DAILY MARKET REPORTS
- U.S. stocks bobbled around the flat line Friday, on track to notch strong gains in a quarter defined by dramatic swings.
- The S&P 500 is on pace to close up 6.5% for the month and 3.4% in the second quarter.
- If the gains hold, it will mark the best June for the index since 1955.
- On Friday, the index’s rise was tepid in quiet trading, as investors awaited a meeting between Presidents Donald Trump and Xi Jinping at the Group of 20 summit, where trade negotiations will be top of the agenda.
- Trump said he hoped for productive talks with the Chinese president, but said he had not made any promises about a reprieve from escalating tariffs. The two leaders are scheduled to meet on the sidelines of the G20 summit this weekend in Japan.
- Giving the Fed ammunition to cut interest rates next month was data that showed consumer spending increased moderately in May and prices rose slightly, pointing to slowing economic growth and benign inflation pressures.
- Constellation Brands jumped 4% after the Corona beer maker reported quarterly results above analysts’ estimates.
- Nike rose modestly after beating revenue estimates but missing profit on higher marketing costs.
US FINANCIAL MARKET
Nike misses quarterly profit estimates on higher marketing expenses
- Nike missed analysts’ estimates for quarterly profit on Thursday, as the world’s largest sportswear maker spent more on marketing and new product launches.
- Revenue rose 4% to $10.18 billion, beating analysts’ average estimate of $10.16 billion.
- Revenue in the North American market rose 7% to $4.17 billion. Sales in China climbed 16% to $1.7 billion.
- Nike’s net income fell to $989 million in the fourth quarter, from $1.14 billion a year earlier.
- For the first quarter, Nike forecast reported revenue-growth in line to slightly above the fourth quarter growth rate of 4%.
Corona and Modelo drive Constellation’s sales, shares rise
- Constellation Brands reported better-than-expected quarterly results and raised its full-year earnings forecast on Friday, boosted by strong demand for its Modelo Especial and Corona Premier beers, sending its shares up.
- Overall, net sales rose 2.5% to $2.10 billion. Analysts had expected net sales of $2.07 billion.
- Sales of the company’s beers rose 7.4% to $1.48 billion in the first quarter ended May 31.
- The brewer posted a net loss of $245.4 million in the reported quarter, compared to a profit of $743.8 million a year ago, mainly due to equity losses in Canadian marijuana producer Canopy Growth.
- Constellation raised its profit expectations for fiscal 2020, and now sees earnings per share on a comparable basis to be in the range of $8.65 to $8.95 from $8.50 to $8.80 earlier.
Apple Design Chief Jony Ive to Depart, Ushering in New Era
- Apple said design chief Jony Ive will leave the company later this year to form his own independent design company, marking the end of an era at the iPhone maker as it shifts from an emphasis on product development to services.
- Mr. Ive’s departure announcement Thursday comes after several years in which he has become less involved in the day-to-day business and design work at Apple, people close to the designer said.
- It nevertheless means the removal of Apple’s most prominent leader after Chief Executive Tim Cook and the person who most embodies the design wizardry achieved by Apple under its late chief Steve Jobs.
Boeing 737 MAX Likely Grounded Until Late This Year
- Boeing’s troubled 737 MAX fleet is expected to stay grounded until late this year as a result of the latest flight-control problem flagged by U.S. air-safety regulators, according to people briefed on the issue.
- The setback, at the very least, is expected to prompt additional disruptions to airline schedules across the U.S. and overseas as some 500 of the planes remain idled for months longer than previously projected.
- During simulator tests of certain emergency procedures, FAA pilots uncovered a potentially dangerous situation they hadn’t encountered before.
- The crux of the problem, according to the Boeing official and company messages to airlines, is that if a chip inside the plane’s flight-control computer fails, it can cause uncommanded movement of a panel on the aircraft’s tail, pointing the nose downward.
- Tests of the emergency procedures to cope with this so-called runaway stabilizer condition, the official said, revealed that it would take average pilots longer than expected to recognize and counteract the problem.
U.S. dominates second-quarter global M&A as mega deals roll on
- Mega deals set the pace for mergers and acquisitions (M&A) globally in the second quarter of 2019, as large U.S. companies defied trade row jitters and seized on strong equity and debt capital markets to agree on transformative combinations.
- Global M&A volume reached $842 billion in the second quarter, down 13% and 27% from the first quarter of 2019 and second quarter of 2018 respectively, according to preliminary data from financial data provider Refinitiv.
- This quarter’s volume would have been significantly lower were it not for U.S. mega deals, given that total deal count globally fell to its lowest quarterly level since the 2008 financial crisis.
- U.S. M&A totaled $466 billion in the second quarter, down just 3% from a year ago.
- Dealmaking in Europe, however, plunged 54% to $152 billion, while Asia M&A dived 49% to $132 billion.
OPEC to Extend Cuts Amid Dual Threats to Oil Supply, Demand
- OPEC is set to extend its oil production cuts into the second half of this year, cartel and Saudi officials said, as the group and its allies contend with Middle East tensions that threaten crude supply and economic weakness in China that could crimp demand.
- As part of the plan, Saudi Arabia will apply pressure to laggard producers, including Iraq and Nigeria, which haven’t complied with their pledged output curbs under the current agreement, the kingdom’s advisers say.
- Ahead of a meeting on Monday, some OPEC member nations are expected to argue for deeper curbs than previously agreed, OPEC officials say. But Saudi Arabia, OPEC’s de facto leader, is unlikely to back those proposals.
Apple Moves Mac Pro Production to China
- Apple is manufacturing its new Mac Pro computer in China, shifting abroad production of what had been its only major device assembled in the U.S. as trade tensions escalate between the Trump administration and Beijing.
- The tech giant has tapped contractor Quanta Computer to manufacture the $6,000 desktop computer and is ramping up production at a factory near Shanghai, the people said.
- Quanta’s facility is close to other Apple suppliers across Asia, making it possible for Apple to achieve lower shipping costs than if it shipped components to the U.S.
Federal Reserve Clears Big Banks to Boost Payouts to Investors
- The Federal Reserve said the biggest U.S. banks are healthy enough to start whittling down their capital stockpiles, clearing them to make payouts to investors that exceed their expected profits.
- All 18 banks reviewed passed round two of the Federal Reserve’s stress tests, an annual exercise designed to gauge banks’ ability to withstand a recession. It was only the second time since the Fed began administering the exams that no bank failed.
- The two-stage process, introduced by the Dodd-Frank financial overhaul, first measures how the banks would fare in severe economic scenarios, including double-digit unemployment and a 50% decline in U.S. stocks.
- Those results showed an industry losing a total of $410 billion but left with more capital than in the prior year’s test.
FDA Says Medtronic Insulin Pumps Pose Cybersecurity Risk
- The Food and Drug Administration warned that certain insulin pumps made by Medtronic have cybersecurity vulnerabilities and could be manipulated by hackers, causing danger to diabetes patients.
- Medtronic began notifying patients about the issue Thursday, saying a hacker could potentially connect wirelessly to a nearby insulin pump to change settings or control insulin delivery.
- Dublin-based Medtronic said it doesn’t know of any confirmed cases where the cybersecurity vulnerability has been exploited.
- But it is a serious issue and could lead to hypoglycemia if additional insulin is delivered to the patient, or to diabetic ketoacidosis if not enough is delivered.
Google appears to have leveraged Android dominance – India watchdog
- Google appears to have misused its dominant position in India and reduced the ability of device manufacturers to opt for alternate versions of its Android operating system, Indian officials found before ordering a wider probe in an antitrust case.
- A 14-page order from the Competition Commission of India (CCI), reviewed by Reuters this week, found Google’s restrictions on manufacturers seemed to amount to imposition of “unfair conditions” under India’s competition law.
- The Indian case is similar to one Google faced in Europe, where regulators imposed a $5 billion fine on the company for forcing manufacturers to pre-install its apps on Android devices.
US ECONOMY & POLITICS
Americans Increased Their Spending in May
- Personal-consumption expenditures, a measure of household spending on everything from carpet cleaning to computers, increased a seasonally adjusted 0.4% in May from April, the Commerce Department said Friday.
- Growth in April outlays was revised up to 0.6% from an originally reported 0.3% rise.
- Americans’ pretax earnings from wages, salaries and investments increased 0.5% in May from the prior month.
- Economists had expected incomes to rise 0.3% in May. They had forecast spending to increase 0.5%.
- The personal saving rate—the difference between after-tax income and spending—was 6.1% in May, unchanged from April.
U.S. Inflation Continues Recovery but Remains Below Fed Target
- The Fed’s preferred inflation gauge, the price index for personal-consumption expenditures (PCE), rose a seasonally adjusted 0.16% in May from April, the Commerce Department said Friday.
- A less volatile measure, called the core PCE price index—which excludes volatile food and energy—was up 0.19% from April.
- The broad PCE price index in May was up 1.52% from a year earlier, while the core measure was up 1.6%.
- Economists had expected core PCE prices to rise 0.2% on the month and 1.6% on the year.
Biden Draws Bulk of Attacks in Second Debate
- Former Vice President Joe Biden faced challenges from a new generation of presidential hopefuls who took aim at his decades long record and questioned whether the party’s Obama-era policies have gone far enough.
- The second of two Democratic debates pivoted over the role of government in health care and other issues—and whether the party should embrace aspects of socialism, a position repeatedly pushed by the man at Mr. Biden’s left, Sen. Bernie Sanders.
- In a sharpest exchange of the night, California Sen. Kamala Harris, who is black, told Mr. Biden that while she didn’t believe “you are a racist,” it was hurtful to hear him warmly recall working with two deceased segregationist senators.
- The exchange also underscored both Mr. Biden’s centrist role in the race and his long service in a party that has moved to the left over time.
Pelosi Calls for Surgical Changes to Trump Trade Pact
- House Speaker Nancy Pelosi said that the pending U.S.-Mexico-Canada Agreement may need to be reopened and changed with surgical precision before the House will vote on the trade pact.
- The deal struck last year to replace the 1994 North American Free Trade Agreement, known as USMCA, requires ratification by legislators in all three countries before it can take effect.
- Mexico ratified the agreement last week, and it is expected to pass easily in Canada.
Border Bill Passes in House, Opening a Democratic Rift
- The House passed a $4.6 billion bill funding humanitarian aid for migrants at the southern border, approving the Senate version of the legislation over the objections of nearly 100 Democrats and sending it to President Trump for his signature.
- House Speaker Nancy Pelosi had earlier pledged to make changes to the Senate package before allowing it on the House floor for a vote, including tightening restrictions on how the administration could use the funds.
- But she abandoned those plans Thursday amid pressure from moderates to pass the Senate version and a deadline to approve the funding ahead of the July 4 break.
- The legislation will provide relief to immigration agencies stretched thin by the recent surge in people seeking asylum at the southern border, paying for food, shelter, and medical care for the migrants.
EUROPE & WORLD
Europe Broadens Support for Iran Nuclear Deal
- Several European Union countries said Friday they were working with Britain, France and Germany to open up trade channels to Iran to cushion the impact of U.S. sanctions, broadening the bloc’s efforts to save the nuclear deal.
- The move comes as Europe is seeking to buy time for a diplomatic solution to the escalating tensions between the U.S., Europe and Iran over what Washington calls Tehran’s recent military aggression in the Middle East and its nuclear work.
- France, Britain and Germany are working on a trade mechanism, known as Instex, to allow some trade to continue with Iran without the need for direct financial flows between Europe and Iran.
- They are expected to announce Friday that the mechanism is operational and that it will have a credit line to help get transactions going, officials said.
Deutsche Bank Considers Up to 20,000 Job Cuts
- Deutsche Bank could target 15,000 to 20,000 job cuts, or more than one in six full-time positions globally, according to a person familiar with high-level discussions about the latest attempts to turn around the struggling financial giant.
- The cuts being contemplated by senior executives reflect an acceleration of Deutsche Bank’s downsizing and another major pullback from its global ambitions.
- If followed through, the reduction would represent 16% to 22% of Deutsche Bank’s workforce of 91,463 employees, as disclosed by the bank as of the end of March.
Japan Display to receive $100 million investment from Apple as part of bailout deal
- Japan Display said on Friday it would receive a $100 million investment from a customer, which a source said was Apple, as part of a bailout deal led by a Chinese investment firm for the smartphone screen maker.
- Japan Display is facing a funding crunch due to Apple’s recent shift away from liquid-crystal displays (LCDs) and disappointing sales of the iPhone XR, the only LCD model in Apple’s 2018 line-up.
- Apple, which accounted for 60.6% of Japan Display’s revenue in the last financial year ended March, will join a consortium led by China’s Harvest Group in investing up to 80 billion yen ($743 million), said a person briefed on the matter.
TODAY in HISTORY
- Archduke Francis Ferdinand of Austria-Hungary and his wife were assassinated, setting off World War I. (1914)
- The Treaty of Versailles was signed in France, ending World War I. (1919)
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