Trading in the Clouds

April 12th, 2016 6:15 am

Via the WSJ:
By Sarah Krouse and
Emily Glazer
April 12, 2016 6:00 a.m. ET
0 COMMENTS

After decades of transmitting trades by phone line, J.P. Morgan Chase & Co. is close to cutting the cord.

The largest U.S. bank by assets said it is in discussions to move its world-wide trading systems to an Internet-based “cloud” computing service maintained by startup Cloud9 Technologies LLC. The New York bank lent money to Cloud9 last year, said Rick Smith, head of private investments at J.P. Morgan.

The company’s 8,000 traders for the first time could work from anywhere if the deal is completed. Cloud-based trading can happen on laptops and tablets. “We’ve had people trading in the Hamptons, from airplanes, from a speedboat,” said Gerald Starr, chief executive of Cloud9, who worked previously for several trading technology firms.
Related

Cloud Computing May Be Hampering Tech Spending: Analyst Report (Feb. 16, 2016)
Selloff Puts Cloud-Computing Upstarts in Play (Jan. 21, 2016)
Traders’ Phones Are Becoming a Surveillance Zone (Sept. 14, 2015)

Wall Street for decades has relied on telephone lines connected to workstations to transfer trading data and record phone conversations. But some of the biggest U.S. banks have been considering shifting some services to the cloud, where they can rent computing power from companies that maintain large clusters of servers rather than running their own data centers. The moves have been slowed by concerns about the security of the business.

J.P. Morgan hasn’t signed a contract yet, and any changes would take years to implement. It is considering the technology because it has the potential to cut costs, allow flexibility for traders and eliminate the need for a separate facility in a disaster recovery scenario, Mr. Smith said. It also has higher voice quality and data security than the bank’s current internal system, he added.
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“We view it as an opportunity to save money for the firm and to have a better voice communications system across the trading marketplace,” Mr. Smith said.

New York-based Cloud9, which relies on Amazon.com Inc.’s cloud-computing service, has attracted investments of “tens of millions” from J.P. Morgan, ICAP PLC and Barclays PLC in a new funding round, the company said.

J.P. Morgan and ICAP also lent the firm a smaller amount in August 2015, Mr. Smith said. That debt is converting to equity and the two firms, along with Barclays, are adding additional investments, he added.

J.P. Morgan was among a number of brokerage and commodities advisers that agreed to use the new technology in recent months, and the system is now used by 2,000 traders across 350 firms in 21 countries, according to Cloud9 executives.

Out of roughly 200,000 traders at financial firms globally, Cloud9’s software has the potential to save around $1 billion in costs, the startup said. It is unclear how much this could save J.P. Morgan, which has heightened its focus on cost-cutting over the last two years.

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Negative Rates Fail to Stimulate Lending in Japan

April 12th, 2016 6:07 am

Via Bloomberg:

  • Bank of Japan started policy in February to spur credit
  • Analyst `skeptical’ whether sub-zero rates will fuel loans

Japanese loan growth slowed to the weakest pace in three years in March, signaling the central bank’s introduction of negative interest rates has yet to spur credit in the world’s third-largest economy.

Loans excluding trusts rose 2 percent from a year earlier, slowing from 2.2 percent in February, the Bank of Japan said Tuesday. Deposits increased 3 percent, easing from 3.1 percent in February. The figures are the first for a full month after the BOJ began charging lenders 0.1 percent interest on some of their reserves on Feb. 16.

The policy has put pressure on lenders’ profitability because they are being forced to lower interest rates on loans more than those on deposits. Bank shares are the worst performers on the benchmark Topix index this year amid speculation that the central bank will cut rates further to stem an 11 percent gain in the yen against the dollar, which threatens to undermine an economic recovery.

