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Daily Market Report | June 10, 2022

US FINANCIAL MARKET

U.S. Stocks Drop as Inflation Persists – Wall Street Journal, 6/10/2022

  • U.S. stocks fell sharply on Friday after new data showed that inflation accelerated in May.
  • The S&P 500 was recently down 2.4%. The Dow Jones Industrial Average declined 675 points, or 2.1%, while the Nasdaq Composite dropped about 3%. U.S. stock benchmarks posted their biggest declines in more than three weeks on Thursday, leaving all three indexes on course to end the week with losses.
  • The morning’s losses were broad-based, with all 11 of the S&P 500’s sectors in the red.
  • The Labor Department on Friday reported that the consumer-price index rose 8.6% in May from the same month a year ago, more than the 8.3% that economists surveyed by The Wall Street Journal expected.
  • Rising fuel prices and supply-chain disruptions from Russia’s war against Ukraine, as well as lockdowns related to China’s zero-Covid strategy, have contributed to higher prices.
  • The higher inflation reading injected renewed volatility into stock, bond and currency markets as investors tried to assess how much more aggressive the Federal Reserve may have to be to put a cap on price pressures.
  • Fed officials are largely expected to raise the central bank’s key interest rate by half a percentage point next week and replicate that in July.
  • In bond markets, the yield on the benchmark 10-year U.S. Treasury note ticked up to 3.091% from 3.041% Thursday.
  • Meanwhile the yield on the two-year Treasury note, which typically reflects investors’ interest-rate expectations, rose to 2.945% from 2.815% Thursday. Yields and prices move inversely.
  • In energy markets, Brent crude, the international benchmark for oil prices, fell 0.9% to $122.01 barrel.
  • Disruptions in global oil markets caused by the Ukraine war and the subsequent sanctions imposed on Russia are likely to keep oil prices elevated. Oil prices typically drive gasoline costs.
  • Overseas, the pan-continental Stoxx Europe 600 declined 2.4%, leaving the broad index on course for its fourth-consecutive day of losses.
  • European stocks came under pressure Thursday after the European Central Bank said it would increase its key interest rate from minus 0.5% to zero or higher by September, and probably further after that.
  • In Asia, most major indexes closed lower. Japan’s Nikkei 225 fell 1.5% and South Korea’s Kospi declined 1.1%. China’s Shanghai Composite bucked the trend, adding 1.4%.

Biden to Halt Covid-19 Test Requirement for Air Travelers to U.S. on Sunday – Wall Street Journal, 6/10/2022

  • The Biden administration will on Sunday end a requirement that air travelers to the U.S. undergo Covid-19 tests before departure, according to federal officials.
  • The requirement, which was introduced last year for international travel, will cease because the Centers for Disease Control and Prevention has determined it is no longer necessary based on available science and data, one of the officials said.
  • The agency will reassess the decision in 90 days and on a continuing basis after that.
  • The testing requirement is set to end June 12 at 12:01 a.m. CDC Director Rochelle Walensky is expected later Friday to sign an order lifting the testing requirement, one of the officials said, adding that precise details of the order weren’t immediately clear.
  • The agency might reinstate the testing requirement for international travelers to the U.S. as needed, such as if a more virulent Covid-19 strain emerges, that official said.
  • American Airlines Group Chief Executive Robert Isom this month called the rule “nonsensical,” noting that negative tests aren’t required for travelers driving over land borders.

DocuSign Earnings Disappoint, Sending Down Shares – Wall Street Journal, 6/10/2022

  • DocuSign shares fell 23% in after-hours trading Thursday after the e-signature software developer said that its growth slowed in the first quarter and that it is scaling back its hiring plans.
  • Revenue rose to $588.7 million from $469.1 million. Analysts polled by FactSet expected $582.8 million.
  • DocuSign widened its loss to $27.4 million from $8.4 million in the quarter ended April 30. Adjusted earnings were 38 cents a share. Analysts polled by FactSet expected 46 cents a share.
  • For the second quarter, DocuSign guided for between $600 million and $604 million in revenue, between $583 million and $587 million in subscription revenue and between $599 million and $609 million in billings, which reflect new-customer sales, subscription renewals and add-on sales for existing customers.
  • The company reiterated its March guidance for revenue and subscription revenue for fiscal 2023.
  • But the San Francisco-based company lowered its guidance for billings to between $2.52 billion and $2.54 billion, down from its earlier range set between $2.71 billion and $2.73 billion.
  • For fiscal 2023, Chief Financial Officer Cynthia Gaylor said DocuSign is moderating its expenses and managing its hiring plans to align with the current climate and company growth, which are reflected in its outlook.

