Thursday, May 12, 2016

Today's Headlines

  • Brazil President Dilma Rousseff Suspended After Losing Impeachment Vote. (video) Brazil’s Senate voted to suspend President Dilma Rousseff from office, ushering in a new government after months of political turmoil in the recession-wracked country. Legislators agreed on Thursday after a marathon session that lasted 21 hours to try the president on allegations she illegally doctored fiscal accounts to mask the size of the budget deficit. The vote was 55 to 22. She will now face an impeachment trial in the Senate. "From the moment she receives the notification, the process of impeachment for the crime of responsibility takes effect," Senate President Renan Calheiros said after voting ended. She is expected to be notified at 10 a.m. and give a press conference around that time.
  • Brazil's Economic Rise and Fall in Charts Underlines Temer's Tough Task. (graph) A timeline of Brazilian economic data shows how much the nation's situation has soured.
  • Carney Warns Brexit Risks Causing Recession. (video) Mark Carney said a vote to leave the European Union could cause a U.K. recession and that any monetary-policy response would take time to work, in his strongest warning yet of the risks in the June 23 referendum. The Bank of England governor said on Thursday that Brexit -- which he called the “elephant in the room” -- means uncertainty over the outlook has risen to the highest since the euro-area debt crisis. The Monetary Policy Committee cut its growth forecasts, said inflation remains subdued and unanimously agreed to maintain their benchmark rate at a record-low 0.5 percent. “A vote to leave the EU could have material effects on the exchange rate, demand and supply potential,” Carney told a press conference in London. The consequences “could possibly include a technical recession.”
  • IPhone Assembler Hon Hai's Profit Slides as Smartphones Wilt. Hon Hai Precision Industry Co.’s quarterly profit fell 9.2 percent, offering more evidence that the global smartphone market’s malaise may be deepening. The main assembler of Apple Inc.’s iPhones reported first-quarter net income declined to NT$27.6 billion ($849 million). That compares with the NT$28.3 billion that analysts had expected on average. Operating margins shrank to 3.69 percent from 3.81 percent a year earlier. Hon Hai becomes the latest smartphone player to report disappointing results as the industry undergoes its worst downturn in history. Its shares have fallen more than 9 percent this year. Affiliate FIH Mobile Ltd., which assembles devices for Xiaomi Corp. and Sony Corp., warned that income for the first half could plummet as much as 92 percent from a year earlier.
  • The Scourge of Negative Rates and Norway's Shrinking Wealth Fund. Norway’s massive wealth fund is projected to get smaller this year for the first time since early last decade. Budget documents on Wednesday showed the government expects the fund to shrink about 4 percent to 7.15 trillion kroner ($881 billion) at the end of 2016 after ending last year at 7.46 trillion kroner. This historic projection comes as the fund is being bludgeoned on nearly all sides. Most pressing is probably that its returns from the 35 percent it must hold in bonds has all but evaporated amid negative yields across Europe. A rebound in the krone could also press down its value domestically as its foreign investments become worth less.
  • European Shares Drop as Earnings Fail to Inspire, Bayer Slides. European shares declined for a second day as the latest batch of earnings releases failed to ease investor concerns over the region’s corporate and economic health, while oil reversed gains. Bayer AG dragged chemical companies lower after it was said to be exploring a bid for Monsanto Co. Aegon NV plummeted 11 percent after the Dutch owner of insurer Transamerica Corp. reported a 50 percent drop in earnings. Assicurazioni Generali SpA lost 4 percent after Italy’s biggest insurer said quarterly profit fell 14 percent. Miners tumbled as metals prices retreated. A gauge of energy producers trimmed its gain to 0.2 percent from 2.3 percent amid signs Canadian oil-sands production is coming back online. The Stoxx 600 slid 0.5 percent to 333.11 at the close of trading, after gaining as much as 0.8 percent and losing 1 percent.
  • Iran Oil Output Rose to Pre-Sanctions Levels in April, IEA Says. Iranian crude production rose to levels last seen before sanctions were imposed more than four years ago, helping to drive OPEC output to the highest in almost eight years, according to the International Energy Agency. Iran pumped 3.56 million barrels a day last month, a rate last reached in November 2011 before trade restrictions were imposed over the country’s nuclear program, the IEA said Thursday. Exports soared more than 40 percent to 2 million barrels a day -- near pre-sanctions levels -- as the nation worked to regain lost market share.
  • Fed's Rosengren Sounds Another Hawkish Note Over Rate Outlook. Federal Reserve Bank of Boston President Eric Rosengren said that recent economic data warrants continued gradual interest-rate increases and policy makers could risk stoking a bubble in the commercial real estate market if they delay action for too long. “If the incoming economic data continue to be consistent with gradual improvement in labor markets and inflation getting closer to target, the Fed should be ready to gradually normalize interest rates,” Rosengren said on Thursday in Concord, New Hampshire, according to the text of his prepared remarks. Rosengren, a voter this year on the policy-setting Federal Open Market Committee, ran through recent economic readings that he said pointed toward continued gradual U.S. growth, including the April employment report, and then renewed a warning he voiced in November that low rates could encourage speculation in commercial real estate. “Prices now exceed the peaks reached prior to the financial crisis, and are well above the levels reached in 2005 as real estate prices were beginning to accelerate before the financial crisis,” he said.
  • Hillary Clinton to support Federal Reserve change sought by liberals. Democratic presidential front-runner Hillary Clinton said she would support changes to the top ranks of the Federal Reserve, an issue recently championed by progressive groups amid debate over how long the central bank should keep supporting the American economy. The Fed is led by a seven-member board of governors based in Washington and a dozen regional bank presidents based across the country, from New York to Kansas City to San Francisco. The governors are nominated by the White House and approved by the Senate, but regional bank presidents are selected by a board of directors with nine seats, whose occupants are chosen by the banking industry and by the Fed governors in Washington. In a statement to The Washington Post, Clinton’s campaign said she supports removing bankers from the boards of directors and increasing diversity within the Fed.
  • U.S. Consumer Comfort Drops to Five-Month Low on Economic Views. Consumer confidence fell last week to a five-month low as Americans became more downbeat about the economy, Bloomberg Consumer Comfort data showed Thursday. Sentiment around personal finances and the buying climate were little changed after declining the previous week.
  • Luxury-Home Sales Fall in London, NYC With Rich Shifting Focus. The world’s wealthiest homebuyers are pulling back from the traditional magnets of New York, Hong Kong and London, making way for cities such as Auckland, New Zealand, and Jackson Hole, Wyoming, to rank among the fastest-growing luxury real estate markets. Sales of luxury homes -- those of at least $1 million -- rose 8 percent worldwide last year, slowing after a 16 percent jump in 2014, according to a Christie’s International Real Estate survey released Thursday. Purchases declined in Manhattan, Hong Kong and central London, while jumping 63 percent in Auckland, 48 percent in the Toronto metropolitan area, 21 percent in Paris and 45 percent in the resort market of Jackson Hole.
  • JPMorgan(JPM) Trading Risk Rose, Rivals Hit Brakes With Markets Amok. Wall Street bank chiefs have vilified the profit-crushing markets that opened 2016 as “challenging” and “exceptionally violent and turbulent.” Trading revenue plunged. Job cuts ensued. More granular figures in banks’ quarterly reports over the past two weeks hint at decisions managers made to weather that storm, and how they played out -- in many cases not well -- across traders’ desks.
  • BMW's New Electric Flagship Car for 2021 Lags Audi, Mercedes. BMW AG’s response to the challenge posed by Tesla Motors Inc.(TSLA) will be ready in 2021, years after Audi and Mercedes-Benz plan to roll out their own long-range electric vehicles. With Tesla planning to enter the mainstream of the luxury-car market with the Model 3 next year, BMW is bringing out the iNext, which will supplant the 7-Series sedan as the brand’s flagship model. The vehicle will come eight years after introducing the squat electric-powered i3 city car in 2013.
  • Fed Faces 2015 Deja Vu as Markets Discount Rate-Increase Chances. Now even that forecast is looking doubtful. First-quarter growth data have again disappointed and markets see very little chance of a hike in June, even as officials insist that the meeting is “live.” Geopolitical risks loom -- including a June 23 referendum on Britain’s inclusion in the European Union, renewed concern of a Greek debt default in July and the U.S. presidential election in November
  • GE(GE) Stock Rally Seen at Risk as JPMorgan Makes Lone Sell Call. General Electric Co.’s stock surge over the past year may be running out of steam as the company forges ahead with a dramatic overhaul of its businesses, according to the only analyst who recommends selling the shares. Steve Tusa of JPMorgan Chase & Co. expects GE to decline to $27, the lowest of all analyst targets compiled by Bloomberg and well short of the $33.79 average. Resuming coverage Thursday with an underweight rating, down from neutral, he is the only one of 19 analysts not recommending buying or holding the stock. “While recognizing a bold portfolio transformation, and solid technology potential, we think these positives are more than reflected in GE stock at current levels,” Tusa said in a note. GE’s stated target of $2-a-share profit in 2018 “will remain elusive,” he said.
  • Major victory for GOP challenge to Obamacare funding of out-of-pocket costs. Obamacare was hit with a potentially damaging blow Thursday. A federal judge ruled that the Obama administration is not authorized to spend billions of dollars to reimburse insurers on Obamacare marketplaces for valuable subsidies given enrollees in health plans to pay for their out-of-pocket medical costs.
  • Retailers ringing the recession alarm. (video) Even industry executives can't figure out what's wrong with retail. After posting their steepest quarterly same-store sales declines since the recession, management at both Kohl's and Macy's said they were scratching their heads over the disconnect between the improving economy, and a pullback in traffic and spending at their stores in the first quarter.
  • Apple(AAPL) briefly dips below $90, hits near 2-year low. Apple's stock had another bad day Thursday. The tech giant's shares were briefly down nearly 3 percent, falling below $90 for the first time since June 26, 2014. They were also the biggest drag on the Dow Jones industrial average. Apple's market cap was also knocked off from the No. 1 spot by Google-parent Alphabet. Apple shares were down 2.5 percent in afternoon trading.
  • Retail recession? Why Kohl's(KSS) miss was so huge. (video)
Zero Hedge:
  • China Jan.-April Rail Cargo Volume Drops -9.6% Y/Y. Railway cargo volume 838m tons in first 4 mos. of year, citing data from China Railway Corp.

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