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Daily Market Report | April 11, 2022

US FINANCIAL MARKET

U.S. Stocks Slide as Bond Yields Climb – Wall Street Journal, 4/11/2022

  • U.S. stocks dropped and oil prices slid Monday as Covid-19 shutdowns in China added to the uncertainty investors face in a period of rising interest rates.
  • The S&P 500 fell 0.8%, while the Dow Jones Industrial Average slipped 0.3%, or about 100 points.
  • The tech-heavy Nasdaq Composite declined 1.2%.
  • The Nasdaq fell 3.9% last week, when Federal Reserve officials signaled their intent to raise borrowing costs and shrink the central bank’s balance sheet to quell inflation.
  • U.S. government bonds extended their selloff. The yield on 10-year Treasury notes rose to 2.757%, up from 2.713% Friday.
  • Lockdowns in Shanghai that damp demand for commodities weighed on oil prices, sending benchmark Brent crude contracts down 4.1% to $98.59 a barrel.
  • The physical oil market had been weakening for several weeks in response to the shutdowns as well a planned release from strategic reserves in the U.S. and elsewhere.
  • AT&T, which on Friday completed the planned merger of its film-and-TV empire with Discovery, rose 5.7%.
  • Shares of the new company, Warner Bros. Discovery (WBD), added 3.9%.
  • Stock markets mostly dropped overseas. The Stoxx Europe 600 lost 0.4%, led by declines for technology companies.
  • France’s CAC 40 was an outlier, rising 0.5% after President Emmanuel Macron garnered 28.2% of the estimated vote in the first round of the presidential election, ahead of far-right leader Marine Le Pen’s 22.9%.
  • The two will face off in an April 24 rematch of the 2017 election.
  • Stocks in China tumbled as the economic toll of Covid-19 lockdowns in Shanghai and supply-chain disruptions in the country continued to mount.
  • The CSI 300 Index, which tracks the largest companies listed in Shanghai and Shenzhen, fell 3.1%, while Hong Kong’s Hang Seng Index dropped 3%.
  • Chinese auto sales data on Monday showed that passenger-car sales fell 10.5% in March, after production was hampered by factory closures.
  • Shanghai, the center of the Covid-19 outbreak, reported more than 25,000 asymptomatic carriers of coronavirus Sunday, according to the National Health Commission.
  • Investors will parse results from some of the biggest financial institutions when first-quarter earnings season kicks off this week.
  • JPMorgan Chase, BlackRock and Delta Air Lines are due to report Wednesday, followed by Goldman Sachs, Morgan Stanley and Citigroup Thursday.

Elon Musk Reverses Decision to Join Twitter’s Board – Wall Street Journal, 4/11/2022

  • Elon Musk decided not to join Twitter’s board of directors, Chief Executive Parag Agrawal said, a dramatic reversal that cast new uncertainty over the relationship between the social-media platform and its largest shareholder.
  • Mr. Agrawal didn’t provide a reason for Mr. Musk’s decision. “I believe this is for the best,” he said. “We have and will always value input from our shareholders whether they are on our Board or not. Elon is our biggest shareholder and we will remain open to his input.”
  • The Tesla Inc. CEO didn’t respond to a request for comment late Sunday. He tweeted a “face with hand over mouth” emoji after Mr. Agrawal’s tweet.
  • Mr. Musk appears to have deleted that tweet along with several others he posted over the weekend that included criticisms, suggestions and apparent jokes about Twitter.

Shopify Plans 10-for-1 Stock Split, Seeks to Protect CEO’s Voting Power – Wall Street Journal, 4/11/2022

  • Shopify is asking investors to approve changes to its complex share structure to protect the voting power of the Canadian technology company’s leader. The company also is proposing a 10-for-1 stock split.
  • Under the proposal, co-founder and Chief Executive Officer Tobi Lütke will receive a new “founder share” that, combined with his existing supervoting Class B shares, will increase his voting power to 40% from 34%.
  • Mr. Lütke, who is 41 years old, will keep the founder share as long as he remains at Shopify as an executive, a board member or a consultant.
  • With the founder share, Mr. Lütke will be able to hold the 40% voting control even if he sells a significant amount of his Class B shares. However, he can’t pass the founder share along to his family and will also lose his right to transfer the Class B shares.

