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Daily Market Report | May 21, 2021

Stocks Rise to End Volatile Week – Wall Street Journal, 5/21/2021

  • U.S. stocks edged higher for a second consecutive session Friday, putting major indexes on track to end a turbulent week roughly where they began.
  • The S&P 500 rose 0.6%, building on its 1.1% gain a day earlier to push the broad benchmark up 0.2% for the week. The Dow Jones Industrial Average added 265 points, leaving it mostly flat over the past five trading days. The Nasdaq Composite advanced 0.3% and is poised for a 1.1% weekly gain.
  • Data showing manufacturing activity continues to ramp up added to Friday’s upbeat session. The U.S. Composite Output Index climbed to its highest reading ever, surpassing April’s previous record readout as business activity expanded rapidly.
  • All 11 S&P 500 sectors were up in early trading Friday, with industrial, financial and healthcare stocks among the biggest gainers.
  • Oat-milk maker Oatly rose more than 8%. The shares jumped 19% in their trading debut on Thursday.
  • In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 1.617%, from 1.631% Thursday.
  • Surveys of purchasing managers across Europe showed a stronger-than-expected rebound in services activity this month. The pan-continental Stoxx Europe 600 edged up 0.7%.
  • In Asia, major benchmarks were mixed. The Shanghai Composite Index declined 0.6%, while Japan’s Nikkei 225 advanced 0.8%.

Covid-19 Live Updates: Reported U.S. Daily Cases Edge Up, But Average Continues to Fall – Wall Street Journal, 5/21/2021

  • U.S. Covid-19 cases have broadly fallen for over a month as vaccination levels climbed, and Thursday marked the first time the seven-day average has fallen below 30,000 since June 22.
  • Around 38% of people in the U.S. have now been fully vaccinated, according to data from the Centers for Disease Control and Prevention.
  • Now that vaccine supplies are ample and the eager are dwindling, the CDC issued new guidance for vaccination sites, saying they shouldn’t miss an opportunity to vaccinate an individual, even if it means remaining doses in a vial will go to waste.
  • State and local public-health officials have also shifted from a mass-vaccination campaign to a more targeted approach to get shots in more arms, with mobile units and incentives including lottery tickets and cash.

Applied Materials sees Q3 sales above estimates on chip making tools demand – Reuters, 5/21/2021

  • Applied Materials Inc forecast third-quarter sales above analysts’ estimates on Thursday, betting on sustained demand for its semiconductor manufacturing tools against the backdrop of a global chip shortage.
  • The company’s quarterly net sales rose 41% to $5.58 billion, compared with estimates of $5.41 billion.
  • Revenue from Applied Materials’ semiconductor systems unit, which supplies gears to chip makers, was $3.97 billion in the reported quarter, above FactSet estimates of $3.86 billion.
  • Net income rose to $1.33 billion, or $1.43 per share, in the second quarter ended May 2, compared with $755 million, or 82 cents per share, a year earlier.
  • Applied Materials expects current-quarter net sales of $5.92 billion, plus or minus $200 million, compared with estimates of $5.54 billion, according to IBES data from Refinitiv.

Big European states warm to U.S. proposal for minimum corporate tax rate of at least 15% – Reuters, 5/21/2021

  • France, Germany and Italy said on Friday that a new U.S. proposal for global minimum corporate tax rate of at least 15% was a good basis for sealing an international deal by July.
  • The U.S. Treasury Department offered on Thursday to accept a minimum rate of at least 15%, significantly below its proposed 21% minimum for U.S. multinational firms.
  • It made the proposal at the Paris-based Organization for Economic Cooperation and Development (OECD) where nearly 140 countries aim to reach broad agreement this summer to rework rules for taxing multinational groups and big technology companies, such as Alphabet Inc (GOOGL.O) and Facebook.

WeWork reports quarterly loss of nearly $2.1 bln ahead of public listing – Reuters, 5/21/2021

  • SoftBank-backed office-sharing startup WeWork on Thursday reported a first-quarter net loss of $2.06 billion, as it was hit by restructuring charges while it prepares to go public through a merger with a blank-check firm.
  • The company, whose attempt at an initial public offering in 2019 spectacularly imploded due to investor concerns over its business model and co-founder Adam Neumann’s management style, said first-quarter revenue nearly halved to $598 million from a year ago.
  • Total occupancy ticked up to 50% in the first quarter compared to 47% in the fourth quarter, the company said.
  • WeWork said it had 490,000 members in the first quarter, compared to 693,000 in March 2020.
  • The company said it incurred restructuring costs of $494 million, driven by non-cash SoftBank stock purchases and a settlement with Neumann. It posted an impairment charge of $299 million partly due to an exit out of some real estate.

Government Bond Yields Slide as Investors Grapple With Muddied Economic Picture – Wall Street Journal, 5/21/2021

  • Government bond yields in the U.S. and Europe are ending the week on a downward note with investors seeking safety after a volatile few days in stocks, bonds and cryptocurrencies.
  • The outlook for interest rates has been muddied by strong recent inflation data, which supports higher rates, coming up against negative surprises in economic activity, which augurs lower ones. That has cast uncertainty among investors ahead of interest-rate meetings for the Federal Reserve and European Central Bank in June.
  • U.S. 10-year Treasury yields slipped Friday and are lower on the week at 1.615%, down from 1.635% at the end of last week. Yields on 10-year German government bonds touched minus 0.139% Friday, before rebounding slightly to minus 0.136%, which is down from last Friday’s close of minus 0.122%.

