Daily Market Report | June 6, 2022
US FINANCIAL MARKET
Stock Market Opens Higher After Weekly Loss – Wall Street Journal, 6/6/2022
- U.S. stocks rose on Monday, at least temporarily changing direction after more than two months of volatility and losses.
- Investors are watching economic data closely for clues about the Federal Reserve’s path for raising interest rates. Fears that the Fed could aggressively raise rates and potentially drive the economy into recession have stoked volatility in global markets this year.
- A key test for markets will be Friday’s U.S. consumer-price index. The closely watched inflation gauge is expected to rise 8.2% in May from a year earlier, according to economists surveyed by The Wall Street Journal.
- Excluding food and energy, price growth is expected to cool slightly to an annual rate of 5.9% in May from 6.2% the previous month.
- Investors have been searching for signs that inflation has peaked, but inflation reports continue to show little sign that prices are easing.
- Shares of Spirit Airlines rose 1.2% after JetBlue Airways sweetened its offer to buy the company. JetBlue in May launched a hostile takeover of Spirit, which had already agreed to a merger with Frontier Airlines.
- Spirit’s shareholders are set to vote on the Frontier merger proposal on Friday. Shares of JetBlue fell 1.1%, while Frontier Group shares rose 0.8%.
- Amazon.com shares rose 2.7% to $125.57. Monday will mark the first day of trading since the company executed a 20-for-1 stock split. Before the split, Amazon shares were $2,447 a share.
- U.S. crude oil rose 0.6% to $119.50 a barrel. Prices for oil have surged this year as Russia’s war in Ukraine has disrupted global commodity markets. The average price of regular gas in the U.S. rose to $4.86 over the weekend, according to AAA.
- In the bond market, the yield on 10-year U.S. Treasurys advanced to 2.982%, from 2.940% Friday, as investors sold government bonds. Yields and bond prices move inversely.
- Bond yields have been on the rise in recent weeks but remain below their recent high of 3.124% set in early May.
- Overseas, the British pound rose 0.5% against the U.S. dollar to $1.2545 as Prime Minister Boris Johnson is set to face a vote of confidence in his leadership on Monday.
- Mr. Johnson’s poll ratings have fallen amid revelations that he held parties in Downing Street during Covid-19 lockdowns.
- The pan-continental Stoxx Europe 600 rose 1.1%. Investors in Europe will be watching the European Central Bank’s policy meeting on Thursday, where it is expected to lay out its plans for unwinding bond purchases and raising interest rates.
- The ECB is expected to raise rates for the first time in 11 years in July as it seeks to contain surging inflation.
- Asian markets rallied as China continued to ease Covid-19 restrictions in major cities. China’s Shanghai Composite rose 1.3% while Hong Kong’s Hang Seng Index gained 2.7%. Japan’s Nikkei 225 rose 0.6%.
Elon Musk Threatens to End Deal With Twitter – Wall Street Journal, 6/6/2022
- Elon Musk threatened to terminate his deal to buy Twitter in a letter accusing the company of not complying with his request for data on the number of spam and fake accounts on the social-media platform.
- In a letter to Twitter Chief Legal Officer Vijaya Gadde, Mr. Musk’s lawyer Mike Ringler said Mr. Musk is entitled to the requested data, in part so that he can facilitate the financing of the deal.
- For years, Twitter had publicly disclosed its own estimate of how many of its daily active users represent false or spam accounts, putting the percentage at fewer than 5% of its daily active users.
- Mr. Musk has pegged the figure at least four times as high at 20% of Twitter’s accounts.
- Representatives for Twitter didn’t immediately return a request for comment. The company has said it was moving forward with the transaction.
- Shares of Twitter fell 5% to $38.05 in morning trading; the all-cash deal is priced at $54.20 a share.
- The U.S. auto-safety regulator is asking Tesla to provide information over a growing number of customer complaints that the company’s most popular vehicles brake for unexpected reasons as it intensifies its monthslong scrutiny of the issue.
- The National Highway Traffic Safety Administration said Friday that it issued a letter to Tesla last month after receiving 758 reports of unexpected braking, often called “phantom braking,” in some Model 3 sedans and Model Y crossover vehicles from 2021 and 2022.
- The figure is about double the number of complaints NHTSA earlier this year said it had received. The auto maker has until June 20 to respond, NHTSA said.
- In a letter to Eddie Gates, Tesla’s director of field quality, NHTSA requested the company provide details related to the vehicles Tesla has manufactured, consumer complaints and its field reports.
- NHTSA also requested Tesla provide copies of all documents, analyses, telematics reports, data logs and videos or photos for the Model Y and Model 3 vehicles, noting that it aims to determine the scope and severity of the potential problem. Such probes can lead to recalls.
- JetBlue Airways said it has sweetened its bid for Spirit Airlines, as JetBlue’s effort to wrest the carrier from its planned merger with Frontier Group Holdings enters the final stretch.
- JetBlue, which has launched a hostile cash bid of $30 a share for Spirit, is trying to persuade Spirit investors to reject a merger with Frontier and pressure Spirit’s board to negotiate a deal with JetBlue instead.
- JetBlue on Monday increased the size of the break-up fee it would pay Spirit if antitrust regulators block the deal to $350 million, or about $3.20 per Spirit share, up from the $200 million it had previously offered.
- The move comes days after Frontier Airlines said it would pay a $250 million breakup fee in that circumstance.
- JetBlue also pledged Monday to prepay about $164 million of the break-up fee, or $1.50 a share, as a cash dividend to Spirit investors upon shareholder approval of an acquisition by JetBlue, which would boost total consideration of JetBlue’s deal to $31.50 a share.
Investors Get Back Into Corporate Bonds – Wall Street Journal, 6/6/2022
- In May, as traders bid up bond prices, debt tracked by the Bloomberg U.S. corporate-bond index handed investors a roughly 0.7% return for the month, counting price changes and interest payments. That was the first time in 10 months that holding corporate bonds kept investors in positive territory.
- The debt of U.S. companies with relatively strong financial profiles is offering investors yield premiums, or spreads, of about 1.31 percentage points greater than what Treasurys offer, according to index data from Bloomberg.
- That number was as high as 1.49 percentage points a couple of weeks ago, but it has edged down as more investors seize on corporate debt as an alternative to the swooning stock market.
- The spread was 0.92 percentage point at the end of 2021.
Companies Urge Consumers to Pay More for Better Products in Era of Inflation – Bloomberg, 6/6/2022
- It sounds counterintuitive, but companies are increasingly pushing premium products as the highest inflation in decades squeezes shoppers’ budgets.
- The likes of Procter & Gamble and Clorox say it’s worth splurging for high-end personal-care and household goods that perform better, such as laundry detergent formulated for cold water. Their marketing suggests hard-earned dollars shouldn’t be wasted on substandard products, especially when everything already costs more.
- In 2020 and 2021, sales of premium non-food items gained market share in their categories on a dollar basis, according to data provider IRI. Premium growth slowed in the first quarter of 2022.
- IRI defines “mainstream” products as brand-name goods with prices no more than 25% above or below the category average. Anything more expensive is considered “premium.”
- Premium items accounted for 35.6% on non-food dollar consumer packaged goods sales in the first quarter, compared with 33.8% for mainstream products. Store brands are tracked separately.
US ECONOMY & POLITICS
Individual Income Tax Payments on Pace to Reach Record Level – Wall Street Journal, 6/6/2022
- An unprecedented gush of income tax revenue is flowing into the federal government, driven in part by investors and business owners, and the size and speed of the increase has surprised even the nation’s fiscal-policy experts.
- Individual income tax collections are poised to reach $2.6 trillion, or 10.6% of the economy in the fiscal year that ends Sept. 30, according to the Congressional Budget Office.
- That is up from 9.1% in 2021 and would mark a record in the 109-year history of the tax, topping the war-tax receipts of 1944 and the dot-com boom of 2000.
- The Penn Wharton Budget Model estimates collections of non-withheld taxes reached an inflation-adjusted $522 billion in April 2022, compared with just over $300 billion in 2018 and 2019, before the pandemic.
- CBO officials identified several factors for further study. Perhaps, they said, a greater-than-usual share of capital gains were short-term gains taxed at rates up to 40.8% instead of 23.8%.
- Perhaps income grew faster than expected for those in the highest tax brackets compared with others, which means more income than forecast would be taxed at higher rates.
Biden Administration to Waive Solar Import Tariffs for Two Years – Wall Street Journal, 6/6/2022
- Seeking to resolve a conflict in the solar industry, the White House plans to waive some tariffs on solar imports to ensure steady supplies while invoking the Defense Production Act to boost domestic manufacturing of solar parts.
- The two-year waiver on tariffs is aimed at easing fears among utilities and others that a Commerce Department investigation would lead to new import duties on solar parts from Cambodia, Thailand, Vietnam and Malaysia.
- That investigation was spurred by California-based Auxin Solar, a small maker of solar panels, which accused Chinese companies of circumventing tariffs by routing operations through those four nations.
