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Daily Market Report | July 26, 2021

US FINANCIAL MARKET

Stocks Retreat After Dow’s Record – Wall Street Journal, 7/26/2021

  • U.S. stocks wobbled Monday, after setting new highs last week, as markets in China and Hong Kong plummeted.
  • The Dow Jones Industrial Average fell 0.2% after the blue chip index on Friday closed above the 35000 milestone for the first time in its history. The S&P 500 slipped less than 0.1% and the Nasdaq Composite gained 0.1%. All three indexes closed at records Friday.
  • The mood in global markets soured after Beijing took aim at some of China’s fast-growing listed companies over the weekend, prompting a sharp selloff and fueling concerns about regulatory risks in a key overseas market. The Shanghai Composite Index dropped 2.3%, while Hong Kong’s Hang Seng Index shed 4.1% in its biggest one-day rout in more than a year.
  • Over the weekend, Chinese state media confirmed the after-school tutoring sector faced a clampdown, while the national antitrust authority levied a symbolic fine on internet giant Tencent Holdings and ordered it to give up some exclusive music-licensing rights.
  •  Rising concerns over the Delta variant of Covid-19 and concerns over economic growth are likely to challenge the pace at which the U.S. stock market will rise in the coming weeks, investors say. Money managers are also awaiting guidance from the Federal Reserve this week, including policy makers’ outlook on inflation and any clues on when the central bank may start scaling back its bond purchase program.
  • In bond markets, the yield on the 10-year Treasury note ticked lower to 1.279% from 1.286% Friday. Yields fall when prices rise.
  • The yield on 10-year Treasury inflation-protected securities, or TIPS, fell to a record low Monday. Viewed as a proxy for the real yield, a measure of what investors earn from bondholdings after compensating for inflation, the TIPS yield reached minus 1.120% in intraday trading, according to Tradeweb.
  • Overseas, the pan-continental Stoxx Europe 600 slid 0.1%. Among individual equities, shares in Dutch internet conglomerate Prosus, a major investor in Tencent, fell more than 8% in Amsterdam.

Lockheed second quarter profit misses even as space business boosts sales – Reuters, 7/26/2021

  • U.S. weapons maker Lockheed Martin said on Monday its space business boosted revenues in the latest quarter, but a classified aeronautics development program caused the company to miss analysts’ profit estimate.
  • Lockheed’s second-quarter revenue was $17 billion. Analysts had estimated a revenue of $16.9 billion, according to Refinitiv data.
  • Quarterly sales at Lockheed’s largest unit, aeronautics – which makes the F-35 fighter jet, rose 2.5% to $6.6 billion.
  • But “performance issues” at aeronautics in the quarter led to a loss of $225 million on “a highly classified program that Lockheed Martin has been working on for a couple of years,” Ken Possenriede, Lockheed’s chief financial officer, said in a telephone interview.
  • The space unit saw its profits in the quarter increase to $335 million, a jump of 33%, due to progress on space based sensor platforms and its United Launch Alliance investment.
  • Lockheed posted $6.52 in earnings per diluted share for the quarter. Without the $225 million loss, earning per share would have been $0.61 cents higher, according to the results.
  • In its sales outlook for the year, Lockheed trimmed the aeronautics segment by $175 million, but increased its outlook for sales by the same figure across the Rotary and Mission Systems unit and Space unit.

Monopoly-maker Hasbro revenue surges as TV, film business bounces back – Reuters, 7/26/2021

  • Toymaker Hasbro posted a better-than-expected 54% jump in quarterly revenue, helped by rising demand for its “Dungeons & Dragons” tabletop game, while its film and television production unit rebounded after a year of pandemic-led shutdowns.
  • Overall net revenue rose 54% to $1.32 billion in the three months ended June 27, beating analysts’ average estimate of $1.16 billion, according to Refinitiv IBES data.
  • Revenue from consumer products segment, which includes core toy brands such as Nerf and Play-Doh as well as toys based on movie franchises, rose 33% to $689.2 million.
  • Entertainment segment revenue, which includes production studio Entertainment One and other movie businesses, jumped 47% in the quarter.
  • Hasbro reported adjusted net profit of $145.4 million, or $1.05 per share, in the second quarter, compared to $2.7 million, or 2 cents per share, a year earlier. Analysts had expected a profit of 7 cents per share.
  • However, the Monopoly maker stuck to its annual revenue target of double-digit growth as planned price hikes due to commodity price rise and supply bottlenecks raise doubts over what demand will look like in the holiday shopping season.

Hot Used-Car Market Boosts Auto Lenders and Borrowers – Wall Street Journal, 7/26/2021

  • Red-hot demand for used cars is turning the auto-lending world upside down.
  • Prices are so high that some lenders are coming out ahead on defaulted auto debt. And far fewer borrowers are underwater on their car loans, meaning they don’t owe more than the car is worth when they trade it in. It is a tricky time to buy a car, but a pretty good time to owe money on one.
  • The average price of a used car was $18,453 in June, up more than 34% from the same time last year, according to Manheim.
  • About 20% of owners were underwater when trading in their cars in June, down from 32% a year earlier, according to car-shopping site Edmunds. Those who are underwater owe $3,848 on average, 25% less than underwater borrowers at the same time in 2020.
  • Ally Financial, one of the country’s largest auto lenders, recouped $5 million on defaulted car loans in the second quarter, a first for the bank and a giant reversal from the $97 million in defaulted auto loans it charged off in the first quarter.

