News Archive

World stocks pause near record highs

LONDON Concern about global trade and U.S. President Donald Trump’s “America First” policies kept appetite for risky assets in check on Friday, setting world stocks on the path to a sluggish end to what will still be their fifth straight month of gains.

In an interview with Reuters, Trump called the five-year-old trade pact with South Korea “unacceptable” and said it would be targeted for renegotiation after his administration completes a revamp of the North American Free Trade Agreement (NAFTA) with Canada and Mexico.

Trump’s comments stunned South Korean financial markets, sending Seoul stocks and the won into reverse.

Saturday marks Trump’s 100th day in office and his attacks on free trade and scepticism about his administration’s ability to see through tax and spending campaign promises has dented some of the enthusiasm in markets that followed his election win.

“Trump is reaching the 100 day mark with nothing to show for it and these recent comments just coincide with that. They (the U.S. administration) are finding it hard to push through fiscal plans and all this rhetoric is probably related,” Kiran Kowshik, strategist at Unicredit.

The mood on Europe, however, remained relatively upbeat.

Euro zone bond yields rose across the board and the euro strengthened on Friday as economic output data from several countries reaffirmed a picture of economic strength in the bloc.

The single currency also strengthened, rising 0.1 percent against the dollar to $1.0885. while euro zone bond yields rose 1-2 basis points across the board.

Bank of America Merrill Lynch noted that the $21 billion of inflows into European equity funds over the past week were the highest since December 2015.

“The hard data for equities is earnings — and they are powering ahead. Q1 earnings season is very strong and revisions trends are positive and broad based,” said analysts at the U.S. broker.

Banking results dominated early trading with Barclays shares sliding 5 percent after weak investment banking results at the UK bank while UBS jumped 2.6 percent after it handily beat analyst expectations.

The STOXX 600 was little changed on the day and set to post a 1.6 percent gain for the month. It is up 7 percent so far this year.

In commodities, oil prices rose but were still on track for a second straight weekly loss on concerns that an OPEC-led production cut has failed to significantly tighten an oversupplied market.

U.S. West Texas Intermediate (WTI) crude CLc1 was at $49.43 per barrel at 0649 GMT, up 46 cents, or 0.94 percent, from their last close. However, WTI is still set for a small weekly loss and is around 8 percent below its April peak.

Brent crude LCOc1 was at $51.91 per barrel, up 47 cents, or 0.91 percent. Brent is almost around 8.5 percent down from its April peak and is also on track for a second, albeit small, week of declines.

(Additional reporting by Sujata Rao Editing by Jeremy Gaunt)

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Fed moving appropriately; ECB too hesitant: El-Erian

The U.S. Federal Reserve is moving appropriately on the path to unwind asset purchases and normalize rates, while the European Central Bank (ECB) may be too hesitant, said Mohamed El-Erian, chief economic advisor at the Allianz Group.

The Fed, ECB and Bank of Japan (BOJ) need policymakers to step up to take action on structural reforms to be more effective, El-Erian told the Reuters Global Markets Forum in an interview on Friday.

Following are edited excerpts from the conversation:

Q: Are central banks taking the right route to unwind their asset purchases and normalize rates?

A: When it comes to taking the foot off the unconventional stimulus pedal, the Fed appears to be moving appropriately. The ECB may be showing a little too much hesitancy. Importantly, the two of them – as well as the Bank of Japan – need other policymakers, with tools better suited for the task at hand, to step up to the plate more forcefully – especially when it comes to pro-growth structural reforms, more balanced demand management, better cross-border policy coordination and, in some isolated cases, targeted debt reduction (e.g., Greece).

Otherwise, it will be challenging for the central banks to deliver a “beautiful normalization,” adopting a phrase from Bridgewater’s Ray Dalio. As you know, I have worried that the central banks have been “the only game in town” for too long already.

Q: Your thoughts on Fed’s balance sheet trimming? Certain sections of the market, for instance, believe balance sheet reduction should only start once the Fed funds rate is near 2 percent.

