US FINANCIAL MARKET

Stocks, Bonds Fall as Data Curb Dovish Fed Wagers: Markets Wrap – Bloomberg, 2/16/2024

• Wall Street is ending the week on a bit of a sour note, with stocks and bonds falling after economic data continued to fuel speculation the Federal Reserve will be in no rush to cut interest rates.
• Another report signaling inflation is showing signs of being “stickier” than many expected jolted trading again Friday, with the producer price index climbing on a sizable jump in costs of services.
• While the slide in Treasuries and equities abated, traders found little encouragement to bid up the market at time when the Fed bumps into what’s being referred to as a tough “last mile” in achieving its goals.
• Two-year yields, which are more sensitive to imminent Fed moves, climbed eight basis points to 4.66%.
• The yield on 10-year Treasuries advanced seven basis points to 4.30%.
• Swaps are currently pricing 85 basis points of policy easing this year.
• Just two weeks ago, bets were on around 150 basis points of cuts.
• The S&P 500 halted a streak of five weeks of gains, weighed by losses in megacaps like Meta Platforms and Apple.
• The Nasdaq 100 fell 0.6%. The Dow Jones Industrial Average fell 0.2%.
• US policymakers have spent much of the first seven weeks of the year pushing back on market expectations for a rate cut at the central bank’s next meeting in March.
• Fed Bank of Atlanta President Raphael Bostic said late Thursday there’s no rush to reduce rates with the labor market and economy still strong, and cautioned it’s not yet clear that inflation is heading sustainably to the central bank’s 2% target.
• Separate data on Friday showed US consumer sentiment improved for a third month in February as Americans grew more optimistic about the outlook for the economy and inflation.
• Meantime, new-home construction sank at the start of the year by the most since the onset of the pandemic, indicating the recovery in the housing market will be gradual as many buyers await a further decline in mortgage rates.
• Applied Materials, the largest US maker of chipmaking machinery, gave a bullish revenue forecast for the current period, signaling that some of the largest semiconductor companies are increasing their investments in new production.
• Coinbase Global posted a profit for the first time in two years after a fourth-quarter rebound in digital-asset markets lifted trading revenue.
• DoorDash beat analysts’ estimates for delivery orders in the fourth quarter, as an expansion into new categories is luring a record number of monthly users who order more frequently.
• DraftKings reported fourth-quarter sales and profit that missed analysts’ projections and announced it would buy the lottery app Jackpocket for $750 million in cash and stock.
• The Stoxx Europe 600 rose 0.6%.
• West Texas Intermediate crude rose 0.2% to $78.17 a barrel.

Applied Materials Jumps After Forecast Shows Chip Rebound – Bloomberg, 2/16/2024

• Applied Materials, the largest US maker of chipmaking machinery, jumped in late trading after giving a bullish revenue forecast for the current period, signaling that some of the largest semiconductor companies are increasing their investments in new production.
• Sales slipped less than 1% to $6.71 billion.
• China was a particular bright spot, with sales there more than doubling to $3 billion.
• They accounted for 45% of the company’s total.
• Excluding some items, Applied Materials posted earnings of $2.13 in the fiscal first quarter.
• That compares with estimates of $1.91 a share and revenue of $6.48 billion.
• Fiscal second-quarter sales will be about $6.5 billion, the company said in a statement Thursday.
• That compares with an average analyst estimate of $6.32 billion.
• Excluding some items, profit will be $1.79 to $2.15 a share in the period, which ends in April.
• The average projection was at the low end of that range.

Coinbase Climbs After Unexpected Return to Profitability – Bloomberg, 2/16/2024

• Coinbase Global posted a profit for the first time in two years after a fourth-quarter rebound in digital-asset markets lifted trading revenue, sending the shares of the largest US cryptocurrency exchange higher.
• Revenue jumped 51% to $953.8 million, topping the $826 million average estimate of analysts surveyed by Bloomberg.
• Consumer transaction revenue jumped to $492.5 million, nearly doubled from the third quarter, while institutional transaction revenue more than doubled quarter-over-quarter to $36.7 million.
• Net income was $273 million, or $1.04 a share, compared with a loss of $557 million, or $2.46, a year earlier, Coinbase said in a shareholder letter Thursday.
• Analysts had forecast a loss.
• With institutional business picking up, loans to institutional clients increased to $399 million at the end of fourth quarter, the company said.

