US FINANCIAL MARKET
US Stock Rally Plows Forward Amid Peak-Rate Bets: Markets Wrap – Bloomberg, 7/19/2023
- US stocks and bonds followed those in Europe higher as investors cheered cooling inflation in the UK and were able to look past an earnings miss at Goldman Sachs.
- Second quarter profit at the Wall Street investment bank tumbled on real estate hits and a dealmaking slump, though US bank shares were largely spared from losses after solid bank earnings earlier in the week.
- The S&P 500 rose 0.4% and Treasuries across the curve joined a worldwide bond rally following a better-than-expected UK inflation report.
- The Nasdaq 100 rose 0.1%. The Dow Jones Industrial Average rose 0.7%.
- Price pressures in Britain dropped to the lowest in 15 months, adding to evidence central banks can go easier on raising interest rates.
- However, the data was coupled with another report showing core inflation in the euro-area had accelerated more than initially thought in June.
- US housing starts also fell more than estimated.
- Carvana gained 28% after the used-car retailer reached a deal to restructure its debt and filed to sell as much as $1 billion in stock.
- AT&T rose 8.0% after the telecommunications company reassured investors by saying less than 10% of its nationwide copper-wire telecom network had lead-clad cables.
- In Asia, shares in Hong Kong and mainland China were Wednesday’s worst performers, while the offshore yuan fell to the weakest level in more than a week.
- Investors see no easy fix to China’s economic slump, with fresh signs of financial stress among the nation’s dollar-bond issuers.
- Elsewhere, gold declined amid strength in the dollar, and WTI crude rose as traders weighed signs of tightening in the global market against a shaky economic backdrop.
- The Stoxx Europe 600 rose 0.5%.
- The Bloomberg Dollar Spot Index rose 0.4%.
- The yield on 10-year Treasuries was little changed at 3.79%.
- West Texas Intermediate crude rose 1.4% to $76.79 a barrel.
- Gold futures fell 0.2% to $2,016.10 an ounce.
Goldman Sachs Profit Drops 58% as Bank Pulls Back on Consumer Lending – Wall Street Journal, 7/19/2023
- Goldman Sachs reported significantly lower profit for the second quarter, hurt by write-downs in its consumer and asset-management businesses.
- Revenue was $10.9 billion, down 8% from a year ago. That still beat the $10.61 billion expected by analysts.
- Goldman’s trading revenue fell 14%. Trading revenue was also down at Morgan Stanley, JPMorgan and Citigroup.
- Goldman took in $2.35 billion in management and other fees in its asset and wealth-management division, a record and up 5% from a year prior.
- The bank on Wednesday said quarterly profit was $1.22 billion, down 58% from a year ago.
- That amounted to $3.08 per share, which missed the $3.16 per share expected by analysts polled by FactSet.
- Goldman’s return on equity fell to 4%, from 11.6% last quarter and 10.6% a year prior.
- The bank said in an investor presentation that return on equity would have been 9.2% for the quarter without the write-downs.
- Goldman said Wednesday that it wrote down $504 million of “goodwill” related to its consumer-platforms unit.
Elevance Health’s stock up 5% after earnings beat estimates – Market Watch, 7/19/2023
- Elevance Health’s stock rose 5% in premarket trade Wednesday, after the health insurer’s second-quarter earnings handily beat estimates.
- Revenue rose 12.7% to $43.672 billion from $38.632 billion, also ahead of the $41.636 billion FactSet consensus.
- Adjusted per-share earnings came to $9.04, ahead of the $8.78 FactSet consensus.
- The company’s benefit expense ratio was 86.4% in the quarter, down 70 basis points from the year-earlier period, mostly due to premium rate adjustments to more accurately reflect cost of care.
- “Given the strong performance in the first half of the year and momentum across Elevance Health, we now expect GAAP net income to be greater than $29.09 per share in 2023, and adjusted net income to be greater than $32.85 per share,” the company said in a statement.
- The current FactSet consensus is for full-year EPS of $32.77.
US Bancorp sees annual net interest income below Wall Street estimates – Reuters, 7/19/2023
- US Bancorp forecast full-year net interest income (NII) below Wall Street estimates.
