Business

What Ended the Market Rally

10 November 2023
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The S&P 500 was on its way to a ninth straight day of gains on Thursday when investors got hit by a double whammy: a lackluster auction for 30-year Treasury bonds and more hawkish words from Jay Powell, the Fed chair, that prompted a sell-off in stocks and bonds.

The snapped winning streak — which would have been the index’s longest since 2004 — was a reminder that inflation and global growth concerns remain high, especially given the wars in Ukraine and the Middle East. Stock futures this morning are pointing to another weak open.

Powell hasn’t dismissed the possibility of raising rates. The subdued jobs report released last week led many on Wall Street to predict that the Fed would stop increasing borrowing costs. Not so fast, the central bank’s chief suggested at an event hosted by the International Monetary Fund in Washington.

He called out the “head fakes” posed by fluctuating inflation data, and reiterated that the door remained open for further interest rate increases. (Speaking of doors: Powell appeared to lose his cool when climate change protesters disrupted his speech, issuing a profanity as they were escorted off the stage.)

“If it becomes appropriate to tighten policy further, we will not hesitate to do so,” Powell said, adding that the central bank’s goal to push inflation down to its 2 percent target “is not assured.”

Another shock came from a dud of an auction for 30-year Treasury notes. The scheduled event wrapped up shortly before Powell spoke, with fairly tepid investor uptake. The weak demand sent yields spiking for long-duration government bonds; bond yields rise when prices fall.

Wall Street is also on high alert for hackers. It emerged on Thursday that the U.S. unit of Industrial and Commercial Bank of China, considered the world’s biggest financial institution, was hit by a ransomware attack that sent ripple effects through the bond markets. (It’s not clear if that was enough to torpedo Thursday’s lackluster Treasury auction.)

The bank was unable to settle several big trades, including in U.S. Treasury bonds, throughout the day, according to Bloomberg. (Security experts suspect LockBit, a cybercrime group.) To limit market disruption, the bank put the details for trade settlements on a USB drive, and had a messenger deliver it to clients so they could close out the transactions.

Such cyberattacks have been on the rise lately. Still, security experts found the effect of this outage surprising. “We don’t often see a bank this large get hit with this disruptive of a ransomware attack,” Allan Liska of the cybersecurity firm Recorded Future told Reuters.

The DealBook Summit is Nov. 29. Among the guests are Vice President Kamala Harris; Elon Musk of Tesla, X and SpaceX; and Jensen Huang of Nvidia. You can apply to attend here.

JPMorgan Chase’s settlement with victims of Jeffrey Epstein is approved. A federal judge gave the green light to the $290 million agreement, which will resolve claims that the bank ignored warnings about the disgraced financier. The settlement closes a chapter in the Epstein ordeal centering on the role of big banks enabling his conduct for nearly two decades.

Las Vegas avoids a potentially crippling labor strike. Unions representing hospitality workers agreed to new contracts with Wynn, the lone holdout among the city’s three big casino operators, hours before they were set to walk off the job. A work stoppage would have hit the city’s economy on the eve of big events that are set to be held there starting next week.

AstraZeneca gets into the anti-obesity race. The drugmaker said it had licensed a pill from China’s Eccogene that could see it pay up to nearly $2 billion if certain testing milestones are reached. The pill could eventually rival the weight-loss drugs from Novo Nordisk that have drastically bolstered that company’s fortunes.

Facebook’s parent company is reportedly set to return to China. Meta reached a deal to sell a low-priced version of its Oculus virtual reality headset there via the video game giant Tencent, according to The Wall Street Journal. That would enable the U.S. tech company to again do business in China since being shut out of the country 14 years ago.

News on Thursday that Senator Joe Manchin of West Virginia won’t seek re-election was another blow to Democrats. The conservative lawmaker has been a thorn in progressives’ sides, even as he was key to passing some of President Biden’s biggest legislative accomplishments.

Even worse for Biden, Manchin says he’s still weighing a presidential run — potentially costing the president support he needs to win re-election.

Manchin has been one of the most powerful lawmakers of the Biden era. Often by working with mainstream Republicans, the senator had an outsize role in shaping legislation. Few were more significant than the Inflation Reduction Act, the biggest investment in clean energy in U.S. history, despite his avowed defense of his home state’s coal industry. (It was probably because of Manchin that the bill gained its name.)