Aon, Willis Towers Watson Scrap Roughly $30 Billion Merger – Wall Street Journal, 7/26/2021

  • Aon and Willis Towers Watson said they have agreed to terminate their roughly $30 billion deal and end litigation with the Justice Department, which alleged the tie-up would lead to higher prices and reduced innovation for U.S. businesses.
  • The department said the insurance brokerages’ combination would eliminate competition in several different U.S. product markets, including brokering services for property, casualty and liability insurance, as well as health benefits for large corporate customers.
  • “We reached an impasse with the U.S. Department of Justice,“ Aon CEO Greg Case said Monday. “The DOJ position overlooks that our complementary businesses operate across broad, competitive areas of the economy.”

US ECONOMY & POLITICS

U.S. new home sales fall sharply in June – Reuters, 7/26/2021

  • Sales of new U.S. single-family homes tumbled in June and sales in the prior month were weaker than initially estimated, suggesting the housing market was losing momentum amid soaring prices that are being driven by an acute shortage of properties.
  • New home sales dropped 6.6% to a seasonally adjusted annual rate of 676,000 units last month, the Commerce Department said on Monday. May’s sales pace was revised down to 724,000 units from the previously reported 769,000 units.
  • Economists polled by Reuters had forecast new home sales, which account for a small share of U.S. home sales, increasing 3% to rate of 800,000 units in June.

U.S. Set to Push Global Economy Over the Recovery Line – Wall Street Journal, 7/26/2021

  • The U.S. economy likely returned to its late-2019 size during the three months through June, helping to lift global output above its pre-pandemic level for the first time.
  • Economists surveyed by The Wall Street Journal estimate that figures to be released Thursday will show that the U.S. gross domestic product rose at an 8.5% seasonally adjusted annual rate in the second quarter.
  • That likely left U.S. GDP—the value of all goods and services produced across the economy, adjusted for seasonality and inflation—above the $19.2 trillion level reached in the final quarter of 2019, the last before the spread of Covid-19 pushed large parts of the global economy to shut down and contract, they say.
  • The combined economic output of the Group of 20 leading economies exceeded its pre-pandemic level in the first quarter, according to estimates by the Organization for Economic Cooperation and Development.
  • With the U.S. and a number of other large economies crossing that threshold in the second quarter, it is likely that global output is now higher than the level recorded in the final quarter before the coronavirus struck, the group says.

Senators Try to Finalize Deal on Infrastructure Package – Wall Street Journal, 7/26/2021

  • Lawmakers pushed to finalize an infrastructure agreement Sunday, but said they were still struggling to resolve a dispute over how much to increase public-transit funding, a snag that could delay their goal of advancing the bill in a Senate vote early this week.
  • Sen. Rob Portman (R., Ohio), the lead GOP negotiator of the bipartisan group, said Sunday on ABC that negotiators were “about 90% of the way there” in reaching an agreement, but were still battling over how much money to direct to public transit. Democrats have pushed to include a larger share of transit funding.
  • Democrats said Sunday that other issues beyond transit were still being resolved, including details of broadband funding and a requirement that contractors on federally funded projects can’t pay their employees anything less than the locally “prevailing wage” for their services, according to a Democratic aide familiar with the negotiations.

U.S. Population Growth, an Economic Driver, Grinds to a Halt – Wall Street Journal, 7/26/2021

  • America’s weak population growth, already held back by a decadelong fertility slump, is dropping closer to zero because of the Covid-19 pandemic.
  • In half of all states last year, more people died than were born, up from five states in 2019. Early estimates show the total U.S. population grew 0.35% for the year ended July 1, 2020, the lowest ever documented, and growth is expected to remain near flat this year.
  • Some demographers cite an outside chance the population could shrink for the first time on record. Population growth is an important influence on the size of the labor market and a country’s fiscal and economic strength.

EUROPE & WORLD

China Tech Slumps, Sending a Benchmark Back to Last Year’s Debut – Wall Street Journal, 7/26/2021

  • Chinese technology stocks including Tencent and Alibaba tumbled Monday, as investor concerns built about Beijing’s expanding series of regulatory actions against the sector and other disruptive businesses.
  • Over the weekend, China’s antitrust regulator fined Tencent and ordered it to give up some exclusive music-licensing rights, while state media confirmed that a severe curtailing of the country’s after-school tutoring industry was in the works.
  • And on Monday afternoon, shortly before the Hong Kong market closed, regulators issued joint guidelines for companies such as Meituan on how to treat food-delivery drivers.
  • The selloff led Hong Kong’s flagship tech index, which marks its first anniversary on Tuesday, to suffer its worst percentage drop since launching, and to finish only marginally ahead of where it made its debut.
  • The selloff pulled down Hong Kong’s Hang Seng Tech Index, which fell 6.6% to 6790.96. The benchmark tracks 30 tech companies including Alibaba and Tencent.

China’s Tutoring Restraint Slams Stocks – Wall Street Journal, 7/26/2021

  • China confirmed it would take drastic steps to restrain the country’s booming after-school tutoring industry, prompting further selloffs in stocks like New Oriental Education & Technology Group on Monday.
  • Investors have grown more worried about the tutoring industry’s prospects, as Beijing moves to tackle spiraling educational costs that have helped deter many families from having more children.
  • New Oriental’s Hong Kong-listed shares, which lost more than two-fifths of their value on Friday, crashed by an additional 47% on Monday. That gave the company a market value of about $3.5 billion, according to FactSet.
  • The company, whose primary listing is in the U.S., has lost about $30 billion of market capitalization since its shares peaked in mid-February, part of a broader pullback that has destroyed tens of billions of dollars in market value.
  • Shares of smaller education companies tumbled, too, with Koolearn Technology slumping 33% in Hong Kong. The city’s flagship Hang Seng Index dropped more than 4%, as sector heavyweight Tencent Holdings Ltd. led a broader technology selloff.

China’s Tech Regulator Orders Companies to Fix Anticompetitive, Security Issues – Wall Street Journal, 7/26/2021

  • China’s main technology-sector regulator ordered the country’s internet giants to fix certain anticompetitive practices and data security threats, building on a regulatory campaign to reform how China’s largest tech companies operate.
  • China’s Ministry of Industry and Information Technology, which oversees China’s telecommunication and industry policies, said Monday that its new six-month rectification program was aimed at correcting a range of industry issues, including disrupting market order, infringing on users’ rights, mishandling user data and violating other regulations.
  • Monday’s release didn’t specify any businesses by name.
  • But the ministry listed several infractions that have earned some of China’s largest tech platforms regulatory blowback in the past few months.

Chinese Officials Blame U.S. for Stalemate in High-Level Talks – Wall Street Journal, 7/26/2021

  • Senior U.S. and Chinese officials sparred over Covid-19, human rights and cybersecurity during a tense exchange Monday in the highest-level meetings between the two countries on Chinese soil since Joe Biden became president.
  • Chinese Vice Foreign Minister Xie Feng, meeting with U.S. Deputy Secretary of State Wendy Sherman in the port city of Tianjin on Monday, said American perceptions of China as an “imagined enemy” were responsible for a stalemate in relations between the two powers.
  • The purpose of the visit was to provide “guardrails” for the U.S.-China relationship to ensure it doesn’t spill over into conflict, they said.
  • The two sides discussed “ways to set terms for responsible management of the U.S.-China relationship,” State Department spokesman Ned Price said in a statement.
  • Mr. Xie accused the U.S. of pushing an international order designed to benefit itself while holding back other countries, as if the U.S. introduced a “law of the jungle” where “might is right and the big bully the small,” according to a summary of his speech provided by China’s Foreign Ministry.

Armani bounces back from pandemic as sales rise 34% in first half – Reuters, 7/26/2021

  • Sales at Giorgio Armani jumped 34% in the first half of 2021 as business in China and the United States helped the Italian fashion group bounce back, although it said it could be next year before it fully recovers from the pandemic.
  • The luxury group said consolidated net sales had fallen 25% last year to 1.6 billion euros ($1.9 billion), with most of the decline occurring in the first half of 2020.
  • The Milan-based group did not give the value of total sales in January-June but said the positive sales trend so far this year pointed to a much better profitability scenario for 2021.
  • For the whole of last year the group made a consolidated net profit of 90 million euros but an operating loss (EBIT) of 29 million euros.

Ryanair raises passenger forecast as O’Leary targets rapid growth – Reuters, 7/26/2021

  • Ryanair on Monday raised its forecast for full-year traffic on strong summer bookings, with Group Chief Executive Michael O’Leary saying the post-pandemic recovery offers the best growth opportunities of his three-decade career.
  • Shares in the Irish budget airline, Europe’s largest, rose more than 4% to 16.44 euros despite a loss of 273 million euros ($322 million) in its normally profitable first quarter and fares that were a third lower than in the same period of 2019 before the pandemic.
  • In May the airline forecast that it would fly between 80 million and 100 million passengers in the 12 months to the end of March 2022, against a pre-pandemic peak of 149 million.
  • But Ryanair adjusted that on Monday to bewteen 90 million and 100 million and O’Leary told analysts that, without disruption, it will be at “the upper end of that range”.
  • O’Leary said he expects to fly about 10 million passengers in each of the last five months of the year, boosted by pent-up demand from individuals and businesses, bringing it to roughly 90% of 2019 levels in November.
  • Ryanair flew 27.5 million passengers in the year to March 2021. O’Leary said he expects to exceed 2019 traffic levels of 149 million next year.

Factmonster – TODAY in HISTORY

  • New York became the 11th state in the United States. (1788)
  • The Office of the Chief Examiner, which in 1935 became the Federal Bureau of Investigation (FBI), was created. (1908)
  • President Harry S Truman signed the National Security Act, creating the Department of Defense, the National Security Council, the Central Intelligence Agency, and the Joint Chiefs of Staff. (1947)

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