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Daily Market Report | June 02, 2021

Meme Stocks Surge as Major Indexes Tick Higher – Wall Street Journal, 6/2/2021

  • Major U.S. stock indexes edged higher Wednesday as concerns around the consequences of a strong economic recovery, marked by inflation, continued to buffet the market.
  • The S&P 500 rose 0.2% in recent trading, with the index fluctuating above and below the flatline during the session’s opening hour. Both the Dow Jones Industrial Average and Nasdaq Composite also waffled, both rising about 0.1%.
  • Tech stocks, specifically chip makers, led the market higher. Modest advances among energy, healthcare, and some consumer-staple stocks aided the benchmarks’ climb, while material and consumer discretionary stocks slipped.
  • In bond markets, the yield on the 10-year U.S. Treasury note edged lower to 1.607%, from 1.613% Tuesday.
  • Brent crude, the international energy benchmark, rose 1% to $70.96 a barrel, extending gains after OPEC forecast a rebound in demand.
  • The Fed’s beige book report, due at 2 p.m. ET, will offer a view on how businesses are faring and the current economic condition. Investors will be looking for insights into how companies are coping with rebounding consumer demand and supply bottlenecks.
  • Overseas, the Stoxx Europe 600 edged up 0.1%. Major Asian stocks were mixed. Japan’s Nikkei 225 rose 0.5%, while Hong Kong’s Hang Seng Index fell 0.6%. In mainland China, the Shanghai Composite Index fell 0.8%.

Zoom Reports Customer Growth in Latest Quarter, Raises Expectation – Wall Street Journal, 6/2/2021

  • Zoom Video Communications’ customer count rose sharply and revenue almost tripled in the first quarter, signaling the tech darling of the pandemic era is enjoying robust customer growth as offices open back up.
  • Overall, Zoom’s first-quarter profit reached more than $227 million from about $27 million a year earlier.
  • Meanwhile, revenue reached $956.2 million, up from $328.2 million a year ago.
  • The results beat Zoom’s and Wall Street projections, according to FactSet.
  • The number of customers with more than 10 employees reached about 497,000 in the latest period, about 30,000 more than the previous quarter, and customers that generated more than $100,000 over the past 12 months reached 1,999, up about 22% from the previous quarter and more than double from the year earlier.
  • The cloud-computing-based phone service has reached 1.5 million seats, up from 1 million the company reported in January.
  • The company said that there are still many unknowns around the pandemic.
  • It now expects annual revenue to reach $3.98 billion to $3.99 billion, up from its earlier view of $3.76 billion to $3.78 billion.
  • The California-based company also raised adjusted profit projections for the year to a range of $4.56 to $4.61 a share from $3.59 to $3.65 a share.

Tesla Failed to Oversee Elon Musk’s Tweets, SEC Argued in Letters – Wall Street Journal, 6/2/2021

  • Securities regulators told Tesla last year that Chief Executive Elon Musk’s use of Twitter had twice violated a court-ordered policy requiring his tweets to be preapproved by company lawyers, according to records obtained by The Wall Street Journal.
  • Tesla and the Securities and Exchange Commission settled an enforcement action in 2018 alleging that Mr. Musk had committed fraud by tweeting about a potential buyout of his company. Mr. Musk paid $20 million to settle that case—Tesla also paid $20 million—and agreed to have his public statements on social media overseen by Tesla lawyers.
  • The SEC told Tesla in May 2020 that the company had failed “to enforce these procedures and controls despite repeated violations by Mr. Musk.” The letter, signed by Steven Buchholz, a senior SEC official in its San Francisco office, added: “Tesla has abdicated the duties required of it by the court’s order.”

Tesla recalls nearly 6,000 U.S. cars over potentially loose bolts – Reuters, 6/2/2021

  • Tesla is recalling nearly 6,000 U.S. vehicles because brake caliper bolts could be loose, with the potential to cause a loss of tire pressure, documents made public on Wednesday show.
  • The recall covers certain 2019-2021 Model 3 vehicles and 2020-2021 Model Y vehicles. Tesla’s filing with the National Highway Traffic Safety Administration (NHTSA) said it had no reports of crashes or injuries related to the issue and that the company will inspect and tighten, or replace, the caliper bolts as necessary.
  • The filing with NHTSA said Tesla was made aware in December of a field incident involving a 2021 Model Y vehicle with a missing fastener on the driver-side rear brake caliper.

