US FINANCIAL MARKET
Treasuries Make U-Turn After Hot Economic Data: Markets Wrap – Bloomberg, 7/14/2023
- Treasuries pared their weekly rally as data showed an increase in both consumer sentiment and short-term inflation expectations, helping fuel speculation that interest-rates will remain elevated.
- The two-year US yield, which is more sensitive to imminent Federal Reserve moves, climbed seven basis points to 4.7%.
- The yield on 10-year Treasuries advanced two basis points to 3.78%.
- The S&P 500 was little changed, with traders sifting through results from JPMorgan Chase, Wells Fargo and Citigroup.
- The Nasdaq 100 rose 0.6%. The Dow Jones Industrial Average rose 0.2%.
- The gauge was on track for its best week since March.
- Gains in the megacap space helped prop up equities Friday, with Nvidia hitting an all-time high and Microsoft up almost 2%.
- The idea that the US economy could slowdown just enough to skirt a recession is so strong that it doesn’t make sense to go against it, according to Mohamed El-Erian.
- The Stoxx Europe 600 was little changed.
- The Bloomberg Dollar Spot Index rose 0.1%.
- West Texas Intermediate crude fell 1.7% to $75.56 a barrel.
- Gold futures fell 0.1% to $1,961.20 an ounce.
JPMorgan’s Profit Jumps 67% After First Republic Rescue – Wall Street Journal, 7/14/2023
- JPMorgan Chase said its second-quarter profit jumped 67%, including a lift from acquiring the failed First Republic Bank in early May.
- The First Republic rescue deal, struck over a weekend with the aid of federal regulators, boosted JPMorgan’s consumer and commercial banks with new clients, branches and deposits.
- It led to an immediate $2.7 billion gain but also forced the bank to take $1.2 billion in credit charges.
- Revenue rose 34% from a year earlier to $41.31 billion.
- Analysts had expected $38.66 billion.
- In total, JPMorgan’s second-quarter profit rose to $14.47 billion, or $4.75 a share, up from $8.65 billion, or $2.76 a share, a year ago.
- Analysts had expected $3.97 a share, according to FactSet.
- Excluding First Republic, JPMorgan said profit still would have been up 40% and revenue would have been up 21%.
- The net-interest margin slipped to 2.62% from 2.63% in the first quarter.
- The consumer bank’s revenue increased 37%.
- Profit rose 71% to $5.31 billion, lifted by interest rates since the bank was able to charge more on loans.
- Spending on credit cards rose 8% and card-loan balances jumped 16%.
- Auto lending increased, with loan volume up 71%.
- Trading revenue fell 10%, with fixed-income revenue down 3% and equities down 20%.
- Investment banking revenue, including fees from mergers and the sales of stocks and debt, dropped 6%.
- In JPMorgan’s commercial bank, which was expected to benefit from a gain of clients from First Republic, revenue rose 49%.
- In asset and wealth management, revenue climbed 15%.
UnitedHealth Lifts Earnings Outlook as Premiums Rise – Wall Street Journal, 7/14/2023
- UnitedHealth Group raised the floor of its annual earnings projections after notching a sixth consecutive quarter of double-digit revenue growth.
- The healthcare and insurance company, the first industry heavyweight to report second-quarter results this earnings season, said Friday that its top line grew 16% to $92.9 billion, beating analyst forecasts by about $2 billion, according to FactSet.
- The gains were driven by growth at both its UnitedHealthcare insurance business and its Optum health-services arm, the Minnetonka, Minn.-based company said.
- Premiums jumped more than 13% at $72.47 billion, though medical costs rose at an even faster clip, bringing total operating costs up almost 16% to $84.85 billion.
- The company’s medical-loss ratio, or the share of premiums spent on patient care, was 83.2%.
- That is up from 81.5% in the same quarter last year and in line with analysts’ expectations.
- The growth came primarily from outpatient care activity, largely from seniors, along with a stronger business mix.
- Stripping out one-time items, adjusted earnings were $6.14 a share.
- Analysts polled by FactSet had been expecting $5.99 a share.
- Adjusted earnings guidance received the same 20-cent boost to its low end, bringing the forecast to between $24.70 and $25 a share.
Wells Fargo Lifts Net Interest Income Guidance on Rate Hikes – Bloomberg, 7/14/2023
- Wells Fargo earned more net interest income than analysts expected in the second quarter and lifted its guidance for the full year as big US banks continue to benefit from the Federal Reserve’s rate hikes.
- The San Francisco-based firm reported $13.2 billion in NII — revenue collected from loan payments minus what depositors are paid — for the three months through June, up 29% from a year ago, according to a statement Friday.
- Wells Fargo was no exception: non-interest-bearing deposits slumped 22% to $402 billion in the quarter while average deposit costs soared.
- The bank reported a $1.7 billion provision for loan losses, more than analysts expected, which included a reserve build tied to office-building loans.
- Expenses, a key focus of Scharf’s turnaround plan, totaled $13 billion in the quarter, above expectations.
- Period-end assets totaled $1.9 trillion, lower than a year earlier.
- Executives now see Wells Fargo’s NII haul rising roughly 14% for the full year, more than the 10% jump they had earlier projected.
- The firm lifted its full-year guidance for non-interest expenses excluding operating losses to $51 billion, citing higher costs tied to severance payments as the firm seeks to reduce headcount amid lower attrition.
Citi Gets Credit Card Boost as Borrowers Start to Struggle – Bloomberg, 7/14/2023
- Citigroup, the world’s second-largest credit-card issuer, is reaping the gains as customers borrow more — even as a growing number struggle to make payments.
- Total revenue slipped 1% to $19.4 billion, in line with the $19.3 billion average estimate from analysts.
- That, combined with the heightened expenses and credit costs, contributed to a 36% slump in net income to $2.9 billion.
- Higher interest rates and larger card balances set the stage for an 11% jump in revenue from US personal banking in the second quarter, the New York-based lender said Friday.
- Balances on Citi’s US credit cards swelled to $149 billion from a year earlier.
- That blunted the impact of a 78% surge in write-offs tied to consumer loans.
- The firm’s treasury and trade solutions division, which Fraser has touted as Citigroup’s “crown jewel,” saw revenue jump 15% to $3.5 billion.
- Securities services, which offers custody and collateral management, also boosted revenue 15%.
- The bank’s return on tangible common equity — a key measure of profitability — slid to just 6.4%.
- The bank’s expenses jumped 9% to $13.6 billion in the quarter, boosted by what executives had predicted would be hundreds of millions of dollars in severance costs for eliminating about 1,600 jobs, including investment bankers and traders.
- Citigroup, like rivals, muddled through a slump in investment banking in the quarter.
- Its haul from those operations shrank 24% to $612 million.
- Overall, Citigroup earned $1.33 per share, topping the average estimate of analysts by 2 cents.
BlackRock beats profit estimates on robust inflows, eyes fixed income – Reuters, 7/14/2023
- BlackRock on Friday beat second-quarter profit estimates, as investors continued to pour money into its various funds on the back of a rally in markets after a bruising start to the year.
- New York-based BlackRock ended the second quarter with $9.4 trillion in assets under management (AUM), up from $8.5 trillion a year earlier and $9.1 trillion in the first quarter.
- Net inflows for the quarter were $80 billion, down from $89.6 billion a year ago.
- Revenue fell 1.4% to $4.4 billion from a year earlier, driven by the impact of market movements over the past 12 months on average AUM, BlackRock said.
- The company’s adjusted profit of $9.28 per share leapfrogged analysts’ estimates of $8.46, according to Refinitiv IBES.
Tucker Carlson Is Creating a New Media Company – Wall Street Journal, 7/14/2023
- Former Fox News host Tucker Carlson and former White House adviser Neil Patel are seeking to raise funds to start a new media company that would potentially use Twitter as its backbone, according to people familiar with the matter.
- The new company would be anchored by longer versions of the free videos that Carlson has been posting regularly on Twitter since shortly after his departure from Fox News, but would ultimately be driven by subscriptions, some of the people said.
- Carlson and Patel are looking to raise hundreds of millions of dollars to fund the company, the people said.
- Users of Twitter and other platforms would still be able to watch free, shorter versions of his show, interviews and documentaries, but would need to subscribe to watch them in their entirety, the people said.
- The company would eventually add shows from additional hosts, they said.
- Carlson and Patel’s new company would also have its own website and mobile app, and is exploring other homes beyond Twitter for its content as well, some of the people said.
Eli Lilly to Acquire Obesity-Treatment Maker Versanis – Wall Street Journal, 7/14/2023
- Eli Lilly said it would acquire Versanis Bio, a private company developing a treatment for obesity, for up to $1.925 billion.
- The pharmaceutical company said Friday that Versanis shareholders could receive as much as $1.925 billion in cash, which will consist of an upfront payment and additional payments if certain milestones are reached.
- Versanis develops treatments for cardiometabolic diseases.
- Its lead candidate, bimagrumab, is in a Phase 2b study to test its effects on reducing fat mass in overweight and obese adults.
- The company said the treatment might lead to better outcomes for people living with obesity and related complications.
- Lilly has been pushing for approval of Mounjaro, a Type 2 diabetes treatment, as an anti-obesity drug.
- Meanwhile, Ozempic, another diabetes treatment made by Novo Nordisk A/S, has rapidly garnered attention for its weight-loss effects.
US ECONOMY & POLITICS
US Consumer Sentiment Jumps to Near Two-Year High on Job Market – Bloomberg, 7/14/2023
- US consumer sentiment soared in early July to an almost two-year high, bolstered by easing inflation and a strong labor market.
- The University of Michigan preliminary index rose by 8.2 points to 72.6, the highest since September 2021.
- The reading topped all forecasts in a Bloomberg survey of economists, and the monthly advance was the largest since 2006.
- Meanwhile, short-term inflation expectations ticked higher in early July to 3.4% from 3.3% a month earlier.
- They see costs rising 3.1% on an annual basis over the next five to 10 years.
- The current conditions gauge rose to an almost two-year high of 77.5 from 69.
- The university’s measure of expectations increased to 69.4 this month, the highest in two years.
St. Louis Fed President James Bullard Steps Down – Wall Street Journal, 7/14/2023
- Federal Reserve Bank of St. Louis President James Bullard, one of the most vocal advocates over the past two years for stronger moves to fight inflation, resigned as the bank’s leader on Thursday to become the dean of Purdue University’s business school.
- Bullard said he would serve as a senior adviser at the bank until next month but will recuse himself from any involvement with monetary policy.
- He will start his position at Purdue on Aug. 15.
- The St. Louis Fed’s nonbank directors will be tasked with finding a replacement, subject to the approval of the central bank’s board of governors in Washington.
- The search committee will be led by the St. Louis Fed’s board chair, Jim McKelvey, who is founder and CEO of technology company Invisibly.
Fed’s Goolsbee Says Latest Inflation Data Promising, But Still High – Bloomberg, 7/14/2023
- Federal Reserve Bank of Chicago President Austan Goolsbee said recent consumer-price data showing inflation easing was “promising,” though inflation is still higher than policymakers’ 2% goal.
- “It’s at least promising that this week we got inflation numbers that show inflation is coming down at a pretty rapid clip,” Goolsbee said Friday in an interview with Fox News.
- “It’s still higher than where we want it but it’s making progress.”
- He reiterated comments he made last week that policymakers are on a “golden path” to containing inflation without triggering recession.
Biden Administration to Wipe Out $39 Billion Student Loans for 800,000 Borrowers – Wall Street Journal, 7/14/2023
- The Education Department said Friday that it will forgive $39 billion in federal student loans for more than 804,000 borrowers.
- The discharges are a result of fixes implemented by the Biden administration to ensure borrowers have an accurate count of monthly payments that qualify toward forgiveness under income-driven repayment plans, the department said.
- The affected loans will be automatically discharged in the coming weeks.
Waller Says Fed Will Need Two More Interest Rate Hikes to Contain Inflation – Bloomberg, 7/14/2023
- Federal Reserve Governor Christopher Waller said he expects the US central bank will need to raise interest rates twice more this year to bring inflation down to its target, though more good data on prices could obviate the need for the second hike.
- “I see two more 25-basis-point hikes in the target range over the four remaining meetings this year as necessary to keep inflation moving toward our target,” Waller said Thursday in remarks prepared for a dinner event hosted by the Money Marketeers of New York University.
- “I see no reason why the first of those two hikes should not occur at our meeting later this month.”
- “There’s a lot of discussion out there about, not so much the next meeting, but the September meeting. What I’m trying to say is the September meeting is a ‘live’ meeting and it depends on the data,” Waller said.
- “If the data looks like we’re making progress — we’ll get two more CPI reports. If they look like the last two, the data would suggest maybe stopping.”
- “If one believes the bulk of the effects from last year’s tightening have passed through the economy already, then we can’t expect much more slowing of demand and inflation from that tightening,” he said.
- “Pausing rate hikes now, because you are waiting for long and variable lags to arrive, may leave you standing on the platform waiting for a train that has already left the station.”
- Beyond the July meeting, “if inflation does not continue to show progress and there are no suggestions of a significant slowdown in economic activity, then a second 25-basis-point hike should come sooner rather than later, but that decision is for the future,” he said.
Far-Right Republicans Imperil House Races With Social Demands on Key Defense Bill – Bloomberg, 7/14/2023
- House Republicans on Wednesday added hot-button culture war amendments to a critical defense policy bill, alienating Democrats and jeopardizing its passage as well as putting GOP lawmakers from more moderate districts in peril.
- The House voted Thursday evening largely along party lines to overturn a policy guaranteeing access to abortion services for military members and ban military health insurance coverage of transgender care, attaching the amendments to legislation setting Pentagon policy and prescribing military spending levels for the next year.
- Another addition targeted racial diversity initiatives.
- The clash over the $866 billion National Defense Authorization Act provides fresh warning of turmoil ahead in the struggle to fund the government before a shutdown that could come as soon as Oct. 1.
- It also thrusts Speaker Kevin McCarthy into yet another political storm.
- As of Thursday, McCarthy and his top lieutenants were still unsure how much Republican support they could count on for the legislation and how much they would need to rely on Democrats, according to one lawmaker involved in their closed-door conversations who insisted on anonymity to describe the deliberations.
- It remains unclear if the bill can pass with just Republicans votes given that some conservative amendments such as ending funding for Ukraine were defeated.
El-Erian Says Soft-Landing Narrative Gains Steam, Don’t Fight It – Bloomberg, 7/14/2023
- The idea that the US economy could slowdown just enough to skirt a recession is so strong that it doesn’t make sense to go against it, according to Mohamed El-Erian.
- “You cannot get in the way right now of the soft-landing narrative — that narrative is building momentum,” the chief economic adviser at Allianz and a Bloomberg Opinion columnist said Friday.
- “Everything we’ve seen so far this week — CPI, PPI, the banks — has all been about a soft-landing narrative.”
- Recession calls have been getting pushed back all year as economic data continues to show strength, particularly in the labor market.
- And US inflation sharply cooled off in June when the consumer price index increased 3%, the smallest advance in more than two years, while producer prices barely budged.
- “We are definitely in a good window for inflation data,” El-Erian said on Bloomberg Television. “It will last into September.”
- “I’ve been pushing back over and over again — there’s nothing automatic about a recession,” he said. Though, he added, should the Federal Reserve over tighten — which is possible — then an economic downturn could happen.
- “We get there if there’s another policy mistake. But the economy itself is strong and robust.”
- If the Fed attempts to get to its 2% inflation target too quickly, it risks contracting demand more than would be healthy and “breaking something,” El-Erian said.
EUROPE & WORLD
Pentagon’s Top General, Mark Milley, Calls for Faster Weapons Sales to Taiwan – Wall Street Journal, 7/14/2023
- American arms sales and deliveries of weaponry to Taiwan should be faster if the U.S. is to dissuade Beijing from taking military action against the island, the Pentagon’s top general said Friday.
- “I think that’s probably something that needs to be improved,” Army Gen. Mark Milley, chairman of the Joint Chiefs of Staff, told reporters in Tokyo.
- “The speed at which we, the United States, or other countries assist Taiwan in improving their defensive capabilities—I think that probably needs to be accelerated in the years to come.”
- Milley, in Tokyo to meet with Japanese leaders before leaving Saturday for Seoul, said the U.S. believed in self-determination in the region and opposed military action by China that could compel unification with Taiwan.
- “If Taiwan has the military capability to signal to the leadership in Beijing that an attack on Taiwan, the cost, risk, of an attack on Taiwan, would exceed any potential benefit, then theoretically, if the leaders in Beijing are rational, they won’t do that militarily,” Milley said.
- “They will try some other nonmilitary means of doing it.”
- The storming and destruction of Bastille marked the beginning of the French Revolution. – 1789
- Congress passed the Sedition Act, making it a crime to publish false, scandalous, or malicious writing about the U.S. government. – 1798
- In Germany, all political parties except the Nazi party were outlawed. – 1933
- Spock’s Common Sense Book of Baby & Child Care was published. – 1946
- A military coup overthrew the monarchy in Iraq, killing King Faisal II. General Abdul Karim Kassem becomes Iraq’s leader. – 1958