Morning News Call Reuters U.S

MORNING NEWS CALL REUTERS U.S. Edition Tuesday, April 4, 2017

TOP NEWS COLUMN • Trump signs repeal of U.S. broadband privacy rules U.S. President Donald Trump on Monday signed a repeal of Obama-era Without Trump reflation equities broadband privacy rules, the White House said, a victory for internet service have a valuation problem providers and a blow to privacy advocates. • WhatsApp mulls foray into digital payments with India launch The Trump reflation stock market Instant messaging app WhatsApp, owned by Facebook Inc, is mulling a foray rally has two inter-related problems: into digital payment services in India, its first such offering globally, and has Trump and valuations. advertised to hire a digital transactions lead in the country. The Trump administration’s inability • Embraer, Rockwell Collins eye shared remote sensing portfolio to force through its healthcare bill U.S. aviation electronics maker Rockwell Collins Inc and Brazil's Embraer SA underlines the risks of a similar fail- will assess each other's remote sensing and border control technology for pos- ure to deliver tax cuts, infrastructure sible joint sales, a senior executive for the Brazilian planemaker told Reuters. spending and deregulation. With • GM gives details of contacts with Einhorn, CEO Barra's pay stock market valuations at historical- General Motors Co on Monday outlined in a regulatory filing contacts with bil- ly high levels, and with the Federal lionaire hedge fund manager David Einhorn who went public last week with a Reserve raising interest rates, this is plan to boost GM's value and announced its slate of board nominees, all of a major vulnerability. whom currently serve on the board. The central thesis, supposedly, be- • Mercedes joins forces with Bosch to develop self-driving taxis hind the post-election rally in risk Mercedes-Benz parent Daimler and supplier Robert Bosch are teaming up to assets was that Republicans, con- develop self-driving cars in an alliance primarily aimed at accelerating the pro- trolling the executive and legislative duction of "robo-taxis". branches, would force through policies which would not only raise growth but improve the way that BEFORE THE BELL growth translates into corporate bot- U.S. stock index futures fell as investors appeared concerned over President tom lines. Donald Trump's ability to deliver on his policy plans. Data on international That may yet happen, but with the trade and factory orders is due later in the day. Weakness in the autos sector ratio of price to sales for the S&P weighed on the European shares even as gains in oil-related stocks and min- 500 index at an all-time high, and ers provided some support. Asian stock markets recorded a mixed trading with the price/earnings ratio on 10 day. The dollar edged up against a basket of major currencies but lost ground years of earnings at a level not seen against the safe-haven Japanese yen. Oil prices recovered from recent losses since the dotcom bubble was burst- to trade higher and gold rose. ing, there is little room for error. “These all are nose-bleed levels. However, they may be justified if STOCKS TO WATCH Trump proceeds with deregulation and succeeds in implementing tax Deals of the day cuts. His policies may or may not do • WhiteWave Foods Co (WWAV). French food group Danone SA has won much to boost GDP growth and S&P U.S. antitrust approval to buy the U.S. organic food producer, the Justice De- 500 sales. Nevertheless, they could partment said on Monday. To win approval for the $10.4 billion deal, Danone certainly boost earnings,” market agreed to sell its leading U.S. organic yoghurt business Stonyfield Farms, the strategist Ed Yardeni of Yardeni Re- department said. Danone did not immediately reply to a request for comment. search writes. “The risk is that Trump’s victory acti- In other news vated a melt-up mechanism that has • Amazon.com Inc (AMZN). The company on Tuesday launched its business nothing to do with sensible assess- marketplace in Britain, selling products like office supplies, power tools, clean- ments of the fundamentals or valua- ing materials and lab equipment targeting an online sector worth $120.44 bil- tion.” lion a year. Amazon started its business marketplace in the United States in Certainly there has been a notable April 2015, achieving $1 billion of sales in its first year, before launching in divergence between sentiment- Germany four months ago. It said Amazon Business would serve enterprises based economic indicators, like con- ranging in size from sole traders to multinationals, as well as universities, hos- sumer and small business confi- pitals and charities. dence, which have surged, and • Boeing (BA). Iran's Aseman Airlines has signed a tentative deal to buy at those harder figures which record least 30 737 MAX jets, in the first new business with the U.S. planemaker actual money changing hands. The since U.S. President Donald Trump took office vowing to take a tougher GDPNow forecast from the Atlanta MORNING NEWS CALL - U.S. EDITION April 4, 2017 stance towards Iran. Owned by Iran's civil service pension foundation but man- Federal Reserve sees first-quarter aged as a private company, Aseman is Iran's third-largest airline by active fleet U.S. economic growth of just 1.2 size, according to the CAPA consultancy. Iran's official Islamic Republic News percent. Agency said on Tuesday that representatives of Aseman and Boeing had To be sure, sentiment can create its signed an