Tuesday, January 17, 2017

Tuesday, January 17, Night Wall Street Roundup: Wall St. Declines As Some Post-Election Gainers Reverse

By Caroline Valetkevitch
January 17, 2017

U.S. stocks fell on Tuesday, with financials, transports and other big post-election gainers losing ground as earnings season kicked into gear.

Also weighing on stocks were concerns about protectionist trade policies by U.S. President-elect Donald Trump, which pushed the dollar the dollar to its lowest level in more than a month and bond yields down as investors cut risk.

The S&P 500 financial index .SPSY, which has rallied since the election on expectations of higher interest rates and reduced regulation under Trump, had its worst day since June 27 and led sector losses. It fell 2.3 percent.

Morgan Stanley (MS.N) shares fell 3.8 percent even after its profit doubled in the fourth quarter. The bank's finance chief, Jonathan Pruzan, said Morgan Stanley will not increase its quarterly target for the business until it is clear that recent revenue trends were sustainable.

"We continue to see a rally in the 10-year bond, so as we see as that yield curve shift lower, that is a potential headwind for financials," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

"The flatter the yield curve, the less implicit net interest margin there is. How that plays out, I don't know if anybody knows ... but it's usually not a positive for the financials."

Biotech and pharma stocks declined after Trump said in a Washington Post interview he would target companies over drug pricing and that he was ready to unveil a plan to replace Obamacare. The Nasdaq biotech index .NBI was down 2 percent.

The Dow Jones Industrial Average .DJI was down 58.96 points, or 0.3 percent, to 19,826.77, the S&P 500 .SPX lost 6.75 points, or 0.3 percent, to 2,267.89 and the Nasdaq Composite .IXIC dropped 35.39 points, or 0.63 percent, to 5,538.73.

U.S. stocks have mostly surged since Trump's election on bets that he would usher in an era of economic growth through fiscal stimulus.

"You're getting some giveback to the areas that have really done well with the Trump election. Some of that is a feeling he's starting to take on a lot of targets," said Rick Meckler, president of LibertyView Capital Management.

Worries over Donald Trump's economic policies and the potential for U.S. policy errors rose sharply this month, according to a survey of fund managers.

Investors also awaited quarterly earnings to begin in full force, with other major banks due to report this week.

Transportation stocks including railroads, which mostly rose after the election, declined, with the Dow Transportation Average .DJT closing down 1.1 percent.

A 1.4-percent rise in consumer staples .SPLRCS offset some of the day's losses. Wal-Mart (WMT.N) rose 1.9 percent after the retailer said it would create 10,000 jobs in the United States this year.

The dollar index .DXY fell 0.8 percent after Trump told the Wall Street Journal that the strong currency was hurting competitiveness of U.S. companies.

About 6.7 billion shares changed hands on U.S. exchanges, above the 6.3 billion daily average for the past 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.23-to-1 ratio; on Nasdaq, a 2.41-to-1 ratio favored decliners.

The S&P 500 posted 9 new 52-week highs and 1 new low; the Nasdaq recorded 57 new highs and 20 lows.

Article Link To Reuters:

Tuesday, January 17, Morning Global Market Roundup: Trump, Brexit Uncertainty Hit Stocks And Dollar, Gold Jumps

By Nigel Stephenson
January 17, 2017

Stocks, bond yields and the dollar fell on Tuesday, while gold rose as investors drew in their horns in response to comments on the dollar from U.S. President-elect Donald Trump and ahead of a speech on Brexit from British Prime Minister Theresa May.

Trump's remarks that the dollar is too strong and hurting U.S. competitiveness pushed the greenback down across the board, even against sterling, which is under heavy pressure as May is expected to confirm her "hard Brexit" stance later on Tuesday.

Britain's pound was higher on the day but still close to Monday's three-month lows, while the Japanese yen hit a six-week high as investors sought shelter from the mounting political risk of a week that also includes Trump's inauguration.

Investors are seeking clarity on his policies after campaign pledges on tax cuts and government spending helped lift stocks and the dollar and were deemed positive for economic growth.

In remarks to the Wall Street Journal published on its website late on Monday, however, Trump said U.S. companies could not compete with China "because our currency is too strong. And it's killing us".

Safe-haven investments such as gold and government debt also gained.

"Sterling is trading higher ahead of Theresa May's speech on Brexit but we're expecting a wild ride for the pound today," said Neil Wilson, senior market analyst at ETX Capital.

"These gains are largely down to dollar weakness, however, and gold has risen amid a bid for safer assets ahead of this speech and Donald Trump's inauguration on Friday."

The dollar was down a third of 1 percent against a basket of currencies .DXY, and down 1 percent against the Japanese yen to a six-week low of 113.04 JPY=.

