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Daily Market Report | April 7, 2022

US FINANCIAL MARKET

Stocks Lose Ground as Bonds Extend Fed-Driven Selloff – Wall Street Journal, 4/7/2022

  • U.S. stocks retreated in morning trading as investors digested the possibility of more aggressive monetary tightening by the Federal Reserve and monitored the war in Ukraine.
  • The S&P 500 ticked down 0.3% Thursday, a day after the benchmark gauge fell 1%.
  • The selloff Wednesday followed the release of minutes from the Fed that showed central bankers considered raising rates by a half-percentage point at their March meeting, higher than the quarter-point increase with which they proceeded.
  • The technology-focused Nasdaq Composite Index dropped 0.4%, while the Dow Jones Industrial Average fell 0.7%, or about 230 points. Nine of the S&P’s 11 sectors were in the red, with financials leading the decliners at 1.4%.
  • In Treasury markets, the yield on the 10-year U.S. Treasury note traded around 2.650%, up from 2.606% on Wednesday. It continues to hover around its highest level in three years. Yields rise as prices fall.
  • U.S. crude oil rose 0.4% Thursday to $96.60 a barrel. That is slightly higher than before Russia’s invasion of Ukraine but down significantly from the nearly $130 price reached last month.
  • Next week, first-quarter earnings season will kick off. Many investors say results will likely have a heavy hand in swaying the next phase of the U.S. stock market.
  • Analysts expect earnings for S&P 500 companies to have grown 4.6% during the period compared with a year earlier, FactSet data show.
  • In Europe, the pan-continental Stoxx Europe 600 added 0.2%. Healthcare and transportation stocks were among those that pushed the index higher. Ryanair Holdings jumped 6.1% and easyJet added 1.8%.
  • In Asia, indexes fell. Hong Kong’s Hang Seng lost 1.2%, while in mainland China, the Shanghai Composite Index fell 1.4%. Japan’s Nikkei 225 declined 1.7%.

Levi Strauss earnings top estimates as shoppers buy at higher prices, denim retailer reaffirms 2022 outlook – CNBC, 4/7/2022

  • Denim retailer Levi Strauss on Tuesday reported fiscal first-quarter earnings and revenue that topped analysts’ estimates as it sold more of its jeans and T-shirts at higher price points, often directly to customers.
  • Revenue rose 22% to $1.59 billion from $1.31 billion a year earlier. That topped expectations for $1.55 billion.
  • Levi said it took a roughly $60 million hit to sales due to supply chain constraints during the latest period. Its global direct-to-consumer sales rose 35% from the prior-year period, and wholesale revenue was up 15%.
  • Levi reported net income of $196 million, or 48 cents per share, compared with net income of $143 million, or 35 cents a share, a year earlier.
  • Excluding one-time items, it earned 46 cents a share, better than the 42 cents that analysts had been looking for.
  • Levi reaffirmed its outlook for fiscal 2022, which calls for revenue to grow between 11% and 13% year over year. Analysts have projected an increase of 11.8%.
  • It took into account any hit from its recent decision to temporarily suspend business in Russia, which represents roughly 2% of its total sales.

Higher Costs Continue to Squeeze Slim Jim Maker Conagra Brands – Wall Street Journal, 4/7/2022

  • Conagra Brands saw its profit fall 22% in the most recent quarter as it grappled with higher-than-expected costs, but it said demand remained strong despite the company’s raising prices.
  • Sales grew about 5% to $2.91 billion. Analysts were expecting revenue of $2.85 billion, according to FactSet.
  • For its fiscal third quarter, the company logged a quarterly profit of $218.4 million, down more than 22% from $281.4 million a year earlier.
  • Earnings were 45 cents a share, compared with 58 cents a share in the year-ago period.
  • The company on Thursday raised its full-year guidance for sales and inflation. It now expects to see full-year sales growth of 4%, up from its previously issued guidance of about 3% growth.
  • The company said stronger-than-expected demand and additional price increases are expected to drive sales growth.
  • However, the company also expects gross inflation to come in around 16%, up from 14%. As a result, the company lowered its full-year adjusted-earnings expectations to $2.35 a share, from about $2.50 a share.

