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Daily Market Report | September 21, 2021

US FINANCIAL MARKET

U.S. Stocks Wobble After Global Market Selloff – Wall Street Journal, 9/21/2021

  • U.S. stocks pared back early gains Tuesday, struggling to rebound after fears about China’s property sector helped fuel a global selloff in stocks and commodities.
  • The Dow Jones Industrial Average was up 47 points, or 0.1%, to 34017.
  • The S&P 500 edged up 0.2% and the Nasdaq Composite was up 0.4% following the two indices’ worst one-day pullback since May.
  • Markets started the week on a tumultuous note after worries about China Evergrande Group, which has the biggest debt burden of any publicly traded real-estate management or development company in the world, prompted a rush out of relatively risky assets like stocks and commodities.
  • While Evergrande shares retreated again Tuesday, finishing close to a 10-year low, broader markets attempted to regain steadier footing.
  • Hong Kong’s Hang Seng fell as much as 1.3% earlier but then rose 0.5% by the end of the trading day.
  • Oil prices bounced higher, but then erased the entirety of the day’s gains, while Treasury yields were little changed.
  • Even those who feel stocks will be able to continue rising expect a bumpier stretch over the next few months.
  • Fed officials are set to gather Tuesday for a monetary policy meeting that will be scrutinized by investors for insight into the central bank’s plans regarding its bond purchases and interest rates.
  • Homebuilder Lennar fell 2.0% after missing analysts’ sales expectations for the latest quarter, citing supply-chain challenges that show no sign of easing.
  • U.S. Bancorp shares advanced 1.0% after the lender said it had agreed to buy MUFG Union Bank, which operates about 300 branches mainly on the West Coast, for about $8 billion.
  • Elsewhere, the pan-continental Stoxx Europe 600 index rose 0.8%.

Homebuilder Lennar warns of supply chain constraints, shares fall – Reuters, 9/21/2021

  • Lennar said on Monday it expects supply chain challenges in the homebuilding industry to continue and forecast fourth-quarter deliveries below analyst estimates, sending the No. 2 U.S. homebuilder’s shares down as much as 3.4% in after market trade.
  • The U.S. housing market has faced labor supply issues over the past several months, causing shortages of lumber and other raw materials along with a rise in construction costs, while demand for new homes has been rising.
  • Revenue rose 18.2% to $6.94 billion, above analysts’ average estimate of $6.87 billion.
  • Orders, an indicator of future revenue, rose 4.6% to 16,277 homes in the third-quarter, while deliveries increased to 15,199 units from 13,842 units.
  • Average price for homes delivered rose by 8% to $428,000.
  • Net earnings attributable to the company rose 111% to $1.41 billion, or $4.52 per share, in the quarter ended Aug. 31.
  • Lennar flagged land supply chain challenges due to delays in permit approvals, and said it expects to deliver about 18,000 homes in the fourth quarter, compared with estimates of 20,343 homes, according to Refinitiv data.

Uber Says First Adjusted Profit Possible This Quarter – Wall Street Journal, 9/21/2021

  • Uber Technologies said it could reach a measure of profitability in the current quarter, months earlier than previously expected, in what would be the ride-hailing giant’s first adjusted earnings since its inception more than a decade ago.
  • Uber projects an adjusted profit before interest, taxes, depreciation and other costs between a loss of $25 million and a profit of $25 million in the quarter that ends Sept. 30, according to a securities filing Tuesday.
  • Previously, it expected to post a loss of under $100 million by that measure in the current quarter.
  • Uber also said Tuesday that it expects to post an adjusted profit in this year’s fourth quarter.

U.S. Bancorp to Buy MUFG Union Bank for About $8 Billion – Wall Street Journal, 9/21/2021

  • U.S. Bancorp said it agreed to buy MUFG Union Bank’s core retail banking operations in an $8 billion cash-and-stock deal meant to boost the Minneapolis-based bank’s presence on the West Coast.
  • The deal, if completed, would give U.S. Bank about $664 billion in assets and solidify its status as the fifth-largest retail bank in the country.
  • U.S. Bank said the acquisition would give it the scale to compete with the largest consumer banks in California, including in the lucrative markets of Los Angeles, San Diego and the San Francisco Bay Area.
  • The purchase price includes $5.5 billion in cash and about 44 million shares of U.S. Bancorp common stock, the companies said Tuesday.
  • MUFG will hold a minority stake of about 2.9% in U.S. Bancorp after the transaction is expected to close in the first half of 2022, they added.

Google to Buy New York City Office Building for $2.1 Billion – Wall Street Journal, 9/21/2021

  • Google said it is buying a Manhattan office building for $2.1 billion, one of the clearest signals yet of big technology companies’ growing appetite for office space, even as these firms embrace remote work.
  • The deal for the new building on Manhattan’s West Side is the most expensive sale of a single U.S. office building since the start of the pandemic—and one of the priciest in U.S. history, according to data company Real Capital Analytics.
  • The acquisition of St. John’s Terminal cements Google’s status as one of Manhattan’s biggest commercial property owners.
  • The company paid $2.4 billion for the nearby Chelsea Market building in 2018 and owns 111 Eighth Ave. and the Milk Building at 450 W. 15th St.
  • Globally, Alphabet held $55.9 billion worth of land and buildings as of June 30, according to its latest quarterly filing with the Securities and Exchange Commission.

Apple Is Working on iPhone Features to Help Detect Depression, Cognitive Decline – Wall Street Journal, 9/21/2021

  • Apple is working on technology to help diagnose depression and cognitive decline, aiming for tools that could expand the scope of its burgeoning health portfolio, according to people familiar with the matter and documents reviewed by The Wall Street Journal.
  • Using an array of sensor data that includes mobility, physical activity, sleep patterns, typing behavior and more, researchers hope they can tease out digital signals associated with the target conditions so that algorithms can be created to detect them reliably, the people said.
  • Apple hopes that would become the basis for unique features for its devices, according to the people and documents.
  • The efforts spring from research partnerships that Apple has announced with the University of California, Los Angeles, which is studying stress, anxiety and depression, and pharmaceutical company Biogen, which is studying mild cognitive impairment. “Seabreeze” is Apple’s code name for the UCLA project and “Pi” is the code name for the Biogen project, according to the people and documents.

Justice Department Preparing to Challenge American-JetBlue Alliance – Wall Street Journal, 9/21/2021

  • The Justice Department is preparing to file a lawsuit challenging American Airlines’ partnership with JetBlue Airways on antitrust grounds, according to people familiar with the matter.
  • The lawsuit, which could come as soon as Tuesday, is expected to argue that the recently forged alliance threatens competition and higher fares, the people said.
  • American and JetBlue announced their alliance in July 2020, saying boosting their offerings in the Northeast by marketing one another’s flights on certain routes would allow them to become more formidable competitors at the three New York area airports and in Boston.
  • The Justice Department, however, has expressed concerns that those conditions may not fully address threats to competition, the people familiar with the matter said, including what it sees as the potential for American and JetBlue to retreat from competing vigorously with one another on routes where the two have been direct rivals.

DraftKings makes $20 billion offer for Ladbrokes owner Entain – CNBC – Reuters, 9/21/2021

  • Sports betting firm DraftKings has made a $20 billion cash-and-stock offer for British sports betting and gambling company Entain, CNBC reported on Tuesday, citing sources.
  • The offer price is roughly 2,500 pence per share, according to CNBC’s David Faber, largely in DraftKings stock along with a cash component.
  • The offer comes as U.S.-based sports betting companies seek to go global. In a transatlantic deal, Caesars Entertainment acquired Britain’s William Hill in a 2.9 billion pound deal earlier this year.
  • DraftKings, which allows users to enter daily and weekly fantasy sports-related contests, submitted an offer a few days ago, Faber said, adding that the cash-and-stock mix was unclear.

U.S. agency confirms air bag safety probe into 30 million vehicles – Reuters, 9/21/2021

  • U.S. auto safety investigators said on Tuesday they have opened a probe into 30 million vehicles built by nearly two dozen automakers that have potentially defective Takata air bag inflators.
  • The National Highway Traffic Safety Administration (NHTSA) has opened an engineering analysis into an estimated 30 million U.S. vehicles from the 2001 through 2019 model years, Reuters first reported on Sunday, citing a document that had not been made public.
  • The agency confirmed the new probe on Tuesday and said it applied to 1,384 different vehicle models.
  • Over the last decade, more than 67 million Takata air bag inflators have been recalled in the United States and more than 100 million worldwide, in the biggest auto safety callback in history prompted by concerns the inflators could explode and, in rare instances, send deadly metal fragments flying.

US ECONOMY & POLITICS

Multi-family housing segment boosts U.S. homebuilding in August – Reuters, 9/21/2021

  • U.S. homebuilding increased more than expected in August, but sustained weakness in single-family projects suggested builders continued to struggle with higher input costs as well as labor and land shortages.
  • Housing starts advanced 3.9% to a seasonally adjusted annual rate of 1.615 million units last month, the Commerce Department said on Tuesday. Data for July was revised up to a rate of 1.554 million units from the previously reported 1.534 million units.
  • Single-family starts, which account for the largest share of the housing market, dropped 2.8% to a rate of 1.076 million units. That was the second straight monthly decline.
  • Starts for buildings with five units or more soared 21.6% to a rate of 530,000 units. The multi-family housing segment is being boosted by demand for rentals as COVID-19 vaccinations allow companies to recall workers to offices in city centers.
  • Permits for future homebuilding rose 6.0% to a rate of 1.728 million units in August. Single-family permits gained 0.6% to a rate of 1.054 million units. Permits for buildings with five units or more jumped 19.7% to 632,000.

U.S. current account deficit widens to 14-year high in second quarter – Reuters, 9/21/2021

  • The U.S. current account deficit increased to a 14-year high in the second quarter as businesses boosted imports to replenish depleted inventories amid robust consumer spending.
  • The Commerce Department said on Tuesday the current account deficit, which measures the flow of goods, services and investments into and out of the country, rose 0.5% to $190.3 billion last quarter.
  • That was the largest shortfall since the second quarter of 2007.
  • Data for the first quarter was revised to show a $189.4 billion gap, instead of $195.7 billion as previously reported.
  • The current account gap represented 3.3% of gross domestic product last quarter. That was down from 3.4% in the January-March quarter.
  • Imports of goods increased $29.0 billion to $706.3 billion, primarily reflecting an increase in industrial supplies and materials, mostly petroleum products as well as metals and nonmetallic products.
  • Exports of goods rose $28.3 billion to $436.6 billion, lifted by industrial supplies and materials such as petroleum products.
  • Imports of services increased $9.1 billion to $127.8 billion, mostly reflecting increases in sea freight and air passenger transport as well as other personal travel.
  • Exports of services increased $7.6 billion to $189.1 billion. They were driven by personal travel.

Democrats Add Debt Limit to Spending Measure, Sparking Showdown With GOP – Wall Street Journal, 9/21/2021

  • Democratic leaders said Monday they would attach a suspension of the debt limit through December 2022 to a short-term spending bill, setting up a clash with Republicans over preventing both a partial government shutdown and a potential default on U.S. debt.
  • The House is expected to vote on the combined measure this week, but GOP opposition in the Senate cast uncertainty over how and when lawmakers will act to prevent the federal government from running out of cash.
  • Many Republicans said Monday they wouldn’t supply any votes for an effort to raise the government’s borrowing limit in protest to Democrats’ plans to move trillions of dollars in new spending through Congress.
  • Raising the debt limit doesn’t authorize new spending, but rather allows the Treasury Department to issue new debt to cover spending that Congress already has authorized, including payments to bondholders, Social Security recipients and veterans.

Fed Faces Calls to Remove Officials Over Trades They Made While Setting Policy – Wall Street Journal, 9/21/2021

  • Two advocacy groups said two senior Federal Reserve officials who traded stocks and other investments while setting monetary policy should lose their jobs, while a former senior Fed adviser said one of the men should be fired and the other should take leave pending an investigation.
  • Federal Reserve Bank of Dallas President Robert Kaplan Federal Reserve Bank of Boston leader Eric Rosengren actively traded in markets in 2020, a year dominated by major Fed interventions to help save the economy during the coronavirus pandemic, according to financial disclosure forms recently made available by their banks.
  • The Fed said after the disclosures it would review its rules around trading rules by officials.
  • Better Markets, a group that pushes for tighter financial regulation; the left-leaning Center for Popular Democracy’s Fed Up campaign; and Andrew Levin, a former top Federal Reserve staff member and now a professor at Dartmouth College, are calling for the Fed to take action against Messrs. Kaplan and Rosengren.
  • “It’s time for the Fed to do what leaders are supposed to do:  Lead by example,” Better Markets president and chief executive officer Dennis Kelleher wrote in a letter sent to Fed Chairman Jerome Powell Tuesday.

Biden Addresses U.N. General Assembly as Some U.S. Alliances Face Strain – Wall Street Journal, 9/21/2021

  • President Biden outlined a U.S. foreign-policy vision rooted in diplomacy and global alliances during his first address to the United Nations as commander-in-chief, calling for a shift away from armed conflict after two decades of war in Afghanistan and the Middle East.
  • At a moment when some U.S. alliances are facing strain, Mr. Biden made the case that the biggest issues facing the world—from the coronavirus pandemic to climate change—can only be solved with cooperation among countries with varying national interests.
  • In recent weeks, Mr. Biden has faced criticism both at home and abroad for how the U.S. withdrew troops from Afghanistan as well as a drone strike that mistakenly killed Afghan civilians.
  • The Biden administration has been working to shift international focus to Asia and counter China’s global influence.
  • Mr. Biden will convene a summit Friday with the leaders of Australia, India and Japan—an alliance called the Quad—and hold one-on-one meetings with the countries’ leaders.

EUROPE & WORLD

UK manufacturing orders gauge hits record high in September: CBI – Reuters, 9/21/2021

  • A record share of British manufacturers reported rising new orders this month but global supply chain problems and labour shortages held back growth in output, a survey showed on Tuesday.
  • The Confederation of British Industry’s monthly manufacturing order book balance rose to +22 in September from +18 in August, its highest level since records started in 1977.
  • Still, the picture was weaker for export orders – which grew at their fastest since March 2019 – and the survey’s gauge of output growth fell to its lowest level since April.
  • The survey’s gauge of price expectations cooled to a four-month low, but CBI deputy chief economist Anna Leach warned manufacturers still faced rocketing energy prices.

Evergrande Declines Further After S&P Says Default Is Likely – Bloomberg, 9/21/2021

  • China Evergrande Group slid deeper in equity and credit markets Tuesday, fueling concerns about broader contagion after S&P Global Ratings said the developer is on the brink of default.
  • The distressed developer’s shares in Hong Kong dropped as much as 7% before finishing down just 0.4%, still settling near a 10-year closing low.
  • Its 8.25% dollar bond due 2022 fell 0.3 cent to 24.9 cents, leaving it down some 75% since late May. The junk-rated company is the biggest issuer of high-yield notes in Asia.
  • “We believe Beijing would only be compelled to step in if there is a far-reaching contagion causing multiple major developers to fail and posing systemic risks to the economy,” according to an S&P report dated Sept. 20. “Evergrande failing alone would unlikely result in such a scenario.”
  • Chinese authorities previously told major lenders not to expect repayment of interest on bank loans due this week. Interest also comes due Thursday on two of the developer’s bonds.

House prices a persistent pressure on euro zone inflation, ECB study shows – Reuters, 9/21/2021

  • House prices, now excluded from euro zone inflation data, would have persistently raised consumer prices in recent years, a study published by the European Central Bank showed on Tuesday, highlighting policymakers’ unease with the current indicator.
  • Once corrected for housing costs, euro zone inflation would have hit or even exceeded the ECB’s target some years, even as the bank was providing extraordinary stimulus to raise prices, figures from the study showed.
  • The paper, part of the ECB’s recent strategy review, concluded that housing costs would have led to “persistently higher” inflation since around 2014 and between 2018 and 2020, inflation would have been around 0.2-0.3 percentage points higher.
  • Although the ECB does not calculate inflation data, it said in July that it would consider estimates on the cost of owner-occupied housing on inflation until Eurostat, the EU’s statistics agency, fixes the broader measure.
  • Over two decades, however, the adjusted inflation figure would have been little different, the study argued, as housing costs could have been a drag on prices.

Canada’s Justin Trudeau Headed for Victory but No Majority – Wall Street Journal, 9/21/2021

  • Canadian Prime Minister Justin Trudeau was headed toward a third straight electoral victory Tuesday morning, although his bet that a snap vote would help him secure a majority government failed to materialize.
  • Both Canada’s CTV Network and the Canadian Broadcasting Corp. projected the incumbent Liberal Party was set to win enough seats in parliament to form a minority government.
  • As of Tuesday morning, the Liberals were leading in 158 electoral districts, short of the 170 needed for a majority in parliament. The Conservative Party, led by Erin O’Toole, was running second with 119 seats.
  • The results are based on over 98% of polls reporting. In 2019 national vote, the Liberals won 157 seats and the Conservative Party 121.

Europe’s low-cost carriers to drive jet demand over next 20 yrs -Boeing – Reuters, 9/21/2021

  • Planemaker Boeing said that European low-cost carriers would help drive demand for new aircraft in the region over the next 20 years, as airlines replace their ageing fleets with more fuel-efficient jets.
  • Boeing said on Tuesday that it expects airlines in Europe to order 7,100 new single-aisle planes, usually used for short haul trips, between now and 2040, with low-cost specialists like Ryanair behind that demand.
  • In fact, Europe’s demand for planes will be even more strongly driven by low-cost carriers than elsewhere in the world, said Boeing vice president, commercial marketing Darren Hulst.
  • “Globally our forecast in general is about 40% of single aisle demand is low-cost carrier, and I would say you could argue in this European space that number would be slightly higher,” he told a press briefing.

Lebanon’s Inflation Rises to Highest Globally as Crisis Deepens – Bloomberg, 9/21/2021

  • Lebanon’s annual rate of inflation has risen to the highest of all countries tracked by Bloomberg, surpassing Zimbabwe and Venezuela, as the financial meltdown in the Middle East nation worsens.
  • The consumer price index rose to 137.8% from a year earlier in August, compared with 123.4% in July, according to the Lebanon Central Administration of Statistics. Consumer prices rose 10.25% from a month earlier while food prices rose 20.82%.
  • The currency has lost nearly 90% of its value and plunged three quarters of residents into poverty.

Factmonster – TODAY in HISTORY

  • The Hobbit by J.R.R. Tolkein was first published. (1937)
  • A hurricane struck New York and New England with extensive damage and more than 600 deaths. (1938)
  • The People’s Republic of China was proclaimed. (1949)

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