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Daily Market Report | April 12, 2022

US FINANCIAL MARKET

Stocks Climb After Inflation Data – Wall Street Journal, 4/12/2022

  • U.S. stock indexes climbed and a selloff in government bonds reversed, after inflation data showed that consumer prices rose at a four-decade-high rate in March.
  • The S&P 500 rose 0.6%, the Dow Jones Industrial Average edged up 0.3% and the technology-heavy Nasdaq Composite rose 1.2%. On Monday, major indexes retreated, with the benchmark S&P 500 losing 1.7%.
  • The yield on the benchmark 10-year Treasury note fell to 2.712% Tuesday, having risen earlier to its highest level since 2018.
  • On Monday, the yield settled at 2.779%. Bond yields fall when bond prices rise.
  • Labor Department data showed that the consumer-price index rose 8.5% in March from a year before. That outpaced February’s 7.9% reading and was higher than some economists had forecast.
  • The sharp market reaction surprised some analysts and investors. However, some pointed to the slowdown in on-the-month core price rises as a possible reason.  The core price index, which excludes volatile food and energy prices, rose 0.3% in March, below economists’ expectations, and down from 0.5% in February.
  • Money managers expect the reading will factor heavily into the Federal Reserve’s rate-rise decision at its May meeting, and many anticipate the central bank might increase rates by a half-percentage point.
  • Federal-funds futures—derivatives used to bet on the path of interest rates—show a nearly 90% probability of such a rate rise, up from about 78% last week, according to CME Group.
  • Meanwhile, Brent crude, the international oil benchmark, rose 5.6% to $104.06 a barrel, recouping some of Monday’s losses.
  • Lockdowns in China and planned releases from strategic reserves in the U.S. and elsewhere have pressured oil prices downward recently.
  • The Biden administration plans to temporarily allow high-ethanol content gasoline to be sold this summer, in an attempt to ease prices at the pump.
  • In Europe, the pan-continental Stoxx Europe 600 fell 0.3%. Deutsche Bank and Commerzbank led losses for the index, with both falling more than 7%. The moves came after an undisclosed shareholder unloaded roughly 5% stakes in both German banks.
  • The share-price drops impacted other banks in the region, with Italy’s UniCredit down 2.5%.
  • In Asia, indexes largely bucked the downbeat trend in stocks. Hong Kong’s Hang Seng added 0.5%, while in mainland China, the Shanghai Composite jumped 1.5%. Japan’s Nikkei 225, in contrast, declined 1.8%.

American Airlines sees higher quarterly costs as labor, jet fuel prices soar – Reuters, 4/12/2022

  • American Airlines expects higher costs in the current quarter amid higher labor and jet fuel expenses.
  • American projects a pretax loss, excluding special items, in the range of 21.3% to 22.6% for the first quarter.
  • The carrier said it expects its CASM (cost per available seat miles) to be up between 12% and 13% versus 11% and 13% predicted last month, excluding costs related to fuel and net special items.
  • Overall CASM is estimated to be at least 16% higher than in the first quarter of 2019.
  • The airline raised its jet fuel expenses for the quarter. It now expects to pay an average of between $2.80 and $2.85 per gallon, higher than its previous estimate of $2.73 and $2.78 per gallon.
  • Meanwhile, American expects quarterly total revenue to fall about 16% compared to pre-pandemic levels, as inflationary pressures impact consumer demand.

CarMax Says Used-Car Sales Hit by Waning Consumer Confidence – Bloomberg, 4/12/2022

  • CarMax sank after its fourth-quarter used vehicle sales missed analyst estimates, with soaring prices and anxiety over the economy keeping some customers away.
  • The Richmond, Virginia-based company cited declining consumer confidence and affordability, among other factors, for a 6.5% drop in the number of used cars it sold last quarter in stores that have been open at least 13 months.
  • The average price of a car rose 40%, or $8,300, in the period ended Feb. 28 compared with a year ago, CarMax said in a statement Tuesday.
  • “From an affordability standpoint, you’ve got interest rates going up, inflation, you’ve got the Ukraine-Russia war. There just a lot weighing on the consumer right now,” Bill Nash, Carmax’s chief executive officer, said on a conference call.
  • Nash told analysts that consumers are increasingly seeking loans longer than 72 months to help spread out the cost of vehicle purchases and that not all lenders are willing to extend that type of credit — especially to subprime borrowers.
  • For “the lower credit spectrum customer, certainly we feel affordability has maybe often priced them out of the market,” he said.

