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U.S. MARKETS MIXED AS U.S.-CHINA TRADE TALKS WRAP UP

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US FINANCIAL MARKET | US ECONOMY & POLITICS
 EUROPE & WORLD | TODAY IN HISTORY

DAILY MARKET REPORTS

  • Stocks around the world initially extended their gains Wednesday, boosted by optimism over trade talks as investors awaited minutes from the Federal Reserve’s December meeting.
  • While anxiety that the U.S.-China trade fight will weaken the global economy has hurt stocks and other risky investments in recent months, some analysts are optimistic the two sides can reach a compromise.
  • Officials from the United States and China ended their talks in Beijing that lasted longer than expected and officials said details will be released soon, raising hopes that an all-out trade war that could badly disrupt the global economy can be averted.
  • Hopes of a trade deal between the world’s two largest economies, strong U.S. jobs data and Federal Reserve chair Jerome Powell’s dovish remarks on interest rates have helped lift the S&P 500 9.7% from the 20-month low it hit around Christmas.
  • Threatening to weigh on sentiment was the partial U.S. government shutdown that entered its 19th day as Democratic lawmakers and the White House remain divided over President Donald Trump’s demand for money for a border wall.
  • Shares in Constellation Brands dropped 8.8% after the Corona brewer cut its profit outlook for fiscal 2019.

US FINANCIAL MARKET

Constellation cuts profit outlook as pot investment weighs, shares tumble

  • Corona-maker Constellation Brands cut its 2019 profit outlook on the back of weak wine and spirits sales and costs related to its investment in a Canadian pot producer, sending its shares down 11%.
  • Its net sales rose 9.5% to $1.97 billion in the quarter and topped the average estimate of $1.91 billion. The beer business remains a bright spot for the company, with sales rising 16% in the third quarter.
  • Net income fell 38.5% to $303.1 million from $492.8 million in the same period a year ago, Canopy’s worse than expected quarterly results reduced Constellation’s fair value of the producer by $164 million.
  • The brewer, one of the first alcoholic beverage makers to enter the growing cannabis industry with its over $4 billion investment in Canopy Growth, trimmed its earnings per share forecast to between $9.20 and $9.30 from $9.60 to $9.75.
  • The lower forecast reflects an about 25 cents per share pre-tax impact due to interest expenses related to the Canopy deal, which was financed with debt.

Lennar sales miss estimates as housing demand slows

  • Lennar reported lower-than-expected quarterly home sales and orders on Wednesday, confirming fears that the U.S. housing market is slowing in the face of higher interest rates and rising prices after years of robust growth.
  • Total revenue rose 70.6% to $6.46 billion. Analysts on average had expected revenue of $6.53 billion.
  • Lennar, which bought smaller rival CalAtlantic last year, said sales surged 64% to 14,154 homes in the fourth quarter, but were below analysts’ average expectation of 14,485 units.
  • Net income more than doubled to $798 million from $298 million in the same period a year earlier.

Verizon Adds Subscribers as Device Makers Struggle

  • Verizon continued to expand its base of wireless phone subscribers in the final quarter of 2018, a period in which smartphone makers Apple and Samsung have warned investors they would fall short of expectations.
  • The carrier benefited from customers adding more lines per account and its “mix-and-match” family plans that allow subscribers to choose the amount of data they need, Ronan Dunne president of Verizon Wireless, said at a Citigroup analyst conference.
  • Verizon said Tuesday that it added a net 650,000 new postpaid phone connections during the period, an increase from the net 295,000 new phone connections added in the third quarter.
  • Citi analysts expected the largest U.S. carrier by subscribers to add 400,000 net new phone subscribers during the period.

T-Mobile adds more phone subscribers than expected in fourth quarter

  • T-Mobile beat Wall Street estimates for net new phone subscribers who pay a monthly bill, adding 1 million customers in the fourth quarter.
  • The third largest U.S. mobile carrier was expected to add 857,900 new phone subscribers, according to research firm FactSet.
  • T-Mobile’s postpaid phone churn, or the percentage of subscribers who leave a service provider, was 0.99% in the fourth quarter, down from 1.02% in the previous quarter.

