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WALL STREET GAINS ON RATE-CUT HOPES; TECH LEADS REBOUND

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

DAILY MARKET REPORTS

  • U.S. stocks rose on Tuesday, led by a rebound in the battered technology sector, as Federal Reserve Chair Jerome Powell’s said the central bank would act “as appropriate” to trade war risks, leaving the door open for a possible rate cut.
  • A day after St. Louis Fed chief James Bullard said a rate cut may be warranted soon, Powell said the Fed was “closely monitoring the implications” of a trade dispute that has disrupted global markets and posed risks to growth.
  • Federal-funds futures, used by traders to bet on the path of monetary policy, show markets pricing in a roughly 97% chance of at least one rate cut this year and about a 78% chance of at least two rate decreases, CME Group data show.
  • Also lifting the sentiment on Tuesday were comments from Mexico and China.
  • Mexican President Andres Manuel Lopez Obrador said he expects to reach a deal with the U.S. over immigration before Washington carries out its threat to enact punitive tariffs.
  • China’s commerce ministry said the differences and frictions with Washington should be resolved through dialogue and negotiations.
  • Shares of technology companies also opened higher, a day after fears about heightened regulation pushed the tech-laden Nasdaq Composite into correction territory, down more than 10% from last month’s all-time high. The Nasdaq was up 0.8%.

US FINANCIAL MARKET

Box shares fall 13% as forecast hit by longer sales cycle

  • Box cut its full-year forecast below analysts’ estimates, citing longer sales cycles from larger deals, sending its shares down 13% in extended trading.
  • Box’s first-quarter billings – revenue plus the change in deferred revenue – grew at a moderate rate of 1.4% to $118.4 million, falling short of analysts’ estimates of $120 million.
  • The company posted a slightly higher net loss of $36.8 million, compared to $36.6 million a year ago.
  • The company now expects full-year revenue in a range of $688 million to $692 million, compared with its previous forecast of $700 million to $704 million. Analysts were expecting $702 million.

Tiffany cuts profit outlook as lower Chinese tourist spending weighs

  • Tiffany cut its profit outlook for the year after the luxury jeweler blamed “dramatically” lower spending by tourists worldwide for missing quarterly same-store sales estimates on Tuesday.
  • Net sales fell to about $1 billion, missing the average analyst estimate of $1.02 billion.
  • Comparable-store sales declined 2%, while analysts on average were expecting a 1.16% drop.
  • Including the impact of currency fluctuations, sales fell 5%.
  • The company’s net income fell 12% to $125.2 million in the first quarter.

CVS, Under Pressure After Aetna Deal, Sets Long-Term Profit Goals

  • CVS Health provided longer-term financial forecasts for the first time since acquiring insurer Aetna.
  • CVS reaffirmed its 2019 financial targets, but its projections beyond this year came in slightly below Wall Street expectations.
  • The company expects adjusted earnings per share above $7 in 2020, growing by a mid-single-digit percentage in 2021 and smaller increases the years following.
  • Wall Street analysts had predicted adjusted earnings per share of $7.22 for next year and growth of 8% to $7.80 for 2021.
  • The company said it still expects the merger with Aetna to create about $300 million to $350 million of cost savings and other benefits in 2019 and about $800 million of so-called synergies in 2020.

Congress, Enforcement Agencies Target Tech

  • Federal antitrust enforcers and lawmakers are poised to scrutinize the nation’s largest technology companies for potential anticompetitive practices, bringing a new regulatory focus to the markets for digital services and a level of concern for investors.
  • Under a series of arrangements between the two agencies, the Justice Department now has authority over any potential antitrust investigation into Alphabet’s Google and Apple, while the FTC has oversight of Facebook and Amazon.com.
  • Google and Facebook appear to be closest to being in the agencies’ investigative crosshairs.
  • Separately, the House Judiciary Committee made public its own investigation Monday into competition in digital markets, which will include multiple hearings along with requests for information to the major businesses, the panel said.
  • In addition to any competitive problems in digital markets, the probe will look at whether current antitrust laws and enforcement efforts have kept pace with technological change.

Apple Touts New Privacy Features Amid Scrutiny of Tech Giants

  • Apple sought to tout itself as a digital-privacy crusader with an anonymous login system and tools that prevent apps from tracking a user’s location, a push designed to further differentiate it from Google and Facebook.
  • At a gathering of about 6,000 software developers, the iPhone maker said its mobile operating system coming this fall, iOS 13, will include an Apple sign-in capability that allows people to log into apps without revealing any personal information.
  • At its developers conference, Apple turned the spotlight back to its other devices beyond the iPhone, introducing new software and services to deepen the appeal of its iPad, smartwatch and Mac businesses.
  • It also bolstered many of its apps, including improvements to Messages that put it in more direct competition with Facebook’s apps.

AT&T, T-Mobile Are Top Spenders in Airwaves Auction

  • AT&T, Verizon and T-Mobile were the biggest spenders on a pair of Federal Communications Commission auctions designed to spark investment in next-wave 5G networks, according to results released Monday.
  • The auctions covered two swaths of wireless spectrum at frequencies once considered too extreme for cellphone service.
  • FCC Chairman Ajit Pai has made those frequencies a cornerstone of his strategy to spur 5G investments.
  • Bidding across both auctions totaled less than $3 billion, compared with nearly $20 billion raised in a previous FCC auction that freed up frequencies used by local television broadcasters for cellphone use.
  • AT&T spent the most on 24 GHz licenses, bidding $983 million, followed by T-Mobile, which bid $803 million in the auction.

Fast Food Embraces Meatless Burgers, but There Aren’t Enough to Go Around

  • Fast-food restaurants are rushing to add meat-free burgers to their menus, hoping these higher-priced alternatives will help them capture additional traffic and dollars even as suppliers have struggled to fill all the orders.
  • Imitation meats made by Beyond Meat and Impossible Foods are on sale at nearly 20,000 restaurants across the U.S., according to those companies.
  • 15% of U.S. restaurants offered meatless burgers in March, according to a Technomic study of menus from 6,000 operators, with the number serving them up 3% from a year earlier.
  • Burger King locations that began serving Impossible Whoppers in April saw a 17% increase in visits from the prior month compared with a 2% decline in traffic to the chain on average, according to location-based research firm inMarket.

U.S. firms fret as China’s FedEx probe, planned hit-list heightens trade frictions

  • The sudden deterioration in trade talks between the United States and China last month has ratcheted up concerns among U.S. firms that the dispute could go beyond tariffs and affect business in the long-term.
  • The US-China Business Council (USCBC), which represents roughly 200 American companies that do business in China, told Reuters on Monday that anxiety among its members was on the rise, especially over the list.
  • One big concern, analysts said, was that U.S. firms could start to experience similar treatment to that doled out to South Korean companies in 2017, after China opposed Seoul’s decision to install a U.S. missile system.
  • South Korea’s fifth-largest conglomerate Lotte, was among the worst hit when Chinese authorities suspended its work on a $2.6 billion project and ordered Lotte Mart stores to shut over what they said were fire safety violations.

Walmart expands education program for workers ahead of controversial shareholders meeting

  • Walmart said on Tuesday it is seeking to attract high school students by offering them a low-cost path to a college degree and will expand an education program it started a year ago – in a new bid to draw workers in a tight labor market.
  • Walmart’s announcement comes a day before its annual shareholders meeting in Bentonville, Arkansas, which will be attended by Senator and Democratic presidential hopeful Bernie Sanders.
  • At the meeting, Sanders is expected to pressure Walmart to raise its wages and introduce a shareholder proposal calling for hourly associates to have a seat on Walmart’s board.
  • The world’s largest retailer offers an entry wage of $11 while rival Amazon pays $15 an hour and Target has said it will offer $15 by the end of 2020, prompting labor groups, unions and politicians to criticize Walmart’s pay policy.

SEC probes Siemens, GE, Philips in alleged China medical equipment scheme

  • The U.S. Securities and Exchange Commission is reportedly investigating Siemens, Philips and General Electric for allegedly using local middlemen to negotiate bribes with Chinese government and hospital officials to sell medical equipment.
  • The investigations into the companies’ business in China, along with an existing SEC probe into their sales in Brazil, are part of a new effort by U.S. regulators to crack down on alleged corruption in sales of costly medical equipment worldwide.
  • Siemens, GE and Philips all denied wrongdoing and said they were unaware of any SEC investigation concerning their operations in China.

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US ECONOMY & POLITICS

U.S. factory orders fall; shipments post largest drop in two years

  • New orders for U.S.-made goods fell in April and shipments dropped by the most in two years, indicating continued weakness in manufacturing activity that could undercut the broader economy.
  • Factory goods orders declined 0.8%, pulled down by soft demand for transportation equipment, computers and electronic orders, and primary metals.
  • Economists had forecast factory orders would fall -0.9% in April. Factory orders rose 1.6% compared to April 2018.
  • Data for March was revised down to show factory orders increasing 1.3% instead of surging 1.9% as previously reported.
  • Shipments of manufactured goods fell 0.5% in April, the largest drop since April 2017, after rising 0.2% in March.

Powell Says Fed Is Closely Monitoring Trade Fight Escalation

  • Federal Reserve Chairman Jerome Powell said the central bank is closely monitoring the recent escalation in trade tensions and that it would respond if needed to keep the economy growing steadily.
  • “We do not know how or when these trade issues will be resolved,” Mr. Powell said in remarks prepared for delivery Tuesday morning. “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.”
  • His remarks didn’t otherwise elaborate on the fluid trade situation.

Trade Risks Prompt Predictions for Fed Rate Cuts

  • So far, most forecasters don’t see the Fed taking action at its June 18-19 meeting, in part because they expect the central bank will want to see if global leaders can ease trade tensions, particularly at the G-20 summit in Japan later this month.
  • Economists at Barclays now project the Fed will cut rates by 0.5 percentage point in September and by another 0.25 percentage point in December. Previously, the bank expected the Fed would be on hold through 2020.
  • Similarly, economists at JPMorgan Chase are projecting a quarter-percentage-point cut in both September and December, even if the U.S. avoids a lasting trade fight with Mexico.

U.S. Says China Misrepresented Why Trade Talks Broke Down

  • The Trump administration on Monday rebuked China for making statements in recent weeks that it said misrepresented why trade talks between the two nations reached an impasse.
  • Chinese officials, in public remarks and in a policy paper issued over the weekend, have chosen “to pursue a blame game misrepresenting the nature and history of trade negotiations between the two countries,” said the Office of the U.S. Trade Representative and the Treasury Department in a joint statement.
  • The U.S. response to China’s policy statement suggests the two sides remain far apart after talks broke down amid accusations from both sides.
  • And yet, the U.S. statement included no mention of new demands, instead reiterating existing calls for China to address what it says are unfair trade practices such as forced technology transfer or intellectual property theft.

Trump Talks Up U.K. Trade Deal Despite Brexit Impasse

  • President Trump pledged Tuesday to strike a “very, very substantial trade deal” with the U.K., a promise that nonetheless faces steep challenges in Britain, which is struggling to extricate itself from its decadeslong membership of the European Union.
  • Britain is hoping to use Mr. Trump’s state visit to lay the groundwork for a trade deal with the U.S., something supporters of Brexit dangle as a major incentive for leaving the EU.
  • However, such an agreement could still take years to materialize and would face many hurdles.
  • If the U.K. decides to maintain close economic ties with the EU after it leaves the bloc, it would be restricted from striking free-trade deals with other countries, including the U.S.

House Passes $19.1 Billion Disaster-Aid Package

  • The House passed a $19.1 billion disaster-aid package with a bipartisan majority, sending the legislation to the president’s desk after months of wrangling delayed the typically uncontroversial funding.
  • Lawmakers voted 354-58 to approve the measure, exceeding the two-thirds threshold required under a fast-track procedure. Those who opposed the measure were all Republicans.
  • The bill provides funds for relief efforts in areas across the country hit by volcanic eruptions, earthquakes, hurricanes and other natural disasters in 2018 and 2019.

Elizabeth Warren Unveils $2 Trillion Plan for U.S. to Lead in Clean Energy

  • Elizabeth Warren is proposing a $2 trillion plan to help the U.S. dominate the clean energy sector over the next decade and warning of an existential threat posed by climate change.
  • On Tuesday, the Democratic presidential candidate and Massachusetts senator said her climate plan would implement the “Green New Deal,” a sweeping effort to reduce greenhouse gas emissions and target global warming.
  • Sen. Warren’s plan would pump $1.5 trillion in government spending into clean energy products like zero-emission vehicles and buildings for federal, state and local use.
  • She would devote $400 billion to a “Green Apollo Program” for clean energy research and development and commit another $100 billion to encourage foreign governments to buy U.S.-made technology.

Joe Biden Unveils Proposal to Fight Climate Change

  • Democratic presidential candidate Joe Biden released a $1.7 trillion proposal over the next decade to fight climate change, outlining steps to reach net-zero carbon emissions by 2050.
  • The former vice president’s plan would leverage an additional $3.3 trillion in private investment and funding from state and local governments in the next 10 years to battle global warming, and it would include $400 billion to spur clean-energy research.
  • Mr. Biden’s proposal doesn’t advocate for a carbon tax or a “cap and trade” market system to curtail carbon emissions.
  • Instead, he said he plans to work with Congress to establish “an enforcement mechanism” by 2025, based on the principle that “polluters must bear the full cost of the carbon pollution they are emitting.”

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EUROPE & WORLD

Mexico Warns of Retaliation for U.S. Tariffs

  • Mexico is exploring possible retaliation to the threat of U.S. tariffs on all of its exports but would rather convince the Trump administration that a negotiated solution is in both countries’ best interest, senior officials said Monday.
  • A high-level Mexican delegation led by Foreign Minister Marcelo Ebrard is in Washington this week for meetings with U.S. officials—including the secretaries of state, commerce and homeland security—to discuss how to reach an agreement.
  • Mexican Economy Minister Graciela Márquez said Mexico could take several paths if the U.S. goes ahead with the tariffs.
  • It could resort to multilateral organizations, such as the World Trade Organization, for assistance she said, but those processes are slow. Or it could hit back with tariffs on selected U.S. goods.

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TODAY in HISTORY

  • Henry Ford took his first car out for a test drive. (1896)
  • People’s Army of China opened fire on crowds of demonstrators in Tiananmen Square, killing thousands. (1989)
  • Martha Stewart was indicted on charges of insider trading. (2003)

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