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U.S. Preliminary GDP is expected to come in at 2.0%, down from the first estimate of 2.1%. This is the major report in my opinion because this will let investors know how much closer the economy has moved toward a recession. Remember, the classic definition of a recession calls for 2 consecutive quarters of negative economic activity.
It’s a particularly busy week ahead. The markets will need to monitor updates from the G7 summit, chatter on trade, Brexit and the stats.
RBA Governor Dr. Philip Lowe finished his speech by saying ending the political uncertainty would also bring benefits. “With these three levers stuck, the challenge we face is monetary policy is carrying too much of a burden.”
(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. For American retailers, what Trump giveth, Trump taketh away.President Donald Trump’s administration, which said just 10 days ago it would delay until December some of its new tariffs on Chinese goods, has hit the retail sector with a new blow: The new levies will be raised to 15% from 10% as retaliation after China threatened to impose additional tariffs on $75 billion of American goods.He also said that the $250 billion of goods and products already being taxed at 25% will see that rate hiked to 30% starting on Oct. 1. Trump had warned earlier in the day that he was planning to escalate the trade war with China, firing off on Twitter a new demand that U.S. companies seek alternatives to producing goods in China. Some large retailers had said they’ll be able to pull levers to keep from passing on the costs to consumers at the 10% tariff rate, but a 15% hike makes that harder to pull off.The National Retail Federation, a retail trade association, weighed in on the escalating trade war Friday, ahead of Trump’s tweets laying out the specifics.“There are no winners in a trade war, and right now, both sides are losing,” said Jonathan Gold, vice president of supply chain and customs policy at the group. “American businesses and consumers continue to be caught in the crosshairs.”Home Depot Inc., Lowe’s Cos., Mattel Inc. Hasbro Inc., Walmart Inc., Target Corp., Best Buy Co., Macy’s Inc., Kohl’s Corp., J.C. Penney Co. and the Toy Association didn’t immediately respond to email requests for comment.David French, senior vice president of government relations for the NRF, said it’s “impossible” for businesses to plan for the future in the current climate.“The administration’s approach clearly isn’t working, and the answer isn’t more taxes on American businesses and consumers,” he said. “Where does this end?”Before May, the average U.S. consumer had largely escaped direct impact from U.S. tariffs on Chinese imports, with the previous rounds focusing more on agricultural items like fish and produce as the Trump administration tried to avoid the backlash that taxing consumer goods might bring. But consumer items like handbags were added to the list in the spring, with the upcoming rounds expected to hit everything from footwear to electronics.“We urge both governments to cease all punitive tariffs and return to the negotiating table,” Rick Helfenbein, president and chief executive officer of the American Apparel & Footwear Association, said in an emailed statement after China’s $75 billion round was first announced. “It is time that we end this senseless game of tariff ping-pong, before undue harm comes to our economies and our consumers.”After Trump announced plans to increase the levies further, Helfenbein decried the “tit-for-tat tariff hikes.”“Two and a half years we have been promised a new and innovative approach, yet what we’ve been given is a 1930s trade strategy that will be a disaster for American consumers, American businesses and the American economy,” Helfenbein said.“The president has said he wants American businesses to stop working in China, yet he doesn’t seem to understand that moving a supply chain is incredibly complicated and expensive. It takes years to build relationships that meet compliance standards and deliver quality products, yet we have been given weeks and in this case days. This is not how you negotiate.”The Consumer Technology Association, a trade group representing more than 2,200 companies and which holds the annual CES, a massive consumer electronics trade show in Las Vegas, was blunt.“These escalating tariffs are the worst economic mistake since the Smoot-Hawley Tariff Act of 1930 -- a decision that catapulted our country into the Great Depression,” CTA president and CEO Gary Shapiro said in a statement. “Enough is enough.”(Updates with CTA statement in final paragraph.)\--With assistance from Matthew Boyle.To contact the reporters on this story: Joe Deaux in New York at email@example.com;Jordyn Holman in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Crayton Harrison at email@example.com, Anne Riley Moffat, Ros KrasnyFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The U.S. Dollar weakened against the Japanese Yen and Australian and New Zealand Dollars after President Donald Trump ordered U.S. companies to start looking for an alternative to China. RBA Monetary Policy Minutes showed policymakers were willing to “wait and see” how the economy does after a pair of rate cuts in July and August. RBNZ Governor Adrian Orr said he was “pleased” with where interest rates were.
