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Daily Market Report | July 9, 2021

US FINANCIAL MARKET

Stocks Edge Up After Dow, S&P 500 Selloff – Wall Street Journal, 7/9/2021

  • Major U.S. stock indexes staged a rebound Friday but remained on track to log slim weekly losses.
  • Markets have grown jittery in recent days on a bevy of concerns. Investors are worried that new Covid-19 variants could stall the global economic recovery despite vaccines being rolled out.
  • Supply-chain bottlenecks and concerns over labor-market participation are also weighing on sentiment. That has led some money managers to trim bets on companies that are most likely to benefit when the economy recovers.
  • A recent rally in U.S. government bonds eased Friday, with the yield on 10-year Treasury notes recently ticking up to 1.349%.
  • It had dropped for four straight days and ended Thursday at about 1.287%, its lowest level since Feb. 18.
  • Brent crude, the international gauge for energy markets, added 0.9% to $74.77 a barrel on Friday.
  • In recent days, traders have grappled with uncertainty about future supply levels due to a deadlock among members of the Organization of the Petroleum Exporting Countries and their allies.
  • Overseas, the pan-continental Stoxx Europe 600 rose 0.8% to erase much of its losses for the week.
  • The gauge shed 1.7% on Thursday in its worst one-day performance since May 11.
  • In Asia, major indexes closed mostly lower.
  • South Korea’s Kospi declined 1.1%, while Japan’s Nikkei 225 fell 0.6% and China’s Shanghai Composite edged less than 0.1% lower.
  • Hong Kong’s Hang Seng added 0.7%.

Levi Strauss forecasts upbeat full year as apparel demand bounces back – Reuters, 7/9/2021

  • Levi Strauss on Thursday forecast a strong full-year profit after handily beating quarterly earnings estimates as demand for its jeans, tops, and jackets rebound quicker than expected across its markets.
  • Net revenue more than doubled to $1.28 billion in the second quarter ended May 30, beating Refinitiv IBES estimates of $1.21 billion.
  • Revenues through digital channels rose 75% as people have taken to the ease of getting their orders delivered at their doorsteps.
  • Excluding items, Levi earned 23 cents per share, versus estimates of 9 cents.
  • The Denizen and Dockers brands’ owner forecast fiscal 2021 per-share profit between $1.29 and $1.33, above estimates of $1.15. It also forecast second-half revenue to be above 2019 pre-pandemic levels.
  • “About 35% of consumers in the U.S. have changed waist sizes. And some of it is up and some of it is down, but either way, it creates another reason for people to go out and update their wardrobe,” Chief Executive Officer Charles Bergh said on an earnings call.

Stamps.com to Be Bought by Thoma Bravo in $6.6 Billion Cash Deal – Wall Street Journal, 7/9/2021

  • Stamps.com said it would be acquired by private-equity firm Thoma Bravo in an all-cash deal that values Stamps.com at about $6.6 billion.
  • Stamps.com stockholders will receive $330 a share in cash, a 67% premium over the company’s $197.72 closing price Thursday.
  • The companies expect the transaction to close in the third quarter, and upon closing Stamps.com’s common stock will no longer be listed on any public market.

Philip Morris Buys Inhaled-Medicine Company for $1.2 Billion Amid Health Push – Wall Street Journal, 7/9/2021

  • Philip Morris International agreed to buy Vectura Group, a U.K. pharmaceuticals business specializing in inhaled medicines, for $1.24 billion in cash, bolstering its push to expand beyond tobacco and nicotine.
  • Philip Morris International, which is listed in New York but sells the Marlboro brand outside the U.S., on Friday said that Vectura will be the backbone of a business built around inhaled therapeutics.
  • Inhalers used by asthma sufferers, for instance, are common for the treatment of respiratory illness, but have shown promise in the delivery of other medicines.
  • The deal trumps an earlier agreement in May by Vectura to be bought by Carlyle Group Inc. Philip Morris’s offer of 899.2 million poundsvalues Vectura at 150 pence a share, 10% higher than the private-equity firm’s bid.
  • Carlyle said Friday it is considering its options.