A: Yes, I agree. My own inclination would be to go some significant way in normalizing rates before initiating an active reduction in the Fed’s balance sheet. Remember, this is unchartered territory. There are several uncertainties, so it is extra important to sequence carefully and implement in a measured fashion.

Q: How many U.S. rate-hikes are you expecting in 2017?

A: I expect that, absent a major negative shock, there will be a total of three rate hikes in 2017 — so two more in the remainder of the year.

Q: What are your thoughts on the relationship between Trump and Chinese President Xi Jinping, which is proving to be much friendlier than expected given Trump’s campaign rhetoric, and what does that mean for markets or investments? [nL1N1I0067]

A: Yes, it looks like the two leaders had a good meeting in Washington, establishing a working relationship that appears to be deepening. This is very important as you are talking about the most important bilateral economic relationship in the world – between the largest economies.

As such, it has a notable influence on markets/investment. The economic and financial relationships between the U.S. and China are considerable and multifaceted. Indeed, given the current scale and scope of inter-connectedness, the most likely long-term outcomes are either win-win or lose-lose. And the dynamics involved could well be those of multiple equilibria. As such, the stakes are high for the global economy and markets.

Q: Do you think the deleveraging efforts in China are working?

A: The deleveraging process is proving to be a very gradual process. Fortunately, China has time and the pockets of excessive leverage are containable. But there will be the periodic stress, and it’s one that requires timely policy responses.

Q: What is your view on the dollar? Could it get a further boost from U.S. President Donald Trump’s policies?

A: A lot depends on policies. Specifically, the dollar would get a boost from the implementation of pro-growth measures that would also allow the Federal Reserve to normalize both interest rates and its balance sheet. As such, foreign exchange traders should keep a close eye on progress on tax reform, de-regulation and infrastructure in particular.

Q: Do you think inflation, which many thought would see a spike in 2017, has already reversed?

A: No. I think the recent U.S. reversal will prove temporary. I suspect that there is some more inflation in the pipeline in 2017 here, though I would not call it a spike – rather a slow move up.

Q: Would you be a buyer or seller of USD/JPY if the tensions on the Korean Peninsula escalate? How does that reconcile with BOJ’s stance?

A: An escalation of the geo-political tensions you postulate in your question would most probably lead to an appreciation of the dollar versus the Japanese yen – related to economic, financial and technical reasons. I suspect that, in such a scenario, and it is one of many, the Bank of Japan would allow the currency to depreciate rather than take measures to meaningfully counter the move.

Q: Would you be a buyer of gold in this period of heightened geopolitical tensions? Or do you see it underperforming in a rising interest rate environment?

A: Much depends on what else I have in my portfolio. Some allocation to gold makes sense here.

Q: Would you say the populist wave highlighted by the Brexit vote and the U.S. election is already waning given the French election left centrist Emmanuel Macron in the lead? And what is your view on the euro as a whole?

A: No, I think the anti-establishment phenomenon is still with us. Remember, Emmanuel Macron campaigned against the mainstream parties. In fact, he does not have a party – just a “movement.” What we are witnessing is the cumulative effect of too many years of low and insufficiently inclusive growth.

(Editing by Neil Fullick)

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Frugal U.S. consumers seen holding back first-quarter GDP

WASHINGTON The U.S. economy likely hit a soft patch in the first quarter as an unseasonably warm winter and rising inflation weighed on consumer spending, in a potential setback to President Donald Trump’s promise to boost growth.

Reduced business investment in inventories and government spending cuts also crimped gross domestic product growth. A Reuters survey of economists conducted last week forecast GDP rising at a 1.2 percent annual rate, but many economists lowered their estimates after the government on Thursday released advance reports on the goods trade deficit and inventories in March.

The Atlanta Federal Reserve is forecasting the economy growing at only a 0.2 percent rate in the first quarter, which would be the weakest performance in three years.

The economy grew at a 2.1 percent pace in the fourth quarter. The government will publish its advance first-quarter GDP estimate on Friday at 8:30 a.m. The expected sluggish first-quarter growth pace, however, is not a true picture of the economy’s health.

The labor market is near full employment and consumer confidence is near multi-year highs, suggesting that the mostly weather-induced slowdown in consumer spending is probably temporary. First-quarter GDP tends to underperform because of difficulties with the calculation of data that the government has acknowledged and is working to rectify.

“The weakness is not a reflection of the underlying health of the economy, part of it is residual seasonality,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “It has become more understood over the past few years, that’s why people often discount first-quarter GDP.”

Even without the seasonal quirk and temporary restraints, economists say it would be difficult for Trump to fulfill his pledge to raise annual GDP growth to 4 percent, without increases in productivity.

Trump is targeting infrastructure spending, tax cuts and deregulation to achieve his goal of faster economic growth.

On Wednesday, the Trump administration proposed a tax plan that includes cutting the corporate income tax rate to 15 percent from 35 percent, but offered no details.


Economists estimate that growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, braked to below a 1.0 percent rate in the first quarter. That would be the slowest pace in nearly four years and follows the fourth quarter’s robust 3.5 percent growth rate.

The expected weakness in consumer spending is blamed on a mild winter, which undermined demand for heating and utilities production. Higher inflation, which saw the consumer price index averaging 2.5 percent in the first quarter, also hurt spending.

Government delays issuing income tax refunds to combat fraud also weighed on consumer spending. Economists said Federal Reserve officials were likely to view both the anemic consumer spending and GDP growth as temporary when they meet next week. The Fed is not expected to raise interest rates.

“The good news is that the Fed in recent years has distanced itself from the GDP numbers,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey. “A weak first-quarter GDP print should not affect the policy debate.”

After contributing to GDP growth for two straight quarters, inventory investment was likely a drag in the first quarter. JPMorgan is forecasting inventories chopping off one percentage point from GDP growth. Trade was likely neutral after being a huge drag in the fourth quarter.

But some good news is expected. Business investment likely rose further, with spending on equipment seen accelerating thanks to rising gas and oil well drilling as oil prices continue their recovery from multi-year lows.

Investment in home building is also expected to have gained momentum in the first quarter.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

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U.S. refiners bet on strong exports to balance market

NEW YORK U.S. refiners have come out of maintenance season betting that big exports to Mexico and South America will help alleviate high product inventories and boost margins as the critical summer driving season nears.

The first wave of earnings results from several large independent U.S. refiners showed that they are not chasing U.S. gasoline profits, due to already high inventories and steady-but-not-spectacular demand. Instead, they are taking advantage of demand from places like Mexico and South America, where sputtering local refineries cannot meet customer needs.

Marathon Petroleum Corp (MPC.N), which just completed its largest-ever quarter of turnaround projects at its three Gulf Coast refineries, expects to process more crude than ever in the second quarter, the company said in its earnings release on Thursday.

“The export book continues to be strong,” Marathon CEO Gary Heminger said Thursday, noting that he expects company exports to grow from about 200,000 bpd earlier this year to 300,000 bpd in the second quarter. It is expected to process about 1.82 million bpd in the second quarter.

Valero Energy Corp (VLO.N), the largest U.S. independent refiner by capacity, said it expected its 15 refineries to run up to 96 percent of their combined capacity of 3.1 million barrels per day (bpd) in the second quarter.

There is concern, however, that high run rates might exceed the ability of refiners to export products. U.S. gasoline inventories, which had been drawing down, have rebounded to uncommonly high levels for the season, sapping refining margins.

Jack Lipinski, CEO of CVR Energy Inc (CVI.N), said he fears a repeat of last year, when high inventories crushed margins. The company’s two refineries are landlocked and have no direct access to export markets.

“Even though we are seeing exports increasing, the increase in production is offsetting that,” Lipinski said on an earnings call Thursday.

Refinery crude runs USOICR=ECI hit a record 17.3 million bpd last week and capacity utilization rates hit their highest level since November 2015. [EIA/S]

“Right now, we are running at summer peak levels. If we stay at this level for several months, rising inventories will overwhelm exports,” said Mark Broadbent, a refinery analyst at Wood Mackenzie. “If we stay at lower levels, then exports can help balance inventories.”

