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Daily Market Report | June 16, 2022

US FINANCIAL MARKET

Stock Market Drops as Post-Fed Rally Fades – Wall Street Journal, 6/16/2022

  • U.S. stocks tumbled Thursday, undoing the prior day’s gains as volatility continued to rock the market.
  • The S&P 500 fell 3.5%, while the Dow Jones Industrial Average dropped 2.8%, or more than 800 points. The tech-heavy Nasdaq Composite slumped 4.2%.
  • Major indexes rallied Wednesday after the Federal Reserve raised its benchmark interest rate by 0.75 percentage point. It was the Fed’s largest rate increase since 1994 but lined up with investors’ expectations as the central bank races to tame high inflation. Fed Chairman Jerome Powell said he did “not expect moves of this size to be common,” and investors snapped up shares of companies from banks to technology firms.
  • That optimism fizzled Thursday. Stocks fell broadly, with each of the S&P 500’s 11 sectors lower on the day.
  • Some analysts said investors are coming to terms with increasing risks to economic growth.
  • While Mr. Powell suggested Wednesday that the “unusually large” rate rise wouldn’t become common, he left the door open to another 0.75-percentage-point increase as soon as next month.
  • The Swiss central bank surprised investors by hiking interest rates for the first time in 15 years. The Swiss National Bank raised its policy rate by 0.5 percentage point to negative 0.25%, leaving only the Bank of Japan among the major developed economy central banks not to have raised rates to tame inflation. Economists had expected the SNB to leave rates unchanged.
  • The Bank of England on Thursday raised its key interest rate as expected to 1.25% from 1%, marking its fifth move in as many meetings, and said larger moves might be required to tame inflation.
  • The yield on the benchmark 10-year U.S. Treasury note rose to 3.412% from 3.389% on Wednesday, resuming their rise that has pushed yields to their highest levels in more than a decade.
  • Bitcoin declined 3.2% from its 5 p.m. ET level on Wednesday to $20,940, according to CoinDesk, putting it on course to fall for a 10th consecutive day. Cryptocurrencies have been hit by broad economic concerns that are hurting risky trades and worries about select projects and companies in the crypto ecosystem.
  • In commodity markets, Brent crude, the international oil benchmark, fell 2.1% to $115.98 a barrel. Gold prices rose 0.5%.
  • Stocks also fell overseas. The pan-continental Stoxx Europe 600 index dropped 2.3%, with sharp losses for rate-sensitive technology firms and economically sensitive retail stocks. In Asia, the Hang Seng in Hong Kong fell 2.2%, while Japan’s Nikkei 225 added 0.4%.

Elon Musk Expected to Reiterate Desire to Own Twitter in Meeting Thursday – Wall Street Journal, 6/16/2022

  • Elon Musk is expected to confirm his desire to own Twitter when he speaks to the social-media company’s employees on Thursday, according to a person familiar with the matter.
  • The billionaire Tesla chief executive is slated to answer pre-submitted employee questions for roughly an hour at a virtual Twitter all-hands meeting Thursday morning West Coast time, the person said.
  • In addition to reiterating his interest in owning the company and his view of its importance in the world, Mr. Musk is likely to clarify recent comments about remote work and touch on aspects of his strategy for Twitter, including the role of advertising and subscriptions.

High U.S. Fuel Exports Are Contributing to $5-a-Gallon Gas – Wall Street Journal, 6/16/2022

