Wednesday, May 17, 2017

Wednesday, May 17, Morning Global Market Roundup: U.S. Stock Futures, Dollar Fall On Rising Concerns Over Trump

By Hideyuki Sano
May 17, 2017

U.S. share futures and the dollar tumbled on Wednesday on worries about more U.S. political turmoil after media reports said President Donald Trump asked then-FBI Director James Comey to end a probe into Trump's former national security advisor.

The reports raised questions over whether obstruction of justice charges could be laid against Trump, weakening confidence in the U.S. president's ability to push through an aggressive stimulus program that investors had been banking on since his election in November.

S&P 500 mini futures ESc1, the world's most liquid stock futures, dropped 0.5 percent to 2,385, though they have managed to hold above their recent lows around 2,379.

European shares are expected to open lower, with spread-betters looking at declines of 0.6 percent for Germany's DAX .GDAXI, 0.4 percent in France's CAC .FCHI and 0.2 percent for Britain's FTSE .FTSE.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 0.3 percent while Japan's Nikkei .N225 shed 0.5 percent.

Mike O'Rourke, chief market strategist at Jones Trading, wrote in a note that "Rising doubts about U.S. political leadership should fuel further rotation into Europe. The situation remains fluid, but this development should finally break the financial markets out of the volatility vacuum."

Nobuhiko Kuramochi, chief strategist at Mizuho Securities, said "worries about European politics and North Korea have receded... But now we have worries about the Trump Administration. Given that there are some stock indexes that have risen more than 10 percent so far this year, we may be entering a consolidation phase."

Trump asked Comey to end the FBI investigation into ties between former White House national security advisor Michael Flynn and Russia, according to a source who has seen a memo written by Comey.

The news, first reported by the New York Times, came after Trump had fired Comey and then discussed classified national security information about Islamic State with Russian Foreign Minister Sergei Lavrov.

The White House quickly denied the New York Times report, saying in a statement it was "not a truthful or accurate portrayal of the conversation between the president and Mr. Comey."

The tumult at the White House prompted currency traders to ditch the dollar against a broad range of currencies, most notably against the yen, to which investors often turn as a safe haven when there are problems in Europe and the United States.

The dollar dropped 0.7 percent to 112.37 yen JPY=, slipping further from its highs near 114.40 yen touched last week.

The dollar's index against a basket of six major currencies .DXY =USD dropped to 97.93, giving up all of the gains made after Trump's election victory in November.

Other traditional safe-haven assets were also well bid. The Swiss franc gained 0.3 percent against the dollar to 0.9828 franc per dollar CHF=. The gold rose 0.6 percent to $1,243.4 per ounce XAU=.

The euro EUR= hit a six-month high of $1.1117, as it also drew support from solid economic data in the euro zone.

The euro zone's GDP grew 0.5 percent in January-March, in line with expectations, and underscoring a recovery in the currency bloc.

On the other hand, U.S. economic data published on Tuesday was mixed, raising more doubts about some rosy views on the economy.

While U.S. manufacturing production recorded its biggest increase in more than three years in April, housing starts posted a surprise fall to five-month lows.

The data came after Friday's softer-than-expected retail sales and inflation.

"Until Friday, markets had been focusing only on the bright side of the U.S. economy. But that seems to have changed," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The 10-year U.S. Treasuries yield US10YT=RR dipped to 2.294 percent, flirting with its lowest level in two weeks.

Oil prices dropped after data showed an increase in U.S. crude inventories, stoking concerns that markets remain oversupplied despite efforts by top producers Saudi Arabia and Russia to extend output cuts.

Brent crude futures LCOc1 were at $51.28 per barrel, down 36 cents, or 0.7 percent, from their last close.

Article Link To Reuters:

State Of Washington Law Paves Way For Organic Marijuana Market

By Bernie Woodall
May 17, 2017

Washington Governor Jay Inslee on Tuesday signed a bill that paves the way for the state to create what is believed to be the first system in the United States to certify marijuana as organic.

The sponsor of the bill, Republican Senator Ann Rivers, said marijuana certified as organically grown is likely to be on sale in Washington in about a year and a half.

Washington is among a handful of U.S. states where voters approved the sale of recreational marijuana. Washington was the second state to begin legal recreational pot sales, in mid-2014, after its voters in 2012 approved it.

"This is consumer-driven," Rivers told Reuters by phone on Tuesday night. "As we have moved forward in the legal marijuana market, we're hearing people say, 'We don't want any pesticides, fungicides, none of that stuff in our weed.'"

The new law "creates a voluntary program for the certification and regulation of organic marijuana products," to be administered by the Washington agriculture department, according to a state analysis of the new law.

Rivers said the "heavy lifting" in certifying marijuana has been done by the system of doing the same for a multitude of food products on supermarkets shelves across America. That process just needs to be adapted for pot, she said.

Rivers said that legal recreational marijuana is "the gift that keeps on giving....this year, we'll make $768 million" in revenue for the state of Washington. This pays for drug education and drug addiction treatment as well as public education, she said.

Organic pot was just one of a myriad of marijuana-related measures in the bill.

Many state legislators wanted to vote for only one marijuana-related bill rather than have to go on the record favoring marijuana several times, Rivers said. The November 2012 measure to allow recreational marijuana in Washington passed 56 percent to 44 percent.

While it is legal for adults to smoke marijuana in Washington, it is not legal to grow industrial hemp. The new law allows for the study of a method to allow hemp to be grown and used for industrial purposes.

Last week, Vermont's legislature approved a bill to legalize recreational use of marijuana. Unless the measure is vetoed, Vermont would be the first state to legalize pot without a public vote.

Voters have approved legal recreational marijuana use in Colorado, Washington, Alaska, Oregon, California, Nevada, Maine, Massachusetts and the District of Columbia.

Article Link To Reuters:

Best Forecasters See No Reprieve For Dollar As Trump Woes Mount

Sell dollar against basket that includes yen, Westpac says; Bullish dollar bets toppled as world’s most popular trade.

By Netty Idayu Ismail
May 17, 2017

The dollar is set to extend its decline as the turmoil engulfing President Donald Trump will make it harder for him to deliver his pro-growth agenda, some of the best currency forecasters say.

Westpac Banking Corp., the second most-accurate currency forecaster in Bloomberg’s most recent rankings, is advising clients to sell the dollar against a basket comprising the euro, yen and loonie. Macquarie Bank Ltd., among the top 10, expects the greenback to decline further versus the currencies of Japan and the euro.

The dollar has lost almost all its gains chalked up since Trump’s victory in November, following reports he shared classified intelligence with Russian diplomats and that he asked FBI Director James Comey to end a probe into former National Security Adviser Michael Flynn. Options traders turned bearish on the dollar against the euro last week for the first time since Nov. 8 after Emmanuel Macron won the French election, according to one-month risk reversals.

“It seems clear that a political risk premium is being removed from the euro and instead placed on the U.S. dollar,” said Sean Callow, a senior currency strategist at Westpac in Sydney. The turmoil “will at the very least linger as a distraction that makes it more difficult for the White House to pass pro-growth policies.”

The dollar may weaken as much as 2 percent against the euro, yen and Canadian dollar by the end of the month, before stabilizing in June, Callow said. Central bank meetings in the U.S. and Europe next month are likely to favor the dollar as the Federal Reserve is expected to raise rates, he said.

Bullish bets on the greenback have been toppled as the world’s most popular trade after five months, according to a Bank of America Merrill Lynch survey of fund managers. Hedge funds have cut net long positions to an 11-month low.

