RY-PT - Royal Bank of Canada

NYSE - NYSE Delayed Price. Currency in USD
-0.55 (-1.76%)
At close: 3:08PM EDT
Stock chart is not supported by your current browser
Previous Close31.02
Bid30.36 x 800
Ask31.23 x 900
Day's Range30.32 - 30.75
52 Week Range28.05 - 35.33
Avg. Volume500
Market Cap114.795B
Beta (3Y Monthly)0.27
PE Ratio (TTM)4.85
EPS (TTM)6.29
Earnings DateN/A
Forward Dividend & Yield1.69 (5.61%)
Ex-Dividend Date2019-07-25
1y Target EstN/A
Trade prices are not sourced from all markets
  • Canadian Inflation Surges As Core Rate Hits Highest Since 2012

    Canadian Inflation Surges As Core Rate Hits Highest Since 2012

    (Bloomberg) -- Canadian inflation quickened in May on increases across the board, giving the Bank of Canada plenty of scope to hold interest rates steady.The consumer price index jumped 2.4% from a year earlier, compared with 2% in April and versus a median economist forecast of 2.1%, Statistics Canada said Wednesday from Ottawa. It was the highest annual rate since October, boosted by increases in food and durable goods prices. Core inflation, a better gauge of underlying price pressures and one that’s closely watched by policy makers, rose to the highest since 2012.Firmer inflation gives the Bank of Canada reason to question the need for interest rate cuts, and provides ammunition to resist any easing trend in other advanced economies like the U.S. and euro area, where price gains have been more tepid. The Canadian dollar jumped on the report.The stronger inflation numbers “are one reason the Bank of Canada faces less pressure to reverse course and begin easing monetary policy,” Josh Nye, a senior economist at Royal Bank of Canada, said in a note to investors.Canada’s currency appreciated as much as 0.3% against the U.S. dollar, and was trading at C$1.3354 at 9:21 a.m. in Toronto. Yields on government 2-year bonds climbed 5 basis points to 1.46%.Whether the Bank of Canada will be forced to match -- at least in part -- future rate cuts by the Federal Reserve is one of the biggest questions for investors. Markets are still pricing in at least one quarter-point cut in Canada over the next 12 months, amid concern that trade tensions between the U.S. and China will slow the global economy. The Fed, which will release its latest decision at 2 p.m. in Washington, is expected to cut rates by at least 0.75 percentage points over that time.Diffusing expectations for lower borrowing costs in Canada is the fact that the policy rate in the country -- at 1.75% -- is below the Fed rate. The Canadian economy is also accelerating in the second quarter after a weak start to 2019, while growth is slowing in the U.S. after a strong start.And inflation dynamics seem to be stronger in Canada. The average of the three key measures of core inflation rose to 2.1% in May, breaching the 2% threshold for the first time since February 2012. The inflation numbers are above what the central bank has been estimating.On a monthly basis, the CPI increase was 0.4%, matching April’s pace and topping the 0.1% median forecast. The largest upside contributor to CPI on an annual basis was shelter costs, which rose 2.7%. Food and transportation were also major drivers.Excluding gasoline, inflation climbed 2.7% on the year.\--With assistance from Erik Hertzberg.To contact the reporter on this story: Chris Fournier in Ottawa at cfournier3@bloomberg.netTo contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Stephen WicaryFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Facebook Wants Its Cryptocurrency to One Day Rival the Greenback
    Bloomberg2 days ago

