NortonLifeLock in Talks to Buy Avast
Cybersecurity firm Avast has market value of $7.2 billion
NortonLifeLock Inc. is in talks to buy cybersecurity firm Avast Plc in a deal that would expand the U.S. company’s focus on consumer software.
Avast said late Wednesday that the two were in advanced discussions about a cash-and-stock deal after The Wall Street Journal reported on the talks earlier Wednesday.
A deal could be completed this month, assuming talks don’t fall apart, according to people familiar with the matter. Avast has a market value of around £5.2 billion (around $7.2 billion). Assuming a typical deal premium, the deal could value the cybersecurity firm at more than $8 billion.
Avast said NortonLifeLock has until Aug. 11 to make a firm offer according to U.K. takeover code, which prescribes formal timelines.
Avast, which is based in Prague but trades in London, primarily makes both free and premium security software for consumers such as desktop security and server and mobile-device protection. The company says it has 435 million active users and its 2020 revenue was roughly $893 million.
The deal would be a big one for NortonLifeLock, based in Tempe, Ariz. With a market value of $16 billion, the company was known as Symantec Corp. before it closed a $10.7 billion deal to sell its enterprise-security business to Broadcom Inc. in 2019. What is left mainly sells Norton antivirus software and LifeLock identity-theft-protection products to consumers.
The company had attracted takeover interest of its own a few years ago, including from private-equity firms and a corporate suitor, but nothing has come of it.
Avast traces its roots back roughly 30 years to when founders Pavel Baudiš and Eduard Kučera established the company, then known as Alwil. The founders control roughly 35% of its shares and sit on its board.
The company says on its website that it rebuffed an acquisition offer from rival McAfee in 1997, instead licensing its antivirus software to the company. It became Avast in 2010 and went public in London in 2018, raising $200 million and commanding a market value of around $3.2 billion. In 2014, private-equity firm CVC Capital Partners took a significant minority stake and it held roughly 23% of the company at the time of the IPO.
Activist investor Starboard Value LP owns a roughly 3% stake in NortonLifeLock, according to FactSet, and holds a board seat. It first took the position in 2018, arguing the company needed to make operational changes to improve its margins. At the time, the business-facing segment made up about 60% of its revenue and was faring worse than the consumer business.
Software has been a particularly active sector for mergers and acquisitions as companies add more capabilities to their software-as-a-service offerings and compete to become one-stop shops for their customers.
Security has been particularly hot as several high-profile breaches affecting both consumers and businesses have underscored the importance of adequate protection. Microsoft Corp. this week agreed to buy RiskIQ, a small company founded in 2009 that helps companies track their vulnerability to digital threats.
Equifax Inc.’s 2017 breach that exposed the data of nearly 150 million Americans brought into focus how little control consumers have over their personal data and how it is shared. Since then, a steady stream of cyberattacks have interrupted everyday life, including in May, when the 5,500-mile Colonial Pipeline, crucial to the East Coast’s energy infrastructure, was temporarily shut down by its operator, leading to gasoline shortages in some places.
China’s Economic Growth Slows in the Second Quarter
Economists widely expected growth to trend lower beginning in the second quarter
BEIJING—China’s economic rebound slowed in the second quarter but continued to show unusual resilience more than a year after the country largely got control of the coronavirus within its borders.
China’s factories delivered another stronger-than-expected quarter of output while its consumers beat lowered expectations, raising hopes that domestic spending might play a greater role in sustaining momentum in the coming months.
All told, China’s government said Thursday that gross domestic product grew by 7.9% in the second quarter from a year earlier, in line with economists’ expectations.
While that growth rate was far slower than the 18.3% year-over-year GDP jump during the first three months 2021, nobody expected China’s economy to sustain that pace of growth as the statistical distortions from last year’s pandemic crisis faded.
The second-quarter growth figure helped power China’s economy to a 12.7% expansion for the first half of the year compared with the pandemic-scarred first six months of 2020.
Beneath the headline GDP figure, stronger-than-expected readings on factory output, retail sales and fixed-asset investment data in June are likely to quiet rising speculation that Beijing will intervene more forcefully to keep its growth momentum going in the latter half of the year.
Last week, in a move that surprised many in the market, Beijing moved to free up more liquidity in the banking sector for lending, hinting at high-level concerns about slowing economic activity.
