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Daily Market Report | June 18, 2021

US FINANCIAL MARKET

Dow Falls Nearly 500 Points, on Track for Worst Week Since January – Wall Street Journal, 6/18/2021

  • U.S. stocks retreated Friday, putting the Dow on track for its worst weekly performance since the end of January.
  • The Dow Jones Industrial Average fell 1.4%, or 480 points. The index of blue-chip stocks had dropped 1.9% this week through Thursday, leaving it poised for its worst showing since it retreated almost 3.3% in the last week of January.
  • The S&P 500 declined 1% early Friday. The benchmark index is on track to end a three-week streak of gains.
  • The Nasdaq Composite Index ticked 0.7% lower, as large technology stocks also fell at the opening bell.
  • Sentiment waned on Friday after Federal Reserve Bank of St. Louis leader James Bullard said on CNBC that he expects the first rate increase in late 2022.
  • The Fed has faced more inflation than it expected, and policy makers need to be nimble, he added.
  • In bond markets, the yield on the 10-year Treasury note ticked down to 1.488%, from 1.509% Thursday.
  • Gold futures rose 0.3%, recovering some of their losses from Thursday, when they suffered their largest drop in over 10 months.
  • The price of the precious metal tends to decline when investors anticipate rates rising and yield-bearing investments becoming more attractive.
  • Overseas, the pan-continental Stoxx Europe 600 dropped 1,2%.
  • Major indexes in Asia closed on a mixed note. Hong Kong’s Hang Seng Index added almost 0.9% and South Korea’s Kospi Composite index ticked up 0.1%. Japan’s Nikkei 225 closed down 0.2% and China’s Shanghai Composite was relatively flat.

Adobe stock heads toward fresh record highs after earnings – Marketwatch, 6/18/2021

  • Adobe shares headed toward new records Thursday afternoon, after revealing an “outstanding” second quarter on the strength of cloud software in what Chief Executive Shantanu Narayen calls “a digital-first world.”
  • Revenue rose to $3.84 billion from $3.13 billion in the year-ago quarter.
  • The San Jose, Calif.-based company said revenue from its Digital Media, Creative and DocumentCloud products grew 25%, 24% and 30% respectively year-over-year.
  • The company also said it had a record $1.99 billion in cash flows from operations.
  • The maker of Photoshop and other media and marketing software reported net income of $1.12 billion, or $2.32 a share, compared with $1.1 billion, or $2.27 a share, in the year-ago period.
  • Adobe expects adjusted third-quarter earnings of $3 a share on revenue of $3.88 billion, while analysts had forecast earnings of $2.89 a share on revenue of $3.83 billion.

CVS and Walgreens Were Reeling. Now They’re Riding a Covid-19 Wave. – Wall Street Journal, 6/18/2021

  • As the Covid-19 pandemic bore down last spring, America’s drugstore giants warned investors that the health crisis threatened their already tenuous turnarounds.
  • CVS Health and Walgreens Boots Alliance lost revenue as shoppers stayed home and skipped routine medical care.
  • The companies spent hundreds of millions of dollars to roll out testing and vaccination programs.
  • The nation’s largest retail pharmacy chains say consumers coming for vaccines are spending money in stores.
  • Some vaccine recipients are switching their prescriptions to the chain where they got their shots.
  • CVS, for instance, said it expects a 2% bump this year in so-called front-store sales, which don’t include prescriptions, at locations offering vaccines.
  • The chains have launched a string of products, including at-home test kits, at-home antibody tests, and Covid-19 tests for people with no symptoms or exposure—for which companies generally collect out-of-pocket fees.
  • Vaccines have become more lucrative. The amount that the U.S. Centers for Medicare and Medicaid Services pay pharmacies and other providers rose this spring to $40 for each dose, up from $28 for a single dose and $45 for two doses.

Cruise operator Carnival discloses personal data breach, shares down – Reuters, 6/18/2021

  • Cruise operator Carnival said on Thursday it had detected unauthorized access to its computer systems in March, after which it alerted regulators and hired a cybersecurity firm to investigate the breach.
  • The company, whose shares were down over 2%, noticed the suspicious activity on March 19 and acted quickly to “to shut down the event and prevent further unauthorized access”, it said in an emailed statement.
  • The breach affected personal information of some guests, employees and crew for Carnival Cruise Line, Holland America Line, Princess Cruises and medical operations, Carnival said.

