Thursday, June 29, 2017

Data In The Spotlight On Wall Street, Central Banks Eyed

By Alexandra Gibbs
June 29, 2017

U.S. stock index futures pointed to a slightly higher open on Thursday, as investors geared up for a slew of data announcements during trade, while keeping an eye on the central banking sphere.

In data news, real Gross Domestic Product (GDP) data is due out at 8.30 a.m. ET, along with jobless claims. Meanwhile, investors will likely be keeping a close eye on yields in the bond market, as yields move higher.

Sticking with financial news, Walgreens Boots Alliance, Nike, Conagra, Constellation Brands and American Outdoor Brands are set to report earnings.

Central bank-wise, investors are expected to be keeping an eye on central banks in Europe and the U.S., as well as moves in the currency space.

On Wednesday, the European Central Bank said it saw the market as misinterpreting President Mario Draghi's remarks from Tuesday according to Reuters, in which he said "the threat of deflation is gone and reflationary forces are at play."

Meanwhile, Bank of England Mark Carney said on Wednesday the central bank was likely to need to increase interest rates, adding that it would debate this "in the coming months".

Looking to the Federal Reserve, St Louis. Fed President James Bullard will be at an OMFIF City lecture in London, speaking about the U.S. economy and monetary policy.

Oil futures were higher in morning trade, supported by news of a decline in U.S. crude output however glut concerns continue to stick around.

At 5.20 a.m. ET on Thursday, U.S. crude was trading around $45.09, while Brent hovered around $47.61.

In the political sphere, U.S. President Donald Trump will be meeting South Korean President Moon Jae-in at the White House, where they are expected to talk about cooperation on economic and global issues, as well as working together on North Korea-related issues.

In Europe, bourses showed a mixed picture during early trade, while Asia-Pacific markets finished trade on a positive note. In the previous session, U.S. equities finished in the black.

Article Link To CNBC:

Thursday, June 29, Morning Global Market Roundup: Dollar Upended By Rates Reversal, Stocks Unfazed For Now

By Wayne Cole
June 29, 2017

The dollar shuddered to its lows for the year on Thursday as a drumbeat of hawkish comments from major central banks signalled the era of easy money might be coming to an end for more than just the United States.

Support for the dollar eroded as investors realised the U.S. Federal Reserve might not be the only game in town when it came to higher interest rates.

In Britain, Bank of England Governor Mark Carney surprised many by conceding a hike was likely to be needed as the economy came closer to running at full capacity.

The Bank of Canada went further, with two top policymakers suggesting they might tighten as early as July.

That followed comments earlier in the week from European Central Bank President Mario Draghi that stimulus might need to be toned down so it does not become more accommodative as the economy recovers.

ECB sources tried to hose down the talk but could not stop the euro hitting a one-year high against the U.S. dollar.

"If we want to know what the ECB is planning, we will choose a carefully scripted Draghi speech over anonymous sources every time," said Westpac currency strategist Sean Callow.

"Backed by the Eurozone's strong current account surplus and the contrast with a Fed which could pause on rate hikes for a while, the euro looks to be on target for $1.1500-1.1600."

On Thursday, the single currency had already pressed on to $1.1405 having climbed three percent in as many days.

The euro also surged to a 16-month top on the yen as investors doubt the Bank of Japan will be in any position to begin winding back its stimulus for a long time to come.

The Canadian dollar vaulted to C$1.3027, having enjoyed its biggest daily gain in three months, while sterling rebounded to $1.2961.

Against a basket of major currencies, the dollar sank to its lowest since October at 95.754 as volatility returned with a vengeance.

Traders at Citi called the currency reaction "extraordinary" with turnover as much as twice the daily average on Wednesday.

Future Headwinds

"Central banks will be very cautious in their approach," said Martin Whetton, a senior rates strategist at ANZ.

"But once they start tightening in concert, and their bloated balance sheets start unwinding, it is fair to say that bonds, equities, house prices and other asset markets will face stiffer headwinds than they have for a long time."

The squall had already driven German short-term yields to their highest in a year, while yields on U.S. 10-year Treasuries were up 11 basis points so far this week at 2.23 percent.

Yet the prospect of higher interest rates also bolstered banking stocks and helped the S&P 500 score its biggest one-day percentage gain in about two months on Wednesday.

The Dow rose 0.68 percent, while the S&P 500 gained 0.88 percent and the Nasdaq 1.43 percent.

Financials gained further after hours as the Fed approved plans from the 34 largest U.S. banks to use extra capital for stock buy backs and dividends.

Asia followed on Thursday with Japan's Nikkei adding 0.45 percent and Australia almost 1 percent. MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.8 percent to its highest since May 2015.

Eurostoxx futures gained 0.45 percent in early trade, while the FTSE added 0.54 percent.

The weaker U.S. dollar helped boost commodities in general, with gold up 0.3 percent to $1,252.50 an ounce. Copper, lead and zinc prices hit near three-month highs on signs of tighter supply and optimism over Chinese demand. [MET/L]

Oil recouped some of its recent steep losses after a weekly decrease in U.S. production offset a surprise build in crude inventories in the world's top oil consumer. [O/R]

On Thursday, U.S. crude firmed 24 cents to $44.98 per barrel and Brent added 22 cents to $47.53.

Article Link To Reuters:

Oil Rises For 6th Session, Buoyed By US Output Decline

By Naveen Thukral
June 29, 2017

Crude oil rose for a sixth straight session on Thursday to its highest since June 19 on a decline in U.S. output, but ongoing worries about global oversupply continued to drag.

U.S. West Texas Intermediate (WTI) crude CLc1 had risen 28 cents, or 0.6 percent, to $44.01 per barrel, while benchmark Brent futures LCOc1 gained 28 cents, or 0.6 percent, to $47.59 a barrel.

"The fast ramp-up in shale drilling and the unexpectedly large rebound in Libya/Nigeria production are on track to slow the 2017 stock draws," investment bank Goldman Sachs said.

"This creates risks that the normalization in inventories will not be achieved by the time the OPEC cut ends next March. We expect this will leave prices trading near $45 (a barrel) until there is evidence of a decline in the U.S. horizontal oil rig count, sustained stock draws or additional OPEC production cuts."

The U.S. Energy Information Administration (EIA) said crude stocks rose 118,000 barrels last week, while weekly production declined 100,000 barrels per day (bpd) to 9.3 million bpd. That was the biggest decline in weekly output since July 2016.

There was additional support stemming from a decline in U.S. gasoline inventories.

"Prices were also supported after data showed another strong drawdown in inventories in the U.S.," ANZ said in a note.

"Gasoline inventories fell 894,000 barrels. This suggests demand is starting to pick up, after a slow start to the U.S. summer driving season."

Other analysts and traders noted the U.S. production decline last week was related to temporary factors like Tropical Storm Cindy in the Gulf of Mexico and maintenance work in Alaska that will likely be reversed in coming weeks.

Futures rose after the EIA report, even though data showed a build instead of the 2.6 million-barrel draw that analysts had forecast in a Reuters poll.

Ian Taylor, head of the world's largest independent oil trader Vitol, said Brent will stay in a range of $40-$55 a barrel for the next few quarters as higher U.S. production slows a rebalancing of the market.

Analysts at JBC Energy in a report saw room for prices to recover, saying "there is now significant room for speculative support for prices to develop if a catalyst were to emerge."

Still, global supplies are ample despite output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and other producing countries of 1.8 million bpd since January.

OPEC and the other producers, trying to reduce a crude glut, agreed in May to extend the supply cut through March 2018. But OPEC has exempted Nigeria and Libya from curbing output.

OPEC delegates have said they will not rush to cut crude output further or end the exemptions, although a meeting in Russia next month is likely to consider further steps to support the market.

Article Link To Reuters:

Suddenly The U.S. Is Exporting More Crude Than A Bunch Of OPEC Members

Oil exports from the U.S. have risen 1,600 percent in four years.

By Peter Coy
June 29, 2017

Move over, Equatorial Guinea. Slide aside, Gabon. Make room, Ecuador. There's a new major oil exporter on the world stage, and it's the United States of America.

Most people know that the shale revolution has turned the U.S. into a big producer of oil, allowing it to become less reliant on imports. What's less known is how much oil it has been shipping abroad lately. U.S. exports in the first three months of 2017 exceeded those of five of the 14 members of the Organization of Petroleum Exporting Countries. The OPEC estimates come from Lloyd's Apex, which supplies its data to the U.S. Energy Information Administration.