Tepid data on U.S. retail sales, inflation and housing starts have cast doubts on the Fed’s ability to raise interest rates two more times this year, as suggested by its so-called dot plot. Futures traders are pricing in just one more increase this year.

Dollar Peak

Goldman Sachs Group Inc. became the latest bank to dial down its dollar forecast last week. It expects the greenback to trade at $1.05 per euro in 12 months, compared with a previous $1.00, the bank said in a note. That follows Societe Generale SA saying earlier this month that the dollar has peaked.

The dollar’s losses may be limited as Fed officials continue to speak about more interest rate hikes this year, said Mansoor Mohi-uddin, a Singapore-based strategist at NatWest Markets, a unit of Royal Bank of Scotland Group Plc. The Republican Congress will want to keep President Trump’s position secure, preventing political risks from ballooning, he said.

Prior to this week’s turmoil, Trump was already mired in a battle over health care and is preparing for a fight over government spending, with debate over his plan to slash corporate and individual taxes yet to come. His administration is now facing calls for more clarity from both Republicans and Democrats over this week’s disclosures.

“Confidence in the dollar does seem to have been undermined in recent weeks, as U.S. economic growth momentum slows,” said Gareth Berry, a foreign-exchange and rates strategist at Macquarie Bank in Singapore. “Multiple legislative showdowns seem to be looming, and Trumpian stimulus will be hamstrung until these obstacles are cleared.”

Article Link To Bloomberg:

Oil Drops On Rising U.S. Crude Inventories, Defies Expected Supply Cut Extension

By Henning Gloystein 
May 17, 2017

Oil prices fell on Wednesday after data showed an increase in U.S. crude inventories, stoking concerns that markets remain oversupplied despite efforts by top producers Saudi Arabia and Russia to extend output cuts.

Brent crude was down 41 cents, or 0.8 percent, from the last close at $51.24 per barrel.

U.S. West Texas Intermediate (WTI) crude was at $48.23, down 43 cents, or 0.9 percent.

U.S. crude inventories rose by 882,000 barrels in the week ending May 12 to 523.4 million, data from the American Petroleum Institute (API) showed on Tuesday.

Brent reached $52.63 a barrel on Monday and WTI rose as high as $49.66 a barrel after Saudi Arabia and Russia agreed on the need for a 1.8 million barrels per day (bpd) crude supply cut by the Organization of the Petroleum Exporting Countries (OPEC) and some other producers to be extended until the end of March 2018.

"The vulnerability of OPEC's ... rhetoric was starkly revealed ... as the U.S. API crude inventories showed an unexpected increase," said Jeffrey Halley of futures brokerage OANDA.

The extension of the supply cuts, which started in January and were supposed to end in June, is seen as necessary by some as they have not so far significantly tightened the market or propped up prices.

"The agreement by OPEC to extend cuts into 2018 is critical," said AB Bernstein in a note.

The International Energy Agency said on Tuesday that commercial oil inventories in industrialized countries rose by 24.1 million barrels in the first quarter of 2016, despite the cuts.

Adding to concerns of ongoing supply increases, North Sea oil production, which has long been seen as in terminal decline, is expected to jump by a net 400,000 bpd, or about a fifth of total output, in the next two years as producers improve operational efficiency.

This adds to a relentless rise in U.S. production, which has jumped by over 10 percent since mid-2016 to 9.3 million bpd, not far off top producers Russia and Saudi Arabia.

Investment bank Jefferies said it was lowering its oil price forecasts "between 3 percent (2H17) and 22 percent (2019)" due to a surprisingly strong production rise, especially in the United States.

Jefferies said its new Brent price estimate for the second half of 2017 was $59 per barrel, down from $61 previously.

It lowered its forecast for 2018 Brent from $72 per barrel to $64 per barrel, and cut its estimate for 2019 from $85 per barrel to $67 per barrel.

Article Link To Reuters:

The Struggle Behind Oil’s Ups And Downs

We likely won’t see $100 a barrel again. The industry has been recalibrated to a lower price level.

By Daniel Yergin
The Wall Street Journal
May 17, 2017

A great struggle is unfolding in the world oil market. On one side are forces pushing to rebalance supply and demand; on the other, those pulling to recalibrate the business so that it operates at lower cost. That tension explains why the price keeps jumping toward $60 a barrel and then falling back near $40.

Oil prices collapsed at the end of 2014 because supply and demand had gotten out of whack. That year global supply grew 2.5 times as fast as demand. The shale revolution in the U.S. was a prime cause of the imbalance; American supply grew by 1.4 million barrels a day in 2014—60% of the entire increase.

The expectation was widespread in 2014 that Saudi Arabia would cut its oil output to keep prices up. But Riyadh tried that in the 1980s, only to see its own market share shrink dramatically. “We will not make the same mistake again,” then-Saudi oil minister Ali Naimi said two years ago. In particular, the Saudis made clear there would be no deal to cut output without participation by nonmembers of the Organization of the Petroleum Exporting Countries—especially Russia, the world’s largest oil producer.

By the fall of 2016, lower prices had pushed supply down and stimulated demand, moving the two closer to balance. U.S. oil production had fallen by a million barrels a day. Around the world, spending on exploration and production for 2015-19 is 50% lower than what had been expected in 2014, before the price collapse. At the same time, demand grew in 2016 at almost double the 2014 rate.

Last December, oil-exporting countries took the action that had been beyond reach in 2014: They agreed to cut production. “Oil revenues are . . . the main reason,” Saudi Deputy Crown Prince Mohammed bin Salman said earlier this month on a Saudi-owned TV station. Even Russia, whose rainy-day sovereign-wealth funds were depleting rapidly, signed on. It also brought 10 other non-OPEC countries to the table.

With the market heading back into balance, this expanded group concluded that total cutbacks of just under 1.8 million barrels a day would be sufficient to wear down the excessively large inventories overhanging the market. OPEC countries demonstrated remarkable compliance with quotas, in sharp contrast to previous efforts. By March, prices had rebounded 75% from their 2016 lows.

But since then, prices have fallen. Rebalancing is now colliding with the other force—recalibration of costs to a lower level of oil prices. This massive adjustment is reshaping the way the global oil industry works.

It first became evident in the U.S. The collapse in revenues, along with heavy debt burdens, led to multiple bankruptcies and the expectation that prices would be “lower for longer.” Shale producers had no choice but to slash costs if they wanted to survive. In the process, they became more efficient, focused and innovative. A new well that might have cost $14 million in 2014 now costs $7 million. The gain in efficiency is so great that a dollar invested in U.S. shale today will produce about 2.5 times as much oil as a dollar invested in 2014, according to IHS Markit .

In 2014, many thought a drop in price to $70 a barrel from $100 would shut down U.S. production. It didn’t. Today, new shale oil wells can be profitable at $40 to $50 a barrel, and some companies claim even lower. That makes possible a new surge in U.S. production—as much as 900,000 additional barrels a day over the course of this year. By next year, the U.S. is likely to hit the highest level of oil production in its entire history.

This cost recalibration is happening everywhere, as a new analysis by IHS Markit shows. Canada’s oil sands have always been among the highest-cost, yet some new projects can produce near $50 a barrel. In Russia, costs have come down more than 50%. Even deep waters offshore can now produce at less than $50. In March the CEO of the Norwegian company Statoil told the CERAWeek conference that owing to a wholesale redesign, a project in the North Sea that had originally required $75 a barrel to be economical now needs just $27 a barrel.

