US FINANCIAL MARKET
Treasuries Kick Off Week With Losses After Fed speak: Market Wrap – Bloomberg, 8/7/2023
- Treasuries started the week under pressure after remarks from a Federal Reserve official signaled interest rates could remain higher for longer to tame inflation pressures.
- Ten-year US yields resumed their advance, the dollar fluctuated and the S&P 500 rebounded from its worst weekly drop since March.
- The tech-heavy Nasdaq 100 underperformed, led by losses in Tesla and Apple.
- The S&P 500 rose 0.7%. The Nasdaq 100 rose 0.5%. The Dow Jones Industrial Average rose 1%.
- Fed Governor Michelle Bowman said she expects “additional increases will likely be needed.”
- Meantime, Fed Bank of New York President John Williams cited the need to keep policy restrictive “for some time” while noting rate cuts may be warranted next year if inflation slows.
- The US consumer price index due later this week could stoke more volatility.
- Hedge funds ramped up their bearish Treasury bets to a record last week just as yields surged toward multi-month highs, while more traditional investors were burnt having boosted wagers in the opposite direction with similar conviction.
- Leveraged fund increased net-short positions of longer-maturity Treasuries derivatives to the most since figures going back to 2010, according to an aggregate of Commodity Futures Trading Commission data for the week to Aug. 1.
- Asset managers took opposite bets, taking their own net-bullish positions to an all-time high.
- A clear majority of investors expect a US recession before 2024 is out, leading them to view the current bull market in stocks as ephemeral and to favor long-term US Treasuries.
- That’s the takeaway from the latest Markets Live Pulse survey, which showed that roughly two-thirds of the 410 respondents anticipate a downturn in the world’s biggest economy by the end of next year.
- Tesla said Chief Financial Officer Zachary Kirkhorn stepped down after 13 years at the company, a surprise shakeup at the electric-vehicle giant.
- Tyson Foods declined as it will shut down four additional chicken facilities after fiscal third-quarter sales trailed even the lowest of analyst estimates.
- Berkshire Hathaway rose after posting gains in operating profit as strength in its insurance businesses helped counter inflationary pressures that have weighed on the sprawling conglomerate in the last year.
- Campbell Soup agreed to buy Sovos Brands Inc. in a deal valued at $2.7 billion, expanding the soupmaker’s presence in frozen meals and giving it a foothold in the pasta sauce market.
- Elsewhere, wheat extended gains after Ukraine used sea drones to cripple a Russian naval vessel and an oil tanker over the weekend, posing a risk for a key export route for Russian commodities through the Black Sea.
- West Texas Intermediate traded near $82 a barrel at the start of the week after rising more than 4% over the previous two sessions.
- The Stoxx Europe 600 was little changed.
- The Bloomberg Dollar Spot Index was little changed.
- The yield on 10-year Treasuries advanced four basis points to 4.07%.
- Gold futures fell 0.3% to $1,970.30 an ounce.
Berkshire Operating Earnings Jump on Insurance Strength – Bloomberg, 8/7/2023
- Warren Buffett’s Berkshire Hathaway posted gains in operating profit as strength in its insurance businesses helped counter inflationary pressures that have weighed on the sprawling conglomerate in the last year.
- The firm reported $10.04 billion of operating profit for the second quarter, surpassing its $9.28 billion haul from the same period last year.
- The results were largely driven by a 74% increase in insurance underwriting earnings to $1.25 billion, as it trimmed expenses at auto insurer Geico and benefited from its acquisition of underwriter Alleghany.
- One business that performed worse was its railroad unit BNSF, where profit fell 24% as freight volumes dipped and an increase in headcount and wage inflation contributed to higher costs for compensation and benefits.
- Berkshire spent $1.4 billion in the quarter on share buybacks.
- That cash hoard reached $147.4 billion in the quarter, the second-highest level in data going back to 2014.
- The company was also a net seller of equities in the quarter.
Tyson Foods to Close Four Plants as Chicken Business Slumps – Wall Street Journal, 8/7/2023
- Tyson Foods is closing four more processing plants as it continues to try to fix its chicken business, while challenges persist across its beef and pork operations.
- Tyson said it plans to close facilities in Corydon, Ind.; Dexter, Mo.; Noel, Mo.; and North Little Rock, Ark., shifting production to other facilities as part of a broader effort to cut costs.
- Tyson said quarterly revenue declined 2.6% to $13.1 billion.
- The Springdale, Ark., company, a bellwether for the American meat industry, posted a loss of $417 million, or $1.18 a share, for the three-month period ended July 1, compared with a $750 million profit a year earlier.
- The results were lower than what analysts polled by FactSet had expected.
- The company estimated total charges of $300 million to $400 million related to the closures and declined to say how many workers would be impacted.
- Operating income from its chicken business swung to a $314 million loss for the quarter from a $277 profit million a year ago.
- Quarterly operating income from its beef unit fell to $66 million from $533 million a year earlier.
- Tyson’s pork unit reported an operating loss of $74 million as sales fell to $1.3 billion for the quarter from $1.6 billion the same time a year ago.
- Tyson reported a $234 million operating loss for its international business, compared with a $12 million profit a year earlier.
- The company said its sales price for beef for the quarter rose by an average 5.2% compared with the same period a year ago, while chicken prices decreased 5.5% and fell 16% for pork.
Tesla Finance Chief Zachary Kirkhorn Has Stepped Down – Wall Street Journal, 8/7/2023
- Tesla said Chief Financial Officer Zachary Kirkhorn stepped down last week after a 13-year tenure with the Elon Musk-helmed electronic vehicle maker.
- Kirkhorn, who most recently served as CFO and “master of coin,” will stay with the company through the end of the year to support the transition.
- Tesla appointed Vaibhav Taneja as CFO on Aug. 4, succeeding Kirkhorn.
- Taneja, 45, most recently served as Tesla’s chief accounting officer.
Campbell Soup to Acquire Rao’s Parent Company for $2.7 Billion – Wall Street Journal, 8/7/2023
- Campbell Soup has agreed to acquire Sovos Brands, the parent company of food brands including Rao’s pasta sauces and noosa yogurt, in a deal valued at about $2.7 billion.
- The companies said Monday that Campbell would buy Sovos for $23 a share.
- The stock closed at $18.02 Friday.
- Campbell said the acquisition adds a market-leading portfolio of brands to its meals and beverages division.
- The Rao’s line of sauces, Sovos’s flagship brand, saw organic sales grow by more than a third in fiscal 2022.
- The deal has been approved by the board of directors of both companies and is expected to close in December.
- Campbell is planning to finance the deal with the issuance of new debt.
Trucker Yellow Files for Bankruptcy, Will Liquidate – Wall Street Journal, 8/7/2023
- Yellow, the 99-year-old trucking company, filed for bankruptcy and is closing the business, falling victim to mounting debt including a government loan and a standoff with the Teamsters union.
- The bankruptcy follows years of struggles for the Nashville, Tenn.-based trucker as it tried to address the debt it accumulated through a series of mergers and a $700 million federal Covid-19 relief loan during the pandemic.
- On July 30, the company shut down its operations and laid off a large number of workers.
- “It is with profound disappointment that Yellow announces that it is closing after nearly 100 years in business,” Chief Executive Darren Hawkins said in announcing the filing for chapter 11 bankruptcy protection late Sunday in U.S. Bankruptcy Court in Delaware.
- The closure means the loss of 30,000 jobs, including 22,000 positions held by the members of the International Brotherhood of Teamsters.
- Yellow owns some 12,000 trucks and dozens of freight terminals across the country.
PayPal Launches a Stablecoin in Latest Crypto Payments Push – Bloomberg, 8/7/2023
- PayPal Holdings is rolling out a stablecoin, the first by a large financial company and a potentially significant boost to the sluggish adoption of digital tokens for payments.
- PayPal USD (PYUSD) is issued by Paxos Trust and fully backed by US dollar deposits, short-term Treasuries and similar cash equivalents, the San Jose, California-based payments company said on Monday.
- It’s pegged to the dollar and will be gradually available to PayPal’s customers in the US.
- With PYUSD, Chief Executive Officer Dan Schulman is seeking to cement PayPal’s dominance in digital payments by leaning on technology that enables instant and lower-cost transfers without a central intermediary.
- “The vision over time is that this becomes a part of the overall payments infrastructure,“ Schulman, who’s preparing to step down in coming months, said in an interview.
