FT : WHO rejects call for Olympics to be moved due to Zika

WHO rejects call for Olympics to be moved due to Zika

LONDON, May 28 — The World Health Organisation has rejected a call for the Rio Olympic Games to be moved or postponed due to the threat posed by large outbreak of Zika virus in Brazil.
Responding to a call from more than 100 leading scientists, who said it would be unethical for the games to go ahead as scheduled, the UN health agency said having the games in Rio as planned would “not significantly alter” the spread of Zika, which is linked to serious birth defects.

“Based on the current assessment of Zika virus circulating in almost 60 countries globally and 39 in the Americas, there is no public health justification for postponing or cancelling the games,” the WHO said in a statement.
In an public letter posted online on Friday, around 150 leading public health experts, many of them bioethicists, said the risk of infection from the Zika virus was too high for the games to go ahead safely.
The letter was sent to Margaret Chan, the WHO’s director-general, and said that the Games, due to be held in Rio de Janeiro in August, should be moved to another location or delayed.
“An unnecessary risk is posed when 500,000 foreign tourists from all countries attend the games, potentially acquire that strain, and return home to places where it can become endemic,” the letter said.
But the WHO rejected the call, saying Brazil “is one of almost 60 countries and territories” where Zika has been detected and that people continued to travel between these countries and territories for a variety of reasons.
“The best way to reduce risk of disease is to follow public health travel advice,” it said.
The WHO’s advice is that pregnant women should not travel to areas with ongoing Zika virus transmission, including Rio de Janeiro. It also advises everyone to make all efforts to protect against mosquito bites and to practice safe sex.
Zika infection in pregnant women has been shown to be a cause of the birth defect microcephaly and other serious brain abnormalities in babies.
The connection between Zika and microcephaly first came to light last autumn in Brazil, which has confirmed more than 1,400 cases of microcephaly.

>>> RCS bidder Investindustrial asked for more information on public offer by re

RCS bidder Investindustrial asked for more information on public offer by regulator

Investindustrial has been asked for more information on the public offer it is leading on RCS, the listed Italian media group, Italian language daily Il Sole 24 Ore reported. The report cited a statement by Consob, Italy's securities regulator.

The report noted that the request will increase the amount of time needed for the approval of Investindustrial's public offer prospectus. Consob's original examination of the prospectus was to have been completed by 4 June, it said.

Consob is expected to make a decision today 28 May on the rival public offer put forward by listed media group Cairo Communications, the report said.

RCS has a market cap of EUR 400m.

Il Sole 24 Ore

WSJ : Fueling Oil’s Push to $50: Fear Is Back

Fueling Oil’s Push to $50: Fear Is Back

Production outages are highest in a decade; with spare capacity shrinking, that has traders bidding up prices on bad news

Oil-supply outages are at their highest level in more than a decade, bolstering the “fear premium” that has helped push crude prices to $50 a barrel.

About 3.5 million barrels a day worth of production is off line because of disruptions such as militant attacks in Nigeria, wildfires in Canada and political unrest in Libya—more than 3% of the global total, says research firm ClearView Energy Partners LLC. That is likely the highest since the Iraq war hit output there in 2003, says Jacques Rousseau, the firm’s managing director of oil and gas.

At the same time, there is less slack to fill supply gaps. Unused production capacity that the Organization of the Petroleum Exporting Countries can bring on quickly has dwindled, and the glut of output from other producers, including U.S. shale companies, has ebbed as companies cut back amid lower prices.

“There isn’t a lot of extra supply out there,” said Ann-Louise Hittle, lead oil-market analyst at energy-consulting firm Wood Mackenzie. “That’s when you start to get a risk premium back in the market. It is absolutely to be expected and it is, in our opinion, just the beginning.”

Natural disasters or political unrest in oil-producing nations can halt production and disrupt shipping routes. Such events have historically boosted oil prices, because traders worry about the availability of future supplies.

In 2014 and 2015, however, the oil market mostly ignored occasional supply disruptions, from sanctions on Iran to export-terminal closures in Libya. Traders focused instead on the growing crude surplus produced by U.S. shale companies, sending prices tumbling 76% before they bottomed in February.

After talks of an output freeze among major producing nations fizzled in April, traders say the reduced supply from unplanned outages has been a primary factor driving U.S. oil prices from below $27 a barrel in February to more than $50 a barrel intraday on Thursday. U.S. crude settled Friday at $49.33 a barrel, down 0.3%.

An oil-worker strike in Kuwait in April briefly shut down nearly half the Gulf nation’s production. Wildfires in Alberta, Canada, this month forced the shutdown of production facilities in the country’s oil-sands region.

