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Daily Market Report | August 12, 2022

US FINANCIAL MARKET

U.S. Stocks Climb, Extending Rally – Wall Street Journal, 8/12/2022

  • U.S. stocks rose Friday, poised to close out a fourth weekly advance, extending a rally driven by signs of a slowdown in inflation.
  • The S&P 500 climbed 0.6%, putting the benchmark stocks gauge on track for its longest winning streak since one that ended in early November.
  • The Dow Jones Industrial Average rose 116 points, or 0.3%, and the Nasdaq Composite added 0.8%.
  • Investors hope a recent deceleration in consumer-price growth will encourage the Federal Reserve to raise interest rates at a slower pace, which in turn could prevent the economy from tipping into a recession.
  • Lower rates have in recent years boosted prices for stocks, bonds and more speculative assets such as cryptocurrencies.
  • Still, many money managers caution that it is too soon to say the Fed will ease up in its campaign to quell inflation. Wild cards remain, such as the energy crisis unfolding in Europe, which could boost energy prices globally.
  • Consumers appear to be on the same wavelength as investors. The University of Michigan’s preliminary consumer sentiment index rose to 55.1 in August, up from 51.5 in July. A final reading will be released later this month.
  • Yields on benchmark 10-year U.S. Treasury notes edged down to 2.866% from 2.886% on Thursday.
  • They have traded below the 3% mark since late July, when money managers began to bet that the Fed would pause rate rises and even begin to reverse them next year, sending Treasury prices higher.
  • Electric-vehicle maker Rivian Automotive rose 3.6%, even though it second-quarter loss nearly tripled to $1.7 billion.
  • Elsewhere in the market, crude-oil prices fell 3% to $91.50, amid a continued drop in the price of retail gas in the U.S. Earlier this week, the nationwide average fell below $4 a gallon for the first time since March.

Rivian’s Losses Nearly Triple to $1.7 Billion – Wall Street Journal, 8/12/2022

  • Rivian Automotive reported its net loss in the second quarter nearly tripled to $1.7 billion, further pressuring the electric-vehicle startup to conserve cash and move quickly to fill customer orders.
  • The California-based SUV and truck maker said revenue for the quarter was about $364 million as it increased production and deliveries of its first three models.
  • The company has said it produced 4,401 vehicles in the second quarter, a figure it needs to more than double in each of the final two quarters to hit its target of 25,000 for the year.
  • As it focused on ramping up production, Rivian also said it had trimmed capital expenditures to preserve cash and expected to spend $2 billion rather than its original projection of $2.6 billion.
  • The second-quarter results roughly met analysts’ expectations, with Rivian reporting an adjusted net loss of $1.62 a share.
  • The auto maker affirmed its 2022 production guidance of building 25,000 vehicles by the year’s end, but said its operating loss is expected to grow to $5.45 billion, from its previous projection of $4.75 billion for the full year.
  • At the end of June, Rivian had about $15.46 billion in cash and cash equivalents, about $1.5 billion less than at the close of the first quarter.

US to Control Exports of Some Chip Tech to Cut ‘Nefarious’ Use – Bloomberg, 8/12/2022

  • The US imposing export controls on technologies that support the production of advanced semiconductors and gas-turbine engines to protect them from “nefarious end use.”
  • The innovations “are essential to the national security” of the US and meet the criteria for the protection, the Department of Commerce’s Bureau of Industry and Security said in a statement Friday.
  • “We are protecting the four technologies identified in today’s rule from nefarious end use by applying controls through a multilateral regime,” Thea Rozman Kendler, assistant secretary of commerce for export administration, said in the statement.

