DAILY MARKET REPORTS.
- U.S. stocks slipped at the open on Tuesday, with bank stocks the biggest drags, pressured by turmoil in European markets following an Italian lawmaker’s anti-euro comments and as relief from a reworked NAFTA deal faded.
- Set to be signed at the end of November, the United States-Mexico-Canada Agreement, or “USMCA” for short, will see all three countries compromise on certain trade aspects.
- More market access will be granted to U.S. dairy farmers, while Canada has agreed to effectively cap auto exports to the States.
- Major automakers and parts manufacturers worldwide expressed their support for the reworked deal, with Japanese automakers looking to trade talks between the US and Japan agreed to begin last week.
- U.S. banks followed Treasury yields and their European counterparts lower.
- The 10-year yield fell to 3.069% while the Stoxx Europe 600 Banks index fell 1.2%.
- European banks pulled back amid renewed concerns stemming from Italy’s budget.
- Luigi Di Maio, the head of the Five Star Movement in Italy, defended the country’s 2.4% deficit target for 2019 and accused EU officials of deliberately upsetting capital markets through negative comments about the budget.
- On top of that, Claudio Borghi, a Eurosceptic economist who chairs the budget committee of the lower house of Italy’s parliament, said in a radio interview that he was “truly convinced” most problems would be solved if it had its own currency.
US FINANCIAL MARKET
- PepsiCo posted a stronger-than-expected profit, boosted by beverage sales in North America that rose after a year of declines and as investments in marketing and developing new products for emerging markets paid off.
- Net revenue rose 1.5% to $16.49 billion. Analysts on average had expected revenue of $16.36 billion.
- North America beverage sales rose 2.3% in the third quarter, but were short of analysts’ average estimate of a 5% increase.
- Frito-Lay also saw sales rise 2.6% in North America, but that fell short of estimates due to slowing demand for salty snacks.
- Net income rose to $2.50 billion in the third quarter, from $2.14 billion a year earlier.
Tesla worried by China even as deliveries surge
- Tesla announced record quarterly car production numbers on Tuesday but warned it was facing major problems with selling cars in China due to new tariffs that will force it to accelerate investment in its factory in Shanghai.
- Deliveries reached a record 83,500, above Wall Street estimates of 80,000 and including almost 56,000 of the Model 3 sedan whose ramp-up is widely seen as crucial to the company’s drive to become profitable.
- That overshadowed concerns expressed by the company over a 40% tariff being charged by China for the import of its cars, which it said was blocking sales in the world’s biggest electric car market.
- The electric car maker said it was speeding up construction of its Shanghai factory as it seeks to combat a huge competitive disadvantage against other producers and even other imported cars, which it said are carrying a lower 15% tariff.
- “Tesla is now operating at a 55% to 60% cost disadvantage compared to the exact same car locally produced in China,” the company said.
Hurricanes batter September U.S. new car sales
- Major automakers posted a hefty drop in U.S. new vehicle sales for September, caused in part by a drop in sales in areas hit by Florence and a tough comparison to a year ago when consumers rushed to replace vehicles damaged by Hurricane Harvey.
- Sales in September 2017 were boosted by major replacement demand for water-damaged vehicles following Hurricane Harvey, which had flooded parts of southeastern Texas in August that year.
- Fiat Chrysler bucked the trend for the month, reporting a 15-percent jump in U.S. sales led by increases in sales of its lucrative Jeeps – especially its Cherokee and Compass models – and Ram pickup trucks.
- Ford reported an 11.2% drop in sales, with declines in every major category. Sedans were down nearly 26%, and the automaker also reported a nearly 9-percent decline for sales of its pickup trucks and a 2.7-percent drop in sales of SUVs.
- Toyota said that its U.S. new-vehicle sales fell 10.4% in September. Sedan sales at the Japanese automaker were off nearly 28%, including a 17-percent decline for its flagship Camry.
- Nissan reported a 12.2% drop in sales for September, with a 35.7% decline in passenger car sales more than offsetting a 6.6% rise in pickup truck and SUV sales.
Amazon raises minimum wage to $15, urges rivals to follow
- Amazon said on Tuesday it would raise its minimum wage to $15 per hour for U.S. employees from next month, seeking to head off criticism of working conditions at the world’s second most valuable company.
- The new minimum wage will benefit more than 250,000 Amazon employees in the United States, as well as over 100,000 seasonal employees who will be hired at sites across the country this holiday.
- Amazon’s current minimum hourly wage starts at around $11 and analysts said the raise would cost it $1 billion or less annually and be offset by a recent $20 increase in the cost of Prime memberships.
- The online retailer said it would now lobby in Washington for an increase in the federal minimum wage and urged its competitors to follow its lead as the union-led “Fight for Fifteen” movement pushes for higher remuneration.
Facebook could face up to $1.6 billion in fines over data breach as regulators eye formal probe
- A top European regulator is considering opening a formal investigation into Facebook following a data breach that hit 50 million users and which could land the social network with millions of dollars in fines under strict new rules in the region.
- On Friday, Facebook disclosed that it had discovered a security bug that allowed hackers to access information to around 50 million accounts.
- The Facebook data breach will be the first major test of Europe’s tough data protection laws introduced in May and known as General Data Protection Regulation (GDPR).
- The maximum fine Facebook could face is 4% of annual global turnover, if it is found to have breached GDPR. Since the social network made over $40.65 billion last year in revenue, that total fine could amount to around $1.63 billion.
GE credit rating under review for possible downgrade: Moody’s
- General Electric’s credit rating is under review for a possible downgrade at Moody’s, the rating agency said Tuesday.
- Moody’s said the review was prompted by GE’s announcement that it will fall short of its earnings and free cash flow guidance for 2018 amid weak performance from its power business.
US ECONOMY & POLITIC
- U.S. President Donald Trump on Monday said it was “too soon” for Washington to talk to Beijing about working out a deal on trade, suggesting U.S. tariffs have yet to exert enough pressure to force Beijing into making concessions at the negotiating table.
- During his remarks, which focused on a new U.S. trade deal with Canada and Mexico, Trump hailed the power of tariffs he has imposed to bring American trading partners to the table.
- But he suggested steeps tariffs he has placed on U.S. imports of Chinese products have yet to bend Beijing’s will.
- Trump has said signs of economic weakness in China and its slumping stock markets are proof of the effect U.S. tariffs are having on the Chinese economy.
Bill allowing U.S. to sue OPEC drawing renewed interest
- With oil prices hitting fresh four-year highs, long-dormant proposals to allow the United States to sue OPEC nations are getting a fresh look in Congress, though they were once considered a longshot to becoming law.
- A U.S. Senate subcommittee on Wednesday will hear testimony on the so-called No Oil Producing and Exporting Cartels Act, or NOPEC, which would revoke the sovereign immunity that has long shielded OPEC members from U.S. legal action.
- The bill would change U.S. antitrust law to allow OPEC producers to be sued for collusion; it would make it illegal to restrain oil or gas production or set those prices – removing sovereign immunity that U.S. courts have ruled exists under current law.
- Past U.S. leaders have opposed the NOPEC bill, but the possibility of its success may have increased due to President Donald Trump’s frequent criticism of the OPEC, and as some predict that Brent crude could reach $100 a barrel before long.
- Saudi Arabia is lobbying the U.S. government to prevent the bill’s passage, sources familiar with the matter said.
- Business groups and oil companies also oppose the bill, citing the possibility of retaliation from other countries.
Trump authorizes FBI to expand Kavanaugh investigation
- President Donald Trump has authorized the FBI to expand its investigation into sexual misconduct allegations facing Supreme Court nominee Brett Kavanaugh, the New York Times reported on Monday.
- The Times also reported that the FBI has already concluded interviews with the four witnesses its agents were originally asked to talk to, according to two people briefed on the matter.
Trump administration rejects states’ argument on net neutrality
- Federal Communications Commission chairman Ajit Pai rejected arguments Monday that states should be able to impose their own net neutrality protections after the Trump administration in December withdrew them.
- Pai told reporters after an event in Washington the arguments made by states are “completely baseless” and said the internet is “inherently an interstate service… From a legal perspective, we’re on very strong ground.”
- In August, 22 states, including California, and a coalition of trade groups representing major tech companies urged a federal appeals court to reinstate the rules and said it could not tie states’ hands.
- The Trump administration rules were a win for providers like Comcast, AT&T, and Verizon, but the net neutrality repeal was opposed by internet companies like Facebook, Amazon and Alphabet.
Trump to meet with Google, other tech executives
- U.S. President Donald Trump plans to host executives of internet and social media companies at the White House, likely later this month, White House adviser Larry Kudlow said on Tuesday.
- “We’re going to have a little conference – the president will preside over it – we will have big internet companies, big social media companies, search companies,” he said.
EUROPE & WORLD
- Samsung Electronics is set to post a hefty jump in third-quarter profit to record levels after its chip unit put in a sterling performance on demand from data centers and improved production yields.