Etsy Sellers Strike as Site Ramps Up to Battle Amazon – Wall Street Journal, 4/11/2022

  • A battle over the future of Etsy is playing out in public this week as some sellers protest higher fees and changes the company says are needed to compete for shoppers.
  • More than 15,000 sellers on the digital marketplace have signed a petition against Etsy’s move to raise the commission it charges on each transaction to 6.5% from 5%, according to Kristi Cassidy, an Etsy shop owner and one of the petition organizers.
  • Some, including Ms. Cassidy, are also going as far as temporarily closing their shops in protest.
  • Etsy executives say the fee hike effective Monday—the first such increase since 2018—is critical to increasing investments in marketing and expanding seller-support services.
  • The tension between Etsy and parts of its seller base, which totals roughly 5.3 million businesses, comes as the company tries to evolve from a niche online marketplace to a major e-commerce player.

Bank Deposits Could Drop for First Time Since World War II – Wall Street Journal, 4/11/2022

  • U.S. banks have a streak of increasing deposits as a group every year since at least World War II. This year could break it.
  • Over the past two months, bank analysts have slashed their expectations for deposit levels at the biggest banks.
  • The 24 institutions that make up the benchmark KBW Nasdaq Bank Index are now expected to see a 6% decline in deposits this year.
  • While some analysts doubt the full-year decline will happen, even the possibility would have been unthinkable a few months ago. Bank deposits have grown sharply during the pandemic.
  • A decline isn’t going to hurt the banks. The flood of deposits had become a headache as it had big banks nearing regulatory limits on their capital.
  • Banks had already been pushing many depositors aside because they weren’t able to put the money to work as loans.
  • The industry has $8.5 trillion more in deposits than loans, according to Barclays analysts.
  • While loan demand is expected to increase, and the banks need deposits to fund the lending, that is more than enough.

Thoma Bravo to buy SailPoint for $6.1 bln in cybersecurity push – Reuters, 4/11/2022

  • Private equity firm Thoma Bravo will acquire cybersecurity firm SailPoint Technologies for $6.12 billion, the latest deal that underscores the heightened interest in the security software market.
  • With the newest buy, Thoma Bravo will bolster its strength in the security-focused space, where it already has key investments in firms like Barracuda Networks, Blue Coat Proofpoint, Sonicwall and Sophos.
  • SailPoint shareholders will receive $65.25 per share in cash, the company said on Monday, which represents a premium of 31.6% as of Friday close. Including debt, the deal is valued at about $6.9 billion.
  • Shares of Austin-Texas based SailPoint, founded in 2005, were trading about 30% higher in early trading on Monday. They had lost about 9.2% in 2021.

Muni Bond Boom Is Sputtering as Interest Rates Rise – Wall Street Journal, 4/11/2022

  • Rising interest rates are threatening the municipal-bond boom on Wall Street, leaving governments less willing to borrow and households less willing to invest in the $4 trillion market.
  • Bond issuance by state and local governments dropped 8% in the first quarter from a year earlier, with public officials calling off refinancings and spending down stimulus cash. At the same time, spooked investors yanked their money from municipal-bond funds, which suffered their biggest quarterly outflows since 2013.
  • States and cities have been forced to cut prices to sell their bonds to banks and insurance companies because muni bond funds are no longer offering top dollar, dealers said.
  • “2021 was a market where everybody wanted to buy because there was so much inflow and so much cash,” said Chris Lee, head of municipal sales at Wells Fargo, the fourth-largest muni-bond broker-dealer by volume last quarter. “This year it’s much more of a negotiation.”

Investors Turn Cautious on Consumer Debt – Wall Street Journal, 4/11/2022

  • Investors are growing more skittish about bonds backed by consumer debt, worried that inflation and slowing growth will increase the number of low-income borrowers falling behind on car payments or credit-card bills.
  • Buyers of bonds backed by subprime car loans or credit cards are demanding the highest premiums over interest-rate benchmarks since mid-2020. Meanwhile, investors have punished shares of some financial-technology companies that helped fuel a recent surge in consumer borrowing, such as Affirm Holdings and Upstart Holdings.
  • About $900 billion of loans to individuals that were packaged into tradable bundles and sold to investors as bonds was outstanding last year, Moody’s data show, supporting record borrowing for homes, cars and even electronics.
  • Debt owed by households topped $15 trillion for the first time last year, according to the New York Federal Reserve.
  • Bond sales have become especially important for funding loans to lower- and middle-income consumers.
  • New securitized car loans to subprime borrowers grew by 57% last year to $43.4 billion, according to Moody’s.
  • Bond issuance backed by the type of loans made by Affirm and Upstart almost doubled to about $18 billion in 2021, according to Finsight.

