DAX:
- Adidas (ADS TH) +3.6%
- Adidas Lifts Guidance Again After Second Yeezy Sneaker Boost (1)
- Continental (CON TH) +1.3%
- Continental Is Said to Study Auto Divestments to Shore Up Profit
- Infineon (IFX TH) -0.7%
- Infineon, Hyundai and Kia Sign Supply Deal for Semiconductors
MDAX:
- Delivery Hero (DHER TH) +2.1%
- Puma (PUM TH) +1.9%
- Lufthansa (LHA TH) -1.6%
- EU Plan for China EV Tariffs May Hurt Germany, Minister Says
SDAX:
- Borussia Dortmund (BVB TH) +2.6%
- SFC Energy (F3C TH) +1.5%
- flatexDEGIRO (FTK TH) +1.4%
- flatexDEGIRO Results Boosted by Interest Income: Street Wrap
- Deutsche PBB (PBB TH) +1.1%
Nvidia and iPhone maker Foxconn tie up on ‘AI factories’
Collaboration announcement comes a day after US tightens rules on chip sales to China
Nvidia and iPhone maker Foxconn have said they will build “artificial intelligence factories” together as the Taiwanese electronics manufacturer seeks to diversify its business.
The announcement comes a day after the US said it was tightening rules on AI chip sales to China, in a blow to Nvidia and other companies selling high-performance semiconductors in the country.
Nvidia co-founder and chief Jensen Huang said on Wednesday that the $1.1tn chip group would set up “AI factories”, or large data centres, with Foxconn to train autonomous vehicles, robotics platforms and large language models.
Huang, wearing his trademark leather jacket, made an appearance at Foxconn’s annual tech day on Wednesday in Taipei. He joined Foxconn chair Young Liu on stage to talk about the “beginning of a new computing revolution”.
Foxconn will use Nvidia’s latest chips and enterprise software to build what it called “a new class of data centres powering a wide range of applications”. Liu did not explain how these data centres would differ from existing rival ones that use Nvidia’s technology.
Foxconn is working to transform from a “manufacturing service company into a platform solution company”, according to Liu, who unveiled an electric cargo van to join the company’s existing fleet of EVs and said its low-earth orbit satellite was ready to launch next month.
Best known as the maker of the iPhone, Foxconn is trying to diversify its revenue base from manufacturing electronics to building the computing infrastructure powering autonomous technology, including vehicles.
It is facing increasing competition in its core business of contract manufacturing. Foxconn’s Chinese rival, Luxshare Precision Industry, has been steadily expanding its business with Apple, becoming an important partner and alternative supplier, including for Apple’s new Vision Pro mixed-reality headset.
Apple chief Tim Cook appeared in Zhejiang province on Wednesday at a Luxshare factory, according to domestic media reports. Cook has been visiting Apple partners and stores in the country, weeks after news emerged that Beijing was banning the company’s devices in several government agencies and state-owned enterprises.
The tie-up comes at a critical time for Nvidia, best known for its graphic processing units, the semiconductors training large AI models such as OpenAI’s ChatGPT. Nvidia is the leading global supplier for AI chipsets.
Washington has tightened restrictions on exports of Nvidia’s GPUs to China to halt the country’s progress in developing AI, which it claims could be harnessed for military use.
The US commerce department on Tuesday extended sweeping export controls first implemented in October last year. Officials said Nvidia would be banned from selling to China its A800 and H800 GPUs, the modified versions of its more powerful chips which are already banned in the country.
Semiconductor-related stocks in Asia sold off after the US expanded the controls, prompting Nvidia to warn the new rules could interfere with new product development.
Hong Kong-listed shares of Lenovo, which relies on Nvidia chips for one of its upcoming products, fell 7 per cent on the news, while Taiwanese chipmaker TSMC dropped 1 per cent and South Korea’s SK Hynix retreated 2 per cent.
The declines followed an almost 5 per cent drop for Nvidia on Tuesday after the chipmaker warned tighter controls “may impact the company’s ability to complete development of products in a timely manner”.
The warning also prompted analysts at Citigroup to cut their target price for Nvidia shares by almost 9 per cent to $575, warning that the new US government restrictions “will make it more difficult for Nvidia to sell to China”. The target price was above the current share value of $446.
China’s Economy Gets Boost From Stimulus, but Headwinds Grow
Economists point to challenges including Israel-Hamas war and frosty relations with U.S.
