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WALL STREET DROPS AFTER FOUR-DAY RALLY AS RETAILERS, TRADE TALKS DISAPPOINT

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

DAILY MARKET REPORTS

  • U.S. stocks looked set to snap a four-day rally on Thursday as disappointing holiday-season results from Macy’s hammered retail stocks and no clear signs of a resolution emerged from U.S.-Chinese trade talks.
  • Despite the S&P 500’s retreat, the benchmark index is holding near three-week highs and is 9.2% above the 20-month low, thanks to the recent rally that was driven by U.S. jobs data, easing fears of higher interest rates and rising hopes of a trade deal.
  • The trade optimism dampened after China said the three days of talks had established a “foundation” to resolve differences, but gave virtually no details on key issues.
  • Shares of retailers led major indexes lower after several, including Macy’s and Kohl’s, reported disappointing sales results from the holiday season, reviving concerns among investors that companies will struggle to boost profits this year.
  • Among the few bright spots, Bed Bath & Beyond, gained 5.9% after the home furnishing company reported a better-than-expected quarterly profit and gave upbeat earnings forecast.
  • American Airlines fell 9.7% after the No.1 U.S. airline cut its forecast for fourth-quarter growth in unit revenue, a closely watched performance metric. That weighed on other airlines as well.
  • Minutes from the Fed’s most recent meeting, released on Wednesday, showed policymakers want to be patient about future interest rate increases.

US FINANCIAL MARKET

Macy’s Lowers Annual Guidance Following Slower Holiday Sales

  • Macy’s fell 18% as the department store lowered its full-year guidance following tepid holiday sales.
  • Comparable sales from stores it owns rose 0.7% during the months of November and December.
  • Same-store sales from stores it owns and licenses rose 1.1%.
  • For fiscal 2018, the department store now expects comparable sales growth of about 2% compared with its previous guidance in November of 2.3% to 2.5%. Analysts are expecting same-store sales for the fourth quarter of 1.8%.
  • Macy’s, which is set to report fourth-quarter results on Feb. 26, now expects net sales to be flat compared with prior guidance of 0.3% to 0.7% growth.
  • The company also cut its earnings forecast to between $3.95 and $4 a share, down from its previous estimate of $4.10 and $4.30.

Target Sales Surged at Year-End, Capping Strong Holiday Season

  • Holiday sales rose at Target, an early sign that many retailers benefited from what was expected to be one of the strongest holiday shopping seasons in years.
  • Target sales rose 5.7% between Nov. 4 and Jan. 5 in stores and through company websites operating for at least 12 months, the company said Thursday. Sales rose 3.4% during the same period last year.
  • Target said online sales grew 29% over the holidays, driven largely by its use of stores to ready packages for home delivery and as pickup hubs.
  • Target still expects fourth quarter 2018 comparable sales to grow around 5% and full-year earnings to be between $5.30 and $5.50 per share.

Bed Bath & Beyond forecasts 2019 profit ahead of estimates, shares jump

  • Home furnishing retailer Bed Bath & Beyond reported a better-than-expected quarterly profit and forecast earnings for 2019 above Wall Street estimates, sending its shares up 16% in extended trading.
  • Net sales rose to $3.03 billion from $2.95 billion. However, total comparable sales dropped 1.8%, continuing their slide for the seventh straight quarter. Analysts had expected comparable sales to fall 0.29%.
  • The company’s net income fell 60% to $24.4 million in the third quarter, but came in ahead of consensus.
  • The retailer forecast 2019 earnings per share to be about the same as fiscal 2018 at $2 per share, above analysts’ estimate of a profit of $1.57 per share.

Kohl’s shares tumble on holiday sales results

  • Kohl’s on Thursday reported holiday sales growth that paled in comparison to its results in 2017, sending shares tumbling.
  • The retailer said sales at its stores and website operating for at least 12 months, on a shifted basis, rose 1.2% over the 2018 holiday shopping season. That’s compared with growth of nearly 7% during the same time a year before.
  • Based on Thursday’s results, Kohl’s said it now expects fiscal 2018 diluted earnings per share to fall within a range of $5.50 to $5.55, up from a prior range of $5.35 to $5.55. Analysts had been calling for earnings of $5.52 per share.

Costco December sales rose to $15.42 billion

  • Costco reported net sales of $15.42 billion for the retail month of December, an increase of 7.8% from $14.30 billion last year.
  • In a five-week period ending on Jan. 6, sales excluding gas and foreign exchange for Costco in the U.S. increased by 7%, versus a consensus estimate of 6.4%.
  • E-commerce sales rose 13.6% compared with the year ago period.

