Finance

A CVS pharmacy in Bloomsburg, Pennsylvania.
Paul Weaver | LightRocket | Getty Images

Check out the companies making headlines during midday trading Thursday.
Cisco Systems — Shares of the computer networking giant added 4% after reporting earnings postmarket Wednesday that beat Wall Street’s expectations. Adjusted earnings per share for its fiscal fourth quarter came in at $1.14, topping the $1.06 expected from analysts polled by Refinitiv. Revenue was $15.2 billion, compared with the $15.05 billion expected.

Walmart — Shares of the big-box retailer fell nearly 2% even after Walmart topped estimates for the recent quarter and lifted its full-year forecast due to strong grocery and e-commerce growth. The company reported adjusted earnings of $1.84 a share, ahead of the $1.71 expected by analysts polled by Refinitiv. Revenue came in at $161.63 billion, topping an estimate of $160.27 billion.
Hawaiian Electric — The utility stock tumbled 15% and hit a new 52-week low as investors remained concerned about the company’s potential liability in Maui’s wildfires. The Wall Street Journal reported late Wednesday that Hawaiian Electric is in talks with firms that specialize in restructuring. 
CVS Health — Shares of the pharmacy giant slid more than 9% after Blue Shield of California ended its pharmacy benefits partnership with CVS Caremark and announced it will instead join forces with Mark Cuban’s Cost Plus Drugs and Amazon Pharmacy in a move to help members save on drug costs.
Coherent — The semiconductor stock gained 3.9% after a nearly 30% drop Wednesday. While Coherent beat expectations when reporting fiscal fourth-quarter earnings earlier in the week, the company’s guidance for current-quarter and full-year earnings and revenue came in below what was expected by analysts surveyed by FactSet. Investment firm Rosenblatt recently upgraded shares to buy from neutral, noting the post-earnings sell-off was “overdone” and the weak full-year guidance should be conservative.
Ball — The stock edged up 3% Thursday on news that BAE Systems is acquiring Ball’s aerospace business for $5.55 billion in cash.

Adyen — Europe’s Stripe rival Adyen lost 36% in midday trading after the company reported worse-than-expected sales and a profit drop in the first half of the year, driven by increased hiring and competition from rivals. Adyen reported 739.1 million euros in revenue between January 2023 and June 2023, which fell short of analysts’ expectations of 853.6 million euros, according to Eikon data.
Wolfspeed — Shares of the semiconductor developer dropped 16% following the company’s earnings report after the bell Wednesday. Wolfspeed posted an adjusted loss of 42 cents per share for its fiscal fourth quarter, missing expectations of a 20 cent loss per share, according to Refinitiv.
VinFast Auto — Shares of the Vietnamese electric vehicle company plunged 18% in midday trading as the stock searches for its level after its Nasdaq debut Tuesday. The stock rose more than 250% in its first trading session, after VinFast merged with a special purpose acquisition company, but retreated nearly 19% Wednesday. 
América Móvil — The Mexican telecommunications stock gained about 4% after Citi upgraded the company to buy from neutral in a Wednesday note and hiked its price target, with the new forecast implying more than 26% upside from Wednesday’s closing price. The firm expects the stock’s latest pullback, which it attributed to capital expenditures and sellers fleeing due to an August MSCI rebalance, to abate over the short term.
— CNBC’s Jesse Pound, Tanaya Macheel, Alex Harring, Samantha Subin and Michelle Fox Theobald contributed reporting. More

Walmart logo is seen near the shop in Williston, Vermont on June 19, 2023.
Jakub Porzycki | Nurphoto | Getty Images

Check out the companies making the biggest moves in premarket trading:
Walmart — Shares added as much as 1% after the big-box retailer raised its full-year forecast and reported an earnings and revenue beat. Adjusted earnings per share for the quarter was $1.84, topping the $1.17 expected from analysts polled by Refinitv. Revenue came in at $161.63 billion, versus the $160.27 expected.