But progressives have accused Manchin of holding Biden back, forcing the president to pursue less aggressive spending on green energy and social programs.

He was perhaps the only Democrat who could hold onto his Senate seat, given that Donald Trump won West Virginia in 2020 by about 39 percentage points. (Even so, Manchin was trailing his likely Republican opponent, Gov. Jim Justice.)

Democrats who already face an uphill battle to preserve their razor-thin Senate majority now have additional pressure to protect Jon Tester of Montana and Sherrod Brown of Ohio, whose states Trump won in 2020. The party’s only (slim) chances of flipping Republican-held Senate seats are in Texas and Florida.

Will Manchin siphon off support for Biden’s re-election bid? In his announcement on Thursday, Manchin said he wanted to “see if there is an interest in creating a movement to mobilize the middle and bring Americans together.”

If he runs as a third-party candidate — in association with the billionaire-backed No Labels group — he could draw voters away from Biden. That said, it would be expensive for Manchin to run, especially this late, and highly unlikely that he would win.

The National Women’s Soccer League announced a four-year broadcast rights deal on Thursday worth a reported $60 million a year, 40 times as much as the last deal the competition signed with CBS Sports in 2020. The huge jump in value reflects the resilience of live sports broadcasting and surging consumer and investor interest in the league — a remarkable turnaround after it was on the brink of closing just a few years ago.

The new deal is with CBS Sports, ESPN, Amazon and Scripps Sports. The involvement of mainstream sports broadcasters is a far cry from a decade ago, when most of the league’s games were aired for free on YouTube. But attendance at games is now breaking records, and media groups hope that they can convert that enthusiasm into viewership.

Professional women’s sports leagues are more established than ever. The W.N.B.A. too landed a new deal this year reportedly worth $60 million annually with Scripps Sports’ Ion TV network, and also airs games on ESPN. “It’s not the old days where if you wanted to watch women’s sports, you had to navigate your way through a million backdoor channels to find the content,” Jessica Berman, N.W.S.L.’s commissioner, told The Wall Street Journal.

And big name investors are paying more to be part of the N.W.S.L. Three years ago, the price for entry to create a new club was about $2 million to $5 million. But this year, starting a new franchise cost about $50 million, and the league will expand to 14 teams next year.

Sixth Street, the investment firm, bought the rights this year to start a new franchise for about $53 million in the Bay Area. Alexis Ohanian, the Reddit co-founder, is the lead investor in Angel City F.C., a franchise based in Los Angeles, alongside a host of Hollywood celebrities like the actors Natalie Portman and Jessica Chastain.

Few green technology breakthroughs have attracted quite as much funding and scientific scrutiny as direct air capture.

These giant installations that pull greenhouse gases out of the atmosphere have become a favored technology of energy and financial giants — BlackRock this week said it would invest $550 million in Occidental Petroleum’s carbon-capture projects — the Energy Department and green tech start-ups.

Now in the spotlight is Heirloom Carbon Technologies, which recently opened the first commercial capture plant in the country. The plant, in California, can absorb and remove up to 1,000 tons of carbon dioxide per year, equal to the exhaust from about 200 cars. The Times’s Brad Plumer visited the plant and reports on the buzz around, and the skepticism behind, direct air capture.

The idea of using technology to suck carbon dioxide from the sky has gone from science fiction to big business. Hundreds of start-ups have emerged. The Biden administration in August awarded $1.2 billion to help several companies, including Heirloom, build larger direct air capture plants in Texas and Louisiana. Companies like Airbus and JPMorgan Chase are spending millions to buy carbon removal credits in order to fulfill corporate climate pledges.

Critics point out that many artificial methods of removing carbon dioxide from the air are wildly expensive, in the range of $600 per ton or higher, and some fear they could distract from efforts to reduce emissions. Environmentalists are wary of oil companies investing in the technology, fearing it could be used to prolong the use of fossil fuels.

Deals

  • Warner Bros. Discovery is positioning itself as an acquirer of distressed assets — and not a potential seller — after paying down its hefty debt load. (CNBC)

  • These privately owned Texas oil companies could be the next targets for consolidation in the oil patch. (FT)

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