US FINANCIAL MARKET
U.S. Stocks Little Changed Ahead of Fed Decision – Wall Street Journal, 6/16/2021
- U.S. stocks hugged the flatline Wednesday ahead of the Federal Reserve’s latest projections, which could provide cues on when policy makers may begin to dial back support for the economy.
- The S&P 500 fell less than 0.1% and the Dow Jones Industrial Average dropped 0.1%, or 40 points.
- The Nasdaq Composite, meanwhile, rose 0.2%.
- Investors this week are watching for any changes in Fed policy makers’ views on inflation, the labor market, and other economic indicators that may offer hints on when they would begin tapering bond purchases.
- Data Tuesday showed that retail sales dropped in May while producer prices rose, offering a mixed picture of the recovery.
- The Fed will release its latest monetary policy decision at 2 p.m. ET.
- The central bank will also release individual policy makers’ updated quarterly economic projections.
- The new forecasts could show officials expecting to raise interest rates sooner than they anticipated in March.
- They are also likely to begin discussing when and how to start scaling back bond purchases.
- Fresh data Wednesday showed that construction began on 3.6% more new single-family homes in May, less than economists expected.
- The yield on the benchmark 10-year Treasury note edged down to 1.488%, compared with 1.498% on Tuesday.
- Crude prices are extending their gains as traders position for higher demand stemming from the global economic recovery and summertime travel. The international benchmark, Brent crude, rose 0.3% to $74.25 a barrel.
- Overseas, the pan-continental Stoxx Europe 600 gained 0.2% after notching its eighth consecutive record close.
- In Asia, most major benchmarks declined by the close of trading. The Shanghai Composite Index fell 1.1% and Hong Kong’s Hang Seng slipped 0.7%.
Oracle guidance misses expectations, stock drops – CNBC, 6/16/2021
- Oracle shares fell 3% in extended trading on Tuesday, even though the enterprise software maker issued earnings that came in better than analysts had expected and showed accelerated revenue growth as the pandemic receded.
- Revenue rose 8% year over year in Oracle’s fiscal fourth quarter, which ended on May 31, according to a statement.
- Oracle’s top segment by revenue, cloud services and license support, generated $7.39 billion, which was up 8% and above the FactSet consensus estimate of $7.32 billion in revenue.
- The company said revenue from its second-generation cloud infrastructure doubled in the quarter, but it did not provide the figure in dollars.
- The cloud license and on-premises license segment contributed $2.14 billion in revenue, up 9% and more than the $2.05 billion consensus.
- The company’s hardware revenue, at $882 million, was exactly in line with analysts’ estimates, declining 2%.
- Earnings: $1.54 per share, adjusted, vs. $1.31 per share as expected by analysts, according to Refinitiv.
- With respect to guidance, Oracle CEO Safra Catz called for 94 cents to 98 cents in adjusted earnings per share and 3% to 5% revenue growth in the fiscal first quarter. Analysts polled by Refinitiv are expecting fiscal first-quarter adjusted earnings of $1.03 per share and the equivalent of 3% revenue growth.
GM ups spending on EVs and autonomous vehicles by 30% to $35 billion by 2025 on higher profits – CNBC, 6/16/2021
- General Motors said Wednesday it will increase spending on electric and autonomous vehicles to $35 billion through 2025, a 30% increase from plans announced late last year. It also said it is raising its earnings guidance for the first half of the year.
- The additional money will be used to expand its rollout of EVs and accelerate production of its battery and fuel cell technologies, including two new U.S. battery plants in addition to two under construction, by 2025.
- GM plans to sell more than 1 million EVs annually by 2025.
- GM expects adjusted pretax earnings of $8.5 billion to $9.5 billion during the first half of the year, up from an estimated $5.5 billion.
- For the year, GM previously said it expected pretax profits “at the higher end” of a $10 billion to $11 billion range.
- It didn’t provide an update on its full-year earnings.
- GM’s previously said it would roll out 30 new EVs by 2025. The company said Wednesday it will add to those plans, but it declined to provide more details.
Roblox shares slide after company reports decline in users and their spending – CNBC, 6/16/2021
- Roblox shares fell as much as 7% in after-hours trading Tuesday after the company reported a decline in users and their spending on the gaming platform in May.
- The company said daily active users for May were 43 million, down 1% from the 43.3 million DAUs it reported for April.
- Still, DAUs were up 28% from May 2020.
- Roblox said average bookings per DAU are estimated to be between $5.02 and $5.09, which would be down as much as 3% from a year ago.