  • A rapid rise in American fuel exports this year has helped push gasoline prices to a record $5 a gallon and is pressuring U.S. prices of natural gas, which hit the highest levels in over a decade earlier this month.
  • In recent months, companies and commodities traders have shipped more U.S. gasoline and diesel to Latin America and other foreign markets, reaping higher prices than the fuel could fetch domestically.
  • They have also sent more liquefied natural gas, or LNG, to Europe after Russia’s invasion of Ukraine.
  • Seaborne shipments of gasoline, diesel and jet fuel departing the U.S. Gulf Coast in March, April and May averaged 32% higher compared with the same three months last year, and 11% higher than the same period in 2019, according to market-intelligence firm Kpler.
  • Meanwhile, exports of natural gas—by LNG tanker and by pipeline to Mexico and Canada—vaulted to a record in March, to about 22% of U.S. gas production, according to the latest available data from the Energy Information Administration.
  • Domestic prices earlier this month hit $9.32 per million British thermal units, the highest level since 2008, driven by Europe’s pursuit of supplies.
  • These unusual circumstances are for the first time causing exports to substantially affect what Americans pay for gasoline and natural gas, which makes it costlier to provide heat and electricity to homes, analysts said.

Spotify to Slow Its Hiring by 25% – Wall Street Journal, 6/16/2022

  • Spotify Technology will slow its hiring by 25%, Chief Executive Daniel Ek told employees in an email Wednesday, according to a person familiar with its contents.
  • The announcement, which echoes comments made by the streaming giant’s finance chief at Spotify’s investor day last week, is the latest signal that companies are bracing for a possible recession amid rising interest rates and soaring inflation.
  • The company isn’t laying anyone off, according to a person familiar with the matter, and the slowdown comes after a hiring spree, largely for its R&D team, over the past year. Spotify has more than 8,000 employees around the world.
  • In the email to staff, Mr. Ek said that Spotify will “continue to still hire and grow,” and that “we are just going to slow that pace and be a bit more prudent with the absolute level of new hires over the next few quarters.”

Global port congestion, high shipping rates to last into 2023 – execs – Reuters, 6/16/2022

  • Global port congestion is set to continue until at least early 2023 and keep spot freight rates elevated, logistics executives said on Wednesday, urging charterers to switch to long-term contracts to manage shipping costs.
  • The COVID-19 outbreak has lengthened ship delivery times since 2020, pushing up freight costs, while the Russia-Ukraine conflict and lockdowns in Shanghai have added to supply chain disruptions this year.
  • “We believe the current congestions, not only the ports but also the landside infrastructure, will be there at least till Q1 2023,” said Peter Sundara, head of global ocean freight product for the global logistics division at Visy Industries.
  • While more vessels could be added to the global fleet next year, this does not mean that freight rates will drop broadly as it depends on how ship carriers allocate increased vessel capacities, he told the S&P Global Platts Bunker and Shipping Summit.
  • Eric Jin, head of investment support at industrial equipment supplier BMT Asia Pacific, said rising shipping costs, longer transit times and higher uncertainty will be the “new normal” for the shipping industry.

US ECONOMY & POLITICS

Fed Raises Rates by 0.75 Percentage Point, Largest Increase Since 1994 – Wall Street Journal, 6/16/2022

  • The Federal Reserve approved the largest interest-rate increase since 1994 and signaled it would continue lifting rates this year at the most rapid pace in decades to fight inflation that is running at a 40-year high.
  • Officials agreed to a 0.75-percentage-point rate increase at their two-day policy meeting that concluded Wednesday, which raised the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75% on Thursday.
  • New projections showed all 18 officials who participated in the meeting expect the Fed to raise rates to at least 3% this year, with at least half of all officials indicating the fed-funds rate might need to rise to around 3.375% this year.
  • “Clearly, today’s 75-basis-point increase is an unusually large one, and I do not expect moves of this size to be common,” Mr. Powell said. “From the perspective of today, either a 50-basis-point or a 75-basis-point increase seems most likely at our next meeting” on July 26-27.

