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U.S. STOCKS DECLINE AHEAD OF FRIDAY’S JOBS REPORT

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U.S. STOCKS DECLINE AHEAD OF FRIDAY’S JOBS REPORT

  • A strong report Friday could bolster the case for the U.S. Federal Reserve to raise interest rates in December.
  • Traders raised the odds of a rate hike to 64% for December, up from 60% before the jobless claims report was released.
  • The number of Americans applying for first-time unemployment benefits, a proxy for layoffs, decreased by 5,000 to a seasonally-adjusted 249,000, a near 43-year low.
  • Johnson & Johnson shares fell 1% after the U.S. Department of Homeland Security issued a warning on the company’s insulin pumps.
  • Pfizer fell 1% after agreeing to sell its infusion therapy business to ICU Medical for $1 billion in cash and stock.
  • Wal-Mart dropped 2.6% after the world’s largest retailer forecast flat earnings for next year.
  • Twitter shares plunged 19% after technology news website Recode said Disney and Alphabet were not in the race for the company.

US FINANCIAL MARKET

U.S. Crude Passes $50 a Barrel for the First Time since June

  • A big reduction in inventories has helped spur rally.
  • U.S. crude for November delivery gained 41 cents, or 0.8%, to $50.24 a barrel.
  • U.S.-traded oil prices climbed after the EIA’s latest data Wednesday showed U.S. crude supplies fell by 3 million barrels.
  • The surprise drop brought total inventories to 499.7 million barrels, the lowest since January, though they were still 38.7 million barrels higher than a year ago.

Twitter Shares Plunge on Report Google Has No Plan to Make Bid

  • Twitter’s shares plunged more than 19% in early trading on Thursday after technology website Recode reported that Alphabet’s Google does not “currently” plan to make a bid for the company.
  • Walt Disney has also decided not to move forward with a bid, while Apple is unlikely to be a suitor, Recode reported.
  • That leaves Salesforce.com as the only potential buyer, Recode said, although the cloud-software maker has not confirmed publicly that it wants to make a bid.

Salesforce Should Leave This Bird in the Bush, WSJ

  • The cloud software company’s name emerged two weeks ago as potential suitor for Twitter.
  • While hardly an exclusive list, Salesforce’s appearance was surprising given the lack of obvious synergies and the cost it might bear to make the deal happen.
  • The potential cost got even higher considering Salesforce shareholders took 6% off the stock’s value in the days following the initial report.

Wal-Mart Provides Lackluster Profit Outlook

  • The company plans to spend about $11 billion next year as it slows new store openings, accelerates remodels and invests in e-commerce.
  • Wal-Mart expects its fiscal 2018 reported earnings to be flat in comparison to its adjusted earnings for fiscal 2017.
  • After adding a net 471 locations to its store count in fiscal 2016, Wal-Mart estimates between 331 and 351 this year and 249 to 279 next year, including just 35 Supercenters.
  • The company said it would rely more on comparative sales and e-commerce growth to drive the top line.

J&J Warns Insulin Pump Vulnerable to Cyber Hacking

  • Johnson & Johnson has warned diabetes patients and doctors that one of its insulin pumps is vulnerable to cyber hacking.
  • A hacker in close proximity to the OneTouch Ping insulin pump system could use sophisticated equipment to find the unencrypted radio signal used by the device and program the pump to supply insulin, J&J officials said.

ICU Medical to Buy Pfizer Unit in $1 Billion Deal

  • ICU Medical agreed to buy Pfizer’s infusion-systems business in a $1 billion cash-and-stock deal, giving the California medical-device maker a larger footprint in the global market.
  • Under the deal’s terms, ICU Medical will acquire Pfizer’s Hospira Infusion Systems business for $400 million in newly issued shares.
  • This would give Pfizer a 16.6% stake in ICU Medical and the right to nominate one director to the company’s board.
  • ICU Medical also will pay Pfizer $600 million in cash.