- The company said its users spent 3.2 billion hours in the game in May and revenue is estimated to be between $149 million and $151 million.
Citi Latest to Warn of Bigger-Than-Expected Trading Drop – Bloomberg, 6/15/2021
- Citigroup dropped after Chief Financial Officer Mark Mason signaled that revenue from the bank’s trading operations will probably fall by around 30% from a year ago — as Wall Street braces for a pandemic-driven boom to run out of steam.
- Revenue from the business could drop by a percentage in the low thirties in the second quarter, Mason said Tuesday at a Morgan Stanley virtual conference.
- That’s a bigger decline than analysts in a Bloomberg survey were anticipating and comes as investment-banking fees could also fall by a percentage in the mid-to-high single digits, he said.
- In all, revenue from the North American consumer business is likely to drop by roughly 15%, he said. The lender is also expecting to release reserves it had set aside to cover souring loans.
S&P 500 Firms Beef Up Their Cash Piles to Deal With ‘New Normal’ – Bloomberg, 6/16/2021
- Non-financial companies in the S&P 500 Index that reported results in April and May boosted their cash holdings by 12% from a year ago, according to data compiled by Bloomberg.
- Amazon.com, Google-parent Alphabet and American Airlines were among the firms showing the largest dollar increases.
- According to data compiled by Bloomberg, non-financial companies in the Russell 3000 Index that reported quarterly earnings in April and May increased their cash positions by 15% from a year earlier.
- Industrials and consumer discretionary firms posted the largest percentage increases from the previous year, while real estate and utilities saw the biggest decreases.
Investors Hide From Inflation in Real-Estate Stocks – Wall Street Journal, 6/16/2021
- Investors looking to cushion their portfolios against inflation helped real-estate stocks lead the S&P 500 in recent weeks.
- The real-estate sector, which focuses on companies that rent properties, has gained 14% this quarter, more than double the 6.9% gain of the broader stock index.
- Money managers often turn to real-estate stocks when they anticipate higher inflation because of the segment’s pricing power.
- Some leases are tied to inflation and many tenants bear a rent increase to avoid the cost of moving.
- Other industries, such as restaurants and food retail, have more competition and a more price-sensitive consumer.
- The sector traded Monday at almost 24 times its projected earnings over the next year, above a five-year average of almost 19.
- The S&P 500 as a whole traded at 21.5 times its future earnings.
- The energy group of the S&P 500, another strong performer in inflationary times, also has beaten the market, rising nearly 14%.
Lina Khan, Critic of Large Tech Firms, to Lead Federal Trade Commission – Wall Street Journal, 6/16/2021
- The Senate on Tuesday confirmed Lina Khan for a seat on the Federal Trade Commission, and President Biden tapped her to lead the agency, a post that will allow her to pursue aggressive enforcement of U.S. antitrust and consumer-protection laws.
- Ms. Khan, a 32-year-old Columbia University law professor who has been a vocal critic of powerful technology companies, was confirmed on a 69-28 vote.
- With her confirmation secured, Mr. Biden immediately designated her as FTC chairwoman, a move that caps the ascendancy of a progressive camp that favors far-reaching changes to antitrust enforcement.
- Ms. Khan has been the leader of that movement, which believes the current decadeslong approach has done too little to restrain corporate dominance and stop mergers that have eroded competition.
- She has argued in favor of blocking more mergers, aggressively attacking monopolistic practices and potentially breaking up some of America’s largest companies.
US ECONOMY & POLITICS
Starts of U.S. Homes Increased Slightly in May, Permits Eased – Bloomberg, 6/16/2021
- U.S. housing starts rose slightly in May and applications to build dropped to a seven-month low, suggesting the pace of residential construction may be moderating after a recent run-up in building-materials costs.
- Residential starts rose 3.6% last month to a 1.57 million annualized rate, according to government data released Wednesday.
- April starts were revised down to 1.52 million. Building permits slipped 3% in May.
- Single-family starts rose 4.2% in May to an annualized pace of almost 1.1 million units
- Multifamily starts — which tend to be volatile and include apartment buildings and condominiums — increased 2.4% to 474,000
- Applications to build, a proxy for future construction, decreased to an annualized 1.68 million units in May, the slowest pace since October.
- The data suggest backlogs are continuing to build. The number of one-family homes authorized for construction but not yet started — a measure of backlogs — edged up to 142,000 in May, the most since October 2006.
Rents for single-family homes just saw the largest gains in nearly 15 years – CNBC, 6/15/2021
- Even as the pandemic ebbs and Americans get back to work and play, they still want more space at home.
