>>> Wall St in for a hawkish Fed surprise – Goldman

Wall St in for a hawkish Fed surprise – Goldman

Investors have grown “complacent” in their expectation the Federal Reserve will adopt a very dovish approach to raising rates this year, despite evidence the US economy is in better shape than when angst swept across financial markets during the first six weeks of the year.


That’s the view from Jan Hatzius, chief economist at Goldman Sachs, who reckons that Fed officials may signal as soon as their meeting next week a sustained appetite to raise interest rates this year.

Interest-rate futures are currently pricing in one rate rise this year, down sharply from expectations of two to three increases at the start of the year, according to a note from Mr Hatzius.

A combination of financial market volatility, along with gloomy economic data released at the start of the year, prompted several top Fed officials to offer a more cautious approach in speeches in the early part of the year.

Indeed, after its January meeting the central bank specifically said it is “closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation”.

But the picture has changed sharply in recent weeks, far more than markets are discounting, Mr Hatzius argued.

Slack in the labour market, for example, appears to be “limited,” with the economy on its way to reaching full employment by the second half of this year. That comes as job growth remains far above the level Goldman estimates as the pace needed to keep the unemployment rate from rising.

At the same time, inflation appears to be picking up at a quicker rate than the Fed expected, with the core PCE price index – the central bank’s favoured inflation gauge – hitting a year-on-year pace of 1.7 per cent in January, 0.1 per cent above the Fed’s forecast for year-end 2016, Mr Hatzius notes.

And after sharp falls through to the middle of February, US equities have rebounded, while corporate credit spreads have tightened and oil has rallied – all signs that strain in the financial markets may be waning.

The Fed’s commentary may “shift in a more hawkish direction” as early as next week’s meeting, Mr Hatzius argues, with its so-called “dot-plot” of forecasts pointing to three rate rises this year.

FT : How low can Mario Draghi go to lift the eurozone?

How low can Mario Draghi go to lift the eurozone?

Mario Draghi is under pressure to deliver a convincing response to the global economic downturn this week.
The European Central Bank chief and the rest of his governing council will meet in Frankfurt on Thursday to decide how to counter the threats posed to the eurozone by the slowdown in growth emerging markets and the sharp fall in the oil price.

A new stimulus package is seen as a near certainty after prices dropped in the year to February. New staff projections from the ECB’s economists are expected to downgrade economic forecasts, showing the eurozone will be saddled with weaker inflation for longer.
Mr Draghi’s own reputation as a man able to do whatever it takes to steer the eurozone towards recovery is at stake. In December, the ECB president was unable to deliver a package in line with investors’ expectations.
There are several options available to the governing council. None, however, are free of drawbacks.
Rate cuts
The ECB now charges 0.3 per cent on eurozone banks’ deposits parked in accounts at Eurosystem central banks. Markets expect the ECB to cut what is known as the deposit rate by 10 basis points on Thursday, with some ECB watchers expecting a deeper cut to minus 0.5 per cent.
There was disappointment in December when the central bank lowered the rate by just 10 basis points, and not the 20 basis point cut that some had hoped for.
But the mood on negative rates has changed.

The sell-off in European bank equities since the start of the year was driven partly by investors’ concerns that the policy is eroding banks’ profitability.
Mr Draghi and another member of the ECB’s top-ranking executive board, Benoît Cœuré, have said central bankers are not responsible for the profitability of lenders — although Mr Cœuré said last week that the ECB was “well aware” that lenders had taken the brunt of the costs of negative rates and had not passed the levy on to retail depositors.
Vítor Constâncio, the ECB’s vice-president and the man responsible for the central bank’s financial stability department, has said they could cut rates in a way that mitigates the “immediate, direct impact” on lenders.
Tiered rates
The ECB could follow the Bank of Japan’s lead and introduce a tiered deposit rate system to shield banks from most of the impact of negative rates. That would, however, expose the central bank to criticism it is engaging in short-sighted moves to weaken its exchange rate.
The BoJ introduced a tiered system earlier this year, charging its negative deposit rate of minus 0.1 per cent only on a fraction of banks’ reserves stored in its coffers.
The ECB could, like the BoJ, impose a lower deposit rate on only some deposits. But while that protects the banks, it would blunt one of the most important channels through which negative rates are supposed to work.
The ECB views its shift below zero interest rates as a complement to its quantitative easing programme. Both policies, it says, force banks and investors to buy riskier assets to compensate for the costs of negative rates.
But a tiered system would weaken this so-called “portfolio rebalancing effect”. It would also remove the pressure on banks to pass on the costs of negative rates to businesses and households, making it less likely they would spend more.
There are serious doubts that negative rates can weaken currencies as much as officials hope — the BoJ’s surprise move only managed to halt the yen’s appreciation for a few days.
Expand QE
The ECB intends to buy €60bn-worth of mostly government bonds each month from now until March 2017 under its landmark quantitative easing programme. Many analysts expect the governing council to take that figure from €60bn to €70bn on Thursday.
The latest economic projections from ECB staff, which governing council members see at the meeting, will be the first to forecast what will happen to inflation in 2018. If inflation is expected to remain below target until then, then the asset purchase programme could be extended for at least another six months.
The ECB could also buy other assets such as corporate bonds or bank bonds.
An expansion in the QE programme has already met with resistance from the governing council’s hawkish wing, which is much keener on rate cuts than bond purchases. However, the fiercest of the hawks, Bundesbank president Jens Weidmann, is one of four of the governing council’s 25 members without a vote this month under the ECB’s rotating voting system, potentially giving Mr Draghi a freer hand to satisfy investors.

