Month: February 2018

U.S. stocks rallied on Friday, lifted by gains in technology stocks and a retreat in Treasury yields as the Federal Reserve eased concerns about the path of interest rate hikes this year.

The U.S. central bank, looking past the recent stock market sell-off and inflation concerns, said it expected economic growth to remain steady and saw no serious risks on the horizon that might pause its planned pace of rate hikes.

Investors largely expect the Fed to raise rates three times this year, beginning with its next meeting in March, the first under new Chair Jerome Powell. Traders currently see a 95.5 percent chance of a quarter-percentage-point hike next month, according to Thomson Reuters data.

“Certainly bond yields pulling back today is helpful for stocks, at least for the short term, that has been the narrative that is out there — that higher bond yields are weighing on stocks and this preoccupation with three percent,” said Willie Delwiche, investment strategist at Baird in Milwaukee. “So moving away from that, for today at least, provides a bid for equities.”

Powell’s first public outing will be on Tuesday, when he will testify separately before the House and Senate committees.

The Dow Jones Industrial Average rose 347.51 points, or 1.39 percent, to 25,309.99, the S&P 500 gained 43.34 points, or 1.60 percent, to 2,747.30 and the Nasdaq Composite added 127.30 points, or 1.77 percent, to 7,337.39.

Benchmark 10-year U.S. Treasury notes last rose 13/32 in price to yield 2.8714 percent, from 2.917 percent late on Thursday.

The dip in yields helped boost bond proxy sectors such as utilities, up 2.66 percent, and real estate, up 1.72 percent. The sectors have been among the worst performers so far this year on expectations of climbing rates.

Tech shares climbed 2.17 percent led by gains in Hewlett Packard Enterprise, which rose 10.5 percent and HP Inc, up 3.5 percent.

The two companies created from the split of Hewlett Packard Co in 2015, reported strong results and HPE also announced a plan to return $7 billion to shareholders.

For the week, the Dow rose 0.37 percent, the S&P advanced 0.56 percent and the Nasdaq gained 1.35 percent.

Blue Buffalo Pet Products jumped 17.23 percent after General Mills said it would buy the natural pet food maker for $8 billion. General Mills was the biggest percentage decline on S&P 500, falling 3.59 percent.

Advancing issues outnumbered declining ones on the NYSE by a 4.54-to-1 ratio; on Nasdaq, a 2.82-to-1 ratio favored advancers.

The S&P 500 posted 10 new 52-week highs and one new low; the Nasdaq Composite recorded 64 new highs and 57 new lows.

Volume on U.S. exchanges was 6.05 billion shares, well below the 8.38 billion average over the last 20 trading days.

Reporting by Chuck Mikolajczak.
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Leaders of Afghanistan, Turkmenistan, Pakistan and its arch rival India jointly inaugurated construction work Friday on the Afghan section of a long-delayed multibillion-dollar gas pipeline connecting the four nations, raising hopes for regional cooperation and peace.

A ceremony took place in the ancient Afghan city of Herat, attended by President Ashraf Ghani, his Turkmen counterpart, Gurbanguly Berdymukhamedov, Pakistani Prime Minister Shahid Khaqan Abbasi and Indian External Affairs Minister M.J. Akbar.

The long-awaited 1,814 kilometer pipeline, known as TAPI, will transport natural gas from the world’s fourth-largest reserves in Turkmenistan through Afghanistan to growing economies of Pakistan and India, which are facing energy shortages.

TAPI was originally conceived in the 1990s, but differences over terms and conditions, unending Afghan hostilities and regional rivalries are blamed for delays. Turkmenistan took the initiative in December 2015 and has since constructed its portion of the pipeline up to the Afghan border.

President Ghani, while addressing Friday’s ceremony, vowed Afghanistan believes in connectivity and will “not spare any efforts” to implement the project to connect South Asia with Central Asia after a century of separation.

“This is the beginning of confidence in Afghanistan, confidence on national unity and harmony of the state and the people of Afghanistan,” noted Ghani.

Pakistani Prime Minister Abbasi reiterated his country’s commitment to peace and stability in Afghanistan.

“We are turning, by the grace of God, TAPI into a reality. It will provide shared regional prosperity … and it will provide peace dividends,” said Abbasi, whose country is accused of covertly supporting the Afghan Taliban, charges Islamabad denies as baseless.

“I want to tell my Afghan brothers and sisters that your success is our success, your development is our development and peace in Afghanistan means peace in Pakistan,” Abbasi emphasized.

He termed TAPI critical for Pakistan’s energy needs, saying it will provide about 10 percent of his country’s total energy consumption.

Expected cost

Officials say the project, estimated to cost up to $10 billion, will carry 33 billion cubic meters of natural gas annually for 30 years and is extendable.

The final cost, however, is anticipated to be much higher because of an accompanying power transmission pipeline and the fiber optic cable to be laid from Turkmenistan to Pakistan.

Afghanistan will buy about five billion cubic meters of gas once the project is completed. Kabul also will earn up to $500 million in transit fees from the project, which Afghans expect will create about 25,000 jobs in their war-shattered nation.

The Afghan section of the pipeline will run through five provinces in the south and southwest, including Herat, Farah, NImruz, and Helmand, before entering the southern Pakistan city of Quetta.

Security concerns

Taliban insurgents control or contest much of the Afghan territory along the TAPI route, raising security concerns for the pipeline.

In a statement issued Friday, though, the insurgent group dismissed those concerns and pledged to protect the pipeline, reminding skeptics the TAPI was initially negotiated and brought to Afghanistan when the Taliban was ruling the country.

The insurgency, which currently controls or influences about 44 percent of Afghan territory, blamed the 2001 U.S.-led invasion of the country for the delay in TAPI’s implementation.

Groundbreaking for the Afghan section took place at a time when Pakistan’s relations with India have deteriorated and both countries are locked in daily border skirmishes in Kashmir.

TAPI is dubbed by some as a “peace pipeline,” citing the potential the project has to promote regional economic and security cooperation. But analysts remain skeptical about future progress in the wake of Islamabad’s prevailing tensions with Kabul and New Delhi.
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U.S. President Donald Trump has called a meeting early next week with key senators and Cabinet officials to discuss potential changes to biofuels policy, which is coming under increasing pressure after a Pennsylvania refiner blamed the regulation for its bankruptcy, according to four sources familiar with the matter.

The meeting comes as the oil industry and corn lobby clash over the future of the Renewable Fuel Standard (RFS), a decade-old regulation that requires refiners to cover the cost of mixing biofuels such as corn-based ethanol into their fuel.

Trump’s engagement reflects the high political stakes of protecting jobs in a key electoral state. Oil refiner Philadelphia Energy Solutions (PES), which employs more than 1,000 people in Philadelphia, declared bankruptcy last month and blamed the regulation for its demise.

Oil, farm state senators

The meeting, scheduled for Tuesday, will include Republican Senators Ted Cruz of Texas, Chuck Grassley and Joni Ernst of Iowa, along with Environmental Protection Agency Administrator Scott Pruitt, Agriculture Secretary Sonny Perdue, and potentially Energy Secretary Rick Perry, according to the four sources, who asked not to be named because they were not authorized to speak publicly on the matter.

One source said the meeting would focus on short-term solutions to help PES continue operating. PES is asking a bankruptcy judge to shed roughly $350 million of its current RFS compliance costs, owed to the EPA which administers the program, as part of its restructuring package.

The other sources said the meeting will consider whether to cap prices for biofuel credits, let higher-ethanol blends be sold all year, and efforts to get speculators out of the market.

Officials at the EPA, Agriculture Department, and Energy Department declined to comment. A White House official, Kelly Love, said she had no announcement on the matter at this time.

The offices of Cruz, Ernst and Grassley did not immediately return requests for comment.

The sources said the options moving forward would be constrained by political and legal realities that have derailed previous efforts at reform.

The Trump administration has considered changes to the RFS sought by refiners this year, including reducing the amount of biofuels required to be blended annually under the regulation or shifting the responsibility for blending to supply terminals, only to retreat in the face of opposition from corn-state lawmakers.

​Narrow options, broad resistance

The EPA is expected to weigh in officially in the coming weeks on request by PES to the bankruptcy judge to be released from its compliance obligations. But any such move would likely draw a backlash from other U.S. refiners, who have no hope of receiving a waiver.

Under the RFS, refiners must earn or purchase blending credits called RINs to prove they are complying with the regulation. As biofuels volume quotas have increased, so have prices for the credits, meaning refiners that invested in blending facilities have benefited while those that have not, such as PES, have had to pay up.

PES said its RFS compliance costs exceeded its payroll last year, and ranked only behind the cost of purchasing crude oil.

Other issues may have contributed to PES’ financial difficulties. Reuters reported that PES’ investor backers withdrew from the company more than $594 million in a series of dividend-style distributions since 2012, even as regional refining economics slumped.

Regulators and lawmakers have been considering how to cut the cost of the RFS to the oil industry.

In recent months, for example, the EPA has contemplated expanding its use of an exemption available to small refineries, a move that would likely push down RIN prices, but which both the oil and corn industries have said would be unfair.

Cruz last year proposed limiting the price of RINs to 10 cents, a fraction of their current value — an idea that was roundly rejected by the ethanol industry as a disincentive for new ethanol blending infrastructure investment.

Senator John Cornyn, also a Texas Republican, is preparing draft legislation to overhaul the RFS in Congress that would include the creation of a new specialized RIN credit intended to push down prices, but it too faces resistance from both the corn and oil lobbies.
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The U.S. Defense Department supports moves by the Commerce Department to impose tariffs on steel and aluminum imports, although it would prefer a system of targeted tariffs rather than a global quota or a global tariff.

The Commerce Department on Feb. 16 recommended that President Donald Trump impose steep curbs on steel imports from China and other countries and offered the three options to the president, who has yet to make a decision.

The Defense Department said in a statement issued Thursday that it was concerned about the potential impact on U.S. allies of the proposed measures and said that was the reason it preferred targeted tariffs.

It recommended that while the tariffs on steel should proceed, the administration should wait before pressing ahead with the measures on aluminum.