The euro was up 0.6 percent at $1.0665 EUR=, while sterling rebounded 1 percent to $1.2160 GBP=D4. The prospect of Britain losing access to the single market drove sterling as low as $1.1983 on Monday, its weakest, barring an Oct. 7 "flash crash", for more than three decades.

Prime Minister May speaks at 1145 GMT and is expected to say Britain will not seek a "half in, half out" deal when it leaves the European Union. She will set out 12 priorities for talks with the EU, her office said, and media reports said these would include an indication she is prepared for Britain to leave the bloc's single market.

"We have taken back all of the move from yesterday morning. The speech has been so well telegraphed that I think people (betting against sterling) realize that is dangerous," said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.

Gold Shines

European shares fell in early trade. The pan-European STOXX 600 index was down 0.4 percent, led lower by basic resources stocks and adding to Monday's 0.8 percent losses.

In Asia, Japan's Nikkei .N225 closed down 1.5 percent at its lowest in nearly a month. MSCI's benchmark index of global stocks .MIWD00000PUS fell 0.2 percent.

U.S. stock index futures ESc1 1YMc1 were down, an indication Wall Street would open lower. U.S. markets were closed on Monday for the Martin Luther King Day holiday.

Yields on U.S. Treasuries, regarded as among the world's safest investments, fell too. Ten-year yields US10YT=RR dropped 5.1 basis points to 2.33 percent. German equivalents, the benchmark for euro zone borrowing costs, fell 4 bps to 0.22 percent.

Gold hit its highest in more than seven weeks, and was last trading at $1,213 an ounce, up almost 1 percent on the day XAU=. It has now risen for seven consecutive days.

"Gold is going to do very well in the first half of the year due to Brexit concerns, Chinese currency pressure and uncertainty surrounding Donald Trump's policies," said Richard Xu, fund manager at China's biggest gold exchange-traded fund, HuaAn Gold.

Copper CMCU3 fell for a second successive day, having been under pressure around the turn of the year from a strong dollar. The metal stood at $5,785 a tonne, down 1.4 percent on the day.

Oil prices edged higher. Brent crude LCOc1, the international benchmark, rose 7 cents a barrel to $55.93.

Article Link To Reuters:

Why Fed Watchers Think Yellen Is Plotting Three Hikes This Year

Process of elimination leaves less room among doves for chair; NY Fed’s Dudley may also favor three rate increases this year.

By Rich Miller and Christopher Condon
January 17, 2017

Has Federal Reserve Chair Janet Yellen been outed as favoring three interest-rate increases this year, as opposed to a more dovish two?

That’s the buzz making the rounds among hard-core Fed watchers as they parse an outpouring of comments by policy makers over the past four weeks.

“Yellen likely put down three hikes” for 2017 when Fed policy makers submitted projections in December, according to Laurence Meyer, a former Federal Reserve governor who now heads a policy analysis firm in Washington that bears his name.

Meyer is playing a game of elimination popular among investors and economists that revolves around the so-called dot plot. That’s a graphic layout that the Fed publishes every three months to show where policy makers think interest rates should go if their forecasts for the economy prove accurate. The quarterly rate projections don’t identify the author of each forecast, which is represented by a dot on a chart.

The latest dot plot, released the same day the Fed raised its benchmark lending rate on Dec. 14, caught investors on the hop by showing the median projection was for three increases in 2017 rather than the more dovish two expected in September.

Yellen is widely perceived as a dove, or a policy maker who focuses more on lowering unemployment than containing inflation. She also downplayed the change in rate projections when she spoke to reporters after last month’s meeting, saying it was just a quarter-point increase. That may have caused many investors to assume she is among the two-hike dots.

If Yellen is indeed among those expecting three rate hikes, that would increase the likelihood that the central bank will follow through with that number, given her sway over other members of the Federal Open Market Committee, which sets interest rates. It could also provide another jolt to investors, who still expect only two moves this year after one in 2016, according to trading in interest-rate derivative contracts.

Meyer said he used a process of elimination to peg Yellen at three, backed by his view of the chair as adept at building consensus on the committee, and by her increasingly rosy view of the economy in the short term. “I put a lot of weight on the fact that she has a very positive view of the economy, particularly on inflation,” he said.

The Reasoning

While the Fed chair has repeatedly refused to say where she stands on the dot plot, other officials have not been so reticent about their positions. And their comments and actions have helped Fed watchers use a process of elimination to pinpoint which dot they believe is Yellen’s.

For the central banking nerds out there, here’s how the reasoning breaks down. In December, two of the 17 FOMC participants projected just one hike in 2017, four expected two hikes and six called for three. The others forecast an even faster pace of tightening.

On the first rung stood St. Louis Fed President James Bullard -- who said on Dec. 16 he expects the central bank to raise rates just once in the next three years -- and outspoken dove Governor Lael Brainard, several Fed watchers said.

The Twos

Atlanta Fed President Dennis Lockhart told reporters on Jan. 9 that he had forecast two hikes this year. His Chicago counterpart Charles Evans suggested he’s also looking at two, saying on Jan. 6 that a couple of moves were “not an unreasonable expectation.” Next, Governor Daniel Tarullo, who in the past has advocated a decidedly cautious approach to raising rates, also got ranked at two hikes by several economists.

With a single two-hiker remaining, there is one more firm clue: In December, in the run-up to the FOMC meeting, the board of directors at the Minneapolis Fed was alone among the regional banks when it voted against increasing the so-called discount rate, which establishes interest rates for direct loans from the Fed. They did so to support the labor market and allow inflation to rise, according to minutes published on Jan. 10.

A reserve bank’s position on the discount rate typically reflects its president’s view with respect to the benchmark federal funds rate, suggesting Minneapolis Fed President Neel Kashkari isn’t hawkish enough to forecast more than two hikes this year on the dot plot.

Yellen, Dudley

If that’s correct, Yellen and New York Fed President William Dudley are among the six policy makers forecasting three hikes in 2017.

While Dudley hasn’t given any public comments to indicate where he stands on the dot plot, Yellen has arguably affirmed the conclusion that she forecast three hikes. She said in a Jan. 12 speech that U.S. economy faced no serious short-term obstacles, signaling she would be comfortable with a faster pace of monetary tightening. “Inflation has moved up from a very low level, and it’s a little bit under our 2 percent objective, but it’s pretty close,” she said.

Other economists cautioned that it’s impossible to know for sure which official corresponds with each dot, adding that the importance of Yellen’s position is limited by the uncertainty overhanging the Fed’s economic forecasts. And uncertainty is especially high given the lack of clarity over the incoming Trump administration’s plans on everything from infrastructure spending to tax cuts. About half of the FOMC participants included assumptions of more expansionary fiscal policy in their forecasts, according to the minutes of the December meeting.

“It doesn’t really matter” whether Yellen is at two or three, said Michael Gapen, chief U.S. economist at Barclays Plc in New York and a former Fed economist. “The over-arching message is the Fed’s not the only game in town anymore, and they know it. They’re going to respond to fiscal policy.”

Gapen put Yellen at two hikes, but said a case could be made for her at three.

Luke Tilley, chief economist at money manager Wilmington Trust Corp. and a former staffer at the Philadelphia Fed, offered another warning even as he agreed that Yellen likely projected three hikes.

“These are not telegraphed intentions, but expectations,” he said. “They’re willing to move them up or move them down based on how they see the economy.”

Article Link To Bloomberg:

Oil Prices Mixed On Saudi Commitment To Cut Output, Investor Skepticism

By Henning Gloystein
January 17, 2017

Oil prices were mixed on Tuesday, supported by Saudi Arabia saying it would adhere to a commitment to cut output, but held back by rising U.S. production and scepticism that OPEC as a whole would comply with its commitments to reduce supplies.

Brent crude futures, the international benchmark for oil prices, were at $55.76 per barrel at 0813 GMT, down 10 cents from their last close.

U.S. West Texas Intermediate (WTI) crude futures, however, were up 15 cents at $52.51 per barrel.

Traders said markets were receiving some support from top crude exporter Saudi Arabia, which said it would adhere strictly to its commitment to cut output under the agreement between OPEC and other producers like Russia.

Under the agreement, OPEC, Russia, and other non-OPEC producers have pledged to cut oil output by nearly 1.8 million barrels per day (bpd), initially for six months, to bring supplies back in line with consumption.

"The market genuinely seems quite happy here (around $55)...but people are watching with caution as the slightest hint of this OPEC/non-OEPC agreement going wrong is going to drive the market down," said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai.

Despite this, crude futures have fallen 5 percent since their early January peaks.

Because of doubts that over OPEC's and Russia's willingness to fully comply with the cuts, crude futures have fallen around 5 percent since their peaks in early January.

Traders are also eyeing rising U.S. output with interest, as this could offset supply cuts elsewhere.

"The market is focused on the build in U.S. production which is nearly up to 9 million bpd - up from 8.5 million bpd last June and close to 2014 production levels," said Michael McCarthy, chief market strategist at Sydney's CMC Markets.

"With U.S. crude clearly above $50 a barrel, we are getting a supply-side response which is pushing production higher," he said, adding that this "potential oversupply shows this is not the right time to be buying oil."

Further weighing on crude, at least in the short-term, have been refinery outages in the Middle East and Asia over the past week, traders said.

Analysts also said that steps to prop up oil prices through a cut in supplies could be self-defeating.

