US FINANCIAL MARKET

US Two-Year Yield Hits Lowest Since May After PPI: Markets Wrap – Bloomberg, 1/12/2024

• Treasury two-year yields hit the lowest since May as an unexpected decline in producer prices reinforced bets on Federal Reserve rate cuts this year.
• The yield on 10-year Treasuries declined two basis points to 3.94%.
• While traders continued to expect the first Fed reduction in May, they now see a slightly bigger chance of a cut in March.
• The data came just a day after a hotter-than-anticipated reading on consumer prices — underscoring the bumpy path officials face in bringing inflation back to the 2% target.
• Wall Street also sifted through a raft of bank results as Corporate America’s earnings season got underway.
• Geopolitical risks also captured investors’ attention.
• Two-year US yields fell nine basis points to 4.16%.
• The S&P 500 fluctuated while still poised for a weekly advance.
• The Nasdaq 100 was little changed. The Dow Jones Industrial Average fell 0.4%.
• Oil jumped as the US and its allies launched airstrikes against Houthi rebels in Yemen, retaliating for attacks on ships in the Red Sea that have imperiled flows of fuel and goods through the vital waterway.
• West Texas Intermediate crude rose 2.5% to $73.84 a barrel.
• JPMorgan Chase closed out the most profitable year in US banking history with its seventh consecutive quarter of record net interest income and a surprise forecast that the windfall may continue this year.
• Wells Fargo’s fourth-quarter costs came in higher than expected, swollen by severance charges and the bank’s contribution to replenish the Federal Deposit Insurance Corp.’s central fund after bank failures last year.
• Citigroup said it will eliminate 20,000 roles in a move that will save as much as $2.5 billion as part of Chief Executive Officer Jane Fraser’s quest to boost the Wall Street giant’s lagging returns.
• Bank of America’s earnings fell short of expectations as the bank’s numerous charges in the fourth quarter cut into profit, and the firm’s fixed-income traders posted a surprise drop in revenue.
• BlackRock clients jumped into its long-term funds in the fourth quarter, adding $63 billion to ETFs and other products in a sign investors put cash to work as stock and bond markets surged.
• Delta Air Lines backed away from its 2024 profit target as persistently high costs counter the gains from a rebound in international travel.
• The US Federal Aviation Administration said it will increase its oversight of Boeing’s production and manufacturing operations, a day after it opened a formal investigation into the planemaker over last week’s accident on a 737 Max 9 jet.
• UnitedHealth Group reported higher fourth-quarter medical costs than Wall Street analysts expected, even as overall results beat estimates.
• The Stoxx Europe 600 rose 0.9%.

JPMorgan Posts Record Annual Profit Despite Quarterly Slip – Wall Street Journal, 1/12/2024

• JPMorgan Chase’s fourth-quarter profit slipped, but it was still enough to push the bank to a record-breaking result for the entire year.
• Revenue rose 12% to $38.57 billion, falling short of the $39.73 billion analysts expected.
• Thanks to increased loan rates, JPMorgan earned $24.05 billion in net interest income, the amount of revenue it makes on lending minus what it pays out on deposits.
• But the net interest margin rose again to 2.81% from 2.72% in the third quarter.
• In the consumer bank, fourth-quarter revenue rose 15%.
• Profit increased 5% to $4.79 billion.
• Both numbers were boosted by the acquisition of First Republic last year.
• Consumers continued turning to credit cards, with total sales volume up 8% and card loans up 14%, a signal customers carry higher balances.
• In the corporate and investment bank, revenue rose 3% while income dropped 24%.
• Investment banking fees rose 13%, boosted by underwriting fees, and trading revenue was up 2%, driven by fixed-income markets.
• The bank charged off $2.2 billion in already soured loans and put aside $598 million to handle potentially more in the future.
• The bank also decided to sell some bonds, such as Treasurys and mortgage-backed securities, that had fallen in value, taking a $743 million loss.
• Excluding one-time losses and the special fee, the bank said earnings were $3.97 a share.
• Analysts had expected $3.35 a share, according to FactSet.

