Raphael Stevens

Check out the companies making headlines before the bell:
Micron Technology (MU) – Micron reported adjusted quarterly earnings of $2.42 per share, 9 cents above estimates, with the chip maker’s revenue also topping Street forecasts. However, its current-quarter forecast fell below consensus, due to computer-making customers facing shortages of other parts, and the stock fell 3.6% in the premarket.

Eli Lilly (LLY) – The drugmaker’s stock gained 2.2% in premarket trading after Citi upgraded it to “buy” from “neutral.” Citi points to valuation following a more than 15% drop in the share price, as well as its above-Street consensus earnings outlook for Lilly following a recent meeting with management.
Netflix (NFLX) – Netflix rose 1% in the premarket after announcing that it bought videogame maker Night School Studio in a move to diversify its revenue sources. Night School Studio is best known for the supernatural-themed video game “Oxenfree.”
Lucid Group (LCID) – Lucid plans to deliver its first electric luxury sedans in late October, after kicking off production at its Arizona factory on Tuesday. Lucid said its vehicles will have a greater driving range than comparable cars from rival Tesla (TSLA). The stock surged 7.3% in premarket trading.
Dollar Tree (DLTR) – Dollar Tree jumped 3.7% in the premarket after the discount retailer increased its share repurchase authorization by $1.05 billion to a total of $2.5 billion.
ASML (ASML) – ASML raised its annual sales outlook and the maker of semiconductor manufacturing equipment said it would see 11% annual growth through 2030 as demand for its products booms. The stock added 1% in the premarket.

AbbVie (ABBV) – AbbVie won FDA approval for its once-daily oral migraine treatment. The drug known as Qulipta was one of the treatments acquired in AbbVie’s $63 billion purchase of Allergan last year.
Sherwin-Williams (SHW) – Sherwin-Williams cut its third-quarter guidance with the paint maker pointing to raw-material shortages and higher input costs. It said it no longer expects to see improved supply or lower prices for raw materials during the fourth quarter as it had previously projected. Sherwin-Williams fell 2% in premarket action.
Affirm Holdings (AFRM) – The financial services company said it will offer a debit card as well as allow customers to execute cryptocurrency transactions directly from savings accounts. Affirm shares jumped 3.6% in the premarket.
Cal-Maine Foods (CALM) – Cal-Maine rallied 4.4% in premarket trading after it reported a smaller-than-expected loss for its latest quarter. The egg producer’s revenue topped Street forecasts as it benefited from higher egg prices.
Warby Parker (WRBY) – The eyewear maker debuts on Wall Street today, going public via a direct listing at a reference price of $40 per share. That gives the company an initial valuation of nearly $5 billion.

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Treasury Secretary Janet Yellen told House Speaker Nancy Pelosi that Congress has just under three weeks to address the looming debt ceiling and avoid economic calamity.
“We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18,” Yellen wrote.
Senate Minority Leader Mitch McConnell later Tuesday blocked a motion from Majority Leader Chuck Schumer that would’ve allow Democrats to address the debt limit with a majority vote.

Treasury Secretary Janet Yellen testifies during a Senate Banking, Housing and Urban Affairs Committee hearing on the CARES Act, at the Hart Senate Office Building in Washington, DC, U.S., September 28, 2021.
Kevin Dietsch | Reuters

Treasury Secretary Janet Yellen on Tuesday told House Speaker Nancy Pelosi that Congress has just under three weeks to address the looming debt ceiling and avoid near-certain economic calamity.
“We now estimate that Treasury is likely to exhaust its extraordinary measures if Congress has not acted to raise or suspend the debt limit by October 18,” she wrote in a letter. “At that point, we expect Treasury would be left with very limited resources that would be depleted quickly.”

Yellen, who will testify before the Senate later Tuesday morning, warned in a separate statement to lawmakers that failure to suspend or raise the debt limit would lead to the first-ever U.S. default and have severe consequences for the U.S. economy.

“It is imperative that Congress swiftly addresses the debt limit. If it does not, America would default for the first time in history,” she said in her remarks to the Senate Banking Committee. “The full faith and credit of the United States would be impaired, and our country would likely face a financial crisis and economic recession.”
Senate Minority Leader Mitch McConnell, R-Ky., later Tuesday blocked Schumer’s motion that would allow Democrats to address the debt limit with a simple majority vote. It needed unanimous support.
The move would have allowed Democrats to bypass a Republican filibuster and suspend or raise the ceiling without a GOP vote.
Because the U.S. has never defaulted on its debt before, economists have to rely on forecasts and guesswork when trying to estimate the economic fallout a default would bring. Still, most economists say such a default would bring about financial calamity that could trigger a broad market sell-off and economic downturn amid a spike in interest rates.

“You would expect to see an interest rate spike if the debt ceiling were not raised,” Yellen said during live testimony on Tuesday. “I think there would be a financial crisis and a calamity. Absolutely, it’s true that the interest payments on the government debt would increase.”
Yellen’s letter to Pelosi, D-Calif., is the latest in a string of communications between the Treasury secretary and congressional leadership as the U.S. nears missing a payment to its debtholders. A spokesman for the House speaker did not respond to a request for comment.
Pelosi and Senate Majority Leader Chuck Schumer, D-N.Y. have in recent weeks called upon Republicans to pass a suspension to the debt ceiling as a bipartisan duty.
“Now, as Minority Leaders McCarthy and McConnell welcome a disaster they both know is coming, Republican luminaries, former Treasury Secretaries, business groups, and top economists are joining the growing chorus of Americans demanding that they stop putting politics over the health of the U.S. economy,” Pelosi’s office said last week, before Yellen’s latest letter.
Senate Republicans on Monday blocked a bill that would fund the government and suspend the U.S. borrowing limit. The GOP opposed the House-approved bill because it included a provision to suspend the debt ceiling, a task Republicans say ought to be up to Democrats alone.
McConnell responded to Yellen’s latest warning to Congress later Tuesday morning.

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“If Democrats want to use fast-track, party-line procedures to ram through trillions more in inflationary socialism, they’ll have to use the same tools to handle the debt limit,” he said from the Senate floor.
“It’s time for our democratic colleagues to stop dragging their heels and get moving,” the Republican leader added. “But Democrats in congress don’t seem to be acting with any urgency.”
Republicans want Democrats to raise or suspend the debt ceiling by including a provision in their $3.5 trillion reconciliation bill.
Government funding and the debt ceiling are separate issues.
The U.S. government will shut down at the end of September if lawmakers fail to approve a new funding or appropriations bill. In that case, government agencies must send thousands of federal employees home and operate at a limited capacity until funding is resumed.
The debt ceiling is viewed as the greater economic threat since failing to suspend or raise the U.S. borrowing limit would result in a first-ever default and untold economic havoc.
Raising or suspending the debt ceiling does not authorize new federal spending, but rather allows the Treasury to honor debts already incurred during the Trump and Biden administrations. Even if the Biden administration had passed no new spending initiatives in 2021, lawmakers would still have to raise or suspend the ceiling.
Republicans approved three such debt ceiling increases or suspensions during the Trump administration, under which the national debt rose by roughly $8 trillion.

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ADD “MALICIOUS price-cutting” to the growing lexicon of Xi Jinping’s China. The phrase has cropped up in the past but is being increasingly used by provincial authorities to decry property developers’ attempts to slash home prices. Some developers, desperate to bring in revenue, are offering discounts of as much as 30%. Officials, fearing that the price cuts might frustrate recent homebuyers and lead to protests and distortions in the property market, have banned discounts and regard them as undermining social stability. In the central city of Yueyang the government has told developers to stop increasing prices but also to refrain from reducing them by more than 15%.In such cases both regulators and developers are walking a tightrope, teetering between sky-high prices and a damaging downturn. The property market is probably the single largest driver of the country’s economy. Urban Chinese have flocked to it as a haven. House prices have soared over the past 15 years, often by more than 10% a year in large cities. Yet developers have borrowed huge amounts in the process. The industry’s total debt is about 18.4trn yuan ($2.8trn, equivalent to 18% of GDP), according to Morgan Stanley, a bank. Housing costs, relative to incomes, now make large Chinese cities some of the least affordable places in the world.These trends have collided with officials’ goals of reducing corporate indebtedness and inequality, which lie at the heart of Mr Xi’s mission to bring “common prosperity” to China. The campaign has already brought down several large real-estate companies as regulators have tightened their access to credit. The latest is Evergrande, a developer with about $300bn in liabilities that has started to miss payments on dollar bonds. (As this article was published it was unclear whether it had been able to make another offshore-bond payment due on September 29th.) The fear for officials is not just that the unwinding of the group will unleash systemic financial risks. If the property sector were to tip into a correction, everything from local-government and household finances to the country’s growth model would be imperilled.China’s leaders have cheered on the property boom for the best part of 30 years. When the central government overhauled the tax system in 1994, local authorities lost a large chunk of revenue. At the same time, local governments were prevented from issuing debt. Yet they were tasked with hitting high economic-growth targets, sometimes exceeding 10% a year. Selling land became one of the few things municipal officials could do to generate revenues, which would in turn finance roads and other public works. They could also set up companies that could borrow from banks and raise debt from other sources. This arrangement meant economic growth was tightly bound to booming property.Between 1999 and 2007 the quantity of rural land transferred to urban use increased by an average annual rate of almost 23%, and public-land sales soared by an average of 31% a year. Soon the property market became the prime lever for controlling economic growth. During the global financial crisis much of China’s $586bn stimulus package came in the form of loans and shadow-banking funds for developers. “The property market was a vehicle for delivering the stimulus,” says Kevin Lai of Daiwa Capital Markets, a broker. By 2010 land sales accounted for more than 70% of municipal incomes a year, although the rate varied between regions.The failure to break away from this setup is one of China’s biggest economic blunders of recent decades. The relationship between the property market and overall growth remains as strong as ever. Residential investment alone makes up 15% of GDP; the economic importance of property rises to 29% once construction and other related industries are added in, according to an estimate by Kenneth Rogoff of Harvard University and Yuanchen Yang of Tsinghua University. As a result, homebuyers and developers alike have considered the housing market too important to fail, finds Hanming Fang of the University of Pennsylvania. They have treated their investments as one-way bets.The Evergrande crisis and some property indicators are beginning to threaten that long-held belief. Malicious price-cutting may be in the headlines, but only especially cash-strapped developers have resorted to it. Yet demand is weakening from its high base. One gauge is growth in prices, which has slowed in recent months. Another is the secondary market, where speculative investors cash out. In Shenzhen, a southern boomtown, monthly transactions fell for four consecutive months to 2,423 in August, compared with a monthly average 8,376 in 2020, according to Rhodium Group, a consultancy.The easy stream of credit that kept construction sites buzzing is drying up. Access to bank and shadow-bank loans, as well as demand for on and offshore bonds, is weakening for the industry in general, says Cedric Lai of Moody’s, a rating agency. Net offshore dollar-bond issuance has turned negative for developers for the first time in at least a decade (see chart 1). Land sales for residential projects declined in the first half of the year, primarily owing to government limits on bank exposures to developers. S&P, another rating agency, has downgraded many developers to junk. Moody’s agency, says its outlook on China’s property sector is now negative.Such news has grabbed the attention of local officials. Declining demand for homes and a shortage of funds will mean less demand for land. The development of a municipal-bond market over the past decade has helped some regions move away from land sales. But on the whole local officials have only become more addicted. Total government sales revenue has climbed since 2015 and reached about 8.3% of GDP in 2020 (see chart 2). Any decrease bodes ill for the economies of smaller cities.Households, meanwhile, are on some measures more exposed to property than ever. In 2019 housing represented about 60% of their total assets (financial assets account for just 20%). This overreliance has driven up mortgage debt to about 76% of total household liabilities. As developers lost other forms of funding over the past five years they became heavily reliant on pre-sales income, where buyers pay for their homes, sometimes in full, months or years before completion. Between 2015 and July 2021 the share of pre-sale funds as a source of funding for developers rose from 39% to 54%, according to Natixis, a French bank. Some of the people who paid in advance for Evergrande homes or bought one of the company’s wealth-management products have protested outside its offices.Investors are now waiting for government action. Some expect that, as the economic outlook darkens, officials will ease monetary conditions. Most banks have used up government quotas for property-sector loans this year, says Zhang Zhiwei of Pinpoint Asset Management, a hedge fund based in Shanghai. The quotas will be renewed in January, leading to a burst in lending, he says. Raymond Yeung of ANZ, a bank, thinks that regulators are well enough informed of the risks that few other developers will encounter the same problems as Evergrande. A property slowdown might knock a half of a percentage point off GDP growth this year, he says. Mo Ji of Fidelity International, an asset manager, says she expects the turbulence to take a percentage point off growth.The short-term outlook, however, might ignore a bigger secular shift. Mr Lai of Daiwa says the market is “very close to the end of the housing boom”, because the accumulation in debt cannot continue. Efforts to make China more equal could mean more moderate price rises in future, says Oxford Economics, a consultancy. Whether China’s unfavourable demographics can continue to support a market of this size over the next decade is an open question, reckons Mr Yeung.Few options for decoupling economic growth from housing exist. China should have focused more of its construction on megacities, which tend to have diverse sources of funding and competent administrators, says Andy Xie, an economist. Instead local officials in small towns have squandered land revenues, often spending on vanity projects even as young workers leave for large cities. For the economy to end its unhealthy dependence on property development, it may be necessary for many local governments to cease to exist. More

