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Fed’s Dudley to MNI: Tightening financial conditions a concern

NEW YORK Financial conditions have tightened considerably in the weeks since the U.S. Federal Reserve raised interest rates and monetary policy makers will have to take that into consideration should that phenomenon persist, a top Fed official said on Wednesday.

In addition, the weakening outlook for the global economy and any further strengthening of the dollar could have “significant consequences” for the health of the U.S. economy, William Dudley, president of the Federal Reserve Bank of New York, told MNI in an interview.

“One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting,” said Dudley, a permanent voter on the Federal Open Market Committee, the Fed’s monetary policy arm.

“So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision,” he said.

The Fed at its December meeting lifted its benchmark interest rate for the first time since 2006, and policymakers signaled that as many as four additional rate hikes were in the cards for 2016.

Few investors and private economists see that as a realistic trajectory for interest rates, however, and at its subsequent meeting, last week, the Fed acknowledged that global financial market turbulence in the weeks following its rate hike could be clouding the outlook.

“The committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook,” the FOMC said in a statement at the conclusion of the meeting.

Dudley’s comments to MNI were the latest nod from a Fed official to worries about tightening financial conditions. Global stock markets have fallen sharply in the weeks since the December hike, and terms of credit for businesses in particular have become more expensive.

Federal Reserve Bank of Dallas President Robert Kaplan told Reuters last week he is paying particular attention to the widening of so-called credit spreads in the market for high-quality corporate bonds.

The yield on U.S. investment grade bonds has mushroomed relative to safer U.S. Treasuries to the widest since July 2012, according to Bank of America Merrill Lynch Fixed Income Index data. That indicates investors are demanding a richer premium to own these securities relative to Treasuries and signals that corporate borrowing costs are on the rise.

And in the Fed’s own quarterly Senior Loan Officer Opinion Survey released earlier this week, banks around the country signaled they expect to tighten lending standards somewhat for business and commercial property loans in 2016.

Dudley’s remarks on Wednesday gave a slight boost to U.S. stock prices, which rose about 0.3 percent in early trading. Their bounce was modest relative to the 1.9 percent drop in the benchmark SP 500 Index .SPX on Tuesday.

U.S. Treasury prices fell, with their yields rising, following data from a private payrolls processor showing private employers added 205,000 jobs in January, a signal that any pause in economic growth has yet to seep into the U.S. labor market.

Dudley said in the MNI interview that despite growing concerns about global conditions and their potential effect on the U.S. economy, policymakers are not ready to draw conclusions about the path for U.S. monetary policy.

The FOMC next meets on March 15 and 16. Interest rate futures markets assign very little probability to another rate increase at that meeting.

(Corrects to show MNI, not MNSI, in headline and paragraph 2, 8 and 14.)

(Reporting By Dan Burns; Editing by Meredith Mazzilli)

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Ford cuts jobs to sustain European profits as GM lags

BERLIN Ford (F.N) revealed plans on Wednesday to cut hundreds of white-collar jobs in Europe and revamp its model range to keep it profitable in the region after turning a corner in 2015.

Meanwhile rival General Motors (GM.N), which announced another loss in Europe last year, vowed to break even at its own European arm.

Customers flocked to Ford and GM in Germany after VW’s credibility and image were hit by a regulatory scandal, registration figures showed.

Along with Italian carmaker Fiat, Ford and GM have made losses for years in Europe, which in 2014 recovered from a six-year downturn during which demand dropped to a two-decade low.

Despite posting a full-year profit of $259 million in Europe in 2015, its first since 2011, Ford (F.N) said on Wednesday it plans to cut hundreds of white-collar jobs in the region with a voluntary redundancy scheme.

The U.S. firm, whose improved performance was helped by a 10 percent gain in sales, said job cuts and a model overhaul were needed to ensure profits were sustainable.

“We want to make sure we have that stable footing so we can build a viable business in the future,” Jim Farley, head of Ford Europe told Reuters, citing a longer-term operating margin target of 6-8 percent.

