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Daily Market Report | May 13, 2022

US FINANCIAL MARKET

U.S. Stocks Rise After Brutal Trading Week – Wall Street Journal, 5/13/2022

  • U.S. stocks were higher Friday after a punishing week of losses across major indexes.
  • The S&P 500 rose 2.3% in early trading. The Dow Jones Industrial Average added 480 points, or 1.5%, and the Nasdaq Composite climbed 3.4%. All three indexes were still on track for weekly losses of at least 2%.
  • The moves higher in the broader market followed a late-session rally Thursday that helped the Nasdaq Composite eke out a gain. Risk-on sentiment carried into international stock markets overnight.
  • By Friday morning in the U.S., investors were scooping up shares of beaten-down technology companies before the opening bell.
  • Investors described the rebound as a reprieve from a market selloff that has put all three major U.S. indexes on pace for their worst week since late January.
  • As of Thursday’s close, the Nasdaq Composite was down 6.4% this week. The Dow, meanwhile, is on pace to fall 3.6% and extend its losses into a seventh consecutive week—its longest losing streak since 2001.
  • More than three-quarters of S&P 500 companies have reported a positive earnings-per-share surprise for the first quarter, in line with prior quarters, according to FactSet.
  • On Thursday, Fed Chairman Jerome Powell acknowledged that getting inflation under control could create a short-term hit to the economy, saying on the Marketplace radio program that “the process of getting inflation down to 2% will also include some pain.”
  • He repeated his view that further half-percentage point increases would likely be appropriate at coming meetings, but said the central bank could consider larger increases if economic data call for such steps.
  • In the bond market, the yield on the benchmark 10-year U.S. Treasury note climbed to 2.906%, from 2.815% Thursday, reversing a four-day yield slide that came as investors piled back into bonds. Yields climb when bond prices decline.
  • The WSJ Dollar Index, which measures the greenback against a basket of other currencies, was up 0.1%. As of Thursday, it had traded higher for six consecutive sessions, gaining about 2.3% over the period.
  • Overseas stock markets also traded higher Friday. In Europe, the pan-continental Stoxx Europe 600 climbed 1.6%.
  • In Asia, Hong Kong’s Hang Seng added 2.7%, while Japan’s Nikkei 225 jumped 2.6%. The Shanghai Composite gained 1%.

Record Diesel Prices Pressure European Drivers, U.S. Deliveries – Wall Street Journal, 5/13/2022

  • A global shortfall of the fuel—the workhorse for much of the world economy—is straining industries from trucking to farming and adding to the pressure consumers face from higher energy prices.
  • Europe, dependent on imports of Russian diesel that are expected to slump because of sanctions, is particularly vulnerable.
  • In the U.S., national average retail diesel prices rose to an all-time high for a 14th straight day Thursday, reaching $5.557 a gallon, according to AAA.
  • They have shot up 56% in 2022, outstripping gains in the benchmark price for crude oil.
  • Retail unleaded gasoline prices have risen 34% to $4.4177 a gallon.
  • Global stockpiles of refined oil products including diesel have fallen to precariously low levels, the International Energy Agency said Thursday.
  • Shortages are starting to crimp mobility in several African countries, Yemen and Sri Lanka.
  • Jet fuel has run low in Mexico, according to the intergovernmental organization.
  • Inventories of distillates, which also include heating oil, fell recently to a 17-year low in the midst of lower refining activity and higher demand domestically and abroad, according to the U.S. Energy Information Administration.
  • Supplies are particularly tight along the East Coast, where inventories have dropped to their lowest level since at least 1990.
  • In Europe, where diesel cars account for a bigger chunk of the auto fleet, prices in the wholesale market have leapt 88% over the past year.
  • The availability of fuel is likely to worsen as sanctions on Russia tighten, exposing a flaw in the region’s energy setup.

Baby Formula Shortage Could Leave Parents Scrambling for Months – Wall Street Journal, 5/13/2022

  • Baby-formula manufacturers and retailers say they are working to address a long-running shortage in products on store shelves, but the hardships facing U.S. families may take months to abate.
  • Abbott Laboratories, producer of Similac baby formula, said it is bringing products from its factory in Ireland to the U.S. as it continues talks with the Food and Drug Administration to restart production at its factory in Michigan.
  • However, the company has said it would take weeks before products from the plant are available on store shelves.
  • Abbott’s Sturgis, Mich., factory paused production in February as food-safety regulators investigated possible contamination of its Similac formula. Abbott also issued a voluntary recall.
  • The factory pause left a major dent in production for the industry since it was responsible for making more than half of Abbott’s U.S. infant formula, according to a person familiar with the matter.
  • Abbott and Enfamil owner Reckitt Benckiser were responsible for roughly 80% of infant formula sales in the U.S. last year, according to Euromonitor.