SINGAPORE—China’s economy slowed in the third quarter as the drag from a shrinking property sector weighed on growth, but strengthening retail sales suggest it is emerging from a soft patch as stimulus measures start to kick in.
Still, China’s economy is likely to struggle for a while yet, economists say. Real estate remains a major risk, with home sales crumbling and developers China Evergrande Group and Country Garden struggling with heavy debts. Consumer confidence is fragile and the global backdrop is darkening because of war between Israel and Hamas.
Longer term, China faces a daunting list of headwinds, including frosty relations with the U.S.-led West, worsening demographics and a difficult reorienting of its economy toward growth powered by consumption and advanced manufacturing and away from property-driven investment. Economists expect growth to slow in the years ahead as China wrestles with these challenges.
China’s economy expanded 4.9% in the third quarter compared with the same quarter a year earlier, the country’s National Bureau of Statistics said Wednesday. That marked a slowdown from the 6.3% annual rate of growth the economy managed in the second quarter, though that figure was flattered by comparison with the same quarter in 2022 when lockdowns blanketed major cities including Shanghai.
The third-quarter result puts China’s year-to-date growth rate at 5.2%, keeping it on track to meet the government’s goal of expanding around 5% for the year as a whole.
Sheng Laiyun, deputy chief of China’s statistics bureau, told reporters on Wednesday that the country need only record 4.4% growth in the last three months of the year to meet its annual target. “We are confident that we can realize the growth target this year,” he said.
Compared with the previous three months, China’s economy in the third quarter expanded 1.3%, accelerating from the 0.8% pace recorded in the previous quarter, which was roughly half the average pace recorded in the five years before the pandemic.
The lackluster performance of China’s economy contrasts with unexpected vigor in the U.S., where consumer and government spending is keeping the economy motoring even in the teeth of aggressive interest-rate rises by the Federal Reserve. Economists polled by The Wall Street Journal now think it more likely than not that the U.S. economy will avoid recession. That marks a reversal from the beginning of the year, when China’s reopening was expected to fuel global growth and the U.S. was tipped to rapidly lose steam.
The International Monetary Fund, in its latest projections this month, said the U.S. and other countries look poised for a “soft landing,” in which inflation cools without a significant downturn in growth.
The IMF raised its growth forecasts for the U.S. this year and next, while cutting them for China. Turmoil in China’s property sector is hurting consumer confidence and squeezing spending, the fund said, urging the government to consider handouts to households to generate a more robust recovery.
“The Chinese economy seems to have navigated its way past a particularly rough patch thanks to various supportive measures by the government, but a strong rebound is not in the cards,” said Eswar Prasad, a Cornell University economist who once headed the IMF’s China division. “Still, it is a good omen both for the Chinese and world economies that a more significant downturn seems to have been averted.”
Third-quarter growth in China was driven by retail spending, Wednesday’s data showed, which helped offset weakness in exports and a long-running contraction in China’s huge real-estate sector.
Chinese growth fizzled in the spring after an early burst of activity driven by the lifting of strict Covid-19 controls faded. Chinese authorities have unleashed a barrage of stimulus measures in recent weeks aimed at re-energizing wilting consumer spending and arresting the downward spiral in real estate. Interest rates have been slashed and funding dished out to banks to lend to households and businesses, while many cities have scrapped restrictions on home purchases. In some cases, developers have been allowed to offer big discounts to would-be buyers in an effort to unload inventories of unsold apartments.
Some signs suggest the economy is turning a corner. Business surveys point to improving factory output, while domestic travel picked up, albeit modestly, during a recent eight-day holiday. Electricity consumption is rising and cargo shipments are steady, economists at Nomura noted in a note to clients published on Monday. Lending to households and businesses is growing.
On the flip side, inflation was flat in September when compared with a year earlier, suggesting sluggish demand, and exports fell for the fifth straight month last month, though at a slower rate than in August. Home sales and other indicators of housing-market activity remain anemic. Home sales by value fell 3.2% from a year earlier in the first nine months of the year, compared with a 1.5% fall in the January-to-August period, according to Wednesday’s data.
“I think we’re starting to see a weak bottoming out,” said Rory Green, head of Asia research at economics consultancy GlobalData.TSLombard in London. But he said he doesn’t expect much of a pickup in growth soon, akin to an “L-shaped” recovery in which the economy grows slowly for some time.
Many economists anticipate Beijing will keep adding to its range of stimulus measures, perhaps with more interest-rate cuts or additional help for home buyers. But officials have signaled that while they want to stabilize the housing market, they want to avoid reigniting another speculative frenzy in real estate, suggesting an expansive stimulus effort isn’t in the cards.