US Housing Starts Decline to Lowest Level in More Than a Year – Bloomberg, 6/16/2022

  • New US home construction dropped in May, highlighting the impacts of ongoing supply chain challenges and sinking sales as mortgage rates rise.
  • Residential starts declined 14.4% last month to a 1.55 million annualized rate, the lowest in more than a year, according to government data released Thursday. The median forecast called for a 1.69 million pace. April construction was revised sharply higher to a 1.81 million rate, which was the strongest since 2006.
  • Applications to build, a proxy for future construction, fell to an annualized 1.7 million units, the lowest since September.
  • The government’s report showed single-family housing starts declined 9.2% to an annualized 1.05 million rate, the slowest since 2020. Construction of multifamily dwellings plunged 23.7% to a 498,000 rate, the weakest since November.
  • The number of total homes authorized for construction but not yet started rose 0.7% in May. The number of single-family properties under construction was unchanged from a month earlier at the highest level since 2006.

US Jobless Claims Edge Lower, Reflecting Tight Labor Market – Bloomberg, 6/16/2022

  • Applications for US unemployment insurance were little changed last week, suggesting the labor market remains exceptionally tight.
  • Initial unemployment claims decreased by 3,000 to 229,000 in the week ended June 11, Labor Department data showed Thursday. The median estimate in a Bloomberg survey of economists called for 217,000.
  • Continuing claims for state benefits were also little changed at 1.31 million in the week ended June 4, hovering near the lowest since 1969.
  • On an unadjusted basis, initial claims rose to 204,461 last week. That reflected increases in California, Pennsylvania and Illinois.

US Mortgage Rates Surge to 5.78% in Biggest Jump Since 1987 – Bloomberg, 6/16/2022

  • Mortgage rates in the US surged the most in more than three decades, ratcheting up pressure on would-be homebuyers and cooling the housing market.
  • The average for a 30-year loan jumped to 5.78%, up from 5.23% last week, Freddie Mac said in a statement Thursday. That was the largest one-week increase since 1987.
  • The new average is the highest level since 2008 and is almost double the 2.93% rate on 30-year mortgages last year at this time.
  • At the current 30-year average, a borrower with a $300,000 mortgage would pay $1,756 a month, nearly $474 more than at the end of last year.
  • A homebuyer with a $600,000 mortgage would pay more than $3,500 a month, an increase of almost $950 from the end of 2021.

Philadelphia Fed manufacturing index goes negative for first time in 2 years – Reuters, 6/16/2022

  • Manufacturing activity in the U.S. mid-Atlantic region weakened unexpectedly in June as new orders dropped to a two-year low and goods producers’ near-term outlook sank to the lowest since 2008, a closely followed survey showed on Thursday.
  • The Philadelphia Federal Reserve’s manufacturing activity index slid for a third straight month to a reading of minus 3.3, its first negative reading since May 2020 in the early months of the coronavirus pandemic. That is down from positive 2.6 in May.
  • The bank’s new orders index contracted to negative 12.4 in June from positive 22.1 a month earlier. The outlook for the next six months – at negative 6.8 – was the lowest since February 2008.
  • One bright spot was a moderation in inflation, with the prices paid index declining to the lowest since February 2021 at 64.5 in June from 78.9. A reading of factory employment also improved modestly.

U.S., Allies Pledge New Help to Ukraine Against Russia Amid Growing Strains – Wall Street Journal, 6/16/2022

  • The U.S. is sending $1 billion in new military assistance to help Ukraine repulse Russia’s invasion, in response to urgent pleas from Kyiv for better weapons and amid growing strains among Western capitals.
  • The package, which includes artillery, ammunition and coastal defense systems, is intended to support badly outgunned Ukrainian forces in the Donbas region and blunt Russia’s naval advantage in the Black Sea.
  • President Biden spoke with Ukrainian President Volodymyr Zelensky to spell out the new billion-dollar commitment.
  • In addition to the U.S. package, NATO members and other allies pledged new weapons and military systems to Ukraine during the meeting, held at North Atlantic Treaty Organization Headquarters.