Cisco Systems — The computer networking giant added 2.2% following its earnings beat postmarket Wednesday. Adjusted earnings per share for its fiscal fourth quarter came in at $1.14, topping the $1.06 expected from analysts polled by Refinitiv. Revenue was $15.2 billion, compared to the $15.05 billion expected.
Adobe — The software company added about 2% after Bank of America upgraded shares to buy from neutral. The bank said Adobe was on the verge of becoming a leader in artificial intelligence. Bank of America also upped its price target to $630 per share from $575, implying more than 22% upside from Wednesday’s close.
Hawaiian Electric — The utility company that oversees Maui Electric sank nearly 18% in premarket trading, continuing its slide over concerns of its potential liability in Maui’s wildfires. On Wednesday, the Wall Street Journal reported Hawaiian Electric is in talks with firms that specialize in restructuring. On Thursday, Bank of America lowered its price target on the stock for the second time this week, from $11 to $10.
CVS – Shares tumbled about 7% in the premarket after Blue Shield of California announced it is moving from CVS to Mark Cuban’s Cost Plus Drug Company and Amazon Pharmacy. Blue Shield of California will still use CVS Caremark for specialty drugs and to provide prescriptions for patients with complex conditions.
Wolfspeed — Shares dropped nearly 17% following the company’s earnings report after the bell Wednesday. Wolfspeed posted an adjusted earnings-per-share loss of 42 cents for its fiscal fourth quarter, missing expectations of a 20 cents loss-per-share, according to Refinitiv. However, the company’s revenue tops estimates.

Ball — The stock popped 3% in premarket trading after BAE Systems announced it was buying Ball’s aerospace business for $5.55 billion in cash.
VinFast Auto — Shares of the electric vehicle start-up fell nearly 5% in premarket trading as VinFast’s stock searches for its level after debuting earlier this week. The stock rose more than 250% on Tuesday in the first session after VinFast merged with a special purpose acquisition company, but shares retreated nearly 19% on Wednesday.
— CNBC’s Alex Harring, Jesse Pound and Michael Bloom contributed reporting. More

