US FINANCIAL MARKET
Bond Yields Drop as Jobs Data Embolden Fed Wagers: Markets Wrap – Bloomberg, 12/5/2023
- Treasuries resumed their rally on Tuesday as further labor-market cooling reinforced speculation the Federal Reserve will be able to cut interest rates next year to prevent a recession.
- The S&P 500 was little changed. The Nasdaq 100 rose 0.3%. The Dow Jones Industrial Average fell 0.4%.
- Yields dropped across the US curve after data showed job openings fell to the lowest level since March 2021.
- The yield on 10-year Treasuries declined seven basis points to 4.19%.
- Concerns about investors being too fast in anticipating policy easing have resurfaced. this week — underscoring the risks traders face as they boosted on wagers that slowing growth and inflation would force the Fed to execute a policy pivot.
- It’s a bet that stands to pay off handsomely if rate cuts materialize — or backfire if policymakers opt to keep borrowing costs higher for longer.
- US jobs data later in the week is seen as a key piece of the puzzle to understanding the economy and the risk that wage growth fans inflation, leading to higher borrowing costs for longer.
- Before that, traders will be wading through Tuesday’s readings on jobs openings and services.
- And Moody’s Investors Service cut its outlook for Chinese sovereign bonds to negative, underscoring deepening global concerns about the level of debt in the world’s second-largest economy.
- Johnson & Johnson expects operational sales growth between 5% to 6% in 2024 as its top-selling psoriasis drug starts to face generic competition outside the US.
- CVS Health plans to change how its more than 9,000 pharmacies get paid with a new reimbursement model designed to simplify drug pricing.
- The Stoxx Europe 600 rose 0.2%.
- The Bloomberg Dollar Spot Index had little change.
- West Texas Intermediate crude rose 1% to $73.76 a barrel.
- Spot gold fell 0.5% to $2,019.17 an ounce.
J&J Sees 2024 Sales Growth Slowing as Top Drug Faces Rivals – Bloomberg, 12/5/2023
- Johnson & Johnson expects operational sales growth to slow in 2024 as its top-selling psoriasis drug starts to face generic competition outside the US.
- The company forecasts between 5% to 6% operational sales growth next year, compared with its 8.5%-to-9% outlook for this year.
- The pharma and medical devices giant will soon lose its exclusivity with psoriasis treatment Stelara, which accounted for a fifth of its drug sales in the third quarter.
- Over the long term, J&J expects a 5%-to-7% rate for operational sales growth from 2025 to 2030.
- The company cited potentially 20 new drugs that will help drive sales, J&J said in its statement.
- Operational earnings are expected to rise to $10.55 to $10.75 a share next year, J&J said.
AutoZone Drives 1Q Earnings Jump with Higher Sales – Market Watch, 12/5/2023
- AutoZone logged a higher profit in its fiscal first quarter as sales jumped and margins expanded.
- Quarterly sales rose to $4.19 billion from $3.99 billion last year, in line with the consensus estimate of analysts polled by FactSet.
- Same-store sales, which adjust for store openings and closings, were up 1.2% domestically and more than 25% internationally.
- Earnings were $32.55 a share, up from $27.45 a share in the year-ago quarter and above analyst projections for $31.57, according to FactSet.
- Gross margin expanded by 208 basis points to 52.8% due in part to improving supply chain costs and higher merchandise margins.
- Inventory ticked up 3% from a year ago due to a higher number of new stores.
Smucker Says Sales Volumes Rising, Despite Higher Prices – Wall Street Journal, 12/5/2023
- Frozen sandwiches were a boon for J.M. Smucker in the latest quarter.
- Smucker reported sales of $1.9 billion, slightly below what Wall Street analysts had expected.
- The maker of Folgers coffee and Jif peanut butter said its comparable sales rose 7% in its second quarter compared to a year earlier.
- Sales of the company’s Uncrustables range rose 22%, Smucker said, and it launched a nationwide ad campaign devoted to the sandwiches.
- Sales volumes contributed 4 percentage points of the increase in comparable sales, thanks to higher sales volumes and a shifting mix of goods sold.
- Price increases accounted for 3 percentage points.
- The food maker’s adjusted profits of $2.59 per share beat the $2.47 per share analysts had expected.
- Smucker now expects revenues to rise 8.5% to 9%, down from prior guidance of 8.5% to 9.5%.
- It expects adjusted per-share earnings in a range of $9.25 to $9.65, versus prior guidance of $9.45 to $9.85.
GitLab shares soar as developer tools company posts first adjusted operating profit – CNBC, 12/5/2023
- GitLab stock jumped in extended trading Monday after the developer tools software maker announced fiscal third-quarter results and quarterly guidance that impressed Wall Street.
- Revenue: $149.7 million, vs. $141.5 million expected.
- The company, which went public in 2021 and runs remotely, now has 874 customers contributing more than $100,000 in annual recurring revenue, up 37% from the same quarter a year ago.
- Earnings: 9 cents per share, adjusted, vs. loss of 1 cent per share expected.
- For the fourth quarter of its 2024 fiscal year, GitLab called for adjusted earnings of 8 to 9 cents per share on $157 million to $158 million in revenue.
- Analysts polled by LSEG were looking for a net loss of 1 cent per share and $150.2 million in revenue.
Procter & Gamble to Book Up to $2.5B in Charges for Restructuring, Gillette Impairment – Wall Street Journal, 12/5/2023
- Procter & Gamble flagged up to $2.5 billion in restructuring charges for its international operations and an impairment hit for assets it had picked up with the 2005 acquisition of Gillette.
- The consumer-products company in a regulatory filing Tuesday said it expects to record charges of between $1 billion and $1.5 billion after tax for the limited portfolio restructuring, mainly of certain operations in its enterprise markets arm, including Argentina and Nigeria.
- The charges include foreign currency translation losses it expected to recognize on the liquidation of operations in the affected markets.
- It said it estimates the large majority of the charges will be considered noncash.
- P&G forecast the charges will be recognized in the fiscal years ending mid-2024 and mid-2025, with initial charges recognized in final three months of this year, though the timing of the completion of this restructuring program has yet to be determined.
- As well, the company said that as part of its restructuring efforts it will book an about $1.3 billion impairment charge in the three months to Dec. 31 on intangible assets bought with the deal for Gillette.
Eli Lilly’s New Weight-Loss Drug Now on Sale to Rival Hard-to-Find Wegovy – Bloomberg, 12/5/2023
- Eli Lilly’s new weight-loss drug Zepbound is now available at US pharmacies, offering an alternative to rival medications like Novo Nordisk’s Wegovy as supply issues persist.
- Zepbound was approved by the US Food and Drug Administration in early November as a treatment for people with obesity.
- Patients with a prescription from their doctor will now be able to get the drug, which was added to the list of available drugs for Express Scripts and Cigna Healthcare this month, Lilly said in a statement Tuesday.
- “We have to work hand-in-hand with employers, government and healthcare industry partners to remove barriers and make Zepbound available to those who need it,” Rhonda Pacheco, Lilly’s group vice president for diabetes and obesity, said in the statement.
- The drug costs $1,059.87 for a month’s supply before rebates.
- That’s cheaper than Wegovy, a similar weight-loss shot made by Novo Nordisk, which is $1,349 for a month’s supply.
- In trials, patients who received the highest dose of Zepbound lost on average 18% of their body weight — slightly more than similar, but not comparable trials, testing Wegovy.
CVS Plans to Overhaul How Much Drugs Cost – Wall Street Journal, 12/5/2023
- CVS Health, the nation’s largest drugstore chain, will move away from the complex formulas used to set the prices of the prescription drugs it sells, shifting to a simpler model that could upend how American pharmacies are paid.
- Under the plan, CVS’s roughly 9,500 retail pharmacies will get reimbursed by pharmacy-benefit managers and other payers based on the amount that CVS paid for the drugs, in addition to a limited markup and a flat fee to cover the services involved in handling and dispensing the prescriptions.
- Today, pharmacies are generally paid using complex measures that aren’t directly based on what they spent to purchase specific drugs.
- A similar payment model, sometimes known as “cost plus,” has been promoted by entrepreneur Mark Cuban’s eponymous pharmacy company, among others, which have said it brings greater clarity and accountability to drug pricing.
- For consumers, employers and health insurers paying for prescriptions, the change will have mixed effects.
- Some drugs may cost less, while others might rise in price, CVS executives said.
AT&T Snubs Nokia and Strikes $14 Billion Supplier Deal With Ericsson – Wall Street Journal, 12/5/2023
- AT&T struck a deal with Ericsson to buy up to $14 billion of its hardware and services after the Swedish equipment supplier pledged to open up its software to competing systems.
- The five-year agreement would move virtually all of AT&T’s new purchases of certain cell-tower equipment to Ericsson, replacing existing machinery from Finnish rival Nokia in many markets.
- AT&T said its shift to Ericsson as a nationwide base will allow it to deepen its use of hardware and software from niche suppliers like Corning, Dell, Fujitsu and Intel in future years.
- The result would yield more flexibility, lower network costs and improved operational efficiencies, the company said.
- The Dallas-based telecom giant said it plans to start the swap next year and aims to have 70% of its wireless network traffic passing through open platforms by late 2026.
US ECONOMY & POLITICS
US Job Openings Fall to Lowest Since 2021 as Labor Market Cools – Bloomberg, 12/5/2023
- US job openings slumped in October to the lowest level since March 2021, adding to evidence that the labor market is cooling.
- Available positions decreased to 8.7 million from a downwardly revised 9.4 million in the prior month, the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey showed Tuesday.
- Hiring edged lower. Layoffs were little changed.
- The openings figure was below all estimates in a Bloomberg survey of economists.
- The decline was broad-based across sectors, with notable drops in health care, financial activities and accommodations and food services.
- The so-called quits rate, which measures voluntary job-leavers as a share of total employment, held for a fourth month at the lowest level since early 2021.
- The ratio of openings to unemployed people slid to 1.3, the lowest since mid-2021.
US Services Sector Gauge Picks Up on Improved Business Activity – Bloomberg, 12/5/2023
- The US service sector expanded at a faster pace in November as business activity and employment picked up.
- The Institute for Supply Management’s overall gauge of services rose 0.9 points to 52.7 last month, data out Tuesday showed.
- The index has remained above the 50 level that indicates expansion for all of this year and has only dipped into contraction once since the onset of the pandemic.
- The business activity index, which parallels ISM’s factory output gauge, climbed in November after posting the biggest drop this year in the prior month.
- A gauge of orders placed with service providers – a proxy of future demand – was unchanged at 55.5.
- A metric of prices paid eased to a four-month low, indicating that costs are still rising but at a slower pace.
- An index of sentiment about the level of unsold goods surged to the highest level since the onset of the pandemic, which risks a pullback in orders placed with manufacturers or other service providers in coming months.
EUROPE & WORLD
Nio Falls Behind on Sales With Revenue Outlook Missing Estimates – Bloomberg, 12/5/2023
- Nio reported a quarterly loss of 4.6 billion yuan ($644 million) and gave an outlook on revenue and electric-vehicle deliveries that missed estimates.
- Third-quarter revenue rose 47% from a year earlier to 19.1 billion yuan, it said.
- The Chinese EV maker expects revenue of up to 16.7 billion yuan in the three months through December, short of the 21.4-billion-yuan average estimate from analysts.
- Nio expects to sell 47,000 to 49,000 vehicles in the quarter, it said in a statement Tuesday.
- Analysts had forecast 59,426 sales.
- The company cut 10% of its workforce in November and considered spinning off non-core businesses to reduce costs, even after an Abu Dhabi government-backed investment fund injected nearly $740 million in June in return for a 7% stake.
Israel Presses Assault on Hamas’s Last Major Gaza Bastion – Wall Street Journal, 12/5/2023
- Israeli forces closed in on the city of Khan Younis in the Gaza Strip on Tuesday, engaging in close combat with Hamas fighters in what could be the decisive battle of the two-month-old war, while residents fled from the fighting amid a deteriorating humanitarian situation.
- Israeli tanks have been seen east of Khan Younis as well as moving toward the city from northern Gaza.
- Hamas militants said Tuesday that they were engaged in ground fighting with Israeli troops on the city’s eastern outskirts.
- Israeli troops are fighting in “the heart of Khan Younis,” Maj. Gen. Yaron Finkelman, commanding officer of the Israeli military’s Southern Command, which is leading the fight against Hamas, said Tuesday.
- He described the fighting across Gaza as the most intense since the start of Israel’s ground operation.
- Analysts say Israeli forces could face tougher resistance from Hamas there than they did in the north.
- If Hamas loses Khan Younis too, its surviving fighters could end up in small areas in central Gaza and near the Egyptian border, surrounded by Israeli troops.
- Israeli forces told residents of Khan Younis on Tuesday to “urgently” evacuate its eastern and northern neighborhoods, using leaflets, phone messages and social media to warn of its impending operation against Hamas.
Moody’s Cuts China Credit Outlook to Negative on Growing Debt Risks – Wall Street Journal, 12/5/2023
- China’s mounting local government debt woes are putting pressure on the country’s credit ratings.
- Moody’s Investors Service lowered its outlook for China’s credit rating from stable to negative on Tuesday, warning that the financial stresses of some regional and local governments will require Beijing to provide support to them.
- That could weigh on China’s government finances at a time when its economy is slowing.
- The New York-based credit-ratings firm kept its long-term rating of A1 on the nation’s sovereign debt, a level that is four notches below its top Aaa rating.
- But the outlook change signaled how the risks from China’s local government debts have become too big to ignore.
- Chinese cities and provinces have as much as $11 trillion in off-balance-sheet debt, according to some estimates.
- Moody’s said the financial support would pose risks to China’s fiscal, economic, and institutional strength.
- It also warned of risks to China’s economic growth.
Putin’s Gulf Visit Defies Efforts to Isolate Him Over War – Bloomberg, 12/5/2023
- Russian President Vladimir Putin on Wednesday will visit the United Arab Emirates and Saudi Arabia, where he plans to meet Crown Prince Mohammed bin Salman, as he seeks to bolster Moscow’s important partnerships with the strategic oil producers.
- The Kremlin said Tuesday that Putin would discuss trade and investments, with Interfax earlier reporting the oil market and Israeli-Palestinian conflict are also set to be on the agenda.
- On Thursday, Putin will also host Iranian President Ebrahim Raisi, who’ll lead a delegation to Moscow at the invitation of his Russian counterpart, according to the semi-official Tasnim news agency.
- Putin will be at negotiations in Abu Dhabi and won’t visit the COP28 summit, which is taking place this week in the neighboring emirate of Dubai, Kremlin spokesman Dmitry Peskov told Bloomberg News.
- The visit signals Putin is becoming more emboldened to travel outside Russia despite US and European efforts to isolate him on the global stage, with his economy on a surer footing and fighting on the battlefield in Ukraine settling into a stalemate.
Factmonster – TODAY in HISTORY
- The first scholastic fraternity in America, Phi Beta Kappa, was organized at the College of William and Mary in Williamsburg, Va. – 1776
- President Polk triggered the Gold Rush of 1848 by confirming that gold had been discovered in California. – 1848
- The 21st Amendment to the Constitution, repealing prohibition, was ratified. – 1933
- The American Federation of Labor and the Congress of Industrial Organizations merged to form the AFL-CIO. – 1955
- Hamid Karzai was sworn in as Afghanistan’s first popularly elected president. – 2004
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