US FINANCIAL MARKET

Bond Rout Eases as Traders Parse Job, Service Data: Markets Wrap – Bloomberg, 10/4/2023

• Global bonds steadied Wednesday as traders parsed US data and raised bets that the Federal Reserve can refrain from further interest rate increases.
• Ten-year Treasury yields remain lower on the day after the rate on the benchmark had reached as high as 4.88% early in the session. 
• Traders are pricing a less than one-in-five chance of an increase in November, down from one-in-three previously. 
• Stocks wavered with the S&P 500 poised to resume a selloff that drove the gauge to a four-month low Tuesday. 
• The S&P 500 was little changed. The Nasdaq 100 rose 0.5%. The Dow Jones Industrial Average fell 0.3%.
• Large-cap tech names including Microsoft and Amazon.com powered gains in the Nasdaq 100 index.
• US companies added the fewest number of jobs since the start of 2021 in September, suggesting labor demand in several industries is slowing. 
• Private payrolls rose 89,000 last month after climbing 180,000 in August, according to the survey from the ADP. 
• The Institute for Supply Management’s (ISM) services index pulled back modestly in September falling to 53.6, the lowest level this year, though readings above 50 indicate expansion.
• The latest leg of the selloff has been fueled by Tuesday’s better-than-expected US job data, as well as a slew of hawkish comments from Federal Reserve officials. 
• As conviction grew that US interest rates could rise further from current 22-year highs, 30-year yields touched 5% for the first time since 2007.
• The Stoxx Europe 600 fell 0.4%.
• West Texas Intermediate crude fell 3.5% to $86.11 a barrel.
• Gold futures fell 0.3% to $1,836.30 an ounce.

Amazon Used Secret ‘Project Nessie’ Algorithm to Raise Prices – Wall Street Journal, 10/4/2023

• Amazon.com used an algorithm code-named “Project Nessie” to test how much it could raise prices in a way that competitors would follow, according to redacted portions of the Federal Trade Commission’s monopoly lawsuit against the company.
• The algorithm helped Amazon improve its profit on items across shopping categories, and because of the power the company has in e-commerce, led competitors to raise their prices and charge customers more, according to people familiar with the allegations in the complaint. 
• In instances where competitors didn’t raise their prices to Amazon’s level, the algorithm—which is no longer in use—automatically returned the item to its normal price point.
• The company also used Nessie on what employees saw as a promotional spiral, where Amazon would match a discounted price from a competitor, such as Target.com, and other competitors would follow, lowering their prices. 
• When Target ended its sale, Amazon and the other competitors would remain locked at the low price because they were still matching each other, according to former employees who worked on the algorithm and pricing team. 
• The algorithm helped Amazon recoup money and improve margins. 
• The FTC’s lawsuit redacted an estimate of how much it alleges the practice “extracted from American households,” and it also says it helped the company generate a redacted amount of “excess profit.”

Ford’s U.S. vehicle sales top 500,000 in Q3, amid strong EV and truck sales – Market Watch, 10/4/2023

• Ford Motor reported Wednesday that it sold more than half a million vehicles in the U.S. during the third quarter, boosted by strength in sales of hybrid and electric vehicles and trucks.
• Overall, the automaker said sales rose 7.7% from a year ago to 500,504 vehicles, bringing the year-to-date total to 1.51 million vehicles.
• Hybrid vehicle sales jumped 41.4% from a year ago to 34,861 vehicles and sales of electric vehicles rose 14.8% to 20,962 EVs, boosted by 42.5% growth in Mustang Mach-E sales to 5,872. 
• Total hybrid and EV sales represented 11.2% of total vehicle sales.
• Truck sales climbed 15.3% to 275,554, while sales of sport-utility vehicles (SUVs) slipped 0.1% to 215,106.
• Within trucks, F-Series sales rose 13.4% to 190,477, while sales of the electric F-150 Lightning tumbled 45.8% to 3,503.
• Sales of the Transit van grew 28.3% to 34,006, including an 89.8% spike in E-Transit sales to 2,617 vans.