This recalibration will push up supply more than had been anticipated, at least in the next few years. But there’s a big question. How much of the cost saving is the result of innovation, efficiency and new ways of doing things? And how much is the result of dramatic cutbacks in spending, leading to head-count reductions and idle rigs and other equipment? What happens when the markets for people, equipment, and services tighten?

As activity goes up, so will oil-field costs. That’s already evident in today’s hottest area for drilling—the Permian Basin in West Texas and New Mexico. Companies large and small, along with private-equity investors, are piling in. They’ve realized that shale technologies may make the Permian, in terms of recovery, the second-largest oil field in the world.

The effects are already visible. As drilling increases, tightness and bottlenecks are starting to become apparent in terms of manpower, supplies and equipment. Costs in the Permian could increase by 15% to 20% this year, whereas they will remain flat in most of the rest of the industry.

As oil producers get back to business all over the world, some of the big cost savings will be given back, which will support rebalancing—so oil prices will rise. But the entire business has been recalibrated to a lower price level. An industry that had become accustomed a few years ago to $100 oil now regards that as an aberration that will not recur absent an international crisis or a major disruption. The lessons about costs since the price collapse are not going to go away. They are too powerful to forget, and too painful.

Article Link To The Wall Street Journal:

OPEC Risks Deal Fatigue As Maintaining Oil Curbs Get Tougher

Saudi Arabia may need to make further sacrifices on production; Iraqi compliance to test pact as Nigeria, Libya restore output.

By Grant Smith
May 17, 2017

OPEC impressed oil traders this year by making almost all the supply cuts it promised. Keeping output down will only get harder.

The Organization of Petroleum Exporting Countries and its partners are expected to extend output curbs into early 2018 when they meet next week, in an ongoing bid to clear a global surplus. Yet the tailwinds that made cutting supply easier in the first half of the year -- from a seasonal lull in demand to temporary oil-field maintenance -- will be gone just as new obstacles are emerging.

To keep a lid on output this summer, Saudi Arabia will need to sacrifice an even bigger share of exports as consumption at home rises. Iraq yearns to expand capacity, and has already used the option of maintenance to keep oil fields idle. Meanwhile Nigeria and Libya, two OPEC nations exempt from the deal, are restoring lost output.

“They’re going to struggle,” said Michael Barry, director of research at consultants FGE in London. “This deal has been remarkable in its implementation. As time goes on, discipline is likely to erode. Almost every country wants their production to go up.”

Brent crude, the global benchmark, was trading 0.4 percent lower at $51.43 a barrel as of 7:41 a.m. in London.

As the world’s fuel-storage tanks remain brimming and prices languish, OPEC and its allies have conceded that the initial plan for six months of production cuts wasn’t long enough. Yet Saudi Arabia and Russia’s proposal that their 24-nation coalition, due to meet in Vienna on May 25, should extend the measures for another nine months may prove an unbearable strain.

“Production curbs for the first quarter of 2017 were comparatively easy to agree to,” said David Fyfe, chief economist at Geneva-based oil trader Gunvor Group. “They’ll likely agree to extend” but “the risk is higher they’ll leak extra barrels onto the market.”

OPEC showed an unprecedented level of commitment to this deal, implementing 96 percent of the cuts it promised during the first four months of the year, according to the International Energy Agency.

Holding Line

Some are optimistic that OPEC and its partners will maintain their resolve. The stakes are high enough that the organization will stick to its commitments, and as inventories decline producers will feel encouraged to stay the course, said Mike Wittner, head of oil market research at Societe Generale SA in New York.

“They’re going to hold the line,” said Wittner. “If we see stock draws happening soon, which we believe will be the case, those signs of success will bolster their determination. When you see light at the end of the tunnel, it’s easier to keep it together.”

Still, strong compliance was often attributable to Saudi Arabia cutting more than it was required, compensating for laggards like Iraq and the United Arab Emirates.

If the kingdom continues to restrain output, it needs to make another sacrifice. The Saudis typically boost production during the summer to maintain exports while meeting increased local demand from air conditioning. Keeping a cap on output would mean foregoing some exports and the revenues they bring.

Iraqi Question

Iraq, which still hasn’t made its full cut, plans to boost production capacity to 5 million barrels a day, an increase of about 6 percent, Oil Minister Jabbar al-Luaibi said on May 11. This won’t conflict with its commitment to freeze output, he said.

“We have question marks around Iraq,” said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London. “They have been reluctant since the very beginning, and were slow to implement their cuts. Most of the supply restraint in Iraq has come with the help of field maintenance.”

Maintenance in Iraq, Kuwait and the U.A.E. may have accounted for about 500,000 barrels a day of the output halted -- almost half the group’s total cut, according to FGE. For Iraq, this enabled them to avoid compensating foreign companies for unscheduled production shutdowns.

“Several countries basically used maintenance as a way of keeping production down but what they did was pull it forward from later in the year,” said FGE’s Barry. “Now maintenance is over the question is what do they do? More maintenance or cut at other fields? The pressure is on.”

OPEC also faces the challenge that the two members exempted from the deal because of production losses are recovering. Both Libya and Nigeria are showing progress in tackling the political crises that slashed their output.

Disciplinary Issues

Libya is producing at the highest level in more than two years after restarting its largest oil field, according to state-run National Oil Corp., while Nigeria has fixed a pipeline after a one-year halt that could boost its output by about 13 percent.

The 11 non-members joining OPEC’s effort have still only implemented about two-thirds of their promised reduction, according to the IEA, and also face problems in sustaining their curbs. Cutbacks in Russia came alongside the traditional seasonal stagnation in activity, and prolonging them would thwart plans by companies to expand output.

“It was easy to mask maintenance in the first half as voluntary cuts, but quite impossible to do it any further,” said Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt. “There will be lower discipline within OPEC, and lower discipline from non-OPEC.”

Article Link To Bloomberg:

In America's Largest Oilfield, Whir Of Activity Confounds OPEC

By Ernest Scheyder 
May 17, 2017

As oilfield workers for Lilis Energy Inc LLEX.O threaded together drill pipes one recent morning in the Permian Basin, a bulldozer cleared sagebrush to make way for the company's fifth well since January.

Lilis aims to expand production sevenfold this year in America's most active oilfield.

The whir of activity is all the more impressive after the small firm nearly collapsed in late 2015 - amid unrestrained production from the Organization of the Petroleum Exporting Countries (OPEC). As per-barrel prices plummeted, Lilis piled on debt and struggled to pay workers.

Now - with prices higher after a November OPEC decision to cut output - Lilis can't grow fast enough.

Such resurrections are common these days in the Permian, which stretches across West Texas and eastern New Mexico. They tell the story of the U.S. shale resurgence and the quandary it poses for OPEC as it struggles to tame a global glut.

Surging U.S. production has stalled OPEC's effort to cut supply. Inventories in industrialized nations totaled 3.05 billion barrels in February - about 330 million barrels above the five-year average, according to the International Energy Agency.

The Permian boom will be high on the agenda as OPEC oil ministers begin gathering in Vienna ahead of a May 25 policy meeting to decide whether to extend output cuts.

In the long term, too much U.S. output could spur OPEC to open the spigots again - setting off another price war - but for now its member nations' need for revenue makes that unlikely.

On Monday, the world's top two oil producers - OPEC heavyweight Saudi Arabia and Russia, a non-OPEC nation - said they had agreed in principle on the need to continue output cuts for an additional nine months, through March 2018.

That would extend the initial agreement, which took effect in January and reduced production by 1.2 barrels per day (bpd) from OPEC nations and another 600,000 bpd from non-OPEC producers, including Russia.