J&J to end global sales of talc-based baby powder – Reuters, 8/12/2022

  • Johnson & Johnson will stop selling talc-based baby powder globally in 2023, the drugmaker said on Thursday, more than two years after it ended U.S. sales of a product that drew thousands of consumer safety lawsuits.
  • In 2020, J&J announced that it would stop selling its talc Baby Powder in the United States and Canada because demand had fallen in the wake of what it called “misinformation” about the product’s safety amid a barrage of legal challenges.
  • The company faces about 38,000 lawsuits from consumers and their survivors claiming its talc products caused cancer due to contamination with asbestos, a known carcinogen.
  • J&J denies the allegations, saying decades of scientific testing and regulatory approvals have shown its talc to be safe and asbestos-free.
  • On Thursday, it reiterated the statement as it announced the discontinuation of the product.

U.S. equity funds notch up biggest weekly inflow in seven weeks – Reuters, 8/12/2022

  • Investors were net buyers of U.S. equity funds in the week to Aug. 10, on bets that the Federal Reserve would slow the pace of its interest rate hikes as inflation concerns subside.
  • Refinitiv Lipper data showed $4.21 billion in net purchases of U.S. equity funds, their biggest weekly inflow since June 22.
  • U.S. small-cap funds attracted $192 million, while large-cap funds had purchases of $7.6 billion, the biggest inflow since May 25. Mid-cap funds recorded $294 million of net selling.
  • Data for growth and value funds showed investors acquired funds totaling $2.46 billion and $26 million respectively.
  • U.S. consumer staples and healthcare funds notched up inflows of $487 million and $345 million respectively, but tech funds saw outflows of $852 million.
  • U.S. bond fund purchases were broadly into government funds, with U.S. government and treasury fixed income funds, and U.S. short/intermediate government and treasury funds attracting $1.88 billion and $540 million, respectively.

Oil Outages in Gulf of Mexico Are Straining an Already Tight Market – Bloomberg, 8/12/2022

  • Seven oil and gas fields in the Gulf of Mexico have been shut after a leak at a Louisiana booster station halted two pipelines in the region.
  • Shell on Thursday shut its Mars and Amberjack pipelines which together can move as much as 500,000 barrels a day of oil from the Gulf of Mexico to the coast.
  • That resulted in the closure of Shell’s Mars, Ursa and Olympus fields, Chevron’s Jack/St. Malo, Tahiti and Big Foot fields, and Equinor ASA’s Titan platform, the companies said.
  • If the pipelines return to service Friday as expected, production losses will be minimal, according to Energy Aspects.
  • A longer outage, though would be bullish for sour crude grades, with a week-long disruption curbing production by 3.3 million barrels, the firm said in a note.
  • Prices for Mars Blend crude, a regional sour crude benchmark, strengthened Thursday.
  • At the same time, Gulf of Mexico dry-gas production fell about 10%, the most since January, according BloombergNEF estimates based on pipeline flows.

U.S. opens probe into 1.7 million Ford vehicles over brake hose recall – Reuters, 8/12/2022

  • U.S. auto safety regulators said Friday they are investigating whether a 2020 Ford Motor recall for vehicles with front brake hoses rupturing prematurely is adequate.
  • The National Highway Traffic Safety Administration (NHTSA) is opening a recall query into 1.7 million U.S. Ford 2013-2018 model year Fusion and Lincoln MKZ cars after receiving 50 complaints alleging front brake hose failures.
  • Ford recalled 488,000 Ford Edge and Lincoln MKX vehicles in 2020 in the United States for brake hose failures.
  • Ford said it would cooperate with NHTSA’s probe. NHTSA said many complaints reported brake hoses are rupturing, leaking brake fluid and occurring with little or no warning. The safety agency said it is aware of one alleged crash as a result of a failed brake hose.

US ECONOMY & POLITICS

US Consumer Sentiment Rises to Three-Month High, Topping Forecasts – Bloomberg, 8/12/2022

  • US consumer sentiment rose in early August to a three-month high on firmer expectations about the economy and personal finances.
  • The University of Michigan’s preliminary sentiment index rose to 55.1 from 51.5 in July, data showed Friday.
  • Consumers expect prices will climb at an annual rate of 3% over the next five to 10 years, from 2.9% in July. They see costs rising 5% over the next year, the lowest since February, compared to last month’s 5.2%.
  • The sentiment gauge exceeded all but one forecast in a Bloomberg survey of economists who had a median projection of 52.5.
  • The gain in sentiment was driven solely by a pickup in the outlook. The university’s measure of expectations increased to a three-month high of 54.9 from 47.3 in July.

U.S. Home Prices Jumped to Record High in Second Quarter – Wall Street Journal, 8/12/2022

  • Home prices continued to climb across nearly all the U.S. in the second quarter, when buyer demand started to fade due to higher mortgage rates but still exceeded the housing market’s unusually low supply.
  • The median single-family existing-home sales price rose 14.2% in the second quarter from a year ago to $413,500, a record, according to NAR.
  • The median sales price was higher in the quarter compared with a year ago for 184 of the 185 metro areas tracked, the National Association of Realtors said Thursday. The only metro area to post a decline was Trenton, N.J., where median prices fell 0.7%, NAR said.
  • Median prices rose by more than 10% from a year earlier in 80% of the 185 metro areas, up from the first quarter when 70% of metro areas reported double-digit-percentage growth.
  • In the second quarter, the typical monthly mortgage payment for a single-family home rose to $1,841, from $1,229 a year earlier, NAR said.
  • Worsening housing affordability is prompting more households to consider relocating.
  • Real-estate brokerage Redfin said 33.7% of shoppers on its platform searched primarily for homes outside their metro area in July, up from 32.6% in the second quarter and up from about 26% before the pandemic.

EUROPE & WORLD

U.K. Economy Shrank in Second Quarter as Inflation Hit Households – Wall Street Journal, 8/12/2022

  • The U.K. economy contracted in the second quarter as households facing soaring inflation cut back on spending and programs to contain the spread of Covid-19 were wound down, presaging tough times ahead for an economy that is expected to enter a lengthy recession.
  • Britain’s statistics agency said Friday that gross domestic product—a broad measure of the goods and services produced in an economy—fell 0.1% in the three months through June.
  • Economists expected a 0.2% decrease in output, following a 0.8% rise in the first quarter.
  • Consumer spending fell 0.2% while services activity shrank 0.4%, driven largely by a decline in healthcare activities as Covid-19 vaccinations and testing eased.
  • The decline in GDP worsened toward the end of the quarter. Data for June showed it contracted 0.6%, undoing the 0.5% growth of the previous month.
  • The U.K.’s trade deficit also widened to a record level in the second quarter, separate data released Friday showed. The nation’s trade deficit including goods and services rose to £27.9 billion, equivalent to $33.98 billion.

Huawei Revenue, Profitability Continue to Slide Amid U.S. Restrictions – Wall Street Journal, 8/12/2022

  • Revenue at China’s Huawei Technologies fell 5.9% in the first half of the year compared with a year earlier, as U.S. restrictions continued to pressure its business.
  • The Shenzhen-based telecommunications giant reported revenue of 301.6 billion yuan, equivalent to about $44.7 billion.
  • It has been falling since 2020 as Western restrictions on its access to chips hamper sales of its core products.
  • Revenue at Huawei’s consumer business, selling devices such as smartphones, fell 25% from the first half of last year. At the fast-growing enterprise-business unit, though, it rose 28%.
  • Revenue from the company’s telecom-infrastructure business increased 4.2%.
  • The company was also less profitable than a year earlier, reporting a net profit margin of 5%, down by nearly half from the year-earlier 9.8%.

