Daily Market Report | 07/21/2023
US FINANCIAL MARKET
Tech Stocks Pare Rebound; Treasuries Rise: Markets Wrap – Bloomberg, 7/21/2023
- Technology shares eased back from a potential rebound on Friday while Treasuries rose and the yen weakened on speculation the Bank of Japan won’t make any changes to its yield curve control program.
- The S&P 500 and tech-heavy Nasdaq 100 were little changed after earlier gains attempting to claw back losses in the previous session on disappointing results from Tesla and Netflix.
- The yield on 10-year Treasuries declined three basis points to 3.82%.
- American Express fell 4.2% after missing revenue forecasts.
- Meanwhile, the yen tumbled as much as 1.4% and led losses among Group-of-10 currencies.
- Traders said there’s less of a chance for a hawkish surprise at the BOJ’s policy decision next week as Bloomberg reported that officials see little urgent need to address the side effects of its yield curve control at this point.
- Investors are braced for a volatile session on Friday, with a flood of options expiring before an out-of-cycle rebalancing in the Nasdaq 100.
- The index shuffle, which takes effect on Monday, is designed to reduce the dominance of megacaps and boost the presence of smaller members.
- In equities, the main focus continues to be whether the rally in a handful of megacap stocks and hype over artificial intelligence has staying power.
- The S&P 500 has already surpassed most estimates for where it would end the year, confounding strategists convinced that 2023 would be another bad year for markets heading into recession.
- Stocks slipped on Thursday for the first time this week as fresh signs of labor-market resiliency bolstered the case for another interest rate hike this year after the Federal Reserve’s meeting next week.
- Up next, investors will be focused on earnings from Alphabet, Exxon Mobil, Meta Platforms and Microsoft, all reporting next week.
- The Stoxx Europe 600 rose 0.2%.
- The Bloomberg Dollar Spot Index rose 0.3%.
- West Texas Intermediate crude rose 1.4% to $76.69 a barrel.
- Gold futures fell 0.2% to $2,005.30 an ounce.
AmEx keeps profit forecast unchanged after strong results, shares fall – Reuters, 7/21/2023
- American Express kept its forecast for full-year profit unchanged on Friday, disappointing investors and overshadowing its quarterly results that topped estimates on record card member spending by its young and affluent customers.
- Total revenue, net of interest expense, rose 12% to a record $15.05 billion but fell short of expectations of $15.48 billion.
- Total network volumes climbed 8% to $426.6 billion in the second quarter ended June 30.
- AmEx’s total provisions for credit losses came in at $1.2 billion in the second quarter, compared with $410 million a year earlier.
- The company said Millennial and Gen Z consumers remained its fastest-growing customer cohort, representing 60% of new consumer accounts acquired globally, while spending by the group increased 21% in the U.S. compared to a year earlier.
- The credit card company reported a profit of $2.89 per share in the quarter, beating analysts’ average expectation of $2.81 per share.
- AmEx shares were down in premarket trading as the credit card giant reaffirmed its per-share profit forecast of $11 to $11.40 for 2023.
- Analysts on average expect $11.11 per share, according to Refinitiv.
- PPG Industries on Thursday reported higher sales and profit in the latest quarter, leading to a raised adjusted earnings per-share outlook for the fiscal year.
- The coatings company reported $4.87 billion in sales for the second quarter ended June 30, up from $4.69 billion a year earlier.
- Analysts polled by FactSet expected $4.84 billion.
- The Pittsburgh-based company posted adjusted earnings of $2.25 a share compared to $1.81 a share in the year-ago period.
- Analysts polled by FactSet expected $2.13 a share.
- PPG forecast organic sales to rise by a low single-digit percentage year-over-year and earnings between $1.85 a share and $1.95 a share on an adjusted basis in the third quarter.
- It also guided for adjusted earnings between $7.28 a share and $7.48 a share in fiscal 2023, up from its prior outlook in the range of $6.95 a share and $7.25 a share.
SLB tops earnings estimates on demand for international drilling – Reuters, 7/21/2023
- SLB beat analysts’ estimates for quarterly profit on Friday as a rebound in offshore and international drilling activity boosted demand for its oilfield services and equipment, even as activity in North America declined.
- Revenue of $8.1 billion fell slightly below analysts’ estimate of $8.2 billion.
- International revenue, which makes up more than three quarters of the company’s total, rose 21% to $6.3 billion in the three months to June 30, while revenue from North American climbed 14% to $1.75 billion.
- The company, formerly called Schlumberger, reported net income excluding items of 72 cents per share for the three months ended June 30, compared with analysts’ average estimate of 71 cents per share, according to Refinitiv data.
Regions Financial 2Q Revenue Rises on Higher Rates – Market Watch, 7/21/2023
- Regions Financial reported higher revenue as rising interest rates lifted net interest income.
- Revenue climbed 12% to $1.96 billion, topping analysts’ expectations for revenue of $1.95 billion, according to FactSet.
- The Birmingham, Ala.-based parent of Regions Bank posted a second-quarter profit of $581 million, or 59 cents a share, compared with $583 million, or 59 cents a share, in the same quarter a year ago.
- The results matches analysts’ expectations, according to FactSet.
- The bank’s provision for credit losses was $118 million, up from $60 million a year ago but down from $135 million in the previous quarter.
- AutoNation’s stock rose in premarket trade Friday, after the new and used car retailer posted better-than-expected second-quarter earnings.
- Revenue rose to $6.890 billion from $6.869 billion a year ago, also ahead of the $6.779 billion FactSet consensus.
- Adjusted per-share earnings came to $6.29, comfortably ahead of the $5.91 FactSet consensus.
Comerica earnings beat target on increased loan activity – Market Watch, 7/21/2023
- Comerica stock is rallying in premarket trades Friday after the bank beat its second-quarter profit forecast on average loan growth of 3.6% across multiple businesses including multi-family and industrial loans.
- Comerica’s net interest income in the second quarter totaled $621 million, above the estimate of $617 million.
- Comerica said its net income for the three months ended June 30 rose to $273 million, or $2.01 a share, from $261 million, or $1.92 a share, in the year-ago quarter. Analysts were looking for earnings of $1.86 a share, according to estimates compiled by FactSet.
- Looking ahead, Comerica expects a 4% drop in net interest income in the third quarter, with average loans about flat and average deposits down 1% to 2%.
Capital One Financial beats profit estimates on higher interest income – Reuters, 7/21/2023
- Consumer lender Capital One Financial reported a second-quarter profit on Thursday that beat analysts’ estimates, helped by higher income from borrowers following a rise in benchmark lending rates.
- Net interest income at Capital One, which is the difference between what banks earn from lending and pay out on deposits, rose 9% to $7.11 billion in the second quarter.
- On an adjusted basis, the bank earned $3.52 per share.
- Analysts had expected a profit of $3.23 per share, according to data from Refinitiv.
- Total deposits at Virginia-based Capital One were up 12% at $343.71 billion in the second quarter.
FTC Pauses Effort to Block Microsoft-Activision Deal – Wall Street Journal, 7/21/2023
- The U.S. Federal Trade Commission said it is pausing its in-house trial against Microsoft’s $75 billion takeover of videogame company Activision Blizzard, giving the agency time to evaluate its next move.
- The stay allows the commission to consider whether to drop the case or entertain a different outcome, such as a settlement, after the agency failed earlier this month in federal court to stop the deal.
Sergey Brin Is Back in the Trenches at Google – Wall Street Journal, 7/21/2023
- Google co-founder Sergey Brin is back at work.
- The multibillionaire has been visiting the tech giant’s Mountain View, Calif., offices in recent months generally three to four days a week, working alongside researchers as they push to develop the company’s next large artificial-intelligence system.
- Brin participated in meetings about AI at Google’s offices late last year, but the frequency and intensity of his involvement has picked up, said people familiar with the matter.
- His new stance is a notable change from the relatively hands-off approach he adopted after stepping down from an executive role at parent company Alphabet in 2019.
- He has worked closely with a group of researchers building Google’s long-awaited AI model Gemini.
