>>> Asian Update

Asian Mid-session Update: US Dollar trades near low levels; Market waiting for BoJ monetary statement


***Economic Data***
- (KR) SOUTH KOREA MAR INDUSTRIAL PRODUCTION M/M: -0.4% V -0.5%E; Y/Y: -0.1% V -1.6%E
- (JP) JAPAN MAR PRELIMINARY INDUSTRIAL PRODUCTION M/M: -0.3% V -2.3%E; Y/Y: -1.2% V -3.4%E
- (TW) TAIWAN Q1 PRELIM GDP 3.5% V 3.5%E
- (SG) Singapore Mar Bank Loans and Advances: 2.3% v 3.3% prior
- (SG) Singapore Mar M1 Money Supply Y/Y: 2.3% v 3.1% prior; M2 Money Supply Y/Y: 3.9% v 3.3% prior
- (SG) Singapore Mar Credit Card Bad Debts (SGD): 25.0M v 25.0M prior; Credit Card Billings: 3.91B v 3.48B prior
- (AU) AUSTRALIA MAR PRIVATE SECTOR CREDIT M/M: 0.5% V 0.5%E; Y/Y: 6.2% v 6.3%E
- (AU) AUSTRALIA Q1 IMPORT PRICE INDEX Q/Q: -0.2% V +1.0%E; EXPORT PRICE INDEX Q/Q: -0.8% V 0.0%E
- (NZ) New Zealand Mar M3 Money Supply Y/Y: 8.3% v 6.6% prior
- (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE UNCHANGED AT 3.50%, AS EXPECTED
- (NZ) NEW ZEALAND MAR BUILDING PERMITS M/M: +11.0% V -6.3% PRIOR
- (UK) UK APR GFK CONSUMER CONFIDENCE: 4 V 4E
- (BR) BRAZIL CENTRAL BANK (BCB) RAISES SELIC TARGET RATE BY 50BPS TO 13.25%; AS EXPECTED; 4th consecutive tightening

***Index Snapshot (as of 02:30 GMT)***
- Nikkei225 -1.9%, S&P/ASX -1.4%, Kospi -0.9%, Shanghai Composite -0.2%, Hang Seng -0.7%, Jun S&P500 flat at 2,098

***Commodities/Fixed Income***
- Jun gold -0.6% at $1,203/oz, Jun crude oil +0.1% at $58.61/brl, May copper -0.3% at $2.79/lb
- (AU) Australia MoF (AOFM) sells A$500M in Aug 7th notes; Avg yield: 2.0645%; Bid-to-cover: 3.26x
- (CN) PBoC won't conduct open market operations (OMO) in today's session (4th consecutive halt); Net zero position this week v drained net CNY20B prior
- (GR) Moodys cuts rating on Greece one notch to Caa2 from Caa1

***Market Focal Points/FX***
- New Zealand central bank RBNZ leaves interest rate unchanged at 3.50% in today's rate decision, as economists broadly expected. RBNZ stated that central bank would cut rate on weaker demand and less inflation pressure. RBNZ reiterated that NZD is unjustifiably, unsustainably high. Those comments sent NZD lower by about 90pips to $0.76 levels.

- Japan today released Mar preliminary industrial production data. Results are better than economists have expected. USD/JPY traded little changed after those figures, as market waiting for BoJ's monetary policy statement. Majority of analysts (approx. 95%) expect BoJ to leave its Monetary Base unchanged at Annual Pace of ¥80T. However, there is a minority view (less than 5%) expecting for more easing by BoJ. USD/JPY stayed at low levels today, as well as US Dollar against other major currency pairs, after US posted weaker than expected GDP figure from US morning trading session.

***Equities***
US equities / ADRs:
- GLUU: Announces Strategic Relationship with Tencent; also adds pop icon Britney Spears to its celebrity roster; Reports Q1 $0.02 v -$0.01e, R$62.4M v $51.5Me; +22.8% afterhours
- ARII: Reports Q1 $1.64 v $1.23e, R$263.8M v $212Me; +7.7% afterhours
- EQIX: Reports Q1 $1.34 v $0.85e, R$643.2M v $637Me; +5.2% afterhours
- TX: Reports Q1 -$0.22 v $0.49e (unclear if comp), R$2.13B v $2.23Be; +0.2% afterhours
- AAPL: Reportedly Apple detected a defect in a major component of the Watch which caused it to limit the recent roll out; No defective Apple Watches reached consumers - press; -0.7% afterhours
- MUR: Reports Q1 -$1.11 v -$0.86e; -1.2% afterhours
- MAR: Reports Q1 $0.73 v $0.70e, R$3.51B v $3.59Be; -2.0% afterhours
- BIDU: Reports Q1 $1.22 v $1.13e, R$2.05B v $1.91Be; -2.6% afterhours
- FLEX: Reports Q4 $0.27 v $0.25e, R$5.95B v $6.27Be; Acquires Mirror Controls International for €457M cash; -4.8% afterhours
- YELP: Reports Q1 adj $0.10 v $0.01e, R$118.5M v $119Me; -15.2% afterhours

- NXPI: Reports Q1 $1.35 v $1.31e, R$1.47B v $1.47Be

Notable movers by sector:
- Consumer Discretionary: Oriental Land 4661.JP -4.2% (FY14/15 results)
- Financials: China Everbright Bank 6818.HK -3.1% (Q1 results)
- Materials: ALS Ltd ALQ.AU +4.9% (FY15 guidance)
- Industrials: Honda Motor 7267.JP -6.4% (FY14/15 results); China Cosco Holdings 1919.HK -3.4% (Q1 results); Zoomlion Heavy Industry Science and Technology 1157.HK -2.6% (Q1 results)
- Healthcare: Takeda Pharmaceutical 4502.JP -3.0% (speculation on FY14/15 results)

WSJ : Starwood Opens Door to a Suitor

Starwood Opens Door to a Suitor
Decision follows CEO departure in February, comes amid drop in first-quarter earnings


Starwood Hotels & Resorts Worldwide Inc. said it is exploring strategic alternatives, sparking speculation about a possible sale—and the potential for broader merger activity in the hotel industry.

Starwood, which controls the St. Regis, Westin, Sheraton and W Hotels brands, on Wednesday said its board has decided to “explore a full range of strategic and financial alternatives to increase shareholder value,” retaining investment bank Lazard to assist with the process.

“No option is off the table,” Starwood chairman Bruce Duncan said Wednesday on a conference call with analysts.

Investors read the statement as Starwood being open to a takeover offer, although the strategic review could also result in a sale or spin-off of any of the two dozen hotels that Starwood will own after its previously announced spinoff of its vacation ownership business. The review could also result in an acquisition of another company or brand, say people close to Starwood.

Speculation about Starwood’s future has swirled since February, when chief executive Frits van Paasschen resigned amid concerns over the company’s slow growth. Director Adam Aron has been interim CEO while the company searches for a successor.

Historically, Starwood has been a strong performer in the high-end hotel market. The company has expanded overseas faster than its rivals; roughly half of its more than 350,000 rooms are outside the U.S. Its W brand is known for having a stylish, modern edge. Starwood also has been ahead of the curve in testing smartphones as room keys at select hotels.

That said, the Stamford, Conn., company has only half the number of rooms of Marriott International Inc. or Hilton Worldwide Holdings Inc. And Starwood has struggled to make its mark in the limited-service hotel sector, where its rivals’ mid-market brands such as Courtyard by Marriott and Hilton Garden Inn have helped power earnings and drive growth.

Meanwhile, its Sheraton brand, which accounts for more than 40% of Starwood’s room total, has lost ground to peers.

Mr. Aron on Wednesday said Starwood would soon unveil a plan to reinvigorate the Sheraton brand. “It took some time for the Sheraton brand to get in its current state and it will take some time to improve,” Mr. Aron said on the analyst call.

On Wednesday Starwood said first-quarter profit fell to $99 million, or 58 cents a share, from $137 million, or 71 cents, a year earlier. Revenue slipped 2.9% to $1.4 billion.

“Starwood’s inability to sell hotel owners on its select service brands forced it to put its hand up for help” via a merger or acquisition, said Chad Beynon, a lodging analyst at Macquarie Securities Group. “The most likely outcome is sale of company,” he said.

By contrast, Hilton on Wednesday beat analyst expectations on earnings and boosted its 2015 guidance, while Marriott said first-quarter earnings rose 20% as it continues to ramp-up growth overseas.

