Closing Stock Market SummaryThe S&P 500 set new record highs on Monday, increasing 0.6% as trade sentiment remained upbeat and investors reacted positively to corporate news. The Nasdaq Composite (+1.0%) and Russell 2000 (+0.9%) pulled out ahead, while the Dow Jones Industrial Average (+0.5%) trailed its peers.
Both the U.S. and China continued to work on "Phase One" of a trade agreement over the weekend, which President Trump said is "ahead of schedule" for him to sign. China's state-run media reported that technical consultations on parts of the text were "basically completed."
Technology stocks outperformed, with Microsoft (MSFT 144.19, +3.46, +2.5%) providing influential leadership for the broader market and S&P 500 information technology sector (+1.3%) after it was awarded a $10 billion cloud contract with the Department of Defense.
The tech sector also benefited from strength in the semiconductor space, which tends to rise when sentiment on trade is favorable. The Philadelphia Semiconductor Index rose 1.8%. Following suit were the communication services (+1.2%) and health care (+1.0%) sectors, while the utilities (-1.3%) and real estate (-1.1%) sectors fell noticeably.
Contributing to the advance in the communication services sector were solid gains in Alphabet (GOOG 1290.00, +24.87, +2.0%) and AT&T (T 38.49, +1.58, +4.3%). Alphabet set an all-time high amid heavier-than-usual volume in front of its earnings report, while AT&T announced a multi-year plan to increase shareholder value, which was viewed favorably by activist investor Elliott Management.
Monday also saw some notable M&A activity. Alphabet is reportedly in talks to acquire Fitbit (FIT 5.64, +1.33, +30.9%). Tiffany & Co. (TIF 129.72, +31.17, +31.6%) received a $14.5 billion unsolicited offer from LVMH for $120 per share in cash. Liberty Property Trust (LPT 57.50, +6.93, +13.7%) agreed to be acquired by Prologis (PLD 85.89, -4.97, -5.5%) for about $12.6 billion in an all-stock deal.
In earnings news, Spotify (SPOT 140.20, +19.51, +16.2%) reported a surprise profit and reported MAU growth above expectations. Dow component Walgreens Boots Alliance (WBA 55.80, +0.38, +0.7%) didn't draw much attention following its mostly in-line results.
U.S. Treasuries finished lower in a curve-steepening trade. The 2-yr yield increased two basis points to 1.65%, and the 10-yr yield increased five basis points to 1.85%. The U.S. Dollar Index declined 0.1% to 97.74. WTI crude snapped four straight days of gains, losing 0.9%, or $0.49, to $55.95/bbl.
Monday's economic data was limited to the Advance reports for International Trade in Goods, Retail Inventories and Wholesale Inventories for September:
- The Adv. Intl. Trade in Goods report for September showed a deficit of $70.4 billion, which was an improvement from the August deficit of $73.1 billion. An advance report for retail inventories showed a 0.3% increase, versus a 0.2% decline in August, while the advance report for wholesale inventories showed a 0.3% decline, versus an unchanged reading for August.
Looking ahead, investors will receive the Conference Board's Consumer Confidence Index for October, Pending Home Sales for September, and the S&P Case-Shiller Home Price Index for August on Tuesday.
- Nasdaq Composite +25.5% YTD
- S&P 500 +21.2% YTD
- Russell 2000 +16.6% YTD
- Dow Jones Industrial Average +16.1% YTD
Tiffany/LVMH: glitter hitter
Struggling US jewellery retailer would benefit from French luxury group’s global clout
In Truman Capote’s novella, a trip to Tiffany’s could transform Holly Golightly’s mood. LVMH shareholders are less easy to impress. The French luxury group’s share price hardly twitched after news of its $14.5bn approach to the US jewellery retailer, potentially its biggest takeover yet.
The cool response is appropriate, even if the tie-up has some merit. Acquiring Tiffany would more than double LVMH’s market share in luxury jewellery to 18 per cent, the top position. A deal could benefit both. LVMH multiplied the profits of Bulgari, the high end jeweller it bought in 2011.
Tiffany’s relatively affordable range would complement, not cannibalise the Bulgari business. Also Tiffany is a big US employer, which might help LVMH’s efforts to keep its handbags and cognac off President Donald Trump’s tariff list. Tiffany, struggling to turn its fortunes around, would benefit from LVMH’s global clout.
