|Bid||0.00 x 0|
|Ask||84.00 x 0|
|Day's Range||72.00 - 72.00|
|52 Week Range||72.00 - 80.50|
|Beta (5Y Monthly)||N/A|
|PE Ratio (TTM)||N/A|
|Forward Dividend & Yield||3.09 (3.86%)|
|Ex-Dividend Date||Jan 24, 2020|
|1y Target Est||N/A|
(Bloomberg) -- A decade-long slide in Australian interest rates is threatening to turn one of the global currency market’s most popular wagers on its head.Investors with an appetite for a little risk had a winner for years with a carry trade that saw them borrow trillions of yen at near-zero rates and use the money to buy Australian dollars. Holding onto the Aussie for as little as a few weeks could earn them enough interest to make the trade pay. Those brave enough to stick with it for months or more made huge profits.Not anymore.Foreign exchange traders are starting to look Down Under as a place to source cheap funds, not somewhere to invest them. It’s quite a snub for a nation in its 29th year of economic expansion, and comes as policy makers struggle to counter the financial impact of drought, wildfires and the coronavirus.“If you’d told me five years ago that the Aussie would become a nice funding currency, I’d have been laughing at the absurdity of the idea,” said Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings in Singapore. “It’s a remarkable shift in mindset for markets.”It’s a far cry from the heyday of the currency in 2011, when much of the developed world was still clawing its way back from the global financial crisis. Australia had skirted recession, the local dollar was worth more than its U.S. namesake and the central bank’s benchmark rate was a healthy 4.75%.It’s now a record-low 0.75%, and tipped to go lower.While loans in yen and euros are still going for a steal, strategists have identified potential carry trades by borrowing the Aussie and selling it to buy a host of currencies, ranging from the Mexican peso to the Indonesian rupiah.QuickTake: How Interest Rates Fuel the Global Flow of MoneyThe Australian dollar has climbed the rankings of funding currencies to be one of the most efficient to pair against the peso, according to Adam Cole, Royal Bank of Canada’s currency strategy chief for Europe.It’s becoming a “low yielding risky asset,” much as Canada’s dollar was for many years, Cole said in a report last month.Entering an Aussie-peso carry trade on Dec. 31 would have returned investors 6.1% so far this year, amid a steady decline in the Australian currency, Bloomberg data show.Challenges are mounting for Australia and its currency.Wages are barely rising, household debt is sky-high and companies are reluctant to invest. And few other countries find themselves as dependent on China, where economic growth was easing even before the trade war with the U.S. and the outbreak of a deadly virus.A decade ago, China’s rampant demand for Australian commodities exports propped it up while other nations faltered. Today the relationship looms as a huge risk.The dislocation caused by the coronavirus has halted production lines across China, putting Australian exports in jeopardy. Fears of contagion have also brought flights from China to a standstill, and with them a massive inflow of tourists and students that support the services sector.Thinking the UnthinkableNone of this has gone unnoticed by the Reserve Bank of Australia, whose interest-rate policy provides a cornerstone of the carry trade.Underscoring the difficulties facing the economy, the RBA late last year began publicly discussing the possibility of rates eventually dropping all the way to 0.25%.This could then force it into an asset purchase program known as quantitative easing -- a path followed by Japan and Europe -- and something once regarded as unthinkable in Australia.The unthinkable: Why the RBA and RBNZ are talking about QEWhile the central bank’s tone has moderated over the past few months, investors who sell the Aussie now to buy other currencies face little risk of rates Down Under rising and hurting returns when they close out their trades.Money markets are pricing in one cut by the RBA to 0.5% by July this year.“The Australian dollar faces significant headwinds by virtue of being a low carry currency,” said Francesca Fornasari, a portfolio manager and head of currency solutions at Insight Investment in London.Cheap RivalsBut not all strategists think the Australian dollar is the way to go for low-cost funding.The euro and the yen remain the “classic” plays to sell in carry trades, even if the Australian dollar can be paired well with the likes of the rupiah, said Ranko Berich, head of market analysis at Monex Europe Ltd. in London.Deutsche Bank AG’s Tim Baker agrees. “I don’t think the world is so desperate for funding currencies that Australia’s becomes one,” said Baker, a macro strategist for the bank in Sydney.Yet the Aussie does have another thing that bolsters the case for using it in the new carry trade -- it is becoming less prone than the yen and euro to being bounced around by volatility in the stock market.For investors who have to weigh the chances of movements in the currencies and interest rates of two countries, one less thing to worry about has value.“I think it will be used more and more as a funding currency,” S&P’s Roache said of the Aussie. “The idea has only started to spread.”(Updates money market prices in 20th paragraph)\--With assistance from Masaki Kondo and Michael G. Wilson.To contact the reporter on this story: Ruth Carson in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Tan Hwee Ann at email@example.com, Brett MillerFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Mortgage rule changes introduced by the finance department this week aren’t sufficient to address the affordability crisis faced by many Canadians, according to two of the nation’s largest banks.The finance department unveiled a new benchmark interest rate on Tuesday as part of stress tests that determine whether people qualify for insured mortgages. This comes after criticism that the policy was too tight and unfairly kept younger, first-time buyers out the market.The gap between the old qualifying rate and the new rate is about 30 basis points, which will allow the median household in Canada to buy C$13,500 ($9,800) in extra real estate, according to CIBC’s Benjamin Tal. That equates to less than a 3% improvement in purchasing power, the bank’s deputy chief economist wrote Friday in a note to clients.“It’s becoming more and more apparent that, short of drastic measures, it’s impossible to fight supply issues with demand tools,” Tal said. “Increased supply (rental or otherwise) is the only reasonable solution to the housing affordability crisis that many Canadians are facing.”While the existing qualification rule, introduced in 2016 for insured mortgages and extended in 2018 to the uninsured space, were effective in restoring balance to a market that seemed to be escalating out of control, a rebound in Canadian housing is underway. Home prices in some of the country’s largest cities such as Toronto climbed to fresh records recently, driven higher by dwindling inventories.Tal’s comments were echoed by Neil McLaughlin, group head of personal and commercial banking at Royal Bank of Canada, who said Friday on a conference call with analysts the stress test change will have “quite a minimal impact.”“Our analysis so far looks like it would be about 25 to 30 basis points reduction in the qualifying rate,” McLaughlin said. “That would really translate into a fairly small increase in purchasing power for the average borrower, probably in the neighborhood of about C$20,000, C$25,000 on an average mortgage.”He also agrees with Tal on what’s needed to address the affordability issue. “The lack of supply in the major urban markets is still the real focus for where the policy needs to go,” he said.To contact the reporters on this story: Chris Fournier in Ottawa at firstname.lastname@example.org;Doug Alexander in Toronto at email@example.comTo contact the editors responsible for this story: Theophilos Argitis at firstname.lastname@example.org, Divya BaljiFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Hard-currency bond investors have already downgraded South Africa to junk.The premium investors demand to the country’s dollar debt rather than U.S. Treasuries climbed above the emerging-market average in October, shortly before Moody’s Investors Service cut the country’s credit outlook to negative. It has now been above the mean for the longest period since Bloomberg started tracking the data in 1997. Previously, South Africa’s sovereign spread crossed above the average for brief periods only during times of stress.Many investors expect South Africa to lose its last investment-grade rating. Their only question is when.Moody’s is scheduled to review the assessment shortly after Finance Minister Tito Mboweni’s key budget statement. To escape a downgrade, Mboweni would have to convince Moody’s that the government is on track to restructure ailing state-owned companies, and has credible plans to curb the budget shortfall and fuel growth.“We are skeptical the government will make sufficient progress on fiscal consolidation in time for the 2020 budget,” analysts at RBC Securities wrote in a note. “We expect Moody’s to downgrade South Africa to non-investment grade in March, though the decision is likely to be a close call.”Others, including Morgan Stanley’s Johannesburg-based Andrea Masia, expect the downgrade to be delayed until November.To contact the reporter on this story: Colleen Goko in Johannesburg at email@example.comTo contact the editors responsible for this story: Alex Nicholson at firstname.lastname@example.org, Robert Brand, Srinivasan SivabalanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Caisse de Depot et Placement du Quebec returned 10.4% last year as stocks and fixed income shielded Canada’s second-largest pension fund manager from a poor performance in real estate.Net investment income for 2019 amounted to C$31.1 billion ($23.5 billion), compared with C$11.8 billion a year earlier, the Montreal-based fund manager said Thursday in a statement. Net assets rose to C$340.1 billion (C$257 billion) as of Dec. 31, from C$309.5 billion at the end of 2018.Public and private equity returned 15.3%. The Caisse said its public equities portfolio trailed its own benchmark by slightly less than one percentage point, partly due to its strategy of prioritizing value stocks, which are a longer term play. Chief Executive Officer Charles Emond said the portfolio delivered during a year that saw markets getting “carried away” and seem disconnected from real growth.