DAILY MARKET REPORTS
- The Nasdaq opened lower on Friday as weak forecasts from Applied Materials and Nvidia weighed on chip stocks.
- Applied Materials sank 9% after the world’s largest supplier of chip equipment forecast current-quarter results below estimates, adding to fears that a two-year chip boom may be losing steam.
- Nvidia dropped 4% after the chipmaker said cryptocurrency-fueled demand had dried up and forecast current-quarter sales below Wall Street estimates.
- Prospects of more U.S. sanctions on Turkey escalated after a report that a Turkish court rejected an appeal for the release of detained American pastor Andrew Brunson.
- Deere fell 1.8% after the tractor maker’s third-quarter profit missed analysts’ expectations due to higher raw material and freight costs.
- Nordstrom jumped 9.2% as the department store chain’s quarterly same-store sales growth beat estimates, lifting stocks of other retailers.
- Second-quarter earnings have been stronger than expected, with 79.3% of the 463 S&P 500 that have reported so far beating analyst expectations.
US FINANCIAL MARKET
- Nvidia forecast third-quarter revenue below estimates, citing drying up demand in its cryptocurrency business, sending its shares down nearly 6% in extended trading.
- Total revenue rose 40% to $3.12 billion. Analysts on average had expected revenue of $3.10 billion.
- Nvidia said cryptocurrency specific revenue plunged to $18 million in the second quarter from $289 million in the preceding quarter and was well below the $100 million the company had expected.
- “We had previously anticipated cryptocurrency to be meaningful for the year, we are now projecting no contributions going forward,” Nvidia said. Bitcoin most recently traded at just over $6,000 compared to over $19,000 in December.
- Revenue from the company’s data center business rose 83% to $760 million, topping analysts’ estimate of $743.6 million.
- Revenue from Nvidia’s core gaming segment rose 52% to $1.81 billion, also beating estimates of $1.75 billion.
- Net income rose 89% to $1.1 billion for the second quarter.
- Nvidia expects current-quarter revenue of $3.25 billion, plus or minus 2%, while analysts were expecting $3.34 billion.
Applied Materials forecast current-quarter profit, revenue below estimates
- Applied Materials, the world’s largest supplier of equipment used to make chips, forecast current-quarter profit and revenue below estimates on Thursday, sending its shares down 5%.
- Total net sales rose 19% to $4.47 billion. Analysts on an average expected revenue of $4.43 billion.
- Applied Materials, whose results are seen as the bellwether for the chip industry, said sales in its semiconductor business rose 8.5% to $2.75 billion in the third quarter, slightly above estimates of $2.74 billion.
- Sales in its display business surged 80.7% to $741 million, above estimates of $722.1 million.
- Net income rose to $1.17 billion, in the third quarter, from $925 million a year earlier.
- The company expects a fourth-quarter adjusted profit of between 92 cents and $1 per share, and net sales of between $3.85 billion and $4.15 billion. Analysts on average were expecting a profit of $1.17 per share and revenue of $4.46 billion.
Deere Considers Cost Cuts, Higher Prices
- Deere reported strong demand in its construction and farming markets in the latest quarter but said it would cut costs and raise prices due to higher raw material and logistics expenses.
- Total revenue rose 32% to $10.31 billion. Third-quarter results were boosted by the company’s December purchase of German road-paving equipment company Wirtgen Group for €4.48 billion ($5.33 billion). Analysts were expecting sales of $9.21 billion.
- In all for the quarter, Deere reported net income of $910.3 million, up from $641.8 million a year earlier.
- The company predicts overall sales of farm and construction equipment will increase by about 30% for the year, up from $33.7 billion the previous year. The company continues to forecast adjusted net income of $3.1 billion.
Nordstrom shares climb as e-commerce sales boost quarterly results
- Nordstrom’s shares surged over 9%, a day after its quarterly same-store sales numbers trounced Wall Street estimates, leaving analysts impressed with the upscale retailer’s online channels and its clear inventories.
- Revenue climbed 7.1% to $4.07 billion from a year ago, ahead of an expected $3.96 billion in sales.
- Sales at those stores open for at least 12 months were up 4% overall, far surpassing the increase of 0.8% that analysts had forecast.
- The company reported e-commerce sales growth of 23% during the second quarter, compared with growth of 20% a year ago.
- Nordstrom said digital sales now represent 34% of total sales, compared with 29% the same time last year.
