DAILY MARKET REPORTS
- U.S. stocks rose on Wednesday as upbeat data from China’s services sector eased concerns about a global economic slowdown, while Hong Kong’s withdrawal of a controversial bill supported sentiment.
- Activity in China’s services sector expanded at the fastest pace in three months in August, providing a boost to the world’s second-largest economy that has been struggling to reverse a prolonged slump in its manufacturing sector.
- Sentiment also got a lift after Hong Kong leader Carrie Lam withdrew an extradition bill that had triggered months of often violent protests in the Chinese-ruled city.
- The Hang Seng Index rose 3.9% Wednesday, its biggest one-day gain since November.
- Further easing concerns were comments from New York Fed President John Williams who said he is ready to “act as appropriate” to help the United States avoid an economic downturn but so far the economy appeared to be in a good place.
- The U.S. trade deficit narrowed slightly in July as exports rebounded, but the gap with China surged to a six-month high.
- Tyson Foods shares fell 5.2% to the bottom of the S&P 500 after the United States’ biggest meat processor cut its 2019 earnings forecast.
US FINANCIAL MARKET
Starbucks sees slower profit growth in fiscal year 2020
- Starbucks said on Wednesday it expects 2020 profit growth to be lower than the current 10% rate, two months after the coffeehouse chain raised its 2019 profit forecast.
- FY19 earnings per share is reiterated at $2.80 to $2.82 vs. $2.82 consensus.
- Shares of the company fell nearly 4% in trading before the bell.
Tyson cuts profit forecast, says slaughterhouse fire among challenges
- Tyson Foods lowered its 2019 adjusted earnings forecast on Tuesday, citing a litany of causes including a recent fire at its Holcomb slaughterhouse and volatility in the commodity market.
- Additionally, Tyson last month recalled nearly 40,000 pounds (18,144 kg) of its Weaver chicken patties after some consumers found pieces of rubber in the product.
- Tyson now expects to earn an adjusted profit between $5.30 and $5.70 per share, from a prior forecast of $5.75 to $6.10 per share.
- Tuesday’s forecast comes nearly a month after the company posted better-than-expected third quarter earnings, which sent its shares to a record high.
- However, Tyson said its outlook for fiscal 2020 remains positive as it expects more favorable market conditions.
American Eagle third-quarter profit forecast disappoints, shares fall
- Apparel retailer American Eagle Outfitters forecast third-quarter profit below estimates on Wednesday after reporting disappointing quarterly same-store sales due to weak performance in certain seasonal clothing lines.
- American Eagle reported revenue of $1.04 billion, compared with $964.9 billion a year earlier and modestly ahead of consensus.
- Sales at stores open for at least a year rose 2% in the second quarter, below the analyst average estimate of a 3.05% increase.
- Net income rose to $64.98 million from $60.33 million a year earlier.
- American Eagle said it expects to record an adjusted profit of about 47 cents to 49 cents per share in the third quarter.
- Analysts forecast the retailer to earn 52 cents per share.
OxyContin maker prepares ‘free-fall’ bankruptcy as settlement talks stall
- OxyContin maker Purdue Pharma is preparing to seek bankruptcy protection before the end of the month if it does not reach a settlement with U.S. communities over widespread opioid litigation, after some states balked at the company’s $10 billion to $12 billion offer in August to end their lawsuits as part of a negotiated Chapter 11 case.
- Purdue lawyers have told lead attorneys for local governments and some state attorneys general for weeks, and again in recent days, that the company will have to file for bankruptcy without a settlement if one is not reached soon.
- This approach is known as a “free-fall” bankruptcy filing because it lacks consensus on a reorganization beforehand.
- The trial, stemming from widespread lawsuits largely brought by local governments that are consolidated in an Ohio federal court, risks a verdict with outsize damages that Purdue, currently carrying $500 million in cash, cannot withstand.
Google target of new U.S. antitrust probe by state attorneys general
- More than 30 U.S. state attorneys general are readying an investigation into Alphabet’s Google for potential antitrust violations, a source knowledgeable about the probe said on Tuesday.
- Texas leads the group of 30-plus attorneys general, which plans to announce the probe on Sept. 9, the source said.
- The probe is focused on the intersection of privacy and antitrust, according to the source, who did not elaborate.
Global regulator discrepancies over Boeing 737 MAX worry IATA
- The head of the International Air Transport Association (IATA) warned that any discrepancy among global regulators over reapproving Boeing’s 737 MAX for commercial flight could set a worrying precedent for future aircraft programs.
- The U.S. Federal Aviation Administration (FAA) has traditionally taken the lead on certifying Boeing aircraft, leaving other regulators globally to follow suit. That process has been supported by IATA, a trade association of the world’s airlines.
- But international regulators have indicated they will pursue their own analysis of the 737 MAX and Boeing’s proposed updates, after the FAA suffered a dent to its credibility following 737 MAX crashes.
Walmart to Stop Selling Ammunition for Assault-Style Weapons
- Walmart, the nation’s largest retailer, said Tuesday that it would no longer sell short-barrel rifle ammunition—used in assault-style guns and some hunting rifles—as well as all handgun ammunition in its stores.
- The retailer stopped selling handguns in all U.S. stores except those in Alaska over two decades ago but will now cease such sales in that state as well.
- Mr. McMillon said the company has no plans to discontinue all gun sales, adding that it has a long history of serving the hunting community and that founder Sam Walton was an avid hunter.
- The retailer’s firearm selection is focused on hunting rifles and shotguns.
U.S. effort to disqualify Huawei’s lead lawyer goes to court
- A former U.S. Justice Department official who now represents Huawei Technologies is expected in Brooklyn federal court on Wednesday to defend his right to represent the Chinese company against U.S. charges of bank fraud and sanctions violations.
- U.S. prosecutors claim lead Huawei lawyer James Cole’s prior work as the No. 2 official in the Justice Department created “irresolvable conflicts of interest” that disqualify him as counsel for Huawei in the case.
- As deputy attorney general, prosecutors say Cole supervised and participated in aspects of an investigation related to the Huawei case which has not been made public.
- Cole claims he has no recollection of matters referenced as the basis for him to be disqualified from the case, according to another court filing. He served as deputy attorney general until 2015.
US ECONOMY & POLITICS
U.S. trade deficit shrinks, but shortfall with China widens
- The U.S. trade deficit narrowed slightly in July, but the gap with China, a focus of the Trump administration’s “America First” agenda, surged to a six-month high.
- The Commerce Department said the trade deficit dropped 2.7% to $54.0 billion as exports rebounded and imports fell.
- Economists had forecast the trade gap narrowing to $53.5 billion in July.
- Data for June was revised down to show the trade gap shrinking to $55.5 billion instead of the previously reported $55.2 billion.
- The politically sensitive goods trade deficit with China increased 9.4% to $32.8 billion, with imports jumping 6.4%.
- Exports to China fell 3.3% in July.
Fed’s Williams: Will ‘Act as Appropriate’ to Keep Expansion Moving Forward
- New York Fed leader John Williams said Wednesday the U.S. central bank will do what it takes to keep the economy moving forward, at a time of rising risk and continuing challenges to get inflation back up to desired levels.
- “I am carefully monitoring this nuanced picture and remain vigilant to act as appropriate to support continuing growth, a strong labor market, and a sustained return to 2% inflation,” Mr. Williams said in the text of a speech to be presented at the Euromoney Real Return XIII: The Inflation-Linked Products Conference 2019 in New York.
- Fed officials like Chairman Jerome Powell have also suggested an openness to action, but a number of policy makers believe lowering rates is unwarranted given that the economy is doing well, even as the global economy slows.
Fed’s balance sheet could end up higher than $4 trillion: projections
- The U.S. Federal Reserve’s balance sheet could end up between $3.8 trillion and $4.7 trillion by 2025, according to projections collected by the New York Fed.
- The regional arm of the central bank, which manages the Fed’s massive bond holdings, released the projections in a report on Tuesday drawn from surveys of Wall Street traders.
- The New York Fed’s report showed the Fed could start buying Treasuries as soon as 2019 or as late as 2025, but the decision would depend on the growth of bank reserves and other Fed liabilities, including currency.
U.S. Treasury expected to unveil Fannie, Freddie plan in coming days
- The Trump administration’s blueprint for reforming the U.S. housing system is expected to be unveiled in the coming days, according to Washington analysts, marking a key step towards overhauling mortgage giants Fannie Mae and Freddie Mac.
- In March, the Trump administration said it would devise a new plan to free the mortgage companies from U.S. government control, which Reuters reported in July would come by this month.
- On Tuesday, the U.S. Senate Banking Committee said it would hold a hearing Sept. 10 on the next steps for housing finance reform, in what analysts saw as a signal the report would likely come by Friday.
U.S. investment in Malaysia up sharply as trade row with China drags on
- Malaysia approved U.S. investment worth $5.62 billion in the first half of the year compared with $113 million the previous year, the government said on Wednesday, a possible sign of a diversion of U.S. business as a trade row with China drags on.
- The Malaysian Investment Development Authority, which shared the data on foreign private investments, declined to name any company but said global firms were increasingly attracted to Malaysia for its stable business and political climate.
- In the first six months of the year, Malaysia approved U.S. investment proposals worth 11.69 billion ringgit in the manufacturing sector, compared with 307 million ringgit a year earlier, replacing China at the top of the investment list.
- Proposed U.S. investment in the service sector soared to 11.52 billion ringgit from just 42.3 million in the year-ago period, the data showed.
Congressional antitrust panel to discuss Big Tech competition
- The Senate’s antitrust panel will meet later this month to discuss concerns that tech giants, such as Google or Amazon, seek to buy smaller rivals in order to head off competition.
- Senators Mike Lee and Amy Klobuchar, the chairman and top Democrat on the Judiciary Committee’s antitrust panel, said the hearing was scheduled for Sept. 24 but did not list witnesses.
- “The Subcommittee also is interested in soliciting input from policy analysts, market participants, and other stakeholders on whether legislative action relating to such mergers is needed to ensure digital markets remain competitive,” Lee said in a statement.
Democrats Propose Trillions in Spending on Climate-Focused Plans to Restructure Economy
- Three more Democratic presidential candidates have rolled out plans to address climate change through trillions of dollars in government investment and a fundamental overhaul of the American energy economy.
- Sens. Kamala Harris of California, Cory Booker of New Jersey and Elizabeth Warren of Massachusetts—all of whom had previously endorsed the Green New Deal, a sweeping proposal aimed at weaning the U.S. economy off fossil fuels—unveiled detailed plans ahead of a seven-hour marathon CNN town hall event on climate change on Wednesday.
- The 10 Democratic candidates who have qualified for the presidential debate later this month will speak one by one at CNN’s forum Wednesday in 40-minute blocks.
EUROPE & WORLD
British Lawmakers Upset Johnson’s Brexit Plan
- U.K. lawmakers delivered a blow to Prime Minister Boris Johnson ’s Brexit strategy with a vote aimed at delaying the country’s exit from the European Union, prompting the British leader to call for a general election.
- In a vote Tuesday in the House of Commons, lawmakers defied Mr. Johnson’s pleas not to tie his hands in negotiations with the EU and took the first move toward passing a law that would stop him from pushing through a split with the bloc at the end of next month.
- Lawmakers voted 328 to 301 to make time this week for Parliament to debate a law—now highly likely to pass—that would require Johnson to ask for Brexit to be delayed until the end of January 2020 if he doesn’t secure a deal with the bloc in October to manage Britain’s exit.
- The prime minister has said such parliamentary action would limit his ability to negotiate with the EU, as he could no longer use the threat of a disruptive break with the bloc to squeeze out better divorce terms.
- As a result, he said he would have no option but to call for a snap election next month if the law was approved on Wednesday.
China service sector activity rises to three-month high-Caixin PMI
- Activity in China’s services sector expanded at the fastest pace in three months in August as new orders rose, prompting the biggest increase in hiring in over a year, a private survey showed on Wednesday.
- The Caixin/Markit services purchasing managers’ index (PMI) picked up to 52.1 last month, the highest since May, compared with July’s 51.6.
- Caixin’s composite manufacturing and services PMI, also released on Wednesday, ticked up to a four-month high of 51.6 in August from 50.9 in July, though factory orders remained weak.
Hong Kong Leader Carrie Lam to Withdraw Extradition Bill That Sparked Protests
- Chief Executive Carrie Lam said she would withdraw the widely unpopular extradition bill that sparked a tumultuous summer of unrest in the city.
- In a televised address Wednesday, Mrs. Lam said the move was to allay public concerns. She also pledged to increase dialogue with the community and said she would initiate an independent review of the political, economic and social climate.
- The withdrawal satisfies one of five demands from the opposition movement and is a concession that seems aimed at weakening popular support for the protests, though it isn’t clear if it will reduce the tensions that have gripped the city for three months.
- After local media reported the withdrawal, thousands of protesters took to the social-media app Telegram to say the concession wasn’t enough and they would continue to push for all their demands.
Thales posts higher first-half profits, tones down sales growth guidance
- French defense electronics group Thales reported higher first-half profits on Wednesday but toned down its organic sales growth outlook for the full year, citing a slowdown in the commercial space market.
- First-half earnings before interest and tax (EBIT) rose 8% from last year to 820 million euros ($913.81 million) while reported sales grew 9.9% to 8.2 billion euros, reflecting the recent acquisition of Gemalto.
- Sales were down 0.5% when excluding the effect of acquisitions and currencies.
- Thales said that given an expected fall of around 10% in the sales of its global space business, it now eyed 2019 organic sales growth at the lower end of its previous guidance of 3-4%.
- The group reiterated that for 2019 it expected an order intake slightly over 18 billion euros and an EBIT of between 1.98 billion euros and 2 billion euros, which factors in the contribution of the recently-acquired Gemalto business.
China to cut bank reserve requirements in ‘timely manner’ to refuel slowing economy
- China will implement both broad and targeted cuts in the reserve requirement ratio (RRR) for banks “in a timely manner,” China’s cabinet said in a meeting, an indication that a cut in the key ratio aimed at boosting lending could be imminent.
- The People’s Bank of China (PBOC) has been widely expected by analysts to roll out more RRR cuts this year as the world’s second-largest economy sputters amid a trade war with the United States.
- The PBOC has cut the RRR six times since early 2018, with Beijing urging cautious banks to keep lending to struggling businesses, especially smaller, private firms that account for over half of the country’s economic growth and most of its jobs.
- The state council said China will allow local governments to issue special purpose bonds earlier than normal next year to help steady growth, and specified for the first time that about 20% of all special purpose bonds issued by every province could be used as project capital.
TODAY in HISTORY
- George Eastman patented his roll-film camera and registered the Kodak (1888)
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