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Daily Market Report | June 15, 2022

US FINANCIAL MARKET

U.S. Stocks Rise Ahead of Fed Rate Decision – Wall Street Journal, 6/15/2022

  • U.S. stocks were higher Wednesday ahead of the Federal Reserve’s decision on interest rates, while European markets advanced after the European Central Bank said it would shield weaker economies from rising borrowing costs.
  • The S&P 500 climbed 1.0% in morning trading. The Dow Jones Industrial Average added 232 points, or 0.7%, and the Nasdaq Composite rose 1.1%.
  • The Federal Reserve will lay out details of its latest effort to quell inflation through tighter monetary policy at 2 p.m. ET. Investors expect a 0.75-percentage-point increase to the Fed’s target rate, which would be the biggest since 1994.
  • The central bank had previously guided for a 0.5-percentage-point increase, but rate expectations shifted higher after data showed inflation running at its fastest pace in more than four decades.
  • Stocks rose broadly Wednesday, with all but one sector of the S&P 500 up early in the U.S. trading day.
  • Technology stocks, which have been among the hardest-hit areas of the market this year, helped lead major indexes higher. Microsoft, Nvidia, Amazon.com and Netflix each added more than 2% apiece.
  • Economically sensitive areas of the market also rose. Bank stocks, which had sold off on investor fears about a slowdown in growth, climbed Wednesday, with the KBW Nasdaq Bank Index up 1.9%.
  • The yield on 10-year Treasurys slipped to 3.394% from 3.482% Tuesday.
  • Yields, which fall as bond prices rise, help set rates for everything from mortgages to federal student loans to auto loans.
  • Cryptocurrencies kept tumbling. Bitcoin fell to $21,599, putting the digital currency on track for a ninth straight daily loss.
  • Ethereum slid too, extending a rout in cryptocurrencies that has taken a toll on companies including Coinbase Global, which is laying off almost a fifth of its staff, and Celsius Network, a crypto lender now examining restructuring options.

Oil-Supply Growth Expected to Lag Behind Demand Next Year – Wall Street Journal, 6/15/2022

  • Global demand for oil will rise above prepandemic levels next year following three years of Covid-19 lockdowns and the economic shock of the Ukraine war, the International Energy Agency said.
  • Much of the growth in demand next year will be driven by China, as it emerges from stop-start Covid-19 lockdowns, while developed economies are expected to contend with a worsening economic outlook and rampant inflation.
  • Meanwhile, the IEA expects supply growth to lag behind demand, pushing an already tight market witnessing soaring prices into a 500,000-barrel-a-day deficit.
  • Demand for crude will rise by 2.2 million barrels a day to 101.6 million barrels a day in 2023, putting it above its 2019 levels for the first time since the pandemic first hit, the Paris-based agency said Wednesday in its closely watched oil market report.
  • China, which has seen economic growth struggle this year as a result of resurgent Covid-19 cases and lockdowns, is expected to see oil demand grow by 930,000 barrels a day in 2023, helping to re-establish its “position as the primary engine of global oil-demand growth,” the IEA said.
  • The IEA expects global oil supplies to rise by 1.3 million barrels a day to 101.1 million barrels a day in 2023, leaving a 500,000 barrel-a-day deficit.

Biden Pushes Fuel Makers to Boost Capacity, Criticizes Profits – Wall Street Journal, 6/15/2022

  • President Biden urged U.S. oil refiners to expand capacity and accused the companies of profiteering as the public pays record prices at the pump, in the latest effort by the Biden administration to combat soaring gasoline prices.
  • “There is no question Vladimir Putin is principally responsible for the intense financial pain the American people and their families are bearing,” Mr. Biden wrote in a letter sent Wednesday to seven major U.S. oil refiners. “But at a time of war, refinery profit margins well above normal being passed directly onto Americans are unacceptable.”
  • The president called on the companies to take immediate action to increase the supply of gasoline, diesel and other refined products.
  • He said his administration was prepared to use its emergency authorities to increase capacity in the near term, if necessary.
  • The letter was sent to Marathon Petroleum, Valero Energy, Exxon Mobil, Phillips 66, Chevron, BP and Shell. The companies didn’t immediately respond to requests for comment.

