August 9, 2023
• Walt Disney Co.’s ESPN has signed a long-term exclusive agreement with casino operator Penn Entertainment Inc., licensing its brand for sports betting and deepening the media giant’s ties to the growing online gambling business. Penn will have the 10-year right to use the ESPN Bet name in the US, the company said in a statement Tuesday. Penn will rebrand its Barstool sportsbook with ESPN starting this fall. The company will continue to operate as theScore Bet in Canada. Penn also said Tuesday it’s selling all of its Barstool Sports Inc. subsidiary to David Portnoy, who founded the sports and pop culture media company, in exchange for a non-compete and other agreements. Penn has the right to get half of the proceeds received by Portnoy in any subsequent sale of Barstool.
• Brookfield Asset Management said it expects to see $150 billion of inflows across its funds this year, bucking the slowdown in the alternative-asset sector. The Canadian firm posted distributable earnings of $527 million in the second quarter, or 32 cents per share, up 3% from last year, according to a statement Wednesday. On a net income basis the firm earned 28 cents a share, slightly below analysts’ estimates. Brookfield ended June with $440 billion of fee-bearing assets, up 2% from March. It has a goal of getting to $1 trillion by 2027. Alternative asset managers that grew rapidly during the cheap-money era are contending with a new environment of higher rates and tighter credit, making leveraged deals more expensive. Added to that, sellers and buyers are often far apart on valuations for private assets.
• Canada plans to sell a stake in the Trans Mountain oil pipeline to indigenous groups through a special-purpose vehicle that will allow individual communities to buy into the enterprise. The government will provide the groups with access to capital so they don’t have to risk any of their own money to participate, according to a letter from Deputy Prime Minister Chrystia Freeland’s office that was obtained by Bloomberg. The communities’ equity interest in Trans Mountain will provide them with cash flows and allow them to jointly exercise governing rights, according to the letter, which was dated Aug. 2. The plan partly clears up how Prime Minister Justin Trudeau’s government will decide which indigenous groups are able to take a stake in the pipeline that his administration agreed to buy for about C$4.5 billion ($3.4 billion) in 2018. While some indigenous groups have opposed the Trans Mountain expansion — which nearly triples the capacity of the line that crosses many of their territories on its route from Edmonton to Vancouver — others have banded together into bidding groups to try to acquire stakes in the pipeline to generate revenue for their communities.
• Sun Life Financial Inc.’s insurance units buoyed its results in the second quarter, helping the Canadian financial firm post a 14% increase in adjusted earnings. Sun Life made C$920 million ($685 million) in underlying net income, or C$1.57 a share, according to a statement Tuesday. Analysts had expected C$1.54 per share. The results include last year’s acquisition of dental insurer DentaQuest, a major factor in the 57% rise in US underlying profit. Sun Life’s Asia unit saw 27% growth, thanks to higher insurance premiums and strong sales in Hong Kong, China and India. But its global asset management business struggled; underlying profit was flat. MFS Investment Management saw C$5.3 billion in net outflows during the quarter, while SLC Management, an alternative asset manager, captured C$2 billion of inflows.
• European stocks rallied, led by a bounce in Italian banks, as investors weighed Rome’s backtracking on part of its windfall tax on lenders. The FTSE MIB Index was up 1.9% after dropping the most in over a month on Tuesday, as Italy said the impact of the tax may be limited for some banks and that the levy won’t exceed 0.1% of a firm’s assets. UniCredit SpA and Intesa Sanpaolo SpA were among the biggest gainers. The benchmark Stoxx 600 gained 0.9% by 11:41 a.m. in London, as investor focus is turning to key US inflation data due later in the week after China posted a drop in consumer and producer prices. After the decline in euro-area bank dividend futures on Tuesday, analysts say that Italian government’s partial u-turn on plans for a new banking windfall tax will likely allow lenders to keep their promises on shareholder returns intact.
• Meanwhile, Treasuries steadied ahead of another closely watched bond auction later today. The US government is expected to sell $38 billion of new 10-year notes, $3 billion larger than the last 10-year note debut in May. The debt auctions will gauge how concerned investors are about a rising US budget deficit, a week after Fitch Ratings decided to strip the US of its top credit rating. Tuesday’s $42 billion sale of three-year notes had a lower-than-expected yield, a sign that demand was stronger than anticipated.
• Asian equities rose marginally as gains in Hong Kong and South Korea offset declines in Chinese stocks amid concerns of deflationary pressures in the economy. The MSCI Asia Pacific Index rose as much as 0.2%, with pharmaceutical firms among the biggest gainers. China’s mainland benchmark fell 0.3% as investors weighed consumer price data, which showed demand weakened in Asia’s second largest economy. Meanwhile, Korean stocks snapped a five-day selling spree, with retail and foreign investors nibbling in the market. An EV-led selloff has sapped risk sentiment this week, but technology stocks are leading the rebound. Property stocks in mainland China rebounded after a report said that tier-1 cities are discussing potential measures to ease the malaise in the sector. Property stocks have taken a beating this week over potential default at Country Garden Holdings.
• Oil climbed to its highest in almost nine months on concern that a possible escalation of the conflict between Russia and Ukraine may hamper supplies in an already tightening market. West Texas Intermediate futures traded above $83 a barrel, breaking through an earlier high for the year set in April. There’s heightened focus on the risk to Russian flows from the Black Sea after President Volodymyr Zelenskiy said his country would retaliate to prevent the OPEC+ producer from “blocking our waters.” The remarks followed a Ukrainian drone attack on an oil tanker over the weekend. “Continued risks to Russian crude shipments from tensions in the Black Sea remain,” said Ole Hansen, head of commodities strategy at Saxo Bank. “The underlying bullish narrative seems intact despite the dark clouds emerging over the Chinese economy.”
• Gold traded flat as the dollar pared gains, after the US currency surged on Tuesday amid concerns over weak Chinese economic data. The dollar was little changed after it slipped against China’s currency, which was driven partly by a stronger-than-expected yuan fixing on Wednesday. The greenback typically moves in the opposite direction to bullion. Gold was boosted as 10-year US Treasury yields dropped to 4% in Asian trading, but it has since trimmed its earlier advances. Higher yields are typically negative for gold, which doesn’t generate interest. Spot gold was flat at $1925.00 an ounce at 11:53 a.m. in London, after climbing as much as 0.4% earlier on Wednesday. The Bloomberg Dollar Spot Index edged lower following a 0.4% gain in the previous session. Silver, platinum, and palladium fell.
• Rice prices soared to the highest in almost 15 years in Asia on mounting concerns over global supplies as dry weather threatens production in Thailand and after top shipper India banned some exports. Thai white rice 5% broken, an Asian benchmark, jumped to $648 a ton, the most expensive since October 2008, according to data from the Thai Rice Exporters Association on Wednesday. That brings the increase in prices to almost 50% in the past year. Rice is vital to the diets of billions of people in Asia and Africa, and the surge in prices could add to inflationary pressures and boost import bills for buyers.
• China’s consumer and producer prices fell together for the first time since 2020, a deflation cycle that could give global central banks some help in fighting inflation in their own countries but signals a worsening outlook in the world’s second-largest economy. The consumer price index registered its first decline in more than two years, falling 0.3% in July from a year earlier, the National Bureau of Statistics said Wednesday. Producer prices fell for a 10th consecutive month, contracting 4.4%. Slowing consumer demand in China combined with a property slump as well as rapidly falling exports are pushing manufacturers to cut prices to get rid of excess stock. That could ripple through to developed countries, where central banks like the Federal Reserve and Bank of England are still hiking interest rates to tame elevated inflation.
• Utility Companhia Paranaense de Energia is set to be privatized as its controlling holder, the Brazilian state of Parana, is shedding its stake in an equity offering that raised 5.2 billion reais ($1.1 billion), according to people familiar with the matter. Copel — as the company is known — and the state government are selling a combined 549,171,000 common shares at 8.25 reais a piece, the people said, asking not to be named because the information isn’t public yet. That brings the state share of the company’s voting stock to below 50%, down from 70% prior to the sale. The share offering had drawn early interest from investors including GQG Partners LLC and Zimmer Partners, people familiar said earlier this month. Banks running the deal were Banco BTG Pactual SA, Banco Itau BBA SA, Banco Bradesco BBI SA, Morgan Stanley and UBS BB Investment Bank.
• For the past four years, WeWork Inc. has been trying to deliver a turnaround story — one in which the rowdy co-working startup transforms into a stable, profitable public company. It sloughed off Adam Neumann, its rambunctious co-founder and former chief executive officer, and replaced him with an industry veteran boasting a reputation of saving troubled real estate companies. WeWork was not saved, and the co-working company now says there’s “substantial doubt” it will even be able to stay in business. The New York-based company is bleeding cash, and customers of its office rentals are canceling their memberships in droves, WeWork said in a statement Tuesday. Its shares fell 17% in premarket trading on Wednesday. WeWork’s stock has plunged 98% since the company went public in October 2021, wiping out nearly $9 billion in market value. The stock was trading at 16 cents early Wednesday. Its bonds are also at deeply distressed levels. The company’s 7.875% unsecured notes due in 2025 last changed hands for 33.5 cents on the dollar, according to data from Trace.
• CVC Capital Partners is weighing an initial public offering of Douglas and could seek a value of more than €7 billion ($7.7 billion) for the German perfume retailer, people with knowledge of the matter said. The private equity firm is working with independent adviser Rothschild & Co. as it explores a possible 2024 IPO of the business, according to the people. CVC is eyeing Frankfurt as a listing venue for Douglas and will start to ask banks to pitch for roles next month, they said, asking not to be identified discussing confidential information. Deliberations are ongoing and no final decisions on if, or when, to proceed with an IPO of Douglas have been made, the people said. The valuation and timing will also depend on market conditions, investor demand and business development, they said. Representatives for CVC and Rothschild declined to comment, while a spokesperson for Douglas didn’t immediately provide comment.
• Chancellor Olaf Scholz’s government on Wednesday approved a top-up of Germany’s special Climate and Transformation Fund by more than €30 billion to about €212 billion ($233 billion) for the period 2024 through 2027. The mechanism, which is known by its German acronym KTF and is not part of the regular federal budget, is designed to help speed Germany’s transition to an emissions-free economy. It will pay for climate-protection measures, such as financial aid for the replacement of fossil-fuel boilers with heat pumps, as well as investments in semiconductor production and expansion of railway infrastructure, among other things. The fund is overseen by Economy Minister Robert Habeck of the Greens and is part of a wider trend in Europe of governments trying to accelerate the process of cutting harmful emissions to help meet the continent’s ambitious climate targets.
• Serbia unveiled plans to pour billions of euros into overhauling infrastructure in the run-up to a major international exhibition that’s expected to attract millions of visitors to the Balkan country and boost its economy. The government will oversee more than €12 billion euros ($13 billion) in investment after Belgrade edged out five other cities in Europe and the US to host Specialized Expo 2027, President Aleksandar Vucic said. The projects include new transport links, a sprawling exhibition site, sports and tourist facilities, renovations across the country, power line upgrades, new river ports and museums that need to be finished by December 2026, he said.
• The UK is headed for five years of lost economic growth as the government fails in its goal to “level-up” the country’s regions and reduce inequality, an influential think tank says. Gross domestic output is unlikely to return to its pre-pandemic level before 2024, according to forecasts from the London-based National Institute of Economic and Social Research. While output across the country will be lackluster, NIESR said, some regions will feel a sharper pinch. In London, it expects real wages will grow by up to 7% in the five years from the end of 2019 — but in the West Midlands, home to Britain’s third-largest city Birmingham, NIESR is projecting a 5% drop in inflation-adjusted pay.
