David Fuller and Eoin Treacy's Comment of the Day
Category - General

    Macro Morsels on bank buybacks

    Thanks to a subscriber for this report from Maybank which may be of interest to subscribers. Here is a section on bank responses to the relaxing of controls following the Fed’s stress tests:

    American Express Plans 9% Dividend Hike, $4.4b Share Buyback 
    Bank of America to Buy Back Up to $12b in Shares, Raise Dividend 
    Citi Plans Up to $15.6b Buyback, Dividend Boost to 32c/Share 
    Morgan Stanley Authorizes $5b Buyback; Lifts Dividend 25% 
    Fifth Third to Boost Dividend, Buy Back Up to $1.16b Shares 
    Huntington Bancshares Sets $308m Buyback, Boosts Dividend 
    KeyCorp Sets $800m Buyback, Raises Qtr. Div to 10.5c from 9.5c 
    Regions Financial Plans Up to $1.47b Buyback, Higher Dividend 
    SunTrust to Boost Div to 40c; Sets Up to $1.32b Buyback 
    State Street Sets $1.4b Buyback, Boosts Dividen

     

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    New Cyberattack Goes Global, Hits WPP, Rosneft, Maersk

    This article by Giles Turner , Volodymyr Verbyany , and Stepan Kravchenko for Bloomberg may be of interest to subscribers. Here is a section:

    The hack quickly spread from Russia and the Ukraine, through Europe and into the U.S. A.P. Moller-Maersk, operator of the world’s largest container line, said its customers can’t use online booking tools and its internal systems are down. The attack is affecting multiple sites and units, which include a major port operator and an oil and gas producer, spokeswoman Concepcion Boo Arias said by phone.

    APM Terminals, owned by Maersk, is experiencing system issues at multiple terminals, including the Port of New York and New Jersey, the largest port on the U.S. East Coast, and Rotterdam in The Netherlands, Europe’s largest harbor. APM Terminals at the Port of New York and New Jersey will be closed for the rest of the day “due to the extent of the system impact,” the Port said.

    Cie de Saint-Gobain, a French manufacturer, said its systems had also been infected, though a spokeswoman declined to elaborate, and the French national railway system, the SNCF, was also affected, according to Le Parisien. Mondelez International Inc. said it was also experiencing a global IT outage and was looking into the cause. Merck & Co. Inc., based in Kenilworth, New Jersey, reported that its computer network was compromised due to the hack.

     

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    Pound Jumps as Carney's Hawkish Tone Sends Gilts Tumbling

    This article by John Ainger for Bloomberg may be of interest to subscribers. Here is a section:

    The pound soared by the most in two months and U.K. bonds slumped as Bank of England Governor Mark Carney said the Monetary Policy Committee may need to begin removing stimulus.
    Sterling climbed against all but one of its major peers as the comments marked a shift in emphasis for the governor, who signaled last week that now was not yet the time to start the tightening process. The yield on two-year gilts touched the highest in more than a year as money markets adjusted to the change in language.

    Sterling has borne the brunt of political and economic uncertainty since the Brexit vote, and has been further buffeted in recent weeks by a growing split among policy makers over the future path of rates. The bank’s Financial Policy Committee increased the countercyclical buffer Tuesday, marking the first unwinding of last year’s stimulus package put in place by the bank.

    “The headlines appear to be in complete contrast to the Mansion House speech last week, when he said now is not the time for tightening,” said Jane Foley, head of foreign-exchange strategy at Rabobank in London. “There is the possibility that the Bank of England will, over the next few months, fire other shots across the bow really to reduce that downside potential for the pound.”

     

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    Today's Bank Stress Tests May Mean a Windfall for Warren Buffett

    This article by James Langford for Bloomberg may be of interest to subscribers. Here is a section:

    The Federal Reserve's stress tests of major Wall Street firms last week didn't determine how much they can increase dividends and stock buybacks over the next 12 months. But they did produce some good omens for a review due today that does.

    All of the institutions met the central bank's minimum capital standards on the first stage of the two-part evaluation, which measured their stability after the past year's payouts if the economy suffered a downturn with unemployment of 10% and a stock-market decline of 50%.

    The results indicate the Fed is more likely to approve the firms' dividend and stock-buyback plans during the second stage -- a forward-looking review that measures what their strength would be after the expenses, using the same recession scenario. On a net basis, the payout ratio may rise to 85% of net earnings from 73% last year for the large banks tracked by Credit Suisse, analyst Susan Roth Katzke said in a note to clients.

    Since the Fed reiterated that it would still scrutinize dividend ratios higher than 30% more closely, the mix of announced payouts is likely to favor stock buybacks at the biggest banks, which are still subject to a qualitative review that includes the strength of risk-planning practices, Katzke said.

