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Daily Market Report | July 14, 2021

US FINANCIAL MARKET

Stocks Rise Ahead of Powell Testimony – Wall Street Journal, 7/14/2021

  • U.S. stocks ticked up Wednesday ahead of testimony from Federal Reserve Chairman Jerome Powell.
  • The S&P 500 rose 0.4%, while the Dow Jones Industrial Average edged up about 61 points, or 0.2%. The Nasdaq Composite rose 0.7%. The gains for all three indexes marked a reversal from Tuesday, when stocks fell, snapping a two-day winning streak.
  • BlackRock shares fell 3.5% in morning trading. The fund-management giant said it added $81 billion in new investor money in the second quarter, less than it did a year ago.
  • Bank of America shares lost 2.7% after the bank posted revenue that fell short of analysts’ expectations.
  • Citigroup shares rose 2% on second-quarter profits of $6.19 billion, which beat forecasts, and Wells Fargo gained 0.7% after posting revenue that topped expectations.
  • Rival lenders JPMorgan Chase and Goldman Sachs kicked off the reporting season with blockbuster results on Tuesday.
  • In bond markets, the yield on 10-year Treasury notes edged down to 1.372%, from 1.415% on Tuesday. Bond yields and prices move in opposite directions.
  • In overseas markets, the Stoxx Europe 600 slipped 0.1%.
  • Japan’s Nikkei 225 lost 0.4% by the close of trading and China’s Shanghai Composite Index dropped 1.1%.

Bank of America’s Profit More Than Doubles – Wall Street Journal, 7/14/2021

  • Bank of America said the economic rebound helped to more than double its profit, but low rates weighed on its revenue.
  • Altogether, revenue in the second quarter was $21.47 billion, down 4% from $22.33 billion a year earlier.
  • That missed analysts’ expectations of $21.8 billion.
  • Bank of America, like its peers, suffered from a drop in trading, though its decline wasn’t as big.
  • Adjusted trading revenue fell 19% to $3.6 billion from $4.41 billion a year earlier.
  • Net interest income of $10.23 billion in the second quarter was down 6% from $10.85 billion a year earlier.
  • Noninterest income, which includes fees, fell 2% to $11.23 billion, from $11.48 billion a year earlier.
  • Outstanding loans and leases totaled $918.93 billion in the second quarter, up 2% from $903.09 billion in the first quarter but down from a year ago.
  • The nation’s second-largest bank by assets posted earnings Wednesday of $9.22 billion in the second quarter, up from $3.53 billion a year earlier. The bank earned $1.03 per share, beating the 77 cents forecast by analysts polled by FactSet.

Wells Fargo Emerges From Pandemic Slump – Wall Street Journal, 7/14/2021

  • Wells Fargo posted its highest revenue since before the pandemic began as its fortunes revived along with the U.S. economy.
  • The San-Francisco-based bank said Wednesday that its revenue rose 11% from a year ago to $20.27 billion, topping the $17.76 billion analysts had expected.
  • That was due to fees and other noninterest income, which rose 37% from a year earlier to $11.47 billion.
  • It reported net interest income of $8.8 billion, down 11% from a year earlier.
  • The bank’s loan book shrank about 1% from the previous quarter to $852.3 billion.
  • Wells Fargo earned $6.04 billion in the second quarter, a reversal from a year earlier when it posted its first quarterly loss in a decade. The bank posted per-share earnings of $1.38, beating the 98 cents predicted by analysts polled by FactSet.
  • With the economic outlook brightening, Wells Fargo said that it released $1.64 billion of that stockpile, boosting its bottom line.

Citigroup Profit Soars As Consumers Rebound – Wall Street Journal, 7/14/2021

  • Citigroup said Wednesday its second-quarter profit soared thanks to an increasingly bright view of consumer health.
  • Revenue fell 12% to $17.47 billion. That still topped analysts’ expectations of $17.22 billion.
  • In the institutional clients group, which includes investment banking and trading, profit more than doubled to $3.82 billion and revenue fell 14%.
  • Trading revenue fell 33% from a record a year ago, when pandemic uncertainty made the markets particularly volatile.
  • Fixed income trading plunged, but equity trading increased.
  • Spending on Citigroup-issued credit cards soared 40% from a year ago, during the depths of the Covid pandemic.
  • It was also up 6% compared with the 2019 period, before the global pandemic.
  • Net interest income, the amount the bank makes on loan interest minus what it pays on deposits, fell 8%.
  • The bank posted a profit of $6.19 billion, or $2.85 per share, compared with $1.06 billion, or $0.38 per share a year earlier.
  • That topped the $1.97 per share that analysts had expected, according to FactSet.
  • In the second quarter, Citigroup freed up about $2.4 billion in loan-loss reserves, boosting its profit.

