Los Angeles Times - 09.08.2019

C4 FRIDAY, AUGUST 9, 2019 LATIMES.COM/BUSINESS

Technology companies
powered stocks broadly
higher on Wall Street on
Thursday, driving the S&P
500 to its best day in more
than two months and eras-
ing its losses for the week.
The rally, which pushed
the Dow Jones industrial av-
erage up by more than 370
points, followed an early rise
in bond yields after a weekly
government report on un-
employment claims came in
better than economists had
expected.
Worries that the trade
dispute between the U.S.
and China is hurting the
global economy roiled the
market earlier this week,
sending many investors flee-
ing to safer holdings, such as
U.S. government bonds.
That pulled bond yields
sharply lower.
The absence of new wor-
risome turns in the U.S.-
China trade tussle may have
also helped keep investors in
a buying mood Thursday.
The S&P 500 index rose
54.11 points, or 1.9%, to
2,938.09. The index has risen
for three straight days.
The Dow Jones industrial
average climbed 371.12
points, or 1.4%, to 26,378.19.
The Nasdaq composite,
which is heavily weighted
with technology stocks,
vaulted 176.33 points, or
2.2%, to 8,039.16. It also had
its best day in more than two
months and was on track to
end the week with a gain.
Bond prices fell early in
the day, sending yields
higher. The yield on the
benchmark 10-year Treas-
ury note went as high as
1.79% before falling back to
1.72% in late trading, little
changed from late Wednes-
day.
President Trump
spooked the markets last
week when he threatened to
impose 10% tariffs on all Chi-

nese imports that haven’t al-

ready been hit with tariffs of

25%. China retaliated Mon-

day and allowed its currency,

the yuan, to weaken against

the U.S. dollar. China stabi-

lized the yuan on Tuesday

and that helped lift U.S.

stocks after their worst day

of the year.

Before Monday’s 3% drop

for the S&P 500, the stock

market hadn’t seen a loss of

even half that size since mid-

May. The last drop of 3% was

Dec. 4, when investors were

worried that the Federal Re-

serve was raising interest

rates too aggressively and

would combine with trade

concerns to create a reces-

sion.

In Thursday’s market re-

bound, investors snapped

up technology stocks in a

signal that they are more

willing to take on risk after

several days of fleeing to

safer holdings. Microsoft

rose 2.7% and Oracle gained

2.5%.

Uber slumped 5% in af-

ter-hours trading after the

ride-hailing service’s sec-

ond-quarter revenue fell

short of Wall Street’s fore-

casts. Rival Lyft rose 3% a

day after its quarterly re-

sults topped analysts’ esti-

mates and the company

raised its revenue forecast

for the year.

Kraft skidded 8.6% after

the maker of Oscar Mayer,

Cool Whip and other prod-

ucts revealed a sharp profit

plunge in the first half of the

year and some hefty charges.

Benchmark crude oil

rose $1.45 to settle at $52.54 a

barrel. Brent crude oil, the

international standard, rose

$1.15 to close at $57.38 a bar-

rel. Wholesale gasoline rose 3

cents to $1.65 per gallon.

Gold fell $9.60 to $1,497.70

per ounce, and silver lost 26

cents to $16.90 per ounce.

The dollar fell to 105.95

Japanese yen from 106.12 yen

on Tuesday. The euro fell to

$1.1185 from $1.1214.

Index

Dow industrials

S&P 500

Nasdaq composite

S&P 400

Russell 2000

EuroStoxx 50

Nikkei(Japan)

Hang Seng(Hong Kong)

Close

Daily

change

Daily % YTD %

26,378.19 +371.12 +1.43 +13.08

2,938.09 +54.11 +1.88 +17.20

8,039.16 +176.33 +2.24 +21.16

1,925.31 +38.00 +2.01 +15.77

1,532.13 +31.44 +2.10 +13.61

3,083.30 +54.37 +1.79 +11.71

20,593.35 +76.79 +0.37 +2.89

26,120.77 +123.74 +0.48 +1.17

Major stock indexes

change change

Source: AP

MARKET ROUNDUP

Stocks on a roll

as investors push

past trade worries

bloomberg

nately for him, this trade

rhetoric has had the oppo-

site effect.”

The dollar has strength-

ened about 2.5% against the

euro and 2.4% against the

onshore yuan this year and

is holding near its 2019 high

on a trade-weighted basis.

Trump’s latest threat of

more tariffs on Chinese

goods helped push the yuan

past a psychological

threshold of seven per $1, the

level defended by the au-

thorities in the past.

“The Fed’s high interest

rate level, in comparison to

other countries, is keeping

the dollar high, making it

more difficult for our great

manufacturers like Caterpil-

lar, Boeing, John Deere, our

car companies, & others, to

compete on a level playing

field,” the president tweeted.

Hours earlier, the yuan

edged higher against the

dollar after China’s central

bank set the daily yuan rate

stronger than analysts ex-

pected, providing some re-

assurance to traders rattled

by a tumultuous week in

markets.

