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    SpaceX is building a NASA craft to intentionally destroy the International Space Station after retiring

    NASA will have a spacecraft from Elon Musk’s SpaceX guide the International Space Station’s destruction after its retirement in 2030.
    The agency awarded an $843 million contract to SpaceX to build the so-called “U.S. Deorbit Vehicle.”
    The SpaceX-built vehicle will effectively destroy the ISS by pushing the station into reentry from orbit.

    A satellite image shows an overview of the International Space Station with the Boeing Starliner spacecraft, June 7, 2024.
    Maxar Technologies | Via Reuters

    NASA will have a spacecraft from Elon Musk’s SpaceX guide the International Space Station’s destruction later this decade, the agency announced Wednesday.
    The National Aeronautics and Space Administration awarded an $843 million contract to SpaceX to build the so-called “U.S. Deorbit Vehicle.” The spacecraft will be designed to guide the football-field-sized research laboratory back into the Earth’s atmosphere after retiring in 2030.

    The SpaceX-built vehicle will effectively destroy the ISS by pushing the station into reentry from orbit.
    “It is crucial to prepare for the safe and responsible deorbit of the International Space Station in a controlled manner,” NASA said in a press release, with the U.S. Deorbit Vehicle needed to “ensure avoidance of risk to populated areas.”

    SpaceX’s Dragon crew capsule “Endeavour” seen from the International Space Station on May 2, 2024.

    NASA did not specify whether SpaceX’s design for the U.S. Deorbit Vehicle will be based on one of the company’s existing spacecraft, such as its Dragon capsules. SpaceX and NASA did not immediately respond to CNBC’s request for comment on the design.

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    The U.S. – along with four international partner agencies representing Russia, Europe, Canada, and Japan – has been preparing for the eventual end of the ISS, which has been crewed since 2000. The ISS, primarily created as a crewed research laboratory, has seen more than 3,300 experiments conducted in microgravity. That includes research not possible on Earth such as medical sciences and technology demonstrations.

    Aging ISS

    But the ISS is aging, with NASA and its lead partner Roscosmos, unable to solve a worsening problem of microscopic leaks on the station.

    NASA published a study on Wednesday with analysis of why it decided to intentionally destroy the ISS in a controlled reentry. The agency evaluated a variety of alternatives, including disassembling the station in orbit or trying to raise the ISS to a higher orbit with a large spacecraft like SpaceX’s Starship.
    “The space station is a unique artifact whose historical value cannot be overstated. NASA considered this when determining if any part of the station could be salvaged for historical preservation or technical analysis,” the agency wrote.
    Ultimately, the agency study determined that any attempts to preserve or reuse the ISS were technically or economically infeasible. NASA noted the possibility the ISS’ operational lifetime could be extended beyond 2030, but that is yet to be determined and requires agreement with its international partner agencies.
    NASA is planning to replace the ISS through private space stations and is helping fund U.S. companies’ development through the Commercial LEO Destinations (CLD) program.
    The ISS totaled about $150 billion to develop and build and costs NASA about $4 billion each year to operate, so the agency sees privately built space stations as a way to replace the ISS at a fraction of the cost. More

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    Levi’s shares drop 12% as jeans maker’s sales disappoint despite denim craze

    Levi Strauss narrowly missed Wall Street’s sales expectations as denim surges in popularity.
    Levi’s chief financial officer warned that consumers have been “generally cautious” and aren’t spending a lot on discretionary items.
    The denim maker has been working to reduce its reliance on department stores by building out its own website and stores, but the strategy can come with unexpected hurdles.

    A shopper leaves the American clothing company brand, Levi´s (Levis) store, and logo in Spain.
    Xavi Lopez | Lightrocket | Getty Images

    Denim is having a moment with consumers, but it hasn’t led to a major sales boost at Levi Strauss. 
    The jeans creator on Wednesday posted fiscal second-quarter revenue that fell just short of Wall Street’s expectations at a time when shoppers are stocking their wardrobes with denim dresses, skirts and ultra low-rise baggy pants. 

