US FINANCIAL MARKET
Stocks Retreat After Worst Start to Year in Decades – Wall Street Journal, 7/1/2022
- U.S. stocks moved lower to start the second half of the year, deepening the week’s losses, as fears mount that the Federal Reserve’s efforts to tame inflation could tip the economy into a recession.
- The S&P 500 lost 0.2% Friday, adding to the Thursday decline that closed out the broad index’s worst first half of the year since 1970.
- The S&P, which has dropped into a bear market, is on course to finish this week in the red for the 11th time in the last 13 weeks.
- In a shortened day for bond trading ahead of the July 4 holiday weekend, the yield on the 10-year Treasury note fell to 2.886% after finishing at 2.973% on Thursday, marking a steep retreat from a mid-June peak near 3.5%.
- Even as growth slows, investors remain focused on persistent inflation that has forced central banks to reverse years of easy-money policies and accelerate interest-rate increases. That has created challenging conditions for markets, because fast-rising prices make it harder for Fed officials to soothe burgeoning growth concerns with looser monetary policy.
- Central-bank officials globally have signaled that they are more concerned about taming inflation than an economic slowdown.
- Markets swung lower after the Institute for Supply Management’s report on U.S. factories showed that manufacturing activity decelerated in June. Data released this week showed U.S. household spending slowed in May.
- With the S&P 500 in a bear market, defined as a 20% fall from a recent high, stock investors have been weighing how individual companies will fare amid the cloudy outlook for the second half of 2022.
- Memory-chip maker Micron Technology’s shares fell 5.8% Friday after the company issued a subdued revenue outlook, spooking investors even as it reported a strong rise in earnings for its latest quarter. Shares of Kohl’s fell 21% after the retailer said Friday that takeover talks with Franchise Group ended without a deal.
- Overseas, the pan-continental Stoxx Europe 600 was about flat. In Asia, major indexes closed with losses. Japan’s Nikkei 225 declined 1.7%, while South Korea’s Kospi fell 1.2%. China’s Shanghai Composite edged 0.3% lower.
- Hong Kong’s Hang Seng was closed for a holiday.
Micron Issues Muted Sales Forecast On Demand Weakness – Wall Street Journal, 7/1/2022
- Memory-chip maker Micron Technology issued a subdued revenue outlook, spooking investors even as it reported a strong rise in earnings for its latest quarter.
- Micron said sales rose 16% to $8.64 billion and its profit grew 51% to $2.63 billion in its latest fiscal quarter.
- Chief Executive Sanjay Mehrotra said sales of chips to big data centers increased more than 50% in the third fiscal quarter, and revenue from the automotive sector set a record amid a shift toward electric vehicles that need more computing power than their gas-powered counterparts.
- But the company also said it expects sales for its current quarter to be only around $7.2 billion, lower than the $9.15 billion analysts surveyed by FactSet estimated.
- Earnings per share are expected at around $1.52, also lower than Wall Street forecasts.
GM Sees Profit Down on Inventory Woes, Reaffirms ’22 Outlook – Bloomberg, 7/1/2022
- General Motors expects second-quarter sales and profit to take a hit due to supply-chain problems, but the automaker said it can make up for delayed production later this year and reaffirmed its full-year guidance.
- GM said second-quarter sales fell 15% due to production and supply issues.
- As big a drop as that is, it’s a sign of improvement from the second half of last year when supply-chain problems caused a sales shortfall of more than 40%.
- Detroit-based GM said second-quarter profit will come in between $1.6 billion and $1.9 billion; the average of analysts’ estimates is $2.4 billion.
- Despite the hit to quarterly sales, GM is sticking to its expectations of 2022 net income between $9.6 billion and $11.2 billion, adjusted operating profit of $13 billion to $15 billion and adjusted earnings of $5.76 to $6.76 a share.
- GM had 95,000 vehicles in inventory as of June 30 — most of them built in June — that can’t be sold until certain semiconductors arrive to finish assembly, according to a Friday securities filing.
Unity Software Becomes Latest Tech Company to Announce Layoffs – Wall Street Journal, 7/1/2022
- Unity Software has laid off about 4% of its workforce, becoming the latest company to announce job cuts amid growing concerns about the state of the economy.
- The maker of tools for creating videogames and other applications had 5,864 employees as of March 31, according to a regulatory filing, suggesting that more than 225 jobs may have been eliminated.