(Bloomberg) -- Kraft Heinz Co. could end up as one of the biggest junk issuers if it doesn’t tame its debt load by mid-2021.S&P Global Ratings said it could cut the packaged-food company to speculative-grade if it doesn’t boost earnings, pay down some of its more than $30 billion of long-term debt, or both. Roughly two-thirds of those borrowings currently sit in the Bloomberg Barclays high-grade company bond index, and, if cut, Kraft Heinz would be the third-largest issuer of dollar-denominated junk debt, according to data compiled by Bloomberg.For now, the company’s debt is trading around investment-grade levels, implying that investors aren’t particularly worried about a downgrade. Kraft Heinz has steps it can take to maintain its ratings, including reducing or eliminating its dividend, S&P said. That could free up as much as $2 billion of cash a year to pay down debt. The rater also said Kraft Heinz could sell assets, but those plans appear to be on hold until management completes a comprehensive strategic review, said Bloomberg Intelligence.Chief Executive Officer Miguel Patricio took the reins at Kraft Heinz this summer with a long road ahead. He inherited a company struggling to spruce up its brands and plagued by accounting issues. In his first earnings report as CEO earlier this month, Patricio suspended financial forecasts, which sent the company’s shares tumbling.Kraft Heinz, backed by Warren Buffett, has said it’s committed to maintaining its investment-grade ratings, and debt investors seem to agree: the company’s 4.625% notes due 2029 trade at a risk premium of around 1.93 percentage points, below the average level of debt at the highest junk tier, which is 2.23 percentage points.Email and voicemail messages seeking comment from Kraft Heinz weren’t returned.Fallen AngelsWith S&P joining Fitch Ratings in assigning a negative outlook, Kraft Heinz has inched closer to becoming a potential fallen angel, according to analysts at Bloomberg Intelligence. Late last year, investors had feared that a slew of high-grade issuers could cross the line into junk territory, as a decade-long binge on cheap debt has caused debt levels to soar.Many companies, looking to boost revenue in a slow growing economy, borrowed heavily at low rates to finance acquisitions, often sacrificing credit ratings in the process. That’s led to rapid growth in the lowest tier of investment-grade debt, rated BBB, where now half of the $5.8 trillion market resides.With economic growth showing signs of slowing, some of the largest investment-grade issuers have been focusing on cutting debt. AT&T Inc. chief executive officer said in January that reducing borrowings is the company’s top priority this year. Anheuser-Busch InBev NV cut its dividend. General Electric Co. has sold assets, while Mylan NV is combining with a Pfizer Inc. business.To contact the reporter on this story: Molly Smith in New York at firstname.lastname@example.orgTo contact the editors responsible for this story: Nikolaj Gammeltoft at email@example.com, Dan Wilchins, Nicole BullockFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The Australian dollar continues to show a bit of weakness, as the US/China trade situation does not seem to be getting any better. If that’s going to be the case, then there’s no reason to think that the Australian dollar will be able to pick it up.
The Australian dollar went back and forth during trading on Friday yet again, as we are still stuck in a bit of a consolidative rut. However, the biggest problem this market has comes from other countries, not Australia itself.
(Bloomberg) -- Kraft Heinz Co. could be hit with a junk credit rating by mid-2021 if it fails to turn itself around, S&P Global Ratings said Friday.S&P said results for the maker of Kraft Macaroni & Cheese and Heinz ketchup have been weaker than it expected, and the company needs to cut debt relative to a measure of earnings. The credit grader said it is worried about the risks Kraft Heinz could face in the second half of 2019, including higher commodity costs and lower stocking at retailers.Kraft Heinz carries the lowest investment-grade rating from all three major graders. With about $30.3 billion of long-term debt outstanding, the company is among the 20 largest issuers of debt in the lowest tier of investment-grade, excluding financial companies.If Kraft Heinz were downgraded by at least two credit graders, it would fall into junk bond indexes, making it one the biggest issuers of high-yield debt. A growing number of corporations have debt rated in the lowest investment-grade tier, between BBB+ and BBB-, stoking fears from some investors that hundreds of billions of debt could fall to junk status if companies struggle.Bond PressureRisk premiums, or the extra yield investors demand for buying a company’s bonds instead of Treasuries, edged higher for some of Kraft Heinz’s most actively traded bonds on Friday. That spread rose by 0.03 percentage point for the company’s bonds maturing in 2029 with a 4.625% coupon, to 1.93 percentage point according to data provider Trace. The company’s high debt levels and doubts about the long-term success of its cost cutting efforts could pressure its bonds to weaken further, Bloomberg Intelligence analysts wrote in a note.Kraft Heinz shares had fallen 1.2% to $25.31 as of noon in New York trading. The stock had already lost 41% of its value this year through Thursday’s close.Speculative-grade ratings can make it more expensive for companies to fund daily business and harder to weather economic cycles. Warren Buffett-backed Kraft Heinz has said it’s committed to maintaining its investment-grade ratings. Email and voicemail messages to Kraft Heinz seeking comment weren’t immediately returned.Fixing ProblemsKraft Heinz is still trying to move past myriad issues that have hammered its shares this year. The company has struggled ever since its bid to buy Unilever collapsed in 2017, and in February, it announced a $15.4 billion writedown on the value of its brands and a subpoena. Its own internal investigations have also revealed accounting issues, and it had to restate results going back to 2015.As the company tries to turn things around, it announced new leadership: Longtime Anheuser-Busch InBev executive Miguel Patricio replaced Bernardo Hees as chief executive officer this summer. But he has an uphill battle ahead: He said earlier this month that Kraft Heinz needs a “comprehensive strategy,” but that he didn’t have enough confidence to issue guidance at this time. The company also withdrew its previous guidance for a key measure of results, earnings before interest, taxes, depreciation and amortization, and investors sent the shares tumbling.S&P said Kraft Heinz could take steps like boosting income, selling assets, or reducing or eliminating its dividend to reduce debt levels relative to earnings.(Updates with comment from Bloomberg Intelligence in fifth paragraph.)\--With assistance from Deena Shanker.To contact the reporters on this story: Jonathan Roeder in Chicago at firstname.lastname@example.org;Claire Boston in New York at email@example.comTo contact the editors responsible for this story: Anne Riley Moffat at firstname.lastname@example.org, Dan Wilchins, Nicole BullockFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
J&J (JNJ) is facing several litigation in multiple states related to abuse of its opioid-based drugs. A ruling is expected on Aug 26 in a trial filed by the state of Oklahoma.
