News Archive


Consumer spending, inflation data support Fed rate hike case


WASHINGTON U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to firming domestic demand that could allow the Federal Reserve to raise interest rates next month.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is likely to remain on solid ground in the wake of other reports on Tuesday that showed confidence among households still at lofty levels despite some slippage this month and strong gains in house prices in March.

“Fed officials can continue with their gradual pace of rate hikes in June as the economy remains on course for stronger growth this quarter and throughout the rest of the year,” said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The Commerce Department reported that consumer spending increased 0.4 percent last month after an upwardly revised 0.3 percent gain in March as households spent more on both goods and services.

April’s increase was the biggest since December and eased concerns about second-quarter economic growth after weak reports on core capital goods orders, the goods trade deficit and inventory investment in April. Consumer spending was previously reported to have been unchanged in March.

Consumer spending grew at its slowest pace in more than seven years in the first quarter, helping to restrict the increase in gross domestic product to an annual rate of 1.2 percent in the first three months of the year.

Following April’s report and upward revisions to March’s data, economists said consumer spending was running at around a 3 percent rate, a sharp acceleration from the first quarter’s 0.6 percent pace. GDP growth estimates for the second quarter range between a rate of 2 percent and 3.8 percent.

“This takes out the downside risk to our projection for 3 percent real GDP growth this quarter, and we now see more balanced risks around that call,” said Michael Feroli, an economist at JPMorgan in New York.

U.S. stocks were trading slightly lower amid a drop in oil prices. The dollar .DXY dipped against a basket of currencies while U.S. government bond prices rose.

TIGHTENING JOB MARKET

Minutes of the Fed’s May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, “most participants” believed “it would soon be appropriate” to raise borrowing costs.

The U.S. central bank hiked rates by 25 basis points in March. Consumer spending is being boosted by a tightening labor market, which is gradually pushing up wages. Rising house prices are also supporting consumption.

In a separate report on Tuesday, the Conference Board said its consumer confidence index slipped to a reading of 117.9 in May from 119.4 in April. The index, which hit a 16-year high of 124.9 in March, remains underpinned by labor market strength.

The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, recorded its second strongest reading since 2001.

“Fed Chair (Janet) Yellen has in the past used the labor market differential as a check on the unemployment rate, and the reading for May should provide confirmation to Yellen and her colleagues that the economy has reached the Fed’s assessment of full employment,” said John Ryding, chief economist at RDQ Economics in New York.Expectations of further policy tightening next month are also supported by steadily rising inflation.

The personal consumption expenditures (PCE) price index excluding food and energy rebounded 0.2 percent after dipping 0.1 percent in March. But the so-called core PCE price index increased 1.5 percent in the 12 months through April, the smallest gain since December 2015.

The core PCE, which is the Fed’s preferred inflation measure, rose 1.6 percent year-on-year in March. That was below the central bank’s 2 percent target.

“We anticipate 1.5 percent will mark the low on core PCE inflation and continue to see a move up to 2 percent next year,” said Ted Wieseman, an economist at Morgan Stanley in New York.

Personal income rose 0.4 percent last month as wages jumped 0.7 percent. Savings were little changed at $759.1 billion last month.

A third report on Tuesday showed house prices increased 5.9 percent year-on-year in March.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/R5FetZvRcy8/us-usa-economy-idUSKBN18Q1BA

BA flights restored but questions remain after weekend IT meltdown


LONDON British Airways flights were back in the skies on Tuesday but the company faced increasing pressure over its response to the huge IT failure that left 75,000 passengers stranded over a holiday weekend and dealt a major blow to its reputation.

BA, which once marketed itself as “the world’s favorite airline” suffered a public relations disaster after it had to cancel all flights from London’s Heathrow and Gatwick airports on Saturday. It blamed a power surge that knocked out its computer system, disrupting flight operations, call centers and its website.

Although BA said it expected to run a full schedule from Heathrow and Gatwick on Tuesday, it was left with work to do in the longer term to restore its reputation after a long weekend of chaos and frustration for passengers.

