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Economy – Wall Street Observer

Wall Street Observer

Wall Street Observer

U.S. retail sales in 2021 expected to jump on vaccine, stimulus in positive sign for economy – NRF

By Melissa Fares and Aditi Sebastian

(Reuters) – U.S. retail sales could rise as much as 8.2% to more than $4.33 trillion this year as more people get the COVID-19 vaccine and the economy reopens, the National Retail Federation (NRF) said on Wednesday.

The economy is expected to see its fastest growth in over two decades as the rollout of the vaccine to consumers should permit accelerated growth during the mid-year, the trade group said. NRF expects the overall economy to gain between 220,000 and 300,000 jobs per month in 2021.

“We are very optimistic that healthy consumer fundamentals, pent-up demand and widespread distribution of the vaccine will generate increased economic growth, retail sales and consumer spending,” NRF Chief Executive Matthew Shay said in a statement.(https://bit.ly/3kiGzRI)

Preliminary results show retail sales for 2020 grew 6.7% to $4.06 trillion, above the trade body’s forecast of at least 3.5% growth, NRF said. The retail sales numbers exclude automobile dealers, gasoline stations and restaurants.

U.S. retail sales are expected to rise between 6.5% and 8.2% in 2021, the NRF said.

Deemed “essential, Walmart and rivals Target and Best Buy were permitted to stay open throughout the pandemic, unlike others, including Macy’s.

The U.S. department store chain said while reporting company earnings on Tuesday that it has invested tremendously in its online business, as virus-wary shoppers have opted to stay home to make their purchases rather than leisurely shop in-store.

“We do anticipate that customers will be increasingly more comfortable in public spaces as vaccine distribution reaches scale,” said Macy’s Chief Financial Officer Adrian Mitchell.

New rounds of stimulus-driven consumer spending in the coming months would also strengthen retail sales, should the U.S. Congress pass the Biden administration’s support plan that includes sending a $1,400 check to households.

The NRF also said online sales, which are included in the overall number for 2021, were expected to increase between 18% and 23% to between $1.14 trillion and $1.19 trillion. In 2020, online and other non-store sales jumped 21.9 percent to $969.4 billion as consumers opted to stay home and place their orders online to curb the spread of the virus.

The trade body’s forecast follows other estimates from companies like consumer research firm Customer Growth Partners (CGP).

Boosted by rounds of stimulus checks and a “new-found momentum across income levels,” CGP said earlier this month that retail sales in 2021 will total a record $4.26 trillion, up 8.1% from $3.94 trillion in 2020.

(Reporting by Aditi Sebastian in Bengaluru and Melissa Fares in New York; Editing by Shailesh Kuber, Jonathan Oatis, Ben Klayman and Aurora Ellis)



Nasdaq futures fall 1% as tech sell-off set to deepen

(Reuters) – Futures tracking the Nasdaq 100 index fell 1% on Wednesday, sliding for a seventh straight session as investors swapped growth-oriented technology shares with stocks that stand to gain the most from an economic rebound.

Up to Tuesday’s close, the broader technology-heavy Nasdaq Composite index had lost 4.5% since Feb. 12, compared with a 0.3% rise in the blue-chip Dow. The benchmark S&P 500 slipped 1.4% in the same period.

By 1:40 a.m. ET on Wednesday, Nasdaq 100 e-minis were down 109.5 points, or 0.83%, Dow e-minis were down 100 points, or 0.32%, and S&P 500 e-minis were down 15.5 points, or 0.4%.

(Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Subhranshu Sahu)


Wall Street’s ‘fear gauge’ is in a bubble, says J.P. Morgan

By April Joyner

NEW YORK (Reuters) – Wall Street’s “fear gauge” is in a bubble, according to analysts at J.P. Morgan.

Investor appetite for protective options has kept the Cboe Volatility Index elevated despite muted moves on the benchmark S&P 500, according to the bank. The gap between investor expectations for volatility in U.S. stocks, as measured by the VIX, and actual moves on the S&P 500 is near its highest levels over the past 30 years, said Marko Kolanovic, J.P. Morgan’s global head of macro quantitative and derivatives strategy.

In Kolanovic’s view, that level of caution is not justified, and the bank expects stocks will keep climbing. The gap between investor expectations and actual market moves, he wrote, is “indicating a bubble of fear and demand from investors looking to hedge or profit from a hypothetical market selloff.”

