US FINANCIAL MARKET

Everything Rally Cools as March Rate Cut in Doubt: Markets Wrap – Bloomberg, 12/15/2023

• This week’s everything rally lost some heat on Friday after a Federal Reserve official threw cold water on hopes for an interest rate cut as early as March. US stocks and bonds were mixed while the dollar rebounded.
• New York Fed President John Williams told CNBC it was “premature” to be thinking about a March rate cut.
• The S&P 500 was little changed on the day but remains on track for its seventh consecutive weekly gain after the Fed ignited a speculative frenzy this week when it affirmed it’s ready to shift to rate cuts.
• The Nasdaq 100 rose 0.7%. The Dow Jones Industrial Average fell 0.1%.
• Tech stocks Microsoft, Amazon.com, and Nvidia were some of the biggest outperformers Friday while health-care giants UnitedHealth Group, Johnson & Johnson and Eli Lilly lagged.
• The tech-heavy Nasdaq 100 advanced 0.5% as other equities benchmarks wavered.
• The dollar climbed after a three-day slide.
• The yield on the 10-year bond — the benchmark for everything from mortgages to corporate debt — broke below 4% for the first time since August.
• Even with Williams squelching some of the market’s ebullience, the Fed’s tone this week was more dovish than that from European peers.
• European Central Bank Governing Council member Madis Muller said Friday that markets are getting ahead of themselves in betting that the ECB will start cutting interest rates in the first half of next year.
• The Stoxx Europe 600 rose 0.1%.
• The Bloomberg Dollar Spot Index rose 0.2%.
• The yield on 10-year Treasuries declined two basis points to 3.91%.
• West Texas Intermediate crude fell 0.8% to $71.04 a barrel.

Costco Earnings Beat Estimates, Company Announces Special Dividend – Wall Street Journal, 12/15/2023

• Costco Wholesale posted higher profit in its fiscal first quarter as same-store sales held steady at the warehouse retail giant.
• The earnings release did not include details of a much-anticipated membership fee increase, which management has called “a question of when not if.”
• Total revenue rose to $57.8 billion, in line with Wall Street’s expectations.
• Same-store sales rose 3.8%, the same as in the previous quarter.
• The company reported a profit of $1.59 billion, or $3.58 a share, in the quarter ended Nov. 26, compared with $1.36 billion, or $3.07 a share, a year earlier.
• Analysts polled by FactSet expected per-share earnings of $3.44.
• Costco also declared a special dividend of $15 a share, representing an aggregate of $6.7 billion paid to shareholders.
• “While we’ve gone a little longer than the average increase, we feel we certainly have driven more value to the membership,” he said.
• “At this juncture, we feel pretty good about what we’re doing.”

Olive Garden owner Darden beats earnings estimates, hikes guidance as sales climb – CNBC, 12/15/2023

• Darden Restaurants on Friday reported quarterly earnings that beat expectations and raised its annual guidance, helped by sales growth at chains like Olive Garden and LongHorn Steakhouse.
• Revenue: $2.73 billion vs. $2.74 billion expected.
• Sales rose 9.7% from the year-ago period, which the company said was driven by the inclusion of Ruth’s Chris Steak House locations and a same-restaurant sales increase of 2.8%
• Olive Garden same-restaurant sales were up 4.1%, while LongHorn Steakhouse saw a 4.9% jump for the quarter.
• Fine dining lagged, as sales fell 1.7% for the quarter.
• Earnings per share: $1.84 adjusted vs. $1.74 expected.
• The restaurant group also updated its fiscal year 2024 outlook, forecasting adjusted earnings per share of $8.75 to $8.90, up from the company’s previous estimate of $8.55 to $8.85, excluding Ruth’s Chris transactions and integration costs.
• The LongHorn Steakhouse owner also projects $11.5 billion in sales for the fiscal year, as well as 50 to 55 new restaurant openings.
• “The consumer appears to be resilient, but more selective,” said CEO Rick Cardenas in the company’s earnings call Friday.
• People with household incomes above $200,000 dined out at a higher rate than last year, but still, less than pre-Covid levels, said Cardenas.
• Households making below $75,000 dined out less this year, but were eating out more than before the pandemic, he added.