>>> Burberry's+10% in US --> BURBY US @ 21.55 +$2... 45k shares traded



From: LAURENT CHEKROUN (MAKOR SECURITIES LO) At: Mar 7 2016 19:52:48
To: LAURENT CHEKROUN (MAKOR SECURITIES LO)
Subject: Fwd:FT : Burberry seeks help to fight off potential takeover bid
Burberry seeks help to fight off potential takeover bid

A mystery investor has built up a stake of close to 5 per cent in Burberry, prompting Britain’s best-known luxury fashion brand to seek help from its financial advisers to defend it against any potential takeover bid.
Burberry, with a market capitalisation of £6bn, sought aid after its board could not determine the identity of the stakebuilder.

A person close to the company said that it had attempted unsuccessfully to ask HSBC, which is listed as the custodian for the position, to reveal its client.
The fashion company, which has seen its market value drop by more than a quarter amid a slowdown in Chinese demand, has called on its existing bankers at Robey Warshaw to help, according to people close to the situation. The group’s corporate broker, Morgan Stanley, is also looking into the matter.
Analysts suggested that rival luxury goods groups such as LVMH, or private equity investors, could be behind the transaction with a view to launching a takeover. In a takeover, Burberry could be valued at £8bn, or £17 a share, according to analysis from Macquarie.
“Burberry is one of the few luxury brands without family interest and thus an easier target for acquisition,” said Macquarie analyst Daniele Gianera.
Burberry, headed by Christopher Bailey, the brand’s longstanding creative director who also became chief executive in May 2014, is also concerned that an activist investor may be behind the stake, according to one person familiar with the matter.
The buyer’s stake first went over the 5 per cent disclosure threshold on February 11, with HSBC reporting a total holding of 5.4 per cent to the market four days later.
Whereas UK transparency rules usually require reporting of any shareholding over 3 per cent, investment managers are given partial exemption that requires them to disclose at more than 5 per cent. The stake has since been reduced to under that level.
Burberry, Robey Warshaw and Morgan Stanley declined to comment.
In recent weeks, Burberry has embarked on a £20m efficiency drive, cutting costs such as hiring, travel and expenses. The brand said last month that it would axe half its fashion shows, and eliminate the customary six-month waiting period before consumers can buy the latest designs.
Mr Bailey insisted at the time that saving money was not the objective of the revamped calendar. But he added: “Responsibly, looking at this, we have to make sure there is some kind of a saving.”

Burberry makes 25 per cent of its sales in China and a further 10 per cent in Hong Kong, making the brand more reliant than most of its rivals on Chinese buyers — whether in the region or as tourists.
A slowing economy, together with a corruption crackdown initiated by President Xi Jinping in 2012, have damped spending on luxury items such as monogrammed ponchos and cashmere scarves and contributed to a dip in sales last summer.
However, Burberry returned to growth in China in the last three months of 2015, as military-inspired rucksacks helped draw customers into its stores.
“The investments into the IT platform and the innovation in digital make Burberry the leader in exploiting new technologies to better manage operations and capture growth,” said Macquarie’s Ms Gianera. “We believe this represents attractive know-how for an eventual buyer of the business to be replicated on other brands.”