Etsy courts Gen-Z with $1.6 billion deal for fashion reseller Depop – Reuters, 6/2/2021

  • Etsy said on Wednesday it would buy Generation-Z focused fashion resale company Depop for $1.63 billion, seeking to attract younger shoppers and bolster its position in a booming market in vintage or used clothing.
  • After a pandemic-driven surge in sales over the last year, Etsy, among the world’s best known e-commerce platforms for handmade goods and vintage items, estimates the U.S. second-hand clothing market alone will be worth $64 billion by 2024.
  • Chief Executive Officer Josh Silverman said he saw Depop as “the resale home for Gen-Z consumers” and believed there was significant potential to scale up its business as he seeks to offset consumers’ return to more traditional mall and retail stores over the next year.
  • London-based Depop, founded a decade ago by entrepreneur Simon Beckerman for readers of his magazine to purchase featured items, is known for its vintage and street-wear collections and has over 26 million users across more than 147 countries.

Investors’ Inflation Bet Loses Some Steam – Wall Street Journal, 6/2/2021

  • A key measure of investors’ inflation expectations has slipped in recent days, stirring debate over whether it has finally peaked after this year’s near-relentless climb.
  • As of Tuesday, the gauge known as the 10-year break-even rate suggested that the consumer-price index will rise by an annual average of 2.48% over the next decade, according to Tradeweb.
  • That was up from 2.01% at the end of last year, but down from its recent high of 2.57% on May 12.
  • A leveling off of or decline in the rate will cheer those who have worried that accelerating inflation could threaten investors’ portfolios in a way it hasn’t for decades.
  • But it may also reflect expectations for tighter monetary policies from the Fed, which could drag on riskier assets like stocks.

Tyson Replaces CEO Dean Banks After Eight Months on the Job – Wall Street Journal, 6/2/2021

  • Tyson Foods replaced its chief executive officer after about eight months on the job as the top U.S. meat company contends with production constraints and fallout from Covid-19.
  • Dean Banks stepped down from the CEO role and from Tyson’s board of directors, the company said on Wednesday. He was succeeded immediately by Donnie King, a three-decade veteran of the Arkansas company who earlier this year was named chief operating officer.
  • Mr. Banks decided to leave Tyson for personal reasons, the company said. He didn’t immediately respond to a request for comment. Mr. King wasn’t available for an interview, a Tyson spokesman said.

Inflation in Rich Countries Hit a 12-Year High in April – Wall Street Journal, 6/2/2021

  • Consumer prices across the rich world rose at the fastest pace in more than 12 years during April, as central bankers try to figure out whether shortages that have emerged as the global economy reopens will prove transitory or have long-lasting consequences.
  • The Organization for Economic Cooperation and Development Wednesday said consumer prices in its 36 members, which are mostly rich countries, were 3.3% higher than in April 2020. That was the largest increase since October 2008.
  • Across the Group of 20 leading economies, which account for about four-fifths of global economic activity, the annual rate of inflation rose to 3.8% from 3.1% in March, reaching its highest level in over a year.
  • In April, energy prices across the OECD’s members were 16.3% higher than a year earlier, compared with 7.4% in March. Those base effects will persist for a number of months as prices now are compared with very depressed levels a year earlier, but that effect will eventually fade.

Oil Advances From Highest Since 2018 on Bullish Demand Outlook – Bloomberg, 6/2/2021

  • Oil extended gains amid signs of a recovery in demand in parts of the western world, and after OPEC+ provided an upbeat assessment of the market’s outlook.
  • Futures in New York rose as much as 1.3% on Wednesday. U.S. gasoline demand was the highest since the pandemic began last week, according to Descartes Labs, while traffic on U.K. roads was higher than pre-pandemic levels for the first time.
  • U.S. benchmark crude’s rally to a two-and-a-half year high this week has been aided by an indication that world powers and Iran aren’t likely to revive a 2015 nuclear deal any time soon.
  • There was hope an agreement would be reached this month, but participants in the talks are set to head back to their capitals after meeting Wednesday, cooling speculation that the U.S. might soon lift sanctions on Iranian oil exports.