Apple’s Tim Cook Expected to Take Witness Stand in Antitrust Fight – Wall Street Journal, 5/21/2021

  • Apple lawyers plan to put Chief Executive Tim Cook on the witness stand Friday to help drive home its defense against Epic Games’s antitrust claims.
  • With the bench trial in Oakland, Calif., nearing its expected end on Monday, Mr. Cook would follow other Apple executives this week who tried to counter arguments by Epic that Apple improperly prohibits competing app stores on the iPhone and forces in-app purchases for digital payments through its own system that takes as much as a 30% cut.
  • Apple’s case has depended upon it pointing to Android phones, personal computers and videogame consoles as examples of how it isn’t the only way for Epic to distribute its “Fortnite’’ game, and underscoring that other platforms collect a similar commission.
  • Mr. Cook is expected to emphasize how much economic value Apple’s investment in the app economy has created for developers, which fits into claims from Apple’s lawyers that its fees are fair. Apple has told the court he will speak about the company’s values and discuss its business, operations and competition, as well the history of the App Store’s creation.

EXCLUSIVE Boeing plans new 737 MAX output jump in late-2022, sources say – Reuters, 5/21/2021

  • Planemaker Boeing has drawn up preliminary plans for a fresh sprint in 737 MAX output to as many as 42 jets a month in fall 2022, industry sources said.
  • The plans would extend the U.S. company’s recovery from overlapping safety and COVID-19 crises and lift output beyond an early 2022 target of 31 a month, which the sources said Boeing aims to reach in March.
  • As an interim step, Boeing hopes to speed monthly output from single digits now to about 26 a month at the end of 2021 at its Renton factory near Seattle, two of the sources said.
  • That comes as demand for medium-haul jets such as the 737 MAX and competing Airbus A320neo begins to recover from the effects of the COVID-19 pandemic, boosted by widespread vaccinations, especially in the busy U.S. domestic market.
  • However, several U.S. and European suppliers view the production plans of both planemakers as optimistic, saying that concerns remain over the health of the global aerospace supply chain.

U.S. Factories, Services Output Extend Records on Robust Demand – Bloomberg, 5/21/2021

  • A measure of output at U.S. manufacturers and service providers advanced to a fresh record in May, underscoring solid demand that’s contributing to added inflationary pressures.
  • The IHS Markit flash composite index of purchasing managers at manufacturers and service providers surged to 68.1, the highest in data back to 2009, from 63.5 a month earlier, the group reported Friday. Readings above 50 indicate growth.
  • Order growth at U.S. manufacturers climbed to a record, though shortages of materials also caused backlogs of work to reach a series high.
  • In addition a gauge of export orders for manufacturers advanced to a 14-year high.
  • Measures of prices received by factories and services rose to record highs.
  • The IHS Markit’s gauges of input prices and new business at service providers also climbed to the highest in data back to 2009.

U.S. Home Prices Push to Record High, Slowing Pace of Purchases – Wall Street Journal, 5/21/2021

  • The nationwide house-buying frenzy eased in April, as home prices climbed to new highs and the supply of available properties remained low.
  • Existing-home sales fell 2.7% in April from March to a seasonally adjusted annual rate of 5.85 million, the third straight monthly decline, the National Association of Realtors said Friday. April sales rose 33.9% from a year earlier, when Covid-related lockdowns caused a sharp drop in home sales.
  • Existing-home sales fell the most month-over-month in the Northeast, down 3.9%, and in the South, down 3.7%. Sales rose 0.8% in the Midwest.
  • The median existing-home price rose 19.1% in April from a year earlier to $341,600, a record high, NAR said. The annual price appreciation was the strongest in data going back to 1999.
  • There were 1.16 million homes for sale at the end of April, up 10.5% from March and down 20.5% from April 2020. At the current sales pace, there was a 2.4-month supply of homes on the market at the end of April.

Drought Imperils Economy in California’s Farm Country – Wall Street Journal, 5/21/2021

  • California is gripped in severe drought just four years after emerging from the last one, forcing many farmers to scramble to find enough water. The U.S. Bureau of Reclamation has cut the water allocations for many to zero this year. Last year, when the latest dry spell began, the same farmers were allocated 20% of what they are contracted to receive annually.
  • Some are responding by letting fields go fallow. “We need 39 days and 39 nights of rain,” said Steve Danley, water manager of the Zumwalt Mutual Water, whose 20 rice-grower customers are leaving all but 500 of their 6,000 acres unplanted after the provider lost its federal water.
  • Others are turning to the private market, where they pay as much as $400 per acre foot of water—325,851 gallons, or enough to cover an acre of land one foot deep—compared to the $100 typically charged by the federal government.
  • Drought is afflicting 88% of the American West, up from 40% a year ago, according to the U.S. Drought Monitor.
  •  In California, the mountain snowpack is at 4% of normal, largely as the result of one of the lowest statewide precipitation totals on record and an unusual spring warm-up.