“Putting aside deciding whether the policy is a failure after just one month, we were quite skeptical as to whether negative rates would boost loan demand,’’ said Takashi Miura, a Tokyo-based analyst at Credit Suisse Group AG. “Home lending will come back if rates settle and demand grows, but we’ll need to see an increase in corporate loans to get back to the 2.5 percent levels we’ve seen lately,’’ he said, referring to overall loan growth.

Shares Rise

Bank shares jumped Tuesday after the central bank adjusted its negative-rate program to reduce the portion of lenders’ reserves that are subject to the 0.1 percent charge. The Topix Banks Index closed 5.3 percent higher, paring this year’s decline to 32 percent.

BOJ Governor Haruhiko Kuroda told lawmakers on March 16 that it would be “theoretically possible” to reduce rates to as low as minus 0.5 percent. Standard & Poor’s estimated in February that negative rates will erode the profitability of regional lenders by 15 percent and major banks by 8 percent.

The average rate on all new loans at the nation’s banks plunged to a record-low 0.793 percent in February, central bank figures show. Banks including Mitsubishi UFJ Financial Group Inc. have cut rates on ordinary yen deposits to just 0.001 percent. That would pay the equivalent of just $10 in annual interest on a $1 million balance.

Charging Customers

While banks have resisted passing on the costs of negative rates to most depositors, a few have indicated they will charge some institutional customers. Sumitomo Mitsui Financial Group Inc. is planning to impose fees on foreign banks for some of their cash held in yen-denominated accounts. Trust banks are considering fees on trust accounts of some institutional investors.

The adjustment to the Bank of Japan’s policy announced late Monday increased the portion of lenders’ current-account balances to which a zero interest rate is applied, thus shrinking the portion that is subject to the minus 0.1 percent rate, a BOJ official said, asking not to be named due to its policy.

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Whiff of Inflation in UK

April 12th, 2016 6:04 am

Via Bloomberg:

  • Prices pushed up by surge in air fares, higher clothing costs
  • Core inflation accelerates to 1.5%, most since October 2014

U.K. inflation accelerated to a 15-month high in March as an early Easter boosted air fares and clothing prices increased.

Consumer prices rose 0.5 percent from a year earlier, the fastest pace since December 2014, the Office for National Statistics in London said on Tuesday. That exceeded the 0.4 percent median estimate in a Bloomberg survey of economists. Core inflation, which excludes volatile food and energy prices, quickened to 1.5 percent, the most since October 2014.

While inflation remains well below the Bank of England’s 2 percent target, the figures suggest it is picking up after almost a year of hovering around zero. Policy makers are expected to keep the benchmark interest rate at a record low until the first quarter of 2017, the median forecast in a Bloomberg survey shows. Their latest decision will be announced on Thursday.

The pound rose after the data and was trading at $1.4289 as of 9:37 a.m. London time, up 0.3 percent from Monday.

Upward pressure on inflation last month came from transport costs as air fares rose 23 percent on the month compared with 2.7 percent in March 2015. This reflected the timing of the four-day Easter break, which occurred last month but in April 2015.

There was also pressure from clothing and footwear, which rose 1 percent in March after falling in the same month last year.

Food, Fuel

This was partly offset by a drop in food prices, while motor-fuel costs rose by less than they did a year earlier.

Consumer prices rose 0.4 percent in March from February. In the first quarter, they climbed 0.35 percent from a year earlier. Services-cost inflation increased to 2.8 percent on an annual basis, while goods prices fell 1.6 percent on the year.

Another measure of inflation, the retail prices index, accelerated to 1.6 percent, the most since December 2014, from 1.3 percent in February. The index is used among other things to calculate interest-payments on inflation-protected gilts.

A separate report showed the cost of goods leaving factory gates rose 0.3 percent in March from February and fell 0.9 percent on the year. Input costs increased 2 percent, leaving them 6.5 percent lower than a year earlier.

House-price growth slowed to an annual 7.6 percent in February from 7.9 percent in January.