Options traders are pay-

ing more to bet on the dollar

strengthening versus the

yuan in the next three

months, according to cur-

rency options prices. Nordea

Bank on Thursday raised its

forecast for the dollar, citing

factors including the “esca-

lated tariff war.”

The question now is

whether China will allow

that to happen, and what

Trump may do in response.

In the eyes of some ana-

lysts, further yuan weakness

could raise the risk of cur-

rency intervention by the

United States to weaken the

dollar. It hasn’t taken that

step since 2000, when it

joined an international ef-

fort to support the euro.

Intervention carried out

for more than a few weeks

could backfire and become

supportive of the dollar, ac-

cording to an analysis by

UBS Group. For it to work,

U.S. growth and carry ad-

vantages must both be

blunted while the growth

outlook in China and Europe

improves, UBS said. That’s

not a scenario economists

expect.

“The more likely out-

come of the explicit currency

war would be further exten-

sion of uncertainty, which

ironically could prove to be

dollar-positive if risk assets

fear weaker growth and vol-

atility pushes higher,” UBS

strategists including Bhanu

Baweja wrote in a note. They

said it would also “shift rate

differentials in the dollar’s

favor, albeit with a lag” as

other central banks respond

with dovishness.

Three central banks

across the Asia-Pacific re-

gion delivered surprise in-

terest rate decisions

Wednesday: New Zealand

and India led with bigger-

than-expected interest rate

cuts, and Thailand’s 25-

point reduction surprised all

but two economists in a

Bloomberg survey.

Chris Chapman, a port-

folio manager at Manulife

Investment Management, is

keeping most of his non-dol-

lar exposure hedged, even

though the market is expect-

ing the Federal Reserve to

cut interest rates at least

two more times in 2019. The

issue here is that other cen-

tral banks are cutting rates

and easing policy. China

looks set to step up stimulus

to revive growth, while the

European Central Bank has

flagged fresh monetary ac-

tion for as early as Septem-

ber.

“The dollar could stay

strong, as other central

banks are also pursuing

accommodative policy,”

Chapman said. “The current

market feels a little like there

is a tug-of-war between what

lower U.S. rates would do to

the dollar versus the flight to

safety flows.”

Worrachate writes for

Bloomberg.

Trump’s

dollar

problem

‘Whether

President Trump

can win the trade

war and the ‘FX

war’ seems rather

doubtful.’

—Kit Juckes,

global strategist,

Societe Generale in London

[C urrency,from C1]

mains unresolved.

Terms of the new multi-

year deal between CBS and

AT&T that replaced the one

that expired July 19 were not

disclosed. The dispute had

centered on the retransmis-

sion fees that AT&T must

pay CBS for the right to

broadcast the signals of 26

CBS-owned stations, in-

cluding KCBS-TV Channel 2

and KCAL-TV Channel 9 in

Los Angeles.

During an earnings call

with analysts, CBS acting

Chief Executive Joe Ian-

niello hinted that CBS had

wrangled a rate hike in its

new agreement with AT&T.

“We are very pleased to

have achieved an agreement

that recognized what CBS

brings to the table,” Ian-

niello said. “We have now

successfully completed

three very significant car-

riage deals — AT&T, Altice

and Nexstar — in the span of

less than two weeks.”

Ianniello noted that the

broadcasting company

should hit its target of gener-

ating $2.5 billion in annual

revenue from retransmis-

sion and affiliate station fees

by next year.

A breakthrough in the

carriage fee talks came as

CBS is separately negotiat-

ing to acquire its corporate

sibling Viacom Inc., owner of

MTV, Nickelodeon, BET and

the Paramount Pictures

movie studio.

Wall Street has been ex-

pecting a deal to emerge this

summer. The two compa-

nies, both controlled by the

Sumner Redstone family,

were part of the same con-

glomerate until 2006, when

Redstone divided his hold-

ings with the belief that CBS

and Viacom were strong

enough to stand on their

own.

But the television indus-

try has changed dramati-

cally in the last five years.

Larger media companies, in-

cluding AT&T and Walt Dis-

ney Co., have been gobbling

up assets to fortify them-

selves to compete against

Netflix and Amazon.com.

Now, Viacom and CBS are

among the smallest of the

major media companies.

CBS on Thursday re-

ported a 10% jump in earn-

ings in the second quarter —

$440 million, or $1.17 a share,

compared with $400 million,

or $1.05, in the year-earlier

period. Revenue also in-

creased 10% to $3.8 billion in

the quarter. Analysts were

expecting earnings of $1.12 a

share, according to FactSet.

Advertising revenue

grew 7%, led by CBS’ broad-

cast of the NCAA basketball

tournament and champi-

onship game.

Earlier in the day, Viacom

disclosed better than ex-

pected third fiscal quarter

results. The New York media

company reported earnings

of $544 million, or $1.35 a

share, compared with $522

million, or $1.29 a share, in

the year-earlier period. Rev-

enue reached $3.4 billion in

the quarter, up from $3.2 bil-

lion in the same period a year

ago.