That means other parts of the economy will need to do the heavy lifting to sustain growth, say economists. Wednesday’s data showed retail sales grew strongly in September, rising 5.5% in September compared with a year earlier and accelerating from the 4.6% rate recorded in August. Industrial production, which has been struggling thanks to weak exports, increased 4.5% from a year earlier in September, matching August’s pace.
Investment in buildings, machinery and other fixed assets slowed, however, underlining the drag from property. Investment rose 3.1% in the January-to-September period, compared with the same nine months in 2022, a weaker pace than the 3.2% expansion over the first eight months of the year.
Unemployment fell to 5% in September, from 5.2% in August. China stopped publishing data for joblessness among young people in June, citing methodology wrinkles officials said they wanted to iron out. But many analysts attributed the decision to official discomfort over how high youth unemployment had risen, with the June data showing about one in five of people aged 16 to 24 were looking for work.
Asian stocks fluctuated as traders weighed better-than-expected China data against intensifying Middle East tensions. The Bank of Japan announced unscheduled bond purchases to stem a rise in yields. Hong Kong’s Hang Seng China Enterprises Index pared losses as China’s economic growth and retail sales suggested the economy is founding a foothold. The report gave a brief boost across Asian stocks including Australia and South Korea, though mainland China’s benchmarks remained in the red. The onshore and offshore yuan strengthened, crude oil extended gains and copper added 0.7%. An index of China’s property developers headed for its lowest since 2009, as stress in the sector continues to rise amid slumping home sales and deepening debt woes for major developers. The BOJ’s announcement came after Japan’s 10-year yield touched a fresh decade-high, following a jump in US yields. Japan’s sovereign debt has faced renewed selling pressure amid speculation that the central bank will tweak is ultra-easy monetary policy sooner rather than later. Treasuries steadied in early Asian trading after two-year yields hit the highest since 2006 in the previous session as strong US data reinforced the higher-for-longer rates narrative. Swap contracts tied to Fed rate decisions showed traders are pricing in more than 60% odds that policymakers will raise interest rates by a quarter percentage point in January. US retail sales exceeded all forecasts and industrial production strengthened last month, fresh evidence of a resilient American consumer whose spending is helping stabilize manufacturing. The reports prompted a slew of economists, from Goldman Sachs to JPMorgan Chase & Co. and Morgan Stanley, to boost their tracking estimates for third-quarter gross domestic product. Back to geopolitical events. President Joe Biden’s dramatic war-time visit to Israel and Jordan began to unravel even before he left the ground, after an explosion at a Gaza hospital left hundreds dead and Arab leaders pulled out of a meeting planned for the trip. Oil extended gains to advance 2.4%, and gold edged up as middle east conflict bolstered haven demand. Israel blamed a failed missile from militant group Palestinian Islamic Jihad for the blast, potentially the deadliest since the killing of 1,300 Israelis in the Oct. 7 attack by Hamas, which is designated a terrorist organization by the US and European Union. The Pentagon said it didn’t have information on who was responsible and the US called for an investigation. US After Hours UAL -4.4%, JBHT -4.2%, IBKR -4% all lower on earnings; FND +6.1% on news it will join S&P MidCap 400; BIO -5.5% lower on news its CFO is stepping down.