- They have discussed technical matters such as “loss curves,” a way of measuring an AI program’s performance over time, and Brin has convened weekly discussions of new AI research with Google employees.
- He also has intervened in personnel matters, such as the hiring of sought-after researchers, the people said.
- User engagement on Threads has continued to fall after an initial surge in sign-ups, putting pressure on parent Meta Platforms to roll out new features for its nascent microblogging app.
- For a second week in a row, the number of daily active users declined on Threads, falling to 13 million, down about 70% from a July 7 peak, according to estimates from market intelligence firm Sensor Tower.
- The average time users spend on the iOS and Android apps has also decreased to four minutes from 19 minutes.
- The average time spent for Android users in the U.S. dropped to five minutes from a peak of 21 minutes on launch day, according to SimilarWeb, a digital data and analytics company.
- Twitter’s daily active users remain steady at about 200 million, and average time spent is at 30 minutes a day, according to Sensor Tower estimates.
- Meta executives have said they expected an eventual decline after the app gained more than 100 million sign-ups within a week of its launching earlier this month.
- Researchers at Google DeepMind have discovered a more efficient and automated method of designing computer chips using artificial intelligence, which the lab’s parent company, Alphabet, said could improve its own specialized AI chip.
- The focus on building faster, more-efficient chips comes as semiconductor heavyweights like Nvidia and AMD race to provide the computing power for businesses’ ever-growing demand for generative AI capabilities.
- But cloud-computing giants like Google and Amazon, too, have been designing their own AI chips, and betting that their homegrown hardware can be faster and less costly to run than the competition.
- Google said it is exploring the use of its “latest AI breakthroughs” to improve its custom AI chips, called Tensor Processing Units or TPUs.
- “AI is improving everything we do such as composition, understanding, coding and robotics, and the same is becoming true with hardware design,” a spokesperson said.
Nasdaq 100 Reshuffle Adds Twist to $2.4 Trillion Options Event – Bloomberg, 7/21/2023
- An out-of-cycle rebalance in the Nasdaq 100 is adding another layer of wrinkles to stock trading with a flood of options expiring Friday.
- The special index rebalance, intended to reduce the dominance of technology megacaps, may see passive investors use the last window to bring their portfolios in line with the benchmark before the changes take effect Monday.
- The revamp is set to boost the presence of smaller members, with two-way transactions likely reaching $60 billion, according to an estimate by Min Moon, a strategist at JPMorgan Chase.
- The tech-heavy index’s rejig coincides with a monthly options event at a time when traders are anxiously waiting for corporate earnings and next week’s Federal Reserve policy meeting for clues on the market’s outlook.
- About $2.4 trillion of options contracts tied to stocks and indexes are scheduled to mature, according to an estimate by Rocky Fishman, founder of derivatives analytical firm Asym 500.
- The event known as OpEx generally sees Wall Street managers either roll over existing positions or start new ones.
Trucker Yellow Is Losing Customers as Teamsters Strike Looms – Wall Street Journal, 7/21/2023
- Debt-laden trucking company Yellow, one of the nation’s largest freight carriers, is trying to stave off a labor action that is sending shipping customers rushing to rival operators, adding to financial woes that are threatening the company’s survival.
- Some of the U.S.’s largest freight brokers are diverting business from Yellow to other carriers amid fears that goods could get stuck as Yellow unionized workers prepare to strike next week in actions that could push the company toward bankruptcy.
- “We are really hoping they can resolve this and if they do we will bring [freight] back,” said Lior Ron, CEO of Uber’s freight unit, which decided Tuesday night to stop sending shipments to Yellow.
- “Until that point we need to do what’s in the best interest we think of our shippers and protect against any future disruptions.”
- The Teamsters union on Tuesday warned it could strike as soon as Monday after Yellow missed a healthcare and pension payment deadline that threatened to cut off benefits for some of its 22,000 unionized workers.
US ECONOMY & POLITICS
- The Biden administration says it has reached a deal with big tech companies to put more guardrails around artificial intelligence, including the development of a watermarking system to help users identify AI-generated content, as part of its efforts to rein in misinformation and other risks of the rapidly growing technology.
- The White House said seven major AI companies—Amazon.com, Anthropic, Google, Inflection, Meta Platforms, Microsoft and OpenAI—are making voluntary commitments that also include testing their AI systems’ security and capabilities before their public release, investing in research on the technology’s risks to society, and facilitating external audits of vulnerabilities in their systems.
- Most of the companies declined to comment or didn’t immediately respond to a request for comment.
- Leaders from the companies will meet with Biden at the White House on Friday.
New Jersey Sues Federal Government Over New York’s Congestion Tolls – Wall Street Journal, 7/21/2023
- New Jersey Gov. Phil Murphy announced a lawsuit Friday that could upend plans by New York officials to raise money for the subway system by charging congestion tolls on people who drive into the busiest parts of Manhattan.
- The Garden State sued the U.S. Department of Transportation and Federal Highway Administration in federal court in Newark, arguing the agencies need to conduct a fuller environmental impact study of what would be the nation’s first congestion pricing system.
- “We believe the feds short-circuited the normal review process,” the Democratic governor said in an interview on Good Day New York.
- New York’s Metropolitan Transportation Authority, which will oversee congestion pricing, didn’t immediately respond to a request for comment.
- MTA officials have previously said they conducted an extensive environmental analysis.
EUROPE & WORLD
China Introduces More Measures to Increase Car Consumption – Bloomberg, 7/21/2023
- China outlined a series of measures to increase car purchases, particularly for new-energy vehicles, as the world’s second-biggest economy struggles to escape the shadow of Covid and lift growth.
- The National Development and Reform Commission, China’s main economic planning body, set out 10 steps, including lower costs for electric-vehicle charging and extending tax breaks, though it didn’t disclose specific figures.
- The NDRC announced the latest measures at a briefing in Beijing on Friday. Here are the main themes:
- Encourage local governments to increase annual car purchase quotas.
- Accelerate phasing out of gasoline-powered vehicles.
- Strengthen facilities for NEVs.
- Improve power grid capacity in rural areas to support NEV charging.
- Reduce cost of purchasing and using NEVs, including tax breaks.
- Strengthen automobile consumer financial services.
U.S. Companies Score Partial Reprieve From Global Minimum Tax Deal – Wall Street Journal, 7/21/2023
- U.S.-based companies won relief from two pieces of the global minimum tax deal, and the changes will delay or reduce the taxes they are set to pay to foreign countries.
- Under the updated agreement negotiated by the Treasury Department, companies will have an extra year—until 2026—before foreign countries can start imposing new taxes on any U.S. companies deemed to pay too little tax in the U.S.
- And the clean-energy tax credits at the core of last year’s Inflation Reduction Act will be counted in a more favorable way than some companies had feared, offering certainty as a tax-credit trading market gets under way.
- The Organization for Economic Cooperation and Development, which is leading the talks, detailed the changes Monday in technical guidance after negotiations among countries.
U.S. Ambassador to China Hacked in China-Linked Spying Operation – Wall Street Journal, 7/21/2023
- Hackers linked to Beijing accessed the email account of the U.S. ambassador to China, Nicholas Burns, in an attack that is believed to have compromised at least hundreds of thousands of individual U.S. government emails, according to people familiar with the matter.
- Daniel Kritenbrink, the assistant secretary of state for East Asia, was also hacked in the cyber-espionage attack, the people said.
- The two diplomats are believed to be the two most senior officials at the State Department targeted in the alleged spying campaign disclosed last week, one of the people said.
- Though limited to unclassified emails, the inboxes of Burns and Kritenbrink could have allowed the hackers to glean insights into U.S. planning for a recent string of visits to China by senior Biden administration officials, as well as internal conversations about U.S. policies toward its rival amid a period of delicate diplomacy that has been challenged repeatedly in recent months.
- Instead, the hackers appeared to focus on a small number of senior officials responsible for managing the U.S.-China relationship.
U.S. Soldier’s Crossing Into North Korea Points to Security Gaps – Wall Street Journal, 7/21/2023
- Travis King was supposed to be on an American Airlines flight out of South Korea on Monday. He never made it.
