WSJ : ECB May Choose a Long, Slow Goodbye to Extraordinary Stimulus



From: LAURENT CHEKROUN (MAKOR SECURITIES LO) At: 10/08/17 21:24:28
Subject: WSJ : ECB May Choose a Long, Slow Goodbye to Extraordinary Stimulus
ECB May Choose a Long, Slow Goodbye to Extraordinary Stimulus
Investors should know that how long bond purchases run matters as much as how big they are

The European Central Bank’s October date with destiny—a vital event for markets this year—is looming. Investors are wondering by how much the central bank’s monthly bond purchases, currently running at €60 billion ($70.4 billion), will be scaled back. But how long purchases run matters as much as how big they are.

The challenge the ECB faces is complex. While eurozone growth has picked up to well above trend levels, helping to narrow the output gap, inflation is adrift of its target of “below, but close to” 2%; the ECB forecasts the rate at 1.5% in 2019. But its bond-purchase program faces constraints due to the limits the ECB has set on how much government debt it can own from each eurozone country. BNP Paribas estimates that at the current pace, the ECB will run out of German bunds to buy by August; at €40 billion a month, by the end of 2018.

A recent speech by ECB executive board member Peter Praet points to another possible path: smaller purchases over a longer period. In particular, Mr. Praet noted that market conditions matter. In times of higher stress, a bigger monthly number carries more power in terms of easing conditions. But if markets are less tense, as they are now, investors can focus more on the persistence of the policy. The account of the ECB’s latest meeting also suggests that policy makers are eager to retain flexibility; this might be one way of achieving that aim.


The ECB, after all, surprised markets when it changed the settings of its bond-purchase program at the end of 2016. Many had expected the ECB to extend purchases at the then-prevailing pace of €80 billion a month, perhaps for six months. Instead, the ECB opted for nine months at €60 billion a month. The extension helped smooth the sticker shock of the reduction in pace, while also buying more time for the ECB. The 10-year German bond yield, a key benchmark for eurozone rates, is still ultralow at 0.48%.

Equally, markets need to think about the policy settings that aren’t changing for now. The ECB has stuck to its guns on its guidance that rates won’t be raised until after bond purchases stop, despite criticism from some of its negative deposit rate of minus 0.4%. A longer extension to the purchase program would underpin that guidance and the ECB’s commitment to persistence and prudence on policy. Meanwhile, the ECB’s continued presence in markets might further support eurozone equities and southern European government bonds.

Analysts at J.P. Morgan now expect the ECB to slow purchases to €20 billion a month but extend them over nine months to September 2018. Even after active purchases stop, there will be reinvestments, too. It might yet be a long, slow goodbye to quantitative easing in the eurozone.

FT : The dangers of populism for the energy sector

The dangers of populism for the energy sector

Populism is on the march. The shift away from factual, rational analysis was evident in 2016 in the Brexit referendum and the US presidential election. A new study from the Legatum Institute shows it is still running strong. The focus of the work is on the UK but there are obvious signs – from the German elections to the dangerous situation in Poland and Hungary – that the populist tide is flowing in many places across the developed world. For businesses accustomed to a world based on facts and hard evidence combined with the rule of law this is deeply uncomfortable. For the companies in sectors such as energy which can easily be targeted by populists it is particularly worrying.

The Legatum study identifies a shift in opinion against the open market economy which we have not seen for several decades. The study demonstrates that the private sector is regarded with contempt and seen as exploitative of both employees and consumers. The three words most associated with the private sector are selfish, corrupt and greedy. Profit is a dirty word, almost as dirty as the word global. People want controls on top pay and higher corporate taxes. The desire for nationalisation of water supplies, the railways and energy companies is strong and not limited to those on the left. Of those surveyed 76 per cent want the railways renationalised; 77 per cent want the state to take over the electricity business. These views come from the political right as well as the traditional left.