Digital Ad Revenue Jumped 35% in the U.S. Last Year, Biggest Gain Since 2006 – Wall Street Journal, 4/12/2022

  • Digital ad revenue in the U.S. jumped 35% to $189 billion last year as marketers chased consumers spending ever more time on online media and shopping, according to a new report from the Interactive Advertising Bureau and PricewaterhouseCoopers LLP.
  • The rise was well above the 12% growth rate of 2020, which was briefly hobbled by an early-pandemic dip.
  • The year-over-year growth in 2021 was the highest the digital ad market had seen since 2006, when it rose at the same rate, the online-ad trade group said.
  • Advertising on digital audio—podcasts and streamed music and radio—grew faster than any other category, up 58% to reach $4.9 billion.
  • In 2021, 10 digital publishers and platforms took the lion’s share—78.6%—of total digital ad revenue, up from 78.1% in 2020, according to the IAB, which doesn’t identify the companies.

GM Strikes Deal to Secure Cobalt for Electric-Car Batteries – Wall Street Journal, 4/12/2022

  • General Motors has struck a multiyear agreement to source cobalt from commodities firm Glencore, the latest in the auto industry’s rush to secure key battery ingredients for electric-vehicles as raw materials rise.
  • GM said Tuesday the firm will supply it with cobalt, a critical metal used in the production of batteries, from Glencore’s operation in Australia. The Detroit auto maker plans to use the material in its proprietary batteries, which are expected to power new plug-in models such as the Chevrolet Silverado EV and electric GMC Hummer.
  • Battery-grade cobalt prices roughly tripled from the end of 2019 through March, according to Benchmark Mineral Intelligence, which tracks the global battery supply chain.
  • Nickel sulfate has gained some 85% and lithium carbonate is up 670% over the same period.

Ford inks Argentina lithium supply deal with Lake Resources – Reuters, 4/12/2022

  • Ford Motor said on Monday it has signed a preliminary deal to buy lithium from a Lake Resources facility in Argentina, marking the first time the automaker has publicly announced where it will procure the electric vehicle battery metal.
  • The deal is a major bet by Ford on direct lithium extraction (DLE), a relatively new breed of technologies that filter the metal from brines and use far less acreage than open-pit mines and evaporation ponds.
  • Ford aims to buy 25,000 tonnes annually of the white metal from Lake’s Kachi project in northern Argentina, which is being developed with privately held extraction startup Lilac Solutions Inc.
  • Lilac’s technology, like all DLE technologies, has yet to work commercially, though it has the support of Bill Gates’ Breakthrough Energy Ventures and other high-profile investors.

OPEC Cuts Forecasts for Global Growth, Oil Demand, Citing Ukraine War – Wall Street Journal, 4/12/2022

  • Surging energy prices prompted by Russia’s invasion of Ukraine will take a heavy toll on the global economy and weigh on demand for crude, outcomes that will worsen if the war continues, the Organization of the Petroleum Exporting Countries warned.
  • OPEC on Tuesday slashed its forecasts for global economic growth for the year to 3.9% from an earlier assessment of 4.2%, as economies are expected to suffer under the weight of high commodity prices.
  • OPEC downgraded its growth forecast for the eurozone economy to 3.5% from 3.9%.
  • Russia’s economy is expected to contract by 2% under the weight of Western sanctions. Last month, OPEC forecast Russia’s economy would grow by 2.7% this year.
  • A more sluggish global economy would likely mean less demand for oil, the Vienna-based group said.
  • It cut its forecast for growth in demand for oil this year by 500,000 barrels a day to 3.7 million barrels a day.
  • For the year, OPEC expects the globe to burn through 100.5 million barrels of oil a day, 410,000 barrels a day less than it was forecasting before the war broke out.
  • The oil producers cartel cut its forecasts for Russian production this year by 530,000 barrels a day to 10.8 million barrels a day. That is slightly higher than last year’s output which stood at 10.59 million. OPEC raised its U.S. production forecasts by 261,000 barrels a day to 17.75 million barrels.

WTO slashes 2022 global trade growth forecast amid COVID, Ukraine ‘double whammy’ – Reuters, 4/12/2022

  • The World Trade Organization (WTO) on Tuesday revised down its forecast for global trade growth this year to 3% from 4.7% because of the impact of the Russia-Ukraine war and warned of a potential food crisis caused by surging prices.
  • The Geneva-based body forecast global trade growth in 2023 would inch up to 3.4%, noting that both 2022 and 2023 estimates are less certain than usual due to uncertainty about the conflict.
  • The report from the global trade watchdog said the conflict, now in its seventh week, had damaged the world economy at a critical juncture as the coronavirus pandemic – and Chinese lockdowns specifically – continues to weigh on the recovery.
  • WTO Director-General Ngozi Okonjo-Iweala also warned of a potential food crisis because of disruptions to exports from Ukraine and Russia, both major suppliers of grains and other commodities, that could hit poor countries, including some 35 African importers, the hardest.