“We are seeking to build a portfolio that is more diversified, more stable, more reliable, less vulnerable to market moves,” Emond said Thursday at the pension fund’s headquarters in Montreal.Fixed income assets returned 8.9%, as the pension fund increased its exposure to corporate credit, real estate debt, specialty finance and sovereign credit. It’s also investing more in credit assets outside of Canada. Like other asset managers, the pension fund is trying to increase its holdings of higher-yielding private credit, but is doing so slowly because finding and screening companies is labor intensive, head of corporate credit James McMullan said last November.Malls SufferThe Caisse’s real assets portfolio, which includes infrastructure and real estate, was its worst performing asset class, returning 1%. Real estate holdings lost 2.7%. It was affected by the weak performance of Canadian shopping centers, whose valuations are declining as a result of a consumer shift toward e-commerce, and by residential real estate in New York, in light of new regulations to control rent increases.The Caisse manages the pension plan of retirees in Quebec, Canada’s second most populous province, as well as various provincial insurance plans.Its 2019 results trailed the average 14% increase of Canadian defined pension plans, as estimated by RBC Investor Services. The Caisse results were 1.6% below the fund manager’s own benchmark, mostly due to the performance in the real estate and infrastructure portfolios.Still, the pension fund said it has generated C$11 billion in value added compared to its benchmark portfolio over five years and more than C$18 billion over ten years. The Caisse said its weighted average annual return was 8.1% and 9.2% for five and 10 years, respectively.To contact the reporters on this story: Paula Sambo in Toronto at email@example.com;Sandrine Rastello in Montreal at firstname.lastname@example.orgTo contact the editors responsible for this story: Nikolaj Gammeltoft at email@example.com, Derek DecloetFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- After posting the weakest annual profit growth since 2016, Canada’s banks now must prove to investors that it’s still worth buying their shares.Half of the country’s Big Six banks -- Royal Bank of Canada, Toronto-Dominion Bank and Canadian Imperial Bank of Commerce -- missed expectations for the fiscal fourth quarter, prompting analysts to temper their 2020 forecasts. Concerns about weak economic growth, slower domestic lending, higher loan losses and eroding net interest margins have weighed on banks’ earnings and investors’ minds.The S&P/TSX Commercial Banks Index has lagged a broader Canadian market measure since last year, with shares of the nation’s eight largest lenders -- which constitute about a fifth of the overall benchmark --- gaining a mere 13% since the end of 2018. That performance lags the S&P/TSX Composite Index’s climb of 25%.“People are concerned about the economic cycle and banks are cyclical stocks at the end of the day,” Steve Belisle, a senior portfolio manager with Manulife Investment Management, said in a phone interview. Investors “don’t want to introduce too much cyclicality in their portfolio, and I think that’s what has been reflected in the performance of the stocks.”Investors are now in “show-me” mode heading into the banks’ fiscal first-quarter reporting period, as they look to gain comfort that loan losses, which rose last year, won’t get worse, said BofA Securities analysts led by Ebrahim Poonawala.“While investors are bracing for another year of challenging EPS growth, we believe that the lack of negative surprises and a stable EPS outlook could be enough for stocks to bounce,” the analysts said. Royal Bank, the largest Canadian lender, kicks off the reporting season Friday for the quarter ended Jan. 31.Some issues that hurt the Canadian banks last year -- higher loan-loss provisions, weak capital markets activity and pressure on net interest margins -- may have eased up in the quarter, Scotia Capital analyst Sumit Malhotra said.“There’s a case to be made that each of these factors will not be as severe,” Malhotra said in an interview. “In particular, the market-sensitive businesses –- both capital markets and wealth management -- are going to have a good quarter.”Not everyone is as optimistic. Canaccord Genuity Group Inc.’s equity strategist downgraded the sector to a sell-equivalent rating earlier in February amid “challenging” fundamentals. Business lending is slowing down at a “rapid pace,” catching up with the contraction seen in U.S. commercial and industrial loans, Martin Roberge said in his report.Declining interest rates also threaten net interest margins -- the difference between what a bank charges for loans and pays for deposits. Bank of Canada Governor Stephen Poloz has left the door open for a rate cut this year, confirming Roberge’s view of a growth slowdown.What to WatchCredit performance will be key, given its drag on the industry’s earnings growth last year.Benjamin Sinclair, an equity analyst at Odlum Brown, sees credit as the No. 1 concern going into the quarter.“With the Canadian banks, credit is always going to be top of mind,” he said. “We’re not just talking about charge-off ratios, we’re talking about delinquencies, impaired loans, that sort of thing.”Net interest margins are his second-biggest concern, followed by expenses, Sinclair said, noting that it is important for the banks to be more cost-conscious when it’s harder to make money. “I’d want to make sure they are not getting ahead of themselves in a tougher revenue environment,” he said.Valuations have dropped since a peak in 2017 and are now trading below the five-year average, according to data compiled by Bloomberg.“They’re not expensive, so that helps, certainly,” Manulife’s Belisle said. “Outside of a recession or a very material deterioration in the economic environment, these stocks should perform well considering the valuation they’re trading at.”With discounted valuations, Sinclair sees “pessimism built in” for bank shares, but they achieve their purpose of being core holdings for dividend-hungry investors. The dividend yield sits at 4.17%, above the five-year average of about 3.9%, according to Bloomberg data.“In the grand scheme of things, we’re quite long-term investors and we plan to ride out all of these cycles. They’re still banks that help us help our clients invest for the long term,” he said, after adding that they haven’t cut their dividends for decades.To contact the reporters on this story: Divya Balji in Toronto at firstname.lastname@example.org;Doug Alexander in Toronto at email@example.comTo contact the editors responsible for this story: Kyung Bok Cho at firstname.lastname@example.org, Derek DecloetFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Mitchell Modell, chairman and chief executive officer of Modell’s Sporting Goods Inc., has a framed letter from his grandfather, Henry Modell, hanging on the wall of his New York City office. He said he likes to look it over, to remind him what’s at stake as he struggles to keep the 131-year-old family business afloat.“Keep and cherish the good name of Modell as long as you live,” the letter reads.Sports merchandisers have experienced the pain of the retail upheaval that’s led to a wave of bankruptcies and a record number of store closings. For Modell’s, America’s oldest family-owned sporting-goods retailer, trouble deepened last month after a disappointing holiday season pinched cash flow.Modell, 65, blamed warm weather, which translated to fewer outerwear sales, poor showings by professional teams like the Jets and Giants, which crimped merchandise demand, as well as the old bugaboos -- competition from big-box stores like Walmart Inc. and online juggernaut Amazon.com Inc. Modell said he’s trying to avoid the fate of rivals such as Sports Authority Inc., which liquidated in 2016, but added that every option is on the table.“I will leave no stone unturned,” he said in an interview Thursday.Cortlandt StreetGreat-grandfather Morris Modell opened the first store on Cortlandt Street in downtown Manhattan in 1889. Three subsequent generations of the family expanded the business into a chain of about 150 stores from Virginia to New Hampshire, according to its website. The current standard bearer said he feels the responsibility of family history every day.Modell said he’s looking for an outside investor who can keep the doors open, and is so consumed by the search that he sleeps only two or three hours a night. He brought in help from investment bank RBC Capital Markets, advisory shop Berkeley Research Group and law firm Cole Schotz. Berkeley’s Bob Duffy is serving as the company’s chief restructuring officer.To succeed, Modell said 90% of the closely held retailer’s vendors and landlords need to support a turnaround plan. In return, he promised them greater visibility into the company’s financial performance. Modell said investors are “waiting in the wings” to see what kind of support the retailer can garner.This week, the company held a call with some of its 300 vendors, which include international brands like Nike, Under Armour, Adidas and Champion. Modell gave his mobile-phone number and email address to everyone.‘Text Me’“Call me or text me,” he said he told them. “If you don’t get a response that same day, try again.”Modell’s occupies a unique place because “what they have going for them is the relationship with vendors,” said David Wander, a partner at Davidoff Hutcher & Citron LLP, who has represented vendors in retail bankruptcies such as Sears and Sports Authority. He’s not involved with Modell’s.Vendors will want to keep the retailer out of bankruptcy, Wander said, because they need Modell’s. With Sports Authority gone, only Modell’s and Dick’s Sporting Goods Inc. remain for some of them, he said.Next week the company will start reaching out to landlords in hopes of negotiating savings on rents, Modell said.Because many Modell’s stores are so big, it’s difficult for landlords to find a replacement tenant, said Matthew Mason of consulting firm Conway MacKenzie.