US FINANCIAL MARKET
Stocks Waver as Investors Weigh Rate-Hike Fears – Wall Street Journal, 6/27/2022
- U.S. stocks bobbled Monday as major indexes tried to hold gains from last week’s rally on milder expectations for Federal Reserve interest-rate increases.
- The S&P 500 bounced around, recently trading up about 0.2%. The Dow Jones Industrial Average edged up 0.2%, while the technology-focused Nasdaq Composite Index slipped 0.1%.
- Last week the S&P 500 posted its largest one-day percentage gain in two years on Friday.
- Weaker-than-expected U.S. economic data have caused investors to reassess their expectations for a blistering pace of monetary-policy tightening from the Federal Reserve.
- In other economic news, data showed durable-goods orders for May had risen more than expected.
- And U.S. pending-home sales rose in May by 0.7%, according to the monthly index released by the National Association of Realtors. The increase breaks a six-month decline and comes even as mortgage rates keep climbing.
- Meanwhile, investors have pared back expectations for rate increases this year.
- On Monday, futures bets showed traders assigned a roughly 52% probability that the Fed will raise interest rates by another 2 percentage points this year, according to CME Group.
- That is down from a probability of 74% a week ago.
- The yield on the benchmark 10-year Treasury note traded at 3.202% Monday, up from 3.125% on Friday but well off its peak of 3.482% this month. Bond yields rise when prices fall.
- Overseas, the pan-continental Stoxx Europe 600 rose 0.4% and the U.K.’s FTSE 100 gained 0.5%.
- In mainland China, the CSI 300 Index tracking the 300 largest domestic-listed companies rose 1.1%. Japan’s Nikkei 225 rose 1.4% and Hong Kong’s Hang Seng climbed 2.4%.
- In commodity markets, Brent crude prices edged up 0.1% to $109.20 a barrel.
- Over the weekend, the Group of Seven countries said they are moving toward an agreement on expanding sanctions against Russia by looking for a mechanism to cap the purchase price of Russian oil.
- Details of the oil purchase price cap are expected to be completed ahead of the summit’s conclusion on Tuesday.
- Officials said they would create a buyers’ cartel of Western nations that would seek to restrict Russia’s revenues from oil sales while also keeping supply on the market.
Shanghai Has Reopened, but Not Disneyland – Wall Street Journal, 6/27/2022
- Shanghai is emerging from a monthslong Covid-induced lockdown, but for many companies across China, it still isn’t business as usual because of concerns about future lockdowns.
- Shanghai Disneyland was shut on March 21 as municipal authorities tried to contain the then-fast-spreading outbreak, and the amusement park hasn’t reopened following the lifting of some citywide restrictions, which began on June 1.
- The park has yet to reopen in part because some executives fear a single infection among park guests could mean a disruptive shutdown, according to people familiar with the matter. Last October, Shanghai Disneyland was forced to suspend operations, locking 30,000 visitors inside the park, after a guest tested positive for Covid-19.
- Additional reasons for keeping the amusement park closed, the people said, include the extra costs associated with mass Covid testing and the expectation of fewer summer visitors because of pandemic fears.
- Economists and business executives say the recent cycle of pandemic restrictions will paralyze future decisions and consumer activity as leader Xi Jinping has reaffirmed his commitment to crushing outbreaks with strict regulations.
Taiwan’s GlobalWafers to Invest $5 Billion in New Texas Plant – Wall Street Journal, 6/27/2022
- GlobalWafers, a Taiwan-based technology company, unveiled a plan on Monday to build a $5 billion factory in Sherman, Texas, to manufacture silicon wafers, a key material used in the production of semiconductors.
- The investment, which would receive U.S. government support should Congress pass pending legislation, will contribute to a U.S. effort to boost domestic production of advanced semiconductors and reduce reliance on imports by supplying materials to companies such as Intel and Taiwan Semiconductor Manufacturing Co.
- The existing U.S. manufacturing capacity of silicon wafers will be able to supply only 20% of the estimated domestic demand by 2025, and the wafers won’t be suitable for some of the advanced chips planned to be manufactured at the new production facilities currently being built by Intel, TSMC and Samsung Electronics, GlobalWafers said.
