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Daily Market Report | July 12, 2022

US FINANCIAL MARKET

Stocks Wobble, Oil Falls on Growth Concerns – Wall Street Journal, 7/12/2022

  • Fears about a recession on the horizon weighted on oil and bond yields, while stocks moved between small gains and losses, continuing a volatile stretch for global markets.
  • The S&P 500 was recently up 0.1% Tuesday, a day after the benchmark stocks gauge skidded 1.2%. The Dow Jones Industrial Average added 0.4%. The technology-focused Nasdaq Composite was up less than 0.1%.
  • Oil prices and bond yields fell, dragged lower by worries about global growth.
  • Brent-crude futures, the benchmark in international energy markets, fell 6.6% to $100.03 a barrel.
  • In the bond market, the yield on 10-year Treasurys slipped to 2.910% from 2.990% Monday.
  • Yields, which move inversely to prices, have drifted lower since late June on expectations that an economic slowdown would prod the Federal Reserve to pull interest rates back down in 2023.
  • Meanwhile, data from the National Federation of Independent Business showed confidence among small-business owners fell to its lowest level in almost a decade in June.
  • Investors will be closely parsing fresh inflation data due Wednesday.
  • Among individual stocks, PepsiCo rose 0.8% after the drinks company said second-quarter profits and revenue beat analysts’ forecasts.
  • Elsewhere in commodities, copper forwards on the London Metal Exchange fell 2.6% to just over $7,400 a metric ton.
  • The industrial metal, a barometer for the world economy because of its use in construction and heavy industry, has slumped by over a fifth over the past month and is more than 30% below the all-time high of over $10,000 a metric ton recorded in March.
  • One factor that has weighed on commodities in recent weeks has been a stronger dollar. The greenback’s rally stalled Tuesday, pushing the WSJ Dollar Index down 0.1%.
  • On Monday it rose 1.1%, lifting the dollar to its highest level against a basket of other currencies since 2002.
  • International stocks retreated. The Stoxx Europe 600 lost 0.1%. China’s Shanghai Composite Index lost 1%, Hong Kong’s Hang Seng fell 1.3% and Japan’s Nikkei 225 dropped 1.8%.

PepsiCo Revenue Rises as Higher Prices, Snack Brands Lift Business – Wall Street Journal, 7/12/2022

  • Consumers are continuing to buy treats like soda and chips at rising prices, even as their pocketbooks get more squeezed by inflation.
  • PepsiCo reported a 5.2% increase in revenue in the latest quarter from a year earlier, as prices on average rose 12% and the company benefited from strong sales of its snacks and packaged foods.
  • Overall, the company’s revenue rose to $20.2 billion from $19.2 billion.
  • Year over year, prices were up 10% in the first quarter of this year and 7% in the fourth quarter of last year.
  • At PepsiCo’s North American snacks unit, which sells Doritos and Lays potato chips, revenue rose 14% for the quarter ended June 11.
  • The unit’s sales volume fell 2%, largely because of a quality-control issue that disrupted production of its Sabra hummus for a few weeks during the quarter, Mr. Johnston said.
  • PepsiCo’s North American packaged-food business, which sells the Quaker Oats and Rice-A-Roni brands, had a 17% increase in revenue and a 2% increase in sales volume.
  • The soda and snacks giant posted a second-quarter profit of $1.43 billion, or $1.03 a share, compared with $2.36 billion in the prior-year period.
  • The Purchase, N.Y., company Tuesday also lifted its forecast for a key sales metric, projecting that organic revenue will rise 10% this year, compared with its previous forecast of 8%.

Shares of EV maker Canoo are surging after Walmart agrees to buy 4,500 electric delivery vans – CNBC, 7/12/2022

  • Electric vehicle startup Canoo said Tuesday Walmart has agreed to buy at least 4,500 of its upcoming electric delivery vans, in a significant win for the embattled vehicle maker.
  • Shares of Canoo were up more than 70% in early trading after the news was announced.
  • Walmart has signed a “definitive agreement” to purchase at least 4,500, and possibly as many as 10,000, of its all-electric Lifestyle Delivery Vehicles, a small electric van designed for local delivery service, Canoo said.
  • Canoo marks the third major deal signed by Walmart for electric vans. Early this year, Walmart reserved 5,000 electric vans from General Motors subsidiary BrightDrop.
  • It also bought 1,100 electric vans from Ford E-Transit, some of which it is already operating.

Rivian Plans Hundreds of Job Cuts Following Surge in Staffing – Bloomberg, 7/12/2022

  • Rivian Automotive is planning hundreds of layoffs to trim its workforce in areas where the electric-vehicle maker has grown too quickly, according to people familiar with the matter.
  • The cuts will focus on nonmanufacturing roles, including teams with duplicate functions, said the people, who asked not to be identified discussing private information.
  • The company, which has more than 14,000 employees, could target an overall reduction of around 5%, the people said. The layoffs are still in the planning stage and nothing has been decided.

