DAILY MARKET REPORTS
- U.S. stocks ticked higher on Monday, with the tech-heavy Nasdaq powering ahead, as investors awaited a pivotal Federal Reserve meeting for clues on the path ahead for interest rates.
- The central bank is expected to leave borrowing costs unchanged at its two-day policy meeting starting Tuesday, but market expectations are for a rate cut as early as July.
- The Bank of Japan and the Bank of England will also hold meetings this week.
- Investors also braced for the Group of 20 summit at the end of the month, which has fueled hopes of progress on resolving the prolonged trade war between the United States and China.
- Array Biopharma jumped nearly 58% after Pfizer agreed to buy the drugmaker for $10.64 billion to beef up its cancer portfolio.
US FINANCIAL MARKET
Huawei Expects $30 Billion Revenue Hit from U.S. Clampdown
- The U.S. campaign against Huawei is taking a toll, with CEO Ren Zhengfei forecasting a hit to revenue of about $30 billion over the next two years.
- Huawei, which turned in a revenue of 721.2 billion yuan ($104 billion) last year, expects revenue of around $100 billion this year and the next, Ren said.
- This compares to an initial target for a growth in 2019 to between $125 billion and $130 billion depending on foreign exchange.
- Ren said the firm’s international smartphone shipments plunged 40%.
- While he did not give the time period, a spokesman clarified the CEO was referring to the past month.
- Bloomberg reported on Sunday that Huawei was preparing for a 40-60% drop in international smartphone shipments.
Pfizer to Buy Cancer Drug Maker Array BioPharma for $10.64 Billion
- Pfizer agreed to buy Array BioPharma for $10.64 billion in cash, as the pharmaceutical company looks to expand its pipeline of cancer therapies.
- Pfizer said it would pay Array shareholders $48 for each of its shares outstanding, a 62% premium to the closing price Friday.
- Pfizer said it would fund the transaction with debt and existing cash.
- Pfizer expects the transaction, worth $11.4 billion including debt, to be completed in the second half of the year.
- The company said it expects the transaction to hit adjusted per-share earnings by 4 cents to 5 cents in 2019 and 4 cents to 5 cents in 2020. Pfizer expects to the deal to add to earnings at the beginning of 2022.
Sotheby’s to Be Taken Private by Altice Founder Patrick Drahi for $57 a Share
- Global auction house Sotheby’s has agreed to be taken private by art collector and media entrepreneur Patrick Drahi in a deal with an enterprise value of $3.7 billion.
- Mr. Drahi, 55, is buying Sotheby’s shares outstanding for $57 apiece, a deal that would end Sotheby’s 31-year streak as a public company, Sotheby’s said Monday.
- His offer represents a 61% premium to Sotheby’s closing price Friday.
- Sotheby’s reported $1.04 billion in revenue for 2018, and profit of $108.6 million, but both measurements fell from a year prior.
Boeing lifts 20-year industry demand forecast to $6.8 trillion
- Boeing raised its rolling 20-year industry forecast for passenger aircraft by 3%, fueled by strong air traffic predictions, though global geopolitical and economic risks could upset the rosy outlook.
- The world’s largest planemaker said at the Paris Airshow it expected 44,040 new airplane deliveries over the next two decades, up from the roughly 43,000 it forecast a year ago.
- That would be worth $6.8 trillion over the next two decades at list prices versus last year’s $6.3 trillion prediction.
- Dominating that tally is a roughly 3% increase in the forecast for single-aisle aircraft, such as the Airbus A320 family and the competing Boeing 737 MAX which remains grounded in the wake of two deadly crashes.
- The forecast is underpinned by a prediction for average global traffic growth of 4.6 percent, down fractionally from the 4.7 percent projected last year.
CFM erases jet engine output delay, cautious on rate increases
- CFM International has caught up with delays in deliveries of its LEAP jet engine after keeping its assembly lines running at high speed while the Boeing 737 MAX remains grounded, the French-American engine maker said on Saturday.
- CFM officials said ahead of the Paris Airshow that the engine maker had been able to absorb earlier delays in production during the grounding of the 737 MAX.
- CFM had already closed a gap in engine production for the Airbus A320neo.
- While Boeing has cut output of the 737 MAX to 42 aircraft a month from 52 and deferred a planned rate of 57, Airbus continues to produce at 60 with plans to go to 63 in 2021.
Airbus launches new A321XLR jet and wins Air Lease orders
- Airbus launched its A321XLR jet and announced orders for the new model, as the European planemaker aims to carve out new routes for airlines with smaller planes and steal a march on rival Boeing’s plans for a possible new mid-market jet.
- Airbus said the model would have a long range of up to 4,700 nautical miles (NM), 15% more than the previous A321LR model.
- Airbus said the A321XLR is expected to enter service in 2023, several years before any Boeing midsize plane would be ready.
- Air Lease also announced a 100-plane Airbus order, which included 27 of the Airbus A321XLR jets.
Virgin Atlantic orders 14 Airbus A330neos, with further 6 options
- Europe’s Airbus agreed on a deal to sell 14 A330neo wide-body passenger jets to Virgin Atlantic on Monday valued at $4.1 billion, the companies announced at the Paris Airshow on Monday, with an option for the airline to order six more.
- The British-based airline based placed firm orders for the upgraded A330 model, which it had been evaluating against the Boeing 787 Dreamliner.
- The jets, which will be powered by Rolls-Royce Trent 7000 engines, will replace the airline’s A330ceos from 2021, Virgin Atlantic said.
Lockheed: No concern that Raytheon-UTC merger will affect F-35 program
- Lockheed Martin F-35 program manager Greg Ulmer said on Monday he had “no concern” that the proposed merger of Raytheon and United Technologies would affect the F-35 program or pressure its margins.
- “I don’t see any concern,” Ulmer told reporters at the Paris Airshow when asked if the merger of two key suppliers would affect the F-35 program, which is working hard to reduce costs.
- Ulmer also said Turkish firms continued to produce components for the aircraft despite a row over Ankara’s plans to buy the Russian S-400 air defense system.
US ECONOMY & POLITICS
New York Fed ‘Empire’ business index posts record drop in June
- The New York Federal Reserve said on Monday its gauge of business growth in New York state posted a record fall this month to its weakest level in more than 2-1/2 years, suggesting an abrupt contraction in regional activity.
- The regional Fed’s “Empire State” index on current business conditions tumbled to -8.6 in June from 17.8 in May.
- This was the first negative reading since October 2016 when it was -9.2.
- Analysts polled by Reuters had forecast a reading of 10.0 for March.
- The sharp deterioration was led by a pullback in new orders and employment, which fell to -12.0 and -3.5 in June from 9.7 and 4.7 in May, respectively.
Iran to Breach Limits of Nuclear Pact, Putting Bid to Save Deal in Doubt
- Iran said it would exceed limits on its enriched-uranium stockpiles before the end of this month, days after the U.S. accused Tehran of orchestrating a second set of attacks on tankers near a vital global-shipping route.
- If it carries through the threat, Iran would breach the enriched-uranium cap set in the 2015 nuclear deal, jeopardizing European efforts to save a pact that President Donald Trump withdrew from last year.
- Iranian officials framed the move as an ultimatum to Europe, which has furiously tried to the save the deal by finding ways around U.S. sanctions that have cut off trade with Iran and tipped its economy into a painful recession.
U.S. Consumer Sentiment Falls in Early June, Driven by Tariff Concerns
- U.S. household sentiment fell at the beginning of June as renewed trade tensions tapered optimism and smaller gains in employment suggested slower economic growth.
- The University of Michigan said its consumer sentiment index was 97.9 in early June, down from 100 in May.
- Economists expected the confidence gauge to fall from May’s reading to 97.3.
- The survey’s underlying gauge of future expectations also fell to 88.6, down from May’s reading of 93.5.
India to impose retaliatory tariffs on 28 U.S. goods from Sunday
- India will impose higher retaliatory tariffs on 28 U.S. products including almonds, apples and walnuts from Sunday, following Washington’s withdrawal of key trade privileges for New Delhi.
- The new duties take effect from Sunday, a government notification said, in the latest trade row since U.S.
- From June 5, President Trump scrapped trade privileges under the Generalized System of Preferences (GSP) for India, the biggest beneficiary of a scheme that allowed duty-free exports of up to $5.6 billion.
- India is by far the largest buyer of U.S. almonds, paying $543 million for more than half of U.S. almond exports in 2018, U.S. Department of Agriculture data shows. It is the second largest buyer of U.S. apples, taking $156 million worth in 2018.
Puerto Rico Board Unveils $35 Billion Bankruptcy-Exit Framework
- Puerto Rico’s financial supervisors struck a deal with creditors owed $3 billion that sets out a path for restructuring $35 billion in debt obligations tied to the central government and scaling back debt payments over the next 30 years by half.
- The proposed settlement, announced Sunday, covers $18 billion in bonds that were guaranteed with Puerto Rico’s full faith and credit, including the largest junk-rated sale of municipal debt ever, a $3.5 billion issuance in 2014.
- The board said it would submit a debt-adjustment plan in Puerto Rico’s court-supervised bankruptcy for approval within 30 days, foreshadowing a potential high-stakes battle over repayment terms.
Bitcoin Tops $9,000 as Crypto Rally Trounces Stocks, Bonds, Gold and Oil
- The price of bitcoin rose above $9,000, extending a rebound that has made cryptocurrencies far outperform traditional asset classes this year.
- Bitcoin climbed to $9,381.82 over the weekend, a 13-month high, according to research site CoinDesk.
EUROPE & WORLD
China pulls WTO suit over claim to be a market economy
- China has halted a dispute at the World Trade Organization over its claim to be a market economy, a panel of three WTO adjudicators said, meaning Beijing must accept continued EU and U.S. “anti-dumping” levies on cheap Chinese goods.
- One trade official close to the case said so much of the ruling had gone against Beijing that it had opted to pull the plug before the result became official.
- Without a WTO ruling in Beijing’s favor, the EU and United States can keep imposing duties on cheap imports from China while disregarding its claim that they are fairly priced.
- China had insisted that they treat it as a “market economy”, countering their view that the price of Chinese exports could not be taken at face value due to state interference in the economy.
- But the United States and the EU disagreed, saying Chinese goods — especially commodities such as steel and aluminum — were still heavily underpriced because of subsidies and state-backed oversupply, giving Chinese exporters an unfair advantage.
Chinese Regulators Try to Calm Fears of a Funding Squeeze
- Chinese regulators made fresh attempts to calm frayed nerves in the country’s financial sector, as bank liquidity remained tight by some measures three weeks after authorities took over a struggling city lender.
- On Sunday, securities regulators summoned a group of large Chinese brokerages and asset-management firms to a closed-door meeting in Beijing and asked them not to cut off trading and other dealings with smaller banks and financial institutions, according to a meeting summary circulated among industry participants Monday.
- The memo said there had been some defaults in the repo—or repurchase agreement—market, where banks, brokers and other financial firms borrow cash for short periods by pledging securities against short-term loans.
- Chinese authorities are trying to contain the market fallout from their seizure of Baoshang Bank, a bank based in Inner Mongolia, on May 24. The commercial bank had been controlled by a missing Chinese financier.
Hong Kong Upheaval Puts Beijing in a Bind
- On Sunday, a massive crowd of protesters flooded central Hong Kong, capping a week of demonstrations and at times violent confrontations between protesters and police.
- Organizers estimated the crowd at nearly two million people and said it was the biggest rally Hong Kong has seen since China reclaimed sovereignty of the city from Britain in 1997, though police put the figures substantially lower.
- Upheaval in Hong Kong—long a key to China’s trade and business with the West—could seriously set back its long-term goal of fully incorporating the city without setting off civil unrest, and potentially risk inspiring similar actions in mainland China.
- Beijing is seeking to project an image of strength and stability as it grapples with an economic slowdown and a bitter trade conflict with the U.S.
- U.S. Secretary of State Mike Pompeo said Sunday that President Donald Trump might raise the Hong Kong issue with President Xi at the G-20 meeting later this month.
Hong Kong Leader Carrie Lam Faces Growing Pressure to Resign
- Pressure mounted on Hong Kong Chief Executive Carrie Lam as protesters called for her to step down and members of her cabinet urged her to personally respond, a day after a mass rally triggered by her handling of a contentious extradition bill.
- On Saturday, Mrs. Lam, under pressure from her splintering supporters, moved to indefinitely suspend passage of the bill, which would have allowed suspects to be transferred to mainland China for trial.
- Mrs. Lam, a 39-year civil servant, has said she initiated the bill herself after receiving emotional letters from a woman whose daughter was murdered in Taiwan. The suspect fled to Hong Kong, which doesn’t have an extradition treaty with Taiwan.
- President Xi’s goal of reintegrating Taiwan into the mainland has also suffered a setback.
Alibaba proposes one-to-eight stock split ahead of up to $20 billion HK listing
- Alibaba has proposed a one-to-eight stock split ahead of a listing in Hong Kong that is expected to raise up to $20 billion.
- The split, to be presented to shareholders for a vote at an annual general meeting in Hong Kong on July 15, will increase flexibility in the firm’s capital raising activities, including the issuance of new shares, the e-commerce giant said.
- Alibaba has also proposed to change the ratio of ordinary shares to American Depositary Shares (ADS) to eight ordinary shares representing one ADS to neutralize the impact of share split on its ADS listed in the U.S. market.
Spain joins France and Germany in race to build Europe’s next combat jet
- Spain on Monday joined a Franco-German project to build a next-generation fighter jet, an initiative touted as key to ensuring Europe can defend itself without depending on allies in an increasingly uncertain world.
- Dassault Aviation and Airbus will build the warplane which is expected to be operational from 2040, with a view to replacing Dassault’s Rafale and Germany’s Eurofighter over time.
- The defense ministers of France, Germany and Spain signed an accord launching a trilateral framework of cooperation at the Paris Airshow, sat in front of a mock-up of the jet and with French President Emmanuel Macron applauding behind them.
TODAY in HISTORY
- The Statue of Liberty arrived in New York City aboard the French ship Isere. (1885)
- Amelia Earhart embarked on the first trans-Atlantic flight by a woman. (1928)
- J. Simpson’s slow-speed chase by the police, watched by millions on TV, ended in his arrest. (1994)
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