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Daily Market Report | October 7, 2021

US FINANCIAL MARKET

Stocks Rise After Proposed Debt-Limit Extension – Wall Street Journal, 10/7/2021

  • Major U.S. indexes rose after Republicans lawmakers offered a short-term debt-limit extension, helping stave off immediate concerns about a possible government default.
  • All 11 major sectors of the S&P 500 were green in early-morning trading, pushing the broad benchmark up 1.5%. The Dow Jones Industrial Average added about 530 points, bringing the blue-chip index to 34947, while the Nasdaq Composite advanced 1.6%.
  • Stocks appeared to get a boost from D.C. developments. Senate Democrats appeared ready to accept Republicans’ proposal to punt a showdown over the debt ceiling until later this year.
  • Financial stocks rose 1.3%, and bond yields continued to creep up. The yield on the benchmark 10-year Treasury note rose to 1.558% Thursday from 1.524% a day earlier. Yields and prices move inversely.
  • Fresh figures showed that 326,000 Americans applied for first-time unemployment benefits in the week ended Oct. 2, down from 364,000 the week prior.
  • In Europe, the pan-continental Stoxx Europe 600 index jumped 1.3%, with gains led by the basic resources and auto sectors.
  • Indexes in Asia also closed higher. Hong Kong’s Hang Seng climbed 3.1%, led by gains in technology companies.
  • Shares of Chinese Estates (Holdings) rose 32% in Hong Kong on Thursday after its majority shareholders offered to take the company private. The group is a major shareholder of embattled property giant China Evergrande Group.

Conagra Expects Higher Inflation, Posts Lower Quarterly Profit – Wall Street Journal, 10/7/2021

  • Conagra Brands said it expects higher inflation for its full year and posted lower quarterly profit, as sales slipped from last year’s surge in at-home food demand due to the Covid-19 pandemic.
  • Net sales for the fiscal first quarter fell to $2.65 billion from $2.68 billion, ahead of expectations of analysts polled by FactSet.
  • Foodservice net sales rose 20.9% to $240 million as restaurant traffic continued to recover from the effects of the pandemic, the company said. Sales for the grocery and snacks segment, however, fell 4.9% to $1.1 billion.
  • For the quarter ended Aug. 29, Conagra posted a net income attributable to the company of $235.4 million, compared with $329 million in the same period last year.
  • Net sales for the fiscal first quarter fell to $2.65 billion from $2.68 billion, ahead of expectations of analysts polled by FactSet.
  • Overall, the company still expects elevated consumer demand. It expects organic net sales for fiscal 2022 to rise about 1%, compared with its prior outlook of about flat.
  • The Chicago packaged-foods company behind Slim Jim meat sticks and PAM cooking spray on Thursday said it expects gross inflation to be about 11% for fiscal 2022, compared with its prior outlook of about 9%.
  • Conagra said it plans to continue adjusting prices and taking cost-saving measures.

Levi beats quarterly estimates as people refresh their wardrobes – Reuters, 10/7/2021

  • Levi Strauss on Wednesday beat third-quarter revenue and profit estimates, boosted by an uptick in demand for jeans from people refreshing their wardrobes as they returned to normal social life following easing pandemic restrictions.
  • Net revenue for the company rose to $1.50 billion from $1.06 billion in the third quarter ended Aug. 29.
  • Analysts on average had expected $1.48 billion, according to IBES data from Refinitiv.
  • Excluding items, Levi earned 48 cents per share, beating estimates of 38 cents per share.
  • The company said it expects holiday-quarter net revenue growth of 20% to 21% from a year earlier, while analysts were expecting growth of 22%.
  • Levi also said it expects fourth-quarter earnings per share to be between 38 cents and 40 cents per share, compared with analysts average expectation of 40 cents per share.
  • Shares of the jeans maker rose 2% in extended trading after the Dockers brand owner said its board had approved a $200 million share repurchase plan. The company has a market capitalization of $49.49 billion, according to Refinitiv data.

Facebook Slows New Products for ‘Reputational Reviews’ – Wall Street Journal, 10/7/2021

  • Facebook has delayed the rollout of new products in recent days, people familiar with the matter said, amid media reports and congressional hearings related to a trove of internal documents showing harms from its platforms.
  • Executives at the social-media company also have put a hold on some work on new and existing products while more than a dozen people are involved in conducting “reputational reviews” to examine how Facebook may be criticized and to ensure products don’t adversely impact children, the people said.
  • This follows Facebook’s announcement last week that it would pause plans for its Instagram Kids product after lawmakers and others voiced concerns about the photo-sharing platform’s effects on young people’s mental health.
  • Facebook has announced features for existing services, such as Facebook Gaming, in recent days.

Global Debt to Hit 260% of GDP, But Low Rates to Help, S&P Says – Bloomberg, 10/7/2021

  • Global debt levels could reach about 260% of gross domestic product by year-end, though low interest rates mean the ability to service it will be manageable, according to S&P Global Ratings.
  • The pile-on of debt was necessary given policy responses during the pandemic, Vera Chaplin, the credit ratings agency’s managing director and lead analytical manager, said Thursday at the Asia Briefing Live forum co-hosted by Bloomberg and Asia Society Australia.
  • Higher leverage and weakened credit metrics amid the recovery will probably trigger more defaults, she added.
  • Bruce Gosper, a vice president at the Asian Development Bank and speaking on the same panel Thursday, agreed the region’s recovery is underway and trade continues to rebound.
  • Poverty reduction, however, has “more or less stalled across the region” and small businesses are still disproportionately struggling, he said.

U.S. banks expected to report mixed Q3 results, iffy loan outlook – Reuters, 10/7/2021

  • The largest U.S. lenders are expected to report moderately higher third-quarter profits next week as pandemic-related accounting adjustments that had doubled their earnings earlier this year taper off and business starts to return to normal.
  • Analysts, on average, expect JPMorgan Chase, the country’s largest lender, to report slightly lower profits compared with the year-ago period when it kicks off earnings season on Wednesday, according to I/B/E/S data from Refinitiv.
  • Next Thursday, Citigroup and Morgan Stanley are both expected to report a 15% rise in profits, while Bank of America Corp is expected to be up about 35%.
  • Wells Fargo, which also reports Thursday, is expected to show a massive 100%-plus jump on a quarter in which results were depressed by unusual expenses.
  • Goldman Group will cap the week on Friday, with profits expected to be up slightly.

GM aims to double revenues by 2030 as it drives to pass Tesla – Reuters, 10/7/2021

  • General Motors Chief Executive Mary Barra told investors on Wednesday that the automaker plans to double revenue by 2030, expanding profits from combustion vehicles even as it rolls out new electric vehicles and new digitally powered services to catch up with Tesla.
  • GM said if it succeeds, annual revenue by 2030 would be about $280 billion, and the automaker would be the leader in U.S. electric vehicle sales.
  • Chief Financial Officer Paul Jacobson said GM expects pre-tax profit margins of 12 to 14%, which could beat current levels. That would imply annual pre-tax profits of as much as $39 billion. read more
  • In 2022, GM plans to launch an electric version of its best-selling North American model, the Chevrolet Silverado pickup truck. Barra will unveil it at the CES technology show on Jan. 5, GM said. Suppliers have said that vehicle will be launched in late 2022.
  • GM projects its combustion vehicle business can grow even as annual electric vehicle revenues rise to $90 billion by 2030 from $10 billion projected in 2023, Jacobson told investors after markets closed.
  • The company also plans to add $80 billion from new businesses such as the Cruise autonomous vehicle ride service by 2030.
  • Barra and GM President Mark Reuss outlined a plan for a transition to an all-electric fleet by 2035 that starts gradually, then accelerates after 2030, by which time more than half of GM’s factories in China and North America will be “capable of EV production.”

Twitter Sells Mobile Ad Firm MoPub to AppLovin for $1.05 Billion – Wall Street Journal, 10/7/2021

  • Twitter is selling mobile ad firm MoPub to AppLovin for $1.05 billion in cash, the company said Wednesday.
  • MoPub allows app publishers to make money by selling ad slots on their apps, and helps advertisers reach certain audiences on mobile apps, among other offerings.
  • Twitter purchased the company in 2013 in a deal estimated at the time to be worth more than $350 million.
  • MoPub says it now helps 45,000 apps source advertising via its exchange. It generated about $188 million in revenue in 2020, according to Twitter.

Oil Erases Losses After U.S. Says No Plans to Tap Crude Reserves – Bloomberg, 10/7/2021

  • Oil rebounded after the U.S. Energy Department said it has no plans to tap the nation’s oil reserves at this time.
  • Futures in New York rose after earlier falling as much as 3.2% on Thursday. The Energy Department commented after a report Wednesday that signaled it may have been considering that option.
  • Crude has increased about 15% since mid-August following a spurt of consumption as countries emerge from the worst of the pandemic. The energy crunch from Europe to Asia also raised the prospect of greater demand for oil ahead of winter.

US ECONOMY & POLITICS

Jobless Claims Drop for First Time in Four Weeks – Wall Street Journal, 10/7/2021

  • Filings for jobless benefits last week fell for the first time in four weeks, as employers continue to eschew layoffs amid a tight labor market.
  • The Labor Department reported Thursday that initial unemployment claims, a proxy for layoffs, fell 38,000 in the week ended Oct. 2 to a seasonally adjusted 326,000, from a revised 364,000 the prior week. That put initial claims close to their pandemic low of 312,000 in the week ended Sept. 4.
  • Meanwhile, the number of Americans continuing to claim unemployment benefits again dropped sharply, a sign of the impact of states broadly ending several federal pandemic benefits programs.
  • Continuing claims, a proxy for those receiving payments, made to all unemployment programs fell to about 4.17 million in mid-September from about 12 million in late August, before the pandemic aid expired. The data accounting for all programs isn’t seasonally adjusted, and is reported on a several-week delay.
  • Some states are still paying pandemic benefits as they work through backlogs.
  • The end of enhanced and extended benefits reduced federal spending on such programs. Weekly Labor Department disbursements to states for unemployment programs have fallen sharply since the end of pandemic assistance in early September, to $1.65 billion for the week ending Oct. 1

Schumer Says Deal Reached on Short-Term Debt-Limit Extension – Wall Street Journal, 10/7/2021

  • Senate Majority Leader Chuck Schumer said he reached a deal with Republicans to defer a showdown over the debt ceiling until December, in the face of mounting concerns over a possible government default.
  • The debt ceiling doesn’t authorize new spending but allows the Treasury to raise money to pay for expenses the government has previously authorized.
  • Even so, Republicans have wanted to force Democrats to pass the debt limit without any GOP help, seeking to tie Democrats, at least in voters’ eyes, to higher debt levels just as the party pursues programs that would cost in the trillions of dollars.
  • Democrats, who are using reconciliation to pass much of Mr. Biden’s legislative agenda, had argued that embracing that procedure for the debt limit as well would be too risky and time consuming, and said that the easiest path was for Republicans to just step aside.
  • But other factors were at play: Under the rules governing reconciliation, Democrats may also be forced to assign a dollar value to the new debt ceiling level, more directly tying Democrats to higher debt, rather than simply suspending the limit to a future date.
  • Democrats had begun discussing whether to curtail the filibuster—the tactic that allows the minority to block legislation by assembling 40 of 100 no votes—to enable a debt-ceiling increase to pass with the votes of 50 senators, with Vice President Kamala Harris breaking a tie.
  • Sen. Joe Manchin (D., W.Va.) effectively threw cold water on that plan on Wednesday when he indicated that he wouldn’t support such a move, but the growing clamor among Democrats may have helped push both parties to a deal.

U.S. Troops Have Been Deployed in Taiwan for at Least a Year – Wall Street Journal, 10/7/2021

  • A U.S. special-operations unit and a contingent of Marines have been secretly operating in Taiwan to train military forces there, U.S. officials said, part of efforts to shore up the island’s defenses as concern regarding potential Chinese aggression mounts.
  • About two dozen members of U.S. special-operations and support troops are conducting training for small units of Taiwan’s ground forces, the officials said.
  • The U.S. Marines are working with local maritime forces on small-boat training. The American forces have been operating in Taiwan for at least a year, the officials said.
  • The U.S. special-operations deployment is a sign of concern within the Pentagon over Taiwan’s tactical capabilities in light of Beijing’s yearslong military buildup and recent threatening moves against the island.
  • Taiwan and U.S. officials have expressed alarm over nearly 150 flights near Taiwan in the past week by Chinese military aircraft.
  • The Chinese aircraft have included J-16 jet fighters, H-6 strategic bombers and Y-8 submarine-spotting aircraft and have set a record for such sorties, according to the Taiwan government.

Richest Americans Flee Treasuries With Holdings at 17-Year Low – Bloomberg, 10/7/2021

  • America’s super-rich hold fewer U.S. government and municipal securities than they’ve done for almost two decades, according to recent data from the Federal Reserve.
  • The top 1% of households by income held $887 billion of those assets as of June, the smallest amount in 17 years and down from a peak of $1.5 trillion a decade ago.
  • Americans lower down the income ladder have been trimming their holdings too. Public and municipal debt held by the bottom 99% of households peaked at about $3 trillion in June 2019, and is down by almost $400 billion since then.
  • The top 20% of households held 74.2% of U.S. government and municipal securities, the lowest share in records dating back to 1989, according to the Fed.

EUROPE & WORLD

German industrial production slumps on supply chain disruption – Reuters, 10/7/2021

  • German industrial output suffered its steepest drop in August since April last year, due to supply chain disruptions that are holding back growth in Europe’s biggest economy and hitting the auto sector particularly hard, official data showed on Thursday.
  • The Federal Statistics Office said industrial output fell by 4.0% on the month after an increase of 1.3% in July.
  • A Reuters poll had pointed to a decline in August of 0.4%.
  • Production of cars and car parts fell by 17.5% on the month.
  • Separately, prices for newly built residential buildings rose by 12.6% on the year in August, their biggest rise since November 1970. German consumer prices rose by rose by 4.1% year-on-year last month.

Inflation Worries Hit U.K. Markets as Energy Prices Soar – Wall Street Journal, 10/7/2021

  • Surging energy costs have spread fear among investors in recent weeks that inflation isn’t going away.
  • One place where the strains are being felt most acutely is the U.K., where bond markets have exhibited some wild moves.
  • The most dramatic swings took place with government bonds whose coupons are linked to inflation. Those bonds, and derivatives known as swaps, are seen as a measure of where investors believe inflation is headed. Yields on them surged to their highest levels in over a decade.
  • Inflation-linked gilts, as U.K. government bonds are known, signaled that the U.K.’s retail price index could jump to an annual rate of 7% by April 2022, according to Deutsche Bank.
  • The rate on one-year inflation swaps surged to 6.27% earlier this week, up from 5.77% last week, the highest level since at least 2005 and hovered close by on Thursday. The three-year inflation swap rate also jumped, approaching 5% in intraday trading.

European Industry Buckles Under a Worsening Energy Squeeze – Bloomberg, 10/7/2021

  • European industry is being pushed closer to breaking point as the region’s energy crisis worsens by the day.
  • Power and gas prices are hitting fresh records almost daily, and some energy-intensive companies have temporarily shut operations because they’re becoming too expensive to run. As winter approaches and Europeans start to turn on their heaters, the squeeze will intensify, pushing more executives into tough decisions about keeping plants open.
  • Ammonia producer SKW Stickstoffwerke Piesteritz GmbH is among those that’s been forced into drastic steps.
  • The German company, which burns through 640 gigawatt hours of natural gas each year, equivalent to about 50,000 households, said Tuesday it will cut production by 20% to offset rising gas prices.
  • “It doesn’t make sense to make ammonia at these price levels,” said Chief Executive Officer Petr Cingr. “A complete production stop looms if the government doesn’t act.”
  • On Wednesday, the European Union issued a fresh warning and said it will outline measures including tax cuts and state aid that governments can use to help.

Chinese Property Bonds Tumble Again – Wall Street Journal, 10/7/2021

  • Asia’s junk-bond market suffered through another wave of selling Thursday, pushing prices of many Chinese developers’ bonds further into distressed territory.
  • Prices of U.S. dollar bonds of many Chinese property companies gapped lower by around five points, according to several market participants. Some tumbled even more, as fears of more defaults and further price declines led many investors to sell their holdings.
  • Among the worst hit were bonds of Kaisa Group Holdings, a residential developer that previously defaulted on its international debt in 2015. The company’s Hong Kong-listed shares dropped 7.5% on Thursday despite a broader stock market rally in the city.
  • A day earlier on Wednesday, an ICE BofA index of high-yield dollar bonds from Chinese companies showed a yield of more than 18%, its highest in nearly a decade.

Tilray posts 43% rise in quarterly revenue on strong cannabis demand – Reuters, 10/7/2021

  • Canadian pot producer Tilray on Thursday reported a 43% rise in first-quarter revenue, driven by strong demand for cannabis after coronavirus-led lockdowns.
  • The world’s largest cannabis producer by sales said its revenue rose to $168 million in the quarter ended Aug. 31 from $117.49 million a year earlier. Net cannabis revenue jumped 38%.
  • Tilray’s net loss widened to $34.6 million in the first quarter from $21.74 million, as total expenses more than doubled.
  • The company said it was on track for at least $80 million in cost savings from its deal to merge with Aphria.
  • Tilray, which announced the deal in December, added that it had saved about $55 million on a run-rate basis to date from the deal, with actual cash savings close to $20 million.

UN ends Yemen war crimes probe in historic defeat at rights body – Reuters, 10/7/2021

  • The United Nations Human Rights Council narrowly agreed on Thursday to end the mandate of its independent investigators who have found that all sides in Yemen’s conflict have committed acts that may amount to war crimes.
  • Saudi Arabia lobbied heavily against the Western resolution that would have extended by two years the mandate of the independent team who have documented possible war crimes in Yemen, including by the Riyadh-led coalition, activists said.
  • The vote at the 47-member Geneva forum was 21 countries against the resolution presented by the Netherlands, with 18 in favor, seven abstentions and one delegation absent (Ukraine).

Factmonster – TODAY in HISTORY

  • The Stamp Act Congress convened in New York to draw up colonial grievances against England. (1765)
  • Poet-writer Edgar Allan Poe died at age 40. (1849)
  • The Republic of East Germany was formed. (1949)
  • Andrew Lloyd Webber’s “Cats,” the longest running show in Broadway history, opened. (1982)
  • U.S. and British forces launched bombing campaign against Taliban government and al-Qaeda terrorist camps in Afghanistan. (2001)
  • California governor Gray Davis was recalled and former bodybuilder and actor Arnold Schwarzenegger was elected in his place. (2003)

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