DAILY MARKET REPORTS
- U.S. stocks advanced on Monday, led by gains in shares of technology and industrial companies, as a last-minute deal to save NAFTA as a trilateral pact raised hopes for progress in talks with other countries at the start of the fourth quarter.
- The relief lifted world markets after the new United States-Mexico-Canada Agreement (USMCA) rescued a $1.2 trillion open-trade zone on Sunday.
- President Trump coerced Canada and Mexico into accepting more restrictive commerce with their main export partner in a deal that will make it harder for global automakers to build cars cheaply in Mexico and aims to bring more jobs to the United States.
- Shares of U.S. carmakers advanced with Ford rising 1.6% and General Motors 1.5%.
- Among the biggest boosts to the S&P 500 was General Electric shares, which soared 11% after Chief Executive Officer John Flannery stepped down and the company announced a $23 billion charge related to its power business.
- Tesla shares soared 15% before the bell after Elon Musk agreed to step down as the company’s chairman but remain as chief executive in a settlement with the U.S. Securities and Exchange Commission on Saturday.
- This week ends with the Labor Department’s non-farm payrolls report and focus may also shift towards the start of the financial reporting season later this month.
- Bolstered by a growing economy, deep corporate tax cuts, and increased stock buybacks, S&P 500 companies are expected to post a 21.6% increase in earnings per share from a year earlier.
US FINANCIAL MARKET
- General Electric replaced Chief Executive Officer John Flannery on Monday, installed former Danaher CEO Lawrence Culp as his successor, and said it would take a roughly $23 billion charge to write off goodwill in its power division.
- GE said the power division’s goodwill balance is about $23 billion and the impairment charge would eliminate most of it.
- The non-cash charge primarily relates to GE’s $10.3-billion acquisition of power assets from French company Alstom in 2015, which gave GE more exposure to older coal plant technology at a time when coal plants were being shut down as too costly.
- The company also said it would fall short of its guidance for free cash flow and earnings per share for 2018 due to weakness in its power business, something analysts had expected.
Tesla shares jump after Musk settles with SEC
- Shares of Tesla jumped nearly 16% on Monday after Chief Executive Elon Musk settled with the U.S. Securities and Exchange Commission (SEC) over charges of misleading investors, heading off moves to force him out.
- According to the settlement, Tesla and Musk will pay $20 million each to financial regulators and Musk will step down as chairman but remain as chief executive.
- As part of the settlement, Tesla will appoint an independent chairman, two independent directors, and a board committee to set controls over Musk’s communications under the proposed agreement.
Pfizer replaces long-time CEO Read with veteran Bourla
- Pfizer said on Monday Chief Executive Ian Read would become executive chairman from the start of next year, handing the reins of the largest U.S. drugmaker to veteran insider Albert Bourla after eight years in charge.
- Bourla, 56, was appointed the chief operating officer at the start of this year, after leading the drugmaker’s Innovative Health business, which recorded revenue of $31.4 billion in 2017.
- The appointment comes at a time when drugmakers are facing intense scrutiny over drug pricing, with regulators and the Trump administration aiming to lower prescription drug costs.
Netflix to let viewers pick how TV episodes and movies will end
- Streaming giant Netflix will now allow users to choose how a TV episode or movie will end as it pushes further into Interactive TV, Bloomberg reported on Monday.
- The company is developing specials that will let its users decide the next storyline, Bloomberg said.
- The first project of the new lineup is expected to be released by the end of this year, and Netflix’s popular sci-fi show “Black Mirror” will feature an episode under this project.
CBS faces New York probe tied to ex-CEO Leslie Moonves
- CBS is facing probes by both New York city and state officials tied to sexual assault and harassment accusations of its ex-chief executive Leslie Moonves, the company revealed in a regulatory filing on Friday evening.
- The broadcast and media company received subpoenas from the New York County District Attorney’s Office and the New York City Commission on Human Rights related to the allegations against Moonves, CBS News, and cultural issues in the company.
- The New York State Attorney General has also requested information about the allegations, CBS said.
GM will recall more than 3.3 million vehicles in China: market regulator
- General Motors’ joint venture in China, Shanghai GM, will recall more than 3.3 million Buick, Chevrolet and Cadillac vehicles from Oct. 20 because of a defect with the suspension system, China’s market regulator said on Saturday.