BlackRock Closes In on the Once Unthinkable, $10 Trillion in Assets – Wall Street Journal, 7/14/2021

  • BlackRock’s second-quarter profit rose 14% on new money coming into the giant asset manager, a sign that investors are becoming more confident about an economic recovery.
  • The company posted a quarterly profit of $1.378 billion or $8.92 a share, up from $1.214 billion or $7.85 a share a year earlier.
  • Its revenue grew 32% to $4.82 billion.
  • Its assets under management rose 30% to $9.5 trillion, from $7.3 trillion a year earlier, cementing its dominance as the world’s largest money manager.
  • Investors added $41.29 billion in money to BlackRock’s bond funds in the second quarter, down from $60 billion in the year-ago quarter.
  • Some $23 billion of new flows in the quarter went into money funds and cash management products.
  • With interest rates so low, BlackRock has had to cough up money to prevent yields of money-market funds from dipping below zero in recent months. In the second quarter it gave up some $160 million to prevent yields from turning negative.
  • That is about twice what it gave up in the first quarter.
  • And, as the largest shareholder of many of the country’s largest companies for investors, Chief Executive Larry Fink thinks inflation is likely here to stay. “I don’t think it’s temporary,” he said.

Delta Air swings to profit on vaccination-led travel rebound – Reuters, 7/14/2021

  • Delta Air Lines on Wednesday posted its first quarterly profit since the coronavirus pandemic began and said it expected to remain profitable for the rest of the fiscal year, as travel demand picks up on the back of speedy vaccinations.
  • Delta’s second-quarter adjusted operating revenue fell 49% to $6.35 billion from 2019, a marked improvement from the 60.4% slump in the first quarter and above analysts’ average estimate of $6.22 billion.
  • Net income reached $652 million, or $1.02 per share, in the three months to June 30, helped by government aid for U.S. airline workers’ salaries as well as a strong rise in quarterly revenues, which topped analyst estimates.
  • Excluding items such as government payroll support, the company lost $1.07 per share in the second quarter.
  • Delta said it expects adjusted operating revenue for the September quarter to be down 30% to 35% from two years ago, with the midpoint at $8.47 billion, above a Refinitiv-IBES estimate of $8.23 billion.

Apple Seeks Up to 20% Increase in New iPhone Production for 2021 – Bloomberg, 7/14/2021

  • Apple has asked suppliers to build as many as 90 million next-generation iPhones this year, a sharp increase from its 2020 iPhone shipments, according to people with knowledge of the matter. The shares jumped to a record.
  • The Cupertino, California-based tech giant has maintained a consistent level in recent years of roughly 75 million units for the initial run from a device’s launch through the end of the year.
  • The upgraded forecast for 2021 would suggest the company anticipates its first iPhone launch since the rollout of Covid-19 vaccines will unlock additional demand.
  • This year’s update will be more incremental than last year’s iPhone 12, emphasizing processor, camera and display improvements, the people said, asking not to be named as the plans are not public.
  • Apple is planning updates to all of the current models, spanning the 5.4-inch and 6.1-inch regular versions and the 6.1-inch and 6.7-inch Pro models.

OPEC Reaches Compromise With U.A.E. Over Oil Production – Wall Street Journal, 7/14/2021

  • OPEC reached a compromise with the United Arab Emirates, agreeing to lift the amount of oil the cartel member can eventually pump as part of a wider agreement with Russia-led producers to boost global supplies, according to people familiar with the matter.
  • Crude prices fell immediately after news of the deal, though they quickly recovered and were little changed in early New York trading. Brent, the international benchmark, was essentially flat at about $76.50 a barrel.
  • West Texas Intermediate was trading around $75.10 per barrel.
  • Earlier this month, the Organization of the Petroleum Exporting Countries agreed with a Russia-led group of producers to increase production to meet soaring demand and tame climbing prices.
  • The group early last year cut 9.7 million barrels a day of crude, the equivalent of about 10% of demand at the time.
  • The U.A.E. had asked for its so-called baseline—or the maximum amount of oil the group would recognize the country as being capable of producing—to be raised to 3.8 million barrels a day from 3.2 million barrels a day.
  • In the compromise reached Wednesday with Saudi Arabia, the group agreed to increase that to 3.65 million barrels a day starting in April, according to people familiar with the matter.

Broadcom No Longer in Talks to Buy SAS Institute, Sources Say – Wall Street Journal, 7/14/2021

  • Talks for Broadcom to buy SAS Institute have ended after the founders of the closely held software company changed their minds about a sale, people familiar with the matter said.
  • The Wall Street Journal reported Monday that the companies were discussing a deal that would value SAS in the range of $15 billion to $20 billion, including any debt.
  • Following the report, Jim Goodnight and John Sall, who co-founded SAS decades ago and still run the company, had a change of heart and decided not to sell to Broadcom, the people said. Whether another suitor for SAS could emerge isn’t clear.

Facebook Seeks Recusal of FTC Chair Lina Khan in Antitrust Case – Wall Street Journal, 7/14/2021

  • Facebook sought the recusal of Federal Trade Commission Chairwoman Lina Khan from the agency’s deliberations on whether to file a new antitrust case against the company, arguing she couldn’t be impartial because of her long history of criticizing it and other big-tech firms.
  • An FTC spokeswoman didn’t immediately respond to a request for comment. Ms. Khan has said previously that she would consult with FTC ethics officials if recusal questions arose.
  • Facebook’s request comes two weeks after a similar recusal petition was filed by Amazon.com, which is facing multiple investigations at the FTC, and is the latest sign that giant technology companies are favoring aggression over a conciliatory approach with Ms. Khan, who built her career advocating for bold antitrust action to rein in the dominant players in Silicon Valley.

US ECONOMY & POLITICS

U.S. producer inflation posts biggest annual gain in more than 10-1/2 years – Reuters, 7/14/2021

  • U.S. producer prices surged in June, leading to the largest annual gain in more than 10-1/2 years, suggesting inflation could remain high as robust demand fueled by the economy’s recovery from the COVID-19 pandemic strains the supply chain.
  • The producer price index for final demand increased 1.0% last month after rising 0.8% in May.
  • A 0.8% increase in the cost of services accounted for nearly 60% of the increase in the PPI in June.
  • Services rose 0.6% in the prior month.
  • Goods prices climbed 1.2% after accelerating 1.5% in May.
  • In the 12 months through June, the PPI surged 7.3%.
  • That was the biggest year-on-year rise since November 2010 and followed a 6.6% advance in May.
  • Excluding the volatile food, energy and trade services components, producer prices rose 0.5%.
  • The so-called core PPI gained 0.7% in May.
  • In the 12 months through June, the core PPI accelerated 5.5%.
  • That was the largest rise since the government introduced the series in August 2014 and followed a 5.3% increase in May.
  • Last month’s surge in the costs of services was led by a 2.1% jump in trade services, which measure changes in margins received by wholesalers and retailers.
  • Twenty percent of the increase services was due to margins for automobiles and parts retailing, which rose 10.5%.

Powell Expects Inflation to Moderate, but Will Likely Remain Elevated This Year – Wall Street Journal, 7/14/2021

  • Federal Reserve Chairman Jerome Powell said inflation had increased notably and would likely remain elevated in the coming months before moderating.
  • Pandemic-related bottlenecks and other supply constraints have led to rapid price increases for certain goods and services “which should partially reverse as the effects of the bottlenecks unwind,” Mr. Powell said in testimony prepared for delivery later Wednesday before the House Financial Services Committee.
  • Mr. Powell is set to present the Fed’s semiannual monetary-policy report to members of the committee on Wednesday and to members of the Senate Banking Committee on Thursday.

Senate Democrats Agree to $3.5 Trillion Healthcare and Antipoverty Plan – Wall Street Journal, 7/14/2021

  • Democrats on the Senate Budget Committee agreed to roughly $3.5 trillion in spending for their broad healthcare and antipoverty plan, determining the scope of the party’s expected efforts on education, climate change, child care and a host of other issues while it has control of Congress and the White House.
  • The $3.5 trillion price falls short of a $6 trillion package previously sought by progressives, including Sen. Bernie Sanders (I., Vt.), the chairman of the Budget Committee who endorsed the deal Tuesday night.
  • A Democratic aide familiar with the agreement said it will prohibit tax increases on people making less than $400,000 and small businesses.
  • To receive a CBO score, lawmakers will need to craft the text of the legislation.
  • Exiting a Tuesday meeting, members of the infrastructure group said they hoped to resolve the remaining issues in the talks by the end of the week.
  • Staff can then turn to writing the text of the bill.

U.S. Had Most Drug Overdose Deaths on Record in 2020, CDC Says – Bloomberg, 7/14/2021

  • U.S. drug overdose deaths soared almost 30% to a record 93,331 in the pandemic year of 2020, according to the Centers for Disease Control and Prevention.
  • Deaths increased by more than 21,000 from 2019, the CDC’s National Center for Health Statistics said in data published Wednesday. That means an average of 256 Americans died from overdosing every day, up from 198 the year before.
  • Since 1999, overdose deaths have increased 450%.
  • Opioids — including prescription pain medicine — caused about three-quarters of overdose deaths last year, according to the CDC. The number of cases rose to 69,710, an increase of almost 18,000.
  • Overdose deaths from synthetic opioids, primarily fentanyl, and psychostimulants such as methamphetamine also increased in 2020, as did deaths from cocaine, according to the CDC report.

EUROPE & WORLD

Bank of Canada Boosts Inflation Forecast, Dials Back Bond Buying – Bloomberg, 7/14/2021

  • The Bank of Canada took another big step to rein in emergency levels of stimulus, once again tapering its bond purchases in a sign of optimism about the speed of the recovery.
  • Policy makers led by Governor Tiff Macklem said Wednesday that they would reduce their purchases of government debt by one-third to C$2 billion ($1.6 billion).
  • Officials held the benchmark overnight interest rate at 0.25%, while indicating they don’t expect any hikes before at least the second half of next year — in line with previous guidance.
  • The bank reiterated guidance that it won’t raise its benchmark rate until the recovery is complete and inflation is sustainably at 2%.
  • New projections released alongside the rate statement show that won’t happen until the second half of next year, in line with its previous forecasts.

U.K.’s Inflation Jump Tests BOE’s Relaxed View on Stimulus – Bloomberg, 7/14/2021

  • U.K. inflation unexpectedly accelerated to the highest level in three years in June, driven by widespread price increases that challenge the Bank of England’s argument that the surge will be temporary.
  • Consumer prices climbed 2.5% from a year earlier, exceeding all but two estimates in a Bloomberg survey of 35 economists.
  • Prices rose from May in the vast majority of 12 broad divisions, the Office for National Statistics said Wednesday.
  • The pound advanced.
  • The BOE predicts that inflation, which was as low as 0.2% last August, will exceed 3%. But crucially for policy, the central bank has maintained that the pressure would prove temporary.
  • Deputy Governor Jon Cunliffe said after the report that some consumer price gains are “transitory,” while others will persist.

Alibaba and Tencent Consider Opening Up Their ‘Walled Gardens’ – Wall Street Journal, 7/14/2021

  • Alibaba and Tencent are considering moves to gradually open up their services to one another, as Beijing’s tech crackdown makes it harder for China’s two online giants to maintain the virtual barriers they have built in recent years.
  • That would mark a big shift for China’s consumer internet, which has largely split into two camps built around the arch rivals. The restrictions mean, for example, that customers can’t use Tencent’s payment system to buy goods on an Alibaba platform.
  • Now, both companies are separately working on plans to loosen those curbs, according to people familiar with the matter.
  • The system could make life more convenient for consumers—and help spur greater competition—but will also mean the duo will have more insight into each other’s businesses.

Ryanair loses challenge against COVID aid for Lufthansa’s Austrian unit – Reuters, 7/14/2021

  • Ryanair on Wednesday lost its challenge against EU-approved state aid for Austrian Airlines, ending a brief run of successful cases brought as governments propped up their national flag carriers during the pandemic.
  • Europe’s biggest budget airline has launched 16 lawsuits against the European Commission for allowing billions of euros in state aid for individual airlines hit by the coronavirus pandemic.
  • Ryanair took its grievance to the Luxembourg-based General Court, Europe’s second highest, after the EU competition enforcer approved Vienna’s decision to grant aid to Austrian Airlines in June 2020.

Lufthansa targets 60-70% of pre-pandemic passenger numbers by year-end – Reuters, 7/14/2021

  • Passenger numbers at Lufthansa (LHAG.DE) are currently around 40% of pre-pandemic levels and it is aiming to reach 60-70% by the end of the year, a manager at the German airline said.
  • “We started into the summer with about 10% of passengers and 15% of flights compared to pre-crisis levels”, Jens Fehlinger said.
  • Lufthansa is currently running about 55% of the flights it used to. While it is serving 192 destinations – more than in summer 2019 – it is flying many routes less frequently.
  • The airline and its subsidiaries are using 520 aircraft, compared with roughly 800 before the crisis, Fehlinger said.

Factmonster – TODAY in HISTORY

  • The storming and destruction of Bastille marked the beginning of the French Revolution. (1789)
  • Congress passed the Sedition Act, making it a crime to publish false, scandalous, or malicious writing about the U.S. government. (1798)
  • In one of the most controversial cases in U.S. history, anarchists Nicola Sacco and Bartolomeo Vanzetti were convicted of two murders and sentenced to death. (1921)
  • In Germany, all political parties except the Nazi party were outlawed. (1933)
  • A military coup overthrew the monarchy in Iraq, killing King Faisal II. General Abdul Karim Kassem becomes Iraq’s leader. (1958)

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