US FINANCIAL MARKET

Wall Street ‘Yawns’ at Economic Data in Fed Run-Up: Markets Wrap – Bloomberg, 10/31/2023

• Wall Street is heading toward the end of a jittery month, with stocks fluctuating and bonds mixed. 
• The yen slumped after the Bank of Japan made only minor changes to its policy settings.
• Traders took the latest economic data in stride on the eve of the Federal Reserve decision. 
• The S&P 500 edged higher, but was still on track for a third monthly drop — its longest losing streak since March 2020. 
• Tesla rebounded after erasing $145 billion in valuation in less than two weeks, while Nvidia dropped 2%. 
• Caterpillar sank as the machinery maker reported a decline in its order backlog. 
• JetBlue Airways tumbled on a bearish forecast.
• Treasury 10-year yields fell five basis points to 4.85%, while those on two-year notes rose slightly. 
• The dollar halted a two-day drop. 
• The Japanese currency weakened past 150. 
• West Texas Intermediate rose to around $83 a barrel.
• US consumer confidence dropped to a five-month low in October and employment costs unexpectedly accelerated in the third quarter — heightening concerns that a strong labor market risks keeping inflation above the Fed’s target.
• Aside from the highly anticipated Fed decision, bond dealers are expecting the US Treasury to unveil another round of increases this week to its note and bond auctions, though a sizable minority forecast the department will slow the pace of growth to avoid jolting yields higher.
• Investors are also looking to guidance from the ongoing earnings season to assess the outlook for profits and how companies are able to withstand headwinds like higher rates.
• When AMD reports earnings Tuesday, investor focus will be on its new artificial intelligence accelerator chip — seen as the firm’s best hope of competing with Nvidia’s H100.
• Pfizer’s sales missed expectations for the quarter as its Covid-19 shot and pill continued to create instability for the drugmaker’s efforts to transition out of the pandemic.
• Pinterest jumped after the social-networking company reported third quarter results that beat expectations. 
• Analysts are positive about the company’s revenue growth rate and expanding margins.

Caterpillar Falls as Shrinking Backlog Stokes Demand Worry – Bloomberg, 10/31/2023

• Caterpillar’s stock tumbled to the lowest price since early June after the company said its order backlog shrank in the third quarter, in a sign of slowing demand for its iconic yellow machinery.
• While the company posted better-than-expected revenue in its construction equipment business for the third quarter, sales from mining as well as its energy and transportation businesses were weaker than analysts’ anticipated. 
• The year-on-year decline of $1.9 billion is the first since the third quarter of 2020, when the Irving, Texas-based company was grappling with the effects of Covid-19 shutdowns on its sales, according to data compiled by Bloomberg.
• Caterpillar reported adjusted earnings of $5.52 a share, beating the $4.77 average estimate of 23 analysts polled by Bloomberg.
• Caterpillar also reiterated its expectation of $700 million in restructuring expenses for the full year.

Pfizer swings to quarterly loss due to Paxlovid, Covid vaccine write-offs – CNBC, 10/31/2023

• Pfizer on Tuesday reported a narrower-than-expected adjusted loss for the third quarter as the drugmaker recorded charges largely related to struggles for its Covid antiviral treatment Paxlovid and the Covid vaccine.
• Revenue: $13.23 billion vs. $13.34 billion expected
• The company’s Covid vaccine raked in $1.31 billion in sales, down 70% from the year-ago quarter. 
• Analysts had expected the shot to bring in $1.53 billion in sales, according to FactSet estimates.
• A group of shots to protect against pneumococcal pneumonia also contributed, raking in $1.85 billion in sales for the quarter, up 15% from the year-ago period. 
• Meanwhile, Pfizer’s blood thinner Eliquis posted $1.49 billion in revenue for the third quarter, up just 2% from a year ago. 
• That came in slightly under analysts’ estimates of $1.54 billion, according to FactSet.
• Loss per share: 17 cents, adjusted vs. 34 cents expected
• The company anticipates that its Covid vaccine will rake in $11.5 billion in sales this year.
• Pfizer said it recorded a $5.6 billion charge for inventory write-offs in the third quarter due to lower-than-expected use of Covid products. 
• Of these previously announced write-offs, $4.7 billion is chalked up to Paxlovid and $900 million is attributed to the company’s vaccine.