- The recall includes cars produced between 2013 and 2018, the State Administration for Market Regulation said in a statement.
Electric cars cast growing shadow on profits
- Electric cars are poised to arrive en masse in European showrooms after years of hyped concept-car launches and billions in investment by automakers and suppliers.
- Battery models making their car-show debut in Paris this week will erode profitability as they struggle to stay in the black, executives generally acknowledge.
- But concerns are mounting that the impact could be worse, as consumers resist paying more for electrified vehicles – forcing carmakers to sell them at a bigger loss to meet emissions goals.
- After declining for a decade, new-vehicle carbon emissions are rising again as customers flock from cars to SUVs, and from diesel to gasoline engines.
- Early signs suggest electric-car prices may fall sooner and faster than production costs, as carmakers adjust for stalled emissions progress and weak consumer appetite. That promises more red ink, as discounted battery car sales finally take off.
US ECONOMY & POLITIC
- The United States and Canada forged a last-gasp deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, rescuing a three-country, $1.2 trillion open-trade zone that had been about to collapse after nearly a quarter century.
- While the new United States-Mexico-Canada Agreement (USMCA) avoids tariffs, it will make it harder for global automakers to build cars cheaply in Mexico and is aimed at bringing more jobs into the United States.
- The deal will preserve a trade dispute settlement mechanism that Canada fought hard to maintain to protect its lumber industry and other sectors from U.S. anti-dumping tariffs.
- Canada has agreed to provide U.S. dairy farmers access to about 3.5% of its approximately $16 billion domestic dairy market.
- Canada and Mexico each agreed to a quota of 2.6 million passenger vehicles exported to the United States in the event that Trump imposes 25% global autos tariffs on national security grounds.
- The quota would allow for significant growth in tariff-free automotive exports from Canada above current production levels of about 2 million units, safeguarding Canadian plants.
- It is also well above the 1.8 million cars and SUVs Mexico sent north last year.
- The deal also requires a higher proportion of the parts in a car to be made in areas of North America paying at least $16 an hour, a rule aimed at shifting jobs from Mexico.
U.S. construction spending edges up; private outlays fall
- The Commerce Department said that construction spending edged up 0.1%, while data for July was revised up to show construction outlays rising 0.2% instead of the previously reported 0.1% gain.
- Economists had forecast spending increasing by 0.4% in August. Construction spending rose 6.5% on a year-on-year basis.
- Spending on public construction jumped 2.0% in August to the highest level since July 2009, following a 1.7% increase in July.
- Spending on federal government construction projects soared 5.9% to a 10-month high after increasing 2.3% in July.
ISM manufacturing index hits 59.8 in September
- Manufacturing activity expanded at a slower-than-expected pace in September, according to the Institute for Supply Management.
- The ISM manufacturing index reached 59.8 last month, down from 61.3 in August.
- Economists expected the index to hit 60.4 in September.
- The slowdown came as new orders fell to 61.8 from 65.1 in August, and supplier deliveries and inventories also decreased.
U.S. housing market faces ‘5-percent’ test
- The U.S. housing market, already struggling with tight inventory and rising building costs, faces a fresh headwind as 30-year mortgage rates rise close to the 5% threshold for the first time in years.
- Even as home prices have climbed steadily thanks largely to a lack of supply of homes for sale, housing affordability has remained relatively stable thanks to historically low borrowing costs.
- Mortgage rates have surged to 4.97% from 4.23% in January. Including fees, most 30-year mortgages have reached 5% or higher.
- The rise in mortgage rates so far this year means a potential homebuyer would pay about $35,000 more interest on a $220,000 loan over 30 years.
FBI probe is the next battle in war over Kavanaugh
- Democratic U.S. senators expressed concern on Sunday over reports the White House was working with Republicans to narrow the scope of an FBI investigation into sexual assault allegations against Supreme Court nominee Brett Kavanaugh.
- President Trump bowed to pressure from moderate members of his Republican Party and ordered the probe after Christine Blasey Ford detailed her allegations at a Senate hearing that Kavanaugh assaulted her in 1982 when the two were in high school.
- The stunning reversal capped two weeks of allegations, followed by furious denials, that roiled prospects for a conservative federal appeals court judge once expected to easily become the second Trump nominee to win appointment to the top U.S. court.
- The administration denied it was trying to control the probe, which the Judiciary Committee said on Friday “would be limited to current credible allegations” and wrapped up within a week.
U.S. sues after California governor signs ‘net neutrality’ law
- The U.S. Justice Department late on Sunday filed suit after California Governor Jerry Brown signed legislation to restore open internet protections known as net neutrality in the state after the Trump administration repealed the rules in December 2017.
- This marked the latest clash between the Trump administration and California, which have sparred over environmental, immigration and other hot-button issues.
- The government said that California sought to “second-guess” the federal government and warned, “the effect of this state legislation would be to nullify federal law across the country.”
- California Attorney General Xavier Becerra said on Sunday the Trump Administration was ignoring “millions of Americans who voiced strong support for net neutrality rules.
EUROPE & WORLD
- Ryanair cut its forecast for full-year profit by 12% and said worse may be to come if recent coordinated strikes across Europe continue to hit traffic and bookings.
- Europe’s largest low-cost carrier has struggled with labor relations since it bowed to pressure to recognize trade unions for the first time last December.
- The Irish airline now expects profit for the year, excluding startup losses in Laudamotion, to come in at 1.10-1.20 billion euros ($2.66 billion), compared with its prior forecast of 1.25-1.35 billion euros.
- Ryanair said fares in its second quarter to end-September had fallen by around 3% from a 1% dip forecast previously and said that it now expects fares in the second half to fall 2%.
Weak German data points to growth slowdown in third quarter
- German retail sales fell unexpectedly for the second month in a row in August and factories shifted into a lower gear in September, data showed on Monday, suggesting that Europe’s largest economy has lost steam over the summer.
- Household spending has become a key growth driver in Germany where consumers benefit from record-high employment, rising real wages, strong job security, and low borrowing costs.
- Retail sales edged down by 0.1% on the month in real terms in August, weaker than the consensus forecast for a 0.4% rise and followed a revised drop of 1.1% in July.
- Leading economic institutes said last week they expect Germany’s quarterly growth rate to slow to 0.1% in the third quarter after 0.4% in the first and 0.5% in the second.
No-deal Brexit would cost European firms up to $18 billion- UK trade minister
- European companies face potential tariffs of as much as 14 billion pounds ($18.28 billion) a year if Britain and the European Union fail to reach a trade agreement, Britain’s trade minister Liam Fox said on Monday.
Qatar Airways upgrades part of A350 order to biggest model
- Qatar Airways said on Monday it was upgrading five of its Airbus A350 jets on order to the largest model, in a boost for the European planemaker’s largest twin-engine jet.
- The A350-1000 is designed to seat 366 people and competes head-to-head with Boeing’s profitable 777.
- The upgraded order will come as a relief to Airbus, which is betting on the A350-1000 to contain any market pressure from rival Boeing which is developing its new model 777 twin-engine jet.
Aston Martin narrows $6 billion IPO range after investor response
- Luxury British carmaker Aston Martin has cut the upper end of its initial public offering price range to 20 pounds per share, giving it a potential market value of up to 4.6 billion pounds ($6 billion), following mixed feedback from investors.
- Aston Martin had initially set a range of 17.50 pounds to 22.50 pounds per share but said on it Monday it had narrowed this to 18.50 pounds to 20 pounds and that it had enough bid interest to cover all the shares being sold at this level.
- Based on around 57 million shares being sold, a free float of 25%, the listing would give the company a market capitalization of up to around 4.6 billion pounds.
Canada’s Husky Energy offers to buy MEG Energy in $5 billion deal
- Canadian oil and gas producer Husky Energy said on Sunday it has made an unsolicited bid to acquire rival MEG Energy in a deal valued at C$6.4 billion ($5 billion) including debt.
- The combined company would have total production of more than 410,000 barrels of oil equivalent per day (boepd) and refining and upgrading capacity of about 400,000 barrels per day (bpd).
- The offer comes as many Canadian oil producers have struggled with transportation bottlenecks as output has surged, pushing Canadian heavy crude to near-historic discounts to U.S. light crude.
TODAY in HISTORY
- Spain ceded Louisiana to France in the secret Treaty of San Ildefonso. (1908)
- Walt Disney World opened in Orlando, Florida. (1971)
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