agreement in Tehran covering as many as 60 jets, including op- own reality but analysts are revising tions, after a year of negotiations. earnings forecasts upward now at a • Kate Spade & Co (KATE). The U.S. handbag and accessories maker will slower pace then they were before spend a few more weeks negotiating a potential sale of the company after re- the election, when a corporate tax ceiving an offer last week from Coach Inc, three people said on Monday on cut and foreign cash repatriation hol- condition of anonymity. Michael Kors Holdings Ltd also remains interested in iday were little more than a fond Kate Spade, though it has not been pursuing an acquisition of the company as hope. actively as rival fashion accessories maker Coach, the people said. Giving the Expecting corporate America to sud- sale process more time allows potential buyers to better assess Kate Spade's denly start a virtuous cycle of invest- first-quarter sales and negotiate a potential deal, the people added. ment, employment and growth be- • Morgan Stanley (MS). The company and Banco Bradesco BBI SA topped fore they are encouraged to do so by Brazil's mergers and acquisitions rankings in the first quarter, buoyed by advi- policy change is simply silly. Expect- sory roles in the $21 billion corporate reorganization of Vale SA. Morgan Stan- ing that policy change to happen ley and Bradesco BBI surpassed rivals in last quarter's rankings by almost 10 under current management is risky. times in terms of announced M&A volumes, Thomson Reuters deals intelli- Expecting it to work if it does happen gence data showed. Both banks advised two of Vale's main shareholders on is a speculation. the deal. Under the terms of the reorganization, Vale will become a company with no defined controlling shareholder within three years, a landmark step to VALUATIONS AND FUTURE RE- help stifle state interference in the company. TURNS • Panera Bread Co (PNRA). Shares of the company rose to a record high on There is also the fact that a growing Monday on a report that the bakery cafe chain was considering strategic op- number of Federal Reserve policy- tions, including a sale, after receiving takeover interest. Bloomberg, citing peo- makers are noting that valuations ple familiar with the matter, reported that the St. Louis, Missouri-based compa- are high, indicating that perhaps, for ny was working with advisers to study the options. Potential suitors could in- once, they may actually start to fig- clude JAB Holding Co and Domino's Pizza Inc, Bloomberg said, citing one of ure them into their interest-rate- the sources. Panera does not comment on rumors or speculation, a company setting calibrations. spokesman said. Boston Fed President Eric Rosen- • Twenty-First Century Fox Inc (FOXA). A Democratic political consultant gren last week said some asset mar- and Fox News contributor on Monday sued the network and its former chair- kets are “a little rich,” citing “rich as- man, Roger Ailes, accusing them of denying her a permanent hosting job after set market prices” as a reason for she rebuffed Ailes' sexual advances. Julie Roginsky also said in her lawsuit the Fed to tighten more quickly. John filed in New York state court that a misogynistic culture at Fox News, a unit of Williams of the San Francisco Fed the company, had not changed since Ailes resigned last year after a separate also noted that the stock market spe- sexual harassment lawsuit by former anchor Gretchen Carlson. Susan Estrich, cifically “may be a little frothy.” a lawyer for Ailes, said in a statement that Roginsky's claims were "total hog- Williams, who like Rosengren is not wash." a voting member of the Fed's rate- • Wells Fargo (WFC). The federal government has ordered the company to setting Federal Open Market Com- reinstate a former bank manager who lost his job after reporting suspected mittee this year, also said the market fraudulent behavior at the bank. The Labor Department's Occupational Safety “kind of got ahead of reality” on fiscal and Health Administration announced on Monday that the bank must rehire policy hopes. the employee, as well as pay back wages, compensatory damages and attor- It is possible that the market is con- neys' fees totaling $5.4 million. The bank is planning to request a full hearing firmed and its rally extended by fiscal on the OSHA decision before the Labor Department's Office of Administrative and economic policy, but also possi- Law Judges. Such a step will not halt the initial reinstatement order. ble that the Fed surprises with faster tightening in part to keep markets from extending themselves too far. ANALYSTS' RECOMMENDATION No matter how things play out, one • Insys Therapeutics Inc (INSY). Jefferies cuts target price to $14 from $16 to fact remains: valuations are at levels reflect revised estimates after fourth quarter earnings update, which was in- which in the past have delivered line with expectations. poor future returns. • International Business Machines Corp (IBM). Berenberg starts coverage On some measures median valua- with sell rating saying that the structural challenges facing the company are tion levels are at all-time highs glob- significant and that its turnaround strategy is not decisive or clear enough. ally, and are in a zone which sug- gests future returns only very mar- ginally better than bonds. ECONOMIC EVENTS “Higher valuations do however have 08:30 International trade mm for Feb: Expected -$44.8 bln; Prior -$48.5 bln a very good record of predicting fu-

