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Daily Market Report | July 20, 2021

US FINANCIAL MARKET

Dow Rebounds After Biggest One-Day Decline Since October – Wall Street Journal, 7/20/2021

  • U.S. stocks rebounded Tuesday after a dramatic selloff Monday highlighted worries that the spread of Covid-19 variants would set back the economic recovery.
  • The Dow Jones Industrial Average rose 475 points, or 1.4%, after falling more than 700 points Monday in its worst session since October. The S&P 500 gained 0.9%, while the tech-heavy Nasdaq Composite added 0.3%.
  • Oil prices edged down after tumbling a day earlier on fears that Covid-19 could curb energy demand again. Brent crude retreated 0.3%, after dropping 6.8% Monday in its worst daily percentage performance since March.
  • One factor that could inject additional volatility into the market: Any disappointments during the corporate earnings season that kicked off in earnest last week.
  • Analysts are projecting that profits for S&P 500 companies rose 71% in the second quarter from a year earlier—a time when much of the economy had been brought to a standstill by the pandemic.
  • Among individual stocks, shares of International Business Machines rose 3.9% after reporting a rise in revenue driven by its cloud, software and services businesses.
  • Overseas, the pan-continental Stoxx Europe 600 rose 0.2%. In Asia, most major benchmarks extended Monday’s declines. The Shanghai Composite Index lost 0.1% and Hong Kong’s Hang Seng tumbled 0.8%.

IBM’s Revenue Rises for Second Straight Quarter – Wall Street Journal, 7/20/2021

  • International Business Machines showed progress in delivering on Chief Executive Arvind Krishna’s commitment to revive growth, posting a second straight quarter of higher revenue.
  • The company reported adjusted earnings of $2.33 a share. A consensus of analysts expected sales of $18.29 billion and adjusted earnings of $2.31 a share, according to FactSet.
  • Revenue in the second quarter rose to $18.75 billion driven by its cloud, software and services businesses.
  • IBM logged $7 billion in total cloud revenue in the latest quarter, a 13% increase from a year earlier.
  • The company said it now had more than 3,200 users of its hybrid cloud, almost four times the number it had before its acquisition of cloud-software provider Red Hat, Mr. Krishna said.

U.S. insurer Travelers posts profit beat on underwriting, investments – Reuters, 7/20/2021

  • U.S. property and casualty insurer Travelers smashed second-quarter profit expectations on Tuesday, helped by higher premiums, lower catastrophe losses and a surge in returns from investments.
  • Travelers said net written premiums, a measure of revenue, jumped 11% to $8.14 billion.
  • The company posted underwriting gains of $324 million for the quarter, compared with a loss of $280 million a year ago.
  • Catastrophe losses fell to $475 million in the latest quarter from $854 million a year ago.
  • Its adjusted, or core, income totaled $879 million, or $3.45 per share, for the three months ended June 30, far more than the $2.39 analysts had expected, according to Refinitiv IBES data.

Blue Origin Launch: Jeff Bezos and Crew Complete Successful Space Flight – Wall Street Journal, 7/20/2021

  • Jeff Bezos and three passengers reached the edge of space and safely returned Tuesday morning after a flight of just over 10 minutes the billionaire businessman hopes will kick-start an expansive new era for human space travel.
  • The Amazon.com founder and his fellow passengers were launched at 9:12 a.m. ET to the edge of space from a remote West Texas site on the New Shepard and enjoyed a few minutes of weightlessness aboard the rocket-powered spacecraft developed by his company Blue Origin.
  • Tuesday’s space flight was Blue Origin’s first with passengers on board, a group that included the world’s wealthiest person—Mr. Bezos’s net worth amounts to more than $200 billion, according to Bloomberg—as well the oldest-ever space traveler and the youngest, 82-year-old aviator Wally Funk and 18-year-old student Oliver Daemen, respectively.

Comcast CEO Brian Roberts and ViacomCBS Chairman Shari Redstone Met to Discuss Streaming Partnership – Wall Street Journal, 7/20/2021

  • Comcast Chief Executive Brian Roberts met with ViacomCBS Chairman Shari Redstone in recent weeks to discuss a potential streaming partnership for international markets, according to people familiar with the matter, a sign the media companies see opportunities to join forces.
  • During the meeting, which was held around the end of June in New York, and which also included ViacomCBS CEO Robert Bakish, the executives discussed a variety of possible business partnerships that would allow the companies to enter non-U.S. markets together, the people said.
  • The partnership talks come as both Comcast and ViacomCBS are preparing to expand their streaming services in international markets.

Opioid Settlement of $26 Billion Between Drug Companies, States Expected This Week – Wall Street Journal, 7/20/2021

  • Thousands of opioid-crisis lawsuits filed against major drugmakers and distributors are nearing a conclusion, with the outlines of a $26 billion deal between states and four companies expected to be announced this week and a $1 billion settlement to resolve some of New York’s claims likely on Tuesday, people familiar with the matter said.
  • Drug distributors AmerisourceBergen, Cardinal Health and McKesson and manufacturer Johnson & Johnson have been negotiating the $26 billion settlement for more than two years as a way to resolve thousands of lawsuits filed by state and local governments blaming them for helping fuel the nation’s opioid epidemic.
  • From 1999 to 2019, the nation lost nearly half a million people to overdoses of prescription and illegal opioids, according to federal data.

House Prices Overvalued by 10% in Richest Nations, Oxford Economics Says – Bloomberg, 7/20/2021

  • House prices in the richest nations may be overvalued by about 10% after a decade-long boom that’s one of the strongest since 1900, Oxford Economics says.
  • The British research firm identified the Netherlands, Canada, Sweden, Germany and France as the most risky property markets, basing its findings on long-term trends and price-to-rent ratios.
  • It estimated that values across 14 advanced economies have risen 43% in 10 years.
  • The current boom is on course to become the second-longest and third-largest in terms of price rises in 120 years, rivaled mainly by the last peak in 2006 right before the global financial crisis.

Senator Warren questions Lockheed’s antitrust solution to buy Aerojet – Reuters, 7/20/2021

  • U.S. Senator Elizabeth Warren has asked the Federal Trade Commission to take a tougher look at defense industry mergers, questioning a proposal from Lockheed Martin that would allow it to buy the biggest independent maker of rocket motors, Aerojet Rocketdyne Holdings.
  • The Democratic senator, who has a keen interest in corporate behavior, asked the FTC to examine the premise and efficacy of internal firewalls like those Lockheed proposes to prevent it from gaining a competitive advantage over peers once the deal closes, according to a July 16 letter seen by Reuters.
  • Internal firewalls would be needed at the new company to protect competitor intellectual property, pricing and product progress in the highly competitive weapons business.

US ECONOMY & POLITICS

U.S. Coronavirus Recession Lasted Two Months, Ended in April 2020, Official Arbiter Says – Wall Street Journal, 7/20/2021

  • The U.S. officially climbed out of a recession in April 2020, concluding a pandemic-driven economic contraction that lasted two months, making it the shortest on record.
  • The announcement Monday from the National Bureau of Economic Research also marks April as the official start of the economic recovery from the initial shock of the coronavirus pandemic last spring, which triggered widespread business and school closures, a steep drop in demand for services and record job losses.
  • The recession ended the country’s longest recorded economic expansion, which began in June 2009 and lasted 128 months, according to the bureau’s Business Cycle Dating Committee, the accepted arbiter of recession dates in the U.S.
  • Measured year-over-year, the economy contracted 3.5% in 2020, the largest decline since just after World War II, the Commerce Department reported.
  • Measured from the fourth quarter of 2019 to the same quarter of 2020, the economy shrank 2.5%.

U.S. housing starts rise in June; building permits fall sharply – Reuters, 7/20/2021

  • U.S. homebuilding increased more than expected in June, though expensive lumber as well as shortages of labor and land continued to constrain builders’ ability to fully take advantage of robust demand for housing.
  • Housing starts rose 6.3% to a seasonally adjusted annual rate of 1.643 million units last month, the Commerce Department said on Tuesday. Data for May was revised down to a rate of 1.546 million units from the previously reported 1.572 million units.
  • Permits for future homebuilding fell 5.1% to a rate of 1.598 million units in June.

Lawmakers Spar Over Infrastructure Package as Deadline Nears – Wall Street Journal, 7/20/2021

  • Lawmakers sparred Monday over Senate Democrats’ decision to impose a midweek deadline on a bipartisan group still scrambling to reach an agreement on a roughly $1 trillion infrastructure bill.
  • Lawmakers said Monday they weren’t sure what would happen if there wasn’t enough support Wednesday to begin debate on the infrastructure bill. Republicans have said they wouldn’t vote to start debate Wednesday unless an agreement largely has been fleshed out.
  • Sen. Rob Portman (R., Ohio), the lead GOP negotiator of the bipartisan group, said Monday that lawmakers were considering a new source of revenue: delaying or repealing a Trump-era proposal that would curb rebates that some middlemen known as pharmacy-benefit managers pay to drugmakers and plans.
  • Further delaying or nixing the rule would reap savings for the federal government because an end to rebates would raise premiums for many Medicare enrollees and increase taxpayer costs.
  • Democrats were also eyeing that provision to help pay for their own $3.5 trillion antipoverty and education package, lawmakers and aides said. One possibility is that the bipartisan group taps it partially, lawmakers said, without going into further detail.

Overpaid Unemployment Benefits Total in the Billions During Pandemic – Wall Street Journal, 7/20/2021

  • States overpaid billions in unemployment assistance after enhanced and extended benefits were approved last year, according to a federal watchdog.
  • A Government Accountability Office report issued Monday said the Labor Department found $12.9 billion in overpayments made in several unemployment programs from April 2020 through March 2021, including some benefit payments that were a result of fraud.
  • The amount of overpayments represents about 2% of the roughly $660 billion in unemployment benefits paid out by the Treasury Department during the year ended March 31, 2021, though right- and left-leaning analysts at think tanks agree with the GAO that the overpayment rate is likely understated.
  • The Treasury figures don’t include unemployment benefits paid by states, but do include all the enhanced and extended benefits, which were federally funded.

EUROPE & WORLD

UBS Profit Jumps on Wealth Management Boom – Wall Street Journal, 7/20/2021

  • The booming business of managing rich people’s money boosted results for UBS, raising hopes that the Swiss banking giant will return more money to shareholders.
  • Revenue rose 21% overall and outstripped a 10% rise in costs, which included payoffs for staff leaving in a restructuring program.
  • On Tuesday, Switzerland’s biggest bank said net profit jumped to $2 billion from $1.23 billion a year earlier, outpacing analyst expectations of $1.34 billion.
  • It said wealth clients traded more, pushing transaction revenues 16% higher from a year earlier, and added that recurring fees were 30% higher on their existing trades and products.
  • At UBS’s investment bank, deal advice for mergers and acquisitions and other corporate transactions pushed global banking revenue 68% higher, helping to offset a 14% decline in market-trading income.

European travel demand drives easyJet summer comeback – Reuters, 7/20/2021

  • EasyJet plans to fly 60% of its pre-pandemic capacity in July-September as a travel recovery takes hold in mainland Europe, and Britain is expected to catch-up in the coming weeks.
  • The British airline said it was confident on demand for the summer and autumn, issuing its most buoyant update since the start of the pandemic almost a year and a half ago, and allowing it to lift capacity from just 17% of 2019 levels in March-June.
  • Two-thirds of bookings are currently coming from the rest of Europe, while normally its business is evenly split between Britain and the continent, but easyJet expects that to change now travel rules for fully-vaccinated Britons have been relaxed.
  • For the three months to June 30, easyJet posted a pretax loss of 318 million pounds.

AB Volvo warns chip woes to linger after narrow profit miss – Reuters, 7/20/2021

  • Sweden’s AB Volvo warned on Tuesday of more production disruptions and stoppages this year after chip shortages prevented the truck maker from fully capitalising on strong demand for its vehicles in the second quarter.
  • Operating profit at the maker of trucks, construction equipment, buses and engines nearly tripled to 9.73 billion Swedish crowns ($1.12 billion) from 3.27 billion a year ago, but slightly missed the 9.84 billion seen by analysts according to Refinitiv data.
  • “There will be further disruptions and stoppages in both truck production and other parts of the group in the second half of the year,” CEO Martin Lundstedt said in a statement.
  • Volvo said order bookings of its trucks, also sold under brands such as Mack and Renault, soared 143% from a weak year-ago quarter and stood by forecasts for solid market growth in both Europe and North America this year.
  • The company also raised its 2021 outlook for construction equipment markets in both regions.

Factmonster – TODAY in HISTORY

  • Fugitive Sioux Indian leader Sitting Bull surrendered to federal troops. (1881)
  • King Abdullah I of Jordan was assassinated. (1951)
  • Astronaut Neil A. Armstrong was the first man to walk on the Moon. (1969)
  • Treasure hunters found the Spanish galleon Nuestra Senora de Atocha, which sank off the coast of Key West, Fla., in 1622 during a hurricane. The ship contained over $400 million in coins and silver ingots. (1985)

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