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Daily Market Report | June 7, 2022

US FINANCIAL MARKET

Stocks Edge Up Despite Retail Worries – Wall Street Journal, 6/7/2022

  • U.S. stock indexes ticked higher Tuesday, reversing earlier losses after a profit warning from Target cast a pall over the retail sector.
  • The S&P 500 rose 0.4%, building on Monday’s 0.3% gain.
  • The Nasdaq Composite climbed 0.7%, and the Dow Jones Industrial Average increased 0.2%.
  • Target shares dropped 3% after issuing a warning that its profit would decline because it needs to cancel orders or offer discounts to clear out unwanted goods, a potential sign of lower consumer spending.
  • Shares of other big retailers followed, with Walmart and Costco declining 2%.
  • The trade gap in the U.S. for April narrowed to $87.1 billion, shrinking more than economists had forecast, after reaching a record deficit the prior month.
  • A key release this week will be the consumer-price index on Friday, which will be closely watched for signals on whether inflation is weakening or not.
  • The yield on the benchmark 10-year Treasury note eased to 2.988% from 3.037% on Monday. Yields fall when prices rise.
  • On Tuesday, the Reserve Bank of Australia lifted its key policy rate by 0.5 percentage point, more than expected.
  • Overseas, the pan-continental Stoxx Europe 600 slipped 0.3%. In Asia, major benchmarks were mixed.
  • The Shanghai Composite Index added 0.2%, while Hong Kong’s Hang Seng Index declined 0.6%. Japan’s Nikkei 225 edged up 0.1%.

Stagflation Danger Spurs World Bank to Cut Global Growth Outlook – Bloomberg, 6/7/2022

  • The World Bank cut its forecast for global economic expansion in 2022 further, warning that several years of above-average inflation and below-average growth lie ahead with potentially destabilizing consequences for low- and middle-income economies.
  • The Washington-based lender reduced its estimate for global growth this year to 2.9% from a January prediction of 4.1% and April’s 3.2% estimate due to a surge in energy and food prices, supply disruptions triggered by Russia’s invasion of Ukraine and a drive by central banks globally to increase interest rates from rock-bottom levels.
  • The US economy will likely expand 2.5% in 2022, 1.2 percentage points below the prior projection due to higher energy prices, tighter financial conditions, and additional supply disruptions caused by the invasion of Ukraine.
  • The bank cut the outlook for China’s economic expansion to 4.3% this year due to larger-than-expected damage from Covid-19 and related lockdowns.
  • Euro-area growth is projected to slow to 2.5%, 1.7 percentage points less than seen in January.
  • Ukraine’s economy is set to shrink 45.1% this year, while Russia’s may drop 8.9%.
  • The lender had forecast expansion for both previously.

Target Tumbles After Bloated Inventory Spurs Another Profit Cut – Bloomberg, 6/7/2022

  • Target sank after cutting its profit outlook for the second time in three weeks as it rushes to ease an inventory surge by marking down items and canceling orders.
  • Soaring merchandise stockpiles and “unusually high transportation and fuel costs” prompted Target to cut its outlook for operating profit to about 2% of sales this quarter, said Chief Financial Officer Michael Fiddelke. That’s well below the company’s May 18 projection that the gauge would be in a wide range around 5.3%.
  • The company stood by its revenue forecast for this year, and Fiddelke said consumer demand was “resilient” in areas such as food and beverages, household essentials and beauty products.

Union Pacific to miss margin forecast as costs mount – Reuters, 6/7/2022

  • Union Pacific on Tuesday warned it would miss full-year margin targets as the railroad operator takes on rising costs related to fuel, wages and its network.
  • The Nebraska-based company’s incremental operating margin is expected to drop below the original forecast of mid-60%.
  • “Inflationary pressures beyond fuel have increased since the beginning of the year, and we now expect our all-in inflation to be around 4% for the full year,” Chief Financial officer Jennifer Hamann said at the UBS Global Industrials and Transportation Conference.
  • Hamann also said the company was unlikely to meet its forecast for a full-year operating ratio beginning with 55%, but it would improve from the previous year.

Apple Unveils Installment Pay Plan, CarPlay Update in Push Beyond iPhone – Wall Street Journal, 6/7/2022

  • Apple introduced software changes Monday that aim to further expand its reach beyond the iPhone, including by boosting its payment system and car connectivity.
  • Apple unveiled a buy-now-pay-later feature integrated into its Apple Pay offering and the promise of expanding CarPlay into more functions of the car.
  • Software changes will allow the higher-end iPad to better multitask among different apps, introduce edit and recall abilities to iMessage and enable iPhones to be used automatically as web cameras with their Apple computers, which have lesser quality cameras.
  • After years of introducing new privacy and security features, Apple announced the so-called Passkey that will use its Touch ID and Face ID to create biometric verification for websites and apps.
  • The hardware highlight came with the debut of Apple’s in-house silicon dubbed M2, announcing the chip to be used first in a new MacBook Air and 13-inch MacBook Pro that the company says will be faster and more efficient than previous versions.
  • The completely redesigned 13.6-inch-screen MacBook Air laptop has a sharper-edged look more in line with the newest iPhones and an improved camera. The Air will begin at $1,199 and goes on sale next month.

