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U.S. consumer spending rises modestly, inflation cools

WASHINGTON U.S. consumer spending rose modestly in May and inflation cooled, pointing to a slow-but-steady economic expansion that could still lead the Federal Reserve to raise interest rates by the end of the year.

The data, released by the Commerce Department on Friday, bolstered the view that the U.S. economy is rebounding in the second quarter, although a separate report showed a gauge of consumer confidence fell in June to its lowest level since November.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.1 percent last month, according to the Commerce Department. Consumer prices excluding food and energy rose 1.4 percent on a yearly basis, compared to a 1.5 percent gain in April.

Yields on U.S. government debt rose and U.S. stock prices rose after the spending data was published. The dollar .DXY was little changed against a basket of currencies.

Some Fed policymakers are worried that inflation may fall further below the central bank’s 2 percent target, but Fed Chair Janet Yellen said earlier this month that inflation would likely be soft in the coming months due to temporary factors.

Solid consumer spending is supporting the outlook for faster inflation and continued economic growth. The slower spending growth in May followed two monthly increases of 0.4 percent, which suggests economic growth is on track to accelerate in the second quarter after a meager expansion in the first three months of the year.

“It still looks like real consumption picked up lately,” said Daniel Silver, an economist at JPMorgan in New York.

The personal consumption expenditures (PCE) price index fell 0.1 percent in May from April, dragged lower by drops in prices for consumer goods and energy. When food and energy were excluded, the index was up 0.1 percent.

The 12-month reading for the so-called core inflation has been slowing since March.

The slowdown in inflation has boosted consumer spending power. After-tax personal income adjusted for inflation rose 0.6 percent in May, the largest gain since April 2015.

Even so, the University of Michigan’s consumer sentiment index fell to 95.1 this month, its lowest since November, according to a final reading for the gauge published on Friday. The index has been rising more or less steadily since 2008 and in November it hit its highest level since before the 2007-09 recession.

(Reporting by Jason Lange; Editing by Paul Simao and Chizu Nomiyama)

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Walgreens deal offers no lasting relief to Rite Aid

A slimmed-down Rite Aid Corp (RAD.N) could lose much of its bargaining heft with insurers and makers of branded drugs at a time when it is trying to turn around its flagging pharmacy business, analysts said.

Rite Aid said on Thursday it would sell nearly half its U.S. stores to larger rival Walgreens Boots Alliance Inc (WBA.O) after the drugstore operators agreed to scrap a whole-sale merger.

Wall Street showed its displeasure at the new deal, pushing Rite Aid’s shares down 30 percent to a near four-year low after the announcement. The stock added to its losses, falling 7 percent on Friday.

Rite Aid has been struggling with eroding profits in its pharmacy business, which sells prescription drugs, as increases in branded drug prices have slowed while reimbursement pressure for generics has intensified.

“I think Rite Aid is going to struggle to remain relevant in the pharmacy industry,” said Adam Fein, president at Pembroke Consulting, which tracks the drug distribution industry.

“The pharmacy industry has become hyper competitive and it favors either large teams or nimble independents, and Rite Aid is buck in the middle and doesn’t have geographic scale anywhere, except in the North East and the West Coast.”

But it’s not all bad news for the company.

Under the new deal, Rite Aid will gain access to Walgreen’s centralized sourcing system, allowing it to procure generic drugs at low costs for 10 years and giving its pharmacy margins a much-needed boost.

Walgreens, the No. 1 drugstore chain in the country, has a sourcing contract with AmerisourceBergen Corp (ABC.N), the second-largest U.S. drug distributor, giving the alliance bargaining clout against drugmakers.

“We estimate more favorable generic procuring costs could provide 3-5 percent of saving on RAD’s total generic spend,” Cowen Co analyst Charles Rhyee said in a research note.


Still, being left with only half its stores will be punishing on economies of scale for Rite Aid, which is already struggling to turn a profit, said Neil Saunders, managing director of market research firm GlobalData Retail.

Rite Aid on Thursday posted a much bigger quarterly loss, mainly because of a drop in same-store sales due to low reimbursement rates. This was the company’s third loss in the past five quarters.

EBITDA margins for the company fell to an average of 3.4 percent in fiscal 2017 ended March 31, from 4.8 percent in 2013.

In contrast, Walgreens’ EBITDA margins have averaged 7.3 percent on average for first three quarters of fiscal 2017, which ends in August, from 6.9 percent for the whole of 2013.

Rite Aid, however, said the deal would make it a smaller but stronger company, helping it address pharmacy margin challenges and significantly cut its debt – over $7 billion at the end of fiscal 2017.