American Airlines cuts fourth-quarter estimate for revenue metric

  • American Airlines on Thursday cut its estimate for a closely watched revenue metric for the fourth quarter, raising concerns that travel demand in the U.S. may be taking a hit from slowing global growth and trade tensions.
  • American said it now expects unit revenue, which compares sales to flight capacity, to increase about 1.5% in the quarter, compared with its earlier estimate of 1.5% to 3.5% rise.
  • The airline also cut its full-year earnings per share expectation to a range of $4.40 to $4.60, from $4.50 to $5 earlier. Analysts were expecting earnings of $4.62 per share.

Ford to Slash Jobs, Shut Plants in Major European Revamp

  • Ford has launched talks with trade unions in Europe about job cuts that could run into the thousands as it shuts European plants and cancels production of unprofitable models in response to a storm of bad news for global car makers.
  • The restructuring a sign that waning demand and weaker profits, amid concerns around Brexit, trade, the gradual death of diesel engines and a China economic slowdown, are forcing companies to prune their businesses after years of steady growth.
  • The company is trying to shore up its European business after Ford Europe reported that losses in the region widened to $245 million in the third quarter.

Samsung to Show Off Its New Foldable Phone in February

  • Samsung plans to unveil its 10th anniversary flagship phone lineup and show a fully functional foldable-screen handset at Feb. 20 events in San Francisco and London, according to people familiar with the matter.
  • The device’s name is still being determined, with “Fold” or “Galaxy Fold,” as well as “Galaxy F” as three possibilities.
  • Samsung’s crush of feature-heavy launches—totaling five premium models by midyear—will serve as a major litmus test for a smartphone industry struggling to cajole consumers into buying the newest and most profitable devices.

Nike’s Dutch Tax Deals Under Scrutiny in Europe

  • The European Commission on Thursday opened an investigation into Nike’s tax deals with the Netherlands, which could potentially lead to the U.S. company having to pay back millions of euros.
  • The probe concerns two Nike group companies based in the Netherlands: Nike European Operations Netherlands and Converse Netherlands, which develop, market and record the sales of Nike and Converse products in Europe, the Middle East and Africa.
  • From 2006 to 2015, Dutch tax authorities issued five so-called tax rulings, which allow the companies to pay less tax than other competitors, a move which could amount to illegal state aid, according to the commission.
  • The investigation could also result in the company being cleared, such as with McDonald’s in September, when the commission closed its probe into the company’s tax arrangements with Luxembourg, concluding there had been no illegal state aid.

Google Nears Win in Europe Over ‘Right to Be Forgotten’

  • Google and other search engines shouldn’t be forced to apply the European Union’s “right to be forgotten” beyond the bloc’s borders, an adviser to the EU’s top court argued Thursday.
  • The recommendation—if followed by the EU’s Luxembourg-based Court of Justice—would be a major victory for Google, which has for three years been fighting an order from France’s privacy regulator to apply the EU principle globally.
  • A final decision is expected in coming months from the court, which isn’t obliged to follow an advocate general’s opinion, but often does. No further appeal is possible within the EU.

U.S. buyback market support may wane in 2019

  • U.S. companies’ shopping spree for their own shares helped put a floor on market declines in 2018.
  • Don’t look for the same level of support in 2019.
  • Through the first three quarters of the year companies bought $583.4 billion of their own stock, just shy of 2007’s full-year record of $589.1 billion, according to S&P Dow Jones Indices data.
  • Buybacks have been a major support to the bull market that began in March 2009.
  • S&P 500 companies bought roughly $4.5 trillion worth of their own shares, equal to about a third of the benchmark’s $15 trillion gain in value over that time.

A Junk-Bond Drought Is Making Investors Nervous

  • No U.S. company rated below investment grade has issued bonds since November—the longest stretch without a high-yield sale in more than two decades—reflecting investors’ concerns about market volatility and the durability of the long-running expansion.
  • Thursday is on pace to mark 41 days without a deal, the longest stretch in data going back to 1995.
  • Volatility in financial markets, uncertainty about the economy are discouraging riskier companies from issuing debt and investors from buying it, analysts say.
  • December was the first month since 2008 without a junk-bond sale, according to Dealogic.

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US ECONOMY & POLITICS

U.S. Jobless Claims Fell Last Week

  • Initial jobless claims, a proxy for layoffs across the U.S., decreased by 17,000 to a seasonally adjusted 216,000 in the week ended Jan. 5. Economists expected 230,000 new claims last week.
  • Federal employees file under a separate program, which is reported with a one-week lag.
  • For the week ended Dec. 29, the first week of the partial shutdown, 4,760 federal employees filed for first-time benefits.
  • That was up from 929 the prior week, and 819 a year earlier. Claims by federal workers aren’t adjusted for seasonality.
  • Thursday’s report showed the number of claims workers made for longer than a week decreased by 28,000 to 1,722,000 in the week ended Dec. 29. The figure, also known as continuing claims, is reported with a one-week lag.

Fed Is Unlikely to Raise Rates in Next Months, Minutes Show

  • Federal Reserve officials signaled they are unlikely to raise interest rates for at least a few months while they assess the impact of recent market volatility on the U.S. economy.
  • Officials were already growing more cautious about their policy path when they agreed to raise rates last month, according to minutes of their Dec. 18-19 meeting.
  • Most private economists surveyed expect the Federal Reserve will hold interest rates steady at least until June, after Chairman Jerome Powell signaled the central bank may take a break from rate increases.
  • The economists were split over whether the Fed would raise rates once or twice in 2019.
  • They forecast a median fed-funds rate of 2.75% by the end of the year, compared with 2.89% in last month’s survey.

China says trade talks with U.S. made progress on forced tech transfers, IP rights

  • China and the United States made progress on “structural issues” such as forced technology transfers and intellectual property rights in talks this week and more consultations are being arranged, China’s commerce ministry said on Thursday.
  • The U.S. has presented China with a list of demands that would rewrite the terms of trade between the world’s two, including changes to policies on intellectual property protection, technology transfers, industrial subsidies and other non-tariff barriers.
  • Nearly halfway into the 90-day truce, there have been few concrete details on any progress made.

Trump Walks Out of Shutdown Talks, Calls Them ‘Total Waste of Time’

  • As negotiations to end a partial government shutdown broke down Wednesday, White House officials said an increasingly likely option is for President Trump to declare a national emergency over border security and try to use Pentagon funds to pay for construction of a wall or other barrier on the U.S.-Mexico border.
  • The stakes in the showdown over border-wall funding heightened Wednesday after discussions at the White House between the president and congressional leaders collapsed when Mr. Trump walked out.
  • The collapse of the negotiations came on the 19th day of the partial government shutdown, which has left about 420,000 employees deemed essential working without pay, while another 380,000 have been placed on unpaid leave, or furlough.

Infrastructure Projects May Start Feeling the Bite of Government Shutdown

  • State highway groups say the partial federal government shutdown could delay the start of new highway, bridge and other infrastructure projects across the U.S. if the budget impasse in Washington goes on much longer.
  • The main agency of the U.S. Transportation Department that handles backing for state infrastructure projects remains open and sent state officials notice late Tuesday they would have a total of $36.6 billion available for a new round of contracts typically issued for spring construction.
  • But AASHTO said the notice, amounting to a credit line, won’t thaw a freeze some states are starting to impose on new projects because Congress could reduce the money for the program under a new spending plan.
  • Moody’s issued a report warning that its ratings on U.S. transit systems could turn “credit negative” if the shutdown continues because many local transit agencies rely on backing from Washington for debt service and other spending.

Missing Government Data Make Job Tougher for Policy Makers, Traders

  • Economic data produced by the Commerce Department’s Census Bureau and Bureau of Economic Analysis aren’t being released during the government shutdown; nor are some key data from other economic agencies.
  • That meant no report Monday on national factory orders or Tuesday on the state of the U.S. trade deficit.
  • It could mean no report Friday on the federal budget deficit, and potentially next week on retail sales, business inventories and housing starts. It could mean no report at the end of the month on how fast the economy grew in the fourth quarter.
  • The reports help Fed officials and traders form views about how consumer spending, the housing sector, and the broader economy are performing. Without the reports, those views are less informed and can lead to policy mistakes or market volatility.

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EUROPE & WORLD

Tesco outshines rivals with best Christmas since 2009

  • Tesco, Britain’s biggest retailer, defied the industry gloom on Thursday, saying improvements in its own-brand ranges helped deliver its best Christmas in nearly a decade.
  • The supermarket group reported a 2.2% rise in same-store sales in its home market in the six weeks to Jan. 5, beating rivals Sainsbury’s and Morrisons. Analysts had forecast a rise of 1.0 to 1.5%.
  • For the 2018-19 year, analysts on average expect Tesco to make an operating profit before exceptional items of 2.08 billion pounds ($2.65 billion), up from 1.64 billion in 2017-18.

Foxconn December revenue dips, first time in 10 months

  • Taiwan’s Foxconn, a key Apple supplier, reported an 8% fall in its December revenue on Thursday, dampening its performance in 2018 amid tepid demand for electronics.
  • Foxconn, said in a stock exchange filing that revenue fell 8.3% to T$619.3 billion ($20.12 billion) in December. The revenue performance for December compared to consolidated revenue of T$675.1 billion last year, a 50% year-on-year rise.
  • Foxconn said 2018 sales increased 12.5% compared to 2017.

India’s Tata Consultancy Services posts record quarterly profit

  • Tata Consultancy Services, India’s biggest listed company by market capitalization, reported a record quarterly net profit, helped by gains in Banking, Financial services and Insurance (BFSI) segment.
  • Sequential revenue growth was led by the U.K. and Europe, which rose 25.1% and 17.6%, respectively
  • In a seasonally weak quarter due to year-end holidays, TCS posted a profit of 81.05 billion rupees ($1.15 billion), up from 65.31 billion rupees a year earlier. That missed an average estimate of 82.19 billion rupees.

China’s Sluggish Prices Raise Deflation Fears

  • Consumer and producer prices decelerated sharply in China last month, compounding the challenge for Beijing in boosting sluggish demand in a deepening economic downturn.
  • Consumer prices rose in December at their slowest pace in six months, 1.9% from a year earlier by China’s benchmark index, while prices charged by producers increased by the lowest rate in two years, at 0.9%, according to official data released Thursday.
  • The producer-price index rose 0.9%, a sharp descent from November’s 2.7% and was the slowest gain since September 2016, when it inched up 0.1% after staying in deflation territory for more than four years.
  • For all of 2018, the PPI climbed 3.5% after surging 6.3% in 2017.

Jaguar to Slash 4,500 Jobs in Brexit Slump, Joining Ford in Cuts

  • Jaguar Land Rover plans to slash 4,500 jobs worldwide, as the U.K.’s biggest automobile maker responds to the sales slowdown caused by Brexit, flagging demand for diesel-powered vehicles and a downturn in China.
  • The cuts, representing roughly 10% the company’s workforce, are part of a 2.5 billion-pound ($3.2 billion) push announced last year to reduce costs and boost cash flow through 2020. They come on top of the 1,500 people who left in 2018.
  • Jaguar said retail sales fell 4.6% in 2018, citing uncertainty surrounding Brexit, the trade-war driven Chinese slump that lowered its sales in the country by 22%, and consumer misgivings around the diesel engines that power much of its Land Rover lineup.

Fiat Chrysler to pay more than $700 million over U.S. diesel emissions claims: sources

  • Fiat Chrysler will pay more than $700 million to resolve lawsuits from the U.S. Justice Department and diesel owners over claims it used illegal software to allow 104,000 diesel vehicles to emit excess emissions, three people briefed on the matter said.
  • Fiat Chrysler has denied any wrongdoing and previously said there was never an attempt to create software to cheat emissions rules. In October, the company set aside 713 million euros ($815 million) to cover potential costs related to the case.
  • The settlements are set to be announced on Thursday at the Justice Department. Fiat Chrysler, Bosch and the Justice Department declined to comment.

Surprise Winner Declared in Congo Presidential Election

  • The Democratic Republic of Congo’s electoral commission declared opposition leader Félix Tshisekedi as the winner of the presidential election, a stunning announcement that contradicts an unofficial tally by the largest observer mission and throws the Central African nation into uncharted territory.
  • It is the first time since independence from Belgium that an opposition candidate would take the presidency of the resource-rich country after an election.
  • The 55-year-old Mr. Tshisekedi is set to succeed President Joseph Kabila, who has ruled Congo for 18 years and whose handpicked candidate came in third in the long-delayed election.
  • Congo’s Roman Catholic Church, which had some 40,000 observers monitoring the vote, had told diplomats that its unofficial tally showed another opposition candidate, former Exxon Mobil country manager Martin Fayulu, as the winner.

Venezuelan Leader Starts Second Term With Grim Outlook

  • Venezuelan President Nicolás Maduro began a second, six-year term on Thursday in defiance of international calls to resign, paving the way for further isolation of a nation steeped in economic despair and autocracy.
  • Mr. Maduro’s political rivals here and a host of nations, including the U.S. and the European Union, have said they won’t recognize his government after about 60 countries deemed his May reelection to be illegitimate.
  • Venezuela’s economy has shrunk by nearly half since Mr. Maduro took office in 2013. The International Monetary Fund estimates inflation will reach 10 million percent in 2019.

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TODAY in HISTORY

  • Thomas Paine’s Common Sense, which greatly influenced the authors of the Declaration of Independence, was published. (1776)
  • The League of Nations came into existence. (1920)

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