Daily Market Report | June 9, 2022
US FINANCIAL MARKET
Stocks Edge Down After ECB Sets Plan to Raise Rates – Wall Street Journal, 6/9/2022
- U.S. stock benchmarks wavered as investors digested the European Central Bank’s plan to begin increasing interest rates next month.
- The S&P 500 fell 0.6% in early trading Thursday and the Dow Jones Industrial Average slipped 0.5%. The technology-focused Nasdaq Composite Index also fell 0.5%. Earlier, the major indexes opened lower before briefly turning positive.
- The ECB said Thursday it would increase its key interest rate from minus 0.5% to zero or higher by September, and probably further after that. The central bank indicated that it plans to start with a quarter-percentage point increase in July.
- It also said it would end its large-scale bond-buying program on July 1.
- In both the U.S. and Europe, the announcement sent stocks falling. The pan-continental Stoxx Europe 600 lost about 1%. The euro advanced against the dollar, rising 0.3%, reversing earlier losses.
- Government bonds in Germany and the U.S. slid, sending yields higher.
- On Friday, investors will get a fresh picture of inflation in the U.S. when consumer-price index data for May are released.
- Economists surveyed by The Wall Street Journal expect the reading to show that inflation in the U.S. held steady at 8.3% in May, the same annual rate notched for April.
- Traders and strategists say the inflation data could heavily influence the next stretch of trading for markets, and help shape the Federal Reserve’s interest-rate decisions for later this year.
- The Fed’s June meeting will occur next week, and the central bank is widely expected to raise its key interest rate by a half-percentage point—a move it is expected to replicate in July.
- In the Treasury market, the yield on the benchmark 10-year Treasury advanced to 3.043%, from 3.028% Wednesday. Yields and bond prices move inversely.
- In energy markets, Brent crude, the international benchmark for oil prices, edged higher 0.03% to $123.62 a barrel, after notching a two-day rally Wednesday.
- Oil prices have moved higher recently amid China’s emergence from Covid-19 lockdowns and as traders continue to assess potential supply disruptions due to the war in Ukraine.
- U.S.-traded shares of Alibaba Group Holding lost 3.7% after the China Securities Regulatory Commission denied a report that it was working on a potential revival of Ant Group’s initial public offering.
- In Asia, China’s Shanghai Composite lost 0.8%, despite data showing that the country’s exports rebounded strongly in May. Hong Kong’s Hang Seng lost 0.7%, while Japan’s Nikkei 225 ended roughly flat.
IMF says expects to revise downward its forecast for global growth – Reuters, 6/9/2022
- The International Monetary Fund expects to further cut its forecast for global economic growth in 2022 next month, IMF spokesperson Gerry Rice said on Thursday, following moves by the World Bank and OECD to cut their own forecasts.
- That would be its third downgrade this year.
- In April, the IMF had already slashed its forecast for global economic growth by nearly a full percentage point to 3.6% in 2022 and 2023.
- Rice told a regular IMF briefing that the overall outlook still called for growth across the globe, albeit at a slower level, but a number of countries may be facing a recession.
Target Boosts Quarterly Dividend 20% – Wall Street Journal, 6/9/2022
- Target boosted its quarterly dividend by 20%, just days after the retailer cut its outlook as high inventories weigh on its profit.
- Target on Thursday said its board raised the quarterly dividend to $1.08 from 90 cents previously. The annual payout of $4.32 represents a yield of about 2.76% based on Wednesday’s closing price of $156.70, up from 2.3%.
- The Minneapolis company said the increased dividend is payable Sept. 10 to shareholders of record Aug. 17.
Intel Rethinks Near-Term Spending Plans Amid Economic Uncertainty – Wall Street Journal, 6/9/2022
- Intel is adjusting some near-term spending plans, joining other tech companies in reassessing priorities amid global economic uncertainty.
- Intel said Wednesday that “prioritization in our spending will help us weather macroeconomic uncertainty, execute on our strategy and meet our commitments to customers, shareholders, and employees.”
- America’s largest chip maker by sales also said that it sees itself at the start of a long-term growth cycle for the semiconductor industry.
- As part of its spending adjustments, the U.S. semiconductor powerhouse is imposing a temporary hiring freeze at its Client Computing Group as it assesses priorities, a person familiar with the matter said.
- The unit provides chips for products such as laptops that have suffered demand disruptions from factors including Covid-related lockdowns in China.
- Market-research firm International Data Corp. cut its outlook for personal computer shipments for this year by around 7% after the lockdowns. IDC now expects shipments of traditional PCs to fall 8.2% from last year’s level to around 321.2 million units.
- Before the lockdowns in China hit, IDC forecast a decline to 346 million units.
TSMC Sticks to Sales Growth Outlook Despite Economic Woes, Inflation – Wall Street Journal, 6/9/2022
- Taiwan Semiconductor Manufacturing Co. stuck with its strong revenue growth forecast for the current year despite economic troubles in its biggest markets including the U.S. and China, saying demand remains solid for its chips used in electric cars and high-performance computers.
- The world’s largest contract chip manufacturer expects its revenue to increase by about 30% this year from last year’s 24.9% in U.S. dollar terms, executives said, which was in line with what the company projected in April.
- That figure is higher than the expected 20% growth for the overall wafer fabrication industry, they said at the company’s annual shareholder meeting on Wednesday.
- Hsinchu-based TSMC also said it would continue to spend big on building new plants and developing advanced chips, capitalizing on the global chip shortage.
- It plans for more than $40 billion in capital expenditures next year, executives said, compared with the $40 billion to $44 billion it expects to spend this year.
- TSMC is currently building new chip plants in Arizona and in Kumamoto, Japan.
Supply Crunch Looms for World’s Most Cutting-Edge Chips – Wall Street Journal, 6/9/2022
- The two-year global semiconductor shortage is threatening to spread to some of the most advanced chips needed for next-generation smartphones and the data centers that power apps.
- Chips with the tiniest transistors and highest performance had largely escaped the drought that has hit the auto industry and other electronics.
- Now, problems ranging from production hitches to a shortage of manufacturing equipment have raised concerns over the ability of the world’s two highest-end chip manufacturers to meet delivery promises to customers.
- The challenges could ripple through the electronics supply chain as soon as next year, with one analyst warning of shortfalls as high as 20% for the most advanced chips by 2024 and beyond. Without improved chips, technologies such as high-performance computing, artificial intelligence and more evolved forms of autonomous driving might see a slowdown in deployment, industry analysts say.
- Part of the problem is that just two companies—Taiwan Semiconductor Manufacturing Co. and Samsung Electronics —are capable of building the industry’s most cutting-edge chips because of the high costs and technical barriers.
- Chip-manufacturing equipment is increasingly arriving later than expected, and lead times on new orders have stretched to in some cases two or three years, largely due to a dearth of less-advanced chips.
Lockheed expects to begin deliveries of F-16 combat jets in 2024 – Reuters, 6/9/2022
- Lockheed Martin expects to produce its new-build F-16 fighter jets next year and commence deliveries in 2024, its chief financial officer Jesus Malave said on Wednesday.
- The F-16 is considered a highly maneuverable aircraft proven in air-to-air combat and air-to-surface attack.
- In April, the U.S. State Department approved the potential sale of up to eight F-16 aircraft and related equipment to Bulgaria, in a deal valued at $1.673 billion, and said Lockheed will be the principal contractor.
- “There’s a lot of interest in the aircraft. I think an aspiration probably the next few years would be probably [production of] 3 per month,” Malave added.
European Gas Jumps as Fire in US Compounds Russia Supply Concern – Bloomberg, 6/9/2022
- Europe’s natural gas prices jumped after a fire at a large export terminal in the US wiped out deliveries to a market that’s on high alert over tight Russian supplies.
- Benchmark futures traded in Amsterdam snapped a six-day falling streak, while UK prices soared as much as 39% before paring gains.
- The Freeport liquefied natural gas facility in Texas — which makes up about a fifth of all US exports of the fuel — will remain closed for at least three weeks, resulting in at least 10 missed cargoes.
- The closure comes as pipeline supplies from Europe’s top providers are also capped. Key facilities in Norway are undergoing annual maintenance this week, while Russia’s supplies are below capacity after several European buyers were cut off for refusing to meet Moscow’s demands to be ultimately paid in rubles for its pipeline fuel.
- The US sent nearly 75% of all its LNG to Europe in the first four months of this year, which helped to calm the market after the wild price swings in spring.
Big Tech Has Spent $36 Million on Ads to Torpedo Antitrust Bill – Wall Street Journal, 6/9/2022
- Advocacy groups bankrolled by big technology companies have poured at least $36.4 million into TV and internet ads opposing antitrust legislation that would bar dominant tech platforms from favoring their own products and services, according to a Wall Street Journal analysis.
- By comparison, groups supporting the antitrust legislation have spent about $193,000, according to a Journal analysis of data collected by AdImpact, an ad-tracking service.
- Much of the tech industry spending—$13.7 million, or almost 40%—has come since May 1, ahead of a possible floor vote this summer on the bill, which has bipartisan support.
- The bill targets dominant tech platforms, including Amazon’s e-commerce site, Google’s search engine, Apple’s App Store and Facebook.
- “This is without question one of the most significant campaigns the association has embarked on in recent years, because it’s one of the most radical policy proposals to regulate a leading sector of the U.S. economy,” said Matt Schruers, president of the Computer and Communications Industry Association, which has spent more than $23 million, the most of any group.
Microsoft is bringing Xbox Game Pass cloud streaming to smart TVs, so users don’t need a console – CNBC, 6/9/2022
- Microsoft is releasing an Xbox app for smart TVs, enabling consumers to stream Xbox video games even if they don’t own consoles.
- Microsoft said Thursday that it will first bring the app to Samsung’s 2022 smart TVs and then expand distribution to other manufacturers.
- It’s a bold bet for Microsoft, after Xbox’s hardware revenue jumped 92% last year.
- The company said the app will be available starting June 30, in 27 countries.
- The move indicates Microsoft is focused on picking up revenue from gaming content and services, as opposed to just consoles, where the company is lagging behind Nintendo and Sony.
- Microsoft’s biggest splash in gaming came earlier this year, when the company announced plans to buy game publisher Activision Blizzard for $68.7 billion.
US ECONOMY & POLITICS
Online US Inflation Slows Again, But Groceries Rise Most of All – Bloomberg, 6/9/2022
- Most goods saw prices dip, reflecting less discretionary spend.
- Grocery prices jumped a record 11.7% in May, Adobe data show.
- Online inflation rose 2% in May from a year ago, down from 2.9% in April and the record 3.6% in March, Adobe said in a release Thursday.
- Online prices have been rising for 24 months, but there are signs they may be peaking.
- On a monthly basis, prices dropped 0.7% in May, dragged down by other goods such as personal care products, jewelry and books.
- Ten of the 18 components tracked, including electronics and toys, saw prices fall in the month, indicating consumers may be pulling back on discretionary spending.
- Grocery prices jumped 11.7% in May from a year earlier, the most on record, and 1.3% from April, Adobe said.
- This was the first month that the category overtook apparel, which was in the top spot for price growth for over a year.
- The Adobe index analyzes 1 trillion visits to retail sites and over 100 million stock keeping units across 18 product categories.
- The data comes a day before the release of the May consumer price index, which is forecast to show prices rose 0.7% from April and 8.2% from a year ago, which would be the second straight deceleration on an annual basis.
U.S. Jobless Claims Rose Above Prepandemic Average Last Week – Wall Street Journal, 6/9/2022
- New applications for unemployment benefits rose last week above their prepandemic average for the first time since January, adding to signs the hot labor market could be starting to cool a little.
- Initial jobless claims, a proxy for layoffs, increased by 27,000 to 229,000 last week from the previous week’s revised level of 202,000, the Labor Department said Thursday. Claims had been at or below the 2019 average of 218,000 since late January.
- The four-week average of new claims, which smooths volatility in the weekly figures, also rose slightly to 215,000 last week. That figure hasn’t decreased since early April.
- Continuing claims, a proxy for the total number of people receiving payments from state unemployment programs, remained at 1.3 million in the week ended May 28—the lowest point since December 1969. Continuing claims are reported with a one-week lag.