Roku Stock Plunges, CEO Mum on Walmart-Vizio Talks – Wall Street Journal, 2/16/2024

• Roku shares dropped late Thursday after the company issued a profit forecast below Wall Street’s expectations and continued to deal with a weaker advertising market and macroeconomic challenges.
• Revenue climbed about 14% to $984.4 million amid 13% growth in platform revenue.
• Wall Street expected revenue of $967.7 million.
• Losses narrowed to $78.3 million, or 55 cents a share, from a loss of $237.2 million, or $1.70 a share a year earlier, and in line with analysts’ expectations.
• Active accounts were 80 million, up from 70 million a year ago, with average revenue per user declining to $39.92 from $41.68 in the third quarter.
• After the bell, the streaming-service provider said it expected gross profit of roughly $370 million for the first quarter, below the $373.4 million expected by analysts, according to FactSet.

DoorDash Beats Estimates But Shares Fall After Big Run-Up – Bloomberg, 2/16/2024

• DoorDash beat analysts’ estimates for delivery orders in the fourth quarter, as an expansion into new categories is luring a record number of monthly users who order more frequently.
• Efforts to improve logistics efficiency and a bigger contribution from advertising helped drive revenue up 27% in the quarter to $2.3 billion, slightly ahead of estimates for $2.24 billion.
• The efforts helped push monthly active users on the platform to an all-time high of more than 37 million at the end of the year, and a year-over-year increase in the average order frequency, according to the company.
• DoorDash is also seeing more people join its subscription offers, with members on DashPass and Wolt+ up about 20% to more than 18 million.
• Total orders increased 23% to 574 million in the three months ended Dec. 31, the company said in a statement Thursday, exceeding the average analyst estimate of 561.8 million.
• The gross value of those orders — a key metric for online delivery firms — jumped 22% to $17.6 billion, also beating Wall Street’s estimate.
• It also helped significantly narrow the net loss to $156 million from $642 million a year earlier.
• For the current period, DoorDash is forecasting gross order value of $18.5 billion to $18.9 billion, with the mid-point coming above the average analyst estimate of $18.6 billion.
• Adjusted EBITDA is expected to be $320 million and $380 million, slightly below expectations of $360.3 million at the mid-point.

Trade Desk shares soar on revenue beat and strong guidance – CNBC, 2/16/2024

• Shares of The Trade Desk jumped on Thursday after the advertising technology company issued strong first-quarter guidance and beat on revenue.
• Revenue: $606 million vs. $582 million expected by LSEG.
• Earnings per share: 41 cents, adjusted vs. 43 cents expected by LSEG, formerly known as Refinitiv.
• The Trade Desk said first-quarter sales will be at least $478 million, topping analyst estimates of $452 million, according to LSEG.
• The company said its board has approved an additional $647 million in share repurchases, bringing the total amount of future buybacks to $700 million.
• Repurchases totaled $220 million in the fourth quarter.

Dropbox Stock Drops on Weak Guidance, Concerns Over Slowing Growth – Market Watch, 2/16/2024

• Shares of Dropbox fell about 16% in Friday trading after the software company issued soft revenue guidance, citing pressure on paying user growth.
• Chief Financial Officer Tim Regan told analysts Thursday evening on a conference call that the company is targeting 2024 revenue of $2.535 billion to $2.55 billion, below the $2.57 billion that analysts surveyed by FactSet expected.
• The company also guided for 2024 free cash flow of $910 million to $950 million, short of the company’s long-term target of roughly $970 million.

DraftKings posts 44% revenue growth and narrowing losses, but falls short of estimates – CNBC, 2/16/2024

• DraftKings on Thursday posted quarterly results that missed Wall Street estimates on the top and bottom line, but it increased its revenue by 44%.
• Revenue: $1.23 billion vs. $1.24 billion expected.
• DraftKings garnered 3.5 million average “monthly unique payers,” a 37% increase from the same period in 2022.
• The company’s average revenue per MUP saw a 6% boost in the fourth quarter compared to the previous year.
• Loss per share: 10 cents vs. expected profit of 8 cents.
• DraftKings also announced after the bell Thursday that it plans to acquire lottery app Jackpocket for approximately $750 million.
• For 2024, the company is increasing its fiscal year guidance to between $410 million and $510 million compared to its prior guidance of between $350 million and $450 million.
• That excludes the company’s estimated impact due to its planned acquisition of Jackpocket.

Toast to Cut About 550 Employees in Restructuring – Wall Street Journal, 2/16/2024

• Toast said it will cut about 550 employees in a restructuring meant to slash expenses.
• The company is expecting $45 million to $55 million in charges linked to the plan, mostly related to severance and facility costs.
• The workforce reduction at Toast comes as the company reports a loss of $36 million, or 7 cents a share, in the quarter ended Dec. 31.
• Toast reported a loss of $99 million, or 19 cents a share, a year earlier, and analysts polled by FactSet were expecting an 11-cent loss per share.

