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Daily Market Report | August 2, 2021

US FINANCIAL MARKET

U.S. Stocks Rise on Strong Earnings – Wall Street Journal, 8/2/2021

  • U.S. stocks rose to start August as investors cheered strong earnings growth.
  • The S&P 500 added 0.5% Monday after closing out a sixth consecutive monthly advance. The Dow Jones Industrial Average added about 210 points, or 0.6%. The tech-heavy Nasdaq Composite added 0.3%.
  • Some are cautious that the highly contagious Delta strain of coronavirus, a prolonged spell of inflation and China’s efforts to rein in tech firms could lead to bouts of volatility.
  • Among individual stocks, Square shares jumped 7.6% shortly after the opening bell. The payments company agreed to buy Australia’s Afterpay—which allows users to pay for goods in interest-free installments—in an all-stock deal valued at around $29 billion.
  • U.K. engineering firm Meggitt, which specializes in the aerospace, defense and energy industries, shot up 55% in London after agreeing to a £6.3 billion takeover, equivalent to around $8.8 billion, by Parker Hannifin. Shares of Parker Hannifin added 1.7%.
  • The comments appear to have buoyed Asian markets after a turbulent few weeks.
  • China’s Shanghai Composite Index advanced almost 2% by the close of trading, while Japan’s Nikkei 225 climbed 1.8% and Hong Kong’s Hang Seng rose 1.1%.
  • In the bond market, the yield on 10-year Treasury notes ticked down to 1.219% from 1.239% Friday. Bond yields and prices move in opposite directions.
  • Oil prices came under pressure after data signaling a slowdown in Chinese manufacturing activity. The private indicator suggested activity fell to a post-Covid-19 low in July as heavy floods, a resurgence in Covid cases and power shortages knocked output and new orders.

Square Agrees to Acquire Afterpay for $29 Billion in All-Stock Deal – Wall Street Journal, 8/2/2021

  • Square has agreed to acquire Afterpay in an all-stock deal worth around $29 billion, illustrating how financial technology companies are seeking scale to challenge banks for a bigger slice of the payments industry.
  • Square said a key attraction of the deal was a growing wariness toward traditional credit among younger consumers, a group particularly hard hit by the Covid-19 pandemic, as lockdowns crushed many hospitality and casual jobs.
  • In June, Cash App reached 40 million monthly transacting active customers.
  • The Cash App business had gross profit of $546 million in the second quarter, the company said in an earnings report released ahead of schedule Sunday.
  • That is a 94% increase over the second quarter of 2020 and just shy of the $585 million gross profit Square’s bread-and-butter seller business recorded in the second quarter.

Fintechs Need to Be Regulated More Like Banks, Says Report From Global Regulator Group – Wall Street Journal, 8/2/2021

  • Calls are growing louder to impose more stringent regulation on technology giants that spill over into financial services.
  • A paper published by the Bank for International Settlements, a consortium of central banks and financial regulators, said tech companies that play a critical role in payments and other areas should be subject to stricter regulatory scrutiny that considers issues beyond traditional market risks.
  • Apart from financial risks and consumer protection, the presence of big techs in financial services raises questions about data governance and antitrust matters, the paper said, which could lead to a “systemic footprint in the financial system.”

Foot Locker to Buy Two Retailers for $1.1 Billion – Wall Street Journal, 8/2/2021

  • Foot Locker is buying two smaller retailers for a total of approximately $1.1 billion in separate cash deals, as the company looks to expand its reach beyond U.S. shopping malls.
  • The New York-based company Monday announced the acquisitions of athletic retailer WSS for $750 million and Atmos, a Japan-based streetwear and sneaker shop, for $360 million.
  • The acquisition of Los Angeles-based WSS, which generated $425 million in revenue in 2020, gives Foot Locker access to a large Latino customer base, an important and fast-growing demographic, Foot Locker executives said.

News Corp to Buy Oil Price Information Service for $1.15 Billion – Wall Street Journal, 8/2/2021

  • News Corp has agreed to buy IHS Markit’s Oil Price Information Service, an energy and renewables information-services company, and related assets for $1.15 billion in cash, the latest addition to the company’s growing portfolio of publications catering to investors.
  • The businesses being acquired also include Coal, Metals and Mining, which provides information about coal and other raw materials pricing, and PetroChem Wire, a provider of pricing for petrochemicals and plastics, the companies said Monday.
  • S&P Global in late 2020 agreed to buy IHS Markit for about $44 billion, a landmark deal that would combine two of the largest providers of data to Wall Street.
  • S&P Global and IHS Markit in May said they were exploring the sale of the assets following feedback from regulators. They said they expect the deal to close following the combination in the fourth quarter.