2 MORNING NEWS CALL - U.S. EDITION April 4, 2017

08:30 Goods trade balance (R) for Feb: Prior -64.80 bln ture returns,” Andrew Lapthorne, 09:45 ISM-New York Index for Mar: Prior 731.9 quantitative strategist at Societe 09:45 ISM New York Business Conditions for Mar: Prior 51.3 Generale in London writes. 10:00 Durables ex-defense R mm for Feb: Prior 2.1 pct “If you think an excess total return 10:00 Durable goods R mm for Feb: Prior 1.7 pct over bonds of less than, say, 2.0 10:00 Factory orders mm for Feb: Expected 1.0 pct; Prior 1.2 pct percent (i.e., less than the dividend) 10:00 Durables ex-transport R mm for Feb: Prior 0.4 pct is sufficient compensation for holding 10:00 Non defense cap ex-air R mm for Feb: Prior -0.1 pct much riskier equities then today’s 10:00 Factory ex-transport mm for Feb: Prior 0.3 pct valuations might be okay; if you think equities deserve a risk premium then you have a problem.” S&P 500 COMPANIES REPORTING RESULTS That is the bet stock market inves- Acuity Brands Inc (AYI). Expected Q2 earnings of $1.83 per share tors are collectively now making, and Global Payments Inc (GPN). Expected Q1 earnings of 80 cents per share it is hard to see it coming good without the Trump administration bring- ing to reality a substantial portion of CORPORATE EVENTS its various promised or suggested 09:00 International Speedway Corp (ISCA). Q1 earnings conference call programs. Given that the last com- 10:00 Acuity Brands Inc (AYI). Q2 earnings conference call prehensive U.S. tax reform was car- 10:00 CEB Inc (CEB). Shareholders Meeting ried out by the Reagan White House in 1986, a much different time with a much different and more cohesive EXDIVIDENDS Republican Party, this is a long-shot ABM Industries Inc (ABM). Amount $0.17 bet. Cisco Systems Inc (CSCO). Amount $0.29 Expect tax reform to be piecemeal JPMorgan Chase & Co (JPM). Amount $0.50 and designed to deliver easy wins Simpson Manufacturing Co Inc (SSD). Amount $0.18 like foreign cash repatriation. Much Wabash National Corp (WNC). Amount $0.06 of that will find its way back into the Zoetis Inc (ZTS). Amount $0.11 stock market via share buybacks. A reflation, a pushing higher of growth and inflation back towards (All analysts' estimates are according to Thomson Reuters I/B/E/S) 20th-century norms, is far less likely. Stock prices should, and ultimately will, reflect this.

-- By James Saft -- The opinions expressed here are those of the author, a columnist for Reuters. -- At the time of publication James Saft did not own any direct invest- ments in securities mentioned in this article. He may be an owner indirect- ly as an investor in a fund.

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