US FINANCIAL MARKET
Treasuries Slide as Hot Data Dim Fed-Pivot Bets: Markets Wrap – Bloomberg, 12/8/2023
- Treasury yields climbed after solid readings on US jobs and consumer sentiment bolstered speculation that bets on Federal Reserve rate cuts next year may have gone too far.
- All around Wall Street, the prevailing view is that while economic strength makes investors less apprehensive about a recession — at least for now — it also means the Fed might have to hold rates higher for longer.
- The S&P 500 was little changed. The Nasdaq 100 was little changed. The Dow Jones Industrial Average rose 0.1%.
- That comes as a disappointment to traders who at one point were betting the central bank would be able to pivot as early as March.
- Swap contracts now show a 40% probability of that happening — from over 50% prior to the report.
- Following a slew of figures underscoring a slowdown on the jobs front, Friday’s reading showed an unexpected employment pickup.
- Nonfarm payrolls increased 199,000 last month, the unemployment rate fell to 3.7% and monthly wage growth topped estimates.
- A separate report showed US consumer sentiment rebounded sharply in early December — topping all forecasts — as households dialed back their year-ahead inflation expectations by the most in 22 years.
- US two-year yields jumped 10 basis points to around 4.7%.
- The yield on 10-year Treasuries advanced eight basis points to 4.23%
- Softening inflation and employment data in the past month have convinced investors that the Fed is done raising interest rates and ignited bets that cuts of at least 125 basis points of cuts are in store over the next 12 months.
- Honeywell International agreed to acquire the security business of Carrier Global for an enterprise value of about $5 billion, which marks the biggest deal since 2015 for the maker of jet engines and gas detectors.
- Broadcom, a chip supplier for Apple and other big tech companies, expects the rapid expansion of artificial intelligence computing to help offset its worst slowdown since 2020.
- Lululemon Athletica’s fourth-quarter revenue guidance trailed Wall Street estimates, a rare miss for the retailer whose performance routinely exceeds investor expectations.
- Microsoft and OpenAI’s partnership, which recently went through a governance meltdown, is facing yet more scrutiny after the UK antitrust watchdog said it’s considering if it should be called in for a full blown investigation.
- The Stoxx Europe 600 rose 0.7%.
- West Texas Intermediate crude rose 2.9% to $71.35 a barrel.
- Spot gold fell 0.8% to $2,012.46 an ounce.
Broadcom logs earnings beat, but chip stock edges lower – Market Watch, 12/8/2023
- Broadcom topped profit expectations for its latest quarter, but shares of the chip company were falling in Thursday’s aftermarket action.
- Revenue increased to $9.30 billion from $8.93 billion, while the FactSet consensus was for $9.28 billion.
- Broadcom generated $7.33 billion in revenue from semiconductor solutions, up 3%, along with $1.97 billion in revenue from infrastructure solutions, up 7%.
- On an adjusted basis, Broadcom earned $11.06 a share, up from $10.45 a share a year before, while analysts tracked by FactSet were modeling $10.96 a share.
- For the new fiscal year, Broadcom anticipates $50 billion in revenue, when including contributions from the recently closed acquisition of VMware that may not be fully reflected in consensus estimates.
- The company also expects adjusted earnings before interest, taxes, depreciation and amortization to be about 60% of projected revenue; it was 65% of revenue in the most recent fiscal year.
- The company expects its semiconductor segment to sustain a mid- to high-single-digit revenue growth rate in fiscal 2024.
Lululemon shares fall as retailer gives tepid holiday outlook despite strong start to shopping season – CNBC, 12/8/2023
- Lululemon on Thursday said it saw strong third-quarter demand and a positive start to the holiday shopping season, but the retailer’s shares fell in extended trading after it gave a tepid fourth-quarter outlook.
- Revenue: $2.20 billion vs. $2.19 billion expected.
- During the quarter, sales jumped 12% in North America and 49% internationally, but the retailer’s holiday guidance came in light of expectations.
- During Lululemon’s third quarter, total comparable sales were up 13%, higher than the 12.4% jump analysts had expected, according to StreetAccount.
- Comparable sales at the retailer’s stores came in at 9%, lower than the 11.7% Wall Street expected.
- But comparable direct-to-consumer sales spiked 18%, higher than the 16.9% analysts had expected, according to StreetAccount.
- Earnings per share: $2.53 adjusted vs. $2.28 expected.
- Lululemon said it’s expecting sales to be between $3.14 billion and $3.17 billion for the fourth quarter, which is shy of the $3.18 billion analysts had expected, according to LSEG.
- Lululemon expects earnings to be between $4.85 and $4.93 per share, compared to estimates of $4.80 to $5.19, according to LSEG.
- “We’re pleased with the trends we’ve seen at the start of the holiday season. That being said, the majority of the quarter remains in front of us,” finance chief Meghan Frank said on a call with analysts.
- “We remain aware of the uncertainties in the macro environment, and we continue to plan a business for multiple scenarios.”
- On a call with analysts, CEO Calvin McDonald said Black Friday this year was the “single biggest day” in the company’s history.
RH sees housing market ‘frozen,’ delays catalog as it swings to surprise quarterly loss – Market Watch, 12/8/2023
- Shares of RH dropped in the extended session Thursday after the home furnishings company formerly known as Restoration Hardware swung to a surprise quarterly loss and said that promotions will pressure its bottom line amid a “frozen” housing market.
- Revenue fell to $751 million, from $869 million a year ago.
- The analysts surveyed by FactSet expected RH to report revenue of $757 million in the quarter.
- Adjusted for one-time items, the company lost 42 cents a share.
- Analysts polled by FactSet were looking for adjusted EPS of 94 cents a share.
DocuSign’s stock jumps 8% then cools on results, guidance – Market Watch, 12/8/2023
- DocuSign’s stock initially jumped 8% before tumbling in extended trading Thursday after the software company posted better-than-expected quarterly results and sales guidance.
- Revenue climbed to $700.4 million from $645.5 million in the year-ago quarter.
- Adjusted earnings were 79 cents a share.
- Analysts surveyed by FactSet had expected on average net earnings of 63 cents a share on revenue of $690 million.
- DocuSign provided fourth-quarter sales guidance of $696 million to $700 million; FactSet analysts are forecasting $694 million.
Honeywell to Buy Carrier Unit for $5 Billion – Wall Street Journal, 12/8/2023
- Honeywell International has struck a roughly $5 billion deal to buy Carrier Global’s security business, as the industrial giant embarks on a spending spree to bolster its portfolio.
- The security business makes products including electronic locks for big companies, hotels and hospital chains.
- The acquisition is meant to help bulk up Honeywell’s Building Automation segment, whose customers include hospitals, airports, data centers and the like.
- It is part of a push by the Charlotte, N.C.-based company, which operates in industries ranging from aerospace to energy, to meet increasing demand for cloud-based products.
- The deal was announced by the two companies Friday morning, confirming an earlier report by The Wall Street Journal.
- Carrier shares jumped more than 5% in premarket trading, while Honeywell stock remained unchanged.
- Carrier said it plans to use the proceeds from the security deal with Honeywell to pay down debt.
US ECONOMY & POLITICS
US Labor Market Defies Slowdown Forecasts in Broad Strengthening – Bloomberg, 12/8/2023
- The US labor market unexpectedly strengthened in November with pickups in employment and wages, deflating bets the Federal Reserve will cut interest rates early next year.
- Nonfarm payrolls increased 199,000 last month following a 150,000 advance in October, a Bureau of Labor Statistics report showed Friday.
- The return of striking auto workers helped boost the count by 30,000.
- The unemployment rate fell to 3.7% and workforce participation edged up.
- Monthly wage growth rose more than forecast.
- Health care, leisure and hospitality, and government hiring, in addition to the pickup in manufacturing upon the resolution of the United Auto Workers strike, drove the payrolls gain.
- Other categories showed tepid growth or outright declines, such as retail.
- Average hourly earnings rose 0.4%, matching the biggest monthly advance this year, and were up 4% from November 2022.
- Earnings for nonsupervisory employees, who make up the majority of workers, also increased 0.4%.
- The participation rate — the share of the population that is working or looking for work — rose to 62.8%, driven by men.
- For those ages 25-54, participation was unchanged.
- A further increase in the labor supply could help alleviate wage gains.
- The gain in payrolls, combined with stronger wage growth and a pickup in hours worked, led a broad measure of labor market health to jump 0.7% last month, the most since June.
- Moreover, a gauge of take-home pay rose 0.3%.
US Consumer Sentiment Jumps as Inflation Concerns Dissipate – Bloomberg, 12/8/2023
- US consumer sentiment rebounded sharply in early December, topping all forecasts as households dialed back their year-ahead inflation expectations by the most in 22 years.
- The University of Michigan’s consumer sentiment index jumped 8.1 points to a four-month high of 69.4, the preliminary December reading showed.
- The median estimate in a Bloomberg survey of economists called for the gauge to edge up to 62.
- Consumers see prices rising at an annual rate of 3.1% over the coming year, the lowest level since March 2021.
- The 1.4 percentage points decline from the prior month was the largest since October 2001.
- They see costs rising 2.8% over the next five to 10 years, matching the lowest since September 2022 and down from last month’s 3.2%, the report showed Friday.
US to Buy Oil for Strategic Reserve Monthly Through at Least May – Bloomberg, 12/8/2023
- The US plans to hold monthly tenders to buy oil for its strategic petroleum reserve through at least May as the Biden administration moves ahead with plans to refill the caverns that currently sit near the lowest levels in 40 years.
- The energy department on Friday issued a solicitation to buy as much as 3 million barrels of sour oil for delivery in March, according to a statement.
- That comes on top of a previous tender to buy the same amount for February.
- The government has so far bought close to 9 million barrels of oil at an average price of $75 per barrel and secured nearly 4 million barrels in accelerated exchange returns. The efforts to refill come after the historic release of 180 million barrels in the wake of the Russian invasion of Ukraine.
Hunter Biden Indicted on Tax Charges – Wall Street Journal, 12/8/2023
- Hunter Biden was indicted on nine tax charges Thursday, in a case that adds a new layer of legal peril for President Biden’s son as he faces continued congressional scrutiny and a separate prosecution on felony gun charges.
- The indictment from a grand jury seated in Los Angeles sets up another case with the potential for a trial coinciding with the president’s re-election campaign.
- The charges come as House Republicans threatened to hold the younger Biden in contempt in a standoff over whether he will submit to closed-door questioning next week as part of an inquiry that has centered on his foreign business dealings.
- The indictment includes three felony charges and six misdemeanor tax offenses, adding new allegations to those included in a plea deal Hunter Biden reached with federal prosecutors earlier this year that later fell apart.
- In the 56-page indictment, prosecutors from special counsel David Weiss’s office said the younger Biden chose over a four-year period not to pay at least $1.4 million in federal taxes he owed for the years 2016—the final full year of Joe Biden’s vice presidency—through 2019.
- Prosecutors said Hunter Biden also evaded taxes for 2018 by filing false or fraudulent returns.
EUROPE & WORLD
Apple Aims to Make a Quarter of the World’s iPhones in India – Wall Street Journal, 12/8/2023
- Apple and its suppliers aim to build more than 50 million iPhones in India annually within the next two to three years, with additional tens of millions of units planned after that, according to people involved.
- If the plans are achieved, India would account for a quarter of global iPhone production and take further share toward the end of the decade.
- China will remain the largest iPhone producer.
- Apple and its suppliers, led by Taiwan-based Foxconn Technology Group, generally believe the initial push into India has gone well and are laying the groundwork for a bigger expansion, say people involved in the supply chain.
- Apple is emblematic of a move among companies worried about overdependence on China to move parts of their supply chains elsewhere, most often to Southeast Asia and South Asia.
- The first phase of a Foxconn plant under construction in the southern state of Karnataka is expected to start operating in April, and the plant aims to make 20 million mobile handsets annually, mainly iPhones, within the next two to three years, said people with direct knowledge of the construction plans.
U.N. Ramps Up Pressure for Gaza Cease-Fire as Israel Races to Eliminate Hamas – Wall Street Journal, 12/8/2023
- The Israeli war effort in Gaza intensified as the country’s leaders try to achieve their goals before international and domestic pressures force an end to active combat.
- The rising number of airstrikes and close-quarters fighting in both north and south Gaza has worsened a humanitarian disaster that had already been unfolding for two months.
- The accelerating death toll and levels of hunger, disease and disorder also add to pressure on Israel to more quickly achieve its war aims of removing Hamas from power and killing its leaders, along with freeing the remaining 137 hostages taken during the militant group’s Oct. 7 attack on Israel.
- The United Nations Security Council will address the situation on Friday in an emergency meeting after Secretary-General António Guterres urged the body to use all its influence to prevent a catastrophe he said endangers regional security.
- While Israeli leaders have said they won’t end the war until they destroy Hamas, a U.S.-designated terrorist group, former security officials say economic pressures and calls for releasing the hostages put time constraints on this active phase of the war.
China Politburo Raises Expectations for Ambitious 2024 GDP Goal – Bloomberg, 12/8/2023
- China’s top leaders pledged to strengthen fiscal support and emphasized the importance of economic “progress” at a meeting Friday that supported economists’ expectations for a growth goal of around 5% for next year.
- The Politburo, comprising the ruling Communist Party’s top 24 officials and chaired by President Xi Jinping, announced after the gathering that fiscal policy will be stepped up “appropriately,” the official Xinhua News Agency reported.
- The Politburo’s introduction of a new slogan — “use progress to promote stability” — signals that next year’s growth target may be set at 5%, said Xing Zhaopeng, a senior strategist at Australia & New Zealand Banking Group.
- While that would be the same as this year’s objective, in practice it would be tougher to achieve, because 2023 had the benefit of a weak base of comparison due to coronavirus restrictions in 2022.
- Language on stronger fiscal policy suggests the government’s headline deficit ratio may exceed 3% of gross domestic product in 2024, Xing said.
- Beijing made a rare move in October to raise this year’s headline deficit to 3.8%, which suggested policymakers have adopted a more flexible stance.
Putin Confirms Re-Election Bid, a First Step in Likely Stroll to Victory – Wall Street Journal, 12/8/2023
- Russian President Vladimir Putin confirmed he would run for re-election next year, a widely expected move that could keep him in power until at least 2030.
- Putin announced his bid on Friday following a ceremony for military personnel and other guests.
- In a video clip posted on the Kremlin’s Telegram messenger channel, a guest asked Putin to run for re-election and the Russian leader agreed.
- “I will run for office,” he is heard saying.
- Kremlin spokesman Dmitry Peskov said Putin’s decision was spontaneous, Russian state news agency TASS reported.
- The announcement comes a day after the Federation Council, Russia’s upper house of parliament, unanimously voted to hold the election on March 17.
Microsoft-OpenAI Partnership Draws Scrutiny From U.K. Regulator – Wall Street Journal, 12/8/2023
- U.K. regulators said they are examining Microsoft’s partnership with OpenAI, marking a first push by one of the world’s most influential competition authorities to scrutinize the relationship between the tech giant and the artificial-intelligence company behind ChatGPT.
- Britain’s Competition and Markets Authority said Friday that it is seeking feedback on whether the partnership—and what it described as recent developments in the governance of OpenAI—should be considered a de facto merger, in an initial step that could lead to a formal investigation.
- The move comes after a dramatic turn of events at OpenAI that resulted in the abrupt firing and reinstatement of Chief Executive Sam Altman, along with the formation of a new board.
- The U.K. authority issued an invitation on Friday for comments on the relationship between the two companies and whether their partnership should be viewed as a merger.
- If the watchdog determines that the relationship meets its criteria for a merger review, that could prompt a formal investigation into whether it creates competition concerns in the artificial-intelligence market.
- Such an investigation—if it proceeds—could lead to an order for the two companies to separate or make other structural or behavioral changes.
Xi Jinping and EU Officials Seek to Ease Economic Tensions at Beijing Summit – Wall Street Journal, 12/8/2023
- Chinese leader Xi Jinping and Europe’s top officials sought to ease tensions over trade and economic disputes at their first in-person summit in Beijing on Thursday.
- The EU’s relations with China have grown tenser in recent months over the bloc’s trade deficit with China, which doubled to $400 billion in the last two years.
- Both sides had agreed “that trade should be balanced between the two of us,” said European Commission President Ursula von der Leyen during a press briefing, blaming the trade imbalance on a lack of market access for foreign companies, the preferential treatment for Chinese companies and Chinese production overcapacity for undercutting European companies.
- The EU is a “key partner for economic and trade cooperation, a preferred partner for scientific and technological cooperation, and a trustworthy partner for industrial and supply chain cooperation,” said Xi, according to the official Chinese readout of the meeting. He also said the EU and China shouldn’t view each other as rivals or engage in confrontation.
- European Council President Charles Michel said he expected Beijing to take concrete measures to improve market access and investment environment for foreign companies without specifying what they were.
Factmonster – TODAY in HISTORY
- Pope Pius IX proclaimed the dogma of the Immaculate Conception. – 1854
- The American Federation of Labor was founded at a convention of union leaders in Columbus, Ohio. – 1886
- Congress declared war on Japan and the U.S. entered World War II. – 1941
- Communist attacks forced the Chinese Nationalist government to flee to the island of Formosa (Taiwan). – 1949
- John Lennon, former member of the Beatles, was shot and killed in New York City by a deranged fan. – 1980
- President Reagan and Soviet leader Mikhail Gorbachev signed the first treaty to reduce the nuclear arsenals of the two superpowers. – 1987
- President Bill Clinton signed The North American Free Trade Agreement (NAFTA) into law. – 1993
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