US FINANCIAL MARKET

Global Stocks Heading for Worst Week Since March: Markets Wrap – Bloomberg, 8/18/2023

• Stocks slumped, putting a global benchmark on track for the biggest weekly loss since March, as worries about China and higher global interest rates sapped sentiment.
• The S&P 500 fell 0.7%. The Dow Jones Industrial Average fell 0.5%.
• The Nasdaq 100 slumped 0.8%, outpacing the decline of S&P 500 peers and building on the selloff that’s stretched across risk assets.
• Bitcoin slid as much as 8% and oil was set for its first weekly loss since June.
• Meanwhile, Treasuries were mixed.
• The yield on the 10-year, pulled back from Thursday’s levels that were approaching the highest since 2007.
• The yield on 10-year Treasuries was little changed at 4.27%.
• Investors are still contending with the risks of entrenched inflation and rates that have moved sharply higher in recent weeks.
• China’s property crisis and troubles in the shadow banking system have also added to the anxiety in markets and raised questions about possible spillover effects.
• In another sign of nervousness, the CBOE Volatility Index climbed above 18, the highest level since May.
• Options expiration is also catching the attention of traders today.
• There’s some $2.2 trillion of longer-dated contracts tied to stocks and indexes are scheduled to mature on Friday, according to an estimate by Rocky Fishman, founder of derivatives analytical firm Asym 500.
• The global retreat in fixed-income was turbocharged by Wednesday’s publication of minutes from the last Federal Reserve meeting that suggested officials are considering tighter policy, slamming hopes that the central bank was done raising rates.
• Now, investors are looking to next week’s gathering of policymakers at Jackson Hole in Wyoming to gauge Fed sentiment.
• The Stoxx Europe 600 fell 1.2%.
• The Bloomberg Dollar Spot Index was little changed.
• West Texas Intermediate crude rose 0.5% to $80.80 a barrel.
• Gold futures rose 0.4% to $1,923.40 an ounce.

Applied Materials Gives Strong Forecast as Chip Slump Eases – Bloomberg, 8/18/2023

• Applied Materials, the largest US maker of chipmaking machinery, gave a bullish forecast for the current quarter, indicating that an industry slump may be fading.
• Sales fell 1.5% to $6.43 billion in the period.
• Third-quarter profit was $1.90 a share, excluding some items.
• Analysts estimated earnings of $1.73 a share and revenue of $6.16 billion.
• On the conference call with analysts, Chief Financial Officer Brice Hill said that about 5% of Applied Materials’ wafer-fab equipment is dedicated to the AI market.
• That compares with 20% for data center chips and 10% to 15% for Internet of Things equipment.
• Fiscal fourth-quarter sales will be about $6.51 billion, the company said in a statement Thursday.
• That compares with an average analyst estimate of $5.88 billion.
• Excluding some items, profit will be $1.82 to $2.18 a share in the period, which ends in October, versus a projection of $1.61 a share.
• The shift toward artificial intelligence computing and the rise of internet-connected devices are helping bolster results, Chief Executive Officer Gary Dickerson said in the statement, “enabling us to consistently deliver strong results in 2023 and positioning Applied Materials for sustainable outperformance.”

Deere profit and guidance beat forecasts, but stock falls – Market Watch, 8/18/2023

• Deere stock dipped in premarket trades Friday despite a third-quarter profit update and 2023 profit view that beat analyst estimates but implies that it could fall short of forecasts for the coming quarter.
• Revenue at the Moline, Ill.-based company rose 12% to $15.801 billion, ahead of the estimate of $14.143 billion.
• The company said its net income for the three months ended June 30 rose to $2.978 billion or $10.20 per share, from $1.884 billion, or $6.16 per share, in the year-ago quarter.
• The FactSet consensus estimate was for earnings of $8.22 a share.
• Looking ahead, Deere expects its profit for 2023 to range from $9.75 billion to $10 billion, ahead of the analyst view of $9.407 billion.
• The view implies that Deere expects its fourth-quarter results to be mostly in line at this time.