Commodity Chaos From Ukraine War Sends Trafigura to Record $2.7 Billion Profit – Wall Street Journal, 6/10/2022

  • Trading house Trafigura Group rode chaotic moves in commodity markets, worsened by Russia’s war on Ukraine, to score record profit.
  • The privately held commodities merchant earned $2.7 billion in net profit on $170.6 billion in revenue in the six months through March, it said Friday.
  • Profit was 29% higher than in the same period a year earlier, making Trafigura a winner from a stretch of massive volatility in energy and metal prices.
  • Two-thirds of revenue came from trading oil and other forms of energy.
  • The results are the first look at how the giant oil and commodities trader fared in the first five weeks of upheaval sparked by Russia’s invasion of Ukraine.

Apple, Google Face New Antitrust Investigations in U.K. – Wall Street Journal, 6/10/2022

  • The U.K.’s competition regulator wants to investigate market power it says Apple and Alphabet’s Google exert over some mobile-device software, ramping up global antitrust scrutiny of the largest U.S. technology companies.
  • The Competition and Markets Authority said Friday that it intends to initiate so-called market investigations into how the companies control web browsers for mobile devices, as well as complaints that Apple restricts cloud gaming on its devices.
  • Under U.K. rules, market investigations can lead to binding orders to change practices, but no fines.
  • Separately, the CMA announced a traditional competition investigation—which could lead to fines—into conditions Google places on in-app payments in its mobile store. That probe is similar to one the regulator opened into Apple’s App Store last year.

Tesla Faces Upgraded U.S. Probe Into Autopilot in Emergency-Scene Crashes – Wall Street Journal, 6/10/2022

  • U.S. auto-safety regulators have escalated their investigation into emergency-scene crashes involving Tesla’s Autopilot, a critical step for determining whether to order a safety recall.
  • The National Highway Traffic Safety Administration said in a notice published Thursday that it was expanding a probe begun last August into a series of crashes in which Tesla vehicles using Autopilot struck first-responder vehicles stopped for roadway emergencies.
  • The agency said it was upgrading its earlier investigation to an engineering analysis after identifying new crashes involving Autopilot and emergency-response vehicles.
  • NHTSA also said it has expanded its examination of Autopilot to include a wider range of crashes, not only those at emergency scenes.
  • The agency said it would further assess how drivers interact with Autopilot and the degree to which it might reduce motorists’ attentiveness.

Business Losses From Russia Top $59 Billion as Sanctions Hit – Wall Street Journal, 6/10/2022

  • Global companies have racked up more than $59 billion in losses from their Russian operations, with more financial pain to come as sanctions hit the economy and sales and shutdowns continue, according to a review of public statements and securities filings.
  • Almost 1,000 Western businesses have pledged to exit or cut back operations in Russia, following its invasion of Ukraine, according to Yale researchers.
  • Investors appear to have mixed reactions to the write-downs, partly because most multinationals have relatively small Russian exposure, academic research suggests.
  • Financial markets are “rewarding companies for leaving Russia,” a recent study by Yale School of Management found.
  • The share-price gains for companies pulling out have “far surpassed the cost of one-time impairments for companies that have written down the value of their Russian assets,” the researchers concluded.

US ECONOMY & POLITICS

US Inflation Quickens to 40-Year High, Pressuring Fed and Biden – Bloomberg, 6/10/2022

  • The consumer price index increased 8.6% from a year earlier in a broad-based advance, Labor Department data showed Friday.
  • The widely followed inflation gauge rose 1% from a month earlier, topping all estimates.
  • The so-called core CPI, which strips out the more volatile food and energy components, rose 0.6% from the prior month and 6% from a year ago, also above forecasts.
  • Energy prices climbed 34.6% from a year earlier, the most since 2005, including a nearly 49% jump in gasoline costs.
  • Grocery prices rose 11.9% annually, the most since 1979, while electricity increased 12%, the most since August 2006.
  • Shelter costs — which are the biggest services’ component and make up about a third of the overall CPI index — rose 0.6% from April, the most since 2004, and 5.5% from last year, the most since 1991.
  • Rent of primary of residence climbed 5.2% from a year earlier, the most since 1987.
  • Used car prices, which had been cooling in recent months, advanced 1.8% in May, the most this year. New-vehicle prices climbed 1%.
  • Airfares rose 12.6% in May, a slight moderation from the prior month but still up the most on an annual basis since 1980. Prices for hotel stays, meanwhile, were up 22.2% year-over-year.
  • Inflation-adjusted average hourly earnings fell 3% in May from a year earlier, the biggest drop since April 2021 and the 14th straight decline, separate data showed Friday.

