Imagine What the Global Economy Would Look Like If Russia’s War Ended Soon

Now imagine what the global economy would like if the conflict ended soon. More commodity prices would soften, removing a key pressure on the worldwide inflation that is both undermining growth and prompting the Federal Reserve to hike interest rates.

To be sure, Russia may also choose to dig in. And even if the war does end, many supply issues will remain and Western nations will still make efforts to wean themselves off Russian oil and gas.

But it would be easier to work toward solutions without the threat of a nuclear war. And it would remove the need for the European Union and others to come up with ever harsher sanctions as the war rumbles on.

We could have a world with slowing inflation, lower terminal interest rates, and better-functioning global supply lines. If the war ends, the outlook for 2023 might shift from worries about recession to optimism about recovery.

—Brian Swint

*** Join Financial News online editor Justin Cash today at noon for a talk with Malik Karim, the founder of deals specialist Fenchurch Advisory Partners and former treasurer to the U.K.’s Conservative Party, about why his firm is opening an office in the U.S., the financial sectors that are most ripe for takeovers, how to attract talented bankers, and how investors can navigate the current market turmoil.

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What a Divided U.S. Government Means For Markets

Republicans recaptured control of the House of Representatives Wednesday, notching a closer-than-expected win and returning Washington to an era of divided government.

• The narrow win came a week after polls closed, underscoring how tight more than a dozen races were after Democrats outperformed expectations and the widely forecast Republican “red wave” failed to materialize.
• Still, after flipping districts in Virginia, Florida, New York and elsewhere, Republicans have won enough seats to retake the lower chamber for the first time since 2018, the Associated Press declared Wednesday.
• Control of the Senate will remain with the Democrats after the party flipped a key district in Pennsylvania and successfully defended seats in Nevada and Arizona that the GOP had hoped to retake.
• Divided government will mean lawmakers will have to work across the aisle to pass any legislation or move must-pass agenda items, including approving a budget and lifting the country’s borrowing limits.

What’s Next: A gridlock scenario can be beneficial for financial markets because it means fewer policy changes and less risk to individual sectors. There is also less uncertainty because less overall is getting done: Meaningful changes to the tax code in either direction, for example, are all but off the table.

—Megan Cassella

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Elon Musk Says Someone Else Will Eventually Run Twitter

Elon Musk told a Delaware court he plans to find someone else to eventually run Twitter, the social media platform he bought last month, after top management quit and he fired half the staff.

• In the same court proceeding, Tesla board member James Murdoch (the son of Rupert Murdoch, the executive chairman of News Corp. (NWSA), which owns Barron’s) said Musk in recent months identified a potential successor to himself as CEO of the electric vehicle maker, The Wall Street Journal reported. The two were testifying in a trial over Musk’s pay from Tesla.
• The trial is over Musk’s 2018 stock options award, which amounts to about $50 billion. It allowed Musk to buy 300 million Tesla shares for about $23 each if the company hit certain milestones. Tesla shareholder Richard J. Tornetta sued to get the grant rescinded.
• Tornetta’s lawsuit says the board’s four-person compensation committee wasn’t independent but influenced by Musk in 2019, when the 2018 stock award was being worked on. Shareholders voted more than 60 million shares in favor of the grant, compared with 30 million against it, but that was still a minority of overall shares.
• Musk rejected the idea of hiring former T-Mobile US CEO John Legere, who reached out to him in a tweet over the weekend offering to run Twitter. Musk tweeted back “No.” But he did tell Twitter staff to commit to working long hours or quit, the Washington Post reported.

What’s Next: Twitter’s blue check subscriptions return Nov. 29. It was previously free and reserved for accounts deemed to be of public interest—politicians or celebrities, for example. But Musk is charging $8 a month and offering it to anyone who pays.

Nvidia Offers Muted Revenue Outlook, Micron Cuts Productions

Nvidia ’s revenue beat expectations for the third quarter, but its outlook for the January quarter—sales of $6 billion—were slightly below expectations as it adapts to the current environment and continues to work on inventory levels after a slump in demand for chips. Shares rose 3.2% in late trading.

• Sales of personal computers dropped 15% in the third quarter, according to International Data Corporation, curtailing a key market for chips from companies including Nvidia, Intel , and Advanced Micro Devices . That also coincided with Nvidia’s release of its next-generation graphics chips.
• Nvidia in August had warned $400 million in potential sales to China could be affected by the U.S. government’s new export restrictions for its advanced artificial intelligence data-center chips, but said Wednesday that decline was “largely offset” by other sales not subject to those rules.
• Micron Technology said it would reduce chip wafer production by roughly 20%compared with the fiscal fourth quarter 2022, which ended in August, citing weaker market conditions. It is also considering additional cuts to capital spending, saying the demand outlook for 2023 had recently softened.
• The chip maker said DRAM (dynamic random-access memory) bit supply in desktop computers and servers will need to shrink in 2023, while the bit supply growth of NAND (flash memory found in smartphones and hard drives) needs to be “significantly lower.” SK Hynix has issued a similarly gloomy demand forecast.

What’s Next: Nvidia expects its margin to continue to improve in the fiscal fourth quarter. Adjusted gross margin in the third quarter was 56.1%, and Nvidia said Wednesday that it forecasts fourth-quarter adjusted margin at 66% as expenses dip.

—Tae Kim and Janet H. Cho

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Target’s Earnings Weigh on Retailers as Shoppers Cut Back

Target ’s third-quarter earnings were worse than expected, and management lowered guidance for the current fourth quarter. Although sales of food and household essentials were strong, consumers are showing increasing signs of stress and pulling back from discretionary purchases, CEO Brian Cornell said.

• Target’s operating income dropped nearly 50% to $1 billion, while profit fell short of expectations. Same-store sales rose 2.7%, beating expectations, but categories such as apparel, home furnishings, and electronics were sluggish.
• Typically, Walmart benefits from inflation because it focuses on low prices and gets a greater percentage of sales from consumable products. Target is largely associated with higher-income earners, as more of its sales come from discretionary categories such as apparel and home goods.
• October retail sales climbed 1.3% compared with September, which was higher than expectations. Sales grew 1.3%, excluding autos, and 0.9% excluding gasoline and auto sales. Although electronics and appliance sales were down, restaurant spending increased 1.6%.
• Lowe’s posted third-quarter earnings and revenue that beat expectations and raised its full-year earnings outlook. U.S. same-store sales increased 3%, driven by its professional category and improved do-it-yourself trends, said Chairman and CEO Marvin Ellison.

What’s Next: Target said an earlier start to holiday sales promotions and shoppers holding back for better deals hit its profit, and it has seen those trends continue into November. It forecasts holiday quarter same-store sales to fall by the low single-digits.

—Sabrina Escobar and Janet H. Cho

Inflation Hits Disney’s Magic Kingdom. Ticket Prices Increase

Families will have to splurge more for their Walt Disney World vacations starting Dec. 8, because some single-day, single-park ticket prices at Disney ’s Magic Kingdom, Epcot, and Hollywood Studios in Orlando could cost as much as $189 a person during the nine-day peak period around Christmas and New Year’s Day.

• Single-day ticket prices to Disney’s Magic Kingdom Park are increasing to between $124 and $189 a person. The $189 ticket price is specifically for that peak holiday season around Christmas and the new year, and not all year, the Disney spokesperson told Barron’s.
• Single-day tickets to Disney’s Animal Kingdom are staying at the current $109 to $159 range for visitors ages 10 and up. Single-day tickets to Epcot are increasing to a range of $114 to $179; and single-day tickets to Hollywood Studios are increasing to $124 to $179.
• Instead of the current system, which lets visitors make their theme park reservations only after buying their tickets, the new single-day tickets automatically include theme park reservations. The price of the Park Hopper option that lets people visit a second park the same day for $65 more is also changing.
• Revenue for Disney’s Parks, Experiences and Products segment, including cruises and consumer products, rose 36% in the fourth quarter compared with last year and jumped 73% for the full year. The segment’s operating income was lower than expected, however.

What’s Next: Except for renewals by current annual pass holders, Disney has paused new sales of all but its Pixie Dust annual passes, which are staying at $399 a person. It is raising the price of its other annual passes, including the Incredi-Pass, which is going up to $1,399.

—Janet H. Cho