British Prime Minister Theresa May weighed in on the issue on the campaign trial ahead of the June 8 national election.

“It is up to them to sort their IT out and to ensure that they’re able to provide the services that people expect them to provide as British Airways,” May said.

London-listed shares in BA’s parent company IAG fell when the stock market reopened. BA said it was launching a thorough investigation to understand what happened and make sure there was no repeat.

BA had already come under fire for charging extra for food and baggage and the sight of stranded passengers trying to sleep on the floor of its gleaming Heathrow Terminal 5 building is likely to tarnish its image.

“This will certainly damage their reputation,” said Angharad Griffiths, a travel agent who was at Heathrow picking up a tour group from Lisbon. “I’ve never had a good experience with them, even before this.”

Like other European full-service airlines, BA is facing increased competition from budget rivals Ryanair and easyJet.

“British Airways’ IT failure over the weekend is clearly a PR nightmare and will take a real focus in terms of handling customers’ complaints and compensations claims in order to rebuild trust and confidence with the public,” said Mark Simpson, analyst at Goodbody. He estimated the cost of the outage at 82 million euros ($91.6 million).

POWER PROBLEMS

BA Chief Executive Alex Cruz had said on Monday that the power surge was so strong that it also rendered the back-up systems ineffective. The firm said a supply issue at a data center near Heathrow sparked the surge.

Scottish and Southern Electricity Networks, which manages the electricity distribution network in Harmondsworth just north of Heathrow airport, said its network in the area was running as normal on Saturday morning.

“The power surge that BA is referring to could have taken place at the customer side of the meter,” a spokesman said.

A spokeswoman for Heathrow Airport said that there were no issues with the site’s private electricity network on Saturday.

Cruz, who moved to BA from low cost sister airline Vueling, denied that the outage was linked to a decision to cut staff numbers and outsource work to India.

Irish rival Ryanair, which reported record annual profits on Tuesday, said it had systems in place to avoid a similar fiasco.

“We have three IT locations in different countries across Europe,” Kenny Jacobs, chief marketing officer, told reporters in London.

“If there’s a power surge at one, the second kicks in, and the third one would kick in. That’s what most businesses would do. That’s our approach and we’ve never had a major outage.”

Ryanair Chief Executive Michael O’Leary said his company saw very strong bookings over the weekend, but added it was unclear if this was related to the BA problems.

In the wake of the outage, Ryanair had taken to social media to poke fun at BA.

Shares in BA’s parent company IAG, which also owns carriers Iberia, Aer Lingus and Vueling, fell as much as 4.5 percent on Tuesday, the first day of London trading this week. They were trading 1.8 percent lower at 1400 GMT (10 a.m. ET)

(Additional reporting by Paul Sandle, Jon Coffey and Karolin Schaps; editing by Keith Weir)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/x0pQJaOOmhM/us-britain-airports-iag-stocks-idUSKBN18Q0K9

U.S. top court tightens rules on where companies can be sued


The U.S. Supreme Court on Tuesday tightened rules on where injury lawsuits may be filed, handing a victory to corporations by undercutting the ability of plaintiffs to bring claims in friendly courts in a case involving Texas-based BNSF Railway Co.

The justices, in a 8-1 decision, threw out a lower court decision in Montana allowing out-of-state residents to sue there over injuries that occurred anywhere in BNSF’s nationwide network. State courts cannot hear claims against companies when they are not based in the state or the alleged injuries did not occur there, the justices ruled.

BNSF is a subsidiary of Berkshire Hathaway Inc.

Businesses and plaintiffs have been engaged in a fight over where lawsuits seeking financial compensation for injuries should be filed.

Companies typically can be sued in a state where they are headquartered or incorporated, as well as where they have significant ties. They want to curb plaintiffs’ ability to “shop” for courts in states with laws conducive to such injury lawsuits.

Plaintiffs contend that corporations are trying to limit their access to compensation for injuries by denying them their day in state courts.

The case involves two lawsuits against BNSF brought under the Federal Employers’ Liability Act, a U.S. law that allows injured railroad employees to sue for compensation from their companies.