BofA’s Bond Traders Post a Surprise Drop as Profit Slumps – Bloomberg, 1/12/2024

• Bank of America’s earnings fell short of expectations as the bank’s numerous charges in the fourth quarter cut into profit, and the firm’s fixed-income traders posted a surprise drop in revenue.
• The decline in profit was due, in part, to a $2.1 billion special assessment from the Federal Deposit Insurance Corp. and a $1.6 billion charge tied to the finance industry’s shift away from the London Interbank Offered Rate benchmark.
• Revenue from fixed income, currencies, and commodities trading fell 5.8% to $2.21 billion in the fourth quarter, the firm said, as clients grappled with a period of continued high interest rates and geopolitical tensions.
• The second-largest US bank said that net interest income, a key source of revenue for the bank, fell 5% to $13.9 billion in the final quarter of last year.
• Analysts had expected a 5.1% drop for NII, the revenue collected from loan payments minus what depositors are paid.
• The company’s loan balances rose to $1.053 trillion at the end of the fourth quarter, up about 1% from a year earlier and more than analysts’ estimates of $1.052 trillion.
• At the same time, Bank of America’s deposits rose to $1.92 trillion, up from $1.88 trillion in the previous quarter and more than the $1.85 trillion analysts had predicted.
• Bank of America’s non-interest expenses rose 14% from a year earlier to $17.7 billion.
• Analysts had expected a 6.8% increase to $16.6 billion.
• Without the FDIC charge, expenses would have totaled $15.6 billion, the bank said.
• On the bright side, equities traders posted a surprise beat, generating $1.55 billion in revenue, up 12% from a year earlier.
• Analysts had predicted that the unit would rise less than 5%.
• In the firm’s investment bank, revenue rose 8.1%, better than analysts expected, helped by a surprise boost from debt issuance.
• Fees for advising on mergers and acquisitions declined 20%, while equity and debt issuance revenue increased 5.3% and 42%, respectively.

Wells Fargo posts higher fourth-quarter profit, helped by higher interest rates and cost cutting – CNBC, 1/12/2024

• Wells Fargo shares fell Friday even after fourth-quarter profit rose from a year ago, as the bank warned that net interest income for 2024 could come in significantly lower year over year.
• Revenue: $20.48 billion vs. $20.30 billion expected.
• Wells Fargo said net interest income fell 5% from a year ago to $12.78 billion and warned that the figure could come in 7% to 9% lower for the entire year from $52.4 billion in 2023.
• The bank said that the decline in net interest income was due to lower deposit and loan balances but was offset slightly by higher interest rates.
• In the quarter that ended December 31, 2023, Wells Fargo posted a net income of $3.45 billion, or 86 cents per share, up slightly from $3.16 billion, or 75 cents a share, a year ago.
• Earnings were lowered by a $1.9 billion charge from an FDIC special assessment tied to the failures of Silicon Valley Bank and Signature Bank and a $969 million charge from severance expenses.
• Wells Fargo also recorded a $621 million tax benefit, or 17 cents per share.
• Provisions for credit losses rose 34% to $1.28 billion from $957 million a year ago, as allowances for credit losses rose for credit card and commercial real estate loans. Wells Fargo said lower allowances for auto loans partially offset that.

Citigroup posts $1.8 billion fourth-quarter loss after a litany of charges – CNBC, 1/12/2024

• On Friday, Citigroup posted a $1.8 billion fourth-quarter loss after booking several hefty charges tied to overseas risks, last year’s regional banking crisis, and CEO Jane Fraser’s corporate overhaul.
• Revenue: $17.44 billion, vs. expected $18.74 billion.
• Citigroup revenue slipped 3% to $17.44 billion in the quarter, though the bank said revenue rose 2% after excluding the impact of divestitures and charges tied to exposure to Argentina.
• Earnings: adjusted 84 cents a share, which may not compare with the expected 81 cents.
• All told, Citigroup said the charges — so massive the bank preannounced their impact this week — hit quarterly earnings by $4.66 billion, or $2 per share.
• Excluding their impact, the bank said earnings would’ve been 84 cents a share.
• On Friday, Citi said it expects to cut its headcount by 20,000 and post up to $1 billion in severance costs over the medium term.

