Tuesday, January 31, 2017

Tuesday, January 31, Morning Global Market Roundup: Asian Shares Rattled By Trump Policy Worries, Dollar Soft

By Hideyuki Sano
January 31, 2017

Asian shares slipped on Tuesday as stringent curbs on travel to the U.S. ordered by President Donald Trump brought home to investors that he is serious about putting his controversial campaign pledges into action.

Global stocks posted their biggest loss in six weeks after Trump signed an executive order on Friday to bar Syrian refugees indefinitely and suspend travel to the United States from seven Muslim-majority countries, sparking widespread protests.

"Investors are becoming worried as it appears as if he was setting fire to geopolitical risks that already exist," said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

Trump's move drew criticism from some U.S. policymakers and business leaders, including leading hi-tech companies and the chief executives of Goldman Sachs Group (GS.N) and Ford Motor Co (F.N), and irked many foreign leaders.

"His stance is really inward-looking, making investors nervous about his 'moderateness'," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent while Japan's Nikkei .N225 dropped 1.3 percent.

On Monday, the U.S. S&P 500 Index .SPX fell 0.6 percent, its biggest fall in a month, though it remained well above levels seen before the Nov. 8 presidential election.

MSCI's gauge of the world's 46 stock markets .MIWD00000PUS shed 0.6 percent, its biggest fall in a month and a half.

The mood soured further after Trump fired the federal government's top lawyer after she took the extraordinarily rare step of defying the White House.

U.S. stock futures ESc1 shed 0.3 percent on Tuesday and the dollar extended losses against the yen.

Still, most share prices were up on the month, supported by signs of accelerating momentum in the global economy and hopes of large fiscal stimulus from Trump.

MSCI's ex-Japan Asian shares index was up 5.8 percent this month while its index of world markets was up 2.6 percent. They were also higher than their levels before the U.S. elections.

In the currency market, the dollar was broadly weak and fell 0.4 percent against the yen to 113.32 yen JPY=. It was down 3.2 percent so far this month, after three straight months of sizable gains.

The Japanese currency showed no reaction after the Bank of Japan kept its policy on hold, as expected. Recent data has suggested the economy is slowly regaining traction.

The euro EUR= edged up to $1.0710, consolidating after its rebound this month from its 14-year low of $1.0340 set on Jan. 3.

In a possible sign of increased anxiety among investors, the safe-have Swiss franc strengthened to a seven-month high of 1.0637 franc per euro EURCHF= on Monday.

Worries are also growing about a political shift to populist leaders in Europe.

French bond yields FR10YT=RR rose to the highest level since September 2015, on rising uncertainty over the Presidential election later this year.

Conservative leader Francois Fillon, seen as the front-runner, is now battling to contain a scandal over allegedly unlawful payments to his wife while the Socialists on Sunday picked a hard-left candidate, possibly helping popular far-right leader Marine Le Pen.

Italian debt yields IT10YT=RR climbed to 1 1/2-year high partly as early elections could be called following a ruling from the country's constitutional court last week.

By contrast, the yield on German debt DE10YT=RR fell on Monday even as data showed inflation in Germany hit a 3 1/2-year high in January.

News that Germany posted a national inflation rate of 1.9 percent stoked talk of an unwinding of monetary stimulus by the European Central Bank, even though the inflation outcome was below expectations.

Elevated uncertainty about Trump's policies, including a lack of detail so far on his plans for tax cuts and fiscal spending, offset optimism on the U.S. economy.

Data on Monday showed U.S. consumer spending accelerated in December while inflation showed some signs of picking up last month.

The core PCE price index, the Federal Reserve's preferred inflation measure, rose 1.7 percent on a year-on-year basis after a similar gain in November.

"We've seen a jump in U.S. economic sentiment after Trump's victory. But the improvement in hard economic data remains moderate," said Haruka Kazama, senior economist at Mizuho Research Institute.

"And if Trump takes more steps to limit permits for immigrants, that would surely boost inflation as the U.S. is now near a full employment," she added.

Oil prices were little moved after a small fall on Monday after news of another weekly increase in U.S. drilling activity.

U.S. crude futures CLc1 traded at $52.62 per barrel, almost unchanged from Monday's close.

Article Link To Reuters:

Oil Prices Fall As Rising U.S. Output Offsets OPEC-Led Cuts

By Henning Gloystein 
January 31, 2017

Oil prices fell on Tuesday as rising U.S. drilling activity offset efforts by OPEC and other producers to cut output in a move to prop up the market.

Brent crude futures LCOc1, the international benchmark for oil prices, were trading at $55.10 per barrel, down 13 cents from their last close.

Since their January peak, Brent has lost over 5.6 percent in value.

U.S. West Texas Intermediate (WTI) futures CLc1 were at $52.41 a barrel, down 22 cents from their previous settlement, and WTI is down almost 3 percent since its January peak.

The falls reflect a sentiment that efforts led by the Organization of the Petroleum Exporting Countries (OPEC) to cut output by almost 1.8 barrel per day (bpd) in order to end overproduction were not big enough to offset rising U.S. drilling.

U.S. investment bank Jefferies said that while "OPEC adherence to production targets has been strong", growth in U.S. shale oil production was undermining OPEC's efforts to balance global oil markets by bringing production levels in line with consumption.

"Higher prices will inevitably lead to growth in U.S. production, and activity levels are already picking up," Jefferies said.

As a result, the bank said it is "not inclined to change our Brent price forecast - $57.75 per barrel in 2017, $71.75 per barrel in 2018".

Following months of increased drilling, U.S. oil production C-OUT-T-EIA has risen by 6.3 percent since July last year to almost 9 million bpd, according to data from the U.S. Energy Information Administration.

Goldman Sachs estimates that year-on-year U.S. oil "production will rise by 290,000 bpd in 2017" if a backlog on rigs that are still to become operational is accounted for.

With the differing outlook between global oil markets and that in the United States, traders said a renewed focus on the spread between Brent and WTI futures has emerged.

The Brent premium over WTI for March delivery is currently over $2.7 per barrel, reflecting a tighter global market as OPEC's cuts bite and a more over-supplied U.S. as drilling continues to rise.

Yet by November this year, this Brent premium is down to just over $1 a barrel.

"You've already seen U.S. crude coming into Asia and Europe, as traders take advantage of arbitrage between the U.S. and the rest of the world," one crude trader in Singapore said. "But at some stage, that exported U.S. crude will get priced into the global market and out of the American one, bringing down the spread between Brent and WTI."

Article Link To Reuters:

Can Trump's Trade Plan Fix TPP Damage?

Donald Trump's decision to ditch TPP comes with consequences.

By Scott B. MacDonald
The National Interest
January 31, 2017

On January 23, 2017, President Donald Trump used an executive order to formally withdraw the United States from the negotiation process for the twelve-nation Trans-Pacific Partnership. This demonstrated the new U.S. leader’s commitment to his campaign promise to follow an “America First” approach and end the chain of “horrible” trade deals that put the American worker at a disadvantage. To put it mildly, the move was controversial, but it was favored by labor unions, much of the Democratic Party and many of those in the “rust belt” states. At the same time, the TPP pullout was heavily criticized by pro-trade parts of the Republican Party, many economists and business leaders who conduct cross-border trade.

What exactly is the TPP? The TPP was originally envisioned as a trade zone that would deepen the economic links between twelve participant countries. TPP was expected to reduce tariffs and promote trade to boost economic growth. Additionally, it was supposed to help the twelve countries develop a closer relationship based on economic policies and regulation. The ultimate goal of TPP was to establish a new single market similar to the European Union.

The twelve countries that signed the TPP agreement were Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Taken together, the TPP bloc would represent roughly 40 percent of global GDP and 20 percent of world trade. Additionally, encompassing a collective population of eight hundred million people. According to the Washington, DC–based Peterson Institute for International Economics, the deal would have increased U.S. exports by $123 billion.

Another Washington think tank, the Brookings Institution, gave a generally positive view of the TPP and noted that “while the overall impact of the TPP on the U.S. economy may seem relatively small given the already open nature of the U.S. economy and the small amount of trade with TPP countries as a share of U.S. GDP, the agreement brings with it some valuable economic benefits for the U.S. from new market access opportunities. Perhaps most importantly, the TPP will underpin important reforms and positive growth trajectories across TPP parties that are also consistent with U.S. values and economic interests going forward. It is in this respect that the TPP is an important economic and strategic win for the U.S.”

The TPP’s roots came from the 2005 trade talks between Brunei, Chile, New Zealand and Singapore, which then expanded to include the rest of the twelve countries. Six additional countries—Colombia, the Philippines, Thailand, Taiwan, South Korea and Indonesia—also indicated an interest in participating in the partnership.

China was the major economy not involved in TPP. The country’s leadership was concerned about the new guidelines for TPP. Many people thought the guidelines included unfair trade practices, such as multiple regulatory barriers to imports, subsidization of overproduction in commodity goods like steel and the promotion of national champions in key strategic industries such as computer chips.

The Obama administration favored TPP and saw it as a means of bolstering the United States’ position in the Asia-Pacific region—with an eye toward countering China’s growing influence. The United States signed the agreement to formally join, but the treaty needed ratification from Congress. However, with the U.S. election in full swing in 2016, President Barack Obama backed off from pursuing congressional approval of the TPP agreement. He believed that it would be difficult to get the majority of Congress to support its passage, especially since many Democrats—including presidential contender Bernie Sanders—were vocally opposed to the trade deal.

The progressive view of the TPP deal was that it would further destroy middle-class jobs, benefit only a small group of companies and their top management, and pit labor from different member countries against one another. Due to this surge in anti-TPP sentiment, Hillary Clinton, who was initially in favor of the trade deal, was forced to ditch her earlier support for it.

Meanwhile, Trump was one of the most vocal opposition voices to TPP. He bucked the Republican Party’s traditional free-trade stance and called the TPP a “horrible deal” for the American worker. Indeed, Trump argued against major trade deals during the presidential campaign and vowed to back out of the TPP and renegotiate the North American Free Trade Agreement. This struck a responsive chord in parts of the United States where people strongly believed that international trade deals have destroyed the American middle class by “giving away” jobs to foreigners.

The United States’ decision to pull out of TPP was widely regarded as a blow to free trade and a major step toward a more protectionist Washington, DC. The Trump administration indicated that the decision was based on a preference for “fair trade” and Trump left little doubt that his action on TPP was only the beginning. “We’re going to stop the ridiculous trade deals that have taken everybody out of our country and taken companies out of our country, and it’s going to be reversed,” he said.

Trump’s action received praise from Democrats and labor groups. Indeed, James P. Hoffa, general president of the Teamsters union, said Trump had “taken the first step toward fixing 30 years of bad trade policies.”

But not all voices praised the action. Republican Senator John McCain said that pulling out of TPP was a “serious mistake” that would hurt the United States. “And it will send a troubling signal of American disengagement in the Asia-Pacific region at a time we can least afford it,” he said in a January 23 statement.

Outside of the United States, the TPP decision raises other questions over trade and security issues. In much of Asia, it is being taken as a move to downgrade the significance of the region in a strategic sense—which is expected to force many countries to come to terms with an ascendant China. For Japan, the decision was a major blow for economic reforms. There had been considerable hope that the deal would bring the world’s first- and third-largest economies together in a trade bloc—a message used by Prime Minister Shinzo Abe to liberalize Japan’s economy. Also, Japan is not eager to have China join the TPP, something that has been suggested by Australia.

Two camps emerged from the debate over TPP. The first favors a more sharp-elbowed approach to trade. It has an emphasis on fairness as well as a willingness to run the risk of trade wars in order to generate jobs and rebalance the flow of goods in favor of the United States. Indeed, there are some major problems with the way U.S. trade is structured, especially with China. The other school of thought remains strongly oriented to free trade and regards the TPP decision as a harbinger of more dangerous times ahead. Along these lines, a Wall Street Journal editorial stated: “The economic damage will come in the months ahead if trade becomes a game of beggar-thy-neighbor self-interest in which national success is measured by a simple trade surplus. Then we’ll look back on TPP’s demise as a watershed to regret.”

Did TPP matter to the United States? The answer is yes—especially as it has further stirred up the debate about trade. If nothing else, it has put U.S. policy in Asia into dangerous waters, where it is difficult to project what the end result will be. Consequently, the impact of the TPP’s failure will have to measured by what replaces it—new bilateral trade deals or trade wars. If nothing else, the issue of trade has clearly gone from the back pages to prime-time coverage, and no doubt will stay there in the months to come.

Article Link To The National Interest:

Killing Jobs Is The Wrong Way To Get Tough On Trade

By Nicole Gelinas
The New York Post
January 30, 2017

In the long run, we’re all dead — and Republicans’ idea to hike taxes on foreign-made goods and cut them on American-made goods may be a good idea. In the short run, it means hundreds of thousands of job losses at stores that rely on imported goods.

No, retail jobs aren’t great — but we’ll miss them when they’re gone.

President Trump ran for office on supporting good American jobs, particularly in manufacturing. That means relying less on the imported cars, toys, clothes and electronics that Americans buy.

To that end, he supports some sort of tax on imported goods. During the campaign and after he won, he suggested 35 percent. Last week, his staff spoke approvingly of the 20 percent tax congressional Republicans suggest.

The idea is that companies of all sorts would respond to the tax by making more products in the United States. This would help correct a real crisis: We currently import half a trillion dollars more every year than we export.

Fine — except: 16 million Americans have jobs selling mostly imported goods.

Most people who work at a department store, clothing store, shoe store, car dealership or phone store sells something that was made somewhere else, or of imported parts.

It would be one thing if the retail industry were thriving and able to handle the price increase such a tax would mean. But it’s not. Macy’s said after Christmas it would close 100 stores. Sears is closing 150 stores. Malls are going into foreclosure because their owners have no tenants.

“If you look at what’s happening, people are trading down,” says Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting and investment-banking firm.

The 25 percent of Americans who have no savings at all and the 40 percent of Americans who have no retirement savings shop only at deep-discount stores.

Stores at all price levels would have no choice but to pass the new tax onto consumers. Even a 5 percent price rise “would be noticeable” and “make a difference” in sales, Davidowitz says.

Walmart is already complaining about the prospect of a new tax — but a giant like Walmart knows how to be efficient, and will survive. Less-efficient retailers, including the still-surviving smaller stores, would fail.

Everyone, though, will end up cutting jobs. And though front-line retail workers don’t make much above minimum wage, the industry, with managers and other well-paid staff included, doesn’t pay as badly as people might think: The average hourly wage is nearly $18. Walmart is cutting 1,000 headquarters jobs in Arkansas starting this month — many of them good-paying careers.

And a minimum-wage job is better than no job, especially since working at all makes poorer people with children eligible for $2,500 in annual tax credits, on average, that they wouldn’t otherwise get.

But won’t people who get laid off from bad retail jobs get good factory jobs instead? Don’t count on it.

The country has 12.3 million manufacturing jobs. So to replace lost retail jobs, manufacturing would have to grow far faster than the retail industry shrinks. Plus, factory workers are more efficient than retail workers — which is partly why they make more.

Consider: Ford, GM and Fiat have all said that they’ll create 4,000 US jobs in the next few years. But Macy’s alone is cutting 10,100 jobs, including lots of management jobs.

And that’s right now.

As for Amazon saying it will add 100,000 jobs? If it keeps taking business away from less efficient competitors, they’ll have to cut far more than 100,000 jobs in return. One huge department store can have “1,000 people working in it,” says Davidowitz.

Trump and the congressional Republicans who have decided they like his trade principles better than theirs aren’t wrong on the reasoning behind the proposed tax: We do need to create better jobs here. But it’s small-c conservative to try to do that without directly harming a critical industry in the meantime.

Congress could cut taxes on exporters without raising them on importers. Sure, that would require more national debt — but better to borrow now so that adding one job doesn’t mean simultaneously subtracting one.

Article Link To The New York Post:

Elliott Turns Up CEO Pressure Blending Activism With Buyouts

By Michael Flaherty and Liana B. Baker
January 31, 2017

Eight days after Elliott Management disclosed a 7.6 percent stake in LifeLock Inc (LOCK.N), managers of the more than $30 billion hedge fund met with executives at the consumer protection company.

Activist investors such as Elliott usually use these initial meetings to lay out a broad plan on how to boost the stock price.

But when LifeLock's managers sat down with Elliott last June, the leader of its new private equity team revealed that Elliott was interested in buying the entire company, according to a December securities filing. Just like that, the auction for LifeLock began.

In the end, the winning bid came from Symantec Corp (SYMC.O), which also counts Elliott among its major shareholders. LifeLock's $2.3 billion sale agreement in November handed Elliott an 80 percent return on its five-month investment.

The deal shows how the hedge fund is rewriting the activist investor playbook, ramping up its ability to act both as an engaged shareholder and a potential buyer of the whole company.

Over the past few decades, activists have primarily focused on buying minority stakes and pushing for changes, which include leadership changes, cash allocation and exploring the sale of the company.

Elliott's private equity push promises greater rewards, but also involves bigger risks. Owning the majority of a company that fails to live up to its potential can hurt the fund's bottom line and its reputation far more than a minority stake that underperforms. It also creates potential confusion for CEOs and boards wondering which hat Elliott is wearing when it shows up among shareholders.

The multi-strategy fund, which also invests in other assets, such as currencies, commodities and government bonds, is alone with its hybrid approach, for now, thanks mainly to its size and resources.

Even the largest activists have half or less of Elliott's capital and usually a dozen or so investment professionals compared with more than 150 that work for Elliott.

Elliott's strategy is paying off for the fund, whose founder Paul Singer has built a reputation as one of the world's toughest investors, adept at applying relentless pressure on targets that include national governments and some of the largest companies in the world.

Blurring The Line

Of the 15 companies Elliott has targeted with a more than 5 percent stake since 2015, ten have inked $40 billion worth of deals - including two spin-offs. Activist investor Carl Icahn has disclosed nine similar filings in the same period that included two sales and two spin-offs.

Elliott made an average return of around 30 percent on the deals, according to a Reuters analysis of filings and research firm 13D Monitor (tmsnrt.rs/2iRamAo). That compares to a 6 percent return from activist funds over a similar period, according to Hedge Fund Research.

Still, some investors in public companies may feel uncomfortable blurring the line between the roles of a minority shareholder and a private equity investor, analysts say.

"It's a conflict because as a shareholder, your goal is to get the maximum return on your investment. As a private equity buyer, you want the best possible price," said Charles Elson, a University of Delaware corporate governance professor who also sits on the board of restaurant chain Bob Evans Farms Inc (BOBE.O).

As a director, he would always wonder if Elliott's interest was as a shareholder or a buyer, Elson said.

"There is no conflict in these situations, because it is the company’s board of directors, not Elliott, that decides whether to sell the company and who to sell it to," an Elliott spokesman said in an emailed statement.

Michael Stark, the founder of CrossLink Capital and major LifeLock shareholder, said he had no issue with Elliott acting both as an investor and a bidder, though he was slightly disappointed with the final price Symantec paid.

"We got the bottom end of a fair price," Stark said. "As long as shareholders were fairly represented by the board and management team, I'm okay with that."

Some activist investors have made buyout bids in the past, but not in a systematic manner.

Starboard Value, an activist fund with more than $4 billion in assets, offered in 2014 to buy 3-D technology maker RealD, which sold the following year to private equity. Icahn Enterprises bought auto service and parts chain Pep Boys for $1 billion in early 2016 and is trying to buy Federal Mogul Holdings Corp, another auto parts maker.

Advisors to activists told Reuters that several activist funds were considering expanding into private equity but are still assessing whether to make such a move.

Build Up

Last year, New York-based Elliott expanded its tech-focused private equity practice, adding professionals, naming it Evergreen Coast Capital Corp and opening an office in Silicon Valley.

Unlike in the past, when it would occasionally bid for majority stakes, the fund now has a dedicated team chasing buyouts of whole companies.

Last June, Evergreen teamed up with Francisco Partners to buy Dell's software assets for more than $2 billion, but Elliott has yet to emerge as the sole owner of any of public companies it offered to buy.

While that might raise doubts about Evergreen's credibility as a potential majority owner, merely having a takeover offer in hand has allowed Elliott to fast-track what typically would be months of trench warfare between activists and reluctant boards.

Directors have a fiduciary duty to shareholders to explore a credible takeover proposal and launching an auction is one way to find out its worth.

"When you commit to buying a company as a private equity owner, you're putting your money where your mouth is," said Keith Gottfried, a partner at law firm Morgan Lewis who specializes in defending companies from activists.

The establishment of a dedicated buyout team follows a gradual effort that started with the launch of Elliott's tech investing arm, overseen by Jesse Cohn, who joined the fund in 2004 from Morgan Stanley as a 24-year old.

Cohn, who now oversees Evergreen and Elliott's U.S. activist investments, has developed close relationships with Silicon Valley and Wall Street firms, helping Elliott to strike deals where the fund would keep its stakes in companies going private. (tmsnrt.rs/2je93zI)

These roll-over stakes allowed Elliot to benefit from the premium a sale would usually command, and later share profits with the private equity firm once it was ready to offload the revamped company.

But buyout firms grew reluctant to share the spoils with Elliott. Its latest setback came in early 2015 when buyout firm Thoma Bravo bought software developer Riverbed Technology for $3.5 billion in a sale Elliott helped trigger, but then did not let the fund stay on as a minority investor.

After that snub, Elliott's top executives, including Singer, co-chief investment officer Jon Pollock and Cohn began laying the ground for Evergreen, which would give Elliott more independence in seeking its own private equity deals. Elliott's investments, including ones made by Evergreen, come from the same general pool of capital shared across the firm, a person familiar with the matter said.

Rich McBee, chief executive of business telecommunications company Mitel Communications (MITL.O), in which Elliott has owned shares for nearly a decade, said he valued the regular contacts and Elliott's readiness to offer strategic suggestions.

"They don’t come with an idea that they have not fully investigated or vetted and talked with a lot of people about," McBee told Reuters in an interview. "It’s not a random walk with them."

Article Link To Reuters:

How Toyota, Target, Best Buy Are Fighting Back Against Republican Border Tax Push

By Ginger Gibson and David Shepardson
January 31, 2017

Days before a group of Republican lawmakers were due to discuss their party's controversial proposal to tax all imports, Toyota Motor Corp (7203.T) sent an urgent message to its U.S. dealers - tell the politicians the tax would seriously hurt car buyers.

Some of Toyota's 1,500 dealers heeded the call and contacted members of the House of Representatives' tax-writing Ways and Means Committee, urging them to rethink their proposal, according to people familiar with the effort.

Imposing a 20 percent tax on imports would force consumers to pay potentially thousands of dollars more for vehicles, they warned.

The Japanese automaker's mobilization of its army of dealers underscores the growing alarm among some of the world’s largest companies that sell imported goods in the United States. They fear a big tax on imports would hurt their sales and profits and put them at a disadvantage to rivals more reliant on U.S.-made products.

"Cost is going to go up, as a result demand is going to go down. As a result, we're not going to able to employ as many as people as we do today. That's my biggest fear," Toyota's North America CEO Jim Lentz said in an interview.

Toyota dealers employ more than 97,000 people in the United States.

While companies and industry groups frequently lobby Congress, the threat of an import tax has mobilized an unusually broad swath of firms at home and abroad. That lobbying effort is taking place largely out of the public eye partly to avoid potential conflict with President Donald Trump, who has attacked companies for manufacturing abroad for U.S. consumers.

Earlier this month Trump targeted Toyota, threatening to impose a hefty fee on the world's largest automaker if it builds its Corolla cars for the U.S. market at a plant in Mexico.

The White House said last week that a border tax is one option under review to pay for a wall with Mexico, although what exactly Trump is planning to do is still not clear. He has pledged to impose a "big border tax" on Mexican imports.

The plan proposed by House Republicans would cut corporate income tax to 20 percent from 35 percent, exclude export revenue from taxable income and impose the 20 percent tax on imports.

Companies that rely heavily on imports say a border tax will outweigh the benefit of a lower headline corporate tax.

As car dealers are reaching out to members of Congress in their districts, Toyota and other automakers are lobbying lawmakers in states where they have large manufacturing plants and employ thousands of workers.

The No. 3 vehicle seller in the United States behind General Motors Co (GM.N) and Ford Motor Co (F.N), Toyota imports about 1.2 million vehicles to the U.S. market annually, half of its 2.4 million U.S. sales. It employs 40,000 people directly.

Baby Supplies And Beer

Toyota and the automakers are not alone in this lobbying effort.

Target Corp's (TGT.N) chief executive, Brian Cornell, traveled to Washington to meet members of the House Ways and Means Committee. He told them an import tax could impact consumers' ability to buy essential goods, such as baby supplies that are made overseas and imported to the United States, according to a person familiar with the talks. Target spokeswoman Dustee Jenkins confirmed the visit.

The largest U.S. electronics retailer, Best Buy (BBY.N), headquartered down the road from Minneapolis-based Target, has circulated a flyer to lawmakers. It cites an analyst forecast that a 20 percent tax would wipe out the company's projected annual net income of $1 billion and turn it into a $2 billion loss.

The flyer, a copy of which was seen by Reuters, argues that foreign Internet sellers like China's Alibaba.com would be able to avoid the tax by making sales online and shipping to U.S. consumers directly, “undercutting U.S. businesses.”

Company officials have been handing out the flyer to lawmakers and their staff on Capitol Hill, Best Buy spokesman Jeff Shelman confirmed.

Constellation Brands (STZ.N), which brews Corona and Modelo in Mexico, has been pushing lawmakers to exempt products like Mexican beer in any border tax “because it’s inherently a Mexican product," CEO Rob Sands said on an earnings call.

But if that effort fails, Constellation is prepared to buy more raw materials from the United States instead of Mexico, Sands said.

Koch Industries [KCHIN.UL], the second-largest private U.S. company according to Forbes, said in a statement a border tax would have a "devastating" impact on consumers. The company, owned by Republican donors Charles and David Koch, includes oil refining and manufacturing interests.

Tim Phillips, the president of Americans for Prosperity, a conservative political group founded by the billionaire brothers, told Reuters the powerful group has started to educate its network of activists about the tax, so they can lobby against it. AFP says it has two million activists

Love And Hate

Not everyone in corporate America is worried about a new border tax.

Several aerospace companies including Boeing Co (BA.N), United Technologies Corp (UTX.N) and Raytheon Co (RTN.N) said in earnings calls last week that a border tax could be positive for net exporters like them.

“We see the aerospace sector as fundamentally having an advantage in that regard,” Boeing CEO Dennis Muilenburg said.

The American International Automobile Dealers Association (AIADA), however, called the proposal "heart stopping," in a letter last week to 9,500 dealers selling vehicles like Toyota, Volkswagen (VOWG_p.DE), and BMW (BMWG.DE).

Opponents of the border tax may have already found some allies.

Republican Representative Trey Gowdy of South Carolina, where BMW has a large plant, said the importance of foreign automakers such as BMW and Toyota to the economy needs to be considered when making laws.

“I cannot overstate how significant that industry is to my state,” Gowdy said in an interview, adding that he and his wife both drive Toyotas.

Article Link To Reuters:

Fed Likely To Keep Rates Steady As It Awaits Trump Economic Plan

By Lindsay Dunsmuir 
January 31, 2017

The U.S. Federal Reserve is expected to keep interest rates unchanged on Wednesday in its first policy decision since President Donald Trump took office, as the central bank awaits greater clarity on his economic policies.

Trump has promised a large infrastructure spending program, tax cuts, a rollback of regulations and a renegotiation of trade deals but has offered few details or a timeline for their roll out since his victory in the Nov. 8 election.

The central bank's latest policy decision is scheduled to be released at 2 p.m. EST (1900 GMT) on Wednesday at the conclusion of a two-day meeting. Fed Chair Janet Yellen is not due to hold a press conference.

The policy decision will come a week after Yellen underscored that the U.S. economy is near full employment and warned of a "nasty surprise" on inflation if the Fed is too slow with its rate hikes.

Economists polled by Reuters have all but ruled out a rate increase at this week's meeting. Investors next see an interest rate rise in June, according to Fed futures data compiled by the CME Group.

The Fed raised its benchmark interest rate at its last policy meeting in December, the second such move in a decade, to a target range between 0.50 percent and 0.75 percent. It forecast a further three rate increases this year.

Wait-And-See Mode

Despite encouraging U.S. economic data, Fed policymakers are currently hampered in assessing how quickly inflation might rise until they have more information on Trump's economic plans.

"At the moment there's incredible uncertainty surrounding fiscal policy and the potential for stimulus and the composition of that," said Paul Ashworth, an economist at Capital Economics. "The Fed can't react until it knows what to react to."

With the U.S. economy already bumping up against full employment, Trump's promises on fiscal stimulus and tax reform could quickly spur higher inflation as would imposing tariffs on Mexican imports.

That may cause Fed policymakers to raise rates faster.

Other policies, such as an immigration crackdown, go against what the Fed argues the U.S. economy needs to grow over the long term.

U.S. stocks fell on Monday after Trump curtailed travel and immigration to the United States from seven predominantly Muslim countries.

The S&P 500 index .SPX is still up roughly 6 percent since Trump's victory and the robustness of the domestic economy makes the United States increasingly divergent from Japan, the euro zone and Britain, none of which are expected to raise rates anytime soon.

The Fed will likely only make minor tweaks in its policy statement on Wednesday to reflect a string of positive recent economic reports.

"Changes to the ... statement should be mostly upbeat," Roberto Perli, an economist at Cornerstone Macro LLC, said in a note to clients.

The U.S. unemployment rate is 4.7 percent and business investment has improved, despite a slowdown in fourth-quarter economic growth caused mostly by a widening trade deficit. Consumer spending, which accounts for more than two-thirds of the nation's economic activity, rose solidly in December, according to Commerce Department data released on Monday.

In the same report, the Fed's closely-watched inflation gauge also edged up to 1.7 percent.

Article Link To Reuters:

Trump's Go-To Man Bannon Takes Hardline View On Immigration

By John Walcott and Julia Edwards Ainsley 
January 31, 2017

When Donald Trump's administration put together its controversial executive order on immigration, it was Steve Bannon – the populist firebrand fast emerging as the president's right-hand man – pushing a hard line.

Senior officials at the Department of Homeland Security (DHS) interpreted the order to mean that lawful permanent residents - green card holders – who hailed from the seven Muslim-majority countries targeted in the immigration order would not face additional screening when they entered the country.

But they were quickly overruled by Bannon, who is Trump’s chief strategist and oversaw the drafting of the executive order along with White House senior policy adviser Stephen Miller, a close ally of Bannon's, the officials said.

"They were in charge of this operation," one senior DHS official said, adding that the experts were "almost immediately overruled by the White House, which means by Bannon and Miller."

A senior national security official described the pair as a "tag team" pushing Trump's key policies, including the immigration order which bars the entry of refugees and places a temporary hold on people from seven countries - Syria, Yemen, Iraq, Iran, Sudan, Somalia and Libya.

The inclusion of green card holders from those countries intensified opposition to an executive order that sparked legal challenges, protests at airports and sharp criticism from inside the Republican Party, including from some Trump allies.

DHS officials say there was little or no White House consultation with immigration, customs and border security agencies on the immigration policy change, causing widespread confusion over how to implement Trump's order.

A senior administration official said the order went through a review by "key people" at DHS and the White House National Security Council, and that several immigration staff on Capitol Hill were involved in drafting the order.

But officials said Bannon was the driving force throughout.

The White House declined to comment on his role.

Critics have accused Bannon of harboring anti-Semitic and white nationalist sentiments. Under Bannon's leadership, his Breitbart website presented a number of conspiracy theories about Trump's Democratic rival in the 2016 election, Hillary Clinton, as well as Republicans deemed to be lacking in conservative bona fides.

Bannon has ascribed his interest in populism and American nationalism to a desire to curb what he views as the corrosive effects of globalization. He has rejected what he called the "ethno-nationalist" tendencies of some in the movement.

After becoming chief executive of Trump's election campaign in August, the former Goldman Sachs banker and Navy veteran helped lead him to victory over Clinton. He was then appointed by Trump as senior counselor and chief strategist - jobs not subject to U.S. Senate confirmation.

He has been an almost constant presence by Trump's side in the first 10 days of the administration - in the White House for a meeting with American manufacturers, at CIA headquarters the day after Trump was sworn in, and in the Oval Office during British Prime Minister Theresa May's visit.

He appears to have greatly expanded his power in the first 10 days of Trump's presidency.

Elevation To NSC

Trump gave him an unprecedented seat in the NSC's top-level meetings and potentially narrowed the role played by the director of national intelligence (DNI) and the chairman of the Joint Chiefs of Staff.

Bannon has also asserted authority over almost all written statements from the White House and the NSC and has sent back documents for rewrites as he sees fit, one NSC official said, speaking on condition of anonymity.

Critics, including four senior U.S. intelligence officers, called the decision to formalize Bannon's role at the NSC meetings a mistake, saying it risks politicizing decisions on national security.

White House spokesman Sean Spicer on Monday defended Bannon's inclusion in the NSC.

Susan Rice, the former national security adviser in former President Barack Obama's administration, tweeted on Sunday: "This is stone cold crazy. After a week of crazy."

Bannon and Miller are drowning out the opinions of more moderate advisers like White House Chief of Staff Reince Priebus, said a senior DHS official and two people in Washington who work closely with the White House on immigration and a range of other issues.

One of those people and the DHS official said Priebus felt he had placed enough of his fellow moderate Republicans in key positions at the White House as a counterbalance to Bannon and Miller, but he has been frustrated at their outsized influence so far, especially on issues of immigration and national security.

The White House dismissed the views of the officials as gossip.

Article Link To Reuters:

Tech Companies To Meet On Legal Challenge To Trump Immigration Order

By Dan Levine and Jeffrey Dastin
January 31, 2017

A group of technology companies plans to meet on Tuesday to discuss filing an amicus brief in support of a lawsuit challenging U.S. President Donald Trump's order restricting immigration from seven Muslim-majority countries, said a spokesperson for a company organizing the gathering.

The meeting is being called together by GitHub, which makes software development tools.

Amicus, or friend of the court, briefs are filed by parties who are not litigants in a case but want to offer arguments or information to the judge.

Alphabet Inc's Google, Airbnb Inc and Netflix Inc are among the companies invited, a separate person familiar with the situation said.

Representatives for Google and Netflix could not immediately be reached for comment. An Airbnb spokesman declined to comment.

The technology sector has become the clearest corporate opponent to the ban announced last week. The industry depends on talent from around the world, and companies have been considering the best way to muster their resources, with efforts so far including statements condemning the move and financial support for organizations backing immigrants, such as the American Civil Liberties Union.

The Trump administration says the rules will increase national safety and are well within its powers.

Michal Rosenn, general counsel for fundraising company Kickstarter, which will be involved in a filing, said the effort began on Monday.

"We're all very shaken. We're shaken to see our neighbors and our families and our friends targeted in this way," Rosenn said. "All of us are trying to think about what we can do."

The discussions among the tech companies come after Amazon.com Inc and Expedia Inc filed declarations in court on Monday supporting a lawsuit filed by the Washington state attorney general. Amazon and Expedia said Trump's order adversely impacts their business.

A separate lawsuit challenging Trump's order as unconstitutional was filed on Monday by the Council on American-Islamic Relations. If the tech companies decide to file an amicus brief as a group, it is unclear which case they would weigh in on.

Other companies invited to meet include Adobe Systems Inc, AdRoll, Automattic Inc, Box Inc, Cloudera Inc, Cloudflare Inc, Docusign, Dropbox, Etsy Inc, Evernote Corp, Glu Mobile Inc, Lithium, Medium, Mozilla, Pinterest, reddit, Salesforce.com Inc, SpaceX, Stripe, Yelp Inc, and Zynga Inc, the source said.

A representative for internet communications company Twilio confirmed it will be involved in filing an amicus brief.

Cloudflare Chief Executive Matthew Prince said the internet security company is willing to consider and sign an amicus brief. Denelle Dixon, chief legal and business officer for Mozilla, said the immigration order was "misplaced and damaging, to Mozilla, to the technology industry and to the country."

Spokespeople for Box and AdRoll said they would attend the meeting. An Etsy spokeswoman said the company received Github's invite but could not confirm if it would move forward with the group.

Salesforce declined to comment. Representatives for the other companies could not immediately be reached for comment.

Article Link To Reuters:

Trump Firing Of Yates Deepens Conflict Over U.S. Immigrant Order

Sally Yates, an Obama holdover, had questioned Trump’s ban; President’s attorney general nominee still awaits confirmation.

January 31, 2017

Yates, an Obama administration holdover, was ousted Monday just hours after she told Justice Department staff not to defend the ban in court because she didn’t think it was legal. A White House statement said she was removed for “refusing to enforce a legal order designed to protect the citizens of the United States.”

Trump quickly named another Obama appointee to the post, Dana Boente, the U.S. attorney for the Eastern District of Virginia, who instructed the department’s lawyers to defend the immigration ban against legal challenges. Boente would stay until Trump’s choice for Attorney General, Jeff Sessions, is confirmed by the Senate -- though Democrats are vowing a vicious fight to block the nomination.

The ouster of Yates intensified the drama and confusion that has been building since Trump issued the ban on Friday. It caps three days in which incoming international travelers were temporarily detained, protests sprung up around airports and many congressional Republicans criticized the White House over the order. Former President Barack Obama broke with tradition by entering a dispute with his successor by publicly backing the demonstrations.

Sessions Questions

Senate Minority Leader Chuck Schumer said Sessions, a Republican senator from Alabama, should be required to address questions about his independence from the White House before being voted on, as Democratic concerns over his nomination intensified in the aftermath of Yates’s firing.

“The attorney general should be loyal and pledge fidelity to the law, not the White House,” Schumer said in a statement. “The fact that this administration doesn’t understand that is chilling.”

The ouster of a sitting attorney general -- albeit an Obama administration holdover who would have left the job upon Sessions’s confirmation -- inevitably echoes a dark moment in American history: the 1973 Saturday Night Massacre, when President Richard Nixon dismissed a special prosecutor probing the Watergate scandal, prompting the resignations of the Justice Department’s top two officials.

“For as long as I am the acting Attorney General, the Department of Justice will not present arguments in defense of the executive order, unless and until I become convinced that it is appropriate to do so,” Yates said in her statement, released hours before she was fired.

‘Politicized’ System

Stephen Miller, a White House senior adviser who helped write the Trump administration order, said on MSNBC Monday evening that Yates’s statement was “a further demonstration of how politicized our legal system has become.” He said the president has “the absolute right” under immigration law to exclude any class of visitors from entering the country.

“The president has that authority,” Miller said. “It’s been delegated by Congress.”

Trump’s order temporarily barred entry for people from Syria, Iraq, Iran, Sudan, Somalia, Yemen and Libya, tripping up people who were already legal residents of the U.S. or visa holders, and suspended refugee immigration programs.

Legal challenges to the executive order have been mounted across the country already, with civil liberties groups saying they will work to have the entire action overturned by the courts. The Justice Department would be tasked with defending the order in court, a mission that Boente pledged to carry out as he rescinded Yate’s policy statement late Monday night.

White House Press Secretary Sean Spicer defended the ban at a press briefing Monday, saying no one should be surprised since the idea was a key theme of Trump’s presidential campaign.

But the immigration action provoked unease stretching from foreign capitals to corporate suites, as people who hoped Trump might moderate some of his more far-reaching campaign promises are finding he’s carrying them out just as he said he would.

State Department

Controversy also erupted at the State Department last week, where several veteran career officials stepped down as Trump moves to put his stamp on U.S. foreign policy. Other foreign service officers then began circulating a draft of a so-called dissent memo criticizing Trump’s immigration executive order after it was issued on Friday.

Boente was sworn in about 9 p.m., shortly before the firing was announced, said White House spokesman Michael Short.

“I am honored to serve President Trump in this role until Senator Sessions is confirmed," Boente said in a statement released by the White House. "I will defend and enforce the laws of our country to ensure that our people and our nation are protected."

Homeland Security Secretary John Kelly is planning to head to Capitol Hill Tuesday to meet privately with top House and Senate leaders, including Republicans and Democrats from key committees, according to two congressional aides. The exact timing for the meeting is still uncertain, but Senate Majority Leader Mitch McConnell, and Speaker Paul Ryan were among those trying to make time to attend, according to aides.

Kelly Meeting

Others invited to attend are Schumer and the top two Democrats in the House, Nancy Pelosi and Steny Hoyer, as well as House Majority Leader Kevin McCarthy. Some committee chairmen and ranking Democrats, including those on the Homeland Security, Judiciary, Intelligence, Foreign Affairs and Appropriations panels, are also invited.

A Republican congressional aide said the House Homeland Security Committee wasn’t consulted on the executive order, and an aide to a Republican House Judiciary Committee member said he wasn’t aware of any committee members or staffers being consulted. On Sunday, a senior leadership aide said congressional leaders had no role in drafting the order.

The administration said the executive order had been carefully crafted and well implemented. Trump, in a tweet, said Kelly “said that all is going well with very few problems.”

Entry Denied

But there were many reports of immigrants denied entry at U.S. airports or stuck at airports overseas, and advocacy groups alleged that customs agents were defying court orders to let people into the country.

“They understand that this was not handled in the most productive manner,” Senator Bob Corker, the Tennessee Republican who’s chairman of the Senate Foreign Relations Committee, told reporters. Corker said he wasn’t briefed before the order landed, and said he hopes there’s more communication and an inter-agency process next time for something thus far-reaching.

“My guess is they’re going to try to clean it up,” Corker said.

Representative Charlie Dent, a Pennsylvania Republican, called for the order to be pulled back.

“This was overly broad, overly rushed and implemented in a haphazard manner,” he said.

Florida Senator Marco Rubio, who ran against Trump for the Republican nomination, said he had been trying to get more information about the orders but that State Department officials told his staff that they had been ordered not to talk to Congress.

Potential Investigation

“There is no doubt” that multiple committees will be asking administration officials to explain the policy, he said.

House Appropriations Committee Chairman Rodney Frelinghuysen, whose control over all legislation spending federal money makes him a key figure in Congress, warned of a potential investigation of the disruption in enacting the order.

“This weekend’s confusion is an indication that the details of this executive order were not properly scrutinized,” the New Jersey Republican said in a statement. “Congress has important oversight responsibilities over all executive orders, which we intend to exercise.”

Article Link To Bloomberg:

Dollar Slips Amid Trump's Hardening Policy Defence, Yen Benefits

By Shinichi Saoshiro
January 31, 2017

The dollar slipped against the yen on Tuesday, as the Japanese currency benefited from its safe-haven status, with the appetite for risk curbed by U.S. President Donald Trump's hardening defence over his immigration policies.

The dollar was down 0.2 percent at 113.570 yen after dropping to as low as 113.240. It lost more than 1 percent overnight, when it was knocked off its perch above 115.000.

The latest blow against the dollar was initiated after Trump ordered a temporary ban over the weekend on the entry of refugees and people from seven Muslim-majority countries.

On Monday, the president fired acting U.S. Attorney General Sally Yates after she refused to defend Trump's new travel restrictions.

Selling of the dollar appeared to have briefly gained momentum after Trump's move, said a dealer at a Japanese bank.

The Bank of Japan's well-anticipated decision to stand pat on monetary policy on Tuesday had little lasting impact, although the dollar did briefly rise above 113.700 following the announcement before drifting lower again.

"Dollar/yen weakness started overnight, which is much more driven by U.S. policy. The BOJ's no change decision resulted in a 'continue on' with the established direction," said Bart Wakabayashi, head of Hong Kong FX sales at State Street Global Markets.

While the BOJ on Tuesday maintained a pledge to guide short-term interest rates at minus 0.1 percent and the 10-year government bond yield to around zero percent, the financial markets have begun to speculate about when the central bank might allow long-term rates to drift higher.

The euro was flat at $1.0696. The common currency had clawed back from an 11-day low of $1.0620 on Monday, helped by data showing German consumer price inflation hit the highest in 3-1/2 years and nearing the European Central Bank's price stability target of just under 2 percent.

The euro was poised to gain 1.7 percent against the dollar this month.

The pound was up 0.2 percent at $1.2516, but still within reach of a near one-week low of $1.2466 plumbed overnight on nervousness ahead of Thursday's Bank of England policy meeting.

The Australian dollar added 0.15 percent to $0.7564, on track for its third straight day of gains against its U.S. counterpart.

The New Zealand dollar was virtually flat at $0.7288, staying in proximity of an 11-week peak of $0.7314 scaled last week.

The Aussie and kiwi were both on track to end the month roughly 5 percent against the volatile greenback.

The dollar index against a basket of major currencies was down 0.1 percent at 100.360. It was poised to lose 1.8 percent this month.

The index had soared to a 14-year high of 103.820 at the start of January when market expectations towards Trump still centred on potential stimulus plans under the new president.

Article Link To Reuters:

Europe Could Shuffle Top Jobs Ahead Of 2019’s ‘Year Of Expiry’

Once it gets past 2017’s elections, 2019 could be the year Europe’s luck runs out.

By David Marsh
January 31, 2017

European governments and the European Central Bank may have to invent imaginative solutions for the “year of expiry” coming in 2019, when many linchpins of European politics and economics will slip away, possibly with disastrous consequences.

With Donald Trump in the White House, a whiff of gunboat diplomacy in the South China Sea and a rush of European elections in 2017, political strategists in Europe’s capitals can be forgiven for not turning their eyes right now to circumstances in two years.

Further signs of polarization came on Sunday with news from France that Benoît Hamon, the firebrand left-wing former minister previously regarded as a no-hoper, beat Manuel Valls, the former prime minister and early front-runner, to become the Socialist candidate in April’s presidential election.

Yet 2017 may not see the nadir of Europe’s fortunes. Assuming the European Union and in particular the economic and monetary union (eurozone) survives the next 12 months without further ravages, 2019 might be the year when Europe’s run of bad news becomes terminal.

At that time, everything runs out: the eight-year mandates of European Central Bank President Mario Draghi and Bundesbank chief Jens Weidmann; generous flows of EU structural support funds to Eastern and Central Europe; and EU payments by the U.K., the departing third-biggest net contributor.

Moreover, any chance of further largesse for Europe’s problem-hit peripheral countries through the ECB’s (by then) €2 trillion-plus quantitative easing bond purchases will by then have ended.

Already, some ECB watchers are speculating that, as part of a last-ditch effort to shore up the EURUSD, +0.0374% edifice, EU leaders after the German elections in September could decide to “recalibrate” jobs at the helm of European central banking.

In 2018, assuming Angela Merkel, the German chancellor remains in power after the vote this autumn, she could lead a bold move to switch Weidmann, a year ahead of expiry of his eight-year term, to the helm of the ECB. This would free Draghi to assume the prime ministership in Rome as yet another technocratic government leader to maintain Italy’s fraught position in the EU and the euro’s economic and monetary union.

Such a scenario might appear far-fetched, but it would have three advantages.

First, promoting Weidmann to head the ECB would bind Germany comprehensively to continue its adherence to the euro, blocking any move (however complicated that might be) for Germany itself to depart.

Second, QE — extended throughout 2017 although at a lower monthly rate of government bond purchases from April until December — will almost certainly have ended by the second half of 2018, allowing Draghi to bow out of his tenure in Frankfurt on a message of “mission completed.”

Third, Draghi, who will be 70 in September, would be following in the highly respectable footsteps of Carlo Ciampi, another senior Italian technocrat who, like Draghi, headed the Banca d’Italia. Ciampi, who died aged 95 last September, became Italian prime minister in 1993, aged 72, and was Treasury minister supervising the euro’s introduction in 1999 as well as Italian president in 1999-2006 — a job that Draghi could still take in coming years if he proves resilient and successful enough.

A Weidmann-Draghi reshuffle would confirm the strong element of Realpolitik running through European decision-making at a time of challenges unparalleled since the 1950s.

German officials say there is no alternative to further QE this year even though it will lead to unpopular rises in German inflation — since the alternative would be worse. An early ending to government bond purchases could precipitate a capital-market shock and a banking collapse in Italy and other peripheral states — and this would have a still greater negative effect than QE on nervous German voters ahead of the September parliamentary elections.

Article Link To MarketWatch:

4 Signs A Stock-Market Selloff In February May Be In The Cards

The first major pullback for stocks in the Trump era augurs ill.

By Mark DeCambre
January 31, 2017

U.S. stocks on Monday descended significantly for the first time in the Donald Trump post-election era that delivered a multi-month shot in the arm to equity investors.

There are signs that stocks, which have risen on hope that the new president would unfurl a slate of policies favorable to Wall Street, may see a healthy downturn from recent records.

On Monday, the Dow Jones Industrial DJIA, -0.61% S&P 500 index SPX, -0.60% and Nasdaq Composite Index COMP, -0.83% all registered their worst daily drops in weeks and Monday’s decline could be a harbinger of more weakness ahead, according to market technician Jonathan Krinsky, a top analyst at MKM Partners.

Doubts about Trump’s legislative focus and policies, that have tended to garner more jeers than cheers, are starting to significantly erode momentum from a record-setting climb. The major indexes had been hovering around all-time highs as recently as Thursday, highlighted by a push to psychologically significant level of 20,000 for the blue-chip’s gauge.

Krinsky, however, in a Jan. 29 research note, makes the case that Monday’s action may not be an aberration, pointing to a few technical factors that support the notion of a downturn that could see the S&P 500 index shed about 5% of its value, bringing it to about 2,180-2,190, marking the broad-market gauge’s lowest levels since around November.


Most notably, February tends to be a seasonally weak month for stocks over the past four decades. That trend is magnified in post-election periods, falling about 1.85% in the years following a presidential election, Krinsky noted.

Days Without A 1% Pullback

There have been 75 sessions (including Monday’s action) without a 1% drop in the S&P 500 index, which marks the longest such streak in about 11 years, according to Krinsky. A period of sideways trading tends to suggest that the market has pent up momentum. And if history is any gauge, momentum may be leaning toward a downturn, given the market’s tendencies in February.

Fear Is A Factor

A measure of Wall Street fear has been hovering around its lowest levels since about 2014, even as stocks soared to records and as Trump’s tough-talk on trade and immigration gave investors plenty of reason to be invest cautiously. Readings of the CBOE Volatility Index VIX, +12.29% of around 12 tend to imply complacency by the market while those of 20 indicate that the market is betting on a swing in prices to occur sooner than later. Monday’s sharp move pushes the “fear” gauge to 11.88—still very low by historical standards.

Bearish Bets

MarketWatch’s Joseph Adinolfi reported in mid-January that options bets that the market would tumble in February were on the rise. Those bets imply that many investors are bracing for a big selloff in February.

Rising political uncertainty also has been increasingly cited as one of the biggest concerns for markets and that may be hard to price in the era of Trump.

All that said, Krinsky still sees a downturn as a buying opportunity for investors. So, he’s expecting that any sizable retreat will be met with a rally that could take the market higher before these 2017 gyrations end.

Investor takeaway: To be sure, the equity market could power through February with nary a blip lower, especially given all the “animal spirits” that have been at work in markets lately. Moreover, stocks have climbed precipitously since the Nov. 8 election, the Dow has gained roughly 9% since that point, the S&P 500 has risen 7.3%, while the Nasdaq Composite has climbed 8.1%—despite Monday’s pullback.

Still, it is sometimes worth knowing how some market participants are positioning themselves.

Article Link To MarketWatch:

Wal-Mart Offers Free Two-Day Shipping In Latest Attempt To Compete With Amazon

By Nandita Bose
January 31, 2017

Wal-Mart Stores Inc (WMT.N) will offer U.S. shoppers free two-day shipping on a minimum order of $35 starting Tuesday, its latest attempt to compete with rival Amazon.com Inc's (AMZN.O) popular Prime shipping program.

Free shipping will replace 'Shipping Pass', Wal-Mart's existing two-day shipping program that charges shoppers an annual membership fee of $49. Amazon Prime charges customers $99 a year for two-day shipping that comes with additional features like a streaming video service.

Marc Lore, head of Wal-Mart's e-commerce operations, said the company's offer will be "most compelling" for shoppers looking for low prices, a wide assortment and fast shipping.

"In today's world of e-commerce, two-day free shipping is table stakes. It no longer makes sense to charge for it," Lore said on a conference call. He is the former head of online retailer Jet.com, which Wal-Mart bought for $3.3 billion last year.

The decision to scrap the membership fee is Lore's boldest move yet to challenge Amazon since he took charge of Wal-Mart's struggling online business. Earlier this month, Lore shuffled Wal-Mart's e-commerce decks.

The move is in line with the broader push by Wal-Mart Chief Executive Doug McMillon to narrow the gap with Amazon and give it an even more dominant position in U.S. e-commerce. The retailer has been investing in e-commerce for the past 15 years, but it still lags far behind its Seattle-based rival.

Wal-Mart's free shipping offer will be available on over 2 million items. It will include frequently ordered items such as household essentials, baby products, cleaning supplies and food items like cereal and peanut butter.

Wal-Mart said it will use its new online warehouses around the country to fulfill such orders and expects to ship many such items in just one day. In October, the retailer said it is on track to double the number of giant warehouses dedicated to online sales to 10 by the end of 2016.

Wal-Mart will also fully refund the membership fee for existing Shipping Pass members. The company started experimenting with Shipping Pass in 2015 and was trying to boost demand for the program by offering a free 30-day trial in 2016.

In a separate blog post, Lore said the retailer remains committed to saving consumers money. "I've been here for four months and I couldn't be more excited about how fast we are moving. It feels like a startup."

He indicated there will be more changes at the world's largest retailer.

Article Link To Reuters:

Mexico Sees Signs Of U.S. Change On Wall Payment

By Dave Graham
January 31, 2017

There are signs the U.S. government is taking a more flexible view of how to pay for its planned border wall with Mexico, and new meetings to craft future bilateral relations could take place soon, a top Mexican official said on Monday.

Those ties were shaken last week when a planned summit between U.S. President Donald Trump and Mexican President Enrique Pena Nieto was canceled after the American said it was better to forgo it if Mexico was unwilling to pay for the wall.

Trump wants a wall on the U.S. southern border to keep out illegal immigrants and says Mexico will pay for it. Mexico has flatly refused, making the issue a point of national pride.

Pena Nieto and Trump spoke by telephone to calm tensions on Friday, and Mexican Foreign Minister Luis Videgaray said the two administrations were in close contact and would talk this week.

"Dialogue has not broken off," he said. "It's an extraordinarily important relationship for Mexico."

While no date has been set for a new Pena Nieto-Trump summit, meetings between government officials are possible in the next few days, said Videgaray, who expressed confidence that the White House was modifying its view on payment of the wall.

White House Chief of Staff Reince Priebus said on Sunday that payment for the wall was still under discussion, mentioning the possibility of a border tax and other fiscal measures.

"It could be on drug cartels," Priebus added on CBS' "Face the Nation." "And it could be on people that are coming here illegally and paying fines. Or it could be all of the above."

While cautioning he had no details of what those plans could involve, Videgaray was heartened by the comments.

"I think it's a welcome sign, at least I interpret it that way, that we're seeing the rhetoric is changing," he said.

The minister said "a very sizeable part" of the business done by drug gangs was in the United States.

Trump has threatened to ditch the North American Free Trade Agreement binding Mexico, the United States and Canada, and Mexico's government wants to defend its access to the U.S. market by bringing migration and security into discussions.

In a separate video statement on Monday, Pena Nieto promised to better protect migrants north of the border, by channeling over 1 billion pesos ($48.16 million) into Mexican consulates in the United States.

The comments came after Videgaray said the country's fresh steps to support Mexicans living in the United States were not aimed at obstructing law enforcement there.

Mexico announced some measures, such as expanding the availability of mobile consulate services to reach more migrants in November, after Trump's surprise win.

Article Link To Reuters:

The Growing Burden Of The 'Trump Tax'

By Justin Fox
The Bloomberg View
January 31, 2017

It’s time to start talking about the “Trump tax.” That’s the potential added cost to business and the U.S. economy imposed by President Donald Trump’s policies and behavior. You may still believe that this cost is more than outweighed by the reductions in taxes and regulation that are likely under a Republican president and Republican-controlled Congress. But it’s not nothing.

The Trump tax has two main elements. One is straightforward and intentional: Trump promised to raise barriers to immigration and trade, and now he’s doing it. Last week the president reiterated that he’s serious about building a wall along the border with Mexico, and his press secretary said a 20 percent tax on imports might be used to pay for it. On Friday came the temporary ban on U.S. visits for citizens of seven Muslim-majority countries. Next up: possibly an executive order targeting the H-1B visas heavily used by tech companies to bring in talented workers from overseas.

There are reasonable arguments for shifting U.S. immigration and trade policies in a more restrictive direction. But in general, more restrictive policies equal higher costs for businesses. They amount to a tax. And as my Bloomberg View colleague Matt Levine wrote today, imposing these more restrictive policies is by all appearances a much higher priority for Trump than, you know, reducing actual taxes.

The other element of the Trump tax is how the president goes about doing things. There was some feeling -- as Trump was appointing seemingly reasonable, competent businessmen such as Gary Cohn, Steve Mnuchin, Wilbur Ross and Rex Tillerson to key posts -- that the new administration might be a smoothly running, businesslike machine. And who knows? Maybe after all those guys have been confirmed and had time to put their stamp on things, it will be.

I wouldn’t count on it, though! What we’ve seen so far from the Trump administration is the same combative, easily distracted, attention-obsessed boss that we all got to know during the campaign, plus a few conflict-seeking aides who now have the power to upend immigration policy over a weekend by getting the president to sign off on a hastily conceived executive order. It’s been the most chaotic, conflict-filled start for any administration in memory.

There are those who believe the chaos is the deliberate laying of groundwork for an authoritarian coup, others who think it’s mostly bungling. I lean toward the latter view, but I really don’t know -- and that wide range of possibilities is telling. Businessmen complained a lot in the early years of the Barack Obama administration that political uncertainty was holding back investment and growth. Well, now they may learn what real political uncertainty looks like.

The key to Trump’s approach to politics is to keep people (the news media especially) talking about him all the time. That worked brilliantly in the presidential campaign. It may even succeed as a governing strategy, although the results so far aren’t impressive. What it means for business leaders is that the White House is likely to keep blindsiding them with actions and rhetoric that make their lives harder. That’s a kind of tax.

Again, the increased burdens imposed by this Trump tax may be more than outweighed by actual decreases in taxes and regulation. And whatever the administration does, the economy may do just fine over the next few years anyway as the global financial crisis recedes further into memory. But make no mistake: The Trump tax is real, and it seems to be getting bigger every day.

Article Link To The Bloomberg View:

There's A Huge Gap Between American Economic Hopes And Reality

Fed officials waiting on the details of new Trump plans.

By Matthew Boesler
January 31, 2017

Surveys of businesses and consumers have shown a surge in confidence since the Nov. 8 U.S. presidential election, as hopes for growth-lifting fiscal stimulus and deregulation have increased. But actual economic activity has yet to catch up.

Survey measures of confidence have bested economists' forecasts over the past month by the most since March 2011, according to data compiled by Bloomberg. Official government statistics on economic activity, especially in housing, retail sales, and factory production, haven't yet shown the same upside surprises.

If anything, those data releases have been slightly disappointing on net recently. That may catch the attention of the Federal Reserve officials watching for evidence that hope translates into stronger economic activity as they weigh the timing of the next rise in interest rates.

The difference between the two -- "soft" and "hard" data surprises -- has only been wider once before in 17 years of data, in February 2011.

There are already signs that some of the hard data are beginning to turn higher. Advance estimates of fourth-quarter gross domestic product released Friday by the Commerce Department showed U.S. business investment rose on a year-over-year basis for the first time in four quarters, as the effects of the oil-price crash continued to fade. Growth in residential investment, on the other hand, was slowest in more than five years.

While greater expectations should in theory translate to greater activity, mixed signals from the data and uncertainty surrounding the exact contours of the new administration's economic policies helps explain why Fed officials continue to strike a cautious tone toward the timing of the next rate hike. The central bank is expected to leave rates unchanged after its two-day meeting that ends on Wednesday.

"I am a big advocate of thinking in terms of what the expectations are, and I would say if the U.S. comes to be viewed as a great place to invest and a great place to make money, then you will see a lot of investment in the U.S., and that will feed into growth rates, and that will validate the policies, and you will get a virtuous cycle," St. Louis Fed President James Bullard told reporters after a Jan. 12 speech in New York. "That is very possible, but a lot depends on the details of the policies that might be introduced."

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Trump’s Early Moves Trigger Business Backlash

The administration’s executive order hitting immigrants and recent steps toward protectionism are spurring a reversal of sentiment after excitement about cutting taxes and regulations.

By Ben White
January 31, 2017

Fear is rippling through corporate boardrooms from Silicon Valley to Wall Street over the new White House’s erratic approach to policy, with damage mounting from a travel crackdown, trade protectionism and a persistent habit of singling out individual companies for stinging public criticism.

The latest wave of worry is now focused mainly on President Donald Trump’s executive order hitting immigrants, but the concerns are far broader. Companies dependent on global supply chains worry about new tariffs. Exporters hoping for greater access to Asian markets see those hopes fading. And just about everyone is afraid of saying anything publicly that could provoke presidential ire.

The backlash comes after a few months of hope across much of the business world for an economic boom driven by cutting taxes and shredding regulations.

“It’s just a very confusing time for corporate America, which hates to be blindsided by things and then doesn’t want to say anything very critical because they will get hit back twice as hard,” Greg Valliere, chief strategist at Horizon Investments, said Monday. “What’s happened in the last 72 hours has to worry business because the administration looks so incompetent. Big companies notice when administrations seem this amateurish.”

Concern over Friday’s immigration order, which Silicon Valley giant Google said would affect 187 of its workers, helped drive down stocks on Monday, with the Dow Jones Industrial Average back below the 20,000 level it finally broke last week.

Big technology companies have the most at stake from the Trump administration’s move to block entry into the U.S. from seven Muslim-majority nations and restrict travel by legal permanent residents and citizens with dual nationalities.

“These tech companies need talent and much of that talent is coming from overseas,” said Ian Bremmer, president of the Eurasia Group, which advises companies. “This is not about the ban from these seven countries. The numbers there are quite small. This is about creating an environment where America is no longer seen as an attractive place to live for a lot of people these companies really have to have. So these CEOs have to be loud. There is a war brewing here between Silicon Valley and the White House.”

After a weekend of criticism from Silicon Valley, Wall Street chief executives began to join their tech colleagues in criticizing Trump’s move.

“This is not a policy we support,” Goldman Sachs CEO Lloyd Blankfein said in a voicemail Monday to bank employees. “I recognize that there is potential for disruption to the firm, and especially to some of our people and their families.”

JPMorganChase CEO Jamie Dimon, in an email from the bank’s operating committee to all employees on Sunday, reassured workers of the “unwavering commitment to the dedicated people working here,” including those on sponsored visas possibly hit by the executive order.

Ford Motor Co. Executive Chairman Bill Ford and President and CEO Mark Fields also took issue with Trump’s order in a message to all employees: “Respect for all people is a core value of Ford Motor Company, and we are proud of the rich diversity of our company here at home and around the world,” they wrote. “That is why we do not support this policy or any other that goes against our values as a company.”

GE CEO Jeffrey Immelt, Tesla CEO Elon Musk and Starbucks CEO Howard Schultz have also been relatively outspoken in their criticism of Trump’s immigration action. Schultz said Starbucks would hire 10,000 political refugees globally.

CEOs’ concerns about the travel ban focused on both its potential impact on highly valued employees and confusion sown by its implementation, including mixed signals over whether it would cover legal permanent residents — those with so-called green cards — from returning to the U.S. from abroad.

“We’re concerned about the impact of this order and any proposals that could impose restrictions on Googlers and their families, or that create barriers to bringing great talent to the U.S,” Google said in a prepared statement. The company’s CEO, Sundar Pichai, said in a memo to employees that it was “painful to see the personal cost of this executive order on our colleagues.”

Corporate America’s early backlash against Trump is not limited to immigration. The White House last week signaled it could pay for its planned border wall with a 20 percent tariff on goods imported from Mexico. The White House then backtracked and said the 20 percent tariff was just one idea among many for getting Mexico to pay for the wall.

Investors and executives who may support Trump’s plans to lower the corporate tax rate and eliminate regulations are now buffeted by haphazard implementation, the threat of trade wars and limitations on the movements of highly skilled workers.

“Broad-brush policies like this people barrier impede growth and certainly do not accelerate it,” Cumberland Advisors chief investment officer David Kotok wrote in a note to clients Sunday. “Trade barriers and tariffs in the goods market are unhealthy for economic growth. Trump’s order extends that barrier policy to services and to skills that are in the human capital realm. Trump has now set back the positive elements of global exchange in both goods and services.”

The split-screen nature of Trump’s impact on corporate America was on full display Monday. Even as companies reacted to the travel ban, Trump met with nine representatives from small businesses and touted an executive action calling for the elimination of two regulations for every one new regulation put in place.

He also said the stock market was up “enormously” since his win and that the economy was “coming back fast,” citing announcements by Ford, GM, Fiat/Chrysler, Lockheed and Boeing about plans for U.S-based jobs.

“The American dream is back,” Trump said. “This isn’t a knock on President Obama; this is a knock on many presidents preceding me.” He also ripped the Dodd-Frank financial reform law and promised big changes, something that has helped financial shares drive the increase in stock prices in the weeks since his election. “Dodd-Frank is a disaster. We’re going to be doing a big number on Dodd-Frank.”

Many of the job announcements Trump highlighted were neither new nor a result of any of his policies. And Trump’s own Treasury nominee, Steven Mnuchin, praised elements of Dodd-Frank in written responses to questions from members of the Senate Finance Committee, according to a document obtained by POLITICO.

All this has left much of corporate America caught between hope for Trump’s broader agenda and deeply concerned about many of his initial actions in office.

“The concern is that we get so bogged down on immigration and the Supreme Court and Obamacare repeal that the good stuff on tax cuts and regulatory reform may not move until the fall and could get even more seriously bogged down,” said Valliere of Horizon Investments.

Article Link To Politico:

3 Ways To Get Rid Of President Trump Before 2020

Why you need to read the 25th Amendment now.

By Rosa Brooks
Foreign Policy
January 31, 2017

Are we really stuck with this guy?

It’s the question being asked around the globe, because Donald Trump’s first week as president has made it all too clear: Yes, he is as crazy as everyone feared.

Remember those optimistic pre-inauguration fantasies? I cherished them, too. You know: “Once he’s president, I’m sure he’ll realize it doesn’t really make sense to withdraw from all those treaties.” “Once he’s president, surely he’ll understand that he needs to stop tweeting out those random insults.” “Once he’s president, he’ll have to put aside that ridiculous campaign braggadocio about building a wall along the Mexican border.” And so on.

Nope. In his first week in office, Trump has made it eminently clear that he meant every loopy, appalling word — and then some.

The result so far: The president of China is warning against trade wars and declaring that Beijing will take up the task of defending globalization and free trade against American protectionism. The president of Mexico has canceled a state visit to Washington, and prominent Mexican leaders say that Trump’s border wall plans “could take us to a war — not a trade war.” Senior leaders in Trump’s own party are denouncing the new president’s claims of widespread voter fraud and his reported plans to reopen CIA “black sites.” Oh, and the entire senior management team at the U.S. Department of State has resigned.

Meanwhile, Trump’s approval ratings are lower than those of any new U.S. president in the history of polling: Just 36 percent of Americans are pleased with his performance so far. Some 80 percent of British citizens think Trump will make a “bad president,” along with 77 percent of those polled in France and 78 percent in Germany.

And that’s just week one.

Thus the question: Are we truly stuck with Donald Trump?

It depends. There are essentially four ways to get rid of a crummy president. First, of course, the world can just wait patiently for November 2020 to roll around, at which point, American voters will presumably have come to their senses and be prepared to throw the bum out.

But after such a catastrophic first week, four years seems like a long time to wait. This brings us to option two: impeachment. Under the U.S. Constitution, a simple majority in the House of Representatives could vote to impeach Trump for “treason, bribery, or other high crimes or misdemeanors.” If convicted by the Senate on a two-thirds vote, Trump could be removed from office — and a new poll suggests that after week one, more than a third of Americans are already eager to see Trump impeached.

If impeachment seems like a fine solution to you, the good news is that Congress doesn’t need evidence of actual treason or murder to move forward with an impeachment: Practically anything can be considered a “high crime or misdemeanor.” (Remember, former President Bill Clinton was impeached for lying about his affair with Monica Lewinsky). The bad news is that Republicans control both the House and the Senate, making impeachment politically unlikely, unless and until Democrats retake Congress. And that can’t happen until the elections of 2018.

Anyway, impeachments take time: months, if not longer — even with an enthusiastic Congress. And when you have a lunatic controlling the nuclear codes, even a few months seems like a perilously long time to wait. How long will it take before Trump decides that “you’re fired” is a phrase that should also apply to nuclear missiles? (Aimed, perhaps, at Mexico?)

In these dark days, some around the globe are finding solace in the 25th Amendment to the Constitution. This previously obscure amendment states that “the Vice President and a majority of … the principal officers of the executive departments” can declare the president “unable to discharge the powers and duties of his office,” in which case “the Vice President shall immediately assume the powers and duties of the office as Acting President.”

This is option three for getting rid of Trump: an appeal to Vice President Mike Pence’s ambitions. Surely Pence wants to be president himself one day, right? Pence isn’t exactly a political moderate — he’s been unremittingly hostile to gay rights, he’s a climate change skeptic, etc. — but, unappealing as his politics may be to many Americans, he does not appear to actually be insane. (This is the new threshold for plausibility in American politics: “not actually insane.”)

Presumably, Pence is sane enough to oppose rash acts involving, say, the evisceration of all U.S. military alliances, or America’s first use of nuclear weapons — and presumably, if things got bad enough, other Trump cabinet members might also be inclined to oust their boss and replace him with his vice president. Congress would have to acquiesce in a permanent 25th Amendment removal, but if Pence and half the cabinet declared Trump unfit, even a Republican-controlled Congress would likely fall in line.

The fourth possibility is one that until recently I would have said was unthinkable in the United States of America: a military coup, or at least a refusal by military leaders to obey certain orders.

The principle of civilian control of the military has been deeply internalized by the U.S. military, which prides itself on its nonpartisan professionalism. What’s more, we know that a high-ranking lawbreaker with even a little subtlety can run rings around the uniformed military. During the first years of the George W. Bush administration, for instance, formal protests from the nation’s senior-most military lawyers didn’t stop the use of torture. When military leaders objected to tactics such as waterboarding, the Bush administration simply bypassed the military, getting the CIA and private contractors to do their dirty work.

But Trump isn’t subtle or sophisticated: He sets policy through rants and late-night tweets, not through quiet hints to aides and lawyers. He’s thin-skinned, erratic, and unconstrained — and his unexpected, self-indulgent pronouncements are reportedly sending shivers through even his closest aides.

What would top U.S. military leaders do if given an order that struck them as not merely ill-advised, but dangerously unhinged? An order that wasn’t along the lines of “Prepare a plan to invade Iraq if Congress authorizes it based on questionable intelligence,” but “Prepare to invade Mexico tomorrow!” or “Start rounding up Muslim Americans and sending them to Guantánamo!” or “I’m going to teach China a lesson — with nukes!”

It’s impossible to say, of course. The prospect of American military leaders responding to a presidential order with open defiance is frightening — but so, too, is the prospect of military obedience to an insane order. After all, military officers swear to protect and defend the Constitution of the United States, not the president. For the first time in my life, I can imagine plausible scenarios in which senior military officials might simply tell the president: “No, sir. We’re not doing that,” to thunderous applause from the New York Times editorial board.

Brace yourselves. One way or another, it’s going to be a wild few years.

Article Link To Foreign Policy: