Category: Economy and Policy

(Reuters) – U.S. stock index futures inched lower on Friday, as subdued factory data from China and disappointing outlook from Amazon stalled optimism after the S&P 500 posted its best month since 2015.

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.

Factory activity was at its weakest in years across much of the world during January, adding to worries trade tariffs, political uncertainty and cooling demand posed an increasing threat to global growth.

Trade-focused Asia appeared to be suffering the most visible loss of momentum, with Caixin/Markit index of Chinese manufacturing falling to its lowest since February 2016.

Investors are hoping that a trade deal between the United States and China, engaged in a bitter tariff war, could ease some of the slowdown concerns.

January ended on a high-note for U.S. markets after the Federal Reserve pledged that it would be patient in raising interest rates further this year and U.S. President Donald Trump said he would meet Chinese President Xi Jinping soon to try to seal a comprehensive trade deal.

Markets are looking ahead to U.S. payrolls data at 8:30 a.m. ET, which is expected to show job growth slowed in January after December’s weather-related outsized surge.

Nonfarm payrolls are expected to increase by 165,000 jobs last month, according to a Reuters survey of economists, after shooting up 312,000 in December.

The jobs report comes at a time hundreds of thousands of federal workers who were furloughed are back at work following the recent partial government shutdown. The 35-day shutdown, which ended a week ago, may complicate the report but is not expected to have a lasting effect on U.S. employment or the economy.

At 7:16 a.m. ET, Dow e-minis were up 4 points, or 0.02 percent. S&P 500 e-minis were down 4 points, or 0.15 percent and Nasdaq 100 e-minis were down 38 points, or 0.55 percent.

Oil majors Exxon Mobil Corp and Chevron Corp rose slightly ahead of their results.

Honeywell International Inc rose 1.7 percent after the industrial conglomerate forecast full-year earnings in a range that was largely above analysts’ estimates.

Cigna Corp shares fell 2.7 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 after-market discounts called rebates, which they get from drugmakers. CVS Health Corp fell 2.4 percent.

(Reuters) – Aircraft parts maker Spirit AeroSystems Holdings Inc reported a 7 percent rise in quarterly revenue, helped by higher deliveries to its top customers Boeing Co and Airbus SE.

Net income rose to $177.6 million, or $1.68 per share, in the fourth quarter ended Dec. 31 from $122.8 million, or $1.07 per share, a year earlier.

Total revenue rose to $1.84 billion from $1.71 billion.

(Reuters) – Teva Pharmaceutical Industries said a European Medicines Agency (EMA) panel on Friday recommended approving migraine treatment Ajovy, a drug that the company has been counting on to revive its fortune.

Ajovy was approved by the U.S. Food and Drug Administration (FDA) in September last year and the company had said it was seeing “a very strong launch” of the treatment.

“A final decision is expected in the first half of 2019,” Teva said.

Ajovy had suffered a setback in October when Express Scripts Holding Co, one of the largest U.S. prescription benefits managers, said it will cover new migraine drugs from Eli Lilly and Amgen Inc but not from Teva.

While final approvals are up to the European Commission, it generally follows the CHMP’s recommendation and endorses them within a couple of months.

WASHINGTON, Feb 1 (Reuters) – Entities outside the United States have until April 28 to wind down their purchases of petroleum and petroleum products from Petróleos de Venezuela SA , the U.S. Treasury Department said in a notice posted early on Friday.

Americans who work for non-U.S. companies located outside of the United States and Venezuela have until March 29 to conduct “certain maintenance or wind-down transactions,” according to the notice dated Jan. 31 and posted on the department’s website overnight.

The department’s Office of Foreign Assets Control also addressed other issues related to looming U.S. sanctions on Caracas’ state-run oil company aimed at putting pressure on President Nicolas Maduro who the Trump administration seeks to oust from power.

The notice offers more details about transactions that are allowed and prohibited, and offers guidelines on bondholders’ rights regarding U.S. refiner Citgo Petroleum as well as details on what constitutes “maintenance” transactions.

U.S. officials imposed sanctions on PDVSA this week, a move Maduro has called illegal.

The global oil industry has since sought to sort out the large-scale sanctions, which froze the assets of the company and require U.S. firms to pay for oil using accounts controlled by the country’s opposition party head and self-proclaimed interim president, Juan Guaido.

U.S. President Donald Trump and his administration have thrown their support behind Guaido.

RIO DE JANEIRO (Reuters) – Brazil’s Vale knew as recently as last year that some of the areas hit by last week’s deadly mining disaster were at risk if its tailings dam burst, according to an internal Vale study published by a local newspaper on Friday.

The study seen by newspaper Folha de S.Paulo represents a fresh embarrassment for the world’s largest iron ore miner, which has come under intense pressure over the burst tailings dam at its Corrego do Feijao mine last Friday.

With 110 people confirmed dead and another 238 missing, according to a firefighters’ count on Thursday evening, the tailings dam collapse in the town of Brumadinho could be Brazil’s deadliest mine disaster.

The disaster poses a headache for the new government of far-right President Jair Bolsonaro, whose new business-friendly administration must juggle public anger over the tragedy and its own desire to ease mining and environmental regulations to kick-start growth.

The internal study reported by the paper was dated April 18, 2018, and outlined the likely impact of a collapse at the dam. It found that the mine restaurant, where many Vale workers are likely to have died when the dam collapsed, would be hit by toxic mud. Other areas where people probably died were also at risk, Folha reported.

The study envisaged that sirens would alert workers if the dam burst, but the company has said that did not happen because the mud flow destroyed them before they could sound the alarm. Two of the Vale officials responsible in case of emergencies were killed by the rupture, Folha said.

The plan also predicted that the mud flow would travel up to 65km (40 miles) from the dam.

Vale did not immediately respond to a request for comment on the report.

Folha quoted the company as saying the mining dam emergency action plan “was built based on a hypothetical rupture study”.

Vale Chief Executive Fabio Schvartsman has said the miner built its facilities to comply with regulations and that equipment had shown the dam was stable.

ASSETS FROZEN

In the wake of the disaster, Vale has said it will take up to 10 percent of its production offline and spend 5 billion reais ($1.36 billion) to decommission 10 dams.

On Thursday state labor courts froze more than 800 million reais ($219 million) of Vale’s assets as compensation for victims. That followed court orders over the weekend freezing 11.8 billion reais ($3.1 billion) in assets to cover rescue efforts and damages. The company had about 24 billion reais in cash and equivalents at the end of the third quarter.

A ministerial task force convened by Bolsonaro began drawing up a unified legislative plan to improve safety, oversight and the licensing of dams.

A person with direct knowledge of the proceedings said the proposals are likely to include executive orders and bills in Congress and take at least seven to 10 days to prepare.

Residents in the devastated town of Brumadinho were still learning of the fallout from the deadly mud flow.

The Minas Gerais state government said on Thursday that initial tests of the Paraopeba River, which was contaminated by the toxic mud, indicated that “the water poses risks to human and animal health”. It added that locals should not use Paraopeba River water for any purpose.

United Nations human rights experts on Wednesday urged an official investigation of the incident. Federal and state prosecutors have already said they are seeking to make the matter a criminal case.

After a meeting with Brazil’s top prosecutor, Vale CEO Schvartsman told journalists that he had no reason to think the company’s executives would go to prison.

Schvartsman said the company was focused on paying families as soon as possible and he had also discussed environmental issues with federal prosecutors.

(Reuters) – Oilfield services provider Weatherford International Plc’s quarterly adjusted loss narrowed from a year earlier, driven by a fall in costs.

The company said on Friday adjusted loss narrowed to $140 million or 14 cents per share in the fourth quarter ended Dec. 31, from $329 million or 33 cents per share a year earlier.

Revenue fell marginally to $1.4 billion from $1.5 billion.

SAO PAULO (Reuters) – Automaker General Motors Co is in talks to invest 9 billion reais ($2.5 billion) in the Brazilian state of Sao Paulo over the next three years in return for tax incentives, newspaper Valor Economico reported on Friday.

GM has in recent weeks warned its employees in Brazil that “sacrifices” would be necessary for the company to return to profit in the country, raising concerns about layoffs or shuttered assembly lines. Last month, the carmaker told public officials and unions it was in talks with Sao Paulo state about tax incentives.

Valor reported that GM would invest in its product line until 2022, and then the following year, the company would start to enjoy tax rebates. Valor, which also reported that GM’s losses in Brazil last year totaled 1 billion reais despite being the country’s market leader, did not specify the exact amount GM would expect to generate in tax incentives.

GM did not immediately respond to a request for comment.

Last year, Brazil’s government granted carmakers a 15-year package of tax breaks – extending subsidies for an industry that has struggled to compete directly with production elsewhere despite high import barriers.

Economy Minister Paulo Guedes, who took office as part of a new business-friendly federal government this month, has said Brazil cannot afford to keep subsidizing powerful industries, arguing that an end to protectionist policies will make the economy more competitive.

($1 = 3.6503 reais)

NEW YORK (Reuters) – While the U.S. Federal Reserve’s indication it is done raising interest rates – for now – has fueled stock gains, investors worry the U.S. central bank’s pledge is a double-edged sword and implicit confirmation of the markets’ lingering anxiety about growth.

Fed Chairman Jerome Powell said on Wednesday that U.S. economic growth is “solid” and expected to continue. But in a sharp reversal of their stance just six weeks ago, Powell said the Fed has “the luxury of patience” in deciding whether to raise rates again.

The Fed’s soothing message sent the S&P 500 up 1.6 percent on Wednesday and extended into Thursday, helping the benchmark index post its biggest January percentage gain since 1987.

But investors acknowledge that the Fed’s strongest signal yet that policymakers may have reached the end of its latest series of interest rate increases could reflect slower economic growth.

“Both the stock and bond markets applauded the Fed for its more dovish tone,” said Michael Arone, chief investment strategist at State Street Global Advisors. “If you take a step back and evaluate why they’re doing it, it’s because they’re concerned. So why shouldn’t investors be concerned?”

The U.S. bond market never fully bought into the enthusiastic tenor to risk markets, including equities, year-to-date given signs of cracks in the consumer and peaking corporate profit growth.

U.S. 10-year government bond prices are trading around the elevated levels they commanded during last month’s stock sell-off, with yields at 2.63 percent today compared with 2.69 percent on Dec. 31.

U.S.-based bond funds pulled in $16.7 billion in January, according to early estimates from the research service Lipper. Investors took $944 million out of domestic stock funds over the same period.

“The bond market always gets it before the stock market,” said Chuck Self, chief investment officer at iSectors LLC. Stocks’ sure-footedness this year may end up like 2018’s hot January rally only to peter out and end in the negative.

Three- and 5-year yields are poised to dip below the 2.4 percent effective Fed funds rate for the first time since 2006, before the global financial crisis, noted Crescat Capital LLC analyst Otavio Costa on Twitter.

Powell said there were “conflicting signals” about the economy – many of them negative – including sharply slower growth in China and Europe, Britain’s chaotic exit from the European Union, U.S.-China trade negotiations, effects of the U.S. partial government shutdown and rougher markets.

The Fed acknowledged that some market gauges of inflation have fallen in recent months, a trend more typical of growth slowdowns rather than an economy on fire.

The International Monetary Fund predicted the global economy will grow at 3.5 percent in 2019, down 0.2 percentage point from last October’s forecasts, citing weakness in Europe and some emerging markets. It puts U.S. growth at 2.5 percent this year and 1.8 percent in 2020, in both cases likely slower than 2018’s figures, which have not been finalized due to the government shutdown.

(Graphic: Fed’s Powell vs S&P 500 – tmsnrt.rs/2TqIcyK)

“We’re not favoring the U.S. market, but we’re happy to own Treasuries,” said Schroders Plc portfolio manager Angus Sippe. He said he does not see a recession on the horizon and gives the Fed an “A-plus” on its management of the economy. But he would rather take risk in emerging markets and wait for more evidence of U.S. corporate earnings growth.

