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U.S. new home sales fall; weekly jobless claims rise

WASHINGTON New U.S. single-family home sales fell to a 10-month low in December after three straight months of solid gains, but the housing market recovery remains intact as a tightening labor market boosts wage growth.

While other data on Thursday showed a bigger-than-expected increase in the number of Americans filing for unemployment benefits last week, the four-week moving average of claims dropped to levels last seen in 1973.

There was also good news on the economy with the goods trade deficit falling in December as exports rose. With trade expected to have weighed on economic growth in the fourth quarter, last month’s rise in exports bodes well for output in early 2017.

The Commerce Department said new home sales dropped 10.4 percent to a seasonally adjusted annual rate of 536,000 units last month. Economists polled by Reuters had forecast single-family home sales, which account for 8.9 percent of overall home sales, slipping 1.0 percent.

Many economists did not believe that the decline in sales was in response to a recent run-up in mortgage rates as applications for loans to purchase houses rose in December. A homebuilders survey also showed strong sales gains last month. Cold weather could have impacted on sales.

“December’s decline is probably mostly a result of volatility rather than a drop in the underlying fundamentals for housing demand, despite the rise in mortgage rates,” said David Berson, chief economist at Nationwide in Columbus, Ohio.

New home sales, which are derived from building permits, are

volatile on a month-to-month basis and subject to large revisions. Sales increased 12.2 percent to 563,000 units in 2016, the highest since 2007.

With the labor market considered as being at or near full employment, and pushing up wages, demand for housing is likely to remain supported. But a chronic shortage of properties for sale remains an obstacle to a robust housing market.

A report from the National Association of Realtors on Tuesday showed the supply of previously owned homes for sale dropped to a 17-year low in December.

The PHLX housing index .HGX rose 0.67 percent on Thursday amid expectations that homebuilders would need to ramp up construction to meet demand for housing. Shares in the nation’s largest homebuilder, D.R. Horton (DHI.N), gained 0.54 percent. and Lennar Corp (LEN.N) climbed 0.53 percent.

Shares in PulteGroup (PHM.N) surged 5.11 percent as the No. 3 homebuilder reported higher-than-expected quarterly profits, which were boosted by an increase in home sales and prices.

The dollar was trading higher against a basket of currencies. Prices for U.S. government debt fell, with the yield on the benchmark 10-year Treasury note rising to a four-week high.


The fixed 30-year mortgage rate increased 43 basis points in December from November to an average of 4.20 percent, the highest since April 2014, according to data from mortgage finance firm Freddie Mac.

Further increases are likely as the Federal Reserve has forecast three rate hikes this year. The U.S. central bank raised its benchmark overnight interest rate in December by 25 basis points to a range of 0.50 percent to 0.75 percent.

Last month, new single-family homes sales rose 48.4 percent in the Northeast to their highest level since January 2008. They fell in the Midwest, the South and the West.

The inventory of new homes on the market increased 4.0 percent to 259,000 units, the highest since August 2009. New housing stock, however, remains less than half of its peak during the housing boom.

According to Jonathan Smoke, chief economist at, the acute shortage of previously owned homes has not been a boost to the new housing market because of supply constraints facing builders, including labor, land and finance.

“New home sales will likely outpace single-family growth as builders sell more homes that haven’t been started, but supply-side constraints will likely keep that growth to single digits in 2017,” said Smoke.

In a separate report on Thursday, the Labor Department said initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 259,000 for the week ended Jan. 21. Claims have now been below 300,000, a threshold associated with a healthy labor market, for 99 consecutive weeks.

That is the longest stretch since 1970, when the labor market was much smaller. Last week’s data included the Martin Luther King Jr. holiday, which could have impacted on the data. Claims tend to be volatile around this time of the year because of different timings of the various holidays.

“Through the volatility they continue to show no sign of an uptrend,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “We believe the trend in employment growth remains quite strong, more than strong enough to keep the unemployment rate trending down.”

The four-week moving average of claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,000 to 245,500 last week, the lowest since November 1973.

In another report, the Commerce Department said the goods trade deficit fell 0.5 percent to $65.0 billion in December. Goods exports increased $3.7 billion to $125.5 billion. The rise outpaced a $3.4 billion gain in imports.

Economists expect trade to have subtracted at least 1.5 percentage points from GDP in the fourth quarter reversing a 0.85 percentage point contribution the prior quarter.

The export drag will likely come from a decline in soybean shipments, after they provided a huge boost to growth in the third quarter. The government will publish its advance fourth-quarter GDP estimate on Friday.

According to a Reuters survey of economists, GDP likely increased at a 2.2 percent annualized rate in the fourth quarter after a surging at a 3.5 percent pace in the July-September quarter.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

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Johnson & Johnson refills drug cabinet with $30 billion Actelion deal

ALLSCHWIL, Switzerland U.S. healthcare giant Johnson Johnson (JNJ.N) will buy Swiss biotech company Actelion (ATLN.S) in a $30 billion all-cash deal that includes spinning off Actelion’s research and development pipeline, the companies said on Thursday.

The biggest European drugs takeover in 13 years gives JJ access to the Swiss group’s range of high-price, high-margin medicines for rare diseases, helping it diversify its drug portfolio as its biggest product, Remicade for arthritis, faces cheaper competition.

The offer to pay $280 per share, following weeks of exclusive talks, was unanimously approved by the boards of directors of both companies.

The deal represents a 23 percent premium to Actelion’s closing price on Wednesday and is more than 80 percent above the Nov. 23 closing price before reports emerged that Europe’s biggest biotech company had attracted takeover interest.

Actelion shares jumped 20 percent to 273.30 francs by 1350 GMT as investors welcomed the deal.

“The structure is very attractive,” said Eleanor Taylor Jolidon, a fund manager at Union Bancaire Privee in Geneva, a top-40 Actelion investor.

The price vindicates the strategy of cardiologist Jean-Paul Clozel, who co-founded the company with his pediatrician wife Martine and friends in 1997, and has fended off bids over the years in the belief he could increase Actelion’s value by keeping it independent.

“The price is quite high at around 30 times price to estimated 2018 earnings. JJ is paying a lot and RD is not even included, just a substantial minority stake,” one Zurich-based trader said.

“But it represents only 10 percent of (JJ’s) market capitalization and they are finally investing the cash they hold in Europe.”

Jefferies analysts said they did not expect any counterbids or competition concerns, while Berenberg analysts called it “a fantastic deal for Actelion and its shareholders” given concerns about the long-term growth prospects for its main products.

Actelion has been the subject of takeover speculation for weeks after JJ launched and then halted discussions with the Swiss company. French drugmaker Sanofi (SASY.PA) had also been interested, sources said, but was sidelined after JJ returned and began exclusive negotiations in December.

Sanofi’s failure to come away with a big deal for a second time has added to pressure on its management.

Clozel said the JJ offer — putting Actelion’s established drugs into its bigger commercial organization while leaving riskier early-stage RD assets in the new 600-employee company for Clozel to develop — convinced him this was the right one.

“With this structure it was not difficult,” he told Reuters after a news conference. “It’s always emotional but it’s not difficult. Because frankly it’s a good solution for everybody.”

The deal makes the Clozels billionaires.


JJ said it expected the transaction to be immediately accretive to its adjusted earnings per share and accelerate its revenue and earnings growth rates although synergies were set to play just a small role.

The U.S. group, which reported disappointing quarterly results this week, will fund the transaction with cash held outside the United States.

“We believe this transaction offers compelling value to both Johnson Johnson and Actelion shareholders,” Alex Gorsky, JJ chairman and chief executive, said in a statement.

Actelion will spin out its research and development unit into a standalone company based and listed in Switzerland, under the working title of RD NewCo and led by Clozel. The break-up plan was first reported by Reuters last month.

The shares of RD NewCo will be distributed to Actelion’s shareholders as a stock dividend and the new unit will be launched with 1 billion francs in cash.

Urs Beck, fund manager at EFG Asset Management that holds Actelion shares, hailed the transaction.

“JJ is a good partner with a huge distribution network. For Actelion’s founders that is certainly a good solution. Mr and Ms Clozel can do research for another 20 years and JJ has gained an interesting indication,” he said.

“It’s a huge deal and JJ plays in a different league from Sanofi, they can finance that without difficulties. I don’t see Sanofi stepping in with a higher offer at some point, that doesn’t make sense any more,” he added.

JJ will initially hold a 16 percent stake in RD NewCo and will have rights to an additional 16 percent of the company’s equity through a convertible note. It agreed not to sell its stake on the open market for two years.

It will also get an option on ACT-132577, a product within RD NewCo being developed for resistant hypertension and now in phase 2 clinical development.

Lazard acted as lead financial advisor to JJ, while Bank of America Merrill Lynch was Actelion’s lead advisor.

The transaction is expected to close by the end of the second quarter, with JJ commencing the tender offer by mid-February. It needs to win at least 67 percent of all Actelion shares, regulatory approvals and Actelion shareholder approval of the distribution of shares of RD NewCo.

(Additional reporting by John Revill, Silke Koltrowitz, Ben Hirschler, Rupert Pretterklieber and Caroline Humer)

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Volkswagen set to plead guilty in U.S. diesel emissions case

WASHINGTON Volkswagen AG (VOWG_p.DE) is set to plead guilty on Feb. 24 in Detroit to three felony counts as part of a plea agreement with the U.S. Justice Department to resolve an excess diesel emissions investigation, a court filing shows.

As part of a $4.3 billion settlement with U.S. regulators, the German automaker has agreed to sweeping reforms, new audits and oversight by an independent monitor for three years to resolve diesel emissions cheating investigations.

Under the settlement of charges it installed secret software in U.S. vehicles to allow them to emit up to 40 times the amount of legally permitted pollution, Volkswagen agreed to change the way it operates in the United States and other countries.

The Justice Department charged VW with conspiring for nearly 10 years to cheat on diesel emissions tests. The German automaker agreed to pay $4.3 billion in U.S. civil and criminal fines.

In total, VW has now agreed to spend up to $22 billion in the United States to address claims from owners, environmental regulators, U.S. states and dealers, and offered to buy back about 500,000 polluting vehicles.

(Reporting by David Shepardson; Editing by Bernadette Baum)

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Saudi Aramco selects U.S. firms to audit its reserves for IPO: sources

DUBAI/KHOBAR, Saudi Arabia/LONDON State oil giant Saudi Aramco [IPO-ARMO.SE] has tasked two U.S. industry leaders in oil reserves auditing to review the content of its deposits as it pushes ahead with a share listing next year, industry sources said on Thursday.

Aramco, whose fields are estimated to contain 15 percent of the world’s oil, has asked a unit of oil services firm Baker Hughes – Gaffney, Cline and Associates – to carry out the review, three sources familiar with the move told Reuters.

Two separate sources said Aramco had also asked Dallas-based DeGolyer and MacNaughton, one of the world’s oldest names in reserves auditing, to perform some work.

Baker Hughes and Aramco declined to comment. DeGolyer did not immediately respond to a request for comment.

The listing, expected to be the world’s biggest initial public offering (IPO), is a centerpiece of a Saudi Arabian government plan to transform the kingdom by enticing investment and diversifying the economy away from a reliance on oil.

Aramco, once U.S.-based and run by Americans, has long been a Saudi state corporation. It dwarfs all others in the industry by production and reserves, with crude reserves of 265 billion barrels.

The plan to list Aramco, the kingdom’s crown jewel, is being championed by Deputy Crown Prince Mohammed bin Salman, who oversees energy and economic policy in the world’s top oil-exporting nation.

He is leading a reform drive, called Vision 2030, to address falling oil revenue and fiscal deficits by boosting the private sector, ending government waste and diversifying the economy.

Last year, Prince Mohammed said he expected the IPO would value Aramco at a minimum of $2 trillion, but that he thought the figure might end up higher.

Any valuation would account for oil price expectations and the size of Saudi Arabia’s proven crude reserves.

Industry sources say the right to own the reserves is a sovereign issue retained by the Saudi government, while Aramco is most likely to keep its concession, meaning it would have direct access to those reserves with sole rights of exploration and production.

The main question is how much of the oil reserves would be reflected in Aramco’s financial books after an independent audit as a result of the concession, the sources say.

“Aramco is in talks with a company to audit its reserves and another one to audit its finances,” another Saudi-based industry source said.

“Whether (all) the oil reserves would be IPO-ed or not, that’s still being discussed.”

The Wall Street Journal was first to report that Aramco had hired Gaffney, Cline Associates to assess its oil reserves, citing sources.


Saudi officials and their advisers are aiming for two key milestones in 2017 as they push ahead with the flotation.

Saudi-based industry sources say 2018 remains the planned date and up to 5 percent is the stake size being considered for the offer, though this could be raised depending on oil prices and market reaction to the listing.

“There are two key milestones this year. Choosing banks for the IPO and choosing an exchange,” said a senior industry source familiar with the IPO plans.

“Aramco is looking at all options – ranging from North America, Europe and Asia. In terms of deadlines, 2018 is still the plan to list the company.”

Aramco had said it was considering several options for the flotation, including a single domestic stock exchange listing and a dual listing with a foreign market.

Officials from the oil firm plan “discovery trips” to foreign exchanges in the next few months and have invited banks to pitch for an advisory position in the IPO, the sources said.

Morgan Stanley and HSBC are among the banks that have received a request for proposals. The invitation was to evaluate Aramco’s business and help it with measures surrounding the share sale.

(Additional reporting by Dmitry Zhdannikov in London; Editing by Dale Hudson)

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Caterpillar sees ’17 profit below expectations as restructuring continues

CHICAGO Caterpillar Inc (CAT.N), the world’s largest construction and equipment maker, forecast 2017 profit sharply below analysts’ estimates, hurt by sluggish demand in the construction and energy industries.

Peoria, Illinois,-based Caterpillar has already slashed its workforce by more than 16,000 to cope with a slumping economy and said it would take another $500 million in restructuring costs in 2017 at a time when U.S. President Donald Trump is calling on manufacturers to expand employment.

Hopes for a rebound in the manufacturing sector amid Trump’s call to spend $1 trillion over 10 years on building infrastructure have fueled a rally in the company’s stock. Caterpillar’s shares have surged about 15 percent since the election, even as the company has sought to temper market expectations about its outlook.

The company’s stock price eased 66 cents to $97.48 on Thursday morning after peaking at $98.98, the highest since Dec. 5, 2014, early in the session.

Caterpillar lowered the midpoint of its 2017 revenue outlook by $500 million to $37.5 billion, citing the negative impact of a strong U.S. dollar. Based on the revenue view, it forecast adjusted earnings per share of $2.90 for 2017, compared with analysts’ average estimate of $3.04, according to Thomson Reuters I/B/E/S.

“While we see signs of positive activity in some of our key end markets, the overall economic environment remains challenging,” Chief Executive Jim Umpleby said in a statement on Thursday.

Caterpillar cut 12,300 jobs in 2016, including 7,700 in the United States. It said it was considering closing two more major production facilities, including one in Aurora, Illinois.

The company said a glut of used construction equipment in North America would continue to hurt sales in 2017, while sales in Africa and the Middle East would remain soft due to the regions’ reliance on oil revenue. Low traffic volume in its rail business and a significant number of idle locomotives were weighing on its transportation business, while weakness in shipbuilding would hurt marine-related sales, the company said.

The company’s loss ballooned to $1.17 billion, or $2.00 per share, in the fourth quarter ended Dec. 31, from $94 million, or 16 cents per share, a year earlier.

But the company posted an adjusted fourth-quarter profit of 83 cents per share, which excludes $1.019 billion in restructuring costs as well as other charges. That topped analysts’ average estimate of 66 cents.

Fourth-quarter net sales fell 13.2 percent to $9.57 billion.

(This version of the story corrects EPS outlook in paragraph five)

(Additional reporting by Rachit Vats in Bengaluru; Editing by Sriraj Kalluvila and Nick Zieminski)

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EU gets tougher with its members over policing carmakers

BRUSSELS The European Commission issued guidance on Thursday on how EU members should be policing carmakers, a move EU officials said would likely lead to legal action against countries that fail to clamp down on cheating of diesel emissions regulations.

The EU executive is frustrated that member states, which are responsible for regulating carmakers, have not taken a tougher stance against the industry, despite discovering in the wake the Volkswagen’s emissions test cheating that many cars spew up to five times legal pollution limits outside of regulatory tests.

The Commission believes countries are pandering to the powerful auto industry and in December began legal action against Germany, Britain and five other EU members.

National governments, however, have criticized EU law for being too vague, saying it allows carmakers to dial down emissions control systems under certain circumstances, such as if they might damage a vehicle’s engine.

Officials said on Thursday the Commission’s guidance was an attempt to clarify how existing rules should be implemented.

“A large number of car manufacturers use strategies that increase emissions outside of the test cycle,” EU Industry Commissioner Elzbieta Bienkowska said in a statement.

“This is illegal unless technically justified in exceptional cases, and the burden of proof lies with the carmaker. Cheating cannot be tolerated.”

While the 11-page guidance is not legally binding, it could form the basis for legal action against member states that do not crack down on excessive, health-harming vehicle emissions.

“Germany and others want to say the law is bad so let’s sweep all past transgressions under the rug,” one EU official said. “But that’s not the end of the story.”

“Most likely legal action will follow,” another said.

The guidance includes a table outlining suspicious emissions behavior in vehicle testing, such as higher emissions in hot engine starts than in cold, which it says should serve as a red flag for national authorities.

EU sources said the table should give national regulators an indication of whether they have been abiding by the EU executive’s definition of the rules.

In order to justify modulations of emissions controls, the guidance calls on car manufacturers to provide proof of a risk of irreparable engine damage and that the latest available emissions treatment technology has been used. It says emissions controls used to save on maintenance cost are not acceptable.

(Editing by Mark Potter)

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J&J to buy Actelion for $30 billion

ZURICH Swiss biotech company Actelion (ATLN.S) said on Thursday it had agreed to be purchased by Johnson Johnson (JNJ.N) in a $30 billion deal.

The all-cash offer, to acquire all of the outstanding shares of Actelion for $280 per share, payable in U.S. dollars, was unanimously approved by the Boards of Directors of both companies, Actelion and Johnson Johnson said in a joint statement.

(Reporting by John Revill)

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TransCanada has not yet broached Keystone XL with shippers: CEO

WHISTLER, British Columbia TransCanada Corp has yet to discuss the Keystone XL oil pipeline with shippers and is not certain if all were still in support of it, the company’s CEO said on Wednesday in his first public comments since President Donald Trump revived the project.

The new U.S. president signed an order on Tuesday that allowed TransCanada to reapply for a permit for Keystone XL, after it was rejected in 2015 by then-President Barack Obama on environmental concerns.

TransCanada Chief Executive Russ Girling said the firm was “diligently” preparing its application for the 1,179-mile (1,900 km) pipeline from Hardisty, Alberta, across the U.S. border to Steele City, Nebraska.

Girling said he believes the project remains attractive for shippers, given that it will supply the popular Gulf Coast market.

“But we haven’t engaged in direct conversation on that issue,” he said at an investors conference. “This wasn’t in our planning horizon in the middle of last year, so we’ve only just re-engaged with our shippers again.”

Analysts and traders said the C$8 billion ($6.1 billion) pipeline was far from being a certainty.

Since it has been proposed nearly a decade ago, TransCanada has lost some initial support from shippers during its arduous approval process, said a Canadian crude trader familiar with the pipeline contract who declined to be identified due to a lack of authorization to speak to the media.

The pipeline has faced fierce opposition over environmental concerns and still needs to get approval from the state of Nebraska.

TransCanada late Wednesday did not immediately respond to a request for comment about the shippers’ commitment to the project.

If operational, Keystone XL would bring more than 800,000 barrels per day of heavy crude from Canada, which holds the world’s third-largest crude reserves but lacks the infrastructure to move it easily.

The project has received regulatory approval and government backing in Canada.

(Writing and additional reporting by Ethan Lou in Calgary, Alberta, and Catherine Ngai in New York; Editing by Sandra Maler and Randy Fabi)

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Asia stocks hit three-and-a-half-month high on Dow’s surge, dollar slips

TOKYO Asian stocks rose to 3-1/2-month highs on Thursday, cheered by the Dow Jones Industrial Average breaching the 20,000-level for the first time, though concerns about U.S. President Donald Trump’s protectionist stance kept the dollar on the defensive.

Spreadbetters forecast European stocks would follow, seeing a higher open for Britain’s FTSE .FTSE, Germany’s DAX .GDAXI and France’s CAC .FCHI

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.8 percent to its highest since Oct. 11.

South Korea’s Kospi .KS11 advanced 1 percent, Hong Kong’s Hang Seng .HSI climbed 1.3 percent and Shanghai .SSEC edged up 0.2 percent ahead of China’s week-long Lunar New Year holiday.

Japan’s Nikkei .N225 brushed aside a stronger yen to rise 1.7 percent.

“Today’s excitement mainly comes from strong U.S. stocks overnight, but people are also positive about Japanese companies’ earnings especially machinery manufacturers,” said Takuya Takahashi, a strategist at Daiwa Securities in Tokyo.

The Dow .DJI closed atop the 20,000 mark for the first time overnight as solid earnings and optimism over Trump’s pro-growth initiatives revitalised a post-election rally. [.N]

Safe-haven U.S. Treasuries were duly sold as risk aversion ebbed and the benchmark 10-year note yield US10YT=RR rose to a four-week high on Wednesday. Subdued investor demand at a five-year auction also hurt Treasuries. [US/]

The dollar, which often draws support from higher Treasury yields, failed to follow suit. An index tracking the greenback against a basket of major currencies .DXY slid to a seven-week low of 99.793 on Thursday.

Unlike equities, the currency markets focused more on Trump’s trade protectionism and the negative impact it could have on the dollar.

“The problem that the greenback is having right now is two fold – first Trump has been talking down the currency and second, his policies make foreign investors nervous,” wrote Kathy Lien, managing director of FX strategy for BK Asset Management.

“Until the market comes to terms with the risk/benefits of Trump policy, the dollar may have a tough time mimicking the one way moves in stocks and bonds.”

The dollar was little changed at 113.375 yen JPY= after losing 0.5 percent overnight.

It had soared to a 10-month high of 118.660 in mid-December at the apex of the dollar-boosting Trump trade, when the market focus was on bets of more fiscal stimulus and reflationary measures under the new administration.

The euro was steady at $1.0754 EUR= after gaining 0.2 percent the previous day. The common currency had risen to a 1-1/2-month high of $1.0775 on Tuesday against the struggling dollar.

The pound extended its overnight rally and touched a six-week high of $1.2663 GBP=D4.

Sterling has drawn its latest boost from expectations that British Prime Minister Theresa May’s upcoming meeting with Trump would pave the way for a rapid U.S. trade deal, which may offset some of the damage from its looming divorce with the European Union. [GBP/]

In commodities, crude oil prices bounced amid the dollar’s weakening after falling the previous day on data showing a build in U.S. crude inventories. [O/R]

U.S. crude CLc1 was up 0.8 percent at $53.18 a barrel after losing the same amount the previous day. Brent added 0.8 percent to $55.53 a barrel LCOc1.

A weaker greenback tends to favour non-U.S. buyers of dollar-denominated commodities like crude.

Gold was on track for a third straight day of losses as the risk-on mood in the global markets reduced demand for the precious metal.

Spot gold XAU= was down 0.15 percent at $1,197.96 an ounce, pulled back from a two-month high of $1,219.59 scaled on Tuesday. [GOL/]

(Reporting by Shinichi Saoshiro; Additional reporting by Ayai Tomisawa in Tokyo; Editing by Shri Navaratnam and Kim Coghill)

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