DAILY MARKET REPORTS
- U.S. stocks jumped on Friday, boosted by a surge in Nike on its strong earnings report and as banking stocks soared after clearing the Federal Reserve’s stress test.
- Nike’s shares surged as much as 11.5% to a record high after the world’s largest shoe maker returned to growth in North America last quarter and gave an upbeat forecast for the year.
- The S&P financial sector, which snapped a 13-day losing streak on Thursday, jumped 0.88% after U.S. lenders cleared the second part of the Federal Reserve’s annual stress tests.
- Wells Fargo led the gains, surging 4.6%, while Citigroup gained 1.3%, Bank of America rose 0.5% and JPMorgan was up 0.5%.
- Also boosting financials was Commerce Department data that showed core personal consumption expenditures (PCE) in May hit the Federal Reserve’s 2-percent target for the first time in six years.
- After a slight wobble on a report that President Donald Trump has said he wanted the United States to withdraw from the World Trade Organization, the markets regained their footing after Treasury Secretary Steven Mnuchin told Fox Business Network that the Axios report was wrong.
- Constellation Brands fell 6.9% after the Corona beer maker reported a lower-than-expected quarterly profit and maintained its full-year earnings forecast that missed estimates.
US FINANCIAL MARKET
Corona beer maker Constellation’s quarterly profit misses estimates
- Constellation Brands reported a lower-than-expected quarterly profit due to higher marketing and transportation costs, leading the Corona beer maker to maintain its full-year earnings forecast that missed estimates.
- Net sales rose 6% to $2.05 billion.
- Constellation said higher freight costs, rising dollar and increased marketing hit first-quarter operating margin of its beer business by 230 basis points at 37.8%.
- Net income rose to $743.8 million in the first quarter, from $398.5 million a year earlier.
Nike returns to growth in North America, tops estimates
- Nike beat fourth-quarter profit and revenue estimates as new launches and focus on direct-to-customer sales helped reverse declining sales in North America for the first time in a year.
- The company also announced a new $15 billion buyback program and said it expected fiscal 2019 revenue at the higher end of its earlier forecast.
- Total revenue rose 12.8% to $9.79 billion, also topping estimates of $9.41 billion.
- Sales in the North America rose 2.76%, easily beating analysts’ estimate of a 0.98% increase
- Net income rose to $1.14 billion in the fourth quarter, from $1.01 billion a year earlier.
- Nike said it expects 2019 revenue to be in the high single-digit range, compared with its earlier forecast of mid-to-high single-digit growth.
Bank shares jump after most get the go ahead from the Fed to raise dividends, buybacks
- The biggest U.S. banks announced plans to buy back tens of billions of dollars in stock and hike their quarterly dividends after passing an annual stress test by the Federal Reserve.
- Wells Fargo said it would more than double its stock buybacks to $24.5 billion and raise its quarterly dividend to 43 cents a share from 39 cents.
- Citigroup said it would hike its quarterly dividend 13 cents, to 45 cents, and buy back $17.6 billion of stock over the next year after passing the Fed’s annual stress test
- J.P. Morgan Chase announced it would raise its quarterly dividend to 80 cents from 56 cents a share and buy back up to $20.7 billion in stock.
- The Federal Reserve gave 34 of the biggest banks the go-ahead to pay dividends and buy back stock after the second part of annual stress tests.
- However it did object to Deutsche Bank’s proposal, while Goldman Sachs and Morgan Stanley received conditional approval but will only be paying out roughly what they did last year.
Novartis to Spin Off Alcon Eye-Care Business
- Novartis said it would spin off its Alcon eye-care unit, a business analysts think could be valued at more than $20 billion, the latest move by the company’s new chief executive to reshape the Swiss drug giant.
- Novartis didn’t provide an estimated valuation of Alcon, which is based in Fort Worth, Texas. The surgical and vision-care device operations that would be included in the spinoff generated sales of more than $7 billion in 2017.
- Alcon’s expected value is lower than what Novartis paid partly because the Swiss company is keeping the eye unit’s Ophthalmology pharmaceuticals business, which generated 2017 sales of $4.6 billion.
- The company also said Friday that it would buy back up to $5 billion worth of shares by the end of 2019. The buyback will be largely funded by the proceeds from the sale of its venture with GSK.
AT&T, Sprint Boost Customer Fees
- AT&T, the nation’s second-largest carrier by subscribers, has more than doubled the administrative fee it tacks on to the bottom of many wireless customers’ bills.
- The monthly fee, which affects most noncorporate wireless plans excluding prepaid service, recently hit $1.99, up from $1.26 earlier this year and 76 cents in 2017.
- Financial-services firm BTIG estimated the higher fees could add $970 million to AT&T’s annual revenue and throw off enough cash to finance more than $12 billion of debt.
- Sprint raised its monthly administrative charge to $2.50 from $1.99 earlier this year. The 51-cent increase would amount to nearly $200 million in additional annual revenue if applied to all of Sprint’s 32.1 million postpaid wireless lines.
Starbucks CFO Maw to retire, shares tumble
- Starbucks said on Thursday that Chief Financial Officer Scott Maw will retire at the end of November, a surprise departure that sent shares of the world’s largest coffee shop chain down.
- The Seattle-based company said in a regulatory filing that it had launched an external search for a replacement for Maw, who will become a senior consultant until March 31, 2019, earning $250,000 per month.
- Analysts were stunned by Maw’s retirement, pointing to his relatively young age and short stint as CFO. Some described him as a competent executive, but also noted the chain’s deteriorating performance and outlook in recent quarters.
Tesla lagging on Model 3 production, workers say
- Tesla is not producing enough Model 3s per shift to reach the 5,000 per week target that Chief Executive Officer Elon Musk said it would reach by Saturday, three line workers at the company’s assembly plant told Reuters this week.
- The company was able to assemble and paint 210 Model 3s during the first of two 12-hour shifts on Wednesday, one worker told Reuters. On one of two Monday shifts, the company produced 305 of the vehicles, another worker told Reuters. The number of vehicles assembled per shift is displayed for line workers in the plant.
- The company is running two 12-hour shifts per day every day this week on the Model 3, the two workers who provided the production figures said. If the company produces 300 Model 3 vehicles during all 14 shifts, it would produce 4,200 cars for the week.
- At the company’s shareholder meeting earlier this month, Musk said it was “quite likely” that Tesla would be able to build 5,000 Model 3s per week by the end of June. At the time, Tesla was producing 3,500 of the vehicles per week
Fox shareholders to vote on Disney’s offer on July 27
- Twenty-First Century Fox shareholders will vote on Walt Disney’s revised $71 billion bid for Fox’s entertainment assets on July 27, the companies said.
- The shareholder vote effectively sets a deadline for Comcast to come back with a higher bid for Fox if it wishes to continue its bidding war for the media company.
- Earlier this week, Disney won U.S. Justice Department approval for its deal with Fox on condition it sell 22 of Fox’s regional sports networks.
Bitcoin skids below $6,000, hits lowest level since November
- Bitcoin’s value slid to its lowest level since November on Friday, as waning investor interest and recent negative headlines from global regulators weakened demand for the cryptocurrency and most of its rivals.
- So far in 2018, bitcoin has tumbled almost 60% after soaring more than 1,300% last year.
- It is now down 70% from its December peak.
- After cryptocurrency prices surged in 2017 big institutional players were predicted to step into the industry, but most have waited on the sidelines amid regulatory worries and as they weight up whether investor interest is more than a fad.
US ECONOMY & POLITIC
U.S. Inflation Hits Six-Year High in May
- The personal-consumption expenditures price index, the Federal Reserve’s preferred inflation yardstick, rose 2.3% in May from a year earlier, its biggest annual rise since March 2012. The year-over-year increase in April was 2%.
- In another important milestone for policy makers, the core PCE index, which excludes volatile food and energy prices, hit 2% for the first time since April 2012. The Fed watches core PCE inflation closely as an indicator of longer-run inflation trends.
- The pickup in annual inflation was due in part to a favorable statistical comparison, as negative PCE data from May 2017 were phased out of the 12-month reading. Inflation last month was also bolstered by goods and services in the energy sector, which reflect higher oil prices.
- Officials have signaled they will accept a modest amount of inflation overshoot after a long run below the central bank’s target.
U.S. Consumer Spending Rose 0.2% in May
- Personal consumption expenditures, a measure of household spending on everything from gasoline to coffee machines, increased a seasonally adjusted 0.2% in May from the prior month.
- Personal income, reflecting Americans’ pretax earnings from salaries and other sources including investments, rose 0.4% in May. Economists had forecast a 0.4% rise in both incomes and spending.
- April’s spending was revised to a 0.5% increase from an earlier 0.6% reading, while March spending was revised higher to 0.6%. Consumer spending accounts for more than two-thirds of U.S. economic output.
Treasury chief Mnuchin slams report that Trump wants to exit WTO
- U.S. Treasury Secretary Steve Mnuchin said on Friday a report by the Axios news website that cited sources as saying President Donald Trump wanted the United States to withdraw from the World Trade Organization, was wrong.
- Axios reported earlier on Friday, citing people who were involved in discussions with the president, that Trump frequently told advisers he wanted the United States to quit the WTO, a move with potentially disastrous implications for global commerce.
- “This is an exaggeration,” Mnuchin said. “The president has been clear, with us and with others, he has concerns about the WTO, he thinks there’s aspects of it that are not fair, he thinks that China and others have used it to their own advantage, but we are focused on free trade. That’s what we’re focused on – breaking down barriers.”
U.S. charges hundreds in healthcare fraud, opioid crackdown
- The U.S. Justice Department on Thursday announced charges against 601 people including doctors for taking part in healthcare frauds that resulted in over $2 billion in losses and contributed to the nation’s opioid epidemic in some cases.
- The hundreds of suspects charged included 162 doctors and other suspects charged for their roles in prescribing and distributing addictive opioid painkillers.
- Many of the criminal cases announced on Thursday involved charges against medical professionals who authorities said had contributed to the country’s opioid epidemic by participating in the unlawful distribution of prescription painkillers.
- According to the U.S. Centers for Disease Control and Prevention, the epidemic caused more than 42,000 deaths from opioid overdoses in the United States in 2016.
Senate Passes $867 Billion Farm Bill, Omitting House’s Food-Stamp Work Requirements
- The Senate bill, which passed by 86-11 on Thursday, omits controversial food-stamp work requirements passed in the House’s version of the bill. The farm bill, estimated to cost $867 billion over a decade, next moves to a conference between the two chambers, which must iron out differences before President Donald Trump can sign the measure into law.
- The farm bill funds crop insurance and payments to farmers when commodity prices or revenues drop below set levels, as well as programs to help low-income people afford basic food items. It is viewed as critical at a moment when net-farm income is forecast to drop this year to the lowest level since 2006.
- The renewal of farm programs lands during a heated political debate over the food-stamp program, which accounts for roughly 80% of the farm bill’s cost. Shifting the management of the food-stamp program would reduce the Agriculture Department’s funding and end the link between agricultural and nutrition proponents that once helped ease the farm bill’s passage.
Trump says SoftBank Son’s U.S. investment hitting $72 billion
- U.S. President Donald Trump said SoftBank Group Chief Executive Masayoshi Son is increasing his investment in the United States to $72 billion, significantly more than the $50 billion he had previously pledged.
- Trump’s comments came at a groundbreaking ceremony in Wisconsin for a manufacturing facility for Foxconn, the world’s largest electronics contract manufacturer, attended by Son and Foxconn Chairman Terry Gou.
- Son made remarks at the event but did not reference the $72 billion figure. SoftBank was not immediately available to comment.
California Passes Sweeping Data-Privacy Bill
- California lawmakers gave consumers unprecedented protections for their data and imposed tough restrictions on the tech industry, potentially establishing a privacy template for the rest of the nation.
- The law broadens the definition of what constitutes personal information and gives California consumers the right to prohibit the sale of personal data to third parties and opt out of sharing it altogether.
- The bill doesn’t go into effect until 2020 and could still be amended. It is almost certain that major tech firms will lobby heavily to get certain concessions, and an industry group said Thursday that it would push for changes.
- By passing the bill, the legislature headed off a more restrictive ballot initiative that recently qualified to appear before California voters in November. The ballot initiative was strongly opposed by most of the tech industry, which broadly viewed the legislation as the lesser of two evils.
Justice and FBI Officials Reject House Criticism Over Document Requests
- Deputy Attorney General Rod Rosenstein and FBI Director Christopher Wray rejected assertions by Republicans Thursday that their agencies hadn’t been forthcoming in responding to Congress’s requests for information about the Russia and Hillary Clinton email investigations.
- House Republicans have demanded records related to the investigation into Russia’s meddling in the 2016 elections and to the Justice Department’s handling of the probe into Mrs. Clinton’s use of a private email server.
- The House Judiciary Committee, at which Messrs. Wray and Rosenstein were testifying Thursday, and the House Intelligence committee have subpoenaed a broad set of documents related to both investigations.
- In addition to holding the hearing, Republicans Thursday pushed a resolution through the House demanding that the Justice Department produce the documents by July 6. The resolution, which passed the House along party lines, 226-183, carries no legal force.
EUROPE & WORLD
Xiaomi Prices Hong Kong IPO at Bottom of Target Range
- Chinese smartphone maker Xiaomi priced a $4.7 billion initial public offering at the bottom of its target range, people familiar with the matter said, pulling off one of 2018’s largest IPOs despite investor skepticism about its growth prospects.
- Beijing-based Xiaomi hoped to raise up to $6.1 billion from its IPO before trading started. The pricing gives the company a market valuation of around $54 billion.
- That is a sharp comedown from expectations earlier this year of a $100 billion valuation and is also less the $65 billion to $85 billion that several brokerage analysts had estimated Xiaomi to be worth.
