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Daily Market Report | September 16, 2021

US FINANCIAL MARKET

Stocks Fall as Investors Parse Data, Market Decline in China – Wall Street Journal, 9/16/2021

  • The S&P 500 declined as investors weighed mixed signals in the latest U.S. economic data and a stock-market pullback in China.
  • The number of Americans who applied for first-time unemployment benefits rose in the week ended Sept. 11 to 332,000, up from 312,000 in the week prior.
  • Meanwhile, retail sales rose 0.7% in August, a sign of the economic recovery’s resilience despite the Delta variant.
  • Economists surveyed by The Wall Street Journal had expected retail sales to decline.
  • The start to the U.S. trading session followed another day of losses in China and Hong Kong Thursday, where indexes were hit by gathering fears around an economic slowdown and debt problems with giant property developer China Evergrande Group.
  • Hong Kong’s Hang Seng shed 1.5% and China’s Shanghai Composite contracted 1.3%. Growth across a range of Chinese economic indicators pulled back sharply in August, as a new outbreak of the Covid-19 Delta variant and tighter government regulations on the property market hit consumer spending and the housing sector.
  • In bond markets, the yield on the 10-year Treasury note rose to 1.346% from 1.302% Wednesday. Yields rise as prices fall.
  • Elsewhere, the Stoxx Europe 600 gained 0.6%. Shares of Lagardère surged 19% after media conglomerate Vivendi struck a deal to increase its stake in the French group, a move that opens the door to a full takeover.

Cisco forecasts growth from software shift, but chip prices pressure profits – Reuters, 9/16/2021

  • Cisco Systems on Wednesday forecast that within four years, about half its revenue will come from software and other recurring sales, but its chief financial officer told Reuters high chip prices in its hardware business will keep pressuring overall profits.
  • At an event with Wall Street analysts, Cisco said it believes the portion of its revenue coming from subscriptions will rise from 44% notched for its fiscal 2021 ended July 31 to 50% by fiscal 2025.
  • The company gave a fiscal 2025 revenue forecast with a midpoint of $62.9 billion, saying it expects a compound annual growth rate of 5% to 7%. Cisco predicted the same growth rate for adjusted profits, targeting a midpoint of $4.07 per share in fiscal 2025.

Rising Shipping Costs Are Companies’ Latest Inflation Riddle – Wall Street Journal, 9/16/2021

  • Transportation costs—typically a fraction of a finished product’s price—are emerging as another supply-chain hurdle, overwhelming some companies already paying more for raw materials and labor.
  • The fabric and crafts retailer Jo-Ann Stores said it has spent 10 times more than its historical cost in some cases to move products from one point to another.
  • “Sometimes the ocean freight now is actually more expensive than the cost of the product,” Chief Executive Officer Wade Miquelon said in a recent interview.
  • Spot container shipping rates from Asia to the U.S. West Coast were five times higher last week compared with the same time last year, according to the Freightos Baltic Index. Those rates are more than 14 times higher than during the same time in 2019.

Pfizer Says Booster Shots of Vaccine Restore Waning Immunity – Bloomberg, 9/16/2021

  • Pfizer said that data from the U.S. and Israel suggest that the efficacy of its Covid-19 vaccine wanes over time, and that a booster dose was safe and effective at warding off the virus and new variants.
  • Early unpublished data from an Israeli health maintenance organization suggest that a third booster dose is highly effective in areas where the delta variant is dominant, according to the Pfizer document. Giving a third dose to people more than 60 years old was associated with 86% effectiveness against testing positive for Covid starting at least a week after the booster, Pfizer said.
  • Pfizer also detailed immune response results from a final-stage trial of booster shots in over 300 people, showing that a third dose bolstered blood antibody levels.

Moderna says COVID-19 vaccine protection wanes, makes case for booster – Reuters, 9/16/2021

  • New data from Moderna’s large COVID-19 vaccine trial shows that the protection it offers declines over time, supporting the case for booster doses, the company said in a news release on Wednesday.
  • Several recent studies have suggested that its vaccine may have an edge over a similar shot from Pfizer and German partner BioNTech in terms of maintaining efficacy over time.
  • In the new analysis, Moderna compared the vaccine’s performance in more than 14,000 volunteers vaccinated between July and October of 2020 to some 11,000 volunteers originally in the placebo group who were offered the shot between December 2020 and March 2021 following its U.S. emergency use authorization.
  • Moderna said there was a trend toward a lower rate of severe cases among the more recently vaccinated, although the finding was not statistically significant.

Boom for banks as M&A and pandemic boost corporate FX needs – Reuters, 9/16/2021

  • A boom in corporate dealmaking, surging input costs and a focus on short-term cash flows in the pandemic have sent companies rushing to hedge their currency exposures this year, giving a boost to banks that sell foreign exchange products.
  • Global dealmaking is running at a record high this year, with $3.9 trillion of deals already transacted by early September, according to Refinitiv data.
  • A corporate treasurer at one FTSE 100 firm said its auditors had told the company to hedge its exposures more effectively and “ensure that we only hedge the visible stream of revenues”.
  • This has resulted in more volumes and smaller deal sizes, a development seen widely – treasurers say the average hedging deal among other large British firms has shrunk to between $5 million and $10 million, from $20 million pre-pandemic.

US ECONOMY & POLITICS

U.S. Retail Sales Unexpectedly Jump in Sign of Resilient Demand – Bloomberg, 9/16/2021

  • U.S. retail sales rose unexpectedly in August as a pickup in purchases across most categories more than offset weakness at auto dealers, showing resilient consumer demand for merchandise.
  • The value of overall retail purchases climbed 0.7% last month following a downwardly revised 1.8% decrease in July, Commerce Department figures showed Thursday. Excluding autos, sales advanced 1.8% in August, the largest gain in five months.
  • The retail sales data showed receipts at restaurants and bars, the only services-spending category in the report, stagnated in August. Meantime, grocery-store receipts climbed 2.1%.
  • So-called control group sales, which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations, jumped 2.5% in August — the most in five months.

U.S. Jobless Claims Remained Near Pandemic Low Last Week – Wall Street Journal, 9/16/2021

  • Jobless claims rose slightly last week but remained near a pandemic low, as layoffs stabilize amid an economic slowdown tied to rising coronavirus cases.
  • Initial unemployment claims rose to 332,000 last week from a pandemic low of 312,000 a week earlier, the Labor Department reported Thursday.
  • Layoffs due to Hurricane Ida, which hit Louisiana at the end of August, appeared to contribute to the small claims increase, economists said.
  • The four-week moving average for claims, which smooths out weekly volatility, fell to 335,750, the lowest level since March 2020.
  • Continuing claims, a proxy for the number of individuals receiving benefits, fell to 2.67 million in the week ending Sept. 4, a pandemic low.
  • The decline in continuing claims signals some unemployed workers are leaving the unemployment rolls for new jobs.

U.S. business inventory accumulation slows in July – Reuters, 9/16/2021

  • U.S. business inventory accumulation slowed in July as motor vehicle retailers struggled to restock amid an ongoing global semiconductor shortage, which is forcing automobile manufacturers to scale back production.
  • Business inventories rose 0.5% after increasing 0.9% in June, the Commerce Department said on Thursday.
  • Inventories rose 7.2% on a year-on-year basis in July.
  • Retail inventories gained 0.4% in July as estimated in an advance report published last month.
  • That followed a 0.5% rise in June. Motor vehicle inventories climbed 0.2% instead of 0.3% as estimated last month.
  • Retail inventories excluding autos, which go into the calculation of GDP, rose 0.5% as estimated last month.
  • Wholesale inventories increased 0.6% in July. Stocks at manufacturers advanced 0.5%.
  • Business sales gained 0.5% in July after rising 1.6% in June.
  • At July’s sales pace, it would take 1.25 months for businesses to clear shelves, unchanged from June.

Yellen, IRS Push Democrats to Require Banks to Report Taxpayers’ Annual Account Flows – Wall Street Journal, 9/16/2021

  • Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig pressed lawmakers Wednesday to give the Internal Revenue Service more information about taxpayers’ bank accounts, as the Biden administration tries to salvage its struggling tax-compliance proposal.
  • In letters to lawmakers, the administration officials again asked Congress to require banks to report annual inflows and outflows from bank accounts with at least $600 or at least $600 worth of transactions, a proposal aimed at letting the IRS target its audits more effectively.
  • It would generate about $460 billion over a decade to cover the costs of Democrats’ planned expansion of the social safety net and climate-change policies, according to the administration.
  • But after a flurry of opposition from banks and credit unions, House Democrats omitted the proposal from their list of tax-policy changes this week.
  • That was a sign that it lacked the support in the party to advance, though a scaled-back version raising about half as much money could still emerge from ongoing talks between administration officials and Congress.
  • The requirement would also extend to peer-to-peer payment services such as Venmo but wouldn’t require individuals and businesses to report any additional information to the government.

Democrats Rethink Climate Measures, Consider Carbon Tax – Wall Street Journal, 9/16/2021

  • Democrats are taking a fresh look at their proposals for reducing carbon emissions in their $3.5 trillion spending package, hoping to win over moderate party members who raised concerns about elements of the plan.
  • Democrats have laid out a variety of provisions aimed at combating climate change in the wide-ranging proposal, including tax credits for purchasing electric vehicles, a program to push utilities to produce more clean electricity and a fee on methane emissions.
  • Sen. Joe Manchin (D., W.Va.), who represents a top coal-producing state and is the chairman of the Senate Energy and Natural Resources Committee, has lambasted the proposal. He argued that market forces are already moving electricity suppliers away from fossil fuels.
  • Mr. Manchin isn’t alone in his criticism of the plan.
  • Some Democrats questioned whether the plan would disadvantage states that have already transitioned away from fossil fuels, while other colleagues echoed Mr. Manchin’s concerns about supplanting market forces.

Drug-Prices Measure Splinters House Democrats – Wall Street Journal, 9/16/2021

  • Democratic divisions spilled into the open Wednesday over how to lower prescription drug prices as part of a broader $3.5 trillion budget package, signaling the challenge Democratic leaders face ironing out internal disagreements over a marquee component of the legislation.
  • Democratic Reps. Scott Peters of California, Kurt Schrader of Oregon and Kathleen Rice of New York voted against a measure enabling Medicare to negotiate for lower prescription drug costs in a House Energy and Commerce Committee vote Wednesday, preventing it from advancing when the panel deadlocked in a 29-29 tie.
  • Democratic leaders will need to find a consensus, given their narrow margins in both chambers. On legislation opposed by all Republicans, Democrats can afford no more than three defections in the House and none in the Senate.

Women Are Nearly Half of New Gun Buyers, Study Finds – Wall Street Journal, 9/16/2021

  • Close to half of all new U.S. gun buyers since the beginning of 2019 have been women, a shift for a market long dominated by men, according to a new study.
  • The preliminary results from the 2021 National Firearms Survey, designed by Deborah Azrael of the Harvard T.H. Chan School of Public Health and Matthew Miller of Northeastern University, show an estimated 3.5 million women became new gun owners from January 2019 through April of this year. About 4 million men became new gun owners over that period, they found.
  • For decades, other surveys have found that around 10% to 20% of American gun owners were women.
  • The number of federal background checks for gun purchases hit an all-time high in 2020 of 21 million, according to an analysis of federal data by the National Shooting Sports Foundation, an industry trade group.

U.S. Mortgage Rates Dip Slightly to Lowest in Almost a Month – Bloomberg, 9/16/2021

  • Mortgage rates in the U.S. slipped to the lowest level in almost a month.
  • The average for a 30-year loan was 2.86%, down from 2.88% last week and the lowest since Aug. 19, Freddie Mac said in a statement Thursday.
  • The 30-year average sunk throughout 2020 and reached a record low of 2.65% at the beginning of this year. It has climbed since then, tracking yields for 10-year Treasuries, which have been above 1% since January.

Growth of NY service sector business activity slowed in September, survey finds – Reuters, 9/16/2021

  • Business activity for service sector firms in the New York region continued to grow in September but at a slower pace, according to a survey released on Thursday by the New York Federal Reserve.
  • The New York Fed’s business activity index fell thirteen points to 14.4, the third consecutive monthly decline for the survey covering firms in New York, northern New Jersey, and southwestern Connecticut.

EUROPE & WORLD

Taiwan Plans to Bulk Up Military Budget to Contend With Chinese Pressure – Wall Street Journal, 9/16/2021

  • Taiwan plans to significantly increase military spending in the next five years, according to a draft bill that calls for new outlays on weapons systems that would better equip the island to repel an attack by China.
  • The proposal, unveiled by Taiwan’s cabinet on Thursday, calls for the allocation of the equivalent of about $8.7 billion over the next five years to fund the acquisition of homegrown precision missiles, high-performance naval ships and weapons systems for existing warships.
  • The new spending would be on top of Taiwan’s annual military-related budget, which is set to grow 4% in 2022 to a record $15.1 billion.

Factmonster – TODAY in HISTORY

  • Mexico began its revolt against Spanish rule. (1810)
  • General Motors was founded by William C. Durant. (1908)
  • President Ford announced conditional amnesty for Vietnam War deserters and draft evaders. (1974)

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