This compared with less than 1 percent it hit last year.

Separately, General Motors said it had pared losses at its European operations by 25 percent and GM Europe’s full-year operating loss was cut by more than 40 percent to $0.8 billion in 2015, compared to $1.4 billion in 2014.

GM Europe reported an adjusted loss before interest and taxes of $0.3 billion in the fourth quarter of 2015, compared with $0.4 billion in the year-earlier period.

GM’s Chief Financial Officer Chuck Stevens described breaking even in Europe this year as “a company-wide focus”.

He said GM has already taken restructuring actions, and now had “the right cost structure.”

Analysts say that while demand has recovered, profitability is destined to stay low in Europe as cut-throat competition, over-capacity, high structural costs and regulatory demands eat into margins.

Among Europe’s volume carmakers, Fiat Chrysler (FCAU.N) appears most bullish. Last week FCA raised its expectations for EMEA in its business plan to 2018, forecasting adjusted operating profit margins to rise to above 4 percent by 2018 from the 1 percent it achieved last year.

(Additional reporting by Agnieszka Flak and Jan Schwartz; writing by Edward Taylor; Editing by Mark Potter and Alexander Smith)

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Toyota pulls the plug on Scion small car brand

Toyota Motor Corp said it will wind down its Scion brand in the United States, retreating from a 12-year effort to create a separate identity for small cars aimed at young buyers.

Toyota said it will start rebadging three 2017 model Scion cars as Toyotas starting in August. The Scion tC small coupe will go out of production in August, Toyota said.

Scion sales peaked at 173,034 vehicles in 2006, but have trended down since. Toyota sold just 56,167 Scion vehicles in 2015, reflecting a broader drop in sales of small cars in a U.S. market that is tilting toward larger sport utility vehicles and trucks.

Fiat Chrysler Automobiles NV said last week it would phase out production of its Dodge Dart small car and its midsized Chrysler 200 sedan, and seek partners to produce replacements, because profits for the smaller cars had evaporated.

Toyota established Scion as a separate brand for a series of models originally designed for the Japanese market. The brand had an early hit with a small, boxy micro-wagon called the xB. More recently, Scion has had success with a sporty coupe called the FR-S that harked back to iconic Toyota cars such as the Celica of the 1970s. The FR-S will continue and be rebadged as a Toyota.

Toyota also used Scion as a test lab for efforts to make the company more appealing to young consumers, at a time when the average age of customers for some core Toyota brand models was cruising into the 60s.

Half of Scion buyers were under 35 years old, Toyota said.

“Scion has allowed us to fast-track ideas that would have been challenging to test through the Toyota network,” Toyota North America chief executive Jim Lentz said in a statement. Lentz was the founding vice president of the Scion brand.

Toyota distributed Scion through its existing U.S. dealer network, and will not have to close stores to wind down the brand.

(Reporting By Joseph White; Editing by Nick Zieminski)

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Wells Fargo to pay $1.2 billion in FHA-related settlement

Wells Fargo Co said on Wednesday it would pay $1.2 billion to resolve some civil claims related to its Federal Housing Administration (FHA) lending program, primarily between 2001 and 2010.

The U.S. Department of Justice sued Wells Fargo in October 2012, saying it failed to report more than 6,000 loans that did not meet requirements for insurance under the FHA, and failed to properly review early payment defaults.

The company, which reported 2015 results on Jan. 15, said it has provided for an additional legal accrual that added $200 million to its noninterest expense last year.

This reduced the company’s 2015 net income by $134 million, or 3 cents per common share, to $22.9 billion, or $4.12 per common share, the company said.

Several lenders including Bank of America Corp, Citigroup Inc and Deutsche Bank AG have resolved federal lawsuits over FHA-insured loans.

