WWD : LVMH Sees No Impact So Far From China Crackdown on Rich

LVMH Sees No Impact So Far From China Crackdown on Rich
President Xi Jinping’s call for China to narrow its wealth gap did not impact the French luxury group's third-quarter sales.

PARIS — Chinese President Xi Jinping’s call for China to achieve “common prosperity” and narrow its wealth gap has had no impact so far on sales at LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury group.

Analysts fear the policy, announced in August alongside a crackdown on “excessive incomes,” could deprive the luxury goods industry of its biggest motor. While shares of leading companies, including LVMH, fell sharply in the wake of Xi’s speech, the French conglomerate’s third-quarter sales suggest there has been little impact in its stores in China so far.

“We don’t see a change in sentiment,” Jean-Jacques Guiony, chief financial officer of LVMH, told analysts during a conference call on Tuesday.

The luxury group posted revenues of 15.51 billion euros in the three months to Sept. 30, up 11 percent in organic terms versus 2019, considered a more reliable benchmark due to the disruptions caused by the coronavirus pandemic last year. This was comparable to sales growth in the first half, whether by activity or by region, the group said in a statement after the Paris stock market closed.

Organic sales in Asia, excluding Japan, rose 26 percent in the third quarter versus 2019. This compared with an increase of 34 percent in the second quarter, but the decrease was due mainly to measures to contain a resurgence in COVID-19 cases in August, Guiony said.

He declined to comment on what he labeled as “internal policy decisions by political leaders,” but said LVMH was not concerned about the impact of the new Chinese policy, which also includes curbs on celebrities who have traditionally driven sales for luxury brands.

“The only thing I could say is that when we look at it, we don’t see any reason to believe that this could be detrimental to the upper middle class, affluent class, that is the bulk of our customer base,” Guiony said. “So we’re not particularly worried or concerned with the recent announcements.”

Double-digit growth in Asia and the U.S. fueled growth at one of LVMH’s star brands: Tiffany & Co. While the group did not break out the U.S. jeweler’s performance, Guiony reported good progress with the house since LVMH completed its acquisition in January for a record $15.8 billion.

As a result, Tiffany has axed most of its wholesale business, he reported.

“Tiffany has really two cylinders, and the two are firing at full speed,” Guiony said. “The business is doing well. It’s doing well in Asia, it’s doing well in the U.S. As I said before, all the initiatives, be it product or marketing, are getting a good response from the client base, wherever it takes place, so we are pretty happy.”

The most visible change has been in the brand’s communications strategy, with a controversial guerrilla-style campaign with the slogan “Not Your Mother’s Tiffany” launched in July, and a high-profile advertising push featuring Beyoncé and Jay-Z unveiled in August.

Under the leadership of Ruba Abu-Nimah, its new executive creative director of marketing and communications, Tiffany is also reviewing all its product categories to determine what to keep and what to lose.

“We want the brand to have a broader appeal to a larger scope of clients, and it is exactly what we are implementing from a marketing viewpoint, but also from a product viewpoint,” Guiony said. He explained that Tiffany is less exposed to Millennials since it has traditionally relied on the U.S. market, which accounts for 45 percent of revenues.

“We want to develop the rest of the business on a worldwide basis, but not at the expense of the U.S. business,” Guiony said. ”Obviously, our aim is to develop our business with young people, but we don’t have particular quantitative goals in that respect.”

The integration of Tiffany has more than doubled the size of LVMH’s watches and jewelry business, which posted revenues of 6.16 billion euros in the first nine months of 2021, versus 2.26 billion euros during the same period in 2020.

Excluding Tiffany, third-quarter sales in the segment rose just 1 percent in comparable terms versus 2019, after a 9 percent increase in the second quarter. Guiony said the sector suffered from the volatility in Asia, which impacted jewelry in particular.

The fashion and leather goods division, home to cash-cow brands Louis Vuitton and Dior, remained the key driver of the business, with revenues of 7.45 billion euros in the third quarter, up 38 percent in organic terms versus 2019. This represented a slight deceleration from the second quarter, when the division posted a 40 percent sales jump, but was in line with the first-half average.

