DAILY MARKET REPORTS
- U.S. stocks pulled back on Monday after the S&P 500’s seven-day winning streak, as Boeing shares fell and investors braced for what could be the first decline in corporate earnings since 2016.
- Shares of Boeing dropped more than 4%, accounting for more than three-quarters of Dow industrials’ fall, after the company said it would cut production of its 737 MAX aircraft by nearly 20%.
- The benchmark index is about less than 2% away from its record closing high hit in September, lifted by the Federal Reserve’s decision to hold off on interest rate hikes in 2019 and on hopes of a trade deal with China.
- However, expectations of disappointing earnings growth and worries about economic slowdown could weigh on the markets.
- Investors will get their next look at how well that thesis is holding up as earnings season kicks off in earnest, with JPMorgan Chase and Wells Fargo on tap to post results Friday.
- The S&P 500 is trading 16.6 times its next 12-month earnings estimate, up from 14.6 times during the peak of December sell-off but below the 17.3 times at its record high hit in late September.
US FINANCIAL MARKET
Boeing to Cut 737 MAX Production
- Boeing will cut production of its 737 MAX by a fifth and appointed a special board committee to examine its development of new planes, as the financial impact from two crashes of its best-selling jetliner deepens.
- The aerospace giant said Friday that it will trim monthly output of the MAX by 10 aircraft to 42 by mid-April, overriding Boeing’s planned increase to 57 a month by this summer.
- The new schedule also widens the output gap between Boeing and rival Airbus SE, which plans to boost production of its A320 planes, the 737 MAX’s competitor, to 60 a month.
- Boeing’s output cut means it will likely cede its title as the world’s biggest plane maker at the end of this year.
- Boeing on Friday didn’t update financial guidance ahead of its next quarterly earnings report scheduled for April 24.
China Aircraft Leasing suspends orders for 100 Boeing 737 MAXs: report
- China Aircraft Leasing Group has put its order for 100 Boeing 737 MAX jets on hold, until it is assured of the aircraft’s safety, South China Morning Post reported on Monday, citing a company statement.
- The Hong Kong-listed lessor, which is controlled by the state-owned conglomerate China Everbright Group, placed an order for 50 aircraft in June 2017 and later expanded the order, the newspaper reported.
- The first MAX jet was expected to be delivered in the third quarter, according to the report.
American Airlines extends 737 MAX cancellations through June 5
- American Airlines said on Sunday it will extend cancellations of 90 flights a day through June 5 because of the grounding of Boeing 737 MAX aircraft following two deadly crashes in five months.
- The extended cancellation by the largest U.S. airline is the latest sign that the airplane is not expected to return to service anytime soon. American Airlines said on March 24 it had canceled 90 flights a day through April 24.
Loeb’s Third Point building stake to pressure Sony – sources
- Daniel Loeb’s hedge fund Third Point is building a stake in Sony to push for changes, the second time in six years it has targeted the Japanese electronics maker, people familiar with the matter said on Monday.
- The hedge fund, which has about $14.5 billion in assets under management, is raising a dedicated investment vehicle, targeting between $500 million and $1 billion in capital, so it can buy more Sony shares, the sources said.
- Third Point wants Sony to explore options for some of its business units, including its movie studio, which the hedge fund believes has attracted takeover interest from the likes of Amazon and Netflix, the sources said.
- The hedge fund also wants clarity on how the semiconductor and insurance divisions fit in with the rest of the company.
Expected Earnings Pullback Sets Up Big Test for Bull Market
- The stock market’s strongest run in more than two decades will be tested beginning this week, as a looming pullback in corporate profit growth sets up major indexes for a fresh bout of volatility.
- With earnings season kicking off this week and valuations creeping up to their highest levels in more than half a year, investors plan to scrutinize executives’ comments to gauge whether the contraction in profit growth is a momentary blip or further evidence of a late-cycle economic slowdown.
- Analysts estimate S&P 500 profits in the first quarter contracted 4.2% from a year earlier, and they expect that will be followed by no growth in the second quarter.
- That puts the broad index at risk of entering its first earnings recession—marked by at least two or more consecutive quarters of declining earnings—since 2016.
Apple Music Overtakes Spotify in Paid U.S. Subscribers
- Apple Music has surpassed Spotify Technology in paid U.S. subscriptions, according to people familiar with the matter, in a shift that escalates the music rivals’ contest for listeners world-wide.
- Apple’s streaming-music service has been adding subscribers in the world’s biggest music market more rapidly than its Swedish rival—a monthly growth rate of about 2.6% to 3%, compared with 1.5% to 2% for Spotify—the people said.
- Apple Music had more than 28 million subscribers in the U.S. as of February, compared with Spotify’s 26 million.
- Spotify remains far ahead of Apple globally with 207 million active users around the world, 96 million of whom are paying subscribers or in a trial period leading to a subscription.
- Apple, which doesn’t offer a free, ad-supported option, has more than 50 million paying subscribers.
