(ZH) A September Rate Hike Is "Not Even Close": Goldman's Seven Reasons Why Yell

A September Rate Hike Is "Not Even Close": Goldman's Seven Reasons Why Yellen Will Delay... Again

On one hand, every economist, virtual portfolio manager, Yahoo Finance Twitter expert, and TV talking head is certain that a September rate hike is inevitable.

On the other hand, the bank that runs the NY Fed (and whose chief economist Jan Hatzius has dinner with NY Fed head Bill Dudley at the Pound and Pence every other month), Goldman Sachs is doubling down on its call that the Fed will not hike in September.

We'll go with Goldman (only because in this case it really is a dumb vs dumber moment).

Incidentally, here is Hatzius in January 2014 predicting "above-trend growth" for the US (and "for what it's worth", Joe Wisenthal naturally agreeing with him).

So here, without further ado for those who still care about this most farcical of discussions, is Goldman's Jan Hatzius with seven reasons why Yellen will delay. Again.

* * *

From Goldman's Jan Hatzius

Shouldn't Be Close

1. We do not expect a rate hike at the September 16-17 FOMC meeting. This call was originally based on our interpretationof the June “dot plot” and Chair Yellen's July 10 speech, which suggested to us that her own expectation was liftoff in December, not September. If this interpretation was correct at the time, and if we are right in assuming that Yellen’s views are ultimately decisive, the key question is how the economy and the financial markets have performed relative to her expectations of 2-3 months ago. If developments have beaten her expectations, it is possible that she might now support a hike. In contrast, if developments have been in line with or weaker than her expectations, she will presumably resist a hike.

2. Even if we focus only on the economic data, it is difficult to argue that developments have beaten expectations. Although growth has been decent and the labor market has improved further, both wage and price inflation have fallen short of consensus expectations. Our wage tracker stands at just 2.1% as the Q2 employment cost index surprised on the downside, and core PCE inflation just made a four-year low of 1.24%. Moreover, the notion that the weakness in core inflation is principally due to the temporary effects of a stronger dollar and lower commodity prices does not look right; core PCE goods inflation, where such effects should be concentrated, is only 0.4pp below its 20-year average, a gap that is worth just 0.1pp for the overall core PCE index. This suggests that most of the inflation shortfall relative to the Fed’s 2% target is due to more persistent factors, including continued labor market slack.

3. Once we broaden the perspective to include financial markets, developments have been substantially worse than almost anyone expected in June or early July, leading many forecasters (ourselves included) to shave their expectations of future growth. Our GS Financial Conditions Index (GSFCI) is at the tightest level since 2010, as the dollar has appreciated further, credit spreads have widened, and stock prices have fallen substantially. At this point, our “GSFCI Taylor rule” suggests that actual financial conditions are much tighter than the level suggested by the current levels of employment and inflation relative to the Fed’s targets. In a similar vein, market inflation expectations have fallen back to the lows of early 2015; the five-year five-year forward TIPS breakeven stood at 1.88% on Friday, which we think is consistent with a market expectation for PCE inflation of just 1½%, half a point below the Fed’s target.

4. So how do we explain Vice Chairman Fischer’s relatively hawkish CNBC interview and speechat the Jackson Hole symposium? While Fischer did not comment directly on the timing of liftoff, he did provide a fairly upbeat interpretation of the labor market and inflation picture, which many have interpreted as a signal that he will support a hike on September 17. However, an alternative interpretation is a desire to avoid pre-empting the actual FOMC meeting, at a point in time when the market-implied probability of a September hike stood below 25%. In support of this interpretation, we would note that Fischer also gave a speech widely interpreted as hawkish just three weeks before the March 17-18 FOMC meeting, which featured sizable downward revisions to the committee’s inflation and funds rate paths.

5. There are also some logistical difficulties with a hike on September 17. Right now, the market-implied probability of a hike is 30%-35%. We believe that the FOMC will want to be reasonably sure that the first rate hike in nearly a decade is well anticipated by the market on the day it occurs. This implies that a strong signal between now and the meeting may be necessary to put the committee in a position where it feels it actually can hike without potentially causing a significant amount of market disruption. But again, the desire to avoid pre-empting the discussion at the meeting itself presumably argues against sending such a signal. The path of least resistance is therefore to wait, which might mean that the market-implied probability of a hike on the day of the meeting itself will be close to current levels. If so, we think that market pricing in itself would become a strong argument around the FOMC table against pulling the trigger on September 16-17 [ZH: which means that as many have suggested, it is the market's tantrums and not the Fed, which calls the shots].

