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Daily Market Report | July 13, 2021

US FINANCIAL MARKET

Stocks Fluctuate as Investors Digest Inflation Data – Wall Street Journal, 7/13/2021

  • The S&P 500 was mostly flat in early-morning trading after futures for the broad index dipped on data that had showed consumer prices leapt higher last month.
  • The Labor Department said June’s consumer-price index rose 5.4% from a year ago, the highest 12-month rate since August 2008, with costs for used cars, airline fares and apparel all sharply rising.
  • Earnings were also in focus Tuesday, starting with big U.S. banks.
  • JPMorgan Chase shares fell 1.6% as the bank kicked off earnings season by saying second-quarter profit more than doubled, while markets revenue fell. Goldman Sachs fell 1.8% after the bank reported profits that beat analysts’ expectations.
  • Earnings expectations are high, particularly for the major banks, who are predicted to have benefited from the economic recovery. Investors are most interested in what executives say about whether business looks good for the remainder of the year.
  • Virgin Galactic fell a further 4.6%, adding to Monday’s 17% loss that came after the space-tourism company said it could sell as much as $500 million in stock.
  • Johnson & Johnson fell 0.4% after the Food and Drug Administration warned that its Covid-19 vaccine was linked to a very small incidence of cases of a rare neurological disorder.
  • Overseas, the Stoxx Europe 600 ticked down 0.3%, pulling back from its record close Monday.
  • In Asia, indexes rose. In Japan, the Nikkei 225 added 0.5% while in Hong Kong the Hang Seng Index rose 1.6%.
  • In mainland China, the Shanghai Composite Index rose 0.5%.

JPMorgan Profit More Than Doubles, but Revenue Falls – Wall Street Journal, 7/13/2021

  • JPMorgan Chase on Tuesday said second-quarter profit soared compared with a year ago, when the bank was stockpiling funds to prepare for a painful recession.
  • Yet revenue fell 8% to $30.48 billion from $33.08 billion a year ago, the result of depressed lending margins and lower trading revenue. Analysts had expected $29.97 billion in revenue, according to FactSet.
  • Revenue fell 19% in JPMorgan’s corporate and investment bank and was up 3% in its consumer bank.
  • In the corporate and investment bank, trading revenue was $6.79 billion, falling 30% from a blockbuster quarter a year ago but better than executives had forecast.
  • Investment banking fees rose 25%.
  • Stock underwriting revenue rose 9%, and debt underwriting rose 26%.
  • Fees from advising on mergers and acquisitions rose 52%.
  • Loan balances grew 3% but with interest rates still near zero, the bank’s lending profits fell again.
  • Net interest income, the amount the bank collects in interest on loans minus what it pays for deposits, fell 8%.
  • Net charge-offs, or loans the bank no longer expects to be repaid, were down from a year ago.
  • This quarter, the bank continued to free up pandemic loan-loss reserves, releasing another $3 billion and boosting its bottom line.
  • The nation’s biggest bank posted a profit of $11.95 billion, or $3.78 per share, compared with $4.69 billion or $1.38 per share a year ago. That beat the expectations of analysts, who had predicted $3.20 per share.

Goldman Sachs Profit, Revenue Jump – Wall Street Journal, 7/13/2021

  • Goldman Sachs’s profit shot higher in the second quarter, as accelerating economic growth and market gains lifted many of the Wall Street firm’s business lines.
  • Goldman reported quarterly profit of $5.49 billion, or $15.02 a share, on revenue of $15.39 billion.
  • Both measures were up significantly from a year ago and better than the expectations of analysts polled by FactSet, who forecast profit of $10.25 a share.
  • Buoyant stock markets also fueled Goldman’s asset-management division, which includes funds and investments the bank manages for itself and for clients. Its revenue more than doubled to $5.13 billion.
  • Revenue from trading totaled $4.9 billion, down 32% from a year ago, when markets were more erratic.
  • Bond, currency and commodity trading revenue fell 45% while stock-trading revenue fell 12%.
  • Revenue in Goldman’s consumer and wealth-management division, which includes its Marcus consumer bank as well as its team serving wealthy clients, rose 28% to $1.75 billion.

PepsiCo raises profit forecast as soda demand jumps, plans price increases – Reuters, 7/13/2021

  • PepsiCo will increase the prices of its products this year, the company said on Tuesday after it raised its full-year earnings forecast on surging demand for its sodas from pandemic-weary people flocking to restaurants and theaters.
  • Overall net revenue rose 20.5% to $19.22 billion in the quarter ended June 12, above expectations of $17.96 billion, according to Refinitiv IBES data.
  • Net revenue from beverage sales to schools, restaurants, stadiums and other such businesses in North America doubled in the second quarter.
  • Excluding items, PepsiCo earned $1.72 per share, above estimates of $1.53 per shares.
  • The company expects fiscal 2021 core earnings per share to increase 11%, compared with prior forecast of a high-single-digit increase.

