DAILY MARKET REPORTS
- U.S. stocks were flat on Wednesday ahead of the Federal Reserve’s policy announcement, while media shares got a boost from a court approval for AT&T’s $85 billion takeover of Time Warner.
- Shares of the HBO channel owner jumped 3.6% after the approval, which is expected to trigger a wave of corporate mergers. AT&T dropped 3.8% and weighed the most on the S&P telecoms index, which fell 2.6%.
- Twenty-First Century Fox surged 7.8% as Comcast is expected to outbid Disney for some of its assets.
- Investors are awaiting the Fed’s decision on monetary policy at 2:00 p.m. ET. With the year’s second interest rate hike almost certain, market participants will look for signals on whether the Fed will move to raise rates three or four times this year.
- A Labor Department report on Wednesday showed U.S. producer prices increased more than expected in May, leading to the biggest annual increase in nearly 6-1/2 years, but underlying producer inflation remained moderate.
US FINANCIAL MARKET
Judge Rules AT&T Can Acquire Time Warner
- A federal judge ruled Tuesday that AT&T can proceed with its planned acquisition of Time Warner rejecting the Justice Department’s allegations that the deal would suppress competition in the pay-TV industry.
- The decision, in one of the biggest antitrust cases in decades, is a milestone victory for AT&T as it looks to reposition itself in a rapidly evolving media landscape. Its deal for Time Warner, valued at roughly $80 billion, has been pending since October 2016.
- The acquisition means AT&T will be the nation’s top pay-TV distributor, through its ownership of DirecTV, as well as the owner of some of the country’s most sought-after channels: Time Warner’s Turner networks—including CNN, TBS and TNT—as well as HBO, the most popular U.S. premium network.
- Other companies have been waiting to see how the AT&T case turned out, including Comcast, which has been planning a bid to buy the bulk of 21st Century Fox’s assets. Any such offer, which would give the cable giant control of both the NBC and Fox family of networks, could raise similar concerns with the Justice Department.
Tesla cuts 9% of workforce in search for profit
- Electric car maker Tesla is cutting several thousand jobs across the company as it seeks to reduce costs and become profitable without endangering the critical production ramp-up for its Model 3 sedan.
- Tesla said it would reduce overall employment back to around 37,000 – roughly in line with numbers at the end of last year.
- Tesla has been burning through cash as it continues to spend on its assembly line and prepares for new investments on projects such as the Model Y crossover and its Gigafactory.
Blackstone raises $9.4 billion for Asia real estate, private equity funds
- Blackstone Group said it has raised about $9.4 billion for two new funds – the largest-ever fund dedicated to real estate investments in Asia as well as its first private equity fund for the region.
- It raised $7.1 billion for what it called its second regional “opportunistic” real estate fund. Growing urbanization and rising incomes, particularly in China and India, have boosted investor appetite for shopping malls, warehouses and other property assets.
- Rival Carlyle Group is set to close its biggest Asia private equity fund at $6.5 billion, Reuters reported last month, after other global groups including KKR raised fresh capital.
US, Mexico, and Canada beat Morocco to host the 2026 World Cup
- North America will host the 2026 World Cup after FIFA voters overwhelmingly opted for the financial and logistical certainty of a United States-led bid over a risky Moroccan proposal for the first 48-team tournament.
- The soccer showpiece will return to the U.S. for the first time since 1994 after gaining 134 votes, while Morocco got 65 at the FIFA Congress in Moscow on Wednesday.
- The U.S. proposed staging 60 out of the 80 games in 2026, when 16 teams will be added to the finals, leaving Canada and Mexico with 10 fixtures each.
- The 87,000-capacity MetLife Stadium outside New York is proposed for the final. It’s just miles from where federal prosecutors spearheaded an ongoing investigation into FIFA corruption. More than 40 soccer officials and businesses indicted, convicted or pleaded guilty.
US ECONOMY & POLITIC
Federal Reserve Poised to Raise Rates Again
- The Federal Reserve is likely to raise short-term interest rates by a quarter percentage point after its two-day policy meeting concludes Wednesday, the seventh such move since late 2015.
- Officials at their May meeting discussed how the effective fed-funds rate has drifted toward the top of its range, currently between 1.5% and 1.75%, and what to do about it.
- The central bank releases its policy statement and the forecasts—the so-called dot plot—at 2 p.m. EDT, and Mr. Powell will take questions starting at 2:30 p.m.