Congress outlawed most exports in 1975 in reaction to the Arab oil embargo. As recently as 2013, U.S. crude exports, amounting to less than 50,000 barrels a day, were dwarfed by those of even the smallest OPEC members. But as domestic production increased, the U.S. ramped up sales to countries that were exempted from the ban by free-trade agreements. Some American oil was shipped to Canada to dilute the heavy oil coming from Alberta's tar sands.

Congress voted in December 2015 to lift the export ban. It took awhile for domestic producers to line up customers, but by early this year export volumes were soaring, as this chart shows.

So will the U.S. be joining OPEC? No chance. OPEC is an illegal price-setting cartel under U.S. antitrust law. Plus, U.S. interests don't align with those of OPEC, because even though the U.S. does export crude, it still imports about 10 times as much. But that hasn't stopped some other big oil exporters from trying to bring the U.S. into the fold. This year a former energy minister of Russia—which sometimes confers with OPEC on production—invited the U.S. to talk about coordinating production. And Nicolas Maduro, the flailing president of OPEC member Venezuela, said last year that the U.S. should attend OPEC meetings "because they are a big producer and they can’t be isolated from this and be lured by analysts, warmongers or anti-Russia sectors." Go figure.

Article Link To Bloomberg:

The Changing Geopolitics Of European Emotion

By Dominique Moisi 
Project Syndicate
June 29, 2017

A new triangle of geopolitical emotion has emerged in Europe: Great Britain has ceased feeling superior to France, and France has stopped feeling inferior to Germany. The question is whether this sentimental transformation will ultimately reorder the balance of power in Europe, and possibly the world.

Developments currently underway in Britain and France will prove decisive. It remains to be seen how the British repair the damage they are inflicting upon themselves through the Brexit quagmire. And it is still unclear if the French can harness the strong and positive energy of their new president, Emmanuel Macron, to implement badly needed reforms.

But even as those uncertainties play out, both countries are engaging in a kind of zero-sum transfer of emotions that is impossible to ignore. In the past, traveling to London from Paris, one could easily sense the difference between the two cities. London was bursting with dynamism, and proud to assert itself as the world capital of multiculturalism. Paris, although undeniably more beautiful, was in danger of becoming a new Rome, a prisoner of its past glory, at best a place to visit, but not a place to be.

Today, confidence has been sucked out of Britain by social and political upheaval, terrorism, and uncertainty about the country’s future. According to some opinion polls, while those who voted for Brexit stand by their decision, anti-European Union sentiment has waned, and the will to leave the EU has abated. Voters seem to be wrestling with how their departure will make the United Kingdom safer or address the needs of the poorest and most vulnerable.

In France, by contrast, one feels a new and positive energy. Hope for a better future has returned, reflected in the French public’s overwhelming support for Paris’s bid to host the 2024 Summer Olympics. Hosting the games, a global symbol of positive expectations, lifted the UK’s spirits 12 years ago, in July 2005, when London was awarded the 2012 Summer Olympics. (The celebration was cut short, however, when terrorists attacked the London transport system the following day).

Of course, French optimism does not mean that those defeated at the ballot box will not take to the streets, especially to oppose the implementation of reforms to French labor laws. But the opposition is now a minority in a country where the mood is lighter, even cheerful. That is true even if one takes into consideration the record-low voter turnout in the recent legislative elections.

The current mood reminds me of the atmosphere that briefly prevailed in France in July 1998, after “Les Tricolores” triumphed over Brazil in the final of the soccer World Cup. But this time, the feeling of elation may run deeper and last longer. The economic environment in Europe is more favorable, and the balance of power among French trade unions is shifting in favor of the reform-minded Confédération française démocratique du travail, and away from the more ideological Confédération générale du travail.

A combination of leadership talent and continuing luck means that, for the first time in decades in France, a prudent optimism may be justified. To paraphrase the Italian political theorist Antonio Gramsci, one could speak of a justified “optimism of the intellect” in France.

As a result of Macron’s election, and British Prime Minister Theresa May’s failed bet that the snap general election she called earlier this month would enable her to negotiate Brexit from a position of strength, France is now influencing the direction of Europe far more than Britain is. The only country of the EU’s “Big Three” that has remained stable is Germany, in anticipation of Chancellor Angela Merkel’s reelection in September.

Italy would love to replace the UK in Europe’s power trio. But Italy must get its own act together first. Former Prime Minister Matteo Renzi, who is trying to push his way back to the top, is not an Italian Macron. Whatever talent and energy Renzi may have, he lacks Macron’s gravitas and understanding of the electorate.

Meanwhile, a new and better balance between Germany and France implies significant progress for European stabilization. Europe’s problem, contrary to what many critics have claimed, has not been “too much Germany.” It has been “too little France.” A “French moment” can therefore mean a “European moment,” if it means reconstituting an effective Franco-German alliance.

Americans, too, must understand the shifts that are taking place in Europe. A few days ago, at an international conference in Venice, a conservative Republican urged Europeans to “stop criticizing the Trump administration the way you do.” Otherwise, he warned, “The only result is that we will become much worse. And do you really want to be left alone with a very strong Germany?”

Disregarding the implied threat, the idea that the alternative to America is to be “left alone” with a “very strong Germany” is amusing. Germany, after all, has never wanted to be alone atop the EU; and now, with Macron’s makeover of French politics, it will not need to be.

Emotions may not be sufficient to explain all political realities. But the shift in national mood in Britain and France is undeniable, and it will play an increasingly important role in defining the politics of Europe.

Article Link To Project Syndicate:

More Than Half Of Hate Crimes In U.S. Go Unreported

By Sadie Gurman and Russell Contreras 
June 29, 2017

The majority of hate crimes experienced by U.S. residents over a 12-year period were not reported to police, according to a new federal report released Thursday that stoked advocates' concerns about ongoing tensions between law enforcement and black and Latino communities.

More than half of the 250,000 hate crimes that took place each year between 2004 and 2015 went unreported to law enforcement for a variety of reasons, according to a special report on hate crimes from the Bureau of Justice Statistics. Hate crimes were most often not reported because they were handled some other way, the report said. But people also did not come forward because they didn't feel it was important or that police would help.

The report, based on a survey of households, is one of several studies that aim to quantify hate crimes. Its release comes as the Justice Department convenes a meeting on Thursday with local law enforcement officials and experts to discuss hate crimes, including a lack of solid data on the problem nationwide. Attorney General Jeff Session is scheduled to speak.

The new survey shows the limits of hate crime reporting, said Brian Levin, the director of the Center for the Study of Hate and Extremism, California State University.

"Many victims don't report hate crimes because of personal and institutional reasons," Levin said. For example, some Latino immigrants may be reluctant to call police after an apparent hate crime for fear of deportation, he said.

Advocates fear that problem is worsening as the Trump administration ramps up immigration enforcement.

The report says Hispanics were victimized at the highest rate, followed by blacks.

"I think this report shows the kind of fear that is going on in our communities," said Patricia Montes, executive director of the Boston-based immigrant advocacy group Centro Presente. She worries Latinos will even be more reluctant to report hate crimes in the future.

The new report said there was no significant increase in the number of hate crimes between 2004 and 2015. It cites racial bias as the top motivation, representing more than 48 percent of the cases between 2011 and 2015. Hate crimes motivated by ethnicity accounted for about 35 percent of those cases, and sexual orientation represented about 22 percent. Almost all of those surveyed said they felt they were experiencing a hate crime because of something the perpetrator said.

Law enforcement officials have long grappled with how to catalog hate crimes. While some victims' distrust of police keeps them from coming forward, Levin said, some LGBT victims may opt not to report a hate crime for fear of losing a job or being outed to family.

Levin said many large cities are claiming they had no hate crimes — calling into question the reliability of federal hate crimes data that are based on voluntary submissions from police departments. "We have Columbus, Ohio, reporting more hate crimes than the state of Florida," he said.

Eric Treene, the Justice Department's special counsel for religious discrimination, lamented the lack of solid data on hate crimes during a Senate Judiciary Committee hearing in May, saying incomplete numbers stymie officials' ability to fully understand the problem.

But he said the department is committed to prosecuting hate crimes, even as critics have blamed the Trump administration's tough rhetoric and policies for a spike in such offenses. Civil rights groups said investigating and prosecuting hate crimes alone would be insufficient.

"It's past time for the Trump administration and the Sessions Justice Department to demonstrate, through action and its megaphone, its full and unflagging commitment to preventing hate-based violence and harassment that hurts our communities and destroys the fabric of our nation," said Vanita Gupta, the top civil rights official in the Obama Justice Department and president of The Leadership Conference on Civil and Human Rights.