    Facebook Wants Its Cryptocurrency to One Day Rival the Greenback

    (Bloomberg) -- Facebook Inc. unveiled plans for a new, global financial system with a broad group of partners from Visa Inc. to Uber Technologies Inc. on board to create a cryptocurrency it expects will one day trade much like the U.S. dollar and inject a new source of revenue.Called Libra, the new currency will launch as soon as next year and be what's known as a stablecoin–a digital currency that's supported by established government-backed currencies and securities. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions across Facebook in a way that more volatile cryptocurrencies, like Bitcoin, haven’t been. The project is the culmination of a year-long effort as Facebook seeks to spur growth on its various platforms that already count more than 2 billion users. But it will also likely face skepticism–from regulators who already think Facebook has too much power and plays loose with digital privacy, and from those that are dubious of cryptocurrencies, which are known more for speculative investments and blackmarket commerce than for legitimate financial transactions.Read Facebook's white paper on Project Libra here.If successful, Libra could make Facebook a much bigger player in financial services.  Cryptocurrency firms have been trying to build cross-border, digital currencies on the blockchain to disrupt traditional banking and payments for a decade, but nothing has caught on at the scale of traditional money yet.Facebook, which announced the project with 27 partners, is already under wide-ranging regulatory scrutiny over how it handles users’ private data. Growth of its main platform has plateaued in some major markets and crypto payments would be a way to turn messaging – across WhatsApp, Facebook and Instagram -- into a business that complements its advertising operation, which generates almost all of its revenue. Facebook shares gained early Tuesday as analysts saw the move as a potentially major new profit stream. “We view Facebook’s introduction of the Libra currency as a potential watershed moment for the company and global adoption of crypto,” wrote Mark Mahaney, an analyst at RBC Capital Markets who has an outperform rating and $250 price target on Facebook shares. “In terms of scale and importance, we believe this new financial infrastructure could be viewed similar to Apple’s introduction of iOS to developers over a decade ago.”Still, the announcement was met immediately with political opposition in Europe, with calls for tighter regulation of the company. French Finance Minister Bruno Le Maire said Libra shouldn’t be seen as a replacement for traditional currencies and called on the Group of Seven central bank governors to prepare a report on the project for their July meeting.“It is out of question’’ that Libra “become a sovereign currency,’’ Le Maire said in an interview on Europe 1 radio. “It can’t and it must not happen.”Read More: Facebook’s Cryptocurrency Project: Who’s In and Who’s OutFacebook Could Be for Crypto What AOL Was for Internet Adoption Crypto Chiefs Novogratz, Allaire Say Facebook Coin Bullish SignFacebook Rallies as Analysts Praise 'Watershed' Crypto Move France Calls for Central Bank Review of Facebook CryptocurrencyTo come anywhere close to matching the U.S. dollar for utility and acceptance, Libra will need to be widely trusted. So Facebook and its partners are mimicking how other currencies have been introduced in the past.“To help instill trust in a new currency and gain widespread adoption during its infancy, it was guaranteed that a country’s notes could be traded in for real assets, such as gold,” the companies wrote in a white paper. “Instead of backing Libra with gold, though, it will be backed by a collection of low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks."The total number of Libra can change, and new digital coins can be issued whenever someone wants to exchange their Libra for an existing fiat currency, so the price shouldn’t fluctuate any more than other stable currencies, according to David Marcus, head of the Facebook blockchain team that’s spearheading the project.“It would make a scenario where there’s a run on the bank completely impossible, because we are backed one-for-one,” he said. Libra will also be audited, he added, an important step in an industry with limited transparency.Facebook has closely guarded its crypto plans for more than a year, though many of the details have already been reported by Bloomberg News and other outlets.Read about how Marcus tapped PayPal talent to build Facebook’s blockchain team.Marcus, who used to run Facebook Messenger, said Facebook plans to build a new digital wallet that will exist inside Messenger and its other standalone messaging service, WhatsApp. Once Libra is up and running, the currency and the digital wallet should make it easier for people to