US FINANCIAL MARKET

Wall Street Braces for Big Test of Dovish Fed Bets: Markets Wrap – Bloomberg, 12/13/2023

• Wall Street is gearing up for what’s expected to be the most important Federal Reserve meeting of the year, with traders awaiting any indications on whether the market’s aggressive dovish bid is now overdone.
• Stocks, bonds, and the dollar saw mild moves amid bets the Fed will hold rates Wednesday and try to put a lid on expectations for rate cuts of over 100 basis points in the next 12 months.
• How the Fed frames its outlook for policy ending next year and 2025 via its “dot plot” could inject some uncertainty into the market that has run well ahead of the central bank’s forecasts.
• The Federal Open Market Committee is poised to keep rates in a range of 5.25% to 5.5% — a 22-year high first reached in July.
• The decision and a statement will be released at 2 p.m. in Washington. Chair Jerome Powell will hold a press conference 30 minutes later.
• Economists surveyed by Bloomberg expect the median Fed projection will show two rate cuts next year and five more in 2025.
• Ahead of the decision, data showed US producer-price gains slowed as energy costs declined.
• Consumer price data Tuesday showed a drop in the annual rate of inflation — even though monthly gains picked up as housing and other service-sector costs rose.
• Taken together, the data reinforce the notion that inflation is trending back toward the Fed’s 2% target.
• The S&P 500 wavered after hitting the highest since January 2022.
• Treasury two-year yields dropped below 4.7%.
• The yield on 10-year Treasuries declined three basis points to 4.17%
• Tesla will fix more than 2 million vehicles — its biggest recall ever — after the top US auto-safety regulator determined its driver-assistance system Autopilot doesn’t do enough to guard against misuse.
• SpaceX will sell insider shares at $97 apiece in a tender offer, a price increase that boosts the value of Elon Musk’s space and satellite company closer to $180 billion, according to people familiar with the matter.
• Pfizer’s disappointing forecast for next year showed the purchase of a leading cancer drugmaker isn’t enough to fill the ever-growing hole from its flailing Covid franchise.
• Southwest Airlines raised its outlook for fourth-quarter revenue, buoyed by higher travel demand and ticket prices than it had expected over the year-end holidays.
• The Bloomberg Dollar Spot Index rose 0.1%.
• West Texas Intermediate crude rose 1% to $69.29 a barrel.

Pfizer Warns 2024 Revenue Could Fall, Weighed Down by Soft Demand for Covid Products – Wall Street Journal, 12/13/2023

• Pfizer shares tumbled Wednesday morning after the company said revenue could fall next year and issued 2024 guidance below analyst expectations.
• Pfizer said revenue could fall next year, weighed down by a continued slowdown in demand for the pharmaceutical company’s COVID-19 vaccine and related products.
• The company is targeting 2024 revenue of $58.5 billion to $61.5 billion, below the $62.66 billion that analysts surveyed by FactSet expected.
• The company is targeting revenue of $58 billion to $61 billion for this year.
• Shares in the New York drugmaker, one of the world’s largest, have plunged this year because the company wrongly forecast sales of its Covid-19 vaccine and drug.
• Pfizer said it expects about $8 billion in revenue next year from its Covid-19 vaccine and its Paxlovid treatment for Covid.
• The company expects those products to contribute about $12.5 billion in revenue this year.
• Pfizer expects operational revenue, which excludes contributions from Covid-related products and includes the expected impact from the company’s takeover of biotech cancer specialist Seagen, to grow by 8% to 10% in 2024.
• The company also said it is targeting adjusted earnings in 2024 of $2.05 a share to $2.25 a share, below the $3.17 a share that analysts surveyed by FactSet expected.
• One source of new sales that Pfizer will be counting on is a $43 billion deal for Seagen.
• Bourla said Pfizer expected to close the deal Thursday, and he announced a reorganization of the company that creates a separate cancer drug business.

Southwest Air’s Slight Outlook Boost Disappoints Wall Street – Bloomberg, 12/13/2023

• Southwest Airlines kept its year-end outlook largely intact despite stronger-than-expected holiday travel, unsettling investors who had been anticipating a bigger boost.
• The carrier slightly raised the low end of its fourth-quarter revenue forecast while keeping projections for non-fuel costs and flight capacity unchanged.
• Fuel expenses will be as much as $3.10 a gallon in the period, Southwest said Wednesday in a regulatory filing Wednesday, up 10 cents from the prior range.