Organic growth in the segment was up 24 percent compared to the same period a year go, which marked a return to growth after a sharp decline in the first half of 2020. This was better than expected by analysts, who had penciled in a 21 percent increase, according to a consensus forecast.

“Louis Vuitton, which celebrated the 200th anniversary of the birth of its founder, performed remarkably well, driven by constant innovation and by the quality of its products. Christian Dior showed exceptional momentum,” LVMH said. It also cited the good performance of Celine, Fendi, Loewe and Marc Jacobs.

Guiony said there was still plenty of growth potential for Dior, which saw organic sales soar by more than 80 percent in the first half, according to market sources, prompting analysts to anticipate a slowdown. While declining to provide precise figures, Guiony noted that Dior was still smaller than many other luxury brands and benefited from a diversified product range.

“This gives us some headroom,” he said. “We are nowhere near the time when the brand is becoming too big or overexposed, even in terms of number of stores. I will not go into details, but we have way less stores than the biggest brands of the fashion and leather universe, so that’s also something we can count on to develop the business further.”

He expects the U.S. market to continue powering global luxury sales, dismissing the significance of a slowdown in organic revenue growth in the region to 22 percent in the third quarter from 31 percent in the previous three-month period. Guiony noted that LVMH’s sales in the U.S. have increased on average by 10 percent annually for the past 12 years.

“This is a growing area for luxury. I mean, we have no reason to believe that what has been playing in our favor over the last 12 years will not be there tomorrow,” he said.

Organic sales of perfumes and cosmetics were flat in the third quarter compared with 2019, while the selective retailing division, which includes LVMH’s travel retail business DFS, recorded a 19 percent decline. Both segments were hit by the continued dearth of international travelers and ongoing store closures.

“Sephora returned to its 2019 level of activity despite the tough commercial environment, marked by the closure of several stores during part of the year,” LVMH noted, while also reporting a “promising start” for its new La Samaritaine department store in Paris, which opened in June.

Meanwhile, sales of wines and spirits were up 7 percent, fueled by growth in the U.S. and Europe, which benefited over the summer from the reopening of restaurants and the gradual recovery of tourism. The third quarter marked the integration of Armand de Brignac, after LVMH’s acquisition of a 50 percent stake in Jay-Z’s prestige Champagne brand in February.

Analysts had expressed caution about prospects for the luxury sector heading into the results season.

Edouard Aubin, analyst at Morgan Stanley, said the recent correction in the LVMH share price was proof that the market has priced in a slowdown in growth rates. LVMH shares closed up 0.3 percent at 633.90 euros on the Paris Stock Exchange on Tuesday, down from an intra-year high of 712 euros on Aug. 12.

“Like other personal luxury goods names, LVMH will face a number of risks in the coming months,” Aubin said in a recent research note. “The group will likely not be in a position to sustain the growth rate of the last one or even four years. However, we would argue that this is more than anticipated by the market.”

Kering is due to report third-quarter results on Oct. 19, followed by Hermès International on Oct. 21.

FT : Bosses at European utilities warn against ‘short-sighted’ political measure

Bosses at European utilities warn against ‘short-sighted’ political measures
Chiefs say interventions like windfall levy introduced in Spain imperil green transition

Chief executives of European utilities including Enel, Orsted, Vattenfall and EDP have written to EU governments urging them to avoid drastic market interventions such as Spain’s windfall tax, as countries resort to emergency measures to curb the energy crisis.

In a letter due to be sent this week to EU member states and the European Commission, seen by the Financial Times, more than 15 chief executives warn member states against taking “short-sighted political measures” that risk undermining market confidence and derailing the green transition.

The commission on Wednesday will publish a “toolbox” of measures for high energy prices, recommending temporary steps such as cutting taxes, providing income support to the poorest households and increasing renewable energy capacity.

The industry letter comes as Spain’s big electricity companies — notably Iberdrola, the multinational utility, and Endesa, the subsidiary of Italy’s Enel — are making their first payments under the country’s temporary windfall levy, which rises in tandem with the price of gas.

Spain’s leftwing government initially estimated that, based on prices last month, the measure would raise €2.6bn during its six months in force, taking funds from utilities that benefit from the impact of gas on the electricity price but which do not have corresponding gas costs of their own.

