DAILY MARKET REPORTS
- The S&P 500 Index fluctuated, heading toward a quarterly advance of about 7 percent.
- Tesla tumbled after securities regulators filed a lawsuit against Elon Musk’s carmaker.
- The dollar’s advance slowed after data showed U.S. consumer spending cooled in August.
- Oil remained on course for the longest run of weekly gains in four months as energy giants to Wall Street banks predicted the return of $100 crude on an impending supply crunch.
- Health-care shares remained on pace to cap a 14 percent third-quarter that would be the most since March 2013.
- While the drama surrounding Brett Kavanaugh’s Supreme Court nomination had little impact on Wall Street, the showdown captured investor attention as it headed for a climactic vote.
- In Europe, Italy’s populists won their battle to fund costly campaign promises, while infighting over Brexit is embroiling the U.K.’s Conservative Party.
US FINANCIAL MARKET
- Brent crude oil gained 3 percent in the July-September period, recently hitting 4-year highs above $82 a barrel as upcoming U.S. sanctions on Iran are expected to dent global supplies.
- Prices are up 22 percent year-to-date.
- The dollar failed to make much headway following its 5 percent second-quarter surge but it held on to those gains, keeping up the pressure on emerging markets.
- And alongside the greenback moves and the Sino-Chinese trade spat, currency crises in Turkey and Argentina also dealt a blow to the sector.
Fears for Musk’s future sink Tesla shares
- Shares of Tesla dived 13 percent in early trading on Friday as Wall Street worried a lawsuit from U.S. regulators could force Chief Executive Elon Musk to step down and make it difficult for the loss-making carmaker to raise more capital.
- The U.S. Securities and Exchange Commission on Thursday accused Musk of fraud and sought to remove him from his role saying he made a series of “false and misleading” tweets about potentially taking the company private.
- At least five research firms said Musk might have to resign following the lawsuit.
- Musk refused to pay a nominal fine and give up the chairman role for two years as part of a settlement offered by the SEC, CNBC reported.
- The SEC’s lawsuit, filed in Manhattan federal court, caps a tumultuous two months set in motion on Aug. 7 when Musk told his more than 22 million Twitter followers that he might take Tesla private at $420 per share, with “funding secured”.
- The regulator charged that Musk “knew or was reckless in not knowing” that his tweets were false and misleading.
Lockheed agrees to cut price for new F-35 fighter jets: Pentagon
- The Pentagon and Lockheed Martin announced an $11.5 billion deal for 141 F-35 fighter jets, the biggest batch yet, lowering the price for the most common version of the stealthy jet by 5.4 percent to $89.2 million each, the Pentagon said on Friday.
- A preliminary deal was struck in July clearing the way for a larger multi-year purchase that aims to bring the cost per jet down to $80 million by 2020.
Boeing wins $9.2 billion contract for new Air Force training jet
- Boeing was selected to build the U.S. Air Force’s next training jet in a contract worth up to $9.2 billion over the life of the program, the Air Force said on Thursday.
- Boeing teamed up with Sweden’s Saab to develop a new plane for the competition, beating out Lockheed Martin and Leonardo.
- The Air Force currently plans to purchase 351 of the jets and 46 simulators.
- Additional purchase options on the $9.2 billion contract, first reported by Reuters, could allow the Air Force to buy as many as 475 of the jets and 120 simulators.
- The service expects the first jets to be delivered in 2023 with the program to reach full operation in 2034.
Global funds raise U.S. stock holdings to three-and-a-half-year high
- Global investors increased holdings of U.S. equities to their highest since May 2015 in September while reducing their exposure to emerging-market assets, where a majority believe the shake-out still has some way to go.
- Asset managers boosted their exposure to U.S. stocks by 2 percentage points to 42.7 percent.
- Investors raised their European equity exposure by 1.5 percentage points to 19.5 percent, a four-month high.
- Conversely, emerging markets were regarded with caution. Equities were cut by half a percentage point to 10.5 percent, while emerging-market debt fell to 9.4 percent from August’s 10.2 percent.
- Investors also trimmed their UK equity exposure to 8.4 percent, the lowest since December 2017.
- They trimmed overall equity exposure to 48 percent of their global balanced portfolios.
Global M&A volume drops in third-quarter as trade tensions loom
- Global mergers and acquisitions dropped to $783 billion in the third quarter, down 35 percent from the prior quarter, as the escalating trade dispute between the US and China cast a shadow on the financial and regulatory prospects of some deals.
- The number of global announced deals hit its lowest since 2013, at about 9,135, and global deal volume was down 6 percent compared with a year ago.
- M&A activity in Europe has been particularly strong, with deals worth $962.5 billion so far this year, a 72 percent increase compared with a year ago and the strongest period for European dealmaking since 2007.
- U.S. M&A, which rose 14 percent year-over-year to $368.1 billion in the quarter, fared better than other regions.
