MT Newswires Exclusive: Fed to Tighten Rates at Accelerated Pace in 2017 Amid Projections for Faster Inflation, Economic Growth

9:26 AM, Dec 15, 2016 — The Federal Reserve said it expects a faster pace of tightening in the benchmark interest rate next year amid prospects for accelerated inflation and economic growth.

The Federal Open Market Committee raised the federal funds rate to 0.5% to 0.75%, the first increase since December 2015 and only the second in almost a decade. The Fed indicated three more hikes of about 25 basis points are on the block in 2017 provided the economy continues to strengthen as it did this year.

The rate increase was “well timed,” said Chad Morganlander, an analyst at Washington Crossing Advisers, though he expects the Fed to hike rates only twice in 2017, and that future increases will be measured.

“Over the next several years we believe the Federal Reserve path to rate hikes will be slow and consistent,” he said.

The US unemployment rate fell to 4.6% in November, according to the Department of Labor. FOMC members on Wednesday projected a median unemployment rate of 4.5% for next year, down from its September outlook for 4.6%. They also expect economic growth of 2.1% in 2017, up from the prior outlook for 2%.

While the FOMC’s view on the labor market and rising inflation were enough to bring on higher rates Wednesday, monetary policy makers were silent about the incoming administration of Donald Trump. Stock markets have surged since the election as investors hope Trump will come through with policies that bolster economic growth and slash taxes.

“In Q&A, Yellen was careful to tiptoe around the fiscal stimulus elephant, which suggests that the Fed’s hand could be forced to be more aggressive down the road, following what marks only the second rate hike in a decade,” Michael Wallace, global market strategist with Action Economics, said in an e-mailed note.

Existing home sales, another indicator of economic strength, rose in October, according to the most recent data from the National Association of Realtors. Sales grew 2% to a seasonally adjusted annual rate of 5.6 million in October, the highest in almost a decade, the association said. The sales pace in the month was almost 6% above the year-ago figure.

Oil prices, which in the first quarter of the year plunged to the lowest in almost a decade, have rebounded throughout 2016 and have recently risen after the Organization of Petroleum Exporting Countries said its members would curb production. West Texas Intermediate futures, the US benchmark, have almost doubled since falling to near $26 in February.

Inflation will rise to the Fed’s goal of 2% in the medium term as the effects of declines in energy and import prices dissipate and the labor market strengthens further, the FOMC said in its statment. Monetary policy remains “accommodative,” which supports further strengthening in the labor market.

FOMC members forecast the median Fed funds rate at 1.4% in 2017, up from a prior outlook for 1.1% and this year’s 0.6%, an indication of three rate increases of about 25 basis points each.

While that projection was “somewhat of a surprise,” according to Francois Genereux, a senior economist with Desjardins, the Fed “has often slashed the scope of its planned monetary firming measures. Our scenarios continue to call for only two key rate increases in 2017.”

Genereux said when the tightening cycle began a year ago, expectations were not for such a long gap between hikes, although the US economy was “disappointing” over that time period.

“Job gains have been solid in recent months and the unemployment rate has declined,” the FOMC said Wednesday. “The committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will strengthen somewhat further.”

Oil Rigs

Oil Prices Paring Losses After Surprise Contraction in US Stockpiles

11:44 AM, Dec 14, 2016 — Oil prices were paring losses on Wednesday after a surprise drop in the size of stockpiles stored in the US and in spite of an increase in crude oil refinery inputs, fresh data has shown.

West Texas Intermediate (WTI) crude oil, the main US oil benchmark, was 1.0% lower at $52.44 per barrel while Brent crude, the international oil gauge, was 0.6% lower at $55.40 per barrel at the time of writing. Earlier in the day, both benchmarks had been trading for less; WTI had fallen as low as $51.84 per barrel while Brent crude posted an intraday low of $54.77 per barrel.

Prices are, however, substantially higher than the levels seen prior to the Organisation of Petroleum Exporting Countries (OPEC) agreeing to cut oil production at the end of November. The bloc, whose members collectively generate more than one third of global oil supplies, elected to lower output by 1.2 million barrels per day starting from January 1st 2017 in the first such deal to be signed in almost a decade.

US commercial crude oil inventories decreased by 2.6 million barrels to 483.2 million barrels in the week ending December 9,data published by the Energy Information Administration (EIA) showed. This marked the fourth consecutive week of declines in US stockpiles and stood in contrast to a forecast from the American Petroleum Institute (API), which was published on Tuesday, for a build of 4.7 million barrels over the week.

