Daily Market Report | December 15, 2021
US FINANCIAL MARKET
Stocks Slip, Oil Falls Ahead of Fed Decision – Wall Street Journal, 12/15/2021
- U.S. stocks fell ahead of a highly-anticipated Federal Reserve policy decision that is expected to clarify the central bank’s plans to unwind stimulus measures.
- The S&P 500 declined 0.3% in Wednesday morning trading, bringing the U.S. stock benchmark’s losses this week to 1.9%.
- The Dow Jones Industrial Average dropped 0.3%, or about 115 points. The Nasdaq Composite Index retreated 0.5%.
- Investors are awaiting an update from the Fed at 2 p.m. ET, followed by a press conference, that will signal whether the central bank will act more forcefully to temper inflation.
- U.S. consumer prices hit a 39-year high Friday and producer prices notched a record this week.
- Fed Chair Jerome Powell said recently that the central bank is prepared to accelerate tapering, clearing the way to raise interest rates next year, despite the risks to economic growth posed by the Omicron variant.
- Oil prices fell Wednesday, with global benchmark Brent crude declining 1.1%, as expectations of a faster pullback in Fed stimulus weighed on prices. The International Energy Agency said Tuesday it had reduced its forecast for 2022 energy demand, due to Omicron, and cut its supply outlook.
- This comes as more information is emerging about the Omicron variant. The first large real-world study showed that the efficacy of two Pfizer shots declined against the strain, both for infection and hospitalization.
- The variant currently accounts for about 3% of cases in the U.S.
- Retail sales rose by a seasonally-adjusted 0.3% in November, slowing from October’s pace and coming in below expectations. Economists had predicted an 0.8% increase amid the holiday shopping season.
- The yield on the benchmark 10-year U.S. Treasury note edged up to 1.448% Wednesday from 1.437% Tuesday.
- Overseas, the pan-continental Stoxx Europe 600 added 0.1%. In Asia, most major benchmarks closed down. The Shanghai Composite Index retreated 0.4%, while Hong Kong’s Hang Seng Index lost 0.9%.
- Data showed China’s economic activity slowed in November, driven by a property slump and sluggish consumer spending.
Blinken Cuts Trip Short; NFL’s Mayfield Positive: Virus Update – Bloomberg, 12/15/2021
- U.S. Secretary of State Antony Blinken scrapped the rest of his tour of Southeast Asia after a member of the press traveling with him tested positive for Covid-19, a State Department spokesman said.
- Omicron will likely be the dominant strain in Europe by mid-January, European Commission President Ursula von der Leyen said. The new variant was detected for the first time in the Philippines and in Lithuania, as it continues to spread across the globe.
- Cleveland Browns quarterback Baker Mayfield tested positive for Covid-19 and will likely miss Saturday’s game against the Las Vegas Raiders as the team deals with a widespread virus outbreak, a person familiar with the situation told the Associated Press. The National Football League as well as the National Basketball Association are facing a surge in coronavirus cases.
- The French government expects to see 4,000 Covid-related patients in ICUs around the holidays, government spokesman Gabriel Attal told reporters. That compares with about 2,800 currently.
- France has reported about 50,000 new daily coronavirus cases on average in the past week, up 11%, he said.
- Portugal reported 5,800 new coronavirus infections on Wednesday, the most since February. The number of patients in intensive-care units stands at 150.
- The figures compare with the daily record of more than 16,000 cases reported at the end of January, when the country faced one of the world’s worst outbreaks. At that time, about 900 patients were in ICUs.
- Poland registered more than 660 Covid-19 deaths in last 24 hours, 17% more than a week ago and the highest daily toll in the current wave of the pandemic. The ruling party is avoiding strict restrictions, and the government is uncertain whether a plan to allow employers to ask workers for Covid tests will get backing in parliament.
- Israel’s Sheba Medical Center will begin to vaccinate 100 volunteers from its medical staff with a fourth jab of the Pfizer-BioNTech vaccine early next week. Data from the study will be shared with Israel’s Health Ministry to help the government decide on approving a fourth dose for wider use.
- U.S. Secretary of State Antony Blinken scrapped the rest of his tour of Southeast Asia and will return to Washington after a member of the press traveling with him tested positive, State Department spokesman Ned Price said.
- Cornell University reported 903 cases of Covid-19 among students between December 7-13, and a “very high percentage” of them are Omicron variant cases in fully vaccinated individuals, according to university officials.
- The school has a mandatory vaccination policy for students, with exemptions for religious or medical issues. All unvaccinated students and many vaccinated students are required to take part in surveillance testing. Mask wearing indoors is compulsory.
- Employees must be vaccinated by January 18. Ninety-seven percent of people on campus are fully vaccinated, the university says on its website.
- As of result, the school has decided to shut down its Ithaca, New York, campus, where it has about 25,600 students.
- The university will move final exams for the semester online, cancel all activities and athletics and close the libraries, President Martha Pollack wrote in a letter to the student body posted Tuesday.
Lilly sees 2022 profit above estimates on boost from potential new drugs – Reuters, 12/15/2021
- Eli Lilly on Wednesday forecast 2022 profit above Wall Street estimates, as it bets on new drug approvals to counter the impact of competition and pricing pressures on its other key treatments.
- The company is on track to meet its goal of launching 20 new medicines over the 10-year period from 2014 to 2023, Lilly said.
- It plans to launch five more medicines over the next two years, including diabetes drug tirzepatide and Alzheimer’s disease candidate donanemab, which is set to compete with Biogen’s Aduhelm upon approval.
- “We believe the continued uptake of our key growth products … coupled with our anticipated upcoming launches will allow Lilly to deliver top-tier, volume-driven revenue growth through at least 2030,” Chief Financial Officer Anat Ashkenazi said in a statement.
- Lilly said it expects 2021 adjusted earnings per share to between $8.15 and $8.20, up from an earlier range of between $7.95 and $8.05. read more
- The company said it now expected COVID-19 therapies to bring in about $2.1 billion in sales in 2021, up from an earlier forecast of $1.3 billion.
- Profit for 2022 is expected to range between $8.50 and $8.65, above estimates of $8.18.
Record $226 Trillion Global Debt at Risk as Rates Rise, IMF Says – Bloomberg, 12/15/2021
- Global debt surged to a record $226 trillion last year, raising concerns about its sustainability as interest rates rise, the International Monetary Fund said.
- Faster-than-expected interest rate hikes could put pressure on heavily indebted nations and force governments and companies to cut back on debt and spending, hurting economic growth, IMF officials said in a report Wednesday.
- Global debt climbed by 28 percentage points to 256% of gross domestic product in 2020, the largest one-year surge since World War II, they said, citing figures from the fund’s latest Global Debt Database.
- Borrowing by governments accounted for slightly more than half of the increase in global debt in 2020, with the global public debt ratio jumping to a record 99% of GDP, according to the report.
- China alone accounted for 26% of the global debt surge last year, it said.
- Government debt in advanced economies surged to 124% of GDP in 2020 from just around 70% in 2007, according to IMF.
- Private debt in these economies, on the other hand, rose at a more moderate pace to 178% from 164% over the period, it said.
The Omicron Variant Is Chipping Away At Worldwide Air Travel – Bloomberg, 12/15/2021
- Just as global air traffic appeared to be getting closer to pre-pandemic levels, the omicron variant has grounded planes once more, stalling the recovery.
- Commercial flights were back within 15% of comparable 2019 levels in the first days of December, according to data from FlightRadar24. That was before countries around the world responded to the emergence of the new coronavirus strain by imposing more restrictions on travelers.
- By the end of the first week, flight numbers were back to more than 18% below those seen during the same period in 2019.
- The IEA cut its forecast for jet fuel demand in the first quarter of 2022 by nearly 600,000 barrels a day on Tuesday, that’s equivalent to about 10% of expected annual average purchases.
- That implies a much larger drop in flights than observed in the FlightRadar24 data so far. The current 18% drop from 2019 levels also remains significantly better than a month ago. So if the IEA is right, the worst is yet to come.
SEC Floats Money-Market Fund Rules to Deter Investor Runs – Wall Street Journal, 12/15/2021
- Wall Street regulators are set Wednesday to propose requirements for some money-market mutual funds to diminish investors’ tendency to flee the instruments during financial crises.
- Such rules would aim to prevent episodes like the ones that occurred during the past two recessions, in 2007-09 and 2020.
- The Federal Reserve backstopped the funds after they were hit with a surge of redemption requests that caused credit markets to seize up.
- The Securities and Exchange Commission plans to offer changes to make the most-vulnerable subset of money-market funds less susceptible to runs by their investors.
- The changes would include a measure called swing pricing that firms including BlackRock and Federated Hermes have warned could destroy swaths of the industry.
- The SEC’s five commissioners are set to vote on the proposal in a meeting scheduled to begin at 10 a.m. Eastern time.
- If most support issuing it, the agency will seek public comments and have another vote to make the rule final, potentially next year.
- Airline executives are expected to answer lawmakers’ questions Wednesday about why some carriers struggled at times to absorb a resurgence in travel demand, after the industry received billions of dollars in federal aid to avoid such issues.
- Carriers received some $54 billion in federal grants and were barred from furloughing workers, but some still faced growing pains after allowing thousands of workers to retire early when demand was uncertain.
- Chief executive officers of American Airlines and Southwest Airlines —among those carriers that have had staffing problems at times—will testify at a Senate Commerce Committee hearing, along with the CEO of United Airlines and the chief of operations at Delta Air Lines.
- Sen. Maria Cantwell (D., Wash.), the Commerce Committee chairwoman, said in prepared remarks reviewed by The Wall Street Journal that the airline aid broadly accomplished its goal of maintaining a robust network of air service, including to many smaller cities that would have otherwise lost service.
- Starbucks workers at two locations in the Boston area want to unionize, days after workers at a store in Buffalo, N.Y. voted in favor of unionizing and a sign that attempts to organize at Starbucks stores are spreading across the country.
- The two organizing committees are from the company’s stores at 1304 Commonwealth Ave. and 277 Harvard St., both in the Boston area.
- Starbucks Workers United, the union that backed the Buffalo campaign at the chain’s cafes, is also assisting the Boston workers.
- Starbucks executives have said that they respect the unionization process, but that a labor organization would interfere with the direct relationship it has with its workers.
- The Boston workers’ letter shows attempts to organize at Starbucks stores are gaining momentum across the country.
- Workers United, an affiliate of the Service Employees International Union, has been active on social media promoting the campaign through the Starbucks Workers United accounts.
- Starbucks workers and supporters have discussed the union campaign across numerous threads on Reddit forums.
- Tesla Chief Executive Elon Musk and Sen. Elizabeth Warren (D., Mass.) clashed with one another on Twitter after the senator called on the billionaire chief executive to pay more taxes.
- “Let’s change the rigged tax code so The Person of the Year will actually pay taxes and stop freeloading off everyone else,” Ms. Warren tweeted, referring to Mr. Musk, who this week was named Time magazine’s person of the year.
- “You remind me of when I was a kid and my friend’s angry mom would just randomly yell at everyone for no reason,” Mr. Musk said.
- “Please don’t call the manager on me, Senator Karen,” Mr. Musk added in another tweet, referring to a name with slang connotations suggesting entitlement, often used to ridicule middle-age women.
- Hackers linked to China and other governments are among a growing assortment of cyberattackers seeking to exploit a widespread and severe vulnerability in computer server software, according to cybersecurity firms and Microsoft.
- The involvement of hackers whom analysts have linked to nation-states underscored the increasing gravity of the flaw in Log4j software, a free bit of code that logs activity in computer networks and applications.
- Cybersecurity researchers say it is one of the most dire cybersecurity threats to emerge in years and could enable devastating attacks, including ransomware, in both the immediate and distant future. Government-sponsored hackers are often among the best-resourced and most capable, analysts say.
- One of the groups exploiting the security hole in Log4j is the same China-backed group that was linked to a widespread attack on Microsoft Exchange servers earlier this year, Microsoft said.
Israeli Cyber Firm NSO Explores Sale, Closure of Spyware Unit – Wall Street Journal, 12/15/2021
- Israeli cybersecurity company NSO Group is exploring a potential sale of business or the closure of its controversial spyware unit, according to a person familiar with the matter.
- The move follows a recent U.S. decision to blacklist the company over allegations that NSO’s surveillance software, called Pegasus, has been used inappropriately. Those pressures have put the company at risk of defaulting on its debt, according to ratings firm Moody’s.
- NSO is in talks with two U.S.-based investment funds about a potential sale or refinancing plan, the person said. Options being discussed include NSO sharply limiting the countries to which it sells spyware or using the technology and human talent in its Pegasus unit to create a cyber defensive product instead.
US ECONOMY & POLITICS
U.S. Retail Sales Trail Forecast, Suggesting Drag From Inflation – Bloomberg, 12/15/2021
- U.S. retail sales rose by less than forecast in November, suggesting that consumers are tempering purchases against a backdrop of the fastest inflation in decades.
- The value of overall retail purchases increased 0.3%, the smallest advance in four months after a revised 1.8% gain in October, Commerce Department figures showed Wednesday. Excluding gas and motor vehicles, sales climbed 0.2% in November. The median estimate in a Bloomberg survey called for a 0.8% gain in overall retail sales from the prior month.
- Five of the 13 retail categories showed declines in receipts last month, led by a drop at electronics and appliances merchants. Sales at non-store retailers, which includes e-commerce, were little changed in November.
- Rising prices could be driving some of the increases in categories like gasoline stations and grocery stores. Receipts at restaurants and bars, the lone services-oriented category in the data, climbed 1%.
- So-called control group sales — which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations — fell 0.1% in November from a month earlier.
- Federal Reserve officials are likely to quicken the wind-down of their bond-buying stimulus program at the conclusion of their two-day policy meeting on Wednesday, opening the door to interest-rate increases in the first half of next year.
- The move to end the stimulus program sooner than officials planned at their meeting last month offers the most concrete sign of how Fed Chairman Jerome Powell’s focus is shifting toward preventing higher inflation from becoming entrenched and away from fostering a rapid rebound in hiring.
- Mr. Powell and his colleagues have strongly signaled they might reduce the Fed’s purchases of Treasurys and mortgage-backed securities more quickly than they planned at their Nov. 2-3 meeting. They approved plans then to shrink the then-$120-billion-a-month bond purchases by $15 billion a month in November and December.
- Officials could quicken the pace at which they reduce the purchases by $30 billion a month beginning in January, which would conclude the program by March.
- Alternately, they could end the program by February if they were to reduce purchases by $35 billion a month between now and then.
- New interest-rate projections are likely to show most Fed officials expect they will need to raise rates more than once next year.
- That would be a substantial revision from projections in September, when officials were roughly divided over whether an interest-rate increase would be needed in 2022 versus 2023.
- The projections will also show the path they see for rate increases beyond next year, including how quickly they believe rates need to return to a neutral setting designed to neither spur nor slow growth.
- A significant focus of the new projections will be on where officials see annual inflation by the end of next year.
- In September, they projected core inflation, which excludes volatile food and energy categories, would fall to 2.3% at the end of next year, using the Fed’s preferred gauge. In October, core consumer prices were up 4.1% over the previous 12 months.
- Mr. Powell has suggested the central bank is likely to stop referring to inflation as “transitory,” owing partly to confusion over what the term means and partly to signal greater humility around forecasts given the magnitude of the surge in prices this year.
House Approves Increase in Debt Ceiling, Sending Measure to Biden – Wall Street Journal, 12/15/2021
- Congress passed a measure raising the government’s borrowing limit by $2.5 trillion, sending to President Biden’s desk legislation that is expected to push the next debt-ceiling standoff past the midterm elections.
- The Senate voted 50-49 to approve the legislation in the afternoon, and the House later passed it 221-209.
- The Treasury Department, which has been taking such steps as suspending certain investments to conserve cash, has warned lawmakers that it could be unable to meet the country’s obligations as soon as Wednesday if the debt ceiling isn’t raised.
- Final passage of the debt ceiling increase through Congress concludes weeks of work on the issue. In an effort to keep their political distance from the ceiling increase, Republicans negotiated an agreement allowing Senate Democrats to raise the borrowing limit along party lines, instead of with the 60 votes typically needed to advance legislation in the Senate.
- In a sign of the complicated politics of the debt limit vote, Senate Majority Leader Chuck Schumer (D., N.Y.) thanked Republicans for working with Democrats on the procedural agreement and avoiding the brinkmanship that marked the issue earlier this year.
- The House voted unanimously Tuesday to ban imports from China’s Xinjiang region over concerns about the use of forced labor, after a bipartisan agreement was reached with the Senate on the language of the legislation.
- The bill—the Uyghur Forced Labor Prevention Act—is expected to pass the Senate this week. Human-rights activists and some scholars say Chinese authorities have locked up a million or more Uyghurs and other minorities in internment camps as part of an ethnic-assimilation campaign.
- Democrats and Republicans in the Senate are expected to support the bill and have been pressing for a vote. Sen. Marco Rubio (R., Fla.) stalled passage of the Senate version of the defense-policy bill earlier in December because he wanted to see the Uyghur legislation included.
- Democrats had objected on procedural grounds, and the defense bill moved forward without the provision.
EUROPE & WORLD
- China’s economic activity decelerated in November amid a prolonged property slump and sluggish consumption recovery, adding urgency for Beijing to step up efforts to support the world’s second-largest economy.
- Industrial production expanded by 3.8% in November from a year ago, accelerating from 3.5% growth in October, a rare bright spot in China’s economy as efforts to alleviate electricity shortages led to increased coal output in recent weeks.
- Still, a persistent property downturn continued to drag on overall investments. Consumer spending, a laggard in China’s recovery from the pandemic, also showed new signs of weakening.
- Fixed-asset investment increased 5.2% in the January-to-November period, down from the 6.1% pace recorded in the first 10 months, official data showed. The reading was in line with the expectations of economists polled.
- New-home prices dropped 0.33% in November from October across 70 cities, the biggest month-over-month decline in about six years, according to calculations by The Wall Street Journal based on official data released Wednesday.
- New-construction starts by property developers, which provide jobs for migrant workers and boost China’s demand for commodities, dropped 9.1% in the January-to-November period from a year earlier, widening from a 7.7% on-year decline in the first 10 months of the year.
- Retail sales, a proxy for China’s consumption, rose just 3.9% last month from a year ago, down from October’s 4.9% year-over-year growth and lower than the 4.5% expected increase among economists polled by the Journal. China’s strict Covid-19 restrictions affected sectors including catering, where sales fell 2.7% in November, a larger decrease from a fall of 2% in October.
China’s Covid-19 Lockdowns Starting to Sting – Wall Street Journal, 12/15/2021
- China’s lockdown of many factories in the Yangtze River Delta last week in a prolonged battle with Covid-19 has underlined the economic costs of China’s stringent pandemic-control measures.
- The sudden lockdown of districts in the cities of Shaoxing and Ningbo in Zhejiang province has left business owners scrambling to pacify clients over delayed deliveries and listed companies apologizing to shareholders for expected losses.
- Over the past 10 days, Zhejiang has reported more than 200 locally transmitted cases, with roughly two-thirds in one district of Shaoxing. Zhejiang’s local economy, about 6% of China’s total economy last year, boasts an annual gross domestic product of roughly $1 trillion.
- The district, Shangyu, with about 840,000 people, is the site of a cluster of factories from traditional textile companies to high-tech firms, with exports accounting for more than one-quarter of the local economy.
- In company filings, at least 14 listed companies based in Shangyu said they have halted production after the Shangyu district government imposed a sudden lockdown last Thursday.
South African Covid-19 Hospitalizations Exceed 7,000, Deaths Rise – Bloomberg, 12/15/2021
- South African hospitals have 7,339 Covid-19 patients admitted of which 6.8% are in intensive care units, the National Institute for Communicable Diseases said in a report on Wednesday.
- Of the 497 people in ICU, 190 are on ventilators, the institute said. Of the admissions 3,086 are in Gauteng, the province that includes Johannesburg and Pretoria.
- The numbers compare with the 6,895 who were in the hospital a day earlier, with 6.8%, the same proportion, of those in ICU.
- The number of people in the hospital due to Covid-19 is, so far, about a third of the total at the height of earlier infection waves.
U.K. Inflation Accelerates at Fastest Pace in a Decade – Wall Street Journal, 12/15/2021
- Inflation in the U.K. accelerated in November to its fastest annual rate in more than a decade, propelled by supply-chain disruptions and higher energy costs that are pushing up consumer prices across many advanced economies.
- Consumer prices in the U.K. rose 5.1% in November compared with a year earlier, the Office for National Statistics said Wednesday, the biggest annual jump since Sept. 2011.
- The pickup in inflation will test the Bank of England, which is juggling the risk of a sustained bout of price-growth against renewed economic uncertainty caused by the Omicron variant of coronavirus.
- Officials are expected to keep their benchmark interest rate on hold when they announce their latest policy decision Thursday, but most economists expect a rate increase early in 2022.
Factmonster – TODAY in HISTORY
- The Bill of Rights took effect with Virginia’s ratification of it. (1791)
- Sioux Indian chief Sitting Bull was killed by Native American police. (1890)
- The movie Gone With the Wind premiered in Atlanta, Georgia. (1939)
- Adolf Eichmann was sentenced to death by an Israeli court for organizing the deportation of Jews to concentration camps. (1961)
- Animated-cartoon pioneer and movie producer Walt Disney died in Los Angeles. (1966)
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