- The Commerce Department had said the investigation could lead to retroactively imposed levies on imports from those countries, which are major suppliers to the U.S. solar industry.
- Companies that install solar projects, such as Sunrun and Sunnova Energy International rose about 15% in early trading, while SunPower and Enphase Energy climbed roughly 8%.
- Americans are deeply pessimistic about the U.S. economy and view the nation as sharply divided over its most important values, according to a new Wall Street Journal-NORC Poll.
- Some 83% of respondents described the state of the economy as poor or not so good. More than one-third, or 35%, said they aren’t satisfied at all with their financial situation. That was the highest level of dissatisfaction since NORC began asking the question every few years starting in 1972 as part of the General Social Survey, though the poll’s 4-point margin of error means that new figures may not differ significantly from prior high and low points.
- Just over one quarter of respondents, 27%, said they have a good chance of improving their standard of living—a 20-point drop from last year—while just under half of respondents, 46%, said they don’t.
- Some 86% of respondents said Americans are greatly divided when it comes to the most important values, and over half said they expect those divisions to worsen five years from now, up from just a third of respondents who were asked the question last year.
- Nearly two-thirds of respondents, 64%, said platforms such as Facebook and Twitter are harmful for society because they emphasize differences between people, while just over one-third, 34%, said they are helpful because they provide a way for all Americans to share their opinions.
EUROPE & WORLD
Boris Johnson Faces No-Confidence Vote Over Lockdown Parties – Wall Street Journal, 6/6/2022
- British Prime Minister Boris Johnson is set to face a vote of no confidence Monday as rebel lawmakers from his ruling Conservative Party worry over widespread anger stemming from a series of parties held in Downing Street during the country’s Covid-19 lockdowns.
- Conservative lawmakers will gather in Parliament to vote on whether to dismiss Mr. Johnson. If a majority of the party’s 359 lawmakers decide the party needs new leadership, a contest to find a replacement prime minister will begin.
- Mr. Johnson has angered Conservative lawmakers on a number of fronts. A report last month concluded that Mr. Johnson should bear responsibility for parties held in Downing Street in 2020 and 2021, during periods when the U.K. was facing severe Covid-19 outbreaks and most public gatherings were prohibited.
- The gatherings have eroded public trust in Mr. Johnson and the Conservative Party now trails the opposition Labour Party in the polls.
- Meanwhile, Mr. Johnson’s decision to raise taxes has angered fiscal conservatives in his party who feel the British state is getting too large.
Carmakers Feel Chip Crisis Easing as Global Growth Slows – Bloomberg, 6/6/2022
- The global semiconductor shortage that’s bogged down the auto industry for almost two years is showing signs of easing, at least for now.
- Mercedes Benz AG, Daimler Truck Holding AG, and BMW AG are among carmakers now getting enough of the high-tech components to produce at full capacity after experiencing crippling outages for months.
- The breakthrough comes earlier than the companies predicted and marks a bright spot for an industry facing a deteriorating economy and inflation while managing an historic transition to electric-vehicle production. Manufacturers are cheering the chip-supply improvement but aren’t declaring victory yet.
China to Conclude Didi Cybersecurity Probe, Lift Ban on New Users – Wall Street Journal, 6/6/2022
- China is concluding yearlong probes into ride-hailing giant Didi Global and two other U.S.-listed tech companies, preparing to lift a ban on adding new users, people familiar with the discussion said, in the latest sign that Beijing wants to spur economic activity.
- Chinese regulators plan as well to allow the mobile apps of Didi back on domestic app stores, the people said. The apps were removed last July when Chinese authorities opened a data-security probe into Didi, citing national-security reasons.
- The lifting of the new user ban and app restorations could both happen as early as this week, the people said.
- Authorities are also lifting limits on registering new users on apps run by Chinese logistics platform Full Truck Alliance and online recruitment firm Kanzhun, the people said.
- Both were subject to similar cybersecurity reviews by regulators around the same time as Didi.
Factmonster – TODAY in HISTORY
- The Young Men’s Christian Association (YMCA) was founded in London. (1844)
- The Securities and Exchange Commission (SEC) was established to protect investors and maintain the integrity of the securities markets. (1934)
- Thousands of Allied troops invaded the beaches of Normandy, France, on D-Day. (1944)
- Vermont Republican Senator James Jeffords left the party to become an independent, handing control of the Senate back to the Democrats. (2001)
- President Bush proposed a new Cabinet department: The Department of Homeland Security. (2002)
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