Caterpillar to Move Global Headquarters to Texas From Illinois – Wall Street Journal, 6/15/2022

  • Caterpillar is decamping to Texas from its longtime Illinois base, joining other major U.S. companies weighing hiring and costs as they work to move past the continuing Covid-19 pandemic.
  • The move—expected to affect the roughly 230 corporate employees at Caterpillar’s headquarters—is the latest in a series of recent relocations that have drawn major manufacturers closer to corporate and government customers, and tech giants from Silicon Valley to Texas.
  • Manufacturers have increasingly turned to the Southwest as a destination for new factories, drawn by available space, appealing tax policies and an expanding technology workforce.
  • Arizona, New Mexico, Texas, Oklahoma and Nevada added more than 100,000 manufacturing jobs from January 2017 to January 2020, representing 30% of U.S. job growth in that sector and at roughly triple the national growth rate, according to data from the Bureau of Labor Statistics.

Qualcomm’s Antitrust Fine for Payments to Apple Is Annulled by European Court – Wall Street Journal, 6/15/2022

  • The European Union’s second-highest court scrapped a €997 million ($1.04 billion) fine that the bloc’s antitrust regulator had levied on Qualcomm over payments it made to Apple for the iPhone maker’s exclusive use of Qualcomm chips.
  • The General Court of the European Union on Wednesday said the European Commission, the EU’s executive arm, had included a number of irregularities when it was putting together the case-file against San Diego-based Qualcomm, a supplier of chips for phones, cars and other devices.
  • “The General Court observes that a number of procedural irregularities affected Qualcomm’s rights of defense and invalidate the Commission’s analysis of the conduct alleged against Qualcomm,” the court said.
  • EU antitrust chief Margrethe Vestager imposed the fine in early 2018, saying Qualcomm had abused its dominant position by paying billions of dollars to Apple from 2011 to 2016 on the condition it wouldn’t buy from rivals, hindering competition in the market for so-called baseband chips, which connect smartphones and tablets to cellular networks.

Apple, Major League Soccer Strike 10-Year Streaming Deal for All MLS Games – Wall Street Journal, 6/15/2022

  • Apple and Major League Soccer have inked a deal worth at least $2.5 billion to broadcast games on the tech giant’s streaming service, the iPhone-maker’s most significant move yet into sports that underscores its growing ambitions for streaming.
  • The 10-year agreement unveiled Tuesday will make the Apple TV app the home of all MLS matches, available to fans through a variety of programming options.
  • While financial terms for the deal weren’t announced, the agreement is worth a minimum of $250 million a year, according to a person familiar with details.
  • The agreement makes MLS the most significant American sports league to move all of its games to a streaming service, rather than the bulk of games appearing on cable or broadcast TV.
  • From early 2023 through 2032, fans will access matches by subscribing to a new MLS streaming service available only through the Apple TV app. The price for the service wasn’t disclosed.

Ford recalls 3.3 million vehicles over rollaway concerns – Reuters, 6/15/2022

  • Ford Motor is recalling more than 3.3 million vehicles in North America that could roll away because a damaged or missing part may prevent the vehicle from shifting into the intended gear.
  • In a filing with the National Highway Traffic Safety Administration (NHTSA), Ford said Wednesday the recall covers various 2013-2019 Escape, 2013-2018 C-Max, 2013-2016 Fusion, 2013-2021 Transit Connect and 2015-2018 Edge vehicles, the agency said in a notice on Wednesday.
  • The recall includes just over 2.9 million U.S. vehicles and 394,000 in Canada.
  • A damaged or missing shift cable bushing may prevent the vehicle from shifting into the intended gear, or the vehicle may roll after the driver selects the ‘Park’ position.
  • This is Ford’s fifth recall over the issue since 2018, it told the agency. Ford previously recalled about 1.4 million vehicles worldwide in an earlier shift cable part recalls.

Ford issues stop-sale of electric Mustang Mach-E crossovers due to potential safety defect – CNBC, 6/15/2022

  • Ford Motor is instructing dealers to temporarily stop selling electric Mustang Mach-E crossovers due to a potential safety defect that could cause the vehicles to become immobile.
  • Ford, in a notice Monday to its dealers, said potentially affected vehicles include 2021 and 2022 Mach-Es that were built from May 27, 2020, through May 24, 2022, at the automaker’s Cuautitlan plant in Mexico.
  • Nearly 49,000 of the roughly 100,000 Mach-Es produced during that time frame will be part of a recall, Ford spokesman Said Deep told CNBC.
  • The problem involves a potential overheating of the vehicle’s high voltage battery main contactors, which is an electrically controlled switch for a power circuit.
  • The issue can lead to a malfunction that could cause the vehicle not to start or immediately lose propulsion power while in motion, the notice states.

