Business

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By Stephen Culp

NEW YORK (Reuters) -U.S. stocks ended in the red on Friday, falling to two-month lows as a warning of impending global slowdown from FedEx hastened investors’ flight to safety at the conclusion of a tumultuous week.

All three major U.S. stock indexes slid to levels not touched since mid-July, with the S&P 500 closing below 3,900, a closely watched support level.

Staggering past the finish line of a week rattled by inflation concerns, looming interest rate hikes and ominous economic warning signs, the S&P 500 and the Nasdaq suffered their worst weekly percentage plunges since June.

“It’s been a tough week. It feels like Halloween came early,” said David Carter, managing director at JPMorgan in New York. “We are facing in this toxic brew of high inflation, high interest rates and low growth, which isn’t good for stock or bond markets.”

Risk-off sentiment went from simmer to boil in the wake of FedEx Corp’s withdrawal of its earnings forecast late Thursday, citing signs of dampening global demand.

FedEx’s move followed remarks from the World Bank and the IMF, both of which warned of an impending worldwide economic slowdown.

A deluge of mixed economic data, dominated by a hotter-than-expected inflation report (CPI), cemented an interest rate hike of at least 75 basis points at the conclusion of the Fed’s monetary policy meeting next week.

“While the market is expecting a big bump in the Fed’s rates next week, there is tremendous uncertainty and concern about future rate increases,” Carter added. “The Fed is doing what it needs to do. And after some pain, markets and the economy will heal themselves.”

Financial markets have priced in a 18% likelihood of a super-sized, 100 basis point increase to the Fed funds target rate on Wednesday, according to CME’s FedWatch tool..

The Dow Jones Industrial Average fell 139.4 points, or 0.45%, to 30,822.42, the S&P 500 lost 28.02 points, or 0.72%, to 3,873.33 and the Nasdaq Composite dropped 103.95 points, or 0.9%, to 11,448.40.

Nine of the 11 major sectors of the S&P 500 ended in negative territory, with energy and industrials suffering the sharpest percentage drops.

Dow Transports, viewed as a barometer of economic health, plummeted 5.1%.

That drop was led by FedEx shares tanking by 21.4%, the biggest drop in the S&P 500.

Peers United Parcel Service and XPO Logistics slid 4.5% and 4.7%, respectively, while Amazon.com Inc slipped 2.1%.

The session also marked the monthly options expiry, which occurs on the third Friday of every month. Options-hedging activity has amplified market moves this year, contributing to heightened volatility.

The CBOE Market Volatility index, often called “the fear index,” touched a two-month high, breezing past a level associated with heightened investor anxiety.

Declining issues outnumbered advancing ones on the NYSE by a 3.04-to-1 ratio; on Nasdaq, a 2.24-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 56 new lows; the Nasdaq Composite recorded 21 new highs and 387 new lows.

Volume on U.S. exchanges was 16.92 billion shares, compared with the 10.72 billion average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; additional reporting by Devik Jain and Ankika Biswas in Bengaluru; editing by Grant McCool)

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AUSTIN, Texas (AP) — A federal appeals court Friday ruled in favor of a Texas law targeting major social media companies like Facebook and Twitter in a victory for Republicans who accuse the platforms of censoring conservative speech.

But the decision by the 5th U.S. Circuit Court of Appeals in New Orleans is unlikely to be the last word in a legal battle that has stakes beyond Texas, and could impact how some of the world’s biggest tech companies regulate content by their users.

The Texas law, signed by Republican Gov. Greg Abbott last year, has been challenged by tech trade groups that warn that it would prevent platforms from removing extremism and hate speech. A similar law was also passed in Florida and ruled unconstitutional by a separate appeal court.

The final say is likely to come from the U.S. Supreme Court, which earlier this year blocked the Texas law while the lawsuit played out.

“Today we reject the idea that corporations have a freewheeling First Amendment right to censor what people say,” U.S. Circuit Court Judge Andrew Oldham wrote.

NetChoice, one of the groups challenging the law, expressed disappointment in a statement that pointed out the ruling was the opposite of the decision made in the lawsuit over the Florida law.

“We remain convinced that when the U.S. Supreme Court hears one of our cases, it will uphold the First Amendment rights of websites, platforms, and apps,” said Carl Szabo, NetChoice’s vice president and general counsel.

Republican elected officials in several states have backed laws like those enacted in Florida and Texas that sought to portray social media companies as generally liberal in outlook and hostile to ideas outside of that viewpoint, especially from the political right.

Justice Samuel Alito wrote in May that is not clear how the high court’s past First Amendment cases, many of which predate the internet age, apply to Facebook, Twitter, TikTok and other digital platforms.

The Florida law, as enacted, would give Florida’s attorney general authority to sue companies under the state’s Deceptive and Unfair Trade Practices Act. It would also allow individual residents to sue social media companies for up to $100,000 if they feel they have been treated unfairly.

The Texas law only applies to the largest social media platforms that have more than 50,000 active users.

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(Reuters) – Ukrainian President Volodymyr Zelenskiy said on Friday he had spoken to Nike Inc and thanked the U.S. sportswear maker for making what he called the “right decision” to pull out of Russia.

“This is an example of how business can play a significant role in protecting humanity and freedom,” he said in a nightly video address. “If a state chooses the path of terror, it is the duty of every self-respecting company to distance itself from such a state.”

The Ukrainian leader provided no further details. Nike officials were not immediately available for comment.

Russia calls its actions in Ukraine a “special operation.”

Nike told Reuters on June 23 that it was making a full exit from Russia, after saying in March it would temporarily suspend operations at all its Nike-owned and -operated stores in Russia in response to Moscow’s actions in Ukraine.

Nike joined other major brands in confirming its complete departure from the Russian market. Samsung Electronics Co Ltd, which was the leading supplier of handsets to Russia as of the fourth quarter of 2021, froze shipments in early March citing “current geopolitical developments.”

But Izvestia this week quoted a source close to the company as saying sales could resume in October, with supplies of equipment to retailers and a resumption of its official online store. Samsung said nothing had been decided.

(Reporting by Elaine Monaghan; Editing by David Ljunggren and Matthew Lewis)

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By Lewis Krauskopf

NEW YORK (Reuters) – A tough year in markets is leading some investors to seek refuge in cash, as they capitalize on higher interest rates and await chances to buy stocks and bonds at cheaper prices.

The Federal Reserve has roiled markets in 2022 as it implements huge rate hikes in an effort to moderate the steepest inflation in 40 years. But higher rates are also translating into better rates for money market funds, which had returned virtually nothing since the pandemic began in 2020.

That’s made cash a more attractive hideout for investors seeking shelter from market gyrations – even though the highest inflation in forty years has dented its appeal.

Fund managers increased their average cash balances to 6.1% in September, the highest level in more than two decades, a widely followed survey from BofA Global Research showed.

Assets in money market funds have stayed elevated since jumping after the pandemic began, coming in at $4.44 trillion as of last month, not far from their peak of $4.67 trillion in May 2020, according to Refinitiv Lipper.

“Cash is now becoming a viable asset class because of what has happened to interest rates,” said Paul Nolte of Kingsview Investment Management, who said the portfolios he manages have 10 to 15% in cash versus less than 5% typically.

“It gives me the opportunity in a couple months to look around in the financial markets and redeploy if the markets and the economy look better,” said Nolte.

Investors are looking to next week’s Fed meeting, at which the central bank is expected to enact another jumbo rate hike, following this week’s consumer price index report that came in hotter than expected.

The S&P 500 fell 4.8% in the past week and is down 18.7% this year. The ICE BofA U.S. Treasury Index is on pace for its biggest annual drop on record.

Meanwhile, taxable money market funds had returned 0.4% so far this year as of the end of August, according to the Crane 100 Money Fund index, an average of the 100 largest such funds.

The average yield in the Crane index is 2.08%, up from 0.02% at the start of the year and the highest level since July 2019.

“They are looking better and their competition is looking worse,” said Peter Crane, president of Crane Data, which publishes the money fund index.

Of course, sitting in cash has its drawbacks, including the possibility of missing a sudden reversal that takes prices for stocks and bonds higher. Inflation, which stood at 8.3% on an annual basis last month, has also dented the appeal of cash.

“Certainly you are losing some purchasing power with inflation running at 8-plus percent, but… you are taking some money off the table at a risky time for equity markets,” said Peter Tuz, president of Chase Investment Counsel. “Your equities could be down 8% in two weeks.”

While an obvious sign of caution among investors, extreme levels of cash are sometimes viewed as a so-called contrarian indicator that bodes well for equities, said Mark Hackett, Nationwide’s chief of investment research, especially when taken in concert with other measures of investor pessimism.

Hackett believes stocks may stay volatile in the near-term, amid various risks including potential earnings weakness along with high inflation and the hawkish Fed, but he is more upbeat about the outlook for equities over the next six months.

“There’s a degree of a coiled spring developing where if everybody is already on the sidelines at some point there is nobody left to go on the sidelines and that leads you to potentially any piece of good news resulting in a very outsized move,” Hackett said.