Conagra tamps down full-year profit expectations as input costs soar – Reuters, 7/13/2021

  • Packaged foods company Conagra Brands warned that higher raw material and ingredient costs would take a bigger bite out of its profit this year than previously estimated, in another sign that supply chain hiccups are battering the sector.
  • “As the fourth quarter unfolded, input cost inflation accelerated and we now expect fiscal 2022 input cost inflation to be materially higher than we anticipated at the end of fiscal Q3,” Conagra’s Chief Executive Officer Sean Connolly said in a fourth-quarter statement, which showed that profit missed expectations.
  • The company now expects adjusted operating margins to be about 16% for its fiscal year ending May 2022, compared with the 18% to 19% it expected earlier.
  • While Conagra, like peers Unilever and General Mills, has been raising prices to offset inflation, it said it would have to be “aggressive” going forward.

Boeing Slows Dreamliner Production After New Manufacturing Issue – Wall Street Journal, 7/13/2021

  • A new production problem has surfaced with Boeing’s 787 Dreamliner, further delaying deliveries of the popular wide-body jets.
  • The Federal Aviation Administration said the newly discovered quality issue on certain 787s posed no immediate safety threat.
  • While the agency will determine whether to require modifications to 787s already in service, the FAA said: “Boeing has committed to fix these airplanes before resuming deliveries.”
  • The current Dreamliner delivery halt follows a five-month delivery pause from last fall through this spring.
  • That led to a pileup of around 100 planes by the end of April, many of which Boeing had hoped to deliver by year-end.

Disney to raise monthly, annual fees for ESPN+ – Reuters, 7/13/2021

  • Walt Disney will raise its monthly and annual subscription fees for sports streaming platform ESPN+ in the United States, the company said on Monday.
  • The monthly price will be increased by $1 to $6.99, while the annual plan will cost $10 more at $69.99, Disney said.
  • The fees for those getting a bundle of all of Disney’s streaming services, including Hulu and Disney+, will remain unchanged and there will be no changes to its UFC pay-per-view prices.
  • ESPN+ has about 14 million subscribers.

United and Mesa to Buy Electric Planes for Short Trips – Wall Street Journal, 7/13/2021

  • United Airlines and a regional airline partner are hoping to use a new electric plane to revitalize short-haul flying.
  • United’s venture fund and Mesa Air Group are investing in Heart Aerospace, a Swedish company developing a 19-seat electric aircraft.
  • Each airline has agreed to order 100 of the planes, once they have been built, as long as the final product meets the airlines’ specifications.
  • None of these new aircraft have flown yet, and it will be years before any of them carry passengers.
  • The companies said they expect the new plane, known as the ES-19, to begin service by 2026.

U.S. fed funds futures up rate hike bets after CPI data – Reuters, 7/13/2021

  • Futures on the federal funds rate, which track short-term interest rate expectations, on Tuesday raised bets that the Federal Reserve will tighten monetary policy either in December 2022 or early 2023 in the wake of a stronger-than-expected U.S. consumer prices data.
  • The fed funds market showed a roughly 90% chance of a rate hike by December 2022, fully pricing that scenario in January 2023.

US ECONOMY & POLITICS

Inflation Accelerates Again in June as Economic Recovery Continues – Wall Street Journal, 7/13/2021

  • U.S. consumer prices continued to climb swiftly in June, as the economic recovery gained steam and demand outpaced the supply of labor and materials.
  • The Labor Department said last month’s consumer-price index increased 5.4% from a year ago, the highest 12-month rate since August 2008. The so-called core price index, which excludes the often-volatile categories of food and energy, rose 4.5% from a year before.
  • Prices for used cars and trucks leapt 10.5% from the previous month, driving one-third of the rise in the overall index, the department said. The indexes for airline fares and apparel also rose sharply in June.
  • Compared with two years ago, overall prices rose 3% in June.
  • Overall prices jumped at a 10.7% annualized rate in the three months ended in June, faster than the 9.7% pace in May.

