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Daily Market Report | July 8, 2021

US FINANCIAL MARKET

Stocks Skid on Economic Worries – Wall Street Journal, 7/8/2021

  • U.S. stocks tumbled Thursday, while Treasury yields sank for a fourth day, as investors unwound bets on a spell of high growth and inflation.
  • The S&P 500 lost 1.4% Thursday morning, a sharp reversal from Wednesday when the broad stock-market gauge closed at a record. The Dow Jones Industrial Average slid roughly 450 points, or 1.4%.
  • Meanwhile, the technology-heavy Nasdaq Composite, which also notched a new high Wednesday, fell 1.4%.
  • All 11 sectors of the S&P 500 traded lower, with companies including Carnival, Discover Financial Services and Expedia posting among the steepest declines. Each recently lost 3.5% or more.
  • Stocks have powered to a series of records this year, but some investors have grown concerned about the outlook for the economy on signs that labor shortages and supply-chain bottlenecks may crimp the pace of recovery.
  • The spread of the highly contagious Delta variant of coronavirus globally is adding to worries. Investors also are gearing up for a spell of potentially volatile summer trading, when trading desks tend to be lightly staffed.
  • In a sign of jitters among investors about the virus, sectors that had benefited from the prospect of a speedy economic expansion, like energy producers and banks, have lagged behind shares of rapidly growing tech companies in recent weeks.
  • Government bonds continued to rally, pushing the yield on 10-year Treasury notes down to 1.285% from 1.321% Wednesday.
  • The benchmark yield, which helps to set borrowing costs throughout the economy, was last below 1.3% in February.
  • In overseas markets, the Stoxx Europe 600 lost 2%.
  • The European Central Bank said Thursday it would aim to keep eurozone inflation at 2% over the medium term, instead of the current target of just below 2%, and would allow room to overshoot its target when needed.
  • China’s Shanghai Composite Index fell 0.8% by the close and Japan’s Nikkei 225 lost 0.9%.

Tokyo Olympics Bars Spectators as Japan Declares Covid-19 State of Emergency – Wall Street Journal, 7/8/2021

  • The Tokyo Olympics will be held without spectators, the organizers said, after Japan declared a new state of emergency that will continue through the end of the Games due to a rise in Covid-19 infections.
  • Hundreds of athletes and officials from around the world have already arrived for the Olympics, which open on July 23.
  • Foreign spectators were ruled out in March, but the organizers had intended to allow stadiums and arenas to be around half capacity with local fans.
  • The plan was upended by a surge in infections in Japan this week, which prompted Prime Minister Yoshihide Suga to put Tokyo under a state of emergency starting Monday and lasting until Aug. 22, the fourth emergency period since the start of the pandemic.
  • On Thursday, the city of Tokyo reported 896 new infections, up 27% from a week earlier. Neighboring South Korea reported 1,275 new infections nationwide on Thursday, the highest number of daily cases since the start of the pandemic.

U.S. banks to see big jump in 2Q profits before results return to normal – Reuters, 7/8/2021

  • With feared pandemic loan losses failing to materialize, most big U.S. banks are expected to report a stunning rebound in quarterly profits next week even as trading income slumps and lending revenue stalls on low interest rates and weak demand.
  • Among them, Bank of America, Citigroup and JPMorgan Chase, the country’s three largest banks, will more than double their second-quarter profits, according to analyst estimates compiled by Refinitiv.
  • Wells Fargo, the fourth-largest U.S. lender, is expected to get back into the black for the second quarter after last year posting its first loss since 2008.
  • Together, Bank of America, Citigroup, JPMorgan and Wells Fargo are expected to report $24 billion in second-quarter profits compared with $6 billion last year, the analyst estimates show.
  • A year ago, the country’s largest four banks booked $33 billion combined to cover expected loan losses as millions of Americans struggled financially amid pandemic lockdowns.
  • But due to extraordinary government stimulus and loan repayment holidays, those losses have not materialized and as Americans get back to business-as-usual, the big four could record less than $1 billion of provisions for the second quarter, according to analyst estimates.

Stellantis makes 30 billion euro wager on electric vehicle market – Reuters, 7/8/2021

  • Stellantis, the world’s No. 4 automaker, said on Thursday it plans to invest more than 30 billion euros ($35.54 billion) through 2025 on electrifying its vehicle lineup.
  • The company, which was formed in January from the merger of Italian-American automaker Fiat Chrysler and France’s PSA, said its strategy will be supported by five battery plants in Europe and North America as it gears up to compete with electric vehicle (EV) leader Tesla and other automakers globally.
  • Stellantis said at its “EV Day 2021” that it is targeting more than 70% of sales in Europe and over 40% in the United States to be low-emission vehicles – either battery or hybrid electric – by 2030. It aims to make the total cost of owning an EV equal to that of a gasoline-powered model by 2026.
  • Stellantis said it is targeting cutting battery pack costs by more than 40% from 2020 to 2024 and by more than an additional 20% by 2030.
  • It plans to use two battery chemistries by 2024 – a high energy-density option and a nickel cobalt-free alternative.
  • By 2026, it intends to introduce solid-state batteries.

States Target Google Play Store Practices in Antitrust Suit – Wall Street Journal, 7/8/2021

  • Three dozen states and the District of Columbia filed an antitrust lawsuit against Alphabet’s Google on Wednesday, alleging that the company operates an illegal monopoly with its Google Play app store.
  • Led by the state of Utah and filed in the U.S. District Court for the Northern District of California, it alleges that the company has monopolized the distribution of apps on mobile devices that run the Google-owned Android operating system, blocking competition through contracts, technical barriers and other means.
  • In a blog post, Google said it provides an open operating system in which customers are free to download apps directly from developers’ websites.

US ECONOMY & POLITICS

U.S. Jobless Claims Edged Up to 373,000 Last Week – Wall Street Journal, 7/8/2021

  • Jobless claims held nearly steady last week, interrupting a downward trend and showing the labor market’s recovery remains uneven, at a time when many states are discouraging workers from tapping jobless assistance.
  • Initial unemployment claims, a proxy for layoffs, rose by 2,000 last week to a seasonally adjusted 373,000, the Labor Department said Thursday. The previous week’s figure was revised up to 371,000.
  • The four-week moving average, which smooths out volatility in the weekly figures, was 394,500, the lowest reading since March 2020.
  • The number of continuing unemployment payments made through regular state programs also fell to the lowest level since March 2020, for the week ended June 26, the Labor Department said.
  • Unemployment assistance payments made through pandemic programs fell by nearly a half million for the week ended June 19 as some states ended their participation last month.

Fed Officials Saw Progress Toward Taper Move, Minutes Show – Bloomberg, 7/8/2021

  • Federal Reserve officials were not ready to communicate a timeline for scaling back asset purchases due to high uncertainty on the economic outlook, a record of their June gathering showed, though they did want to nail down a plan in case they have to move sooner.
  • “The committee’s standard of ‘substantial further progress’ was generally seen as not having yet been met, though participants expected progress to continue,” according to minutes from the June 15-16 Federal Open Market Committee meeting published Wednesday.
  • The June meeting marked a turn in the central bank’s comfort with inflation risks amid heightened price pressures as the economy reopens from the pandemic.
  • But above all, the minutes show the committee had a lot of questions about how soon labor shortages and supply bottlenecks contributing to inflation would resolve.
  • Several participants emphasized “that uncertainty around the economic outlook was elevated and that it was too early to draw firm conclusions about the paths of the labor market and inflation,” the minutes noted.

Borrowing Is Back as Sign-Ups for Auto Loans, Credit Cards Hit Records – Wall Street Journal, 7/8/2021

  • Consumer demand for auto loans and leases, general-purpose credit cards and personal loans was up 39% in April compared with the same period last year, according to credit-reporting firm Equifax.
  • It was also up 11% compared with April 2019, according to Equifax, which measured how often lenders checked consumers’ credit reports to make loan decisions.
  • Equifax said lenders extended a record number of auto loans and leases in March, the latest month for which data are available.
  • They also bumped up credit-card originations, issuing more general-purpose credit cards than any other March on record. Equifax’s data goes back to 2010.
  • Separately, lenders mailed 127 million personal-loan solicitations to people’s homes in May, up from 60 million a year prior, according to Mintel Comperemedia, which tracks the offers.

Biden Pitches Child-Care, Education Plan as Democrats Debate Size – Wall Street Journal, 7/8/2021

  • President Biden sought to rally public support for a multitrillion-dollar education and child-care plan at the core of his domestic-policy agenda, as Democrats in Congress wrestle with disagreements over the size and scope of the package.
  • The president is simultaneously pressing Congress to pass a $1 trillion bipartisan infrastructure bill and the education and child-care plan, which Democrats hope to approve without Republican support through a process tied to the budget known as reconciliation.
  • Both measures face challenges. The White House needs at least 10 Republican votes in the Senate to pass the infrastructure package, which was negotiated by a group of centrist senators.
  • And Democrats must stick together if they want to move the education and child-care plan without the backing of Republicans. Democrats can lose no more than four Democratic votes in the House and none in the Senate on legislation opposed by all Republicans.
  • Sen. Joe Manchin (D., W.Va.), who has said that the legislation should be fully paid for, has said he could support a package of around $2 trillion.
  • Senate Budget Committee Chairman Bernie Sanders (I., Vt.) has floated spending as much as $6 trillion, with half of it paid for by tax increases.

Biden to Target Railroads, Ocean Shipping in Executive Order – Wall Street Journal, 7/8/2021

  • The Biden administration will push regulators to confront consolidation and perceived anticompetitive pricing in the ocean shipping and railroad industries as part of a broad effort to blunt the power of big business to dominate industries, according to a person familiar with the situation.
  • As part of a sweeping executive order expected this week, the administration will ask the Federal Maritime Commission and the Surface Transportation Board to combat what it calls a pattern of consolidation and aggressive pricing that has made it onerously expensive for American companies to transport goods to market.
  • The administration says the relatively small number of major players in the ocean shipping trade and in the U.S. freight rail business has enabled companies to charge unreasonable fees.
  • In the case of the seven Class 1 freight railroads, consolidation has given railroads monopoly power over sections of the country where theirs are the only freight tracks, the person said.

EUROPE & WORLD

ECB Aims for Slightly Higher Inflation, Stops Short of Fed’s Major Shift – Wall Street Journal, 7/8/2021

  • European Central Bank officials forged an agreement on a new policy framework, aiming for slightly higher inflation in a region that is struggling to emerge from the Covid-19 recession, but stopping short of the major policy shift unveiled in 2020 by the Federal Reserve.
  • The ECB’s policy changes, its first in nearly two decades, represent a compromise between conservative policy makers in northern countries like Germany, who tend to worry about high inflation, and those in Southern European nations such as Italy who are more concerned about weak economic growth.
  • The bank said it would aim to keep eurozone inflation at 2% over the medium term, instead of the current target of just below 2%, and would allow room to overshoot its target when needed.
  • It also said it would move to incorporate house prices into its calculation of the inflation rate, and would support efforts to combat climate change via its bond-purchase programs and collateral framework.

China Car Sales Fall With Chips in Short Supply – Wall Street Journal, 7/8/2021

  • China’s car sales snapped an 11-month streak of year-over-year growth as demand bolstered by a strong economic recovery collided with a global semiconductor shortage.
  • Sales of passenger cars in June were down 5.1% from a year earlier to 1.58 million vehicles, the China Passenger Car Association said Thursday.
  • April-June sales were up 2.3% from the same period last year, when the market began to recover from a nationwide pandemic lockdown.
  • Japanese car makers were among the hardest-hit by the chip shortage last month. Nissan’s China sales were down 16% in June from a month earlier, while Honda’s were off 17%. Honda cited component shortages.
  • The car association said it expects supply constraints to ease in the second half of the year.

Deliveroo hikes forecasts as food delivery demand stays strong – Reuters, 7/8/2021

  • Britain’s Deliveroo reported an 88% jump in quarterly food orders and raised its annual order value forecasts on Thursday, as people remained hooked on having meals and groceries delivered to their home.
  • The food-delivery firm, which connects customers with over 115,000 restaurants and grocers in the UK and 11 other countries, predicted gross transaction value (GTV) would grow 50%-60% in 2021, compared with an earlier forecast of 30%-40%.
  • Still, Deliveroo said investments in “growth opportunities” this year and its expectation that average order values would at some point revert towards pre-Covid levels, led it to estimate profit margins were likely to come in at the lower end of a 7.5% to 8% range it had given earlier.

Volkswagen, BMW Fined $1 Billion by Europe Over Diesel-Tech Collusion – Wall Street Journal, 7/8/2021

  • The European Commission on Thursday slapped fines totaling $1 billion on BMW and Volkswagen, as well as VW’s Porsche and Audi units, after finding that the German auto makers had colluded to impede competition in diesel emissions systems.
  • The investigation dates back to 2019 when, in the wake of the Volkswagen diesel emissions-cheating scandal, the Commission alleged that German car makers had held technical meetings between 2009 and 2014 that violated European Union antitrust rules because the companies agreed not to compete to develop the best emissions systems for diesel-powered cars.
  • Instead, they agreed to fulfill the minimum requirements of EU regulation.
  • BMW said in a statement that it agreed to settle the investigation after the EU dropped additional antitrust charges.
  • The company said the talks with other car makers were aimed at creating a customer-friendly emissions system, and said BMW never engaged in any unlawful manipulation of emissions-control systems.

BOJ seen cutting this year’s growth forecast as COVID-19 curbs hurt outlook – sources – Reuters, 7/8/2021

  • The Bank of Japan is expected to slash this fiscal year’s economic growth forecast in fresh quarterly projections due out next week, sources say, as prospects of another state of emergency for Tokyo threaten to dent consumption.
  • But the central bank is likely to maintain its view the world’s third-largest economy is headed for a moderate recovery as robust exports and output offset some of the weakness in consumer demand, said four sources familiar with its thinking.
  • The expected downgrade highlights Japan’s struggle to contain the COVID-19 pandemic, as slow vaccine rollouts and a resurgence in infections force authorities to declare a state of emergency for Tokyo just 16 days before the Olympic Games begin.

World food prices fall in June for first time in a year – FAO – Reuters, 7/8/2021

  • World food prices fell in June for the first time in 12 months, pushed lower by declines in vegetable oils, cereals and dairy products, the United Nations food agency said on Thursday.
  • The Rome-based FAO also said in a statement that worldwide cereal harvests would come in at nearly 2.817 billion tonnes in 2021, slightly down on its previous estimate, but still on course to hit an annual record.
  • The Food and Agriculture Organization’s food price index, which measures monthly changes for a basket of cereals, oilseeds, dairy products, meat and sugar, averaged 124.6 points last month versus a revised 127.8 in May.
  • FAO’s vegetable oil price index plunged 9.8% in June, partly on the back of a fall in palm oil prices, which were hit by expectations of output gains in leading producers and a lack of fresh import demand.

Factmonster – TODAY in HISTORY

  • The first public reading of the Declaration of Independence was given in Philadelphia, Pa. (1776)
  • The Wall Street Journal began publication. (1889)
  • The Recording Industry Association of America (RIAA) awarded the first official gold album. It was for the Oklahoma soundtrack. (1958)

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