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Daily Market Report | September 13, 2021

US FINANCIAL MARKET

Stocks Pare Gains After Streak of Losses – Wall Street Journal, 9/13/2021

  • U.S. stocks rose Monday, led by a run-up in shares of energy firms, as the S&P 500 and Dow Jones Industrial Average mounted recoveries following last week’s slump.
  • Energy stocks led the S&P 500, rising 3.3% to help the benchmark bounce back from its worst weekly performance since February.
  • The Organization of the Petroleum Exporting Countries (OPEC) predicted stronger demand for oil next year amid ongoing disruptions, giving prices a boost.
  • The yield on the benchmark 10-year U.S. Treasury note edged down to 1.322% from 1.340% on Friday.
  • Overseas, the pan-continental Stoxx Europe 600 added 0.7%.
  • In Asia, Hong Kong’s Hang Seng Index dropped 1.5% by the close of trading, with technology stocks among notable decliners in the city. Alibaba’s Hong Kong-listed stock fell more 4%, as did shares in food-delivery giant Meituan.
  • The CSI 300 index in mainland China edged 0.4% lower.
  • Over the weekend, The Wall Street Journal reported that the Biden administration is targeting Beijing’s widespread use of industrial subsidies in an effort that could lead to new sanctions on Chinese imports and further strain U.S.-China relations.
  • U.S.-listed shares of Chinese technology companies edged down in recent trading.
  • Alibaba slipped 2.2%, while video sharing platform Bilibili retreated 3.8%.

Global Oil Demand to Exceed Pre-Pandemic Levels Next Year, OPEC Says – Wall Street Journal, 9/13/2021

  • The world’s thirst for oil will exceed pre-pandemic levels next year, with improving vaccination rates and increasing public confidence in governments’ management of Covid-19 spurring a recovery in travel, the Organization of the Petroleum Exporting Countries said Monday.
  • In its closely watched monthly market report, OPEC raised its forecast for global oil demand for 2022 by just under a million barrels a day to 100.8 million barrels a day, higher than 2019’s demand level of 100.3 million barrels.
  • OPEC had previously forecast a return to 2019 demand levels in the second half of next year, but Monday’s report was the first time the cartel said it expects demand to beat pre-Covid-19 levels for the full year.
  • Combined with an unchanged supply-growth forecast for its non-cartel counterparts next year and a 200,000 barrel-a-day cut to the same forecast for this year—citing the impact of Hurricane Ida on U.S. oil production—OPEC’s estimates signal a tightening oil market.

Live Nation Plans to Acquire OCESA Entretenimiento in Move Into Latin America – Wall Street Journal, 9/13/2021

  • Live Nation Entertainment has reached a new agreement to acquire Mexican concert promoter OCESA Entretenimiento for about $450 million.
  • The deal, if completed, would give the world’s largest live-entertainment company a 51% stake and controlling interest in one of its largest competitors, which dominates the Latin American market that has exploded in the streaming era, according to Live Nation.
  • Plans for a deal were previously reached in July 2019, but unraveled when the Covid-19 pandemic devastated live touring.
  • The deal is now expected to close by late 2021 or early 2022, the company says. It is subject to regulatory approval, which was previously granted during prior negotiations but must be confirmed.
  • The new agreement is a sign the companies are sure that business is getting back on track.

Aluminum Hits $3,000 for First Time in 13 Years on Supply Snarl – Bloomberg, 9/13/2021

  • Aluminum reached $3,000 a ton in London for the first time in 13 years amid expectations that supply disruptions are here to stay, while demand keeps rising.
  • The metal has surged about 14% over the past three weeks as supply risks increase throughout the industry, from bauxite mining in Guinea and alumina refining in Jamaica to aluminum smelting in China and beyond.
  • Chinese producers were dealt a fresh blow on Monday as Steelhome reported that Yunnan province, one of the largest aluminum producing provinces in the Asian nation, will enforce production curbs from this month in an effort to meet energy intensity reduction goals.
  • Smelters in the European Union are also facing rising costs with both carbon credits and power inputs at record highs, Goldman Sachs said.

