US FINANCIAL MARKET
Stocks Slide As Investors Worry About Slowing Economic Growth – Wall Street Journal, 7/5/2022
- U.S. stocks fell in early trading as worries about slowing economic growth overshadowed optimism about the possibility of the U.S. rolling back tariffs on some Chinese products.
- The S&P 500 fell 1.9% Tuesday to start the trading week after the U.S. stock and bond markets were closed for the Independence Day holiday.
- The Dow Jones Industrial Average lost 2.3%, or about 700 points, and the tech-focused Nasdaq Composite Index declined 0.8%.
- Tuesday’s pullback in stocks sent investors flocking to assets perceived as safer. Gold prices declined slightly, while the WSJ Dollar Index, which measures the greenback against a basket of 16 currencies, advanced about 0.9%.
- The euro, in contrast, slipped about 1.7%, falling to a nearly 20-year low on concerns that the eurozone may be nearing an energy shock that could tip the bloc into recession. The euro most recently traded at $1.0251, putting it within striking distance of reaching parity.
- Early Tuesday, reports that President Biden is expected to roll back some tariffs on Chinese imports initially provided stocks some reprieve from a volatile stretch for markets, sending futures higher in premarket trading on hopes that the changes could help rein in inflation.
- But as the session continued, futures turned negative and selling pressure deepened as concerns over economic growth dominated again.
- Economists say removing Chinese tariffs isn’t likely to have a dramatic impact on inflation. And any rollback may not mark a fundamental change in the U.S.-China relationship or the countries’ economic outlooks, some investors said.
- Elsewhere in markets, volatility was widespread.
- European gas prices rose to the highest level since March as oil workers in Norway went on strike, reducing output from Europe’s second-biggest gas supplier after Russia at a time when energy markets are already squeezed.
- Brent crude, meanwhile, the international benchmark for oil prices, fell about 5.7% to $107.08 a barrel.
- In the bond market, meanwhile, the yield on the benchmark 10-year U.S. Treasury note declined. It recently traded at 2.836%, down from 2.901% Friday.
- Shares of Tesla fell 2.4% after the electric-car maker said Saturday that its vehicle deliveries fell quarter-over-quarter for the first time in more than two years after the company had to temporarily shut down its largest factory, in Shanghai, because of local Covid-19 restrictions.
- Overseas, the pan-continental Stoxx Europe 600 fell 1.4%.
Tesla Vehicle Deliveries Tumble After China Factory Shutdown – Wall Street Journal, 7/5/2022
- Tesla vehicle deliveries fell quarter-over-quarter for the first time in more than two years, reflecting an extended shutdown in China, supply-chain disruptions and challenges associated with opening two new factories.
- Elon Musk’s electric-vehicle maker said Saturday that it had delivered 254,695 vehicles to customers in the three months ended in June, down from 310,048 in the prior quarter.
- Deliveries were up roughly 27% from last year’s second quarter, when Tesla handed over 201,304 vehicles.
- The company produced 258,580 vehicles in the second quarter, down from 305,407 in the first quarter and up from 206,421 in last year’s second quarter.
- Tesla delivered roughly 238,533 Model 3 sedans and Model Y compact sport-utility vehicles combined during the second quarter, up from 199,409 of those models a year earlier.
- It delivered 16,162 of its higher-end models—Model S sedans and Model X sport-utility vehicles—up from 1,895 during last year’s second quarter.
Ford Sales Jump in June on Big Gains for F-Series Pickup Trucks – Bloomberg, 7/5/2022
- Ford Motor sales jumped 31.5% in June thanks to big gains from its top-selling pickup-truck line, including the electric F-150 Lightning.
- For the second quarter, Ford’s overall sales edged up 1.8%, as strong SUV sales overcame a slight decline in truck sales and the continuing collapse of sedan deliveries as it exits that market segment.
- Ford said it had a 51-day supply of vehicles at the end of June, close to the industry standard of 60 days, as it navigates the lingering semiconductor shortage.
