Daily Market Report | July 16, 2021
US FINANCIAL MARKET
Stocks Waver After Retail Sales Boost – Wall Street Journal, 7/16/2021
- U.S. stocks wavered as fresh data showed that consumer sentiment dwindled in early July, driven in part by concerns over high inflation.
- The S&P 500 gave up its early gains and edged down 0.3% and the Dow Jones Industrial Average retreated around 150 points, or 0.4%. The Nasdaq Composite was roughly flat.
- On Friday, investors parsed some mixed economic data. A report showed that consumer sentiment in the U.S. declined in early July amid concerns over high inflation.
- New data also showed that retail sales rose 0.6% in June, as the economy reopened more broadly and auto dealers navigated supply disruptions. Economists were expecting another decrease after May’s 1.3% drop.
- U.S.-listed Chinese ride-hailing firm Didi Global fell 2.9% after state security and police officials were sent to the company’s offices Friday as part of a cybersecurity investigation.
- In bond markets, the yield on the benchmark 10-year Treasury note ticked up to 1.307% Friday from 1.297% Thursday, reversing course after declining for two consecutive days.
- Overseas, the pan-continental Stoxx Europe 600 slipped 0.7%.
- Most major benchmarks in Asia ended the week on a downward note.
- The Shanghai Composite Index declined 0.7% and Japan’s Nikkei 225 fell 1%.
L.A. to Require Masks Indoors Again as Delta Variant Rages – Bloomberg, 7/16/2021
- Los Angeles County told its residents they must wear masks indoors — even the vaccinated — following a surge in Covid-19 cases and the spread of the highly contagious delta variant.
- The county of 10 million people added more than 1,000 new cases for a seventh straight day, with the transmission rate reaching close to a “high” level after hitting a “substantial” pace in a short period of time, Muntu Davis, the county’s health officer, said in a briefing.
- The restriction — set to take effect at 11:59 p.m. on Saturday — comes just one month after the county, along with the rest of California, lifted masking and social-distancing restrictions as cases eased.
- L.A. county has fully vaccinated 61% of its population, according to the public health agency.
Kansas City Southern revenue jumps 37% as freight volumes rebound – Reuters, 7/16/2021
- Kansas City Southern, which has agreed to be taken over by Canadian National Railway, on Friday reported a 37% jump in quarterly revenue, as a recovery from the pandemic-led downturn boosted freight volumes and fuel surcharges.
- Revenue rose to $749.5 million in the second quarter, in line with the average analyst estimate of $750.08 million, according to IBES data from Refinitiv.
- The smallest of the six Class 1 railroads by revenue, Kansas City’s carload volumes rose 31% in the three months ended June 30.
- Adjusted operating ratio, a key profitability metric for Wall Street, was 61.4%, compared with 65.2% a year earlier.
- The company reported a net loss of $378 million, or $4.17 per share, in the quarter, compared with a profit of $110.3 million, or $1.16 per share, a year earlier.
Intel Is in Talks to Buy GlobalFoundries for About $30 Billion – Wall Street Journal, 7/16/2021
- Intel is exploring a deal to buy GlobalFoundries, according to people familiar with the matter, in a move that would turbocharge the semiconductor giant’s plans to make more chips for other tech companies and rate as its largest acquisition ever.
- A deal could value GlobalFoundries at around $30 billion, the people said.
- It isn’t guaranteed one will come together, and GlobalFoundries could proceed with a planned initial public offering.
- GlobalFoundries is one of the largest specialist chip-production companies. It was created when Intel rival Advanced Micro Devices (AMD) in 2008 decided to spin off its chip-production operations.
- GlobalFoundries has about 7% of the foundry market share by revenue, according to Taiwan-based research firm TrendForce.
- AMD remains a big customer for GlobalFoundries—agreeing to a multiyear, roughly $1.6 billion chip-component supply deal this year—and that could complicate a takeover by Intel.