Crude oil refinery inputs in the US averaged 16.5 million barrels per day during the week, 57,000 barrels per day more than the previous week’s average while refineries operated at 90.5% of their operable capacity, up fractionally from 90.4% in the prior week, according to the EIA’s data. US imports of crude oil averaged about 7.4 million barrels per day, down by 943,000 barrels per day from the previous week.

Gasoline production contracted, averaging over 9.8 million barrels per day from 9.9 million barrels per day in the prior week, and distillate fuel production averaged 5.0 million barrels per day, down from 5.1 million barrels a week earlier.

Price: 8.84 Price Change: +0.12 Percent Change: +1.32


Redstone’s National Amusements Wants to Halt Viacom-CBS Merger Plans

1:15 PM, Dec 12, 2016 — National Amusements, the company controlled by media magnate Sumner Redstone, has called for a halt to the exploration of a merger between its units, CBS Corp. (CBS) and Viacom (VIA, VIAB)

“After careful assessment and meetings with the leadership of both companies, we have concluded that this is not the right time to merge the companies,” according to statement issued Monday from Redstone, chief executive officer of National Amusements, and his daughter, company President Shari Redstone.

Viacom, which has channels including CMT and BET and the Paramount Pictures film division, was the subject of a lengthy battle for control earlier this year that eventually saw CEO Philippe Dauman resign in August. In September, National Amusements asked the television broadcaster CBS and Viacom to explore a merger because a tie up “might offer substantial synergies that would allow the combined company to respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape,” it said at the time.

But later changes at Viacom saw Robert Bakish named acting president and CEO in November, and the new management has prompted National Amusements to call off its merger bids.

“We have been very impressed with the forward-looking thinking and strategic plan being pursued under Bob Bakish’s leadership,” the Redstones said on Monday. “We know Viacom has tremendous assets that are currently undervalued, and we are confident that with this new strong management team, the value of these assets can be unleashed.”

For the fiscal fourth quarter, Viacom reported adjusted earnings that topped Street views, but revenues of $3.23 billion was below analysts’ expectations for $3.31 billion and down from $3.79 billion a year earlier. On the other hand, CBS in its most recent report said quarterly sales rose 4% to $3.4 billion from the year-ago period, topping the Street’s expectation for $3.34 billion.

“CBS continues to perform exceptionally well under Les Moonves, and we have every reason to believe that momentum will continue on a stand-alone basis,” the Redstones said.

Companies: Viacom Inc.
Price: 39.95 Price Change: -2.51 Percent Change: -5.90


MT Newswires Exclusive: Visits to Quick-Service Restaurants Fall First Time in Five Years as Consumers Pinch Pennies

7:32 AM, Dec 8, 2016 — Visits to restaurants fell 1% in the third quarter as trips to quick-service locations, which account for 80% of total customers, declined for the first time in five years, according to a report by market researcher The NPD Group.

Bonnie Riggs, a restaurant industry analyst at NPD, said that rising healthcare costs and student debt have led consumers to curb expenditures. An NPD survey showed 75% of respondents are closely watching how they spend and many believe restaurant prices are too high, Riggs said.

The price of an average restaurant meal has risen 21% in the past decade, leading many consumers to eat meals at home, she said. Some 82% of all meals are now consumed at home. To offset this trend, restaurateurs will have to change the “experience” to draw customers, Riggs said.

Food prices in the 12 months ending October fell 0.4%, according to data from the Bureau of Labor Statistics. Of that, food at home prices contracted 2.3% while food away from home gained 2.4%, said the BLS, a division of the US Department of Labor. The Economic Research Service, a division of the Department of Agriculture, expects at-home food prices to rise 0.5% to 1.5% in 2017 while food-away-from home prices will jump 2% to 3%.

“The marketplace is changing and despite improving economic indicators, the consumer landscape is fundamentally reshaped,” Riggs said.

Still, some restaurants have found ways to keep customers coming through the door. McDonald’s (MCD) boosted profitability by introducing its all-day breakfast. The industry also got a bump with the election of Donald Trump to the Oval Office as he’s expected to reduce regulations on healthcare insurance and overtime pay. That will benefit companies such as Darden Restaurants (DRI), whose biggest expense is labor.