Apple Makes Security Changes to Protect Users From iPhone Thefts – Wall Street Journal, 12/13/2023

• Apple is rolling out a new security setting for iPhones following the Wall Street Journal report about a vulnerability that allowed thieves to break into victims’ devices and upend their lives.
• The Journal reported on a nationwide spate of thefts where criminals used iPhone owners’ passcodes to change their Apple accounts, access saved passwords, steal money and lock them out of their iCloud-stored photos and videos.
• Thieves in New York, Chicago, New Orleans, Minneapolis, and other cities watch iPhone owners tap in their passcodes before stealing the targets’ devices.
• The new Stolen Device Protection setting, designed to defend against such attacks, is being released to beta testers.
• Apple is planning to include the setting in a coming software update.
• Still, users must turn it on, and it won’t cover all threats to your personal and financial information on an iPhone.

Tesla to Recall More Than Two Million Vehicles Over Autopilot Safety Concerns – Wall Street Journal, 12/13/2023

• Tesla will recall more than two million vehicles over concerns its Autopilot system can be misused by drivers, amid a two-year probe by U.S. auto-safety regulators into crashes involving the driver-assistance technology.
• The recall covers some Tesla Models 3, S, X, and Y sold in the U.S. between 2012 and 2023, the National Highway Traffic Safety Administration said Tuesday.
• Tesla’s Autopilot system may not have sufficient controls in place to prevent driver misuse, it said.
• There is an increased risk of a crash when Autopilot is engaged and a driver doesn’t maintain control of the vehicle or is unprepared to intervene, the NHTSA said.
• The agency said as part of its investigation it had reviewed 956 crashes where Autopilot was said to have been used.
• The company will offer owners a free software update.

GM Moves Forward After Strike, Focusing on Cost Cuts and EVs – Wall Street Journal, 12/13/2023

• General Motors’ finance chief has a balancing act to achieve as the company moves ahead under new labor contracts that will add billions of dollars in costs over roughly four years.
• Chief Financial Officer Paul Jacobson must offset the higher costs while convincing investors that GM is on solid ground, even as its electric-vehicle and driverless car businesses face challenges.
• GM, like other Detroit automakers, recently agreed to a new contract with members of the United Auto Workers union.
• The deal, which will see workers’ base wages increase 25% over the 4½-year life of the contract, was ratified in November, ending a roughly six-week strike that cost the automaker about $200 million a week in profit.
• Along with a union contract in Canada, it will add a total of $9.3 billion in costs over about four years, including $1.5 billion next year.
• GM aims to fully offset the higher costs in 2024, though the automaker hasn’t said how it plans to pay for the entire agreement.

Netflix Releases Full Viewership Data for First Time – Wall Street Journal, 12/13/2023

• Netflix released its first-ever engagement report, revealing the viewership of its top programming through the first six months of the year.
• The streaming giant has previously declined to release specific data on the viewership of all its programs.
• The engagement report released Tuesday reports hours viewed for over 18,000 titles, including Netflix originals and licensed content.
• Netflix and other streaming services agreed in September to allow writers greater insight into show performance on streaming.
• The company said that the titles in the report cover 99% of all viewership on Netflix and cover almost 100 billion hours.
• Netflix’s top-performing program from January to June was “The Night Agent,” which had over 800 million hours viewed.
• Netflix said the report, which will be released twice a year, will “give creators and our industry deeper insights into our audiences, and what resonates with them.”
• The second season of comedy-drama “Ginny & Georgia,” season one of South Korean drama “The Glory,” “Addams Family” spinoff “Wednesday,” and “Queen Charlotte: A Bridgerton Story” rounded out the top five for Netflix in the first half of the year.
• Nine out of the top 10 titles—and the six most-watched programs—were Netflix originals.

Citigroup Offers Partial Early Bonuses to Encourage Staff Departures – Bloomberg, 12/13/2023

• Citigroup is offering to pay some staffers a portion of their bonuses early if they agree to voluntarily depart as executives continue with their restructuring of the Wall Street giant.
• The bank is making the offer to staff on a case-by-case basis, according to people familiar with the matter.
• In addition to the bonus awards, employees who accept the offer would also be allowed to keep all of their deferred stock awards, the people said, asking not to be identified discussing personnel information.
• Executives hope offering staffers a portion of their annual bonus will coax more of them to leave voluntarily rather than having to rely solely on layoffs for the restructuring, the people familiar with the matter said.
• Employees who accept the offer are still expected to honor their requirements for gardening leave, meaning they cannot immediately take a new job, the people said.

