Friday, December 30, 2016

Friday, December 30, 2016, Morning Global Market Roundup: Asia Stocks To End 2016 On Buoyant Note, Euro Calms After Early Spike

By Nichola Saminather
Reuters
December 30, 2016

Asian stocks looked set to end 2016 on an upbeat note, while profit-taking weighed on the dollar and the euro held near a two-week high after spiking early in the day.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.5 percent on Friday, diverging from Wall Street, which posted slight declines overnight.

Europe's STOXX 600 index also closed lower as appetite for risk remained subdued ahead of the new year. British stocks posted gains of 0.2 percent.

In a year marked by major political surprises, including Brexit in June and the unexpected election of political novice Donald Trump as U.S. President in November, Asia Pacific ex-Japan stocks are poised to record a 3.8 percent gain.

Despite the modest figure -- the Dow Jones Industrial Average, in contrast, is up a whopping 14 percent -- that is the Asia-Pacific index's best performance in four years and follows two years of losses.

Thailand, with an almost 20 percent gain, is set to be the region's best-performing major market, followed by Indonesia, which has surged almost 16 percent. China looks to be the laggard with a loss of about 12 percent. Malaysia, down 3.4 percent, and the Philippines, down 1.6 percent, were the only other markets poised to post losses for the year.

Japan's Nikkei .N225 retreated 0.4 percent on Friday, erasing most the year's meager gains and set to end the year flat. That is its worst performance in five years, with the index slammed by the safe-haven yen's 22 percent surge from the start of 2016 to its peak after the Brexit vote.

The Japanese currency has fallen almost 15 percent since that peak -- with most of the losses since November driven by a surge in the dollar, reflecting exuberance over Trump's anticipated stimulatory policies -- but is still set for a 3.5 percent gain versus the dollar this year.

"2016 has been a year of changes and these changes had hardly been slight," Jingyi Pan, market strategist at IG in Singapore, wrote in a note. "A preference for safe haven assets to tide through the year end have set in, with gold and yen taking off."

The greenback, which has soared 10.5 percent against the yen since before the election results were announced, was last down 0.2 percent at 116.44 yen JPY=D4, extending a 0.5 percent slump seen overnight.

The dollar index .DXY, which tracks the greenback against a basket of six major global peers, dropped 0.35 percent to 102.28 on Friday, following a 0.6 percent slide on Thursday. It is poised to end 2016 3.7 percent higher.

The euro EUR=EBS jumped as much as 2 percent early on Friday, its biggest intraday gain since Nov. 8, before settling back down to trade 0.6 percent higher at $1.0527.

"It's a really thin market today, and suddenly, offers disappeared and short-term players pushed the euro higher and took out stops. That's all," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo.

The common currency is still down 3 percent for the year.

The Chinese yuan CNY= is on track to end the year weaker. The dollar has strengthened 7.1 percent versus the Chinese currency, even though China has been selling the dollar to defend the yuan, sending its stock of U.S. government debt to the lowest in more than six years in October.

U.S. bond yields, which had been climbing since the U.S. election on expectations of higher interest rates, have reversed course over the past two weeks as investors have sought shelter from risk. They were at 2.4659 percent on Friday, slightly above a two-week low touched overnight.

Gold held near a two-week high, basking in its safe haven status amid the broad pull-back in risk.

Spot gold XAU= edged up 0.1 percent to $1,159.31 an ounce, adding to its 1.5 percent surge on Thursday. It is headed for a 9.3 percent jump this year, snapping a three-year losing streak.

Oil prices inched up after sliding on Thursday in their first day of losses this week, after a rise in U.S. inventories caught markets off guard.

U.S. crude CLc1 added 0.2 percent to $53.84 a barrel on Friday, after falling 0.5 percent on Thursday. It is on track for a 46 percent surge this year, recovering all of its 2015 losses.

Brent crude LCOc1 jumped 1.2 percent to $56.83, despite a paltry 0.1 percent loss on Thursday. It is headed for an eye-watering 51 percent gain this year, almost back to where it was at the start of 2015.


Article Link To Reuters:

Britain Avoids M&A Collapse As Foreign Buyers Go Brexit Bargain Hunting

By Pamela Barbaglia and Guy Faulconbridge 
Reuters
December 30, 2016

Britain avoided a collapse in mergers and acquisitions activity after the shock Brexit vote as foreign companies used sterling's spectacular devaluation against the U.S. dollar to snap up British companies, Thomson Reuters data shows.

British M&A totaled $177.5 billion in 2016, down sharply from the record $394.8 billion reached in 2015 - a year when the UK data was skewed by two of three biggest global deals - but was in line with the longer 5-year trend.

Total annual mergers and acquisitions values averaged $139.3 billion for the five years to the start of 2015. Britain also retained its place as the third largest M&A market after the United States and China.

Behind the headline numbers, there was another clear trend: foreign buyers - such as Rupert Murdoch's Twenty-First Century Fox (FOXA.O) - shopping with dollars for bargains while domestic UK-to-UK dealmaking fell off sharply.

"Brexit should never have been talked up as an Armageddon moment for UK M&A, especially with such a sharp devaluation in the currency which has clearly been a stimulus for overseas buyers," Tim Gee, London-based M&A partner at law firm Baker & McKenzie, told Reuters.

"Much of the activity in 2016 was skewed toward foreign buyers with less UK-to-UK activity," Gee said. "Total activity levels were not really knocked that much by Brexit but who was doing the buying did shift - deal values in 2016 are very similar to the historical trend."

Inbound M&A was $143.7 billion, again down from 2015 but way above the $85.9 billion annual average for the 5 years to 2015, while domestic M&A was $33.7 billion, down from an average of $53.4 billion over the same period.

There were just 1,355 domestic deals - the lowest figure in nearly two decades of Thomson Reuters data.

2015 was a record year for dealmaking involving UK-listed companies thanks to a series of jumbo deals including Anheuser-Busch Inbev's (ABI.BR) $110.3 billion acquisition of SABMiller and Shell's (RDSa.L) $53 billion merger with BG Group.

Brexit 'Armageddon'?


The June 23 vote took many investors and chief executives by surprise, triggering the deepest political and financial turmoil in Britain since World War Two and the biggest ever one-day fall in sterling against the dollar.

On the day of the vote, sterling traded above $1.50 but is now trading below $1.23 and fell below $1.15 at one point in October.

While opponents of leaving the EU had warned that the United Kingdom's economy would stall and investment stop if voters opted to exit, the data since the Brexit vote has shown the economy was resilient.

Just a week after Theresa May entered Downing Street to replace David Cameron as British prime minister, Softbank (9984.T) founder Masayoshi Son made a $30.7 billion move for UK-based chip designer ARM Holdings.

"I am one of the first people to bet with a big size on the UK after Brexit," Son, who is ranked by Forbes as Japan's second richest man with a $14.9 fortune, told reporters in London at the time. "Talking is easy. I am proving it . . . This is my big bet."

The second biggest deal of the year was struck by Murdoch: a $14.6 billion deal to buy European pay-TV firm Sky (SKYB.L).

People familiar with the matter told Reuters the American media corporation pounced after the Brexit vote sent the pound down against the U.S. dollar and Sky's share price tumbling.

"The worst predictions surrounding Brexit and its potential impact on our economy have so far failed to materialize," Derek Shakespeare, co-head of UK M&A at Barclays, told Reuters. "With the weaker pound UK businesses have become 10 to 20 percent cheaper."

"But the devil is in the detail: we have several years ahead of us to understand what the trading relationship with the EU will look like. So there’s a degree of caution when looking at transactions in Britain," he said.

"Brexit Means Brexit"

Goldman Sachs (GS.N) , the world's top dealmaker, was top again in Britain's league tables, followed by JPMorgan (JPM.N) and Lazard (LAZ.N) which rose to third place in Britain above Deutsche Bank, UBS, Centerview Partners LLC and Morgan Stanley (MS.N), Thomson Reuters data showed.

"Geopolitical events such as Brexit have impacted CEO confidence for deal-making over the first part of the year and through the summer," said Gilberto Pozzi, co-head of global M&A at Goldman Sachs.

"We are now seeing a rebound in M&A activity although boards remain quite cautious in reviewing the opportunities and the pros and cons of M&A transactions," Pozzi said.

Barclays' Shakespeare said many private equity funds have recently sold assets and cashed out of high multiples thus boosting their ability to raise funds.

So what will happen in 2017?

Baker & McKenzie's Gee said he expected low levels of activity among financial institutions and basic materials, resources and commodities while M&A hot spots would include technology, innovation and healthcare.

"It will be a mildly better performance next year than this years with overall uptick in deal value," Gee said. "There is a limit to how long you can sit on your hands."

Prime Minister May, who has repeatedly used the example of Softbank's ARM purchase as evidence that investors are confident in Britain, has promised to trigger formal Brexit talks by the end of March.

But May has given few details about what sort of exit deal she will seek to negotiate.

"Investment coming into the UK is down amid uncertainty around Brexit and that uncertainty will linger into next year," said Dwayne Lysaght, head of UK M&A at JP Morgan.

"That said, I think uncertainty is becoming the new norm, and the fundamentals for dealmaking remain intact," he said.


Article Link To Reuters:

Bankers Cautious On Outlook For Global Equity Deals After 2016 Slide

By Dasha Afanasieva
Reuters
December 30, 2016

Global equity raising fell by more than a quarter in 2016, data showed on Friday, hit by geopolitical shocks and a string of failed initial public offerings (IPOs), with the outlook for 2017 looking shaky.

Companies raised $648.9 billion in equity during 2016, against $873 billion last year, Thomson Reuters Equity Capital Markets (ECM) data up to Dec. 28 showed.

Money raised from IPOs was down by almost a third at $130.6 billion despite equity indices touching record highs in the latter stages of the year.

"The markets were volatile this year. There were times when IPOs got launched but didn't get done, and there were also fewer rights offerings," said Achintya Mangla, head of ECM in Europe, Middle East and Africa (EMEA) at JP Morgan (JPM.N), which topped the league table for global equity offerings and IPOs.

"2017 will continue to be uncertain and volatile and I'd expect IPO volumes will be in line with this year."

Mangla added that, though he does not expect IPO activity to rise, there could be higher overall ECM volumes with a potential increase in rights issues and acquisition-related financing.

The year's biggest IPO, for Postal Savings Bank of China (1658.HK) in September, was priced at the lower end of an indicative range and traded flat before falling more than 10 percent.

Share price falls following two big European IPOs -- payments company Nets (NETS.CO) and energy business Innogy (IGY.DE) -- put investors on edge, resulting in bankers being unable to drum up sufficient support for a string of other listings in the final quarter of 2016.

Market volatility was blamed for some of the canceled listings, which normally require a window of at least four weeks to complete. In Europe, IPOs more than halved in volume terms compared with 2015.

That could continue in 2017, with elections in France, Germany and the Netherlands, as well as Britain formally triggering the process of leaving the European Union, expected to limit the number of suitable windows to launch IPOs.

Waiting In The Wings


However, preparations are under way for a number of big deals that could help to lift ECM activity in the coming year.

Telefonica (TEF.MC) has hired UBS (UBSG.S), Morgan Stanley (MS.N) and Barclays (BARC.L) as global coordinators to list its British mobile business O2, which could fetch about 10 billion pounds ($12.2 billion).

A planned IPO of Siemens' (SIEGn.DE) healthcare subsidiary and a capital raising by Bayer (BAYGn.DE) to finance the acquisition of Monsanto (MON.N) could also be big-ticket deals.

Italy's UniCredit (CRDI.MI), meanwhile, plans to raise 13 billion euros ($13.6 billion) in the country's biggest share issue to shore up its balance sheet and shield itself from a broader banking crisis.

Credit Suisse (CSGN.S) aims to list its domestic operation to raise a sum that could reach as high as 4 billion Swiss francs ($3.9 billion) and Deutsche Bank (DBKGn.DE) is said to be exploring options to beef up its capital.

There is also the potential that messaging app Snapchat's decision to file for an IPO could persuade other technology businesses to head for public markets.

"Tech companies have been able to achieve very attractive valuations in the private markets, but some of the heat has come out of the private funding arena and the IPO route is looking more attractive," said Tom Johnson, Barclays' co-head of equity capital markets in EMEA.

"If a few large tech company IPOs go well in the United States, we would hope to see more here, too."

However, some bankers cautioned against taking investors' apparent rotation toward equities and away from fixed income as a guarantee for easy share issues.

"It might look like a bull market, but investors will still be selective," Johnson said.

"Market performance has been mixed this year so there is some caution and valuations have to reflect that."


Article Link To Reuters:

Oil Prices On Track For Greatest Yearly Percentage Gain Since 2009

By Mark Tay
Reuters
December 30, 2016

Oil prices are on track for their biggest annual percentage gain since 2009 on the back of an agreement struck between OPEC and non-OPEC countries to cut crude production output.

U.S. benchmark West Texas intermediate (WTI) CLc1 crude futures were up 15 cents or 0.3 percent at $53.92. Brent front-month March crude oil futures LCOc1 were 14 cents a barrel or 0.3 percent higher at $56.99.

Brent futures have risen about 53 percent this year while WTI futures have climbed around 46 percent. The 2016 gains in the oil market were the best since the 2009 rally, when Brent and WTI rose 78 percent and 71 percent respectively.

In a sign that producers are adhering to an agreed production cut, Oman notified some of its term customers that it will cut term allocations by 5 percent in March, but did not state if the reduction in supply would continue after that.

The market also shrugged off an unexpected increase in U.S. crude inventories USOILC=ECI, which rose 614,000 barrels in the week to Dec. 23, U.S. Energy Information Administration (EIA) data showed. Analysts had expected a decrease of 2.1 million barrels in the period.

Still, the rise in crude stocks in the EIA data was significantly smaller than in Wednesday's American Petroleum Institute (API) data that indicated a 4.2 million barrel build in U.S. crude oil stocks in the same period. []

"Today's Department of Energy report was positive for light products due to draws in gasoline and distillate inventories compared to consensus' build expectations," British bank Barclays said in a note.

Gasoline stocks USOILG=ECI fell 1.6 million barrels, compared with analysts' expectations in a Reuters poll for a 1.3 million-barrel rise.

The market is likely to have focused on the surprise draw in product stocks and taken a slightly more bullish view towards the WTI contract, traders said.

Oil prices will gradually rise towards $60 per barrel by the end of 2017, a Reuters poll showed on Thursday, with further upside capped by a strong dollar, a likely recovery in U.S. oil output and possible non-compliance by OPEC with agreed cuts.


Article Link To Reuters:

Oil In 2017 Seen Capped Below $60/Barrel By Strong Dollar, U.S. Shale

By Vijaykumar Vedala
Reuters
December 30, 2016

Oil prices will gradually rise toward $60 per barrel by the end of 2017, a Reuters poll showed on Thursday, with further upside capped by a strong dollar, a likely recovery in U.S. oil output and possible non-compliance by OPEC with agreed cuts.

Brent crude futures will average $56.90 a barrel in 2017, according to 29 analysts and economists polled by Reuters. The current forecast is marginally lower than the $57.01 forecast in the previous survey.

However, average Brent prices are expected to improve with each subsequent quarter, starting with $53.67 in the first, to $56.51 in Q2, $58.69 in Q3 and $59.78 in the fourth quarter. Brent has averaged about $45 per barrel so far this year.

"Crude prices should trade most of the time above their 2016 average. A stronger upside potential should become evident especially in the second half when the market fundamentals will record a significant improvement (under the assumption of strong compliance to the OPEC deal)," said Intesa SanPaolo analyst Daniela Corsini.

Earlier this month, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices that overstretched many budgets and spurred unrest in some countries.

While the Organization of Petroleum Exporting Countries (OPEC) has agreed to reduce output by 1.2 million barrels per day from January 1, 2017, producers from outside the 13-country member group agreed to cut production by 558,000 barrels per day.

"We expect the deal to only be partly implemented, many of the non-OPEC countries are likely to renege as are many of the smaller OPEC members, but cuts should still be large enough to help rebalance the market," said Capital Economics analyst Thomas Pugh.

An acceleration in the market rebalancing could be achieved and the process could be completed by mid-2017 if the oil producers group sticks to the terms of the historic agreement, analysts said.

However, an increase in U.S. shale production, a stronger dollar in the wake of expected interest rate hikes by the U.S. Federal Reserve and easing of geo-political tensions in Libya and Nigeria could limit any major gains in oil prices, they added.

"A broad risk for the recovery of oil prices is the U.S. dollar, which has risen to multi-year high levels... The greenback will eventually mount pressure on oil prices and may curb any gains seen from tighter fundamentals," said Giorgos Beleris, analyst at Thomson Reuters Oil Research and Forecasts.

The poll forecast U.S. light crude will average $55.18 a barrel in 2017. WTI has averaged about $43.38 so far in 2016.

Raymond James had the highest 2017 Brent forecast at $83 per barrel, while GMP FirstEnergy had the lowest at $44.90.


Article Link To Reuters:

U.S. Refiners Export Record Amounts Of Gasoline, Diesel

By Patti Domm
CNBC
December 30, 2016

The U.S. last week exported a record 8 million barrels of gasoline and nearly 10 million barrels of distillates, or diesel, according to weekly government data released on Thursday.

U.S. refined product exports have been growing as refineries run at high levels and the U.S. has been oversupplied with gasoline and crude oil. Analysts said a big chunk of the exported fuel probably went to Mexico and destinations in South and Central America.

"We have never exported more gasoline and distillates than we did last week. ...The total amount of exports is huge. There's no doubt about it that it's a record," said Tom Kloza, head of global energy analysis at Oil Price Information Service.

The 1.1 million barrels of gasoline exported per day, rose from 795,000 barrels a day the week earlier and 472,000 barrels a day at the same time last year, according to weekly data from the Energy Information Administration.

Final detailed data on December exports will not be available for several months. October data should be available next week. Distillate exports totaled 1.4 million barrels a day last week, up from a four week average of about 1.2 million barrels a day.

"The export markets are taking what the domestic demand doesn't need, and it's good for refiners on the Gulf Coast…from that stand point it's helping refining margins," said Andrew Lipow, president of Lipow Oil Associates. He said there is strong demand in Mexico and the Caribbean at this time of year.

Kloza said Mexico has increasingly become a destination for U.S. gasoline exports, as refineries there are far less efficient and run at about 50 percent capacity compared to closer to 90 percent in the U.S.

"They're just across the Gulf of Mexico. We've added two million barrels a day of [refining] capacity to the U.S. in this century," he said. "If it weren't for gasoline exports - and the highest months for exports can be December and January - we'd be looking to match that big inventory buildup we had last January." Kloza said supply peaked last winter at about 258 million barrels.

Mexico exports its heavier crude to the Gulf Coast for refining. In September, just over 500,000 barrels a day of Mexican crude was sent to the U.S.

"Traders at the Gulf Coast...keep talking about the tremendous gasoline demand to move to central and South America," Kloza said. Spot gasoline in the Gulf Coast is just four cents under the futures price, but it's typically more like 20 or 25 cents under, he said.

"There's clearly a lot of demand for Gulf Coast gasoline. The difference maker is exports. I think Mexico is probably 40 to 50 percent of it."

He expects January demand for gasoline in the U.S. to be weak. U.S. retail gas prices were at a national average of $2.303 per gallon of unleaded Thursday, according to AAA. Kloza said the annual average has been $2.12 per gallon in 2016.

"I think domestic demand is incredibly lumpy," he said.

He said the U.S. is not adding any more refining capacity next year. "Every previous year we've been adding several hundred thousand barrels of capacity. The fact is there's about 1.9 million barrels a day of global capacity being added, most of which is in the Middle East and southeast Asia. It's not in the Western Hemisphere."

The refining industry has been concerned about a proposed border adjusted tax that could tax imports, such as crude, but not exports of U.S. product. The tax is currently included in the proposed House corporate tax overhaul plan, but it is far from clear whether there would be exemptions or that it will even make it into the final plan.

"It may be that the Saudis and other parts of the Middle East become a supplier for Latin American destinations. For now, it's a brisk export market. How will the macro economic decisions of Donald Trump impact South America? That could have a great impact on refiners here," said Kloza.


Article Link To CNBC:

Battered Toshiba Out Of Easy Options To Plug Nuclear Hole

By Makiko Yamazaki and Taro Fuse
Reuters
December 30, 2016

Faced with the prospect of a multi-billion-dollar writedown that could wipe out its shareholders' equity, Japan's Toshiba is running out of fixes: it is burning cash, cannot issue shares and has few easy assets left to sell.

The Tokyo-based conglomerate, which is still recovering from a $1.3 billion accounting scandal in 2015, dismayed investors and lenders again this week by announcing that cost overruns at a U.S. nuclear business bought only last year meant it could now face a crippling charge against profit.

Toshiba says it will be weeks before it can give a final number, but a writedown of the scale expected - as much as 500 billion yen ($4.3 billion), according to one source close to Toshiba - would leave the group scrambling to plug the financial hole and keep up hefty investments in the competitive memory chip industry, which generates the bulk of its operating profit.

Shareholder equity, which represents its accumulated reserves, stood at 363.2 billion yen at the end of September, already just 7.5 percent of total assets.

Toshiba cannot raise cash by issuing shares because of restrictions imposed by the stock exchange after last year's scandal. One source close to the matter said Toshiba had been considering a share issue of around 300 billion yen, but the imminent lifting of those restrictions are now unlikely.

Private equity funding could be an option, but financial sources and investors said Toshiba would likely be forced to sell off more assets and stakes, months after having sold its two most easily marketable businesses: white goods and medical devices.

"Toshiba's immediate problem is that it is burning cash at an alarming rate, and this will be more than challenging," said Ken Courtis, chairman of Starfort Investment Holdings.

"I see little option but to sell a slew of non-core assets."

Its loss-making PC and TV businesses would be poor candidates for sale, while its many cross-shareholdings are unlikely to fetch enough.

"Toshiba doesn't have many saleable assets in hand," Standard & Poor's analyst Hiroki Shibata said after the ratings agency downgraded Toshiba.

"It has mostly sold assets which have big price tags or that could easily find buyers already. It would be difficult to secure big funds through asset sales."

One source in the semiconductor industry said Toshiba could revive plans to list a slice of the memory chip business, which though highly profitable burns through cash for reinvestment.

"Toshiba will probably need to sell 30-40 percent of the NAND business in an IPO to secure enough cash," the source said, adding China's aggressive drive into NAND flash memory chips could make the timing reasonable.

The group has already said it could reconsider the "positioning" of its nuclear business, deemed core last year, and has signaled it could trim an 87 percent stake.

Toshiba has said it will consider a capital strategy, but has given no details.

Cash Gap


For now, creditor banks are expected to step into the liquidity breach, betting on Toshiba's growing chips business - though they were blindsided by the news and expressed concerns over continued governance and disclosure issues.

Some bankers had been on a factory tour with Toshiba on the day before the announcement, two of the banking sources said. They were told about the writedown that night.

Two days later, Toshiba's top executives, including Chief Executive Satoshi Tsunakawa, were asking for help.

"We really need a proper explanation of how, and to what extent, President Tsunakawa came to know of this," said an executive at one of Toshiba's regular bankers.

"It just defies common sense that this would come out only now about a deal done a year ago."

Just last month, Toshiba raised its annual profit forecast, thanks to strong demand for its NAND flash memory chips.

Bankers and analysts said the latest shock should at least push Toshiba to resolve long-standing headaches like its poor disclosure and governance, and could force it to offload some cross-shareholdings.

One Toshiba shareholder estimated that the book value of all its cross-shareholdings would be about $3.2 billion, and it could get more than that based on past experience.

Sale options would include its roughly 50 percent stakes in Toshiba Plant Systems and Services and Toshiba Tec (6588.T), both worth around $670 million at current market prices, according to Thomson Reuters data.

"If the company wants to survive, it needs to go through a 'scrap-and-build' process," said Norihiro Fujito, senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

"Right now, even if banks are assisting, it’s like they are throwing their money down the drain."


Article Link To Reuters:

Not Everyone Wants To Shop On Amazon

Roughly 22 million U.S. households didn’t use the retailer this year.


By Sara German and Laura Stevens
The Wall Street Journal
December 30, 2016

As a 26-year-old assistant brand manager living in Brooklyn, Chris Outwater leads a comfortable life.

He doesn’t need cable to keep up with his favorite shows, like “The Walking Dead,” which he watches on Netflix. When he needs a taxi, he uses his smartphone to fetch an Uber. He books his travel on Google Flights.

One modern convenience that Mr. Outwater doesn’t use is Amazon, since he has plenty of stores near his home and office and no easy way of receiving packages at his apartment. “I live by myself, with no roommate and no doorman,” he said. “If I need something, I’d rather just go get it myself.”

Mr. Outwater is among the 17% of U.S. primary household shoppers who say they never shop on Amazon, according to data from Kantar Retail ShopperScape. While the percentage has steadily declined over the past five years, roughly 22 million American households didn’t use the retailer this year.

Those Amazon holdouts tend to be older than U.S. shoppers overall, with an average age of 57 versus 49, respectively, according to Kantar, and they tend to earn less—$45,700 in annual income, compared with $62,800 among all shoppers. They are less likely to have or live with children.

In interviews with The Wall Street Journal, shoppers across the U.S. who abstain from Amazon gave a variety of reasons. For some it was their income or living situation, for others it was simply their preference or convictions.




But whatever their reason, they are part of a shrinking minority. ​Amazon’s global e-commerce sales are greater than the combined e-commerce sales of the next 20 U.S. retailers, according to eMarketer. In addition, Amazon’s revenue is forecast to surge 28% this year to $137 billion, according to analysts surveyed by Thomson Reuters.

Amazon didn’t respond to requests for comment.

Some 80% of U.S. adults had either a smartphone or a home broadband subscription in 2015, according to Pew Research. Lack of access to web-enabled devices, or living in places where it is difficult to receive packages, are key reasons people avoid e-commerce, said Stefan Weitz, chief strategy officer at retail technology provider Radial.

“There’s still a decent amount of fear and mistrust with the web,” Mr. Weitz said. “And 80% of consumers still want to go to browse and shop in-store.”

That includes people like Eb Richardson, 28, a Los Angeles resident who prefers shopping for books—the product category where Amazon first made its name—in stores rather than online. Even though the retailer now has a much wider selection, Amazon still rarely crosses her mind.

“I never think of Amazon if I have to buy something,” she said. “I’m in my car so much in L.A. anyway that if I have to pick up something, then I get it on my way home.”

Mary Gay Sims, 75, has upgraded to texting from email. She’s on Facebook, too. But she isn’t much of an online shopper.

The retired elementary-school teacher in Panama City, Fla., said she shopped on Amazon once to buy a book written by a friend. “It was a long time ago, and it was quick and easy,” she said.

“I guess at my age, I just like to go to the store and pick out my stuff. That’s why, if I’m so inclined to get something, that’s the first place I go,” Ms. Sims added.

The rationale for not shopping on Amazon is divided into two different categories: logistical and preferential, according to David Bell, professor of digital marketing and e-commerce at the Wharton School.

“Internet connectivity is a necessity, and there’s a fraction of the economy that’s locked out because of the digital divide,” he said. On the other hand, for those who shop online but avoid Amazon, “that’s more unusual because Amazon has such a wide selection.”

Seanna Tucker, a 26-year-old content strategist in St. Louis, said she had never been a big Amazon shopper, but decided to avoid it on principle a couple of years ago after a dispute between Amazon and publishers over book pricing. Instead she shops at Target, Whole Foods and locally owned shops—although she does use Amazon Prime Video.

In recent years, both Amazon and its competitors, like Wal-Mart Stores Inc., have worked to bring more shoppers online and boost sales with membership programs, like Amazon Prime, which provides perks like video streaming and free, fast shipping for an annual fee of $99.

Although Amazon hasn’t reported how many customers are Prime members, analysts estimate there are more than 50 million. Those customers typically spend more than double their non-Prime counterparts on the retailer’s site, according to analysts.

Meg Hoehn, a mother of two and teacher in Minneapolis, said she and her husband used to have a student membership to Amazon Prime but decided against renewing it, in part to become more financially responsible.

“We bought a ton of stuff on there… It was too convenient and too easy,” she said. “We spend less money because we don’t have Prime anymore.”

Now she is more likely to shop at a nearby Target or other local shops. She estimates about 70% of her shopping takes place in stores now, compared with more than half on Amazon when she had a Prime membership.

The company is broadening its approach to attract offline shoppers, opening its first Amazon Go location this month to employees as it considers other grocery-store formats for an expansion into brick and mortar.

While Amazon’s vast selection is one of its selling points, for shoppers like Ms. Richardson of Los Angeles, it can be a deterrent.

When looking for a rice cooker for her brother, she checked on Amazon, where she found more than 50 options. Instead, she headed to Target, where they carried fewer varieties. She quickly picked one and checked out.

She doesn’t have anything against Amazon, she said. “For me it’s just sort of like a personal thing. Not a vendetta.”


Article Link To The Wall Street Journal:

Amazon Looks To The Sky To Store Products

By Laharee Chatterjee
Reuters
December 30, 2016

Amazon.com Inc (AMZN.O) has filed for a patent to use airships to store products and serve as a base for delivery-drones.

The patent application was filed two years ago but was spotted only on Wednesday by Zoe Leavitt, an analyst at technology data and research firm CB Insights.

According to the patent filing, drones launched from the so-called "airborne fulfillment centers" (AFCs) would use far less power than those launched from the ground.

The AFCs would hover at about 45,000 feet (13,700 meters) and be restocked and resupplied by "shuttles or smaller airships." bit.ly/2ihP1AU

Amazon, which was not immediately available for comment, has laid out plans to start using drones for deliveries next year.


Article Link To Reuters:

Gold Lures Investors Worried About Trade Wars And Trump Tweets

Bullion price seen jumping 12% in 2017, analyst survey shows; 140-character missives by president-elect signal new paradigm.


By Eddie Van Der Walt, Luzi-Ann Javier, and Ranjeetha Pakiam
Bloomberg
December 30, 2016

The Donald J. Trump era is marking a new age for gold as an investor safe haven.

While the precious metal has always been hoarded in times of trouble, a bevy of political and economic surprises in 2016 sparked a surge in buying that sent bullion to the first annual gain in four years. Prices may rally 12 percent in 2017, according to a Bloomberg survey of 26 analysts.

Fueling the bullish outlook is the risk of chaos on multiple fronts: a possible trade war from America’s fraying relationship with China, the alleged Russian hack of U.S. political parties, the U.K.’s complicated exit from the European Union, and elections slated in France, Germany and the Netherlands that may see a rise of nationalist groups. And then there are Trump’s frequent Twitter posts, in which the U.S. president-elect feuded with rivals and made declarations that unsettled allies even before he takes office Jan. 20.

“140 characters of unfiltered Trump is likely to create tensions with America’s largest trading partners,” Mark O’Byrne, a director at broker GoldCore Ltd. in Dublin, said by e-mail. “Markets that are already shaken by the fallout from Brexit, the coming elections in Europe and indeed the increasing specter of cyber warfare could again see a safe-haven bid.”



Gold for immediate delivery is up 9.5 percent this year to about $1,162 an ounce, halting a three-year slide. More than two thirds of the analysts and traders surveyed from Singapore to New York said they were bullish for 2017. The median year-end forecast was $1,300, with the year’s peak seen at $1,350. Two, including O’Byrne, said the metal may reach $1,600.

Demand for bullion would get a boost if elections in Europe see gains by anti-establishment parties, according to Commerzbank AG analysts led by Eugen Weinberg. Increased protectionist policies and the potential for a trade war between Trump’s administration and China may also help push gold higher, they said.

In a growing number of countries, “there are nationalistic tendencies, more isolationist tendencies,” said Peter Marrone, the chief executive officer of Toronto-based Yamana Gold Inc., which owns mines in Canada and South America. “That will create geopolitical and socio-economic volatility, perhaps instability, certainly risk.”

That doesn’t mean there aren’t reasons to be bearish. After starting 2016 with the biggest first-half rally in four decades, prices fell from their peak in July and investors have cut back on bullion holdings. That was mostly because an improving U.S. economy and higher interest rates made other assets more attractive, including equities.

Four of the analysts in the Bloomberg survey predicted bullion would drop below $1,000 in 2017, particularly if the Federal Reserve raises interest rates three times next year and Trump makes good on his pledge to boost infrastructure spending to spur economic growth. Since the U.S. election on Nov. 8, holdings of the metal in exchange-traded funds -- which had reached a three-year high in October -- have dropped for 33 straight days, the longest slide since 2004, according to data compiled by Bloomberg.



Goldman Sachs Group Inc. analysts said in a note Nov. 21 that the bulk of new investments in gold-backed ETFs are losing money and that further selling in ETFs could exacerbate price declines. Citigroup Inc. also cited downside risks from a potential selloff in gold ETFs, while Bank of America Merrill Lynch said the metal is in the doldrums as the economic policy outlined by Trump push rates higher.

Singapore-based Oversea-Chinese Banking Corp.’s Barnabas Gan, an economist whose prediction was the most accurate among gold forecasters tracked by Bloomberg in the third quarter, sees the metal falling to $1,100 by the end of 2017.