Apple starts manufacturing iPhone 13 in India – Reuters, 4/11/2022

  • Apple has started making the iPhone 13 in India, the company said on Monday, as the U.S tech giant tries to reduce reliance on its Chinese supply chain.
  • The phone is being produced at a local plant of Apple’s Taiwanese contract manufacturer Foxconn, situated in the town of Sriperumbudur in Southern Tamil Nadu state, according to a source.
  • Apple has been shifting some areas of iPhone production from China to other markets including India, the world’s second biggest smartphone market, and is also planning to assemble iPad tablets there.
  • The iPhone 13 is the fourth model to be produced locally after Apple launched manufacturing operations in India in 2017 with the iPhone SE.

Fortnite Maker Epic Gets $2 Billion From Sony, Lego Owner – Bloomberg, 4/11/2022

  • Sony Group and the owner of the Lego Group invested $2 billion in Epic Games, the maker of Fortnite.
  • Epic is valued at $31.5 billion after the investment, the Cary, North Carolina-based company said Monday in a statement.
  • Epic’s valuation about a year ago was $28.7 billion.
  • In addition to producing Fortnite, which has hundreds of millions of registered users, Epic Games also makes one of the most popular game engines, Unreal Engine. Last week, Epic released Unreal Engine 5.
  • Sony, which works with Epic on the PlayStation and already owned a stake in the company, and Kirkbi, the family-owned holding company behind the Lego toy brand, each invested $1 billion in the new deal. “All three companies highly value both creators and players, and aim to create new social entertainment exploring the connection between digital and physical worlds,” according to the statement.

Oil Falls to February Levels on Worsening China Demand Outlook – Bloomberg, 4/11/2022

  • Oil resumed its decline as China’s largest Covid-19 outbreak in two years heightens concerns about demand from the world’s biggest crude importer.
  • West Texas Intermediate futures dropped below $95 a barrel, touching the lowest level since late February.
  • Virus cases are rising in Shanghai, with millions under lockdown and no clarity on when restrictions will be lifted.
  • Russian crude oil shipments in the seven days to April 8 continued a rebound that began the previous week after consistently falling since the nation’s Feb. 24 invasion of Ukraine.
  • Weekly shipments hit almost 4 million barrels a day in the first full week of April, the highest level seen so far this year.

Corn in Longest Rally Since Ukraine War Began on Supply Worries – Bloomberg, 4/11/2022

  • Corn rose for a third day in Chicago, the longest rally since the war in Ukraine started, on sluggish sales from the country and further risks to future supply.
  • Futures gained as much as 1.3%, moving nearer to the highest since 2012.
  • Both the U.S. Department of Agriculture and United Nations cut their outlooks for Ukrainian corn shipments on Friday.
  • The supply constraints are expected to persist into the 2022-23 season, with Ukraine’s grain association projecting the corn crop to sink 39% from last year.
  • Focus is turning to the weather across the rest of the Northern Hemisphere as plantings kick off, at a time when pricey fertilizer could limit sowing.

Palladium Extends Gains After Suspension of Two Russian Refiners – Bloomberg, 4/11/2022

  • Palladium extended gains after the suspension of two state-owned Russian refiners by bourses in London and Chicago added to concerns about supply disruptions from a key producing country.
  • The precious metal’s latest rise, following an 8.7% surge on Friday, comes after the invasion of Ukraine and the sanctions that followed saw prices soar to a record last month.
  • Russia produces about 40% of the world’s freshly mined palladium, which is mostly used in automobile catalytic converters.
  • On Friday, the London Platinum & Palladium Market suspended Krastsvetmet and Prioksky Plant of Non-Ferrous Metals from its goods-delivery and sponge-accreditation lists.
  • The LPPM’s announcement reverses its decision a month ago to continue letting the Russian plants supply precious metals to the trading hub. The CME then suspended the approved status for warranting and delivery of certain platinum and palladium brands from the two refiners until further notice.

Gas Price Surge Fuels Fights at FedEx, Uber Over Who Will Pay – Wall Street Journal, 4/11/2022

  • Soaring gas prices are squeezing transportation businesses and setting off debates about who will foot the bill.
  • FedEx, Uber Technologies and Lyft imposed new or higher fuel surcharges on customers after Russia’s invasion of Ukraine shocked energy markets.
  • But local contractors who own the FedEx Ground delivery trucks and some U.S. drivers of the ride-share services are pleading with the companies for even more financial help.
  • Uber and Lyft shifted some of the burden to riders by introducing a temporary fuel surcharge in mid-March.
  • Riders now pay between 45 cents to 55 cents a trip based on their location.
  • Lyft said its surcharge is based on data showing that drivers are spending on average 57 cents more on gas per hour than they were a year ago. Uber said that a per-mile surcharge would disadvantage drivers stuck in traffic.