send money to friends, family and businesses through the apps. Libra will run on the so-called blockchain, a database that can use millions of computers to verify transactions, eliminating risks that come with information being held centrally by a single entity. Facebook created a new subsidiary, called Calibra, to build the new wallet and focus on the company’s blockchain efforts.Facebook's track record in payments and commerce has been spotty. A few years ago, it began letting people buy flowers or hail an Uber through its Messenger service. Those features have not been huge hits. In 2010, it began offering Facebook Credits, a way to buy virtual goods inside Facebook games. But in 2012 it scrapped Credits, and in 2013 it started working with third-party services like PayPal to process some payments. Facebook's revenue from "payments and other service" was less than 2% of total sales in 2018. When it finally arrives, Libra will be late to a party that’s been going on so long, many of the party-goers have either left or collapsed. Some past attempts to make coins usable for commerce, such as Bitcoin, haven’t widely caught on yet because price volatility mainly attracted traders and speculators. Predecessor stablecoins, like Tether, have been used by some traders to park funds in during times of high volatility, but have not been broadly adopted for commerce.Read more about Facebook CEO Mark Zuckerberg’s early plans for cryptocurrency. U.S. regulations may represent another hurdle for Facebook. Creating a digital currency doesn’t just require buy-in from financial institutions who need to accept it, and consumers who need to trust it, but it requires approval from regulators, too. The Securities and Exchange Commission has shut down about a dozen businesses issuing their own tokens for violations of securities law. Marcus said Facebook has been in contact with regulators and central banks, but added that the company hasn’t received a “no-action” letter from the SEC yet. That would have safeguarded the project from regulatory action by the agency.One way Facebook hopes to appease regulators is through the Libra Association, a governing body tasked with making decisions about Libra. Firms including Visa and PayPal Holdings Inc. are part of the group. Marcus described these members as “co-founders,” and said they will have an equal say in how the cryptocurrency is managed.“Facebook will not have any special privilege or special voting rights at the association level,” said Marcus, the former president of PayPal. “We will have competitors and other players on top of this platform that will build competing wallets and services.”All Libra Association members are putting a minimum of $10 million into a reserve to help support the cryptocurrency’s value. This buy-in comes with voting privileges. However, the association’s governance structure is still in flux, and most of the group’s crucial decisions, including the creation of its charter, have not yet been decided, according to several members of the group. They asked not to be identified discussing private details.“Facebook will not have any special privilege”Libra’s timing could also pose challenges. Facebook is being investigated by the Federal Trade Commission over the company’s privacy practices. Some have called for the company to be broken up, including Senator Elizabeth Warren and Facebook co-founder Chris Hughes. Asking consumers to put more trust in the social media giant, and giving Facebook a strong entry into the world of digital payments and banking, will likely draw further criticism.Opinion: Crypto-evangelists hoped digital currencies would challenge Big Tech’s data control. Zuckerberg has other plans.The company plans to keep financial data gathered from Libra users separate from Facebook user data. That’s why Facebook’s digital wallet will exist under the Calibra subsidiary, which will house user transaction data on separate servers, Marcus said. If a WhatsApp user uses her Calibra wallet to send money to a friend or pay a retailer, those interactions won’t be stored alongside her social-media profile.“There’s a clear distinction between Calibra and what Calibra has access to, and what Facebook Inc. has access to,” Marcus said. “It’s very clear that people don’t want their financial data from an account to be comingled with social data or to be used for other purposes.”(Updates with analyst comment, French finance minister, and shares.)\--With assistance from Jennifer Surane.To contact the authors of this story: Kurt Wagner in San Francisco at kwagner71@bloomberg.netOlga Kharif in Portland at okharif@bloomberg.netJulie Verhage in New York at jverhage2@bloomberg.netTo contact the editor responsible for this story: Alistair Barr at abarr18@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Arrested in Russia, U.S. Investor Faces Setback in London Court
    Bloomberg2 days ago