EUROPE & WORLD
ECB Plans July Rate Increase as Inflation Problem Deepens – Wall Street Journal, 6/9/2022
- The European Central Bank laid out plans to increase interest rates for the first time in more than a decade, joining many of its peers in raising borrowing costs to tackle persistent inflation that is spreading far beyond the U.S.
- In an unusually detailed statement, the ECB said it intends to raise its key rate by a quarter percentage point at its next policy meeting in July to minus 0.25%, and increase it again in September, possibly by more than 0.25 percentage point. It said it would end its large-scale bond-buying program on July 1.
- After September, the ECB said it expects a “gradual but sustained path of further increases in interest rates.”
- Unusually, the bank published its new staff inflation forecasts in its policy statement. They show eurozone inflation of 3.5% in 2023 and 2.1% in 2024, both above the ECB’s target rate.
- Unlike the Fed and other central banks, the ECB drives monetary policy for a number of countries, which means it faces the delicate task of tightening monetary policy to battle inflation while trying not to weaken the bloc’s most fragile economies.
- This is why, unlike the Fed, it is expected to hold on to its mammoth portfolio of sovereign debt.
- The ECB’s balance sheet has almost doubled to about 8.8 trillion euros, equivalent to $9.39 trillion, since the start of the pandemic, swollen by large-scale bond purchases and cheap loans to households and firms.
Shanghai to Lock Down Parts of City Again as Virus Fears Return – Bloomberg, 6/9/2022
- Shanghai will lock down seven districts this weekend to conduct mass Covid-19 testing drives, its first major movement restrictions since the financial hub exited a bruising two-month shutdown at the start of June.
- The temporary lockdown, which will cover millions of people across the Pudong, Huangpu, Jing’an, Xuhui, Hongkou, Baoshan and Minhang districts, comes as infections found in the community rebounded to six as of 5 p.m. on Thursday, up from zero the day before.
- Four of the six cases were found in Minhang, a district of 2.65 million in the south west of Shanghai. Minhang will be sealed on Saturday morning for mass testing, said a local statement, while the other districts didn’t specify how long their lockdowns would last.
- Some housing compounds in the central Jing’an and Xuhui districts were sealed for 14 days from Tuesday, although only close contacts – no confirmed cases – were found among residents.
China’s Exports Rebounded in May as Covid Restrictions Eased – Wall Street Journal, 6/9/2022
- Chinese exports to the rest of the world surged in May as Covid-19 restrictions eased, adding to signs of recovery in the world’s second-largest economy after months of punishing pandemic lockdowns.
- Exports grew 16.9% in May compared with a year earlier, China’s General Administration of Customs said Thursday, more than twice the 8% growth anticipated by economists polled by The Wall Street Journal and well above the 3.9% annual pace recorded in April.
- Imports rose for the first time in four months, growing 4.1% in May after staying flat in April.
- The strong surge in exports pushed China’s overall trade surplus to $78.8 billion in May, widening from a $51.1 billion surplus in April.
China’s Car Sales Begin to Rebound as Government Revs Up Subsidies – Wall Street Journal, 6/9/2022
- China’s car sales began to rebound in May as production gradually resumed in lockdown-hit Shanghai and government cash incentives stimulated purchases in the world’s biggest auto market.
- Passenger-car sales in May rose 30% to 1.35 million from 1.04 million vehicles in April, the China Passenger Car Association said Thursday. The total was still down 17% from last May, indicating that the industry has a way to go to restore its fortunes even as China’s economy is showing signs of recovery from punishing anti-Covid 19 lockdowns.
- Car production—which increased 6.5% from a year ago—was relatively good, said Cui Dongshu, the association’s secretary-general. It was a sign that efforts to restore supply chains were effective, so the car industry was able to swiftly recover, he said.
- Tesla, which was one of the hardest hit auto manufacturers in April, more than tripled its Shanghai output to 33,544 vehicles in May, data from the passenger car association showed.
- The company sold 32,165 cars that were made in China last month, up from just 1,512 in April, according to the data. About 70% of those were exported to other markets, including Europe, Australia and Japan, the company said.