Chesapeake output tops expectations, shares jump

  • Chesapeake Energy beat analyst forecasts with initial estimates of fourth quarter output on Wednesday as its efforts to focus on oil and move away from gas continued to pay off, sending its shares up 6%.
  • The Oklahoma-based oil producer said it expected total production to have been between 462,000 and 464,000 barrels of oil equivalent (boe) per day. Analysts on average were expecting the company to produce 447,070 boe/d.
  • On Wednesday, Chesapeake said it had locked in prices for 16 million barrels (mmbbls) of its 2019 oil production forecast of $58.61 per barrel.
  • The company also said its principal amount of debt had come down to $8.2 billion, compared with $10.0 billion as of 2017.

J.C. Penney reaffirms free cash flow forecast, plans store closures

  • Department store operator J.C. Penney reaffirmed its 2018 free cash flow forecast and said it expects to end the year with liquidity in excess of $2 billion.
  • Penney also announced plans to close three stores this spring and said it would assess locations over the next few months that may not meet the required financial targets or represent a market opportunity.
  • The company reported a 3.5% fall in adjusted comparable store sales for the nine-week period ended Jan. 5, indicating a fall in overall comparable sales for the holiday quarter.

Hulu Reports More Than 25 Million Subscribers in 2018

  • Hulu had more than 25 million subscribers at the end of 2018, up by eight million from the year earlier.
  • Hulu said its subscriber total rose 48% on a year-over-year basis. Its subscriber count includes customers for both its subscription service and live TV offerings.
  • Hulu said its advertising revenue for 2018 was almost $1.5 billion, an increase of more than 45%. The company said that is the most it has brought in for advertising so far.
  • Despite Hulu’s growth, its subscriber count is still much smaller compared with rival Netflix. As of Sept. 30, Netflix had about 137.1 million streaming members worldwide, according to the company’s recent quarterly filing.

U.S. Government Shutdown Freezes IPO Market, Imperiling Expectations for 2019

  • The government shutdown is threatening to spoil what was poised to be a banner year for IPOs.
  • The partial closure of the Securities and Exchange Commission is forcing companies that were seeking to list shares in January to push back their plans, according to bankers and lawyers.
  • It now looks likely that no major company will tap the U.S. IPO market this month. Since 1995, there have been just three years that had a new-issue drought in January, according to Dealogic data.

Apple cuts current-quarter production plan for new iPhones by 10%: Nikkei

  • Apple, which slashed its quarterly sales forecast last week, has reduced planned production for its three new iPhone models by about 10% for the January-March quarter, the Nikkei Asian Review reported on Wednesday.
  • That rare forecast cut exposed weakening iPhone demand in China, the world’s biggest smartphone market, where a slowing economy has also been buffeted by a trade war with the United States.
  • Many analysts and consumers have said the new iPhones are overpriced.
  • Apple asked its suppliers late last month to produce fewer-than-planned units of its XS, XS Max and XR models, the Nikkei reported, citing sources with knowledge of the request.

Apple Gives CEO Tim Cook 22% Increase in Pay

  • Apple rewarded Chief Executive Tim Cook and other top executives with a big boost in compensation for fiscal 2018, when the iPhone maker blew past annual sales and profit goals but faced slowing momentum for its most popular device.
  • Mr. Cook’s total compensation for the year ended in September rose 22% to $15.7 million, the second consecutive year his pay increased, and was driven by a $12 million cash bonus that hinged on Apple exceeding financial targets set by the board.
  • The award was revealed a week after Mr. Cook issued a letter to shareholders saying Apple would miss revenue estimates, marking the first time in more than 15 years the company had slashed its quarterly revenue guidance.

Sears Gets Another Life Line: Lampert’s $4.4 Billion Offer Is Still Alive

  • Billionaire Edward Lampert will get one last chance to keep Sears from closing down, after the retailer agreed to let its longtime leader compete in a bankruptcy auction that will decide the once-iconic department store’s fate.
  • Sears, which filed for chapter 11 protection in October, plans to hold a court-supervised auction on Monday that will determine whether what is left of the 126-year-old chain is liquidated or left in Mr. Lampert’s control.
  • The retailer’s independent board members and creditors want to wind down the business, but the hedge fund manager-turned-CEO wants to keep 425 stores open

Former Insys CEO to plead guilty in opioid kickback case

  • The former chief executive of Insys Therapeutics is expected on Wednesday to plead guilty to participating in a scheme to pay doctors bribes in exchange for prescribing an addictive opioid medication.
  • Michael Babich, who resigned as the Arizona-based drugmaker’s CEO in 2015, is scheduled to appear in federal court in Boston and plead guilty to conspiracy and mail fraud charges, according to court papers.
  • Prosecutors allege that from 2012 to 2015, Kapoor, Babich and others conspired to bribe doctors in exchange for prescribing Subsys. Prosecutors said they also defrauded insurers into paying for the pain treatment.

China gives long-awaited GM crop approvals amid U.S. trade talks

  • China approved five genetically modified (GM) crops for import on Tuesday, the first in about 18 months in a move that could boost its overseas grains purchases and ease pressure from the United States to open its markets to more farm goods.
  • The approved products included DowDuPont’s DP4114 Qrome corn and DAS-44406-6 soybean, known as Enlist E3, as well as the SYHT0H2 soybean developed by Bayer CropScience and Syngenta but now held by German chemical company BASF.
  • The other two newly approved products – BASF’s RF3 canola and Bayer-owned Monsanto’s glyphosate-tolerant MON 88302 canola – had been waiting six years for permission.

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US ECONOMY & POLITICS

U.S.-China trade talks conclude as hopes of a deal build

  • Chinese and U.S. teams ended trade talks in Beijing on Wednesday that lasted longer than expected and officials said details will be released soon, raising hopes an all-out trade war that could badly disrupt the global economy can be avoided.
  • The talks were extended into an unscheduled third day, showing both sides were “serious”, China’s foreign ministry said.
  • However, people familiar with the negotiations said the two sides were further apart on Chinese structural reforms that the U.S.  is demanding in order to stop alleged theft and forced transfer of U.S. technology, and on how China will be held to its promises.
  • If no deal is reached by March 2, Trump has said he will proceed with raising tariffs to 25% from 10% on $200 billion worth of Chinese imports, at a time when China’s economy is slowing significantly. Beijing has retaliated in turn to U.S. tariffs.

Fed Meeting Minutes Will Show How Officials Judged Economic Risks

  • The Federal Reserve releases the minutes of its Dec. 18-19 meeting on Wednesday, providing detail about how central bank officials viewed the risks to economic growth when they raised interest rates during a period of heightened market volatility.
  • They voted unanimously to raise their benchmark federal-funds rate to a range between 2.25% and 2.5% at the meeting, their fourth increase of the year.
  • Fed officials made what appeared to be a significant change to their policy forecast by projecting two rate increases in 2019, down from the three they anticipated in September, despite modest changes to their growth expectations.

Trump Pushes for Wall, Democrats Say He Stokes Fear for Political Gain

  • President Trump in a prime-time address Tuesday said a wall along the southern border is key to national security, as he called for lawmakers to fund it and end a partial government shutdown that is days away from becoming the longest in U.S. history.
  • A wall “is absolutely critical to border security,” Mr. Trump said, in a nine-minute speech. “It’s also what professionals at the border want and need. This is just common sense.”
  • House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer issued an immediate televised response to the president, rejecting the idea of a wall as unnecessary and accusing Mr. Trump of stoking fear to rally support for his cause.
  • Mr. Trump and congressional leadership from both parties are scheduled to meet and discuss the issue Wednesday at the White House, after the president attends a lunch with Senate Republicans on Capitol Hill.

Housing Market Is Canary in Interest-Rate Coal Mine

  • The funk in the housing market could be an important signal about the U.S. economy’s sensitivity to rising interest rates. So could any rebound now that rates have retreated somewhat.
  • Last year wasn’t a good one for housing. Through October, sales of new single-family homes were down 12% from a year earlier. Sales of previously owned homes were down by 7% through November.
  • The average rate on a 30-year fixed climbed to as much as 4.9% in November, its highest since 2011, versus 4% at the start of the year. For a $500,000 mortgage, that boosted the monthly payment by $266 to $2,654. The mortgage rate has since fallen to 4.5%.

U.S. Carbon Emissions Rose 3.4% in 2018 as Economy Surged

  • U.S. carbon emissions rose 3.4% in 2018, after three years of declines, as the effects of a strong economy outstripped a sharp decline in the number of power plants burning coal to generate electricity.
  • The increase in carbon emissions was the biggest jump since 2010, when the economy was rebounding from the Great Recession, and the second largest increase in two decades, according to the Rhodium Group.
  • U.S. efforts to cut carbon emissions have been helped in recent years by increased production of cheap natural gas, which produces far less carbon per unit of energy and has supplanted coal as the primary fuel used to produce electricity.
  • In the U.S., utilities were expected to have retired nearly 14 gigawatts of coal-fired power generation by the end of 2018, possibly a record, according to Tuesday’s report. Meanwhile, natural gas was up significantly.
  • Natural gas generation grew four times as fast as wind and solar combined through the first 10 months of 2018, the report said.

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EUROPE & WORLD

LG Electronics sees 80% drop in fourth-quarter profit; analysts point to thinning TV margins

  • South Korea’s LG Electronics said its fourth-quarter operating profit likely plummeted 80% from the same period a year earlier, falling well below analyst expectations.
  • The world’s second-biggest television set maker estimated profit of 75.3 billion won ($67.03 million) for October-December last year. That would compare with the 387 billion won average estimate.
  • Revenue likely fell 7% to 15.8 trillion won, LG said in a regulatory filing, versus analysts’ 16.3 trillion won estimate.

Britain’s May suffers parliament defeat as Brexit debate restarts

  • British Prime Minister Theresa May suffered an early defeat to her Brexit plans on Wednesday, when parliament demanded the government come up with a plan-B within days if she loses a vote on her deal to leave the European Union.
  • Lawmakers voted 308-297 in favor of demanding the government come up with an alternative plan within three working days after Tuesday’s vote, rather than a planned 21-day limit, in a non-binding motion that nonetheless piles pressure.
  • With less than three months before Britain is due to leave the EU, parliament began a five-day battle over May’s Brexit plan with a show of force – undermining her preferred timetable if lawmakers vote down her deal next Tuesday.
  • May has refused to retreat from her unpopular deal, which envisages close trading ties with the EU after leaving in March, pressing ahead with the vote that she looks set to lose after failing to win over her nominal Northern Irish allies.

Saudi Arabia Edges Toward Bet on Booming U.S. Energy Sector

  • Saudi Arabia is nearing a deal to invest in U.S. liquefied natural gas, a landmark decision for the kingdom, which in the past had been a huge supplier of energy to America.
  • Saudi Arabian Oil Co., known as Aramco, has narrowed its focus to a shortlist of at least four U.S. LNG projects and intends to announce a deal in the first half of this year, people familiar with the matter said.
  • Any such investment would mark a sea change in the energy flows between the U.S. and Saudi Arabia. America’s shale revolution has broken years of dependence on Middle Eastern oil, to the extent that the IEA expects the U.S. to become a net energy exporter by 2023.

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TODAY in HISTORY

  • The Russian Revolution of 1905 was sparked by troops firing on petitioners to Czar Nicholas in St. Petersburg. (1905)

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