Selling roughly half its stores will leave Rite Aid more reliant on its pharmacy benefit management business, which maintains formularies, or preferred drugs lists, negotiates rebates with drugmakers, and processes prescription drug claims.

“We think this will benefit RAD from a valuation perspective as we estimate that PBMs trade at a premium to drug retailers, by about a couple of turns in our view,” Cowen Co analyst Charles Rhyee said in a research note.

The smaller company could also be an attractive buyout target for a private equity firm or a rival such as Fred’s Inc (FRED.O), which was to buy some assets that would have been divested under the previously planned Walgreens-Rite Aid merger, analysts said.

(Additional reporting by Sruthi Ramakrishnan and Gayathree Ganesan; Writing by Sayantani Ghosh in Bengaluru; Editing by Saumyadeb Chakrabarty)

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Buffett’s company to become Bank of America’s top shareholder

Warren Buffett’s company will become the biggest shareholder in Bank of America Corp (BAC.N), after Berkshire Hathaway Inc (BRKa.N) on Friday invoked its right to acquire 700 million shares of the second-largest U.S. bank.

Berkshire will take a roughly 7 percent ownership stake, worth about $17 billion based on Bank of America’s closing price of $24.32 on Thursday.

The transaction will make Bank of America one of Berkshire’s largest equity investments, joining Apple Inc (AAPL.O), Coca-Cola Co (KO.N), Kraft Heinz Co (KHC.O) and Wells Fargo Co (WFC.N), the nation’s third-largest bank.

It was made possible by Bank of America’s June 28 decision to boost its quarterly dividend to 12 cents per share from 7.5 cents, after passing the Federal Reserve’s latest “stress test” of its capacity to weather difficult markets.

Shares of Bank of America were up 16 cents at $24.48 in early trading on Friday.

Berkshire will exercise warrants to acquire the 700 million common shares when Charlotte, North Carolina-based Bank of America increases its dividend, expected in the third quarter.

It will swap the $5 billion of Bank of America preferred shares it bought in August 2011 for the common stock, in a cash-free exchange.

Berkshire is sitting on a roughly $12 billion paper profit, because Bank of America’s stock price is more than triple the $7.14 exercise price for the warrants.

After the swap is completed, Buffett will begin collecting $336 million of annual dividends, more than the $300 million he gets from the preferred shares, which have a 6 percent dividend.

Berkshire is also the largest shareholder in Wells Fargo, which sends Buffett close to $800 million of annual dividends.

The billionaire investor’s Omaha, Nebraska-based conglomerate also owns more than 90 businesses such as the Geico car insurer, Dairy Queen ice cream and BNSF railroad.

Brian Moynihan, Bank of America’s chief executive, accepted Buffett’s investment when many investors worried whether the lender would have enough capital.

The bank was only about midway through a multi-year process to clean up its balance sheet, litigation and regulatory probes, largely from its purchases of Countrywide Financial Corp and Merrill Lynch Co. That process cost more than $70 billion.

Buffett has often praised Moynihan’s leadership, telling CNBC in September 2015 that Moynihan resuscitated a bank that had been a “terrible mess.”

Bank of America’s current largest shareholder is Vanguard Group, whose 652.4 million shares give it a 6.6 percent stake, Reuters data show.

(Reporting By Aparajita Saxena in Bengaluru and Jonathan Stempel in New York; Additional reporting by Lauren Tara LaCapra; Editing by Anil D’Silva, Bernard Orr)

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Siemens holds up new R&D site as evidence of commitment to U.S.

FRANKFURT German engineering group Siemens broke ground on a new $300 million research and development facility in Walpole, Massachusetts on Friday that it said underlined its commitment to manufacturing in the United States.

“Siemens has been doing business in the United States for more than 160 years. We not only deliver products and solutions to America, but the Walpole expansion demonstrates our passion for making things here, hiring here and working closely with U.S. customers,” Lisa Davis, management board member at Siemens, said in a statement on Friday.

Her comments come after U.S. President Donald Trump has criticized Germany’s trade surplus with the United States and promised to bring back good manufacturing jobs by getting tough with U.S. trade partners.

Reuters analysis of federal jobs data has shown that out of 656,000 new manufacturing jobs created in the United States between 2010 and 2014, two thirds can be attributed to foreign direct investment.

Now foreign companies that have spent billions of dollars on U.S. factories and local leaders who host them worry that global supply networks that back those investments will fray if Trump makes good on his pledge to roll back trade liberalization.