BlackRock to Buy Global Infrastructure Partners for $12.5 Billion – Wall Street Journal, 1/12/2024

• BlackRock has agreed to buy private equity firm Global Infrastructure Partners for roughly $12.5 billion in cash and stock, a significant push into private-market investments for the world’s largest asset manager.
• New York-based GIP owns and operates energy, transportation, and water and waste companies, including a stake in London’s Gatwick Airport.
• To acquire GIP, BlackRock will pay $3 billion in cash and 12 million of its shares, worth about $9.5 billion based on Thursday’s closing price.
• In GIP, BlackRock is buying an infrastructure fund manager with about $100 billion under management and $80 billion combined revenue from its portfolio companies.
• BlackRock separately reported its assets under management topped $10 trillion at the end of the fourth quarter for the second time in its history.
• Per-share earnings of $9.15 beat the $8.73 expected by analysts polled by FactSet.
• Operating income climbed 8% from a year earlier, and revenue rose 7%.

BNY Mellon 4Q Profit Drops While Higher Rates Boost Revenue – Market Watch, 1/12/2024

• Bank of New York Mellon logged lower earnings in the fourth quarter while revenue jumped 10% due to higher interest rates.
• Revenue rose 10% to $4.31 billion, just above analyst forecasts for $4.3 billion, according to FactSet.
• Fee revenue came in at $3.21 billion, just under the year-ago quarter’s total of $3.22 billion, reflecting lower foreign exchange volatility and volumes, partially offset by higher market values and a favorable impact from a weaker US dollar.
• Quarterly net interest revenue totaling $1.1 billion from $1.06 billion a year ago.
• The 3.8% gain was driven by higher interest rates, which were partially offset by balance sheet size and mix changes.
• The top line was pulled down by $4 million by the bank’s investment business, an improvement from a year ago when repositioning its securities portfolio created a $360 million headwind to revenue.
• The quarter’s investment and other revenue figures were still negatively impacted by $150 million related to a fair-value adjustment of a contingent consideration receivable related to a divestiture in the prior year.
• BoNY’s results included a $752 million noninterest expense tied to a Federal Deposit Insurance Corporation special assessment, severance, and litigation reserves.
• Assets under management rose 8% to $1.97 billion, thanks to higher market values and the weakening of the US dollar, which were partially offset by cumulative net outflows.
• Stripping out one-time items, adjusted earnings were $1.28 a share.
• Analysts surveyed by FactSet had been expecting 85 cents a share.

Health-Insurer Stocks Drop on UnitedHealth’s Earnings Report – Wall Street Journal, 1/12/2024

• UnitedHealth’s adjusted earnings beat Wall Street projections, but investors focused on signs that medical costs were running higher than analysts projected.
• The health insurance and healthcare giant reported fourth-quarter net income of $5.46 billion and revenue of $94.4 billion, up from the year-earlier quarter’s earnings of $4.76 billion and revenue of $82.8 billion.
• Adjusted earnings per share of $6.16 for the fourth quarter of 2023 beat analysts’ consensus estimate.
• Investors – and UnitedHealth’s call with analysts –focused on the insurance unit’s medical loss ratio or the share of premiums spent on medical care.
• At 85%, it was higher than the roughly 84.1% that analysts had expected.
• The company also saw an uptick in medical spending related to RSV, including visits to doctors for vaccinations that led to other care.
• Hospital admissions related to COVID-19 were also rising, which were more costly than in the past and up by about 50% or more in December compared to earlier in the fall.
• UnitedHealth stuck with its projection of a 2024 MLR of about 84%.

Delta more than doubles fourth-quarter profit but trims 2024 earnings forecast – CNBC, 1/12/2024

• Delta Air Lines closed out the year by doubling its quarterly profit as travel demand, particularly for international trips, helped drive record revenue in 2023.
• Adjusted revenue: $13.66 billion vs. $13.52 billion expected.
• Overall, record numbers of people paid to sit in Delta’s higher-priced cabins, such as first-class or premium economy, in the last quarter, driving revenue from premium cabins up 15% during the period, outpacing 10% revenue growth from standard coach seats.
• Delta doesn’t have any Max 9s in its fleet, though it does have dozens of 737 Max 10 aircraft, which the FAA hasn’t yet certified, on order.
• Adjusted earnings per share: $1.28 vs. $1.17 expected.
• Delta expects revenue in the first quarter of 2024 to increase 3% to 6% over the prior year.
• The carrier forecast earnings per share are between 25 cents and 50 cents, within the range analysts are projecting, according to LSEG, formerly known as Refinitiv.
• Delta on Friday forecast adjusted earnings per share of between $6 and $7 for 2024, below the more than $7 a share the carrier predicted last year.