Of course the behaviour of some parts of the private sector has created and reinforced these attitudes. Ridiculous pay awards for top management – embarrassing even to the recipients; the systematic minimisation of tax payments by highly successful companies; the abuse of corporate power in negotiations with government over issues such as the contracts for new nuclear are just some of the most obvious recent examples of what has gone wrong. These examples may be exceptions but they are very easily seen as the norm. The public reaction may be ill informed and misdirected but it cannot be ignored. If companies fail to understand the problem they risk being overtaken by a wave which populist politicians will happily ride.

The question is what the bulk of companies can do to demonstrate that they are not greedy or exploitative. The energy sector is a reasonable place to start. The sector is full of companies which are large in scale, global, highly profitable (at least in terms of the absolute numbers), very well paid, capital rather than labour intensive, and apparently unaccountable to anyone. Because the number of companies engaged in any particular activity is small there is an inevitable suspicion of collusion and oligopoly. In short however unfair the caricatures may be, companies operating in the sector are an easy target. Anyone who doubts that should talk to the electricity retailers who are now threatened with a new set of price controls to end “rip off pricing”.

Two initial steps are necessary. First companies have to accept that they are part of society, and that they operate at the pleasure of those they serve. Those who ignore that reality and believe they can simply maximise their own profits at the expense of the wider community are liable to be badly caught out. Many companies half accept this line of thinking. They set standards of care and behaviour for themselves but in the new climate they will have to go further. Those who define productivity gains, for instance, simply in terms of cutting jobs will have to begin to take on responsibility for those whose jobs are lost. The development of supply chains and an active engagement in support of the whole community in which they operate is likely to become the new and more substantive definition of the rather tired and empty dialogue around “corporate social responsibility”.

The second step concerns governance. In all the recent cases of corporate failure the missing element has been the role of boards of directors. Ryanair, Bell Pottinger, Volkswagen and all the others have well paid non executive directors but they did nothing to prevent their companies getting into trouble. The problem is not unique to those companies. In most businesses directors have no contact whatsoever with consumers or employees and in many cases only minimal contact with shareholders. The traditional governance system is broken. To restore trust and to counter the wave of populism something better is necessary.

In the energy business boards should include genuinely independent members who understand the context in which companies are operating and the impact of their decisions. Some companies have applied this approach – creating independent groups of local citizens and specialists to advise on operations in particularly sensitive areas. That approach should now be extended across the whole span of corporate operations. Such groups should serve as a source of advice – warning against risks which might not otherwise be noticed, and as a source of support against irrational attacks.

Many companies I am sure are simply hoping that they can keep quiet, try to avoid mistakes and visibility, and hunker down until the tide of populism passes. That is too complacent. Populism is very dangerous and requires a systematic organised response.

(CS) Global Asset Managers & Exchanges : MiFID2: Pain for AMs, gain for exchange

MiFID2: Pain for AMs, gain for exchanges

GLOBAL ASSET MANAGERS & EXCHANGES: The implementation of MiFID2 is just three months away, and winning will be a relative, not absolute, game for asset managers, with a cost burden attached. For the exchanges, we see some modest incremental earnings opportunities for select players. For the AMs, we do a deep-dive into the MiFID2 rules to understand why so many players have opted to absorb research spend and what the cost/revenue implications might be for AMs and EU investment banks. For the exchanges, we look at equity flow, data, trading requirements, straight-throughprocessing of derivatives, and open access – to pick potential winners.

FT : Betting groups line up to fire starting gun on dealmaking

Betting groups line up to fire starting gun on dealmaking
A spate of M&A is expected after the outcome of a UK regulatory review due this month

The world’s biggest betting companies are preparing for a round of multibillion dealmaking that is set to kick off as early this month, as groups join forces in an effort to secure dominance.

First off the block is set to be a previously thwarted merger between Isle of Man-based online group GVC Holdings and UK bookmaker Ladbrokes Coral. The two companies are further towards completing a deal than previously known, having agreed on the shape of a new executive team and board, according to several people close to both groups.

Meanwhile, William Hill, Paddy Power Betfair, The Stars Group (formerly Amaya), 888 Holdings, Rank Group and Jackpotjoy have drawn up their own battle plans as they attempt to “game out” their next moves.

Interviews with more than 15 senior industry executives, including several involved in tie-up talks and speaking on condition of anonymity, reveal that a flurry of deals is expected after the outcome of a UK regulatory review due this month. The companies declined to comment.

The unknown impact on income of any regulatory reform has made it impossible to assess the value of gambling companies, leading rivals to prepare plans that can be triggered after its release.

“After the review, it won’t be the commencement of talks, it will be the continuation of them,” said David Jennings, head of leisure research at Davy, the Irish wealth managers.

Across the industry, the prize is similar. Gambling groups believe greater scale can help to stave off fierce competition from online upstarts and increased regulatory scrutiny. Newly enlarged companies would operate several different brands, but split costs by bringing online systems together on a single platform, sharing marketing spend and unifying back-office functions.

In August, the Financial Times revealed that GVC had offered up to £3.6bn to take over Ladbrokes, but negotiations collapsed and Kenny Alexander, GVC’s chief executive, has said he will not consider any deal until after the review. The groups held merger discussions last year, as Ladbrokes was completing its £2.2bn combination with Coral.

But four people close to the talks said Ladbrokes and GVC went as far as discussing an executive team structure; Mr Alexander would become chief executive at the new group, while Ladbrokes Coral chief, Jim Mullen, would leave.

Ladbrokes Coral’s chief operating officer Andy Hornby would take the same position at the new entity, and GVC’s finance head Paul Miles would have a deputy role under Ladbrokes Coral’s chief financial officer Paul Bowtell.

One person close to the conversations said most board seats would be taken by existing GVC board members, while another added that, below the chief executive’s role, the positions were not settled.

GVC turned its interest towards Ladbrokes Coral last year, having previously opened talks with William Hill. People close to GVC said it was keen to expand its sports betting business, so has not ruled out a move for William Hill, but has come to believe that Ladbrokes Coral represents a better “cultural fit”.

Yet, major sticking points remain. Both Ladbrokes Coral and William Hill have expressed strong reservations about GVC’s business in Turkey, where most forms of gambling are banned and the government has launched a crackdown on illegal gaming.

In a key concession that could break the impasse, GVC’s leadership has agreed it will dispose of its Turkish arm — including a sale or spin-off — “if there was a bigger prize to be had”, according to people close to its thinking. The offer has not previously been presented to Ladbrokes or William Hill.

GVC’s talks with William Hill were nixed last October when it emerged that William Hill chairman Gareth Davis had begun talks with Canada’s Amaya, operator of PokerStars. Discussions broke down after William Hill’s largest shareholder, the hedge fund Parvus Asset Management, objected to the combination.

That deal could soon be resurrected, however. People close to the companies said Philip Bowcock, William Hill chief executive, favoured a deal with the Canadian group, which could allow the bookmaker to diversify its UK-focused business into international markets. They added that The Stars Group is also keen on the tie-up, but it remains unclear if Parvus continues to hold objections. William Hill is also open to approaches from GVC and 888.

Other combinations could emerge. In 2015, Paddy Power and Betfair united in a £7bn deal to create the world’s largest gambling company. The group is still integrating, while last month, its chief executive Breon Corcoran announced he is to leave.

One person close to its leadership said these issues made it less likely Paddy Power Betfair would engage in another major UK deal soon, though it plans “opportunistic” acquisitions and has developed internal plans to buy groups in Australia.

According to people familiar with the talks, UK bingo hall operator Rank Group — which alongside 888 proposed a three-way merger with William Hill last year — has “run the numbers” on acquiring online bingo group Jackpotjoy.

But Rank, along with others, was deterred by concerns over the complex corporate structure of the UK-listed but Bahamas-based group.

“The band is warming up and the dance is about to begin,” said one gambling industry executive. “People are working out who their dancing partner will be. I doubt many will stay standing against the wall.”

>>> What to look at today - 9th of October 2017

After being closed for holiday last week, the Shanghai Composite resumed trading higher by over 1.5%, amid strength seen in the property and banking sectors. Equity markets in Japan, South Korea and Taiwan are closed in observance of holidays. South Korean markets are due to resume trading on Tuesday. There was no reported military activity out of North Korea over the weekend. In Australian M&A, hotel services company Mantra Group received a A$1.2B bid from France’s Accor. On the macro front, China’s Sept Caixin Services PMI hit a 21-month low, and the initial impact on markets has been muted. Government think tank, China Academy of Social Services (CASS) reiterated that it saw Q4 GDP growth around 6.7%. It also sees 2017 GDP growth at ~6.7%, after suggesting 6.8% in late July. China’s official 2017 GDP growth forecast is around 6.5%. The PBoC skipped today’s open market operation. There has also been speculation that the PBoC is gauging bank demand for a medium-term lending facility (MLF), as CNY404B related to prior central bank operations is expected to mature this week.
US markets closed for holiday today
On Sunday in Spain, an estimated 350K people were said to have gathered in Catalonia capital, Barcelona, for protests related to opposition for declaring independence from Spain. Spanish companies Abertis and Colonial are reported to be planning to hold board meetings on Monday to discuss whether to move their headquarters from Catalonia.

Nikkei Closed Hang Seng -0.39% Shanghai+1.08% Shenzen +1.44%

Eur$ 1.1730 CNH 6.63 CNY 6.6340 JPY 112.62 GBP 1.3107 CHF 0.9783 RUB 58.23 WTI 49.47 +0.18%

S&P +0.09% EuroStoxx +0.20% FTSE -0.05% Dax +0.20% SMI +0.12%

Macro :
- Upcoming Earnings Season Will Be ‘Reassuring’, JPMorgan Says
- German Government Raises 2017 Growth Forecast to 1.9%: HBMIB
- Fitch: Catalonia Confrontation Could Raise Spanish Bank Risks
- Spanish Bank Ratings Not Affected by Catalonia Crisis, S&P Says
- Spain’s Rajoy Said Art. 155 Not Justified for Catalonia: ABC
- U.K. Cabinet Reshuffle After Oct 19-20 EU Summit: Sunday Times
- House Speaker Ryan: Tax reform is on track for implementation by Jan 1st, 2018 - Ryan tweets
- EU Supervisors Said to Weigh Banks’ Provision for Bad Loans: FT

Keep an eye on :
- ABE SM : Abertis Said to Study Moving Legal Base From Catalonia Monday
- ABE SM : Regulator Told Abertis Bid Needs Govt Approvals: Confidencial
- AC FP : Accor Approaches Mantra Group With Cash Offer at 23% Premium, Mantra Gets Cash Offer From Accor at A$3.96/Share
- ACS SM : ACS Says Has Funds to Rival Atlantia’s Abertis Bid: Confidencial
- AB1 GY : Air Berlin’s KfW Loan Due for Repayment on Dec. 4, BamS Says
- AB1 GY : Air Berlin’s Talks on Selling Planes to EasyJet May Collapse: BZ
- AIR FP : Airbus Says Munich Probe Found ‘Little Evidence’ of Bribery
- AIR FP : Airbus Sees ‘Significant Penalties’ Risk in Payments Probe : AFP
- AIR FP : Airbus Probes 100 Possible Bribery Payments: Spiegel
- AF FP : Air France-KLM Sept. Passenger Traffic up 4.8%
- AMZN US : Amazon Is Said to Decide Before Thanksgiving on Drug Sales: CNBC / (Amazon’s Pharmacy Dreams Sink Distributors)
- AGL IM : Autogrill ready to make new buys
- BOL FP : Bolloré Divested Of Benin-Niger Part Of Cotonou-Abidjan Project
- CABK SM : CaixaBank Board Agrees Move of Legal Base From Catalonia
- CAP SM : Capgemini Intends to Appeal Arbitral Award in Netherlands
- COL SM : Colonial Weighs Registered Office Move From Catalonia: Vozpopuli
- CBK GY : Credit Agricole Would Look at Commerzbank If Was for Sale: HB
- DB1 GY : Deutsche Boerse Said to Plan Eurex Profit-Sharing With Banks: FT
- EDP PL : China Three Gorges Considering Repacing EDP CEO Mexia: Expresso
- ENI IM : Eni Says Water Tests at Costa Molina 2 Well Conformed With Norms
- GAS SM : Gas Natural Approves Temporary Legal Base Move to Madrid
- SDF GY : K+S Targets Positive Free Cash Flow by 2019
- LAD LN : GVC, Ladbrokes Are Said to Have Talked Exec, Board Structure: FT
- LHN VX : LafargeHolcim Names Géraldine Picaud as Group CFO
- MDLZ US : Mondelez Holder Pershing Square Reports 4.97% Stake (from 5.6%)
- NEX FP :Prysmian, Nexans, NTK Are Said to Bid for General Cable: Reuters
- PIRC IM : Pirelli’s Mix Tailwinds Unsustainable, Initiated Hold: Berenberg
- PRY IM : Prysmian, Nexans, NTK Are Said to Bid for General Cable: Reuters
- QIA GY : Qiagen NV Rises as Much as 5% to Highest Since July
- RIO LN : Rio Tinto considering sale of Dunkerque aluminum smelter
- SAB SM : Fitch: Catalonia Confrontation Could Raise Spanish Bank Risks
- SHA GY : Schaeffler CEO Targets ’Sensible’ Acquisitions: SZ
- SN/ LN : Smith & Nephew Says CEO Bohuon Intends to Retire by End of 2018
- TSLA US : Tesla Delays Semi Unveil, Says Diverting Resources for Model 3
- TEVA US : Cooper/Teva $1b Deal May Be Hurt by Birth Control Rule: JPMorgan
- UBSN VX : UBS Wins GBP11b Passive-Equity Mandate From U.K. Pension Funds
- UN01 GY : Fortum CEO Doesn’t Expect Uniper Will Find ‘White Knight’: RP
- VIV FP : Mediaset, Vivendi Start Talks to Resolve Pay TV Dispute: Sole
- VOW3 GY : German Transport Ministry Wants Hardware Diesel Fixes: Spiegel
- ZURN VX : Zurich to Lower Costs by $700m by Year End, CEO Greco Tells NZZ

>>> Europe : Brokers Upgrades & Downgrades - 9th of October 2017

>>> Up
* BAT Raised to Buy at Goldman
* Disney Raised to Top Pick at RBC
* DSM Raised to Buy at ING
* Metro Bank Raised to Neutral at Goldman, PT GBP34
* Telecom Plus Raised to Outperform at RBC, PT GBP14

>>> Down
* Allianz Cut to Hold at Bankhaus Lampe
* DIA Cut to Hold at Fintrust Investment
* Metro Bank Raised to Neutral at Goldman, PT GBP34
* Norma Cut to Neutral at Equinet
* Rheinmetall Cut to Accumulate at Equinet
* TP ICAP Cut to Neutral at Macquarie

>>> Initiation
* Cargotec New Neutral at Credit Suisse, PT EU52
* Konecranes New Outperform at Credit Suisse, PT EU43
* Pirelli New Hold at Berenberg, PT EU6.20
* SafeCharge New Equal-weight at Barclays, PT 310p

>>> Call
>> Stock
* EDF, Siemens Among Europe Franchise Picks Additions at Jefferies
* DEUTSCHE BOERSE REMOVED FROM HSBC EUROPE SUPER 10 PORTFOLIO
* JULIUS BAER ADDED TO HSBC EUROPE SUPER 10 PORTFOLIO

>>> Asian Update

Asia Mid-Session Update: Shanghai Composite gains over 1.5% after resuming trade post holiday; China Services PMI hits 21-month low; Australia M&A in focus


***Asia Summary***
-After being closed for holiday last week, the Shanghai Composite resumed trading higher by over 1.5%, amid strength seen in the property and banking sectors. Australia’s ASX 200 index has gained over 0.5%. Equity markets in Japan, South Korea and Taiwan are closed in observance of holidays. South Korean markets are due to resume trading on Tuesday. There was no reported military activity out of North Korea over the weekend.
-In Australian M&A, hotel services company Mantra Group received a A$1.2B bid from France’s Accor. Engineering services firm Worleyparsons agreed to a total consideration of £228M to acquire a majority stake in AFW UK Oil & Gas, which is the oil and gas unit of Amec Foster Wheeler. Meanwhile, almond producer, Select Harvest, rejected a A$430.6M bid from Mubadala.
-On the macro front, China’s Sept Caixin Services PMI hit a 21-month low, and the initial impact on markets has been muted. Government think tank, China Academy of Social Services (CASS) reiterated that it saw Q4 GDP growth around 6.7%. It also sees 2017 GDP growth at ~6.7%, after suggesting 6.8% in late July. China’s official 2017 GDP growth forecast is around 6.5%.
-The PBoC skipped today’s open market operation. There has also been speculation that the PBoC is gauging bank demand for a medium-term lending facility (MLF), as CNY404B related to prior central bank operations is expected to mature this week.
-With the US markets closed for holiday on Monday, various energy companies, including Shell and Phillips 66, announced plans to start resuming their operations, as Nate was downgraded to a tropical depression earlier on Sunday. According to the US Bureau of Safety and Environment (BSEE) there have been no reports of damage to offshore oil facilities as of Sunday afternoon. Also, the US Coast Guard said it reopened the Port of New Orleans.
-The Turkish Lira (TRY) has declined by over 4%, as Turkey’s government suspended non-immigrant visa services for US citizens. The move followed, the US government suspending non-immigrant visa services in Turkey, after the arrest of a US consulate employee in Istanbul, in relation to Muslim leader Fethullah Gulen.
- On Sunday in Spain, an estimated 350K people were said to have gathered in Catalonia capital, Barcelona, for protests related to opposition for declaring independence from Spain. Spanish companies Abertis and Colonial are reported to be planning to hold board meetings on Monday to discuss whether to move their headquarters from Catalonia.

***Key economic data***
-(CN) CHINA SEPT CAIXIN SERVICES PMI: 50.6 V 52.7 PRIOR (21-month low); COMPOSITE: 51.4 V 52.4 PRIOR

***Speakers and Press***
China
- (CN) Shanghai Composite +1.6% at 3,403 after being closed last week for holiday
-(CN) China PBOC said to poll banks demand for medium-term lending facility (MLF) loans, expected to issue these loans on Friday – financial press
-(HK) Macau Oct 8 China Visitor Arrivals +32% y/y; Oct 1-8 China Visitor Arrivals +11% y/y
-(CN) China National Day Holiday Tourism Income CNY583.6B, +13.9% y/y; Number of tourists 705M, +11.9% y/y
-(CN) China CFLP Sept Logistics Business Volume Index: 54.3 v 53.5 prior
-(CN) China said to seek to have 600K new energy vehicles by 2020 – Chinese Press

Other
-(AU) Senator Xenophon (independent) says he is still opposed to the bank tax proposed by South Australia – Australia Press
-(ES) On Sunday, hundreds of thousands of people were reported to have gathered in Catalonia capital Barcelona for protests related to opposition for declaring independence from Spain – financial press
-(TW) Taiwan may extend same-day trading tax cut for 2-years – Taiwanese Press
-(US) House Speaker Ryan: Tax reform is on track for implementation by Jan 1st, 2018
-(US) In list of new immigration principles, the White House calls on Congress to ensure funding for US/Mexico border wall – US financial press
-(US) Fed's Rosengren (moderate, non-voter): Fed has to respond to very tight labor markets or may damage the economy - comments from Montreal

***Asian Equity Indices/Futures (00:30ET)***
- Nikkei closed, Hang Seng -0.3%, Shanghai Composite +1.2%, ASX200 +0.6%, Kospi closed
- Equity Futures: S&P500 +0.1% ; Nasdaq +0.2% , Dax +0.1% , FTSE100 -0.1%

***FX ranges/Commodities/Fixed Income (00:30ET)***
- EUR 1.1730-1.1747; JPY 112.33-112.68; AUD 0.7765-0.7782; NZD 0.7059-0.7080
- Aug Gold +0.8% at 1,285/oz; Aug Crude Oil +0.4% at $49.48/brl; Sept Copper flat at $3.024/lb
- GLD SPDR Gold Trust ETF daily holdings +0.4% to 854 metric tons
-(CN) CHINA PBOC SET YUAN REFERENCE RATE AT 6.6493 V 6.6369** PRIOR
-(CN) PBOC OMO: TO SKIP OMO; net drain CNY180B

***US markets on close: Dow flat, S&P500 -0.1%, Nasdaq +0.1%, Russell -0.3% ***
- Best Sector in S&P500: Technology +0.2%
- Worst Sector in S&P500: Consumer Staples -1%
- At the close: VIX 9.65 (+0.46 pts); Treasuries: 2-yr 1.508% (+1.5bps), 10-yr 2.361% (+1bp), 30-yr 2.896% (flat)

***US Market Summary***
- Equity markets ran up yet again last week to fresh highs before Friday’s September employment report induced some minimal profit taking. Outside of Friday's jobs numbers the economic data remained unambiguously strong; headlined by the highest ISM non-manufacturing composite since 2005. The September jobs report did suggest wage inflation may be taking hold as unemployment rates continue to dwindle. The figures came on the heels of a plethora of Fed speak which seemed to indicate Fed officials were gaining confidence in their ability pull the trigger and raise rates in December. Rates moved up and Treasury curves steepened while the US Dollar regained some upside momentum. The Pound came under pressure as Brexit concerns, and in particular, the fate of PM May weighed on traders psyche. Spanish stocks weighed on Europe as uncertainty surrounding Catalonia resulted IBEX weakness and a modest widening of peripheral yield spreads. WTI crude futures stumbled, dipping back below $50 and under the 50-day moving average even as another tropical storm, Nate, approached the Gulf of Mexico. Copper prices broke back above the 50-day moving average to the highest levels in more than a month, helped by a dearth of headlines out of China as markets were closed for Golden Week. In Washington DC, Republicans continued to press the case for tax cuts while speculation swirled surrounding the fate of Sec of State Tillerson. Democrats called for renewed gun regulation in the wake of Las Vegas suffering the worst mass shooting in US history. The VIX drifted lower yet again nearing the 9.00 mark midweek and overall stock volumes remained notably soft. For the week the DJIA gained 1.6%, the S&P500 was up 1.2%, and the Nasdaq added 1.5%.

WWD : L’Oréal’s Jean-Paul Agon on Artisanal Fragrances, Universalization and Dan

L’Oréal’s Jean-Paul Agon on Artisanal Fragrances, Universalization and Dancing
The ceo of L’Oréal returned to New York for a Fragrance Foundation Master Class.

NEW YORK — To get a moment with L’Oréal chairman and chief executive officer Jean-Paul Agon, one might consider inviting him to a dance party.

Agon’s return trip to New York (his home in the early Aughts) in early October included a stop with The Fragrance Foundation for the organization’s Master Class segment — but before he poured out business tips and career advice, he took a trip down memory lane.

“The only thing I regretted when I left [New York] was an article in Women’s Wear Daily,” he said. “They wrote an article, and I thought they would write that a great marketer went to wherever. And they said, ‘the king of the dance floor left New York.’ I’m pretty proud also to be the king of the dance floor. I miss also the great parties of New York, where I used to dance a lot. By the way — if there are any parties like that, invite me.”

In lieu of dancing, Agon joined new Fragrance Foundation president Linda Levy on stage for a fireside-chat style question-and-answer session on Thursday, where he gave advice to career newbies (“do what you love”) and talked about his first big break with L’Oréal, when he was asked to head Greece for the beauty business.

Thinking the offer to be general manager of Greece was a “miracle,” Agon, self-described as intense, immediately said “yes” and set off to buy books to learn the language, he said.

“It was a very tiny business, almost bankrupt, in a catastrophic situation,” he said. “The worst of all was that I learned they had proposed the job to 10 other people at L’Oréal and no one else would take it. It was kind of a suicide mission, anyone knowing anything about this company would never have taken the job. But I didn’t know, so I went.”

Agon inherited a sales force that was being run by a Frenchman who never learned Greek, and told employees that if he wasn’t fluent in Greek in one year, he’d go back to Paris. “When you’re 25, you say this stuff,” Agon half joked.

He learned Greek and as he tells it, Agon (which means “fight” in Greek, he noted) was becoming “so Greek” that L’Oréal pulled him out. And then, for most of his next several decades in the beauty world, the business part remained the same — but lately, things are changing, he said.

“For 30 years, we did business more or less the same way,” Agon said. “These past three or four years have been absolutely amazing in terms of transformation. With the digital revolution, the consumer revolution, the retail revolution, the media revolution and in fact, the world of beauty — this industry as we know it — has nothing to do today with what it was five years ago.”

In today’s world, L’Oréal uses “universalization” to bring products globally in different markets. “It means globalization while respecting differences,” Agon said. He used L’Oréal Paris as an example. “The L’Oréal Paris brand imagery, equity is the same everywhere, but the formulations of the products will be different in different parts of the world,” he said.

That strategy doesn’t quite translate to fragrance — “you cannot change the juice from one continent to the other,” Agon said. So in that category, companies would alter their portfolio based on region.

Agon, admittedly not a digital expert, noted that technology can come into play when it comes to fragrance marketing, allowing brands to identify “exactly who it is that you think is right for your product.”

“That’s extremely productive and can also help you to differentiate the campaigns you’re doing on two or three fragrances to avoid overlap and cannibalization,” he noted.

In terms of the actual juice, Agon voiced his support of the artisanal side of the category, and his view that ingredients are only becoming more and more important.

“To be very sincere, even if I shock a few, I was not happy when 10 or 15 years ago, there was this fad about celebrity fragrances,” Agon said. “I think [it] was a bit of easy marketing and short-term business. That’s proven to be done by the way…it’s good for the industry. On the contrary, these [artisanal] concoctions I think are fantastic. They are quality, authentic products that are probably here to stay.”


L’Oréal got in on the movement with the acquisition of niche perfume business Atelier Cologne in 2016. “It’s one of the best moves of the industry recently, and we’re going to try to participate as much as we can with Atelier Cologne,” the ceo said.

Looking forward, he emphasized a focus on ingredients.

“The ingredient story is a critical thing,” Agon said. “We have to work on it together — brands, suppliers — because this is a critical thing for tomorrow.…Regulations aren’t all the same, but regulations will become more and more strict everywhere in the world. All the other categories are adapting to that pretty well, and I think we still have to make sure we make progress on that front in fragrances.”