US FINANCIAL MARKET
U.S. STOCKS RISE AS CHINA’S ECONOMY SHOWS GAINS
- The S&P 500 and Nasdaq opened at record highs on Monday as upbeat data from China and cooling trade tensions lifted sentiment, while production concerns related to Boeing’s grounded jet looked set to cap gains on the Dow.
- Boeing, which normally benefits from trade talk progress, fell 3.6% on reports the planemaker was considering whether to cut or halt production of its grounded 737 MAX aircraft.
- Deepening production cuts would inflate Boeing’s costs and trigger charges against its financial results as fixed expenses would be spread among fewer planes.
- The stock missed out on a broader rally, spurred by data that showed China’s industrial output and retail sales growth accelerated in November, adding to the fillip from reports of an initial U.S.-China trade deal on Friday.
- Shares of International Flavors & Fragrances (IFF) fell 6.1% after it said it would merge with DuPont’s $26.2 billion nutrition & biosciences unit. DuPont’s shares rose 4.5%.
Boeing Weighs Suspending or Cutting Back 737 MAX Production
- Boeing is considering either suspending or cutting back production of the 737 MAX amid growing uncertainty over the troubled plane’s return to service and could disclose a decision as soon as Monday, according to people familiar with the matter.
- Cutting production further, following an earlier reduction in April, would inflate Boeing’s costs and trigger charges against its financial results as fixed expenses would be spread among fewer planes.
- It could also spur job cuts and furloughs across the global aerospace industry, as well as further disruption to airlines hit by the grounding of a fleet of around 800 jets that is likely to stretch to nearly a year.
- The board deliberations, slated to last through Monday, have taken on more urgency following a meeting last week between CEO Dennis Muilenburg and FAA chief Steve Dickson that reset the likely timetable for certification to February or beyond.
IFF to merge with DuPont’s $26.2 billion nutrition unit
- International Flavors & Fragrances on Sunday said it will merge with DuPont’s $26.2 billion nutrition & biosciences unit in a deal that will create a new consumer giant valued at more than $45 billion.
- Under terms of the agreement, DuPont shareholders will own 55.4% of the shares of the new company and existing IFF shareholders will own 44.6%, IFF said in a statement.
- Industrial materials maker DuPont will also receive a one-time cash payment of $7.3 billion upon closing of the deal, IFF added.
Cisco Wins Legal Challenge in Battle Against Chinese Counterfeits
- Cisco Systems has won a legal battle against counterfeit versions of key networking equipment, securing an injunction that requires big online marketplaces, including Amazon and Chinese rival Alibaba to halt the sale of some knockoffs.
- Cisco’s suit, filed in federal court in the Eastern District of New York, alleges that four Chinese companies made counterfeit versions of its transceivers, a component necessary for sending and receiving digital information.
- The judgment was handed down against four Chinese manufacturers— Shenzhen Tianheng Network, Gezhi Photonics Technology, Shenzhen Sourcelight Technology, and Dariocom.
- Rowan TELS, a new San Francisco consultant that assists companies dealing with counterfeit products, estimates that the four Chinese companies account for more than half of the counterfeit transceiver market.
Uber Is in Talks to Sell Its India Food-Delivery Business to a Rival
- Uber Technologies is in talks to sell its food-delivery business in India to a local rival, according to people familiar with the matter, a potential boost for the American company as Chief Executive Dara Khosrowshahi seeks a path to profitability.
- A deal, which could be announced as early as this week, would see the San Francisco-based company unload the costly Indian operations of its global food-delivery arm, Uber Eats, to competitor Zomato Media, the people said.
- Uber has discontinued food-delivery operations in a country only once before.
- It faced stiff local competition in South Korea, and in September it said it would stop delivering food there.
- Last week, European food-delivery company Delivery Hero SE agreed to buy a South Korean competitor for $4 billion, ramping up the global battle to satisfy increasing consumer demand for delivered meals.
California governor rejects PG&E bankruptcy reorganization plan
- California Governor Gavin Newsom on Friday rejected a bankruptcy reorganization plan submitted by PG&E, the state’s largest investor-owned utility, saying its proposal fails to meet the requirements of a recently enacted wildfire law.
- Newsom said the plan lacks “major changes in governance” and tougher safety enforcement mechanisms mandated under the state wildfire statute, known as Assembly Bill 1054, which was enacted in July.
- The embattled utility now has until Tuesday to further amend its plan to Newsom’s satisfaction, but his criticism of the reorganization package as it was presented by PG&E a day earlier was sweeping.
US ECONOMY & POLITICS
Homebuilder confidence jumps to highest level in 20 years
- Builder confidence in the newly built, single-family home market jumped 5 points in December to 76, the highest reading since June 1999, according to the National Association of Home Builders/Wells Fargo Housing Market Index
- November’s reading was also revised higher by 1 point. The index stood at 56 last December.
- Of the index’s three components, current sales conditions rose 7 points to 84, sales expectations in the next six months rose 1 point to 79 and buyer traffic increased 4 points to 58.
U.S. Economy Ends Year on Modest Note, IHS Markit Gauges Show
- Two surveys of U.S. manufacturers and service companies suggested U.S. economic growth is holding up at a modest pace at year’s end, with the potential to pick up in 2020.
- The IHS Markit purchasing managers’ index (PMI) for factories was little changed in December at 52.5 after 52.6 the prior month, while a similar gauge for service industries rose to a five-month high of 52.2, according to preliminary figures released Monday.
- Readings above 50 indicate expansion.
Shale Slowdown Takes Economic Toll
- America’s hottest oil-drilling regions are seeing their economies soften as shale producers slash spending, leading to emptier hotels, choosier employers and less overtime for workers.
- Fracking has made the U.S. the world’s top oil producer, buoyed the national economy and helped the country become a net exporter of crude and petroleum products for the first time in decades.
- But the rapid production growth of recent years is waning and taking an economic toll.
- National nonresidential fixed investment fell at an annualized rate of 2.66% in the third quarter and 1.01% in the second quarter, due in large part to declines in oil and gas spending, according to the Dallas Fed.
- Spending is expected to decline further next year. North American shale investment is forecast to fall about 6% this year, then tumble another 14% in 2020, adjusted for inflation, according to energy analytics firm Rystad Energy.
- Companies also are trimming jobs, leading to a 5% decline in seasonally adjusted oil-field service employment in the 12 months ended in October, according to Bureau of Labor Statistics data.
U.S. top trade negotiator praises deal, China remains cautious
- U.S. President Donald Trump’s top trade negotiator praised a “phase one” U.S.-China trade deal which is expected to nearly double U.S. exports to China over the next two years, while China remained cautious ahead of the signing of the agreement.
- The deal will reduce some U.S. tariffs on Chinese goods in exchange for increased Chinese purchases of U.S. agricultural, manufactured and energy products by some $200 billion over the next two years.
- China has also pledged in the agreement to better protect U.S. intellectual property, to curb the coerced transfer of American technology to Chinese firms, to open its financial services market to U.S. firms and to avoid manipulation of its currency.
- Chinese purchases of agricultural goods were expected to increase to $40 billion to $50 billion annually over the next two years, Lighthizer said.
- The United States exported about $24 billion in farm products to China in 2017, the last full year before the world’s two largest economies launched a tariff war on each other’s goods in July 2018.
U.S. agriculture wary of Trump’s China sales pledge, more meat a must
- U.S. farmers and traders were reluctant to celebrate news of an interim U.S.-China trade deal on Friday, saying it remained unclear how China would manage to buy another $32 billion of additional farm products over two years as promised.
- Chinese officials gave no firm commitment on the amount of imports to the United States but said China may buy more wheat, rice and corn – goods it has not bought a lot of in the past.
- Beijing also did not give details on how it would handle its retaliatory tariffs on U.S. farm goods, including duties of 33% on soybeans, traditionally the most valuable U.S. farm export to China, and up to 72% on pork.
U.S. Expelled Two Chinese Embassy Officials Suspected of Espionage
- The U.S. quietly expelled two Chinese Embassy officials on suspicions of espionage after they improperly drove onto a sensitive U.S. military facility in Virginia in September, two U.S. officials familiar with the matter said.
- The incident highlights what U.S. officials have said is Beijing’s increasingly aggressive intelligence-gathering operations against the U.S., which have heightened tensions between the two economic superpowers.
- It is believed to be the first time the U.S. has expelled Chinese diplomats for suspected espionage in more than 30 years.
- The expulsion of the officials, whose names couldn’t be learned, took place as President Trump was trying to reach a broad trade agreement with China and was under pressure to take a more forceful stance backing student protesters in Hong Kong.
Lawmakers Entrenched in Partisan Camps as Impeachment Vote Looms
- As the House prepares for a historic impeachment vote this week, lawmakers are finding themselves entrenched in partisan camps, with little room to step outside their party’s mainstream views on whether to support or oppose President Trump.
- the impending vote has thrown attention on the 31 House Democrats who represent districts that Mr. Trump carried in 2016 and who might bear the most political risk by backing impeachment.
- By the end of the weekend, at least 10 of the 31 Democrats said they would side with party leaders and support impeachment, including four who announced plans on Friday or over the weekend.
Rep. Van Drew to Switch to Republican Party
- Rep. Jeff Van Drew, a New Jersey Democrat opposed to impeaching President Trump, plans to switch to the Republican Party, according to several people familiar with his thinking.
- Mr. Van Drew is one of two Democratic lawmakers who opposed an impeachment investigation into Mr. Trump.
- He represents a district that the president won in 2016.
- Mr. Van Drew was elected in 2018 by a margin of nearly 8 percentage points, becoming one of 31 Democrats to represent districts that President Trump had won two years earlier. In 2016, Mr. Trump carried the district by 4.6 percentage points.
- The change would leave Democrats with 34 more seats than Republicans in the House.
- One House member is an independent, and there are four vacancies.
EUROPE & WORLD
China’s factory, retail sectors shine as trade tensions thaw
- Growth in China’s industrial and retail sectors beat expectations in November, as government support propped up demand in the world’s second-largest economy and amid easing trade hostilities with Washington.
- Industrial production rose 6.2% year-on-year in November, data from the National Bureau of Statistics showed, beating the median forecast of 5.0% growth in a Reuters poll and quickening from 4.7% in October.
- Retail sales rose 8.0% year-on-year in November, compared with an expected 7.6%, buoyed by stimulus measures and the November Singles Day shopping extravaganza, the statistics bureau said.
China to target around 6% growth in 2020, step up state spending: sources
- China plans to set a lower economic growth target of around 6% in 2020 from this year’s 6-6.5%, relying on increased state infrastructure spending to ward off a sharper slowdown, policy sources said.
- Economic growth of nearly 6% next year could be enough to meet its goal of doubling gross domestic product (GDP) and incomes in the decade to 2020 given the economy is expected to expand about 6.2% this year, policy insiders said.
- The annual budget deficit could rise from this year’s 2.8% of GDP, but is likely to be kept within 3%, they said.
- Local governments could be allowed to issue special bonds worth some 3 trillion yuan ($426.20 billion) in 2020 to fund infrastructure projects, including 1 trillion yuan front-loaded to this year, they said.
Worst U.K. Manufacturing in Seven Years Tests Johnson Pledges
- U.K. manufacturing production suffered its worst month in more than seven years in December, increasing the chances that the economy as a whole will contract this quarter.
- A flash indicator for all business activity dropped to the lowest since the aftermath of the 2016 referendum, IHS Markit said Monday.
- Its measure of factory output slipped more than forecast to 47.4, moving further below the 50 mark that indicates falling output.
- The disappointing survey may reflect some nervousness in the run-up to last week’s U.K. election.
- Prime Minister Boris Johnson’s decisive victory in the vote removes some near-term concerns, though a myriad of questions remain over the U.K.’s future relationship with the European Union.
Euro-Area Economy Ends 2019 Still Struggling as Momentum Stalls
- The euro zone’s private sector is barely growing as 2019 draws to a close, rounding off a year that has seen factories battered by trade uncertainties.
- IHS Markit’s Composite Purchasing Managers’ Index (PMI) stayed at 50.6 in December, slightly lower than economist estimates of 50.7.
- The reading signals fourth-quarter output will be the weakest since the region exited a double-dip recession in the second half of 2013.
- In France, service-sector resilience largely countered an unexpectedly sharp drop in manufacturing momentum, while Germany’s industrial contraction deepened.
China’s Xi vows support for Hong Kong leader during ‘most difficult’ time
- Chinese President Xi Jinping offered his support for Hong Kong leader Carrie Lam on Monday, praising her courage in governing the Chinese-ruled financial hub in these “most difficult” times after months of often violent anti-government protests.
- His comments came after Hong Kong police fired tear gas in late night street clashes with anti-government protesters as the former British colony’s worst political crisis in decades shows no sign of resolution.
- Hong Kong media have speculated that Lam’s talks with Xi could yield fresh directives on the crisis, including a possible cabinet reshuffle.
- Xi did not go into specifics, but reiterated his support for Lam despite some previous media reports suggesting she might be replaced.
TODAY in HISTORY
- The Boston Tea Party took place. (1773)
- One of the deadliest earthquakes in history hit the Gansu province in China. The 8.6 quake killed 200,000 people. (1920)
- The Battle of the Bulge during World War II began in Belgium. (1944)
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