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US FINANCIAL MARKET | US ECONOMY & POLITICS
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DAILY MARKET REPORTS

  • U.S. stocks treaded water on Wednesday as trade-related weakness hurt CSX’s profit, leading to a decline in railroad stocks and offsetting gains in shares of Abbott and Qualcomm.
  • Shares of CSX recorded the steepest fall on the benchmark index, sliding 8.3% after the company posted lower-than-expected quarterly profit and cut its full-year revenue forecast.
  • Rivals Union Pacific slipped 5.3% and Kansas City Southern fell 4%. Both companies will report results this week.
  • Bank of America rose 1.1% after reporting a profit beat, but lowered its annual net interest income guidance.
  • Telecommunications equipment maker Ericsson suffered one of the biggest falls on concerns about higher costs that led to a narrower-than-expected operating margin, according to Citigroup analysts.
  • Bitcoin fell, trading below $10,000 for a second day as U.S. senators questioned Facebook over its proposed Libra cryptocurrency, highlighting the skepticism that digital-coin systems face from regulators.
  • Bitcoin has lost almost a third of its value, according to research site CoinDesk, after trading above $13,000 a week ago.

US FINANCIAL MARKET

CSX second-quarter profit hit by trade-related weakness; shares slide after hours

  • CSX on Tuesday posted a quarterly profit that missed Wall Street’s expectations and cut its full-year revenue forecast after weakness in its trade-related intermodal business weighed on results, sending shares down 6.1% in after-hours trade.
  • CSX said its second-quarter revenue was down 1% from the year-ago quarter to $3.06 billion, largely due to an 11% drop in its intermodal business.
  • Second-quarter net income fell 0.8% to $870 million from $877 million a year earlier.
  • CSX expects 2019 revenue to fall between 1%-2% for 2019, compared to prior expectations for revenue to grow 1%-2%.

Consumers Lift Profit at Bank of America

  • Bank of America lowered its annual net interest income guidance on Wednesday to reflect a weakened interest rate environment as the second-largest U.S. lender reported higher-than expected earnings fueled by strong consumer trends.
  • Second-quarter revenue was $23.08 billion, up from $22.55 billion a year ago. Analysts had expected revenue of $23.2 billion.
  • Loans at Bank of America were up 3% from a year earlier, while deposits rose 5% over that period. Expenses were roughly flat.
  • Bank of America, like other big banks, felt the effects of quiet markets in the second quarter.
  • Trading revenue fell about 10%.
  • The bank posted a profit of $7.35 billion in the latest quarter, compared with $6.78 billion a year earlier.
  • Rate trends have prompted the bank to scale back its expected full-year net interest margin, a key measure of profitability, to 2% from 3%, executives said on a conference call with analysts.

United tops profit estimates as MAX woes prompt higher fares in robust travel market

  • United Airlines on Tuesday reported a bigger-than-expected increase in second-quarter profit, driven by strong air travel demand and the ability to charge more for seats after the grounding of Boeing’s 737 MAX reduced capacity.
  • Total revenue rose 5.8% to $11.40 billion in the quarter, while closely watched revenue per available seat mile rose 2.5%, the top end of United’s guidance for growth between 0.5% and 2.5%, helped by supply constraints due to the MAX grounding.
  • United said net income rose 54% to $1.05 billion in the quarter, from $683 million or $2.48 per share a year earlier.
  • Citing continued strong demand, United lifted its 2019 adjusted diluted earnings per share guidance to $10.5-$12.0 versus $10.0-$12.0 previously.

U.S. Bancorp Reports Higher Earnings

  • Profit at U.S. Bancorp, one of the country’s largest regional lenders, rose in the second quarter helped by higher revenue.
  • Net revenue rose 3.2% to $5.82 billion. Analysts were expecting $5.73 billion in revenue.
  • Net interest margin, a profitability metric for banks, was 3.13%, unchanged from a year earlier, but was down three basis points from the first quarter of this year.
  • U.S. Bancorp, based in Minneapolis, reported a profit of $1.82 billion, up 4.1% from a year earlier.

PNC Financial beats profit estimates on rise in interest income, loans

  • PNC Financial Services posted a better-than-expected second quarter profit, helped by a rise in interest income and loans.
  • Total revenue rose 2.7% to $4.44 billion.
  • PNC, one of the largest regional U.S. lenders by assets, said its loan portfolio grew 6.4% to $237.2 billion, with commercial lending accounting for nearly 70% of total loans.
  • However, provision for loan losses more than doubled to $180 million in the quarter from a year earlier.
  • The bank’s net income rose to $1.31 billion in the quarter, from $1.29 billion a year earlier.