Utilities Eye Mini Nuclear Reactors as Climate Concerns Grow – Wall Street Journal, 8/2/2021

  • U.S. utilities are looking to miniature nuclear reactors, as they seek a steady energy source that can help reduce the carbon emissions linked to climate change.
  • While power companies have stopped building big nuclear reactors because of cost overruns and construction delays, not all utilities are giving up on nuclear power.
  • Several U.S. utilities and power consortia—including Energy Northwest, Utah Associated Municipal Power Systems, and PacifiCorp, part of Warren Buffett’s Berkshire Hathaway —have entered into partnerships with manufacturers to build small modular reactors, or SMRs, attracted to their potential to produce carbon-free, 24-hour-a-day power.
  • Dozens of SMR developers world-wide—ranging from 22-person startup Oklo to Bill Gates-founded TerraPower—are testing designs for the reactors, which have less than a third of the generating capacity of traditional nukes and have components that can be mass-produced in factories.

US ECONOMY & POLITICS

U.S. manufacturing sector growth slowing-ISM – Reuters, 8/2/2021

  • U.S. manufacturing continued to grow in July, though the pace slowed for the second straight month as spending rotates back to services from goods and shortages of raw materials persist.
  • The Institute for Supply Management (ISM) said on Monday its index of national factory activity fell to 59.5 last month, the lowest reading since January, from 60.6 in June.
  • The ISM survey’s forward-looking new orders sub-index fell to a reading of 64.9 last month from 66.0 in June. That was the second straight monthly decline.
  • There was some encouraging news on inflation. The ISM survey’s measure of prices paid by manufacturers fell to a reading of 85.7 last month from a record 92.1 in June.

U.S. labor revival in doubt as Delta raises worries about ‘back to school’ – Reuters, 8/2/2021

  • Expectations for a quickening U.S. economic recovery hinge in large part on more workers in jobs once in-person schooling resumes this fall.
  • But the Delta variant could scupper those expectations if parents, especially women, remain or are forced back on to the sidelines.
  • Roughly 7 million fewer people are employed in the United States today than before the pandemic, Labor Department surveys of businesses and households show, despite record job openings.

Senators Push to Wrap Up Bipartisan Infrastructure Bill This Week – Wall Street Journal, 8/2/2021

  • Senators wrapped up the construction of a roughly $1 trillion infrastructure bill, racing to pass it through the chamber by the end of the week and send it to the House, where its fate is intertwined with a $3.5 trillion package of Democratic priorities.
  • Senate Majority Leader Chuck Schumer (D., N.Y.) kept the Senate open through the weekend in a bid to begin considerations of the bipartisan infrastructure package, $550 billion of which is in addition to expected future federal investments in roads, bridges, broadband, and other infrastructure projects.
  • The text of the bill will translate into law the agreement lawmakers struck days ago, which provides $110 billion to bridges and roads, $39 billion to public transit, and $65 billion for expanding access to broadband, among other investments beyond currently projected spending.
  • Repurposed federal funds, money recouped from delaying a Trump-era Medicare rebate rule, and a mix of accounting maneuvers will cover the cost of legislation.
  • Seventeen Republicans joined all 50 Democrats on the first procedural vote for the package last week, putting it on track to garner more than enough GOP support to clear the Senate’s 60-vote threshold. A lengthy amendment process this week has the potential to chip away—or add—support for the bill.

Nuclear Power Could Get Lifeline in Senate Infrastructure Bill – Bloomberg, 8/2/2021

  • Struggling nuclear power reactors could be given a $6 billion lifeline in the bipartisan infrastructure bill being written in the U.S. Senate, according to a draft obtained by Bloomberg News.
  • A program to evaluate nuclear reactors that are in jeopardy of closing and provide them with aid would be created within the Energy Department under terms of the $550 billion, bipartisan infrastructure package
  • The move comes as the White House and as the nuclear power industry, which provides about 19% of the nation’s electricity, has been beset by a wave of reactor closings as it struggles to compete with cheaper electricity produced using natural gas, and, increasingly, renewables.