- The world’s top memory chipmaker, due to report preliminary results on Oct. 5, is forecast to book an 18% surge in operating profit to 17.2 trillion won ($15.5 billion).
- The big boon for Samsung has been a spike in prices for DRAM chips, its main memory product, and the average price of server DRAM rose 14% in the third quarter from a year earlier, as companies build data centers for cloud computing.
- While its chip unit accounts for nearly 80% of operating profit, Samsung will also benefit from a rebound in prices for large displays, as well as increased orders for organic light-emitting diode (OLED) displays after Apple launched new iPhones.
Defiant Italy says no turning back on budget despite EU ‘threats’
- Italy defied pressure from Brussels and its eurozone on Tuesday to water down ambitious budget plans, threatening to sue EU officials it said were to blame for a deepening sell-off on Rome’s financial markets.
- The government last week set a deficit target of 2.4% of economic output for the next three years.
- That tripling of its predecessor’s goal by the EU’s second most indebted nation unnerved investors and prompted criticism and calls for a rethink from the European Commission.
- As Italian bonds and bank shares sold off, Deputy Prime Minister Di Maio said there was “no doubt” the leaders of France and Germany wanted their government to fall, while one lawmaker suggested the country would be better off without the euro.
Mexican auto parts makers see new trade deal boosting output
- Auto parts output in Mexico will jump about 10% over the next three years as automakers scramble to adhere to stricter content rules laid out in a new North American trade deal, a top industry executive said on Monday.
- The new trilateral deal, called the United States-Mexico-Canada Agreement (USMCA), will raise the minimum North American content threshold for cars needed to qualify for duty-free market access to 75% from 62.5%.
- “Carmakers, especially Asian and European carmakers, will have to invest more in tools, in North American components to comply with the new content rules,” Oscar Albin, head of Mexican auto parts industry association INA, said in an interview.
- The new rules should boost auto parts production from about $90 billion annually at present to “around $100 billion” over the next three years, he added. In the course of that period, the sector should add about 80,000 new jobs, Albin said.
Japan car makers welcome North America trade deal, but U.S. export curbs a risk
- Toyota, Nissan and Mazda welcomed the revised North America trade deal that left Japanese automakers unscathed but they may face a bumpy ride when Washington and Tokyo hold new talks on over $40 billion of annual U.S. auto imports from Japan.
- While the deal has removed the risk that the disintegration of the pact would have posed to automakers, bigger risks loom large for Japanese firms as a chunk of the roughly 7 million cars they sold in the U.S. last year were shipped from Japan.
- The United States and Japan last week agreed to begin fresh trade talks, with U.S. President Donald Trump seeking to address Japan’s $69 billion trade surplus, of which nearly two-thirds comes from auto exports.
- Washington is also investigating the possibility of slapping 25% tariffs on auto imports on national security grounds, although it has agreed with Japan to put any new tariffs on hold during the talks.
Canada, buoyed by trade deal, to push U.S. on metal tariffs
- Canada, buoyed by a last-minute continental trade deal it sealed with the United States and Mexico, is pressing Washington to remove steel and aluminum tariffs, senior Canadian officials said on Monday.
- Prime Minister Justin Trudeau had made clear he felt the tariffs should be removed before the new United States-Mexico-Canada Agreement could be signed, but President Donald Trump’s administration has refused to act for now.
- U.S. Trade Representative Robert Lighthizer told reporters in Washington that the United States would be willing to discuss the matter “after we take a few days to catch our breath.”
- Foreign Minister Chrystia Freeland said talks on the new pact and the question of tariffs were on separate tracks but added “we have a little bit of wind in our sails and we are very much going to continue to work on this issue.”
Carmakers step up warnings over disorderly Brexit
- With less than six months before Britain is due to quit the EU on March 29, businesses are increasingly alarmed about the lack of agreement over future trading relations and the possibility of tariffs, delays at ports and extra red tape.
- The car industry, one of the few British manufacturing success stories of recent decades, is particularly at risk given the thousands of parts, engines and finished models that move between Britain and the continent every day.
- Britain’s Land Rover, which warned last month that the wrong kind of Brexit could cost tens of thousands of car jobs, said it had not decided whether to build electric cars in its home market because of uncertainty over future trading relations.
TODAY in HISTORY
- The “Peanuts” comic strip, by Charles M. Schulz, first appeared in newspapers. (1950)
- Thurgood Marshall was sworn in as the first black associate justice of the U.S. Supreme Court. (1967)
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