Oil Tops $80 as Strikes Against Houthis Raise Middle East Risks – Bloomberg, 1/12/2024

• Oil jumped as the US and its allies launched airstrikes against Houthi rebels in Yemen, retaliating for attacks on ships in the Red Sea that have imperiled flows of fuel and goods through the vital waterway.
• President Joe Biden said strikes had been conducted against several targets used by the Iran-backed group.
• There were signs of an immediate impact on shipping, as at least one primary tanker owner said it had paused voyages.
• The Houthis said all US and UK interests are now legitimate targets.
• Global benchmark Brent rose 4.3%, briefly topping $80 a barrel before paring gains.
• Investors are trying to gauge whether the escalation in hostilities would spark a broader conflict in the Middle East.

Apple Directors Al Gore, James Bell to Retire – Wall Street Journal, 1/12/2024

• Apple’s board of directors is getting shaken up.
• Longtime Apple board member Al Gore is retiring from the board, the company announced Thursday.
• The former US vice president had been a board member since 2003, a witness to the company’s rise and transformation a few years after the return of co-founder Steve Jobs as chief executive.
• “For more than 20 years, Al has contributed an incredible amount to our work—from his unconditional support for protecting our users’ privacy to his incomparable knowledge of environment and climate issues,” Apple Chief Executive Tim Cook said.
• Retired Boeing company executive James Bell, who joined Apple’s board in 2015, is also retiring.
• Apple said that Wanda Austin, the former chief executive officer of the nonprofit The Aerospace Corporation, has been nominated for election to the company’s board.
• Austin also serves on the board of directors of Chevron and Amgen.
• The company said it had asked Ron Sugar, a longtime board member and chair of its audit committee, to stay even though he has reached 75, according to a securities filing.

FAA Says It Will Ramp Up Inspections of Boeing Facilities – Wall Street Journal, 1/12/2024

• Federal air safety regulators said Friday that they would ramp up inspections of Boeing’s manufacturing facilities after grounding roughly 170 Boeing jets in the wake of an emergency landing last week.
• The Federal Aviation Administration said it was investigating the aircraft maker after the January 5 accident involving the Alaska Airlines jet. It said it would audit the 737 MAX 9 production line and its suppliers.
• “It is time to re-examine the delegation of authority and assess any associated safety risks,” FAA Administrator Mike Whitaker said in a press release.
• Boeing has said it is cooperating with investigators and would work to ensure all aircraft meet safety requirements before they return to service.
• The FAA, which certifies each Boeing plane that leaves its factory, has also been scrutinized over the incident.
• The FAA said it will also assess safety risks related to what it delegates to Boeing to oversee manufacturing quality.

US ECONOMY & POLITICS

US Producer Prices Fall Again, Boosting Bets on Fed Rate Cuts – Bloomberg, 1/12/2024

• Prices paid to US producers extended their retreat in December, prompting traders to increase bets on how aggressively the Federal Reserve will cut interest rates this year.
• The producer price index for final demand decreased 0.1% for a third straight month — the longest streak since 2020 — while the so-called core PPI that excludes food and energy changed little for a third month, Labor Department data showed Friday.
• On an annual basis, the core gauge rose 1.8%, the most minor advance since the end of 2020.
• 
• Prices for portfolio management and investment advice both picked up, while healthcare categories changed little.
• Prices paid to producers for goods decreased 0.4% in December, nearly 60% of that reflecting cheaper energy.
• Services costs, meanwhile, were unchanged for a third month.
• Stripping out food, energy, and trade services, a less-volatile PPI measure, prices increased 0.2% in December from a month earlier, in line with forecasts.
• Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, were down for a third month.
• Excluding food and energy, processed goods for intermediate demand rose, marking the first advance since April.