Twitter Stock Falls After Elon Musk Says Deal Is on Hold – Wall Street Journal, 5/13/2022

  • Shares of Twitter fell during morning trading after Elon Musk said his deal to buy the social-media company was on hold.
  • Mr. Musk, the chief executive of Tesla, last month struck a deal to buy Twitter and take it private, capping a topsy-turvy month for the social-media company and its stock.
  • But on Friday morning, he tweeted, “Twitter deal temporarily on hold pending details supporting calculation that spam/fake accounts do indeed represent less than 5% of users.”
  • He linked to a May 2 Reuters report about a recent Twitter securities filing with those statistics.
  • Later Friday morning, he added on Twitter that he was “still committed” to the acquisition. That helped Twitter trim its losses after earlier falling more than 20% in the premarket session.

FTX Founder Sam Bankman-Fried Buys 7.6% Stake in Robinhood – Wall Street Journal, 5/13/2022

  • Sam Bankman-Fried, the 30-year-old billionaire who founded the cryptocurrency exchange FTX, bought a 7.6% stake in Robinhood Markets, according to a Thursday regulatory filing.
  • He paid about $648 million for the stake, which would make him the trading app’s third-largest shareholder.
  • Mr. Bankman-Fried’s shares are worth around $482 million based on Thursday’s closing price of $8.56.
  • Shares of Robinhood jumped as much as 42% in after-hours trading.

Stablecoin TerraUSD Continues Downward Spiral; Bitcoin Gains – Wall Street Journal, 5/13/2022

  • The largest cryptocurrencies showed signs of recovery following a roughly weeklong selloff, while beleaguered stablecoin TerraUSD continued to tumble.
  • Bitcoin was up 7.2% Friday from its 5 p.m. ET level Thursday, trading at $30,640.14, after falling below $26,000 Thursday.
  • Ether, the second-largest cryptocurrency by market value, rose 9.9%.
  • TerraUSD fell to 10 cents early Friday, having declined 82% over the past 24 hours, according to CoinDesk.
  • The formerly third-largest stablecoin—a type of cryptocurrency known for its stability—has come off its $1 peg following a wave of selling that started at the weekend.
  • Its decline has taken its sister token, Luna, down with it and has weighed on bitcoin. Luna fell to a half-cent Friday, down from more than $60 Monday.

Aluminum Rises On Low Supply as Base Metals End Fear-Filled Week – Bloomberg, 5/13/2022

  • Aluminum rose in London on low inventory as other base metals wavered following a turbulent week dominated by growing concerns on the state of the global economy.
  • While metals markets were calmer Friday, prices on the London Metal Exchange have endured a dismal few days on fears of rapid monetary tightening as well as deteriorating demand from top consumer China.
  • Copper, often seen as an economic bellwether, is heading for its sixth weekly decline.
  • Aluminum available for withdrawal in London Metal Exchange warehouses plunged to a record low, providing some price support for the lightweight metal, according to Wenyu Yao, senior commodities strategist at ING Bank.

GM agrees 8.5% raise with Mexico union in test of new trade deal – Reuters, 5/13/2022

  • U.S. automaker General Motors has agreed a 8.5% wage hike with a new, independent union at its pick-up truck plant in the central Mexican city of Silao, labor representatives said on Thursday, one of the highest recent raises in the country’s auto industry.
  • The deal with union SINTTIA also marks the first major raise since the start of a new trade deal, the United States-Mexico-Canada Agreement (USMCA), which aims to reduce the vast wage gap between U.S. and Mexican workers.
  • SINTTIA said alongside wages, the deal comprises bigger bonuses, a 14% increase in grocery vouchers and a mandatory day off on Christmas Eve.
  • SINTTIA had pushed for raises above inflation, which accelerated to 7.68% in April in Mexico. It initially proposed an increase of 19.2%, which GM countered with an offer of 3.5%.

