US FINANCIAL MARKET

Treasuries and Oil Climb on Israel-Hamas Conflict: Markets Wrap – Bloomberg, 10/13/2023

• Treasuries climbed with oil amid signs Israel is preparing for a ground invasion of Gaza. 
• Stocks held onto mild gains as some of the largest US banks kicked off the earnings season with solid results.
• The S&P 500 rose 0.1%. The Nasdaq 100 fell 0.2%. The Dow Jones Industrial Average rose 0.4%.
• US 30-year yields dropped six basis points to 4.79%, unwinding part of Thursday’s surge that was driven by a somewhat disappointing inflation reading and a weak bond auction. 
• The yield on 10-year Treasuries declined six basis points to 4.64%.
• West Texas Intermediate crude hovered near $86 a barrel. 
• JPMorgan Chase, Wells Fargo and Citigroup led a rally in financial companies, while tech underperformed. 
• Boeing sank on signs of worsening 737 Max aircraft production issues.
• A sharper escalation of the conflict in the Middle East could bring Israel into a direct clash with Iran, a supplier of arms and money to Hamas, which the US and the European Union have designated a terrorist group. 
• Traders also sifted through economic data and comments from US central bank officials for clues on the policy outlook.
• US consumers’ year-ahead inflation expectations rose sharply in early October, driving a steep deterioration in Americans’ views of their finances as well as sentiment. 
• Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data.
• Microsoft said it completed its $69 billion purchase of Activision Blizzard after a nearly two-year fight with global regulators threatened to scuttle the deal.
• UnitedHealth Group lifted the lower end of its annual profit forecast as lower-than-expected-medical costs helped the company beat quarterly earnings estimates.
• BlackRock clients pulled a net $13 billion from long-term investment funds, the first outflows since the onset of the pandemic in 2020.
• PNC Financial Services Group said it started reducing headcount by 4% as the bank navigates fallout from higher interest rates that has eaten away at profitability.
• The Stoxx Europe 600 fell 0.6%.
• The Bloomberg Dollar Spot Index was little changed.
• Gold futures rose 2.4% to $1,927.80 an ounce.

JPMorgan’s Jamie Dimon: ‘This May Be the Most Dangerous Time the World Has Seen in Decades’ – Wall Street Journal, 10/13/2023

• JPMorgan Chase said its third-quarter profit rose 35%, boosted again by rising interest rates. 
• Revenue rose 22% from a year earlier to $39.87 billion. 
• That slightly beat the $39.63 billion analysts had expected.
• Net interest margin rose to 2.72% from 2.62% in the second quarter. 
• Consumers and businesses have continued to borrow, despite higher rates, and total loans were up 18% for JPMorgan.
• For instance, spending on credit cards rose 9% and card-loan balances jumped 16%. 
• Auto lending originations were up 36%. The bank’s mortgage originations fell 9%.
• The consumer bank’s revenue increased 29%. Profit rose 36% to $5.9 billion.
• In the corporate and investment bank, revenue dropped 2%. Profit declined 12% to $3.09 billion.
• Trading revenue fell 3%, with fixed-income revenue up 1% and equities down 10%. 
• Investment banking fees— the work it does on mergers and the sales of stocks and debt— dropped 3% on a dearth of big deals.
• In asset and wealth management, revenue rose 10% and profit increased 16%. 
• Both figures were entirely thanks to the addition of wealth-heavy First Republic, without which profit would have fallen 12%.
• That amounted to $4.33 per share, beating the $3.95 per share that analysts polled by FactSet had expected. 
• JPMorgan said revenue and profit were still up strongly without First Republic.
• Chief Executive Jamie Dimon said Friday that U.S. households and businesses remain generally healthy. 
• But he warned about government deficits and that interest rates could further rise. 
• Dimon said the war in Ukraine and fighting in Israel “may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships.”
• “This may be the most dangerous time the world has seen in decades,” he said in a statement.

Wells Fargo Tops Estimates, Boosts Net Interest Income View – Bloomberg, 10/13/2023

• Wells Fargo beat analysts’ expectations for net interest income in the third quarter and again raised its full-year guidance as the bank continues to benefit from higher interest rates.
• Revenue rose 7% from a year earlier to $20.86 billion. Analysts expected $20.09 billion.
• The San Francisco-based bank earned $13.1 billion in NII — revenue collected from loan payments minus what depositors are paid — in the three months through September, up 8.3% from a year earlier, according to a statement Friday. 
• That topped the $12.8 billion average of analyst estimates compiled by Bloomberg.
• Expenses also rose more than expected, though, totaling $13.1 billion in the quarter.
• Wells Fargo reported a $1.2 billion provision for loan losses, less than analysts expected, which included $333 million in the firm’s allowance for credit losses primarily tied to office loans.
• “The office portfolio in particular in the commercial real estate portfolio is where we’re seeing weakness,” Chief Financial Officer Mike Santomassimo said on a conference call with reporters. 
• “I think we will see some loss pickup in that portfolio over time.”

Citigroup stock jumps on better-than-expected revenue for the third quarter – CNBC, 10/13/2023

• Citigroup reported its third-quarter results on Friday morning, with solid growth in both institutional clients and personal banking fueling higher-than-expected revenue.
• Revenue: $20.14 billion, vs. expected $19.31 billion
• Citigroup’s institutional clients unit reported $10.6 billion in revenue, up 12% year over year and 2% from the second quarter. 
• The personal banking and wealth management division generated $6.8 billion in revenue, up roughly 10% year over year and 6% from the second quarter.
• Citigroup reported $1.84 billion in total cost of credit at the end of the quarter, up slightly from $1.82 billion at the end of the second quarter and $1.37 billion a year ago. 
• That metric includes a net build of $125 million in the allowance for credit losses during the third quarter.
• Earnings per share: $1.63. Not comparable to the expected $1.21 due to divestitures. 
• Excluding divestitures, earnings per share were $1.52.
• “Despite the headwinds, our five core, interconnected businesses each posted revenue growth resulting in overall growth of 9%,” CEO Jane Fraser said in a press release.

BlackRock dips as inflow drop overshadows surprise surge in profits – Reuters, 10/13/2023

• A sharp drop in net inflows took shares of BlackRock down on Friday despite the company handily beating third-quarter profit estimates, as the world’s largest asset manager signaled that it was increasing its hunt for acquisition targets.
• Revenue at BlackRock rose nearly 5% to $4.52 billion from a year earlier, driven by organic growth and the impact of market movements over the past 12 months on average AUM and higher technology services revenue, it said.
• A rise in investment advisory fees and BlackRock’s assets under management (AUM) helped the company’s adjusted profit of $10.91 per share breeze past analysts’ estimates of $8.26, according to LSEG data. 
• However, its net inflows for the quarter fell to $2.57 billion from $16.9 billion last year, reflecting $49 billion of net outflows from lower-fee institutional index equity strategies, including $19 billion from a single international client.
• BlackRock ended the third quarter with $9.1 trillion in assets under management (AUM), up from $7.96 trillion a year earlier, but lower than $9.4 trillion in the second quarter this year.

UnitedHealth Q3 earnings beat estimates as company again raises guidance – Market Watch, 10/13/2023

• UnitedHealth Group posted better-than-expected earnings for the third quarter on Friday and again raised its full-year guidance. 
• Revenue rose to $92.361 billion from $80.894 billion a year ago, also ahead of the $91.414 billion FactSet consensus. 
• Adjusted per-share earnings came to $6.56, ahead of the $6.33 FactSet consensus. 
• The company raised its full-year adjusted EPS guidance to a range of $24.85 to $25.00, compared with a FactSet consensus of $24.83.

PNC Financial to cut jobs after profit drops, revenue misses estimates – Reuters, 10/13/2023

• PNC Financial Services Group said on Friday it would reduce its staff by about 4% as part of a cost-cut initiative after the U.S. lender’s third-quarter profit declined and revenue missed estimates.
• The company said the job cuts would reduce its annual personnel expenses by about $325 million, or 5%.
• PNC revenue for the three months ended Sept. 30 fell 5.7% to $5.23 billion, missing analysts’ average estimate of $5.32 billion.
• Average deposits at PNC fell 3.8% to $422.5 billion, compared with $439.2 billion a year earlier.
• The lender posted a profit of $1.57 billion, or $3.60 per share, compared with $1.64 billion, or $3.78 per share a year earlier. 
• Analysts had estimated a profit of $3.11 per share, according to LSEG IBES data.
• Its third-quarter NII fell 1.6% from a year earlier.
• PNC set aside $129 million as provisions for credit losses, compared with $241 million last year.
• PNC said its fourth-quarter net interest income (NII) — the difference between what banks earn from lending and pay out on deposits — could drop 1% to 2% from the previous quarter.

Microsoft Closes $75 Billion Activision Blizzard Deal – Wall Street Journal, 10/13/2023

• Microsoft closed its $75 billion acquisition of Activision Blizzard, the largest in a decade of deals under Chief Executive Satya Nadella that have positioned the software giant at the center of sectors from videogames to artificial intelligence.
• The purchase, which closed Friday, is the biggest deal in its nearly 50-year history and took 21 months to get through a global gauntlet of regulators. 
• Activision’s stable of best-selling franchises, including Call of Duty and Candy Crush Saga, will bolster Microsoft’s videogame business by more than half to above $24 billion. 
• The additions also will move the business further away from Xbox consoles and toward gaming content that lives across platforms and devices.
• “If he can do that by buying something that helps him to do it faster, he will,” said Jim DuBois, a former Microsoft chief information officer who worked under Nadella and his predecessors.
• Despite the large investment, Microsoft’s videogaming business remains a small part of the overall company.
• Adding Activision would have made gaming overall about 10% of Microsoft’s revenue in its latest fiscal year, up from the 7% that company actually reported.

Kaiser Permanente, Unions Reach Deal on New Contracts – Wall Street Journal, 10/13/2023

• Kaiser Permanente and labor unions reached a tentative agreement to resolve a contentious contract dispute that sent workers to picket lines earlier this month. 
• Unions announced the deal Friday morning, after the first full day of bargaining following a strike by more than 75,000 Kaiser nurses, pharmacists and other workers. 
• The strike, which lasted up to three days, was the largest on record in healthcare. 
• Wages and staffing across Kaiser hospitals and clinics were key issues in negotiations. 
• Acting U.S. Labor Secretary Julie Su had joined the negotiations to help resolve the disputes.

Hedge Funds Would Have to Tell SEC Which Companies They Sell Short Under New Rules – Wall Street Journal, 10/13/2023

• Traders will get a broader look at which public companies are being targeted by short sellers under rules the Securities and Exchange Commission is set to adopt Friday as part of its response to the 2021 GameStop trading frenzy. 
• In a short sale, a trader bets against a stock by borrowing shares and then selling them in hopes the shares’ price will decline before the trader must return them to the lender. 
• A law passed after the 2008 financial crisis required the SEC to gather more information about such transactions, but the agency has yet to implement it.
• The SEC’s five commissioners are set to vote Friday on two rules—one aimed at large short sellers, and the other at lenders of securities. 
• The first rule would require institutional money managers with large short positions to file a new SEC form detailing their bets at the end of each month. 
• The agency would then aggregate the data and publish it for the market. 
• The positions and identities of individual funds wouldn’t be published, but investors would get a new window into which companies are being shorted.
• The new short selling rules will apply to entities such as hedge funds that have short positions equivalent to either 2.5% of a company’s shares or an average $10 million in any given month.

Boeing Slumps on Signs of Worsening 737 Production Issues – Bloomberg, 10/13/2023

• Shares of Boeing and its top supplier sank on growing concerns that production flaws on the planemaker’s 737 Max aircraft will take longer to correct than expected, further delaying deliveries of the cash-cow jet.
• The US planemaker fell the most intraday in seven weeks on Friday, while Spirit AeroSystems Holdings dropped the most in almost a month. 
• The Air Current reported late Thursday that Boeing is expanding inspections of the Max’s aft pressure bulkhead for improperly drilled holes.
• The report rounds out comments made Thursday by Michael O’Leary, chief executive officer of Ryanair Holdings, a major 737 Max customer. 
• Max delivery delays have worsened because fixes to the aft pressure bulkhead appear to be more challenging, he told Bloomberg at an event in Brussels.
• The Air Current reported late Thursday that X-ray inspections of the aft pressure bulkhead on the 737 Max have widened to include hand-drilled fasteners, in addition to the laser-guided installations previously under scrutiny. 
• The added inspections and rework risk further slowing Boeing’s goal of ramping up production of the popular single-aisle aircraft, the outlet said, citing people familiar with the matter.
• Boeing notified the Federal Aviation Administration of its initial findings this week, along with customers already facing delivery delays of the Max 8s, according to the report.

US ECONOMY & POLITICS

US Consumer Inflation Expectations Jump to a Five-Month High – Bloomberg, 10/13/2023

• US consumers’ year-ahead inflation expectations rose sharply in early October, driving a steep deterioration in Americans’ views of their finances as well as sentiment.
• Americans expect prices will climb at a 3.8% rate over the next year, the highest in five months and up from the 3.2% expected in September, according to the preliminary October reading from the University of Michigan. 
• They see costs rising 3.0% over the next five to 10 years, compared to last month’s 2.8%.
• The sentiment index slid more than 5 points in October to 63, the sharpest monthly decline since June of last year. 
• The figure fell short of all but one estimate in a Bloomberg survey of economists.
• Households were most concerned about high costs of groceries and fuel. 
• Respondents with a high school diploma or less reported a particularly sharp decline in sentiment.
• One bright spot, buying conditions for durable goods held steady.
• The current conditions gauge dropped to a five-month low of 66.7 from 71.4.

US Housing Affordability Worsens to New Record Low on High Rates – Bloomberg, 10/13/2023

• US housing affordability worsened to a fresh record low in August as Americans continue to bend under the weight of soaring mortgage rates and sticky prices.
• The National Association of Realtors index decreased to 91.7 in August, marking the lowest level in data back to 1989, according to data out Friday. 
• The typical family spent 27.3% of their income on their annual mortgage payment. 
• Qualifying income for a mortgage, based on a 20% down payment, was $107,232 in August — marking the third straight six-figure reading. 
• Affordability deteriorated in all four regions.
• The latest survey of consumers by the University of Michigan showed that 62% said now was a bad time to buy a home because of higher borrowing costs.

House Republicans Pursue New Speaker Plans After Steve Scalise Exits Race – Wall Street Journal, 10/13/2023

• Frustrated House Republicans are meeting Friday to take another swing at potentially picking a new speaker, a day after Majority Leader Steve Scalise’s bid for the post was derailed and more than a week after a smaller group of party rebels engineered the historic ouster of Kevin McCarthy (R., Calif.).
• A short-term spending law funding the government expires in mid-November. 
• The fighting in Israel and Gaza has also added more urgency to restoring House operations, and GOP lawmakers have voiced increased exasperation with the state of affairs.
• GOP lawmakers hoped to regroup Friday morning to hammer out a path forward for electing a House speaker after Scalise, the party’s formal nominee, quit the race once he concluded that he didn’t have enough votes to win a majority in a vote on the House floor.
• Judiciary Committee Chairman Jim Jordan (R., Ohio), a fiery conservative backed by former President Donald Trump, now appeared to be the front-runner, but there were doubts about whether he would have any better luck uniting the conference.
• Scalise exited the contest Thursday, one day after he narrowly won the nomination, 113-99, over Jordan, a margin that did little to convince many Jordan supporters to endorse Scalise. 
• Following a day of lobbying that showed little signs of progress, Scalise bowed out.

How Ads on Your Phone Can Aid Government Surveillance – Wall Street Journal, 10/13/2023

• Technology embedded in our phones and computers to serve up ads can also end up serving government surveillance.
• Information from mobile-phone apps and advertising networks paints a richly detailed portrait of the online activities of billions of devices. 
• The logs and technical information generate valuable cybersecurity data that governments around the world are eager to obtain. 
• When combined with classified data in government hands, it can yield an even more detailed picture of an individual’s behaviors both online and in the real world. 
• A recent U.S. intelligence-community report said the data collected by consumer technologies expose sensitive information on everyone “in a way that far fewer Americans seem to understand, and even fewer of them can avoid.”
• The Wall Street Journal identified a network of brokers and advertising exchanges whose data was flowing from apps to Defense Department and intelligence agencies through a company called Near Intelligence. 
• This graphic puts those specific examples in the context of how such commercially available information—bought, sold or captured by dozens of entities—can end up in the hands of intermediaries with ties to governments.

Fed’s Harker Reiterates Call for Holding Interest Rates Steady – Bloomberg, 10/13/2023

• Federal Reserve Bank of Philadelphia President Patrick Harker said disinflation is under way and reiterated that he favors holding interest rates where they are, barring a sharp change in data.
• “I believe that we are at the point where we can hold rates where they are,” Harker said in a virtual event with the Delaware State Chamber of Commerce. 
• “By doing nothing, we are still doing something. And, actually, we are doing quite a lot.”
• Harker said economic and financial conditions are evolving a bit better than he had expected, with prices cooling and labor-market tightness unwinding.
• “I am sure policy rates are restrictive, and as long they remain so, we will steadily press down on inflation and bring markets into a better balance,” Harker said.
• “First, we will not tolerate a reacceleration in prices,” Harker said. 
• “But second, I do not want to overreact to the normal month-to-month variability of prices.”
• He said he’s prepared to adjust policy “either way” should the economic picture change, noting several risks including labor strikes, higher oil prices, the possibility of a government shutdown and the resumption of student-loan payments.

EUROPE & WORLD

China’s Export Slump Eases as Beijing Tries to Boost Outlook – Bloomberg, 10/13/2023

• The drop in China’s exports moderated further in September, adding to cautious optimism that some parts of the world’s second-biggest economy are stabilizing.
• Overseas shipments fell 6.2% from a year ago to $299 billion, a slower rate than the 8% decline forecast by economists in a Bloomberg survey. 
• Imports decreased 6.2%, down for seven months in a row. 
• The resulting trade surplus was $77.7 billion.
• Exports to most major markets continued to fall, with shipments to the European Union down almost 12%, those to Asean falling almost 16% and exports to the US, Japan, South Korea and Taiwan dropping. 
• Imports from major commodity suppliers such as Australia, Brazil and Russia rose, while purchases from the US, Japan and South Korea fell.

Israel Tells 1.1 Million Civilians to Evacuate Northern Gaza – Wall Street Journal, 10/13/2023

• Israel’s military asked civilians in Gaza to move to the southern part of the enclave, signaling a widening offensive and prompting the United Nations to warn of devastating humanitarian consequences.
• Israel’s military, just before midnight local time, told the U.N. that its staff and approximately 1.1 million civilians should leave the northern part of the Gaza Strip in the next 24 hours, according to spokesmen for the U.N. and Israel’s military. 
• The U.N. called for Israel to rescind the order, saying it could transform an already tragic situation into a catastrophe.
• “Evacuate south for your own safety and the safety of your families and distance yourself from Hamas terrorists who are using you as human shields,” the Israeli military told civilians in Gaza, according to a spokesman.
• Israeli military spokesman Richard Hecht said airstrikes on Wednesday night targeted a Hamas unit that Israel says was involved in the weekend attack that killed 1,300 Israelis. 
• One of the Hamas operatives killed in the airstrikes was responsible for creating videos of the violence that spread over social media, Hecht said.

U.S. to Hold Off on Disbursing $6 Billion in Iran Oil Revenue Unfrozen in Prisoner Deal – Wall Street Journal, 10/13/2023

• The U.S. and Qatar have agreed to deny Iran access to $6 billion in oil proceeds that Washington had previously freed up as part of a prisoner swap reached last month, according to people familiar with the matter.
• The decision with Qatar, whose government is overseeing Iran’s access to the funds, comes amid concern for Tehran’s long-running provision of money, arms and intelligence to the group responsible for the terrorist attack on Israel last weekend, Hamas.
• According to a preliminary unclassified assessment by U.S. intelligence agencies, Tehran likely knew Hamas was planning operations against Israel but didn’t know the precise timing or scope of the surprise attack.
• The funds are sitting in a restricted bank account in Qatar, and the U.S. has struck an informal agreement with Qatar to hold off disbursing them to Iran, the people familiar with the matter said.

Teacher Killed in France in Suspected Terrorist Attack – Wall Street Journal, 10/13/2023

• A teacher was killed in a suspected terrorist attack on a high school in northern France on Friday, rattling a nation on edge after last weekend’s devastating raid by Hamas into Israel and Israeli airstrikes on Gaza.
• French officials said two other people were wounded at the scene, a public school in the town of Arras. 
• France’s interior minister said the assailant was detained after the attack, which French prosecutors are investigating as an act of terrorism.
• French officials say Friday’s attacker was a man of Chechen origin in his 20s. 
• He was on a terrorism watch list and shouted “Allahu akbar” before launching the attack, the officials added.
• Martin Doussau, a philosophy teacher at the high school in Arras, said he was chased by the attacker, who carried a knife in each hand and asked Doussau whether he was a history teacher. 

Factmonster – TODAY in HISTORY

• The Continental Congress authorized the construction of a naval fleet. – 1775
• The cornerstone of the White House was laid. – 1792
• The Jewish organization B’nai B’rith was founded. – 1843
• Italy declared war on Germany, its former Axis partner, during World War II. – 1943
• Egypt’s vice president Hosni Mubarak was elected president, one week after Anwar Sadat’s assassination. – 1981

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Historical performance is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

All investing involves risk including loss of principal. No strategy assures success or protects against loss. Any economic forecasts set forth may not develop as predicted. 

All company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

Material presented is excerpts derived from third party content and you may need a subscription to access the full the content. The views and opinions expressed are those of the authors and do not necessarily reflect the views of Pence Financial Group or LPL Financial.

Prior to making any investment decision please consult your financial advisor regarding your specific situation.