David Kotok, chief investment officer at Cumberland Advisors, said his U.S. equity portfolio made up of exchange-traded funds is currently 48% in cash after being almost fully invested in equity markets last year.

Stocks are too expensive given risks including rising interest rates, the potential for a Fed-induced recession and geopolitical tensions, Kotok said.

“So I want cash,” Kotok said. “I want the cash to be able to deploy back into the stock market at lower prices or substantially lower prices, and I don’t know which opportunity I’ll have but the only way I can seize it is to be holding that amount of cash.”

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Diane Craft)

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By Jonathan Stempel

NEW YORK (Reuters) -Credit Suisse Group AG reached a $32.5 million settlement to resolve a lawsuit accusing the Swiss bank of misleading shareholders about how well it managed risk, including its exposure to “high-risk” clients such as Archegos Capital Management.

A preliminary settlement of the proposed class action was filed on Friday with the U.S. District Court in Manhattan, and requires a judge’s approval.

The bank was accused of playing “a kind of high-finance game of Russian roulette” by letting hedge funds and other “prime” customers make risky, multi-billion dollar bets with its credit, despite publicly pledging a “core commitment” to managing its risk limits, risk oversight and credit exposure.

Credit Suisse’s “laissez-faire” approach led to at least $5.5 billion of losses, including from the collapses of Archegos and British financier Greensill Capital, causing shareholders to lose money as the price of its American depositary shares fell, court papers alleged.

The bank denied wrongdoing in agreeing to settle. It said in a statement that it was pleased to resolve the lawsuit.

Credit Suisse has dubbed 2022 a “transition” year as it reduces risk-taking, and installed restructuring expert Ulrich Koerner as chief executive.

Archegos’ collapse caused about $10 billion of losses at banks and wiped out more than $100 billion of shareholder value.

Friday’s settlement covers ADR investors from Oct. 29, 2020 to March 31, 2021.

The lead plaintiff is the Sheet Metal Workers Pension Plan of Northern California. Its lawyers plan to seek up to 27.5% of the settlement amount, or about $8.9 million, for legal fees.

The case is City of St. Clair Shores Police & Fire Retirement System v Credit Suisse Group AG, U.S. District Court, Southern District of New York, No. 21-03385.

(Reporting by Jonathan Stempel in New York; Editing by Daniel Wallis and Cynthia Osterman)

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(Reuters) -Goldman Sachs Group Inc’s consumer banking unit is being reviewed by the Federal Reserve, Bloomberg Law reported on Friday, citing people familiar with the matter.

Goldman’s management has been subjected to questions and follow-ups from the central bank’s officials for several weeks, the report said, adding that the process was still ongoing. (https://bit.ly/3BJcc1i)

Goldman Sachs and the Fed declined to comment.

Goldman Chief Executive Officer David Solomon has sought to reduce the bank’s reliance on volatile trading and investment banking by shifting focus to its consumer bank.

Internal projections at the bank show its consumer unit, Marcus, will record losses of more than $1.2 billion this year, Bloomberg News reported in June.

Marcus was launched in 2016 and was originally expected to make profits in 2021, but the cost of investing in new products and acquisitions derailed those projections.

(Reporting by Niket Nishant in Bengaluru; Additional reporting by Pete Schroeder Washington, D.C.Editing by Vinay Dwivedi)

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By Carolyn Cohn, Danilo Masoni and Simon Jessop

LONDON/MILAN (Reuters) -Porsche’s leadership set-up and the limited influence for stock market investors after its IPO are prompting some fund managers – particularly those focussed on governance issues – to think twice about whether to invest in the listing.

Volkswagen has said it will list its Porsche AG sports car brand this month or early next. Valued at up to 70-80 billion euros ($70-80 billion), it could be among Germany’s biggest listings and Europe’s largest since 1999.

Volkswagen’s supervisory board is due to meet on Sunday evening and will likely release details afterwards on the price range, valuation and confirmed cornerstone investors for Porsche AG, sources told Reuters on Thursday.

While the luxury car brand scores well with investors on environmental issues, aiming for more than 80% of newly sold cars to be fully-electric by 2030 from 13.6% in 2020, some are concerned over its governance.

The main issue is the fact Oliver Blume, who became the boss of Volkswagen this month, will also stay on as CEO of Porsche, raising potential conflicts of interest.

Another is the relatively small proportion of shares being offered to external investors – just 12.5% of Porsche’s total capital – which would leave them with little influence.

Ben Ritchie, head of European equities at investment company abrdn, said Porsche was “definitely something we’ll have a look at, but we’ll have to go away and give the governance a really good think”.

“It’s not great but is it passable?” he added.

Scandals such as Dieselgate, when Volkswagen admitted in 2015 to cheating U.S. diesel engine tests, are a reminder to investors that ESG – environmental, social and governance – issues are not just about the environment but also about the way companies are run.

Blume played down concerns over his dual role in an interview with Reuters this month, saying only some investors had raised questions about the structure.

He described “huge interest” from investors in the IPO.

Georg Kell, head of Volkswagen’s independent sustainability council, defended the decision for Blume to be CEO of both Volkswagen and Porsche.

“Keeping Blume in the double function is a winner. Blume will bring the good cultural experience of Porsche to the Volkswagen Group as a whole,” he said.

BEST PRACTICE

Estimates of Porsche’s valuation vary widely. HSBC analysts this week put the price tag at 44.5-56.9 billion euros, but a source close to the listing said it was more likely to be 70-80 billion euros.

Among Porsche’s listed rivals, Ferrari’s market capitalisation is 36 billion euros, while Mercedes Benz is worth just under 62 billion euro.

“As a result of the capital and management structures, there is the potential for conflict of interest within governance,” said Richard Hilgert, senior equity analyst at Morningstar.

“Some investors may be constrained by ESG guidelines from owning Porsche AG,” he added, though he said the offering could be attractive to investors who focus less on such issues.

Chi Chan, European equities portfolio manager at Federated Hermes, highlighted Blume’s dual CEO roles as an issue in written comments to Reuters, echoing concerns from Volkswagen investors Union Investment and DWS.

“Governance best practice is for the management board to only have one executive position to ensure their focus and to avoid conflicts of interest,” Chan said.

He also noted a low proportion of independent directors at the company, which will remain heavily influenced by Volkswagen and its main shareholder, Porsche SE.

“While we try to engage with companies to improve their governance … it’s difficult to see Porsche SE/VW/Porsche AG acquiescing to any of these moves to best practice (possibly separate CEOs, in time), so investors need to be mindful of them in deciding how much it affects the attractiveness of the shares for them,” Chan said.

Gilles Guibout, head of European equity strategies at AXA Investment Managers in Paris, said he was concerned about the fact that only preference shares would be issued, which don’t have voting rights.

“This means minority shareholders will have no rights,” he said.

Andrea Scauri, senior portfolio manager at Volkswagen investor Lemanik Asset Management in Milan, also pointed to the small proportion of shares being offered as a potential deterrent.

“There will be so few shares on offer, I hardly think they are going to give shares to me.”

(Additional reporting by Victoria Waldersee in Berlin, Emma-Victoria Farr in FrankfurtEditing by Mark Potter)

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THE HAGUE (Reuters) – A small Dutch town took Twitter to court on Friday to demand the social media giant takes down all messages relating to a supposed ring of satan-worshipping paedophiles that were alleged to have been active in the town in the 1980s.

Bodegraven-Reeuwijk, a town of around 35,000 inhabitants in the middle of the Netherlands, has been the focus of conspiracy theories on social media since 2020, when three men started spreading unfounded stories about the abuse and murder of children they said took place in the town in the 1980s.

The main instigator of the stories said he had childhood memories of witnessing the abuse by a group of people in Bodegraven.

The stories caused much unrest in Bodegraven, as scores of followers of the men’s tweets flocked to the local graveyard to lay flowers and written messages at the graves of seemingly random dead children, who they claimed were victims of the satanic ring.

Twitter’s lawyer Jens van den Brink declined to comment before the hearing at The Hague District Court on Friday.

Last year the same court ordered the men to immediately remove all their tweets, threats and other online content relating to the story and to make sure that none of it could ever emerge again.

But despite their conviction, stories about Bodegraven still circulate on social media as others have continued to echo their story, leading the town to take the matter up with Twitter itself.

“If conspiracy theorists don’t remove their messages, then the platforms involved need to act,” the town of Bodegraven’s lawyer Cees van de Zanden was quoted as saying by Dutch newspaper De Volkskrant on Friday.

Van de Zanden said that in July the town requested Twitter to actively find and remove all messages relating to the Bodegraven story, not only those posted by the three convicted men, but had so far not received an answer from the U.S. company.

The men behind the Bodegraven story are currently all in jail, as they have been convicted in other court cases for incitement and making death threats to a range of people including Prime Minister Mark Rutte and former health minister Hugo de Jonge.

(Reporting by Bart Meijer and Stephanie van den Berg; Editing by Susan Fenton)

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WASHINGTON (Reuters) – U.S. consumer sentiment improved moderately in September, while households’ inflation expectations declined amid lower gasoline prices, a survey released on Friday showed.

The University of Michigan’s preliminary September reading on the overall index on consumer sentiment came in at 59.5, up from 58.6 in the prior month. Economists polled by Reuters had forecast a preliminary reading of 60.0 in September.

The survey’s reading of one-year inflation expectations dropped to 4.6%, the lowest since September 2021, from 4.8% in August. The survey’s five-year inflation outlook slipped to 2.8%, the lowest since July 2021, from 2.9% in August.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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By Carolina Mandl

NEW YORK (Reuters) – The departure of Credit Suisse Group AG from the business of servicing hedge funds unleashed a battle for market share among banks, with the three biggest players getting bigger, according to prime brokers and new industry data.

Credit Suisse said in November it would exit prime brokerage, which provides financing, custody, clearing and advisory services to hedge funds and institutional clients.

Since then, rivals have been fighting for its 1,800 clients, even though the Swiss bank had a deal to refer them to BNP Paribas SA, according to executives at four prime brokers.

“The battle for hedge funds has never been fiercer because the industry is not growing,” said George Evans, president of data provider Convergence Inc.

The three largest banks globally in the business – Goldman Sachs Group Inc, Morgan Stanley and JPMorgan Chase & Co – widened their lead in the first half of this year, according to data provided by Convergence https://www.datawrapper.de/_/bwS8d based on hedge funds’ regulatory filings.

Below that top tier, European banks Barclays Plc and BNP are making an aggressive push to gain share, according to the data and interviews. The league table, which has not been previously reported, ranked prime brokers by number of clients.

The data for the first half of the year did not fully capture Credit Suisse’s exit as it had only shed about a fifth of its clients at that point. But rankings by revenue from data provider Coalition Greenwich and the views of prime brokers painted a similar picture.

Goldman Sachs, which was the largest by number of clients, grew nearly 9% by that metric over the past year through June, Convergence data showed. Close behind were Morgan Stanley and JPMorgan in the No. 2 and No. 3 spots.

“We lost some competitors and that created growth opportunities for Goldman,” said Cyril Goddeeris, global head of prime services at Goldman Sachs. Goldman’s share grew 11% from 2020 to March 2022, according to a source familiar with the matter.

JPMorgan and Morgan Stanley declined to comment.

In recent years, the prime brokerage business has generated more than $15 billion in revenues a year, Coalition data showed. Prime services are also strategically important, funneling clients to wealth management, investment banking and more, bankers said.

But prime brokerage is risky and capital-intensive.

Graphics: Stock pickers set for worst performance in 10 years: https://graphics.reuters.com/GLOBAL-HEDGEFUNDS/movanemwmpa/chart.png

Credit Suisse, which ranked fifth by number of clients and was the biggest European player by revenue, decided to quit in November 2021 after it lost $5.5 billion on the default of Archegos Capital Management. Credit Suisse gave up such large clients as Blackstone Inc, BlackRock Inc, Bridgewater Associates and Millennium.

INTENSE COMPETITION

Beyond the top three, competition in the next tier has intensified.

Mike Webb, global head of prime equities at Barclays, said the UK bank has focused on gaining the biggest funds as clients by offering services across asset classes and regions.

Nicolas Marque, head of global equities at BNP Paribas, said, “We want to be the European leader in the equities space and to do that we need to grow globally, notably in the U.S.”

Barclays has leap-frogged rivals to claim the fifth spot last year from ninth in 2016 by revenue, Coalition data showed.

Large funds tend to have multiple prime brokerage relationships. When Credit Suisse said it would exit the business, several funds initially diverted business to firms with whom they already had relationships, Barclays’ Webb said.

“Now that the dust has settled, we are seeing a second wave of flows as firms re-evaluate their distribution among providers,” Webb said.

Barclays saw its number of fund clients grow by 10.8% over the last year through June, Convergence data showed. It also recently hired 20 employees from Credit Suisse’s prime brokerage.

BNP, which acquired Deutsche Bank AG’s prime business three years ago, jumped to No. 6 from No. 9 by revenue in cash prime brokerage since 2019, according to Coalition data. It gained roughly 4.5 percentage points of market share.

BNP also hired 20 employees from Credit Suisse’s prime brokerage, according to a source familiar with the matter, and took over research house Exane earlier this year.

But the bank lost some clients, dropping one spot to No. 8 when ranked by that metric. Its assets under management remained stable, however, and a source familiar with the matter said prime brokers sometimes give clients up to focus on priority customers.

(Reporting by Carolina Mandl, in New York; editing by Megan Davies, Paritosh Bansal and Cynthia Osterman)

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