Warren Buffett’s Berkshire Hathaway Reveals $4 Billion Stake in HP – Wall Street Journal, 4/7/2022

  • Warren Buffett’s Berkshire Hathaway has built a stake of more than 11% in computer-and-printer maker HP, marking another foray into computing by the once technology-averse billionaire investor.
  • At Wednesday’s closing share price the holding, of nearly 121 million shares, was worth about $4.2 billion.
  • The share purchases were disclosed in two securities filings Wednesday.
  • The purchase makes Berkshire the single largest shareholder in HP. Before this, HP’s biggest investors were Vanguard and BlackRock, with stakes of nearly 11% and slightly more than 10%, respectively, according to S&P Global Market Intelligence data.

Walmart Dangles $110,000 Starting Pay to Lure Truck Drivers – Wall Street Journal, 4/7/2022

  • In a bid to keep its supply chain running smoothly, Walmart is raising wages for in-house truck drivers and expanding a program that trains its existing workers to become drivers.
  • Walmart is raising starting salaries for its truck drivers to between $95,000 and $110,000 a year, up from an average starting salary of $87,000, said a Walmart spokeswoman.
  • The internal training program will offer workers in other Walmart roles a 12-week course to become certified truck drivers and join the company’s internal fleet, the company said.
  • In the U.S., median annual pay for heavy-truck and tractor-trailer drivers was $47,130 in 2020, the most recent annual data available, according to the Bureau of Labor Statistics, and has increased by about 3% to 4% annually since 2016.

Frontline and Euronav Merge to Create Tanker Giant in $4.2 Billion Stock Deal – Wall Street Journal, 4/7/2022

  • Two of shipping’s biggest names, Norway-based Frontline and Belgium’s Euronav, have agreed to merge in a move that would create one of the world’s biggest tanker owners.
  • If the merger is approved by regulators, the new company will be called Frontline and be headed by Euronav Chief Executive Hugo De Stoop.
  • It will have a market capitalization of around $4.2 billion, based on trading levels as of Wednesday, and a combined fleet of 69 very large crude carriers and 77 smaller tankers.
  • The merger is one of the biggest moves to consolidate the fragmented tanker market.
  • The new Frontline would control about 10% of the global VLCC fleet, analysts say.

Demand for used cars drops from a year ago but high prices aren’t budging – CNBC, 4/7/2022

  • Used-car prices appear to be stuck in high gear, despite slowing consumer demand.
  • Last month, sales of used cars less than 10 years old were down 27% compared with March 2021, according to car shopping app CoPilot, which tracks dealership prices nationwide. The average price during that same time jumped 40% to $33,653.
  • For nearly new cars — those 1 year to 3 years old — sales in March were down by 31% compared to a year earlier, while the average price of $41,000 is 37% higher, CoPilot research shows.
  • In the first two months of 2022, prices for this age group dropped almost by 3% before increasing again in March amid continued production challenges for new cars and uncertainty related to the war in Ukraine.
  • Pre-pandemic, roughly 76% of vehicles would sell for less than $25,000. Now, cars in this price range account for just 35% of inventory.
  • Meanwhile, those priced above $40,000 are 25% of what’s available on dealer lots, compared with 5% in a typical year.

US ECONOMY & POLITICS

Fed Signals Faster Pace of Rate Increases, Likely Bond Runoff – Wall Street Journal, 4/7/2022

  • Federal Reserve officials signaled they could raise rates by a half-percentage point at their meeting early next month and begin reducing their $9 trillion asset portfolio as part of their most aggressive effort in more than two decades to curb price pressures.
  • Minutes from the Fed’s March 15-16 meeting, released Wednesday, showed that many officials last month were prepared to raise rates by a half-point but opted for a smaller, quarter-point increase because of concern over the fallout from Russia’s invasion of Ukraine.
  • “Many participants noted that one or more [half-percentage-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified,” the minutes said.
  • Officials neared agreement on a plan that, after a roughly three-month ramp-up, would allow up to $95 billion in securities to mature every month without being replaced.
  • The minutes showed officials discussed allowing up to $60 billion in Treasurys and $35 billion in mortgage bonds to mature every month.
  • That would allow the portfolio to run off considerably faster this time than last decade, when it shrank by up to $50 billion every month.
  • Because higher mortgage rates are likely to lead to slower reductions in loan redemptions as refinancing plummets, officials also discussed plans to actively sell mortgage-backed securities at a later date to more quickly return their holdings to an all-Treasurys portfolio.

By One Measure, Rates May Still Need to Rise 300 Basis Points, Fed’s Bullard Says – Bloomberg, 4/7/2022

  • Federal Reserve Bank of St. Louis President James Bullard said monetary policy benchmarks using “generous assumptions” suggest that the U.S. central bank may need to raise interest rates to about 3.5% to counter inflation that’s running far too high.
  • “One concludes that the current policy rate is too low by about 300 basis points, according to this calculation,” Bullard said Thursday in prepared remarks at the University of Missouri. That could suggest, by that measure, the Fed is “behind the curve,” he said.
  • Bullard cited a version of the Taylor Rule, a guideline developed by Stanford University’s John Taylor that uses inflation, the unemployment rate and an estimate of the neutral interest rate — a rate neither contractionary nor expansionary — to come up with his estimate for how high rates should go.
  • Bullard said he expects growth of “a slower but still robust 2.8% pace in 2022,” despite a weak first quarter and impact from the Russian invasion of Ukraine. He said the unemployment rate may fall below 3% this year.

Mortgage Rates Continue to Rise – Wall Street Journal, 4/7/2022

  • The average rate for a 30-year fixed-rate home loan edged higher to 4.72% from 4.67% a week earlier, mortgage-finance giant Freddie Mac said Thursday.
  • That marked the weekly figure’s highest reading since December 2018.
  • Over the past three months, the rate has increased by 1.5 percentage points, the quickest three-month increase since May 1994, Freddie Mac said.
  • The average rate on America’s most popular home loan was 3.22% at the start of this year. It hit a record low of 2.65% in January 2021 and spent more than half of that year under 3%.

Senate Passes Bill Stripping Russia of Favored Trade Status – Wall Street Journal, 4/7/2022

  • The Senate voted 100-0 to pass a bill Thursday stripping Russia of its most-favored-nation trade status and was set to next approve a ban on Russian oil imports to punish Moscow over its invasion of Ukraine, several weeks after the House cleared both pieces of legislation.
  • The Suspending Normal Trade Relations with Russia and Belarus Act and the Suspending Energy Imports from Russia Act both overwhelmingly passed the House last month, but neither bill had moved in the Senate.
  • The package of legislation would strip Russia and Belarus—a country closely aligned with Russia that has been used as a staging ground for its Ukraine invasion—of their most-favored-nation trade status, a step that would result in higher tariff rates on some imports from the countries.
  • It would also ban Russian energy imports.
  • The Senate also late Wednesday approved by voice vote legislation to more quickly enter into lend-lease agreements with Ukraine and Eastern European countries for military gear.
  • GOP Sen. John Cornyn of Texas had been working to get that bill attached to the larger trade bill during negotiations.

Senate Set to Confirm Ketanji Brown Jackson to Supreme Court – Wall Street Journal, 4/7/2022

  • The Senate was set to confirm Judge Ketanji Brown Jackson as the 116th Supreme Court justice on Thursday, making history in diversifying the bench while leaving unchanged the legal trajectory of a court where conservatives now dominate.
  • Judge Jackson, 51 years old, will be the first Black woman to join the Supreme Court, fulfilling a campaign pledge by President Biden.
  • Her expected confirmation has been celebrated as a groundbreaking moment by her backers and even some of her detractors, while the thin margin of the vote is set to underline how partisan the confirmation process has become.
  • Mr. Schumer said that a procedural vote on the nomination will be held Thursday morning, followed by a final vote in the afternoon.
  • Judge Jackson is set to take her seat on the high court after liberal Justice Stephen Breyer retires this summer.

U.S. Jobless Claims Fall to 166,000, Lowest Level Since 1968 – Wall Street Journal, 4/7/2022

  • New applications for U.S. unemployment benefits fell last week to a near 54-year low as employers held on to workers in a tight labor market.
  • Initial jobless claims, a proxy for layoffs, fell to 166,000 during the week that ended on April 2, compared with a revised 171,000 the prior week, the Labor Department said Thursday.
  • The weekly total was the lowest since November 1968, when the labor force was less than half of its current size.
  • Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, moved slightly up to 1,523,000 for the week ended March 26 from the previous week’s revised total.
  • Continuing claims are reported with a one-week lag.

EUROPE & WORLD

Russia Sidesteps Sanctions to Supply Energy to Willing World – Bloomberg, 4/7/2022

  • As Europe prepares to join the U.S. in hitting the Kremlin with tighter sanctions for its war on Ukraine, there are plenty of signs that Russia is finding ways to prop up its economy.
  • Cargoes of Russian Sokol crude from the Far East have sold out for next month, and several Chinese firms used local currency to buy Russian coal in March. Gas flows from Russia to Europe have, if anything, increased since the invasion on Feb. 24. None of these are the subject of restrictions.
  • Bloomberg Economics expects Russia will earn about $320 billion from energy exports this year, up by more than a third from 2021. The ruble has already rebounded to its pre-war price against the dollar.

