Thursday, February 2, 2017

A Rare Trio Of Trends Points To More Upside For Stocks

January’s ability to predict stock-market returns improves in post-election years.

By Sue Chang
February 2, 2017

As January goes, so goes the year’s stock market. If that theory bears out, then 2017 will likely be another gratifying year for investors.

The January Barometer is a reference to the belief that the market’s performance in January foretells how stocks will perform from February through December. Devised in 1972, the indicator claims an accuracy ratio of 87.9%, according to Jeff Hirsch, editor of the Stock Trader’s Almanac.

But what has analysts even more excited than the buoyant January effect is the indicator commonly referred to as the “January trifecta,” based on the so-called Santa Claus rally, the market’s direction in the first five days of January, and the January Barometer. This year, all three are higher.

There is some debate whether the market actually witnessed a Santa Claus rally, the gains that usually materialize around the holidays, in 2016 given the S&P 500’s lackluster performance during that period. However, the large-cap index still managed to notch a 1.8% rise in December.

“The predictive power of the three is considerably greater than any of them alone,” said Hirsch in a report.

To see all three indicators rising in tandem is rare, with 2013 the last time this occurred, said Ryan Detrick, senior market strategist at LPL Financial. Since 1950, there have been 28 times the trio has concurrently risen, and 25 times the market gained in the ensuing 11 months for an average return of 12.7%.

January’s capacity to predict stock returns for the rest of the year also gets a boost following a presidential election, according to Dow Jones data. In post-presidential-election years, the Dow followed January’s direction 23 out of 30 years, and for the S&P 500 the success rate was 17 out of 22 years.

Bank of America Merrill Lynch’s research backs up these promising statistics.

“When January is up in Year 1 [of the presidential cycle], the year is up 77% of the time, with an average gain of 13.5% and February-December is up 77% of the time with an average return of 9.3%,” Stephen Suttmeier, technical research analyst at Bank of America Merrill Lynch, said in a note.

But for all the upbeat signs, Andrew Adams, a market strategist at Raymond James, was skeptical about making blind bets on stocks solely based on seasonal patterns.

History and hindsight can guide investors, but “every market is different and must be evaluated based on its own factors,” he said.

That Adams, who believes the multiyear uptrend remains mostly intact, is urging caution is perhaps worth noting.

And there is a lot that investors have to be wary of. The near–market euphoria sparked by President Donald Trump’s election and his growth-supportive platform has sputtered in recent days as the market comes to terms with the possible repercussions of Trump’s rhetoric and policies, including a temporary travel ban on citizens of several predominantly Muslim countries.

There are also ongoing concerns that valuations are too elevated and that the market is on the brink of a correction.

To be clear, Adams is still bullish and views any market dips as a good entry point into stocks, he said, but he also believes the market may be ripe for a selloff.

There has been a 5% correction in the S&P 500 every 7.1 months since 1932, and it has been 11.2 months since the last bona fide 5% move south from the previous high of 2016, according to Adams. Even counting the brief plunge after Brexit — which he does not view as a true correction — the market is now 7.2 months from the previous 5% drawdown.

Indeed, Adams cautioned investors against being too aggressive about buying into the market as the probability of the next 5% to 10% move being either up or down is about even.

If that gloomy outlook from a bull isn’t enough of a damper, investors should remember that February tends to be a mediocre month for stock returns. The Dow averaged about a 0.1% gain for the month over the past 100 years, according to Bespoke Investment Group.

Article Link To MarketWatch:

Dollar Falls After Fed, Aussie Soars On Record Trade Surplus

By Patrick Graham
February 2, 2017

The dollar fell to its lowest since mid-November on Thursday after the Federal Reserve disappointed investors hoping for a clear sign of a March interest rate rise, while the Australian dollar rallied after data showing a record trade surplus.

Money markets had shown a 20 percent chance of a rise in U.S. rates next month but that slipped to as little as 15 percent despite the Fed sending a broadly upbeat message on the economy.

Aggressive language from the United States on Iran and a refugee deal with Australia also put the focus back on the geopolitical risks from U.S. President Donald Trump's administration rather than the expectations of higher inflation that dominated markets' initial thinking.

The dollar has fallen steadily since the Fed raised rates in December. Worries over the broader shape of policy under the new president - and hints of his desire for a weaker dollar - have turned back many of the large bets taken on the currency last year.

The dollar index .DXY hit a 12-week low in early European trading, although traders stressed it was not obvious it would fall much further ahead of U.S. jobs numbers on Friday.

"If anything had come along last night to reinstate the Fed element of the equation the dollar would have rallied," said Neil Mellor, a strategist with Bank of New York Mellon in London.

"But there are overriding fears about what the Trump administration is or isn't prepared to do about all these antagonistic issues. Until we know, worries about his attitude to the dollar are going to weigh on the market."

Against the yen, normally chief beneficiary of nerves about global security or political risk, the dollar fell 0.6 percent to 112.62 JPY=, moving closer to Tuesday's low of 112.08. The euro hit an 8-week high of $1.0819 EUR=.

"We're still seeing long-term guys buying the dollar on dips, expecting it to eventually recover on interest rate differentials between Japan and the U.S.," said Kaneo Ogino, director at foreign exchange research firm Global-info Co in Tokyo. "But sometimes, it's a short-term market."

The Aussie added to gains in Asia to stand 1 percent higher on the day, driven by a recovery in exports in the fourth quarter that sent its current account surplus soaring and headed off any thoughts of a dip into recession.

"The trade balance has turned around from a AUD 3.8 billion deficit in Q3 to a AUD 4.8 billion surplus in Q4," RBC strategist Elsa Lignos said. "A technical recession in Australia in Q4 (is now) unlikely."

Article Link To Reuters:

Remember This About Upcoming Jobs Report -- There’s Never Growth In January

By John Crudele
The New York Post
February 3, 2017

Friday’s employment report could be lousy. Or not.

I know, I’ve covered my assessment both ways. But January is always a hokey month when it comes to the employment report issued by the Labor Department. Most times, it comes in worse than expected and sometimes even a lot worse.

But a couple of times over the last 10 years, employment gains were reported to be stellar in the first month of the new year.

The ADP report out Wednesday showed excellent job growth. That might be an omen for Friday, but it guarantees nothing because ADP and Labor measure different things.

If I were making odds on Friday’s report, I’d say there’s a 60 percent chance that job growth will be disappointing, 20 percent that it will be wonderful, and 20 percent that it will be in line with the mediocre 170,000 or so jobs expected by the “experts.”

You have to understand one critical thing at the outset.

There is never job growth in January. How could there be with companies, especially retailers, scaling back after the holiday season?