Abbott beats profit estimates, raises FY forecast on diabetes device strength

  • Abbott Laboratories beat analysts’ estimates for quarterly profit on Wednesday and raised its full-year adjusted earnings forecast, driven by demand for its FreeStyle Libre blood sugar monitoring device.
  • Net sales of the company rose 2.7% to $7.98 billion, but missed estimates of $8 billion.
  • Sales of FreeStyle Libre, which helps diabetics track their blood sugar levels without having to prick their fingers, surged 63.9% to $433 million in the second quarter.
  • The company’s net earnings rose to $1 billion in the second quarter, from $733 million a year earlier.
  • Abbott also raised its full-year 2019 adjusted earnings from continuing operations forecast to $3.21 to $3.27 per share, from its prior forecast of $3.15 to $3.25 per share.

Omnicom profit beats estimates on higher client spending

  • U.S. advertising company Omnicom Group’s beat Wall Street estimates for quarterly profit on Wednesday, as higher spending by its U.S. and European clients offset the impact of a stronger dollar.
  • Revenue fell to $3.72 billion from $3.86 billion, in line with analysts’ average estimate.
  • The company also reported a 2.8% rise in organic revenue – a widely watched measure that excludes fluctuation in foreign exchange rates and mergers. Analysts on average had expected a 2.72% gain.
  • Net income rose to $370.7 million in the quarter, from $364.2 million a year earlier.

Amazon Faces Probe in Europe Over Third-Party Selling

  • Amazon.com will face a formal European Union antitrust investigation into its dealings with third-party merchants, expanding a multipronged regulatory push that has ensnared other big Silicon Valley giants.
  • The European Commission said Wednesday that its investigation will look into whether Amazon is abusing its dual role as both the provider of a marketplace where independent sellers can offer products and a retailer of products in its own right.
  • In particular, the probe will investigate whether Amazon is using nonpublic data from independent merchants to compete against them.
  • Investigators will also examine what data Amazon uses to pick a seller as the default option for a given product when a user clicks the “buy” button—and whether Amazon gets an unfair leg up to be that default.

U.S. Justice Department asks appeals court to pause antitrust ruling against Qualcomm

  • The U.S. Justice Department asked a federal appeals court to pause the enforcement of a sweeping antitrust ruling against mobile chip supplier Qualcomm on Tuesday, citing support from the Energy Department and Defense Department.
  • “For DoD, Qualcomm is a key player both in terms of its trusted supply chain and as a leader in innovation, and it would be impossible to replace Qualcomm’s critical role in 5G technology in the short term,” Ellen M. Lord, Under Secretary for Defense for Acquisition and Sustainment, wrote in a filing made in the 9th Circuit Court of Appeals.
  • Lord wrote that the Defense Department “firmly believes that any measure that inappropriately limits Qualcomm’s technological leadership, ability to invest in research and development, and market competitiveness, even in the short-term, could harm national security.”

Microsoft, AT&T ink cloud deal worth more than $2 billion

  • Microsoft and AT&T on Wednesday said they reached a deal under which the telecommunications firm will tap Microsoft’s Azure cloud service for its computing needs and provide Office 365 software to much of its 268,000-strong workforce.
  • Under the deal, Microsoft and AT&T will also work together on so-called edge computing, which will see Microsoft technology deployed alongside AT&T’s coming 5G network for applications that need extremely small delays in passing data back and forth, such as air traffic control systems for drones.
  • The multi-year deal is worth more than $2 billion, according to a person familiar with the matter.

Bitcoin Loses Almost a Third of Its Value as Libra Hype Fades

  • Facebook’s struggle to convince lawmakers it can create a viable cryptocurrency is rubbing off on bitcoin.
  • The price of bitcoin recently slid to $9,300, according to research site CoinDesk. It has lost almost a third of its value after trading above $13,000 a week ago, which was near its high for the year.
  • Enthusiasm about Facebook’s plans drove much of the earlier rally. There was hope that Libra would bring widespread cryptocurrency adoption and legitimize the industry, from which bitcoin would benefit.

IAC to Invest $250 Million in Car-Sharing App Turo

  • IAC/InterActiveCorp will pay $250 million for a stake in Turo in a deal that values the burgeoning peer-to-peer car-sharing company at more than $1 billion.
  • The cash from Barry Diller’s IAC will be used to fuel Turo’s growth as the race to capture market share in the still-nascent vehicle-sharing industry heats up, IAC officials said in interviews this week.
  • Turo, which currently has 10 million members and nearly 400,000 listed vehicles, allows people to rent out their cars online or through its app.