US ECONOMY & POLITICS

U.S. import prices unchanged as petroleum costs drop – Reuters, 5/13/2022

  • U.S. import prices were unexpectedly flat in April as a decline in the cost of petroleum offset gains in food and other products, a further sign that inflation has probably peaked, though it will remain elevated.
  • The unchanged reading in import prices followed a 2.9% surge in March, the Labor Department said on Friday.
  • In the 12 months through April, import prices rose 12.0% after accelerating 13.0% in the year through March.
  • Economists polled by Reuters had forecast import prices, which exclude tariffs, would climb 0.6%.
  • Imported fuel prices dropped 2.4% last month after soaring 17.3% in March.
  • Petroleum prices declined 2.9%, while the cost of imported food increased 0.9%.
  • Prices of imported capital goods rose 0.4%, matching March’s gain.
  • The cost of imported consumer goods excluding motor vehicles was unchanged.
  • Prices of imported motor vehicles and parts climbed 0.3%.
  • Excluding fuel and food, import prices rose 0.4%.
  • These so-called core import prices advanced 1.3% in March. They increased 6.9% on a year-on-year basis in April.
  • The report also showed export prices rose 0.6% in April after surging 4.1% in March.
  • Prices for agricultural exports advanced 1.1%, a slowdown from the 4.3% acceleration logged in March.

U.S. economic outlook weakens, inflation set to persist – Philly Fed survey – Reuters, 5/13/2022

  • The U.S. economic outlook has weakened and inflation is set to remain higher than previously expected for a while yet, a Federal Reserve Bank of Philadelphia survey of professional economic forecasters showed on Friday.
  • Real GDP is forecast to grow at a 2.3% annual rate this quarter, down 1.9 percentage points from the last survey three months ago, with the annual rate seen falling to 2.3% next year and 2.0% in 2024, both lower than the previous estimate.
  • The Philadelphia Fed’s latest snapshot of the views of 34 leading economic forecasters also revealed they project current-quarter headline Consumer Price Index (CPI) inflation will average 7.1% at an annual rate, up from 3.8% at the time of the last survey.
  • They also forecast headline Personal Consumption Expenditures (PCE) inflation this current quarter to be 5.7% at an annual rate, up from 3.1% previously.
  • Despite the weakening outlook for economic growth as the Fed battles 40-year-high inflation, the forecasters expect only a small bump in unemployment.
  • They see the unemployment rate at 3.6% this quarter.
  • That’s the same level they expect in 2022 and 2023, with it only moving up to 3.8% over the following two years.

US Consumer Sentiment Falls to Lowest In More Than a Decade – Bloomberg, 5/13/2022

  • US consumer sentiment declined in early May to the lowest since 2011 as persistent concerns over inflation dimmed Americans’ views on the economy.
  • The University of Michigan’s sentiment index fell to 59.1 from 65.2 in April, data released Friday showed.
  • The figure was lower than all estimates in a Bloomberg survey of economists, which called for a median reading of 64.
  • A gauge of current conditions dropped to 63.6, the lowest in 13 years, while a measure of future expectations declined 6.2 points, erasing most of April’s gains.
  • Consumers expect prices to rise 5.4% over the next year, holding at a four-decade high for the third month in a row.
  • They expect prices will rise at an annual rate of 3% over the next five to 10 years, also unchanged from April.
  • Americans’ view of their current financial situation compared to a year ago is at its lowest reading since 2013, Hsu said.
  • Nearly half of respondents don’t expect their incomes to keep pace with inflation over the next 12 months.

California’s minimum wage projected to rise to $15.50 under inflation trigger – Reuters, 5/13/2022

  • California’s minimum wage will rise to $15.50 an hour for workers at all businesses, large and small, on Jan. 1, 2023, under an automatic inflation trigger built into state law and never previously activated, the governor’s office projected on Thursday.
  • The announcement came a day before Governor Gavin Newsom, a first-term Democrat, was slated to present his revised budget plan to the state legislature controlled by his party, including a proposed $11.8 billion inflation-relief spending package.
  • The economic stimulus proposal, similar to one enacted last year to help California recover from the COVID-19 pandemic, includes a plan Newsom previewed in recent weeks offering $400 tax rebates to vehicle owners to help offset escalating gasoline costs.
  • Regardless of whether Newsom’s package becomes law, the Finance Department estimates that some 3 million workers stand to benefit from the first inflation-based minimum wage hike expected to take effect under a labor statute enacted in 2016.
  • Other highlights of Newsom’s inflation package include $2.7 billion in emergency rental assistance for low-income tenants and $1.4 billion to help utility customers pay overdue bills.