• South Korean authorities warned Typhoon Khanun is on track to deliver an “extremely powerful” impact amid forecasts it will barrel up the country toward Seoul, the capital that’s home to about half the country’s population. The nation hasn’t previously experienced a tropical cyclone that’s cut through the interior and crossed into North Korea, according to records that date back to 1951, the Korea Meteorological Administration said Wednesday. Khanun is gaining momentum as it approaches South Korea’s southern coast and is expected to make landfall Thursday near the southern port city of Tongyeong with maximum speeds of 126 kilometers per hour (78 miles per hour), according to the administration.
• One Investment Management, a vehicle set up by SoftBank Vision Fund’s key architect Rajeev Misra, plans to hire in New York, London and Abu Dhabi after securing an initial $6.8 billion from backers. The fund, which was started last year by the former Deutsche Bank AG trader, aims to add roughly 20 staff to an existing team of about 30 across offices in the UK capital, the US and the Middle East, according to people with knowledge of the matter. OneIM has already hired from Farallon Capital Management LLC, Oakpoint Advisors LLC and Silverpoint Equity Ltd., the people said, asking not to be identified because the matter is private. In April, Ignacio Lopez-Garrastazu Torrens, a former managing director at hedge fund giant Farallon, joined the firm as a partner, according to his LinkedIn profile.
• Lyft Inc. shares fell after the company reported its slowest revenue growth in two years, overshadowing a better-than-expected outlook for earnings, as the company struggles to get its ridership back on track. Sales rose 3% to $1.02 billion in the second quarter, the San Francisco-based company said in a statement. Though that was in line with Wall Street’s expectations, it marked a sharp deceleration from recent quarters. The slow pace suggests Lyft is still struggling to bounce back from the pandemic. Lyft and its chief rival Uber Technologies Inc. saw demand for their services ravaged by Covid-19, a blow exacerbated by a driver shortage that pushed up fares and wait times for customers. The companies have both spent millions of dollars to entice workers onto their platforms, but Lyft has had a harder time getting its marketplace back into balance.
• US mortgage rates jumped above 7% in a week that government bond yields spiked following a surprise decision by Fitch Ratings to lower the nation’s credit rating. The contract rate on a 30-year fixed mortgage rose by 16 basis points to 7.09% in the week ended Aug. 4, according to Mortgage Bankers Association data out Wednesday. That’s the highest since November, and also dragged down the group’s measure of home-purchase applications to the lowest since February. Mortgage rates are benchmarked to 10-year Treasury yields, and those hit the highest level of the year last week after Fitch stripped US government debt of its prized AAA rating. Borrowing costs also rose amid a bigger-than-expected boost in Treasury auctions and a strong private payrolls report.
• The US Commerce Department has received more than 460 statements of interest for projects in 42 states seeking federal funds or financing help from last year’s Chips and Science Act, with more than a third focused on chip fabrication, according to a department official. Proposals to the department’s semiconductor investment office will compete for some of the $39 billion in direct funding and $75 billion in loans and guarantees under the law, aimed at reducing US reliance on Asia’s semiconductor supply chains and boosting domestic manufacturing of chip technology. The measure, signed by President Joe Biden a year ago, will also play a role in his reelection pitch as he aims to convince voters that his economic vision is resulting in real gains for the middle class. “In the year since I signed this legislation into law, companies have announced over $166 billion to bring semiconductor manufacturing back to the United States,” Biden said in a statement.
• Sony Group Corp. raised its full-year forecast as its PlayStation and entertainment arms sustained momentum even as a sluggish global economy hurt other operations. Boosted by a weaker yen, the Tokyo-based company nudged up its net income forecast by 2% to ¥860 billion ($6 billion), closer to but still missing analyst estimates. Sony also revised up its sales outlook by 6% to ¥12.2 trillion. It left its full-year operating profit outlook unchanged. Supply constraints that dogged the PlayStation 5 since the game console’s launch in 2020 are now history, and Sony is working to catch up on lost time. The company sold 3.3 million units in the June quarter and needs to build out its PS5 user base to entice more developers to create specifically for the platform.