Trains-to-turbines group Siemens employs more than 50,000 people in the United States, its single biggest market, where it makes 21 percent of its total revenue.

It said the new Walpole facility for laboratory diagnostics would create up to 700 new high-tech jobs.

(Reporting by Maria Sheahan; Editing by Victoria Bryan)

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Dollar sulky on hawkish central banks, Asia stocks join global slump

SINGAPORE The dollar extended its losses on Friday as major central banks signalled that the era of cheap money was coming to an end in a boon to sterling, the euro and the Canadian dollar, while Asian shares were hit by dismal performances of European and U.S. markets.

“International markets continued to adjust for a 2018 outlook where other central banks join the Fed in gradually reducing monetary stimulus,” Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote in a note.

The dollar index .DXY fell 0.1 percent to 95.505, poised for a 1.8 percent slide this week, having fallen in all sessions but one. It is down 1.45 percent for the month, and 4.8 percent for the quarter.

The Korean won weakened against the dollar after the country reported industrial production rose by 0.2 percent in May from a month earlier, missing expectations for growth of 1.5 percent. That followed a 2.2 percent decline in April

The dollar was up 0.3 percent at 1,144.3 won KRW=KFTC.

But the greenback remained lower against other major currencies. Adding to the dollar’s weakness against the yen was data showing Japanese core consumer prices rose 0.4 percent in May from a year earlier in its fifth straight month of gains, although inflation remains well below the central bank’s 2 percent target.

The dollar fell 0.25 percent to 111.84 yen, after losing 0.2 percent on Thursday. It was heading for a 1.1 percent gain for the month, but is down 4.3 percent this year.

Bank of England Governor Mark Carney surprised many on Wednesday by conceding a rate hike was likely to be needed as the economy came closer to running at full capacity.

Sterling GBP=D3 was 0.1 percent higher on Friday at $1.3017, adding to Thursday’s 0.6 percent gain.

Two top policymakers at the Bank of Canada also suggested they might tighten monetary policy there as early as July.

The dollar slipped 0.2 percent to C$1.2977 CAD=, extending Thursday’s 0.26 percent loss.

Despite comments by sources that European Central Bank President Mario Draghi had intended to signal tolerance for a period of weaker inflation, not an imminent policy tightening, the euro on Friday revisited the one-year high of $1.1445 hit on Thursday.

The euro EUR=EBS remained close to that level and was at $1.14425 on Friday, retaining most of Thursday’s 0.6 percent gain.

“The shifting monetary policy trajectories of other central banks is making other currencies more attractive relative to the U.S. dollar,” said Kathy Lien, managing director at BK Asset Management in New York.

In stocks, the MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.7 percent, set to end the month up 1.7 percent after hitting a two-year high on Thursday. It is up 5.3 percent for the quarter and has risen 18.3 percent this year.

The negative sentiment infected Chinese shares despite surveys showing activity in the country’s manufacturing and services sector accelerated in June from the previous month. Manufacturers appeared to enjoy strong external demand, as new orders and production rose at a solid pace.

The CSI 300 index .CSI300 fell 0.3 percent, while the Shanghai Composite .SSEC slipped 0.2 percent.

Hong Kong’s Hang Seng .HSI slid 1.1 percent.

Japan’s Nikkei .N225 tumbled 1.1 percent, shrinking its monthly gain to 1.8 percent and its quarterly increase to 5.8 percent.

South Korea’s KOSPI .KS11 lost 0.45 percent, while Australian shares dropped 1.35 percent.

Overnight, the tech-heavy Nasdaq .IXIC led declines on Wall Street with a 1.4 percent loss. The Nasdaq is poised to post a 0.9 percent loss for the month, but is still up 14 percent this year.

The drop in tech stocks overnight was due to a rotation into bank shares, which have lagged this year, after the biggest U.S. banks revealed buyback and dividend plans that beat analysts’ expectations after the Fed approved their capital proposals in its annual stress test program.

The SP financials index .SPSY rose as much as 2 percent overnight, while the SP technology index .SPLRCT fell as much as 2.7 percent.

European shares also lost 1.3 percent as dividend-paying sectors took a hit on prospects for higher interest rates.

In commodities, oil prices continued their recovery this week on a decline in weekly U.S. crude production.

U.S. crude CLc1 added 0.7 percent to $45.20 a barrel in its seventh straight session of gains, bringing its weekly increase to 5.1 percent, and narrowing its monthly and quarterly losses to 6.5 percent and 10.7 percent respectively.