- The bank’s NII for the quarter ended June 30 rose to $4.45 billion, compared with $3.46 billion a year ago.
- On an adjusted basis, US Bancorp reported profit of $1.12 per share, in line analysts’ expectations.
- Its total average deposits were at $497.27 billion, down 2.6% sequentially and up 9% over a year earlier.
- The lender also set aside $821 million as provisions for bad loans in the quarter, compared with $311 million a year ago.
- Minneapolis-based US Bancorp now expects full-year NII, which measures the difference between what banks earn on loans and pay out on deposits, to be between $17.5 billion and $18.0 billion.
- Analysts on average expect $18.1 billion, according to Refinitiv data.
Carvana Soars After Reaching Debt Restructuring Deal – Bloomberg, 7/19/2023
- Carvana will restructure its debt and sell shares as the used-car retailer tries to regain its footing following a pandemic boom and bust.
- The agreement with bondholders announced Wednesday will eliminate about 83% of Carvana’s 2025 and 2027 unsecured note maturities and lower required cash interest expense by $430 million a year for the next two years.
- The company expects to reduce its total debt outstanding by more than $1.2 billion.
- Carvana on Wednesday also reported better-than-expected second-quarter earnings and filed to sell the greater of 35 million shares or $1 billion of stock.
- The retailer sold 76,530 cars in the quarter, a decline of 35%, and revenue fell 24% to just under $3 billion.
- The company reported adjusted earnings before interest, taxes, depreciation and amortization of $155 million.
- The company was able to boost gross profit per unit to $6,520, which was more than double from a year ago.
- That total was helped by $900 a vehicle in non-recurring items, the company said.
- Interest expense of $155 million amounted to more than $2,000 per car in the period.
- The deficit of 55 cents a share was less than half the $1.12 a share loss analysts were expecting.
Western Alliance Sees Higher Costs on Deposits, Borrowings – Bloomberg, 7/19/2023
- Western Alliance Bancorp reeled in more deposits in the second quarter — at a cost.
- The bank’s interest expense jumped more than eight-fold to $451 million from a year earlier, and was up 25% from the first quarter, according to a statement Tuesday.
- That left the firm’s profit at $1.96 per share, a penny short of analysts’ estimates.
- The figures show the Phoenix-based lender made headway in rebuilding deposits — boosting them 7.3% from the end of March — after a flurry of withdrawals rocked midsize US banks.
- The tally has continued to climb this month, with the bank attracting an additional $3.2 billion in deposits as of July 17.
- But the hunt for cash is taking a bite out of profit, with the bank’s total cost of funds increasing 58 basis points to 2.85% “due to higher costs on deposits and borrowings,” executives wrote in a presentation.
- The bank said it completed about $4 billion in asset sales in the quarter.
- That included roughly $3.5 billion in loans tied to commercial real estate, residential and commercial and industrial lending as well as mortgage servicing rights and a slug of securities that were primarily collateralized loan obligations.
- To that end, the bank’s Federal Home Loan Bank borrowings fell $6.1 billion to $4.9 billion in the quarter.
Interactive Brokers Group’s stock down 4% following Q2 results – Market Watch, 7/19/2023
- Interactive Brokers Group’s fell in extended trading Tuesday after the online banking company reported quarterly results that felt shy of analysts’ estimates.
- Revenue surged to $1 billion, from $656 million a year ago.
- Adjusted net income was $1.32 a share.
- Analysts surveyed by FactSet had expected on average net earnings of $1.40 a share on revenue of $1.055 billion.
Ally Financial 2Q Profit Slides on Flat Revenue – Market Watch, 7/19/2023
- Ally Financial’s profit declined in the second quarter on flat revenue, but its adjusted earnings were higher than analysts had expected.
- Total revenue was flat at $2.08 billion, just below analysts projections for $2.09 billion, according to FactSet.
- Stripping out one-time items, earnings were 96 cents a share. Analysts surveyed by FactSet had been expecting adjusted earnings of 93 cents a share.
- The drop in earnings was driven by lower net financing revenue, a higher provision for credit losses and higher noninterest expenses, which was all partially offset by a jump in other revenue from momentum in Ally’s insurance and consumer banking businesses.
- Net financing revenue fell $191 million to $1.6 billion as funding costs shot up from a sharp rise in short-term rates, though Ally meanwhile benefited from strength in auto pricing, floating rate assets and growth in unsecured products.
- The company’s provision for credit losses jumped by $123 million from a year ago to $427 million as credit normalized off of historical lows.
Halliburton, Baker Hughes warn of North America weakness; profits beat estimates – Reuters, 7/19/2023
- Halliburton and Baker Hughes on Wednesday reported results that beat analysts’ estimates for second-quarter profit, but the oilfield services firms warned of weakness in U.S. shale activity for the rest of the year.
- Baker Hughes, a major equipment supplier to LNG developers, raised its order outlook for its industrial and energy technology segment, which includes its LNG business, by $1 billion to about $12 billion for the year.
- That helped the company raise the lower end of its full year revenue guidance to between $24.8 billion and $26 billion, largely in line with analysts’ estimate for $25.3 billion.
- The company topped estimates by 6 cents per share at 39 cents, while Halliburton beat analysts’ estimate by 2 cents at 77 cents per share for the three months ended June 30, according to Refinitiv data.
- Halliburton, the top U.S. fracking service provider, forecast its third quarter revenue from well completion and productions to be flat sequentially, while drilling and evaluation operations could increase at a low single-digit percentage rate.
Microsoft and Activision Blizzard Extend $75 Billion Merger Deadline – Wall Street Journal, 7/19/2023
- Microsoft and Activision Blizzard said they have agreed to extend the deadline for their $75 billion merger until mid-October, a step that will allow them to continue with efforts to gain regulatory approval in the U.K.
- The companies, which had originally planned to close the deal by Tuesday, gave themselves until Oct. 18 to complete a transaction that would give Microsoft ownership of Activision’s vast portfolio of videogames, including those from hit series such as Call of Duty, Candy Crush and World of Warcraft.
- The companies agreed to increase the termination fee from $3 billion to $3.5 billion if the transaction is terminated after Aug. 29 and to $4.5 billion if the deal is called off after Sept. 15.
AT&T Halts Plans to Remove Lead Cables in Lake Tahoe – Wall Street Journal, 7/19/2023
- AT&T said Tuesday that it will halt plans to remove two lead-clad cables in Lake Tahoe that it had previously agreed to remove as part of a 2021 settlement and that it will test lead levels at other locations where it has lead-clad cables around the country.
- The telecom giant said in a court filing that it wanted to allow for additional testing for lead and “maintain the Lake Tahoe cables in place while working cooperatively with regulators and other stakeholders on an appropriate risk assessment.”
- In a memo sent Tuesday to employees, AT&T Chief Executive John Stankey said the company expects an extended public discussion about how to manage lead-clad cables and estimated that “these cables represent less than 10% of our copper footprint of roughly 2 million sheathed miles.”
- “We feel strongly that The Journal’s reporting conflicts with what independent experts have long stated about the safety of lead-clad telecom cables and our own environmental testing,” Stankey wrote.
- “If there’s any new scientific data, we’ll work cooperatively with all stakeholders to address new safety concerns.”
Microsoft to Offer Some Cybersecurity Tools Free After Suspected China Hack – Wall Street Journal, 7/19/2023
- Microsoft said it plans to offer free some tools that can spot cyberattacks following last week’s disclosure of a major security breach linked to Chinese hackers that was undetectable for some customers.
- The decision to open up access to its back-end systems that log activity on the cloud came after Microsoft’s tiered payment system attracted criticism in the wake of an alleged Chinese cyber-espionage campaign, which the company said infiltrated its cloud-based email system and compromised inboxes at about two dozen organizations globally.
- The federal government, including officials at the State Department and Commerce Secretary Gina Raimondo, was among the victims of the attack, U.S. officials said.
- Beginning in September, the technology company will make 31 critically important security logs available free to licensees of the company’s lower-cost cloud services, said Vasu Jakkal, a vice president of security at Microsoft.
- The company will also increase the duration of retention for security logs from 90 to 180 days, Jakkal said.
US ECONOMY & POLITICS
US Housing Starts Fell in June After Surging in Prior Month – Bloomberg, 7/19/2023
- New US home construction retreated in June after surging a month earlier, to a pace that still indicates builders are working to fill the void left by lean housing inventory in the resale market.
- Residential starts fell 8% last month to a 1.43 million annualized rate, according to government data released Wednesday.
- The median estimate in a Bloomberg survey of economists was for a 1.48 million pace.
- Applications to build, a proxy for future construction, slipped 3.7% to an annualized pace of 1.44 million units.
- However, permits to build one-family homes increased to a one-year high.
- Single-family homebuilding decreased 7% in June, but to a pace that’s the second-strongest in a year.
- Multifamily construction dropped nearly 10%.
- Applications to build multifamily dwellings such as apartments fell by the most since November.
- Mortgage Bankers Association data released earlier on Wednesday showed applications for home purchases dropped last week as the contract rate on a 30-year fixed mortgage — while improved — remained close to 7%.
Senators to Propose Ban on U.S. Lawmakers, Executive Branch Members Owning Stock – Wall Street Journal, 7/19/2023
- Two U.S. senators are set this week to introduce bipartisan legislation to bar members of the federal executive branch and lawmakers from owning stock in individual companies, as new polling shows broad public support for such a measure.
- The bill from Sens. Kirsten Gillibrand (D., N.Y.) and Josh Hawley (R., Mo.) would permit the president, vice president, lawmakers, Capitol Hill aides and employees of the executive branch to own mutual funds and broad industry and index funds.
- But it would prohibit them from owning stocks in individual companies, even in blind trusts.
- “It is critical that the American people know that their elected leaders are putting the public first,” said Gillibrand in a statement, “not looking for ways to line their own pockets.”
- The bill includes stiff penalties for government officials who violate the rules.
- Employees of the executive branch would have to forfeit any profits from stock trading and face fines of $10,000 or more.
EUROPE & WORLD
Critical chip firm ASML, caught in China export restrictions, posts 38% rise in profit – CNBC, 7/19/2023
- ASML, one of the world’s most important semiconductor equipment firms, posted a jump in revenue and profit in the second quarter, but warned of macroeconomic “uncertainties” ahead.
- Net sales: 6.9 billion euros ($7.7 billion), compared with 6.72 billion euros expected.
- Net profit: 1.9 billion euros, versus 1.82 billion euros expected.
- ASML said it expects net sales in the third quarter of this year to sit between 6.5 billion euros and 7 billion euros.
- The company also raised its outlook for 2023, now anticipating its net sales this year to grow 30% year-on-year, up from a 25% growth estimate previously.
- ASML said that the brighter outlook is due to strong revenue from its deep ultraviolet (DUV) lithography machine, which is used to manufacture memory chips.
- “All in all, when you look at export control measures in total, we don’t expect a significant impact on our 2023 year,” but also on the longer term outlook, Wennink added.
UK Inflation Falls Below 8% in Breakthrough Against Price Spiral – Bloomberg, 7/19/2023
- Britain’s inflation rate dropped to the lowest in 15 months, fueling hopes among investors and economists of a shift away from the worst price spiral in the Group of Seven nations.
- Official data showed that annual consumer price growth cooled sharply to 7.9% in June from 8.7% the previous month, marking the first time in five months that the headline reading came in lower than expected.
- Core inflation — which strips out volatile food and energy prices — dropped for the first time in five months to 6.9% and there was also a cooling in services price increases, a measure the BOE has highlighted as important to its thinking.
- Inflation is set to fall even further in July’s data as the UK’s energy price cap limiting bills for households will fall.
- The price of goods leaving factory gates fell 0.3%, leaving them up just 0.1% on the year.
Euro-Area Core Inflation Quickened More Than Thought in June – Bloomberg, 7/19/2023
- Euro-area underlying inflation, the key measure of price gains for the European Central Bank, accelerated more than initially reported in June, cementing the interest-rate increase widely expected next week.
- The main gauge of inflation was confirmed at 5.5% — the lowest level since before Russia invaded Ukraine.
- Core consumer prices, stripping out volatile elements like food and energy, rose 5.5% from a year earlier, Eurostat said Wednesday.
- That compares with a preliminary estimate of 5.4% and a reading of 5.3% in May.
Truck maker Volvo’s quarterly profit surges, beats estimates – Reuters, 7/19/2023
- Swedish truck maker Volvo on Wednesday logged a better-than-expected 57% jump in second-quarter adjusted operating profit, helped by price hikes.
- “We have been successful in improving margins while managing cost inflation and increased disturbances in the supply chain,” Chief Executive Martin Lundstedt said in a statement.
- Operating profit before restructuring charges and legal claims surged to 21.7 billion crowns ($2.1 billion), beating a Refinitiv consensus estimate of 18.4 billion crowns.
- Orders for the quarter fell 10%, which Lundstedt said was partly due to Volvo’s reluctance to take on too many orders as well as partly the result of buyer caution.
- Volvo also boosted its estimates for industry-wide heavy truck sales in Europe and North America, saying it now expects 330,000 in each market up from 320,000 and noting that larger fleets were continuing to replace older vehicles.
U.S. Venture Firms’ Deals in China Tech Investigated by Congress Panel – Wall Street Journal, 7/19/2023
- A clutch of American venture-capital firms are being investigated by a congressional committee over their funding of Chinese tech companies—part of a push in Washington to scrutinize and potentially ban such deals.
- The House’s select committee on the China threat this week notified GGV Capital, GSR Ventures, Walden International and Qualcomm Ventures—the investment arm of chip company Qualcomm—that the panel is examining many of their investments in Chinese companies involved in semiconductors, artificial intelligence and quantum computing.
- Those Chinese companies, the committee said, threaten U.S. national security and have been involved in human-rights violations.
- By extension, the American firms’ investments “directly contribute” to those human-rights abuses, China’s military modernization and its effort to supplant U.S. technological leadership, according to letters sent to the venture firms and reviewed by The Wall Street Journal.
- Set up this year and formally known as the Select Committee on the Chinese Communist Party, the committee is increasingly targeting the role of American businesses in abetting Beijing’s superpower ambitions.
- Its work is emblematic of a shift in thinking in the White House and on Capitol Hill that once supported U.S. business ties with China but now see some investment as counter to American interests.
U.K. Clinches $5 Billion EV-Battery Plant as Race for Green Investments Heats Up – Wall Street Journal, 7/19/2023
- The owner of Jaguar Land Rover plans to build a large battery factory in the U.K. to supply electric vehicles, throwing a lifeline to Britain’s auto industry and highlighting the global race for green investment as carmakers shift to EVs.
- Tata Group said Wednesday that it expects the plant to start delivering batteries in 2026 and supply future electric vehicles built by its JLR business, which makes Range Rover, Defender, Discovery and Jaguar cars.
- The Indian company said it was investing 4 billion pounds, equivalent to about $5.2 billion, in the project.
- Tata’s decision to build the factory in the U.K. comes as European governments compete for a slice of the billions of dollars that the automotive industry is investing in its shift toward electric vehicles.
Blasts Hit Military Base in Russian-Occupied Crimea – Wall Street Journal, 7/19/2023
- Explosions tore through a military base in Russian-occupied Crimea on Wednesday—days after Ukraine targeted a bridge connecting the peninsula to Russia—reaching behind the front lines as Kyiv’s forces struggle to gain ground on the battlefield.
- Hours earlier, Russia targeted the Ukrainian port city of Odesa with a barrage of missiles and drones in a second consecutive night of strikes, after Moscow pulled out of an international agreement ensuring safe passage for Ukraine’s grain exports through the Black Sea.
- The blasts in Crimea took place in the peninsula’s eastern Kirovsky district, Russian state news agency TASS said.
- More than 2,000 residents were being evacuated due to a fire at a military training ground, said the Russian-appointed governor of Crimea, Sergey Aksyonov, without disclosing the cause.
- Refat Chubarov, the head of the Crimean Tatar community, said it was an ammunition storage facility.
- Ukraine’s air force said Russia unleashed a barrage of 30 cruise missiles, 32 Iranian-made kamikaze drones and an airborne missile on Ukraine overnight.
- A total of 37 drones and missiles were shot down by Ukraine’s air defenses, the air force said, but several struck the port of Odesa.
U.S. House Backs Israel in 412-9 Vote After Democrat Called State ‘Racist’ – Wall Street Journal, 7/19/2023
- The House voted overwhelmingly to pass a resolution affirming America’s strong support for Israel and condemning antisemitism, a move that sought to put Democrats on the spot after a progressive leader called the country racist.
- The measure passed 412-9, with one member voting present.
- In remarks to reporters, Biden said that the U.S. commitment to Israel is “ironclad.”
Finland Tells Russia to Close Its Consulate, Intensifying Spat – Bloomberg, 7/19/2023
- Finland told Russia to close its consulate on the southeastern coast, deepening a diplomatic dispute between the neighbors.
- The Nordic country is withdrawing consent for Russia to operate its consulate general in Turku as of Oct. 1, the government said in a statement on Wednesday.
- The Russian ambassador has been notified, it said.
- The move is a response to a Russian decision to close Finland’s consulate in St. Petersburg as of Oct. 1.
- Both countries have in recent weeks also expelled each others’ diplomats, and Finnish missions in Russia have had difficulties with their bank accounts.
Russia’s Near-Record Diesel Exports Help Lift Refined Fuel Flows – Bloomberg, 7/19/2023
- Russia’s oil-product exports are now on track to edge higher this month, as near-record diesel and rebounding naphtha shipments are set to offset lower flows of other fuels.
- The market is keeping a close eye on trade figures for any signs of Russian output cutbacks, with Moscow keeping production data a state secret.
- The country’s crude shipments slipped to a six-month low in the latest four-week period, suggesting it’s finally making good on a pledge to cut supply to world markets.
- In the first 15 days of July, Russia’s refined fuel cargoes rose about 81,000 barrels a day compared with June’s total, according to data compiled by Bloomberg from analytics firm Vortexa.
- They’re at about 2.49 million barrels so far, heading for a three-month high amid a ramp-up in refinery operations in the country.
- Shipments of diesel or gasoil — the top export product — rose 8.5% to about 1.27 million barrels a day.
- That’s near the 1.3 million barrels a day seen in March when flows reached the highest in Vortexa data since the start of 2016.
- Daily average flows are so far about 33% higher than year-ago levels.
- Gasoline and blending component flows have more than halved from June’s total to just 45,000 barrels a day, which would be the lowest since December 2017.
- Exports of naphtha — a feedstock used in petrochemical plants and also gasoline blending — have recovered to about 395,000 barrels a day.
- That’s up 28% from June levels, when average flows plunged to the lowest in Vortexa data since the start of 2016.
- Fuel oil shipments — which account for more than a quarter of Russia’s refined fuel flows — slipped from June to about 671,000 barrels a day.
- Exports to Africa have gained, while cargoes signaling the Middle East have shrunk.
Putin Skips BRICS Summit in South Africa, Avoiding Arrest Threat – Bloomberg, 7/19/2023
- Russian President Vladimir Putin won’t attend next month’s summit of BRICS leaders in Johannesburg in person, resolving a potential dilemma South Africa faced over whether to execute an International Criminal Court warrant for his arrest if he did come.
- “By mutual agreement, President Vladimir Putin of the Russian Federation will not attend the summit but the Russian Federation will be represented by Foreign Minister Mr. Sergei Lavrov,” South Africa’s Presidency said in a statement on Wednesday.
- Putin’s possible participation in the gathering was being closely monitored by Washington and its allies as they seek to isolate Moscow for its invasion of Ukraine.
- South Africa has adopted a non-aligned stance toward the conflict, a position that has drawn harsh criticism from some of the nation’s largest trading partners, including America and the European Union.
- The first women’s rights convention, called by Elizabeth Cady Stanton and Lucretia C. Mott, was held in Seneca Falls, New York. – 1848
- The Franco-Prussian war began. – 1870
- Winston Churchill was the first to use the two-finger “V is for Victory” sign. – 1941
- Fifty year-old singer Frank Sinatra married 21-year-old actress Mia Farrow. – 1966
- Geraldine Ferraro became the first woman nominated for the vice-presidency by a major political party. – 1984
- President Clinton announced the “Don’t ask, don’t tell” policy regarding gays in the military. – 1993