Pinterest jumps on better-than-expected third-quarter results – CNBC, 10/31/2023

• Pinterest reported third-quarter earnings that beat on the top and bottom lines. The stock jumped 14%.
• Revenue: $763.2 million vs. $743.5 million expected, according to LSEG, formerly known as Refinitiv.
• The number of global monthly active users in the quarter rose 8% from a year earlier to 482 million. 
• Analysts were expecting Pinterest to report 473 million global monthly active users. 
• Average revenue per user was $1.61, which was higher than analysts’ projections of $1.59.
• Earnings: 28 cents per share, adjusted, vs. 20 cents expected, according to LSEG.
• For the fourth quarter, Pinterest said it expects revenue growth of 11% to 13%. 
• The midpoint is higher than analyst estimates, which call for growth of 11.3%, according to LSEG.

Jeep Maker Stellantis Says It Lost $3 Billion of Revenue Due to UAW Strike – Wall Street Journal, 10/31/2023 

• Chrysler parent Stellantis said the strike by U.S. auto workers had cost it more than $3 billion in lost revenue as it reported a rise in quarterly sales.
• The update from Stellantis, which also makes the Jeep and Dodge brands, is the latest indication of the financial fallout from a six-week strike that put 45,000 workers on the picket lines.
• Details on the financial toll of the UAW strike came as Stellantis reported a rise in third-quarter revenue to €45.10 billion from €42.10 billion in the same period last year.
• Consolidated vehicle shipments rose 11% to 1.4 million, driven by growth in Europe, the Middle East and Africa, North America and South America, Stellantis said.
• Stellantis said Tuesday that production losses from the dispute equated to around 3 billion euros, equivalent to $3.2 billion, in lost revenue. 
• The effect of the strike on the company’s profit was under €750 million, Chief Financial Officer Natalie Knight said on a call with reporters.
• The profit hit related to the strike was lower than those absorbed by Ford and GM, which reported $1.3 billion and $800 million profit losses, respectively.
• The Netherlands-based company said the revenue figure, which beat analysts’ expectations, reflected improved volume and steady pricing, though said gains were partially offset by currency exchange rates.
• Total new vehicle inventory stood at 1.4 million vehicles on Sept. 30. 
• The company’s inventory of 388,000 vehicles was 158,000 higher than it was at the end of 2022 because of what the company called a normalization after years of supply-chain constraints.
• Stellantis confirmed its full-year guidance of an adjusted operating income margin in the double digits and positive free cash flow.

JetBlue Stock Falls After Airline Forecasts Wider Loss – Wall Street Journal, 10/31/2023

• Shares of JetBlue slumped after the airline forecast a wider-than-expected loss in the current quarter.
• Revenue fell 8% to $2.35 billion, short of the $2.38 billion expected by analysts, according to FactSet.
• Adjusted for one-time items, JetBlue reported a loss of 39 cents a share, wider than the 25 cents a share loss that analysts expected.
• The company expects revenue to drop between 6.5% and 10.5% in the fourth-quarter from a year earlier. 
• Analysts had forecast a decline of 1.8%.
• JetBlue forecast an adjusted loss of 35-55 cents a share for the current quarter. 
• Analysts had expected a loss of 15 cents a share.

Shares of ON Semiconductor fall 21% as fourth-quarter guidance disappoints Wall Street – CNBC, 10/31/2023

• Shares of ON Semiconductor closed down more than 21% Monday after the company’s third-quarter report beat expectations but offered weak guidance for the rest of the year.
• Similarly, the company said revenue will come in between $1.95 billion and $2.05 billion, while Wall Street was expecting $2.18 billion.
• ON Semiconductor said it expects to report fourth-quarter earnings between $1.13 and $1.27 per share, excluding certain items, which is short of the $1.36 analysts had anticipated.

