DAILY MARKET REPORTS
- U.S. stocks rose Tuesday, extending their rally a second day, after the rhetoric between U.S. and Chinese officials pointed to a possible de-escalation in trade tensions.
- U.S. stocks closed up more than 1% on Monday after Donald Trump sought to ease tensions by predicting another round of talks with Beijing.
- China’s foreign ministry, however, reiterated on Tuesday that it had not received any recent telephone call from the United States on trade.
- Technology stocks, among those most vulnerable to the trade war, gained 0.6%, while a rise in Johnson & Johnson pushed the healthcare sector 0.8% higher.
- Shares in the drugmaker rose 3% after an Oklahoma judge said J&J must pay $572.1 million for its part in fueling the U.S. opioid epidemic, a sum that was substantially less than what investors had expected.
- Among other stocks, Philip Morris fell 5.7%, to the bottom of the S&P 500, after the tobacco maker said it was in talks with peer Altria to combine in an all-stock merger of equals. Altria’s shares jumped 8.6%.
US FINANCIAL MARKET
Weaker Prices for Coffee and Peanut Butter Weigh on Smucker
- J.M. Smucker said falling prices for coffee and peanut butter, two of its key products, hurt results in its latest quarter.
- Smucker reported that net sales in its fiscal first quarter fell 6% to $1.78 billion, missing the consensus estimate of $1.87 billion.
- Overall volumes fell 3% for Smucker, hurt by declines in its private label pet food brands and Folgers coffee sales.
- However, net income rose 16.2% to $154.6 million from a year earlier.
- For the year, the company forecast adjusted earnings of $8.35 per share to $8.55 per share, lower than its previous estimate of $8.45 to $8.65.
- The company now expects fiscal 2020 net sales of flat to a 1% drop. It had previously estimated sales to rise 1% to 2%.
J&J liable for $572 million in Oklahoma opioid epidemic trial; shares rise
- An Oklahoma judge on Monday ordered Johnson & Johnson to pay $572.1 million to the state for its part in fueling an opioid epidemic by deceptively marketing addictive painkillers, a sum that was substantially less than investors had expected, driving up J&J’s shares.
- The state’s attorney general had filed the lawsuit, seeking $17 billion to address the impact of the drug crisis on Oklahoma.
- In holding J&J liable after a seven-week, non-jury trial, Judge Thad Balkman, said the state proved that J&J’s misleading marketing and promotion of its Duragesic and Nucynta painkillers created a public nuisance.
- The trial came after Oklahoma had resolved claims against OxyContin maker Purdue Pharma LP in March for $270 million and Teva in May for $85 million, leaving J&J as the lone defendant.
- Opioids were involved in almost 400,000 overdose deaths from 1999 to 2017, according to the U.S. Centers for Disease Control and Prevention.
Philip Morris, Altria in Talks for Potential Blockbuster Merger
- Tobacco giant Philip Morris International said it is talks to merge with U.S. market leader Altria, a potential blockbuster deal that would reunite two goliaths struggling with shrinking sales.
- The two businesses hold the same portfolio of cigarette brands, including Marlboros, which are sold by Altria in the U.S. and Philip Morris elsewhere. A combination would create a $200 billion-plus behemoth.
- Philip Morris, which Altria spun off more than a decade ago, said the companies were discussing a merger of equals but could give no assurance that the talks would lead to any agreement or transaction.
Papa John’s Taps Arby’s Head as CEO
- Papa John’s hired Arby’s President Rob Lynch as its chief executive, the pizza chain’s second change at the top in less than two years amid falling sales and controversies.
- Mr. Lynch will take over immediately from current head Steve Richie, the Louisville-based company said Tuesday.
- Mr. Lynch said he was eager to push the chain past controversy surrounding racially charged remarks by founder and former CEO John Schnatter and refocus on its reputation for variety and fresh ingredients.
Google Warns Against Blocking ‘Cookies’ Entirely, Triggering Criticism
- After promising to offer tools to let users limit “cookies,” tiny files that help internet and advertising companies track users, Google suggested it won’t go any further, saying in a blog post that blocking cookies entirely could be counterproductive.
- The post from late last week has drawn criticism in recent days from some privacy advocates who say Google’s Chrome internet browser should catch up to the stricter practices of rivals Firefox and Safari.
- Ad tech companies and some digital publishers are wary of a major crackdown on cookies, saying it would hurt their businesses.
- In its post, Google said blocking cookies will encourage the rise of other, more nefarious methods of tracking internet users.
- These include so-called “fingerprinting” through which sites collect various signals about users, such as the fonts on their screens or the devices they use, to keep track of unique individuals as they browse the internet.
GlobalFoundries sues TSMC, wants U.S. import ban on some products
- Contract chipmaker GlobalFoundries sued larger rival and Apple supplier TSMC for patent infringement, seeking to stop imports into the United States and Germany of products made with the allegedly infringed technologies.
