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Daily Market Report | July 19, 2021

US FINANCIAL MARKET

Dow Falls 800 Points, Oil Drops as Delta Variant Sends Investors Into Bonds – Wall Street Journal, 7/19/2021

  • U.S. stocks, oil prices and government bond yields slid Monday amid anxiety that the spread of the Delta coronavirus variant would hold back the global economy.
  • The Dow Jones Industrial Average slumped 802 points, or 2.3%, starting the week with big losses after the index snapped a three-week winning streak Friday. The S&P 500 fell 1.9%, while the technology-heavy Nasdaq Composite declined 1.7%.
  • In a sign that investors were sheltering in the safety of government bonds and other safe-haven assets, the yield on 10-year Treasury notes fell to 1.19% from 1.30% Friday.
  • Surging cases of the coronavirus in many parts of the world, including highly vaccinated countries such as the U.K., have prompted investors to dial down their expectations of economic growth in the coming months.
  • Some also are concerned that a steep rise in prices will pinch consumption and prompt central banks to withdraw stimulus, creating an environment of lower growth and higher inflation in which stocks tend to struggle.
  • Airlines and oil companies were among the worst performers.
  • Occidental Petroleum lost 6.2%, United Airlines 4.9%, Diamondback Energy 5.1% and American Airlines Group 5.1%.
  • Global markets retreated amid worries about the economic effect of the Delta variant.
  • The Stoxx Europe 600 slid 2.3%, led lower by shares of travel, leisure and commodities companies, alongside banks.
  • In Asia, technology giants Alibaba and Tencent weighed on Hong Kong’s Hang Seng Index, which fell 1.8%.
  • The Biden administration on Friday warned American companies about the increasing risks of operating in the financial hub.
  • Japan’s Nikkei 225 dropped 1.3%. More athletes and staff members attending the Tokyo Olympics have tested positive, while cases are surging in Indonesia. Sydney, Australia’s most populous city, is under lockdown because of a Delta outbreak.

AutoNation tops earnings estimates, expects new vehicle demand to stay strong – Reuters, 7/19/2021

  • AutoNation said it expects strong demand for new vehicles to continue into next year, as low-interest rates and robust demand helped the top U.S. auto retailer trounce quarterly earnings estimates.
  • The company said on Monday sales of new and used vehicles surged 42% and 37%, respectively, in the second quarter.
  • Fort Lauderdale, Florida-based AutoNation’s gross profit per new vehicle jumped 89% to $4,157 in the quarter ended June 30, while the gross profit per used vehicle rose 24% to $2,240.
  • Adjusted net income from continuing operations came in at a record $4.83 per share, easily beating a Refinitiv IBES estimate of $2.81. Record revenue of $6.98 billion was also higher than expectations.

Long-Term Treasury Yields Plunge as Investors Rethink Growth – Bloomberg, 7/19/2021

  • Long-term Treasury rates spiraled to their least since February — dragging the yield curve flatter — as the spread of the delta variant sparked investor concerns over economic growth and sent global stocks lower.
  • The benchmark 10-year yields tumbled as much 12 basis points Monday to as little as 1.17%, the lowest since Feb. 12 and well below a 14-month high of 1.77% reached in March. The 30-year rate sank by a similar amount to 1.80%, the least since Jan. 29.
  • The gap between 2- and 10-year yields dropped below 100 basis points Monday, touching its smallest spread since early February. Similarly, the difference between 5- and 30-year yields narrowed to 110 basis points, the least in a month.

OPEC, Allies Agree to Boost Oil Output as Demand Roars Back – Wall Street Journal, 7/19/2021

  • OPEC and its Russia-led oil-producing allies agreed to unleash millions of barrels of bottled-up crude over the next two years, committing to restore all the cuts they made at the start of the Covid-19 pandemic as many economies pick up and crude demand recovers.
  • Underscoring the uncertain speed of a full economic recovery and a return of pre-pandemic oil demand, the group chose to move gradually, agreeing to modest, monthly installments of new oil through the latter end of 2022.
  • Sunday’s oil deal calls for the Organization of the Petroleum Exporting Countries and a Russia-led group of big producers to raise production by 400,000 barrels a day each month through the end of 2022.
  • The deal seeks to unwind all the cuts the two groups, collectively called OPEC+, agreed to make at the start of the pandemic.