Jeff Bezos’ Blue Origin to supply engines for Vulcan rocket
- Blue Origin, the space company founded by Amazon.com Chief Executive Officer Jeff Bezos, has won a contract to supply engines for United Launch Alliance’s massive Vulcan rocket, the companies said on Thursday.
- Choosing Blue Origin’s made-in-America BE-4 engine for the next-generation heavy-lift Vulcan launch vehicle is part of ULA’s path to ending U.S. reliance on Russia’s RD-180 engine for national security missions.
- That engine currently provides the main power for ULA’s legacy workhorse, Atlas V, which the Vulcan will eventually replace.
- United Launch Alliance is a joint venture of aerospace stalwarts Boeing and Lockheed Martin.
US ECONOMY & POLITIC
- The final reading of the University of Michigan’s consumer-sentiment index in September was 100.1, above August’s level of 96.2. The preliminary reading was 100.8. This is only the third time the index has topped 100.0.
U.S. consumer spending rises; monthly inflation slows
- U.S. consumer spending increased steadily in August, supporting expectations of solid economic growth in the third quarter, while a measure of underlying inflation remained at the Federal Reserve’s 2 percent target for a fourth straight month.
- Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after an unrevised 0.4 percent gain in July.
- Spending last month was driven by outlays on health care, which offset a drop in motor vehicle purchases.
- The economy grew at a 4.2 percent pace in the second quarter, powered by robust consumer spending.
- The personal consumption expenditures (PCE) price index excluding the volatile food and energy components were unchanged. That was the weakest reading since March 2017 and followed a 0.2 percent gain in July.
- August’s flat reading left the year-on-year increase in the so-called core PCE price index at 2.0 percent. The core PCE index is the Fed’s preferred inflation measure.
- The saving rate was unchanged at 6.6 percent last month.
Kavanaugh Headed to Approval in Senate Panel with Flake’s Support
- Supreme Court nominee Brett Kavanaugh appears headed toward approval by the Senate Judiciary Committee after pivotal GOP Senator Jeff Flake said he’ll vote to confirm the nominee.
- The committee scheduled a vote for 1:30 p.m. Friday that would send the nomination to the Senate floor.
- An initial Senate test vote may be held Saturday, and a final vote next week.
- Several Democratic panel members walked out of the committee room Friday morning, protesting the GOP drive to muscle Kavanaugh to the Senate floor after Thursday’s hearing — which at times devolved into a partisan shouting match.
- Top Judiciary Democrat Dianne Feinstein, who stayed in the committee room, said she was “shocked” by Kavanaugh’s behavior at the hearing, in which he called some Democratic members an “embarrassment” and called allegations against him an “orchestrated political hit.”
U.S.-Mexico trade deal text to exclude Canada, irritating U.S. lawmakers
- The Trump administration is expected to release the text of its trade agreement with Mexico as early as Friday, launching a contentious congressional approval process as it tries to coax Canada into a revamped North American Free Trade Agreement.
- They expressed little optimism that a deal with Canada could be reached quickly, noting disagreements over dairy and dispute settlement provisions.
- The text will flesh out an agreement in principle reached by the United States and Mexico on Aug. 27 that aims to rebalance automotive trade between the two countries and modernize the nearly 25-year-old NAFTA with new chapters on digital trade, stronger labor, and environmental standards.
- The text is expected to conform to details previously released on tighter automotive rules requiring an increase in regional value content to 75 percent from 62.5 percent previously, with 40-45 percent coming from “high wage” areas, effectively the United States.
EUROPE & WORLD
- Italy’s government bonds, European stock markets, and the euro were hit hard on Friday after Rome agreed to set a higher than expected budget deficit target that could put it on a collision course with Brussels.
- The Italian government on Thursday targeted a budget deficit of 2.4 percent of gross domestic product (GDP) for the next three years, marking a victory for party chiefs over economy minister Giovanni Tria.
- The deficit, though within the prescribed EU limit of 3 percent of GDP, is a concern for investors who fear the anti-establishment government is not committed to tackling its huge debt load.
- Italy’s debt-to-GDP ratio stands at about 130 percent, the highest in the eurozone behind Greece.
Belgium to sue Google for not blurring images of defense sites
- The Belgian defense ministry will sue Google for not complying with its requests to blur satellite images of sensitive military sites, a ministry spokeswoman said on Friday.
- Citing national security, the ministry said it had requested that sites such as air bases and nuclear power stations be obscured on Google’s satellite mapping services.
- Google has complied with similar requests from other governments over concerns its geomapping Google Earth, Google Maps and granular Street View services could compromise security.
TODAY in HISTORY
- William the Conqueror invaded England (1066)
- Portuguese explorer Juan Rodríguez Cabrillo arrived at present-day San Diego (1542)
- Japan and Communist China agreed to re-establish diplomatic relations (1972)
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