DAILY MARKET REPORTS
- U.S. stocks opened lower on Friday, weighed down by technology stocks, as the long-feared hit to global growth from President Donald Trump’s trade war crystallized in slashed sales forecast from chipmaker Broadcom.
- On Friday, some weak data reignited concerns about economic growth around the world. In the U.S., retail sales, a measure of purchases at stores, restaurants and online, increased less than expected in May.
- The release is the last major U.S. economic report before a meeting of the Fed’s policy-making committee next week.
- In China, weak economic data pushed markets in Asia lower and drove investors toward bonds.
- Late Thursday, the U.S. said Iran was behind an attack on two oil tankers in the Gulf of Oman that sent oil prices soaring.
- That added to an already tense situation in the crucial shipping channel after an attack on four other tankers in May.
- Broadcom shares declined more than 8% in early trading after slashing full year revenue forecasts on the loss of sales to Huawei and a broader decline in semiconductor demand from customers.
US FINANCIAL MARKET
Broadcom sees chip demand slowing down, shares fall 8%
- Broadcom on Thursday warned of a broad slowdown in chip demand, blaming a trade conflict between the United States and China and export restrictions on Huawei and the chipmaker cut its revenue forecast for the year by 8%.
- Net revenue rose to $5.52 billion in the quarter, from $5.01 billion a year earlier, but missed analysts’ estimates of $5.68 billion.
- Revenue from semiconductor solutions, Broadcom’s biggest business unit, fell 10% to $4.09 billion in the second quarter, while revenue from its infrastructure software business came in at $1.41 billion
- Net income fell to $691 million in the quarter, from $3.72 billion a year earlier.
- The company lowered its full-year revenue forecast by $2 billion to $22.50 billion, saying that its customers are actively reducing inventory levels.
- “It is clear that the U.S.-China trade conflict including the Huawei export ban is creating economic and political uncertainty and reducing visibility,” Chief Executive Officer Hock Tan said on a conference call with analysts.
- Demand for enterprise and mainframe software remained stable, mainly in North America and Europe, Tan said.
Huawei Postpones Launch of Mate X Foldable Phone
- China’s Huawei is delaying the release of its highly touted foldable smartphone to September from a previously announced launch date of June, a company executive said.
- The Chinese technology giant is postponing the sale of the $2,600 Mate X in part to improve the quality of the folding screen, the phone’s most intricate technical component, said Vincent Peng, a senior vice president at Huawei.
- Mr. Peng said supply-chain issues weren’t behind the delay, though he said Huawei remains in discussions over whether the Mate X will launch with a license from Google that allows the device to run the U.S. company’s popular suite of Android apps.
- The move follows the decision by Samsung Electronics Co. to delay the late-April launch of its Galaxy Fold device after reviewers discovered problems with its foldable screen.
Huawei files to trademark mobile OS around the world after U.S. ban
- China’s Huawei is in the process of potentially launching its “Hongmeng” operating system (OS) to replace the U.S. Android OS, an executive said, after Reuters reported that the company has applied to trademark the OS in various countries.
- Data from a U.N. body showed that Huawei is aiming to trademark the OS in at least nine countries and Europe, in a sign it may be deploying a back-up plan in key markets as U.S. sanctions threaten its business model.
- The applications to trademark the OS show that Huawei wants to use Hongmeng for gadgets ranging from smartphones and portable computers to robots and car televisions.
Facebook’s New Cryptocurrency, Libra, Gets Big Backers
- Facebook has signed up more than a dozen companies including Visa, Mastercard, PayPal and Uber to back a new cryptocurrency it plans to unveil next week and launch next year.
- The financial and e-commerce companies, venture capitalists and telecommunications firms will invest around $10 million each in a consortium that will govern the digital coin, called Libra, according to people familiar with the matter.
- The money would be used to fund the creation of the coin, which will be pegged to a basket of government-issued currencies to avoid the wild swings that have dogged other cryptocurrencies, they said.
- In the works for more than a year, the secretive project revolves around a digital coin that its users could send to each other and use to make purchases both on Facebook and across the internet.
U.S. judge sets pre-trial hearing next week for Sprint/T-Mobile deal
- The judge hearing a complaint from state attorneys general seeking to stop T-Mobile from buying Sprint for $26 billion will hold a pre-trial hearing next week.
- Ten states, led by New York and California, filed a lawsuit on Tuesday aimed at stopping the merger of the No. 3 and No. 4 national wireless companies, saying that the deal would cost Sprint and T-Mobile subscribers more than $4.5 billion annually.
- The Federal Communications Commission has agreed in principle to approve the deal while the U.S. Justice Department is believed to be nearing a final decision.
Target expands same-day shipping as delivery war heats up
- Target expanded its same-day delivery options for online shoppers, intensifying the race among retailers to deliver orders faster.
- Target said Shipt shoppers can now order about 65,000 items on Target.com and have it delivered on the same day by paying a fee of $9.99 per order for shipment.
- Target is using Shipt, the membership-based grocery delivery platform it bought for $550 million in 2017, for delivery.
- Earlier, Target offered same-day delivery only for Shipt members at an annual fee of $99.
U.S. denies Tesla, GM, Uber 25% Chinese tariff relief
- The Trump administration is expanding efforts to block the use of Chinese technology in advanced vehicles, denying additional requests by Tesla for tariff relief on key components of its electric vehicles, and rejecting ride-hailing company Uber’s petition to waive tariffs on electric scooters and at least 50 separate requests by General Motors.
- Government documents show the USTR rejected requests to exempt Tesla’s Model 3 car computer and center screen, saying they both concern “a product strategically important or related to ‘Made in China 2025,’ or other Chinese industrial programs.”
- The more than 50 requests by GM rejected by USTR were for exemptions from Chinese-made parts used in vehicles including electronic controllers used for high voltage battery controls in hybrid and electric vehicles.
- USTR also rejected dozens of requests by Nissan, and denied nearly two dozen requests from Fiat Chrysler for parts including wire harnesses and an electrical power steering pump used in vehicles like the company’s 2019 Ram 1500 and Jeep Wrangler.
Norwegian Air expects Boeing 737 MAX fleet to remain grounded until end of August
- Norwegian Air expects Boeing’s 737 MAX aircraft to remain grounded until at least the end of August, missing the European summer season, CEO Bjoern Kjos said on Friday.
- Norwegian, which operates 18 of the planes, has said the grounding will raise its costs by up to 500 million crowns ($58 million).
- The operator has delayed disposal of older 737 models or prolonged leasing contracts while it waits for their MAX replacements.
- If more training is ordered, a shortage of simulators means that “it might be much longer” before commercial flights resume, Kjos said. “For some operators it could take up to a year.”
Southwest extends Boeing 737 MAX cancellations through Sept. 2
- Southwest Airlines said on Thursday it was extending the removal of 737 MAX aircraft from its flying schedule through Sept. 2, after the plane was grounded worldwide following two deadly crashes.
- Southwest, the largest global operator of the MAX with 34 jets, had previously said it was cancelling flights through Aug. 5.
- The revision is in line with American Airlines’ recent decision to extend cancellations through Sept. 3, from Aug. 19 previously.
US ECONOMY & POLITICS
U.S. Retail Sales Increased in May
- Retail sales, a measure of purchases at stores, restaurants and online, increased a seasonally adjusted 0.5% in May from a month earlier, the Commerce Department said Friday.
- Compared to May last year, retail sales increased 3.2%.
- Excluding automobiles, gasoline, building materials and food services, retail sales advanced 0.5% last month after an upwardly revised 0.4% rise in April.
- April sales were revised to a 0.3% increase from a 0.2% decline, and retail sales excluding the volatile categories of autos and gas rose 0.5% last month, underscoring solid spending momentum.
U.S. Industrial Production Rebounded in May
- Industrial production rose a seasonally adjusted 0.4% in May from the prior month.
- Economists had expected a 0.1% increase last month.
- April industrial production was revised to a decline of 0.4%, from an earlier reading of a 0.5% drop.
- Output at U.S. factories rose 0.2%, it had decreased about 0.4% a month on average in the first 4 months of the year.
- Capacity utilization, which reflects how much industries are producing compared with what they could potentially produce, increased by 0.2 percentage point to 78.1% in May. Economists had expected 77.8%.
Trump Could Retaliate if Xi Balks at Trade Meeting, Kudlow Says
- President Trump could take further action against China if President Xi Jinping doesn’t agree to a meeting at the Group of 20 summit of leading economies in Japan later this month, the White House’s top economic adviser said Thursday.
- The meeting request comes as the Trump administration is considering tariffs on about $300 billion in imports from China not previously hit by duties. Both leaders are set to attend the G-20 summit at the end of June.
United States suspends WTO intellectual property litigation against China
- The United States has halted a World Trade Organization dispute over China’s treatment of intellectual property rights until Dec. 31, the WTO dispute panel hearing the case said in a statement published on Friday.
- The panel of three adjudicators said the United States asked for the suspension on June 3 and China agreed the next day.
- It was not clear if the suspension might signal a thawing of trade relations between the United States and China ahead of a possible meeting between Presidents Xi Jinping and Donald Trump at a G20 summit in Japan later this month.
U.S., Iran Trade Accusations in Wake of Tanker Attacks
- The U.S. and Iran on Friday traded accusations over the attack on two fuel tankers in the Gulf of Oman, as Tehran tried to deflect U.S. blame for an incident that has again ratcheted up fears of military conflict.
- Secretary of State Mike Pompeo has asserted that Thursday’s explosions were “a blatant assault on the freedom of navigation, and an unacceptable campaign of escalating tension by Iran.”
- Some Iranian officials suggested the U.S. or its allies were behind the attacks instead.
- Washington “immediately jumped to make allegations against Iran—[without] a shred of factual or circumstantial evidence,” Iranian Foreign Minister Javad Zarif said on Twitter.
Democratic National Committee Names 20 Candidates for First Debates
- The Democratic National Committee selected 20 candidates to participate in this month’s first presidential debates, leaving out three long-shot hopefuls in the first major televised event of the primaries.
- The DNC said three candidates failed to qualify for the June 26-27 debates in Miami: Montana Gov. Steve Bullock, Rep. Seth Moulton of Massachusetts and Miramar, Fla., Mayor Wayne Messam.
- The two nights of debates will feature 10 candidates each and could help winnow the large field of contenders vying to challenge President Trump for the White House in 2020.
EUROPE & WORLD
China’s Economy Shows Fresh Signs of Weakness
- Chinese economic data on industrial output and investment published Friday added to evidence of a slowdown that some economists said risks breaching the government’s 6% bottom line for growth, unless there is more stimulus.
- The data for May included two key pieces of Chinese gross domestic product (GDP): value-added industrial production, which rose 5.0% from a year earlier, and fixed-asset investment, up 5.6% during the first five months of the year.
- Both increases were slower than prior-month reports from the National Bureau of Statistics.
- Home sales rose 8.9% in the first five months of 2019 from last year, compared with 10.6% in the first four months.
- Investment in real estate recorded 11.2% growth in the first five months against 11.9% during the January-April span.
- Construction starts increased 10.5% in the first five months, likewise slower than four-month figure of 13.1%.
- Consumer consumption in May was stronger as retail sales bounced from a more than 16-year low in April to 8.6%.
India to Impose Its Own Tariffs on Some Goods Imported from the U.S.
- India is set to impose higher tariffs on some goods imported from the U.S. after delaying the plan for about a year, two government officials with knowledge of the matter said Friday.
- The move, widely seen as a retaliation for Washington’s recent decision to withdraw a key trade privilege from India, comes days ahead of Secretary of State Mike Pompeo’s visit to New Delhi to boost bilateral ties.
- The benefit withdrawal will add tariffs of as much as 7% on Indian exports of goods like chemicals, auto parts and tableware to the U.S., which in 2018 accounted for more than 11%, or $6.3 billion, of India’s total exports of goods valued at $54.4 billion, according to the Congressional Research Service, a research agency for the U.S. Congress.
- The higher import tax on U.S. goods will have an impact of around $220 million in terms of cost, one of these officials said.
Emerging Markets Cut Interest Rates Amid Expectations of Looser Fed Policy
- Central banks in emerging markets around the world are cutting interest rates, with Russia the latest example, as expectations of easier money in the U.S. give developing markets the room to stimulate their economies.
- Since April, India, Malaysia and the Philippines all have lowered rates, while China has encouraged more bank lending.
- The Russian central bank cited the recent change in course by the Federal Reserve toward looser monetary policy in its decision to lower its key interest rate by a quarter-percentage point to 7.5%.
- Bank of Russia Governor Elvira Nabiullina said a further rate cut was possible at one of the bank’s upcoming board meetings.
- On Friday, the Bank of Russia cut its national economic growth forecast for 2019 to between 1% and 1.5% from an earlier range of 1.2% to 1.7%. It warned that the expansion may ultimately be even weaker than that.
Airbus in talks with Indigo Partners on A321XLR sale: sources
- Airbus is in talks with U.S.-based private equity firm Indigo Partners about a potential sale of its new A321XLR passenger jet, industry sources said on Thursday.
- Airbus is trying to cement the launch of its longest-range single-aisle jet at the Paris Airshow next week.
- Indigo Partners, which declined comment, buys aircraft on behalf of four airlines in which it holds stakes, using its bulk purchasing power to squeeze lower prices from planemakers.
- The European planemaker is widely expected to announce the launch of the roughly 4,500-mile A321XLR model at the showcase event in Paris on June 17-23. The model will enter service in late 2023 or early 2024.
Airbus agrees new contract for delayed A400M military transporter
- Airbus has reached an agreement with European state buyers to revise a contract for its delayed A400M military transporter plane, resetting Europe’s largest defense project after a lengthy wrangle over costs and military capability.
- Airbus said it had signed an A400M contract amendment with OCCAR, which coordinates the A400M purchase for seven core nations, to lengthen the model’s production plan while sticking to the overall contractual timeframe until 2030.
- The A400M was commissioned in 2003 to give Europe an independent airlift capacity to support military or humanitarian missions, rather than relying on the Lockheed Martin C-130 or the now out-of-production Boeing C-17.
Bayer to invest $5.6 billion in weedkiller research to help reputation
- Germany’s Bayer sought to repair its reputation on Friday after damage caused by U.S. litigation over claims its glyphosate pesticide causes cancer, saying it would invest 5 billion euros ($5.6 billion) in weedkiller research.
- As well as saying it would invest 5 billion euros in research over the next ten years, Bayer promised to reduce its environmental impact by 30% through 2030 via measures such as more precise and more sparing application of crop chemicals.
- Its move follows a third consecutive U.S. jury verdict against Roundup, which Bayer acquired as part of its $63 billion purchase of Monsanto last year. Bayer says glyphosate is safe.
TODAY in HISTORY
- The United States Army was founded. (1775)
- The first commercial computer, Univac I, was unveiled. (1951)
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