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S&P, Dow notch record highs ahead of signing of trade deal

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US FINANCIAL MARKET

S&P, Dow notch record highs ahead of signing of trade deal

  • The S&P 500 and the Dow Jones indexes set new record highs on Wednesday on a positive tone around trade talks with China from Trump administration officials ahead of the signing of an initial deal later in the day.
  • China has pledged to increase purchases of U.S. manufactured products, agricultural goods, energy and services as part of the deal, according to a report on Tuesday.
  • Meanwhile, disappointing earnings updates from Bank of America and Goldman weighed on the S&P 500 banking sector.
  • Bank of America reported better-than-expected quarterly profit, but warned that of weak net interest income in the first half of 2020, knocking shares 2%.
  • Goldman Sachs reported a bigger-than-expected fall in profit as it set aside more money to cover legal costs.
  • In other earnings-related news, UnitedHealth, the largest U.S. health insurer, edged up 2.5% as it affirmed its full-year outlook for 2020 adjusted earnings.
  • Retailer Target slumped 5.8% after it missed its own expectations for 2019 holiday season sales, blaming weakness in toys and electronics sales.

Bank of America beats on bond trading boost, loan growth

  • Bank of America beat analysts’ estimates for quarterly profit on Wednesday, as a boost from bond trading and growth in its loan book helped the second-biggest U.S. lender blunt a hit from lower interest rates.
  • The bank had revenue of $22.35 billion, down from $22.68 billion. Analysts had expected $22.22 billion.
  • Bank of America reported a 25% rise in bond trading revenue, although that was far short of the 86% surge at JPMorgan Chase and a 49% jump at Citigroup.
  • Loans grew 6% at Bank of America, significantly outpacing increases at Citigroup and JPMorgan. Bank’s deposits rose 5%.
  • Net interest margin was 2.35%, down from 2.41% in the third quarter, reflecting the continued low rate environment.
  • Net income fell to $6.75 billion in the fourth quarter, from $7.04 billion a year earlier.

Goldman Profit Falls as Bank Braces for 1MDB Fine

  • Goldman Sachs reported a bigger-than-expected fall in quarterly profit on Wednesday as the Wall Street bank set aside more money to cover legal costs for the 1MDB corruption scandal, overshadowing a rebound in its trading business.
  • Total net revenue jumped 23% to $9.96 billion.
  • Revenue from global markets jumped 33% to $3.48 billion. Bond trading surged 63% to $1.77 billion.
  • The only sore spot for Goldman during the quarter was investment banking, where revenue fell 6% to $2.06 billion, hurt by lower M&A advisory fees, as well as a slowdown in corporate lending.
  • The bank’s net earnings fell to $1.72 billion in the quarter from $2.32 billion a year earlier.
  • The bank set aside $1.09 billion in the fourth quarter ahead of an expected settlement that could touch $2 billion or more.

UnitedHealth Group Reports Higher Revenue in Latest Quarter

  • UnitedHealth said that revenue rose 4.25% in the latest quarter as the number of people it served in Medicare Advantage and commercial benefits programs rose.
  • UnitedHealth posted sales of $60.9 billion, up from $58.42 billion a year earlier. Analysts expected revenue of $60.96 billion.
  • The company said the number of people with commercial benefits rose 845,000 from a year earlier, while those served under Medicare Advantage grew 325,000.
  • Overall, earnings were $3.54 billion, compared with $3.04 billion a year ago.
  • The company also affirmed 2020 guidance it released last month that calls for adjusted earnings of $16.25 to $16.55 a share.

Target Says Holiday Sales Missed Its Forecasts

  • Holiday sales were sluggish at Target, raising questions about the strength of the retailer’s turnaround plans and the health of the U.S. consumer.
  • Target’s sales rose 1.4% between Nov. 1 and Dec. 31 in stores and through digital channels operating for at least 12 months.
  • It warned that growth for the full quarter would likely come in less than half the 3% to 4% growth it had predicted.
  • Digital sales rose 19% in November and December compared with a year ago, down from 31% growth in the third quarter.
  • The company is maintaining its profit targets, in part because the categories with stronger sales earn high margins.
  • For the fourth quarter, Target expects adjusted earnings of $1.54 to $1.74 and full-year adjusted earnings of $6.25 to $6.45.

Boeing net orders slump to lowest in decades

  • Boeing reported its worst annual net orders in decades on Tuesday, along with its lowest numbers for plane deliveries in 11 years, as the grounding of its 737 MAX jet saw it fall far behind main competitor Airbus.
  • Boeing’s gross orders plunged 77% to 246 in 2019, while net orders after cancellations or conversions were just 54 airplanes compared with 893 the previous year.
  • After an accounting adjustment representing jets ordered in previous years but are now unlikely to be delivered, Boeing said its net total for orders this year sank to a negative 87 airplanes.
  • Boeing said on Tuesday deliveries fell by 53% to 380 planes over the whole of last year, as the MAX’s grounding made it impossible for it to deliver the planes to customers, forcing it to halt production last month.

