DAILY MARKET REPORTS
- U.S. stocks headed toward fresh records Monday after a thaw in trade relations between the U.S. and China sparked a rally in shares of chip makers and manufacturers.
- Stocks from New York to Shanghai got a boost after Beijing and Washington agreed to resume trade talks, easing fears among investors that the two countries could be headed toward further discord.
- Shares of semiconductor firms, whose businesses have been seen as especially vulnerable to tariffs, soared, with Nvidia, AMD and Micron Technology rising more than 3% apiece.
- Manufacturers also got a lift, with Caterpillar rising 2.1% and United States Steel jumping 1.5%.
- Haven assets, which tend to rally in times of stress, retreated.
- Gold fell 1.3% and the yield on the benchmark 10-year U.S. Treasury note rose to 2.010% from 1.998% Friday.
- Elsewhere, the Shanghai Composite Index gained 2.2% and closed at its highest level since April, despite a set of disappointing readings for Chinese economic activity.
- Weekend data showed factory activity in China contracted for the second straight month in June.
- Japan’s Nikkei Stock Average rose 2.1%, posting its biggest one-day percentage gain since March.
US FINANCIAL MARKET
Struggling Beauty Giant Coty to Restructure Operations
- Cosmetics and fragrance giant Coty said it would restructure its operations and take a $3 billion write-down on the multibillion-dollar beauty business it acquired nearly three years ago from Procter & Gamble.
- Coty said Monday it struck a deal with creditors to provide enough funding to carry out a restructuring plan that will downsize staffing and product offerings while reorganizing the business into distinct geographic units.
- Coty expects to book $600 million in restructuring costs over several years but didn’t say how many jobs would be affected.
G20 stops short of denouncing protectionism, warns of global slowdown
- Leaders of the Group of 20 major economies warned on Saturday of growing risks to the global economy but stopped short of denouncing protectionism, calling instead for a free, fair trade environment after talks some members described as difficult.
- In a communique at the end of a two-day meeting in Japan’s western city of Osaka, the leaders said global growth remained low and risks were tilted to the downside, as trade and geopolitical tensions have grown.
- However, Christine Lagarde, managing director of the International Monetary Fund, warned the global economy had hit a “rough patch” due to the trade conflicts, and urged G20 policymakers to reduce tariffs and other trade obstacles.
New OPEC-Russia Pact on Oil Cuts Could Last Well Into 2020
- OPEC and its allies are likely to extend their deal to cut oil output by nine months, Saudi Energy Minister Khalid al-Falih said, in a sign that some of the world’s major crude-producing countries are concerned about the possibility of shrinking demand.
- OPEC’s 14 member nations and a group of 10 countries led by Russia are gathering Monday and Tuesday for a high-stakes meeting in Vienna to discuss ways to balance the global oil market.
- Saudi Arabia—OPEC’s de facto leader—and Russia have already agreed to maintain the output cuts at current volumes, which run at around 1.2 million barrels a day.
- Saudi Arabia, the world’s largest crude exporter, doesn’t see a need for deeper cuts and markets will likely balance in the next six to nine months, Mr. Falih said.
Genesee & Wyoming to Go Private in Roughly $6.5 Billion Deal
- Railroad owner Genesee & Wyoming is being purchased by a group of investors in a roughly $6.5 billion deal.
- Affiliates of both Brookfield Infrastructure and Singapore sovereign wealth fund GIC are buying Genesee & Wyoming for $112 a share in cash, taking the company private.
- The company’s shares most recently closed at $100 a share, but the company said the offer is 39.5% premium to where Genesee & Wyoming shares closed on March 8, the day before media speculation about a deal appeared.
- Genesee & Wyoming owns 120 short-line railroads in North America, Australia and Europe.
Applied Materials to Buy Kokusai Electric from KKR for $2.2 Billion
- Applied Materials said it is acquiring Kokusai Electric for $2.2 billion from global investment firm KKR.
- Like Applied Materials, Kokusai is a producer of semiconductor-manufacturing equipment.
- Following the close of the transaction, Kokusai Electric will operate as a business unit of Applied Materials’ Semiconductor Products Group and continue to be based in Tokyo.
- Applied Materials said the acquisition is expected to be immediately accretive to its adjusted earnings per share.
Performance Food to Buy Reinhart in $2 Billion Deal
- Food distributor Performance Food Group has agreed to acquire privately held rival Reinhart Foodservice for $2 billion in a bid to build scale and tackle rising costs.
- Reinhart generated more than $6 billion in revenue last year. Combined, the companies would have more than $30 billion in sales, according to Performance, which has a market value of $4.2 billion.
- Performance expects to save $50 million in costs annually by the third year after the acquisition is completed.
Warren Buffett to Donate $3.6 Billion of Berkshire Stock to Five Foundations
- Warren Buffett, chairman of Berkshire Hathaway, has pledged to donate shares worth about $3.6 billion to five foundations, as part of his plan to give away most of his wealth to charities and other philanthropic efforts.
- The company said Monday that Mr. Buffett, 88 years old, plans to convert 11,250 shares of his Berkshire Hathaway Class A stock into roughly 16.9 million shares of Class B stock.
- Around 16.8 million of the Class B shares will be donated to the Bill & Melinda Gates Foundation, Susan Thompson Buffett Foundation, Sherwood Foundation, Howard G. Buffett Foundation and NoVo Foundation.
US ECONOMY & POLITICS
Trump says China trade talks ‘back on track,’ new tariffs on hold
- The United States and China agreed on Saturday to restart trade talks after President Donald Trump offered concessions including no new tariffs and an easing of restrictions on tech company Huawei in order to reduce tensions with Beijing.
- China agreed to make unspecified new purchases of U.S. farm products and return to the negotiating table, Trump said.
- No deadline was set for progress on a deal, and the world’s two largest economies remain at odds over significant parts of an agreement.
- Trump tweeted hours later that the meeting with Xi went “far better than expected.”
- Trump said the U.S. Commerce Department would study in the next few days whether to take Huawei off the list of firms banned from buying components and technology from U.S. companies without government approval.
Manufacturing was better than expected in June, but inflation remains muted
- Manufacturing activity was surprisingly strong in June, according to a closely watched gauge leased Monday that also pointed to a rebound in hiring.
- The ISM manufacturing index turned in a reading of 51.7, lower than May’s 52.1 but ahead of Dow Jones expectations of 51.3.
- On the upside, the employment index showed 54.5, up from May’s 53.7, a month when nonfarm payrolls grew by just 75,000 and triggered worries of a hiring slowdown.
- Production also showed a sharp increase at 54,1, up from 51.3, while supplier deliveries fell to 50.7.
- On the contraction side, inventories, which are a key component of GDP, fell to 49.1, while prices paid slumped to 47.9, a fall from 53.2 and further indication that inflation pressures remain muted.
- Also, new orders were at 50, a slide from 52.7 and indicative of worry about conditions ahead.
Major or Minor? Lawmakers Keep Close Eye on Huawei Concession
- President Trump’s decision to let Huawei buy technology equipment again from the U.S. is emerging as a fresh source of tension between the administration and Senate Republicans.
- Both Democratic and Republican lawmakers see Huawei as a national-security threat to the U.S., and Mr. Trump’s announcement quickly prompted concern that the administration was not holding the line on the Chinese telecommunications company.
- Sen. Marco Rubio tweeted that he would introduce legislation to keep current restrictions in place if the administration relents.
- Sen. Lindsey Graham, a close ally of the president on Capitol Hill, said he still needed to evaluate the exact nature of the concession in an interview on CBS’s “Face the Nation.”
- Larry Kudlow, director of the White House’s National Economic Council, took to several Sunday shows to defend the decision.
- He said that the U.S. would only allow common commercial sales to Huawei, while the government would continue to closely regulate items related to national security.
Iran Says It Breached Nuclear Deal Limits on Enriched Uranium
- Iranian Foreign Minister Javad Zarif said the country has breached the 2015 nuclear deal’s limits on enriched uranium, a step that marks its first intentional violation of the accord and could lead to the unraveling of the agreement in the coming months.
- Iran’s agreement to a stockpile of 300 kilograms or less was one of the tight restrictions placed on its nuclear work in exchange for a lifting of most international sanctions.
- The deal’s remaining countries—France, the U.K., Germany, Russia and China—have warned Iran against breaching any aspects of the accord but have made clear they won’t abandon the agreement based on Monday’s violation.
- European officials have said they could trigger a weekslong process that could result in international sanctions being reimposed on Tehran if Iran takes additional steps to violate the agreement, as it has threatened to do later this week.
Trump Steps into North Korea as Two Sides Agree to Restart Nuclear Talks
- President Trump became the first sitting U.S. president to step across the boundary dividing North and South Korea, leading to a hastily organized meeting with North Korean leader Kim Jong Un and a commitment to restart nuclear talks.
- Mr. Trump said the two nations had agreed to designate nuclear negotiating teams that will begin work over the next several weeks. “We’re not looking for speed. We’re looking to get it right,” he said. “We’re on a very good path. This was a terrific day.”
- The two sides remain deeply divided over how, and when, Pyongyang should relinquish its nuclear arsenal, a disagreement that became clear when talks abruptly broke down at a February summit between Messrs. Trump and Kim in Vietnam.
EUROPE & WORLD
Factories faltered in June, trade truce fails to brighten outlook
- Factory activity shrank across much of Europe and Asia in June as the simmering U.S.-China trade conflict put further strains on the manufacturing sector, keeping policymakers under pressure to deploy stronger steps to avert a global recession.
- Factory activity in the euro zone shrank faster last month than previously thought, in a broad-based downturn, according to IHS Markit’s Manufacturing Purchasing Managers’ Index (PMI), which also suggested there would be no quick turnaround.
- Germany’s export-dependent manufacturing sector contracted in June for the sixth time in a row, Italian activity declined for a ninth month and Spain’s contracted at its fastest rate in more than six years.
- France, the euro zone’s second-biggest economy, bucked the trend and activity grew at its fastest pace in nine months.
- But against a backdrop of Brexit uncertainty and global trade tensions, British manufacturers suffered the sharpest fall in activity in more than six years, its PMI showed, adding to signs of economic weakness there.
- In China, Asia’s economic engine, the Caixin/IHS Markit PMI came in at 49.4, falling short of market expectations and the worst reading since January.
- In South Korea, factory activity shrank at the fastest pace in four months in June as the global trade slowdown deepened, prompting companies to cut production.
China warns of long road ahead for deal with U.S. after ice-breaking talks
- China and the United States will face a long road before they can reach a deal to end their bitter trade war, with more fights ahead likely, Chinese state media said after the two countries’ presidents held ice-breaking talks in Japan.
- However, the official China Daily, an English-language daily often used by Beijing to put its message out to the rest of the world, warned while there was now a greater likelihood of reaching an agreement, there’s no guarantee there would be one.
- The Chinese government’s top diplomat, State Councillor Wang Yi, in a lengthy statement about G20 released by the Foreign Ministry following the delegation’s return to Beijing, said the Xi-Trump meeting had sent a “positive signal” to the world.
Hong Kong Protesters Break into Government Headquarters
- Protesters smashed a makeshift battering ram through glass walls at Hong Kong’s government headquarters, goading police inside the building, as a massive demonstration kicked off on the anniversary of the city’s return to Chinese sovereignty.
- The confrontation are signs of a deepening crisis over the city’s future, spawned a month earlier by Hong Kong Chief Executive Carrie Lam’s push to pass legislation allowing suspects to be extradited to China, which has a far more opaque legal system.
- Sporadic violence between police and protesters disrupted an annual ceremony Monday morning to raise the Chinese flag ahead of the rally.
- On this day 22 years ago, the Union Jack was lowered and the Chinese flag hoisted, ending more than a century and a half of British rule in Hong Kong.
TODAY in HISTORY
- The Battle of Gettysburg, which marked the turning point in the Civil War, began. (1863)
- Theodore Roosevelt and his Rough Riders fought the battle of San Juan Hill in the Spanish-American War. (1898)
- Income tax withholding began in the United States. (1943)
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