Article Link To The AP:

Rove: Obama’s Health-Care Audacity

The ex-president takes a break from vacation to lecture Republicans.

By Karl Rove
The Wall Street Journal
June 29, 2017

President Obama has been busy since leaving office. In February he was photographed kite surfing with billionaire Richard Branson in the British Virgin Islands. March brought a visit to Hawaii, followed by four weeks in French Polynesia and yachting with David Geffen, Oprah, Tom Hanks and Bruce Springsteen.

May included biking and golfing at a pal’s luxury hotel in Tuscany, before speeches in Berlin and Scotland, the latter providing the chance to play 12 holes at St. Andrews. Now the Obamas are in Indonesia for a nostalgic return to what was briefly his childhood home. But before jetting off on Friday, the former president, that champion of the poor and dispossessed, waded into the health-care debate with a lengthy Facebook post.

It was a trite, tone-deaf, partisan and condescending attack on the Senate Republicans’ health-care proposal. The comments show that the former president, still prickly and defensive, doesn’t understand how flawed ObamaCare really is.

Mr. Obama sold the Affordable Care Act with well-formulated falsehoods. “If you like your plan, you can keep your plan,” he said repeatedly, and “if you like your doctor, you can keep your doctor.” The law would “cover every American and cut the cost of a typical family’s premium by up to $2,500 a year.” It would “bend the cost curve” for health care, he said, without adding “one dime to the deficit.” None of this was true, and Mr. Obama must have known that.

So did he address these failings in his Facebook post? Of course not. The former president changed his talking points for ObamaCare. “Women can’t be charged more for their insurance,” he bragged—but the GOP proposal doesn’t alter that policy. “Young people can stay on their parents’ plan until they turn 26,” he said—but Republicans would leave that in place, too. “Contraceptive care and preventive care are now free,” Mr. Obama added—except taxpayers actually pay for them with levies on, among other things, hospital stays, medical devices and insurance policies. Meanwhile, Mr. Obama shoved his broken promises down the memory hole.

Mr. Obama did repeat the left’s canards that the GOP proposal “would raise costs, reduce coverage, roll back protections, and ruin Medicaid.” He piously added: “That’s not my opinion, but rather the conclusion of all objective analysis,” starting with “the nonpartisan Congressional Budget Office.”

The CBO, however, did not issue its report on the Senate legislation until four days after Mr. Obama posted on Facebook. And when the CBO report did come out, it didn’t back up his indictment. For example, the CBO concluded: “By 2026, average premiums for benchmark plans for single individuals in most of the country under this legislation would be about 20 percent lower than under current law.”

One could scour the CBO’s report in vain for anything to justify saying the bill would “roll back protections” or “ruin Medicaid.” Under the Senate plan, Medicaid outlays would continue to rise, albeit at a slower rate.

Wielding the left’s favorite new club, Mr. Obama also claimed that “23 million Americans would lose insurance” if the GOP bill passes. But how can that be, since only 10 million people get coverage through the ObamaCare exchanges? Further, how many of those people want insurance in the first place? The CBO says that “in 2018, 15 million more people would be uninsured under this legislation than under current law—primarily because the penalty for not having insurance would be eliminated.”

And that’s not the worst of the Democrats’ rhetoric. Sen. Bernie Sanders says that if the Republican legislation passes “thousands of people will die.” Sen. Elizabeth Warren claims Republicans want to pay for “juicy tax cuts for their rich buddies” with “blood money.” The left-wing Center for American Progress pegs the number of Republican-caused deaths over the next decade at a precise 217,000. Hillary Clinton ratcheted it up by tweeting: “If Republicans pass this bill, they’re the death party.”

These comments demonstrate how intellectually bankrupt Democratic leaders are on health care. ObamaCare is falling apart, with its major promises broken. Democratic leaders have offered no package to fix it because it’s structurally unsound and unfixable. All they can do is scream “Disease and death!” and hope Republicans are dissuaded from fixing the mess.

The danger for Republicans lies in not acting, which would allow Democrats to brag about all the imaginary terrible things they prevented from happening. The danger for Democrats comes if Republicans act and then voters see that the dreadful outcomes liberals predicted never come to pass (as happened with welfare reform). Victory will go to the active, not the timid. Your move, Senate Republicans. Don’t blow it.

Article Link To The WSJ:

States' Medicaid Spending To Increase Under Senate Bill

By Stephanie Kelly
June 29, 2017

The now-delayed U.S. Senate healthcare overhaul bill would boost state spending on Medicaid by $565 million in 2022, according to an independent report issued on Wednesday, while credit agencies said it would cause states to face downward pressure on their credit ratings.

Senate Republican leaders on Tuesday postponed the vote on the bill, which they hoped would take place before their July 4 recess.

According to credit rating agencies Moody's Investors Service and Fitch Ratings, the legislation would negatively impact states because of changes to the core funding of Medicaid and the phasing out of the Medicaid expansion plan.

The Urban Institute, a Washington, D.C.-based think tank, issued a report on Wednesday estimating state Medicaid spending would increase by $565 million in 2022 under the proposed legislation. It also estimated federal funding for Medicaid, which funds medical care for the poor and indigent, would be $102.2 billion lower in that year.

The National Governor's Association, which on Monday advocated for more time to review the financial impact of the bill, welcomed the delay.

Members of the Senate Republicans' own party resisted the measure, which the non-partisan Congressional Budget Office said would cause 22 million Americans to lose insurance over the next decade and reduce federal outlays for Medicaid by $772 billion over that time.

Moody's senior analyst Genevieve Nolan told Reuters the legislation in its current form would be a credit negative for states, mainly because of reduced federal funding for Medicaid.

"Obviously this bill is ACA (Affordable Care Act) repeal and replace, but even more than that, it’s Medicaid repeal and replace. Medicaid is a more than 50-year-old program, a partnership between states and the federal government, and both the Senate bill and the House bill propose really fundamental restructuring of how that program is funded," Eric Kim, Fitch's director of U.S. Public finance, told Reuters.

State Impacts

A mix of Republican and Democratic governors criticized or strongly opposed the bill, including Connecticut Governor Dannel Malloy, Colorado Governor John Hickenlooper and Ohio Governor John Kasich.

Connecticut's Office of Policy and Management said in a report on Tuesday the bill could cost the state about $2.9 billion per year by 2026.

The report also said the cap to federal payments would "force" states, including Connecticut, to assume costs, limit benefits, decrease the number of people served or reduce rates to providers.

In Virginia, the bill would cost the state's Medicaid program at least $1.4 billion over seven years, according to Governor Terry McAuliffe's office. It would "blow a hole in Virginia's budget," McAuliffe said in a statement.

Article Link To Reuters:

'Hammer, Hammer, Hammer': Canada Lobbies U.S. Before NAFTA Talks

By David Ljunggren
June 29, 2017

In the baking Ohio heat Canada's trade minister is trying to save NAFTA, one encounter at a time.

Francois-Philippe Champagne is in Cincinnati for a meeting-packed June day as part of a concerted Canadian outreach campaign ahead of talks to renegotiate the North American Free Trade Agreement.

U.S. President Donald Trump describes the 1994 pact as a disaster and has threatened to walk away from it.

Concerned that any moves to abandon NAFTA or curb trade could cost thousands of jobs, the Liberal government of Prime Minister Justin Trudeau wants to remind Americans how important bilateral trade is while seeking allies to press the Canadian cause if threats emerge.

Since Trump's inauguration, Canadian politicians and officials have made almost 160 trips, meeting 14 cabinet members, almost 200 lawmakers and more than 40 state governors and lieutenant governors. (Graphic:

Mexico, the pact's third partner, has been leading a similar campaign.[STORY LINK]

"We have to hammer, hammer, hammer away at this and when we're exhausted, hammer again," said one person involved in the Canadian effort.

Champagne's message is simple: "We are your largest client."

Every day some 400,000 people and C$2.4 billion ($1.82 billion) worth of trade cross the border. Crimping that flow will hurt both nations, says Ottawa.

In all of Ohio, more than 300,000 jobs depend on trade with Canada, Champagne notes. To help drive home the point, Canadian officials drill deep into the data.

For example, their analysis shows that in Ohio's first congressional district, 17,269 jobs depended on Canada-U.S. trade and investment, with exports exceeding $1 billion.

Champagne, who flew in late the night before, starts his day at Cincinnati's members-only Queen City Club, where he hosts a breakfast with a dozen local leaders.