- Chinese domestic-brand sales rose 5% in May from a year before, but those of joint ventures involving foreign brands fell 28%, the association’s data showed.
South Korean production and shipping disrupted as truckers strike for third day – Reuters, 6/9/2022
- Thousands of South Korean truckers went on strike for a third day on Thursday to protest the sharp surge in fuel costs, disrupting production, slowing activity at ports and posing new risks to a strained global supply chain.
- Presenting new President Yoon Suk-yeol with one of his first big economic challenges, about 7,200 members or roughly 30% of the Cargo Truckers Solidarity union were on strike, the country’s transport ministry said.
- A union official said the number of participating members was much higher and they were also joined by non-union truckers. The government estimates that about 6% of the country’s 420,000 truck drivers belong to a union.
- The truckers, regarded as self-employed contractors in South Korea, are seeking pay increases and a pledge that an emergency measure guaranteeing freight rates which was introduced amid the pandemic and is due to expire this December will be extended. They also want it to apply to a wider range of trucks, not just container trucks and cement trucks.
- “Due to skyrocketing fuel prices and the government not acting enough to protect our livelihood, our frustration is only growing and growing,” Kim Jae-kwang, a senior union official, said.
- “Large cargo truck drivers are paying an additional 3 million won ($2,390) in fuel costs when their monthly pay is around 3 to 4 million won.”
- Busan Port Authority, the world’s seventh-biggest container port, said an emergency response team had been in place since Monday and it has readied extra storage space outside the port.
- The port’s container occupancy rate is currently 76.3%, up from 73.9% two days ago.
Airbus deliveries fell 6% in May amid supply chain pressure – Reuters, 6/9/2022
- Airbus confirmed on Wednesday it delivered 6% fewer airplanes in May, compared to the same month last year, as the aerospace industry wrestles with tight supply chains.
- It delivered 47 jets, bringing the total for the year so far to 235, up 7% from the first five months of 2021.
- Deliveries included 37 of the A320-family single-aisle aircraft that make up the bulk of the company’s income, suggesting that Airbus added to a backlog of undelivered planes based on its latest announced production rate of 50 a month.
- Airbus has said it wants to lift A320 output to 65 a month by the middle of next year, propelled by a brisk recovery in medium-haul travel. Beyond that it aims for 75 a month by 2025.
- In new business, Airbus reported 13 orders for jets including four more A350s from Turkish Airlines, which announced last month it was ordering six of the planes.
- So far this year Airbus has sold 364 airplanes or 191 after cancellations.
- As of the end of April, Boeing had sold 213 jets or 157 after comparable cancellations.
China’s smartphone makers chip away at Samsung, Apple’s Russian market share – Reuters, 6/9/2022
- China’s market share in the Russian smartphone market jumped significantly in May as manufacturers like Apple and Samsung paused new sales in Russia and Western sanctions weighed on the Russian economy.
- Chinese manufacturers Xiaomi, Realme and Honor accounted for 42% of Russia’s smartphone sales in May 2022, according to data from mobile network MTS shared with Reuters, – up from 28% during the same month last year.
- South Korea’s Samsung lost its spot as the market leader, with 14% of devices sold versus 28% last year, and Apple’s share dropped to 9% from 12%.
- Overall smartphone sales were down 26% year-on-year, MTS said, as Western sanctions and supply chain disruptions have severely hit Russia’s consumer economy.
Factmonster – TODAY in HISTORY
- China agreed to lease Hong Kong to Britain for 99 years. (1898)
- Donald Duck made his screen debut in The Wise Little Hen. (1934)
- Secretariat won the Belmont Stakes and became the first Triple Crown winner in 25 years. (1973)
- Japan’s Crown Prince Naruhito married commoner Masako Owada. (1993)
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly. All investing involves risk including loss of principal. No strategy assures success or protects against loss. Any economic forecasts set forth may not develop as predicted. All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. Material presented is excerpts derived from third party content and you may need a subscription to access the full the content. The views and opinions expressed are those of the authors and do not necessarily reflect the views of Pence Wealth Management or LPL Financial. Prior to making any investment decision please consult your financial advisor regarding your specific situation.