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U.S. consumer spending tepid; savings at two-year high

WASHINGTON (Reuters) – U.S. consumer spending barely rose in February as households used the windfall from lower gasoline prices to boost savings to the highest level in more than two years, the latest sign that the economy hit a soft patch in the first quarter.

Economic growth has been undercut by bad winter weather, a strong dollar, a now-settled labor dispute at busy West Coast ports and softer demand in Europe and Asia. While the slowdown in activity is likely temporary, it could prompt the Federal Reserve to delay raising interest rates until later this year.

“We expect spending activity to rebound meaningfully in the coming months as the weather setback dissipates, but the very weak tone in the data will likely continue to temper the impulse at the Fed to tightening policy in the near-term,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

The Commerce Department said on Monday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1 percent last month after dropping 0.2 percent in January.

Households cut back on purchases of big-ticket items like automobiles, but a cold snap lifted spending on utilities.

Economists had forecast spending gaining 0.2 percent.

When adjusted for inflation, spending dipped 0.1 percent, the weakest reading since April of last year, after rising 0.2 percent in January.

Investors on Wall Street largely ignored the data, focusing attention on a raft of biotechnology merger deals. U.S. stocks were trading higher.

The dollar gained against a basket of currencies and prices for U.S. government debt also rose.


Consumer spending, which grew at its quickest pace in more than eight years in the fourth quarter, has lost momentum in part because of bad weather and a greater propensity by households to save money and reduce debt.

February’s soft report prompted economists to further cut their first-quarter GDP growth estimates.

Forecasting firm Macroeconomic Advisers lowered its estimate by two-tenths of a percentage point to a 0.9 percent annual pace. Barclays cut its forecast to a 1 percent rate from 1.2 percent, while Morgan Stanley now sees a 0.8 percent growth pace instead of 0.9 percent.

While households appear to have pocketed the bulk of their savings from lower gasoline prices or used the money to pay down debt, economists expect improved household balance sheets and a tightening labor market to boost consumer spending this year.

Income rose 0.4 percent last month after a similar gain in January. Savings jumped to $768.6 billion, the highest level since December 2012, from $728.7 billion in January.

The saving rate rose to 5.8 percent, also the highest since December 2012, from 5.5 percent in January.

“Consumers have a lot of pent-up spending power once the economy gets past the winter doldrums,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

There already are signs that a thaw is underway.

In a separate report, the National Association of Realtors said its Pending Home Sales Index, based on signed contracts, rose 3.1 percent in February to its highest level since June 2013. That indicated a pick-up in home sales.

Harsh winter weather has hurt parts of the housing sector.

There was a slight uptick in prices last month, suggesting a recent disinflationary trend had run its course, but inflation remains well below the Fed’s 2 percent target.

Fed Chair Janet Yellen signaled on Friday that the U.S. central bank would likely start raising interest rates later this year, even amid low-running inflation. The Fed has held its key short-term interest rate near zero since December 2008.

A price index for consumer spending increased 0.2 percent in February after falling 0.4 percent in January. In the 12 months through February, the personal consumption expenditures (PCE) price index rose 0.3 percent.

Excluding food and energy, prices edged up 0.1 percent after a similar gain in January. The so-called core PCE price index increased 1.4 percent in the 12 months through February.

“This should reassure the Fed that recent low headline inflation readings are the result of transitory energy price declines and that inflation is likely to rise toward the Fed’s target over time,” said John Ryding, chief economist at RDQ Economics in New York.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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Exclusive: Morgan Stanley to sell natural gas business scrutinized by Fed

NEW YORK (Reuters) – Morgan Stanley has agreed to sell a compressed natural gas business that came under regulatory scrutiny shortly after its launch last year, according to a document obtained by Reuters and three people familiar with the matter.

The bank will transfer the gas business, Wentworth, to a newly formed company called Pentagon Energy LLC. Two Morgan Stanley managers who were involved with Wentworth, Alberto Chiesara and Ryan Comerford, are leaving to join the new company as principals, according to those sources.

Simon Greenshields, who had been co-head of Morgan Stanley’s commodities business until January and was earlier said to be seeking to leave the bank through a Wentworth sale, is not joining Pentagon Energy.

The sources did not disclose any financial terms of the deal. Morgan Stanley declined to comment on the matter.