But further stimulus might not be needed. With the 12.7% first-half growth figure, policy makers now appear to have lots of cushion to hit their full-year growth target of at least 6%—even if the economy slows considerably in the second half.
Beijing has been careful in managing economic expectations this year, given the myriad uncertainties around the coronavirus pandemic and the global recovery.
The growth target of 6% or more, set by China’s Premier Li Keqiang in March, was widely regarded by economists as being conservative. Many forecasters expect China to easily post 8% growth or more this year, given the low base of comparison from 2020.
Beijing has also signaled it would be comfortable with more modest growth this year as it resumes longer-term efforts—interrupted by the pandemic—to deal with deeper imbalances in the economy, including rising debt levels, runaway housing prices and an aging population.
Now, the unexpected second-quarter resilience could allow Beijing to sustain relatively fast growth while also tackling these longer-term issues.
Economic strength could be seen across the spectrum. Industrial output rose 8.9% in the second quarter and 8.3% in June compared with a year earlier, according to data released by the National Bureau of Statistics Thursday, beating expectations.
Retail sales, a key measure for China’s consumer spending, increased 13.9% in the second quarter and 12.1% in June from a year earlier, also topping forecasts.
Fixed-asset investment grew 12.6% in the first six months of the year, again beating expectations.
China’s urban surveyed unemployment rate, its headline measure of joblessness, stood steady at 5.0% in June, the same as in May, the statistics bureau said.
The figures on Thursday came after data released earlier in the week showing exports, a workhorse of the recovery that has so far delivered month after month of outperformance, turning in another better-than-expected result in June.
The firm numbers underscore the appeal of China’s market for American companies, in spite of rising geopolitical tensions.
Levi Strauss & Co., the American bluejeans maker, reported a better-than-expected quarter in the three months ended May 30, thanks in part to higher sales in China that topped pre-coronavirus levels.
Charles Bergh, Levi Strauss’ president and chief executive, said this month that quarterly sales in China rose 3% from the same period in 2019 as the company shifted more of its sales to online channels in what he called “one of our largest growth opportunities.”
Northern Technologies International Co. , a maker of biodegradable plastics and corrosion-inhibiting products, said net sales at its China subsidiary jumped 30.7% from a quarter earlier to a record high in its most recent period, which ended May 30.
“We expect China will likely become our largest geographic market in the coming year,” Chief Executive Patrick Lynch said earlier this month.
The Circle Pines, Minn.-based company is investing $6.2 million this month to acquire a new facility in Shanghai to support its China operations.
Not everyone is benefiting as much. Sherry Cai, sales manager at Guangzhou C&Y Filter Co., a small filter manufacturer with two production lines in China’s southern Guangdong province, says soaring prices for raw materials this year have eviscerated its profits, even as customer demand remains steady.
“The rise in the raw material prices is the biggest problem we face this year,” said Ms. Cai, who said prices for imported filter paper from South Korea jumped by nearly 30% in the first half of the year.
In addition to the rise in raw materials prices, the company also faced a shortage in shipping containers and a stronger yuan, which makes its products less competitive on the global market.
“The profit margin on our products is only 10%. If the cost has increased by 30%, while we can’t transfer all the increase to our customers,” Ms. Cai. “We have to eat the cost.”
What’s Worse Than a Chip Shortage? Buying Fake Ones
Global semiconductor shortage attracts fraudsters, counterfeits; ‘Of course, a bunch of them didn’t work,’ a buyer says
TAIPEI—The global chip shortage has created a gold mine for bad actors.
Businesses in need of chips are taking supply-chain risks they wouldn’t have considered before, only to find that what they buy doesn’t work. Dubious sellers are buying ads on search engines to lure desperate buyers. Sales of X-ray machines that can detect fake parts have boomed.
It is a quality-control crisis created by the world’s scramble to land hard-to-find semiconductors at any cost. Without those essential parts, makers of products as varied as home appliances and work trucks are stuck in neutral as the global economy ticks back to life.
This spring, New York-based BotFactory Inc., a maker of 3-D printers that produce electronic parts, couldn’t source microchips at any of its go-to vendors for weeks. Eventually, it turned to an unknown seller on AliExpress, an online sales platform operated by China-based Alibaba Group Holding Ltd. An early sign of trouble: The orders arrived packed in plastic wrap rather than the usual protective antistatic bags.
