US FINANCIAL MARKET
U.S. Stocks Pare Losses After Initial Drop on Jobs Report – Wall Street Journal, 8/5/2022
- U.S. stocks pared losses Friday after initially tumbling on a surprisingly strong jobs report.
- The jobs report dashed hopes of the Federal Reserve shifting away from its plan of interest-rate increases anytime soon.
- Investors had come to widely believe that the Fed could pivot to cutting interest rates as early as the first half of 2023, given signs of cooling activity across the economy.
- That was meant to be a balm for markets, which have tumbled this year as the Fed has swiftly raised interest rates to combat stubbornly high inflation.
- But Friday’s data showed the labor market was doing anything but cooling. The labor market added 528,000 jobs in July—more than doubling what analysts had estimated and returning payrolls to their prepandemic level.
- Meanwhile, the unemployment rate fell to 3.5%, near historic lows.
- Bond prices fell, with the yield on the benchmark 10-year Treasury note jumping to 2.836% from 2.674% Thursday. Yields and prices move inversely.
- Virgin Galactic shares fell 12% after the company delayed its initial launch of tourists into space.
- Warner Bros. Discovery shares declined 13% after the new company swung to a $3.42 billion loss in the second quarter, which it said was partly due to charges related to the recent merger that created the media giant.
- Zillow Group’s shares fell 4.5% after the online real-estate company issued a third-quarter outlook reflecting the slowing demand in the housing market from higher home prices, mortgage rates and inflation.
- Overseas, the pan-continental Stoxx Europe 600 fell 0.6%.
- In Asia, major indexes closed with gains. Japan’s Nikkei 225 added 0.9%, South Korea’s Kospi rose 0.7% and China’s Shanghai Composite gained 1.2%.
Lyft Belt-Tightening Aids Second-Quarter Results – Wall Street Journal, 8/5/2022
- Lyft said belt tightening amid rising inflation and slowing economic growth helped deliver a stronger-than-expected adjusted operating result.
- Lyft said revenue for April through June was $990.7 million, up 30% from the year-prior period, and narrowly ahead of what analysts surveyed by FactSet expected.
- Lyft said it grew its number of active drivers in the second quarter by 25% from the year-earlier period.
- The ride-hailing company on Thursday posted an adjusted operating profit for the second quarter, which strips out some items, of $79.1 million, well ahead of its own projection three months ago and Wall Street’s forecasts.
- Lyft still posted a wider net loss at $377.2 million compared with the year prior.
- For the current quarter, Lyft projects sales of $1.04 billion to $1.06 billion, or 20% to 23% growth over the year-ago figure, and an adjusted operating profit of $55 million to $65 million, Chief Financial Officer Elaine Paul said on the earnings call.
- The company now is targeting $1 billion in adjusted operating profit in 2024 and $700 million of free cash flow, Lyft Chief Executive Logan Green said on an earnings call.
Dorsey’s Block slows hiring, investment as bitcoin plunge slams earnings – Reuters, 8/5/2022
- Jack Dorsey-led Block said it has slowed hiring and will slash its 2022 investment target by $250 million, after a slump in bitcoin prices dragged the digital payments company to a loss in the second quarter.
- Block’s recently acquired buy-now-pay-later unit Afterpay contributed $150 million of gross profit in the quarter, split across the company’s Square and Cash App segments. That helped Cash App post a 29% jump in gross profit.
- Net loss attributable to common stockholders came in at 36 cents per share, from a profit of 40 cents last year.
- Excluding one-time items, it reported a profit of 18 cents, slightly higher than analysts’ estimates of 17 cents a share, according to Refinitiv IBES.
DoorDash Revenue Climbs as Restaurants Raise Prices, Consumers Continue Spending – Wall Street Journal, 8/5/2022
- DoorDash’s revenue rose in the latest quarter, as consumers stuck to ordering food and household essentials despite restaurant and store reopenings.
- DoorDash’s revenue in the three months through June grew 30% to $1.6 billion from a year earlier. That compared with the average revenue estimate of $1.52 billion from analysts polled by FactSet.
- Total orders grew 23% to 426 million, also beating Wall Street’s forecast of 419 million orders. DoorDash said that its order volume would have been even stronger “in a healthier discretionary spending environment.”
- The company’s second-quarter loss widened to $263 million from a loss of $102 million a year earlier; analysts on average were expecting a loss of $149 million.
- The company said it expects 2022 order value to range from $51 billion to $53 billion, up from its previous guidance of $49 billion to $51 billion. The new guidance is in line with Wall Street’s forecast of $52.37 billion.
- DoorDash raised the low end of its projected range for that adjusted measure of earnings for the full year, saying it expects the number to be between $200 million and $500 million, compared with a previous forecast of break-even to $500 million. Wall Street expects the adjusted earnings figure to be $229 million for 2022.
Zillow Sees Housing Slowdown Hitting Revenue – Barron’s – 8/5/2022
- Zillow’s second-quarter earnings and guidance are the latest in a flurry of real estate earnings that illustrate the impact of a slowing housing market on companies and consumers alike.
- The real estate listings website reported $1 billion in revenue for the quarter, a 23% drop from the same quarter last year but better than the $985 million analysts tracked by FactSet expected.
- The bulk of Zillow’s revenue this quarter came from its IMT and Homes segments, which reported revenue of $475 million and $505 million, respectively.
- IMT revenue in the quarter was on the low end of Zillow’s forecast. Zillow’s Premier Agent business reported revenue of $333 million, a decrease of 5% from the same quarter last year.
- Revenue in Zillow’s Homes segment exceeded guidance and the company said it sold homes it owned more quickly than expected. It ended June with 71 homes in its inventory.
- The iBuyer reported a surprise loss for the second quarter with a net loss of 9 cents a share. Analysts tracked by FactSet expected a gain of 3 cents a share. The company’s revenue of about $4.2 billion was in line with estimates.
- The company’s third-quarter guidance fell short of expectations. Zillow anticipates total revenue in a range of $431 million to $461 million for the quarter, lower than the $563 million expected by analysts tracked by FactSet. Zillow expects adjusted Ebitda in a range of $73 million to $88 million, lower than expectations for $171 million.
DraftKings Gains as Quarterly Sales Top Estimates, Forecast Raised – Bloomberg, 8/5/2022
- DraftKings climbed after raising its full-year revenue forecast. The company continues to sign up new bettors despite decades-high US inflation squeezing consumers’ budgets.
- Revenue in the second quarter rose to $466 million, a 57% increase from the year-earlier period. That beat the average of analysts’ expectations at $438 million.
- DraftKings has 1.5 million monthly unique paying customers, up 30% from a year ago. That missed analysts’ expectations of 1.7 million, according to estimates compiled by Bloomberg, but DraftKings said its bettors are spending more money.
- Its average monthly revenue per player rose to $103 in the quarter, up from $80 a year earlier.
- DraftKings now sees revenue for the year in the range of $2.08 billion to $2.18 billion, up from $2.055 billion to $2.175 billion, the company said Friday. The guidance now includes Golden Nugget Online Gaming, which the company bought in May, as well as new markets like Ontario, Canada.
- DraftKings also forecast a narrower loss for the year, in terms of earnings before interest, taxes, depreciation and amortization.
Carvana Cuts Costs as Demand for Used Autos Remains Under Pressure – Wall Street Journal, 8/5/2022
- Online used-car dealer Carvana said it is aggressively cutting costs as demand from consumers remains under pressure and the company faces the prospect of an economic downturn.
- Total retail units sold rose 9% in the second quarter from a year earlier, to 117,564.
- The company reported a net loss of $238 million, compared with a profit of $22 million a year earlier.
- Gross profit per unit—one of its preferred metrics—was $3,368 compared with $5,120 during the prior-year period.
- Carvana includes revenue from loan sales under a metric called other gross profit per unit. That figure declined 27% from a year earlier, to $1,854.
Lower Gas Prices Threatened by Fuel Makers’ Limitations – Wall Street Journal, 8/5/2022
- American fuel makers dialed down production this month, a move that will reduce gas supplies and threatens to slow the decline in gasoline prices.
- Since hitting a record national average of $5 a gallon this summer, gasoline prices have tumbled about 91 cents and could slip to or below about $4 a gallon by mid-August, analysts said, as economic fears weigh on oil markets and American drivers cut back on fuel purchases.
- Marathon Petroleum Corp. and Phillips 66, two of the biggest U.S. refiners, said they are planning maintenance work in the second half of the year, with others expected to slow operations during the fall after running at breakneck speed during the summer months.
- Overall, U.S. oil refiners used 91% of their total fuel-making capacity last week, down from an annual high of 95% in late June and the lowest level since May, according to the Energy Information Administration.
Warner Bros. Discovery Weighs Free Ad-Supported Streaming Plan – Wall Street Journal, 8/5/2022
- Warner Bros. Discovery is exploring launching a free, ad-supported streaming service, its chief executive said, the latest effort by a streaming giant to reach a broader audience as the competition for users intensifies.
- The new company, the result of Discovery’s merger with AT&T Inc.’s WarnerMedia earlier this year, will first focus on a previously announced plan to combine its two main streaming services, HBO Max and Discovery+, executives said during a call with investors.
- The combined subscription platform will be rolled out starting in the U.S. next summer, said JB Perrette, the company’s CEO of global streaming.
- Revenue came in at roughly $9.83 billion.
- Warner Bros. Discovery said it had 92.1 million subscribers across its streaming platforms, up about 1.7 million from the first quarter.
- Warner Bros. Discovery—whose properties include the Warner Bros. movie studio and the cable channels TNT, Food Network and HGTV in addition to HBO and CNN—swung to a $3.42 billion loss in the second quarter, which it said was partly due to charges related to the merger.
- Mr. Wiedenfels said the company is now forecasting adjusted earnings before interest, taxes, depreciation and amortization of between $9 billion and $9.5 billion this year and of at least $12 billion in 2023.
- The company previously expected adjusted ebitda of $10.2 billion for this year and $14 billion for next year.
Italy, Intel close to $5 billion deal for chip factory – Reuters, 8/5/2022
- Italy is close to clinching a deal initially worth $5 billion with Intel to build an advanced semiconductor packaging and assembly plant in the country, two sources briefed on discussions told Reuters on Thursday.
- Intel’s investment in Italy is part of a wider plan announced by the U.S. chipmaker earlier this year to invest $88 billion in building capacity across Europe, which is striving to cut its reliance on Asian chip imports and ease a supply crunch that has curbed output in the region’s strategic car sector.
- Sources have previously told Reuters that Rome is ready to fund as much as 40% of Intel’s total investment in Italy, which is expected to rise over time from the initial $5 billion.
- Rome so far has set aside 4.15 billion euros until 2030 to attract chipmakers and invest in new industrial applications of innovative technologies.
- The government is also in talks with French-Italian STMicroelectronics , Taiwan chipmakers MEMC Electronic Materials and TSMC, and Israeli Tower Semiconductor, which Intel bought earlier this year.
- STMicroelectronics last month signed a pact with GlobalFoundries to build a $5.7 billion chip factory in France.
Amazon Buying Roomba Maker iRobot for $1.7 Billion – Wall Street Journal, 8/5/2022
- Amazon.com is buying Roomba maker iRobot for $1.7 billion, including debt, as the online retailer adds another connected-home product to its portfolio.
- Amazon on Friday said it is paying $61 a share for iRobot in an all-cash deal. The price represents a 22% premium to iRobot’s closing price of $49.99 on Thursday.
- iRobot would be the fourth-largest acquisition by Amazon, ranking behind the 2017 acquisition of Whole Foods for $13.7 billion, an $8.5 billion purchase of movie studio MGM in March and last month’s agreement to buy 1Life Healthcare for $3.9 billion.
- The deal came as iRobot reported a 30% decrease in second-quarter sales, which came in at $255.4 million, and a net loss that widened to $43.4 million, or $1.60 a share, from $2.8 million, or 10 cents a share, in the year-ago quarter.
Pfizer in Advanced Talks to Buy Global Blood Therapeutics for About $5 Billion – Wall Street Journal, 8/5/2022
- Pfizer is in advanced talks to buy Global Blood Therapeutics, the maker of a recently approved drug for sickle-cell disease, for about $5 billion, in the latest move by the drug giant to bolster its portfolio and pipeline.
- Pfizer is aiming to seal a deal for GBT in the coming days, according to people familiar with the matter. The situation is still fluid, and other suitors are still in the mix, some of the people said. GBT announces its second-quarter results Monday.
- Sickle-cell disease is an inherited blood disorder affecting about 100,000 people in the U.S.
- Pfizer has been interested in sickle cell, but a drug it had been developing failed in 2019. It has another one in early-stage development.
US ECONOMY & POLITICS
US Job Growth Surges, Tempering Recession Worry and Pressing Fed – Bloomberg, 8/5/2022
- US employers added more than double the number of jobs forecast, illustrating rock-solid labor demand that tempers recession worries and suggests the Federal Reserve will press on with steep interest-rate hikes to thwart inflation.
- Nonfarm payrolls jumped 528,000 in July, a broad advance that beat all estimates and was the largest in five months, Labor Department data showed Friday. Employment in June was revised up to a 398,000 gain.
- The unemployment rate fell to 3.5%, matching a five-decade low.
- The median estimates in a Bloomberg survey of economists called for a 250,000 payrolls gain and for the jobless rate to hold at 3.6%.
- Average hourly earnings also surprised to the upside, rising 0.5% in July after an upwardly revised 0.4% gain in the prior month. From a year earlier, earnings advanced 5.2% for a second month.
- The labor force participation rate — the share of the population that is working or looking for work — fell to 62.1%, the lowest this year and driven by a sharp drop among teenagers.
- The rate for workers ages 25-54, however, ticked higher.
‘Sizzling’ US Jobs Data Make Case for Bigger Fed Rate Increases – Bloomberg, 8/5/2022
- A blowout US jobs report for July means the Federal Reserve will need to keep going with the most aggressive rate hikes in decades to curb demand and inflation.
- The data add impetus for the Federal Open Market Committee to raise interest rates by 75 basis points when it meets in September, matching the moves it made in June and July as it works to cool an inflation rate that’s running at a 40-year high.
- The strong momentum could also suggest the central bank will need to keep rates higher for longer, contrary to market expectations for rate cuts in 2023.
- Friday’s jobs data, while important, was just one of four key reports that will shape the FOMC decision next month.
- There will be one more employment print and two consumer-price index readouts, with the July data out on Aug. 10. That report should show slowing inflation because of plunging gas and commodities prices.
- Yields on two-year Treasuries surged in response to the jobs report, a reflection of the expected Fed rates over that period.
- Market pricing indicated a 75 basis-point increase to the Fed’s key rate is now seen as a more likely outcome in at the central bank’s September meeting than 50 basis points.
U.S. Trade Deficit Narrows as Energy Exports Rise – Wall Street Journal, 8/5/2022
- The U.S. trade deficit narrowed sharply in June to its lowest level in six months as a rise in shipments of energy products pushed up exports, while cooling consumer appetite weighed on imports.
- The trade gap in goods and services shrank 6.2% in June to $79.6 billion after seasonal adjustment, the Commerce Department said Thursday, down from May’s revised deficit of $84.9 billion.
- That marked the first time the deficit has been below $80 billion since December 2021.
- Exports grew 1.7% to $261 billion, helped largely by higher shipments of energy and food products. Imports fell 0.3% to $340 billion, reflecting sizable declines in American purchases of autos and food items.
- U.S. exports of industrial supplies and materials, which include natural gas and petroleum products, rose 6.5% in June from a month earlier. Also included in the category is gold, whose exports rose by more than $1 billion to nearly $5 billion.
Sen. Kyrsten Sinema Wins Tax Changes to Democrats’ Climate Bill – Wall Street Journal, 8/5/2022
- Democrats revised their climate and healthcare package, striking a deal with centrist Sen. Kyrsten Sinema (D., Ariz.) to scale back some tax provisions in the plan and add in a new tax on stock buybacks to try to win her support.
- In a brief statement Thursday night, Ms. Sinema said she would move forward with the legislation after a review of its provisions by the Senate’s nonpartisan parliamentarian.
- While Ms. Sinema didn’t outright back the plan, Senate Majority Leader Chuck Schumer (D., N.Y.) said in his own statement that he believed the changes would keep the bill on track in the 50-50 Senate, in the face of united Republican opposition.
- Under the changes negotiated with Ms. Sinema, Democrats will pare back elements of a 15% minimum tax on large, profitable corporations and drop a proposed tax increase on carried-interest income, according to people familiar with the agreement.
- Democrats will add a 1% tax on stock buybacks to the legislation, as the party aims to still reduce the deficit by about $300 billion in the legislation, according to these people.
- The changed deal would preserve the benefit of accelerated depreciation for at least some manufacturers, according to people familiar with the deal.
EUROPE & WORLD
China Announces Sanctions on Nancy Pelosi Over Taiwan Trip – Bloomberg, 8/5/2022
- China announced sanctions on US House Speaker Nancy Pelosi over her landmark trip to Taiwan this week, making her the highest-ranking US official designated for penalties by Beijing.
- The Chinese Foreign Ministry announced the unspecified sanctions against Pelosi and her immediate family after the speaker departed from Japan late Friday.
- China didn’t specify what the sanctions entailed, but previous measures have restricted individuals from entering China, Hong Kong or Macau, or doing business there.
- Such curbs are likely to be largely symbolic for Pelosi.
China Boasts of Ability to Blockade Taiwan as Military Exercises Continue – Wall Street Journal, 8/5/2022
- China touted its military exercises around Taiwan as proof of its ability to blockade the self-ruled island in the event of a war, as the operations in response to a visit by U.S. House Speaker Nancy Pelosi entered a second day.
- At least 68 Chinese warplanes and 13 warships carried out maneuvers off Taiwan’s coast on Friday, Taiwan’s Ministry of National Defense said. During the operation, the ministry said some of the aircraft and ships sent by China’s military crossed the median line in the Taiwan Strait, a notional boundary that Taipei says demarcates areas of de facto control.
- Chinese forces carried out live firing in six delineated zones facing Taiwan’s military bases and its biggest commercial ports, allowing China’s military, the People’s Liberation Army, to form a blockade around the island for the first time, a breakthrough highlighted by state media outlets in Beijing.
- The flurry of military sorties Beijing flew Friday—setting a record of such activity since Taiwan’s military began disclosing the data in September 2020—came after China encircled Taiwan with rocket and ballistic-missile fire a day earlier.
Tensions with U.S. spur Chinese buying of chipmaking stocks – Reuters, 8/5/2022
- Chinese chipmakers’ shares jumped by the most in two years this week as House of Representatives Speaker Nancy Pelosi’s visit to Taiwan heightened tensions with the U.S., driving patriotic bets on a sector Beijing sees as key to its rivalry with Washington.
- The surge in interest in chipmaking stocks, which had lost more than a third of their value over the past year on valuation concerns, came after the U.S. Senate last week passed the “Chips and Science” Act to better compete with China.
- China’s semiconductor index rose 6.8% on Friday to a four-month high, bringing the week’s gains to 14.2%, the best weekly performance since mid-2020.
- Chinese chipmaking giant Semiconductor Manufacturing International Corp (SMIC) jumped 7.1% in Hong Kong and 4.4% in Shanghai. The SSE STAR Chip Index surged 8.3%.
Deutsche Post reports double-digit Q2 earnings growth – Reuters, 8/5/2022
- German logistics company Deutsche Post reported double-digitgrowth in revenue and earnings on Friday and confirmed its outlook for 2022, as its flourishing freight and express business built on an already-strong start to the year.
- Revenue rose by 23.4% year on year in the second quarter to 24 billion euros ($24.55 billion), while profit from operating activities (EBIT) grew by 12.2% to 2.3 billion euros.
- This beat analysts’ expectations of revenue of 21.8 billion euros and EBIT of 2 billion euros, according to a poll posted on the company website.
- Net profit after non-controlling interests came in at 1.5 billion euros in the second quarter, up from 1.3 billion euros a year ago.
- The company said it still expects 2022 EBIT of between 7.6 and 8.4 billion euros, even in the case of a global economic turndown in the second half of the year.
Pets At Home quarterly sales up as pandemic boom survives – Reuters, 8/5/2022
- Pets At Home reported a rise in first-quarter revenue on Friday and maintained its full-year profit outlook, shrugging off some concerns that the British pet supplies retailer could be hit by the cost-of-living crisis.
- Revenue rose 7.1% to 404.7 million pounds ($491 million) in the quarter, while like-for-like sales rose 6%.
- Chief Executive Lyssa McGowan told analysts the shift in lifestyles post lockdowns had driven up demand in its vet services demand. Vet group revenue increased by 11.2% in the 16 weeks to July 21.
- Pets At Home, founded by British businessman Anthony Preston in 1991, said it retained 1.1 million of the customers it picked up last year, while the number of active VIP customers – holders of a loyalty card offering discounts – rose to a record 7.4 million.
- For the first time, the U.S. government levied an income tax. (1861)
- The cornerstone for the Statue of Liberty was laid on Bedloe’s Island. (1884)
- The United States, Britain, and the Soviet Union signed the limited Test Ban Treaty, which prohibited nuclear weapon tests in the atmosphere, in outer space, and underwater. (1963)
- The gun turret of the Civil War ironclad USS Monitor was raised from the ocean floor. (2002)
- The plutonium-powered rover Curiosity successfully lands on Mars. Larger than earlier rovers, Curiosity will spend two years examining the land, looking for evidence that conditions on Mars are fit for life. (2012)