Ukraine War Drives Shortage in Pig Iron, Pushing Steel Prices Higher – Wall Street Journal, 4/12/2022

  • Pig iron, a raw form of the metal used in the production of steel, has grown scarce in the weeks following Russia’s invasion of Ukraine, industry executives said.
  • Two-thirds of the 6 million metric tons of pig iron imported by the U.S. last year came from those two countries, according to the U.S. Census Bureau, but the fighting brought Ukrainian shipments to a halt and importers have stopped ordering from Russia, steel executives said.
  • The crunch has steelmakers seeking out new suppliers in Brazil, India and elsewhere, in the midst of tightening U.S. supplies of scrap steel. Meanwhile, prices for pig iron have nearly doubled.
  • Pig iron—ore reduced to molten iron that is cast into briquettes—is mixed with scrap in electric furnaces and melted into new steel.
  • About 70% of steel produced in the U.S. is made in electric furnaces, making the U.S. particularly reliant on scrap steel and pig iron. U.S. pig iron imports last year were 20% higher than in 2019.
  • To offset more expensive pig iron, steelmakers said they are relying more on scrap steel from manufacturing waste, shredded cars and other debris. That demand has driven the price of high-quality scrap 51% higher since February, and set off a new round of price increases for finished steel, reversing months of declines.
  • The spot-market price for the industry benchmark hot-rolled coiled sheet steel is up 48% since the beginning of March to $1,480 a ton, according to S&P Global price surveys.

US ECONOMY & POLITICS

U.S. Inflation Quickens to 8.5%, Ratcheting Up Pressure on Fed – Bloomberg, 4/12/2022

  • U.S. consumer prices rose in March by the most since late 1981, underscoring the painfully high cost of living and reinforcing pressure on the Federal Reserve to raise interest rates even more aggressively.
  • The consumer price index increased 8.5% from a year earlier following a 7.9% annual gain in February, Labor Department data showed Tuesday. The widely followed inflation gauge rose 1.2% from a month earlier, the biggest gain since 2005.
  • Gasoline costs drove half of the monthly increase, while food was also a sizable contributor, as Americans paid more for vegetables, meats and dairy products.
  • Excluding volatile food and energy components, so-called core prices increased 0.3% from a month earlier and 6.5% from a year ago, due in large part to the biggest drop in used vehicle prices since 1969 and a deceleration in price growth in other merchandise categories.
  • Used car prices, which had been a driver of higher goods inflation for months, were down 3.8% in March, the second straight monthly decline. New car prices, meanwhile, rose slightly.
  • Services costs increased 5.1% from a year ago, the biggest advance since 1991.
  • Airline fares rose a record 10.7% in March from a month earlier. Shelter costs, which include rents and hotel stays, rose 0.5% for a second month.
  • Inflation-adjusted average hourly earnings dropped 2.7% in March from a year earlier, the 12th straight decline, separate data showed Tuesday.

EPA Will Allow More Ethanol in Gas This Summer in Bid to Tame Prices – Wall Street Journal, 4/12/2022

  • The Biden administration plans to temporarily allow high-ethanol content gasoline to be sold in the hot summer months in a bid to tame high fuel prices at the pump, according to senior administration officials.
  • The decision will allow gasoline with 15% ethanol to be sold between June 1 and Sept. 15. Normally only a 10% ethanol blend can be sold during that time period to reduce smog caused by the 15% blend’s higher volatility.
  • Allowing fuels with a higher ethanol content will lessen reliance on oil and give drivers more options, senior administration officials said, adding that it could save drivers 10 cents a gallon off current prices.
  • Oil-industry officials have questioned whether such moves would lower prices. Higher ethanol blending can sometimes raise prices on refiners. Corn prices, like oil, have also seen sharp increases this year because of Russia’s invasion of Ukraine.
  • Environmentalists have also opposed past attempts to raise the summertime cap because of the additional smog created by the higher blend. But the higher content has long been supported by farmers who grow corn used to make ethanol.