Kaiser Permanente Unions Strike, Mounting Largest U.S. Healthcare Walkout in Decades – Wall Street Journal, 10/4/2023

• More than 75,000 nurses, pharmacists and other employees of the Kaiser Permanente health system walked off the job Wednesday in the largest U.S. healthcare strike in recent history.  
• The workers struck after contracts expired and their unions couldn’t reach an agreement with Kaiser on how much a new deal would increase wages and staffing. 
• To minimize the impact on patients, Kaiser said it would bring on temporary workers to fill some vacancies, but would, if needed, postpone some appointments and expand its network to retail pharmacies and, for some people, non-Kaiser hospitals.
• The work stoppage involves Kaiser workers in five states and Washington, D.C., including workers who care for patients, such as pharmacists and respiratory therapists, and other staffers, such as laboratory technicians and kitchen and janitorial employees. 
• Workers in Washington, D.C., and Virginia plan to strike for a day, a spokeswoman for the unions said. 
• Strikes in California, Colorado, Oregon and Washington state will last three days. 

Bill Gross Sees Stocks ‘Clearly Overvalued’ as Bond Yields Rise – Bloomberg, 10/4/2023

• Bill Gross, co-founder and former chief investment officer at Pacific Investment Management, said stocks are “clearly overvalued” and that bond yields would need to fall “significantly” to justify current valuations.
• In an investment outlook published Wednesday, Gross said neither bonds nor equities are attractive, even after the recent selloffs, because inflation leaves little room for the Federal Reserve to lower rates from a 22-year high.
• “I’d pass on stocks and bonds in terms of future total returns,” he wrote, while adding that bonds are a “better deal” than equities in an economic slowdown or recession.
• Gross said the “best bets” are arbitrages in mergers and acquisition deals, including Microsoft’s $69 billion bid for of Activision Blizzard, which he expects to close in about two weeks. 
• Pipeline Master Limited Partnerships are also among his favorites. 
• Even so, “can AI and $2 trillion fiscal deficit going forward validate that ‘it’s different this time?’” he wrote. “I am suspicious.”

US 30-Year Mortgage Rate Tops 7.5% for First Time Since 2000 – Bloomberg, 10/4/2023

• US mortgage rates last week topped 7.5% for the first since November 2000 and applications for home purchases tumbled to a multi-decade low, illustrating a battered housing market.
• The contract rate on a 30-year fixed mortgage rose by 12 basis points, the most since mid-August, to 7.53% in the week ended Sept. 29, according to Mortgage Bankers Association data out Wednesday. 
• The index of home-purchase applications fell 5.7% to 136.6, the lowest level since 1995.
• The overall measure of mortgage applications, which includes refinancing activity, slid 6% to its weakest reading since 1996.
• Borrowing costs have continued to rise so far this week, and Mortgage News Daily, which updates more frequently, put the 30-year fixed mortgage rate at 7.72% on Tuesday.

US ECONOMY & POLITICS

US Firms Added 89,000 Jobs, Fewest Since Early 2021 in ADP Data – Bloomberg, 10/4/2023

• US companies added the fewest number of jobs since the start of 2021 in September and pay growth slowed, pointing to a weakening in labor demand in several industries.
• Private payrolls rose 89,000 last month after climbing 180,000 in August, according to figures published Wednesday by the ADP Research Institute in collaboration with Stanford Digital Economy Lab.
• The figure trailed all estimates in a Bloomberg survey of economists. 
• Leisure and hospitality drove the September gain, offsetting job losses at professional and business services, manufacturing and trade and transportation. 
• Large businesses reduced payrolls.
• Workers who stayed in their job saw a 5.9% median pay increase in September from a year ago, according to ADP. 
• For those who changed jobs, the 9% median rise in annual pay was the weakest since June 2021.
• Firms with at least 500 employees cut 83,000 jobs last month, the second-largest decline since early in the pandemic. 
• All regions except the South added workers in September.

US Services Activity Moderates as Orders Growth Slides – Bloomberg, 10/4/2023

• Growth in the US service sector moderated in September as a measure of new orders slid to the lowest level this year.
• The Institute for Supply Management’s overall gauge of services fell by nearly a point to 53.6, data out Wednesday showed. 
• Readings above 50 indicate expansion, and the September figure was in line with the median estimate in a Bloomberg survey of economists.
• The gauge of business activity index, which parallels the ISM factory production index, rose 1.5 points to 58.8. 
• Thirteen services industries reported growth in September, including real estate, retail trade and mining, the ISM report showed. 
• Five reported a decline, led by agriculture, entertainment and recreation, and accommodation and food services.
• The ISM measure of inventories at service providers moderated, and a gauge of sentiment about inventory levels also fell to a three-month low.

U.S. factory orders rise in August – Market Watch, 10/4/2023

• Orders for U.S. manufactured goods rose 1.2% in August, the Commerce Department said Wednesday, after declining 2.1% the prior month.
• Economists were predicting a 0.3% increase, according to a Wall Street Journal poll.
• Excluding transportation, orders rose 1.4% in August after a 0.7% gain in the prior month.
• Durable-goods orders rose a stronger-than-expected 0.2% in August, according to data released last week, on the strength of increased military spending.
• Orders for nondefense capital goods, excluding aircraft, rose 0.7% in August.

McCarthy Ouster Means More Turmoil as Next Shutdown Fight Looms – Bloomberg, 10/4/2023

• Kevin McCarthy’s ouster as US House speaker plunged Congress into an internal power struggle as it faces key deadlines on avoiding a government shutdown and approving aid for Ukraine — all as the country hurtles toward a presidential election.
• McCarthy lost his leadership post after hardliners in his own party revolted over his compromise with Democrats to avert a government shutdown last weekend. 
• He said he won’t run again for speaker and hasn’t thought about resigning from Congress.
• Representative Patrick McHenry took over as acting speaker after the 216-210 vote as the House awaits an election for a permanent replacement. 
• There is a wide open lane, with members set to go home for a week and the House expected to hold speaker elections Oct. 11.
• “I do not regret negotiating,” McCarthy said. “I do not regret my efforts to build coalitions and find solutions.”
• As for who might make a run to replace McCarthy, Steve Scalise of Louisiana, who has been the No. 2 House Republican as majority leader, has been making calls to some members testing the waters, according to two people familiar with his activities. 
• Representatives Tom Emmer of Minnesota and Elise Stefanik of New York, the No. 3 and 4 elected party officials, respectively, also are mentioned by Republican lawmakers as potential candidates.

As Student Loan Payments Resume, Biden Cancels $9 Billion in Debt – Bloomberg, 10/4/2023

• President Joe Biden is canceling an additional $9 billion in student-loan debt, his latest action to aid borrowers after the Supreme Court blocked his debt-relief plan and as payments resume for millions of Americans.
• Biden on Wednesday will detail the efforts, which will bring relief for 125,000 borrowers through changes to programs intended to aid public servants, Americans with disabilities and low-income borrowers, according to the White House.
• That total includes $5.2 billion in debt relief for 53,000 borrowers in public service loan forgiveness programs.
• The administration also identified 51,000 additional borrowers who paid for at least 20 years but never got relief and will provide them nearly $2.8 billion in debt relief through fixes to income-driven repayment.
• Another $1.2 billion in relief will go to about 22,000 borrowers deemed to have a total or permanent disability, the White House said.
• The steps Biden will announce Wednesday bring the total debt cancellation approved by the administration to $127 billion, aiding about 3.6 million Americans.

EUROPE & WORLD

Rare Look Inside TikTok Parent’s Finances Shows Slowing Revenue Growth – Wall Street Journal, 10/4/2023

• TikTok parent ByteDance turned an operating profit of nearly $6 billion in the first quarter of 2023, nearly double its haul from the previous year as the Chinese social-media giant pared back expenses.
• The rare look inside the private company’s closely guarded finances shows the extent to which ByteDance has turned around its business since 2021, when it had an operating loss of $7 billion, The Wall Street Journal previously reported.
• Still, while ByteDance’s revenue continues to expand, surging by more than 38% to $85.2 billion in 2022, the company’s revenue growth has come down compared with a year prior, when it rose by nearly 80%, according to a financial report shared with employees. 
• The company generated more than $20 billion in operating profit last year, the report shows.
• In conjunction with the financial document sent to current and former employees, ByteDance also offered to buy back shares from current employees at $160 per share, according to people familiar with the matter. 
• The company also notes it has 1.4 billion shares outstanding, implying a valuation of $223.5 billion.

Factmonster – TODAY in HISTORY

• The International Herald Tribune was published for the first time. – 1887
• The first U.S. Open Golf tournament was held in Newport, Rhode Island. – 1895
• The Soviet Union launched the first artificial satellite, Sputnik, into orbit around the earth, ushering in the Space Age and Space Race. – 1957
• Pope Paul VI made the first visit to the Western Hemisphere by a reigning pope. He came to New York to address the UN General Assembly. – 1965
• Rock singer Janis Joplin was found dead of a drug overdose at age 27. – 1970
• The German parliament met for the first time since the reunification of Germany. – 1990
• Authorities confirmed a tabloid editor in Florida had contracted anthrax. He died the next day. – 2001
• John Walker Lindh, the “American Taliban,” received a 20-year sentence. – 2022

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