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Daily Market Report | October 14, 2021

US FINANCIAL MARKET

Stocks Climb As Major Banks Report Earnings – Wall Street Journal, 10/14/2021

  • U.S. stocks jumped Thursday, bolstered by better-than-expected earnings and economic data that helped ease investor concerns about inflation pressures and a slowdown in growth.
  • The S&P 500 climbed for a second day, adding 1.3%. The Dow Jones Industrial Average rose about 420 points, or 1.2%.
  • The technology-heavy Nasdaq Composite advanced 1.4%.
  • Shares of health-insurers rallied, with UnitedHealth Group adding 5.6% after it raised its guidance for full-year earnings and recorded a jump in revenue due to higher premiums.
  • Other major insurers including Anthem and Humana jumped 3% or more apiece.
  • Shares of bank stocks also rose Thursday. Bank of America gained 2.2% after its third-quarter profit rose 58% from a year earlier. Shares of Citigroup added 0.4% after it reported a jump in profit.
  • Morgan Stanley advanced 0.8% after its quarterly profit rose 36% from a year earlier, due to a surge in deal making.
  • Shares of Domino’s Pizza rose 0.4% despite the pizza-delivery chain reporting quarterly revenue that missed analysts’ forecasts.
  • Economic data were a bright spot Thursday. U.S. jobless claims for the week ended Oct. 9 fell to 293,000 from 329,000 the week prior—the first time they have fallen below 300,000 since the pandemic began.
  • Meanwhile, fresh data from the Labor Department showed that the prices that suppliers are charging businesses and other customers cooled slightly in September. However, they remain historically high.
  • In bond markets, the yield on the 10-year Treasury note ticked down to 1.531% Thursday, from 1.549% Wednesday.
  • Overseas, the pan-continental Stoxx Europe 600 added 1.2%. Indexes in Asia closed with mixed performance.
  • China’s Shanghai Composite fell 0.1%. Meanwhile, South Korea’s Kospi and Japan’s Nikkei 225 both climbed 1.5%.

Bank of America Quarterly Profit Rises 58% on Higher Interest Income – Wall Street Journal, 10/14/2021

  • Bank of America third-quarter profit rose 58%, suggesting banks’ lending businesses are starting to improve from a pandemic slump.
  • Revenue totaled $22.77 billion, up 12% from $20.34 billion a year ago.
  • That beat analysts’ expectations for revenue of $21.68 billion.
  • The second-largest U.S. bank earned $7.69 billion, up from $4.88 billion a year earlier.
  • Per-share earnings of 85 cents topped the 71 cents that analysts polled by FactSet had expected.
  • Net interest income rose 10% from a year earlier to $11.1 billion.
  • At Bank of America, outstanding loans and leases totaled $927.74 billion at the end of the third quarter, up slightly from the second quarter but down 3% from a year earlier. If not for the runoff in government Paycheck Protection Program loans, the bank’s loan book would have grown almost 2% from the second quarter.
  • Noninterest income, which includes fees, rose 14% from a year earlier to $11.67 billion.
  • Noninterest expenses were roughly flat from a year earlier at $14.44 billion.
  • A boom in mergers and acquisitions helped lift investment banking fees, which rose 23% from a year earlier to $2.17 billion.
  • Adjusted trading revenue was $3.63 billion, up 9% from a year earlier.
  • Profit was also boosted by a release of cash that it had set aside to cover loan losses. So far, pandemic loan defaults have failed to materialize, prompting the bank to release $1.1 billion of its reserves. Net charge-offs halved from a year ago to $463 million.

Wells Fargo Profit Rises 59% on Reserve Release – Wall Street Journal, 10/14/2021

  • Wells Fargo said Thursday that its third-quarter profit rose 59%, lifted by a release of funds it had set aside for potential loan losses during the pandemic.
  • Wells Fargo’s revenue fell 2% to $18.83 billion. That beat the $18.27 billion expected by analysts polled by FactSet.
  • The San Francisco-based lender posted earnings of $5.12 billion. Per-share earnings of $1.17 topped a forecast of $1.
  • The bank’s net interest income, a measure of lending profit, fell 5% to $8.91 billion.
  • Loans fell 6% from a year ago, but rose 1% from the prior quarter.
  • Third-quarter mortgage originations of $51.9 billion were down about 16% from a year earlier. Auto loan originations jumped roughly 70% to $9.2 billion.
  • Noninterest income, which includes fees, was flat at $9.93 billion. Noninterest expenses fell 13% to $13.3 billion in the third quarter.
  • Wells Fargo’s corporate and investment bank, which is smaller than rivals, posted 25% growth in investment-banking fees but saw a 15% drop in trading revenue.

Morgan Stanley Profit Rises, Powered by Deal Making, Trading – Wall Street Journal, 10/14/2021

  • Morgan Stanley’s third-quarter profit rose 36% from a year earlier, thanks to all-time high revenues from advising on mergers and acquisitions.
  • Revenue was up 26% to $14.75 billion. That beat the expected $13.93 billion.
  • The New York bank reported profit of $3.71 billion, or $1.98 a share.
  • That exceeded the $1.69 expected by analysts polled by FactSet.
  • Investment banking fees jumped 67% to $2.85 billion, a new quarterly record. Revenue from advising on deals more than tripled to a record $1.27 billion. Fees from arranging initial public offerings and stock offerings rose 16% to $1.01 billion.
  • Trading revenue rose 6% to $4.52 billion.
  • Revenue at Morgan Stanley’s wealth-management division, which includes E*Trade, increased 28% to $5.94 billion.
  • In the investment-management division, revenue increased 38%.
  • The number of retail-trading clients at Morgan Stanley was 7.4 million, in line with the previous quarter.
  • The average daily number of retail trades the company handled for the quarter neared 1 million, but was down 8% from the second quarter.
  • Morgan Stanley boosted lending by 19% to $325 billion outstanding.

Citigroup Profit Jumps 48% After Releasing Rainy-Day Funds – Wall Street Journal, 10/14/2021

  • Citigroup said Thursday its third-quarter profit rose 48%, after the bank released some of the money it had set aside for bad loans early in the pandemic.
  • Revenue fell 1% to $17.15 billion, better than the $16.98 billion analysts expected.
  • Excluding the sale of its Australian consumer business, revenue would have been up 3%.
  • The bank reported a profit of $4.64 billion, or $2.15 per share, up from $3.15 billion, or $1.36 a share, a year earlier.
  • That beat the $1.71 per share that analysts had expected, according to FactSet.
  • In the institutional clients group, strong investment banking offset a drop in trading, and revenue rose 4% to $10.79 billion.
  • In the consumer bank, revenue fell 13% to $6.26 billion, hit by the Australian deal.
  • Investment banking fees were up 39%, with a record pace for global mergers powering advisory fees to $539 million, more than triple the prior year. Debt underwriting and equity underwriting fees rose 19% and 5%, respectively.
  • Citigroup’s trading revenue fell 5%, matching rival JPMorgan.
  • Citigroup fixed-income revenue fell 16%, while equities revenue rose 40%.
  • Spending on Citigroup credit cards rose 20% from a year ago and continued increasing from the summer.
  • But customers continued to pay off the charges, and card loans fell 2% from a year ago.
  • Citigroup freed up $1.16 billion it had set aside last year to cover loan defaults.

Domino’s Same-Store Sales Decline Breaks Growth Streak – Wall Street Journal, 10/14/2021

  • Sales at Domino’s Pizza’s U.S. stores stalled over the summer, ending the pizza chain’s streak of same-store growth during the pandemic.
  • Domino’s posted sales of $998 million, a rise from $967.7 million 12 months ago but less than the $1.03 billion that analysts were anticipating, according to FactSet’s survey.
  • At U.S. locations open for at least a year, sales dropped 1.9% in the three months through early September.
  • Despite the recent decline, same-store U.S. sales are still 16% above pre-pandemic levels from 2019, CEO Ritch Allison said.
  • Over the summer, the reversal was sharpest at company-owned U.S. stores, where comparable sales were down 8.9%. American franchise locations fared better, notching a 1.5% decline. International sales continued improving, with same-store sales abroad rising 8.8%.
  • Domino’s profit rose, climbing 30% to $3.24 a share. Analysts had expected a profit of $3.11 a share.

Membership Growth Boosts UnitedHealth’s Earnings – Wall Street Journal, 10/14/2021

  • UnitedHealth Group raised its full-year outlook and said the pandemic’s effects on its results this year have been holding true to its expectations.
  • Revenue rose to $72.34 billion, up 11% year over year.
  • The company’s profit, stripped of amortization and tax effects, was $4.52 a share. On average, analysts had been expecting $71.35 billion of revenue and adjusted earnings of $4.41 a share, according to FactSet’s survey.
  • Most of the revenue growth was from higher premiums, which rose 12% to $56.97 billion.
  • Income from Optum, the company’s health-services arm, has also been rising.
  • In the latest quarter revenue grew 14% year over year, with revenue per customer improving as Optum expands its services.
  • The healthcare giant, the first major company in the industry to post its third-quarter results, forecast a full-year profit after adjustments of $18.65 a share to $18.90 a share, a rise of about 22 cents from its previous guidance at the midpoint of the range.
  • The company also repeated an earlier projection that Covid-19 will hurt earnings by about $1.80 a share, a sign that the pandemic is unfolding in line with how UnitedHealth expected earlier in the year.

Boeing Deals With New Dreamliner Defect Amid Production Problems – Wall Street Journal, 10/14/2021

  • Boeing is dealing with a new defect on its 787 Dreamliner, the latest in a series of production slip-ups that have delayed aircraft deliveries and drawn increased U.S. government scrutiny.
  • The new problem involves certain titanium parts that are weaker than they should be on 787s built over the past three years, people familiar with the matter said.
  • The discovery is among other Dreamliner snafus that have left Boeing stuck with more than $25 billion of the jets in its inventory.
  • The finding is fresh evidence that the plane maker is still trying to fix its manufacturing operations, despite a nearly two-year push by Chief Executive David Calhoun to restore Boeing’s reputation for building quality jets.

Walgreens to Invest $5.2 Billion in VillageMD – Wall Street Journal, 10/14/2021

  • Walgreens Boots Alliance will pay $5.2 billion to acquire a controlling stake in primary-care network VillageMD as the pharmacy chain seeks to remodel itself as a healthcare provider.
  • The drugstore operator already owns a stake in VillageMD after agreeing last summer to pay VillageMD $1 billion in equity and debt over the three years in exchange for a 30% stake in the Chicago-based startup.
  • The second-largest drugstore chain by stores said the latest investment will enable it to open doctor’s offices at 600 or more locations by 2025, and another 400 by 2027.
  • Chicago-based VillageMD, founded in 2013, operates more than 200 clinics in 13 markets in the U.S., primarily in large metropolitan areas, according to its website.

Microsoft Folds LinkedIn Social-Media Service in China – Wall Street Journal, 10/14/2021

  • Microsoft’s LinkedIn said it would shut the version of its professional-networking site that operates in China, marking the end of the last major American social-media network operating openly in the country.
  • LinkedIn, in a statement Thursday, said that it made the decision after “facing a significantly more challenging operating environment and greater compliance requirements in China.”
  • In March, China’s internet regulator told LinkedIn officials to better regulate its content and gave them 30 days to do so, according to people familiar with the matter.
  • In recent months, LinkedIn notified several China-focused human-right activists, academics and journalists that their profiles were being blocked in China, saying they contained prohibited content.
  • LinkedIn said it would replace its Chinese service, which restricts some content to comply with local government demands, with a job-board service lacking social-media features, such as the ability to share opinions and news stories.

Energy crisis could threaten global economic recovery, says IEA – Reuters, 10/14/2021

  • A global energy crunch is expected to boost oil demand by half a million barrels per day (bpd) and could stoke inflation and slow the world’s recovery from the COVID-19 pandemic, the International Energy Agency (IEA) said on Thursday.
  • “Record coal and gas prices as well as rolling blackouts are prompting the power sector and energy-intensive industries to turn to oil to keep the lights on and operations humming,” the IEA said in its monthly oil report.
  • As a result, global oil demand next year is now projected to recover to pre-pandemic levels, the Paris-based agency added.
  • It made upward revisions to its demand forecasts for this year and 2022, increasing them by 170,000 bpd and 210,000 bpd respectively.
  • Meanwhile, the IEA estimated that producer group OPEC+ is set to pump 700,000 bpd below the estimated demand for its crude in the fourth quarter of this year, meaning demand will outpace supply at least until the end of 2021.
  • Spare production capacity from the group is set to shrink rapidly, it warned, from 9 million bpd in the first quarter of this year to only 4 million bpd in the second quarter of 2022.

A Winter of Giant Gas Bills Is Coming. Are You Ready? – Wall Street Journal, 10/14/2021

  • Americans got a stark warning from the government this week: Expect higher heating bills this winter.
  • According to the Energy Information Administration, nearly half of U.S. households that warm their homes with mainly natural gas can expect to spend an average of 30% more on their bills compared with last year.
  • The agency added that bills would be 50% higher if the winter is 10% colder than average and 22% higher if the winter is 10% warmer than average.
  • The forecast rise in costs, according to the report, will result in an average natural-gas home-heating bill of $746 from Oct. 1 to March 31, compared with about $573 during the same period last year.

John Deere Workers Go on Strike After Voting Down Tentative Deal

  • Deere & Co. U.S. production workers went on strike at midnight after an agreement on a new labor contract couldn’t be reached, the latest example of workers demanding better terms amid a persistent nationwide labor shortage.
  • Workers would have received wage raises of 5% to 6% this year, based on their job duties; 3% raises in 2023 and 2025; and lump-sum bonuses in three other years, according to a summary from the union.
  • The union represents 10,100 workers at 14 plants. Managers at some plants called off afternoon and overnight shifts in anticipation of a walkout, according to local news reports in Iowa.
  • Deere didn’t have an estimate as to when the employees would return to work or when the negotiations with the union would be done.

US ECONOMY & POLITICS

U.S. Initial Jobless Claims Drop to Lowest Since March 2020 – Bloomberg, 10/14/2021

  • Applications for U.S. state unemployment benefits fell last week to the lowest since March 2020, showing employers are hanging onto their workers in a tight labor market.
  • Initial unemployment claims in regular state programs totaled 293,000 in the week ended Oct. 9, a decrease of 36,000 from the prior week, Labor Department data showed Thursday.
  • Continuing claims for state benefits dropped to 2.6 million in the week ended Oct. 2.
  • On an unadjusted basis, initial claims actually rose about 16,000 from the prior week. California, Michigan, Missouri and New Mexico posted the largest increases. Tennessee, Texas and Florida were among those with the biggest decreases.

Prices Paid to U.S. Producers Post Smallest Advance This Year – Bloomberg, 10/14/2021

  • Prices paid to U.S. producers rose in September at the slowest pace of the year amid cooling costs of services including airfares as the delta variant impacted demand.
  • The producer price index for final demand increased 0.5% from the prior month and 8.6% from a year earlier, Labor Department data showed Thursday.
  • Excluding volatile food and energy components, the so-called core PPI rose 0.2%, the smallest advance this year, and was up 6.8% from a year ago.
  • The median forecasts in a Bloomberg survey of economists called for a 0.6% month-over-month advance in the overall PPI and an 8.7% gain in the core figure.
  • The cost of services rose just 0.2%, the smallest gain in three months, partly reflecting an almost 17% drop in prices for airline passenger services, the PPI report showed.
  • Prices paid to producers for goods increased 1.3%, the most in four months. Forty percent of the advance in goods was attributed to energy, the Labor Department said.
  • Producer prices excluding food, energy, and trade services — a measure often preferred by economists because it strips out the most volatile components — edged up 0.1% from the prior month, the smallest gain since May 2020.
  • Compared with a year earlier, the metric rose 5.9%.

Fed Worried About Inflation Risk as It Firmed Up Tapering Plan – Wall Street Journal, 10/14/2021

  • Federal Reserve officials last month worried that disrupted supply chains were raising the risks of more persistent inflation as they firmed up plans to reduce their bond-buying stimulus program next month and conclude it by the middle of next year.
  • Minutes of their Sept. 21-22 Fed meeting, released Wednesday, revealed a stronger consensus over scaling back the $120 billion in monthly purchases of Treasury and mortgage securities amid signs that higher inflation and strong demand could call for tighter monetary policy next year.
  • Under plans discussed last month, the Fed would reduce its purchases by $15 billion a month, divided proportionally between Treasury and mortgage bonds. Officials discussed starting the taper in mid-November; if they follow the schedule penciled out last month, purchases would conclude by June.
  • The minutes said that several participants at last month’s meeting preferred to reduce the purchases even faster. Those officials have been eager to conclude their asset buying to get flexibility to raise rates next year, if needed, because they think inflation may continue to run above the Fed’s 2% target.
  • Officials debated last month when the Fed might need to lift rates from near zero. The minutes said an unspecified number of officials raised the possibility of beginning to raise rates by the end of next year because they expected the labor market and inflation to meet goals laid out by the Fed one year ago.
  • Some of these officials thought inflation would remain elevated through next year.

Mass Evictions Didn’t Result After U.S. Ban Ended, Despite Fears – Wall Street Journal, 10/14/2021

  • When the federal moratorium on evictions ended in August, many feared that hundreds of thousands of tenants would soon be out on the streets. More than six weeks later, that hasn’t happened.
  • Instead, a more modest uptick in evictions reflects how renter protections at the city and state levels still remain in parts of the country, housing attorneys and advocates said. Landlords, meanwhile, say the risk of an eviction epidemic was always overstated and that most building owners have been willing to work with cash-strapped tenants.
  • Eviction filings in court—which are how landlords begin the process of removing tenants from their homes—were up 8.7% in September from August, according to the Eviction Lab, a research initiative at Princeton University that tracks filings in more than 30 cities.
  • But the rate is still low on a historic basis, and, at 36,796 filings, it is roughly half the average September rate pre-pandemic.

EUROPE & WORLD

China’s Factory-Gate Prices Rise at Record Pace – Wall Street Journal, 10/14/2021

  • Cost pressures on Chinese factories continued to accumulate last month as energy prices soared, dimming hope that global inflation would ease in the near term.
  • China’s producer-price index, a gauge of factory-gate prices, rose by 10.7% in September from a year ago, accelerating from a 9.5% increase in August, and grew at the fastest pace in 25 years, according to the National Bureau of Statistics.
  • The record increase was due mainly to rising prices of coal and some energy-intensive products such as nonferrous metals, steel and chemicals, said Dong Lijuan, a spokeswoman for the statistics bureau, on Thursday.
  • Meanwhile, China’s consumer inflation rose by 0.7% in September, down from 0.8% the previous month, pointing to sluggish domestic demand.

German economic institutes cut 2021 GDP forecast – Reuters, 10/14/2021

  • Germany’s top economic institutes cut their joint forecast for 2021 growth in Europe’s largest economy to 2.4% on Thursday as supply bottlenecks hamper manufacturing, but they raised their prediction for next year.
  • The five institutes – the RWI in Essen, the DIW in Berlin, the Ifo in Munich, the IfW in Kiel and Halle’s IWH – raised their 2022 forecast to 4.8% from 3.9%, saying the economy would reach normal capacity utilization over the course of the year as the impact of the coronavirus pandemic gradually eased.
  • The government does not expect inflation to ease until next year, when one-off effects run out.
  • The current inflation rate of 4.1% is at the highest level since 1993 due primarily to significant increases in energy costs.
  • The institutes said the current inflation forecast was based on an assumption that wages would rise by 2 percentage points to 2.5% in the next few years.
  • If collective wages rose by more than that, as unions suggested, this would change the situation significantly and lead to high inflation rates, they said.

Swedish inflation hits fastest pace since 2008 in Sept – Reuters, 10/14/2021

  • The pace of headline inflation in Sweden picked up to its highest level in more than a decade in September, data published on Thursday showed, though the central bank is unlikely to react unless price pressures become persistent.
  • Consumer prices in Sweden, measured with a fixed interest rate, rose 0.5% in September from the previous month and were up 2.8% from the same month last year, the statistics office (SCB) said.
  • It was the highest rate of headline inflation since October 2008, though below a forecast of 3.0% in a Reuters poll and a similar forecast by the central bank.

TSMC announces chip plant in Japan, flags ‘tight’ capacity throughout 2022 – Reuters, 10/14/2021

  • Taiwan chip giant TSMC announced on Thursday plans to build a new factory in Japan to meet long-term appetite for chips and said, near-term, tight supplies will likely continue into 2022 amid booming demand during the COVID-19 pandemic.
  • TSMC’s revenue for the quarter climbed 22.6% to $14.88 billion, in line with the company’s prior estimated range of $14.6 billion to $14.9 billion.
  • TSMC posted a net profit of T$156.3 billion ($5.56 billion) in July-September, well above the T$149 billion average of 22 analyst estimates compiled by Refinitiv. That was 13.8% higher than the same period of last year.
  • The company lifted its revenue growth forecast for 2021 to about 24%, versus an earlier forecast of above 20%, citing an “industry megatrend” of strong chip demand.
  • Wei said the company has entered a period of “higher structural growth” and set a long-term target of “50% and higher” for its gross margins.
  • For the quarter ending in December, TSMC forecast revenue of $15.4 billion to $15.7 billion, compared with $12.68 billion in the same period a year earlier.
  • Wei said TSMC’s capacity will remain “tight” this year and throughout 2022, adding its chip pricing will “remain strategic not opportunistic to reflex our value creation”.

IKEA Struggles to Stock Shelves Amid Supply-Chain Woes – Wall Street Journal, 10/14/2021

  • IKEA, the world’s largest furniture seller, said a significant share of its products are missing from store shelves around the world, with many of its flatpacks and houseware items sitting idle at warehouses waiting for trucks.
  • On Thursday, IKEA said revenue rose by 6.3% to €37.4 billion, equivalent to around $43.4 billion, in the financial year ended Aug. 31. Digital sales accounted for about 30% of IKEA’s total sales last year, up from 18% the year before.
  • Digital sales for the year grew sharply, as shoppers gravitated to online shopping during the past 18 months of on-again, off-again lockdown and Covid-19 restrictions, more than making up for any lost revenue.
  • The problem “is very global from where we sit,” said Tolga Öncü, retail operations manager at Ingka Holding, the family-controlled retailer’s main holding company and the operator of the majority of IKEA’s outlets.
  • IKEA has its products in warehouses in most cases, but fewer ways to get them to stores because of transportation strains in many of its biggest markets.
  • The U.K., in particular, has suffered for weeks from a lack of truck drivers, including those for gasoline tankers, triggering shortages and long lines at gas stations. IKEA had previously estimated that 10% of items—about 1,000 products among 10,000—weren’t available in the U.K.
  • Mr. Öncü said he couldn’t provide an exact figure for the level of goods unavailable globally, but that the U.K. was typical of the situation elsewhere.

Turkey’s Erdogan Fires Central Bank Officials, Fueling Economic Uncertainty – Wall Street Journal, 10/14/2021

  • Turkey’s economy slid further into turmoil on Thursday after President Recep Tayyip Erdogan fired three top officials at the country’s central bank in a midnight decree that drove the country’s currency to record lows.
  • The firings are Mr. Erdogan’s latest intervention at the bank after he fired three of its governors within two years, most recently installing a chief in March who agrees with his desire for lower interest rates.
  • Mr. Erdogan likely dismissed the officials for resisting his demands for lower interest rates, Ibrahim Halil Canakci, a former undersecretary of the Turkish treasury and currently an official with an opposition party said.
  • The Turkish leader has called for lower interest rates as a part of a strategy to encourage economic growth.

Factmonster – TODAY in HISTORY

  • The Normans, under William the Conqueror, defeated the English at the Battle of Hastings. (1066)
  • Nazi Germany withdrew from the Geneva disarmament conference and the League of Nations. (1933)
  • Martin Luther King, Jr., was awarded the Nobel Peace Prize for his work in civil rights. (1964)
  • The first live telecast from a staffed U.S. spacecraft was transmitted from Apollo 7. (1968)

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