News Archive

U.S. stock market reforms suggested to prevent market chaos

A U.S. Securities and Exchange Commission committee said on Tuesday that limiting the types of stock orders available to retail investors and moving away from halting trading in individual stocks could help prevent a repeat of the market chaos seen last August.

In the first hour of trading on Aug. 24, concerns over the health of China’s economy led to sharp price moves that triggered more than 1,000 trading halts in hundreds of stocks and exchange-traded funds, according to the SEC.

The excessive halts caused prices of many ETFs – securities tracking indexes, commodities, bonds, or baskets of securities that trade like stocks – to diverge from the prices of their underlying components. 

Some retail investors ended up getting worse prices than they otherwise would have, said Stacey Cunningham, chief operating officer of Intercontinental Exchange Inc’s New York Stock Exchange.

“While we didn’t see a lot of trade breaks on August 24th, we did see a number of trades that would have been qualified to be broken had they been submitted in a timely fashion,” she told the SEC’s Equity Market Structure Advisory Committee.

Several members of the 17-person committee said the use of stop orders, which give instructions to buy or sell a stock once it reaches a certain price, and market orders, which buy or sell a stock at any price, amplified the sharp declines and should be curbed.

Others said the order types were important to retail investors and that more education on their use was needed.

The NYSE said in November it would phase out stop orders.

Some committee members said the way exchanges reopen stocks after volatility halts may have added to the problems, and that the market might have fared better without any halts.

When stocks are halted due to large, rapid price moves, the listing exchanges gather available bids and offers and hold auctions akin to the opening of the trading session. But in August, buyers were largely absent as the market tumbled, causing imbalances that led to repeated halts.

The measures were introduced after the 2010 “flash crash,” when around $1 trillion in paper value was temporarily wiped from U.S. stock markets within minutes.

Allowing the upper and lower limits of stock prices to readjust periodically as the best bid and offer change might be sufficient to absorb volatility, said Joe Mecane, a managing director at Barclays.

(Reporting by John McCrank in New York; additional reporting by Lisa Lambert in Washington DC; Editing by Dan Grebler)

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Investors pull $1.1 billion from Pimco Total Return Fund in January

NEW YORK The Pimco Total Return Fund, which lost its crown as the largest bond fund in the world last year, started 2016 with yet another round of outflows, $1.1 billion in January, illustrating the difficulty Pimco’s flagship fund is having in attracting new money.

The latest cash withdrawal follows December’s positive inflow of $1.3 billion for the fund, but that was only because of clients’ reinvestments of capital gains.

“The Pimco Total Return Fund is struggling to gather new assets despite the strong record in 2015 and thus far in 2016,” said Todd Rosenbluth, head of exchange-traded fund and mutual fund research at SP Capital IQ. “The fund remains in a penalty box since the departure of Bill Gross despite a strong recent yet short-term record.”

Rosenbluth said the Pimco Total Return Fund was up 0.72 percent while its Lipper Core Plus Bond peers declined 0.81 percent and the broader taxable bond universe fell 1.87 percent in 2015.

In January, the fund was up 1.02 percent versus 0.40 percent for peers and negative 0.03 percent for the broader universe, he added.

It was a different story for the Pimco Income fund, which is overseen by PIMCO Group Chief Investment Officer Dan Ivascyn. Pimco Income attracted inflows of $1.2 billion in January for a total of $15.6 billion since the beginning of 2015, according to Pacific Investment Management Co’s website on Tuesday.

Mike Reid, Pimco spokesman, said in a statement: “Investors have continued to be attracted to our top-performing actively managed strategies amid recent volatility in the markets.”

Gross, the legendary bond manager long known as the ‘Bond King,’ exited Pimco suddenly in September 2014 for smaller rival Janus Capital Group Inc (JNS.N). The Pimco Total Return Fund, which Gross had managed since 1987, hit a peak of $292.9 billion in assets under management in April 2013.

(Reporting by Jennifer Ablan; Editing by Chris Reese, James Dalgleish and Meredith Mazzilli)

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Yahoo to explore strategic alternatives alongside spin-off

Yahoo Inc (YHOO.O) said on Tuesday it was exploring strategic alternatives in addition to the continued pursuit of the reverse spin-off of its Internet business.

Yahoo said it would simplify its product portfolio and that it had begun to explore divesting non-strategic assets.

The company also said it would cut about 15 percent of its workforce and close offices in five locations as it faces intense competition for ad dollars from Facebook Inc (FB.O) and Alphabet Inc’s (GOOGL.O) Google.

Yahoo also reported fourth-quarter results on Tuesday.

(Reporting by Abhirup Roy and Anya George Tharakan in Bengaluru; Editing by Robin Paxton)

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Yahoo to say it is exploring ‘strategic alternatives’

Yahoo Inc is expected to announce on Tuesday that it is exploring “strategic alternatives” for its struggling Internet business, a person familiar with the matter said.

Yahoo, which is also scheduled to report fourth-quarter results after the markets close, declined to comment.

