Closing Stock Market SummaryThe stock market finished mixed on Friday, as it cooled off from a two-day rally amid a lackluster response to the August employment report. The S&P 500 (+0.1%) and Dow Jones Industrial Average (+0.3%) closed just above their unchanged marks, while the Nasdaq Composite (-0.2%) and Russell 2000 (-0.4%) closed slightly lower.
From a headline perspective, the employment report appeared to disappoint as jobs growth came in below expectations. Nonfarm payrolls increased by 130,000 (consensus 171,000), and nonfarm private payrolls increased by 96,000 (consensus 145,000).
The positive spin, however, was that the labor participation rate, employment-population ratio, and total number of employed workers all increased from July. Aggregate earnings were also up, while the unemployment rate held firm at 3.7% as expected. More people working and earning money is a good indication that discretionary spending could continue to support the economic expansion, one which Fed Chair Powell repeated the Fed is intent on sustaining.
Today's action didn't reflect much enthusiasm, though, but that wasn't out of the ordinary after a sharp two-day rally in stocks. Friday's leaders were an eclectic group: energy (+0.5%), materials (+0.5%), and consumer staples (+0.5%). The utilities (-0.3%), communication services (-0.2%), and information technology (-0.2%) sectors finished in negative territory.
Facebook (FB 187.49, -3.41, -1.8%) dragged on the communication services sector after New York announced a formal antitrust investigation into the company. Lululemon athletica (LULU 203.14, +14.73, +7.8%) impressed investors with positive results and upbeat guidance, which may have helped buying interest trickle over into the S&P 500 consumer discretionary sector (+0.2%).
DocuSign (DOCU 56.27, +10.02, +21.7%) was another standout, rising over 20% after the software company beat revenue estimates and issued upside revenue guidance.
U.S. Treasuries finished slightly higher after a sharp sell-off yesterday. The 2-yr yield and the 10-yr yield declined two basis points each to 1.52% and 1.55% respectively. The U.S. Dollar Index finished flat at 98.42. WTI crude increased 0.3%, or $0.14, to $56.45/bbl.
Reviewing Friday's economic data, which featured the Economic Situation Report for August:
- The Employment Situation Report for August conveyed that payroll growth is slowing and that wage growth remains modest. Job growth has averaged 158,000 per month so far this year, versus the average monthly gain of 223,000 in 2018. Average hourly earnings, meanwhile, were up 3.2% yr/yr in August, versus 3.3% in July.
- The key takeaway from the August employment report is that it isn't a distinctly disappointing report, even though the nonfarm payrolls and nonfarm private payrolls numbers might create that impression. The labor force participation rate increased to 63.2% from 63.0% in July (and 62.7% yr ago), the employment-population ratio rose to 60.9% from 60.7% (and 60.3% yr ago), and the total number of employed workers increased by 590,000 versus July. In sum, more people are working and earning money, which is a good recipe for increased consumer spending.
Looking ahead, investors will receive the Consumer Credit report for July on Monday.
- Nasdaq Composite +22.1% YTD
- S&P 500 +18.8% YTD
- Dow Jones Industrial Average +14.9% YTD
- Russell 2000 +11.6% YTD
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White House Econ Adviser Kudlow: Aug is usually a quirky month and often gets underreported; points to strength in household data (+590K) - CNBC interview
- Also notes pickup in participation and rise in average hourly earnings
-Today's number was a blowout number
- We need to address forced technology transfer with China
- Still expect deputies to meet in a few weeks with principles meeting in Oct; temperatures are calmer now in US/China trade talks
- GM CEO expressed support for reforms on cafe standards
Former Goldman banker ordered to pay £7.3m in corruption case
UK courts order Ellias Preko to pay money or face decade more in prison
A former Goldman Sachs banker convicted of laundering the ill-gotten gains of a former state governor of Nigeria has been ordered to pay £7.3m by a British court, or face a decade more in prison.
The UK’s National Crime Agency said in a statement on Friday that Ellias Nimoh Preko, a Harvard graduate and Ghanian national, must pay the money within three months.