BlackRock’s Assets Blow Past $7 Trillion in Milestone for Investment Giant

  • BlackRock, the world’s largest asset manager, beat analysts’ estimates for quarterly profit on Wednesday, helped by strong flows into its exchange-traded fund business that boosted overall assets under management to a record $7.43 trillion.
  • In the latest quarter, BlackRock’s revenue rose 16% to $3.98 billion, above analysts’ forecasts.
  • BlackRock’s revenue from investment advisory, administration fees and securities lending in the quarter—the biggest component of its revenue—increased by 11%.
  • A rally in global equity markets and strong inflows across business segments helped the company lure $128.84 billion in new money during the fourth quarter.
  • The company’s fourth-quarter net income here surged to $1.30 billion in the quarter, from $927 million a year earlier.

U.S. Bancorp’s Profit Falls Under Strain of Interest-Rate Cuts

  • U.S. Bancorp’s fourth-quarter profit fell to its lowest level in two years, showing strain from three interest rate cuts last year.
  • Revenue dropped 3% from the year-earlier period to $5.67 billion. It missed analysts’ expectations of $5.8 billion.
  • The $495 billion asset bank’s loan growth was 3.9% from a year earlier, thanks to stronger residential and credit-card lending.
  • Its net interest income fell 3% from a year ago.
  • The largest regional bank by assets reported net income of $1.49 billion on Wednesday, down from $1.86 billion a year ago.

PNC Financial quarterly profit beats on higher loan growth

  • PNC Financial Services Group posted a better-than-expected fourth-quarter profit, driven by growth in its loan book.
  • Total revenue rose 6.2% to $4.61 billion.
  • PNC Financial, one of the largest local U.S. lenders by assets, said its loan portfolio grew 6% to $239.8 billion, with commercial lending accounting for 67% of total loans.
  • The U.S. regional bank’s net interest income rose marginally to $2.49 billion as higher loans and lower borrowing costs offset lower interest rates.
  • The bank’s net income rose to $1.30 billion in the quarter, from $1.27 billion a year earlier.

Amazon Lifts Ban on FedEx Ground for Third-Party Prime Shipments

  • The online retailer on Tuesday notified its third-party merchants that they could once again use FedEx’s Ground network to ship orders placed under Amazon’s Prime membership program, nearly a month after imposing a ban on the service because of performance issues.
  • The move ends a standoff between Amazon and onetime shipping partner FedEx, whose Ground network was blocked for the final rush before Christmas and several weeks thereafter.
  • Amazon said in mid-December the ban was due to slipping on-time marks for Prime orders, which generally are guaranteed to arrive within a day or two.

Amazon’s Bezos Pledges New $1 Billion India Investment Amid Pushback

  • Amazon.com Chief Executive Jeff Bezos pledged to invest a fresh $1 billion in the company’s Indian operations, part of a charm offensive in a promising but newly challenging market.
  • The new funds will be in addition to $5 billion Amazon is spending to build out its Indian business, a spokeswoman said.
  • India’s antitrust watchdog on Monday ordered an investigation into whether Amazon and Walmart Inc.’s Flipkart have violated competition laws. Between them, the two account for more than 80% of online sales in India, according to Morgan Stanley.

Malaysia Airlines suspends Boeing 737 MAX deliveries due to jet’s grounding

  • Malaysia Airlines said on Wednesday it had suspended deliveries of 25 Boeing 737 MAX jets, citing the plane’s delayed return to service since it was grounded last year following two fatal crashes.
  • The airline said it had previously planned to have five 737 MAX jets delivered this year, the first in July.

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US ECONOMY & POLITICS

U.S. producer prices barely rise as services remain subdued

  • U.S. producer prices (PPI) edged up in December as a rise in the cost of goods was offset by weakness in services, the latest indication of tame inflation pressures that could allow the Federal Reserve to keep interest rates unchanged this year.
  • The Labor Department said its producer price index for final demand ticked up 0.1% last month after being unchanged in November.
  • In the 12 months through December, the PPI increased 1.3% after gaining 1.1% in November.
  • For all of 2019, the PPI rose 1.3%. That was the smallest gain since 2015 and followed a 2.6% increase in 2018.

U.S., China look to reset trade relations with signing of Phase 1 deal

  • U.S. President Donald Trump and Chinese Vice Premier Liu He will sign an initial trade deal on Wednesday that will roll back some tariffs and see China boost purchases of U.S. goods and services, defusing an 18-month conflict between the world’s two largest economies.
  • The centerpiece of the deal is a pledge by China to purchase an additional $200 billion worth of U.S. farm products and other goods and services over two years.
  • Larry Kudlow said the deal called for China to buy an additional $75 billion worth of U.S. manufactured goods over the two-year period.
  • Beijing will boost energy purchases by some $50 billion and services by $40 billion, mostly in the financial sector, Kudlow said.
  • The Phase 1 deal includes pledges by China to forbid the forced transfer of American technology to Chinese firms as well as to increase protections for U.S. intellectual property.
  • The deal contains no provisions to rein in rampant subsidies for state-owned enterprises, which the administration blames for excess capacity in steel and aluminum and says threaten industries from aircraft to semiconductors.
  • It also fails to address digital trade restrictions and China’s onerous cybersecurity regulations that have hobbled U.S. technology firms in China.