U.S. stock futures were mostly flat Tuesday night after the Nasdaq plummeted in its worst day since March as a spike in bond yields sent stocks tumbling.
Dow Jones Industrial Average futures rose 78 points, or 0.23%. S&P 500 and Nasdaq 100 futures added 0.16% and 0.08%, respectively.

Shares of the semiconductor company Micron fell more than 4% in extended trading after it reported earnings and revenue outlook for the first quarter of 2022 that missed consensus estimates.
In regular trading, the Nasdaq Composite dropped 2.83% to 14,546.68 for its worst day since March. The S&P 500 shed 2.04% and the Dow Jones Industrial Average lost 569.38 points, or 1.63%.
The Dow and S&P are mow down 3% for September. The Nasdaq is down more than 4.5%.
Stocks across industries slid as the benchmark 10-year Treasury yield touched a high of 1.567% Tuesday. Tech stocks led the broader markets lower with Facebook, Microsoft and Alphabet losing more than 3%. Amazon fell more than 2%. Rising bond yields hurt growth stocks, including tech stocks, because they lower the relative value of future earnings. The tech-heavy Nasdaq hit its 10th down day in the past 15 sessions.

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“Some may believe that sentiment has become too ebullient which contrarians believe sets the stage for a market pullback like we’re seeing today,” said Brian Price, head of investment management for Commonwealth Financial Network. “If interest rate increases moderate from here on the back of declining inflation expectations, then it wouldn’t surprise me to see the market resume its march higher as we move into the fourth quarter.”

The debt ceiling debate in Washington also weighed on equities, as well as continued concern about supply chain issues and rising consumer prices. Federal Reserve Chair Jerome Powell said Tuesday to the Senate Banking Committee that inflation could persist longer than expected as a result of supply chain issues and reopening pressures.
“Today’s interest rate induced sell-off is a reminder of how impactful monetary stimulus has been with the Fed signaling a swift removal of the emergency stimulus measures is coming soon,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “This is an uncomfortable period for market participants as the removal of Fed support will be underway soon and equity markets will have to learn how to stand on their own again. However, we should be reminded that it is unlikely the Fed would move forward with tapering bond purchases if they didn’t think the economy was ready.”
Pending home sales data is due out on Wednesday.

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