Business News Archives for 2022-12

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Global stocks are set to close out the worst year since the 2008 financial crisis after the battle by central banks to tame inflation and the war in Ukraine sent powerful waves rushing across asset markets. The broad MSCI All-World index of developed and emerging market equities has shed nearly a fifth of its value in 2022, with bourses from Wall Street to Shanghai and Frankfurt all notching up significant losses. Bond markets also endured heavy selling: the US 10-year government bond yield, a global benchmark for long-term borrowing costs, has shot up to 3.8 per cent from about 1.5 per cent at the end of last year — the biggest annual increase on Bloomberg records stretching to the 1960s.


Global dealmaking suffered a record fall during the second half of this year, as rising interest rates and economic uncertainty brought a period of frenzied activity to an abrupt close. Mergers and acquisitions worth $1.4tn were announced during the six months to December, down from the $2.2tn agreed in the first half of 2022. It was the biggest swing, from one six-month period to the next, since records began in 1980. The overall volume of deals struck globally in 2022 was down 38 per cent from 2021, the largest year-on-year drop since 2001.

 

European natural gas prices have fallen to levels last recorded before Russia’s full-scale invasion of Ukraine in February, as warmer weather helps the continent to preserve its reserves.

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Silicon Valley workers are scrambling to offload stakes in tech start-ups through private share sales after a wave of job cuts, compounding a collapse in valuations. Employees of embattled tech groups are flooding secondary markets — where stakeholders in a private company sell shares to third parties — as the industry’s former darlings like Klarna and Stripe have been forced into aggressive cost-cutting measures, according to brokers and investors.

ExxonMobil is suing the EU in a bid to force it to scrap the bloc’s new windfall tax on oil groups, arguing Brussels exceeded its legal authority by imposing the levy. The lawsuit is the most significant response yet against the tax from the oil industry, which has been targeted by western governments amid a surge in energy prices following Russia’s invasion of Ukraine.

Oil and gas groups are set to dominate the list of best-performing US stocks in 2022, after bumper profits following Russia’s invasion of Ukraine drew investors back to the sector. Of the 25 performers in the benchmark S&P 500 index of stocks, as many as 15 will be fossil fuel operators. The energy sector has climbed almost 60 per cent, a sharp contrast with a 21 per cent drop in the S&P 500 as a whole.

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Holiday sales rose this year as American spending remained resilient during the critical shopping season despite surging prices on everything from food to rent, according to one measure.  Holiday sales rose 7.6%, a slower pace than the 8.5% increase from a year earlier when shoppers began spending the money they had saved during the early part of the pandemic, according to Mastercard SpendingPulse, which tracks all kinds of payments including cash and debit cards.

The S&P CoreLogic Case-Shiller 20-city house price index fell 0.5% in October, its fourth monthly decline.  Year-over-year prices rose 8.6%, slowing from 10.4% in the previous month.  Miami, Tampa, and Charlotte reported the highest year-over-year gains among the 20 cities in October, but all 20 cities reported lower price increases.  San Francisco and Seattle reported the lowest year-over-year gains, which have seen prices fall by more than 10% from a peak in May.  No cities saw home price growth rise on a monthly basis in October.

Tesla’s sell-off intensified yesterday, with the stock dropping an additional 8%. The electric car company is days away from closing out its worst month, quarter and year on record to become the worst-performing stock in 2022 among the most valuable tech companies.

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U.S. consumer spending barely rose in November, while annual inflation increased at its slowest pace in 13 months, but demand is probably not cooling fast enough to discourage the Federal Reserve from driving interest rates to higher levels next year.

New home sales were up in November from the month before, even as prices remained elevated and buyers faced some of the highest mortgage rates of the year.  Sales of newly constructed homes rose 5.8% in November from October, but were down 15.3% from a year ago, according to the US Census Bureau. This is the second consecutive month of sales increases. Meanwhile, the median price for a new home dropped to $471,200, down from $493,000 the previous month. But it was still higher than the median price a year ago, which was $430,000.

Orders for manufactured goods sank 2.1% in November in another sign of slackening demand in the U.S. economy as the year winds down.  Fewer contracts for commercial jets explained most of the weakness last month. But orders minus transportation and a key measure of business investment posted just very small increases.  Orders rise in an expanding economy and shrink when growth weakens. A variety of measures point to waning demand for goods due to a more fragile economy and a shift in consumer spending toward services such as travel and recreation.

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Micron Technology said that it will cut its workforce by 10%, and keep tightening its financial belt in 2023 as it foresees more negativity across the semiconductor market. Micron gave its business assessment along with its fiscal first-quarter results after the market close. The company missed slightly on the top and bottom lines. Based on its recent employee numbers, Micron would be cutting almost 5,000 workers in the year ahead.