“The willingness of landlords to restructure a lease is usually related to their faith in the company’s reconstructing,” Mason said. “If you’re just delaying the inevitable demise, there’s no benefit in reducing the rent now.”Hard TimesLast year, a news report that Modell’s had hired restructuring advisers caused vendors, squeamish as retailers face hard times, to quit providing goods to the company.Modell compared the vendors’ pullback to “not watering a tree.” During the eight-month period that inventory levels dropped, the retailer had trouble keeping customers from shopping elsewhere.In May, Modell loaned the company $6.7 million of his own cash to help avoid a bankruptcy filing. JPMorgan Chase & Co. and Wells Fargo & Co. have been the two largest bank lenders to Modell’s, he said.“When the owner puts skin in the game, that’s the best signal to give to vendors,” Wander said.“The name and the family go together,” he added. “No one can say, ‘Who is Mr. Sports Authority?’”On the office wall near the letter from Modell’s grandfather is a mock front page of the New York Daily News. The headline reads, “Modell’s 100 years. Excellence: A Family Tradition.”“When your last name is on the door, there’s a whole different set of values attached to it,” Modell said. “Either the vendors and landlords are going to help me and we hold hands together, or I move on to phase two of my life.“I’m going all in.”\--With assistance from Lauren Coleman-Lochner.To contact the reporter on this story: Katherine Doherty in New York at email@example.comTo contact the editors responsible for this story: Rick Green at firstname.lastname@example.org, Bob IvryFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- This was supposed to be the year of the euro. Instead, the currency is extending its worst annual start since 2015 as the coronavirus scare highlights its deep vulnerability to wider market shocks.The shared currency has already lost more than 3% this year, forcing banks to tear up earlier upbeat predictions, and there is little relief in sight. Its slump to the lowest level since 2017 is now leading hedge funds to add to short positions and options traders to boost bearish bets.The euro has been ambushed by anxiety about the economic shock of the virus outbreak and political risks from Germany to Ireland. Also weighing on the common currency are still-unresolved Brexit risks and concerns that the U.S. could impose import tariffs on European cars. The euro’s disappointing run this year is now bringing back a debate about its basic design flaws.“The big picture is that the euro area remains a sclerotic structural mess,” James Athey, senior investment manager at Aberdeen Standard Investments, said in emailed comments. “It consists of divergent economies with a range of idiosyncratic structural issues, who all fudged convergence criteria, and are now trapped in an ill-fitting straight jacket of a monetary union without fiscal transfers.”The currency, adopted in 1999, is shared by 19 countries from the world’s No. 4 economy Germany to tiny Malta. After gaining on the greenback in its first decade, the euro saw the European debt crisis hurt its prospects of becoming a reserve currency to knock the dollar off its perch.The slide in euro sentiment has been sharp at banks. Credit Agricole SA called the common currency’s drop against the dollar “the epitome of the global divergence trade that was revived by the coronavirus outbreak” -- with the health scare deepening the “perceived growth divide” between the U.S. and the euro zone.The bank lowered its fourth-quarter euro prediction this week to $1.13 from $1.16, following similar action last week at JPMorgan Chase & Co. and RBC Capital Markets. Danske Bank A/S slashed its year-end projection all the way down to $1.08, from $1.15. The currency traded at $1.0861 Friday afternoon in London. The forecast cuts came after data showed Germany’s economy stagnated in late 2019.Politics, BrexitIt’s not just the economics. Political uncertainty has deepened in Germany, where Angela Merkel’s 15-year tenure as chancellor is due to end in a succession battle. Ireland’s general election was dominated by Sinn Fein, from the radical left. It all adds to the sense of unease, fanning doubts that euro-area governments will heed the European Central Bank’s call for fiscal stimulus to take over from monetary policy to boost growth. That has stoked talk of further easing at the ECB.And then there’s Brexit, which remains as much a threat for the euro as for the pound. While the U.K. has left the European Union, a failure to put a new trade deal in place by year-end would raise serious economic risks for both sides.The global gloom has also burnished the appeal of haven assets -- including the dollar -- and highlights a concentration of risks in the euro area. That’s fueled the euro’s slide and powered a rally in the Swiss franc.The single currency’s drop is running faster than the dollar’s rise. The correlation between the pair and a Bloomberg index that tracks the greenback is weakening, a sign that the story is more one of euro weakness than dollar strength.The euro also remains an asset that many are keen to borrow, but few want to own. Its popularity in funding carry trades -- where investors use loans in currencies with low interest rates to buy higher-yielding alternatives -- also leaves it exposed.Options indicators are pointing to more weakness. Bets that would pay out on a euro drop below $1.08 are rising, according to data from the Depository Trust & Clearing Corporation. Such options represent one fourth of the total notional value of euro vanilla puts traded this month, while 5% are targeting a deeper slump to $1.05.Willem Klijnstra, strategist at Legal & General Investment Management, points out that while the outlook has turned bleak, the sheer size of the drop creates an attractive valuation case for the euro, adding that it “will probably be enough for us to consider a long euro position against the dollar, despite the negative carry.”While a weaker currency would be helpful in the long run, investor patience is wearing thin after a series of false dawns for the euro.“The only way to make it work long term is for many economies to undergo severe and draconian structural adjustments and internal devaluation. But the social economic and political cost of doing so is untenable,” said Aberdeen Standard’s Athey, who predicts near-term support for the euro to kick in at $1.05. “But eventually it will go lower than that and through parity with the dollar.”\--With assistance from Greg Ritchie and Vassilis Karamanis.To contact the reporter on this story: Michael Hunter in London at email@example.comTo contact the editors responsible for this story: Dana El Baltaji at firstname.lastname@example.org, Anil Varma, Neil ChatterjeeFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The U.S. Federal Trade Commission just ordered major technology companies to fork over details on waves of small acquisitions made during the last decade. A more sizable deal is also seen as a target for the regulator: Google’s $1.1 billion purchase of mapping app Waze.The FTC quickly approved the 2013 transaction, but antitrust experts say the regulator will take a second look because it combined two popular digital mapping services under the same corporate roof, eliminated a fast-growing Google rival and solidified the internet giant’s grip on valuable data.Bilal Sayyed, the FTC’s director for the Office of Policy Planning, told reporters on Tuesday that the agency is planning to examine many deals that were reviewed in the past, while declining to share specific examples.“Certainly, Waze is one of them,” said Robert Litan, a partner at Korein Tillery LLC and former Justice Department antitrust official. Google declined to comment.Alphabet Inc.’s Google has acquired dozens of startups over the years to add technical talent, fill product holes, gather new users and accumulate more data. Few of these transactions rang traditional antitrust alarm bells, but in aggregate they helped the company build the western world’s largest online search, digital mapping and advertising businesses. Global watchdogs are now investigating whether this dominance is harming business customers and consumers. Reassessing past acquisitions is part of this effort, and the Waze deal is a clear candidate.“It was literally Google acquiring its number one competitor in maps,” said Sally Hubbard, director of enforcement strategy at the Open Markets Institute, which is pushing for a crackdown on big internet platforms. “It was a bad deal that should have been blocked.”Back in 2013, the acquisition was a strategic coup. Google faced two existential threats at the time: social media and smartphones. Social networks, like Facebook, were stealing eyeballs and advertising, while mobile apps risked displacing key Google services, including its digital maps, that were mainly used on desktop computers. Waze was riding both trends. The startup’s mobile app drew in dedicated fans who posted frequent updates on traffic and interacted with one another, generating social and location-related data in new ways that Google couldn’t match.When Google announced the deal, Mark Mahaney, an analyst at RBC Capital Markets, said the “move eliminates Waze as a potential acquisition target for competitors who could use the app’s collection of data and 50 million users to bolster their own location-based products.”Antitrust regulators in the U.K. launched a more in-depth investigation of the Waze deal, asking Google to keep Waze separate from the rest of its businesses while conducting the probe. The final report from the Office of Fair Trading, published in December 2013, cited concerns from other companies that Google was knocking out a threat to its mapping service. One complainant said “the acquisition removed Google’s closest competitor.”Read more: How Tech’s New Monopolies Test Old Antitrust Thinking: QuickTakeTrustbusters didn’t have to rely on rivals. Waze Chief Executive Officer Noam Bardin offered the same assessment two months before joining Google. “We’re the only reasonable competition to [Google] in this market of creating maps that are really geared for mobile, for real-time, for consumers -- for the new world that we’re moving into,“ he said at an industry conference.A Google spokeswoman said the company’s former employees have created “more than 2,000 startups -- including companies like Pinterest, Quip and Instagram -- that’s orders of magnitude more than the number of companies we’ve acquired. We always seek to work constructively with regulators and we’re happy to provide information about our business.”In late 2012, Apple Chief Executive Officer Tim Cook suggested his customers should use map apps, including Waze, sparking a surge of downloads.By 2013, the Israeli startup was close to a deal to pre-install its app on devices made by an unnamed smartphone company, according to the U.K. investigation. There was also the potential to work with Facebook Inc. to enable people to chat and meet up with friends driving to the same location, which could have given Waze more users, the report said. Google’s acquisition abruptly halted those initiatives.The regulator concluded that the deal would not damage competition in the U.K., citing Apple’s Maps app as a rival. But last year, it asked economists to evaluate some of its past decisions, including the Waze ruling. That study found that the U.K. agency didn’t consider how Google and Waze would make money from their maps -- even though this was already relevant when the deal happened.“The merger with Waze might have made Google an even more relevant provider of location data, reinforcing its competitive position for the provision of online advertising across all its services,” according the study from consulting firm Lear.European regulators have since targeted the data that big internet companies collect as a competition issue. If the FTC takes a similar approach, the agency could probe how much of Waze’s driving data feeds back into Google’s ads business. “These free map apps are just data-suction tools,” Hubbard said. “Regulators are starting to figure it out.”Google has kept Waze a separate service, but the internet giant has used data from the app to improve its ads, according to RBC’s Mahaney. “New ad formats in Google Maps have clear similarities to existing formats in Waze (coincidence?),” the analysts wrote in a September note to investors. “Google has now collected enough data through Waze to effectively roll out broader solutions for advertisers in Google Maps and provide them attractive returns on investment without severely impacting the user experience.”Read more: Google Flips the Switch on Maps, Its Next Big Money MakerFiona Scott Morton, a Yale University economist and former Justice Department antitrust official, said Waze may be of particular interest to the FTC because location data makes Google’s dominant Search advertising much more potent. “Another party that wanted to be good at search advertising would need a good map,” she added.On Tuesday, the FTC demanded internal documents from Google, Facebook, Apple, Amazon.com Inc. and Microsoft Corp. to see if they “are making potentially anticompetitive acquisitions of nascent or potential competitors.”The regulator is eyeing deals that weren’t reported under the Hart-Scott-Rodino (HSR) Act, which requires companies to tell enforcement agencies about acquisitions of a certain size. While Google declared plans to buy Waze, it never filed the purchase under HSR, likely relying on an exemption related to the startup’s lack of U.S. revenue at the time.The FTC can investigate deals even when there’s no HSR filing. The agency also has the power to probe acquisitions that it cleared in the past. In some ways, the recent attention on the tech sector in Washington and Europe is an attempt to revisit the earlier laissez-faire approach to industry consolidation.“They weren’t examined carefully by the agencies,” said Scott Morton. “Now that they understand that these companies have acquired market power, they’re interested in finding out how that happened.”(Updates with comment from Google in 11th paragraph)\--With assistance from David McLaughlin and Aoife White.To contact the reporters on this story: Mark Bergen in San Francisco at email@example.com;Ben Brody in Washington, D.C. at firstname.lastname@example.orgTo contact the editors responsible for this story: Alistair Barr at email@example.com, Andrew PollackFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world threatened by trade wars. Sign up here. Less than a month before a U.K. budget intended to set out Prime Minister Boris Johnson’s post-Brexit economic vision, the reset button has been hit.The resignation of Sajid Javid, the man due to present what’s traditionally a closely watched piece of political theater, has upended economic policy. It calls into question the government’s fiscal prudence -- a long-standing trait of Johnson’s Conservative Party -- and even when the blueprint will be unveiled.In short, it’s a mess. Javid quit as chancellor of the exchequer because he was asked to fire his most senior advisers. His position is second only to that of prime minister and enjoys a degree of autonomy. The interference suggests Javid’s reputation as a fiscal hawk clashed with a desire in 10 Downing Street for looser purse strings.Now, with Johnson having greater control, an even more generous tax and spending program could be in the works. In a sign of just how much is up in the air, the prime minister’s own spokesman couldn’t confirm that the fiscal rules Javid himself had set would still apply. The March 11 budget might be deferred. On Friday, cabinet minister Robert Jenrick said the budget will go ahead in March but declined to confirm the precise date.Anticipation that new chancellor Rishi Sunak, previously Javid’s deputy, will be less of a brake on spending ambitions prompted the pound to rally Thursday and pushed gilts lower.“Trump-style stimulus could return,” said Benjamin Nabarro, an economist at Citigroup Inc. “Javid’s resignation makes it more likely that the Conservatives jettison their 2019 fiscal framework sooner, paving the way for large fiscal easing.”The budget was already expected to deliver a fiscal stimulus, with more money for cash-strapped public services and billions of extra pounds for infrastructure to “level up” struggling regions.Taken together, the infrastructure boost and an additional 12 billion pounds ($16 billion) for public services announced in September could deliver a stimulus of well over 1% of GDP in 2020-21. Excluding the financial crisis, that would represent the biggest fiscal loosening since the early 2000s when Tony Blair was prime minister.What Our Economists Say:“The risk is Sunak changes the rules to give him more space to open the spending taps. That would create upside risks to our growth and inflation forecasts and also make it more likely the Bank of England’s next move will be up rather than down.”\-- Dan Hanson, Bloomberg Economics. For the full U.K. INSIGHT, click hereNabarro says new plans could include tax cuts, which would provide a much more immediate boost to the economy than investment projects.RBC economists Cathal Kennedy and Peter Schaffrik agree that something more could be on the way.“Why go through the trouble of reorganizing the workings of the Treasury and essentially push an unacceptable arrangement on the Chancellor, if there are no big changes planned, both in substance and in size,” they wrote.Javid’s fiscal rules allow extra infrastructure spending but also require day-to-day public spending and revenue to be in balance within three years. That goal is much tighter than had been expected, and Javid had also asked ministers to find savings ahead of a spending review due this year.Even before Thursday’s political shock, there were questions over how the government could fund its spending plans and meet targets. The National Institute of Economic and Social Research estimated a 10 billion-pound gap and said the framework may have to be revisited.In his resignation letter, Javid said the Treasury must retain “as much credibility as possible.”Sunak, who was chief secretary to the Treasury under Javid and previously worked at Goldman Sachs, has a very short timeframe if Johnson’s administration wants to recast the rules before its first budget.“The new chancellor will want to put his own mark on the budget, leading us to believe it will be much more expansionary,” said David Zahn, head of European fixed income at Franklin Templeton. “This news also solidifies Boris Johnson’s position giving him more free reign to get things done.”(Adds Jenrick comment on budget in fourth paragraph)\--With assistance from Joe Mayes, Robert Hutton and Andrew Atkinson.To contact the reporters on this story: Lucy Meakin in London at firstname.lastname@example.org;Jessica Shankleman in London at email@example.comTo contact the editors responsible for this story: Flavia Krause-Jackson at firstname.lastname@example.org, ;Fergal O'Brien at email@example.com, Brian Swint, Paul GordonFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.The euro’s slump to start 2020 is gaining momentum amid growing concern that Germany could be headed for recession because of the lingering effects on the global economy from the coronavirus.The common currency fell to the weakest since 2017 versus the dollar Wednesday, and to levels last seen in 2016 against the Swiss franc. It sank as much as 0.5% to $1.0865. Concern about German Chancellor Angela Merkel’s succession plans and a dovish European Central Bank have weighed on the euro, which investors are looking to as a vehicle to fund riskier positions. The S&P 500 Index rose to a record in New York as the euro sank.Deutsche Bank AG now expects a slight contraction for Germany in the fourth quarter as the virus exacerbates an industrial slump. Euro-area industrial output posted the steepest drop in almost four years at the end of 2019, data showed Wednesday.“The narrative of slowing economic activity is key and today’s industrial production data is key,” said Monex Europe currency analyst Simon Harvey. “Many are suggesting further easing may be on the horizon. Combine this with the easing risk climate, and the euro seems to be suffering as the funding currency.”Traders are dialing up expectations that the ECB may need to lower rates to counter the economic fallout from the coronavirus. Money markets are pricing in around six basis points of a cut by end-2020, versus a zero chance of easing a month earlier. Credit Agricole downgraded its forecast on the shared currency Wednesday, following similar moves by JPMorgan Chase & Co. and RBC Capital Markets last week.Things Are Falling Apart for Europe’s Currency: John AuthersFourth-quarter growth data for Germany are set for release Friday. While the median prediction is for 0.1% quarterly growth, almost 30% of survey respondents forecast a contraction.“Persistently weak growth will keep pressure on the ECB to deliver further easing, posing downside risks for the euro which is already weakening in anticipation of potential policy action,” said Lee Hardman, a foreign-exchange strategist at MUFG Bank Ltd. in London.Still, even with the euro down about 3% against the dollar in 2020, a majority of forecasters still predict it will strengthen by the end of the year. The median estimate in a Bloomberg survey is for the euro to trade at $1.14 in the fourth quarter.\--With assistance from Edward Bolingbroke, Mark Tannenbaum, Robert Fullem and Stephen Spratt.To contact the reporters on this story: Jack Pitcher in New York at firstname.lastname@example.org;Greg Ritchie in London at email@example.com;Ruth Carson in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Tan Hwee Ann at email@example.com, ;Benjamin Purvis at firstname.lastname@example.org, Shikhar Balwani, Brett MillerFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.The euro has been plagued by fears that the spread of the coronavirus will undermine the region’s economic growth. A slew of weaker data is only making matters worse.The shared currency touched a four-month low in early New York trading Monday, putting it on track for a a sixth straight daily decline, the longest losing streak since September. Data Monday showed Euro area investor confidence missed estimates at a time when traders are concerned Europe’s biggest economy could have contracted in the fourth quarter.Investors are worried that the euro area economy will weaken further as the coronavirus continues to spread rapidly. Some forecasters are already lowering their estimates amid the concerns. JPMorgan Chase & Co. and RBC Capital Markets last week downgraded their forecasts on the currency.“The euro can probably move lower, especially if some risk-off tone still exists tied to the virus,” said Brendan McKenna, a currency strategist at Wells Fargo & Co. in New York. The euro is likely to fall to 1.09 by the end of March, but is likely to rebound to 1.13 by year-end as “the effects of the virus will start to wear off” and the dollar weakens. McKenna expects European economic data will improve by year-end.The euro fell 0.1% to 1.0919 at 12:08 p.m. in New York. It earlier dropped as much as 0.3% to 1.0909, the lowest since Oct. 2. The common currency posted its worst January since 2015, weakening 1.1%.Separately, traders are also concerned about political upheaval in Germany, after Chancellor Angela Merkel’s former protege quit as party chief, leaving the race to lead the country wide open.To contact the reporter on this story: Susanne Barton in New York at email@example.comTo contact the editors responsible for this story: Benjamin Purvis at firstname.lastname@example.org, Debarati Roy, Mark TannenbaumFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- L’Oreal SA expects demand for high-end beauty products to help it outperform beauty rivals, even as the coronavirus outbreak causes a temporary slowdown in the key market of China, Chief Executive Officer Jean-Paul Agon said.The shares rose as much as 4% to a record Friday in Paris after the company reported its highest operating margin ever and the strongest revenue growth in more than a decade, driven by Asia.“It’s all about sales growth,” RBC analyst James Edwardes Jones wrote. Earnings per share missed the consensus, “but who cares?”The French owner of the Lancome and Kiehl’s brands said late Thursday it’s confident demand in China will bounce back quickly once the epidemic eases. Agon said L’Oreal will beat rivals again this year in terms of sales and profit growth.Estee Lauder Cos. also said Thursday it expects a short-term hit from the coronavirus, which has killed more than 600 people and prompted travel restrictions.After China decided to extend the Lunar New Year holiday, all of L’Oreal’s offices and factories are closed in China until Monday.The company “had a good January in China,” Agon said, saying it’s too early to assess the impact of the outbreak. L’Oreal’s strength in e-commerce in that market will help the company deal with the crisis, he said.“The good news is we have 12,000 employees in China and I am in communication every day with the general manager in China and no one in our teams is sick,” the CEO said.Chinese LuxuryL’Oreal’s sales have been fueled in recent quarters by Chinese consumers splashing out on luxury skincare products and makeup, which has made up for a sluggish performance by the company’s mainstream brands like Maybelline in the U.S. The cosmetics maker said its performance for China’s Singles Day holiday in November was exceptional.The beauty market maintained its pace last year, growing about 5%, driven in large part by online sales of beauty products and consumers buying more expensive products, CEO Agon said on a call with analysts.China was the main driver of growth in Asia Pacific, which has become L’Oreal’s largest region. Sales rose 18% in both Indonesia and Vietnam, while the Philippines and South Korea also had double-digit growth.“It was the best year for a very long time in all the countries of Asia,” Agon said. Although there will be an impact from the virus, the CEO said the company’s experience with previous virus outbreaks, shows that after a period of disturbance, consumption “resumes stronger than ever.”The company has nine brands with annual revenue exceeding 1 billion euros ($1.1 billion), with La Roche Posay being the latest to reach that level.\--With assistance from Albertina Torsoli.To contact the reporters on this story: Eric Pfanner in London at email@example.com;Deirdre Hipwell in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Kenneth Wong at email@example.com, Thomas MulierFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Twitter Inc. topped analysts’ projections for fourth-quarter revenue and added more new daily users than expected, citing product improvements and more personalized content on its social network. The shares rose the most in almost a year.Revenue rose 11% to $1.01 billion, slightly higher than the $994.5 million predicted in a Bloomberg analyst survey. Twitter’s user growth was a bigger surprise. The company added 7 million daily active users in the period, and now has 152 million people logging in daily on average, up 21% from the same period a year earlier. Bloomberg Consensus estimates were for the company to finish 2019 with just 148.1 million total users.In a statement Thursday, Twitter said that more than half of the 26 million daily users it added in 2019 were “directly driven by product improvements,” and its daily user base grew by “double-digit increases in all of our top 10 markets” in the fourth quarter. The company has made a public effort to improve user interactions on its service, and make it easier for users to find posts about topics they care about.On a call with analysts, Chief Executive Officer Jack Dorsey said that he sees Twitter “more as an interest network than a social network,” and plans to push deeper into products that highlight that distinction. That includes products like curated lists of followers, which Dorsey likened to a music playlist, and the ability to follow interests, not just other people.The stock rose as much as 15%, the most intraday since April 23. That brings gains in the last 12 months to 11%. Despite the positive numbers, Dorsey told analysts that Twitter needs to work faster. The company is notoriously slow when it comes to shipping new products and features. “The time it takes to go from an idea to shipping something wonderful to customers still takes too long,” he said.The fourth quarter numbers provide a stark contrast to Twitter’s third-quarter earnings report, in which the company missed its revenue projections, and the stock fell by more than 20%. At the time, Twitter also lowered its fourth-quarter outlook, and Thursday’s revenue total was at the high end of that revised guidance, but still lower than what analysts had initially projected heading into the quarter.Last quarter, Twitter blamed some of its business challenges on a “bug” that enabled the company to mistakenly target people with ads using personal data uploaded for security purposes. Removing that data from its targeting arsenal hurt the company in the third quarter, and was still a problem for Twitter in the fourth quarter, according to the company’s shareholder letter, which said that revenue growth was down “four or more points” as a result of the bug.Still, Twitter beat estimates and said it plans to post $825 million to $885 million in revenue in the first quarter. Analysts on average are predicting sales of $868.9 million.Things are going well enough that Twitter said it plans to increase spending by 20% in 2020, including a plan to increase headcount by 20% and build a new data center. Dorsey said Twitter plans to grow its workforce globally, and emphasized the need to add employees outside of San Francisco, where the company has its headquarters. It was just three years ago that Twitter was headed in the opposite direction, cutting staff and selling off assets to other tech giants like Google in an effort to reach profitability.The company posted net income of $1.47 billion for 2019, its second straight year of profitability after nearly 12 years of losses. Profit excluding certain items in the fourth quarter was $135 million, or 17 cents a share.Questions remain as Twitter heads into a year featuring the Olympics and a U.S. presidential election. Twitter often cites major worldwide events as an advertising and user-growth opportunity, though the company has also said that it will not sell political ads ahead of the 2020 U.S. election. Dorsey has also announced plans to work for at least three months in Africa this year, a decision that promises to test Twitter’s corporate structure. Dorsey already has two jobs -- he’s also CEO of Square Inc.(Updates shares in fifth paragraph.)To contact the reporter on this story: Kurt Wagner in San Francisco at firstname.lastname@example.orgTo contact the editors responsible for this story: Jillian Ward at email@example.com, Kurt Wagner, Molly SchuetzFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Total SA’s fourth-quarter profit beat even the highest estimate as record production offset the impact of slumping natural gas prices and strikes at its French oil refineries.Project startups and ramp-ups from Russia to Australia fueled an 8% increase in hydrocarbon output and a jump in sales of liquefied natural gas. That helped to counter the effect of mild winter temperatures and slowing economic growth on demand for gas and chemicals, keeping the French giant’s plans for dividend increases and share buybacks on track.That’s in contrast to many of Total’s peers that reported lower profit for the period. Last week, Royal Dutch Shell Plc reduced the pace of its share buybacks due to weak macroeconomic conditions, while Exxon Mobil Corp. and Chevron Corp. failed to impress. BP Plc was the only other oil major to offer investors a positive surprise by making a slight increase to its dividend.“Total is not immune to sector headwinds, and has similar exposures to peers,” RBC Capital Markets analyst Biraj Borkhataria said in a note. “However the balance sheet is stronger than most peers and earnings remain relatively defensive.”Total is so far rising to the challenge faced by the oil industry, juggling the competing priorities of investors’ desire for hefty payouts, the large investments needed to sustain production, and pressure from governments and consumers to fight pollution and transition to cleaner energy.Total Chief Executive Officer Patrick Pouyanne reiterated the company’s commitment to conventional energy projects, saying it is working toward final investment decisions on projects in Uganda, the U.S. Gulf of Mexico, Brazil, Myanmar and Mexico.Adjusted net income totaled $3.17 billion in the fourth quarter, little changed from a year earlier, the company based near Paris said in a statement on Thursday. Oil and gas production was 3.1 million barrels of oil equivalent a day, up from 2.88 million a day a year earlier. It expects output to rise by 2% to 4% this year.Shares of the company rose 2.4% to 46.54 euros as of 9:07 a.m. in Paris.Total boosted its fourth-quarter dividend to 68 euro cents per share, in line with a policy outlined in September to lift the payout by 5% to 6% a year. It repurchased $1.75 billion of shares in 2019 and intends to buy back another $2 billion this year, assuming oil prices average about $60 a barrel.(Updates with analyst comment from fourth paragraph, CEO comment in sixth paragraph.)To contact the reporter on this story: Francois de Beaupuy in Paris at firstname.lastname@example.orgTo contact the editors responsible for this story: James Herron at email@example.com, Helen Robertson, Amanda JordanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Talks between officials from OPEC and its allies spilled into an unprecedented third day as Saudi Arabia and Russia remained split over their response to China’s coronavirus.Delegates gathered again in Vienna on Thursday after two days of meetings weren’t enough to shift Russian resistance to deeper production cuts. Saudi Arabia, engaging in capital-to-capital diplomacy, has been pushing for the cartel to reduce output as the deadly epidemic squeezes China’s economy and its demand for oil.The price of crude has plunged in recent weeks on expectations that the epidemic will make a sizable dent in global energy consumption as China curbs imports of crude and liquefied natural gas. As talks between the Organization of Petroleum Exporting Countries and its allies dragged on in the Austrian capital, traders voiced optimism that the cartel will eventually summon ministers for an emergency meeting that would take action to avert a surplus. Crude futures rose on Thursday for a second day.“An emergency meeting is clearly on the table and I would not rule it out,” said Bob McNally of Washington-based Rapidan Energy Advisers LLC. “But it’s an uphill battle for proponents, especially given Russia’s stout opposition and crude’s relief rally.”Russia would be willing to extend the current production cuts, which were agreed in December and due to expire in March, but doesn’t want additional measures, according to one delegate. It was the country’s reluctance that pushed the meeting of OPEC+ experts into a third day, he said. The Kremlin’s budget is more resilient to low oil prices than Saudi Arabia’s, and the standoff between the two producers has become a feature of negotiations, albeit one that typically ends in compromise.Russian President Vladimir Putin spoke to Saudi King Salman bin Abdulaziz by phone earlier this week and doesn’t currently have plans for another call, Kremlin spokesman Dmitry Peskov told reporters on conference call on Thursday.Uncertainty over the coronavirus outbreak’s duration and severity is making it harder for the cartel to make a decision. Estimates of how much demand will be wiped out in the coming months vary widely, with OPEC’s internal analysis predicting a modest impact but outside estimates showing the biggest hit to consumption since the 2008-2009 financial crisis.Two delegates said they needed more time to review their report on the possible impact of the virus. Officials are looking at a range of scenarios and their impact.“If it were intractable they would have left by now,” said Helima Croft, an analyst at RBC Capital Markets. “It’s a quest for consensus still. But certainly it shows that this is not easy.”Even if the technocrats that make up the group’s Joint Technical Committee reach a consensus on the impact of the virus and make a recommendation to the ministers, the OPEC+ group would need then to agree on a date for an early meeting, and the ministers themselves would need further face-to-face talks in Vienna before any final decision.\--With assistance from Andrew Janes, Olga Tanas, Dina Khrennikova, Javier Blas and Stepan Kravchenko.To contact the reporters on this story: Salma El Wardany in Vienna at firstname.lastname@example.org;Grant Smith in London at email@example.comTo contact the editors responsible for this story: Emma Ross-Thomas at firstname.lastname@example.org, Carlos Caminada, Pratish NarayananFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. Canada unexpectedly ran one of its smallest trade deficits in recent years in December on a sharp recovery in oil shipments after the completion of repairs on a pipeline.The December gap fell to C$370 million ($279 million), down from a revised deficit of C$1.2 billion in November, Statistics Canada said Wednesday in Ottawa. Economists had forecast a deficit of C$610 million. It was largely an energy story, with shipments of crude up 18% during the month.It’s the best trade reading since the country recorded a small surplus in May. Canada has averaged monthly trade deficits of C$1.8 billion over the past three years.Canada’s struggling exporters had been one of the main reasons for the nation’s economic slowdown at the end of last year, so the December recovery in shipments could stoke hope the trade sector will contribute more to growth in future. But a prolonged period of sluggish imports, which persisted into December, continues to raise questions about weak domestic demand.While exports jumped 1.9%, imports recorded just a 0.2% gain. Imports are down more than 5% since hitting 2019 highs in March. Industrial machinery and equipment dropped 4% in December, an indication businesses may be curtailing investment.“The pullback is still not a good sign for near-term domestic demand growth,” Nathan Janzen, senior economist at RBC Economics, said in a note to investors.Market ReactionThe currency dropped after the report, trading 0.1% lower at C$1.3293 against its U.S. counterpart at 10:20 a.m. Toronto time. Two-year government bond yields were up 3 basis points to 1.51%.The export pick-up during the month erases a 1.9% decline in November, which had been hampered by a multi-day strike at CN Rail and the rupture of the Keystone pipeline in North Dakota. Excluding energy, gains were just 0.3%.Even with the rebound in exports in the final month of 2019, which included a 2.8% jump in volumes, the trade sector looks to have been a major drag on growth in the fourth quarter. In volume terms, exports were down 2% in the fourth quarter, surpassing the 0.6% drop in imports.For all of 2019, Canada recorded a deficit of C$18.3 billion, the smallest annual gap since 2014. That largely reflected sluggish imports, which were up 1% for the year. Exports rose 1.7% last year, well below 2018 gains of 6.3%.The rise in oil exports widened the nation’s trade surplus with the U.S. to C$5.2 billion in December, from C$4.1 billion a month earlier.(Updates with analyst comment in 6th paragraph.)\--With assistance from Erik Hertzberg.To contact the reporter on this story: Theophilos Argitis in Ottawa at email@example.comTo contact the editors responsible for this story: Theophilos Argitis at firstname.lastname@example.org, Chris Fournier, Stephen WicaryFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Canada has kicked off 2020 with a slew of new products aimed at investors who want to incorporate environmental, social and governance factors into their investment portfolios.Seven ESG-focused exchange traded funds began trading in January, the biggest month for launches of those funds since March 2019, when eight ESG products were created, according to National Bank Financial. The new funds are being launched after two years of strong net flows for Canadian-listed ESG ETFs -- more than C$300 million ($226 million) in 2018 and almost C$150 million last year.The availability of such products in Canada has ballooned as asset managers try to capitalize on rising demand for funds that screen out companies that don’t meet certain environmental and governance criteria. Canada now has more 30 pure-play ESG ETFs. The U.S. has more than 80, though none have been launched this year, said Daniel Straus, vice president of ETFs and financial products research at National Bank Financial.Investors have also been piling into one of Canada’s oldest ESG ETFs. The iShares Janzi Social Index ETF, which goes by the ticker XEN, attracted more than C$120 million in new capital from 2017 through 2019, according to data compiled by Bloomberg. It also posted a record month of inflows for January.“ESG investing as a buzzword is not new,” said Straus by phone. “It’s been around for a long time. It did seem to pass a tipping point in terms of attention about a year or two ago, both in Canada and the U.S.”U.S. ESG ETFs took in $8 billion of inflows in 2019, almost double the amount from the prior year, according to data compiled by Bloomberg.ESG ETFs offer a less expensive way for investors to get exposure to the responsible investing trends and are more liquid than active mutual funds. Last month, Larry Fink said BlackRock Inc. will put climate change at the center of the firm’s strategy by prioritizing sustainability in its investment funds.“The number of inbound requests we’ve been getting for ESG has been skyrocketing,” Straus said. “It remains to be seen whether that interest becomes true grassroots retail investor flows -- that we have yet to observe.”One firm was responsible for all seven new ESG ETFs last month -- Bank of Montreal. The bank is following the launch of Royal Bank of Canada iShares’ six new ESG-focused ETFs launched last year.