DAILY MARKET REPORTS
- U.S. stocks swung between small gains and losses Monday as officials from Washington and Beijing kicked off their latest round of negotiations over trade policy.
- The struggle for direction comes after the three major indexes rallied more than 3% on Friday following strong U.S. jobs data and Federal Reserve Chair Jerome Powell said the central bank was not on a preset interest rate-hike path.
- Investors are beginning the week with their focus on the U.S. and China’s trade negotiations, something many hope will help bring the two countries closer to a resolution.
- Signs of slowing economic growth around the world have added to many investors’ sense of anxiety in recent weeks, contributing to wild swings in the stock market.
- British Prime Minister Theresa May is widely expected to lose a vote later this month on her planned Brexit deal. Lawmakers will debate the deal this week with some potentially crucial amendments expected.
- Loxo Oncology surged 67.0% after Eli Lilly said it would buy the cancer drug developer for about $8 billion. Lilly fell 1.2%.
- PG&E slumped 20.6% after Reuters reported that the California utility was exploring filing some or all of its business for bankruptcy protection as it faces billions of dollars in liabilities related to fatal wildfires in 2018 and 2017.
US FINANCIAL MARKET
Eli Lilly to Buy Loxo Oncology in $8 Billion Deal
- Eli Lilly said it is buying Loxo Oncology for $8 billion in cash, a deal that expands the biopharmaceutical company’s oncology-treatment portfolio and adds to a string of recent deals in the cancer-treatment space.
- Lilly will pay $235 a share, a 68% premium to Loxo’s closing price of Friday at $139.87.
- The $8 billion deal valuation includes the company’s shares outstanding as well as stock options.
- Eli Lilly said it expects to complete the deal for Loxo, which isn’t subject to any financing condition, by the end of the first quarter.
PG&E shares plunge on bankruptcy worries
- PG&E’s shares plunged more than 20% on Monday after sources said the California utility is exploring filing for bankruptcy protection as it fears a massive charge in the fourth quarter related to potential liabilities from wildfires.
- The company could take billions of dollars of liabilities from fatal blazes in 2018 and 2017, with analysts covering the stock estimating it to be between $24 billion to $30 billion.
- A bankruptcy filing is not certain, sources had told Reuters, adding that the company could receive financial help through legislation that would let it pass on to customers costs associated with fire liabilities.
Elon Musk’s China Factory—Now a Field, Soon a Plant—Aims to Pump Out Its First Tesla This Year
- Tesla started construction of its new China factory, the first wholly foreign-owned car plant in the country and crucial to the Californian electric-auto maker’s goal to scale up production.
- Tesla was the first foreign auto maker to take advantage of a recent rule change allowing foreigners to own their China business, instead of having to work with Chinese partners as previously required.
- Sales for electric vehicles in China are thriving, topping 1 million for the first time last year, helped by government subsidies and other favorable policies.
The Phone That’s Failing Apple: iPhone XR
- When Apple launched the iPhone XR in October, Tim Cook singled out the device to his more than a million followers on Weibo, China’s equivalent of Twitter. “Wonderful to see so many people in China enjoying the new iPhone XR,” he said.
- While Apple doesn’t release sales data on its phones, demand has been weaker than expected, and lackluster China sales of iPhones in part contributed to Apple’s first cut in revenue guidance since Mr. Cook took the helm in 2011.
- Some Chinese consumers have perceived the sticker price of 6,499 yuan, or about $945, to be too expensive even though it is at least 25% cheaper than the higher-end iPhone XS and XS Max models.
- Huawei’s flagship Mate 20 retails for roughly $500 with similar specs and features such as facial recognition and dual-SIM support.
Netflix Opens Eyes in Hollywood as ‘Bird Box’ Soars
- Netflix rarely releases data on viewership of its content. But in the case of “Bird Box” the company said a record-setting 45.3 million of its 137 million accounts watched at least 70% of the movie in the first week of its release.
- There is no easy way to compare viewership on Netflix with box-office sales of movies. For Netflix, the financial measuring stick isn’t how many people watch an individual show or movie, but how many subscribers it helps sign up and retain.
- To some in Hollywood, the popularity of “Bird Box” was a breakthrough. It shows the streaming giant’s potential to reach large audiences without relying on showings in theaters, and it could help the company court top directors, some executives say.