- In lawsuits filed on Monday in the United States and Germany, GlobalFoundries also sought unspecified “significant” damages from TSMC based on the Taiwanese firm’s unlawful use of its technology in its “tens of billions of dollars of sales”.
- The complaints alleged that chip manufacturing technologies used by TSMC infringed GlobalFoundries’ 16 patents, and sought to prevent imports of customers’ products containing chips produced with the infringing technologies.
- TSMC called the allegations “baseless”.
US ECONOMY & POLITICS
Home-Price Growth Continued to Slow in June
- Home-price growth continued to decelerate in June, the latest sign that lower mortgage rates are providing little boost to a housing market that has been slowing for the past year.
- Average national home prices grew 3.1% in the year ending in June, according to the S&P CoreLogic Case-Shiller National Home Price Index, down from a 3.3% annual pace the prior month.
- The Federal Housing Finance Agency House Price Index, also released Tuesday, similarly showed that home-price growth has decelerated for the last 15 months.
- Home prices rose just under 5% in the second quarter compared with a year earlier, a significant slowdown from nearly 7% appreciation during the same period in 2018.
- Prices are growing fastest in secondary cities, where homes are still relatively affordable.
- Boise, Idaho, had the fastest annual home-price appreciation in the second quarter at 13.6%, followed by Grand Rapids, Mich., at 9%, according to the housing finance agency.
China says it hopes U.S. can create conditions for trade talks
- China’s foreign ministry reiterated on Tuesday that it had not heard of any recent telephone call between the United States and China on trade, and said it hopes Washington can stop its wrong actions and create conditions for talks.
- Ministry spokesman Geng Shuang made the comment at a news briefing, after U.S. Treasury Secretary Steven Mnuchin said there had been contact between the two sides but declined to say with whom.
- U.S. President Donald Trump on Monday predicted a trade deal with China, citing what he described as increasing economic pressure on Beijing and job losses in China.
Trump-Backed U.S.-British Trade Deal Faces Hurdles
- President Trump and U.K. Prime Minister Boris Johnson want to quickly strike a free-trade pact after Britain leaves the European Union. Resistance is already rising on both sides of the Atlantic.
- Any U.S.-U.K. pact is only theoretical before Britain leaves the EU, now slated for Oct. 31.
- The U.K. will also be unable to strike any independent trade deal if it remains within the EU common customs area and subject to the bloc’s regulations.
- Congressional Democratic leaders say they won’t approve an accord if Brexit undermines peace in Ireland by erecting a customs border between the Irish republic, an EU member state, and Northern Ireland, part of the U.K.
Swing-District Democrats Push for Vote on North America Trade Pact
- Tensions over global trade have ramped up the importance of the U.S. trade agreement with Canada and Mexico to businesses, and to Democrat seeking a re-election in swing districts.
- Lawmakers see the trade deal—which among other changes mandates that 75% of automobiles be manufactured in Mexico, the U.S. or Canada to qualify for zero tariffs, up from 62.5% under NAFTA—as injecting a sense of certainty into the market while the country battles with China.
- Democratic lawmakers across the U.S., unlike most in Texas, have become wary of free-trade deals since Nafta took effect in 1994. Some are hesitant to give President Trump a victory as he runs for re-election.
- Members of the Congressional Progressive Caucus are concerned Mexico won’t comply with the environmental and labor standards in the agreement.
- Democrats also want a shorter term on the 10-year exclusivity for costly biologic drugs—pharmaceuticals produced from living organisms, such as certain types of insulin—saying the provision could prevent lawmakers from lowering the cost of prescription medicine.
Iran’s President Will Only Meet Trump If U.S. Lifts Sanctions
- Iran’s President Hassan Rouhani rejected the possibility of meeting with President Trump as long as the U.S. sanctioned his country, a day after both leaders appeared to be opening up to possible talks, following months of heightened tensions.
- The Iranian leader’s return to his old position illustrates the pressure he faces at home from hard-line factions opposed to talking to the Trump administration and underscores the challenges of resolving the brewing crisis between the U.S. and Iran.
- Mr. Rouhani said Monday he would meet with “anyone” if it served his country’s interest, departing from months of rejections of any talks and raising hopes of a possible thaw.
- President Trump indicated he would be open to meeting with his Iranian counterpart, in what would be the first meeting between the leaders of the two countries since Iran’s 1979 Islamic Revolution.
U.S. Plans to Open Direct Talks with Iran-Backed Houthis in Yemen
- The Trump administration is preparing to initiate direct talks with Iran-backed Houthi forces in Yemen in an effort to end the four-year-old war, a conflict that has become a volatile front line in the conflict with Tehran, according to people familiar with the plans.
- The U.S. is looking to prod Saudi Arabia into taking part in secret talks in Oman with Houthi leaders in an effort to broker a cease-fire in Yemen, according to these people.
- The move could open the first significant channel between the Trump administration and the Houthis at a time when fears of a broader regional war are growing.
EUROPE & WORLD
Weaker exports hit German economy but budget surplus still high
- Germany’s economy contracted on weaker exports in the second quarter, detailed data showed on Tuesday, highlighting the Achilles heel of Europe’s largest economy due to escalating trade disputes and waning foreign demand.
- The Federal Statistics Office confirmed a preliminary gross domestic product contraction of 0.1% quarter-on-quarter from April to June after a 0.4% expansion in the first three months of the year.
- Exports fell more strongly than imports in the second quarter which meant that net trade deducted 0.5 percentage points from overall economic expansion.
- Despite the mixed performance of the economy in the first six months of the year, the German state managed to record a whopping budget surplus of 45.3 billion euros ($50.5 billion) from January to June, the data showed.
- That represents a surplus of 2.7% of economic output.
Europe Inc profits seen declining further in third quarter: Refinitiv data
- Earnings and revenue expectations for the third quarter have deteriorated further for European companies, according to data on Tuesday, as the region continues to struggle with Brexit, the protracted U.S.-China trade war and Italy’s political crisis.
- Companies listed on the pan-European STOXX 600 index are expected to report a 2% decline in earnings for the July-September quarter, which would mark the third straight quarter of deterioration, according to the latest data from I/B/E/S Refinitiv.
- Analysts had expected a 1% drop two weeks ago.
- With the second-quarter earnings season nearly over, profits are expected to fall 2.4% mainly dragged down by big disappointments in energy, mining and consumer cyclical sectors.
- This also represents a corporate earnings recession in the region following a decline in Q1.
ECB policy not market-dependent, bank’s vice president says
- The European Central Bank must be critical of market expectations for its future policy moves, basing its decision on economic data rather than financial market prices, ECB Vice President Luis de Guindos said on Tuesday.
- The ECB has all but promised a stimulus package for its Sept. 12 policy meeting and market expectations have been growing.
- Investors are already pricing in several rate cuts for the coming year and a fresh round of bond purchases, commonly known as quantitative easing.
A Rare Champion of Pro-Market Policies to Close in China
- An independent Chinese think tank that has served as a rare bastion for liberal economic thought will shut down, citing government pressure as President Xi Jinping ’s campaign to silence dissent rolls on.
- Municipal authorities in Beijing have accused the Unirule Institute of Economics of regulatory violations and issued orders to force its closure, the think tank said in a statement Monday.
- The Beijing-based Unirule was founded in 1993 to promote economic liberalization and democracy in China, riding on Deng Xiaoping ’s push for market-style reforms after the deadly crackdown on the Tiananmen pro-democracy protests in 1989.
- Its work has frequently collided with Communist Party orthodoxy—clashes that have become more acute since Mr. Xi assumed leadership and pursued an increasingly authoritarian agenda.
Hong Kong Clashes Put Brakes on Property Boom
- Hong Kong’s formidable property market is straining, as protest pressures add to those created by an escalating U.S.-China trade spat and slowing global growth.
- In the commercial-property market, second-quarter sales were down 6.2% from the quarter before, to HK$21.1 billion, excluding land sales, according to real estate services firm CBRE.
- The market value of the city’s big four developers— CK Asset Holdings, Henderson Land Development, New World Development and Sun Hung Kai Properties —fell more than US$16 billion in the one-month period ended Aug. 26.
- Because the major developers are also landlords, with investment portfolios that span shopping malls, hotels and office buildings, they are exposed in more than one way to a downturn in Hong Kong.
Australian Citizen Yang Hengjun Is Arrested in China on Suspicion of Spying
- China arrested an Australian writer for alleged spying, Australia’s government said, in a case that exacerbates tense relations between the two countries.
- Yang Hengjun, a blogger and spy novelist who had been in custody for the past half-year, was formally arrested in China on Aug. 23 on suspicion of committing espionage, Australian Foreign Minister Marise Payne said Tuesday.
- Mr. Yang was born in China and once worked for the Foreign Ministry before emigrating to Australia.
- On social media, he has been at times a sharp-tongued critic of China’s ruling Communist Party.
Russia delivers another S-400 battery to Turkey: Ifax
- Russia delivered another battery of Russian S-400 missile defenses on Tuesday, Interfax news agency cited President Vladimir Putin as saying.
- “By the way, another delivery was made this morning,” Putin told Turkish President Tayyip Erdogan, who was on a visit to Russia.
- Turkey’s Defense Ministry said that the delivery of a second battery of S-400 defense system had started as of Tuesday and that it would take around one month.
TODAY in HISTORY
- S. troops began landing in Japan after Japan’s surrender in World War II. (1945)
- Mars made its closest approach to earth in 60,000 years. (2003)
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