    Levi’s posted better-than-expected earnings as its direct sales to consumers and cost cutting continue to bear fruit. The company raised its dividend by 8% to 13 cents per share, its first increase in six quarters.
    Still, shares fell about 12% in extended trading.
    Here’s how Levi’s performed during the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

    Earnings per share: 16 cents adjusted vs. 11 cents expected
    Revenue: $1.44 billion vs. $1.45 billion expected

    The company’s reported net income for the three-month period that ended May 26 was $18 million, or 4 cents per share, compared with a loss of $1.6 million, or zero cents a share, a year earlier. Excluding one-time items, Levi’s posted earnings of $66 million, or 16 cents per share. 
    Sales rose to $1.44 billion, up about 8% from $1.34 billion a year earlier. However, the sales jump was coming off of an easier comparison.

    In the year-ago period, sales were down 9% after Levi’s shifted its wholesale shipments from its fiscal second quarter into its fiscal first quarter. The shift reduced sales last year by about $100 million, the company said previously. Excluding the shift, as well as the exit of Levi’s Denizen business, sales would have been up by only about 1% in its most recent quarter compared to the year-ago period. 
    Finance chief Harmit Singh attributed the sales miss to unfavorable foreign exchange conditions and weak sales at Docker’s. During the quarter, the khaki and chinos brand saw $82.4 million in sales, up 8.6% from $75.8 million in the year ago period. It’s not clear how sales at Docker’s were affected by the timing of Levi’s wholesale orders. 
    “People are generally cautious,” Singh told CNBC in an interview. “It’s not necessarily an environment where people are buying a lot, people are cautious.”
    While Levi’s posted a strong earnings beat, it only reaffirmed its full-year guidance, which was in line with estimates. The company continues to expect full-year earnings per share to be between $1.17 and $1.27, which now includes a 5-cent hit coming from the company’s new distribution and logistics strategy. 
    Levi’s said it is transitioning from a primarily owned-and-operated distribution and logistics network in the U.S. and Europe to one that relies more on third parties. 
    “In the near term, these changes require the parallel operation of new and old facilities for the rest of 2024, resulting in a transitory increase in distribution costs,” the company said. 
    The change allows Levi’s to shift the responsibility of final mile delivery to third parties. The denim maker noted that it has new terms with its supplier that result in Levi’s taking ownership of inventory closer to the point of shipment rather than its eventual destination. Levi’s distribution network was built for a business that primarily sold to wholesalers, and now it needs to change into one that’s more focused on selling directly to consumers.
    The changes are necessary because nearly half of Levi’s sales these days are coming from its own website and stores.
    Direct-to-consumer sales jumped 8% during the quarter, representing 47% of overall sales. Online sales increased 19%.
    “Our transformational pivot to operating as a DTC-first company is yielding positive results around the world, giving me great confidence that we will achieve accelerated, profitable growth for the rest of the year and beyond,” CEO Michelle Gass said in a statement. 
    During the quarter, wholesale revenue grew 7%, but excluding the shift in timing of wholesale orders, sales in the channel decreased 4%. Singh noted that wholesale revenue improved on a sequential basis, but the company has a “conservative” view of the channel’s growth moving forward.
    By building out its own direct channels, Levi’s enjoys higher profits, better data on its consumers and less reliance on shaky wholesalers like Macy’s and Kohl’s, which are continuing to shrink and fall out of favor with consumers. 
    However, selling directly can also be more expensive, and can come with unexpected hiccups that can impact sales and drain profits. For example, when someone buys a pair of Levi’s from Macy’s and wants to return them, Macy’s typically bears that cost. Under a direct model, that responsibility, including the cost and logistics, would fall on Levi’s. 
    Nike has come to be known as a cautionary tale for retailers long reliant on wholesalers that try to expand direct sales. 
    For a while, Nike’s focus on direct sales boosted revenue and profits, but some critics said the strategy shift led to a slowdown in innovation, and ultimately, market share losses. 
    Recently, the company acknowledged that it erred when it cut off so many of its wholesale partners and said it has since “corrected” that. 
    Read the full earnings release here. 

