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Tuesday, 18 June 2019

Wall St. opens at six-week high on hopes of dovish Fed


(Reuters) - U.S. stocks opened at their highest level in six-weeks on Tuesday, with Nasdaq leading the charge, as dovish calls from the European Central Bank raised expectations of a similar accommodative stance from the Federal Reserve.

The Dow Jones Industrial Average rose 116.35 points, or 0.45%, at the open to 26,228.88. The S&P 500 opened higher by 17.04 points, or 0.59%, at 2,906.71. The Nasdaq Composite gained 75.95 points, or 0.97%, to 7,920.98 at the opening bell.

Reporting by Medha Singh


WASHINGTON/SAN FRANCISCO - (Reuters) - Bond investors expect an aggressive set of U.S. interest rate cuts this year, and a voluble president pines for the “old days” when his predecessors bullied central bankers to get their way.

If Federal Reserve Chairman Jerome Powell had a complicated task last year in calling an early halt to further Fed rate hikes, his mission in a Wednesday press conference may be even trickier: Thread the needle between growing expectations that lower rates are coming soon and economic data that looks reasonably healthy with rates just where they are.

Failing to pull it off could trigger the same sort of volatility and tightening of financial conditions witnessed in December, when Powell’s press conference remarks were interpreted as overly hawkish and in part responsible for an 8% drop in the S&P 500 over the next few days.

At the extreme, that sort of volatility could feed into the real economy and make the Fed’s job in coming weeks even more complicated.

“Powell will have to do a lot of tap dancing,” Bank of America Merrill Lynch economists wrote Friday in outlining how the Fed will need to account for expected slower U.S. growth, weak inflation and trade risks, without making it seem as if a serious downturn is in the offing.

“This is a Fed that wants to insure that the recovery will continue,” they said. “The goal will be to talk about the need to ease policy but underscore that a recession is not around the corner.”

The Fed begins its two-day policy meeting on Tuesday, and will issue a new statement and economic projections at 2 p.m. (1800 GMT) on Wednesday. Powell’s press conference is scheduled to begin Wednesday at 2:30 p.m. (1830 GMT)

The central bank is expected to leave its benchmark overnight policy rate unchanged at its current range of between 2.25% and 2.5%. The federal funds rate has been at that level since December after a three-year cycle of monetary policy tightening that began slowly but ended with roughly quarterly rate hikes over 2017 and 2018.

A ‘DARKENED’ OUTLOOK?
The mood has clearly shifted since the Fed last met in early May, in part because of trade policy choices made by President Donald Trump and which the president has demanded be offset with looser monetary policy.

But it is unclear by how much. One Federal Reserve regional bank president has referred to the outlook as “darkened,” and another has called for lower rates “soon.” Powell in his most recent public comments dropped the use of the word “patient” in referring to the Fed’s posture when it comes to deciding on the next rate move.

That suggested to many analysts that the word will disappear from the policy statement as well. In May that 279-word missive said the Fed “will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate.”


But an absence of patience doesn’t mean the central bank is on a hair trigger. The focus on Powell will center around how he describes the Fed’s sensitivity to upcoming data, how seriously it views the risks of a widening trade war, and whether it still sees weak inflation as likely “transitory,” as he described it in May.

A LITTLE ‘FEDSPLAINING’?
Despite his December misstep, Powell has been given generally good marks by Wall Street investors for his ability to communicate policy.

His immediate predecessors had their own miscues.

Former chairman Ben Bernanke triggered weeks of global bond market volatility with his 2013 comments about the Fed’s plan to reduce its bond purchases. And former chair Janet Yellen in 2015 had to navigate the difficulties of the first interest rate increase since the 2007 to 2009 financial crisis.

But Powell this week may have a pronounced information gap to fill. As of March, 11 of 17 policymakers felt that rates at year-end would be unchanged from today, and the other six saw them as likely a bit higher.

The expected performance of the economy has not changed that much since then. Even if Trump’s trade policies have been hard to predict, Fed officials say the economic consequences could just as easily cavort to the upside if, for example, an upcoming meeting of the Group of 20 nations ends with any hint of progress in U.S.-China trade negotiations.

At this point, as economists at Goldman Sachs wrote over the weekend, the “hurdle” for the Fed to cut rates “is likely to be higher than widely believed,” with the economy and markets either healthier or more aligned with Fed policy than was the case in the 1990s when the Fed used preemptive “insurance” rate cuts to encourage continued economic growth.

If Fed officials don’t collectively push their rate view down, as markets expect and the White House demands, it will be up to Powell to explain why.