Dividend Stocks Take a Hit

  • Utility shares post longest losing streak since 2002 as investors shed holdings; sectors look pricey after this year’s sharp run-up.
  • The S&P Utilities sector dropped 7.5% in the last nine trading days.
  • The utilities and real-estate sectors are the worst-performing groupings in the S&P 500 for the first three trading days of the fourth quarter, down 3.7% and 5.2%, respectively.
  • The price-to-earnings ratios of high-dividend sectors have been rising this year.

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Bed Bath Tries to Move Beyond the Coupon

  • Home goods retailer tests a paid membership model that offers a 20% discount on purchases and free shipping.

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US ECONOMY & POLITICS

Jobless Claims Hover near Four-Decade Low

  • Fell back toward four-decade low as employers hold on to workers as the labor market tightens.
  • Initial jobless claims, a proxy for layoffs, decreased by 5,000 to a seasonally adjusted 249,000.
  • The four-week moving average, which smooths out week-to-week volatility in the claims data, fell by 2,500 to 253,500 last week. That was the lowest reading since December 1973.
  • Initial jobless claims have now remained below 300,000 for 83 consecutive weeks.

Shiller’s Powerful Market Indicator Is Sending a False Signal about Stocks This Time

  • A close look at a Nobel Prize winner’s valuation metric shows that the market isn’t as highly valued as it appears.
  • Mr. Shiller’s measure, developed with Harvard University economist John Campbell in the 1990s, is called the “cyclically adjusted price-earnings”, or CAPE ratio.
  • The CAPE is now at 27. That is about where it was in 2007, well above its 50-year average of 20.
  • Wharton professor Jeremy Siegel says that accounting-rule changes have pushed the recent earnings lower, and that has made the CAPE artificially high relative to its history.
  • Mr. Shiller uses S&P 500 earnings under GAAP.
  • The problem is that GAAP isn’t a stable concept, and has been revised multiple times.
  • In 1993, for example, banks were required to mark to market a greater portion of their holdings.
  • In 2001, accounting rule makers changed the rules on goodwill.
  • In both cases, Mr. Siegel says, the changes lowered GAAP earnings, even though there were no changes in the underlying businesses.
  • An alternative CAPE, constructed by The Wall Street Journal, uses the same methodology as Mr. Shiller, but relies on a more consistent earnings measure: The Commerce Department’s quarterly data on total U.S. after-tax corporate profits.
  • The corporate-profits CAPE was at about 19—just above its 50-year average of around 17.
  • By contrast, it was 39 at its peak during the tech bubble and 24 at the market’s peak in 2007.

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EUROPE & WORLD

Dollar at four-week highs vs yen before Friday jobs report

  • Rises in U.S. Treasury yields over the past 10 days have been the main driver of a halt in the yen’s steady progress this year, pushing the Japanese currency back from 100 yen per dollar to 103.77 JPY.

EasyJet Warns on Profit after Brexit, Terror Attacks

  • British budget carrier easyJet said profit in one of its most tumultuous financial years plunged as much as 29% after terrorist attacks slowed bookings and the U.K.’s Brexit vote led to a steep drop in the value of the British pound.
  • The Luton, England-based carrier said pretax profit should be in the range of £490 million ($622.9 million) to £495 million, down from £686 million a year ago.

Swiss Consumer Prices Fall Again in September

  • Prices are expect to return to positive territory, albeit barely, later this year and into 2017.
  • Swiss consumer prices fell 0.2% last month compared with September 2015, the 23rd-straight month that prices have fallen on a year-over-year basis.

Merkel confident EU will conclude free trade deal with Canada

  • “(Being an) open society also means being open for global trade  … we have made good progress on CETA now and in the European context you can expect that we will get the signing and ratification,” Merkel told an industry event in Berlin.

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TODAY in HISTORY

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The Yom Kippur War began when Syria and Egypt attacked Israel (1973)

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President Jimmy Carter received Pope John Paul II, the first pope to visit the White House (1979)

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