Category: Economy and Policy

BELO HORIZONTE, Brazil, Feb 1 (Reuters) – All evidence suggests that Brazilian miner Vale’s deadly dam burst was caused by liquefaction, the same issue that led to the 2015 collapse of the Samarco dam which is co-owned by the company, a Minas Gerais state official told Reuters.

Liquefaction is a process whereby a solid material such as sand loses strength and stiffness and behaves more like a liquid. It is a common cause for the collapse of dams holding mining waste, known as tailings, because the walls of these dams are mostly built with dried tailings which consist of a mixture of sand and clay-like mud. (Reporting by Marta Nogueira; Editing by Christian Plumb)

(Corrects estimate to $1.08 from $1.18)

HOUSTON, Feb 1 (Reuters) – Exxon Mobil Corp on Friday reported a quarterly profit that topped analysts’ estimate on higher prices and volumes for its oil and natural gas as production rose slightly on a year-over-year basis.

The company’s fourth quarter net income fell to $6 billion, or $1.41 a share, from $8.38 billion a year ago. Analysts had forecast a $1.08 a share profit excluding one-time items, according to data from Refinitiv. (Reporting by Jennifer Hiller in Houston Editing by Nick Zieminski)

Feb 1 (Reuters) – Canada’s main stock index opened higher on Friday, boosted by gains in energy companies as crude prices steadied in the midst of U.S.-China trade uncertainty.

* At 9:30 a.m. ET (14:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 3.87 points, or 0.02 percent, at 15,544.47. (Reporting by Amy Caren Daniel in Bengaluru; Editing by Shinjini Ganguli)

(Reuters) – The Dow Jones Industrial index opened slightly higher on Friday while the S&P 500 was flat after stronger-than-expected U.S. jobs data reassured investors worried about a slowdown, but losses in Amazon kept gains in check and weighed down Nasdaq.

The Dow Jones Industrial Average rose 25.64 points, or 0.10 percent, at the open to 25,025.31.

The S&P 500 opened lower by 1.78 points, or 0.07 percent, at 2,702.32. The Nasdaq Composite dropped 25.37 points, or 0.35 percent, to 7,256.37 at the opening bell.

NEW YORK, Feb 1 (LPC) – Banks are planning to relaunch a US$1.275bn hung deal backing information technology services provider ConvergeOne’s buyout by private equity firm CVC Partners this month, despite reports of a potential fraud at the company.

ConvergeOne has reported strong earnings, but is looking at a potential US$11m inventory write-down tied to potential fraud from an employee, according to press reports.

Investors are expected to support the deal as the company’s earnings far outweigh the size of the fraud, two sources familiar with the transaction said.

“It’s really not material at all when you look at the size of the company,” one of the sources said.

ConvergeOne is a global IT services provider of collaboration and technology systems for large and medium companies and helps customers to transform their digital infrastructure and realize a return on investment.

The company generated US$1.4bn of revenue in the twelve month period ending September 30, according to Refinitiv data, and third quarter revenue is 65% higher year-over-year at US$404.8m.

Moody’s expects sales of slightly below US$1.8bn in 2018, according to a November 26 note.

ConvergeOne originally launched the loan on November 28, with a commitment deadline of December 11, but the banks and CVC decided to postpone the deal to wait for better market conditions as volatility spiked across the markets.

Banks initially planned to relaunch the deal in late January but are now looking at mid-February, following an audit designed to confirm that the write-down was an isolated incident, a source said.

Investors are still waiting for the deal to relaunch, but said there has been a lot of noise following the recent reports. While US$11m may not sway a decision to invest one way or another, an explanation is needed, investors said.

“That number isn’t a big deal in the grand scheme of things, but they need a solid explanation before they relaunch,” an investor said.

The loan was pulled in December after secondary loan prices sank in the fourth quarter amid rising equity market volatility. LPC’s index of the 100 most heavily traded loans dropped to a multi-year low of 94.57 in late December after trading at 98.91 in early October. The index bounced back in January to 97.05 on January 9 and was at 96.67 on January 29.

