Off the Wires

Economy in U.S. Grew 3.5% in Third Quarter, More Than Forecast

October 30th, 2014  |  Source: Bloomberg

The economy in the U.S. expanded more than forecast in the third quarter, capping its strongest six months in more than a decade, as gains in government spending and a shrinking trade deficit made up for a slowdown in household purchases.

Gross domestic product grew at a 3.5 percent annualized rate in the three months ended September after a 4.6 percent gain in the second quarter, Commerce Department figures showed today in Washington. It marked the strongest back-to-back readings since the last six months of 2003. The median forecast of 87 economists surveyed by Bloomberg called for a 3 percent advance.

Growing oil production is limiting imports and contributing to a pickup in manufacturing, allowing the economy to overcome slowing growth in overseas markets from Europe to China. At the same time, job gains and cheaper gasoline are giving American consumers the confidence and the means to spend, brightening the outlook for the holiday-shopping season and helping explain why the Federal Reserve ended its bond-buying program yesterday.

“The fundamentals behind the consumer are improving as job growth gains traction,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “And withconsumer confidence rising, that is a clear indicator that consumers are feeling better about the economy.”

Forecasts in the Bloomberg survey of economists ranged from 2.1 percent to 4 percent. Today’s estimate is the first of three for the quarter, with the other releases scheduled for November and December when more information becomes available.

Alibaba's Ma says open to working with Apple on payments

October 28th, 2014  |  Source: Reuters

Alibaba Group Holdings Ltd (BABA.N) executive chairman Jack Ma said he's open to working with Apple Inc (AAPL.O) on mobile payments, as China's richest person prepares to call on Hollywood this week in search of media partners.

Alibaba affiliate Alipay is China's largest payments service, while Apple just this month debuted its own version of a mobile wallet, letting iPhone 6 users make payments at retailers with their smartphones.

Ma told a Wall Street Journal Digital Live conference on Monday that he has tremendous respect for Apple CEO Tim Cook.

"I hope we can do something together," he said when asked if Alipay and Apple Pay might tie up.

Ma, who amassed a fortune estimated at $25 billion partly through his stake in recent market debutante Alibaba, is a frequent visitor to the United States. This week, he plans to visit a number of Hollywood studios, reportedly to strike up content deals.

"I want to come here looking for partners," he said, adding that China will eventually become the world's largest movie market.

Alibaba, which handles more e-commerce transactions than Inc (AMZN.O) and eBay Inc (EBAY.O) combined, does not have much of a presence among American retail customers and Ma said his focus for now was on serving his Chinese clientele.

Ma added that he wanted to work on selling American and European products to China, reversing the typical flow of goods over the past 10 to 15 years.

Alibaba has acquired some smaller American companies such as niche online retailer 11Main and Ma said he will continue to invest in the United States.

Corporate America starts to spend again

October 27th, 2014  |  Source: FT

US corporations are starting to run down their cash balances for the first time since the recession – a sign of returning confidence – but they remain reluctant to invest in new equipment.

More companies cut their cash holdings than increased them over the past year, the first time that has happened during the recovery, according to a new survey of corporate treasurers by the Association for Financial Professionals.

The willingness of companies to hold less cash is an important turning point in the recovery from the Great Recession. It is a sign of animal spirits returning to the US economy – but growth will not accelerate until the cash gets invested in new factories and machinery.

Defective air bags raise questions about automakers’ ability to handle gigantic recall

October 24th, 2014  |  Source: Washington Post

More than 30 million cars and trucks nationwide are equipped with dangerously defective air bags, congressional officials say, a number that raises questions about whether the U.S. auto industry can handle what could become the largest recall in history.

Federal safety authorities have recalled only 7.8 million vehicles over the defect in a few states, a limited action that lawmakers said Thursday was vastly insufficient to address what they deemed “a public safety threat.”

Two senators demanded a much broader recall that would cover every affected vehicle nationwide. But a recall of that magnitude — including best-selling models from Honda, Toyota, GM, Chrysler and six other companies spanning 2002 to 2007 — could prove far greater than the industry has ever managed.

Manufacturing that many replacement parts could take years and present a variety of logistical nightmares. Dealerships could quickly become overwhelmed by the demand, auto safety experts said. This year, GM recalled a total of 30 million vehicles for faulty ignition switches and other problems, and months later it is struggling to make the repairs.

The defective air bags, made by Japanese manufacturer Takata, can rupture and blast out metal shards, particularly in humid conditions, government officials have said. While the rate of reported incidents is low, linked to four deaths and more than 100 injuries so far, their grisly severity has spurred an urgent debate about the matter in Washington.

Mega harvest leaves U.S. farmers battling bugs in storage bins

October 22nd, 2014  |  Source: Reuters

With record harvests depressing prices, U.S. farmers are holding tight to their corn and soybeans and binging on chemicals that protect stored grain from critters or even leaving corn standing in fields over winter to avoid storage charges.

Still flush with cash after years of record income and with shipping rates near record highs, farmers have resources to store grain rather than sell into a down market.

"The last several years we have not held on very long," said Mike Brzon, who raises corn, soybeans and wheat on his farm in Courtland, Kansas. "This year we might be in a little different situation."

Knowing they could store their grain well into 2015, many farmers and grain elevators are pre-treating storage bins with insecticides capable of keeping grain bug-free for 18 months.

"We treat the bins before we ever put a kernel of grain in it," said Kent Moore, a farmer from Iuka, Kansas.

A record U.S. harvest of an estimated 14.5 billion bushels has corn trading recently around $3.50 a bushel, down 56 percent from record highs set in August 2012. Soybeans have fallen more than $8 per bushel, to around $9.65, on a record harvest of 3.9 billion bushels.

Paul Drache, regional manager at insecticide maker Central Life Sciences, said some are delaying the decision, planning to treat the grain later if need arises.

"In an environment where the commodity prices are down, they will typically try do a rescue rather than a preventative, because they don't want to spend the money now," Drache said.

Central Life's Centynal is applied to grain after it has been placed in storage. Increased sales could be a boon Central Garden & Pet Co, which owns Central Life, as well as DowAgroSciences, which is part of Dow Chemical Companies and sells another leading insect regulator, ProFume.

The applications of the pesticides are carefully calibrated to fall within government standards to keep the grain safe for human and animal use.

With grain stored in bins and on the ground, elevators and farmers need to prioritize which will move out first once prices are right. Grain stored in sausage-shaped polyethylene bags in lengths of 100 yards (91 meters) will be the first to go. The bags are believed susceptible to insect invasions. [ID:nL4N0PW3ME]

"That is the first thing that gets shipped," said Wes O'Bannon, chief operations officer at FarmWay Co-Op in Beloit, Kansas.

Some farmers are leaving their corn standing in fields, hoping higher spring prices will make it worth harvesting. They risk seeing winter storms destroy its value.

"Even though you are going to encounter some yield loss, it still might not end up being a bad economic play at the end of the day," said Tregg Cronin, a market analyst at Halo Commodities who also works on his family farm in Gettysburg, South Dakota.

"You can store it in the field for free," Cronin added.

Oil at $80 a Barrel Muffles Forecasts for U.S. Shale Boom

October 21st, 2014  |  Source: Bloomberg

The bear market in oil has analysts reassessing the U.S. shale boom after five years of historic growth.

The U.S. benchmark price dropped to $79.78 a barrel on Oct. 16, the lowest since June 2012. At that level, one-third of U.S. shale oil production would be uneconomic, analysts for New York-based Sanford C. Bernstein & Co. led by Bob Brackett said in a report yesterday. Drillers would add fewer barrels to domestic output than the previous year for the first time since 2010, according to Macquarie Group Ltd., ITG Investment Research and PKVerleger LLC.

Horizontal drilling through shale accounts for as much as 55 percent of U.S. production and just about all the growth, according to Bloomberg Intelligence. The Paris-based International Energy Agency predicted in November that the U.S. would pass Russia and Saudi Arabia to become the biggest producer in the world by 2015. Though some forecasts show oil rebounding or stabilizing, any slower increase in U.S. output would shake perceptions for the global market, said Vikas Dwivedi, an oil and gas economist in Houston for Sydney-based Macquarie.

Gain in Home Building Points to Sustained U.S. Growth

October 17th, 2014  |  Source: Bloomberg

Builders started work on more homes in September and American consumers this month were the most optimistic in seven years, signaling the U.S. economywill ride out a global slowdown.

Housing starts climbed 6.3 percent to a 1.02 million annualized rate from a 957,000 pace in August as multifamily and single-family projects advanced, the Commerce Department reported today inWashington. The Thomson Reuters/University of Michigan preliminary sentiment index for October increased to 86.4, the strongest since July 2007, another report showed.

Gains in residential construction will help underpin the economic expansion as the recent drop in mortgage rates lifts home sales and gives builders reason to take on more projects. Other figures showing factory production rebounded last month and claims for jobless benefits dropped last week to the lowest level in 14 years added to evidence the turbulence in global markets has yet to depress the world’s largest economy.

“The fundamentals continue to look solid,” said Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly projected an increase in homebuilding. “The turmoil in the market doesn’t reflect the underlying U.S. economic fundamentals.”

Stocks climbed, trimming this week’s decline, as earnings beat estimates (NHSPSTOT) and investors speculated that central banks will support economic growth with more stimulus. 

Dark Pools Said to Rebuff Orders Amid U.S. Volume Surge

October 16th, 2014  |  Source: Bloomberg

Three of the largest dark pools told customers to trade elsewhere during at least part of yesterday’s session as concern about Ebola and global economic growth spurred the busiest day for U.S. stocks in three years.

Goldman Sachs Group Inc. (GS)Credit Suisse Group AG (CSGN) and UBS AG (UBSN) told some clients to temporarily stop sending orders as volume surged, according to five people with knowledge of the matter who spoke on condition of anonymity. The instructions came as the broader market processed11.9 billion shares, the most since Oct. 27, 2011, according to data compiled by Bloomberg.

Dark pools, private trading systems usually owned by banks, are just one component of the fragmented U.S. equity market, where buying and selling is spread across 11 exchanges and more than 40 alternative platforms. Older venues such as the New York Stock Exchange and Nasdaq Stock Market didn’t report any issues.

The dark pools’ requests didn’t prevent the U.S. equity markets from working normally for the vast majority of investors. Volume yesterday was several times greater than the busiest days during the 1990s technology bubble.

“Today shows that the market has the capacity to transact large volumes in a very volatile environment,” Remco Lenterman, managing director at Amsterdam-based market maker IMC, said yesterday. “Sure there are issues, but in the end of the day investors have the ability to transact very large transactions in a very deep and liquid market, no matter what critics will want you to believe.”

Winners and losers from oil price plunge

October 15th, 2014  |  Source: FT

Brent crude at $80 would have effect of huge global QE programm

Crude oil prices have plunged by $25, or more than 20 per cent, since mid-June, raising many questions. How low might prices go? If they rebound, at what level will they stabilise? Will Saudi Arabia and Opec move to cut output when they meet next month? At what price level might US shale oil production be affected and how severely?

One thing is certain: even the current lower prices are rapidly creating winners and losers. Losers are producers, countries and governments. If Brent falls to $80, Opec countries would lose some $200bn of their recent $1tn in earnings, affecting not only their ability to earn enough to cover the post-Arab Spring expanded budgets, but also their capacity to service debt without triggering defaults. And for the US, if prices fall much further, capital expenditures to expand production would have to be cut, potentially slowing the US shale revolution.

On the other hand, the world economy as a whole would enjoy the equivalent of a huge quantitative easing programme, helping to spur stalling economic growth. The decline in prices would generate a $1.8bn daily windfall, about $660bn annualised. Tracking this into gasoline prices, in the US, where last year some $2,900 per household was spent on gasoline, the windfall would amount to a tax rebate of just under $600 per household. It would affect all consumers globally save for those in Opec countries, who already pay little for fuel.

Prices have plummeted for several reasons: some of the decline is attributable to market sentiment, some to market fundamentals and, to a large measure, the geopolitical landscape. Brent crude has averaged around $110 per barrel since the Libyan disruption took 1m barrels per day off markets. Despite a Saudi production increase in 2011, $110 Brent was about $25 a barrel above traded prices just before the Libyan disruption. The main reason why Saudi Arabia could not damp prices was that the disrupted supply was light sweet crude, and refiners who needed it could not replace it with heavier, higher sulphur-content crude.

Ebola epidemic 'could lead to failed states', warns WHO

October 13th, 2014  |  Source: BBC

The Ebola epidemic threatens the "very survival" of societies and could lead to failed states, the World Health Organization (WHO) has warned.

The outbreak, which has killed some 4,000 people in West Africa, has led to a "crisis for international peace and security", WHO head Margaret Chan said.

She also warned of the cost of panic "spreading faster than the virus".

Meanwhile, medics have largely ignored a strike call in Liberia, the centre of the deadliest-ever Ebola outbreak.

Nurses and medical assistants had been urged to strike over danger money and conditions. However, most were working as normal on Monday, the BBC's Jonathan Paye-Layleh in Monrovia said.

A union official said the government had coerced workers - but the government said it had simply asked them to be reasonable.

In a speech delivered on her behalf at a conference in the Philippines, Ms Chan said Ebola was a historic risk.

"I have never seen a health event threaten the very survival of societies and governments in already very poor countries," she said. "I have never seen an infectious disease contribute so strongly to potential state failure."

She warned of the economic impact of "rumours and panic spreading faster than the virus", citing a World Bank estimate that 90% of the cost of the outbreak would arise from "irrational attempts of the public to avoid infection".

Ms Chan also criticised pharmaceutical firms for not focusing on Ebola, condemning a "profit-driven industry [that] does not invest in products for markets that cannot pay".

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