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Daily Market Report | July 7, 2021

US FINANCIAL MARKET

U.S. Stocks Edge Down Ahead of Fed Minutes – Wall Street Journal, 7/7/2021

  • U.S. stocks slipped Wednesday ahead of the release of the Federal Reserve’s latest meeting minutes and after fresh data on the labor market.
  • Investors have propelled the major indexes into record territory following signs that the economy is recovering and that the Federal Reserve doesn’t plan to pull back on supportive policies in the near term.
  • Government bond yields have also dropped to their lowest in over four months, bolstering appetite for assets like growth stocks that deliver higher returns.
  • Government bonds continued to rally, sending the yield on the benchmark 10-year Treasury note ticking down to 1.288%, its lowest level since February, and extending its recent slide into a third day. Yields drop when bond prices rise.
  • Oil markets extended a volatile spell following the failure of the Organization of the Petroleum Exporting Countries (OPEC) and allies to agree on a deal to raise output earlier this week.
  • U.S. crude was flat earlier, but has in the last hour dropped sharply.
  • It was most recently down 2.1% to $71.78 a barrel after suffering its biggest one-day fall since May on Tuesday.
  • Some U.S.-listed Chinese companies extended their losses.
  • Didi Global fell 6.9% and Full Truck Alliance dropped 9.6%, after tumbling on Tuesday.
  • Earlier this week, the cybersecurity regulator in Beijing announced probes into prominent technology firms’ data practices.
  • Overseas, the pan-continental Stoxx Europe 600 climbed 0.6%, trading close to its all-time high.
  • The Shanghai Composite Index added 0.7% by the close of trading, while Japan’s Nikkei 225 retreated 1%.

Behind OPEC Deadlock, One Petro-State Looks to Non-Oil Future – Wall Street Journal, 7/7/2021

  • Behind the standoff inside OPEC over whether to boost oil production is a key cartel member with a new strategy: sell as much crude as possible before demand dries up.
  • The United Arab Emirates’ strategy, as described by officials familiar with the matter, represents one of the most significant shifts in oil policy by a major Mideast petrostate. For years, the region’s oil-producing governments have said they aren’t worried about finding crude buyers far into the future.
  • The U.A.E., which holds some of the world’s largest untapped crude reserves, is breaking from that orthodoxy, according to people familiar with the strategy.
  • The country isn’t worried about a sudden drop in demand, and expects to have buyers for its crude for decades.
  • However, people familiar with the new tack say the country wants to pump and sell as much as it can now, when demand and prices are strong. Proceeds will help it wean its economy off oil.

Covid-19 Pushed 22 Million Out of Job Market in Major Economies – Bloomberg, 7/7/2021

  • Labor markets in developed nations have recovered only half of the loss of employment they suffered in the pandemic, with the young and low-skilled hurt most.
  • That’s the conclusion of a 400-page study by the Organization for Economic Cooperation and Development, which found that about 22 million jobs disappeared by the end of 2020 in industrial nations.
  • The OECD found a “rapid buildup” of long-term unemployment, with each wave of pandemic restrictions making it increasingly difficult for people to find their way back into the workforce.
  • “There could be a growing mismatch between the skills and competence of the workers who have lost their jobs, and actually the skills which are in demand in the jobs which are being created,” said Stefano Scarpetta, the OECD’s director for employment, labor and social affairs at a press conference.

IMF chief sees risk of sustained rise in U.S. inflation – Reuters, 7/7/2021

  • The International Monetary Fund on Wednesday said further fiscal support in the United States could fuel inflationary pressures and warned that the risk of a sustained rise in prices could require raising interest rates earlier-than-expected.
  • Higher U.S. interest rates, in turn, could lead to a sharp tightening of global financial conditions and significant capital outflows from emerging and developing economies, IMF Managing Director Kristalina Georgieva said in a blog published Wednesday with the IMF’s surveillance note for G20 countries.
  • Georgieva said an accelerated recovery from the COVID-19 pandemic in the United States, where growth is seen reaching 7% in 2021, would benefit many countries through increased trade, but rising inflation could be more sustained than expected. The IMF forecasts global growth of 6%.
  • Other countries face rising commodity and food prices, which are now at their highest level since 2014, putting millions of people at risk of food insecurity, the IMF said in its report.

