WSJ : Will Lamborghini Fans Accept a SUV?

Will Lamborghini Fans Accept a SUV?
Maker of handcrafted sports cars is shifting gears to build ultimate soccer mom’s car

SANT’AGATA BOLOGNESE, Italy—Italian super-sports car maker Lamborghini is about to test the allegiance of drivers and fans with radical changes to its product line and production methods.

Automobili Lamborghini, which since 1998 has been owned by the Audi unit of Volkswagen AG, currently makes just two sports cars: the Aventador, starting at $404,195, and the Huracan, at $241,945. With its next model, the iconic brand is attempting the delicate maneuver of broadening its market while maintaining a cachet and price tag few others in the industry can match.

Its new model will be a superluxury sport-utility vehicle. Code-named “Urus” and slated for sale in 2018, it could potentially double the company’s annual output to more than 5,000 vehicles.

Lamborghini, which is famous for making limited-edition versions that customers compete to own, recently broke ground on a factory for the Urus and is preparing to hire 500 employees to build the new SUV. But artisanal car-making is expensive in Italy, so for the economics to work, management is tapping the Volkswagen group for much of the vehicle’s basic structure. That means it will be the first Lamborghini that is substantially not Lamborghini.

“This will radically change Lamborghini,” Chief Executive Stephan Winkelmann said in an interview at the auto maker’s headquarters.

Mr. Winkelmann, a 50-year-old native of Berlin who grew up in Rome and speaks English with an Italian accent, said a car giant like Volkswagen, with its multitude of models, can easily add one more design. But for Lamborghini, going from two models to three poses big risks.

“This is a major effort and you have to have a rock-solid business case and a clear idea of how to digest this,” he said.


Part of that is managing customer reactions. Mr. Winkelmann knows the shift could upset many Lamborghini lovers, who value the car’s exclusivity. Every single Lamborghini has been crafted by hand amid postcard-beautiful fields of grain. They are still tested on oak-lined country lanes in the area—sleek bursts of color screaming past farm vehicles and unhurried locals.

To satisfy purists, the Urus will be built at the company’s home base near Bologna, where one-time tractor maker Ferruccio Lamborghini in 1963 dramatically shifted products.

The changes attending the Urus follow years of gradual acceleration for the business under Audi ownership. Since 1998, Lamborghini has boosted production more than eightfold, to 2,530 cars last year. In the past five years it has more than doubled its workforce, to roughly 1,200 employees, and recently completed a €400 million ($437 million) factory in Sant’Agata

Lamborghini’s customers traditionally were an elite club of extremely wealthy men, mostly in Europe and the U.S. With the rise of China and other emerging economies, the market for ultra-high-end products ballooned.

Now, Lamborghini and rivals are betting that the wave of global luxury consumers is about to merge with another global trend: the shift away from sedans and hatchbacks to sport-utility vehicles.

Global SUV sales across all segments totaled 12.3 million vehicles last year, nearly double sales in 2010, according to JATO Dynamics Ltd., an automotive researcher. Its analysts say the U.S. and China now account for three of every four SUVs sold globally and that world-wide growth in the segment remains solid except in France, Russia and Turkey, which show signs of weakening.

Mr. Winkelmann and his bosses show confidence in the Urus partly because Volkswagen group pioneered high-end SUVs, first with Audi and then more extravagantly with Porsche, which is also owned by Volkswagen. Now Volkswagen’s Bentley unit in England is preparing next year to roll out the first hyper-luxury SUV, the Bentyaga.

Bentley CEO Wolfgang Dürheimer understands skepticism about the new concept because he faced it at Porsche in spearheading the Cayenne SUV, which made its debut in 2002.

“When we proposed this at Porsche, no one thought it could be done,” he said in an interview. Mr. Durheimer expects Bentley will repeat Porsche’s success. “Our wealthy customers who want an SUV for skiing trips to Aspen will buy a Bentley.”

Porsche last year sold more than 100,000 of its Cayenne and smaller Macan SUVs. Porsche and Audi share the premium SUV market with BMW AG, Daimler AG’s Mercedes-Benz, Jaguar Land Rover Ltd. and car makers in the U.S. and Japan.

Prices for the overpowered vehicles haven’t been announced. Mr. Winkelmann said it is premature to set a price for the Urus but expects it to be in the range of the Huracan.

While likely to be eye-popping, the lofty numbers mask a paradox of luxury SUVs: They are generally less profitable for manufacturers than their sibling top-end sedans and sports cars, due to a mix of high production costs, low volumes and pricing dynamics.

Producers of more mass-market models, including Porsche, offset that by spreading costs across greater volumes.

But volume isn’t an option for ultraluxury brands, which bank on exclusivity. Lamborghini expects the Urus to double the company’s total vehicle sales. But that still means producing fewer than 3,000 SUVs annually. Bentley expects to sell about 4,000 Bentyagas.

Lamborghini aims to lower its costs by using the same automotive platform on which Volkswagen group builds all its premium SUVs, including the Bentyaga, Porsche’s Cayenne, Audi’s Q7 and planned Q8 and even Volkswagen’s Touareq. The approach is part of Volkswagen group’s effort to leverage its modular manufacturing system to achieve scale even with low-volume models.

Many Urus parts will be manufactured at Volkswagen and Audi plants in Germany and Slovakia and shipped to Sant’Agata for assembly.

Acknowledging the risk of diluting the brand, Mr. Winkelmann said integration is the only way he could afford to build an SUV and contends the Urus will still be uniquely Lamborghini.

“There is no surviving for a brand like ours if you don’t maintain the DNA, but this is only possible if you have a group that allows you to make synergies and scale,” he said. “Otherwise, if you have to go it alone,” he said, ”you would have to go in big volumes,” which would cheapen the brand.

It took Mr. Winkelmann more than a year to win approval from Audi and Volkswagen to build the SUV at Lamborghini headquarters. Sant’Agata competed against bids from other Volkswagen group plants that promised lower costs. Mr. Winkelmann won out with favorable terms from Italian unions and subsidies from the Italian government.

“Let’s try to learn from Lamborghini,” said Gian Luca Galletti, Italy’s environment minister, at the recent opening in Sant’Agata of Lamborghini’s new energy-efficient factory. “This shows that it is possible to attract investment to Italy.”

Mr. Winkelmann said Lamborghini is considering building its first electric vehicle, a later plug-in version of the SUV.

NY Post ; Employee stock ownership plans back in spotlight as big player exits

Politicians promising to close the gap between the haves and the have-nots might want to think about Alion before championing employee stock ownership plans, or ESOPs.
The plans, which have been around for decades as a way to spread corporate riches among workers, are back in the news as Hillary Clinton, Bernie Sanders and other populists look to tackle income inequality.
But while ESOPs are in the spotlight again, one of its biggest stars — Alion Science and Technology — has just quietly exited. The McLean, Va.-based engineering firm has agreed to sell itself to buyout shop Veritas Capital.
As part of the deal, Alion’s ESOP, with more than 7,000 participants, will be converted to a 401k, according to a source.
Alion opted for a buyout because it is saddled with upwards of $500 million in debt and is in danger of collapsing.
One problem with ESOPs is that companies often take on debt to fund employee ownership. To convert to an ESOP, the company buys the shares and distributes them to employees.
Before their latest resurgence, ESOPs had been widely criticized for rarely achieving harmony between worker welfare and corporate interests. Some of the biggest ESOPs, including United Airlines, Enron and Tribune Co., collapsed, giving the plans a bad name.
Despite their shortcomings, ESOPs are staging a small comeback, mostly among smaller companies.
There are roughly 7,000 ESOPs, with most companies employing fewer than 500 workers, according to ESOP Association President M

FT : Clintons earned $140m over past 8 years

Hillary Clinton, the Democratic frontrunner for US president, revealed that she and her husband earned more than $140m over the past eight years, as her campaign released a vast treasure trove of documents aimed at rebutting suggestions she has not been fully transparent about her finances.
Both Mrs Clinton and her husband, former president Bill Clinton, carved out lucrative careers after he left the White House in 2001, mostly though book deals, paid speeches and a variety of other business ventures.

After serving as a senator and secretary of state under President Barack Obama, Mrs Clinton commanded a speaking fee as high as $400,000, the documents show.
Mr Clinton’s fee ranged as high as $750,000 per speech, and he also earned millions annually in recent years from his role at for-profit college system Laureate Education and education company GEMS.
The detailed breakdown of the couple’s wealth — they earned more than $28m in 2014 alone — is likely to be used by Mrs Clinton’s rivals in both her own party and among a crowded field of Republican challengers. Though it is also possible the presence of other wealthy candidates in the race, such as billionaire Donald Trump and former Florida governor Jeb Bush, whose own tax returns showed he made more than $7m in 2013, will neutralise that line of attack.
She has been criticised for saying last year that she and her husband were “dead broke” after his presidency, and her campaign was keen to stress that the couple has paid nearly $58m in state and federal taxes between 2007 and 2014.
“We’ve come a long way from my days going door-to-door for the Children’s Defense Fund and earning $16,450 as a young law professor in Arkansas — and we owe it to the opportunities America provides,” she said.
Her campaign’s release on Friday of eight years of tax returns and the couple’s 2013 speaking fees came on the same day that the state department released thousands more pages of Mrs Clinton’s emails, amid an ongoing controversy over her use of a private server and email account during her tenure as secretary of state.
Mrs Clinton also released a statement from her personal physician declaring that “she is in excellent physical condition and fit to serve as president of the United States”. A 2012 health scare, when she was treated for a bloodclot between her brain and her skull following a concussion, has been resolved, the statement said.


While still the clear frontrunner for her party’s nomination, Mrs Clinton has struggled to build momentum behind her campaign amid the email controversy and a series of articles questioning the propriety of donations to the Clinton’s charitable foundation while she served as secretary of state.
Polls have consistently showed that voters question her trustworthiness, and that her favourability rating has dipped significantly nationally as well as in some states that will be key to her campaign.
Her team sought to get back on the front foot with Friday’s document dump, casting her as a champion of tax reform who will close down loopholes that are exploited by the wealthy.
Mrs Clinton said she and her husband paid a combined federal, state, and local effective tax rate of 45.8 per cent in 2014, and contributed just over 10 per cent of their income to charity. She has now released 38 years of tax returns in total, dating back to 1977.
“I want more Americans to have the chance to work hard and get ahead, just like we did. And reforming the tax code can help,” she said in a statement.
But the disclosure that Mrs Clinton and her husband were earning as much as $650,000 in speaking fees from companies such as Goldman Sachs as recently as 2013 may rattle sections of the Democratic base, particularly a progressive wing that has rallied behind the candidacy of self-proclaimed socialist Bernie Sanders in recent months.
Mitt Romney, the Republican presidential nominee in 2012, was effectively typecast by Mr Obama as an out-of-touch private equity mogul, a characterisation the Clinton campaign is eager to avoid in what is shaping up as a tougher battle for the nomination than many expected.

FT : Oil price collapse hammers big US energy groups

Shares in some of the world’s biggest energy groups tumbled on Friday as the collapse in oil prices battered the profits of ExxonMobil and Chevron, capping a week in which European rivals announced thousands of job losses and slashed spending by billions of dollars.
As Exxon, the US giant seen as best insulated from the crude price crash, reported its worst quarterly profits since 2009, its main US competitor Chevron suffered a huge $2.2bn loss in exploration and production in the three months to June 30.

For the first time, the biggest and strongest industry operators are feeling the full effect of a plunge in Brent crude since last summer that has led to an estimated 70,000 job losses worldwide and caused some $200bn of spending on major new oil and gas projects to be shelved.
The slide in the oil price, which began around this time last year, accelerated in November when Opec, the producers’ cartel, decided not to cut output in the face of a US supply glut.
After a brief recovery this spring, the oil price decline resumed in July, with Brent crude, the international oil benchmark, posting its biggest monthly fall since December. It now stands at $52.08 a barrel, down from $115 in June last year.
Analysts say the renewed decline was triggered by the surprising resilience of US shale output in the face of lower prices, as well as the nuclear deal with Iran which has raised the prospect of more barrels hitting an oversupplied market.
The US oil benchmark West Texas Intermediate fell by a fifth over July to approach $47 a barrel, its worst monthly decline since Lehman Brothers collapsed.
Saudi Arabia, which effectively leads Opec, is widely believed to be attempting to squeeze out higher-cost production in a battle for market share. Iain Conn, chief executive of Centrica, Britain’s biggest domestic energy supplier, told the Financial Times that he believed prices were likely to stay within a $45 to $70 range.
Rex Tillerson, Exxon’s chief executive, blamed the sharp fall in crude for a 52 per cent year-on-year slide in its second-quarter earnings to $4.2bn and a net loss in its US upstream business, with a robust refining result only partially offsetting the effects of oil’s collapse on revenues.

“Our quarterly results reflect the disparate impacts of the current commodity price environment, but also demonstrate the strength of our sound operations,” Mr Tillerson said.
Chevron’s profits plummeted 90 per cent, hitting their lowest level in more than a decade, as the oil major also suffered the effects of weaker crude. It took impairments of nearly $2bn and other charges of about $670m relating to projects it had suspended.
Shares in the companies fell on Friday, with Exxon and Chevron closing down 4.5 per cent and 5.1 per cent, respectively. ConocoPhillips sank 3.3 per cent.
Royal Dutch Shell and Centrica this week announced that they were shedding more than 12,000 jobs between them. Shell cut capital spending 20 per cent, with its chief Ben van Beurden warning of a “prolonged downturn” ahead.
ExxonMobil earnings fall 52%

Plunge comes despite increased production and improved results in its downstream operations.
Continue reading
Oil companies and traders are now bracing themselves for several years of low prices. WTI for delivery in five years’ time has slipped to less than $60 a barrel, below the level that long-dated contracts dropped to in early 2009, at the height of the global financial crisis.
The rout in oil extended across commodity markets in July, with a key natural resources index posting its largest monthly fall in seven years.
Copper ended the month down 9 per cent, its second biggest monthly drop since 2012. Aluminium hit a new year six-year low of $1,624.5 a tonne on Friday, and was down 5 per cent for the month. Iron ore, the key ingredient in steelmaking, lost 10 per cent.

>>> There's a secret Uber VIP program — here's how you become a part of it

There's a secret Uber VIP program — here's how you become a part of it

There's a little-known perk that regular Uber customers can unlock.

Once you take 100 rides, you become an "Uber VIP."

What are the perks of being a VIP customer?

When you open your app, you see a VIP option along with UberX, UberBlack, and the other Uber features available in your city. When you select it, you'll only be given drivers with 4.8-star ratings and "high quality cars."

Uber VIP isn't an option that's available everywhere — it's only available in certain geographies like New York City, Washington DC, and Denver. It's market-specific nature may be why the company doesn't advertise it like its other features.

A VIP trip costs the same as a normal UberBlack ride. Unfortunately, Uber says, there are fewer VIP cars on the road — presumably because the quality is higher, and you're getting only the top-tier drivers — so you may be stuck waiting a bit longer for your car.

Aside from better service, there doesn't seem to be much upside to Uber VIP. It's a loyalty program for its customers that might remind you of Uber's earliest days as a company, when the service was marketed as a way for people to feel like "ballers" when they needed a lift.

>>> Snoop Dogg was stopped by Italian customs for carrying 40 times the legal li

Snoop Dogg was stopped by Italian customs for carrying 40 times the legal limit in cash

MILAN (AP) — Snoop Dogg has had another run-in with European authorities.

Italian financial police said they stopped the rapper at the Lamezia Terme airport in Calabria on Saturday with $422,000 in cash, well above the limit that can legally be transported across EU borders undeclared.

The incident comes less than a week after Snoop Dogg was briefly stopped in Sweden on suspicion of drug use after a concert near Stockholm.

Financial police confirmed a report by the Italian news agency ANSA that half of the cash was impounded under Italian anti-money laundering codes. In such cases, the balance is returned minus any fine set by magistrates.

Travelers within the European Union are required to declare 10,000 euros ($11,000) or more in cash.

Snoop Dogg played in Calabria Friday night, and is scheduled to perform Sunday at the Kendal Calling Festival in England.

Last weekend in Sweden, the rapper was questioned and tested for suspected drug use north of the capital. Authorities said test results would not be available for some time.

(Barron's) - Emerging Market - Greek Relief Is Already Over

Greek Relief Is Already Over
The country already faces a big debt payment in August, and more political fights. Exit from the euro is still a possibility. Plus, more Brazilian trouble.

Emerging Markets

Just when Greece was falling out of the headlines and seemed ready to entertain on its beautiful beaches, risk seems to be rising again.

It’s not clear that Greece’s current austerity plan will provide the groundwork for negotiations on a third bailout of Greek sovereign debt. The next big date is Aug. 20, when Greece is supposed to pay the European Central Bank 3.2 billion euros ($3.5 billion). At the same time European parliaments must tackle loan parameters as the ECB plans to assess Greek banks.

But red flags already are starting to appear: The International Monetary Fund may not open its wallet until European governments offer some form of Greek debt relief. And domestic politics are getting ugly fast as Prime Minister Alexis Tsipras butts heads with fellow Syriza party members. Yet this is precisely when Greece needs to build consumer and investor confidence to boost its economy. The Athens stock market reopens Monday, and the summer isn’t over for the important tourism industry, which accounted for about 20% of Greek jobs last year.

Investors are vacationing elsewhere: The Global X FTSE Greece 20 exchange-traded fund (ticker: GREK) fell roughly 4% in July, and remains down roughly 28% this year. With capital controls and other messes, National Bank of Greece (NBG) shares traded in the U.S. fell 15% in July and are down 50% this year. While the Greek ETF outpaced its emerging markets counterpart in July, it still trails for the year. The iShares MSCI Emerging Markets ETF (EEM), was down roughly 6% in July and year to date.

In the cynic camp is Citi Research, which now sees Grexit as a “base case” global risk along with a slowing China and a Federal Reserve rate hike in the second half of the year. Grexit would damage the credibility of the “euro project” and could force changes in valuation to compensate for higher risks.

But there are reasons to be optimistic. In the worst case, an imminent Grexit could postpone the Fed’s rate hike, and markets would like that. And Grexit is still viewed by many as a low risk. For now, the ECB has stepped in with more emergency liquidity for Greek banks and there are multiple ways for creditors to achieve debt relief, says BlackRock’s Gerardo Rodriguez, who co-manages the BlackRock Emerging Market Allocation fund (BEEAX).

Bottom line: Even if Greece accounts for less than 1% of the market capitalization of the MSCI Emerging Market Index, it matters.

Rodriguez owns a tiny piece of the Greek market in his fund, which employs quantitative tools to allocate to countries and sectors in emerging market stocks and bonds. But he’s more interested in bottom fishing in fragile neighbor, Turkey, and in Brazil. The iShares country funds in Turkey and Brazil fell about 5% and 13%, respectively, in July.

LAST WEEK STANDARD & POOR’S lowered its outlook on Brazil to negative. The move followed the government’s dramatic cut in its target for the primary budget surplus, a key measure of its ability to pay debts. Then Brazil’s central bank hiked its key policy rate by half a percentage point to 14.25% to tamp down inflation. Rates may stay high through 2016. To add insult: An Associated Press investigation showed Brazil’s water pollution is so bad it poses a threat to next year’s Olympic swimmers.

WSJ : Fed’s Bullard: ‘In Good Shape’ to Raise Rates in September

Fed’s Bullard: ‘In Good Shape’ to Raise Rates in September
St. Louis Fed president says GDP data cleared away worries over outlook

NEW YORK--Federal Reserve Bank of St. Louis President James Bullard said Friday economic data seen since central bankers gathered this week are bolstering the case for raising short-term rates when officials meet in September.

“We are in good shape” for increasing the Fed’s currently near-zero short-term rate target at the Sept. 16-17 central bank gathering, Mr. Bullard said in an interview with The Wall Street Journal. He said officials needed to see how growth data released Thursday shaped up before clearing the way to act.

Mr. Bullard shrugged off a report Friday showing surprising tepid wage gains, saying he isn’t that worried about that situation right now.

The second-quarter gross domestic product data, which showed a 2.3% annualized rise and a revision to activity over the first three months of the year into positive territory from the previously reported decline, affirms the economy is essentially ready to handle a modest boost in borrowing costs, he said.

The negative first quarter was a “pretty serious” issue for the Fed and a clear reason to hold off on rate rises, Mr. Bullard explained. “We had to get that behind us before we could get to the first rate rise. It is behind us and the outlook remains fairly good for the economy.”

Mr. Bullard was the first central bank official to speak publicly since the U.S. central bank’s rate-setting Federal Open Market Committee gathered to deliberate on monetary policy Tuesday and Wednesday.

At the meeting, Fed officials acknowledged having made further progress toward meeting their employment goals—at 5.3% the unemployment rate is close to the top end of the range officials consider the nation’s long-run joblessness trend. But central bankers also noted current inflation remains below their 2% target, amid expectations of a gradual rise back to desired price pressure levels.

The outcome of the Fed’s meeting continued to prepare the way for a rate rise most officials have already said is likely this year. Over the summer a number of officials have pointed to the Fed’s next meeting in September as a likely time to take the first step in pushing short-term rates back to more historically normal levels. Mr. Bullard stressed all Fed actions would be driven by incoming data, but even so, he indicated he is very open to action next time officials meet.

“We are good position to make the first normalization move,” Mr. Bullard said. “My sense is that a 25 basis-point move would essentially be a nonevent in financial markets,” he said, referring to the likely 0.25% increase the first move is expected to be.

Mr. Bullard doesn't currently vote on the FOMC, but he is an influential voice on monetary policy matters. In recent comments ahead of the interview, he had expressed support for raising rates this year and had nodded toward September. He said he would have voted for Wednesday’s holding action. “I would have supported the committee’s decision to wait and get more data and make a decision at the September meeting.”

Complicating the Fed outlook was a report Friday that showed evidence of a much-desired pickup in wage growth may be a mirage. During the second quarter, U.S. labor costs rose by their slowest pace in three decades, gaining a mere 0.2% against an expected rise of 0.6%.

“I though the GDP data was confirmation” of the healthy outlook that lies ahead of the U.S., Mr. Bullard said. “I’m not going to put as much weight on the wage data,” which on a longer-run trend basis is pretty much where he expected it would be given inflation and productivity factors, he said.

Mr. Bullard also said he remains confident inflation will start pushing back to the Fed’s 2% target as the impact of weak oil prices and the strong dollar fades. He is confident inflation will be back to desired levels in 2016.

WSJ : As Fed Rate Rise Nears, Traders Obsess Over Data

As Fed Rate Rise Nears, Traders Obsess Over Data
Dollar and government bonds swing on latest economic data suggesting Fed may hold on rates

In the race to predict the timing of the Federal Reserve’s anticipated interest-rate rise, traders are digging ever deeper into the slew of economic data points released each day.

On Friday, it was the turn of an often-overlooked report on wage growth to hit center stage. The Labor Department on Friday released data showing wage growth in the second quarter was the lowest since records began in 1982.

The report, which is often watched by the Fed as a sign of inflationary pressure in the economy, fueled doubts among some investors and traders that the Fed will increase the short-term benchmark interest rate in September as many economists predict. Some traders speculated that December, and possibly even early 2016, is increasingly becoming a more likely moment for the Fed to move.


Both bond yields and the dollar fell sharply on the report, illustrating investors’ intense preoccupation with the timing of the first rate increase in nearly a decade. Friday’s moves also foreshadow the heightened volatility that many traders anticipate as the September meeting nears.


Friday’s rally in Treasurys pushed the yield on the 10-year Treasury note to its biggest monthly decline since January. The yield on the two-year note, among the most sensitive to changes in the outlook for Fed policy, also tumbled. Bond yields fall when prices rise.

Many market watchers agree that when the Fed does raise rates from near-zero levels, it will move slowly, which should cap moves across stock, bond and currency markets. But big prices swings are still likely, analysts say, as investors track economic data to position themselves for a September, December or even 2016 rate increase.

“The markets are justifiably sensitive right now, especially when relevant economic data come in at extreme levels, and the market is already 50-50 on the Fed hiking interest rates in September,” said Shahab Jalinoos, currency research analyst at Credit Suisse.

The Fed has been monitoring the employment market closely. After its most recent two-day policy meeting that ended Wednesday, the central bank acknowledged that it is still on track to raise rates this year due to gains in the U.S. labor market.

The U.S. employment-cost index, a measure of workers’ wages and benefits also known as ECI, rose a seasonally adjusted 0.2% in the second quarter from the first quarter. That fell below Wall Street expectations for a 0.6% increase.

Steven Englander, head of developed-market currencies strategy at Citigroup said the ECI was a “huge shock.” He added: “People are now thinking this number will give the Fed pause.”

In the moments immediately after the report’s release, the dollar sank as much as 1.7% against the euro before paring most of the losses later in the day. In late New York trading on Friday, one euro bought $1.0984, compared with $1.0933 late Thursday.

Despite Friday’s selloff, the dollar rose 1.4% against the euro for the month of July.

While the U.S. economy picked up speed in the second quarter after a soft patch, Fed officials and investors are grappling with how to interpret sluggish global economic growth and subdued inflation. Commodities in recent days have resumed falling. And Chinese stocks in July posted their biggest monthly selloff in six years, heightening concerns over the slowdown of the world’s second-largest economy.

The prospect of higher rates has lured fund managers to the dollar, sparking a rally in the greenback last year that sputtered early in 2015 amid a soft patch in the U.S. economy. Since then, the dollar has gyrated on economic indicators and remarks by Fed officials.

The yield on the benchmark 10-year Treasury note on Friday fell to a three-week low of 2.207% from 2.268% Thursday. The yield on the two-year note slid to 0.676% from a one-month peak of 0.731% on Thursday.

The labor cost report “is a red light for the Fed,” said Jonathan Lewis, chief investment officer at Samson Capital Advisors LLC, which has $7.4 billion in assets under management. “This economic recovery is not strong enough to generate consistently positive economic data, let alone consistent upward pressure on wages.”

Mr. Lewis said he is skeptical the Fed can raise rates in September and added that Friday’s report is “a green light for investors to move out of cash and into bonds.”

The odds of a rate increase by the Fed at the September policy meeting were 38% Friday, compared with 48% Thursday and 40.5% a week ago, according to traders. The odds for a rate increase at the December meeting were 68.4 % Friday, compared with 80.5% Thursday and 71.7% a week ago.

The calculations are based on implied yields from fed-funds futures which are used by investors and traders to place bets on central-bank policy.

Federal Reserve Bank of St. Louis President James Bullard played down the ECI report, saying that the Fed is in “good shape” for increasing the rate target at the Sept. 16-17 meeting. Mr. Bullard doesn’t currently hold a vote on the Fed’s policy-making committee.

The Dow Jones Industrial Average shed 56.12 points, or 0.3%, to 17689.86, on Friday, dragged down by a decline in shares of big oil companies that reported weak earnings. The move lower was muted by Friday’s wage report and the prospect of ultralow rates for longer.

The nonfarm payrolls report due next Friday is expected to show 215,000 new jobs were added in July, in line with the recent trend of strong employment growth. Some traders played down the importance of the wage report, saying that the two job reports ahead of the September Fed meeting will weigh more heavily.

Daniel Mulholland, senior U.S. Treasury trader at Crédit Agricole in New York, said the door remains open for the Fed to raise rates in September amid solid jobs growth. Fed Chairwoman Janet Yellen “has previously told us that wage growth is not a pre-condition for rate hikes,” said Mr. Mulholland. “The Fed has told us they will be data dependent and there are two more payroll reports prior to” the Fed’s next policy meeting in September, he said.

“Data dependency is a nice option for the Fed, but it makes the market more prone to overshooting in either direction after each major data release,’’ said Zhiwei Ren, managing director and portfolio manager at Penn Mutual Asset Management Inc., which has $20 billion assets under management.

Rolls-Royce Activist ValueAct Said Lured by Air-Engine Services


BN 08/01 01:20 Rolls-Royce Activist ValueAct Said Lured by Air-Engine Services
Rolls-Royce Activist ValueAct Said Lured by Air-Engine Services
2015-08-01 01:42:54.656 GMT


By Benjamin Katz and Beth Jinks
(Bloomberg) -- ValueAct Capital Management, activist fund
that amassed 5.4% of Rolls-Royce, sees substantial profit growth
potential led by aircraft-engine servicing, people familiar with
initial discussions say.

* New CEO Warren East positioning to grow aftermarket revenue
through its long-term TotalCare jet engine maintenance
contracts

To contact the reporters on this story:
Benjamin Katz in London at +44-20-3525-9670 or
bkatz38@bloomberg.net;
Beth Jinks in San Francisco at +1-415-617-7141 or
bjinks1@bloomberg.net
To contact the editors responsible for this story:
Jeffrey McCracken at +1-212-617-8517 or
jmccracken3@bloomberg.net
Elizabeth Wollman, Peter J. Brennan