U.S. Producer Prices Rose in May
- The producer-price index (PPI), a measure of the prices that businesses receive for their goods and services, rose a seasonally adjusted 0.5% in May from a month earlier, the Labor Department said Wednesday.
- When excluding the often-volatile food and energy categories, prices were up 0.3% in May from the prior month. Prices excluding food, energy and a volatile gauge of margins called trade services increased 0.1% last month.
- From a year earlier, overall prices increased 3.1% in May, the largest annual increase since January 2012.
- Prices excluding food and energy climbed 2.4% and prices excluding food, energy and trade services rose 2.6%.
U.S. government posts $147 billion deficit in May
- The U.S. government had a $147 billion budget deficit in May, an increase of 66% from the same month last year as the ledger took a hit from declining revenue and higher spending, according to Treasury Department data.
- Economists had forecast the Treasury recording a $144 billion deficit in May.
- When accounting for calendar adjustments, the government’s deficit was $131 billion compared to an adjusted deficit of $88 billion in the same month in the previous year.
- The deficit for the fiscal year, which began last October, was $532 billion, compared to a deficit of $433 billion in the same period of fiscal 2017.
Weekly mortgage applications drop 1.5% as rates turn higher again
- Rates are on the move higher again, and that caused mortgage application volume to drop 1.5% last week from the previous week and 15.4% than a year ago, according to the Mortgage Bankers Association’s seasonally adjusted report.
- The severe shortage of homes for sale is more of an issue for homebuyers than interest rates and continues to weaken purchase demand.
- Mortgage applications to buy a home fell 2% for the week and were 0.2% lower than the same week one year ago.
- Refinance volume, which saw a significant gain the previous week, turned back to bleeding, down 2% for the week and off nearly 34% from a year ago, when interest rates were lower.
- The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.83% from 4.75%, with points increasing to 0.53 from 0.46 (including the origination fee) for 80% loan-to-value ratio loans.
White House Seeks to Block Senate Bid to Kill ZTE Deal
- The White House will oppose a legislative measure that would undo a deal to revive Chinese telecommunications company ZTE, a senior White House official said on Wednesday.
- The Senate is preparing to vote this week on a National Defense Authorization Act bill that typically clears with wide support. Earlier this week, the Senate tucked into the measure language that dealt a rebuke to President Donald Trump, and the White House will now move to get that language taken out.
- The Senate is expected to pass the defense bill this week. The measure would then move to a conference committee with the House, which has already passed its own version of the bill that doesn’t address the China deal. Both chambers must pass identical bills before they can be sent to Mr. Trump for his signature into law, or a veto.
- The senior White House official said that the White House would try to change the language when the House and Senate hold a conference to iron out differences between their two bills.
Republican Rep. Mark Sanford Defeated in South Carolina Primary
- Republican primary voters rewarded loyalty to President Donald Trump in primary races Tuesday, ousting South Carolina Rep. Mark Sanford, a vocal critic of the president, and nominating Trump ally Corey Stewart for a U.S. Senate seat in Virginia.
- Together, the two primary results were a sign of how thoroughly Mr. Trump has come to dominate the Republican Party.
- In the Charleston-based district in South Carolina, Rep. Katie Arrington was declared the winner by the Associated Press. She accused Mr. Sanford of being disloyal to the president, portraying him as a Trump adversary because he had been openly critical of some of the president’s policies and provocative statements.
- Mr. Trump weighed in directly in the race Tuesday afternoon—just three hours before the state’s polls closed—with an endorsement of Ms. Arrington, in a Twitter message that attacked Mr. Sanford.
Trump Suggests Singapore Summit Ended North Korea Nuclear Threat
- President Donald Trump on Wednesday morning said his summit in Singapore with North Korea’s leader brought an end to that nation’s nuclear threat, even as the diplomatic effort produced no firm agreement on a complete and verifiable denuclearization.
- Later, North Korea said Mr. Trump had told Mr. Kim he intended also to lift sanctions against the North, suggesting through its state media that Mr. Trump had explicitly acceded to two longstanding North Korean demands during bilateral talks at their summit meeting.
- Mr. Trump’s declaration of an end to the conflict drew immediate criticism from veteran foreign policy analysts.
Seattle Poised to Reverse New Tax After Pressure from Businesses
- Seattle is poised to repeal a newly passed per-employee tax on big companies designed to raise funds for homeless services, after fierce opposition from the business community and growing public debate on the move.
- The Seattle City Council, which passed the levy unanimously less than a month ago, convened a special meeting Tuesday to vote to repeal it.
- The tax would levy $275 per employee on companies with more than $20 million in annual revenue, or about 3% of Seattle-based businesses. It was projected to raise about $47 million a year, to be spent on affordable-housing and homeless services.
- An anti-tax campaign backed by major companies, including Amazon.com Inc., to put the measure to voters in November had gathered enough signatures—more than double the number needed—to move toward a referendum.
EUROPE & WORLD
Payments Company Adyen evokes tech bubble as share price doubles on market debut
- Adyen, which processes payments for Netflix, Facebook and eBay, saw its value double to $17 billion in a market debut on Wednesday reminiscent of the 1999 tech bubble.
- After a highly sought initial public offering, shares in the Dutch company had been priced on Tuesday at 240 euros, the top of their indicated range, suggesting a market capitalization of 7.1 billion euros ($8.5 billion). After the first hour of trade on the Euronext exchange on Wednesday the share price hit 480.00 euros.
- Prior to Adyen, the 10 biggest IPOs in Europe by gross proceeds so far this year rose less than 6% on average above their offer price on their first day of trading, according to Eikon data and Reuters calculations.
ZTE Shares Plunge as Rescue Deal Threatened
- Shares of ZTE plunged on their first day of trading since the stock was suspended nearly two months ago, reflecting investor unease about the future of the Chinese telecommunications giant following devastating U.S. sanctions.
- Shares in Hong Kong tumbled 42% to close at 14.96 Hong Kong dollars, or about $1.91, while the company’s Shenzhen-listed shares fell 10%, hitting their daily limit. In all, the declines wiped out $2.7 billion of market value.
- ZTE’s resuscitation is far from certain as a bipartisan effort to block its rescue moves forward in Congress.
- Senior Republican senators indicated Tuesday that their efforts to keep sanctions on ZTE—via an amendment to a must-pass defense bill—aren’t being met with opposition from the White House.
Eurozone Industrial Production Continues to Falter Ahead of Key ECB Meeting
- Industrial production in the eurozone fell more sharply than expected in April, resuming its 2018 decline after a March bounce and underlining doubts about the strength of the economy as the European Central Bank faces a big call on the future of one of its key stimulus programs.
- The European Union’s statistics agency Wednesday said the output of factories, mines and utilities across the 19 countries that use the euro was 0.9% lower in April than in March, although 1.7% higher than a year earlier.
- That marked the fourth month in five in which industrial production has fallen. It was a sharper decline than had been anticipated, since economists surveyed by The Wall Street Journal last week estimated that output fell by 0.7%.
- Each of the eurozone’s five largest members saw a drop in output, with the Netherlands experiencing the sharpest decline at 4.4%.
- Policy makers will likely be reassured by signs that despite the slowdown in growth, employment continued to rise at a robust pace in the first three months of the year. In a separate release Wednesday, Eurostat said the number of people in work rose by 0.4% during the period, and to the highest level on record.
Toshiba Plans Biggest Japanese Market Buyback on Record
- Toshiba said it planned to buy back shares worth about ¥700 billion ($6.3 billion), the largest buyback from the market on record in Japan, appealing to foreign shareholders who took a big stake last year.
- Toshiba shares rose 6.6% Wednesday on the news. The company will use proceeds from an $18 billion deal to sell its flash–memory unit to a consortium led by Bain Capital, which closed June 1.
- The chip unit, now controlled by Bain Capital, was Toshiba’s biggest profit center. Toshiba is retaining a 40% stake in it.
- If successfully completed, the buyback would be the largest repurchase program from the market in Japan, according to figures from Tokyo-based financial data firm I-N Information Systems.
Embraer Jumps with Boeing Deal Talks in Final Stage
- Embraer SA jumped the most in two months as its proposed commercial-jet venture with Boeing cleared a major hurdle.
- Brazilian President Michel Temer has endorsed the partnership in principle, said a person familiar with the discussions, a crucial step since the Brazilian government has veto power over any Embraer tie-up.
- Boeing and Embraer are getting closer to a pact that would forge the second global alliance between major airplane manufacturers. Airbus SE is set to take control of Bombardier’s C Series single-aisle jetliner, a direct rival of Embraer’s next generation of planes.
- The twin deals are set to turn the market for a new generation of 100- to 150-seat planes into the next battleground in the broader struggle between Boeing and Airbus.
Toyota Plans Billion-Dollar Investment in Ride-Hailing Startup Grab
- Toyota will invest $1 billion in Southeast Asian ride-hailing firm Grab, reflecting Chief Executive Akio Toyoda’s view that the company needs to expand beyond making cars to survive.
- The investment, which values Grab at around $10 billion, is one of the largest by Toyota outside its own corporate group. Toyota said the Singapore-based startup has big growth potential in a region that is home to around 600 million people.
- Grab has already forced Uber Technologies to retreat from Southeast Asia.
- Toyota and Grab last year started a partnership in which they attached driving-data recorders to 100 Toyotas that are owned by the startup and rented out to potential Grab drivers.
- The recorders allow Grab and Toyota to develop services for the drivers, such as insurance with costs based on how the renter uses the vehicle.
Nissan doubles down on emerging markets as U.S. sales slow
- Nissan said it expects vehicle sales in some markets to beat industry growth, driven by countries including Saudi Arabia – crucial for the Japanese firm that is struggling with slowing sales in the United States.
- Nissan is now looking to China, the world’s biggest car market, and other regions such as the ones it clubs as Africa, Middle East and India, to boost growth while trying to improve profitability in North America.
- Moreover, the company is entering new markets including Pakistan and Turkey and plans to expand its affordable Datsun brand, Peyman Kargar, chairman of Nissan’s operations in Africa, Middle East and India, told reporters at a briefing to discuss the company’s mid-term strategy.
- He expects overall industry sales to climb to 12.1 million units in 2022 from 8.8 million in 2017.
A Chip in the Windshield: China’s Surveillance State Will Soon Track Cars
- China is establishing a nationwide program to track cars using an electronic identification system, according to records and people briefed on the matter, adding to a growing array of its surveillance tools used to monitor its citizens.
- Under the plan being rolled out July 1, a radio-frequency identification chip for vehicle tracking will be installed on cars when they are registered. Compliance will initially be voluntary but will be made mandatory for new vehicles in January 2019.
- Authorities have described the plan as a means to improve public security and to help ease worsening traffic congestion, documents show, a major concern in many Chinese cities partly because it contributes to air pollution.
- But such a system, implemented in the world’s biggest automotive market, with sales of nearly 30 million vehicles a year, will also vastly expand China’s surveillance network, experts say. That network already includes widespread use of surveillance cameras, facial recognition technology and online surveillance.
Corruption Accusations Fly in Mexico’s Final Presidential Debate
- Mexico’s presidential candidates traded corruption accusations in a third and final debate that is unlikely to erode the front-runner position of leftist Andres Manuel Lopez Obrador ahead of the July 1 vote.
- Lopez Obrador’s top two rivals painted the former Mexico City mayor as someone who has favored friends for government infrastructure contracts and whose ideas about economic self-sufficiency have failed. Meanwhile, Lopez Obrador suggested that his challengers are part of a corruption epidemic, “a cancer destroying Mexico,” that only he can cure.
- With backing from 51% of voters, Lopez Obrador enjoys roughly double the support of Ricardo Anaya, candidate of the nation’s conservative party, and of Jose Antonio Meade, a former finance minister to President Enrique Pena Nieto.
- During the debate late on Tuesday, Lopez Obrador said that he plans to solve Mexico’s economic problems by ending graft, which he estimates at as much as 500 billion pesos ($24 billion) annually. He promised to use those savings to boost social spending without raising taxes or taking on more debt.
Arab states launch biggest assault of Yemen war with attack on main port
- A Saudi-led alliance of Arab states launched an attack on Yemen’s main port city on Wednesday, the largest battle of the war, aiming to bring the ruling Houthi movement to its knees at the risk of worsening the world’s biggest humanitarian crisis.
- Arab warplanes and warships pounded Houthi fortifications to support ground operations by foreign and Yemeni troops massed south of the port of Hodeidah in operation “Golden Victory”.
- The assault marks the first time the Arab states have tried to capture such a heavily-defended major city since joining the war three years ago against the Iran-aligned Houthis, who control the capital Sanaa and most of the populated areas.
- The port is the main route for food to reach most Yemenis, 8.4 million of whom are already on the verge of famine.
TODAY in HISTORY
- The U.S. Supreme Court set forth in Miranda Arizona that the police must advise suspects of their rights upon taking them into custody. (1966)
- Thurgood Marshall was nominated to become the first African American on the U.S. Supreme Court. (1967)
- The New York Times began publishing the “Pentagon Papers.” (1967)
- The first meeting between Pres. Kim Jong Il of North Korea and Pres. Kim Dae Jung of South Korea occurred. (2000)
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