Amgen Falls After ‘In-Line’ Guidance, Ending Cancer Treatment – Bloomberg, 10/31/2023

• Amgen declined after its sales guidance failed to impress some investors, and the drugmaker ended the development of a cancer treatment.
• Revenue of $6.9 billion was in line with analyst expectations.
• In the third quarter, adjusted earnings were $4.96 a share, Amgen said, while analysts had estimated $4.68 a share.
• The company raised the top end of its revenue outlook for this year by about $1 billion to $28.4 billion.

Ford Scores Second Credit Upgrade—This Time From S&P – Bloomberg, 10/31/2023

• Ford Motor has received its second credit upgrade, marking the auto maker’s return to investment-grade status after its downgrade to junk in 2020.
• S&P Global Ratings raised the Dearborn, Michigan-based company’s rating to BBB- from BB+, the ratings firm said in a release Monday. 
• The credit grader said the company’s margins will likely exceed expectations as part of the upgrade.
• S&P’s move follows a boost to investment-grade by Fitch Ratings in September.

US ECONOMY & POLITICS

US Cuts Quarterly Borrowing Target to $776 Billion, Still Record – Bloomberg, 10/31/2023

• The US Treasury reduced its estimate for federal borrowing for the current quarter thanks to stronger-than-expected revenues, offering some relief for investors concerned about the rapidly widening fiscal deficit.
• The Treasury Department cut its net borrowing estimate for the October-through-December quarter to $776 billion, against the $852 billion for the period predicted in late July. 
• Debt managers kept their estimate for the Treasury’s cash balance for the end of December at $750 billion.
• Part of the reason for the smaller figure is the magnitude of deferred tax receipts coming from areas of California and other states that had been granted extensions due to natural disasters, Treasury officials told reporters Monday.
• For the January-to-March quarter, the Treasury said Monday it expects to borrow a net $816 billion, with a cash balance of $750 billion seen for the end of the period.
• The Treasury’s cash balance was about $835 billion as of Oct. 26, up from about $502 billion on July 31, when the department released its initial financing projections for this quarter.

US Home Prices Set Record With Seven-Month Streak of Gains – Bloomberg, 10/31/2023

• Home prices in the US reached a new high in August after seven straight months of gains.
• A national gauge of prices increased 0.9% in August from July, according to seasonally adjusted data from S&P CoreLogic Case-Shiller. 
• Cities reaching all-time highs include New York, Boston, Miami and Atlanta.
• The lack of properties for sale has driven home prices up 5.8% year-to-date, well above the median full-year increase in more than three decades of data. 
• On a year-over-year basis, prices nationally climbed 2.6%, compared with a 1% gain in July.
• In the four weeks through Oct. 22, new listings rose 0.3% from a year earlier, the first increase since July 2022.

House Republicans Break With Biden on $14 Billion Israeli Aid Plan – Bloomberg, 10/31/2023

• House Republicans, led by Speaker Mike Johnson, on Monday unveiled a $14.3 billion Israel aid plan that breaks with the Biden administration on how to handle assistance for the conflict, complicating prospects for passage.
• The package separates the Israel aid from a broader Biden emergency funding request that includes assistance for Ukraine and Taiwan. It also leaves out humanitarian assistance for civilians in Gaza and Israel that the White House requested.
• Johnson’s plan pays for Israel aid by cutting President Joe Biden’s signature Inflation Reduction Act, calling for a $14.3 billion reduction in funding for the IRS.
• Conservatives have been critical of additional funding for the tax enforcement agency, while advocates say more resources for the IRS will cut the federal deficit by capturing revenue lost to tax cheats.
• The offsetting cuts are a break with precedent since Congress typically doesn’t cut other programs to pay for emergency spending.
• Separating Ukraine funds from more popular aid to Israel creates a risk that Congress will fail to continue help for the country’s counter-offensive against Russia, especially if House Republicans repeat a September attempt to require changes to US immigration laws in return for Ukraine funding.

US Employment Costs Rise at Faster Pace on Pickup in Wage Growth – Bloomberg, 10/31/2023

• US employment costs unexpectedly accelerated in the third quarter, heightening concerns that a strong labor market risks keeping inflation above the Federal Reserve’s target.
• The employment cost index, a broad gauge of wages and benefits, increased 1.1% in the July-to-September period after rising 1% in the second quarter, according to Bureau of Labor Statistics figures released Tuesday. 
• While wage growth picked up slightly within private industry, salaries at state and local governments surged.
• The median estimate in a Bloomberg survey of economists called for a 1% rise.
• Compared with a year earlier, the ECI was up 4.3%, the smallest annual advance since the end of 2021. 
• Wages and salaries for civilian workers rose 1.2% in the quarter and were up 4.6% from a year earlier. 
• Pay for government employees climbed 1.8% from the prior quarter, the most in a year.

US Consumer Confidence Drops to a Five-Month Low on Inflation – Bloomberg, 10/31/2023

• US consumer confidence dropped to a five-month low in October, weighed down by dimmer views of business conditions and concerns about high prices.
• The Conference Board’s index fell to 102.6 this month from an upwardly revised 104.3 in September, data out Tuesday showed. 
• The median estimate in Bloomberg survey of economists called for 100.5.
• The group’s gauge of current conditions dropped to 143.1, the lowest in nearly a year. 
• A measure of expectations — which reflects consumers’ six-month outlook — eased to a five-month low. 

EUROPE & WORLD

Nvidia’s $5 Billion of China Orders in Limbo After Latest U.S. Curbs – Wall Street Journal, 10/31/2023

• New U.S. export controls may compel artificial-intelligence giant Nvidia to cancel billions of dollars in next-year orders for its advanced chips to China, a move that could deprive Chinese tech companies of crucial AI resources.
• The Santa Clara, Calif.-based company had already finished delivering orders of its advanced AI chips to China for this year, according to people familiar with the matter, and was pushing to deliver some 2024 orders in advance before the new rules were scheduled to come into effect in mid-November.
• Then the U.S. government told Nvidia in a letter last week that the new export restrictions on the sale of high-end chips to countries including China were instead effective immediately.
• A spokesman for Nvidia said the company has been working to allocate its advanced AI computing systems, which use graphics chips affected by the rules, to customers in the U.S. and elsewhere and is pursuing additional supply. 
• “These new export controls will not have a meaningful impact in the near term,” the spokesman said.

Toyota Aims to Meet Hybrid Demand With New U.S. Plant Investment – Wall Street Journal, 10/31/2023

• Toyota Motor said it is more than doubling its investment in a battery plant under construction in North Carolina, a move aimed at increasing its ability to meet demand for hybrid models.
• With the latest $8 billion investment, Toyota is planning to spend nearly $14 billion to turn the facility in Liberty, N.C., into a massive hub for battery production. 
• The 1,000 acre site is slated to contain 14 assembly lines producing batteries for hybrids, plug-in hybrids as well as fully-electric vehicles. 
• Battery production is scheduled to begin there in 2025. 
• On Tuesday, the company said 10 of those lines now will be devoted to a combination of EV and plug-in hybrid batteries, which allows the company to adjust production depending on whether the vehicles are selling well. 
• The company was previously planning for six lines, with four devoted to hybrids and two devoted to EVs.

BOJ’s Ueda Gets Reality Check on Yen in March to Normalization – Bloomberg, 10/31/2023

• Bank of Japan Governor Kazuo Ueda received a timely reminder of the pitfalls he faces in trying to tiptoe toward policy normalization without disrupting markets.
• The yen unexpectedly weakened after the central bank loosened its grip on bond yields Tuesday, as the BOJ’s move appeared to fall short of investors’ hopes for a clearer sign of progress toward policy tightening.
• Still, even if Tuesday’s step was partly a stumble, it brought Japan closer to a more conventional policy approach after decades of experimentation with quantitative easing, negative interest rates and yield curve control.
• Allowing higher yields should also support the yen, thereby saving the government the job of shelling out more dollars on intervention to stop the nation’s currency from tumbling further. 
• Since 2016, when the BOJ introduced its negative rate and yield curve control, Japanese investors have accumulated ¥66 trillion of foreign bonds, including those in the US, France and Australia.

Israel Hits Hamas Tunnels as Ground Offensive Intensifies – Wall Street Journal, 10/31/2023

• Israeli ground troops, backed by tanks and jet fighters, are expanding their operations against Hamas in Gaza, carrying out more raids, exchanging fire with militants and calling in strikes on the group’s vast tunnel network, as pressure grows on the remaining civilians in the northern part of the enclave to flee the battlefield.
• The war entered a new, delicate stage on Friday, when Israeli ground troops and heavily armored vehicles entered the Gaza Strip with the goal of eradicating Hamas from the enclave following the group’s assault on Israel on Oct. 7.
• One of the early war objectives is to target the Hamas command structure to weaken the group’s ability to resist Israel’s advance into Gaza.
• The Israeli military said Tuesday it hit around 300 targets in Gaza over the past day, including antitank missile and rocket-launch posts. 
• It also hit part of the vast network of tunnels used by Hamas to move its people and equipment. Dismantling that network is an important tactical objective of the Israeli military.

Saudi Forces on Alert After Clash With Iran-Backed Houthis – Bloomberg, 10/31/2023

• Saudi Arabia’s military has gone into a state of high alert following deadly clashes with Yemen’s Iran-backed Houthi rebels, who also tried to fire a missile over the kingdom toward Israel, according to people familiar with the matter.
• Four Saudi soldiers died last week in the fight with Houthi forces in the mountainous southwestern Jazan Province on the border with Yemen, said the people, asking not to be identified as the information is private.
• Saudi Arabia’s defense forces also intercepted a missile in Saudi territory fired by the Houthis in the past few weeks.

China’s Economy Shows Fresh Signs of Slowing – Wall Street Journal, 10/31/2023

• China’s economy suffered a setback as surveys showed factory orders shrank and construction activity slowed, reigniting growth concerns just as activity appeared to be stabilizing.
• The closely watched surveys show the world’s second-largest economy isn’t out of the woods as it contends with challenges including a slowdown in growth overseas and a drawn-out property bust at home.
• Chinese leaders have stepped up stimulus measures in recent weeks, but many economists now say authorities will need to do more in the final stretch of the year to ensure growth doesn’t fizzle out.
• China’s official purchasing managers index for the manufacturing sector fell to 49.5 in October from 50.2 in September, the National Bureau of Statistics said Tuesday.

Samsung Electronics’ Third-Quarter Net Profit Beats Consensus – Wall Street Journal, 10/31/2023

• South Korean tech giant Samsung Electronics said its third-quarter net profit fell 38% on the year but more than tripled on the quarter to beat market consensus, as its semiconductor business narrowed losses amid signs of recovery in demand.
• Revenue stood at KRW67.405 trillion for the third quarter with operating profit coming in at KRW2.434 trillion, largely in line with the company’s preliminary forecasts.
• The world’s largest maker of memory chips, smartphones and televisions said Tuesday that net profit came in at 5.844 trillion won ($4.34 billion) for the quarter ended September, compared with KRW9.389 trillion a year earlier and KRW1.724 trillion in the previous quarter.
• The company said its memory chip segment remained in the red for a third consecutive quarter, but its quarterly losses narrowed to KRW3.757 trillion in the third quarter from losses of over KRW4.0 trillion in each of the first and second quarters.
• The company also said its smartphone and display-panel businesses performed strongly in the third quarter, helping offset losses from the semiconductor segment.
• The company has cut semiconductor output to reduce inventory and support prices for memory chips while trying to boost output capacity for AI chips and other high-end products to meet brisk demand.
• Samsung said Tuesday it expects facility investment to hit an annual record of KRW53.7 trillion in 2023, with KRW11.4 trillion spent in the third quarter.

Factmonster – TODAY in HISTORY

• Martin Luther posted the 95 Theses on the door of the Wittenberg Palace church, marking the start of the Protestant Reformation in Germany. – 1517
• A heavy snowfall trapped the Donner Party in the Sierra Nevada mountains. – 1846
• Nevada became the 36th state. – 1864
• Work on the Mount Rushmore monument was completed. – 1941
• Rear Admiral G. J. Dufek became the first person to land an airplane at the South Pole. – 1956
• Indian prime minister Indira Gandhi was assassinated. – 1984
• Pope John Paul II admitted that the Roman Catholic Church had erred in convicting Galileo of heresy 350 years earlier. – 1992

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