Lordstown Motors Discloses Justice Department Investigation – Wall Street Journal, 7/16/2021
- Electric-truck startup Lordstown Motors confirmed the Justice Department is probing its business, investigating matters related to its reverse merger deal last year and preorders for its forthcoming pickup truck, the Endurance.
- In a regulatory filing Thursday, the company said it had been informed by the U.S. attorney’s office in Manhattan of its investigation, which follows one initiated by the U.S. Securities and Exchange Commission.
- The Ohio-based startup has said it has received two subpoenas from the SEC requesting documents and information related to its merger deal in October with publicly traded DiamondPeak Holdings, a special-purpose acquisition company.
- The SEC is also seeking information related to the company’s preorder book for its all-electric pickup truck. Those preorders had been promoted by executives and the upstart manufacturer as a sign of future demand for the Endurance, which has yet to go into production.
FAA orders checks on 9,300 Boeing 737 planes for possible switch failures – Reuters, 7/16/2021
- The Federal Aviation Administration (FAA) on Thursday issued a directive to operators of all Boeing 737 series airplanes to conduct inspections to address possible failures of cabin altitude pressure switches.
- The directive requires operators to conduct repetitive tests of the switches and replace them if needed. The directive covers 2,502 U.S.-registered airplanes and 9,315 airplanes worldwide.
- The FAA said failure of the switches could result in the cabin altitude warning system not activating if the cabin altitude exceeds 10,000 feet (3,050 m), at which point oxygen levels could become dangerously low.
- The FAA said on Thursday that tests must be conducted within 2,000 flight hours since the last test of the cabin altitude pressure switches, before airplanes have flown 2,000 hours, or within 90 days of the directive’s effective date.
Ford recalling 775,000 SUVs for steering issue linked to six injuries – Reuters, 7/16/2021
- Ford Motor said on Friday it was recalling about 775,000 Ford Explorer SUVs worldwide for a steering issue linked to reports of six injuries in North America.
- The recall covers 2013-2017 model year vehicles that may experience a seized cross-axis ball joint that could cause a fractured rear-suspension toe link, which could significantly diminish steering control, increasing the risk of a crash.
- The recall covers 676,152 vehicles in North America, 59,935 in China and 38,600 elsewhere.
- The U.S. vehicles are in high-rust states.
- Ford issued two other small recalls on Friday, nearly all of them in North America. One is for about 35,000 2020-2021 Ford F-350 Super Duty vehicles with 6.7-liter engines and single rear wheel axle for a rear-axle housing spring seat interface weld issue.
- Ford is also recalling 41,000 2020-2021 Lincoln Aviator vehicles equipped with 3.0-liter gas engines because the battery cable wire harness may not be properly secured.
Cleveland Clinic, Mount Sinai and Providence Won’t Give Biogen’s New Alzheimer’s Drug – Wall Street Journal, 7/16/2021
- Three large hospitals are declining to administer Biogen’s new Alzheimer’s treatment, Aduhelm, the latest rupture to emerge from the Food and Drug Administration’s controversial approval of the drug last month.
- The Cleveland Clinic, Mount Sinai Health System in New York and Providence in Renton, Wash., said they wouldn’t administer Aduhelm, which is also called aducanumab, to patients amid a debate about the drug’s effectiveness and whether the FDA lowered its standards in approving the medicine.
- The hospitals’ moves come as some health insurers also restrict access to the therapy—unusual pushback against a drug targeting a devastating disease like Alzheimer’s that has few effective treatments.
US ECONOMY & POLITICS
Gain in U.S. Retail Sales Underscores Solid, Steady Consumer – Bloomberg, 7/16/2021
- U.S. retail sales rose unexpectedly in June, reflecting fairly broad gains across spending categories and wrapping up a solid quarter for household demand.
- The value of overall retail purchases advanced 0.6% last month following a downwardly revised 1.7% drop in May, Commerce Department figures showed Friday. Excluding autos, sales jumped 1.3% in June.
- Sales at motor vehicle and parts dealers fell 2% in June, likely in response to limited inventory as automakers face a supply chain crunch.