- Net income for the quarter ended August 4 was $162 million, compared with $110 million a year ago.
SEC Probes Tesla Over Model 3 Production Disclosures
- Securities regulators began investigating last year whether Tesla misled investors about its Model 3 car production problems.
- The Securities and Exchange Commission subpoenaed a parts supplier for the automaker as part of the probe, well before the regulators began looking into Elon Musk’s tweet last week about taking the company private.
- The Wall Street Journal reported in October that the Tesla assembly plant’s body shop wasn’t fully installed until around September and that major portions of the Model 3 were being hand built weeks after Mr. Musk announced production had begun in July 2017.
- Tesla and its executives could face sanctions if determined they misled investors about the cause or extent of production delays. SEC probes can last months or even years and sometimes end without the regulator charging a target with wrongdoing.
Google CEO Tells Employees Company Isn’t Close to Launching Search Engine in China
- Google CEO Sundar Pichai defended to employees the internet giant’s controversial push to do more business in China but said the company is “not close to launching a search product” in the country, according to a person briefed on the comments.
- Mr. Pichai, speaking at a weekly all-hands meeting, was responding to criticism from employees, human rights groups and others who in recent days have voiced concerns over the Alphabet unit’s work with the Chinese government.
- Google is developing services for Chinese citizens, including a search engine that could adhere to China’s strict censors, The Wall Street Journal and others reported last week.
- Google is balancing its desire to expand its business in China—a market with the world’s most web users—with its identity as a champion of human rights.
- The company is also contending with an increasingly activist workforce that is pushing management to be more transparent in its decision-making over controversial issues like China.
Trade Fears Throw Future of U.S. Natural Gas Into Question
- U.S.-China trade tensions threaten a promising area of growth in U.S. energy: natural-gas exports.
- While the trade dispute hasn’t impacted near-term prices, some analysts believe it could disrupt exports and slow new infrastructure expansions.
- That could weigh on natural-gas prices in the longer term because U.S. producers are quickly running out of places to sell an unrelenting rush of supply.
- If the sides can’t come to an agreement, natural-gas tariffs in China could lead to opportunities for other major LNG exporters, such as Australia and Qatar, if U.S. gas becomes more expensive.
- China also may tap supply from Russia via a major pipeline under construction, or from its own domestic production in the coming years, analysts said.
OxyContin maker Purdue taps financial restructuring adviser
- OxyContin maker Purdue Pharma has tapped law firm Davis Polk & Wardwell for financial restructuring advice, as its potential liabilities swell with a wave of lawsuits over the opioid addiction epidemic sweeping the United States.
- Purdue and other opioid manufacturers, including Endo and Johnson & Johnson, have been fighting hundreds of lawsuits filed by U.S. states, counties, and cities accusing the drugmakers of pushing addictive painkillers through deceptive marketing.
- The lawsuits have accused Purdue of deceiving doctors and patients and of misrepresenting the risks of addiction and death associated with the prolonged use of its prescription opioids. The company has denied the allegations.
- Purdue has been participating in settlement talks with lawyers for the plaintiffs, who have often compared the cases to the litigation by states against the tobacco industry that led to a $246 billion settlement in 1998.
U.S. seed sellers push for limits on Monsanto, BASF weed killer
- America’s two biggest independent seed sellers, Beck’s Hybrids and Stine Seed, are pushing U.S. environmental regulators to bar farmers from spraying dicamba weed killer during upcoming summers in a potential blow to Bayer’s Monsanto.
- Limiting spraying of the chemical to the spring season, before crops are planted, would prevent farmers from using the herbicide on dicamba-resistant soybeans that Monsanto engineered. The seeds are sold by companies including Beck’s and Stine.
- Last summer, after farmers planted Monsanto’s dicamba-resistant soy seeds en masse, the herbicide drifted onto nearby farms and damaged an estimated 3.6 million acres of non-resistant soybeans or 4% of all U.S. plantings.
- Problems have not gone away. As of July 15, the University of Missouri estimated that more than a million acres of non-resistant soybeans were hurt by dicamba.
US ECONOMY & POLITIC
- The unemployment rate among young Americans fell to its lowest level in more than 50 years this summer, though the share of young people looking for work remained well below its peak in 1989.
- Of Americans between 16 and 24 years old actively looking for work this summer, 9.2% were unemployed in July, a drop from the 9.6% youth unemployment rate in July 2017. It was the lowest midsummer joblessness rate for youth since July 1966.