In Nigeria, a militant group calling itself the Niger Delta Avengers has claimed responsibility for attacks on a production facility and an export terminal. The country’s output has fallen to the lowest level since 2009.

Some think the rise in outages is in part a byproduct of depressed crude prices. When oil is cheap, producing nations’ budgets suffer. That makes it harder for some governments to boost spending to head off unrest and deprives oil facilities of money needed for maintenance and recovery.

“At $100 a barrel, you can paper over a lot of problems with money,” said Helima Croft, head of commodities strategy at RBC Capital Markets. “2016 is proving to be the year of reckoning for the weakest producers.”

Some analysts think the boost from the disruptions may already be waning. Canadian officials have lifted a mandatory evacuation order on certain production sites in Alberta, and Kuwait’s output has returned to normal. Even in Libya, where unrest has kept the country’s production below capacity for years, some analysts expect exports to increase.

“Some of the bullish sentiment has to ease,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, which oversees $128 billion. “There’s some limits to how far this can go.”

Others aren’t so sure that supply disruptions are going away. Iraq, Nigeria and Venezuela together produced 25% of OPEC’s total crude output in April, according to the International Energy Agency. Each is struggling with outages or potential disruptions.

Iraq is trying to keep its production high amid the threat of Islamic State. Many analysts warn that production could fall in Venezuela because of chronic power outages in the cash-strapped nation and disputes about payments to international oil-field-service providers.

Militant attacks continue in Nigeria, including one related to a Chevron Corp. facility on Thursday. “You could be looking at a sustained outage for a long period,” Ms. Croft at RBC said of the country’s total output.

Unplanned production outages are the highest since at least 2003, when the war in Iraq briefly halted nearly all production in that country, analysts say.

During the 2011 Arab Spring uprisings and the overthrow of Libyan leader Moammar Gadhafi, supply disruptions helped lift global crude prices above $110 a barrel on average that year and in 2012, up from an average of about $80 a barrel in 2010.

Since late 2012, global supply disruptions have held more than two million barrels a day off the global crude market, according to ClearView. Fear of lost production after Islamic State seized some Iraqi cities briefly helped push global oil prices above $110 a barrel in mid-2014.

If supply was still growing fast, disruptions might not affect prices as much. But production in the U.S. and other parts of the world is falling as companies cut back.

“Today, it doesn’t look like we will see a return to excess supply conditions,” said Bo Christensen, chief analyst at Danske Invest, which manages $100 billion in assets. “That makes the market susceptible to other types of risks, of course including geopolitical risks.”

Barron's : An ETF Built to Time the Market

An ETF Built to Time the Market

Blair Hull has created an ETF based on research showing that market signals can predict market moves.

This year has proved humbling for prognosticators. British soccer club Leicester City, given 5,000-1 odds to win its league, clinched the title. Bookmakers at one point last summer gave Donald Trump 80-1 odds to seal the Republican presidential nomination.

Add another unlikely candidate for beating the odds: Blair Hull, a mathematician and electronic trading pioneer whose $45 million Hull Tactical US exchange-traded fund (ticker: HTUS) debuted last June. He claims to predict the future with the trading equivalent of reading tea leaves—the Baltic Dry Index of sea-shipping rates.

Hull, who cut his teeth counting cards from Reno to Lake Tahoe in the 1970s, made his name as a renowned trader in the 1987 crash, when he correctly called the market bottom. His firm, Hull Trading, was launched in 1985 based on an options-pricing model he had developed a decade earlier, and staffed with physicists and computer scientists in the early days of computerized trading. It operated in nine countries when it was purchased by Goldman Sachs in 1999. Hull later founded Ketchum Trading, an elite electronic trading firm, and has dabbled in politics. (He was defeated in the Illinois Democratic primary for U.S. Senate in 2004 by Barack Obama.) Hull, 73, looks every bit the politician, with straight silver hair and rimless glasses, but admits to being more suited to science than art.

For instance, when a Barron’s columnist accidentally referenced his poker-playing history, Hull quickly interjected: “It was blackjack, not poker. There’s a big difference. In poker, you’ve got to be able to read people and bluff—neither of which I do very well.”

HULL’S MOST RECENT OBSESSION has become predicting market outcomes. A paper he and a colleague published last year found that blending 20 market signals—including the aforementioned Baltic Dry Index, short interest, moving average, and other more-esoteric measures—can reliably forecast where U.S. stocks are headed on the whole six months into the future. This research is the basis for the ETF, which can dial up or down positions in Standard & Poor’s 500 index futures or the SPDR S&P 500 ETF (SPY) each day based on market-return forecasts.