Tesla Tops U.S. Agency List of Crashes Suspected to Involve Driver-Assistance Technology – Wall Street Journal, 6/15/2022

  • Electric-vehicle maker Tesla reported the most vehicle crashes suspected of involving advanced driver-assistance technology in the U.S. government’s first-ever survey of such incidents.
  • The auto industry’s top safety regulator said Wednesday that it had received reports of nearly 400 recent crashes in which advanced driver-assistance features were engaged during or immediately before the incident. More than two-thirds of those crashes happened in a Tesla vehicle, it said.
  • The National Highway Traffic Safety Administration cautioned against using the data to draw conclusions about the safety of any company’s technology given a series of limitations.
  • Those include that the data, which is company-reported, doesn’t take into account the number of vehicles outfitted with driver-assistance technology that any given manufacturer has sold, or the number of miles those cars have traveled.
  • “The data may raise more questions than it may answer,” said Steven Cliff, the NHTSA administrator in a briefing with reporters.

L3Harris in talks to buy Israeli spyware firm NSO – reports – Reuters, 6/15/2022

  • U.S. defence contractor L3Harris is in talks to buy Israeli spyware firm NSO Group, U.S. and Israeli media reported, citing sources with knowledge of the deal.
  • The deal is yet to be finalised and needs to be approved by Israel, the U.S. and L3Harris’ board of directors, according to the joint report by Haaretz, The Washington Post and The Guardian, and confirms parts of a report published in Intelligence Online this week.
  • It noted that The White House is concerned that any deal with to buy the Israeli firm’s hacking tools would raise serious counterintelligence and security concerns.
  • The reports said that if approved, the deal could see NSO removed from the banned list – either directly, or by having its assets bought by L3Harris, which will only work with the United States and its allies.
  • In January, NSO had told Reuters it was in talks with a number of U.S. funds over “various financial moves”, confirming media reports that it was discussing a sale of its assets.

US ECONOMY & POLITICS

Fed expected to ramp up inflation fight with big rate hike – Reuters, 6/15/2022

  • Federal Reserve policymakers on Wednesday are expected to deliver the biggest U.S. interest rate hike in more than a quarter of a century, along with forecasts for heftier increases in borrowing costs this year, their best guesses for how quickly inflation could subside, and at what cost to the job market.
  • Fed watchers expect the U.S. central bank to raise its short-term policy rate by 0.75 percentage point to a range of 1.50% to 1.75%, the first increase of that size since 1994.
  • The Fed will also release updated projections for economic growth, inflation, unemployment and interest rates for the next several years from all 18 central bankers.
  • A summary is expected to show a Fed policy rate rising past 3% by the end of this year but perhaps only a moderate cooling in price pressures.
  • Traders of futures tied to the Fed’s policy rate are now betting on another 75-basis-point rate hike in July and at least a couple of 50-basis-point hikes after that move.
  • Contracts reflect expectations for the Fed policy rate to end the year in the 3.75%-4.00% range.

US Retail Sales Post First Drop in Five Months as Auto Purchases Plunge – Bloomberg, 6/15/2022

  • US retail sales fell in May for the first time in five months, restrained by a plunge in auto purchases and other big-ticket items, suggesting moderating demand for goods amid decades-high inflation.
  • The value of overall retail purchases decreased 0.3%, after a downwardly revised 0.7% gain in April, Commerce Department figures showed Wednesday. Excluding vehicles, sales rose 0.5% last month. The figures aren’t adjusted for inflation.
  • Auto sales dropped 3.5% in May, reinforcing data from Wards Automotive Group that showed sales fell the most since August in the month.
  • Meantime, spending at gas stations climbed 4%, likely reflecting higher fuel prices in the month. Excluding those categories, retail sales rose 0.1%, the smallest gain in five months.
  • Grocery store sales advanced 1.2%, which could reflect higher prices rather than increased buying activity since the figures aren’t adjusted for inflation.
  • Restaurant sales, the report’s only services component, rose 0.7%.

US Homebuilder Sentiment Falls to Two-Year Low on Softer Demand – Bloomberg, 6/15/2022

  • US homebuilder sentiment slid to a two-year low in June as rising inflation and higher mortgage rates weighed on housing demand.
  • The National Association of Home Builders/Wells Fargo gauge decreased two points in June to 67, the lowest level since June 2020, figures showed Wednesday.
  • The group’s gauge of prospective buyer traffic fell five points to 48, the lowest since June 2020.
  • The measure of present sales also declined to a two-year low, and sales expectations for the next six months dropped to the lowest since May 2020.