Microsoft cuts small percentage of employees as new fiscal year begins – CNBC, 7/12/2022

  • Microsoft said Tuesday it cut a small number of workers, days after the software maker began its 2023 fiscal year, a time when the company normally announces structural changes.
  • The cuts reach a variety of groups and affect less than 1% of the company, which employed 181,000 people as of June 2021, the company said.
  • Microsoft last announced a round of layoffs in 2017, after the start of its new fiscal year. The company trimmed thousands of employees as it adjusted its approach to selling.

OPEC’s First 2023 Outlook Shows No Relief From Oil Squeeze – Bloomberg, 7/12/2022

  • OPEC’s first oil-market outlook for 2023 suggests no relief for squeezed consumers, with more crude needed from the group even though most members are already pumping flat out.
  • The Organization of Petroleum Exporting Countries expects global oil demand growth to exceed the increase in supplies by 1 million barrels a day next year.
  • Global demand will expand by 2.7 million barrels a day next year, bolstered by growth in emerging economies, while supplies outside OPEC will increase by 1.7 million a day, according to the cartel’s analysis. Gasoline and diesel fuel will drive the growth in consumption.
  • To balance supply and demand, OPEC would need to provide an average of 30.1 million barrels a day in 2023. That’s 1.38 million a day more than the cartel’s 13 nations pumped in June.
  • OPEC’s assessment of 2023 fits in with the prevailing view across the petroleum industry, with the Paris-based International Energy Agency — which represents consuming nations — also predicting that supplies will remain under strain.

Oil Sinks Further Below $100 as Recession Risk Spooks Market – Bloomberg, 7/12/2022

  • Oil posted another sharp decline as US trading commenced with Covid-19 flare ups adding to concerns about a global economic slowdown.
  • West Texas Intermediate lost as much as 6.9% to slip under $97 a barrel as Wall Street traded lower and the dollar rose, making commodities priced in the currency more expensive.
  • Bearish sentiment has filtered through commodities as rising virus cases in China and looming US inflation data stoke concerns about demand, outweighing fundamental market tightness.
  • Despite recession fears, several energy administrations agree that supply tightness is set to worsen.
  • IEA’s Executive Director Fatih Birol said nations “might not have seen the worst” of a global energy crunch while OPEC’s first look at 2023 showed no relief from oil market tightness.

Dividend Payouts Hit Record Despite Rocky Stretch in Markets – Wall Street Journal, 7/12/2022

  • Dividend payouts set another record in the second quarter, a reassuring sign to investors who have flocked to steady, income-generating stocks during the market downturn this year.
  • The companies in the S&P 500 paid out a record $140.6 billion in dividends in the most recent quarter, according to S&P Dow Jones Indices. That’s up from $137.6 billion in the first three months of the year and $123.4 billion in the same quarter last year.
  • Payments this year are projected to grow at a faster pace than usual, as companies have logged strong sales and are passing on a slice of the elevated profits to shareholders, according to Mr. Silverblatt.
  • He estimates dividend payments will jump more than 10% in 2022 from last year’s record $511.2 billion, which would mark the first double-digit increase since 2014.

Treasury Curve Inversion Deepens to Level Not Seen Since 2007 – Bloomberg, 7/12/2022

  • One of the US bond market’s most widely watched indicators of potential recession risk has reached levels last seen in 2007.
  • The yield on the benchmark 10-year Treasury note dropped as much as 12 basis points below the 2-year rate, eclipsing the 9.5-basis-point gap reached in early April. The gap was pared to around 8.5 basis points ahead of the $33 billion 10-year note auction slated for 1 p.m. New York time, which will create additional supply that can have a cheapening effect.
  • The spread between 2- and 10-year Treasuries is one of the most widely watched, and it’s now more inverted than at any time since 2007, before the financial crisis of 2008-2009.
  • Other segments of the yield curve are also flattening, though several remain positive, including the gap between those on 3-month bills and 10-year notes. That spread, used by the New York Fed among others in recession-prediction models, stands at about 74 basis points, down from a multi-year high 234 basis points in May.

US ECONOMY & POLITICS

Biden Administration to Again Extend the Covid Public-Health Emergency – Bloomberg, 7/12/2022

  • The US government will once again extend the Covid-19 public health emergency, continuing measures that have given millions of Americans special access to health insurance and telehealth services.
  • The Department of Health and Human Services has repeatedly renewed the emergency since it was originally declared in January 2020, with the most recent extension set to expire July 15.
  • The next extension is expected to take effect Friday, according to a person familiar with the matter who asked not to be identified because the details aren’t public.
  • On Sunday, President Joe Biden said he’d asked his staff to consider whether the administration had the authority a separate public health emergency related to restrictions on abortion and reproductive health services.

White House Foresees June Inflation Reading as ‘Highly Elevated’ – Bloomberg, 7/12/2022

  • The White House expects June’s consumer price index figures to be “highly elevated” as Americans grappled with substantial increases in the cost of gasoline and food, but said the reading was “already out of date” because of falling energy prices.
  • “Gas and food prices continued to be heavily impacted by the war in Ukraine,” press secretary Karine Jean-Pierre said Monday, adding that the report — to be released Wednesday — was “backwards-looking.”
  • Economists surveyed by Bloomberg expect the report to show consumer prices rose 8.8% in June from a year earlier, which would be a fresh 40-year high following an 8.6% reading in May.

Housing Could Provide More Fuel for Inflation – Wall Street Journal, 7/12/2022

  • Climbing housing costs are set to keep inflation elevated this year, creating another challenge for Federal Reserve officials who want to see signs that price pressures are easing before slowing their interest-rate increases.
  • Recent data have suggested consumer spending could be shifting away from goods, which saw big price increases last year, and toward services.
  • Central bankers have hoped this transition would ease overall price pressures. But if inflation pressures intensify in the services sector, that would offer less relief.
  • Because of the way the Labor Department captures rental prices, rent inflation could continue to rise this summer before peaking at around 6.5% over the next several months, said David Wilcox, a senior economist at Bloomberg Economics and the Peterson Institute for International Economics. That would be a 36-year high.
  • Federal Reserve Bank of San Francisco economists have estimated that higher housing costs could add around 1.1 percentage point to the CPI in both 2022 and 2023.
  • They could add around 0.5 percentage point to the PCE price index in each of those two years, a large amount considering the Fed target is 2% inflation.
  • Mortgage rates have recently jumped to a 14-year high, and home builders and real-estate agents are reporting a significant pullback in sales.
  • But demand for rental housing could continue to rise, keeping rents high. “These rent-based components in the inflation indices are likely to prove relatively impervious to the tightening in financial conditions we’re seeing right now,” said Mr. Wilcox.

New York Fed Survey Finds Long-Term Inflation Expectations Falling – Wall Street Journal, 7/12/2022

  • Americans are expecting lower inflation increases over the longer run, amid a sharp drop in the projected rate of home-price increases, the Federal Reserve Bank of New York said in a report Monday.
  • The bank said in its June Survey of Consumer Expectations that three years from now, respondents see inflation at a 3.6% rise, down from a 3.9% increase in May. The bank also said five years from now, the expected rate of inflation is seen at a 2.8% gain, from the prior month’s projected 2.9% rise.
  • The survey found that respondents expect inflation a year from now to hit 6.8%, the highest reading for the New York Fed report that dates back to 2013, compared with a projected 6.6% rise in May.
  • In the New York Fed report, the bank found that the expected rate of home-price increases a year from now ebbed sharply to a 4.4% rise in June, compared with 5.8% in May.
  • That is the smallest expected increase since February 2021, and the bank said “the decline, the second largest recorded in the survey’s series only to the sharp drop at the onset of the pandemic, was broad based across age, education, and income groups.”
  • In the report, households see gasoline prices rising by 5.6% a year from now, up from a 5.5% rise in May.

EUROPE & WORLD

Sri Lankan Airport Officials Thwart President’s Brother From Leaving Country – Wall Street Journal, 7/12/2022

  • Basil Rajapaksa, the former finance minister and brother of President Gotabaya Rajapaksa, attempted to leave Sri Lanka but was thwarted by airport staff, as the country waited to see whether the president would follow through on a commitment to resign on Wednesday.
  • Basil Rajapaksa sought to board an Emirates flight to Washington, D.C., via Dubai, early Tuesday through a VIP departure lounge at Colombo’s main international airport, immigration officials said. But in a show of how far public sentiment has soured against the Rajapaksa family over the dire state of the economy, staff at the lounge walked off the job, leaving the former minister unable to clear immigration.
  • “He has come to the airport to leave the country, but he hasn’t” been able to leave, the secretary of the Sri Lanka Immigration and Emigration Officers Association, K.K.A.J. Bandara, told The Wall Street Journal.
  • “We have withdrawn from each and every duties from that lounge.”

India to surpass China as most populous country in 2023, U.N. report says – Reuters, 7/12/2022

  • India is set to surpass China as the world’s most populous country in 2023, with each counting more than 1.4 billion residents this year, a United Nations report said on Monday, warning that high fertility would challenge economic growth.
  • The world’s population, estimated to reach 8 billion by Nov. 15 this year, could grow to 8.5 billion in 2030, and 10.4 billion in 2100, as the pace of mortality slows, said the report released on World Population Day.
  • India’s population was 1.21 billion in 2011, according to the domestic census, which is conducted once a decade. The government had deferred the 2021 census due to the COVID-19 pandemic.
  • The world’s population was growing at its slowest pace since 1950, having fallen below 1% in 2020, UN estimates showed.

Factmonster – TODAY in HISTORY

  • England’s King Henry VIII married his sixth and last wife, Catherine Parr. (1543)
  • Congress authorized the Medal of Honor. (1862)
  • Kiribati, formerly the Gilbert Islands, gained its independence from the United Kingdom. (1979)
  • 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)

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