U.S.-China Phase 2 trade talks may not start anytime soon: Global Times

  • Phase 2 trade deal talks between Washington and Beijing may not start anytime soon, China’s Global Times reported on Wednesday citing an unnamed source.
  • The tabloid, published by China’s ruling Communist Party’s official People’s Daily, also quoted an unnamed source close to China’s commerce ministry as saying the existing U.S. tariffs on Chinese goods will not be lifted in the short term.

Trump administration moves toward blocking more sales to Huawei: sources

  • The U.S. government is nearing publication of a rule that would vastly expand its powers to block shipments of foreign-made goods to China’s Huawei, as it seeks to squeeze the blacklisted telecoms company, two sources said.
  • Under current regulations, key foreign supply chains remain beyond the reach of U.S. authorities, fueling frustration among China hawks within the administration and a push to expand U.S. authority to block more shipments to Huawei.
  • Under current regulations, the United States can require a license or block the export of many high-tech products shipped to China from other countries if U.S.-made components make up more than 25% of the value.
  • According to people familiar with the matter, Commerce has drafted a rule that would lower the threshold only on exports to Huawei to 10% and expand the purview to include non-technical goods like consumer electronics including non-sensitive chips.
  • If other government agencies sign off on the measure, the rule could be issued in a matter of weeks as a so-called final rule, with no opportunity for public comment before it goes into effect, the people said.

Senators Urge $1 Billion Plan to Loosen China’s Grip on 5G

  • A bipartisan group of U.S. senators, alarmed by the rise of Chinese electronics supplier Huawei Technologies, wants Washington to subsidize firms that could counter China’s 5G advances.
  • The proposed Utilizing Strategic Allied Telecommunications Act would steer at least $750 million toward companies developing fifth-generation, or 5G, wireless technology and create a separate $500 million fund for companies that deploy “trusted and secure” equipment around the world.
  • Under the proposed law, the U.S. government would tap at least $750 million from auctions of wireless-spectrum licenses by the Federal Communications Commission over the next five years.
  • The bill would raise a further $500 million for a Multilateral Telecommunications Security Fund controlled by the secretary of state. U.S. officials could use those funds to help support purchases of non-Chinese equipment abroad.

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EUROPE & WORLD

German Growth Falls to Six-Year Low, Hit by Manufacturing Recession

  • Economic growth in Germany slumped to a six-year low in 2019, underscoring the vulnerability of Europe’s export powerhouse to tensions in the global economy.
  • The German economy grew by 0.6% last year, the slowest rate since 2013, at the height of the eurozone’s debt crisis.
  • Output in the manufacturing sector excluding construction, which accounts for a quarter of the overall economy, fell by 3.6%.
  • Weakness in the auto sector likely trimmed German growth by 0.75 percentage points in 2019, according to the Ifo economic think tank.
  • German exports fell 2.3% on the year in November, hurt by a fall in exports to China.

U.S. Looks at Cuts to Military Aid to Iraq if Troops Are Asked to Leave

  • The Trump administration is preparing possible cuts of $250 million in military aid to Iraq, funds already approved by Congress, if the government expels U.S. troops, and is reconsidering a broad spectrum of other economic and military assistance that isn’t yet committed.
  • The bureau also plans to ask the White House Office of Management and Budget whether it can eliminate the $100 million request for fiscal year 2021, “due to current optics on the ground,” according to the emails.
  • The emails assert that no final decision has been made, but top administration officials have ordered a review of what funds may be held or reallocated in the event Iraq requires the U.S. troops be removed.

Australia Rain Forecast Brings Hope of Fire Relief—and Threat to Water Supply

  • Forecasters expect heavy rain in parts of Australia’s fire-ravaged southeast in the coming days, offering relief to firefighters, but raising worries that harmful ash could be washed into rivers and contaminate the country’s water supply.
  • At a dam that provides most of the drinking water for Sydney, the country’s largest city, authorities placed silt curtains and booms to stop ash and other debris from getting into the city’s water system.
  • Australia is facing a human, environmental and economic crisis following its worst-ever wildfire season, with more than 27,000 square miles of land burned.
  • In the longer-term, nutrients contained in the ash—such as phosphorus and nitrogen—could stimulate the growth of blue-green algae, which sometimes produce toxic chemicals.

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TODAY in HISTORY

  • President Nixon orders halt to offensive operations in North Vietnam. (1973)

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