Kohl’s Enters Exclusive Talks to Be Sold to Vitamin Shoppe Owner – Wall Street Journal, 6/7/2022

  • Kohl’s is in advanced talks to be sold in a deal that could value the department-store chain at roughly $8 billion.
  • Franchise Group, which owns brands including Vitamin Shoppe, had offered around $60 a share for Kohl’s, the company said, confirming a prior report by the Journal.
  • It has been vying for the company in competition with private-equity firm Sycamore Partners, which put in a bid in the mid-$50s a share, people familiar with the matter have said.
  • Weeks ago, Kohl’s had indicated to suitors that it believed the company was worth at least $70 a share, though difficult conditions for retailers and for financing leveraged buyouts might have reined in its price expectations.

Shopify’s Lutke Wins New Voting Rights on Shareholder Ballot – Bloomberg, 6/7/2022

  • Shopify investors have agreed to grant Chief Executive Officer Tobi Lutke special voting rights, securing his influence at the e-commerce software company he founded.
  • Shareholders voted in favor of a proposal to create a “founder share” for Lutke, ignoring the advice of two prominent advisory firms.
  • The change guarantees Lutke at least 40% of the voting rights at the company under certain conditions, including that he stays with the company.

US ECONOMY & POLITICS

U.S. Imports Slowed in April, Shrinking Trade Deficit From Record – Wall Street Journal, 6/7/2022

  • The U.S. trade deficit narrowed in April as imports fell sharply, reflecting a moderating appetite for foreign goods and materials from American consumers and businesses.
  • The trade gap in goods and services fell to 19.1% in April from the prior month to a seasonally adjusted $87.1 billion, the Commerce Department said Tuesday, retreating from March’s record $107.7 billion deficit.
  • Imports fell 3.4% to $339.7 billion, the first month-on-month decline since July last year, driven by a drop in clothing, household goods, toys, pharmaceutical products and finished metal.
  • Exports continued their upward trend in recent months, rising 3.5% to $252.6 billion.

Senators to Propose Industry-Friendly Cryptocurrency Bill – Wall Street Journal, 6/7/2022

  • A pair of U.S. senators were set to propose legislation that would create special exemptions to federal law for some cryptocurrencies, amid an intensifying lobbying push by the industry to avoid existing regulations.
  • Sens. Cynthia Lummis (R., Wyo.) and Kirsten Gillibrand (D., N.Y.) were set to introduce a bill Tuesday dubbed the Responsible Financial Innovation Act, which aims to create a “complete regulatory framework for digital assets.”
  • In a joint press release, they said it would balance the crypto market’s need for guardrails and consumer protections with a desire to promote financial innovation.
  • Congressional aides said the bill has little chance of advancing this year through the Senate, which is controlled by Democrats. Similar legislation introduced by crypto-friendly lawmakers in the House has languished.
  • Among other objectives, the bill seeks to carve some cryptocurrencies out of the Securities and Exchange Commission’s jurisdiction. It also would create new concepts in the nearly 90-year-old securities laws that would allow issuers of some digital tokens to meet lighter disclosure requirements than public companies face.
  • SEC Chair Gary Gensler has said most cryptocurrencies meet the definition of a security and should register with the agency.

Biden Decision on Student-Loan Forgiveness Unlikely Until Later in Summer, Officials Say – Wall Street Journal, 6/7/2022

  • President Biden is likely to decide later this summer whether to partially forgive student-loan debt for millions of borrowers, according to administration officials and others familiar with the matter, after the president said more than a month ago that he would weigh in on the issue in the next couple of weeks.
  • The officials said Mr. Biden is likely to announce his plans in July or August, closer to when the pandemic-related pause in federal student loan payments is scheduled to lapse, as the president and his senior advisers continue to weigh the political and economic fallout of any such move.
  • Mr. Biden has long been skeptical of using his executive authority to wipe away student loan debt. Officials said he remains concerned about the possible effects the move could have on record inflation, cautious about doing anything that could be perceived as contributing to high prices.
  • Some people close to Mr. Biden said he had nonetheless warmed to the idea in recent months as advocates inside and outside the administration made impassioned pleas for him to take action.
  • The president’s advisers were hesitant to predict where Mr. Biden might land. But people familiar with the internal discussions said the most likely outcome appeared to be debt forgiveness in the range of $10,000 per borrower.
  • Individuals making less than about $125,000 a year would be eligible for the program, though that figure is in flux, the people said.

Seven States Have Primary Elections Today, With California the One to Watch – Wall Street Journal, 6/7/2022

  • Seven states hold primaries on Tuesday, with a focus largely on setting House races for November after redistricting scrambled political boundaries.
  • Chief among them is California, which will settle its lineup for House races in nonpartisan primaries that will help decide the fate of several districts that have become battlegrounds since the Democrats’ blue wave in 2018 and remain untested under a new map.
  • Of particular concern to national Republicans is the Orange County race featuring incumbent Rep. Young Kim, who has spent more than $1 million attacking Greg Raths, a fellow Republican running to her right.
  • Ms. Kim was presumed to be a shoo-in for the November runoff in a district redrawn to be even more conservative than her previous one, which she won by a one-point margin in 2020. But recent polling by at least one of the campaigns showed her in danger of coming in third on Tuesday.
  • Elsewhere, voters in New Jersey, Mississippi, Iowa, Montana, South Dakota and New Mexico will also pick candidates for November.

