US FINANCIAL MARKET
‘Fed-Friendly’ Data Lift Bonds as Stocks Struggle: Markets Wrap – Bloomberg, 11/16/2023
- Treasuries climbed after data underscored a gradual economic slowdown, reinforcing speculation the Federal Reserve will end its most-aggressive hiking campaign in decades.
- The S&P 500 fell 0.2%. The Nasdaq 100 fell 0.3%. The Dow Jones Industrial Average fell 0.3%.
- Two-year yields headed toward their lowest since August, down nine basis points to around 4.8%.
- The yield on 10-year Treasuries declined nine basis points to 4.44%.
- Following a torrid rally that sent the S&P 500 near “overbought” levels, the index struggled.
- As the earnings season draws to a close, traders remained focused on big-box retailers.
- Walmart slumped amid a cautious tone on the outlook for consumers, while Macy’s climbed on a profit beat.
- Cisco Systems sank after a bearish forecast.
- Oil extended declines amid swelling inventories.
- West Texas Intermediate crude fell 4.1% to $73.53 a barrel.
- Continuing applications for US unemployment benefits rose to the highest level in almost two years, underscoring the increasing challenges unemployed workers are facing in finding new jobs.
- Factory production fell by more than expected, largely reflecting a strike-related pullback in activity at automakers and parts suppliers.
- Homebuilder sentiment fell to the lowest level this year.
- Fed Bank of Cleveland President Loretta Mester said that while inflation has cooled, it’ll take time for it to fully return to the central bank’s 2% target.
- Mester, who doesn’t vote on policy decisions this year, said that there are many uncertainties to the economic outlook.
- The Stoxx Europe 600 fell 0.6%
- The Bloomberg Dollar Spot Index fell 0.2%.
- Spot gold rose 1.3% to $1,984.38 an ounce.
Walmart Stock Retreats on Wary Earnings Outlook for Year – Wall Street Journal, 11/16/2023
- Walmart’s stock fell as the global retailer issued a wary earnings outlook for the current year.
- The Bentonville, Ark.-based company raised its sales and earnings guidance for the full 12 months, but the per-share number mostly fell short of the average analyst estimate.
- Sales grew 5.2% to $160.8 billion. Analysts polled by FactSet expected $159.65 billion.
- U.S. comparable sales increased 4.9%, while e-commerce was up 24%, which it attributed to pickup and delivery.
- Excluding certain costs, the company had earnings of $1.53, a penny more than analysts expected.
- The company forecast sales to grow between 5% and 5.5% for the current year, up from its previous guidance of between 4% and 4.5%.
- Analysts were expecting 5.1%.
- Walmart guided for adjusted per-share earnings between $6.40 and $6.48 in fiscal 2024, up from its earlier view of $6.36 and $6.46.
- Analysts were expecting 6.48 a share.
- Chief Executive Doug McMillon said on a conference call that the company may be managing through deflation in coming months, and that it would need to further reduce expenses as prices fall.
Cisco Stock Drops After Company Cuts Sales Forecasts – Wall Street Journal, 11/16/2023
- Shares of Cisco Systems fell after the networking-equipment company slashed revenue forecasts.
- Revenue rose 7.6% to $14.67 billion, slightly beating Wall Street forecasts.
- Software-subscription sales rose rapidly and customers invested in generative AI, security and cloud services.
- Earnings climbed to $3.64 billion or 89 cents a share.
- The per-share figure, up from 65 cents a year earlier, beat consensus forecasts and management guidance.
- Cisco expects second-quarter revenue of up to $12.8 billion, undershooting analysts’ forecasts.
- Cisco now expects full-year revenue of $53.8 billion to $55 billion, down from an earlier range of $57 billion to $58.2 billion.
Macy’s Rises as Improved Inventory Drives Profit Beat – Bloomberg, 11/16/2023
- Macy’s reported third-quarter profit that beat expectations thanks to better inventory management, though same-store sales fell for a third straight quarter.
- The results underscore an emerging trend for retailers this quarter, which have reported improvements to profitability but have struggled to maintain the sales growth that powered them through the pandemic period.
- The same-store sales decline of 7% on an owned basis came in better than the 8.2% decline compiled by Consensus Metrix.
- Third-quarter same-store sales at the Macy’s namesake brand were down 7.6% on an owned basis in the third quarter, while sales at the higher-end Bloomingdale’s fell 3.2%.
- Bluemercury, which sells beauty and skin-care products that have been more resilient, rose 2.5%.
- The company said beauty and cosmetics performed well across all three nameplates in the third quarter, a category that Target also highlighted as an outperformer.
- Gross margin of 40.3% improved from a year ago thanks to fewer product promotions than prior periods.
- Adjusted earnings per share were 21 cents, compared with the average analyst estimate of 0 cents compiled by Bloomberg.
- For the full year, Macy’s now expects comparable sales to decline between 6% and 7% on an owned and licensed basis, and narrowed its adjusted earnings guidance to $2.88 to $3.13 a share.
Customers seek wiggle room to pay for cybersecurity, despite ‘unprecedented’ level of attacks, Palo Alto Networks says – Market Watch, 11/16/2023
- Shares of Palo Alto Networks slid after hours Wednesday after the cybersecurity company trimmed its full-year outlook for billings, as its customers seek more flexibility on cybersecurity spending.
- Revenue rose 20% year over year to $1.9 billion.
- Adjusted for one-time items, the company earned $1.38 a share.
- Analysts polled by FactSet expected the company to report adjusted earnings of $1.16 a share on sales of $1.84 billion.
- Palo Alto Networks also said it expected fiscal second-quarter billings in the range of $2.335 billion to $2.385 billion, below FactSet forecasts for $2.41 billion.
- It forecast second-quarter sales of $1.955 billion to $1.985 billion, with the midpoint in line with forecasts, and adjusted earnings per share of $1.29 to $1.31, above estimates for $1.25.
- Palo Alto Networks said it expected total billings of between $10.7 billion and $10.8 billion, compared with a forecast given in August for $10.9 billion to $11 billion. Management held to its full-year forecast for $8.15 billion to $8.20 billion in sales.
- But it raised its adjusted profit forecast to $5.40 to $5.53 a share.
TJX raises guidance again, says it expects a strong holiday as shoppers hunt for deals – CNBC, 11/16/2023
- TJX on Wednesday raised its full-year guidance and said it expects a strong holiday season after inflation-weary consumers drove another quarter of sales gains.
- Revenue: $13.27 billion vs. $13.09 billion expected.
- During the quarter, comparable store sales climbed 7% at Marmaxx, or the combination of T.J. Maxx and Marshall’s, and 9% at HomeGoods, both better than analysts had expected, according to StreetAccount.
- Analysts had expected comparable sales to be up 4% at Marmaxx and up 6% at HomeGoods.
- Earnings per share: $1.03 vs. 99 cents expected.
- It now expects comparable store sales to rise 4% to 5%, compared with previous guidance of up 3% to 4%, which is the range analysts had expected before quarterly results were announced, according to StreetAccount.
- TJX now anticipates earnings per share will be in the range of $3.71 to $3.74, compared with a previous range of $3.66 to $3.72.
- The raised profit guidance is in line with the $3.73 earnings per share that analysts had expected, according to LSEG.
Regulators Say Wells Fargo Isn’t Doing Enough to Police Customer Crimes – Wall Street Journal, 11/16/2023
- Wells Fargo is struggling with its regulatory obligation to monitor financial crime, the latest challenge in the bank’s yearslong effort to recover from a series of scandals.
- Regulators are pushing the bank in formal orders to improve how it catches criminals who are using its bank, according to people with knowledge of the matter.
- At the same time, the bank is facing a lawsuit claiming it allowed an alleged $490 million Ponzi scheme to operate.
- The regulators are focused on the bank’s broad consumer-watching systems, not any specific client or event, but the lawsuit’s allegations suggest what can go wrong when a bank’s monitoring systems fail.
- A Wells Fargo spokeswoman said the bank disputes the lawsuit’s allegations and has cooperated with law-enforcement officials in their investigation.
Amazon Says Prototype Internet Satellites Are Working as Planned – Bloomberg, 11/16/2023
- Amazon.com says the two prototype communications satellites it launched into space last month are functioning as designed, paving the way for the company to begin mass-producing devices that will power its internet-from-space venture.
- Amazon’s Project Kuiper teams recently completed the initial slate of tests on the two satellites, evaluating everything from flight computers and solar-power arrays to propulsion and radio transmission.
- The two prototypes, sent aloft Oct. 6 on a United Launch Alliance rocket, have demonstrated 4K video streaming and two-way video calls over the Kuiper network, among other milestones.
- Amazon will continue testing the satellites as it begins production of its first models designed for extended service, the company said in a blog post on Thursday.
- The company is anticipating “a rapid launch cadence” beginning next year ahead of the first trials of commercial service, though Amazon is relying mostly on new or experimental rockets that haven’t yet taken flight.
Meta Allows Ads Claiming Rigged 2020 Election on Facebook, Instagram – Wall Street Journal, 11/16/2023
- Meta Platforms will let political ads on Facebook and Instagram question the legitimacy of the 2020 U.S. presidential election, one of several changes the social-media company and other platforms have made to loosen constraints on campaign advertising for 2024.
- Meta made the change last year, but it hasn’t gained wide attention.
- The company decided to allow political advertisers to say past elections were “rigged” or “stolen” but prevented them from questioning the legitimacy of ongoing and coming elections.
- Executives at Meta made the decision based on free-speech considerations after weighing past U.S. elections in which the results might have been contested by a portion of the electorate, according to people familiar with the issue.
- The updated policy is part of a number of changes Meta has made that might fundamentally alter its influence and reach compared with in past elections, including a move to adjust its algorithm in a way that de-emphasizes organic political content on Facebook, the people said.
US ECONOMY & POLITICS
US Continuing Jobless Claims Rise to Highest in Almost Two Years – Bloomberg, 11/16/2023
- Continuing applications for US unemployment benefits rose to the highest level in almost two years, underscoring the increasing challenges unemployed workers are facing in finding new jobs.
- Recurring jobless claims, a proxy for the number of people continuously receiving unemployment benefits, jumped to 1.87 million in the week ended Nov. 4, according to Labor Department data out Thursday.
- Initial jobless claims also rose, to 231,000 in the week ending Nov. 11.
- Companies are now adding jobs at a slower pace, unemployment is rising and wage growth has decelerated, leading to some pullback in spending ahead of the holiday season.
- The four-week moving average of initial claims, which smooths out some of that volatility, rose to 220,250.
- On an unadjusted basis, initial claims also picked up, with Massachusetts and New York logging the biggest increases.
- Unadjusted continuing claims fell for the first time in four weeks, led by California and Michigan.
US Factory Production Falls as Strikes Drive 10% Plunge in Autos – Bloomberg, 11/16/2023
- US factory production fell in October by more than expected, largely reflecting a strike-related pullback in activity at automakers and parts suppliers.
- Output decreased 0.7% last month, the most in four months, weighed down by a 10% drop in motor-vehicle production, Federal Reserve data showed.
- Excluding autos, manufacturing rose 0.1%.
- Total industrial production, which includes mining and utilities, fell 0.6%.
- The UAW reached tentative agreements with management in late October, laying the groundwork for a rebound in factory output in November.
- The annualized rate of car assemblies dropped to 9.22 million units, the least since February 2022.
- Output of machinery, primary metals and furniture also declined, while gains in aerospace, computer and electronic products and petroleum helped offset that weakness.
- Thursday’s figures showed capacity utilization at factories, a measure of potential output being used, fell to 77.2%, the lowest level of the year. Overall utilization also declined.
- Utility output fell for a second month, while mining production increased.
- Meanwhile, the Fed’s index of defense and space equipment jumped 1.7%, to a fresh record high.
Fed Latest: Officials Call for Treasury Market Data Transparency – Bloomberg, 11/16/2023
- Senior officials at the Federal Reserve Bank of New York called for greater transparency and understanding of Treasury market data, following important steps in recent years to release more information about market transactions.
- A slew of central bank officials and other regulators are set to speak across the country on Thursday, including at the New York Fed’s ninth annual Treasury Market Conference, which this year will explore issues including market resilience, liquidity and the future of the Treasury cash market.
- “We must continue to work together to increase data transparency and understanding, so that we can have greater market confidence and make better decisions,” President John Williams said in prepared remarks.
- Separately, Michelle Neal, head of the New York Fed’s markets group, said greater transparency into Treasury market activity will support its many roles as a risk-free benchmark for financial instruments.
- Looking ahead, conference participants should consider whether to take additional steps toward increased transaction transparency across the Treasury universe, especially for less liquid segments of the market, such as off-the-runs, she said.
- “The off-the-run market was the center of much of the dash-for-cash selling of Treasuries that occurred in March 2020, yet there is little data on off-the-run trading available to the public, making it challenging for academics and others to study such stress events in detail,” Neal said.
- Cleveland Fed President Loretta Mester said that while inflation has cooled, it’ll take time for it to fully return to the central bank’s 2% target.
- “Inflation has been running well above the Fed’s goal for more than two years and while it’s still above our 2% goal, there’s been discernible progress on inflation even while the overall economy has remained relatively strong,” Mester said Thursday in opening remarks at the bank’s Financial Stability Conference.
- “It’s going to take some time to get inflation back down to 2%.”
Student Borrowers Tap a New Path to Loan Forgiveness: Bankruptcy – Market Watch, 11/16/2023
- More Americans are filing for bankruptcy to get rid of their student debt.
- The increase came after the Biden administration made it easier for student borrowers to apply for bankruptcy by overhauling its guidelines last November.
- The government now supports borrowers’ use of bankruptcy to eliminate student debt when they meet certain economic hardship conditions.
- That is a sharp change from the old, far more adversarial procedure that borrowers found confusing and intimidating.
- The application numbers remain extremely small, with just 632 borrowers using the new process from last November through September, according to Justice Department data released Thursday.
- The average annual rate of borrowers using bankruptcy to eliminate student loans was around 480 before the pandemic pause on federal student loan payments.
- The growth is notable because Americans weren’t required to make student-loan payments until last month.
Senate Approves Short-Term Spending Bill as Lawmakers Eschew Shutdown Politics – Wall Street Journal, 11/16/2023
- Congressional shutdown brinkmanship is taking a break, but it could be back with a vengeance soon.
- Faced with a government-funding deadline this weekend, House lawmakers of both parties agreed Tuesday to back a short-term Republican plan that extends the status quo until early next year, rather than stage another bare-knuckle fight now over spending and policy priorities.
- The far-less-pugnacious Senate followed Wednesday, approving the proposal 87 to 11. The bill now goes to President Biden for his signature.
- “No government shutdown, no cuts to vital programs, no poison pills. This is a great outcome for the American people,” said Senate Majority Leader Chuck Schumer (D., N.Y.) late Wednesday night.
- Crucially, conservatives—though largely opposed to the measure—were willing to let House Speaker Mike Johnson (R., La.) move it forward without threatening his job just three weeks into his tenure.
Biden Expected to Face Harsh Criticism in Classified-Document Probe – Wall Street Journal, 11/16/2023
- The prosecutor investigating why classified documents ended up at President Biden’s home and former office is preparing a report that is expected to be sharply critical of how he and his longtime aides handled the material, but the probe isn’t likely to result in a criminal case, according to people familiar with the matter.
- Since his appointment in January, Special Counsel Robert Hur has interviewed roughly 100 of Biden’s aides, colleagues and family members, including his son, Hunter, culminating in a two-day interview with the president last month.
- The documents in question date to Biden’s time as vice president during the Obama administration as well as his days in the U.S. Senate.
- The number of interviews Hur’s team has conducted indicates it cast a wide net in trying to answer questions about how the material was packed and handled and wound up at an office Biden used at the Penn Biden Center for Diplomacy and Global Engagement, a Washington-based think tank, and in the garage of his home in Wilmington, Del., alongside his vintage Corvette.
- Among those Hur spoke to were Secretary of State Antony Blinken, who was an aide to Biden in the Senate and his national security adviser when he was vice president; current White House national security adviser Jake Sullivan; top White House political aide Steve Ricchetti and Biden’s former chief of staff Ron Klain.
- The investigation has focused on who handled the documents and what procedures they followed in doing so, the people said.
EUROPE & WORLD
Alibaba Tumbles After Nixing Cloud Spinoff on US Chip Curbs – Bloomberg, 11/16/2023
- Alibaba Group Holding tumbled after it called off a spinoff of its giant cloud business as a result of tightened US curbs on advanced chips for China.
- The announcement stunned investors, sending shares down to a low of $78.23 as trading got underway in New York, and casting doubt on a historic overhaul laid out mere months ago.
- China’s e-commerce leader said it’s “reset” and decided not to pursue a plan to hive off and eventually list its cloud services division.
- Instead, it will focus on growing the unit organically and dole out its first-ever annual dividend of $2.5 billion, assuaging shareholders hoping for a big payout from the unit’s debut.
- The decision comes as Alibaba tries to stage a comeback from Covid and a tech-sector crackdown.
- It posted an 8.5% rise in sales to 224.79 billion yuan ($31 billion) in the September quarter, slightly exceeding average projections.
- It swung to a net profit of 27.7 billion yuan from a year-ago loss.
- Alibaba’s inaugural dividend payment of $2.5 billion, which works out to an implied yield of 1.1%, based on Nov. 15 market cap, may not be enough to offset the overhang from cloud revenue growth after Alibaba suspended plans to fully spin off the unit, as this suspension may hamper the ability to attract new clients.
Burberry shares sink 9% as luxury spending slowdown bites – CNBC, 11/16/2023
- Burberry shares plunged 9% on Thursday after the British luxury fashion retailer warned that full-year operating profit will come in at the low end of forecasts amid a global slowdown in luxury spending.
- The company also cautioned that it may miss its annual revenue projections for low double-digit growth.
- The Americas was also a particular problem for Burberry this quarter, with comparable store sales falling by 10%.
