AT&T New Streaming Video Service

After its purchase of Time Warner, AT&T is planning to bring streaming video service into the marketplace to rival Netflix. The new service has not yet been named or priced and is expected to launch in the Q4 of 2019. It is said to build a direct–to– consumer product that centers HBO, a premium cable and satellite television network, to try to keep up with Netflix and Inc. It is not surprising that AT&T wants to launch such service as more consumers are abandoning their traditional pay-TV subscriptions and subscription to streaming video services such as Netflix.

Although AT&T is unlikely to pull off all third-party services like Netflix because they helped to boost Time Warner’s profits for years, to compete with Netflix and other streaming services, AT&T is bringing WarnerBros., HBO, and Turner together to create a one-size-fits-all service. This will create a more collaborative environment that will be mutually beneficial to these entities to produce better quality streaming services.

With the growing profitability in the streaming service industry, many companies are looking to get into competition including traditional players such as AT&T. Although Netflix is still the biggest player in the streaming service, the outcome of the rivalry is still unpredictable as traditional giants are joining the competition.


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IMF Meeting

The International Monetary Fund and World Bank met last week and downgraded their global growth outlook after their meeting The IMF predicted that the U.S. growth will remain at 2.9% this year, unchanged from its previous forecasts. China’s growth will also remain unchanged from its earlier forecast of  6.6%, and decline to 6.2 % next year. They expect the Eurozone to grow at 2%, down from the 2.2% estimate in July. Turkey is expected to grow 0.4% next year, down from 7.4% last year.

The instability of emerging markets over the past months has been the main reason for downgraded global outlook. The instability was caused by trade conflicts and the dollar rising nearly 10% this year. A strong dollar and trade conflicts raise emerging markets’ imports price and dollar-denominated debt, which forces central banks in emerging markets to increase their interest rate on their weak economies.

Although trade conflicts still exist, it is less severe for many countries other than China. The U.S. has negotiated or is in talks with many countries such as Canada, Mexico, the EU, Japan, and South Korea to solve trade conflicts. Nevertheless, the U.S. and China standoff continue to escalate with the U.S. threatening to raise current tariffs on Chinese good to 25% from 10%, and include additional $267 billion of tariff on Chinese goods. President Donald Trump is expected to meet President Xi Jinping at G20 in November, raising hopes talks and negotiations on the escalated trade tensions.

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Softbank – WeWork

SoftBank Group Corporation is in discussion to invest between $15 to 20 billion to take a majority stake in WeWork. WeWork is an eight-year-old provider of shared office space, looking to raise funding to further expand the company globally, especially in Asia. This investment idea fits in Vision Fund’s strategy to deploy $100 billion every two to three years. The $100 billion Vision Fund, largely backed by Saudi Arabia’s sovereign wealth fund($45B) and by SoftBank, already owns nearly 20% of WeWork after investing $4.4 billion last year at $20 billion valuation. With an additional investment, WeWork’s valuation would double to $40 billion.

In 8 years, WeWork has grown from a single office in Manhattan to now renting more than 287 buildings, which occupies more Manhattan office space than any other company. Although WeWork’s losses have begun to accelerate (the first 1H of the year reported losses of $723 million, $154 million more than in the same period last year), its revenue increased by more than double to $763 million in the same period. SoftBank’s vision matches with WeWork’s as SoftBank’s CEO, Mr. Son, is known for encouraging companies to “think bigger.” This pending WeWork deal may seem beneficial for both parties but it could face scrutiny as a diplomatic matter grows between the West and Saudi Arabi, whose investment fund backs 45% of SoftBank’s Vision Fund.


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Tencent Delays IPO of Music Company

IPO valuations can be volatile and may change according to market conditions until the offering is priced. Tencent Music Entertainment Group decided to postpone its initial public offering, one of the biggest in tech ever, until at least November because of the selloff in global markets.

U.S. stocks fell sharply in early October, with the S&P 500 down 4.4%, the Dow down 3.3%, and the tech-heavy Nasdaq down 7.5%. The Chinese market was hit even harder by the market downturn, with technology companies experiencing the worst effect due to a combined hit by both the escalating trade dispute affecting tech companies and a broad market sell-off of internet companies. Tencent Music’s parent company, Tencent Ltd. (TCEHY 8.05%), whose shares fell 6.8% Thursday in Hong Kong went into their 10th straight decline. Its shares are down 34% so far this year.

Tencent Music Entertainment Group was valued at $12.5 billion late last year when it swapped stakes with peer Spotify Technology SA. Since then, the company’s valuation has soared from early discussion with investors to between $25 billion and $30 billion. The company had initially expected to begin its roadshow selling shares to investors next week, and start trading next week. However, due to turmoil in the markets that would affect its pricing the company now plans to delay its IPO to at least November.


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Unemployment at Nearly Five Decade Low

The unemployment rate dropped to 3.7 percent in September, a nearly five-decade low. September marked the third straight month of unemployment below 4 percent. The economy added 134,000 jobs last month, which was below economists predicted but a decrease in the leisure industry attributed to Hurricane Florence might have been a factor in the fewer numbers of jobs reported.

It is a strong contrast to nearly a decade ago when in September 2008, American employers cut 443,000 jobs as the economy fell into deep recession. Since then, the economy has had a slow, yet durable recovery which has translated to the steady job growth.

The labor force participation rate is still low compared to historic averages. The rate remained unchanged in September at 62.7 percent of eligible workers in the workforce, down from a pre-recession rate of 66 percent. Wages have grown 2.8 percent over the last year, which is below the rate economists would usually expect a low unemployment rate. However, signs of momentum in wage growth are showing with construction and technology sectors expecting wages to rise due to an expected labor shortage. Minimum wage workers are expected to experience wage growth due to Amazon’s new wage policy, and fiercer warehouse competition in time for the holiday season.


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Bank Earnings Strong, But Cautious for Future

Third quarter earnings season kicked off on Friday when JP Morgan, Citi, and Wells Fargo released their earnings reports. Earnings reports for all banks showed strong numbers but failed to boost stock prices in the market. The disconnect between stable earnings report and impact on the markets have worried investors who believe the markets are not responding to the numbers due to the anticipation of macroeconomic policies beginning to permeate through the economy and affect future earnings reports.

Banks profits have benefitted this year due to the tax bill savings profits for banks in the early part of the year from the December 2017 tax law. However, as the tax cuts are being absorbed into business, analyst are projecting slower future growth, and lower earnings projections.

The federal Bank raised federal funds rate to 2.25%, and expect to raise it again in their next meeting. Banks have generally benefitted from a rise in interest rate because they can charge more on loans to businesses, and consumers through its commercial lending arm. However, there have been fewer borrowers in the market taking out loans leading to slower mortgage growth, and loan growth since the beginning of the year despite the rate hikes.

Market volatility from trade war tensions and emerging markets have also contributed to banks underperforming for most of the year. The KBW Nasdaq bank index has been roughly flat at 0.7% this year, compared to an 8% increase in the S&P 500. Equities-trading desks received a boost in revenue in the beginning half of the year due to the volatility, however slowdown in fixed-income trading has overshadowed trading activity revenue of the equity desks.

Overall, the market has been responding to marco policies and interest rate changes with caution. Banks are set to report strong third-quarter earnings reports, but economic trends indicate a slowdown in earnings activity in the future.


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Inflation Falls Below Expectation

On Thursday, October 11th, the U.S. Labor Department came out with the consumer-price index(CPI) report showing a 0.1% rise CPI for the month of September. This figure fell below the consensus estimate of 0.2% and marks the second consecutive month of missed estimates.

This is a good sign for the American consumer, who is now encountering a rise in inflation-adjusted earnings. Tied together with a 49-year record-low unemployment level and solid economic growth, this figure shows that inflationary pressures are still under control. This news complicates the mandate of the Federal Reserve since it now faces pressure from both unemployment rate to raise interest rates, and pressure from the CPI to keep rates where they are.

The bonds market responded to this news negatively, with yields suffering the biggest one-day fall in four months from 3.221% to 3.131% for the 10-year Treasury note. The fall resulted because inflation expectations were high and bond yields needed to compensate for the rise in inflation expectations. When the real inflation rate turned out to be lower, bond prices rose as yields dropped. Slower inflation maintains bond prices as it also maintains the future purchasing power of the bond’s payments.

What drives the less than expected CPI reading? The three main reasons are a drop in energy costs (energy and gasoline prices fell 0.5% and 0.2% in September, respectively), the steepest used-vehicle month-over-month price drop in 15 years, and a strong U.S. dollar.

However, with unemployment at 3.7%, employers will need to raise wages to attract new workers and retain existing ones. Thus, with rising wages, the expectation is that consumer confidence and consumer purchases will rise. The expectation in tandem with rising transportation costs due to truck driver shortages is expected to raise CPI inflation levels next month.


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