“Of course, a bunch of them didn’t work,” said Andrew Ippoliti, BotFactory’s lead software engineer.
Mr. Ippoliti suspects the defective parts were fakes. Before making the purchase, BotFactory had been assured the microchips were legitimate, he said—but the seller went silent after the products failed to work. BotFactory filed a dispute with AliExpress, which issued a full refund.
The company finally procured some 200 microchips by ordering direct from the manufacturer.
At ERAI Inc., which maintains records of misbehavior in the electronics supply chain, new complaints arrive almost every day, said Kristal Snider, vice president at the industry watchdog. Buyers from more than 40 countries have filed reports of wire fraud, she added.
The transgressors are generally opportunistic criminals. They lure victims through targeted ads on search engines, direct them to boastful webpages and then disappear after receiving wire payment. ERAI has flagged dozens of high-risk websites, many based in Hong Kong.
One flagged firm is Blueschip Co., which calls itself one of the world’s “largest and fastest-growing” electronics-components distributors. ERAI said the company’s website shares similarities with those of known bad actors—including some guarantees that use the same wording.
Blueschip, in a written response to The Wall Street Journal, said it couldn’t be bothered to respond to ERAI’s claims. “The innocent know their innocence,” the Hong Kong-based company said.
“The number of websites we see popping up offering hard-to-find, allocated and obsolete parts is alarming,” said ERAI’s Ms. Snider in an email. “After 27 years of investigating and reporting fraud in this industry, it takes a lot to alarm me.”
Instances of chip fraud have historically been underreported, industry participants and experts say, because victims are reluctant to publicly admit that they have been duped. Pursuing criminal charges is difficult, particularly across borders.
For counterfeiters and shady distributors, the possibility of getting caught isn’t great enough to alter their behavior, said Diganta Das, a researcher at the University of Maryland who studies counterfeit electronics. There are so few convictions, Mr. Das said he could recite them all if he tried.
Counterfeit chips existed before the current shortage. The knockoffs range from sophisticated copies to old parts refurbished to look new. Many buyers have improved testing capabilities, lowering the odds that errant parts could end up in finished products, chip experts said, though counterfeiting techniques constantly evolve.
Most companies encounter counterfeit parts about three times a year, estimates Michael Ford, a senior director at Horsham, Pa.-based Aegis Software Corp., who has worked on industry standards for the quality and tracking of electronic parts. In nearly every case, the fake parts go unreported, he added.
“The whole supply chain does not want to appear as though it’s compromised,” Mr. Ford said.
Given the chaos of this year’s shortage, some buyers are tightening their antifraud measures. The Independent Distributors of Electronics Association said orders for its 250-page manual on identifying suspect parts are coming in at twice last year’s pace. Some buyers are companies that had obtained faulty or suspicious components, said Faiza Khan, the group’s executive director.
At U.K.-based distributor Princeps Electronics Ltd., requests for the most expensive and sophisticated electrical testing have nearly quadrupled this year, said Ian Walker, operations director. Those require a specialized engineer, he said, and in some cases mean a customer is paying tens of thousands of dollars to confirm the authenticity of a $3 chip.
“It is a very difficult thing to totally remove the risk of counterfeit parts in an efficient and cheap way,” Mr. Walker said.
Sales of Creative Electron Inc.’s fraud-spotting X-ray machines, which cost up to $90,000 and can detect whether the inside of a chip is empty or has inconsistent circuitry, have doubled over the past year, according to Bill Cardoso, chief executive of the San Marcos, Calif.-based company.
Astute Electronics Inc., an electronic components distributor, plans soon to buy its fifth X-ray machine for in-house inspection, said Dane Reynolds, vice president of operations. It began the year with two.
As client requests have surged, the firm is analyzing more components, Mr. Reynolds said. “As a result, we are finding more bad parts.”
Tether: the former plastic surgeon behind the crypto reserve currency
Giancarlo Devasini’s status at the centre of the cryptocurrency world is a remarkable transformation from his previous careers
When Giancarlo Devasini first got into cryptocurrencies in 2012, his interests were distinctly small-time. He piped up on a popular Bitcoin forum to ask if anyone wanted to buy DVDs or CDs for 0.01 bitcoin each, then roughly 11 cents, promising free shipping for bulk orders.
Today, the 57-year-old is one of the most influential players in the global cryptocurrency marketplace. From his position as chief financial officer at Bitfinex, a major exchange, and at Tether, its sister currency which has tokens worth $60bn in circulation, industry executives say that he is the key decision maker at two companies that now sit at the heart of the opaque daily flows of crypto money worth billions of dollars.
As the world’s largest “stablecoin”, meaning a cryptocurrency pegged to other assets, Tether is an indispensable lubricant for investors moving in and out of more volatile cryptocurrencies. As a result of its dollar-asset backing, it has become the de facto reserve currency of the global crypto economy.
Tether is also deeply controversial, with government authorities warning about the possible risks it poses to broader markets and questioning past statements it has made about the assets behind the currency.
Earlier this year, the New York attorney-general, Letitia James, said Tether had lied in the past about its reserves and called Devasini and his colleagues “unlicensed and unregulated individuals . . . dealing in the darkest corners of the financial system”. The companies say those phrases were not in the $18.5m settlement struck with the attorney-general’s office announced in February.
Last month, Eric Rosengren, the president of Federal Reserve Bank of Boston, named Tether as a possible challenge to financial stability, saying: “In effect, this is a very risky prime fund.” Prime funds invest primarily in corporate debt and allow investors to withdraw cash at will.
The significance of the cryptocurrency is hard to overstate: currently around half of all bitcoin trades are transacted using Tether, according to Crypto Compare, helping to propel the dramatic rise in bitcoin’s price this year. Tether has given crypto-traders a dollar-like token of exchange, without the hassle and risks of using real dollars.
At the centre of the two ventures is Devasini. Though formally junior to his longtime business partner, Tether and Bitfinex chief executive Jean-Louis van der Velde, Devasini is seen as the central figure by some in the market.
“The guy who runs it is Giancarlo,” says a crypto company executive. Devasini himself boasted in an audio chatroom in 2016: “At the end, I am the guy that calls the shots in Bitfinex.” Tether says Devasini and van der Velde both play “vital roles at Bitfinex and Tether based on their individual experiences and expertise”.
Devasini’s status as a titan of crypto finance, playing a central role in the vast sums of speculative money flowing into cryptocurrencies, is a remarkable transformation from his previous careers in plastic surgery, trading computer hardware and building a healthy-eating food delivery service.
Moulding a career
He was born in Turin in 1964 and trained as a doctor at the University of Milan. His first calling was as a plastic surgeon, although he quit the profession just two years out of university in 1992 after despairing at the job.
“All my work seemed like a scam, the exploitation of a whim,” he told an Italian art gallery in 2014. He recounted his particular frustration that one woman could not be talked out of reducing her breasts even though they “fit her perfectly”, as he put it.
Tether says Devasini had not himself performed that particular procedure and that he had been concerned the woman would be disappointed with the results.
The young doctor turned away from moulding flesh and embarked on a career dealing in electronics. He built a group of companies in Italy that, according to his Bitfinex profile page, and reiterated by Tether in response to questions from the FT, he grew to over €100m in revenue and which he says he sold shortly before the 2008 financial crisis.
Italian company documents cast his business background in a very different light. In 2007, Devasini’s business empire had revenues of just €12m and was subsequently dealt a deathblow by a devastating fire at Devasini’s warehouse and offices in February 2008. The parent company of the group, Solo, went into liquidation in June that year. The subsidiaries, Acme, Compass and Freshbit, had been written down to a nominal €1 value apiece in Solo’s 2007 accounts. Tether insists that Devasani “portrayed the facts entirely accurately”.
At some point during his almost two decades selling computer hardware, Devasini adopted the alias “Merlin” in many of his communications and the Skype handle “merlinmagoo”. One associate in 2010 referred to him as “Mr Merlin”.
Like the mythological wizard, Devasini had his share of scrapes.
In 1996, not long after he had left medicine for business, he paid 100m lira — then around $65,000 — in a counterfeiting settlement with Microsoft. A decade later, in 2007, Toshiba sued another of his entities, Acme, for alleged infringement of its patents for DVD format specifications.
Tether says Devasini had unwittingly loaded unlicensed Microsoft software on to computers he was selling after relying on the assurances of a supplier and that he had co-operated with the authorities investigating the matter. They added the Toshiba lawsuit had been “meritless”, “went nowhere” and “resulted in no adverse finding”.
In 2006, one of his companies, Alcosto, bought 1,575 memory chips from a UK business. A UK tax tribunal in 2016, in a case not involving Devasini, found that the transaction was one of several “linked to fraudulent tax losses” as part of a missing-trader scheme.
Such schemes involve long chains of trades, which may include unsuspecting businesses, where the final buyer claims a refund for value added tax from the government but the original seller, who is liable to the government for the same amount, disappears.
“The only ‘fraudulent tax losses’ we’re aware of were the result of a failure of one of Alcosto’s customers to pay taxes — not Alcosto itself,” says Tether.
In March 2010, another of Devasini’s companies, a Monaco entity called Perpetual Action Group, was banned from Tradeloop, the online used-electronics marketplace. A month earlier, an American buyer had complained about $2,000 worth of memory chips they had bought from PAG. “[One] box was filled with a large block of wood,” the buyer claimed.
Tether says Devasini sold PAG in 2008 and was not involved with the company after that point, before clarifying that he began winding up the business in late 2009.
Tradeloop’s forums in 2010 include emails showing Devasini dealing with the complaint, and messages from an associate saying Devasini had personally packed the boxes.
At the time, Devasini strongly denied the buyer’s claims, said the packages must have been tampered with en route and offered partial compensation.
“This was a minor commercial dispute from more than 10 years ago, which has nothing to do with Tether or Bitfinex,” Tether says.
Combative crypto proponent
By the turn of the decade, Devasini, in his mid-40s and with much of his business empire in liquidation, appeared to be looking for a new project.
He had launched a shortlived food delivery service called Delitzia that included a blog about the benefits of organic food. In a November 2009 video posted online, Devasini, on his balcony in a loose-fitting white shirt and with a large garden gnome on the table, made nettle risotto.
Then in 2012, Devasini found bitcoin and threw himself into the crypto world which was, and still largely is, a wild west of unregulated finance. He joined Bitfinex soon after its founding that year, running its trading and risk management operations.
His early conversations with customers on Bitcointalk, a popular Bitcoin forum, showed him to be jovial with well-wishers and combative with critics. “I believe you should show some respect and gratitude for what we at Bitfinex are all doing for you,” he told one in 2013.
Tether followed in 2014, though until 2017 the full extent of the common ownership and management of the two companies was not widely understood. Devasini, along with the other executives at Bitfinex and Tether, own the companies personally and operate from different locations across the world. Devasini’s “merlinmagoo” Skype account currently gives the African island nation of São Tomé and Príncipe as his location, while corporate records list addresses in Switzerland, Italy and the French Riviera.
To outside observers, Devasini is an elusive character, declining to speak to the mainstream press and today maintaining a minimal online presence, a break from the archetype of the bombastic and defiant cryptocurrency entrepreneur. “It’s a matter of style,” says Stuart Hoegner, the companies’ Canada-based general counsel. Devasini is “just a little more retiring”.
But for Bitfinex and Tether’s customers, he is ever present.
“He’s responsive 24/7, and he’s not just responsive to crises or unbelievable opportunities, he’s responsive to day-to-day operations,” says Sam Bankman-Fried, the chief executive of FTX, a Hong-Kong based cryptocurrency exchange.
He says those day-to-day operations include processes like co-ordinating the purchase and redemption of Tether tokens for customers like himself with Deltec Bank, the Bahamas financial institution that is the bank of both Bitfinex and Tether.
Bankman-Fried says Devasini has “a lot of pride” in what he has built at Bitfinex and Tether. “He’s really grateful for the people that supported him. He’s certainly fairly annoyed at people he sees as . . . shitting on his businesses without real reason for it.”
Stable growth?
Despite the criticism and scrutiny it has received this year from US authorities, Tether has continued to grow dramatically in recent months — and become even more central to crypto markets.
In the first half of 2021, the company’s growth accelerated dramatically; 40bn new coins were minted by the end of June, more than the total issuance of its nearest rival USD Coin.
Bitfinex has also prospered. Although it is not the largest exchange, it is a key venue for large crypto-traders seeking liquidity and margin. “That’s where price discovery happens. It’s truly the institutional venue in crypto,” says one crypto company executive.
Today, just 3 per cent of Tether’s reserves are in cash, according to a breakdown the company released in May. Half, around $30bn, is in commercial paper, meaning short-term loans advanced to other companies, according to the disclosure.
A major source of the criticism from US authorities has related to disclosures about Tether’s reserves. Until February 2019, Tether said that it held a dollar in cash for every tether token in issuance. Subsequently it has said every token is backed by dollar assets.
However, the New York attorney-general’s investigation found that at times before the February 2019 disclosure, large amounts of Tether’s cash reserves were held in Bitfinex bank accounts. This “obscured the true risk investors faced”, the attorney-general’s office said.
For several months in 2017, Tether had no access to banking services and at one point more than 85 per cent of its cash was held in a Bitfinex bank account, accounted for as a “receivable” from its sister company, the attorney-general James found, with the remainder held in an account in the name of Hoegner, the general counsel.
Subsequently, in 2018, Tether lent Bitfinex $625m after the exchange suffered the loss of $850m that it held with a Panamanian payment processor called Crypto Capital Corp. Bitfinex has said a significant portion of the funds were seized by authorities and that it is trying to recover the money. In 2019, the US charged two people linked to CCC with bank fraud.
The loss did not become public until April 2019 when it was revealed in a court action brought by the attorney-general. Messages revealed by James’s office showed Devasini, under the alias “Merlin”, pleading for months with a CCC individual called “Oz” for the return of their cash.
“Please understand all this could be extremely dangerous for everybody, the entire crypto community. [Bitcoin] could tank to below 1k if we don’t act quickly,” he wrote in October 2018. At the time, it was around $6,500 per bitcoin, according to crypto market analysts CoinGecko.
Tether’s critics, including claimants in a US class action lawsuit, have pointed to this line to claim that the cryptocurrency has been used to pump up the price of bitcoin.
Hoegner, the Bitfinex and Tether general counsel, said it was “missing the point” to view that message as a price prediction, saying it was “born of frustration” and that Devasini had simply been trying to apply pressure to force CCC to “do the legal and right thing”. The company has described the lawsuit as “absurd and groundless”.
Bitfinex survived the crisis, helped in large part by drawing on the $625m from Tether in November 2018 and a fundraising in 2019. The Tether loan, subsequently formalised in a $900m credit line collateralised with shares in Bitfinex’s parent company, was unknown to the market until April 2019 and was at the heart of the attorney-general’s finding this year that Bitfinex and Tether had misrepresented the status of Tether’s reserves.
Tether and Bitfinex neither admitted nor denied the finding. Though the settlement came with a $18.5m fine, they say it has vindicated their position that Tether was always backed, even if at times its cash was held by Bitfinex.
“The loan was repaid in full [in January], with all interest due and ahead of schedule. So that was a good receivable all along, as we always have said it was,” says Hoegner.
The companies say the fine was “a measure of our desire to put this matter behind us and focus on our business”. Or, as Devasini’s WhatsApp profile picture puts it: “Life has no backspace.”
Closing Stock Market SummaryThe S&P 500 increased 0.1% on Wednesday in a defensive session led by Apple (AAPL 149.15, +3.51, +2.4%) and the counter-cyclical stocks. The Dow Jones Industrial Average (+0.1%) also eked out a positive finish, while the Nasdaq Composite (-0.2%) closed slightly lower. The Russell 2000 dropped 1.6%.
The best levels of the day were right after the open when the S&P 500 hit a record high, as the market absorbed several market-friendly developments, including an observation from Fed Chair Powell. In his prepared remarks to Congress for his semiannual testimony on monetary policy, Mr. Powell remarked that "reaching the standard of 'substantial further progress' is still a ways off."
That suggested the Fed still isn't ready to tone down its extraordinarily accommodative policy, even with the high rates of inflation that the Fed Chair acknowledged. The Treasury market, meanwhile, continued to behave as if inflation rates are peaking since long-term interest rates backed down following a hot Producer Price Index (PPI) report for June.
Specifically, producer prices for final demand rose 1.0% m/m (Briefing.com consensus +0.6%) while producer prices, excluding food and energy, also rose 1.0% m/m (Briefing.com consensus +0.5%). Year-over-year, they were running noticeably hot at 7.3% and 5.6%, respectively.
The 10-yr yield fell six basis points to 1.36%, which was cited by some as a supportive factor for the S&P 500 information technology sector (+0.7%). That sector, and the major indices, really looked to Apple for support, though, after Bloomberg reported the company asked suppliers to increase production for its next-gen iPhone by 20% this year.
The defensive tone was further corroborated by the positive performances of the real estate (+0.9%), consumer staples (+0.9%), and utilities (+0.8%) sectors. Conversely, the energy (-2.9%) and financials (-0.5%) sectors were pockets of weakness amid the lower interest rates and weaker oil prices ($73.07, -2.17, -2.9%).
What's more, the financials sector had to contend with negative reactions to EPS beats from Bank of America (BAC 38.86, -1.00, -2.5%), BlackRock (BLK 880.32, -27.75, -3.1%), and Citigroup (C 68.20, -0.17, -0.3%). Wells Fargo (WFC 44.98, +1.75, +4.1%), however, rose 4% following its report.
Oil prices struggled after OPEC+ reportedly reached an agreement to increase production after failing to do so earlier this month. The news overshadowed the eighth-straight weekly inventory draw out of the EIA.
The 2-yr yield decreased three basis points to 0.22%. The U.S. Dollar Index fell 0.4% to 92.37.
Reviewing Wednesday's economic data:
- The Producer Price Index for final demand increased 1.0% month-over-month (consensus +0.6%), as did the Producer Price Index for final demand, less food and energy (consensus +0.5%). That left the year-over-year growth rate at 7.3% for total PPI -- the largest since November 2010 -- versus 6.6% in May. The year-over-year growth rate for core PPI was 5.6%, up from 5.3% in May.
- The key takeaway from the report is that producers are encountering higher prices that will create profit margin pressures if they are not offset with pricing actions.
- The Federal Reserve's Beige Book for July described overall economic growth as "moderate to robust."
- The weekly MBA Mortgage Applications Index jumped 16.0% following a 1.8% decline in the prior week.
Looking ahead to Thursday, investors will receive the weekly Initial and Continuing Claims report, Industrial Production and Capacity Utilization for June, the Empire State Manufacturing Survey for July, the Philadelphia Fed Index for July, and Import and Export Prices for June.
- S&P 500 +16.5% YTD
- Dow Jones Industrial Average +14.1% YTD
- Nasdaq Composite +13.6% YTD
- Russell 2000 +11.5% YTD
After Hours Summary: BX inks deal to manage portion of AIG life insurance policies, also buys stake in AIG’s life-insurance and retirement-services unit; there were also two regional bank mergersAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: ETWO +2.8%
Companies trading higher in after hours in reaction to news: LPCN +10.9% (enters into settlement and license agreement with Clarus Therapeutics to resolve all outstanding IP claims), RBNC +8.2% (UCBI announces merger agreement with RBNC), AIG +6.9% (AIG to sell 9.9% equity stake in Life & Retirement business to BX for $2.2 bln in cash; also agrees to sell certain affordable housing assets to BREIT for $5.1 bln), PSN +4.8% (awarded $2.2 bln Missile Defense Agency contract), BX +3.8% (AIG to sell 9.9% equity stake in Life & Retirement business to BX for $2.2 bln in cash; also agrees to sell certain affordable housing assets to BREIT for $5.1 bln), SANA +3.3% (enters into lease agreement to develop manufacturing facility), CE +1.6% (approves new $1 bln share repurchase program, or 6% of shares outstanding), INCY +1.4% (announces publication of Phase 3 REACH3 data in NEJM), HAL +0.3% (awarded contract in Oman), MD +0.1% (CVS Aetna voluntarily dismisses litigation against MD)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: None
Companies trading lower in after hours in reaction to news: IMUX -10.8% (stock offering), NLOK -3.1% (Avast in advanced discussions regarding a possible merger with NLOK), GLPG -2% (reports top-line results for SIK2/3 inhibitor GLPG3970; also reports top-line results for GLPG3667 in Phase 1b psoriasis study), OCX -1.4% (stock offering), TARO -0.8% (CFO resigns), BRBS -0.5% (BRBS to merge with FVCB in all-stock merger of equals; BRBS also increases dividend), IEP -0.5% (files for $1.2 bln mixed securities shelf offering), ROST -0.1% (CFO resigns to accept position at another company), R -0.1% (increases dividend)