Reporting by Howard Schneider

Draghi's stimulus hints put ECB in Trump's crosshairs


SINTRA, Portugal (Reuters) - The European Central Bank will ease policy again if inflation fails to accelerate, ECB President Mario Draghi said on Tuesday, signalling one of the biggest policy reversals of his eight-year tenure and provoking the ire of U.S. President Donald Trump.

With four years of unprecedented stimulus to revive the euro zone economy slowly bearing fruit, the ECB had been preparing markets for policy tightening, dubbed “normalisation” — only to see a global trade war derail its plans within months.

The problem is that with rates at record lows and the ECB’s balance sheet already swelled to 4.7 trillion euros (£4.2 trillion), its remaining ammunition is limited, raising doubts about the likely effectiveness of any further measures.

“In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required,” Draghi told the ECB’s annual conference in Sintra, Portugal.

With just four months left of his term, the slowdown is also a threat to Draghi’s legacy. The Italian’s promise in 2012 to do “whatever it takes” to save the euro is widely credited with holding together the currency bloc during the darkest days of its sovereign debt crisis.

“(We) will use all the flexibility within our mandate to fulfil our mandate — and we will do so again to answer any challenges to price stability in the future,” Draghi said on Tuesday. “Monetary policy remains committed to its objective and does not resign itself to too-low inflation.”

But the ECB is not alone in having to backtrack.

After abandoning interest rate hikes, the U.S. Federal Reserve may this week signal cuts in borrowing costs as global turmoil erodes confidence, hitting stocks and global trade.

Trump, who has persistently called on the Fed to ease monetary policy, accused Draghi of trying to weaken the euro to gain an unfair advantage in trade.

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA,” Trump wrote on Twitter. “They have been getting away with this for years, along with China and others.”

Trade is a main policy issue for Trump, who has raised disputes with a number of rival world economies including the European Union.

Draghi’s comments, which markets saw as unexpectedly dovish, sent the euro down by a quarter of a percent against the dollar while stocks erased early losses and euro zone bond yields fell further, many into record-low territory.

Draghi has often said the ECB does not target a currency level, even if the exchange rate is an important factor for policy.

RATE CUTS, QE
Draghi said the ECB, which has consistently undershot its inflation target of just under 2% since 2013, could still cut rates, adjust its interest rate guidance and had “considerable headroom” for more asset purchases.

He also said the ECB could offer “mitigating measures” to offset the unwanted side effects of negative rates, a comment indicating that a multi-tier deposit rate was also on the table.

Adding an argument for urgency of action, he noted that risks to growth in the 19 countries that use the euro are tilted to the downside and that indicators for the coming quarters point to lingering softness.

The ECB will use the “coming weeks” to study its options, he said, suggesting that action may come sooner rather than later.

ECB policymakers next meet on July 25.

Markets have already priced in 15-20 basis points of cuts in the ECB’s minus 0.40% deposit rate — a big change compared to the start of the year, when rate hikes were firmly on the table.

LIMITS
Draghi dismissed concerns about the ECB’s depleted policy arsenal, particularly the effectiveness of further bond purchases, saying self-imposed limits such as a rule that prevents the ECB buying more than one-third of a particular country’s debt, could be adjusted.

He said the limits are flexible because the ECB’s legal powers allow it to deploy tools that are both necessary and proportionate, adding that the European Court of Justice had already confirmed it had broad discretion.

The ECJ cleared the asset purchases in an earlier ruling but argued that limits on the ECB’s bond buys must be in place, suggesting that any tweaks to those limits could see the central bank back in court.

“We are committed, and are not resigned to having a low rate of inflation forever or even for now,” Draghi said.

“That aim is symmetric, which means that, if we are to deliver that value of inflation in the medium term, inflation has to be above that level at some time in the future.”

Reference: Francesco Canepa, Balazs Koranyi

Monday, 17 June 2019

Fed likely to resist pressure to cut U.S. rates this week


(Reuters) - U.S. stocks eked out gains at the open on Monday, as focus shifted to a pivotal Federal Reserve SAN FRANCISCO/WASHINGTON (Reuters) - The U.S. Federal Reserve, facing fresh demands by President Donald Trump to cut interest rates, is expected to leave borrowing costs unchanged at a policy meeting this week but possibly lay the groundwork for a rate cut later this year.

New economic projections that will accompany the U.S. central bank’s policy statement on Wednesday will provide the most direct insight yet into how deeply policymakers have been influenced by the U.S.-China trade war, Trump’s insistence on lower interest rates, and recent weaker economic data.

Analysts expect the “dot plot” of year-end forecasts for the Fed’s benchmark overnight lending rate - the federal funds rate - will show a growing number of policymakers are open to cutting rates in the coming months, though nowhere near as aggressively as investors expect or Trump wants.

The Fed is also widely, though not universally, expected to remove a pledge to be “patient” in taking future action on rates, opening the door to a possible cut at its coming policy meetings.

Risks may be rising, but “I don’t think they want to box themselves into a corner,” said Carl Tannenbaum, chief economist at Northern Trust. “The markets are set up for a cut in July, and if they don’t get it, financial conditions will tighten.”

The federal funds rate is currently set in a range of 2.25% to 2.50%.

The Fed’s policy-setting committee is due to release its latest statement and economic projections at 2 p.m. EDT (1800 GMT) on Wednesday after the end of a two-day meeting. Fed Chairman Jerome Powell will hold a press conference shortly after.

MIND THE DOTS
The Fed's last set of economic and policy projections, released in March, showed most policymakers foresaw no need to change rates this year and only very gradual rate hikes thereafter.

But since that meeting the economic outlook has become cloudier.

Recent U.S. retail sales numbers were strong. But while unemployment has held near a 50-year low of 3.6%, U.S. employers created a paltry 75,000 jobs in May. Inflation, which Powell says is low in part because of temporary factors, continues to undershoot the Fed’s 2% target.

The Atlanta Fed forecast on Friday that gross domestic product will increase at a 2.1 percent annualized rate in the April-June quarter, a drop from the 3.1 percent pace of the first three months of the year.

Trade uncertainty has increased as well, with Trump using the threat of tariffs on goods from Mexico to force the country to curb the number of mostly Central American immigrants crossing the U.S.-Mexico border.

He has also vowed to slap more tariffs on Chinese imports if no trade deal is reached when he meets Chinese President Xi Jinping at a Group of 20 summit at the end of this month in Japan.

Concern that mounting tariffs could further slow U.S. and global economic growth is one of the chief reasons traders in interest rate futures loaded up on contracts anticipating three U.S. rate cuts by the end of the year.

Fed officials may have reason to trim their rate outlook a bit, but meeting market expectations would involve a dramatic shift. Nine of the Fed’s current 17 policymakers would have to move their rate projections downward for the median to reflect a single cut, let alone three.


“Powell will do what he can to try to downplay the dots especially if they don’t show what the markets want them to show,” said Roberto Perli, economist at Cornerstone Macro. “He will have a tough time.”

Adding to the pressure for a rate cut is a yield curve inversion in parts of the market for U.S. government debt, historically a precursor of recessions. The three-month Treasury bill, for instance, has paid out a higher rate than a 5-year Treasury note for the last several months running.

And Trump, who has said that rates should be lowered by perhaps a full percentage point or more, continues to publicly berate the Fed and Powell, his handpicked chairman, for refusing to act.

“I’ve waited long enough,” Trump said in an interview with ABC News last week, talking favorably of the “old days” when Presidents Lyndon Johnson and Richard Nixon intervened forcefully in Fed policy - and set the stage, many economists argue, for the high inflation, economic volatility and recessions that followed in the 1970s.

DOWNWARD SHIFT
Most of the more than 100 economists polled June 7-12 by Reuters say they are not penciling in a rate cut until the third quarter of next year. But views are shifting rapidly. Forty respondents expected at least one rate cut sometime in 2019, up from just eight who did in the previous poll.

Within the U.S. central bank, St. Louis Fed President James Bullard is the only policymaker who has said a rate cut may be needed “soon.”

Several others have signaled a readiness to move off their wait-and-see stance, with Powell saying earlier this month in a speech in Chicago that the Fed will act “as appropriate” in the face of risks posed by the global trade war and other developments.

The word “patient,” which had been repeatedly used by the Fed since early this year to signal its willingness to hold off further rate hikes, was notably absent from Powell’s remarks, though the Fed chief stopped well short of suggesting a rate cut was coming soon.

The Fed raised rates four times in 2018 but has since abandoned plans to continue lifting borrowing costs this year.

It is likely to avoid signaling any move to cut rates until it is ready to deliver, predicted Bruce Monrad, a high-yield bond portfolio manager at Boston-based Northeast Investors Trust.

Nevertheless, Monrad added, Fed policymakers may have tied their own hands by letting bets in financial markets stray so far. “They have had six months to control the rhetoric. They really haven’t walked back the market.”

Reporting by Ann Saphir and Howard Schneider


Wall St. opens slightly higher; Fed meet eyed


(Reuters) - U.S. stocks eked out gains at the open on Monday, as focus shifted to a pivotal Federal Reserve meeting that could lay the groundwork for an interest rate cut later this year.

The Dow Jones Industrial Average rose 18.92 points, or 0.07%, at the open to 26,108.53. The S&P 500 opened higher by 2.77 points, or 0.10%, at 2,889.75. The Nasdaq Composite gained 22.77 points, or 0.29%, to 7,819.43 at the opening bell.

Reporting by Medha Singh

(Reuters) - Hundreds of U.S. businesses from local bridal shops to multi-billion dollar retailers have submitted comments to the U.S. Trade Representative’s Office opposing President Donald Trump’s plan to slap tariffs on another $300 billion of Chinese imports.

The higher tariffs would affect everything from apparel and footwear to fireworks and cellphones, and was likely to raise prices for U.S. consumers, the companies warned in submissions ahead of the start of seven days of public hearings on Monday.

Diane Cheatham, owner of Diane’s Formal Affair, an Alabama-based women’s boutique, said new tariffs would completely shut down her American suppliers, who will be unable to come up with the funding to cover the additional 25% they would need to pay to import their products.

“I am writing this letter pleading with you to keep our industry out of the next round of tariffs,” Cheatham said. “I stand shoulder to shoulder with thousands of business owners in this plea. Help us make AMERICA GREAT AGAIN.”

Cheatham’s comments were echoed by many more U.S. business owners who said the new levies would hurt consumers and cause job losses.

Spirit of 76, a fireworks company that imports 100% of its product from China, said the tariffs would cause significant harm to its business where profit margins are already razor thin.

It said it would have to raise prices and the resulting loss in sales would impact hiring and expansion plans.

Large public companies, many of whom’s shares sank in May on concern over the impact of tariffs on growth, also warned in broad terms of the trouble an outright trade war would cause.


“We strongly oppose the imposition of additional tariffs,” Ralph Lauren Corp said in a letter addressed to U.S. Trade Representative Robert Lighthizer.

The luxury retailer asked for apparel and footwear to be removed from the tariff list, arguing that a rise in duties will lower sales and lead to U.S. workers losing their jobs.

Roku Inc, Tommy Hilfiger owner PVH corp and Best Buy are among a number of companies who have asked to testify at the hearings.

Reporting by Uday Sampath

Boeing crisis, trade tensions cast pall over air show

PARIS (Reuters) - Safety concerns, trade wars and growing security tensions in the Gulf are dampening spirits at the world’s largest plane makers as they arrive at this week’s Paris Airshow with little to celebrate despite bulging order books.




The aerospace industry’s marquee event is a chance to take the pulse of the $150-billion-a-year commercial aircraft industry, which many analysts believe is entering a slowdown due to global pressures from trade tensions to flagging economies, highlighted by a profit warning from Lufthansa late on Sunday.
Humbled by the grounding of its 737 MAX in the wake of two fatal crashes, U.S. planemaker Boeing will be looking to reassure customers and suppliers about the plane’s future and allay criticism of its handling of the months-long crisis.
“This is a defining moment for Boeing. It’s given us pause. We are very reflective and we’re going to learn,” Chief Executive Dennis Muilenburg pledged on Sunday.
The grounding of the latest version of the world’s most-sold jet over safety concerns has rattled suppliers and fazed rival Airbus, which is avoiding the traditional baiting of Boeing while remaining distracted by its own corruption probe.
Aerospace executives on both sides of the Atlantic are concerned about the impact of the crisis on public confidence in air travel and the risk of a backlash that could drive a wedge between regulators and undermine the plane certification system.
Airlines that rushed to buy the fuel-efficient MAX are taking a hit to profits since having to cancel thousands of flights following the worldwide grounding in March.
Even the planned launch of a new longer-range version of the successful A320neo jet family from Airbus, the A321XLR, is unlikely to dispel the industry’s uncertainty, analysts said.
The planemaker is hoping to launch the plane with up to 200 orders with the support of at least one major U.S. buyer such as American Airlines but faces a last-minute scramble to win deals.
“Boeing’s MAX crisis isn’t the most ominous dark cloud, since it can be solved, but traffic numbers are genuinely scary,” said Teal Group aerospace analyst Richard Aboulafia.
“If March and April are a sign of things to come, we’re looking at broader industry demand and capacity problems.”
“Net orders might be the lowest in years,” Aboulafia added.
Others dismiss fears of a downturn, citing the growth of the middle class in Asia and the need for airlines to buy new planes to meet environmental targets.
“The only solution that the industry has is the newest most fuel-efficient aircraft,” John Plueger, Chief Executive of Air Lease Corp, told Reuters. “So that replacement cycle is going to continue.”
“We’re talking to so many airlines who still want more aircraft, and there’s really been no lessening of those discussions,” he said.

GULF TENSIONS

Boeing is delaying decisions on the launch of a possible new aircraft, the mid-sized NMA, to give full attention to the 737 MAX and last-minute engine trouble on the forthcoming 777X, industry sources said.
But it could unveil a number of deals favouring widebody jets where it has the upper hand against Airbus, including at least a dozen 787 aircraft for Korean Air Lines and some demand for 777 freighters. Airbus is meanwhile set to confirm an order for A330neo jets from Virgin Atlantic.
“We’ll have some orders flow. We anticipate some widebody orders that you’ll be hearing about through the week. But that’s not our focus for the show,” Muilenburg told reporters.
Robert Stallard of Vertical Research Partners expects roughly 800 aircraft orders at the show, but noted it can be hard to tell which are truly new, firm business or old orders, or switched models. That compares with some 959 orders and commitments at the Farnborough Airshow last year.
Some analysts pegged the likely total closer to 400.
Although slowing, a multi-year boom in airline orders is still trickling down to suppliers such as engine makers. French-American CFM International is set to announce a record order by units for over 600 engines from India’s IndiGo.
The June 17-23 show is not only about jetliner deals, but also a magnet for many of the world’s arms buyers who come to preview the latest military equipment, from anti-aircraft missiles to hotly sought cyber war-fighting capabilities.
French President Emmanuel Macron will open the show by unveiling a mock-up of a proposed new fighter as France and Germany sign a deal for its development.
Industry insiders will also weigh the merits and potential fallout of United Technologies Corp’s planned $121 billion tie-up with defence contractor Raytheon Co.
The deal would potentially upend the aerospace sector, creating a conglomerate spanning commercial aviation and defence and putting pressure on major suppliers such as Honeywell and General Electric.
Air show delegates are also watching a face-off between the United States and Iran in the Gulf. The United States blames Iran for attacks on two oil tankers in a vital shipping route that have raised fears of broader confrontation in the region.
In another political row with implications for arms firms attending the show, the United States has threatened to cancel Turkey’s participation in the Lockheed F-35 fighter jet programme over Ankara’s purchase of a Russian radar system.
Watching the show attentively is China, whose own aerospace ambitions are growing at a time when U.S.-China trade tensions are rising ahead of a possible meeting between U.S. President Donald Trump and Chinese President Xi Jinping this month.

Reference: https://uk.reuters.com/article/uk-france-airshow/boeing-crisis-trade-tensions-cast-pall-over-air-show-idUKKCN1TH0HA

Additional reporting by Cyril Altmeyerhenzien, Laurence Frost, Alistair Smout; Editing by Mark Potter and Sonya Hepinstall

Thursday, 13 June 2019

China says won't yield to any U.S. pressure over trade

BEIJING (Reuters) - China’s commerce ministry said on Thursday Beijing will not yield to any “maximum pressure” from Washington, and any attempt by the United States to force China into accepting a trade deal will fail.
China will not make concessions on matters of principle, ministry spokesman Gao Feng told reporters at a regular briefing.
Trade talks between the world’s two largest economies fell apart in May. U.S. officials said China had watered down commitments it made on issues such as stopping intellectual property theft.
Asked about U.S. President Donald Trump’s accusation that China reneged on its promises, Gao said: “Nothing is agreed until everything is agreed.”
Reporting by Yawen Chen and Ryan Woo; editing by Darren Schuettler

Wednesday, 12 June 2019

What to do with your money. Some ideas. Luxury Yachts


Richard Branson’s Necker Belle

Richard started off as a humble Christmas tree grower and seller, but his first successful business venture was his magazine Student. Today, the owner of Virgin Airlines is estimated to have a net worth of just over $5 billion. His love for sailing drove him to purchase the Necker Belle, a 105-foot yacht that housed 13 people and 5 crew members. It was sold in September of this year for roughly £3 million.


Tiger Woods’ Privacy

Ironic, isn’t it, how there is more known about Tiger Wood’s private life than there is about the Privacy, his $25 million, 164-foot yacht. Although the Privacy was gifted to his ex-wife, it returned to him after the dust settled in their divorce due to the exorbitant maintenance costs. The Privacy sports fancy dining rooms, a saloon, and a huge 50-inch plasma screen.