Ohio Race Highlights Rift Between Sanders, Clyburn Wings of Democratic Party – Wall Street Journal, 8/2/2021

  • A House special election primary in Cleveland on Tuesday is shaping up as a proxy war over the direction of the Democratic Party, with the top two candidates drawing millions in donations as prominent figures including Sen. Bernie Sanders and Rep. James Clyburn line up on opposing sides.
  • Nina Turner, a top surrogate for Mr. Sanders (I., Vt.) during his presidential campaigns, has long been the front-runner in the race, which includes 13 candidates. The former state senator, 53 years old, who backs liberal plans including Medicare for All and the Green New Deal, has raised $5.6 million since announcing her candidacy, according to her campaign.
  • Her top rival, Cuyahoga County Councilwoman Shontel Brown, 46, has proved tough competition.
  • She has raised $2.4 million, according to her campaign, and drawn the support of not only Mr. Clyburn, the powerful House Democratic whip from South Carolina, but also former Secretary of State Hillary Clinton, who defeated Mr. Sanders in the 2016 presidential primary.
  • Tuesday’s primary will determine the Democratic nominee for the special election Nov. 2 to fill the seat vacated by Marcia Fudge, who left Congress earlier this year to run the Department of Housing and Urban Development.

EUROPE & WORLD

Resilient factories battling with delays, rising costs – Reuters, 8/2/2021

  • Factories across the world are suffering from supply bottlenecks which sent prices skyrocketing in July, while a new wave of coronavirus infections in Asia demonstrated the fragile nature of the global recovery.
  • Euro zone and British manufacturing continued to expand at a blistering pace in July as the reopening of economies led to soaring demand, as it did in export powerhouses Japan and South Korea. However, growth in Chinese factory activity slippedsharply.
  • IHS Markit’s final manufacturing Purchasing Managers’ Index (PMI) for the euro zone dipped from June’s record high but was still firmly in growth territory.
  • In China, however, demand contracted for the first time in over a year, a private survey showed. This broadly aligned with an official survey released on Saturday showing a slowdown in activity.
  • Indonesia, Vietnam and Malaysia saw factory activity shrink in July due to a resurgence in infections and stricter COVID-19 restrictions, according to private surveys.
  • The final au Jibun Bank Japan PMI rose to 53.0 in July from 52.4 in the previous month, though manufacturers saw input prices rise at the fastest pace since 2008.
  • South Korea’s PMI held above breakeven for the 10th straight month. But a sub-index on input prices rose at the second highest on record.

UK inflation to hit 3.9% in early 2022, NIESR forecasts – Reuters, 8/2/2021

  • British consumer price inflation will reach 3.9% early next year, almost double the Bank of England’s target, but should fall back to 2% the year after if the BoE begins to raise interest rates, a leading think tank forecast on Monday.
  • The National Institute of Economic and Social Research (NIESR) also revised up its growth forecast for 2021 by 1.1 percentage points to 6.8% – broadly in with the most recent forecasts from the BoE and the International Monetary Fund.
  • A sharp rise in oil prices and bottlenecks in supply chains have pushed up inflation in Britain and most other Western economies, with NIESR’s forecast suggesting British inflation is on course to hit its highest since late 2011.
  • Unemployment was likely to rise by 150,000 to 5.4% of the workforce after the government’s furlough programme stopped at the end of September, NIESR said.
  • The BoE’s last full set of forecasts in May predicted inflation would peak at 2.5% at the end of this year, but in June it revised this higher to see a peak of more than 3%.

Death Toll From China Flood Jumps to More Than 300 – Wall Street Journal, 8/2/2021

  • Chinese authorities said 302 people had died during severe flooding that hit the central province of Henan last month, a sharp increase in the death toll that comes as rescue workers extract more bodies from the provincial capital Zhengzhou and the surrounding countryside.
  • The death count makes the disaster one of the deadliest in China in recent years, with 50 people still missing, Henan provincial authorities said at a briefing Monday.
  • The death toll marked a threefold jump from the official figure of 99 deaths released Thursday last week.
  • According to Henan’s provincial government, 189 people were killed in the city of Zhengzhou alone due to flooding and mudslides, while another 54 residents died when houses collapsed due to the torrential rain.

Factmonster – TODAY in HISTORY

  • The first U.S. census was completed, showing a population of 3,929,214 people. (1790)
  • The first Lincoln penny was issued. (1909)
  • Warren G. Harding, the 29th president of the United States, died in San Francisco. (1923)
  • The Potsdam Conference, in which Allied leaders planned the postwar governance of Germany, ended. (1945)
  • The Persian Gulf War broke out when Iraq invaded Kuwait. (1990)

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