Powerful Winter Storm to Batter Much of the US This Weekend – Wall Street Journal, 1/12/2024

• A significant winter storm swept across large parts of the U.S. Friday, with blizzards pounding the Midwest and severe flooding expected in Eastern states already reeling from a week of extreme weather.
• More than 1,600 flights within, into, or out of the US were canceled by 9 a.m. ET, according to flight-tracking service FlightAware.
• Chicago O’Hare International Airport had more than 600 cancellations early Friday.
• Milwaukee Mitchell and Des Moines International Airports were also severely affected.
• The powerful blast of Arctic cold is expected to last through the weekend and into next week, the National Weather Service said Friday.
• On the East Coast, where flooding earlier in the week turned roads into rivers and strong winds knocked out power to hundreds of thousands of homes, residents were warned to expect another deluge.
• Forecasters said that wet ground, swollen rivers, and deep snowpacks created by back-to-back storms could exacerbate the severity of this weekend’s weather.

Hunter Biden Pleads Not Guilty in Tax-Evasion Case – Wall Street Journal, 1/12/2024

• Hunter Biden pleaded not guilty Thursday to charges he evaded taxes on millions of dollars in income from foreign businesses, one of two federal prosecutions that will keep his legal woes in the public eye while his father campaigns for re-election.
• Not that the younger Biden is avoiding the limelight: On Wednesday, he had made a surprise visit to Capitol Hill, where he watched from the gallery of a House hearing room as Republican lawmakers moved toward holding him in contempt of Congress.
• As he looked on beside his lawyer, one lawmaker declared that Hunter Biden should be “arrested right here, right now, and go straight to jail.”
• The hearing marked Hunter Biden’s first court appearance in response to a nine-count indictment alleging he “engaged in a four-year scheme to not pay at least $1.4 million in self-assessed federal taxes.”
• Prosecutors also say Hunter Biden claimed illegal deductions to evade taxes for 2018.

EUROPE & WORLD

U.S.-Led Yemen Strikes Heighten Risk of Broader Middle East Conflict – Wall Street Journal, 1/12/2024

• Yemen’s Houthi rebels responded defiantly to U.S.-led strikes against them Friday, saying that the attacks had failed to cause significant damage and that they remained undeterred from launching more attacks on US and international targets in the region.
• The strikes—and fresh promises of retaliation—threaten to escalate monthslong violence in the Middle East into a broader conflict and turn the Red Sea into a new flashpoint between Washington and the various Iran-backed groups arrayed across the region.
• “All American and British interests have become legitimate targets for the Yemeni armed forces in response to the aggression,” said a statement from the Supreme Political Council of the Houthis, which controls the capital, San’a, and large swaths of territory.
• Houthi spokesman Mohammed Abdul Salam said more attacks in the Red Sea were imminent: “This isn’t going to deter us.”
• The attacks, primarily on shipping lanes, would continue in solidarity with Gaza following Israel’s invasion, he added.
• The Houthis said the U.S.-led forces had conducted 73 strikes that killed five and injured six militants but said damage to their infrastructure was limited, much of which had been relocated, fortified, and stored underground ahead of the strikes, which had been telegraphed days in advance.

Lagarde Says ECB to Cut Rates When Sure Inflation Set for 2% – Bloomberg, 1/12/2024

• The European Central Bank will start lowering interest rates once it’s convinced that inflation is headed back to its 2% goal, according to President Christine Lagarde.
• “I cannot give you a date” for cuts, Lagarde told France 2 TV in an interview Thursday.
• “But I can say that if we win this battle, if we get to 2% as we estimate in 2025, and if it’s confirmed by the data we will have” in the coming months, “I’m very confident, then rates will start to decline as soon as we have this certainty.”
• “I think we’ve got through the biggest, hardest bit — except if we are faced with another major shock,” she said. “That doesn’t mean we will have a smooth decline.”
• “Wages, in terms of negotiations and collective-bargaining agreements, are increasing above the inflation figures we have,” she said.
• “We are in a phase of catch-up that will be spread out over two or three years.”
• Speaking earlier Thursday, Croatian central bank chief Boris Vujcic said markets continued to be too optimistic about the timing of the first cut.
• He echoed remarks from Executive Board member Isabel Schnabel the previous day, who called discussions on the topic premature.

Tesla to Halt Production in Germany as Red Sea Conflict Hits Supply Chains – Wall Street Journal, 1/12/2024

• Tesla plans to halt production at its giant factory in Europe for two weeks as the conflict in the Red Sea continues to disrupt transport ships, raising the specter of a new supply-chain crisis for European manufacturers dependent on parts from China and other Asian countries.
• Tesla said in a statement Friday that it would stop nearly all production at its factory near Berlin from January 29 to February 12 because of a lack of components.
• “The considerably longer transportation times create a supply chain gap. Due to a lack of components, we are forced to suspend vehicle production in the Gigafactory Berlin-Brandenburg,” Tesla said.
• While Tesla’s shutdown still seems isolated, Volvo Cars, the Chinese-Swedish automaker, said that it would halt production for three days at a plant in Ghent, Belgium, because of a delay in receiving gearboxes for production of conventional combustion engine vehicles.

Taiwan Hurtles Toward Uncertain Presidential Vote With Global Stakes – Wall Street Journal, 1/12/2024

• Taiwanese voters will go to the polls on Saturday to pick a new president. Whoever they choose will represent a leap into the unknown, with uncertain implications for one of the world’s most closely watched geopolitical flashpoints.
• The volatile three-way race is the subject of intense focus in both Beijing and Washington, and its result could alter the trajectory of relations between the two powers.
• Its elections are the only free political contests in the Chinese-speaking world, and its vibrant democracy challenges Beijing’s efforts to demonstrate the superiority of its system.
• The election is expected to come down to the wire, with the electorate split between Taiwan’s two main political camps—and a bold third-party candidate stealing support from both sides.
• A vote for the leading candidate, current Vice President Lai Ching-te, would mean an unprecedented third straight presidential term for the ruling Democratic Progressive Party, which Beijing has demonized as an inveterate separatist force bent on formal independence from China.

China Pledges to Boost Developer Lending to Tackle Home Sales Slump – Bloomberg, 1/12/2024

• China asked local governments to support better developers’ financing needs, including drafting a list of projects eligible for funding, as the country seeks to arrest the prolonged downturn in its housing market.
• In a joint notice sent by the Ministry of Housing and Urban-Rural Development and National Administration of Financial Regulation on Friday, regulators asked local governments to coordinate and offer more targeted support for developers’ reasonable financing needs.
• It also urged financial institutions to not unthinkingly withdraw loans for property projects that are temporarily facing difficulties and instead support them with measures like extending existing loans.
• China’s extended property downturn has been a significant headwind for the economy and ratcheted pressure on developers struggling to repay debts and complete projects.
• It’s sparked a raft of moves from authorities to stem the downward spiral, including relaxing homebuying curbs in Beijing and Shanghai, the country’s biggest markets.
• The value of new home sales among the 100 most prominent real estate companies fell 34.6% in December from a year earlier to 451.3 billion yuan ($63 billion), compared with a 29.6% decline in November.

UK Boosts Military Aid to Ukraine Amid US Deadlock – Wall Street Journal, 1/12/2024

• The UK government pledged nearly $3 billion in fresh military support for Ukraine Friday, the latest example of Europe bolstering aid for the war-torn country as additional US funding hangs in the balance amid a deadlock in Congress.
• British Prime Minister Rishi Sunak announced the £2.5 billion package, which is £200 million more than the UK pledged last year, during a trip to Kyiv.
• Britain also said it would sign a long-term security-cooperation agreement with Ukraine, guaranteeing “swift and sustained” assistance to the country should it ever be attacked by Russia again.
• The agreement boosts the Ukrainian government, which has struggled to maintain momentum among Western donors as the war approaches a third year with no obvious sign of quick resolution.

Factmonster – TODAY in HISTORY

• The first public museum in the US was established in Charleston, SC -1773
• H. L. Smith took the first X-ray photograph. It was a hand with a bullet in it. – 1896
• The US House of Representatives rejected a proposal to give women the right to vote. -1915
• Hattie W. Caraway, a Democrat from Arkansas, became the first woman to be elected to the US Senate. – 1932
• A divided Congress gave President Bush the go-ahead on the Persian Gulf War. – 1991
• Nineteen European countries signed an agreement banning human cloning. – 1998
• Haiti is dealt a catastrophic blow when a magnitude 7.0 earthquake strikes 10 miles southwest of Port-au-Prince, the country’s capital. It is the region’s worst earthquake in 200 years. The number of fatalities was between 46,000 and 85,000 people. – 2010

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