Wall Street is trying to recover before the market this Thursday, the day after a painful session marked above all by a sharp correction of the Nasdaq with the “chips” compartment, following comments from the intractable Donald Trump concerning the defense of Taiwan, but also potential new massive customs duties that would be imposed on China if he were to be elected… The Nasdaq recovered by 0.4% in pre-session with TSMC and Nvidia, after having plunged by 2.77% last night. The Dow Jones consolidated by 0.2% on its historic highs, above 41,000 points. The S&P 500 gained 0.2%…
Yesterday, fears were mainly about potential new restrictions on China – or even a return to the trade war if Trump were to take over again… Last night, the Fed’s Beige Book of economics, a summary of regional conditions, offered little comfort, even suggesting a possible economic slowdown in the second half of the year, with uncertainty related to the US presidential election, the geopolitical context or inflation. The Fed reported that US economic activity grew at a modest pace from the end of May to the beginning of July, while the jobs market would continue to slow.
The US market could remain volatile today, as operators now fear a possible increase in Sino-US trade tensions. While Trump threatens, the Biden administration, for its part, is reportedly considering invoking the foreign direct product rule to unilaterally restrict exports to China of products designed with American technology. These concerns about a harsher US crackdown on China could well persist. The Biden administration has reportedly told its allies that it is considering using the harshest trade restrictions available if companies such as Tokyo Electron or ASML continue to give China access to advanced semiconductors.
Trump, for his part, said he plans to impose new tariffs on Chinese imports… ranging from 60 to 100 percent. In addition, a 10 percent tariff would also be imposed on imports from other countries. The measures would be part of his administration’s efforts to address trade imbalances and protect American industries, according to comments reported by Bloomberg. Trump also said in an interview that he would cut the U.S. corporate tax rate from the current 21 percent to 15 percent.
The Republican presidential candidate in November also argued that Taiwan should pay the United States for defense because it gives nothing to the country. The Republican presidential candidate told Bloomberg Businessweek: “I know these people very well, I respect them enormously. They took about 100% of our chip business. I think Taiwan should pay us for defense.”
The United States is Taiwan’s main international supporter and arms supplier, although there is no formal defense agreement, Bloomberg notes. The United States is, however, required by law to provide Taiwan with the means to defend itself. The Taiwanese government, for its part, has made defense modernization a priority.
Speaking at the Economic Club of Washington, Powell discussed recent progress on the inflation front earlier this week. “We didn’t gain confidence in the first quarter, but the three numbers in the second quarter, including last week’s, add a little bit to confidence,” the Fed leader summarized, as inflation approaches the 2% target. The consumer price index excluding volatile food and energy prices rose 3.3% year-on-year in June, compared to 3.4% in May and 3.6% in April. Powell therefore believes that confidence is increasing with “more reliable inflation data.”
According to the CME Group’s FedWatch tool, the probability of a monetary status quo on July 31 at the end of the next FOMC meeting is around 95%, compared to a 5% ‘probability’ of a quarter-point easing. The probability of a rate cut on September 18 is, however, very high, now close to 100%… Jamie Dimon, the boss of JP Morgan, estimated that the Fed should be patient on key rates in order to take into account the risk of a new surge in inflation. In an interview published yesterday, the CEO of JP Morgan specified that inflation was moving in the right direction, but that it would be better to wait from now on. According to these confidences to the Swiss newspaper NZZ, Dimon believes that there are many reasons why inflation could start to rise again. He mentions the increase in public spending, global remilitarization, investments in the green economy or the restructuring of trade…
New York Fed chief John Williams said inflation data from the past few months has been encouraging, though more progress is needed. The latest inflation readings “are getting us closer to the disinflationary trend that we’re looking for,” Williams said in an interview with the Wall Street Journal. Still, the official wants to see more data that supports that trend and shows a sustainable return to the 2% inflation target.
The Fed’s Thomas Barkin and Christopher Waller also spoke yesterday, while Lorie Logan, Mary Daly and Michelle Bowman are expected on Thursday… Barkin, head of the Richmond Fed, notes that it didn’t take a recession to slow inflation. He says he wants to act “deliberately” on interest rates. He says he’s watching unemployment closely, but is also open to the idea that monetary policy is not as restrictive as it seems. He’s surprised by the remarkable strength of consumer spending. Barkin also notes that businesses are still trying to test their “pricing power”… Governor Waller, for his part, sees the Fed getting closer to a rate cut, with the softening of the labor market. According to him, the exact timing of the first rate cut would not be so important…
On the economic front on Thursday, weekly jobless claims for the week ended July 13 came in at 243,000, compared with a FactSet consensus of 229,000 and a level of 222,000 a week earlier. The Philadelphia Fed’s manufacturing activity index for July came in at 13.9, well above the consensus of +3.