U.S. Home Equity Hits Highest Level on Record—$27.8 Trillion – Wall Street Journal, 6/15/2022

  • Total U.S. home equity increased almost 20% in the first quarter to $27.8 trillion, a record high, according to the Federal Reserve.
  • About 60% of equity was withdrawn via cash-out refinances in 2021, according to mortgage-data firm Black Knight.
  • The amount of tappable equity increased by a record $1.2 trillion in the first quarter of 2022, to more than $11 trillion, according to Black Knight.
  • Close to 75% of it belongs to borrowers with mortgage rates below 4%, the Black Knight data show.
  • Black Knight defines tappable equity as the amount homeowners can borrow while holding on to at least 20% of the home’s equity.
  • Average tappable equity available to Americans with mortgages increased to a record $207,000 in the first three months of the year, according to Black Knight.

U.S. business inventories rise strongly; sales slow – Reuters, 6/15/2022

  • U.S. business inventories increased strongly in April amid a moderation in sales, government data showed on Wednesday.
  • Business inventories rose 1.2% after advancing 2.4% in March, the Commerce Department said. Inventories are a key component of gross domestic product. April’s increase was in line with economists’ expectations. Inventories advanced 16.6% on a year-on-year basis in April.
  • Retail inventories increased 0.7% in April as estimated in an advance report published last month. That followed a 3.1% jump in March. Motor vehicle inventories dropped 2.2% as estimated last month. They increased 1.7% in March.
  • Retail inventories excluding autos, which go into the calculation of GDP, advanced 1.7% as estimated last month.
  • Wholesale inventories increased 2.2% in April. Stocks at manufacturers gained 0.6%.
  • Business sales rose 0.4% in April after accelerating 1.6% in March. At April’s sales pace, it would take 1.29 months for businesses to clear shelves, up from 1.28 months in March.

U.S. import prices increase solidly in May – Reuters, 6/15/2022

  • U.S. import prices increased solidly in May amid higher prices for petroleum products, but there were tentative signs of some moderation in underlying imported inflation pressures.
  • Import prices rose 0.6% last month after gaining 0.4% in April, the Labor Department said on Wednesday. In the 12 months through May, import prices increased 11.7% after advancing 12.5% in April. Economists polled by Reuters had forecast import prices, which exclude tariffs, increasing 1.1%.
  • Imported fuel prices shot up 7.5% last month after climbing 0.5% in April. Petroleum prices rebounded 6.7%, while the cost of imported food fell 0.2%.
  • Prices for agricultural exports gained 2.1%. Nonagricultural export prices advanced 2.9%. Export prices jumped 18.9% year-on-year in May, the largest gain since September 1984. That followed a an 18.3% increase in April.

U.S. mortgage interest rates jump to highest level since 2008 – Reuters, 6/15/2022

  • The average interest rate on the most popular U.S. home loan climbed to its highest level since the 2008 financial crisis and purchase applications were down more than 15% from last year, Mortgage Bankers Association (MBA) data showed on Wednesday.
  • Still, more homebuyers sought properties compared to a week earlier, perhaps signalling a flurry of activity before aggressive tightening by the Federal Reserve further impacts the sector.
  • The average contract rate on a 30-year fixed-rate mortgage rose by 25 basis points to 5.65% for the week ended June 10, the highest level since late 2008, towards the end of the financial crisis and Great Recession.
  • The MBA said its Purchase Composite Index, a measure of all mortgage loan applications for purchase of a single family home, increased 8.1% from a week earlier and its Refinance Index rose 3.7%.
  • But purchase applications were down more then 15% compared to last year as ongoing record-low housing stock and a lack of affordability alongside the run up in interest rates have impacted demand.

S.C. Rep. Tom Rice Loses GOP Primary After Voting to Impeach Donald Trump as Ballots Are Cast in 5 States – Wall Street Journal, 6/15/2022

  • Voters in South Carolina, Maine, Nevada and North Dakota headed to the polls for Tuesday’s primaries with several races again testing the power of former President Donald Trump’s endorsement, while a special election in Texas signaled Hispanic voters there continued to move toward Republicans.
  • State Rep. Russell Fry, who was endorsed by Mr. Trump, defeated Rep. Tom Rice (R., S.C.) in a closely watched GOP primary contest. Mr. Trump had endorsed Mr. Fry after Mr. Rice voted to impeach Mr. Trump for his role in the effort by his supporters to stop the certification of the 2020 election on Jan. 6, 2021, which led to a riot at the Capitol.
  • Elsewhere in the state, South Carolina Rep. Nancy Mace won her primary challenge against former state lawmaker Katie Arrington, who had earned Mr. Trump’s endorsement. Ms. Mace criticized Mr. Trump’s actions on Jan. 6, 2021.