- But with home prices hitting record highs, demand for single-family rental homes is soaring – and so are the rents.
- Single-family rents were up 5.3% year over year in April, up from a 2.4% year-over-year increase in April 2020, according to CoreLogic. That is the largest gain in nearly 15 years.
- Rents for single-family detached homes (not townhomes), were up an even stronger 7.9% compared with a year ago, as millennials in particular seek more outdoor space.
- Nearly half of millennials surveyed by Corelogic, and 64% of Baby Boomers, said they, “strongly prefer” to live in a single, stand-alone home.
U.S. Housing Market Needs 5.5 Million More Units, Says New Report – Wall Street Journal, 6/16/2021
- Construction of new housing in the past 20 years fell 5.5 million units short of long-term historical levels, according to a new National Association of Realtors report, which is calling for a “once-in-a-generation” policy response.
- U.S. builders added 1.225 million new housing units, on average, each year from 2001 to 2020, according to the report, which was prepared for NAR by Rosen Consulting Group.
- That figure is down from an annual average of 1.5 million new units from 1968 to 2000.
- The 5.5 million-unit deficit includes about two million single-family homes, 1.1 million units in buildings with two to four units and 2.4 million units in buildings of at least five units, the report says.
- The report also says that from 2010 to 2020, new-home construction fell 6.8 million units short of what was needed to meet household-formation growth and replace units that were aging or destroyed by natural disasters.
- To shrink the supply deficit, builders would need to exceed the long-term historical average pace of 1.5 million units a year, according to the NAR report.
- At 2.1 million units a year, near the level reached in 2005, it would take a decade to close a gap of 5.5 million units, the report says.
Fed Meeting Likely to Signal Possible Policy Shifts – Wall Street Journal, 6/16/2021
- Federal Reserve officials are set to provide updated details on their plans for eventually scaling back easy-money policies as they conclude a two-day policy meeting amid signs of accelerating economic growth and inflation.
- The Fed on Wednesday is likely to say after the meeting that it will maintain short-term interest rates near zero and keep buying at least $120 billion a month of Treasury and mortgage bonds.
- The new forecasts could show officials expecting to raise interest rates sooner than they anticipated in March, when most saw the benchmark federal-funds rate remaining steady through 2023.
- They are also likely to begin discussing when and how to start scaling back bond purchases.
- The new economic projections, postmeeting statement and Chairman Jerome Powell’s press conference Wednesday will give Fed officials their first opportunity to comment publicly on the latest inflation data and how they affect the policy outlook.
Democratic Leaders Start Talks on Second Infrastructure Bill – Wall Street Journal, 6/16/2021
- Democratic leaders began to discuss the contours of a broad-ranging child care, climate and education package Tuesday in an effort to appease the concerns of the party’s liberal wing over the narrower scope of a bipartisan infrastructure proposal under discussion.
- Progressive Democrats in both chambers criticized the size and breadth of a more limited agreement reached late last week by a bipartisan group of 10 senators.
- They threatened to withhold their votes unless they received assurances that it would be accompanied by a far-reaching package that could pass with only Democratic votes.
- Senate Majority Leader Chuck Schumer (D., N.Y.) acknowledged that many Democrats were wary of backing a more limited bipartisan infrastructure agreement without a guarantee that their other priorities would be addressed in a second package.
- That legislation is expected to advance through a process tied to the budget, known as reconciliation, that enables Democrats to pass it with a simple majority, rather than the 60 votes most bills need, but will require the support of every member of their caucus.
- Sens. Ed Markey (D., Mass.) and Jeff Merkley (D., Ore.) said they wouldn’t support a bipartisan infrastructure package without an ironclad guarantee that wide-ranging provisions to address climate change would be part of the second package.
- Centrist Sen. Joe Manchin (D., W.Va.) has said an infrastructure deal should have Republican votes, and he hasn’t committed to backing additional, party-line legislation after Congress passed a $1.9 trillion Covid-19 relief package earlier this year without GOP support.
EUROPE & WORLD
Israeli Airstrikes Hit Gaza as Nationalist March in Jerusalem Stokes Tensions – Wall Street Journal, 6/16/2021
- Israeli police fired rubber bullets at Palestinians trying to disrupt a right-wing nationalist march in Jerusalem, while Hamas militants launched incendiary balloons into Israel that triggered Israeli airstrikes in the Gaza Strip, raising the specter of renewed violence in the region.
- The Israeli military said it carried out a limited series of airstrikes on the militant group’s compounds across the Gaza Strip, marking the first time the rival forces have traded blows since the two sides agreed to a May 21 truce that brought an end to an 11-day conflict.