The four-week average for exports of finished motor gasoline jumped to 643,000 bpd from 395,000 bpd a year ago while exports of distillate fuel oil climbed to 1.11 million bpd versus 1.01 million bpd a year earlier, EIA data showed.

However, March’s middle distillate export loadings were at an 11-month low, while gasoline export loadings to Latin America have been anchored in the 600,000-bpd range for the past couple of months, said Matt Smith, who tracks cargoes for New York-based Clipperdata.

U.S. refiners, particularly in the Gulf Coast, have cashed in on soaring demand for refined products from Mexico, even as margins CL321-1=R have languished at the lowest levels in about seven years seasonally.

The silver lining has been diesel markets. East Coast refiners are stepping up exports of diesel despite a regional deficit of the fuel as strong overseas demand, particularly in Europe, is proving more profitable.

“It’s a distillate world out there,” said Scott Shelton, energy futures broker with ICAP in Durham, North Carolina. He said ultimately the narrowing in gasoline’s premium to diesel RBc1-HOc1 should prompt more diesel refining, tightening gasoline supplies. That spread hit a four-year seasonal low on Thursday.

(Reporting by Devika Krishna Kumar and Jarrett Renshaw in New York; Editing by Lisa Shumaker)

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Investors, South Korean tech suppliers brush off North Korea threat

NEW YORK/SAN FRANCISCO Growing tensions with North Korea should worry global electronics firms such as Apple Inc as they source key parts from South Korea, but investors are brushing off such concerns and snapping up shares in key exporters, heartened by robust earnings and big investment plans.

U.S. President Donald Trump said on Thursday in an interview with Reuters that a major conflict with North Korea is possible in the standoff over its nuclear and missile programs, though he would prefer a diplomatic resolution.

South Korea, a U.S. ally and home to major electronics parts makers such as Samsung Electronics, LG Display and SK Hynix, would be particularly vulnerable to any military attack from its northern neighbor.

Any interruptions to operations could significantly disrupt global manufacturing of smartphones, televisions, computers and tablets. South Korea supplies more than half of components such as memory chips and flat screens.

Despite escalating tensions, investors are pouring money into South Korea’s financial market, and companies are flocking to the stock market to raise billions of dollars.

“This is mainly just chest-thumping behavior on the part of North Korea and President Trump, but I don’t think it will be anything more than that,” said Geoff Pazzanese, a senior portfolio manager at Federated Investors in New York.

Pazzanese, who owns large positions in Samsung and chipmaker Hynix, said he would be a buyer if the market sold off as a result of a North Korean nuclear test, partly because the Trump administration has reaffirmed its military support for South Korea.

For a graphic on South Korean firms’ key domestic manufacturing sites, click here

Seoul’s stock market has climbed 9 percent so far this year to near record highs, helped by strong earnings by major exporters including Samsung Electronics, which rose 3 percent to a life-time high on Friday after reporting its highest profit in more than three years.

Earlier this week, Hynix and LG Display, both Apple suppliers, reported record quarterly profits and sounded upbeat for the remainder of the year.

“The tension might mean some sentimental risk more than fundamental risk,” said John Teng, an equity analyst at Janus Capital Group in Singapore.

“It might potentially push their customers to restocking earlier, in terms of component inventory. Memory suppliers, they are very disciplined in terms of capacity expansion.”

Mohamed A. El-Erian, chief economic advisor at the Allianz Group, told the Reuters Global Markets Forum on Friday that investors should take a more critical look at their exposure, but had been conditioned to set aside such risks.

“And they have been rewarded well by markets for doing so.” he added.

South Koreans have grown used to the threat of conflict with the North after decades of bellicose rhetoric from Pyongyang, and the companies remained unruffled on Friday.

“We think talk of conflict is speculative, and we do not have any plans to react to the current situation,” LG Electronics said in a statement.

Hyundai Motor, the country’s top automaker, said it had detailed contingency plans to ensure business carried on under various situations but couldn’t disclose them.


Any military conflict on the Korean peninsula could have a dramatic effect on the memory chip market in particular, as Samsung’s and Hynix’s main operations are clustered in South Korea.

The pair control nearly 50 percent of the flash memory market, and almost two thirds of DRAM chips, widely used in computers, making it almost impossible for customers to find alternative supplies quickly.

As supply of those chips are already tight, any interruptions to their manufacturing operations might cause large customers such as Apple and Lenovo to trigger a contractual term known as an “allocation” to get more of their suppliers’ limited supply, according to industry executives.

Those fights often get ugly, with corporate giants throwing their weight around with suppliers, said Trevor Schick, a former supply chain executive at H-P Enterprise and Motorola Mobility.

“In the memory world, the minute things go into allocation, everyone is in a fight for who gets into the allocation. Scale plays a big role in that,” Schick said.

“Most contracts have a formula for how the allocation happens. But when it does, everyone from the big companies gets on planes to Asia to get in front of those CEOs and lay out their case as to why they should get the memory.”

Samsung, Hynix and LG Display declined to comment.

Apple declined to comment.

The ultimate beneficiaries of supply interruptions in South Korea would likely be Japan’s Toshiba Corp, and U.S. firms Micron Technology Inc and Western Digital Corp.

Toshiba’s production is mostly in Japan, while Micron’s is clustered in the United States and Singapore.

But the geopolitical wild card could be China, Schick said.

“If something did happen in Korea, the massive impact would be in China. Most of that memory goes from Korea into China to be made into tablets, phones and computers,” Schick said.

The vast majority of Apple’s iPhones, for example, are manufactured in China by its partner Foxconn.

(Reporting by Jennifer Ablan, David Randall in NEW YORK, Stephen Nellis in SAN FRANCISCO, Joyce Lee and Hyunjoo Jin in SEOUL; Writing by Miyoung Kim; Editing by Will Waterman)

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Boeing seeks U.S. anti-dumping probe against Bombardier jet

WASHINGTON/NEW YORK Boeing Co on Thursday asked the U.S. Commerce Department to investigate alleged subsidies and unfair pricing for Canadian planemaker Bombardier’s new CSeries airplane, adding to growing trade tensions between the United States and Canada.

The petition against Canada’s new competitor to the Boeing 737 aircraft came just days after the Commerce Department imposed duties averaging 20 percent on imports of Canadian softwood lumber, saying that the product’s origin from public land amounted to an unfair government subsidy.

On Wednesday, U.S. President Donald Trump told Canadian Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto that he intended to begin renegotiating the 23-year-old North American Free Trade Agreement, after White House officials said Trump had been considering an order to withdraw from the pact.

Boeing said in its petition that Bombardier, determined to win a key order from Delta Air Lines Inc after losing a competition at United Airlines, had offered its planes to the airline at an “absurdly low” $19.6 million each, well below what it described as the aircraft’s production cost of $33.2 million.

“Propelled by massive, supply creating and illegal government subsidies, Bombardier Inc has embarked on an aggressive campaign to dump its CSeries aircraft in the United States,” Boeing said in its petition.

Boeing’s similarly sized 737-700 model has a list price of $83.4 million, with the new 737-MAX 7 priced at $92.2 million. Sales discounts from list prices are typically 40 percent to 50 percent in the industry.

In April 2016, Bombardier won the Delta order, its biggest yet, for 75 CS100 jets, worth an estimated $5.6 billion based on the list price of about $71.8 million.

In its complaint against Bombardier, Boeing argued that the CSeries program would not exist without hundreds of millions of dollars in launch aid from the governments of Canada, Quebec and Britain, or a $2.5 billion equity infusion from Quebec and its largest pension fund in 2015.

Quebec Economy Minister Dominique Anglade said in a statement that her government would defend “the commercial partnership concluded with Bombardier” for a $1 billion injection in the CSeries.

Boeing also took a shot at European rival Airbus SE, which it accuses of benefiting from similar “unfair” government subsidies in a long-running dispute before the World Trade Organization.

Bombardier is “taking a page out of the Airbus strategy book” by trying to muscle into the U.S. market with cut-rate pricing, Boeing charged.

A Commerce Department spokesman said the petition would be given “a thorough review” and further comment was premature.

Commerce Secretary Wilbur Ross has taken action in recent weeks to protect the U.S. steel and aluminum industries from foreign competition, launching national security investigations that could lead to import restrictions.

An investigation could lead to duties on the Bombardier aircraft to offset any below-cost pricing or any subsidies deemed unfair.

In a statement, Canada’s government objected to Boeing’s allegations and noted that the CSeries has many U.S. suppliers, including for engines, and supports thousands of U.S. jobs.

“The Government of Canada will mount a vigorous defense against these allegations and stand up for aerospace jobs on both sides of the border,” it said in the statement.

Bombardier’s chief executive conceded the company had been “aggressive” on pricing in order to win, and sources familiar with the deal pegged the discount closer to two-thirds off the nominal list price.

Bombardier said in a statement that it was reviewing the petition and said it structures its dealings to ensure compliance with all relevant laws.

The request for anti-dumping measures was also addressed to the U.S. International Trade Commission, an independent U.S. trade body that will review any decisions by the Commerce Department.

(Additional reporting by Tim Hepher in Paris, David Ljunggren in Ottawa and Allison Lampert in Montreal; Writing by David Lawder; Editing by Bill Rigby and Leslie Adler)

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Amazon’s results beat estimates, lifted by cloud unit; shares hit high Inc (AMZN.O) on Thursday reported first-quarter revenue and profit above expectations as sales at its retail and cloud-computing businesses increased, sending shares up more than 4 percent in extended trading.

The world’s largest online retailer said net income rose 41 percent to $724 million, or $1.48 per share, marking the eighth straight quarter that Amazon – known for its heavy spending and roller-coaster results – has posted a net profit.

Analysts on average had expected a profit of $1.12 per share, according to Thomson Reuters I/B/E/S.

The company’s total net sales rose 22.6 percent to $35.71 billion, slightly ahead of analysts’ average estimate. Revenue has soared in recent years as more shopping has shifted online and businesses moved their IT to the cloud, benefiting Amazon Web Services (AWS).

Sales from AWS, the company’s fast-growing business to host companies’ data and handle their computing in the cloud, rose 42.7 percent to $3.66 billion, matching the average analyst estimate, according to market research firm FactSet StreetAccount.

Shares of the company are up 3.8 percent to $953.

Amazon’s net sales in North America, its biggest market, jumped 23.5 percent to $20.99 billion in the latest quarter.

The company also said a stronger dollar hurt its overall sales by $492 million and that the quarter faced tough comparisons with the year-ago quarter, when the Feb. 29 leap day gave shoppers an extra 24 hours to spend.

Seattle-based Amazon forecast that operating income in the second quarter would be between $425 million and $1.075 billion, below the consensus estimate of $1.46 billion, according to market research firm FactSet StreetAccount.

That may be from ongoing investments, stepped up from a year ago to help Amazon stay ahead of the competition.

Amazon has said it plans to build new warehouses and create more than 130,000 full-time and part-time jobs by mid-2018 to speed up delivery. It is investing more than $5 billion in India to gain market share.

The company is also racing to make its voice assistant Alexa, which competes with Apple Inc’s (AAPL.O) Siri, a ubiquitous platform like Windows has been for desktop or Android has been for phones.

Amazon forecast sales for the second quarter of between$35.25 billion and $37.75 billion, which includes an unfavorable impact of about $720 million from foreign exchange rates.

Analysts on average had expected revenue of $36.87 billion.

(Reporting by Anya George Tharakan in Bengaluru and Jeffrey Dastin in San Francisco; Editing by Savio D’Souza, Bernard Orr)

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Uber’s Levandowski to step aside for duration of Waymo litigation

Uber Technologies Inc [UBER.UL] said the head of its self-driving vehicles unit, Anthony Levandowski, will step aside from his role for the remainder of the company’s litigation with Waymo, the self-driving car division of Alphabet Inc (GOOGL.O).

Levandowski, a former Waymo executive and the central witness in the legal case, will remain with the ride-hailing service, but will be recused from all work related to the LiDAR self-driving technology.

Uber named Eric Meyhofer, the engineering lead of the its self-driving vehicles unit, as Levandowski’s replacement for the duration of the Waymo litigation.

Waymo sued Uber in February, alleging theft of confidential information on LiDAR, a technology that allows cars to “see” their environment.

Waymo said Levandowski stole 14,000 of its computer files on autonomous technology before joining Uber.

Uber has said its technology was “fundamentally different” from Waymo’s and that the files never ended up on its servers.

A federal judge is set to rule as early as next month on whether to grant Waymo’s request for a preliminary injunction to prevent Uber from using the disputed documents.

Levandowski has sought his Fifth Amendment right against self-incrimination and will not testify, over concerns about the possibility of a criminal case being filed.

Business Insider first reported the news of Levandowski stepping aside.

Uber, valued at about $68 billion, has been rocked by a number of setbacks lately, including accusations of sexual harassment from a former female employee and a video showing Chief Executive Travis Kalanick harshly berating an Uber driver.

(Reporting by Gayathree Ganesan and Sangameswaran S in Bengaluru; Editing by Sai Sachin Ravikumar)

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Microsoft’s sales fall short of estimates, shares dip

Microsoft Corp on Thursday reported quarterly revenue that slightly missed Wall Street estimates as it suffered a sharp dip in sales of its Surface tablets and laptops.

Shares of the world’s largest software company fell 1 percent to $67.62 in trading after the bell.

Under Chief Executive Satya Nadella, who took the helm in 2014, Microsoft has sharpened its focus on the fast-growing cloud computing unit to counter a prolonged slowdown in the personal computer market, which has weighed on demand for its Windows software.

For the fiscal third quarter, ended March 31, overall revenue on an adjusted basis climbed 6 percent to $23.56 billion, but missed analysts’ average estimate of $23.62 billion.

Revenue from Microsoft’s personal computing unit, its largest by revenue, fell 7.4 percent to $8.84 billion, in the quarter. Analysts on average had expected revenue of $9.22 billion, according to research firm FactSet StreetAccount.

The business includes Windows software, Xbox gaming consoles, online search advertising and Surface personal computers.

Surface revenue plunged 26 percent in the quarter to $831 million, down from $1.3 billion in the year-ago quarter.

Sales of high-end computers from other makers, along with the fact that many Surface products have been on the market for many months, hurt Surface sales, said Zack Moxcey, an investor relations director for Microsoft.

The lower-than-expected revenue in the personal computing division came amid an uptick in the PC market.

Worldwide PC shipments rose 0.6 percent in the first quarter of 2017, seeing growth for the first time in five years, market research firm IDC said earlier this month. Microsoft’s Windows OEM revenue, a measure of the company’s license revenue from computer makers such as Dell Technologies and HP Inc, rose 5 percent. Dell, in particular, reported strong increases in computer sales driven by high-end laptops.


Revenue from the unit that Microsoft calls “Intelligent Cloud,” which includes server products and the company’s flagship cloud computing platform, Azure, jumped about 11 percent to $6.76 billion in the quarter.

Azure revenue soared 93 percent in the quarter. The service competes with Inc’s Amazon Web Services, the market leader in cloud infrastructure, as well as offerings from Alphabet Inc’s Google, IBM and Oracle Corp.

Microsoft also, for the first time, reported a revenue growth rate for Dynamics 365, its competitor to Inc’s online sales software. Revenue grew 82 percent in constant currency, though the firm did not give an absolute dollar total.

The company’s net income rose to $4.80 billion, or 61 cents per share, in the quarter, from $3.76 billion, or 47 cents per share, a year earlier.

Excluding one-time items, Microsoft earned 73 cents per share. Analysts on average had expected 70 cents per share, according to Thomson Reuters I/B/E/S (

Microsoft said LinkedIn, which it bought for about $26 billion, contributed $975 million in revenue in the quarter.

Microsoft’s shares had risen 9.9 percent this year through Thursday, eclipsing the 7 percent gain in the broader SP 500.

(Reporting by Pushkala A and Aishwarya Venugopal in Bengaluru; Editing by Sai Sachin Ravikumar and Bill Rigby)

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