Pentagon Scraps JEDI in Win for Amazon at Microsoft’s Expense – Wall Street Journal, 7/7/2021

  • Pentagon officials on Tuesday terminated the massive JEDI cloud-computing contract and said they would start fresh with a new project, capping a yearslong initiative that had become mired in litigation from Amazon.com and a barrage of objections from Congress.
  • In terminating the contract with Microsoft, Department of Defense officials focused largely on technical reasons, saying advances in cloud computing and the Pentagon’s own evolving needs had made the Joint Enterprise Defense Infrastructure scheme obsolete.
  • “The evolving landscape is what has driven our thinking,” said John Sherman, the Pentagon’s acting chief information officer. “JEDI was the right approach at the time,” he added, but with changing circumstances “we’re in a different place.”
  • The decision will open up the new cloud project—rebranded as Joint Warfighter Cloud Capability—to all qualified bidders, Pentagon officials said. In addition to Microsoft and Amazon, officials said qualified bidders could include Alphabet’s Google, Oracle and IBM.

Reese Witherspoon’s Media Company, Hello Sunshine, Is Exploring a Sale – Wall Street Journal, 7/7/2021

  • Hello Sunshine, the media company founded by actress and entrepreneur Reese Witherspoon whose titles include the hit HBO drama “Big Little Lies,” is exploring a sale, according to people familiar with the matter.
  • The company began pursuing a sale in recent months after receiving interest from multiple suitors including Apple, one of the people said. People close to the situation say the company could be valued at as much $1 billion in a deal.
  • Hello Sunshine is working with investment bankers as it explores its options, the people familiar with the matter say.
  • There is no guarantee the company will find a buyer.

Global air travel demand 63% lower in May vs pre-pandemic -IATA – Reuters, 7/7/2021

  • Global airline industry body IATA said that passenger air travel demand remained subdued compared to pre-pandemic levels, with figures showing it was 63% lower in May 2021 than in the same month two years ago.
  • International travel is much more affected by ongoing restrictions than travel within domestic markets like China and Russia, IATA said.
  • IATA director general Willie Walsh called on governments to better co-ordinate between themselves to aid the airline industry’s recovery.
  • “We’re seeing a wide variation in the requirements for things like testing…clearly this is causing great confusion in the minds of consumers,” Walsh told a briefing on Wednesday.

Coal Shows Its Staying Power as Economies Bounce Back – Wall Street Journal, 7/7/2021

  • Coal use is surging in some of the world’s largest economies as electricity demand rebounds from the pandemic, illustrating the challenges to countries looking to wean themselves off the dirty but reliable fossil fuel.
  • Coal was in decline for years in many countries, but its use is now picking up in the U.S., China and Europe despite growing pressure from governments, investors and environmentalists to curb carbon emissions. The leading reason for the uptick—which has pushed coal prices to multiyear highs—is rising power demand as economies reopen rapidly from pandemic hibernation.
  • Coal supplied 23% of U.S. electricity production from the start of the year through mid-June, up from 17% in the same period of 2020, according to a Wood Mackenzie analysis of preliminary EIA data.
  • Credit-ratings firm Moody’s Investors Service expects U.S. coal consumption to increase by as much as 10% in 2021, boosting revenue for coal producers, though it still views the industry as one in decline as the power sector shifts toward renewable energy.

