Friday Morning Reads
- ‘Peak car’ and the end of an industry.
- Nvidia’s crypto gold rush goes bust.
- Saudi Arabia’s problem isn’t Canada, it’s capital flight.
- Why can’t Europe do tech?
- The billionaires and a guru: How a family burned through $2 billion.
- Powell to discuss economic and monetary policy at Jackson Hole.
- Why a cranky robot might make a better boss.
- Chip stocks on watch as Applied Materials, Nvidia offer lackluster guidance
- Federal judge rejects much of FTC's $4B suit against DirecTV
- $35K Tesla Model 3 envisioned by Musk not profitable, UBS says
- Musk speaks on 'difficult and painful' year
- Deere beats by $0.03, beats on revenue
- Antares Pharma announces FDA approval of generic EpiPen utilizing VIBEX Auto Injector
- U.S. stocks poised for a breather after yesterday's spike
- FDA OKs 12-week dosing regimen for Regeneron's Eylea in wet AMD
U.S. stock futures waver between small gains and losses following yesterday's strong gains, which included the Dow's biggest advance since April, mostly in reaction to positive trade developments between the U.S. and China. European bourses are edging slightly lower, while most Asian markets closed higher, although China's Shanghai Composite fell another 1.3%, extending heavy declines from recent sessions. Turkey’s lira recently was more than 3% lower but up around 6% for the week; President Trump said the U.S. "will pay nothing" to Turkey for the release of the detained American pastor. The Dow and S&P 500 are on pace for respective weekly gains of 1% and 0.3% as of Thursday’s close, while the Nasdaq is down 0.4% for the week, weighed by sharp week-to-date declines for the likes of Facebook (NASDAQ:FB) and Alphabet (GOOG, GOOGL).
China appears to be propping up the yuan just as its government prepares to restart trade negotiations with the U.S. that likely will include warnings against further depreciation of the currency, which has dropped more than 8% vs. the dollar since March. After falling to a one-year low, the yuan yesterday surged the most since January 2017 as cash supply tightened and the People's Bank of China set its daily fixings at stronger-than-expected levels amid news of a revival of talks between the two countries. “China wouldn’t want the yuan to slide too quickly before important meetings, and that could be one of the reasons why the policymakers moved to support the currency,” said economist Nathan Chow at DBS Bank, Hong Kong. But "the yuan will still face pressures as there are many uncertainties with the low-level trade talks."
The U.S. is close to reaching a deal with Mexico on a revamped North American Free Trade Agreement, but thorny issues are yet to be resolved with Canada, according to reports. Both Mexico and the U.S. are seen as having strong incentives to push through a deal quickly: Mexico wants to lock in an agreement before its new leftist president takes office, and the Trump administration wants a win on trade ahead of the midterm elections. U.S. negotiators this week have been meeting with senior Mexican officials in Washington, and the two sides are said to have largely agreed to new rules on auto trade - a top White House priority - that could boost investment in the U.S. President Trump says he is "in no hurry" to complete a NAFTA deal, remarks seen mostly as an attempt to put pressure on Canada.
In an emotional interview with The New York Times, Tesla (NASDAQ:TSLA) chief Elon Musk described "the most difficult and painful year of my career... It was excruciating." The interview painted a picture of an exhausted executive struggling to match challenging Model 3 production targets before a fateful tweet about going private set in motion a process that has now resulted in a federal investigation. The company is searching for a No. 2 executive to take some pressure off, sources told NYT - though Musk said he was not aware of this - and some directors have expressed concern both about Musk's workload and his use of sleep medication Ambien. Musk said he fired off the fateful tweet (during market hours) as he was driving himself to the airport, in an attempt at transparency, and nobody else reviewed it first, also noting "I was not on weed, to be clear. Weed is not helpful for productivity." Musk said he does not regret the post and has no plans to stop tweeting.
Meanwhile, the Model 3's profitability is a critical issue for Tesla (TSLA), and UBS analysts say the company would lose about $2,300 per car if it sells the vehicle at its long-promised $35,000 price tag, while a more expensive version at $42,000 would eke out a $670 profit. The Model 3 price currently ranges from $49,000 to about $80,000, and UBS estimates Tesla's operating profit is $3,420 per vehicle at the low end of the range, which would help explain why CEO Elon Musk is forecasting a profit in the third quarter. The lack of a $35,000 base model in Tesla’s lineup should help set up the company for its best quarter of profitability from the vehicle ahead of less-costly versions down the road that will reduce the lineup’s margins, says Colin Langan, who wrote the UBS report. “Q3 is Tesla’s best shot because of this pricing dynamic,” Langan said of the company's profitability. "I’m very clear that I don’t think that’s sustainable."
Facing flak from inside the company and out, Google (GOOG, GOOGL) CEO Sundar Pichai has told employees the company is "not close to launching a search product in China," as he defended Google's push to do more business in the country, The Wall Street Journal reported. The weekly all-hands meeting was bound to address what has grown into a controversial topic: work the company is doing with China that could include a censored search engine. Those efforts have drawn criticism from inside and outside the company, and about 1,000 employees signed a letter demanding transparency around the moral and ethical issues involved. Co-founder Sergey Brin, who was key to Google's decision to pull its search engine out of China in 2010 in protest of government censorship, sounded optimistic at the meeting about doing more Chinese business though progress is "slow-going and complicated."
Chip stocks will be on watch after Applied Materials (NASDAQ:AMAT) and Nvidia (NASDAQ:NVDA) forecast current quarter earnings and revenue well below Wall Street estimates. Applied Materials posted another quarterly beat on earnings and revenue but guided for fiscal Q4 net sales of $3.85 billion to $4.15 billion vs. analyst consensus outlook of $4.45 billion, and roughly flat from the same quarter last year. During the company’s earnings conference call, comments from CEO Gary Dickerson confirmed worries that slower smartphone growth could cause chipmakers to rein in capital spending and reduce demand for chipmaking equipment. The company's major customers include Samsung Electronics (OTC:SSNLF), Micron Technology (NASDAQ:MU), Intel (NASDAQ:INTC) and Taiwan Semiconductor (NYSE:TSM). Nvidia also reported a strong Q2, but said it expects Q3 revenue of about $3.25 billion at the midpoint of its guidance range, about $100 million below the average analyst estimate.
Investors are hedging their bets in a relatively safe corner of the market even as the S&P 500 surges toward new highs, WSJ’s Akane Otani writes, offering her take on why the consumer staples sector has surged 10% over the past three months vs. the S&P’s 4.3% rise during the same period. Some analysts, such as B. Riley FBR’s Art Hogan, suggest the recovery is the latest example of investors paying up for protection against potential market pullbacks due to rising interest rates or restrictive trade policies. To be sure, the latest batch of earnings has also sparked investor interest: Walmart (NYSE:WMT) soared more than 9% yesterday after reporting that sales rose at the fastest pace in more than a decade for the most recent quarter, while Nordstrom (NYSE:JWN) jumped 12% after-hours after reporting a strong quarter and raising its full-year profit forecast.
The food-borne illness outbreak that sickened hundreds of Chipotle Mexican Grill (NYSE:CMG) customers in Ohio last month was caused by a type of bacteria found in meat and pre-cooked food left at unsafe temperatures, according to the Centers for Disease Control and Prevention. The outbreak was the latest in a series of food safety lapses at Chipotle, and the CDC says it was caused by the clostridium perfringens bacterium, which often infects food that is prepared in large quantities and left out - not cold enough and not hot enough - for several hours after being cooked. After hitting a two-year high earlier in the day, Chipotle shares reversed course to finish 4.4% lower in yesterday's trade, worst on the S&P 500.
A judge has rejected much of a $4 billion lawsuit lodged by the Federal Trade Commission against DirecTV (NYSE:T) charging the company with deceptive advertising. The FTC, in 2015, said DirecTV did not adequately disclose that lower promo prices only lasted for year one of a two-year contract. It also said it offered free months of premium channels without informing consumers those channels needed to be canceled at the end of a promotional period to avoid monthly charges. DirecTV argued it was entitled to a favorable ruling without having to put up a defense, and the judge largely agreed: “This case did not involve the type of strong proof the court would expect to see in a case seeking nearly $4 billion in restitution.”
In a move to accelerate development of glucose-responsive insulins, Novo Nordisk (NYSE:NVO) has acquired Ziylo Ltd. in a deal that could crest $800M depending on a number of earn-outs. The deal gets Novo Nordisk full rights to Ziylo's early-stage synthetic glucose binding molecule technology. Part of Ziylo's research activities have been spun out into a new company, Carbometrics, which has entered a research collaboration with Novo Nordisk to optimize glucose binding molecules. Novo Nordisk pays an upfront payment in the deal, but other payouts depend on achieving certain development, regulatory and sales milestones.
Nvidia (NVDA) -10% AH on crypto-related OEM revenue drop.
Applied Materials (AMAT) -4.7% AH on Q3 report with downside guide, near-term customer spend warning.
Nordstrom (JWN) +9% AH on raising FY guidance.
voxeljet (NYSE:VJET) -13% AH on Q2 earnings miss.
Accuray (NASDAQ:ARAY) +7.8% AH on Q4 earnings.
Adtalem Global Education (NYSE:ATGE) -8.5% AH on Q2 earnings miss.
21Vianet (NASDAQ:VNET) -6.3% AH on Q2 revenue miss and loss.
America's Car-Mart (NASDAQ:CRMT) +6.2% AH on big Q2 earnings beat.
In Asia, Japan +0.35%. Hong Kong +0.42%. China -1.34%. India +0.75%.
In Europe, at midday, London -0.23%. Paris -0.30%. Frankfurt -0.42%.
Futures at 6:20, Dow -0.13%. S&P -0.16%. Nasdaq -0.21%. Crude -0.66%to $65.03. Gold -0.07% to $1,183.20. Bitcoin +1.19% to $6,487.
Ten-year Treasury Yield -2.3 bps to 2.848%.