    Arrested in Russia, U.S. Investor Faces Setback in London Court

    (Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.The London Court of International Arbitration ruled in favor of a group of Russian investors in their legal battle with besieged private equity investor Michael Calvey in a decision that could force him to give up control of a key asset.The court found Artem Avetisyan’s Finvision had the right to exercise an option to buy a 10% stake in Bank Vostochny, RBC newspaper reported Monday, citing a copy of the ruling. That stake would give Avetisyan and his partners a majority of the bank’s shares. The court also ordered Baring Vostok Capital Partners to pay 550,000 pounds ($689,000) for the other side’s legal fees, RBC said, citing Finvision’s press service.This decision is a further setback for Calvey, an American private equity investor in Russia who is currently under house arrest in his Moscow apartment. A Russian court ordered Baring Vostok to give up control of the 10% stake earlier this month. Calvey’s fund dismissed that ruling, arguing the London proceedings took precedence over the Russian ones under their shareholder agreement with Avetisyan’s company.The arrest of Calvey, a veteran foreign investor in Russia and a longtime defender of Kremlin policies, shocked the investment community and cast a shadow over the country’s annual showcase for overseas business this month.The dispute, which has resulted in the February arrest of Calvey and several of his associates, centers around a 2016 merger between Bank Vostochny and Avetisyan’s Uniastrum Bank. Baring Vostok argued it was not obliged to cede control because it alleges Avetisyan stripped assets from his lender before the union was complete.Preliminary Ruling“The case in London isn’t over,” Baring Vostok’s press service said in a statement. “The interim decision by the Tribunal only relates to the process of using the option, while the main dispute - over whether the option has legal power following the fraud that took place before the banks merged - will be heard in January 2020.”Finvision couldn’t immediately be reached for comment.Calvey and five associates were arrested on charges they stole 2.5 billion rubles ($39 million) from the bank after an ally of Avetisyan lodged a criminal complaint. Three of the men remain in jail. Baring Vostok denies wrongdoing and says the Russian group is using the probe to take over Vostochny with little investment. Baring Vostok’s funds have invested at least $400 million in the bank over the last decade.The London court ruled that Finvision was in its rights to seek a judgment in Russia. It did not comment about the criminal charges Calvey faces other than to say it was a sign of the severity of the dispute, according to RBC.To contact the reporter on this story: Jake Rudnitsky in Moscow at jrudnitsky@bloomberg.netTo contact the editors responsible for this story: Torrey Clark at tclark8@bloomberg.net, Gregory L. WhiteFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Lufthansa’s Superstar Pilot Goes from Hero to Zero
    Bloomberg3 days ago