RTX insider Christopher Calio to succeed Gregory Hayes as CEO – Reuters, 12/15/2023

• RTX said on Thursday that Christopher Calio, the company’s current chief operating officer, would succeed Gregory Hayes as the aerospace and defense firm’s CEO.
• Under Hayes, RTX – formerly known as Raytheon – became the largest defense company in the world by revenue following its 2020 merger with United Technologies Corp, booking $67 billion in sales last year.
• Calio, 50, who became COO in March 2022, oversaw the realignment of the company into three business units: Raytheon, Pratt & Whitney, and Collins Aerospace.
• RTX expects the leadership transition to be complete by the annual shareholders meeting scheduled for May 2, when Hayes, 63, will become executive chairman of the board.
• Calio, who joined the company in 2005, was previously president of Pratt & Whitney after holding other leadership positions at the engine maker, including as head of its commercial engines business.

GM to lay off 1,300 Michigan workers as vehicles end production – CNBC, 12/15/2023

• General Motors plans to lay off about 1,300 workers in Michigan starting early next year due to vehicles they produce ending production, the company disclosed in state documents.
• They include 945 workers at Orion Assembly who build Chevrolet Bolt models, which are ending production after this year.
• However, layoffs will not occur until Jan. 1.
• GM will retool Orion to build electric trucks.
• The plant is expected to come back online in late 2025.
• The other 369 workers to be laid off are at GM’s Lansing Grand River Assembly/Stamping, which will no longer produce the Chevrolet Camaro.
• GM had previously announced the end of the vehicle but not how many employees would be laid off at the plant, which continues to produce Cadillac sedans.
• Layoffs at Grand River will begin Jan. 2 and continue through March, according to the WARN notice documents.

The housing market is already starting to pick up now that mortgage rates are falling, Redfin says – Market Watch, 12/15/2023

• Falling mortgage rates have already breathed “new life” into the U.S. housing market, a new report by Redfin says, and that momentum could pick up as rates continue to inch downward.
• But buyers and sellers who were growing “tired” of waiting on the sidelines had already begun wading back into the housing market as mortgage rates fell from a near-8% peak in October, Redfin said on Friday.
• In the month of November, new for-sale listings and pending home sales climbed to the highest level in roughly a year, and home prices posted the biggest annual increase since late 2022.
• New listings in November rose by 1.3% from the previous month to the highest level since October 2022, Redfin said.
• Pending home sales rose 2% in November as compared with the previous month, the company noted and was at the highest level in a year.
• The median U.S. home sale price was $408,732 in November, Redfin said, which was up 3.7% from a year ago.

US ECONOMY & POLITICS

Gasoline Prices Sink to Lowest Since 2021 in Boon to US Consumers – Bloomberg, 12/15/2023

• The cheapest gasoline in 2 1/2 years is set to drive spending for US consumers this holiday shopping season.
• A gallon of regular gasoline now costs $3.087, down more than 10 cents from a year ago and the lowest since late June 2021, according to data from the American Automobile Association.
• Fuel prices have steadily declined since the summer driving season ended in September, largely tracking losses in oil as well as reflecting soft seasonal demand and growing supplies.
• Robust fuel production and rising inventories suggest pump prices will likely continue falling for the near future until the spring driving season kicks off with the switch to a cleaner-burning grade of fuel that’s costlier to make.

US Inflation Rate Seen Nearing Fed’s 2% Goal Next Year in CBO Forecast – Bloomberg, 12/15/2023

• The agency expects personal consumption expenditures — the Fed’s preferred measure of inflation — to cool to 2.1% in 2024, according to the CBO’s semiannual forecast published Friday.
• Excluding energy and food costs, the gauge is set to ease to 2.4% from this year and hit 2.3% by 2025, according to the data, which incorporates economic developments through Dec. 5.
• Price pressures are expected to ease as consumer spending takes a step back after a robust 2023, supply conditions improve and rent prices ease.
• The economy outperformed expectations this year but is seen slowing to a 1.5% pace in 2024 before rebounding to 2.2% in 2025.
• Meanwhile, CBO analysts forecast labor-market conditions to soften in 2024 as demand slows.
• The unemployment rate is seen rising to 4.4% next year from the 3.7% rate in the most recent November payrolls report.

US Manufacturing Production Bounces Back, Boosted by Autos – Bloomberg, 12/15/2023

• US factory production rebounded in November, reflecting a pickup in activity at carmakers and parts suppliers following the end of the United Auto Workers’ strike.
• Output increased a less-than-expected 0.3% last month, driven by a 7.1% surge in motor vehicle production, Federal Reserve data showed.
• The figures followed a 0.8% decline in factory production in October.
• Excluding autos, however, manufacturing fell 0.2% — the second monthly decline in a row.
• Total industrial production, which includes mining and utilities, rose 0.2%.
• Compared to November 2022, manufacturing output is down 0.8%.
• The annualized rate of car assemblies rebounded to 10.25 million but remains below pre-strike levels.
• Separate data out Friday showed a measure of manufacturing activity in New York state slid nearly 24 points to minus 14.5 in December, the lowest reading since August.
• Shipments declined and new orders shrank for a third straight month.

Fed’s Williams Says Talk of March Rate Cut Is ‘Premature’ – Bloomberg, 12/15/2023

• Federal Reserve Bank of New York President John Williams said it’s too early for officials to begin thinking about cutting rates as soon as March as they consider whether policy is restrictive enough to get inflation back to 2%.
• “We aren’t really talking about rate cuts,” Williams said Friday in an interview on CNBC.
• He noted it’s “premature” to be thinking about cutting interest rates in March.
• “As Chair Powell said, the question is: Have we gotten monetary policy to a sufficiently restrictive stance to ensure that inflation comes back down to 2%? That’s the question in front of us,” he said.
• Williams said on Friday that “the market in a way is reacting very strongly, maybe more strongly, than what we are showing in terms of our projections.”

House Passes Defense Policy Bill, Leaving Out Abortion, Transgender Provisions – Wall Street Journal, 12/15/2023

• The House passed sweeping annual legislation Thursday that designates top U.S. military priorities, overcoming grumbling from some Republicans who unsuccessfully sought to include policies to restrict abortion access and transgender healthcare for service members.
• House lawmakers voted 310-118 to approve the National Defense Authorization Act, which would increase the national security budget by roughly 3% to $886 billion from last year’s $858 billion authorization bill.
• The NDAA, which typically draws broad bipartisan majorities, was passed under a fast-track procedure that requires a two-thirds threshold.
• House approval of the NDAA came a day after the Senate voted 87-13 to back it.
• The legislation calls for a 5.2% pay raise for service members, and military training assistance to Taiwan to help the island defend itself against a possible invasion by China and it temporarily extends for several months a controversial tool wielded by U.S. spy agencies.
• House Speaker Mike Johnson (R., La.) said the measure “will strengthen our national security against adversaries like China and Russia and support our servicemembers.”

EUROPE & WORLD

Eurozone Economic Activity Weakens for Seventh-Straight Month, PMIs Show – Wall Street Journal, 12/15/2023

• Economic activity in the eurozone contracted in December for the seventh month in a row, at a stronger pace than in November, amid weakening demand and a gloomy economic outlook, data from a purchasing managers’ survey showed Friday.
• The HCOB Flash Eurozone Composite PMI Output Index—a gauge of activity in the manufacturing and services sectors—fell to 47.0 from 47.6 in November.
• The reading, which indicates that activity contracted in a more pronounced way than the month before, missed expectations of 48.2 by economists, according to a poll by The Wall Street Journal.
• The components for both the services and manufacturing sectors also lagged expectations.
• Earlier Friday, the composite index for the purchasing managers’ survey for France slumped to a 37-month low, while for Germany it dipped to a two-month low.

China’s Economy Shows Signs of Losing Further Momentum – Wall Street Journal, 12/15/2023

• China’s economic recovery showed signs of losing further momentum as investment and consumer spending expanded slower than expected last month, fueling calls for policymakers to do more to support growth.
• Meanwhile, a prolonged property downturn showed no signs of abating, as new home prices in key cities fell at a faster clip in November.
• In a sign that Beijing is concerned about China’s fragile recovery, the country’s central bank on Friday pumped a net of 800-billion-yuan, equivalent to about $112 billion, worth of funds into the financial system, the largest amount of liquidity supplied via its one-year loans to banks on record.
• Fixed-asset investment increased 2.9% during the January-to-November period, matching the pace for the first 10 months of the year.
• Economists had expected fixed-asset investment to grow 3% in year-over-year terms.
• Investment made by private firms, who supply most of the jobs in urban China, fell 0.5% in the first 11 months compared with a year earlier.
• Growth in industrial output rose to 6.6% in November, beating economists’ forecasts and topping October’s 4.6% reading.
• Average home prices fell 0.7% in November compared with a year earlier, versus a 0.58% decline in October.

Airbus, Turkish Airlines Firm Up Jet Order  – Bloomberg, 12/15/2023

• Airbus is closing out the year with one of its biggest order announcements, firming up the purchase of 230 aircraft by Turkish Airlines as the flag carrier pledges to cement its position as a global aviation powerhouse.
• The multi-billion-dollar deal, which follows on from a handshake accord in Istanbul last month, includes both narrow- and widebody aircraft.
• The airline is buying 60 A350-900 long-range jets and has purchase rights for 20 more, as well as 15 of the larger A350-1000 models, it said.
• Turkish also placed an order for 150 A321neo aircraft, with the possibility of a 100-unit top-up.
• Should the airline exercise all purchase options, the deal would land at 355 aircraft, among the largest by size and value this year.
• For Airbus, the accord is the second major win this week after announcing an order for 100 A321neo models from aircraft leasing firm Avolon Holdings Ltd. on Dec. 12.
• Airbus and Boeing are practically sold out on their popular narrowbody models this decade, and the buying frenzy has also begun shifting into the market for more expensive widebody jets.

Maersk to pause all container shipments through the Red Sea – Reuters, 12/15/2023

• Danish shipping company A.P. Moller-Maersk will pause all container shipments through the Red Sea until further notice and send them on a detour around Africa, a spokesperson for the company told Reuters on Friday.
• “Following the near-miss incident involving Maersk Gibraltar yesterday and yet another attack on a container vessel today, we have instructed all Maersk vessels in the area bound to pass through the Bab al-Mandab Strait to pause their journey until further notice,” the company said in a statement.
• Maersk on Thursday said its vessel Maersk Gibraltar was targeted by a missile while traveling from Salalah, Oman, to Jeddah, Saudi Arabia, and that the crew and vessel were reported safe.

Hunger Spreads in Gaza as Fighting Rages – Wall Street Journal, 12/15/2023

• Residents of the Gaza Strip are facing starvation for the first time in recent history, according to United Nations agencies, as aid deliveries fall short of soaring needs in the enclave, where the food-supply system has collapsed.
• The overwhelming majority of Gaza’s 2.2 million people don’t have enough food, with residents often skipping meals and sometimes going several days without any, according to the World Food Program, a U.N. agency.
• The U.N. said it is assessing whether Gaza already meets the formal definition of famine, meaning two out of every 10,000 inhabitants die from hunger a day, and around one in three children is acutely malnourished.
• The entry of humanitarian aid is limited to the Rafah border crossing with Egypt, and Israel approves all goods entering, with the U.N. overseeing the distribution of aid.
• The government in Cairo has prevented Gazans from seeking refuge in Egypt.
• Israeli officials said they are ready to double the daily number of aid trucks they process for entry into Gaza, provided international organizations can distribute the increased aid.
• Elad Goren, Israel’s military liaison for Palestinian civil affairs, says Israel’s current inspection capacity exceeds 400 trucks daily.

Factmonster – TODAY in HISTORY

• The Bill of Rights took effect with Virginia’s ratification of it. – 1791
• Sioux Indian chief Sitting Bull was killed by Native American police. – 1890
• The French defeated the Germans in the Battle of Verdun. – 1916
• The movie Gone With the Wind premiered in Atlanta, Georgia. – 1939
• Band leader Glenn Miller disappeared in a plane crash over the English Channel. – 1944
• Canada adopted its national flag, a red maple leaf on a white background. – 1964
• A demonstration that turned into a popular uprising in Romania began the downfall of Nicolae Ceausescu. – 1989

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