     

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    Seattle's Painful Lesson on the Road to a $15 Minimum Wage

    This article by Megan McArdle may be of interest to subscribers. Here is a section:

    And particularly be prepared to rethink very high minimum wages, like those supported by the “Fight for $15” folks. For as the authors note, the first round of hikes had relatively small impacts, while the second round had huge ones, suggesting that the effects may be nonlinear. And that makes sense. Relatively few people in this country make the minimum wage, so a small increase doesn’t make that much difference to most workers, or most employers. But a large jump affects more people, and the wage increases are much bigger for the lowest-paid staffers. If you make $9 an hour, but generate $10.50 in revenue for your boss, a law that raises the wage to $10.45 may cause her to shrug and decide it’s easier to keep you on as long as she’s making something. But a wage that forces her to pay you far more than you bring in…. Continuing to employ you would just be bad business.

    It’s worth noting that Card and Krueger’s famous study involved an increase in the minimum wage from $4.25 an hour to $5.05. That was a significant increase -- about 18 percent. But Seattle’s minimum wage has already increased by 37 percent, and it still has roughly another 20 percent to go.

    At some level, we all intuitively understood that this was true. If the minimum wage increases by a penny an hour, probably even most rock-ribbed conservatives would not predict mass firings. On the other hand, if the wage was arbitrarily set to $100 an hour, even ardent labor activists would presumably expect widespread unemployment to follow.  You can’t flat-out say “minimum wages don’t increase unemployment,” because the size of the increase, and the level of the resulting wage, obviously matter at some margin.

     

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    Draghi Sees Room for Paring Stimulus Without Tightening Policy

    This article by Vassilis Karamanis for Bloomberg may be of interest to subscribers. Here is a section:

    The ECB president repeated his mantra that the Governing Council needs to be patient in letting inflation pressures build in the euro area and prudent in withdrawing support. At the same time, there’s room to tweak existing measures.

    “As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments -- not in order to tighten the policy stance, but to keep it broadly unchanged.”

    The comments echo an argument first made by Bundesbank President Jens Weidmann as early as November that, all else being equal, ECB policy would become more accommodative as inflation picked up. With his nod to a frequent critic of quantitative easing who has been calling for an end of the 2.3 trillion-euro ($2.6 trillion) program, Draghi may have set the stage for a discussion in the coming months on phasing out asset purchases. They are currently scheduled to run until the end of the year.

    “Draghi moved his first step toward indicating that ECB monetary policy will become less accommodative in 2018,” Marco Valli, an economist at UniCredit in Milan, wrote in a client note. “Unless an unexpected shock materializes, a formal tapering announcement is likely to come at the ECB monetary- policy meeting scheduled on 7 September.”

     

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    Fast, Precise, Cancer care is coming to a hospital near you

    This article from Wired.com may be of interest to subscribers. Here is a section: 

    On Thursday, the Food and Drug Administration approved the first next-generation-sequencing-based test, from Thermo Fisher Scientific, that can tell you how different drugs will work for you, based on the genetic makeup of each tumour. And it only takes four days to get back results. In many ways, it represents the leading edge of precision medicine’s maturation from a buzzword in grant applications and investor pitch decks to a real, workable product that can actually improve patient outcomes.

    Getting the FDA’s approval took nearly two years and 220,000 pages of data. (That’s like reading Karl Ove Knausgaard’s 6-book autobiographical memoir front to back 61 times in a row. Talk about My Struggle.) But the process has helped clarify the agency’s thinking about how to regulate personalized treatments going forward, opening up doors for tech that's still in the pipeline.

    The panel, called Oncomine Dx Target Test, takes a tiny amount of tumor tissue and reports on alterations to 23 different genes. All that information is useful for physicians, but three in particular—ROS1, EGFR, and BRAF—are the most crucial. That’s because those mutations have drugs to match: Precision medicine chemotherapies from Pfizer, Novartis, and AstraZeneca. The test can be performed at any CLIA-certified lab, and it’s already being offered by two of the largest oncology-focused ones.

    Getting the FDA to approve that amalgam of tests wasn’t easy. “Putting multiple genes and multiple drugs on the same test; all of these are firsts,” says Joydeep Goswami, Thermo Fisher’s president of clinical next generation sequencing. “That put the technology under extraordinary scrutiny.” The FDA usually approves one diagnostic for one product or drug—that’s it. But the whole point of precision medicine is to tailor treatments for patients based on their genes, and a bunch of one-off genetic tests aren’t going to deliver on that promise. So a multi-gene, multi-drug panel is kind of a big deal.

     

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