US Consumer Sentiment Slumps to Record Low on Rapid Inflation – Bloomberg, 6/10/2022

  • US consumer sentiment plunged in early June to the lowest on record as soaring inflation continued to batter household finances.
  • The University of Michigan’s preliminary June sentiment index fell to 50.2, from 58.4 in May, data released Friday showed.
  • The figure was weaker than all estimates in a Bloomberg survey of economists which had a median forecast of 58.1.
  • The current conditions gauge sank to a record-low 55.4 from 63.3, while a measure of expectations decreased to 46.8 from 55.2.
  • An index of expected business conditions over the next year fell to the second-lowest since 1980, while a gauge of durable goods buying conditions fell to a fresh record low.
  • Inflation expectations, which the Federal Reserve watches closely, also moved higher early this month and 46% of respondents attributed their negative views to persistent price pressures.
  • Respondents said they expect inflation to rise 5.4% over the next year, up from 5.3% a month earlier.
  • They expect prices to advance 3.3% over the next five to 10 years, the most since 2008 and up from 3% in May.
  • Just 13% expect their incomes to rise more than inflation, the lowest share in almost a decade.

Fed Likely to Signal Half-Point Rate Rises Through September After Inflation Report – Wall Street Journal, 6/10/2022

  • Another high inflation report is likely to lead more Federal Reserve officials to anticipate a fourth consecutive half-percentage-point rate rise will be warranted at their meeting this September.
  • The Fed has already indicated it will raise rates by a half point at its meeting next week and that it is very likely to do so again in July. Officials have said that they would continue to raise rates at that pace if inflation doesn’t show signs of a convincing slowdown.
  • A few Fed officials had suggested that after some glimmers of inflation deceleration in recent months that the central bank might be able to slow the rate rises to a more traditional quarter-point increment in September.
  • But several others, including Vice Chairwoman Lael Brainard, Fed governor Christopher Waller and Cleveland Fed President Loretta Mester, have indicated that they could easily lean toward supporting half-point increases into the fall.
  • Inflation was broad-based in May, with one measure of housing costs posting its largest monthly gain since 1990. Due to how rent and housing inflation is compiled, the data reported for the consumer-price index is heavily lagged.
  • The upshot is that shelter costs could continue to keep elevated pressure on inflation through the summer.

U.S., China Defense Chiefs Dial Down Tensions Over Taiwan – Wall Street Journal, 6/10/2022

  • U.S. Defense Secretary Lloyd Austin called on his Chinese counterpart to avoid destabilizing actions over Taiwan and said in their first face-to-face meeting that U.S. policy toward the island hadn’t changed.
  • After a nearly one hour closed-door meeting on the sidelines of a defense conference in Singapore, both sides gave accounts that suggested an easing of tensions after President Biden said recently that the U.S. would intervene militarily to defend Taiwan if Beijing moved to seize the island.
  • The meeting was the first in-person exchange between top-level U.S. and Chinese officials since Mr. Biden made his comment about U.S. military intervention to support Taiwan during a visit to Asia in May.
  • Chinese defense ministry spokesman Wu Qian said Gen. Wei told Mr. Austin that Taiwan is an inalienable part of China and its status quo can’t be changed. Both sides emphasized the need to keep open lines of communication to head off crises.
  • The two men also discussed Russia’s invasion of Ukraine, and North Korea, according to a U.S. account of the meeting.

EUROPE & WORLD

Shanghai Returns to Lockdown for Mass Testing on Covid Fears – Bloomberg, 6/10/2022

  • Shanghai will briefly lock down most of the city this weekend for mass testing as Covid-19 cases continue to emerge, causing more disruption and triggering a renewed run on groceries days after exiting a grueling two-month shutdown.
  • The plan emerged from one area with a handful of cases, then spread in hours to 15 of the financial hub’s 16 districts. It encompasses almost all of the city’s 25 million residents as health officials use testing to root out any silent transmission of the virus, a key tool in China’s Covid Zero arsenal.
  • The newest move follows a rebound in infections within the community to six on both Thursday and Friday, up from zero a day earlier. Residents will be released after taking the tests, but they’ll be back under lockdown if new infections are found in their compounds.
  • The latest moves hit home quickly for residents. It led some to flee their apartment complexes and sparked a run on grocery stores after many struggled to get fresh fruits and vegetables in the early days of the original lockdown.
  • While the latest curbs may lift in as little as a few hours if no new infections are found, two more weeks of isolation may be imposed for areas where new chains of transmission are uncovered.

China’s Inflationary Pressures Stay Muted – Wall Street Journal, 6/10/2022

  • Inflationary pressure stayed soft in China as Covid-19 lockdowns hammered domestic demand, leading economists to forecast that policy makers might increase stimulus to boost economic growth and employment.
  • Consumer inflation continued low in May, the National Bureau of Statistics reported Friday, with prices up 2.1% from a year earlier, matching April’s rate. With decades-high inflation continuing to torment the U.S. and many developed countries, that makes China an outlier among the world’s largest economies.
  • The producer-price index, which gauges factory-gate prices, was up 6.4%, easing from April’s 8%, as commodity rallies tamed. The median forecast of economists surveyed by The Wall Street Journal was 6.3%.

India’s Factory Output Expands to Eight-Month High in April – Bloomberg, 6/10/2022

  • India’s April factory output rose to the highest in eight months, signaling economic recovery after wider reopening from the pandemic, though rising prices may curtail demand.
  • The Index of Industrial Production rose 7.1% in April, data released by the Ministry of Statistics showed Friday. That compares with a 2.2% increase in March, and an estimate for a 5% increase in a Bloomberg survey.
  • The rise in industrial output in April was led by an 11.8% increase in electricity output from a year ago. Manufacturing grew 6.3%, while mining increased by 7.8%.

Russia Cuts Key Interest Rate to Pre-Invasion Level as Impact of Sanctions Wanes – Wall Street Journal, 6/10/2022

  • Russia’s central bank cut its key interest rate to the level it was at when the country invaded Ukraine in late February in a sign that the economy is weathering some of the pain caused by Western sanctions.
  • Explaining the move, the central bank said inflation has started to fall back from a post-invasion surge sooner than it had expected, thanks in large part to the ruble’s rebound.
  • The Bank of Russia Friday lowered its key interest rate to 9.5% from 11%, the fourth cut since early April. That series of rate cuts has reversed a doubling of the key rate in the immediate aftermath of Russia’s invasion of Ukraine.
  • The central bank’s initial hike in the key rate to 20% from 9.5% in late February was intended to support a rapidly weakening ruble and limit a surge in inflation as imports became more expensive.
  • Russia’s statistics agency on Wednesday said consumer prices were 17.1% higher in May than a year earlier, a slight slowdown from the 17.8% rate of inflation recorded in April. In January, the last full month before the invasion, inflation stood at 8.7%.

ECB Fuels Market Jitters Over Italy’s Debt – Wall Street Journal, 6/10/2022

  • The European Central Bank’s plans to increase interest rates for the first time in more than a decade face a hurdle in southern Europe, especially Italy, where borrowing costs are surging as investors test the imbalances within Europe’s currency union.
  • Investors dumped southern European government debt on Thursday and Friday after the ECB laid out plans to phase out its giant bond-buying program in July and conduct a series of interest-rate hikes to combat record-high inflation.
  • The surge in borrowing costs, coupled with the fallout from the war in Ukraine and lockdowns in China, create strong headwinds for the ECB as it prepares to follow the Federal Reserve in increasing interest rates.
  • The spread between benchmark 10-year Italian and German government bonds—a barometer of eurozone financial stress—widened Friday to the highest level since May 2020, at 2.23 percentage points.
  • The Greek equivalent spread rose to 2.81 percentage points, the highest since April 2020.
  • Yields on Italy’s 10-year government bonds have climbed almost 2.5 percentage points this year, to about 3.6%.

Egypt Looks to Eke Out More Bread From Its Wheat as Prices Soar – Bloomberg, 6/10/2022

  • Egypt is trying to eke out extra flour from its grain to produce more of the flat loaves that are a staple of the nation’s meal-times as one of the world’s largest wheat buyers wrestles with soaring prices.
  • Millers that contribute to the North African country’s bread-subsidy program, which benefits more than two-thirds of the 100-million-plus population, are being urged to increase the amount of wheat bran they use, according to Magdy El-Waily, a member of the grain chamber at the Federation of Egyptian Industries.
  • The Supply Ministry’s instructions would boost the amount of flour made from a ton of wheat by about 6% to 875 kilograms (1,929 pounds). That equates to an extra 616 loaves. The measures will be applied from July, El-Waily said.

Factmonster – TODAY in HISTORY

  • The Tripolitan War, between the United States and the Barbary States, began. (1801)
  • Wagner’s opera, Tristan and Isolde, premiered in Munich. (1865)
  • Italy replaced its monarchy with a republic. (1978)
  • The Six-Day War between Israel and Syria, Egypt, and Jordan ended. (1967)

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