LVMH paid a handsome price for Bulgari — an enterprise value-to-forward ebitda ratio of about 22 times. Its mooted $120 a share all-cash offer for Tiffany is much less generous, at a ratio of 14 times. The offer was a third higher than Tiffany’s three month share price average, but well below last year’s high of $139.50.
Hopes of a better offer helped Tiffany’s shares jump 31 per cent, to $130. But LVMH may prove unwilling to pay a lavish price. Unlike Bulgari in 2011, Tiffany’s operating profit margins are already high, at 17 per cent. Moreover, Tiffany requires a lot of investment. It needs to move upmarket, a trick that is harder to pull off than expanding the appeal of a rarefied brand.
Kering is another possible suitor for Tiffany, as the former could benefit from revamping the jewellery in its portfolio. Given the intense rivalry between the two French luxury giants, if Kering had to pay up for Tiffany that would probably lift the mood of LVMH boss Bernard Arnault. Instead, LVMH might prefer to acquire some bigger baubles. For it, Chanel and Richemont are the most glittering prizes of all.
Crystal Pite’s ambitious new work is premiered at the Palais Garnier, Paris
Paris Opera Ballet performed Body and Soul, a piece that ranges from unforgettable to puzzling
Few choreographers have captured grief like Crystal Pite, who gave us the shattering Betroffenheit. That sense of loss is evident again in Body and Soul, just given its world premiere at the Paris Opera Ballet. A bereaved woman, Muriel Zusperreguy, and the partner just beyond her grasp, Alessio Carbone, haunt the sombre first and second acts.
More often than not, however, what happens around them is less than crystal clear. Pite scored a notable success at the Paris Opera with 2016’s The Seasons’ Canon. This follow-up is her first three-act production for a major ballet company — a daunting format that has defeated many dance-makers. While much of Body and Soul points to Pite’s immense talent, and elicits ardent performances from the cast, it is also structurally flawed.
The first act would make a convincing standalone piece. It is set to a short text, a physical description of a scene between two characters, penned by Pite and read over and over again by the actress Marina Hands (with additional music by Owen Belton). “Figure one lies on the ground. Figure two paces back and forth,” the voiceover dictates to two male dancers when the curtain rises.
We see conflict at this point, but Body and Soul proceeds to spin multiple dance encounters out of that blueprint. Both figures are alternately embodied by individuals and large, rippling groups of dancers in black coats, allowing for the large-scale effects that are Pite’s speciality. As Hands’ inflections change subtly, so does the emotional arc of the scene: “head against chest” (as recited in the text) morphs from a headbutt into a gesture of intimate surrender and, in the final scene, the cradling of Carbone’s lifeless body.
It’s a subtle tribute to the dancers’ ability to take a generic situation and identify endless ways to interpret and colour it. Unfortunately, the second act does the exact opposite. The text is replaced by Chopin’s 24 Preludes (as recorded by Martha Argerich), a work of such emotional specificity that it practically demands to be followed note by note.
It doesn’t quite lend itself to Pite’s sweeping style, and she responds predominantly with pas de deux, a weak point in her dance arsenal. Chopin offers the musical equivalent of a full sonnet in the time it takes for many sequences of Jiri Kylian-esque partnering and spiralling lifts to be completed, leaving them feeling generic.
As for the third act, it is a puzzling trip to a galaxy far, far away from dramaturgical common sense. Oversize, textured golden panels descend to frame the dancers, who return as faceless insects in skin-tight black bodysuits. They spend much of the scene prowling and leaning on prosthetic appendages attached to their arms, while a hairy character resembling Cousin Itt from The Addams Family roams nearby.
Pite has explored hive-like groups as a metaphor for the ballet world before, in the thoughtfully constructed Emergence, but this is all body and no soul. Perhaps that was the goal: it is also the only act in which female dancers wear pointe shoes. The finale, set to Teddy Geiger’s song “Body and Soul”, is rousingly silly, and sees vogueing thrown in with unimaginative classical steps. The audience roared; I longed for the humanity of the first act, which won’t be so quickly forgotten.
EY sued by whistleblower over Dubai scandal
Accountant accused of ‘covering up’ concerns over money laundering at gold refiner
Big Four accountant EY has been accused of legal and ethical violations in its audit work for a Dubai gold refiner in a court claim due to be heard in London in January.
The case is being brought by Amjad Rihan, a former EY partner based in Dubai, who said he was “forced out” of the company after he identified alleged money laundering by Kaloti Jewellery International. Mr Rihan was the audit partner with overall responsibility for Kaloti in 2013.
He is suing four EY entities, including its global and European businesses, for about £13m, according to one person with knowledge of the matter.
Mr Rihan claimed the accounting firm failed to report suspicious activity at Kaloti and altered a compliance report to hide the apparent wrongdoing from the authorities.
EY said the allegations against it were “unfounded”. “Mr Rihan’s claim is denied and is being vigorously defended,” it said in a statement. “We are confident that all legal and reporting obligations have been complied with by the relevant EY entities.”
Kaloti has denied any wrongdoing and said that it conducted all appropriate anti-money laundering checks.
Mr Rihan claimed EY suppressed his concerns about large sums of cash being paid out by the company and about gold bars that had been disguised as silver to avoid trade restrictions.
In a statement, Mr Rihan said EY “covered up” his concerns that Kaloti was importing large quantities of silver-coated gold. He said his case “demonstrated the devastating impact on society caused by major international accountancy firms sacrificing their independence and integrity to appease their clients’ interests.”
Paul Dowling, a solicitor at Leigh Day who is representing Mr Rihan, said: “Rather than thanking Mr Rihan for bringing the violations to their attention, our client’s case is that EY suppressed the findings and left him and his family at risk, forcing him to leave his home in Dubai and resign from his job.”
The case has come to light following an investigation by the BBC and Premieres Lignes, a French media agency, which will be broadcast by BBC Panorama on Monday.
EY said: “We take seriously all responsibilities to report suspicious monetary transactions to the authorities, but it is important to note that reporting rules may prohibit us from publicly commenting on what specific notifications may or may not have been made to the authorities by relevant EY entities.”
The BBC quoted Kaloti as saying: “Kaloti would not knowingly enter into a trading relationship with any party in the knowledge that such party had been engaged in financial impropriety or criminal activity of any kind.”
Fed Adds $76.6 Billion in Overnight Liquidity
Repo operation is aimed at ensuring financial system has enough liquidity
The New York Fed added $76.583 billion in liquidity to financial markets Monday.
The injection came by way of an overnight repurchase-agreement operation. In it, the Fed took in $66.833 in Treasurys and $9.750 billion in mortgage debt.
Fed repo interventions take in Treasury and mortgage securities from eligible banks in what is effectively a short-term loan of central-bank cash, collateralized by dealer-owned bonds. The Fed’s interventions are aimed at ensuring the financial system has enough liquidity and short-term borrowing rates remain well behaved.
The Fed recently increased the sizes of its temporary operations as the month’s end and this week’s rate-setting Federal Open Market Committee meeting approach. Fed data released Monday showed short-term rates are near where central bankers expected them to be.
Tech Firms Ramp Up Lobbying as Antitrust Scrutiny Grows
Facebook, Amazon lead the pack in spending as the industry seeks to present a positive message to Washington
Big Tech is hard to miss these days in Washington. So is its money.
Lobbying expenditures by Facebook Inc., FB +0.55% Amazon.com Inc. AMZN +0.62% and Apple Inc. AAPL +0.78% are on pace to hit record highs this year. Facebook increased spending by nearly 25%, to $12.3 million, through the first nine months of the year over the same period in 2018, according to disclosures of lobbyists’ compensation filed with the federal government.
Amazon notched a 16% jump in lobbying outlays, to $12.4 million, making it the top spender so far in 2019 among all companies, according to quarterly reports released last week.
Apple boosted spending by 8% so far this year, and Microsoft Corp. by 9%.
Among individual U.S. companies, Facebook was ranked No. 2 in lobbying spending through Sept. 30, according to the Center for Responsive Politics, followed by Northrop Grumman Corp. NOC +0.10% at $11 million.
The tech lobbying uptick comes amid heightened scrutiny of tech companies in Washington. Facebook is facing antitrust investigations from the Federal Trade Commission, the Justice Department and state attorneys general. Amazon is a target of a nascent Federal Trade Commission probe into its market power.
The House Judiciary Committee is examining Apple, Facebook and Amazon as well as search giant Google.
The firms have said they welcome the scrutiny and are working with investigators.
Google also faces antitrust probes by the Justice Department and states. Its parent, Alphabet Inc., bucked the trend in lobbying spending, posting a 41% decline amid a shake-up of its government affairs operation.
Google still spent $9.8 million on lobbying through Sept. 30, and like other big tech companies, it is taking steps to present a positive message to Washington.
In subway stations and at Reagan National Airport, Google has papered turnstiles and walls touting its privacy controls. It also opened pop-up kiosks where consumers could get personalized guidance to set their privacy settings to secure their data.
Amazon took over a busy pedestrian square near the National Mall this month to showcase the mom-and-pop sellers on its marketplace, a not-so-subtle response to those who say the e-commerce titan is suffocating small businesses.
Facebook Chief Executive Mark Zuckerberg is suddenly a regular presence, making three visits to Washington in the past five weeks including a policy speech at Georgetown University and a stop at the White House.
“I’m not sure whether Mr. Zuckerberg has bought an apartment here yet or not, but he is certainly spending much, much more time and not just him,” said Rep. Bill Huizenga (R., Mich.). “They were behind the curve in getting out talking to policy makers.”
A Google spokeswoman said the privacy kiosks and ads were designed to help consumers and tied to National Cybersecurity Awareness Month. Nicholas Denisson, Amazon’s vice president of small business, said the small-business event was a first, but that company has long recognized small sellers in other ways.
Facebook and Apple declined to comment.
Some consumer advocates view tech firms’ spending as a means of gaining allies ahead of what could be bruising months to come.
“When you don’t have a home in terms of the political parties in Washington, D.C., you have to do your best to buy one,” said Mike Tanglis, research director at Public Citizen, which supports breaking up large tech firms.
One driver of the spending by Facebook and Amazon: the firms’ expanding ambitions.
Before this year, Facebook didn’t often deal with financial issues on Capitol Hill. Then in June it announced plans for a global cryptocurrency, drawing a barrage of criticism. It has since has hired seven new outside lobbying firms to work on financial issues, including two former aides to the GOP chairman of the Senate Banking Committee.
Amazon wants more government business, and on Friday lost a Pentagon cloud-computing deal worth as much as $10 billion to Microsoft. Amazon has brought on seven additional outside lobbying shops since the middle of 2018, including former members of Congress and congressional aides who work to influence federal spending.
Apple still spends less than other tech giants, but is also facing new threats in Washington. It is a target of the House antitrust probe, and Chief Executive Tim Cook has forged a relationship with President Trump in an effort to keep tariffs off the iPhones and other products it imports from China.
Apple spent $5.5 million through Sept. 30, and Microsoft Corp. spent $7.8 million.
The decline in Google’s lobbying spending follows recent leadership changes, including firing a number of its U.S. lobbying firms. Last month, it brought on Mark Isakowitz, former chief of staff to Sen. Rob Portman (R., Ohio), to captain its Washington, D.C., office.
Google touted its own small-business chops at a June event in the Capitol hosted by the U.S. Chamber of Commerce, which counts Google as a paying member.
Reporters, congressional staffers, and others found on their seats a glossy flier explaining how Google’s YouTube helps U.S. small businesses find customers abroad. Chief Executive Sundar Pichai spoke about digital trade, then yielded the floor to sellers of bedding and children’s bicycles.
Amazon has brought sellers to Washington to speak to their local member of Congress about their success, according to congressional aides. An Amazon spokeswoman said these meetings began before the antitrust probes.
And on a sunny afternoon in Washington’s Wharf neighborhood near the National Mall earlier this month, Amazon featured about 20 purveyors of snacks, candles, headphones and more who handed out samples and business cards to passersby. Behind an “Amazon Small Business Spotlight” sign, they took turns sitting in a makeshift TV studio for interviews broadcast on Amazon.com.
For its part, Facebook sponsored a September event hosted by publisher the Atlantic, putting its name on a lounge area where attendees were invited to work and take meetings.
The sponsorship gave Nick Clegg, the former U.K. deputy prime minister leading Facebook’s policy and communications work, a platform to preach against Big Tech breakups.
“Pulling apart these tech companies isn’t going to do anything to deal with some of the underlying challenges we all have to rise together to meet,” Mr. Clegg said.
Mr. Zuckerberg’s recent schedule has included face time with President Trump, lawmakers in both parties and television hosts.
His pushback against calls for Facebook to take down inaccurate political ads won him praise from critics including House Minority Leader Kevin McCarthy (R., Calif.), who has accused social media firms of censoring conservatives.
Before his testimony at the House Financial Services Committee last week, Mr. Zuckerberg visited Rep. Emanuel Cleaver (D., Mo.), one of the panel’s senior members. The scheduled 30-minute meeting ran more than an hour as they discussed the company’s efforts to combat dangerous speech, Mr. Cleaver said.
At the hearing, Mr. Zuckerberg faced hostile questions. But afterward Mr. Cleaver, recalling the face-to-face meeting, said: “I feel better about Facebook and better about Mr. Zuckerberg.”
Ahead of the testimony, Facebook gave lawmakers a sheet estimating how many small businesses in their district use the social-media platform. “Facebook is proudly supporting your community,” it read.
Falling Rates Boost Mortgage Market to Precrisis Levels
Lenders extended $700 billion of home loans in the July-to-September quarter
The mortgage market turned red hot over the summer, posting its biggest three months since the financial crisis.
Lenders extended $700 billion of home loans in the July-to-September quarter, the most in 14 years, according to industry research group Inside Mortgage Finance. Mortgage originations for the full year are on pace to hit their highest level since 2006, the peak of the last housing boom.
Falling interest rates spurred homeowners to trade higher-rate mortgages for lower-rate ones to save on monthly payments. Refinancings kept mortgage lenders busy, though home sales haven’t recovered as much as economists expected.
Home sales have risen on an annual basis for the past three months, according to the National Association of Realtors, reversing a slowdown that persisted for more than a year. But sales fell about 2% in September from August, indicating the market is struggling to maintain its newfound momentum.
A decline in mortgage rates often takes longer to boost home purchases than refinancing because people need to shop for a home first. That could mean a few more months of improving sales as buyers who were drawn back into the market by lower rates continue to close on their purchases.
“The last few months have given us glimmers of hope that low rates are inducing existing home sales upwards,” said Ralph McLaughlin, deputy chief economist at CoreLogic Inc. “It looks like there is a healthy runway for home sales to tick up.”
Refinancing activity jumped 75% from a year earlier in July and August, according to data and technology firm Black Knight Inc. A record 11.7 million people would have saved at least 0.75 percentage point on their mortgage rate by refinancing in early September, Black Knight said.
Eric O’Sullivan bought a house in January in Old Lyme, Conn., when mortgage rates were in the mid-4% range. But rates have steadily fallen over the course of the year, prompting his mortgage lender to alert him to the potential to lower his rate. He refinanced this month at 3.49%.
His house also was appraised for more when he refinanced because he had put substantial work into it. The additional equity allowed him to do away with his mortgage insurance, further lowering his monthly payments.
“I wasn’t expecting to be able to refi,” Mr. O’Sullivan said. “It didn’t even cross my mind.”
Executives at Wells Fargo & Co., the nation’s largest mortgage lender, said this month that the bank extended $5 billion more in mortgages last quarter than in the quarter before, with refinancings making up a greater share of its originations. They expect the fourth quarter to be at about the same level as the third.
Chris Dutz lowered his interest rate to 3.75% from 4.25% when he refinanced his Colonial-style home in Millstone, N.J., this month. He said he waited about a year for the best rate.
He also switched from a Federal Housing Administration-insured loan to a conventional loan, which eliminated some fees. He estimates he is saving about $300 a month, meaning the refi costs will pay for themselves within a few years.
“It was all about timing when I wanted to pull the trigger,” he said. “I won’t touch my loan for a long time.”
Ralph DiBugnara, a senior vice president at Cardinal Financial Co. who handled Mr. Dutz’s loan, said that his business has been up 15% to 20% over the past three months or so. The growth has been a mix of refinances and purchases, he said.
The third quarter was a welcome rebound for an industry that was struggling to make money just months ago, alleviating some worries about underlying fragility in the mortgage market. Independent nonbank lenders now account for around half of all home loans, and they don’t have as much capital as banks to shield them in a downturn.
“I hope that people don’t get carried away and think this will last forever,” said Ted Tozer, a fellow at the Milken Institute and former president of government mortgage corporation Ginnie Mae. “They are hopefully socking away some of the cash they need so they can have a situation where they are better able to deal with a downturn when it does come.”
Larry Rideout, chairman of Boston-based Gibson Sotheby’s International Realty, said rates haven’t been as big of a boost to the purchase market as he expected because younger buyers have learned to take low rates for granted.
“We see it as extremely attractive,” Mr. Rideout said. But “the millennials have seen this rate for many years.”
ECB's Draghi: ECB will use all tools within mandate to reach goal
- What unites the governing council has always been and will always be much greater than anything that might divide it
- More active fiscal policy in the Euro area would make it possible to adjust our policies more quickly and lead to higher interest rates
- Better fiscal policy would allow ECB to adjust earlier