FDA approves AbbVie's (ABBV) upadacitinib to be marketed as Rinvoq. Bayer (BAYRY) is set to divest its Animal Health unit to Elanco for $7.6 billion in a cash-and-stock deal.
Based on the early price action, the direction of the AUD/USD on Friday is likely to be determined by trader reaction to the pivot at .6749.
Boris Johnson returns and having failed to fully push the door open to renegotiations could be in for a tough week ahead…
(Bloomberg) -- A looming U.S. sanctions deadline is threatening to clobber Venezuela’s dwindling oil-rig fleet and hamper energy production in the nation with the world’s largest crude reserves.Almost half the rigs operating in Venezuela will shut down by Oct. 25 if the Trump administration doesn’t extend a 90-day waiver from its sanctions, according to data compiled from consultancy Caracas Capital Markets. That could further cripple the OPEC member’s production because the structures are needed to drill new wells crucial for even maintaining output, which is already near the lowest level since the 1940s.A shutdown in the rigs will also put pressure on Nicolas Maduro’s administration, which counts oil revenues as its main lifeline. The U.S. is betting on increased economic pressure to oust the regime and bring fresh elections to the crisis-torn nation, a founding member of the Organization of Petroleum Exporting Countries and Latin America’s biggest crude exporter until recent years.Venezuela had 23 oil rigs drilling in July, down from 49 just two years ago, data compiled by Baker Hughes show. Ten of those are exposed to U.S. sanctions, according to calculations by Caracas Capital Markets. The Treasury Department extended waivers in July for service providers to continue for three more months, less than the six months the companies had sought.Most other government agencies involved in the deliberations opposed any extension, a senior administration official said last month, adding that another reprieve will be harder to come by.“Almost half the rigs are being run by the Yanks, and if the window shuts down on this in two months, then that’s really going to hurt Venezuela unless the Russians and the Chinese come in,” said Russ Dallen, a Miami-based managing partner at Caracas Capital Markets.Output RiskA U.S. Treasury official said the department doesn’t generally comment on possible sanctions actions.More than 200,000 barrels a day of output at four projects Chevron Corp. is keeping afloat could shut if the waivers aren’t renewed. That would be debilitating to Maduro because the U.S. company, as a minority partner, only gets about 40,000 barrels a day of that production.The departure of the American oil service providers would hurt other projects in the Orinoco region, where operators need to constantly drill wells just to keep output from declining. The U.S.-based companies are also involved in state-controlled Petroleos de Venezuela SA’s joint ventures in other regions such as Lake Maracaibo.Limiting ExposureHalliburton Co., Schlumberger Ltd. and Weatherford International Ltd. have reduced staff and are limiting their exposure to the risk of non-payment in the country, according to people familiar with the situation. The three companies have written down a total of at least $1.4 billion since 2018 in charges related to operations in Venezuela, according to financial filings. Baker Hughes had also scaled back before additional sanctions were announced earlier this year, the people said.Schlumberger, Baker Hughes, Weatherford, PDVSA and Venezuela’s oil ministry all declined to comment.Halliburton has adjusted its Venezuela operations to customer activity, and continues operating all of its product service lines at its operational bases, including in the Orinoco Belt, it said in an emailed response to questions. It works directly with several of PDVSA’s joint ventures, and timely payments from customers are in accordance with U.S. regulations, it said.Hamilton, Bermuda-based Nabors Industries Ltd. has three drilling rigs in Venezuela that can operate for a client until the sanctions expire in October, Chief Executive Officer Anthony Petrello said in a July 30 conference call, without naming the client.The sanctions carry geopolitical risks for the U.S. If Maduro manages to hang on, American companies would lose a foothold in Venezuela, giving Russian competitors such as Rosneft Oil Co. a chance to fill the void. Chinese companies could also benefit. Even if the waivers get extended, the uncertainty hinders any long-term planning or investments in the nation by the exposed companies.Rosneft’s press office didn’t respond to phone calls and emails seeking comment on operations in Venezuela.\--With assistance from David Wethe, Debjit Chakraborty and Dina Khrennikova.To contact the reporters on this story: Peter Millard in Rio de Janeiro at email@example.com;Fabiola Zerpa in Caracas Office at firstname.lastname@example.orgTo contact the editors responsible for this story: Tina Davis at email@example.com, Pratish Narayanan, Joe RyanFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.