Apple inks deal with Samsung to distribute iTunes shows on TVs
- Samsung said that it will add an app to its smart televisions in the coming months to let owners watch content bought on Apple’s iTunes service, a possible first sign Apple is looking to distribute its forthcoming television service on devices made by others.
- The deal is part of an ongoing strategy shift for Apple, which is facing weak hardware sales in China and a saturated global smart phone market where users are hanging on to their old iPhones longer than ever, hammering its biggest business.
- As a result, Apple is increasingly leaning on its services segment, which includes businesses such as iCloud storage in addition to its music, television and movie content businesses.
Samsung, Huawei supply majority of own modem chips, Qualcomm says
- The two largest smart phone makers in the world supply a majority of their own modem chips to help their devices connect to wireless data networks, according to evidence presented at an antitrust trial for chip supplier Qualcomm.
- A trial between the U.S. FTC and Qualcomm kicked off in a federal courtroom on Friday, with the regulators arguing that Qualcomm engaged in anticompetitive patent licensing practices to preserve a monopoly on modem chips.
- Apple has alleged that Qualcomm engaged in illegal business practices, and Qualcomm in turn has alleged Apple violated its patents, scoring victories in China and Germany last month.
US ECONOMY & POLITICS
US services sector grows at slowest pace since July
- The institute for Supply Management said its non-manufacturing index clocked in at 57.6 last month.
- Economists expected the ISM non-manufacturing index to slip to 59 in December. A reading above 50 reflects expansion.
- Prices in the services sector fell 6.7 percentage points to 57.6 last month, while employment slipped by 2.1 percentage points to 56.3. December’s reading is also the lowest since July.
Trump: Weakness in China economy gives Beijing incentive for trade deal
- U.S. President Donald Trump said on Sunday that trade talks with China were going very well and that weakness in the Chinese economy gave Beijing a reason to work toward a deal.
- U.S. officials are meeting with their counterparts in Beijing this week for the first face-to-face talks since Trump and China’s President Xi Jinping in December agreed to a 90-day truce in a trade war that has roiled international markets.
- Beijing on Friday cut bank reserve requirements amid slowing growth at home and pressure from the U.S. tariffs.
U.S. Pushes China to Follow Through on Trade Promises
- During the negotiations started Monday, trade officials from Washington and Beijing are looking to hammer out details on a number of broad pledges recently made by the Chinese leadership: more purchases of U.S. goods and services; increased access to China’s markets; better protection of U.S. intellectual property and reductions in subsidies to Chinese companies.
- The Trump administration’s focus on how to enforce any deal with Beijing highlights what U.S. officials call China’s poor follow-up record.
- Chinese officials suggest that Beijing is willing to put in place a process for monitoring progress toward fulfilling its offers. At the same time, mistrust of Washington also runs deep within Zhongnanhai, the Chinese leadership compound.
U.S. Ship Sails Near Disputed South China Sea Islands in Challenge to Beijing
- A U.S. guided-missile destroyer patrolled near the disputed Paracel Islands in the South China Sea on Monday, challenging Beijing’s maritime claims there, U.S. military officials said.
- The USS McCampbell conducted what the military calls a freedom of navigation operation in the Paracel Islands chain, sailing within 12 nautical miles of three islands: Tree, Lincoln and Woody, according to a Navy official.
- China sent a vessel to warn off the American ship and has lodged a complaint with the U.S., Chinese Foreign Ministry spokesman Lu Kang said Monday at a regular press briefing in Beijing.
Shutdown Is Felt as Negotiators Dig in Over Border Wall
- Federal workers braced for missing their first paycheck this week as negotiators showed little sign of progress in ending a two-week-old partial government shutdown.
- Because of the partial shutdown, about 420,000 employees, deemed essential, are working without pay, while 380,000 federal employees have been placed on unpaid leave, or furlough.
- White House officials and congressional leadership staff members met Saturday and Sunday but didn’t agree on allocating money for President Trump’s request for hundreds of miles of a wall along the southern U.S. border.
- Mr. Trump also reiterated his suggestion, first made late last week, that he was considering declaring a national emergency if Congress didn’t agree to fund the wall, an action that would invite legal challenges.
Bolton Says U.S. Withdrawal from Syria Is Conditional
- The Trump administration won’t withdraw forces from northern Syria unless Turkey offers a firm commitment not to target the U.S.’s Kurdish allies, White House national security adviser John Bolton said Sunday.
- President Trump’s order to withdraw U.S. troops is a “cause-and-effect mission” that requires certain assurances from various players in the region before it can be executed, said Mr. Bolton, the first to outline the conditions for withdrawal.
- His comments marked the first public acknowledgment from the White House that the safety of Kurdish allies is being considered, but also indicates that a quick withdrawal was unlikely given challenging regional dynamics.
EUROPE & WORLD
Samsung Electronics braces for profit drop as China slowdown chips away at demand
- Samsung Electronics is set to post its first drop in quarterly operating profit in two years as slowing economic growth in China, a key market for the South Korean tech giant, erodes demand for its products.
- Revenue is expected to have slipped 5%, hurt by lower memory-chip shipments. Samsung had in October slashed its 2018 capex, calling an end to a two-year bonanza for memory chips as the global smartphone market slowed.
- Samsung, due to publish preliminary fourth-quarter results on Jan. 8, is expected to see a 12% year-on-year drop in operating profit to 13.3 trillion won ($11.85 billion) for the period.
- Samsung’s worldwide smartphone business has not been spared, with profit at the unit expected to have slumped by a fifth in the fourth quarter.
Trade Tensions Take a Toll on China’s Economy
- China’s economy is slowing faster than expected as Beijing this week heads into a crucial new round of negotiations with the U.S. over trade.
- In the southern province of Guangdong, the country’s export hub for electronics, chemicals and auto parts, the local government was recently forced by the National Bureau of Statistics to suspend publication of a monthly indicator of regional manufacturing activity that had been trending lower.
- The slowdown could give Mr. Xi’s advisers a greater sense of urgency to hash out a trade deal with U.S. negotiators when the two sides sit down in Beijing this week.
- Just a few months ago, when the economy was still performing within expectations, Mr. Xi had adopted a largely bare-knuckle approach to Washington’s trade-clash escalations, vowing to match President Trump’s tariff threats dollar for dollar.
Huawei launches server chipset as China pushes to cut reliance on imports
- Huawei launched a new chipset for use in servers, at a time when China is pushing to enhance its chip-making capabilities and reduce its heavy reliance on imports, especially from the United States.
- Huawei is seeking growth avenues in cloud computing and enterprise services as its equipment business comes under increased scrutiny in the West amid worries about Chinese government influence over the firm.
- For Huawei, the launch of the chipset – called the Kunpeng 920 and designed by subsidiary HiSilicon – boosts its credentials as a semiconductor designer, although the company said it had no intention of becoming solely a chip firm
Britain’s May to hold parliamentary Brexit vote on January 15: BBC
- Prime Minister Theresa May will hold a delayed parliamentary vote on her Brexit deal on Tuesday, January 15, the BBC reported on Monday, citing government sources.
- May was forced to pull the vote on her deal in December after she said it would be defeated by a large majority.
- The government had previously said the vote would be held in the week of January 14.
- May said on Sunday that Britain would be in uncharted territory if her Brexit deal is rejected by parliament, despite little sign that she has won over skeptical lawmakers.
Record low of 18% of UK voters think May has the right Brexit deal: poll
- A record low of just 18% of British voters think Prime Minister Theresa May has got the right Brexit deal, an ORB poll published on Monday showed.
- When asked if they were confident May had the right deal, 59% disagreed, 21% said they did not know and 18% agreed, the lowest level ever recorded by the poll which has been monitoring views of her negotiation since 2016.
EU again rules out reworking Brexit deal
- The European Commission repeated on Monday that EU leaders would not renegotiate a Brexit treaty agreed last month with Prime Minister Theresa May and was pressing on with planning for Britain to crash out of the Union without a deal.
- “The deal that is on the table is the best and the only deal possible,” chief spokesman Margaritis Schinas told reporters when asked about a phone conversation on Friday between May and Commission President Jean-Claude Juncker.
- He also repeated that there were no talks planned between negotiators from the two sides as “negotiations are complete”.
TODAY in HISTORY
- Harry Truman announced that the U.S. had developed the hydrogen bomb. (1953)
- The impeachment trial of President William Clinton began in the Senate. (1999)
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