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Credit Pipeline

April 12th, 2016 6:00 am

Via Bloomberg:

IG CREDIT PIPELINE: 4 Set to Price; SYDAU Added to List
2016-04-12 09:27:45.105 GMT

By Robert Elson
(Bloomberg) — Set to price today:

* Japan Bank for International Cooperation (JBIC) A1/A+, to
price 2-part Global deal Tuesday, via managers
Barc/C/HSBC/JPM/Miz
* 5Y, guidance MS +78
* 10Y, guidance MS +83 area
* Bank Nederlandse Gemeenten (BNG) Aaa/AAA, to price $bench
144a/Reg-S 5Y, via GS/MS/RBC/Sco; guidance MS +48 area
* Province of Quebec (Q) Aa2/A+, $bench Global 10Y, via
BAML/CIBC/Sco/TD; guidance MS +90 area
* World Bank (IBRD) Aaa/AAA, to price $bench 2-part Global
deal, via BNP/GS/MS/RBC
* 2Y, guidance MS +9 area
* 10Y, guidance MS +37 area

Most recent updates:

* Sydney Airport Finance (SYDAU) Baa2/BBB, has mandated
BAML/JPM/Sco to arrange investor meetings commencing April
18; capital markets transaction may follow
* Tokyo Metropolitan Government (TOKYO) na/A+, mandated
Barc/BAML/JPM/Nom for investor meetings beginning April 18;
144a/Reg-S deal may follow
* Wal-Mart (WMT) Aa2/AA, as 2 April maturities totaling $2b;
last seen in June
* Kia Motors (KIAMTR) Baa1/A-, mandates BAML/C/HSBC/JPM/Nom to
arrange investor meetings from April 4; has not issued in
USD since 2011, has $500m maturing June 14
* Sherwin-Williams (SHW) A2/A, to buy Valspar (VAL) Baa2/BBB
for about $9.3b
* Equity purchase will be financed with $8.3 billion of
new debt and $1 billion of cash, he said
* Company said it has committed bridge financing from
Citigroup

Recent Updates:

* Australia & New Zealand Banking Group Limited (ANZ) Aa2/AA-,
has mandated ANZ/C/HSBC/JPM to arrange investor
meetings/conference calls from March 10; USD 144A/Reg S
subordinated transaction may follow (March 10)
* Rogers Communications (RCICN) Baa1/BBB+, files $4b debt
shelf
* Philippines holding non-deal investor meetings in U.S. March
3-9; C/CS/DB/HSBC/MS/SCB/UBS to assist organization of
meetings
* Con Edison (ED) A3/A-, plans issuance of $1b-$1.5b long-term
debt
* IBM (IBM) Aa3/AA-, plans to acquire Truven Health Analytics
for $2.6b
* Mylan (MYL) Baa3/BBB- to acquire Meda (MEDAA) for about
$9.9b including debt
* Cash portion of deal to be financed via bridge facility
* Nasdaq (NDAQ) Baa3/BBB to acquire Marketwired from OMERS
Private Equity; no terms disclosed
* Deal to be funded via debt, cash on hand
* Duke Energy (A3/A-) to buy Piedmont Natural Gas (A2/A) for
$4.9b in cash; to finance the transaction with a combination
of debt, $500m-$750m of new equity and other cash sources;
fully underwritten bridge facility is in place with Barclays
to complete the transaction
* Deal funding may require $3b in new debt, BI says
* Abbott Labs (ABT) A2/A+, to purchase Alere (ALR) Caa1/CCC+,
for $56/shr; co. says it will fund buy with debt; Feb. 1
statement
* Alere’s net debt, $2.6b, to be assumed, refinanced;
Abbott seeks up to $9b bridge loan for deal
* Dominion Resources (D) Baa2/A-, to buy Questar (STR) A2/A,
for $25/shr cash; RBC/Mizuho providing financing, co.
expects to sell $1.5b debt for purchase; Feb. 1 statement
* Corporacion Andina de Fomento (CAF) Aa3/AA-, investor call
Jan. 28, via BofAML/C/DB/HSBC; Global $bench offering may
follow; reported in November it plans to raise $3.5b in
credit markets this year

Updates:

* GM Financial said in an investor presentation that global
senior notes funding could be ~$10b-$13b this yr vs $11b
last yr; co. priced $2.75b on Feb. 25
* Shire (SHPLN) to buy Baxalta (BXLT) Baa2/BBB, for $45.57 per
Baxalta share, representing an aggregate consideration of
~$32b
* Shire May Have Debt Capacity to Pay 45% Cash for BXLT at
$48: BI
* Shire has secured an $18b fully underwritten bank
facility
* Shire launches $18b Baxalta acquisition loan to
syndication
* CVS Health (CVS) Baa1/BBB+, has ability to raise $10b
incremental debt
* Walgreens Boots Alliance (WBA) Baa2/BBB to buy Rite Aid
(RAD) B2/B for $17.2b; Walgreens sees financing deal via
existing cash, assuming existing RAD debt and new debt
issuance
* In Depth story on possible debt
* Walgreens $4.5b loan planned to take out part of $12.8b
bridge
* Filed automatic mixed shelf; last issued in Nov. 2014
* GE could add more than $25b of debt for M&A and buybacks; it
views its industrial balance sheet as having more than $20b
of flexibility

* The following names may be added to calendar in coming days,
weeks, months:

M&A-related:

* Molson Coors (TAP) Baa2/BBB-, to acquire Miller Coors for
$12b in cash with fully committed financing in place;
expects new debt portion of financing to be 75-80%, ~$9b
* TAP last priced a USD deal in April 2012
* Pfizer (PFE) A1/AA, completed its ~$16.8b acquisition of
Hospira (HSP) Ba1/BBB-; Pfizer said in Feb. that it expected
2/3 of deal to be financed by cash, 1/3 via new debt
* Air Liquide (AIFP) na/A+, acquiring Airgas (ARG) Baa2/BBB,
for $13.4b; AIFP has committed bridge financing, plans to
refinance via capital raising in EU3b-EU4b range in
combination of USD/EUR long-term bonds
* CFO said Nov. 18 that it will try to finance at 10 yrs
rather than at 5 yrs; planned bond sales to be “more or
less in line with that of Air Liquide today”
* Dell (Ba2/BB+) plans to buy EMC (A1/A) in deal valued at
$67b; debt financing commitment of $49.5b via CS, JPM,
Barclays, BofAML, C, DB, GS, RBC
* $10b pro-rata loan portion of financing launched Jan. 27
* Emera (EMACN) na/BBB, to acquire Teco Energy (TE) na/BBB+,
has fully committed $6.5b bridge loan; received approval for
deal from Teco holders on Dec. 3
* Avago Technologies (AVGO) to buy Broadcom (BRCM) A2/A- for
$37b; filing shows debt commitment letter including $4.25b
TLA, $11.25b TLB, $500m RCF, as much as $3b under another
TLB entered
* Anthem (ANTM) Baa2/A- to acquire Cigna (CI) Baa1/A; bridge
pact of as much as $26.5b via BofAML/CS/UBS
* Aetna (AET) Baa1/A to acquire Humana (HUM) Baa3/BBB+ for
$37b cash/stock; sees financing to include ~$16b new term
loans, debt and commercial paper
* Teva (TEVA) Baa1/BBB+ to acquire Allergan Generics for
$40.5b; co. says it’s working towards satisfying conditions
to close deal by end of 1Q but “possible” closing may be
“slightly delayed”
* Co. entered bridge agreement in Sept. for up to $27b in
loans and separate commitment letter for up to $6.75b
loans

Shelf Filings:

