DAILY MARKET REPORTS
- U.S. stock indexes rose on Monday, as gains in auto stocks, a recovery in tech company stocks and relief over an unchanged sovereign rating on Italy helped a rebound from last week’s steep global selloff.
- Carmaker Ford rose 6.2%, while GM gained 4.5% after Bloomberg reported China was planning to cut the tax levied on car purchases by half.
- Wall Street has been rocked by jitters over geopolitical events as well as fears over tariffs, rising wages, and borrowing costs, putting the benchmark S&P 500 on track for its worst monthly performance since May 2010.
- While healthy third-quarter results have pushed up third-quarter profit estimates at S&P companies to 25.2% from 21.8% in the past 10 days, the dour forecast has pulled down the current quarter’s growth outlook to 19.5% from 19.9%.
- Also offering support was data that showed U.S. consumer spending for September rising in line with expectations and income recording its smallest gain in more than a year, suggesting a moderation in spending in the future.
- Shares of IBM fell after the company agreed to buy software company Red Hat for $34 billion. Red Hat shares soared 47%.
- Tesla rose 2.5% as the Times reported that the electric carmaker’s third-largest shareholder, Baillie Gifford & Co, would be willing to inject more cash in the company.
US FINANCIAL MARKET
- IBM’s $34 billion deal to buy Red Hat drove shares in the small but fast-growing software maker 50% higher on Monday, reflecting the huge premium IBM is paying to ward off any potential challenger bids.
- The breakup fee for the deal, which would be among the largest on record in the tech sector, has yet to be announced and a high fee would also deter Red Hat from entertaining other buyers.
- Red Hat has been investing heavily in tech tools such as so-called “containers,” which make it easier for businesses to split up their computing work among a mix of data centers.
- In buying Red Hat, IBM will have assembled a cloud that includes physical servers, its own operating system and applications like human resources software.
Tesla says has not received subpoena on Model 3 production
- Tesla has not received a U.S. subpoena related to its Model 3 production forecasts, the electric carmaker said on Friday, following a report that it faced a deepening criminal probe about the projections.
- The company has cooperated in responding to what it called a “voluntary request” for documents from the Department of Justice in September, a Tesla spokesperson said.
- The Federal Bureau of Investigation is examining whether Tesla misstated information about the production of its Model 3 sedans and misled investors about its business going back to early 2017, the Wall Street Journal reported, citing sources.
U.S. October auto sales seen down slightly: consultants
- U.S. auto sales likely fell slightly in October from a year earlier, when replacement demand following hurricanes Harvey and Irma boosted business, industry consultants J.D. Power and LMC Automotive said on Monday.
- October U.S. new vehicle sales will likely be about 1.349 million units, down marginally from 1.351 million units a year earlier, the consultancies said.
- The consultancies said that in October consumers continued to shift away from passenger cars to pickup trucks and SUVs, which accounted for more than 70% of retail sales in the first 17 selling days of October.
Baillie Gifford willing to invest more in Tesla
- Baillie Gifford, one of the top shareholders of Tesla, has said it would be willing to inject more cash into the electric carmaker, the Times reported on Monday.
- Baillie Gifford is Tesla’s third-largest shareholder with a 7.72% stake.
- Elon Musk tops the list with about 20% ownership of the electric carmaker followed by T.Rowe Price Associates.
- The backing from Baillie Gifford comes days after Tesla reported a net profit of $311.5 million in the third quarter.
US ECONOMY & POLITIC
- U.S. consumer spending rose for a seventh straight month in September, but income recorded its smallest gain in more than a year amid moderate wage growth, suggesting the current pace of spending was unlikely to be sustained.
- Consumer spending increased 0.4% last month as households bought more motor vehicles and spent more on health care, economists had forecast consumer spending increasing by 0.4% in September.
- Data for August was revised up to show spending advancing 0.5% instead of the previously reported 0.3% gain.
- Personal income rose 0.2% in September, the smallest increase since June 2017, after gaining 0.4% in August.
- Wages rose 0.2% after jumping 0.5% in August.
