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Daily Market Report | June 13, 2022

US FINANCIAL MARKET

S&P 500 Falls Into Bear-Market Territory as Stocks Drop – Wall Street Journal, 6/13/2022

  • The S&P 500 started the week in bear market territory, while global stocks tumbled and bond yields jumped as fears over inflation rattled investors around the world.
  • The S&P fell 3.8% in morning trading Monday. If the loss holds to the market’s close, the broad index would fall into a bear market for the first time since 2020. A bear market is defined as a 20% loss from a recent high.
  • The technology-focused Nasdaq Composite Index, which entered bear market territory in March, dropped 4.5%. Dow Jones Industrial Average declined 2.8%, or nearly 900 points.
  • Markets have swung this year as investors assessed the risks of surging inflation and central bankers’ plans for unwinding stimulus policies that kept economies—and markets—afloat throughout the pandemic.
  • This latest bout of volatility came after data Friday showed U.S. consumer prices rose 8.6% year-over-year in May, the fastest such rise since 1981. The report forced many to reset expectations for higher interest rates from the Federal Reserve.
  • The Fed will begin its latest two-day policy meeting Tuesday, and most investors believe that the central bank will announce Wednesday it is raising its benchmark interest rate by half a percentage point.
  • But expectations that the Fed will be forced to move even more aggressively this year have risen since Friday’s inflation report.
  • On Monday, futures bets showed traders assigned a roughly 81% probability that the Fed will raise interest rates by 2.5 percentage points by the end of the year, according to CME Group.
  • That would equate to a half-percentage rate increase at every Fed meeting this year.
  • The yield on the benchmark 10-year U.S. Treasury note rose to 3.301% from 3.156% on Friday. Bond yields rise as prices fall.
  • Stock indexes in Asia weakened, with Hong Kong’s Hang Seng, Japan’s Nikkei 225 and South Korea’s Kospi Composite all retreating by around 3% or more. In mainland China, the blue-chip CSI 300 index lost about 1.2%.
  • The pan-continental Stoxx Europe 600 fell 2% while the U.K.’s FTSE 100 index fell 1.3%.

Gasoline Prices Reach $5 a Gallon Nationwide for the First Time – Wall Street Journal, 6/13/2022

  • The average price of a gallon of regular unleaded gas in the U.S. hit $5 Friday night, and the rise in fuel costs is expected to persist throughout the busy summer driving season.
  • The record high, according to OPIS, an energy-data and analytics provider, comes as U.S. consumer inflation hit its highest level in 40 years and crude oil prices remain high.
  • Analysts say high gas prices could persist. A report from JPMorgan last month said retail gas prices could jump to $6.20 a gallon by August.
  • The cost of gas on average has already exceeded that price in California, where gas was about $6.43 on average Friday, according to OPIS.
  • “People are still fueling up, despite these high prices,” said Andrew Gross, a spokesman at AAA. “At some point, drivers may change their daily driving habits or lifestyle due to these high prices, but we are not there yet.”

Prologis to Buy Duke Realty in $26 Billion Deal, Including Debt – Wall Street Journal, 6/13/2022

  • Prologis is buying Duke Realty in a deal valued at $26 billion, including the assumption of debt, the companies said Monday.
  • Under the terms of the agreement, Duke Realty shareholders would receive 0.475 times a Prologis share for each Duke Realty share they own, an improvement from Prologis’s previous exchange offer of 0.466 times.
  • In May, Duke Realty rejected a nearly $24 billion buyout offer from Prologis, calling the unsolicited offer insufficient. Prologis had offered to buy Duke Realty for $61.68 a share.
  • Under the current deal, Prologis is gaining high-quality properties for its portfolio in key areas, including Southern California, New Jersey, South Florida, Chicago, Dallas and Atlanta.

Bank of America’s CFO says no sign of recession, credit deterioration – Reuters, 6/13/2022

  • Bank of America’s Chief Financial Officer Alastair Borthwick said on Monday that there is no sign of recession in the bank’s loan portfolio, which remains on a healthy trajectory.
  • “There’s this question of what will happen in the future, and there’s what are we seeing right now. And what we’re seeing right now, credit is in great shape,” Borthwick said at a conference hosted by Morgan Stanley, when asked about asset quality. He added that sectors like travel and restaurants are still seeing credit quality improvements.

Amazon picks Californian town as first to receive drone deliveries – Reuters, 6/13/2022

  • Amazon.com said on Monday that customers in Lockeford, California would be among the first to receive drone deliveries later this year.
  • This would be the first time Amazon makes drone deliveries to the public, and it follows several pilot and mission-specific programs from companies such as Walmart, United Parcel Service and FedEx.
  • The online retailer said it was working with Federal Aviation Administration (FAA) and city officials for permits.
  • The drones will have the capability to fly beyond-line-of-sight (BLOS) and will be programmed to drop parcels in the backyards of customers.

Global advertising to grow by 8.4% this year, ad agency GroupM predicts – Reuters, 6/13/2022

  • The global advertising industry is expected to grow 8.4% this year, despite ongoing geopolitical situations around the world and fears of a recession, a report on the sector said on Monday.
  • That figure excludes the impact of U.S. political advertising, which is on track to reach $13 billion in revenue this year, up from $12 billion in 2020, the report from ad agency GroupM, a unit of WPP showed.
  • The report forecasts ad revenue for pure-play digital platforms to grow 11.5% in 2022, down from 32% growth in 2021. Digital advertising on those platforms will represent 67% of the industry’s total revenue this year, excluding U.S. political advertising.
  • Television advertising is expected to grow 4.4% in 2022, boosted by ad-supported streaming services such as Paramount Global-owned Pluto and Fox-owned Tubi.

EV maker Electric Last Mile Solutions files for bankruptcy – Reuters, 6/13/2022

  • U.S. commercial electric vehicle maker Electric Last Mile Solutions said on Sunday it is planning to file for Chapter 7 bankruptcy, after a review of its products and commercialization plans.
  • The move comes after the Troy, Michigan-based company disclosed a probe by the U.S. Securities and Exchange Commission and withdrew all its previously issued business outlook in March.
  • The company went public in June 2021 through a merger with blank-check firm Forum Merger III Corp.

US ECONOMY & POLITICS

NY Fed Survey Finds Jump in Near-Term Inflation Expectations in May – Wall Street Journal, 6/13/2022

  • The public’s expectations for inflation in the short term rose in May, according to a report Monday from the Federal Reserve Bank of New York.
  • Households believe inflation one year from now will be 6.6% higher, up from the 6.3% projection seen in the April data and the highest level seen in a survey that goes back to 2013. But the New York Fed also found in its latest Survey of Consumer
  • Expectations that the expected level of inflation three years from now held steady at 3.9%.
  • The jump in the expected level of inflation a year from now came in a report where the public once again is eyeing higher gasoline prices a year from now, at a projected 5.5% gain.
  • But survey respondents also reported they see smaller increases for food, medical care and rent.
  • The latest University of Michigan consumer sentiment survey showed that households’ expected level of inflation five years from now jumped for the first time in months.
  • The New York Fed’s stable long-term inflation expectations reading muddies the message of the Michigan data and suggests it could take more time to understand whether the Fed is really facing a decline in confidence in its inflation-fighting credibility.

Soybean Prices Hit Record as Inflation Stays Hot – Wall Street Journal, 6/13/2022

  • Soybean prices have soared some 30% this year to a record, a surge that promises further pain for consumers facing the most severe bout of food inflation in a decade.
  • The continuous contract for soybeans on the Chicago Board of Trade ended trading Thursday at $17.69 a bushel, topping the previous high of $17.68, set in September 2012 when drought scorched the U.S. crop.
  • Purchasing commitments for new-crop soybeans—those just planted this spring and which have only begun to grow—are up 68% from this time last year, according to U.S. Agriculture Department data.
  • A lingering La Niña weather pattern is expected to introduce hot and dry conditions into the majority of the Corn Belt beginning this week.
  • While this might help initially by drying out otherwise saturated crops in the eastern portion of the region, a prolonged hot and dry period could damage U.S. production.

Biden Plan for EV Chargers on Highways Meets Skepticism in Rural West – Wall Street Journal, 6/13/2022

  • The U.S. government wants fast EV-charging stations every 50 miles along major highways. Some Western states say the odds of making that work are as remote as their rugged landscapes.
  • States including Utah, Wyoming, Montana, New Mexico and Colorado are raising concerns about rules the Biden administration has proposed for receiving a share of the coming $5 billion in federal funding to help jump-start a national EV-charging network.
  • The states say it will be difficult, if not impossible, to run EV chargers along desolate stretches of highway.
  • States this year will start to receive $615 million, the first phase of the $5 billion approved for highway charging in the $1 trillion infrastructure bill that Congress passed and that was signed into law last year.
  • States plan to request waivers to some of the proposed rules, including the every-50-miles requirement, and another rule that calls for the chargers to be within one mile of highway exits, state officials say.
  • “There are plenty of places in Montana and other states here out West where it’s well more than 50 miles between gas stations,” said Rob Stapley, an official with the Montana Department of Transportation. “Even if there’s an exit, or a place for people to pull off, the other big question is: Is there anything on the electrical grid at a location or even anywhere close to make that viable?”

EUROPE & WORLD

China Is Walking Back Virus Loosening Weeks After Reopening – Bloomberg, 6/13/2022

  • China is starting to re-impose Covid-19 restrictions just weeks after major easing in key cities, raising concern the country may once again employ strict lockdowns to control its outbreak.
  • Beijing reported 45 new local cases on Monday afternoon, after having single digit cases on most days last week.
  • City officials said an outbreak linked to a popular bar is proving more difficult to control than previous clusters, in a weekend that saw mass testing and rising infections both in the capital and in Shanghai.
  • A total of 37 cases were reported for Shanghai on Sunday, including five detected in the community. There was one additional community case disclosed on Monday, with the full city results still to come.
  • Authorities delayed the reopening for most schools in Beijing that was planned for Monday, while most districts in Shanghai suspended dine-in services at restaurants.
  • The Chaoyang district in eastern Beijing, where the bar is located, will begin a three-day mass Covid testing drive from Monday. All 65 cases discovered on Saturday were linked to the bar cluster.
  • Shops and restaurants in the Sanlitun area of Chaoyang will be closed for three days through Wednesday.

India’s May Inflation Stays Above 7% on Costlier Food, Fuel – Bloomberg, 6/13/2022

  • India’s consumer price gains stayed above the central bank’s target, adding pressure on policymakers to stay hawkish despite raising the key rate by 90 basis points this year.
  • Retail inflation rose 7.04% in May from a year earlier, the Statistics Ministry said in a statement Monday. That compares with a 7.79% increase in April, and a 7.10% gain seen in a Bloomberg survey of economists.
  • Food prices, which comprise more than half of the inflation basket, accelerated 7.97% in May, while fuel and electricity prices rose 9.54%. Clothing and footwear prices rose 8.85%, while housing prices jumped 3.71%.
  • Wholesale price inflation, which surged to a three-decade high of 15.08% in April, is seen accelerating further to 15.30% in data due Tuesday, according to a separate Bloomberg survey.

Russia’s Crude Flows to Asia Take Hold Near Unprecedented Levels – Bloomberg, 6/13/2022

  • Russia’s seaborne crude flows are taking on a new pattern as Moscow seeks to deal with impending European sanctions on its exports. India has moved from being an insignificant buyer of Russian crude to the second-biggest destination for shipments, behind only China.
  • Almost 860,000 barrels a day of crude were loaded onto tankers at Russia’s western export terminals in the week to June 10 before heading to destinations in Asia.
  • And the figure will almost certainly be revised higher once destinations become apparent for almost 210,000 barrels a day that are on vessels yet to show a final discharge point.
  • Overall seaborne crude flows did slip in the seven days to June 10, giving up the gains of the previous week.
  • A total of 34 tankers loaded 24.9 million barrels from the country’s export terminals, vessel-tracking data and port agent reports show. That put average flows at 3.55 million barrels a day, down by 10% from 3.94 million in the week ended June 3.
  • While shipped volumes fell by 10% in the week to June 10, Moscow’s revenue from export duty slipped even more, falling by $28 million, or 16%, to $152 million from a revised $180 million in the week to June 3.
  • The dip in revenue reflects a lower per-barrel rate of export duty on shipments made in June, which applied to all shipments in the week to June 10, but only some in the week to June 3.

Striking Truckers Stall South Korean Economy – Wall Street Journal, 6/13/2022

  • A weeklong trucker strike in South Korea over fuel costs and wages is tying up supply chains in one of Asia’s export powerhouses.
  • Thousands of truckers are refusing to drive, while deliveries by truckers who are working have been thwarted by protesters—shutting steel plants, disrupting car production and delaying shipments of raw materials needed for semiconductors.
  • The cost to key industries over roughly the past week comes to about 1.6 trillion won, equivalent to about $1.2 billion, the Ministry of Trade, Industry and Energy said Monday.
  • Recent inbound and outbound container traffic at South Korea’s 12 major ports is running at roughly one-third of last month’s pace, figures provided by the Ministry of Land, Infrastructure and Transport show.
  • South Korea’s unionized truckers are striking over diesel prices, up roughly 50% over the past year, and the approaching year-end expiration of a minimum-wage plan in effect since 2020.
  • The wage plan, which is flexible, includes provisions to determine fair pay that take into account fluctuating costs such as fuel prices, the union said.
  • A fourth round of talks between government officials and the Korean Public Service and Transport Workers’ Union Cargo Truckers’ Solidarity Division broke down on Sunday.

U.K. Economy Shrinks for Second Month as Outlook Dims – Wall Street Journal, 6/13/2022

  • The U.K.’s economy contracted for the second straight month in April, as surging inflation weakened consumer spending, and programs designed to contain the spread of Covid-19 were wound down.
  • The U.K.’s statistics agency said Monday that gross domestic product—a broad measure of the goods and services produced in an economy—fell by 0.3% from March. Economists had expected to see a small increase in output, following a 0.1% fall in the previous month.
  • The main reason for the decline in economic output during April was a 7.6% drop in human-health services, as the government ended free testing for Covid-19.

Libya’s Oil Output Almost Halts With New Wave of Shutdowns – Bloomberg, 6/13/2022

  • Libya’s oil production has almost fully halted as a political crisis leads to more shutdowns of ports and fields.
  • The OPEC member’s daily output — which averaged 1.2 million barrels last year — is down by about 1.1 million barrels, Oil Minister Mohamed Oun told Bloomberg on Monday. That suggests Libya is pumping only about 100,000 barrels a day.
  • “Almost all the oil and gas activities in the east of Libya are being shut down,” Oun said. In the south-west, the 40,000 barrel-a-day Wafa field is the only one with continuous production, he said.
  • The three ports together handle about 70% of Libya’s total production. Output had already halved to 600,000 barrels a day in mid-April after groups closed the major Sharara and El Feel fields.

DHL raises prices for parcel deliveries, calling it unavoidable – Reuters, 6/13/2022

  • Logistics giant DHL will charge private customers more for parcel deliveries from July 1 as labour and transport costs have made price increases unavoidable, said the company on Monday.
  • DHL, part of the Deutsche Post DHL Group, will increase the price to ship a parcel abroad by between 1 euro and 3.50 euros, excluding those bound for the United States, which, depending on the parcel size, will nearly double in price.
  • “The company is only partially passing on to customers what are in some cases steep increases in airfares and the substantial rise in costs charged by delivery partners abroad to Deutsche Post DHL for delivering merchandise items,” it said.
  • DHL added that even with the price increases, it would still remain below average parcel prices in Europe, based on a comparison published by the network regulator in November 2021.

Factmonster – TODAY in HISTORY

  • The Boxer Rebellion began in China. (1900)
  • The U.S. Supreme Court set forth in Miranda v. Arizona that the police must advise suspects of their rights upon taking them into custody. (1966)
  • Thurgood Marshall was nominated to become the first African American on the U.S. Supreme Court. (1967)
  • The New York Times began publishing the “Pentagon Papers.” (1971)
  • The first meeting between Pres. Kim Jong Il of North Korea and Pres. Kim Dae Jung of South Korea occurred. (2000)

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