"Sometimes as friends and neighbors we take each other for granted," he tells the group. "Let's make sure we don't put things in place that would disrupt supply chains."

Reuters was granted exclusive access to the meetings during Champagne's trip.

Lawyer Daniel Ujczo, who specializes in Canada-U.S. affairs, tells Champagne his clients' biggest complaint is red tape that makes it hard to transfer specialists across the border.

"I don't think companies will see a NAFTA win unless we address this," he adds.

Learning The Numbers

Shortly afterwards Champagne tells a business forum of around 150 people that the greater Cincinnati area sends 20 percent of its exports to Canada.

Diplomats hand out leaflets underlining the closeness of trade ties. In the car heading for his next appointment, Champagne reflects on the audience and tells aides: "They don't know many of the numbers."

That feeling is only underlined at a lunch with local politicians. William Seitz, a Republican member of Ohio's House of Representatives, admits afterwards his constituents know little about free trade.

"Folks don't understand as well as they should that when we erect barriers to trade with foreign countries, we are increasing prices for domestic consumers," he says.

Champagne is willing to use any hook to make a connection. He studied in Cleveland and in every meeting notes a local politician once called him "a son of Ohio".

Later in the day he presents an honorary certificate to Joey Votto, the Canadian star of the Cincinnati Reds baseball team.

"You're our best export," Champagne says as cameras click.

As his car speeds from the Reds stadium to another appointment in the late afternoon, he says: "It's been a great day ... We've made a small difference."

Officials track the number of trips and how many people they meet, but say ultimately what counts is whether their new-found allies will step up to defend trade with Canada.

When Trump announced in April he might tear up NAFTA, "you had many Republican senators calling the White House and calling Trump to say 'This is crazy'," said another person involved in the campaign.

Some of the callers had already been approached by Canada as part of the effort to contact influence-makers, that person said.

The outreach effort is not intended to convey a threat, says David MacNaughton, Canada's ambassador to Washington.

But he adds: "It doesn't take a rocket scientist to figure out that at some point, if they keep doing things that harm Canadian companies, that it's going to be difficult for us to resist doing the same."

Canada initially chose to focus on 11 states, selected for their economic and political importance.

These include Indiana, home of Vice President Mike Pence. The Canadians are "talking to people who talk to Pence", one official tells Champagne.

A few days after the trip, Public Safety Minister Ralph Goodale is in Minneapolis, Minnesota, at an exclusive reception to build awareness of bilateral ties.

"When the relationship is without any great problems, people tend to go to sleep on both sides," he tells Reuters.

Attendees include Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, and Joc O'Rourke, chief executive officer of phosphate giant Mosaic Co (MOS.N).

Asked about the Canadian message, O'Rourke says most companies want freer or fairer trade. Pressed as to whether they will stand up for Canada, he replies: "They will of course stand up for what is in their best interest."

Goodale acknowledges the outreach does not guarantee success, but adds: "our trade will do better, and our relationship will do better, the more vigorous and outgoing we are".

Foreign Minister Chrystia Freeland quipped last month that "if you're an American official or legislator, it's been hard to avoid a Canadian", but Goodale is not worried Canada might be wearing out its welcome.

"They are so big I think it will be a long time before we have overdone it," he says.

($1 = 1.3155 Canadian dollars)

Article Link To Reuters:

A.I. Will Add $15.7 Trillion To The Global Economy

PwC says global GDP to be 14% higher in 2030 as a result of AI; ‘Man and machine together can be better than the human.’

Bloomberg News
June 29, 2017

Artificial intelligence may not be so threatening after all.

Amid warnings of the economic disruption that robots and automation could unleash on the world economy as traditional roles disappear, researchers are finding that new technologies will help fuel global growth as productivity and consumption soar.

AI will contribute as much as $15.7 trillion to the world economy by 2030, according to a PwC report Wednesday. That’s more than the current combined output of China and India.

Gains would be split between $6.6 trillion from increased productivity as businesses automate processes and augment their labor forces with new AI technology, and $9.1 trillion from consumption side-effects as shoppers snap up personalized and higher-quality goods, according to the report.

“The mindset today is man versus machine,” Anand Rao, an AI researcher at PwC in Boston, said at a briefing Tuesday at the World Economic Forum’s Annual Meeting of the New Champions gathering in Dalian, China, where the report was released. “What we see as the future is man and machine together can be better than the human.”

Global GDP, which stood at about $74 trillion in 2015, will be 14 percent higher in 2030 as a result of AI, according to PwC’s projections.

Air Hockey

At the seaside venue, where global business executives, researchers and officials rubbed shoulders, a robot played air hockey with attendees, delegates were invited to build robots in workshops, and AI was a recurring theme at panel discussions and chats on the sidelines.

PwC found that the world’s second-biggest economy stands to gain more than any from AI because of the high proportion of gross domestic product derived from manufacturing.

“The impact of AI on China will be huge and greater even than the impact on the U.S.,” Rao told reporters at a briefing on the report.

Accenture Plc also released an estimated value this week. AI could increase China’s annual growth rate by 1.6 percentage point to 7.9 percent by 2035 in terms of gross value added, a close proxy for GDP, adding more than $7 trillion, according to a report from the firm released Monday with Frontier Economics.

Still, AI involves risk. Regulators are wary of rapidly developing systems that they have little oversight of, and there are lingering suspicions about erosion of privacy and that the ultimate effect of AI could do more harm than good for people’s jobs and livelihoods.

Tech Cornucopia

"We need to find ways to deal with any negative societal impacts that might happen, such as technological unemployment," Wendell Wallach, an ethicist and scholar at Yale University’s Interdisciplinary Center for Bioethics, said on a panel Tuesday. "We have a moral obligation to make sure that technologies we put in place serve humanity as a whole, not just a small segment of it, nor a small segment of those who are best able to capitalize on technological advances."

Rapid technological advances have nurtured Silicon Valley heroes over the past 15 years, but more work must be done to boost economic growth for more people, according to Tyler Cowen, an economics professor of George Mason University, in Fairfax, Virginia, and co-author of the economics blog Marginal Revolution.

“If you’re reading that we’re receiving a new technological cornucopia of new products, basically that can’t be true," Cowen said at on a forum panel. "It would be showing up in the real wages of most people."

Article Link To Bloomberg:

Put Down The IPhone And Appreciate Its Genius

Apple changed mining, and manufacturing, and the way we wait in lines. And made the music we listen to poorer.

By Tyler Cowen
The Bloomberg View
June 29, 2017

Ten years after the introduction of Apple Inc.’s iPhone, and the broader category of smartphones, it’s worth stepping back to see what we have learned. As with most major technological innovations, it’s brought a number of collateral surprises about the rest of our world.

First, we’ve learned that, even in this age of bits and bytes, materials innovation still matters. The iPhone is behind the scenes a triumph of mining science, with a wide variety of raw materials and about 34 billion kilograms (75 billion pounds) of mined rock as an input to date, as discussed by Brian Merchant in his new and excellent book “The One Device: The Secret History of the iPhone.” A single iPhone has behind it the production of 34 kilos of gold ore, with 20.5 grams (0.72 ounces) of cyanide used to extract the most valuable parts of the gold.

Especially impressive as a material is the smooth touch-screen, and the user’s ability to make things happen by sliding, swiping, zooming and pinching it -- the “multitouch” function. That advance relied upon particular materials, as the screen is chemically strengthened, made scrape-resistant and embedded with sensitive sensors. Multitouch wasn’t new, but Apple understood how to build it into a highly useful product.

I am notoriously bad with gadgets, and even my microwave oven confuses me. But I more or less figured out all the essential operations of an iPhone the very first day I got it. Without an instruction manual. Wasn’t it bold of Apple to sell it that way?

The iPhone also shows that China is a major innovator and has been for some time. Don’t be fooled by the common take that the U.S. did all the creative design and concept work, and the factories of southern China simply perform assembly and lay on the finishing touches. The iPhone is possible only because China brought speed and scale to the production process in an unprecedented way. One of its innovations was building a technological and labor-market ecosystem where so many talented and hardworking engineers can be hired so quickly. If you don’t think that’s a major and novel accomplishment, try doing it in some other country.

For me, the most depressing lesson of the iPhone is that most people don’t care about the quality of their cultural inputs as much as I used to think. They do, however, care greatly about sharing culture with their friends (and strangers), and they value the convenience of consuming their culture, arguably to the point of addiction.