    Lufthansa’s Superstar Pilot Goes from Hero to Zero

    (Bloomberg Opinion) -- If it’s true that all political lives end in failure, then the same could be said for business. Carsten Spohr became Deutsche Lufthansa AG’s chief executive in 2014, made an impressive start, and had his contract extended to the end of 2023. He may regret signing up for that long.The German airline’s shares tumbled 12 percent on Monday after it issued a second profit warning in as many months. It expects to generate as little as 2 billion euros ($2.2 billion) of operating profit in 2019, up to 25% below what was expected by analysts.The stock is now worth less than four times last year’s earnings, a pretty pitiful multiple, and investors who bought the stock when Spohr took over have lost money. Suddenly, a man feted as one of Germany’s most accomplished corporate leaders looks ordinary.How times have changed. Spohr’s response to a 2015 aircraft crash at the Lufthansa offshoot Germanwings was both sensitive and assured. Later on he faced down industrial action to win concessions from staff on pensions. In 2017, Lufthansa’s profit hit a record high and the stock price soared 150%. Spohr was duly named Manager of the Year by Germany’s influential Manager Magazin.Sustaining all of this was always going to be hard in the notoriously unstable airline business. Fuel costs have risen, rivals have added new capacity and air cargo demand has waned, thanks in part to U.S. President Donald Trump’s trade crusades. (It’s worth reading Bloomberg’s William Wilkes on Lufthansa’s litany of problems.)But Spohr can’t just blame external factors. His company has chased growth to the detriment of profitability and it has spent heavily on new jets and integrating older ones from the insolvent Air Berlin. Gross capital expenditure jumped 8% to 3.8 billion euros ($4.3 billion) last year, leaving precious little spare cash.While Lufthansa is still doing fine on long-haul routes, Spohr’s big idea — a budget subsidiary called Eurowings — has been a disaster. The new unit was meant to challenge Ryanair Holdings Plc and EasyJet Plc in Europe, and to serve long-haul holiday destinations, but it lost more than 230 million euros last year. Instead of breaking even in 2019, as was anticipated, it will now remain in the red.Spohr has hit the brakes on Eurowings’s expansion but the company plans to “vigorously defend” its dominant market position in Germany and Austria. Translated, that sounds worryingly like: “Fare war? Bring it on.”Ryanair is pursuing a similar battle of attrition against weaker rivals such as Norwegian Air Shuttle ASA, with the aim of forcing them out of business. But Ryanair’s costs are much lower than those of Eurowings.Of course, Lufthansa can afford a couple of bleak years. At the end of March it had 12 billion euros of net debt, aircraft lease and pension liabilities — or about 2.4 times Ebitda (a measure of earnings). Norwegian’s leverage is miles higher.But when your corporate strategy is all about acquisition (Thomas Cook Group Plc’s German arm could be next on Spohr’s shopping list) and heavy investment, falling profits are doubly alarming. They suggest cash might be misallocated. “We think the sooner the company focuses on value for shareholders and less chasing or defending market share, the better for the shares. We see no hint of that yet,” RBC’s Damian Brewer complained.At an investor event next week, Spohr has a chance to explain how he plans to fly Lufthansa out of this mess. Once seen as a safe steward of Lufthansa’s capital, he’s starting to look a little reckless.To contact the author of this story: Chris Bryant at cbryant32@bloomberg.netTo contact the editor responsible for this story: James Boxell at jboxell@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • VW's $2 Billion Truck IPO Reflects Push to Trim the Empire
    Bloomberg3 days ago