A typical economist does not have all that much in common with a typical protester in a failing dictatorship. Dismal scientists favour cautious lessons, carefully crafted and suitably caveated, backed by decades of data and rigorous modelling. Protesters need electrifying arguments and gargantuan promises about just how good life will be as soon as their aims are achieved, since that is how you recruit people to a cause. But the two groups share at least one trait. They both tend to be ardent democrats.Democratic institutions are good for economic growth. That is one of the few things on which, after decades of probing the link between politics and prosperity, economists agree. Dictators may be able to control the state, its resources and much of society. But countries that have long-established elections and associated institutions also tend to have trustworthy governments, competent finance ministers and reliable legal systems. In a paper published in 2019, Daron Acemoglu of the Massachusetts Institute of Technology and co-authors split countries into dictatorships and democracies. They found that 25 years after making a permanent switch from the former camp to the latter, a country’s gdp was one-fifth higher than it would otherwise have been.The problem is that making the switch takes longer and is more expensive than often assumed. Look beyond Mr Acemoglu’s black-and-white division. Allow some countries to be more democratic than others—after all, it makes little sense to put a centuries-old democracy in the same category as one finding its feet—and a different picture emerges. In a study published last year, Nauro Campos of University College London and co-authors found that regimes face problems while trying to get rid of autocratic tendencies. On average, countries lose 20% of gdp per person in the 25 years after escaping dictatorship relative to their previous growth path, in part because many struggle with the transition to democracy. Today there are more such inbetween regimes than ever (87, according to the Economist Intelligence Unit, our sister outfit). Reliable institutions are a prerequisite for development, but democratic ones take a long time to build. Countries do not finish one day under a military dictator and start the next with a fully formed supreme court. Civil services that know when to leave the private sector be, legal systems that protect property rights, and thriving charities and universities take decades to develop. Investors take even longer to be convinced. Democracies spend more on health and education, which pays off, but only after decades.More immediately, overhauling politics shakes the economy. Few autocrats are sensible technocrats, but they stick around, while democratic progress comes in fits and starts, occasionally kicking into reverse. Countries often need several new leaders and constitutions before reform sticks. There is always a risk that a democratic experiment will end in a coup, war or uprising. For businesses, making big bets on stability is often too much of a gamble. Local ones do not want to get close to politicians and anger those who will be next in charge. Foreign creditors want to lend to a government that will still be around to pay them back. Elections also carry costs. Autocrats fix them, which is complicated and expensive. But winning one—the task ahead of a politician in a newly democratic country—is often more expensive still. After all, influencing through persuasion (with, say, promises of shiny new sports stadiums) soaks up more money than repression. A party-run media empire will be able to spend billions of dollars. Vote-winning welfare promises will be even pricier. New democrats also tend to rely on networks of crony-capitalist allies to campaign, protect and fund them. These networks can be more sprawling than the ones that kept their predecessors in power. Neither the powerful top brass, such as generals or businessfolk, nor the voters they bring in, will be particularly keen on a pay cut.Few candidates are really rich themselves, meaning payments often come from the state once candidates are in office. Fiscal balances fall foul of corruption, as inner circles siphon cash. The possibility of losing the next election sometimes adds urgency to such activities, rather than discouraging them. Worse, new presidents sometimes choose to, in effect, rent out parts of the government. Rather than dissolve state-run companies, they like to use board positions as rewards and dish out licences for national monopolies. The civil service changes hands. Flagship investments—planned for elsewhere—migrate to supportive regions. There is no money, expertise or time left to worry about growth. Stuff the ballot boxesAs costly as change is, the circumstances that provoke it are scarcely better. Mr Acemoglu finds that gdp per person tends to stop growing in the five years before a country becomes a democracy. Suharto, a former dictator in Indonesia, resigned in 1998, a year after the Asian financial crisis began. In 2011 Egypt’s Tahrir Square was filled with protesters demanding “Bread, Dignity and Freedom”. Today, once again, Egypt is brimming with political protest after years of crisis. So are Sri Lanka and Pakistan. There is nothing more likely to push politicians towards reform, or populations towards protest, than inflation, joblessness and falling living standards. All too often, autocrats are to blame for these problems in the first place. But swapping leaders or holding an election will not immediately fix decades of economic mismanagement. The difficulties of democratisation may also help explain why so many countries are stuck somewhere short of full democracy. Although a popular vote offers sizeable economic benefits, they take time to emerge, while the costs are more immediate. People who are no more able to make ends meet after overthrowing an autocrat, despite the grand promises they were sold by popular leaders, are more likely to turn their back on reform altogether. The path to democracy is fraught. That is why history is littered with failed experiments. ■Read more from Free exchange, our column on economics:Elon Musk’s plans could hinder Twitternomics (Aug 7th)Deflation is curbing China’s economic rise (Jul 27th)Why people struggle to understand climate risk (Jul 13th) More