US ECONOMY & POLITICS
Fed’s Bowman Signals More Rate Hikes Likely Will Be Needed – Bloomberg, 8/7/2023
- Federal Reserve Governor Michelle Bowman said the US central bank may need to raise rates further in order to fully restore price stability.
- “Additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2% target,” Bowman said, referencing the policy-setting Federal Open Market Committee.
- Bowman, in remarks prepared for an event with the Kansas Bankers Association in Colorado on Saturday, said she supported the decision to raise rates at the Fed’s meeting last month.
- “The recent lower inflation reading was positive, but I will be looking for consistent evidence that inflation is on a meaningful path down toward our 2% goal as I consider further rate increases and how long the federal funds rate will need to remain at a restrictive level,” she said.
- “I will also be watching for signs of slowing in consumer spending and signs that labor market conditions are loosening.”
Fed’s Williams Says He Sees Restrictive Rates for Some Time – Bloomberg, 8/7/2023
- Federal Reserve Bank of New York President John Williams sees the need to keep US monetary policy restrictive for some time and said interest-rate cuts may be warranted next year if inflation slows.
- “Monetary policy is in a good place — we’ve got the policy where we need to be,” Williams said in an Aug. 2 interview with the New York Times that was published Monday.
- “Whether we need to adjust it in terms of that peak rate — but also how long we need to keep a restrictive stance — is going to depend on the data.”
- “I expect that we will need to keep a restrictive stance for some time,” he said, according to the Times.
- The need for more rate hikes is “an open question,” Williams told the Times.
- In his outlook, inflation returns to the central bank’s goal of 2% over the next two years and the economy comes into better balance.
- “Eventually, monetary policy will need over the next few years to get back to a more normal — whatever that normal is — a more normal setting of policy,” Williams said, according to the Times.
EUROPE & WORLD
Maersk Is Cutting Costs on Continued Container Downturn – Wall Street Journal, 8/7/2023
- A.P. Moller-Maersk is sharpening its focus on cost cutting in what the carrier says is a contracting container shipping market.
- Maersk reported a quarterly net profit of $1.45 billion, down from $8.62 billion in the same period last year, as revenue fell 40% to $12.99 billion.
- A FactSet consensus had seen net profit at $591 million on revenue of $13.09 billion.
- Maersk said its shipping customers continued to reduce inventory in the quarter, particularly in North America and Europe, as the weaker global growth environment weighed on consumer demand, pushing freight rates at Maersk’s main shipping unit down 51% from a year ago and volumes 6.1% lower.
- Revenue in the division fell 50%.
- But Maersk’s cost cuts helped earnings beat expectations and prompted the company to raise the lower end of its full-year guidance range.
- The Danish shipping giant upgraded its earnings outlook even as it lowered projections for freight demand, saying it now expects global container volumes to decline between 1% and 4% this year and that it will adjust its operations to slowing business.
- Maersk now expects full-year underlying earnings before interest and taxes of $3.5 billion to $5 billion and free cash flow of $3 billion for 2023.
- It had previously guided for EBIT of $2 billion to $5 billion and FCF of at least $2 billion.
Saudi Aramco’s Profit Drops, Hit by Lower Oil Prices, Output – Wall Street Journal, 8/7/2023
- Saudi Arabia’s national oil company posted a 38% drop in quarterly profit due to lower energy prices and production cuts, but boosted its dividend by more than half—highlighting the kingdom’s dependence on oil revenues.
- Saudi Arabian Oil, known as Aramco, said Monday that its net profit fell to 112.81 billion Saudi riyals, roughly $30.08 billion, for the quarter ending June 30, from $48.44 billion in the same period last year when it benefited from soaring oil prices after Russia invaded Ukraine.
- The second-quarter profit came slightly above the $29.8 billion expected by 15 analysts in an Aramco-provided poll.
- Free cash flow fell to $23.16 billion from $34.61 billion in the previous year, the company said.
- Aramco said its total dividend payout will be $29.4 billion for the second quarter, including a performance-linked portion, up from a regular dividend of $18.8 billion a year earlier amid a move by international oil companies to boost payouts to shareholders even as profit declined.
- The company is in talks with banks to raise cash by selling more shares through a secondary listing, people familiar with the matter say.
Russia and China Sent Large Naval Patrol Near Alaska – Wall Street Journal, 8/7/2023
- A combined Russian and Chinese naval force patrolled near the coast of Alaska last week in what U.S. experts said appeared to be the largest such flotilla to approach American shores.
- Eleven Russian and Chinese ships steamed close to the Aleutian Islands, according to U.S. officials.
- The ships, which never entered U.S. territorial waters and have since left, were shadowed by four U.S. destroyers and P-8 Poseidon aircraft.
- “It is a historical first,” said Brent Sadler, a senior research fellow at the Heritage Foundation and a retired Navy captain.
- “Given the context of the war in Ukraine and tensions around Taiwan, this move is highly provocative.”
- A spokesman for the U.S. Northern Command confirmed that Russia and China had carried out a combined naval patrol near Alaska, but didn’t specify the number of ships or their precise location.
- “Air and maritime assets under our commands conducted operations to assure the defense of the United States and Canada. The patrol remained in international waters and was not considered a threat,” the command said.
Albemarle to Pay $218.5 Million to Settle Foreign Bribery Probe – Wall Street Journal, 8/7/2023
- Albemarle, the world’s most valuable lithium producer, reached an agreement in principle with U.S. authorities to pay a $218.5 million fine to resolve an investigation into potential improper payments by third-party sales representatives, the chemicals manufacturer said.
- The agreement, which has yet to be finalized, would resolve possible violations of the U.S. Foreign Corrupt Practices Act, an antibribery law, which Albemarle voluntarily disclosed to the Justice Department and U.S. Securities and Exchange Commission in 2018.
- Founded in 1887 as a paper mill, the Charlotte, N.C.-based company has become one of the biggest producers worldwide of the chemicals used to make lithium-ion batteries.
- It released details of the impending settlement in a quarterly earnings report to investors on Wednesday.
- Under the agreement, Albemarle would enter into a non-prosecution agreement with U.S. prosecutors, and an administrative settlement with the SEC.
- The company won’t be required to retain an independent monitor, but instead would need to make periodic reports about its compliance with the FCPA, Albemarle said.
Siemens Energy Sees €4.5 Billion Hit, Wind Losses Prompt Review – Bloomberg, 8/7/2023
- Siemens Energy AG launched a strategic review of its wind power business as problems with its turbines are expected to cause a €4.5 billion ($5 billion) net loss in one of industrial Germany’s biggest debacles.
- The worsening outlook, which compares with a previous roughly €1 billion net loss prediction, marks the latest setback for the German manufacturer in getting to grips with quality flaws and unprofitable contracts weighing on its wind unit.
- Siemens Energy’s other businesses are performing well and the company has strong cash reserves.
- The quality issues, which can occur in onshore turbines at some rotor blades and main bearings across two platforms, are unlikely to happen again in the same magnitude, Jochen Eickholt, who heads the Siemens Gamesa Renewable Energy wind unit, said Monday on a call.
- The problems center on the discovery that a main piece on the frame of a wind turbine can move or twist over time, potentially damaging other critical components, people familiar with the matter have said.
- Siemens Energy on Monday said total costs to fix the flaws in Gamesa’s onshore turbines will cost €1.6 billion.
- Despite the additional charges, Siemens Energy has cash and cash equivalents of around €4.3 billion.
- During the fiscal third quarter through June, revenue gained 8% to €7.5 billion after orders jumped by more than 50%.
- Net losses ballooned more than five-fold to €2.93 billion as the costs of fixing issues at its Gamesa units drag on earnings.
- Congress established the U.S. War Department. – 1789
- The wooden raft Kon-Tiki, which carried Thor Heyerdahl and five companions more than 4,000 miles, crashed into a reef in the Pacific. – 1947
- The United States launched Explorer 6, which sent back a picture of Earth. – 1959
- Congress passed the Tonkin Gulf Resolution, which expanded President Johnson’s use of military powers in the Vietnam War. – 1964
- S. embassies in Kenya and Tanzania were bombed, by terrorists. Some 224 were killed and more than 5,500 injured. – 1998
- Joseph Lieberman of Conn., was selected by Al Gore to be the first Jewish vice-presidential candidate on a major party ticket. – 2000