FT : Fed’s Fischer sees ‘first stirrings’ of rising inflation

Fed’s Fischer sees ‘first stirrings’ of rising inflation

The US may be seeing the “first stirrings” of a long-awaited increase in inflation as the impact of a strong jobs market works its way through the economy, according to the Federal Reserve’s second-in-command.
In a speech to a group of business economists in Washington on Monday, Stanley Fischer, the Fed’s vice-chairman, dismissed critics within the profession who have pointed to wage stagnation in the US as evidence that the traditional link between strong employment and inflation “must have been broken”.

“I don’t believe that. Rather the link has never been very strong, but it exists, and we may well at present be seeing the first stirrings of an increase in the inflation rate — something that we would like to happen,” he told the National Association of Business Economists.
The comments were Mr Fischer’s final ones in public before the March 15-16 meeting of the policy-setting Federal Open Market Committee, during which markets and Fed observers widely expect the US central bank to hold rates steady thanks to rising concerns about the global economy.
They also came alongside more downbeat remarks from another FOMC member that highlighted what is likely to be the debate inside the policy-setting committee when it gathers next week.
While Mr Fischer in his speech defended the so-called “Phillips Curve”, which describes the link between employment and inflation, as a resilient and longstanding element of economic theory, others on the committee have expressed greater scepticism.

The issue is critical because inflation has consistently been coming in below the Fed’s 2 per cent target rate even as the jobs market has recovered, although there have been signs of an acceleration. In January, the US’s core PCE consumer price inflation rose to 1.7 per cent. February figures are due out on March 16, the same day that the Fed will announce the result of its latest deliberations.
Speaking across town to a group of bankers on Monday, Lael Brainard, a member of the Fed’s board of governors who has emerged in recent weeks as one of its most vocal doves, said the Fed still needed to be mindful of “weak and decelerating foreign demand”. It meant policymakers should not take “the strength in the US labour market and consumption for granted”, she said.
“Tighter financial conditions and softer inflation expectations may pose risks to the downside for inflation and domestic activity,” she said. “From a risk-management perspective, this argues for patience as the outlook becomes clearer.”
She also warned that the FOMC “should put a high premium on clear evidence that inflation is moving toward our 2 per cent target” and that “inflation has persistently underperformed relative to our target”.

“Given the currently weak relationship between economic slack and inflation and the persistent, depressing effects of energy price declines and exchange rate increases, we should be cautious in assessing that a tightening labour market will soon move inflation back to 2 per cent,” she said. “We should verify that this is, in fact, taking place.”
In his speech, Mr Fischer on Monday pointed to other lingering problems in the US economy, including a dramatic fall in the rate of productivity growth in the US “and in much of the world” over the past 20 years. “There are few issues more important for the future of our economy, and those of every other country, than the rate of productivity growth,” he said.
But he also said the Fed and other major central banks still had the capacity to respond to any slowing in the global economy, despite concerns in some quarters about the impact on monetary policy of negative interest rates in Japan and the eurozone on quantitative easing. “I believe that central banks still have the capacity through QE and other measures to run expansionary monetary policies, even at the zero lower bound,” he said.

FT : Burberry seeks help to fight off potential takeover bid

Burberry seeks help to fight off potential takeover bid

A mystery investor has built up a stake of close to 5 per cent in Burberry, prompting Britain’s best-known luxury fashion brand to seek help from its financial advisers to defend it against any potential takeover bid.
Burberry, with a market capitalisation of £6bn, sought aid after its board could not determine the identity of the stakebuilder.

A person close to the company said that it had attempted unsuccessfully to ask HSBC, which is listed as the custodian for the position, to reveal its client.
The fashion company, which has seen its market value drop by more than a quarter amid a slowdown in Chinese demand, has called on its existing bankers at Robey Warshaw to help, according to people close to the situation. The group’s corporate broker, Morgan Stanley, is also looking into the matter.
Analysts suggested that rival luxury goods groups such as LVMH, or private equity investors, could be behind the transaction with a view to launching a takeover. In a takeover, Burberry could be valued at £8bn, or £17 a share, according to analysis from Macquarie.
“Burberry is one of the few luxury brands without family interest and thus an easier target for acquisition,” said Macquarie analyst Daniele Gianera.
Burberry, headed by Christopher Bailey, the brand’s longstanding creative director who also became chief executive in May 2014, is also concerned that an activist investor may be behind the stake, according to one person familiar with the matter.
The buyer’s stake first went over the 5 per cent disclosure threshold on February 11, with HSBC reporting a total holding of 5.4 per cent to the market four days later.
Whereas UK transparency rules usually require reporting of any shareholding over 3 per cent, investment managers are given partial exemption that requires them to disclose at more than 5 per cent. The stake has since been reduced to under that level.
Burberry, Robey Warshaw and Morgan Stanley declined to comment.
In recent weeks, Burberry has embarked on a £20m efficiency drive, cutting costs such as hiring, travel and expenses. The brand said last month that it would axe half its fashion shows, and eliminate the customary six-month waiting period before consumers can buy the latest designs.
Mr Bailey insisted at the time that saving money was not the objective of the revamped calendar. But he added: “Responsibly, looking at this, we have to make sure there is some kind of a saving.”