Viacom notched 6%

growth in advertising sales

—the first such increase in

five years. The company also

benefited from its purchase

of streaming service Pluto

TV.

The storied Paramount

Pictures on Melrose Avenue

posted $85 million in ad-

justed operating income,

nearly double the level from

a year ago. The studio re-

leased the Elton John biopic

“Rocketman” and “Pet Se-

matary” in the quarter.

DirecTV again airing

CBS stations after deal

NORAH O’DONNELL’Sfirst weeks as host of “CBS

Evening News” were blacked out for some.

Michele CroweCBS

[C BS-AT&T,from C1]

subsidiaries, will be a cush-
ion should the company ever
turn a profit.
“It’s safe to say that Uber
will not be paying any taxes
for the foreseeable future,”
said Robert Willens, an inde-
pendent tax and accounting
expert in New York.
The windfall is only appli-
cable to the company’s tax
bill in the Netherlands, a tax-
reducing hub favored by
multinational corporations.
On Wednesday, Lyft re-
ported loss and revenue
figuresthat both exceeded
estimates and boosted its
annual forecast. Lyft also in-
dicated that its price war
with Uber is abating and
that it expects to lose less
this year than in 2018, which
was welcome news to in-
vestors. Both stocks saw a
bump as a result, with Uber
up 8.2% to $42.97 a share at
the close of trading Thurs-
day.
Uber’s gains were wiped
out in extended trading
Thursday. The stock fell as
much as 13% after the report.
Dara Khosrowshahi,
Uber’s chief executive, said
investors should expect to
see losses decline next year.
“We think that 2019 will be
our peak investment year,”
he said on a call with report-
ers Thursday.
“In 2020, 2021, you’ll see
losses come down.”
Uber didn’t provide a
forecast in its report, nor did
it do so in its first financial
report in May.
But Khosrowshahi con-
firmed that the battle for
ride-hailing market share
was easing. “We’re definitely
seeing the competitive envi-
ronment improve,” he said.
Uber has been public for
less than three months, but
investors are already won-

dering how long it can keep

growing. The San Francisco-

based company said last

week that it’s cutting about

400 employees in marketing,

and Khosrowshahi sug-

gested the business had a

broader problem with bloat.

On the call Thursday,

Khosrowshahi acknowl-

edged those questions while

defending Uber as a busi-

ness with “growth rates that

companies at our scale

would kill for.” However, he

said, “the law of large num-

bers at some point will catch

up with you.”

If and when Uber be-

comes profitable, it will ben-

efit greatly from the $6.1-bil-

lion deduction generated

when it moved some of its

offshore subsidiaries to dif-

ferent countries as a result of

new European Union rules

governing multinational

companies.

Uber isn’t the only U.S.

company that has moved

operating units around the

world in response to Organi-

zation for Economic Co-

operation and Development

rules.

The OECD requires

multinational companies to

justify the business purpose

of their offshore operations.

Low-tax countries like Sin-

gapore, Ireland and the

Netherlands are becoming

more desirable than no-tax

Caribbean havens such as

Bermuda.

Uber’s windfall was cre-

ated last March when it

pulled intellectual property

out of a paper entity in Ber-

muda with no employees

and put it into a Dutch entity

that’s ultimately controlled

by a holding company in Sin-

gapore.

The Dutch entity has

dozens of other Uber en-

tities under it, according to

Netherlands Chamber of

Commerce documents.

But the size of the tax

savings took experts by sur-

prise.

Willens, the tax expert,

called the $6.1-billion deduc-

tion “unusual” relative to

Uber’s roughly $73-billion

market value. Another inde-

pendent tax and accounting

expert, Frank Vari in Bos-

ton, said he was “surprised”

that the deduction was “that

large.” The benefit reflected

the lofty value that Uber had

given its IP when it moved its

subsidiaries to new loca-

tions.

An Uber spokesman said

the shuffle was made to

“meet the demands” of “the

new global tax environ-

ment.” He referred to the

OECD rules that aim to pre-

vent technology and phar-

maceutical companies from

using paper companies to

whisk profits earned in high-

tax countries to low-tax and

no-tax ones.

The spokesman, who

asked not to be named, cit-

ing company policy, added

that the shuffle also marked

an end to Uber’s use of a dif-

ferent tax strategy, known

as “Double Dutch.” That

structure, which involves

Dutch entities with no em-

ployees that funnel profits to

havens, has been popular

with multinationals in re-

cent years and is now in the

crosshairs of European

regulators.

Technology companies

have always worked hard to

keep their tax bills low. Ama-

zon.com Inc.’s relatively

small annual profits have al-

lowed the e-commerce giant

to shrink its tax payments

while reinvesting in new

projects.

That strategy has been a

recipe for high growth and

low tax payments.

Newcomer writes for

Bloomberg.

Uber stock falls on earnings report

UBER CHIEF EXECUTIVE Dara Khosrowshahi said investors should expect to see losses decline next year.

“We think that 2019 will be our peak investment year,” he said. “In 2020, 2021, you’ll see losses come down.”

David ButowFor The Times

[Uber, from C1]