“The prospect of trade action on aluminum may be sufficient to coerce improved behavior of bad actors,” the department said.

Commerce Secretary Wilbur Ross said last week that Trump would have the final say on what measures to adopt.
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Saudi Arabia will stage more than 5,000 shows, festivals and concerts in 2018, double the number of last year, as it tries to shake off its conservative image in a drive to keep tourist dollars at home and lure in visitors.

The state wants to capture up to a quarter of the $20 billion currently spent overseas every year by Saudis seeking entertainment, lifting a ban on cinemas and putting on shows by Western artists.

U.S. rapper Nelly performed in Jeddah in December, albeit to a men-only crowd, and Greek musician Yanni played to a mixed-gender audience.

The gradual relaxing of gender segregation risks causing a backlash from religious conservatives, but public objections to a wider program of reforms have been more muted in recent months after several critics were arrested.

At an event to launch the 2018 entertainment calendar, Ahmed al-Khatib, chairman of the state-run General Entertainment Authority (GEA), said infrastructure investments over the next decade would reach 240 billion riyals ($64 billion), including an opera house to be completed around 2022.

That will contribute 18 billion riyals to annual GDP and generate 224,000 new jobs by 2030, the GEA said.

“The bridge is starting to reverse,” Khatib said, referring to the causeway linking Saudi Arabia with more liberal Bahrain where many Saudis flock for weekend getaways.

“And I promise you that we will reverse this migration, and people from Dubai, Kuwait and Bahrain will come to Saudi.”

However, on Thursday night, the Minister of Culture and Information said Khatib’s opera plans were an infringement of the role of the General Authority for Culture, a separate government body, the Saudi Press Agency said.

Economic hopes

The entertainment plans are largely motivated by economics, part of a reform program to diversify the economy away from oil and create jobs for young Saudis.

The Vision 2030 plan aims to increase household spending on cultural and entertainment events inside the kingdom to 6 percent by 2030 from 2.9 percent.

“We are bringing the most exciting and famous events to Saudi Arabia this year,” Khatib told Reuters in an interview, adding that state-sponsored entertainment events would be staged in 56 cities.

“We are creating new local events with local content,” he said. “Almost 80 percent of the calendar [events] are for families.”

Saudi Arabia lifted a 35-year ban on cinemas late last year, with plans for regional and global chains to open more than 300 movie theaters by 2030. The first cinemas are expected to start showing films in March.

Last year, the country announced plans to develop resorts on some 50 islands off the Red Sea coast and an entertainment city south of Riyadh featuring golf courses, car racing tracks and a Six Flags theme park.
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The European Central Bank has set a deadline of Friday for Latvia’s third-largest bank to plug a financing hole, the country’s finance minister said, as the Baltic state faced its worst financial difficulties in almost a decade.

Earlier, ABLV said it had asked for a 480 million euro ($591 million) emergency loan from the country’s central bank as part of efforts to reopen for business after being forced to halt all payments in the face of money laundering accusations.

The request for credit comes amid frantic efforts by ABLV’s management to keep the bank afloat after U.S. authorities singled it out for money laundering and moved to block it from doing financial deals in dollars.

ABLV has denied any such wrongdoing. “We want to give an opportunity … for the bank to ensure its short-term liquidity, so that it can continue operating,” the Baltic state’s finance minister, Dana Reizniece-Ozola, told a news website, Delfi.lv.

The ECB has imposed a moratorium stopping savers withdrawing their funds or making payments. It declined to comment about the deadline.

In an interview with Reuters, a senior ABLV executive appealed for the group to be spared closure.

“We believe that the bank has a future, on the basis of a substantially reduced business,” Vadims Reinfelds, deputy chief executive, said.

“What we are looking for here is a medium term or even longer term solution. If that is not possible, then resolution is the alternative,” he said, referring to a possible winding down. “The business can be restructured without resolution,” Reinfelds said, adding the bank was solvent.

He warned the bank was “systemic” — a reference to its significance for the financial system and an indication that its problems could spill over to affect others.

The finance minister, however, played down such concerns.

The crisis at ABLV comes alongside a separate police investigation into whether the head of Latvia’s central bank took a bribe of more than 100,000 euros.

Ilmars Rimsevics has dismissed the allegations and said he is the victim of a smear campaign, while the Ministry of Defense has suggested that disinformation may be to blame.

The ministry did not say who was behind this but drew parallels with campaigns before the U.S. elections in 2016. Russia has denied it was behind those campaigns and says it does not meddle in elections in the West.

The episode has cast a shadow over Latvia, which belongs to the euro zone and whose top officials hold influential posts both at the European Commission and European Central Bank.

Experts have said the events raise questions about the ECB, which is responsible for supervision of ABLV and other banks around the euro zone. The ECB has said it is not its responsibility to police money laundering.

Latvia was one of the hardest hit countries in the global financial crisis, falling into recession as the government sought an international bailout, nationalized Parex Bank and made spending cuts amid a wave of emigration.

($1 = 0.8141 euros)

Reporting by John O’Donnell and Gederts Gelzis.
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