Freight Rates in U.S. Jump by Most in More Than 15 Years – Bloomberg, 9/13/2021

  • The cost of shipping freight in the U.S. continued to rise in August as equipment and labor capacity constraints persisted.
  • A measure of freight rates jumped 26.6% from a year earlier, the sharpest increase since February 2006, based on the latest figures from Cass Information Systems.
  • The gain followed a 23.8% increase in July and marked the third straight month of acceleration.
  • The volume of shipments by road and rail increased 12.2% from a year earlier, the smallest annual gain since March.
  • At the same time, the group’s gauge of the amount spent on shipping freight surged 42.2% from August 2020.

Kansas City Southern plans to accept Canadian Pacific’s $27 bln bid – Reuters, 9/13/2021

  • Kansas City Southern said on Sunday it planned to accept Canadian Pacific Railway’s $27.2 billion cash-and-stock acquisition offer as superior to its $29.6 billion deal to sell itself to Canadian National Railway.
  • Canadian National now has until the end of Friday to submit a better offer or lose its deal with Kansas City Southern.
  • At stake is the creation of the first direct railway linking Canada, the United States and Mexico.
  • Kansas City Southern’s change of heart came after the U.S. Surface Transportation Board (STB) rejected a temporary “voting trust” structure last month that would have allowed Kansas City Southern shareholders to receive the $325-per-share cash-and-stock consideration under the deal with Canadian National without having to wait for full regulatory approval.

U.S. equity funds face outflows on growth concerns -Lipper – Reuters, 9/13/2021

  • U.S. equity funds faced an outflow in the week to Sept. 8, on concerns the spread of the Delta coronavirus variant could slow economic growth and uncertainty over the timeline for the Federal Reserve to pull back its accommodative policies.
  • Data from Lipper showed U.S. equity funds faced an outflow of $1.85 billion in the week to Wednesday, compared with an inflow worth $11.18 billion in the previous week.
  • U.S. equity growth funds faced net selling of $4.72 billion, their biggest outflow in seven weeks, while value funds saw outflows for a third straight week, worth a net $541 million.
  • Among equity sector funds, real estate funds lured a net $2.29 billion, the biggest since at least mid-October 2019.
  • However, financials, industrials and materials sectors faced outflows of $1.05 billion, $857 million and $512 million respectively.
  • Meanwhile, U.S. bond funds attracted a net $5.29 billion, that marked an eighth consecutive week of inflows.

U.S. corporate tax hikes would knock 5% off S&P 500 earnings -Goldman – Reuters, 9/13/2021

  • A hike in the U.S. domestic corporate tax rate to 25% and the passage of about half of a proposed increase to tax rates on foreign income would reduce S&P 500 earnings by 5% in 2022, according to Goldman Sachs analysts.
  • Reuters reported on Sunday that U.S. House Democrats would propose raising the corporate tax rate to 26.5% from 21% as part of a sweeping plan that includes tax increases on the wealthy, corporations, and investors.
  • After incorporating tax reform into its models, Goldman analysts said they expected S&P 500 earnings of $212 per share in 2022, which is below the consensus estimate of $220.35 for Wall St shown by Refinitiv IBES data.
  • The bank’s analysts said that the market appears to be only partially pricing for an increased tax rate in 2022 nor allowing for a rise in capital gains tax, although they added Goldman analysts expected only a scaled-down version of the proposals to pass.

US ECONOMY & POLITICS

Democrats Release Details of Proposed Tax Increase – Wall Street Journal, 9/13/2021