- Instead, the U.S. soldier who was facing potential military disciplinary action in Texas wound up crossing into North Korea a day later, in a series of events that has raised questions about the security measures at a tourist site in the Demilitarized Zone and the handling of King’s planned departure by the U.S. military.
- North Korea hasn’t responded to U.S. efforts to engage the regime over the status of King, a 23-year-old who was a private second class in the Army.
- King, who had faced assault allegations in South Korea, was escorted to Incheon Airport on Monday by U.S. service members to board an American Airlines flight to Texas, according to U.S. and airport officials.
- He was set to be met by military officers in Texas to face disciplinary actions and a potential discharge.
Russia Raises Rates for First Time Since Invasion Aftermath – Bloomberg, 7/21/2023
- Russia raised interest rates for the first time since emergency measures taken after the invasion of Ukraine almost 17 months ago, delivering a bigger increase than forecast by economists and signaling borrowing costs may rise higher still.
- The central bank on Friday lifted its benchmark to 8.5% from 7.5%, more than any forecast in a Bloomberg survey.
- Speaking after the meeting in Moscow, Governor Elvira Nabiullina said the board of directors considered increases of 75 and 100 basis points, and the magnitude of its future steps will depend on incoming data and how the economy reacts to monetary tightening.
- “At the coming meetings, we allow for the possibility of a further increase in the key rate,” she said.
- A weaker ruble accelerated the timeline for monetary tightening after months of warnings by the central bank that higher rates were on the way in response to inflationary risks from heavy government spending, sanctions and labor shortages caused by the call-up of men to fight in Ukraine.
- In their statement, policymakers said price growth is currently running above 4% in annualized terms and is “still on the rise.”
- The central bank tweaked its forecast for inflation and now predicts it will end the year at 5%-6.5%.
- The U.S. military said it is sending additional warships and Marines to the Middle East in an effort to deter Iran from seizing more ships in the region.
- Defense Secretary Lloyd Austin ordered the new forces to the region, the Pentagon said late Thursday, after the U.S. Navy thwarted separate attempts earlier this month by Iran to seize two oil tankers in international waters in the Gulf of Oman.
- Middle East allies have been pressing the U.S. to do more to confront Iran, which—in the span of a week this spring—seized two tankers, including one carrying Kuwaiti crude oil to Houston for Chevron.
- The United Arab Emirates expressed particular frustration with the lack of a U.S. response to Iran’s seizure of the tankers earlier this year and called on the Pentagon to send more forces to the Persian Gulf.
- The U.S. has sent a series of forces into the Middle East over the past three months to discourage Iranian military forces from disrupting commercial ships moving through the region.
U.K. Prime Minister Sunak Suffers Election Setback – Wall Street Journal, 7/21/2023
- The U.K.’s ruling Conservative Party lost special elections in two of its strongholds as voters expressed anger with a stagnant British economy and high inflation, pointing to the challenges Prime Minister Rishi Sunak could face in a general election next year.
- The loss in Selby and Ainsty—a district with deep Conservative roots—reflects discontent in a country where public services are creaking, taxes are at a 70-year high and mortgage costs are rising sharply.
- In Somerton and Frome, a southwestern district, the centrist Liberal Democrats took a seat that the Conservatives had last won by 29 points.
- National opinion polls show the opposition Labour Party with a 22-point lead over the Conservative Party, according to Ipsos.
- The three special elections were held to replace three Conservative lawmakers who quit Parliament, including former Prime Minister Boris Johnson, who resigned in protest against a parliamentary report that found he had intentionally lied to lawmakers about his attendance at parties during Covid-19.
Factmonster – TODAY in HISTORY
- Confederate forces won victory at Bull Run in the first major battle of the Civil War. – 1861
- The first train robbery west of the Mississippi was pulled off by Jesse James and his gang. – 1873
- In the “Monkey Trial,” John T. Scopes was found guilty of violating Tennessee state law by teaching evolution. – 1925
- The U.S. Senate ratified the North Atlantic Treaty. – 1949
- The Aswan High Dam was opened in Egypt. – 1970
- WorldCom filed for bankruptcy, then the largest bankruptcy in U.S. history. – 2002
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