US FINANCIAL MARKET

Stocks Erase Losses After Consumer Sentiment Data: Markets Wrap – Bloomberg, 8/11/2023

• Stocks erased losses after data showed an unexpected drop in inflation expectations, bolstering the outlook for a pause in Federal Reserve rate hikes next month.
• The S&P 500 was little changed, while still heading toward a second straight week of losses.
• The Nasdaq 100 fell 0.3%. The Dow Jones Industrial Average rose 0.4%.
• The two-year US yield, which is more sensitive to imminent policy moves, pared its increase and hovered near 4.85%.
• Americans expect prices will climb at a 3.3% rate over the next year, down from the 3.4% expected in July, according to the preliminary August reading from the University of Michigan.
• They see costs rising 2.9% over the next five to 10 years, compared to last month’s 3%, data Friday showed.
• Earlier in the day, separate data showed the producer price index picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.
• Early this month, a key market indicator that has been called the “most important number in finance” plunged to its lowest since 2004, worrying investors that it was sending a bearish signal.
• Yet, history shows that despite the extreme move, the typically ominous sign is instead pointing to more gains.
• The equity risk premium measures the difference between the earnings yield on the S&P 500 and the current yield on 10-year Treasury notes.
• The higher the risk premium, the more attractive stocks are relative to bonds.
• That measure, which has been on a sharp downward trajectory for the most part of this year, just dropped to its lowest in about 20 years, indicating stocks are getting significantly overvalued as compared with bonds.
• Elsewhere, the pound rose alongside UK bond yields on data showing the British economy delivered its strongest quarterly growth in more than a year, a surprising show of resilience that will keep pressure on the Bank of England to raise rates further.
• The Stoxx Europe 600 fell 1%.
• The Bloomberg Dollar Spot Index was little changed.
• The yield on 10-year Treasuries advanced two basis points to 4.12%.
• West Texas Intermediate crude rose 0.7% to $83.42 a barrel.
• Gold futures rose 0.1% to $1,951.40 an ounce.

Amazon Cracks Down on Employees Who Stay Away From the Office – Bloomberg, 8/11/2023

• Amazon.com is cracking down on US workers who have ignored its return-to-office guidelines, in the latest example of companies attempting to reduce the amount of time employees work remotely.
• Some US employees at Amazon received an email this week stating that they are not meeting the company’s expectation of spending at least three days a week in the office, according to a copy of the message seen by Bloomberg.

Amazon Wants to Deliver Your Order Without a Box, But Neighbors May See Your Snore Strips – Wall Street Journal, 8/11/2023

• Millions of Amazon orders are arriving on doorsteps across the U.S. without any extra packaging.
• The change represents the next frontier in the tech giant’s overhaul of its delivery processes, one Chief Executive Andy Jassy hopes will appeal to customers who are put off by the volume of Amazon-branded boxes they receive and discard every week.
• The company in the past year revamped its logistics network, enabling faster and more efficient deliveries.
• Eliminating or reducing packaging has become increasingly important for the company to maintain its dominance, reduce costs and reach its goals related to its climate impact.
• “The recognition by a number of senior leaders was just that this is becoming more and more important,” said Pat Lindner, who Amazon hired last year as its first vice president of packaging and innovation.
• “There’s a significant need for our company to take the next step in innovation around packaging.”
• About 11% of items that the company delivers now arrive without extra packaging, or what the company calls “ships in own container,” Amazon said.
• Customers typically are able to choose at checkout if they want extra packaging or prefer their order without it.

Cruise, Waymo Get Approval to Expand Driverless Vehicles in San Francisco – Wall Street Journal, 8/11/2023

• Self-driving car companies Cruise and Waymo can expand in San Francisco.
• The California Public Utilities Commission, which regulates passenger transportation, voted on Thursday to allow Cruise, majority owned by General Motors, and Waymo, part of Google parent Alphabet, to deploy more vehicles in the city and to start charging for rides at all times.
• The result, after a vote that had been delayed twice, signifies a big win for the self-driving car companies in their quest to expand statewide and to other cities across the U.S.
• “We do expect the AV companies to engage with first responders, with law enforcement, with city officials, and we do expect actions to address concerns. In the meantime, the resolutions before us do meet our requirements,” said Alice Reynolds, president of the commission.
• The commission voted 3 to 1 to approve the companies’ proposals.