Hull tells investors to expect outperformance in two out of every three years, and posts a quiz to test “general knowledge of return predictability” on his Website that he encourages investors to take before investing. There’s more to consider: Frequent trading makes the ETF a poor fit for taxable accounts; investors would do better to own this inside an IRA. Expenses are high but far less than hedge fund strategies; at 0.91%, fees are slightly lower than the largest alternative ETF on the market, the $1.1 billion IQ Hedge Multi-Strategy Tracker (QAI), which charges 0.97%.

In some ways, this opaque-sounding strategy is relatively transparent. Daily forecasts from the predictive indicators are published on Hull’s website, and enterprising investors could trade off his information on their own. The strategy will evolve over time, Hull says. In November, the ETF tweaked its strategy to incorporate predictions of one-day stock price moves; in its current configuration, positions are based on one-day and six-month forecasts.

As of Thursday, for instance, Hull’s cryptic model, which is currently favoring “Proprietary Variable X,” indicates that stocks are likely to be down six months from now, but up in the next few days. The ETF, which can be 200% long or 100% short, adjusts its exposure to the S&P accordingly.

WHILE THE STRATEGY IS COMPLEX, Hull says the aim is to beat the market but also enhance risk-adjusted returns. Simulations in his academic paper show annualized returns double that of the market, and a Sharpe Ratio four times as large, indicating one-quarter of the risk. This year’s trading shows how that can work. The ETF’s median daily price move this year is just 0.03%. It plods along when signals are mixed, but should bound higher when the coast is clear.

The strategy has returned 3.9% since its June inception, versus 1.2% for the S&P 500 in the same period, according to Morningstar.

This ETF is clearly not for everybody. Hull even acknowledges it’s essentially a pet project he created for friends to invest in what he considers to be the next frontier—the interplay between the flood of new and readily accessible sources of data and cutting-edge advances in the field of statistical learning.

“It’s been ingrained that timing the market is a bad idea,” he says. “The combination of data and predictive analytics, these two tools, can make it possible.” Hull contends that market-timing models could eventually become as commonplace as index funds. Any stigma, he says, will fade as the machines prove their worth: “Just as in the past 30 years it’s been considered irresponsible to time the market, in the next 30 years it will be considered irresponsible not to time the market.”

Barron's : China Gets Its Own S&P 500

China Gets Its Own S&P 500

The index company is about to launch a “total China” benchmark including shares from bourses around the world.

S&P Dow Jones Indices put its Standard & Poor’s 500 imprimatur on a new “total China” index of the country’s 500 largest stocks, which initially will be available to investors via European funds. A unit of ICBC, the big Chinese bank, in partnership with Credit Suisse will offer an S&P China 500 exchange-traded fund, which is expected in July. A European China 500 index fund, with share classes in various currencies, will follow.

The New York Stock Exchange’s Alibaba (ticker: BABA), the Hang Seng Index’s Tencent (0700.Hong Kong), and the Shanghai Stock Exchange’s Ping An Insurance (601318.Shanghai) are prominent members of the new index, which, like its namesake, is meant to reflect the mix of stocks and sectors in the whole China market. Unlike the S&P 500, listings for stocks in the S&P China 500 are far-flung and, in the case of stocks listed in China, aren’t available to U.S. investors without China’s approval or access to Shanghai stocks via a Hong Kong brokerage account. ICBC’s European unit is licensed to buy securities denominated in China’s currency, the renminbi.

The S&P China 500 isn’t dominated by banking and insurance stocks like an existing index, the CSI 300, that tracks mainland China stocks, nor is it toppy with information-technology holdings, like China’s U.S.-listed stocks. It includes 500 companies ranging from consumer to health care to materials industries, among many others. Mainland stocks were about 56% of the index and offshore stocks, 44% at the end of April, says Liyu Zeng, S&P DJ’s director of global research and design.

BUT DO INVESTORS want or need a total China index? Patricia Oey, senior analyst of passive strategies at Morningstar, doesn’t think so. China is included in emerging markets, which should be only 4% to 5% of a stock allocation in a 60% stocks/40% bonds portfolio, she notes.

The proliferation of expansive China funds follows S&P rival MSCI’s consideration of adding mainland China stocks to its widely tracked MSCI Emerging Markets Index, which currently features only non-mainland shares. The decision to add mainland shares could happen next month if MSCI is comfortable with China’s efforts to open its markets to outside investors.

Through its X-trackers platform, Deutsche Asset Management already offers the MSCI All China Equity ETF (CN), which provides “holistic exposure” to all of China’s stocks “on the assumption it will at some point be fully included in the [emerging markets] benchmark,” says Arne Noack, director of product development at Deutsche.

The opening of onshore markets will bring “more China for all investors,” says Brendan Ahearn, chief investment officer of Krane Funds Advisors, which on about June 1 expects to add Shanghai-listed shares to its KraneShares Zacks China Five-Year Plan ETF (KFYP). The ETF will track Zacks New China Index, focused on stocks poised to benefit from China’s latest economic blueprint. “We are skating toward where the puck is going,” Ahearn says.

But will investors skate toward China alongside the fund industry? When Shanghai stocks soared a year ago, says Noack, Deutsche’s All China ETF had about $20 million in assets; today, post–market turmoil, it has under $7 million. S&P DJ’s long-term bet seems to be that this fickleness will pass.

Barron's : Anheuser-Busch InBev and SABMiller Shares Set to Rise on Merger Appro

Anheuser-Busch InBev and SABMiller Shares Set to Rise on Merger Approval

The beer giants’ stocks have slipped as the deal awaited regulatory assents. Now, with the EU’s blessing, the companies can look forward to making the deal work.

Anheuser-Busch InBev ’s shares have gone a little flat since the world’s No. 1 brewer agreed to a $108 billion merger with its second-place rival, SABMiller, last November, driven by concerns that regulators could call time on this European megadeal.

That downtrend may now have halted, with the tie-up last week winning the European Union’s conditional blessing and lifting Belgium-based InBev’s shares (ticker: ABI.Belgium) by almost 5%. Although the EU is only one of several key approvals needed for the SABMiller (SAB.UK) deal, it has at least raised expectations that InBev is doing enough to assuage antitrust worries in as-yet undecided countries such as the U.S., China, and South Africa.

Less than two days after the EU decision, InBev also won exchange-control approval for the merger from the South African Reserve Bank, marking an important step toward securing full authorization there. InBev says these latest regulatory assents mean it’s on target to complete the merger in the second half of this year.

Antitrust authorities were initially concerned that the combined company’s estimated 30% share of the world’s beer sales would stanch competition, making it the dominant player in its key markets. That has depressed InBev shares. After rising in the days following the formal deal announcement in mid-November, the stock started to slide steadily. Ahead of this week’s gains, it had lost more than 11%.

InBev has since agreed to sell SABMiller’s Peroni and Grolsch brands in Europe and has pledged to dispose of SABMiller’s activities in Central and Eastern Europe.

InBev has made progress in other regions too, with the company selling SABMiller’s stake in its MillerCoors joint venture in the U.S. to partner Molson Coors Brewing, while SABMiller’s stake in a China joint venture, CR Snow, is also being sold.

Gerrit Smit, who manages the U.K.-based Stonehage Fleming Global Best Ideas Equity fund (STGBIEB.Ireland), is hopeful that InBev is doing enough to secure all the regulatory approvals it needs. “Some assets are being sold for antitrust reasons, while other disposals are intended to help it focus more on global brands,” he says.

Buying SABMiller gives InBev a solid foothold in growing beer markets such as Latin America and Africa. “The deal can make it the global emerging market stock of choice, so that when you see emerging markets developing as a theme, AB-InBev is bound to benefit,” says Smit.

That hasn’t been the case lately, as some emerging markets have weighed down earnings at both InBev and SABMiller. Last week SABMiller said its fiscal full-year net profit fell 18% to $2.7 billion, as the dollar’s strength relative to local currencies forced it to take hefty write-downs in Angola and South Sudan. In early May, InBev said its first-quarter profit was all but wiped out, falling to $132 million from $2.68 billion a year earlier. While much of that was attributable to costs related to the merger, it was also hurt by currency pressures and falling demand in Brazil, the company’s second-largest market.

Smit says pressure on emerging markets could be turning as the recent uncertainty that has dogged the stocks starts to subside. “Toward the end of last year and to mid-February this year, the issue has been one of negativism, with huge uncertainty surrounding commodities and oil prices collapsing, coupled with weak manufacturing data in the U.S. and China,” he says. “You had the impression that many investors may have capitulated on oil and commodities.”

THE STRONG DOLLAR put commodities and dollar-denominated debt under further pressure, while also damping U.S. exports. “To a degree, that [pressure] has spread to the rest of the world,” Smit says.

More recently, the dollar has fallen, placing it now some 5% below its peak, and suggesting that its “relentless strengthening” may start to subside. “There are good reasons why markets don’t look quite so volatile as they did a few months ago. Emerging market currencies are starting to pick up, and Chinese manufacturing data is surprising on the upside,” Smit says.

With approval secured in the EU and a step closer in South Africa, Smit is confident InBev is doing enough to assuage competition worries and may soon be free to focus on closing the deal and generating benefits. Aside from the EU, the deal has now been approved in 14 markets, including Australia, India, South Korea, Botswana, Kenya, Swaziland, Zambia, Albania, Ukraine, Chile, Colombia, and Mexico.