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US ECONOMY & POLITICS

U.S. Housing Starts Declined 0.9% in June

  • Housing starts, a measure of new-home construction, fell 0.9% in June from the prior month to a seasonally adjusted annual rate of 1.253 million, the Commerce Department said Wednesday.
  • Residential building permits, which can signal how much construction is in the pipeline, dropped 6.1% from May to an annual pace of 1.220 million. That was the biggest monthly drop since March 2016.
  • Economists had expected a 0.7% decrease for starts and a 0.3% decrease for permits.
  • Starts were up 6.2% from June last year. Building permits were down 6.6% from June 2018.

U.S. to Withhold F-35 Fighters from Turkey, Trump Says

  • President Trump said the U.S. would withhold sales of advanced F-35 stealth jet fighters to Turkey after Ankara received a new air-defense system from Russia, putting new strains on the North Atlantic Treaty Organization.
  • The decision to cancel the F-35 shipment was expected, but until Mr. Trump’s remarks on Tuesday, the administration had held off on responding to Turkey’s decision to accept delivery of the Russian S-400 system.
  • Turkey’s action and the U.S. response inject tension and uncertainty into the 67-year security pact between Turkey and other NATO members.
  • The Pentagon is concerned that the radar capabilities of the S-400 could be used by the Russians to gather intelligence about the stealthy F-35s if the jets were delivered to Turkey.

Debt-Limit Talks Hit More Snags: VA Health Care, GOP Demands on Spending

  • Negotiations to raise the U.S. government’s borrowing limit and set overall federal spending levels face at least two more hurdles: how to pay for an overhaul of veterans’ health care; and Republican demands to offset spending increases.
  • Congress and the Trump administration have days to reach an agreement on the must-pass measures.
  • The House leaves Washington for an August recess at the end of next week, and Treasury Secretary Steven Mnuchin warned last week that the U.S. could breach its debt limit in early September, before lawmakers return to the Capitol.

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EUROPE & WORLD

Ericsson warns on negative margin impact, shares fall 7%

  • Telecoms equipment maker Ericsson posted quarterly earnings in line with forecasts but said it expected costs related to winning new contracts for its network business to hit profit margins in the second half of the year.
  • Sales rose to 54.8 billion crowns from 49.8 billion and topped forecasts of 53.2 billion.
  • Overall, gross margin rose to 36.6% from 34.8% a year ago. Excluding restructuring charges the margin fell to 36.7% from 38.5%.
  • Quarterly operating profit rose to 3.7 billion crowns from a 0.2 billion profit a year ago, in line with forecasts.
  • Some analysts had also expected the company to upgrade its 2020 targets after showing steady profitability improvements in 2018 and 2019 following an industry-wide downturn in the middle of the decade in which operators cut spending.
  • Instead, Ericsson said it was on track to meet its financial targets for 2020 and 2022 due to strong demand for 5G equipment.

ASML beats forecasts as 5G sales offset weak memory demand

  • The rollout of 5G telecom networks helped semiconductor equipment maker ASML beat second-quarter forecasts on Wednesday despite weak demand in the memory chip market.
  • Sales of 2.57 billion euro ($2.88 billion) were in line with the company’s guidance.
  • Net income fell to 476 million euro, from 584 million euro in the same period a year ago.
  • It expects sales of 3 billion euros in the third quarter and a profit margin of 43-44%, with that margin possibly improving to 50% in the fourth quarter.

IMF sees trade disputes slowing global trade, sees supply chain risks

  • The International Monetary Fund said global trade growth was slowing as a result of tensions between the United States and China and others, and prolonged uncertainty about tariffs was weighing on business sentiment around the world.
  • IMF Chief Economist Gita Gopinath told reporters that disputes over trade and technology were clearly having a fundamental impact on global trade, and repeated the Fund’s estimate that the tariffs applied in the U.S.-China trade war could shave 0.5% off global economic growth in 2020.

Chinese Esports Group Backed by Tencent Raises $775 Million in U.S. IPO

  • A Chinese video-streaming service raised $775 million through a Nasdaq listing, capitalizing on the growing popularity of watching others play games on the internet.
  • China’s esports industry is the world’s largest by revenue and number of gamers, according to iResearch.
  • Last year some 683 million people, roughly half the country’s population, played games on phones, computers or game consoles.
  • The market-research firm forecasts that number will reach 878 million—or nearly a third of videogamers globally—in 2023.

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TODAY in HISTORY

  • President Harry Truman, Soviet leader Joseph Stalin and British Prime Minister Winston Churchill meet at the opening of the Potsdam Conference. (1945)
  • Disneyland opened in Anaheim, Calif. (1955)

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