DAILY MARKET REPORTS
- Wall Street’s main indexes posted small gains on Tuesday as bank shares gained in anticipation of an interest rate hike by the Federal Reserve at its two-day policy meeting.
- A historic summit between President Donald Trump and North Korean leader Kim Jong Un failed to excite investors as their joint statement offered few details on their pledge to denuclearize the Korean peninsula.
- Investors are focused on how the U.S. central bank characterizes its monetary policy as borrowing costs return to more normal levels, while also looking for hints if the Fed would move to raise rates three or four times this year.
- Investors currently price a 74% chance of the Fed raising rates twice more by September.
- Economic data showed U.S. consumer prices rose marginally in May amid a slowdown in the pace of increases in the cost of gasoline, pointing to moderate inflation pressures.
- Then on Thursday, the ECB will release its own policy decision. Last week, the ECB Chief Economist Peter Praet signaled the bank could decide as soon as this week’s meeting to wind down its bond-buying program.
US FINANCIAL MARKET
Trump, Kim Begin New Phase of Diplomacy
- President Donald Trump won few specific new commitments from Kim Jong Un to surrender his nuclear weapons after a day of talks but kick-started a new phase of personal diplomacy aimed at pushing the North Korean leader toward a rapid and verifiable disarmament.
- In a two-page document signed by both leaders here on Tuesday, North Korea committed again to “complete denuclearization of the Korean Peninsula,” while the U.S. offered unspecified security guarantees in return.
- Mr. Trump said that Mr. Kim had pledged to start denuclearization “right away,” but that there hadn’t been time to codify details in Tuesday’s agreement.
- Some of the biggest developments weren’t in the document signed by the two leaders. Mr. Trump said he would cease “tremendously expensive” and “provocative” joint military exercises with South Korea as long as productive talks continue with the North, a move he thought Mr. Kim would welcome.
- Mr. Trump said that reducing the number of U.S. forces in South Korea isn’t part of the negotiation, but that he would eventually like to bring home the 28,500 U.S. troops based in South Korea to save money.
Consumer Prices Post Largest Annual Growth in More Than Six Years
- U.S. consumer prices last month notched the heftiest annual growth since the beginning of 2012, a further sign price pressures in the economy are solidifying.
- The consumer-price index rose a seasonally adjusted 0.2% in May from the prior month.
- Prices rose 2.8% last month from the prior year, the strongest reading since February 2012, when inflation was 2.9%.
- Tuesday’s report showed energy prices climbed a seasonally adjusted 0.9% last month and increased 11.7% from May 2017.
- When excluding the volatile energy and food categories, so-called core prices also rose 0.2% in May.
- The core gauge was up 2.2% on an annual basis.
Senators Move to Sink Trump’s ZTE Deal
- In a rare rebuke of President Donald Trump, Republican Senate leaders set up a vote for this week that would undo the White House deal to revive Chinese telecommunications company ZTE Corp.
- Democratic and Republican lawmakers said that an agreement had been reached to wrap into the National Defense Authorization Act an amendment that would ban ZTE from buying components from U.S. suppliers.
- The defense-authorization bill is a must-pass measure that typically clears Congress with bipartisan support. As a result, language that is tucked in the defense bill is much harder to block than legislation introduced independently or tied to other, less popular bills.
- If the ZTE language passes in the Senate bill, the measure would move to a conference committee with the House, which has already passed its own version of the defense authorization bill that doesn’t address the China deal.
U.S. net neutrality rules expire, court battle looms
- The U.S. open internet rules expired on Monday, handing sweeping new powers to internet providers to block, throttle or offer paid “fast lanes” for web traffic, but a court battle remains ahead.
- The 2015 order subjected internet providers to strict regulations by the FCC, arguing consumers needed protection from internet provider practices and said internet providers could engage in “just and reasonable conduct.”
- New regulations that took legal effect Monday give internet service providers (ISPs) sweeping power to slow, block or offer “paid prioritization” to some websites as long as they disclose the practices. The Federal Trade Commission will be able to investigate if internet providers engage in anticompetitive behavior.
- Opinion polls show overwhelming public support for the past net neutrality rules. Many Democrats say the issue will help motivate younger people to vote in congressional elections this November, when all 435 seats in the House and a third of the 100-member Senate will be up for grabs.
U.S. sanctions Russians over military, intelligence hacking
- The U.S. Treasury imposed sanctions on three Russian individuals and five companies on Monday, saying they had worked with Moscow’s military and intelligence services on ways to conduct cyber-attacks against the United States and its allies.
- The designation blocks all property of those targeted that is subject to U.S. jurisdiction and prohibits American citizens from engaging in transactions with them.
Jared Kushner Reports Wealth After First Year in White House
- Senior White House adviser Jared Kushner saw the minimum value of his assets rise in the first year of President Donald Trump’s administration, newly released financial disclosures show.
- Mr. Kushner held between $174 million and $710 million in assets at the end of 2017, up from the minimum of between $137 million and $609 million he reported on his financial disclosure in March 2017.
- Together with his wife, Ivanka Trump, Mr. Kushner held between $229 million and $786 million in assets at the end of 2017, the new disclosure shows. Their previous disclosure valued their assets at between $203 million and $740 million.
New Jersey governor’s signature paves way for sports betting
- New Jersey Governor Phil Murphy signed a bill to legalize sports betting, opening the door for the state to begin regulating and taxing the activity at casinos and racetracks.
- Murphy’s signature positions New Jersey to be the second U.S. state to potentially roll out full-scale sports wagering, after Delaware last week.
- Gross sports betting revenues at New Jersey’s casinos and horse racetracks will be taxed at 8.5%.
- After 30 days, the state will allow online bets as well, which will be taxed at 13%.
US ECONOMY & POLITIC
Down to the Wire: U.S., North Korea Huddle in Singapore Ahead of Leaders’ Summit
- Senior U.S. and North Korean officials huddled for last-minute negotiations Monday, trying to iron out differences ahead of a summit meeting between the two countries’ leaders, while America’s top diplomat said Washington’s position was “clear and unchanged.”
- At the end of a day during which envoys from the two sides spent hours talking in a conference room at the Ritz-Carlton hotel, U.S. Secretary of State Mike Pompeo said talks were “moving quite rapidly” as President Donald Trump prepared to meet Kim Jong Un.
- The two men are expected to meet publicly on Tuesday at 9 a.m., shake hands and go behind closed doors for a one-on-one meeting. The White House has set aside two hours for their meeting, but U.S. officials said there is no set time for the talks to finish.
- Mr. Pompeo, who has led several rounds of talks with North Korea in recent months, said Washington wouldn’t agree to ease economic sanctions against Pyongyang unless “we get the outcome we are demanding”—complete, verifiable and irreversible denuclearization.
U.S.-Canada Trade Feud Escalates After Fraught G-7 Summit
- U.S. administration officials escalated President Donald Trump’s criticisms of Canadian Prime Minister Justin Trudeau and the global trading system on Sunday, heightening tensions with major allies as Washington enters an important stretch of negotiations on several fronts, from China to the North American Free Trade Agreement.
- After the Group of Seven industrialized nations summit ended Saturday in Canada with a joint communiqué stressing the importance of a rules-based international trading system, a spat erupted between Messrs. Trudeau and Trump.
- Mr. Trudeau asserted Canada’s strength and independence and criticized U.S. tariffs on Canadian metals. Mr. Trump later withdrew his support for the communiqué, an unprecedented move that left the allies divided in a way they hadn’t been for decades.
- German Chancellor Angela Merkel said in a TV interview late Sunday that it was “sobering and somewhat depressing” to learn Mr. Trump wouldn’t endorse the final communiqué.
- The end of the G-7 meeting—coupled with Mr. Trump’s news conference Saturday, in which he said major U.S. trading partners had treated the U.S. “like the piggy bank that everybody is robbing”—left frayed U.S. ties with countries that represent the postwar Western-led economic system.
Banks Pull Back on Municipal Debt for First Time in Nine Years
- Banks reduced their quarterly municipal-bond holdings for the first time in nine years, a sign of how much new U.S. tax rules damped demand for debt from state and local governments.
- Municipal securities held by U.S.-chartered depository institutions fell in the first quarter by nearly $16 billion to $554 billion, according to Federal Reserve data published Thursday.
- Banks emerged over the past decade as one of the biggest buyers of tax-exempt municipal debt because the investments were viewed as stable and safe. They currently hold 14% of outstanding municipal bonds.
- But new legislation passed late last year by Congress dropped tax rates paid by banks to 21% from 35%, making tax-exempt bonds less appealing.
EUROPE & WORLD
U.S. reveals ZTE settlement details, ban still in place
- ZTE’s settlement with the U.S. Commerce Department that would allow China’s No. 2 telecommunications equipment maker to resume business with U.S. suppliers was made public on Monday, days after the company agreed to pay a $1 billion fine, overhaul its leadership and meet other conditions.
- But the ban on buying U.S. parts, imposed by the department in April, will not be lifted until the company pays the fine and places $400 million more in escrow in a U.S.-approved bank, the agency said.
- Under the settlement, ZTE will pay a total civil penalty of $1.7 billion, including $361 million already paid as part of a March 2017 agreement, the $1 billion fine and the $400 million that will go into escrow.
- As part of the order, ZTE must identify in detail to the Commerce Department all Chinese government ownership and control of ZTE, including public and private shares. The department also will select a monitor, known as a special compliance coordinator, within 30 days to report on compliance by ZTE and its affiliates worldwide for 10 years.
China’s new loans unexpectedly slow in May as risk campaign hits borrowing
- New Chinese bank loans unexpectedly fell in May, with credit growth slowing slightly as policymakers sustained efforts to clamp down on off-balance sheet shadow loans to rein in risks in the world’s second-largest economy.
- Data from the central bank on Tuesday showed banks extended 1.15 trillion yuan ($179.58 billion) in net new yuan loans in May, less than the 1.2 trillion yuan seen in a poll of analysts and below April’s 1.18 trillion yuan.
- Banks extended a record 13.53 trillion yuan in new loans last year, 7% more than the previous record in 2016.
VW’s Skoda Auto May deliveries rise 13%
- Global deliveries by Volkswagen’s Czech carmaker Skoda Auto rose 13.4% year-on-year in May, posting the best-ever result for the month thanks to double-digit growth in China and Russia.
- Skoda said it shipped 112,400 vehicles in May. Deliveries in Western Europe, its biggest regional market in the month, rose 3.3% and by 1.8% in central Europe.
- Shipments in China, the biggest individual market, soared 35% to 30,800 cars, Skoda said.
Saudi Aramco eyes partnerships as it expands refining, petrochems
- Saudi Aramco plans to boost investments in refining and petrochemicals to secure new markets for its crude, and sees growth in chemicals as central to its downstream strategy to lessen the risk of a slowdown in oil demand.
- Aramco, the world’s biggest oil producer, is expanding its footprint globally by signing downstream deals and boosting the capacity of its plants, ahead of an initial public offering next year – the largest IPO in history.
- The state oil giant is moving ahead with multi-billion-dollar projects in China, India and Malaysia and aims to finalize new partnerships this year.
- Aramco plans to raise its refining capacity to between 8 million and 10 million barrels per day, from some 5 million bpd now, and double its petrochemicals production by 2030, he added. Aramco pumps around 10 million bpd of crude oil.
Huawei patent case shows Chinese courts’ rising clout
- A smartphone patent fight between Huawei and Samsung could reach a global resolution through a ruling by a Chinese court, a development that reflects the growing attractiveness of China as a quick and effective forum for intellectual property disputes.
- Huawei filed lawsuits in both the United States and China in 2016, alleging Samsung used its cellular communications technology without authorization and has unreasonably delayed entering into a licensing agreement.
- In January, the Intermediate People’s Court of Shenzhen, China, outpaced a federal court in San Francisco, ruling for Huawei and issuing an order blocking Samsung’s Chinese affiliates from manufacturing and selling 4G LTE smartphones in China.
- The judge hearing the parallel U.S. case in April ordered Huawei not to enforce the Shenzhen court’s ban because it would essentially force Samsung to accept Huawei’s demands for licensing fees, “with impacts percolating around world.”
- But several legal experts said that may not be Huawei’s call, since the Chinese courts can enforce the ban against Samsung directly.
Ericsson doubles its 2023 forecast for IoT connections
- Ericsson has almost doubled its forecast for connected cellular Internet of Things (IoT) in 2023 to 3.5 billion, the mobile telecom gear maker said on Tuesday. That was up from a November forecast of 1.8 billion connected cellular devices.
- North East Asia, mainly China, is expected to account for a substantial majority, 2.2 billion, of the connected devices in 2023, Ericsson said.
- By comparison, Ericsson sees other connected devices such as mobile phones at 8.6 billion by 2023 versus 7.5 billion in 2017 and the number of PC/laptop/tablet rising marginally to 1.7 billion.
TODAY in HISTORY
- Anne Frank received a diary for her birthday. (1942)
- Civil rights leader Medgar Evers was fatally shot in front of his home in Jackson, Mississippi. (1963)
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