The number of Americans who applied for unemployment benefits in the week before Christmas rose slightly to 216,000, but new filings remained low and signaled the labor market is still quite strong. The number of people already collecting unemployment benefits, meanwhile, was basically unchanged at 1.67 million. It’s the highest reading since February, but also quite low historically.

The National Football League announced Thursday its Sunday Ticket subscription package would go to Google’s YouTube TV starting next season, marking the league’s second media rights deal with a streaming service. YouTube TV will pay roughly $2 billion a year for the rights of the Sunday Ticket package, seemingly putting a nail in the coffin of Direct TV.

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Nike rallied after sliding past consensus marks with its FQ2 earnings report. A drop in revenue in Greater China was more than offset by gains in Asia Pacific & Latin America, North America and Europe.  Footwear sales were up 25% to $8.50B, while apparel sales rose 4% to $3.8B. Worryingly, Nike ended the quarter with inventory up 43% year-over-year.  Net income for the sportswear giant was flat compared to a year ago at $1.3B.

Mortgage interest rates dropped again last week, and while that did little to bolster demand from homebuyers, it did send homeowners looking for savings on their monthly payments. Applications to refinance a home loan jumped 6% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume, however, was still 85% lower than the same week one year ago.

More bankruptcy in Crypto: one of the largest US-listed bitcoin miners has filed for bankruptcy as companies battle falling token prices and rising costs for the energy-intensive business of churning out cryptocurrencies. Core Scientific filed for Chapter 11 bankruptcy protection in Texas, where it is based. The company said it planned to keep operating and producing bitcoin while it hammered out a restructuring deal with its lenders and creditors.  Last April the company’s market value exceeded $3bn.

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Millionaire investors are betting on double-digit declines in stocks next year, reflecting their most bearish outlook since 2008, according to the CNBC Millionaire Survey.  Fifty-six percent of millionaire investors surveyed expect the S&P 500 to decline by 10% in 2023. Nearly a third expect declines of more than 15%. The survey was conducted among investors with $1 million or more in investible assets.  They also expect falling equities to reduce their wealth. When asked about the biggest risk to their personal wealth over the next year, the largest number (28%) said the stock market.  The last time millionaire investors were this gloomy was during the financial crisis and Great Recession more than a decade ago.

Confidence among U.S. single-family home builders fell for a record 12th straight month in December as even a scramble to offer incentives for prospective buyers failed to boost traffic and lift sales in the current high-inflation environment.  The National Association of Home Builders said their NAHB/Wells Fargo Housing Market Index dropped two points to 31 this month. A reading above 50 indicates that more builders view conditions as good rather than poor.

Disney's "Avatar: The Way of Water" delivered director James Cameron his first $100-million opening weekend — but missed industry expectations of $170 million-plus.  The much-anticipated sequel, which runs 3 hours and 12 minutes, secured roughly $134 million in domestic markets — tying with Warner Bros.' "The Batman" as the fifth-highest opener of 2022.

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Consumers are looking more miserly than expected into the year-end, according to Wall Street channel checks. Nearly across the board, analysts are voicing concerns on consumer belt-tightening, coupled with a shift away from goods consumption. While e-commerce spending was noted as on the rise nominally, as reflected in Adobe Black Friday sales data, inflation dampens enthusiasm on that front. Meanwhile, retail sales data overall indicates brick-and-mortar spending is slowing substantially as well.

Global coal use is on course to increase by 1.2% to hit a record high this year, according to a report from the International Energy Agency.  The rising price of natural gas  has prompted a wave of fuel switching away from gas, pushing up demand for more price competitive options – namely coal.  The IEA report painted a picture of uncertainty moving forward – essentially, the price of gas will drive coal demand.

The metaverse has become the hottest concept ever in the history of exchange traded funds — despite steady media coverage suggesting there has been little interest in the “sub-theme”. A total of 35 metaverse-badged ETFs have launched globally since the first rolled off the conveyor belt in June 2021, according to data from Morningstar. This exceeds the number for any other “sub theme”, according to Morningstar classifications, ever, trumping the 32 for internet ETFs, 29 for blockchain ones, 23 for cloud computing and 22 for cyber security.

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Stocks fell sharply yesterday after a report showing US retail sales fell sharply at the start of the holiday shopping season, dropping by 0.6% during the month of November, according to data released by the Commerce Department.   Pullbacks in auto sales helped drive the decline — the largest monthly decrease seen all year — but even excluding autos, monthly sales declined by 0.2%, despite cooling inflation.

 

The number of first-time claims for unemployment benefits fell to 211,000 for the week ended December 10, according to data released by the Department of Labor.   That’s a drop of 20,000 from the previous week’s total, and the lowest level since September.

 

Mortgage rates edged lower this week, remaining at their lowest point since September, but the decline is likely not enough to materially revive housing confidence that’s near all time lows.  The rate on the average 30-year fixed mortgage decreased to 6.31% this week.  Rates have plunged in the last month, after signs of cooling inflation could mean the Federal Reserve will slow its aggressive interest-rate hikes.

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The Federal Reserve is expected to raise interest rates by a smaller half percentage point later today yet signal that their battle with inflation is still far from over.  The central bank is also slated to release new forecasts for interest rates and the economy when they wind down their two-day meeting this afternoon. Fed officials have indicated they would reduce the size of rate hikes, after four straight three-quarter percentage point hikes in a row.

United Airlines announced they will buy 100 Boeing 787 Dreamliner jets to replace their aging widebody fleet, seeking to improve costs and drive global growth.  Boeing’s stock gained, while United’s stock plunged.   United is also buying 100 Boeing 737 Max narrowbody jets.  The new Dreamliner jets will fly United's longest routes and replace older, less-efficient aircraft.  The huge order from United is a big win for the aviation giant, and it’s the largest 787 Dreamliner order in Boeing history.

A federal indictment was unsealed alleging widespread fraud by FTX co-founder Sam Bankman-Fried, a day after the fallen crypto exchange operator was arrested in the Bahamas in connection with the charges.  The indictment in U.S. District Court in Manhattan charges Bankman-Fried with eight criminal counts: conspiracy to commit wire fraud and securities fraud, individual charges of securities fraud and wire fraud, money laundering, and conspiracy to avoid campaign finance regulations.

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Prices rose less than expected in November, the latest sign that the runaway inflation that has been gripping the economy is beginning to loosen up.  The consumer price index, which measures a wide basket of goods and services, rose just 0.1% from the previous month, and increased 7.1% from a year ago, according to the Labor Department.  The increase from a year ago, while well above the Federal Reserve’s 2% target for a healthy inflation level, was tied for the lowest since November 2021.

U.S. small-business confidence rebounded in November, according to a survey on Tuesday, which also showed that inflation and worker shortages remained major issues for business owners.  The National Federation of Independent Business said their Small Business Optimism Index rose 0.6 point to 91.9 last month amid an improvement in the share of owners who expected better business conditions over the next six months.

Mortgage rates maintained a downward trajectory last week, dropping for the fourth time in as many weeks. The average rate for a 30-year fixed-rate mortgage dropped to 6.33% for the week ending Dec. 8, this was a decrease from the previous week when it averaged 6.49%. The 15-year mortgage was 5.67% last week, down from 5.76% the week.  

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Big Tech appears to be in for a rude awakening as the Federal Trade Commission flexes its muscles under the leadership of Lina Khan. The antitrust enforcer has voted 3-1 to block Microsoft's $69B deal for game developer Activision Blizzard, making waves across the industry. The decision is a clear sign that Khan and her team at the FTC will be more aggressive in fighting mergers. Microsoft has gone to great lengths in recent days and weeks to assuage the fears, like inking a deal to bring Call of Duty to Nintendo for the next decade.

Costco uncharacteristically missed earnings estimates after the bell on Thursday. Investors were eager to hear the results given the headwinds facing the economy, as well as whether spending is being diverted from discretionary items to the necessities.  The retailer reported $53bn in revenue for the quarter.  The miss wasn't seen as major, with the stock hardly moving in response, but it did suggest that many shoppers are paring back on bigger ticket items. Comparable sales from stores open at least a year also rose 7.1% during the period, marking the first time the figure has fallen below 9% over the past two years.

Wholesale prices rose more than expected in November as food prices surged, dampening hopes that inflation could be headed lower, the Labor Department reported this morning. The producer price index, a measure of what companies get for their products in the pipeline, increased 0.3% for the month and 7.4% from a year ago.

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Recurring applications for US unemployment benefits rose to the highest level since early February, suggesting that Americans who are losing their job are having more trouble finding a new one as the labor market shows tentative signs of cooling. Continuing claims, which include people who have already received unemployment benefits for a week or more, climbed by 62,000 to 1.7 million.

US Worker Productivity fell at a 1.3% rate from a year ago. It has now declined for three straight quarters on an annual basis. Large shifts in the composition of the workforce in the wake of the pandemic have greatly impacted how productive the American workforce is.  More proof working from home isn’t productive.

Wholesale prices of used vehicles reached their lowest level in more than a year last month, as retail sales decline amid interest rate hikes, rising new vehicle availability and recessionary fears.  Cox Automotive said their Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at its U.S. wholesale auctions, has declined 15.6% from record levels in January through November.  It marks the sixth-consecutive month of declines.

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Theft is becoming a big problem for retailers, especially as margins show signs of slowing in the current economic environment. According to the National Retail Federation's Retail Security Survey, retail "shrink" is now an almost $100B problem, up from $94.5B in losses in 2021, and $90.8B in 2020. While "shrink" encompasses many types of losses like gift card fraud and inventory mismanagement, it is primarily driven by external theft, which has prompted companies to boost their budgets for loss prevention and technology.

Supply chain disruptions are still very real for companies and their investors. Airbus has become the latest firm to roll back targets for 2022, saying its guidance for "around 700" commercial aircraft deliveries is now out of reach. It's the second time the European plane-maker has lowered its delivery forecast, originally predicting 720 handovers before cutting its guidance in the summer.

Morgan Stanley cut about 2% of its staff on Tuesday, according to people with knowledge of the layoffs. Morgan Stanley is following rival Goldman Sachs and other firms including Citigroup and Barclays in reinstating a Wall Street ritual that had been put on hold during the Coronavirus pandemic: the annual culling of underperformers. Banks typically trim 1% to 5% of those they deem their weakest workers before bonuses are paid, leaving more money for remaining employees.

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Taiwan Semiconductor Manufacturing is set to make history with one of the largest foreign investments in the United States. The company will announce plans today to build its second chip plant in Arizona, increasing its investment in the state to $40B. The event will be attended by President Biden, as well as CEOs who will benefit from the increase in American chip production, like Apple's CEO Tim Cook, Micron's Sanjay Mehrotra and Nvidia's Jensen Huang. TSMC previously disclosed a $12B investment plan to build its first factory in Arizona that was slated to manufacture 5-nanometer chips.

Another shakeup at Salesforce is continuing to shake up the stock. Stewart Butterfield, the head of Slack, will leave the messaging and communications company that Salesforce acquired for $27B in August 2021. His departure follows another high-profile exit last week, which saw Salesforce co-CEO Bret Taylor - who is credited as the architect of the Slack deal - leave the company. The stock is down 48% YTD.

Things aren't looking so bright for the U.S. economy as American CEOs laid out their outlook in the latest index from the Business Roundtable. The CEO Economic Outlook Survey, which measures conditions over the next six months, declined 11 points from last quarter to 73, continuing a downward trend that has taken shape over the past year. The index even dipped below its long-run average of 84 since Q3 of 2020, though it remains above the expansion or contraction threshold of 50.

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Job growth was much better than expected in November despite the Federal Reserve’s aggressive efforts to slow the labor market and tackle inflation.  Nonfarm payrolls increased 263,000 for the month while the unemployment rate was 3.7%, according to the Labor Department. Economists surveyed had been looking for an increase of 200,000 jobs. In another blow to the Fed’s anti-inflation efforts, average hourly earnings jumped 0.6% for the month and wages were up 5.1% on a year-over-year basis, also well above expectations.

Pending home sales slid for the fifth consecutive month in October, according to the National Association of REALTORS®. Three of four U.S. regions recorded month-over-month decreases, and all four regions recorded year-over-year declines in transactions.  The Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, sank 4.6% in October. 

Shares of retailer Costco shed nearly 6% after the company reported softer-than-expected sales figures for November that could signal a weak consumer heading into the holiday shopping season. The company announced that sales in November rose 5.7% to $19.17 billion on the year, less than the growth seen in October and September.

 

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Inflation rose in October about in line with estimates, sending a sign that price increases at least are stabilizing, according to the Commerce Department.  The core personal consumption expenditures price index, a gauge that excludes food and energy and is favored by the Federal Reserve, rose 0.2% for the month and was up 5% from a year ago. The monthly increase was below the 0.3% Dow Jones estimate, while the annual gain was in line.  The gains also represent deceleration from September, which saw a monthly increase of 0.5% and an annual gain of 5.2%.

Federal Reserve Chairman Jerome Powell confirmed yesterday afternoon that smaller interest rate increases are likely ahead even as he sees progress in the fight against inflation as largely inadequate.  Echoing recent statements from other central bank officials and comments at the November Fed meeting, Powell said he sees the central bank in position to reduce the size of rate hikes as soon as next month.

Mortgage rates soared over 7% just a month ago, but since then they have fallen more than half a percentage point. Still, mortgage loan application volume decreased 0.8% last week compared with the previous week, and were 41% lower than a year ago according to the Mortgage Bankers Association’s seasonally.

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