- A possible recession, rising interest rates and falling valuations for stocks have prompted many tech companies to adjust their hiring plans and, in some cases, announce layoffs.
General Motors Slowly Ramps Up Electric Hummer Production – Wall Street Journal, 7/1/2022
- The waiting list for General Motors’ new GMC Hummer electric pickup truck and related SUV model recently topped 77,000 prospective buyers. Most are likely in for a long wait.
- GM’s renovated Detroit factory, where about 700 workers build the Hummer, has been producing around a dozen of the trucks a day, people familiar with the matter said.
- Output will increase sharply in the second half of the year, a company spokesman said, largely because GM by late summer expects to begin using its own battery cells from a new factory in Ohio that it built with its joint-venture partner, South Korea’s LG Energy Solution. The Hummers built so far have used outsourced LG cells.
Oil Recovers From Sharp Loss With Libya’s Mounting Export Woes – Bloomberg, 7/1/2022
- Oil rose, reversing Thursday’s steep decline, as supply disruptions deepened in Libya.
- West Texas Intermediate added 2.9%, tipping it into a weekly gain. Libya’s oil exports have fallen to about a third of last year’s level after a worsening political crisis prompted the suspension of shipments from two of the nation’s biggest ports.
- Risk of weaker fuel exports is also emerging in India after the government on Friday increased levies on shipments of gasoline and diesel as part of a drive to control a fast-widening currency deficit.
- India is a major global supplier, and a drop in sales could further tighten markets that have been reeling from reduced Russian supplies.
Meta Slashes Plans to Hire Engineers by at Least 30% Amid Downturn, Reuters Says – Bloomberg, 7/1/2022
- Meta Platforms is slashing its hiring goals for engineers by at least 30% this year and warned all staff to brace for a severe economic downturn.
- Chief Executive Officer Mark Zuckerberg told employees on Thursday that he’s anticipating “one of the worst downturns that we’ve seen in recent history,” according to an audio recording of the weekly Q&A session, obtained by Reuters.
- Meta warned in May that it was slowing or pausing hiring for some mid- to senior-level positions.
- Zuckerberg was more precise in his address on Thursday, saying the company reduced its target for hiring engineers to about 6,000 to 7,000, down from an initial plan to hire about 10,000 new engineers, according to Reuters.
- The company, which had more than 77,800 employees at the end of March, is also leaving certain positions unfilled and “turning up the heat” on performance management to weed out staffers unable to meet more aggressive goals, Reuters reported.
US ECONOMY & POLITICS
US Manufacturing Growth Weakens to Two-Year Low as Orders Slump – Bloomberg, 7/1/2022
- A measure of US manufacturing activity weakened in June to a two-year low as new orders contracted, restrained by lingering supply constraints and some softening in demand.
- The Institute for Supply Management’s gauge decreased to 53 last month from 56.1 in May, according to data released Friday.
- The group’s index of new orders dropped nearly 6 points to 49.2, the poorest result since May 2020, when the economy was digging its way out of the pandemic-induced recession.
- The ISM gauge of manufacturer inventories ticked up to 56, near the highest reading since 2010.
- In a sign that supply chains and capacity constraints appear to be easing, ISM’s measures of delivery times and backlogs both declined in June to the lowest levels since 2020.
- Meanwhile, the purchasing managers group’s production index climbed to a four-month high.
- And for a third straight month, a gauge of price paid by producers declined, suggesting costs of raw materials are starting to ease. However, the index remains elevated and concerns about high petroleum prices linger.
- The ISM’s employment index fell to the lowest since August 2020, suggesting firms are struggling to find workers.
U.S. construction spending unexpectedly falls in May – Reuters, 7/1/2022
- U.S. construction spending unexpectedly fell in May as single-family homebuilding stalled, more evidence that the Federal Reserve’s aggressive monetary policy tightening was slowing the economy.
- The Commerce Department said on Friday that construction spending slipped 0.1% in May after increasing 0.8% in April. Economists polled by Reuters had forecast construction spending would rise 0.4%. Construction spending increased 9.7% on a year-on-year basis in May.
- Spending on private construction projects was unchanged in May after advancing 1.1% in April. Investment in residential construction rose 0.2%, though spending on both single-family and multi-family housing projects was flat.