    VW's $2 Billion Truck IPO Reflects Push to Trim the Empire

    (Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Volkswagen AG’s plan to list its truck division later this month will test whether it can pull off a feat that was once unthinkable for the German automotive giant: get smaller.For decades, the world’s biggest carmaker only knew how to expand -- adding Bentley luxury cruisers, Ducati racing bikes and Scania heavy trucks while taking its network of factories well past the 100 mark and its headcount over 640,000.Even in the face of the debilitating diesel-cheating scandal in 2015, the manufacturer didn’t trim its portfolio, bolstering investment in electric cars instead and even creating a new division for mobility services.Now with the pace of change in the auto industry quickening, Volkswagen is trying its hand at trimming the empire.If the listing of a minority stake in Traton SE -- a truck and bus maker with three vehicle brands and valued at as much as 16.5 billion euros ($18.5 billion)-- goes well, it would give Chief Executive Officer Herbert Diess more sway to balance the often diverging interests of VW shareholders including the Porsche and Piech owner family, Lower Saxony and powerful labor unions.Healthy Valuation“Traton’s IPO pricing suggests a healthy valuation which puts a spotlight on VW’s significant sum-of-its-parts disconnect,” RBC Capital Markets analyst Tom Narayan said in a note. Concerns over the company’s ability to switch to electric vehicles is “unfairly” weighing on its share price, the analyst said.Volkswagen rose 0.2% to 141.42 euros at 11:46 a.m. in Frankfurt trading, taking gains this year to 1.8%.For now, Diess is seeking deeper technology partnerships and the possible sale of assets like transmission maker Renk AG and MAN Energy Solutions, which develops engines. A successful Traton listing, targeted for June 28, could even spark rival Daimler AG to follow suit with a carve-out of its own truck business.The truck group comprises three main assets, Scania, MAN and Volkswagen-branded budget trucks sold in South America and Africa, as well as a unit offering digital services to fleet operators. With 29 production and assembly sites globally, the business last year sold 223,000 vehicles. While that’s 14% more than a year earlier, it’s less than half of Daimler’s truck division, the world’s biggest.Volkswagen is offering 50 million Traton shares at 27 euros to 33 euros apiece, plus a possible over-allotment of 7.5 million shares, meaning at the top end of the price range, the sale would raise as much as 1.9 billion euros. Here are the key points in one of the biggest initial public offerings in Europe this year:Sales PitchTraton is looking to woo investors by combining the best-in-class technology and strong margins of the Scania unit with the prospect of a turnaround at MAN and growth potential in key markets, according to company presentations and research from advising banks seen by Bloomberg.The plan includes the following four pillars:StrengthsChief Executive Officer Andreas Renschler, 61, is the mastermind behind Traton. After helping to establish Daimler’s commercial vehicles business as the world’s largest, he was lured to Volkswagen in 2014. Despite the partly overlapping operations, he’s improved earnings over the past four years, mainly by enforcing closer cooperation between long-standing rivals Scania and MAN. Investor interest in Traton will largely be a bet on Renschler’s veteran skills to deliver in the cyclical truck market.The timing of the listing, which was delayed earlier this year, is complicated by global volatility. The window may be as good as it gets. Rival Volvo Group -- the main pure-play competitor -- has gained 26% this year.“It’s no secret that the market environment is very volatile,” VW Chief Financial Officer Frank Witter told reporters on Monday. “It’s not ideal, but it’s not bad either.”VW remains open to sell more Traton stock at a later stage, up to a maximum stake of 24.9%, if market conditions are supportive, he said.WeaknessesTraton has only small bridgeheads in the key North American and Chinese markets, and the prospects for expanding those positions face obstacles.In North America -- the truck industry’s largest profit pool -- Traton merely owns a 16.8% shareholding in Navistar International Corp., which doesn’t it allow it to do much. Lifting the stake will cost money and add complexity. Meanwhile, Navistar still faces fierce competition from market leaders -- Daimler’s Freightliner, Volvo’s Mack and Paccar Inc.While Daimler and Volvo have functioning production joint ventures in China, the world’s biggest truck market, Traton’s cooperation with Sinotruk Hong Kong Ltd., where its holds a 25% stake through MAN, has yet to deliver the hoped-for results.Alliances can fall short of aspirations to create economies of scale, with the recent tensions at the Renault-Nissan Alliance a fresh reminder of the difficulties in uniting separate cultures. Traton also has a cooperation with Hino Motors Ltd., a Toyota Group company, on electric technology, product development and purchasing.MAN has long attempted a turnaround, but improvements have been tepid compared to an aggressive restructuring at Volvo that doubled margins within roughly three years. MAN’s production footprint in high-cost Germany and a lineup that includes less-profitable medium-duty trucks limits the potential for improvement.(Updates with CFO comment in 14th paragraph.)To contact the reporter on this story: Christoph Rauwald in Frankfurt at crauwald@bloomberg.netTo contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Chris Reiter, Elisabeth BehrmannFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Did the Markets Break Jerome Powell? We’re About to Find Out
    Bloomberg3 days ago

