Fed’s Rosengren Sees Rate ... - Dow Jones & Company

[Pages:5]Monday, April 04, 2016

Stocks

U.S. stocks pulled back from 2016 highs after a recent rally spurred by a weakening dollar and stabilizing oil prices.

Treasurys

The yield on benchmark 10-year U.S. government debt on Monday fell to the lowest level in more than a month, highlighting robust demand for haven assets amid an uncertain global economic outlook and investors' struggle to obtain income in a low-yield world. The bond market barely budged Friday despite solid U.S. jobs growth in March while the U.S. manufacturing index expanded last month for the first time since last summer.

Forex

The dollar fell against the yen Monday, as investors continue to adjust to the Federal Reserve's cautious plans for raising interest rates.

Commodities

Oil prices sold off sharply Monday, touching a one-month low, as skepticism mounted that a global agreement capping output would be reached in Qatar later this month.

Market Snapshot*

DJIA Nasdaq S&P 500 10-Year 30-Year Euro Nymex Crude

Source: SIX Telekurs, ICAP plc

17737

-55.74

4891.8

-22.74

2066.13

-6.64

1.7785%

5/32

2.6116%

6/32

$1.13925

+0.0002

$35.7

-1.09

*preliminary values subject to adjustments

Tomorrow's Headlines

Fed's Rosengren Sees Rate Increases Sooner Than Markets Imply

Federal Reserve Bank of Boston President Eric Rosengren said Monday that prices in futures markets imply traders may have reacted too strongly to volatility in recent months and warned they could be underestimating the possible pace of near-term rate increases.

In the text of a speech to be delivered before the Boston Fed's conference about cyber-security risk, he said he expected that the "very slow removal of accommodation reflected in futures-market pricing could prove too pessimistic," adding that, "if the incoming data continue to show a moderate recovery -- as I expect they will -- I believe it will likely be appropriate to resume the path of gradual tightening sooner than is implied by financial-market futures."

Turbulence in financial markets picked up at the start of the year because of shocks from abroad and concerns about the health of China and Europe, in particular. But Mr. Rosengren said the U.S. weathered that volatility "quite well" and it was surprising how much federal-funds futures rates dropped in response. Fed-funds futures are a proxy traders use to gauge the likelihood of upcoming interest-rate increases before each meeting of Fed policy officials.

At their March 15-16 policy meeting, Fed officials held rates steady but projected short-term rates will rise 0.5 percentage point by the end of 2016--

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Tomorrow's Calendar

7:45 a.m.

04/01 The Retail Economist/Goldman Sachs Weekly Chain Store Sales Index Chain Store Sales, W/W% (previous +3.0%), M/M% (previous +1.0%)

8:30 a.m.

Feb U.S. International Trade in Goods & Services Trade Balance (USD) (expected -46.2B), Exports (USD) (previous 176.46B), Exports, M/M% (previous -2.1%), Imports (USD) (previous 222.13B), Imports, M/M% (previous -1.3%)

8:55 a.m.

04/01 Johnson Redbook Retail Sales Index Ret Sales Mo-to-Date, M/M% (previous +3.1%), Ret Sales Mo-to-Date, Y/Y% (previous +0.9%), Latest Wk, Y/Y% (previous +1.5%)

9:45 a.m.

Mar US Services PMI (previous 49.7)

10:00 a.m.

Mar ISM Non-Manufacturing Report on Business Non-Mfg Composite Idx (expected 54.0), Non-Mfg Business Idx (previous 57.8), Prices Idx (previous 45.5), Employment Idx (previous 49.7), New Orders Idx (previous 55.5)

10:00 a.m.

Apr IBD/TIPP Economic Optimism Index Economic Optimism Idx (previous 46.8), 6-Mo Economic Outlook (previous 41.2)

10:00 a.m.

Feb Job Openings & Labor Turnover Survey

11:00 a.m.

Mar Global Services PMI (previous 50.7)

4:30 p.m.

03/31 API Weekly Statistical Bulletin Crude Stocks, Net Chg (Bbls) (previous +2.6M), Gasoline Stocks, Net Chg (Bbls) (previous -1.9M), Distillate Stocks, Net Chg (Bbls) (previous -0.1M), Refinery Runs

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Tomorrow's Headlines

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implying two quarter-percentage-point increases this year, down from their December projection of four. Their next opportunity to raise rates is April 26-27, although traders mostly see this as unlikely in part because a news conference isn't scheduled afterward.

Alaska Air Wins Bidding War for Virgin America

Alaska Air Group Inc. said Monday morning that it had reached a deal to buy Virgin America Inc., winning a frenzied bidding war with rival JetBlue Airways Corp.