The company’s plans to turn around its struggling core business are set to dominate its earnings report, with investors keen to see if CEO Marissa Mayer will push ahead with a proposed spin-off or entertain calls for a complete sale.

The spin-off of its main business, which includes its search engine and digital advertising units, was announced by Mayer in December after Yahoo abandoned efforts to sell its stake in Alibaba Group Holding Ltd.

But, the company has provided little details since.

Yahoo’s shares pared earlier losses after the Wall Street Journal first reported the news on the strategic alternatives. (

The stock is currently trading down 1.3 percent at $29.20.

Chief Executive Marissa Mayer is set to reveal cost-cutting plans that include slashing 15 percent of the company’s workforce, or roughly 1,600 jobs, and closing several business units, the Wall Street Journal reported on Monday.

Some activist investors are pushing Yahoo to ditch the spin-off and instead sell the core business. Verizon Communications Inc has expressed interest in the core, and analysts say other potential buyers include media and private equity firms.

(Reporting by Liana Baker in New York and Anya George Tharakan in Bengaluru; Editing by Savio D’Souza)

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Lufthansa, Iberia defeat U.S. passenger appeals over flight delays

Lufthansa and Iberia persuaded a U.S. appeals court in Chicago to reject efforts by passengers to hold them liable for delays on multi-leg international flights involving multiple airlines.

Tuesday’s decision by Judge Richard Posner of the 7th U.S. Circuit Court of Appeals highlights the hurdles that passengers can face in holding carriers liable for travel snags, including when foreign laws or code-sharing arrangements are involved.

In the first case, the appeals court said Deutsche Lufthansa AG (LHAG.DE) owed nothing to a California man who arrived in San Francisco 17 hours late after flying from Stuttgart through Munich because the first flight on another carrier was canceled.

Posner said European Union regulations required Hans-Peter Baumeister to seek compensation from the carrier that operated his canceled flight, the now-defunct Augsburg Airways, though he bought his tickets from Lufthansa.

He also rejected Baumeister’s argument that Augsburg was “little more than a Lufthansa puppet,” justifying holding the larger carrier liable.

“By way of comparison, we point out that Piedmont Airlines is a wholly owned subsidiary of American Airlines – does that mean that when one flies on Piedmont one really is flying on American, so that if Piedmont loses your baggage you can sue American?” Posner wrote. “No, any more than if you find a defect in your IPhone 6S you can sue not Apple, but Apple’s shareholders, or its CEO, Tim Cook.”

In the second case, the appeals court said Iberia, part of International Consolidated Airlines Group SA (ICAG.L), owed nothing to James and Lauren Mitchell Varsamis, who returned to Dallas from their honeymoon 21 hours late because their Rome-to-Madrid flight on Iberia was late, and they missed a connection.

Posner said the difference here was that the Varsamises had bought their tickets through American Airlines, not Iberia, and therefore could not hold the Spanish carrier liable.

“There is a practical logic to imposing liability for a flight delay on the carrier whose flight it was that was delayed,” Posner wrote. “But the practical logic fails to carry the day for the Varsamises because they had no contract with Iberia. Their contract was with American.”

Lawyers for the carriers and the passengers did not immediately respond to requests for comment.

The decision upheld rulings in 2014 from two U.S. district court judges in Chicago. The plaintiffs had sought class action status against the respective carriers.

The cases are Varsamis et al v. Iberia et al, 7th U.S. Circuit Court of Appeals, No. 14-2414; and Baumeister v. Deutsche Lufthansa AG in the same court, No. 14-2633.

(Reporting by Jonathan Stempel in New York; Editing by Tom Brown)

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EU seeks to bring U.S. trade talks towards a close by summer: trade commissioner

AMSTERDAM The European Union aims to bring free trade negotiations with the United States towards a close by the summer, a necessary step if a deal is to be clinched before a change of president in the United States.

The two sides are trying to agree on the Transatlantic Trade and Investment Partnership (TTIP), a free trade deal that could deliver economic benefits of more than $100 billion for both economies, each searching for growth in the face of a Chinese economic slowdown.

After more than two years of talks, both sides say a deal could be clinched this year before Barack Obama’s term as U.S. president ends. Waiting for a new president with different objectives risks severely delaying any deal.

“We have to be approaching the endgame by the summer,” EU Trade Commissioner Cecilia Malmstrom told a news conference at the end of talks between EU trade ministers.

The partners have scheduled rounds of talks in February, April and July, with a view to having a consolidated text on almost all issues, leaving out the most sensitive topics such as agricultural quotas.

In February, the partners will discuss the services sector, opening up public tenders and the European Union’s proposal for a new court to settle disputes between investing companies and states, one of the most controversial parts of a would-be deal.

Investor-state rules aim to protect foreign companies from unfair treatment by host governments and provide compensation if assets are appropriated. The EU’s idea of a new court is designed to answer critics who say the private arbitration system gives multinationals the right to challenge regulations governing the environment or public health.

Malmstrom also said she would not seek a slimmed down deal, an option some observers and certain EU member states have suggested in case talks became stuck.

“I have no other mandate for a balanced, comprehensive and fair deal with the American counterparts… Everything is intertwined you can’t really take out this part and deal with it later,” she said.

(Reporting by Philip Blenkinsop; Editing by Hugh Lawson)

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Chipotle stock up ahead of quarterly report

SAN FRANCISCO Chipotle Mexican Grill’s (CMG.N) stock climbed on Tuesday for a second consecutive day, ahead of the restaurant chain’s fourth-quarter report, on bets that the fallout from recent outbreaks of food-borne illness has been fully priced in.

The stock rose 1.3 percent, bringing its two-day gain to almost 7 percent, after the U.S. Centers for Disease Control and Prevention said on Monday that recent E.coli outbreaks linked to Chipotle restaurants appeared to be over.

The stock has recovered 20 percent from a 3-year low of $404.26 hit on Jan. 12, bolstered by company assurances that it could prevent future outbreaks, but it remains down 33 percent from September.

A series of food-borne illnesses linked to Chipotle since October have driven away diners, hammered its high-flying stock and spawned both a federal criminal probe and a shareholder lawsuit.

While Taco Bell and other restaurant chains have been linked to E.coli outbreaks in the past, Chipotle’s troubles have been magnified because it markets itself as a seller of healthy, high-quality food.

Its quarterly report after the market closes on Tuesday will give investors a fresh glimpse of how bad the damage has been, and how long it may take to recover.

Chipotle has said same-store sales would drop 14.6 in the December quarter, its first three-month decline since it went public in 2006. Wall Street expects a continued impact from the outbreaks, with 2016 revenue falling 21 percent and net income down 18 percent, according to Thomson Reuters data.

“I think you’ll see first signs of a recovery in sales by the fourth quarter of this year, but I think even then it’s going to be a gradual recovery,” said Maxim analyst Stephen Anderson.

After two analysts raised their price targets for Chipotle’s stock this week, the median target of analysts tracked by Thomson Reuters is $484, just above Tuesday’s price of $480.90 but far below the median target of $756 just three months ago.

(Reporting by Noel Randewich; Editing by Richard Chang)

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U.S. CEOs unleash recession fears in earnings calls

NEW YORK U.S. companies are growing more concerned about the prospects of a recession in the year ahead for the first time since the end of the financial crisis.

So far this year, the number of companies whose executives have mentioned recession concerns to analysts and investors is up 33 percent from the same period a year ago; the first such increase since 2009. Some 92 companies have discussed a U.S. recession in their earnings calls, according to Thomson Reuters data.

That gloomy talk highlights worries that growth in the world’s largest economy may be coming to a halt. Gross domestic product grew 0.7 percent in the final quarter of 2015, down from 2 percent in the third quarter, while double the number of companies are cutting or flat-lining their capital spending in the year ahead, according to Reuters data. The benchmark SP 500, a leading indicator of economic strength, had its worst January since 2009 as oil tumbled below $30 a barrel and remained near 12-year lows.

While nearly all companies that have discussed recession say that U.S. consumers continue to look healthy, many are growing concerned that the steep declines in energy prices and job cuts in the industry are going to bleed into the larger economy. Overall, economists expect the U.S. economy to grow 2.4 percent in 2016, according to a Dec. 30 Reuters poll.

Richard Fairbank, chief executive of Capital One Financial Co., for example, said he sees a recession as increasingly likely if financial market turmoil spreads into the real economy.

“Obviously, the economy is something of a wild card,” he said.

“Perhaps the consumer economy is doing okay, but there is a depression in the energy economy and it feels like there is a general malaise if not a recession looming in the industrial and manufacturing economies,” David Grzebinski, chief executive of tank barge operator Kirby Co told analysts.

And household hardware maker Stanley Black Decker Inc chief financial officer Don Allan told analysts that the company was prepared to cut jobs and pullback spending in the event of a slowdown.

Not every company was downcast, however. Trucking operator Swift Transportation Co told analysts that one of its larger customers plans to spend $1.6 billion this year, up from $900 million last year.

“These numbers are not signaling, to us, a consumer recession,” said CEO Jerry Moyes.

(Reporting by David Randall; Editing by Meredith Mazzilli)

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Mersch says no constraints on ECB in acting: WSJ

FRANKFURT The European Central Bank does not face any limitations if it decides to act, a senior policy maker told the Wall Street Journal, warning that there could be a risk of low oil prices becoming entrenched.

“There are several factors which have intensified,” Yves Mersch, who sits on the ECB’s Executive Board, told the paper, referring to the weeks since December.

“One is the oil price … That is something to assess – the volatility – whether you look through it or whether there is a risk of it becoming entrenched. The second is China and other emerging market economies.”

When asked whether the ECB would expand the range of securities it buys, Mersch said: “In terms of fantasy, the sky’s the limit.”

“But in the end, we have no constraint in the use, the diversity, or the volume of our toolbox as we see fit. I would not create any expectations in one direction or the other.”

(Reporting By John O’Donnell; Editing by Alison Williams)

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