Wild One


Still, signs of optimism remain. A poll by Bloomberg Intelligence on Nov. 10 showed 42 percent of respondents predict gold will be the best-performing metal in 2017. Ronald Stoeferle, managing partner at Incrementum AG and the most-accurate among the precious-metals forecasters tracked by Bloomberg last quarter, said the metal will rally to $1,422 because the Fed may turn out to be more dovish than expected, which would mean an acceleration of inflation that boosts the appeal of gold.



“Gold is mania-prone, both on the upside and the downside,” said Christopher Cruden, who oversees $350 million as chief executive officer of Insch Capital Management in Lugano, Switzerland. His gold fund is up 39 percent this year. “It’s irrational, but that could be used to your advantage,” Cruden said. “If you are on the right side of the irrationality, you can do well.”


Article Link To Bloomberg:

As Mortgage Rates March Higher, A Few Reasons Not To Panic

Even with a big end-of-year jump, mortgage rates throughout 2016 were the lowest on record.


By Andrea Riquier
MarketWatch
December 30, 2016

Rates for home-purchase loans rose for the ninth straight week and have been accelerating since the presidential election, to account for the steepest increase since the 2013 “taper tantrum” sent bond yields surging.

The 30-year fixed-rate mortgage averaged 4.32% in the latest reporting week, up two basis points from a week earlier, mortgage finance provider Freddie Mac said Thursday.

Rates have skyrocketed 85 basis points since early November. They had not crept up by that much since a Treasury yield surge, and subsequent spike in mortgage rates, some three years ago when the Federal Reserve attempted to gently wean financial markets off easy policy by tapering its bond purchases.

The 15-year fixed-rate mortgage averaged 3.55% in the latest reporting period, up from 3.52%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 3.30%, down two basis points during the week. A basis point is one hundredth of one percent. Those rates don’t include fees associated with obtaining mortgages.

Higher borrowing costs will only make it increasingly difficult for buyers to afford homes in a tight market, Freddie Mac noted in its release.

But some perspective may be helpful.

Even with the recent spike, the benchmark 30-year fixed-rate mortgage averaged 3.65% throughout the year, the lowest since Freddie began keeping records in 1971.

Rates surged in the second half of the year, but were coming off exceptionally low levels in the summer, thanks in part to spooked financial markets after the June Brexit vote that set up a U.K. split from the European Union. That means rates are not much higher than they were last year at this time. In fact, both fixed-rate benchmarks are only 31 basis points higher.

Many analysts believe the bond market may have jumped the gun with assumptions about how much growth and inflation President-elect Donald Trump will bring about with pledged fiscal stimulus. That means bond yields and mortgage rates may settle down over the coming weeks. The 10-year Treasury TMUBMUSD10Y, -0.09% , which mortgage rates track has slipped over the past week.

And even if rates settle into the range they’re currently occupying, it might not crush affordability. A 20-basis point jump in rates on a $200,000 home would add $18 to the monthly mortgage cost, Zillow analysts told MarketWatch in June. That would correspond to a $74 increase for the current scenario—not pleasant but not inaccessible.


Article Link To MarketWatch:

Oil, Metals, Developed Equities Best Performers Of 2016; Emerging Markets Struggle

Reuters
December 30, 2016

Oil was the world's best-performing asset class in 2016, after being the worst in each of the two previous years.

Brent crude LCOc1 was on track for a gain of around 50 percent, following a 35 percent tumble in 2015.

Copper CMCU3 was up around 16 percent in 2016, compared with the previous year's 26 percent plunge.

In China, an infrastructure and housing boom sparked a months' long rally in materials prices, with iron ore futures surging 170 percent and coking coal more than doubling.

The dollar index .DXY gained about 4 percent this year, or less than half of its 9.3 percent advance in 2015.

MSCI frontier stocks were down about 2 percent, compared with a 7 percent gain for MSCI developed equities. Shanghai A shares, which rose 4.4 percent in 2015, about dropped 18 percent in 2016.

Asset Performance In 2016 vs. 2015:


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Commodities:

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Developed Stocks:


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Emerging Stocks:
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Frontier Stocks:


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Stocks By Sector:
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Government Bonds:
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Emerging Market Currencies vs. Dollar:


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Article Link To Reuters:

A Year In China Markets: Yuan Down, Stocks Down, Bonds Faltering

Currency heads for steepest annual depreciation since 1994; Strategists see stocks rebounding after this year’s retreat.


By Sarah McDonald and Helen Sun
Bloomberg
December 30, 2016

The China market scorecard doesn’t make for great reading this year.

The yuan: down the most since 1994. Stocks: down the most since 2011. Bonds: clinging on to the smallest return in three years. But for some assets at least, strategists see prospects of a turnaround. The following is a summary of China’s markets this year, and the outlook for 2017.

Weakening Yuan

The yuan started the year by torpedoing global markets, with a series of weaker-than-expected fixings in early January creating panic about the nation’s currency policy and spurring capital outflows. Even as the central bank changed tack to prop up the exchange rate with intervention, capital controls and verbal support, the yuan ended up falling 1.3 percent on the month, the biggest January decline since its peg to the dollar was scrapped in 2005.

While the currency’s impact on world investor sentiment has waned since then, its trajectory versus the dollar has been much more consistent. The yuan has weakened in eight months this year, including four out of the past five, and is set for a 6.5 percent slide against the greenback, the most in two decades.

Against a basket of currencies, introduced by officials a year ago as part of efforts to decouple the yuan from the greenback, the picture looks brighter. The yuan rose to a four-month high versus the group on Dec. 20. China this week diluted the role of the dollar in the trade-weighted basket and added a further 11 members.



In 2017, markets and analysts are in agreement on the yuan’s direction. There’s a 62 percent chance for the Chinese exchange rate to weaken to 7 per dollar by the end of the first quarter, more than quadruple the probability seen three months ago, options prices show. The currency will end 2017 at 7.15, according to analysts’ median forecast in a separate Bloomberg survey.

Sinking Stocks


As far as starts go, it could hardly have been worse for the world’s second-largest stock market. By the end of January, the Shanghai Composite Index had plunged 23 percent to rank bottom of 94 global equity indexes tracked by Bloomberg, roiled by concern about the economic outlook and the government’s stewardship of the yuan.

As stocks slowly clawed their way back, taking more than nine months to extend their rebound to 20 percent and enter a bull run in November, investors experienced a rare period of calm in what had frequently been the world’s most volatile major equity market.

That serenity has shown signs of cracking in December, with the Shanghai Composite down 4.6 percent this month and set for the biggest annual drop since 2011, yet analysts are keeping the faith. The share measure will climb to 3,800 by the end of next year, according to the median forecast in a Bloomberg poll, implying a 23 percent gain from Thursday’s close.



“Weak growth momentum and external market performance weighed on stocks this year,” said Wei Wei, a Shanghai-based analyst at Huaxi Securities Co. “These concerns will probably continue to be in place going into next year. However, with the economy stabilizing, we expect to see more opportunities in stocks next year.”

China’s official factory gauge matched a post-2012 high in November, corporate profits are rising, and factory-gate inflation has accelerated to the fastest pace in five years.

Fragile Bonds


About the only place where investors have seen gains this year is in the bond market, with a broad gauge of Chinese debt returning 1.3 percent as coupon payments made up for a decline in bond prices, according to Bank of America Merrill Lynch.

Still, even there it’s been a bumpy ride of late. China’s bonds are down 1.7 percent in December as efforts to reduce risk in the financial system exacerbate a liquidity squeeze. The yield on 10-year sovereign securities now sits at 3.05 percent, versus 2.82 percent at the end of last year.



Money market rates are set to rise further in the first quarter, according to the median estimate in a Bloomberg News survey of 24 bond traders, investors and analysts. More than half the respondents are expecting the selloff in China’s $7.9 trillion debt market to last until at least the end of March, with the government’s deleveraging push and tighter monetary conditions looming as the biggest risks, and onshore property bonds are seen as the riskiest investments.


Article Link To Bloomberg:

This Asia Market Was The Surprise Outperformer This Year

By Leslie Shaffer
CNBC
December 30, 2016

Donald Trump's surprise U.S. election win put the kibosh on a late year market rally in Asia, but Pakistan shares still managed to be the region's 2016 star outperformer.

The "Trump Tantrum" spurred outflows from emerging markets globally. The selloff was partly driven by expectations the incoming administration would pursue more fiscal spending, implying higher U.S. interest rates, higher inflation and a stronger dollar. That would hurt the ability of emerging-market companies to service dollar-denominated debt and spurred outflows from the segment on the prospect of higher, less-risky returns on Treasurys.

At the same time, Trump's aggressive campaign rhetoric, particularly against China and Mexico, had indicated he might pursue a trade war, which would be negative for Asia's export-dependent nations.

But despite the tantrum dampening Asia markets, shares in Pakistan surged, even though the country briefly faced its own Trump moment. In early December, the country's government reported that the president-elect told Prime Minister Nawaz Sharif that he was willing to play "any role that (Sharif wanted him) to play" to resolve Pakistan's problems. The remarks, if accurate, could aggravate hostility between arch-enemies Pakistan and India.

Even with the hiccups, the Karachi All-Share Index had surged more than 45 percent for the year before Friday's open, making it among the world's best-performing markets.

The gains were driven in part by expectations for the market to regain the "emerging market" label.

In 2008, the Karachi Stock Exchange was demoted to frontier market status, from emerging market, by MSCI after the exchange had imposed a market floor rule, which prevented shares from falling, in response to gyrations caused by the global financial crisis.

But MSCI announced mid-year that Pakistan would regain the emerging-market classification in the middle of 2017, indicating operational improvements and increased availability for foreign investors, Credit Suisse noted in a report in December.

The investment bank also noted that surveys have shown positive changes in sentiment over the government's economic competence over the past three years.

Credit Suisse, which still ranks Pakistan as a frontier market, noted that the country has a cluster of "highly profitable value-creative corporates," outperforming most of its frontier-market peers.

Thailand was another outperformer among Asia's stock markets, with the SET index climbing more than 19 percent in 2016, before Friday's open. That was despite the country's beloved king, Bhumibol Adulyadej, dying in October.

Some analysts had feared his passing would spur political turmoil, as he had acted as a stabilizing influence amid the country's coup by a military junta and as successor Crown Prince Maha Vajiralongkorn failed to command the same devotion as his father.

But the country's one-year morning period appeared to be proceeding with relative calm.

Analysts at CIMB said in an early December note that they expected the Thai market to remain a safe haven as the country's economy had seen its trough and the election, due in the fourth quarter of next year, would likely alleviate political uncertainty.

CIMB also expected the baht to remain relatively stable, even as the stronger dollar weighed regional peers, as the country enjoyed a large current account surplus.

Vietnam's market also posted a strong year, with the VNI rising nearly 15 percent for 2016, before Friday's open, despite expectations that the Trans-Pacific Partnership trade deal, of which the country would have been a major beneficiary, was dead-on-arrival after Trump's election. Trump had campaigned on a vow to kill the deal.

But UOB said in an early December note, "Vietnam's export outlook is still positive having concluding bilateral trade agreements with South Korea and the European Union."

Credit Suisse's note also pointed to Vietnam as offering "highly profitable value-creative corporates."

Stocks in Indonesia also climbed for the year, with the Jakarta Composite up more than 15 percent for the year, before Friday's open.

In an early December note, Nomura called Indonesia's stock market a strong reform and growth story and remained overweight. It noted that in 2016, the market benefited from a tax amnesty program, which helped to repatriate funds into the country as well as expectations of infrastructure spending.

"A domestic demand-led (both consumption and investment) recovery is coming up, and we expect equity earnings to perform similarly – sustaining upside," Nomura said.

Analysts have also noted that Indonesia will likely be less vulnerable to any potential Trump trade war as it wasn't particularly export dependent.

But the curse of 2016 struck markets on China's mainland, the region's worst performers for the year, with the Shanghai Composite dropping 12.52 percent for 2016, before Friday's open.

China's shares took a hit from a combination of a weaker yuan, continued capital outflows from the mainland and concerns that Trump might start a trade war.

India's shares have also performed poorly, with the Sensex index edging up around 1 percent for the year, before Friday's open, after shedding around 5.6 percent in 2015.

The subcontinent's shares took a mid-year hit after the introduction of a demonetization program, which will remove 500 and 1,000 rupee bank notes from the financial system, or around 86 percent of its currency.

While analysts generally believe the program will be a positive longer term as it puts the kibosh on some black market activity, in the short term, demonetization will likely sideswipe economic growth and corporate earnings.


Article Link To CNBC:

NBC Networks Could Be Blacked Out For 16 Million Subscribers

By Claire Atkinson
The New  York Post
December 29, 2016

Million of households in the metro New York City area — including most viewers in Manhattan — could be shut out of a key “Sunday Night Football” game this weekend as Charter Communications and NBCUniversal are locked in a carriage dispute.

The current deal expires Dec. 31.

Other NBCU networks, including MSNBC, Bravo, E, USA and SyFy, will also go dark if no deal is reached by midnight Saturday.

Charter acquired Time Warner Cable and Bright House Networks earlier this year and rebranded the cable service as Spectrum.

The black-out blues are a familiar problem for pay-TV viewers who are routinely informed at the end of the year they may lose services.

A potential black-out would affect some 16 million subscribers, around 1 million of those households are in the New York market, Charter’s second largest market, after Los Angeles.

Sports fans could also lose access to NHL games on Jan. 1 and Jan. 2. Plus, the NBC Sports Network is about to kick off Premiere League soccer coverage.

Also, NBC is scheduled to air the Golden Globes on Jan. 5.

NBC channels are set to begin running a bottom-screen crawl on Thursday night warning customers they will lose access to more than a dozen channels including Telemundo and CNBC.

The channels are expected to go dark at the stroke of midnight, meaning a sharp ending to those watching NBC’s New Year’s Eve coverage.

“NBCUniversal values its partnership with Charter Spectrum, our third largest distributor,” an NBCU spokesman told The Post. “Charter Spectrum has been unyielding in its demand for terms superior to those agreed to by the rest of the industry, including larger distributors.”

Given this position, the spokesman said, NBCU feels it is necessary to inform viewers that Charter Spectrum may drop NBCU’s networks at the end of the year.

Charter subs won’t be able to go online to access NBCU networks either as most of NBC’s coverage will be blacked out there too, a person familiar with talks said.

“The majority of programming will not be available online,” the person said.

NBC is creating a website called delivermyshows.com to tell viewers what’s going on.

Charter had no comment, but noted that NBCU is the party to yank the signal.

The two parties are no longer negotiating but NBCU has sent an offer letter which is currently with Charter.


Article Link To The New York Post:

Thursday, December 29, 2016

Trump Rally Delivers Solid Year-End Results, And Analysts See More Gains Ahead

Trump rally delivers solid year-end results, and analysts see more gains ahead.


By Patti Domm 
CNBC
December 30, 2016

Stocks could quietly close out 2016 with healthy gains and the promise of more in 2017.

The S&P 500 ended Thursday down less than a point at 2,249, and is now up 10 percent for 2016. The Dow finished off 13 points, at 19,819, as it drifted even further away from 20,000. The Dow was on course for a double-digit gain in 2016 as well, up 13.7 percent year to date.

Tobias Levkovich, Citigroup's chief U.S. equity strategist, expects another solid move higher for stocks in 2017, with his target of 2,425 for the S&P 500. He said investors are more hopeful, but not yet overly euphoric.

He expects a better environment for stocks, with an improving economy and better business climate, based on the proposals of the incoming Trump administration.

"There's very little question that a reduced regulatory backdrop with reduced taxes should encourage corporate animal spirits. The two things businesses are most concerned by is high taxation and high regulation," he said.

Energy should no longer be the drag it had been, and that should be another positive for stocks. "[S&P] earnings should grow in the 6 to 7 percent range. Half of that is just energy not being a drag like it was last year," he said.

Oil has recovered sharply from its February bottom in the $20s per barrel. West Texas Intermediate crude futures for February settled Thursday at $53.77 per barrel, off 29 cents. WTI is now up 45 percent for the year.

Treasury yields were lower Thursday, and end-of-year buying also helped spur demand at the Treasury's $28 billion seven-year note auction Thursday afternoon. The 10-year yield was trading at 2.47 percent in late afternoon Thursday.

Friday's market could be even quieter with bond trading ending early on the final day of the year. The stock market is open for a full day.

The final data for the year is Chicago PMI at 9:45 a.m. ET on Friday.

"I'm surprised there's as much softness as we've seen in the last two days. This year there's a double incentive not to sell. There's a potential that capital gains rates would be lower next year," said Randy Frederick, Charles Schwab managing director, trading and derivatives.

But Frederick and others said there are more pressures on the market, including the rebalancing of stock and bond positions by pension funds.

"You've got portfolio changes. You have professional investors trying to hit benchmarks," he said.

Frederick said the U.S. sanctions on Russia and expulsion of diplomats, announced Thursday, did not impact the market. "At this point there's not a whole lot to be worried about. We don't have a very good relationship with Russia to begin with. We don't have much trade with them," said Frederick.

Frederick said the market could see some tax-related selling next week by investors who expect lower capital gains tax rates in 2017. President-elect Donald Trump has said getting rid of the Affordable Care Act is a priority and that means the additional 3.8 percent add on to the capital gains tax for some investors would also go away. The capital gains tax rate is 20 percent.

Around the Jan. 20 inauguration may also be a time for selling, as Trump takes office and investors start to look for action on some of his promises, Frederick said. Trump's proposed tax cuts, reduced regulation and infrastructure spending have helped fuel a 5 percent gain in the S&P since the election.

"There's two times to be concerned in January. Economically the backdrop is solid, but you could argue, we'll have a little more volatility," Frederick said.


Article Link To CNBC:

What History Has To Say About The Economy Trump Will Inherit

The economy was stronger in 2016 than several previous election years.


By Andre Tartar
Bloomberg
December 30, 2016 

Research suggests factors beyond the control of any U.S. president, not their actual policies, set the course of the economy. Yet with voters, President-Elect Donald Trump will secure much of the praise or blame when it comes to the impact of his agenda over the next four years.

Here are six charts that illustrate the economy that Trump — who wants to focus on "jobs, jobs, jobs" — will inherit from President Barack Obama and how it compares with historical standards.



Gross domestic product is chugging along, growing at a 1.7 percent pace in the year through the third quarter. That's slower than what most prior administrations faced, and comes against a backdrop of weak global demand, aging demographics and tepid corporate investment. Trump has said he's aiming to achieve 3.5 to 4 percent average annual growth, even as real GDP expansion is projected to average just 2.2 percent next year and 2.3 percent in 2018, according to economists.



Non-farm payrolls in November came in at 178,000, the fourth-worst situation among the 10 incoming presidents included in this analysis, though still a massive improvement from the nearly 770,000 jobs lost around Election Day 2008. The 4.6 percent jobless rate in the same month puts Trump in a better situation than five of the previous six presidents — the exception being President George W. Bush, who won the election in 2000 when the unemployment rate was under 4 percent. 



Hourly earnings in November grew just 2.4 percent, lower than the similar wage growth figure posted for each of the previous seven presidents-elect analyzed.



The core inflation situation is getting close to the Federal Reserve's medium-term 2 percent goal, largely unchanged from the situation inherited by presidents Obama, George W. Bush, and even Bill Clinton. That said, the Fed focuses on headline inflation, which includes volatile fuel and food and is lower today, at just 1.4 percent.



U.S. industrial production fell by 0.6 percent in November. While not the 8.7 percent contraction Obama had to overcome, reversing this will be one of Trump's biggest challenges. 



Trump is also in a better position when it comes to the housing market, with roughly 1.1 million homes beginning construction this November versus 652,000 when Obama became president-elect in late 2008. Looking back since 1952, however, this is the second-lowest November release of any of the election years analyzed.

While today's economy is a mixed bag by historical standards, one thing is clear: Obama has left Trump a 2016 economy in a better state, by many measures, than when he was first elected president in 2008 in the middle of the worst downturn since the Great Depression.



This analysis was based on the latest available data from all sources.


Article Link To Bloomberg:

Trump's Stimulus Would Strain Tight Labor Market

By Conor Sen
The Bloomberg View
December 30, 2016

The fiscal stimulus plan President-Elect Donald Trump and congressional Republicans hope to pass in 2017 is intended to increase real economic growth. But fiscal stimulus doesn't exactly create growth. It creates demand. Whether demand leads to real growth depends on factors out of the government's control: productivity and the labor force.

While real growth in the gross domestic product during this economic cycle has been lower than it was in past cycles, the drop in unemployment has surprised people for being as rapid as it has. Even with real GDP growth that has averaged only around 2.1 percent during this recovery since 2010, the unemployment rate has fallen sharply, from a peak of 10 percent in October of 2009 to 4.6 percent last month. Even in the slowest year of economic growth of this cycle, 2012, with 1.3 percent real GDP growth, the unemployment rate fell 0.6 percent.

Now policy makers face a challenge. At 4.6 percent, the unemployment rate has already beat the Federal Reserve's longer-run forecast of 4.8 percent. When the labor market is so tight, how much more growth is possible? If GDP growth of around 2 percent has been enough to lead to a steady drop in the unemployment rate, sustained growth of 3 to 4 percent would drive it down to levels we haven't seen in decades, and far below levels the Fed believes are sustainable.

Two variables could give the economy more of a growth runway: labor force growth and productivity growth. One of the reasons the unemployment rate has fallen so quickly despite sluggish GDP growth has been relatively low labor force participation. The "prime age" labor force participation rate for people ages 25 to 54 fell from 83.1 percent in December 2007 to a low of 80.6 percent in 2015. Since then, it has recovered somewhat, to 81.4 percent. The drop in the participation rate for people ages 20 to 24 has been even larger. Should their participation rates increase, and should baby boomers decide to work a little longer, that would allow the economy to grow faster without driving up wages and prices too far.

While the path to higher labor force participation seems straightforward enough -- higher wages in theory should mean higher participation -- tackling productivity growth is trickier. Nobody really knows the best way to increase productivity growth. If we did, everyone would do it. Is it more trade deals, outsourcing and globalization? More automation? More capital spending? More government research? Is productivity growth simply at the mercy of unpredictable booms of technological innovation?

What we know is that productivity growth has been low since the last recession -- one of the main reasons for subpar economic growth in general -- and that without an increase in productivity growth, a sustained campaign of fiscal stimulus may end up creating more inflation than growth.

While the incoming Trump administration is sometimes compared to the Reagan administration, when it comes to the economy the two have faced opposite problems. Reagan came into office with high unemployment, high inflation and high interest rates. His economic team sought to tackle the supply side of the economy by cutting taxes, regulations and government spending, aiming to reduce bottlenecks on the production of goods and services.

Trump, on the other hand, comes into office with low unemployment, low inflation and low interest rates. His voters weren't animated by lower inflation and taxes, but rather by the prospect of more jobs and growth. So his team will be focused on stimulus to generate demand -- but will that lead to growth?

If it does, Trump may be hailed as the president who got isolated and disconnected Americans back to work, and who restored productivity growth to its pre-recession levels. If it doesn't, he may create an inflationary mess for the Fed to clean up -- a legacy less reminiscent of Reagan than of Carter.


Article Link To The Bloomberg View:

Companies Rush To Link Jobs To Trump

But firms like SoftBank were planning to invest in the U.S. even before the election.


By Tony Romm
Politico
December 30, 2016

Nearly a month before Donald Trump won the White House, Japanese conglomerate SoftBank pledged to invest billions of dollars in the U.S. economy.

But that didn’t stop the company and its shrewd chief executive, Masayoshi Son, from portraying those plans this month as the direct result of Trump’s election victory — an example of how SoftBank and many of its corporate counterparts are scrambling for ways to curry crucial, early favor with the president-elect.

A growing list of companies — including Dow Chemical, Carrier and IBM — have sought to give Trump the credit he seeks for job or investment announcements, hoping their concessions can win them seats at the table as Trump begins crafting policies in health care, education, financial services and technology. Sprint, which is owned by SoftBank, joined the list this week, pledging to bring back 5,000 jobs months after cutting thousands of employees. And OneWeb, which plans to provide satellite-based internet service and is backed by SoftBank, similarly pledged to create jobs. SoftBank’s support for the company predates Trump.

Some of the business pledges are recycled news, and others amount to little more than public-relations messaging that will be hard to track to see whether promises are realized — but analysts see it as an emerging way for investors and executives to stay on Trump’s good side.

“I suspect if companies can make announcements that are positive for American jobs, then of course they will, because every company wants to be on the good side” of Trump, said Steve Odland, leader of the Committee for Economic Development and the former CEO of Office Depot and Autozone.

“I think companies are learning, and have learned, actions taken can provoke a response,” Odland said. “Nobody wants to be shamed.”

Trump’s transition team expects additional companies could come forward with similar promises to create jobs or invest more in the United States. Sean Spicer, the administration’s incoming press secretary, predicted on Thursday that Trump would bring about “more and more of this,” later calling it the “tip of the iceberg.”

SoftBank did not respond to a request for comment; nor did Dow Chemical. IBM and Sprint declined further comment.

Companies have reason to want to be on Trump’s good side. For corporate America, the big fear is Trump’s bully pulpit, which includes his Twitter account with more than 18 million followers. As a candidate, Trump skewered companies like Apple for making some of its devices overseas, and his criticisms generated vast social media backlash for others in his cross hairs. As president-elect, his Twitter rants have gained the added ability to send stock prices tumbling — a lesson that Lockheed Martin and Boeing learned this month.

Maybe fearing a fall from grace, companies have so far done little to correct Trump even when he’s misrepresented their work, overstated their plans or taken credit for hiring and investment talks initiated before his election.

After the president-elect claimed he had stopped Carrier from sending thousands of jobs to Mexico — an overstatement, by some measures — Chuck Jones, the president of a local chapter of the United Steelworkers, chided Trump to “get all the facts straight before he starts talking about what he’s done.” Trump responded in kind, launching a vicious assault against Jones on Twitter.

“The lesson for companies is it’s better to just shut up and go with the flow than to launch a correction,” said Bill Reinsch, a fellow who works on trade policy at the Stimson Center. “Particularly if you’re being complemented, if he’s praising your company for doing the right thing, the rational response is shut up, say thank you and move on.”

Reinsch noted that United Technologies, Carrier’s parent company, likely considered how much goodwill could be gained from the Carrier move and hoped that “the next three decisions they make, he’s not going to complain about."

That strategy might have been on the mind of Dow Chemical CEO Andrew Liveris, who appeared with Trump earlier this month to tout a new innovation center. Speaking in Michigan, he said his company’s investment — and Trump’s presidency — would create “several hundred jobs” at Dow. That drew the praise of Trump, who earlier had named Liveris to a key manufacturing advisory post.

In reality, though, Dow is creating about 100 jobs, while moving an additional 100 back to the U.S. from other facilities, the company previously told POLITICO. Dow already was in the midst of a restructuring as it seeks to purchase rival chemical company DuPont.

Then came IBM: The day before CEO Virginia Rometty planned to huddle with Trump and other tech executives in New York, the company known as Big Blue promised to hire 25,000 workers in Trump’s first term. The eye-popping figure, however, belied the fact that IBM previously had as many of 20,000 jobs open anyway, months after it laid off as many as 14,000 workers around the world, according to one estimate earlier this year.

By far the most aggressive in its outreach, though, is SoftBank, whose chief executive, Son, long has aspired for a bigger foothold in the United States. For years, he’s eyed T-Mobile, hoping he could combine the wireless carrier with Sprint, which SoftBank purchased in 2013 — a plan that the Obama administration has not supported.

Son sought out Trump for a meeting in New York earlier this month, and he emerged promising to create 50,000 jobs and invest more than $100 billion in the United States.

The jobs figure may have been a new data point, but SoftBank’s investment plans were not: Son and others had publicized their aim to raise billions of dollars, with the help of backers in Saudi Arabia, for a new fund focused on U.S. startups. The fund reportedly had been valued at about $100 billion, and regardless of its size, probably would have contributed to U.S. job growth. And Sprint’s hiring targets weren't a new number but merely a portion of what Son already promised.

Even the OneWeb investment that Trump heralded on Wednesday began months before Trump became the president-elect.

The company, which hopes to use satellites to bring internet service to hard-to-reach areas, started talking to SoftBank well before Election Day, Greg Wyler, the company’s founder and executive chairman, said in an interview with POLITICO. Rumors of a tie-up began to swirl in October. By mid-December, OneWeb took home $1 billion in total investment, led by its Japanese benefactor, while pledging to create 3,000 new jobs, and it wasn't until Wednesday that it registered on Trump’s radar.

In Wyler’s telling, Son increased his “investment with us” after the SoftBank CEO met with Trump, though he declined to specify the amount of the increase. Still, the funding — and Trump’s positive feedback — appears to have offered some early benefit to the company. Wyler said there have been “indirect conversations” with Trump’s transition team about space policy but declined to comment on the nature or date of those talks.

“The announcement from the Trump administration, and the support for our space adventures, and to enable global internet access, is fantastic,” Wyler said.


Article Link To Politico:

Trump’s Extreme Oligarchy

By Simon Johnson
Project Syndicate
December 30, 2016

US President-elect Donald Trump is filling his cabinet with rich people. According to the latest count, his nominees include five billionaires and six multimillionaires. This is what is known as oligarchy: direct control of the state by people with substantial private economic power. Given that the Republicans also control both houses of Congress – and will soon make many judicial appointments – there is virtually no effective constraint on the executive branch.

In many instances – including the United States today – the initial reaction to such a government includes the hope that perhaps rich people will be good at creating jobs. They made themselves rich, goes the logic, so maybe they can do the same for the rest of us.

Hope usually dies last, but the incoming administration’s proposed economic policies are not encouraging. The organizing principle seems to be to discard pragmatism entirely and advance an extreme and discredited ideology.

The central theme of Trumponomics so far has been swift and sharp tax cuts. But Mick Mulvaney, Trump’s pick to run the Office of Management and Budget (OMB) is a prominent and articulate deficit hawk; he will have a hard time supporting measures that increase the national debt.

To some extent, tax cuts will be justified with overly optimistic projections regarding their impact on economic growth, as was done under President George W. Bush, with generally disastrous effects. But there is a limit to how much pressure can be put on the Congressional Budget Office, which is responsible for providing credible assessments of the fiscal impact of new policies.

Trump seems determined to lower income taxes for high-income Americans, as well as to reduce capital-gains tax (mostly paid by the well-off) and nearly eliminate corporate taxes (again, disproportionately benefiting the richest). To do this, his administration will seek to increase taxes on others, and now we are beginning to see what this will look like. People close to the president-elect are considering an import tariff, set at around 10%.

This tariff will undoubtedly be presented to the public as a move to make American manufacturing great again. But a tariff is just another name for a tax that increases the costs of all imported goods. This could help a few firms at the margin – and presumably Trump’s team will highlight news stories (real or fake) about a few hundred or even a few thousand jobs being “saved.”

But the cost per job will be high: all imports will become more expensive, and this increase in the price level will filter through to the cost of everything Americans buy. In effect, the oligarchs will reduce direct taxation on themselves and increase indirect taxation on everyone – much like increasing the sales tax on all goods. Under any such proposal, the burden of taxation would be shifted from the better off to those with less income and little or no wealth.

And that may be just the start of the negative impact on most Americans’ well-being. If Trump increases tariffs on imported goods, some or all of America’s trading partners will most likely retaliate, by imposing tariffs on US exports. As US export-oriented firms – many of which pay high wages – reduce output, relative to what they would have produced otherwise, the effect will presumably be to reduce the number of good jobs.

Some countries – such as China – may deploy other punitive measures against US firms operating on their territory. The net effect will again be to reduce employment, both worldwide and in the US. The world has had much experience with “trade wars,” and it has never been positive.

Why would a group of American oligarchs pursue such a disastrous policy? The Trump administration is taking shape as a coalition of businesspeople who wrongly believe that protectionism is a good way to help the economy and market fundamentalists who now dominate the Republican caucus in the US House of Representatives.

Before Trump’s rise to prominence, the House Republicans were developing a set of policies structured around deep tax cuts, sweeping deregulation (including for finance and the environment), and repeal of President Barack Obama’s signature health-care reform, the Affordable Care Act (“Obamacare”). They were, however, resolutely in favor of freer trade – and the Obama administration’s plan was to enact the Trans-Pacific Partnership (TPP), a free-trade agreement with 11 other Pacific Rim countries, with substantial Republican support in Congress.

Trump’s election has not changed the core House Republican agenda – in fact, it has brought that agenda’s architects into government, at OMB, at the Department of Health and Human Services, the CIA, and other prominent positions, with more likely to follow. As my colleague James Kwak explains in his new book Economism, their pro-market thinking has gone too far and is unlikely to lead to good outcomes.

Selling Trump’s signature issue – protectionism – to the House Republicans was not easy. But now they have started to think about an import tariff as part of their tax “reform” package, they will all start to get on board. And they will offer various strange justifications that deflect attention from the essentials of their policy: lower taxes for the oligarchs and people like them, and higher taxes – not to mention significant losses of high-paying jobs – for almost everyone else.


Article Link To Project Syndicate: