US FINANCIAL MARKET
Earnings Kick Off With Sky-High Forecasts, Record Stock Market – Wall Street Journal, 7/12/2021
- Wall Street is heading into earnings season this week with high expectations after strong profits fueled a stock market rally in the first half of the year.
- Money managers will be watching whether companies will again trounce Wall Street’s forecasts for earnings.
- The S&P 500 has gained 16% this year and notched 38 record closes, most recently on Friday.
- Analysts project that profits for S&P 500 companies rose 64% in the second quarter from a year earlier, according to FactSet, a growth rate that would be the highest in more than a decade.
- Analysts expect businesses constrained by the pandemic and economic slowdown, like the financial and industrial sectors, to more than double their profits from the same period in 2020.
Wave of Bullish Oil Bets Drives Big Price Moves – Wall Street Journal, 7/12/2021
- Hedge funds and other speculative investors recently pushed bets on rising oil prices to their highest level in years, a sign that one-sided positioning is sparking big moves in the world’s busiest commodity market.
- The ratio of bullish bets on U.S. crude to bearish wagers surged to 23-to-1 during the week of June 15, the highest level since the summer of 2018 and nearly triple the figure from five weeks earlier, Commodity Futures Trading Commission data show.
- While the ratio has edged lower in more recent weeks, it has stayed at levels considered elevated by many analysts and well above 6-to-1, where it started the year.
- The upbeat sentiment has made oil one of the hottest trades on Wall Street, briefly pushing U.S. crude prices earlier this month above $75 a barrel and to the highest closing level since late 2018. Prices have roughly doubled since the end of October.
Richard Branson’s Virgin Galactic Flight Opens Door to Space Tourism – Wall Street Journal, 7/12/2021
- Richard Branson reached the edge of space and safely returned to Earth, a trip that marks a turning point in the billionaire entrepreneur’s multidecade effort to help create a space-tourism industry.
- The space trip that Mr. Branson and five other crew members completed Sunday morning on a Virgin Galactic rocket plane lends credence to the company’s ability to safely take passengers to and from space.
- Virgin Galactic, the company Mr. Branson founded, plans to initiate commercial service next year, charging passengers hundreds of thousands of dollars each for such flights.
- The test flight was aimed at evaluating systems and the passenger experience, as well as providing additional validation of its safety.
Elon Musk Is Called to Defend Tesla’s Purchase of SolarCity – Wall Street Journal, 7/12/2021
- In 2016, Elon Musk had two unprofitable businesses on his hands in Tesla and SolarCity His solution to improve their outlook: combine them into a single clean-energy business.
- Five years later, Mr. Musk is being called to defend the propriety of that roughly $2.1 billion tie-up in a Delaware court.
- Plaintiffs, which include several pension funds that owned Tesla stock, have characterized the deal as a scheme to benefit himself and bail out a home-solar company on the verge of insolvency.
- Mr. Musk, who is expected to take the stand in the nonjury trial as early as Monday, was chairman of both companies at the time. His attorneys have framed the acquisition as an opportunity to realize his long-held goal of creating a vertically integrated sustainable energy company.
Walmart-Backed Indian Startup Flipkart Soars to $37.6 Billion Valuation – Wall Street Journal, 7/12/2021
- Flipkart, the Indian e-commerce startup backed by Walmart, has jumped in value to nearly $38 billion, with a fundraising supported by Japan’s SoftBank Group and some major sovereign investors.
- Flipkart said Monday it had raised $3.6 billion in new funds from a group of investors led by Singapore’s GIC, the Canada Pension Plan Investment Board, SoftBank’s Vision Fund 2, and Walmart. Including the new money, the deal values Flipkart at $37.6 billion, it said.
- Just under a year ago, an earlier round of funding valued the company at $24.9 billion.
- Flipkart said it has more than 350 million registered users. It is also the majority owner of PhonePe, a payment app with more than 300 million users that handles more than a billion transactions a month.
- Walmart, the U.S. retail giant, bought a near-77% stake in Flipkart in 2018 for $16 billion. As part of that deal, it bought a large stake held by SoftBank’s original Vision Fund.
US ECONOMY & POLITICS
Fed’s Barkin Says Labor Market Hasn’t Healed Enough to Taper Bond Buying – Wall Street Journal, 7/12/2021
- Federal Reserve Bank of Richmond President Thomas Barkin isn’t ready to call for an end to the U.S. central bank’s $120 billion a month in bond-buying stimulus given where the labor market stands today.
- The policy maker said the employment-to-population ratio is important to him in determining when the central bank can dial back on the stimulus it is providing the economy.
- This ratio stood at 61.1% in February 2020, before the coronavirus pandemic took hold in the U.S. and economic activity cratered.
- It bottomed out in April of that year at 51.3% and has risen since, hitting 58% this June. Mr. Barkin said he would like to see something just north of 59% before he believes it would be time to start reducing bond buying.
Lawmakers to Determine Fate of Infrastructure, Antipoverty Plans – Wall Street Journal, 7/12/2021
- Democrats are racing to finalize a bipartisan infrastructure deal and set the contours of a broad child-care and education plan, aiming to maintain a delicate agreement with Republicans while simultaneously plowing forward with their own priorities.
- After a two-week recess, senators return to Washington this week to determine the fate of much of President Biden’s roughly $4 trillion agenda.
- Senate Majority Leader Chuck Schumer (D., N.Y.) told Senate Democrats in a letter on Friday that he expects that the chamber will take up both a roughly $1 trillion infrastructure agreement and a resolution setting the parameters of a bill encompassing other Democratic priorities in the coming weeks.
- While staff have been filling in details of the infrastructure agreement, Democrats remain divided over the size and scope of the other, broader bill.
- Liberals such as Sen. Bernie Sanders (I., Vt.) have called for as much as $6 trillion in spending in the package, while moderates have favored a smaller number.
- Adding to the sensitivity of the negotiations, many lawmakers have linked the fate of the two efforts.
- Some Democrats, including House Speaker Nancy Pelosi (D., Calif.) have said they won’t support the infrastructure agreement unless the other legislation moves forward, while some Republicans have said advancing other Democratic priorities could cause them to oppose the infrastructure deal.
Global Tax Deal Heads Down Perilous Path in Congress – Wall Street Journal, 7/12/2021
- A complex international corporate tax deal that took years to hammer out soon faces one of its toughest tests: the U.S. Congress.
- The Group of 20 major economies backed the plan this weekend in Venice, Italy, following the earlier endorsement from a broader 130-country group.
- The plan, aimed at limiting corporate tax avoidance, would revamp longstanding international rules and is crucial to President Biden’s plans to raise corporate taxes.
- International negotiators split their work into two separate ideas, known as pillars.
- Pillar One, pushed by European countries including the U.K., would assign more taxing power to countries with large consumer markets and pull power away from low-tax jurisdictions such as Ireland.
- Pillar Two, driven by the U.S., would impose at least a 15% tax on companies’ world-wide earnings.
- Setting that floor makes it easier for the Biden administration to try raising taxes on U.S. companies by up to $2 trillion over a decade, because U.S. rates could rise higher without creating significant opportunities for companies to dodge taxes by shifting profits and addresses.
EU to Put on Hold Digital Levy Following G-20 Minimum Tax Plans – Wall Street Journal, 7/12/2021
- The European Union is putting on hold a proposed digital levy, an EU spokesman said Monday, after finance chiefs from the Group of 20 leading economies endorsed an overhaul of the rules for taxing international companies.
- The EU has faced intense U.S. pressure to postpone any announcement until a deal among the G-20 can advance. The EU’s executive arm, the European Commission, has “decided to put on hold our work on a proposal for a digital levy” until October, said the spokesman. A proposal was expected later this month.
- European officials had already indicated they would aim to ensure the EU’s digital levy wouldn’t undermine work on the global corporate minimum tax, indicating they would propose a low tax rate and structure it in a way to avoid discriminating against U.S. companies.
EUROPE & WORLD
ECB’s Lagarde Foresees July Policy Shift, 2022 ‘Transition’ – Bloomberg, 7/12/2021
- European Central Bank President Christine Lagarde told investors to prepare for new guidance on monetary stimulus in 10 days, and signaled that fresh measures might be brought in next year to support the euro-area economy after the current emergency bond program ends.
- Speaking to Bloomberg Television days after the ECB raised its inflation goal to 2% and acknowledged it may overshoot the target, Lagarde said the July 22 Governing Council session — previously expected to be relatively uneventful — will now have “some interesting variations and changes.”
- Lagarde said she expects the ECB’s current 1.85 trillion-euro ($2.2 trillion) bond-buying plan to run “at least” until March 2022.
- That could then be followed by a “transition into a new format,” she said, without elaborating.
Beijing Blocks Merger, Tightens Data Rules as Post-Didi Crackdown Speeds Up – Wall Street Journal, 7/12/2021
- China’s internet regulator moved Saturday toward requiring data-rich tech companies to undergo cybersecurity reviews ahead of any foreign listings, making explicit for the first time a data-security requirement that marred last week’s U.S. initial public offering by Didi Global.
- Separately, China’s main antitrust regulator on Saturday blocked Tencent’s bid to combine the country’s two biggest game-streaming platforms, its first public intervention to halt a merger in China’s technology sector.
- The security review revision, released Saturday by the Cyberspace Administration of China for public comment, said companies holding personal data on at least one million users must apply for a cybersecurity review.
- Previously, companies seeking overseas stock listings weren’t explicitly obligated to conduct such reviews, though they would typically do so if asked by officials.
China to order Tencent Music to give up music label exclusivity -sources – Reuters, 7/12/2021
- China’s antitrust regulator is set to order the music streaming arm of Tencent to give up exclusive rights to music labels which it has used to compete with smaller rivals, two people with knowledge of the matter said on Monday.
- The State Administration of Market Regulation (SAMR) will also fine it 500,000 yuan ($77,150) for lapses in reporting the acquisitions of apps Kuwo and Kugou, the people told Reuters – a milder penalty than the forced sale indicated earlier this year.
- In April, Reuters reported that SAMR aimed to fine Tencent Holdings at least 10 billion yuan, and that the social media leader was lobbying for leniency. Reuters also reported that SAMR had told Tencent Music it may have to sell Kuwo and Kugou.
- Instead, SAMR will no longer require a sale but will impose the maximum 500,000 yuan fine for not properly flagging the 2016 app purchases for antitrust review, the people said on Monday.
- England’s King Henry VIII married his sixth and last wife, Catherine Parr. (1543)
- Congress authorized the Medal of Honor. (1862)
- Democratic presidential nominee Walter Mondale announced his choice of running-mate, Geraldine Ferraro; Ferraro is first woman to run for vice president on a major party ticket. (1984)