US FINANCIAL MARKET
Traders Boost Bets on November Fed-Hike After ISM: Markets Wrap – Bloomberg, 9/6/2023
- Stocks fell, while Treasury yields rose after a stronger-than-estimated reading on the US services industry bolstered speculation the Federal Reserve will keep interest rates higher for longer.
- The S&P 500 extended its drop below 4,500, while the Nasdaq 100 was down about 1% — with Tesla and Nvidia leading a selloff in big tech.
- The S&P 500 fell 0.7%. The Dow Jones Industrial Average fell 0.4%.
- Treasury two-year yields hit 5%. The dollar was little changed — after hitting the highest since March, prompting Japan and China to step up efforts to defend their currencies.
- Swap contracts showed bets on a Fed hike in November climbing to 60% from about 50%.
- The Institute for Supply Management’s services index rose to a six-month high in August — hitting 54.5.
- Financial institutions, including several foreign banks, are leading at least 10 companies tapping the US investment-grade primary market Wednesday — one day after both volume and deal count hit yearly highs.
- Fed Bank of Boston President Susan Collins said policymakers will need to be patient as they assess economic data to figure out their next steps and that further tightening may still be required, based on what the trends show.
- Collins also said she expects the central bank will “need to hold rates at restrictive levels for some time.”
- While demand is moderating, it continues to outpace supply, adding to price pressures.
- United Airlines Holdings and Southwest Airlines fell after cautioning of unexpectedly strong increases this quarter in the price of jet fuel, one of the industry’s largest expenses.
- Roku, the maker of set-top boxes consumers use to watch Netflix and other streaming services, jumped after announcing plans to cut about 10% of its workforce, consolidate office space and review its content portfolio.
- The Stoxx Europe 600 fell 0.5%.
- The Bloomberg Dollar Spot Index rose 0.2%.
- The yield on 10-year Treasuries advanced two basis points to 4.28%.
- West Texas Intermediate crude was little changed.
- Gold futures fell 0.4% to $1,943.90 an ounce.
Zscaler stock falls as execs focus on ‘challenging’ environment after beat-and-raise earnings – Market Watch, 9/6/2023
- Zscaler’s shares swung to a loss in the extended session Tuesday after the cybersecurity company’s strong quarter and outlook topped Wall Street’s expectations but executives said deals were taking longer to close in the current business environment.
- Revenue rose to $455 million from $318.1 million in the year-ago quarter as billings grew 38% to $719.3 million.
- Adjusted net income, which excludes stock-based compensation and other items, was 64 cents a share, compared with 25 cents a share in the year-ago period.
- The company had forecast adjusted earnings of about 49 cents a share on revenue of $429 million to $431 million, while analysts surveyed by FactSet had estimated 49 cents a share on revenue of $430.4 million and billings of $657.5 million for the quarter.
- The company forecast adjusted earnings of about 48 cents to 49 cents a share on revenue of $472 million to $474 million for the fiscal first quarter.
- Analysts surveyed by FactSet had estimated 45 cents a share on revenue of $464.8 million and billings of $434.1 million for the quarter.
- Zscaler forecast full-year earnings of $2.20 to $2.25 a share on revenue of $2.05 billion to $2.07 billion and billings of $2.52 billion to $2.56 billion.
- Analysts had forecast $2.11 a share on revenue of $2.05 billion and billings of $2.47 billion.
Lockheed Martin trims F-35 jet delivery outlook – Reuters, 9/6/2023
- U.S. weapons maker Lockheed Martin on Wednesday cut its delivery outlook for its F-35 jets, and delayed deliveries of its updated Technology Refresh 3 (TR-3) jets.
- Lockheed said in a filing it expects to deliver 97 aircraft in the year, down from its prior outlook of between 100 and 120 jets.
- Bethesda, Maryland-based Lockheed added it expects to deliver its first TR-3 jet between April and June next year.
- The company previously forecast deliveries of its first TR-3 jet to be in 2023.
- “The number of 2024 F-35 deliveries will depend on when the first TR-3 aircraft is delivered and the time needed to complete the customer’s acceptance process,” the company said.
- Lockheed added it is producing the jets at a rate of 156 per year and expects to continue at that pace while working to finalize TR-3 software development and testing.
Airlines warn about spike in fuel costs, Southwest narrows revenue outlook – CNBC, 9/6/2023
- Major U.S. airlines warned about a spike in jet fuel prices, adding to costs during the busy summer travel season.
- Jet fuel in Chicago, Houston, Los Angeles and New York averaged $3.18 a gallon on Tuesday after the Labor Day holiday weekend, up more than 30% compared with July 5, according to industry group Airlines for America.