Zoom to Buy Five9 in All-Stock Deal Valued at $14.7 Billion – Wall Street Journal, 7/19/2021

  • Zoom Video Communications, the videoconferencing service that became a household name globally during the pandemic, plans to parlay some of the resulting rise in its share price into a $14.7 billion acquisition to secure growth.
  • The all-stock deal for Five9, a provider of cloud-based customer-service software, will help Zoom expand its potential offerings for business and enterprise clients. The growth opportunity will allow Zoom to tap into a $24 billion contact-center market, the company said Sunday.
  • The deal is Zoom’s biggest-ever acquisition. Last year it bought startup Keybase to help it build end-to-end encryption capabilities for its videoconferencing service, and last month it acquired translation software maker Kites GmbH.

Tax-Increase Talk Prompts Wealthy to Splurge on Muni Bonds – Wall Street Journal, 7/19/2021

  • Wealthy Americans eyeing potential tax increases are helping drive record amounts of money into municipal bond funds.
  • In the first six months of 2021, U.S. municipal bond funds attracted an estimated $56.9 billion in net new money—the most for any first half of the year going back to 1992, according to data from Refinitiv Lipper.
  • Investors withdrew an estimated net $46.1 billion from municipal bond funds in March 2020, according to Refinitiv Lipper.
  • But in many places, the fiscal damage turned out to be less severe than anticipated. Federal aid for households and businesses supported consumer spending, and the economy picked up more quickly than expected.
  • Aid from Washington also included $350 billion for state and local governments to pay for pandemic-related costs, fill revenue shortfalls and fund water, sewer and broadband projects.

J&J exploring putting talc liabilities into bankruptcy – Reuters, 7/19/2021

  • Johnson & Johnson is exploring a plan to offload liabilities from widespread Baby Powder litigation into a newly created business that would then seek bankruptcy protection, according to seven people familiar with the matter.
  • During settlement discussions, one of the healthcare conglomerate’s attorneys has told plaintiffs’ lawyers that J&J could pursue the bankruptcy plan, which could result in lower payouts for cases that do not settle beforehand, some of the people said.
  • Plaintiffs’ lawyers would initially be unable to stop J&J from taking such a step, though could pursue legal avenues to challenge it later.
  • J&J has not yet decided whether to pursue the bankruptcy plan and could ultimately abandon the idea, some of the people said. Reuters could not determine whether J&J has retained restructuring lawyers to help the company explore the bankruptcy plan.

US ECONOMY & POLITICS

U.S. Homebuilder Sentiment Falls to 11-Month Low in July – Bloomberg, 7/19/2021

  • Confidence among U.S. homebuilders pulled back in July to an 11-month low as builders contend with elevated materials prices and ongoing supply shortages.
  • A gauge of builder sentiment decreased for a second month to 80 from 81 in June, National Association of Home Builders/Wells Fargo data showed Monday.
  • The figures underscore how higher materials costs and supply chain disruptions are dissuading builders from rapidly replenishing the lean supply of available homes.
  • The report also showed a measure of current sales conditions and a gauge of prospective buyer traffic fell to their lowest levels since August. However, sales expectations for the next six months rose two points.

Senate Infrastructure Bill Drops IRS Funding, Raising Pressure for New Revenue – Wall Street Journal, 7/19/2021

  • Lawmakers dropped plans to pay for a roughly $1 trillion infrastructure package in part by boosting tax-collecting enforcement at the Internal Revenue Service, a setback for the bipartisan measure ahead of a looming deadline for agreement.
  • The shift came after pushback from Republicans who were wary of granting the agency more money and power, Sen. Rob Portman (R., Ohio), one of the lead negotiators, said Sunday on CNN. Legislative aides from both parties confirmed the move.
  • The decision to exclude the IRS provision means lawmakers will have to scramble to replace it to complete the infrastructure package before a midweek deadline, and it casts new uncertainty over the talks.
  • Mr. Portman said Sunday that the new funding shortfall wouldn’t derail the overall package, adding that other potential revenue sources existed for the infrastructure plan.
  • Among other options, lawmakers are considering delaying or repealing a Trump-era proposal to end rebates that drugmakers give to Medicare, a change that would save the government revenue.

Biden Administration Blames Hackers Tied to China for Microsoft Cyberattack Spree – Wall Street Journal, 7/19/2021

  • The Biden administration Monday publicly blamed hackers affiliated with China’s main intelligence service for a far-reaching cyberattack on Microsoft email software this year, part of a global effort to condemn Beijing’s malicious cyber activities.
  • In addition, four Chinese nationals, including three intelligence officers, were indicted over separate hacking activity.
  • The U.S. government has “high confidence” that hackers tied to the Ministry of State Security, or MSS, carried out the unusually indiscriminate hack of Microsoft Exchange Server software that emerged in March, senior officials said.
  • The U.K. and European Union joined in the attribution of the Microsoft email hack, which rendered an estimated hundreds of thousands of mostly small businesses and organizations vulnerable to cyber intrusion.
  • But the public shaming did not include punitive measures, such as sanctions or diplomatic expulsions, a contrast with how the administration recently punished Russia for a range of alleged malicious cyber activity.

U.S. Weighs New Sanctions on Iran’s Oil Sales to China if Nuclear Talks Fail – Wall Street Journal, 7/19/2021

  • The U.S. is considering tighter sanctions on Iranian oil sales to China as a way to encourage Tehran to conclude a nuclear deal and raise the costs of abandoning stalled negotiations.
  • U.S. negotiators have been working with European and other international partners in Vienna since April to revive the 2015 deal that limits Iran’s nuclear program in exchange for an easing of broad sanctions.
  • As those talks falter, the U.S. is running through options intended to induce Iran to keep negotiating or punish it if it doesn’t, according to U.S. officials and people familiar with the matter.
  • One plan being drafted would choke off Iran’s swelling crude-oil sales to China, the country’s main client, through fresh sanctions targeting the shipping networks that help export an estimated one million barrels a day and bring critical revenue to Iran, the officials said.

EUROPE & WORLD

England’s ‘freedom day’ marred by soaring cases and isolation chaos – Reuters, 7/19/2021

  • Prime Minister Boris Johnson’s ‘freedom day’ ending over a year of COVID-19 lockdown restrictions in England was marred on Monday by surging infections, warnings of supermarket shortages and his own forced self-isolation.
  • If the vaccines prove effective in reducing severe illness and deaths even while infections reach record levels, Johnson’s decision could offer a path out of the worst public health crisis in decades. If not, more lockdowns could loom.
  • But Johnson’s big day was marred by “pingdemic chaos” as a National Health Service app ordered hundreds of thousands of people to self-isolate – prompting warnings supermarket shelves could soon be emptied.
  • Britain has the seventh highest death toll in the world, 128,708, and is forecast to soon have more new infections each day than it did at the height of a second wave of the virus earlier this year. On Sunday there were 48,161 new cases.
  • But, outstripping European peers, 87% of Britain’s adult population has had one vaccination dose, and more than 68% have had the two doses which provide fuller protection.

Germany’s Opposition Politicians Blame Government for Ignoring Flood Warnings – Wall Street Journal, 7/19/2021

  • Some opposition politicians on Monday accused Angela Merkel’s government of failing to heed meteorologists’ warnings ahead of last week’s deadly flood, sparking the first debate about the political responsibility for the high human toll.
  • More than 160 people died and around 1,000 have so far been hospitalized following the disaster that hit the country last Wednesday and Thursday. Officials say those numbers could increase as rescuers keep combing through destroyed homes.
  • International and German meteorologists issued precise flood warnings for the Western part of the country last Monday, yet the disaster took many affected communities by surprise, contributing to the high number of casualties as victims were trapped by the floodwaters in their homes during the night.

VW to end U.S. production, sales of Passat as focuses on SUVs – Reuters, 7/19/2021

  • Volkswagen said Monday it will end U.S. sales and production of the Passat sedan next year, the latest shift by automakers away from cars and toward larger sport utility vehicles.
  • Volkswagen said it will end U.S. assembly of the Passat sedan in Tennessee with model year 2022.
  • VW has sold various versions of the Passat since 1974 in the United States and the name first appeared in the U.S. market in 1990.

Factmonster – TODAY in HISTORY

  • The first women’s rights convention, called by Elizabeth Cady Stanton and Lucretia C. Mott, was held in Seneca Falls, New York. (1848)
  • Winston Churchill was the first to use the two-finger “V is for Victory” sign. (1941)
  • President Clinton announced the “Don’t ask, don’t tell” policy regarding gays in the military. (1993)

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