US ECONOMY & POLITICS

US Producer-Price Inflation Picks Up on Boost From Services – Bloomberg, 8/11/2023

• US producer prices picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.
• The producer price index for final demand, as well as the core index which excludes food and energy, both rose by 0.3% in July, according to the Bureau of Labor Statistics.

• While those came in slightly more than forecast, downward revisions to the prior month tempered some of the strength.
• Normalizing global supply chains, tepid demand abroad, and a broader shift in consumer spending toward services and away from goods have generally helped alleviate inflationary pressures at the producer level over the last year.
• But headwinds are building again as oil prices climb.
• Service costs rose by the most in nearly a year, reflecting increases in categories including portfolio management, outpatient care and passenger transportation.
• Within health care, inflation in hospital outpatient care and nursing home care accelerated.
• Meanwhile, physician care costs were little changed.
• Brokerage services and investment advice, a category that also feeds into PCE, jumped in July.
• Excluding volatile food and energy components, the so-called core PPI rose 0.3% in July and was up 2.4% from a year ago.
• Stripping out trade services as well, the PPI advanced 0.2% on the month, and 2.7% year over year.

US Consumer Year-Ahead Inflation Expectations Unexpectedly Fall – Bloomberg, 8/11/2023

• US year-ahead inflation expectations unexpectedly declined in early August, matching a more than two-year low, despite higher gasoline and grocery costs.
• Americans expect prices will climb at a 3.3% rate over the next year, down from the 3.4% expected in July, according to the preliminary August reading from the University of Michigan.
• They see costs rising 2.9% over the next five to 10 years, compared to last month’s 3%, data Friday showed.
• The university’s consumer sentiment index eased to 71.2 in early August, in line with expectations.
• That confidence has stemmed from the steady improvement in inflation, a strong labor market and surprisingly robust economic growth. Consumers reported “dramatic improvement” in news about business conditions, including inflation, the survey showed.
• The current conditions gauge increased to 77.4, the strongest reading since October 2021.
• A measure of expectations fell.

Hawaii’s Biggest Disaster Kills 55 With 1,000 Still Missing – Bloomberg, 8/11/2023

• Rescue and clean-up crews are now pouring into the historic Hawaiian town of Lahaina, which has been leveled to ash and rubble in what the governor describes as the state’s largest-ever natural disaster.
• Fast-moving wildfires killed at least 55, and the police chief said it’s likely 1,000 people remain unaccounted for.
• Hawaii Governor Josh Green warned that the death toll is probably going to keep rising as search crews dig through the damage that he characterized as looking like a bomb scene.
• Accuweather put the preliminary estimate of damage from the fires at $8 billion to $10 billion.
• The blaze was 80% contained as of Thursday, but aerial surveys found more than 270 buildings burned in the seaside resort, once the capital of the Hawaiian Kingdom.
• Thousands of residents and tourists fled an area left without electricity, phone service or the internet.

EUROPE & WORLD

Air Canada Rises as Overseas Travel Binge Boosts Outlook – Bloomberg, 8/11/2023

• Air Canada lifted its outlook for the second time in three months, joining US airlines in posting big revenue gains on international routes.
• Canada’s largest airline said it expects to post C$3.75 billion to C$4 billion in adjusted earnings before interest, taxes, depreciation and amortization this year, thanks to strong demand and lower jet fuel prices.
• In May, the company boosted its guidance, calling for a minimum of C$3.5 billion in adjusted EBITDA.
• Montreal-based Air Canada reported operating revenue of C$5.43 billion and operating profit of C$802 million for the second quarter.
• Both numbers beat analysts’ forecasts.
• “We are particularly pleased with our international performance, propelling nearly 70% of the year-over-year increase in passenger revenues,” Chief Executive Officer Michael Rousseau said Friday in a statement.
• But the airline said costs would be slightly higher than previously expected — 0.5% to 1.5% above last year’s levels, per available seat mile.