- Deliveries of F-Series trucks rose 26.3% from a year ago, Ford said in a statement. The automaker’s gains were in stark contrast to an industrywide slump in June.
- The Lightning, in its second month on the market, booked 1,837 sales as Ford’s overall EV sales rose 76.6% from a year ago, making it the second-best seller of plug-in models behind Tesla.
- That’s despite a 20.6% decline in sales of the Mustang Mach-E last month as Ford stopped delivering the battery-powered SUV due to a recall for a safety defect that can cause the car to lose power while in motion.
Oil Prices Plummet as Recession Risks Come to Forefront – Bloomberg, 7/5/2022
- Oil dropped alongside broader markets after being pressured by the growing risks of an economic slowdown.
- West Texas Intermediate dropped as much as 3.8% to trade below $105 a barrel. Prices were pressured lower on Tuesday as equities fell and the dollar surged, making commodities priced in the currency less attractive.
- Citigroup said that crude could fall to $65 this year in the event of a recession, a call in stark contrast to JPMorgan Chase’s most bullish $380 a barrel scenario.
- In welcome news for Biden, retail gasoline prices in the US have eased from a record above $5 a gallon in mid-June.
- Pump prices were near $4.80 on Sunday, according to figures from auto club AAA, after slipping for 20 consecutive days in the longest losing run in more than two years.
Falling Commodity Prices Raise Hopes That Inflation Has Peaked – Wall Street Journal, 7/5/2022
- A slide in all manner of raw-materials prices—corn, wheat, copper and more—is stirring hopes that a significant source of inflationary pressure might be starting to ease.
- Many raw materials remain historically high-price, to be sure. And there are matters of supply and demand behind the declines, from a fire at a Texas gas-export terminal to better crop-growing weather. Yet some investors are starting to view the reversals as a sign that the Federal Reserve’s efforts to slow the economy are reducing demand.
- The Energy Information Administration said last week that U.S. oil output averaged 12.1 million barrels a day during the week ended June 24, the most since April 2020 when the economy was locking down and producers were shutting in wells.
- JPMorgan Chase & Co. commodity strategist Tracey Allen said about $15 billion moved out of commodity futures markets during the week ended June 24.
- It was the fourth straight week of outflows and brought to about $125 billion the total that has been pulled from commodities this year, a seasonal record that tops even the exodus in 2020 as economies closed.
Amazon, Microsoft, Google Strengthen Grip on Cloud – Wall Street Journal, 7/5/2022
- The pandemic period has been a boon for the trio of companies that dominate cloud computing. Now as the economy enters another tumultuous phase, Amazon.com, Microsoft and Google appear poised to extend their strength.
- The three companies accounted for 65% of the $53 billion in global cloud-service spending in the first quarter of the year, according to Synergy Research Group, up from 52% of global sales four years ago.
- Combined revenue from cloud services at the top three companies grew more than 33% last year and is expected to grow close to 29% this year, according to analysts surveyed by FactSet.
- As other tech sectors are staring at postpandemic slowdowns, demand for cloud services has stayed strong, said Thomas Kurian, chief executive of Google Cloud, whose global market share has increased from 1.5% in 2015 to 7.1% in 2021, according to Gartner.
US ECONOMY & POLITICS
U.S factory orders rise more than expected in May – Reuters, 7/5/2022
- New orders for U.S.-manufactured goods increased more than expected in May, showing demand for products remains strong even as the Federal Reserve seeks to cool the economy.
- The Commerce Department said on Tuesday that factory orders rose 1.6% in May after advancing 0.7% in April.
- Economists polled by Reuters had forecast factory orders would rise 0.5%.
Biden Might Soon Ease Chinese Tariffs, in a Decision Fraught With Policy Tensions – Wall Street Journal, 7/5/2022
- President Biden is expected to roll back some tariffs on Chinese imports soon, a decision constrained by competing policy aims: addressing inflation and maintaining economic pressure on Beijing.