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    Federal Reserve says all 31 banks in annual stress test withstood a severe hypothetical downturn

    The Federal Reserve said Wednesday that the biggest banks operating in the U.S. would be able to withstand a severe recession scenario.
    Each of the 31 banks in this year’s regulatory exercise cleared the hurdle of being able to absorb losses while maintaining more than the minimum required capital levels, the Fed said in a statement.
    This year’s stress test included giants such as JPMorgan Chase and Goldman Sachs, credit card companies including American Express and regional lenders such as Truist.

    Federal Reserve Board Vice Chair for Supervision Michael Barr testifies before a House Financial Services Committee hearing on the response to the bank failures of Silicon Valley Bank and Signature Bank, on Capitol Hill in Washington, D.C., on March 29, 2023.
    Kevin Lamarque | Reuters

    The Federal Reserve said Wednesday that the biggest banks operating in the U.S. would be able to withstand a severe recession scenario while maintaining their ability to lend to consumers and corporations.
    Each of the 31 banks in this year’s regulatory exercise cleared the hurdle of being able to absorb losses while maintaining more than the minimum required capital levels, the Fed said in a statement.

    The stress test assumed that unemployment surges to 10%, commercial real estate values plunge 40% and housing prices fall 36%.
    “This year’s results show that under our stress scenario, large banks would take nearly $685 billion in total hypothetical losses, yet still have considerably more capital than their minimum common equity requirements,” said Michael Barr, the Fed’s vice chair for supervision. “This is good news and underscores the usefulness of the extra capital that banks have built in recent years.”
    The Fed’s stress test is an annual ritual that forces banks to maintain adequate cushions for bad loans and dictates the size of share repurchases and dividends. This year’s version included giants such as JPMorgan Chase and Goldman Sachs, credit card companies including American Express and regional lenders such as Truist.
    While no bank appeared to get badly tripped up by this year’s exercise, which had roughly the same assumptions as the 2023 test, the group’s aggregate capital levels fell 2.8 percentage points, which was worse than last year’s decline.
    That is because the industry is holding more consumer credit card loans and more corporate bonds that have been downgraded. Lending margins have also been squeezed compared to last year, according to the Fed.

    “While banks are well-positioned to withstand the specific hypothetical recession we tested them against, the stress test also confirmed that there are some areas to watch,” Barr said. “The financial system and its risks are always evolving, and we learned in the Great Recession the cost of failing to acknowledge shifting risks.” 
    The Fed also performed what it called an “exploratory analysis” of funding stresses and a trading meltdown that applied to only the eight biggest banks.
    In this exercise, the companies appeared to avoid disaster, despite a sudden surge in the cost of deposits combined with a recession. In a scenario where five large hedge funds implode, the big banks would lose between $70 billion and $85 billion.
    “The results demonstrated that these banks have material exposure to hedge funds but that they can withstand different types of trading book shocks,” the Fed said.
    Banks are expected to begin announcing their latest share repurchase plans on Friday.

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    McDonald’s v Burger King: what a price war means for inflation

    In the cartoon “SpongeBob SquarePants”, Mr Krabs, purveyor of krabby patty hamburgers, is a frequent and ruthless price-gouger. He can get away with it since he has no competition, save for the unappetising Chum Bucket. McDonald’s, a fast-food chain that flips real-world hamburgers, can only dream of Mr Krabs’s pricing power. It has been forced into a fast-food price war.Since June 25th Americans hungry for a deal have been able to get a sandwich, fries, chicken nuggets and soft drink under the golden arches for just $5. Burger King, a rival fast-food chain, is matching the offer with a $5 meal deal of its own. The two are following in the footsteps of Wendy’s, which is temporarily adding an ice cream to its long-standing Biggie Bag combo. Starbucks, seemingly determined to protect its reputation for high mark-ups, is pricing a sandwich and a coffee at $6. McDonald’s calls this the “summer of value”; economists call it deflation. However labelled, the development is heartening for both consumers and Federal Reserve officials, who hope to reduce interest rates before the year is out. More

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    Biden administration to lower costs for 64 drugs through inflation penalties on drugmakers

    The Biden administration said it will impose inflation penalties on 64 prescription drugs for the third quarter of this year, lowering costs for certain older Americans enrolled in Medicare. 
    President Joe Biden has made lowering U.S. drug prices a key pillar of his health-care agenda and reelection platform for 2024.
    A provision of Biden’s Inflation Reduction Act requires drugmakers to pay rebates to Medicare if they hike the price of a medication faster than the rate of inflation. 

    US President Joe Biden speaks during an event at the National Institutes of Health (NIH) in Bethesda, Maryland, US, on Thursday, Dec. 14 2023. 
    Chris Kleponis | Bloomberg | Getty Images

    The Biden administration on Wednesday said it will impose inflation penalties on 64 prescription drugs for the third quarter of this year, lowering costs for certain older Americans enrolled in Medicare. 
    President Joe Biden has made lowering U.S. drug prices a key pillar of his health-care agenda and reelection platform for 2024. A provision of Biden’s Inflation Reduction Act requires drugmakers to pay rebates to Medicare, the federal health program for Americans over age 65, if they hike the price of a medication faster than the rate of inflation. 

    It is separate from another provision under the law that allows Medicare to negotiate lower prescription drug prices with manufacturers. On average, Americans pay two to three times more than patients in other developed nations for prescription drugs, according to the Biden administration.
    Some patients will pay a lower coinsurance rate for the 64 drugs covered under Wednesday’s announcement, which fall under Medicare Part B, for the period from July 1 to Sept. 30 “since each drug company raised prices faster than the rate of inflation,” according to a release from the administration.
    Some Medicare Part B patients may save as much as $4,593 per day if they use those drugs during the quarter, the release added.  
    More than 750,000 Medicare patients use the drugs each year, according to the release. The medications treat conditions such as cancer, certain infections and a bone disease called osteoporosis.
    The list includes Bristol Myers Squibb’s Abecma, a cell therapy for multiple myeloma; and Pfizer’s targeted cancer treatment for certain lymphomas called Adectris. It also includes Astellas Pharma and Pfizer’s Padcev, a targeted cancer treatment for advanced bladder cancer.

    The Biden administration said Padcev’s price has increased faster than inflation every quarter since the Medicare inflation rebate program went into effect last year.

    More CNBC health coverage

    “Without the Inflation Reduction Act, seniors were completely exposed to Big Pharma’s price hikes. Not anymore,” Neera Tanden, White House domestic policy advisor, said in the release.
    The Centers for Medicare & Medicaid Services plans to send the first invoices to drugmakers in 2025 for the rebates owed to the program.
    In December, Biden released a list of 48 prescription drugs that would be subject to inflation penalties during the first quarter of 2024.

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    Morgan Stanley wealth advisors are about to get an OpenAI-powered assistant to do their grunt work

    Morgan Stanley is pushing further into its adoption of artificial intelligence with a new assistant that is expected to take over thousands of hours of labor for the bank’s financial advisors.
    The assistant, called Debrief, keeps detailed logs of advisors’ meetings and automatically creates draft emails and summaries of the discussions, bank executives told CNBC.
    The program, built using OpenAI’s GPT4, essentially sits in on client Zoom meetings, replacing the note-taking that advisors or junior employees have been doing by hand, according to Jeff McMillan, Morgan Stanley’s head of firmwide artificial intelligence.

    Bing Guan | Bloomberg | Getty Images

    Morgan Stanley is pushing further into its adoption of artificial intelligence with a new assistant that is expected to take over thousands of hours of labor for the bank’s financial advisors.
    The assistant, called Debrief, keeps detailed logs of advisors’ meetings and automatically creates draft emails and summaries of the discussions, bank executives told CNBC. Morgan Stanley plans to release the program to the firm’s roughly 15,000 advisors by early July, one of the most significant steps yet for the use of generative AI at a major Wall Street bank.

    While the company’s earlier efforts involved creating a ChatGPT-like service to help advisors navigate the firm’s reams of research, Debrief brings AI into direct contact with advisors’ most-prized resource: their relationships with rich clients.
    The program, built using OpenAI’s GPT-4, essentially sits in on client Zoom meetings, replacing the note-taking that advisors or junior employees have been doing by hand, according to Jeff McMillan, Morgan Stanley’s head of firmwide artificial intelligence.
    “What we’re finding is that the quality and depth of the notes are just significantly better,” McMillan told CNBC. “The truth is, this does a better job of taking notes than the average human.”