BNSF fuel truck driver Robert Nelson sued in 2011 over a slip-and-fall accident in which he injured his knee. Kelli Tyrrell, the widow of railroad employee Brent Tyrrell, sued in 2014 alleging her husband was exposed to chemicals that caused him to die of kidney cancer.

Neither BNSF employee lived in Montana and their allegations did not occur in the state, according to court filings.

BNSF argued that the Montana courts did not have jurisdiction over the cases. The Montana Supreme Court in May, however, ruled that state courts there can hear cases against BNSF without violating due process rights guaranteed in the U.S. Constitution because the company does business in the state.

Writing for the majority on Tuesday, Justice Ruth Bader Ginsburg said that even though BNSF has more than 2,000 miles (3,200 km) of track and 2,000 employees in Montana, it cannot be held liable for “claims like Nelson’s and Tyrrell’s that are unrelated to any activity occurring in Montana.”

The Supreme Court is also expected to rule before the end of June in a similar challenge brought by drug maker Bristol-Myers Squibb, which says it should not have to face injury suits filed by hundreds of out-of-state residents in California over its blood-thinning medication Plavix. The company is incorporated in Delaware and headquartered in New York.

Justice Neil Gorsuch joined the majority on Tuesday, the first ruling he has participated in since joining the court in April.

(Reporting by Andrew Chung; Editing by Will Dunham)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/o6W18l0pqPI/us-usa-court-bnsf-rlwy-ptt-idUSKBN18Q1N7

Greece denies report it may opt out of receiving more bailout money


ATHENS Greece on Tuesday denied a German newspaper report it could refuse receipt of bailout loans needed to make a July debt repayment if its lenders fail to offer clear debt relief terms, despite it having passed more reforms.

Tuesday’s report in mass-selling Bild that Athens could go without new loans of about 7 billion euros ($7.80 billion) if it does not get comprehensive debt relief, and it was itself putting billions of euros aside preparing for this scenario, rattled the euro in early trade.

Greek Finance Minister Euclid Tsakalotos dismissed the report saying it distorted what he said during a news briefing a day earlier.

“Bild has distorted what I said yesterday,” he told Reuters when asked to comment on the report.

“What I did say is that the disbursement (of bailout money) was not an issue, because all sides agreed that we have kept to our commitments,” he said. “But the Greek government feels that a disbursement without clarity on debt is not enough to turn the Greek economy around.”

The country has about 7 billion euros of debt maturing in July, a sum it will not be able to repay unless it gets new loans out of its current bailout worth up to 86 billion euros, the third aid program since the crisis began.

Euro zone finance ministers failed to agree with the International Monetary Fund last week on debt relief terms for Greece. They did not release new loans to Athens but recognized it had made significant progress with reforms.

Greece hopes that euro zone finance ministers will offer enough clarity in June on the debt relief measures that could be carried out after its bailout ends in 2018, to show investors that its debt – now at 197 percent of GDP – will be sustainable and help it return to bond markets as early as this summer.

TAX HIKES

Government spokesman Dimitris Tzanakopoulos also dismissed the report, saying a deal on debt relief could be reached at the next scheduled meeting of euro zone finance ministers in less than three weeks.

“It is not true,” Tzanakopoulos told Reuters. “There will be a solution on June 15.”

In a statement to the Athens News Agency, he suggested that the report was politically motivated.

Prime Minister Alexis Tsipras told German Chancellor Angela Merkel and French President Emmanuel Macron in separate phone calls on Monday that Greece needed a “clear solution on debt”, a government official said. Tsipras also discussed the issue with EU Council President Donald Tusk on Tuesday, the official added.

To convince the IMF to participate financially in Greece’s program, as sought by Germany, Athens passed legislation this month on additional pension cuts and tax hikes, which will be implemented after its bailout expires in 2018, as demanded by the IMF.

The Washington-based fund says Greece needs further debt relief. Germany, which is gearing for elections in September, says Greece needs to speed up reforms instead. Tsipras’s term ends in 2019 and his party is sagging in the opinion polls.