US ECONOMY & POLITICS

U.S. Job Openings Rise to Record, Underscore Hiring Difficulties – Bloomberg, 7/7/2021

  • U.S. job openings rose to a fresh record high in May, underscoring persistent hiring difficulties and reflecting more vacancies in the health care, education and hospitality industries.
  • The number of available positions climbed to 9.21 million during the month from a downwardly revised 9.19 million in April, the Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, showed Wednesday.
  • The number of people who voluntarily left their jobs decreased to a still-lofty 3.6 million in May, as the quits rate dropped to 2.5%. Quits fell in nearly all industries, though they picked up slightly for restaurants and hotels.
  • Total hires decreased to 5.93 million in May from 6.01 million, while the hires rate eased to 4.1%.
  • The decline was concentrated in construction, government and professional services.
  • The total number of vacancies exceeded hires by 3.28 million in May, the highest in records to 2000.

Democrats Split Over Measures to Cut Drug Prices – Wall Street Journal, 7/7/2021

  • Democrats are debating whether to fold an effort to cut drug prices—by allowing Medicare to negotiate—into a budget package or try to pass the measure on its own.
  • Both parties have prioritized lowering prescription-drug prices for years, but haven’t been able to pass a bipartisan agreement.
  • Many Democrats now see a budget package, which could clear the evenly divided Senate with just a simple majority, as their best shot at overhauling the system.
  • But intraparty divisions over policy issues could complicate that path, and some lawmakers are advocating for making more modest changes with GOP support.
  • Democrats can lose no more than four votes in the House and none in the Senate on legislation opposed by all Republicans.

Hospitals Often Charge Uninsured People the Highest Prices, New Data Show – Wall Street Journal, 7/7/2021

  • A Journal study of thousands of prices at hundreds of hospitals revealed that many charge top prices to patients like Mr. Macias, who must pay cash out of pocket, compared with the prices the hospitals have negotiated with insurance companies.
  • The newly public prices allow for the first time a comparison of what deep-pocketed insurers pay hospitals versus rates that hospitals set for patients who pay cash.
  • The Journal analysis looked at the 1,550 hospitals in the Turquoise data that released both insurance and cash-payment rates.
  • About 21%, or 319, of the hospitals did so for the majority of the services included in the analysis. At 171 of those hospitals, the cash rate was higher than all of the rates billed to insurers, or tied for the highest rate, for every service in the analysis.
  • On average, across the 1,166 hospitals that included rates for Medicare Advantage plans in their disclosures, the fees for uninsured patients were 3.6 times the average rates paid by the Medicare Advantage plans.

U.S.-China Rivalry Has Biden Giving Government Wider Role to Review Deals – Wall Street Journal, 7/7/2021

  • A low-profile government committee that reviews business deals for national security concerns is receiving expanded emphasis as part of the Biden administration’s plan to compete with China.
  • The Committee on Foreign Investment in the U.S., or Cfius, is looking to share information with similar review bodies set up by allies and is paying closer attention to Biden priorities, including securing supply chains.
  • In June, Cfius ordered a hold on a Chinese investor’s planned acquisition of South Korean-based semiconductor maker Magnachip Semiconductor to review the deal.
  • Cfius’s wider purview expands on the strengthened authority and sharper China-focus it was given during the Trump administration, which used the panel to examine data privacy issues for TikTok app users and squelch Chinese investment in U.S. technology.

U.S. releases confidential Trump report on foreign auto threat – Reuters, 7/7/2021

  • The U.S. Commerce Department on Tuesday released a confidential Trump administration report that was the basis for the former president’s threats in 2019 to impose tariffs on imported automobiles on grounds of national security.
  • Republican Senator Pat Toomey, who drafted legislation to require the report’s release, said in a statement that “a quick glance confirms what we expected: The justification for these tariffs was so entirely unfounded that even the authors were too embarrassed to let it see the light of day.”
  • The redacted 116-page report said research and spending by the largest foreign-owned automobile producers reflected de facto subsidies in their home markets, citing Volkswagen and Toyota.
  • “Significant import penetration over the course of the past three decades has severely weakened the U.S. automotive industry,” the report said.
  • This “jeopardizes U.S. military leadership and its ability to fulfill America’s defense requirements,” it said.

