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US FINANCIAL MARKET

S&P 500 Crosses 3,300 On Morgan Stanley Earnings, Tech Rally

  • U.S. stock indexes hit record highs on Thursday, with the S&P 500 crossing the 3,300 mark for the first time, as upbeat earnings from Morgan Stanley and a tech rally added to optimism from an initial U.S.-China trade deal.
  • Global stock markets scaled new highs after Washington and Beijing on Wednesday signed a deal that paused an 18-month long tariff war that had bruised financial markets and crimped global growth.
  • China is expected to boost purchases of U.S. goods and services in exchange for the rolling back of some tariffs as part of the deal, but concerns remain with several thorny issues still unresolved.
  • Data from the Commerce Department showed U.S. retail sales rose 0.3% in December, in-line with economists’ expectations.
  • Additional new data Thursday showed that the number of Americans applying for first-time unemployment benefits fell last week, remaining at historically low levels.
  • The first week of the U.S. corporate earnings season continued with results from Morgan Stanley, which reported stronger-than-expected profits and revenue.
  • Companies in the S&P 500 are expected to report a 2.3% decline in earnings in the fourth quarter from a year earlier, according to FactSet estimates.
  • But analysts are expecting earnings growth to pick up in the first quarter of 2020.

Morgan Stanley Profit Soars, Closing Out a Banner Year

  • Morgan Stanley lifted its performance goals on Thursday after beating Wall Street estimates by a wide margin, the latest sign that Chief Executive James Gorman’s strategic vision for the bank is bearing fruit.
  • The bank’s net revenue rose 27% to $10.9 billion, topping expectations of analysts, who had forecast $9.71 billion of revenue.
  • Sales and trading revenue rose 28% to $3.19 billion.
  • Bond trading sales more than doubled to $1.27 billion, while equities trading declined slightly.
  • Revenue from investment banking, which includes advising on deals and helping corporations raise money, rose 11.2%, buoyed by higher bond and equity underwriting.
  • Investment management revenue nearly doubled to $1.36 billion.
  • For the fourth quarter, Morgan Stanley’s profit jumped 46%, to $2.09 billion, from $1.36 billion a year ago.

PPG Paints Dim Picture for 2020

  • Paint maker PPG Industries said its sales this year would be hurt by weak industrial demand in the U.S. and Europe, as manufacturers confront global trade tensions and a production drop at Boeing.
  • PPG said Thursday that it generated sales of $3.67 billion in the fourth quarter, in line with expectations, but said that sales this year would be affected by new challenges including “lower production rates by an aerospace customer.”
  • PPG reported a profit of $292 million for the fourth quarter, compared with $258 million a year earlier.
  • PPG said it expected sales to rise 1% to 3% this year after adjusting for currency fluctuations. The company forecasted per-share adjusted profit growth of 4% to 9%.

Alcoa Incurs Loss, but Predicts Improved Demand

  • Alcoa posted a fourth-quarter loss as sales fell 27%, but the aluminum maker expects demand for the metal to pick up this year.
  • Sales missed analysts’ forecasts, dropping to $2.44 billion as lower prices for aluminum and alumina weighed on results.
  • Realized prices for aluminum fell 13% year-over-year, while those for alumina fell 39%.
  • Alcoa reported a loss of $303 million for the fourth quarter, compared with a profit of $51 million a year earlier.
  • The company also said Wednesday that global demand for aluminum is likely to rise in a range of 1.4% to 2.4% this year.

BNY Mellon profit falls short on lower interest rates

  • Bank of New York Mellon missed analysts’ estimates for quarterly profit on Thursday, as the world’s largest custodian bank earned less from its interest-earning assets due to rate cuts by the Federal Reserve.
  • Total revenue rose 19.2% to $4.8 billion.
  • Interest revenue at BNY Mellon fell 8% to $815 million in the fourth quarter, while non-interest expenses declined 1%.
  • Assets under custody and administration rose 4% to $37.1 trillion in the reported quarter, from the prior quarter.
  • The bank said net income rose to $1.39 billion in the last three months of 2019, from $832 million a year earlier.

FAA should mandate safety management systems for Boeing, others: panel

  • An expert committee on Thursday recommended the Federal Aviation Administration’s require Boeing and other aircraft manufacturers to adopt new safety management tools in the wake of two fatal Boeing 737 MAX crashes.
  • The expert panel, led by a retired Air Force general and a former head of the Air Lines Pilot Association, also called for improvements in how the Federal Aviation Administration certifies new planes.
  • But it did not back ending the long-standing practice of delegating some certification tasks to aircraft manufacturers.

Southwest extends 737 MAX cancellations through June 6

  • Southwest Airlines is extending cancellations of 737 MAX flights until June 6, citing the planemaker’s decision to recommend pilot simulator training before resuming flights and uncertainty about when regulators will approve their return to service.
  • The decision follows a similar announcement by American Airlines earlier this week to extend cancellations until June 3.
  • Southwest, the largest operator of the MAX worldwide, said it is now removing roughly 330 weekday flights from its more than 4,000 daily flights, which is 10% higher than in December when it said it was removing roughly 300 weekday flights through April 13.

Burger King makes Impossible Whopper cheaper by inclusion in value menu

  • Burger King said on Thursday it would add its plant-based Impossible Whopper sandwich to its popular 2 items for $6 promotion, a sign that fast-food chains are trying to reach more customers with affordable options.
  • Rival burger chain McDonald’s last week expanded its trial in Canada of vegan burgers made by Beyond Meat and lowered the price of its plant, lettuce and tomato sandwich by 50 Canadian cents to C$5.99.
  • The Impossible Whopper is about $1 to $2 more expensive than a regular Whopper, based on the location of the restaurant.

Comcast, late to the streaming party, to give details of NBC’s Peacock service

  • Comcast on Thursday will reveal details of Peacock, its belated entry into the streaming wars, as it harnesses its NBCUniversal library and invests in new content in an effort to capture viewers abandoning cable TV.
  • At a presentation to investors Comcast is expected to provide pricing details for Peacock, which will carry ads and launch in April with 15,000 hours of content, including full series of NBC shows such as “Cheers,” “30 Rock” and “Parks and Recreation.”
  • The company may also discuss a plan to launch an international news service created by NBC News and the news division of Sky, which Comcast Chief Executive Brian Roberts mentioned on an April earnings call.
  • Unlike the majority of other services, which make money from subscription revenue, Comcast is selling ads against its content.

Amazon orders electric vans from Deutsche Post’s StreetScooter

  • Amazon.com has ordered 40 electric vans from Deutsche Post’s StreetScooter unit for deliveries in the German city of Munich as part of the plan to be carbon neutral by 2040, the online retailer said on Wednesday.
  • StreetScooter has also installed 60 charging stations at Amazon’s distribution centre outside Munich, Deutsche Post said in a statement.
  • In recent years, Amazon has been building up its own delivery business in Germany, its second biggest market, in a challenge to major logistics firms like Deutsche Post DHL.

Tesla says it plans to open China design and research center

  • U.S. electric car maker Tesla plans to open a design and research center in China to make “Chinese-style” vehicles, the company said in a recruitment notice on its official WeChat account.
  • Wednesday’s notice sought to recruit designers and other staff to help fulfill the goal, and called for applications by Feb. 1, but did not identify the center’s location.
  • “In order to achieve a shift of ‘Made in China’ to ‘Designed in China’, Tesla’s CEO Elon Musk has proposed a very cool thing – set up a design and research center in China,” it read.

XPO Logistics Explores Strategic Alternatives for Business Units

  • XPO Logistics  is exploring the possible sale or spinoff of one or more of its business units, in a sharp reversal from the company’s rapid rise through acquisitions to the top ranks of logistics operators.
  • XPO on Wednesday said its board of directors has authorized a review to examine “strategic alternatives” for its business divisions, which wouldn’t involve the company’s main trucking business.
  • The company said it hasn’t set a timetable for completing the review and that there was no assurance “of any specific outcome.”

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US ECONOMY & POLITICS

U.S. Retail Sales Rise Steadily

  • U.S. retail sales rose at a steady pace in December, a sign the 2019 holiday shopping season ended on a solid footing.
  • The measure of purchases at stores, restaurants and online increased a seasonally adjusted 0.3% in December from a month earlier to $529.6 billion, the Commerce Department said Thursday.
  • That was in line with the 0.3% increase economists had forecast.
  • Excluding the volatile categories of autos and gas, retail sales rose 0.5% in December, the strongest pace of growth in five months.
  • December department store sales slipped 0.8% from November, and declined 5.5% from a year earlier.
  • Meantime sales at nonstore retailers, a category that includes internet merchants such as Amazon.com , were up 0.2% on the month and rose 19.2% compared with a year earlier.

Labor Market Tightening

  • In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 204,000 for the week ended Jan. 11.
  • Economists had forecast claims would rise to 216,000 in the latest week.
  • Thursday’s claims report also showed the number of people receiving benefits after an initial week of aid declined 37,000 to 1.77 million for the week ended Jan. 4.
  • The claims data showed layoffs in manufacturing, transportation and warehousing, construction, educational service and accommodation and food services industries in late 2019 and early 2020.
  • That, together with widespread labor shortages reported in the Federal Reserve’s Beige Book on Wednesday, could explain a slowdown in job growth in December.

U.S., China Sign Deal Easing Trade Tensions

  • The U.S. and China signed a trade deal that officials say will lead to a sharp increase in sales of U.S. goods and services to China, further open Chinese markets to foreign firms and provide strong new protections for trade secrets and intellectual property.
  • The eight-part agreement acts as a cease-fire in a trade war that has roiled markets world-wide and cut into global growth.
  • But it leaves in place U.S. tariffs on about $370 billion in Chinese goods, or about three-quarters of Chinese imports to the U.S.
  • Additionally, the section doesn’t require China to change any law or regulation to fulfill its obligations.
  • Possible tariff reductions will be left to later negotiations, which will cover a host of difficult issues at the heart of the trade battle, including Chinese subsidies to domestic companies and Beijing’s oversight of Chinese state-owned firms.
  • Speaking to a packed audience of business and political leaders in the East Room of the White House, President Trump said the remaining tariffs “will all come off” if the talks produce a second agreement.

U.S. and China Face a Steep Climb to Meet Trade Goals

  • The U.S.-China trade deal lays out an aggressive schedule for ramping up China’s purchases of American farm products, manufactured goods, services and oil and natural gas to levels never seen before—an increase of $200 billion over two years.
  • The text of the deal, signed Wednesday in Washington, spells out for the first time agreed-upon purchases across four broad categories: agriculture, energy, manufacturing and services.
  • For each category, the increase ramps up in the second year of the deal, with U.S. exports to China nearly doubling by 2021.
  • The biggest chunk of the $200 billion in increased purchases by China would come from U.S. manufacturers.
  • The deal calls for manufacturing trade in 2020 to climb by $32.9 billion from the baseline level and be $44.8 billion above baseline in 2021.
  • To meet the goal for 2021, China would need to import a little over $40 billion in U.S. agricultural goods—a nearly 90% increase from 2017, according to the Journal’s calculations.

Senate Expected to Pass USMCA, New North American Trade Pact

  • The U.S. Senate is expected to pass an overhaul of North America’s trade rules on Thursday and send a major Trump administration priority to the president’s desk.
  • The U.S.-Mexico-Canada Agreement would replace the 26-year-old North American Free Trade Agreement.
  • The pact updates trading rules in the continent to address 21st-century technology, safeguard environmental and labor standards in Mexico and toughen requirements for auto-industry trade among the three countries.
  • The three countries first signed USMCA in 2018, but House Speaker Nancy Pelosi, backed by labor unions, threatened to block passage without stronger enforcement provisions to ensure Mexican factories follow through with new labor requirements.

Senators to Be Sworn in as Trump Impeachment Trial Begins

  • The impeachment trial of President Trump on charges of abuse of power and obstruction of Congress will begin in the U.S. Senate on Thursday with a ceremonial reading of the House-passed articles and a solemn swearing-in of all 100 senators, who will pledge to do “impartial justice.”
  • The moment will mark the official start of the trial—only the third such proceeding against a U.S. president in history.
  • At least two-thirds of the senators would have to vote to convict Mr. Trump to remove him from office.

Democratic Senators to Pause Campaigning for Impeachment Trial

  • Three weeks before the Iowa caucuses, Democratic presidential candidates would typically be blitzing the state with a final appeal to undecided voters.
  • Four senators seeking the Democratic nomination—including front-runners Bernie Sanders and Elizabeth Warren—will come to Washington to deliberate on whether to remove Mr. Trump from office.
  • The trial is likely to disrupt the senators’ campaigning before and potentially beyond the caucuses in Iowa, where former Vice President Joe Biden and former Mayor Pete Buttigieg are locked in a dead heat with Mr. Sanders and Ms. Warren.

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EUROPE & WORLD

Putin Ushers in New Prime Minister, Signaling Bid to Boost Economic Legacy

  • Russian lawmakers approved President Vladimir Putin’s proposed candidate as prime minister Thursday, the latest step in a tightly choreographed transition that could set the stage for Mr. Putin to retain a grip on power after his term ends.
  • The vote came a day after Mr. Putin proposed sweeping constitutional changes and his longtime ally, Prime Minister Dmitry Medvedev, announced his and his cabinet’s resignation.
  • The shuffle signals Mr. Putin’s desire to turn around Russia’s sluggish economy and cement his legacy before he is required by law to formally step down in 2024.

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TODAY in HISTORY

  • Ivan the Terrible was crowned the first czar of Russia. (1547)
  • Operation Desert Storm was announced by the White House. (1991)

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