- Investment in private non-residential structures like gas and oil well drilling fell 0.4% in May.
- Spending on public construction projects declined 0.8% after slipping 0.3% in April. Outlays on state and local government construction projects dropped 0.8%, while federal government spending tumbled 1.7%.
Julian Assange Files Fresh Appeal Against Extradition to U.S. – Wall Street Journal, 7/1/2022
- Julian Assange has appealed his extradition from the U.K., prolonging legal wrangling over whether the WikiLeaks founder should be sent to the U.S.—amid growing questions about the Biden administration’s appetite to pursue him over leaking classified material.
- Gareth Peirce, a senior partner at Birnberg Peirce & Partners who is representing Mr. Assange, said that two appeals were filed on Thursday to the U.K. high court to contest his extradition. The court must now decide whether the appeals can be heard.
- British Home Secretary Priti Patel recently approved an order to extradite Mr. Assange, an action that could have been a final step to his removal without the new filing. He had until Friday to bring the appeal.
- Mr. Assange’s lawyers are appealing both Ms. Patel’s decision and elements of a ruling by District Judge Vanessa Baraitser last year, which broadly focused on whether Mr. Assange would get a fair trial in the U.S. The details of the appeals weren’t made public.
EUROPE & WORLD
Factory data dampen global hopes for ‘soft landing’ – Reuters, 7/1/2022
- Global manufacturing struggled in June as higher prices and a darker economic outlook left consumers wary of making purchases, while China’s strict COVID-19 lockdowns and Russia’s invasion of Ukraine added to supply chain disruptions, surveys showed.
- The picture was equally gloomy in the euro zone, where manufacturing output also slowed. S&P Global’s manufacturing Purchasing Managers’ Index (PMI) fell to 52.1 in June from May’s 54.6, its lowest level since August 2020.
- Earlier, surveys showed China’s factory activity recovering in June, though a slowdown in Japan and South Korea, as well as a contraction in Taiwan, highlighted the strain from supply disruptions, rising costs and persistent material shortages.
- China’s Caixin/Markit manufacturing PMI rose to 51.7, marking the first expansion in four months and well above analysts’ expectations for a reading of 50.1.
- South Korea’s S&P Global PMI fell to 51.3, dropping for a second straight month, reflecting supply constraints and a truckers’ strike.
- India’s PMI showed factory output expanded at its slowest pace in nine months, as elevated price pressures restricted demand and output.
China’s Xi Jinping Says Hong Kong’s Loyalty to Beijing Will Ensure Prosperous Future – Wall Street Journal, 7/1/2022
- Marking a quarter-century since Beijing regained control over this former British colony, Chinese leader Xi Jinping urged Hong Kong to show more patriotic fervor and rally around his vision of a strong and unified China as he prepares to extend his rule.
- In a Friday speech wrapping up a two-day visit to Hong Kong, Mr. Xi declared that this Asian financial center is again poised to prosper after Beijing imposed broad political changes to sweep aside the social unrest that periodically plagued the city since its handover to China in 1997.
- The key guarantors of Hong Kong’s future, he said, is a shared love for the Chinese motherland and loyalty to Communist Party rule.
- The visit was Mr. Xi’s first trip outside mainland China in nearly 2½ years.
- His Thursday arrival, ahead of the July 1 anniversary, came exactly two years after Beijing imposed a sweeping national-security law on Hong Kong, paving the way for authorities to end a wave of dissent that had drawn millions of people onto the streets and alarmed the Communist Party leadership with what they saw as a direct challenge to their authority.
Airbus Wins First Major China Jet Order Since Before Pandemic – Wall Street Journal, 7/1/2022
- China placed a large order on behalf of three of its biggest airlines for close to 300 jets from Airbus, the first major commitment from the country to new planes since before the pandemic.
- Boeing lost out to rival Airbus in the order disclosed Friday, though that doesn’t preclude a follow-up deal for the U.S. company’s jets. China Southern Airlines Co.—the biggest customer of Boeing’s troubled 737 MAX in China—was among three airlines to buy Airbus jets.
- China Southern, Air China and China Eastern Airlines are set to take delivery of a total of 292 new aircraft starting in 2023, the companies said in separate statements.
- Together, the deals are valued at $37 billion before customary discounts given to airlines, according to the statements.
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