U.S. Pullout of Locked-Down Shanghai Deepens China Tensions – Bloomberg, 4/12/2022

  • The U.S. ordered all non-emergency staff at its Shanghai consulate to leave China, drawing a rebuke from Beijing and generating criticism even from Americans in the locked-down financial hub.
  • The State Department ordered the departures Monday, according to a post on its website, as most of Shanghai’s 25 million residents were restricted to their homes for at least two weeks.
  • Anger has risen over food shortages, the inability to access medical care and even pet killings.
  • Beijing saw the U.S. decision as political, with Foreign Ministry spokesman Zhao Lijian accusing the Biden administration of “attacking and smearing” China.
  • He said channels of communication between the countries were unimpeded and China was providing “assistance and convenience” to foreign diplomatic staff in accordance with international conventions.

EUROPE & WORLD

Putin Says Ukraine Talks ‘at Dead End’, Vows to Pursue War – Bloomberg, 4/12/2022

  • President Vladimir Putin said peace talks with Ukraine are “at a dead end” and vowed to continue Russia’s invasion as Kyiv accused Moscow of sabotaging the negotiations.
  • There’s been no word of progress for days in video-link peace talks after Ukraine accused Russian troops of carrying out war crimes including killing unarmed civilians in Bucha and other towns in the north. Western leaders have called for international investigations of the deaths.
  • In his first public comments on the alleged atrocities, Putin first compared them to U.S. attacks on cities like Raqqa in Syria and then called the Bucha claims “fake.”
  • Russia’s almost seven-week offensive is going “according to plan,” Putin said Tuesday at a joint press conference at the Vostochny Cosmodrome in the Russian Far East with Belarusian President Alexander Lukashenko.
  • After facing major losses and the failure to capture the capital Kyiv, Russia has scaled back its war aims in Ukraine.
  • It’s now preparing a new offensive aimed at solidifying control of the eastern Donbas region that is partly controlled by Kremlin-backed separatists and securing a land bridge to the Crimea peninsula Putin annexed in 2014.

Shanghai Factory Closures Mount as Covid-19 Lockdowns Hit Supply Chains – Wall Street Journal, 4/12/2022

  • More factories in and around Shanghai, including two run by an Apple supplier, are halting production because of extended Covid-19 lockdowns in the region, adding to pressure on the global supply chain.
  • Analysts said Shanghai-area manufacturers were having more trouble getting parts delivered because China’s restrictions on movement are making it difficult for trucks to enter the region.
  • That means some factories can’t operate normally even if they manage to keep workers on the job.
  • Truck drivers have been required to show a negative result from a coronavirus test taken within 48 hours if they want to enter Shanghai, and some drivers are avoiding transporting goods through Shanghai altogether, fearful of ending up in quarantine.
  • Pegatron, a major assembler of Apple products, said Tuesday it has temporarily suspended production at factories in Shanghai and nearby Jiangsu province in compliance with local government requirements.
  • German auto parts and chip supplier Robert Bosch said Tuesday it has suspended production at plants in Shanghai and the northern city of Changchun, following local pandemic protocol.

Chinese Stockpile Food as Covid-19 Concerns Ripple Out From Shanghai – Wall Street Journal, 4/12/2022

  • As Shanghai battles the country’s worst Covid-19 outbreak in two years, people across the rest of China are stockpiling necessities as they brace for the prospect of similar lockdowns.
  • In Beijing, where some residential districts have been closed in recent weeks as infections have been discovered, supermarket shelves in some parts of the city have been picked clean of toilet paper, canned foods, instant noodles and rice in recent days.
  • In Suzhou, an industrial hub roughly two hours’ drive west of Shanghai, residents swarmed supermarkets to fill their grocery baskets with instant noodles and other food on Tuesday morning, hours after local officials said they would conduct districtwide testing in one section of the city.
  • China’s policy of aggressively stamping out infections has already led to food rationing and medical shortages in Shanghai, as well as an outpouring of displeasure by its 23 million residents.

Factmonster – TODAY in HISTORY

  • The Civil War began when Fort Sumter was attacked. (1861)
  • James J. Andrews led the raiding party that stole the Confederate locomotive “The General,” inspiring the 1926 Buster Keaton movie. (1862)
  • President Franklin Roosevelt died. (1945)
  • The polio vaccine of Dr. Jonas Salk was called “safe, effective, and potent.” (1955)
  • The first space shuttle, Columbia, took its first test flight. (1981)
  • Arkansas federal judge Susan Webber Wright found President Clinton in contempt of court for lying about his relationship with Monica Lewinsky. (1999)

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