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Daily Market Report | September 17, 2021

US FINANCIAL MARKET

Stock Point to Lackluster Finish for Week; Oil Pulls Back – Wall Street Journal, 9/17/2021

  • U.S. stocks fell in early trading as fresh data on consumer sentiment was slightly below expectations, pointing to a subdued end to a choppy week in markets.
  • This week brought the first sign of inflation easing and an unexpected boost to retail sales, but also a slight rise in Americans applying for initial jobless claims, a proxy for layoffs.
  • Options and futures are set to expire Friday in a quarterly event known as quadruple witching, which is likely contributing to market volatility.
  • More than $750 billion of single-stock options will mature, according to Goldman Sachs analysts.
  • The yield on the benchmark 10-year U.S. Treasury note ticked up to 1.341%, from 1.331% Thursday.
  • The Treasury yield curve has been flattening this week, signaling that investors are positioning ahead of the Federal Reserve monetary policy meeting that will begin Tuesday.
  • Brent, the global benchmark for crude, declined 0.2% to trade at $75.51.
  • Overseas, the pan-continental Stoxx Europe 600 edged down 0.1%.
  • The Shanghai Composite Index edged up 0.2%, while Hong Kong’s Hang Seng closed up 1%.
  • The mainland China benchmark is down more than 2% for the week after a range of Chinese economic indicators signaled a pullback in growth and giant property developer Evergrande’s debt problems weighed on sentiment.

Big-Box Retailers Battle for Inventory in Bet on Strong Holiday Sales – Wall Street Journal, 9/16/2021

  • Best Buy, Target, and other large merchants are amassing more inventory compared with last year’s pandemic-depressed levels, in some cases logging double-digit percentage increases as the stockpiles also exceed 2019 values.
  • Global inventories at Walmart, for example, rebounded this summer after dropping in the same period of 2020 compared with pre-pandemic levels, as the company stepped up efforts to meet strong consumer demand, including chartering vessels to bypass ocean shipping bottlenecks.
  • Walmart’s consolidated inventories reached nearly $47.8 billion in the quarter ended July 31, a 16% increase from the year-ago period and up 8% from the same quarter in 2019.
  • Walmart U.S. inventories were down 4.6% between the fiscal second quarter of 2021 and that of 2020.
  • U.S. retail sales rebounded in August as consumers spent more at stores and online following a sales decline in July.
  • Target’s inventory rose to almost $11.3 billion in value in the most recent quarter, up more than 26% from the same period in 2020, putting the retailer in a better position and providing it more confidence going into the holidays than last year.

U.S. Money Market Funds See Biggest Weekly Outflow in Nine Months – Reuters, 9/17/2021

  • Data from Lipper showed U.S. money market funds saw an outflow of $43.34 billion in the week to Wednesday, the largest since Dec. 16.
  • The core measure of U.S. consumer prices edged up 0.1% last month, the smallest gain since February.
  • The August slowdown gives the Federal Reserve breathing room as it prepares to reduce its massive bond holdings and decide how soon to begin lifting rates from near zero.
  • Meanwhile, U.S. equity funds attracted a net $5.54 billion after seeing outflows worth $1.83 billion in the previous week.
  • U.S. bond funds attracted a net $5.56 billion, which marked a ninth consecutive week of inflows.
  • U.S. short/intermediate investment-grade funds saw a twofold increase in inflows to $2.07 billion and purchases in U.S. municipal debt funds surged 27% to $1.06 billion.

Invesco in Talks to Merge With State Street’s Asset-Management Business – Wall Street Journal, 9/16/2021

  • Invesco is in talks to merge with State Street asset-management business.
  • It isn’t clear what the terms of a potential deal would look like, but it would likely be one of the industry’s biggest in recent memory, given State Street’s asset-management unit manages nearly $4 trillion in assets.
  • Invesco oversees $1.5 trillion in assets and manages a large ETF business.
  • It has a market value of about $11 billion, compared with roughly $32 billion for State Street.
  • Consolidation in the industry has picked up precipitously in recent years, and both Invesco and State Street have been active deal makers.
  • Invesco snapped up several other asset managers, including OppenheimerFund and Guggenheim Partners’s ETF business.
  • State Street expanded its asset-servicing arm, adding financial-data firm Charles River Systems.

US ECONOMY & POLITICS

FDA Panel Weighs Covid-19 Booster Shots as Health Officials Debate Need – Wall Street Journal, 9/17/2021

  • The outside panel of about 20 scientific advisers was meeting Friday to review information Friday about the Pfizer and BioNTech vaccine’s declining protection against Covid-19 over time and on how people tolerated additional dose.
  • The committee will vote in the afternoon on whether the safety and effectiveness data from Pfizer’s clinical trial supports FDA approval of a booster dose administered at least six months after the second dose for people 16 years and older.
  • One possible outcome of the meeting could be for the panel to recommend booster shots only for certain high-risk groups, such as healthcare workers or people 65 and older.
  • If the Vaccines and Related Biological Products Advisory Committee recommends authorizing boosters, the FDA could move within days to approve distributing them.
  • Pfizer’s application includes data from more than 300 subjects in its clinical trial who received a third dose and showed significant increases in neutralizing antibodies, which are important in the immune response against Covid-19.
  • In 11 subjects between ages 18 and 55 who received a booster, neutralizing antibodies were five-fold higher one month later, compared with one month after their second shot, the data showed. In 12 older subjects, the increase was 12-fold.

Fed Seen Announcing Bond Taper in November, Rate Liftoff in 2023 – Bloomberg, 9/17/2021

  • The Federal Reserve will probably hint at its meeting next week that it is moving toward scaling back monthly asset purchases and make a formal announcement in November.
  • The Federal Open Market Committee meets for two days starting Tuesday and will issue a policy statement at 2 p.m. Washington time Wednesday.
  • Two-thirds of economists surveyed expect the bond-buying announcement at the Fed’s Nov. 2-3 meeting, with more than half seeing the tapering starting in December.
  • The policy group is expected to hold rates near zero and continue monthly purchase of $80 billion in Treasuries and $40 billion in mortgage securities.
  • Some Fed officials say they want to finish tapering before raising rates and their median forecast in June showed them on hold through next year, though seven of 18 officials did favor a rate hike in 2022.
  • The FOMC may project 3.9% inflation for 2021, with 2.2% the following two years, and the unemployment rate falling to its pre-Covid low of 3.5% by 2023, according to the economists.

Americans See Worst Buying Conditions in Decades on High Prices – Bloomberg, 9/17/2021

  • U.S. consumer sentiment rose slightly in early September but remained close to a near-decade low, while buying conditions deteriorated to their worst since 1980 because of high prices.
  • The University of Michigan’s preliminary sentiment index edged up to 71 from 70.3 in August, data released Friday showed.
  • The figure trailed the median estimate of 72 in a Bloomberg survey of economists.
  • Buying conditions for household durables, homes and motor vehicles all fell to the lowest in decades.
  • Consumers expect inflation to rise 4.7% over the coming year, matching the highest since 2008.
  • The university’s gauge of current conditions fell to 77.1, the lowest since April 2020, from 78.5.
  • A measure of expectations rose to 67.1 from 65.1, according to the survey conducted Aug. 25 to Sept. 12.

Biden Warns States, Cities of Fallout From Debt Default – Bloomberg, 9/17/2021

  • President Joe Biden’s administration is warning state and local governments that the risk of a default on U.S. debt could trigger a recession and curb the flow of federal aid, as it urges Congress to raise or suspend the federal borrowing ceiling and avoid a crisis.
  • The White House said disaster relief payments, Medicaid and the children’s health insurance program, as well as funding for education, infrastructure and child nutrition could be disrupted.
  • The debt limit snapped back into place at the beginning of August, but Treasury has been using so-called extraordinary measures since then to avoid a default.
  • The administration has been urging Congress to simply raise or suspend the limit, as has been done regularly in the past, though Republicans have seized on the issue as a way to combat Biden’s domestic fiscal agenda, which includes tax increases for corporations and a series of proposed spending measures that the GOP opposes.

Used Car Prices in U.S. Rise Again in First Half of September – Bloomberg, 9/17/2021

  • Used car prices in the U.S. rose again in early September after slipping over the summer.
  • The Manheim U.S. Used Vehicle Value Index, a measure of pricing trends, increased 3.6% in the first half of September compared with a month earlier.
  • That’s the first month-over-month increase since May. The index jumped 24.9% from the same period a year ago.
  • The surge in used car prices this year amid supply chain disruptions and a rebounding economy has been a major contributor to the jump in U.S. inflation.
  • Carmakers have said production of new vehicles this fall will continue to be constrained by the chip shortage and the spread of Covid-19 in Southeast Asia.
  • General Motors said Thursday it is cutting production at six North American assembly plants due to supply shortage.

EUROPE & WORLD

Covid-19 Lockdowns in Asia Deepen Commodity Supply-Chain Pain – Wall Street Journal, 9/17/2021

  • The recent surge in Covid-19 cases in Southeast Asia has throttled ports and locked down plantations and processors, sparking extended disruptions of raw materials such as palm oil, coffee and tin.
  • Restrictions in Malaysia, the world’s second-largest producer of palm oil, have prevented migrant laborers from traveling to plantations, raising prices of the ubiquitous edible oil used to make candy bars, shampoo and biofuel.
  • Lockdowns in Vietnam, the world’s No. 2 coffee exporter by volume, have delayed the processing and export of coffee beans, adding to production concerns caused by poor weather in Brazil.
  • Vietnam’s coffee exports from January through Aug. 15 fell 8.2% from the same period last year.
  • Malaysia’s tin exports decreased 29% in June from a year earlier.

All Eyes on Turnout as Canada’s Tight Election Campaign Enters Final Days – Reuters, 9/17/2021

  • As Canada’s election race enters its final weekend, Prime Minister Justin Trudeau is redoubling efforts to motivate supporters, knowing his bid for re-election on Monday could be doomed by low turnout.
  • Recent opinion polls show Trudeau’s Liberals neck and neck with the opposition Conservatives led by Erin O’Toole, suggesting that getting out the vote will be crucial.
  • Low turnout tends to favor the Conservatives, who are traditionally better at ensuring their supporters cast ballots.
  • While Canadians voted in early polls in record numbers, demand for mail-in ballots has been far lower than expected.

Hong Kong Considers Allowing SPAC Listings – Wall Street Journal, 9/17/2021

  • Hong Kong is considering whether to allow listings of blank-check companies, potentially opening the doors to a wave of Chinese-focused deals involving special-purpose acquisition companies.
  • Proposals released Friday by Hong Kong’s stock exchange would require SPACs to raise at least 1 billion Hong Kong dollars, the equivalent of $128.5 million, in an IPO.
  • The companies would have two years to find a merger partner, and would have to conclude the merger within three years.
  • Subscription and trading of SPAC securities will be restricted to professional investors, while individual investors will be allowed to buy into stocks after the merger takes place.
  • Before merging with SPACs, companies would need to raise 15% to 25% of their expected market capitalization via a so-called PIPE, or private investment in public equity.

Universal’s New Beijing Theme Park Will Ride on U.S.-China Ties – Wall Street Journal, 9/17/2021

  • Universal Beijing Resort, a multibillion-dollar bet on Chinese consumers’ demand for Hollywood experiences, is Universal Parks & Resorts’ fifth theme park globally.
  • Opening day for the project, which includes the Universal Studios Beijing theme park and two hotels, comes 20 years after the U.S. company first signed its joint-venture agreement with Beijing, according to Chinese state media.
  • The new theme park on the outskirts of the Chinese capital offers a growth opportunity for NBCUniversal, a unit of Comcast.
  • The park’s attractions include immersive rides such as Harry Potter and the Forbidden Journey, Despicable Me Minion Mayhem and a Transformers-themed roller coaster called Decepticoaster.
  • Chinese state-owned companies own 70% of the project, while NBCUniversal holds the remaining 30% of the park.
  • China and NBCUniversal are also connected by next year’s Winter Olympics in Beijing.

Energy Price Crunch Pushes Investors in Europe to Bet on Inflation – Wall Street Journal, 9/17/2021

  • Record-breaking energy prices are driving bond investors to bet on a jump in eurozone inflation in the coming months, turning the trade bloc’s narrative of superlow price growth on its head, at least temporarily.
  • A key market-based measure of investors’ inflation expectations, a traded instrument known as a forward inflation swap, showed price rises peaking at an annual rate of 4.1% in November, nearly double the level in July and the most since 2008.
  • Natural-gas prices hit records in Europe in recent days from a combination of greater demand from the pandemic recovery and lower stores of fuel in tanks.
  • Electricity prices more than doubled in the U.K. in September at their peak and also soared in Germany, France and the Netherlands.
  • A doubling of energy prices in Europe plus the U.K. would cost consumers an extra 128 billion euros a year, equivalent to $150.6 billion, according to research by SEB.
  • Expectations for longer-term inflation in Europe, as seen in the 10-year German bund break-even rate, have been on the rise but peaked at 1.76% this week. This is still below the ECB’s target rate of 2%.

Factmonster – TODAY in HISTORY

  • The Constitution was completed and signed by a majority of the delegates attending the constitutional convention in Philadelphia. (1787)
  • The bloodiest day in U.S. military history occurred at the Battle of Antietam when more than 23,000 were killed or wounded. (1862)
  • Lt. Thomas Selfridge, a passenger in a plane piloted by Orville Wright, became the first airplane fatality when the craft crashed. (1908)
  • Heather Whitestone of Alabama became the first deaf Miss America. (1994)

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