The pledge to extend cuts marked an evolution in the thinking of Saudi Arabia Oil Minister Khalid al-Falih - in response to surging U.S. output.

After OPEC's decision in November, Al-Falih expressed confidence that no further supply curbs would be needed because of rising demand.

Then in March, Al-Falih told a Houston energy conference that the "green shoots" in U.S. shale might be "growing too fast" - and warned there would be no "free rides" for U.S. producers benefiting from OPEC production cuts.

But by last week, Al-Falih vowed OPEC would do "whatever it takes" to control oversupply.

Unlike OPEC nations, U.S. firms are barred by anti-trust laws from colluding to control output or prices, leaving market demand as the only check on production.

"I'm really proud American production is offsetting those OPEC cuts," said Lilis Chief Executive Avi Mirman.

Free Ride On OPEC Cuts

Now it appears the free ride for U.S. shale producers will continue at least into next year.

U.S. oil output has jumped to 9.31 million bpd this year, up 440,000 bpd from 2016, according to U.S. Energy Information Agency estimates.

About a quarter of that production comes from the Permian, where broad-based growth comes from small firms like Lilis, global majors including Exxon Mobil Corp and large independents such as (XOM.N) Parsley Energy Inc (PE.N).

OPEC's two-year price war sank hundreds of companies and forced majors including Exxon and Chevron Corp (CVX.N) to retrench - but it also and stirred their interest in shale.

Exxon paid nearly $7 billion in February to double its acreage in the Permian.

Earlier this month, about 20 miles (32 km) south of Midland, Texas - the center of the basin's industry - a crew from ProPetro Holding Corp (PUMP.N) was hydraulically fracturing, or fracking, an Exxon well.

Silver silos held 18 million pounds of sand, which would be mixed with 22 million gallons of water and forced into the well, unlocking oil trapped in rock.

"We're really approaching the Permian as a major project," Sara Ortwein, president of Exxon's shale-focused subsidiary, XTO Energy, said in an interview.

Across the Permian, the number of rigs this year has risen 30 percent and the number of fracking crews has jumped 40 percent, according to Primary Vision, which tracks oilfield service equipment usage.

That won't change soon, said Mark Papa, CEO of Centennial Resource Development Inc (CDEV.O), which added to its Permian land holdings this month with a $350 million deal.

"A disproportionate amount of U.S. production growth between now and the end of the decade will come from the Permian," Papa said in an interview.

'We're Out Of Rigs'

In a reversal from the thousands of layoffs here in 2015, oil companies are hiring briskly.

Fracking service provider Keane Group Inc (FRAC.N), for instance, has plans to hire at least 240 workers this year.

For the growth to continue, however, prices will have to rise for rigs and other services, executives and analysts have said.

Paul Mosvold, president of drilling contractor Scandrill Inc, has more business than he can handle.

"We're out of rigs," he said. "We have been since January."

But he won't add more rigs unless producers pay more - maybe $25,000 per day, instead of the current $15,000 to $19,000. That may depend on per-barrel prices going up, an unlikely prospect amid expanding supply.

Oil drillers, meanwhile, continue to hunt for new cost-cutting technologies - after already halving the cost of extracting a barrel since 2014.

Parsley is cutting labor costs with sensors on wells that transmit production and maintenance data to its headquarters in Austin, Texas.

"We're constantly getting more efficient," Mark Timmons, Parsley's vice president of field operations.

The Lilis revival started last year with debt-for-equity swaps and a merger with another troubled oil producer, giving Lilis access to Permian acreage.

The company's market value has risen to $210 million from about $3 million two years ago.

At the company's newest well site, Lilis CEO Mirman checked drilling progress on his iPhone and shrugged off any worries about OPEC’s next move.

"We're using every tool at our disposal to grow," he said.

Article Link To Reuters:

Trump To Reassure Saudi Allies, Promote Business, Talk Tough On Radicalism

By Yara Bayoumy and Katie Paul
May 17, 2017

When U.S. President Donald Trump meets Saudi princes in Riyadh on Saturday, he can expect a warmer welcome than the one given a year ago to his predecessor Barack Obama, who Riyadh considered soft on arch foe Iran and cool toward a bilateral relationship that is a mainstay of the Middle East's security balance.

Beneath the pomp, Riyadh will be looking for assurances that the Trump administration will continue its notably harsher tone toward Iran and keep up pressure, through both rhetoric and action, to stop what Saudi Arabia sees as Tehran's destabilizing activities in the region.

The U.S.-Saudi alliance has experienced turbulence since Riyadh faulted what it saw as Obama's withdrawal from the region, a perceived tilt toward Iran since the 2011 Arab uprisings and a lack of direct action against Syrian President Bashar al-Assad, an Iranian ally.

Saudi Arabia will also want to showcase high-profile investment deals with American companies to show progress on its ambitious "Vision 2030" economic and social reform agenda, while Washington says U.S. arms sales arms worth tens of billions of dollars are in the pipeline.

Trump's visit to Saudi Arabia is the first stop on his maiden international trip since taking office in January. U.S. and Saudi officials are eager to highlight the powerful symbolism of an American president choosing to visit the birthplace of Islam as his first stop rather than to neighbors Canada or Mexico.

Besides meeting with Saudi officials, Trump will also meet with leaders of the six-nation Gulf Cooperation Council (GCC) and have lunch with leaders of more than 50 Muslim countries.

Critics have accused Trump of being anti-Muslim after he issued a ban, now blocked by U.S. courts, on entry into the United States by citizens of several Muslim-majority countries, citing national security concerns.

U.S. public opinion of Saudi Arabia has never fully recovered since the Sept. 11, 2001 attacks in which 15 of the 19 hijackers were Saudi. The U.S. Congress last year passed the Justice Against Sponsors of Terrorism Act, a law permitting lawsuits holding Saudi Arabia responsible for the attacks. The Saudi government has long denied involvement.

Trump's visit "sends a clear message that the U.S. is standing with its close allies in the region and that they're not abandoning them," a senior Saudi official told Reuters, reflecting the view many Gulf leaders had of Obama, who they considered had made securing a nuclear deal with Iran a higher priority than the U.S.-Gulf alliance.

Obama's visit to Saudi Arabia in April 2016 was overshadowed by Gulf Arab exasperation with his approach to the region, and doubts about Washington's commitment to regional security.

"This (new) administration comes in and ... says, 'No, wait a minute, Iran is active,'" the official said, referring to Gulf states' views of Iran's involvement through proxies in regional conflicts in Syria, Iraq, Bahrain and Yemen.

The Trump administration has called the nuclear agreement with Iran "the worst deal ever negotiated," and senior administration officials have repeatedly criticized Iran's behavior for its support for Assad, its ballistic missile activities and its support for militant groups in the region.

Mustafa Alani, the director of security and defense at the Jeddah-based Gulf Research Center think tank, said that beyond U.S. rhetoric, Gulf leaders would like to see "America classify Iranian-supported militias as terrorist groups."

Support In Yemen

Saudi Arabia will also be looking for further U.S. support in the war in Yemen, where a Saudi-led coalition has been fighting the loosely Iran-aligned Houthi group and troops loyal to former President Ali Abdullah Saleh to restore the internationally recognized government to power.

The Obama administration backed Saudi Arabia when it launched air strikes in Yemen in March 2015 but grew sour as it saw the number of civilian casualties grow and curtailed some military support to Riyadh.

By contrast, "we don't get criticized about the war in Yemen" by the Trump administration, the senior Saudi official said.

In Trump's meeting with GCC leaders, the discussion will revolve around how to strengthen the structures of the group, which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, to be more effective, a senior White House official said.

The Republican U.S. president along with first lady Melania Trump will dine with Saudi royal family members. Trump, known for his penchant for Twitter, will participate in a Twitter forum with young people, National Security Advisor H.R. McMaster said on Tuesday.

Trump will deliver a speech on "the need to confront radical ideology" and participate in the inauguration of a new center intended "to fight radicalism and promote moderation," McMaster said.

While Trump has criticized Saudi Arabia for not paying enough for U.S. military support, he has been silent since becoming president about its religious conservatism. Traditional Wahhabi doctrine is ultra-conservative, imposing a strict version of Islamic law and urging resumption of early Muslim practices.

Critics of the kingdom say the government does not do enough to prevent the teachings of some of its ultra-conservative clergy from fanning militancy overseas as well as a domestic security threat at home.

Radicalization of Muslims in the world's top oil exporter has led to domestic attacks and the involvement of Saudi citizens in jihadist movements in Iraq and Syria.

The senior clergy have denounced militant Islamic doctrines, such as those of al Qaeda or Islamic State, but still preach intolerant views.

Business Opportunities 

An inaugural Saudi-U.S. CEO forum will be held in Riyadh on Saturday in which several deals are expected to be signed in defense, electricity, oil and gas, industrial and chemical sectors. New licenses for U.S. companies to operate in the Kingdom also will be issued.

Saudi Deputy Crown Prince Mohammed bin Salman, the king's son, is the face of "Vision 2030" and is eager to showcase the kingdom's success a year since its inception.

The CEO of state oil giant Saudi Aramco is expected to sign deals with top U.S. companies to promote local manufacturing.

General Electric Co (GE.N) is due to sign several memoranda of understanding. Saudi Basic Industries Corp 2010.SE and U.S. oil company Exxon Mobil Corp (XOM.N) are also expected to sign a protocol agreement to develop their joint chemical project in Texas, a source close to the matter said.

The White House official said the kingdom was in the final stage of negotiating a $100 billion arms deal.

A New York Stock Exchange delegation is also expected to visit Saudi Arabia after Trump to try to lure a listing by Aramco, slated for 2018 and worth about $100 billion. World stock exchanges are vying for slices of Aramco's initial public offering, expected to be the largest in history, with Hong Kong currently the frontrunner among bourses in Asia because of its strategic links to key Saudi oil importer China.

The NYSE delegation will have tough competition as rival exchanges tweak regulation to become more attractive options.

Article Link To Reuters:

Can China Afford Its Belt And Road?

Financing its grand geopolitical ambitions will be harder than it looks.

By Christopher Balding
The Bloomberg View
May 17, 2017

China's just-completed conference touting its Belt and Road initiative certainly looked like a triumph, with Russian President Vladimir Putin playing the piano and Chinese leaders announcing a string of potential deals and massive financial pledges. Underneath all the heady talk about China positioning itself at the heart of a new global order, though, lies in uncomfortable question: Can it afford to do so?

Such doubts might seem spurious, given the numbers being tossed around. China claims nearly $900 billion worth of deals are already underway, with estimates of future spending ranging from $4 trillion to $8 trillion, depending on which Chinese government agency is doing the talking. At the conference itself, Chinese President Xi Jinping pledged another $78 billion for the effort, which envisions building infrastructure to link China to Europe through Asia, the Middle East and Africa.

From no other country in the world would such pledges be remotely plausible. Yet even for China, they'll be difficult to fulfill without clashing with the country's other objectives.

The first question is what currency to use for all this lending. Denominating loans in renminbi would accelerate China's stated goal of internationalizing its currency. But it would also force officials to tolerate higher levels of offshore renminbi trading and international price-setting. So far, they've shown little appetite for either.

Additionally, countries along the Belt-and-Road route would need to run trade surpluses with China in order to generate the currency needed to repay such loans. In fact, as Bloomberg Intelligence economist Tom Orlik has noted, China ran a $250 billion surplus with Belt-and-Road countries in 2016. It will be mathematically impossible for Sri Lanka and Pakistan to repay big yuan-denominated loans when they're running trade deficits with China close to $2 billion and $9 billion, respectively.

Financing projects in dollars is no panacea either. Unless China conducts U.S. dollar bond offerings to fund these investments, it'll have to tap its official foreign-exchange reserves. Those now hover around $3 trillion.

That sounds like a lot. But outside estimates suggest anywhere from a few hundred billion to nearly $1 trillion of that money is illiquid. China needs nearly $900 billion to cover short-term external debt and another $400 to $800 billion to cover imports for three to six months. Pouring additional billions into Central Asian infrastructure projects would only tie up money China needs to defend the yuan.

And, borrowers would need to run significant dollar surpluses in order to repay dollar-denominated loans. Obviously, not every country can do so, or undervalue its currency to try and build up a surplus.

Beyond the specific mechanisms, it's unclear whether China has the financial capacity to lend at these levels to borrowers of dubious creditworthiness. As French bank Natixis S.A. has noted, in order to finance $5 trillion in projects, China "would need to see growth rates of around 50 percent in cross-border lending.” This would wreak havoc on Chinese creditworthiness and raise external debt from a “very comfortable" level (around 12 percent of GDP) to "more than 50 percent" if China can't bring in other lenders.

There are a couple ways around these difficulties. First, China could use this as an opportunity to liberalize the renminbi fully, allowing yuan to flow out of the mainland into countries targeted for investment. However, given Chinese leaders' worries about a plunge in the currency and the impact on a rickety domestic financial system, this seems unlikely.

Second, China could opt to bring in other countries and multilateral institutions to share in the task of financing projects. Chinese leaders say they support this (just as they favor internationalizing the yuan); Xi has even welcomed involvement by rival Japan. But in the past they've refused to co-finance projects with international institutions such as the Asian Development Bank and have been prickly about working with other countries, even supposed friends like Russia, on overlapping projects.

Meanwhile, European countries refused to sign the final statement at last weekend's conference after it omitted language on corruption and governance; the U.S., too, has been standoffish. Enticing Western countries and banks to finance projects that haven't been suitably analyzed and vetted will be an uphill task.

There are two more likely, if less appealing outcomes. China could stretch public finances even further to fund projects its leaders admit will likely lose money. For the moment, they seem willing to lend in dollars even if it ties up hard currency.

But it's almost certain that the amount of money that makes its way into Belt-and-Road projects will be significantly lower than advertised. Grand in ambition but short on details, Xi's sweeping initiative may be better thought of as a “philosophy” or “party line," rather than a fixed commitment. One thing's for sure: It's going to be a lot harder than putting on a conference.

Article Link To The Bloomberg View:

Loose Lips Sink Presidencies

The Russian intel story shows the price of Trump’s lost credibility.

By Review & Outlook
The Wall Street Journal
May 17, 2017

The state of the Trump Presidency has been perpetual turbulence, which seems to be how the principal likes it. The latest vortex is over Mr. Trump’s disclosure of sensitive intel to the Russians—and whatever the particulars of the incident, the danger is that Presidencies can withstand only so much turbulence before they come apart.

The Washington Post reported Monday night that in an Oval Office meeting last week Mr. Trump relayed high-level “code word” classified material obtained from an ally to Russian Foreign Minister Sergei Lavrov and Ambassador Sergey Kislyak. Cue another Washington meltdown. The President took to Twitter on Tuesday morning to defend himself, claiming an “absolute right” to disclose “facts pertaining to terrorism and airline flight safety.”

National Security Adviser H.R. McMaster put a finer point on it at a Tuesday press conference, though without denying key details. He said Mr. Trump’s disclosure was “wholly appropriate” and didn’t expose intelligence sources and methods.

Presidents sometimes share secrets with overseas leaders—even to adversaries such as the Soviets during the Cold War—if they conclude the benefits of showing what the U.S. knows will aid diplomacy or strategic interests. From media accounts and his tweets, Mr. Trump said something about Islamic State’s laptop bomb threat to airlines. He may well have been trying to convince the envoys of the menace ISIS poses to Russian lives and foreign-policy goals, like the Russian airliner that exploded over Sinai in 2015.

Then again, the Post story has Mr. Trump boasting about how great U.S. intelligence is and divulging the info on impulse to prove it. National security officials also asked the reporters to withhold specifics about the item in question, presumably because further disclosure could undermine efforts to counter the threat or endanger the lives of human assets.

Reports emerged on Tuesday that the ally that gathered the material is Israel, and the revelation could endanger this and other intelligence-sharing relationships. The Israelis may hold back if they think their dossiers will be laundered through the U.S. to the Russians and then get passed to their Iranian and Syrian clients, and other foreign services may lose confidence in the U.S.

Lt. Gen. McMaster said he disputed “the premise” of the Post story, which was that Mr. Trump had done something wrong or unbecoming. He confirmed that Mr. Trump made the decision ad hoc “in the context of the conversation,” not before the meeting. The problem is that even if the President’s conduct was “wholly appropriate,” the story’s premise is wholly plausible.

The portrait of an inexperienced, impulsive chief who might spill secrets to an overseas foe is one to which Mr. Trump has too often contributed. It was political mismanagement even to hold the Russian meeting, especially the day after he fired FBI Director James Comey amid the investigation of the Trump campaign’s alleged Russian connection.

This eruption shows why a President’s credibility is so important. If people don’t believe Mr. Trump’s words or trust his judgment, they won’t give him the benefit of the doubt or be responsive if he asks for support. Last week the White House spent two days attributing Mr. Comey’s firing to a Justice Department recommendation, only for Mr. Trump to insist in a TV interview that the pink slip came “regardless of recommendation.”

News broke late Tuesday of Mr. Comey’s contemporaneous notes that Mr. Trump asked him in February to “let this go,” referring to the FBI probe of axed National Security Adviser Michael Flynn. The White House denied that account of the conversation, but that would be more credible if its previous statements were more reliable.

Mr. Trump’s strife and insults with the intelligence community were also bound to invite blowback. The Post report is sourced to “current and former U.S. officials,” which raises the question of how former officials are privy to “code word” information, defined as anything that could be expected to cause “exceptionally grave damage” to national security if disclosed. In that case the public leaks about Mr. Trump’s actions, if true, will do more damage than whatever he said in private.

Mr. Trump is considering a White House shakeup, including cleaning out many of his top aides, but the White House always reflects the President’s governing style. If Mr. Trump can’t discipline himself, then no Jim Baker ex machina will make much difference.

Mr. Trump needs to appreciate how close he is to losing the Republicans he needs to pass the agenda that will determine if he is successful. Weeks of pointless melodrama and undisciplined comments have depleted public and Capitol Hill attention from health care and tax reform, and exhaustion is setting in. America holds elections every two years, and Mr. Trump’s policy allies in Congress will drift away if he looks like a liability.

Millions of Americans recognized Mr. Trump’s flaws but decided he was a risk worth taking. They assumed, or at least hoped, that he’d rise to the occasion and the demands of the job. If he cannot, he’ll betray their hopes as his Presidency sinks before his eyes.

Article Link To The Wall Street Journal:

Brexit Can Now Be Quicker But Harder

The European Court of Justice just handed the hard-line European Commission more power to negotiate a deal with the U.K.

By Leonid Bershidsky
The Bloomberg View
May 17, 2017

In one of the most important rulings in its history, the European Court of Justice on Tuesday gave the European Commission broad powers to negotiate trade deals without the approval of each member state. This is likely to make Brexit negotiations much easier than expected, but the final deal -- if there is one -- worse for the U.K.

Formally, the ruling has to do with the EU's free trade agreement with Singapore, signed in 2013. The court decided that only its provisions that concern portfolio investment and arbitration between investors and states fall outside the competence of the European Commission, which negotiates trade deals on behalf of the member states. Since those provisions are there, the Singapore deal requires the ratification of member states. The Commission has the power to negotiate everything else -- the movement of goods and services, transportation, direct investment, intellectual property, antitrust rules.

The unexpected decision -- the court went against the opinion of its advocate general, which only happens in about a third of cases -- opens up an exciting prospect for the U.K. Before the ruling, it had to assume that it would have to wait years before any Brexit agreement reached with the Commission could come into effect, and any European Union member state could derail it. All the countries have different ratification procedures, and in a number of them, a referendum may be called on a major trade deal.

In August 2014, the EU concluded talks on CETA, a comprehensive trade agreement with Canada. It's still not in effect. Last year, the regional parliament of Wallonia in Belgium nearly killed the deal because legislators claimed it would be bad for local farmers.

This is not going to happen to any Brexit deal now, if only the parties agree to keep portfolio investment and conflict resolution out of the talks. That's a small sacrifice to make for clarity on the future relationship between Europe and the United Kingdom. CETA negotiations began in 2009 and took five years until the parties were satisfied -- but the U.K. is an EU member now, and standard harmonization efforts may not be as time-consuming.

Does this, however, make a good deal more likely for the U.K.? That's doubtful. The Commission needs only a qualified majority to reach a trade deal, so it no longer needs to look quite so much over its shoulder at national governments as it negotiates Brexit. That makes life easier for Commission President Jean-Claude Juncker and chief Brexit negotiator Michel Barnier, who have made it clear they want to serve the U.K. with a large divorce bill and harsher terms. There are member states that would like a softer Brexit -- Ireland, Denmark, Cyprus and Poland, for example -- but they aren't particularly influential behind the scenes compared with France and Germany.

So it seems that the European Court of Justice has handed a more valuable gift to the Commission and the hard-line countries than to the U.K. Could that, perhaps, have something to do with one of the U.K.'s negotiating priorities -- getting out from under the ECJ's jurisdiction as soon as possible?

Be that as it may, once Brexit is over, with or without a deal, the EU will from now on have an easier procedure for concluding trade agreements -- something that could one day allow it to make a deal with the U.S. as German Chancellor Angela Merkel and former U.S. President Barack Obama once dreamed, before political developments both in Germany and the U.S. scuppered the plan.

Article Link To The Bloomberg View:

The Only Question Investors Have Is About Trump

The man in the White House can't be ignored. But some perspective helps.

By Barry Ritholtz
The Bloomberg View
May 17, 2017

In my day job, I manage assets for high net-worth individuals and I make a point of getting out and visiting my clients as much as I can. Since the election in November, they have been asking me the same question, or some variation of: What does Trump mean for my investments?

Here are the most common questions, and my answers:

No. 1. How will Trump affect the economy and the stock market?

We start with an overlooked truth: Presidents, regardless of party, get too much credit for when things go right and too much blame when they go wrong.

The president is but one part of the government, which accounts for less than a quarter of the economy, though obviously it has a huge impact on markets and the broader economy through foreign policy, regulations, tax policy and spending.

Yes, Donald Trump can and will affect the economy and the markets. But we should not put all of our focus on the marginal impact of the president while giving short shrift to more important things such as corporate revenue and earnings, the Federal Reserve, interest rates, inflation, congressional spending, employment, retail sales, Supreme Court decisions, and, of course, valuations.

