US FINANCIAL MARKET

Stocks Almost Wipe Out Gains as Bond Yields Climb: Markets Wrap – Bloomberg, 8/21/2023

• Stocks almost erased their gains as a renewed slide in Treasuries pushed 10-year yields to the highest level since 2007.
• The S&P 500 was little changed. The Nasdaq 100 rose 0.6%. The Dow Jones Industrial Average fell 0.4%.
• Traders also awaited Nvidia’s results and a speech by Federal Reserve Chair Jerome Powell later this week.
• The yield on 10-year inflation-protected Treasuries exceeded 2% for the first time since 2009 as investors demand higher risk-free rates of return amid a resilient US economy.
• The selloff comes amid worries around larger US fiscal deficits that will increase the supply of Treasury debt.
• Powell will speak Friday at the Kansas City Fed’s Jackson Hole Economic Policy Symposium.
• Investors will look to the highly anticipated speech for clues on the outlook for interest rates, which the Fed last month lifted to a range of 5.25% to 5.5%, the highest level in 22 years.
• A Fed chair’s speech at the conference has typically buoyed stocks since the turn of the millennium, with the S&P 500 gaining 0.4% on average in the following week, data compiled by Bloomberg Intelligence show.
• But last year’s appearance is still fresh in traders’ minds: Equities slumped 3.2% in the week following Powell’s remarks, according to BI, after he warned of keeping policy restrictive to battle inflation.
• In other corporate news, Nikola slipped after the maker of electric big rigs warned it may not reach its full-year delivery target as it grapples with fallout from recent battery incidents.
• Broadcom’s $61 billion takeover of VMware was cleared by the UK’s antitrust watchdog, paving the way for one of the largest-ever tech deals.
• Cybersecurity firm Palo Alto Networks surged after projecting stronger billings for the year than Wall Street anticipated.
• The Stoxx Europe 600 was little changed.
• The Bloomberg Dollar Spot Index was little changed
• The yield on 10-year Treasuries advanced nine basis points to 4.35%.
• West Texas Intermediate crude was little changed.
• Gold futures were little changed.

Palo Alto shares rise on earnings beat, surprising investors who worried about a Friday report – CNBC, 8/21/2023

• Palo Alto Networks shares jumped in extended trading on Friday after the security software vendor reported earnings that exceeded analysts’ estimates.
• The stock had dropped 16% in August leading up the report as investors worried that the company’s decision to announce results late on a Friday suggested the release may include troublesome numbers.
• Revenue: $1.95 billion, vs. $1.96 billion as expected by Refinitiv.
• Earnings: $1.44 per share, adjusted, vs. $1.28 per share, adjusted, as expected by Refinitiv.
• For the first quarter, Palo Alto expects revenue of $1.82 billion to $1.85 billion, and sales for the year are expected to be $8.15 billion to $8.2 billion.
• That’s below analyst expectations of $1.93 billion for the fiscal first quarter and $8.38 billion for the full year, according to Refinitiv.

Meta’s Threads App to Launch Web Version as Rivalry With X Enters New Stage – Wall Street Journal, 8/21/2023

• Meta Platforms plans to launch a web version of microblogging app Threads early this week, the biggest new feature to be introduced on its competitor to Elon Musk’s X.
• The desktop version would address one of the biggest of a long wish list of features users have sought for Threads.
• The text-first social-media app appeared on track to be a smash hit out of the gate when Meta launched a bare-bones version in early July, but use of it has plunged in recent weeks.
• Users have been able to see specific Threads posts on the web but their access is limited, as the app is mostly geared for mobile phones.
• Adam Mosseri, head of Instagram, said on Friday on his Instagram profile, that the web version of Threads would be launching soon and is already being tested internally at Meta.
• People familiar with Meta’s plans said it will launch early this week, although the launch plans aren’t final and could change.