Biden, Capito Seek Progress in Infrastructure Talks – Wall Street Journal, 6/2/2021

  • President Biden will meet Wednesday with the Senate Republican leading GOP efforts to craft infrastructure legislation, as the two sides continue to seek common ground ahead of a Biden administration deadline next week to show progress in the negotiations.
  • After weeks of negotiations, the Biden administration and GOP lawmakers remain at odds over the overall size and scope of the measure, as well as how to pay for it.
  • While Republicans have proposed more spending, only about $257 billion of their proposal last week is above baseline levels, projected federal spending if current programs continued, according to the Republicans.
  • The White House has said the entirety of its $1.7 trillion plan is above current baseline levels, though Congress will need to set new baseline spending by the end of this fiscal year.
  • The Senate is split evenly between Democrats and Republicans. Democrats have said they are open to using a budget maneuver called reconciliation that would allow the bill to pass with a simple majority. Vice President Kamala Harris could act as the tiebreaking vote.
  • Passing legislation through reconciliation requires approving a budget in Congress, and the release of Mr. Biden’s $6 trillion budget request to Congress plan Friday will help Democrats to move forward with the process.

U.S. labor market worse than it appears, Fed paper suggests – Reuters, 6/1/2021

  • U.S. labor market signals are conflicting to an “unprecedented” degree, but those suggesting labor market slack should be given more weight than those pointing to tightness, according a paper published Monday by the San Francisco Federal Reserve Bank.
  • The paper looked at 26 labor market measures that typically move in tandem and found that during the current recovery they are giving wildly divergent signals about the health of the job market.
  • The job openings rate, for instance, suggests the job market is much tighter than the unemployment rate; the labor force participation rate points to much more slack than detected in the unemployment rate.
  • Because the pandemic has forced so many people out of the workforce, “negative signals such as the low labor force participation rate provide a better read than do the positive signals,” the researchers argued. “Overall, our findings reveal that the labor market situation is worse than some headline numbers suggest.”

Federal Reserve’s Bullard: US jobs market is tighter than it looks – Financial Times, 6/1/2021

  • A senior Federal Reserve official said the US labour market was tighter than it looks, which could accelerate the central bank’s timeframe for removing some monetary stimulus from the economy.
  • In an interview with the Financial Times, James Bullard, president of the St Louis Fed, said that despite data showing non-farm payrolls still 8m jobs short of pre-pandemic levels, other indicators were far closer to normal, matching anecdotal evidence of worker shortages.
  • “I’m evolving toward a judgment where labour markets should be interpreted as fairly tight, and you’re certainly seeing that in firms saying that they’re just gonna go ahead and raise wages for these types of workers. They’re going ahead and saying, ‘let’s pay some signing bonuses to get to get workers in the door’, you’re seeing some businesses actually just staying shuttered because they can’t find enough workers,” Bullard said.
  • He added that he was “starting to advocate” for the Fed to look at other measures of job market tightness, particularly the unemployment to job opening ratio, which was at a low of 0.8 in February 2020, rose to 5 during the first lockdowns, and was back down to 1.2 in March 2021.

U.S. to Levy Tariffs Over Digital-Service Tax, but Suspend Implementation – Wall Street Journal, 6/2/2021

  • The U.S. said Wednesday it will impose tariffs on the U.K. and five other countries in response to their taxes on U.S. technology companies—but will suspend the levies for six months to negotiate an international resolution.
  • U.S. trade representative Katherine Tai said investigations determined that tariffs were justified because of digital services taxes imposed on U.S. companies by the U.K., Austria, India, Italy, Spain and Turkey.
  • But she said the tariffs would be suspended while the U.S. focuses on finding “a multilateral solution to a range of key issues related to international taxation.”

Janet Yellen and China’s Liu He Talk ‘Frankly’ on Issues of Concern – Bloomberg, 6/2/2021

  • The U.S. and Chinese governments took another step toward restarting economic and trade talks, with Treasury Secretary Janet Yellen and Vice Premier Liu He holding what they described as frank discussions in their first call.
  • The two sides discussed how to “support a continued strong economic recovery and the importance of cooperating on areas that are in U.S. interests, while at the same time frankly tackling issues of concern,” according to a statement from the U.S. Treasury. A Chinese statement carried in state media also said the two “frankly exchanged views on issues of mutual concern.”
  • The U.S. characterized the talk as an “introductory virtual meeting,” according to a Treasury statement released Tuesday evening Washington time.
  • The former USTR and Treasury secretary led the negotiations with China on the phase one trade deal, which left in place higher tariffs on hundreds of billions of dollars worth of imports.

EUROPE & WORLD

Eurozone Inflation Above Target Sooner Than The ECB Expected – Wall Street Journal, 6/1/2021

  • The annual rate of inflation in the eurozone rose in May to hit the European Central Bank’s target for the first time since late 2018, as energy prices surged in response to a strengthening recovery in the global economy.
  • The pickup in price rises comes before a June 10 meeting of policy makers at the eurozone’s central bank, which will consider new economic forecasts and whether to continue stimulus programs launched early in the pandemic.
  • The central bank’s March forecasts saw inflation reaching 2% only in the final three months of this year. But figures released by the European Union’s statistics office Tuesday showed that inflation had already reached that level.
  • The pickup in inflation during May was mainly driven by surging energy prices, which were 13.1% higher than a year earlier. By contrast, prices for services were just 1.1% higher.
  1. Korea’s inflation hits 9-year high as commodity prices jump – Reuters, 6/2/2021
  • South Korea’s consumer inflation accelerated to a more than nine-year high in May, reinforcing calls for gradual monetary tightening, though the increase was mainly due to a low base effect and rises in oil and agricultural prices.
  • Consumer prices rose 2.6% in May from a year earlier, government data showed on Wednesday, logging the fastest growth since April 2012 and matching a median estimate for a 2.6% increase in a Reuters survey. It grew 2.3% in April.
  • In May 2020, South Korea fell into deflation as the coronavirus pandemic struck demand and supply chains.
  • Core CPI, which excluded volatile energy and food prices, came at 1.2% year-on-year, posting the sharpest increase since November 2018.
  • Month-on-month inflation was 0.1%, slower than a 0.2% increase in April.

TSMC says has begun construction at its Arizona chip factory site – Reuters, 6/2/2021

  • Taiwan Semiconductor Manufacturing Co (TSMC) has started construction at a site in Arizona where it plans to spend $12 billion to build a computer chip factory, its chief executive said on Tuesday.
  • Speaking at the company’s annual technology presentation to clients and investors, held online for the second straight year because of the pandemic, CEO C.C. Wei said the planned factory remains on track to start volume production of chips using the company’s 5-nanometer production technology starting in 2024.
  • TSMC is expected to be one of several companies, including Intel and Samsung Electronics, competing for some of the $54 billion in subsides for the chip industry that advanced in the United States Senate last week.
  • Reuters previously reported that TSMC plans to build as many as six factories at the Arizona site over a 10- to 15-year span.

Huawei Targets Google’s Android Dominance with Harmony OS – Wall Street Journal, 6/2/2021

  • Huawei Technologies Co. on Wednesday launches its self-developed operating system for mobile phones, the company’s latest bid to break free of U.S. suppliers and an attempt to challenge Google’s dominance in smartphone software.
  • The Chinese tech giant plans to launch its new operating system, known as Harmony OS, across a large number of its smartphones during an online-only event, as well as unveil smart devices that will also run the company’s latest homemade software.
  • While Huawei’s own smartphone sales are in free fall after briefly topping the world a year ago, the company is targeting other handset vendors that they hope will adopt Harmony OS, posing a direct challenge to Google Android’s dominance of the market.
  • Convincing vendors to adopt Harmony OS, however, may be an uphill battle. With an established network of software developers and billions of consumers used to its interface, Google Android dominates the smartphone market. More than eight out of 10 smartphones sold run Android. A Google spokesman didn’t respond to a request for comment.

Factmonster – TODAY in HISTORY

  • Congress granted U.S. citizenship to all American Indians. (1924)
  • Queen Elizabeth II of Britain was crowned in Westminster Abbey. (1953)
  • Timothy McVeigh was found guilty of the bombing of the federal building in Oklahoma City. (1997)
  • The European Space Agency launched the Mars Express probe. Contact with the lander Beagle 2 was lost in December. (2003)

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