RY.TO - Royal Bank of Canada

Toronto - Toronto Delayed Price. Currency in CAD
104.61
+0.28 (+0.27%)
As of 12:20PM EDT. Market open.
Stock chart is not supported by your current browser
Previous Close104.33
Open104.15
Bid104.61 x 0
Ask104.63 x 0
Day's Range104.11 - 104.71
52 Week Range90.10 - 107.91
Volume511,782
Avg. Volume2,325,874
Market Cap150.103B
Beta (3Y Monthly)0.98
PE Ratio (TTM)12.11
EPS (TTM)N/A
Earnings DateN/A
Forward Dividend & Yield4.08 (3.91%)
Ex-Dividend Date2019-07-24
1y Target EstN/A
  • Amazon Advertising Is Just a Toll in Disguise
    Bloomberg3 days ago

    Amazon Advertising Is Just a Toll in Disguise

    (Bloomberg Opinion) -- Investors are giddy about Amazon.com Inc.’s fast-growing pool of advertising sales, which largely come from merchandise sellers buying commercial messages to make their goods more prominent on Amazon’s website.Calling this “advertising” is true, but also a misnomer that leads investors to imagine a Google-like marketing machine inside Amazon. It’s not – or not yet, at least. Amazon’s advertising is better understood as an additional tax the company imposes on the millions of businesses that sell through its vast digital mall. It’s one more toll extracted from sellers to access the fast lane of Amazon’s beautiful freeway for shopping.Ads may be a justified expense for merchants to access Amazon’s hundreds of millions of shoppers, and it’s a common business tactic to juice revenue. But it’s also risky for Amazon to milk its merchants for a higher effective commission than most businesses of its kind can command. And as regulators and politicians question whether the superpowers of U.S. tech are using their popular services to unfairly advantage themselves, Amazon may pay a cost in reputation the more it squeezes cash from its hold on online shopping. More than half the items bought on Amazon come from independent merchants that sell slacks or bocce sets through the e-commerce king. Amazon in some cases handles a lot of the leg work, in exchange for commissions and other fees. In recent years, Amazon has given those “marketplace” sellers and product manufacturers more options to buy Google-like advertisements, in part based on product searches, for an additional cost. Someone typing "dog beds" into Amazon’s search box, for instance, might first see results from the FurHaven brand or a merchant that resells pet products on Amazon, with an icon that notes those listings are “sponsored.” RBC last year estimated that about one out of every six product results on Amazon’s app was a sponsored listing. Products from companies without paid listings are pushed further down the page.As Amazon kicks off its annual Prime Day fake shopping holiday, it appears the company is offering even more paid product promotions. All those advertisements make up most of Amazon’s $11 billion yearly sales in a category that also includes fees for its branded credit cards. In my conversations with businesses that sell products on Amazon or advise merchants, there isn’t much hostility about Amazon charging them for promotion on top of other fees. Companies realize that paying to make their merchandise front and center on Amazon is a cost of doing business, and they generally say those paid placements generate enough sales to justify the expense. In a survey of businesses that sell on Amazon, the merchant services firm Feedvisor found three-quarters of respondents were satisfied with Amazon’s advertising platform. Ads, of course, also transfer money from merchants to Amazon’s wallet. The company on average takes about 26 cents of each dollar of transactions made by its marketplace vendors, according to Bloomberg Opinion estimates from Amazon’s disclosures. Add in an estimate of Amazon's revenue from the merchants’ advertising — which, again, is mostly an added fee paid by goods sellers and product manufacturers as a cost of doing business — and Amazon’s average haul per transaction likely tops 29 cents on each dollar.(2) In 2015, the company’s take was closer to 20 cents. Other marketplace businesses that connect sellers with customers — eBay Inc., Airbnb Inc. and Grubhub Inc., for example — tend to take an effective commission of 15% to 25% on each transaction, including advertisements if available.(3) Consider that some makers of apps, including Spotify and the company behind the the Fortnite video game, have complained that Apple Inc.’s up to 30% commission on transactions in its iPhone app store is far too high. Amazon itself doesn’t sell its e-books, movie downloads or other digital goods in the company’s iPhone apps, to avoid giving Apple a cut of 30 cents on every dollar — about what Amazon takes from its merchants.To be fair, Amazon is doing a lot of work for its cut of sales. It provides a vast customer base for merchants, often stores inventory for them and handles shipments, and takes responsibility for customer service and payments. That’s arguably far more work than Apple does for its 30% commission on a purchase of an iPhone game.(1) And all advertising is, in a way, a toll levied by a powerful distributor. Businesses buy ads on Facebook and Google to ensure their products and services don’t get drowned out by a sea of other information. Frito-Lay pays a supermarket extra to ensure its chips are on visible spots on shelves. Alibaba and eBay sell ads similar to those that Amazon offers to merchants. There’s nothing particularly unusual about what Amazon is doing in carving out room for merchants to market themselves, for a fee.But there is also something perverse about paying Amazon a kind of  tax to make sure your product is seen on Amazon, so people will buy the item on Amazon. Even Google’s ad empire isn’t this kind of a closed loop. And if one Amazon merchant doesn’t purchase an ad, one of its competitors’ dog beds — or Amazon's own brand — might instead nab an eye-catching display and wrest a sale instead. Amazon is just different, in a way that makes typical business tactics a little icky. Amazon’s growing cut from its merchants is one reason why the company's revenue is increasing more quickly than its merchandise sales. Amazon is extracting a bigger share for itself. Like other powerful tech companies, Amazon is able to charge more to the partners that rely on it, because they don't really have a choice. (Updates the “Take a Cut” chart to include an average effective commission for Airbnb instead of the high end of listed commission rates.)(1) This estimate is based on recent company disclosures that for the first time enabled calculations of the total value of goods sold on Amazon's digital mall. My calculation of Amazon's effective commission is the company's 2018 reported net revenue from commissions and other fees paid by marketplace vendors, $42.7 billion, out of roughly $166 billion in total merchandise sales made by those independent merchants. The effective commission including advertising is a rougher estimate, because it assumes 58% of Amazon's "other" revenue of $10.1 billion in 2018 -- primarily ads but also other services -- are paid listings purchased by Amazon's marketplace merchants. (That percentage corresponds to the merchants' share of total sales on Amazon.) The figure may overestimate Amazon's take from merchants, but probably not by much.(2) These companies’ effective take of transactions in some cases isn't entirely comparable to Amazon’s, because they do more or less work for their commissions and other fees. But they each get paid for their role as middlemen.(3) Earlier this year, my Bloomberg colleague Spencer Soper wrote about the mixed feelings among companies that sell on Amazon. Many of them find customers they couldn't have reached without Amazon, but some also grouse about the growing array of fees they pay the e-commerce giant or other downsides of selling goods there. Some merchants told Soper that Amazon is taking upwards of 40% of each sale.To contact the author of this story: Shira Ovide at sovide@bloomberg.netTo contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • Mnuchin Warns Pelosi U.S. May Run Out of Cash in Early September
    Bloomberg6 days ago