The number put out by the government almost always shows an expansion in the job market after seasonal adjustments. Unless somebody proclaims that Christmas will extend into January, the raw, unaltered data will always show millions of lost jobs in the first month after the holiday season.

You can look this up for yourself on the Bureau of Labor Statistics Web site, but almost nobody ever does. Take January 2016 as a for instance: Growth after the adjustments made by the government was reported to be 151,000 jobs. That was one of the disappointing Januarys compared with what the experts were expecting.

But the raw data, which are never in the press release, would have scared people to death. In reality, there were 144,116,000 jobs in December 2015 and only 141,150,00 a month later. So there was actually a loss of 2,966,000 in January 2016.

I have no beef with seasonal adjustments. Jobs are expected to be created in December and lost in January. The adjustments smooth out monthly job-total charts so they don’t end up looking like a jagged mountain range.

But there are also bad adjustments that I definitely disagree with. These other adjustments are where the Labor Department can play fast and loose with its stats.

I’m talking about the adjustments the department takes when it guesses at how many undetectable jobs have been created across the country. Regarding the many small businesses in the US, it is hard to draw a bead on every job created or lost — so Labor takes an educated guess.

This is a guesstimate that’s made in additional to the seasonal adjustment, and it tends to make the job market look better than it actually is during the spring — and worse than it actually is in winter months like January.

This dicey guesstimate is heavily biased toward jobs quietly being created even when the nation’s economy is plodding along at a slow pace — as it has been for the past 10 years. The one exception is January, when the guesstimate model suddenly and abruptly enacts revenge for all the other good months and subtracts a load of jobs.

Last January, this guesstimate subtracted 233,000 jobs from the country’s pre-seasonally adjusted workforce. The year before, it wiped out 275,000 jobs. In fact, from 2014 back to 2011, the January guesstimate cut 307,000, 314,000, 367,000 and 339,000 jobs. You get the idea.

Labor has told me that it doesn’t know how much these guesstimates affect the seasonally adjusted numbers that are released to the public — but my guess is that it’s close to 40,000 jobs.

So, with that big a chunk of jobs being wiped out by a guesstimate, it’s almost impossible for January’s job growth to look good — except that it occasionally does.

In January 2012, the government, after giving the jobs numbers a seasonally adjusting rubdown, reported a gain of 243,000. The raw data? Roughly 2.6 million jobs were lost.

That happened when Uncle Sam’s expected more job losses in the raw data than actually occurred. So the seasonal adjustments went haywire with optimism.

I’ve probably lost you by now, but this is another thing you will need to know in the months ahead: The Labor Department’s guesstimates will ultimately make the economy look stronger, even if it really isn’t, during the months of April, May and to a lesser extent in June.

This is a fake-out or maybe it’s even fake news that government policy-makers cook up and Wall Street gobbles up.

The US economy, as you probably heard last Friday, grew at the slowest rate last year since 2011. And we already know that the quality of new jobs created since the last recession has been lacking, with a heavy emphasis on part-time and contract work over traditional employment.

If Friday’s number is worse than expected, Wall Street might cheer because it’ll think the Federal Reserve’s policy of raising interest rates will have to be put on hold.

A strong number might do the opposite and cause the stock market pain.

I do know one thing. If you put all these facts and numbers together and take them to your next cocktail party, you won’t be invited back anytime soon.

Article Link To The New York Post:

Fillon’s Choices: The Bad, The Worse And The Real Ugly

No good options for French conservative candidate.

By Pierre Briancon
Politico EU
February 2, 2017

“I’d use the Titanic cliché, except there’s no band playing.” That’s how a senior official from the conservative Les Républicains party summed up the mood in François Fillon presidential campaign following the latest allegations by the satirical weekly Canard Enchaîné.

Fillon’s allies are uneasy, verging on desperate, about the way he has chosen to defend himself from what he calls a “conspiracy” over the alleged funneling of public funds to his wife and children. Some are worried that it will lead to a political debacle.

After spending days denouncing unnamed plotters intent on taking him out of the French presidential race, Fillon upped the temperature Wednesday morning by accusing the government of having a hand in the revelations.

This is “an institutional coup d’Etat” coming from “the ruling left,” he told a meeting of Républicains MPs, according to AFP.

His aim was to rally the troops against the unpopular socialist government, but some in the Fillon campaign worried that it would do little to convince voters that the allegations are false.

A week after Le Canard Enchaîné revealed that Fillon had long employed his wife Penelope as his parliamentary attaché and suggested she hadn’t actually done much work for what he paid her, the paper unveiled new allegations on Wednesday. The amount Fillon paid his wife over the years reached nearly €900,000, the paper said, adding that he had paid his two school-aged children some €84,000 while a senator between 2005 and 2007.

Fillion’s party is now caught between its official duty and its political interest: stand by and defend its candidate, or start searching for a replacement as soon as possible. The clock is ticking, with the deadline to file official candidacies on March 22 and the first round of the election on April 23.

The Républicains now have three choices — not one of them pretty:

1) The bad: withdraw now.

Even though Fillon has pledged to resign if he’s placed under formal investigation by judicial authorities, an increasing number of Républicains leaders think the best for him would be to “take his losses and go,” as one of them said.

One of the party’s MPs, Georges Fenech, has already called on Fillon to pull out, saying the scandal rendered the conservative primary results “obsolete. “Another, Philippe Gosselin, has already urged him to “mull a possible withdrawal,” adding that he would be ready to support Alain Juppé, the mayor of Bordeaux who lost to Fillon in the primary runoff in November.

Voters might take an early withdrawal as an admission of guilt, but it would at least allow Les Républicains to select a nominee when there’s still time for him or her to mount a credible campaign.

But the tight schedule would leave little time to organize a proper primary. The party’s ruling body, the 80-odd strong Bureau Politique, would likely have to decide on a procedure to appoint a candidate — a consultation via the Internet or other channels, or simply taking an executive decision.

"The problem is that the Républicains are short of credible alternatives. The big losers of last November’s primary, Juppé and former President Nicolas Sarkozy, would look like second or third-rate choices."

The problem is that the Républicains are short of credible alternatives. The big losers of last November’s primary, Juppé and former President Nicolas Sarkozy, would look like second or third-rate choices. In any case, Juppé seemed to rule out a run last week, and Sarkozy isn’t interested, according to media reports. “He has seen in the primary how unpopular he was, he doesn’t need any more proof,” quipped a party official.

The other option would be for the conservative party to turn to a younger generation. As it happens, the names of three possible candidates have already been registered as presidential domain names: François Baroin, briefly an economy minister at the end of Sarkozy’s presidency; Xavier Bertrand, the president of the Northern Region, which he won against Marine Le Pen in 2015 elections; and Laurent Wauquiez, a hard-right Sarkozyite who now presides over the Auvergne-Rhône-Alpes region. It’s unclear on whose initiative the domain names were registered.

Turning to a younger candidate would also allow the party to better compete with Emmanuel Macron, the 38-year old former economy minister who has jumped to second place in the polls, ahead of Fillon.

2) The worse: withdraw later.

Fillon seems intent on waiting for a decision by the prosecutor who launched a preliminary probe last week on possible “misuse of public funds and misappropriation of corporate assets.”

The police have interrogated most of the principals, including Fillon and his wife. They have also raided the lower house of parliament to search for evidence of Penelope Fillon’s work, as well as the offices of the literary review whose millionaire owner employed her on a comfortable salary.

If the prosecutor decides that there’s enough grounds to investigate further, Fillon will then be placed under a formal probe by an investigative judge. He’s pledged to resign if that happens.

Fillon would still be considered innocent until proven guilty at this stage, but he said during his campaign that “as unfair as it may sound,” government officials shouldn’t even be suspected of wrongdoing, and that any minister placed under formal investigation would be forced to resign from his cabinet.

Waiting could worsen his party’s prospects for two reasons. The fact that a prosecutor has given at least some credence to the allegations would likely darken the cloud hanging over him — and thus over Les Républicains. And his party would have little time to find a replacement and carry out a campaign.

The new man or woman may then want to amend Fillon’s platform, which he based on a far-right approach that has been contested within the party’s ranks. But that would also take time, and expose the Républicains to the criticism of wavering on policy.

3) The ugly: hang in there.

Fillon’s stubbornness has caused some of the party heavyweights tasked with being his spokespersons to despair. His response to the charges against him have seemed disorganized and contradictory. Allies have been sent on air to defend him without a proper briefing and ended up contradicting themselves, notably on what exactly his wife did.

Some tried to defend Penelope Fillon by saying she was always at the couple’s home in western France, helping him manage his constituency. Others, perhaps a tad too eagerly, said they had often seen her in the National Assembly — something even Fillon’s aides haven’t claimed.

Fillon decision to base his defense on invoking his wife’s honor and refusing to answer questions on the substance of the allegations also irked many party officials.

“When allegations are that serious, you just can’t say you’ll save your arguments for the prosecutor,” said a furious former Juppé adviser. “You take the bull by the horns and answer all media questions. His attitude is beyond the pale.”

"If Fillon is intent on fighting till the end, it will be hard for the party to force him out."

So far, Fillon seems intent on following the line he adopted when Canard Enchaîné published its first article: that the allegations are part of a political conspiracy to take him down because he is — or was — the favorite to win the presidency.

“Never, less than three months before a presidential election, has such a large and professional operation been mounted to try and eliminate a candidate by non-democratic ways,” he said on January 31.

If Fillon is intent on fighting till the end, it will be hard for the party to force him out. For now, he has asked his party’s MPs to stand by him during the next two weeks — indicating either that he will make a decision by then, or that he is expecting the prosecutor to have made one within that timeframe.

Even if the prosecutor declines to push further, the scandal will have made its impact. “Even if they can prove that his wife actually did work for him, what shocks voters is the amount of the money involved,” said Bruno Cautres, a political scientist at CEVIPOF research center at Sciences Po university. “How will he able to justify paying a parliamentary assistant — his wife — three times what a nurse earns?”

And with the anger will come ridicule. “François Million” and “Fillon’s million” (“le million de Fillon”) are threatening to enter the political vernacular.

“It would be death by a thousand jokes,” the former Juppé aide sighed.

Article Link To Politico EU:

Trump Wins By Losing A Court Fight Over Debt

By Joe Nocera
The Bloomberg View
February 2, 2017

"I'm the king of debt. I'm great with debt. Nobody knows debt better than me."

Remember when then-candidate Donald Trump made that boast? (In case you don't, it was June of last year, during an interview with Norah O'Donnell of CBS News.) On Wednesday, a court ruling was issued that offers an illuminating case study of just how our new president deals with debt.

Ostensibly, the ruling by U.S. District Judge Kenneth A. Marra went against Trump: A golf resort in Jupiter, Florida that he had purchased in 2012 was ordered to pay $5.8 million to some 65 aggrieved former members. But that doesn't even begin to tell the story of what really happened.

When Trump bought what is now known as Trump National Golf Club Jupiter, it was a decade old and its owner, Ritz-Carlton, was looking to unload it. Although the resort was built as part of a successful development, the club itself had never made money, losing over $1 million a year. Trump snapped it up for $5 million.

He also agreed to take on some $40 million in liabilities. Much of that debt was owed to club members in the form of refundable deposits they had paid when they first joined. They ranged from $35,000 to $200,000. When a member wanted to quit, he put himself on a resignation list and waited for the club to add new members. New deposits would then be used to reimburse people who wanted to leave. In the meantime, the members on the resignation list continued to pay dues and use the club.

Trump, of course, could have continued this system, which would have cost him nothing. But he wanted to spruce up the place and make it "ultra-prestigious" and "world class," as he put it at the time. For that, he needed cash. And the easiest way to get that cash was to grab it from the members.

Shortly after the sale closed, Trump held a meeting with the members. He told them that refundable deposits were "impractical" given the investment he wanted to make in the club. So he gave them three choices, none of them appetizing.

Members who gave up their deposits and stayed in the club would get a small, three-year reduction in their annual dues, plus the right to play (for a fee, of course) at other Trump courses. Members who wanted to stay in the club but didn't want to give up their refundable deposits would be hit with an immediate dues increase. And those on the resignation list -- more than half the club at that point -- were "out," as he put it in a letter he sent to members a few days after the meeting. "I don't want them to utilize the club, nor do I want their dues," he wrote.

Sure enough, beginning on Jan. 1, 2013, the members on the resignation list were barred from using the club. So they sued, claiming that because they could no longer use the club, the resort had broken its contract with them and was thus obligated to repay their deposits within 30 days.

In classic Trump fashion, both Trump and his son Eric denied in depositions that they had kept any of those on the resignation list from using the club. Eric Trump even said that such an exclusion would "violate a fundamental principle of life." But the evidence was so overwhelming that on the witness stand last summer, Eric Trump was forced to acknowledge that the plaintiffs had indeed been barred from the club.

Trump's lawyers argued that the contract gave them the right to change the rules, but Judge Marra ruled on Wednesday that the plaintiffs' interpretation was correct. He ordered that the president of the United States pay the 65 plaintiffs $4.85 million in deposits, plus $925,010 in interest.

Here's the key to understanding this deal: $5.8 million is a lot less than the original $40 million liability. Despite this legal setback, Trump essentially gained control of most of the Jupiter members' deposits. Many of the members who lived or time-shared in the development gave up their rights to the deposits; they didn't really have a lot of choice. Many others sued individually and wound up settling for 30 or 50 cents on the dollar as they saw their litigation costs rise.

Whether Trump winds up paying the $5.8 million or not -- and his lawyers are vowing to appeal -- he has come out way ahead at the expense of the club's members.

The king of debt indeed. I'll bet you can't wait for him to try this tactic on China.

Article Link To The Bloomberg View:

U.S. May Export More Oil In 2017 Than Four OPEC Nations Produce

Shipments seen jumping to as much as 800,000 barrels a day; OPEC’s compliance with output-cut target could boost sales.

By Sheela Tobben
February 2, 2017

U.S. crude exports are poised to surpass production in four OPEC nations in 2017 and may grow even more if President Donald Trump honors pledges to ease drilling restrictions and maximize output.

The world’s largest oil-consuming country could sell as much as 800,000 barrels a day of crude overseas this year, according to four analysts surveyed by Bloomberg. That’s more than OPEC producers Libya, Qatar, Ecuador and Gabon each pumped in December. The U.S. exported 527,000 barrels a day in the first 11 months of 2016, Energy Information Administration data show.

Chalk it all up to a resurgence in shale oil and gas, which Trump is counting on to create jobs and rebuild roads, schools and bridges. U.S. output will rebound to more than 9 million barrels a day in 2017 after sliding 5.6 percent to 8.87 million in 2016, the EIA estimates. And since restrictions on U.S. crude exports were lifted in late 2015, domestic producers are free to seek buyers in Europe, Asia and Latin America, which are on the lookout for alternate suppliers after OPEC and non-OPEC producers agreed to trim 2017 output.

“Godzilla is even taller in person,” Vikas Dwivedi, senior analyst at Macquarie Capital (USA) Inc., said in a telephone interview from Houston. “U.S. production will be bigger than most people are expecting.”

Macquarie sees annual output reaching 9.37 million, while Turner, Mason & Co. and Lipow Oil Associates each put it around 9 million. Wood Mackenzie forecast a more-conservative 8.75 million.

Price Pressure

The increased supply is likely to pressure prices of domestic crude, including the benchmark West Texas Intermediate grade, making it more globally competitive, said Afolabi Ogunnaike, Wood Mackenzie’s Houston-based senior research analyst for Americas refining and oil product markets. WTI was $2.89 a barrel cheaper than European benchmark Brent crude on Jan. 31, the widest discount since December 2015.

But why seek markets abroad when the U.S. is still one of the world’s biggest crude importers, has abundant and inexpensive oil on the horizon and has inaugurated a new president with the stated goal of weaning the country off crude from the Organization of Petroleum Exporting Countries? Because it makes business sense.

The U.S. imported 7.88 million barrels a day of crude in the first 11 months of 2016, including about 3 million from OPEC. And in the first week of January, the country sent a record amount overseas, according to the EIA.

That’s because U.S. refiners were designed to process relatively cheap high-sulfur and high-density crudes produced in Canada and parts of the Middle East and Latin America. They’re not set up to handle the low-sulfur, less dense crude being produced in Texas’ Permian Basin and Eagle Ford regions, where most of the U.S. output growth has occurred.

“If the U.S. system can’t take the crude it produces, it will have to export it,” Macquarie’s Dwivedi said.

Strict adherence to the output cuts OPEC and non-OPEC nations agreed to in November will also provide U.S. producers with a foothold into international markets. OPEC members could reduce supplies by 900,000 barrels a day in January, the first month of implementation of the accord designed to eliminate a global supply glut, according to estimates from tanker-tracker Petro-Logistics SA. That’s about 75 percent of the agreed-upon reduction.

“If OPEC does comply with its cuts, we can expect to see exports rise and that will come from the increased production that we are expecting from the U.S.,” Andy Lipow, president of Lipow Oil Associates, a Houston-based consulting company, said in a telephone interview.

Article Link To Bloomberg:

Reckitt Benckiser In Talks To Buy Mead Johnson For $16.7 Billion

By Martinne Geller
February 2, 2017

British consumer goods maker Reckitt Benckiser Group Plc (RB.L) is in advanced talks to buy baby formula maker Mead Johnson Nutrition Co (MJN.N) for $16.7 billion, in a deal that would take it in a new direction and boost its business in Asia.

Reckitt, which is best known for its cleaning and over-the-counter health products, said late on Wednesday it was in talks to offer $90 in cash for each Mead Johnson share, a 29.5 percent premium to the stock's closing price.

Shares of Mead Johnson, long rumored to be a takeover target for Danone (DANO.PA) or Nestle (NESN.S), jumped 22 percent in after-market trading. At 0808 GMT (03:08 a.m. ET), Reckitt shares in London were up 3.7 percent at 7,084 pence.

Mead Johnson, which makes Enfamil baby formula, has been seen as a bid target since being spun off from drugmaker Bristol-Myers Squibb in 2009, due in part to its big presence in Latin America and Asia, regions with fast-growing populations.

Reckitt, which makes Durex condoms, Nurofen tablets, Lysol cleaners and Scholl footcare products, was not seen as an obvious buyer given it is not in the baby food business and its overall food business is very small.

Still, Reckitt's focus on consumer health products, or health-related goods sold over the counter, makes Mead Johnson a good fit, analysts said.

"It's a branded consumer proposition with healthcare-y attributes," said RBC Capital Markets analysts, adding the absence of any product overlap meant antitrust scrutiny would be minimal.

Reckitt's proposed price represents a multiple of 17 times Mead Johnson's estimated 2017 earnings before interest, tax, depreciation and amortization (EBITDA), said analysts at Wells Fargo, falling short of the 20 times Nestle paid for Wyeth in 2012 and the 22 times Danone paid for Numico in 2007.

Still, the premium is in line with other recent consumer staples deals, and is appropriate given regulatory changes in China and price promotion, the analysts said.

Reckitt said it expected to finance the proposed deal through cash and debt.

"The parties are presently engaged in a period of due diligence and contract discussion," it said in a statement. Mead Johnson also confirmed the discussions in a statement.

Sources told Reuters in 2014 that Danone was interested in buying Mead Johnson but the French company has since agreed to buy WhiteWave (WWAV.N), known for its soy- and nut-based milks, reducing the chances of a counterbid.

Speculation regarding a bid by Nestle recently resurfaced after a media report citing unidentified sources, yet Nestle's existing baby formula business would likely throw up antitrust concerns.

The Wall Street Journal first reported on the talks.

Article Link To Reuters:

'Dumb Deal' Drags Australia-U.S. Ties To New Low After Tense Trump Call

By Jane Wardell and Colin Packham 
February 2, 2017

U.S. President Donald Trump labeled a refugee swap deal with Australia "dumb" on Thursday after a Washington Post report of an acrimonious telephone call with Australia's prime minister threatened a rare rift in ties between the two staunch allies.

The Post reported that Trump described the resettlement plan as "the worst deal ever" and accused Australia of trying to export the "next Boston bombers". It said the call had been scheduled to last an hour but Trump cut it short after 25 minutes when Australian Prime Minister Malcolm Turnbull tried to turn to subjects such as Syria.

Turnbull told reporters the call with Trump at the weekend had been frank and candid but refused to give further details.

"I do stand up for Australia. My job is to defend Australian interests," Turnbull said in Melbourne.

Turnbull refused to confirm the Post report that Trump, who had earlier spoken to world leaders including Russian President Vladimir Putin and Mexican President Enrique Pena Nieto, had angrily told him that the call was "the worst so far".

Political analysts said such acrimony was unprecedented, surpassing even the difficult relations between former U.S. President Richard Nixon and then Australian Prime Minister Gough Whitlam, who pulled Australian troops out of the Vietnam War.

"Even that was always done in the language of foreign policy niceties," said Harry Phillips, a political analyst of 40 years experience at Edith Cowan and Curtin universities in Perth.

As reports of the conversation hit headlines on both sides of the world, Trump tweeted shortly before midnight in Washington: "Do you believe it? The Obama Administration agreed to take thousands of illegal immigrants from Australia. Why? I will study this dumb deal."

That threw more confusion over the status of the controversial deal Australia agreed with former President Barack Obama late last year for the United States to resettle up to 1,250 asylum seekers held in offshore processing camps on Pacific islands in Papua New Guinea and Nauru.

In return, Australia would resettle refugees from El Salvador, Guatemala and Honduras.


The swap deal is at odds with Trump's executive order last week that suspended the U.S. refugee program and restricted entry to the United States for travelers from seven Muslim-majority countries, including Iran, Iraq, and Syria.

Many of those being held in the Australian detention centers, which have drawn harsh criticism from the United Nations and rights groups, have fled violence in countries such as Afghanistan, Iraq and Iran.

White House spokesman Sean Spicer and the U.S. Embassy in Australia have both said Trump would honor the deal. In several media appearances after Trump's tweet, Turnbull reiterated that he believed the deal stood.

"He is saying that this is not a deal he would have made, but the question is will he honor that commitment? He has already given it," Turnbull said. "I make Australia’s case frankly, powerfully, forthrightly and hopefully persuasively when I deal with other leaders."

The apparent breakdown between Washington and Canberra that has developed over the resettlement deal could have serious repercussions.

Australia and the United States are among the five nations that make up the Five Eyes group, the world's leading intelligence-sharing network.

The United States also plans to send extra military aircraft to Australia's tropical north this year as part of a U.S. Marines deployment that will bolster its military presence close to the disputed South China Sea.

Australia is also one of 10 U.S. allies purchasing Lockheed Martin's F-35 fighter jet program.

The Post quoted unidentified senior U.S. officials briefed on the conversation between Trump and Turnbull. It also quoted the official read-out from the call, which emphasized "the enduring strength and closeness of the U.S.-Australia relationship that is critical for peace, stability, and prosperity in the Asia-Pacific region and globally".

It also said Trump had boasted to Turnbull about the size of his election victory.

Article Link To Reuters:

Deutsche Bank Misses Estimates As Client Jitters Hit Trading

CEO Cryan is cutting assets, jobs, bonuses to shore up capital; Deutsche Bank’s key capital ratio beats analysts’ estimates.

By Steven Arons and Nicholas Comfort
February 2, 2017

Deutsche Bank AG reported fourth-quarter trading revenue that missed analysts’ estimates as concerns about the company’s finances weighed on clients.

Revenue from debt trading, the bank’s biggest source of income, rose 11 percent from a year earlier to 1.38 billion euros ($1.49 billion), falling short of the 1.68 billion-euro average estimate of 10 analysts in a Bloomberg News survey. Equity trading revenue fell 23 percent to 428 million euros, Deutsche Bank said Thursday, while analysts had expected revenue to be flat.

Chief Executive Officer John Cryan is shrinking the trading operations, built by his predecessor, and raising capital levels eroded by misconduct costs. While the bank has settled some of its biggest legal cases in the past two months, an initial request that it pay $14 billion to settle a U.S. Justice Department investigation of mortgage-backed bonds spooked some investors in the quarter.

“There was a clear impact from the negative news flow around Deutsche Bank in the fall, especially on the global markets unit,” said Daniel Regli, an analyst with MainFirst whose recommendation on the stock is under review. “It remains to be seen whether this effect will be reversed in 2017.”

The bank’s net loss narrowed to 1.89 billion euros in the three months through December, from a loss of 2.12 billion euros a year earlier. Analysts had expected a shortfall of 1.32 billion euros.

‘Promising Start’

Deutsche Bank stock traded 4.5 percent lower as of 9:29 a.m. in Frankfurt. The shares are still up about 75 percent from a record low on Sept. 26, when news of the Justice Department’s initial request broke.

The bank has settled some of its biggest legal matters since then, and the election of Donald Trump as U.S. president prompted speculation that bank regulation will be weakened. A surge in fixed-income trading further fueled a rally in U.S. bank shares. The five biggest U.S. investment banks saw their combined debt trading revenue jump 43 percent in the fourth quarter from a year earlier, data compiled by Bloomberg show.

Deutsche Bank has experienced a “promising start to this year,” Cryan said in the statement. Revenue will rise this year and the company had a “strong” January across almost all its businesses, according to a presentation the bank published on its website.

Deutsche Bank’s common equity Tier 1 ratio, a key measure of its financial strength, rose to 11.9 percent at the end of December from 11.1 percent three months earlier as it shrunk risk-weighted assets. That’s higher than the 11.3 percent analysts in the Bloomberg News survey had expected.

The bank reiterated a plan to raise the ratio to at least 12.5 percent by the end of 2018. Assets weighted by risk will probably rise in the first quarter “to support business growth,” the bank said.

“We welcome the improvement in the capital position, but wonder if this has come at a cost to the profitability of the core franchise,” Citigroup Inc. analysts including Andrew Coombs said in a report. They have a sell recommendation on the stock.

Deutsche Bank’s trading unit reported a fourth-quarter pretax loss of 737 million euros compared with a loss of 954 million euros a year earlier. The corporate and investment bank, which houses advisory and underwriting activities, saw its pretax profit fall 2 percent to 304 million euros, while the private, wealth and commercial clients unit made a 701 million-euro pretax profit after a 527 million-euro loss a year earlier.

Cryan has said he’s willing to sacrifice some revenue as he improves the firm’s internal controls and scales back debt-trading operations that require increasing amounts of capital.

‘Peak Years’

Deutsche Bank took 1.59 billion euros of litigation charges in the fourth quarter, more than the 1.28 billion euros analysts surveyed by Bloomberg News had expected on average. While 2015 and 2016 were “peak years for litigation,” this year will continue to be “burdened by resolving legacy matters,” Deutsche Bank said in slides on its website.

Last month, Deutsche Bank finalized a settlement with the Justice Department over its handling of mortgage-backed securities before 2008. The bank agreed to pay a $3.1 billion civil penalty and provide $4.1 billion in relief to homeowners. This week, it was fined $629 million by U.K. and U.S. authorities for compliance failures that resulted in the bank helping wealthy Russians move about $10 billion out of the country.

A criminal investigation of the trades by the Justice Department is ongoing. The bank also hasn’t resolved investigations into whether it manipulated foreign-currency rates and precious metals prices.

Client Redemptions

To help shoulder those costs, the company said last month that it will scrap the bonuses of its top executives for a second straight year and slashed variable compensation for other senior employees to shore up capital.

Deutsche Bank is also considering raising capital through the sale of a stake in its asset management unit in an initial public offering, according to people familiar with the matter.

That division generated a 753-million pretax loss after writing down the value of the Abbey Life unit it agreed to sell to Phoenix Group Holdings in September. Asset management generated a 173 million-euro pretax profit in the year earlier quarter. The business saw 13 billion euros of net outflows in the quarter, the highest since redemptions started in the third quarter of 2015.

Cryan said in a speech in Berlin that he’s seeing signs of better times ahead and will continue to focus on resolving the bank’s “legacy issues.”

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Shell Profit Falls Short As Rising Crude Costs Sap Refining

All three principal business units miss company forecasts; Increase in cash flow, lower debt help to buoy shares.

By Rakteem Katakey
February 2, 2017

Royal Dutch Shell Plc reported fourth-quarter profit that missed analyst estimates after crude’s recovery drove up costs for refining while earnings from production did little more than break even.

Profit adjusted for one-time items and inventory changes totaled $1.8 billion, a billion dollars short of analyst estimates. The upstream, downstream and integrated-gas business units all missed company forecasts. Shell barely made any money from refining and trading: just $77 million, down 90 percent.

Major oil companies are facing a complicated time. Crude prices have recovered, but only enough to push Shell’s exploration and production business back into the black, compared with a billion-dollar loss a year ago. At the same time, the rising cost of oil has hurt profit from processing crude.

“They missed estimates in all three business segments, which is a bit disappointing,” Brendan Warn, an analyst at BMO Capital Markets in London, said Thursday by phone. “They are building momentum on asset sales and cash flow and that is the encouraging part.”

Chief Executive Officer Ben van Beurden this week announced the sale of fields in the North Sea and Thailand for as much as $4.7 billion, and said Thursday that Shell’s $30 billion divestment program is on track. He also said the company generated enough cash last quarter to pay for capital spending and dividends without borrowing more.

Van Beurden has made debt reduction a top priority since Shell piled up borrowings following its $54 billion purchase of BG Group Plc last year. And he’s making progress. Gearing -- a measure of indebtedness -- was 28 percent at the end of the year, down from 29.2 percent at the end of the third quarter. Cash flow jumped 69 percent from a year earlier to more than $9 billion.

“In the last two quarters our strategy is starting to pay off,” Van Beurden said Thursday in an interview with Bloomberg Television. “Free cash flow is well above requirements, we have started to pay down our debt in the fourth quarter. I do think we are on track. But we still have a long way to go.”

Shares Gain

The company’s B shares, the most widely traded, rose 1.8 percent to 2,262.5 pence at 8:19 a.m. in London. The stock advanced 53 percent in London last year, the first annual gain in three.

Shell’s U.S. peers Chevron Corp. and Exxon Mobil Corp. also announced earnings well short of estimates. In a sign of how tough 2016 was for Big Oil, Shell said it delivered returns on the capital it employed of just 2.9 percent, only fractionally higher than the record low of 2.8 percent in 1998, according to an analysis by Sanford C. Bernstein & Co.

But in a sign that Shell may have put the worst behind it, the company has maintained its forecast for capital spending in 2017 at $25 billion. It also boosted oil and gas production last quarter, reporting a 28 percent increase from a year earlier to 3.91 million barrels of oil equivalent a day.

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Asian Shares Touch Four-Month High, Dollar Sags On Fed's Relaxed Views

By Hideyuki Sano
February 2, 2017

Asian shares touched four-month highs while the dollar sagged on Thursday after the U.S. Federal Reserve stuck to its mildly upbeat economic view but gave no hint of accelerating rate hikes.

Spreadbetters expected the European markets to be less sanguine, forecasting a slightly lower open for Britain's FTSE, Germany's DAX and France's CAC.

While strong economic data from the United States and elsewhere has underpinned risk assets, uncertainty and concerns over U.S. President Donald Trump's policies have put global markets on edge.

"With many of his cabinet members still not approved, including (incoming Treasury Secretary Steven) Mnuchin, Trump's occasional remarks and tweets are the only guidance markets can get from the new U.S. administration at the moment," said Shuji Shirota, head of macro strategy group in Tokyo at HSBC.

"For the time being, markets will continue to be driven by what Trump will say. It's Trump-on, Trump-off, rather than risk-on, risk-off," he added.

MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.15 percent after touching its highest level since mid-October, with Seoul shares reaching highs last seen in July 2015.

But gains were not broad-based, with Hong Kong's Hang Seng slipping 0.6 percent and Singapore down 0.8 percent.

Japan's Nikkei lost 1 percent on a stronger yen.

The Federal Reserve on Wednesday held interest rates steady in its first meeting since Trump took office.

While painting a relatively upbeat picture of the U.S. economy, the Fed gave no firm signal on the timing of its next rate move with the economic impact of Trump's policies yet to be seen.

Nor was there any hint on whether it plans to trim its $4.5 trillion balance sheet, an increasingly hot topic among the Fed's policy circle.

Following the Fed, the 10-year U.S. Treasury yield stepped back to 2.460 percent from Wednesday's high of 2.518 percent.

"We've been expecting the Fed's next rate hike to come in June and there was nothing from the Fed indicating a hike in March," said HSBC's Shirota.

That dented the dollar, which had bounced earlier on upbeat Institute for Supply Management's (ISM) index of manufacturers and ADP National Employment Report data.

The euro stood at $1.0784, having bounced back from Wednesday's low of $1.0730. The common currency edged back toward $1.08125, an eight-week high set on Tuesday after Trump's top trade adviser said that Germany is benefiting from a "grossly undervalued" euro.

The dollar traded at 112.820 yen, having slipped from Wednesday's high of 113.95 yen.

"The dollar looks capped despite strong U.S. data. Concerns about Trump's policy are outweighing," said Ryuta Taketomi, manager of market trading at Resona Bank.

Trump also lashed out at Japan and China earlier this week, saying they are engaged in currency devaluation.

Sterling hit a 1 1/2-month high of $1.2680 on Wednesday as solid UK economic data and greater political certainty over the Brexit process encouraged a trimming of big financial bets against the currency.

The Bank of England, due to issue its inflation report later in the day, is expected to stick to a neutral policy stance.

The dollar index against a basket of six major currencies stood at 99.556, having slipped almost 4 percent from its 14-year high of 103.82 set on Jan 3.

The Australian dollar jumped to a near three-month peak of $0.7648 after news Australia posted its biggest trade surplus on record in December.

In commodities, crude oil eased after news of a sharp rise in U.S. crude and gasoline stockpiles.

Brent crude futures fell 0.5 percent to $56.50 a barrel after settling up $1.22 in the previous session.

Article Link To Reuters:

Oil Prices Fall After Sharp Rise In U.S. Stockpile

By Keith Wallis and Aaron Sheldrick
February 2, 2017

Oil prices fell on Thursday after official data showed U.S. crude and gasoline stockpiles rose sharply, although signs that OPEC and other producers are holding the line on output cuts helped support prices.

Brent crude futures fell 20 cents, or 0.35 percent, to $56.60 a barrel as of 0750 GMT after settling up $1.22 in the previous session.

Front month futures for West Texas Intermediate were down 26 cents, or 0.5 percent, at $53.62 after climbing $1.07 at the day before.

U.S. crude stocks grew last week by an unexpected 6.5 million barrels to 494.76 million barrels, the Energy Information Administration said on Wednesday, as refiners let stocks build further in a seasonally slow season for production.

The build in stocks far exceeded analysts' expectations for an increase of 3.3 million barrels.

"Obviously we saw some solid gains in prices in the previous session so there might be a little bit of profit-taking in the Asian session after the market rallied unexpectedly," said Ben Le Brun, a market analyst with optionsXpress in Sydney.

"But prices are still very much range-bound," he added.

Gasoline stocks climbed by 3.9 million barrels, compared with analyst expectations in a Reuters poll for a 1-million barrel gain. Gasoline demand has been seasonally weak, down 5.7 percent from a year ago over the past four weeks.

But prices were underpinned by indications that producers from the Organization of the Petroleum Exporting Countries and others are curbing output and geopolitical tensions between the United States and Tehran after Iran's latest missile test.

Earlier this week, a Reuters survey found high compliance by OPEC with agreed cuts.

The curbs follow last year's agreement to lower supplies by a combined 1.8 million bpd to prop up prices that remain at about half their mid-2014 levels.

That came even as oil production growth in the Middle East is set to remain strong, adding 2.44 million bpd during 2017-2021, a report by energy consultancy BMI Research said on Thursday.

Growth will be led by the national oil companies and supported by a large proven reserves base and low cost structures. Production in North America will return to growth in 2017, the report added.

Article Link To Reuters:

Japan Considers Buying More U.S. Energy As Abe Prepares To Meet Trump

By Tomo Uetake and Nobuhiro Kubo
February 2, 2017

Japanese Prime Minister Shinzo Abe is considering increasing energy imports from the United States, two sources familiar with the plan told Reuters, as he prepares to meet President Donald Trump, who has complained about Japan's trade surplus.

Japan is putting together a package of plans for Japanese companies to invest in infrastructure and job-creation projects in the United States for Abe to take to the Feb. 10 meeting with Trump in Washington.

Another idea is to offer to increase liquid natural gas (LNG) imports from the United States, a source in the ruling coalition told Reuters.

Another option, if Abe determines that Trump is most concerned about the trade gap, is to increase imports of U.S. shale oil or gas on top of the investment package, according to a top executive at a major Japanese corporation who is close to Abe.

Japanese officials have been scrambling to respond to Trump's scattershot comments since he took office.

He has threatened to impose a tax on car imports from Mexico, criticized Japan's trade gap with the United States and most recently accused Japan, along with China and Germany, of devaluing their currencies to the detriment of U.S. companies.

"(Abe) wants to know what's the most important thing for Trump," said the executive, who declined to be identified.

"If it is the trade surplus that Trump cares the most about, for instance, then we could come up with a few possible solutions," including importing more U.S. shale oil or gas.

Abe's approach toward Trump would be "not accommodating, not opposing", he said.

Utilities would be resistant to buying more U.S. shale gas because they have already committed to buying large amounts and Japan's demand for energy is falling, an executive at a Japanese gas importer told Reuters on condition of anonymity.

Prices for LNG in Asia LNG-AS have fallen by almost a fifth this year amid a supply glut.

Japan is the world's biggest buyer of the gas cooled to liquid form for transport on ships and takes in nearly a third of global shipments.

Once seen as a panacea for Japan's energy crisis after the Fukushima nuclear disaster in 2011 led to the shutdown of most reactors in the country, U.S. shale gas is now just one of many options for Japan to meet its needs.

Japan took in its first shipment of shale gas in liquid form this month and more shipments are likely to come as more export terminals start shipments this year and next.

The Yomiuri newspaper said on Thursday Abe's growth and jobs initiative would include a plan for Japan and the United States to jointly develop a $450 billion "infrastructure market", into which the Japanese government and companies would invest $150 billion over 10 years.

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Snap's Secrecy Frustrates Banks' Pursuit Of IPO Glory

By Lauren Hirsch and Liana B. Baker
February 2, 2017

Some investment banks seeking to be added as underwriters to Snapchat owner Snap Inc's initial public offering registration document have been denied access to review it before it is made public this week, according to people familiar with the matter.

The unusual move underscores Snap's relentless campaign to crack down on information leaks. For Wall Street banks, it pits their desire to appear on the front cover of this year's most high-profile IPO against their reluctance to have their names featured in a regulatory document they have not seen.

Snap's stance reinforces its reputation as one the world's most secretive companies. It made privacy its hallmark by developing an app that sends disappearing messages, before rebranding itself as a "camera" company making video recording glasses and visual effects for video taken by smartphones.

"I cannot imagine any other deal in which banks would let something like this happen," said Christopher Austin, an equity capital markets lawyer at Orrick Herrington & Sutcliffe LLP, who is not involved in Snap's IPO.

While Snap's lead IPO underwriters, Morgan Stanley and Goldman Sachs Group Inc, had an opportunity to review and draft the registration document, the more than 10 banks that have recently signed up as IPO co-managers, including Citigroup Inc and Royal Bank of Canada, have been told they cannot see it ahead of it becoming public, the sources said on Wednesday.

Instead, the Los Angeles-based company has organized meetings with teams of banks to answer their questions about the document, and has also made lawyers from the lead underwriters available, the sources added.

Typically, banks have "commitment committees" to review IPO registration documents before gaining internal permission to have their name included in a registration document. They usually seek assurances that disclosures on a company's business risks and accounting standards have been made properly.

"Commitment committees are there to keep bankers from making stupid mistakes, and to protect a bank's reputation," Austin said.

Most of the new banks involved became comfortable with their name appearing on the IPO registration document after speaking to Snap and its lawyers, according to the sources.

Some banks are still hoping for full access to the document before its public filing, though it is uncertain whether Snap will acquiesce. It is still possible that Snap will agree to give some banks access to the filing a couple of hours before it is made public, the sources said.

The sources asked not to be identified because the matter is confidential. Snap declined to comment. The banks either declined to comment, or did not immediately respond to requests for comment.

Bragging Rights

Snap has already submitted its IPO registration document with the U.S. Securities and Exchange Commission under the Jobs Act, which allows companies with less than $1 billion in revenue to file confidentially. Snap is set to update the filing and make it public this week.

To be sure, banks hired by Snap for the IPO can simply wait for the registration document to be made public, and then ask for their name to be included next time the document is updated. Once made public this week, the IPO document will likely be updated several times before the launch of the offering that is expected in March.

Nevertheless, there are significant bragging rights for banks that have their names featured in the original publication of the IPO document, because subsequent updates to that document tend to attract less media attention.

What is more, big IPOs such as Snap's have been few and far between recently. Proceeds from IPOs were down 40 percent last year from 2015. Technology IPOs, often a large chunk of the market, were down 56 percent, according to Thomson Reuters data.

Snap is seeking to go public at a valuation of as much as $25 billion, and could potentially be this year's biggest IPO.

"I don't know any bank that would turn down the opportunity to be on the Snapchat IPO" said Kathleen Smith, principal at Renaissance Capital, which manages IPO-focused exchange traded funds.

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Facebook Eases Past Wall Street Estimates, Sees Spending Up In 2017

By Rishika Sadam and David Ingram
February 2, 2017

Facebook Inc (FB.O) cruised past Wall Street's earnings and revenue expectations on Wednesday with strong growth in its mobile ad business, demonstrating that controversy over so-called "fake news" and inaccurate advertising measurements had little impact on its financial performance.

With quarterly profit of $3.57 billion, more than double the $1.56 billion it reported a year ago, the company showed no signs of slowdown in growth. The results handily beat analysts' expectations, and shares ticked up about 0.2 percent in after-hours trading.

The company had warned in November that ad growth would likely slow "meaningfully" due to limits on ad load - the total number of ads Facebook can show to each user. But there was little sign of that in the fourth quarter as total revenue soared to $8.81 billion from $5.84 billion a year ago.

"I think the rate of growth will decline, but it will remain very high," said analyst Michael Pachter of Wedbush Securities. "They grew 57 percent in 2016, and our current model has 'only' 38 percent revenue growth in 2017. That's still pretty impressive."

Facebook suffered a slight setback just before the market close when a jury in Texas ordered Facebook, its virtual reality unit Oculus, and other defendants to pay a combined $500 million to ZeniMax Media Inc, a video game publisher, for violating a non-disclosure agreement. [nL1N1FM20U]

But the company's core business continued to power ahead as mobile advertising accelerated; it now accounts for 84 percent of ad revenue, up from 80 percent a year ago.

Chief Executive Mark Zuckerberg told analysts on a call on Wednesday that the company expects a major ramp-up in hiring and other spending during 2017 as it invests in video and other priorities.

Zuckerberg said the focus would be on generating short-form, original videos, especially professionally created "episodic content" produced week-to-week.

Users should come to Facebook "when they want to keep up-to-date on what's going on with their favorite show or what's going on with a public figure," he said.

U.S. President Donald Trump used the service for that on Tuesday, when he broadcast his announcement of U.S. Supreme Court nominee Neil Gorsuch on Facebook Live.

Threat To Netflix

The video push could ultimately pose a threat not only to YouTube, owned by Alphabet Inc's (GOOGL.O) Google, but also to next-generation television companies like Netflix Inc (NFLX.O).

Facebook's strong performance could also throw a shadow on the expected Snap Inc initial public offering. Facebook competes with Snap chiefly through its Messenger service, and also with WhatsApp and Instagram.

The various Facebook apps have all been adding features rapidly to attract more users and retain those already on the network, and some of those features are clearly aimed at Snap.

Facebook has also been building new tools to stem the spread of fake news and partisan propaganda on the network, which emerged as a major issue in last year's U.S. presidential election.

Chief Operating Officer Sheryl Sandberg played down the impact of U.S. election spending on the company's finances. She compared it to the soccer World Cup or the Super Bowl and said it was not a "top 10 vertical" for the fourth quarter.

"No one event is that big for our business," she said.

Users Growing

The company inched closer to reaching 2 billion users, saying that about 1.86 billion people were using its service monthly as of Dec. 31, up 17 percent from a year earlier.

China apparently will not contribute to that growth any time soon, as Zuckerberg all but ruled out an imminent expansion in the world's most populous country.

"We're only going to do this in a way that we're comfortable with in the long term," he told analysts, adding that there would be "no news at all in the near term."

Mobile daily active users rose 23 percent to 1.15 billion, the company said. More than 90 percent of Facebook's users access the network through mobile devices.

Facebook is expected to generate about $29.71 billion in mobile ad revenue in 2017, according to research firm eMarketer, up about 35.2 percent from 2016.

Net income attributable to Facebook shareholders for the quarter rose to $3.56 billion, or $1.21 per share, from $1.56 billion, or 54 cents per share, a year earlier.

Excluding items, the company earned $1.41 per share.

Analysts on average had expected a profit of $1.31 per share on revenue of $8.51 billion, according to Thomson Reuters I/B/E/S.

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