"For each $10 per barrel increase in oil prices, oil demand will decline by 10 basis points. While consensus expects demand-growth of 1.3 million bpd in 2017 (vs 1.4 million bpd in 2016), we see risks to the downside as demand growth in China and India starts to moderate," AB Bernstein said.

Article Link To Reuters:

China's Oil Collapse Is Unintentionally Helping OPEC

China’s crude production seen dropping as much as 7% this year; Output declining at aging fields amid capital spending cuts.

By Guo Aibing and Jing Yang
January 17, 2017

OPEC’s campaign to prop up oil prices is getting unlikely support from its biggest customer.

China’s production is forecast to fall by as much as 7 percent this year, extending a record decline in 2016, according to analysts at CLSA Ltd., Sanford C. Bernstein & Co. and Nomura Holdings Inc. That’s about the same size as the output cut agreed by Iraq, the second-biggest producer in the Organization of Petroleum Exporting Countries, which late last year reached a deal to trim supply to support prices.

“China’s domestic crude output decline will certainly help OPEC’s plan to reduce global supply,” said Nelson Wang, a Hong Kong-based oil and gas analyst at CLSA, who sees a 7 percent slide this year. ”Even if that isn’t China’s intention, it’s just the reality that China can’t produce more under the current circumstances.”

While China consumes more oil than almost any other country, it’s also one of the world’s biggest producers, with fields stretching from offshore its southern coast to the far north east. The collapse in prices that began in 2014 is taking its toll, and the nation’s output suffered a record decline last year. That plays into the hands of OPEC as it seeks to prop up the global oil market, forcing China to depend more heavily on imports.

Brent crude, benchmark for half of the world’s oil, averaged about $45 a barrel last year, more than 50 percent below levels in 2014, the year OPEC decided to tackle a global glut by keeping the taps open. The crash in prices triggered a rethink by the group, which banded together with 11 non-member countries late last year and agreed to a collective cut of almost 1.8 million barrels a day.

The deal triggered a rally, which was unable to hold above $58 a barrel amid concern higher prices would spur higher output elsewhere, particularly from U.S. producers. Brent was trading down 0.6 percent at $55.53 a barrel as of 2:29 p.m. in Singapore on Tuesday.

China’s output slumped in 2016 as state-owned firms shut wells at mature fields that had become too costly to operate after the crash. Crude production fell 6.9 percent in the first 11 months of 2016 to about 4 million barrels a day, the first decline since 2009 and the biggest in data going back to 1990.
The International Energy Agency estimates output fell 335,000 barrels a day last year as the country’s biggest producers cut spending, and will slide a further 240,000 barrels a day this year. Production shrank to a seven-year low in October “with no uptick in activity expected from the major companies,” the Paris-based group said last month.

Daqing, Shengli

Supply from the Daqing field, one of China’s biggest and oldest, slipped about 3 percent last year to 732,200 barrels a day, according to data from China National Petroleum Corp. While the nation’s biggest explorer plans to maintain output at the field, it aims to cut spending on exploration and engineering there by 20 percent this year, it said in December.

Output at China Petroleum & Chemical Corp.’s Shengli field, which contributed 65 percent of the company’s domestic crude production last year, will shrink almost 2 percent, the subsidiary that operates it said this month.

There’s “little hope” the country’s aging oilfields can reverse the declines even as prices rebound, while new discoveries may not raise output as much as expected because of high production costs, said Bernstein’s Neil Beveridge, who forecasts the country will pump 4 percent less this year. Even after explorers improved efficiency over the past two years, the break-even point for new onshore oilfields is still about $50 a barrel, he said.

Supporting Imports

CNPC and China Petroleum & Chemical Corp., known as Sinopec, declined to comment. Nobody answered calls to China National Offshore Oil Corp.’s press office in Beijing.

National Energy Administration, the country’s energy regulator, forecasts that output this year will remain stable at about 4 million barrels a day, NEA director Nur Bekri said at the agency’s annual meeting in December, according to a 21st Century Business Herald report. The NEA didn’t respond to a faxed request for comment.

Lower domestic production will help support the nation’s imports, especially in the first half of the year, according to Virendra Chauhan, an analyst at London-based Energy Aspects Ltd. That will increase the country’s reliance on overseas supply, which is forecast to rise above 65 percent of its total crude use this year, according to CNPC’s research arm.

China’s oil imports in 2016 grew at the fastest pace in six years and the nation was the world’s biggest buyer in December. Inbound shipments climbed 13.6 percent last year, while imports in December rose to record 8.6 million barrels a day. This year, though, the Asian nation will boost its purchases by 4.8 percent, according to the median estimate of eight analysts in a Bloomberg survey last month.

Rapidly Aging

China is seen leading a trend across the region. Asia-Pacific’s crude output will drop by about 1 million barrels a day to 6.5 million by 2020, according to Wood Mackenzie Ltd., as exploration since 1990 has yielded mostly natural gas and capital spending was cut because of the slump in oil prices. China will account for 47 percent that decline, according to the consultant.

“China’s largest oil fields are aging rapidly,” said Gordon Kwan, Nomura’s Hong Kong-based head of Asia-Pacific oil and gas research, who sees the country’s output falling 5 percent even as prices rise. “Advanced technology can only mitigate the decline rate, but can’t reverse the structural trend.”

Article Link To Bloomberg:

Smartphone Market Worth $355 Billion, With 6 Billion Devices In Circulation By 2020

January 17, 2017

The global smartphone install base is set to grow 50 percent in the next four years to 6 billion devices totaling $355 billion in revenues, a new study claimed on Tuesday.

Smartphones and tablets already account for more than 60 percent of smart connected consumer devices, up from around 17 percent in 2008, according to research firm IHS Markit. The smartphone install base was four billion in 2016, with the 6 billion figure expected to be hit in 2020, IHS Markit says.

"Mobile innovations, new business models and mobile technologies are transforming every adjacent market as the mobile industry diversifies from the maturing smartphone market," Ian Fogg, director at IHS Technology, said in a press release.

"Mobile devices and services are now the hub for people's entertainment and business lives, as well as for communication. The smartphone has replaced the PC as the most important smart connected device."

Apple and Samsung currently lead the smartphone market and both are set to release new flagship devices this year.

Payments, Messaging Apps To Surge

Alongside the growth in hardware, global consumer spending on mobile apps is set to reach $74 billion by 2020 up from $54 billion in 2016. Africa, the Middle East and Latin America will be the fastest-growing regions for spend on mobile apps, according to IHS Markit.

"There are many opportunities for new apps, mobile payments and mobile money services. Asia, notably, will continue to play the number one role in the global apps market – accounting for more than 50 percent of consumers spending," IHS Markit said in its report.

Two major services will grow on mobile – payments and messaging. The number of smartphones able to do device-based payment services will increase from 2.7 billion in 2016 to more than 5 billion by 2020, the report said.

"This integration across their range of devices, apps, content and services will be crucial if they want to tap into the next waves of growth," IHS Markit noted.

Meanwhile, messaging apps such as WhatsApp will see their audience grow from more than 5 billion at the end of last year to 7.5 billion in 2020.

Article Link To CNBC:

BAT Agrees To Buy Reynolds For $49 Billion

By Paul Sandle
January 17, 2017

British American Tobacco (BATS.L) has agreed a $49.4 billion takeover of U.S. rival Reynolds American Inc (RAI.N), creating the world's biggest listed tobacco company after it increased an earlier offer by more than $2 billion.

BAT, which already owned 42 percent of Reynolds, will pay $29.44 in cash and 0.5260 BAT shares for each Reynolds share, it said, a 26 percent premium over the price of the stock on Oct. 20, the day before BAT's first offer was made public.

Reynolds, the maker of Camel and Newport cigarettes, rejected the approach a month later, according to sources, although the two sides remained in talks.

The deal, which values the whole of Reynolds at around $86 billion, will mark the return of BAT to the lucrative and highly regulated U.S. market after a 12-year absence, making it the only tobacco giant with a leading presence in American and international markets.

BAT Chief Executive Nicandro Durante said bringing the two companies together would create a market leader with brands including Newport, Lucky Strike, Camel and Pall Mall.

"It will create a stronger, global tobacco and NGP (next generation products) business with direct access for our products across the most attractive markets in the world," he said on Tuesday.

Analysts have said the takeover could spark further deals as Philip Morris International (PM.N) and Japan Tobacco (2914.T) jostle for market share in an industry that is shrinking in the West as more people quit smoking.

Durante said the combined group would have the largest global footprint of any tobacco group, with strong positions in both fast-growing emerging markets and lucrative Western countries.

RBC Capital Markets said assuming BAT was able to achieve the annual cost savings of "at least $400 million" it has targeted, the deal would be financially neutral for BAT shares.

"We think (the deal) makes sense strategically and operationally and just about washes its face financially," it said. "That said, a value-neutral acquisition does little to alter our view that the shares are already reasonably valued."

Shares in BAT were up 0.4 percent at 47.80 pounds at 0855 GMT, about where they were trading in October before the company revealed its initial bid.

Centerview Partners, Deutsche Bank and UBS advised BAT on the deal, while Lazard, JP Morgan and Jones Day worked for Reynolds American.

Article Link To Reuters:

Trump Threatens German Carmakers With 35 Percent U.S. Import Tariff

By Edward Taylor and Andreas Rinke
January 17, 2017

U.S President-elect Donald Trump warned German car companies he would impose a border tax of 35 percent on vehicles imported to the U.S. market, a plan that drew sharp rebukes from Berlin and hit the automakers' shares.

In an interview with German newspaper Bild, published on Monday, Trump criticized German carmakers such as BMW (BMWG.DE), Daimler (DAIGn.DE) and Volkswagen (VOWG_p.DE) for failing to produce more cars on U.S. soil.

"If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax," Trump said in remarks translated into German.

"I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 percent tax, then you can forget that," Trump said.

Volkswagen (VW) shares closed down 2.2 percent, while BMW and Daimler's shares ended 1.5 percent lower.

Under pressure to deliver on campaign promises to revive U.S. industrial jobs, Trump has turned his fire on carmakers that use low-cost Mexican plants to serve the U.S. market. He has also warned Japan's Toyota (7203.T) it could be subject to a "big border tax" if it builds its Corolla cars for the U.S. market at a planned factory in Mexico.

All three German carmakers have invested heavily in Mexico, but also pointed out on Monday that they manufacturer in the United States as well.

BMW executive Peter Schwarzenbauer told reporters the company was sticking to plans to invest around $1 billion in a new plant in Mexico, which is due to go into production in 2019 and create at least 1,500 jobs.

Serious Warning

"The president's powers are considerable. He can legally impose tariffs of up to 15 percent for 150 days. Trump is not constrained by Congress," said Simon Evenett, professor of international trade at Switzerland's University of St Gallen.

"Even if foreign companies object and seek to challenge the legality of tariffs, it will take at least 18 months to get decided. Corporate strategies will be disrupted by then."

While investing in Mexico, German carmakers have quadrupled light vehicle production in the United States over the past seven years to 850,000 units, more than half of which are exported from there, Germany's VDA automotive industry association said.

"In the long term, the United States would be shooting itself in the foot by imposing tariffs or other trade barriers," VDA President Matthias Wissmann said in a statement.

German carmakers employ about 33,000 workers in the United States and German automotive suppliers about 77,000 more, the VDA said.

Speaking in tabloid newspaper Bild, German Economy Minister Sigmar Gabriel said that rather than trying to penalize German carmakers, the United States should instead respond by building better and more desirable cars.

Norbert Roettgen, head of Germany's foreign affairs committee, said Berlin needed to take Trump's comments seriously. "He seems to be absolutely focused on short-term job interests and security interests ... not that he is looking for free trade so much, but more for protection," he told Reuters.

Mexican Plans

Daimler's Mercedes-Benz and BMW already have sizeable factories in the United States where they build higher-margin sports utility vehicles (SUVs) for export to Asia and Europe.

Around 65 percent of BMW's production from its factory in Spartanburg, South Carolina, is exported overseas. BMW builds the X3, X4, X5 and X6 models in the United States.

"It is surprising that Trump singles out the carmaker that exports more vehicles from the United States than any other manufacturer," Evercore ISI analysts said.

A BMW spokeswoman said the planned plant in the central Mexican city of San Luis Potosi would build the BMW 3 Series from 2019, with the output intended for the world market. The plant would be an addition to existing 3 Series production facilities in Germany and China.

In June last year, BMW broke ground on the plant, pledging to invest $2.2 billion in Mexico by 2019 for annual production of 150,000 cars.

Daimler has said it plans to begin assembling Mercedes-Benz vehicles in 2018 from a $1 billion facility shared with Renault-Nissan (RENA.PA) (7201.T) in Aguascalientes in Mexico. A spokesman for Daimler declined to comment on Trump's remarks.

Last year, VW's Audi division inaugurated a $1.3 billion production facility with 150,000 vehicle production capacity near Puebla, Mexico. Audi said it would build electric and petrol Q5 SUVs in Mexico.

Audi declined to comment on Monday. VW also declined to comment on Trump's remarks but noted it was investing another $900 million in its U.S. plant in Chattanooga, Tennessee.

Trump called Germany a great car producer, saying Mercedes-Benz cars were a frequent sight in New York, but claimed there was not enough reciprocity. Germans were not buying Chevrolets at the same rate, he said, calling the business relationship an unfair one-way street.

Chevrolet sales have fallen sharply in Europe since parent company General Motors (GM.N) in 2013 said it would drop the Chevrolet brand in Europe by the end of 2015. Since then, GM has focused instead on promoting its Opel and Vauxhall marques.

Asked by Reuters whether Trump could take any steps to make it easier for GM to sell more American-made cars in Europe, GM Chief Executive Mary Barra said the company aimed to build cars in markets where they are sold.

"We're a global company so we're going to continue that focus just because from an economic perspective that generally turns out to be the best framework," she said. "I think there is a lot that we can work on with President-elect Trump."

Article Link To Reuters:

Trump Adviser Warns Of Risks From Strong Dollar

January 17, 2016
A senior adviser to U.S. President-elect Donald Trump warned on Tuesday about the risk from a stronger dollar.

"We need to be careful about the rising currency," Anthony Scaramucci of Skybridge Capital told a panel discussion at the World Economic Forum's annual meeting in Davos.

David Rubenstein of the Carlyle Group told the same panel that he feared a "Mexican-style" crisis if the dollar continued to rise, putting pressure on emerging market countries that have borrowed in dollars.

He said he expected a strengthening dollar to be the "biggest challenge" for the economic outlook over the coming year.

Article Link To Reuters:

Health Care Turmoil In The US Is 'Only Temporary'

By Sam Meredith
January 17, 2016

Turbulence and turmoil in the health care industry will only prove to be temporary in spite of the uncertainties in the U.S., according to Royal Philips' chief executive.

Frans Van Houten, chief executive of the medical equipment and technology firm, described the current situation in the U.S. health care industry as "uncertain" however he remained confident the negative sentiment surrounding health care stocks would be reversed in time.

"I am sure that whatever turmoil and turbulence there is, (it) is a temporary matter and that as the dust settles, this thrust for innovation to make people healthier and the world more sustainable is still going to go on," van Houten told CNBC on Monday in Davos, Switzerland when asked about Trump's influence on the health care industry.

"The situation in the U.S. is a bit uncertain right now as the repeal and replace is being discussed but we are confident," van Houten added, hinting at the repeal of the 2010 Affordable Health Care Act (ACA), often called Obamacare.

Republican politicians in the U.S. took the first steps to repeal part of the ACA by passing a resolution bill last week.

Investor optimism regarding the outlook for the broader health care sector in Europe and the U.S. declined dramatically after Trump's press conference last Wednesday in which he promised to take action over drug pricing.

Trump said the drug industry in the U.S. was "disastrous" and pharmaceuticals had been "getting away with murder" during his first press conference as President-elect on Wednesday.

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Trump's Trade Plan Is A Looming Disaster

By Editorial Board
The Bloomberg View
January 17, 2017

Even by his standards, President-elect Donald Trump's statements on trade have been stunning in their recklessness. His proposals essentially amount to the repudiation of a system that has fostered global stability and lifted hundreds of millions of people out of poverty over the last several decades -- and if he actually intends to execute his radical agenda, there's little to stop him.

In other areas of economic policy, such as budget matters, Congress will make the crucial choices. On trade, the White House has wide discretion. The stakes could hardly be higher.

During the campaign Trump threatened to rip up existing trade pacts, withdraw from the North American Free Trade Agreement, and put punitive tariffs on imports from Mexico and China. He's called the World Trade Organization, which promotes liberal trade and adjudicates disputes, "a disaster," and he has said the U.S. might "pull out." Congratulating Britain on its decision to quit the European Union, he says the U.K. and the U.S. can design a new trade deal -- but that it makes no difference to the U.S. whether the EU, "a vehicle for Germany," stays together or falls apart. 

Trump's nominee for commerce secretary, meanwhile, appears to believe in the top-down management of trade: "We should treat ourselves as the world's biggest customer and treat nations that are selling to us as suppliers to us," Wilbur Ross told the Financial Times. The global economy, according to this thinking, is not about myriad firms competing across borders to give consumers everywhere the best products at the lowest cost; it's a zero-sum battle between two monolithic collectives: us and them.

Trump's other trade appointments aren't reassuring. Peter Navarro, named as head of the new National Trade Council, seems opposed to imports on principle. He says they subtract from economic growth, which is nonsense. The nominee for U.S. trade representative, Robert Lighthizer, brings his experience as an advocate for restrictions on imports of cars and steel -- restrictions that made U.S. consumers worse off and impeded the ability of U.S. manufacturers to compete.

Congress wouldn't be able to do much to restrain the new team's trade measures, especially in the short term. Laws authorizing existing trade agreements, as well as other statutes delegating authority to the president in times of emergency, grant the president wide powers to take unilateral action such as terminating previous commitments and imposing tariffs, quotas or other restraints. Such moves would surely face a legal challenge, but before the cases were resolved, President Trump could very well kill or cripple Nafta, the WTO and any prospect of orderly market-driven trade arrangements.

Americans have legitimate concerns over trade, jobs and living standards. But they should be addressed in the same way as the threat from automation and other kinds of technological advancement -- forces that are likely to be more disruptive in the future than trade. And the record of nations trying to resist trade and innovation speaks for itself: It leads to economic stagnation.

The right approach is to focus on competitiveness, opportunity and effective social insurance. Education reform, tax reform, deregulation, and investment in the right kind of infrastructure could raise the long-term rate of growth and spread the benefits to more workers. Trump deserves some credit for taking up some of these points. Doing more to help workers retrain and move to new jobs would also relieve the stress, as would more effective unemployment and health insurance.

If Trump follows through on trade, it won't be long before he and his supporters regret it. Declaring a trade war on the world can only lead to collapsing confidence and recession. Yet if the system of international commerce, painstakingly put together over decades, is carelessly torn down, rebuilding it won't be easy or quick -- however much a chastened Trump administration might wish to.

Mr. President-elect: Just don't do it.

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U.K. Inflation Surges To Fastest In 2 1/2 Years As Pound Slumps

Import costs increase the most in more than five years; Carney has warned of headwinds as pound drop boosts prices.

By Scott Hamilton
January 17, 2017

U.K. inflation accelerated more than economists forecast in December as signs mounted that the pound’s decline is leading to a surge in import costs.

Consumer-price growth increased to 1.6 percent, the highest since July 2014, from 1.2 percent in November. That beat the 1.4 percent median forecast of economists. A separate report showed the cost of imports soared at the fastest annual rate in more than five years.

The data comes a day after Bank of England Governor Mark Carney warned that U.K. consumers are facing fresh headwinds this year as sterling’s 18 percent depreciation since the Brexit vote pushes up prices. The BOE, which will publish new forecasts next month, currently expects inflation to breach its 2 percent target within months.

The U.K.’s core rate of inflation -- excluding volatile food and energy -- picked up to 1.6 percent in December, the fastest since August 2014, the Office for National Statistics said. Inflation based on a separate measure, the retail prices index, reached the strongest since July 2014.

The cost of imports rose 16.9 percent year-on-year in December, the most since July 2011. Annual growth in factories’ costs accelerated to 15.8 percent, also a five-year high.

As the BOE assesses the outlook and balances its growth and inflation priorities, it says the next move in interest rates could either be a tightening or a loosening. It cut the benchmark rate in August after the U.K. voted to leave the European Union, lowering it to a record-low 0.25 percent.

Economic developments depend heavily on the U.K.’s new trading relationship with the EU. Prime Minister Theresa May is expected to set out her plans in a speech on Tuesday. That could include Britain leaving the bloc’s single market for goods and services.

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PM May Indicates Britain Will Seek 'Hard Brexit'

By Kylie MacLellan and William James
January 17, 2016

Britain will not seek a Brexit deal that leaves it "half in, half out" of the EU, Prime Minister Theresa May will say on Tuesday in a speech setting out her priorities for divorce talks which indicates she is prepared to leave the single market.

Sterling GBP=D4, which has traded at the lowest levels against the U.S. dollar for more than three decades, fell to near three-month lows and stocks were mostly weaker as investors feared May would spell out plans for a "hard Brexit".

"We seek a new and equal partnership, between an independent, self-governing, global Britain and our friends and allies in the EU," May will say, according to advance extracts released by her office.

"Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave."

Her 12 objectives for upcoming exit talks from the European Union will include ditching preferential access to the single market and quitting the European Court of Justice in return for full control of Britain's borders, several newspapers reported.

More than six months after Britons voted to leave the EU, May has come under fire from investors, businesses and lawmakers for revealing little about the future relationship she will seek when she begins formal divorce talks by the end of March.

She is due to set out more detail on her plans at 1145 GMT on Tuesday in a speech to an audience including foreign diplomats and Britain's own Brexit negotiating team.

"New Free Britain"

The extracts from her speech did not set out explicit details of the future trading relationship she wants to have with the EU or what her 12 priorities would be, but British newspapers, most of which backed Brexit, said it would delight those who supported leaving the bloc.

"Theresa's New Free Britain", the Daily Mail said on its front page while The Sun, Britain's biggest-selling tabloid, called it "Great Brexpectations".

Media reported May would be less explicit on her plans for the customs union, but that her emphasis on building new trade relationships would make clear Britain could be no longer a member of the single market in the way it is now.

The EU would be likely to insist on freedom of movement for EU citizens in return for full access to the single market, while many of those who voted for Brexit did so precisely in order to be able to restrict immigration.

The Times newspaper said May would acknowledge for the first time that transitional deals would be needed to avoid a Brexit 'cliff edge' for businesses after Britain leaves the economic bloc that accounts for roughly half of its exports and imports.

May will say she wants Britain to be a "magnet for international talent", and a "great, global trading nation" that reaches beyond Europe to build relationships with other countries around the world.

She will also say that it is in Britain's national interest for the EU to succeed.

"We will continue to be reliable partners, willing allies and close friends. We want to buy your goods, sell you ours, trade with you as freely as possible, and work with one another to make sure we are all safer, more secure and more prosperous through continued friendship," she will say.

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