    Mnuchin Warns Pelosi U.S. May Run Out of Cash in Early September

    (Bloomberg) -- Treasury Secretary Steven Mnuchin warned House Speaker Nancy Pelosi that the government may run out of cash in early September if Congress doesn’t raise U.S. borrowing authority.“Based on updated projections, there is a scenario in which we run out of cash in early September, before Congress reconvenes,” Mnuchin said in a letter to Pelosi on Friday. “As such, I request that Congress increase the debt ceiling before Congress leaves for summer recess.”Pelosi said Thursday that Congress should act this month to raise the debt ceiling, which was the first time she offered a definitive timeline. It’s not clear that lawmakers and the White House will strike a deal before the House is set to leave town on July 26 for a six-week recess.Mnuchin and Pelosi spoke twice about the debt limit on Thursday and again on Friday. They will probably speak again over the weekend, according to a Democratic aide.Congressional leaders acknowledged this week that waiting until September to raise U.S. borrowing authority increases the prospects of an unprecedented default. Lawmakers are scheduled to be back in Washington Sept. 9.Republicans, Democrats and Trump administration officials intensified their negotiations this week, and all sides say a deal will get done.‘Significant Risk’The Treasury has been using accounting measures to avoid missing payments since the borrowing limit snapped back into place on March 2. The department’s room to maneuver depends on tax revenue, and the Bipartisan Policy Center, an independent think tank, this week adjusted its estimate to say there is a “significant risk” of defaulting on a key payment in early September.Rates on bills maturing in mid-to-late September rose Friday, while those in early to mid-October have declined. Before the BPC estimate this week, early to mid-October maturities were the securities that had been under pressure as being most under risk of non-payment if the debt ceiling wasn’t increased in time.“You can see now that there’s a little bit of a bulge higher in bill rates in the September time frame,” said Michael Cloherty, a New-York based strategist at RBC, attributing that move to Mnuchin’s letter. “The way Mnuchin phrased it was that there are some scenarios when it can happen in early September, not that it’s the likely one.”The U.S. government will run out of cash and borrowing authority about Oct. 6, meaning payments won’t be able to be fully met if the debt ceiling isn’t increased. Borrowing authority will run too close for comfort before the September corporate tax payments come in, with only about $10 billion of room to spare.The Treasury bill market reflects the risk, with yields on issues maturing in early September and October trading significantly higher than the adjacent parts of the curve. A default of this kind would likely be measured in hours, as Congress can vote to raise the debt ceiling, but it would require various defensive measures by holders of T-bills, such as money market funds.-Ira F. Jersey and Angelo Manolatos, Bloomberg IntelligenceMitch McConnell and Kevin McCarthy, the Republican leaders in the Senate and House, also say Congress should raise the debt limit this month.House Democrats have been trying to leverage the debt ceiling bill to increase federal spending caps, and they were looking to negotiate those caps after their August recess.A spending caps deal, which could cover two fiscal years, would avoid an automatic $126 billion cut at the end of the calendar year. Such an agreement would help the government avoid another shutdown when funding runs out Oct. 1.If the combined debt ceiling and budget deal continues to elude lawmakers, Democrats and Republicans have begun to talk openly of a short-term debt ceiling increase this month while budget talks continue.(Updates with Friday phone call in the fourth paragraph and market reaction in the eighth paragraph.)\--With assistance from Mitchell Martin and Liz Capo McCormick.To contact the reporters on this story: Erik Wasson in Washington at ewasson@bloomberg.net;Saleha Mohsin in Washington at smohsin2@bloomberg.netTo contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Anna Edgerton, Justin BlumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Dollar Pain and 1% Yields: How a Fed-Cut Cycle May Hit Markets
    Bloomberg7 days ago

    Dollar Pain and 1% Yields: How a Fed-Cut Cycle May Hit Markets

    (Bloomberg) -- Treasury two-year yields may slide to 1% by the end of 2020 as the Federal Reserve makes a succession of interest-rate cuts to support growth, Citigroup Inc. says. The dollar is set to slide in that scenario, according to Pacific Investment Management Co.“We’re at a point where we’re weighing whether the Fed will cut for insurance or if they’re entering a period of structural, cyclical downturn in interest rates -- I’m leaning more towards the latter,” said Shyam Devani, senior technical strategist at Citigroup in Singapore. “I wouldn’t be surprised if we see two-year yields dropping to 1% by the end of next year.”Citi is forecasting the Fed will lower its benchmark rate by 25 basis points this month and potentially cut another two times by year-end. “Inflation expectations remain low, we have a global slowdown in growth and commodity prices remain weak,” he said. “The Fed could cut well into next year.” Traders are pricing in close to three quarters of a percentage point of easing by year-end after Chairman Jerome Powell’s dovish testimony to Congress on Wednesday, when he cited slowing global expansion and trade tensions as threats to the U.S. economy. The Treasury two-year yield was one basis point lower on the at 1.82% in New York morning trading after sliding eight basis points on Wednesday.Pimco’s ViewWhether the dollar is poised for a prolonged decline depends on how the central bank positions its July move -- especially if it’s the beginning of a cycle, said Erin Browne, a managing director and portfolio manager at Pimco in Newport Beach, California.“What really matters is, is this an insurance cut or a sustained move lower?” she said in a Bloomberg Television interview on Wednesday. “If it’s a sustained move lower, I think the curve steepens fairly significantly from here and we could start to see the dollar really roll over.”The dollar would be particularly vulnerable against the euro and potentially the yen should the Fed embark on a series of rate cuts, Browne said. The Bloomberg Dollar Spot Index fell 0.3% on Thursday, extending its decline to 1.7% from this year’s high set in May.Powell’s remarks not only failed to push back against the rate cut that’s fully priced in for July, they boosted the rate-cut narrative, Andrew Hollenhorst, chief U.S. economist at Citigroup in New York, wrote in a research note.A 50 basis-point cut in July is a real possibility, though a 25 basis-point move is likely to be the compromise policy outcome, he said.Here’s what other market participants are saying:Dollar Catalyst (BNP Paribas)Powell’s testimony “is a good potential catalyst for a resumption of the USD weakness we saw last month,” analysts including Shahid Ladha saidFlatter Curve (DBS Bank)Treasury yield curve may flatten ahead of Fed’s July meeting as markets are already more than fully priced for an “insurance” rate cut. “I’m biased toward some flattening” in the 2-10 year part of the U.S. yield curve, said Eugene Leow, rates strategist in SingaporeGreenback Winner (State Street)The dollar could climb even after the Fed cuts as investors may start to cover underweight positions. “All the roads point to one result: that the dollar could possibly be the sole winner,” said Bart Wakabayashi, branch manager in TokyoAvoiding Panic (Commerzbank)“A 50bps cut would smack a bit too much of panic,” said Bernd Weidensteiner, economist in Frankfurt. “After the release of a rather strong employment report on Friday, a large step is unlikely”Dollar Gain (RBC Capital Markets)“The dollar would remain as G-10’s highest yielder and that should lend support to dollar in a low vol/carry-obsessed world,” said Daria Parkhomenko, FX strategist in New York(Updates prices, chart.)\--With assistance from Chikafumi Hodo, Masaki Kondo and Katherine Greifeld.To contact the reporters on this story: Ruth Carson in Singapore at rliew6@bloomberg.net;Chester Yung in Singapore at kyung33@bloomberg.netTo contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas ReynoldsFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Deutsche Bank Investor Doubts Increase Over Sewing's Revamp
    Bloomberg9 days ago

    Deutsche Bank Investor Doubts Increase Over Sewing's Revamp

    (Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Investors are becoming increasingly skeptical that Christian Sewing can pull off the biggest overhaul in Deutsche Bank AG’s recent history.What many are certain about: it’s still not the time to own its shares. The stock, which already had the lowest price-to-book ratio of any big European bank, has plunged almost 10% this week and 15% from its Monday peak.Initial optimism surrounding Chief Executive Officer Christian Sewing’s sweeping revamp has quickly given way to doubts over whether the German lender can reach its profit goals in a competitive home market. The bank has consistently disappointed shareholders in recent years, and after the overhaul will be focused on servicing companies’ routine financing needs while also withholding dividends for this year and next.The vast restructuring -- which will see 18,000 job losses -- is forecast to cost 7.4 billion euros ($8.3 billion) and will shrink the bank’s capital buffers.“Execution risk seems higher than we initially expected given more headwinds to capital,” Anke Reingen, an analyst at RBC Capital Markets, wrote in a note to clients. Deutsche Bank’s plan “appears to leave little room for error.”‘Highly Improbable’Deutsche Bank reaching its 2022 profitability goal is “highly improbable,” given that the lender will probably lose revenue in the process, according to Citigroup Inc. analysts. The company is completely exiting some businesses, such as equities trading, and has said the retrenchment could also lead to the loss of revenue in other businesses it wants to keep.Deutsche Bank is creating what it’s calling a “capital-release unit” to handle the wind-down of non-strategic assets so it can focus on its main businesses. The holdings and related businesses being moved to the unit represented 74 billion euros of risk-weighted assets and 288 billion euros of leverage exposure at the end of last year.The shares fell as much as 6.5% on Tuesday and were trading 4% lower at 6.52 euros as of 4:49 p.m. in Frankfurt. The stock has declined about 6.5% this year.Much of the short-term outlook for the bank is also unclear. While Deutsche Bank expects to post a loss this year because of the overhaul charges, “we’re working toward being break-even or better in 2020,” said Chief Financial Officer James von Moltke.“Obviously there’s a significant amount of uncertainty in that forecast as we go through the restructuring, whether it’s the timing of restructuring or other things,” he told reporters on a conference call on Monday.Credit investors are concerned about the fallout from a lower capital buffer even though Deutsche Bank said that it would be in a position to pay coupons on its debt throughout the restructuring. The bank’s riskiest bonds, known as additional tier 1 notes, dropped 3 cents on the euro to 85 cents, the lowest in more than a month, according to data compiled by Bloomberg. The price of credit-default swaps insuring Deutsche Bank’s debt against losses rose for a second day, indicating deteriorating perceptions of credit quality.Deutsche Bank coordinated its plans with regulators and bases its targets on conservative assumptions, Sewing said in London on Monday.Different Now“Some may say you have heard this before, or at least parts of it,” he told reporters on a conference call. “It is different this time, we are different. We are not going to shareholders to share the burden, we are going to manage this transformation organically. We are not denying or turning a blind eye to our weaknesses.”The CEO also signaled that he’s going to link his personal wealth even closer to the fortunes of the bank he’s overhauling on Monday, telling analysts “I want to lead by example. I am personally putting my money where my mouth is,” without giving more details of his planned investment.(Updates share price in eighth paragraph.)To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net;Katie Linsell in London at klinsell@bloomberg.netTo contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross LarsenFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Bloomberg9 days ago

    Mining Stocks Could Rebound With Help From Trump and China

    (Bloomberg) -- The backdrop for miners is ready to brighten in the second half of this year. They just need a resolution of the trade war between the U.S. and China to light a fire under their stocks.Metal prices and mining equities have been at the mercy of trade headlines all year, and business fundamentals have a taken a back seat. To be sure, easier central bank policies around the world have helped some metals, especially gold and silver. But a resolution of the trade tension between U.S. and China -- or at least some steps to bring down the temperature -- could prove the ultimate catalyst for the metals and mining complex.The S&P 500 Metals & Mining Index is up 12% so far this year, lagging the S&P 500 return of 19%. But that performance was mainly driven by gold stocks, while base metals underperformed. The BI Global Base Metals Competitive Peer Index is down 5.5% this year, while the VanEck Vectors Gold Miners ETF is higher by 21%.In fact, the discrepancy in performance between gold and base metal prices has widened heading into the second half of this year. Gold had a blockbuster start to the summer owing to expectations of a U.S. Federal Reserve rate cut, while base metals investors stayed cautious due to the potential impact of disputes on the commercial demand for metals. That’s led some industry analysts to ratchet up their preference for gold in the second half and into 2020 while remaining cautious on the base metals outlook.The supply and demand outlook for base metals is relatively tight, which means a healthy market for miners, according to a report from RBC’s Mining & Materials Equity Team. The outlook for gold in the near-term has improved due to expectations for lower rates, but there’s also risk to precious metals if geopolitical tensions in the Persian Gulf subside, the team said.BMO analysts led by Colin Hamilton agreed with that view. Precious metals prices have been quickly helped by rate cut expectations, but investors “still face a world where the industrial economy remains nervous about the impact of trade friction,” they said.RBC’s team has become “more constructive” on gold prices heading into the second half of 2019 and for 2020. The team also thinks base metals can go higher in the second half of 2019, since most of the macroeconomic concerns have been reflected in prices. But the recent rally in iron ore seems to be unsustainable and could turn back in the third quarter, RBC said.BMO also prefers precious metals, believing that the sentiment for gold has shifted to a new, higher range. The bank has a stable outlook for base metals but thinks any outperformance in the sector may have to wait until trade tension lifts. But in the copper market, BMO says the recent sell-off in copper prices is unjustified and expects higher prices into the year-end, with or without a trade accord.Easier trade rhetoric could translate into some downside for gold and silver, and a big rally in base metals. A continuation of the status quo might translate into further declines for base metal miners or, at best, leave the sector waiting for the next shoe to drop.What Bloomberg Intelligence saysGold-price appreciation is likely to be the dominant and most concerning 2H theme for the metals, especially if the peak-dollar theme that’s gaining credibility with a dovish Federal Reserve provides the final rally pillar. Gold has worthy catalysts for price gains after five years of caged trading. It stands to be the primary beneficiary, absent a definitive U.S.-China trade accord that reverses accelerating global declines in sovereign-debt yields, rate-cut expectations and increasing stock-market volatility.Industrial metals will benefit if the greenback declines, which places the broad sector on stable 2H footings. The Bloomberg All Metals Total Return Index is poised to reverse a prolonged period of underperformance vs U.S. equities, as we see it.-- Mike McGlone, commodity strategist-- Click here to read the research(Updates 3rd paragraph with share performances.)To contact the reporter on this story: Aoyon Ashraf in Toronto at aashraf7@bloomberg.netTo contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Scott Schnipper, Catherine LarkinFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Is Royal Bank of Canada (TSE:RY) A Smart Pick For Income Investors?
    Simply Wall St.9 days ago

    Is Royal Bank of Canada (TSE:RY) A Smart Pick For Income Investors?

    Dividend paying stocks like Royal Bank of Canada (TSE:RY) tend to be popular with investors, and for good reason...

  • Oil Dives in Final Minutes of Trading as Economic Woes Dominate
    Bloomberg10 days ago

    Oil Dives in Final Minutes of Trading as Economic Woes Dominate

    (Bloomberg) -- Oil plunged in the last few minutes of trading as economic anxiety hangs over the market.Futures gave up more than 1% of the day’s gains moments before settlement, closing just 0.3% higher in New York on Monday. Prices had risen for much of the session after BP Plc diverted a vessel in the Persian Gulf, fearing it might be targeted for retaliation after British forces seized an Iranian tanker last week. Saudi Arabia, meanwhile, said it had foiled an attack on a commercial ship in the Red Sea by Iran-backed Houthi rebels.The retreat near the close suggested traders are still contending with an “overriding negative sentiment,” said Ashley Petersen, an oil analyst at Stratas Advisors LLC in New York. Relatively light summer trading volumes may have exacerbated the slide.“This could be an example of markets still expecting the worst,” she said.Crude slid last week as worries about deteriorating global demand outweighed a move by the Organization of Petroleum Exporting Countries and its allies to extend production cuts. Investors are also waiting for Federal Reserve Chairman Jerome Powell’s testimony to Congress this week, which may offer clarity on the central bank’s plans for rate cuts.“Iran news is certainly dominating sentiment in the market, but I also think the post-OPEC selloff was a bit unwarranted,” said Michael Tran, managing director for energy strategy at RBC Capital Markets LLC in New York. So investors “woke up today to more geopolitical risk and a market that was likely oversold.”West Texas Intermediate oil for August delivery closed 15 cents higher at $57.66 a barrel on the New York Mercantile Exchange. It had risen as much as 1.7% earlier in the day. Brent for September settlement fell 12 cents to $64.11 a barrel on the ICE Futures Europe Exchange.With tensions escalating, European powers urged Iran to reverse its decision to breach the levels of uranium enrichment permitted under a 2015 nuclear accord. On Saturday, France and Iran agreed to resume talks by mid-July. Yet U.S. Secretary of State Michael Pompeo said in a tweet Sunday that Iran’s latest expansion of its nuclear program “will lead to further isolation and sanctions.”WTI will struggle to sustain a move above the low $60s, according to RBC’s Tran. New refinery capacity in China means Asia is saturated with gasoline and other fuels, capping demand for crude, he said.“In order to get a sustained and material rally, we first need to clean up the sloppy global market for refined products,” Tran said.\--With assistance from Sharon Cho, Tsuyoshi Inajima and Harkiran Dhillon.To contact the reporters on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net;Grant Smith in London at gsmith52@bloomberg.netTo contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Catherine Traywick, Mike JeffersFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Pound Traders Seen Downplaying Risk of a Johnson No-Deal Brexit
    Bloomberg10 days ago

    Pound Traders Seen Downplaying Risk of a Johnson No-Deal Brexit

    (Bloomberg) -- Pound traders may be underplaying the risk of a no-deal Brexit under Boris Johnson after the frontrunner for the U.K.’s next prime minister said he is “not bluffing.”The options market has become more pessimistic in recent weeks on sterling’s fortunes over the next six months compared to the three-month period before the Oct. 31 deadline to leave the European Union. The risk premium is likely to grow if Johnson is confirmed as prime minister this month, according to MUFG and Mizuho Bank Ltd.The pound’s fortunes have been dictated since the 2016 Brexit referendum by the growing and ebbing prospects for a deal with Brussels and approval by Parliament. The currency is near its lowest level this year after Prime Minister Theresa May stepped down and both contenders to replace her have said they are ready to walk away from the bloc.“The market is heavily underestimating the chances of a no deal,” said Neil Jones, head of hedge fund currency sales at Mizuho. “Whilst volatility is still low, it’s worth putting on some downside protection through the October-December period.”Pound risk-reversals, a gauge of options sentiment and positioning, are at 175 basis points in favor of selling sterling over six months, compared to 81 basis points over three months. The spread between the two is already near the widest since 2016. While bets on swings in the currency are also higher over six months, those have slid so far in July.For Royal Bank of Canada’s chief currency strategist Adam Cole, the risk of a hard Brexit is now around 30%-35%, although it is hard to separate from the risk of a general election. The market is moving to price in both outcomes thanks to “ever greater certainty that Boris Johnson will win the leadership contest,” he said.As Conservative party members start to voting in the leadership ballot, a YouGov poll published in the Times indicated Johnson is backed by 74% of them, compared to 26% for rival Jeremy Hunt.“The options market has been pricing in more downside risks for the pound after the end of the Article 50 period in October,” said Lee Hardman, a currency strategist at MUFG. “We don’t believe the market has fully adjusted yet.”(Updates to add Royal Bank of Canada.)To contact the reporter on this story: Charlotte Ryan in London at cryan147@bloomberg.netTo contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Scott HamiltonFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Bloomberg10 days ago

    Crew of Russian Nuclear Sub Prevented ‘Planetary Catastrophe,’ Officer Says

    (Bloomberg) -- The 14 sailors who died during a fire last week on a nuclear-powered Russian military submarine prevented a “planetary catastrophe,” a top naval officer said at their funeral, according to media reports.Captain Sergei Pavlov, an aide to the commander of Russia’s navy, praised the heroism of the men, who died as they battled to stop the fire from spreading in the submersible.“With their lives, they saved the lives of their colleagues, saved the vessel and prevented a planetary catastrophe,” he said at the funeral Sunday attended by the navy chief according to the Fontanka news service.Kremlin spokesman Dmitry Peskov said he wasn’t aware of the official’s comments but said there was no indication the incident posed a broader threat. “As for the reactor, there are no problems with that,” he said on a conference call.Russia broke three days of secrecy July 4 and confirmed that the stricken underwater research vessel was nuclear-powered. Defense Minister Sergei Shoigu told President Vladimir Putin in a meeting shown on state TV that the nuclear reactor on board the vessel had been completely sealed off.‘Absolutely Classified’Russian authorities had previously refused to say whether the country’s worst naval incident in more than a decade involved a nuclear-powered vessel. They have also refused to say what type of craft was involved, with the Kremlin calling the information “absolutely classified.” Neighboring Norway contacted Russia for more details though it said it hadn’t detected any increased radiation levels.The vessel is linked to a secret nuclear-submarine project known as Losharik, RBC news website reported. Russia said the sailors died from smoke inhalation after the fire started while the deep-water submersible was exploring the sea bed in its territorial waters. The craft was later taken to the Russian Northern Fleet’s Severomorsk base on the Barents Sea coast.The fire was Russia’s most serious naval incident since 20 people died on a Nerpa nuclear submarine in 2008. The Losharik submarine can operate at a depth of 6,000 meters (20,000 feet), according to RBC. The craft reportedly was used to target undersea communications and other cables.Russia’s worst post-Soviet naval disaster occurred early in Putin’s presidency, in August 2000, when 118 crew died on the Kursk nuclear submarine that sank in the Barents Sea after an explosion. The authorities were also accused of a cover-up.To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net;Stepan Kravchenko in Moscow at skravchenko@bloomberg.netTo contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Natasha DoffFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Hedge Funds Have Never Been More Bullish On Royal Bank of Canada (RY)
    Insider Monkey13 days ago

    Hedge Funds Have Never Been More Bullish On Royal Bank of Canada (RY)

    We at Insider Monkey have gone over 738 13F filings that hedge funds and famous value investors are required to file by the SEC. The 13F filings show the funds' and investors' portfolio positions as of March 31st. In this article we look at what those investors think of Royal Bank of Canada (NYSE:RY). Royal […]

  • Bloomberg14 days ago

    Russia Says Stricken Sub Is Nuclear Powered, Poses No Risk

    (Bloomberg) -- Russia broke days of secrecy and confirmed that a submersible research vessel on which a fire broke out that killed 14 sailors is nuclear-powered.The nuclear reactor on board the vessel is “completely sealed off,” Defense Minister Sergei Shoigu told President Vladimir Putin in a meeting shown on state TV on Thursday. Crew members “took all the necessary measures to protect the power plant, it’s fully operational,” Shoigu said.The fatal fire on Monday began in the submersible’s battery compartment, and the vessel will be repaired and returned to service fairly quickly, Shoigu said.Russian authorities had previously refused to say whether the country’s worst naval incident in more than a decade involved a nuclear-powered vessel. They have also refused to say what type of craft was involved, with Kremlin spokesman Dmitry Peskov calling the information “absolutely classified.” Neighboring Norway contacted Russia for more details though it said it hadn’t detected any increased radiation levels.Secret ProjectThe vessel is linked to a secret nuclear submarine project known as Losharik, RBC news website reported, citing a person it didn’t identify. Russia said the sailors died from smoke inhalation after the fire started while the deep-water submersible was exploring the sea bed in its territorial waters. The craft was later taken to the Russian Northern Fleet’s Severomorsk base on the Barents Sea coast.Putin described it as an “unusual vessel” on Tuesday, adding that the victims included seven captains first rank and two decorated Heroes of Russia.The fire was Russia’s most serious naval incident since 20 people died on a Nerpa nuclear submarine in 2008. The Losharik submarine can operate at a depth of 6,000 meters (20,000 feet), according to RBC. The submarine has a titanium housing and had been used for research on the continental shelf, Izvestia newspaper reported in 2012.Russia’s worst post-Soviet naval disaster occurred early in Putin’s presidency, in August 2000, when 118 crew died on the Kursk nuclear submarine that sank in the Barents Sea after an explosion.To contact the reporter on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.netTo contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Henry Meyer, Tony HalpinFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Gold's Rally Gets Booster Shot as Trump Picks Doves for the Fed
    Bloomberg15 days ago

    Gold's Rally Gets Booster Shot as Trump Picks Doves for the Fed

    (Bloomberg) -- Gold held its rally on a cocktail of positive drivers including weak macroeconomic data, sinking Treasury yields and expectations for fresh easing from the U.S. Federal Reserve.Bullion held above $1,400 an ounce and rose to the highest since May 2013 ahead of a U.S. holiday Thursday. Donald Trump has tapped two economists to the Fed’s board who are both seen as likely to support the president’s call for lower interest rates. Meanwhile, weaker than expected U.S. payrolls and service industry data overshadowed a decline in jobless claims.“The longer-term picture looks positive for gold,” Georgette Boele, coordinator of FX and precious metals strategy at ABN Amro Bank NV, told Bloomberg Television. Still, she suggested prices are probably overshooting at the moment. “The market has been too aggressive pricing in rate cuts” both from the Fed and other central banks, she said.Gold traded at a six-year high as simmering geopolitical and trade tensions increase demand for havens. Earlier in the week, the metal was boosted by a run of weaker manufacturing activity from Asia and Europe, similar data from the U.S that disappointed investors, and tariffs against a longer list of European goods.“What’s important is the European central banks all seem to be pretty dovish all of a sudden,” George Gero, a managing director at RBC Wealth Management, said by phone. That along with Trump’s dovish Fed picks and the weaker payrolls data, all amplify safe-haven demand for gold, he said.Trump is “trying to shift the balance on the FOMC to super dove,” said Stephen Innes at Vanguard Markets Pte, referring to the rate-setting Federal Open Market Committee. Both picks require Senate confirmation. Investors will be watching jobs data on Friday for more clues on Fed’s moves this month.Gold futures climbed as much as 2.3% in early trading before paring gains and settling hire at $1,420.90 at 1:30 p.m. on the Comex in New York. A gauge of the dollar held Tuesday’s losses, while Treasury yields sank to the lowest since November 2016. Holdings in gold-backed exchange-traded funds snapped 14 days of gains Tuesday, but are still near the highest since 2013.Gold prices trading above $1,400 again suggest that demand remains strong, said Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore. “It’s a rollback to the yesteryears of loose monetary policies, which whetted the appetite of gold bulls consistently.”In other precious metals, silver gained on the Comex, while platinum and palladium gained on the New York Mercantile Exchange.\--With assistance from Justina Vasquez and Liezel Hill.To contact the reporters on this story: Ranjeetha Pakiam in Singapore at rpakiam@bloomberg.net;Elena Mazneva in London at emazneva@bloomberg.netTo contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Steven Frank, Pratish NarayananFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Bloomberg17 days ago

    Semiconductor Sales Data Point to ‘Signs of Life,’ Analysts Say

    (Bloomberg) -- The latest data on semiconductor sales is pointing to stabilization in the industry, suggesting that months of weakness and tepid demand could be nearing an end, analysts said on Monday.According to the Semiconductor Industry Association, total monthly sales came in at $33 billion in May, up 7.1% from April. While the May data represented a year-over-year decline of 14.5%, it also represented a moderation from the 17.7% drop in April.“While the industry is still working through a cycle, the y/y declines appear to be decelerating,” wrote Mitch Steves, an analyst at RBC Capital Markets. “Given that forecasts were cut during a period where sentiment was heavily negative, we think there is upside bias to the numbers expected for 2019/2020.”The data comes at a time when analysts have been concerned about the prospects for the industry in the second half of the year, especially since the Philadelphia Semiconductor Index is within 7% of record levels. A number of companies, notably Broadcom Inc. and Micron Technology Inc., have issued cautious outlooks in recent weeks.Morgan Stanley wrote that the data pointed to “some signs of life” after “an exceptionally weak April,” and noted that sales -- along with the product categories of micro, logic and memory chips -- came in ahead of its expectations. However, analyst Joseph Moore maintained his cautious view on the sector, seeing “very challenging industry conditions” despite the data.The data was also above Citi’s estimate, according to analyst Christopher Danely, who raised his full-year semiconductor sales forecast to $413.3 billion from $408.2 billion. The outlook represents a full-year decline of 12%, compared with a previous view of down 13%.The Philadelphia Semiconductor Index rose as much as 5% on Monday, though it last traded up 2% on the day. The day’s rally came as the U.S. and China declared a truce in their trade war over the weekend; President Donald Trump also said he would delay trade restrictions against Huawei Technologies Co., a major customer to a number of chipmakers.To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.netTo contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Morwenna ConiamFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Bond Traders Find That Downbeat Factory Data Puncture G-20 Cheer
    Bloomberg17 days ago

    Bond Traders Find That Downbeat Factory Data Puncture G-20 Cheer

    (Bloomberg) -- Traders who expected the Group-of-20 meeting to lift the grim mood in bond markets faced disappointment Monday as fresh signs of strain in the global economy drove yields lower in Europe and sustained bets on Federal Reserve interest-rate cuts.German benchmark yields plumbed new lows, although the rally in Europe favored the riskier markets, while U.K. yields sank back to 2016 levels. The U.S. 10-year is scraping 2%, and futures are still close to pricing in 75 basis points of rate cuts this year by the Federal Reserve. It seems rate markets have barely registered the trade truce between the U.S. and China, or the supposed easing of geopolitical tensions after the American president strolled into North Korea.Having transcended the risk of a worst-case scenario at the G-20 gathering, bonds are fixated on monetary policy. In Europe, that’s the latest hints of action from European Central Bank officials to boost inflation. In the U.S., the key is whether the Fed will deliver the rate cut that markets are banking on this month. Traders are looking to Friday’s U.S. jobs report, and another disappointing number could raise the odds of a half-point move in July. After all, the trade dispute with China is far from being resolved, and the global economic landscape is still rocky.The Treasuries “market is holding those 2% levels, waiting to see what the Fed’s going to do at the July meeting,” said Tom Garretson, U.S. fixed-income strategist at RBC Wealth Management.Manufacturing surveys provided the latest cause for concern. While the U.S. sector is holding up, a drop in the new-orders index is clouding the outlook. Chinese manufacturing contracted in June, the euro-area’s did so at a faster clip, and the U.K.’s reading was the lowest since 2013.The German benchmark yield has pushed further below zero, at -36 basis points, and the U.K. 10-year is around multi-year lows at about 81 basis points. Futures markets are still doing a robust trade in rate-cut hedges, with positions ramping up in eurodollars. And while overnight index swaps have pared positioning slightly, they still imply around 32 basis points of cuts this month.These latest moves demonstrate the gravitational pull that weak inflation and negative interest rates continue to exert in global markets.“The rally is more evidence of what happens when core and semi-core markets become negative yielding in 10-year-and-longer maturities,” said Peter Chatwell, head of European rates strategy at Mizuho International Plc.\--With assistance from John Ainger and Edward Bolingbroke.To contact the reporter on this story: Emily Barrett in New York at ebarrett25@bloomberg.netTo contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark TannenbaumFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • A Scary View on What the G-20 Means for Stocks and a Calming One
    Bloomberg20 days ago

    A Scary View on What the G-20 Means for Stocks and a Calming One

    (Bloomberg) -- Get up to speed on what’s moving markets. Here are the five things you need to know to start your day.To hold a view on asset prices in 2019 is to hold a view on trade. No issue can claim a greater market influence, and few are more divisive. To mark a seminal event in the saga, this weekend’s Group of 20 summit in Osaka, Japan, Bloomberg asked writers from its Markets Live blog -- Singapore-based Mark Cudmore and Andrew Cinko in Princeton, New Jersey -- to state opposing views on the outcome.Bear Case - CudmoreUnless the U.S. and China reach a grand bargain that sees global trade blossom again, it will be apparent in less than a year that this was the weekend that foretold the bull market’s doom. A truce that maintains the current level of tariffs will likely be insufficient to turn the rapidly deteriorating economic outlook. And don’t count on the Fed to save the day either.In three days we are likely to see the JPMorgan global manufacturing PMI slide further into contraction territory, according to last week’s preliminary PMI readings. It has fallen for 13 months.It’s a full-blown global theme: Data on trade and manufacturing continue to shock. The Bloomberg Economic Surprise index for the U.S. has been negative all year. The equivalent for the euro area has been negative for nine months.And, yet, economists haven’t changed their forecasts for global growth since the trade war escalated in May. Work that one out: The data pre-tariffs consistently came in below expectations, and then the world’s two largest economies imposed a bunch of tariffs. And yet the consensus expectation for 2019 world GDP growth is unmoved since April.What gives? Some would say that economists are in denial and hoping the trade war is all a bad dream. It may be fairer to acknowledge the difficulties of their profession. They don’t want to slash economic forecasts ahead of the G20, only to be compelled to upgrade them again in July if the U.S. and China achieve a deal.That’s why this bearish economic prognosis may soon turn into a markets one. While there’s optimism that this weekend’s Trump-Xi meeting will provide the breakthrough, evidence doesn’t support the perspective. A narrative among U.S. investors is that some trade deal will eventually be reached, because Trump will want one to boost the stock market into election year. The problem with that is it overlooks that there are two parties to the negotiation and it’s the "other" side that may provide the larger roadblock.Since May, the communication on mainland China has shifted immeasurably. Previously, any tensions with the U.S. were played down. The picture is vastly different today. After talks broke down in May, the tense situation with the U.S. has almost been hyped up domestically, with frequent mainland media references to imperial aggression and a new Long March. There have been references to the mistakes of the treaties of the Opium War era -- signed between 1842 and 1860. There’s little reason to doubt the sincerity of China when it states that a trade deal can only be established when negotiated on equal terms. Such a scenario appears unlikely, which explains why China is preparing for sustained tensions via aggressive and targeted stimulus for its domestic economy.So, unless one believes that Trump will suddenly surrender his fight and abandon almost all demands on China, a trade deal seems very unlikely. At best, this weekend may bring a handshake, some statements of mutual respect and an expressed desire to reach a deal. In subsequent weeks, a gloomier reality will become apparent.And if you’re counting on the Fed to save stocks, you may want to check how well that strategy has worked in the past: It hasn’t. This century has provided two recessions -- both coinciding with periods when the S&P 500 gave up half its value. In September 2007, the Fed cut rates by 50 basis points and by another 25 in October; it didn’t prevent a U.S. recession in December. Likewise, the easing cycle that began in January 2001 didn’t stop the recession beginning in March 2001. And to make that point more worrying, the Fed was able to cut rates by at least 500 basis points each time to fight the downturn. With the benchmark rate at 2.5% today, it doesn’t have the luxury.So, as we approach the G-20 and its supposed status as the last potential savior, the words of Dante Alighieri should ring loudly in your ears: "Abandon Hope All Ye Who Enter Here."Bull Case - CinkoFor the less-apocalyptically minded, optimism boils down to one question: even without a grand bargain, where is the proof that the world economy is going over the edge into a recession?The war of words over trade may have gone from genteel to acerbic, but it has done so over the course of many months, giving everyone time to assess the many paths it may take and the potential costs involved. Has it affected manufacturing? Certainly. But not so much as to spur a swan dive. Output gently tumbling and even PMIs below 50 aren’t overly alarming. Is 2008 so long ago that we’ve forgotten the 20-point plunge in China’s PMI over the course of just seven months? No such Armageddon is currently seen in the data.And what of the hit to the economy? A 25% tariff on all Chinese goods imports amounts to “an additional tax on U.S. businesses/consumers of about $100 billion over year-ago levels (assuming no currency offset or substitution),” writes RBC economist Tom Porcelli in a note June 24. A 0.5% hit to the U.S. economy isn’t a rounding error, but it’s not a recession.Bears will say, it’s not the money, it’s the hit to consumer confidence caused when politicians can’t agree. It’s the wider hit to global stability. Those are points bulls and bears can agree on, but where we differ is in the damage done. Already there are numerous reports of supply chains moving to Thailand, Taiwan or Vietnam. Not to mention legal workarounds that will keep the cross-ocean shipments going.And corporate management teams, while not happy, have had the luxury of time to work up a plan of action should the tariffs become reality. Will that spell doom and gloom for corporate earnings? Highly doubtful given human ingenuity. A savings glut in the U.S. is hitting new highs. That’s money that can be used to absorb shocks and offset the cost of the tariffs.As for the Fed, past instances of futility aren’t relevant. Fine, its monetary levers are never enough once a recession is underway. But it’s far from clear the Fed is already behind the curve. A possible July move is correctly thought of as an “insurance” cut, to preempt panic. Data this week show the U.S. hasn’t hit a brick wall, but is merely getting rough around the edges. An interest-rate course adjustment, a la the mid-1990’s, may be all that’s needed to keep growth alive.Outside of the FOMC, the markets have already given a big boost to animal spirits. Financial conditions remain easy, unlike the dark days of December. Or for that matter 2015 and 2016.The old saying is that when the U.S. sneezes, the world catches a cold. It’s a good thing for the world that America has economic momentum, fat bank accounts and a resilient Fed -- no matter what comes out of Osaka this weekend.For more markets analysis, visit our Markets Live blog.To contact the reporters on this story: Mark Cudmore in Singapore at mcudmore8@bloomberg.net;Andrew Cinko in New York at cinko@bloomberg.netTo contact the editors responsible for this story: Eric J. Weiner at eweiner12@bloomberg.net, Chris NagiFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • OPEC Keen to Extend Cut, Russia Is Circumspect: Reality Check
    Bloomberg20 days ago

    OPEC Keen to Extend Cut, Russia Is Circumspect: Reality Check

    (Bloomberg) -- For an OPEC+ meeting in which the key decision over an output-cut extension is supposedly “in the bag,” according to Saudi Arabia’s Energy Minister Khalid Al-Falih, Monday’s gathering in Vienna could be as closely watched as any during the three-year coalition.The Organization of Petroleum Exporting Countries and its allies convene next week to discuss extending a 1.2 million barrel-a-day cut into the second half. While the cartel’s three biggest members – Saudi Arabia, Iraq and the United Arab Emirates – are all willing to continue the policy of reduced production, Russia remains circumspect, prompting questions over potential changes to policy.Meanwhile, myriad uncertainties cloud the oil market outlook. An ongoing U.S. and China trade spat is stoking fears over demand growth, while escalating tension between the U.S. and Iran has heightened geopolitical risk in the world’s biggest oil-producing region.Following are the latest positions of most of OPEC, plus non-OPEC members Russia and Azerbaijan. The respective shares of supply are based on May output. Estimates for the price each member need to balance its 2019 budget are from the International Monetary Fund, unless otherwise specified.AlgeriaPrice needed: $116.40Share of OPEC production: 3.3%Algeria’s output has remained relatively stable at around 1 million barrels a day, according to Bloomberg data. Political uncertainty is emerging, however, with a presidential election and transition of power pending in 2019, following the April resignation of aging President Abdelaziz Bouteflika after two decades.AngolaPrice needed: $80 (RBC)Share of OPEC production: 4.8%Underinvestment and a natural decline in maturing oil fields has resulted in Angola’s output falling by about 350,000 barrels a day over the last four years, averaging 1.44 million in 2019. That’s the lowest in more than a decade and less than OPEC’s assigned quota of 1.48 million barrels a day, meaning it is likely to back an extension.AzerbaijanPrice needed: $50.60Saudi Arabia got a fillip last week when Azerbaijan, one of OPEC’s biggest allies, said it supports an extension of the production-cuts deal into the second half. “It would be right to extend the same regime” unless something happens to change the current situation, Azeri Energy Minister Parviz Shahbazov told reporters. Kazakhstan, its Caspian Sea neighbor, also backs an extension.IranPrice needed: $125.60Share of OPEC production: 7.7%Iran’s crude output and exports tumbled after U.S. President Donald Trump blocked oil sales in May. Observed crude flows dropped to 190,000 barrels a day in the first half of June, less than a tenth of the volume shipped in early 2018, according to Bloomberg data. Production is now at the lowest level since the 1980s.IraqPrice needed: $64.30Share of OPEC production: 15.5%Despite a poor record of adherence to the deal (implementing just 26% of its pledged cuts on average in 2017 and 2018) Iraq’s Oil Minister Thamir Ghadhban reaffirmed his commitment to the OPEC+ production cuts. Ghadhban had previously said that Iraq, OPEC’s second-largest producer, sees the group and its allies extending production cuts “at least” on current terms without “serious difficulties.” Crude output has held steady above 4.5 million barrels a day in 2019.KuwaitPrice needed: $48.80Share of OPEC production: 8.9%Kuwait will support OPEC’s oil-production cuts until the end of 2019 when the group meets in Vienna next week, Kuwait Oil Minister Khaled Al-Fadhel told state-run Kuwait News Agency. The country has been in full compliance with output cuts. It curbed more than was pledged in May, trimming output by 99,000 barrels a day, against a required 85,000 barrels a day.LibyaPrice needed: $71.30Share of OPEC production: 4.1%Exempt from cuts, Libya’s production reached 1.25 million barrels a day in May, a six-year high. Threats to production remain, however, as Libya’s eastern commander, Khalifa Haftar, in June vowed to press ahead with an offensive on the capital until militias there are disbanded. He also intends to dissolve the UN-backed government currently headed by Prime Minister Fayez Al-Sarraj.NigeriaPrice needed: $150 (RBC)Share of OPEC production: 6.2%Nigeria’s production exceeded 1.8 million barrels in 2019 thanks to the ramp up at Total’s Egina offshore field. This means the country has cut output by less than pledged. In May it only reduced output by 5,000 barrels a day (or 9%), against a pledged 53,000, making it the least compliant of all 21 nations signed up to the deal.RussiaPrice needed: $40 (Energy Ministry)Russia has spent 2019 inching toward its output commitments, finally reaching its target in May. It was aided in its task with the discovery of contaminated crude in its main export pipeline to Europe. Non-OPEC’s largest producer has maintained a wait-and-see policy regarding an extension. “We have certain differences in opinion regarding the fair price” compared with Saudi Arabia, President Vladimir Putin told reporters in June. “$60-65 a barrel suits us just fine” because Russia’s budget is based on $40 crude, he said.Saudi ArabiaPrice needed: $85.40Share of OPEC production: 32.9%Energy Minister Al-Falih is confident a deal will be done, with the only question being whether there needs to be an adjustment to the pledged cut level in the second half. Saudi Arabia agreed to reduce production by 322,000 barrels a day for the first half of this year. In May, it cut by an average of 943,000 daily barrels instead, achieving a record 293% compliance rate.U.A.E.Price needed: $65Share of OPEC production: 10.1%Energy Minister Suhail Al-Mazrouei is “not expecting a very difficult process in approving the extension,” with discussions at the July meeting set to focus on the duration of the agreement, he said in late June. The country is still targeting higher crude output in the longer term, with the chief executive officer of Abu Dhabi National Oil Co., Sultan Ahmed Al-Jaber, saying it will increase oil output capacity to 4 million barrels a day by 2020, and 5 million barrels a day by 2030.VenezuelaPrice needed: $276 (RBC)Share of OPEC production: 2.7%Crippling economic sanctions and years of mismanagement means production continued to decline this year, plunging 34% to May. This follows a 28% drop in 2018. Output for May was at 810,000 barrels a day, the lowest since January 2003, according to Bloomberg data.To contact the reporter on this story: Christopher Sell in London at csell1@bloomberg.netTo contact the editor responsible for this story: James Herron at jherron9@bloomberg.netFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Investors May Be Denying Risks of a Democratic Win, Analysts Say
    Bloomberg21 days ago

    Investors May Be Denying Risks of a Democratic Win, Analysts Say

    (Bloomberg) -- Investors may be underestimating the risks posed by the possibility that the Democrats, particularly Senator Elizabeth Warren, will win in 2020, some analysts said in commentary ahead of Thursday night’s second debate.Analysts also noted that big banks managed to avoid the spotlight during Wednesday’s first debate, but that may change when Senator Bernie Sanders takes the stage.Stocks across the board rose in mid-day Thursday trading, helped by optimism about trade talks at the upcoming G-20 summit. Financials were the best-performing S&P 500 sector, with big banks including Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and Morgan Stanley outperforming.Here’s a sample of the latest commentary:RBC, Lori CalvasinaU.S. equity investors may have “gotten a bit complacent on the 2020 election” in terms of how the Democratic nomination will resolve, Calvasina wrote in a note.A June RBC survey showed most investors think that Joe Biden will win the nomination, she said. A Biden general election victory would be viewed as neutral for the stock market, but most survey respondents said any other Democrat winning would be negative, she said. The strategist added that Biden has been fading in the polls, while Warren has been gaining.RBC continues to view the 2020 election as a “key risk factor” for stocks in the year ahead, with most major S&P 500 sectors having policy risk if Democrats sweep.AGF Investments, Greg ValliereElizabeth Warren was “solid, passionate, wonky,” during Tuesday’s debate, Valliere wrote. He said that Warren is clearly still a top-tier candidate, and poses “an enormous threat to the financial services industry.”Wednesday night’s big winner was Donald Trump, he said, as the debate reinforced Trump’s “argument that the Democrats are moving toward a socialist agenda.” That may give Biden an opening, Valliere said. If Biden can avoid gaffes on Thursday, he may “emerge as the affable moderate who can win Pennsylvania and Michigan.” If he stumbles, the Democrats’ “sharp veer to the left would gain momentum, and Trump would become the clear general election favorite.”Height Capital Markets, Clayton AllenHeight expects Thursday’s debate round will be “more interesting” than Wednesday’s, with a “match-up between the remaining top candidates opening the possibility for much more significant policy announcements.” That may impact markets, he said, flagging the response to Warren’s private prison proposal as a recent example.Compass Point, Isaac BoltanskyThe first debate reinforced the “belief that financial services are a secondary issue in the Democratic presidential race,” as Wall Street themes were generally absent, Boltansky wrote in a note.Democrats seem “primarily focused on corporate consolidation, tax policy, health care, and economic inequality,” Boltansky said. He expects “a more pronounced rift between progressives and moderates in due time, which could be on display as early as this evening with Biden on the stage.”Raymond James, Ed MillsDemocratic candidates didn’t focus on attacking “Wall Street” or big banks during their first debate, though that may change when Sanders takes the stage, Mills wrote in a note.Mills saw “healthcare policy, inequity in the tax code, antitrust scrutiny, climate issues, and geopolitical challenges” as Wednesday night’s leading topics, with China regarded as a consensus geopolitical challenge. Democrats will likely look to capitalize on the unpopularity of the new tax code, with tax changes as a probable policy goal if they win.To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.netTo contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Janet FreundFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • H&M Gains as Retailer Shows Early Progress Toward Turnaround
    Bloomberg21 days ago

    H&M Gains as Retailer Shows Early Progress Toward Turnaround

    (Bloomberg) -- Hennes & Mauritz AB surged after the struggling Swedish clothing retailer showed progress coping with a buildup of unsold garments, raising hopes that the worst may be over after a three-year slump in earnings.Inventory dropped slightly as a proportion of sales, easing to 18.2% at the end of May from a record 18.9% as of last August, H&M said Thursday. Chief Executive Officer Karl-Johan Persson said H&M still aims to boost operating profit this year. The stock rose as much as 11% Thursday in Stockholm.A pickup in revenue growth at the start of the third quarter, helped by a heat wave in Europe, is boosting optimism that the retailer may have returned to a level of sales growth that could gradually put the inventory issue behind it. H&M pledged to reduce discounts for a fourth consecutive quarter as it aims to reduce its 40-billion kronor ($4.5 billion) buildup of unsold garments.Analysts pointed to the June revenue growth of 12% as the trigger for the share gain. The stock can be volatile because short sellers have targeted H&M, betting against almost a fifth of the freely traded shares.Better CompositionThe retailer said that the composition of inventory has improved, implying it will become easier to sell the garments. The family-controlled company has a goal of eventually reducing stock-in-trade to 12% to 14% of sales, a level last seen three years ago. When asked in an interview if that could take four of five years, CEO Persson said it should be less than that, saying he’s “confident” H&M is heading in the right direction.“H&M is improving its offer, which should lead to a sales and earnings recovery in time, albeit with execution risk in an ongoing tough competitive environment,” wrote Richard Chamberlain, an analyst at RBC Europe.The company has recently been offering discounts of up to half off on summer clothes, offering $1.99 camisole tops, $25.99 faux leather biker jackets and skinny jeans for $8.99.H&M also cut this year’s store expansion plan by 26% while pledging more investment in e-commerce. H&M now expects 130 net store openings, further decelerating from a rate that exceeded 400 in recent years. Most of the new H&M shops will be outside of Europe and the U.S. as the retailer seeks faster-growing markets.H&M has been plowing investment into e-commerce, adding online sales in Mexico, Thailand, Indonesia and Egypt this year.The Swedish retailer is trying to catch up after Zara owner Inditex SA made it possible to order clothes from its chains from virtually anywhere in the world. H&M’s e-commerce reach extends to about 48 markets.Inditex has forecast sales growth of 4% to 6% this year on a like-for-like basis as the Spanish retailer outperforms rivals such as Gap Inc.H&M is also trying to catch up with Inditex’s lead in RFID, a technology that allows retailers to track the location of clothes in stores and warehouses to boost efficiency. The Swedish retailer said it now uses RFID in 15 markets. Zara uses it in all its stores.The Swedish retailer said it plans to launch H&M on Indian e-commerce platform Myntra and its & Other Stories chain on China’s Tmall by this autumn.H&M warned that the weak krona is still pushing up buying costs as the retailer buys the bulk of its garments in Asia, where prices are linked to dollars. The krona was on average about 10% weaker against the dollar in the second quarter.Pretax profit dropped 1.3% in the three months through May, missing analysts’ estimates and declining an eighth consecutive quarter.To contact the reporters on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net;Hanna Hoikkala in Stockholm at hhoikkala@bloomberg.netTo contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards IIIFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • H&M's Unwanted Jumpsuits Can Bask in a Heatwave
    Bloomberg21 days ago

    H&M's Unwanted Jumpsuits Can Bask in a Heatwave

    (Bloomberg Opinion) -- That pile of unsold clothes at Hennes & Mauritz AB just keeps on growing.The retailer said its inventory level reached $4.4 billion on May 31, up from $3.9 billion a year ago.But look past all those unwanted off-the-shoulder dresses and denim cut-offs, and the drop in pre-tax profit, which reflected the strength of the U.S. dollar and investments in stores and online. H&M is finally showing signs of going in the right direction.Firstly, that inventory pile is becoming more manageable. It was 18.3% of sales at the end of the second quarter, compared with 18.6% at the end of the first quarter. In fact, H&M said that the reduced need to discount to offload excess stock should add 1.5 percentage point to its gross margin in the third quarter.Secondly, the changes that H&M is making, such as upgrading its namesake chain to be more like its Arket and & Other Stories outlets, appear to be chiming with customers.The company said it expected local currency sales this month to be 12% higher than a year ago. That sent the shares up about 10%.But there are challenges. Investors are at risk of getting ahead of themselves.It must sustain the recent increase in demand. That may be possible if the current heatwave continues, but it is not guaranteed.Analysts at RBC also point out that sales may be have been flattered by comparisons with the year-earlier period, when the company suffered from disruption as it implemented a new logistics system.The company also faces risks from the foreign exchange environment, given that its current stock was purchased when the U.S. dollar was stronger. H&M is more at risk from the currency escalating than rival Inditex, because it sources more of its products from Asia.And the competitive landscape is not getting any easier. Associated British Foods Plc’s Primark is continuing to expand across Europe and the U.S. and when it does so, it is opening ever more sophisticated stores.H&M’s shares are up 25% so far this year, and trade on a forward price earnings multiple close to that of Inditex.As I have argued, H&M is doing all the right things. Investment in its emerging brands is necessary to expand the top line, while the group is also now giving more attention to its core chain, which is squeezed between Primark at the low end, and Zara at the more premium level.There is also always the possibility of a buyout lurking in the background, given that chairman Stefan Persson and his family own about half of the shares.Sales growth must be sustained, and inventory shrunk substantially to demonstrate that H&M is finally out of the fashion wilderness.To contact the author of this story: Andrea Felsted at afelsted@bloomberg.netTo contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.netThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.

  • In World's Longest Trading Day, Everyone Waits for the Close
    Bloomberg22 days ago

    In World's Longest Trading Day, Everyone Waits for the Close

    (Bloomberg) -- At 8 1/2 hours, Europe has the world’s longest trading day. But only after it ends do markets come alive.In the five minutes after trading finishes at 4:30 p.m. in London, auctions across the continent set the closing prices tracked by billions of dollars. Over the past three years, the percentage of total trading volume executed in this manner has swelled to 20% from 12%, compared with about 8% in the U.S., according to Rosenblatt Securities.It’s all thanks to the boom in exchange-traded funds, which mostly trade at the close to track final prices. Their growth has ignited a self-fulfilling cycle that’s drawn even more traders to closing auctions.In most of the trading day, shares change hands across multiple venues, from exchanges to dark pools. But at the close, auctions organized by the primary bourses alone complete the last trades and set a final price.That effective monopoly has stirred anxiety over the potential havoc in case of a breakdown as well as exchanges’ growing clout to raise trading fees. But more simply, in Europe, the importance of closing auctions has thinned liquidity during the day, prompting traders to ask: do we need such long hours?“You could cut two hours off the trading day,” said Ross Hallam, head of equity trading at RBC Global Asset Management in London. “It would make no difference.”Falling VolumesThat might feel especially true this year. European equity trading volumes are down 13% in the first five months of the year from the same period of 2018, Rosenblatt data show, amid geopolitical and economic uncertainty. More than a year of relentless outflows from the region’s stocks probably also haven’t helped.There’s a reason why European trading starts as early as 8 a.m. in London and closes at 4:30 p.m. One of the region’s advantages has always been that it’s uniquely situated to span both the Asian close and the Wall Street open. Asked about shortening the hours, the Federation of European Securities Exchanges, a body that counts Euronext NV and Nasdaq’s bourses among its members, pointed to the need to serve end investors and to interact with other markets.But popular as they are, closing auctions’ greatest strength is also what worries traders. As a centralized system, they offer more certainty than the continuous trading session.This poses its own problems. First, any breakdown could destabilize markets. Second, that may embolden exchanges with a monopoly over closing auctions to raise fees. This could squeeze brokers already saddled with declining trading, and ultimately, asset managers.Another worry is that closing prices will increasingly diverge from prices in the continuous trading session, making it harder for traders to place orders in the final auctions.“We, including myself, must go with the herd,” said Guillermo Hernandez Sampere, head of trading at German asset manager MPPM EK. “It might create a problem because the liquidity will shrink during the day, which will affect volatility and it will make more traders superfluous.”To be clear, this doesn’t necessarily mean investors are hankering for alternatives that might fragment the current system.“There are benefits to competition and we’ve seen what that has done to continuous trading,” said Ed Wicks, London-based head of trading at Legal & General Investment Management, which has a large passive business. “But we definitely don’t see a need for competing price-forming auctions and a single closing price is preferable.”The fact that closing auctions make up a larger percentage of volumes in Europe than in America might come as a surprise, given that passive products account for about 15% of investment assets in the former, far lower than the 37% across the Atlantic, according to Moody’s Investors Services.That may be partly because in the U.S., the closing auction coincides with the end of continuous trading, offering other venues to trade around the final price, whereas in Europe, it takes place afterwards, said Tim Cave, an analyst at Tabb Group, a research firm specializing in capital markets.“The actual closing auction mechanisms are well-established and widely understood,” Cave said by email. “The longer trading day in Europe compared to the U.S. also naturally forces more trading to the close because of thin liquidity in the morning and early afternoon trading sessions.”Shorter Day?By limiting brokers’ ability to match clients’ orders outside of organized venues, European Union financial rules known as MiFID II, which took effect in early 2018, may also have accelerated the shift toward closing auctions, Cave added. Hallam’s team at RBC is increasingly taking advantage of them, especially on index re-balancing days, to make large trades.The average trade size in closing auctions for FTSE 100 shares was 39,000 pounds ($49,472) last month, compared with about 4,000 pounds in continuous trading, London Stock Exchange data show.So can Europe shorten its trading day? RBC’s Hallam said he’s heard the suggestion discussed at conferences, but there’s nothing close to a substantive push.“Do we need 8 1/2 hours of continuous trading session?” said Legal & General’s Wicks. “It’s definitely a fair question to ask.”(Updates currency conversion in third-last paragraph.)To contact the reporter on this story: Justina Lee in London at jlee1489@bloomberg.netTo contact the editors responsible for this story: Blaise Robinson at brobinson58@bloomberg.net, Paul JarvisFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.

  • Facebook’s Libra Creates New ‘Path to Printing Even More Money’ Through Messaging Services
    Bloomberg23 days ago

    Facebook’s Libra Creates New ‘Path to Printing Even More Money’ Through Messaging Services

    (Bloomberg) -- Facebook Inc.’s plan for a new cryptocurrency has the potential to change entire industries. A more likely outcome is that the technology transforms the social media giant’s own business.While Facebook makes most of its revenue from advertising, Chief Executive Officer Mark Zuckerberg says the future is private messaging. That’s a tough venue for data-hungry digital ads, so Wall Street has been wondering how the company will make money from this new future. Libra, the crypto coin Facebook announced last week, provides a tantalizing answer. “Libra could introduce a meaningful new product and profit stream for Facebook over the coming years,” Citigroup analyst Mark May wrote in a recent research note titled “Facebook’s Path to Printing Even More Money.”Facebook has more than 1.5 billion users on both WhatsApp and Messenger yet makes almost no money from the messaging services. Last week, when Facebook revealed its Libra plans, the company also said it would soon put new digital wallets inside these apps so users can easily use the cryptocurrency to send money to friends and businesses anywhere in the world. If the plan works, WhatsApp and Messenger will become new payments and commerce hubs that take small-but-profitable cuts from billions of transactions, according to May and other analysts. “This move is a strong indicator of Facebook’s intent to become a transactional platform (through Messenger and WhatsApp), expanding well beyond its massive advertising business,” wrote SunTrust Robinson Humphrey analyst Youssef Squali.Facebook has a checkered record in payments, and Libra has been poo-poohed by some crypto purists. But China’s WeChat and QQ show what’s possible when messaging apps cleverly fold payments and other services into the mix. WeChat and QQ make money by facilitating payments between users and merchants, distributing mobile games, and selling  digital goods, such as stickers and avatars. The services have turned owner Tencent Holdings Ltd. into the most valuable publicly traded company in China. Facebook’s crypto push could facilitate similar offerings in payments, shopping, apps and gaming, while tapping into the company’s huge user base in Asia, where it has nearly four times as many monthly active users as it does in North America, according to RBC Capital Markets analyst Mark Mahaney. Libra “may prove to be one of the most important initiatives in the history of the company to unlock new engagement and revenue streams,'' he wrote in a recent note.For now, Facebook and its new subsidiary Calibra, which is building the digital wallets, are framing the new currency as a way for individuals to send money to each other across borders. David Marcus, who is leading Facebook’s Libra efforts, said that the company doesn’t plan to take a fee when people send money to friends, and will likely charge “tiny transaction fees” for payments to businesses.That could be the first step toward something more lucrative. Before Facebook, Marcus was president of PayPal Holdings Inc., the largest independent digital payments business in the U.S. PayPal facilitates one-to-one payments, but it has become a common way to pay for online purchases, too. “You usually don’t make money off of [peer-to-peer] payments,” Harshita Rawat, an analyst at Sanford C. Bernstein. “The actual use case is getting people into the habit of doing financial transactions on the platform, and then start to roll out other e-commerce related activity.” Once users get comfortable sending money through an app, adding a marketplace feature and more interactions with businesses often follow. That is “where the real monetization opportunity is,” she added.Marcus can see a future in which Facebook turns payments and digital wallets into a new business -- even if he’s not exactly sure what that will look like.“Over time, if we build more services on top of Libra, we’re probably going to likely index on other sources of income,” he said. “That’s future talk. We’re not going to do that for the first few years of this ecosystem because we want to focus on adoption.”  Whether or not Facebook gets that adoption is the more pressing challenge. The company’s crypto plans are already under fire from regulators in Washington and Europe who don’t like the idea of Facebook dipping its toe in yet another aspect of people’s personal lives. And gaining consumer trust after years of privacy mishaps may be harder than Facebook expects. Bernstein’s Rawat describes Libra as “somewhat of a moonshot project.”If people do start stuffing their new digital wallets with Libra, it might not take years for Facebook to turn that activity into revenue. Marcus believes the new wallets could have a more immediate financial impact on a business line Facebook knows well: Targeted advertising. If users have Libra on hand as they scroll through Facebook’s News Feed, when they click on an ad it will be easier to buy something. That would make Facebook ads more appealing to marketers. “If there is more commerce happening on the platform, then small businesses will end up spending more and advertising will be more effective for them,” he said.\--With assistance from Julie Verhage.To contact the author of this story: Kurt Wagner in San Francisco at kwagner71@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.

  • Canadian Inflation Surges As Core Rate Hits Highest Since 2012
    Bloomberg29 days ago

    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
    Bloomberglast month

    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.

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

    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.