EUROPE & WORLD

Israel-Hamas Cease-Fire Holds Despite Jerusalem Clashes – Wall Street Journal, 5/21/2021

  • A cease-fire between Israel and militant group Hamas was holding Friday, despite clashes between Israeli police and Palestinians at a Jerusalem mosque that became the flashpoint for 11 days of fighting.
  • Israeli police were seen tossing stun grenades near crowds of Palestinians who had gathered for prayers at the mosque, according to videos posted on social media.
  • An Israeli police spokesman said riots had broken out and hundreds of people threw rocks and Molotov cocktails at police officers, who responded with crowd-dispersal methods. At least 20 Palestinians were injured during the clashes, the Palestinian Red Crescent said.
  • The Al Aqsa mosque was at the center of the 11-day conflict between Israel and Hamas. Earlier this month, Palestinians demonstrated over the possible eviction of residents from homes in the Sheikh Jarrah neighborhood of East Jerusalem.
  • Israeli police stormed the mosque compound during a crackdown on protesters, who police said threw stones and fireworks at them. Days later, Hamas fired a salvo of rockets at Jerusalem, which Israel said was a red line.

Europe’s Economy Springs Back to Life, but Shortages Boost Prices – Wall Street Journal, 5/21/2021

  • Europe’s economy looks set for a return to growth in the three months through June, with business surveys pointing to a stronger-than-expected rebound in services activity during May, as government restrictions ease and consumers gain confidence in response to an acceleration in vaccinations.
  • However, Japan’s services sector suffered a deeper contraction in May as the government there extended restrictions on the hospitality sector in areas including Tokyo and Osaka through the end of the month.
  • Surveys of purchasing managers published Friday by data firm IHS Markit suggest that Europe’s recovery may be more rapid.
  • Activity in France’s services sector rose to 56.6 in May from 50.3 in April, a much larger increase than the rise to 52.5 that was forecast by many economists. A reading above 50 points to an increase in activity.

Japan’s consumer prices extend falls as cellphone fee cuts offset input costs – Reuters, 5/21/2021

  • Japan’s core consumer prices fell for the ninth straight month in April as a record slump in cellphone fees offset rising energy prices, suggesting that weak demand and higher costs will weigh on a fragile economic recovery.
  • Separate data showed firms facing rising input costs and a slower expansion in factory activity in May, highlighting risks to an economy heavily reliant on the manufacturing sector.
  • The core consumer price index (CPI), which excludes the effect of volatile fresh food costs, fell 0.1% in April from a year earlier, smaller than a median market forecast for a 0.2% drop, government data showed on Friday and in line with March’s decline.
  • A record 26.5% fall in cellphone charges knocked 0.5% off core CPI, the data showed, as carriers heeded Prime Minister Yoshihide Suga’s calls to ease the burden on households.
  • By contrast, energy prices rose 0.7% in April, marking the first gain since January 2020 due to recent rises in crude oil costs and the base effect of last year’s slump.

EXCLUSIVE Huawei-Changan smart car partnership expands to include chips -sources – Reuters, 5/21/2021

  • China’s Huawei Technologies is expanding its smart car partnership with state-owned Chongqing Changan Automobile Co to include the design and development of auto-use semiconductors, four sources with knowledge of the matter said.
  • The two companies, which unveiled their smart car tie-up in November, have been working together informally on chips for the last few months, two of the sources said. A third source said they might soon form a joint venture for chip development.
  • Huawei has pivoted to electric vehicles after its global smartphone business was hammered by U.S. sanctions. The previous Trump administration labelled the company a threat to U.S. national security – a charge it denies.
  • Huawei’s new chip partnership with Changan would come amidst a global semiconductor shortage that has hit automakers particularly hard.

Daimler Truck predicts engine job losses in transition to ‘green’ trucks – Reuters, 5/21/2021

  • The transition to zero-emission fuel cell trucks will slash about half the jobs at Europe’s truck engine plants in the next 15 years, Daimler Truck Chief Executive Martin Daum said on Friday, urging policymakers to prepare for that now.
  • Truck makers are moving towards a zero-emission world as hitting sustainability targets becomes more important for their customers but the fuel cells have fewer moving parts and require less labour to make than combustion engines.
  • “We have to be cognizant that about 50% of the jobs will go away because a fuel cell and a battery are far less complex than a diesel engine and a transmission today,” Daum told Reuters.
  • The world’s largest truck maker is going “all-in” for electric and hydrogen fuel cell-powered vehicles and on Thursday said zero-emission vehicles should make up 60% of its sales by 2030 and 100% of sales by 2039.

Factmonster – TODAY in HISTORY

  • Spanish explorer Hernando De Soto died while searching for gold on the banks of the Mississippi River. (1542)
  • The first hydrogen bomb to be dropped by air exploded over the Bikini Atoll in the Pacific. (1956)
  • In Hong Kong, approximately one million people took to the streets to show their support for students protesting for democratic reforms in China’s Tiananmen Square. (1989)

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