Apple Readies AI Tool to Rival Microsoft’s GitHub Copilot – Bloomberg, 2/16/2024

• Apple, racing to add more artificial intelligence capabilities, is nearing the completion of a critical new software tool for app developers that would step up competition with Microsoft.
• The company has been working on the tool for the last year as part of the next major version of Xcode, Apple’s flagship programming software.
• It has now expanded testing of the features internally and has ramped up development ahead of a plan to release it to third-party software makers as early as this year, according to people with knowledge of the matter.
• The new system will operate similarly to Microsoft’s GitHub Copilot and use artificial intelligence to predict and complete blocks of code, said the people, who asked not to be identified because the plans are private.
• That simplifies the programming process for software development, potentially saving time and money.

Disney-Fox-Warner Streaming Deal Faces DOJ Antitrust Review – Bloomberg, 2/16/2024

• The Justice Department plans to scrutinize the new streaming service proposed by Walt Disney, Fox and Warner Bros. over concerns it could harm consumers, media rivals and sports leagues.
• Regulators will look at terms of the joint venture once it is finalized, according to two people familiar with the process.
• The companies haven’t been notified of the impending review and it may not lead to any action, said the people, who asked not to be identified discussing a confidential review.
• The companies’ say they aim to draw in viewers who don’t subscribe to a pay-television bundle — and offer them sports programming available on traditional cable packages.
• The deal, however, has already drawn objections from smaller cable providers and at least one Internet TV service that complains it will ultimately drive up prices.

Nike to Lay Off More Than 1,600 Workers – Wall Street Journal, 2/16/2024

• Nike on Thursday said that it will reduce its workforce by about 2%, or more than 1,600 people, in a bid to cut costs.
• Nike Chief Executive John Donahoe said the company is using its resources to increase investment in categories like running, women’s apparel and the Jordan brand, according to an employee memo reviewed by The Wall Street Journal.
• The cuts aren’t expected to affect employees in stores and distribution centers or those in its innovation team.
• The job cuts are expected to start Friday and a second phase will be complete by the end of the quarter, the memo said.

US ECONOMY & POLITICS

US Producer Prices Increased by More Than Forecast in January – Bloomberg, 2/16/2024

• Prices paid to US producers rose in January by more than forecast, fueled by a sizable jump in costs of services and highlighting the sticky nature of inflation.
• The producer price index for final demand increased 0.3% from December, Labor Department data showed Friday.
• The gauge rose 0.9% from a year earlier, also exceeding forecasts.
• The so-called core PPI, which excludes volatile food and energy categories, climbed 0.5% from the prior month, and 2% from a year ago — both topping expectations.

• Services costs increased 0.6%, the most since July.
• Prices paid to producers for goods dropped 0.2%, the fourth-straight decrease.
• Stripping out food, energy and trade services, which is an even-less-volatile PPI measure, prices also increased 0.6% — the biggest monthly advance in a year.
• Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell for a fourth month in January on a decrease in energy.
• Excluding food and energy, processed goods for intermediate demand climbed 0.3%, the most since May 2022.

US New-Home Construction Plunges by Most Since April 2020 – Bloomberg, 2/16/2024

• US new-home construction sank at the start of the year by the most since the onset of the pandemic, indicating the recovery in the housing market will be gradual as many buyers await a further decline in mortgage rates.
• Residential starts decreased 14.8% last month to a 1.3 million annualized rate, after an upward revision to the prior month, government data showed Friday.
• Multifamily home construction plummeted by more than 35% after surging in the prior month, while single-family groundbreakings also slowed.
• The headline figure — which was lower than all estimates in a Bloomberg survey of economists — was the slowest pace in five months.
• Building permits, a proxy for future construction, decreased to a 1.5 million rate. Permits for one-family homes edged higher after rising consistently throughout 2023, and multifamily authorizations fell 7.9%, the most since September.
• The government’s report showed housing starts fell in all four of the nation’s regions, led by the Midwest and Northeast.
• The number of single-family homes completed plunged to the lowest level since May 2020.