Pentagon’s plan is to take advantage of low natural gas prices in North America by exporting the commodity via container ships to under-served markets in the Caribbean and Central America.

The countries Pentagon is targeting, such as the Dominican Republic, lack access to natural gas and use more expensive oil instead for their power plants.

Yet the business may now be less lucrative than at the time of its launch, when crude oil traded at four to five times the cost of natural gas when measured in comparable thermal units. Today, following a long slide, crude trades at around three times the cost of U.S. gas, according to Reuters data.

Reuters first revealed Morgan Stanley’s plan last August after Wentworth filed an application with the U.S. Department of Energy to build, own and operate compression and container loading facility in Texas.

The plan soon drew attention from the U.S. Federal Reserve, which has been examining banks’ physical commodity operations, and contacted Morgan Stanley with questions about Wentworth. After the Fed reached out to Morgan Stanley, Chief Executive James Gorman told staff that the business had to be divested, casting doubt about its future.

Lawmakers have put more pressure on Wall Street to exit physical commodities trading, with a Senate subcommittee releasing a highly critical report in November.

Morgan Stanley and Goldman Sachs Group Inc have come under most intense scrutiny because of their historic dominance in commodities trading, and because of a 1999 legal clause that gives them more leeway to retain such operations.

Morgan Stanley has been more aggressive about selling businesses that own, store or transport physical commodities than Goldman has, although its management has said that the bank plans to continue to act as a market maker for clients involved in physical commodities.

It is unclear whether Morgan Stanley has an agreement to provide financing for the natural gas businesses being sold to Pentagon Energy.

Chiesara, who was an executive director at Morgan Stanley, and Comerford, who was a managing director, left the bank earlier this month, according to a person with knowledge of the matter. Comerford was previously head of the bank’s natural gas trading and origination business, a position that Jay Rubenstein took over on Jan. 1.

Chiesara and Comerford will be joining Alvaro Campins and Luis Gutierrez as principals of newly formed Pentagon Energy. Campins and Gutierrez come from Pentacles Energy, which describes itself on its web site as a crude oil and gas production company in Tennessee.

Pentagon Energy, which is based in Coral Gables, Florida, is acquiring interests in Wentworth Compression LLC, Wentworth Gas Marketing LLC and Wentworth Holdings LLC from a Morgan Stanley subsidiary called MSDW Power Development Corp.

(Reporting by Lauren Tara LaCapra; Editing by Tomasz Janowski)

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With blog, Bernanke has new platform to make old argument

(Reuters) – Ben Bernanke launched a blog on Monday, giving the former Federal Reserve chairman a new pulpit from which to make an old argument: why interest rates need to be so low.

Bernanke, who handed the reins of the U.S. central bank to Janet Yellen last year, has been hitting the conference circuit more in recent months ahead of the planned publication of his book this autumn.

“Now that I’m a civilian again, I can once more comment on economic and financial issues without my words being put under the microscope by Fed watchers,” he wrote, with perhaps a touch of hope, in his introductory blog post.

Bernanke’s 2006-2014 stint atop the U.S. central bank was marked by the brutal financial crisis and a frustratingly slow recovery that prompted him to drive rates to near zero and launch three rounds of bond purchases, to stimulate the economy.

The Fed is expected to begin tightening policy later this year. But in the past, both Bernanke and Yellen have been criticized for keeping rates artificially and dangerously low and, as Bernanke noted in his blog, hurting seniors’ savings.

“The bottom line is that the state of the economy, not the Fed, ultimately determines the real rate of return attainable by savers and investors,” he wrote on the blog hosted by Brookings Institution, where he is a distinguished fellow in residence.

“The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate,” Bernanke added.

“There is absolutely nothing artificial about that!”

The blog, which Brookings said may also occasionally touch on baseball, a passion of Bernanke’s, can be found here: here

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

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Pending home sales give hopeful sign for U.S. housing market

WASHINGTON (Reuters) – Contracts to purchase previously owned U.S. homes rose to their highest level in 1-1/2 years in February, a sign the lackluster recovery in the U.S. housing market could be accelerating.

The National Association of Realtors on Monday said its pending home sales index rose 3.1 percent last month.

Economists polled by Reuters had forecast a 0.4 percent gain, although the association also revised previous readings to show a smaller gain in January than initially estimated.

The increase last month took contract signings, which usually turn into sales after a month or two, to their highest level since June 2013.