In January, banks funded ConvergeOne’s buyout loans after CVC increased the amount of equity it was investing. This allowed the company to reduce leverage by increasing the first-lien loan to US$960m from US$925m and cutting the second-lien loan to US$275m from US$350m.

The first-lien loan was priced at 500bp over Libor while the second-lien loan priced at 850bp over Libor. The issuer had initially floated guidance of 450bp over Libor for the first-lien loan and pricing in the 825bp-850bp range on the second-lien loan.

Deutsche Bank is leading the first-lien loan while UBS is leading the second-lien portion.

MARKET TURBULENCE

ConvergeOne is not the only US deal to run into volatility in the loan market as the wider capital markets stalled in December. This prompted a pricing correction in the loan market, and some banks had to offer heavy discounts to get unsold loans off their book.

Retail investors have been fleeing leveraged loans and December saw the largest single month of withdrawals on record. In the week ending January 30, investors withdrew US$934.5m from loan funds in the eleventh consecutive week of outflows.

A US$500m term loan backing private equity firm First Reserve’s purchase of a 50% share of energy company Blue Racer Midstream also got stuck in December and is expected to be sold privately without being re-syndicated.

JP Morgan sold a US$210m term loan that was downsized from US$280m backing private equity firm Vista Global’s acquisition of aircraft firm XO Management at a deep discount of 93 in December.

Private equity firm Apollo also went to the market in late November to arrange a US$275m loan to back the acquisition of US$1bn of infrastructure assets from General Electric. This loan also got held up during syndication amid the volatility with banks funding the deal. Royal Bank of Canada, BMO and Goldman Sachs led the transaction.

Apollo allowed the transaction to be restructured and then fully paid down the loan shortly after it was issued.

“Apollo was particularly helpful given the back up in the market,” a source familiar with the deal said. (Reporting by Jonathan Schwarzberg. Editing by Tessa Walsh)

Feb 1 (Reuters) – The U.S. government’s proposal to eliminate rebates will not have a meaningful impact on Cigna Corp’s growth, Chief Executive Officer David Cordani said on Friday

“The proposed rebate rule will not have a meaningful impact on our growth or earnings trajectory,” Cordani said on a conference call with analysts.

The U.S. government on Thursday proposed a rule to end a decades-old system of after-market discounts called rebates that pharmacy benefit managers receive from drugmakers, a potential blow to companies like Cigna’s Express Scripts, which act as middlemen in the pharmaceuticals supply chain. (Reporting by Saumya Sibi Joseph in Bengaluru; Editing by Shailesh Kuber)

(Reuters) – Following are five big themes likely to dominate the thinking of investors and traders in the coming week and the Reuters stories related to them.

GONE TO THE DOGS

Investors burnt in the 2018 stock market rout will be happy to put the Year of the Dog behind them. Instead, the end of the Chinese Lunar New Year holiday will usher in the Year of the Pig, a symbol of wealth and prosperity.

The first month of the Gregorian calendar may augur well, too. The $4 trillion MSCI world stocks index just enjoyed the best start to a year since the benchmark began in 1988. The question is: Can the Pig help global equities sustain this stellar run?

Some bargain hunting and short-covering were to be expected after December’s historic rout. Hopes that the trade spat between Washington and Beijing may ease and signs of a pause in U.S. interest rate hikes also helped. But a major issue behind the selloff – China’s cooling economy – has not gone away.

What’s more, investors obsessing over whether the global economy is sliding towards recession are heading into February starved of crucial macroeconomic data that would normally guide them.

China will be shut for a week for the Spring Festival. That may drain global financial markets of some liquidity. On the data front, Beijing tends to combine some industrial activity data for the first two months to prevent a skew in the numbers.

In the United States, the 35-day government shutdown that ended a week ago has complicated the release and interpretation of macroeconomic data for the world’s biggest economy.

Brace for more black holes in spring: In an unprecedented move, Japan will close its stock and bond markets for a 10-day holiday in April to mark the ascension of a new emperor.

(Graphic: All aboard the stocks express – tmsnrt.rs/2Ba7t8X)

BOE-ING

The UK parliament’s Jan. 29 rejection of efforts to delay Brexit has subtly raised the risk of Britain leaving the EU on March 29 with no deal in place on their future relations. Most still expect a last-minute agreement. But money markets have cut the probability of a Bank of England December interest rate rise to around 55 percent, versus 62 percent a week ago.

The BOE’s Feb. 7 meeting may not offer much clarity. Rates last went up in August 2018, and the next move likely hinges on how Brexit plays out. Governor Mark Carney has been unequivocally negative about the impact of a no-deal Brexit, warning of tumbling house prices and a sterling slide that fans inflation.

Most data indeed shows a very mixed picture for Britain’s economy. GDP may grow 1.5 percent this year and inflation is just above the 2 percent target. Manufacturing is slowing and businesses are stockpiling goods. A smooth exit from the EU will see the BOE tighten policy in Q3, analysts predict. But what if Brexit is disorderly? Carney has said the BOE may not be able to rescue the economy with rate cuts and may in fact hike rates to head off a sterling slump.

(Graphic: No-deal Brexit probabilities – tmsnrt.rs/2sY1Whz)

SHUTDOWN OVER, TRUMP SPEECH ON

On Tuesday, President Donald Trump will deliver the State of the Union address before Congress – a week late after House Speaker Nancy Pelosi yanked the original invitation during their showdown over the government shutdown.

Trump looks sure to keep up the pressure for the border wall and may renew calls for infrastructure spending. Even with Wall Street focused on upcoming company results, including Alphabet and General Motors, the annual address has the potential to move markets.

While the S&P 500 rose 0.05 percent the day after Trump’s speech last year, it jumped 1.37 percent after his 2017 inaugural address, its second largest gain after the 1.51 percent rise that followed George W. Bush’s January 1991 message.

In fact, big market moves that followed State of the Union addresses in the past have tended to be downward.

Since 1965, when Lyndon Johnson gave the first televised State of the Union address, the S&P500 has fallen 1 percent or more the following day on 12 occasions. The biggest loss came after Bill Clinton’s 2000 speech when it fell 2.75 percent. The market rose more than 1 percent only four times.

Initial reactions are not necessarily telling, however. Last year Trump addressed the nation days after the S&P hit record highs so its next-day firmness was unremarkable. But no one knew a 10 percent-plus correction had begun.

(Graphic: Wall Street eyes State of the Union address – tmsnrt.rs/2TpicDM)

RATES DOWN UNDER

With China on holiday for Lunar New Year, the spotlight is on its Asian neighbors. Having enjoyed its boom, they are now enduring the fallout from its slowdown.

In Australia, a common proxy market for Chinese risk due to their trade links, China’s slowdown has translated into a run of grim economic data. Those may lead the Reserve Bank of Australia to signal at its Feb. 5 meeting that interest rates will stay at 1.5 percent until well into 2021.

Until now, the RBA has been doggedly optimistic, insisting its next rate move will be up. But recent dismal readings on the economy have led markets to scrap forecasts for a policy tightening; instead some are pricing in a cut.

The shift is unsurprising. Beijing is engaging in stimulus while the U.S. Fed has signaled a pause in rate increases. That in turn may have turned the rate-tightening tide across the rest of the world, including Australia.

(Graphic: Australia’s jobless rate not low enough to stoke wage growth, inflation – tmsnrt.rs/2t05L5W)

READY TO TURN?

Last year’s surge in global borrowing costs and the dollar got emerging markets sweating, forcing many central banks to jack up interest rates to bolster their flagging currencies. Now there are signs of relief: Net interest rate hikes across a group of 38 developing economies showed just one increase in January, compared with 11 in November.

Analysts predict India will start its policy turnaround on Thursday, shifting its stance to “neutral” with rate cuts expected by mid-year.

The Philippines meanwhile looks certain to leave rates on hold for a second straight meeting on Thursday, having paused the tightening cycle in December after five straight hikes.

Poland’s central bank is due to announce its decision on Wednesday, with Mexico, Romania and the Czech Republic scheduled for Thursday. Brazil may be the exception; it publishes its interest rate on Wednesday and could signal rate hikes in the second quarter.

(Graphic: Shifting gears – tmsnrt.rs/2CTbsIU)

LONDON, Feb 1 (Reuters) – Emerging market stocks and bonds enjoyed their best month of inflows in a year in January, raking in $51.1 billion, the Institute of International Finance (IIF) said on Friday.

Emerging bonds saw net ‘non-resident’ buying of $33 billion over the month following a $5.4 billion reading in December, thanks to investors piling into Asia and Latin American bonds, IIF said.

Stocks across developing nations pulled in $18 billion in January, $9.2 billion of which went into China, it added.

(Reuters) – The S&P 500 and the Dow Jones Industrial Average were set to open higher on Friday after stronger-than-expected U.S. job growth in January reassured investors worried about a slowdown.

U.S. stock index futures pared losses after Labor Department data showed non-farm payrolls jumped by 304,000 jobs last month, the largest gain since February 2018, handily beating an estimated rise of 165,000, according to economists polled by Reuters.

The report also showed no “discernible” impact on job growth from a 35-day partial government shutdown and came two days after the Federal Reserve signaled that its three-year interest rate hike campaign might be ending because of rising headwinds to the economy.

“The payroll number was significantly stronger than what was expected, so a lot more people are finding jobs,” said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.

“There is a huge concern about the growth rates in China and this certainly eases some amount of concern domestically.”

Data from the world’s second-largest economy showed that the manufacturing sector shrank for the second straight month in January, pointing to further strains on the economy that could heighten risks for global growth.

January ended on a high-note for U.S. markets, with the S&P 500 posting its best month since 2015, boosted by the Federal Reserve’s dovish remarks and as hopes of a U.S.-China trade deal improved. U.S. President Donald Trump said he would meet Chinese President Xi Jinping soon to try and seal a comprehensive trade deal.

At 8:57 a.m. ET, Dow e-minis were up 69 points, or 0.28 percent. S&P 500 e-minis were up 2.5 points, or 0.09 percent and Nasdaq 100 e-minis were down 26.25 points, or 0.38 percent.

Amazon.com Inc fell 4.2 percent in premarket trading after the e-commerce giant forecast quarterly sales below Wall Street estimates, overshadowing its record sales and profit during the holiday season.

Shares of Amazon, one of the most valuable U.S. companies, which have surged about 14 percent this year, dragged down the tech-heavy Nasdaq futures.

Exxon Mobil Corp’s shares jumped 1.8 percent after the company reported a quarterly profit that topped analysts’ estimates on higher prices and volumes for its oil and natural gas.

Honeywell International Inc rose 2 percent after the industrial conglomerate forecast full-year earnings in a range that was largely above analysts’ estimates.

Cigna Corp shares fell 3.9 percent after the health insurer forecast 2019 revenue and earnings below estimates.

The insurer’s shares, along with other pharmacy benefit managers, took a hit after the U.S. government proposed a rule to end the industry-wide system of rebates, which they get from drugmakers, in efforts to lower the cost of prescription drugs for consumers. CVS Health Corp fell 2.8 percent.

(Reuters) – Fiat Chrysler Automobiles NV on Friday reported a 2 percent rise in U.S. auto sales for January, helped by higher demand for its Ram pick-up trucks.

The automaker said it sold 136,082 vehicles last month, compared with 132,803 units a year earlier.