Chinese tech giant Huawei reports tepid consumer revenue growth for the first half of 2023 – Reuters, 8/11/2023

• Chinese tech giant Huawei on Friday reported 2.2% year-on-year growth in its consumer business revenue for the first half of the year.
• At 103.5 billion yuan ($14.27 billion) in first six months of 2023, Huawei’s consumer revenue was less than half what the segment had generated during the same period in 2019 and 2020.
• The 2.2% pace of growth was also slower than the company’s overall revenue increase of 3.1% to 310.9 billion yuan in the first half of the year.
• Huawei’s ICT infrastructure business, which includes carrier and enterprise services revenue, contributed the most to overall revenue with 167.2 billion yuan for the first half of the year.
• Cloud services brought in revenue of 24.1 billion yuan, while intelligent automotive solutions — whose products include tech for new energy vehicles — saw revenue of 1 billion yuan in the first six months of 2023.
• Huawei has its own electric car brand, Aito, which claims to have produced 100,000 vehicles in 15 months through a partnership.
• Huawei reported a significant increase in its net profit margin of 15% in the first half of the year, up from 5% in the year-ago period.
• The company attributed the improvement to better management systems and gains from the sale of certain businesses, which it did not specify.

UK Economy Surprises With Strongest Growth in More Than Year – Bloomberg, 8/11/2023

• The UK economy delivered its strongest quarterly growth in more than a year, a surprising show of resilience that will keep pressure on the Bank of England to raise rates further.
• Gross domestic product rose 0.2% from the first quarter, the biggest increase since the start of 2022, the Office for National Statistics said Friday.
• The Bank of England had expected a 0.1% expansion.
• Output in June jumped 0.5%, more than double the 0.2% pace expected by economists.
• Manufacturing and construction output were both stronger than expected in June, rebounding from the loss of a working day in May for King Charles III’s coronation.
• The figures point to momentum in the economy that’s likely to fan upward pressure on wages and prices, underpinning the case for more rate hikes.
• Consumer spending during the quarter rose 0.7%, its biggest quarterly increase in more than a year.
• Business investment climbed 3.4%, a similar pace to the previous quarter.
• There was also a strong increase in government spending.
• GDP shrank 0.1% in May due to an extra public holiday for the King’s coronation.

Global Oil Demand Hits Record and Prices May Climb, IEA Says – Bloomberg, 8/11/2023

• Global oil demand has surged to a record amid robust consumption in China and elsewhere, threatening to push prices higher, the International Energy Agency said.
• World fuel use averaged 103 million barrels a day for the first time in June and may soar even higher in August, the agency said in a report.
• “Oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity,” the Paris-based IEA said.
• “Crude and products inventories have drawn sharply” and “balances are set to tighten further into the autumn.”
• China will account for 70% of this year’s demand growth, but surprisingly resilient developed nations added to the latest surge.
• The energy transition looks set to have an impact next year, when global demand growth will roughly halve to 1 million barrels a day due to improved vehicle efficiency and the adoption of electric cars, the IEA said.
• But in the meantime, world markets are tightening, leaving oil inventories in developed nations about 115 million barrels below their five-year average, according to the report.
• Global stockpiles are set to deplete by a hefty 1.7 million barrels a day in the second half of the year, and preliminary data appears to confirm declines in July and August, the IEA said.
• Nonetheless, an average of 29.8 million barrels a day is needed from the cartel’s 13 members between October and December — far more than the 27.9 million a day they pumped in July, according to the IEA.
• “If the bloc’s current targets are maintained, oil inventories could draw” significantly, the agency warned, “with a risk of driving prices still higher.”

Biden Fears China Economy Is ‘Ticking Time Bomb’ – Bloomberg, 8/11/2023

• President Joe Biden blasted China’s economic problems as a “ticking time bomb” and referred to Communist Party leaders as “bad folks,” his latest barb against President Xi Jinping’s government even as his administration seeks to improve overall ties with Beijing.
• In comments that included several major inaccuracies about the world’s second-largest economy, Biden said at a political fundraiser Thursday that China was in “trouble” because its growth has slowed and it had the “highest unemployment rate going.”
• He also blasted Xi’s signature Belt and Road Initiative as the “debt and noose,” because of the high levels of lending to developing economies associated with the global investment program.
• “China was growing at 8% a year to maintain growth, now close to 2% a year,” he told donors in Park City, Utah, misstating China’s rate of expansion.
• “It’s in a position where the number of people who are of retirement age is larger than the number of people of working age,” he added, a statement that was not only incorrect but also off by hundreds of millions of people.
• “So they got some problems,” he added. “That’s not good because when bad folks have problems, they do bad things.”

UBS Sheds Swiss Government Aid for Credit Suisse Takeover – Wall Street Journal, 8/11/2023

• UBS said it would no longer rely on Swiss government assistance tied to its emergency takeover of Credit Suisse in March, marking an important step in the complex and politically fraught absorption of its smaller rival.
• The Swiss bank said it terminated a roughly $10 billion government backstop that had limited its potential losses on some Credit Suisse assets.
• UBS also exited emergency liquidity lines the country’s central bank had provided to keep Credit Suisse afloat.
• UBS said it had ended its participation in the programs after reviewing Credit Suisse’s noncore assets and funding at both banks.
• It had demanded the backstop because it couldn’t reliably value what was held on Credit Suisse’s books in a rushed deal put together in days.
• “These measures, together with the intervention of UBS, contributed to the stabilization of Credit Suisse and financial stability in Switzerland and globally,” the bank said.
• “UBS continues to focus on the successful execution of the integration of Credit Suisse.”

Chinese Property Giant Country Garden Sends Another Distress Signal – Wall Street Journal, 8/11/2023

• Problems are mounting for China’s largest surviving property developer, Country Garden Holdings, which is desperately trying to avoid the same fate as its many defaulted rivals.
• The 31-year-old company said it expects to post its worst loss since going public 16 years ago, and estimated the red ink could be as much as the equivalent of $7.6 billion for the first half of 2023.
• The developer also said its contracted sales slumped 60% in July from a year earlier—a much bigger decline than in previous months.
• The developer, which used to rival industry giant China Evergrande Group in yearly apartment sales, is fast becoming the highest-profile casualty of a second slump in the country’s beleaguered housing market.
• The company said late Thursday that it has been working “to carry out [a] self-rescue by all means,” and that it is navigating an unprecedented and extremely difficult period for the industry.
• “One shall pick himself up from where he has fallen,” Country Garden said, adding that it is sparing no effort to resolve its liquidity problems, and remains committed to delivering homes to property owners.

Nigeria Central Bank Reveals Deals with Goldman, JPMorgan – Bloomberg, 8/11/2023

• Nigeria’s central bank disclosed large dollar deals with JP Morgan and Goldman Sachs in documents that also confirmed it broke limits on lending to the government.
• Annual financial statements, published for the first time since 2015, refer to two securities lending agreements with JP Morgan Chase for $7 billion in 2021 and two of $500 million with Goldman Sachs Group.
• There was no further information disclosed regarding the securities that were pledged in return for cash.
• The central bank, which published the multiple annual financial statements on its website on Aug. 9, also showed it vastly exceeded the limit placed on its lending to the government, which is capped by statue at 5% of federal revenue.
• The Abuja-based bank said that based on the actual government revenues of 5.05 trillion naira ($6.5 billion) at the end of 2021, it should not have lent more than 252 billion naira to the government in 2022.
• Instead by the end of December 2022, the Bank had advanced a total of 23.18 trillion naira to the government.

Factmonster – TODAY in HISTORY

• Arapahoe became the first American ship to use the S.O.S. distress signal. – 1909
• The first inmates arrived at the federal prison on Alcatraz Island in San Francisco Bay. – 1934
• King Hussein of Jordan ascended the throne after his father had been declared mentally unfit. – 1952
• More than seven years of fighting in Indochina formerly ended with the cessation of French control. – 1954
• Chad gained its independence from France. – 1960
• Following the arrest of a young black motorist, the predominately black neighborhood of Watts in Los Angeles erupted in riots that lasted six days and left 34 dead. – 1965
• Charles Taylor, president of Liberia, formally relinquished his office to Moses Blah and left for Nigeria. – 2003

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