(Reporting by Jason Lange; Editing by Andrea Ricci)

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Former JP Morgan banker to head Barclays’ UK ECM team

LONDON (Reuters) – Barclays (BARC.L) has hired Barry Meyers, a former executive director at JP Morgan (JPM.N), to head its UK equity capital markets (ECM) team, a source familiar with the matter said on Monday.

Meyers will start at the bank in July and report to Tom Johnson, co-head of ECM for Europe, the Middle East and Africa, the source said.

The hiring comes after Chris Madderson was named EMEA head of equities syndicate at the bank last year.

Last month, Barclays hired Philip Shelley, Goldman Sachs’s co-head of UK corporate broking.

Barclays had roles on the initial public offerings (IPOs) of John Laing (JLG.L) and Wizz Air (WIZZ.L), as well as last week’s 1.5 billion pound ($2.22 billion) block trade in the London Stock Exchange (LSE.L).

($1 = 0.6761 British Pounds)

(Reporting by Freya Berry; editing by Jason Neely)

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Exclusive: Fidelity moves to end DuPont proxy battle-sources

NEW YORK (Reuters) – Fidelity Investments, a major investor in DuPont (DD.N), has put pressure on activist fund Trian Fund Management LP and the chemical conglomerate to reach a settlement in what it sees as a detrimental proxy fight, according to people close to the matter.

Fidelity, whose 2.5 percent stake makes it DuPont’s sixth largest shareholder, has not publicly revealed what sort of compromise it was seeking. Yet its unusual intervention as peacemaker could influence other mutual fund investors in DuPont and pre-empt what could be this year’s biggest battle over board representation.

In a filing with the U.S. Security and Exchange Commission last Wednesday, Trian disclosed that on March 11 it received a call from one of DuPont’s largest stockholders encouraging Trian and the company to resolve the proxy contest and avoid a costly and disruptive conflict. It did not disclose the name of that investor, but those familiar with the matter said it was Fidelity, the second largest U.S. mutual fund company.

A Fidelity spokesman declined to comment. DuPont and Trian reiterated their positions, but declined to comment on Fidelity’s involvement.

“Since 2009, DuPont has been executing a transformational strategy that is delivering superior results,” a DuPont spokeswoman said.

“In direct contrast, Trian has a singular, value-destructive agenda to break up and add excessive debt to DuPont, which we believe would put shareholder value at risk,” she added.

A Trian spokeswoman rejected the criticism.

“We have met recently with many of DuPont’s largest stockholders and our ideas clearly resonate with them,” she said. “We believe that Trian’s presence on the board will help to drive sales, margins, and earnings growth at a company where EPS (earnings per share) is expected to be lower in 2015 than in 2011 for the fourth year in a row.”

Trian, which owns a 2.7 percent stake in DuPont, is pushing for the appointment of four of its own directors at the company’s annual shareholder meeting on May 13. The slate includes Trian’s co-founder and Chief Executive Officer Nelson Peltz, who has requested a seat on the board since earlier this year.

    DuPont, which has a market capitalization of $65 billion, named two of its own nominees, Ed Breen and Jim Gallogly, as directors last month. In an attempt to end the proxy war, the Wilmington, Delaware-based company has said it is prepared to accept one of the fund’s nominees, but has refused to add Peltz to its board.

DuPont had said it would spin off its performance chemicals business. Peltz also wants the company to separate its volatile but cash flow-strong materials businesses from its nutrition and health, agriculture, and industrial biosciences divisions.

DuPont has rejected the proposal, stressing that keeping its businesses together would allow the company to benefit from its science platform, global scale, market access and brand.


Over the past few weeks, both camps have been lobbying with DuPont’s top 30 to top 40 investors, the sources said.

A Reuters poll of investors who hold about 48 million DuPont shares representing 5 percent of the company, found them split on Trian’s board representation.

“We bought DuPont before this happened, and we do think this is, at minimum a distraction, at maximum a dislocation to the plan that is in place,” said Robert Zagunis, managing director of Jensen Investment Management, which owns 1.8 million DuPont shares. “We want this to be resolved, and with DuPont winning the proxy.”

Others disagreed. “We think the board needs to make decisions in the boardroom to maximize value. Trian brings one perspective for them,” said Aeisha Mastagni, an investment officer for California State Teachers’ Retirement System, which held about 3.6 million shares as of Feb. 28.