    Consent required

    Importantly, clients have to consent to being recorded each time Debrief is used. Future versions will allow advisors to use the program on corporate devices during in-person meetings, said McMillan.
    The rollout will serve as a real-world test for the vaunted productivity gains of generative AI, which took Wall Street by storm in recent months and has bolstered the value of chipmakers, tech giants and the broader U.S. stock market.

    Morgan Stanley’s wealth management division hosts about 1 million Zoom calls a year, the bank told CNBC. While estimates vary, one Morgan Stanley advisor involved in the Debrief pilot said the program saves 30 minutes of work per meeting; advisors typically spend time after meetings creating notes and action plans to address client needs.

    Arrows pointing outwards

    Morgan Stanley’s new Debrief program, a new AI tool for wealth management advisors based on OpenAI’s GPT-4.
    Courtesy: Morgan Stanley

    “As a financial adviser I’m doing four, five or six meetings a day,” said Don Whitehead, a Houston-based advisor who’s been testing the software. By “having the note-taking service built in through AI, you can really be invested in the meeting, you’re actually a lot more present.”
    It remains to be seen what advisors will do with the hours reclaimed from essential grunt work. In a sense, Morgan Stanley’s projects in generative AI amount to a “grand experiment in productivity,” said McMillan.
    If, as McMillan and others believe, advisors will spend more time serving clients and prospecting for new ones, the technology should boost Morgan Stanley’s growth in assets under management, as well as retention of clients and advisors.
    Morgan Stanley’s wealth management division is one of the world’s largest with $5.5 trillion in client assets as of March; the firm wants to reach $10 trillion.
    It will take at least a year to determine whether the technology is boosting advisor productivity, McMillan said.
    “I’m the analytics guy, but the advisors will tell you that they’re at their best when they’re engaging” with clients, said McMillan. “None of them will tell you they love taking notes or looking at research reports, right? That’s not why they got into this business.”

    The broader vision

    Ultimately, Morgan Stanley’s vision for AI is creating a layer of technology that seamlessly helps advisors perform all of their tasks — sending proposals, balancing portfolios, creating reports — with simple prompts, Morgan Stanley wealth management head Jed Finn told investors in February.
    Many of the core tasks set to be automated, like parsing contracts and opening accounts, are universal throughout Morgan Stanley, including at trading and banking divisions, McMillan noted.
    Finance jobs are among the most prone to displacement by AI, according to a recent Citigroup report. AI adoption could boost the industry’s profit by $170 billion by 2028, Citigroup said.
    While the process is still in its infancy, McMillan acknowledged that business models will likely change in ways that are hard to predict.
    “I think that there will be disruption in some areas,” he said. “We look back on all the things that we think we’re going to lose, but we don’t see what’s ahead.”
    What’s ahead is the need for millions of prompt engineers to train AI to create the desired outcomes for companies, McMillan said; it took Morgan Stanley months to fine-tune prompts for Debrief, he noted.
    McMillan said he even told his teenage children to consider careers as prompt engineers.
    “They’re going to learn how to talk to machines, and tell those machines what to do, and engage with people and collaborate,” he said. “It’s a whole different game than how we’ve been doing work.” More

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    Southwest Airlines cuts revenue forecast

    Southwest cut its second-quarter revenue forecast, citing changing booking patterns.
    The airline also said its unit expenses, excluding fuel, would be up as much as 7.5% over the year-earlier period.
    The company said it still expects record quarterly operating revenue in the second quarter.

    A Southwest Airlines jet is parked Ellison Onizuka Kona International Airport at Kehole awaiting passengers on January 20, 2024 in Kailua-Kona, Hawaii.
    Kevin Carter | Getty Images

    Southwest Airlines shares fell roughly 4% in premarket trading Wednesday after the carrier cut its second-quarter revenue forecast, citing changing booking patterns.
    Southwest expects revenue per available seat mile, the amount the airline brings in for every seat it flies one mile, will fall between 4% and 4.5% in the second quarter over last year, after previously estimating a 1.5% to 3.5% decline.