U.S. Considers Whether to Take Step Toward Tariffs on Vietnam – Bloomberg, 7/7/2021

  • The U.S. is discussing whether to move toward imposing tariffs on Vietnam over currency actions that during the Trump era were labeled as unreasonable and restrictive to American businesses.
  • President Joe Biden’s administration plans a meeting on the topic as soon as Wednesday, according to people familiar with the matter, who asked not to be identified because the discussions are private.
  • Participants will include officials from the Treasury Department, the U.S. Trade Representative’s office, Commerce Department and National Security Council, they said.
  • The planning comes ahead of an October deadline, one year following the start of a government probe, for the U.S. to impose tariffs under section 301 of the 1974 Trade Act.

Eric Adams Wins NYC Mayoral Primary, Capping 2 Weeks of Waiting – Bloomberg, 7/7/2021

  • Eric Adams won New York City’s Democratic mayoral primary, holding off a crowded field of challengers with a campaign focused on reducing crime and restoring the quality of life in a city that was pummeled by the coronavirus pandemic.
  • The Associated Press called the race on Tuesday for Adams, the Brooklyn borough president.
  • He won 50.5% of the vote, edging out former sanitation commissioner Kathryn Garcia, who received 49.5% after eight rounds of voting.
  • It was a difference of 8,426 votes.
  • The June 22 primary marked the first citywide use of the ranked-choice voting system, allowing voters to select as many as five candidates in order of preference.
  • But the process did not go smoothly, as an error by the city’s Board of Elections partway through the tally threw ballot counting into disarray and led to preemptive lawsuits by many of the candidates.

EUROPE & WORLD

Euro-Area Outlook Raised by EU With Warning on Inflation – Bloomberg, 7/7/2021

  • European Union officials markedly raised their outlook for the euro-area economy and said there’s a higher risk of inflation taking hold as loosening virus restrictions allow demand to snap back.
  • The European Commission increased its growth forecast for the currency bloc to 4.8% from 4.3% previously, while predicting better performance in 2022 too.
  • The Commission raised its outlook for inflation and now expects a rate of 1.9% in 2021, compared to 1.7% previously.
  • Rising energy and commodity prices and supply-chain bottlenecks are contributing to price pressures this year, though inflation should slow down again in 2022.
  • The recovery is already seen as “highly uneven” within the EU, with Germany and the Netherlands expected to reach pre-crisis levels of output in the third quarter, a full year ahead of Italy and Spain, the Commission said.

Samsung Electronics Expects 53% Increase in Operating Profit – Wall Street Journal, 7/7/2021

  • Samsung Electronics expects a 53% rise in operating profit for the second quarter, lifted by strong demand for memory chips that offset weaker device sales hurt by component shortages.
  • The world’s largest smartphone and memory-chip maker forecasts operating profit of 12.5 trillion South Korean won, equivalent to about $11 billion, for the quarter ended June 30. Samsung projects revenue of 63 trillion won, up 19% from the prior year.
  • The South Korean firm’s outlook handily topped market expectations and indicated ongoing strength for tech giants—and especially chip makers, which have seen greater pricing power during a historic supply crunch.

Haiti President Jovenel Moïse Assassinated at Home, Official Says – Wall Street Journal, 7/7/2021

  • Haitian President Jovenel Moïse was assassinated in an attack on his residence, the country’s interim prime minister said on Wednesday, plunging the unstable Caribbean nation into fresh political turmoil.
  • A group of assailants entered the residence toward 1 a.m. local time on Wednesday, shooting the president and wounding the first lady, who has been hospitalized, interim Prime Minister Claude Joseph told Radio Television Caraibes.
  • The country, the poorest in the Western Hemisphere, has been roiled by violent protests, economic contraction brought by the pandemic and security concerns since Mr. Moïse, who was narrowly elected in 2016, refused to leave office in February, arguing that his term lasted another year. Opposition leaders accused Mr. Moïse of turning into an autocrat.

Factmonster – TODAY in HISTORY

  • William Blount of Tennessee became the first U.S. senator to be impeached. (1797)
  • The United States annexed Hawaii. (1898)
  • President Ronald Reagan nominated Sandra Day O’Connor for the Supreme Court. (1981)

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