EUROPE & WORLD

China’s Economy Shows Signs of Recovery, but Covid Lockdown Threat Remains – Wall Street Journal, 6/15/2022

  • China’s economy improved slightly in May, offering hints of a recovery that is likely to remain fragile under the continuing threat of pandemic-related lockdowns.
  • Industrial production edged up 0.7% in May from a year earlier, reversing an almost 3% contraction in April, a sign that factories had resumed operations as Covid-19 curbs eased.
  • Retail sales, a gauge of consumer spending on goods and dining out, declined 6.7% in May, NBS data showed, an improvement from April’s 11.1% slump.
  • Growth in fixed-asset investments, which tracks spending in areas including infrastructure and real estate and a common policy tool used by Chinese officials to support growth in the past, moderated to 6.2% on-year during the first five months, according to NBS data on Wednesday. The reading was 6.8% in the first four months of this year.
  • In a separate report on Wednesday, the American Chamber of Commerce in Shanghai released the results of a poll this month showing that more than 90% of the 133 respondents had cut annual revenue projections for the year, with a quarter of the respondents lowering their targets by more than 20%.

EU Signs Gas Deal With Israel, Egypt in Bid to Wean Itself Off Russian Supplies – Wall Street Journal, 6/15/2022

  • The European Union signed an agreement with Israel and Egypt to boost gas shipments on Wednesday, tapping into the gas riches of the eastern Mediterranean as it races to secure alternatives to Russian energy.
  • The EU, which for years has relied heavily on Russian gas to power factories and heat homes, is turning to the eastern Mediterranean to help replace Russian fossil fuels after Moscow’s invasion of Ukraine. But the Middle East’s fractious politics and capacity constraints pose challenges.
  • Under the trilateral deal, Israel will send the natural gas from its vast offshore fields in the eastern Mediterranean via pipeline to Egypt, where it will be liquefied and shipped to Europe, according to European Commission President Ursula von der Leyen, who was in Cairo on Wednesday after visiting Israel earlier this week.
  • Ms. von der Leyen didn’t say how much Israeli gas could flow to the 27-country bloc, which received about 40% of its supplies from Russia in recent years.
  • The agreement is valid for three years and will automatically renew for another two years, according to a statement from the Israeli energy ministry.
  • The EU already receives some gas from Egypt and, analysts say, in the short term, neither Israel nor Egypt have much spare capacity to send a lot more to Europe amid growing domestic demand.

Russia Steps Up Energy Wars With Further Gas Cuts to Europe – Bloomberg, 6/15/2022

  • Russia stepped up the use of energy as a weapon by further cutting natural gas shipments via its biggest pipeline to Europe, a move Germany said was politically motivated.
  • Gazprom PJSC is curbing gas supplies via its Nord Stream pipeline to Germany by 60%, increasing a cut announced on Tuesday.
  • The curtailment adds to a 15% reduction in flows to Italy, putting more pressure on already tight European energy markets and sending gas prices surging as much as 24%.
  • German Economy Minister Robert Habeck said Russia was trying to unsettle markets and move up gas prices.
  • The curbs reignited tensions with Moscow, which had calmed down after several European countries found ways of paying for gas in rubles, meeting a demand from President Vladimir Putin.

El Salvador’s Big Bitcoin Gamble Backfires to Deepen Debt Woes – Bloomberg, 6/15/2022

  • An epic rout that has wiped out about two-thirds of Bitcoin’s value is exacerbating the debt crisis in the world’s most crypto-friendly country.
  • In the year since El Salvador approved Bitcoin as legal tender, the nation has lost almost $56 million by gambling on the digital asset, according to calculations by Bloomberg. That may not sound like much, but for a financially troubled country like El Salvador, every bit counts.
  • The losses now represent more than half of what President Nayib Bukele’s government spent to buy the 2,301 Bitcoin disclosed through announcements on Twitter.

Factmonster – TODAY in HISTORY

  • King John sealed the Magna Carta. (1215)
  • George Washington was appointed head of the Continental Army by the Second Continental Congress. (1775)
  • Charles Goodyear was granted a patent for rubber vulcanization. (1844)
  • James Polk, the 11th president of the United States, died in Nashville, Tennessee. (1849)
  • Ella Fitzgerald, the ”first lady of song,” died in Beverly Hills, California. (1996)
  • Rolling Stone Mick Jagger was knighted by Queen Elizabeth. (2002)

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