6. If we are right about the will-they-or-won’t-they issue, the next question is what message the committee will send about future policy on September 17. On this, it is harder to be confident. The tightening of financial conditions has greatly strengthened the case of commentators such as former Treasury Secretary Summers that the committee should not be signaling a 2015 liftoff; taken literally, our GSFCI rule implies that the committee should be looking for ways to ease, not tighten, policy. And the simplest way to do that would be to signal a later liftoff than the market is currently discounting. Against this, many meeting participants will argue that the tightening of financial conditions could reverse quickly and a 2016 liftoff is too late given the further improvement in the labor market and the sharper-than-expected decline in the headline unemployment rate in recent months. In the end, our baseline expectation is that the message from the meeting, including the “leadership dots”, will remain broadly consistent with liftoff in December but Chair Yellen will make it clear in the press conference that financial conditions need to improve for the committee to actually hike this year.

7. Other aspects of the meeting are also likely to be mostly dovish. Although the unemployment rate path will once again have to come down, we expect this to be largely offset by a reduction in the committee’s estimate of the structural unemployment rate. The forecasts for real GDP growth, inflation, and the longer-term funds rate are also likely to decline modestly. That said, the Fed’s funds rate expectations are likely to remain well above the distant forward rate, which now suggests a market view of the equilibrium funds rate of just 2%. We agree with the Fed’s view that this is likely too low, although the question will not be definitively settled for several years.