- The personal consumption expenditures (PCE) price index excluding the volatile food and energy components rose 0.2% after being flat in August, leaving year-on-year increase in the core PCE price index at 2.0% for a fifth straight month.
Many U.S. firms in China eyeing relocation as trade war bites: survey
- More than 70% of U.S. firms operating in southern China are considering delaying further investment there and moving some or all of their manufacturing to other countries as the trade war bites into profits, a business survey showed on Monday.
- U.S. companies in China believe they are suffering more from the trade dispute than firms from other countries, according to the American Chamber of Commerce in South China, which surveyed 219 companies, one-third from the manufacturing sector.
- Sixty-four% of the companies said they were considering relocating production lines to outside of China, but only 1% said they had any plans to establish manufacturing bases in North America.
- Nearly 80% of the survey respondents said the tariffs have knocked their businesses, with U.S. tariffs having slightly more impact than the Chinese ones.
U.S. urges EU to stop WTO steel spat, hopes for deal with Canada, Mexico
- The United States urged European Union governments to reflect on whether it was really in their interest for the EU to go ahead with a trade dispute over U.S. metals tariffs and said it was hopeful of settling the issue with Mexico and Canada.
- U.S. Ambassador Dennis Shea told the WTO’s monthly dispute settlement meeting, which was considering 12 requests for adjudication over U.S. tariffs and related retaliation, that Washington was “deeply disappointed” with the EU’s stance.
- But another U.S. trade official later told the same meeting that the United States had held constructive discussions on the tariffs with Canada and Mexico, the transcript showed.
- China, Norway, Russia, and Turkey had also asked the WTO to judge the legality of the U.S. tariffs, despite Washington’s claim that they are based on national security and therefore outside WTO jurisdiction.
Trump’s sanctions on Iran tested by oil-thirsty China, India
- Shortly after U.S. President Donald Trump announced in May he would reimpose sanctions on Iran, the State Department began telling countries around the world the clock was ticking for them to cut oil purchases from the Islamic Republic to zero.
- With just days to go before renewed sanctions take effect Nov. 5, the reality is setting in: three of Iran’s top five customers – India, China, and Turkey – are resisting Washington’s call to end purchases outright, arguing there are not sufficient supplies worldwide to replace them.
- That pressure, along with worries of a damaging oil price spike, is putting the Trump administration’s hard line to the test and raising the possibility of bilateral deals to allow some buying to continue.
Control of U.S. Senate may hinge on possible Mississippi runoff
- A crowded U.S. Senate race in Republican stronghold Mississippi could set the stage for weeks of uncertainty over which party ends up controlling the upper chamber of Congress after the Nov. 6 elections.
- Two Republicans and two Democrats are contesting a special election, and under state law, if no one gets 50% of the vote, the top two candidates regardless of party affiliation will go to a Nov. 27 runoff.
- Opinion polls show Hyde-Smith, a former Democrat who has been endorsed by Trump, as the front-runner in the race.
- Democrat Mike Espy, a former congressman, and agriculture secretary in the Clinton administration, is in second place and drawing enough support to possibly make it into a runoff.
Trump’s new tax cut plan probably waits for 2019: lawmaker
- The U.S. House of Representatives’ leading lawmaker on taxes suggested on Sunday that a new tax cut plan touted by President Donald Trump was unlikely to see action in Congress before 2019, and then only if Republicans keep their majority.
- Brady was discussing a new 10% middle-class tax cut proposal that Trump began touting earlier this month.
- Brady did not completely rule out that such a measure could be brought to a vote before year’s end, but said the session of the outgoing Congress which begins in mid-November is “so unpredictable.” Brady spoke on “Sunday Morning Futures.”
Coal union boosts giving to Democrats as hopes dim for industry revival
- The top U.S. coal miners’ union has put a larger share of its campaign donations behind Democrats ahead of the elections than in 2016, as dimming hopes for an industry revival led by President Trump reinforce fears about the safety of worker pensions.
- The United Mine Workers of America has donated nearly 84% of its money to Democratic candidates and committees in national races, according to a Reuters analysis of campaign finance data.
- That is a roughly 20-point jump from 2016 when Trump courted coal miners with promises of an industry comeback.
- The UMWA said it is not intentionally favoring Democrats but rather donating to lawmakers who support miners’ pension funds, which have been undermined by coal company bankruptcies the Republican-led Congress has failed to backstop.
EUROPE & WORLD
- Japanese robot maker Fanuc slashed its outlook for the full year, citing slower technology spending and trade friction.
- Fanuc said it now expects a full year operating profit of 150.9 billion yen ($1.35 billion), down from a previous forecast of 159.4 billion yen.
China’s BYD expects 2018 profit to fall by a third as competition rises
- Chinese electric carmaker BYD, which is backed by U.S. investor Warren Buffett, said it expected full-year net profit to drop almost a third as competition heats up in the world’s largest auto market.
- The Shenzhen-based firm posted a 1.9% fall in third-quarter net profit to 1.05 billion yuan ($150.97 million), down from 1.07 billion yuan a year earlier.
- That was the smallest quarterly drop since the end of 2016, but it said 2018 profit would be between 2.73 billion yuan and 3.13 billion yuan, down as much as 32.94%.
China Regulator to Propose 50% Cut to Car Purchase Tax
- China is considering a tax cut to revive its flagging automotive market, according to people familiar with the matter, lending support to a key industry that’s been damaged by an ongoing trade war with the U.S.
- The move would help shore up the world’s largest automotive market, which is facing its first decline in more than two decades as a trade war with the U.S. hits at consumer spending power.
- A torrid few months of escalating countermeasures have led Volkswagen, Ford and Renault to all cut their outlooks, as sales in the country slid for four straight months.
- To counteract the slowdown, China’s top economic planning body is proposing to halve the tax on car purchases to 5%.
- The measure would apply to cars with engines no bigger than 1.6 liters.
Brazilians elect right-wing firebrand Bolsonaro in major shift
- Jair Bolsonaro, a far-right firebrand former Army captain, won Brazil’s presidential election in convincing fashion, wooing voters with promises to gut endemic political corruption and wage a brutal battle against powerful drug gangs.
- Bolsonaro, who early in his legislative career declared he was “in favor” of dictatorships and demanded that Congress be disbanded, vowed after his win to adhere to democratic principles while holding up a copy of the country’s Constitution.
- Markets cheered Bolsonaro’s victory, sending Brazil’s benchmark Bovespa stock index to an all-time high on his pledges to balance the federal budget and privatize state firms.
- Bolsonaro won 55.2% of votes in a run-off election against left-wing hopeful Fernando Haddad of the Workers Party (PT), who garnered 44.8%, according to electoral authority TSE.
End of era beckons as Merkel says will not stand again as chancellor
- German Chancellor Angela Merkel said on Monday she would not seek re-election in 2021 as party chairwoman and that her fourth term as chancellor would be her last, heralding the end of a 13-year era in which she has dominated European politics.
- Merkel, 64, has been chairwoman of her conservative Christian Democrats (CDU) since 2000 and chancellor since 2005. Her decision to step down as chairwoman comes after her party suffered its second regional election setback in as many weeks.
- Merkel made the announcement a day after Sunday’s vote in the state of Hesse, at which the CDU came first but suffered a slump in support from the last election there in 2013.
Norway wealth fund’s China investments bound to grow, says CEO
- Norway’s $970-billion sovereign wealth fund will inevitably step up its investments in China in tandem with other major global funds, but that process could take a decade rather than a couple of years, its CEO said.
- The world’s largest sovereign wealth fund owns stock in over 9,000 companies and about 1.4% of globally listed shares, giving it a broad investment base whose performance closely tracks that of the world economy.
- But it is under-represented in China, where Yngve Slyngstad told Reuters in an interview that it had “extraordinarily small” investments of around $25 billion.
TODAY in HISTORY
- William Penn arrived in Pennsylvania. (1682)
- The New York Stock Exchange crashed on Black Tuesday, precipitating the Great Depression. (1929)
- Hurricane Sandy smashed into the eastern seaboard of the U.S., killing 117 people in the U.S. and 69 in Canada and the Caribbean. The storm caused about $50 billion in damage in the U.S. (2012)
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