EUROPE & WORLD

U.K.’s Boris Johnson Survives No-Confidence Vote Over Lockdown Parties – Wall Street Journal, 6/7/2022

  • U.K. Prime Minister Boris Johnson survived a leadership challenge Monday, narrowly subduing a rebellion within his Conservative party that leaves him in power but politically wounded.
  • In a no-confidence vote Monday night—triggered in large part by concern over Mr. Johnson’s attendance at parties during Covid-19 lockdowns—Conservative lawmakers backed him by a vote of 211-148. Under Conservative Party rules Mr. Johnson now can’t be challenged for another year.
  • Mr. Johnson won the vote aided by the fact that there is no obvious replacement in the Tory ranks.
  • Many lawmakers were also nervous about switching leaders as British households wrestle with rocketing inflation and economists predict a recession.

German industrial orders fall more than expected in April – Reuters, 6/7/2022

  • German industrial orders fell more than expected in April, the third decline in a row, driven by weakened demand and heightened uncertainty due to the Russian invasion of Ukraine, data showed on Tuesday.
  • Orders for industrial goods dropped by 2.7% on the month in seasonally adjusted terms after a upwardly revised decline of 4.2% in March, figures from the Federal Statistical Office showed.
  • A Reuters poll of analysts had pointed to an increase of 0.3% on the month in April.

UK businesses feel the strain from surging inflation, survey says – Reuters, 6/7/2022

  • Growth among British businesses slowed sharply in May to its weakest since early 2021 when the country was under a COVID-19 lockdown, according to a survey, although the loss of momentum was less severe than initially reported.
  • The composite S&P Global/CIPS Purchasing Managers Index – spanning services and manufacturing firms – slumped to 53.1 from 58.2 in April, the lowest since February 2021, as Britain’s economy felt the hit from accelerating inflation.
  • The PMI for the dominant services sector fell to 53.4 from 58.9 in April to show its biggest month-on-month fall since the survey began in 1996, although the final reading was up from the flash reading which also stood at 51.8.

UK shoppers cut spending by most since COVID lockdown in 2021 – Reuters, 6/7/2022

  • British shoppers facing a surge in inflation cut their spending in May by the most since the country was in a coronavirus lockdown in early 2021, according to a survey published on Tuesday.
  • The British Retail Consortium (BRC) said total retail spending was 1.1% lower than a year earlier, the biggest fall since January last year and representing an acceleration from April’s 0.3% decline.
  • The BRC said its ‘like-for-like’ retail sales measure, covering only outlets open in May 2021, showed a 1.5% annual fall in spending after a 1.7% contraction in April.
  • Data from Barclaycard, covering a broader range of spending, showed spending in May was up 9.3% from a year earlier, reflecting the rising cost of living and a bounce for travel and hospitality which were affected by restrictions last year.
  • Spending on essential items rose by 4.8%, pushed up by a nearly 25% leap for petrol and diesel which have soared in price. In response, consumers cut back on spending on digital content and subscriptions by nearly 6%.

Sony Aims for High-End Electric Car That Bills Extra for Entertainment – Wall Street Journal, 6/7/2022

  • The first Sony car will likely be a high-end model featuring entertainment such as movies and videogames for which owners will pay extra, the company’s chief executive said.
  • Sony Group’s Kenichiro Yoshida spoke in an interview after a visit to partner Honda Motor’s  factory in Marysville, Ohio.
  • Sony and Honda said in March they would form a joint venture to sell an electric vehicle starting in 2025.
  • Mr. Yoshida said the car market would increasingly shift to a service model where customers pay regularly for software downloads and entertainment. He pointed to Tesla Inc., which charges $10 a month for better connectivity in its vehicles and at least $99 a month for a service it calls full self-driving.
  • He drew an analogy with Sony’s PlayStation business, which in addition to selling the $500 PlayStation 5 hardware has a subscription product called PlayStation Plus with multiplayer services and games to download. As of the first quarter of this year, PlayStation Plus had 47.4 million subscribers.
  • PlayStation hardware costs more than competitors and is pitched especially at hard-core gamers—a philosophy that Mr. Yoshida would extend to the Sony car. “I want to build in all kinds of functions, so this is going to be a relatively high-priced car,” he said.

Factmonster – TODAY in HISTORY

  • Spain and Portugal signed the Treaty of Tordesillas, which divided the New World between the two countries. (1494)
  • Louis XIV was crowned king of France. (1654)
  • Richard Henry Lee of Virginia introduced a resolution in the Continental Congress proposing a Declaration of Independence. (1776)
  • Homer Plessy was arrested for his refusal to move from a whites-only seat on a train. This led to the Plessy v. Ferguson Supreme Court decision. (1892)
  • Vatican City became a sovereign state. (1929)

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