The company said it had reached an agreement in principle on Feb. 1 with the Department of Justice, the U.S. Attorney’s Office for the Southern District of New York, the U.S. Attorney’s Office for the Northern District of California and the U.S. Department of Housing and Urban Development. (

(Reporting by Sruthi Shankar in Bengaluru; Editing by Saumyadeb Chakrabarty and Don Sebastian)

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Stay on sidelines until Chipotle sales recover: analysts

Sales at troubled burrito chain Chipotle Mexican Grill Inc (CMG.N) will have to show signs of sustained recovery before investors consider returning to the once high-flying stock, several Wall Street analysts said.

Chipotle said on Tuesday sales at established restaurants plunged by more than a third in January after declining 15 percent in the fourth quarter.

Chipotle’s shares fell 6 percent to $449 in premarket trading on Wednesday.

The company has been hit by a spate of E.coli and norovirus outbreaks at its restaurants, which serve food made with fresh produce and meats raised without antibiotics.

While the U.S. Centers for Disease Control and Prevention (CDC) said on Monday the E.coli outbreaks appeared to be over, Chipotle is now contending with a nation-wide federal probe into its food-safety practices.

“It is still impossible to determine what the ongoing top line trends will look like or when they will recover,” Deutsche Bank analyst Karen Short said in a research note.

Short, who maintained her “hold” rating and $400 price target on the stock, slashed her earnings outlook for this year and the next.

A favorite with customers and investors alike until the E.coli scandal, Chipotle’s stock has lost a quarter of its value since the company first reported the outbreak in November.

The company, which plans to launch marketing campaigns to bring back customers to its restaurants, is expected to spend heavily on food safety and marketing this year, putting pressure on its margins.

At least eight brokerages including Goldman Sachs and Barclays cut their price targets on the stock after Chipotle reported results. The median price target of these brokerages is now $462.50.

At this price, the stock is expected to fall another 3 percent in the next 12 months.

Still, some analysts remained positive on the stock.

Barclays analyst Jeffrey Bernstein said he expected sales to improve in February thanks to a variety of favorable factors, including the CDC announcement and the company’s aggressive spending plans.

Of the 33 analysts covering the stock, 19 have a “hold” rating, 13 a “buy” or higher and one a “sell”.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)

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Goldman’s Blankfein says ‘feeling great’ after cancer treatment

Lloyd Blankfein, chief executive and chairman of Goldman Sachs Group Inc (GS.N), said on Wednesday he was “feeling great” after his cancer treatment.

In his first interview after revealing in September that he had a “highly curable” form of cancer, Blankfein said he had undergone 600 hours of chemotherapy.

“From the moment I got the diagnosis, I went about it and dealt with it. I was able to handle the meds pretty well,” Blankfein told CNBC, adding that he was also able to go to work.

Blankfein, 61, has led what is viewed as the most powerful U.S. investment bank since 2006, and bank executives say he has never hinted at when he might retire or his plans after Goldman.

The New Yorker is credited with helping to keep the company afloat during the financial crisis with an early decision to rein in exposure to risky mortgage-backed securities and a successful appeal to Warren Buffett to invest in Goldman during the chaotic days after Lehman Brothers went bust.

In the interview, Blankfein also touched briefly upon the state of the U.S. economy and the business outlook for the Wall Street bank.

“(The) U.S. economy is not going off the rails,” he said, adding that it was not the best moment for Goldman in the current cycle.

“I’m generally sanguine. We muddle through. I think some of this is an overreaction to the overreaction of assets being so swollen.”

He said Goldman could, however, grow its asset management business and embrace technology.

On the U.S. Federal Reserve’s recent rate hike, he said it was “too early” to judge the central bank’s actions and that it was important to avoid deflation.

Blankfein’s life is a classic rags-to-riches story. Born in the South Bronx and raised in a housing project in Brooklyn’s East New York neighborhood, he worked his way through Harvard College and Harvard Law School, helped by financial aid.

(Reporting By Sudarshan Varadhan in Bengaluru; Editing by Don Sebastian and Saumyadeb Chakrabarty)

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European lawmakers back limited reduction in car emissions

BRUSSELS European lawmakers on Wednesday backed a compromise deal to reduce car emissions that will still allow vehicles to exceed official pollution limits, defying calls for more radical reform following Volkswagen’s emissions-test cheating scandal.

