Daily Market Report | March 28, 2022
US FINANCIAL MARKET
Stocks Waver as Bond Yields Tick Lower – Wall Street Journal, 3/28/2022
- U.S. stocks wavered and bond yields remained near their highest level in three years with investors preparing for a campaign of interest-rate increases from the Federal Reserve.
- The S&P 500 was up about 0.1% in morning trading Monday. Last week, U.S. stocks rebounded for a second consecutive week. The tech-focused Nasdaq Composite rose 0.5%, while the Dow Jones Industrial Average dropped 0.4%, or about 133 points.
- In early trading, Tesla shares added 7.2% after the electric car maker said it would request shareholder approval at its annual meeting for an increase in the number of shares of the company to enable a stock split.
- The yield on the benchmark 10-year Treasury note initially rose early Monday before edging lower to 2.418% from 2.491% Friday.
- Federal-funds futures—derivatives used by traders to bet on the path of interest rates—show that investors have ramped up bets on a 50-basis-point rate increase at the Fed’s May meeting since last week.
- Yields on some short- and medium-term Treasurys, which are most responsive to Fed policy, were up more than those on longer-term bonds. The yield on the two-year Treasury note was recently at 2.309% Monday. Investors said they were eyeing the possibility of a so-called yield inversion, where the two-year note yields more than the 10-year, which is historically tracked as a predictor of recession.
- Oil prices fell after Shanghai imposed stringent pandemic restrictions that could weaken energy demand. Brent-crude futures, the international benchmark, declined 6.5% to $109.76 a barrel.
- The S&P 500 energy sector declined 2.6%, with energy companies paring back outsize gains. The sector has been the benchmark’s best performer this year so far, but analysts caution that a shrinking demand outlook could cool down the rally.
- Russia’s benchmark MOEX index fell 2.2% Monday in a shortened session as Moscow allowed all Russian shares to trade. Foreigners remain barred from selling shares, helping underpin the benchmark’s level.
- Major indexes in Asia closed with mixed performance. China’s Shanghai Composite edged up 0.1%. South Korea’s Kospi was flat, and Japan’s Nikkei 225 fell 0.7%.
Treasury Yields Show Fed’s Final Rate Holds Key to Depth of Rout – Bloomberg, 3/28/2022
- The surge in long-term Treasury yields has gotten fuel from traders marking up expectations for how high the Federal Reserve will raise its overnight lending rate, making that peak a potential key to how bad the record-setting bond rout will get.
- The market has boosted its estimate of the so-called terminal rate — or where the rate will be once the central bank stops tightening monetary policy — to just under 3%, according to the pricing of eurodollar futures contracts.
- That’s up from around 2% in early February.
- The jump comes after the Fed started raising rates this month and officials lifted their projections for where the key benchmark will end up in the coming years amid mounting concern about the highest inflation in decades.
- That’s sent Treasury yields surging across the board, hit bondholders with the steepest losses on record, and diven some long-term rates below short-term ones, signaling expectations that growth will slow significantly.
- Ten-year yields reached 2.55% Monday, the highest since May 2019.
Apple to cut iPhone, AirPods output, Nikkei reports – Reuters, 3/28/2022
- Apple is planning to lower iPhone and AirPod production due to a demand slowdown caused by the Ukraine crisis and rising inflation, the Nikkei newspaper reported on Monday, citing sources briefed on the matter.
- The company plans to produce 20% fewer iPhone SEs – or about 2 million to 3 million units – next quarter than originally planned, the report said. It added that Apple has also reduced 2022 orders for AirPods by more than 10 million units.
- The news of weaker demand mirrors forecasts from analysts who have warned that COVID-19 lockdowns in Chinese cities and a surge in inflation due to the Ukraine conflict could hurt smartphone demand this year.
- Apple, in particular, faces challenges from the lack of a design upgrade for the latest SE and a $30 increase in its price from the 2020 model, analysts have said.
- Ming-Chi Kuo at TF International Securities on Monday slashed his shipment estimate for iPhone SE this year to between 15 million and 20 million units, from 25 million to 30 million units previously.
Tesla to seek shareholder approval for stock split – Reuters, 3/28/2022
- Tesla will seek investor approval to increase its number of shares to enable a stock split in the form of a dividend, the electric-car maker said on Monday, sending its shares up about 5%.
- The proposal has been approved by its board and the shareholders will vote on it at the annual meeting. The stock split, if approved, would be the latest after a five-for-one split in August 2020 that made Tesla shares cheaper for its employees and investors.
- Meanwhile, Tesla on Monday notified its suppliers and workers that its Shanghai factory in China will be closed for four days as the financial hub said it would lock down in two stages to carry out mass COVID-19 testing.