US ECONOMY & POLITICS

US Producer-Price Inflation Cools to Below 1% as Energy Slides – Bloomberg, 12/13/2023

• US producer-price gains slowed in November as energy costs declined, adding to signs that inflation pressures are abating.
• The producer price index for final demand was unchanged from a month earlier. Excluding food and energy, the so-called core PPI was also flat, Bureau of Labor Statistics data showed.
• From a year ago, the overall measure was up 0.9%, while the core gauge was up 2%, the least since January 2021.
• Inflation pressures have generally been cooling in recent months. Consumer price data released Tuesday showed a decline in the annual rate of inflation — even though monthly gains picked up as housing and other service-sector costs rose.
• Taken together, the data help reinforce the notion that inflation is trending back toward the Federal Reserve’s 2% target.
• Services prices were unchanged for the second straight month.
• Goods prices were also unchanged after a steep decline in October.
• Energy costs fell 1.2% last month.
• Hospital outpatient care, portfolio management, and airline passenger services all declined.
• Stripping out food, energy, and trade services to create a less-volatile PPI measure, prices rose 0.1% from the prior month.
• The measure increased 2.5% from a year earlier, the smallest gain since February 2021.

Mortgage refinance demand jumps 19% after rates hit lowest level since July – CNBC, 12/13/2023

• Homeowners looking to refinance are finding savings after mortgage rates dropped again last week.
• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 7.07% from 7.17%, with points falling to 0.59 from 0.60 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association.
• As a result, applications to refinance a home loan increased 19% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
• Refinance demand was 27% higher than the same week one year ago.
• Applications for a mortgage to purchase a home rose 4% for the week but were still 18% lower than the same week one year ago. Homebuyers today may be getting a break from lower mortgage rates, but there is still tough competition in a market with high prices and few homes for sale.

EUROPE & WORLD

Houthi Rebel Attacks Rattle Global Shipping – Wall Street Journal, 12/13/2023

• Yemen’s Houthi forces have attacked several commercial ships crossing through the Bab el-Mandeb strait in recent days, creating a new front in the battle between Israel and Hamas and complicating efforts by the U.S. and its allies to secure the critical shipping lane.
• Houthi rebels claimed responsibility on Tuesday for a strike on the Norwegian tanker Strinda a day earlier off Yemen’s coast, as the Iranian ally escalates attacks to disrupt the flow of cargoes in response to fighting in Gaza.
• The elevated risk of moving cargo through the region has resulted in higher costs for shippers and also prompted some countries to rethink security measures to allow safe passage.
• The Monday attack, the fifth on ships since the conflict began in October, came after the Houthis on Saturday said they would prevent the passage of all ships heading to Israel if more food and medicine aren’t allowed into Gaza.
• The Yemeni rebels had initially said they would target only Israeli-connected vessels.

Israel Begins Pumping Seawater Into Hamas’s Gaza Tunnels – Wall Street Journal, 12/13/2023

• Israel’s military has begun pumping seawater into Hamas’s vast complex of tunnels in Gaza, according to U.S. officials briefed on the Israeli military’s operations, part of an intensive effort to destroy the underground infrastructure that has underpinned the group’s operations.
• The move to flood the tunnels with water from the Mediterranean, which is in an early stage, is one of several techniques Israel is using to try to clear and destroy the tunnels.
• Israeli officials say that Hamas’s underground system has been key to its operations on the battlefield.
• The tunnel system, they say, is used by Hamas to maneuver fighters across the battlefield and store the group’s rockets and munitions and enables the group’s leaders to command and control their forces.
• Israel also believes some hostages are being held inside tunnels.
• The utility of using seawater in a vast underground labyrinth that extends for roughly 300 miles and includes thick blast doors is still being evaluated by the Israelis, according to U.S. officials.

Nations at COP28 Agree for First Time to Transition From Fossil Fuels – Wall Street Journal, 12/13/2023

• More than 190 governments at the United Nations climate conference approved an agreement Wednesday calling for the world to transition away from fossil fuels, sending an unprecedented signal to the global economy that governments are intent on cutting back on coal, oil, and natural gas in the fight against global warming.
• The deal, the result of two weeks of negotiations, calls for “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner.”
• It says the shift to clean energy for the global economy should accelerate this decade with the aim of net-zero greenhouse gas emissions by 2050.
• Scientists say that is crucial to fulfilling the Paris accord, the landmark climate agreement that calls for governments to attempt to limit global warming to 1.5 degrees Celsius above preindustrial temperatures.

Factmonster – TODAY in HISTORY

• New Zealand was discovered by Dutch navigator Abel Tasman. – 1642
• President Wilson arrived in France, becoming the first U.S. president to visit Europe while in office. – 1918
• The U.S. Mint began stamping the Susan B. Anthony dollar, the first U.S. coin honoring a woman. – 1978
• The Polish government imposed martial law in an attempt to crush the Solidarity movement. – 1981
• South African President F. W. de Klerk met with Nelson Mandela for the first time. – 1989
• Kofi Annan of Ghana was chosen to become UN secretary-general. – 1996
• George W. Bush accepted the presidency 36 days after the election; Al Gore, Jr., conceded. – 2000
• American forces captured Saddam Hussein who was hiding in a hole near his hometown of Tikrit. – 2003

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