- Sales at non-store retailers, which include e-commerce, advanced 1.2% in June.
- Electronics sales increased 3.3% and were up 37.3% from June 2020.
- Receipts at restaurants and bars climbed 2.3%.
Faster Inflation Takes Toll on U.S. Consumer Sentiment in July – Bloomberg, 7/16/2021
- U.S. consumer sentiment unexpectedly declined to a five-month low in early July as mounting concerns over rising prices led to a sharp deterioration in buying conditions for big-ticket items.
- The University of Michigan’s preliminary sentiment index decreased to 80.8 in July from 85.5 the prior month, data released Friday showed.
- Consumers expect inflation to rise 4.8% over the next year, the highest since August 2008.
- At the same time, they were more sanguine about longer-term prospects for prices.
- The expected inflation rate over the next five to 10 years crept up to 2.9% from 2.8% last month.
- Buying attitudes for vehicles and homes shrank to their lowest point since 1982, the report showed.
- Just 30% of all consumers cited favorable home buying conditions, the lowest level since September 1982.
- The gauge of current conditions dropped to 84.5 in July, the lowest since August, from 88.6. The university’s measure of expectations decreased to a five-month low of 78.4 from 83.5.
Service sector business activity surges in NY region -NY Fed survey – Reuters, 7/16/2021
- Service sector businesses in the New York region saw a further surge in activity in early July, according to a survey Friday from the Federal Reserve Bank of New York, as the economy rebounds from the recession caused by the coronavirus pandemic.
- The business activity index declined slightly to 41.7 in July but was still near last month’s record high, according to the survey of business leaders for service sector firms in New York, northern New Jersey, and southwestern Connecticut.
- The business climate index rose six points to 6.5, indicating that firms generally viewed the business climate as better than normal for this time of year.
- Employment levels and wages continued to rise and firms remained optimistic that conditions would continue improving, with the index for future employment staying near its record high.
Infrastructure Talks Stall Over Expanded IRS Powers – Wall Street Journal, 7/16/2021
- Disagreements over expanding the Internal Revenue Service have snarled lawmakers’ efforts to firm up their roughly $1 trillion bipartisan infrastructure agreement before an initial vote next week gauging the deal’s support.
- Lawmakers and aides said the group may abandon an effort to raise revenue through enhanced enforcement at the IRS after some Republicans said they were concerned about granting the tax agency new power.
- Dropping that proposal would mean the group would need to find alternative ways to cover the full cost of the spending, roughly $600 billion of which is above projected future federal spending on roads, bridges, and water projects.
- Prodding the bipartisan lawmakers to close out their agreement, Senate Majority Leader Chuck Schumer (D., N.Y.) said Thursday that he would hold a procedural vote on the infrastructure agreement on Wednesday.
- Mr. Schumer also set a Wednesday deadline for Democrats to reach an agreement on a $3.5 trillion blueprint for approving much of President Biden’s legislative agenda, including investments in child care, education, and healthcare programs.
Fed’s Powell Concedes Anxiety About Higher Inflation but Resists Policy Shift – Wall Street Journal, 7/16/2021
- Federal Reserve Chairman Jerome Powell said recent inflation was uncomfortably above the levels the central bank seeks, concluding two days of testimony in which he sounded somewhat less confident about the economic outlook—and the Fed’s policy path—than earlier this year.
- More broad-based price pressures or a weak rebound in the workforce could lead the Fed to conclude it needs to reverse the easy money policies it deployed during the pandemic more rapidly than officials expected a few months ago.
- “This is a shock going through the system associated with reopening of the economy, and it has driven inflation well above 2%. And of course we’re not comfortable with that,” Mr. Powell told the Senate Banking Committee on Thursday.
- Mr. Powell said Thursday that even though the central bank still expects surging prices related to bottlenecks to reverse, the Fed was watching to see if other goods and services, where price growth has been flat or modest, might accelerate as the economy heats up.
U.S. business inventories rise in May; autos stocks decline – Reuters, 7/16/2021
- U.S. business inventories increased solidly in May, but shortages of goods like motor vehicles are making it harder for retailers to restock warehouses to meet booming demand.
- Business inventories rose 0.5% after edging up 0.1% in April, the Commerce Department said on Friday.
- Inventories increased 4.5% on a year-on-year basis in May.
- Retail inventories decreased fell 0.8% in May as estimated in an advance report published last month.
- That followed a 1.7% decrease in April.
- Wholesale inventories rose 1.3% in May. Stocks at manufacturers advanced 0.9%.
- Business sales fell 0.3% in May after increasing 0.6% in April.
- At May’s sales pace, it would take 1.26 months for businesses to clear shelves, up from 1.25 months in April.
White House to meet housing industry officials to discuss supply shortage – Reuters, 7/16/2021
- The White House will meet with representatives from the housing industry on Friday to discuss a supply shortage that has led to a sharp increase in home prices, according to a White House official.
- The meeting will include builders, real estate firms, lumber companies, labor unions and loggers, the official said.
- The meeting will also include Domestic Policy Council Director Susan Rice, Secretary of Housing and Urban Development Marcia Fudge, National Economic Council Director Brian Deese and Council of Economic Advisers Chairwoman Cecilia Rouse, the official said.
EUROPE & WORLD
Euro zone inflation easing confirmed, trade surplus dips – Reuters, 7/16/2021
- Euro zone inflation slowed in June after a steady acceleration in the first months of 2021, official data confirmed on Friday, while the bloc’s trade surplus shrank in May due to a decline of exports.
- European Union’s statistics office Eurostat said consumer prices in the 19-country single-currency bloc rose 1.9% in June on the year, slightly less than the 2.0% increase in May, in the first slowdown since last September.
- One measure of core inflation, which excludes volatile unprocessed food and energy, was confirmed as stable at 0.9% in June. A narrower measure, also stripping off alcohol and tobacco prices, was also confirmed at 0.9%, slightly lower than 1.0% in May.
- In May, the bloc exported goods worth 188.2 billion euros ($222 billion) and imported 180.7 billion euros of goods, for a surplus of 7.5 billion euros.
U.S. to Warn Businesses Over Rising Risks in Hong Kong Under China Crackdown – Wall Street Journal, 7/16/2021
- The Biden administration is warning American businesses about the increasing risks of operating in Hong Kong as China’s tightening grip on the city causes business conditions to deteriorate.
- In an advisory to be issued Friday, the Biden administration warns businesses and individuals working for them that they are subject to a restrictive national security law that Beijing imposed on Hong Kong a year ago.
- The advisory cites the risks of electronic surveillance without warrants and of having to surrender corporate and customer data to the government, according to an administration official.
- The Biden administration advisory on Hong Kong follows another U.S. warning this week for companies with supply-chain ties to China’s Xinjiang region, where China has detained Muslim minorities in large numbers and drawn international condemnation.
Floods in Germany, Belgium Leave More Than 100 Dead as Rescuers Race to Find Survivors – Wall Street Journal, 7/16/2021
- Rescuers in Germany and neighboring countries were racing to find survivors from the region’s worst flooding this century, as the death toll rose to over 100 with hundreds still missing following days of torrential rainfall that some politicians and scientists linked to climate change.
- German authorities used helicopters and drones to locate survivors who fled to roofs and high ground without being able to collect any of their belongings when the homes were engulfed by flash floods that turned streets into rivers, swept away cars and crushed houses.
- Some 1,300 people are currently unaccounted for in Bad Neuenahr-Ahrweiler, a town about 35 miles south of Cologne, according to local authorities, though this may in part be due to mobile phone services being interrupted in parts of the region.
Factmonster – TODAY in HISTORY
- Russia’s Czar Nicholas II and his family were executed by the Bolsheviks. (1918)
- The first atomic bomb was tested in Alamogordo, N.M. (1945)
- J. D. Salinger’s novel Catcher in the Rye was published. (1951)
- Saddam Hussein became president of Iraq. (1979)
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