US ECONOMY & POLITICS

Fed’s Mester Sees U.S. Inflation Rate at More Than 2% Into 2023 – Bloomberg, 4/11/2022

  • Federal Reserve Bank of Cleveland President Loretta Mester said she’s confident that the U.S. will avoid a recession as the Fed tightens policy, though the inflation rate will probably remain at more than 2% into next year.
  • “I think that it will take some time to get inflation down,” Mester said on CBS’s “Face the Nation,” citing rising energy and commodity prices. “So I think inflation will remain above 2% this year and even next year, but the trajectory will be that it’ll be moving down.”
  • China’s attempts to stamp out Covid-19 are also contributing, Mester said. “Certainly the lockdown in China is going to exacerbate the problems that we have in supply chains,” she said. “So that is putting upward pressure on prices.”
  • Mester said that while there’s an increased risk of recession, she’s “optimistic that we’ll be able to remove monetary-policy accommodation and maintain good labor-market conditions and the expansion.”

Everything Costs More, and That’s Disrupting Retirement for Many – Wall Street Journal, 4/11/2022

  • Signs are mounting that high inflation is helping propel more people—including retirees—back into the labor force, economists say.
  • That is good for the economy overall, as a growing workforce boosts the economy’s growth prospects, and it could ease staffing shortages that have pushed up wages and added to price pressures. But for many people, including those relying on pensions or limited savings, rising prices are an unwelcome development forcing them back onto the job market.
  • The share of people age over 55 either working or looking for a job—their labor-force participation rate—rose to 38.9% in March from 38.4% in October, according to the Labor Department.
  • More than 480,000 people in that age group entered the labor force during the past six months, according to the three-month moving average, which smooths out volatility. That was more than the 180,000 who entered the labor force in the six months before the pandemic struck.
  • Roughly 2.6 million Americans retired earlier than expected between February 2020 and October 2021, according to estimates from Federal Reserve Bank of St. Louis senior economist Miguel Faria-e-Castro.
  • Now many are returning to work at rates not seen since March 2020, according to jobs site Indeed.

EUROPE & WORLD

China’s Latest Covid-19 Lockdowns Begin to Drag on the Economy – Wall Street Journal, 4/11/2022

  • China’s strict Covid-19 lockdowns in Shanghai and other industrial hubs are beginning to weigh on its economy, with auto sales slumping and consumer prices rising the fastest in three months.
  • Car sales in China dropped 10.5% year-over-year in March to 1.58 million vehicles as measures to contain the coronavirus outbreaks halted auto factories, slowed down car shipments and kept consumers from visiting car dealerships, the China Passenger Car Association said Monday.
  • During the past two days, Shanghai officials have tested more than 21 million people—about 80% of the city’s residents—as a part of an effort to cautiously open up areas that have reported no Covid-19 cases for two weeks.

China’s Covid Lockdowns, Surging Oil Add to Inflation Risks – Bloomberg, 4/11/2022

  • China’s factory gate prices rose more than expected in March as oil prices climbed, while disruptions from Covid lockdowns drove up food costs, threatening the inflation outlook in the world’s second-largest economy.
  • The producer price index gained 8.3% from a year earlier, official data showed Monday, down from 8.8% in February and above the median estimate of an 8.1% increase in a Bloomberg survey of economists.
  • Consumer-price growth accelerated to 1.5% after staying unchanged at 0.9% for two months.
  • China’s benchmark CSI 300 Index fell as much as 3% after the inflation data, the biggest drop in almost a month.
  • Fresh vegetable prices jumped 17.2% on year, compared to a drop of 0.1% in February, data from the National Bureau of Statistics showed.
  • Of the sub-items in the consumer price basket, fuel for transportation rose the fastest at 24.1% on year, according to a breakdown provided by the statistics office.