* National Oilwell Varco (NOV) A2/A+ filed debt shelf on Nov.
13; last seen in Nov. 2012
* ITT (ITT) Baa3/BBB-, files automatic mixed securities shelf;
last priced a new deal in 2009, has just 1 issue outstanding
* British Telecommunications (BRITEL) Baa2/BBB files; last
issued in Feb. 2014
* General Dynamics (GD) A2/A files; last issued in 2012 with
$2.4b 3-part deal
* Target Corp (TGT) A2/A, files automatic mixed shelf; last
priced a new issue in June 2014

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Early FX

April 12th, 2016 5:57 am

Via Kit Juckes at SocGen:

<http://www.sgmarkets.com/r/?id=h103e04b3,168e5749,168e574a&p1=136122&p2=39528903ff116412572d960f8e871304>

Oil prices and bond yields are both marginally higher and risk sentiment is in good nick, which means that the dollar is languishing at the lower end of this week’s FX rankings, just above the now-weakening yen. The real test comes from the equity market as US earnings season gets underway. So far, the papers tell us that Alcoa kicked things off with weaker sales, plans to cut jobs, and earnings that beat estimates.

A downturn in corporate profits is a good leading indicator of a downturn in the economic cycle (much better than, say, an updated IMF WEO…). A ‘typical’ economic cycle reaches a point where higher wage growth, usually followed by higher rates, eats into profits and trips up the cycle. But is that really what’s happening in the US, with super-low rates and very low wage growth? Meanwhile, as employment trundles along at 2% per annum and as demand for housing and cars remains solid, the alternative view is that the US economy is that the ‘new normal’ cycle with economic growth stuck in second gear, can go on for a fair while yet.                                                                                                                                      To my very uneducated eye, a chart of the Vix and the S&P is threatening to turn a corner, and not in a good way. The Fed-fuelled equity rally looks, at best, a little tired.  I’m not inclined to pre-judge this earnings season, particularly given gloomy expectations from equity strategists, but I do think it will drive sentiment.

Are US equities (and the Vix) turning?

[http://email.sgresearch.com/Content/PublicationPicture/223712/2]

WTI crude prices are holding above USD 40/bbl, and that is bad for the dollar, good for the oil-sensitive currencies. Our trio of FX trade recommendations – long GBP/NOK, short NZD/CAD and short EUR/RUB, all ‘ought’; to benefit from oil prices staying slightly bid ahead of the Doha all producers’ meeting, but with so many cross-currents around, a simpler short USD/CAD trade might make just do better.

Oil still putting wind in CAD sails

[http://email.sgresearch.com/Content/PublicationPicture/223712/3]

Today’s economic calendar kicked off with solid Australian business confidence, and moves on to CPI data in Sweden and the UK, before we get US small business confidence data this afternoon. Sterling saw a savage short-covering rally yesterday and while our forecast of inflation is lower than consensus at 0.3% y/y (unchanged from last month) that isn’t likely to move the pound. Swedish data meanwhile are expected to show inflation picking up to 0.7% y/y, up from 0.4%. Enough to push EUR/SEK a little lower as Riksbank policy gets questioned?

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Some Corporate Bond Stuff

April 12th, 2016 5:53 am

Via Bloomberg:

IG CREDIT: Short Maturity Client Flows Led Volume; 4 to Price
2016-04-12 09:36:58.805 GMT

By Robert Elson
(Bloomberg) — Secondary IG trading ended with a Trace
count of $13.4b vs $13.8b Friday, $14.7b the previous Monday.
10-DMA $17.5b; 10-Monday moving avg $14.9b, second highest since
the series began in 2005

* 144a trading added $2.1b of IG volume vs $1.7b Friday, $1.7b
last Monday

* The most active issues:
* BPLN 1.674% 2018; client flows took 100% of volume on
just 2 large tickets, a buy and a sale
* ORCL 1.20% 2017; client and affiliate flows accounted
for 94% of volume
* TGT 3.625% 2046; client buying 2.7x selling
* WDC 7.375% 2023 was most active 144a issue; client flows
took 80% of volume

* Bloomberg US IG Corporate Bond Index OAS at 168.4 vs 169.3
* 2015-16 high/low: 220.8, a new wide since Jan. 2012, was
seen 2/11/2016 / 129.6
* 2014 high/low 144.7/102.3
* BofAML IG Master Index at +169 vs +170
* +221, the new wide for 2015/16 and widest level since
June 2012 was seen Feb. 11; +129, the tight for 2015-16
was seen Mar. 6
* 2014 range was +151/+106, tightest spread since July
2007
* Standard & Poor’s Global Fixed Income Research IG Index at
+216, unchanged; +262, the new wide going back to 2013, was
seen Feb. 11
* The widest spread recorded was +578 in Dec. 2008
* S&P HY spread at +749 vs +754; +947 seen Feb. 11 was the
widest spread since Oct. 2011
* All time wide was +1,754 in Dec. 2008
* Markit CDX.IG.26 5Y Index at 81.2 vs 82.1
* 124.7, a new wide since June 2012 was seen Feb. 11
* 2014 high/low was 76.1/55.0, the low for 2014 and the
lowest level since Oct 2007

* IG issuance totaled $7.45b Monday, pushes 2016 above $500b
* Last week’s Recap and Issuance Stats
* Note: subscribe bar in upper left corner
* YTD IG issuance $507.305b; YTD sans SAS, $415.155b
* 250 issuers priced $458.305b in 423 tranches in 1Q, an
increase of 2% vs 1Q 2015; 1Q Recap & Issuance Stats

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Japan Won’t Intervene Without US Imprimatur

April 11th, 2016 11:35 pm

Via Barron’s :

By Shuli Ren

Japanese government officials have been talking up a currency intervention lately, as the Japanese yen hit a new 17-month high yesterday.

Over the weekend, top government spokesman Yoshihide Suga said that the G-20′s agreement to avoid competitive currency devaluation doesn’t mean Japan can’t intervene in response to “one-sided” currency moves. He repeated yesterday that the yen moves were “one-sided” and “speculative” and the government would take necessary steps.

This morning, Japan’s Finance Minister Taro Aso repeated essentially the same stance. Dow Jones Newswires reported:

“As we have been saying, we will, if the situation calls for it, take necessary measures if there are one-sided, speculative movements” in the yen, Mr. Aso said at a regular news conference. “I believe this kind of step is considered acceptable under the agreement of the Group of 20.”

The G-20 is meeting this week between April 14 and 15.

In recent years, Japan have intervened in the currency markets 4 times, in September 2010, March 2011, August 2011 and November 2011.

But according to Teneo Intelligence‘s Tobias Harris, Japan won’t carry out “great intervention” without the implicit or explicit support of the U.S. government. He wrote:

Japan was able to carry out those purchases [in the past] in large part because the US gave its tacit approval in the belief that they would support Japan’s economic recovery. It is unlikely that a similar program today would enjoy the formal or informal blessing of the US, whether because it recognizes that a weaker dollar can stabilize emerging markets or because the Obama administration is sensitive to the extent to which concerns about currency manipulation have animated opposition to the Trans-Pacific Partnership (TPP) in Congress, among presidential candidates, and in the business community. Since unilateral Japanese intervention would widely be viewed as illegitimate, it could trigger a currency war within Asia, as both China and South Korea would react negatively to a massive campaign of intervention by Japan.

The yen has gained 10.4% against the dollar this year, despite the Bank of Japan‘s move to negative interest rates at the end of January.

This morning, the yen fell back from its 17-month high, down 0.2% against the dollar to 108.12. The Nikkei 225 gained 1.2%. Overnight, the iShares MSCI Japan ETF (EWJ) fell 0.6%, the iShares Currency Hedged MSCI Japan ETF (HEWJ) was down 0.7%

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Italian Bank Fund

April 11th, 2016 10:10 pm

Via the FT:

Italy’s strongest banks, insurers and asset managers have agreed to pony up about €5bn to create a systemic backstop fund to bail out weaker lenders in an effort to calm growing investors concern about the stability of the banking sector of the eurozone’s third largest economy.
The rescue fund, announced by Prime Minister Matteo Renzi after a six-hour meeting of financiers, regulators and ministers in Rome, comes after a plunge in the value of Italian bank shares this year on widening concerns about the effect of €360bn of non-performing loans on Italy’s financial stability, write Rachel Sanderson and Martin Arnold in Milan.

Dubbed “Atlas” after the mythological god who held up the sky, the fund will see Italy’s strongest banks UniCredit, Intesa Sanpaolo and UBI Banca handing over hundreds of millions of euros to create a backstop facility to bail out distressed smaller lenders.

Crucially, in return for providing private funds, the government has agreed to bring the country’s laggard bankruptcy laws in line with European norms which are seen as an impediment to the sale of bad loans.

“In the next days we will make the bankruptcy procedure faster and more simple so that everyone can be assured of getting their money back in a reasonable time frame,” Prime Minister Matteo Renzi said in a statement.

The deal, which has defied expectations it would be watered down at the last moment, is the first time Italy’s banking system has drawn together to protect its weakest constituents since 1982 when eight large banks bailed out the collapsed scandal-hit lender to the Vatican Banco Ambrosiano.

Shares in Italy’s largest banks UniCredit, Intesa Sanpaolo and UBI Banca have already jumped about 15 per cent in the past three days since reports of possible deal became public.

At present, it takes an average of eight years in Italy compared with an EU average of around two to three years to recover bad loans. Bankers consider this a drag on the ability of Italian banks to sell their bad loans.

A senior banker who had been at the meeting said the government had agreed to pass the tougher bankruptcy laws within the next 10 days, raising the prospect of a standoff between Mr Renzi and the Italian civil judiciary.

“The fund is an instrument that could contribute to completing the process of strengthening the solidity of the Italian banks and expanding the market for non performing loans,” said Mr Padoan who has driven the deal in a statement.

Eoin Mullany, analyst at Berenberg, has argued “a balance sheet clean up is needed for investors to trust bank balance sheets” in Italy. And for this to happen, a robust stress test with a credible capital backstop is needed, he added.

Italy is keen to present the agreement as a private sector deal in order avoid coming up against EU state aid restrictions. Nonetheless, the Treasury-owned Cassa Depositi e Prestiti has an unspecified stake in the project which is likely to trigger competition scrutiny.

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Obama Yellen Confab

April 11th, 2016 7:28 pm

Via Bloomberg:

  • President and Fed chair meet to discuss the U.S. economy
  • Some economists predict near-zero GDP growth in first quarter

President Barack Obama met with Federal Reserve Chair Janet Yellen on Monday to discuss the U.S. economy amid signs that growth may be slowing as consumers retreat from spending.

Ahead of the afternoon meeting, White House Press Secretary Josh Earnest described Obama as “pleased” with Yellen, who he appointed to lead the Fed in 2014. It is the first time since November 2014 that the Fed chair has met with the president on her own. The meeting was closed to the news media.

The backdrop is an economy showing signs that it’s hit a soft patch. Consumers, who’ve been keeping growth afloat, reined in spending at the start of 2016, with auto sales last month slumping to the lowest level in a year. Weakening demand abroad and a relatively strong dollar are causing the trade deficit to grow and companies have cut output to trim bloated inventories.

“It’s an opportunity for them in some ways to trade notes on something they’re both looking at quite carefully,” Earnest told reporters before the meeting, while emphasizing Yellen’s independence from the president.

Asked if Obama has been happy with Yellen’s work since appointing her in 2014, Earnest called it “an interesting question” and said “the president has been pleased with the way she has fulfilled what is a critically important job.”

Zero Growth

Some economists last week cut their tracking estimates for growth in first-quarter gross domestic product to near zero, following a 1.4 percent gain in the last quarter of 2015. That would mark the weakest six months in about three years.

Obama and Yellen “discussed both the near and long-term growth outlook, the state of the labor market, inequality, and potential risks to the economy, both in the United States and globally,” the White House said in a statement after the meeting. They also discussed Obama administration efforts to strengthen the government’s regulation of Wall Street, the statement said.

Last week, Yellen said that there had been “tremendous progress” since the recession that began in 2007, but warned that broader measures of unemployment were “higher than one would expect.” While cautioning that some slack remains in the U.S. labor market, Yellen said many measures of unemployment “really suggest a labor market that is vastly improved,” while speaking on a panel with three of her predecessors Thursday in New York.

The Fed raised interest rates for the first time in nearly a decade last December, but has recently signaled that it would exercise caution on additional hikes because of concerns about a flagging global economy.

Obama is increasingly seeking to burnish his legacy on financial regulation. In his weekly radio address to the nation on Saturday, Obama touted new rules unveiled last week by the Labor Department that require financial advisers to act in their clients’ best interests and new Treasury Department regulations intended to crack down on companies that attempt to avoid U.S. taxes by merging with foreign partners, called inversions.

“My administration took two big steps that will help make sure your hard work is rewarded, and that everybody plays by the same rules,” Obama said.

He has lately encountered friction in Congress, though, as he tries to fill vacancies on the Federal Reserve board.

Vice Chair

Senate Banking Committee Richard Shelby, an Alabama Republican, is blocking confirmation of two nominees to the board until Obama names a vice chair for supervision, a position created in the 2010 Dodd-Frank financial regulation law.

The White House hasn’t said why it has never nominated someone for the job, intended to focus the Fed on the regulation of financial markets.

“I don’t have any personnel announcements to make,” Earnest said on Monday at a briefing. He called on the Senate to confirm the board nominees anyway.

“It is a tough case to make for Senator Shelby to say that he’s not going to fill any vacancies on the Fed until one specific vacancy has been filled,” he said.

Shelby, in an interview last week, said he intends to continue to block the nominees over the vice chair position.

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Earnings Seasons Kick Off

April 11th, 2016 7:24 pm

Via the FT:

Aluminium company Alcoa said on Monday that its sales and profits declined in the first quarter and revealed plans to cut jobs.

The New York-based company posted a profit of $11m in the first three months of 2016, down from $255m in the same period in the year prior. Adjusting for one-time items earnings of 7 cents a share, topped estimates for 2 cents.

Sales fell 15 per cent on a year-on-year basis to $4.95bn, compared with analysts’ estimates for sales of $5.2bn, writes Mamta Badkar in New York.

Alcoa also said it reduced its workforce by 600 positions in the first quarter and expects to cut another 400 jobs. The company added that it was evaluating an additional headcount reduction of up to 1,000 jobs.

In September, Alcoa said that it was splitting into two, with an upstream business that includes its smelting operations, and its downstream operations, which are focused on the units that make metals products.

A breakdown showed that revenue at Arconic, the name of its future downstream business, fell 2.2 per cent to $3.3bn. The company cited the impact from metal and the foreign exchange fluctuations for the decline in revenue at the division, which is expected to be faster growing.

Meanwhile, revenue fell 32.2 per cent to $1.7bn at its upstream business.

The aluminium maker has seen its bottom line squeezed by a near 18 per cent drop in aluminium prices since the start of 2015. Alcoa said it projects a 1.1m metric ton global aluminium deficit as it expects 5 per cent demand growth, outstripping supply growth of 2 per cent.

Shares in Alcoa have declined more than 38 per cent since the beginning of last year, while the broader S&P 500 materials sector has declined 7.5 per cent over the same period. The shares fell 3 per cent in after hours trading on Monday.

Alcoa unofficially kicked off what is expected to be a grim first quarter earnings season, with companies listed on the S&P 500 projected to report an 8.3 per cent drop in earnings per share.

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