Global benchmark Brent LCOc1 gained 0.8 percent to $47.77 a barrel, poised to post a 5.1 percent loss for the month and 9.6 percent for the quarter.

The dollar’s weakness this year has been a boon for gold, which is up 8.35 percent in the same period. It was up 0.2 percent at $1,247.28 an ounce on Friday.

(Reporting by Nichola Saminather; Additional reporting by Rodrigo Campos; Editing by Shri Navaratnam and Christian Schmollinger)

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U.S. SEC to allow firms to file confidential draft statements before IPOs

The U.S. Securities and Exchange Commission said on Thursday it was expanding the Jumpstart Our Business Startups (JOBS) Act, by allowing all public companies to file confidentially prior to initial public offerings, in a move designed to revitalize the IPO market.

This is the first major policy announcement by new SEC Chairman Jay Clayton, in an effort to help companies raise money more readily.

Under current law, all publicly-traded companies with annual gross revenues of $1 billion or less can already file confidential draft IPO paperwork with the SEC.

These companies, known as emerging growth companies (EGCs), won this perk in the 2012 JOBS Act, as part of an effort to lower regulatory burdens and give them time to work out kinks with the SEC before unveiling IPO paperwork publicly and pitching to investors.

The new rule, which will take effect from Saturday, July 10, would be available for IPOs as well as most offerings made in the first year after a company has entered the public reporting system, the SEC said. (

The confidential review process after the IPO reduces the potential for lengthy exposure to market fluctuations, the SEC said.

Clayton has said he wants to reverse the steep decline in IPOs and give individual investors more access to smaller, successful companies.

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Deutsche Bank rejects Democrats’ call for Trump finance details

FRANKFURT Deutsche Bank’s external counsel in Washington, D.C. rejected on Thursday demands by U.S. House Democrats to provide details of President Donald Trump’s finances, citing privacy laws.

The response by Deutsche’s lawyers at Akin Gump Strauss Hauer Feld is the second rejection by the bank for information on Trump’s finances.

Deutsche Bank has loaned the Trump organization millions of dollars for real-estate ventures, and five Democrats on the House of Representatives Financial Services Committee want information on Trump’s finances.

“We respectfully disagree with the suggestion that Deutsche Bank freely may reveal confidential financial information in response to requests from individual members of Congress,” Deutsche’s counsel wrote in a letter seen by Reuters.

Maxine Waters, ranking Democrat on the House of Representatives Financial Services Committee, said in an emailed response to Reuters on Thursday that she would pursue Deutsche Bank.

“Trump has made it entirely clear that he has a lot to hide, and it appears that Deutsche Bank is willing to cover for him,” said California’s Waters. “Efforts by Trump, his family members and associates, and Deutsche Bank to avoid scrutiny only intensify our resolve to follow the Trump money trail.”

Investigations are being conducted in the United States into possible collusion between Trump’s campaign team and Russia during his 2016 U.S. presidential campaign. The White House and the Kremlin have denied that there was any interference in the election.

Waters and four other lawmakers first asked the bank in May to share details about Trump’s real-estate business and whether Trump had financial backing from Russia.

Deutsche Bank’s Washington-based external counsel responded that it would not share confidential information about Trump’s finances.

U.S. House Democrats have argued that U.S. federal laws protecting banking customers’ confidentiality did not apply to requests from Congress.

A disclosure document posted on the U.S. Office of Government Ethics website earlier in June showed liabilities for Trump of at least $130 million to Deutsche Bank Trust Company Americas [DBKGK.UL].

The Democrats do not have the power to compel Deutsche Bank to comply with their request. The Financial Services Committee has subpoena power but Republican committee members, who are in the majority, would have to agree.

(Reporting by Tom Sims; Editing by Toni Reinhold)

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RadioShack creditors’ lawsuit says Sprint killed 6,000 jobs

WILMINGTON, Del./BOSTON Sprint Corp used confidential information from its alliance with RadioShack Corp to open competing mobile phone stores, dooming the comeback by the electronics retailer and destroying jobs, according to a lawsuit filed on Wednesday by RadioShack creditors.

RadioShack emerged from bankruptcy in 2015 with a deal to co-brand about 1,400 stores with Sprint, which was meant to help the telecoms provider better compete with larger rivals ATT Corp and Verizon Communications Inc.

However, by early 2017 RadioShack, owned by General Wireless, had returned to bankruptcy and is liquidating.

The lawsuit filed in Delaware Superior Court by RadioShack’s official committee of unsecured creditors says that Overland Park, Kansas-based Sprint breached its contract with RadioShack, and is seeking $500 million in damages.

Sprint allegedly ignored its obligations to provide inventory and staff to RadioShack stores because of its own financial troubles.

Sprint spokesman David Tovar said the company was disappointed by the creditors’ committee action and Sprint expected to defend the matter vigorously.

The lawsuit alleges that in 2016, Sprint used confidential information obtained from RadioShack to open 200 competing stores near RadioShack’s best locations, sinking any comeback for the electronics chain.

“Sprint’s action destroyed nearly 6,000 RadioShack jobs,” said the lawsuit.

The allegations stand in sharp contrast to promises made less than seven months ago by the chief executive officer of SoftBank, Sprint’s Japanese parent company, that he would create U.S. jobs.

U.S. President Donald Trump made jobs the centerpiece of his election campaign.

SoftBank’s Masayoshi Son was among the first foreign business leaders to meet with then-President-elect Donald Trump at his New York headquarters and praised the Republican for a raft of planned deregulations. The CEO promised to invest $50 billion with the aim of hiring 50,000 people in the United States.

Trump took credit for the commitment and reported in late December that Sprint had committed to bringing 5,000 jobs to the United States.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Phil Berlowitz)

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Europe M&A surges but U.S. slows sharply amid uncertainty

Acquisitions of European companies surged in recent months, amid optimism about the region’s economic prospects, but global deal-making subsided and the total value of U.S. deals fell sharply due to uncertainty about President Donald Trump’s tax reform and deregulation agenda.

Mergers and acquisitions in Europe rose 45 percent year-on-year to $234 billion in the second quarter, as companies bet the region’s economies will bounce back, according to Thomson Reuters data released on Thursday.

Global MA dropped 12 percent to $771 billion, however, and U.S. MA dropped 36 percent to $281 billion.

“The EU recovery is happening and has made companies more attractive even if there are increased regulatory hurdles,” said Hernan Cristerna, global MA co-head at JPMorgan Chase Co (JPM.N).

In the second quarter, Italian toll road operator Atlantia SpA (ATL.MI) made a 16.3 billion euro ($18.64 billion) offer for Spanish peer Abertis Infraestructuras SA (ABE.MC), while chemicals companies Huntsman Corp (HUN.N) and Clariant AG (CLN.S), of the United States and Switzerland, respectively, agreed a $14 billion merger.

The United States also saw some big deals, including U.S. medical equipment supplier Becton Dickinson and Co’s (BDX.N) $24 billion acquisition of peer C R Bard Inc (BCR.N).

But U.S. MA volume, as measured by the total value of deals, was down. The number of deals stayed almost flat year-on-year, but the average size of transactions decreased.

“Some U.S. companies are in wait-and-see mode because they are still seeking clarity on the tax and regulatory reforms that the Trump administration has been promising. This kind of uncertainty is a major obstacle to mega-deals,” said Bill Curtin, global head of MA at law firm Hogan Lovells.

Coupled with high stock market valuations, the uncertainty around U.S. President Donald Trump’s policy agenda reduced the appetite of many North American chief executives for major deals.

“Corporates are still actively acquiring, but they are taking less risk, so there are fewer transformational deals and the mix of MA has shifted toward more mid-sized transactions,” said Matt McClure, head of Americas MA for Goldman Sachs Group Inc (GS.N).

Regulatory risks to deals closing has been another factor weighing on deals. The European Commission has been flexing its antitrust muscle, while expectations that the Trump administration will adopt a more merger-friendly stance have yet to meaningfully materialize.

Nevertheless, for some companies the adverse environment offers a window to make a bold acquisitive move with little competition. For example, Inc (AMZN.O) clinched a $13.4 billion deal for U.S. grocer Whole Foods Market Inc (WFM.O) earlier this month, which has yet to trigger any rival offers.

“There is a subset of companies which view the current environment as an opportunity. There is a little bit of a ‘dare-to-be-great’ mentality,” said Michael Boublik, chairman of Americas MA at Morgan Stanley (MS.N).

In the Asia-Pacific region, MA volumes were almost flat in the second quarter at around $207 billion. Many dealmakers say global activity could increase in the second half of the year, particularly if there is more macroeconomic certainty in the United States.

“Our outlook for the second half remains positive. Economic activity is strengthening, corporate earnings are robust, and financing markets remain very attractive,” said Barclays Plc (BARC.L) Americas head of MA Larry Hamdan.

(Reporting by Greg Roumeliotis in New York and Pamela Barbaglia in London; Editing by Tom Brown)

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