  • House Democrats detailed their proposed tax increases on Monday, calling for raising the corporate tax rate to 26.5% from 21%, a 3-percentage-point surtax on top earners and a capital-gains tax increase.
  • Lawmakers plan to vote this week in the House Ways and Means Committee on the proposals, which would raise trillions of dollars from corporations and high-income households.
  • For individuals, the top marginal tax rate would rise to 39.6% from 37% starting in 2022. That tax rate would kick in at taxable income of $400,000 for individuals and $450,000 for married couples, below where the Biden administration had proposed.
  • The 3-percentage-point surtax would apply to individuals and married couples with adjusted gross income above $5 million.
  • The basic capital-gains rate would rise to 25% from 20%. When combined with an existing 3.8% investment-income tax and the surtax, the new top rate on capital gains could be as high as 31.8%.
  • Corporations would face a series of tax increases. The top tax rate would rise to 26.5% from 21%. That is below the 28% that the Biden administration proposed but above the 25% that some Senate Democrats are seeking. Smaller corporations would get tax brackets with lower rates.
  • Companies would also face new limits on interest deductions and higher taxes on their foreign income. Notably, the minimum tax on U.S. companies’ foreign income would go up from 10.5% to 16.6%, below the 21% the administration had sought.
  • The committee also included a series of miscellaneous tax changes. It would reverse the doubling of the estate tax exemption that Congress created in 2017. Instead of that increase expiring at the end of 2025, it would end after 2021.
  • The plan would also limit several estate-planning techniques, including some uses of grantor trusts and asset transfers with discounted values.
  • High-income people with tax-preferred retirement accounts totaling $10 million or more would no longer be able to contribute to those accounts and would face sharply higher mandatory distributions once the account balances reached that level.

White House Works to Keep Moderate Democrats’ Backing for Agenda as GOP Focuses on Inflation – Wall Street Journal, 9/13/2021

  • With negotiations over a $3.5 trillion antipoverty bill heating up among Democrats, the White House is trying to ensure that inflation fears don’t drive moderates away from supporting the plan as Republicans argue the proposal will accelerate a surge in prices.
  • It isn’t clear that all Democrats in the narrowly divided Congress are listening.
  • Sen. Joe Manchin (D., W.Va.), an influential moderate vote, penned a recent op-ed in The Wall Street Journal questioning the spending package’s effect on inflation rates and debt levels. “A pause is warranted because it will provide more clarity on the trajectory of the pandemic, and it will allow us to determine whether inflation is transitory or not,” he wrote.
  • Rep. Jim Costa, a centrist House Democrat from California, said he did have some worries about inflation, particularly as Congress considers another large spending package.
  • When asked if inflation concerns could be a reason to pare back spending in the coming $3.5 trillion package, he said, “It could.”
  • The White House last month doubled its forecast for annual inflation, saying consumer prices would rise 4.8% in the fourth quarter from a year earlier, up from the 2% rise that it forecast in February.

California Recall Puts Governor’s Pandemic Leadership to the Test – Wall Street Journal, 9/13/2021

  • California Gov. Gavin Newsom on Tuesday will be the first governor in a recall election to face voters divided over Covid-19 restrictions and collectively angry about a pandemic that continues to upend lives nationwide.
  • Mr. Newsom’s performance will be the first judged by voters. The Democratic governor is staking his political survival on measures he took against the spread of Covid-19, including face-mask requirements and, during the pandemic’s worst stretches, temporarily closing businesses, classrooms and indoor church services. He has cast them as lifesaving measures.
  • Radio host Larry Elder, a Republican, and the governor’s leading opponent, said he would repeal most of the state’s Covid-19 mandates before drinking his first cup of tea on the day he takes office. Mr. Elder, 69 years old, said the measures unnecessarily hobbled business owners, students and religious worshipers.
  • Mr. Newsom, 53, holds a significant party advantage: Only about a quarter of California voters are registered Republicans. In the November election, President Biden received 63% of the state vote.

Antony Blinken to Face Lawmakers Over Afghanistan Withdrawal, U.S. Policies – Wall Street Journal, 9/13/2021

  • The top U.S. diplomat this week will defend the Biden administration against bipartisan congressional criticism over the nation’s exit from Afghanistan and ongoing efforts to evacuate American citizens and others at risk from the Taliban-controlled country.
  • Secretary of State Antony Blinken is scheduled to testify at 2 p.m. ET Monday before the House Foreign Affairs Committee on the 20-year U.S. presence in Afghanistan and the withdrawal, including how Washington will deal with the Taliban movement now in charge of the country.
  • Mr. Blinken also is scheduled to testify Tuesday before the Senate Foreign Relations Committee.

