DAILY MARKET REPORTS
- U.S. stock indexes were lower on Monday, pressured by a drop in technology and energy companies and muted appetite for equities after last week’s spike in Treasury yields following healthy economic data.
- Yields on the 10-year note were at seven-year highs after a solid jobs report raised the specter of faster interest rate hikes.
- The U.S. Treasury market is closed on Monday for the Columbus Day holiday.
- Six of the 11 major S&P sectors were lower as a slide in tech stocks led the declines, followed by a drop in the energy sector.
- Energy companies were hurt as crude prices dropped below $83 per barrel on expectations that some Iranian oil exports will keep flowing after the United States reimposes sanctions, easing a strain on supplies.
- China’s central bank announced a steep cut in the level of cash that banks must hold as reserves on Sunday, stepping up moves to lower financing costs and spur growth amid concerns over economic drag from the Sino-U.S. trade spat.
US FINANCIAL MARKET
Facebook debuts smart speaker for Messenger video calls
- Facebook on Monday released a smart speaker designed to ease video calls, but the company’s history of privacy mishaps and the device’s price and limited functionality could slow it from taking on market leaders Amazon and Google.
- The device, known as Portal, comes in $199 and $349 versions and its signature feature is a wide-angle camera that automatically keeps users in focus as they move about a room, Facebook hardware executives told Reuters in a meeting last week.
- They said Portal is available at Amazon and Best Buy stores in addition to Facebook.com and starts shipping to U.S. customers in early November.
- Facebook expects to stand apart on the market because of Portal’s touchscreen and the 400 million people who call through its Messenger service each month worldwide. Rival smart speakers with screens lack a video-chatting app that is as popular.
Microsoft’s $7.5 billion GitHub deal set for EU approval
- Microsoft is set to win unconditional EU antitrust approval for its $7.5 billion purchase of privately held coding website GitHub.
- Microsoft announced the deal in June, its largest acquisition since it bought LinkedIn for $26 billion in 2016.
- The GitHub deal is expected to boost the U.S. software giant’s cloud computing business and challenge market leader Amazon.
- GitHub, the world’s largest code host, has more than 28 million developers using its platform.
UK seeks additional reassurances from Comcast on independence of Sky News
- Britain has sought additional reassurances from cable company Comcast over the editorial independence of the Sky News television channel following the U.S. group’s takeover of broadcaster Sky
- Comcast emerged triumphant in the long-running battle for the pay-TV group after it beat Fox in a rare auction held last month.
- Culture Minister Jeremy Wright said he had found reassurances previously offered by Comcast persuasive, but also wanted to make sure they were “firmed up”, and would be keen to take further steps to do so if needed.
Apple tells Congress it found no signs of hacking attack
- Apple’s top security officer told Congress on Sunday that it had found no sign of suspicious transmissions or other evidence that it had been penetrated in a sophisticated attack on its supply chain.
- Apple’s Vice President for Information Security wrote in a letter to Congressional commerce committees that the company had repeatedly investigated and found no evidence for the main points in a Bloomberg Businessweek article published on Thursday, including that chips inside servers sold to Apple by Super Micro Computer allowed for backdoor transmissions to China.
- The letter follows statements by Britain’s National Cyber Security Centre and the U.S. Department of Homeland Security that those agencies have no reason to doubt denials from Apple and Amazon that they had discovered backdoored chips.
- Bloomberg said on Friday it stood by its story, which was based on 17 anonymous sources. Some allegations were based on fewer accounts or even a single unnamed source, Apple noted in its letter.
Walmart partners with MGM to boost video-on-demand service Vudu
- Walmart said on Monday it will partner with U.S. movie studio Metro Goldwyn Mayer to create content for its Vudu video-on-demand service, which the retailer bought eight years ago.
- Walmart has been trying to prop up Vudu’s monthly viewership that remains well below that of competitors Netflix and Hulu.
