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Equities Slide Fourth Straight Day in US on Continued Trade War Worries

10:40 AM, Mar 2, 2018 — The US benchmarks extended their run of losses into a fourth straight day as fears grew that President Donald Trump was sparking a trade war with tariffs on some metal imports.

In a Friday morning tweet a day after he pledged to impose 25% tariffs on steel imports and 10% on aluminum, the president said “when a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win.”

Markets had recovered much of their February losses but the week’s volatile trading sent them back down to multi-week lows. Losses on Friday were led by the Standard & Poor’s 500 financials, consumer discretionary and materials sectors while defensive sectors were higher, with utilities and telecoms rising.

On the Dow Jones Industrial Average, more than two thirds of the blue chips were losing ground, led by a 4% drop in McDonald’s (MCD) after RBC cut its price target on the stock by $20 to $170 and slashed expectations for US same-store sales.

The Nasdaq Composite was dented by JD.com’s (JD) 7.4% loss after its fourth quarter adjusted profit declined.

Also in company news, J.C. Penney (JCP) fell 10% after the apparel and home furnishings retailer posted fourth quarter results which missed analysts’ estimates on revenue but beat on earnings. Park Hotels & Resorts (PK) fell 4.8% after the real estate investment trust reported a year-on-year drop in fourth quarter adjusted funds from operations.

Gap (GPS) rose 6.7% after the clothes retailer said late Thursday fourth quarter results topped analysts’ views. Microsemi (MSCC) gained 4.5% after Microchip Technology (MCHP) said it would acquired the semiconductor company for $68.78 a share. Microchip was up 2.7%.

In morning trading, the Dow was down 1.2% while the S&P 500 and Nasdaq both lost 0.6%.

Globally, the Nikkei 225 dropped 2.5%, the Hang Seng dropped 1.5%, the FTSE 100 lost 1.2% and the Shanghai Composite fell 0.6%.

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Peugeot Maker PSA Group of France Reports Surge in Revenue Helping Absorb Hit From Opel

10:31 AM, Mar 1, 2018 — France’s PSA Group (UG.FP), the maker of Peugeot and Citroen cars, said Thursday a surge in revenues helped the company absorb losses at newly acquired Opel and post a surge in profit last year.

Sales climbed for the fourth year in a row to 65.2 billion euros ($90.3 billion) in 2017, from 54 billion euros in the previous year, a 13% jump in constant currency terms, PSA, which acquired Opel Vauxhall subsidiaries from General Motors (GM) in March 2017, said in a statement. The number of vehicles sold also soared 15% to 3.63 million.

The increase in sales was mainly driven by the product mix as well as volume growth linked to the global “success” of new models, the company said. In addition, it noted a strengthening of its European leadership in the light commercial vehicles category for Peugeot and Citroen, with a 20% market share.

Group net profit climbed to 1.93 billion euros from 1.73 billion euros despite higher raw material costs and exchange-rate headwinds.

The French auto group said Opel, which posted an operating loss of 179 million euros, is in the midst of a product “offensive” in the Middle East and Africa after launching the Insignia and Crossland X and the unveiling of Grandland X slated for this year.

Excluding Opel Vauxhall, the company said it aims to deliver 10% revenue growth this year relative to its 2015 sales and target an additional 15% jump by 2021. The company is anticipating a stable automotive market this year in Europe but sees growth of 4% in Latin America, 10% in Russia and 2% in China.

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Macy’s Fourth Quarter Earnings Beat Estimates Helped by Strong Consumer Spending

9:24 AM, Feb 27, 2018 — Shares in Macy’s (M) were sharply higher in recent trade on Tuesday after the department store operator reported better-than-expected earnings for its fourth quarter and guided for full year earnings per share which straddled Wall Street’s expectations.

On an adjusted basis, the company reported a profit of $2.82 per share during the quarter ended February 3, up from $2.02 per share the same quarter last year and above the Capital IQ consensus estimate of $2.68 per share. The earnings per share reading was positively impacted by 7 cents due to the change in the effective annual tax rate implemented in the tax reform at the end of last year.

Total revenue increased by 1.8% to $8.67 billion from $8.52 billion a year ago but was slightly below the $8.7 billion forecast by analysts. On a comparable basis, which excludes the additional week in the fourth quarter of 2018 when compared to the prior-year period, sales were up by 1.3%.