“We didn’t want to come out with one or two and look like we were doing a token launch,” Mark Raes, head of product at BMO Asset Management, said by phone.National Bank’s Straus said more ESG funds will come online. Millennials and Gen-Xers are expected to inherit $30 trillion of wealth in a massive generational transfer over the next 30 years, and many want to avoid investing in companies with a large climate footprint.“It’s the realities of the world we live in -- the increasing economic power of younger investors and decision makers and the headlines around climate change and social justice issues that are turning investor decision-making processes toward ESG factors,” Straus said.The large inflow of capital into ESG funds in 2018 was primarily due to new launches like the RBC Vision Women’s Leadership MSCI Canada ETF, which received interest at inception from institutional investors, said Straus. “Both in Canada and the U.S., the creation activity for ETFs in the ESG category has been pretty spiky, suggesting that most of the buying interest is institutional in origin.”(Adds XEN’s record month of inflows for January in the fourth paragraph.)\--With assistance from Rachel Evans.To contact the reporter on this story: Divya Balji in Toronto at email@example.comTo contact the editors responsible for this story: Kyung Bok Cho at firstname.lastname@example.org, Derek DeCloet, Jacqueline ThorpeFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Prognosticators said volatility would be back this year. They were right. And they were correct to predict Canadian stocks would outperform the U.S.What they couldn’t foresee was a viral outbreak that has roiled global markets. While it’s too early to assess the full impact of the coronavirus, now designated a global health emergency, it will have economic repercussions in Canada.Get updates on the coronavirus health threat hereChina is the second-largest market for Canadian products, according to Bloomberg data. It purchased about C$27 billion ($20 billion) in goods from Canada in 2018, according to Statistics Canada. Canada exported C$22 billion worth of goods to China in the first 11 months of 2019, representing 4% of total shipments abroad. China is also Canada’s largest source of tourist arrivals from the Asia-Pacific region with a record 737,000 Chinese tourists in 2018, according to state agency Destination Canada.Read more: The Coronavirus Is Infecting the Global Economy. Here’s How.A third case of coronavirus was confirmed in Ontario on Jan. 31, bringing the total number to four in Canada. A woman in her 20s arrived in Wuhan from Toronto on Jan. 23 and went to London, Ontario, developing symptoms a day later. She was first tested negative, but a second test confirmed the virus.Uncertainty about the severity and duration of the outbreak has left economists and analysts making best-guess estimates. Many are reaching back to the SARS outbreak of 2003 for pointers on how things could play out, but China’s economy is now 10 times larger compared with 17 years ago. On Monday, China’s stock market opened to the most savage wave of selling in years, with thousands of shares falling by the daily limit after just minutes of trading.Canada’s economy will see the spillover effects of this pandemic “but the impact looks likely to be limited relative to the 2003 SARS outbreak,” Nathan Janzen, a Royal Bank of Canada senior economist, said in a report. China-Canada bilateral travel will decline, he said, though “risks to total Canadian travel inflows will still look smaller than SARS, at least for now.”The loonie has weakened against the greenback since the new virus began making headlines as the price of oil slumped, bonds rallied and Canada’s stock market dropped (albeit at a smaller scale versus the U.S. thanks to gold stocks). And as earnings season picks up pace in earnest north of the border, Canadian firms are discussing the impact the virus will have on their bottom line.Executives ReactTeck Resources Ltd. Chief Executive Officer Don Lindsay said that if the coronavirus follows the pattern of SARS, there will be a two- to six-month period in which it will affect the perception of commodities demand. He added that once things get back to normal, it will present a buying opportunity.Resolute Forest Products Inc.’s CEO Yves Laflamme said in a phone interview that virus outbreaks are “never good for the economy,” and demand in China, a large consumer of lumber and pulp, may ebb should the impact last for an extended period.Sun Life Financial Inc. has asked employees who traveled to mainland China recently to work from home for two weeks before returning to the office, with similar to steps taken by Bank of Montreal and Manulife Financial Corp.Air Canada, the nation’s largest airline, suspended all direct flights to Beijing and Shanghai until Feb. 29. Its shares have slumped about 15% since a peak earlier this month.Magna International Inc., which has 55 manufacturing and assembly units in China and has a 10th of its workforce there, has banned travel to the country, according to media reports. Magna could also take a hit as carmakers like General Motors Co. and Ford Motor Co. halted some production.Canada Goose Inc. is slated to report third-quarter results on Feb. 7. Investors will want to know how the viral outbreak has impacted sales in China and Hong Kong and whether this will be reflected in any year-end forecasts. The luxury winter apparel retailer has two stores in Hong Kong, one in Beijing, Shanghai and Shenyang each.At least eight Canadian-listed companies generate 100% of their revenue from China, according to data compiled by Bloomberg. First Quantum Minerals Ltd. received more than 35% of its 2018 sales from China, and Mississauga, Ontario-based Imax Corp., which is listed in the U.S., gets a third.Markets -- Just The NumbersChart of The WeekEconomyCanada’s economy unexpectedly expanded in November as cold weather drove a sharp increase in power usage, though the pickup won’t be enough to salvage what is likely to be a weak end to the year. Gross domestic output rose 0.1% in November, beating economists’ estimates for a flat reading, Statistics Canada reported on Jan. 31. That follows a 0.1% contraction in the prior month.Employment data from January is due Feb. 7PoliticsPrime Minister Justin Trudeau discussed the new Nafta in a call with Donald Trump. Trudeau “raised the arbitrary detention of Michael Kovrig and Michael Spavor in China, and the two leaders agreed on the need for their immediate release,” according to a readout from Trudeau’s office issued on Jan. 31. They also discussed the coronavirus outbreak and “global health emergency and measures being taken by both countries to protect the health and safety of their citizens.”TrendingInCanada1\. There’s been a growing concern among Canadians on safeguarding the public amid the coronavirus outbreak without racial stigmatization.2\. Maple Leafs fans took to Twitter after Travis Dermott wasn’t on the ice for practice on Jan. 31, ahead of a showdown with the Ottawa Senators Saturday.\--With assistance from Steven Frank, Ashley Robinson, Sandrine Rastello, Doug Alexander and Aoyon Ashraf.To contact the reporters on this story: Divya Balji in Toronto at email@example.com;Danielle Bochove in Toronto at firstname.lastname@example.org;Erik Hertzberg in Ottawa at email@example.com;Shelly Hagan in ottawa at firstname.lastname@example.orgTo contact the editors responsible for this story: Kyung Bok Cho at email@example.com, Steven Frank, Derek DeCloetFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Swatch Group AG fell to the lowest in a decade as Switzerland’s largest watchmaker faces a triple whammy from protests in Hong Kong, competition with smartwatches and the viral outbreak in China.Operating profit fell for the first time in three years, dropping 11% to 1.02 billion francs ($1.1 billion). Analysts expected 1.09 billion francs. The shares fell as much as 4.1% Thursday morning. Swatch aims to boost sales 5% to 6% this year at constant currency, Chief Executive Officer Nick Hayek said in a phone interview.Swatch is feeling the pinch of weaker demand for lower-priced timepieces amid competition from the Apple Watch and fitness bands. Last year, Switzerland exported fewer watches in any year since 1984 as demand collapsed in the lower end of the market. Swatch depends on high-volume sales from brands like Tissot to have the scale necessary to keep its costs in check.“We expect growth in China this year, and won’t change now our forecasts because of the coronavirus,” Hayek said. “If it only lasts one to two months, it won’t have a negative impact for the year. Of course January and February will probably not show good numbers, but I’m confident the problem will be brought under control.”Luxury-goods makers are bracing for the impact of the spread of the coronavirus, which has killed 170 people since originating in Wuhan, China. The outbreak could reduce the industry’s earnings by as much as 8% this year, RBC analyst Piral Dadhania has estimated.The weaker results also show how much the Swiss watch industry relies on key market Hong Kong, where margins are typically higher due to lower taxes. Disruption in that market cut 200 million francs off of second-half sales, the company said. Chinese shoppers last year increasingly bought watches on the mainland to steer clear from political protests in Hong Kong.The owner of the Omega and Longines brands forecast “healthy” growth this year in local currencies in all markets except Hong Kong, where Hayek said he expects a strong double-digit decline. To contact the reporter on this story: Corinne Gretler in Zurich at firstname.lastname@example.orgTo contact the editors responsible for this story: Eric Pfanner at email@example.com, Thomas Mulier, Andrew NoëlFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Canada's main stock index rose on Monday as energy companies were boosted by higher oil prices, but concerns over the economic impact of a coronavirus outbreak in China kept gains in check. China's President Xi Jinping said on Wednesday that preventing and containing the new coronavirus, which has taken 132 lives and infected 5,974, remained a grim and complex task, the state television reported. * The energy sector climbed 0.8% as oil prices rose on talk that the OPEC could extend oil output cuts if the new coronavirus hurts demand and data that showed a decline in U.S. stockpiles.