EUROPE & WORLD

Biden Administration Takes Aim at China’s Industrial Subsidies – 9/11/2021

  • The Biden administration is targeting Beijing’s widespread use of industrial subsidies that give its companies an edge over foreign rivals, an effort that could lead to new sanctions on Chinese imports and further strain U.S.-China relations.
  • Administration officials are considering launching an investigation into Chinese subsidies under Section 301 of the U.S. trade law, which could lead to new tariffs, according to people familiar with their plans.
  • The administration “wants it to be a full-court press,” said one of the people familiar with the discussions. No final decisions have been made, the people said. Some details were earlier reported by Bloomberg News.
  • The planned actions come as the U.S. Trade Representative’s office winds up its monthslong review of China policy, amid rising criticism by U.S. business leaders that the White House is taking too long to address key issues dividing the world’s two largest economies.
  • As part of its review, the USTR has decided to try to enforce China’s commitments under the Phase One accord negotiated by the Trump administration to boost purchases of U.S. goods by $200 billion over 2020 and 2021.
  • China fell short of those targets by about 40% in 2020 and is now 30% behind its scheduled purchases for 2021, according to calculations by Chad Bown, an economist at the Peterson Institute for International Economics.

China plans to break up Ant’s Alipay and force creation of separate loans app – FT – Reuters, 9/13/2021

  • Beijing wants to break up Alipay, the hugely popular payments app owned by Jack Ma’s Ant Group, and create a separate app for the company’s highly profitable loans business, the Financial Times reported on Sunday.
  • The plan will also see Ant turn over the user data that underpins its lending decisions to a new credit scoring joint-venture, which will be partly state-owned, the newspaper reported, citing two people familiar with the process.
  • State-backed firms are set to take a sizeable stake in Ant’s credit-scoring joint venture for the first time, three people told Reuters last week.
  • According to the FT report, Ant will not be China’s only online lender affected by the new rules.
  • The company did not immediately respond to a Reuters’ request for a comment.

China Tells Internet Companies to Stop Blocking Links From Rivals – Wall Street Journal, 9/13/2021

  • China has ordered its largest internet companies to stop blocking links from their rivals on their apps, as Beijing seeks to boost competition in a sector dominated by a handful of companies.
  • Authorities have made the move against blocking external links a key focus of a campaign that started in July, after receiving multiple complaints from users, an official with the Ministry of Industry and Information Technology said Monday.
  • Companies such as Tencent, Alibaba, ByteDance and Baidu were among those called to a meeting last Thursday with Chinese officials to discuss the issue, people familiar with the matter said.
  • Moves blocking app users from accessing rivals’ services from within those apps have become common practice among large technology companies in China.

Energy Prices in Europe Hit Records After Wind Stops Blowing – Wall Street Journal, 9/13/2021

  • Natural gas and electricity markets were already surging in Europe when a fresh catalyst emerged: The wind in the stormy North Sea stopped blowing.
  • The sudden slowdown in wind-driven electricity production off the coast of the U.K. in recent weeks whipsawed through regional energy markets. Gas and coal-fired electricity plants were called in to make up the shortfall from wind.
  • At their peak, U.K. electricity prices had more than doubled in September and were almost seven times as high as at the same point in 2020. Power markets also jumped in France, the Netherlands and Germany.
  • The feedback loop has the potential to ripple into the broader economy. European Central Bank President Christine Lagarde this month referred to energy markets as one of the main forces driving inflation higher.

Factmonster – TODAY in HISTORY

  • Republican Margaret Chase Smith of Maine was elected to the U.S. Senate, becoming the first woman to have served in both houses of Congress. (1948)
  • The four-day revolt at the maximum security prison in Attica, New York, ended when state police and National Guardsmen stormed the facility. Forty-two people died. (1971)
  • Israeli Prime Minister Yitzhak Rabin and PLO Chairman Yasir Arafat shook hands after signing an historic peace agreement. (1993)

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