Nikkei +0.09% Hang Seng -0.13% CSI -0.69% Shanghai -0.72% Shenzen -1.32%
Eur$ 1.0580 CNH 7.3160 CNY 7.3081 JPY 149.68 GBP 1.2193 CHF 0.8990 RUB 97.66 TRY 28.0040 WTI$ 88.52 Gold 1936 +0.67% BTC 28,730 +0.93% ETH 1,574 +0.87%
S&P -0.09% Nasdaq -0.16% EuroStoxx -0.12% FTSE +0.21% Dax +0.13% SMI -0.03%
Macro :
- France Plans New Rule on Share Buybacks in Budget, Echos Says
- BofA Says Funds Boost Energy Stock Holdings to Most Since March
- BofA Says Funds Boost Energy Stock Holdings to Most Since March
- Carl Icahn Criticizes Short Sellers at Investor Conference
- EU PLANS STRICTER RULES FOR MOST POWERFUL GENERATIVE AI MODELS
Keep an eye on :
Keep an eye on :
- ABBN NA : ABB Earnings Miss Estimates as Europe, China Orders Slow (1)
- ABDN LN : Patria to Buy Abrdn’s European Private Equity Unit for £60m
- ACS SM : Abertis Wins Puerto Rico Highways; Shareholders Inject Capital
- ACG LN : ACG SPAC Extends Acquisition Deadline to Jan. 25 From Oct. 12
- ADS GY : Adidas Improves FY Operating Loss Forecast
- AF FP : Air France to Abandon Orly Airport and Focus on Roissy: Le Monde
- ALV GY : Grenergy to Sell 297MW of Solar Assets to Allianz for €270.6M
- ASML NA : ASML 3Q Bookings Misses Estimates
- BAR BB : Barco 3Q Revenue Misses Estimates
- BMW GY : *BMW TO ADOPT NACS FOR BATTERY EV IN US, CANADA STARTING IN 2025
- CA FP : HK Court Orders Suning to Pay Carrefour ~$134m for 2019 Deal: FT
- CO FP : Casino Group Says Some Creditors Acceded to Lock-Up Agreement
- CON GY : Continental Is Said to Study Auto Divestments to Shore Up Profit
- 2007 HK : Country Garden Default Looms After Builder Says Unlikely to Pay
- FGR FP : Eiffage Buys 51% of Salvia Group GmbH; No Terms
- ENTRA NO : Entra 3Q Rental Income Misses Estimates
- ERICB SS : Ericsson CEO Says ‘Will Step Down’ if Vonage Doesn’t Deliver: DI
- FTK GY : flatexDEGIRO 3Q Ebitda Misses Estimates, Results Boosted by Interest Income: Street Wrap
- GALP PL : Portugal’s ENSE Says Gasoline Consumption Fell 2.1% in September
- GMAA LN : Gama Aviation Sells Jet East in $131 Million Deal
- GLEN LN : Glencore to Close Mount Isa Underground Copper Ops in 2H 2025
- SHBA SS : Handelsbanken 3Q Net Interest Income Beats Estimates
- HSBA LN : Mukesh Ambani’s Luxury Real Estate Bet Gets HSBC Financing Boost
- INTO BB : TPG Offers to Buy Intervest for €21/Share in Cash
- JOMA SS : Swedish Landlord John Mattson to Amortize Debt via Rights Issue
- TKWY NA : Just Eat Takeaway Raises Guidance As Profitability Improves
- MAERSKB DC : Drug Gangs Have Infiltrated Shipping Supply Chains in Europe: FT
- MERY FP : Mercialys 9M Rental Rev. EU132.6M Vs. EU129.6M Y/y
- MERY FP : Mercialys 9M Rental Rev. EU132.6M Vs. EU129.6M Y/y
- MOWI NO : Mowi Prelim 3Q Ebit About EU203M, Est. EU227.3M
- NEXI IM : CVC Capital Is Said to Mull Bid for European Payments Giant Nexi
- NOVN SW : Novartis Pluvicto Shows rFPS Benefit in PSMA+ Prostate Cancer
- OMC US : Omnicom Drops as Organic Revenue Growth Disappoints
- PUB FP : Watch Advertising Stocks in Europe as Omnicom Drops on Results
- PDG LN : AutoNation Withdraws Offer for Pendragon
- SCU US : Sculptor Capital Says Dan Och’s Litigation Is ‘Baseless’
- SHEL LN : *QATARENERGY, SHELL SIGN 27-YEAR LNG SUPPLY PACT TO NETHERLANDS
- STLAM FP : Citroën’s €23,300 Electric Car Is Profitable, CEO Koskas Says
- STLAM IM : Stellantis Cancels Display at CES Show Due to UAW Strikes
- TEL2B SS : Tele2 3Q Adjusted Ebitda After Leases Meets Estimates
- TKA AV : Telekom Austria Sees FY Div/Shr at Least EU0.32, Est. EU0.35
- UCB BB : UCB: Zilbrysq Gets US FDA OK for Generalized Myasthenia Gravis
- DG FP : Vinci Group Wins €800m Deal for Mont-Cenis Materials Recovery
- VOLVB SS : Volvo Beats Expectations; Sees Weaker Truck Markets Next Year
- WDP BB : WDP 9M Adjusted EPS EU1.06 Vs. EU0.95 Y/y
- WITH FH : WithSecure 3Q Revenue Misses Estimates
>>> Up
* Allegro Raised to Neutral at Goldman; PT 32 zloty
* BBVA Raised to Outperform at Oddo BHF; PT 10.50 euros
* BBVA Raised to Outperform at Oddo BHF; PT 10.50 euros
* Elastic Raised to Buy at Jefferies; PT $100
* Finnair Raised to Reduce at Inderes; PT 30 euro cents
* Lonza Raised to Buy at Intron Health; PT 425 Swiss francs
* Repsol Raised to Overweight at Barclays; PT 25 euros
* Tryg Raised to Buy at Jefferies; PT 160 kroner
* Umicore Raised to Hold at Jefferies; PT 26 euros
>>> Down
* Anglogold Ashanti Cut to Equal-Weight at Morgan Stanley
>>> Down
* Anglogold Ashanti Cut to Equal-Weight at Morgan Stanley
* Boliden Cut to Underperform at RBC; PT 265 kronor
* Galp Cut to Equal-Weight at Barclays; PT 17 euros
* Lonza Cut to Hold at Deutsche Bank; PT 366 Swiss francs
* Lufthansa Cut to Neutral at Citi; PT 7.90 euros
* Re:NewCell Cut to Hold at Nordea
* St James's Place Cut to Hold at HSBC; PT 750 pence
* Wizz Air Cut to Sell at Citi; PT 1,400 pence
>>> Initiation
>>> Initiation
* Argenx Rated New Outperform at BNPP Exane; PT 590 euros
* ARM Holdings PLC ADRs Rated New Overweight at KeyBanc; PT $65
* Atrium Ljungberg Rated New Neutral at Kempen & Co; PT 180 kronor
* Atrium Ljungberg Rated New Neutral at Kempen & Co; PT 180 kronor
* Dios Rated New Buy at Kempen & Co; PT 70 kronor
* Multiconsult Rated New Buy at SEB Equities; PT 165 kroner
* Skan Group Rated New Buy at Stifel; PT 92 Swiss francs
>>> Call
* Nvidia Price Target Cut at Morgan Stanley on ‘Draconian’ Curbs
>>> Call
* Nvidia Price Target Cut at Morgan Stanley on ‘Draconian’ Curbs
* Tryg’s Margin Momentum Prompts Upgrade to Buy at Jefferies
* Wizz Cut at Citi on Growth Risk, Lufthansa on Margin Downside
Wall Street’s Latest Obsession Is an Unknowable Number
Signs that ‘term premium’ is driving up Treasury yields stir worry and doubt
Investors and Federal Reserve officials scrambling to make sense of surging U.S. Treasury yields have a new obsession: a number that exists only in theory.
Known as the term premium, the number is typically defined as the component of Treasury yields that reflects everything other than investors’ baseline expectations for short-term interest rates set by the Federal Reserve. That could include anything from an increase in the supply of bonds to harder-to-pin down variables such as uncertainty about the long-term inflation outlook.
In recent weeks, debate around the term premium has intensified because some financial models have suggested that it has been rising sharply—driving much of a recent surge in longer-term Treasury yields that has carried the yield on the 10-year note above 4.8% for the first time since 2007.
Treasury yields help dictate interest rates on everything from mortgages to corporate debt, making their rise over the past two years a steady source of anxiety for investors. So far, those worries have proved mostly unfounded, as the economy has shown little signs of buckling under the higher borrowing costs.
Yet the recent evidence of rising term premiums has provided a new source for concern. For some, they suggest that yields are no longer rising because of a strong economy and expectations for higher rates. Instead, the underlying cause could be something harder for the Fed to control and therefore more dangerous.
Still, even economists who created term premium models stress that their outputs are imperfect estimates, making it difficult to gauge whether or not they are a warning. Here’s a look at the current debate.
What is term premium?
Most analysts agree that yields on U.S. government bonds are largely determined by the anticipated path of short-term interest rates.
The rationale: Investors will buy a series of one-month Treasury bills instead of a bond that matures years from now if they think that will produce a better return. If this pushes the longer-dated bond’s yield too high, buyers will emerge so that the yield settles around a consensus for what rates will average over the bond’s lifespan.
Still, other factors almost certainly also influence yields.
According to a traditional understanding of term premium, investors may demand extra yield to buy longer-term bonds due to the possibility that rates could end up higher than they expect right now.
Additionally, yields could be influenced by the supply of government bonds, with a flood of new bonds overwhelming demand and pushing yields higher. Or investors may accept a lower yield—or negative term premium—because they figure that bonds, unlike stocks, should rally if the economy runs into trouble.
Evidence of a surge
Measuring term premium is where things get tricky, because there is no perfect way of knowing what investors think rates will be in the future.
The simplest approach would be to compare Treasury yields to rate forecasts found in surveys. But drawbacks including the infrequency of those surveys mean that the most popular models incorporate other methods.
Among those is the so-called ACM mode, named after the current and former New York Fed economists Tobias Adrian, Richard Crump and Emanuel Moench. It uses yields of different Treasurys to predict future short-term rates by effectively finding patterns in their relationships over decades.
Another model, devised by current Fed economist Don Kim and former Fed economist Jonathan Wright, is a hybrid, arriving at its rate estimate through a combination of both survey forecasts and yield data.
Outputs from both models have long provided fodder for debate, especially in the 2010s when they showed term premiums turning deeply negative. That had puzzled many who had become accustomed to models showing healthy-size premiums—substantially larger than they stand even now.
More recently, though, the models have gained attention because they have shown term premiums surging, with the 10-year premium climbing back into positive territory.
What Wall Street thinks is going on
Dallas Fed President Lorie Logan recently suggested that signals from term premium models made her less inclined to raise rates again this year, arguing that rising term premiums, if real, would mean that surging yields aren’t just reflecting stronger growth and a need for tighter monetary policies.
Logan didn’t delve deeply into what specifically is driving up term premiums. But on Wall Street, many have used term premium models to buttress arguments that yields have been rising largely thanks to a growing federal budget deficit.
In recent months, the Treasury Department has both increased its borrowing forecasts and boosted the size of its longer-term debt auctions by more than investors had been expecting.
The anecdotal evidence that yields are climbing due to shifting supply-demand dynamics is compelling, but the models showing rising term premiums are “the measure—that’s where you’re seeing it,” said Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets.
Maybe it’s still about interest rates
Still, some caution that the term premium models should be treated skeptically. One issue: their reliance on historical patterns that might not apply now.
A feature of the ACM model, for example, is that its estimate of what short-term rates will average over the next 10 years has been much more closely linked to changes in the 2-year Treasury yield than the 10-year Treasury yield.
As a result, when inflation surged in 2021 and the 10-year yield rose much more than the 2-year yield, the model showed essentially no change in interest-rate expectations over the next decade—and therefore a big increase in the term premium.
The same was true in recent weeks, in contrast to last year when the rate forecast jumped along with the 2-year yield.
Term premium models have value but their outputs are “based on past experience,” said Wright, the co-creator of the Kim-Wright model who is now a professor at Johns Hopkins University. “It could be that this time is totally different.”
Some analysts argue that shifting rate expectations are still largely responsible for driving up longer-term yields recently. A resilient economy, they say, is persuading investors that rates—while likely to fall from here—are destined to settle at a higher level than previously anticipated.
Praveen Korapaty, chief interest rates strategist at Goldman Sachs, said he likes to look at term premium models but only along with other types of models that link changes in yields to factors such as economic data and Fed policy surprises.
Those, he said, generally support the idea that yields have climbed because investors are giving “more credence to the Fed’s ‘higher for longer’ message.”
Drug gangs infiltrating shipping supply chains, warns Maersk executive
EU unveils plans for more co-operation between its ports in crackdown
Drug gangs have infiltrated shipping supply chains to an “extreme” degree, a leading industry executive has warned, as the European Commission unveiled plans to crack down on illegal drugs flooding into Europe’s ports.
Cocaine shipments to the EU have surged in recent years, rising to a record 303 tonnes in 2021, according to the latest continent-wide figures from the EU’s drugs monitoring agency, EMCDDA, with criminal gangs directing the flow of drugs via global shipping routes.
As a result, shipping companies are dealing with “some of the most dangerous people in the world. The way that these people are infiltrating the whole supply chain, not only the shipping side or the port side, is rather extreme,” said Keith Svendsen, chief executive of APM Terminals, a division of Danish shipping group Maersk.
The warning comes as the European Commission will on Wednesday propose more co-ordination among European ports, governments and private companies by setting up a “European Ports Alliance”, according to a draft of the communication seen by the Financial Times.
One proposal involves setting up common risk criteria and priorities for customs controls at EU level. €200mn will be allocated to fund equipment to scan containers from 2024.
The commission will also urge member states to implement existing security rules for ports, including providing ports and shipping companies with the means to “screen and vet their employees to avoid corruption by criminal networks”.
Belgium’s port city of Antwerp is the largest cocaine trafficking hub in Europe, with a record of 110 tonnes seized in 2022, according to customs authorities.
Antwerp currently only scans about 2 per cent of the goods that pass through the port but plans to scan all containers coming from Latin America and considered “high-risk” by 2028. Of those, about 5 per cent are checked at present.
For the shipping industry, the increasing pressure to clamp down on the drug trade risks disrupting the commercial operations of container carriers, which transport millions of steel boxes every week.
Claudio Bozzo, chief operating officer of MSC, told the FT in August that it “suffers consequences when it comes to costs” to make containers available for customs inspections. Svendsen declined to provide details on the costs of increased checks on Maersk but he said the “impact on the supply chain is the same across the companies”.
He said “more problem solving needs to be done” before Antwerp’s 100 per cent target can be reached. Instead, he said, checks should be reinforced on exports in Latin America, pointing to a €1bn investment APM Terminals has made in a container terminal it operates in Moín, Costa Rica.
However, Svendsen said his bigger concern was a “duty of care” towards his staff, rather than costs. “There have been incidents where there is infiltration where employees are being coerced into helping” drugs gangs, Svendsen said.
Rotterdam port authorities detected 8 tons of cocaine on a Maersk ship in July at a street value of €600mn, the largest seizure of cocaine in the Netherlands.
Svendsen said Maersk was not responsible for the drugs in its containers. “What has gone wrong is that we have international drug trafficking using legitimate infrastructure to move that product by infiltrating supply chains.”
The commission declined to comment on the leaked document, which is still subject to change until its publication.
Despite growing political consensus to tackle the problem, there are knock-on effects for the global shipping industry from stricter customs controls, experts said.
Richard Neylon, a shipping lawyer at HFW, said it is sometimes “not within the shipowners’ power to open and inspect” containers. “[Shipping is essential] for international trade. The risk of drug [smuggling] is a very difficult reason to turn down international trade.”
Closing Stock Market Summary
The stock market saw somewhat mixed action today, but the Dow, Nasdaq, and S&P 500 all managed to recover from larger losses seen earlier in the day.
Like recent sessions, uncertainty related to the Israel-Hamas war and worries about the House attempting to elect a new Speaker were overshadowed today by other factors, namely economic data and earnings news.
The S&P 500 finished flat and the Nasdaq Composite declined 0.3%, weighed down by underperforming growth and mega cap stocks. The Russell 2000 climbed 1.1% and the S&P Mid Cap 400 rose 1.2%.
Market breadth was positive with advancers leading decliners by a 4-to-3 margin at the NYSE and at 5-to-3 margin at the Nasdaq.
The relative strength in smaller cap stocks and the relative weakness in larger cap stocks was a reaction to this morning's stronger-than-expected September Retail Sales Report. Total retail sales were up 0.7% month-over-month following an upwardly revised 0.8% increase (from 0.6%) in August, and retail sales, excluding autos, were up 0.6% month-over-month following an upwardly revised 0.9% increase (from 0.6%) in August.
That report fueled increased selling in Treasuries, but also bolstered small cap and mid cap stocks, many of which have a primarily domestic orientation, due to the positive economic implications of the report. The 2-yr note yield climbed 11 basis points to 5.20%. The 10-yr note yield hit 4.86% at its high, but settled at 4.85%, which is 14 basis points higher than yesterday.
Stocks were able to rally off session lows as the 10-yr note yield pulled back from its intraday high just before 10:00 a.m. ET, but things rolled over as the 10-yr yield climbed again in afternoon trading. The S&P 500 hit 4,393 at its best level, but its rebound effort stalled there, which was just below the 50-day moving average (4,399).
The Vanguard Mega Cap Growth ETF (MGK) declined 0.3% while the Invesco S&P 500 Equal Weight ETF (RSP) logged a 0.5% gain. NVIDIA (NVDA 439.38, -21.57, -4.7%) was an influential laggard after news that the Biden administration will put more restrictions on China's ability to purchase advanced semiconductors, according to The Wall Street Journal. NVDA indicated that it is not expecting any meaningful impact from the new China rules.
Most of the S&P 500 sectors registered a gain led by materials (+1.0%) and energy (+1.0%). The information technology sector (-0.8%) saw the biggest decline.
Additionally, Bank of America (BAC 27.62, +0.63, +2.3%), Goldman Sachs (GS 309.36, -5.03, -1.6%), Lockheed Martin (LMT 441.13, +0.72, +0.2%), and Johnson & Johnson (JNJ 156.09, -1.44, -0.9%) all reported better than expected earnings, but closed with mixed results.
- Nasdaq Composite: +29.3% YTD
- S&P 500: +13.9% YTD
- Dow Jones Industrial Average: +2.6% YTD
- S&P Midcap 400: +3.3% YTD
- Russell 2000: +0.3% YTD
Reviewing today's economic data:
- Total retail sales increased 0.7% month-over-month in September ( consensus 0.3%) following an upwardly revised 0.8% increase (from 0.6%) in August. Excluding autos, retail sales jumped 0.6% month-over-month ( consensus 0.2%) following an upwardly revised 09% increase (from 0.6%) in August. The strength wasn't just because of higher gasoline prices either. Excluding gasoline stations, retail sales were up 0.7%.
- The key takeaway from the report is that it doesn't reflect a consumer who is shying away from spending. That understanding should translate favorably into Q3 GDP forecasts, and less favorably in forecasts pertaining to the Fed's policy view.
- Total industrial production increased 0.3% month-over-month in September ( consensus 0.0%) following a downwardly revised unchanged (from 0.4%) in August. The capacity utilization rate jumped to 79.7% ( consensus 79.5%) from a downwardly revised 79.5% (from 79.7%) in August. Total industrial production was up 0.1% yr/yr. The capacity utilization rate of 79.7% was in-line with its long-run average.
- The key takeaway from the report is that manufacturing output continues to be soft. Notwithstanding the monthly gain in September, manufacturing output was down 0.8% year-over-year and is apt to remain under added pressure as the UAW strike at the Big Three automakers drags on.
- The NAHB Housing Market Index dropped to 40.0 in October ( consensus 45.0) following a revised 44 in September (from 45).
- Business inventories increased by 0.4% in August (consensus 0.3%) following a revised 0.1% increase in July (from 0.0%).
Wednesday's economic calendar features:
- 7:00 ET: Weekly MBA Mortgage Index (prior 0.6%)
- 8:30 ET: September Housing Starts (consensus 1.380 mln; prior 1.283 mln) and Building Permits (consensus 1.448 mln; prior 1.543 mln)
- 10:30 ET: Weekly crude oil inventories (prior 10.18 mln)
- 14:00 ET: October Fed Beige Book
After Hours Summary: UAL -4.4%, JBHT -4.2%, IBKR -4% all lower on earnings; FND +6.1% on news it will join S&P MidCap 400; BIO -5.5% lower on news its CFO is stepping down
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: FULT +2.1%, GBDC +0.7%, HWC +0.6%, WTFC +0.4%
Companies trading higher in after hours in reaction to news: VKTX +9.1% (new results from trial of VK2735 featured in oral presentation), FND +6.1% (to join S&P MidCap 400), VICR +3.7% (to move to S&P SmallCap 600 from S&P MidCap 400), RYTM +2.7% (presents data from study of setmelanotide), MSFT +0.8% (MSFT preparing to bring AMZN as a customer of its 365 cloud tools in a $1 bln deal according to Business Insider), MRTX +0.7% (announces updated results from the KRYSTAL-7 Phase 2 study), YMAB +0.6% (FDA clears IND application for CD38-SADA), KURA +0.6% (announces results from study of tipifarnib), BGNE +0.3% (announces results from final analysis of Phase 3 RATIONALE 305 trial)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: WAFD -6.3%, UAL -4.4%, JBHT -4.2%, IBKR -4%, OMC -1.4%, PNFP -1.1%
Companies trading lower in after hours in reaction to news: RARE -6.6% (commences $300 mln stock offering), MIRM -5.7% (FDA extends review of sNDA for LIVMARLI), BIO -5.5% (CFO to resign), BAER -5.4% (commences $70 mln public offering), AMAM -4.2% (files $300 mln mixed shelf securities offering), TENB -2.9% (Chubu Electric chooses Tenable OT Security), LECO -1.8% (increases dividend), LXRX -1.6% (highlights upcoming presentations of two studies re financial impact of INPEFA), AAL -1.3% (in sympathy with UAL earnings), DAL -1% (in sympathy with UAL earnings), NPCE -0.8% (enhances RNS System to streamline care), ALK -0.7% (in sympathy with UAL earnings), LBRT -0.6% (increases dividend), TEX -0.5% (CEO to retire; names new CEO, raises FY23 outlook), SGHT -0.5% (10% workforce reduction), CCJ -0.2% (Board Chair Ian Bruce passed away), AMZN -0.2% (MSFT preparing to bring AMZN as a customer of its 365 cloud tools in a $1 bln deal according to Business Insider), AEO -0.1% (hires two execs), VMI -0.1% (to collaborate with FieldSync), MCB -0.1% (partners with cloud-based payments platform, Finzly)