Eurozone Inflation Tops ECB Target for First Time in More Than a Year
- The eurozone’s annual rate of inflation rose above the European Central Bank’s target for the first time since early 2017 during June, but that was largely due to higher energy costs, while underlying price pressures remained muted.
- The European Union’s statistics agency Friday said consumer prices in the 19 countries that use the euro were 2.0% higher than in June 2017, an increase from the 1.9% annual rate of inflation recorded in May and the highest since February of last year.
- However, the recent pickup in headline inflation has been almost entirely due to a rise in energy prices, which were 8% higher than a year earlier in June, having been up just 2.6% over the year in April.
- Indeed, the core rate of inflation—which excludes volatile items such as energy and food—fell to 1% in June from 1.1% in May and has been little changed over recent years.
European Leaders Reach Migration Deal, Giving Merkel Respite at Home
- European Union leaders patched together a migration deal after a long night of negotiations, addressing an issue that has reshaped the continent’s political landscape and appearing to have won German Chancellor Angela Merkel a respite in the toughest battle of her political career.
- EU leaders agreed to help coastline countries, notably Italy, by setting up detention centers on EU soil where asylum claims of migrants rescued in the Mediterranean will be reviewed.
- This effort, which came after nine hours of talks, is aimed at curbing the migrant influx that fueled the rise of populist parties across Europe, putting mainstream leaders such as Ms. Merkel under severe pressure.
- In a sign that Europe is closing its gates tighter to newcomers, anti-immigration politicians brought to power on the back of a broad popular backlash against refugees across the continent cheered the agreement.
Spooked by Trump, Europe’s Iranian oil purchases set to plummet
- European refiners are cutting purchases of Iranian oil faster than expected as the U.S. prepares to reimpose sanctions on Iran, threatening a more severe impact than the last round of punitive measures in 2012 even though the EU has not joined in.
- Washington said that companies would have to wind down their activities with Iran by November 4 or risk exclusion from the U.S. financial system.
- Following President Barack Obama’s sanctions in 2012, Europe imposed its own Iran oil ban. This time, however, credit lines are getting cut off despite European leaders vowing to stick to the nuclear deal and European purchases are grinding to a halt.
Japan’s Sharp ditches $2 billion share issue plan after investor backlash
- Japan’s Sharp scrapped a plan to issue up to $2 billion in new shares, changing its mind in a matter of weeks after the initial announcement prompted investors to dump its shares on fears of earnings per share dilution.
- Sharp cited worries about trade frictions between the United States and China. “Due to increasing market uncertainties, the company decided that carrying on with the plan to issue new shares would not yield maximum benefit for shareholders.”
- Sharp shares rose 17% by early afternoon as investors cheered the about-face. The plans to issue new shares, announced on June 5, had sparked a sell-off on the market as they would have eroded Sharp’s earnings per share by about 20%.
Trump’s Bid to Weaken Iran Is Strengthening the Saudi Economy
- The Trump administration’s effort to drive Iranian oil exports down to “zero” is boosting the fortunes of Tehran’s rival, Saudi Arabia, and putting the U.S. ally on a stronger footing for a showdown across the Persian Gulf.
- U.S. pressure has already begun rippling through Iran. The National Iranian Oil Co. has ordered affiliates to be ready for a reduction in oil production of 200,000 to 500,000 barrels a day, Iranian oil contractors said.
- Saudi Crown Prince Mohammed bin Salman’s government is planning to increase oil production to a record high of nearly 11 million barrels a day by next month to replace Iranian crude expected to be lost because of U.S. sanctions.
- The benefits for the kingdom highlight the central place Saudi Arabia holds in President Donald Trump’s confrontation of Iran over its nuclear program and military posture in the region.
Mexicans Say They Will Vote for Change on Sunday
- Andrés Manuel López Obrador, has traveled the country for the last 15 years preaching one consistent message: Mexico has been looted by its ruling class and he is the only politician serious about stopping it.
- That message, along with voter dissatisfaction over the country’s murder epidemic and modest economic growth, has secured the leftist politician an average lead in polls of some 25%age points over his closest rival. If those numbers are borne out in Sunday’s vote, he would have the biggest margin of victory in a Mexican presidential race since the 1980s.
An average of polls puts Mr. López Obrador at about 50% of the vote, with conservative Ricardo Anaya, who has faced his own corruption allegations, a distant second at about 25% and José Antonio Meade of the ruling PRI at roughly 20%.
TODAY in HISTORY
- London’s Globe Theatre burned down during a performance of Shakespeare’s Henry VIII. (1613)
- The Supreme Court ruled in Furman v. Georgia that the death penalty could constitute “cruel and unusual” prompting some states to revise their laws. (1972)
- The shuttle Atlantis and the Russian space station Mir docked, forming the largest man-made satellite ever to orbit Earth. (1995)
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