US FINANCIAL MARKET

Banks Drag on S&P 500 as Rate Wagers Dwindle: Markets Wrap – Bloomberg, 8/15/2023

• Stocks slumped as investor debate shifts toward how long the Federal Reserve will keep higher interest rates.
• US bonds gained as investors bought the dip.
• The S&P 500 fell 0.8% while the Nasdaq 100 slid 0.7% after US retail sales rose more than forecast, data that suggested the economy can support higher rates and may dissuade policy makers from pivoting to easier policy.
• The Dow Jones Industrial Average fell 0.8%.
• Financials weighed on the broader benchmark after a warning from Fitch that the ratings firm may downgrade larger lenders like JPMorgan Chase or Bank of America while Discover Financial Services was the worst performer after its chief executive officer resigned.
• In earnings, Home Depot beat the average analyst estimate, suggesting that US home improvement spending is performing slightly better than expected following an unprecedented boom during the pandemic.
• More insight onto the state of the consumer will come later this week when Target and Walmart are set to report.
• Investors are growing wary that consumer-facing companies will be able to maintain their pricing power for much longer as the lagged effects of the Federal Reserve’s policy tightening take hold.
• US Treasuries went higher as buyers stepped in amid a global bond selloff.
• Options traders have been recalibrating bets to accommodate the possibility that interest rates and inflation will stay high for longer.
• Yields on the 10-year reached 4.27%, the highest since October before reversing while the two-year dipped after moving above 5%.
• After a record first half in stock markets, investors are navigating a hawkish Federal Reserve, a China slowdown, and flare-ups across emerging markets.
• The focus later this week will be on UK inflation data due Wednesday, followed by minutes from the Fed’s July policy meeting, as traders seek clues on central banks’ next moves.
• The Bloomberg Dollar Spot Index fell 0.1%.
• The Stoxx Europe 600 fell 1.1%.
• West Texas Intermediate crude fell 1.8% to $81.04 a barrel.
• Gold futures fell 0.1% to $1,941.20 an ounce.

Home Depot Earnings Top Estimates as DIY Spending Sustained – Bloomberg, 8/15/2023

• Home Depot earnings exceeded the average analyst estimate, suggesting that US home improvement spending is performing slightly better than expected following an unprecedented boom during the pandemic.
• Comparable sales, a key metric, fell 2% in the quarter, a smaller decline than analysts foresaw.
• Total customer transactions also fell from a year ago, while the average ticket, or the amount spent per transaction, rose slightly, indicating higher prices are still propping up Home Depot’s performance.
• That said, prices for lumber and other commodities are declining, which could drag down average ticket in the coming quarters.
• Earnings per share were $4.65 on a diluted basis in the second quarter ending July 30, above the average estimate compiled by Bloomberg.
• The retailer said Tuesday that it still expects comparable sales to decline as much as 5% this fiscal year.
• The board approved a $15 billion buyback program, replacing its previous authorization.

Fitch warns it may be forced to downgrade multiple banks, including JPMorgan – Reuters, 8/15/2023

• An analyst at Fitch Ratings warned that U.S. banks, including JPMorgan Chase, could be downgraded if the agency further cuts its assessment of the operating environment for the industry, according to a report from CNBC on Tuesday.
• In June, Fitch lowered the score of the U.S. banking industry’s “operating environment” to AA- from AA, citing pressure on the country’s credit rating, gaps in regulatory framework and uncertainty about the future trajectory of interest rate hikes.
• Another one-notch downgrade, to A+ from AA-, would force Fitch to reevaluate ratings on each of the more than 70 U.S. banks it covers, analyst Chris Wolfe told CNBC.

Tesla Rolls Out New Base Model S and X for $10,000 Less – Bloomberg, 8/15/2023

• Tesla added new lower-range iterations of the Model S sedan and Model X sport utility vehicle to its lineup that cost $10,000 less than their previous base prices.
• The Standard Range Model S starts at $78,490 and offers an estimated 320 miles (515 kilometers) of range, while the Standard Range Model X is priced from $88,490 and goes 269 miles on a charge, Tesla’s website shows.

Fisker to add Tesla’s EV charging connector by 2025 – Reuters, 8/15/2023

• Electric vehicle startup Fisker said on Tuesday it signed a deal with Tesla to adopt its North American Charging Standard (NACS), giving Fisker customers access to the automaker’s Supercharger network by 2025.
• Fisker said its vehicles made 2025 onwards will have the NACS port for charging, while other customers can use an adapter to access Tesla’s 12,000-strong network of public fast chargers in the U.S. and Canada.
• The company will continue to provide an adapter for the CCS if customers wish to continue using the technology, the EV maker said.

Amazon’s Leader on Alexa, Echo and Other Devices Plans to Leave – Wall Street Journal, 8/15/2023

• David Limp, Amazon.com’s devices chief, is planning to retire in the coming months in the latest departure of a longstanding top executive since Andy Jassy took over as chief executive of the e-commerce giant two years ago.
• Limp’s planned departure would conclude a tenure of more than 13 years at the company, where he oversees Amazon’s Alexa and a portfolio of other services and gadgets that have in some cases proven popular but overall have struggled to make money.
• The Echo device line, in particular, has proven more challenging to monetize in that way, said people familiar with Limp’s plans.
• Limp’s planned exit marks another disruption for the core of Amazon senior leadership known as the S-Team, a number of whose members have departed over the past two years after relative stability on the management team before Jassy took the helm.

Apollo to Loan Over $4 Billion to Struggling Buyout Firms – Bloomberg, 8/14/2023

• Apollo Global Management is poised to sign more than $4 billion in so-called NAV loans, as the asset manager steps up unorthodox lending to private equity firms looking to raise cash in a challenging high-cost environment.
• Some of the transactions include multiple loans of more than $1 billion each, people familiar with the matter said, asking not to be identified discussing confidential information.
• PE firms — and private credit firms — have ramped up their use of NAV financing as traditional borrowing options dry up with the end of the cheap-debt and easy-dealmaking era.
• The loans will originate in part from Apollo’s sponsor and secondary solutions business, known as S3, as well as from other divisions, some of the people said. A representative for Apollo declined to comment.
• Deals of this nature typically come with floating rates of 550-700 basis points above base rates.
• For lenders such as Apollo, the financing is secured by capital that investors commit to PE funds, and deals of this nature typically have loan-to-value ratios of as much as 30%, and a maturity of three to five years.

Esmark Offers to Buy US Steel for Cash, Trumping Cliffs – Bloomberg, 8/14/2023

• Steel processor and distributor Esmark offered to buy United States Steel for $7.8 billion in cash, presenting a rival bid to Cleveland-Cliffs’s unsolicited proposal for the US industrial icon.
• Privately held Esmark surprised industry insiders on Monday with the announcement that it is bidding for US Steel — the company hasn’t recently been active in mergers and acquisitions and its business is focused on processing and distributing steel, rather than raw steelmaking.
• US Steel shares spiked further on the news and closed 37% higher, its biggest one-day gain on record. Still, the closing price of $31.08 a share remains below the $35 a share being offered by Esmark.
• Esmark chief executive officer and owner James Bouchard, a one-time US Steel executive, said in a phone interview that the company has available cash on hand to fund the offer.

Buffett’s Berkshire Cuts Activision, Unveils Homebuilder Bet – Bloomberg, 8/14/2023

• Warren Buffett’s Berkshire Hathaway slashed its stake in Activision Blizzard by 70% during the second quarter amid the video-game maker’s prolonged effort to merge with Microsoft and disclosed a bet on the housing market.
• The conglomerate also exited its position in insurance broker Marsh McLennan, and trimmed positions in other companies including Chevron.
• Berkshire reported new holdings in homebuilders D.R. Horton, NVR and Lennar.
• Berkshire was a net seller of equities during the three months ended June 30, divesting about $7.98 billion more of shares than it bought.
• Berkshire revealed a stake in Taiwan Semiconductor Manufacturing Co. last year, only to largely rotate out of that position in subsequent months.
• “I feel better about the capital that we’ve got deployed in Japan than in Taiwan,” Buffett said at Berkshire’s annual meeting in May.
• “I wish it weren’t so, but I think that’s the reality, and I re-evaluated that in the light of certain things that were going on.”

US ECONOMY & POLITICS

US Retail Sales Top Forecasts, Showcasing Consumer Resilience – Bloomberg, 8/15/2023

• US retail sales rose in July by more than forecast, suggesting consumers still have the wherewithal to sustain the economic expansion.
• The value of retail purchases increased 0.7% in July after upward revisions in the prior two months, Commerce Department data showed Tuesday.

• The upbeat figure reflected increases in a variety of sales categories, including sporting goods stores, clothing outlets and restaurants and bars.
• Sales, which aren’t adjusted for inflation, increased in nine of 13 retail categories last month.
• Sales at nonstore retailers, which includes e-commerce, jumped 1.9%, the most this year and boosted by Amazon.com’s Prime Day event.
• Sales at restaurants and bars — the only service-sector category in the report — increased 1.4%.
• Receipts at gasoline stations rose 0.4%, in part reflecting higher prices at the pump.
• So-called control group sales — which are used to calculate gross domestic product and exclude food services, auto dealers, building materials stores and gasoline stations — increased 1%, the most since the start of the year.

US Homebuilder Sentiment Declines for First Time This Year – Bloomberg, 8/15/2023

• US homebuilder sentiment unexpectedly declined in August for the first time this year as high mortgage rates deterred prospective buyers.
• The National Association of Home Builders/Wells Fargo gauge decreased six points to a three-month low of 50.
• The figure was below all estimates in a Bloomberg survey of economists.
• “Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” NAHB Chairman Alicia Huey said in a statement.
• The indexes of current sales and prospective buyer traffic both decreased for the first time this year, while the expected sales gauge declined to the lowest level since April.

U.S. Business Inventories Unchanged in June – Market Watch, 8/15/2023

• U.S. business inventories held steady for the second month in a row in June, a sign of a fragile environment for consumers as high interest rates squeeze household spending, data from the U.S. Commerce Department showed Tuesday.
• The unchanged reading on month for manufacturers’ and trade inventories for June matched expectations according to a consensus of economists polled by The Wall Street Journal.
• May’s reading was revised from an initially estimated 0.2% increase.
• Inventories rose by 0.7% on month in June at retailers, fell by 0.5% at wholesalers and flatlined at manufacturers, the data said.
• On an annual basis, total business inventories were up 2.0%, according to the Commerce Department.
• The ratio of inventories to sales, which reflects how many months it would take for businesses to clear their inventories at the current sales rate, was 1.40 in June.

EUROPE & WORLD

Shopee-owner Sea signals growth over profits after weak Q2 performance – Reuters, 8/15/2023

• Technology firm Sea signaled on Tuesday it will boost investments in its core e-commerce business which may lead to losses in some quarters, pivoting its strategy after months of cost cuts and weak performance in the second quarter.
• Revenue grew 5.2% from a year earlier to $3.10 billion, below Refinitiv estimates of $3.20 billion.
• Sea’s e-commerce business Shopee, which contributes about two-thirds to the group’s top-line, grew about nearly 21% to $2.1 billion.
• It was below consensus estimate of $2.25 billion, despite Sea posting 10% sequential growth in active buyers in the second quarter and raising platform commissions earlier this year.
• Sales from the digital entertainment segment, which includes gaming platform Garena, fell over 41%, declining for the fifth quarter in a row.
• Sales from the financial services business were up over 53%.
• However, per share earnings were a comfortable 12 cents higher than expectations at 54 cents, signaling gains from the cost measures.
• Southeast Asia’s biggest listed technology firm began a major overhaul last year involving cutting its workforce by 10% and lowering marketing spends, which helped Sea deliver its first-ever quarterly net profit in December.

Tencent Music’s quarterly revenue rises but warns of decline ahead – Reuters, 8/15/2023

• China’s Tencent Music Entertainment Group, said on Tuesday second-quarter revenue rose 5.5% year-on-year, driven by a rise in user subscriptions, but warned that future revenue will shrink as tighter live-streaming controls come into effect.
• Total revenue of the Spotify-like music streaming company controlled by Chinese tech giant Tencent Holdings stood at 7.29 billion yuan ($1.00 billion) in the quarter to June 30, in line with Wall Street estimates, according to Refinitiv data.
• The number of paying users of its online music streaming service rose more than 20% to 100 million, a milestone for the company.
• In the second quarter, net profit attributable to equity holders rose to 1.30 billion yuan from 856 million yuan a year earlier.
• However the group said in a call with analysts that it has implemented risk control measures across its live-streaming services which will result in a “low to mid-single-digit per cent decrease” for its total revenue this year from last year.
• He said total revenues for the company will experience “a low to mid-teens percent decrease” in the coming quarter from the same period last year.

Suncor Energy’s quarterly profit halves on lower oil and gas prices – Reuters, 8/15/2023

• Canada’s Suncor Energy on Monday joined its global peers in reporting a sharp drop in quarterly profit, as oil and gas prices retreated from last year’s peak.
• But Canada’s second-largest oil producer said its total upstream production rose by 3% to 741,900 barrels of oil equivalent per day (boepd) in the quarter ended June 30, aided by lower maintenance activities.
• Suncor’s refinery utilization averaged 85% and its crude throughput climbed 1.3% to 394,400 barrels per day.
• The company posted quarterly adjusted operating earnings of 96 Canadian cents per share, compared with analysts’ expectations of 82 Canadian cents per share, according to Refinitiv data.
• Suncor also took a C$275 million restructuring charge during the second quarter related to its plans to cut 1,500 jobs this year to reduce costs.

Japan’s Huge GDP Beat Driven by Exports as Domestic Demand Falls – Bloomberg, 8/15/2023

• Japan’s economy expanded at a much faster clip than forecast, as a surge in exports more than offset weaker-than-expected results for both business investment and private consumption.
• Gross domestic product grew at an annualized pace of 6% in the second quarter, marking the strongest growth since the last quarter of 2020, Cabinet Office data showed Tuesday.
• The figure exceeded economists’ forecast of 2.9% growth.
• Net exports contributed 1.8 percentage points to the expansion versus consensus estimates of 0.9 point.
• Still, the strong result came with caveats, as much of the growth came from external demand.
• The number of foreign visitors has recovered to more than 70% of pre-pandemic levels as of June, according to the Japan National Tourism Organization Data for July are due Wednesday.
• Capital spending by businesses was flat, versus forecasts of a 0.4% increase, while private consumption, which accounts for more than 50% of total GDP, unexpectedly declined by 0.5%.
• Private consumption fell 0.5% versus estimate of 0%.
• Business spending was flat at 0% versus estimate of 0.4%.
• Net exports contributed 1.8 ppt vs estimate of 0.9 ppt.
• Private inventories subtracted 0.2 ppt vs estimate of -0.3 ppt.

Canada Inflation Quickens to 3.3% But Core Measure Shows Progress – Bloomberg, 8/15/2023

• Inflation ticked back above the Bank of Canada’s control range in July, but progress on underlying price pressures leaves room for policymakers to pause interest-rate hikes.
• The consumer price index rose 3.3% from a year ago, the first reacceleration since April, Statistics Canada reported Tuesday in Ottawa.
• That was faster than the median estimate of 3% in a Bloomberg survey of economists.
• On a monthly basis, the index rose 0.6%, double their expectations.
• Two key yearly inflation measures tracked closely by the central bank — the so-called trim and median core rates, which filter out items with extreme price fluctuations — eased, averaging 3.65% from a downwardly revised 3.7% a month earlier.
• A three-month moving average of the measures that Governor Tiff Macklem has mentioned as key to his team’s thinking fell to an annualized pace of 3.49%, from an upwardly revised 3.91% previously, according to Bloomberg calculations.
• On a year-over-year basis, prices for gasoline fell 12.9% in July after a 21.6% decline in June, while on a monthly basis, prices remained nearly unchanged at 0.9%.
• Excluding mortgage costs, the rate rose 2.4%.
• Grocery prices grew at a slower pace year over year, rising 8.5% last month after a 9.1% increase in June.
• Services inflation rose to 4.3% in July from 4.2% one month earlier.
• In Nova Scotia, consumers saw gasoline prices jump 14% from a month earlier, the fastest pace in the country, primarily due to the introduction of the carbon levy and higher wholesale prices.

China Cuts Rate by Most Since 2020 as Economic Woes Deepen – Bloomberg, 8/15/2023

• China’s central bank unexpectedly reduced a key interest rate by the most since 2020 to bolster an economy that’s facing fresh risks from a worsening property slump and weak consumer spending.
• The People’s Bank of China lowered the rate on its one-year loans — or medium-term lending facility — by 15 basis points to 2.5% on Tuesday, the second reduction since June.
• The National Bureau of Statistics said domestic demand remains “insufficient” and the “economy’s recovery foundation still needs to be strengthened.”
• China needs to “step up macroeconomic policy adjustment, and focus on expanding domestic demand, lifting confidence and preventing risks,” the NBS said in a statement.
• Industrial production increased 3.7% in July from a year earlier, lower than the 4.3% median estimate in a Bloomberg survey of economists
• Retail sales growth slowed to 2.5%, worse than the median forecast of 4%
• Growth in fixed-assets investment weakened to 3.4% in the first seven months of the year, below the 3.7% forecast by economists.
• Property investment contracted 8.5% in the period, worse than in the first six months of the year.
• The urban jobless rate rose to 5.3% from 5.2% in June. The NBS said it will suspend publishing data for youth unemployment while it reviews its survey methods.
• In June, the jobless rate for 16- to 24-year olds reached a record 21.3%.
• Fixed investment by private businesses contracted 0.5% in the January-July period from a year earlier, a sign of weak confidence.

Russia’s Emergency Rate Hike Fails to Lift Ruble After Crash – Bloomberg, 8/15/2023

• Russia’s central bank raised interest rates sharply and said another increase is possible, but fell short of reversing declines in the ruble amid one of the steepest depreciations in emerging markets.
• Policymakers lifted their benchmark to 12% from 8.5%, the second straight increase and the sharpest since the immediate aftermath of Russia’s invasion of Ukraine almost 18 months ago.
• The central bank said in a statement that its move was “aimed at limiting price stability risks,” without providing any clear guidance on what it plans to do next.
• More than two hours later, it sent a follow-up comment to say another rate increase is on the table if pro-inflationary risks strengthen.

Factmonster – TODAY in HISTORY

• Proctor & Gamble Company introduced Crisco vegetable shortening. – 1911
• The Wizard of Oz premiered in Hollywood. – 1939
• The Indian Independence Bill created the two independent states of India and Pakistan. – 1947
• South Korea became the Republic of Korea. – 1948
• Woodstock Music and Art Fair opened at Max Yasgur’s dairy farm in Bethel, New York. – 1969
• A car bomb in Omagh, Northern Ireland, killed 29 people. It was the deadliest act of violence in more than 30 years of “Troubles.” – 1998
• Astronomers announced the discovery of the first solar system outside our own. – 2001

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