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Daily Market Report | September 22, 2021

US FINANCIAL MARKET

U.S. Stocks Rise as Investors Await Fed Decision – Wall Street Journal, 9/22/2021

  • U.S. stocks bounced higher Wednesday, shaking off the volatility that gripped the market earlier this week, as concerns over property developer China Evergrande Group started to ease and investors awaited an update from the Federal Reserve on its plans to dial back stimulus.
  • Markets have been put on edge this week by trouble in the Chinese property market, especially the precarious situation of its largest builder of homes, Evergrande. The company is a massive issuer of debt both inside China and offshore to international investors.
  • Many fear its collapse could spread financial pain far and wide—a concern that on Monday sent stocks tumbling across the globe.
  • The Evergrande concerns come at a time when investors are already nervous, due to signs that the U.S. economy’s growth is slowing, the continuing spread of the Delta variant of the coronavirus and the potential that the Fed will dial back its support to financial markets.
  • Fed officials are due to release a statement at 2 p.m. ET, followed by a press conference.
  • However, expectations that Fed Chairman Jerome Powell could use the occasion to mark the scaling back of the pace of bond purchases this year have waned due to Evergrande fears and concerns over the pace of the U.S. labor market recovery, money managers say.
  • In the U.S. market, Wednesday’s gains were led by the energy sector, extending the group’s recent outperformance.
  • Occidental Petroleum, Diamondback Energy and Marathon Oil each gained more than 4%.
  • FedEx shares fell 8.4% after the delivery giant spent an additional $450 million due to problems attracting workers in its latest quarter, contributing to an 11% drop in profit.
  • Shares of Adobe declined 3.5%, despite the software company reporting higher profit and record revenue in the latest period.
  • Throughout Wednesday, signals from the Fed will be closely watched by bond markets.
  • The yield on the 10-year Treasury note rose to 1.324% Wednesday, from 1.323% Tuesday. Yields rise when prices fall.
  • The pan-continental Stoxx Europe 600 added 0.9%.
  • Shares of Entain jumped 6.2% in London trading after the company said it was considering an improved takeover bid from DraftKings, after rejecting an earlier offer from the U.S. digital sports-betting and entertainment company.

Adobe Falls After Upbeat Forecast Fails to Impress Investors – Bloomberg, 9/22/2021

  • Adobe dropped about 4% in extended trading after a strong sales outlook for the current period failed to impress investors who have pushed up the stock almost 30% this year.
  • In the fiscal third quarter, sales gained 22% to $3.94 billion and profit, excluding some items, was $3.11 a share.
  • Analysts, on average, estimated revenue of $3.89 billion and adjusted profit of $3.01 a share.
  • Revenue from digital media jumped 23% to $2.87 billion in the period ended Sept. 3.
  • Sales in digital experience increased 26% to $985 million.
  • Revenue will be about $4.07 billion in the fiscal fourth quarter, the San Jose, California-based company said Tuesday in a statement. Profit, excluding some items, will be about $3.18 a share.
  • Analysts, on average, projected sales of $4.04 billion and earnings of $3.08 a share, according to data compiled by Bloomberg.
  • Revenue from digital media will increase about 20% and digital experience will jump 22% in the fiscal fourth quarter, Adobe said. Both projections topped analysts’ estimates.

FedEx Earnings Reflect Labor Shortage, Supply-Chain Woes – Wall Street Journal, 9/22/2021