Speaking to journalists on Monday, Tsakalotos said Greece had “done its part of what it promised” and called on its creditors and the IMF to reach a deal on debt relief saying it was in everyone’s benefit.

“If they don’t reach a solution it will be very difficult to defend it to the international community. What will they say? That the Greek government did all that we asked for and more but we are still going to send it to the rocks?

“We are looking for a good solution, we are not looking for the perfect solution. I am confident we can get a good solution,” he said.

(Reporting by Renee Maltezou; Writing by Michele Kambas; Editing by Alison Williams)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/guXppB4f2NY/us-eurozone-greece-denial-idUSKBN18Q0LM

Goldman confirms buying Venezuela bonds after opposition cries foul


CARACAS Goldman Sachs Group Inc (GS.N) has confirmed it bought Venezuelan bonds after being excoriated by the country’s opposition for financing the embattled government of President Nicolas Maduro, who is facing sustained protests.

The president of the opposition-led Congress accused the bank of financing “dictatorship” after the Wall Street Journal reported Goldman had bought $2.8 billion in bonds issued by state oil company PDVSA at a steep discount.

“We bought these bonds, which were issued in 2014, on the secondary market from a broker and did not interact with the Venezuelan government,” Goldman wrote in a statement late on Monday.

“We recognize that the situation is complex and evolving and that Venezuela is in crisis. We agree that life there has to get better, and we made the investment in part because we believe it will.”

The statement did not include the price of the bonds or the amount purchased.

With Venezuela’s inefficient state-led economic model struggling under lower oil prices, Maduro’s unpopular government has become ever more dependent on financial deals or asset sales to bring in coveted foreign exchange.

Many economists say the only way to improve the country’s situation is to scrap price and currency control systems that have hobbled the private sector.

Maduro’s critics have for two months been staging street protests, which have left nearly 60 people dead, to demand that he hold early elections. Maduro says the protests are a violent effort to overthrow his government, and insists the country is victim of an “economic war” supported by Washington.

(Reporting by Brian Ellsworth; Editing by Nick Zieminski)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/foPtSt1CCTM/us-venezuela-goldman-sachs-idUSKBN18Q1D6

Oil slips on oversupply worries despite OPEC deal


LONDON Oil prices fell on Tuesday on concerns that output cuts by the world’s big exporters may not be enough to drain a global glut that has depressed the market for almost three years.

Benchmark Brent crude LCOc1 dropped $1.10 a barrel, or more than 2 percent, to a low of $51.19 before recovering some ground to trade around $51.30 by 1345 GMT (9:45 a.m. ET). U.S. light crude CLc1 was 65 cents lower at $49.15.

“The oil market remains on the back foot,” said Stephen Brennock, analyst at London brokerage PVM Oil Associates.

“Last week’s decision by OPEC to extend its output pact (has failed) to alleviate lingering fears of a global oil glut.”

The Organization of the Petroleum Exporting Countries and other oil producers, including Russia, agreed last week to keep a tight rein on supply until the end of the first quarter of 2018, nine months longer than originally planned.

Collective output by OPEC and other producers will be held around 1.8 million barrels per day (bpd) below its level at the end of last year.

But the cutbacks have yet to drain inventories significantly and prices fell sharply after the OPEC deal was announced.

Part of the problem for OPEC is oil supply in the United States, where shale production is booming.

U.S. drillers have added rigs for 19 straight weeks to reach 722, the highest since April 2015, according to services firm Baker Hughes (BHI.N).

Goldman Sachs analysts have reduced their forecasts for oil prices, saying falling U.S. production costs will keep supply rising for years to come.

The bank said that once OPEC’s production growth resumes after its self-imposed cuts, U.S. and OPEC output would rise by 1 million to 1.3 million bpd between 2018 and 2020.

“While we are bullish on near-term prices as inventories normalize … 2018-19 futures need to be in the $45-$50 range,” Goldman said.

The American summer driving season, which by tradition started on the Memorial Day holiday on Monday, may offer some support for prices, analysts said.

Demand in the United States for transport fuels tends to rise as families visit friends and relatives or go on vacation during the Northern Hemisphere summer.

The American Automobile Association said ahead of Memorial Day that it expects 39.3 million Americans each to travel 50 miles (80 km) or more away from their homes over the Memorial Day weekend, the highest Memorial Day mileage since 2005.

(Additional reporting by Henning Gloystein in Singapore; Editing by David Evans and Edmund Blair)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/0NlXYxnW4Go/us-global-oil-idUSKBN18Q01B

Wall St. opens slightly lower as investors digest data


U.S. stocks opened slightly lower on Tuesday after a three-day holiday weekend as oil prices fell and investors parsed a barrage of economic data for a reading on the health of the economy.

While stocks are trading at record levels, helped by strong first-quarter corporate earnings, investors are keeping a close eye on data as well as political developments in Washington.

U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to firming domestic demand that could allow the Federal Reserve to raise interest rates next month.

The core PCE price index – the Fed’s preferred inflation measure – increased 1.5 percent in the 12 months through April. The central bank has a 2 percent target.

The U.S. Conference Board is likely to report that its consumer confidence index was little changed in May.

“We are expecting confidence to slip as the political turmoil in Washington weighs. Nonetheless, the confidence index is expected to stay within its upper range,” Peter Cardillo, chief market economist at First Standard Financial, wrote in a note. “We look for a mixed session as the macro news is digested.”

At 9:36 a.m. ET, the Dow Jones Industrial Average .DJI was down 26.65 points, or 0.13 percent, at 21,053.63, the SP 500 .SPX was down 3.27 points, or 0.13 percent, at 2,412.55.

The Nasdaq Composite .IXIC was up 2.33 points, or 0.04 percent, at 6,212.53.

Nine of the 11 major SP 500 sectors were lower, with the energy index’s .SPNY 0.82 percent fall leading the decliners.

Oil prices were lower, pressured by concerns that production cuts by the world’s big exporters may not be enough to drain a global glut that has depressed the market for almost three years. [O/R]

CardConnect’s (CCN.O) shares jumped 11 percent to $15.06 after First Data (FDC.N) agreed to buy the payment processor for $750 million. First Data slipped 0.1 percent.

Protagonist Therapeutics (PTGX.O) soared as much as 81 percent to $14.85 after the drug developer signed a collaboration with Johnson Johnson (JNJ.N) to develop a drug for inflammatory bowel disease. Johnson Johnson fell 0.4 percent.

Atwood Oceanics (ATW.N) was up 21.2 percent at $9.78 after offshore driller Ensco (ESV.N) said it would buy its smaller rival in a deal valued at about $839 million. Ensco was down 6.5 percent at $6.25.

Declining issues outnumbered advancers on the NYSE by 1,658 to 888. On the Nasdaq, 1,323 issues fell and 917 advanced.

The SP 500 index showed 28 new 52-week highs and 11 new lows, while the Nasdaq recorded 82 new highs and 70 new lows.

(Reporting by Tanya Agrawal; Editing by Saumyadeb Chakrabarty)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/GPvZIMl44Jc/us-usa-stocks-idUSKBN18Q14O

LSE to buy Citi’s bond data and indexes business for $685 million


London Stock Exchange (LSE) (LSE.L) is to buy Citigroup’s (C.N) Yield Book fixed-income analytics service and its related indexing business for $685 million in cash, the LSE’s first big deal since its merger with Deutsche Boerse (DB1Gn.DE) fell through in March.

The Yield Book and Citi Fixed Income Indices businesses have a client base of more than 350 institutions offering services used to analyze fixed income instruments including mortgage, government, corporate and derivative securities, Citi said.

The indexes business includes the widely followed World Government Bond Index series.

LSE (LSE.L) said the Citi acquisition would boost the size and capabilities of its FTSE Russell indexes business, taking assets under management using its indexes to about $15 trillion.

More acquisitions might be made but the focus now would be on developing the business it already has, the head of FTSE Russell told Reuters.

“Anything that we can acquire at a fair price, we will look at … But first and foremost we focus on the organic growth,” Mark Makepeace said.

“(The deal) gives us a multi-asset approach to benchmarking, which is what our clients increasingly want. They want to get equities, fixed income and other asset classes from a single provider,” he said.

The deal will also help the LSE compete better with rival index compilers MSCI (MSCI.N) and SP (SPGI.N), with FTSE International projected to have more assets under management using its indexes than MSCI’s $11 trillion and SP’s $10 trillion, Makepeace said

Shares in LSE, which have risen 12 percent since the Deutsche Boerse deal was blocked by EU regulators, citing concerns over a potential monopoly in the processing of bond trades, were up 0.3 percent at 3,404 pence at 1322 GMT (9:22 a.m. ET).

“It is our opinion that LSEG has acquired a profitable, high-margin, fast-growing business that is complementary to its existing benchmark portfolio, and is an effective use of surplus capital,” RBC Capital Markets analyst Peter Lenardos said.

The acquisition is expected to add $30 million in synergy benefits to LSE’s revenues over the first three years after completion and bring $18 million in cost savings over the same period, the company said.

Last year LSE estimated the business being acquired would have generated earnings before interest, tax, depreciation and amortization of $46 million on revenue of $107 million.

LSE expects the EBITDA margin to rise to at least 50 percent within three years of the deal’s completion.

“This is another clever transaction by LSEG, one that few had on their radar screens. The transaction makes financial and strategic sense,” Lenardos, who rates LSE “outperform” said.

(Reporting by Noor Zainab Hussain in Bengaluru; Editing by Jason Neely, Greg Mahlich)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/tC2RnsCb5iM/us-citigroup-m-a-lse-idUSKBN18Q0FZ

Consumer spending jumps; monthly inflation rebounds


WASHINGTON U.S. consumer spending recorded its biggest increase in four months in April and monthly inflation rebounded, pointing to firming domestic demand that could allow the Federal Reserve to raise interest rates next month.

The Commerce Department said on Tuesday that consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month after an upwardly revised 0.3 percent gain in March. Households spent more on both goods and services last month.

April’s increase was the biggest since December and could ease concerns about second-quarter economic growth after weak reports on core capital goods orders, the goods trade deficit and inventory investment in April. Consumer spending was previously reported to have been unchanged in March.

U.S. stock index futures pared losses after the data while the dollar edged up against the yen. Prices of U.S. Treasuries were trading slightly higher.

Consumer spending grew at its slowest pace in more than seven years in the first quarter, helping to restrict gross domestic product growth to a 1.2 percent annual rate in the first three months of the year. GDP growth estimates for the second quarter range between a rate of 2 percent and 3 percent.

Minutes of the Fed’s May 2-3 policy meeting, which were published last week, showed that while policymakers agreed they should hold off hiking rates until there was evidence the growth slowdown was transitory, “most participants” believed “it would soon be appropriate” to raise borrowing costs.

The U.S. central bank hiked rates by 25 basis points in March. Expectations of further policy tightening next month are also supported by steadily rising inflation.

The personal consumption expenditures (PCE) price index rebounded 0.2 percent in April, reversing March’s 0.2 percent drop. In the 12 months through April, the PCE price index increased 1.7 percent after rising 1.9 percent in March.

Excluding food and energy, the so-called core PCE price index also bounced back 0.2 percent after dipping 0.1 percent in March. In the 12 months through April, the core PCE price index increased 1.5 percent after rising 1.6 percent in March.

The core PCE is the Fed’s preferred inflation measure. The central bank has a 2 percent target for core PCE.

But rising inflation is cutting into both consumer spending and income growth. When adjusted for inflation, so-called real consumer spending rose 0.2 percent last month after advancing 0.5 percent in March.

While personal income rose 0.4 percent last month, as wages jumped 0.7 percent, income at the disposal of households after accounting for inflation advanced 0.2 percent. Real disposable income increased 0.4 percent in March.

Savings were little changed at $759.1 billion last month.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/R5FetZvRcy8/us-usa-economy-idUSKBN18Q1BA