For fiscal year 2018, the company is targeting adjusted earnings of between $3.55-and-$3.75 per share, straddling the consensus estimate of $3.62 per share. Total sales are expected to be down by between 0.5% and 2%.

“Macy’s, Inc. had a solid fourth quarter, including strong performance in January, and the full year exceeded our expectations for annual comparable sales and adjusted earnings per diluted share,” Jeff Gennette, Macy’s chief executive officer, said. “Consumer spending was strong in the fourth quarter, and we were ready with improved execution and great products across all categories.”

Macy’s shares were 9.6% higher at the time of writing.

Price: 29.82 Price Change: +2.37 Percent Change: +8.63

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General Mills Snaps Up Blue Buffalo Pet Products for $8 Bn in All-Cash Deal

9:05 AM, Feb 23, 2018 — Food production company General Mills (GIS) has agreed to buy Blue Buffalo Pet Products (BUFF) for approximately $8 billion in an all-cash deal which aims to capitalize on the lucrative pet food market and boost General Mills’ net sales growth.

The transaction, which is expected to close by the end of General Mills’ fiscal 2018 year, will see the Minneapolis-headquartered company acquire the producer of pet foods for $40.00 per share using a combination of debt, cash in hand and equity.

It marks General Mills’ first foray into the pet food market – estimated to be worth approximately $30 billion in the US alone – via the the sector’s fast-growing ‘wholesome natural’ category. Wilton, Connecticut-headquartered Blue Buffalo, which was founded in 2002, has seen its net sales grow consistently over the past three years, most recently rising by 10.9% to $1.27 billion in 2017.

Post-completion, the deal is expected to be immediately accretive to General Mills’ net sales growth, be neutral to cash earnings per share in fiscal 2019 and accretive in fiscal 2020, according to a joint statement issued by the two companies. The food producers’ combination is also projected to lead to revenue synergies over time and $50 million in anticipated cost savings opportunities.

“The transaction establishes General Mills as the leader in the US Wholesome Natural pet food category, the fastest growing portion of the overall pet food market, and accelerates its portfolio reshaping strategy,” Jeff Harmening, chief executive of General Mills said.

Companies: General Mills, Inc.
Price: 53.25 Price Change: -1.70 Percent Change: -3.09

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2018 CANADIAN BUDGET PREVIEW: NAFTA Negotiations: Budget 2018’s Under the Radar Secret

The ongoing NAFTA negotiations will likely be given short shrift in the Feb. 27 budget as Finance Minister Bill Morneau will be loathe to risk derailing the precarious talks. But that doesn’t mean the talks won’t be on Morneau’s mind.

“We will carefully consider the international situation to make sure that our economy is competitive,” Morneau told reporters last week, in a veiled reference to the North American Free Trade Agreement.

Economists agree Ottawa should proceed with caution and prepare for the still unknown impact of the NAFTA talks. Nearly 90% of economists surveyed by BNN support the finance minister’s decision to table the budget before NAFTA negotiations are complete.

“It’s unclear when NAFTA negotiations will get resolved,” said Brian Madden, senior vice president and portfolio manager at Goodreid Investment Counsel told BNN. “It could take years. So, the show must go on.”

Meanwhile, respondents to the BNN survey were split on whether or not Morneau should revisit tax reform after last summer’s backlash to changes in small business taxes.

“Completely back off personal tax reform for private corporations,” Paul Gardner, partner and portfolio manager at Avenue Investment Management, told BNN.

Others, such as Ian Russell, president and CEO of the Investment Industry Association of Canada, said Morneau should tackle tax reform head-on. “This effort to lower tax rates and simplify the tax system will bolster confidence and encourage investment,” Russell said.

Morneau has hinted that clarifications to rules around passive income for small businesses will coming, after the suite of changes announced last summer.

Sebastien Lavoie, chief economist at Laurentian Bank told BNN that in addition to NAFTA uncertainty, U.S. tax reform and deregulation plans weigh on short- and long-term growth prospects. “A positive growth-friendly signal should be sent ideally from the federal government,” he told BNN.

Morneau says the Liberal government is conducting a careful analysis in regard to U.S. President Trump’s recent tax reforms, which cut the U.S. corporate tax rate from 35% to 21% at the beginning of the year.

“We are doing our analysis to make sure that we understand the impact of any changes, to make sure we get it right and not to act in an impulsive way,” Morneau told reporters.

Toronto Skyline

2018 CANADIAN BUDGET PREVIEW: Balanced Budget Should be Priority for Finance Minister, Economists Say

To keep Bay Street happy, Finance Minister Bill Morneau will have to do something in his Feb. 27 budget he’s never done before: chart a course to a balanced budget.

In Budget 2017, the Liberal budget predicted a $31.5 billion deficit in 2016-17, staying around the $31 billion mark for the next five years, ending with a $30.9 billion deficit in 2021-22.

However, the strong economy last year has given Morneau room to manoeuvre in Budget 2018.

In fact, this past October, Morneau’s fall fiscal statement predicted a deficit of $18.4 billion in 2017-18 and a $15.6 billion shortfall in 2018-19. That’s quite a reduction from Budget 2017 and may be why 45% of economists surveyed by the Business News Network say Morneau’s top priority in the budget should be outlining a path back to a balanced budget.

Scotiabank chief economist Jean-Francois Perrault told the Canadian Press he now expects Ottawa to be on track for deficits of $16.8 billion in 2017-18 and $14.8 billion in 2018-19.  Perrault, who attended a meeting of economists with Morneau last week, recommends the government hold off on any big spending plans just in case it needs to respond with new tax measures to keep Canada competitive.

“It would be very prudent for the government to wait until we see if, in fact, there is evidence that what’s happening down south in the U.S. is having a detrimental effect on Canadian business,” Perrault said, referring to U.S. corporate tax cuts.

Meanwhile, Craig Alexander, chief economist for The Conference Board of Canada, predicts the deficit to be about $4 billion smaller in 2017-18. “But going forward, they’re not going to have a lot of extra money in the kitty for new initiatives if they want to keep debt-to-GDP ratio on a downward path,” he told the Canadian Press.

Wall Street Street Sign

Equities Push Higher in US as Markets Await Fed Meeting Minutes

10:44 AM, Feb 21, 2018 — The benchmark US equity markets advanced on Wednesday, paring losses made a day earlier as investors awaited the minutes from last month’s Federal Open Markets Committee meeting.

The blue-chip Dow Jones Industrial Average saw more than two thirds of its components increase, helping overshadow more losses for Walmart (WMT). All of the sectors on the Standard & Poor’s 500 were in the green apart from real estate and energy, which dipped amid price declines for crude oil.

The Fed in January “noted a specific forecast for a ‘move up’ in inflation this year warranting a ‘further’ removal of accommodation,” Lindsey Piegza, chief economist with Stifel Economics, said in an e-mailed note. “The minutes are likely to provide additional context as to policymakers’ forecast for inflation and the likely policy response should inflation fail to ‘move up’ this year.”

Financials, which can benefit from higher interest rates, were up 0.5% on the S&P 500, as was information technology, industrials and materials. Also in economic data, January existing home sales fell to 5.38 million against expectations for 5.6 million. February manufacturing PMI rose to a 40-month high of 55.9 from 55.5, beating estimates for 55. The composite and services measures also beat expectations.

In company news, Advance Auto Parts (AAP) jumped almost 13% as the automotive aftermarket parts provider reported better-than expected fourth quarter earnings and revenue. Vonage (VG) dropped 11% as the telephone provider’s quarterly revenue just missed analysts’ expectations while its GAAP loss widened.

Tile Shop (TTS) plunged 27% after swinging to a loss in the fourth quarter, while Ruth’s (RUTH) was up 4% after its earnings rose year on year.

In morning trading, the Nasdaq rose 0.7%, the S&P 500 gained 0.5% and the Dow increased 0.4%.

Globally, the Hang Seng jumped 1.8%, the Nikkei 225 added 0.2%, the FTSE 100 rose 0.5% and the Shanghai Composite was closed.

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BHP Billiton Boosts Dividend Payout as Adjusted Profit Jumps in First Half

7:01 AM, Feb 20, 2018 — Australian mining major BHP Billiton (BHP, BLT.L) reported double-digit growth in its dividend payout on Tuesday as it registered a jump in both its revenue and profit in its fiscal first half helped by higher commodity prices.

The group will pay an interim dividend of $0.55 per share for the period, up 38% from the $0.40 per share dividend seen in the corresponding part of the prior fiscal year, according to results. The windfall comes as group sales climbed to $21.78 billion in the six months to December 31 from $18.80 billion a year earlier, surpassing the consensus estimate of analysts polled by Capital IQ for $21.2 billion.

Supporting the increase in group sales were jumps in all of the companies’ key mining activities, with the biggest portion of revenue coming from iron ore, worth $7.22 billion, up from $6.93 billion a year earlier. Copper revenue rose to $6.38 billion from $4.21 billion a year earlier and coal revenue rose to $4.05 billion from $3.93 billion over the same time frame.

Underlying attributable profit, which excludes exceptional items such as the Samarco dam failure and a $1.83 billion hit from US tax reforms, surged to $4.05 billion from $3.24 billion.

BHP said that capital and exploration expenditure rose 6% to $2.9 billion, with guidance remaining unchanged at $6.9 billion for the current fiscal. The outlook for full-year unit costs, which rose in the first half, also remains unchanged for petroleum, copper, iron ore and energy coal. BHP forecast global economy will grow 3.5%-3.75% in 2018, the same as last year, while noting China’s growth is expected to slow “modestly” in 2018.

BHP used free cash flow of $4.9 billion to “further reduce” net debt and “increase returns to shareholders through higher dividends,” Chief Executive Officer Andrew Mackenzie said in the statement. “Over the next few years, the global copper market is expected to remain finely balanced and vulnerable to supply shocks.”

Companies: BHP Billiton Limited
Price: 46.83 Price Change: -1.86 Percent Change: -3.82

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USB

U.S. Bancorp to Pay More Than $600 Million to Resolve Anti-Money Laundering Failures

11:58 AM, Feb 15, 2018 — U.S. Bancorp (USB), the parent company of the fifth-largest bank in the US, said it will pay $613 million for failing to have adequate anti-money laundering programs in place and for not filing a report on suspicious activity.

The company will pay penalties assessed by the US Attorney’s Office for the Southern District of New York, the Office of the Comptroller of the Currency, the Federal Reserve Board and the Financial Crimes Enforcement Network or FinCEN, it said in a statement Thursday.

U.S. Bank operated an anti-money laundering, or AML, program “‘on the cheap’ by restricting headcount and other compliance resources and then imposed hard caps on the number of transactions subject to AML review in order to create the appearance that the program was operating properly,” said Manhattan US Attorney Geoffrey Berman in a separate statement.

The Minneapolis-based lender hid its “wrongful approach” from the Office of the Comptroller of the Currency, or OCC, and it “failed to detect and investigate large numbers of suspicious transactions,” Berman said.

The bank also failed to report suspicious activity related to a client who was convicted last year for offences linked to a fraudulent payday lending scheme, Berman said.

U.S. Bank’s president and chief executive officer, Andy Cecere, said the company regrets and has “accepted responsibility for the past deficiencies in our AML program. Our culture of ethics and integrity demands that we do better.”

The bank has different AML leadership since 2014, more transparent reporting and escalation processes, improved controls and training and expanded transaction monitoring to “identify potentially suspicious activity.”

Companies: U.S. Bancorp
Price: 55.13 Price Change: -0.18 Percent Change: -0.33

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Digital Currencies Could Use Self Regulation to Prevent Fraud, CFTC Commissioner Says

12:52 PM, Feb 14, 2018 — The burgeoning asset class of virtual currencies could use a self-regulatory organization to enforce standards that would protect investors and prevent fraud in the sector, according to Brian Quintenz, a commissioner with the US Commodity Futures Trading Commission.

There’s an ongoing debate about whether currencies are a security or a commodity, and the regulator of futures and swaps markets shouldn’t “make value judgments about which new products are worthwhile and which are not — the markets, investors, and consumers need to decide that for themselves,” Quintenz said.

“The proliferation of virtual currencies over the course of the past year, while exciting from an innovation standpoint, raises a multitude of legal and regulatory questions and challenges,” he said in comments at the opening of the CFTC’s technology advisory committee meeting on Wednesday.

The popularity of trading in virtual currencies such as bitcoin has surged in recent years, with prices surging and companies looking to jump on the trend. Trading in futures of bitcoin began last year but regulators globally have been debating how to handle the digital assets.

Regulations currently are a “patchwork of state and federal jurisdictions,” Quintenz said. “As the markets for virtual currencies mature, the commission, along with its fellow state, federal, and international regulators, should ensure a rational approach to regulatory oversight, not one based on fear or inexperience.”

Financial technology is having a transformative impact on US derivatives markets,” said CFTC Chairman J. Christopher Giancarlo. “The landscape is changing for trading, markets and the entire financial structure, domestic and global, with far ranging implications for capital formation and risk transfer.”

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