- Walmart and MGM will make the announcement at the NewFronts conference in Los Angeles on Wednesday and unveil the name of the first production under the partnership, which Walmart will license from MGM.
Buybacks to top use of S&P 500 companies’ cash in 2019
- S&P 500 companies will increase cash spending by 13% to $3 trillion in 2019, with buybacks again expected to represent their largest use of cash, according to Goldman Sachs.
- Of the estimated 2019 spending, companies will allocate 51% to invest in growth, including capital expenditures, research and development, and cash acquisitions, while 49% will go toward returning cash to shareholders through buybacks and dividends.
- Capital expenditures are expected to increase by about 9% from an estimated $715 billion in 2018 to $780 billion in 2019.
- Goldman estimated about $525 billion of the $3 trillion in spending will go toward dividends in 2019, up from an estimated $495 billion in 2018.
- For 2018, total S&P 500 cash spending is rising by 19%, the fastest pace since 2011, they wrote.
US ECONOMY & POLITIC
Secretary of State Mike Pompeo’s visit to China kicks off with a frosty exchange
- U.S. Secretary of State Mike Pompeo and Chinese Foreign Minister and State Councilor Wang Yi aired their grievances in the open on Monday during a brief visit to Beijing by Washington’s top diplomat, amid worsening relations.
- While the exchange included typical diplomatic pleasantries, and the two officials emphasized the need for cooperation, their remarks before journalists at the start of their meeting at Beijing’s Diaoyutai State Guest House were unusually pointed.
- Wang also urged the United States to stop selling arms to Taiwan and to cut off official visits and military ties with the self-ruled island Beijing claims as its own, according to a Chinese Foreign Ministry statement.
- If ties between the two countries continued to deteriorate, there could be “profound changes” in the strategic environment for such regional issues as North Korea, China’s state-backed Global Times tabloid warned in an editorial.
U.S. Commerce’s Ross eyes anti-China ‘poison pill’ for new trade deals
- U.S. Commerce Secretary Wilbur Ross signaled that Washington may flex its muscle with trading partners in order to pressure China to open its markets, saying that a provision in the recently completed pact with Canada and Mexico could be replicated.
- Ross said in an interview that the provision was “another move to try to close loopholes” in trade deals that have served to “legitimize” China’s trade, intellectual property, and industrial subsidy practices.
- The United States is now in the early stages of talks with Japan and the European Union to lower tariff and regulatory barriers and try to reduce large U.S. trade deficits in autos and other goods.
- If the EU and Japan signed on to provisions similar to the one in the new U.S.-Mexico-Canada Agreement (USMCA), it would signal that they are fully aligned with Washington in trying to increase pressure on China for major economic policy changes.
- The provision effectively gives Washington a veto over Canada and Mexico’s other free trade partners to ensure that they are governed by market principles and lack the state dominance that is at the core of President Trump’s tariff war against China.
- Under the provision, if any of the three countries in the USMCA enters a trade deal with a “non-market country,” the other two are free to quit in six months and form their own bilateral trade deal.
After fight that split U.S., Kavanaugh wins place on Supreme Court
- The Republican-controlled U.S. Senate on Saturday confirmed Brett Kavanaugh to the Supreme Court, dismissing anger over accusations of sexual misconduct against him and delivering a major victory to President Donald Trump who has now locked in a conservative majority on the court.
- By a vote of 50-48, the deeply-divided Senate gave the job to Kavanaugh after weeks of fierce debate over sexual violence, alcohol abuse and his angry response to the allegations that convulsed the nation just weeks before congressional elections on Nov. 6.
- A few Republican senators who had wavered over whether to vote for Kavanaugh finally backed him this week, saying they did so in part because a brief FBI investigation found no corroborating evidence of Ford’s accusations.
- The dispute over Kavanaugh has added fuel to campaigning for the elections in November when Democrats will try to take control of Congress from the Republicans.
- Several polls show that Republican enthusiasm about voting, which had lagged behind, jumped after the Kavanaugh hearing last week.
Trump to announce pro-ethanol measure on Tuesday ahead of Iowa trip
- U.S. President Donald Trump is expected to announce the lifting of a federal ban on summer sales of higher-ethanol blends of gasoline on Tuesday ahead of a trip to Iowa the same day, according to two sources familiar with the planning of the event.
- The move, expected sometime around 3 p.m. on Tuesday, is aimed at helping Republicans in competitive elections in the nation’s farm belt. Iowa is the largest U.S. producer of ethanol.
- The lifting of the summer ban on E15 gasoline is expected to be coupled with restrictions on trading biofuel credits that underpin the program, the sources said, but it’s unclear whether the restrictions will be detailed or left up to the EPA to decide.
- The American Petroleum Institute, the largest U.S. oil group, opposes lifting the ban, which will eat into the industry’s market share of gasoline sales. The move also faces bipartisan opposition in Congress.
- The summer ban was put in place as an anti-smog measure, though studies have since shown its environmental benefits are limited.
Pompeo says North Korea ready to let inspectors into missile, nuclear sites
- U.S. Secretary of State Mike Pompeo said on Monday North Korean leader Kim Jong Un was ready to allow international inspectors into the North’s nuclear and missile testing sites, one of the main sticking points over an earlier denuclearization pledge.
- Pompeo, who met Kim during a short trip to Pyongyang on Sunday, said the inspectors would visit a missile engine test facility and the Punggye-ri nuclear testing site as soon as the two sides agree on logistics.
- The top U.S. diplomat also said both sides were “pretty close” to an agreement on the details of a second summit, which Kim proposed to U.S. President Donald Trump in a letter last month.
New York crash that killed 20 a ‘wake-up call’ for limo safety: regulator
- A crash that killed 20 people in upstate New York is a “wake-up call” for limousine safety, the chief of the federal agency investigating what happened to a stretch limo taking passengers to a surprise birthday party said on Monday.
- A party of 17 young adults climbed into a stretch limousine 2001 Ford Excursion to celebrate their friend’s 30th birthday.
- They were headed to an upstate New York brewery, officials said, until the limo charged through a stop sign at a highway intersection in Schoharie, New York, about 40 miles (65 km) west of Albany, police and the NTSB said.
- It crashed into an unoccupied parked car and hit two pedestrians before coming to a rest in a shallow ravine, officials said. The limo driver, all 17 passengers, and the two pedestrians died.
- It was the deadliest transportation accident in the United States since a 2009 plane crash in Buffalo, New York, that killed 49 people.
EUROPE & WORLD
Unexpected decline in German industry output hints at economic slowdown
- German industrial output dipped unexpectedly in August for the third time in as many months, data showed on Monday, suggesting Europe’s largest economy lost steam in the third quarter.
- Data from the Economy Ministry showed industrial output fell 0.3% in August, confounding a forecast for a rise of 0.4%.
- It followed a fall of 1.3% in July, itself a downward revision of an earlier, stronger number.
- A source has also told Reuters that the government will revise down its growth forecasts for this year and next. The government is expected to announce its updated growth projections on Thursday.
China slashes banks’ reserve requirements as trade war imperils growth
- China’s central bank announced a steep cut in the level of cash that banks must hold as reserves, stepping up moves to lower financing costs and spur growth amid concerns over the economic drag from an escalating trade dispute with the United States.
- The cut, the fourth by the PBOC this year, comes as Beijing has pledged to expedite plans to invest billions of dollars in infrastructure projects as the economy shows signs of cooling further, with investment growth slowing to a record low.
- Reserve requirement ratios (RRRs) – currently 15.5% for large commercial lenders and 13.5% for smaller banks – would be cut by 100 basis points effective Oct. 15, the PBOC said, matching a similar-sized move in April.
- Sunday’s move will inject a net 750 billion-yuan ($109.2 billion) in cash into the banking system by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing medium-term lending facility (MLF) loans.
- The RRR cut, indicates that the central bank is worried about the impact of “external shocks” to markets such as a speech last week by U.S. Vice President Mike Pence, said Zhang Yi, the chief economist at Zhonghai Shengrong Capital Management.
China to raise export tax rebates amid trade war
- China will increase export tax rebates from Nov. 1 and quicken export tax rebate payments to support foreign trade, the cabinet said on Monday, as a trade war with the United States escalates.
- The rise in export tax rebates will “help reduce costs for the real economy, help it cope with the complex international situation and maintain stable foreign trade growth”, the cabinet said after a regular meeting.
- In September, China raised export tax rebates for 397 items, including steel and electronic products, in a bid to help exporters as the tariff war with the United States worsened.
- Chinese policymakers have been stepping up support for the slowing economy as the full impact of U.S. trade tariffs has still to be felt.
Rocked by Trump’s sanctions, Iranian oil exports drops further
- Iran’s crude exports fell further in the first week of October, according to tanker data and an industry source, taking a major hit from U.S. sanctions and throwing a challenge to other OPEC oil producers as they seek to cover the shortfall.
- The Islamic Republic exported 1.1 million barrels per day (bpd) of crude in that seven-day period, Refinitiv Eikon data showed. An industry source who also tracks exports said October shipments were so far below 1 million bpd.
- That’s down from at least 2.5 million bpd in April, before President Donald Trump in May withdrew the United States from a 2015 nuclear deal with Iran and reimposed sanctions.
- The early October figures add to signs that Iranian exports are falling more steeply than expected, stretching the ability of Saudi Arabia, non-OPEC Russia and other producers to fill the gap.
India wants U.S. sanctions waiver after cutting Iran oil imports
- India hopes to secure a waiver from U.S. sanctions on Iran before they take effect on Nov. 4, as it had significantly cut Iranian oil imports before the deadline, officials said on Monday.
- Washington said on Friday it was considering waivers for nations that were reducing imports of Iranian oil.
- The announcement, the first indication Washington was considering such waivers, followed a report that India planned to lift some Iranian oil in November although it has been cutting back on Iranian imports recent months.
- India, Iran’s No.2 oil client behind China, does not recognize the U.S. sanctions. But New Delhi needs a waiver to ensure its wider exposure to the U.S. financial system is not affected.
Turkey puts import quotas on steel: WTO filing
- Turkey will introduce quotas on the amount of steel it imports from Oct. 17, with an additional 25% duty levied on any imports above the quotas, it said in a filing published by the World Trade Organization on Monday, blaming a surge in imports.
- It said it had begun investigating the case for emergency “safeguard” measures in April after U.S. President Donald Trump imposed a 25% tariff on steel.
- That, and subsequent trade restrictions in other areas, including the EU, India, and Indonesia, had diverted steel towards Turkey.
- The quota for flat products was set at 3.1 million tons, less than half the 8.4 million tons that Turkey imported in 2017, the filing said. For long products, the quota was 558,534 tons, compared to 2017 imports of 1.3 million tons.
TODAY in HISTORY
- The Great Fire of Chicago That same day in Peshtigo, Wis., the worst forest fire in U.S. history also began. (1871)
- Bruno Hauptmannn was indicted for the murder of Charles Lindbergh’s baby. (1934)
This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S&P 500, are unmanaged and may not be invested into directly. Sources: Reuters, Bloomberg, the Wall Street Journal.
Content posted by third parties on this site is screened in order to protect clients’ privacy and comply with regulatory requirements. Content containing sensitive personal information, inappropriate language, information about specific investments, misleading information, information about other companies or websites, or information related to litigation will be removed. Content posted by third-parties on this site remains the responsibility of the party posting the content and is not adopted or endorsed by Pence Wealth Management or LPL Financial. Any opinions or statements posted by third parties are their own and may not be representative of the experience of others and are not indicative of future performance or success. Third party content on this site does not reflect the views of LPL Financial and have not been reviewed by LPL Financial as to accuracy or completeness.