Gapping up
In reaction to strong earnings/guidance:
- SCHN +10.3%, GMED +8.6%, VIRT +7.4%, CHK +5.7%, SWKS +3.9%, JCP +2.5%
Other news:
- GOGO +13.3% (announced that as of December 31st, 2018, modifications to protect against de-icing fluid contamination on its 2Ku North American aircraft have achieved positive results)
- NEO +7.1% (to join S&P SmallCap 600)
- ECA +3.6% (indicated lower after releasing presentation ahead of tomorrow's Goldman Sachs Energy Conference), .
Analyst comments:
- AKAM +3.1% (upgraded to Overweight from Sector Weight at KeyBanc Capital Mkts)
- CGC +3% (initiated with Overweight at Piper Jaffray)
- CL +2.2% (upgraded to Buy from Neutral at Goldman)
- AMP +1.6% (upgraded to Overweight from Equal Weight at Barclays)
- CXO +1.3% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
- AAP +1% (upgraded to Buy from Neutral at BofA/Merrill)
- GPC +1% (upgraded to Neutral from Underperform at BofA/Merrill)
- BAC +0.5% (upgraded to Buy from Neutral at UBS)
You Know Your Diamond’s Cut and Carat. But Does It Have Ethical Origins?
Consumers want to know the origin of the things they buy, like the name of the farm that supplied their milk or the source of the feathers in a down jacket.
But when it comes to a diamond — quite likely one of the most expensive and emotional purchases a jewelry buyer will ever make — most know next to nothing about the source of the stone.
Tiffany & Company, which sold more than $500 million worth of diamond engagement rings in 2017, is hoping to change that. Beginning Wednesday, it will start a program that will identify for customers the country where their diamond was mined, and, eventually, information on where it was cut, polished and set.
The move is part of an effort among jewelers to attract younger shoppers, who may look upon established, venerable stores as stuffy and uncool. They also tend to eschew the hefty baubles their parents preferred for a much more spare style.
The issue of sourcing is especially acute with diamonds, which change hands many times from mine to showroom. More buyers are asking for specific evidence that their gems were not produced using child labor or to finance wars or terrorist activity — the concerns over so-called blood diamonds. So jewelers are starting to work provenance into their marketing, with some even exploring blockchain technology as a way to provide more information about a gem’s origins.
But true clarity — a feature also prized in the gems themselves — remains elusive. And Tiffany acknowledges that it cannot provide customers with the precise location where a diamond was mined.
“A lot of diamond companies are still very opaque about their operations,” said Thomai Serdari, who teaches luxury marketing at New York University. “There haven’t been any particular strict guidelines to ensure that a diamond is truly coming from the area a dealer is claiming it’s coming from.”
Tiffany’s roots date to 1837, when it started selling stationery and “fancy goods” in Manhattan. It is now known for the engagement rings it packs into robin’s-egg-blue boxes, as well as curiosities like sterling silver replicas of a paper plate for $1,000 and a ball of yarn for $9,000.
But the retailer has fought to attract younger shoppers. Disappointing sales led its chief executive to resign abruptly in 2017, and a new leader, Alessandro Bogliolo, took the role 15 months ago.
Polishing a stone.CreditJeenah Moon for The New York Times
The company has had several strong quarters since his arrival, but in its most recent earnings report, a critical sales growth measure was less than half what Wall Street had expected. The company’s stock has tumbled 17 percent since the miss in late November; Mr. Bogliolo largely blamed weak spending by Chinese tourists, who have scaled back amid a trade war with the United States and a slowing economy at home.
Tiffany hopes to perk up interest in the brand with its program on sourcing. Initially, it will tell customers the country where the diamond came from. In 2020, it will share information about where each diamond was cut, polished and set. Mr. Bogliolo said he hoped to someday be able to provide the name of the mine where it was found, the artisan who shaped its contours and the jeweler who secured it in its setting.
“It’s relevant nowadays for customers,” he said, surrounded by archival sketches and vintage Tiffany jewelry at the company’s headquarters in Manhattan. “Customers are very educated, mature and demanding.”
Tiffany’s efforts to attract younger shoppers extend to the Instagram-ready cafe it opened in 2017 inside the nearly 80-year-old flagship store in Manhattan. Its recent ads have featured Zoe Kravitz, an actress described as “the reigning millennial fashion icon,” and a remix of “Moon River,” the classic song from the 1961 film “Breakfast at Tiffany’s,” performed by the rapper A$AP Ferg and the actress Elle Fanning. At the Golden Globes on Sunday, Lady Gaga wore a custom necklace with more than 300 Tiffany diamonds to collect her trophy for Best Original Song.
Although the company hopes its information-sharing campaign endears it to younger buyers, the initiative has its limits.
Tiffany controls most of the process that readies its diamonds for display cases — from rough stones that are mapped out on a 3-D scanner by specialists in Belgium, to polishing at in-house workshops in Africa and Asia, to grading and setting at facilities in the United States, where they are marked with an imperceptible serial number.
But the company buys its rough diamonds from suppliers who acquire the stones from various mines. The country-of-origin information comes from these middlemen and does not link diamonds to specific mines.
So the company, which has guaranteed for years that its gems are conflict-free, is asking customers to trust its judgment that particular countries, such as Canada or Botswana, are ethical producers.
Mr. Bogliolo acknowledged that the information it was offering did not tell a diamond’s full story, but said it was not “fair to burden” customers with an excess of detail because they “cannot be specialists of supply chains of all the products they buy.”
“This is just a sign that is meaningful to the consumer, and behind that sign is all the work that is the responsibility of the brand,” he said.
Tiffany acknowledged there were limits to what it can tell customers: It can identify a stone’s country of origin, but not the mine.
Tiffany acknowledged there were limits to what it can tell customers: It can identify a stone’s country of origin, but not the mine.CreditJeenah Moon for The New York Times
The industry is pushing ahead with other efforts to track its supply chain, including blockchain, which could provide a permanent, tamper-proof digital record of a gem’s journey.
In April, IBM and a group of jewelry companies, including the retailer Helzberg, began to look into blockchain as a way to trace the provenance of diamond and gold engagement rings. The next month, De Beers said it signed Signet Jewelers — the parent company of Zales, Kay Jewelers and several other chains — to a blockchain-based tracking program called Tracr, which will create digital mine-to-consumer records of diamonds.
And in recent years, the Gemological Institute of America has been experimenting with a process that can confirm that a polished diamond was cut from a certain rough stone — a means of tracing a gem to its country of origin.
Tom Moses, the executive vice president of the institute, said it had worked with major retailers and top mining companies to verify the origins of specific gems.
Customers, he said, “want to know it was sourced in an ethical way, so they can feel better about it.”
President Trump redefined mainstream conservatism. Now, a cast of rising Democratic stars and 2020 candidates are redefining mainstream liberalism.
What's happening: You see it in many of the major domestic debates of our times.
Aurora, the hot self-driving startup, will be worth $2 billion after an investment by Sequoia
Aurora’s appeal is predicated on three well-credentialed founders from Google, Tesla, and Uber.
The startup Aurora — which is not yet two years old but has made waves in the autonomous-driving industry with a highly regarded executive team from Tesla, Uber, and Google — is slated to be valued at over $2 billion in a new fundraising round, Recode has learned.
Sequoia Capital is expected to lead a financing round of at least $500 million in the company, according to people familiar with the matter. The investment, which hasn’t closed, is shaping up to be the biggest commitment yet by Sequoia, arguably the most prestigious venture capital firm in Silicon Valley, into the booming, capital-intensive world of self-driving car technology in the US.
Aurora and Sequoia declined to comment.
Aurora came out of stealth in 2017 to much fanfare given its top-flight technical talent. The team is led by CEO Chris Urmson, who was the chief technology officer for Alphabet’s self-driving arm, Waymo, which is generally considered to be technologically ahead of its competitors in the autonomous race.
His co-founders are equally credentialed: Tesla’s former head of Autopilot, Sterling Anderson, and one of the founding members of Uber’s autonomous efforts, Drew Bagnell. In a sector where only a few have technical know-how, a disproportionate amount of Aurora’s appeal — and, presumably, its valuation — is predicated on these three founders.
In the world of self-driving, the trio is obviously late to the game. But their pedigrees have allowed them to recruit a second, deeper level of talent from their former employers and from places like SpaceX. Aurora now has about 200 employees.
Aurora doesn’t try to actually build cars or manufacture the sensors that are essential if self-driving technology is to succeed. Instead, Aurora designs the software on top of which carmakers and other developers can build. It is partnering with companies like Volkswagen and Hyundai.
“We’d like to be the system. So we’re going to work on the software and we’re going to build a reference architecture that we’ll share with automotive partners,” Urmson said on Recode Decode in 2017. “That’ll include — these are the sensors you should have, these are roughly where you should have them on the vehicle, and this is the computation you should have.”
The startup raised $90 million in its first major tranche of fundraising just last year in a round led by Index Ventures and Greylock Partners.
TAG suitor Engie expects to resume acquisition negotiations with Petrobras; eyes new buys
Engie Brasil [BVMF: EGIE3], the Brazilian unit of France-based energy company Engie [EPA: ENGI], expects to resume negotiations with Petrobras[BVMF: PETR4] to acquire TAG and is eyeing new buys this year, Valor Econômico reported.
Citing Engie Brasil CEO Eduardo Sattamini, the Portuguese-language item said the company is eyeing new acquisition opportunities in the electricity sector in 2019, including greenfield projects for new transmission lines or brownfield acquisitions, i.e. third-party transmission lines or electricity plants that are up for sale.
TAG owns a 4,500 kilometer gas pipeline network in Brazil’s North and Northeast regions, the item noted. Engie Brasil and holding company Engie do Brasil submitted the best bid in the TAG auction and were negotiating the acquisition with Petrobras when the deal was suspended by the Supreme Court.
If legal hindrances are settled, the remaining bidders will be informed of the conclusion of the contract negotiation process and will be allowed to submit new bids for TAG based on the new terms negotiated by Petrobras and Engie Brasil, the item said.
Petrobras is expected to receive between USD 8bn and USD 9bn for the target, the item stated.
Link to original source.
Link to original source.
Fitch Threatens To Cut US Credit Rating As Debt-Ceiling Battle Looms
In what has become a perennial exercise before every debt-ceiling showdown since at least Obama's first term (when S&P did the unthinkable and cut the US's coveted AAA credit rating, exposing itself to extensive abuse by Tim Geithner), ratings agencies are starting to beat the credit-rating downgrade drum, with Fitch getting a jump on the competition Wednesday when its head of sovereign ratings warned that an enduring shutdown battle could negatively impact the negotiations over the debt ceiling, which could prompt Fitch to join S&P in eliminating its AAA rating for the US.
During an interview with CNBC and a separate appearance in London (where his comments were recorded by Reuters), Fitch’s global head of sovereign ratings James McCormack warned of a possible cut to its AAA rating for the U.S. sovereign should the shutdown continue to March, noting that the shutdown and debt ceiling battle are adding to anxieties triggered by President Trump's tax cuts and spending hikes, which have blown out the budget deficit and led to a "meaningful fiscal deterioration."
"I think people are looking at the CBO (Congressional Budget Office) numbers. If people take the time to look at that you can see debt levels moving higher, you can see the interest burden in the U.S. government moving decidedly higher over the next decade," James McCormack, Fitch's global head of sovereign ratings told CNBC's "Squawk Box Europe" on Wednesday."There needs to be some kind of fiscal adjustment to offset that or the deficit itself moves higher and you're essentially borrowing money to pay interest on the debt. So there is a meaningful fiscal deterioration there, going on the United States."
Watch his interview with CNBC below:
McCormack added later that Fitch would need to seriously consider a cut if the shutdown continues: "If this shutdown continues to March 1 and the debt ceiling becomes a problem several months later, we may need to start thinking about the policy framework, the inability to pass a budget...And whether all of that is consistent with triple-A."
"From a rating point of view it is the debt ceiling that is problematic."
A partial shutdown affecting roughly one-quarter of the federal government, and which has delayed paychecks for 400,000 workers while another 400,000 have been furloughed as Republicans and Democrats battle over funding for President Trump's border wall.
The last ratings agency to cut its credit rating for the US was S&P, which famously revoked the US's coveted long-term AAA credit rating back in 2011, citing political risks and a rising debt burden in the wake of the financial crisis. Here's what they said at the time:
We have lowered our long-term sovereign credit rating on the United States of America to 'AA+' from 'AAA' and affirmed the 'A-1+' short-term rating.We have also removed both the short- and long-term ratings from CreditWatch negative.The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics.More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011.
The last ratings agency to warn of a sovereign credit rating cut was Moody's, which warned back in January 2018 that the Trump tax cuts were a "credit negative" because they would add $1.5 trillion to the federal budget deficit over 10 years.
France Inaugurates ‘World’s Best Fashion School’
Born of the merger of the top two Paris fashion schools, the revamped Institut Français de la Mode aims to attract global creative talents.
Finance Minister Bruno Le Maire officially launched the new school, born of the long-touted merger of the Institut Français de la Mode (IFM) and the Ecole de la Chambre Syndicale de la Couture Parisienne (ECSCP) — though building on the new premises won’t be completed until 2020.
“I am inaugurating today the best fashion school in the world, because that is what you are destined to become: the best, meaning the one flying the flag for French excellence; the best, meaning the one that draws talents from across the world, from Beijing to Los Angeles or San Francisco,” Le Maire said.
Touting the sector as the global leader in its field, the minister drew a parallel with the tech industry, dubbing French luxury firms “the new GAFA we call KOL: Kering, L’Oréal, Louis Vuitton.”
He was speaking at a thronged ceremony at the IFM headquarters inside the Cité de la mode et du design, a striking contemporary building on the banks of the Seine, where Le Maire and Culture Minister Franck Riester had just inked a new three-year government pact to support the fashion industry.
The ministers were flanked by members of the schools’ academic staffs and representatives of the Fédération de la Haute Couture et de la Mode, French fashion’s governing body, which spearheaded the school merger project.
Ralph Toledano, president of the federation, noted that the members of its executive committee — representing the country’s top luxury brands — had long lamented that France’s reputation as a hub of creativity did not match its prestige in terms of product quality and management skills.
“It seemed to go without saying that the world’s best design school should, must, will have to be in Paris,” he said.
Also present were the five other members of the committee: Guillaume de Seynes, executive vice president of Hermès International; Bruno Pavlovsky, president of fashion at Chanel; Sidney Toledano, chairman and chief executive officer of LVMH Fashion Group; Francesca Bellettini, president and ceo of Saint Laurent, and Pascal Morand, executive president of the Fédération de la Haute Couture et de la Mode.
French fashion generated revenues of 154 billion euros in 2016, directly employing more than 600,000 people, according to a recent IFM study. Taking into account its direct and indirect impact on the French economy, the industry accounted for an estimated 3.1 percent of gross domestic product, the report found.
LVMH Moët Hennessy Louis Vuitton, the global leader in personal luxury goods, accounted for 11 percent of total sales and more than a quarter of total reported profits of the world’s top 100 luxury brands in 2016, according to the most recent “Global Powers of Luxury Goods” report by consultancy Deloitte.
The sector agreement signed with the government on Tuesday focuses on four areas of development: training and education; strengthening industrial capacity and the supply network; supporting emerging brands and sustainable development.
Ralph Toledano, who is not related to Sidney, underlined fashion’s role as an ambassador for French industrial excellence overseas.
“It’s a fact. When you travel, people don’t talk to you about the Eurostar or nuclear energy — they bring up fashion brands. French fashion best represents the country worldwide, and entices foreigners to come to Paris,” he said. “And it is through education and training, and the transmission of knowledge and knowhow, that our sector will continue to shine across the world.”
Founded in 1986 by entrepreneur Pierre Bergé, Yves Saint’s Laurent’s business partner, the IFM has produced designers such as Guillaume Henry and Nadège Vanhee-Cybulski, though it is mainly known for churning out world-class managers who have filled the ranks of leading luxury groups.
Famous alumni of the ECSCP include Karl Lagerfeld, Valentino Garavani, Saint Laurent, André Courrèges, Issey Miyake and Tomas Maier, though in recent decades it has been overtaken by overseas competitors such as London’s Central Saint Martins and the Royal Academy of Fine Arts in Antwerp.
As it gears up to go head-to-head with those wellsprings of cutting-edge design, the revamped IFM will add two new degrees to its 2019 curriculum: a Bachelor of Arts in Fashion Design, available in French and English, and a Master of Arts in Fashion Design in English.
“The main goal of the new IFM school lies in its creative programs,” Sylvie Ebel, executive director of the school, told a press conference. “That’s where the real challenge lies.”
The courses will initially be taught in a temporary space, pending the completion of expanded premises, stretching over 8,000 square meters (or around 86,000 square feet) in IFM’s current building. Construction is due to be completed for the September 2020 class.
Prior to the merger, the IFM focused on postgraduate degrees in fashion management, while future fashion designers turned to the ECSCP for vocational and graduate training in fashion design and pattern making.
By bringing the two schools together, the new IFM will cater to all levels of fashion education, from vocational training to Ph.D. level. The merged institutions currently total 750 students: 200 at the former IFM, which only offered postgraduate degrees, and 550 at the ECSCP.
By September 2022, the merged fashion school aims to attract a total of 1,000 students, including 300 following an apprenticeship program. The new IFM will also house seminars and training programs for 3,000 adult learners.
“The aim is to bring management, design and craftsmanship under the same roof,” said Hans de Foer, who co-directs the creative programs at the new IFM alongside Céline Toledano. Signaling its new start, the IFM on Tuesday unveiled a new logo and new web site.
To spearhead the Bachelor of Arts in Fashion Design, the school has tapped two former teachers of La Cambre fashion school in Brussels, Thierry Rondenet and Hervé Yvrenogeau. It will debut with 100 students in September 2019, but will be able to train 300 students yearly once the merger is complete in 2020.
Applications are currently open for the first round of the selection process, requiring aspiring students to send in their portfolios to be evaluated by a jury. Those selected will be invited for an interview and creative tests aimed at revealing their personality, rather than assessing their existing fashion skills.
However, the school wants to take a more democratic approach than some of its competitors.
“We’re not here to train just creative directors,” said Yvrenogeau, who alongside Rondenet heads the design studio at Lanvin on an interim basis, as the house awaits the arrival of a new creative director. “There are tons of other spots to fill within the fashion industry.”
To wit, the school has signed partnerships with four leading cultural institutions — the Palais de Tokyo contemporary art museum, the Cinémathèque Française, the National Dance Center and edgy cultural space La Station Gare des Mines — to put together a series of workshops exploring the fashion design students’ creative side.
Diversity is another key point, with the launch of the IFM Foundation, presided by Chanel’s Pavlovsky, whose main mission is to provide need-based scholarships for students and finance research and educational innovation through donations from companies, alumni and other individuals.
Looking to open the school’s doors even wider, the new IFM plans to scout talent via a partnership with Casa 93, a fashion school based in the Paris suburb of Saint-Ouen that offers free training and mentoring to students who don’t feel welcome in higher fashion education.
“There is a lot of self-censorship,” said Ebel. “Some young creatives assume traditional fashion training isn’t for them and don’t even look into the finance schemes to see what could work out for them. The idea is to help anyone who has real talent to follow the program.”
The master’s degree in fashion design offers majors including women’s wear, men’s wear, knitwear, creative pattern making, leather goods, footwear and image.
Come 2020, lessons will be held in studios and classrooms located on the first floor of the revamped Cité de la Mode, to which will be added a DIY workshop, a fab lab offering digital fabrication, and a monumental main hall, where the school plans to organize events and exhibitions open to the public.
Open spaces will dot the building, allowing for collaborative work. Transparent glass walls will separate the classrooms, “so that the management students can see what is going on in the ateliers”, explained Rondenet. “We want to train everyone together, creating a toolbox of talents.”
The last remaining task is to build the team that will mentor these creative minds. The school plans to tap its connections to recruit industry insiders to join its team of professors. Sustainability, fashion tech and AI will all be addressed in the new program.
“We can’t be the best school in the world if we are not the school of the future,” said Ebel. “We’re pushed into these pathways by the students themselves: nearly all their applications mention sustainability, but also the digital aspect — all the subjects that mean that the sector constantly needs to question itself.”
Fed Meeting Minutes Will Show How Officials Judged Economic Risks
Market volatility bookended the Fed’s short-term rate increase on Dec. 19
The Federal Reserve releases the minutes of its Dec. 18-19 meeting on Wednesday at 2 p.m. EST, providing more detail about how central bank officials viewed the risks to economic growth when they raised interest rates during a period of heightened market volatility.
They voted unanimously to raise their benchmark federal-funds rate to a range between 2.25% and 2.5% at the meeting, their fourth increase of the year. Fed officials made what appeared to be a significant change to their policy forecast by projecting two rate increases in 2019, down from the three they anticipated in September, despite modest changes to their growth expectations.
But markets didn’t take well to Fed Chairman Jerome Powell’s confident tone at a postmeeting press conference, coming at a time of investor worries over slowing global growth, rising trade tensions and a looming government shutdown. Stocks sold off and bond yields dropped in the following hours and days. Markets rallied last Friday after Mr. Powell and other officials laid the groundwork for holding off on rate increases in coming months.
The minutes are released with a customary three-week delay and could be somewhat stale, providing details of the Fed’s deliberations before the following market swings. Still, they will show how officials judged risks to the economy as of mid-December and how they might react if growth shows signs of slowing more than anticipated.
Here’s what to watch:
Rate Path
Officials ended their meeting confident that short-term interest rates would move higher in 2019 but less sure than earlier in the year how fast or far to raise them.
Over the course of 2018, Fed officials pared the amount of guidance they provide in their postmeeting statement about future policy moves. In December, the statement said officials judged the economy would warrant “some further increases” in the benchmark rate, softening their conviction in two places—replacing the verb “expects” with the more tentative “judges” and adding the modifier “some” to describe further rate increases.
Officials could continue to pare back this type of guidance in the next few meetings, and the minutes could offer clues on the debate.
Financial Conditions
Before the meeting, the S&P 500 had posted its largest-ever two- and four-week declines ahead of any Fed interest-rate increase. Stock markets fared poorly in October, too, but officials seemed unfazed at their Nov. 7-8 meeting, in part because they have been concerned about potentially stretched asset valuations earlier this year.
Bond yields have tumbled, oil has declined, and spreads between short- and long-term yields have narrowed notably since early October. The housing sector has offered the most obvious example so far of how the Fed’s rate increases have cooled growth. The minutes could show whether officials saw rate increases working as intended, or whether financial conditions were tightening more than they had anticipated.
Bond Portfolio
Until very recently, Fed officials had patted themselves on the back over their ability to wind down their portfolio of bonds and other assets without sparking major market volatility. The Fed isn’t selling its holdings but since Oct. 2017 has steadily increased the amount of securities allowed to mature to the current pace of $150 billion every quarter.
Some investors, however, say the portfolio runoff is beginning to have a bigger effect than most Fed officials believe. It is difficult to see proof of this in long-term bond yields, which have declined, or in spreads between the yields of Treasurys and mortgage-backed securities, which are trading in line with their traditional spread.
Nevertheless, investors may be looking to the minutes to see if any Fed officials shared their anxieties. The Fed has said it would revisit its policy of tapering its bond reinvestments if there were a material deterioration in the economic outlook, a view affirmed since the meeting by several officials, including Mr. Powell, last week.
Downside Risks
Some investors said they didn’t find Mr. Powell’s postmeeting press conference reassuring because he repeatedly embraced economic projections that assumed steady growth of around 2.3% in 2019.
Markets have traded in recent weeks as if the economy might decelerate far more suddenly amid worries such as a sputtering Chinese economy and trade tensions, which together would weigh on most major U.S. trading partners.
The minutes will show how officials saw the risks of economic growth coming in better or weaker than forecast. Greater attention by Fed officials to the risks of weaker growth might reassure investors that the policy makers weren’t committed to an overly aggressive policy stance.