The parent company of Alaska Airlines said it would pay $57 a share for Virgin, a 47% premium to Friday's closing price, representing a total equity value of $2.6 billion. The Wall Street Journal had reported Sunday that Alaska won the bidding contest for Virgin, whose shares have risen lately on takeover speculation.

Bidding between Alaska and JetBlue was feverish, a person familiar with the matter had told the Journal, with the price continuing to rise. Alaska prevailed in part because of its clean balance sheet, which will allow it to more easily borrow funds for the acquisition, the person said.

A person familiar with the jousting said it was "a fierce back and forth between the two sides, with multiple bids for a number of days." But ultimately, JetBlue "put the pencil down" because the price had gotten too high.

Under certain circumstances, Virgin would be required to pay Alaska a $78.5 million fee if the merger agreement is terminated, according to a regulatory filing.

High Court Affirms `One-Person, One-Vote' Standard

The Supreme Court Monday unanimously ruled states can continue to divide legislative seats according to total population rather than limiting representation to citizens or voters, a blow to conservatives who challenged a decadeslong practice used in drawing political maps.

Conservative activists had argued the Constitution forbids counting immigrants or prisoners who lack the right to vote. The plaintiffs alleged the Texas legislative map effectively diluted the representation of citizens in rural, Republicanleaning areas in favor of Democratic-trending cities like Houston, where the population includes immigrants and children who are ineligible to vote.

"We hold, based on constitutional history, this court's decisions, and longstanding practice, that a state may draw its legislative districts based on total population," Justice Ruth Bader Ginsburg wrote for the court.

A contrary ruling would have upended the "one person, one vote" practice, which was established in the 1960s when the justices swept away legislative maps that gave rural voters disproportionate power over urban areas.

Blackstone to Buy HP Enterprise's Stake in Mphasis

Hewlett Packard Enterprise Co. said on Monday it planned to sell its majority stake in Indian outsourcing firm Mphasis Ltd. for about $825 million to Blackstone Group LP, as the U.S. technology company seeks to shore up capital following a recent decline in revenue.

Blackstone will purchase at least 84% of HP Enterprise's majority stake in Mphasis for 430 rupees ($6.49) a share, showing the private-equity firm's optimism in Mphasis's prospects even as the industry faces technological challenges.

Besides buying HP Enterprise's stake, Blackstone said Indian takeover laws require it to buy 26% of Mphasis's shares via a mandatory tender offer to the company's public shareholders. Depending on the demand for that offer, the private-equity firm said it could end up spending as much as $1.1 billion on its investments in Mphasis.

Mattel Taps Adler As Creative Director of Fisher-Price

Mattel Inc. is bringing in designer Jonathan Adler as creative director for its Fisher-Price baby gear and infant toys, as it seeks to reverse a prolonged sales slump at the brand.

Mr. Adler, a ceramicist turned interior designer who has produced collections for Barneys New York and other retailers, has reached a three-year partnership with the company. Terms weren't disclosed. He will continue to run his own design studio and chain of stores.

Mr. Adler has designed a premium priced collection of Fisher-Price baby furniture, gear and apparel that will start selling in September. His design influence also will be applied to everyday Fisher-Price products that will be widely available in early 2017, which will be priced in line with current Fisher-Price items.

Yves Saint Laurent Names New Creative Director

PKering SA on Monday named Anthony Vaccarello as the new creative director at French fashion house Yves Saint Laurent, taking the helm after the brand enjoyed surging growth under star designer Hedi Slimane.

Earlier on Monday, Versus Versace, the diffusion line for Italian luxury label Versace, said Mr. Vaccarello would be leaving the brand after just one year as creative director.

Kering said Mr. Vaccarello, who also heads his eponymous brand, will start his job immediately and will unveil his first collection in October in Paris.

IMF Warns of Rising `Systemic Risk' From Insurers

The week after a judge stymied U.S. government efforts to curb potential risks to the financial system from giant insurers, the International Monetary Fund issued a new warning about rising global financial market hazards posed by the sector.

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Tomorrow's Headlines

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"Across advanced economies the contribution of life insurers to system risk has increased in recent years," the IMF said in a report released Monday.

Though the report said danger posed by insurers "clearly remains below that of banks," it urged global policy makers to take further steps to shore up the safety and soundness of industry giants.

But the difficulty facing regulators in pursuing such policies was evident when a U.S. District Judge last Wednesday issued a ruling blocking an attempt by the American government to impose such measures on one of the largest U.S. insurers, MetLife Inc.