US Consumer Sentiment Increases for a Third Straight Month – Bloomberg, 2/16/2024

• US consumer sentiment improved for a third month in February as Americans grew more optimistic about the outlook for the economy and inflation.
• The sentiment index edged up 0.6 point to 79.6, the highest since July 2021, according to the preliminary February reading from the University of Michigan.
• The median estimate in a Bloomberg survey of economists called for a reading of 80.
• Consumers expect prices will climb at an annual rate of 3% over the next year, up from the 2.9% expected in January but close to levels seen in early 2021, the Friday data showed.
• They see costs rising 3% over the next 5 to 10 years.
• Government data out earlier Friday showed wholesale prices climbed in January by more than forecast on higher services costs.
• A measure of expectations rose to 78.4 this month, the highest since July 2021.
• Meanwhile, the current conditions gauge edged down to 81.5.
• Buying conditions for durable goods eased but remained above year-ago levels.

Fed’s Barr Says Regulators Are Eyeing Commercial Real Estate Risk – Bloomberg, 2/16/2024

• US regulators are “closely focused” on risks in commercial real estate loans, and have stepped up downgrades of supervisory ratings on lenders amid new strains on their finances, according to the Federal Reserve’s chief bank watchdog.
• Supervisors are looking at what banks are doing to mitigate potential losses, how they are reporting risks to their boards and senior management, and whether they have enough reserves and capital to handle CRE loan losses, said Michael Barr, the Fed’s vice chair for supervision, in prepared remarks Friday at Columbia University in New York.
• “For a small number of banks with a risk profile that could result in funding pressures for the firm, supervisors are continuously monitoring these firms,” Barr said.
• “Because of the heightened risk environment and heightened supervisory attention, the Federal Reserve has issued more supervisory findings and downgraded firms’ supervisory ratings at a higher rate in the past year,” Barr said in his remarks.
• “In addition, we have increased our issuance of enforcement actions.”
• Barr said the Fed is looking to improve the speed, force and agility of its oversight to match the risks, size and complexity of the banks it’s supervising.
• Meanwhile, he said, as a regional bank gets bigger and more complex, there’s an expectation that its managers should also scale up their ability to manage the firm’s risk along the way.
• “The goal is that the transition to heightened supervision for fast-growing banks is more of a gradual slope and not a cliff,” he said.

EUROPE & WORLD

Alexei Navalny, the Kremlin’s Most Ardent Critic, Dies in Prison – Wall Street Journal, 2/16/2024

• Russia’s Alexei Navalny, a fierce anticorruption campaigner who galvanized the country’s political opposition, has died in prison, Russian news agencies reported Friday.
• The cause of his death was still being established, said prison authorities, cited by Russian news agency TASS.
• Navalny had been serving sentences in a penal colony amounting to more than 30 years on various charges.
• He was 47 years old.
• A statement from the prison authorities said that he had felt unwell following a walk outside and lost consciousness.
• The statement said a medical team was called on site but was unable to save him.

China Holiday Travel Surge Hints at Consumer Spending Pickup – Bloomberg, 2/16/2024

• A resurgence in travel over China’s Lunar New Year holiday is offering some signs of a consumer spending pickup in the world’s second-largest economy as it struggles with low confidence and deflation.
• More than 61 million rail trips were made in the first six days of the national new year holiday, according to official reports.
• That was the highest in data compiled by Bloomberg News in the last five years, and it marked a 61% increase over the same vacation period in 2023.
• Some initial data on road and air trips during the holiday also showed improvement over last year, Chinese state media reported.
• Hotel sales on Chinese e-commerce platforms surged more than 60% from a year earlier, according to media reports citing the Ministry of Commerce.
• Just ahead of the holiday, Shanghai reported some 8.8 million tourists, up more than 50% year-on-year, according to state broadcaster China Central Television.
• The average daily consumer spending on Meituan’s online platforms during the holiday period jumped some 36% from the same period last year, according to a report from the delivery giant.
• Chinese cinemas took in 4.48 billion yuan in the first four days of the eight-day vacation period — down about 2% from last year, according to Bloomberg calculations based on data from Maoyan Entertainment.

To Avoid Hefty Tariffs, China’s BYD Eyes U.S. Car Market Via Mexico – Wall Street Journal, 2/16/2024

• Chinese automaker BYD has set its sights on Mexico as its quest for global expansion turns toward North America.
• The Shenzhen-based car company, whose rapid growth has made it one of the world’s largest electric-vehicle sellers, is scouting locations in the country for a factory, from which it would consider exporting cars to the U.S., according to people familiar with the matter.
• The plans show rising enthusiasm within China’s car industry for expansion to North America, despite the political risks.
• Building cars in Mexico for the U.S. would allow the automakers to avoid hefty import tariffs that would be applied if they were to send them directly from China.