ING analyst Matthias Maenhaut has InBev at Buy with a 130 euro ($144.75) price target, giving it an estimated total return of 22.7%. “We reiterate our Buy as the merger opens up potential revenue, cost, and cash synergies, giving way to a superior free-cash-flow growth profile, which presently does not look discounted in its valuation, with the company trading at a 5% 2018 forecast unlevered free cash-flow yield,” he says. InBev shares closed Friday at €113.90.

Barron's : 5 Reasons the Stock Market Won’t Crash–Yet

5 Reasons the Stock Market Won’t Crash–Yet

With the bull market now more than seven years old, many investors worry that a crash is imminent. Not so. Five reasons stocks still have room to run.

Is the stock market headed for another crash? Of course it is. The moment one crash ends, the market is always headed for another. But gains in the periods between crashes tend to last long enough to more than offset the periods of pain when crashes hit.

The current period of gain has lasted more than seven years and propelled the stock market averages to new highs. But since the peak of last May, the market has faltered, briefly touching double-digit lows early this year. Bears have begun to wonder whether the crash to which the market is always headed is just ahead.

Probably not. With rare exceptions, market crashes are accompanied by recessions, and the odds of recession are now quite low. So the crash that is always waiting to happen will probably have to wait a good bit longer. In fact, if economic growth accelerates from the sluggish pace of 2015, the bull market should resume, although probably at a modest, single-digit pace befitting its relatively advanced age.

Recessions involve a contraction in real gross domestic product, although not always in consecutive quarters. Exactly when they start and stop is left to the discretion of the economists on the Business Cycle Dating Committee, part of the private, nonprofit National Bureau of Economic Research. The NBER-determined recessions are marked by bars in the chart at right, which shows the last four, going back to 1981.

But what exactly is a market crash, a concept that has no official arbiters? For starters, it’s generally agreed that a bear market is defined as a decline on the market averages of 20% or more. But is a bear market always a market crash? When it lasts less than 12 months, we say no.

There was, for example, a 20% plunge in the Standard & Poor’s 500 index from late April 2011 through early October of that year. But in the months following, the market rebounded, and the index reached new high ground by January 2012. For indexing investors who held on for at least 12 months, there might have been single-digit losses, but nothing like 20%.

It therefore seems fair to require of any market crash worthy of the name that it show some persistence. As a measure of duration, 12 months seems a reasonable minimum. We define a market crash, then, as a decline of 20% or more on the Standard & Poor’s 500 that lasts at least 12 months.

By this definition, there has been just one market crash over the past 35 years that wasn’t accompanied by a recession: the 12-month decline of more than 20% from August 1987 through August 1988. Arithmetically, this crash would not have happened were it not for the largest one-day plunge in U.S. history: Black Monday, Oct. 19, 1987, when the market tumbled more than 20% in a single day, the only one-day bear market on record. The previous crash on a single day that was at all comparable ran in the low-double digits and occurred 58 years earlier, in October 1929.

And if a one-day crash does strike every 58 years, the next one is due 58 years from 1987, or in 2045. So if we treat the Black Monday–induced crash as an outlier, we are left with just three market crashes over the past 36 years plus one near crash, all four coinciding with the past four recessions.

As the chart shows, all four recessions were preceded by a stock market decline, with the decline becoming a crash, by our definition, once the recession began.

The first crash on the chart coincided with the major recession of 1981-82. The next recession, of 1990-91, sparked a near-crash, with the 12-month decline on the S&P index briefly running at negative 17% by September 1990. One reason the 1989-90 plunge fell short of a crash is that, in September 1989, market valuations were still fairly moderate: The 12-month trailing price/operating-earnings ratio on the S&P 500 was at 14.1.

By March 2000, this same P/E ratio had soared to an inflated 27.8, which helps account for the severity of the market crash that accompanied the comparatively mild recession of 2001. We might think the market was hammered by the terrorist attack of Sept. 11, 2001. But there was already a 12-month decline of more than 20% on the S&P index by March 2001, while the plunge following 9/11 was only half as great.

Even after the 2001 recession ended, however, the economic recovery was sluggish. The market didn’t begin to rebound until the first half of 2003, as gross-domestic-product growth picked up.

The crash accompanying the Great Recession of 2008-09 was the steepest by far, just as the Great Recession was the worst downturn since the Great Depression of the 1930s. But the differences between where we are now and July 2007, the month that marked the beginning of the most recent crash, suggest that a recession, and hence a crash, isn’t about to happen.

LET’S START WITH A REASON to worry. The ultralow interest rates maintained by the Federal Reserve have created a breeding-ground for financial excesses that, when painfully corrected, generally bring recession. But so far, the Fed and the economy have been lucky. If there are excesses in the domestic economy, they aren’t yet significant enough to flash danger.

In the stock market, it’s true that the price/operating-earnings ratio was even lower in July 2007, at 16.3, than the current 20.3. Wharton finance professor Jeremy Siegel points out, however, that the July 2007 reading looked low partly because it reflected bogus earnings in the financial sector that were about to vanish from the calculations. And, Siegel notes, today’s P/E looks high partly because it reflects a lack of earnings in the energy sector, which in turn are due to low energy prices that are providing a boost to the economy.

A more straightforward measure of equity valuation would be the yield on the WisdomTree Dividend Index, which covers the more than 1,400 U.S. companies that pay cash dividends, both now and in 2007.

In July 2007, the yield on the index was 2.9%, at a time when the 30-year Treasury bond yielded 5.1%. Given the plunge in the 30-year bond yield to 2.6% today, you might expect investors to have bid up equity prices so that the yield on the dividend index would be even lower than 2.6%. Instead, it’s at 3.2%, an indication that equities today are valued far more conservatively.

As is well known, the crash in house prices was a prime cause of the 2008-09 recession. While house prices have been rising, they are still well below the peaks of 2007. In April, the most recent month for which data are available, the median price of an existing home was $232,500. In July 2007, the price in today’s dollars came to $263,560.

The price of crude oil is also associated with recession; virtually all recessions are preceded by an oil-price spike. In July 2007, the price was $85 a barrel in today’s dollars, and in a steep uptrend. Today, the price is $49, on the rebound from multiyear lows.

Another indicator of imminent recession is a flat or inverted yield curve. Normally, of course, short-term rates are lower than long-term rates. But, according to a Federal Reserve Bank of New York staff report (“Monetary Cycles, Financial Cycles, and the Business Cycle,” January 2010), when borrowing short costs as much or more than the gains from lending long, this “reduces net interest margin, which in turn makes lending less profitable, leading to a contraction in the supply of credit.”

Right now, the yield curve is relatively normal, with the difference between 10-year and the three-month running a positive 154 basis points, or 1.54 percentage points.

Then there is the danger posed by economic downturns abroad. What if China’s huge economy starts to contract, while Japan and the euro zone continue to stagnate? U.S. exports, already down 1.3% in the first quarter from their fourth-quarter 2014 peak, will certainly take a further hit. But there isn’t a single recession on recent record that can be traced to reversals abroad. As Michael Lewis, president of Free Market, observes, “While a U.S. sneeze can give the rest of the world the proverbial flu, the reverse still doesn’t happen.”

Non-economic shocks tend to be so unusual that it’s hard to draw lessons from past precedent. There is, for example, the shocking and unprecedented chance that Donald Trump will win the White House in November. A Trump victory could spark a market selloff. But whether that becomes a full-blown crash depends on whether the policy initiatives of a President Trump spark recession.

REASONABLE PEOPLE can disagree on that question. But not even the infamous Smoot-Hawley Tariff of 1930 was enough to cause the Great Depression, although it did make it worse. And if a President Trump does push through a cut in taxes, that would mean ballooning deficits over the long term, although it would probably be bullish for stocks in the short term.

If a recession isn’t about to happen, and a crash is therefore unlikely, then what’s the outlook for the stock market? The strongest leg of the bull market is probably over. As economic growth persists, however, the market could still eke out single-digit gains. In 2015, fourth-quarter over fourth-quarter GDP growth ran a tepid 2%, a slowdown from 2014’s 2.5%, largely due to a proportionate slowdown in real consumer spending. Not surprisingly, the 12-month change in the S&P 500 through the second half of 2015 was flat to negative.

But the strong retail-sales report for April signals that a rebound in consumption growth has begun to happen, bolstered by a tight labor market, which is boosting wage and salary income. Also lending support: the steady rise in existing-home sales and the breakout, in April, of sales of new homes. New-home sales spur housing starts, which show up in the GDP accounts as residential investment. But gains in this sector also spur consumer spending. Households invest in rugs, furniture, and appliances when they move into new homes. With these favorable fundamentals, GDP growth in 2016 should accelerate to 2.5%.

That should be constructive for the stock market. Barron’s has found that, looking at the past 20 years, there have been 35 calendar quarters in which growth in real GDP ran higher than the same quarter a year ago. In all but a handful of those cases, the 12-month change in the S&P 500 was positive.

Among life’s certainties are death, taxes, and market crashes. Death, of course, can be postponed by modern medicine, taxes can be deferred, and market crashes can be delayed by an expanding economy. They all catch up with us sooner or later, but in the case of market crashes, investors can mitigate the harm they bring.

If stock valuations looked way too exuberant; if the inflation-adjusted house price were far above its previous peak; if the yield curve were flat or inverted; and if the price of oil were surging to triple-digit peaks—then investors might want to resort to defensive measures, like selling everything and going short. But odds right now are that the bull market has not finished its run.

>>> BPost working on PostNL acquisition - Press

BPost working on PostNL acquisition 

Belgian postal service BPost (BPOST:EN) is working on an acquisition of PostNL (PNL:EN), the Dutch postal service, reports in Dutch dailies Het Financieele Dagblad and De Telegraaf as well as Belgian daily De Tijd noted. De Telegraaf and De Tijd reports cited unnamed sources.

Stock market trading in both companies was halted on Friday, after news of an imminent deal leaked to the press, all reports said. The companies will release an official statement before trading resumes on Monday morning 30 May. The parties did not provide further statements to the media.

On paper, the parties envisage a merger, Het Financieele Dagblad reported. However, as BPost's market cap (EUR 4.7bn) stands at almost triple that of PostNL's (1.7bn), the Belgian company would clearly be the dominant party, the report said.

It is unclear what kind of deal is exactly envisaged, De Telegraaf reported, noting that a takeover seems a likely option.

With an acquisition of PostNL, BPost would bolster its position on the package delivery market, one of the strong points of PostNL, all three items noted.

BPost already made an offer for a full takeover of the Dutch company on 25 March, according to De Tijd, citing unnamed sources. This bid was turned down by PostNL and subsequently BPost offered a better price which was also turned down, the item added. PostNL is currently considering the third bid for the company, according to the item.

It is unclear whether a deal will be done through an exchange of shares or in cash, De Tijd reported. Responding to media rumours that the Belgian government could sell a part of its majority stake in BPost, Minister of state-owned enterprises Alexander de Croo immediately denied that claim, the item added.

An acquisition of PostNL would bolster BPost's position, meaning it would also be a more difficult target for an acquisition by French La Poste which had been eyeing BPost, De Telegraaf reported

link to Het Financieele Dagblad report

link to De Telegraaf report

link to De Tijd report


Source de Telegraaf, Het Financieele Dagblad, De Tijd

>>> Weekly Update

Weekly Market Update: Risk Assets Test Key Levels as Global Risks Wane

The S&P500 notched its second consecutive week of gains neared the key 2100 area, where broader equity rallies have stalled again and again over the last 15 months. Most global equity markets in Europe and Asia also saw modest gains. While equities ground higher, crude prices briefly tested above $50 for the first time since last fall. May corporate bond issuance continued on at a historic pace while US Treasury supply found buyers eager to take advantage the recent declines in prices. The Fed campaign to redirect the markets' interest rate policy expectations was capped by remarks from Chair Yellen on Friday. The G7 produced another tepid statement and plenty of hot rumors of conflict between the US and Japan on clashing visions of how to cope with the global economic slowdown. The Europeans reached yet another deal to keep Greece afloat on borrowed money, while in the UK polling numbers suggested the "remain" camp was gaining ground with only a month to go to the referendum. With some of those global risks starting to fade, equities rebounded and for the week the DJIA gained 2.1%, the S&P500 added 2.3%, and the Nasdaq rose 3.4%.

The barrage of Fed speak that drove last week's repricing of interest rate expectations hardly let up this week. On Sunday, the Boston Fed's Rosengren (a voter) said that most of the conditions for more rate hikes that were laid out in the FOMC minutes seem to be on the verge of broadly being met. On Monday, the San Francisco Fed's Williams said it would be a good idea to raise rates with inflation below target, due to the lag in policy impact, and warned that the Fed sets policy based on the direction inflation is headed, not where it is now. Philly Fed President Harker said rates need to keep rising as inflation picks up. The ever-chatty hawk Bullard said a rate hike in June or July was not set in stone. Powell said the economy is on track to meet the Fed's employment and inflation mandates, with tentative signs that wages are firming. Chair Yellen capped things off on Friday, saying that she expects data to keep improving and if that bears out it will be appropriate to raise rates in coming months.

The second reading of US Q1 GDP was revised a bit higher, to +0.8% from +0.5% in the advance reading. Consumer spending was unchanged at +1.9% in the first quarter. New home construction surged to +17.1% from +14.8% in the advance estimate, the biggest gain in nearly four years. The April new home sales data confirmed that housing market strength has been sustained at the beginning of Q2. The annualized rate of new home sales surged in April, rising to 619K units, up nearly 17% y/y, way ahead of expectations. That's the highest annualized rate of new home sales since January 2008. With supply tight, the median price for a new home increased 9.7% y/y to a record $321,100. US manufacturing data remained poor: the May preliminary Markit factory PMI index sank to its lowest level since late 2009, and the negative reading in the May Richmond Fed manufacturing index echoed a similar result in the May Empire manufacturing survey out last week. Both saw new orders crater, moving from fairly decent growth in April to big declines in May. The April core capital goods orders component of the durable goods report fell 0.8%, the fifth month of declines in the last six months.

For years, the biannual G7 meetings have produced tepid headlines and dull communiques, in which global leaders agree to continue agreeing on broad, vague goals. The most recent edition of the G7 in Tokyo was a different story, as the leaders of the developed world clashed over the right policies to support flagging global growth and forestall all-out FX war. The communique was as anodyne as usual, but in the background US and Japanese officials exchanged sharp rhetoric over FX policies. Japanese officials reportedly made strong appeals for organized exchange rate intervention, but the rest of the group, led by the US, rebuffed the appeals. The Japanese also pushed for their plan to commit G7 members to expanding fiscal spending to blunt the slowdown, warning that the world was potentially at the edge of an economic crisis, but this also appears to have been rejected by the group. With no coordinated G7 plan in place for FX or growth, many analysts now expect another round of Japanese stimulus, and possibly some hint that the BoJ could look at "helicopter money" policies at the June meeting.

For months, Japan PM Abe has been saying that the 2017 sales tax increase would only be delayed (again) under the threat of a Lehman-like crisis. As G7 leaders gathered in Tokyo, Abe gave a speech in which he warned leaders the global economy was possibly heading towards another Lehman-like crisis, citing the 55% decline in commodity prices since mid-2014. This prompted many analysts to conclude the widely-anticipated delay of the tax hike was imminent. Local Japanese press sources suggested the delay could be as long as two years, with a formal announcement as soon as next week. Separately, the Japan April inflation report out this week underlined the failure of Abenomics and the BoJ's negative rates: CPI was in contraction for the second straight month (-0.3%) and the Tokyo CPI figure (-0.5% y/y) saw the fourth month of declines and marked a three-year low. Analysts anticipate the dire inflation data to produce GDP contraction in Q2. This further underlines the possibility of more action from the BoJ in June. The softer yen trend seen in the first three weeks of May hit pause this week, as USD/JPY had trouble maintaining momentum above 110.

There seemed to be a shift in polling on EU Brexit this week, favoring the "remain" camp. On Monday, an ORB/Daily Telegraph survey of "definite voters" showed 55% of respondents in favor of staying in EU and only 42% in favor of leaving. Later in the week, an Ashcroft poll showed 65% of respondents in favor of remaining in the EU and a mere 35% for leaving. Note that "undecided" respondents remain in the double digits in all recent polls. The change in tone comes as the government and the Conservative party ramped up their campaign to emphasize the extreme costs that would accompany Brexit: up to 800K job losses, as much as an 18% decline in property prices and an overall price tag of up to £200 billion. Cable again tested YTD highs this week as the pound softened, although the pair did not maintain a foothold above 1.4700.

Greece and its creditors reached a deal that could be a major step on the road to solving the stricken nation's debt crisis. Representatives from Greece, the IMF and the Eurogroup agreed to preliminary measures to restructure Greek debt when the country's bailout deal concludes in 2018. Most importantly, the proposals include reducing the exposure of the IMF by buying out up to €14.6 billion loans. The deal also includes the possibility of the euro zone handing over €10.3 billion of rescue loans to keep Greece solvent this summer.

Hewlett Packard continues to slim down and adapt to the post-PC world and zero in on its most profitable segments. Hewlett Packard Enterprise will spin off its enterprise-services division to Computer Sciences Corp. in an all-stock deal valued at $8.5 billion. The deal gets HPE out of the market for information technology outsourcing, which helps customers manage and upgrade their systems, leaving it to concentrate on selling hardware that covers servers, storage and networking.

German agricultural and pharma giant Bayer AG offered to acquire Monsanto for $122/share in cash, in a total deal valued around $62 billion. Monsanto called the deal inadequate but left the door open for negotiations with Bayer. The very controversial move comes just three weeks after the board named Werner Baumann Bayer's new CEO, and was condemned by a major shareholder as "arrogant empire-building" when news of the proposal emerged last week.

Shares of Tribune Publishing tanked after the company rejected a revised, $15/share offer from Gannett. Tribune's board rejected the proposal but did invite Gannett to agree to a mutual non-disclosure agreement under which both parties could engage in due diligence and discussions to work out a more acceptable deal, while Gannett said it was thinking hard about dropping its offer.