(Additional reporting by Tim McLaughlin in Boston; Editing by Greg Roumeliotis and Tomasz Janowski)

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Reuters Poll: Oil prices to stabilize as demand rises

(Reuters) – Oil prices should stabilise in the second half of this year and rise in 2016 and 2017 as consumers respond to a period of much cheaper fuel, a Reuters poll of analysts showed on Monday.

The survey of 34 analysts predicted North Sea Brent crude LCOc1 would average $59.20 a barrel in 2015, up from around $55 so far this year. The forecast is up just 20 cents from the projection in last month’s Reuters survey. [O/POLL]

Brent is expected to rise to $72.10 in 2016 and $78.70 in 2017, the poll showed.

Oil prices fell more than 60 percent between June 2014 and January, and although they have recovered a little since then, they are still around half their level a year ago.

This has encouraged motorists to make more use of their cars and let factories and other businesses boost fuel consumption.

London-based consultancy Energy Aspects expects world oil demand to rise by up to 1.5 million barrels per day this year. That’s double the rate of oil demand growth seen last year, according to the International Energy Agency.

“Strength is broad-based,” Energy Aspects analyst Virendra Chauhan told Reuters Global Oil Forum. “On-road diesel demand has continued at a stellar pace.”

Intesa Sanpaolo analyst Daniela Corsini agreed, saying the rise in consumption appeared to be worldwide.

“Global oil demand will surprise upwards, driven by the United States, China and emerging Asia,” Corsini said.

Increasing demand should help absorb any extra oil coming onto the market from Iran, if it can agree a nuclear deal with the West that would bring an end to sanctions.

And some analysts see demand outstripping supply.

“The global market is expected to move into supply deficit in the second half (this year), with that deficit reaching 1 million bpd in the fourth quarter,” Standard Chartered analyst Paul Horsnell said.

Standard Chartered, one of the most bullish banks, expects Brent to average $76.00 in 2015.

Twenty of the 32 analysts who contributed to both the February and March Reuters polls left their 2015 Brent forecasts unchanged. Six of them increased their outlooks, with equal numbers seeing lower prices.

European investment bank Barclays raised its Brent forecast for 2015 by $7 to $51, the biggest increase by any contributor.

The poll forecasts U.S. light crude CLc1 will average $53.60 a barrel this year and $66.50 in 2016.

(Additional reporting by Nallur Sethuraman and Koustav Samanta in Bengaluru; Editing by Christopher Johnson and Dale Hudson)

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Dufry details $4 billion fundraising plan for WDF buy

ZURICH (Reuters) – Dufry AG (DUFN.S) has fleshed out plans for its takeover of Italy’s World Duty Free SpA (WDF) (WDF.MI), as the Swiss company seeks to consolidate its position as the biggest player in the fast-growing airport retail sector.

Dufry said on Monday it expects to raise at least 2.1 billion euros ($2.3 billion) through a rights issue of new stock and up to 1.5 billion via long-term debt instruments, adding the plan had the backing of major investors.

The combined Dufry-WDF will have a market share of 25 percent and projected annual sales of $9 billion, cementing Basel-based Dufry’s position as the world’s biggest player in the fast-growing sector. WDF operates 495 stores in 98 airports including London’s Heathrow and Gatwick.

Retail spending at airports is expected to almost double to $59 billion in 2019 from the 2014 level, analysts predict, driven by rapid growth in Asia where more than 350 new airports are set to be built in the next eight years.

Dufry shares were up 4.5 percent at 141.50 francs by 0951 GMT, their biggest daily rise since October. WDF shares were down 8.1 percent at 10.07 euros.

However some analysts noted Dufry was taking on a lot given its purchase last year of Nuance Group for $1.7 billion.

“Although we fully understand the long-term industrial logic behind the WDF transaction … we see several risks in the short term, as Dufry is in the middle of the integration of Nuance (till end of full-year 2015) and WDF just has started the integration of its EU platforms,” Vontobel analyst Rene Weber, who has a “buy” rating on Dufry shares, wrote in a note.

Edizione, the holding company owned by the Benetton family that controls WDF, said at the weekend it had agreed to sell its 50.1 percent stake to Dufry for 10.25 euros per share. Dufry will then make a mandatory bid for the remaining shares.