(ZeroHedge) The Numbers Are In: China Dumps A Record $94 Billion In US Treas


The Numbers Are In: China Dumps A Record $94 Billion In US Treasurys In One Month
Shortly after the PBoC’s move to devalue the yuan, we noted with some alarm that it looked as though China may have drawn down its reserves by more than $100 billion in the space of just two weeks. That, we went on the point out, would represent a stunning increase over the previous pace of the country’s reserve draw down, which we began documenting months ahead of the devaluation (see here, for instance). We went on to estimate, based on the projected size of the RMB carry trade unwind, how large the FX reserve liquidation might need to be to offset capital outflows and finally, late last week, we suggested that China’s official FX reserve data was set to become the new risk-on/off trigger for nervous, erratic markets. In short, the pace at which Beijing is burning through its USD assets in defense of the yuan has serious implications not only for investors’ collective perception of market stability, but for yields on core paper, for global liquidity, and for US monetary policy. 
On Monday we got the official data from China and sure enough, we find out that the PBoC liquidated around $94 billion in reserves during the month of August to $3.557 trillion (the lowest since September 2013)...
... and as Goldman argues (see below), the "real" figure might have been closer to $115 billion. Whatever the case, it’s a staggering burn rate and needless to say, were the PBoC to continue to liquidate its assets at this pace, it would necessitate a raft of RRR cuts and hundreds of billions in short-term liquidity ops to ensure that money markets don’t seize up in the face of the liquidity drain.
Here’s some commentary from across sellside desks on the official numbers:
  • From RBC’s Sue Trinh: 
    • China FX reserves suggest about $140b used to defend yuan in April once valuation is accounted for
    • Believes PBOC has been intervening to maintain the yuan’s stability since the devaluation, but this kind of intervention can’t continue indefinitely
    • It’s unsustainable in the long run; yuan is overvalued by around 15% by RBC’s latest estimate; still targeting USD/CNY at 6.56 by year-end and 6.95 by the end of 2016
  • From Commerzbank’s Zhou Hao:
    • Decline in foreign reserves clearly suggests China’s central bank intervened intensively in the FX market to stabilize CNY exchange rate
    • “One-off devaluation” in mid-Aug. triggered market expectations of further CNY deprecation, which has not only endangered the financial stability, but also posts a downside risk to the economy due to capital outflows
    • It’s costly because frequent intervention will burn foreign reserves rapidly and tighten the onshore market liquidity; that said, further tightening of regulations is expected near term
    • Expects spread between CNY and CNH is likely to persist as PBOC has become an active player in onshore market
  • From Goldman:
    • The People’s Bank of China (PBOC) reported that its foreign exchange reserves dropped by US$94bn in August, to US$3.557tn at the end of the month. However, it is not straightforward to derive the actual scale of FX reserves sales from the headline FX reserves data, given uncertain valuation effects and possible balance sheet management by the PBOC.
    • It is possible to get an approximate sense about valuation effects stemming from currency movement: e.g., assuming the currency composition of the PBOC’s FX reserves broadly follows that of the average country’s (using the IMF COFER weights, which suggest roughly 70% in USD for EM countries), the currency valuation effect would probably be positive to the tune of roughly US$20bn (i.e., if we only look at the change in headline FX reserves as a gauge of sales of FX reserves, sales of FX reserves might have been underestimated by around US$20bn, given the currency valuation effect). However, besides currency movements, there could also be significant valuation effects from changes to the market prices of the PBOC’s investment portfolios, and the direction and size of those effects is hard to measure given the uncertainty of the asset composition. Moreover, there could also be possible short-term transactions and agreements between the PBOC and banks that may complicate the interpretation of the change in FX reserves as an underlying measure of RMB demand.
Of course the huge draw down was widely anticipated and indeed, we've explored and detailed virtually every angle of this story in the lead up to the data. The key takeaway here is that we now have official confirmation that August saw $94 billion in reverse QE (and more likely $115 billion) or, quantitative tightening as Deutsche Bank puts it. 
We can, as we explained on Saturday, argue about what the ultimate effect on safe haven assets will be, but what's not up for debate is that conceptually speaking, China's massive UST dumping is the opposite of Western central bank QE and as such should be expected to pressure yields. More specifically, Citi has suggested that for every $500 billion in EM FX reserve liquidation, there's an attendant 108 bps or so of upward pressure on 10Y yields. Similarly, Deutsche Bank, citing the extant literature, flags 50-60bps of upward pressure on 5Y yields for every $100 billion in monthly EM FX reserve liquidations. 
The takeaway, as we put it last week, is that if the Fed hikes this month, it will be tightening into a tightening.
But it's not that simple. It's also possible that, if China's FX reserve draw downs do indeed end up serving as a trigger for risk-off behavior (i.e. a selloff in risk assets), the subsequent flight to safety could end up driving yields on long bondslower, not higher. We discussed this in detail over the weekend. 
Still, China isn't the only country liquidating its USD assets. When you consider that global EM FX reserves amount to more than $7 trillion, it seems reasonable to ask whether the flight to safety that would invariably accompany a worldwide selloff in risk assets would be sufficient to replace the lost bid from massive reserve draw downs. Or, aswe put it on Saturday, "the real question is what would everyone else do. If the other EMs join China in liquidating the combined $7.5 trillion in FX reserves (i.e., mostly US Trasurys but also those of Europe and Japan) shown below into an illiquid Treasury bond market where central banks already hold 30% or more of all 10 Year equivalents (the BOJ will own 60% by 2018), then it is debatable whether the mere outflow from stocks into bonds will offset the rate carnage."
And that consideration, in turn, puts the Fed in a very, very difficult spot. A rate hike cycle will put further pressure on already beleaguered EM currencies which raises the possibility that the FX reserve liquidation will be larger than the eventual safe haven flows and besides, there's bound to be a lag between the liquidation of USD assets and the flight to safety and given the potential for extraordinary bouts of volatility in UST, JGB, and German Bund markets, it's anyone's guess what happens in between. 
Whatever the case, something will have to give here. That is, all of these dynamics (i.e. a Fed hike, China's massive UST dumping, an EM meltdown precipitating FX reserve drawdowns, illiquid markets for the same assets everyone is dumping, hemorrhaging petrostate budgets, etc.) simply cannot coexist for long without something snapping because, as we put it last week, in this very unstable arrangement, the smallest policy error will reverberate exponentially, and those reverberations can lead to only one thing: the Fed's admission of policy failure by adopting a tightening bias, and ultimately launching another phase of monetary easing, be it QE4 or perhaps even the long-overdue and much anticipated Friedmanesque "helicopter money" episode.