EUROPE & WORLD

BOE Raises Rates to Highest Since 2009 and Warns of Bigger Moves – Bloomberg, 6/16/2022

  • The Bank of England raised interest rates for a fifth straight meeting and sent its strongest signal yet that it’s prepared to unleash larger moves if needed to tame inflation.
  • The nine-member Monetary Policy Committee voted 6-3 to increase the benchmark lending rate by 25 basis points to 1.25%. A minority of officials maintained their push for a move of double that size.
  • Policy makers led by Governor Andrew Bailey hinted that they may join a growing global trend for larger hikes if inflation continues to soar, saying “it would be particularly alert to indications of more persistent inflationary pressures, and would if necessary act forcefully in response.”
  • Crucially, that language was endorsed by all the BOE’s voters, a departure from May when two declined to sign up to guidance that more hikes were needed.
  • The bank also raised its forecast for the peak of inflation this year to “slightly above” 11%, reflecting the planned increase in the energy price cap in October, and said it now expects the economy to contract in the current quarter.

Swiss central bank surprises markets with first rate hike since 2007 – CNBC, 6/16/2022

  • The Swiss National Bank raised its policy interest rate for the first time in 15 years on Thursday, joining other central banks in tightening monetary policy to fight resurgent inflation and sending the safe-haven franc sharply higher.
  • The central bank increased its policy rate to -0.25% from the -0.75% level it has deployed since 2015. The hike was the first increase by the SNB since September 2007.
  • “We see at the moment that inflation has increased in Switzerland — we have close to 3% — and we also observed that we have a certain risk of second-round effects,” SNB Chairman Thomas Jordan told CNBC’s Julianna Tatelbaum on Thursday.
  • The SNB raised its inflation forecasts for 2022 to 2.8% from the 2.1% it gave in March. It also expects inflation of 1.9% and 1.6% in 2023 and 2024, up from its previous view for prices rising by 0.9% in both years.
  • The SNB still expects the Swiss economy to grow by around 2.5% in 2022.

Prices for New Homes in China Slide Further – Wall Street Journal, 6/16/2022

  • A decline in Chinese new-home prices accelerated in May, despite efforts by local governments and banks to increase support for a real-estate sector that has been plagued by developer defaults and weak home-buyer demand.
  • Data released on Thursday by China’s National Bureau of Statistics showed that average new-home prices in 70 major Chinese cities declined 0.79% in May from a year earlier.
  • That was worse than a 0.11% year-over-year pullback in April, which was the first month in which home prices had fallen by this measure in more than six years.
  • Just 23 of the 70 Chinese cities tracked by the government reported yearly growth in average new-home prices, down from 30 cities in April.
  • Compared with the previous month, average new-home prices fell 0.17% in May, marking a ninth consecutive monthly decline, according to Wall Street Journal calculations based on statistics bureau data.

Chinese Slowdown Pushes Youth Unemployment to New Highs – Wall Street Journal, 6/16/2022

  • In China, an army of college students is set to enter the toughest job market in years, as Covid-19 takes the wind out of the broader economy and Beijing’s regulatory campaigns devastate industries long attractive to the country’s young people.
  • In May, youth unemployment hit 18.4%, according to government data released Wednesday, from 13.8% a year ago. The May rate is the highest recorded for youth since 2018, when Chinese officials began releasing the data.
  • The outlook is expected to worsen among this group, even as the overall jobless rate in urban China edged down to 5.9% in May from April’s 6.1%.
  • A record 10.7 million university graduates will swarm the labor market this year, likely sending the youth jobless rate to 23% in July and August, economists at BofA Securities estimated in a report.
  • Competition has intensified. In the first quarter of this year, each fresh graduate was chasing, on average, 0.71 job vacancies—the bleakest outlook by this measure since Zhaopin began recording such data four years ago.

Factmonster – TODAY in HISTORY

  • The Battle of Stoke ended the Wars of the Roses. (1487)
  • Senate candidate Abraham Lincoln declared, “a house divided against itself cannot stand.” (1858)
  • President Franklin D. Roosevelt signed the National Industrial Recovery Act. (1933)
  • Valentina Tereshkova of the USSR became the first woman in space. (1963)
  • 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)

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