A few decades ago, who would have thought that the world’s major technological innovation would lower the average sound quality of the music people listen to? Yet that has been the result of smartphones, and plenty of listeners don’t even use earbuds. People don’t seem to mind the quality, because their phones make listening to music much more convenient. You can also share music more easily with friends, say by building a Spotify list or putting a song on your Facebook page.

How about watching a movie on a small (or, some would say, tiny) iPhone screen? A whole generation seems to think that’s fine, or maybe preferable. And to think I used to complain that even a large television couldn’t do justice to the works of such magisterial directors as Ingmar Bergman, Andrei Tarkovsky and Francis Ford Coppola. That now sounds like the rantings of an out of touch, bitter old man.

And so many people read not only bestsellers but also literary classics on their iPhone screens, perhaps while riding the subway. No matter how you use your iPhone, waiting around just isn’t that bad any more.

The day the iPhone came out, June 29, 2007, I boasted to my wife that it would be one of the most important cultural events of our lifetimes, maybe the most important. I compared my purchase of one, which I wanted to justify, to going to see a “Don Giovanni” premiere in 1787. Perhaps I was right in my broader assessment, but I hadn’t realized that so many users would opt for a rather extreme bundle of convenience, sharing abilities and product quality degradations.

Finally, names can be deceiving. The iPhone isn’t fundamentally a phone, even though Steve Jobs himself thought that phone service was the killer app for the product. Instead, it’s an all-purpose communications device, music player, recorder, camera, map, adviser, software distributor and dating-enabler rolled into one. When Siri gets better it will be a companion too. As iPhones and other smartphones became more widespread, the number of phone calls I received declined. No other device has done more to make the phone less necessary. I’ll get your text or email right away.

Maybe that’s what I like about it most of all.

Article Link To The Bloomberg View:

How Myopic Antitrust Policy Helped Amazon Gain Dominance

When Whole Foods and Wild Oats merged, the commission said Wal-Mart wasn’t a competitor.

By Allysia Finley
The Wall Street Journal
June 29, 2017

Amazon’s $13.7 billion bid for Whole Foods has stirred speculation among investors, business reporters and consumers. If Amazon CEO Jeff Bezos has a strategy for marrying the online and brick-and-mortar operations, he hasn’t explained it—and perhaps for good reason. It’s rarely wise to show your cards to competitors or regulators.

A decade ago, the Federal Trade Commission turned Whole Foods CEO John Mackey’s statements against him in an antitrust suit that sought to unwind its merger with Wild Oats Markets. Mr. Mackey said Whole Foods’s goal was to “eliminate a competitor” that a conventional supermarket might otherwise purchase and use as a “growth platform.”

Markets are dynamic—meaning businesses face constant pressure from competitors that offer innovations or lower prices. In 2007, then-Sen. Barack Obama asked Iowa voters, “Anybody gone into Whole Foods lately? See what they charge for arugula?” At the time, Iowa didn’t even have a Whole Foods, and Republicans seized on his statement to portray him as an out-of-touch elitist. Now you can buy a box of arugula at a 99-cent store.

The problem is that FTC regulators defined competition so narrowly when evaluating prior mergers that they failed to see the market for the trees. Antitrust enforcement actions that sought to prevent grocery stores from consolidating have helped Amazon, which has been able to expand unencumbered by the FTC. Now supermarkets may be in a weaker position to give Amazon a run for its money.

After Whole Foods proposed the Wild Oats merger in 2007, the FTC accused Whole Foods of trying to corner a distinctive “premium natural and organic” market. The agency argued that Wal-Mart ,Safeway and Trader Joe’s—all of which are among Whole Foods’s top competitors today—drew different clienteles and thus were not direct competitors.

Whole Foods spent two years battling the FTC in court. But the agency’s arguments lost weight as Wal-Mart and supermarkets expanded their offerings of organic products and poached price-conscious customers from Whole Foods. In 2009 the government settled, with Whole Foods agreeing to sell 13 of its Wild Oats stores, which accounted for a token 1.3% of the company’s sales.

But although the merger strengthened Whole Foods’s position in the organic market, its stock price has sagged over the past two years as competition in groceries has escalated. Meanwhile, Wal-Mart and conventional supermarkets, which were booming during the 1980s and ’90s, have to fend off competition from warehouse outlets, dollar stores and German low-cost retailers Aldi and Lidl.

Online food retailers like FreshDirect, Amazon and (acquired last year by Wal-Mart) are now catering to customers who prize convenience over cost. Silicon Valley startup Instacart promises to deliver groceries from retailers like Whole Foods, Costco and Target within two hours. And meal kit service Blue Apron is pitching an initial public offering.

The result has been a wave of supermarket consolidation. In 2015 Albertsons merged with Safeway to maximize economies of scale and negotiate leverage with suppliers. Yet the FTC complained the deal would significantly reduce competition and potentially increase prices.

The FTC came to this conclusion by narrowly defining the market as consisting of “one-stop shopping” supermarkets and excluding discounters, warehouses, convenience stores and organic retailers. The commission also arbitrarily evaluated geographic competition by examining supermarkets that operated between 0.2 and 10 miles of each other. In the Whole Foods-Wild Oats deal, the FTC defined the relevant geographic market as “an area as small as approximately five or six miles in radius” from each store. With the growth in online shopping, delimiting markets by geography is increasingly absurd.

To get their merger approved, Albertsons and Safeway agreed to sell 146 of their stores to the small Northwest supermarket chain Haggen, which filed for Chapter 11 bankruptcy reorganization within a year.

Government antitrust interventions have a history of backfiring. When rental-car company Hertz sought to buy Dollar Thrifty in 2012, the FTC forced it to divest Advantage Rent A Car. Regulators argued that the merger would have reduced competition in the airport rental market, which was beginning to see disruptions from ride-hailing startups and Zipcar, a rental agency with an innovative business model. One year after its brokered sale, Advantage went bankrupt. In 2013 Avis bought Zipcar for $500 million.

Car-rental companies are continuing to struggle because of competition from Uber and Lyft, but are innovating to keep up. In the past three years, Hertz’s stock price has tumbled more than 90%. This week, Hertz and Avis announced self-driving car partnerships with Apple and Waymo.

That story of creative destruction has been repeated across industries throughout history. Wired broadband has replaced dial-up Internet in most of the U.S. but is now being usurped by mobile. Or consider the evolution from pagers and car phones to cell phones and smartphones. A decade ago, BlackBerry led the “personal digital assistant” market, which was tiny compared to the market for flip phones. Regulators can’t foresee how innovations will disrupt markets. Antitrust interventions that seek to preserve the status quo will invariably fail—and could cause businesses to fail.

How the Amazon-Whole Foods merger will play out is anyone’s guess, but businesses typically have a better record of predicting—and spurring—market revolutions than government. That’s something for President Trump to keep in mind as he fills three vacancies on the FTC.

Article Link To The WSJ:

Blue Apron Goes Public, Demand Underwhelms As Amazon Looms

By Lauren Hirsch and Angela Moon
June 29, 2017

Blue Apron Holdings Inc (APRN.N), the biggest U.S. meal kit provider, raised $300 million as it went public on Wednesday, a third less than it had hoped, as's (AMZN.O) industry-changing deal to buy Whole Foods Market Inc (WFM.O) weighed on the sector.

New York-based Blue Apron said late on Wednesday its initial public offering of 30 million shares of class A common stock was priced at $10 per share, at the low end of the $10 to $11 per share range issued earlier in the day.

It lowered the estimate from a range of $15 to $17 after potential investors expressed concerns about the $13.7 billion Amazon deal as well as Blue Apron's marketing costs and lack of profitability, people familiar with the matter said. They requested anonymity because the pricing negotiations were confidential.

Blue Apron is the first U.S. meal-kit company to go public. Smaller peers and their venture capital investors were hoping it would pave the way for them to also go public or be acquired at rich valuations.

The IPO values Blue Apron at $1.89 billion, below the $3.2 billion implied by its previous estimate and the $2.2 billion by its last private fundraising round two years ago.

Amazon already has a small meal-kit business, delivering ingredients and recipes to customers in a handful of U.S. cities. The Whole Foods deal announced in mid-June would hand the e-commerce company a ready-made distribution system for food delivery in the form of brick-and-mortar grocery stores.

"Amazon's deal for Whole Foods earlier this month added to concerns, but Blue Apron's high marketing costs were a negative factor. Snap Inc's (SNAP.N) IPO earlier this year has shown investors that growth at all costs is a mistake," said Kathleen Smith, principal of Renaissance Capital LLC, a manager of IPO-focused exchange-traded funds.

