In Repeat Of Its Q1 GDP Forecast Farce, Goldman Launches Its Q2 GDP Prediction At 3.0%

It was back on January 30 that the Goldman economist team made its first downward revision to what then was a 3.0% forecast to Q1 GDP. Exactly three months later we find that Goldman was off by only 97% when Q1 GDP printed at 0.1%. That’s ok – they are economists, and thus are expected to be massively, epically wrong. So here is Goldman with its first “tracking forecast” for Q2 GDP. It is…. drumroll…. 3.0%. How long until this number too is lowered to 0.1% (to be sure, all that rain in New York City has to detract at least 1%-1.5% from Q2 GDP right?).

From Goldman:

BOTOM LINE: GDP rose much less than expected in Q1, although the weak print appears to be largely due to one-off factors. The April ADP employment report was roughly in line with expectations. Employment costs rose less than expected in Q1, pointing to subdued wage pressures. We are starting our Q2 GDP tracking estimate at 3.0%.

GDP (advance) +0.1% for Q1 vs. GS 1.0%, median forecast 1.2%
Personal consumption +3.0% for Q1 vs. GS +2.3%, median forecast +2.0%
ADP employment +220k for April vs. GS +220k, median forecast +210k
Employment cost index +0.3% for Q1 vs. median forecast +0.5%.

MAIN POINTS:

1. GDP grew only 0.1% in Q1 (vs. consensus +1.2%). Personal consumption rose 3.0%, although the increase appears to have been largely due to special factors in services spending, including a weather boost to utilities and Affordable Care Act-related healthcare spending. Outside of personal consumption, business fixed investment disappointed our expectations, falling 2.1%. Equipment investment was particularly weak (-5.5%). Exports fell 7.6%, with net exports subtracting eight-tenths from growth. Residential investment declined 5.7%, reflecting weaker housing data. As we expected, inventory accumulation returned to a more normal level ($87bn), subtracting a further six-tenths from growth. Government spending was roughly flat on the quarter. Final sales to domestic purchasers—excluding the effect of inventories and net exports—rose 1.5%. Overall, we do not see Q1 growth as representative of the underlying trend, in light of weather distortions, the out-sized subtraction from net exports, and the drag from inventory normalization.

2. ADP employment increased 220k in April (vs. consensus 210k). The distribution of job gains by industry was similar to that seen in recent months, with the largest job gains in professional and business service jobs (+77k) and trade, transportation, and utilities (+34k). Construction employment added 19k, while manufacturing employment was a bit soft at +1k . March ADP employment growth was revised up by 18k to 209k. ADP has yet to prove itself as a reliable predictor of nonfarm payroll job growth, following methodological revisions in 2012.

3. The employment cost index—which measures total compensation costs—rose 0.3% at a quarterly rate in Q1 (vs. consensus +0.5%), a slowdown from +0.5% in Q4. On an unrounded basis, the gain was the slowest since 2009Q2. Wages and salaries also grew 0.3% in Q1 (vs. +0.5% in Q4) and an even slower 0.2% in the private sector. On an unrounded basis, wage and salary growth was the slowest in the 32-year history of the series. Benefit costs rose 0.4% in Q1 (vs. +0.6% in Q4). On a year-over-year basis, compensation costs for all civilian workers rose 1.8% and wages and salaries rose 1.7%. Overall, the report continues to suggest subdued inflationary pressure from the wage side.

4. We are starting our Q2 GDP tracking estimate at 3.0%.




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Meanwhile, Gazprom Sends Ukraine A New Invoice

As the day of the IMF’s release of funds to Ukraine draws near – solving all their problems with yet more debt, we are told to believe – Russia’s Gazprom has gently reminded the Ukrainian government that it owes them… $3.49 billion! and its due the 7th day of May!

 

  • *GAZPROM SAYS UKRAINE OWES $3.49B FOR GAS AS OF APRIL 30

As Bloomberg reports,

Gazprom preliminary estimate includes bill for natgas supplied in April, spokesman Sergei Kupriyanov says by e-mail.

 

The deadline for monthly payments 7th day of next mo., according to supply contract

 

Gazprom estimates Ukraine’s overdue debt through March at over $2.2b

 

Ukraine imported ~2.6bcm of natgas in April, Bloomberg calculations based on data from Russian Energy Ministry’s CDU-TEK unit; gas valued at ~$1.3b, based on current price charged by Gazprom

 

Gazprom raised price for Ukraine to $485/kcm as of April 1 vs $268.50/kcm

Just how is Washington going to cope when all it’s “aid” is flushed straight through to the nation whose economy it is trying to cause “costs” to via sanctions…?




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About That CapEx Spending Renaissance…

For all the talk that imminent, inevitable, “any second now” CapEx spending renaissance is getting, we can only assume we are looking at a wrong chart of the change in quarterly fixed income spending that plugs straight into the US GDP calculation. There is no other possible explanation.