Fertilizer Price Surges 43% to Fresh Record as Supplies Tighten – Bloomberg, 3/28/2022
- Fertilizer prices continue to spike to records as Russia’s invasion of Ukraine puts a massive portion of the world’s fertilizer supply at risk, adding to concerns over soaring global food inflation.
- A gauge of prices for the nitrogen fertilizer ammonia in Tampa surged 43% to $1,625 per metric ton Friday, a record for the 29-year-old index.
- Production outages and tight global supply are driving the jump, according to a note from Bloomberg Intelligence.
- The war is pushing up the cost of natural gas, the main input for most nitrogen fertilizer, forcing some producers in Europe to cut output.
- Markets also worry that potential sanctions on Russia, a big low-cost shipper of every major kind of crop nutrient, could disrupt global trade.
- The country accounted for almost a fifth of 2021 fertilizer exports, according to Trade Data Monitor and Bloomberg’s Green Markets. Rising costs for farm inputs like fertilizer could further send the price of food skyrocketing.
U.S. to More Than Double Fines for Fuel-Efficiency Violations in a Win for Tesla – Bloomberg, 3/28/2022
- The U.S. National Highway Traffic Safety Administration said it will more than double penalties for automakers that fail to meet fuel efficiency standards in 2019 and later models, a win for Tesla Inc., which has fought for the increase for years.
- For 2019 to 2021 models, the penalty will rise to $14 from $5.50 for every 10th of a mile per gallon that the vehicles exceed the standard, the agency said in a final rule that will soon be published in the federal register.
- The fine is multiplied by the number of those vehicles sold. The rate rises to $15 for 2022 models.
- The move “may cause manufacturers to more rapidly implement fuel-saving technology,” according to the rule, which will be open for public comment and becomes effective 60 days after it is published in the federal register.
- The Transportation Department, which oversees NHTSA, said when it first proposed the new standards last year that they would increase fuel-efficiency 8% annually for model years 2024 to 2026, and increase the estimated fleet-wide average by 12 miles per gallon by model year 2026.
- The agency faces a March 31 deadline to finalize new rules for the 2024 model year.
US ECONOMY & POLITICS
Biden’s Budget Calls for Increase in Defense Spending, Aiding Ukraine – Wall Street Journal, 3/28/2022
- President Biden on Monday released a $5.8 trillion budget that envisions a substantial increase in U.S. defense spending, a sign of the administration’s willingness to devote additional resources to military programs, including aiding Ukraine in its fight against Russian aggression.
- The Biden administration is seeking $813 billion for defense spending in fiscal year 2023, which begins Oct. 1, a roughly 4% increase from the $782 billion enacted for this fiscal year. The requested increase is more than double than the 1.6% boost the administration sought for defense spending in last year’s budget.
- The budget also includes $17.4 billion for law enforcement at the Department of Justice, including $1.7 billion for efforts to combat gun trafficking, and provides funding for the U.S. Marshals and the Federal Bureau of Investigation to address violent crime.
Biden to Propose New Minimum Tax on Wealthiest Americans – Wall Street Journal, 3/28/2022
- President Biden will propose a new minimum tax on households worth more than $100 million as part of his annual budget, the White House said Saturday, in a bid to ensure the very wealthiest Americans pay at least 20% in tax on their income and rising asset values each year.
- The proposal would affect fewer than 20,000 households, and it would apply only to those who don’t pay at least 20% in tax on a combination of income as typically defined and their unrealized gains on unsold assets such as stocks and closely held businesses.
- The plan would generate roughly $360 billion in revenue over 10 years, according to a White House fact sheet released in advance of Monday’s full budget proposal.
- That is about twice as much money as raising the top individual income-tax rate to 39.6% from 37%, and it would affect a much smaller group of people.
- If enacted, the measure would likely face legal challenges to its constitutionality under the 16th Amendment.
- Even with the additional funding sought by Mr. Biden, the Internal Revenue Service could struggle to administer the proposal and would find itself in protracted disputes with taxpayers.
U.S. goods trade deficit narrows; retail inventory accumulation slows – Reuters, 3/28/2022
- The U.S. trade deficit in goods narrowed in February after setting a record high in the prior month as exports rebounded, but any lift to economic growth this quarter could be offset by businesses slowing their pace of inventory accumulation.
- The deficit fell 0.9% to $106.6 billion, the Commerce Department said on Monday. Exports increased 1.2% to $157.2 billion. The rebound in exports was led by a 6.3% surge in shipments of consumer goods.