Amazon to Add Universal Pictures’ Films to Prime Video Streaming Service – Wall Street Journal, 7/9/2021

  • Amazon.com has signed a deal with Comcast’s Universal Pictures to show the studio’s movies on its Prime Video and IMDb TV services, further positioning the tech giant as a formidable competitor to other streaming services.
  • Under the terms of the deal announced Thursday, new theatrical releases from Universal will premiere on Prime Video after a four-month run on the studio’s sister streaming service, Peacock.
  • Under that plan, announced earlier this week, the new movies will run on Peacock for four months, and then move to Amazon for 10 months after that, at which point they will return to Peacock for another four months.
  • The multiyear deal starts in 2022 and will include major Universal releases, including “Jurassic World: Dominion.”
  • A separate deal covers Universal’s stable of anticipated animated releases, such as “Minions: The Rise of Gru” and a new sequel to “Puss in Boots.” Amazon Prime Video subscribers will be able to watch the movies for no additional fee.

U.S. adds 14 Chinese companies, to economic black list over Xinjiang – Reuters, 7/9/2021

  • The Biden administration on Friday added 14 Chinese companies and other entities to its economic blacklist over alleged human rights abuses and high-tech surveillance in Xinjiang.
  • The Commerce Department said the companies had been “implicated in human rights violations and abuses in the implementation of China’s campaign of repression, mass detention, and high technology surveillance against Uyghurs, Kazakhs, and other members of Muslim minority groups in the Xinjiang Uyghur Autonomous Region.”
  • They include the China Academy of Electronics and Information Technology; Xinjiang Lianhai Chuangzhi Information Technology; Shenzhen Cobber Information Technology; Xinjiang Sailing Information Technology; Beijing Geling Shentong Information Technology; Shenzhen Hua’antai Intelligent Technology; and Chengdu Xiwu Security System Alliance.
  • The Commerce Department said in total it was adding 34 entities including some from Russia and Iran, and another five entities directly supporting China’s military modernization programs related to lasers and battle management system.

U.S. equity funds see outflows as recovery hopes abate- Lipper – Reuters, 7/9/2021

  • U.S. equity funds faced outflows for the first time in four weeks in the week ended July 7, as investors abandoned risky assets, with the spread of the COVID-19 Delta variant casting doubts over an economic recovery.
  • Data from Refinitiv Lipper showed U.S. equity funds witnessed a net outflow of $5.2 billion in the week, compared with an inflow of $4.8 billion in the previous week.
  • U.S. small-cap funds and mid-cap funds saw outflows worth $2.2 billion and $839 million respectively, while large-cap funds received $899 million, which was the smallest inflow in four weeks.
  • Meanwhile, U.S. bond funds lured $9.5 billion in the week, as investors rushed to safety, with U.S. 10-Treasury yields dropping to a 4-1/2 month low this week.
  • U.S. short and intermediate investment-grade funds attracted $3.9 billion, the most in two months. U.S. municipal debt funds secured $2.2 billion, the most in four weeks.

Junk-Bond Rally Pulls Yields Below Inflation – Wall Street Journal, 7/9/2021

  • Investors’ headlong embrace of risk passed a new milestone in recent sessions: The return that investors receive for investing in the riskiest U.S. companies fell below inflation.
  • A rally in corporate debt rated below investment grade has pushed yields to record lows around 4.54%, according to ICE Bank of America data, while consumer prices rose 5% in May compared with a year earlier.
  • That marks the first time on record junk-bond yields have dropped below the rate of inflation, according to Bespoke Investment Group.
  • The average extra yield, or spread, investors demanded to hold speculative-grade debt instead of U.S. Treasurys was 2.62 percentage points as of July 6, according to Bloomberg Barclays data.
  • That is down from more than 10 percentage points in March 2020.

US ECONOMY & POLITICS

Economists Lift U.S. Growth Forecasts Even as Pace Set to Cool – Bloomberg, 7/9/2021

  • In Bloomberg’s latest monthly survey of 75 economists, forecasters bumped up their GDP growth estimates for the second half of the year.
  • GDP growth this year is projected to average 6.6%, the second-best year since 1966, according to the survey.
  • Additionally, the survey showed inflation projections inching up through the first half of 2022.
  • The personal consumption expenditures price index, which the Federal Reserve uses to guide monetary policy, is seen rising 3.6% in the third and fourth quarters on a year-over-year basis — well above the Fed’s 2% goal.
  • Projections for the core PCE price index, which strips out the volatile categories of food and energy, were also boosted.
  • The measure is now seen at 3% or higher through early 2022 before settling back to just above the Fed’s target by the end of the second quarter — consistent with the Fed’s view that the recent run-up in inflation is temporary.

Biden Takes Aim at Corporate Consolidation, Big-Business Tactics – Wall Street Journal, 7/9/2021

  • President Biden on Friday will sign a broad executive order that aims to promote competitive markets across the U.S. economy and limit corporate dominance that the White House says puts consumers, workers and smaller firms at a disadvantage.
  • The order, the centerpiece of a new Democratic emphasis on restraining the nation’s most powerful companies, lays out a detailed attack plan for what the Biden administration sees as trouble spots across industries, from the mundane—hearing aids and baggage fees—to some of the most cutting-edge issues facing the government, such as first-ever antitrust regulations for internet platforms.
  • The executive order also touches on issues Mr. Biden has highlighted for years, including the use of noncompete clauses to limit workers’ mobility. In a 2018 speech, he warned: “The rise of monopolies weaken labor.”

EUROPE & WORLD

Delta Variant’s Surge Puts Europe’s Summer Reopening at Risk – Wall Street Journal, 7/9/2021

  • The fast spread of the Covid-19 Delta variant in Spain and some other parts of Europe is prompting authorities to reintroduce restrictions, fueling fears that a new wave of infections could disrupt the region’s summer reopening.
  • The highly contagious variant is threatening to spoil the summer for Europe’s south, whose economies depend on tourists from across Europe, the U.S. and elsewhere.
  • European Union countries recently lifted quarantine requirements for travelers from the U.S. who are vaccinated or have tested negative for Covid-19.
  • France on Thursday warned its citizens about visiting the latest Covid-19 hot spots. “For those who haven’t yet reserved their vacations, be careful, avoid Spain, avoid Portugal,” said Clément Beaune, France’s secretary of European affairs. “It’s better to stay in France or go to other countries.”
  • The spike in Spanish cases is leading to an increase in hospitalizations, but much more slowly than in previous waves, with only 2.4% of the hospital beds and 6.6% of intensive-care-unit beds occupied by Covid-19 patients.
  • Deaths remain near their lowest level since the pandemic began.

ECB Officials Widely See Upside Risk to Medium-Term Inflation – Bloomberg, 7/9/2021

  • European Central Bank officials reckon inflation could turn out higher than expected in the coming years, underscoring how much uncertainty the economy still faces as it rebounds from the pandemic.
  • The ECB’s inflation projection of 1.4% for 2023 — the furthest out that it currently forecasts — “was widely seen as subject to upward risks,” according to the account of June 9-10 policy meeting published Friday.
  • While that’s below the new price-stability goal of 2%, policy makers debated the impact supply chain shortages and higher household savings. One further reason brought up was that governments may be forced to take measures to fight climate change that could raise prices.

China Moves to Spur Lending as Inflation Fears Ease – Wall Street Journal, 7/9/2021

  • China said Friday that it would release more liquidity into the financial system as inflation worries showed signs of ebbing, replaced by concerns that the recovery is slowing more quickly than expected.
  • On Friday, China’s central bank said it would lower the amount of funds that banks have to set aside, effectively freeing up $154 billion (1 trillion yuan) for banks to lend.
  • The decision by the People’s Bank of China to slash its reserve requirement ratio by 0.5 percentage points, while not a surprise, marks the first such action since April last year, when Beijing made a similar move near the peak of the Covid-19 pandemic’s impact on the economy.
  • The fresh liquidity signaled by China’s central bank indicates that Beijing may be pivoting toward supporting the economy after a sharp drawdown in credit earlier this year.
  • The pivot to loosening, though limited, puts China on a different wavelength than the Federal Reserve and central banks in other developed economies, which have started to discuss tapering their easing policies amid rising inflation pressures.

Airbus shares climb after 52% jump in jet deliveries – Reuters, 7/9/2021

  • Airbus shares rose sharply on Friday after the planemaker confirmed a surge of deliveries in June, bringing the total number of aircraft handed over in the first half of the year to 297.
  • Deliveries, which have been recovering from a pandemic-related slump, rose 52% in the first six months from 196 at the mid-point of 2020 and compare with a total of 389 in the first half of 2019 before the coronavirus crisis crippled air travel.
  • Airbus said it had won 165 gross orders in the first half, dropping to a net 38 after cancellations.
  • These included a recently announced order for 70 A321neos from United Airlines, part of a 270-plane order from the U.S. carrier with the rest going to rival Boeing.

Factmonster – TODAY in HISTORY

  • William Jennings Bryan delivered his “cross of gold” speech at the Democratic National Convention. (1896)
  • The British Parliament proclaimed that as of Jan. 1, 1901, the six Australian colonies would be united at the Commonwealth of Australia. (1900)
  • Former U.S. chief justice Earl Warren died in Washington, DC. (1974)
  • After more than 50 years of struggle, South Sudan declares independence and becomes Africa’s 54th state. (2011)

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