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Daily Market Report | June 14, 2022

US FINANCIAL MARKET

Stocks Slip After Early Gains – Wall Street Journal, 6/14/2022

  • U.S. stock indexes were mostly lower Tuesday, following earlier gains a day after the S&P 500 closed in a bear market for the first time since 2020.
  • The S&P 500 slid 0.2% in morning trading, after the broad market index tumbled 3.9% on Monday. The Nasdaq Composite was up 0.3% and the Dow Jones Industrial Average lost 0.5%.
  • The producer-price index, a measure of inflation for domestic producers, rose 10.8% on a 12-month basis in May, a slight decrease from the previous month. May marked the sixth consecutive month of double-digit annual gains for producer prices.
  • The Federal Reserve is set to release a monetary policy decision on Wednesday, after a two-day meeting. The Wall Street Journal reported on Monday that the policy makers are considering a surprise 0.75-percentage-point interest-rate increase.
  • Investors are struggling to come to terms with powerful forces in the market: soaring inflation that erodes consumer purchasing power, and the prospect of a recession that could damage company profits and tip weaker companies into failure.
  • One bond market indicator, the yield curve difference between two-year and 10-year government debt, briefly inverted overnight, flashing a warning that a recession could be ahead. In the New York morning, it rose to 0.025 percentage point.
  • The yield on the benchmark 10-year Treasury note rose to 3.410% from 3.371% on Monday. Prices rise when yields fall.
  • Shares of business-software firm Oracle jumped 8.3% after it reported a rise in quarterly sales that beat analysts’ expectations, driven by its cloud-computing division.
  • Oil producer Continental Resources surged 14% after billionaire Harold Hamm offered to buy the shares his family doesn’t already own for around $4.3 billion.
  • Cryptocurrency platform Coinbase slid 2.9% after it said it would reduce its workforce by about 18%. JPMorgan cut its price target for the stock.
  • Bitcoin remained under pressure after selling off sharply in recent days. It traded at about $22,500 on Tuesday, losing another 3.4%. It is 68% down from its last record high.
  • Overseas, the pan-continental Stoxx Europe 600 slipped 0.2%.
  • In Asia-Pacific trading, Australian stocks led losses after the market reopened following a holiday. The S&P/ASX 200 index in Sydney erased 3.6%, its biggest one-day drop in percentage terms in more than two years.
  • The Shanghai Composite Index rose 1%, while Hong Kong’s Hang Seng Index closed flat. Japan’s Nikkei 225 fell 1.3%.
  • In commodities, futures on Brent crude, the global oil benchmark, gained 2.1% to trade at $124.83.

Oracle Sales Top Expectations Against Uncertain Economic Backdrop – Wall Street Journal, 6/14/2022

  • Oracle sales rose in the latest quarter, soothing concerns about the business-software giant’s outlook against a backdrop of economic uncertainty affecting technology companies.
  • The Austin, Texas-based company said companywide revenue was up 5% to $11.84 billion in its fiscal fourth quarter, while total cloud revenue grew 19% from a year earlier to $2.9 billion. Analysts polled by FactSet expected $11.61 billion in total revenue.
  • Chief Executive Safra Catz said the fourth quarter’s revenue growth rate was boosted by an increase in demand for its infrastructure cloud business, with revenue up 36%.
  • For the quarter ended May 31, Oracle posted earnings of $3.19 billion, or $1.16 a share, compared with $4.03 billion in earnings, or $1.37 a share, a year earlier.

FedEx Boosts Dividend, Adds Directors in Deal With Activist D.E. Shaw – Wall Street Journal, 6/14/2022

  • FedEx is boosting its dividend and adding board members under pressure from activist investor D.E. Shaw Group, moves that come shortly after longtime leader Fred Smith stepped aside as chief executive.
  • On Tuesday, the company said it was raising its quarterly dividend by 53% to $1.15 a share. It is also adjusting its executive-compensation plan to tie cash bonus payments to the company’s total shareholder return.
  • The changes follow discussions with D.E. Shaw, said people familiar with the matter.
  • D.E. Shaw is a hedge fund with an activist component that has pressed for changes at giants such as Exxon Mobil and sometimes employs nonbinding handshake agreements with the companies it targets to avert a proxy fight.

Boeing delivered 29 737 MAX jets in May, notches widebody orders – Reuters, 6/14/2022

  • Boeing said on Tuesday it had delivered 29 of its cash-earning 737 MAX single-aisle jets to customers in May, bringing in needed funds as the U.S. planemaker worked through supply chain and regulatory hurdles.
  • Boeing also handed over to customers the fourth-to-last of its hump-backed 747s, a freighter to Atlas Air, and three 777 freighters, reflecting strong demand for cargo capacity, it said.
  • The 35 overall deliveries in May was more than double the 17 jets it handed over in the same month a year ago. That brings the delivery total for the first five months of the year to 165 aircraft, according to the data released on Tuesday.
  • Boeing booked 23 gross orders, 17 of which were for widebody aircraft. Among those, German carrier Lufthansa ordered seven 787 Dreamliners and seven 777-8F freighters – the cargo version of its forthcoming 777X.
  • After nine canceled orders, including Norwegian Air scrapping four 787 Dreamliners, and instances where buyers swapped jet models, orders for May stood at 14, Boeing said.
  • For the year through May, Boeing booked 236 gross orders, or 171 after cancellations and conversions, it said. After accounting adjustments, Boeing recorded 107 net orders for the year so far.

OPEC keeps forecast for 2022 oil demand to exceed pre-pandemic levels, sees risks – Reuters, 6/14/2022

  • OPEC has stuck with its forecast that world oil demand will exceed pre-pandemic levels in 2022, although the producer group said Russia’s invasion of Ukraine and developments around the coronavirus pandemic pose a considerable risk.
  • In a monthly report released on Tuesday, the Organization of the Petroleum Exporting Countries (OPEC) maintained its forecast that world oil demand would rise by 3.36 million barrels per day (bpd) in 2022, extending a recovery from 2020’s slump.
  • The report expects world consumption to surpass the 100 million bpd mark in the third quarter, in line with earlier projections, and for the 2022 average to reach 100.29 million bpd, just above the pre-pandemic rate in 2019.
  • The growth forecast for non-OPEC supply in 2022 was reduced by 300,000 bpd to 2.1 million bpd. OPEC cut its forecast for Russian output by 250,000 bpd and left its U.S. output growth estimate steady.
  • OPEC expects supply of U.S. tight oil, another term for shale, to rise by 880,000 bpd in 2022, unchanged from last month, despite high prices that in previous years have encouraged growth.

Elon Musk to Participate in Twitter All-Hands Meeting Thursday – Wall Street Journal, 6/14/2022

  • Elon Musk is set to participate in an all-hands meeting with Twitter employees on Thursday, marking the first time the billionaire will have spoken directly with the company’s workforce since he began his courtship of it in April.
  • Twitter Chief Executive Parag Agrawal announced the meeting in an email to staffers on Monday, saying they could submit questions for Mr. Musk in advance, a spokesman said.
  • The company’s marketing chief, Leslie Berland, will moderate the event, he said.

Big Crypto Lender Celsius Freezes All Account Withdrawals – Wall Street Journal, 6/14/2022

  • One of the largest crypto lenders, Celsius Network, told users Sunday night that it is pausing all withdrawals, swaps, and transfers between accounts due to extreme market conditions.
  • “We are taking this necessary action for the benefit of our entire community in order to stabilize liquidity and operations while we take steps to preserve and protect assets,” the company said in a blog post.
  • Celsius lends out customer deposits to other users to earn a return. The company managed $11.8 billion in assets as of May 17, according to its website.
  • It offers users annual percentage yields of up to 18.63% on cryptocurrency deposits. The company said it has 1.7 million users.
  • Celsius said it hoped to lift its suspension on withdrawals, swaps and transfers as quickly as possible, but couldn’t predict when that would happen.
  • “There is a lot of work ahead as we consider various options, this process will take time, and there may be delays,” it said.

Coinbase to Lay Off 18% of Workers as Crypto Winter Worsens – Bloomberg, 6/14/2022

  • Coinbase Global announced Tuesday it will lay off 18% of its workforce in another sign of a worsening crypto downturn that’s shaved off hundreds of millions of the total cryptocurrency market value.
  • Coinbase had hired aggressively in recent years, with its workforce ballooning by about 1,200 employees this year. The company plans to lay off roughly that amount, ending the current quarter with about 5,000 employees.
  • Laid off employees will receive a minimum of 3.5 months of severance, plus two weeks for every year of employment.

MicroStrategy’s Bitcoin-Backed Loan Risks Margin Call Amid Fall – Bloomberg, 6/14/2022

  • MicroStrategy may need to post additional collateral for a Bitcoin-backed loan as the price of the world’s largest cryptocurrency tests a key price level of $21,000 flagged by the company.
  • The software firm controlled by Bitcoin advocate Michael Saylor had used its vast Bitcoin holdings to secure a $205 million loan in March to buy even more cryptocurrency. But as the value of that collateral initially worth around $820 million falls to about half that, the company may need to provide more capital to back the loan.
  • The firm’s bet in the token has backfired as of late with paper losses on the firm’s digital holdings approaching $1 billion, after it paid nearly $4 billion to amass about 130,000 Bitcoins over the last two years, according to a company filing.

US ECONOMY & POLITICS

US Producer Prices Rise at a Brisk Pace, Adding to Fed Pressure – Bloomberg, 6/14/2022

  • Prices paid to US producers surged in May, underscoring persistent inflationary pressures across the economy that are likely to keep the Federal Reserve aggressively raising interest rates.
  • The producer price index for final demand increased 0.8% from April and 10.8% from a year earlier, Labor Department data showed Tuesday. That followed a 0.4% advance in the prior month.
  • The median forecasts in a Bloomberg survey of economists called for a 0.8% monthly advance in the overall PPI and a 10.9% year-over-year increase.
  • Excluding food and energy, the so-called core PPI was up 0.5% in May and rose 8.3% from May 2021.
  • Prices of goods climbed 1.4%, driven by a 5% increase in energy. Services prices were up 0.4% from April, after dropping in the prior month. That advance included a 2.9% jump in transportation and warehousing costs.
  • Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — rose 0.5% in May and were up 6.8% from a year ago.
  • Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, increased 2.3% in May, matching the strongest since October.

U.S. small-business sentiment dips in May, NFIB survey shows – Reuters, 6/14/2022

  • U.S. small-business confidence edged down in May as worries about high inflation persisted, according to a survey on Tuesday, which also showed demand for labor remained strong despite rising interest rates and tighter financial conditions.
  • The National Federation of Independent Business (NFIB) said its Small Business Optimism Index dipped 0.1 point last month to 93.1. The share of owners expecting better business conditions over the next six months hit a record low.
  • The NFIB survey showed 51% of businesses reported job openings they could not fill, up four points from April. The vacancies were for both skilled and unskilled labor, with worker shortages most acute in the construction, manufacturing, retail, and wholesale industries.
  • Small business job openings are more than 20 percentage points higher than the historical average.
  • Despite the acute worker shortage, the appetite for wage increases is waning. About 46% of small business owners reported raising compensation, down three points from April.
  • A quarter planned to do so in the next three months, down two points from April, but still a historically very high share.

Lawmakers Make Bipartisan Push for New Government Powers to Block U.S. Investments in China – Wall Street Journal, 6/14/2022

  • Congress is pressing ahead with legislation that could rewrite the rules for American companies investing abroad, proposing the screening of investments in countries like China seen as adversaries to protect U.S. technologies and rebuild critical supply chains.
  • The measure, part of broader legislation to bolster U.S. competitiveness with China, would require American companies and investors to disclose certain new outbound investments and authorize the executive branch to form a new interagency panel to review and block investments on national security grounds, according to congressional aides and a revised draft of the bill reviewed Monday by The Wall Street Journal.
  • While the U.S. has for decades regulated foreign investment in U.S. entities and limited American companies’ exports of sensitive technologies abroad for national security, the new bill expands the federal government’s purview over Americans’ investment activities overseas.
  • The U.S.-China Business Council—which represents American companies doing business in China and is among business groups opposing the measure—has criticized the concept as “unprecedented in 250 years of American history” and warned that such screenings risk generating uncertainty and harming U.S. competitiveness.
  • Supporters of the measure, which was first proposed by Sens. Bob Casey (D., Pa.) and John Cornyn (R., Texas) and has since picked up wider bipartisan backing, defended the screening as targeted and necessary for economic and national security.

Primary Elections 2022: South Carolina, Nevada Races Test Trump’s Sway in GOP – Wall Street Journal, 6/14/2022

  • Voters in South Carolina, Maine, Nevada and North Dakota head to the polls for Tuesday’s primaries with several races again testing the power of former President Donald Trump’s endorsement. A special election in Texas could also signal whether Hispanic voters continue to move toward Republicans.
  • The primary in South Carolina’s Seventh Congressional District is the first race where a Trump-endorsed candidate will face off against one of the 10 Republicans in the House who voted to impeach Mr. Trump for his role on Jan. 6, 2021, when his supporters overran the Capitol in an effort to stop the certification of the 2020 election.
  • Rep. Tom Rice faces a difficult re-election in his conservative coastal district against Trump-endorsed state Rep. Russell Fry and several other GOP candidates. Mr. Rice is urging supporters to look past his impeachment vote, which he says he doesn’t regret, and re-elect him based on his conservative record.
  • Also in South Carolina, Rep. Nancy Mace—who didn’t vote to impeach but has criticized the former president for his actions on that Jan. 6—faces a Trump-endorsed challenger, former state Rep. Katie Arrington.
  • Tuesday will also have a competitive special election in Texas’ 34th Congressional District to fill the seat of Democrat Rep. Filemon Vela who left Congress in the spring. The district, in Texas’ heavily Hispanic Rio Grande Valley, is a top target of Republicans as Hispanic voters have shifted away from Democrats nationwide, including in Texas.

EUROPE & WORLD

Beijing Probes Bar Staff Linked to Covid-19 Outbreak, as Cases Spread – Wall Street Journal, 6/14/2022

  • Chinese police are investigating staff at a Beijing bar that has become a Covid-19 hot spot, authorities said Tuesday, as an outbreak traced to the venue spread citywide just a week after many businesses reopened in the capital.
  • All of the 287 cases reported in Beijing over the past six days have been linked to the Heaven Supermarket Bar in the capital’s Sanlitun district, local health officials said Tuesday.
  • The bar’s managers are under criminal investigation on suspicion of hindering Covid prevention measures, a Beijing Public Security Bureau spokesman told a news conference Tuesday.
  • Beijing is inspecting all bars, night clubs and karaoke bars, the local government said Tuesday. It has also shut down all entertainment venues located underground, it said.

South Korea strike disrupts shipments of key cleaning agent for chipmaking – Reuters, 6/14/2022

  • A nationwide strike by truck drivers in South Korea has disrupted shipments to China of a key cleaning agent used by makers of semiconductor chips, the Korean International Trade Association (KITA) said on Tuesday.
  • It was the first sign the eight-day-old strike was affecting chip production’s global supply chain. It has already cost South Korea’s industry more than $1.2 billion in lost output and unfilled deliveries, according to the industry ministry.
  • KITA said a Korean company that produces isopropyl alcohol (IPA), a chemical used in the cleaning of chip wafers, faced difficulties in shipping to a Chinese company that in turn supplies wafers to chipmakers. It did not name either company.
  • About 90 tonnes of the material, or a week’s worth of shipments, have been delayed, the trade body said in a statement.
  • The truckers’ union, which is protesting against soaring fuel prices and demanding guarantees of minimum pay, vowed to continue the strike after four rounds of talks with the government failed to find a resolution.
  • Analysts expect the strike’s impact on domestic chipmakers to be limited, saying that both Samsung and the world’s second largest memory chip maker, SK Hynix, usually keep enough material on hand for three months or more.

Ryanair summer fares will rise as high as 9% above 2019 levels, CEO says – Reuters, 6/14/2022

  • Ryanair Group Chief Executive Michael O’Leary said on Tuesday bookings at Europe’s biggest budget airline are strengthening and he expects summer fares to be between 7% and 9% higher than pre-pandemic levels.
  • Speaking to Reuters, he said the load factor, a measure of how well an airline is filling available seats, should be around 94% in June, almost reaching pre-COVID-19 pandemic levels.
  • “And July, August, and September look very strong with higher load factors and also higher fares,” he said.
  • “Fares will be up probably high single digits 7,8,9 percent over summer 2019.”

Factmonster – TODAY in HISTORY

  • The United States Army was founded. (1775)
  • The Continental Congress adopted the Stars and Stripes as the official flag of the U.S. (1777)
  • Warren Harding became the first president to be heard on the radio. (1922)
  • German troops entered Paris. The Nazis opened the Auschwitz concentration camp in Poland. (1940)
  • President Eisenhower signed the order inserting the words “under God” into the Pledge of Allegiance. (1954)
  • Argentine forces surrendered to British troops on the Falkland Islands. (1982)

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