Qatar Investment Authority, Government of Singapore Investment Corp (GIC) [GIC.UL] and investment firm Temasek Holdings [TEM.UL] have each committed to buying up to 450 million Swiss francs ($468 million) worth of the new shares.

Dufry expects to detail the exact terms of the rights issue before a general shareholder meeting, to be held by May 15, to approve the equity financing.

It hopes to generate up to 100 million euros in synergies or cost savings through the purchase.

($1 = 0.9618 Swiss francs)

($1 = 0.9215 euros)

(Reporting by Joshua Franklin and Thomas Atkins; Editing by Kenneth Maxwell and David Holmes)

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European, Asian shares rise, helped by Chinese stimulus

NEW YORK (Reuters) – The dollar gained and global equity markets surged on Monday on merger activity among drugmakers on both sides of the Atlantic, while Chinese stocks hit a seven-year high on a government plan to create a modern Silk Road trade route.

Major U.S. and European indexes rallied more than 1 percent on a spate of deals as the dollar rose against other currencies on the view the Federal Reserve will raise interest rates this year.

Health insurer UnitedHealth Group Inc (UNH.N) agreed to buy Catamaran Corp (CTRX.O) (CCT.TO) in a deal worth about $12.8 billion. Also Monday, Israel’s Teva Pharmaceutical Industries (TEVA.N) (TEVA.TA) said it would buy U.S. biopharmaceutical firm Auspex Pharmaceuticals Inc (ASPX.O) for $3.5 billion, and Ireland’s Horizon Pharma Plc (HZNP.O) agreed to buy U.S. drugmaker Hyperion Therapeutics Inc (HPTX.O) for about $1.1 billion.

Earlier, China unveiled details of an ambitious plan to improve links from Asia to Europe and Africa that President Xi Jinping said in a decade would generate $2.5 trillion in annual trade with the countries involved.

Germany’s DAX index .GDAXI rose 1.8 percent, to about 1 percent below its all-time high, while the FTSEurofirst index .FTEU3 of 300 leading European companies gained 1.18 percent to close at 1,596.31.

MSCI’s all-country world index .MIWD00000PUS rose 0.75 percent, while its emerging markets index .MSCIEF gained 1.16 percent.

On Wall Street, the Dow Jones industrial average .DJI closed up 263.65 points, or 1.49 percent, to 17,976.31. The SP 500 .SPX rose 25.22 points, or 1.22 percent, to 2,086.24 and the Nasdaq Composite .IXIC gained 56.22 points, or 1.15 percent, to 4,947.44.

“A lot of it is certainly merger-related, there’s no question about that, and that gins up confidence among everyday investors. If the insiders are willing to make big acquisitions, why not the rest of us?” said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

Andrew Wilkinson, chief market strategist at Interactive Brokers LLC in Greenwich, Connecticut, said investors believe they can see beyond any take-off of interest rates.

“They’re beginning to feel that the central banks around the world are going to be at the helm. Even if the Fed tightens rates, it’s not going to be a big move,” Wilkinson said.

The euro slumped against the dollar on worries whether Greece would secure funds from a 240 billion euro aid package before it runs out of cash in three weeks.

The single currency was down 0.71 percent against the dollar at $1.0810 EUR=, bringing its quarterly decline to about 10.6 percent, the largest fall by a quarter since the euro took effect in 1999.

The dollar rebounded after comments late Friday from Fed Chair Janet Yellen underscored the view that the U.S. central bank is likely to start raising rates gradually later this year.

The dollar index .DXY, a gauge of the greenback’s value against a basket of currencies, climbed 0.77 percent to 98.042 after back-to-back weeks of losses.

The greenback was up 0.88 percent against the yen at 120.15 yen JPY=.

Oil prices slipped as officials from Iran and six world powers discussed a possible deal over Tehran’s nuclear program that could end sanctions and allow an increase in Iranian oil exports.

Brent crude LCOc1 fell 12 cents to settle at $56.29 a barrel. U.S. crude CLc1 settled down 19 cents at $48.68 a barrel.

U.S. Treasury debt prices softened, giving back some gains from last week as equity markets rose.

Yields on the 10-year note US10YT=RR stayed well below the 2 percent touched last week and were last at 1.9562 percent on a price decline of 2/32.

(Reporting by Herbert Lash; Editing by Meredith Mazzilli, Chris Reese and Nick Zieminski)

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