Financial research service Refinitiv expects 14.9 percent earnings growth for the final quarter of 2018, but just 5.1 percent for all of 2019, leaving less margin for error if consumer and business fear translates into lower spending and investment.

Still, oil producers are working to stabilize prices, China is aggressively stimulating its economy and, as Bank of America Corp analysts said in a research note on Thursday, the Fed has shown that its commitment to supporting markets is alive and well. Those factors mean market pessimists are getting it wrong, according to Michael Jones, chairman at RiverFront Investment Group LLC.

Some investors appear to be positioning for the worst.

Futures contracts tied to Fed rates imply the Fed’s next move will be a cut. Markets are pricing in a higher probability of two cuts by next January than of a single rate hike.

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By Philip Blenkinsop and Jarrett Renshaw

BRUSSELS/PHILADELPHIA, Feb 1 (Reuters) – This Bud’s for you.

At least, that is what Anheuser-Busch InBev hopes as it strives to reach more than 100 million U.S. TV viewers during Sunday’s Super Bowl, promoting vintage brands such as Budweiser and Bud Light.

The world’s largest brewer will not say how much it is spending for nearly six minutes of commercials, but industry sources estimate it is more than $50 million. That is up from the $42 million that Kantar Media said the brewer spent for four minutes of ad time last year.

It is only part of the company’s strategy to recapture market share from craft beers and Mexican imports.

Brendan Whitworth, the head of sales for U.S. arm Anheuser-Busch, told Reuters the company would retain its big, national campaigns but also push ahead with its new strategy of tailoring brand marketing to individual American cities.

“The things we’ve started to work on this year, we’re starting to see real results. We’re looking forward to scaling up those localized programs even more,” he said.

The Super Bowl’s huge and diverse audience has makers of cars, beer and other consumer goods scrambling to create eye-catching commercials that are sometimes more memorable than the game. Budweiser this year will bring back its iconic Clydesdale horses, while telling drinkers that the beer is produced with renewable energy from wind power. Bud Light has continued its mock medieval ad series.

Driven by the need to pay off some $100 billion from its 2016 purchase of rival SABMiller, the company, which is known for acquisitions and cost savings, has made top-line growth its priority. U.S. management, overhauled in late 2017, believes it is on course to rebound in the company’s biggest market. Part of that is the local-ad focus and fresh versions of 143-year-old staple Budweiser, as well as Bud Light – available now in an orange flavor.

The two main brands make up 56 percent of its U.S. beer sales, according to market research company Euromonitor International. That is down from more than 60 percent in 2013. Whitworth, a former Marine, CIA officer and PepsiCo Inc director, said the goal is to boost the brand’s shares and eventually halt their sales decline.

AB InBev has a 36.4 percent share of the U.S. beer market, according to Euromonitor, followed by Molson Coors and Constellation Brands.

In general, mainstream lagers including Bud and Bud Light have fallen, while the shares of craft and imports have risen, according to market research group Nielsen. Drinkers have also shifted to wine and spirits.

Executives at Heineken, the world’s second largest beer maker, have said brewers need to work together to win back drinkers. Industry leaders say there still is a space for mainstream beer, which is cheaper and less caloric than many crafts.

“When (fans)are watching an NFL game, that’s a four to five hour experience… I’m not sure it’s a craft moment,” said Jonnie Cahill, Heineken USA’s chief marketing officer.

Given recent trends, Anheuser-Busch needs the equivalent of a ‘Hail Mary’ pass. Its share of beer sales in the United States, its biggest market, is set to have declined 0.50 percentage points in 2018 after a 0.75 drop in 2017. That may seem slight, but the trend is in the wrong direction.

A return to growth is not imminent.

“It’s a supertanker and it’s not going to turn on a six-pence. I think it’s going to be a slow journey,” said Trevor Stirling, a London-based beverage analyst at Bernstein Research.

AB InBev’s share of the U.S. beer market has declined every year but one since its formation in 2008, when Belgium-based InBev bought America’s Anheuser-Busch. Budweiser has steadily fallen. Bud Light’s share last rose in 2012, when it rolled out an offshoot: Bud Light Lime-A-Rita, a margarita-flavored brew with double the alcohol and calories of Bud Light.

Despite the revival, Anheuser-Busch said it has learned that the company should not stray too far from a brand’s roots.

“Those extensions, they didn’t necessarily reinforce the mother brand’s position,” Whitworth said.

The brewer removed “Bud Light” from Lime-a-Rita cans this year.

Last summer, it launched Bud Light Orange, brewed with orange peels. The product, with slightly more calories, is sweet and fruity, akin to an orange soda with alcohol, some drinkers say.

Whitworth said it was one of the industry’s most successful new products of 2018, boosting sales and margins and bringing in more female drinkers. The company hopes some Bud Light Orange drinkers will become regular Bud Light fans.

Bud Light has partnerships with 28 of the 32 NFL teams, including this season’s finalists, the Los Angeles Rams and the Boston-based New England Patriots. But its marketing efforts with them have been modest to date, including special cans showing each team’s logo.

Earlier this season, Bud Light focused on Cleveland, whose team, the Browns, was experiencing one of the longest losing streaks in the sport. When the Browns finally won, the brewer set up “victory fridges” in bars across the city. Bud Light’s share of core beer sales there grew as a result, Whitworth said.

Citing another localized effort, Whitworth pointed to Philadelphia, the nation’s sixth largest city. Bud Light offered free beer to fans of the Eagles when they won their first Super Bowl in 2018. This season the company unveiled a statue to commemorate the “Philly Special,” a trick play in which the quarterback turned receiver for a touchdown in the championship game.

Whitworth said the approach led to Bud Light sales growth of 9 percent in Philadelphia in the first half of 2018.

“They had an army of people handing out beer at the parade,” said Pete Ciarrocchi, chief of Chickie and Pete’s, a popular chain of sports bars in the Philadelphia area.

The brewer’s U.S. arm is hoping the sales boost will help build long-term loyalty.

In one potentially positive sign, Philadelphian Peter Rosa, who normally chooses regional craft brands such as Dogfish Head and Troeg, said he turned to Bud Light this season when watching his beloved Eagles.

“I have become superstitious and will only drink Bud Light during Eagles games,” he said. (Reporting by Philip Blenkinsop in Brussels and Jarrett Renshaw in Philidelphia; Richa Naidu and Kenneth Li contributed reporting; Editing by Vanessa O’Connell and Julie Marquis)

NEW YORK (Reuters) – Private equity firm KKR & Co Inc reported a 23.5 percent year-on-year rise in distributable earnings on Friday, as it sold down stakes in industrial machinery maker Gardner Denver Holdings Inc and optical retailer National Vision.

After-tax distributable earnings (DE) – the cash available for paying dividends – totaled $460.1 million for the last three months of 2018, compared with $372.6 million a year earlier, KKR said.

This bucks the trend set on Thursday by private equity rivals Apollo Global Management LLC and Blackstone Group LP, which reported year-on-year drops of 20.4 percent and 42 percent, respectively, in DE.

“We had a solid finish to a strong year, generating one of the highest distributable earnings quarters in our history,” the company’s co-chairmen and chief executives, Henry R. Kravis and George R. Roberts, said in a statement.

Under generally accepted accounting principles (GAAP), KKR reported a net loss attributable to the firm of $393 million for the quarter. Apollo and Blackstone lost $196.4 million and $10.9 million, respectively, as the portfolios of all three firms had to weather a steep sell-off in equity markets.

KKR’s earnings were helped by record revenue of $232 million at its capital markets unit, a business it has focused on expanding in recent years. The unit booked healthy fees from transactions involving two KKR deals, BMC Software and Envision Healthcare.

KKR said DE per share came in at 55 cents for the quarter, up from 45 cents a year earlier.

Its assets under management were flat at around $195 billion compared with three months earlier, with fundraising activity in the quarter partly offset by decreases in the value of its private equity and credit investments, the firm said.

The benchmark S&P 500 index suffered its worst quarter in more than seven years at the end of 2018, a blow to private equity firms which use public peers to value their private investments.

Assets under management at Apollo and Blackstone rose during the quarter.