The demand for options is twofold, said Matt Amberson, principal at ORATS: some investors are buying puts for protection, while others are choosing to maintain exposure to equities through calls. Both, he said, have helped prop up the VIX.

The VIX has tended to fall in the past when the gap between the fear gauge and realized volatility has grown similarly wide, according to Kolanovic. But the last such gap, in late August, preceded a substantial sell-off in U.S. stocks, said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group.

The rotation to value and cyclical stocks from growth stocks has effectively “pulled the S&P (500) in two different directions,” Murphy said. But if that trend changes, market gyrations could pick up, he said, though he also believes the VIX is likely to decline over the coming months.

“I don’t know if you can assume that that rotation would occur forever,” he said. “Is two weeks a long enough time frame to think that the market is really calm?”

(Reporting by April Joyner; Editing by David Gregorio)


Wall Street closes higher as Fed’s Powell soothes inflation fears

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – Shares on Wall Street ended higher on Wednesday, as a selloff in technology-related stocks eased and a rotation into cyclical shares continued after Federal Reserve Chair Jerome Powell’s comments calmed inflation worries.

The Nasdaq index, which traded as much as 1.3% lower earlier in the session, regained its footing by early afternoon and closed higher. The Dow hit a record high earlier in the session.

GameStop Corp stock, which was at the center of volatile moves in late January by shares talked about on a Reddit forum, rose sharply in late trading. Volume was more than two times the 10-day moving average, and shares were halted by the New York Stock Exchange. AMC Entertainment Holdings also jumped.

Powell told lawmakers on Wednesday it may take more than three years to reach the central bank’s inflation goals, a sign the Fed plans to look beyond any post-pandemic spike in prices and leave interest rates unchanged for a long time to come.

“What’s driving the stock market is the fiscal stimulus, the dovish Fed, the real strong, strong earnings that we’re seeing, as well as the fact that we’re going to have a third vaccine,” said Richard Saperstein, chief investment officer at Treasury Partners.

The U.S. Food and Drug Administration said on Wednesday Johnson & Johnson’s one-dose COVID-19 vaccine appeared safe and effective in trials, paving the way for its approval for emergency use as soon as this week.

Johnson & Johnson rose following the news.

Unofficially, the Dow Jones Industrial Average rose 424.51 points, or 1.35%, to 31,961.86, the S&P 500 gained 43.98 points, or 1.13%, to 3,925.35 and the Nasdaq Composite added 132.77 points, or 0.99%, to 13,597.97. All three main indexes were on track to post strong monthly gains, with the Dow and the S&P 500 set for their best month since November.

Investors have focused on rising U.S. yields and their potential impact on growth stocks. Saperstein said higher yields could pressure stocks but would not derail the upward trend.

“I don’t believe that the 10-year yield going from 1% to 1.5% is going to alter the calculus of owning large technology stocks,” said Saperstein.

Value-oriented stocks have enjoyed a bit of a bounce recently, and the S&P 500 Value index rose for a fourth straight day.

The S&P 500 financial sector hit an all-time peak, while other cyclical stocks including industrials, energy and materials also rose.

The S&P 500 Growth index, which includes most of the high-flying technology-related stocks, has come under pressure in the last few days due to valuation concerns, elevated Treasury yields and an investment shift into more economy-sensitive parts of the market.

Microsoft Corp, Amazon.com Inc and Apple Inc were down, while Facebook, Netflix Inc and Alphabet Inc reversed earlier declines.

Growth-oriented stocks are particularly sensitive to rising yields as their value rests heavily on future earnings, which are discounted more deeply when bond returns go up.

Tesla Inc gained after star investor Cathie Wood’s Ark Invest fund bought a further $171 million worth of the company’s shares in the wake of a sharp fall in the electric-car maker’s stock.

Lowe’s Cos Inc slid as it stuck by its 2021 outlook of a $4 billion to $8 billion drop in revenue, even after reporting blow-out fourth quarter results.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Devik Jain and Shreyashi Sanyal in Bengalaru; Editing by Cynthia Osterman)



Charlie Munger warns of market ‘frenzy’; frowns on gambling mentality, bitcoin, SPACs

By Jonathan Stempel

(Reuters) – Charlie Munger, the longtime business partner of Warren Buffett, on Wednesday warned that the stock market bears signs of a bubble, reflecting a “dangerous” mentality among some investors to gamble on stocks as they would horse races.

Munger, 97, lamented the recent mania for GameStop Corp, in which amateur investors encouraged each other online to buy the gaming retailer on platforms including Robinhood, and caught some hedge funds in a short squeeze.

“It’s really stupid to have a culture which encourages as much gambling in stocks by people who have the mindset of racetrack bettors,” he said.

“A lot of them crowd in to buying stocks on frenzy, frequently on credit, because they see that they’re going up, and of course that’s a very dangerous way to invest.”

Asked if the market resembled the late-1990s dot-com bubble, Munger said: “Yes, I think it must end badly, but I don’t know when.”

Munger was speaking at the annual meeting of Daily Journal Corp, the Los Angeles newspaper publisher he chairs, which was broadcast on Yahoo Finance.

He is better known as vice chairman of Buffett’s conglomerate Berkshire Hathaway Inc since 1978.

Munger said investors should not buy gold or bitcoin, noting the latter was too volatile to become a “medium of exchange for the world.”

He paraphrased author Oscar Wilde’s quotation about fox hunting to describe bitcoin, calling it “the pursuit of the uneatable by the unspeakable.”

Munger also expressed disdain for the surging demand for special purpose acquisition companies, or SPACs, which raise money from investors and then merge with private companies to take them public, in “blank check” arrangements.

“The world would be better off without them,” Munger said.

“This kind of crazy speculation in enterprises not even found or picked out yet is a sign of an irritating bubble,” he said. “It’s just that the investment banking profession will sell shit as long as shit can be sold.”

(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama and Richard Chang)



Oil rises after data shows slump in U.S. output amid Texas freeze

By Stephanie Kelly

NEW YORK (Reuters) – Oil prices climbed on Wednesday to fresh 13-month highs after U.S. government data showed a drop in crude output after a deep freeze disrupted production last week.

U.S. crude oil production dropped by more than 1 million barrels per day last week during the rare winter storm in Texas, equaling the largest weekly fall ever, the Energy Information Administration said. Refinery crude inputs dropped to the lowest since September 2008 as the freeze knocked out power to millions. [EIA/S]

“If you’re getting that kind of drop in one week of EIA production, you’re likely to get more after that,” said Phil Flynn, senior analyst at Price Futures in Chicago.

“There is some concern that this will be a long-term permanent production drop.”

Traffic at the Houston ship channel was slowly coming back to normal but terminals were still facing several issues. After nearly a quarter of national refining capacity was idled by the freeze, refineries have also started to come back online this week.

Brent crude futures gained $1.59 or 2.4%, to $66.96 a barrel by 11:27 a.m. EST (1627 GMT). Brent hit $67.20 a barrel, its highest since Jan. 8, 2020.

U.S. West Texas Intermediate (WTI) crude futures rose $1.34, or 2.2%, to $63.01 a barrel. WTI reached $63.32, its highest since Jan. 8, 2020.

The rally continued oil’s steady march to levels not seen since prior to the coronavirus pandemic as vaccine distribution increases and on forecasts for renewed demand.

Oil prices have rallied about 30% since the start of the year, boosted as well by ongoing supply cuts by the Organization of the Petroleum Exporting Countries and its allies.

Brent may trade in a range of $66.45-$66.97 per barrel again, as suggested by its wave pattern and a projection analysis, said Reuters technical analyst Wang Tao.

(Reporting by Stephanie Kelly in New York; additional reporting by Ahmad Ghaddar in London, Roslan Khasawneh and Koustav Samanta in Singapore, and Sonali Paul in Melbourne; Editing by Marguerita Choy and Steve Orlofsky)


Goldman-backed ReNew plugs into U.S. public market with $8 billion blank check deal

By Anirban Sen and Noor Zainab Hussain

(Reuters) – ReNew Power will go public through an $8 billion merger with a blank-check firm in the biggest deal in the fast-growing clean energy sector in India, allowing the country’s largest renewable energy firm to grow capacity over the next few years.

The deal will be financed with cash proceeds of $1.2 billion, including $855 million in investments from serial blank-check dealmaker Chamath Palihapitiya, funds managed by BlackRock and Sylebra Capital, ReNew Power said on Wednesday.

Founded in 2011, ReNew Power counts Goldman Sachs and Canada Pension Plan Investment Board among its prominent investors. It owns and operates solar energy projects for more than 150 commercial and industrial customers across India.

ReNew, which currently has a 10% market share of India’s renewable energy market, is among a wave of clean-energy firms poised to benefit from the country’s push into renewable energy.

India, the world’s third-largest emitter of greenhouse gases, wants to raise its renewable energy capacity to 500 gigawatts (GW), or 40% of total capacity, by 2030.

ReNew’s total operational clean energy capacity is currently over 5 GW and it has an aggregate capacity of about 10 GW. It also counts Abu Dhabi Investment Authority, Global Environment Fund and JERA Co Inc, a consortium of two of the biggest Japanese utilities, as investors.

The company expects to grow its capacity to about 19 GW by 2025, with cash raised from the deal to be used to fund the roll-out, Sumant Sinha, chairman & chief executive officer of ReNew, told Reuters.

Goldman Sachs and Morgan Stanley are serving as financial advisers to ReNew, with Morgan Stanley also acting as a joint placement agent to the blank check company RMG Acquisition Corp II on the PIPE deal.

Special purpose acquisition companies, or SPACs, such as RMG raise money through an initial public offering to merge with a privately held company that then becomes publicly traded.

RMG’s shares were up about 3% in New York. The combined entity is expected to be listed on the Nasdaq under the ticker symbol “RNW”.

“We had been looking at trying to get an IPO done, and preferably from our standpoint, in the overseas market, just because they understand renewables better,” Sinha said.

The amount of environmental, social and governance capital in overseas markets also influenced ReNew Power’s decision to list in the U.S., Sinha added.

Palihapitiya, a former Facebook executive, also led the PIPE (private investment in public equity) round at SoftBank-backed robotics firm Berkshire Grey, which earlier on Wednesday agreed to go public through a merger with a blank-check firm.

(Reporting by Anirban Sen and Noor Zainab Hussain in Bengaluru and Sudarshan Varadhan in New Delhi; Editing by Shinjini Ganguli, Saumyadeb Chakrabarty and Shounak Dasgupta)


UK’s Lloyds targets wealth push and office cuts after profit drop

By Iain Withers and Lawrence White

LONDON (Reuters) – Lloyds Banking Group’s outgoing Chief Executive António Horta-Osório set out fresh targets to expand the lender’s insurance and wealth business and further cut costs, as the bank resumed a dividend despite a sharp fall in profits for 2020.

Britain’s biggest domestic lender reported pretax profits of 1.2 billion pounds ($1.7 billion), well down on 4.4 billion pounds the previous year, after pandemic lockdowns shrank household spending and drove up provisions for bad loans.

But it still beat the average of analyst forecasts of 905 million pounds.

The strategy update showed Lloyds aimed to offset pressure on profits, including from wafer thin central bank interest rates, by axing costs further and increasing income from fee-based products such as wealth management and corporate banking.

The squeeze led net income to fall nearly 3 billion pounds over the year to 14.4 billion.

Horta-Osório said the bank would increase funds from insurance and wealth customers by 25 billion pounds by 2023 and expands its currency and rates services for corporate customers.

Lloyds will also cut office space by 20% within three years, the second British lender to unveil such plans this week after HSBC announced a 40% cut to its footprint as banks look to capitalise on remote working brought on by the pandemic.

Lloyds said its overall costs would be trimmed below 7.5 billion pounds by the end of this year and it would invest 900 million pounds on digitising more of its services.

The bank’s shares were up 2% at 09.47 GMT, amid a 0.6% fall in the wider FTSE 350 index of banks.

“Faced with lower margins, higher volumes seem to be the answer for Lloyds,” said Susannah Streeter, analyst at Hargreaves Lansdown.

Horta-Osório, who led a turnaround at the bank after its bailout in the financial crisis, is leaving Lloyds after a decade to stand for election as chairman of Credit Suisse in April.

HSBC executive Charlie Nunn is set to replace Horta-Osório, starting in August.


Similar to the situation at rivals HSBC, NatWest and Barclays, Lloyds’ profits were dented by bad loan provisions.

Lloyds set aside 4.2 billion pounds to cover loans expected to sour, although this was less than the 4.5 billion to 5.5 billion pound range previously given.

Lloyds Chief Financial Officer William Chalmers said the pace of Britain’s vaccine rollout and the government’s roadmap to phase out lockdowns were encouraging and paved the way for better UK growth than the 3% core forecast by the bank for 2021.

The bank said it would pay a 0.57 pence dividend per share, the maximum allowed by the Bank of England and above a forecast of 0.53 pence.

Chalmers said the bank would consider an interim dividend halfway through the year and revert to a “stable dividend policy” from next year depending on economic conditions.

The bank grew its mortgage book by 7.2 billion pounds, as it capitalised on a pandemic-driven boom in home sales.

The bank’s core capital ratio, a key measure of financial resilience, increased to 16.2% compared to 15.2% in September.

Costs for past misdeeds chipped into profits, including an 85 million pound charge for processing delays on a final batch of mis-sold payment insurance claims and 159 million pounds for compensation and costs for historic fraud at its HBOS Reading branch.

Horta-Osório’s pay package for 2020 fell to 3.4 million pound, after he and other executives waived bonuses for the year due to the pandemic. He was paid 4.7 million pounds the previous year.

(Reporting by Iain Withers and Lawrence White; Editing by Edmund Blair)


Exclusive: Baker Hughes, AXA Group, 16 others stopped work on Nord Stream 2 pipeline – U.S.

WASHINGTON (Reuters) – Baker Hughes and AXA Group and 16 other companies recently wound down work on Russia’s Nord Stream 2 natural gas pipeline and would not be sanctioned, according to a document the Biden administration sent to Congress last week which was seen by Reuters.

Russian energy company Gazprom and its western partners are racing to build the pipeline to take Russian gas to Germany under the Baltic Sea, and hope to finish it this year. President Joe Biden believes the pipeline is a “bad deal” for Europe.

Many U.S. lawmakers and officials say the pipeline would increase Russia’s political and economic leverage over Europe because it would bypass Ukraine and other countries depriving them of lucrative transit fees.

The United States also would like to export liquefied natural gas to Europe as an alternative to Russian gas.

A few of the companies, including DNV GL, Zurich Insurance and Munich Re already said they dropped out after U.S. pressure. Here is the full list of companies according to the document:

AEGIS Managing Agency Ltd

Arch Insurance Ltd

Aspen Managing Agency Ltd

AXA Group

Baker Hughes

Beazley Furlonge Ltd


Canopius Managing Agents Ltd

Chaucer Syndicates Ltd

Chubb Underwriting Agencies Ltd


Hiscox Syndicates Ltd

Markel Syndicate Management Ltd

MS Amlin Underwriting Ltd

Munich Re Syndicate Ltd

Tokio Marine Kiln Syndicates Ltd

Travelers Syndicate Management Ltd

Zurich Insurance Group

(Reporting by Timothy Gardner; Editing by David Gregorio)


Lowe’s backs 2021 slowdown forecast after riding home improvement boom

By Uday Sampath Kumar

(Reuters) – Lowe’s Cos Inc on Wednesday backed its expectations for a sales decline in 2021, even after reporting a blow-out fourth quarter by riding on a sustained boom in demand from people sprucing up their homes during the COVID-19 pandemic.

The home improvement chain and larger rival Home Depot Inc were among the biggest retail winners last year as Americans, who were forced to curtail their spending on travel and leisure activities, poured money into minor remodeling and repair works at their homes.

Lowe’s shares fell 3.3% as it stuck by its 2021 outlook of a $4 billion to $8 billion drop in revenue, depending on a robust or weak scenario for the broader home improvement market and despite seeing sales momentum in February.

Same-store sales for Lowe’s rose 28.1% in the fourth quarter ended Jan. 29, beating analysts’ estimates for a 21.2% increase, according to IBES data from Refinitiv. Larger rival Home Depot reported a 24.5% gain on Tuesday.

“Lowe’s capped off a terrific year with another strong quarter … beating high sales expectations, which were even higher after Home Depot’s robust results yesterday,” Telsey Advisory Group analysts wrote.

Lowe’s total net sales rose 26.7% to $20.31 billion in the fourth quarter, beating estimates of $19.48 billion. Full year sales rose 24.2% to nearly $90 billion.

Excluding items, the company earned $1.33 per share, beating estimates of $1.21.

(Reporting by Uday Sampath in Bengaluru; Editing by Anil D’Silva)