EUROPE & WORLD

Shanghai Aims to Stop Community Spread, Ease Rules by May 20 – Bloomberg, 5/13/2022

  • Shanghai said it plans to stamp out community spread of the virus and start opening up the city by May 20, the first time officials have set a timeline for ending one of the longest and most punishing lockdowns China’s enforced during the pandemic.
  • The city aims to achieve “no community spread” in the middle of May, said vice mayor Wu Qing at a Friday briefing, using a Chinese term that refers to the period between May 11 and 20.
  • The milestone, which officials define as three consecutive days of zero cases found outside of people already in quarantine, has so far eluded the financial center despite a lockdown that’s stretched to nearly six weeks.
  • The lockdown imposed on Shanghai’s 25 million residents has been one of the worst and high-profile since the experience of Wuhan, where the pathogen first emerged in late 2019.
  • Setting a public target of May 20 to start easing restrictions reflects officials’ acknowledgment of the mounting frustration across the city, where some residents have been in lockdown for nearly 2 months.
  • Many have had trouble accessing basic medical care and steady food supply during the lockdown, while anger has grown over at harsh measures like homes being fenced off and whole buildings of residents being taken away for quarantine over one infection.

SoftBank’s chip tech firm Arm posts record 2021 revenue – Reuters, 5/13/2022

  • SoftBank Group’s chip technology firm Arm on Thursday reported record revenue for 2021, and Chief Executive Rene Haas told Reuters its business for new chip designs indicates a strong outlook.
  • Arm, which makes the basic blueprint used to design chips, had revenue of $2.7 billion last year, up 35% from the previous year.
  • Licensing business revenue rose 61% to $1.13 billion and royalties, tracking the numbers of chips sold using Arm technology, rose 20% to $1.54 billion.
  • Haas said 29.2 billion chips using Arm technology were shipped last year, nearly 8 billion in the fourth quarter.
  • He said Arm’s focus on the automotive sector three to four years ago was paying off and revenue from that segment more than doubled last year thanks to electrification and increasing computing power for cars.

Honda warns of rising costs, forecasts weaker annual profit – Reuters, 5/13/2022

  • Japan’s Honda Motor on Friday forecast a 7% fall in annual earnings, instead of an expected rise, and warned that the long chip crunch and rising raw material costs were hurting profit, echoing comments from rivals Toyota and Nissan.
  • The company on Friday reported a smaller-than-expected 6% fall in operating profit to 199.5 billion yen for the quarter ended March 31, beating an average estimate of 152.2 billion yen, Refinitiv Eikon data showed.
  • Honda, Japan’s second biggest automaker by sales, forecast operating profit will fall to 810 billion yen ($6.29 billion) for the current fiscal year that began in April. Analysts expected a 6.3% rise to 926.3 billion, according to Refinitiv.
  • It expects to sell 4.2 million vehicles globally this year, a 3.1% increase from last year.
  • Maker of the best-selling Accord, Honda said on Thursday it would slash production by about a fifth at two of its domestic factories for the rest of May, a month after it cut back production by about a half at one of them.
  • The company said it expects about 300 billion yen in costs to cover rising material, labour, and logistics expenses this year, a roughly 11% jump from last year.

Norwegian Air posts first-quarter loss, flags fuel cost impact on recovery – Reuters, 5/13/2022

  • Norwegian Air posted a loss for the first quarter on Friday and said the surge in fuel costs will partly offset the positive effects of increased bookings for the summer season.
  • Norwegian Air earlier this month said the number of passengers rose by 50% in April from the prior month and that ticket yields, an important indicator of profitability, increased by 21% in the same period.
  • The budget carrier, however, booked a net loss of 1 billion Norwegian crowns ($101.82 million) for the January-March period, which was dented by Omicron-fueled lockdowns.
  • In the same quarter of 2021 the company’s loss stood at 1.2 billion crowns.
  • It has since gradually rebuilt its operations and expects to increase the number of aircraft in its fleet to 85 by mid-2023 from 51 at the end of 2021, which will still only be around half of the fleet it had at its pre-pandemic peak.

Factmonster – TODAY in HISTORY

  • Mary Queen of Scots was defeated at the Battle of Langside and immediately fled to North England. (1568)
  • The United States formally declared war on Mexico after several days of fighting. (1846)
  • Louis Armstrong and his orchestra recorded the New Orleans’s jazz classic, When the Saints Go Marching In, on Decca Records. (1938)
  • Winston Churchill gave his first speech as prime minister: “I have nothing to offer but blood, toil, tears and sweat.” (1940)
  • Pope John Paul II was shot and wounded by Mehmet Ali Agca as he drove through a crowd in St. Peter’s Square, Rome. (1981)

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