US FINANCIAL MARKET
Stocks Open Higher After Selloff; Oil Rally Builds – Wall Street Journal, 10/5/2021
- U.S. stocks rose on Tuesday, a day after a selloff among some of America’s biggest technology firms dragged down broader indexes, while investors also contended with booming energy prices.
- The S&P 500 rose 1.2%, while the tech-heavy Nasdaq Composite Index jumped 1.1%, suggesting indexes could recover some of Monday’s losses. The blue-chip Dow Jones Industrial Average also gained 1.2%.
- Those falls took a breather early Tuesday. Facebook shares were up 0.8%, a day after an outage shut down its social media and messaging platforms. Facebook whistleblower Frances Haugen is set to testify before Congress on Tuesday.
- In Asia, stock markets tracked Monday’s losses on Wall Street. In Tokyo, the Nikkei 225 dropped 2.2%, with SoftBank Group, the tech-investing powerhouse that is one of the index’s biggest constituents, shedding 3.8%.
- Concerns about China’s property companies, fanned in recent weeks by strains at China Evergrande Group, were rekindled by smaller rival Fantasia Group Holdings, which said late Monday it had failed to repay some maturing dollar bonds.
- Fantasia’s stock was halted from trading, while the Lippo Select HK & Mainland Property index fell more than 3%.
- Elsewhere in the region, South Korea’s Kospi Composite fell 1.9%, while the S&P/ASX 200 in Australia retreated 0.4%.
- Hong Kong’s Hang Seng Index retraced early losses to gain 0.3%. Mainland Chinese markets were closed for a holiday.
- The pan-continental Stoxx Europe 600 rose close to 1%, led by banks and technology and media companies.
- The yield on the benchmark 10-year U.S. Treasury note rose to 1.518% Tuesday, from 1.481% Monday. Yields move inversely to prices.
- Natural-gas prices soared on concerns about a shortfall in stockpiles heading into winter. U.S. gas futures rose 7.4% to $6.19 per million British thermal units.
PepsiCo warns of another price increase as supply disruptions linger – Reuters, 10/5/2021
- PepsiCo said on Tuesday it would likely raise prices again early next year, as it looks to overcome ever increasing supply-chain challenges that include everything from a shortage of Gatorade bottles to a lack of truck drivers.
- PepsiCo has already raised prices of its sodas and snacks in recent weeks, echoing the strategy of broader packaged foods industry as rising raw material prices pinch profit margins.
- Net revenue rose 11.6% to $20.19 billion in the quarter ended Sept. 4, above analysts’ estimates of $19.39 billion, according to IBES data from Refinitiv.
- PepsiCo’s third-quarter organic revenue rose 9%, 5-percentage points of which came from selling higher-priced products. Costs were up over 10%, driven by higher expenditure on distribution and marketing.
- The company said it was expecting fiscal 2021 organic revenue to rise about 8%, compared with its prior forecast of a 6% increase.
IMF sees global GDP in 2021 slightly below prior forecast of 6% – Reuters, 10/5/2021
- The International Monetary Fund expects global economic growth in 2021 to fall slightly below its July forecast of 6%, IMF chief Kristalina Georgieva said on Tuesday, citing risks associated with debt, inflation and divergent economic trends in the wake of the COVID-19 pandemic.
- Georgieva said the global economy was bouncing back, but the pandemic continued to limit the recovery, with the main obstacle posed by the “Great Vaccination Divide” that has seen too many countries with too little access to COVID vaccines.
- The United States and China remained vital engines of growth, and Italy and Europe were showing increased momentum, but growth was worsening elsewhere, Georgieva said.
- Inflation pressures, a key risk factor, were expected to subside in most countries in 2022, but would continue to affect some emerging and developing economies, she said, warning that a sustained increase in inflation expectations could cause a rapid rise in interest rates and tighter financial conditions.
Ford JV partner SK sees U.S. battery shortage persisting until 2025 – Reuters, 10/5/2021
- Ford Motor’s battery joint venture partner, Korea’s SK Innovation, expects the U.S. vehicle industry to face a battery supply shortage until 2025 because of the long lead times to build production facilities, top SK executives told Reuters.
- SK Innovation’s battery unit, SK On, is also considering developing lithium iron phosphate batteries (LFP), which have an advantage in cost and thermal stability despite a lower driving range, Kim Jun, chief executive of SK Innovation and Jee Dong-seob, CEO of SK On, said.
- “The current U.S. battery capacity is far short of meeting demand. Building a factory to meet demand requires a lead time of 30 months, and I see a battery shortage continuing at least until 2025,” Kim said, referring to the time needed to supply battery cells domestically, including factory site selection, construction and product testing.
- In contrast, China is expected to have a battery oversupply, and Europe’s supply will be in line with demand, he said.
Facebook blames ‘faulty configuration change’ for nearly six-hour outage – Reuters, 10/5/2021
- Facebook blamed a “faulty configuration change” for a nearly six-hour outage on Monday that prevented the company’s 3.5 billion users from accessing its social media and messaging services such as WhatsApp, Instagram and Messenger.
- The company in a late Monday blog post did not specify who executed the configuration change and whether it was planned.
- Several Facebook employees who declined to be named had told Reuters earlier that they believed that the outage was caused by an internal mistake in how internet traffic is routed to its systems.
- The outage was the second blow to the social media giant in as many days after a whistleblower on Sunday accused the company of repeatedly prioritizing profit over clamping down on hate speech and misinformation.
SEC’s Gensler Aims to Save Investors Money by Squeezing Wall Street – Wall Street Journal, 10/5/2021
- Wall Street’s new overseer has outlined an aggressive regulatory agenda that threatens to squeeze the financial industry’s profit margins.
- Securities and Exchange Commission Chairman Gary Gensler is working on tougher rules for high-speed trading firms, private-equity managers, mutual funds and online brokerages.
- Mr. Gensler, less than six months on the job, says he wants to make the capital markets less costly for companies raising money as well as for ordinary investors saving for retirement.
- His main targets are what he says are profits and salaries earned above what a purely competitive market would allow, known as economic rents.
- “I hope that we address, and try to lower, the economic rents in our capital markets,” Mr. Gensler said. He noted that finance as a share of U.S. economic output had more than doubled since the 1950s to roughly 8% of today’s gross domestic product.
US ECONOMY & POLITICS
Schumer Sets Up Vote on Debt Ceiling After Saying It Must Be Raised by End of Week – Wall Street Journal, 10/5/2021
- Senate Majority Leader Chuck Schumer set up a vote by Wednesday on increasing the federal government’s borrowing ceiling, but didn’t lay out how Democrats planned to pass a bill without Republican votes.
- Treasury Secretary Janet Yellen has told Congress that the limit must be raised by Oct. 18 or the government won’t be able to pay its bills. A default on the debt could have catastrophic financial consequences, and the pressure on both parties to resolve the issue will likely grow as Congress nears the deadline.
- In a letter to President Biden Monday, Senate Minority Leader Mitch McConnell (R., Ky.) urged him to “engage directly with congressional Democrats” on raising the debt ceiling.
- He emphasized that Democrats could raise the debt ceiling on their own by reopening the reconciliation process, which would allow them to move a bill through the 50-50 Senate with just a simple majority, rather than the 60 votes required of most legislation. “This is the path they will need to take,” Mr. McConnell said.
- Democratic leaders have said trying to address the debt limit through a process tied to the budget known as reconciliation would be risky and time-consuming.
- However, it remains an option for Democrats, who could decide to revise their budget resolution either to increase the debt limit as a stand-alone bill or fold it into a broader healthcare, education and climate-change package they are writing.
U.S. Services Gauge Edges Up as Business Activity Strengthens – Bloomberg, 10/5/2021
- U.S. service providers expanded at a faster-than-expected pace in September, supported by a pickup in business activity and durable growth in new orders.
- The Institute for Supply Management’s non-manufacturing index edged up to 61.9 last month from 61.7 in August, data showed Tuesday. The median forecast in a Bloomberg survey of economists called for the measure to fall to 59.9.
- The ISM gauge of business activity among non-manufacturers, which parallels the group’s factory production measure, rose to 62.3 from a six-month low.
- ISM’s measure of services employment showed hiring expanded at a slightly slower pace in September. The government’s jobs report, out Friday, is expected to show total payrolls rose by almost 490,000 in the month.
- The ISM new orders gauge was little changed at 63.5 and the group’s gauge of prices paid by U.S. service providers marched higher.
U.S. Trade Deficit Widens to Record on Consumer-Goods Imports – Bloomberg, 10/5/2021
- The U.S. trade deficit widened to a record in August, reflecting a pickup in the value of imports of consumer goods and industrial supplies.
- The gap in trade of goods and services increased 4.2% to $73.3 billion, from a revised $70.3 billion in July, according to Commerce Department data released Tuesday.
- The value of goods and services imports rose 1.4% to a record $287 billion in August.
- The U.S. imported $3 billion more consumer goods during the month, mostly due to pharmaceuticals and toys, games and sporting goods. Exports climbed 0.5% to $213.7 billion.
U.S. Wants New Trade Talks With China, but Will Keep Tariffs – Wall Street Journal, 10/5/2021
- The Biden administration began defining its China trade policy Monday, saying it aims to launch new talks with Beijing but will keep existing tariffs in place, while also restoring the ability of U.S. importers to seek exemptions from those levies.
- Ms. Tai said the U.S. would press China to carry out pledges it made as part of the Phase One accord signed in January 2020—including by maintaining steep tariffs put in place by Mr. Trump on what is currently about half of China’s exports to the U.S.
- But she said there were no plans to launch an investigation into Chinese trade practices, which had been under discussion within the administration.
- At the same time, she said, the U.S. will reopen a process for U.S. companies to seek exemptions from tariffs.
- That exemption process ended after President Biden took office, drawing complaints from manufacturers and others who say they have no cost-effective alternatives to certain Chinese components.
Treasury to Begin Redistributing Rental-Assistance Money to High-Need Communities – Wall Street Journal, 10/5/2021
- The Treasury Department is set to soon claw back federal rental assistance from groups that haven’t acted to spend enough of the money so it can be given to other communities with greater need, according to new guidance published Monday.
- Grantees that haven’t obligated at least 65% of the funds received under the pandemic Emergency Rental Assistance program by Sept. 30 must submit an improvement plan to the Treasury Department laying out steps they plan to take to get more funds out the door, the agency said.
- The lowest-performing groups—those that haven’t spent or distributed at least 30% of the funds received—could see the relief money redistributed to other communities.
- Since last December, Congress has appropriated a total of $46.6 billion to help tenants who were behind on their rent. As of Aug. 31, $7.7 billion had been distributed, the Treasury Department said last month.
What Are the Pandora Papers? Documents Link Politicians, Prominent Individuals to Offshore Holdings, Report Says – Wall Street Journal, 10/5/2021
- Wealthy individuals around the globe have used offshore tax havens to conceal their financial activities, creating shell companies, foundations and trusts to purchase real estate and other luxury goods, and in many cases, avoid paying taxes, according to an expansive new report.
- The report, released Sunday by the International Consortium of Investigative Journalists, named dozens of current and former world leaders and hundreds of politicians, public officials, billionaires, religious leaders and celebrities. It said many used offshore tax havens to evade taxes, and some were linked to financial crimes like money laundering.
- The so-called Pandora Papers linked 336 politicians from more than 90 countries and territories to 956 companies involved in offshore havens, most of which were created in the British Virgin Islands.
- Thirty-five current and former world leaders were identified, including King Abdullah II of Jordan, former U.K. Prime Minister Tony Blair and Czech Republic Prime Minister Andrej Babis, who have all denied wrongdoing.
- It also identified more than 130 billionaires around the globe.
- The documents date back as far as the 1970s, though the majority of them reviewed for the Pandora Papers fell between 1996 and 2020, according to ICIJ.
EUROPE & WORLD
German services lose momentum as catch-up effects wane, supply shortages spill over -PMI – Reuters, 10/5/2021
- Germany’s services sector activity continued to grow strongly in September, but the recovery from the COVID-19 pandemic lost momentum as catch-up effects are waning and more companies are affected by supply bottlenecks, a survey showed on Tuesday.
- IHS Markit’s final Purchasing Managers’ Index (PMI) for the services sector fell to 56.2 from 60.8 in August, still well above the 50 threshold which separates growth from contraction and a bit better than a flash reading of 56.0.
- The composite PMI index, which comprises both the services and manufacturing sectors, eased to 55.5 from 60.0 in August, reflecting the continued recovery of the manufacturing sector. The reading was better than a flash figure of 55.3.
EU Lawmakers Voice Doubts Over Approval for Nord Stream 2 – Bloomberg, 10/5/2021
- A group of European Union lawmakers questioned the Nord Stream 2 pipeline’s compliance with the bloc’s laws, underscoring tensions over the controversial project to ship Russian gas to Europe amid an unprecedented energy crisis.
- The European Commission should adopt interim measures against Russia’s exporter Gazprom PJSC if Nord Stream 2 starts operating before obtaining the necessary EU regulatory approvals, Parliament members representing five of the biggest political groups wrote in a letter to EU Energy Commissioner Kadri Simson that’s been seen by Bloomberg News.
- The lawmakers’ concern comes as Gazprom announced this week it started pumping gas into the pipeline for testing, just as a supply crunch pushed European energy costs to all-time highs.
- Gas prices have more than tripled this year as increased demand coincided with reduced supplies in a threat to the region’s economic recovery.
China’s Developers Priced for Meltdown as Contagion Risk Spreads – Bloomberg, 10/5/2021
- A missed bond payment by a Chinese developer reignited investor angst about the health of the nation’s property sector on Tuesday.
- Chinese junk dollar bonds were poised for their biggest selloff in at least eight years amid renewed concern that authorities will do little to alleviate the credit crisis gripping the industry. Yields are near a decade high.
- Fantasia Holdings Group became the latest property company to fail to repay a maturing bond on Monday, while a series of rating downgrades from global risk assessors and a slump in U.S. markets overnight added to investor jitters.
- Fantasia’s missed payment “provides a clear sign that despite piecemeal bailouts of select Evergrande assets, property market stresses remain elevated,” said Craig Botham, chief China economist at Pantheon Macroeconomics “The rot is unlikely to stop here.”
- In the first televised White House address, President Truman urged Americans to refrain from eating meat on Tuesdays and poultry on Sundays to help starving people in other countries. (1947)
- Earl Warren was sworn in as the 14th Chief Justice of the U.S. Supreme Court. (1953)
- The Beatles released their first hit, “Love Me Do,” in Britain. (1962)
- Barry Bonds broke Mark McGwire’s record of 71 home runs in one season when he hit his 71st and 72nd homers. (2001)