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WORLD STOCKS SIDESWIPED BY WALL STREET, U.S. YIELD CURVE DOUBLE WHAMMY

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US FINANCIAL MARKET | US ECONOMY & POLITICS
 EUROPE & WORLD | TODAY IN HISTORY

DAILY MARKET REPORTS

  • U.S. markets are closed to mark former President George H.W. Bush’s death, but the effect of Wall Street’s turmoil in the previous session, when New York-listed shares tumbled more than 3 percent, was felt in Asia and Europe.
  • Tuesday’s declines came just a day after an equity surge driven by optimism that China and the United States would sort out their trade dispute.
  • Then President Donald Trump threatened “major tariffs” on Chinese imports if his administration failed to reach an effective trade deal with Beijing.
  • Global equities have been shaken by fears of a recession, fanned by the flattening U.S. Treasury yield curve — a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts.
  • Such an inversion of two-year and 10-year yields, when 10-year bonds yield less than their two-year debt, has preceded every U.S. recession in the past 50 years.
  • So far, 10-year yields are clinging to an 11-basis-point margin over the two, although it was the smallest one in over a decade.
  • The flattening of the curve gained momentum after last week’s signal by the Federal Reserve that it may be nearing an end to its three-year rate-increase cycle.
  • It has spread to the euro zone, where the German 2-10 yield curve hit its flattest since mid-2017 at 85.70 basis points.

US FINANCIAL MARKET

Postal Service Review Proposes Sweeping Changes Likely to Hit Amazon

  • A Treasury-led task force is proposing that the U.S. Postal Service charge more for certain package deliveries, going after Amazon and other online retailers that President Trump has said benefit at the post office’s expense.
  • The Postal Service hasn’t priced package deliveries with profitability in mind, according to the task force’s report and said the agency should be able to charge marketbased prices for mail and package items that aren’t deemed essential services.
  • The Postal Service has said it doesn’t lose money on its shipping contracts, pointing to annual regulatory reviews that show the agency more than covers its costs, as required by regulations.
  • Higher rates on package services would hit Amazon, which Morgan Stanley estimates relies on the Postal Service to deliver up to 45% of its packages.

Behind Boeing’s Decision to Omit Details on Safety System in Lion Air Crash From Manual

  • An automated flight-control system on Boeing’s 737 MAX aircraft, which investigators suspect played a central role in the fatal Oct. 29 jetliner crash in Indonesia, was largely omitted from the plane’s operations manual and was the subject of debate inside Boeing, government and industry officials say.
  • Debate inside Boeing about what the 737 MAX manuals should say regarding the safety system, and how much training would be required before pilots could safely slide behind the controls, was more intense than usual, the officials recall.
  • Boeing said it didn’t intentionally keep relevant information from aviators and had discussed the new system—known by its acronym, MCAS—with airlines at conferences in recent years.

Lion Air Co-Founder Considers Canceling Giant Boeing Order After Indonesia Crash

  • Lion Air’s co-founder says the giant low-cost carrier may cancel orders for more than 200 Boeing planes as relations between the two companies sour over an air crash that killed 189 people in October.
  • He cited “disappointment” with a Boeing statement last week that he said appeared to cast blame on Lion Air for the Oct. 29 crash of Flight 610. The new Boeing 737 MAX jet plunged into the Java Sea shortly after takeoff.
  • Lion Air, is one of the world’s top buyers of the planes. It has ordered 251 of them with a list price of more than $25 billion.

U.K. Releases Internal Facebook Emails Deliberating Data Access

  • The U.K. Parliament released about 250 pages of internal Facebook emails that lawmakers said show how executives at the social-media company gave some developers special access to user data and contemplated charging developers for data access.
  • The documents, British parliamentarians said in a finding, show how Facebook recognized the financial value of user data.
  • Facebook said in a statement the documents released Wednesday “are only part of the story and are presented in a way that is very misleading without additional context.”

Waymo unveils self-driving taxi service in Arizona for paying customers

  • Alphabet’s Waymo on Wednesday launched a significant development in its costly, decade-long quest for autonomous transportation: self-driving taxis that actually generate fares.
  • With little fanfare, the company has begun charging passengers to use its driverless vehicles in a roughly 100-mile (160 km) zone in four Phoenix suburbs – Chandler, Tempe, Mesa and Gilbert – where it has been testing its technology since 2016.
  • Producing revenue is a strategic milestone, putting Waymo ahead of U.S. rivals, primarily General Motors’ Cruise Automation and Uber, which have yet to launch their own paid self-driving services.

AIG hit with $750 million to $800 million in fourth-quarter catastrophe losses: CEO

  • American International Group has racked up an estimated $750 million to $800 million in catastrophe losses so far during the 2018 fourth quarter, its chief executive officer said on Wednesday.
  • Still, the company’s general insurance unit is on track to enter 2019 “at a slight underwriting profit,” AIG CEO Brian Duperreault said at the Goldman Sachs U.S. Financial Services Conference in New York.
  • The company expects an overall eight percent adjusted return on equity going into 2019, driven in part by the slight underwriting profit in its general insurance unit, Duperreault said.

Slowing Cigarette Sales Push Altria to Explore Other Opportunities

  • Marlboro maker Altria is eyeing cannabis and e-cigarettes, searching for growth outside its traditional business, as the long decline of U.S. cigarette sales accelerates.
  • The tobacco giant is in separate talks to make investments in Canadian cannabis company Cronos Group and in San Francisco e-cigarette startup Juul Labs, according to Cronos and people familiar with the Juul matter.
  • Talks with both companies could be derailed by the baggage that Big Tobacco brings.

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US ECONOMY & POLITICS

Mortgage applications rise 2%, but buyers seem unimpressed by lower rates

  • Total mortgage application volume rose 2 percent last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
  • Volume was nearly 19 percent lower than the same week one year ago.
  • The average contract interest rate for a 30-year fixed, conforming decreased to 5.08 percent last week from 5.12 percent the previous week, with points decreasing to 0.44 from 0.46 for loans with a 20 percent down payment.

Trump Team Set to Take Tough Stand in 90-Day Trade Talks With China

  • Trump administration officials said they planned to take a tough stand in their 90-day trade negotiations with China or impose further tariffs, as optimism over a truce gave way to uncertainties about how to find agreement on a wide range of issues.
  • The Trump administration has expressed hope that an eventual agreement would cover more than 142 separate issues, including intellectual property, technology, cybersecurity, currency, agriculture and energy.
  • Having emphasized the possibilities for a wide-ranging deal, Trump and other officials switched their focus to issues they want to see addressed and the consequences of not reaching an accord in a time frame that China initially didn’t acknowledge.

Special Counsel Robert Mueller Asks for No Jail Time for Mike Flynn

  • Mike Flynn has provided “substantial assistance” to the special counsel investigation into Russian election interference and other matters, federal prosecutors said Tuesday, recommending no jail time for the former top Trump aide who was one of the first of the president’s associates to be ensnared in the probe.
  • Mr. Flynn has been helping the Justice Department on both the special counsel probe and a separate criminal investigation, details of which were blacked out in the court papers filed Tuesday.
  • Prosecutors said that Mr. Flynn had sat for 19 interviews with investigators, in addition to providing documents.

Top senators briefed by CIA blame Saudi prince for Khashoggi death

  • Senior U.S. senators said on Tuesday they were more certain than ever that Saudi Arabia’s crown prince, Mohammed bin Salman, was responsible for the killing of journalist Jamal Khashoggi after receiving a CIA briefing on the matter.
  • Making some of their strongest accusations so far, both Republicans and Democrats said they still want to pass legislation to send a message to Saudi Arabia that the United States condemns the death of Khashoggi.
  • Last week, 14 of Trump’s fellow Republicans, who hold a slim majority in the Senate and rarely break from the president, defied his wishes and voted with Democrats to advance the measure that would end U.S. support for the Saudi-led war effort in Yemen.

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EUROPE & WORLD

China Breaks Its Silence on 90-Day U.S. Tariff Truce

  • China is beginning to flesh out details of a weekend tariff truce with the U.S., after days of vague Chinese statements and a barrage of comments from President Trump and other administration officials.
  • China’s Commerce Ministry acknowledged for the first time that Beijing agreed to a 90-day cease-fire to allow negotiations to take place and have a “clear timeline and road map” and that China aims to quickly implement “an agreed upon consensus.”
  • The statement didn’t mention purchases of agricultural and other products, tariff reductions for imports of autos or negotiating about intellectual property protection, technology transfers and other structural issues the U.S. says are on the agenda.
  • Also this week, key government agencies and China’s supreme court announced tough punishments for infringing on intellectual property—a prominent complaint by the Trump administration.

Takeda clears key hurdle as investors back $59 billion Shire deal

  • Takeda Pharmaceutical has won shareholder approval for its $59 billion takeover of London-listed Shire, creating a global powerhouse that has a stronger drugs pipeline but is also saddled with massive debt.
  • Takeda will be joining the ranks of the world’s top 10 drugmakers and gaining expertise in rare diseases through the deal, the biggest overseas acquisition by a Japanese company.
  • It will also become one of the most indebted. In addition to issuing new shares, the company has secured $30.9 billion in bank loans.

Huawei Loses Business From Top U.K. Carrier as Scrutiny Intensifies

  • China’s Huawei Technologies is losing a chunk of business from one of its biggest and oldest Western customers, as the U.S. pushes allies to avoid the telecom-equipment maker and governments around the world ratchet up scrutiny.
  • BT Group, Britain’s largest wireless carrier by number of subscribers, is removing Huawei equipment from its network’s core—the backbone of a carrier’s system that transfers calls and internet traffic.
  • The company didn’t say why it was only disclosing the move now. Earlier this week, the head of Britain’s Secret Intelligence Service said the U.K. faced a tough call deciding whether it was comfortable using Chinese equipment in its telecom networks.

France Tops OECD Table as Most Taxed Country

  • France became the most heavily taxed of the world’s rich countries in 2017, according to figures published the day after President Emmanuel Macron backed off a fuel-tax increase that enraged the nation and sparked a protest against his government.
  • The OECD’s annual review of taxes in its 36 members published on Wednesday showed the French government’s tax revenues were the equivalent of 46.2% of economic output, up from 45.5% in 2016 and 43.4% in 2000.
  • Of the 34 countries for which 2017 figures are available, 19 saw a rise in tax revenues relative to the size of their economy, with Israel reporting the largest increase.

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TODAY in HISTORY

  • President Polk triggered the Gold Rush of 1848 by confirming that gold had been discovered in California. (1848)
  • The 21st Amendment to the Constitution, repealing prohibition, was ratified. (1933)

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