The uncertainty surrounding Starwood as it decides on new leadership has sparked interest among a number of hedge funds and activist investors. Starwood and its advisers have spoken in recent weeks to some of them, including Senator Investment Group LP and Fir Tree Inc., which have urged the company to take steps to boost its stock price, according to people familiar with the matter.

Senator owned 1.3% of Starwood as of Dec. 31, public filings show. In March, it sought regulatory approval for its stake, suggesting it plans to buy more or to convert options into shares. Fir Tree didn’t own shares as of year-end, and it isn’t clear whether it has since bought a stake.

Starwood shares, which had risen about 5% over the previous 12 months, jumped 8.3% to $87.53 in Wednesday trading.

Write to Craig Karmin at craig.karmin@wsj.com and Liz Hoffman at liz.hoffman@wsj.com
and Lisa Beilfuss at lisa.beilfuss@wsj.com

Aside from InterContinental Hotels Group PLC’s recent $430 million acquisition of boutique hotel operator Kimpton Hotels & Restaurants, the lodging sector hasn’t had a significant merger since the 1990s. The sector is ripe for consolidation, said Thomas Allen, a Morgan Stanley analyst.

The industry, which still includes thousands of independent hotel operators, is highly fragmented, with the five largest companies by rooms controlling about 22% of the hotel rooms globally.

Large global hotel operators combining would have significant cost savings and could boost revenue through cross-selling brands, larger distribution networks and bigger rewards programs, Mr. Allen said.

The recent rise in hotel share prices would make takeovers expensive, industry observers note.

Hotels are still enjoying an expansion in revenue per available room—“revpar” in the industry lingo—that began in 2010. With little new supply being added in most markets, occupancy in the U.S. hit an all-time high in March at 65% and daily rates also scored a record at $116, according to industry tracker STR Inc. That combination produced record revpar of $75 in March, up 8.5% from a year ago.

Starwood also continues to look for a new CEO. Mr. Duncan said a search process of internal and external candidates is proceeding in a timely manner. But he acknowledged on Wednesday that with Starwood’s future now unclear because it is reviewing strategic alternatives, some CEO candidates might no longer be interested.

“Certainly, there are people you won’t be able to attract,” he said. “Given what’s going on.”

Mr. Aron, whom several Starwood investors said wants the CEO job himself, also pledged cost-cutting. That included canceling the lease for a Gulfstream IV private jet used by company executives. In an interview, Mr. Aron said the cost savings of executives flying commercial airlines would be in the seven figures.

–Liz Hoffman contributed to this article.

WSJ :Apple Watch: Faulty Taptic Engine Slows Roll Out


Apple Watch: Faulty Taptic Engine Slows Roll Out
Supplies crimped after testing found problems with Chinese-made component that creates gentle tapping sensation

A key component of the Apple Watch made by one of two suppliers was found to be defective, prompting Apple Inc. to limit the availability of the highly anticipated new product, according to people familiar with the matter.

The part involved is the so-called taptic engine, designed by Apple to produce the sensation of being tapped on the wrist. After mass production began in February, reliability testing revealed that some taptic engines supplied by AAC Technologies Holdings Inc., of Shenzhen, China, started to break down over time, the people familiar with the matter said. One of those people said Apple scrapped some completed watches as a result.

Apple doesn’t plan a recall, because there’s no indication that Apple shipped any watches with the defective part to customers.

Taptic engines produced by a second supplier, Japan’s Nidec Corp., didn’t experience the same problem, the people said. Apple has moved nearly all of its production of the component to Nidec, these people said, but it may take time for Nidec to increase its production.

The taptic engine—Apple coined the word “taptic” as a play on “haptic,” a technology that delivers tactile feedback—is one of the key technologies that Apple created for the Watch. The taps are designed to be less intrusive than ringing, buzzing or other ways to get a user’s attention.

The engine uses a motor to move a small rod back and forth. This motion creates the sensation of a gentle tapping. The taptic engine also powers another Watch feature: the ability to send your heartbeat to others.

Apple last week told some watch suppliers to slow production until June, without explaining why, according to people familiar with Apple’s supply chain. Suppliers were surprised because Apple recently said that Watch inventory was insufficient, these people said.

An AAC spokeswoman declined to comment about the company’s customers. A Nidec spokesman wasn’t immediately available for comment.

“Our team is working to fill orders as quickly as possible based on available supply and the order in which they were received,” Apple said. “We know many customers are still facing long lead times and we appreciate their patience.”

Apple started accepting orders for the Watch online on April 10 and began shipping watches to customers on Friday. It is selling the watch online and in select designer boutiques, but not in its own retail stores. That curbed the long lines and celebrations that often mark the introduction of a new Apple product.

In a memo to retail-store employees earlier this month, Apple retail chief Angela Ahrendts said stores won’t get watches to sell until the end of May because of “high global interest combined with our initial supply.” New online orders will be delivered in June, Apple says on its website.

Apple Watch is the company’s first all-new category of hardware since the iPad in 2010. Apple is counting on the Watch to demonstrate that it can innovate and define new product categories as it did under former CEO Steve Jobs.

It’s not clear how much the problems with the taptic engine contributed to the Watch shortages. Ms. Ahrendts said in her note that “we will be able to get customers the model they want earlier and faster by taking orders online.”

People familiar with the matter said Apple is considering adding a second assembler of the Watch, to supplement Taiwan’s Quanta Computer Inc. Those people said Foxconn, formally known as Hon Hai Precision Industry Co. and the main assembler of the iPhone, recently started early testing to potentially produce the Watch.

Even if the process goes smoothly, it may take several months for factories to be running at full capacity. Foxconn isn’t expected to start manufacturing the Watch until late 2015 at the earliest, the people familiar with the matter said.

On Monday, Apple Chief Executive Tim Cook said “demand is greater than supply” for the Watch, but didn’t disclose sales or orders. Asked about the production schedule, Mr. Cook said he is “generally happy” with the progress, while noting that it always takes time to expand capacity with a new product.

He said he expects that Apple will be able to make the Watch available in more countries—beyond the initial nine—in late June. He also noted that Apple was able to accelerate delivery times for people who had preordered the Watch.

It’s not unusual for new technologies to encounter these types of problems in the early days of production. But it marks the second glitch in a year with Apple’s supply chain, admired for its ability introduce new products and boost production quickly. Last year, Apple unwound an ambitious plan to make synthetic sapphire for iPhone screens after the operator of an Apple-financed plant in Arizona filed for bankruptcy.

The shortages highlight the potential downside of Apple’s lean supply chain. Apple can produce massive quantities of products with little waste and excess supply, but it can experience shortages when a problem arises with a key part.

Write to Daisuke Wakabayashi at Daisuke.Wakabayashi@wsj.com and Lorraine Luk at lorraine.luk@wsj.com
Close

>>> After Hours : GLUU +23.7%, INUV +14%, FOE +8%, YELP -14.

After Hours Summary: GLUU +23.7%, INUV +14%, FOE +8%, YELP -14.7%, DXCM -6.2%, FORM -5% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings: GLUU +23.7%, INUV +14%, FOE +8%, ARII +7.7%, HDSN +7.4%, EQIX +5.2%, LOCK +5.1%, HOS +5.1%, AR +4.9%, RRTS +4.5%, PPC +3.4%, ATW +2.8%, NE +2.8%, AFFX +2.5%, O +2.4%, EROC +2%, QUIK +2%, LQ +1.3%, SPRT +1.2%, ARRS +0.9%, ESV +0.9%, EPE +0.2%, AVG +0.2%, EQY +0.1%, BSAC +0%

Companies trading higher in after hours in reaction to news: GLUU +23.7% (announced that Tencent (TCEHY) has agreed to purchase 21 million shares of Glu's common stock at a price of $6.00 per share for total consideration of $126 mln; announced partnership with Britney Spears; co also reported earnings), CNSI +10.0% (to divest BSS Business to Amdocs (DOX) for total purchase price of $272 mln), FOE +8.0% (to acquire global inorganic pigments manufacturer Nubiola; co also reported earnings), OVTI +5.5% (Bloomberg reporting co is near a deal to be acquired by Hua Capital for ~$29 per share, or $1.68 bln), GTI +2.8% (Board approved agreement for sale of $150 mln of 7% convertible preferred shares to Brookfield Asset Management (BAM); co entered into a separate letter of intent for a possible tender offer by BAM to acquire GTI shares at $5.05 per share; co also reported earnings), 

After Hours Losers:

Companies trading lower in after hours in reaction to earnings: YELP -14.7%, DXCM -6.2%, FORM -5%, FLEX -4.9%, CAVM -3.7%, KEX -3.5%, SFLY -3.2%, BIDU -2.8%, LXRX -2.8%, SAM -2.8%, BLKB -2.6%, WLL -2.6%, DYAX -2.4%, ASH -2.4%, CBT -1.9%, NGD -1.8%, LNC -1.7%, MAR -1.6%, TEX -1.6%, ROG -1.3%, MUR -1.2%, POWI -1%, VRTX -1%, TAL -0.8%, ARR -0.4%, MTGE -0.3%, MTW -0.2%

Companies trading lower in after hours in reaction to news: INO -7.4% (announced a public offering of common stock; size and price not disclosed), STNG -5.5% (announced public offering of 15 mln shares of common stock), FLEX -4.9% (to acquire Mirror Controls International from private equity firm Egeria in an all cash transaction valuing its share capital at €457 mln, or $494 mln USD; co also reported earnings), ADXS -4.2% (announced a proposed public offering of common stock; size and price details not disclosed), ESI -2.3% (announced that CFO Daniel Fitzpatrick will retire, effective October 29, 2015; and a new student enrollment drop of 15.8% Y/Y in 

>>> US Close Dow-0,41% S&P-0,37% Nasdaq-0,63% Russell-0,98%

Closing Market Summary: Health Care Sector Leads Stocks Lower

The stock market ended the midweek session on a modestly lower note. The S&P 500 shed 0.4% while the Nasdaq Composite (-0.6%) underperformed throughout the session.

Equity indices struggled in the early going after the advance reading of Q1 GDP (0.2%; consensus 1.0%) missed expectations. However, that disappointment was partially offset by the FOMC directive, which did not stir concerns of a rate hike taking place in the near term. Instead, the FOMC reiterated that the current policy stance will remain appropriate until there is reasonable confidence among members that inflation will move back to the 2.0% objective.

Seven sectors registered losses while energy (+0.7%) outperformed throughout the session thanks to a 2.6% gain in crude oil, which settled at $58.52/bbl. The energy component was boosted by a storage report that showed a smaller than expected inventory build while dollar weakness also factored into the move higher. The Dollar Index (95.22, -0.88) fell 0.9%, registering its sixth consecutive decline. Most notably, the euro (1.1111) added 1.3% against the dollar.

On the flip side, countercyclical consumer staples (-0.8%) and health care (-0.8%) ended at the bottom of the leaderboard, but health care managed to cut its loss in half thanks to modest gains in the biotech space. The iShares Nasdaq Biotechnology ETF (IBB 344.81, +0.31) added 0.1% to snap its three-day skid, but could not close above its 50-day moving average (348.51), which served as resistance for the second day in a row. Meanwhile, the broader health care sector slumped under the weight of Express Scripts (ESRX 84.79, -2.71) and Humana (HUM 168.05, -13.06) after both reported earnings. Express Scripts reported in-line and narrowed its guidance while Humana missed expectations.

Elsewhere, the technology sector (-0.5%) ended a bit behind the broader market, but that masked a late afternoon spike in Salesforce.com (CRM 74.65, +7.76) after Bloomberg reported the company has hired bankers to discuss potential offers. As for high-beta chipmakers, the group struggled with the PHLX Semiconductor Index losing 0.6%.

Similarly, another high-beta group—transport stocks—could not catch up to the broader market. The Dow Jones Transportation Average lost 1.2% with Norfolk Southern (NSC 103.18, -1.19) falling 1.1% after reporting in-line with its warning. However, airline stocks led the group lower amid rising fuel prices with Delta Air Lines (DAL 45.03, -1.17) sliding 2.5%.

Treasuries retreated throughout the day, but they trimmed their losses during afternoon action. The 10-yr note ended essentially where it traded just ahead of the FOMC Statement with the benchmark yield higher by four basis points at 2.05%.

Today's participation was ahead of recent averages with more than 845 million shares changing hands at the NYSE floor.

Economic data included advance Q1 GDP, Pending Home Sales, and MBA Mortgage Index:
  • According to the advance estimate, Q1 2015 GDP increased 0.2% after increasing 2.2% in Q4 2014 while the consensus expected an increase of 1.0% 
    • Even more disappointing, the downside miss on the top-line growth number masked an even worse overall trend. If not for an increase in inventories, GDP would have been negative in the first quarter. Real final sales declined 0.5% in the first quarter after increasing 2.3% in Q4 2014. That was the worst quarter since real final sales declined 1.0% in Q1 2014. 
    • Personal consumption expenditures increased 1.9% in the first quarter, down from a 4.4% increase in Q4 2014 
    • Goods spending increased a modest 0.2%, down from 4.8% in the fourth quarter 
    • Services spending increased 2.8% after increasing 4.3% in the fourth quarter 
  • Pending home sales for March rose 1.1% while the consensus expected an increase of 1.2% 
  • The weekly MBA Mortgage Index fell 2.3% to follow last week's 2.3% increase 
Tomorrow, weekly Initial Claims (consensus 290K), Personal Income/Spending data for March, and Q1 Employment Cost Index (consensus 0.6%) will be released at 8:30 ET while the Chicago PMI report for April (expected 50.0) will cross the wires at 9:45 ET.
  • Nasdaq Composite +6.1% YTD 
  • Russell 2000 +3.5% YTD 
  • S&P 500 +2.3% YTD 
  • Dow Jones Industrial Average +1.2% YTD

XPO’s Biggest Deal Yet Sets It Up as Buyer or Seller: Real M&A


XPO’s Biggest Deal Yet Sets It Up as Buyer or Seller: Real M&A
2015-04-29 18:34:50.15 GMT


(For a Real M&A column news alert: {SALT REALMNA <GO>}.)

By Brooke Sutherland
(Bloomberg) -- XPO Logistics Inc. investors who liked the
company’s biggest acquisition have more to look forward to.
The latest purchase, a takeover of French trucking company
Norbert Dentressangle SA for $3.53 billion including net debt,
will make the manager of cargo shipments a one-stop shop for
supply-chain services and allow it to tap into a larger base of
multi-national customers, said David Campbell, an analyst at
Thompson Davis & Co. The combined company will have about $8.5
billion in revenue, more than triple XPO’s sales last year.
XPO Chief Executive Officer Brad Jacobs says this is only
the “early innings” of the company’s growth plan. That’s
fueling expectations for more deals in Europe or elsewhere.
Shares of the $3.9 billion company surged as much as 16.4
percent on Wednesday, touching a new high.
“This is a cornerstone acquisition for them,” Scott
Schneeberger, an analyst at Oppenheimer Holdings Inc., said in a
phone interview. “It gets them a beachhead in Europe. But these
guys are built to do more than one deal at a time even if they
did a big one.”

Takeover ‘Endgame’

As it joins the ranks of the world’s top logistics
providers, XPO also could find itself in an acquirer’s sights,
said Kevin Sterling of BB&T Corp. The company could be an
attractive consolation prize for United Parcel Service Inc.,
whose attempt to take over TNT Express NV was foiled by
regulators, Sterling said. FedEx Corp. agreed on April 7 to buy
TNT for $4.8 billion.
“That could be the endgame for XPO in a couple of years,”
he said in a phone interview. “Look at the acquisition spree
that FedEx has been on recently. UPS is sitting on a ton of
cash. Ultimately, down the road, could XPO be a potential
target? You’ve got to think they’d be on UPS’s radar screen.”
A representative for Atlanta-based UPS said the company
doesn’t comment on speculation.
Jacobs has built companies up to sell them before. He
founded United Waste Systems Inc. in 1989, and then about 250
acquisitions later, sold it to the company now known as Waste
Management Inc. for more than $2 billion in 1997. He struck a
deal to sell United Rentals Inc. to Cerberus Capital Management
in 2007 but the private-equity firm walked away amid the credit-
market collapse.

For Related News and Information:
UPS Tops Profit Forecast With Boost From Overseas Deliveries
FedEx’s TNT Offer Shows Less Is More Three Years Later: Real M&A
XPO Logistics Buying Norbert in $3.53 Billion European Deal
XPO’s Jacobs Pulls Off 500 Deals Bypassing Wall Street Bankers
Top deal news: DTOP <GO>
Real M&A columns: NI REALMNA <GO>

To contact the reporter on this story:
Brooke Sutherland in New York at +1-212-617-0448 or
bsutherland7@bloomberg.net
To contact the editors responsible for this story:
Beth Williams at +1-212-617-2307 or
bewilliams@bloomberg.net
Elizabeth Wollman

WSJ : Fed Sees Slowdown as ‘Transitory’


Fed Sees Slowdown as ‘Transitory’

Policy statement keeps rate increases on table but timing is less certain

WASHINGTON—Federal Reserve officials attributed the economy’s sharp first-quarter slowdown to transitory factors, in effect signaling an increase in short-term interest rates remains on the table for the months ahead although the timing has become more uncertain.

The Fed now needs time to make sure its expectation of a rebound proves correct after a spate of soft economic data. That means the chances of a rate increase by midyear have greatly diminished, a point underscored by the Fed’s statement released Wednesday at the conclusion of a two-day policy meeting.

“Economic growth slowed during the winter months, in part reflecting transitory factors,” the Fed said. The Fed also said that although growth and employment had slowed officials expected economic activity to return to return to a modest pace of growth and job market could continue to improve, “with appropriate policy accommodation.”

The gathering concluded a few hours after the Commerce Department reported the U.S. economy grew at a 0.2% annual rate in the in the first quarter. It was the worst performance in a year, pocked with evidence of a slowing trade sector and anemic business investment. The report also showed annual consumer price inflation slowed in the first quarter.

For now, the Fed isn’t signaling any shift in its policy stance. It repeated it would keep its benchmark short-term interest rate, the federal funds rate, pinned near zero, where it has been since December 2008. Officials in March opened the door to rate increases later this year, by removing from the policy statement assurances rates would stay low.

The policy statement said, as it did in March, that the central bank would raise rates when officials become reasonably confident that inflation is moving back up toward the Fed’s 2% objective and as long as the job market continues to improve.

Officials sought to acknowledge the recent economic downshift in their policy statement, while keeping their options open. The pace of job gains moderated, the Fed statement said, and measures of labor market slack were little changed. Business investment softened and exports declined.

The statement also said officials saw the risks to the outlook were balanced - an important sign that they aren’t at this point alarmed about the first quarter slowdown. Many officials believe that conditions are ripe for consumer spending to pick up in the months ahead, in part because employment, incomes and confidence have risen and falling gasoline prices have boosted household purchasing power.

The statement pointed to strong gains in inflation-adjusted household incomes and consumer sentiment, underscore this view.

Nobody dissented at the meeting. It was the fifth time in 10 meetings run by Fed Chairwoman Janet Yellen with no dissents.

The Fed’s assessment of the economic backdrop was in some respects similar to its assessment at its March 2014 policy meeting. Then as now the economy appeared to have stumbled during cold winter months. This time the temporary headwinds included a strike at West Coast ports in February.

Fed officials thought the 2014 slowdown was a temporary blip and in that case proved to be right. Economic growth picked up in the second and third quarters of last year.

This time, however, the backdrop is more complicated. Falling oil prices have crimped investment in the nation’s oil patch, evidenced by falling rig counts in places such as Texas and North Dakota. Moreover, a surging dollar is putting downward pressure on import prices and restraining inflation, in addition to pushing up the price of exports and hurting the trade sector.

The Fed said, as it has before, it expects the economy to resume growth at a moderate pace and inflation to gradually rise back toward 2%.

>>> Federal Reserve releases FOMC statement/policy update

Federal Reserve releases FOMC statement/policy update

Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households' real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee's longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams. 

>>> JCP - Planning to introduce SEPHORA to 25 additional stores; effective May 1

Planning to introduce SEPHORA to 25 additional stores; effective May 1 - In addition to the grand openings, six existing SEPHORA inside JCPenney shops will expand to meet the high customer demand for prestige cosmetics and beauty products. Expanded locations will represent an average of 3,000 total square feet of space dedicated to SEPHORA merchandise and SEPHORA Beauty Studio where clients receive complimentary mini-makeovers