- In July, the labor-force participation rate was 60.6% among young Americans, the same as last year and the highest since 2009.
- In 1989, the summer youth labor-force participation rate was 77.5%, and it has declined since.
Trump Directs SEC to Study Six-Month Reporting for Public Companies
- President Trump on Friday said he asked the Securities and Exchange Commission (SEC) to consider scaling back how often public companies report results to investors, citing business leaders who say it could promote growth.
- In a tweet early Friday morning, Mr. Trump said he consulted “some of the world’s top business leaders” on steps to create jobs and make business “even better.”
- He said one had told him, “Stop quarterly reporting & go to a six-month system.”
- Mr. Trump’s comments could reignite a long-running debate over whether there is too much emphasis on quarterly results at the expense of long-term investment and growth.
- They also are likely to pressure the SEC to accelerate its work on cutting red tape that affects capital-raising decisions.
- In an opinion article this year JP Morgan’s Jamie Dimon and Berkshire Hathaway’s Warren Buffett said companies should stop giving quarterly earnings guidance, saying it puts too much weight on hitting short-term targets and discourages longer-term investment.
Trump Calls on Justice Department to Sue Opioid Companies
- President Trump called on his attorney general to sue opioid makers, the latest move by his administration to combat the highly addictive painkillers linked to tens of thousands of U.S. deaths a year.
- In a cabinet meeting Thursday at the White House, Mr. Trump asked Attorney General Jeff Sessions to bring a “major lawsuit” against drug companies that “are really sending opioids at a level that it shouldn’t be happening.”
- He said he wanted the attorney general to bring the suit at the federal level, rather than join existing litigation brought by states.
- Among the companies targeted are Purdue Pharma, Johnson & Johnson, Endo, and Teva Pharmaceuticals.
- The suits generally claim the companies misrepresented the addictive risk of their medicines in marketing materials, and seek to recoup the cost of opioid addiction borne by the government entities.
- Many suits also target pharmaceutical distributors, including Amerisource Bergen, Cardinal Health, and McKesson, contending they failed to properly control shipments of opioids to pharmacies.
U.S. Signals It Could Sanction China Over Iran Oil Imports
- The new U.S. special representative for Iran said Thursday the Trump administration is prepared to impose sanctions on all countries that buy oil from Iran after a deadline in November, including China, the top importer of Iranian crude.
- Brian Hook, who has been appointed as a special representative and chief of a new Iran Action Group at the State Department, said the U.S. would issue waivers from sanctions to countries that have made efforts to reduce their Iranian oil purchases.
- India and South Korea are among Iran’s top oil customers. Both countries already have started to scale back imports and are hoping to obtain waivers to buy more time to replace Iranian crude.
- But China repeatedly has said it has no plans to comply with a wave of U.S. sanctions that are due to be re-imposed on Iran’s energy sector on Nov. 4. Analysts expect China to increase imports instead, potentially undermining U.S. efforts to isolate Iran.
Pressure mounts on Trump to deliver for Iowa ahead of elections
- November’s congressional elections represent the first nationwide response to Trump’s aggressive trade policies, particularly in the Farm Belt, which runs roughly from Indiana to Kansas and the Dakotas, which favored Trump heavily two years ago.
- The administration’s move to impose numerous tariffs on imports has sparked retaliation, particularly from top agricultural buyer China, which put levies on products like hogs, corn, and soybeans, hammering those markets.
- Soybeans are among the hardest-hit, with prices down 15% since May 1.
- Farmers say they are growing impatient as harvest season approaches.
- Trump is more popular in the Farm Belt than in the nation overall, but his support there has dipped from 59% approval in mid-June to 52% in early August.
- Trump won Iowa by 10 percentage points in 2016 after Obama carried the state twice.
Get in Line: Backlog for Big Rigs Stretches to 2019
- An unprecedented run of orders for big rigs has pushed the backlog at truck factories to nine months, the largest since early 2006 when truckers stocked up to get vehicles in place before tougher environmental restrictions would take effect.
- Typically, the backlog is about five months for the truck industry’s manufacturers.
- North American freight-haulers ordered more than 300,000 Class 8 trucks in the first seven months of this year and are on track to order a record 450,000 of the heavy-duty vehicles for the full year, according to ACT Research.
- That would be the largest book since 2004, when orders reached 390,000, according to analysts.
- Manufacturers say their suppliers have hired the necessary staff and now are pushing through parts at a faster pace. Volvo Trucks North America delivered 15,658 vehicles through June, up 71% from its deliveries in the first half of 2017.
EUROPE & WORLD
Foxconn Pursues Chip Ambitions with Plans for China Plant
- Foxconn is making a new push into semiconductors, teaming up with a local government in China’s Pearl River Delta to build a chip fabrication plant, people familiar with the matter said Friday.
- The initiative comes when China is spending billions to nurture its own semiconductor industry and reduce its reliance on foreign technology, an effort that has grown more urgent as its attempts to acquire U.S. chip companies have faced opposition from the U.S. over national-security concerns.
- Foxconn already has some semiconductor-related operations, including its Sharp subsidiary’s Fukuyama plant in western Japan that designs and produces analog integrated circuits.
- The company has been planning an expansion of its semiconductor business and last year made a bid to acquire Toshiba Corp.’s memory-chip unit. That was ultimately purchased by a consortium led by U.S. private-equity firm Bain Capital.
Maersk to Spin Off Drilling Unit as Breakup Plan Moves Forward
- A.P. Moeller-Maersk said it will seek a separate listing of its drilling unit next year, aiming to generate cash proceeds of around $1.2 billion by floating the entire unit, as the Danish freight carrier continues to reshape itself into a global supply chain player.
- Maersk Drilling—which operates a fleet of drilling rigs—was put on the block two years ago when Maersk set out a strategic plan to transform itself from a sprawling shipping and energy conglomerate into an integrated container logistics firm.
- Ahead of the 2019 listing, the company has secured debt financing of $1.5 billion from a consortium of international banks to ensure a strong capital structure after a listing.
Air France-KLM shares fall, Dutch pilots threaten to strike
- Air France-KLM shares fell in response to the hostile reception from unions to the company’s new boss Benjamin Smith, while the airline’s Dutch pilots threatened to strike over working conditions.
- Unions representing workers at the French company were openly hostile to the appointment of Smith, the chief operating officer at Air Canada, accusing the group of handing control to a foreigner and not protecting Air France’s interests.
- Smith, will have to deal with labor troubles at Air France that have already cost the airline 335 million euros ($381.73 million) this year, forced the resignation of his predecessor, and seen the group’s shares slump 36% in 2018.
- French unions are due to discuss another round of strike action on Aug. 27. Meanwhile, in the Netherlands, the Dutch pilots union VNV said it would strike unless the airline’s management comes up with improved offers to ease their workload.
- Greece exits the last of its three bailouts on Aug. 20 and hopes to be able to borrow again in international markets after a nearly nine-year debt crisis that shrank the economy by a quarter and forced it to implement painful austerity measures.
- Since the debt crisis exploded in early 2010, four successive governments have fought to keep bankruptcy at bay, relying on the biggest bailout in economic history, more than 260 billion euros lent by Greece’s eurozone partners and the IMF.
- As Athens now eyes a return to normality and reclaiming its economic sovereignty, the scars remain – banks are saddled with huge bad loan portfolios and Greece’s public debt load is still the highest in the eurozone, at 180% of national output.
- But sunshine is breaking through the clouds. The economy, which shrank by 26% in the crisis years, has started to grow, tourism is booming and unemployment is slowly coming down – to 19.5% from a peak of almost 28%.
Russian oil industry would weather U.S. ‘bill from hell’
- Stiff new U.S. sanctions against Russia would only have a limited impact on its oil industry because it has drastically reduced its reliance on Western funding and foreign partnerships and is lessening its dependence on imported technology.
- Western sanctions imposed in 2014 over Russia’s annexation of Crimea have already made it extremely hard for many state oil firms such as Rosneft to borrow abroad or use Western technology to develop shale, offshore and Arctic deposits.
- While those measures have slowed down a number of challenging oil projects, they have done little to halt the Russian industry’s growth with production near a record high of 11.2 million barrels per day in July – and set to climb further.
- To be sure, Washington could really hurt the Russian oil industry if it introduced Iran-like measures forbidding oil purchases from the country.
- But given Russia produces more than 11% of global crude, such a measure would lead to a major spike in oil prices and hit the United States itself hard as it is the world’s largest oil consumer.
TODAY in HISTORY
- Fort Sumter, S.C. was bombarded by Union ships during the Civil War. (1863)
- Prospectors found gold in Alaska, a discovery that set off the Klondike gold rush. (1896)
- The first successful trans-Atlantic balloon flight landed outside of Paris. (1978)
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