Ross’s stock rallies after off-price retailer raises outlook, says people are looking for bargains – Market Watch, 8/18/2023

• Shares of Ross Stores rose in extended trading Thursday after the company joined other off-price retailers in beating Wall Street expectations for its second quarter and raising guidance, saying budget-conscious customers are “responding well” to its bargain offerings.
• Sales rose to $4.9 billion, from $4.6 billion a year ago.
• Analysts polled by FactSet expected Ross to report earnings of $1.16 a share on sales of $4.8 billion.
• Ross earned $446 million, or $1.32 a share, in the second quarter, compared to $385 million, or $1.11 a share, in the year-ago period.
• Ross’s same-store sales were up 5%, contrasting with a drop of 7% in the second quarter of 2022, the company said.
• Despite that prudent stance, Ross raised its sales and earnings outlook for the second half of the year, saying it expects comparable-store sales for the third and fourth quarters to be up 2% to 3% and up 1% to 2%, respectively.
• It called for third-quarter EPS of $1.16 to $1.21 and between $5.15 and $5.26 for the fiscal year.

Estée Lauder Swings to Loss on Weakened China Business – Wall Street Journal, 8/18/2023

• Estée Lauder’s quarterly sales took a hit from softening sales in North America and a slower-than-expected rebound in its key Asia duty-free retail business.
• Revenue rose to $3.61 billion from $3.56 billion.
• Estée Lauder said sales rose 1.3%, beating analysts’ expectations of $3.48 billion, according to FactSet.
• The company swings to a loss of $33 million, from a profit of $153 million in the year-ago quarter.
• Restructuring charge of $76 million.
• Gross margin weakened to 67.8% from 71%.
• The company has seen a decline in skin care sales in its Asia Pacific region, which includes China and Japan, amounting to 14% for the full year.
• The company said it is “mindful of the headwinds that have emerged in China’s economy,” and acknowledged “the pace of recovery in Asia travel retail and mainland China was slower than anticipated.”
• The New York-based company said U.S. retailers tightened their inventory levels in the first half of 2023, leading to a 2% decline in full-year reported sales and flat net sales.
• In Europe, the company saw a 16% drop in net sales due to lower product shipments to retailers in Hainan and South Korea.
• Full-year sales fell 10% to $15.91 billion, driven by a 14% decline in skin care net sales in its Asia Pacific region, which includes China and Japan.
• The company behind Clinique, MAC and its namesake Estée Lauder line anticipates sales to fall between 10% and 12% in the first quarter to a range of $4.33 billion to $4.41 billion, compared with $3.93 billion a year earlier.
• Analysts surveyed by FactSet expect sales to fall to $3.94 billion and losses per share between 23 cents and 31 cents for the period.
• For the full fiscal year ahead, Estée Lauder expects sales to rise between 5% and 7% to up to $17.02 billion, coming below analysts’ expectations of $17.21 billion.

A Rare Look Into the Finances of Elon Musk’s Secretive SpaceX – Wall Street Journal, 8/18/2023

• SpaceX’s soaring revenue helped it eke out a small profit in the first three months of the year after two annual losses, according to documents that offer a rare view into the financials of Elon Musk’s rocket company.
• The privately held company generated $55 million in profit on $1.5 billion in revenue during the first quarter of 2023, according to results in documents viewed by The Wall Street Journal.
• The slim earnings came after two years of significant but narrowing losses at SpaceX, which is pouring money into a rocket that remains unproven and poses difficult technical challenges.
• Before SpaceX’s small quarterly profit at the start of this year, the company reported about $5.2 billion in total expenses for 2022, up from $3.3 billion the year earlier, the documents show.
• Revenue doubled to $4.6 billion, helping the company reduce its loss last year to $559 million from $968 million.
• It reported taking in around $2 billion in proceeds from issuing stock last year, up from $1.5 billion in 2021, according to the documents.
• The documents also show SpaceX wrote down the value of bitcoin it owns by a total of $373 million last year and in 2021 and has sold the cryptocurrency.

Farfetch stock tanks more than 30% after luxury fashion company misses quarterly revenue expectations – Market Watch, 8/18/2023

• Shars of Farfetch dropped more than 30% in the extended session Thursday after the luxury fashion company reported lower-than-expected sales for its second quarter.
• Revenue fell to $572 million, from $579 million a year ago.
• Adjusted for one-time items, Farfetch lost 21 cents a share.
• FactSet consensus called for a loss of 28 cents a share on sales of $650 million.

Goldman Plans Hiring Spree to Fix Lapses After Increased Fed Scrutiny – Bloomberg, 8/18/2023

• A fresh bout of US regulatory scrutiny is setting off a hiring spree at Goldman Sachs Group as the company’s leaders seek to remediate issues raised by banking supervisors.
• The Wall Street firm is enlisting several hundred new staffers to help address concerns from authorities including the Federal Reserve, according to people with knowledge of the matter, who asked not to be named discussing confidential plans.
• The back-office hiring binge comes even as the firm cuts executives from money-making ranks amid a slump in business.
• Though regulators routinely question large financial firms, Goldman executives privately describe growing pressure from the Fed over the past year.
• If left unsatisfied, supervisors can impose increasingly formal and potentially onerous measures behind the scenes to force banks to overhaul operations and procedures.
• Discover Financial Services, bracing for a consent order from the Federal Deposit Insurance Corp., announced a leadership shakeup this week and said it’s been hiring more personnel to deal with authorities’ concerns.

US ECONOMY & POLITICS

Economists Lift US Growth Forecasts, See Fed Higher for Longer – Bloomberg, 8/18/2023

• Economists see a stronger US economy into the next year and a smaller rise in unemployment, supporting expectations that the Federal Reserve will keep interest rates higher for longer.
• Gross domestic product is expected to advance an annualized 1.8% in the third quarter, nearly quadruple the 0.5% pace projected in July, according to the latest Bloomberg monthly survey of economists.
• They also see the economy expanding somewhat in the last three months of the year, rather than contracting.
• The Aug. 11-16 survey of economists included 68 responses, and many were submitted before a government report showed retail sales beat estimates in July after upward revisions to the prior two months.
• Economists see the US economy growing 2% on average this year and 0.9% in 2024 — both above last month’s estimates.
• They also expect the global economy to expand more than initially projected this year, echoing more optimistic forecasts from the International Monetary Fund and World Bank.
• However, economists did revise up their expectations for bond yields through the end of 2025.
• The two-year Treasury yield is now seen ending the current quarter at 4.82% compared to last month’s projection of 4.65%.

Hurricane Hilary, Now a Category 4, Will Bring Heavy Rains to Mexico, Southern California – Wall Street Journal, 8/18/2023

• Hurricane Hilary strengthened to a powerful Category 4 storm overnight as it barreled north toward Mexico and Southern California, where it is expected to bring heavy rains, high winds and flash flooding.
• If the storm follows its predicted path, Hilary will be one of only a handful of hurricanes on record to affect Los Angeles.
• Hurricane Hilary intensified overnight as it moved across warm Pacific waters.
• Forecasters ranked the storm a Category 4, the second-highest level, which means the storm could cause catastrophic damage.
• With maximum sustained winds near 145 miles an hour, Hilary is forecast to fluctuate in intensity before approaching the west coast of Mexico’s Baja California peninsula on Saturday.
• The National Hurricane Center said at 8 a.m. ET Friday that Hilary was continuing to strengthen as it reached a point about 400 miles south of Baja California’s southern tip.
• Forecasters said the storm could make landfall early Sunday on the peninsula.
• The hurricane will likely weaken to a tropical storm before it nears the Southern California coast later on Sunday, said Rhome.
• Cities such as Las Vegas, Phoenix, San Diego, and Los Angeles are likely to experience localized flash flooding and potentially dangerous wind gusts.

Hundreds of Gun Dealers Lose Licenses Under Biden Administration Crackdown – Wall Street Journal, 8/18/2023

• The Biden administration is revoking licenses from hundreds of firearms dealers in a significant escalation of federal enforcement actions that has angered many in the gun industry.
• The Bureau of Alcohol, Tobacco, Firearms and Explosives has revoked the licenses of 122 gun dealers in the fiscal year that began in October, up from 90 for all last fiscal year and 27 in 2021.
• Previously, ATF issued warnings to many firearms dealers for legal violations, in part because they are a valuable source of tips on suspicious gun buyers.
• The Trump and Obama administrations never revoked more than 81 dealers’ licenses annually since at least 2013, the earliest year for which data are available.
• Gun dealers have filed lawsuits and threatened to stop informing federal agents about suspicious buyers, claiming that the crackdown is a way to punish the firearms industry by an administration hostile to them.

Maui Emergency-Management Chief Resigns – Wall Street Journal, 8/18/2023

• A Maui County official criticized for his handling of the wildfire disaster that tore through historic Lahaina resigned Thursday, citing health reasons, officials said.
• Maui Emergency Management Agency administrator Herman Andaya tendered his resignation effective immediately, according to Maui County Mayor Richard Bissen.
• “Given the gravity of the crisis we are facing, my team and I will be placing someone in this key position as quickly as possible and I look forward to making that announcement soon,” Bissen said.
• Andaya said at a news briefing Wednesday that he hadn’t activated Maui County’s roughly 80 emergency sirens during the fires that raged across the region and decimated Lahaina, killing at least 111 people.
• He defended the decision, saying the sirens have been traditionally activated to warn residents of a tsunami or a hurricane.
• The sirens might have sent people into the path of the Aug. 8 wildfires, he said.
• “Had we sounded the siren that night, we were afraid that people would have gone mauka [into the mountains], and if that were the case, they would have gone into the fire,” he said.

Chinese Solar Makers Face New Tariffs After US Says They’re Dodging Duties – Bloomberg, 8/18/2023

• A US government probe has concluded some manufacturers in Asia are illegally bypassing tariffs on Chinese solar equipment, exposing them to duties that threaten to hike the cost of renewable power and slow the development of clean energy.
• Some solar cells and modules exported from Southeast Asia could now face tariffs as high as 254% in June 2024, after the Commerce Department determined that companies operating in Cambodia, Malaysia, Thailand and Vietnam are avoiding the longstanding duties.
• The US singled out five companies that are either Chinese or linked to China as circumventing tariffs: BYD and New East Solar in Cambodia; Canadian Solar in Thailand; and, in Vietnam, Trina Solar Science & Technology and Vina Solar Technology, a unit of Longi Green Energy Technology.
• A senior Commerce official who briefed reporters on the findings said the investigation — which included site visits and factory audits — is a signal the Biden-Harris administration is taking trade enforcement seriously as well as a warning to other companies engaging in similar circumvention schemes.

EUROPE & WORLD

Xpeng Reports Quarterly Loss That Exceeds Analyst Estimates – Bloomberg, 8/18/2023

• Chinese electric carmaker Xpeng reported a wider-than-expected quarterly loss as it struggles to ramp up deliveries amid intense competition in the world’s biggest EV market.
• Revenue declined 32% to 5.06 billion yuan, which beat analysts’ forecast of 4.91 billion yuan.
• Guangzhou-based Xpeng posted a net loss of 2.80 billion yuan ($380 million) in the three months ended Jun. 30, according to a company statement Friday, more than the 2.1 billion yuan deficit estimated by analysts.
• It had a 1.77 billion yuan loss in the same quarter a year earlier.
• The carmaker delivered 23,205 vehicles in the quarter, beating its original guidance of 21,000-22,000 units.
• The company looks to deliver between 39,000 and 41,000 vehicles in the three months ending Sept. 30, and post revenue between 8.5 billion and 9.0 billion yuan, a year-over-year increase of approximately 25% to 32%.

China Evergrande Group Files Chapter 15 Bankruptcy in New York – Bloomberg, 8/17/2023

• China Evergrande Group sought Chapter 15 bankruptcy protection in New York on Thursday, a move that protects its US assets from creditors while it works on a restructuring deal elsewhere.
• The Chinese homebuilder’s Chapter 15 petition references restructuring proceedings being carried out in Hong Kong and the Cayman Islands.
• Its Scenery Journey unit also filed for Chapter 15 protection, along with affiliate Tianji Holdings.
• International debt-restructuring deals sometimes require a Chapter 15 filing in the course of finalizing a transaction.

The Ghost Fleet Helping Russia Evade Sanctions and Pursue Its War in Ukraine – Wall Street Journal, 8/18/2023

• In a gray four-story office building above a nightclub with a black door here, a company founded by a Turkish sock and underwear magnate has transformed into one of the world’s largest shipowners transporting Russian oil.
• The firm, Beks Ship Management, has bought 37 ships since 2021, many of them aging oil tankers, spending more than half a billion dollars in a little over two years and increasing the value of its fleet 10-fold.
• Companies such as Beks are a critical element in Russia’s attempts to keep supplying oil around the world and fund its war in Ukraine.
• The fleet now includes hundreds of vessels around the world, many owned by companies in Greece, India and the United Arab Emirates, as well as Turkey.
• Many evade Western sanctions by operating outside the usual industry standards, often forgoing insurance with the P&I Clubs, the global networks that insure some 90% of the world’s commercial shipping.
• Some use a parallel Russian insurance system set up since the war began.
• Shipping analysts say there are growing questions about whether the tankers are properly surveyed, and whether Moscow would pay out in the event of an accident.
• Russia has said it is pushing for its insurance system to be internationally recognized.

Factmonster – TODAY in HISTORY

• Virginia Dare became the first child of English parents born in North America. – 1587
• Congress established the Bureau of Immigration, forerunner of the Immigration and Naturalization Service. – 1894
• When Tennessee ratified the 19th Amendment to the Constitution, the three-quarters of the states necessary was achieved and American women got the right to vote. – 1920
• Vladimir Nabokov’s novel Lolita was published. – 1958
• James Meredith became the first African American to graduate from the University of Mississippi. – 1963

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