Pinterest Sets IPO Price Range Below Last Valuation
- Pinterest set a price range of $15 to $17 for its initial public offering, a range that is below where it last raised money privately, as the image-search company begins its roadshow to pitch the shares to investors Monday.
- The company plans to sell up to 75 million shares in the IPO, which at the midpoint of the price range would raise $1.2 billion.
- Pinterest last sold shares to pre-IPO investors in 2017 at a price of $21.54 each, valuing the company at roughly $12 billion.
- At the proposed price range, Pinterest would be valued below that level.
EU fines GE $58 million over misleading data in Danish deal
- EU antitrust regulators on Monday fined U.S. conglomerate General Electric 52 million euros ($58.4 million) for providing misleading information in its takeover of Danish rotor blade maker LM Wind two years ago.
- GE told the European Commission that it was not developing any other turbine apart from its 6 megawatt turbine when it sought EU approval to buy LM Wind. The EU found that this was not true after a third party provided details.
Fiat Chrysler to pay Tesla hundreds of millions of euros to pool fleet
- Italian-U.S. carmaker Fiat Chrysler Automobiles has agreed to pay electric carmaker Tesla hundreds of millions of euros to allow Tesla vehicles to be counted in its fleet to avoid fines for violating new European Union emission rules.
- The step will let the Italian carmaker offset carbon dioxide emissions from its cars against Tesla’s, bringing down its average emissions of the greenhouse gas to a permissible level, according to the Financial Times, which was first to report the agreement.
- Tesla has made over $1 billion in the last three years by selling emissions credits in the United States, according to its annual report to the U.S. Securities and Exchange Commission.
- Regulations allow a manufacturer of zero-emission vehicles to earn credits and sell excess credits to other manufacturers.
US ECONOMY & POLITICS
U.S. factory orders fall modestly, shipments increase
- New orders for U.S.-made goods fell modestly in February and shipments rose after four straight monthly declines, but the manufacturing sector is slowing amid rising inventories.
- Factory orders dropped 0.5%, pulled down by orders for machinery, transportation equipment, computers and electronics.
- Data for January was revised down to show factory orders unchanged instead of edging up 0.1% as previously reported.
- Economists had forecast factory orders falling 0.6% in February.
- Factory orders rose 2.4% compared to February 2018.
U.S., China Tout Progress, Vow to Continue Trade Talks
- Trade talks between Chinese and U.S. negotiators wrapped up in Washington with no clear timeline for resolution, but with both sides touting progress and vowing to continue talking via videoconference.
- In a statement Friday, the White House said that talks had been productive but cautioned that “significant work remains, and the principals, deputy ministers, and delegation members will be in continuous contact to resolve outstanding issues.”
- The White House said that talks had been wide-ranging, including issues of intellectual property, the Chinese practice of requiring American companies to share their technology, as well as agriculture, services, purchases and enforcement of the pact.
- Chinese President Xi Jinping said in a message to Mr. Trump on Thursday that “new substantial progress has been made,” according to China’s state run news agency Xinhua.
New NAFTA deal ‘in trouble’, bruised by elections, tariff rows
- More than six months after the United States, Mexico and Canada agreed a new deal to govern more than $1 trillion in regional trade, the chances of the countries ratifying the pact this year are receding.
- The three countries struck the United States-Mexico-Canada agreement (USMCA) on Sept. 30, ending a year of difficult negotiations after U.S. President Donald Trump demanded the preceding trade pact be renegotiated or scrapped.
- But the deal has not ended trade tensions, and if ratification is delayed much longer, it could become hostage to electoral politics.
- The United States has its next presidential contest in 2020, and Canada holds a federal election in October.
- Opposition from U.S. Democrats and unions to labor provisions in the deal, as well as bickering over tariffs, have made its passage in the U.S. over the next few months highly unlikely.
- Canada’s Parliament must also ratify the treaty and officials say the timetable is very tight.
- Current legislators only have a few weeks work left before the start of the summer recess in June, and members of the new Parliament would have little chance to address ratification until 2020.
U.S. home purchase sentiment rises to nine-month high: Fannie Mae
- U.S. consumer sentiment for buying a home rose to its strongest in nine months as a result of a sturdy jobs market and a decline in mortgage rates so far this year, according to data released by Fannie Mae on Monday.
- The agency said its home purchase sentiment index increased by 5.5 points to 89.8 points, its highest since June.
- Notably, Fannie Mae’s latest data showed the net share of consumers surveyed in March who said it is a good time to sell a home jumped 13 points to 43%.
- The net share of consumers surveyed who said they are not concerned about losing their jobs fell 1 point to 80% from February’s 81%, which was the highest since the survey began in 2010.
WSJ/NBC Poll: Many People Aren’t Noticing Their Tax Cuts
- Republicans gave tax cuts to two-thirds of households, but many of those people are barely noticing a difference in their bottom lines, according to a new Wall Street Journal/NBC News poll.
- Just 17% of respondents said they are paying less in taxes under the new law, while 28% say they’re paying more.
- The rest either say they don’t know or that their taxes have barely changed.
- Here’s the reality, according to recent data from the congressional Joint Committee on Taxation:
- For 2019, 48% of households are getting a tax cut greater than $500, compared with what they would have paid under the old tax law. Just 5.5% of households face tax increases greater than $100.
Spending Battle Clouds Outlook for U.S. Growth
- One of the big unknowns for U.S. economic growth heading into the presidential election year needs to be sorted out by lawmakers in the coming months: the path for government spending.
- Lawmakers agreed to cap spending in 2011 as part of a bruising fight over raising the debt limit, but they have struck three separate deals since then—in 2013, 2015 and 2018—to ease those caps and increase spending.
- The latest two-year deal, which boosted funding nearly $300 billion above the caps, expires in October.
- If Congress doesn’t reach another deal by then, the spending limits known as the sequester would kick back in, reducing discretionary spending by $125 billion, or 10%, from 2019 levels.
Midwest floods hammer U.S. ethanol industry, push some gasoline prices toward five-year high
- The March floods that punished the U.S. Midwest have roiled the ethanol industry, hammering prices and trapping barrels in the country’s interior while the U.S. coasts suffer from shortages of the biofuel.
- The floods inflicted billions of dollars in damage to crops and homes in the U.S. Midwest, and knocked out roughly 13% of ethanol capacity.
- U.S. ethanol is made from corn and required by the government to be blended into the nation’s fuel supply to reduce emissions.
- The historic March floods have dealt a series of blows to large swaths of an ethanol industry that was already struggling with high inventories and sluggish domestic demand growth.
- And the ethanol shortages are one factor pushing gasoline prices in Los Angeles and Southern California to the highest in the nation and they could top $4 a gallon for the first time since 2014, according to tracking firm GasBuddy.
EUROPE & WORLD
Push for Brexit Deal Heats Up Ahead of EU Summit
- Britain’s two main political parties are pushing to reach a new Brexit deal this week ahead of a European Union summit that will consider British Prime Minister Theresa May’s request to further postpone the country’s departure from the bloc.
- The talks with Labour leader Jeremy Corbyn have provoked anger in Mrs. May’s party. But in a televised message on Sunday, she said she needed to find new ways to deliver Brexit.
- European diplomats, meanwhile, are preparing for a meeting of EU leaders in Brussels late Wednesday to discuss Mrs. May’s request for a further delay to Britain’s departure from the bloc until June 30.
- Brexit is now formally scheduled for April 12, having been postponed once from March 29.
Israel’s Election Is Seen as a Referendum on Netanyahu in a Country He Helped Transform
- Prime Minister Benjamin Netanyahu’s quest to become Israel’s longest-serving leader has become a referendum on his decades in public life.
- Most final polls show a fluid situation ahead of Tuesday’s vote, with Mr. Netanyahu’s main challenger, former Gen. Benny Gantz, drawing slightly more seats with a message focused on voter fatigue, corruption allegations and quality of life issues.
- Mr. Gantz, Netanyahu’s former army chief of staff, had shot ahead in polls by offering himself as a fresh alternative.
- He has attacked Mr. Netanyahu over bribery and fraud charges he faces in three corruption probes and a government he says no longer works for its citizens.
U.S. Designates Iran’s Islamic Revolutionary Guard Corps a Foreign Terrorist Organization
- The Trump administration designated Iran’s Islamic Revolutionary Guard as a foreign terrorist organization, escalating the campaign against Tehran and marking the first time an element of a foreign state has been officially designated a terrorist entity.
- The move, announced by the White House on Monday, aims to squeeze the IRGC’s financial resources and shrink its military presence in the Middle East, helping the U.S. crack down on businesses in Europe and elsewhere controlled by the organization.
- The designation also allows the U.S. to subject IRGC officials and those who provide support to the organization to travel restrictions and lets U.S. prosecutors bring charges against those who provide “material support” to the IRGC.
China’s Hard Edge: The Leader of Beijing’s Muslim Crackdown Gains Influence
- Chen Quanguo, the official directing China’s clampdown in its restive Xinjiang region, has emerged as a pioneer of aggressive policing techniques—setting the tone for the country’s shift toward harsher, technology-driven authoritarian rule.
- He installed thousands of high-tech police stations throughout Xinjiang and tapped big data to enforce order and monitor citizens.
- Police use devices to scan photos, messages and other data in residents’ mobile phones, searching for sensitive material.
- Many ethnic Uighurs and other Muslims are forced into camps to undergo political indoctrination, aimed at assimilating them with the country’s Han Chinese majority.
- China’s treatment of Uighurs has drawn an international outcry. At the same time, some of Mr. Chen’s methods have filtered to other parts of the country, amid President Xi Jinping’s efforts to reassert Communist Party dominance over Chinese society.
TODAY in HISTORY
- The 17th Amendment was ratified, requiring the direct election of U.S. senators by popular vote rather than by the state legislators. (1913)
- The League of Nations assembled for the last time. (1946)
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