Burberry makes 25 per cent of its sales in China and a further 10 per cent in Hong Kong, making the brand more reliant than most of its rivals on Chinese buyers — whether in the region or as tourists.
A slowing economy, together with a corruption crackdown initiated by President Xi Jinping in 2012, have damped spending on luxury items such as monogrammed ponchos and cashmere scarves and contributed to a dip in sales last summer.
However, Burberry returned to growth in China in the last three months of 2015, as military-inspired rucksacks helped draw customers into its stores.
“The investments into the IT platform and the innovation in digital make Burberry the leader in exploiting new technologies to better manage operations and capture growth,” said Macquarie’s Ms Gianera. “We believe this represents attractive know-how for an eventual buyer of the business to be replicated on other brands.”

FT : Oil and iron ore surge points to new mood

Oil and iron ore surge points to new mood

An oil worker adjusts the wheel of a flow valve on a modern oil pumping unit at an oilfield operated by Embamunaigas, a unit of KazMunaiGas Exploration Production, in Akkystau village, near Atyrau, Kazakhstan, on Saturday, July 4, 2015. The majority Muslim country is central Asia's biggest oil producer. Photographer: Andrey Rudakov/Bloomberg©Bloomberg
Oil on Monday jumped back above $40 a barrel for the first time this year and iron ore saw its largest one-day gain on record, as more traders bet that the worst of the 20-month commodity rout is over.
The slump in oil and other commodity prices had raised concerns for the health of the wider economy, with central banks warning of a possible deflationary spiral and a sharp slowdown in emerging market growth.

But moves by some of the world’s largest oil producers to agree an output freeze have helped to put a floor under prices, with Brent crude rebounding by 50 per cent since mid-January.
The international oil benchmark gained 5.6 per cent to $41.04 a barrel — the highest since mid-December. It remains, however, well below the $100 a barrel level it averaged near between 2010 and 2014.
Iron ore, one of the key commodities for many miners, rose almost 20 per cent to $62.60 a tonne on Monday — the biggest one-day rise since the index began in 2009.
Officials in China, the world’s largest importer of oil and metals, have vowed to avoid a hard landing as they try to move away from manufacturing and infrastructure spending towards a more service-based economy.
While analysts caution that excess supplies in many commodity markets should continue to weigh on prices, the near panic-level selling seen in January has abated. “I think that if we’re not at the bottom then we can’t be far off,” said Julian Kettle, head of metals at Wood Mackenzie. “People are starting to get far less negative about China.”

Natural resource stocks have been some of the biggest beneficiaries, with Glencore’s and Anglo American’s share price both almost doubling since the beginning of the year after being the worst performers on the FTSE 100 in 2015. They led gains on Monday alongside Chilean copper miner Antofagasta, which is up 75 per cent since January 20.
China will tackle overcapacity in its steel and coal sector, policymakers said at the annual meeting of the national legislature in Beijing at the weekend. Copper, aluminium and zinc have all rallied by between 10 and 25 per cent since January, when they hit the lowest level since the financial crisis.
Officials from Saudi Arabia are due to meet their Russian counterparts in the coming weeks to see if the world’s top two oil exporters can lead other producers to freeze output, as many have seen their national budgets squeezed by the price collapse.
Hedge funds have largely switched from betting against the oil price at the start of the year to positioning themselves for further gains, regulatory data show.
US oil production has started to decline in the face of lower prices, though companies may keep output going if the price recovers further, probably damping the extent of any rally.
“We’ve seen a return of risk appetite,” said Michael Wittner, analyst at Société Générale. “[But] it’s going to be volatile and it’s not a slam dunk that prices keep going up from here in a straight line.”