The confiscation order, made by Judge David Tomlinson at Southwark Crown Court this week, follows the conviction of James Ibori, the former governor of Nigeria’s Delta State, who received a 13-year jail sentence in 2012 for plundering the state’s coffers in what the presiding judge described as “financial criminality on an eye-watering scale”.
Preko, 60, already received a four-and-a-half year sentence in 2013 for his part in washing almost $4m of Ibori’s dirty money, and confiscation proceedings are still continuing against Ibori himself. Preko had left Goldman when he committed the offences and the bank is not accused of wrongdoing.
Goldman said in a statement on Friday: “The judge’s findings concerning Ellias Preko relate to activities years after his departure from Goldman Sachs.”
The extravagant lifestyle of Ibori, once a former cashier at DIY store Wickes, included expensive London properties in St John’s Wood and Hampstead, a fleet of luxury cars and close to £1m spent on his exclusive American Express card.
As well as Preko, Ibori’s London-based lawyer, Bhadresh Gohil, was convicted in 2013 as part of the scheme, as well as Ibori’s wife Theresa, mistress Udoamaka Okoronkwo and sister Christine Ibie-Ibori.
The UK has pledged to target so-called professional enablers, such as lawyers, accountants and bankers, who facilitate the wave of dirty money from around the world that washes through London every year. The NCA puts that figure at hundreds of billions of pounds.
“Professional enablers such as Ellias Preko, who use their legitimate position within the finance industry to conceal the illicit funds of criminals and corrupt elites, are the linchpin of the billions of dollars laundered through the UK each year,” said Kim Kitney, the NCA’s head of financial investigations.
“Pursuing, prosecuting and making them pay is a priority for the NCA and we will continue to target these corrupt individuals to drive illicit finance out of the UK.”
Preko represented himself in court this week, and the NCA declined to make available contact details for him.
Preko, formerly of Hanover Terrace in London, worked for Goldman dealing with west African clients.
But the Wall Street bank cut ties with Ibori in 2001, over suspicions about the origins of his wealth. Preko then left the bank and worked directly with Ibori, setting up corporate vehicles through which $3.9m of plundered assets from the state were laundered.
Ava Lee, senior campaigner at Global Witness, an international NGO, said: “For far too long London’s ‘pinstripe army’ of bankers, lawyers and accountants have been enabling and profiting from the kind of corruption that keeps poor countries poor and drives global instability. This result should be a wake-up call —- actions have consequences.”
Gapping down
In reaction to disappointing earnings/guidance:
- DOMO -37.4%, MRC -11.6%, MDLA -10.9%, PD -7.8%, CRWD -6.3%, CDMO -5.8%, KFY -5.1%, SAIC -4.1%, FIZZ -3.2%, ZM -1%
Other news:
- AM -4.2% (attributed to block trade pricing)
- LPT -3.8% (prices 8 mln shares of common stock at $50.50 per share)
- TPTX -2.8% (prices public offering of 4,500,000 shares of common stock at a price to the public of $45.00 per share)
- QURE -2.6% (prices underwritten public offering of 4,891,305 of its ordinary shares at a public offering price of $46.00 per share)
- ZS -1.5% (CRWD sympathy)
- ALXN -1.5% (European Patent Office determined not to grant Alexion's European patent applications 3124029 and 3167888 which relate to the pharmaceutical compositions of SOLIRIS)
Analyst comments:
- BYND -3% (initiated with Underperform at DA Davidson; tgt $130)
- CAG -1.3% (downgraded to Neutral from Buy at Goldman)
- ESRT -0.8% (downgraded to Market Perform from Outperform at BMO Capital Markets)
Investors Cheer Trade Talks Even as Retailers Start Feeling the Pain
Earlier in the day, G-III Apparel and Macy's issued warnings that they would take a financial hit from tariffs.
Investors dove into fashion stocks Thursday, shrugging off new warnings that the U.S.-China trade war is exacting a financial toll and betting that Beijing and Washington are finally ready to work things out with a new round of trade talks next month.
G-III Apparel, which owns DKNY and has the license for several Calvin Klein products, was one of the day’s biggest winners, with its stock jumping 27 percent to close at $23.84 despite revealing earlier in the day that new tariffs would cost it $12 million.
Also clocking in hefty gains were American Eagle Outfitters Inc., up 13 percent to $16.28; Signet Jewelers, 27 percent to $13.97; Gap Inc., 5 percent to $16.99; Abercrombie & Fitch Co., 6 percent to $15.42, and Nordstrom Inc., 5 percent to $31.07. The Dow Jones Industrial Average closed up 371 points to 26,728.15.
Investors came into the day feeling bullish after word came that the U.S. and China were ready to sit down again next month for high-level negotiations, although the back and forth has been strained at times with previous rounds of talks scuttled at the last minute.
Retail consultant Jan Rogers Kniffen said most investors are already planning for the worst-case scenario so any reason for optimism, however fragile, will result in a stock market boost.
“We all believe that [retailers and manufacturers] are not going to be able to pass [the cost of tariffs] onto the consumer,” he said. “So if they can’t, it comes right out of their earnings or out of the factory. But someone has to pay, so every time you get something like this when they say, ‘Gee, maybe we’re going to talk’, we all get optimistic and say, ‘Oh my god, maybe these tariffs aren’t going to happen after all.'”
That sentiment was shared by Alec Young, managing director of global markets research at FTSE Russell, who told clients that even though expectations for a robust trade deal are low, “with global growth continuing to deteriorate as trade tensions mount, investors are relieved just to see talks are back on.”
The strong market performance came despite a shaky start to the day, which began with G-III downgrading its net income outlook for the full year to between $154 million and $159 million, or between $3.10 and $3.20 a diluted share. This compares to its previous expectation of between $163 million and $168 million, or between $3.19 and $3.29 a diluted share.
While the company had managed to mitigate some of the previous tariff headwinds, the 15 percent hike to levies that was imposed on Sunday, and the threat of more increases, left it with little choice but to cut expectations.
“Based on the additional tariffs that were just implemented, we feel it is prudent to revise our guidance to a more conservative posture for the remainder of this fiscal year,” Morris Goldfarb, G-III’s chairman and chief executive officer, told analysts following the release of its second-quarter earnings.
Jeff Gennette, Macy’s ceo and chairman, issued a similar warning Thursday, telling the audience at the Goldman Sachs Annual Global Retailing Conference in New York that the new tariffs could wipe as much as 7 cents off the department store chain’s earnings per share guidance for the year.
These warnings follow last week’s statements by Emanuel Chirico, chairman and ceo of PVH Corp., the owner of Calvin Klein and Tommy Hilfiger, who cut the group’s growth forecast because of the tariffs.
For now, as companies watch trade talk developments closely and hope that more levies scheduled for mid-December can be staved off, they are all scrambling to navigate the current tariff environment.
In the case of G-III, that has meant diversifying some of its supply chain away from China, although Goldfarb stressed that he is only willing to go so far until the trade outlook becomes less uncertain.
“Once you get your production out of China you’re terminal, you can’t bring it back,” he said.
The company has already reduced its sourcing reliance on China from 80 percent four years ago to around 50 percent and the industry veteran was adamant that it is not the right business decision to push this number down to zero.
“Those factories will go out of business, the G-III factories will go out of business, because they’re highly dependent on G-III. You can’t make a U-turn if all the trade issues are solved and say I made a mistake. I’m going back to where it’s best for me,” he said.
“You still need to keep a foothold until we fully recognize the depth of the problem, and the term of the problem so we are exactly where we want to be.”
Macy’s has also been “working very hard” to mitigate costs, according to Gennette. To date, this has involved trying to switch up its supply chain for its private brands, as well as working with its current manufacturing partners in a bid to mitigate many of these costs.
Bruce Besanko, chief financial officer at Kohl’s Corp., was also at the Goldman conference and stressed that the retailer’s top priority is to maintain its value proposition for customers.
“We’re certainly partnering with our vendors and suppliers to be sure that we try to avoid having an impact to our customers. Second, we have been undergoing a diversification strategy with respect to our China products over time,” he said.