Netanyahu Pushes Back Against Pressure to End War After Call With Biden – Wall Street Journal, 2/16/2024

• Israeli Prime Minister Benjamin Netanyahu pushed back against growing international pressure to bring the four-month-old war in the Gaza Strip to an end as Palestinian doctors in the embattled enclave struggled to save patients in a major hospital that was raided by the Israeli military.
• After speaking by phone with President Biden, Netanyahu said Friday that he is opposed to proposals being discussed in world capitals to officially recognize a Palestinian state as part of a coordinated diplomatic effort to end the war—a move that would give Palestinian leaders a long-sought symbolic victory.
• Netanyahu said any such effort would be seen as a reward for Hamas militants who carried out the Oct. 7 attack on Israel that his government says killed around 1,200 people in the most deadly such assault in the nation’s history.
• “Israel will continue to oppose the unilateral recognition of a Palestinian state,” Netanyahu wrote on X.
• “We will fight until complete victory and this includes a powerful action also in Rafah after we allow the civilian population to leave the battle zones,” he said on X.

Egypt Builds Walled Enclosure on Border as Israeli Offensive Looms – Wall Street Journal, 2/16/2024

• Egyptian authorities, fearful that an Israeli military push further into southern Gaza will set off a flood of refugees, are building an 8-square-mile walled enclosure in the Sinai Desert near the border, according to Egyptian officials and security analysts.
• For weeks, Egypt has sought to bolster security along the frontier to keep Palestinians out, deploying soldiers and armored vehicles and reinforcing fences.
• The massive new compound is part of contingency plans if large numbers of Gazans do manage to get in.
• More than 100,000 people could be accommodated in the camp, Egyptian officials said.
• It is surrounded by concrete walls and far from any Egyptian settlements.
• Large numbers of tents, as yet unassembled, have been delivered to the site, these people said.

Hezbollah Vows to Escalate Israel Fight After Civilian Attacks – Bloomberg, 2/16/2024

• The leader of Hezbollah, the Iran-backed militia, said it would escalate its fight against Israel following a worsening spate of attacks between the two sides this week.
• Hassan Nasrallah said the group, based in Lebanon, would retaliate against Israel targeting its positions and killing civilians in recent days.
• Hezbollah will hit “not just army sites,” he said in a speech on Friday.
• “The enemy will pay the price of spilling the blood of our people with blood,” he said in a speech broadcast on Hezbollah’s Al-Manar TV.
• Hezbollah “continues to threaten our communities,” Defense Minister Yoav Gallant said on Friday.
• “We will ensure security and bring our citizens home – via diplomacy or military means,” he said, referring to ensuring people can return to their evacuated homes.

NatWest Shares Rise After Results Beat Despite Mixed Outlook – Wall Street Journal, 2/16/2024

• NatWest shares rose after the British lender posted a fourth-quarter print that beat expectations, but said it expects income to decline this year as higher interest rates—which boosted its top line in 2023—start to taper off.
• This follows bumper revenue of GBP14.75 billion in 2023 driven by interest income, which surpassed expectations of GBP14.60 billion.
• For 2023, it posted a bank net interest margin of 3.04% in line with views, with a continuing declining margin at 2.86% for the last three months of the year.
• For the quarter ended Dec. 31, the group reported total income of GBP3.54 billion, ahead of the GBP3.38 billion forecast by analysts.
• Net interest income slipped compared with the previous quarter to GBP2.64 billion against consensus’ expected GBP2.59 billion.
• Pretax profit for the quarter was GBP1.26 billion, beating estimates of GBP1.02 billion.
• NatWest’s common equity Tier 1 ratio—a key measure of balance-sheet strength—stood at 13.4% at Dec. 31, in line with expectations.
• The bank said it sees total income excluding notable items in 2024 coming in between 13.0 billion and 13.5 billion pounds ($16.38 billion-$17.01 billion), below estimates taken from a company-compiled consensus which see GBP13.765 billion.
• The bank also guided for a return on tangible equity—a key measure of profitability—of around 12% for 2024, after reporting 17.8% for 2023, and sees this at more than 13% for 2026.
• The guidance is below its previous mid-term 13% to 14% target, likely providing the market with another source of disappointment.

Factmonster – TODAY in HISTORY

• Lithuania proclaimed its independence from Russia. – 1918
• The tomb of King Tutankhamen, discovered in 1922, was opened. – 1923
• Nylon was patented. – 1937
• Fidel Castro became the leader of Cuba after having ousted the right-wing dictator Fulgencio Batista. – 1959
• The country’s first 911 phone system went into service in Haleyville, Ala. – 1968
• Turkish commandos captured Kurdish rebel leader Abdullah Ocalan in Kenya, sparking seizures of embassies in Europe by Kurds.

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