The vote, which narrowly rejected a proposal to block the compromise, had been scheduled for January, but was delayed by bitter arguments between members of the European Parliament and fierce lobbying.

Volkswagen’s (VOWG_p.DE) admission in September that it cheated U.S. diesel emissions tests created a political storm in Europe where around half of vehicles are diesel.

Diesel is particularly associated with emissions of nitrogen oxide linked to lung disease and premature deaths.

The European Commission, the EU executive, had already begun trying to close a known gap between laboratory testing of new vehicles and the real world, where toxic emissions have surged to more than seven times official limits.

However, the European Automobile Manufacturers’ Association (ACEA) said in a position paper seen by Reuters that the Commission’s reform plans were too challenging for current diesel models and could threaten the technology as a whole, jeopardizing jobs across the region.

At a closed-door meeting in October, EU member states agreed a compromise — now backed by the European Parliament — that would cut emissions but still allow a 50 percent overshoot of the legal ceiling for nitrogen oxide of 80 milligrams/kilometer.

Mayors from cities including Copenhagen, Paris, Madrid, Milan and Naples had urged the European Parliament, meeting in Strasbourg, to reject the plan.

“If such a decision would be confirmed, we fear that our commitment to reduce air pollution in cities will become meaningless,” a letter from eight city mayors to members of parliament said.

Green lawmakers and liberals also pressed for a rejection, saying the compromise was an illegal weakening of already agreed limits.

“Unfortunately, clean air, fair competition and the rule of law did not get a majority today,” Dutch Liberal politician Gerben-Jan Gerbrandy said.

But the dominant center right grouping, the European People’s Party (EPP), backed the compromise

It said rejecting the plan would delay a reduction in vehicle emissions, as a new proposal would have to be agreed and the car industry would lack regulatory certainty to invest in cleaner technology.

The European Commission welcomed Wednesday’s vote as a step in the right direction and urged manufacturers to start designing vehicles “for full compliance with the legal emissions limit” when measured in real driving conditions.

(Editing by Mark Potter)

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Kia plans first sports sedan next year as it seeks younger, more hip image

SEOUL Kia Motors (000270.KS) plans to launch its first sports sedan next year, people familiar with the matter told Reuters, seeking to burnish a sporty, younger image as larger sibling Hyundai Motor (005380.KS) builds up its premium offerings.

Kia aims to start producing the sedan, codenamed CK, in May 2017 and will target annual output of 60,000 vehicles, said two people with direct knowledge of the matter, declining to be identified as the plans have not been made official.

The four-door model plans to take on BMW’s 4 series (BMWG.DE) as well as the Audi A5 (BMWG.DE), and will feature 2.0-litre, 2.2-litre and 3.0-litre engine options, one person said, adding that it will be Kia’s second rear-wheel drive car.

Once known for cheap and bland models, both Hyundai and Kia are keen to move upmarket as their cars gain traction with consumers but differentiating their brands has been and will continue to prove a challenge.

Hyundai, which owns 34 percent of Kia, launched standalone luxury brand Genesis last year making it difficult for Kia to compete in that segment, particularly as its lone luxury offering, the K900, has been met with a tepid response from consumers.

“As Kia has no luxury brand, it is trying to position itself as a sporty brand,” said a third person with knowledge of the planned new model.

A Kia spokesman declined to comment, saying the company did not comment on plans for new models.


The new car, smaller than Hyundai’s mid-sized Genesis Coupe, would be the first compact sports sedan from either firm. It will be made at a Kia factory near Seoul after some production of the lower-margin Rio small car is shifted to Mexico early next year, the sources said.

But carving out its own sporty niche could be tricky for Kia with Hyundai also expected to launch a sports sedan and a new sports coupe under the Genesis brand. Hyundai is also believed to be working on high performance variants of some models from both the Genesis and Hyundai marques in effort led by Albert Biermann, former chief engineer for BMW’s “M” performance car brand.

Kia has hopes of a sports car that could replicate the success of its boxy Soul, which represented the start of a design-driven turnaround under chief designer Peter Schreyer, a veteran of Audi. The automaker has since introduced several sporty sedan concept vehicles including the GT and the Novo.

“Kia hit a home run with the Soul – they figured out how to keep it fresh and fun,” said Dave Sullivan, product analysis manager at consultancy AutoPacific.

“Apply this formula to a rear-wheel drive sedan and they might be able to go after a younger consumer who is bored with the played-out BMW 3-Series but wants to move out of their Soul they have had since college,” said Sullivan, who is based in Ann Arbor, Michigan.

(Reporting by Hyunjoo Jin; Editing by Tony Munroe and Edwina Gibbs)

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Oil lifts stocks off lows, yen and low-risk debt in favor

NEW YORK U.S. and European stocks came off their lows on Wednesday, helped by rebounding oil prices, while a soft report on the U.S. services sector weighed on the dollar by making future rate hikes appear less likely.

The U.S. dollar hit its lowest level against the euro since October and wiped out recent gains against the yen. A top Federal Reserve official said the weakening outlook for the global economy and any further strengthening of the dollar could have “significant consequences” for the U.S. economy.

The U.S. economy’s service sector expanded in January at a slower pace than the previous month, according to the Institute for Supply Management. Investors had been encouraged earlier in the session by data from a payrolls processor that found U.S. private employers added 205,000 jobs in January, above economists’ expectations.

“There is ongoing concern reflected in the market today, and maybe yesterday, about the slowdown in the manufacturing sector spreading to the consumer side of the economy,” said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis.

The Dow Jones industrial average .DJI rose 25.2 points, or 0.16 percent, to 16,178.74, the SP 500 .SPX lost 5.91 points, or 0.31 percent, to 1,897.12 and the Nasdaq Composite .IXIC dropped 34.63 points, or 0.77 percent, to 4,482.32.

European shares fell as weak earnings from some leading companies weighed.

The pan-European FTSEurofirst 300 index .FTEU3 fell 2.1 percent, amid disappointing earnings from Finnish state-controlled utility Fortum (FUM1V.HE) and Dutch telecoms group KPN (KPN.AS).

Data showed euro zone businesses had a disappointing start to 2016, with growth in January matching the worst seen last year.

MSCI’s 46-country All World share index .MIWD00000PUS fell 1 percent.

Equities have been tightly correlated to oil in recent weeks as the commodity’s 1-1/2-year slide has deepened, with investors worried that oil’s slide is a sign of shakiness in the global economy.

Oil rose after investors took advantage of a drop in the U.S. dollar and earlier weakness in the crude price, despite weekly data showing a surprisingly large rise in U.S. inventory. Russia also repeated its willingness to take part in talks with OPEC producers to cut output.

U.S. crude CLc1 gained 5.2 percent to $31.42 a barrel, while benchmark Brent crude LCOc1 gained 5 percent to $34.37 a barrel.

Financial conditions have tightened considerably since the Fed raised interest rates and monetary policymakers will have to take that into consideration should that phenomenon persist, William Dudley, president of the Federal Reserve Bank of New York, told MNI in an interview.

Dudley’s comments, combined with the ISM data, raised skepticism about the Fed’s ability to further raise rates, weighing on the dollar.

The greenback .DXY fell 1.3 percent against a basket of currencies, while the euro EUR= gained 1.2 percent against the dollar.

“Fed rate forecasts are coming under fire,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington, in reference to Fed policymakers’ December forecast of four rate hikes this year.

U.S. Treasury yields fell to a one-year low after the ISM services data.

Benchmark 10-year note yields US10YT=RR were last up 16/32 prices to yield 1.8104 percent, from 1.83 percent overnight. At one point, yields fell below technical resistance to a low of 1.7930 percent, the lowest since February 5, 2015.

(Additional reporting by Karen Brettell and Sam Forgione in New York, Nigel Stephenson and Sudip Kar-Gupta in London; Editing by Mark Heinrich)

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