(ZeroHedge) Another Chinese Chemical Plant Explodes, Huge Clouds Of Black Sm

Another Chinese Chemical Plant Explodes, Huge Clouds Of Black Smoke Billow Skyward


If you’re planning on travelling to China, we have two pieces of advice:

  1. Do not look like a short seller
  2. Do not go near any chemical factories
Failing to heed the first tip there could get you thrown in jail (or, as Man Group’s China chief Li Yifei calls it, sent on a "short vacation"). 
The consequences of failing to follow the second piece of advice above could be, how should we put this... explosive. 
With Beijing still scrambling to contain the fallout (both figuratively and literally) from the devastating blast at Tianjin which killed some 160 people and injured more than 700 last month, the country is on edge. Two additional chemical blasts (both in Shandong) did little to calm China’s frayed nerves and now, a fourth blast, this time in Zhejiang, has been reported. Here’s Reuters:
An explosion shook a chemical plant in the Chinese province of Zhejiang, state media said on Monday, though there were no immediate reports of casualties in a country on edge after blasts killed more than 160 people last month.

 

The blast caused a fire and thick smoke to bellow from the plant in Lishui city shortly before midnight, state radio said on its official Weibo microblog.
With Tianjin it was sodium cyanide and with Shandong adiponitrile - looking at the visuals below, we can't help but wonder what's now being disbursed into the air over Zhejiang.
Here are the visuals:

FT : Regulators risk causing unnecessary pain to investment banks

Regulators risk causing unnecessary pain to investment banks

Tough regulations could hit lenders’ profits, spark lay-offs and negatively affect Europe’s economy

European investment banks look increasingly like a dying breed. The financial behemoth that operates globally — as a trading house, issuing equity and debt, and advising on takeovers — is now exclusively a US beast.
A couple of weeks ago, the Financial Times published several stark analyses of the shifting balance of power in global investment banking. It revealed that while eight years ago half a dozen banks generated the bulk of their business in investment banking, today only a couple (Goldman Sachs and Morgan Stanley) still do.

The biggest retrenchments have been European. The shrinkage at Royal Bank of Scotland and UBS has already been dramatic. Barclays has begun to pull back from some regions and products, while Credit Suisse and Deutsche Bank, both of which have new plain speaking chief executives, look set to follow suit.
This, of course, is what regulators and national governments wanted. The financial crisis highlighted both the danger and taxpayer cost of banks being bigger than their host countries, as they were in Switzerland and the UK. New rules and tough talk from politicians have understandably deterred European banks from investment banking. US rivals now command double the market share.
It is fashionable to see this shift as a positive. But the next round of regulations could undermine the banks to such an extent that it risks undermining their corporate customers as well as Europe’s broader economy.
Nowhere is that truer than in the UK, where the likes of Barclays and HSBC face more than three years of structural overhaul to comply with incoming rules on ringfencing — the circuit-breakers that will be inserted between high-street banking and investment banking operations.
HSBC reminded customers of the looming change last week, when it announced the rebrand of its UK high street operations as HSBC UK. The subtlety of the change belies the potential upheaval that ringfencing could entail, particularly for Barclays and HSBC.
Quite how much of a headache it will cause will not be clear until the Prudential Regulation Authority publishes final rules on the topic next month. Will capital be transferable across the ringfence via dividends or other means? Will funding lines between the two be capped as with any counterparty? How high will capital strength ratios have to be for both ringfenced and non-ringfenced entities?

Banks are hoping that the government’s softening position on the City more generally will convince the regulator to be generous in its interpretation of the rules.
A lot is hanging on the decision. If the PRA takes a hard line, banks might have to find fresh capital. And raising finance in the bond markets, crucial for the investment banks trapped in non-ringfenced entities, could become more expensive. (Without recourse to the diversification of earnings or deposits on the other side of the new barrier, the non-ringfenced bit of a big bank is riskier.)
Some credit rating agencies think the impact may be slight. Fitch believes the rating benefit from global requirements to hold new buffers of “total loss absorbing capital”, TLAC in banking jargon, may offset the negative rating impact from UK ringfencing. It points to the minimal ratings impact from Switzerland’s “ringfencing lite” regime.
But rival Standard & Poor’s suggests there could be significant downgrades in the offing. The non-ringfenced part of a big bank may end up with a rating six notches lower than the ringfenced part, S&P says. If so, the gap between UK investment banks and their foreign counterparts would be further magnified. US competitors meanwhile are enjoying upgrades, thanks to the TLAC effect.
But why care, if safer British banks protect British taxpayers from more bank collapses and bailouts?
The truth is, a system can be made to be too safe. So safe that profitability suffers, staff are laid off and tax receipts decline. So safe that the UK and Europe have to rely increasingly on US investment banks in a less competitive, and therefore more expensive, market.
Given the other rules already introduced to make banks safer — more capital, better funding structures and so on — a touch of pragmatism on the superfluous exercise of ringfencing would surely be wise. Extra constraints on some of Europe’s biggest homegrown banks could inflict unnecessary pain on the continent’s fragile economy.

(WWD) Les Echos’ Francis Morel Talks Deals, French Media and More

Les Echos’ Francis Morel Talks Deals, French Media and More

PARIS — Francis Morel is an out-of-the-box thinker. The 67-year-old, who serves as chief executive officer of Les Echos Group, earlier this year spearheaded an unconventional media deal in France for his parent company, LVMH Moët Hennessy Louis Vuitton.

LVMH said in May that it had acquired daily newspaper Le Parisien and its national counterpart, Aujourd’hui en France, from the French family-owned Groupe Amaury. The transaction, the terms of which were not disclosed, is expected to close in November.

At first glance, the mainstream tabloid Le Parisien’s culture seems to be worlds apart from the luxury universe of the LVMH brands, which include Dom Pérignon, Ruinart and Veuve Clicquot Champagne; Dior; Louis Vuitton and Berluti. The popular television show “Le Petit Journal,” the French equivalent of “The Daily Show with Jon Stewart,” played on the atypical juxtaposition in a skit showing fountains of pricey Ruinart bubbly replacing a cheap kettle at Le Parisien’s office.

As LVMH expands its empire to include other titles (Le Parisien and Aujourd’hui en France will be under Les Echos Group’s aegis), Morel is the media man of the moment.

LVMH purchased Les Echos in 2007 from the U.K.’s Pearson (which recently disposed of its other media holdings, The Financial Times and The Economist), and Morel was tapped in 2011 to lead it. He came from for Socpresse, owner of Le Figaro, where he was ceo for seven years. Les Echos Group also owns the financial weekly Investir, radio station Radio Classique and arts magazine Connaissance des Arts.

The French media landscape has been busy of late. In addition to LVMH’s deal, in late July billionaire Patrick Drahi teamed up with media entrepreneur Alain Weill to bid for NextRadioTV, a group that owns one of the country’s biggest news channels. Drahi’s media assets already include France’s Libération and L’Express.

The triumvirate involving Pierre Bergé, Xavier Niel and Matthieu Pigasse last year added French newsweekly Le Nouvel Observateur, which was renamed L’Obs, to their burgeoning media portfolio that already included Le Monde, the French Huffington Post and Télérama. Pigasse is the owner of Les Éditions Indépendantes, publisher of Les Inrockuptibles magazine and its Web site, and recently bought Radio Nova.

Meanwhile, French group Vivendi, the owner of Canal Plus, acquired an 80 percent stake in late June in the online video site Dailymotion, the French equivalent of YouTube.

WWD caught up with Morel in his office, a stone’s throw from Palais de la Bourse, in a Haussmannian building that served as Crédit Lyonnais’ former headquarters. Morel wore a tie, as is his tradition, and spoke about the purchase of Le Parisien, a new weekend magazine, and Swedish crime novels.

WWD: Some people think putting Les Echos and Le Parisien in the same group is like mixing oil and water. What are your thoughts?

Francis Morel: There’s no denying that the two brands editorially have nothing in common, but they are stronger together.

WWD: What is Les Echos Group’s bread and butter?

F.M.: Our main business is the financial daily Les Echos, whose paid circulation in France was 125,172 in 2014. We are the only French daily that grew in 2014, growing for the fourth year in a row, in the 2 percent range. In 2014, we logged the best circulation in the last 10 years. It shows that [the increases are] not a coup, but a long-term trend.

WWD: What are the growth drivers?

F.M.: It comes first of all from the quality of the editorial content and secondly from our digital development. Our digital growth has been 30 to 40 percent in the last three years. It more than makes up for the decrease in print [sales]. Today, digital subscribers represent 25 percent of our readership and it’s 80 percent if we add to the mix subscribers who [sign up] to both print and digital.

WWD: You are launching a new weekly magazine, which you consider to be a recruitment vehicle for new readers. How so?

F.M.: Monthly frequency is complicated for a supplement, so we struck our monthly business magazine Enjeux Les Echos and lifestyle weekend insert and replaced them with a freestanding weekly. The first issue comes out on Oct. 2. We are convinced we can attract new readers by offering a print subscription for the weekend only that comes with a digital subscription. We are also attracting a new type of advertiser because we are out of the daily paper [race].

WWD: The New York Times has T magazine; Le Monde, M, and L’Obs, O. Will you name your magazine E?

F.M.: No. [He laughed.] It will be Les Echos Week-end. Its cover has a white background [and] is different from M magazine and Figaro Magazine. We’ll never do a story on the François Hollande-Nicolas Sarkozy game. That isn’t for us. The magazine opens with an eight-page business story. We added to staff, hired a certain number of editorialists. Bénédicte Epinay will continue to oversee the lifestyle content. Fashion will play a large part. Fashion coverage will be different, simpler, less sophisticated than the one in Série Limitée, our high-end magazine. Série Limitée, which is the French answer to [The Financial Times’] How To Spend It, continues to exist. We have ideas to make it even more luxury-oriented. That’s set for early 2016.

WWD: What should fashion coverage consist of in a financial publication?

F.M.: For the weekly magazine, it’s all about stories, and for the daily it consists of covering the business of fashion. It’s a fascinating industry, with giants that dominate the market.

WWD: How do you see the recent acquisition of the FT Group by Japanese media corporation Nikkei Inc. from Pearson PLC for $1.32 billion? The amount is quite impressive.

F.M.: It is. It proves that newspaper brands are equities that are extremely valuable, even more so in the digital world. The Financial Times has remarkably achieved its digitalization. In the digital landscape where there’s an explosion of brands, credible brands are even more powerful. It’s what makes the FT worth $1.32 billion.

WWD: On the French market, on the other hand, newsweekly Le Nouvel Obs was sold last year for only 13.4 million euros [or $14.9 million at current exchange].

F.M.: That transaction doesn’t reflect the market. It wasn’t sold at market price. Bravo to those [Pierre Bergé, Xavier Niel and Matthieu Pigasse] who acquired it under such conditions. But that price is nonsense. What I see is the consolidation happening in the media sphere, in the U.S., in France. Isolated media cannot survive. You need two things — a strong brand and to be part of a group. So we need to continue to build our brands and support them with groups.

WWD: There is a wave of acquisitions on the French media landscape. Will Les Echos make more acquisitions?

F.M.: Le Monde group’s or Le Figaro’s [sales] are around 400 millions euros [$445 million at current exchange]. We will be around 400 [million euros], [so] we play in the same league. What the future will hold, we’ll see. What is fascinating is the speed of transformation happening in the digital sphere.

WWD: What is specific to the French media market?

F.M.: I am not sure there are specificities. What we see everywhere is: One, the digitalization of our brands, and two, the diversification. There are always activities to develop to complement the main business of media. We launched Les Echos Solutions in June with services ranging from crowdfunding to market studies and incubators for start-up companies. We are developing a publishing arm for companies with a separate staff. Services will represent one-third of the group sales in 2016. Down the road, they could be up to 45 percent of Les Echos’ business. We define ourselves as “the first media outlet for information and services,” which makes us stand out. On the services front, I think we are at the forefront.

WWD: What’s your paywall strategy?

F.M.: We were the first to erect a paywall in France. It was a very good decision that has allowed us to have digital subscribers. Now, readers have access to five free stories, plus three additional free ones when they sign up. We are constantly looking at evolving [the model].

WWD: In which direction?

F.M.: To have readers hit it sooner. I think as long as it works, we can aim at a smaller number of free stories.

WWD: What’s your digital strategy for Le Parisien?

F.M.: I don’t know. I am not there yet. Readership is extremely different, and Les Echos’ recipes for success probably don’t work for Le Parisien.

WWD: How do you work with your parent company LVMH?

F.M.: I present them with our projects, strategic plan and budget. It is a simple and direct relationship that is effective. In fact, each time we have been willing to make new developments, LVHM has supported us. The Parisien deal proves it.

WWD: It’s unusual for an industrial group to own a media outlet.

F.M.: If the shareholder plays its part, which is to allow its development, it doesn’t matter if the shareholder is a media or an industrial group, as long as the media keeps its editorial line. Les Echos group was severely hit by the 2008 crisis. LVMH kept supporting it through the shaky times through to our latest developments.

WWD: What’s your daily routine when it comes to newspapers?

F.M.: I read Les Echos, Le Figaro, Le Monde and Le Parisien. Now, I would put Le Parisien in second, or I’ll get slapped on my wrist. [He laughed.] I read Vanity Fair, both the American and French versions. I have been a reader of the American Vanity Fair for years. It’s a remarkable magazine. The feature on Caitlyn Jenner [in the July issue] was remarkable because of the human aspect.

WWD: Is language a limitation for French media?

F.M.: Circulation of the FT in the U.K. is about the same as Les Echos in France. But the FT circulation in its domestic market is very small compared to its global circulation. Our market is more limited. The New York Times, The Wall Street Journal and the Financial Times are the three global newspapers.

WWD: Let’s end our interview with an “Oprah’s Book Club” question: What were your summer reads?

F.M.: I like crime novels. I bought “Daisy Sisters” by Henning Mankell, a Swedish crime writer. The novel is set in the Forties. I had read his book “Italian Shoes,” which I strongly recommend [about] a man who lives on an island in Sweden. A young woman arrives and tells him she is his daughter and her mother is dying. That’s the pitch. Also, I keep buying “Réparer les vivants” by French author Maylis de Kerangal [to be released in February by Farrar, Straus and Giroux in English as “The Heart,” translated by Sam Taylor]. It’s about a young surfer who dies, and everyone is debating what to do with the organs; I keep buying it as gifts.

(WWD) U.S. Textile Sector Reindustrializes

U.S. Textile Sector Reindustrializes

Bruce Springsteen wrote, “They’re closing down the textile mill across the railroad tracks. Foreman says these jobs are going boys and they ain’t coming back.”

It seems The Boss was wrong.

What began as an unlikely topic of conversation a few years ago — a revival of the U.S. textile industry — in the fallout of the Great Recession has become a dynamic industrial movement.

A recent survey of major American fashion and retail companies by the U.S. Fashion Industry Association indicated the continued rise of domestic sourcing. The U.S. ranked fifth among the respondents’ sourcing destinations, with 53 percent sourcing from home. Nearly 39 percent of the respondents said they plan to increase sourcing by value or volume in the U.S. in the next two years and 80 percent of the companies said they already source in America.

The resurgence of domestic production stems from a variety of factors, including rising wages in China and the sharp decline in fuel prices in the U.S. Though this advantage might not last as long as hoped, with oil prices rebounding and China taking steps to devalue its currency.

“A lot also has to do with the cost of labor and electricity,” said Rick Helfenbein, president of Luen Thai USA and chairman of the American Apparel & Footwear Association.

A report, “Recovery of the U.S. Textile Industry,” said last year the cost of power per kilogram of yarn in the U.S. was 16 cents, equivalent to 5 percent of costs, while in China it stood at 42 cents, or 9 percent, and in India it was 29 cents, or 8 percent.

Helfenbein also noted that the domestic textile sector has benefited from exports to North American and Central American Free Trade Agreement countries. U.S. exports of textiles and apparel increased 3 percent in 2014 to $592 million, with 75 percent coming from fabrics, fibers and yarns, according to the U.S. International Trade Commission.

Nearly two-thirds of U.S. textile exports during 2014 went to Western Hemisphere free trade partners, according to the National Council of Textile Organizations. The U.S. textile industry exported to 199 countries, with 25 countries buying $100 million or more a year. Yarn spinning and knitting have been at the heart of the comeback, as those companies have been able to more fully automate their factories compared to makers of woven fabrics and the labor-intensive cut-and-sew industry. Concentrated in the Los Angeles area, and the Carolinas and Georgia, these mills have been building and investing in their businesses in the last few years with a focus on the quick-turn, quality and flexibility they offer.

Andy Long, vice president of sales and marketing at Tuscarora Yarns in Mount Pleasant, N.C., said, “We’re working with companies that aren’t treating this as a test anymore, but are interested in pursuing programs and want what we bring to the market, which is quality yarns, competitive pricing and fast turns on production.”

David Sasso, vice president of international sales at Buhler Quality Yarns in Jefferson, Ga., said the key factor driving the revival of U.S. manufacturing is “speed — the ‘I want it now’ retail and consumer attitude.”

Asher Fabric Concepts, a Los Angeles-based knitter for the contemporary, activewear and yoga markets, has seen its business grow to the point where it has opened a New York showroom for the first time. Jolie Fierro, vice president of sales, said the firm has received healthy business from active brands and “a lot of start-ups in New York” attracted to its flexibility and speed of production.

Jim Andriola, sales manager for Texollini, said the company has also seen action from new firms coming into the local market. Andriola said, “I have three companies that I’m working with — one in New York and one each in Boston and Philadelphia.”

Helfenbein said, “Those companies that are able to survive and compete today are doing so because of speed to market and flexibility, and carving out a niche industry. We’re able to spin very efficiently in this country.”

A report last month from the International Textile Manufacturers Federation said U.S. yarn production grew 4.4 percent in the first quarter of 2015 compared to the year-ago period and ITMF analysts expect the positive trend to continue. Brian Mandt, ITMF senior economist, said reshoring to the U.S. to supplement offshore production to meet demand for “quick turnaround items for fashion” has played a key role in the recovery.

In the “Recovery” study, Mandt noted that in May, employment in U.S. textile mills rose to 119,400, the highest level since September 2011. Capacity utilization rates for mills reached 82.3 percent, and in the first quarter, income after tax in textile mills rose 43 percent year-on-year, the 11th straight quarterly increase.

The number of spinning machines shipped to the U.S. has climbed significantly over the last few years. In 2014, short-staple spindles shipped totaled 26,832, up from 13,056 the year before, and shipments of open-end rotors surged to 60,632 units, sharply up from 11,196 shipped in 2013.

Gildan Activewear is in the midst of a $250 million investment to build two new yarn-spinning facilities in North Carolina, each about 500,000 square feet. The venture is slated to create about 500 jobs.

In the last two years, textile companies from India, Mexico, Canada and China have unveiled new investment plans in the U.S. of more than $700 million, creating some 2,000 jobs in the Carolinas, Georgia and Louisiana.

In March, Peds Legwear opened a $16 million facility in Hildebran, N.C., at a former bankrupt hosiery mill. The company said the investment could create more than 200 jobs in the state.

The Montreal-based sock and legwear manufacturer reshored production with the re-engineering and reopening of the facility and has plans to expand by investing an additional $8 million, bringing the firm’s U.S. investment to $24 million.

Unifi Inc. broke ground in July on an 85,000-square-foot addition to its Repreve Recycling Center in Yadkinville, N.C. The expansion of the facility will increase capacity to produce Unifi’s Repreve recycled fiber brand and other premier value-added products by up to 60 million pounds annually. The $10 million investment will create an estimated 18 to 20 new jobs in Yadkin County.

“We continue to estimate annual growth in the NAFTA and CAFTA regions of approximately 5 percent,” Roger Berrier, Unifi’s president and chief operating officer, said on a conference call with analysts. “We anticipate that the growth in brands and retailers that are choosing to source their products in the Western Hemisphere will continue into the foreseeable future and we remain very confident and committed to the region and the importance that it has to our overall business.”

>>> Tesco could launch sale of central European operations within a month - repo

Tesco could launch sale of central European operations within a month 

Tesco, the British-based retailer, could launch the sale of its central European operations within a month, Trend reported.

The Slovak-language item cited unnamed sources and said Tesco’s business in Slovakia, the Czech Republic, Poland and Hungary would be put up for sale jointly.

The sale of individual operations could happen in the event that they could not be sold as a whole, it added.

Tesco's central regional operations had total pre-tax profit of around EUR 350m, according to Trend’s estimates.

Trend