union Says – Bloomberg, 3/23/2022
- Nigeria is losing nearly all of its oil output pumped through a major pipeline in just one example of theft that’s growing amid surging prices for crude, according to a labor union.
- Producers received as little as 5% of crude volumes pumped through the Trans Niger Pipeline during the period from October 2021 to February 2022, the Petroleum and Natural Gas Senior Staff Association of Nigeria, or Pengassen, said in a statement Wednesday.
- About 150 illegal tapings occurred to siphon crude oil from the pipeline, according to Pengassen.
- Operators have experienced an average of 10 days of production shut-in every month due to vandalism.
- “How can we be losing over 95% of oil production to thieves?,” Tony Elumelu, a Nigerian billionaire whose investment firm Heirs Holdings acquired Shell’s OML 17 block in 2021, said in a Twitter comment last week.
- “It is clear that the reason Nigeria is unable to meet its OPEC production quota is not because of low investment but because of theft, pure and simple!” he said.
LG Energy Solution to set up EV battery JV with Stellantis in Canada – Reuters, 3/23/2022
- South Korean battery giant LG Energy Solution (LGES) said on Wednesday it plans to invest $1.5 billion to set up a joint venture with Stellantis in Canada.
- LGES owns 51% of the joint venture, tentatively named “LGES-STLA JV” and Stellantis owns 49%, LGES said in a regulatory filing.
- In October, LGES and Stellantis struck an electric vehicle (EV) battery production joint venture, targeting to start production by the first quarter of 2024 and aiming to have an annual production capacity of 40 gigawatt hours of batteries.
- In a separate regulatory filing, LGES said it plans to acquire a stake worth $542 million in ES America to respond to demand from EV startups in the United States.
US ECONOMY & POLITICS
U.S. New-Home Sales Declined in February for a Second Month – Bloomberg, 3/23/2022
- Sales of new U.S. homes fell in February for a second month, suggesting high prices and rising mortgage rates may be keeping prospective buyers on the sidelines.
- Purchases of new single-family homes decreased 2% to a 772,000 annualized pace following a downwardly revised 788,000 in January, government data showed Wednesday.
- The number of homes sold during the month and awaiting the start of construction — a measure of backlogs — rose from January to 209,000, Wednesday’s report showed.
- There were 407,000 new homes for sale as of the end of February, the most since August 2008, though roughly 91% were either under construction or not yet started.
- At the current sales pace, it would take 6.3 months to exhaust the supply of new homes, compared with 4.5 months one year ago.
- The new-home sales report, produced by the Census Bureau and the Department of Housing and Urban Development, showed the median sales price of a new home jumped 10.7% in February from a year earlier, to $400,600.
Fed’s Mester Says Some 50 Basis Point Rate Hikes Needed in 2022 – Bloomberg, 3/23/2022
- Federal Reserve Bank of Cleveland President Loretta Mester says she supports front-loading interest rate increases, including some 50 basis-point moves this year, to curb the hottest inflation in four decades.
- “I think we’re going to need to do some 50 basis point moves,” Mester said on a call with reporters Wednesday. “I don’t want to presuppose every meeting from here to July, but I do think we need to be more aggressive earlier rather than later.”
- During a separate event Tuesday, Mester said she supports raising the federal funds rate to 2.5% by the end of 2022, with further increases next year.
- She also said that a 50 basis point hike at some meetings this year shouldn’t be off the table.
- Mester’s comments come a week after Fed officials raised rates for the first time since 2018 and projected six more increases this year to 1.9%, rising to 2.8% by the end of 2023.
- Several of her colleagues including San Francisco Fed President Mary Daly and St. Louis Fed President James Bullard have also come out in favor of more restrictive policy in order to cool price pressures.
U.S., U.K. Strike Trade Deal to End Tariffs on British Steel and American Whiskey – Wall Street Journal, 3/23/2022
- The U.S. and U.K. struck a trade accord Tuesday that will remove U.S. tariffs on British steel and aluminum, while the U.K. will lift levies on American whiskey, motorcycles and tobacco.
- Biden administration officials said the agreement with the U.K. will allow the U.K to ship “historically-based sustainable volumes” of steel and aluminum products to the U.S. without levies imposed under the former Trump administration.
- In exchange, the U.K. will lift retaliatory tariffs on more than $500 million worth of U.S. exports to the U.K., including distilled spirits, farm products and consumer goods.
- The deal also requires any U.K. steel company owned by a Chinese entity to audit their financial records to assess possible influence from China, and share the results with the U.S., according to a statement from Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai.
- Tuesday’s agreement follows similar deals the Biden administration signed with the European Union and Japan in recent months as part of its effort to mend trade ties with friendly nations strained during former President Donald Trump’s trade war.
March U.S. auto sales to tumble on rising inflation, Ukraine crisis- data – Reuters, 3/23/2022
- U.S. auto retail sales could decline in March as rising inflation hinders spending by customers already limited by slim inventories due to pandemic-led supply shortages, and now the Ukraine crisis, consultants J.D. Power and LMC Automotive said.
- “This year, with fewer than 900,000 units in inventory, it will be impossible for the sale pace to even approach last year’s level,” said Thomas King, president of the data and analytics division at J.D. Powers.
- U.S. retail sales of new vehicles could fall 27.8% to 1,044,500 units in March from a year earlier, according to a report released by the consultants on Wednesday.
- Total new-vehicle U.S. sales for the month, including retail and non-retail transactions, are expected to reach 1,188,300 units, a 28.9% decrease from last year, the report showed.
- With supply still lagging behind demand, the U.S. average of new-vehicle retail transaction price in March is expected to rise 17.4% to $43,737, dropping from the previous high in December 2021 at $45,283.
- Separately, research firm Cox Automotive said earlier this month that there is no indication that inventories will notably improve in March, and that the seasonally adjusted annual rate will drop well below January and February.
EUROPE & WORLD
European Gas Soars as Putin Says Hostile States to Pay in Rubles – Bloomberg, 3/23/2022
- European natural gas surged more than 20% after President Vladimir Putin said Russia will start demanding payments in rubles from buyers it deems “unfriendly.”
- Putin ordered the nations’ central bank to develop a mechanism to make ruble payments within a week at a meeting with his government.
- Russia earlier named the U.S., U.K. and members of the European Union unfriendly nations.
- Benchmark European gas prices gained as much as 21% to 119 euros per megawatt-hour, the highest for a most-active contract in a week.
- The news comes just as the U.S. and partner nations are expected to announce a new action aimed at “enhancing European energy security and reducing Europe’s dependence on Russian gas” on Thursday.
- Still, Putin said Russia will continue to deliver supplies.
U.K. Sees Inflation Hitting Highest Since Falklands War in 1982 – Bloomberg, 3/23/2022
- U.K. inflation is set to hit a 40 year high of 8.7% at the end of the year as higher energy and commodity costs feed through to consumer prices, the government’s fiscal watchdog forecast.
- The projection is above the Bank of England’s current outlook for about 8% and would be the highest since 1982, when the Falklands War between Britain and Argentina ended and the country was still grappling with the aftermath of oil shocks in the 1970s.
- For 2022 as whole, the Office for Budget Responsibility now expects inflation to average 7.4%, almost double the 4% it forecast in October.
- High inflation will outpace wage growth and cause a 2.2% decline in real living standards in the 2022-23 fiscal year, which is “their largest financial year fall on record,” the OBR said.
- Living standards will not recover their pre-pandemic level until 2024-25, according to the forecast.
Biden to Sanction Hundreds of Russian Lawmakers, U.S. Officials Say – Wall Street Journal, 3/23/2022
- The Biden administration is preparing sanctions on most members of Russia’s State Duma, the lower house of parliament, as part of an effort to punish Moscow over its invasion of Ukraine.
- President Biden intends to announce the sanctions on more than 300 members of the Russian State Duma as soon as Thursday during his trip to Europe, where he will meet with allies from the North Atlantic Treaty Organization to formulate their next steps, according to U.S. officials and internal documents viewed by The Wall Street Journal.
- The sanctions will be announced in coordination with the European Union and members of the Group of Seven industrialized nations, U.S. officials said.
Russian Stock Market to Partially Reopen on Thursday – Wall Street Journal, 3/23/2022
- Russia’s stock market is set to have a partial reopening Thursday, nearly a month after it shut down following the invasion of Ukraine.
- The challenge for Moscow is that the resumption of trading could simply send Russian stocks back into free fall. On Feb. 24, the day when President Vladimir Putin began the assault on Ukraine, the main Russian stock index tumbled 33%.
- While the index regained a fraction of those losses on Feb. 25—its last day of trading—that was before Western sanctions hammered the ruble and sent the country into an economic crisis.
- The Russian stock market could ultimately look very different than it did before, with a plan under discussion to split it into separate markets for foreign and local investors, according to a person familiar with the matter.
Tencent’s Revenue Grows at Slowest Pace in Nearly Two Decades – Wall Street Journal, 3/23/2022
- Tencent Holdings, the Chinese social-media and videogame behemoth, said its revenue in the fourth quarter slowed to its weakest pace in nearly two decades, as a yearlong regulatory crackdown on China’s technology sector and weakening consumption weighed on sales.
- The world’s largest videogame developer said Wednesday revenue for the October-to-December period rose 7.9% to 144.19 billion yuan, equivalent to $22.65 billion.
- That missed expectations of analysts polled by FactSet and marked the company’s worst top-line growth since it went public in 2004.
- Tencent, which gets a large part of its sales from videogames, said growth in its domestic games revenue weakened to 1%, while revenue from another key business segment, online advertising, fell 13%, as China’s wide-ranging regulatory actions last year hurt demand from advertisers across industries, particularly those in the after-school-tutoring and internet-services sectors.
- Revenue from Tencent’s fintech and business services, which include its cloud business, grew 25% to 48 billion yuan.
- Tencent said it would be shifting the focus of its cloud operations from “revenue growth at all costs” to improving its margins.
- Still, net profit jumped 60% to 94.96 billion yuan, mainly driven by gains of about 86 billion yuan from Tencent’s recent sale of its stakes in investee companies including Chinese e-commerce firm JD.com Inc.
China’s Geely Automobile flags costs, chip shortage after 12% drop in 2021 profit – Reuters, 3/23/2022
- Geely Automobile expects rising raw material prices and global chip shortages to pressure its profitability and sales this year, the Chinese company said on Wednesday, after reporting a 12% fall in 2021 profit.
- The world’s highest-profile Chinese automaker, thanks to its investments in Volvo Cars and Daimler, reported a 2021 profit of 4.85 billion yuan ($761.64 million), compared with 5.53 billion yuan in the previous year.
- Revenue rose 10% to 101.6 billion yuan.
- In an earnings call on Wednesday, Geely Auto Group CEO Jerry Gan said the company’s reliance on custom chips and globalized supply chains meant the semiconductor shortage had a “quite large effect” on production, an issue Geely would tackle via localization and in-house chip development, among other measures.
- Geely Automobile is targeting to sell 24% more vehicles this year, at 1.65 million vehicles, saying it would look to further expand its export sales to new markets in Southeast Asia, the Middle East and western Europe.
- Lewis and Clark began their return journey east. (1806)
- Benito Mussolini founded his own party in Italy, the Fasci di Combattimento. (1919)
- U.S. President Ronald Reagan proposed a space-based missile defense system called the Strategic Defense Initiative or “Star Wars.” (1983)
- Russia’s Mir space station ended its 15-year orbit of the Earth, splashing down in the South Pacific. (2001)
- President Barack Obama signed a health-care overhaul bill, called the Patient Protection and Affordable Care Act, into law. (2010)