    Did the Markets Break Jerome Powell? We’re About to Find Out

    (Bloomberg Opinion) -- This week’s Federal Reserve decision will be the most consequential one yet under the leadership of Chair Jerome Powell.Sure, Fed officials will almost certainly leave interest rates unchanged, and they won’t do anything with the central bank’s balance sheet beyond what they have previously indicated. But the move in financial markets has been so swift, with traders so convinced that policy makers will lower interest rates imminently, that every change in their statement’s wording, every syllable uttered by Powell during his press conference, and any tweak in the “dot plot” will be scrutinized as much as ever. After all, vast sums of money (not to mention strategists’ reputations) are riding on a decidedly dovish shift.It truly seems as if bond traders have gone too far and are setting themselves up for disappointment. They have priced in a 92% chance of a quarter-point rate reduction in July and 2.75 cuts by the end of the year. Barclays Plc strategists would say that’s too conservative — they’re calling for a 50-basis-point cut next month and an additional 25 basis points in September in one of the more aggressive Wall Street forecasts. Basically, as Michael Purves at Weeden & Co. put it, markets are “almost taunting the Fed.”Make no mistake, Fed officials have a number of reasons for caution. While President Donald Trump tabled threatened tariffs on Mexico, a potentially drawn-out trade war with China looms large. U.S. inflation continues to fall short of the central bank’s stated 2% target, while the University of Michigan's gauge of expected price changes fell to an unprecedented low late last week. And the bedrock of this rate-hiking cycle — a seemingly unstoppable labor market — is showing early signs of slowing, with American companies adding just 75,000 workers in May, missing estimates for a 175,000 gain.All of this lines up with Powell’s pivot since the end of last year, from signaling further interest-rate increases and keeping the balance sheet runoff on “automatic pilot” to being patient and winding down the bank’s “quantitative tightening.” He and other policy makers have clearly indicated this is as far as they’ll go in tightening monetary policy this time around.That’s not the same thing as saying they’re ready to begin easing.The problem is, bond traders (and, admittedly, financial journalists) don’t care about that nuance. Conviction that the Fed is done hiking, by definition, means that the next move in interest rates will be lower, making it a matter of “when,” not “if.” After Powell said earlier this month that “as always, we will act as appropriate to sustain the expansion,” it was perceived as opening the door to cutting interest rates, even though he didn’t really say that. RBC Capital Markets had a brilliant report that noted the “weak” May jobs number was actually perfectly consistent with the Fed’s outlook. No matter; traders scurried to wager on easing sooner rather than later in the wake of the payrolls data. So here we are, with markets brazenly taunting the Fed. Will Powell dare to defy them?Unfortunately, recent history doesn’t provide a clear answer. In January, I wrote that the Fed was officially at the market’s mercy, given a decision that was seen as giving in to the late-2018 equities tantrum. Two-year Treasury yields fell about 12 basis points in the following 27 hours. In March, it was more of the same, with central bankers managing to beat traders’ lofty dovish expectations by shifting the dot plot to show zero interest-rate increases in 2019, compared with two in December. Again, two-year yields tumbled, ending the week 15 basis points lower than they were before the decision.Things went differently last month. After what looked like another bond rally in the making, Powell managed to entirely reverse it, and then some, by highlighting “transitory factors” keeping inflation subdued. “Our baseline view remains that with a strong job market and continued growth, inflation will return to 2% over time,” he said. Two-year yields climbed eight basis points in the next 27 hours, to 2.35%, a level that almost exactly aligns with the current effective fed funds rate. In other words, bond investors were more or less on board with the idea of a “patient” Fed holding rates where they are.Obviously, the outlook has changed since then, but not nearly to the extent that market pricing would indicate. As one example, Citigroup Inc.’s U.S. economic surprise index is at the same level it was on May 1, the day of the Fed’s most recent decision. The persistently negative reading is hardly a cause for celebration — it signals data have been worse than expected — but it could just as likely indicate that forecasters have to come to terms with the expansion turning 10 years old and serve as an early warning that the economy is rolling over. As RBC’s Tom Porcelli and Jacob Oubina noted, it’s all about the narrative.Given all that, which Powell will investors get? The one who gives them what they want and more, or the one who is willing to push back? I believe that deep down, Powell would strongly prefer to keep interest rates where they are and only begin easing when he and other officials observe clear and persistent signs of weakness. The U.S. economy is not at that point yet. It doesn’t help that Trump continues to pound the table for lower rates, in what has become a now-commonplace break from recent presidential history, while simultaneously trumpeting the “tremendous potential our Country has for GROWTH.”If I had to guess, the dot plot will turn flat, with the current 2.375% median fed funds rate extending through at least 2021. That’s the definition of patience. Then, Powell will reiterate in his press conference that the Fed stands ready to act as appropriate. In doing so, he preserves the option to lower interest rates as soon as July or September, without making any sort of explicit commitment. If that’s seen as insufficiently dovish, as some rates strategists suggest, then tough.Powell, at the helm of the world’s most influential central bank, can afford to be more deliberate than traders looking to get ahead of the next big move. At the same time, the cacophony of calls for rate cuts is tough to shut out. Should he capitulate entirely, he will be permanently viewed as a Fed chair who was broken by bond traders. To contact the author of this story: Brian Chappatta at bchappatta1@bloomberg.netTo contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Bloomberg9 days ago

