Thursday, May 4, 2017

Thursday, May 4, Morning Global Market Roundup: Futures Point To Higher Open On Wall Street Ahead Of Earnings And Data

By Anmar Frangoul
CNBC
May 4, 2017

U.S. stock index futures pointed to a higher open on Thursday morning as traders looked to another big day of earnings and several pieces of data.

Kellogg, Regeneron, Viacom, AMC Networks and Dunkin Brands are among companies set to report before the bell. Activision Blizzard, CBS, El Pollo Loco and Shake Shack are among companies due to report after the bell.

On the data front jobless claims, international trade and productivity and unit labor costs are all set to come out at 8:30 a.m. ET. Factory orders are due at 10:00 a.m. ET.

In Europe the pan European Stoxx 600 Index was around 0.28 percent higher on Thursday morning. In Asia, China's Shanghai Composite closed down 0.26 percent.

In oil markets, Brent crude traded at around $50.42 a barrel on Thursday morning, down 0.73 percent, while U.S. crude was around $47.42 a barrel, down 0.84 percent.


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Oil Eases, Near Weakest Since Late March On Small U.S. Stocks Decline

By Naveen Thukral
Reuters
May 4, 2017

Crude oil lost ground on Thursday, falling for a third out of four sessions and trading near its lowest since late March after data showed a lower than expected decline in U.S. inventories.

U.S. crude stockpiles fell less than expected last week, while gasoline inventories grew as demand remained weak, the Energy Information Administration said on Wednesday, keeping concerns about global supply on a simmer.

Crude inventories USOILC=ECI fell by 930,000 barrels in the week to April 28, much less than analysts' expectations for a decrease of 2.3 million barrels. Crude stocks have steadily declined for the last four weeks, but at 527.8 million barrels they are still 3 percent higher from this time a year ago.

The benchmark Brent crude oil LCOc1 fell 24 cents, or 0.5 percent, to $50.55 a barrel and U.S. West Texas Intermediate (WTI) crude CLc1 lost 26 cents, or 0.5 percent, to $47.56 a barrel.

WTI hit its lowest since March 27 at $47.30 a barrel in the last session, while Brent crude on Tuesday slid to its lowest since late March at $50.14 a barrel.

While the market takes direction from U.S. inventories and rising production, investors are also monitoring whether producing countries have been complying with their 2016 deal to cut output around 1.8 million barrels per day (bpd) by the middle of the year.

"Crude remains mired near the bottom of its respective ranges," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

"The market will get increasingly nervous as we approach late May, about the details (or not) of an extension to the OPEC production cut agreement."

The market is expecting OPEC and other producers to extend production cuts well into the second half of the year.

Russia, contributing the largest production cut outside OPEC, said as of May 1, it had cut output by more than 300,000 bpd since hitting peak production in October.

However the latest Reuters survey of OPEC production showed the country's compliance had fallen slightly. OPEC meets on May 25 to discuss extending the agreement.

Iraqi fuel oil exports have soared since January despite a reduction in the country's crude production in line with OPEC supply cuts, industry sources said, in what could be a way to boost output of refined products and maintain oil revenues.

Iraq on average exported between 80,000 and 160,000 tonnes of fuel oil per month in 2016, data collected by Thomson Reuters Oil Research showed.


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Little Fanfare, But Gulf Of Mexico Oil Still Growing Steadily

By Jessica Resnick-Ault 
Reuters
May 4, 2017

As rapid growth in U.S. shale production grabs headlines and threatens to upend attempts by OPEC to balance oil markets, a more unsung sector of the U.S. industry is also hitting new output highs - the offshore Gulf of Mexico.

While attention and investment is focused on shale, the Gulf is the among the most prolific oil source in the United States, producing more than Alaska, the West Coast and Rocky Mountains combined. The region churned out a record 1.76 million barrels per day of crude in January, trailing only Texas onshore production, which includes the growing Permian Basin.

“The business can compete with tight onshore oil any day,” said Richard Morrison, regional president for the Gulf of Mexico for BP Plc (BP.L) speaking at the annual Offshore Technology Conference in Houston, where nearly 70,000 people from 120 countries are attending.

The Gulf region is expected to add another 190,000 bpd before the end of the year, according to the U.S. Energy Information Administration. Growth should continue, according to consultancy RBN Energy, which expects production to rise by 300,000 bpd in 2018 from current levels.

To get similar 2017 growth in Texas's Permian Basin, for example, drillers would need to double the current rig count from the current 342, according to a Reuters analysis of U.S. EIA data. Even if that were possible, incrementally added rigs might not be as productive as those currently drilling, as prime locations have already been claimed.

Unlike shale, where price immediately governs production, Gulf production has proved relatively resistant to fluctuations in prices, fueled by projects approved before oil lost 80 percent of its value in less than two years.

For production to ramp up further in the Gulf, however, producers will have to reckon with the idea that the more active shale region - where time horizons are shorter - might keep crude oil prices CLc1 overall lower for longer, with little chance to break out of the $45 to $55 per barrel range.

Low oil prices had prompted some companies, including ConocoPhillips (COP.N), to pull back from the Gulf, as offshore rig owners are still smarting from the downturn.

Because of the long lag involved in assessing deepwater prospects and building drilling rigs, some of today's projects are the result of decisions made five or more years ago. Hess Corp's (HES.N) Stampede offshore project, for example, is expected to produce 15,000 bpd of crude beginning in the middle of next year.

Overall, rising offshore production offset the decline in shale. Through the end of 2016, "the increase in U.S. crude oil production has been driven entirely by Gulf of Mexico offshore," Bank of America analysts wrote in a note to clients.

While low oil prices from 2014 to 2017 reduced the number of new investment decisions taking during that time, some low-cost projects are still being approved, which may lessen the blow of low prices.

Gulf output is also being driven by so-called tie-backs, which are subsea lines that connect to existing projects, according to RBN Energy. These less-expensive underwater lines offer companies a chance to connect additional wells at known fields to active platforms.

A wave of big projects have come online, including Shenzi, Lucius, Heidelberg and Delta House, all approved before the downturn, said Leslie Cook, principal analyst in Upstream Supply Chain at Wood Mackenzie.

Going into year three of the downturn, tie-backs are continuing but exploration has dropped quite a bit, she said. That may affect growth going forward, even after the Trump Administration signed an executive order looking to review leases, including in the Gulf.

"What we see is a gap coming up,” she said.

Around the Houston trade-show floor, companies are more optimistic than they were in 2016. Services providers hawked technology they say will make offshore exploration and production more competitive.

Ultra-light cranes, platforms that can be brought on-line faster and virtual reality "twins" of facilities designed to help engineers spot problems before taking costly flights out to remote platforms were among the highlights.

While the conference is global, many of these developments will be rolled out in the Gulf: BP said its Mad Dog Two production facility will have a virtual twin when it comes online.

At KBR's booth at the OTC, Executive Vice President Graham Hill said they were marketing a new platform to customers, including those in the Gulf, but he was getting some pushback their assertion that the platform can produce oil economically at $40 a barrel.

“Nobody has yet decided to go down that road. We think that's because of false hope, and this is the new norm,” he said. “The new norm is $55 a barrel oil for three to four years, because shale producers will open up the tap when the price goes up.”


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Slumping Oilfield Services Sector Bets On New Offshore Technology

By Jessica Resnick-Ault and Liz Hampton
Reuters
May 4, 2017

The oil industry's top equipment and services suppliers this week are hawking vastly cheaper ways of designing and equipping subsea wells, aiming to slash the cost of offshore projects to compete with the faster-moving shale industry.

At the Offshore Technology Conference, the industry's annual gathering of floating rig and subsea well suppliers, sales pitches this year are all about cost savings and faster time to first production. With U.S. crude priced CLc1 under $50 a barrel, offshore projects with their typically high costs and long-lead times are now borrowing from leaner shale in the competition for oil company investment.

Low oil prices have soured new exploration in the U.S. Gulf of Mexico, for instance, but production volumes there have remained strong due to the long lead times of these projects. Gulf of Mexico producers are expected to add 190,000 barrels per day this year to output now running about 1.76 million bpd.

Tool and services companies are offering new technologies that can do several jobs, taking the place of multiple devices or highly-paid consultants.

National Oilwell Varco Inc (NOV.N) is exhibiting software it touts as performing much like a drilling expert, sorting through vast amounts of data to find ways to speed production and reduce downtime.

The new software "takes actions a person would do and runs them automatically. It's low cost and it's simple" said David Reid, National Oilwell Varco's chief marketing officer.

Baker Hughes Inc (BHI.N) is showing a new tool called DeepFrac that it said eliminates several steps now required to complete underwater wells. That saving pares the price of a well by up to 40 percent, speeding first production and lowering the break-even cost for producers.

"This helps sharply cut some of the risk of drilling an offshore oil well and, we believe, sharply reduces costs for our customers," said Jim Sessions, a vice president of technology at Baker Hughes.

Graham Hill, an executive vice president at KBR Inc (KBR.N), detailed the construction company's plan for a cheaper floating production vessel, saying the new vessel fits producers' tight budgets. KBR can hope to earn more by selling extra features.

"This is like ordering a Ford," he said. "There's a base package, and you can add extras."

Richard Morrison, president of BP plc (BP.L)'s Gulf of Mexico region, said the industry has accepted that crude prices will probably stay low, meaning oil producers like BP must work with services providers to reduce the multibillion dollar cost of offshore projects.

"That break even point can't come back to $80 a barrel, so I've got to figure out ways to work with my supplier over the long-term to keep that in check," he said during a presentation.

Morrison touted BP's use of new seismic imaging technology that helped identify 1 billion additional barrels of "possible resources" at four of its U.S. Gulf of Mexico offshore fields. The technology enhances existing seismic images to find oil hidden beneath salt structures deep underground.

Just weeks away is a coming Vienna meeting of the Organization of the Petroleum Exporting Countries where OPEC and other oil producers are to decide whether to continue production curbs past June.

If OPEC fails to continue the curbs, oil prices could fall again, making a difficult market worse, said Charles Cherington, a co-founder of Intervale Capital, a private equity investor in oilfield services.

Assuming OPEC continues the existing curbs, Cherington said the best the industry can hope for this year is crude "gets to the low to mid $50s (a barrel)" or half what it fetched at this time three years ago.

Few oilfield suppliers are generating steady profits, he said, and "in the short run, we don't see the market getting much better," he added.

Marc Gerard Rex Edwards, chief executive of rig provider Diamond Offshore Drilling (DO.N), on Monday reported its first quarter earnings declined on revenue down 25 percent from a year ago.

"I think we're beginning to see the signs of a bottom," he told Wall Street analysts, adding: "But I'm not exactly calling a bottom in the market at this particular moment in time."


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Why Now May Be A Good Time To Buy Gold And Silver

Gold prices are still outperforming the S&P 500 index year to date.


By Myra P. Saefong
MarketWatch
May 4, 2017

Lately, gold and silver prices have been on the decline, but lower prices for the metals aren’t likely to last long, according to one bullish strategist.

David Beahm, president and chief executive officer of precious-metals retailer Blanchard and Company, makes the case that now may be the appropriate time to scoop up metals that have been dinged in recent trade.

“With all of the uncertainty out there, now is the time to add gold and silver to a portfolio,” said Beahm.“ Both metals performed exactly as they should have during the 2008 financial crisis and they will do the same during the next crisis, wherever it comes from,” he said.

Gold futures prices GCM7, -0.96% which settled at one-month low of $1,248.50 an ounce Wednesday, scored a gain of 1.4% in April, but lost 1.6% last week, according to FactSet data tracking the most-active contracts. Meanwhile, silver prices SIN7, -0.13% finished Wednesday at $16.546—the lowest since early-January. They’ve suffered from two-straight monthly and weekly declines.

“There are a number of economic, political and military events that Blanchard feels serve as the trigger for the next leg up in gold, and the current price consolidation for metals, while equities are pushed to all-time highs, serve as a great buying opportunity for diversification-seeking investors,” Beahm said.

He warned, however, that “the end of the buying opportunity comes when the crises that are happening all over the globe resolve themselves.”

Beahm highlighted a number of “hot spots” for geopolitical tension, including Syria and North Korea, where President Donald Trump is engaged in a testy face-off with Pyongyang’s leadership.

“Any of these simmering situations could boil over at any time, which would attract another round of safe-haven investment into the gold market,” he said.

Meanwhile, investors continue to monitor the “uncertain fate of [European Union] stability and upcoming elections there,” he said.

In France, a presidential election win by populist candidate Marine Le Pen would be viewed as “potentially disruptive to the global economy and financial markets as she is expected to push for a French exit from the European Union,” said Beahm. That would create “another Brexit-like situation that would be a supportive factor for the gold market.”

Over in the U.S., the Federal Reserve is “in hiking mode,” but official interest rates remain “historically low, which is gold-positive,” he said.

And U.S. stock investors are pricing in “expectations of a significant economic and corporate-earnings boosting tax relief package,” he said. “If that tax package does not produce faster economic growth to cover the significantly lower revenues independent experts believe the plan will create, the U.S. deficit will rise significantly, and that is bullish for gold” too.

Beahm also pointed out that even as U.S. equities tap record highs, gold has managed to outperform stocks year to date.

Year to date, gold futures have gained more than 8%. Comparatively, the S&P 500 index SPX, -0.13% has climbed less than 7% so far this year.

The equities market is “overbought, overvalued and vulnerable to a cycle turn or correction lower at any time,” said Beahm. “Gold would benefit from a downturn in equities.”

He said gold is likely to trade in the $1,250 to $1,350 range during the second quarter of this year, and moves to the downside should be seen as “buying opportunities.” He added that the same holds true for silver, which is likely to trade in the $16.80 to $19 range for the period.

Gold prices may rise to $1,400 by year-end, and test all-time highs at $1,900 in the long term, he said.


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Mexico, Canada Seek U.S. Soft Spots To Bolster NAFTA Defense

By Dave Graham and David Ljunggren
Reuters
May 4, 2017

From launching a data-mining drive aiming to find supply-chain pressure points to sending officials to mobilize allies in key U.S. states, Mexico and Canada are bolstering their defenses of a regional trade pact President Donald Trump vows to rewrite.

Trump has blamed the North American Free Trade Agreement (NAFTA) for the loss of millions of manufacturing jobs and has threatened to tear it up if he fails to get a better deal.

Fearing the massive disruptions a U.S. pullout could cause, the United States' neighbors and two biggest export markets have focused on sectors most exposed to a breakdown in free trade and with the political clout to influence Washington.

That encompasses many of the states that swept Trump to power in November and senior politicians such as Vice President Mike Pence, a former Indiana governor or Wisconsin representative and House Speaker Paul Ryan.

Prominent CEOs on Trump's business councils are also key targets, according to people familiar with the lobbying push.

Mexico, for example, has picked out the governors of Texas, Arizona and Indiana as potential allies.

Decision makers in Michigan, North Carolina, Minnesota, Illinois, Tennessee, Wisconsin, Ohio, Florida, Pennsylvania, Nebraska, California and New Mexico are also on Mexico's priority list, according to people involved in talks.

Mexican and U.S. officials and executives have had "hundreds" of meetings since Trump took office, said Moises Kalach, foreign trade chief of the Mexican private sector team leading the defense of NAFTA. (Graphic:tmsnrt.rs/2oYClp2)

Canada has drawn up a list of 11 U.S. states, largely overlapping with Mexico's targets, that stand to lose the most if the trade pact enacted in 1994 unravels.

To identify potential allies among U.S. companies and industries, Mexican business lobby Consejo Coordinador Empresarial (CCE) recruited IQOM, a consultancy led by former NAFTA negotiators Herminio Blanco and Jaime Zabludovsky.

In one case, the analysis found that in Indiana, one type of engine made up about a fifth of the state's $5 billion exports to Mexico. Kalach's team identified one local supplier of the product and put it touch with its main Mexican client.

"We said: talk to the governor, talk to the members of congress, talk to your ex-governor, Vice President Pence, and explain that if this goes wrong, the company is done," Kalach said. He declined to reveal the name of the company and Reuters could not immediately verify its identity.

Trump rattled the two nations last week when his administration said he was considering an executive order to withdraw from the trade pact, which has been in force since 1994. He later said he would try to renegotiate the deal first and Kalach said the lobbying effort deserved much credit for Trump's u-turn.

"There was huge mobilization," he said. "I can tell you the phone did not stop ringing in (Commerce Secretary Wilbur) Ross's office. It did not stop ringing in (National Economic Council Director) Gary Cohn's office, in the office of (White House Chief of Staff Reince) Priebus. The visits to the White House from pro-NAFTA allies did not stop all afternoon."

Among those calling the White House and other senior administration officials were U.S. Chamber of Commerce chief Tom Donohue, officials from the Business Roundtable and CEOs from both lobbies, according to people familiar with the discussions.

Prime Target

Mexico has been the prime target of NAFTA critics, who blame it for lost manufacturing jobs and widening U.S. trade deficits. Canada had managed to keep a lower profile, concentrating on seeking U.S. allies in case of an open conflict.

That changed in late April when the Trump administration attacked Ottawa over support for dairy farmers and slapped preliminary duties on softwood lumber imports.

Despite an apparently weaker position - Canada and Mexico jointly absorb about a third of U.S. exports, but rely on U.S. demand for three quarters of their own - the two have managed to even up the odds in the past by exploiting certain weak spots.

When Washington clashed with Ottawa in 2013 over meat-labeling rules, Canada retaliated by targeting exports from the states of key U.S. legislators. A similar policy is again under consideration.

Mexico is taking a leaf out of a 2011 trucking dispute to identify U.S. interests that are most exposed, such as $2.3 billion of yellow corn exports.

Mexico is also targeting members of Trump advisory bodies, the Strategic and Policy Forum and the Manufacturing Council, led by Blackstone Group LP's Stephen Schwarzman and Dow Chemical Co boss Andrew Liveris respectively.

Senior Trump administration officials and Republican lawmakers in charge of trade, agriculture and finance committees also feature among top lobbying targets.

Canada has spread the task of lobbying the United States among ministries, official say, and is particularly keen to avoid disruption to the highly-integrated auto industry.

A core component of Mexico's strategy is to argue the three nations have a common interest in fending off Asian competition and exploring scope to source more content regionally.

The defenders of NAFTA also say that it supports millions of jobs in the United States, and point out that U.S. trade shortfalls with Canada and Mexico have declined over the past decade even as the deficit with China continued to climb.

Part of IQOM's mission is to identify sectors where NAFTA rules of origin could be modified to increase regional content.

For example, U.S., Canadian and Mexican officials are debating how the NAFTA region can reduce auto parts imports from China, Japan, South Korea or Germany, Mexican officials say.

"The key thing is to see how we can get a win-win on the products most used in our countries, and to develop common manufacturing platforms that allow us just to buy between ourselves the biggest amount of inputs we need," said Luis Aguirre, vice-president of Mexican industry group Concamin.


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Commodities Nerves Grow After Fed Boosts Dollar

By Patrick Graham
Reuters
May 4, 2017

The dollar surged against a number of major currencies on Thursday after the U.S. Federal Reserve played down any threats to this year's planned rises in interest rates, solidifying expectations of another move in June.

The euro drew some support from center-left candidate Emmanuel Macron's performance in a TV debate ahead of Sunday's French presidential election run-off, cooling gains for the dollar to less than half a cent at $1.0876. EUR=EBS

But the rise in 10-year U.S. government bond yields back above 2.32 percent helped the dollar to a six-week high of close to 113 yen and 4-month highs against the Aussie dollar.

The weakness of the Aussie - typically a pro-growth play - at a time when the mood on stock markets is upbeat, stems from sharp falls in the price of iron ore and other commodities that suggest a rise in concern about the Chinese economy.

"Something is not right in the commodities space and it has not been right for two weeks," said Richard Benson, co-head of portfolio investment with currency fund Millennium Global in London.

"The dollar is strong after the Fed but the euro cannot go down at the moment. With commodity prices falling, that means the strength plays out in the commodity FX space."

After the greenback rose across the board after the Fed's decision on Wednesday, the dollar index was up another 0.2 percent on the day on Thursday, hitting a two-week high of 99.462.

It was marginally higher at 112.80 yen JPY=EBS but more than a third of a percent stronger at $0.7394 per Aussie dollar AUD=D4 and 0.2 percent higher against the New Zealand dollar. NZD=D4

Traders pointed to comments by JP Morgan chief Jamie Dimon at a conference in Los Angeles. He was reported as reassuring investors that the bank would have a bad day but would still make money if China kicked out foreign investors.

"Recent pressure on world commodity prices culminated in some precipitous moves overnight ... and from a technical perspective at least, the signs are ominous," said Neil Mellor, senior currency strategist with Bank of New York Mellon in London.

Such nerves over China come at a time when growth in Europe seems to be solidifying and the Fed has finally begun to deliver on long-disappointed market expectations of a cycle of interest rate rises.

Keeping rates unchanged on Wednesday the Fed played down recent signs of a cooling of U.S. activity and said consumer spending continued to be solid, business investment had firmed, and inflation has been "running close" to its target.

That kept the door "wide open" to a June rate hike, said Mitul Kotecha, head of Asia macro strategy for Barclays in Singapore.

"The risk was that they could have perhaps sounded a little bit more dovish on the back of the recent data and that certainly wasn't the case," he said.


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Sterling's Election-Led Bounce Breaks Developing Spiral

By Jamie McGeever
Reuters
May 4, 2017

The lift to sterling given by the prospect of a snap British election next month has, at least temporarily, broken a vicious circle of rapidly rising inflation that threatened to further undermine the economy and paint the central bank into a corner.

The currency's steep fall since June's Brexit referendum has aggravated inflation to 2.3 percent, above the Bank of England's 2 percent target, risking a drain on consumers' real spending power while tying the Bank of England's hands if further monetary easing were needed.

The pound has traded in a range of roughly $1.20 to $1.27 to the dollar for the past six months and many analysts said they thought it was heading back towards the bottom of that range or even lower due to fears the two-year EU exit negotiating process would bring a sharp break with the bloc.

British bond yields had been climbing on the inflation picture and the conundrum that would pose for policymakers, driving up the country's borrowing costs.

But after the election announcement on April 18, sterling rose sharply, breaking out of the top of the range to a seven-month high close to $1.30, due to indications from opinion polls that it would result in a bigger majority for Prime Minister Theresa May's ruling Conservatives.

Investors took the view that it would also boost the number of Conservatives seeking a “softer” Brexit, in which Britain keep some kind of preferential access to the EU single market rather than cutting all ties as some in the party advocate.

Few people think the pound will rise much further, but if it levels out, it should help tame inflation and ease the strain on consumers, whose spending accounts for about two thirds of economic output, breaking the "stagflationary" spiral of higher inflation and lower growth.

The turnaround has been accompanied by a reversal in bonds. The benchmark 10-year yield recently hit a six-month low close to 1 percent, having topped 1.50 percent in January.

"Sterling back to $1.30 and UK yields not moving too high, keeping easy financial conditions in place, is probably the best combination the Bank of England could have hoped for," said Mark Haefele, global chief investment officer for UBS Wealth Management, who oversees around $2 trillion in assets.

Sterling is up slightly against the euro this year and nearly 5 percent higher against the dollar. Ten-year gilt yields are 13 basis points lower year to date too.

Carry That Weight

The British economy is holding up far better than most economists had anticipated, but is beginning to feel the pinch from inflation and Brexit uncertainty. Growth in the first quarter of this year was 0.3 percent, the slowest in a year.

Economists at Barclays say the Brexit slowdown has begun, and that interest rates will remain on hold until at least 2019. The BoE will give its prognosis on the economy on May 11 when it releases its latest Quarterly Inflation Report.

The Bank halved interest rates to a new record low of 0.25 percent and expanded its quantitative easing bond-buying program shortly after the referendum last year.

Only one of the Bank's nine policymakers, Kristin Forbes, voted for a rate hike at the last MPC meeting. But Michael Saunders has hinted that he may join her, predicting that the "powerful effects" of sterling's fall since the Brexit referendum could push growth and inflation beyond forecasts.

Burkhard Varnholt, deputy global chief investment officer at Credit Suisse, which oversees 1.3 trillion francs of assets under management, notes that sterling has been "underowned and underloved" by international investors.

Positioning data from the International Monetary Market on the Chicago Mercantile Exchange at the end of March reflected that. Speculators such as hedge funds had amassed the biggest bet against sterling on record, a net short position of over 107,000 contracts.

That's been cut to 91,182 contracts, still large by historical standards but the smallest since early March.

"As investors are buying sterling again, yields are coming down because there's money flowing into gilts. Markets are doing the heavy lifting for the BoE – the BoE must be pleased with what's going on here," Varnholt said.

The FX market's outlook for the pound is brighter too. Sterling bears Deutsche and BAML both raised their forecasts on the election news, while Morgan Stanley expects it to reach $1.45 next year

However, medians in the poll of over 60 strategists, taken by Reuters in the past week, showed sterling would be worth $1.27 in a month -- just before the general election -- but then weaken to $1.24 in six months before settling at $1.25 a year from now.

Even $1.45 would be well below the pound's long-term average value. Over the past 10 years it is $1.63; over 20 and 30 years it is $1.64; and over 40 years it is $1.67, according to former MPC member Andrew Sentance.

"Growth is much more influential for the MPC than currency and bond yield movements. If GDP softens enough, any support on the MPC for rate rises could fade away quite quickly," he said.


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This Tax Plan Would Throw Democrats Into Chaos

By Charles Lane
The Washington Post
May 4, 2017

Blue America may fear President Trump and loathe him. But the president does not feel the same way toward blue America.

I say this because there is a clever, readily available and probably popular combination of policies that would sow instant chaos, financial and political, in the states that voted for Hillary Clinton last year, as well as in the upper echelons of the Democratic Party that governs them.

The fact that Trump has not suggested this plan — seemingly, it has not even occurred to him — is proof of his harmlessness.

The scheme would work as follows. Step One: Abandon Trump’s entire tax plan except for one proposed provision, the elimination of the deduction for state and local taxes. This would boost federal revenue by a projected $74.1 billion in 2018 and similar amounts in succeeding years, according to the congressional Joint Committee on Taxation.

Step Two: Spend these proceeds on expanding the earned-income tax credit (EITC) for the working poor, coupled with modernizing Amtrak’s decrepit rail system in the Northeast Corridor and constructing a new high-speed rail system in California.

House Speaker Paul D. Ryan (R-Wis.) has a proposal for EITC expansion that costs $13.8 billion per year, according to the American Action Forum, a conservative think tank. The rail stuff is a bit murkier, price-wise, but shortly before the Obama administration ended, the Transportation Department produced a $128 billion, multiyear plan to upgrade the Northeast Corridor. California’s latest cost estimate for its bullet train is $64 billion. So start with those numbers, and in the unlikely event there’s anything left over, use it to reduce the deficit.

Step Three: Stand back and watch Democrats go crazy. Their first problem will be trying to explain what’s wrong with ending a tax break for the relatively well-off to increase a tax-code benefit for lower-income folks — without seeming to special-plead on behalf of their own well-heeled constituents.

In 2016, 93 percent of the state-local deduction benefited people who earned more than $100,000 per year, according to data from the Joint Committee on Taxation; but 98 percent of the EITC benefited people who made less than $100,000. And the money from the state-local deduction went disproportionately to high-income taxpayers in blue states, which fund themselves via income and property taxes that are much higher than those in, say, Florida. Taxpayers in just two states — California and New York — claim roughly a third of the deduction’s aggregate value, according to the nonpartisan Tax Policy Center.

Democrats’ second problem would be turning down this dollop of federal money for pet infrastructure projects.

The policy rationale for the state and local tax deduction is that folks shouldn’t have to pay taxes on taxes. However, using upper-income blue staters’ money not only to help the poor but also for climate-change-fighting mass transportation, in their own regions, could be a strong counterargument.

In any case, there would certainly be an interesting, uh, debate between pro-Democratic teachers unions, which live on local tax revenue, and pro-Democratic construction unions, which would be salivating at years and years of high-paying infrastructure work.

As for Republicans, they would achieve all this discord in the enemy camp without much financial pain to their red-state voters, and without violating party doctrine, such as it is. Some might spin eliminating the state-local deduction as a tax increase. But you could just as easily characterize the EITC increase as a tax cut — and one with a record of incentivizing work effort to boot.

Many Republicans (though not Trump) revile wasteful infrastructure spending, or claim to, but at least this round wouldn’t increase the deficit, because it’s paid for — by the people most directly affected.

Of course, this fantasy — inspired by the rich-poor, blue-red divides that were exposed when it dawned on the public that Trump’s one-page tax plan eliminated the state-local deduction — is just that, a total never-happener.

One implication of this little thought experiment, though, is that Republicans prefer to pursue massive tax cuts for the rich, paid for with more borrowing, rather than mildly redistributive, but fiscally responsible and pro-work, policy innovation.

This is true even though trying the latter might crack a Democratic coalition of minorities, upscale white urbanites and hard-pressed unions who have a clear common enemy, Trump, but less-clear common interests.

The state-local tax deduction, which has helped entrench differential social policy in the red and blue states, is just one of many cost-shifting mechanisms woven into America’s convoluted federal-state system of public finance.

They have survived, not necessarily due to their merits, but because protective political coalitions have grown up around them. Sooner or later, something has to give — financially and politically. Probably later.


Article Link To The Washington Post:

3 Takeaways From The French Presidential Debate

Le Pen’s smirk tactics failed to charm while Macron seemed in a presidential mood.


By Pierre Briancon and Nicholas Vinocur
Politico EU
May 4, 2017

French presidential contenders Emmanuel Macron and Marine Le Pen traded blows for more than two hours Wednesday night in a televised debate that — for all its intensity — is unlikely to change anyone’s mind four days before the election.

Whether voters chose to abstain or turn out on Sunday, however, will be crucial.

According to most polls, supporters of the conservative candidate François Fillon and far-left contender Jean-Luc Mélenchon, who were knocked out in the first round on April 23, are considering staying home in large numbers.

The resulting equation looks different for each of the finalists, given Macron, the center-left former economy minister, enjoys a comfortable 15 to 20 percentage point lead over Le Pen, the leader of far-right National Front.

Here are the three takeaways from Wednesday’s debate.

1. Macron is already in a presidential mood


Macron had to avoid a major blunder that could prove costly, though likely not fatal, in Sunday’s runoff. He also had to refrain from appearing testy and defensive, as he did during the two televised debates that preceded the election’s first round, which he won with around 24 percent of the vote to her 21.3.

After Wednesday’s debate, Macron could claim mission accomplished. Even as Le Pen repeatedly tried to tar him with guilt by association, portraying him as an heir to the policies of unpopular outgoing Socialist President François Hollande, he stayed calm under pressure. However, he at times appeared condescending as he faced Le Pen and her seemingly weak mastery of the main topics.

Macron’s aim was to highlight the contrast between his own optimistic vision of what France can achieve versus what he described as Le Pen’s “culture of defeat.” Her protectionism, he said, was just a sign of a lack of confidence in the country’s capacity to deal with challenges.

He also needed to connect emotionally — not just intellectually — with the French citizens who didn’t vote for him in the first round: many of the poor, the unemployed, the left-behind and the downtrodden. He insisted that, like Le Pen, he has met and listened to workers who have lost their jobs and are fearful for their future.

“I hear their anger, but without your cynicism,” Macron told Le Pen at one point.

By remaining calm throughout — even when going on the attack or accusing Le Pen repeatedly of “talking nonsense” — the 39-year-old Macron projected the air of a man already ensconced in the Élysée, preoccupied with what to do come Monday. It may have helped assuage concerns, notably among conservative voters, that his youth and inexperience don’t make him presidential material.

2. Le Pen’s smirk tactics fail to charm


Trailing her rival badly in polls just days before the runoff, Le Pen’s aim was to discredit Macron and escape the narrative of her own defeat by proving she is ready to be the commander-in-chief. She went on the attack from the start, accusing Macron of being Hollande’s political heir — an “investment banker” who wants to turn France into a giant “trading room” where “everything is for sale.”

Le Pen focused on trying to knock Macron off-balance, to unsettle him enough to make him lose his cool and look unprepared for the presidency. Smiling, smirking and frequently laughing at Macron’s comments, she repeatedly told him not to get “too excited.” At one point she urged him to “take a sip of water, you’ll feel better.”

While Le Pen kept her poise throughout the debate and landed a few good one-liners, she often veered into mockery and bouts of dismissive laughter. Her attention was focused more on attacking her rival than presenting her own plans for reform. Macron used this to his advantage, countering that she had no serious plans for the country but instead thrived off fear and “talking nonsense.”

Still, Le Pen rarely appeared totally off-balance. A notable exception: When Macron quizzed her pointedly about her plans to pull France out of the European Union, she had no clear and ready reply.

All in all, Le Pen’s existing fans are likely to be comforted in their choice of candidate. It remains to be seen, however, whether undecided voters will be convinced to join her side after the debate.

3. Invisible voters still ignored

The debates’ two moderators, barely heard in almost 150 minutes, weren’t the only ones invisible in Wednesday night’s debate. The majority (55 percent) of French voters who, in the first round, chose neither Macron nor Le Pen had reasons to feel excluded.

Unemployment got only cursory mentions — mostly when the two candidates fought over their respective tax and spending policies — and the social issues dear to the Catholic voters who went for Fillon were largely ignored. At one point, one of the moderators had to beg the duo to talk about education.

The invisibles and their issues may not have been the point of this debate. But since job creation is consistently the top priority for French voters, a real discussion of the best ways to reform the economy seemed sorely lacking.

The monthly CEVIPOF/Ipsos survey published earlier Wednesday detailed the different characteristics of the two candidates’ electorates. Women, college graduates, the well-to-do, the under-35s and over-65s and inhabitants of big cities vote for Macron in greater numbers than the national average. Conversely, those more inclined to vote for Le Pen are men, those aged 35 to 65, the unemployed, farmers and those living in the countryside or in small towns.

The televised debate — for all its bluster and length — didn’t trigger a major shock to upset those trends.


Article Link To Politico EU:

Trump Does Not Know What It Is to Know

He lacks a sense of American history and its presence with us today.


By George Will 
The National Review
May 4, 2017

It is urgent for Americans to think and speak clearly about Donald Trump’s inability to do either. This seems to be not a mere disinclination but a disability. It is not merely the result of intellectual sloth but of an untrained mind bereft of information and married to stratospheric self-confidence.

In February, acknowledging Black History Month, Trump said that “Frederick Douglass is an example of somebody who’s done an amazing job and is getting recognized more and more, I notice.” Because Trump is syntactically challenged, it was possible and tempting to see this not as a historical howler about a man who died 122 years ago, but as just another of Trump’s verbal fender benders, this one involving verb tenses.

Now, however, he has instructed us that Andrew Jackson was angry about the Civil War that began 16 years after Jackson’s death. Having, let us fancifully imagine, considered and found unconvincing William Seward’s 1858 judgment that the approaching Civil War was “an irrepressible conflict,” Trump says:

"People don’t realize, you know, the Civil War, if you think about it, why? People don’t ask that question, but why was there the Civil War? Why could that one not have been worked out?"


Library shelves groan beneath the weight of books asking questions about that war’s origins, so who, one wonders, are these “people” who don’t ask the questions that Trump evidently thinks have occurred to him uniquely? Presumably they are not the astute “lot of,” or at least “some,” people Trump referred to when speaking about his February address to a joint session of Congress: “A lot of people have said that, some people said it was the single best speech ever made in that chamber.” Which demotes Winston Churchill, among many others.

What is most alarming (and mortifying to the University of Pennsylvania, from which he graduated) is not that Trump has entered his eighth decade unscathed by even elementary knowledge about the nation’s history. As this column has said before, the problem isn’t that he does not know this or that, or that he does not know that he does not know this or that. Rather, the dangerous thing is that he does not know what it is to know something.

The United States is rightly worried that a strange and callow leader controls North Korea’s nuclear arsenal. North Korea should reciprocate this worry. Yes, a 70-year-old can be callow if he speaks as sophomorically as Trump did when explaining his solution to Middle Eastern terrorism: “I would bomb the s*** out of them. . . . I’d blow up the pipes, I’d blow up the refineries, I’d blow up every single inch, there would be nothing left.”

He lacks what T. S. Eliot called a sense “not only of the pastness of the past, but of its presence.”


As a candidate, Trump did not know what the nuclear triad is. Asked about it, he said: “We have to be extremely vigilant and extremely careful when it comes to nuclear. Nuclear changes the whole ballgame.” Invited to elaborate, he said: “I think — I think, for me, nuclear is just the power, the devastation is very important to me.” Someone Trump deemed fit to be a spokesman for him appeared on television to put a tasty dressing on her employer’s word salad: “What good does it do to have a good nuclear triad if you’re afraid to use it?” To which a retired Army colonel appearing on the same program replied with amazed asperity: “The point of the nuclear triad is to be afraid to use the damn thing.”

As president-elect, Trump did not know the pedigree and importance of the “one China” policy. About such things he can be, if he is willing to be, tutored. It is, however, too late to rectify this defect: He lacks what T. S. Eliot called a sense “not only of the pastness of the past, but of its presence.” His fathomless lack of interest in America’s path to the present and his limitless gullibility leave him susceptible to being blown about by gusts of factoids that cling like lint to a disorderly mind.

Americans have placed vast military power at the discretion of this mind, a presidential discretion that is largely immune to restraint by the Madisonian system of institutional checks and balances. So, it is up to the public to quarantine this presidency by insistently communicating to its elected representatives a steady, rational fear of this man whose combination of impulsivity and credulity render him uniquely unfit to take the nation into a military conflict.


Article Link To The National Review:

Now We Know: Bill Clinton Cost His Wife The Presidency

By Dana Milbank
The Washington Post
May 4, 2017

So now it can be told: Bill Clinton cost his wife the presidency.

Almost three hours into a hearing of the Senate Judiciary Committee on Wednesday, FBI Director James Comey shed new light on his decision to go public about his agency’s investigations into Hillary Clinton’s emails, first in July 2016 and again, with devastating effect, in late October, 11 days before the election.

The specific reason he cited: Bill Clinton’s decision to board Attorney General Loretta Lynch’s plane in late June, when their planes were both on a tarmac in Phoenix. “The capper was — and I’m not picking on Attorney General Loretta Lynch, who I like very much — but her meeting with President Clinton on that airplane was the capper for me,” Comey said. Comey decided to “step away” and announce, without consulting the Justice Department, that Hillary Clinton shouldn’t be charged.

In Comey’s telling, this public announcement in turn required Comey to speak up again in October, when more emails were found. “Having done that [the public announcement] and then having testified repeatedly under oath that we’re done,” he said, “it would be a disastrous, catastrophic concealment” not to go public on Oct. 28 with the newly discovered emails.

It’s a tragic chain of events: If Bill Clinton hadn’t boarded that plane in June, Comey might not have spoken out in July, which means he wouldn’t have felt compelled to speak up again in October, which means Hillary Clinton would have won the election in November.

FBI Director James Comey responded, May 3, before the Senate Judiciary Committee to a question from Sen. Dianne Feinstein (D-Calif.) on his announcement about re-opening the probe into Hillary Clinton’s use of a private email server days before the election. (Reuters)

These were Comey’s fullest comments to date on his indefensible decision to announce on the eve of the election that he was reopening the investigation into Clinton, almost certainly handing the election to Donald Trump. It wasn’t a compelling explanation, but, knowing the self-righteousness and independence that drives the FBI director, it seemed genuine. He made a disastrous decision but for reasons that weren’t entirely wrong: Bill Clinton’s clumsiness created a vacuum of credibility, and Comey, self-appointed guardian of the justice system, stepped in to fill the void.

Comey said he was physically ill over his role in the election, which Trump and Hillary Clinton are again arguing about this week. “Look, this is terrible,” he told the senators. “It makes me mildly nauseous to think that we might have had some impact on the election.”

If Comey is mildly nauseated by the thought that he had “some impact,” he should have his face over the toilet bowl when he considers that he handed Trump the presidency. Certainly, there were many factors behind Clinton’s loss. But in an election this close there can be no doubt that Comey’s action was enough to swing the outcome.

Comey’s performance Wednesday was maddening at times. He was unfailingly pious. “Lordy this has been painful,” he pleaded. “But I think I have done the right thing at each turn. . . . The honest answer — I don’t mean to sound arrogant — is I wouldn’t have done anything differently.”

And Comey was full of inconsistencies when he tried to explain why he spoke out about Clinton’s case during the campaign yet remained adamantly silent about the FBI’s investigation into Trump’s Russia ties. Sen. Dianne Feinstein (Calif.), top Democrat on the panel, shook her head in disbelief when Comey maintained that “I didn’t make a public announcement” on Oct. 28 that he was reopening the Clinton investigation. “I sent a private letter” to Congress, he said — as if it wouldn’t immediately leak.

Comey proclaimed that “I’ve lived my entire career by the tradition that if you can possibly avoid it, you avoid any action in the run-up to an election that might have an impact.” Yet he acknowledged an aide told him “what you’re about to do may help elect Donald Trump president,” and Comey said he considered “not for a moment” that huge impact.

The director asserted that he had only “two doors” on Oct. 28 — speak or “conceal.” Thus did he ignore the obvious third option: Let his agents find out whether there was anything worthwhile in the new batch of emails (there wasn’t) before throwing the election into chaos.

But there was something that rang true in Comey’s account. Dating back to his showdown at John Ashcroft’s hospital bed during the Bush administration, he has been the incorruptible exemplar of justice. “I have lived my whole life caring about the credibility and the integrity of the criminal-justice process,” he proclaimed Wednesday.

His time as FBI director, a position independent by design, no doubt reinforced his instincts. And after Bill Clinton climbed onto Lynch’s plane last year, Comey told the senators, he decided “the best chance of the American people believing in the system” was for him to go public.

Comey’s intervention ultimately did the justice system worse harm. But at least we now know why he did it.


Article Link To The Washington Post:

Comey's Calculations Favored The GOP

By Francis Wilkinson
The Bloomberg View
May 4, 2017

Federal Bureau of Investigation director James Comey told a Senate hearing today that he faced an ugly choice during the final days of the 2016 election. He could choose either "speak" or "conceal." He could reveal that the previously concluded investigation into Hillary Clinton's emails had been reopened. Or he could conceal it (while knowing that one of his own agents might leak the news).

"And so I stared at "speak" and "conceal." Speak would be really bad. There's an election in 11 days, Lordy, that would be really bad. Concealing, in my view, would be catastrophic, not just to the FBI, but well beyond."

Comey's options were not equally bad, in his view. They were asymmetric. That's a useful concept in this era of asymmetric threats and asymmetric polarization and the asymmetry of the public utterances and actions of Comey himself during the presidential campaign. Conducting simultaneous investigations of rival presidential candidates, Comey broke department protocol to blab about the Democrat, while keeping mum about the Republican.

Comey's actions influenced the election. They could even have been a decisive factor. So it's worth trying to understand his motivation. The disparate treatment inevitably led to speculation that Comey, a Republican, was helping the home team. But Comey had earned a reputation for integrity over many years; he was unlikely to become a naked partisan for the sake of Donald Trump.

An April 22 report in the New York Times, based in part on interviews with Comey associates, probed the FBI director's mindset in targeting Clinton.

Former agents and others close to Mr. Comey acknowledge that his reproach was also intended to insulate the FBI from Republican criticism that it was too lenient toward a Democrat.

Conservative news outlets had already branded Mr. Comey a Clinton toady. That same week, the cover of National Review featured a story on “James Comey’s Dereliction,” and a cartoon of a hapless Mr. Comey shrugging as Mrs. Clinton smashed her laptop with a sledgehammer.

Congressional Republicans were preparing for years of hearings during a Clinton presidency. If Mr. Comey became the subject of those hearings, FBI officials feared, it would hobble the agency and harm its reputation. “I don’t think the organization would have survived that,” Mr. Steinbach said.


Through much of Barack Obama's presidency, Comey had watched Republican legislators manufacture scandals, vilify public officials and undermine institutions in their quest for political advantage.

William Taylor III, the lawyer for former Internal Revenue Service employee Lois Lerner, who is still being pursued by congressional Republicans for having scrutinized political organizations seeking tax-exempt status, said the "demagogues" on Capitol Hill have had a powerful effect. "It's difficult to be a public official these days," Taylor said in telephone interview. "There is no compunction on the part of some elected officials to accuse you of being partisan."

Republicans made unsupported allegations about the IRS, then used the mayhem they created to solicit funds. "My question isn't about who's going to resign," railed former Speaker John Boehner, "my question is who is going to jail over this scandal?"

In the end, no one went to jail because the scandal was largely a fraud. For Comey, it may have been a cautionary tale, as well. Republicans threatened to impeach IRS commissioner John Koskinen, even though he had arrived at the agency after the scandal. Comey was no doubt eager to avoid subjecting the FBI to similar calumny.

Of course, had Clinton won in November, there was also a good chance that Democrats would have won the Senate, enabling them to hound and harass Comey for his failure to match his disclosures about the Clinton investigation with disclosures about his investigation into Trump's Russia connections. But evidently Comey did not fear that.

An anecdote about Harry Reid may help explain why. During the 2012 presidential campaign, Reid, then the Senate majority leader, accused GOP nominee Mitt Romney of not paying taxes. Reid had no proof; it was pure demagogy.

In a 2016 interview, Reid copped to the sleaze. He had wanted to promote a false narrative about Romney's taxes, he said. So he tried to get someone to make the fraudulent accusation. “I tried to get everybody to do that. I didn’t want to do that,” Reid said. “I went to everybody. But no one would do it.”

Liberal blogger Kevin Drum had a provocative analysis of Reid's dirty deed.

Can you imagine a similar situation on the right? Sean Hannity would have practically paid for the privilege. Rush Limbaugh would have happily spent an entire show on it. The Wall Street Journal edit page would have been all over it. Newt Gingrich would have pitched in. At least 20 or 30 members of the House would have been happy to do it. I bet Jim Inhofe would have given a speech in the well of the Senate in a heartbeat. Half a dozen Super PACs would have rushed to buy air time.

"But among liberals, zilch," Drum concluded.

Comey's asymmetric handling of the scandals may have been based on the peculiar circumstances of the particular investigations. But Comey had to be mindful of the widely disparate threats that each party posed to his agency and himself. In recent years, Republicans have become a well-oiled demagogy machine. Democrats, not so much.


Article Link To The Bloomberg View:

Why Democrats Secretly Want An Obamacare Repeal Vote

House Democrats think they could seize the majority in 2018 if Republicans are on the record backing the controversial health bill.


By Heather Caygle
Politico
May 4, 2017

House Democrats think they’ve finally found their path back to power: Republicans voting to repeal Obamacare.

Yes, the best thing to happen to House Democrats since they pushed through the sprawling health care law — and lost the majority as a result — could be the Republican drive to dismantle it.

“I think the Republicans are playing Russian roulette with this vote,” said Rep. Gerry Connolly (D-Va.). “There’s no question in competitive districts where you’ve got a potentially vulnerable Republican incumbent, this could make or break you.”

Democrats don’t actually want the law repealed. Under their dream scenario, House GOP leaders would muscle through their controversial health care bill only to watch it die a long, painful death in the Senate, where it has already received a lukewarm reception from Republicans. Obamacare would stay intact while the House Republicans who voted to gut the law have a big shiny target on their back heading into the 2018 midterms.

“I think there will be a political price to pay at the ballot box in 2018,” Rep. Linda Sánchez of California, vice chair of the House Democratic Caucus, told reporters Tuesday.

Democrats know a thing or two about the political price of Obamacare. Republicans channeled anti-Obamacare fervor in 2010 to take back the House, costing Democrats a whopping 63 seats and the majority along the way. Republicans have found success campaigning on repeal of the law in the seven years since, dashing Democratic efforts to take back House control.

Now, with the law’s support ticking up and Republicans without a popular alternative of their own, Democrats are hoping to flip the tables in their favor.

The House GOP bill in its current form would allow states to opt out of key Obamacare protections for people with pre-existing conditions and requirements that insurers offer coverage for maternity care and mental health benefits.

The attack ads write themselves, Democrats argue. And they are betting the House on it.

After seven years in the minority, rank-and-file members, many of whom were elected after House Minority Leader Nancy Pelosi’s tenure as speaker, are restless. There are even whispers of a push for wholesale leadership changes if Democrats don’t post big wins in November 2018.

Taking back the House majority is an enormous lift, even in a midterm year when voters tend to favor the party not in the White House. But Democrats think Republican efforts to repeal Obamacare — even if they’re not successful — could be the galvanizing message they need to bring people to the polls.

“I think there’s no doubt we can take back the majority of the House in 2018” if the election were today, House Minority Whip Steny Hoyer (D-Md.) said. The challenge, he added, is maintaining that enthusiasm for the next 18 months.

There are already positive signs for Democrats.

Democratic candidates, in part buoyed by fierce resistance to President Donald Trump, ran competitive House races last month in traditional Republican strongholds in Kansas and Georgia. And there are 23 Republicans sitting in districts Hillary Clinton won last year, giving House Democrats’ campaign arm a good starting place to carving a path back to the majority.

Right now, there are no guarantees the House will even vote on a bill. High-profile defectors like former House Energy and Commerce Chairman Fred Upton (R-Mich.) have put the latest Obamacare repeal effort on life support.

On Tuesday, Republican leaders were still shy of the 216 votes they need to pass the bill and scheduled a members-only meeting Thursday to reassess the bill’s status before a weeklong recess scheduled to begin later that day.

Democrats know that if Republicans cobble together the votes — still a big “if” — there’s nothing they can do as the minority party to stop the repeal from passing. And publicly, few House Democrats will say there’s an upside to House Republicans voting to repeal the law.

Is Congress doing its job?

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“Our job is to not let this see the light of day or the Senate chamber,” Rep. Eric Swalwell (D-Calif.), a leadership ally, said in an interview. Democrats will hold a news conference Wednesday with people with pre-existing conditions to spotlight the GOP’s divide on the issue.

But privately, several Democratic lawmakers readily acknowledge a repeal vote would provide a silver lining. In fact, they plan to make sure the latest push will haunt even those GOP members who oppose the proposal.

“You can’t run away from this vote because it’s your leadership,” said House Democratic Caucus Chairman Joe Crowley of New York. “Even people who vote no if this bill comes to the floor.”

The Democratic Congressional Campaign Committee has already hit Republicans who voted for an earlier version of the health bill in committee. And just last week, before many Republicans had even weighed in on the latest proposal, the DCCC launched digital ads in 30 districts held by vulnerable Republicans.

That drumbeat will be even more relentless if Republicans actually bring the bill to the floor.

“I think we feel increasingly that public opinion has swung to our point of view. And that accountability is going to be a big factor in next year’s election because of this vote,” Connolly said. “There’s a cadre of 35 to 40 Republicans who are staring death in the face if they give their vote.”


Article Link To Politico:

Trump Gains Traction On Healthcare Bill, Vote Set For Thursday

By Steve Holland and Yasmeen Abutaleb 
Reuters
May 4, 2017

President Donald Trump's effort to roll back Obamacare gained momentum on Wednesday as Republican leaders scheduled a vote in the House of Representatives on Thursday on newly revised legislation.

House Majority Leader Kevin McCarthy expressed confidence the bill would pass and several moderate Republican lawmakers who previously objected to the bill said they could now support it.

A vote was expected as early as midday Thursday, with lawmakers planning to leave town later that day for a week-long recess. Late on Wednesday, the bill cleared a procedural step allowing it to advance to the House floor.

Even if a narrow majority in the House approves the bill, it still faces a steep climb in the Senate, where only a few defections could kill the effort.

Keen to score his first major legislative win since taking office in January, Trump threw his own political capital behind the bill, meeting with lawmakers and calling them in an effort to cajole their support.

Trump, whose Republican party controls both the House and Senate, is seeking to make good on his campaign promise to repeal and replace Obamacare.

Aides said he worked the phones furiously.

Wavering moderate Republicans had worried that the legislation to overhaul President Barack Obama's 2010 signature healthcare law would leave too many people with pre-existing medical conditions unable to afford health coverage.

But several Republican skeptics got behind the bill after they met with Trump to float a compromise proposal that is still expected to face unanimous Democratic opposition.

The legislation's prospects brightened further after members of the Freedom Caucus, a faction of conservative lawmakers in the House who played a key role in derailing the original version of the bill last month, said they could go along with the compromise.

The bill is also receiving a torrent of opposition from medical groups, including the American Medical Association, who say millions of Americans will lose coverage or face higher costs.

Millions more Americans got healthcare coverage under Obamacare, but Republicans have long attacked it. They view it as a government intrusion into the healthcare system and blame it for driving up costs.

Called the American Health Care Act, the Republican bill would repeal most Obamacare taxes, including a penalty for not buying health insurance. It would slash funding for Medicaid, the program that provides insurance for the poor, and roll back much of Medicaid's expansion.

The latest effort comes after earlier pushes by Trump for healthcare reform collapsed twice, underscoring the difficulty of rallying together the Republican party's divided factions.

Earlier this week, prospects for the legislation appeared grim as several influential moderate Republicans said they could not support the bill, citing their concerns about protecting people with pre-existing conditions.

Putting a spotlight on the concerns about pre-existing conditions, late-night talk show host Jimmy Kimmel made a tearful plea for keeping that provision in Obamacare as he recounted a medical emergency that arose with his newborn son.

Kimmel's monologue about his son's congenital heart condition was viewed nearly 19 million times on his show's Facebook page and on Wednesday morning was the No. 1 trending story on YouTube.

Republican Representatives Fred Upton and Billy Long, who were part of a group of moderate lawmakers who met at the White House with Trump, said the president endorsed their plan to add $8 billion over five years to help cover the cost for people with pre-existing illnesses who could otherwise be priced out of insurance markets.

Describing Trump's efforts to secure his support, Long said Trump told him: "'Billy we really need you, man.'"

Representative Mark Meadows, chairman of the conservative Freedom Caucus, said the new language on pre-existing conditions was a "net plus" for garnering the votes needed to pass the healthcare bill.

Critics of the changes to the law, including several health policy experts, said the $8 billion could not be enough to cover the cost of coverage for the sickest patients.

Republicans did not await a new score from the nonpartisan Congressional Budget Office to see how many people would be insured under their revised plan and how much it would cost.

Uncertainty For Stocks


Health insurers, such as Anthem Inc (ANTM.N), UnitedHealth Group Inc (UNH.N), Aetna Inc (AET.N) and Cigna Corp (CI.N), have faced months of uncertainty over healthcare's future. So have hospital companies, such as HCA Holdings Inc (HCA.N) and Tenet Healthcare Corp (THC.N).

On Wednesday, Aetna said it will exit the Obamacare individual insurance market in Virginia next year, citing "growing uncertainty" and expected losses this year.

House Democrats rejected the latest change to the Republican legislation on Wednesday, saying patients with pre-existing illnesses would be vulnerable to being pushed off their insurance in certain states and face higher costs.

"This is deadly," House Democratic Leader Nancy Pelosi told a news conference. "No Band-Aid will fix it."

Democrats have long thought their best chance of stopping the repeal would be in the Senate, where only a few Republicans would need to defect to stop the law from moving forward.

The difficulty in the House is now making Democrats optimistic that Republicans will face backlash from voters and face losing seats in the 2018 midterm elections.


Article Link To Reuters:

Where U.S. Manufacturing Jobs Really Went

By J. Bradford DeLong
Project Syndicate
May 4, 2016

In the two decades from 1979 to 1999, the number of manufacturing jobs in the United States drifted downward, from 19 million to 17 million. But over the next decade, between 1999 and 2009, the number plummeted to 12 million. That more dramatic decline has given rise to the idea that the US economy suddenly stopped working – at least for blue-collar males – at the turn of the century.

But it is wrong to suggest that all was well in manufacturing before 1999. Manufacturing jobs were being destroyed in those earlier decades, too. But the lost jobs in one region and sector were generally being replaced – in absolute terms, if not as a share of the labor force – by new jobs in another region or sector

Consider the career of my grandfather, William Walcott Lord, who was born in New England early in the twentieth century. In 1933, his Lord Brothers Shoe Company in Brockton, Massachusetts, was facing imminent bankruptcy. So he relocated his operations to South Paris, Maine, where wages were lower.

The Brockton workers were devastated by this move, and by the widespread destruction of relatively high-paying blue-collar factory jobs across Southern New England. But in the aggregate statistics, their loss was offset by a bonanza for the rural workers of South Paris, who went from slaving away in near-subsistence agriculture to holding a seemingly steady job in a shoe factory.

The South Paris workers’ good fortune lasted for just 14 years. After World War II, the Lord brothers feared that depression could return, so they liquidated their enterprise and split up. One of the three brothers moved to York, Maine; another moved to Boston. My grandfather went to Lakeland, Florida – halfway between Tampa Bay and Orlando – where he speculated in real estate and pursued non-residential construction.

Again, the aggregate statistics didn’t change much. There were fewer workers making boots and shoes, but more workers manufacturing chemicals, constructing buildings, and operating the turnkey at the Wellman-Lord Construction Company’s Florida-based phosphate-processing plants and other factories. In terms of domestic employment, the Wellman-Lord Construction Company had the same net factor impact as Lord Brothers in Brockton. The workers were different people in different places, but their level of education and training was the same.

So, during the supposedly stable post-war period, manufacturing (and construction) jobs actually moved en masse from the Northeast and Midwest to the Sun Belt. Those job losses were as painful for New Englanders and Midwesterners then as the more recent job losses are for workers today.

During the 2000s, American blue-collar jobs were churned more than they were destroyed. Until 2006, the number of manufacturing jobs decreased while construction jobs increased. And in 2006 and 2007, losses of residential construction jobs were offset by an increase in blue-collar jobs supporting business investment and exports. It was not until the post-2008 Great Recession that blue-collar jobs began to be lost more than churned.

Because there is always some degree of churn, a more accurate perspective on what has happened is gained by looking at blue-collar jobs as a share of total employment, rather than at the absolute number of manufacturing workers at any given time. In fact, there was an extremely large and powerful long-run decline in the share of manufacturing jobs between World War II and now. This gives the lie to the meme that manufacturing was stable for a long time, and then suddenly collapsed when China started making gains.

In 1943, 38% of America’s nonfarm labor force was in manufacturing, owing to high demand for bombs and tanks at the time. After the war, the normal share of nonfarm workers in manufacturing was around 30%.

Had the US been a normal post-war industrial powerhouse like Germany or Japan, technological innovation would have brought that share down from 30% to around 12%. Instead, it has declined to 8.6%. Much of the decline, to 9.2%, is attributable to dysfunctional macroeconomic policies, which, since Ronald Reagan’s presidency, have turned the US into a savings-deficit country, rather than a savings-surplus country.

As a rich country, the US should be financing industrialization and development around the world, so that emerging countries can purchase US manufacturing exports. Instead, the US has assumed various unproductive roles, becoming the world’s money launderer, political-risk insurer, and money-holder of last resort. For developing countries, large dollar assets mean never having to call for a lifeline from the International Monetary Fund.

The rest of the decline in the share of manufacturing jobs, from 9.2% to 8.6%, stems from changing trade patterns, primarily owing to the rise of China. The North American Free Trade Agreement, contrary to what US President Donald Trump has claimed, contributed almost nothing to manufacturing’s decline. In fact, all of those “bad trade deals” have helped other sectors of the American economy make substantial gains; and as those sectors have grown, the share of jobs in manufacturing has fallen by only 0.1%.

In this era of fake news, astroturf social movements, and misleading anecdotes, it is imperative for anyone who cares about our collective future to get the numbers right, and to get the right numbers into the public sphere. As the Republican Party’s first president, Abraham Lincoln, put it in his “House Divided” speech, “If we could first know where we are, and whither we are tending, we could then better judge what to do and how to do it.”


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U.S. Prescription Drug Spending As High As $610 Billion By 2021

By Bill Berkrot
Reuters
May 4, 2017

Spending on prescription medicines in the United States will increase 4-7 percent through 2021, reaching $580 billion to $610 billion, according to a report released by QuintilesIMS Holding (Q.N) on Thursday that lowered its prior long-term forecast.

QuintilesIMS, which compiles data for the pharmaceutical industry, had previously forecast average spending growth of 6-9 percent through 2021. It reduced its projections due to fewer new medicines approved in 2016 than prior years and as drugmakers face increasing pricing pressure and competition.

Taking likely manufacturer discounts and rebates into account, spending would grow 2-5 percent to $375 billion to $405 billion in 2021, as net price increases for patent-protected branded drugs slows, the report said.

Under pressure from politicians and insurers over the cost of many branded medicines, several drugmakers have pledged to limit annual price hikes to under 10 percent.

"We're forecasting moderation in pricing reflecting what ... we expect will be a continuing trend of single-digit price increases," said Murray Aitken, executive director of the QuintilesIMS Institute which compiled the report.

Some of the expense of new medicines will be offset by expanded use of cheap generics as several big-selling prescription drugs lose patent exclusivity and more biosimilars - less expensive versions of pricey biotech medicines - enter the market.

The U.S. Food and Drug Administration approved just 22 new medicines last year, down from 45 in 2015, which will also contribute to lower spending growth this year and next, the report said.

That is seen picking up in 2019 and beyond as QuintilesIMS estimates 40 to 45 new brand launches per year through 2021 based on a review of experimental medicines in drugmaker pipelines.

The report found more than 2,300 novel products in later stage development, including more than 600 drugs for cancer, which remain able to command very high prices.

"Numbers (of approvals) are already running well ahead of where they were a year ago," Aitken said.

U.S. spending on prescription medicines in 2016 increased by 5.8 percent over 2015 levels to $450 billion based on list prices, and by 4.8 percent to $323 billion when adjusted for discounts and rebates.

The biggest drivers of prescription growth came from large chronic therapy areas, such as hypertension and mental health.

Overall use of pain medicines declined 1 percent with restrictions on prescribing and dispensing becoming more common as healthcare providers attempt to address the growing epidemic of addiction to opioid pain drugs.


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Tesla Demonstrates Valuation Staying Power

By Antony Currie
Reuters 
May 4, 2017

Tesla is demonstrating how its electric cars can generate valuation staying power. Chief Executive Elon Musk oversaw a loss that missed Wall Street expectations by a country mile, even as the top line clocked in ahead of forecasts. More importantly, he's vowing that annual Model 3 production alone can meet the company’s full target by the end of next year.

Musk has made a habit of missing goals in the past. Good executives do learn from their mistakes and Tesla has taken several steps to try to bulk up its facilities, including buying automated manufacturing firm Grohmann Engineering six months ago. Deliveries of 25,000 Model S and Model X vehicles in the first three months of the year were 69 percent higher than a year ago.

Growing from the 76,000 that rolled off the line last year to a run rate of half a million in 2018 would be a big shift, however. There are already signs of internal friction: Klaus Grohmann, who founded the eponymous firm Tesla acquired, was ousted last month after clashing with Musk over strategy, Reuters reported, citing an unnamed source.

Taking the Model 3 from scratch – the first customer-ready cars are due this summer – to a run rate of half a million within 18 months would mark an astounding feat. Even if Musk can pull it off, there are potential problems.

First, the margins on a car with a base price of $35,000 will be much lower than ones on the Models S and X, which fetch at least $80,000 apiece. Even with mass production, Tesla is unlikely to achieve pre-tax margins much better than the 10 percent to 12 percent to which the likes of Daimler and BMW typically aspire.

Second, competition is heating up. At the luxury end, Jaguar is set to start selling its I-Pace next year, while GM’s Chevy Bolt, a Model 3 competitor, hit the market last November. Plenty of others are joining the fray, too. That could very well crimp Tesla’s sales or profitability – or both.

At almost 26 times 2020 estimates, Tesla’s stock is trading at a level implying Silicon Valley-style margins of 30 percent and near-perpetual vehicle-sales growth. Despite Musk's undeniable kinetic energy, that's simply unjustifiable.


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Apple Promises To Give U.S. Manufacturing A $1 Billion Boost

By Elizabeth Gurdus
CNBC
May 4, 2017

Apple CEO Tim Cook said that his company will start a $1 billion fund to promote advanced manufacturing jobs in the United States.

"We're announcing it today. So you're the first person I'm telling," Cook told "Mad Money" host Jim Cramer on Wednesday. "Well, not the first person because we've talked to a company that we're going to invest in already," he said, adding that Apple will announce the first investment later in May.

The fund comes as President Donald Trump has made bringing back manufacturing jobs a big part of his agenda, and it fits into Apple's larger effort to create jobs across its spectrum, from its own employees to app developers to its suppliers.

As advanced manufacturing jobs are in high demand in the U.S., the sector was already high on Apple's list of priorities, and Cook hopes the investment will spur even more job creation.

"By doing that, we can be the ripple in the pond. Because if we can create many manufacturing jobs around, those manufacturing jobs create more jobs around them because you have a service industry that builds up around them," the CEO said.

Apple has already created two million jobs in the United States, and Cook showed no signs of shrinking the tech giant's reach.

"A lot of people ask me, 'Do you think it's a company's job to create jobs?' and my response is [that] a company should have values because a company is a collection of people. And people should have values, so by extension, a company should. And one of the things you do is give back," Cook said.

"So how do you give back? We give back through our work in the environment, in running the company on renewable energy. We give back in job creation."


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With Fed Done, Jobs Report Could Bring Day Of Reckoning For Markets

-- The bond market has priced in economic weakness and priced out the post-election Trump reflation trade. The stock market, meanwhile, is bucking up against its highs.
-- Friday's jobs report "could be a turning point for the bond market," says Tony Roth of Wilmington Trust.
--The Fed has also put the spotlight squarely on the jobs report.


By Patti Domm
CNBC
May 4, 2017

Bonds are telling one story and stocks another, and some strategists say Friday's jobs report could bring about a day of reckoning.

The bond market, even with Wednesday's post-Fed sell-off, has priced in economic weakness and priced out the post-election Trump reflation trade. The stock market, meanwhile, is bucking up against its highs, helped by an earnings season that is proving to be the best since 2011.

"I think it could be a turning point for the bond market but not the stock market. I think the stock market has it right at this stage," said Tony Roth, CIO of Wilmington Trust. He said the bond market trades much more on technicals and could react strongly to the jobs number, especially if it comes in super strong.

Friday's jobs report, if in lockstep with ADP payrolls data, could come in at around the 185,000 consensus forecast of economists surveyed by Thomson Reuters. ADP on Wednesday reported 175,000 private-sector payrolls for April, but the huge discrepancy between last month's extremely robust March ADP report and the surprisingly weak government report of just 98,000 nonfarm payrolls has made traders skeptical that they will align. ADP's March payrolls were revised down by 8,000 to 255,000.

The Fed has also put the spotlight squarely on the jobs report. In its commentary Wednesday, it said it viewed the weakness in the first quarter as transitory, and it also looked past even a drop-off in inflation. That makes the April jobs report, the most significant second-quarter data so far, even more important.

George Goncalves, head of fixed-income strategy at Nomura, said he believes there is a turning point coming for bonds, and he thinks it will be in the next several days. He said it will play out in the Treasury's auction of 10-year notes and 30-year bonds next week.

"That's going to dictate whether there's demand at these low levels of rates," he said, or rates will move higher. But first comes the jobs report, and a very strong number could make a big difference to the bond market, which has been registering one downside miss after another in the economic data.

"We have to finish the week above [a 10-year yield] of 2.35, 2.40 to start getting back into a sell-off, which would then validate equities and everything else," Goncalves said. The 10-year was yielding 2.31 percent late Wednesday, while the 30-year was yielding 2.96 percent. Yields move inversely to price. The 10-year's post-election high was just above 2.60 percent.

"I think the biggest thing that's hanging out here is the gap between the bond market and the stock market. They've both settled into trading ranges, and I think the bond market has to come back to the stock market because I think the long bond yield is too low at this point," Roth said. "If we get a 2.5 percent economy, which I think would be easy to achieve, I think the long bond [yield] has to be 30 to 50 basis points higher."

Roth said it would be a worry for markets if the April jobs report was less than 120,000 after the weak first quarter. But payrolls above 140,000 would be enough to show the labor market is tightening. "That is sufficient to [illustrate a] very strong labor market with increasing wage pressure, and we continue to see good capital investment on the part of business," he said.

The government's jobs report is released at 8:30 a.m. EDT Friday. For markets Thursday, there are several economic reports, including weekly jobless claims, international trade, and productivity and costs, all at 8:30 a.m. Factory orders are reported at 10 a.m.


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