- GlobalWafers said the new factory, the first U.S. silicon wafer-facility in more than two decades, will produce 300-millimeter silicon wafers, the starting material for all advanced semiconductors, with production volumes ultimately reaching 1.2 million wafers a month.
- That is enough to cover all U.S. demand when the planned new semiconductor facilities start production.
GE Chairman, CEO Culp Also Named CEO of GE Aviation – Wall Street Journal, 6/27/2022
- General Electric on Monday said H. Lawrence Culp Jr., the architect of the conglomerate’s plans to split into three public companies, is taking on the additional post of chief executive officer of GE Aviation.
- Mr. Culp remains chairman and CEO of Boston-based GE, which in November announced plans to spin off its healthcare and power businesses while retaining its aviation operations.
- GE said John Slattery, who had been president and CEO of GE Aviation, will now serve as executive vice president and chief commercial officer of the business, while Russell Stokes, who had been president and CEO of GE Aviation services, becomes president and CEO of commercial engines and services, taking on expanded oversight of Aviation’s largest segment.
- GE also said it named Rahul Ghai chief financial officer of GE Aviation, plucking the executive from Otis Worldwide, which announced his pending departure earlier Monday.
Bidding Wars Overheated the Home-Buyer Market, Now They’re Coming for Renters – Wall Street Journal, 6/27/2022
- Bidding wars have long been a staple of hot housing markets, where buyers compete with offers above the seller’s listing price. Now, these contests are becoming more commonplace in the rental market.
- An increasing number of white-collar professionals—some of whom recently sold homes—are reluctant to buy because of record-high home prices, rising mortgage rates and limited supply.
- They are renting instead, helping to drive a frenzy for leased properties of all kinds, and helping fuel the trend of offering above asking rents, real-estate agents said.
- The median U.S. asking rent passed $2,000 for the first time in May, according to real-estate company Redfin, and it has risen 15% over the past 12 months.
- If more high-income people enter hot rental markets, and the supply of new homes for them to rent or buy doesn’t substantially increase, rents are poised to keep rising, housing analysts say.
- In Chicago, the website Brixbid.com facilitates an influx of people bidding on rent. Landlords start the bidding with a suggested price. Renters then have the choice to lowball them or bid even higher.
- Some apartments now go 10% to 15% over ask on Brixbid, said company co-founder James Peterson.
Airlines cancel nearly 700 U.S. flights as labor crunch weighs – Reuters, 6/27/2022
- Airlines canceled nearly 700 flights in the United States early Monday, as they struggled to keep up with a surge in summer travel demand due to a shortage of staff ranging from pilots to crew members.
- Total flight cancellations within, into, or out of the United States as of 6.07 am ET were 669, as per flight-tracking website Flightaware.com. Nearly 860 flights were canceled on Sunday.
- Delta Air Lines, United Airlines Holdings and Republic Airlines had over 100 cancellations each, while American Airlines Group canceled 51 flights as of early Monday.
‘Off the charts’ chemical shortages hit U.S. farms – Reuters, 6/27/2022
- U.S. farmers have cut back on using common weedkillers, hunted for substitutes to popular fungicides and changed planting plans over persistent shortages of agricultural chemicals that threaten to trim harvests.
- Spraying smaller volumes of herbicides and turning to less-effective fungicides increase the risk for weeds and diseases to dent crop production at a time when global grain supplies are already tight because the Ukraine war is reducing the country’s exports.
- Prices for glyphosate and glufosinate, another widely used herbicide sold under the brand Liberty, jumped more than 50% from last year, dealers said, padding profit at companies like Bayer, BASF and Corteva.
US ECONOMY & POLITICS
US Pending Home Sales Edge Higher But Still Reel From Rate Rise – Bloomberg, 6/27/2022
- A gauge of US pending home sales unexpectedly rose in May for the first time in seven months, a mere respite in an otherwise downward trend for housing as mortgage rates climb.
- The National Association of Realtors’ index of pending home sales increased 0.7% from a month earlier to 99.9, according to data released Monday.
- Compared with a year earlier, contract signings were down by 12% on an unadjusted basis.
- The NAR noted that at the median single-family home price and with a 10% down payment, the monthly mortgage payment has increased by about $800 since the beginning of the year.
US Durable Goods Orders Exceed Forecast in Broad Advance – Bloomberg, 6/27/2022
- Orders placed with US factories for durable goods rose more than expected in May, suggesting business investment so far remains firm even in the face of rising interest rates and mounting concerns about the economy.
- Bookings for durable goods — items meant to last at least three years — increased 0.7% in May after a revised 0.4% advance a month earlier, Commerce Department figures showed Monday.
- The value of core capital goods orders, a proxy for investment in equipment that excludes aircraft and military hardware, rose 0.5% after a 0.3% gain a month earlier.
- The median estimates in a Bloomberg survey of economists called for a 0.1% increase in orders for all durable goods and a 0.2% gain in the core figure.
- Durable goods orders excluding transportation equipment also rose 0.7% last month.
- The report also showed unfilled orders for all durable goods rose 0.3%, while inventories increased 0.6%.
U.S. Paying More to Borrow as Fed Raises Rates, Inflation Stays Elevated – Wall Street Journal, 6/27/2022
- Yields on U.S. Treasurys are rising as the Federal Reserve lifts interest rates to try to cool inflation, a development that could increase the federal government’s borrowing costs over time to levels higher than currently projected.
- Government spending on net interest costs in the fiscal year that began last October totaled about $311 billion through May, a nearly 30% increase from the same period a year earlier, according to Treasury Department data.
- Some budget analysts say an increase in the federal government’s borrowing costs could potentially crowd out spending for other priorities and add to the overall U.S. debt held by the public, which is projected to reach its highest-ever levels as a share of the economy over the next decade, according to estimates from the nonpartisan Congressional Budget Office.
- The CBO in May projected that this year, federal spending on net interest costs would reach $399 billion, compared with $352 billion in 2021, and that the yield on the U.S. 10-year note would average 2.4%, up from 1.4% last year.
- Interest costs are expected to increase in each fiscal year through 2032 and total roughly $8.1 trillion over the next decade, according to the estimates, which were completed in early March.
- According to the CBO’s rules of thumb, if all interest rates, including the average yield on 10-year Treasury notes, are 0.5 percentage point higher this year than in the agency’s baseline projections, spending on net interest costs would be $19 billion higher in fiscal year 2022.
- If interest rates were 0.5 percentage point higher each year between 2023 and 2032, spending on borrowing costs would be $1.3 trillion higher over the period compared with baseline CBO projections.
G-7 Expected to Adopt Fresh Sanctions Against Russia – Wall Street Journal, 6/27/2022
- The Group of Seven leaders are expected to agree to start work on a mechanism to cap the purchase price of Russian oil, with the U.S. also announcing a new round of military aid for Ukraine and sanctions against Moscow, Biden administration officials said Monday.
- Leaders will direct relevant ministers in their countries to work on the details of Russian oil caps, which would create a buyers’ cartel of Western nations and their allies, the official said. There is no timeline yet on when the details will be worked out.
- Also Monday, Ukrainian President Volodymyr Zelensky addressed the leaders via video, calling on them to provide more air-defense capabilities and support over the next few months to shorten the duration of the war, White House national security adviser Jake Sullivan said.
- The U.S. will announce it is providing Ukraine with an advanced medium- to long-range surface-to-air missile defense system for Ukraine, another senior administration official said.
- Other security assistance likely to be announced this week includes additional artillery ammunition and counter-battery radars to address needs expressed by the Ukrainian military.
Global Tax Deal Faces Roadblocks From Hungary, Congress – Wall Street Journal, 6/27/2022
- U.S. and European officials are trying to inject fresh momentum into a global drive for a minimum corporate tax rate, but they are finding it difficult to navigate around a series of roadblocks, namely Democrats’ narrow margins in Congress and consequential objections from Hungary.
- Nearly 140 countries agreed last year to impose a 15% minimum tax on large companies, paving the way for the most significant overhaul of international tax rules in a century. Getting to that point took years of negotiations that often seemed close to collapse.
- Now, eight months later, there has been little progress on changing national laws to implement the tax.
- Hungary’s decision to withdraw its support for the minimum tax means that the European Union can’t press ahead with its plans for 2024 implementation, even though the bloc’s other 26 members support the move.
EUROPE & WORLD
Sanctions Push Russia to First Foreign Default Since Bolshevik Revolution – Wall Street Journal, 6/27/2022
- Russia defaulted on its foreign debt for the first time since 1918, pushed into delinquency not for lack of money but because of punishing Western sanctions over its invasion of Ukraine.
- The default has been long in coming since the West all but unplugged Russia from the global financial system, creating payment obstacles Moscow couldn’t overcome. It wasn’t expected to cause any immediate ripple effects in markets or Russia’s economy.
- Russia last failed to pay its foreign borrowing during the Bolshevik Revolution when Vladimir Lenin, the newly installed communist leader, repudiated the debt of the Russian Empire.
- Litigation over the lack of payment could span years.
- Russia has accused the West of manufacturing an artificial default, and has gone to great lengths in recent months to route money in roundabout ways to get the required payments into the hands of bondholders.
Russian Forces Push to Extend Gains as G-7 Leaders Promise More Aid to Ukraine – Wall Street Journal, 6/27/2022
- Russian forces are pressing to expand recent gains in eastern Ukraine, seeking to surround the last major city in the eastern Luhansk region still under Kyiv’s control as Group of Seven leaders meet in Germany.
- Aided by artillery and airstrikes, Russian troops are advancing from the south to blockade the city of Lysychansk, which abuts the recently seized Severodonetsk, Ukrainian officials said. The governor of Luhansk again asked civilians to evacuate Lysychansk.
- North Atlantic Treaty Organization Secretary-General Jens Stoltenberg said Monday that the alliance plans at its summit in Madrid this week to increase its high-readiness forces more than sevenfold in response to the Russian aggression in Ukraine.
- NATO Response Force troops, which Mr. Stoltenberg said would number “well over 300,000,” are designed to deploy on short notice in moments of crisis.
- G-7 leaders gathered at the foot of the Bavarian Alps on Sunday are aiming to display unity in their confrontation with Russia and sketch the outlines of a future Marshall Plan for the reconstruction of Ukraine, even as their own economies are suffering damage from the fallout from the intensifying economic war.
China’s May industrial profits slump again despite easing COVID curbs – Reuters, 6/27/2022
- Profits at China’s industrial firms shrank at a slower pace in May following a sharp fall in April, as activity in major manufacturing hubs resumed, but COVID-19 restrictions still weighed on factory production and squeezed factory margins.
- Profits fell 6.5% from a year earlier, less than the 8.5% decline in April, according to data released by the National Bureau of Statistics (NBS) on Monday.
- However, profits in the manufacturing sector dropped 18.5% in May as equipment manufacturing improved significantly, Zhu Hong, senior NBS statistician, said in a statement. April profits were down a sharper 22.4%.
- Industrial firms’ profits grew 1.0% year-on-year to 3.44 trillion yuan ($514 billion) in January-May, slowing from the 3.5% increase in the first four months, the NBS data showed.
- Profits at auto manufacturing firms shrank 37.5% in the first five months, while that for the ferrous metal smelting sector dived 64.2%.
- Over the same five-month period, industrial firms’ revenues grew 9.1% to 53.16 trillion yuan, slowing from 9.7% growth in the first four months.
- Church of Jesus Christ of Latter-day Saints founder Joseph Smith was murdered by a mob in Carthage, Ill. (1844)
- The Newbery Medal for children’s literature was first awarded. (1922)
- President Harry S. Truman ordered the Air Force and Navy into the Korean War. (1950)
- The world’s first atomic power station opened at Obninsk, near Moscow. (1954)
- The legendary Route 66, running from Chicago to Santa Monica, Calif., was decertified, the victim of the Interstate Highway System. (1985)
- The national do-not-call registry, formed to combat unwanted telemarketing calls and administered by the Federal Trade Commission, enrolled almost three-quarters of a million phone numbers on its first day. (2003)