The Conference Board’s Leading Indicators Index for June will be released at 4 p.m. (consensus -0.3% compared to the previous month).
As for Wall Street-listed companies, TSMC, Netflix and Abbott Laboratories are announcing their accounts this Thursday. Taiwan Semi (TSMC) has already announced robust figures and raised its sales forecasts. American Express, Schlumberger, Halliburton and The Travelers Companies will be in the game on Friday.
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Taiwan Semiconductor Manufacturing Company (TSMC) is regaining ground before the stock market on Wall Street, the day after a very difficult session for the sector, particularly following comments by Donald Trump concerning Taiwan and possible new massive customs tariffs targeting Beijing. Bloomberg also mentioned yesterday concerns about a potential more severe crackdown by the United States against China. But TSMC, the world’s largest contract chipmaker, which produces for Nvidia, Apple and AMD, announced this morning extremely solid accounts, boosted by AI, raising its revenue forecasts in the process. Enough to reassure somewhat about the persistence of strong demand linked to the rise of generative AI…
TSMC now expects sales to rise more than expected, up from its previous guidance of mid-20 percent growth. The company expects revenue to reach $23.2 billion this quarter, above analysts’ forecasts. It also adjusted its capital spending guidance to the high end of the range, to between $30 billion and $32 billion. Net income for the quarter was $7.6 billion, up 36 percent, driven by demand from the AI boom. Orders in the second quarter rose 24 percent. In Taiwan dollar terms, net income was $248 billion, up from $182 billion a year earlier and a consensus estimate of $239 billion. Revenue for the period rose 33 percent to $20.8 billion, above the company’s guidance and analysts’ consensus.
“As we enter the third quarter of 2024, we expect our business to be supported by strong smartphone-related and AI-driven demand for our leading processing technologies,” said Wendell Huang, the company’s chief financial officer. Revenue for the current quarter is expected to be between $22.4 billion and $23.2 billion, compared with $17.3 billion a year earlier.
United Airlines (UAL) reported its second-quarter 2024 financial results last night. The American airline reported pretax income of $1.7 billion, with a pretax margin of 11.6%, and adjusted pretax income of $1.8 billion, reflecting a margin of 12.1%. The company expects its pretax margin to be “among the best in the industry.” UAL reported diluted earnings per share of $3.96 for the period and adjusted EPS of $4.14, in line with the second-quarter 2024 guidance provided earlier in the quarter. The consensus was for adjusted EPS of $3.93. The company continues to expect full-year 2024 adjusted diluted EPS of $9 to $11. Guidance for the quarter is nevertheless a little short, between $2.75 and $3.25 in adjusted EPS, compared to a consensus of $3.4.
Abbott raised its full-year financial forecast on Thursday, as its quarterly results beat consensus expectations. The healthcare giant reported adjusted earnings per share of $1.14 on sales of $10.38 billion for the quarter. The consensus had expected adjusted EPS of $1.11 on revenue of $10.37 billion. For the full year, Abbott now expects adjusted earnings per share of $4.61 to $4.71. Adjusted organic growth is expected to be in the range of 9.5% to 10%, slightly higher than the midpoint of the range. The consensus had expected adjusted EPS of $4.63 on revenue of $41.7 billion.
Meta is reportedly considering a multi-billion euro investment in EssilorLuxottica Group, as the social media platform ramps up its efforts to develop “smart glasses,” the FT reports. The Silicon Valley firm is reportedly considering a stake in the Franco-Italian group, according to multiple people familiar with the matter. Meta is also in talks with EssilorLuxottica to deepen their existing collaboration after the successful launch of a revamped version of their “Ray Ban-Meta” smart glasses last year.
Blackstone, the leading alternative asset manager, reported second-quarter distributable income up 3% year-on-year, as asset sales in its private equity and credit divisions offset a decline in its real estate business. Distributable income was $1.25 billion, or 96 cents per share, slightly below consensus.
Domino’s Pizza, the American restaurant chain, missed the consensus for quarterly sales on a comparable basis, which caused the stock to fall sharply on Wall Street today. Concerns about inflation weighed on consumption. For its second quarter, the group still generated adjusted earnings per share of $4.03, compared to a consensus of $3.70. A year earlier, this adjusted EPS was $3.08. Quarterly revenues were $1.1 billion, 0.6% below the consensus. They were $1.02 billion a year earlier.
Warner Bros. Discovery is up 6% in pre-market trading on Wall Street, as the group reportedly considered a plan to separate its streaming and studio businesses from its TV networks, according to the Financial Times.