- The higher cost forecasts come as Southwest Airlines narrowed its unit revenue outlook for the current quarter.
- The Dallas-based carrier said it expected unit revenue to fall 5% to 7% from last year in the three months ending Sept. 30.
- “While August 2023 close-in leisure bookings were on the lower-end of the Company’s expectations, modestly impacted by seasonal trends, overall leisure demand and yields continue to remain healthy,” the carrier said in a securities filing.
- Southwest said that it expects fuel to average $2.70 to $2.80 a gallon this quarter, up from its earlier estimate of up $2.55 to $2.65.
- It maintained its forecast for capacity to rise 12% from 2022.
- United Airlines maintained its revenue forecast, but said it expects fuel prices of as much as $3.05 for the quarter, up from its July estimate of no more than $2.80 a gallon.
- Alaska Airlines said higher fuel prices will eat into its pretax margin this quarter.
Roku Cutting 10% of Staff to Rein In Rising Expenses – Wall Street Journal, 9/6/2023
- Roku is reducing 10% of its workforce in a restructuring aimed at trimming the streaming platform’s rising expenses.
- The company, based in San Jose, Calif., also projected fiscal third-quarter results ahead of its prior guidance.
- In addition to job cuts, Roku on Wednesday said it plans to consolidate its office space, limit new hires and perform a strategic review of its content portfolio.
- Roku, which according to data from FactSet has about 3,600 employees, said it expects to book restructuring charges of $45 million to $65 million related to the job cuts, mostly in the third quarter.
- The company said it also expects to record impairment charges of $160 million to $200 million, related to ending the use of certain office facilities, and $55 million to $65 million related to removing select existing licensed and produced content from services on its TV streaming platform.
- The company said it now expects quarterly revenue of $835 million to $875 million, up from a late-July forecast of $815 million, and an adjusted EBITDA loss of $20 million to $40 million, compared with prior guidance of a $50 million deficit.
FTC Antitrust Suit Against Amazon Set for Later This Month After Meeting Fails to Resolve Impasse – Wall Street Journal, 9/6/2023
- Amazon.com officials haven’t offered concessions to the Federal Trade Commission in pursuit of a settlement over antitrust claims, paving the way for the regulator to file a lawsuit later this month, according to people familiar with the matter.
- Top members of Amazon’s legal team had a video call with FTC officials on Aug. 15.
- The so-called last-rites meeting, which is often a final step before a court battle, was a chance for the technology giant to make its case to the regulator to head off a possible lawsuit that officials have been working on for many months.
- During such meetings, companies have the opportunity to offer to pre-emptively change their business practices in order to avoid a lawsuit.
- But, Amazon’s lawyers didn’t offer specific concessions, the people said.
- The lawsuit will target a number of Amazon’s business practices, such as its Fulfillment by Amazon logistics program and pricing on Amazon.com by third-party sellers, some of the people said.
- The lawsuit will suggest that Amazon makes “structural remedies” that could lead to a break up of the company.
Elon Musk Borrowed $1 Billion From SpaceX in Same Month of Twitter Acquisition – Wall Street Journal, 9/6/2023
- Elon Musk tapped SpaceX, the rocket maker he oversees as chief executive, for a $1 billion loan around the time he was acquiring the social-media company formerly known as Twitter.
- The unusual loan is the latest example of how the world’s richest man has drummed up cash from his empire of companies without having to permanently part with shares, enabling him to raise funds for his wide array of endeavors.
- SpaceX approved the loan, which was backed by some of his SpaceX stock, in October, and Musk drew all of it down the same month, according to documents reviewed by The Wall Street Journal.
- He paid the loan back shortly after he borrowed the money, returning $1 billion with interest to SpaceX in November.
- Musk is by far SpaceX’s largest shareholder, controlling a 42% stake and almost 79% of its voting power as of March, according to a SpaceX filing with the Federal Communications Commission.
US ECONOMY & POLITICS
US Trade Deficit Widened by Less than Expected in July – Bloomberg, 9/6/2023
- The US trade deficit widened in July by less than forecast, reflecting an increase in exports of cars and services.
- The shortfall in goods and services trade grew to $65 billion from a revised $63.7 billion in the prior month, Commerce Department data showed Wednesday.
- The median estimate in a Bloomberg survey of economists called for a $68 billion deficit.
- The value of exports rose 1.6%, while imports increased 1.7%.
- Exports of industrial supplies and autos increased in the month.
- The advance in imports reflected a rise in consumer goods — largely cell phones and household goods — as well as capital equipment.
- Despite the monthly advance, exports are down 3.5% from a year earlier, constrained by tepid overseas demand.
- On an inflation-adjusted basis, the merchandise trade deficit widened to $88.4 billion in July.
- Travel exports — or spending by visitors to the US — increased 3.6% to the highest since the end of 2019.
- Travel imports — a measure of Americans traveling abroad — rose to for the first time since February.
- The US merchandise-trade deficit with China widened 5.4% to $24 billion.
US Service Gauge Rises to Six-Month High, Topping All Forecasts – Bloomberg, 9/6/2023
- US service sector activity rose to a six-month high in August, bolstered by a pickup in new orders and hiring.
- The Institute for Supply Management’s services index increased almost 2 points to 54.5, data showed Wednesday.
- Readings above 50 indicate expansion, and the figure topped all estimates in a Bloomberg survey of economists.
- Thirteen services industries reported growth in August, led by real estate, rental and leasing as well as accommodation and food services.
- Additional hiring also allowed firms to make progress on backlogged orders.
- Meanwhile, costs for materials and wages continued to accelerate in August, with the group’s prices-paid index rising to a four-month high.
- ISM’s gauge of new orders rose to a six-month high and a measure of business activity edged higher.
- Exports expanded at the fastest pace in nearly a year.
- The group’s inventory sentiment measure jumped to the highest since April 2020, which risks a cutback in orders placed with manufacturers or other service providers in coming months.
Pentagon Plans Vast AI Fleet to Counter China Threat – Wall Street Journal, 9/6/2023
- The Pentagon is considering the development of a vast network of AI-powered technology, drones and autonomous systems within the next two years to counter threats from China and other adversaries.
- Kathleen Hicks, the deputy secretary of defense, will provide new details in a speech later Wednesday about the department’s plans to spend hundreds of millions of dollars to develop an array of thousands of air-, land- and sea-based artificial-intelligence systems that are intended to be “small, smart, cheap.”
- The U.S. is seeking to keep pace with China’s rapidly expanding military amid concerns that the Pentagon bureaucracy takes too long to develop and deploy cutting-edge systems.
- “We’re not at war. We are not seeking to be at war, but we have to be able to get this department to move with that same kind of urgency because the PRC isn’t waiting,” Hicks said during an interview Tuesday, referring to the People’s Republic of China.
- One approach could be to build on the capabilities demonstrated by Task Force 59, the U.S. Navy’s network of drones and sensors designed to monitor Iran’s military activities in the Middle East.
Fed’s Collins says policymakers can ‘proceed cautiously’ on future rate hikes – CNBC, 9/6/2023
- Boston Federal Reserve President Susan Collins on Wednesday advocated a patient approach to policymaking while saying she needs more evidence to convince her that inflation has been tamed.
- In remarks that aligned with sentiment from other key central bankers, Collins said the Fed may be “near or even at the peak” for interest rates.
- “Overall, we are well positioned to proceed cautiously in this uncertain economic environment, recognizing the risks while remaining resolute and data-dependent, with the flexibility to adjust as conditions warrant,” Collins said in prepared remarks for a speech in Boston.
- In her speech, Collins also noted some good news on inflation, as the Fed’s preferred gauge rose just 0.2% in July while wage growth also seems to have slowed.
- However, she cautioned that “it is difficult to extract the signal from the noise in the data.”
- If the improvement is fleeting, “further tightening could be warranted,” she said.
- “There are promising developments, but given the continued strength in demand, my view is that it is just too early to take the recent improvements as evidence that inflation is on a sustained path back to 2%,” said Collins, who is a nonvoting member this year on the rate-setting Federal Open Market Committee.
- However, Collins said that Covid-related factors and the general strength of household and corporate balance sheets could lengthen those lags, calling for more caution on policy.
- “The goal is an orderly slowdown that better aligns demand with supply, which is essential to ensure that inflation is on a sustainable trajectory back to target,” she said.
EUROPE & WORLD
China Bans iPhone Use for Government Officials at Work – Wall Street Journal, 9/6/2023
- China ordered officials at central government agencies not to use Apple’s iPhones and other foreign-branded devices for work or bring them into the office, people familiar with the matter said.
- In recent weeks, staff were given the instructions by their superiors in workplace chat groups or meetings, the people said.
- The directive is the latest step in Beijing’s campaign to cut reliance on foreign technology and enhance cybersecurity, and comes amid a campaign to limit flows of sensitive information outside of China’s borders.
- The move by Beijing could have a chilling effect for foreign brands in China, including Apple.
- It wasn’t clear how widely the orders were being distributed, but similar messages were communicated to employees at some central government regulators.
Bank of Canada Holds Rates at 5%, Sees Excess Demand Easing – Bloomberg, 9/6/2023
- The Bank of Canada held interest rates steady, but kept the door open to further hikes as inflation proves sticky.
