>>> What to look at today - 22nd & 23rd of June 2019

Fed promises easing, Trump and Xi confirm G20 sit down, Iran tensions rise Coming into the week expectations were already riding exceedingly high heading into the FOMC meeting. Rates remained under pressure and US stock markets were within a few percent of all-time highs. US manufacturing data was soft suggesting deceleration and an environment conducive to a rate cut. Those expectations were only further strengthened by the ECB’s Draghi who said that if the outlook does not improve then additional stimulus will be needed in the Euro Zone. Draghi’s comments prompted President Trump to complain that Fed policy isn’t providing the US with a “level playing field”, keeping the pressure on Chainman Powell ahead of the rate decision. Wednesday’s FOMC statement appeared to satisfy the markets, setting the table for a rate cut in July. After dropping the word “patient” from the monetary policy statement Chairman Powell acknowledged that many committee members, perhaps even himself, saw a stronger case for stimulus amid the risks presented by trade disputes, weak global growth and stubbornly low inflation. On Thursday, stock indices opened at all-time highs despite a 5% pop in WTI crude after Iran tensions were ratcheted significantly by the downing of a US surveillance drone near the Straight of Hormuz. Rates trended lower, pressuring the US 10-year back below 2% for the first time since before the 2016 election. Gold prices broke above the $1,400 mark for the first time since 2013 and the Greenback rolled over. Friday saw equities consolidate at or just below record highs on very robust volumes due to options expiration. Bond yields lifted helped by marginal improvement on some key European manufacturing PMI readings. Also, trade sentiment was further buoyed by a report VP Pence would be postponing a key China policy address indefinitely amid "positive signs" of progress ahead of Trump/Xi meeting.
For the week, the S&P hit new highs up 2.2%, the DJIA gained 2.4%, and the Nasdaq added 3%. In corporate news this week, Pfizer announced it would acquire Array BioPharma for $48/share in a cash deal valued at $11.4B as part of an effort to expand its colorectal cancer drug portfolio. Auction house Sotheby’s sold itself to collector and Altice founder Patrick Drahi for $57/share in cash. American steel makers described an industry slowdown: Steel Dynamics said it saw lower Q2 earnings due to weaker prices; Nucor tempered its Q2 expectations citing decreasing performance in its steel mill business; and US Steel said it would idle some capacity to better align global production.
After a slow start at the Paris Air Show, Boeing announced its first order from the event on Tuesday, as IAG signed a letter of intent for 200 Boeing 737 MAX aircraft to join its fleet.
Oracle posted an earnings beat for Q4 and said it expected a strong Q1. Carnival Corp cut its FY outlook, noting US-Cuba policy changes and other global headwinds.


Macro :
- Erdogan Dealt Stunning Blow as Istanbul Elects Rival Candidate
- New Sanctions Coming on Iran But Trump Would Be Happy to Talk
- Bitcoin at $10,000 Is About More Than Zuckerberg: Lionel Laurent

Keep an eye on :
- AIR FP : Airbus Plans to Shut Down Subsidiary Under Bribery Investigation
- ATL IM : Telepass may be listed following sale of 30% stake by Atlantia - report
- BEI GY : Beiersdorf Planning New Acquisitions, Boersen-Zeitung Reports
- CA FP : Carrefour announces the sale of a controlling stake in its activities in China to Chinese group Suning.com
- DAI GY : Daimler Cuts 2019 Ebit Forecast on Diesel Provisions
- BN FP : Saudi Dairy Firm Nadec Abandons Plan to Buy Danone Unit
- EVR LN : Russia’s Evraz Eyes British Steel Business in France, FT Reports
- B$B GY : Metro Gets Takeover Offer From Czech Billionaire, Partner (2)
- B4B GY : METRO AG: EP Global Commerce's unsolicited offer substantially undervalues METRO
- RNO F : Fiat Chrysler and Renault Hope Merger Talks Will Restart Soon -WSJ
A vote by Nissan shareholders this week could pave the way for Fiat Chrysler and Renault to resume their $40 billion merger talks

WSJ : Fiat Chrysler and Renault Hope Merger Talks Will Restart Soon A vote by Ni

Fiat Chrysler and Renault Hope Merger Talks Will Restart Soon
A vote by Nissan shareholders this week could pave the way for Fiat Chrysler and Renault to resume their $40 billion merger talks

The outcome of two meetings in Japan this week will help determine whether Fiat Chrysler Automobiles FCAU -0.71% NV and Renault SA RNO 2.37% revive plans for their $40 billion merger.

Fiat Chrysler withdrew its offer for Renault earlier this month after the French government sought more time to ensure that Renault’s longtime alliance partner Nissan Motor Co. NSANY 1.13% was on board with the deal.

Shareholders at Nissan’s annual meeting on Tuesday will vote on a plan to make radical changes to the Japanese company’s board. If they approve, Nissan will have a majority of independent directors who, the thinking inside Renault goes, could potentially be more willing to examine a deal on strategic merits rather than through the prism of a fraught alliance.

And later in the week, French President Emmanuel Macron is expected to discuss the 20-year alliance of Renault and Nissan when he meets with Japanese Prime Minister Shinzo Abe ahead of the gathering in Osaka of G-20 leaders, according to a French official. That setting could allow the two heads of state to address issues around the alliance that have intensified since the arrest of former Nissan Chairman Carlos Ghosn, giving the French government the clarity it seeks.

Executives of all three companies remain open to the idea that the deal could return, although they caution that conditions imposed by each side could hobble attempts to restart discussions, people familiar with their thinking said. Industry analysts say the logic of a merger is unchanged, given the cyclical nature of the auto business, with a downturn in sales expected in the coming year, and the steep cost of meeting emissions regulations around the world.

A merger of Fiat Chrysler and Renault would have created the world’s third-largest car maker by volume, eventually delivering more than €5 billion in annual cost savings through shared vehicle engineering and cooperation in areas such as purchasing and R&D, according to Fiat Chrysler’s proposal.

Renault executives are optimistic that the outcome of Nissan’s shareholder meeting will jump-start fresh merger discussions with Fiat Chrysler, said people close to Renault. Renault Chairman Jean-Dominique Senard is traveling to Yokohama, Japan, for the meeting and then will join the party traveling with Mr. Macron.

Support for a merger also remains inside Renault’s headquarters near Paris, these people said. Employees last week jokingly told Mr. Senard to eat “strawberries”—the French company’s code name for the merger—while he was lunching in the cafeteria, one of the people said.

Mr. Senard has remained close to John Elkann, his counterpart at Fiat Chrysler, since the talks collapsed. The two men have been in touch recently, although not about the deal, people familiar with the matter said.

Mr. Elkann, who pulled the deal in early June blaming political conditions in France, also is optimistic that Renault and Nissan will fix their alliance soon, some of the people said. However, to even reconsider a deal, Mr. Elkann would want assurances that the French government won’t try to direct the outcome of merger talks yet again, these people said. At present, the Italian-American auto maker has no plans to make the first move, they said.

France owns a 15% stake in Renault, making it the largest shareholder.

Publicly, Mr. Elkann and Fiat Chrysler Chief Executive Mike Manley have said they remain open to speaking to potential merger partners. Fiat Chrysler had met with executives at France’s PSA Group this spring to discuss a tie-up, before deciding Renault was a better merger partner.

Nissan, whose initial reluctance to back the merger contributed to the breakdown of talks, hasn’t closed itself off to the possibility of an eventual tie-up, people familiar with the matter said. However, Nissan wants to ensure that its position within the alliance won’t be weakened by the merged company.

Currently, Nissan is the largest member of the alliance, which also includes Mitsubishi Motors Corp. That size advantage is offset by Renault’s 43.4% stake in Nissan, while Nissan has only a 15% nonvoting stake in Renault.

A combined Renault and Fiat Chrysler would dwarf Nissan, which could end up with a diminished stake in the merged company. People close to Nissan say the Japanese auto maker will consider backing the merger if there is an agreement in place for the combined company to reduce Renault’s stake in Nissan. One of these people said Nissan wants the stake reduced to well below one third of its capital.

Nissan would also like to reshape the alliance to introduce more flexibility and independence for each partner, this person said.

Nissan’s new crop of directors include several who Renault’s leadership hopes will be more enthusiastic about the shareholder benefits of a Fiat Chrysler deal, the people close to Renault said. Still, Nissan and Renault’s recent history is bitter. Tensions between the two grew in recent years as some Nissan executives chafed at Renault’s efforts to turn the alliance into a merger.

Nissan in May fended off a merger entreaty from Renault, which envisaged placing the partners under a holding company. Mr. Senard had said publicly in March that it was too early to discuss changes to the structure of the alliance, but then approached Nissan CEO Hiroto Saikawa about a potential merger in April.

The relationship was already strained after the arrest last year of Mr. Ghosn, the former chairman of the three alliance companies. Both Nissan and Renault have traded barbs over the handling of the investigation into alleged wrongdoing by Mr. Ghosn, which he denies.

These events have colored Nissan executives’ view of the proposed Renault and Fiat Chrysler merger, as well as Renault’s recent threat to abstain from a shareholder vote on Nissan corporate-governance reforms. A last-minute deal earlier this week saw Nissan capitulating to Renault’s demands for greater board representation.

FT : Pension funds raise concern over index manager stewardship

Pension funds raise concern over index manager stewardship
Retirement schemes call on passive groups to engage with companies directly

Passive fund managers are failing to fulfil their stewardship duties, according to their pension scheme clients, partly because of the sheer number of companies in the indices their products track.

Providers of products such as index cap-weighted funds and exchange traded funds have scooped up trillions of dollars in retirement assets over the past decade as investors embraced cheaper alternatives to expensively managed active funds.

But many index fund managers are not doing enough to monitor how investee companies are being run and push them to make changes, according to a study by consultancy Create-Research.

More than a quarter (27 per cent) of the 127 pension plans with €2.2tn in assets surveyed said index managers were not meeting their stewardship goals at all, while 23 per cent said they were only meeting them to a limited extent.

“To them, passive funds should not mean passive owners,” said Amin Rajan, chief executive of Create-Research and author of the report.

Passively managed funds make up a growing proportion of pension fund assets, the survey found, accounting for 34 per cent, up from 32 per cent last year. The majority of pension funds expect this to rise.

But they said the sheer number of companies in indices tracked by passive products was a block to better engagement, with 60 per cent citing the tens of thousands of investee companies as a reason.

The Big Three in passive investment — BlackRock, Vanguard and State Street, which collectively oversee more than $14tn — have grown their stewardship teams, which oversee their voting and engagement, in recent years. But they remain relatively small.

BlackRock has 43 people working in stewardship, Vanguard has 35 and SSGA has a dozen.

“We’re increasing our corporate activities year after year,” said Simon Klein, head of passive sales for Europe and Asia at DWS, which sponsored the report.

The German asset manager’s stewardship team is half a dozen strong but it said portfolio managers also engaged in corporate governance activities.

The scale of the task means many asset managers use proxy voting advisers to help them monitor companies. But pension funds also said they were concerned about this reliance.

However, 64 per cent of pension fund respondents said the third parties were too powerful. The proxy advice industry, which is dominated by Institutional Shareholder Services and Glass Lewis, is coming under greater regulatory scrutiny.

“Navigating these areas requires year-round conversations instead of just annual general meetings . . . it costs time and money,” said Mr Rajan, who suggested this could raise fees. “It’s a tall order for any organisation. Proxy voting has a very important role to play.”

At a time of fierce competition between passive managers, he predicts the quality of stewardship will become a way for them to stand out.

More than half of the pension funds surveyed said they used a managers’ records on stewardship to a “large extent” in manager selection.

Pension funds said they wanted a clearer picture of how their fund managers had engaged with companies with regular stewardship reports as well as voting policies and records displayed on managers’ websites.

More than 80 per cent said they wanted passive fund managers to “act like an active owner” and engage with companies directly.

FT : Raytheon ‘not just seeking size’ with UTC deal

Raytheon ‘not just seeking size’ with UTC deal
US defence group’s finance chief stands by $120bn merger plan with UTC aerospace arm

Raytheon, the US defence group, has defended its proposed merger with the aerospace arm of United Technologies, insisting it is not pursuing size for the sake of it.

“This is not about just being bigger,” Toby O’Brien, Raytheon chief financial officer, told the Financial Times in an interview.

The deal to create a sprawling $120bn aerospace and defence group was unveiled two weeks ago but has come under fire from investors who have questioned the logic of the combination. There is just a 1 per cent overlap between the two companies in terms of revenues.

Activist investor Bill Ackman, whose hedge fund Pershing Square has a stake of more than $700m in UTC, came out against the deal arguing that the tie-up will lower the quality of its aerospace business.

US president Donald Trump has also waded into the merger, raising concerns that it could be bad for competition in a sector that is dominated by a small number of large participants.

Shares in the two companies initially fell as the market digested the news but have since recovered. Investors, said Mr O’Brien, were taken off-guard.

“The biggest thing for all investors, regardless of their initial reaction, this surprised them . . . [so] at the minimum I would have a lot of questions,” he said at the Paris air show last week.

“The sentiment today is much more positive than perhaps what the initial reaction was,” he added, but conceded that “you will always have outliers”.

Mr O’Brien declined to comment on Mr Trump’s remarks but people familiar with the situation confirmed that Greg Hayes, UTC’s chief executive, and Tom Kennedy, his counterpart at Raytheon, have since met the president in the Oval Office.

“It was a positive meeting,” said one person, adding that the three discussed the impact of the deal on US manufacturing.

The merger will bring together Raytheon’s military expertise and flagship products such as its Patriot and Tomahawk missiles with UTC’s Collins Aerospace, a maker of cockpit avionics, and the aero-engine group Pratt & Whitney.

While being billed as a “merger of equals”, UTC shareholders would own approximately 57 per cent of the combined group and their Raytheon counterparts 43 per cent.

Mr O’Brien insisted that it was not a reverse takeover of Raytheon but a “nil premium merger”, adding that the relative valuations as well as the governance structure around the deal were “fair”.

The combined group, he said, would be “more resilient” and be able to operate through all business cycles while returning between $18bn-$20bn to shareholders in the first three years of the merger.

The companies have argued that the lack of overlap is a good thing and should help secure approval from regulators.

“This is all about the technologies,” said Mr O’Brien, adding that the new company would be able to capture “a bigger part” of government programmes, as well as “at a higher probability”.

FT : Doing ‘whatever it takes’ to sustain the eurozone

Doing ‘whatever it takes’ to sustain the eurozone
Mario Draghi’s successor at the ECB will need to handle the next existential crisis

Mario Draghi last week surprised a lot of people, including US president Donald Trump, when he hinted at further monetary easing. But the comment I considered more important was the European Central Bank president’s call for a common eurozone budget as an additional economic shock absorber.

This is two demands folded into one: for a eurozone budget and a cyclical component. European finance ministers have reluctantly agreed to a tiny version of the former, but not the latter. The budget currently under consideration amounts to 0.01 per cent of the eurozone’s gross domestic product. Most member states, except Spain, want the budget to be purely structural — to help countries with economic reforms. The majority categorically rejects any economic stabilisation function. Obviously, you cannot stabilise an economy with 0.01 per cent of anything. So when Mr Draghi calls for a fiscal stabilisation instrument, this is a very, very big deal.

European central bankers have privately favoured such a tool for some time, but wisely stayed out of this political debate. As a parting gift, Mr Draghi has finally chosen to speak truth to power. They will ignore him, of course. But he is right. Without such a budget, the ECB will find it much harder to do “whatever it takes” — the phrase he used in 2012 about saving the eurozone.

This intervention is an inconvenient demand on EU leaders in countries where the entire eurozone debate is reduced to finger-wagging about fiscal discipline, and where politicians and economists conflate the reasonable demand for a eurozone budget with an unreasonable demand for cross-country transfer payments. An additional element of the debate in Germany is a universal condemnation of the ECB’s monetary policies.

EU leaders do not wish to touch fiscal stabilisation because it opens up all sorts of unpleasant follow-on discussions. A large budget will eventually require a eurozone bond — a safe asset. National government debt would then lose its cherished sovereign status and be reclassified as subsovereign. The ECB would rely less on national bonds for monetary policy operations, and more on eurozone debt. It would make it easier for member states to default, and possibly harder to raise new debt.

A fiscal stabilisation facility would turn everything we have known about the eurozone upside-down: its stability rules, legal procedures and, most important of all, ideological beliefs about what monetary and fiscal policies should do and how they should interact.

History has taught us that EU leaders never act unless a crisis is upon them — and even then their actions are usually insufficient. The one forecast I am willing to make is that the eurozone’s next existential crisis will fall into the eight-year period of office of Mr Draghi’s successor. I have no idea who this will be. I am not even sure this is the most important question for the eurozone right now. Mr Draghi’s great achievement was to have saved the eurozone. But it would be a logical fallacy to make a bailout mindset part of the job description.

The question EU leaders should be asking is not whether Mr Draghi’s successor should be a short man from the north or a tall woman from the east. They should instead focus on what they can contribute to make it possible for the next ECB president to act as Mr Draghi did in 2012.

Mr Draghi saved the eurozone from an all-out speculative attack by designing a programme of unlimited bond purchases. This guarantee, also known as outright monetary transactions, was tailor-made to the situation at the time. It was indeed unlimited, but the discussion often overlooks the fact that it was also conditional. Back in 2012, Mario Monti, a non-partisan technocrat and previously a European Commissioner, was Italy’s prime minister, backed by a de facto grand coalition of centre-right and centre-left parties. If today’s Italian government, which is of a completely different complexion, were to provoke a financial crisis with a rule-busting deficit or a parallel currency, OMT would be useless. The ECB cannot just decide to buy Italian bonds.

The next ECB president will have a tough job. Inflation expectations have decoupled from the target and the bank does not have much ammunition left. In theory, the ECB could buy another €2tn worth of government debt. But this will get progressively harder. There are not many German, Dutch and Finnish bonds available to buy these days. One of the many reasons the eurozone requires a safe asset is to give the ECB something to buy.

We will know that the eurozone has finally reached sustainability when EU leaders can safely appoint a bad central banker. It is too early to to test that proposition, but high time to do “whatever it takes” to make such an experiment possible in the future.

>>> Barrons weekend summary: positive features on HUM and MAR Cover story: Inves

Barrons weekend summary: positive features on HUM and MAR
* Cover story: Investors accustomed to an environment of high interest rates must readjust, by leaning into growth stocks again, scouring Asia for opportunities, or earning income from investments that won’t succumb to the low-rate trend; Boosting growth during a recovery brings risks—it can lead to asset bubbles, and easing now leaves little policy room to respond when an economic crisis demands it.

* Features: 1) The idea that the European Central Bank “is running out of ammunition to counteract a slump is one that its own officials have repeatedly tried to shoot down,” and head Mario Draghi in recent weeks has pressed that point with ever more force; 2) Positive on HUM: Managed care company is well-positioned to ride out volatility in the healthcare sector, and for the long-term investor looking toward 2021 and beyond, there are tantalizing scenarios under a Democratic administration that could allow Humana to win big; 3) Positive on MAR: The world’s largest hotel company could see its stock continue to climb as earnings rise, bolstered by the firm’s expansion in fast-growing regions and new travel businesses—on top of which it is extremely well managed; 4) Story on ESG investing looks at what investors should keep in mind as they construct a values-based portfolio, including sector tilt, unwanted risk, and surprise holdings; 5) Positive on BP, Shell, D, COP, XOM: Momentum is building to put a market-based price on carbon, and it’s coming from an unlikely source—corporations, some of which are calling for a carbon tax paired with a carbon dividend so that the money is returned to taxpayers; 6) The muni market is now smaller than it was a decade ago, according to the Securities Industry and Financial Markets Association—there were $3.6T of munis outstanding at the end of the first quarter, down from nearly $4T in 2009.

* Tech Trader: The California Consumer Privacy Act will force almost all companies, even of modest size, to change the way the collect, handle, and share data on state residents, and the effects will spread, making California the dominant player in U.S. privacy law.

* Trader: The trade war has had an impact on manufacturing activity but far less of an impact on consumers, but another round of tariffs could cause them to finally throw in the towel; Positive on BA: The company has a long way to go to restore confidence in its 737 Max jets, but the structure of the industry and the way planes are purchased gives it time to make appropriate fixes and for the stock to recover.

* Interview: 1) Mario Cibelli, founder of Marathon Partners Equity Management, talks about his activist campaign and the firm’s appreciation for growth and transformative companies; 2) Andrew Lee, UBS Wealth Management Americas’ top strategist for sustainable and impact investing, says ESG is here to stay, though confusing terminology and unclear expectations remain problems.

* Profile: Randy Gwirtzman and Laird Bieger, co-managers of the $512M Baron Discovery fund, see the greatest opportunities in the more inefficiently priced small-cap space because of the comparative lack of sell-side analyst coverage and winners’ ability to grow into a large market over several yearsAdvisor Center

* Investing: 1) Pimco has moved into sustainable investing by implementing this kind of research throughout the firm, becoming one of the first and largest asset managers to regard investing with an eye toward long-term sustainability as a critical key to success; 2) Kevin O’Leary of the reality venture-capital show Shark Tank uses a “gender lens” subset of ESG that aims to boost returns by investing in companies with female leadership, or that are dedicated to improving women’s lives; 3) Kristin Hull, chief executive of Nia Impact Capital, completed another 12 months of market-beating performance for her gender-lens portfolio, and if things go according to plan, a mutual fund version could be available soon; 4) The SEC shows no sign of moving to require sustainability disclosures, even though the industry routinely asks it to do so—BLK chief Larry Fink says ESG factors “can provide essential insights into management effectiveness and thus a company’s long-term prospects.”

* European Trader: Cautious on Merlin Entertainments: Company owns some of the world’s major attractions, including the London Eye and Madam Tussauds, but with shares down, activist investor ValueAct says the company should go private because of the challenge for public market investors to appropriately value its business.

*Emerging Markets: The question for Brazil, the fifth-largest emerging market, has been whether president Jair Bolsonaro could shepherd fiscally critical pension reforms through an unwieldy Congress that includes 30 political parties—and it increasingly looks like he can.

* Commodities: “The meeting of OPEC and its allies in early July is coming at a particularly important and volatile time for oil—prices have been supported by major producers’ output cuts, growing tensions in the Middle East, but also pressured by forecasts of a slowdown in global demand.”

* Streetwise: If fitness company Peloton succeeds in fending off rivals, current comparisons to NFLX might turn to AAPL ones, as users pay high tabs for devices to stick with the ecosystem.

>>> Telepass may be listed following sale of 30% stake by Atlantia - report (tra

Telepass may be listed following sale of 30% stake by Atlantia - report (translated)
22 JUN 2019
Atlantia [BIT:ATL], an infrastructure group held by Italy's Benetton family, could list Telepass, an Italian toll-road payment company, after it has sold a 30% stake in the company, Italian language daily Il Sole 24 Ore reported. The item cited no sources for the claim.
The report said that the sales process for the 30% stake could start after the summer, while it mentioned private equity firms Partners Group,General Atlantic , KKR, [NYSE: KKR], Ardian and other financial players as bidders.
However, the item said that industrial bidders such as payment operator Nexi [BIT: NEXI]and SIA are unlikely to make offers because Atlantia is looking for a financial investor and only a minority stake is up for sale. However, the report said that both companies are likely to be interested if a larger stake was offered for sale.
Mediobanca and Goldman Sachs are advising on the 30% stake sale, the report added.
The report said that Atlantia is valuing Telepass at EUR 2bn. The item added that the 2018 turnover for Telepass' Italian operations was EUR 200m compared to EUR 183m in 2017. The article added that the operating result was over EUR 95m and profit EUR 68m in 2018.