US FINANCIAL MARKET
Stock Indexes Dip in Choppy Trading – Wall Street Journal, 6/1/2022
- U.S. stock indexes retreated in morning trading, suggesting stocks may start June with losses after capping a volatile trading month.
- The S&P 500 fell 0.6% Wednesday, with all three major U.S. indexes handing back early gains. The Dow Jones Industrial Average was off 0.7%, while the technology-focused Nasdaq Composite dipped about 0.2%.
- In economic data, the Institute for Supply Management’s index of U.S. manufacturing activity rose to 56.1 in May from 55.4 in April. Economists surveyed by The Wall Street Journal had expected a decline to 54.5. A reading above 50 indicates expansion.
- The yield on the 10-year U.S. Treasury note advanced to 2.924%, from 2.842% Tuesday. Yields and bond prices move inversely.
- Yields on the benchmark note still remain well below this year’s closing high of 3.124%, but have advanced this week as traders have continued to reassess the path of interest rates.
- Crude prices rose, as investors digested European Union leaders’ plan to impose an oil embargo on Russia and a ban on insuring ships that carry Russian oil.
- Some OPEC members are also exploring the idea of suspending Russia’s participation in an oil-production deal.
- Brent crude, the international benchmark for oil prices, rose 2.4% to $118.31 a barrel. West Texas Intermediate, the U.S. marker, advanced 2.6% to $117.71.
- Though oil prices have fallen from their levels reached shortly after the war began in Ukraine, they have begun to move higher recently, as traders digested European Union leaders’ plans and the easing of Covid-19 restrictions in China.
- Salesforce jumped 13.7% after reporting revenue that outpaced analyst expectations, easing concerns about demand for its business software.
- Shares of Victoria’s Secret rose 9.1% after recording a profit that exceeded analyst expectations.
- Shares of energy companies also climbed, tracing oil prices higher. Marathon Oil advanced 2.6%, while Occidental Petroleum added 1.4%.
- Overseas, the pan-continental Stoxx Europe 600 traded flat.
- In Asia, trading was mixed. China’s Shanghai Composite lost 0.1%, as Covid-19 lockdowns eased in China’s financial capital. Hong Kong’s Hang Seng fell 0.6%. Japan’s Nikkei 225, in contrast, rose about 0.7%.
Salesforce Sales Jump 24%, Easing Concerns About Business Demand – Wall Street Journal, 6/1/2022
- Salesforce posted a better-than-expected 24% increase in fiscal first-quarter revenue, easing concerns about demand for its business software.
- The San Francisco-based company reported revenue of $7.41 billion, up from $5.96 billion in the year-ago quarter and above the estimates by the company and analysts.
- Salesforce reported earnings of $28 million, or 3 cents a share, in the three months through April 30, compared with $469 million, or 50 cents a share, a year earlier.
- After adjusting for items like amortization and stock-based compensation, the company reported adjusted per-share earnings of 98 cents, down from $1.21 in the year-ago quarter.
- The company’s sales outlook for the current quarter fell below Wall Street estimates. Salesforce sees second-quarter revenue of $7.69 billion to $7.70 billion; the average analyst estimate on FactSet was for $7.77 billion.
- Salesforce raised its profit guidance and lowered its sales outlook for the year.
- It said it expects per-share adjusted earnings of between $4.74 and $4.76, up from the range of $4.62 to $4.64 it cited in March.
- Salesforce tempered its sales outlook for the year because of an uncertain macroeconomic environment, including volatile currency rates, dropping it to between $31.7 billion and $31.8 billion from a range of $32 billion to $32.1 billion.
HP Lifts Earnings Outlook Despite Supply-Chain Disruptions – Wall Street Journal, 6/1/2022
- HP offered an upbeat earnings outlook even as ongoing supply-chain disruptions and sanctions against Russia impact its laptop and printing business.
- Revenue rose 3.9% to $16.5 billion. The results beat Wall Street estimates, according to FactSet.
- HP posted profit of $1 billion, or 94 cents a share, for the quarter ended April 30, down from $1.2 billion, or 98 cents a share, in the same period a year earlier. Stripping out one-time items, adjusted earnings in the latest period were $1.08 a share.
- Despite the supply-chain and Russia-related setbacks, HP raised the midpoint of its adjusted annual earnings forecast by 3 cents to $4.31 a share.
- It lowered its nonadjusted annual earnings forecast to a range of $3.79 to $3.93 a share, from a previous forecast of $3.87 to $4.07.
Victoria’s Secret reports better-than-expected profit but warns challenges could persist – CNBC, 6/1/2022
- Victoria’s Secret reported a quarterly profit that topped Wall Street expectations on Tuesday, but warned that it could continue to face supply chain and sales challenges for the remainder of the year.
- Sales fell 4.5% to $1.48 billion from $1.55 billion a year earlier, but were in line with Wall Street forecasts.
- Same-store sales were down 8% in the quarter from 2021.
- Adjusting for last year’s stimulus benefit, the company said same-store sales were down 3%.
- For the three-month period ended April 30, net income was $76.14 million, or 93 cents per share, compared with net income of $174 million, or $1.97 per share, a year earlier.
- Victoria’s Secret ended the quarter with inventory levels up 37% from the prior year, which it said was primarily due to longer transportation times and higher cost of goods stemming from inflation.
- For its fiscal second quarter, Victoria’s Secret expects to earn between 95 cents per share to $1.25 a share, on an adjusted basis. Analysts were looking for $1.19 per share.
- The company forecast sales to be down low-single digits to up low-single digits on a year-over-year basis. Analysts were looking for a 0.8% decline.
- For the year, Victoria’s Secret said Tuesday it still expects total sales to be flat to up low-single digits from 2021. Analysts were projecting a year-over-year increase of 1.7%, according to Refinitiv data.
Delta Falls as Jump in Costs Overshadow Strong Demand, Pricing – Bloomberg, 6/1/2022
- Delta Air Lines fell, leading declines across the airline industry, after saying fuel and a decrease in flying capacity are driving costs higher than what the carrier had expected, overshadowing an otherwise upbeat forecast.
- Costs for each seat flown a mile, an industry gauge of efficiency, will be up as much as 22% this quarter compared to 2019 levels, exceeding Delta’s original outlook for 17% higher, the carrier said in a regulatory filing Wednesday.
- “We’re at the point now, we’re not going to grow any more, probably through the end of this year,” Chief Executive Officer Ed Bastian said at the Bernstein Strategic Decisions Conference.
- Delta will pay as much as $3.70 a gallon for jet fuel, higher than earlier expectations of as much as $3.35. Delta is covering the “historic level” of fuel prices with fare increases, he said.
- “The demand is off the charts,” Bastian said. “Pricing is very healthy. We expect pricing this summer to be up 25% to 30% on average. We’ve never seen anything of that scale.”
- Unit revenue should be as much as 8 percentage points better than an unspecified earlier outlook as the surge in travel allows airlines to boost prices, Delta said.
- Adjusted total revenue, boosted by the strong demand and increased prices, should reach 100% of 2019 levels. Delta originally expected a recovery between 93% and 97% for the measure, which excludes the airline’s refinery.
- Operating margin will be as much as 14%, at the high end of the airline’s initial outlook of 13% to 14%.
Americans Start Summer Travel Season Beset by Record Gas Prices – Wall Street Journal, 6/1/2022
- Millions of Americans hit the road over Memorial Day weekend, with record-high gas prices pinching their wallets.
- The national average price for a gallon of regular unleaded gas hit $4.62 as of Monday, according to AAA, $1.58 higher than a year earlier and about 12% above the pre-2022 high of $4.11 set in 2008.
- Prices have risen about 11% over the past month, the organization’s figures indicated, and gas was recently above $4 in all 50 states.
- “Folks have decided, ‘Look, I’ve been good. I’ve been hunkering down for two years. I’m gonna go, and I’m gonna go big,’ ” said AAA spokesman Andrew Gross.
- The organization said in May that 34.9 million Americans were expected to travel by automobile during the Memorial Day weekend, up 4.5% from 2021.
OPEC Weighs Suspending Russia From Oil-Production Deal – Wall Street Journal, 6/1/2022
- Some OPEC members are exploring the idea of suspending Russia’s participation in an oil-production deal as Western sanctions and a partial European ban begin to undercut Moscow’s ability to pump more, OPEC delegates said.
- Exempting Russia from its oil-production targets could potentially pave the way for Saudi Arabia, the United Arab Emirates and other producers in the Organization of the Petroleum Exporting Countries to pump significantly more crude, something that the U.S. and European nations have pressed them to do as the invasion of Ukraine sent oil prices soaring above $100 a barrel.
- OPEC’s 13 members and 10 non-OPEC producers led by Russia are set to meet on Thursday, when they are expected to approve a planned increase of 432,000 barrels a day—part of a series of incremental monthly increases designed to bring production back to prepandemic levels.
- Whatever OPEC does, it is likely to try to keep Moscow as an ally, looking ahead to a day when its production could come back.
- Even with diminished output, Russia pumps more than all countries except the U.S. and Saudi Arabia.
- Still, some members worry that exempting Russia from its targets will undermine cohesion in OPEC+. Russia would retain sway in the group without having to participate in raising or cutting production.
Russian Oil Producers Stay One Step Ahead of Sanctions – Wall Street Journal, 6/1/2022
- Europe just targeted Russian crude with its toughest sanctions yet, but shippers and refiners are getting the oil to market by obscuring its origins. Some fuels believed to be partially made from Russian crude landed in New York and New Jersey last month.
- The cargoes were brought through the Suez Canal and across the Atlantic from Indian refineries, which have been big buyers of Russian oil, according to shipping records, Refinitiv data and analysis by Helsinki-based think tank Centre for Research on Energy and Clean Air.
- Oil is also being transferred between ships at sea, a page out of the playbook used to buy and sell sanctioned Iranian and Venezuelan oil. The transfers are happening in the Mediterranean, off the coast of West Africa and the Black Sea, with oil then heading toward China, India and Western Europe, according to shipping companies.
- Overall, Russian oil exports rebounded in April, after dropping in March as the first Western sanctions took effect, the International Energy Agency said. Russia’s oil exports rose by 620,000 barrels to 8.1 million barrels a day, close to its prewar levels, with the biggest increase going to India.
- India has emerged as a key hub for Russian oil flows. The country’s imports have skyrocketed to 800,000 barrels a day since the war began, compared with 30,000 barrels a day previously, according to commodity-markets data company Kpler.
Missed Payments, Rising Interest Rates Put ‘Buy Now, Pay Later’ to the Test – Wall Street Journal, 6/1/2022
- “Buy now, pay later” companies promised a credit revolution that would change the way people pay for things. Rising delinquencies and a slowing economy are clouding that outlook.
- The buy-now-pay-later business took off in a post-financial-crisis world of cheap funding and low delinquencies.
- They rely less on—and in some cases bypass altogether—traditional credit scores and reports. That makes them appealing to people with limited savings and low credit scores.
- Subprime consumers accounted for about 43% of shoppers who applied for payment plans or loans at retailers’ checkout between the fourth quarter of 2019 and 2021, according to credit-reporting firm TransUnion, though they only made up about 15% of the U.S. adult population.
- At Affirm, about 3.7% of outstanding loan dollars held on the company’s balance sheet were at least 30 days late at the end of March, up from 1.4% a year earlier.
- Affirm said the increase reflects a loosening of underwriting standards that it tightened earlier in the pandemic.
- Afterpay’s losses equaled 1.17% of total payment dollars processed during its latest quarter, compared with 0.9% for its latest full year ended June 2021.
- Zip said its “bad debts and expected credit losses” surged 403% in the last six months of 2021 compared with the same period a year prior. Zip said the increase was in part due to companies it acquired in 2021.
Buick says it will ‘fully electrify’ North American lineup by 2030 – Reuters, 6/1/2022
- General Motors’ Buick brand, once one of America’s pioneer auto companies, said Wednesday that its future North American lineup will be all-electric by 2030.
- That target will make Buick one of GM’s lead brands, along with Cadillac, in pursuing the corporate goal of phasing out internal combustion engines by 2035.
- Buick said it plans to introduce its first EV in 2024, but did not provide specifics.
- Supplier sources said the brand is planning to build at least two electric crossover vehicles in that timeframe, with production sourced in both China and North America.
US ECONOMY & POLITICS
US Manufacturing Growth Unexpectedly Firms on Stronger Orders – Bloomberg, 6/1/2022
- US manufacturing activity unexpectedly advanced in May as new orders and output growth quickened, suggesting underlying demand remains solid.
- The Institute for Supply Management’s gauge of factory activity increased to 56.1 last month from 55.4 in April, according to data released Wednesday.
- ISM’s measure of factory employment drifted into contraction territory for the first time since November 2020, and the group’s gauge of delivery performance, despite settling back some, remained elevated.
- While the ISM index of new orders at factories hit a three-month high, the production gauge was up more modestly. Backlogs also increased.
- Average lead times for capital expenditures grew to 178 days, the highest in data back to 1987.
- Production materials lead times eased to 99 days from a record 100 days a month earlier.
- A measure of prices paid by producers slipped from the prior month but remains historically high.
- The costs of crude oil and petroleum products continue to climb, while prices of some other commodities such as aluminum and steel have softened.
US Job Openings Decline From Record While Remaining Elevated – Bloomberg, 6/1/2022
- US job openings fell in April from a record in the prior month though remained elevated at roughly double the number of unemployed Americans, suggesting little relief for employers struggling to attract and retain workers.
- The number of available positions decreased to 11.4 million in the month from an upwardly revised 11.9 million in March, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Wednesday.
- The median forecast in a Bloomberg survey of economists called for 11.35 million openings.
- Some 4.4 million Americans quit their jobs in April, little changed from the prior month.
- The quits rate, a measure of voluntary job leavers as a share of total employment, was unchanged at 2.9%.
- There were about 1.9 jobs for every unemployed person in April, down slightly from March.
- Fed Governor Christopher Waller referenced the closely watched ratio in a speech earlier this week, in which he also said that tighter policy won’t lead to much of an increase in unemployment since demand for workers will still be strong, just less so.
Fed Starts Experiment of Letting $8.9 Trillion Portfolio Shrink – Bloomberg, 6/1/2022
- The Federal Reserve is about to start shrinking its $8.9 trillion balance sheet, deploying a second tool along side higher interest rates to curb inflation, though officials don’t know just how effective it will be.
- While the process officially commences on Wednesday, the first US Treasury securities won’t run off until $15 billion mature on June 15.
- The Fed is capping monthly runoff at $47.5 billion — $30 billion for Treasuries and $17.5 billion for mortgage-backed securities — until September. Those thresholds will then double to a combined $95 billion.
- That compares to a peak of $50 billion a month when the Fed performed the exercise starting in 2017.
Dudley Plays Down Suggestion of September Fed Rate-Hike Pause – Bloomberg, 6/1/2022
- Former New York Fed President William Dudley said the US central bank will keep raising interest rates to curb high inflation, dismissing speculation that it will hold fire in September.
- “The Fed is pretty convinced that they need to go to something close to neutral, expeditiously,” he said in an interview Wednesday on Bloomberg Surveillance. “The notion that at some point they are going to take a pause and look around — of course that’s going to happen at some point — but it’s going to be driven by the economic data.”
- “I would not put too much stock on it,” he said. “The market is priced to a peak in the federal funds rate of 3%. I think we’re going to get to there pretty easily, and the Fed will probably actually have to push beyond that ultimately.”
- While Powell hasn’t offered hard guidance beyond July, he did say on May 17 he wanted “clear and convincing” evidence that inflation was declining from 40-year peaks.
- Fed Governor Chris Waller voiced a more hawkish line on Monday: backing hiking by 50 basis points for “several” more meetings and saying rate increases of that size should be on the table until inflation was closer to 2%.
U.S. Launches Initiatives to Boost Economic Ties With Taiwan – Wall Street Journal, 6/1/2022
- The Biden administration is forging closer economic ties with Taiwan in areas including trade, supply chains and technology-export controls, amid growing tensions with China.
- The U.S. Trade Representative’s office on Wednesday unveiled a new pact with Taipei to promote bilateral trade in areas such as digital trade, clean energy and labor rights.
- The two partners will also collaborate to address nonmarket practices and policies, including those conducted by state-owned enterprises, an issue representing Washington’s leading complaint about China’s trade policy.
- Separately, Commerce Secretary Gina Raimondo is launching a separate dialogue with Taiwan to address technology trade and investments, citing the importance of Taiwan as a leading supplier of advanced semiconductors. Export controls of sensitive technologies will also be addressed by this initiative, senior administration officials said.
- The Chinese Embassy in Washington didn’t immediately respond to a request for comment on U.S. plans to bolster economic ties with Taiwan.
U.S. to Send Guided Rockets to Help Ukraine in Donbas Fight – Wall Street Journal, 6/1/2022
- The Biden administration plans to provide Ukraine with a guided rocket system capable of striking targets as far away as 48 miles, senior U.S. officials said Tuesday.
- As an additional precaution, the U.S. has secured an assurance from Kyiv that the system won’t be used to strike targets on Russian soil, the officials added in a background briefing on the Biden administration’s new $700 million arms package for Ukraine.
- The rocket launcher that is being provided is the wheeled High Mobility Artillery Rocket System, or HIMARS.
- That rocket, which is highly accurate, has roughly twice the range of the M777 howitzers that the U.S. has provided to Ukraine.
- But the GMLRS also has a much shorter range than the Army’s tactical-missile system, which can travel more than 185 miles and which the administration isn’t providing in its next arms package for Ukraine.
Biden administration likely to raise ethanol blending volumes for 2021 -sources – Reuters, 6/1/2022
- The Biden administration is likely to raise ethanol blending mandates for 2021 above its proposed figure in December to align with U.S. consumption, according to two sources briefed on the decision.
- In December, the U.S. Environmental Protection Agency proposed refiners blend 13.32 billion gallons of ethanol into the fuel pool, a move that angered farm-belt lawmakers and the industry who said it was too low.
- Recent federal figures show U.S. consumption of ethanol at about 13.94 billion gallons.
- Under the U.S. Renewable Fuel Standard (RFS), refiners must blend billions of gallons of biofuels into the nation’s fuel pool, or buy tradable credits from those that do.
- A final decision on biofuel blending mandates for 2020, 2021 and 2022 is expected by Friday.
- Administration officials huddled at the White House on Tuesday to review options, the sources said. The meeting underscores the political implications of the upcoming decision, which will impact fuel and food prices amid a 40-year high in inflation rates.
EUROPE & WORLD
Europe, Asian Factories Under Pressure on China, War in Ukraine – Bloomberg, 6/1/2022
- Key gauges of activity at European and Asian factories remained under pressure in May from China’s economic slowdown and the fallout from the war in Ukraine.
- New orders in the euro area fell for the first time since June 2020, with overall output growth picking up marginally, but still staying “sluggish,” according to S&P Global’s manufacturing Purchasing Managers Index.
- In Asia, Taiwan’s manufacturing PMI fell to the level 50 point level that separates contraction from expansion as both output and new orders declined. Gauges for Malaysia, the Philippines and Australia also slid.
- Malaysia’s manufacturing PMI slipped to 50.1 from 51.6 in April with output and new orders also falling. The Philippines index dipped to 54.1, from 54.3, while Thailand was unchanged at 51.9. Australia’s gauge fell to 55.7 from 58.8.
- Vietnam bucked the softening with its reading leaping to 54.7, from 51.7 in April, the highest since April 2021 and its eighth consecutive month of expansion.
- China’s Caixin Manufacturing Purchasing Managers’ Index for last month, released Wednesday, came in at 48.1 from April’s 46.
- Although that was an improvement, it remained in contractionary territory as both production and new orders fell.
Bank of Canada Hikes by 50 Basis Points and Warns of More Moves – Bloomberg, 6/1/2022
- The Bank of Canada took another aggressive step in its hiking cycle, raising its overnight interest rate by 50 basis points for a second consecutive time and warning that it may act “more forcefully” if needed to tackle inflation.
- The central bank raised the overnight rate to 1.5% at a policy decision on Wednesday and delivered a hawkish statement that aired worries about inflation pressures intensifying and becoming entrenched at elevated levels.
- While the 50-basis-point hike was expected, the language will fuel speculation that policy makers led by Governor Tiff Macklem are considering a faster pace of tightening than they had been suggesting.
UK Food Prices Surging Most In a Decade Signals More Pain Ahead – Bloomberg, 6/1/2022
- UK consumers are being urged to brace for inflation getting worse before it gets better as soaring costs force retailers to keep raising prices.
- The bleak warning came in a survey by the British Retail Consortium, which said fresh food prices are now rising at their fastest pace in decade.
- The BRC said fresh food jumped 4.5% in the year through May, driven by items such as poultry.
- Overall shop-price inflation reached an 11-year high of 2.8% with no immediate relief in sight for hard-pressed families, according to the BRC’s report published Wednesday.
- The jump in food-price inflation from 3.4% in April shows that retailers “can no longer absorb the full extent of increased supply-chain costs now hitting the industry,” said Mike Watkins, head of retailer and business insight at NielsenIQ, which produces the figures with the BRC.
- Kentucky became the 15th state in the United States. (1792)
- Tennessee became the 16th state in the United States. (1796)
- The first issue of Action Comics, featuring Superman, was published. (1938)
- General Charles De Gaulle became the premier of France. (1958)
- Cable News Network (CNN) debuted. (1980)