But the continued increase in gas prices means the levy may now cost the companies involved more than €5.5bn — which the groups argue shows that it was disproportionate and ill-conceived.

About 20 EU governments have announced emergency spending plans to protect consumers from surging costs but no other member state has yet implemented a profits tax on utilities.

Kristian Ruby, secretary-general of Eurelectric, who organised the letter, said Brussels should make clear that the Spanish tax contravenes EU law.

“We ultimately will be looking for a signal to the commission at some point, to take a clear stance on what the Spanish government has implemented,” said Ruby. “If all member states [take measures] like Spain, there is no doubt that it will slow down or even derail the energy transition.”

Brussels’ toolbox will not explicitly repudiate Spain’s windfall levy, according to a draft seen by the FT. Instead, the paper will focus only on short-term policy measures that can be taken to protect households from surging electricity costs driven by record prices for natural gas.

Madrid says the proceeds will be used alongside temporary tax cuts to bring electricity prices down and insists the measure is fully compliant with EU law.

“The government’s measures take into account the change in prices,” said a Spanish official. “The situation is being followed closely and there will be no hesitation in acting again if it is necessary.”

Ignacio Galán, chair and chief executive of Iberdrola, is set on Wednesday to meet Teresa Ribera, Spain’s deputy prime minister for the environment.

The companies argue the windfall profits the levy targets are illusory, since most energy for this year and next has already been sold via longer-term contracts rather than at the spot prices that have hit a series of all-time highs.

“More than 80 per cent of all the electricity in Spain that is hit by [the windfall tax] has already been sold and is already tied up in bilateral contracts. So you’re putting companies in a situation where they are forced to pay a bigger tax than the actual revenue they’re getting. They’re basically being forced to resell their energy,” said Ruby.

He added that he expected the companies to “pursue all options” to challenge the legality of the measure. However, the utilities’ legal recourse against the royal decree that implemented the levy may be limited.

FT : Deutsche Bank faces €500m lawsuit in widening forex scandal

Deutsche Bank faces €500m lawsuit in widening forex scandal
Spanish hotel group’s claim is tied to sale of exotic currency derivatives

One of Spain’s biggest hotel groups is suing Deutsche Bank for €500m in damages over the alleged mis-selling of risky foreign exchange derivatives that it says left it with crippling losses.

The claim, which was filed last month to the High Court in London, is the latest escalation in a scandal involving accusations that Deutsche sold exotic financial products to small- and medium-sized companies in Spain, pushing some into financial distress.

Some alleged victims are companies that are part of the Ibiza-based Palladium Hotel Group, Spain’s seventh-largest hotel chain, which claims that Deutsche took advantage of its naivety to sell it derivatives that it did not understand.

Deutsche told the Financial Times that it will defend itself “vigorously” against Palladium’s claim, which it said is “without foundation”.

The German lender also stressed that the lawsuit from Palladium was an isolated one and it considered it to be different to those it had settled in the past. “We see no reason to expect any further individual claims of anything like this size,” it said.

The wider allegations have led to the departure of two senior Deutsche bankers and out-of-court settlements, including a €10m payout to Europe’s largest wine exporter, J García-Carrión.

Deutsche is conducting its own internal probe into the allegations, codenamed “Teal”. The bank says only “a limited number of clients” are directly affected but it is investigating whether others might have been subject to similar issues. The FT has reported that between 50 and 100 companies could be involved.

Palladium — which operates 50 hotels in Europe and the Americas, including the Ushuaïa Ibiza Beach Hotel and Hard Rock Ibiza — says the complex derivatives it bought from Deutsche were touted as safe hedges against foreign exchange fluctuations, as well as changes in interest rates.

However, the family-owned group alleges it resulted in fees and losses “so large that [it] had to take out substantial loans” to cover them.

By 2019 Palladium had entered into 259 derivatives transactions. At their peak in 2017, they involved an outstanding notional amount — the total amount that the contracts reference — of €5.6bn, a sum that eclipsed the balance sheet of the hotel group, according to the lawsuit.

That compares with Palladium’s consolidated sales of about €700m a year and its annual earnings before interest, taxes, depreciation and amortisation of more than €150m.

According to the lawsuit, the deals were put together for Palladium by Antonio Matutes Juan, the 78-year-old brother of the company’s founder, Abel Matutes Juan, a former European Commissioner and Spanish foreign minister, who remains chair of the hotel group.

Although the multinational is one of the larger and more sophisticated corporates in dispute with Deutsche, Palladium’s US lawyers, Quinn Emanuel, argue that the company lacked both the expertise as well as the tools to understand how risky the derivatives were, and that the bank was fully aware of the knowledge gap.

They argue that the lender exploited a “close personal relationship” that Antonio Matutes Juan developed with Amedeo Ferri-Ricchi, Deutsche’s then-head of foreign exchange in Europe.

The lawsuit says Ferri-Ricchi courted Antonio Matutes Juan in Ibiza in October 2012, soon after Palladium suffered losses on foreign exchange transactions with other banks. The trader allegedly touted an FX derivatives strategy dubbed “DB Haven Liability Cheapener” as designed “to be safe”.

Antonio Matutes Juan, the lawsuit says, “placed trust and confidence” in Ferri-Ricchi’s judgment, buying derivatives that were “in practice impossible for a corporate client” to understand.

When the bets soured, Deutsche suggested restructuring the transactions in ways that incurred more fees and resulted in even deeper losses, the lawsuit states, accusing the lender of misrepresenting the downside risks.

The litigation is ongoing. Ferri-Ricchi, who is not a defendant in the case and not involved in the legal proceedings, left the German lender in 2019, a year before the Teal probe started. He denies the allegations made against him in the claim.

In a statement, Deutsche described Palladium as a “sophisticated investor with extensive experience of using derivatives”.

It added that the group “traded and settled these products with Deutsche Bank over a number of years without complaint. The transactions were carried out with the full knowledge and authorisation of the company, and Palladium well understood both the potential benefits and risks involved.”

Palladium declined to comment.

FT : EU seeks ban on Arctic drilling for fossil fuels

EU seeks ban on Arctic drilling for fossil fuels
Strategy aims to address environmental concerns and geopolitical tensions

Keep it in the (frozen) ground
The EU wants to ban any new oil, gas and coal production in the Arctic Circle and plans to make it illegal for member states to purchase any hydrocarbons produced from such projects, in a major push to get serious on tackling climate change in the high north, writes Henry Foy in Brussels.

The ambitious target that will headline the bloc’s new Arctic strategy to be unveiled today in Brussels comes as Europe finds itself in the midst of an energy crisis that many have blamed on a shortage of gas from Russia — a country with extensive Arctic hydrocarbon projects, some of which supply EU states.

The EU’s strategy, drawn up by the commission and the European External Action Service, seeks to marry environmental concerns and geopolitical tensions over the Arctic, which formally includes eight countries but has become a global issue as temperatures rise.

Finland, Sweden and Denmark — through Greenland — are Arctic EU members, but the bloc will need to convince the US, Canada, Iceland, Norway and Russia to join Brussels’ demand for a “legal obligation” to prevent new Arctic oil, gas and coal projects.

The US and Canada already ban offshore oil and gas drilling in the Arctic, but Russia has been clear that it sees the warming north as an opportunity to expand its hydrocarbon exploration. The EU is indirectly involved: French energy company Total owns 16 per cent of Novatek, a Russian company that has one major gas project in the Arctic and is constructing a second.

“It will require diplomatic efforts and we are not naive about that,” Virginijus Sinkevicius, EU commissioner for environment, told Europe Express. “But we need to lead by example . . . Our call starts a very important debate.”

The Arctic is warming three times faster than the rest of the planet and forest fires in Russia’s Arctic region are now an annual occurrence. But while some countries have warned about the threat of retreating ice, others see opportunities in it.

Russia has aggressively promoted the so-called Northern Sea Route — an Arctic shipping route from Europe to China shorter than via Suez and around India, and invested in a number of new military bases on their islands in the Arctic.

And cognisant that member state territory accounts for a small chunk of the total region, the EU’s strategy will aim to blend ambitious demands with offers of bloc competencies to the other stakeholders.

The EU will offer its sizeable research capabilities and, of course, deep pockets to promote “scientific diplomacy”, skirting around the complicated issue of, for example, partnering up with Russia in the snow and ice while sanctioning them for their actions on the sunny beaches of Crimea.

“It requires finding an agreement with countries where we don’t always have the easiest of relations,” admits Sinkevičius. “Ultimately climate change is going to affect all of us.”

“The Arctic is home to hundreds of thousands of Europeans,” he added.

FT : France finds growth prescription with health app Doctolib

France finds growth prescription with health app Doctolib
Rise of tech start-up through pandemic shows benefits of state working with private sector

During France’s battle against Covid-19, fast-growing tech start-up Doctolib was thrust into the spotlight when the government enlisted its platform to help run the national vaccination campaign.

The seven-year-old company was already familiar to many in France who use its slick blue-and-white smartphone app to book visits with about 300,000 doctors, dentists, and therapists. Valued at more than €1bn in its last fundraising, Doctolib makes money from selling its software services to medical practitioners starting from €129 a month, and is free to use for patients.

Doctolib soon turned into an invaluable tool in a national crisis — more than three-quarters of the appointments for jabs were eventually booked through the site, helping France achieve one of the highest immunisation levels in Europe. Its video consultation software also enabled millions of virtual doctors’ appointments during lockdowns.

The company has big ambitions to become a world leader in e-health from Europe — think Salesforce for the doctor’s office, plus a booking system for patients like OpenTable for restaurants. With Doctolib now present in France, Germany and Italy it is increasing revenue by about 50 per cent a year from about €200m now, and plans to hire 1,000 people in the next year.

Doctolib’s rise was a surprising success in a country where the state is omnipresent in the healthcare system and where the private sector is often regarded with suspicion. But it also reflects a bigger story of France finally getting its act together on modernising the technology infrastructure that underpins its national health service and public health system.

There is a lot to do. In France, it is still common for nurses in hospitals to rely largely on paper records, and under-investment in tech in the health sector is chronic in many countries, according to a 2015 OECD study.

“There is a lot of innovation in pharmaceuticals and medical devices, and historically very little on the software services and tech side,” Doctolib’s co-founder and chief executive Stanislas Niox-Chateau says. “We need to update legacy systems for the cloud and mobile era.”

Since 2019, a small team toiling in obscurity in the French health ministry is trying to help. It has laid out a smart strategy for what the state needs to do to facilitate the use of technology to improve patient care and boost efficiency, while also respecting core values such as equal access to care and the privacy of health data.

Laura Létourneau, a savvy, entrepreneurial civil servant who co-leads the project, says that after years of burning money on expensive IT projects such as an electronic patient record system that few doctors used, France has switched its approach to instead thinking of the “state as a platform”. 

“It’s a bit like a city,” she explains. “We set the rules and build the infrastructure like the roads and bridges, and then we rely on others to construct the houses and buildings.” 

Létourneau has long studied how to drag France’s sprawling public sector into the 21st century, and co-wrote a provocatively titled book called Let’s Uberise The State Before Someone Does It For Us. In health, this has meant that France is working to create the invisible, unglamorous stuff that allows companies such as Doctolib and many others to then develop tech-enabled services for doctors and patients.

These include a unique patient identifier, an authentication tool that checks doctors’ credentials, a digital patient record, software to facilitate electronic prescriptions and lots of standardisation work to connect disparate databases. Its work is being turbocharged by €2bn from France’s Covid recovery plan to be deployed until the end of 2023.

Next year, a long-awaited new portal for patients will launch, which will help them co-ordinate their care across doctors and feature approved apps and services, much like Apple’s app store.

For once, the French government is doing all this in close collaboration with the private sector. For example, during the first lockdown, Létourneau’s team created a system in only three weeks that linked up the country’s myriad diagnostic labs to a national database so that Covid test results could be tracked in real time. With all usual rules suspended because of the crisis, they worked directly with three software companies.

Such collaboration is at least one positive thing to come out of the pandemic.

FT : SEC’s ‘complex’ ETP probe could impact crypto ETFs

SEC’s ‘complex’ ETP probe could impact crypto ETFs
Investors are increasingly finding ways to access bitcoin outside the regulator’s remit, lawyers and analysts warn

The Securities and Exchange Commission’s indication that it is going to look more closely at how it regulates complex exchange traded products has implications for future bitcoin ETF rules, say attorneys and analysts.

Last week, SEC Chair Gary Gensler directed staff to study the risks of ETFs employing strategies “more complex than typical stocks and bonds” and draft potential rules to address those concerns.

Gensler cited leveraged and inverse strategies as examples of complex ETPs. Commissioners Allison Herren Lee and Caroline Crenshaw, however, suggested that any new rules would cover ETPs that are not regulated by the Investment Company Act, such as exchange traded notes, commodity pools and other structured notes.

“While there are differences in the structures of these products, they can pose similar risks to investors and the markets, and the commission should endeavour to adopt a consistent approach to managing such risks to ensure that our rules do not needlessly create opportunities for regulatory arbitrage,” they wrote in a statement.

History suggests the SEC wants to control when and how crypto ETFs come to market, said Jeremy Senderowicz, shareholder at Vedder Price.

“With bitcoin, they probably wouldn’t want to be too quick on issuing a general rule,” he said.

Historically, the SEC commissioners had used the exchange listing rule process — known as the 19b-4 process — to vet and approve the first generation of new ETF concepts, including the first fixed-income ETFs and active-nontransparent strategies, he said.

The SEC’s work on ETFs also sits within a broader project to rein in crypto finance, which Gensler described as a “Wild West or the old world of ‘buyer beware’ that existed before securities laws were enacted”.

“This asset class is rife with fraud, scams and abuse in certain applications,” Gensler told the House Financial Services Committee in prepared remarks. “We can do better.”

But one attorney expressed concern that if regulators do not address crypto ETFs soon, or at least set up a framework for how they might be reviewed through new complex ETP regulations, there was a risk that more investors would seek access outside the SEC’s jurisdiction.

“It’s easier to get a clearer picture of what you’re going to be regulating in the future if you make clear what you are regulating now,” said M Ridgway Barker, chair of the corporate finance group at Withersworldwide. The bitcoin market had grown rapidly since the SEC began looking at the first of such products five years ago, he noted.

The SEC might want to focus its regulatory efforts on requiring that complex ETFs clarify their existing disclosures, rather than creating new ones, he added.

But even if bitcoin was not addressed specifically in additional regulation of complex ETPs, such products could be caught up in new sales practice rules governing ETPs, according to Vedder Price’s Senderowicz and Dave Nadig, director of research and chief investment officer of ETF Trends.

The SEC’s decision to scrub heightened due-diligence practices for leveraged and inverse ETFs from the final derivatives rule prompted Crenshaw and Herren Lee to withhold their approval of the regulation.

Any new complex ETP rules should “renew that effort and consider expanding it beyond registered investment companies to reach other types of complex exchange-traded products,” they said last week in their joint statement.

In Europe, complex ETPs triggered a host of specific sales rules such as know-your-customer regulations and platform-access restrictions, Nadig noted.

“If something like [sales restrictions] were to be enacted, that could apply to bitcoin ETFs,” Senderowicz added.

>>> US After Hours Summary: AAPL -1.4% lower on Bloomberg report it's likely to

After Hours Summary: AAPL -1.4% lower on Bloomberg report it's likely to slash iPhone 13 production targets due to chip shortages, suppliers also lower; CRSP -10.4% lower on clinical data; SGH +3.7% higher on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: SGH +3.7%, PNFP +2.2%

Companies trading higher in after hours in reaction to news: VST +6.1% (announces new $2 bln share repurchase program), FIXX +5% (announces pheEDIT Phase 1 clinical trial for HMI-103), VMEO +4.7% (provides metrics for Sept; subscribers increased 14% yr/yr in the month), QCOM +1.4% (approves new $10 bln stock repurchase authorization), DCT +1.3% (announces partnership with Safekeep), EGO +0.5% (reports preliminary Q3 production results), STGW +0.5% (stock offering), RTLR +0.4% (announces strategic Midland Basin gas gathering and processing joint venture), ESTC +0.1% (expands integrations with Google Cloud), ANGI +0.1% (reports monthly metrics for Sep)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: STIM -19.7% (lowers Q3 guidance, issues downside FY21 guidance), VOXX -5.4%, CTSO -1.7% (issues downside Q3 revenue guidance; also receives full FDA IDE approval to begin US STAR-D trial)

Companies trading lower in after hours in reaction to news: CRSP -10.4% (announces positive results from Phase 1 CARBON Trial of CTX110), SRPT -6.6% (announces $500 mln stock offering; also provides Q3 product revenue guidance), NAPA -5.2% (stock offering), EFC -3.2% (stock offering; also announces estimated book value per share), SNCY -3.1% (stock offering), RNR -2.2% (estimates Q3 catastrophic losses at $725 mln), SWKS -1.9% (in sympathy with Apple news), SBRA -1.8% (stock offering), CRUS -1.6% (in sympathy with Apple news), AAPL -1.4% (likely to slash iPhone 13 production targets due to chip shortages, according to Bloomberg), QRVO -1.3% (in sympathy with Apple news), PYCR -1.1% (stock offering), AVGO -1.1% (in sympathy with Apple news), TXN -1.1% (in sympathy with Apple news), MN -0.7% (stock offering), AB -0.2% (reports Sept AUM), WU -0.2% (announces completion of investment into stc Bank), HAS -0.2% (announces passing of CEO, who had taken a medical leave of absence on Oct 10), IP -0.2% (authorizes a $2 bln share repurchase program; also cuts dividend by 9.8% associated with spin-off of printing papers business), NXPI -0.1% (names new CFO), CRS -0.1% (names new Chairman)

>>> US Close Dow -0.34% S&P -0.24 Nasdaq -0.14% Russell +0.61%

Closing Stock Market Summary

The large-cap indices closed slightly lower on Tuesday in a tame session, as investors adopted a wait-and-see mindset for tomorrow's key events. The S&P 500 (-0.2%), Nasdaq Composite (-0.1%), and Dow Jones Industrial Average (-0.3%) declined between 0.1-0.3%, while the Russell 2000 rose 0.6%. 

Those key events will include Q3 earnings results from JPMorgan Chase (JPM 165.36, -1.28, -0.8%), the Consumer Price Index for September, and the FOMC Minutes from the September meeting. 

Six of the 11 S&P 500 sectors closed lower, with the laggards being the heavily-weighted communication services (-1.1%), information technology (-0.5%), and health care (-0.5%) sectors. Five sectors closed higher, led by the real estate (+1.3%), consumer discretionary (+0.7%), and utilities (+0.7%) sectors with decent gains.

The financials sector (-0.3%) was pressured by some curve-flattening activity in the Treasury market in which the 2s10s spread narrowed by seven basis points. The 2-yr yield rose four basis points to 0.35%, while the 10-yr yield decreased three basis points to 1.58%. The U.S. Dollar Index increased 0.2% to 94.51. 

On a related note, today's $58 bln 3-yr note auction was met with weak demand, but the $38 bln 10-yr note reopening saw stronger demand.

Elsewhere, the Dow Jones Transportation Average (+0.9%) saw relative strength following upside Q3 EPS guidance from Matson (MATX 89.57, +6.90, +8.4%) and upwardly revised Q3 revenue guidance from American Airlines (AAL 20.29, +0.16, +0.8%). 

Separately, the NY Fed's September Survey of Consumer Expectations showed that short- and medium-term inflation expectations rose to their highest levels since the inception of the survey in 2013. Fed Vice Chair Clarida (FOMC voter) and Atlanta Fed President Bostic (FOMC voter) also acknowledged the elevated inflation pressures in the economy. 

Inflation wasn't so much the story today, though, since longer-dated Treasury yields settled lower and WTI crude futures settled higher by only 0.1%, or $0.09, to $80.62/bbl. That might for tomorrow when investors see how much inflation pressures have seeped into consumer prices. 

Reviewing Tuesday's economic data:

  • Job openings decreased to 10.439 million in August from a revised 11.098 million (from 10.934 million) in July.
  • The NFIB Small Business Optimism Index for September decreased to 99.1 from 100.1 in August.

Looking ahead, investors will receive the Consumer Price Index for September, the FOMC Minutes from the September meeting, and the weekly MBA Mortgage Applications Index on Wednesday. 

  • S&P 500 +15.8% YTD
  • Russell 2000 +13.1% YTD
  • Dow Jones Industrial Average +12.3% YTD
  • Nasdaq Composite +12.2% YTD