Sod’s law, the axiom that if something can go wrong then it will, is about as British as it gets. But traders around the world have their own version: that markets will move in whatever direction causes the most pain to the most people. This year, they have been vindicated by a soaring stockmarket that few saw coming, in which the biggest winners have been the shares that were already eye-wateringly expensive to begin with. In April fund managers told Bank of America’s monthly survey that “long big tech” was the most faddish trade going, making it an obvious one for the professionals to avoid. Over the next few months shares in the biggest big tech firms duly left the rest of the market in the dust.Other than simply pay up and pray for the run to keep going, what is a value-conscious investor to do? The pluckiest option—calling the market’s bluff and betting on a crash—has left many of the hedge funds that tried it running for cover. In June and July, say Goldman Sachs’s brokers, such funds abandoned their positions at the fastest pace in years. Those looking on may not thrill at the prospect of recreating their experience. But if you don’t think stocks can rise much more yet can’t stomach the risk of shorting them, logic dictates a third option. You can try to profit from them not moving much at all.A growing number of investors are doing just this—or, in industry jargon, selling volatility. The trade-du-jour is the “buy-write” exchange-traded fund (etf), a formerly obscure category that is now hoovering up capital. Since the start of 2023, buy-write etfs have seen their assets balloon by 60%, to nearly $60bn.In practice, such investors are buying baskets of stocks while selling (or “writing”) call options on them. These are contracts that give the buyer the right (though not the obligation) to buy the stocks for a set price (or “strike price”) in the future. Usually the strike price is set “at the money”, or at whatever level the stocks are trading when the option is written. If they then rise in price, the buyer will exercise the option to purchase them at the below-market value. Conversely, if they fall, the buyer will let the option expire unused, not wanting to pay above-market value for the stocks.The original investor, who sold the call option and bought stocks, is betting that share prices stay precisely where they were. That way, they get to pocket the option price (“premium”) without having to sell the stocks for less than they are worth. If prices instead increase, the option seller still keeps the premium, but must forgo all the share-price growth and sell the stocks for their original value. If they fall, the investor takes the hit as the option will not be exercised, meaning they will keep the shares and their losses. This is at least cushioned by the premium they received in the first place.To those marketing them, buy-write etfs are more than just a punt on placidity. Global X, a firm that offers 12 such funds, lists their primary goal as “current income”. Viewed in this light they might appear like a dream come true, because regularly selling options can generate a chunky income stream. One of the more popular vehicles is the Global X Nasdaq 100 Covered Call etf, with assets worth $8.2bn. Averaged over the year to June, each month it has collected option premiums worth 3% of assets and made distributions worth 1% to investors. Even in a world of rising interest rates, that is not to be sniffed at. Ten-year Treasuries, by comparison, yield 4.2% a year.Readers who do not believe in free lunches may sense a rather large catch coming. Yet it is not the familiar one applying to bets against market turbulence, which is that years of steady profits can be followed by a sudden, unexpected shock and a total wipeout. A buy-write etf may well fall in value, but in this respect it is no riskier than a corresponding “vanilla” fund that just owns the underlying stocks.The real hitch is that while such etfs offer equity-like potential losses, their profits can never exceed the monthly income from selling options. Those profits thus resemble the fixed-income stream generated by a bond. They also up-end the logic for buying stocks in the first place: that a higher risk of losses, compared with bonds, is worth the shot at wild, uncapped returns. The nightmare scenario is that stocks go on a blistering bull run that buy-write investors miss out on, followed by a plunge that hurts them almost as much as everyone else. This year has already had the bull run. If Sod’s law continues to hold, buy-writers should watch out.■Read more from Buttonwood, our columnist on financial markets:In defence of credit-rating agencies (Aug 10th)Meet America’s disguised property investors (Aug 3rd)Investors are seized by optimism. Can the bull market last? (Jul 25th)Also: How the Buttonwood column got its name More

China’s economic problems are distinctive. Inflation is too low, not too high. Many cities have too much housing, not too little. The country’s unmatched saving rate suggests it is, if anything, making excessive provision for its future.China’s response to economic difficulties is also—how to put this politely?—idiosyncratic. Consider the way it handled a barrage of bad news this week from the National Bureau of Statistics (nbs). The bureau reported retail sales and industrial production were both worse than expected in July. Property sales slumped again. Urban unemployment rose. And this data followed earlier releases showing declining consumer prices, a precipitous drop in exports, vanishing foreign-direct investment and weak demand for credit. To soften the blow, the People’s Bank of China (pboc) duly lowered interest rates, as other central banks would do. But it reduced its medium-term rate by only 0.15 percentage points and its one-week rate by even less—not so much a cut as a nick. What explains its restraint? The pboc used to rely on loan quotas, money-supply targets and jawboning to make its monetary policy work; the bank’s former governor would say his benchmark for policy rates was the economy’s underlying “potential” growth rate. That might contribute to its inertia, as potential growth is a slow-moving variable, governed by fundamentals like productivity and demography. Other central bankers would say their job is to change interest rates as much as necessary to keep an economy’s actual growth close to its potential. Although the pboc is making the transition to a new set of levers and dials, it still seems to lack confidence in interest rates as a stabilisation tool. The idiosyncrasies of China’s policymaking do not end there. Indeed, the official response to bad news includes failing to report it. Since China’s economy reopened, the unemployment rate among urban youth (aged 16 to 24) has been rising conspicuously, leading to uncomfortable headlines. In June the rate reached 21.3%. Analysts expected it to rise again in July. Rather than face embarrassing figures, the nbs decided to stop publishing them.This decision invited ridicule. One online commentator feigned gratitude that the bureau buried the figures, rather than fiddled them. Another offered an analogy: “A tv advert said to quit smoking, so I quit tv.” A third invoked a line from “Creation of the Gods”, a recent film: “What a horse sees is decided by the man who rides it.”In explaining its decision, the bureau said it needed to review its methods. Measuring youth unemployment is undeniably difficult, because youngsters juggle studies, work and job-hunting. To count as unemployed, a person has to be looking for work. Many jobless youngsters are not, because they are concentrating on their education. In the first quarter of the year, for example, two-thirds of China’s 96m urban youths were neither in work nor looking for it. Of the remaining third, a little over 6m were both searching for a job and failing to find one. It is this subgroup of 6m who count as unemployed. There are other subtleties. In most big economies, such as America and the euro area, a person can count as unemployed only if they have taken steps to find a job in the past four weeks. China casts a wider net. Its unemployment figures include those who looked for work in the past three months. If China adopted the four-week standard, its youth unemployment rate could drop by seven percentage points, according to calculations using 2020 data by Zeng Xiangquan of Renmin University.The right response to such difficulties is, of course, to air them. China has hidden other data, too. Its publication of the Gini coefficient, a measure of income inequality, has been stop-start. There is still no figure for 2022. It released a measure of consumer confidence every month for more than 30 years, until confidence fell sharply in April. None of these responses to China’s problems will help solve them. The country’s statisticians lack confidence in their methods, its central bank lacks confidence in its tools and the country’s consumers lack confidence in the future. ■For more expert analysis of the biggest stories in economics, finance and markets, sign up to Money Talks, our weekly subscriber-only newsletter. More

The 2010s were Germany’s decade. A Jobwunder (employment miracle) that began in the 2000s reached full flower, largely unimpeded by the global financial crisis of 2007-09, as labour reforms introduced by Gerhard Schröder, chancellor from 1998 to 2005, combined with China’s demand for manufactured goods and a boom in emerging markets to add 7m jobs. From the mid-2000s to the end of the 2010s, Germany’s economy grew by 24%, compared with 22% in Britain and 18% in France. Angela Merkel, chancellor from 2005 to 2021, was lauded for her grown-up leadership. Populism of the Trump-Brexit variety was believed to be a problem for other countries. Germany’s social model, built upon close relationships between unions and employers, and its co-operative federalism, which spread growth across the country, wowed commentators, who published books with titles such as “Why the Germans Do It better”. Germany’s footballers even won the World Cup.The 2020s are shaping up to be very different, and not just because the national football team is faltering. Alternative für Deutschland, a far-right populist party, is polling at 20%. Germans are unhappy with their government. Most worrying, Germany’s vaunted economic model and state look unable to provide the growth and public services people have come to expect. This is partly a story of a country uncomfortably exposed to circumstances, not least war in Europe and slowdown in China. According to imf forecasts, Germany will be the only g7 economy to contract this year. Less widely appreciated, though, is the fact that the country’s long-term prospects have dimmed. Germany is exposed to a triple whammy: its industry looks vulnerable to foreign competition and geopolitical strife; its journey to net-zero emissions will be difficult; and its workforce is unusually elderly. To make matters worse, the German state appears ill-prepared for these challenges.Interest rates have risen rapidly in the euro zone, as they have across the rich world, to deal with the inflation unleashed by covid-19 and Russia’s war in Ukraine. Higher rates are starting to hurt German construction and business investment. Yet the country tends to be less sensitive to rate increases than most. Far more difficult are changes wrought by external factors. More than any other major European economy, Germany depends on China (see chart 1), meaning the Asian giant’s slower than expected recovery from zero covid is proving painful. Meanwhile, the gas-price shock of last year still reverberates—and gas futures signal that prices will remain roughly double their pre-pandemic level in the coming years. Energy-intensive industrial production has yet to recover from last year’s lows. And the country’s consumers are struggling: real wages have only just started to grow, having fallen to levels last seen in 2015. Ministers are mulling how to respond. The Greens, part of a coalition government with the Social Democrats and fdp, a pro-business party, want to spend €30bn ($33bn, or 0.7% of gdp) on subsidising electricity for industrial use and funding green building and social housing. “The current weakness of the construction sector could indeed be used by the public sector to build more instead,” agrees Monika Schnitzer, head of the German Council of Economic Experts, an official body. The fdp, for its part, would like to cut taxes and create incentives for the private sector to invest, such as by allowing faster depreciation of investment goods. Both plans would lead to a wider fiscal deficit, and thus involve accounting trickery to get around the country’s strict deficit limits. Whatever response politicians eventually agree upon, Germany’s problems seem likely to last for a while. The purchasing-managers’ manufacturing index is at its lowest since the early months of covid. Surveys such as the ifo index show that German business leaders are gloomy about the future. Expectations for the next six months continue to deteriorate. The imf reckons that the country’s economy will grow by only 8% between 2019 and 2028, about as fast as Britain, the other European struggler. Over the same period, France is forecast to grow by 10%, the Netherlands by 15% and America by 17% (see chart 2).Mein GottThe first challenge Germany faces arises from geopolitics. Both America and Europe want to re-engineer supply chains in order to be less reliant on any single non-Western supplier, in particular China. The world order that emerges will provide some benefits for Germany. Firms seeking to “re-shore” production of crucial inputs, such as semiconductors, or build factories for new products, such as electric vehicles (evs), may be lured to its shores. Tesla, an ev-maker, has already built a factory near Berlin, and plans to expand it to create Germany’s biggest car plant. Intel has agreed to create a €30bn chipmaking hub in Magdeburg, central Germany. On August 8th tsmc and three other chipmakers More