U.S. small business optimism rises despite labor shortage, inflation worries – NFIB – Reuters, 7/13/2021

  • Confidence among small businesses in the United States improved slightly in June after declining in May, despite owners worrying about a labor shortage and inflation, according to a survey released on Tuesday.
  • The National Federation of Independent Business (NFIB) Optimism Index rose 2.9 points to a reading of 102.5 in June.
  • Seven of the 10 index components improved and three declined.
  • A net 28% of businesses plan to create new jobs in the next three months, up one point from May and a record high.
  • The quality of labor ranked as businesses’ “single most important problem,” with 26% of respondents selecting it among 10 issues, near the survey high of 27%. Some 56% of respondents said they had few or no qualified applicants for open jobs in June, down from 57% in May.
  • Businesses in the NFIB survey also flagged inflation as a worry, and a record 44% plan to increase prices in the next three months.

Democrats Hone Price Tag for Climate and Antipoverty Package – Wall Street Journal, 7/13/2021

  • Senate Democrats haggled late Monday over the size and scope of a package including climate provisions, child care and other programs they plan to squeeze through the chamber later this year without any GOP support.
  • Back in Washington after a two-week recess, Democrats on the Senate Budget Committee said they would resume discussions Tuesday as they rush to settle on the overall price tag of a colossal legislative package they hope to pass later this year through a special process tied to the budget, known as reconciliation.
  • Senate Majority Leader Chuck Schumer (D., N.Y.), who met with the committee’s Democrats Monday, said he hopes to pass a budget resolution setting its parameters before the chamber departs for its August break.
  • If Democrats can remain united, that would allow them to pass legislation with just a simple majority in the 50-50 Senate, rather than the 60-votes threshold most bills face.
  • But more centrist and liberal Democrats are still divided over the size of the budget package, as well as how much of it should be paid for by other revenue, including tax increases.

EUROPE & WORLD

China’s Export Engine Accelerates, Defying Expectations – Wall Street Journal, 7/13/2021

  • China’s imports and exports posted stronger-than-expected growth in June as global demand for Chinese goods remained solid and sporadic Covid-19 outbreaks in the country’s biggest export hub didn’t hit outbound shipments as much as expected.
  • China’s exports increased 32.2% from a year earlier in dollar terms, accelerating from a 27.9% gain in May, data from the General Administration of Customs showed Tuesday.
  • China’s imports, meanwhile, increased 36.7% in June from a year earlier—slower than May’s 51.1% year-over-year jump, but also far better than economists’ forecast of a 25.5% gain.
  • Taken together, the trade data expanded China’s trade surplus to $51.5 billion in June, from $45.5 billion in May, according to official data. Economists had expected China’s trade surplus to remain steady at $45.5 billion.

Cuba Cracks Down on Protests Amid Worst Economic Crisis in Decades – Wall Street Journal, 7/13/2021

  • Cuba’s Communist government stepped up its crackdown against demonstrators and activists on Monday, cutting off most communications with the outside world, deploying security forces across the country and arresting more than 100 people, many of whose whereabouts remain unknown, activists said.
  • Well-known dissidents and civil-rights activists are among those detained by Cuban authorities in the aftermath of unprecedented nationwide protests that shook Cuba Sunday.
  • They included visual artist Luis Manuel Otero, poet Amaury Pacheco and José Daniel Ferrer, the leader of Cuba’s most important opposition group, human-rights organizations said.
  • Thousands of Cuban citizens took to the streets across the country for the first time in more than six decades to protest against deteriorating living conditions, and the lack of basic goods and services, including medical attention amid a sharp rise in the number of coronavirus infections.
  • The government is grappling with the worst economic crisis in 30 years, which has resulted in acute shortages of food, fuel and medicine.

Haiti on Brink of Anarchy Amid Hunger, Gang Violence and Power Vacuum – Wall Street Journal, 7/13/2021

  • Nearly half of the population on this island nation is facing acute hunger, while gang members block fuel distribution routes to the capital and scare away tourists from pristine beaches. In contrast to neighboring countries, Haiti has yet to administer a single vaccine against Covid-19.
  • A country that for much of its history has been stifled by poverty and strife is now mired in its worst crisis in a generation after President Jovenel Moïse was assassinated in his home last week in a murky attack the police blame on two dozen foreign mercenaries and a 63-year-old doctor they say wanted to be president.
  • Though Claude Joseph, the interim prime minister, says he is Haiti’s rightful leader, the Biden administration on Monday appeared to distance itself from him after a U.S. delegation traveled to the island over the weekend.

Factmonster – TODAY in HISTORY

  • The draft riots, protesting unfair conscription in the Civil War, began in New York City. (1863)
  • The first World Cup soccer competition began in Montevideo, Uruguay. (1930)
  • The Battle of Kursk, the largest tank battle in history—involving some 6,000 tanks, 2,000,000 troops, and 4,000 aircraft—ended in German defeat. (1943)
  • Iraq’s interim governing council was inaugurated. (2003)

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