- People familiar with the situation say what comes next has been pending with Mr. Biden in recent weeks and that he could announce his decision this week. It could include a pause on tariffs on consumer goods such as clothing and school supplies, as well as launching a broad framework to allow importers to request tariff waivers.
- The Office of the U.S. Trade Representative is conducting a mandatory four-year review of the Trump-era tariffs. A comment period for businesses and others who have benefited from the tariffs will close July 5, giving the administration an opportunity to calibrate its policy.
- As he weighs a decision, Mr. Biden has been buffeted by policy disagreements both within his administration, and by outside forces including business, labor and lawmakers. A plan to announce a tariff cut has been repeatedly postponed, administration officials and trade experts say.
- The delay, they say, reflects the sharp divisions within his administration over the China tariffs.
US Court Ruling May Take 70,000 Truckers Off Road, Spur Jams – Bloomberg, 7/5/2022
- A US Supreme Court decision that could force California’s 70,000 truck owner-operators to stop driving is set to create another choke point in already-stressed West Coast logistics networks, a truckers’ organization said.
- “Gasoline has been poured on the fire that is our ongoing supply-chain crisis,” the California Trucking Association said in a statement following the Supreme Court’s decision to deny a judicial review of a decision of a lower court, a process known as certiorari.
- “In addition to the direct impact on California’s 70,000 owner-operators who have seven days to cease long-standing independent businesses, the impact of taking tens of thousands of truck drivers off the road will have devastating repercussions on an already fragile supply chain, increasing costs and worsening runaway inflation,” the CTA said.
- The association asked the Supreme Court for a review of a case challenging California’s Assembly Bill 5, a law that sets out three tests to determine whether a worker is an employee entitled to job benefits or an independent contractor who isn’t.
- The trucking industry relies on contractors, and has fought to be exempt from state regulations for years because of federal law.
EUROPE & WORLD
Euro Nears 20-Year Low Against U.S. Dollar on Recession Fears – Wall Street Journal, 7/5/2022
- The euro neared a 20-year low against the dollar as investors worried that the eurozone may be approaching an energy shock that could tip it into recession.
- The bloc’s common currency fell 1.2% against the U.S. dollar to trade at $1.0301—its lowest level since late December 2002, according to FactSet.
- Its decline—as well as the dollar’s strength—this year has renewed concerns that the euro could reach parity with the greenback. The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, rose 0.7%.
- European policymakers usually tend to welcome a weaker currency, which helps to boost the region’s exports by lowering their cost in international markets. But a weak euro can also drive up inflation because it increases import prices.
- That is a problem when eurozone inflation is at a record high of 8.6%, especially since energy and commodities are often invoiced in dollars.
European Gas Prices Jump as Norwegian Oil Workers Strike – Wall Street Journal, 7/5/2022
- European natural-gas prices rose to a four-month high as oil workers in Norway launched a strike due to a dispute over wages, resulting in reduced gas exports.
- A benchmark for gas futures contracts in northwestern Europe rose 14% to 172.88 euros, or about $180, a megawatt-hour Tuesday, the highest level since March. Electricity prices across the region also rose, as many power plants run on gas.
- Norway is the second-largest provider of gas to the European Union after Russia, supplying about 25% of the bloc’s consumption. The strike has reduced Norway’s daily gas exports by about 1% so far, but this could escalate to 56% by Saturday, according to the Norwegian Oil and Gas Association, which represents the country’s oil companies.
- In France, the price of electricity for delivery in winter has soared after 12 of the country’s nuclear reactors were shut down due to corrosion discovered in their piping. The availability of nuclear power is at an all-time low, according to Bloomberg New Energy Finance. Officials don’t expect to resolve the problem before winter arrives.
Sanctions Threaten Russia’s Next Huge Oil Field – Wall Street Journal, 7/5/2022
- These are boom times for the Russian oil-and-gas industry. High energy prices are keeping the country’s economy afloat and funding the war in Ukraine. How long it lasts will depend in part on a massive Arctic oil project that Russia promised would save the world from an energy crunch.
- Vostok Oil, a vast oil patch spread across inhospitable terrain in Russia’s far north, is supposed to produce a premium, easier-to-refine type of crude that would account for as much as 2% of daily global output at the end of the decade.
- But the development relies on Western cash and imported technology.
- At least two important Western financial backers are planning to pull out of the $180 billion project, while sanctions have delayed or restricted everything from drilling equipment and software to ice-class tankers, according to people familiar with the matter, companies involved in the project and energy consultants.
- Because of the Western sanctions, consulting firm Rystad Energy now expects Vostok Oil’s key asset, known as the Payyakhskoye field, to be launched by 2029 compared with Rosneft’s plan for 2024.
Taiwan’s Foxconn raises full-year outlook on strong tech demand – Reuters, 7/5/2022
- Taiwan’s Foxconn, the world’s largest contract electronics maker, raised its full-year business outlook on Monday thanks to strong sales of smartphones and servers despite concerns of slowing demand due to rising inflation.
- Like other global manufacturers, the Taiwanese firm has grappled with a severe shortage of chips, which has hurt smartphone production including for its major client Apple, partly due to COVID-19 lockdowns in China.
- But the company said in a statement late on Monday that June sales jumped 31% from a year earlier to a record high for the month, thanks to appropriate supply chain management and rising sales of consumer electronics. Smartphones make up the bulk of its revenue.
- Foxconn said it was optimistic about its business in the third quarter, adding it could see “significant growth” compared with a year earlier.
Chip crunch to cut Stellantis’ Italy 2022 output by up to 220,000 vehicles -union – Reuters, 7/5/2022
- A global crunch in semiconductor supply could cost Stellantis up to 220,000 vehicles this year in terms of lost output in Italy, the FIM CISL union said, adding this would mark the fifth year in a row of declining production in the country.
- FIM CISL said in its periodic report on the group’s production in Italy that Stellantis produced 351,890 vehicles in the first half of this year, almost 14% less than in the same period last year, with the key Melfi plant and the Sevel van-making facility being the most affected sites.
- Using data for the first half of the year and potential full-year production based on orders booked, the union estimates Stellantis could lose between 200,000-220,000 vehicles in 2022, said Ferdinando Uliano, the head of the FIM CISL union.
- “It’s as if one of the group’s large plants stopped for a year,” he said, adding the chip supply situation was not improving this year and would also affect production in 2023.
Airbus delivered 58 commercial jetliners in June -sources – Reuters, 7/5/2022
- Europe’s Airbus delivered some 58 jetliners in June, bringing first-half deliveries to around 295 – fractionally below the mid-way performance last year, industry sources said.
- Airbus declined to comment on any figures ahead of a monthly update due on Friday.
- Airbus is targeting 720 full-year deliveries. In the first half of last year, it delivered 297 jets.
Ryanair records busiest month ever in June, load factor hits 95% – Reuters, 7/5/2022
- Ryanair had its busiest month ever in June as it flew 15.9 million passengers, up from just 5.3 million a year earlier and topping a previous high set in May.
- Its load factor, which measures how well an airline is filling available seats, reached 95% for the first time since the beginning of the COVID-19 pandemic.
- The Irish airline, Europe’s largest by passenger numbers, said it operated over 88,500 flights in June as its load factor rose from 92% a month earlier, when it flew 15.4 million passengers.
- Ryanair’s load factor regularly reached at least 96% a month before the pandemic and hit 97% in June 2019.
- The low cost airline expects to fly 15% more passengers this summer than in the same season of 2019, and will carry a record 165 million passengers in the year to March 2023.
- Venezuela became the first South American country to declare independence from Spain. (1811)
- The bikini swimsuit made its debut at a Paris fashion show. (1946)
- Elvis Presley recorded “That’s All Right,” his first commercial record. (1954)
- Dolly, the first sheep cloned from adult cells, was born. (1996)