Shanghai Has Recorded More Than 130,000 Covid Cases—and No Deaths – Wall Street Journal, 4/11/2022

  • In a Covid-19 outbreak that has locked 25 million people at home, the city of Shanghai has reported more than 130,000 cases since March 1, but says there have been no deaths and currently only one patient with severe illness.
  • The absence of deaths, and the low incidence of severe illness recorded in Shanghai as cases rise, stands out compared with outbreaks elsewhere, even accounting for the fact that Covid deaths often lag behind infections by several weeks.
  • Shanghai says nearly 97% of its Covid cases since March 1 have been asymptomatic. That appears to diverge from the outbreak in Jilin. A Journal review of daily reported Covid infections in Jilin indicates that on a typical day, about 40% of cases were classified as asymptomatic.
  • To cope with all the new infections, Shanghai authorities are turning the city’s sprawling National Exhibition and Convention Center into a makeshift hospital, capable of housing 50,000 people, and are preparing to send city residents who test positive to neighboring provinces.

TSMC Sales Soar to Record on Demand for Smartphones, Cars – Bloomberg, 4/8/2022

  • Taiwan Semiconductor Manufacturing Co. revenue rose to a record in the first quarter on demand for chips used in smartphones, computers and cars, while a prolonged shortage helped to boost prices.
  • Revenue jumped 36% to NT$491.1 billion ($17 billion) in the three months through March, the company said in a statement Friday. Analysts estimated NT$469.4 billion on average.
  • TSMC, the world’s largest contract chipmaker, is slated to report full earnings later this month.

BMW’s CEO expects chip shortage to last into 2023 – Reuters, 4/11/2022

  • A shortage of semiconductors is likely to remain a problem for the auto industry into 2023, German carmaker BMW’s Chief Executive Oliver Zipse said in an interview with newspaper Neue Zuercher Zeitung (NZZ) published on Monday.
  • “We are still in the height of the chip shortage,” Zipse was quoted as saying. “I expect us to start seeing improvements at the latest next year, but we will still have to deal with a fundamental shortage in 2023.”
  • BMW said during its annual press briefing in mid-March that it expected the chip shortage to last throughout 2022.
  • Zipse’s comments echoed similar statements by Volkswagen’s CFO Arno Antlitz on Saturday who said he expected that supply of chips would not be able to meet demand until 2024.

Chinese electric car company Nio hikes prices, suspends production – CNBC, 4/11/2022

  • Chinese electric car company Nio said over the weekend it is raising prices and suspending production as the latest Covid wave added to supply chain challenges.
  • The company’s Hong Kong-listed shares fell nearly 9% in Monday morning trading.
  • Nio announced Sunday it would raise the prices for its three SUVs — the ES8, ES6 and EC6 — by 10,000 yuan ($1,572), effective May 10. Prices for the recently launched ET7 and ET5 sedans would remain the same.
  • A day earlier, on Saturday, Nio said it suspended production due to Covid-related restrictions in the last several weeks that halted production at suppliers’ factories.

France’s Macron and Far-Right Le Pen Lead in First Round of Presidential Election – Wall Street Journal, 4/11/2022

  • President Emmanuel Macron and far-right leader Marine Le Pen led the first round of France’s presidential election, according to projections, setting the stage for a closely contested runoff amid public frustration over high-inflation and immigration.
  • Mr. Macron garnered 28.2% of the estimated vote ahead of Ms. Le Pen with 22.9%. The two will now face off in an April 24 rematch of the 2017 election that will test whether Mr. Macron can rekindle the coalition of disaffected socialists and conservatives that fueled his landslide victory five years ago.
  • Sunday’s vote illustrated how France’s political landscape has grown increasingly polarized since Mr. Macron took office. Candidates for the socialist and conservative parties only garnered a combined 6.7% of the estimated vote, compared with 26% in the last elections, while contenders from the far-right and far-left won support from more than half of the electorate.
  • Far-right former TV pundit Eric Zemmour, who won 7.3% of the estimated vote, called on his supporters Sunday to back Ms. Le Pen.
  • Far-left firebrand Jean-Luc Mélenchon, who finished third with 21.7%, warned his voters to “not cast a single vote for Madame Le Pen.”

Factmonster – TODAY in HISTORY

  • The treaty ending the Spanish-American War took effect. (1899)
  • Iowa imposed the first state cigarette tax. (1921)
  • Allies liberated Buchenwald concentration camp. (1945)
  • President Harry Truman fired General Douglas McArthur. (1951)
  • Ugandan dictator Idi Amin was overthrown. (1979)
  • President Lyndon B. Johnson signed the 1968 Civil Rights Act. (1968)
  • President Ronald Reagan returned to the White House after he was shot in an assassination attempt. (1981)

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