DAILY MARKET REPORTS
- U.S. stocks opened slightly lower in the session, tracking losses from Tuesday, as a key part of the U.S. yield curve, closely watched for signs on economic downturn, inverted to levels not seen since 2007.
- The inversion continued to deepen, with the yield on the 30-year government bonds hovering just above its record low set earlier in the session.
- Meanwhile, the British pound dropped 0.7% against the dollar after U.K. Prime Minister Boris Johnson said he would ask the queen to shut down Parliament for several weeks ahead of the U.K.’s scheduled departure from the EU on Oct. 31.
- Analysts warned Mr. Johnson’s move would make it harder for rebel lawmakers to block a no-deal Brexit.
- Coty rose 4.8% after the cosmetics maker raised its full-year revenue forecast, betting on a multi-year turnaround plan that involves increased investments in advertising and cost cuts.
US FINANCIAL MARKET
Tiffany sales fall on tourist spending drop in U.S., but earnings beat estimates
- Luxury jeweler Tiffany said declines in tourist spending in the United States dragged on sales, but it reported quarterly earnings that beat estimates on increased spending by local customers in mainland China and a cut-back on marketing costs.
- Net sales fell to $1.05 billion from $1.08 billion, missing Wall Street estimates of $1.06 billion.
- Same-store sales, excluding the effects of currency exchange rates, fell 3%. Analysts had expected a 1.3% decrease.
- Tiffany’s net earnings fell to $136.3 million in its fiscal second quarter, from $144.7 million a year earlier.
- Tiffany maintained its annual sales forecast of a low-single-digit percentage rise.
Coty sees revenue improving as turnaround plan takes shape; shares rise
- Coty raised its 2019 revenue forecast, betting on a four-year restructuring plan that involves a multi-billion dollar write-down of some of its beauty brands and a simpler organizational structure, sending its shares up 6%.
- Net revenue slipped 8% to $2.12 billion, slightly above estimates.
- Net loss widened to $2.80 billion in the fourth quarter, from $181.3 million a year earlier.
- The New York-based company expects net revenue, on a comparable basis, to be flat to slightly lower in fiscal 2020, with visible progress in the first quarter. The company had earlier said it expected a moderating decline in net revenue.
Peloton to Pursue Nasdaq Listing, Dual-Class Stock Structure in IPO
- Peloton Interactive is moving ahead with an initial public offering, a test of investors’ appetite for the high-end fitness category as the company’s efforts to grow equipment and subscription sales has resulted in steep losses.
- The closely held maker of video-streaming stationary exercise bikes and treadmills said it is seeking to raise $500 million in the IPO, but the figure was provided to calculate filing fees and is likely to be changed, according to a Tuesday securities filing.
- Documents released Tuesday also provided a picture of Peloton’s financial health. Peloton said it has posted losses each year since its inception in 2012, and reported an accumulated deficit of nearly $630 million.
- In the year ended in June, Peloton’s loss more than quadrupled from the prior year to $195.6 million.
- Its revenue more than doubled to $915 million, helped by stronger sales of fitness equipment and gains from digital subscriptions.
Purdue Pharma in Talks to Resolve Opioid Cases Through Bankruptcy
- OxyContin maker Purdue Pharma and its owners, the Sackler family, are in talks with state and local governments to resolve more than 2,000 opioid cases in a deal valued at between $10 billion and $12 billion, according to people familiar with the matter.
- The discussions, part of a mediation to end the mounting litigation that seeks to blame Purdue for fueling the opioid crisis, have been ongoing for more than a year and remain in flux, the people said.
- The latest proposal, which came out of settlement talks last week in Cleveland, would put Purdue into bankruptcy and have it emerge as a public benefit trust corporation, with proceeds going toward the governments bringing the lawsuits.
- Purdue has sold more than $35 billion of OxyContin, the company’s signature product, since its introduction in 1996.
Google to move Pixel smartphone production to Vietnam: Nikkei
- Alphabet’s Google is shifting its Pixel smartphone production to Vietnam from China starting this year as it builds a cheap supply chain in Southeast Asia, the Nikkei business daily reported on Wednesday.
- The U.S. internet giant plans to move most of its American-bound hardware out of China, including the Pixel phones and its smart speaker Google Home, Nikkei said.
- The company plans to ship about 8 million to 10 million smartphones this year, double from a year ago, making Vietnam a key part of Google’s drive for growth in the smartphone market, the newspaper added.
- Google will shift some production of the Pixel 3A phone to Vietnam before the end of this year, Nikkei reported citing sources.
Financial hit from 737 MAX will not slow appetite for services deals – Boeing CEO
- Boeing’s chief executive said on Tuesday that the financial fallout from the grounding of its 737 MAX jetliner would not slow the world’s largest planemaker’s appetite for deals in the higher-margin aircraft services sector.
- “Our ability to do those continues to be strong,” Boeing CEO Dennis Muilenburg told Reuters at the company’s widebody manufacturing plant north of Seattle, referring to acquisitions it has made to enlarge its two-year-old Global Services division.
- Muilenburg reiterated the timeline for rate increases and the return to service is in the hands of regulators, which will decide when the MAX can fly again commercially.
National-Security Concerns Threaten Undersea Data Link Backed by Google, Facebook
- U.S. officials are seeking to block an undersea cable backed by Google, Facebook and a Chinese partner, in a national-security review that could rewrite the rules of internet connectivity between the U.S. and China, according to people involved in the discussions.
- The Justice Department has signaled staunch opposition to the project because of concerns over its Chinese investor, Beijing-based Dr. Peng Telecom & Media Group, and the direct link to Hong Kong the cable would provide, the people said.
- If the U.S. rejects Pacific Light’s application, it would be the first time it has ever denied an undersea cable license based on national-security grounds, and it could signal regulators are adopting a new, tougher stance on China projects.
US ECONOMY & POLITICS
U.S. mortgage activity posts biggest fall in four months: MBA
- The U.S. mortgage applications recorded their biggest weekly drop in over four months as home borrowing costs posted their first broad increase in six weeks, the Mortgage Bankers Association said on Wednesday.
- The Washington-based industry group’s seasonally adjusted index on loans requests to buy a home and to refinance one fell 6.2% to 576.2 in the week ended Aug. 23.
- This was the steepest decline since a 7.3% fall in the week of April 19.
- The average interest rate for 30-year fixed-rate mortgages, with conforming loan balances of $484,350 or less, increased to 3.94% from prior week’s 3.90% which was the lowest since November 2016.
U.S. trade agency affirms Trump’s tariff hike on Chinese goods
- The U.S. Trade Representative’s office on Wednesday reaffirmed President Donald Trump’s plans to impose an additional 5% tariff on a $300 billion list of Chinese imports starting on Sept. 1 and Dec. 15.
- The USTR will impose a 15% tariff on some of the targeted goods from Sept. 1, with the rest, including cell phones and laptop computers, to get a 15% tariff on Dec. 15, the agency said in a Federal Register notice.
- The Federal Register notice, however, did not mention Trump’s announcement of his intention to increase the duty to 30% on a $250 billion list of Chinese imports on Oct. 1 that have already been hit with a 25% tariff.
- USTR has previously said it planned to conduct a public comment period on that increase.
Fed divided on policy, discount rate votes show
- U.S. central bankers may have been more deeply divided than previously understood over the decision last month to cut interest rates for the first time in more than a decade, records from meetings held across the Fed’s 12 regional Fed banks suggest.
- Most directors at regional Fed banks saw heightened trade tensions and uncertainty as risks to the economic outlook, summaries of their discussions released on Tuesday showed, similar to policymakers who voted on the rate cut.
- But those at half of the Federal Reserve’s 12 regional Fed banks still wanted to keep the emergency lending rate for commercial banks unchanged in votes taken as late as just one week before the Fed’s July 30-31 policy setting meeting, the minutes showed.
- Recommendations from regional Fed bank directors on the so-called discount rate are not policy votes themselves, but at most Fed banks the votes of the directors reflect the views of their presidents.
Deutsche Bank Tells Court It Has Trump-Related Tax Returns Sought by Congress
- Deutsche Bank, for decades President Trump’s primary lender, has copies of tax returns sought under a congressional subpoena for the president and his family’s financial information, the bank told a federal appeals court on Tuesday.
- Redactions in the letter Deutsche Bank filed on Tuesday conceal whether it has the president’s returns or those of others named in the subpoena.
- Lawyers for Mr. Trump have argued the subpoenas target banks that his family and businesses used for private affairs long before his election.
- Lawyers representing the House committees have said the investigations are within the scope of congressional authority.
Tom Steyer Appears to Fall Short of Qualifying for Next Democratic Presidential Debate
- Billionaire Democratic presidential candidate Tom Steyer, who has spent more than $325,000 a day on campaign advertising since joining the race, appears to have fallen short of qualifying for the nationally televised debate next month in Houston.
- Two national polls released Wednesday morning show Mr. Steyer with less support than needed to meet the Democratic National Committee’s requirement.
- The DNC’s cutoff for reaching 130,000 individual donors and notching at least 2% support in four qualified polls is Wednesday. It is unclear whether any other surveys are being released Wednesday.
- Mr. Steyer needs one more poll with at least 2% support to make the cut.
- That likely means that for the first time since the primary campaign began, all of the candidates are set to share the same stage.
EUROPE & WORLD
Johnson Moves to Shut Parliament to Push Through Brexit
- U.K. Prime Minister Boris Johnson moved to shut down Parliament for several weeks, a tactic aimed at stopping rebel lawmakers from blocking an abrupt break with the European Union, setting the stage for a high-stakes battle between lawmakers next month.
- With little over two months until Britain is due to quit the EU, the decision eats into the time for lawmakers to pass legislation that would stop Mr. Johnson’s government from pushing through a no-deal divorce with the trade bloc on Oct. 31.
- Mr. Johnson’s hardball tactics will increase pressure on opposition and rebel lawmakers to move quickly when they return in the first week of September, either to call a no-confidence vote in Mr. Johnson’s government in an effort to trigger a fresh election, or to try to pass legislation that would force the prime minister to request a further extension of the Brexit deadline.
China’s Potential New Trade Weapon: Corporate Social Credits
- After five years, China is putting the finishing touches on a sweeping new system to punish and reward companies for their corporate behavior.
- But foreigners worry that, amid the continuing U.S.-China trade dispute, Beijing will use its new corporate “social credit” system as a weapon against international businesses.
- While Beijing’s better-known plans for a social-credit system for individuals have stirred privacy concerns, a parallel effort to monitor corporate behavior would similarly consolidate data on credit ratings and other characteristics, collected by various central and local government agencies, into one central database.
- An algorithm would then determine to what degree companies are complying with the country’s various laws and regulations.
- In some cases, companies could be punished by losing access to preferential policies or facing stricter levels of administrative punishment, a document from the State Administration for Market Regulation showed.
- The system is set to fully start next year.
Mainland Chinese Sneak into Hong Kong’s Protests—to Support the Cause
- More than one million people have moved from mainland China to live, work and study in Hong Kong since 1997, when the U.K. handed over the city’s sovereignty to Beijing.
- Many of them share the antipathy for the protesters expressed by state-media portrayals across the border.
- But a small cohort of mainlanders have joined the demonstrations, taking extraordinary risks to support a society that offers freedoms unavailable back home.
- Those actions put them at risk of detention by Chinese authorities, who are checking travelers’ smartphones at the border crossing to Shenzhen for evidence of participation in the demonstrations.
Toyota to Buy 4.9% Stake in Suzuki
- Toyota added another Japanese car maker to its growing list of partners, saying it would buy a 4.9% stake in Suzuki.
- Toyota plans to spend ¥96 billion ($908 million) to acquire the shares in Suzuki.
- The three-year-old partnership with Suzuki aims to help Toyota build its presence in India and Africa, markets where Toyota has struggled because of the low prices of vehicles there.
Import Limits, Effects of Swine Fever Hit Pork Prices in China
- Pork prices in China have surged to new highs in the past two weeks, adding pressure on a government trying to contain food-price inflation during the trade war with the U.S.
- African swine fever has decimated pork supplies. China’s pig herd had fallen 32% on year in July, according to data released by the Ministry of Agriculture and Rural Affairs.
- Prices of the mainstay—used in dishes such as lunchtime dumplings and spicy mapo tofu—have risen 18% in China since the week ended Aug. 9 and are up more than 50% in the past year.
- The average price of pork, excluding offal, in the week ended Aug. 23 was 31.77 yuan a kilogram ($2.02 a pound), according to data from China’s Ministry of Commerce.
South Korea summons Japan ambassador as export trade curbs take effect
- South Korea summoned Japan’s ambassador to protest against a decision to remove Seoul’s fast-track export status, which took effect on Wednesday amid a deepening political and economic feud.
- Japan dropped South Korea from a so-called white list of favored trade partners this month, which could mean more paperwork and on-site inspections for some Japanese exporters and potentially slow supplies of a range of goods.
- The decision prompted South Korea to drop Japan from its favored trading list and scrap an intelligence-sharing agreement.
- Relations between the two countries worsened late last year after South Korea’s Supreme Court ordered compensation for some Koreans forced to work at Japanese firms during Japan’s 1910-45 occupation.
TODAY in HISTORY
- Martin Luther King, Jr. gave his famous “I Have a Dream” speech at the Lincoln Memorial to civil rights demonstrators. (1963)
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