  • FedEx cut its financial outlook as labor shortages caused expenses to soar in the latest quarter and shipping demand unexpectedly slowed due to supply-chain disruptions.
  • The delivery giant on Tuesday posted an 11% drop in profit for the quarter ended Aug. 31 as the tight labor market added $450 million to costs, including increased overtime, higher wages to attract workers and extra spending on transportation.
  • Revenue rose 14% to $22 billion.
  • For its August-ended fiscal first quarter, FedEx posted income of $1.1 billion, or $4.09 a share, compared with $1.25 billion, or $4.72 a share, a year earlier. Excluding some restructuring and integration expenses, per-share earnings were $4.37 in the period.
  • Analysts recently polled by FactSet expected the company to post per-share earnings of $4.88 on $21.9 billion in revenue.
  • Across its divisions, salaries and employee benefit expenses in the latest quarter rose 13%, including 27% in its Ground division.
  • Meanwhile, growth in shipping volumes, which surged during the pandemic and ensuing boom in e-commerce, has slowed significantly.
  • FedEx is now forecasting per-share earnings before certain accounting adjustments of between $18.25 and $19.50 for the fiscal year that started in June, down from a prior forecast of $18.90 to $19.90 issued in July.

General Mills Posts Higher Sales Amid Inflation, Supply-Chain Pressures – Wall Street Journal, 9/22/2021

  • General Mills posted higher sales for the latest quarter, though gross margin fell due to inflation and higher supply-chain costs.
  • The maker of grocery staples like Cheerios, Häagen-Dazs and Betty Crocker on Wednesday said net sales for the three months that ended Aug. 29 rose 4% to $4.54 billion, beating expectations of analysts polled by FactSet.
  • Gross margin, however, fell 1.2 percentage points to 35.2% of net sales as the Minneapolis-based company wrestled with supply-chain pressures and higher input costs.
  • General Mills posted net income attributable to the company of $627 million for the fiscal first quarter, compared with $638.9 million in the same period last year. Profit fell as selling, general and administrative expenses rose.
  • General Mills in June said it was raising prices across nearly all its grocery categories around the world as it faced its highest costs in a decade.

Stitch Fix shares surge as online styling service reports surprise profit – CNBC, 9/22/2021

  • Stitch Fix shares jumped 14% in extended trading Tuesday after the online shopping and styling service reported a surprise profit for its fiscal fourth quarter.
  • Revenue grew to $571.2 million from $443.4 million a year earlier. That was better than analysts’ expectations for $548 million.
  • Stitch Fix reported nearly 4.2 million active clients, up 18% from a year earlier.
  • The company said net revenue per active client was $505, surpassing the $500 threshold for the first time ever.
  • Net income attributable to shareholders was $28 million, or 19 cents per share, in the latest period.
  • A year ago, it posted a net loss of $44.5 million, or 44 cents a share.
  • Analysts had been looking for the company to book a loss of 13 cents per share.
  • For its fiscal first quarter, Stitch Fix said it sees sales in a range of $560 million to $575 million.
  • That’s below analysts’ expectations for $588 million.
  • For the upcoming fiscal year, Stitch Fix anticipates sales rising 15% or more from the prior year.
  • Analysts polled by Refinitiv had been looking for an 18% increase.

Disney’s Chapek says program production delayed as Delta variant spreads – Reuters, 9/22/2021

  • Walt Disney Chief Executive Officer Bob Chapek said on Tuesday the resurgence of the Delta variant of the coronavirus was delaying production of some of its titles.
  • Shares in the company, which has been hit hard by the coronavirus pandemic as theme parks and movie theaters were forced to shut down, fell about 3% after Chapek’s statement.
  • “Our TV group has hundreds of new programs in production … but the resurgence of COVID and Delta did impact some of our productions so that we’ve got a lighter product quarter in Q4 than we might have expected,” Chapek said at the Goldman Sachs Communacopia Conference.
  • Chapek said the company was still “very bullish and confident” about its long-term subscription growth, but there could be “a little bit more noise” than was expected.

GM president: Global chip supplies to stabilize at lower-than-desired levels – Reuters, 9/22/2021

  • General Motors’ president said on Tuesday the global supply of semiconductor chips will begin to stabilize but at lower levels than the auto industry wants as it tries to rebuild vehicle inventories.
  • “We’re going to see a stabilization to some extent before we see getting the volume we really need,” Mark Reuss said at a conference hosted by the Detroit Regional Chamber on Mackinac Island in northern Michigan.
  • GM Chief Financial Officer Paul Jacobson said last week GM expects a “more stable year” in 2022 for chip suppliers, but warned third-quarter wholesale deliveries could be down by 200,000 vehicles due to the shortage.
  • GM in July said it was investing in a U.S. lithium project that could become the country’s largest by 2024, making the No. 1 U.S. automaker one of the first to develop its own source of a battery metal needed for EVs.