- Policymakers led by Governor Tiff Macklem kept the benchmark overnight lending rate at 5% on Wednesday, the highest level in 22 years.
- The move was expected by economists in a Bloomberg survey and marks the third time policymakers sat on the sidelines this tightening cycle.
- “With recent evidence that excess demand in the economy is easing, and given the lagged effects of monetary policy, governing council decided to hold,” the bank said.
- Officials, however, remain “concerned about the persistence of underlying inflationary pressures” and are “prepared to increase the policy rate further if needed.”
- Canada’s economy contracted in the second quarter, far below the bank’s estimate for a 1.5% annualized expansion.
- The labor market is loosening — job vacancies are falling and the unemployment rate continues to tick up — and the housing market has slowed.
- “The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures,” the bank said.
- “This reflected a marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country.”
- “The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.”
Russian Shelling Leaves 16 Dead in Ukraine Town North of Donetsk – Bloomberg, 9/6/2023
- Ukrainian President Volodymyr Zelenskiy said Russia shelled a market in a town north of Donetsk, killing at least 16 people in what may be one of the deadliest attacks against civilians in the past few months.
- The artillery shelling also left many wounded in Kostyantynivka, a town situated some 50 kilometers (31 miles) north of Donetsk, and the casualty count may rise, Zelenskiy said on Telegram on Wednesday.
- The attack took place in the Donetsk region in the country’s east, where Russian forces are trying to advance.
- Kyiv’s troops continue their counteroffensive in the south, aimed at cutting off Moscow’s land bridge to Crimea.
Toyota to Offer $170,000 Luxury Model to Select Few Outside Japan – Wall Street Journal, 9/6/2023
- Toyota thinks the world outside of Japan may finally be ready to embrace its six-figure superluxury flagship car.
- Toyota’s Century—often described as the Rolls-Royce of Japanese cars—is a frequent choice of corporate chieftains and government leaders in Japan, including the emperor.
- Since it made its debut in 1967, the Century has been sold almost exclusively in Japan and the model has changed little from its original boxy sedan shape and classic styling.
- Toyota on Wednesday showed off a new, larger, plug-in hybrid version of the model that “from the start had its eye on the world,” Executive Vice President Hiroki Nakajima said, speaking at the unveiling event in Tokyo.
- The new Century model will be introduced this year in Japan at a suggested retail price equivalent to around $170,000 and will be offered to customers in all regions of the world, Nakajima said.
- Toyota said select dealers in Japan would sell the model but didn’t describe sales procedures in other countries such as the U.S.
Blinken Visits Kyiv at Key Moment for War, Ukraine Ties – Wall Street Journal, 9/6/2023
- Secretary of State Antony Blinken signaled long-term support for Ukraine’s defense against Russia’s invasion during a visit here Wednesday, amid a slow-going counteroffensive and disquiet among some Republicans about the level of U.S. assistance for the country.
- “I’m here first and foremost to demonstrate our ongoing and determined support for Ukraine as it deals with this aggression,” Blinken said upon arriving in the capital Kyiv by train.
- The secretary of state is expected to use the unannounced visit to pledge more than $1 billion in additional aid for Ukraine as it attempts to push through Russia’s thick lines of defense and break into Russian-held territory.
- The commitment will be welcomed not just in Kyiv but in European capitals where leaders have doubted the U.S.’s staying power in Ukraine, fearing they could be left to shore up Ukrainian defenses without Washington’s significant support as the war drags into its 19th month.
China’s Top Chipmaker Appears to Have Violated Sanctions, US Congressman Says – Bloomberg, 9/6/2023
- China’s top chipmaker, Semiconductor Manufacturing International, “warrants investigation” as the company appears to have violated US sanctions by supplying components to Huawei Technologies, a US lawmaker said.
- “It sure looks like it did” violate sanctions, Congressman Michael McCaul said Wednesday at a briefing at the US embassy in the Hague.
- SMIC continues “to try to get our intellectual property.”
- Huawei uses an advanced 7-nanometer processor built by SMIC to power its latest smartphone, indicating that China is making headway in its push to produce cutting-edge semiconductors despite US sanctions.
- Existing rules require any company that intends to supply Huawei with any US technology, which is present throughout SMIC’s operations, to get approval from Washington.
- It’s unclear whether SMIC has a US license to supply Huawei.
Factmonster – TODAY in HISTORY
- President William McKinley was shot by anarchist Leon Czolgosz at the Pan American Exposition in Buffalo, N.Y. McKinley died on September 14th. – 1901
- Nazi Germany required all Jews over the age of six to wear a yellow Star of David on their clothes. – 1941
- More than 2 billion people watched Princess Diana’s funeral on TV. – 1997
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