    An Arrested Reporter Is Suddenly Important for Putin

    (Bloomberg Opinion) -- The arrest of investigative journalist Ivan Golunov in Moscow marks an important inflection point in relations between President Vladimir Putin’s regime and Russia’s various elites.The Kremlin, initially blindsided by the outcry at the reporter’s detention, could end up benefiting from it all, and the more liberal part of the pro-regime establishment may gain an advantage over its overeager security apparatus.Golunov is an unlikely central figure for such a potentially momentous story. Until June 7, he wasn’t well-known outside Moscow’s journalistic circles. The self-effacing 36-year-old was, however, highly respected by colleagues – not least because of his ability to pull on a thread nearly invisible to others and spin it out into a stunningly thorough investigation.Golunov possesses that rare combination of pedantry and fearlessness that makes the perfect investigative journalist. He applied his skills to subjects few others dared approach: The landfill business, dominated by mobsters and connected oligarchs; the cemetery mafias; the loan sharks; Moscow’s city government. (Meduza, the Riga-based outfit for which Golunov had recently worked, has published some samples of his reporting in English.)None of Golunov’s investigations were expressly political. They dealt with the minutiae of a society based on an amalgam of organized crime, mid-level bureaucracy and corrupt law enforcement. It wasn’t his job to discuss this system’s origins or its beneficiaries and benefactors in the Kremlin. He dug and analyzed; he didn’t editorialize.On Thursday, he filed a long-awaited story on the Moscow funeral business which implicated a number of law enforcement officials, including some officers in the FSB secret police, in running a protection racket. Then he went out to meet another reporter. On his way, he was picked up by plainclothes police, searched, shown a bag of white powder purportedly found in his backpack, stuffed into a car and taken to his Moscow apartment.A warrantless search of his home turned up more bags of powder. He was taken into custody, roughed up (though very slightly by Russian standards) and told he was being charged with possessing drugs with intention to supply. Only at 3:30 on Friday morning did the cops call one of Golunov’s friends, another investigative journalist, to say he had been detained.I have known Golunov for a long time and was, at one point, his editor. I had never heard of him using, much less selling, any drugs (and editors in Russia have long made it their business to find out about such staff-related risks). When I worked with him, he didn’t even drink alcohol. He was a stickler for the rules, acutely aware of the caution a person in his trade must exercise. Besides, he had no taste for luxury and little use for money; he ran on intense curiosity. To me, and to everyone else who knew him, the charges looked preposterous. There could be no doubt that the drugs had been planted, and that Golunov was being targeted for his work.In Russia, it’s very hard to mount a successful defense to such charges. The country’s harsh drug laws set low thresholds on the amount of a controlled substance it is a felony to possess. Fabricated charges are routinely used as a weapon against inconvenient individuals.Golunov’s case turned out to be special, though. For Moscow journalists, already facing harsh restrictions on their work in addition to much economic pressure, not standing up for him was unthinkable. It’s not just that many knew him as I did and found the charges impossible to believe; anyone could be next in line.  The ensuing protest was both impossible to miss – and curiously cautious. Many news outlets effectively boycotted coverage of the St. Petersburg Economic Forum, traditionally Putin’s favorite international event of the year. On Friday, the event was meant to be a demonstration of Putin’s close friendship with Chinese President Xi Jinping. Golunov beat Putin in both social media and traditional media mentions. Journalists stood in a disciplined line in front of Moscow’s police headquarters, waiting their turn to hold a sign demanding his freedom. Under Russian law, it’s an offense to hold a rally without permission, but single-person pickets are allowed without prior notification.Initially, the Kremlin took a tough line. Putin’s press secretary Dmitry Peskov pointed to a series of police photographs suggesting Golunov had run a drug lab at his modest apartment. It later transpired that the pictures had been taken elsewhere.The Russian Foreign Ministry, for its part, responded to tweets in Golunov’s defense from various U.S. and European officials by saying they should instead worry about WikiLeaks founder Julian Assange.But as early as Friday, some propagandists for the Russian regime began showing an unusual degree of sympathy for the investigative journalist. Tina Kandelaki, TV personality and head of a state-owned sports channel, posted on Telegram that she didn’t believe the charges against Golunov. Margarita Simonyan, editor-in-chief of the propaganda channel RT, declared that the authorities must answer “very, very, VERY many questions” about the reporter’s case.It was obvious early on to these experienced propagandists that the Kremlin was losing points because of the arrest, which somebody much lower down the food chain must have engineered. Putin, after all, makes a show of being intolerant of corruption, and officials, especially regional ones, are often charged with graft and given long prison sentences. Since Golunov isn’t an opposition figure, the Kremlin had little to gain by affirming the charges and keeping him locked up; instead, it had a chance to lash out at corrupt law enforcement officials and win popularity points. On Saturday, a judge placed Golunov under house arrest – an all but unprecedented act of leniency for someone charged with a drug offense carrying a minimum 10-year jail term. But journalists continued protesting: For an innocent person, any kind of confinement is too harsh.On Monday, Russia’s three top business newspapers, Vedomosti, Kommersant and RBC carried identical front pages for the first time in their fiercely competitive history, each proclaiming “We Are Ivan Golunov.” They also carried a cautious joint statement that they “didn’t rule out” that Golunov (who had worked for two of the three publications) was being pursued for his work.But by then, outrage on behalf of the mistreated reporter clearly had been officially sanctioned. Journalists at the two main state television channels, who never say anything without permission, demanded that “conclusive proof” of Golunov’s crimes be presented or he be freed immediately. Also on Monday, Putin’s human rights ombudswoman, Tatyana Moskalkova, officially reported to Putin on the case. In her opinion, Golunov’s arrest “discredits the whole practice of investigating drug crimes.”This tees up the ball nicely for Putin to hit before or during his annual call-in show with voters, scheduled for June 20. He faces a simple choice: Listen to his propagandists, let Golunov go and order reprisals against the corrupt cops – or side with his security apparatus and cover up the embarrassment with increased toughness.The former is more likely: Putin is worried about a steep drop in his ratings and eager to show that he is happy to side with people who protest injustice – as long as they don’t demand his overthrow. So far, the protests have remained within the loyalist framework, and a good Czar has a chance to show magnanimity. That’s good for Golunov, and of course the Moscow journalists understand this. That’s why they have been so cautious in their public utterances.If Putin holds up his thumb, I would be happy to see an honest, highly professional colleague walk free. At the same time, such a development would be a victory for the regime’s smooth spin doctors over its uncouth security elite. In the last few years, the latter has acted with increasing impunity, undermining the attempts by propagandists and establishment liberals to paint Putin’s Russia as a “normal” country. Golunov’s release could turn into a major talking point for these efforts – and, importantly, it would show dissidents that protest can be effective if it doesn’t turn too radical.Russia, however, wouldn’t move any closer to normalcy. The attempt to domesticate protest is transparently disingenuous, and the enforcers will, of course, fight back, seeking both to prove their loyalty to Putin with more suppression and to line their pockets with a little more skill amid some unwelcome attention.(Corrects date of Golunov’s house arrest in 16th paragraph to Saturday.)To contact the author of this story: Leonid Bershidsky at lbershidsky@bloomberg.netTo contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Leonid Bershidsky is Bloomberg Opinion's Europe columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

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