Macy’s to hire 76,000 workers for holiday shopping season – Reuters, 9/22/2021

  • Macy’s said on Tuesday it plans to hire about 76,000 full- and part-time workers at its stores, call centers and warehouses ahead of this year’s holiday season, indicating a return to pre-pandemic levels of hiring.
  • Earlier this month, Walmart said it planned to hire 20,000 workers at its supply chain division ahead of the holiday season, which starts a day after Thanksgiving and continues into early January.
  • Macy’s said about 48,000 of the new roles this year were specifically for the holiday season, while the remaining were for permanent positions beyond the holidays.
  • About 21,200 roles are for the its fulfillment centers.

Zoom’s Nearly $15 Billion Deal for Five9 Under U.S. Government Review Over China Ties – Wall Street Journal, 9/22/2021

  • A Justice Department-led panel is investigating Zoom Video Communications’ deal to buy an American customer-service software company, citing potential national-security risks posed by the U.S. videoconferencing giant’s China ties.
  • The department said the interagency committee—known as Team Telecom—needed to review a license application that arose from the San Jose, Calif.-based company’s nearly $15 billion deal to buy Five9 to see if it “poses a risk to the national security or law enforcement interests” of the U.S., according to a letter posted on the Federal Communications Commission website.
  • The department said there could be a risk from “the foreign relationships and ownership” associated with the application.
  • The U.S. government has been ramping up its scrutiny of Zoom’s China ties.
  • The Justice Department last year charged one of its China-based executives with conspiring to disrupt videoconference commemorations of the Tiananmen Square democracy protests.
  • Zoom is also facing multiple ongoing federal investigations related to its dealings with Beijing.

Netflix to Buy Roald Dahl Catalog, Adding ‘Charlie and the Chocolate Factory’ to Its Stable – Wall Street Journal, 9/22/2021

  • Netflix said it has agreed to buy the Roald Dahl Story Co., adding popular children’s stories like “Charlie and the Chocolate Factory” and “Matilda” to its stable as it looks to stock up on content amid rising competition in the streaming business.
  • The streaming giant said Wednesday that by acquiring the U.K.-based company, which controls the rights to the author’s stories and characters like “Fantastic Mr. Fox,” “The Twits” and “The BFG,” it aimed to produce animated and live-action films and TV shows.
  • It also said it could produce games, live theater and consumer products based on Mr. Dahl’s creations.
  • The deal adds source material with proven cross-generational, mass appeal to the Netflix stable, with over 300 million of Mr. Dahl’s books sold globally. Financial terms of the deal, which is subject to regulatory approval, weren’t disclosed.

Workhorse Shares Sink After It Halts Electric Van Deliveries – Bloomberg, 9/22/2021

  • Workhorse Group shares plunged on Wednesday to their lowest since May after the embattled electric-vehicle maker said it will suspend deliveries of its vans and recall units it has already delivered.
  • The electric van, called the C-1000, would require additional testing and modifications to existing vehicles in order to certify them under federal motor vehicle safety standards, the company said in a statement.
  • Workhorse has also identified several enhancements in the production process and design of the vehicles to address customer feedback, which is mainly related to increasing the payload capacity.
  • Workhorse, which will be recalling 41 vehicles already delivered, expects to complete testing in the fourth quarter.

US ECONOMY & POLITICS

Hot U.S. Housing Market Cooled Some in August – Wall Street Journal, 9/22/2021

  • The turbocharged housing market started to slow in August, as buyers took a step back from what has been a competitive and expensive time to buy a home.
  • Existing-home sales slipped 2% in August from the prior month to a seasonally adjusted annual rate of 5.88 million, the National Association of Realtors said Wednesday. August sales fell 1.5% from a year earlier.
  • Though prices remain near record highs, the pace of price growth is slowing.
  • The median existing-home price rose 14.9% in August from a year earlier, NAR said, to $356,700.
  • That is down from a nearly 18% increase the prior month.
  • Many homes are still selling above listing price and receiving multiple offers.
  • The typical home sold in August was on the market for 17 days, unchanged from the prior month, NAR said.
  • Sales were especially strong at the high end of the market. Sales of homes that were priced at more than $1 million rose 40% in August compared with a year earlier, according to NAR.
  • But the share of home listings with a price cut rose for the fourth straight month, to 12.3% in August, according to Zillow.
  • Home-price growth slowed in August compared with July in 43 of the country’s 50 biggest metro areas, Zillow said.
  • There were 1.29 million homes for sale at the end of August, down 1.5% from July and down 13.4% from August 2020. At the current sales pace, there was a 2.6-month supply of homes on the market at the end of August.

Infrastructure Plan Faces Fresh Uncertainty as Democrats Remain Divided – Wall Street Journal, 9/22/2021

  • Persistent divisions among Democrats over the size of their climate and social-welfare plan are threatening to derail much of President Biden’s agenda, as progressives signal that they could block passage of a roughly $1 trillion infrastructure package next week.
  • Progressive Democrats, leery of giving up political leverage, have maintained that they won’t vote for the infrastructure bill until the broader $3.5 trillion bill has been passed through Congress.
  • Given the continuing disagreements over its size, it will likely still be weeks before negotiations on that larger bill will be complete, raising the prospect of Democrats voting down one of Mr. Biden’s legislative priorities next week.
  • Opposition to the $3.5 trillion price tag is so great among some moderate Democrats that they have indicated they would prefer that both it and the infrastructure bill fail rather than approve a package of that size, according to a Democratic aide.
  • Those moderates are open to approving a smaller social-welfare and climate bill, the aide said.
  • Sen. Joe Manchin (D., W.Va.), a critical centrist in the 50-50 Senate, has floated a top-line of roughly $1 trillion or $1.5 trillion, while Sen. Kyrsten Sinema (D., Ariz.) has said she would oppose a $3.5 trillion bill.
  • Progressives see holding up the infrastructure bill as a way to put pressure on moderates to support the $3.5 trillion plan.
  • Rep. Pramila Jayapal (D., Wash.), the chairwoman of the Congressional Progressive Caucus, said little short of passage of the bill in the Senate would be sufficient to persuade progressives to trust that moderates would ultimately support the climate and antipoverty bill.

Debt-Limit Suspension Passes House, Faces Standoff in Senate – Wall Street Journal, 9/22/2021

  • The House passed Tuesday a measure keeping the government funded until early December and suspending its borrowing limit through 2022, but without having resolved the partisan standoff poised to derail it in the Senate.
  • With less than two weeks before the government’s current funding expires at 12:01 a.m. Oct. 1, the House passed in a 220-211 party-line vote a package unveiled earlier in the day that would fund the government through Dec. 3, 2021, and suspend the debt limit through Dec. 16, 2022.
  • The Senate is expected to vote on the measure either later this week or early next, according to aides.
  • The White House said in a statement Tuesday night it supported the bill.
  • Republicans have said they oppose voting to increase the debt ceiling in protest against the trillions in spending Democrats are trying to pass in Congress without GOP support.

Liz Cheney’s Re-Election Bid Pits Trump Against Bush – Wall Street Journal, 9/22/2021

  • The race for Wyoming’s single U.S. House district has pitted two of the biggest names in Republican politics against one another: both of the party’s living former presidents.
  • Former President George W. Bush’s first campaign event of the 2022 midterms will be a fundraiser to support Rep. Liz Cheney, the Wyoming Republican who is among former President Donald Trump’s top targets to unseat.
  • Ms. Cheney is a daughter of Mr. Bush’s vice president, Dick Cheney, and is one of the most outspoken critics of Mr. Trump, whom she has blamed for instigating the riot in the U.S. Capitol on Jan. 6, when his supporters attempted to block certification of the 2020 election results.
  • Mr. Bush’s fundraiser for Ms. Cheney would come five weeks after he urged the nation to confront the threat of domestic terrorism during his speech commemorating the 20-year anniversary of the Sept. 11 attacks.

EUROPE & WORLD

China Evergrande’s Flagship Business Resolves an Onshore Bond Payment – Wall Street Journal, 9/22/2021

  • Embattled China Evergrande Group’s flagship property business said it would make an interest payment on an onshore bond, giving the highly indebted conglomerate more time to work out what investors expect will be a lengthy and complicated restructuring.
  • Hengda Real Estate Group Co., the biggest unit of the giant conglomerate, said Wednesday it negotiated privately with holders of an onshore bond to settle a 232 million yuan (equivalent to $35.9 million) coupon payment that is due Thursday.
  • The five-year bond has a 4 billion yuan principal value, and matures in September 2025. A fresh test comes Thursday when an interest payment on a bond denominated in dollars is due.
  • The company didn’t say whether it would pay bondholders in cash or other assets. In a regulatory filing, Hengda said it has “negotiated a resolution via off-market means” for the onshore bond’s coupon payment.

Ant to Fully Share Consumer Credit Data With China’s Government – Wall Street Journal, 9/22/2021

  • Credit data generated by Ant Group’s popular consumer lending service will be fully integrated into a government credit-reporting system, a significant step in a continuing effort to bring the financial-technology giant into line with Chinese regulators’ priorities.
  • Ant’s service Huabei, which means “just spend” in Mandarin and functions like a virtual credit card, said in a social media post Wednesday that “is advancing with its orderly inclusion into the financial credit information database held by the Credit Reference Center of the PBOC,” referring to the People’s Bank of China, the country’s central bank.
  • The post said Huabei users will be asked to authorize sharing of credit information with the PBOC system.
  • Those who opt out won’t be able to use Huabei’s service.
  • Information such as account setup dates, credit line amounts and repayment status will be reported to the central bank’s database on a monthly basis.
  • Huabei said it won’t share specific transaction information, including about what people purchased and when.

OPEC Nations Warn of Oil Market Turbulence From Gas Crisis – Bloomberg, 9/22/2021

  • As the global natural gas crunch hits suppliers and consumers alike, OPEC nations are warning of the knock-on impact for oil markets.
  • Iraq expects higher demand for crude as the shortfall of gas forces consumers to look for alternative fuels, Oil Minister Ihsan Abdul Jabbar said on Wednesday. The head of Nigeria’s state oil firm, Mele Kyari, predicted that petroleum demand could be boosted by 1 million barrels a day, with prices potentially gaining $10 a barrel over the next six months.
  • Goldman Sachs Group Inc. says that a cold winter could overwhelm the oil market’s capacity to make up for missing gas supplies, resulting in a price spike with repercussions for the economy.
  • Almost 2 million barrels of oil a day could be needed for a mixture of power generation and industrial purposes, the bank said.
  • In such an extreme scenario, the Organization of Petroleum Exporting Countries and its partners could benefit handsomely, as they still have plenty of crude supplies shuttered when the pandemic struck last year.
  • It could be a particularly golden opportunity for Baghdad, which is eager to maximize sales after being hobbled by years of conflict.

Factmonster – TODAY in HISTORY

  • Nathan Hale was hanged by the British as a spy during the Revolutionary War. (1776)
  • The French Republic was proclaimed. (1792)
  • President Abraham Lincoln issued the preliminary Emancipation Proclamation, proposing to free all slaves of rebel states as of Jan. 1, 1863. (1862)
  • The Persian Gulf conflict between Iran and Iraq erupted into full-scale war. (1980)

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