- In its fiscal second-quarter earnings report Thursday, Burberry reported that comparable store sales growth slowed to just 1%, down from 18% in the previous quarter, as momentum in China fizzled out.
- The company recorded a half-year operating profit of £223 million ($276.64 million), down 15% from last year, but CEO Jonathan Akeroyd said Burberry was making “good progress” on its strategic aims.
- “The slowdown in luxury demand globally is having an impact on current trading. If the weaker demand continues, we are unlikely to achieve our previously stated revenue guidance for FY24*,” Burberry said in its earnings report.
- “In this context, adjusted operating profit would be towards the lower end of the current consensus range (£552m-£668m)*.”
Siemens beats earnings forecasts, says sales growth to slow in 2024 – CNBC, 11/16/2023
- Siemens on Thursday posted a 10% rise in revenue growth for its fiscal fourth quarter to a record high of 21.4 billion euros ($23.2 billion), beating forecasts, but expects a slowdown in 2024.
- The German industrial conglomerate projects sales growth of 4-8% over the next 12 months, down from the 11% increase recorded for the 2023 fiscal year that ended in September, due primarily to a muted outlook for its industrial automation division.
- Industrial profit grew 7% to a record 3.4 billion euros in the fourth quarter, above a company-compiled forecast of 3.34 billion euros, to notch a record high of 11.4 billion euros for the year.
- Net income was 1.9 billion euros for the quarter, taking the full-year figure to a historic high of 8.5 billion euros, while free cash flow also notched a record 10 billion euros for the full year.
- Siemens proposed to increase its dividend from 4.25 euros per share a year earlier to 4.70 euros per share.
China’s Xi Draws Standing Ovation From U.S. Business Leaders—and Some Doubts – Wall Street Journal, 11/16/2023
- Foreign capital is fleeing China.
- Yet on his first trip to the U.S. in six years, Chinese leader Xi Jinping didn’t make a pitch to win back American businesses and investors.
- Instead, at a dinner with U.S. corporate chiefs and other guests, Xi sought to enlist American corporations’ help in easing bilateral tensions, emphasizing the room for both nations to work together—a theme of his meeting with President Biden earlier Wednesday.
- Throughout his speech, Xi described himself as a leader of the people and stressed the importance of buttressing bilateral ties with people-to-people exchanges, but didn’t specifically highlight trade or investment.
- “China is pursuing high-quality development, and the United States is revitalizing its economy,” Xi said.
- “There is plenty of room for our cooperation.”
- In attendance were chief executives including Apple’s Tim Cook and BlackRock’s Larry Fink, along with leaders and senior executives from Qualcomm, Boeing, Blackstone, KKR, Pfizer, FedEx and other large U.S. firms, which all invest in China and collectively have trillions of dollars in market value.
- Tesla CEO Elon Musk and Salesforce CEO Marc Benioff greeted Xi during the predinner reception but didn’t stay for the dinner.
Israel Searches for More Evidence of Hamas Presence at Gaza’s Largest Hospital – Wall Street Journal, 11/16/2023
- The Israeli military on Thursday said it continued to search through Gaza’s largest hospital for further evidence that it is used by Hamas for military purposes, as Israel faced growing pressure to justify sending troops into a medical facility.
- After a day of searching through Al-Shifa Hospital in Gaza City, questioning patients, staff and displaced people sheltering inside, Israel on Wednesday released footage of AK-47 assault rifles, grenades, battle vests with Hamas insignia and other assorted military equipment it said it found hidden in the MRI wing of the hospital.
- In a video, an Israeli military spokesman pointed to a laptop, a hand-held tactical radio and a set of discs as evidence of a Hamas command center in the hospital.
- The laptop screen was blurred and the spokesman didn’t specify what was found on it.
- The Israeli military didn’t show evidence Wednesday of underground complexes or prove its allegations of a Hamas tunnel network connecting to the hospital, but said it was still in the process of combing through Al-Shifa.
- Finding a command center at the Al-Shifa complex would help Israel justify to its supporters in the West the decision to send troops into a hospital.
- But if its intelligence turns out to be faulty, it would increase international scrutiny of the broader military campaign.
Factmonster – TODAY in HISTORY
- General Sherman and his troops began their “March to the sea” during the Civil War. – 1864
- Oklahoma became the 46th state. – 1907
- The United States and the Soviet Union established diplomatic relations. – 1933
- President Nixon signed the bill authorizing the construction of the Trans-Alaska Pipeline. – 1973
- President George W. Bush nominated Condoleezza Rice to replace Colin Powell as secretary of state. – 2004
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