- Food exports accelerated 3.6%, while industrial supplies increased 2.6%. But motor vehicle exports dropped 3.4% as production continued to be hampered by a global semiconductor shortage.
- There were also substantial declines in exports of capital goods and other goods.
- Imports of goods gained 0.3% to $263.7 billion. They were curbed by a 9.9% decline in imports of motor vehicles as well as a 3.0% drop in food imports. But there were strong increases in imports of industrial supplies and other goods.
- Motor vehicle inventories gained 0.9% after surging 2.5% in January. Excluding motor vehicles, retail inventories increased 1.2% after accelerating 1.7% in January. This component goes into the calculation of GDP growth.
U.S., EU Reach Preliminary Deal on Data Privacy – Wall Street Journal, 3/28/2022
- The U.S. and the European Union reached a preliminary deal to allow data about Europeans to be stored on U.S. soil, heading off a growing threat to thousands of companies’ trans-Atlantic operations.
- The deal, announced Friday by President Biden and European Commission President Ursula von der Leyen, could if concluded resolve one of the thorniest outstanding issues between the two economic giants.
- It also assuages concerns of companies including Meta Platforms and Alphabet’s Google that were facing mounting legal challenges to data transfers that underpin some of their operations in Europe.
- The new deal, dubbed the Trans-Atlantic Data Privacy Framework, attempts to address the EU top court’s concerns by establishing an appeals process for EU individuals that includes what the U.S. calls an independent Data Protection Review Court with binding authority to adjudicate claims and impose remedies.
Biggest metros lost residents in first full year of pandemic – NBC News, 3/28/2022
- The pandemic intensified population trends of migration to the South and West, as well as a slowdown in growth in the biggest cities in the U.S.
- The exodus from the biggest U.S. metropolitan areas was led by New York, which lost almost 328,000 residents. It was driven by people leaving for elsewhere, even though the metro area gained new residents from abroad and births outpaced deaths.
- Metropolitan Los Angeles lost almost 176,000 residents, the San Francisco area saw a loss of more than 116,000 residents and greater Chicago lost more than 91,000 people from 2020 to 2021.
- The San Jose, Boston, Miami and Washington areas also lost tens of thousands of residents primarily from people moving away.
- On the flip side, the Dallas area grew by more than 97,000 residents, Phoenix jumped by more 78,000 people and greater Houston added 69,000 residents, including Giusti.
- In the Phoenix metropolitan area, growth was driven by moves from elsewhere in the U.S., while it was propelled by a combination of migration and births outpacing deaths in Dallas and Houston.
- The U.S. Census Bureau’s Vintage 2021 estimates also showed micro areas — defined as having a core city of less than 50,000 residents — gaining population from mid-2020 to mid-2021, after years of slow growth or declining population.
Los Angeles Mayor Blames ‘Housing, Housing and Housing’ for Urban Exodus – Bloomberg, 3/28/2022
- Los Angeles Mayor Eric Garcetti blamed high housing costs for the surge of people moving out of the second-largest U.S. city.
- LA County lost 160,000 residents during the 12 months through July 1, the biggest population drop of any U.S. county, according to a U.S. Census report released last week. That accounted for almost two-thirds of the declines in California, the most populous state.
- The city approved permits for 17,900 housing units in 2021, more than double the number issued when he took office in 2013 — an increase that Garcetti credited to a raft of state and local laws to increase housing density.
- Still, the number of homeless in LA — a city of 4 million residents — has nearly doubled from almost 23,000 in 2013 to 41,290 in 2020. The increase continued after voters in 2016 approved a $1.2 billion bond with the promise to develop 10,000 new housing units for the unsheltered. The program has been beset by slow progress and soaring costs, with an average price per unit running nearly $600,000.
U.S. Supreme Court turns away challenge to Trump steel tariffs – Reuters, 3/28/2022
- The U.S. Supreme Court on Monday declined to hear a challenge by steel companies to former President Donald Trump’s 2018 decision to double tariffs on steel imports from Turkey on national security grounds – a policy move defended by President Joe Biden’s administration.
- The justices turned away an appeal by steel importers – including Transpacific Steel LLC and the Jordan International Company as well as Turkish steel producer Borusan Mannesmann and its U.S. subsidiary – of a lower court’s ruling against their challenge.
- Trump increased what had been a 25 percent tariff to 50 percent, which the steel companies have argued exceeded his authority. They had sought repayment from the U.S. government of the $54 million they paid collectively in duties.
EUROPE & WORLD
Shanghai locks down as COVID surges in China’s financial hub – Reuters, 3/28/2022
- China’s financial hub of Shanghai launched a two-stage lockdown of its 26 million residents on Monday, closing bridges and tunnels and restricting highway traffic in a scramble to contain surging COVID-19 cases.
- The snap lockdown, announced by the local government late on Sunday, will split China’s most populous city roughly along the Huangpu River for nine days to allow for “staggered” testing by healthcare workers in white hazmat suits.
- It is the biggest COVID-related disruption to hit Shanghai, and sent prices of commodities including oil and copper lower on fears that any further curbs could hurt demand in China, the world’s second-largest economy.
- Residents east of the Huangpu were confined to their homes. Some said healthcare workers arrived to conduct tests as early as 7 a.m. on Monday.
- Those in the west rushed to stockpile food and other goods as they prepared for a similar fate from April 1. Delivery services were overwhelmed and supermarkets ran low on supplies. Several social media users posted images of what they had managed to buy.
G-7 Rejects Putin Demand for Ruble Payments for Russian Gas – Bloomberg, 3/28/2022
- Energy ministers from the Group of Seven industrialized nations unanimously rejected Russian President Vladimir Putin’s demand that natural-gas contracts be paid in rubles.
- The order represents a “one-sided and clear breach of contracts,” German Economy Minister Robert Habeck said Monday after chairing G-7 talks. “That means that a payment in rubles is not acceptable and we urge the relevant companies not to comply with Putin’s demand.”
- The order to have “hostile states” make natural-gas payments in rubles would essentially force European companies to directly prop up the currency after it was sent into free-fall by sanctions placed on the Russian economy following Moscow’s invasion of Ukraine.
- Putin ordered his government, Gazprom and the central bank to prepare all the necessary documents to switch to ruble payments by March 31.
El Salvador Locks Up Hundreds After Gangs Unleash Terror – Bloomberg, 3/28/2022
- Police in El Salvador used emergency powers to round up nearly 600 suspected gang members after criminals unleashed a killing spree over the weekend that spread terror across the Central American nation.
- In the early hours of Sunday morning, the National Assembly approved a state of emergency request made by President Nayib Bukele, which grants the police extra powers. The move came after at least 62 people were slaughtered on Saturday in some of the worst bloodshed since the nation’s civil war ended three decades ago.
- Bukele said that the police had made hundreds of arrests in two days, and pledged to take a tough line on the groups, which control entire neighborhoods and engage in extortion and drug trafficking.
SK Hynix CEO says top shareholder to secure $1.6 billion for M&A in chips, blockchain – Reuters, 3/28/2022
- The CEO of South Korean chipmaker SK Hynix said on Monday that its largest shareholder, SK Square, is considering merger and acquisition deals involving chip companies.
- “We are considering investment in companies ranging from those that are big in scale to those that are small,” Co-CEO of SK Hynix Park Jung-ho, who is also CEO of SK Square, said at the latter’s annual shareholders meeting.
- SK Square, which owns 20.1% of SK Hynix, plans to secure 2 trillion won ($1.63 billion) or more of its own for investments over the next three years, as well as establish a joint investment base with domestic and foreign investors, to invest intensively in areas such as chips and blockchain.
- SK Square executives were involved in SK Group’s large-scale chip M&As in the past decade such as the acquisition of SK Hynix in 2012, SK Hynix investing 395 billion yen ($3.21 billion) in a stake in Kioxia in 2017, and SK Hynix signing the $9 billion acquisition of Intel’s NAND business in 2020, SK Square said in a statement.
Evergrande electric vehicle arm to start taking car orders ‘imminently’ – Reuters, 3/28/2022
- China Evergrande New Energy Vehicle Group said it will start accepting orders for its inaugural electric car, the Hengchi 5 sport utility vehicle, “imminently” and open sales centres in 15 major cities across the country.
- Liu Yongzhuo, president of the electric vehicle (EV) arm of the world’s most indebted property developer China Evergrande Group, made the comment at an online meeting attended by nearly 200 global parts suppliers on Sunday, according to the firm’s official Wechat account. The social media post didn’t say exactly when the firm will start taking orders.
- The plan comes as the EV firm has been struggling to secure external investment. Evergrande told investors in a call last week it was trying to rope in investors to help bolster the unit’s finances – a goal it has been pursuing for months without much success.
Factmonster – TODAY in HISTORY
- The cities of Constantinople and Angora changed names to Istanbul and Ankara, Turkey. (1930)
- The Spanish Civil War ended. (1939)
- The most violent earthquake (9.2) in the United States struck Prince William Sound, Alaska. (1964)
- Nuclear power plant accident at Three Mile Island, near Harrisburg, Pennsylvania. (1979)
- Supreme Court rules unanimously that an anonymous tip does not justify a stop-and-frisk action against a person. (2000)
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