Like all presidents, if he does good things it will be supportive of the markets; if he commits major errors -- such as starting a trade war or gets the U.S. into a serious shooting war -- it will be detrimental.

No. 2. Why is the market rallying when some predicted stocks would fall if Trump were elected?

One explanation for the market’s post-election enthusiasm for Trump was based on expectations of tax reform, tax cuts, infrastructure spending and deregulation. However, that was a post-hoc narrative. The simple fact that markets in Germany, France and Japan rose more than in the U.S. since the election suggests that something else is at work. 1

My explanation is that the global recovery from the financial crisis continues apace, slowly repairing and rebuilding from that event. If you insist on singling out an explanation for why global markets are rising, look no further than the robust recovery in corporate earnings, especially in Europe.

As for forecasts of a Trump crash, that -- like most others -- was simply wrong.

No. 3. How can you say politics doesn’t matter to markets?

Let me be precise: Politics can and occasionally does matter to markets -- just much less than many people assume.

If I told you the president was going to be impeached, and the markets will continue to power higher for a few years, you might think I was batty. But that is what happened when Bill Clinton was impeached in 1998. The next year, the Standard & Poor’s 500 Index rose more than 21 percent, and the Nasdaq Composite Index gained more than 85 percent. Yes, it would all end badly the next year, but the impeachment was irrelevant to the dot-com bubble popping.

So too was the accusation that President Barack Obama was a Kenyan-born Marxist who was hell-bent on “Killing the Dow.” When he left office earlier this year, the Dow was about 15,000 points higher than the day he took office.

And when President George W. Bush introduced unfunded tax cuts, all I heard were complaints that the deficit would balloon, inflation would soar, and jobs would be wiped out. Two of those three things never happened, and the market rose 94 percent.

If you let your political ideology get in the way of your investing decisions, the results are never pretty.

No. 4. The Trump news flow is overwhelming. What should we do?

I think we all hoped that once the election was over, we could go back to our normal lives without the incessant parade of campaign news.

No such luck.

Investors need a way to sequester the noisy news flow out of the White House. It is too easy to let the relentless and disturbing headlines throw off long-term financial plans. Investors must read the news, but not let it interfere with thinking clearly.

Look, let’s be honest about the commander-in-chief: He is the world’s leading Twitter troll, a man whose main goal is to interrupt your thinking, misquote and insult other people, engage in rhetorical sleight of hand, and impugn the integrity of those trying to do honest work. What all trolls want is a reaction, something Trump has achieved to great success.

Rule No. 1 on the internet is “Do not feed the trolls.” No one can really ignore the president of the United States, but it’s probably best to view much of what he says or tweets as minor background noise.

No. 5. You keep saying not to worry about who is president; but surely you do worry about him, right?

Yes, as a citizen I do worry about the president’s rampant prevarications and the degraded culture he has created.

The search for facts and reliable information is the bedrock of modern civilization and well-functioning markets. Agnotology is dangerous and worrisome. I have no interest in returning to the dark ages before the Enlightenment. However, that seems to be the direction in which we’re headed, and some people seem to think it will make them the most money.

They likely won’t, and now more than ever, truth remains the best disinfectant. 

Article Link To The Bloomberg View:

Trump’s Presidency Is Beginning To Unravel

By David Ignatius 
The Washington Post
May 17, 2017

Think of the intelligence community and its fragile array of secret relationships as a china shop. Think of President Trump as a bull, restless and undisciplined. For months, we’ve been watching the disastrous collision of the two.

Trump’s latest self-inflicted spy scandal was the disclosure this week that he had boastfully revealed to Russian visitors his knowledge of highly classified reports about threats by the Islamic State to attack planes with undetectable bombs hidden in laptop computers. This is the kind of secret intelligence that saves lives; bragging about it to foreign visitors was unwise, perhaps even reckless.

Then came the stunning reports Tuesday evening that in February, Trump had asked FBI Director James B. Comey to drop his investigation into the Russia connections of Michael Flynn, whom Trump had just fired as national security adviser for lying about those same contacts. Trump’s alleged request may become a signature phrase: “I hope you can let this go.”

Observing this White House in action is sometimes like watching a horror movie. The “good guys” (and yes, there are a few) keep falling through trap doors. National security adviser H.R. McMaster, whose credibility is precious, struggled Tuesday to defend Trump’s actions in disclosing terrorism information as “wholly appropriate.” He said the president hadn’t even been aware of what country had provided the terrorism information. Israel, reportedly the source country, issued a statement endorsing its “intelligence-sharing relationship” with Trump.

If there’s no problem here, why did Tom Bossert, assistant to the president for homeland security, call the directors of the CIA and NSA to warn them about what the president had told Russian Foreign Minister Sergei Lavrov and Ambassador Sergey Kislyak? The White House line is that Bossert was “freelancing.” Maybe so, but that’s not a bad word for Trump’s own behavior.

Trump is a daily reminder of why presidents need protocols and talking points. When someone as inexperienced and impulsive as Trump tries to wing it, the result is chaos or worse. The Lawfare blog, one of the most fair-minded chroniclers of national security issues, reviewed the string of Trump’s recent actions involving intelligence and asked whether he was violating his oath to “faithfully execute the Office of President.” That’s a polite way of asking whether he should be impeached.

The threat to Trump’s presidency is deepening. His credibility is unraveling, with prominent Republicans now voicing concern about his erratic, impulsive decisions. Each new revelation builds the narrative of a man who has been trying to bully or cajole intelligence and law enforcement officials since his election. As one GOP veteran told me: “There are no guardrails for this president.”

Intelligence issues have been at the center of Trump’s troubles since before the election, animated by a strange mix of anxiety, insecurity and vanity. Last fall, he began calling reports of Russian election meddling a hoax; he later likened intelligence officers to Nazis; after his inauguration, he delivered a smug, self-congratulatory speech at the CIA’s hall of heroes; he reportedly pressed the FBI director, who was leading the Russia investigation, for a declaration of loyalty and then fired him after he didn’t deliver — and allowed the White House to issue a misleading explanation.

And then Tuesday’s night’s allegation that Trump wanted the FBI to halt the investigation of Flynn, and concentrate instead on leaks.

Against this litany, Trump’s garrulous discussion of terrorism with the Russians strikes me as a secondary issue. Presidents get to decide what they want to tell foreign officials. But this incident is another warning light.

Every president encounters damaging leaks and other intelligence issues. During the Carter administration, The Post revealed that Jordan’s King Hussein was on the CIA payroll. The station chief in Amman can’t have enjoyed that revelation, but the relationship continued.

The George W. Bush administration suffered catastrophic intelligence failures in the 9/11 attacks and in assessing Iraqi weapons of mass destruction, yet its intelligence relationships abroad were, if anything, deepened. The Obama administration inadvertently bolstered an Associated Press story revealing a British/Saudi penetration of al-Qaeda in the Arabian Peninsula — a breach that infuriated foreign partners but didn’t end cooperation.

The difference in Trump’s case is that he doesn’t seem sure whether the intelligence community is his friend or enemy. He attacks the CIA and FBI directors when he thinks they’re challenging his legitimacy. Then he boasts to Lavrov and Kislyak about what great intelligence he gets.

This presidential love-hate relationship with intelligence needs to change. It demeans the government and, just as important, it’s self-destructive. Intelligence relationships are built on trust. So are successful presidencies. The bull needs to get out of the china shop.

Article Link To The Washington Post:

Amazon Considering Entry Into The Pharmacy Market

-- Each year, Amazon holds an annual meeting to discuss whether it should break into the pharmacy market, said a source familiar.
-- This year, it is getting more serious and is looking to hire a general manager.
-- Industry experts say this could be a multibillion market opportunity for the e-commerce company.

May 17, 2017

Amazon is hiring a business lead to figure out how the company can break into the multibillion-dollar pharmacy market.

For the last few years, Amazon has held at least one annual meeting at its Seattle, WA headquarters to discuss whether it should enter the pharmacy business, says two people familiar with the company's plans.

But this year, with the rise of high-deductible plans and the trend towards consumers paying for health care, it is ready to get more serious.

Two people said that it's not a done deal that Amazon will move into this space, given the complex web of established players. But it is bringing on a new general manager to lead the team and formulate a strategy, and is deep in discussions with industry experts. That hire would sit under the consumables business, the source said.

Another person said it's started to recruit more broadly from the pharmacy space.

The company recently started selling medical supplies and equipment in the U.S., and is hiring for its "professional health care program" to ensure that the company is meeting regulatory requirements. It also hired Mark Lyons two months ago from Premera Blue Cross. A source said that Lyons is tasked with building an internal pharmacy benefits manager for Amazon employees, which might be later scaled out.

Amazon declined to comment.

Japan Times reported in April of this year that the company expanded its Prime Now delivery service to include drug and cosmetic sales, with the support of local partners. Amazon's category page on its Japanese site now includes "pharmaceuticals," and sells drugs to patients with approval from a pharmacist.

Amazon often tests new product lines in non-U.S. markets, before it assesses whether to roll it out in the domestic market. The company tested its secret drone-delivery program in Canada, for instance.

In the United States alone, more than 4 billion prescriptions are ordered every year. In 2015, patients, insurance companies and other payers spent an estimated $300 billion on prescription drugs.

For Amazon, it's a lucrative market that would require navigating a variety of existing players. For consumers with a high dollar deductible, Amazon could someday be a go-to destination to shop for drugs.

"I think Amazon would introduce a lot of transparency to what drugs really cost," said Stephen Buck, a health entrepreneur and co-founder of GoodRx, a service that promises to save consumers on the price of prescription meds. Buck sees a slew of potential opportunities for Amazon, including a product that competes with pharmacy benefits management or PBM giants, like Express Scripts and CVS Health.

Buck estimates that it's a $25 to $50 billion market opportunity for Amazon, if executed well. But the company would also face challenges entering a regulated market it. "Prescription transfer laws and e-prescribing make a little bit more difficult than putting something in a cart and checking out," he said.

Amazon previously backed a "dotcom" darling called in the late 1990s, with CEO Jeff Bezos taking on a director role. At that time, it was speculated that Amazon could carve out a huge chunk of the prescription and over-the-counter drug sales market. later sold to Walgreens, which eventually shut it down.

Article Link To CNBC:

Markets Doubt The Economy Will Be Strong Enough For Two Fed Rate Hikes This Year

-- Traders are changing their bets on the Fed and now doubt it can hike interest rates two more times this year.
-- U.S. economic data has missed the mark for weeks now.
-- Markets will keep their focus on Washington controversies.

By Patti Domm 
May 17, 2017

The markets are no longer convinced the economy will be strong enough for the Federal Reserve to raise interest rates two more times this year.

U.S. economic data has missed the mark for weeks now, and even though April data is improved over March, it is still disappointing. The market is pricing in about a rate hike and a half, even though the Fed has forecast two more rate hikes for this year. Fed officials have also said they could begin to take action to reduce the Fed's $4 trillion balance sheet by the end of the year.

"The [odds for a] June hike went from 80 percent to around 70 percent," said Aaron Kohli, director of fixed-income strategy at BMO Capital Markets. He said, based on fed funds futures, the odds for a second rate hike by December fell in the last several days to 37 percent from 65 percent.

Kohli said the futures began to reflect more doubt last week, but the move accelerated after the disappointing consumer price index inflation data on Friday.

"The Fed is more or less locked into the June hike, barring some cataclysmic data, but their path is much more questionable, especially if you don't get any fiscal stimulus," he said. Economists mostly expect two more hikes this year, with the next one in June and the second in September.

On Wednesday, traders will be watching for further developments from Washington, after reports that President Donald Trump provided Russian officials with classified information on ISIS, allegedly received from Israel. The New York Times reported after the market close Tuesday that Trump asked former FBI director James Comey to end his investigation into former national security advisor Michael Flynn. Flynn is at the center of the investigation into Trump's campaign ties to Russia. Comey was fired by Trump last week.

While weak U.S. data was a bigger factor, the Trump saga caught the interest of dollar and bond markets because traders worry any big distraction in Washington will slow down White House and congressional efforts on tax reform and fiscal stimulus.

The latest controversy added to the dollar's decline and helped send bond yields lower. Yields move inversely to prices. Stocks, meanwhile, brushed off the events, and the Nasdaq rallied to a new record high at 6,169, up 20 points. Bank of America Merrill Lynch, meanwhile, released a survey Tuesday showing global fund managers see Nasdaq as the world's most crowded long trade.

Stocks closed mixed, with the Dow off 2 at 20,979 and the S&P 500 down 1 point to 2,400.

The dollar index fell as the euro surged above 1.10 on an improving outlook for Europe. The dollar index was trading at 98.16 late Tuesday, a level last seen around Election Day.

"Europe is seeing an acceleration in economic activity, visible in both survey based and real economic statistics. Instead, in the US we are experiencing a deceleration, since the strength in survey based statistics (i.e. The soft data) is now rolling over and the real economic statistics failed to rebound," wrote Alessio de Longis, portfolio manager at OppenheimerFunds Global Multi-Asset Group, in an email.

Jens Nordvig, CEO of Exante Data, said he sees the euro continuing to rise against the dollar.

"The dollar had a mega move from the summer of 2014 to just recently. That was a 25 percent move in the trade-weighted dollar. That was like a 1980s move. It's not that the dollar is unattractive, it just went so far. I will be bearish dollar versus euro, specifically," said Nordvig.

Nordvig said the Trump news weighed on the dollar but it was already moving lower on the same concerns that created doubts about the Fed rate hikes.

"Obviously, there's some of this Washington concern," said Nordvig. "We had lower inflation numbers. People are starting to doubt whether the Fed is going to go in June and September. Beyond all of this there's a trend change in the euro."

First-quarter growth was just 0.7 percent, but economists are forecasting a pickup to about 3 percent or more for the second quarter. Retail sales Friday were slightly weaker than expected, and housing starts Tuesday also disappointed. However, a positive was the jump in factory production, which was up 1 percent in April after declining 0.4 percent in March.

"The data in the first quarter, particularly March, was weak, and the market was expecting the April data to improve. While it's improving, it's not improving by as much as the market was expecting," said Thanos Vamvakidis, head of global G-10 currency strategy at Bank of America Merrill Lynch.

Vamvakidis said the decline in odds for a June rate hike was surprising. "A week ago, it was a done deal. Now it's not fully priced in," he said. Market odds for September have fallen to about 40 percent from about 50 percent, he added.

On Wednesday, mortgage applications are released at 7 a.m. ET. The New York Fed releases a household debt and credit report at 11 a.m. ET.

Oil inventory data is released at 10:30 a.m.

Earnings are expected from Target, Tencent, and American Eagle Outfitters before the bell. Cisco, L Brands, Rexnord and ZTO Express report after the close.

Article Link To CNBC: