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Daily Market Report | September 30, 2021

US FINANCIAL MARKET

Stocks Wobble but Stay on Track for Quarterly Gains Despite Recent Selloff – Wall Street Journal, 9/30/2021

  • U.S. stocks wavered Thursday, on pace to end the volatile month of September on a choppy note.
  • All three major indexes started the day higher but wobbled as the session continued.
  • The S&P 500 recently hugged the flat line after swinging between small gains and losses.
  • The Dow Jones Industrial Average lost about 150 points, or 0.4%.
  • The technology-heavy Nasdaq Composite, in contrast, climbed 0.5%.
  • After a long stretch of gains for the U.S. stock market this year, September was the month when percolating investor anxiety finally came to a head, forcing all three major indexes lower.
  • The S&P 500 has fallen 3.6% month-to-date, on pace for its worst monthly loss since last September.
  • The Dow Jones Industrial Average is down 3.2% for the month, while the Nasdaq Composite has lost 4.5%.
  • The expectation for interest-rate increases and higher inflation—also reflected in rising oil and commodities prices—has led some investors to sell government bonds, whose yields have been near historically low levels.
  • The selloff cooled Thursday, with the yield on the benchmark 10-year Treasury note ticking down to 1.532% from 1.540% Wednesday. Yields and prices move inversely.
  • Meanwhile, data out Thursday showed that the number of Americans who applied for first-time unemployment benefits in the week ended Sept. 25 edged up to 362,000, from 351,000 the week prior.
  • Futures for Brent crude, the benchmark in international energy markets, fell 1% to $77.33 a barrel.
  • Overseas, the pan-continental Stoxx Europe 600 edged up 0.1%.
  • Indexes in Asia closed with a mixed performance Thursday. China’s Shanghai Composite added 0.9%, and South Korea’s Kospi edged up 0.3%. Hong Kong’s Hang Seng declined 0.4%.
  • Concerns over Chinese growth and the resilience of its property sector have also weighed on global sentiment this quarter.

Bed Bath & Beyond Shares Drop After Sales Fall – Wall Street Journal, 9/30/2021

  • Bed Bath & Beyond said sales declined 26.2% in the latest quarter because of supply-chain challenges and fewer people coming to its stores in August amid the spread of the Delta variant.
  • Net sales for the fiscal second quarter fell to $1.98 billion from $2.69 billion in the same period last year as traffic slowed in August.
  • Bed Bath & Beyond posted a net loss of $73.2 million for the quarter, compared with a profit of $217.9 million.
  • Adjusted earnings were 4 cents a share, lower than the 52 cents a share analysts polled by FactSet had expected.
  • Cost inflation also escalated beyond the significant increases the company had already anticipated, especially later in the quarter, President and Chief Executive Mark Tritton said. He said challenges in the company’s operating environment were particularly evident in key states such as Florida, Texas and California, all of which make up a substantial portion of sales.
  • The retailer on Thursday also lowered its sales and adjusted profit expectations for the year as it anticipates greater supply-chain challenges.
  • The company now expects its fiscal 2021 sales to be between $8.1 billion and $8.3 billion, down from its prior outlook of $8.2 billion to $8.4 billion. It expects adjusted earnings of 70 cents a share to $1.10 a share, compared with its previous expectation of $1.40 a share to $1.55 a share.
  • Bed Bath & Beyond said it expects comparable sales of flat to up slightly for the second through fourth quarters. It previously expected low single-digit growth for the same period.

U.S. Frackers Fear Vaccine Mandate Will Worsen Worker Crunch – Wall Street Journal, 9/30/2021

  • American frackers, already struggling to hire enough workers, are concerned that the coming U.S. vaccine mandate will worsen the situation at a time of rising oil and gas prices.
  • Many of the truckers, rig hands and roustabouts who used to work in Texas and other oil patch regions found other jobs after crude prices crashed last year during the onset of the pandemic.
  • Oil-field service companies, which employ most of the ground-level workers who drill and finish wells, say many remaining employees are skeptical about Covid-19 vaccination, and some have warned they would quit before getting shots.
  • Ann Fox, chief executive of Nine Energy Service Inc., an oil-field service company active across the U.S., said she is worried that it could lose a portion of its workforce of 818, most of which are field-level employees.
  • “It places all of us in leadership positions in tremendously complex situations,” Ms. Fox said, estimating that less than 15% of the company’s field-level workers are vaccinated.
  • In Midland County, Texas, the heart of the Permian basin, the most active U.S. oil field, about 46% of eligible people have been fully vaccinated, according to the Texas Department of State Health Services, compared with the state’s overall rate of 61.5%.
  • Nationwide, 65% of eligible people are fully vaccinated, according to the Centers for Disease Control and Prevention.

Car Companies Buckle Up for Extended Chip Shortage – Wall Street Journal, 9/30/2021

  • The global chip shortage has slammed the auto sector this year, cutting factory output by several million vehicles and erasing billions in revenue for car companies.
  • Now, there is an emerging view that the chip shortage has morphed from a short-term crisis into a structural upheaval for the automotive supply chain that could take years to fully overcome.
  • Peter Anthony, chief executive of a Chicago-area supplier, recently cut his volume projections for the first half of next year by 20%.
  • That estimate is an informed guess, though, because his customer orders change day-to-day based on chip availability, he said.
  • The latest indication that the chip-shortage challenges aren’t over is expected to come Friday, when major car companies report third-quarter U.S. sales.
  • Analysts expect a steep drop in third-quarter sales, following a strong spring, as the lack of semiconductors dents vehicle production and leaves dealership lots with little to no stock.

Merck to Buy Acceleron Pharma for $11.5 Billion – Wall Street Journal, 9/30/2021

  • Merck has agreed to buy Acceleron Pharma for $11.5 billion, bolstering the pharmaceutical giant’s rare-disease business.
  • The cash deal values Acceleron at $180 a share, the companies said Thursday.
  • The deal is one of Merck’s biggest and represents a bet on treatments for respiratory and blood diseases that Acceleron specializes in.
  • Acceleron’s crown jewel is an experimental drug for pulmonary arterial hypertension, a disease caused by high pressure in the blood vessels leading from the heart to the lungs. The condition leads to less oxygen in the blood.

Facebook’s Efforts to Attract Young Users Come Under Senate Scrutiny – Wall Street Journal, 9/30/2021

  • Facebook’s efforts to expand its reach among young people will attract scrutiny Thursday by members of the Senate Commerce Committee, who want to know more about the social-media giant’s research into how its products affect children.
  • The inquiry comes after Wall Street Journal reporting showing Facebook’s internal research found that its Instagram app was harmful for a sizable share of its millions of young users.
  • Lawmakers want to find out how Facebook executives responded when presented with the research, which concluded that photos and videos shared on Instagram made body image issues worse for a substantial minority of teen girls and that teens “blame Instagram for increases in the rate of anxiety and depression.”

Lordstown Motors in talks to sell Ohio plant to Foxconn -Bloomberg – Reuters, 9/30/2021

  • Electric vehicle startup Lordstown Motors is in talks to sell the northeast Ohio assembly plant it acquired from General Motors to Taiwan contract manufacturer Foxconn, Bloomberg reported on Thursday.
  • Lordstown and Foxconn are set to announce the deal as soon as this week, Bloomberg reported, citing unnamed people familiar with the matter.
  • Lordstown had previously said it was in talks to build vehicles for other automakers or lease space in its factory.
  • Lordstown uses only 30% of the plant’s 6.2 million square feet.
  • Lordstown faces probes by federal prosecutors in Manhattan and the U.S. Securities and Exchange Commission related to its merger with a special-purpose acquisition company (SPAC) and statements it previously made about preorders for its vehicles.

Pandemic recovery fuels deal craze as third-quarter M&A breaks all records – Reuters, 9/30/2021

  • Global mergers and acquisitions hit new record highs in the third quarter as companies and investors shaped their post-COVID future through transformative deals while their advisers struggled to cope with transaction volumes never seen before.
  • A frantic summer of merger activity produced deals worth $1.52 trillion in the three months to Sept. 27, up 38% from the same quarter last year and more than any other quarter on record, according to Refinitiv data.
  • Third-quarter volumes drove global M&A activity in the first nine months of 2021 to an unprecedented record of $4.33 trillion, overtaking an all-time annual peak of $4.1 trillion hit before the financial crisis in 2007 and forcing investment banks to hike pay for overworked and disgruntled junior staff.
  • Third-quarter volumes doubled in Europe with $473 billion worth of M&A deals compared with the same quarter last year while the United States was up 32% to $581 billion and Asia Pacific rose 21% to $365 billion.
  • Private equity buyouts surged 133% to $818 billion in the first nine months of the year as investment firms rushed to deploy cash, often paying rich prices to take assets off the public markets.

US ECONOMY & POLITICS

U.S. Jobless Claims Rise Slightly in Tight Labor Market – Wall Street Journal, 9/30/2021

  • New applications for unemployment benefits rose slightly for the third straight week but remain near pandemic lows, as employers continue to limit layoffs during Covid-19’s latest surge driven by the Delta variant.
  • Initial unemployment claims, a proxy for layoffs, rose by 11,000 to a seasonally adjusted 362,000 last week, the Labor Department said Thursday. The four-week moving average for initial claims, which smooths out weekly volatility, rose to 340,000, just above the lowest level since the Covid-19 crisis began last year.
  • Meanwhile, the number of continuing claims for jobless benefits fell sharply in early September, as special federal pandemic programs wound down nationwide.
  • Overall continuing claims fell to 5 million the week ended Sept. 11 from 11.3 million the prior week. That figure isn’t seasonally adjusted and reported on a several week delay.

Powell Says Supply-Chain Bottlenecks Could Lead to Somewhat Longer Interval of High Inflation – Wall Street Journal, 9/30/2021

  • Federal Reserve Chairman Jerome Powell said that a recent spell of higher inflation might last longer than central bank officials had anticipated, but he repeated his expectation that the price surge should eventually fade during a panel discussion on Wednesday.
  • Still, Mr. Powell conceded that the Fed faced a situation it hasn’t encountered for a very long time in which there is tension between the central bank’s two objectives of low, stable inflation together with high employment.
  • “Managing through that process over the next couple of years is…going to be very challenging because we have this hypothesis that inflation is going to be transitory. We think that’s right,” he said. “But we are concerned about underlying inflation expectations remaining stable, as they have so far.”
  • Mr. Powell dismissed a question about whether the central bank was “overdoing” stimulus by delivering more support than was necessary for the economy. “The historical record is thick with examples of underdoing it,” he said. “I think we’ve avoided that this time.”

U.S. Rents Are Increasing at ‘Shocking’ Rates of More Than 10% – Bloomberg, 9/30/2021

  • Rent data for the past two months show no sign yet of the usual seasonal dip at this time of year, following peaks early in the summer, when many lease renewals come due.
  • A Zillow Group Inc. index based on the mean of listed rents rose 11.5% in August from a year earlier, with some cities in Florida, Georgia and Washington state seeing increases of more than 25%.
  • “To have double digit rent growth over the course of a year and a half is a shocking level of growth, especially considering the vast majority of it has come in the last 9 months,” according to the Zumper National Rent report.
  • Since the start of the pandemic, the median rent for a two-bedroom apartment has soared 13.1% to $1,663, Zumper data show.
  • Yardi, another company that tracks rents, found that national year-over-year rent growth was 10.3% in August, the first ever double-digit increase in its index.
  • In the longer run, even if rent growth cools in the next months, inflation is here to stay.
  • The Dallas Federal Reserve predicts that the official rent index from the Bureau of Labor Statistics will increase to 6.9% by year-end 2023, which would be the highest in more than 30 years.

Congress Set to Avert Government Shutdown – Wall Street Journal, 9/30/2021

  • Congress prepared to pass legislation extending government spending through Dec. 3 and avert a shutdown hours before current funding expires.
  • Senate Majority Leader Chuck Schumer (D., N.Y.) announced an agreement with Republicans on Wednesday night that sets up a series of votes on GOP-led amendments before expected passage of the funding measure.
  • The legislation will then go to the House, where it is expected to quickly pass.
  • President Biden must sign the bill before midnight to avoid a partial government shutdown.
  • In addition to maintaining current government funding for several more weeks, the bill also includes $28.6 billion in emergency disaster aid and $6.3 billion to help resettle Afghan evacuees.
  • Democrats had initially sought to attach a suspension of the debt ceiling to the funding bill, but Republicans have refused to vote to increase the government’s borrowing limit, tanking that effort in the Senate.

Infrastructure Bill’s Fate Uncertain Heading Into Planned House Vote – Wall Street Journal, 9/30/2021

  • A crucial piece of President Biden’s domestic agenda hung in the balance Thursday, as Democratic leaders moved toward a planned House vote on a $1 trillion infrastructure bill that many progressive Democrats have threatened to oppose.
  • Though 19 Senate Republicans backed the infrastructure bill and at least some House Republicans are also expected to do so, it isn’t clear whether there will be enough GOP support to offset opposition from liberal Democrats.
  • Mr. Biden also met with moderate Democrats in recent days, seeking to lock down their support for the social-policy and climate bill, an effort that could mollify progressive fears that moderates would block it.
  • That endeavor has so far fallen short: Key centrist Sen. Joe Manchin (D., W.Va.) said on Wednesday that he didn’t think he could reach an agreement with the White House soon.
  • In a lengthy statement, Mr. Manchin repeated his concerns about additional spending fueling inflation and called for the bill’s measures to be means-tested. He didn’t outline a possible compromise with other Democrats.

EUROPE & WORLD

China’s Manufacturing Weakens, as Power Cuts Threaten More Damage – Wall Street Journal, 9/30/2021

  • China’s manufacturing activity contracted in September, ending an 18-month expansion that powered the country’s recovery from the pandemic, with power curbs in hubs threatening further disruption.
  • China’s manufacturing purchasing managers index fell to 49.6 in September, the National Bureau of Statistics in Beijing said Thursday.
  • Below the headline PMI figure, subindexes measuring production, total new orders, new export orders and hiring all slid further below the 50 line in September as both supply and demand in China’s manufacturing sector slowed, the statistics bureau said.
  • Separately on Thursday, a privately run measure of manufacturing activity that focuses more on smaller factories showed some improvement in overall activity but signaled continued weakness in external demand and production.
  • China’s strong pandemic recovery has been beset by regional outbreaks, a global semiconductor shortage, port shutdowns and supply-chain disruptions, a widening regulatory campaign against many sectors of the economy, and soaring commodity prices.
  • More recently, concerns about power outages and a downturn in the real-estate market have added to the list of worries.

Global Gas Shortage Stings U.K., Showing Shortcomings in Its Energy Transition – Wall Street Journal, 9/30/2021

  • A lack of natural-gas storage facilities in the U.K., where capacity has been allowed to dwindle in recent years, has amplified the risks of a global shortage of the fuel and raised concerns that energy supplies won’t hold up if there is a cold winter.
  • The U.K.’s rapid shift to renewable energy, which has helped it cut greenhouse-gas emissions by 44% in the past three decades, is lauded by many in the industry. But the country’s experiences offer a reminder that decarbonizing an economy must be carefully managed.
  • U.K. natural-gas prices have risen more than fivefold over the past year to €73.10 a megawatt-hour Wednesday, equivalent to $84.83, according to S&P Global Platts.
  • That is slightly lower than the price in the Netherlands—the benchmark for continental Europe—but more than four times the price in the U.S.
  • U.K. gas stores are more than 90% full, but the country’s overall storage space is far lower than that of other major European economies.
  • France, the Netherlands, Italy and Germany can house between a quarter and 37% of their yearly gas needs, according to analysts at the bank HSBC PLC. The U.K. can store just 2%.
  • Its capacity of 10 terawatt-hours compares with 117 for France and 920 for the U.S., according to the International Energy Agency.

French, Italian Inflation Rates Spike to Decade Highs on Energy – Bloomberg, 9/30/2021

  • French and Italian inflation accelerated to the highest levels in about a decade as households in two of the euro area’s biggest economies faced a jump in the cost of energy.
  • Consumer prices in France rose 2.7% from a year earlier, while in Italy, the number increased to 3%.
  • The increases were almost all down to an increase in energy prices, which rose 14.4% in France and 20.5% in Italy.
  • With just over 6 months to go until French elections, Emmanuel Macron’s government is wary of a public backlash against high prices similar to the Yellow Vest movement, which began as a protest against high fuel costs.

German inflation accelerates at record pace in September – Reuters, 9/30/2021

  • German inflation accelerated at a record pace in September, data showed on Thursday, highlighting growing price pressures as Europe’s largest economy recovers from the pandemic and its companies grapple with supply shortages.
  • Consumer prices, harmonized to make them comparable with inflation data from other European Union countries, rose by 4.1% year-on-year compared with 3.4% in August, the Federal Statistics Office said.
  • That was the highest rate recorded since January 1997, when the EU-harmonized series began.

Evergrande misses second offshore bond payment – Reuters, 9/30/2021

  • China Evergrande missed paying bond interest due on Wednesday, two bondholders said, its second unpaid offshore debt obligation in a week, although the cash-strapped company on Thursday made a partial payment to some of its onshore investors.
  • The company, reeling under a debt pile of $305 billion, was due on Wednesday to make a $47.5 million bond interest payment on its 9.5% March 2024 dollar bond, after having missed $83.5 million in coupon payments last Thursday.
  • With liabilities equal to 2% of China’s GDP, Evergrande has sparked concerns its woes could spread through the financial system and reverberate around the world, though worries have eased somewhat after the central bank vowed to protect homebuyers’ interests.
  • Evergrande’s silence on its offshore payment obligations has, however, has left global investors wondering if they will have to swallow large losses when 30-day grace periods end for coupons that were due on Sept. 23 and Sept. 29.

Factmonster – TODAY in HISTORY

  • Mozart’s opera The Magic Flute premiered in Vienna, Austria. (1791)
  • Twenty-two Nazi leaders were found guilty at the Nuremberg trials. (1946)
  • The Berlin Airlift came to an end. (1949)
  • Actor James Dean was killed in a car crash. (1955)

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