Week of March 18, 2022 Weekly Recap & The Week Ahead
“In investing, there is nothing that always works, since the environment is always changing, and investors’ efforts to respond to the environment cause it to change further” ― Howard Marks
1. China’s Covid-19 Surge Shuts Down Plants in Manufacturing Hubs Shenzhen and Changchun — a surge in Covid-19 cases led Chinese manufacturing hubs Shenzhen and Changchun to lock down in recent days, halting production at many electronics and auto factories in the latest threat to the world’s battered supply chain. The government placed the city into lockdown for at least a week and said everyone in the city would have to undergo three rounds of testing after 86 new cases of domestic Covid-19 infections were detected Sunday. Over the past two years, the world’s second-biggest economy has repeatedly locked down entire cities or sections of them, ordering factories to suspend operations as people stay home. Foxconn’s sites in Shenzhen, in southern China, produce some iPhones as well as iPads and computers. The majority of iPhones, however, are made at a factory in central Henan province. Foxconn, formally known as Hon Hai Precision Industry Co., said it would aim to keep up production by shifting work to other plants in China.
Printed circuit-board maker Unimicron Technology Corp. said its Shenzhen subsidiary halted production Monday morning. Unimicron is also a major Apple supplier but doesn’t currently handle Apple-related orders in Shenzhen, according to Apple’s latest supplier list. Unimicron said the subsidiary accounts for less than 3% of its total revenue.
2. Bond Markets Forecast Long Financial Freeze for Russia — Russian government bonds fell below 10 cents on the dollar last week, putting the country’s debt on par with Venezuela, which collapsed into famine five years ago. The valuation is near the low-water mark on bonds set by serial defaulter Argentina, which took 15 years to repay creditors after a bitter legal battle with hedge funds. The country faces a key interest payment on dollar-denominated bonds Wednesday, and Russia’s Finance Ministry has sent investors conflicting messages about whether it intends to give them dollars or rubles. The uncertainty sparked concerns that a payment in rubles could result in a default and speculation about what legal remedies creditors might pursue. Russian bonds had investment-grade ratings and traded around 100 cents on the dollar until the country invaded Ukraine, triggering unprecedented financial sanctions by the U.S. and European countries. The Kremlin responded with measures including a block on bond payments in foreign currencies such as dollars and euros that stoked expectations of a default.
3. Intel Plans $36 Billion in European Chip Plant Investments — Intel Corp. said it would invest $36 billion in chip production and research across Europe, including a new chip-making complex in Germany, to keep pace with surging demand for semiconductors. Chief Executive Pat Gelsinger said Intel had selected the city of Magdeburg, Germany, to put up what would be one of the biggest and most advanced semiconductor manufacturing facilities on the Continent. The company plans a down payment of about $18.6 billion, the equivalent of about €17 billion, on that facility.
4. Fed Raises Interest Rates for First Time Since 2018 — the Fed will raise its benchmark federal-funds rate by a quarter percentage point to a range between 0.25% and 0.5%, the first rate increase since 2018. Officials signaled they expect to lift the rate to nearly 2% by the end of this year—slightly higher than the level that prevailed before the pandemic hit the U.S. economy two years ago, when they slashed rates to near zero. Their median projections show the rate rising to around 2.75% by the end of 2023, which would be the highest since 2008.
The Fed’s post meeting statement hinted at rising concern about inflation that initially appeared last year to be driven by pandemic-related bottlenecks but has since broadened.
5. House Passes Legislation to End Normal Trade Relations With Russia — the House easily passed legislation to end normal trade ties with Russia over its invasion of Ukraine, moving quickly to approve the measure after President Biden announced his support last week. The legislation would strip Russia and Belarus—a country closely aligned with Russia that has been used as a staging ground for its Ukraine invasion—of their most-favored-nation trade status, a step that would result in higher tariff rates on some imports from the countries. To maximize the pressure on Russia and Belarus, the bill would give Mr. Biden the authority to order additional increases in import duties for certain products, pushing them above the rates that would result from simply ending the most-favored-nation, or MFN, status. While the bill doesn’t specify those items, candidates would include non-energy products such as aluminum, wood and wood veneer products, and chemicals including fertilizer, according to Rep. Kevin Brady (R., Texas), a co-sponsor of the bill.
The week ahead — Economic data from Econoday.com:
