US FINANCIAL MARKET
Fed Swaps Show Another Hike in ‘Coin Toss’ Zone: Markets Wrap – Bloomberg, 10/12/2023
- Treasury yields climbed and stocks edged lower as consumer inflation data bolstered speculation on another Federal Reserve rate hike — even if the central bank decides to pause next month.
- The S&P 500 halted a four-day advance.
- The S&P 500 fell 0.2%. The Nasdaq 100 was little changed. The Dow Jones Industrial Average fell 0.3%.
- Two-year yields, which are more sensitive to imminent Fed moves, rose eight basis points to 5.1%.
- The yield on 10-year Treasuries advanced eight basis points to 4.64%.
- The dollar advanced. The Bloomberg Dollar Spot Index rose 0.4%.
- Swap contracts linked to future Fed rate decisions pushed the odds of another quarter-point hike back to about 50% — from closer to 30% on Wednesday — and expectations for the first rate cut shifted toward July from the June meeting.
- The so-called core consumer price index, which excludes food and energy costs, increased 0.3% last month.
- From a year ago, it increased 4.1%, the lowest since 2021.
- Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI.
- That measure climbed 0.4%, boosted by energy costs.
- Forecasters had called for a 0.3% monthly advance in both the overall and core measures.
- Oil climbed after OPEC+ leaders Saudi Arabia and Russia reaffirmed their close cooperation in the crude market with a public show of unity, and traders monitored events in Israel and Gaza.
- West Texas Intermediate crude rose 1.4% to $84.64 a barrel.
- Delta Air Lines quarterly earnings beat analysts’ estimates, but the carrier cut the high end of its outlook for 2023 profit on rising fuel prices and larger-than-expected aircraft maintenance costs.
- Walgreens Boots Alliance prepared for the arrival of its new chief executive officer with a $1 billion cost-cutting program while it issued 2024 profit guidance shy of Wall Street estimates.
- Ford Motor became the latest strike target for the United Auto Workers after members walked out of its largest plant, a highly profitable pickup factory in Kentucky.
- Domino’s Pizza reported revenue for the third quarter that missed the average analyst estimate.
- The Stoxx Europe 600 rose 0.2%.
- Gold futures were little changed.
Delta Air Lines profit jumps almost 60% after strong summer – CNBC, 10/12/2023
- Delta Air Lines’ profit rose nearly 60% in the third quarter as strong travel demand continued through the summer, particularly for international trips, though the carrier forecast full-year earnings toward the low end of an earlier estimate after a jump in fuel prices.
- Adjusted revenue: $14.55 billion vs. $14.56 billion expected.
- Delta’s planes flew 88% full in the quarter, up 1 percentage point from the year-earlier period, despite additional capacity both domestically and internationally.
- Unit revenue from passengers fell 1.5%, year over year.
- Main cabin revenue came in at $6.62 billion, up 12% on the year, while premium product sales rose 17% to $5.11 billion, Delta said.
- Adjusted earnings per share: $2.03 cents vs. $1.95 expected.
- Delta said that it expects solid travel demand in the last three months of the year, estimating revenue will rise 9% to 12% from the same quarter of 2022, with per-share earnings of $1.05 to $1.30, in line with estimates.
- In its quarterly report Thursday, Delta said it expects adjusted, full-year earnings of $6 to $6.25 a share, after forecasting $6 to $7 a share in July.
- Delta cut its free cash flow estimate for the year to $2 billion from the $3 billion it forecast in the summer.
Walgreens stock rises as cost cuts make progress, even as profit outlook comes up short – CNBC, 10/12/2023
- Walgreens on Thursday offered soft profit guidance and reported fiscal fourth-quarter earnings that fell short of expectations, as demand for Covid vaccines and tests sinks in the U.S.
- Walgreens booked sales of $35.42 billion in the quarter, which is up roughly 9% from the same period a year ago due to growth in its U.S. retail pharmacy and international business segments.
- Walgreens’ U.S. retail pharmacy segment generated $27.66 billion in sales in the fiscal fourth quarter, an increase of 3.7% from the same period last year.
- Comparable sales at individual locations rose 5.7%.
- Pharmacy sales for the quarter increased 6.4% compared with the fiscal fourth quarter of 2022, with comparable sales up more than 9% due to price inflation in brand medications and mix impacts.
- Total prescriptions filled in the quarter, including immunizations, decreased by 0.5% to 297 million.
- The company administered roughly 400,000 Covid vaccines in the quarter, down from 2.9 million during the same period last year, according to Mahajan.
- Retail sales for the quarter decreased 4.3% compared with the same period a year ago, and comparable retail sales fell 3.3%.
- Meanwhile, the company’s international segment racked up $5.78 billion in sales in the fiscal fourth quarter, which is up more than 12% from the same period a year ago.
- Mahajan said that reflects growth across all international markets, with sales from the company’s U.K. subsidiary, Boots, growing nearly 11%.
- The health-care segment took a loss of $30 million in the quarter before interest, tax, depreciation and amortization, compared to a loss of $133 million during the same period a year ago.
- Earnings per share: 67 cents adjusted vs. 69 cents expected.
- Walgreens also sees revenue for the year at $141 billion to $145 billion.
- Wall Street analysts estimated sales of more than $144 billion.
- The company said it expects adjusted earnings per share of $3.20 to $3.50 in the coming fiscal year, which is lower than analysts’ estimate of $3.72.
- Walgreens expects lower Covid-related sales, along with a higher tax rate and lower sale and leaseback contributions, to offset earnings growth.
Domino’s Pizza’s stock slides 2.6% after revenue falls short of estimates – Market Watch, 10/12/2023
- Domino’s Pizza’s stock slid in premarket trade Thursday, after the pizza chain posted weaker-than-expected revenue for the third quarter.
- Revenue fell to $1.027 billion from $1.069 billion a year ago.
- The company reported net income of $147.7 million for the quarter — or $4.18 a share — up from $100.5 million, or $2.79 a share, in the year-earlier period.
- The FactSet consensus was for EPS of $3.31 and revenue of $1.050 billion.
- Revenue was weighed down by lower supply chain revenue and lower U.S. company-owned store revenue.
- U.S. same-store sales fell 0.6%.
- The company said it now expects its 2023 global net store growth to trend at or slightly below the low end of its 5% to 7% two- to three-year target.
- It expects full-year global retail sales growth, excluding any impact from foreign currency, to be “modestly” below the mid-point of its 4% to 8% two- to three-year outlook.
UAW Strikes at Ford Pickup-Truck Plant in Kentucky – Wall Street Journal, 10/12/2023
- The United Auto Workers union went on strike at a Ford Motor pickup-truck plant in Kentucky Wednesday evening, escalating its nearly four-week labor action by hitting the automaker’s largest factory.
- The plant’s 8,700 workers walked off the job at 6:30 p.m., marking the largest strike action taken by the UAW at any of the three Detroit automakers since the union declared a strike against Ford, General Motors and Chrysler-parent Stellantis in mid-September.
- The Louisville, Ky., factory makes Super Duty pickup trucks and the Ford Expedition and Lincoln Navigator large SUVs, among the company’s biggest moneymakers.
- “It’s time for a fair contract at Ford and the rest of the Big Three,” UAW President Shawn Fain said in a statement.
- “If they can’t understand that after four weeks, the 8,700 workers shutting down this extremely profitable plant will help them understand it.”
- Ford said in a statement: “The decision by the UAW to call a strike at Ford’s Kentucky Truck Plant is grossly irresponsible but unsurprising given the union leadership’s stated strategy.”
Hollywood Studios Suspend Talks With Actors – Wall Street Journal, 10/12/2023
- Negotiations between Hollywood studios, streamers and striking actors stalled Wednesday after less than two weeks, dampening hopes that the industry could soon return to work.
- The coalition representing entertainment-industry companies including Netflix, Disney, Warner Bros. Discovery, Comcast’s NBCUniversal, Amazon and others said a new proposal from the Screen Actors Guild submitted Wednesday “would create an untenable economic burden.”
- The suspension of talks is a setback for an industry that has largely been on ice since May, when the Writers Guild of America went on strike.
- Many executives, creators and talent hoped the new deal forged between writers and studios at the end of September would lead to a speedy resolution of the actors’ strike.
- If an accord with the actors isn’t reached by the end of October, it will likely end studios’ chances of salvaging a 2023-24 television season and wreak havoc on movie and TV production and release schedules for the foreseeable future.
- Studios cited a viewership bonus that SAG is seeking as one reason talks broke down.
- The coalition of studios, streamers and networks said the actors union proposal would cost more than $800 million annually, “an untenable economic burden.”
Moody’s Sees Trouble for Over $1 Trillion of Maturing Junk Debt – Bloomberg, 10/12/2023
- US speculative-grade companies are facing heightened refinancing and default risks amid higher-for-longer interest rates and limited credit market access, according to Moody’s Investors Service.
- Junk-rated firms have $1.87 trillion of debt maturing between 2024 and 2028, an Oct. 12 report by the credit grader shows.
- That marks a 27% jump from the $1.47 trillion anticipated between 2023 and 2027 in last year’s study, wrote analysts including Botir Sharipov.
- “The increase – reflecting higher maturities for revolving credit facilities, loans and bonds – comes amid weak macroeconomic and credit conditions, raising companies’ refinancing and default risk,” noted the analysts.
- Moody’s expects the US speculative-grade default rate to peak at 5.6% in January 2024 before easing to 4.6% by August.
- Companies rated B2 and below — that is, five or more notches deep into junk territory — will have to deal with $206 billion of debt coming due in 2024 and 2025, Moody’s data shows.
- That figure swells to about $1.1 trillion over the period between 2024 and 2028.
- Firms rated B3 and B2, several of which are private equity-owned, struggled to refinance existing debt and issue fresh debt toward the end of 2022 and during 2023, according to Moody’s.
- Debt issued by these firms makes up 19% of maturities in 2024 and 2025, up from 16% due in the first two years of last year’s study, according to Moody’s.
US ECONOMY & POLITICS
US Consumer Prices Rise at Brisk Pace for Second Straight Month – Bloomberg, 10/12/2023
- US consumer prices advanced at a brisk pace for a second month, reinforcing the Federal Reserve’s intent to keep interest rates high and bring down inflation.
- The so-called core consumer price index, which excludes food and energy costs, increased 0.3% in September, Bureau of Labor Statistics data showed Thursday.
- Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI.
- That measure climbed 0.4%, boosted by energy costs.
- The advance reflected increases in housing costs, car insurance and recreational services like tickets for sporting events.
- Used cars fell by the most since early this year, and motor vehicle parts declined by the most on record.
- Shelter prices, which make up about a third of the overall CPI index, accounted for over half of the increase in the monthly advance and were boosted by the biggest jump in hotel stays in two years.
- A key measure of housing costs accelerated at the fastest pace since February.
- Looking ahead, a sustained moderation in this category is essential for the downward trajectory of core inflation.
- Excluding housing and energy, services prices climbed 0.6% from August, the most in a year, according to Bloomberg calculations.
- So-called core goods prices, which exclude food and energy commodities, fell 0.4%, matching the biggest drop since early in the pandemic, according to the CPI data.
Jobless claims stay below 210,000 for fourth straight week – Market Watch, 10/12/2023
- Initial jobless claims were flat at 209,000 in the week ended Oct. 12, the Labor Department said Thursday.
- Economists polled by The Wall Street Journal had estimated new claims would rise 3,000 to 210,000.
- Last week claims rose a revised 4,000 to 209,000.
- That compared with the initial estimate of an increase of 2,000 to 207,000.
- Claims have been below 210,000 for four straight weeks.
- The number of people already collecting jobless benefits in the week ended Oct. 5 rose by 30,000 to 1.72 million.
Mapping Inflation in the US – Bloomberg, 10/12/2023
- Price stability is being achieved much more rapidly in New England than elsewhere in the US.
- The annual pace of inflation was 2.5% in New England last month, the lowest for any US region, according to Bureau of Labor Statistics data published Thursday.
- By comparison, in the East South Central area, which includes Alabama, Kentucky, Mississippi and Tennessee, the headline annual rate rose 0.1 percentage point to 4.6%.
- From a year ago, overall US consumer prices increased 3.7%, up from a low of 3% in June.
Social Security cost-of-living adjustment will be 3.2% in 2024, well below this year’s record-setting increase – CNBC, 10/12/2023
- Social Security beneficiaries will see a 3.2% boost to their benefits in 2024, the Social Security Administration announced on Thursday.
- The annual cost-of-living adjustment for 2024 will affect more than 71 million Social Security and Supplemental Security Income beneficiaries.
- The change will result in an estimated Social Security retirement benefit increase of $50 per month, on average.
- The average monthly retirement benefit for workers will be $1,907, up from $1,848 this year, according to the Social Security Administration.
- Just how much of an increase retired beneficiaries will see in their Social Security checks will also depend on the size of the Medicare Part B premium for 2024, which has not yet been announced.
Steve Scalise Struggles to Build Support for House Speaker Post – Wall Street Journal, 10/12/2023
- House Republicans headed into another day of tussling over who to elect as House speaker, with their formal nominee, Majority Leader Steve Scalise (R., La.), facing the question Thursday of whether he will grind out a victory or get worn down by a band of dissenters blocking his rise.
- Scalise narrowly won the party’s nomination over Rep. Jim Jordan (R., Ohio) on Wednesday in a 113-99 vote, but the party didn’t immediately move to hold a vote on the House floor due to loud protests from Jordan supporters and a slim chance of success.
- A speaker needs to win a majority of the full House, and Scalise has little wiggle room in the 221-212 chamber, as all Democrats are expected to back their pick, Minority Leader Hakeem Jeffries of New York.
- House Republicans were planning to meet shortly after noon behind closed doors to try to regroup, one lawmaker said.
- The number of Scalise opponents is believed to stretch to as many as 20 members, beyond the dozen or so who have publicly rejected him.
EUROPE & WORLD
Israel Says 97 People Confirmed So Far as Taken Hostage to Gaza – Bloomberg, 10/12/2023
- Israel’s military said it has confirmed that at least 97 people were taken as hostages when Hamas attacked southern towns and communities on Saturday.
- Their families have been notified, Israel Defense Forces spokesperson Daniel Hagari told journalists on Thursday.
- He didn’t specify if the 97 are all Israeli or include foreigners, or whether the IDF knows they were alive when they were abducted.
- There’s speculation that Hamas and the other militants who carried out the attacks, which killed more than 1,200 Israelis, took some corpses so as to make Israel think the hostage toll was higher.
US Says It’s Stepping Up Enforcement of Russian Oil Price Cap – Bloomberg, 10/12/2023
- The US says it’s stepping up enforcement of the price cap on Russian oil in a new phase for the measure that was imposed by the Group of Seven Nations after the invasion of Ukraine.
- The cap is intended to keep the oil market stable while limiting the revenue Russia earns for its chief commodity by restricting western services to crude oil sold at $60 per barrel.
- The US Treasury Department sanctioned two companies and blocked two vessels accused of transporting Russian oil at prices above the cap.
- They are United Arab Emirates-based Lumber Marine, the registered owner of SCF Primorye, and Ice Pearl Navigation, the registered owner of the Yasa Golden Bosphorus.
- The Primorye is accused of carrying Novy Port crude priced above $75 per barrel from a port in the Russian Federation after the cap went into effect in December.
- The Golden Bosphorus carried ESPO crude priced above $80 per barrel after the cap took effect.
- Both vessels used US-based service providers while transporting the oil, Treasury said in a statement.
- A US official indicated there were currently no plans to lower the cap, as some European nations have suggested.
Israel Aims to Dismantle Hamas as Blinken Tries to Prevent Wider War – Wall Street Journal, 10/12/2023
- Israeli forces have embarked on a military campaign to dismantle Hamas, pounding Gaza with airstrikes, as Secretary of State Antony Blinken arrived in Israel Thursday for talks aimed at averting a wider regional conflict.
- Israel on Thursday gave the clearest indication so far of its war aims, with the military saying it plans to capture or kill all Hamas leaders, destroy the group’s militant units and make it impossible for the group, which the U.S., Israel and others have designated a terrorist organization, to govern Gaza.
- Israeli military spokesman Richard Hecht said overnight airstrikes targeted a Hamas unit that Israel says was responsible for the attack over the weekend that killed 1,300 Israelis.
- One of the Hamas operatives killed in the airstrikes was responsible for creating videos of the violence that spread over social media, Hecht said.
- “We plan to get to every one of these people—every single one of them,” Hecht said.
Ukraine’s Next Target: Russian Supply Lines – Wall Street Journal, 10/12/2023
- Alongside Ukraine’s assault on Russian front lines, the country is conducting a second—and potentially more critical—campaign: destroying enemy command centers, ammunition depots and logistics lines that Moscow relies on to keep fighting.
- Even as Kyiv’s soldiers fight to crack open Russian defenses in the country’s south and east, they are using Western-supplied munitions to target Russian supplies that sit beyond the front lines.
- In doing so, Ukraine hopes to boost its chance of weakening Russian forces enough to slice through occupation forces.
- Hitting those battlefield essentials depends on Ukraine’s ground troops advancing sufficiently to put Russian equipment within striking range.
- Soon, Ukraine may have a new, longer-range weapon with which to target more distant Russian logistics lines.
- President Biden recently told Ukrainian President Volodymyr Zelensky that the U.S. would provide a limited number of ATACMS ground-launched ballistic missiles, which can strike between 100 and 190 miles away, depending on the model.
Chinese EV Suppliers Plan Side Doors Into U.S. Market – Wall Street Journal, 10/12/2023
- Chinese battery companies critical to electric vehicles are pursuing deals with U.S. free-trade partners South Korea and Morocco, seeking to tap growing demand in America and bypass rules aimed at shutting them out of the market.
- Chinese businesses that supply raw materials to make EV batteries have announced at least nine joint ventures and investments worth more than $4.5 billion in South Korea this year, according to a Wall Street Journal review of stock exchange filings.
- At least four Chinese firms said they plan to build plants in Morocco producing battery-related products.
- Morocco sits on over 70% of the world’s known phosphate reserve, a raw material key to EV batteries.
- By working out of the two countries, the Chinese suppliers hope to supply car and battery makers eligible for incentives doled out by the $430 billion Inflation Reduction Act, which rewards businesses that source materials domestically or from free-trade partners.
- Analysts say Chinese suppliers hope such joint ventures will allow customers to continue sourcing from them and still access incentives, which offsets more than one-tenth the cost of an average EV.
Factmonster – TODAY in HISTORY
- Columbus landed in present-day Bahamas. – 1492
- Soviet premier Nikita Krushchev created a disturbance at the U.N. General Assembly by pounding his desk with his shoe. – 1960
- The Soviets launched Voskhod I, the first space capsule to carry three people into orbit. – 1964
- 17 U.S. sailors killed with the terrorist attack on the USS Cole in Yemen. – 2000
- A bomb destroyed a nightclub in Bali, killing 202, mostly tourists. – 2002
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