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If It Wasn’t For Obamacare, Q1 GDP Would Be Negative

Here is a shocker: for all the damnation Obamacare, which according to poll after poll is loathed by a majority of the US population, has gotten if it wasn’t for the (government-mandated) spending surge resulting from Obamacare, which resulted in the biggest jump in Healthcare Services spending in the past quarter in history and added 1.1% to GDP …

… real Q1 GDP (in chained 2009 dollars), which rose only $4.3 billion sequentially to $15,947 billion, would have been a negative 1.0%!

 

It’s curious how the weather impacted (or rather is used as an excuse to explain) everything but government-mandated healthcare spending in the first quarter.

And of course, for all those who correctly point out that mandatory spending on healthcare took away from spending on every other discretionary item possible, well… you are right.




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GDP Shocker: US Economic Growth Crashes To Just 0.1% In Q1

Despite consensus at 1.2% growth QoQ, the “weather” destroyed the fragile stimulus-led economy of the US which managed only a de minimus +0.1% QoQ growth (the lowest since Q1 2011). However, as Steve Liesman noted on the heels of Mark Zandi’s comments “basically ignore this number” – ok then. Spending on Services, however, surged by the most since 2000 – heralded as great news by some talking heads – but is merely a reflection of the surge in healthcare and heating costs (imagine if it had not been cold and if Obamacare hadn’t saved us). As a reminder – this is the growth that is occurring as QE has run its course, as stimulus ends, and as escape velocity nears… if the “weather” can do this much damage to the US economy, should stocks really be trading at the multiple of exuberant future hope that they are?

 

Oops!

 

The full breakdown of GDP components:

And here’s what everyone’s favorite economist, who was off only by around 1900%, thought:

 

 




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ADP 220K Print Beats Expectations, Continues To Goal-Seek Historical Revisions To Ape BLS Data

Since ADP is completely useless when it comes to actually hinting at the future and all it does is “confirm” whatever momentum the BLS reports on, today’s print, like all those from the past, is absolutely meaningless. Still, for those who care, the April private jobs print, even though the month is not over yet, was 220K, above the 210K expected, with the last month revised once again higher from 191K to 209K – this was the highest number since November 2013. Sadly, since ADP continues to not report non-seasonally adjusted numbers (since it doesn’t have them as all it does is take BLS numbers and gently massages them to appear relevant), there is no way of knowing what ADP is actually selling.

Here is the April chart…

… and putting it into its meaningless context, here are the pre-revision o ADP numbers from the past three months.

February

 

 

And March:

 

The suppsed detail behind the numbers. We would say the token 1,000 increase in manufacturing jobs is notable, however since it too is completely made up, there is no point in highlighting it:

 

Amusing soundbites from Mark Zandi, whose relevance as an economist has tumbled to unseen lows:

“The 220,000 U.S. private sector jobs added in April is well above the twelve-month average,” said Carlos Rodriguez, president and chief executive officer of ADP. “Job growth appears to be trending up and hopefully this will continue.”

 

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market is gaining strength. After a tough winter employers are expanding payrolls across nearly all industries and company sizes. The recent pickup in job growth at mid-sized companies may signal better business confidence. Job market prospects are steadily improving.”

Some more absolutely meaningless charts:

Historical Trend – Change in Total Nonfarm Private Employment

 

Total Nonfarm Private Employment by Company Size

Change in Total Nonfarm Private Employment by Selected Industry

And finally, the only actual ADP value added – its social network friendly charty infographic:

Infographic: ADP National Employment Report Shows 220,000 Jobs Added in April




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Bill Gross Contemplates Sneezing

Last month it was a tribute to his cat. This month, the manager of the world’s largest bond fund discusses sneezing: “A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose.”

He also discusses the aftermath: “The old saying goes that when the U.S. economy sneezes, the world catches cold. That still seems to be true enough, although Chinese influenza is gaining in importance. If both sneezed at the same time then instead of “God bless you” perhaps someone would cry out “God have mercy.” We’re not there yet, although in this period of high leverage it’s important to realize that the price of money and the servicing cost of that leverage are critical for a healthy economy. “

He also talks about some other things, mostly revolving around long-term rates of return assumptions and what those mean for investors. Via BBG:

  • Neutral nominal fed funds policy rate is 2% rather than the 4% implied by Fed’s “dots,” which indicates “asset markets are not bubbly, just low returning”
  • While this means concern over possible asset bubbles are unfounded, it’s “not a win/win for investors” as it implies a financial future where returns are much lower than historical levels
  • “Potentially 2% instead of 4% for cash; maybe 3% instead of 5% yields for 10-year Treasury bonds; 4% returns instead of 5–7% for stocks; financial repression ultimately is not an investor’s friend, because it lowers returns on cash and all other financial assets”
  • Alternatives require “taking different risks” via alternative assets, hedge funds, levered closed-end funds, higher proportion of stocks vs bonds

And more such “predictions” about the future, which as Gross himself has ironically explained repeatedly before, are worthless.

Of course, taking an “alternative” risk to the S&P, now actively managed by its Chief Risk Officer, the Fed Chairmanwoman, and investing in hedge funds means underperforming the stock market for 5 years in a row.

Perhaps what Gross should be focusing on is the reverse rotation out of stocks and into bonds once algos realize QE is indeed ending (at least until the crash in stocks forces the Fed printing right back up) which will help PIMCO and other bond funds regain their footing. Of course, that assumes that Bonds are still considered the flight to safety: an assumption which as Paul Singer explained marvelously yesterday, is becoming more precarious by the day.

From PIMCO

Achoo!

There’s nothing like a good sneeze; maybe a hot shower or an ice cream sandwich, but no – nothing else even comes close. A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose. They’d use snuff and stick it up their nose; the tobacco high and the resultant nasal explosion being the fashion of the times. Healthier than some of the stuff people stick up their nose these days I suppose, but then that’s a generational thing. My generation is closer to the snuff than that other stuff.

One of the problems with sneezing though is that there can be an embarrassing aftermath. People in the old days used to carry around handkerchiefs for just that purpose, but now nobody carries a handkerchief. As a substitute you could walk around all day with toilet paper in your pocket, but then you’d stand accused of being a bumpkin and people would probably be right. So usually sneezers just let it rip, cover with their hand, and pray there’s nothing visible behind it. If there is, there might be a pocket to wipe away the evidence, at least for guys like me. Ladies? Their outfits are obviously less sneeze proof. So they need to pray harder.

Speaking of praying, there’s just no stopping people from saying “God bless you” or “bless you” for short. If you’re in a crowded room with more than 50, the “God bless you’s” sort of create a rather constant cacophony like the communion line at a Catholic church. The shorter and more frequently used “bless you” though, may take the religion out of it somewhat and make it ok for atheists to sneeze and still get noticed. Actually, way back when, there was a legitimate purpose for the “God bless you” part. Lots of people died from influenza and associated epidemics and God’s blessing would certainly have come in handy. My wife Sue though, is just a “bless you” person like many of you readers. I am not, which I hope is ok, except that it sort of makes it awkward when we both sneeze at the same time. I get blessed and she doesn’t. Not quite fair I suppose, so sometimes I play along and squeeze her hand after the Achoo and tell her I’m blessed to have her – sneeze or no sneeze. Don’t even need a pinch of snuff to know that’s a good move.

The old saying goes that when the U.S. economy sneezes, the world catches cold. That still seems to be true enough, although Chinese influenza is gaining in importance. If both sneezed at the same time then instead of “God bless you” perhaps someone would cry out “God have mercy.” We’re not there yet, although in this period of high leverage it’s important to realize that the price of money and the servicing cost of that leverage are critical for a healthy economy. The Great Recession occurred significantly as a result of central banks raising the price of credit too high in the face of households and levered speculators who eventually could not afford to pay the increasing interest rate tab. As defaults on U.S. subprime mortgages and high yield bonds began to mount, lenders not only refused to lend more but were forced to liquidate levered holdings, producing a literal run on the “Bank of Credit” which in the U.S. now totals an estimated 75-85 trillion dollars.

As the Fed raised short-term rates to 5¼% in 2004/2006 they were following a historically standard model that followed the thesis of flattening the yield curve, making credit more expensive, and slowing the economy in order to moderate inflation. The 5¼% destination was in part determined by what was and still is known as the Taylor Rule as well as a rather practical assumption that short-term rates approaching the rate of nominal GDP growth had usually been the ultimate destination in a tightening cycle. What the Fed failed to factor in was the increasing amount of leverage in the system that could no longer tolerate standard Taylor/nominal GDP rules of monetary policy.

I bring up this history to illustrate the problem that not only the Fed but all central banks face in this new epoch of high leverage. High debt levels don’t necessarily change the rules of finance (you gotta pay to play), but the models upon which they are based. Interest rates have to be lower in a levered economy so that debtors can survive, debt can be reduced as a % of GDP, and economies can avoid recessions/depressions! In a levered landscape, what is the magical “neutral” policy rate that can do all of that? Hard to know. No wonder the Fed and other central banks stumble along with QEs and Twists, extended periods of time, magical blue dots, and other potions and elixirs to try and produce a favorable outcome.

Despite the uncertainty and the recent importance of historical models using unemployment as a practical guide, there has been research that might point to a proximate neutral fed funds rate. Thomas Laubach and John Williams working for the Fed Board of governors wrote an early 2003 piece titled “Measuring the Natural Rate of Interest.” Their updated model from the San Francisco Fed website suggests the “neutral nominal fed funds rate” might be as low as 50 basis points currently and 150 basis points assuming 2% PCE inflation in the future. Others, such as Bill Dudley, President of the New York Fed, gave an important speech in May of 2012 suggesting a “neutral real rate” close to 0% which would imply a 200-basis-point nominal rate if the Fed’s inflation target was hit. PIMCO’s Saumil Parikh in a March 2013 “Asset Allocation Focus” concluded that a 100-basis-point or a 1% nominal fed funds rate was long-term neutral – stabilizing inflation at 2% and nominal GDP growth close to 5%.

These estimates are just that – approximations of a neutral policy rate in a New Normal economy burdened by high debt leverage and other structural headwinds such as globalization, aging demographic influences, and technology. But I suspect these estimates which average less than 2%, are much closer to financial reality than the average, 4% “blue dot” estimates of Fed “participants,” dismissed somewhat by Fed Chair Janet Yellen herself last month. Why is this academic “Fed Fight” important to markets? Well, if a bond investor knew whether 4% or 2% was the long term neutral policy rate, he/she would literally have the key to the kingdom. Forward markets now anticipate a 4% nominal policy rate sometime out in 2020. If the neutral policy rate was 2% instead of 4% then bonds instead of being artificially priced, would be attractively priced. Instead of facing a nearly 100% certain bear market currently forecast by market mavens, bond investors could draw some comfort from a low returning yet less volatile future. Bonds would shed the “certificates of confiscation” label for yet another decade or so, as this 2% neutral policy rate delevered the economy without igniting inflationary fears.

At PIMCO, we believe that this focus on the future “neutral” policy rate is the critical key to unlocking value in all asset markets. If future cash returns are 2% (our belief) instead of 4%, then other assets such as stocks and real estate must be assumed to be more fairly priced as well. Current fears of asset bubbles would be unfounded. A 2% neutral policy rate, however, is not a “win/win” for investors. It comes at a price – the cost being a financial future where asset returns are much lower than historical levels. When you think about it, savers would much prefer to receive a 4% yield on their savings than a 2% rate. No-brainer there. But the journey to 4% would be much bumpier and “bear market” would be an apt description of the next half-decade. That is what the Fed is trying to avoid, but in the process they “financially repress” markets, offering a “Yellen put” but distributing low asset returns as a result. Potentially 2% instead of 4% for cash; maybe 3% instead of 5% yields for 10-year Treasury bonds; 4% returns instead of 5–7% for stocks; financial repression ultimately is not an investor’s friend, because it lowers returns on cash and all other financial assets.

So you say you need more? Join the club. Most pension funds assume 7–8% total returns in order to fund future retirement liabilities. Investors want their “cake,” priced at current market prices, but they want to “eat” future returns of near double-digits. That won’t happen with a 2% neutral policy rate. Still there are ways to fight back – most of which involve taking different risks than you may be commonly used to taking: alternative assets, hedge funds, levered closed-end funds, a higher proportion of stocks vs. bonds in a personal portfolio. Portfolio managers at PIMCO who understand this can also transform a total return bond portfolio into a higher returning asset. All of these alternatives are potentially higher returning assets in a world of 2% policy rates where cash is a poor performing asset, but likewise a cheap liability that can be borrowed to an investor’s advantage. Look to PIMCO for your common cold solution. If you sneeze, we’ll just squeeze your hand and tell you we are blessed to have you. Hopefully vice versa. Don’t need a pinch of snuff to know that.

Achoo Speed Read

1) Future “neutral” policy rate is critical for all asset values.
2) Current Fed “participants” believe 4% is the neutral rate.
3) PIMCO believes 2% neutral is closer to the mark.
4) If so, asset markets are not bubbly, just low returning.
5) Look to different areas of risk taking if you need higher returns.
6) Bring a handkerchief in any case.

Achoooooo!




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Frontrunning: April 30

  • Headline of the day goes to… Cold weather seen temporarily slowing U.S. economy (Reuters)
  • Americans Want to Pull Back From World Stage, Poll Finds (WSJ)
  • U.S. Plans to Charge BNP Over Sanctions (WSJ)
  • What about Jay Carney: Putin Threat to Retaliate for Sanctions Carries Risks (BBG)
  • Fed expected to take further step toward ending bond buying (Reuters)
  • A Fed-Watcher’s Guide to FOMC Day: Steady Taper, Green Shoots (BBG)
  • Alstom accepts 10 billion euro GE bid for its energy unit (Reuters)
  • BOJ projects inflation exceeding 2 percent, keeps bullish view intact (Reuters)
  • In Drug Mergers, There’s One Sure Bet: The Layoffs (WSJ)
  • Orbital Sciences Soars Out of Musk’s Shadow in Space Race (BBG)
  • London Travel May Ease as Subway Commuters Brave Walkout (BBG)

 

Overnight Media Digest

WSJ

* Americans in large numbers want the United States to reduce its role in world affairs even as a showdown with Russia over Ukraine preoccupies Washington, a Wall Street Journal/NBC News poll finds. In a marked change from past decades, nearly half of those surveyed want the United States to be less active on the global stage, with fewer than one-fifth calling for more active engagement. (r.reuters.com/kyv88v)

* Federal prosecutors are planning to criminally charge BNP Paribas SA for doing business with countries subject to U.S. economic sanctions, including Iran, Sudan and Cuba. If the government goes ahead with charges against the parent of the Paris-based bank, it could lead to the first guilty plea by a bank in decades. (r.reuters.com/huv88v)

* French industrial conglomerate Alstom on Wednesday decided to review a 12.35 billion euro ($17.12 billion) acquisition bid made by General Electric for its power equipment division by the end of the month, giving GE a lead over rival Siemens. Alstom’s board unanimously acknowledged the “strategic and industrial merits” of the GE offer. (r.reuters.com/suv88v)

* Johnson & Johnson, the largest maker of a device used in a popular uterine surgery, said it has suspended sales of the tools called power morcellators amid concerns about their potential to spread a rare but deadly cancer. (r.reuters.com/jev88v)

* Energy Future, the former TXU, filed for one of the biggest bankruptcies on record, surrendering to a misguided bet on natural-gas prices and a debt load of over $40 billion. (r.reuters.com/puv88v)

* In an unprecedented move, the National Basketball Association commissioner on Tuesday banned the owner of the Los Angeles Clippers from running his team or associating with the league for life, after recordings of his racist comments became public, causing outrage on the court and sending advertisers fleeing. Commissioner Adam Silver also levied a $2.5 million fine against Clippers owner Donald Sterling. (r.reuters.com/kev88v)

* Chinese pork producer WH Group scrapped what could have been the world’s biggest initial public offering in a year when investors balked at the high price. The failed IPO stands in contrast to the success eight months ago when WH Group, then known as Shuanghui International Holdings, bought Smithfield Foods in the biggest-ever Chinese acquisition of a U.S. company. (r.reuters.com/xuv88v)

 

FT

France’s Alstom accepted General Electric’s $12 billion-plus all-cash offer for its energy arm, but the engineering company left the door open for a rival bid from Germany’s Siemens.

Barclays will say next week that it is creating a “bad bank”, hoping to transform its struggling investment banking operations that were dealt a further blow with the exit of the highly regarded head of its U.S. business.

Russia’s state-controlled gas giant Gazprom said it was taking steps to mitigate the impact of possible further Western sanctions as it posted a 7 percent drop in net profit last year.

Twitter’s stock fell 11 percent, its lowest since the microblogger’s initial public offering, when it failed to overcome a trend of slow user growth, shaking investor confidence that it could ever grow to the size of Facebook .

WH Group has pulled the plug on its $2 billion Hong Kong float after failing to attract sufficient demand, even though the Chinese pork producer had already halved the size of the fundraising last week.

 

NYT

* Americans in large numbers want the United States to reduce its role in world affairs even as a showdown with Russia over Ukraine preoccupies Washington, a Wall Street Journal/NBC News poll finds. In a marked change from past decades, nearly half of those surveyed want the United States to be less active on the global stage, with fewer than one-fifth calling for more active engagement. (r.reuters.com/kyv88v)

* Federal prosecutors are planning to criminally charge BNP Paribas SA for doing business with countries subject to U.S. economic sanctions, including Iran, Sudan and Cuba. If the government goes ahead with charges against the parent of the Paris-based bank, it could lead to the first guilty plea by a bank in decades. (r.reuters.com/huv88v)

* French industrial conglomerate Alstom on Wednesday decided to review a 12.35 billion euro ($17.12 billion) acquisition bid made by General Electric for its power equipment division by the end of the month, giving GE a lead over rival Siemens. Alstom’s board unanimously acknowledged the “strategic and industrial merits” of the GE offer. (r.reuters.com/suv88v)

* Johnson & Johnson, the largest maker of a device used in a popular uterine surgery, said it has suspended sales of the tools called power morcellators amid concerns about their potential to spread a rare but deadly cancer. (r.reuters.com/jev88v)

* Energy Future, the former TXU, filed for one of the biggest bankruptcies on record, surrendering to a misguided bet on natural-gas prices and a debt load of over $40 billion. (r.reuters.com/puv88v)

* In an unprecedented move, the National Basketball Association commissioner on Tuesday banned the owner of the Los Angeles Clippers from running his team or associating with the league for life, after recordings of his racist comments became public, causing outrage on the court and sending advertisers fleeing. Commissioner Adam Silver also levied a $2.5 million fine against Clippers owner Donald Sterling. (r.reuters.com/kev88v)

* Chinese pork producer WH Group scrapped what could have been the world’s biggest initial public offering in a year when investors balked at the high price. The failed IPO stands in contrast to the success eight months ago when WH Group, then known as Shuanghui International Holdings, bought Smithfield Foods in the biggest-ever Chinese acquisition of a U.S. company. (r.re* Federal prosecutors are nearing criminal charges against some of the world’s biggest banks, according to lawyers briefed on the matter, a development that could produce the first guilty plea from a major bank in more than two decades. In doing so, prosecutors are confronting the popular belief that Wall Street institutions have grown so important to the economy that they cannot be charged. (r.reuters.com/duv88v)

* The TXU Corp, the Texas energy giant that was taken over in a record-shattering buyout in 2007, finally collapsed into a long-awaited bankruptcy early Tuesday. On the surface, the long, slow decline of the company, renamed Energy Future Holdings , has caused few ripples, though it is the state’s largest electricity generator and provides power to 3 million customers. (r.reuters.com/fuv88v)

* British bank Barclays Plc said that Hugh McGee, head of its business in the United States, will leave on Wednesday, becoming the latest in a series of senior executives to depart in the last two years. (r.reuters.com/guv88v)

* Wal-Mart Stores Inc plans to add a new consumer service to its arsenal of offerings on Wednesday, teaming up with a website that helps customers to review prices at several insurance companies and contrast them with their current auto insurance. (r.reuters.com/juv88v)

* In an effort to end what he sees as another way into borrowers’ accounts, Benjamin M. Lawsky, New York State’s top financial regulator, is sending cease-and-desist letters to 20 companies suspected of making illegal payday loans, 12 of which appear to use debit card information to do so. (r.reuters.com/kuv88v)

* In a pair of unanimous decisions, the Supreme Court on Tuesday made it easier for the winning side in patent cases to recover its legal fees from the loser. The decisions were welcomed by some technology companies, which said the rulings would help address what they say are abusive and coercive lawsuits brought by “patent trolls,” or companies that buy patents not to use them but to collect royalties and damages. (r.reuters.com/zuv88v)ters.com/xuv88v)

 

China

CHINA SECURITIES JOURNAL

– Sources told reporters that new detailed standards regarding the regulation of IPOs, in particular pertaining to underwriting, subscription processes and private equity should be released in the near future.

– Profits in a total of 2,473 listed companies hit 2.24 trillion yuan ($357.94 billion) in 2014, rising 14.68 percent from a year earlier, Wind Information data showed.

SHANGHAI SECURITIES NEWS

– Profits at listed Chinese companies beat expectations in 2013, rising over 14 percent.

SHANGHAI DAILY

– The Supreme Court ruled that all parole and early-release hearings involving officials imprisoned for graft must be open to the public.

 

Britain

The Telegraph

ROLLS-ROYCE IN TALKS WITH SIEMENS OVER SALE OF GAS TURBINE BUSINESS

Siemens is in talks to buy Rolls-Royce’s gas turbine and compressor business for 900 million pounds ($1.52 billion), but the German firm looks set to miss out on Alstom’s energy assets. (http://ift.tt/1mZ17uF)

CO-OP DISMISSES BOARD MEMBER FOLLOWING LEAKS

The Co-operative Group has dismissed one of its board members following a series of leaks which led to the departure of former Chief Executive Euan Sutherland. (http://ift.tt/1mZ15TC)

SCOTTISH INDEPENDENCE WILL TRIGGER MASS EXODUS OF FINANCIAL SERVICES

Scottish households will see a double-digit decline in living standards if the country votes to become independent, as secession triggers a mass exodus of the financial services industry, according to a respected think-tank. (http://ift.tt/1mZ17uL)

‘UK SHOULD GET OUT OF THE EU,’ SAYS FORMER FRENCH PM

Britain should leave Europe because it is killing the European Union dream, a former French Prime Minister has said. In a blistering attack, Michel Rocard, a grandee of the French Socialist Party who served as premier under Francois Mitterrand, identified Britain as the source of all the EU’s problems.

CUBA ACCUSES UK OF BEING ANTI-CAPITALIST OVER PLAIN PACKAGING PLANS

Cuba has accused Britain of being anti-capitalist and threatening free trade with its plans introduce plain packaging on cigarettes and cigars. (http://ift.tt/1hPUnyi)

The Guardian

BARCLAYS’ MOST SENIOR BANKER IN U.S. TO LEAVE

Barclays most senior banker in the U.S. is to leave, triggering fears of an exodus of staff as the business prepares for another restructuring of its controversial investment banking arm. (http://ift.tt/1hPUlpY)

VINCE CABLE REBUTS CLAIM GOVERNMENT MASSIVELY UNDERVALUED ROYAL MAIL

Vince Cable has continued to contest claims that the government significantly undervalued Royal Mail, costing taxpayers 750 million pounds on the day of the postal service was privatised in October. (http://ift.tt/1mZ16ab)

ANGLO IRISH BANK PAIR AVOID PRISON DESPITE BEING FOUND GUILTY

Two former Anglo Irish Bank executives have been spared jaily despite being found guilty of handing out illegal loans from the financial institution at the heart of Ireland’s economic collapse. (http://ift.tt/1mZ16qv)

STING OF ZERO-HOURS CONTRACTS REVEALED

Almost three in 10 people on zero-hours contracts are unable to work as many hours as they would like, according to a study, which shows that many of the UK’s lowest paid people are gaining little benefit from the accelerating recovery. (http://ift.tt/1mZ181C)

The Times

PFIZER RAMPS UP PRESSURE AS ASTRA BID WINS SUPPORT

The head of Pfizer has jetted into London to begin a whistlestop tour of City institutions as the U.S. drugs company scrambles to drum up support for a hostile 58.7 billion pound takeover of AstraZeneca. (http://ift.tt/R0KJi4)

LABOUR WANTS LAW CHANGE TO BLOCK HOSTILE TAKEOVERS

Britain’s Labour party is examining changes to the law to give company boards greater powers to block hostile foreign takeovers. Chuka Umunna, the shadow business secretary, wants greater powers to “stop the rush” towards takeovers amid the unfolding attempt by Pfizer, the U.S. pharmaceutical giant, to snap up AstraZeneca. (http://ift.tt/1hPUlGu)

 

 

Fly On The Wall 7:00 AM Market Snapshot

ECONOMIC REPORTS

Domestic economic reports scheduled today include:
ADP employment report for April at 8:15–consensus 210K
Q1 real GDP at 8:30–consensus up 1.1%
Chicago business barometer for April at 9:45–consensus 56.9
FOMC meeting announcement at 14:00

ANALYST RESEARCH

Upgrades

Aspen Technology (AZPN) upgraded to Buy from Hold at Summit Research
Beazer Homes (BZH) upgraded to Buy from Neutral at Sterne Agee
Cerner (CERN) upgraded to Buy from Neutral at UBS
Compass Minerals (CMP) upgraded to Overweight from Neutral at JPMorgan
El Paso Pipeline (EPB) upgraded to Neutral from Underperform at BofA/Merrill
Highwoods Properties (HIW) upgraded to Buy from Hold at Stifel
Parker-Hannifin (PH) upgraded to Equal Weight from Underweight at Morgan Stanley
Pioneer Energy (PES) upgraded to Buy from Hold at Wunderlich
S&T Bancorp (STBA) upgraded to Outperform from Market Perform at Keefe Bruyette
Semiconductor Manufacturing (SMI) upgraded to Buy from Neutral at BofA/Merrill
StanCorp (SFG) upgraded to Equal Weight from Underweight at Morgan Stanley
Texas Capital (TCBI) upgraded to Buy from Hold at Deutsche Bank
Trinity Biotech (TRIB) upgraded to Buy from Neutral at Roth Capital
Waddell & Reed (WDR) upgraded to Outperform from Market Perform at Keefe Bruyette
Xylem (XYL) upgraded to Buy from Hold at Stifel

Downgrades

ABB (ABB) downgraded to Neutral from Buy at BofA/Merrill
ABB (ABB) downgraded to Sector Perform from Outperform at RBC Capital
AGCO (AGCO) downgraded to Neutral from Overweight at Piper Jaffray
ARM Holdings (ARMH) downgraded to Neutral from Buy at Citigroup
Cloud Peak (CLD) downgraded to Market Perform from Outperform at BMO Capital
Coach (COH) downgraded to Neutral from Buy at Citigroup
Corning (GLW) downgraded to Neutral from Overweight at HSBC
Dresser-Rand (DRC) downgraded to Underweight from Equal Weight at Morgan Stanley
eBay (EBAY) downgraded to Neutral from Overweight at Atlantic Equities
MarkWest Energy (MWE) downgraded to Equalweight from Overweight at Barclays
Nordstrom (JWN) downgraded to Hold from Buy at McAdams Wright
Orbital Sciences (ORB) downgraded to Hold from Buy at KeyBanc
Regional Management (RM) downgraded to Market Perform from Outperform at BMO Capital

Initiations

Aflac (AFL) assumed with a Market Perform at Keefe Bruyette
Michael Kors (KORS) initiated with a Buy at Janney Capital
Navient (NAVIV) initiated with a Buy at Compass Point
Sallie Mae Bank (SLMVV) initiated with a Buy at Compass Point

COMPANY NEWS

Exelon (EXC) to acquire Pepco Holdings (POM) for $27.25 per share in cash
GE (GE) offered $13.5B enterprise value to acquire businesses of Alstom Thermal (ALSMY)
Alstom (ALSMY) says ‘considering’ acquisition of Energy unit by GE (GE)
Twitter (TWTR) reported monthly active users 255M as of March 31
eBay (EBAY) announced that it repatriated $9B worth of cash, on which it took a $3B charge in Q1
Southern Company (SO) to take $380M charge in Q1 for cost of Kemper County plant
Microsoft (MSFT), BesTV to bring Xbox One to China in September
Auxilium (AUXL) cut its FY14 revenue view to $380M-$420M from $450M-$490M, consensus $484.11M, and cut its net income view to ($15M)-$0 from $45M-$50M

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
eBay (EBAY), Twitter (TWTR), Wi-LAN (WILN), Pinnacle Entertainment (PNK), Barrick Gold (ABX), Hyatt Hotels (H), WellPoint (WLP), ICON plc (ICLR), Euronet (EEFT), Flushing Financial (FFIC), Aegion (AEGN), RF Micro Devices (RFMD), Genworth (GNW), SM Energy (SM), Green Plains (GPRE), Panera Bread (PNRA), HCC Insurance (HCC), Silicon Image (SIMG), Trinity Industries (TRN), Concur (CNQR), NuVasive (NUVA), Aspen Technology (AZPN), GFI Group (GFIG), C.H. Robinson (CHRW), Dun & Bradstreet (DNB), Nanometrics (NANO), RenaissanceRe (RNR), Cascade Microtech (CSCD), M/A-COM (MTSI), Marriott (MAR), Columbia Sportswear (COLM), U.S. Steel (X), RPX Corp. (RPXC), LogMeln (LOGM), Dolby (DLB), Anika Therapeutics (ANIK), Owens-Illinois (OI), EXCO Resources (XCO), National Instruments (NATI), Hanover Insurance (THG), Rex Energy (REXX), Riverbed (RVBD), Calix (CALX),  Newfield Exploration (NFX), Huron (HURN), SolarWinds (SWI), EZCORP (EZPW), Blackstone Mortgage (BXMT), Cray (CRAY), Fiserv (FISV),  Dynamic Materials (BOOM), Seagate (STX), Edison International (EIX), Plantronics (PLT)

Companies that missed consensus earnings expectations include:

DreamWorks Animation (DWA), AMC Entertainment (AMC), Ingredion (INGR), Carlyle Group (CG), Olympic Steel (ZEUS), Regis (RGS), ClickSoftware (CKSW), Exelon (EXC), Allot Communications (ALLT), AXIS Capital (AXS), Heritage Oaks (HEOP), Watts Water (WTS), Virtus Investment Partners (VRTS), First Financial Bancorp (FFBC), Willis Group (WSH), FEI Company (FEIC), Usana (USNA), Franklin Electric (FELE), Corporate Executive Board (CEB), Cloud Peak (CLD), ZELTIQ (ZLTQ), CAI International (CAP), Power Integrations (POWI), Vistaprint (VPRT), Trulia (TRLA), Vanguard Natural (VNR), Town Sports (CLUB), Cempra (CEMP)

Companies that matched consensus earnings expectations include:
Radware (RDWR), AudioCodes (AUDC), Timmins Gold (TGD), Mueller Water (MWA), Correction: Celadon Group (CGI), Inphi (IPHI), TECO Energy (TE), Ikanos (IKAN), Verisk Analytics (VRSK), HFF Inc. (HF), Bravo Brio Restaurant (BBRG), Epiq Systems (EPIQ), Big 5 Sporting (BGFV), Chemed (CHE), Express Scripts (ESRX), Acadia Healthcare (ACHC)

NEWSPAPERS/WEBSITES

U.S. close to filing criminal charges against large banks (BNPQY, CS), NY Times says
Sanofi (SNY) working with Evercore on drug sale, Reuters reports
Morgan Stanley (MS) planning a retail banking push, FT reports
GE (GE) bid of over $12B for Alstom (ALSMY) energy assets accepted, WSJ reports
GE (GE) says discussions with France on Alstom (ALSMY) offer ‘productive,’ Reuters says
Sotheby’s (BID) board members agreed with Loeb’s critiques, WSJ says
Bayer (BAYRY) offers assets, cash for Merck (MRK) OTC unit, Bloomberg says

SYNDICATE

CAI International (CAP) files to sell 3M common shares for holders
Enstar Group (ESGR) files to sell 2.61M ordinary shares for holders
HD Supply (HDS) files to sell 30M shares of common stock for holders
Liquid Holdings (LIQD) files to sell 10M shares of common stock for holders
Seaspan (SSW) files to sell 3.63M common shares for holders
Wet Seal (WTSL) files to sell 28.61M common shares for holders
ePlus (PLUS) 1.573M share Secondary priced at $50.00




via Zero Hedge http://ift.tt/1jh7M2D Tyler Durden

China to Surpass USA as World’s Largest Economy THIS YEAR

Financial Times reports:

The US is on the brink of losing its status as the world’s largest economy, and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies.

This is – rightly – front page news (hat tip to Drudge for the headline):

But this is not entirely surprising.

As we reported in April 2012, leading Chinese economic analyst (and American ex-pat) professor Michael Pettis argued in 2011 that China’s GDP might already higher than America’s in terms of purchasing power parity.

And we noted that Arvind Subramanian – former assistant director in the Research Department of the International Monetary Fund, and now senior fellow jointly at the Peterson Institute for International Economics – says that China passed up the USA in 2010.




via Zero Hedge http://ift.tt/1maV1pI George Washington