A panel of American regulators had branded the firm a "systemically important financial institution," a designation that required higher capital and much stricter oversight. MetLife sued to block the designation, and Judge Rosemary Collyer sided with the insurer, saying the government had failed to justify its policy.

Justice Department Sues ValueAct Over Disclosures

The Justice Department sued activist hedge fund ValueAct Capital Management LP for $19 million, alleging the fund failed to follow federal disclosure rules regarding its purchases of stock in oil-field-services companies Halliburton Co. and Baker Hughes Inc.

In the lawsuit, filed Monday with the U.S. District Court in San Francisco, the Justice Department said ValueAct should have sought clearance from antitrust regulators when it purchased the stock in late 2014 because the hedge fund sought to influence management of both companies. Halliburton had earlier agreed to buy Baker Hughes for $35 billion.

Fed's Kashkari Seeks Solutions for `Too Big to Fail'

Federal Reserve Bank of Minneapolis President Neel Kashkari said Monday that he wants to start a national conversation that could look at bold options for ending "too big to fail" once and for all at a conference he organized exploring whether the country's biggest banks should be broken up to prevent future bailouts.

The "Ending Too Big to Fail" symposium, with its own Twitter hashtag "EndingTBTF," was announced by Mr. Kashkari in February, shortly after he took the reins as president of the Minneapolis Fed in January.

A top Treasury Department official during the financial crisis, Mr. Kashkari said in February that legislative action taken since the financial crisis didn't go far enough to prevent another scenario in which the biggest banks would require a government bailout if their failure threatened to destabilize the financial system -- a situation known as "too big to fail." He said serious consideration should be given to breaking up the biggest banks and regulating them like a public utility.

Sports Authority Reaches Settlement With Suppliers

The drama between Sports Authority Holdings Inc. and consignment suppliers is coming to an end with a settlement that looks to resolve more than 160 lawsuits.

Sellers of shoes, gloves and other winter gear sold on consignment sought the return of their goods after Sports Authority filed for bankruptcy last month. The retailer, which is liquidating some 140 stores, said it needed the gear to sell at its remaining stores and sued the consignment sellers to block them from seizing the goods.

The dispute revolves around about $85 million worth of winter gear currently being sold at the struggling retailer's stores.

UK, Liberty House in Talks On Tata's British Operations

The U.K. government is in talks with investment firm Liberty House to take over much of Tata Steel Ltd.'s British operations and stave off factory closures that could spell the death of the industry here.

The fate of Britain's steel plants has become a political test for Prime Minister David Cameron, who is facing calls for the government to nationalize the industry to save thousands of blue-collar jobs. The U.K. Business Secretary Sajid Javid has said his government would consider all options to help the steelmaker secure a buyer, including potential state aid on matters such as pension-fund liabilities, energy costs, and stronger U.K. steel procurement guidelines on government contracts.

Liberty House's founder, Sanjeev Gupta, the Indian tycoon, said he is willing to buy the Port Talbot plant from Tata Steel but wants to know what kind of government support his commodities metals firm could get. He said the government needs to help with the plant's pension-fund liabilities, its high energy costs and loss-making equipment before he would consider a takeover.

Brocade Communications Strikes $1.2 Billion Deal for Ruckus Wireless

Brocade Communications Systems Inc. agreed to buy Ruckus Wireless for about $1.2 billion, expanding Brocade's wireless-products footprint in the service-provider industry.

Brocade's stock fell 15.4% to $9.00 in morning trading in New York, while Ruckus shares soared 30% to $13.00.

Under the terms of the agreement, Ruckus stockholders will receive $6.45 in cash and 0.75 shares of Brocade for each share of Ruckus. Based on the closing price of Brocade's stock Friday, the transaction values Ruckus at a price of $14.43 a share, or about $1.5 billion when taking the estimated cash acquired into account.

The transaction price may fluctuate until close, the companies said.

The companies expect the tie-up to accelerate cross-selling activities into the respective companies' partner and customer bases, opening up new revenue opportunities for the combined company.

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Talking Points

Trump's Nomination Not Assured, Despite Lead

With a potential loss looming in Wisconsin's Tuesday primary, Donald Trump's path to clinching the Republican presidential nomination ahead of July convention is increasingly narrow.

Making the climb to the 1,237 delegates required to clinch the GOP nomination tougher for the front-runner are states where the local GOP doesn't bind delegates to candidates: Delegates from North Dakota, Colorado and Wyoming aren't required to back a specific candidate, nor are 54 of Pennsylvania's 71 delegates. Heading into the Wisconsin vote, Mr. Trump must win two-thirds of the remaining bound delegates in other states to clinch the GOP presidential nomination on the convention's first ballot, according to a Wall Street Journal analysis.

Regardless of the results Tuesday in Wisconsin, Mr. Trump can't clinch the GOP nomination before June 7, when California and four other states complete the party's nominating calendar.

Mr. Trump's steep path to 1,237 delegates drastically increases the likelihood of a contested Republican National Convention in July.

For Texas Sen. Ted Cruz, there aren't enough bound delegates left to reach 1,237 even after the June 7 primaries, even if he sweeps the 42 at stake Tuesday in Wisconsin. To win a first ballot vote, the Texas senator would have to run the table on remaining states, win the allegiance of unbound delegates and take support from others now attached to candidates who have suspended their campaigns. Some of those suspended-candidate delegates will be free agents at the convention's first ballot, others in subsequent voting.

With 17 states left to award bound delegates in primaries, Mr. Trump has 736 delegates and must take 66% of the remaining bound delegates to clinch the nomination before the convention. Mr. Cruz has been awarded 463 delegates and must take 102% of remaining bound delegates to reach 1,237, though his campaign believes its total is higher because of private commitments made by unbound delegates and delegates now tied to candidates who have suspended their campaigns.

Ohio Gov. John Kasich has 143 delegates and cannot become the GOP standard-bearer unless the convention requires multiple ballots to choose a nominee.

A Wisconsin victory would be a signature victory for Mr. Cruz, who hasn't won a primary state since March 1 victories in Texas and Oklahoma. But the coming states on the calendar--New York April 19 and five northeastern states a week later--all appear to be friendlier terrain for Mr. Trump.

Mr. Cruz told reporters in Wisconsin that he remains hopeful he'll be the party's nominee heading into the July convention in Cleveland, but at the same time pressed his case that he'll win if the party requires multiple ballots to choose its standard-bearer.

"It will be a battle at the convention to see who can earn a majority of the delegates, delegates elected by the people," Mr. Cruz said Saturday in Ashwaubenon. "In that situation, I think we will be in a very, very strong position. I believe we will earn a majority of the delegates either before the convention or on the convention floor, and either way were going to be the Republican nominee."

The Trump campaign in recent weeks has espoused a renewed emphasis on delegates after being outmaneuvered by the Cruz campaign in Louisiana.

Mr. Trump's top delegate strategist, Ed Brookover, said that to get to 1,237 delegates Mr. Trump doesn't need to win any from the unbound states or Wisconsin, where he is likely to lose most of the state's delegates to Mr. Cruz and Mr. Kasich. If Mr. Trump is indeed shut out in Wisconsin, he will have to take more than 70% of the remaining bound delegates to clinch the nomination.

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Talking Points

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Seib: What Happened To American Optimism?

In a campaign season of startling statements, two of the most startling have gotten relatively little attention. They came, not surprisingly, from Republican front-runner Donald Trump, who has in recent days declared that "we're a poor country now" and that a "very massive recession" is coming.

Both are questionable declarations. The U.S. still has the largest gross domestic product in the world, by a comfortable margin over China, and its per capita GDP outranks that of Saudi Arabia and Germany, World Bank statistics show. And in the latest Wall Street Journal survey of economists, they saw, on average only about a 20% risk of recession in the next year.

Still, those downbeat appraisals underscore one of the broader realities revealed by Campaign 2016: There has been a sharp decline in the traditional American spirit of optimism.

Historically, Americans like to think they carry a sunny spirit of can-do optimism, one that says that, despite its problems, life in the world's greatest democracy will always be better for their children and grandchildren. That spirit usual-

ly is reflected in the chicken-in-every-pot, audacity-of-hope rhetoric of presidential campaigns.

Not this year. The two most prominent Republican purveyors of an optimistic vision, former Florida Gov. Jeb Bush and Sen. Marco Rubio, have washed out. Ohio Gov. John Kasich is trying to keep hope alive, but he runs a distant third in the Republican race.

The two upstart surprises of the season, Mr. Trump and Vermont Sen. Bernie Sanders, have, in their own ways, prospered by telling voters that the country and its political system are seriously flawed and essentially corrupt.

Whether they are reacting to or exacerbating a national mood of pessimism is hard to say, but the evidence suggests American optimism is at a low ebb.

In a new survey by the Pew Research Council, half of the registered voters surveyed said they think the future for the next generation will be worse, while just 24% said life will be better for the next generation. The survey indicated this pessimistic sentiment is spread across racial and economic lines.

When the Wall Street Journal/NBC News poll asked Americans in December whether the nation's economy would get better or worse over the next year, just 24% said it would get better, while three quarters said it would either get worse (24%) or stay the same (50%). In the fall of 2012, the share seeing economic improvement coming was at 45%.

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