Goldman Sachs Plans to Undo Another Solomon Deal Chasing Mass Market – Bloomberg, 8/21/2023

• Goldman Sachs Group is exploring a sale of an investment-advisory business it bought four years ago, undoing another signature deal under Chief Executive Officer David Solomon’s ill-fated push to manage money for a broader set of customers.
• The bank is looking to sell the personal financial management business, which oversees about $29 billion in assets and grew out of United Capital, a California-based registered investment adviser Goldman purchased for $750 million in 2019.
• The acquisition was part of Solomon’s plan to broaden the firm’s revenue beyond a traditional focus on ultra-wealthy individuals.
• “We are currently evaluating alternatives for that business as we determine where to invest our resources and where we see the greatest opportunity,” the New York-based bank said in an emailed statement Monday.

Arm Listing Set to Be Turning Point for IPO Market, SoftBank – Bloomberg, 8/21/2023

• Arm is expected to unveil its filing for an initial public offering as soon as Monday, giving the market a peek at the chip designer’s financial health seven years after it was acquired by SoftBank Group.
• The IPO, planned for September, is on track to be the year’s largest and could be one of the biggest tech listings ever on a US exchange.
• While Bloomberg News reported Arm was aiming to be valued at $60 billion to $70 billion in an IPO raising $8 billion to $10 billion, that target could be lower since SoftBank has decided to hold onto more of the company after buying Vision Fund’s stake in it.
• Arm won’t have to disclose the proposed size and price of the share sale until later filings with the US Securities and Exchange Commission.

Wall Street All-Stars Including Weinstein, Ackman Bid for Hedge Fund – Wall Street Journal, 8/21/2023

• Boaz Weinstein and several other high-profile investors including William Ackman and Marc Lasry have made a rival offer for Sculptor Capital Management, a hedge-fund firm that already agreed to sell itself to another investment firm.
• In late July, Sculptor agreed to a sale to real-estate investment firm Rithm Capital for about $639 million, or $11.15 in cash per Class A share of Sculptor, which formerly was known as Och-Ziff Capital Management.
• The offer was an 18% premium to Sculptor’s closing price at the time.
• Should it be completed, the deal would leave Sculptor’s current management, led by Chief Executive James Levin, in place.
• Weinstein’s group presented an offer for Sculptor that was rejected during the sales process and it subsequently increased its bid to more than $12 a share, people familiar with the matter said.
• Sculptor shares closed at $11.20 on Friday. If successful, the group likely would install new management, the people said.
• Weinstein runs Saba Capital Management, while Ackman leads Pershing Square Capital Management and Lasry helms Avenue Capital Group, all prominent New York hedge-fund firms.
• Financing for their bid for Sculptor is expected to come from their personal money, not their firms’ cash.

J&J Exchange Offer for Kenvue Is Substantially Oversubscribed – Barron’s, 8/21/2023

• Johnson & Johnson $35 billion exchange offer for Kenvue KVUE that expired last Friday was substantially oversubscribed.
• The result is that participating J&J holders will be able to convert only a fraction of their shares for Kenvue stock.
• J&J said Monday that the preliminary proration estimate is 23.8%, meaning that J&J holders who participated in the exchange will see just 23.8% of their shares swapped for Kenvue stock.
• The rest of J&J shares submitted by J&J investors in the exchange offer will be returned to them.
• The exception to the proration is J&J holders who held less than 100 shares and submitted them all in the exchange offer.
• They will not be subject to proration.

Broadcom’s $61 Billion VMware Deal Cleared by UK – Bloomberg, 8/21/2023

• Broadcom’s $61 billion takeover of VMware was cleared by the UK’s antitrust watchdog, paving the way for one of the largest-ever tech deals.
• The Competition and Markets Authority confirmed its provisional decision to clear the deal after finding that it wouldn’t substantially reduce competition in the supply of key computer server products, according to a statement on Monday.
• VMware makes virtual software that allows users to access systems remotely.
• Broadcom said Monday that the Federal Trade Commission’s period for reviewing the deal had passed without a challenge.

FedEx Pilots Are Worried About Their Jobs – Wall Street Journal, 8/21/2023

• FedEx’s highfliers have been grounded.
• A sharp drop in package volume and a move to combine FedEx’s Express and Ground delivery units created a glut of pilots, leaving what was long the company’s most revered class of workers in a state of angst.
• “There are many concerns about FedEx flying and what the future holds,” Pat DiMento, the company’s vice president of flight operations, wrote in a July letter to Express crew members viewed by The Wall Street Journal.
• The Memphis-based delivery company has an excess of about 700 pilots, according to the letter.
• FedEx union pilots last month voted against a new labor contract, protesting what they describe as insufficient wage increases and operational changes that could lead to declines in work hours.
• Under the existing contract, FedEx pilots are paid between $69 and $336 an hour based on factors such as the type of plane they fly and their seniority.
• Pilots typically have a minimum guaranteed 68 hours of work a month.

How Frank Sinatra and Yo Gotti Are Influencing the Future of Music on YouTube – Wall Street Journal, 8/21/2023

• YouTube has recruited Frank Sinatra’s estate and other Universal Music Group acts to influence how artists are paid when their work is used by artificial-intelligence tools.
• Universal artists including country singer Rosanne Cash, composer Max Richter and rapper Yo Gotti will work with Google’s YouTube on an effort to explore the future of music royalties and creative expression as generative AI tools make it easier than ever for internet users to manipulate art.
• The partnership is an attempt by Universal to ensure its artists are compensated appropriately as the technology develops, after the music industry found itself at a disadvantage during the rise of streaming and other new services.

Nikola Falls on Warning of Risk to 2023 EV Delivery Guidance – Bloomberg, 8/21/2023

• Nikola fell in early trading after the maker of electric big rigs warned it may not reach its full-year delivery target as it grapples with fallout from recent battery incidents.
• The company also said in a regulatory filing Monday that it “may incur significant expenses” to fix or find a replacement for the faulty part.
• A fire in June and second incident in August prompted Nikola to recall 209 battery-electric trucks earlier this month and temporarily halt new sales.
• “As a result, our brand, business, results of operations, financial condition and cash flows may be adversely affected,” the company said in the filing.
• There may be a particular impact on the “ability to meet our previously stated expectations regarding deliveries for the remainder of 2023.”

US ECONOMY & POLITICS

Tropical Storm Hilary Makes Landfall in Southern California – Wall Street Journal, 8/21/2023

• Southern California was hit with rain, wind and even a series of earthquakes Sunday as the first tropical storm in nearly a century roared in, knocking out power, flooding streets and prompting at least one water rescue in a region that normally is bone dry this time of year.
• Los Angeles city officials reported numerous problems late Sunday, including power outages to 5,000 customers, power lines down citywide and two mudslides in the Sherman Oaks area that missed homes.
• Swift water crews rescued one motorist whose vehicle ended up in a flood-control channel, said Los Angeles Fire Chief Kristin Crowley.
• Fearful of more problems overnight, Los Angeles school district officials ordered campuses closed Monday as Mayor Karen Bass gave this warning to residents: “Stay safe, stay informed and stay home.”
• Adding to the drama was a series of short earthquakes between 2.8 and 5.1-magnitude that occurred near Ojai, Calif., at about 2:40 p.m., the strongest of which was felt in Los Angeles, about 80 miles away.

EUROPE & WORLD

China’s Surprise Move on Loan Rates Shows Banks Under Pressure – Bloomberg, 8/21/2023

• Chinese banks kept a key interest rate that guides mortgages on hold and made a smaller-than-expected cut to another rate, surprise moves that reflect Beijing’s difficult choice between boosting confidence and safeguarding the banking system’s stability.
• The five-year loan prime rate was left at 4.2% on Monday, according to data from the People’s Bank of China.
• Most economists had predicted the rate to be cut by 15 basis points following a similar reduction last week to an key central bank policy loan rate.
• The one-year LPR was lowered by 10 basis points to 3.45% from 3.55%, a smaller cut than most economists predicted.
• The decision on the loan prime rates came as a surprise after last week’s shock cut to the PBOC’s medium-term lending facility rate, and a meeting days later between the central bank, financial regulators and bank executives, in which lenders were again told to boost loans.

Taiwan Export Orders Fall in July at Mildest Pace This Year – Bloomberg, 8/21/2023

• Taiwan’s export orders declined for an 11th straight month but at the mildest pace since October, indicating the worst of the global slump in consumer demand may be over as the technology industry gears up for its peak season.
• Overseas orders to Taiwanese companies shrank 12% in July from a year ago to $48 billion, the Ministry of Economic Affairs said in a statement Monday.
• That was better than the 15.5% decline economists had expected, according to a Bloomberg survey.
• On Friday, the government downgraded its forecast for gross domestic product growth for 2023 to 1.61%, which would be the slowest pace of growth since 2015.
• Officials also downgraded their forecast for exports to a 9.51% decrease, more severe than an earlier projection of a 7.27% decline.

Ukraine war live updates: Drone attacks reported near Moscow; Russia warns F-16 jet donations will escalate war – CNBC, 8/21/2023

• Russian authorities reported attacks by two drones in the Moscow region, which they said were intercepted by air defense forces. Falling debris from the interception injured two people, officials said.
• Denmark and the Netherlands announced their plan to donate a number of F-16 fighter jets to Ukraine, drawing condemnation from Russian officials who warn the move will only escalate the war.
• Meanwhile, flights at four airports in the Moscow region were briefly suspended, with several flights rerouted for “civil safety”, local authorities said.
• Russia’s federal air transport agency did not specify the reason for the disruption, but the timing tracked with reports from the Russian Defense Ministry about a “terrorist attack” carried out by drones in the region, which it blamed on Kyiv and said it repelled.

Kim Jong Un Turns to High-Profile Visits to Mask North Korea’s Internal Struggles – Wall Street Journal, 8/21/2023

• With North Korea suffering from starvation and a down economy, Kim Jong Un has increasingly shone a light on the few areas worth touting: His weapons and himself.
• Kim, the 39-year-old dictator, inspected a navy unit and oversaw a drill launching strategic cruise missiles from aboard a nearby vessel, state media reported Monday.
• It was the latest in a string of recent prominent visits meant to highlight military prowess and new hardware advances.
• Kim has used his public appearances to urge North Korea to step up efforts to prepare for war, escalate his nuclear rhetoric and call for an increase in weapons production.
• Due to economic failures, North Korea’s sole accomplishments are in weapons advancement, which Kim emphasizes to his people to boost morale while sending an external message that the regime has no intention of engaging in denuclearization talks with the U.S., said Go Myong-hyun, a senior fellow at the Asan Institute for Policy Studies, a think tank in Seoul.

Automaker Stellantis has discussed moving pickup truck production from the U.S. to Mexico, union leader says – CNBC, 8/21/2023

• Automaker Stellantis has threatened to move production of the current Ram 1500 pickup truck from a factory in suburban Detroit to Mexico, a union leader said Sunday.
• United Auto Workers Vice President Rich Boyer, who heads the union’s Stellantis unit, said the automaker has discussed the move during ongoing contract negotiations that are occurring simultaneously but separately between the UAW and General Motors, Stellantis and Ford Motor.
• Boyer said the company’s plans would include producing a new all-electric Ram pickup truck at the Sterling Heights Assembly Plant, which currently produces most of the Ram light-duty pickups.
• Such a move would likely receive some political pushback.
• It also would potentially impact the union’s membership, as EVs require fewer workers to produce them.
• There’s also no guarantee that an all-electric pickup would be as successful as the current internal combustion engine (ICE) model, meaning less job security for members.
• Boyer, speaking to hundreds of union members during a “Sunday Solidarity” rally, didn’t hold back his displeasure about the potential plans, calling out Stellantis CEO Carlos Tavares for not caring about U.S. auto workers.

Factmonster – TODAY in HISTORY

• Pueblo Indians drove out the Spanish and took possession of Santa Fe, N.M. – 1680
• Nat Turner led an insurrection of slaves in Virginia. – 1831
• The famous debates between Senator Stephen Douglas and Abraham Lincoln began in Illinois. – 1858
• The Mona Lisa was stolen from the Louvre museum in France by an Italian waiter, Vicenzo Perruggia. – 1911
• Harry S. Truman announced the end of the Lend-Lease Program. – 1945
• Hawaii became the 50th state in the United States. – 1959
• Latvia declared its independence from the Soviet Union. – 1991

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