China’s Ministry of Commerce signaled Thursday it would respond, if needed, to the Biden administration’s executive order to restrict U.S. investments in advanced Chinese technology.
When asked about U.S. Commerce Secretary Gina Raimondo’s plans to visit China, the ministry’s spokesperson declined to confirm a time, but said the two countries remained in close communication.

Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019.
Aly Song | Reuters

BEIJING — China’s Ministry of Commerce signaled Thursday it would respond, if needed, to the Biden administration’s executive order to restrict U.S. investments in advanced Chinese technology.
China’s Ministry of Commerce has met with businesses to understand the order’s impact, spokesperson Shu Jueting said in Mandarin, translated by CNBC.

“On that basis, we are making a comprehensive assessment of the executive order’s impact, and will take necessary countermeasures based on the assessment’s results,” Shu said.
U.S. President Joe Biden last week signed an executive order aimed at restricting U.S. investments into Chinese semiconductors, quantum computing and artificial intelligence companies over national security concerns.

The Treasury is mostly responsible for implementation, and is currently gathering public comments in order to form a draft regulation.
When asked about U.S. Commerce Secretary Gina Raimondo’s plans to visit China, Shu declined to confirm a time, but said the two countries remained in close communication. More

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Don’t count out additional interest rate hikes, according to former Federal Reserve governor Randall Kroszner.
Kroszner, who’s now a University of Chicago economics professor, believes rates are staying high into well next year.

“I don’t see how they can be comfortable to say, ‘okay we’re not going to be raising anymore’ if the labor market is as strong as it is now,” Kroszner told CNBC’s “Fast Money” on Wednesday.
His comments came after the Fed released the minutes from its July policy meeting. Fed officials indicated “upside risks” to inflation could push them to raise rates further.
Kroszner, who helped lead the response during the global financial crisis, thinks the Fed won’t officially put the brakes on rate hikes until they “see some of the heat coming out of the labor market.” He also believes Fed members will be at odds at what they need to see.

‘Makes the Fed’s job a little bit harder’

With student loan repayments set to resume in the fall and the back-to-school season kicking off, consumer confidence is another area the Fed is watching, Kroszner added.
“The consumer has been pretty resilient and that’s great, but it also makes the Fed’s job a little bit harder,” he said. “They’re going to want to see a little bit less strength there before they’re going to be able to to feel comfortable to say okay, no more hikes.”

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