Stanley Black & Decker CFO Looking for Partnerships With Battery, Chip Makers – Wall Street Journal, 6/18/2021

  • Stanley Black & Decker Inc.’s finance chief is spending more time and money trying to strike partnerships with battery and chip manufacturers to help ease the pressure on the tool maker’s supply chain.
  • The company, which is best known for its power tools, is seeking electric battery and computer chip makers that would agree to supply components in return for an investment.
  • Stanley Black & Decker has a tentative partnership with a South Korean battery maker for a production line that would start manufacturing batteries in Malaysia next year, Chief Financial Officer Donald Allan Jr. said.
  • The company is also talking to other businesses in Asia and the U.S. about potential partnerships.
  • New Britain, Conn.-based Stanley Black & Decker, which has budgeted for roughly $500 million in capital expenditures this year, plans to dedicate about 10% to 15% of that to supply-chain partnerships and other related initiatives.
  • Before the pandemic, such spending would have made up less than 5% of the budget for capital expenditures, Mr. Allan said.

Exclusive: OPEC told to expect limited U.S. oil output growth, for now – sources – Reuters, 6/18/2021

  • OPEC officials heard from industry experts that U.S. oil output growth will likely remain limited in 2021 despite rising prices, OPEC sources said, giving it more power to manage the market in the short term before a potentially strong rise in shale output in 2022.
  • Officials from OPEC’s Economic Commission Board (ECB) and external presenters attended a meeting on Tuesday focused on U.S. output, the sources said.
  • OPEC heard from more forecasters on the outlook for 2021 and 2022 at a separate meeting on Thursday.
  • While there was general agreement on limited U.S. supply growth this year, an industry source said for 2022 forecasts ranged from growth of 500,000 bpd to 1.3 million bpd.
  • “The general sentiment regarding shale was it will come back as prices go up but not super fast,” said a source at one of the companies that provided forecasts to OPEC.
  • U.S. shale oil output usually responds rapidly to price signals and U.S. crude has this week hit its highest since October 2018 at nearly $73 a barrel.
  • But U.S. producers are still focusing on capital discipline and investor returns, rather than expanding supply, the ECB heard.

US ECONOMY & POLITICS

Fed’s Bullard Says High Inflation May Warrant Liftoff in 2022 – Bloomberg, 6/18/2021

  • Inflation risks may warrant the Federal Reserve beginning raising interest rates next year, St. Louis Fed President James Bullard said, backing an even-earlier liftoff than penciled in by many of his colleagues.
  • “I put us starting in late 2022,” Bullard said Friday during a TV interview on CNBC, referring to interest-rate projections published Wednesday by the U.S. central bank after a two-day policy meeting.
  • “But you do have to have the idea that these are related to what the forecast is. So, my forecast said 3% inflation in 2021 — core PCE inflation — and 2.5% core PCE inflation in 2022,” he said. “If that’s what you think is going to happen, then by the time you get to the end of 2022, you’d already have two years of 2.5-3% inflation.”
  • “This is very much a debate about what’s going to happen in 2022. Is the inflation that we’re seeing in 2021 going to persist into 2022 or not?” Bullard said.

Fed Reverse Repos Surge to Record of $756 Billion After Rate Tweak – Wall Street Journal, 6/18/2021

  • A day after the Federal Reserve boosted the return on a key part of its interest rate control tool kit, a record $756 billion flowed into the central bank’s reverse repo facility on Thursday.
  • Until Wednesday, this facility offered a return of zero percent to eligible users, which the Fed moved up to 0.05%, while at the same time lifting another rate, called the interest on excess reserves rate, to 0.15% from 0.10%.
  • The Fed said Wednesday that the rate changes were technical and designed to smooth money-market conditions and ensure the federal-funds rate, its chief lever for controlling the economy’s momentum, stays within the 0% to 0.25% range.
  • The reverse repo rate and interest on excess reserves rate exist to help keep the funds rate within that range.

Bipartisan $1 Trillion Infrastructure Package Gains Steam – Wall Street Journal, 6/18/2021

  • A growing bipartisan group of lawmakers and the White House haggled over how to finance a roughly $1 trillion infrastructure proposal, awaiting feedback from President Biden as Democrats began discussions on a separate economic package that could cost up to $6 trillion.
  • Since negotiations between Mr. Biden and a group of Senate Republicans collapsed last week, an alternative set of Republican and Democratic senators have held talks on a infrastructure plan that would spend $973 billion over five years, with $579 billion of that funding above expected baseline levels.
  • According to a draft outline of the proposal, the plan would dedicate $110 billion in new spending to bridges and roads, $65 billion to expanding access to broadband, and $48.5 billion to public transit, among other priorities.
  • Extended over an eight-year timeline, the plan would spend a total of $1.2 trillion.
  • The draft, first obtained by Politico, also includes a number of ways to finance the package, a central issue in the talks.
  • It proposes indexing the gas tax to inflation, increasing IRS enforcement to collect unpaid taxes, collecting an annual fee from electric vehicles, and repurposing existing federal funds.
  • An infrastructure financing authority, public-private partnerships, and direct-pay municipal bonds are also included as possible financing mechanisms.
  • The White House has opposed raising the gas tax and placing fees on electric vehicles, and Democrats in the group met with top White House officials on Capitol Hill Wednesday.

U.S. FCC votes to advance proposed ban on Huawei, ZTE gear – Reuters, 6/18/2021

  • The U.S. Federal Communications Commission voted unanimously on Thursday to advance a plan to ban approvals for equipment in U.S. telecommunications networks from Chinese companies deemed national security threats like Huawei and ZTE.
  • The vote drew opposition from Beijing.
  • Under proposed rules that won initial approval, the FCC could also revoke prior equipment authorizations issued to Chinese companies.
  • The FCC action would prohibit all future authorizations for communications equipment deemed to pose an unacceptable risk to national security.

U.S. senators propose 25% tax credit for semiconductor manufacturing – Reuters, 6/18/2021

  • A bipartisan group of U.S. senators on Thursday proposed a 25% tax credit for investments in semiconductor manufacturing as Congress works to increase U.S. chip production.
  • The proposal sponsored by Senate Finance Committee Chairman Ron Wyden and the top Republican on the panel, Senator Mike Crapo, along with Senators Mark Warner, Debbie Stabenow, John Cornyn and Steve Daines, would provide “reasonable, targeted incentives for domestic semiconductor manufacturing,” they said in a statement.
  • The senators said up to 70% of the cost difference for producing semiconductors overseas results from foreign subsidies.
  • The Semiconductor Industry Association praised the proposal, saying it said would “strengthen domestic chip production and research, which are critical to U.S. job creation, national defense, infrastructure, and semiconductor supply chains.”

EUROPE & WORLD

UK retail sales dip as consumers, freed from lockdown, dine out – Reuters, 6/18/2021

  • British retail sales fell unexpectedly last month as a lifting of lockdown restrictions encouraged spending in restaurants rather than shops, according to official data.
  • Retail sales fell 1.4% between April and May, the Office for National Statistics said.
  • Food stores suffered the biggest hit, with a 5.7% drop in sales. Separately on Friday supermarket chain Tesco, Britain’s biggest retailer, reported a sharp slowdown in underlying UK sales growth in its first quarter.
  • In annual terms, retail sales were 24.6% higher than May last year, short of the median expectation for a 29.0% increase.
  • Household good stores bucked the wider decline with month-on-month growth of 9.0%, which the ONS linked to spending on outdoor goods.

Cathay Pacific expects lower first-half loss on cost savings, cargo flights – Reuters, 6/18/2021

  • Cathay Pacific Airways said on Friday that losses in the first half are expected to be “somewhat” lower than last year, due to cost-saving measures and strong demand for cargo flights.
  • Crew quarantine measures have eased since mid-April and that helped Cathay operate 24% more freighter flights and 18% more cargo-only passenger flights in May compared to April, the airline said in a statement.
  • Cathay reported a first-half net loss of HK$9.87 billion ($1.27 billion) last year and a net loss of HK$11.78 billion in the second half.
  • While passenger numbers climbed 30% in May to 24,006, the airline said they remain 99% lower than pre-pandemic levels.
  • Cathay said it is “cautiously” adding more passenger flights and destinations, and plans to operate at around 30% of its pre-pandemic passenger capacity by the fourth quarter.

China Considers Lifting All Childbirth Restrictions by 2025 – Wall Street Journal, 6/18/2021

  • Chinese officials are drawing up plans to further loosen birth restrictions and transition toward policies that explicitly encourage childbirth, according to people familiar with the matter, reflecting increased urgency in Beijing as economic growth slows and China’s population mix skews older.
  • Policy makers are discussing the possibility of fully doing away with birth restrictions by 2025, the end of the ruling Chinese Communist Party’s current five-year economic plan, according to one of the people.
  • According to that person, China will likely begin by eliminating birth restrictions in provinces where the birthrate is the lowest before enacting nationwide changes.
  • The country’s population is expected to fall from the current 1.41 billion to roughly 730 million people by the end of this century, according to projections by an international team of scientists published last year in the British medical journal The Lancet.

China Steps Up Antitrust Pressure on Internet Firms – Wall Street Journal, 6/18/2021

  • Chinese regulators have intensified scrutiny of dozens of domestic internet companies for possible antitrust violations, people familiar with the matter said.
  • In recent weeks, agents from government agencies including the antitrust watchdog, the cyber police and tax authorities have paid surprise visits to some companies, according to the people.
  • Those visited included Didi Chuxing Technology, according to the IPO prospectus of the ride-hailing firm.
  • During some of the on-site inspections, agents have questioned senior executives, downloaded contracts and financial records and collected emails and internal communications, the people said.
  • The agencies involved include the State Administration for Market Regulation, the Cyberspace Administration of China and the State Tax Administration, they said.

Factmonster – TODAY in HISTORY

  • The War of 1812 began. (1812)
  • Napoleon was defeated at the Battle of Waterloo by British, German, and Dutch forces. (1815)
  • Suffragist Susan B. Anthony was fined $100 for attempting to vote in the 1872 presidential election. (1873)

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