Belarus Joins Russia Paying Rubles for Its Foreign Debts – Bloomberg, 4/7/2022

  • Belarus will switch to servicing foreign debts from international aid banks in local currency after sanctions over its role in the invasion of Ukraine hampered payments.
  • The government has been driven to using Belarusian rubles to service loans owed to the World Bank, the European Bank for Reconstruction and Development and the Nordic Investment Bank, it said in a statement on its official Telegram channel.
  • The announcement follows President Alexander Lukashenko’s decree in March authorizing the use of the local currency for debt payments.
  • The announcement comes a day after Russia’s Finance Ministry said it would process about $650 million of dollar payments on its bonds using Russian rubles after the U.S. Treasury this week halted dollar debt payments from the country’s accounts.

Shell Warns of Up to $5 Billion Hit From Russia Exit – Wall Street Journal, 4/7/2022

  • Shell said it expects to book accounting charges of up to $5 billion in the first quarter related to its decision to exit its Russia operations, including joint ventures with energy giant Gazprom PJSC, in the wake of Russia’s invasion of Ukraine.
  • Shell said on Feb. 28 that it would end its involvement in financing the Nord Stream 2 natural-gas pipeline project.
  • Shell also said it would exit its 27.5% stake in a major offshore gas project in Russia’s Far East that is 50% owned by Gazprom and supplies around 4% of the world’s liquefied-natural-gas market.
  • The company said at that time that the value of its noncurrent assets tied to its Russian ventures was about $3 billion.
  • The range of expected charges Shell provided Thursday, of $4 billion to $5 billion, also includes other estimated knock-on impacts of quitting its Russian operations. Those include the possibility of unpaid contracts and other credit losses.

Egypt’s Foreign Reserves Fall as War Pressures Nation’s Finances – Bloomberg, 4/7/2022

  • Egypt’s net international reserves dropped to $37.08 billion at the end of March from $40.99 billion the previous month, the central bank said Thursday, as the war in Ukraine pressures the North African nation’s finances.
  • In a statement, Egypt’s central bank said the conflict between Russia and Ukraine had led it to temporarily mobilize its “excess foreign currency reserves to calm the markets during periods of exceptional stress.”
  • The bank cited its mandate to maintain price stability, and said the move was similar to actions taken during the pandemic.
  • The most populous Arab nation has requested discussions with the International Monetary Fund on new support that may include a loan.
  • The central bank last month allowed the pound — which had been stable against the dollar for about two years — to weaken by more than 15%, and raised interest rates for the first time since 2017.

Yemen’s President Cedes Power Amid International Efforts to End Civil War – Wall Street Journal, 4/7/2022

  • Yemen’s president handed over his powers to a leadership council on Thursday in a Saudi-backed move aimed at reviving negotiations with the Houthi rebels to end the country’s seven-year civil war.
  • President Abed Rabbo Mansour Hadi also dismissed his vice president before leaving his own position. Both men were seen as obstacles by the Iran-allied Houthis and some of Saudi Arabia’s coalition partners to United Nations-led efforts to find a diplomatic solution to the conflict, which the international body says has caused the world’s worst humanitarian crisis.
  • In a series of stage-managed moves early Thursday, Saudi Arabia endorsed Yemen’s new leadership, urged the start of peace talks and released a video of Crown Prince Mohammed bin Salman receiving the eight-man council at his palace in Riyadh.
  • The country announced $3 billion of direct economic aid and $300 million for the U.N. humanitarian response.
  • The fighting has devastated Yemen—sparking famine, a cholera outbreak and killing tens of thousands of civilians, including from errant coalition airstrikes.

Factmonster – TODAY in HISTORY

  • Gen. Ulysses S. Grant defeated the Confederates at the battle of Shiloh. (1862)
  • 5,000 suffragists march to the Capitol in Washington, D.C. , seeking the vote for women. (1913)
  • U.S. secretary of commerce Herbert Hoover’s Washington speech was seen and heard in New York in the first long-distance television transmission. (1927)
  • The World Health Organization, a UN agency, was founded. (1948)
  • Hutu extremists in Rwanda began massacring ethnic Tutsis and politically moderate Hutus. In 100 days of killing, an estimated 800,000 are murdered. (1994)
  • Vermont becomes the fourth U.S. state to legalize same-sex marriage, just days after Iowa becomes the third. (2009)

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