Snap went public in March and surged in its first day of trading, but shares are now just above their IPO price after declining revenue growth and widening losses raised questions about whether the Snapchat app owner would ever be profitable.

Like other meal-kit companies, Blue Apron has spent heavily on marketing to compete for customers who often switch service providers, or cancel their subscriptions altogether.

The company spent roughly 18 percent of its $795.4 million revenue in 2016 on marketing, posting a net loss of $54.9 million. It has also faced steep costs of building out delivery infrastructure for fresh food.

While meal kits have not been a focus for Amazon, it started investing in the sector earlier this year and has launched a partnership with Martha Stewart's meal kit service, Martha & Marley Spoon, to deliver Stewart-designed meals in New York, San Francisco, Dallas and Philadelphia, Boston, Washington, Seattle and Los Angeles.

Amazon has not specified its plans for Whole Foods stores, but industry insiders believe they could serve as distribution points for fresh food delivery. Amazon's significant investment in automation is also likely to give it a leg-up in managing costs.

"With Amazon as their potential main competitor, this may make that long-term profit target more difficult than before the (Whole Foods) merger," said Eric Kim, co-founder and managing partner of venture capital firm Goodwater Capital.

A meal-kit delivery company hoping to follow Blue Apron was Sun Basket, which Reuters reported earlier this year had hired banks to prepare for an IPO.

Green Chef and Home Chef are two other meal-kit companies reviewing options, including a sale or raising funds, Reuters has reported.

The challenge of balancing marketing and operational costs with affordable pricing has already claimed victims in the industry. Startup Maple said it was shutting down earlier this year, while SpoonRocket made a similar announcement last year.

Shares in the broader consumer sector have shown signs of weakness in the past month. The S&P index of consumer discretionary companies .SPLRCD rose 13 percent over the first five months of 2017, but is down about 2.5 percent since its peak on June 2.

Valued At A Discount To E-Commerce Firms

Online sales represented only $12 billion, or 2.2 percent, of the U.S. restaurant market in 2016, but are expected to grow about 22.6 percent annually from 2017 to 2020, Blue Apron has said, citing a Euromonitor study it commissioned.

During an IPO road show last week, Blue Apron sought to convince investors it was well positioned to benefit from growing consumer interest in cooking and where their food comes from. Following the negative investor feedback, Blue Apron slashed its pricing estimate.

The IPO puts Blue Apron's valuation at roughly 1.6 times the revenue, according to Goodwater Capital. While that would represent a discount to e-commerce companies which on average command 3.1 times 2017 revenue, it would still mark a premium to grocery players, which trade at roughly 0.7 times 2017 revenue, Goodwater said.

Bessemer Venture Partners, Stripes Group and Fidelity are among Blue Apron's investors.

Blue Apron shares are expected to begin trading on the New York Stock Exchange on Thursday under the symbol APRN.

Goldman Sachs, Morgan Stanley, Citigroup and Barclays are among the underwriters to the IPO.

Article Link To Reuters:

Staples In $6.9 Billion Sale To Private Equity Firm Sycamore

By Lauren Hirsch
June 29, 2017

Sycamore Partners said on Wednesday it would acquire U.S. office supplies chain Staples Inc (SPLS.O) for $6.9 billion, a rare bet by a private equity firm this year in the U.S. retail sector, which has been roiled by the popularity of internet shopping.

Buyout firms largely have refrained from attempting leveraged buyouts of U.S. retailers in the past two years, amid a wave of bankruptcies in the sector that have included Sports Authority, Rue21, Gymboree and BCBG Max Azria LLC.

Sycamore's deal for Staples, however, which Reuters was first to report would come this week, illustrates that some buyout firms are distinguishing between mall-based fashion retailers, which are vulnerable to changing consumer tastes, from retailers with a niche and rich cash flow, such as Staples.

The acquisition also shows that Sycamore, whose buyout fund is dedicated to retail deals, is willing to take on the risk of falling store sales at Staples because of the potential it sees in Staples' delivery unit, which supplies businesses directly.

Sycamore said it would pay $10.25 per share in cash for Staples. The shares ended trading at $9.93 on Wednesday after Reuters reported the exact deal price. Staples said the deal was expected to close by December. Shira Goodman will remain as Staples CEO.

Sycamore will be organizing Staples along three lines: its stronger delivery business, its weaker retail business and its business in Canada, two sources familiar with the deal said. This structure will give Sycamore the option to shed Staples' retail business in the future, one of the sources said.

Framingham, Massachusetts-based Staples, which made its name selling paper, pens and other supplies, has 1,255 stores in the United States and 304 in Canada. It previously tried to merge with rival retailer Office Depot Inc (ODP.O) but the deal was thwarted by a U.S. federal judge on antitrust grounds last year.

Staples has the largest share of office supply stores in the United States at 48 percent, according to Euromonitor, and generated $889 million of adjusted free cash flow in 2016

Sycamore has a reputation amongst private equity peers for taking bets on retail investments others might eschew. Its previous investments include regional department store operator Belk Inc, discount general merchandise retailer Dollar Express and mall and web-based specialty retailer Hot Topic.

Barclays and Morgan Stanley & Co. LLC are acting as financial advisors and Wilmer Hale LLP is acting as legal advisor to Staples. BofA Merrill Lynch and Deutsche Bank Securities Inc are acting as financial advisors and Kirkland & Ellis LLP is acting as legal advisor to Sycamore Partners.

UBS Investment Bank, BofA Merrill Lynch, Deutsche Bank, Credit Suisse, Royal Bank of Canada, Jefferies, Wells Fargo Bank, National Association and Fifth Third Bank are providing debt financing for the deal.

Article Link To Reuters:

Is Food Giant Nestlé Turning Away From Food?

Company promises new investment in its high-growth business like bottled water, coffee, infant nutrition and pet care.

By Brian Blackstone
The Wall Street Journal
June 29, 2017

The world’s biggest packaged-food company may be cutting back on packaged food.

Nestlé SA NSRGY -0.20% outlined a far-reaching strategic shift this week, days after activist investor Daniel Loeb, who has accumulated a 1.25% stake, asked for big changes. Nestlé promised new investment in its high-growth business like bottled water, coffee, infant nutrition and pet care. It also signaled it would consider consumer health-care acquisitions.

What Nestlé didn’t mention in its new strategy: “prepared” food, a core Nestlé sector that includes household names like Lean Cuisine, DiGiorno pizza and Herta processed meats, a brand popular in Europe. That, coupled with a number of high-profile food sales in recent months, has analysts and investors expecting more divestitures, though it may take awhile.

Earlier this month, Nestlé’s new Chief Executive Mark Schneider put on the block its U.S. confectionery business, which includes the Butterfinger, Baby Ruth and Crunch candy bars. Last month, Nestlé agreed to sell three of its frozen food brands in Italy.

A Nestlé spokeswoman decline to comment on its prepared foods business.

“It’s a small revolution that’s taking place,” said Jean-Philippe Bertschy, analyst at Vontobel Research. “Nestlé’s frozen foods, ice cream and pizza businesses are areas for possible disposals” over the next three to four years, he said. Jon Cox, head of Swiss equities at Kepler Cheuvreux, said he expects additional disposals in confectionery, frozen foods and cereals in the coming years.

Nestlé hasn’t signaled any specific new divestitures. On Tuesday, it said only that it “will continue to adjust its portfolio in line with its strategy and growth objectives.”

Few analysts expect a full buffet of food-brand sales from Nestlé. The company has been investing heavily in some of its brands, including ice cream and Lean Cuisine, which it says it has successfully turned around in recent years.

But the company said it is targeting acquisitions and investment at faster-growing segments far from its traditional base in prepared food. The cheap, ready-to-eat brands were staples of supermarket shelves for decades but have recently fallen out of favor amid competition from healthier options.

Nestlé Chairman Paul Bulcke has said Nestlé, like other consumer-goods companies, has been slow to respond to rapidly changing consumer tastes. In an interview late last year, when he was still chief executive, he cited its reliance on the word ‘lean,’ which is on all of its packages of Lean Cuisine meals.

“’Lean,’ that was so in: diet; lean. All these arguments all of a sudden were not valid anymore because ‘lean’ is linked with sacrifice,” he said. Not having seen this change coming “is somewhat a frustration, but then we reacted then pretty fast when we saw it.”

Nestlé breaks out its products in broad categories. Its prepared dishes and cooking aid business brought in 12.15 billion Swiss francs ($12.6 billion) in sales last year, or about 13.6% of overall sales. But sales have lagged behind in other segments, delivering just 2.7% growth, excluding things like acquisitions and divestitures. Organic sales at Nestlé grew as a whole 3.2% last year.

Still, the businesses are among the company’s biggest revenue generator. Adding in various slower-growing brands in some of its other food-oriented units—those units include confectionary, milk products and ice cream and powdered and liquid beverages—these businesses make up a big chunk of Nestlé sales, particularly in the U.S. “It may not tick many attractiveness boxes, bottom up,” said Martin Deboo, consumer goods analyst at Jefferies International, referring to prepared meals. “But, top down, it represents 20-25% of sales in their biggest market [in the U.S.] and is making a significant contribution to both central overheads and overall clout with the likes of Wal-Mart, ” said Mr. Deboo.

The packaged food business is also a bit of a buyer’s market recently.Unilever PLC put its spreads business, including margarine but not mayonnaise, up for sale earlier this year. Reckitt Benckiser Group PLC is selling its French’s mustard.

Article Link To The WSJ:

Don't Want Your Cyber Attacked? Move To The Cloud

The latest malware attack should motivate businesses to get their security act together.

By Elaine Ou
The Bloomberg View
June 29, 2017

Malware has yet again disrupted businesses around the world, just weeks after hackers used leaked National Security Administration tools in a global cyberattack called WannaCry. The ultimate target in both cases may be people's sensitive information -- a troubling reality that should finally motivate organizations to get serious about security.

Tuesday’s attack was more sophisticated than WannaCry, which took advantage of a Windows exploit to infect more than 200,000 computers in 150 countries (and which cost, by one estimate, more than $4 billion). Microsoft security researchers have traced the initial infection to a Ukrainian software vendor called M.E.Doc, which inadvertently released a malevolent update to its popular tax accounting software. When customers installed the automatic update, a piece of malware obtained passwords that were then used to gain access to other machines. The so-called Petya virus then locked users out of their computers and demanded $300 in bitcoin to get back in.

The attack was hardly lucrative for its instigators. Although it affected thousands of corporate networks, the ransom address accumulated a grand total of only $9,159. Even the WannaCry ransom amounts to only $130,000in bitcoin to date. The NSA has reportedly linked the WannaCry cyberattack to North Korea. I suppose $130,000 goes a lot further in North Korea than it does here, but that’s still barely enough for a stick of plutonium.

We’ve talked before about the economics of cyber extortion. Given the overhead costs of packaging and distribution, it’s rarely a profitable venture. On the other hand, a locked-up computer system presents the perfect cover for attackers to steal sensitive data.

The WannaCry attack targeted National Health Service hospitals in England and Scotland, perhaps because health care records contain irrevocable information that can be used for identity theft. Given that yesterday’s ransomware propagated though a tax accounting package favored by Ukrainian businesses, the most likely victims were financial account controllers doing business in the Ukraine. Notable victims include legal firm DLA Piper and shipping and transport firm A.P. Moller-Maersk.

It’s worth noting that cloud computing services like Google and Amazon, which control vast amounts of data around the world, have yet to be crippled by a ransomware attack or even suffer a known data breach. Google in particular prevents break-ins across a global workforce by implementing a strict provisioning system, in which every device is presumed to be untrustworthy.

Access management is an old-fashioned idea that doesn’t get enough attention in our hyper-connected world. In earlier generations, sensitive information was stored in locked filing cabinets located in separate offices. We’ve since digitized the data without replicating the access management. When organizations migrated from application-specific mainframes to networked personal computers (primarily to cut costs), they turned every single computer into a potential entry point for hackers. It's like giving every employee a master key to the building.

Cloud computing has a lot of similarities to mainframe infrastructure. Users access enterprise software through their internet browsers, much as they used to access the mainframe through dumb terminals. Because individual users aren’t in charge of maintaining critical software on their personal machines, it’s much more difficult for malware to get in. This makes the whole enterprise less vulnerable to breaches.

Stories of crippling ransomware dominate the news, but ensuing data breaches tend not to surface for years. Such breaches primarily affect end users in ways that may be difficult to trace, so organizations haven't been terribly motivated to overhaul their security and dump the universally connected computing paradigm. Perhaps the latest disasters will put more pressure on the industry to get its act together.

Article Link To The Bloomberg View:

Ransomware Reveals Tech Challenges Past And Future

By Richard Beales
June 29, 2017

Who'd be in charge of a corporate IT network with hacks, phishing and now a double dose of so-called ransomware to contend with? This week's cyber attack hit targets from Ukraine to the United States and more than 60 other countries. Human error enables hacking of today's network setups. A shift to the cloud reduces that danger, but brings others.

The latest rogue software, a variant of something called Petya, locks computers and posts a message demanding $300 in bitcoins to recover the data. Like the WannaCry virus last month that hit National Health Service computers in the UK, among others, it gets into PCs using code known as Eternal Blue, which security experts believe was developed by the U.S. National Security Agency.

Monday's attack hit Ukraine's international airport, Russian oil group Rosneft, advertising giant WPP and FedEx's TNT Express unit, among others. Its spread may have been limited, though, because after WannaCry many firms patched software including older Microsoft operating systems.

The fact that this wasn't done earlier is a reminder that current IT architecture depends on people to maintain it. And people can let the bad guys in, too. Malevolent phishing emails abound. Though it was done in fun, the fact that the CEOs of Goldman Sachs, Citigroup and Barclays – not to mention the head of the Bank of England – recently responded to prank emails purporting to be from colleagues underlines the human factor.

The cloud, comprising infrastructure managed by the likes of Amazon, Alphabet and Microsoft, ought to be immune from much of this. Protection should be cutting-edge, for example, and advanced detection tools should be in place. Software run in the cloud doesn't need users to update it. Data should be recoverable even if one copy is corrupted.

Yet there are new concerns, too. With today's hybrid system, cloud-based software can propagate Petya or other malicious agents rapidly. A cloud outage can affect far more users than a cyber attack, as customers of Amazon found out in March when part of the company's cloud went dark. Companies may need to hire multiple cloud-services providers to minimize this risk.

And of course cyber criminals and unfriendly state actors will simply set their sights higher. After all, holding the entire cloud to ransom sounds a lot more lucrative than targeting any number of individual computers.

Article Link To Reuters:

New Computer Virus Spreads From Ukraine To Disrupt World Business

By Eric Auchard and Dustin Volz
June 29, 2017

A computer virus wreaked havoc on firms around the globe on Wednesday as it spread to more than 60 countries, disrupting ports from Mumbai to Los Angeles and halting work at a chocolate factory in Australia.

Risk-modeling firm Cyence said economic losses from this week's attack and one last month from a virus dubbed WannaCry would likely total $8 billion. That estimate highlights the steep tolls businesses around the globe face from growth in cyber attacks that knock critical computer networks offline.

"When systems are down and can't generate revenue, that really gets the attention of executives and board members," said George Kurtz, chief executive of security software maker CrowdStrike. "This has heightened awareness of the need for resiliency and better security in networks."

The virus, which researchers are calling GoldenEye or Petya, began its spread on Tuesday in Ukraine. It infected machines of visitors to a local news site and computers downloading tainted updates of a popular tax accounting package, according to national police and cyber experts.

It shut down a cargo booking system at Danish shipping giant A.P. Moller-Maersk (MAERSKb.CO), causing congestion at some of the 76 ports around the world run by its APM Terminals subsidiary..

Maersk said late on Wednesday that the system was back online: "Booking confirmation will take a little longer than usual but we are delighted to carry your cargo," it said via Twitter.

U.S. delivery firm FedEx said its TNT Express division had been significantly affected by the virus, which also wormed its way into South America, affecting ports in Argentina operated by China's Cofco.

The malicious code encrypted data on machines and demanded victims $300 ransoms for recovery, similar to the extortion tactic used in the global WannaCry ransomware attack in May.

Security experts said they believed that the goal was to disrupt computer systems across Ukraine, not extortion, saying the attack used powerful wiping software that made it impossible to recover lost data.

"It was a wiper disguised as ransomware. They had no intention of obtaining money from the attack," said Tom Kellermann, chief executive of Strategic Cyber Ventures.

Brian Lord, a former official with Britain's Government Communications Headquarters (GCHQ) who is now managing director at private security firm PGI Cyber, said he believed the campaign was an "experiment" in using ransomware to cause destruction.

"This starts to look like a state operating through a proxy," he said.

Eternal Blue

The malware appeared to leverage code known as "Eternal Blue" believed to have been developed by the U.S. National Security Agency.

Eternal Blue was part of a trove of hacking tools stolen from the NSA and leaked online in April by a group that calls itself Shadow Brokers, which security researchers believe is linked to the Russian government.

That attack was noted by NSA critics, who say the agency puts the public at risk by keeping information about software vulnerabilities secret so that it can use them in cyber operations.

U.S. Representative Ted Lieu, a Democrat, on Wednesday called for the NSA to immediately disclose any information it may have about Eternal Blue that would help stop attacks.

“If the NSA has a kill switch for this new malware attack, the NSA should deploy it now,” Lieu wrote in a letter to NSA Director Mike Rogers.

The NSA did not respond to a request for comment and has not publicly acknowledged that it developed the hacking tools leaked by Shadow Brokers.

The target of the campaign appeared to be Ukraine, an enemy of Russia that has suffered two cyber attacks on its power grid that it has blamed on Moscow.

ESET, a Slovakian cyber-security software firm, said 80 percent of the infections detected among its global customer base were in Ukraine, followed by Italy with about 10 percent.

Ukraine has repeatedly accused Moscow of orchestrating cyber attacks on its computer networks and infrastructure since Russia annexed Crimea in 2014.

The Kremlin, which has consistently rejected the accusations, said on Wednesday it had no information about the origin of the attack, which also struck Russian companies including oil giant Rosneft (ROSN.MM) and a steelmaker.

"Unfounded blanket accusations will not solve this problem," said Kremlin spokesman Dmitry Peskov.

Austria's government-backed Computer Emergency Response Team (CERT) said "a small number" of international firms appeared to be affected, with tens of thousands of computers taken down.

Microsoft, Cisco Systems Inc and Symantec Corp (SYMC.O) said they believed the first infections occurred in Ukraine when malware was transmitted to users of a tax software program.

Russian security firm Kaspersky said a news site for the Ukraine city of Bakhumut was also hacked and used to distribute the ransomware.

A number of the victims were international firms with have operations in Ukraine.

They include French construction materials company Saint Gobain (SGOB.PA), BNP Paribas Real Estate (BNPP.PA), and Mondelez International Inc (MDLZ.O), which owns Cadbury chocolate.

Production at the Cadbury factory on the Australian island state of Tasmania ground to a halt late on Tuesday after computer systems went down.

Article Link To Reuters:

Bitcoin And Ethereum Deliver Best Returns In 2017

Despite recent weakness, cryptocurrencies remain sharply higher on the year.

By Ryan Vlastelica
June 29, 2017

Say what you will about the cryprocurrency market in the first half of the year, but give it this: it wasn’t boring.

In contrast to the U.S. equity market, where a popular measure of volatility has been hovering near a multidecade low since May, there was nothing but volatility in the realm of digital currencies, underscored by jaw-dropping gains on the year and a gut-wrenching drop this month.

Digital currencies hit a number of key milestones in 2017, including breaking into the 12-digit club, as the combined market value of all cryptocurrencies—led especially by bitcoin and ethereum—surpassed $100 billion for the first time ever, and currently stands near $104 billion.

Cryptocurrencies have become so prominent that major semiconductor stocks have started to move based on how readily their chips are used by “miners,” who use high-powered computers in a race to solve complex puzzles. Those who solve these problems are rewarded with the digital gold of bitcoin and other digital currencies.

The volatile ride cryptocurrencies in garnering increased attention from mainstream companies and average Joes and Janes, belies the setbacks it has faced on the regulatory front. Notably, the Securities and Exchange Commission in March rejected what would have been the first bitcoin exchange-traded fund, as well as the reputation hits from recent high-profile cyberattacks where bitcoin ransoms were demanded.

Still, the overall trend in crypto in 2017, as it was last year, was shockingly positive. The price of single bitcoin BTCUSD, -0.92% currently sits at $2,565.47, up 165% thus far this year, though down 15% from a record high above $3,000 hit earlier this month.

Gains for ethereum has been even more pronounced. Not only has bitcoin’s chief rival surged past it in terms of daily trading volume, according to CoinDesk data, but it is also up nearly 3,500% on the year, having rallied from $8.40 at the end of 2016 to a shade under $300 presently. And that surge includes ethereum’s current bear market, as it is down more than 20% from a record hit earlier this month.

The size and scope of the rallies in digital currencies easily eclipses the year-to-date move of more traditional assets like stocks. For example, the S&P 500 indexSPX, +0.88% despite enjoying its own run-up, has gained a much milder 9% year to date, the Dow Jones Industrial Average DJIA, +0.68% is up 8.6%, while the tech-heavy Nasdaq Composite Index COMP, +1.43% is up a touch more than 15% in 2017. Among the best performing commodities, palladium PAN7, -1.77% is up more than 25% on the year. None of those rallies approach the year-to-date surges in popular cryptocurrencies.

Perhaps for that reason, questions about whether these digital currencies are in a bubble have emerged—a debate that will undoubtedly continue to rage in the second half of the year. That is particularly if they show further stabilization and add to their string of records.

Whatever, the future holds for bitcoin, it appears that with its $42 billion valuation—enough that it has become bigger than such iconic brands as Delta Air Lines DAL, +1.89% and Deere & Co. DE, +1.71% —one can no longer argue that bitcoin is simply a niche asset, even if bitcoin and its rivals are risky and untested.

And while one proposed metric for bitcoin valuation suggests the digital currency is within historical realms, Morgan Stanley recently argued that government regulation was needed for bitcoin to continue its dalliance into the record books.

Article Link To MarketWatch:

For First Time Since Financial Crisis, Fed Clears All Big Banks' Capital Return Plans

-- The Federal Reserve did not object to any of the capital plans of 34 banks it reviewed.
-- The annual stress test was implemented in the wake of the financial crisis. 

-- Capital One received no objection on condition it submit a new plan by Dec. 28.

By Evelyn Cheng
June 29, 2017

For the first time in seven years, the Federal Reserve did not object to any of the capital plans of 34 banks it reviewed in the second part of the annual stress tests implemented in the wake of the financial crisis.

Only Capital One Financial needed to submit a new capital plan by Dec. 28 in order to address "weaknesses in its capital planning process."

"I'm pleased that the [stress test] process has motivated all of the largest banks to achieve healthy capital levels and most to substantially improve their capital planning processes," Fed Governor Jerome H. Powell said in a release.

Last Thursday, all 34 banks passed the Dodd-Frank Act Stress Tests for the third time by topping the Fed's requirements for being able to handle a severe recession. Wednesday's results from the Comprehensive Capital Analysis and Review, or CCAR, marked the first time since the test launched seven years ago that the Fed did not object to any of the banks' capital plans.

Senior Federal Reserve officials said on a call with journalists that the number of banks tested this year has declined from previous years, and that not objecting to a plan doesn't mean a bank has fully met the Fed's expectations.

Just 13 of the banks, which had assets of more than $250 billion, were subject to a more rigorous qualitative assessment within CCAR.

"However, these firms continue to have areas of weaknesses that fall short of meeting supervisory expectations for capital planning," the Fed's report on the CCAR results said.

The 33 banks whose plans the Fed unconditionally did not object to were:

Ally Financial, American Express, BancWest, Bank of America; The Bank of New York Mellon, BB&T; BBVA Compass Bancshares; BMO Financial; CIT.; Citigroup; Citizens Financial; Comerica; Deutsche Bank Trust; Discover Financial Services; Fifth Third Bancorp; Goldman Sachs; HSBC North America; Huntington Bancshares; JPMorgan Chase; Keycorp; M&T Bank; Morgan Stanley; MUFG Americas Holdings; Northern Trust; PNC Financial Services; Regions Financial Corporation; Santander Holdings USA; State Street; SunTrust Banks; TD Group US Holdings; U.S. Bancorp; Wells Fargo; and Zions Bancorporation.

JPMorgan announced its biggest ever share repurchase program since the financial crisis, and Citigroup announced its largest ever buyback program, according S&P Global Market Intelligence.

Bank of America raised its quarterly divided to 12 cents a share, clearing the way for Warren Buffett's Berkshire Hathaway to become its biggest shareholder.

On Tuesday, Fed Chair Janet Yellen said the banks are "very much stronger this year." She also made a strong statement predicting a financial crisis like the one of 2008 would not likely happen "in our lifetime."

However, noted Rafferty Capital banks analyst Dick Bove wrote Wednesday in an op-ed on that Yellen may be forgetting that while banks may have healthier levels of capital, they no longer have the protection of a government bailout.

Article Link To CNBC: