US FINANCIAL MARKET

US Stocks Buoyed by Solidifying Rate Cut Bets: Markets Wrap – Bloomberg, 12/22/2023

• US stocks stay on track for an eight-week bull run after inflation readings reinforced Wall Street’s conviction in early and deep rate cuts next year. Treasuries were mixed ahead of an early close.
• The S&P 500 rose 0.4% after the latest data largely met expectations. The Nasdaq 100 rose 0.4%.
• The Dow Jones Industrial Average rose 0.2%.
• The benchmark is on pace for an eight-week winning streak — the longest in more than five years.
• The Nasdaq 100 is poised to notch a similar run.
• Nike was the worst underperformer, falling as much as 12% in New York trading after the sports apparel maker flagged a weaker sales outlook and an as much as $2 billion cost-cutting plan.
• Swaps traders are betting interest rates will be eased by more than 150 basis points next year, double the Fed’s forecast.
• Data showing the US core personal consumption expenditures price index — the Fed’s preferred core inflation metric — fell to 3.2% last month, which helped cement those wagers.
• Economists surveyed by Bloomberg had predicted the gauge would slip to 3.3% in November.
• Treasuries were mixed with the yield on the US 10-year bond hovering around 3.88%.
• Additional data Friday showed consumers were also gaining conviction that inflation in the world’s largest economy was on the right track.
• At the same time a reading on new-home sales in the US unexpectedly tumbled, though it may only be a temporary setback for an expected housing market recovery.
• Oil prices extended their biggest weekly gain in two months, as shippers took lengthy detours to avoid militant attacks in the Red Sea.
• Brent crude futures traded near $80 a barrel, set for a weekly gain of almost 5%.
• The Stoxx Europe 600 rose 0.1%.
• The Bloomberg Dollar Spot Index fell 0.3%.

Nike Falls Most in More Than a Year on Weaker Sales, Job Cuts – Bloomberg, 12/22/2023

• Shares of Nike tumbled Friday, dragging down sportswear retailers and rival brands, after the sneaker maker said it would slash jobs and streamline operations in response to weaker sales.
• Revenue in the quarter was $13.4 billion, roughly in line with the average analyst estimate compiled by Bloomberg.
• Sales in Greater China came in lower than expected, while earnings per share surpassed Wall Street’s estimate.
• In one crucial area, Nike reported an improvement: Gross margin in the quarter was 44.6%, higher than analysts’ estimates.
• Inventories fell 14%.
• Nike said it’s looking for as much as $2 billion in cost savings by dismissing workers and simplifying the sneaker company’s product lineup amid a weaker sales outlook in China and around the world.
• Nike’s Chief Financial Officer Matt Friend said on the company’s conference call that the new outlook reflects “indications of more cautious consumer behavior around the world.”
• He singled out Greater China, Europe, the Middle East, and Africa.

Bristol Myers to Buy Karuna Therapeutics for $14 Billion – Wall Street Journal, 12/22/2023

• Drugmaker Bristol Myers Squibb reached a deal to buy neuroscience drug developer Karuna Therapeutics for $14 billion.
• Under the terms, Bristol would pay $330 a share in cash for Karuna, and its experimental schizophrenia drug is now up for US government approval.
• Bristol expects the deal, which includes $1.3 billion in cash that Karuna has on hand, to close in the first half of next year.
• The acquisition, announced on Friday, would raise Bristol’s bet on selling psychiatric and neurological drugs. This large and growing market has drawn interest from companies because of advances in understanding the molecular roots of various central nervous system diseases.
• Karuna’s crown jewel, an experimental drug called KarXT, is the product of such new insights.
• The Food and Drug Administration is reviewing KarXT for the treatment of schizophrenia.
• The drug is also in development for conditions related to Alzheimer’s and bipolar disorder.

White House Says $14.1 Billion U.S. Steel Sale Deserves ‘Serious Scrutiny’ – Wall Street Journal, 12/22/2023

• The Biden administration’s top economic adviser said Thursday the $14.1 billion deal to acquire US Steel by Japan’s Nippon Steel deserved “serious scrutiny” regarding its potential impact on national security and supply chains.
• “This looks like the type of transaction that the interagency committee on foreign investment Congress empowered, and the Biden administration strengthened is set up to investigate carefully,” said National Economic Adviser Lael Brainard in a statement, referring to Cfius, which reviews certain transactions involving foreign investment in the US.
• “This Administration will be ready to look carefully at the findings of any such investigation and to act if appropriate.”
• Cfius can recommend the president block a deal.

Lionsgate to Separate Studios Business in $4.6 Billion SPAC Deal – Wall Street Journal, 12/22/2023

• Lions Gate Entertainment has agreed to separate its studio business and merge it with Screaming Eagle Acquisition, a special-purpose acquisition company.
• The deal, which the companies said values the studio business at about $4.6 billion, including debt, will create a new, standalone, publicly traded company called Lionsgate Studios.
• The new company will be a platform-agnostic, pure-play content company.
• Its portfolio includes The Hunger Games, John Wick, and The Twilight Saga, as well as the production-and-distribution business and talent management.
• Once the deal closes, Lionsgate will own about 87.3% of the studio’s business.
• Lionsgate will continue to own the Starz platform separately.

US ECONOMY & POLITICS

Fed’s Preferred Inflation Gauges Cool, Reinforcing Rate-Cut Tilt – Bloomberg, 12/22/2023

• The Federal Reserve’s preferred gauge of underlying inflation barely rose in November and trailed policymakers’ 2% target by one measure, reinforcing the central bank’s pivot toward interest-rate cuts next year.
• The so-called core personal consumption expenditures price index, which strips out the volatile food and energy components, increased 0.1% from a month earlier after a downwardly revised 0.1% gain in October, according to the Bureau of Economic Analysis.
• From a year ago, the Fed’s preferred underlying inflation gauge advanced 3.2%.
• On a six-month annualized basis, the core metric rose 1.9%, the first time in more than three years that this measure is below the Fed’s target.
• Personal spending, adjusted for changes in prices, rose 0.3% after a downwardly revised 0.1% advance in October.
• The overall PCE price index fell 0.1% from October, the first decline since April 2020.
• The measure advanced 2.6% from a year ago, the smallest gain since February 2021.
• Policymakers pay close attention to services inflation, excluding housing and energy, which tend to be stickier.
• That metric advanced 0.1% for a second month and rose 2.7% from a year earlier.
• On an inflation-adjusted basis, outlays for goods increased 0.5%, the report showed.
• Services spending rose 0.2% for the third month.
• Real disposable income climbed 0.4% in November.
• Wages and salaries, unadjusted for inflation, jumped 0.6%, also the most in eight months.
• The saving rate rose to 4.1%.

US durable goods orders surge in November on aircraft – Reuters, 12/22/2023

• Orders for long-lasting US manufactured goods surged in November, boosted by aircraft bookings, but business spending on equipment appeared lackluster amid higher borrowing costs.
• The Commerce Department’s Census Bureau said on Friday that orders for durable goods, items ranging from toasters to aircraft meant to last three years or more, jumped 5.4% last month.
• Data for October was revised higher to show orders falling 5.1% instead of 5.4% as previously reported.
• Economists polled by Reuters had forecast durable goods orders rebounding 2.2%.
• Orders increased 4.5% on a year-over-year basis in November.
• Manufacturing, which accounts for 10.3% of the economy, continues to be hamstrung by higher interest rates.
• Transportation equipment orders rebounded 15.3% last month after declining 13.4% in October.
• Motor vehicle and parts orders rebounded 2.8% as strikes by the United Auto Workers ended.
• Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, rebounded 0.8% after a downwardly revised 0.6% drop in the prior month.
• These so-called core capital goods orders were previously reported to have declined 0.3% in October.
• Core capital goods shipments dipped 0.1% for a second straight month.
• Shipments of non-defense capital goods increased 0.5% following a 0.3% drop in the prior month.

‘Revenge Spending’ Drives US Credit Card Debt Past $1 Trillion – Bloomberg, 12/22/2023

• American consumers continued to splurge in 2023, boosting the economy with revenge travel, Taylor Swift tickets, and expensive restaurant meals.
• But a lot of it was funded with debt.
• Credit card balances in the US increased by about $48 billion in the third quarter alone, pushing the total to $1.08 trillion, according to the New York Federal Reserve.
• And that was before the holiday shopping season started in earnest.
• The bills are mounting at a time when the average annual percentage rate, or APR, has soared north of 20% to the highest on record.
• At the same time, an estimated 40% of Americans have drained their pandemic savings to afford ballooning bills.
• One specific area of concern is the increasing popularity of “buy now, pay later” services, which typically allow consumers to pay for purchases in four installments, often with no fee unless a payment is missed.
• The debt is not reported to credit bureaus, meaning no one knows for sure how much is out there.

US Short-Term Inflation Expectations Hit Lowest Since 2021 – Bloomberg, 12/22/2023

• US consumers remained sanguine about the inflation outlook as 2023 drew to a close, contributing to a robust rebound in sentiment.
• Americans expect prices will climb at a 3.1% rate over the next year, according to the final December reading from the University of Michigan, matching the preliminary figure and the lowest since March 2021.
• They see costs rising 2.9% over the next five to 10 years, data Friday showed.
• The initial reading was 2.8%.
• The index of consumer sentiment increased to a five-month high of 69.7, from 61.3 in November.
• The 8.4-point gain was the largest since 2005.
• The median forecast in a Bloomberg survey of economists called for a December reading of 69.4.
• Buying conditions for durable goods increased.
• Consumers’ perception of their financial situation also improved.
• The current conditions gauge rose to 73.3 from November’s 68.3.
• The December measure of expectations advanced to 67.4 from 56.8 a month earlier.

IRS Offers Deal to Employers Who Regret Claiming Pandemic Tax Credit – Wall Street Journal, 12/22/2023

• Many employers who received a popular pandemic relief tax credit can return 80% of the money and escape most scrutiny from the Internal Revenue Service, the agency said Thursday.
• The repayment plan is the government’s latest attempt to combat what it says are fraudulent and ineligible claims for the employee retention tax credit, or ERC, which provides up to $26,000 per worker for employers who kept people on payrolls during 2020 and 2021.
• The IRS has started thousands of audits and hundreds of criminal prosecutions.
• Now, it is offering many employers a way to avoid civil penalties—and it is looking for help investigating third-party firms that encouraged businesses to claim the credit and helped them seek it.
• Officials said employers who received the credit but no longer think they were eligible can pay back 80% of the money they got, rather than the full amount.
• Employers can effectively pay back the net amount they received—and they must provide the IRS with details about the ERC firm they used.

US New-Home Sales Unexpectedly Slump to a One-Year Low – Bloomberg, 12/22/2023

• US new-home sales unexpectedly slumped in November, led by a sharp drop in the South and suggesting a bumpy road to recovery for the housing market.
• Purchases of new single-family homes decreased 12.2% to a 590,000 annual pace last month, a one-year low, government figures showed Friday.
• The median forecast in a Bloomberg survey of economists called for a 690,000 rate.
• The outlook for the new-homes market has brightened as 30-year mortgage rates are back below 7% amid expectations the Federal Reserve is poised to cut borrowing costs next year.
• The government’s report on Friday showed the median sales price of a new home fell 6% from a year ago to $434,700.
• Sales decreased nearly 21% in the South, the largest US region, to the lowest level since April 2020.
• Purchases also dropped in the West.

EUROPE & WORLD

Tencent Rocked by China’s New Boss Level – Wall Street Journal, 12/22/2023

• The rules of the game keep getting harder for China’s internet sector.
• On Friday, Tencent lost $46 billion in market value as Chinese gaming stocks traded in Hong Kong dropped, hurt by Beijing’s newly released draft regulations for the online games industry. It was Tencent’s biggest tumble in more than 10 years.
• Smaller competitor NetEase lost around $16 billion in value. The new proposed rules include incentive restrictions to play or spend more online.
• They are the latest salvo in China’s fight against gaming addiction, which had earlier driven it to freeze new game approvals and launch investigations into their content.
• The proposed rules will probably impact the business models of online games that rely on users remaining glued to their devices and encourage many to spend on nominally free games.
• They also could have a wider impact on internet sector sentiment, which has only started recovering from a fierce regulatory onslaught.
• Restrictions on encouraging daily logins and in-app purchases are expected to hurt engagement for new games, making it more difficult for gaming firms to generate cash flow and identify high-spending users.

Iranian Spy Ship Helps Houthis Direct Attacks on Red Sea Vessels – Wall Street Journal, 12/22/2023

• Iran’s paramilitary forces are providing real-time intelligence to Yemen’s Houthis that the rebels are using to direct drones and missiles to target ships passing through the Red Sea, Western and regional security officials said.
• Tracking information gathered by a surveillance vessel controlled by Iran’s paramilitary forces in the Red Sea is passed to the Houthis, who have used it to attack commercial vessels passing through the Bab El-Mandeb strait in recent days, according to the officials.
• Earlier this week, the Pentagon unveiled plans for a multinational naval force to protect merchant vessels in the Red Sea.
• Meanwhile, many of the world’s biggest shipping lines, oil producers, and other cargo owners have started diverting vessels from the region, prompting a rise in oil prices and insurance rates.
• Many vessels sailing in the strait have switched off their radios to avoid being tracked online. Still, an Iranian vessel stationed in the Red Sea is enabling the Houthi drones and missiles to target the ships accurately, the officials said.

Factmonster – TODAY in HISTORY

• Construction of the first schoolhouse west of the Allegheny Mountains was started in Schoenbrunn, Ohio, by Moravian missionaries. – 1772
• The US Congress passed the Embargo Act. – 1807
• During the Civil War, Union General William T. Sherman sent a message to President Lincoln saying, “I beg to present you as a Christmas gift the city of Savannah.” – 1864.
• French army officer Capt. Alfred Dreyfus was convicted of treason in a court-martial. – 1894
• Romanian dictator Nicolae Ceausescu was overthrown. – 1989
• Hamid Karzai was sworn in as president of Afghanistan. – 2001
• President Obama officially repealed the “Don’t Ask, Don’t Tell” military policy. – 2010

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