DAILY MARKET REPORTS
- Mounting signs of a global economic slowdown hammered stocks and drove demand for sovereign bonds to such an extent that shorter-term yields rose above long rates in the U.S. for the first time since 2007.
- The S&P 500 sank 2% as the inverted gap in rates for two- and 10–year Treasuries flashed a warning that has normally preceded a recession.
- European shares plunged after Germany’s economy contracted in the second quarter, adding to angst fueled by weak Chinese retail and industrial numbers. Oil retreated, gold rallied and the dollar held steady.
- Meanwhile, Hong Kong’s airport resumed normal operations after a chaotic night of protest in which demonstrators beat and detained two suspected infiltrators and Trump warned of Chinese troops massing on the border.
- The biggest decliner on the S&P 500 index was Macy’s, down 17.2%, after the department store operator cut its full-year profit forecast as it discounted heavily to clear excess spring season inventory.
US FINANCIAL MARKET
U.S. yield curve inverts for 1st time in 12 years in recession warning
- The U.S. Treasury yield curve inverted on Wednesday for the first time since June 2007, in a sign of investor concern that the world’s biggest economy could be heading for recession.
- The inversion – where shorter-dated borrowing costs are higher than longer ones – saw 2-year yields rise above the 10-year yield. The last time this yield curve inverted was in June 2007 when the U.S. subprime mortgage crisis was gathering pace.
Macy’s sinks as poor spring season hits profit
- Macy’s cut its full-year earnings forecast on Wednesday after missing estimates for quarterly profit for the first time in at least two years, as it discounted heavily to clear spring inventory, sending its shares down 17%.
- Net sales fell marginally to $5.55 billion, largely in line with estimates, while sales at its established stores rose 0.3%.
- For the second quarter, net income slumped 48% to $86 million.
- The company now expects 2019 profit to be between $2.85 to $3.05 per share, down from a previous forecast of $3.05 to $3.25.
- Macy’s maintained its 2019 sales expectations, with the company saying that it entered the fall season with the “right inventory.”
WeWork IPO Filing Reveals Huge Revenue and Losses
- WeWork’s parent company, We Co., unveiled the papers for its initial public offering Wednesday, depicting a firm whose revenue growth is steep but whose losses have grown at nearly the same clip.
- In the first six months of 2019, We generated $1.54 billion in revenue and posted a net loss of $689.7 million.
- The Wednesday filing says We operates in 528 locations in 111 cities around the world, with 527,000 memberships able to work in those offices.
- We’s filing would allow the company to debut in September, though some people close to the deal say timing could still slip.
- Its executives in recent months have been targeting September as they worried that good times in the U.S. stock market might not last, with major indexes at or near record highs.
Boeing’s Plane Deliveries Tumble as 737 MAX Jet Stays Grounded
- Boeing delivered fewer planes in July than in any month for the past decade, furthering the financial blow to the aerospace giant brought by the grounding of its 737 MAX jetliner.
- Boeing’s deliveries for the year through July totaled 258 planes, down from 417 planes in the same period a year earlier and the smallest number for that time frame since 2007.
- Airbus shipped 458 planes in the first seven months of this year, putting the European company on track to surpass U.S. rival Boeing as the world’s biggest aircraft manufacturer on the year.
- July was the fifth straight month without any new orders for the 737 MAX, Boeing said Tuesday.
- Boeing has said it hopes the 737 MAX will resume flights in the fourth quarter.
- But some airlines and regulators have said it will take longer for the plane to be cleared pending fixes to its software.
Warren Buffett Is a Huge Backer of U.S. Banks
- Warren Buffett ’s Berkshire Hathaway holds nearly $100 billion in financial-services stocks, underscoring the size of the billionaire investor’s ongoing bet on the future of the U.S. economy.
- Berkshire’s position has built up over years and includes banks, payment companies, insurers and a ratings firm.
- Taken together, these holdings represent about one-fifth of Berkshire’s $488 billion market capitalization.
Lion Air ‘urgently requires’ more 737 MAX jets to support growth: co-founder
- Indonesia’s Lion Air “urgently requires” more Boeing 737 MAX jets to support its growth strategy once regulators approve the grounded model’s return to service, the airline’s co-founder, Rusdi Kirana, told Reuters on Wednesday.
- He said the low-cost airline, which had previously threatened to cancel its order for 187 jets worth $21 billion at list prices, would need to be satisfied with the outcome of negotiations with Boeing before taking the planes.
- “If they don’t satisfy us, we will cancel the contract,” Kirana said.
- A final report on the Lion Air crash is expected to be released at the end of September, Indonesia’s civil aviation authority said last week.
US ECONOMY & POLITICS
U.S. import prices unexpectedly rise, but trend still weak
- U.S. import prices unexpectedly rose in July, but the underlying trend continued to be weak, pointing to subdued imported inflation pressures.
- Import prices increased 0.2% last month as a rebound in the cost of petroleum products offset declines in prices for capital goods and motor vehicles, the government said.
- Data for June was revised down to show import prices dropping 1.1% instead of falling 0.9% as previously reported.
- Economists polled by Reuters had forecast import prices would be unchanged in July.
- In the 12 months through July, import prices dropped 1.8% after decreasing 2.0% in June. Import prices exclude tariffs.
- The report also showed export prices rose 0.2% in July, boosted by gains in prices for agricultural and nonagricultural products, after declining for two straight months.
- Export prices fell 0.9% on a year-on-year basis in July after decreasing 1.6% in June.
U.S. Retreat on New Tariffs Gives Beijing Breathing Room on Trade Talks
- The Trump administration’s move to postpone the imposition of tariffs on $156 billion in Chinese goods is being regarded in Beijing as a step toward detente, Chinese experts say, increasing the likelihood that China sends negotiators to attend scheduled face-to-face trade talks in September.
- While a senior U.S. official has said explicitly that the reprieve isn’t meant as an olive branch toward Beijing, the move was likely received in China both as a conciliatory gesture and as an implicit admission that by levying tariffs on Chinese goods, the U.S. would be hurting its own economy, experts said.
- For China, the tariff delay, which will exempt planned levies on smartphones, toys and other Chinese-made consumer products, offers some breathing room as President Xi Jinping is grappling with a restive population in Hong Kong, and preparing for the 70th anniversary of Communist Party rule on Oct. 1.
U.S. Mortgage Debt Hits Record, Eclipsing 2008 Peak
- Mortgage balances rose by $162 billion in the second quarter to $9.406 trillion, surpassing the high of $9.294 trillion in the third quarter of 2008, the Federal Reserve Bank of New York said Tuesday.
- Mortgage originations, which include refinancing, increased by $130 billion to $474 billion in the second quarter.
- Still, the household debt picture is much different in 2019 than it was 11 years ago, since lending standards are tighter and less debt is delinquent today.
Iowa Farmers Stick with Trump Despite Trade War
- As President Trump maps out his re-election bid, farmers in this battleground state are backing him even with the U.S. Farm Belt bracing for deeper pain from his trade fight with China.
- In and around the livestock barns, agriculture building and an antique-tractor collection at the Iowa State Fair in recent days, farmers almost universally expressed support for the president and pledged to vote for him in 2020.
- In heavily rural states like Iowa, which Mr. Trump won by almost 10 percentage points in 2016, they could still be an important voting bloc in 2020.
- One of the reasons farmers are showing so much patience with Mr. Trump, even as commodity prices have suffered, is because his administration has provided tariff-related aid to farmers.
States Sue Trump Administration Over Rollback of Power-Plant Regulations
- More than 20 states are suing the Trump administration over its rollback of climate-change regulations for power plants in what could be a landmark case deciding what the federal government’s responsibility is for fighting global warming.
- New York is taking the lead, joined by California and others claiming that the federal government is abdicating its responsibilities under the Clean Air Act.
- In all, 22 states, the District of Columbia and six cities are filing suit, saying new rules the Environmental Protection Agency approved in June violated the law by eliminating requirements that would have reduced the greenhouse-gas emissions that cause climate change by effectively forcing coal-fired plants to close.
EUROPE & WORLD
China’s Economy Weakens on Several Fronts as Trade War Rages
- China reported a raft of weak economic data, adding to evidence that the world’s second-largest economy is slowing further as it remains locked in a trade war with the U.S.
- Industrial production rose at its slowest pace since the beginning of 2009, increasing 4.8% in July from a year earlier compared with a 6.3% rise in June, the National Bureau of Statistics said Wednesday.
- Retail sales—a gauge of consumption—rose 7.6% in the period, down from a 9.8% increase in June, as car dealers finished unloading inventories ahead of new emissions standards.
- Urban unemployment shot up to 5.3% in July, matching a record high in February, data from the statistics bureau showed.
- The nation’s industrial sector has lost five million jobs in the past year, China International Capital said in a research report in July, attributing 1.8 million to 1.9 million jobs losses to the trade war with the U.S.
Trade War Takes Toll on Economic Growth in Germany
- Germany’s economy shrank in the second quarter and China reported a raft of weak data, sharpening fears over how far the spillover from the trade dispute between Washington and Beijing is damaging the prospects for global growth.
- In Germany, gross domestic product (GDP) contracted 0.1% in the second quarter, with economists and government leaders largely blaming the cool-down in Germany’s export-driven economy on the uncertainty caused by the U.S.-China trade row and the prospect of an abrupt U.K. exit from the European Union.
- Seasonally adjusted gross domestic product grew 0.2% in the eurozone and the EU in the second quarter of 2019 compared with the previous quarter, the Eurostat estimate said.
- Germany was the only eurozone country whose economy shrank.
Tencent beats profit estimates on gaming, fintech
- Tencent posted a better-than-expected 35% rise in quarterly net profit on Wednesday as growth in its gaming business resumed after a long regulatory freeze in China and its fintech operations saw revenues rise sharply.
- Revenue rose 21% to 88.82 billion yuan ($12.920 billion) versus estimates of 93.42 billion yuan ($11.9 billion).
- Smartphone gaming revenue rose 26% to 22.2 billion yuan, helped by major titles including “Honour of Kings” and “Perfect World Mobile” as well as new releases.
- “FinTech and Business Services” – a new revenue category set up this year that includes payment and cloud services – generated 22.9 billion yuan, up 37% on comparable business last year, helped by rapid growth in commercial payment volume.
- Tencent offers commercial payments service to the large number of merchants and consumers on its social media platform WeChat, which had 1.14 billion users at the end of June.
- Tencent made 24.14 billion yuan ($3.44 billion) in net profit for the second quarter, versus estimates of 20.74 billion yuan.
Cannabis firm Tilray posts bigger quarterly loss as investments weigh
- Canadian pot producer Tilray reported a bigger quarterly loss on Tuesday, as it ramped up investments to boost production in an attempt to grab a larger share of the nascent cannabis market and expand internationally.
- Revenue rose to $45.9 million from $9.7 million, beating the average analyst estimate of $41.1 million.
- Tilray said total kilogram equivalents of cannabis sold in the second quarter surged nearly 270% to 5,588 kg, while average selling price per gram fell to $4.61 from $6.38 a year earlier.
- The company’s net loss widened to $35.1 million in the quarter, from $12.8 million a year earlier.
China’s Luckin hurt by Starbucks battle
- Luckin Coffee posted a bigger-than-expected quarterly loss in its first results as a public company, hurt by soaring costs as it opened stores at a rapid clip and invested aggressively to take on Starbucks.
- Luckin’s total net revenue surged more than seven-fold to 909.1 million yuan in the June quarter.
- Luckin’s operating expenses surged more than three times in the June quarter, as it opened 593 new stores taking its total to 2,963, about 1,000 fewer than Starbucks.
- Luckin reported a second-quarter net loss of $99.2 million.
- For the current third quarter, it expects revenue between 1.35 billion yuan ($192.4 million) and 1.45 billion yuan. Analysts were expecting revenue of $229.4 million.
Hong Kong Protesters, Police Clash at Airport
- Police clashed with protesters thronging Hong Kong’s airport late Tuesday, with violence flaring at the end of a second straight day of pro-democracy demonstrators overwhelming one of the world’s busiest travel hubs.
- Without citing specific evidence, President Trump tweeted: “Our Intelligence has informed us that the Chinese Government is moving troops to the Border with Hong Kong. Everyone should be calm and safe!”
- U.S. defense officials declined to confirm Mr. Trump’s assertion of a buildup of forces along Hong Kong’s border.
- One military official said Chinese authorities appeared to be wary of using military force to quell the unrest at the moment, cognizant of the possibly severe consequences from such a move.
- Social-media accounts run by Chinese state news outlets published on Monday footage of mainland paramilitary police forces arriving in the southern city of Shenzhen, which abuts Hong Kong.
- A senior administration official said the U.S. believed Chinese military intervention in Hong Kong would depend on whether Beijing determined that local authorities had lost control of the crisis.
TODAY in HISTORY
- International forces entered Beijing in an effort to suppress the antiforeign uprising known as the Boxer Rebellion. (1900)
- Japan surrendered to the United States, ending World War II. (1945)
This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S&P 500, are unmanaged and may not be invested into directly. Sources: Reuters, Bloomberg, the Wall Street Journal.
Content posted by third parties on this site is screened in order to protect clients’ privacy and comply with regulatory requirements. Content containing sensitive personal information, inappropriate language, information about specific investments, misleading information, information about other companies or websites, or information related to litigation will be removed. Content posted by third-parties on this site remains the responsibility of the party posting the content and is not adopted or endorsed by Pence Wealth Management or LPL Financial. Any opinions or statements posted by third parties are their own and may not be representative of the experience of others and are not indicative of future performance or success. Third party content on this site does not reflect the views of LPL Financial and have not been reviewed by LPL Financial as to accuracy or completeness.