Tuesday, May 2, 2017

Tuesday, May 2, Morning Global Market Roundup: Strong Earnings Power Global Shares Higher

By Nigel Stephenson 
May 2, 2017

Stocks rose in Europe and Asia on Tuesday after technology industry shares hit record highs on Wall Street and investors focused on strong corporate earnings while shrugging off weaker-than-expected Chinese factory activity data.

European stock markets opened higher after the May 1 holiday, reflecting the bullish mood on Wall Street, where the closely watched "fear gauge" of implied equity market volatility closed at its lowest since before the global financial crisis.

Forecast-beating earnings have helped push shares higher across the globe this year. First-quarter profits at S&P 500 companies are expected to have risen 13.6 percent, the strongest rise since 2011, according to Thomson Reuters I/B/E/S. European equivalents are seen up 13.9 percent.

Wall Street is expected to open slightly lower, index futures show.

The dollar hit a one-month high against the safe-haven Japanese yen on some signs of easing tensions over North Korea and as U.S. bond yields rose after U.S. Treasury Secretary Steven Mnuchin said the government was looking into issuing ultra-long debt of maturities in excess of 30 years.

Greek government bond yields fell after Greece and its lenders reached a long-awaited deal on reforms required to release further bailout funds.

The pan-European STOXX 600 share index, which had its best week since December last week, nudged up 0.2 percent. The banking sub-index was up 0.4 percent, showing no reaction to comments from U.S. President Donald Trump, who told Bloomberg Television he was actively considering breaking up big banks.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.5 percent to its highest level since June 2015, as many of the region's markets also reopened after a long holiday weekend. Japan's Nikkei rose 0.7 percent after some robust earnings.

The tech-heavy Nasdaq Composite index hit a record high on Monday as the world's five largest companies by market capitalization -- Apple, Alphabet, Microsoft, Amazon and Facebook -- all hit intraday or closing highs.

Apple reports results later on Tuesday and Facebook on Wednesday.

"Higher corporate earnings and tax reform seem to be more important to the market than any off-the-cuff remark from Trump. That means people are not buying protection in the options market to protect themselves from a drop in the market," said Neil Wilson, senior market analyst at ETX Capital.

The VIX volatility index closed at its lowest level since February 2007.

Strong earnings have outweighed concern over patches of weak economic data. An official survey on Tuesday showed Chinese factory activity growth slowed more than expected in April. The ISM measure of U.S. manufacturing activity also undershot forecasts on Monday.

Euro zone factory activity hit a six-year high in April, according to IHS Markit data. The euro traded 0.1 percent stronger at $1.0912.

The dollar index, which measures the greenback against a basket of major currencies, rose 0.1 percent. The dollar was up 0.3 percent at 122.12 yen, just shy of its strongest since March 31.


U.S. 30-year Treasury yield were 1 basis point higher at 3.02 percent, just below Monday's three-week high, after Mnuchin told Bloomberg issuing ultra-long bonds "can absolutely make sense".

"Mnuchin's comments have at least stabilized the long end of the curve," said Lee Hardman, a currency economist with Japan's MUFG. "But the dollar is still on the defensive in the near term. The data from the U.S. has been coming in on the disappointing side and the Fed is likely to acknowledge that at this week's meeting."

The Fed begins a two-day policy meeting on Tuesday.

The yen, often sought in tense times, hit a five-month high in mid-April as concerns grew about a possible conflict over North Korea. Tension eased somewhat after Trump said on Monday he would be honored to meet North Korean leader Kim Jong Un in the right circumstances.

The yield on 10-year Greek government bonds fell 30 basis points to 6.18 percent, their lowest since October 2014, after the deal with its lenders, which followed half a year of talks.

Oil prices rose as investors weighed rising production in Libya and elsewhere and expectations that the OPEC producers group and others will extend output curbs. Brent crude last traded 29 cents higher at $51.81.

Article Link To Reuters:

Factbox: Breaking Up Big U.S. Banks

By Pete Schroeder
May 2, 2017

U.S. President Donald Trump said he was actively considering breaking up big banks, Bloomberg Television reported on Monday.

Trump's comments could give a push to efforts to revive the Depression-era Glass-Steagall law that separated commercial lending from investment banking. Reviving such a law would require an act by Congress.

Here are some details about the law:

What Is Glass-Steagall?

Originally passed as part of the U.S. Banking Act of 1933, Glass-Steagall established a firewall between commercial and investment banking activity. The law was whittled away over time as banks gained permission to engage in more trading activity, and was repealed altogether in 1999 with the Gramm-Leach-Bliley Act.

Who Supports It? 

Since the 2008 financial crisis, Glass-Steagall has become a calling card for politicians eager to crack down on Wall Street. Democratic U.S. Senator Elizabeth Warren frequently invokes it, and Senator Bernie Sanders made it a major part of his presidential campaign. Trump also seized on the policy during his campaign.

What Does The White House Say? 

The Trump administration has not backed away from his campaign stance, but there are questions about how aggressively the president will push for a new law. The issue tends to come up only when officials are asked about it. Treasury Secretary Steven Mnuchin said he supported a modern version of Glass-Steagall in response to a question during his confirmation hearing. White House Press Secretary Sean Spicer said the White House supports the proposal when asked by reporters. Gary Cohn, a former Goldman Sachs banker who runs the National Economic Council, responded favorably when asked by Warren at a private meeting with senators.

What Would A New Glass-Steagall Look Like?

There are a number of ideas to create what some refer to as a "21st Century Glass-Steagall." Warren has proposed splitting commercial and investment banking, and also barring depository institutions from using modern financial instruments like derivatives. Thomas Hoenig, the vice chair of the Federal Deposit Insurance Corporation, has proposed a similar split, and would subject banks to a higher, 10 percent capital requirement. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, would force big banks to take on so much capital they would prefer to split into smaller institutions.

Could It Happen? 

Although many Wall Street critics have seized on Glass-Steagall, efforts to change the law have garnered very little support. Warren's proposal received just a handful of legislative cosponsors. And because Congress and the White House are still consumed with complex fights over healthcare and tax reform, there seems little appetite for a broad, controversial overhaul of the financial system.

Are There Risks For Banks?

Big U.S. lenders including JPMorgan Chase & Co (JPM.N), Bank of America Corp (BAC.N) and Citigroup Inc (C.N) would be most impacted, because their commercial lending and investment banking operations are closely intertwined, say analysts. Goldman Sachs Group Inc (GS.N) and Morgan Stanley (MS.N) might be less affected, although they would likely have to revert to being standalone investment banks and shed their deposit funding. But even if a new Glass-Steagall does not become law, the industry may have to spend money, time and energy lobbying against the idea, when it would rather focus on rolling back existing rules.

Article Link To Reuters:

Pledging More Austerity, Greece Cuts Deal With Lenders

By Renee Maltezou
May 2, 2017

Promising to cut pensions and give taxpayers fewer breaks, Greece has paved the way for the disbursement of further rescue funds from international lenders and possibly opened the door to reworking its massive debt.

Officials from both sides reached a deal early on Tuesday on a package of bailout-mandated reforms, ending six months of staff-level haggling. Greek Finance Minister Euclid Tsakalotos announced it with a term associated with papal elections.

"There was white smoke," he told reporters.

Greece now needs to legislate the new measures - which also include opening up the energy market to competition - before euro zone finance ministers approve the disbursement of loans, probably at the next scheduled Eurogroup meeting on May 22.

Athens needs the funds urgently to repay 7.5 billion euros in debt maturing in July.

The Eurogroup meeting, meanwhile, may mark the first formal discussion of debt relief for Greece, an issue that means different things to each side.

The International Monetary Fund reckons Greek debt is unsustainable at 179 percent of gross domestic product and is reluctant to participate in further funding without a debt relief agreement.

European Union lenders, however, have ruled out forgiving the debt and refused to discuss such things as cutting repayment rates until after a reform-for-cash deal is cut.

Both groups of lenders have differed markedly about what Greece's budget is capable of sustaining.

The Greek government, however, hailed Tuesday's agreement as now allowing the yet-to-be-defined relief go ahead.

"The government believes that this road, despite the difficulties, will lead to the country's exit from bailouts," Interior Minister Panos Skourletis told ERT TV.

"What's important after closing the bailout review is to have a roadmap for debt relief."

Skourletis repeated Greece's mantra that demanding increasing amounts of austerity risks alienating great swathes of EU citizens.

"The consequences for every government, including ours, that is obliged to implement bailout measures, is the risk of damaging the relationship with society, particularly the groups that you want to represent," he said.


As part of the reforms, Athens has promised to cut pensions in 2019 and cut the tax-free threshold in 2020 to produce savings worth 2 percent of gross domestic product.

If it outperforms its targets, it will be allowed to activate a set of measures offsetting the impact of the additional austerity, which includes mainly lowering taxes.

Athens also agreed to sell coal-fired plants and coal mines equal to about 40 percent of its dominant power utility Public Power Corp's (DEHr.AT) capacity. [A8N1H702W]

On the budgetary target level, the lenders are now likely to decide among themselves on Greece's medium-term primary surplus targets, a key element for granting further debt relief.

In a draft document seen by Reuters, the IMF says Greece can reach a primary surplus - the budget balance excluding debt repayments - of 2.2 percent in 2018 and aim at 3.5 percent annually in 2019-2021. It suggests the primary surplus target be reduced to 1.5 percent of GDP thereafter.

Euro zone lenders, however, believe Greece must sustain a 3.5 percent GDP primary surplus target over a longer period.

Last year's Greek primary surplus was 4.2 percent, according to the lenders. Whether that can be maintained is unclear.

Article Link To Reuters:

Fed Set To Leave Interest Rates Unchanged, May Hint At June Hike

By Lindsay Dunsmuir 
May 2, 2017

The U.S. Federal Reserve is expected to hold interest rates steady at its meeting this week as it pauses to parse more economic data but may hint it is on track for an increase in June.

The central bank is scheduled to release its policy decision at 2 p.m. EDT (1800 GMT) on Wednesday at the conclusion of its two-day meeting. Fed Chair Janet Yellen is not due to hold a press conference.

Most policymakers have already made plain that in contrast to previous years, the Fed feels more confident in its forecast of two more rate increases this year.

"The bar to disrupting the Fed's plans is higher now than it was in previous years," said Michael Gapen, chief economist at Barclays in New York in a note to clients.

The Fed is in its first tightening cycle in more than a decade. A quarter percentage point increase last December was followed two meetings later by another hike in March.

Economists polled by Reuters see little chance of a move 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 rate-setting committee also is still waiting to see to what extent Trump administration policies on tax, spending and regulation will be able to get through Congress. A stimulus package could speed up the pace of hikes.

Likely To Downplay Weakness

Since the last meeting economic data has been mixed. The economy grew at a sluggish 0.7 percent annual pace in the first quarter as consumer spending almost stalled.

However, a surge in business investment and the fastest wage growth in a decade suggest activity will regain momentum as the year progresses.

Jobs growth also slowed sharply in March but the unemployment rate dropped to a near 10-year low of 4.5 percent.

Economists have largely attributed the weak first-quarter reading to perennial issues with the calculation of growth during the January-March period and the pullback in hiring in March to weather effects.

"There won't be a lot of changes to the policy statement," said Sam Bullard, senior economist at Wells Fargo Securities. "I think they will downplay the soft first-quarter print and focus a little bit more on the labor market."

The Fed will have two more employment growth reports to hand before its next meeting.

Policymakers are also gearing up to announce sometime this year when and how the Fed will begin shrinking its $4.5 trillion balance sheet, according to minutes from the March meeting.

An announcement this week on a concrete timeline is not expected but there could be tweaks to language in the statement to show the matter is an increasing priority for the Fed.

Article Link To Reuters:

Oil Rises As OPEC Cuts Outweigh Higher Output Elsewhere

By Christopher Johnson
May 2, 2017

Oil prices rose on Tuesday as expectations that major OPEC exporters would extend output cuts into the second half of the year outweighed rising production in the United States, Canada and Libya.

Benchmark Brent crude oil LCOc1 was up 30 cents at $51.82 a barrel. The futures contract hit a one-month low of $50.45 last week after the restart of two Libyan oilfields. U.S. light crude CLc1 was 20 cents higher at $49.04.

The Organization of the Petroleum Exporting Countries and several other key producers including Russia have agreed to cut output by 1.8 million barrels per day (bpd) for the first half of 2017 to try to reduce a global glut.

OPEC and other producers meet on May 25 and are widely expected to keep output limits for the rest of the year.

"The second half of the year looks brighter, provided OPEC remains at least as disciplined as during the first half of 2017," said Tamas Varga, analyst at London brokerage PVM Oil Associates.

But oil market sentiment is fragile and many investors are concerned by the slow pace of inventory drawdowns, with stockpiles still near record highs.

Libya's National Oil Company said on Monday production had risen above 760,000 bpd to its highest since December 2014, with plans to keep boosting production.

U.S. crude output C-OUT-T-EIA is at its highest since August 2015, while the Syncrude Canada oil sands project has started shipping crude from its Mildred Lake upgrader again after cutting production due to a fire in March. [RIG/U]

Oil prices found some support from data showing Russian oil output fell slightly to 11 million bpd in April from 11.05 million bpd in March.

But much of the news has been negative for oil.

A private survey on Tuesday showed China's factory sector lost momentum in April, with growth slowing to its weakest pace in seven months.

U.S. crude inventories are expected to mark a fourth straight week of declines from a record high hit at the end of March, but stocks are still seen about 10 percent above year-end levels, according to Reuters calculations. [EIA/S]

U.S. crude inventories likely fell by 2.2 million barrels last week, while refined product stockpiles were seen up, a preliminary Reuters poll showed.

The American Petroleum Institute (API), an industry group, is scheduled to release inventory data for the week to April 28 at 4:30 p.m. EDT (2030 GMT) on Tuesday.

Article Link To Reuters:

How Two Cutting Edge U.S. Nuclear Projects Bankrupted Westinghouse

By Tom Hals and Emily Flitter
May 2, 2017

In 2012, construction of a Georgia nuclear power plant stalled for eight months as engineers waited for the right signatures and paperwork needed to ship a section of the plant from a factory hundreds of miles away.

The delay, which a nuclear specialist monitoring the construction said was longer than the time required to make the section, was emblematic of the problems that plagued Westinghouse Electric Co as it tried an ambitious new approach to building nuclear power plants.

The approach - building pre-fabricated sections of the plants before sending them to the construction sites for assembly - was supposed to revolutionize the industry by making it cheaper and safer to build nuclear plants.

But Westinghouse miscalculated the time it would take, and the possible pitfalls involved, in rolling out its innovative AP1000 nuclear plants, according to a close examination by Reuters of the projects.

Those problems have led to an estimated $13 billion in cost overruns and left in doubt the future of the two plants, the one in Georgia and another in South Carolina.

Overwhelmed by the costs of construction, Westinghouse filed for bankruptcy on March 29, while its corporate parent, Japan's Toshiba Corp, is close to financial ruin [L3N1HI4SD]. It has said that controls at Westinghouse were "insufficient."

The miscalculations underscore the difficulties facing a global industry that aims to build about 160 reactors and is expected to generate around $740 billion in sales of equipment in services in the coming decade, according to nuclear industry trade groups.

The sector's problems extend well beyond Westinghouse. France's Areva is being restructured, in part due to delays and huge cost overruns at a nuclear plant the company is building in Finland.

Even though Westinghouse's approach of pre-fabricated plants was untested, the company offered aggressive estimates of the cost and time it would take to build its AP1000 plants in order to win future business from U.S. utility companies. It also misjudged regulatory hurdles and used a construction company that lacked experience with the rigor and demands of nuclear work, according to state and federal regulators' reports, bankruptcy filings and interviews with current and former employees.

"Fundamentally, it was an experimental project but they were under pressure to show it could be a commercially viable project, so they grossly underestimated the time and the cost and the difficulty," said Edwin Lyman, a senior scientist at the Union of Concerned Scientists, who has written and testified about the AP1000 design.

Westinghouse spokeswoman Sarah Cassella said the company is "committed to the AP1000 power plant technology", plans to continue construction of AP1000 plants in China and expects to bid for new plants in India and elsewhere. She declined to comment on a detailed list of questions from Reuters.

Problems From The Start

By early 2017, the Georgia and South Carolina plants were supposed to be producing enough energy to power more than a half a million homes and businesses. Instead, they stand half-finished. (For a graphic see tmsnrt.rs/2oQEKgE)

Southern Co, which owns nearly half the Georgia project, and SCANA Corp, which owns a majority of the South Carolina project, have said they are evaluating the plants and could abandon the reactors altogether.

"We will continue to take every action available to us to hold Westinghouse and Toshiba accountable for their financial responsibilities under the engineering, procurement and construction agreement and the parent guarantee," Southern said in a statement. A spokesman declined to elaborate.

The projects suffered setbacks from the start. In one instance, to prepare the Georgia plant for construction, Westinghouse and its construction partner in 2009 began digging out the foundation, removing 3.6 million cubic yards of dirt.

But half of the backfill – the material used to fill the excavated area - failed to meet regulatory approval, delaying the project by at least six months, according to William Jacobs, the nuclear specialist who monitored construction of the plant for Georgia's utility regulator.

He declined to be interviewed.

But the source of the biggest delays can be traced to the AP1000's innovative design and the challenges created by the untested approach to manufacturing and building reactors, according to more than a dozen interviews with former and current Westinghouse employees, nuclear experts and regulators.

Unlike previous nuclear reactors, the AP1000 would be built from prefabricated parts; specialized workers at a factory would churn out sections of the reactor that would be shipped to the construction site for assembly. Westinghouse said in marketing materials this method would standardize nuclear plant construction.

Westinghouse turned to Shaw Group Inc, which held a 20 percent stake in Westinghouse, to build sections for the reactors at its factory in Lake Charles, Louisiana. There, components for two reactors each in Georgia and South Carolina would be manufactured.

Lake Charles

Seven months after work began in the May 2010, Shaw had already conducted an internal review at the behest of the Nuclear Regulatory Commission (NRC) to document problems it was having producing components.

In a letter to the NRC, Shaw's then-executive vice president, Joseph Ernst, wrote: "The level and effectiveness of management oversight of daily activities was determined to be inadequate based on the quality of work."

He laid out a laundry list of deficiencies ranging from Shaw's inability to weed out incorrectly made parts to the way it stored construction materials.

Ernst did not respond to a phone call seeking comment.

Over the next four years, regulatory and internal inspections at Lake Charles would reveal a slew of problems associated with the effort to construct modular parts to fit the new Westinghouse design, NRC records show.

When a sub-module was dropped and damaged, Shaw managers ordered employees to cover up the incident; components were labeled improperly; required tests were neglected; and some parts' dimensions were wrong. The NRC detailed each one in public violation notices.

Then there was the missing and illegible paperwork.

The section that was delayed more than eight months by missing signatures would become one of 72 modules fused together to hold nuclear fuel. The 2.2 million pound unit was installed more than two years behind schedule.

It was not until June 2015 that the Lake Charles facility was building acceptable modules, according to a report by Jacobs. By then, Shaw had been bought by Chicago Bridge & Iron.

Gentry Brann, a CB&I spokeswoman, said the company put the Lake Charles plant under new management and installed new procedures after the 2013 acquisition. She said Westinghouse was to blame for subsequent delays, citing "several thousand" technical and design changes made after work had already started on various components.

Westinghouse declined to comment.


To some extent, Westinghouse also was hamstrung by the NRC, which imposed stringent requirements for the new reactors. To comply, Westinghouse made some design changes that were tiny tweaks; others were larger.

For instance, before the NRC would issue the utilities an operating license for the Georgia plant, it demanded changes to the design of the shield building, which protects against radiation leaks. The regulator said the shield needed to be strengthened to withstand a crash by a commercial jet, a safety measure arising from the Sept. 11, 2001 attacks.

The NRC issued the new standard in 2009, seven years after Westinghouse had applied for approval of its design. The company, in bankruptcy court filings, said the NRC's demand created unanticipated engineering challenges.

A spokesman for the NRC, Scott Burnell, said the changes should not have come as a surprise, since the agency had been talking about the stringent requirements for several years.

Westinghouse changed its design to protect against a jet crash, but at that point the NRC questioned whether the new design could withstand tornadoes and earthquakes.

Westinghouse finally met the requirements in 2011, according to a report by Jacobs.

By 2016 Westinghouse began to grasp the scope of its dilemma, according to a document filed in its bankruptcy: Finishing the two projects would require Westinghouse to spend billions of dollars on labor, abandoning them would mean billions in penalties.

Westinghouse determined it could not afford either option.

Graphic: Cost overruns at Westinghouse's nuclear plants - tmsnrt.rs/2qnmtML

Article Link To Reuters:

Raising The Gas Tax Could Alienate Trump's Base

President said he would consider gas tax for infrastructure; Critics say fuel levies are regressive and hit rural drivers.

By Mark Niquette
May 2, 2017

President Donald Trump says he’s open to raising the federal gas tax to fund infrastructure improvements -- a position that could pit him against his fellow Republicans in Congress and might hit rural voters who supported him harder than others.

Representative Kevin Brady, the chairman of the tax-writing House Ways and Means Committee, made his opposition to an increase clear Monday afternoon. Asked if he’d rule out a gas-tax hike, he said: “In my view, yes, but we’re going to have that discussion.”

In an interview with Bloomberg News in the Oval Office on Monday, Trump said he “would certainly consider” raising the U.S. gas tax to fund infrastructure. He described the idea as supported by truckers “if we earmarked money toward the highways.’’

But congressional Republicans have scuttled previous attempts to raise the gas tax. House Speaker Paul Ryan previously has opposed a higher levy, and Senator John Barrasso, a Wyoming Republican and chairman of the Environment and Public Works Committee, has said he doesn’t see it as a solution for infrastructure funding.

The conservative group Club for Growth immediately urged Trump to forget it. “Taking more money from American drivers to send to Washington is not the answer,” spokesman Doug Sachtleben said in a statement. “Real infrastructure projects are best done at the state and local levels where transparency, efficiency, and accountability are at their highest.”

Americans for Prosperity, the conservative advocacy group that’s funded by the billionaire brothers Charles and David Koch, opposes gas-tax increases, arguing on the website of its Louisiana chapter that they “hurt hard-working families, especially those who live in rural areas or drive older cars.’’

Rural Effects

Voters in rural areas overwhelmingly chose Trump over Democrat Hillary Clinton in the 2016 presidential election, and a higher gas tax also may indeed affect those areas disproportionately, said Carl Davis, research director for the Institute on Taxation and Economic Policy, a non-profit research organization in Washington. The gas tax is regressive, meaning it puts a bigger burden on lower- and middle-income families’ household budgets than it does the wealthy, the group says.

The anti-tax activist Grover Norquist, a longtime opponent of raising the gas tax, said on Monday that there are other things Congress can do to improve infrastructure. They include limiting spending from the federal Highway Trust Fund, which passes money to states, to highway projects and streamlining regulations as well as studies related to permitting.

“There is no need -- and no excuse for a tax hike,” Norquist said in a statement. “We can have more roads at lower prices if Congress repeals destructive laws and rules it itself established for sordid reasons.”

Revenue Declines

Still, in some corners, pressure is building to increase fuel taxes. The federal per-gallon taxes of 18.4 cents on gasoline and 24.4 cents on diesel were last raised in 1993. Since then, the revenue they generate has declined as inflation robbed them of their purchasing power and the average fuel economy of a passenger vehicle increased by 12 percent, according to the U.S. Department of Transportation. Business and transportation groups have called for increasing the federal gas tax to help sustain the federal trust fund.

Now, with Trump proposing to spend as much as $1 trillion on roads, bridges, airports, sea ports and other public works, the fuel tax is back under examination. Republican lawmakers will be open-minded, but “they’re going to likely start off from a skeptical point of view,” said David Winston, a GOP consultant who has advised congressional leaders.

In a February interview, Representative Bill Shuster of Pennsylvania, the Republican chairman of the House Transportation and Infrastructure Committee, didn’t rule out increasing the gas tax as part of negotiations to get a final infrastructure package approved. “That is certainly a difficult thing to do,’’ Shuster said at the time. “It’s something we should look at and consider.’’ Shuster’s office didn’t immediately comment on Trump’s statement Monday.

Democrats’ Response

Representative Peter DeFazio of Oregon, the transportation panel’s top Democrat, said he thought most Democrats and many Republicans would go along if Trump strongly advocated for an increase.

“I don’t think there’s any political jeopardy to this,” said DeFazio, who has introduced a bill to raise fuel levies by no more than 1.5 cents a year to back 30-year Treasury bonds that would generate $500 billion through 2030.

The American Trucking Association, which supports a gas-tax increase as the most efficient method to raise revenue for highway infrastructure, welcomed Trump’s comments.

“As an industry that pays half of the tab that funds the Highway Trust Fund, we welcome a discussion around tax reform and how best to generate the additional revenue we need to improve our roads and bridges,” the group said in a statement.

Asked about Trump’s remarks about the gas tax on Monday, Senate Minority Leader Chuck Schumer declined to weigh in. “I’m not going to comment on individual things he’s said,’’ the New York Democrat told reporters. “Let’s see the proposal.’’

The timing of the administration’s infrastructure plan is unclear. Trump said in a CBS interview released on Monday that “we’ve got the plan largely completed and we’ll be filing over the next two or three weeks, maybe sooner.’’

‘Complicated Issues’

But U.S. Transportation Secretary Elaine Chao said last week that the administration hopes to have a package to Congress “probably by summer or this fall.’’ She said at a Milken Institute Global Conference in California on Monday that it could come “fairly shortly.’’

There had been discussions about combining an infrastructure plan with a proposal to overhaul the U.S. tax code, but the administration probably won’t do that because “they’re both complicated issues,’’ Treasury Secretary Steven Mnuchin said at the Milken event.

Trump’s plan will include $200 billion in direct federal funding to leverage private investment for $1 trillion in spending over 10 years, Chao said. She previously has touted public-private partnerships and repatriation, or taxes on returned profits from overseas, as well as streamlining regulations and permitting to accelerate projects.

Democrats and some Republicans have said relying on the private sector won’t work in rural states because public-works investments require a revenue stream, such as tolls or regular tax payments, that aren’t feasible in low-population areas.

The president’s infrastructure plan will propose to use federal money to a larger degree in rural areas, Reed Cordish, assistant to the president in the White House Office of American Innovation, said at the Milken event. “It can allow for projects that wouldn’t otherwise happen in the free market to take place,’’ Cordish said.

Article Link To Bloomberg:

Trump's U.S. Looks Past Energy Independence To Global Dominance

Fracking a ‘global game-changer,’ Zinke says at OTC conference; Interior Secretary reviewing Obama-era offshore drilling plan.

By Laura Blewitt
May 2, 2017

The U.S. is in the position to be energy-dominant, not just independent, thanks to fracking and plans to loosen drilling regulations, Interior Secretary Ryan Zinke said Monday.

Oil production across the U.S. may increase by 17 percent to a record 10.24 million barrels a day by the end of next year as companies cut costs and become more efficient in drilling, especially in areas such as West Texas and North Dakota. Domestic output hasn’t surpassed 10 million barrels a day since 1970. At a time when OPEC and other producers are cutting output, U.S. exports surged above 1 million barrels a day for the first time.

“In 1983, I was told we’re going be out of oil and fossil fuels definitively in 2003. That’s not true,” Zinke said at the Offshore Technology Conference in Houston. “And, you know, I always say God’s got a sense of humor -- he gave us fracking. And fracking is a game-changer -- certainly a global game-changer.”

Zinke is pushing forward President Donald Trump’s plans to expand oil and natural gas drilling and reconsider regulations that might limit development of U.S. natural resources. Trump on Friday ordered Zinke to revise a five-year schedule for auctioning offshore drilling rights with the aim of potentially including territory left out by former President Barack Obama.

“My task is to look at it look at where we’re going to make changes, recommendations across the board,” Zinke said. “The stars have lined up so we can create energy jobs."

Zinke signed two orders, one designating the creation of a counselor position to the Secretary for Energy Policy within the department, and the other directing the Bureau of Ocean Energy Management to develop a new five-year plan for offshore exploration that reconsiders the regulations that currently govern those activities. The latter order will direct immediate development of outer-continental shelf leasing programs that open the door for drilling offshore Alaska, the East Coast and the Gulf of Mexico.

He’s also looking at reorganizing the Interior Department, where, he says, in five years 40 percent of the employees will be retirement age.

“Right now we’re really senior, almost like an ice cream cone,” Zinke said. “This is a 100-year organization. About 100 years ago Teddy Roosevelt formed the park service. And what we’re trying to do is look at 100 years hence.”

Article Link To Bloomberg:

The Brexit Grandstanding Works In The EU's Favor

By Leonid Bershidsky
The Bloomberg View
May 2, 2017

Leaked details of a dinner conversation between U.K. Prime Minister Theresa May and European Commission President Jean-Claude Juncker suggest that the Brexit talks won't just be contentious -- they'll be brutal. At this point, the perception helps May as much as it does the EU leaders. After the June election in the U.K., however, May will be at a disadvantage.

A stark description of what transpired during the April 26 dinner in London appeared in the Sunday edition of the German daily Frankfurter Allgemeine Zeitung. In a two-hour-long conversation with Juncker, May rejected the idea of her nation paying any kind of exit bill. She also reportedly said she hoped to clarify the status of EU citizens in the U.K. and Brits in the EU by the next meeting of the Council of Europe in June, based on the idea that these people should be treated as third-country nationals. According to FAZ, May also insisted on negotiating a future trade deal at the same time as the exit arrangements and suggested that the parties together should try to make Brexit a success; in response, Juncker explained that, in his view, a third-party status and success are polar opposites.

Juncker's reaction to what he heard was apparently incredulity and disappointment. As he left the dinner, he declared that he was "10 times more skeptical" than before about the outcome of the talks and that the probability of failure was "more than 50 percent." In distress, Juncker called German Chancellor Angela Merkel to say that, in his opinion, May lived in a different galaxy filled with illusions.

That's the German version of events. The British one can be found in London tabloids. According to the Daily Express, May "chastised the unelected official" during the dinner and demanded that he should be "patient." The Sun, in their tabloid way, accused Juncker of attacking May "behind her back" for refusing to pay a divorce bill.

Neither of the versions is probably quite correct. At the outset of an intense two-year negotiating process, the parties are working to establish their starting positions so that the slightest step back could be viewed as a meaningful compromise. The dinner conversation itself probably wasn't as openly acrimonious as it is described, but the perception that it was helps May. The tougher and more independent-minded she appears, the more support she's likely to get from voters who would hate to weaken her hand even if they're anti-Brexit.

Merkel, for her part, has an election coming up in September, and she has no reason to look soft at the outset of the Brexit talks, especially as her strongest opponent, Martin Schulz, is fiercely pro-European and would hammer her on that. Merkel -- apparently after Juncker called in frustration -- made it clear in a speech to the German parliament on April 29 that, like Juncker, she considered the British side deluded. She also ran through the entire Juncker agenda: No simultaneous talks about exit terms and a future trade deal; strong protections for EU citizens in the U.K., including 100,000 Germans; as little financial damage as possible to the EU. Unity appears to be ensured on the initial position: Merkel's bullet points are the basis for the negotiating guidelines on which the 27 EU leaders signed off on Saturday. As is usual with the EU, the guidelines don't include some of the tough demands from a draft that had been leaked earlier, for example, the specific demand that all EU immigrants already in the U.K. and their entire families, including future spouses, keep their current rights. But that doesn't mean the matter won't be raised during the talks: The EU is in no hurry to conclude them since every extra week of British agony is a deterrent to other potential "exiters."

While both May and Merkel benefit domestically from taking a tough stance, the EU negotiators, too, love the escalation because they know that May can only be bluffing. There is, for example, no reason for her to know about the European Medicines Agency's 500 million euro ($545 million) unbreakable, 25-year lease in Canary Wharf. Since the EU didn't initiate Brexit, it doesn't want to pay to break it off and move the EMA elsewhere -- even if the lease wasn't a smart idea in the first place. Nor does May necessarily know exactly what rights and social protections Brits enjoy in other EU countries, which makes it difficult for her to negotiate a reciprocal deal for British emigres and immigrants. Juncker and his team, free of responsibility for running any single country, deal with these cross-border housekeeping matters on a daily basis. They also know how detailed trade talks can get: They've hammered out quite a number of them, something the U.K. hasn't had to do since it's been a EU member.

May, of course, could find the expertise among U.K. officials with EU experience -- but, well before Brexit, the British presence in EU institutions was gradually waning. As far back as 2013, the U.K. parliament's Foreign Affairs Committee was complaining that not enough Brits were taking EU employment tests to compensate for retiring staffers. The U.K. has long treated the EU as a nuisance and worked harder on opt-outs than on trying to learn its ropes. Now, it doesn't quite understand what the EU wants and why its wants it.

In other words, stepped-up, prolonged theatrics are in Juncker's interest because he knows that when the parties get down to business, there will be less time left and his team will have a better grip on the issues, down to the minutest detail. That's how one gets the best deal -- or gets the other party to walk away in a huff, something that would suit the EU negotiators fine: Time is on their side.

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This Is What The Bull Market’s Last Gasp Looks Like

Stocks Often End The Party With A Bang.

By Mark Hulbert
May 2, 2017

Might this bull market about to gasp its last gap? If only we were so lucky.

I’m only half kidding: The stock market more often than not produces some of its most spectacular returns right before a market top. So if the bull is about to end, the last few weeks could still be breathtaking.

To be sure, many market timers for years now have been predicting the end of this amazing bull market, and so far they’ve been wrong. So there’s nothing particularly new about the recent spate of predictions that the bull market is about to end.

But it’s nevertheless important to know what the final stages of bull markets look like: They typically come to an end when the last few remaining bears throw in the towel and turn bullish, and more often than it takes an extraordinary rally to do the trick.

Our task therefore is not to get seduced by that rally into thinking that the market has reached a “permanently high plateau,” to quote the infamous phrase of Irving Fisher, the economist who declared that right before the 1929 stock market crash.

Consider what I found upon measuring the Dow Industrials’ DJIA, -0.13% return during all bull markets since 1930. I relied on the bull-market calendar maintained by Ned Davis Research, eliminating from consideration the handful of bull markets that lasted less than six months. The Dow’s annualized return in those bull markets’ final three months was 49.6% on average. To put that into context, the Dow’s annualized gain during all months of bull markets has averaged 37.4%. (See chart, below.)

Fortunately for the bulls, the stock market’s return over the last three months is markedly lower than these historical averages. The Dow’s gain on an annualized basis for the three months ending April 30, for example, was 17.2%; the S&P 500’s SPX, +0.17% was even lower at 14.5%. Those returns are nothing to sneeze at, of course, but a lot more modest than what history would suggest for the last three months of a typical bull market.

The usual qualifications apply as always when drawing conclusions from the historical data, the most important of which is that there are no guarantees. Indeed, it’s entirely possible this bull market will end with a whimper rather than a bang.

Still, keep in mind that bull markets often are quite seductive right before they die. So when the time comes, don’t get carried away.

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