He warned, however, that this was becoming more difficult to navigate as tariffs increase.
But signs of strain are starting to show and some retailers are pushing back on suppliers.
Last month, Target Corp. wrote a letter to vendors stating that it would “not accept any new cost increases related to tariffs on goods imported from China.”
If U.S. and Chinese negotiators can’t reach some agreement when they sit down next month, the pressure on the fashion world is only going to keep growing as brands and retailers scramble to pass off higher costs, further contributing to worries over a global recession.
Louis Vuitton Touts New Generation Leather Goods Workshop
The plant aims to improve agility and reduce waste, with modular work stations, fewer supervisors and plenty of natural light.
Courtesy
BEAULIEU–SUR-LAYON, France — Louis Vuitton on Thursday inaugurated its 16th leather goods workshop in France, the first to be built according to a new model that aims to improve agility and reduce waste.
The unit in Beaulieu-sur-Layon is the French luxury brand’s fourth in the Pays de la Loire region in western France. The 65,000-square-foot minimalist glass-and-wood structure, designed to let in natural light from the surrounding countryside, houses 135 leather goods craftsmen, but has a capacity for 300.
Michael Burke, chairman and chief executive officer of Louis Vuitton, cut the ribbon on the venue alongside French Labor Minister Muriel Pénicaud and local officials. Touted as modular, flexible and “built for high-energy performance,” the building was delivered a mere 12 months after it was approved.
Burke said it was all part of the dynamic production model introduced by Vuitton in the wake of the 2008 financial crisis in order to better meet customer demand. Today one of the house’s bags can be produced and delivered to stores in as little as two weeks, though he emphasized that was not the general rule.
“Being able to do it on a case-by-case basis, it’s a metaphor for what the culture of a luxury company needs to be: small runs, quick service, personalization. When you talk about personalization, it’s not finding out what each individual wants. It’s once they tell you what they want, how quickly can you get it to them?” he said.
“The ultimate destination of the luxury business is everything made-to-order. We’ll never achieve it, but that’s clearly where the market is headed,” Burke added. “You have to be able to trend in that direction, and that requires agility and quickness and speed.”
When it comes to inventory, he recommended erring on the side of caution. “It’s being able to be attuned to individual needs and not overproduce to have everything in stock at all times. It’s not good for the environment, it’s not good for your bottom line either,” the executive said.
The issue is particularly pressing in France, where the Senate is preparing to examine a draft law that would prevent companies from destroying unsold clothing, potentially setting standards that could become a blueprint for the industry.
“We will comply with the law, of course,” said Burke, although he noted it was not yet possible to recycle all products. “The great majority of all metal is recycled. The great majority of all leather is recycled. We need to get there on the fabric, because fabrics today are very complex materials.”
This called for a collective effort, he argued. “The solution is going to be for the entire industry to work together on a supply chain that will recycle products. That requires the producers of raw materials to be on board,” he said. “It will happen, but it’s not going to happen overnight.”
A worker at the Louis Vuitton workshop in Beaulieu-sur-Layon. Courtesy
Designed to maximize efficiency, the production line at Beaulieu-sur-Layon is split into three stages: leather cutting, preparation and stitching. The craftspeople, most of them women, sit at mobile work stations that can be wheeled around to accommodate fluctuations in orders, and they are encouraged to manage themselves.
“The aim is not to identically replicate 100,000 bags,” said Burke. “This is the first site to be organized this way from the start. Other sites have been retro-fitted, which involved tearing down walls to make space, reorganizing work flows and changing the management system.”
The workers are selected after passing tests for dexterity, coordination and 3-D vision — some of the trickier stitching work is camera-assisted — and around half have no prior experience in the leather goods industry. An employee named Sylvaine said she joined Vuitton in 2018 at the age of 53 after being a farmer for 25 years.
The brand counts around 50 to 60 permanent references — including the Speedy and the Capucines — and around 10 to 15 catwalk references, with four deliveries a year. The journey from validated prototype to store takes around three months on average.
The Beaulieu-sur-Layon site produces four styles: the monogram canvas NéoNoé bucket bag, which retails for $1,590; the Mylockme BB, which costs $2,370; the circular Petite Boîte Chapeau, which goes for $4,200, and the Trunk Clutch, starting at $3,300.
Valérie Dubois, Vuitton’s director of workshops, said initial training lasts six weeks, with mentors allocated to the newcomers. New recruits generally master the different steps of producing a bag within six to nine months.
“Some might be able to switch between styles after six, eight, or nine months, but in general, you need a year in order to be fully self sufficient,” she said. “The aim is to feel no pressure when you’re machine-stitching.”
Burke said that represented a departure from the past. “Before, there were set workstations in the workshop. That was your workstation, and for five, 10 years, you never switched. You always performed the same gestures and you always sat in the same spot,” he said. “It made the whole chain extremely rigid.”
Bernard Arnault, chairman and ceo of parent company LVMH Moët Hennessy Louis Vuitton, has said it deliberately restricts the size of its cash-cow brand, which crossed the threshold of 10 billion euros in sales last year, in order to maintain its desirability.
“All we would need to do is produce more in order to double revenues. I don’t think that’s the right strategy. We want to provide our customers with an experience,” he told the group’s shareholders last year.
Yet Vuitton has steadily ramped up the pace of workshop openings to keep up with strong demand, especially from Asia. Shrugging off ongoing trade tensions, LVMH reported overall revenues were up 15 percent in the three months ended June 30 to 12.54 billion euros.
Sales in its key fashion and leather goods segment jumped 20 percent on a like-for-like basis, zooming past consensus estimates, with Vuitton seeing a “noticeable improvement” in demand from Chinese consumers versus the first quarter.
Burke reported that demand has continued to rise as civil unrest in Hong Kong has prompted Chinese shoppers to buy more on the mainland — but Vuitton is clearly banking on sustained demand from all regions of the globe.
Last summer, the company opened its first new site since 2011 in a converted logistics center in La Merlatière, an hour from Beaulieu-sur-Layon, and it has also filled existing sites to full working capacity. Another site is set to open soon in the small town of Saint-Pourçain-Sur-Sioule, famous for its vineyard.
Vuitton employs 4,300 craftspeople in France, with Burke estimating it hires around 1,000 a year.
The heritage luxury giant, which opened its first atelier in 1859 in Asnières on the outskirts of Paris, has a workshop dedicated to developing prototypes located on Rue du Louvre in the French capital, and two workshops specializing in exotic skins, based in Asnières and Issoudun.
In addition to the 16 French sites, Vuitton owns a workshop in Florence, which is also dedicated to prototypes; four in Spain, handling mainly small leather goods and accessories, and two in California, dedicated to supplying the U.S. market. The house is also bringing on stream a workshop in Texas.
Michael Burke, Muriel Pénicaud and local officials cut the ribbon on the Louis Vuitton workshop in Beaulieu-sur-Layon. Courtesy
However, Burke ruled out establishing other production sites across the world, noting that most Vuitton clients want handbags that are made in France.
“Secondly, we have a civic duty to maintain these jobs in France. There are only two of us left,” he said, referring to rival leather goods maker Hermès. “It’s no accident that France continues to produce the best leather goods in the world, and the only [fashion] manufacturing left in France is leather goods.”
The political dimension was underscored by Pénicaud. The minister noted the Vuitton inauguration came on the first anniversary of the law for the freedom to choose one’s future career, introduced by President Emmanuel Macron’s government, which has made it easier to gain access to vocational training.
Between January and June, close to 59,000 youngsters have entered vocational training, representing an increase of 8.4 percent versus the same period a year ago. “The number of people in vocational training in France now stands at a record level,” she said.
Previously viewed as a sign of educational failure, becoming an apprentice is increasingly seen as a desirable career path, Pénicaud said, adding that France hopes to make a strong showing when it hosts the WorldSkills Competition in 2023.
Burke went a step further, arguing that the creativity of Vuitton’s design teams depends on having its manufacturing units nearby. “When you have a hollowing out of your production, invariably within 10 or 15 years, you have a hollowing out of development and creativity. The two need to rub shoulders daily,” he said.