DAILY MARKET REPORTS
- U.S. stocks opened higher on Monday after the United States abandoned plans to impose tariffs on Mexican goods, while a multi-billion dollar deal between United Technologies and Raytheon added to the cheer.
- President Trump said tariffs on Mexican imports, which had been set to go into effect Monday, had been “indefinitely suspended” after negotiators reached a deal late Friday to slow migration over the U.S.-Mexico border.
- Treasury yields bounced off their lows for the year, while shares of manufacturers and technology firms that investors have said were vulnerable to escalations in trade tensions helped lift the stock market.
- Financial shares helped lead the broader market higher, with Goldman Sachs jumping 1.1% and Morgan Stanley adding 1%.
- Shares of car makers also bounced higher, with Ford Motor rising 1.2% and General Motors advancing 2.4%.
- The two stocks have been particularly sensitive to trade tensions between the U.S. and Mexico, since the companies build a hefty chunk of their cars in Mexico.
- United Technologies fell 2% while shares of military contractor Raytheon added 2.1% after the two companies agreed to merge in an all-stock deal that will create the world’s second largest aerospace-and-defense company by sales.
US FINANCIAL MARKET
United Technologies Strikes Deal to Merge with Raytheon
- United Technologies doubled down on the aerospace market with an all-stock deal to merge with defense contractor Raytheon, after UTC executives earlier chose to exit the escalator and air-conditioner businesses.
- The combined company, valued at more than $100 billion after planned spinoffs, would be the world’s second-largest aerospace-and-defense company by sales behind Boeing, with annual revenue of about $74 billion this year. It will make everything from engines and seats for jetliners and F-35 jet fighters, to Patriot missile launchers and space suits for astronauts.
- The new company will be named Raytheon Technologies, and executives on Sunday called the deal, which doesn’t include a takeover premium, a merger of equals.
- UTC shareholders will own 57% of the shares and UTC will appoint eight of the 15 new directors.
Salesforce to Buy Analytics Platform Tableau
- Salesforce.com agreed to buy data analytics platform Tableau Software in an all-stock transaction that it said would help its customers better use and analyze data.
- The business-software company said Monday that the deal has an enterprise value of $15.7 billion.
- Tableau’s Class A and B shareholders would receive 1.103 shares of Salesforce’s common shares for each share they own.
- The transaction is expected to add $350 million to $400 million in revenue in the fiscal year 2020.
- The company now expects sales between $16.45 billion and $16.65 billion for the year.
FCA-Renault revival may hinge on Nissan stake cut – sources
- Fiat Chrysler Automobiles and Renault are looking for ways to resuscitate their collapsed merger plan and secure the approval of the French carmaker’s alliance partner Nissan, according to several sources close to the companies.
- Nissan is poised to urge Renault to significantly reduce its 43.4% stake in the Japanese company in return for supporting an FCA-Renault tie-up, two people with knowledge of its thinking also told Reuters.
- FCA Chairman John Elkann abruptly withdrew his $35 billion merger offer in the early hours of June 6 after the French government, Renault’s biggest shareholder, blocked a vote by its board and demanded more time to win Nissan’s backing.
- The failure, which FCA and Renault blamed squarely on the French government, deprived both companies of an opportunity to create the world’s third-biggest carmaker with 5 billion euros ($5.6 billion) in promised annual synergies.
Microsoft to Test New Videogame-Streaming Project
- Microsoft said on Sunday it will begin publicly testing its new videogame-streaming initiative in October, just ahead of when Google’s competing service is slated to launch.
- At a press event Sunday before the game industry’s annual E3 expo here, Microsoft said the test will enable people to stream any Xbox One game to a mobile device though it didn’t say which ones.
- At Microsoft’s event, the tech giant showed off 60 games coming to its Xbox One system and Windows PCs, including more than a dozen exclusives from its own studios.
- It also said its next-generation console will come out in late 2020 and will include a custom-designed processor made in partnership with Advanced Micro Devices.
American Airlines extends Boeing 737 MAX cancellations through September 3
- American Airlines is extending cancellations of about 115 daily flights into September due to the grounding of the 737 MAX.
- The largest U.S. airline had previously said it was cancelling flights Aug. 19 after the Boeing plane was grounded worldwide in March following two deadly crashes in Indonesia and Ethiopia.
- The FAA’s acting chief, Dan Elwell, told reporters last month he does not have a specific timetable to unground the 737 MAX.
- Asked last month it is realistic that the 737 MAX could be flying again by August, Elwell declined to be specific.
Insys Files for Chapter 11 Days After Settling Opioid Case
- Specialty-pharmaceutical company Insys Therapeutics filed for chapter 11 bankruptcy with plans to sell its assets, just days after agreeing to pay $225 million to settle federal charges over sales of its opioid drug Subsys.
- The bankruptcy petition contains an acknowledgment from federal authorities that they won’t be paid in full but instead will become unsecured creditors.
- Insys will ask a judge to sign off on an agreement that entitles the U.S. to receive, at most, $190 million from a civil settlement.
Kraft Heinz completes internal probe into its procurement practices
- Kraft Heinz said the numbers it restated last month were accurate following completion of an internal investigation, but that the matter was under review by the U.S. Attorney’s Office.
- Last month, the company said it would restate financial reports for a near three-year period to fix errors that resulted from lapses in procurement practices by some of its employees.
- Kraft Heinz said it expects to report its delayed first-quarter results on or before July 31.
Some big tech firms cut employees’ access to Huawei, muddying 5G rollout
- Some of the world’s biggest tech companies have told their employees to stop talking about technology and technical standards with counterparts at Huawei in response to the recent U.S. blacklisting of the Chinese tech firm.
- Chipmakers Intel and Qualcomm, mobile research firm InterDigital Wireless and South Korean carrier LG Uplus have restricted employees from informal conversations with Huawei, the sources said.
- Such discussions are a routine part of international meetings where engineers gather to set technical standards for communications technologies, including the next generation of mobile networks known as 5G.
- The new restrictions could slow the rollout of 5G, which is expected to power everything from high-speed video transmissions to self-driving cars, according to several industry experts.
G20 agrees to wrap up Big Tech tax rules by 2020
- Group of 20 finance ministers agreed on Sunday to compile common rules to close loopholes used by global tech giants such as Facebook to reduce their corporate taxes, a final communique issued by the bloc showed on Sunday.
- Facebook, Google, Amazon and other large technology companies face criticism for reducing their tax bills by booking profits in low-tax countries regardless of the location of the end customer. Such practices are seen by many as unfair.
- The new rules would mean higher tax burdens for large multinational companies but would also make it harder for countries such as Ireland to attract foreign direct investment with the promise of ultra-low corporate tax rates.
US ECONOMY & POLITICS
U.S. job openings dip as hiring hits record high
- U.S. job openings fell slightly in April as hiring surged to a record high, government data showed on Monday.
- Job openings, a measure of labor demand, slipped to a seasonally adjusted 7.4 million from 7.5 million in March, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS.
- The job openings rate was unchanged at 4.7%.
- Hiring jumped by 240,000 jobs in April to 5.9 million, the highest level since the government started tracking the series in 2000. The hiring rate increased to 3.9% from 3.8% in March.
U.S., Mexico Reach Deal to Avoid Tariffs
- President Trump dropped his threat of tariffs on billions of dollars of Mexican imports after negotiators reached a deal on measures to stem the flow of migrants into the U.S. from Mexico, averting a potentially devastating trade fight for both countries.
- Mr. Trump said the tariffs were “indefinitely suspended,” while Mexican President Andrés Manuel López Obrador said that, thanks to the support of all Mexicans, “the imposition of tariffs on Mexican products exported to the U.S. have been avoided.”
- A joint statement said that Mexico agreed to increase enforcement to curb irregular migration, including deployment of its newly created National Guard throughout the country, with a focus on its southern border with Guatemala.
- On Thursday night, Mexico’s Foreign Ministry said it would deploy up to 6,000 National Guard troops.
- On Saturday, President Trump said on Twitter that “Mexico has agreed to immediately begin buying large quantities of agricultural product” from the U.S.
Trump threatens more tariffs on Mexico over part of immigration deal
- President Donald Trump on Monday hinted more details were to come about a migration pact the United States signed with Mexico last week, saying another portion of the deal with Mexico would need to be ratified by Mexican lawmakers.
- He did not provide details but threatened tariffs if Mexico’s Congress did not approve the plan.
- The agreement would expedite a program known as the Migration Protection Protocols, which sends people seeking asylum in the United States to wait in Mexico as their cases are processed.
- That program, announced in December, would be expanded across the entire U.S.-Mexico border under the terms of the agreement, according to the State Department.
U.S. Corporate Cash Piles Drop to Three-Year Low
- U.S. corporate balance sheets are continuing to feel the impact of the 2017 U.S. tax overhaul, as companies pivot their capital allocation strategies in response to the new law.
- Companies funneled record amounts of cash to stock buybacks, dividends, capital spending and acquisitions last year.
- As a result, U.S. corporate cash holdings fell to a three-year low of $1.685 trillion in 2018, according to a report from Moody’s.
- Companies sent $664.91 billion of their foreign earnings back to the U.S. in the form of dividend payments in 2018, up from $155.08 billion the year before, according to data from the U.S. Commerce Department.
- Moody’s report found that share repurchases, net of stock issuance, nearly doubled in 2018 to a record $467 billion, driven by strong cash generation and supported by the tax overhaul.
- Meanwhile, aggregate debt rose 1.4% to $5.655 trillion in 2018, the lowest increase in a decade.
Rewrite of Bank Rules Advances Slowly, Frustrating Republicans
- Trump-appointed regulators came into office saying they would pare back Wall Street’s postcrisis rulebook.
- More than two years into the administration’s tenure, most of the work remains unfinished, particularly for the biggest banks.
- That worries financial firms and some Republican lawmakers, who fear the window for a regulatory rollback could be narrow, especially if Democrats notch pivotal electoral victories in 2020.
- Under the law passed a year ago, regulators face a fall deadline to simplify rules for midsize and small banks.
- They also want to make progress by year’s end to retool rules that limit speculative trading by large firms and test the ability of firms such as J.P. Morgan Chase or Goldman Sachs to continue lending during a severe recession.
EUROPE & WORLD
UK economy shrinks in April after car plants closed, expecting Brexit
- Britain’s economy contracted sharply in April after the biggest decline in car production since records began, as manufacturers were unable to reverse closures planned to coincide with Britain’s expected departure from the EU.
- Britain’s economy overall contracted by 0.4% in April after a 0.1% decline in March, the Office for National Statistics said on Monday, the biggest drop since March 2016 and a larger fall than any economist had forecast in a Reuters poll last week.
- Growth in the three months to April slowed to 0.3% from 0.5% in the first quarter of 2019, also a sharper deceleration than most economists had expected. Annual growth dropped to 1.3%.
- April’s fall in overall economic output masked a far bigger impact for manufacturing, which shrank by 3.9% for the month in April, the biggest fall since June 2002.
- Car production in April fell 24% on the month, the biggest drop since records began in 1995, and the broader category of “transport equipment” showed its largest drop since 1974.
- Britain saw its biggest monthly fall in goods imports since records began in 1998, down 14.4% in April.
- Exports also slid on a monthly basis, down 10.9% in April, the biggest fall since July 2006.
China Imports Fall as Trade Conflict with U.S. Saps Demand
- China’s imports dropped sharply last month, in a fresh sign of anemic demand in the domestic economy, adding to the pressure on Beijing as it struggles to manage trade tensions with the U.S.
- China’s overall trade surplus widened sharply to $41.65 billion in May from the $13.84 billion surplus recorded in April. Economists had forecast a surplus of $23.65 billion.
- Imports fell 8.5% in May from a year earlier, after rising 4.0% in April, according to data from the national customs agency.
- Exports rose 1.1% from a year earlier, after dropping 2.7% in April, the customs data showed.
- Some economists said the rise may have resulted from the yuan’s sharp depreciation against the dollar—nearly 2.5% in May—to offset the higher tariffs the Trump administration imposed on some Chinese goods.
- Exports to the U.S. continued to drop last month, but the 4.2% decline was less steep than April’s.
- China’s trade surplus with the U.S. widened to $26.9 billion from April’s $21.0 billion, according to the customs data.
- Critically, exports of rare earths—minerals used in many high-tech goods—slumped nearly 19% last month from a year earlier, twice the rate of April’s decline.
Beijing Digs in on Hong Kong Extradition Bill
- China signaled no retreat from pursuing legislation to allow extradition from Hong Kong, despite a massive weekend protest against the proposed law in the Chinese territory.
- In comments from officials and in state media on Monday, Beijing vowed sustained backing for the Hong Kong government’s efforts to amend its extradition laws, which exclude mainland China.
- It attributed the mass protest—which organizers say brought more than one million people onto Hong Kong streets Sunday—to local dissidents colluding with foreign powers to incite public anger.
- The firm line shows that Sunday’s protest is unlikely to get Beijing to deviate from the uncompromising position President Xi Jinping has taken toward dissent in Hong Kong—and elsewhere in China.
China Warns Tech Companies About Complying with Trade Restrictions
- Chinese authorities summoned some of the world’s largest tech companies this week to tell them they could face repercussions if they respond too aggressively to U.S. trade restrictions, according to people familiar with the matter.
- Called by China’s National Development and Reform Commission, the meetings with more than a dozen companies add a new dimension to Beijing’s pushback against restrictions on access to advanced American technology amid a lengthy trade dispute.
- Among the companies called in were chip makers Intel, Qualcomm, ARM and SK Hynix, software giant Microsoft, South Korea’s Samsung, computer maker Dell, Nokia and networking equipment maker Cisco, according to one of the people.
- On Saturday, Chinese official news agency Xinhua reported the NDRC, China’s central economic planning body, was studying the establishment of yet another list system to “more effectively forestall and defuse national security risks.”
- Xinhua also said in a commentary that this new system would prevent “certain countries from using Chinese technologies and simultaneously curbing China’s development.”
Roche’s $4.3 billion Spark bid delayed again amid U.S., UK scrutiny
- Swiss drugmaker Roche’s $4.3 billion takeover of U.S. gene therapy specialist Spark Therapeutics has been pushed back again, possibly beyond the first half, as regulators continue to scrutinize the deal for its effect on competition.
- Roche said on Monday that both companies received a request for more information from the U.S. Federal Trade Commission in connection with the FTC’s review of the deal, sending Spark shares down nearly 15% at $93 in premarket trading on Monday.
- Roche also said that the UK Competition and Markets Authority (CMA) has opened an investigation.
TODAY in HISTORY
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