    It also said its unit expenses, excluding fuel, would be up as much as 7.5% over the year-earlier period, after previously expecting no change.
    It said its capacity would rise as much as 9% instead of the flat growth it had previously expected in how much it flies.
    Southwest still expects record quarterly operating revenue in the second quarter.
    Airlines are raking in record numbers of passengers but higher costs and growth in capacity have weighed on fares and profits.
    “The reduction in the Company’s RASM [revenue per available seat mile] expectations was driven primarily by complexities in adapting its revenue management to current booking patterns in this dynamic environment,” Southwest said in a filing.

    Other carriers like Delta and United, meanwhile, have been enjoying passengers’ return to international travel and have invested heavily in travelers’ willingness to pay more for roomier seats.
    Southwest is under activist investor pressure from hedge fund Elliott Management, which has called for CEO Bob Jordan and Chairman Gary Kelly to be replaced, saying the company is underperforming and needs a change at the top.
    The Dallas-based airline has expressed confidence in its leadership and reiterated that it is considering revenue initiatives like seating assignments or premium seating, which would be massive changes to the company’s simple business model that has been profitable for most of the last five decades.
    “We will adapt as our customers’ needs adapt,” Jordan said at an industry event hosted by Politico earlier this month.

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    China’s EV architect says investing in Europe is a way forward

    China’s Ministry of Commerce said over the weekend it was launching consultations with the EU over the bloc’s probe into the role of subsidies in Chinese electric cars.
    “I believe the governments [of China and the EU] are now considering how through negotiations they can combine investment together with commodity trade,” said Wan Gang, now president of the China Association for Science and Technology.
    Wan became China’s minister of Science and Technology around 2007 and is known for spearheading the country’s early push into electric cars.

    Wan Gang is widely credited for spearheading China’s electric car strategy many years ago.
    Bloomberg | Bloomberg | Getty Images

    HEFEI, China — The man who spearheaded China’s electric car strategy on Wednesday said that Chinese investment in the European electric vehicles industry could be a way forward for both sides amid trade tensions.
    “I believe the governments [of China and the EU] are now considering how, through negotiations, they can combine investment together with commodity trade,” said Wan Gang, now president of the China Association for Science and Technology.

    Wan was speaking via an official English translation during a livestream of a panel at the World Economic Forum’s “Summer Davos” meeting in Dalian, China. Spokespersons for China’s foreign ministry and the European Commission were not immediately available when contacted by CNBC.
    China’s Ministry of Commerce said over the weekend that it was launching consultations with the EU over the bloc’s probe into the role of subsidies in Chinese electric cars. The EU said earlier this month that it would increase tariffs on imports of the vehicles.
    “Even though we are not exporting a large number of EVs, perhaps the Chinese companies can try investing in Europe,” Wan said, noting that such funding could create local jobs.

    Wan became China’s minister of Science and Technology around 2007 and is known for spearheading the country’s early push into electric cars.
    He said that, when China joined the World Trade Organization in 2001, he had already worked in Germany for about 15 years, including at Audi — and he experienced several periods of oil price volatility.

    Wan added that 2001 was also the year when the Chinese government set a goal of developing a “moderately prosperous society,” which would mean every family would soon have their own car.
    But fuel-powered vehicles would put pressure on Beijing to ensure a stable supply of gas for consumers, while pollution would increase, Wan estimated at the time.
    He claimed that China wasn’t thinking about competing with anyone when developing its electric car strategy, but rather considering its own survival.
    The U.S. this year also raised tariffs on Chinese electric car imports amid growing criticism of how Beijing’s policy has overly favored domestic players over foreign companies.
    Wan said China asked him to return from Germany and start researching electric cars more than 20 years ago. By around 2010, he said Chinese cities faced extreme air pollution problems, which incentivized a local effort to go electric, starting with buses and taxis.
    This year, new energy vehicles — a category that includes battery and hybrid-powered cars — have reached more than a third of new passenger cars sold in China, according to local passenger association data.
    However, Wan said that electric car makers still need to do more to reduce drivers’ range anxiety — such as enabling vehicles to know when and where to be charged automatically — and improve safety on the road through driver-assist technology.
    He said that electric car development was an “irreversible trend” for the world, noting that “we must be fully determined to move on despite the vicissitudes.” More