China State-Owned Giants to Delist From US Amid Audit Spat – Bloomberg, 8/12/2022

  • Five of China’s largest state-owned companies announced plans to delist from US exchanges as the two countries struggle to come to an agreement allowing American regulators to inspect audits of Chinese businesses.
  • China Life Insurance Co., PetroChina Co. and China Petroleum & Chemical Corp. all disclosed their intentions to delist in statements published in quick succession on Friday, along with Aluminum Corp. of China and Sinopec Shanghai Petrochemical Co.
  • As US and Chinese officials try to reach a deal, speculation has been mounting that a solution could involve companies that Beijing deems sensitive voluntarily exiting US markets.
  • The China Securities Regulatory Commission said in a statement that the delisting plans were based on the companies’ business concerns.
  • About 300 businesses based in China and Hong Kong — with over $2.4 trillion in market value — risk being kicked off US Exchanges as the Securities and Exchange Commission increases scrutiny of the firms, Bloomberg Intelligence estimated in May.
  • Among the biggest are China Life, PetroChina, China Petroleum & Chemical, Alibaba Group and Baidu.

Samsung Leader Jay Y. Lee Receives Presidential Pardon for Bribery Conviction – Wall Street Journal, 8/12/2022

  • Samsung’s de facto leader, Lee Jae-yong, will receive a pardon on Monday, South Korea’s presidential office said, a legal reprieve underpinned by expectations that the business tycoon will help propel the nation’s economy.
  • Mr. Lee, twice imprisoned for bribing South Korea’s former president, will have his criminal record from his 2017 conviction wiped clean.
  • But the grandson of Samsung’s founder still has unresolved legal woes related to accounting-fraud charges that could land him back in jail if he is found guilty.
  • All major decisions across the Samsung conglomerate, which spans smartphones to insurance to electronic-vehicle batteries, require Mr. Lee’s signoff.

SK Hynix to break ground on new U.S. chip packaging plant early next year – Reuters, 8/12/2022

  • South Korea’s SK Hynix aims to select a U.S. site for its advanced chip packaging plant and break ground there around the first quarter of next year, two people familiar with the matter said, helping the United States to compete as China pours money into the burgeoning sector.
  • The plant, whose estimated cost would be “several billions,” would ramp up to mass production by 2025-2026 and employ about 1,000 workers, one of the sources said, declining to be named because details about the plant have not been made public.
  • SK Group, South Korea’s second-biggest conglomerate, owns memory chipmaker SK Hynix and announced the new plant last month as part of a $22 billion U.S.-based investment package in semiconductors, green energy and bioscience projects.

European Gas Set for Fourth Weekly Gain as Supply Fears Persist – Bloomberg, 8/12/2022

  • European natural gas prices headed for a fourth week of gains, and electricity rose to a record as the region braces for an even deeper supply crunch over the winter that could push major economies into recession.
  • Benchmark gas futures fell on Friday, but are still about 6% higher this week.
  • Russian shipments via the key Nord Stream pipeline edged lower to around 18% of capacity for about an hour Friday afternoon, briefly driving prices higher. Flows returned to 20% soon after but the market’s reaction reflects the deep set concerns over supply.
  • The energy crisis crippling Europe could get worse with only about two months to go before the winter heating period officially begins.
  • The region is still heavily dependent on Russian gas to get through the colder months, and any further disruptions to supply may heighten the risk of blackouts and rationing.

Factmonster – TODAY in HISTORY

  • Issac Singer patented the sewing machine. (1851)
  • British surgeon Joseph Lister became the first doctor to use an antiseptic during surgery. (1865)
  • A peace protocol ending the Spanish-American War was signed. (1898)
  • The last American combat troops left Vietnam. (1972)
  • In the world’s worst single-aircraft disaster, a Japan Air Lines 747 crashed into Mount Osutaka, killing 520 of the 524 aboard. (1985)
  • Swiss banks agreed to pay $1.25 billion to settle lawsuits brought by Holocaust survivors and their heirs. The banks had kept millions of dollars deposited by Holocaust victims before and during World War II. (1998)
  • Notorious Boston gangster James (Whitey) Bulger was found guilty of 31 of the 32 charges he faced, including murder, extortion, money laundering, drug dealing and possession of weapons. (2013)

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