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Daily Market Report | December 14, 2021

US FINANCIAL MARKET

S&P 500, Nasdaq Extend Monday’s Losses – Wall Street Journal, 12/14/2021

  • U.S. stocks traded lower Tuesday ahead of the Federal Reserve’s two-day policy meeting, which is expected to end with the central bank signaling a faster wind-down of its bond-buying program.
  • The S&P 500 fell 1% Tuesday morning. The index also declined Monday, pulling the gauge back from a record high notched last week. The tech-focused Nasdaq Composite Index fell 1.6%, while the Dow Jones Industrial Average slipped 0.4%.
  • Investors are watching to see if the uptick in Covid-19 cases and the new Omicron variant change how quickly the Fed will end easy-money policies that have helped fuel this year’s stock rally. The central bank, which concludes its meeting Wednesday, could also signal that it will raise interest rates sooner than expected next year to curb inflation.
  • Inflation worries continue to be top of mind for many investors. The Labor Department said Tuesday that its producer-price index rose 0.8% in November from the prior month. It measures the prices that suppliers charge businesses and other customers.
  • In bond markets, the yield on the benchmark 10-year Treasury note ticked up to 1.443% from 1.423% Monday. Yields and prices move inversely.
  • Brent crude futures, the benchmark in global oil markets, declined 1.5% to $73.30 a barrel. On Tuesday, the International Energy Agency said Omicron’s emergence would “temporarily slow, but not upend, the recovery in oil demand.”
  • Overseas, the Stoxx Europe 600 index fell 0.2%. London-listed shares of Rentokil Initial declined 9% after the pest-control company said Tuesday that it would buy Terminix Global Holdings in a deal that values the U.S. firm at $6.7 billion. Terminix surged 21%.
  • Major stock indexes in Asia closed lower. Hong Kong’s Hang Seng contracted 1.3% and Japan’s Nikkei 225 shed 0.7%. China’s Shanghai Composite and South Korea’s Kospi each declined about 0.5%.

California to Reinstate Indoor Mask Mandate – Wall Street Journal, 12/14/2021

  • California will again require masking in all public indoor settings regardless of vaccination status as it confronts rising case rates ahead of the winter holidays and uncertainty about the Omicron variant.
  • Mark Ghaly, secretary of the California Health and Human Services Agency, said Monday that masks will be required in all public indoor spaces for one month beginning Wednesday through January 15.
  • The state will also require those attending large indoor events to provide proof of a negative PCR test taken within 48 hours before the event.
  • Previously, the window was 72 hours. People who use a rapid antigen test must take it within 24 hours of the event.
  • A statewide mask mandate went into effect in New York on Monday, but allows exceptions for settings where vaccination is required to enter. It also expires on Jan. 15.

Pfizer Says Its Covid-19 Pill Likely Works Against Omicron – Wall Street Journal, 12/14/2021

  • Preliminary laboratory tests gave encouraging signs that Pfizer Inc.’s PFE +0.08% experimental Covid-19 pill for the newly infected could work against Omicron, the company said.
  • Pfizer also said Tuesday that a final analysis of late-stage study results confirmed the drug, named Paxlovid, was 89% effective at reducing the risk of hospitalization and death in adults at high risk of severe Covid-19.
  • Paxlovid in the early study analysis reduced the risk of hospitalization and death by 70% in adults at low risk of severe Covid-19, though it failed to reduce or resolve their symptoms within four days.

Uber, Google, Ford Delay Office Return as Omicron’s Spread Threatens Business Districts – Wall Street Journal, 12/14/2021

  • Office-building owners and small businesses near such properties are bracing for another letdown in January, as the latest Covid-19 variant threatens to interfere with widespread company plans to return to the workplace.
  • That list includes Lyft, Ford Motor, Uber Technologies and Alphabet’s Google, though not all point to the new variant as the reason.
  • The pullback is in some ways reminiscent of September, when the Delta variant forced numerous companies to cancel their return-to-office plans, upending hopes that there would be a major back-to-office surge following Labor Day.
  • Sales at restaurants, bars and other small businesses near office buildings have suffered for nearly two years, causing these operators to scramble to make rent payments and keep their operations alive. Some are already reconciling themselves to a poor start to the new year.
  • “January gets pushed back to February. February will get pushed back to March,” said Rick Passarelli, owner of a Bobby Van’s steakhouse in Midtown Manhattan. “It keeps getting pushed back.”

Omicron Will Slow Oil Demand Recovery but Not Destroy It, IEA Says – Wall Street Journal, 12/14/2021

  • The Omicron variant’s emergence will allow the supply of oil to overtake the rate at which the world is consuming it, easing the supply tightness of recent months, the International Energy Agency said Tuesday.
  • The IEA trimmed its 2022 supply forecast from non-OPEC producers by 100,000 barrels a day and cut its demand forecast by the same amount, saying it expects the surge in coronavirus cases to stymie the recovery in global demand.
  • Air travel and, in particular, the consumption of jet fuel, will be most affected by the Omicron variant, the IEA said in its monthly market report. But overall, the variant’s emergence will “temporarily slow, but not upend, the recovery in oil demand,” the Paris-based energy watchdog said.
  • The IEA’s opinion that Omicron’s impact will be relatively muted echoed the Organization of the Petroleum Exporting Countries’s view. However, there is a gap between the two energy bodies’ assessment of global oil production in the year ahead.
  • The Vienna-based cartel referred Monday to a lack of investment by oil-producing countries outside its OPEC+ alliance as “limiting growth potential,” but the IEA highlighted that the U.S., Canada, and Brazil are expected to pump at record levels, lifting non-OPEC production by 1.8 million barrels a day in 2022.
  • The IEA said that Saudi Arabia and Russia—the two leaders of OPEC+—could also set production records, if the alliance continues its policy of unwinding production cuts implemented last year when the pandemic’s global economic impact at its worst.

Apple, Google Hold ‘Vise-Like Grip’ on Smartphones, U.K. Regulator Says – Wall Street Journal, 12/14/2021

  • Apple and Alphabet’s Google hold a “vise-like grip” over how people use mobile devices, Britain’s antitrust regulator said Tuesday, and said it was assessing whether it would try to loosen what it said was their control over smartphone ecosystems.
  • The preliminary report is among several, nonbinding research efforts by the U.K. and other antitrust regulators in Europe into competition in the tech industry. It doesn’t come with any regulatory action like fines or remedial orders.
  • Still, previous reports have laid the foundation for more specific action and legislative proposals by regulators in the U.K. and Europe.
  • On Tuesday, the head of the CMA said its 445-page report found that Apple and Google determine which software is available on their app stores and make it difficult for people to switch to alternate web browsers on their phones.
  • He said that control limits innovation and choice, and leads to higher prices.

Hard Rock to Buy Mirage Casino on Las Vegas Strip for $1.1 Billion – Wall Street Journal, 12/14/2021

  • Hard Rock International has agreed to buy the operations of the Mirage casino on the Las Vegas Strip from MGM Resorts International for nearly $1.1 billion with plans to build a giant guitar-shaped hotel on the glitzy boulevard.
  • The deal with Hard Rock, owned by the Seminole Tribe of Florida, is the latest of several financial transactions on the Strip, which was hit hard during the pandemic closures but has seen a tourism rebound.
  • The sale of the Mirage operations is expected to close in the second half of 2022, pending regulatory approvals.

JPMorgan tells unvaccinated Manhattan staff to work from home – Reuters, 12/14/2021

  • JPMorgan Chase & Co on Wednesday instructed unvaccinated staff in Manhattan to work from home, a further sign that banks and other financial firms are tightening protocols in the wake of the Omicron coronavirus variant.
  • The U.S. bank, one of the most aggressive in bringing employees back to the office, had previously allowed unvaccinated staff to work in its Manhattan offices provided they were tested twice a week.
  • In a memo to staff seen by Reuters, the bank urged unvaccinated staff to get vaccinated and for those vaccinated to get booster shots. It also relaxed mask requirements for vaccinated staff working in its Manhattan offices.
  • Vaccinated staff will now have to wear masks only when walking through lobbies, riding in elevators and in cafés when not eating, the memo said.

3M Agrees to Combine Its Food-Safety Unit With Neogen – Wall Street Journal, 12/14/2021

  • 3M on Tuesday agreed to combine its food-safety business with Neogen, a food testing and animal healthcare specialist, to create a combined company worth $9.3 billion, including debt.
  • Neogen, based in Lansing, Mich., has a market value of $4.3 billion, while 3M’s is around $100 billion. The Wall Street Journal earlier reported such a deal was imminent.
  • The deal is structured as a Reverse Morris Trust, a tax-efficient way for companies to sell off a division, with Neogen’s management team running the combined company. It values the 3M unit at $5.3 billion. Existing 3M shareholders will own 50.1% of the combined company.
  • Neogen offers test kits and other products to help track sanitation and allergens everywhere in the food-supply chain from “the farm gate to the dinner plate.”

Cash Glut in Eurozone Drives Dollar Demand – Wall Street Journal, 12/14/2021

  • Cash-rich eurozone banks are rushing to change their euros into dollars by the end of the year, driving a key measure of demand for the greenback.
  • The interest rates on three-month euro cross-currency basis swaps, in which one party borrows a currency and lends their own in return, have turned more negative in recent weeks. That means traders in Europe are paying a premium to exchange excess euros for dollars.
  • The steeper cost in part reflects a wave of programs initiated by the European Central Bank, analysts and investors say. Intended to boost lending to households and businesses during the economic recovery from Covid-19, the programs have saddled eurozone banks with more cash than they want, prompting them to seek ways to get rid of it.

US ECONOMY & POLITICS

U.S. Producer Prices Post the Biggest Annual Gain Since 2010, Fanning Inflation – Bloomberg, 12/14/2021

  • Prices paid to U.S. producers posted a record annual increase of almost 10% in November, a surge that will sustain a pipeline of inflationary pressures well into 2022.
  • The producer price index for final demand increased 9.6% from a year earlier and 0.8% from the prior month, Labor Department data showed Tuesday. Both advances topped economists’ forecasts.
  • Excluding the volatile food and energy components, the so-called core PPI increased 0.7% and was up by a record 7.7% from a year ago.
  • Producer prices excluding food, energy, and trade services — a measure often preferred by economists because it strips out the most volatile components — rose 0.7% from the prior month. Compared with a year earlier, the gauge jumped a record 6.9%.
  • Goods prices increased 1.2% in November from a month earlier, reflecting broad advances that included iron and steel scrap, gasoline, and fruits and vegetables.
  • Services costs rose 0.7%, in part reflecting a jump in prices for investment portfolio management.
  • Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, rose 1.5% from a month earlier. Compared with a year earlier, the measure jumped 26.5% — the largest since 1974.

Fed Meets for First Time Since Powell Signaled Policy Shift – Wall Street Journal, 12/14/2021

  • Federal Reserve officials meet Tuesday and Wednesday for the first time since Chairman Jerome Powell said last month that the central bank needed to shift its focus toward preventing higher inflation from becoming entrenched and away from fostering a rapid rebound in hiring from the pandemic.
  • The pivot raises the prospect that the Fed’s postmeeting statement—a document parsed by markets as a signal of likely future policy—could be overhauled at the conclusion of their meeting Wednesday.
  • In congressional testimony Nov. 30 and Dec. 1, Mr. Powell suggested that the central bank’s statement would stop characterizing higher inflation as “transitory,” in part because the term was confusing. In its place, the Fed could simply describe various forces contributing to higher inflation, some of which officials don’t expect to last.
  • Officials might also recast part of the statement that since September 2020 has described inflation as having run below 2%. “That language sounds a little out of touch with what’s going on,” Mr. Powell said last month.
  • Fed officials’ economic projections to be released Wednesday could shed additional light on changes to their policy outlook. In September, they were evenly divided between whether they would likely start lifting interest rates in 2022 or in 2023.
  • The new projections could show most now expect multiple rate rises next year.

U.S. consumers expect short-term inflation to rise at twice pace of wage gains – Reuters, 12/14/2021

  • U.S. consumers’ short-term inflation expectations pushed higher in November and expectations for future earnings growth dropped, suggesting they anticipate price increases will outpace wage gains at an even faster rate in the near term, according to a survey released on Monday by the New York Federal Reserve.
  • Consumers said they expect inflation to reach a median of 6.0% in one year, up from an expectation of 5.7% in October.
  • Expectations for year-ahead earnings growth dropped to 2.8% in November from 3.0% in the previous month.
  • That would leave inflation growing 3.2 percentage points faster than earnings in one year, the widest gap since the survey launched in 2013.
  • Median expectations for what inflation could be in three years, however, dropped to 4.0% from 4.2%, the first decline since June and only the second drop since October 2020.
  • And uncertainty over what future inflation could look like also rose to new highs for the New York Fed survey.
  • The survey showed expectations for future home price growth declined slightly last month, but consumers are still expecting more robust growth than they did before the coronavirus pandemic.
  • Consumers said they expect home prices to rise by a median of 5% in one year, down from 5.6% in October but well above the 3.1% expected in February 2020.

U.S. Troops Won’t Face Charges in Kabul Airstrike That Killed 10 Civilians – Wall Street Journal, 12/14/2021

  • No one in the U.S. military will face criminal charges in connection with an airstrike in Kabul that killed 10 civilians in the last days of the U.S. war in Afghanistan, the Pentagon said Monday.
  • On Aug. 29, a U.S. drone killed Zemari Ahmadi, a 37-year-old technical engineer with a U.S. humanitarian organization, Nutrition & Education International, and nine other civilians including seven children.
  • In November, a Pentagon review of the strike concluded that American forces made a series of mistakes and misinterpretations, including failing to spot the children nearby minutes before the strike, but found the service members who carried out the strike violated no laws of war.
  • Defense officials said the U.S. feared Mr. Ahmadi was loading explosive materials into his car to attack the troops at the airport. In fact, Mr. Ahmadi was transporting water and other supplies, defense officials learned afterward.
  • Mr. Ahmadi’s employer called the Pentagon’s decision “shocking.”

United Arab Emirates Threatens to Pull Out of $23 Billion F-35, Drone Deal With U.S. – Wall Street Journal, 12/14/2021

  • The United Arab Emirates is threatening to pull out of a multibillion-dollar deal to buy American-made F-35 aircraft, Reaper drones and other advanced munitions, U.S. officials said, in what would be a significant shake-up between two longtime allies increasingly at odds over China’s role in the Gulf.
  • The Emirati government told U.S. officials that it intended to kill the deal because Abu Dhabi thought security requirements the U.S. had laid out to safeguard the high-tech weaponry from Chinese espionage were too onerous, officials said.
  • It was unclear whether the $23 billion arms deal, inked in the final days of the Trump administration, is dead, or whether the Emirati threat is a bargaining move on the eve of a planned visit Wednesday by a high-level U.A.E. military delegation to the Pentagon for two days of talks.
  • The U.S., the U.A.E. official said, “remains the U.A.E.’s preferred provider for advanced defense requirements and discussions for the F-35 may be reopened in the future.”

EUROPE & WORLD

China Fines Weibo for Spreading ‘Illegal Information’ – Wall Street Journal, 12/14/2021

  • Chinese authorities said they have fined social-media giant Weibo millions of dollars for a string of infractions, the second time in two weeks that Beijing has announced the punishment of a major internet platform amid a further tightening of controls online.
  • The Cyberspace Administration of China said on Tuesday that Twitter-like Weibo had been ordered to pay a penalty of 3 million yuan, the equivalent of about $471,000, for disseminating “illegal information” in severe violation of regulations including the country’s cybersecurity law and its law governing the protection of minors.
  • The internet regulator said its Beijing office had separately fined Weibo more than 40 times for violations over the first 11 months of the year, resulting in a total penalties equal to $2.2 million.
  • The company’s Hong Kong shares fell almost 10% in trading Tuesday. The Hang Seng Tech Index dropped 2.3%.

Hungary Ends QE Programs, Vows ‘Long’ Tightening Campaign – Bloomberg, 12/14/2021

  • Hungary said it would continue a cycle of interest rate hikes and shut down its quantitative-easing programs, removing brakes on one of the most aggressive monetary tightening campaigns in Europe.
  • The forint extended gains against the euro after the central bank said it has ended its programs for buying corporate and government bonds following a meeting on Tuesday. Deputy Governor Barnabas Virag said the tightening campaign would be “long” and extend into 2022.
  • Earlier, policy makers raised the required reserve rate by 30 basis points to 2.4%, less than the 40 basis points that was the median estimate in a Bloomberg survey. It also increased the low-end of the interest-rate corridor by 80 basis points to 2.4% and the high-end by 30 basis points to 4.4%, reinforcing the upward trajectory of interest rates.

Toyota, in Reversal, Says It Will Shift More Rapidly to EVs – Wall Street Journal, 12/14/2021

  • Toyota Motor, the last voice of caution about electric vehicles among the world’s top auto makers, on Tuesday declared itself a believer and said it would make 3.5 million EVs a year by 2030.
  • Toyota said it wanted all models in its upscale Lexus brand to be electric by 2030 in the U.S., China and Europe. And it showed off more than a dozen of the 30 EV models it intends to have on sale by that year.
  • Still, it cautioned that many of its customers, especially in the U.S. outside the coasts, weren’t ready yet for a battery-powered car and might not be for some time.
  • The company said it would increase spending on battery research and production to ¥2 trillion, equivalent to $17.6 billion, up from a previous plan of ¥1.5 trillion. A battery plant is planned for North Carolina.
  • In total, the company said it would spend up to about $35 billion on electric vehicles over the next decade.

Gas Truck Blast in Haiti Kills at Least 60 People in Latest Disaster for Nation – Wall Street Journal, 12/14/2021

  • At least 60 people died when a tanker truck carrying gasoline exploded in Haiti’s second-largest city, Haitian officials said Tuesday, the latest in a string of recent tragedies to hit the hemisphere’s poorest nation that include a presidential assassination, a devastating earthquake and mass kidnappings.
  • Patrick Almonor, the deputy mayor of Cap-Haïtien, told local radio station Magik9 that the death toll from the late Monday blast was likely to rise further since the explosion burned some 20 nearby homes, likely with victims trapped inside that had not yet been counted, he said.
  • Prime Minister Ariel Henry said on Twitter that the blast also wounded dozens more and caused significant damage. Mr. Henry said field hospitals would be set up to attend to the injured, and declared three days of national mourning for the victims.

Factmonster – TODAY in HISTORY

  • George Washington died at age 67. (1799)
  • Norwegian explorer Roald Amundsen became the first man to reach the South Pole, beating an expedition led by Robert F. Scott. (1911)
  • The Soviet Union was dropped from the League of Nations. (1939)
  • Israel formally annexed the Golan Heights. (1981)
  • Adam Lanza, age 20, killed 26 people at Sandy Hook Elementary School, in Newtown, Connecticut. The victims included 20 children between the ages of 6 and 7. Lanza killed himself while still inside the school. (2012)

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