- The Israeli strikes in Gaza appeared to cause no deaths or injuries. But the Israeli military warned that it was “prepared for any scenario, including a resumption of hostilities, in the face of continuing terror activities from the Gaza Strip.”
- More than 250 people in Gaza and 13 people in Israel were killed during last month’s conflict.
China’s Economic Growth Moderates as Consumers Stay Cautious – Wall Street Journal, 6/16/2021
- China’s economic growth moderated in May as flattering comparisons to the pandemic-hit economic figures early last year tapered off and Chinese consumers continued to keep a close eye on their pocketbooks.
- Factory output, a key growth pillar in China’s pandemic recovery for more than a year, remained resilient last month, but investment and domestic consumption fell short of expectations despite a boost from a long holiday, weighed down by a fresh wave of Covid-19 infections.
- China’s industrial production rose 8.8% from a year earlier in May, slowing from April’s 9.8% pace, data from the National Bureau of Statistics showed Wednesday.
- The key gauge of factory activity was 13.6% higher than the level recorded in May 2019, long before the Chinese economy was hit by the new coronavirus, the statistics bureau said.
- Retail sales, a key gauge of China’s consumption, rose by 12.4% last month compared with a year earlier, slowing from the 17.7% year-over-year growth rate in April and falling short of the 13.6% gain anticipated by economists.
- The country’s headline measure of joblessness, the urban surveyed unemployment rate, fell for a third consecutive month, to 5.0% in May—its lowest level in two years.
China to Release Metal Reserves in Effort to Tame Commodities Rally – Wall Street Journal, 6/16/2021
- China said it would begin to sell major industrial metals from state stockpiles, an effort to squelch factory-gate price increases that have hit a 13-year high and are stoking fears of global inflation.
- As the world’s biggest buyer of a range of industrial commodities, China is using its market heft to try to quell the sharp rise in global metal prices over the past 12 months, including a 67% surge in copper, a bellwether for macroeconomic health.
- China’s latest move targets copper, aluminum and zinc, among other metals, and outlines a program of public auctions to domestic metal processors and manufacturers, the National Food and Strategic Reserves Administration said Wednesday.
- Beijing’s vast buying power over metals doesn’t necessarily guarantee its ability to tame global prices.
- London spot prices for aluminum traded largely flat on Wednesday from a month earlier, but have risen 5% from early June as investors shrugged off the likely impact of Chinese sales.
Alibaba Falls Victim to Chinese Web Crawler in Large Data Leak – Wall Street Journal, 6/16/2021
- A Chinese software developer trawled Alibaba Group Holding Ltd. ’s popular Taobao shopping website for eight months, clandestinely collecting more than 1.1 billion pieces of user information before Alibaba noticed the scraping, a Chinese court verdict said.
- The software developer began using web-crawling software he designed on Taobao’s site starting in November 2019, gathering information including user IDs, mobile-phone numbers and customer comments, according to a verdict released this month by a district court in China’s central Henan province.
- When Alibaba noticed the data leaks from Taobao, one of China’s most-visited online retail sites, the company informed the police, the court said.
- No user information was sold to a third party and no economic loss occurred, a spokeswoman said.
- About 925 million people use Alibaba’s Chinese retail platforms at least once a month, according to the company.
Inflation Jumps to 3.6% in Canada, Its Highest Since 2011 – Bloomberg, 6/16/2021
- Inflation in Canada accelerated to its highest level in a decade, in what policy makers are saying will only be a temporary run-up in prices.
- Consumer prices were up 3.6% in May from a year ago, the fastest annual gain since May 2011, Statistics Canada reported Wednesday in Ottawa. That’s up from a pace of 3.4% in April.
- On a monthly basis, prices rose 0.5% versus forecasts for a 0.4% increase.
- Rising prices for cars were among the biggest drivers of inflation last month. Car prices are up 5% from a year earlier, in part because of supply chain issues related to a shortage of semiconductor chips globally.
- Gasoline also gained in May, and is up 43% from a year earlier when prices were still affected by the pandemic shutdowns.
- Senate candidate Abraham Lincoln declared, “a house divided against itself cannot stand.” (1858)
- President Franklin D. Roosevelt signed the National Industrial Recovery Act. (1933)
- Russia voted in its first independent presidential election. Boris Yeltsin eventually won in a runoff. (1996)
- The 9/11 Commission determined that Saddam Hussein had no strong links to al-Qaeda, contradicting White House beliefs. (2004)