(Bloomberg) -- Oil rebounded from its lowest level since mid-October as investors weighed the extent to which China’s coronavirus would hurt fuel demand.Futures recovered 0.6% in New York on Tuesday after losing more than 9% across five straight days of declines. Investors found comfort in the possibility of the Organization of Petroleum Exporting Countries and its allies extending and deepening production cuts at its March meeting to stave off any supply imbalances if the coronavirus outbreak worsens.There’s some short-covering “after the worst-case demand scenario got priced in,” said John Kilduff, a partner at Again Capital LLC in New York. Sentiment improved after the sell off captured the attention of Saudi Arabia and China ramped up efforts to contain the outbreak, he said. “They’ve shown the market they’re not going to take this lying down.”Chinese authorities have locked down cities with a combined 50 million people around the outbreak’s epicenter in Wuhan, and will stop individuals traveling to Hong Kong. Fatalities increased to 106 in China, and infections have been reported throughout Asia as well as in the U.S., France, Canada and Germany. The U.S. Centers for Disease Control and Prevention advised travelers to avoid all non-essential trips to China.China’s expanded efforts to contain the outbreak coupled with the response from Saudi Arabia, the world’s biggest oil exporter, acted as “a support to prices and a recognition that demand could be lower going into the second quarter,” said Marshall Steeves, energy analyst at IHS Markit.West Texas Intermediate for March delivery rose 34 cents to $53.48 a barrel on the New York Mercantile Exchange. The U.S. benchmark has lost 12% so far in January, set for the biggest monthly decline since May.Brent for March settlement rose 19 cents to $59.51 a barrel on the London-based ICE Futures Europe exchange, putting its premium over WTI at $6.03 a barrel.See also: WeWork, Starbucks Shut Doors as Infections Spread: Virus ImpactFlight activity in the five airports closest to Wuhan plunged 48% from the previous week, while aviation traffic in Shanghai and Shenzhen also fell, even though Lunar New Year holidays should have increased it, according to RBC Capital Markets. Profits from producing jet fuel in Asia fell to the lowest in nearly four years.Despite the gains on Tuesday, investors remain cautious of the pathogen’s potential to destabilize oil demand. “There’s a wait-and-see attitude that seems to be driving markets right now,” said Steeves. “The virus fears are really a question of how much demand destruction occurs and how long that lasts,” he said.See also: Oil Experts See $5 Downside, OPEC+ Response as Virus SpreadsWith traders focused on demand, oil markets have largely shrugged off a political crisis in Libya that has choked off the OPEC nation’s exports. Eastern-based General Khalifa Haftar, the military leader whose faction controls the oil-rich east and south of the nation, blockaded the country’s ports earlier this month while haggling over a peace settlement with the national government.\--With assistance from James Thornhill, Ann Koh and Grant Smith.To contact the reporter on this story: Jackie Davalos in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: James Herron at email@example.com, Catherine Traywick, Pratish NarayananFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- 3M Co.’s messy quarter does little to inspire faith in the company or the industrial economy at large.The maker of Post-it notes, Scotch tape and wound dressings announced a pair of charges – $134 million for a restructuring plan and $214 million for litigation related to PFAS chemicals – that pulled its fourth-quarter earnings per share below analysts’ estimates. 3M’s particular issues aside, the company sits on the front lines of any economic swings, and there was scant evidence in its results that the great industrial turnaround heralded by President Donald Trump’s trade truce with China has in fact arrived.Sales at 3M fell 2.6% in the fourth quarter after backing out the impact of acquisitions and currency swings, leaving the company with its biggest annual decline on that basis since 2009. With U.S. tariffs still in place on some $360 billion of Chinese goods, political uncertainty tied to the American presidential election and few specifics about alleged purchasing commitments from China — not to mention the potential economic impact of the widening coronavirus crisis — a recovery is apt to be more muted.(1) 3M’s concerns run deeper than just a weak macroeconomic backdrop, though. PFAS — which stands for per- and polyfluoroalkyl substances — are known as the “forever chemicals” because they don’t break down in the environment and accumulate in the body. They have been linked to health problems including cancer and immune system dysfunction, spurring a series of lawsuits against manufacturers including 3M and DuPont de Nemours Inc.’s Chemours Co. spinoff. The charge 3M announced Tuesday reflects updated expectations for customer-related litigation and environmental matters for sites where it historically manufactured the chemical. 3M also disclosed on Tuesday that it had received a grand jury subpoena related to non-compliant discharges from an Alabama facility, and said it had discovered similar issues at an Illinois plant as part of a fourth-quarter review.The charges are a reminder of how much investors still don’t know about 3M’s financial exposure to lawsuits and potential environmental regulation. Gordon Haskett analyst John Inch has estimated 3M’s ultimate liability for PFAS – including remediation, personal injury settlements and monitoring expenses – could be about $27 billion. The company didn’t do itself any favors by waiting until the call to disclose the grand jury probe. That was General Electric Co.’s attitude in 2018 when it casually dropped a mention of a Securities and Exchange Commission investigation into some of its accounting practices an earnings call. That isn’t the company you want to keep when it comes to transparency and accountability.In that light, I treat 3M’s latest restructuring push with a dose of skepticism. The company will dismantle the international operations arm that was tasked with setting priorities for geographic regions and instead give its business groups global control over decisions affecting their strategy and resources. This is meant to be “the next step in its transformation journey” following a shakeup last year, where 3M rethought how its businesses are divided up. The idea was to group its products by customers, rather than market – i.e. sales of automotive products to retail shops would fall under the “consumer” unit rather than be lumped in with automotive revenue from manufacturers or body shops. In theory, this all makes sense and should streamline decision-making processes; 3M says it will help the company save as much as $120 million a year. But it also feels like a bit like reshuffling the deck and a convenient way to throw some corporate-speak at a plan to cut 1,500 jobs that might otherwise have felt less like a “transformation” and more like a reaction to still stubbornly sluggish sales growth.For 2020, 3M warned organic sales may be flat at worst. That’s a weaker forecast than some analysts had been expecting, but RBC analyst Deane Dray warned even this downbeat outlook may not be pessimistic enough. It’s possible sales slump yet again, particularly given 3M’s dependence on China’s economy and the impact from the coronavirus outbreak. 3M had been modeling low-to-mid-single digit growth in China in 2020 off of depressed 2019 numbers, CEO Mike Roman said on the earnings call. While the company had already been expecting a sluggish start to the year in China largely due to still-weak automotive markets, the coronavirus is “changing things as we go,” Roman said. Offsetting the possible negative impact on China’s overall economy is the growing demand for 3M’s face masks and other respiratory-protection products.The coronavirus aside, it’s hard to give 3M the benefit of the doubt after a staggering series of guidance cuts over the course of 2018 and 2019. Even if 3M finally did get its outlook right for a change, its best-case scenario for sales growth is a meager 2% increase. Such sluggish but stabilized revenue growth is likely to describe many manufacturing companies’ performance in 2020, but unlike 3M — which declined in 2019 and fell again on Tuesday’s earnings news — many of them aren’t priced for that kind of environment.(1) Elsewhere on Tuesday, CommerceDepartmentdata showed orders for non-military capital goodsexcluding aircraft—a proxy for business investment —unexpectedly declined 0.9% in December.To contact the author of this story: Brooke Sutherland at firstname.lastname@example.orgTo contact the editor responsible for this story: Beth Williams at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Canada's main stock index rose on Tuesday, following a steep sell-off in the previous session, helped by gains in energy stocks which got a boost from higher oil prices. * The energy sector climbed 1% as oil prices steadied after a five-day losing streak. * The top percentage gainer on the TSX was Canopy Growth Corp, which jumped about 8%, after RBC upgraded the stock to "outperform".