Still, with fewer customers eating at restaurants, companies can ill afford any hiccups. Chipotle Mexican Grill (CMG), on the heels of an E. coli outbreak last year that caused its stock price to plunge, took another hit this week after co-Chief Executive Steve Ells said the company lost its focus on customer service. Executives are “nervous” about meeting next year’s guidance, he said, according to news reports.

“I’m particularly not satisfied with the quality of experience in some of our restaurants,” Ells said during a speech at a Barclays conference.

Riggs, the NPD analyst, said consumers will still want to eat outside the home, but restaurants need to focus on customer service to keep visits from declining.

“What hasn’t changed and won’t change is the consumer’s need for foodservice; it saves them time and provides them with an experience,” she said. “Restaurant operators will need to look for ways to differentiate themselves from the competition. They will need to find the means to stay relevant in consumers’ minds — innovative products, unique promotions, competitive pricing, stating the benefits of eating at restaurants compared to home — while delivering an enjoyable experience.”

Starbucks storefront

Starbucks Plans 12,000 New Locations in Five-Year Plan to Bolster Revenue, Earnings

1:23 PM, Dec 7, 2016 — Starbucks (SBUX) is planning to open 12,000 new locations around the world by 2021 as part of a bid to bolster revenue and earnings, the coffee giant said on Wednesday.

The five-year “strategic plan” includes a move to grow revenue by 10%, increased earnings per share 15% to 20% and drive same-store sales growth of mid-single digit each year, the company said in a statement.

“We are today executing against an ambitious, carefully-curated, multi-year strategy to further elevate the entire Starbucks brand and customer experience around the world,” said Kevin Johnson, the company’s president and chief operating officer, who is set to become chief executive when Howard Schultz leaves the role in April.

Starbucks plans to open Reserve Roastery locations in Shanghai in 2017 and in Tokyo and New York in 2018, with another European site to be announced early in the new year. The first roastery, described by the company’s website as a “coffee shrine,” was opened in Seattle two years ago, Starbucks said.

And in China, plans are “on track” to open more than 5,000 stores by 2021, adding to the about 2,500 currently in operation. Starbucks sees the Chinese market eclipsing the US “over time,” it said.

The cafe is planning to add more menu items early in 2017 and set a goal of doubling food growth over the next five years, it said. Starbucks will also launch a “conversational ordering system” called My Starbucks Barista, that will allow customers to place orders with voice command or messaging, rolling out first in limited trials on Apple’s (AAPL) iOS mobile operating system early in 2017 and more widely on iOS and Android later on.

Companies: Starbucks Corporation
Price: 58.42 Price Change: +0.98 Percent Change: +1.71

UK Brexit Deal_flags

UK Brexit Deal Must Be Negotiated by October 2018, EU Chief Negotiator Barnier Says

9:57 AM, Dec 6, 2016 — The UK’s divorce agreement from the European Union should be negotiated in 18 months to leave time for the approval process, raising the prospect of Britain being out of the trading bloc by October 2018, the EU’s chief negotiator Michel Barnier said on Tuesday, according to reports.

Speaking to journalists in Brussels, Barnier repeated his view that any deal the UK gets must be inferior to the terms it currently enjoys as member of the world’s largest trading bloc, the Guardian said.

Britons voted in June 52% to 48% to withdraw from the now 28-nation EU. British Prime Minister Theresa May said she would like to implement Article 50 of EU Treaties, which would kick off formal negotiations about the terms of departure, before the end of March next year.

Barnier said a “short transitional agreement” to bridge the period between the UK’s exit and the start of its future relationship with the union was a possibility, the Guardian said.

“It’s clear that the actual negotiation period will be shorter than two years,” he said. “All in all, there will be less than 18 months. If, as Theresa May has said, we receive notification by the end of March, it is safe to say the negotiations could start a few weeks later and article 50 agreement would have to be reached by October 2018.”

Barnier said the EU’s starting position for the talks would be based on the union’s four key principles, which are the freedom of movement of goods, people, services and capital over borders.

The Supreme Court of the UK is hearing an appeal on Tuesday for a second day from the government to overturn a High Court ruling saying the prime minister could not use the royal prerogative to trigger Article 50, the formal start of Brexit, without a vote in Parliament. A vote in the legislature may cause further delays to beginning the process.

A photograph of scribbled notes on a memo block carried by a Conservative party aid when leaving a meeting at Downing Street last week said the government’s negotiating positions was “Have cake and eat it.”

train tracks

Wabtec’s Acquisition of Faiveley Likely to Boost Earnings Power in 2018, Stifel Says

9:41 AM, Dec 2, 2016 — Westinghouse Air Brake Technologies (WAB), also known as Wabtec, said on Thursday it acquired Faiveley Transport, a provider of services for the railway industry with annual sales of about $1.2 billion, a move that should help the company boost earnings power in 2018, Stifel analsyt Michael Baudendistel said in a note to clients.

Wabtec, along with announcing the acquisition, also issued guidance that was below expectations for 2017, he said. The company issued 2017 earnings guidance of around $4.30, below Stifel’s outlook for $4.45, which the analyst said may be due to a weak core business. Still, that didn’t dampen Stifel’s outlook for the company.

“Despite the lower 2017 outlook, we are encouraged, as we believe the story has been de-risked some, with questions around Faiveley accretion and a preliminary 2017 guidance outlook now behind the company,” Baudendistel said in the note. “Additionally, we believe the true earnings power of the combined company is not reflected by 2017 results, which will include significant integration costs.”

Stifel lowered its 2016 and 2017 pro-forma estimates “slightly” while leaving its 2018 outlook unchanged. The researcher left its buy rating on the company and raised its target price from $88 to $95, 19 times its 2018 earnings estimate of $5 thanks to the confidence in accretion from Faiveley, lower risk profile and higher valuation attributable to “optimism” surrounding a Trump presidency.

The company is poised for “solid” growth in 2018 as several segments should show improvement, Baudendistel said. Freight woes likely will bottom in 2017 and rail volume may be positive next year.

“We believe the true benefit of synergies from the Faiveley deal will be more fully realized in 2018, as net synergies next year are expected to be only $7 million to $10 million out of a total of $50 million in annual synergies expected by 2019,” he said. “We continue to like Wabtec as a diversified and high-quality way to invest in rail globally, both freight and transit.”

Companies: Westinghouse Air Brake Technologies Corporation
Price: 86.04 Price Change: Percent Change: +0.00


Stocks Split in Early US Trading as Dow Gains and Nasdaq Head Lower

10:07 AM, Dec 1, 2016 — Stocks in the US started Thursday’s session taking split directions, with the Dow Jones Industrial Average advancing as oil prices topped $50 a barrel while the Nasdaq Composite retreated and the Standard & Poor’s 500 fluctuated between gains and loss.

West Texas Intermediate was trading 2.7% higher at $50.79 a barrel a day after the Organization of Petroleum Exporting Countries announced a deal to cut production. Brent, the main international variety, gained 2.9% to $53.33 a barrel. Energy stocks were up 0.8% on the S&P 500, with Chevron (CVX) rallying to the highest in two years on an intraday basis with a 1.5% increase.

Ahead of Friday’s key jobs report and this month’s Federal Reserve interest-rate decision, investors parsed a slate of economic data including a report that showed the pace of job cuts last month fell to the lowest level of the year, according to consultancy Challenger, Gray & Christmas, while unemployment insurance claims in the week ending Nov. 26 rose by 17,000 to a higher-than-expected 268,000. Analysts polled by Econoday had projected 253,000 claims.

General Motors (GM) jumped 3.3% after the company said it sold 197,609 vehicles in November, a gain of 8% from a year ago. Ford Motor (F) gained 4.4% after reporting a 5% increase in total sales to 197,574 units.

Dollar General (DG) dropped 6.2% after the discount store operator said quarterly earnings and sales missed expectations. Lands’ End (LE) lost 4.7% after the retailer of casual clothing, accessories and footwear reported a larger-than-expected loss in the fiscal third quarter even as revenues beat estimates.

In early trading, the Dow was up 0.3%, the S&P was less than 0.1% stronger and the Nasdaq retreated 0.2%.

Globally, the Shanghai Composite rose 0.7%, the Nikkei 225 advanced 1.1%, the Hang Seng increased 0.4%, the FTSE 100 fell 0.9% and the CAC 40 fell 0.3%.


Rolls-Royce Unveils Plans to Cut 800 Roles Worldwide

7:40 AM, Dec 1, 2016 — Rolls-Royce (RR.L) unveiled plans to cut hundreds of roles worldwide on Thursday as the producer of high-performance power systems said that it is seeking to accelerate the transformation of its marine business following continued weakness in the maritime market.

The company, which employs more than 50,000 people around the world, said that it would further simplify the structure of its marine business, with a streamlining of its senior management team and a series of cost reduction initiatives which would result in the loss of around 800 roles worldwide and an estimated 45-50 million pounds ($56.9 million-to-$63.3 million) of annualized savings from mid-2017.

The costs of the restructuring are expected to be around 20 million pounds, split between 2016 and 2017,the company said. As part of the program, Rolls Royce said that investments were also being proposed to establish a research and development center for the development of new propulsion products, and an expanded services hub for Northern Europe, both in Ulsteinvik, Norway.

The proposed job cuts are in addition to the reduction of 1,000 employees announced in May and October last year. The marine business currently employs around 4,800 people in 34 countries.

Mikael Makinen, president of the marine business at Rolls-Royce, said: “The ongoing market weakness that has followed the dramatic fall in the price of oil continues to have an adverse impact upon our order book and profitability. We have made significant progress in transforming marine into a far more agile and simplified business than we were and we have to take further steps to address our cost base.”

“Reducing our workforce is never an easy decision, but we have no option but to take further action beyond the changes we have made to date. This remains a fundamentally strong business, but we need to overcome the immediate challenges and focus our investments on the technologies that will shape our future growth,” he added.


Stocks Give Back Most Gains by US Close But Indexes Rally in Strong Monthly Moves

4:50 PM, Nov 30, 2016 — Stocks in the US gave back most of their gains by the close on Wednesday, with the Standard & Poor’s 500 reversing its advance and the Dow Jones Industrial Average finished little changed, backing off from the record high it touched earlier.

The Nasdaq spent most of the day lower as tech majors retreated. Facebook (FB) fell 2% and Intel (INTC) dropped 1.7%. On the Dow, Visa (V) slid 2.3% in the steepest decline while Goldman Sachs (GS) advanced 3.7%. Chevron (CVX) gained 2% and Exxon Mobil (XOM) added 1.6% as energy shares surged 5.2% after the Organization of Petroleum Exporting Countries announced an agreement on cutting oil production.

OPEC said it will cut production by 1.2 million barrels a day to 52.5 million barrels, with effect from Jan. 1. Oil prices had fluctuated in recent days on speculation that an agreement wouldn’t be reached, but West Texas Intermediate was 8.6% stronger late in the day at $49.14 a barrel.

Even though the indexes ended mostly lower on Wednesday, they still posted strong gains in November, driven by the surprise win of Republican Donald Trump in the US election. The S&P 500 was up 3.4% in the month, the Dow rose 5.4% and the Nasdaq climbed 2.6%

Economic data added support to the belief that the Federal Reserve will raise rates at its December meeting. The probability of a hike stood at almost 99% on the CME Group’s FedWatch tool. The private sector added 216,000 new jobs in October, beating Wall Street estimates for a gain of 160,000. Consumer spending increased 0.3% while incomes rose 0.6%, and manufacturing in the Chicago Fed area accelerated to its highest level in over a year. Pending home sales was the only miss with a 0.1% gain in October versus estimates for a 0.2% rise.

The US economy grew in most of the 12 Fed districts with higher retail sales reported, but the stronger dollar was a headwind for manufacturers, the Fed said in its Beige Book summary of comments on current economic conditions.

Outlook for higher rates helped financial stocks gain 1.3%, with Bank of America (BAC) rising 4.5%, Wells Fargo (WFC) climbing 2% and JPMorgan Chase (JPM) increasing 1.6%.

Also in company news, GoPro (GPRO) rose 1.5% after announcing 33% higher camera sales through its website over the Thanksgiving to Cyber Monday period and plans to cut 15% of its workforce. American Eagle Outfitters (AEO) tumbled 12% after the specialty retailer guided for downbeat earnings and comparable store sales for the current quarter.

Grocery giant Kroger (KR), discount retailer Dollar General (DG) and cloud applications firm Workday (WDAY) are slated to report earnings Thursday. The economic calendar has a long list of mid-tier data ahead of Friday’s marquee employment report, with the Challenger Job-Cut report at 7:30 a.m. ET, initial weekly jobless claims at 8:30 a.m. and the November Markit manufacturing purchasing managers’ index at 9:45 a.m., among others.

By the close, the Dow was up just 0.01%, the S&P 500 was down 0.3% and the Nasdaq retreated 1.1%.