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U.S. economic growth accelerated in the first quarter, the government confirmed on Thursday, but the export and inventory boost to activity masked weakness in domestic demand, some of which appears to have prevailed in the current quarter.

Chef Boyardee spaghetti meatballs

  • Conagra Brands, a packaged-food company, announced fourth-quarter results that missed analysts' expectations. The company also lowered its expected earnings for 2020. 
  • In a press release, the company said "several discrete items negatively impacted top line growth."
  • One silver lining is the Gardein brand of plant-based meat alternatives that competes with Beyond Meat and Impossible Foods. 
  • Watch Conagra trade live on Markets Insider. 

The maker of household brands including Hunt's tomato paste, Slim Jim beef jerky, and Duncan Hines cake mixes is the latest packaged-food company to release disappointing earnings results. 

Shares of Conagra Brands traded down by as much as 8.4% in pre-market trading Thursday after the company reported fourth-quarter and full fiscal 2019 earnings that missed analysts' expectations. 

Here are the key numbers:

  • Adjusted earnings per share: $0.36 reported versus $0.41 expected 
  • Sales: $2.61 billion reported versus $2.66 billion expected

General Mills and McCormick also recently released earnings results that missed forecasts. 

Conagra's sales struggled as "several discrete items negatively impacted top line growth," earnings statement said. Sales in the key grocery and snacks segment fell 7.1% and organic net sales declined 0.7% . 

"Much of our progress was overshadowed by transitory events, including intensified promotional competition in certain categories, several isolated manufacturing-related challenges, and weak performance in our Ardent Mills joint venture," said Sean Connolly, president and CEO of Conagra Brands, in a company statement. 

The company added that "unexpected merchandising changes" and "elasticity-related declines" hurt its Hunt's and Chef Boyardee brands. A recall of P.F. Chang products and weak Marie Callender's sales also hurt the company's numbers. 

The company also lowered its full year 2020 earnings per share guidance to $2.08-$2.18 from $2.10-$2.20 citing the divestiture of Gelit, an Italy-based maker of frozen pasta

"All in this was a far worse quarter than investors we spoke with were anticipating," wrote Ken Golman of JPMorgan in a note Thursday. The only silver lining, he wrote, is the company's focus on its Gardein brand, which it took ownership of when it acquired Pinnacle Foods. 

The acquisition of Pinnacle Foods boosted the company's net sales, which increased by 32.9%. The Gardein brand is its own line of plant-based meat alternatives that compete with Beyond Meat and Impossible Foods. The company said it is "as optimistic as ever" about the merger and the opportunity in plant-based meat alternatives, which is larger than it had previously forecasted. Analysts have estimated that the $14 billion industry could balloon to $140 billion in the next decade. 

Shares of Conagra Brands are up 37% year-to-date. 

cag chart

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FILE PHOTO: An aerial photo looking north shows shipping containers at the Port of Seattle and the Elliott Bay waterfront in Seattle, Washington, U.S. March 21, 2019. REUTERS/Lindsey Wasson

  • Morgan Stanley says the forces of globalization are losing strength as trade tensions rise. That's leaving some multinational companies vulnerable but creates new opportunities as well. 
  • Michael Zezas and Meredith Pickett write that regional companies, rather than global ones, are more likely to benefit from the changing trends.
  • The Morgan Stanley duo outlines the areas of the stock market they think will get the biggest boost from this shift.
  • Visit Business Insider's homepage for more stories.

The decades-old trend that has linked more and more of the global economy is fading away, according to Morgan Stanley strategists Michael Zezas and Meredith Pickett, who say a new order is set to replace it.

Globalization has been a fundamental fact of business and markets over that time, but Morgan Stanley says it's time to recognize that it's not as powerful a force as it once was. While some industries will continue to globalize, other companies will become increasingly focused on individual regions or nations.

"Several trends are making global trade less advantageous and, in some cases, less feasible," they wrote in a note to clients.

The most obvious culprit is rising trade tensions. Those include the tariffs in the US-China trade war and the ones President Trump has threatened to put on imported cars, but more complex actions including national security and foreign ownership reviews, which are increasing in the US.

"We see a rising probability of a trend toward higher trade barriers," he says. "We think investors should take notice of these trends as they have ramifications for cost structures and market growth potential across many sectors in corporate America, China, and Europe."

Zezas and Pickett say two factors are crucial in determining whether a company is going to benefit from the evolving trends or get hammered by them.

The first is how sensitive their products or technology are to economic or national security issues, as highly sensitive products are facing more government scrutiny that can affect sales and deals — although governments might decide to protect some established domestic companies.

The second issue is how multinational the company's business and supply chain are, as that's linked to its vulnerability to threats like tariffs. Companies whose supply chains pass through economic rivals might have to reroute them at great cost, a possibility Apple is reportedly considering with regard to China.

This graphic shows how those two trends could interact to the benefit of several sectors and the detriment of a slew of them.

Fading globalization

The Morgan Stanley team says Apple, HP, Hewlett Packard Enterprise, and Seagate Technology are the tech hardware companies that could be harmed the most.

But the companies in the upper left, called "emerging regional champions," have a good chance to dodge those complex pressures. They say payment processors like Visa and MasterCard, Chinese internet companies, and small and midcap US internet companies are likely to benefit as the forces that drive globalization slow down.

But they're less optimistic about automakers and ride share companies, European companies that make machines and other capital goods, hardware and chipmakers, and telecom companies. Morgan Stanley says their products and technologies could be subject to national restrictions, and parts of their supply chains could be targeted with tariffs.

He adds that other factors are intensifying the trend. Many emerging market nations are wealthier than they used to be, and a result, they're spending more money buying goods and services that would've been shipping across the world in the past. And because of changes in manufacturing, many companies are finding it no longer makes sense to ship products and parts through complicated supply chains to reduce labor costs.

SEE ALSO: The next jobs report will be the most important in recent memory. Here's why it could be a make-or-break moment for the stock market's red-hot rally.

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Facebook Inc on Thursday released the findings from its consultations with outside experts into its content review process, providing a glimpse into how its plans for a proposed "external oversight board" might take shape.

World shares and the dollar were left clinging to gains on Thursday amid conflicting reports on whether the United States and China will agree a truce on trade at a meeting of their leaders this weekend.

Ford said it will cut 12,000 jobs in Europe by the end of next year to try to return the business to profit, part of a wave of cost reductions in an auto industry facing stagnant demand and huge investments to build low emission cars.

Global ride-hailing firm Uber Technologies Inc is in talks with regulators over plans to expand into two West African countries and provide a boat service in Nigerian megacity Lagos, a company executive said on Thursday.


  • Robert S. Kapito, BlackRock President, says global bond ETF assets will double by 2024, attributing his reasoning to product innovation, technology, and market structure.
  • It previously took bond ETFs nearly 20 years to growth beyond $1 trillion.
  • The firm relays the four long-term trends that will be responsible for the much quicker trek above the $2 trillion threshold.
  • Click here for more BI Prime stories.

It's not everyday that BlackRock, the world's largest investment firm, says a set of assets are going to double in five years. But today seems to be that day. 

Exchange-traded-funds — an asset class that BlackRock helped pioneer — have exploded in popularity. The voracious appetite for lower costs, transparency, and efficiency within investor holdings has propelled the industry to over $4.7 trillion worldwide.

But not all asset classes have been along for the ride — and BlackRock sees a huge opportunity in this lapse.

"It took nearly two decades for bond ETFs to surpass $1 trillion in global assets. BlackRock believes the next leg of growth will be swifter and broader, with bond ETFs surpassing $2 trillion by the end of 2024," Stephen Cohen, head of EMEA iShares at BlackRock, said in a recent client note.

As it stands right now, bond ETF assets represent less than 1% of the $105 trillion global fixed income marketplace, implying ample room for growth.

"The next leg of growth will be driven by investors finding novel uses for these versatile tools," BlackRock President Robert Kapito told clients this month. "Individual savers will increasingly use bond ETFs to help generate income; asset managers, including BlackRock, will add them to strategies designed to beat their benchmarks; and asset owners such as pension funds will continue to rely on the greater liquidity and lower costs to execute complex portfolio strategies."

BlackRock attributes their forecast to four long-term trends:

Portfolio Construction

"Institutional and wealth managers are increasingly taking a 'whole portfolio' approach that focuses first on desired outcomes, second on asset allocations, and finally on the most efficient way to implement them," Cohen said.

Access to different sources of return and risk management is an integral part of any portfolio. Gone are the days of a bifurcated approach that simply shifts weights between stocks and bonds within a portfolio. The goal posts have changed.

Growing adoption by institutional investors

Since the financial crisis, institutional investors have increasingly relied on bond ETFs for market access. The volume and liquidity provided a welcoming lifeline for money managers amidst the wreckage. 

"Efficient bond ETFs traded continuously on exchange throughout and after the crisis, providing large investors with a much-needed alternative," Cohen said. "Institutional adoption drove higher trading volumes."

These institutions can now manage cash reserves, transition between non-liquid strategies, and manage inventories and credit risk with ease due to this adoption.

The graph below depicts the ravenous growth of trading volume in bond ETFs.


Modernization of the bond market

Electronic bond trading has immensely improved liquidity within the debt trading universe. Now, a totality of bonds are priced and traded daily, helping boost the growth of digital transactions and bond ETFs in the process.

"The bond ETF ecosystem has evolved to enable rapid pricing and execution of individual bonds and, importantly, bond portfolios," Cohen wrote.

The chart below shows just how fast electronic trading is changing the landscape.


Constant ETF innovation

The demand for ETFs that cater towards niches and specificities continues to explode as investors clamor for allocations that match their personal values. In addition, newly-minted bond ETFs allow investors to hedge currency and interest rate risks with ease. 

"Innovations in factor-based bond ETFs, now in the early stages, will provide investors with new ways to calibrate portfolios, for instance by helping investors seek to balance credit and duration risk, or select bonds according to financial traits such as quality and value," Cohn concluded.

SEE ALSO: Billionaire investor Howard Marks explains why the Fed's recent behavior is delaying an inevitable recession — and ensuring the next one will be even worse

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The US-China trade war has led to a sharp drop in cross-border deals so far in 2019

Oil fell below $66 a barrel on Thursday, weighed down by concerns over whether the G20 summit will produce a breakthrough on trade and perceptions that supply is ample despite prospects for continued OPEC curbs.

Boeing 737 Max

  • Boeing slid as much as 5% in early trading on Thursday morning after US regulators ordered more design changes to the 737 Max airplane. 
  • The Federal Aviation Administration found an error in data processing on the plane's computers that could cause the aircraft to go into a dangerous dive, according to Bloomberg.
  • Pilots have struggled to recover from the issue during flight simulations, 
  • The new problem is separate from safety flaws that caused two 737 Max aircrafts to crash last year.
  • Watch Boeing trade live. 
  • Visit the Markets Insider homepage to read more stories.

Boeing's 737 Max isn't in the clear just yet. 

Shares of the airplane manufacturer fell as much as 5% on Thursday morning after the Federal Aviation Administration discovered more safety concerns with the aircraft, prompting them to order further design changes.

FAA regulators found that the 737 Max's computers could potentially cause the aircraft to dive in a way that pilots struggled to recover from in flight simulations, according to a Bloomberg report. 

Soon after the FAA's discovery, the International Air Transport Association released a statement on the efforts to fix the 737 Max safety concerns. 

"The Boeing 737 MAX tragedies weigh heavily on an industry that holds safety as its top priority," Alexandre de Juniac, IATA's Director General and CEO said in a statement on Thursday. "We trust the Federal Aviation Administration, in its role as the certifying regulator, to ensure the aircraft's safe return to service." 

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According to Bloomberg, the new computer issued discovered by regulators is unrelated to the design flaw connected to the two 737 Max jetliners that crashed last year. 

Boeing was up 16% year-to-date through Wednesday. 

Boeing shares

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Global airlines on Thursday urged regulators to coordinate on technical requirements and timelines for the safe re-entry to service of the Boeing Co 737 MAX aircraft, which was grounded in March after two fatal accidents.

Trump Xi

  • President Donald Trump is set to sit down with Chinese President Xi Jinping on the sidelines of a multilateral summit in Japan on Saturday, June 29.
  • The meeting marks a last-ditch attempt to avoid planned escalations in a sprawling trade war between the largest economies.
  • Trump has said punishing tariffs on nearly all remaining imports from China would take effect if no progress was made during the two-day G20 summit in Osaka.
  • Visit Markets Insider's homepage for more stories.

President Donald Trump is set to sit down with Chinese President Xi Jinping on the sidelines of a multilateral summit in Japan on Saturday. It will mark a last-ditch attempt to avoid planned escalations in a sprawling trade war between the largest economies.

Trump has said punishing tariffs on nearly all remaining imports from China would take effect if no progress was made during the two-day G20 summit in Osaka that begins Friday, June 28. In recent days, he has swung between expressing optimism toward the meeting and doubling down on threats for further escalation.

"My plan B is that if we don't make a deal, I will tariff — and maybe not at 25% but maybe at 10% — but I will tariff the rest of the $600 billion that we're talking about," he said Wednesday on Fox Business Network.

The Trump administration has already targeted $250 billion worth of Chinese products since a 2018 investigation into trade practices seen as unfair, such as large-scale state subsidies and the forced transfer of foreign technology. China has since retaliated with its own tariffs on $110 billion worth of American imports. 

Saturday would mark the first meeting between Trump and Xi since November, but few expect a breakthrough and instead view the meeting as a potential opportunity to restart talks. Nearly a dozen rounds of cabinet-level trade negotiations fell apart last month after the US said China reneged on nearly all of its commitments.

"Even as trade frictions persist, he's got the opportunity to see where the Chinese side is since the talks last left off," a senior administration official said of Trump. "But again, the president is quite comfortable with any outcome."

Now Read: Republican lawmakers are closing in on a bill that would challenge Trump's tariff powers

The meeting will come at a pivotal time for Trump, whose trade policies with China and US allies have threatened to upend what is set to become the longest economic expansion in history next week.

Hundreds of business and industry representatives have testified before the US Trade Representative to warn that further tariffs would act as a tax on Americans and put domestic jobs at risk. Economists say further escalation would be especially significant because they would hit mostly consumer products, such as cellphones and clothing. 

While Trump has found bipartisan support in his calls to address any trade imbalances with China, tariffs have drawn backlash from Republican lawmakers and key constituents ahead of the 2020 elections. Research suggests that GOP counties have been hit especially hard by the yearlong dispute between the US and China. 

The Trump administration has sought to soften the blow dealt to farmers, who have been hit by steep retaliatory tariffs on agricultural exports to China. In May, the Agriculture Department more than doubled the size of its bailout program for producers of soybeans and other farm products. 

The stakes are also high for Xi, who will face a dilemma between bending to demands from the largest economy and maintaining a tough appearance at home. Tariffs have only added to strains on the Chinese economy, which posted its slowest pace of growth in more than a quarter century in 2018.

Trump is expected to hold various other meetings at the G20 summit, including with leaders from Australia, Japan, India, Germany, Russia, Saudi Arabia and Turkey.

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SEE ALSO: Republican lawmakers are closing in on a bill that would challenge Trump’s tariff powers

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There are opportunities, but also plenty of obstacles for pro-EU forces in coming months

U.S. equity futures edged higher on Thursday following a report that the United States and China had agreed to a tentative truce in their trade dispute before a G20 summit this weekend, but gains were tempered by Boeing shares after more 737 MAX woes.

Huawei pegged its patent talks with U.S. carrier Verizon as "common" business activity and said such negotiations should not be politicized, days after a senator filed legislation to prevent the Chinese firm from seeking damages in U.S. courts.

Agency had previously suspended its rating on manager’s Allegro fund

The United States should immediately remove sanctions on Chinese telecoms equipment maker Huawei, a commerce ministry spokesman said on Thursday, days before the two countries' leaders are due to meet for talks on trade.

Singapore Airlines and Malaysia Airlines have signed a preliminary agreement to explore a wide-ranging strategic partnership that could include more codeshares as well as cargo and aircraft maintenance, the companies said on Thursday.

US president’s attacks come as negotiators are locked in difficult negotiations over communiqué

Trump Xi

Here is what you need to know.

1. The US and China have reportedly struck a truce in the trade war. The news raised hopes for a productive meeting between Donald Trump and Xi Jinping on Saturday.

2. Bayer is reviewing its legal strategy. The pharmaceuticals giant's shares jumped 8% in pre-market trading after it hired an external lawyer and set up a committee to deal with lawsuits targeting its glyphosate weedkillers.

3. Companies are dodging Trump's tariffs by sneaking Chinese goods through Vietnam. The strategy could spur Trump to slap tariffs on the Southeast Asian country.

4. Bitcoin's surge may have ended for now. The cryptocurrency tumbled 12% on Thursday after rising more than 30% in the past week.

5. Abu Dhabi National Oil Company has sold 40% of its pipeline business. Buyers BlackRock and KKR will lease ADNOC's interest in 18 pipelines for 23 years.

6. Huawei employees have worked with the Chinese military. The tech giant's workers collaborated on at least 10 research projects with the state, deepening espionage concerns.

7. Amazon has partnered with Rite-Aid to launch a new in-store pickup option. The "Counter" service will launch in 100 stores and expand to 1,500 stores by the end of the year.

8. Stocks are up on signs of progress in the US-China trade war. Hong Kong's Hang Seng led the pack in Asia (+1.4%), while Nasdaq futures were out front in the US (+0.3%).

9. Several big names are reporting earnings. Nike, Walgreens, Accenture, H&M, and ConAgra Foods are set to reveal their results later today.

10. There's a raft of economic data coming out. The latest readings for GDP, personal consumption, jobless claims, and pending home sales will be revealed today.

Join the conversation about this story »

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Julie Wainwright, founder and CEO of the RealReal

  • The RealReal, a venture-backed e-commerce platform for selling pre-owned luxury goods, is expected to start trading on Nasdaq Friday under the ticker symbol "REAL."
  • The company set a price range of $17 to $19 per share, which at the high-point would value the RealReal at $1.6 billion.
  • Like most high-growth tech companies going public, the RealReal isn't profitable. Though the company did grow its revenue 55% from 2017 to 2018.
  • Click here for more BI Prime stories.

If you want to buy a Chanel purse for half its retail value, check out the RealReal. And if you want to buy shares in the RealReal, check out Nasdaq.

The RealReal, a San Francisco e-commerce company known for matching bargain-hungry fashionistas with used designer goods, is expected to started trading Friday on Nasdaq under the ticker symbol "REAL."

Though ride-hailing companies Lyft and Uber started the 2019 IPO cycle off with ominous sell-offs, the market has shifted to a more optimistic outlook, buoyed in part by strong investor interest in the vegetarian-meat company Beyond Meat, which is up more than 500% from its opening IPO price.

The RealReal is the first big tech IPO since Slack's direct listing on June 20. Slack is now valued around $18 billion, up from its last private funding round valuation of $7.1 billion. 

In a filing last week, the RealReal set a price range for its upcoming IPO at $17 to $19 per share.

At the mid-point, The RealReal could raise around $246 million, with an initial market cap of $1.5 billion, a slight bump from its last private valuation of $1 billion, which came from a $50 million funding round in March. At its high-point, the company would be worth $1.6 billion.

The IPO is led by underwriters Credit Suisse, Bank of America Merrill Lynch, and UBS.

Here's what else you need to know ahead of the RealReal IPO.

From to VC darling

The luxury consignment company was founded in 2011 by CEO Julie Wainwright, an experienced tech executive who infamously took public in 2000, and then shut it down just months later. The online pet retailer, with a marketing budget that far outsized its revenue, became a symbol of the dot-com bubble, and Silicon Valley's smoke and mirrors.

The chief financial officer taking the RealReal public is Matt Gustke, who spent nine years in senior roles at eBay before joining the ticketing marketplace StubHub as CFO and head of strategy. 

In a video to retail investor, Wainwright said the idea for the RealReal came to her while she was shopping in a luxury goods store with a friend who didn't usually buy pre-owned items. The friend ended up buying something from the store's consignment section because, she told Wainwright, she trusted that the store had thoroughly vetted the authenticity of the items it sold.The RealReal interface

Now after eight years as a private company, the RealReal has sold 9.4 million items and paid out more than $1 billion to sellers on its website on the promise that it authenticates every piece of merchandise sold on its platform.

The RealReal raised a total of $338 million in venture funding, according to PitchBook, starting with a seed investment from 500 Startups. Among the RealReal's biggest investors is Michael Kumin with Great Hill Partners, whose stake will equal 12% of the company after its IPO, as well as Maha Ibrahim, an investor with Canaan Partners, who will own 10.6%, and Chip Baird with Perella Weinberg Partners, who will own 9% after the IPO.

Wainwright will own 7.2% of the company after it goes public.

Like most high-growth tech IPOs, including Uber and Lyft, the RealReal is still losing money. The company lost $75.8 million on $207 million in revenue in 2018. This is compared to 2017, when the company lost $52 million on $134 million in revenue.

Read more: Investors have seen triple-digit returns on some 2019 IPOs, but UBS think there are 2 key reasons it could cool by midsummer

These losses have added up. As of March 31, the company had an accumulated deficit of $281 million.

Still, the RealReal is a high-growth company. Its revenue was up 55% from 2017 to 2018, and its gross profits of $136.9 million were up 56% in the same period.

The company said in its investor pitch that it has a plan for profitability, driven by its long-term strategy to grow its EBITDA margins to 25%, though it did not disclose when it plans to reach that goal or profitability.

High-growth retailers are hot

Just three weeks ago, the luxury retailer Revolve raised $212 million in an IPO that valued the company at $1.3 billion. Like many IPOs this year, Revolve priced its IPO at $18 per share, but its first trade valued the stock at $34 per share. Revolve shot up to a high around $47 but now hovers around its $34 opening price.beyond_meat_stock

Investors interested in e-commerce companies also have their eye on Beyond Meat, the vegetarian-meat retailer, which priced its IPO at $25 per share on May 27 and surged as high as $201 per share in the following weeks.

In its pitch to investors, the RealReal said its biggest competition isn't other online retailers but brick-and-mortar stores where people resell their stuff. But the company also positioned itself as a marketplace — an online platform that connects buyers to sellers.

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The company also told investors that the total addressable luxury goods market was expected to hit $294 billion in 2018, and that number is rising. The more people that buy new luxury goods, the more goods there are to resell on the RealReal, according to its pitch.

When Lyft went public in March, its bankers also positioned the ride-hailing platform as a marketplace. Lyft's bankers compared the company to food delivery platform GrubHub, the luxury retailer Farfetch, the creative goods site Etsy, the freelancing platform Upwork, the online travel operator Booking Holdings, and the home-services site ANGI (Angie's List), sources told Business Insider at the time. It's unclear which companies the RealReal was compared to by its bankers.

As a consignment shop, the RealReal relies on outside resellers to list their inventory on the website. Most of its revenue comes from its "take rate" — the fee it charges to the sellers on its platform. In the first quarter of 2019, it charged 35.3% to resellers on every transaction.

The company generates revenue from the orders made on its website and mobile app, as well as its three retail stores, according to the S-1.

This business model creates some unique risk factors. The RealReal disclosed in its S-1 that it may fail to generate enough "pre-owned luxury goods," and that the luxury market may be hit particularly hard during a market downturn since consumers could spend less money. 

The company also listed counterfeit merchandise as a risk to its success. The RealReal emphasizes its authentication process. Unlike the resale platform eBay, the RealReal examines every piece of merchandise, stores it and handles the delivery. However, it said in its S-1 that counterfeits could harm its business.

"Our success depends on our ability to accurately and cost-effectively determine whether an item offered for consignment is an authentic product, a genuine gemstone or piece of jewelry or a validated work of art," the company wrote. "While we have invested heavily in our authentication processes and we reject any goods we believe to be counterfeit, we cannot be certain that we will identify every counterfeit item that is consigned to us."

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Vivendi's shares fell on Thursday, which traders attributed to a media report of a possible hitches to its planned sale of a stake in its Universal Music Group division.

Mike Manley

  • The global automobile industry cannot remain as it is and companies will have to adapt to stay competitive as electrification becomes imperative.
  • FCA's failed deal to merge with Nissan-Renault is indicative of a market which needs M&A to survive. 
  • "CEO confidence is high, M&A is a confidence market notwithstanding geopolitics‎," said Eamon Brabazon, co-head of EMEA M&A at Bank of America.

From geopolitics to increased regulation, CEOs at major automakers are stepping up their efforts to stay relevant in a changing industry. 

The European Union is pushing for vehicle electrification after publishing legislation last year to require 20% of sales revenue from carmakers to come from full-electric vehicles, or "Ultra Low Emissions Vehicles" by 2025. That target is set to rise to 40% of sales by 2030. 

"The auto industry can't sit still, it's impossible," said Larry Slaughter, executive vice chairman at Bank of America, at a recent mid-year M&A roundtable event in London. It's also a sign that CEOs are reacting to changes in the market. 

The electric vehicle (EV) market could be worth as much as $356.5 billion by 2023, according to MarketWatch research.

As a result, M&A and strategic moves into the space are increasingly likely. A failure to do so could leave automakers high and dry as major players snap up lithium ⁠— the element behind EV batteries ⁠— assets and boost market share in the EV industry. 

One example of the need to scale was last month's move by Fiat Chrysler Automobiles (FCA) to form the world's third largest automaker in a deal with Nissan and Renault. The deal ultimately fell through but the attempted merger's existence came from the automakers' need to boost their presence in the EV space and was a sign of the market's electrification imperative.

The company's press release at the time noted "the need to take bold decisions to capture at scale the opportunities created by the transformation of the auto industry in areas like connectivity, electrification and autonomous driving."

It's part of a broader swathe of dealmaking with carmakers acutely aware of the need to scale up to survive which comes at a positive time for the M&A market. "CEO confidence is high, and M&A is a confidence market notwithstanding geopolitics‎," Eamon Brabazon, co-head of EMEA M&A at Bank of America, said at the roundtable event.

A Bank of America note from the end of May noted that the failure of the FCA deal had sparked a conversation within the industry about electrification. They indicated that major automakers such as GM, BMW, and Ford could all be ripe for joint ventures, strategic acquisitions, and mergers. 

"As production volumes continue to increase ... working capital and capacity investment could become a pressure point for smaller local suppliers, and particularly those lacking adequate liquidity," the report's authors, John Murphy, Aileen Smith, Yarden Amsalem, and Gwen Yucong Shi, said. "In addition, R&D and investment in technology will likely increase as industry participants seek to leverage ongoing trends (electrification, autonomy, connectivity, etc.), for which scale will be necessary to effectively spread this potential cost burden."

European legislation and geopolitical pressures were also behind the recent move by Volkswagen and BMW to sign an equity finance deal with Swedish green lithium battery producer Northvolt with funding from Goldman Sachs. The deal was a sign of the additional importance of both electrification to European manufacturers. More importantly, it highlighted the need for a guaranteed European supplier of batteries for electric vehicles to escape ongoing geopolitical rows between the US and China. 

"This is Europe's first gigaplant from a green source and we are long on the trend of ESG investing," Michael Bruun, a partner at Goldman Sachs who led the equity raise, said in an interview with Business Insider. "Diversifying the supply chain and having a European champion in this space has clear benefits for customers looking for a sustainable and proximate supplier."

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Bayer shares jumped on Thursday after it revealed plans aimed at resolving multi-billion dollar lawsuits linked to glyphosate, a move welcomed by activist shareholder Elliott, which has taken a sizeable stake in the chemicals company.

Chinese President Xi Jinping plans to present U.S. President Donald Trump with a set of terms the United States should meet before Beijing is ready to settle their trade dispute, the Wall Street Journal reported on Thursday.

trump vietnam flag

  • Companies are evading US tariffs on Chinese goods by rerouting them through Vietnam.
  • The duty dodging, combined with Vietnam's hefty trade surplus, could spur Trump to slap tariffs on the Southeast Asian nation.
  • "Vietnam takes advantage of us even worse than China," Trump said in an interview on Wednesday, adding the country was "the single worst abuser of everybody."
  • View Markers Insider's homepage for more stories.

Companies are evading US tariffs on Chinese goods by rerouting them through Vietnam, according to the Wall Street Journal. The duty-dodging, combined with Vietnam's hefty trade surplus, could spur President Donald Trump to slap tariffs on the Southeast Asian nation.

"The phenomenon of trade fraud through labeling of the origin of goods as being produced in Vietnam is increasing," the Vietnamese Ministry of Industry and Trade told the Journal. Companies have been importing Chinese goods, relabeling them as "Made in Vietnam," then exporting them to the US and elsewhere, Vietnam's customs agency told the paper.

Vietnam's exports of computers and electronics to the US surged 72% to $1.8 billion in the first five months of this year, and its imports of those goods from China soared 81% to $5.1 billion, according to its latest trade data.

Exports of machinery and equipment to the US rose 54% over the same period, while imports of those products from China jumped 29%.

Those increases far exceeded the growth in Vietnam's worldwide imports and exports of those goods, suggesting businesses are turning to "transshipments" or sending Chinese goods to Vietnam then to the US.

The Trump administration has punished the practice. Last year it imposed duties of more than 250% on some Vietnamese steel exports after discovering they contained "a significant portion" of Chinese steel, according to Reuters.

Vietnam has benefited from the US-China trade war as companies see it as an alternative to China. Apple, Foxconn, Sharp, Williams-Sonoma, Lovesac, and others have shifted production from China to Vietnam in order to evade tariffs. However, Trump has hinted he could slap tariffs on Vietnam given the nation's trade surplus with the US of $40 billion last year, and its failure to prevent trade fraud could prompt him to pull the trigger.

"A lot of companies are moving to Vietnam, but Vietnam takes advantage of us even worse than China," Trump said in an interview on Wednesday, adding the country was "the single worst abuser of everybody."

The harsh rhetoric could prompt businesses to rethink their exodus from China to Vietnam.

"You can almost hear the screech of brakes in shifting global supply chains, and in US-Vietnamese geopolitical relations (and thus the screams from the Pentagon)," said Michael Every, senior Asia-Pacific strategist at RaboResearch.

SEE ALSO: Why Trump doesn't want to punish Turkey over its Russia dealings, after threatening Germany for the same thing last week

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china gold silver traders

  • Gold has spiked to its highest level in six years amid trade tensions and high expectations that the Federal Reserve will soon lower interest rates.
  • At the same time, the premium for certain call options that would profit from gains in the largest gold exchange-traded fund has jumped to its highest level in 10 years, according to Bank of America Merrill Lynch.
  • The firm's equity-derivatives strategists formulated an options-trading strategy that would profit from continued gains in gold.
  • Click here for more BI Prime stories.

When chaos erupts in global markets, gold is one of the assets in which investors seek shelter.

The precious metal is exhibiting its safe-haven status with a breakout rally to six-year highs.

Because gold is used as a store of value, its price has been buoyed by the serious prospect of a Federal Reserve interest-rate cut that might reduce the allure of interest-bearing assets. It's also being lifted by lingering uncertainty about the global trade war and economic slowdowns around the world.

But no market trend lasts forever, and traders can lose interest in gold as quickly as they found it. Chief among the risks to this rally is the possibility that the trade dispute may be resolved at the G20 summit this weekend — a development that would allay one of the lingering concerns on investors' minds. And given that gold climbed so quickly — by more than 8% in June alone — a rollback could soon follow.

That's where the trade recommendation from Bank of America Merrill Lynch comes in. According to a team led by Benjamin Bowler, the firm's global head of equity derivatives research, it's suitable for traders who want to profit from a continued rally in gold but limit their downside if the gains stop.

It's pegged in the options market for the SPDR Gold Shares exchange-traded fund, or GLD. Bowler observed that traders were paying a hefty premium for options contracts that bet on increases in GLD, the largest ETF of its kind. Measured as call skew, this premium is at its highest level in 10 years.

Screen Shot 2019 06 26 at 4.02.42 PM

Though this premium is now at a postcrisis high, it's not rare for it to be in positive territory. After all, gold is the poster child of safe-haven assets, and a lot of buying is driven by fear and uncertainty about financial markets. It follows that options contracts betting on increases in GLD translate to bullish bets on the underlying commodity, and are bought to profit in times of turmoil.

With traders now aggressively jostling for GLD call options, Bowler recommends buying call spreads as a way to profit from further gains.

"For those wary of spending 12 months of premium on outright calls, gold call skew offers an attractive opportunity to cheapen the trade," he said in a recent note to clients.

He continued: "We like owning Jun20 140-155 GLD call spreads (43d and 23d respectively, ref. 132.9). The structure costs ~2%, a ~50% discount vs the 140 call outright, and has a max payout ratio of ~5.7x."

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The country's foreign minister says he is concerned about the UK leaving the EU without a deal.

Bitcoin's price skidded 12% lower on Thursday to around $11,383 after hitting an 18-month high of nearly $14,000 earlier this week.

Abu Dhabi National Oil Company (ADNOC) said on Thursday it had completed a deal for BlackRock and KKR to buy a 40% stake in ADNOC Oil Pipelines for $4 billion.

Pressured by a labor crunch and rising wages in China, Shu Ke'an, whose company supplies bulletproof vests, rifle bags and other tactical gear to the United States, first considered shifting some production to Southeast Asia a few years ago, but nothing came of it.

Huawei Technologies Co employees worked on at least 10 research projects with Chinese armed forces personnel over the past decade, Bloomberg reported on Thursday, collaborations the Chinese company said it was not aware of.

trader celebrate

Stocks jumped on Thursday following reports of a tentative truce in the US-China trade war.

Washington and Beijing are crafting a deal to avert the next round of US tariffs on $300 billion worth of Chinese goods, according to the South China Morning Post. "The truce cake seems to have been baked," one source told the newspaper.

The news lifted traders' hopes that President Donald Trump and Chinese counterpart Xi Jinping can reach an agreement to de-escalate the trade war when they meet on Saturday during the G-20 summit in Osaka, Japan. 

"The fact that the United States and China have agreed to a tentative tariff truce ahead of the G-20 meeting does suggest that there is still some light at the end of the trade war tunnel," said Lukman Otunuga, research analyst at FXTM.

The promise of a pact reassured traders after Trump discussed raising tariffs on $250 billion of Chinese goods from 25% to 35% in an interview on Wednesday. "My plan B with China is to take in billions and billions of dollars a month and we'll do less and less business with them."

"The sentiment in the markets is turning bullish as investors are hoping from some sort of meaningful development over the weekend," said Konstantinos Anthis, head of research at ADSS. "We'd rather be a bit more cautious ahead of the G-20 meeting as the odds for a material breakthrough are quite low."

Here's the market roundup as of 9.00 a.m. (5.00 a.m. ET):

  • Asian stocks climbed with the Shanghai Composite up 0.7%, the SZSE Component up 1.3%, Japan's Nikkei up 1.2%, and Hong Kong's Hang Seng up 1.5%.
  • European equities rallied in morning trading with Germany's DAX up 0.6%, and the Euro Stoxx 50 and Britain's FTSE 100 up 0.2%.
  • US markets are set to open higher. Futures underlying the Dow Jones Industrial Average and S&P 500 were up by about 0.4%, while Nasdaq futures rose 0.6%.
  • Oil prices dropped with West Texas Intermediate crude down 0.5% at $59.10, and Brent crude down 0.6% at $65.30.
  • Gold fell 0.7% to $1,406 as investors pulled cash out of the save haven in search of higher returns.
  • Bitcoin slid 0.6% to about $12,340. The cryptocurrency remains volatile after surging by more than a third in the past week.

SEE ALSO: Trump's China tariffs could slam American shoppers with an extra $800 in costs a year

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Mark Zuckerberg

  • Mark Zuckerberg said Facebook might start treating deep fake videos differently than misinformation or fake news, making it easier for the company to take them down.
  • The remarks came during an interview with the Harvard law professor Cass Sunstein on Wednesday.
  • Zuckerberg also said he didn't think people would want Facebook censoring content just because it's factually inaccurate, saying that the topic could be "easily politicized."
  • He said Facebook was evaluating its policy on deep fakes and would not act "hastily and unilaterally."
  • Visit Business Insider's homepage for more stories.

Mark Zuckerberg said Facebook might start treating deep fakes — photos and videos doctored with artificial intelligence — differently than misinformation or fake news, making it easier for the company to take them down. The remarks came during an interview between Zuckerberg and the Harvard law professor Cass Sunstein at the Aspen Ideas Festival on Wednesday.

"I definitely think there's a good case that deep fakes are different than traditional misinformation," Zuckerberg said. "But I do think that you want to approach this with caution, and by consulting with a lot of experts, and not just acting hastily and unilaterally."

When asked why Facebook doesn't automatically take down deep-fake videos, Zuckerberg said it was difficult to establish a precise definition of deep fakes. While some videos are purposefully altered to twist the truth and misinform, other videos are edited for journalistic purposes and risk being deemed deep fakes.

"This is a topic that can be very easily politicized," he said. "People who don't like the way that something was cut often will argue that it did not reflect the true intent, or it was misinformation."

When asked about the doctored video of House Speaker Nancy Pelosi that appeared to show her drunk or incoherent, Zuckerberg said, "I just think you want to be very careful about what you're defining as misinformation," since the video was edited with traditional methods and not artificial intelligence. "One of the issues in the Pelosi video that you mentioned, which was an execution mistake on our side, was it took a while for our systems to flag that and for fact checkers to rate it as false," he added.

Zuckerberg said Facebook was evaluating its policy on deep fakes by consulting with experts. 

"This is certainly a really important area as the AI technology gets better and one that I think it is likely sensible to have a different policy and to treat this differently than how we just treat normal false information on the internet," he said. 

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trader screen relaxed portfolio

  • Inigo Fraser-Jenkins, a senior analyst at Bernstein who leads the firm's global quantitative and European equity strategy, reveals 11 trades meant to help an investor build the perfect portfolio.
  • Bernstein suggests using a combination of strategic long-term trades and tactical shorter-term positions to capitalize on return streams.
  • Click here for more BI Prime stories.

When it comes to building the perfect portfolio, investors are often overburdened. Countless opinions and piles of conflicting information make the selection innately difficult. Throw in heightened volatility, and proper discernment becomes even easier to botch.

As ever-changing economic and political environments leave strategies looking stale, investors are forced to ride out the turbulence or suffer the consequences. Failure to adjust to developing circumstances has an anchoring effect on a portfolio. In the blink of an eye, gains are stymied and prior positions are undermined — especially in times of heightened uncertainty.

But where there is volatility, there is opportunity.

Inigo Fraser-Jenkins, a senior analyst at Bernstein who leads the firm's global quantitative and European equity strategy, thinks the time to make a move is now — and he's backing up his call with 11 specific trades meant to maximize return streams.

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The trades themselves comprise six strategic long-term positions to hold over the cycle and five tactical shorter-term calls that reflect current market views. The suggested weighting of the portfolio is two-thirds strategic and one-third tactical, but this notion is rather arbitrary because of the unique risk tolerances of individual investors.

Below are the 11 trades Fraser-Jenkins has identified to maximize returns.

Strategic Trades

1. Equity free-cash-flow yield — Identified as the core income trade, seeking stocks that generate high FCF yield has delivered the highest annualized returns over the past 30 years. The graph below depicts the outsize returns.


2. Equity residual value — This is a more traditional value factor that focuses on mean reversion. The inclusion of fundamentals helps to quell the downside performance in unfavorable environments.

"Here we define value as mispricing, so a disconnect between valuations and 'fundamentals' rather than simply having a low multiple," Fraser-Jenkins wrote.


3. Bond value — Bond value goes long the three markets with the largest 10-year bond yield and short the three lowest-yielding markets. The approach is rebalanced quarterly.

4. Bond momentum — Bond momentum goes long the three markets with the biggest declines in 10-year bond yields over the past 12 months and short the three markets where bond yields have gone up the most over the same time frame. The approach is rebalanced quarterly.


5. Infrastructure (German renewable power delivery) — This strategy incorporates returns from infrastructure assets that offer exposure to an alternative risk premia. Bernstein suggests adding an allocation of two-year forward futures contract for German power prices.


6. Bernstein Global Alpha Model — This trade combines industry-specific stock selection with sector rotation and risk-regime timing. The approach is designed to be effective in both high- and low-correlation backdrops.

"The approach identifies three sources of alpha — each of which is addressed using a separate module: industry-relative expected returns, industry rotation and risk regime timing," Fraser-Jenkins said.


The charts below depict the backtest of the performance of the strategic portfolio.


Here is how Bernstein is weighting its strategic portfolio.


Tactical Trades

7. Gold — Rising geopolitical tensions, unbridled government debt levels, and a slowing business cycle all bolster the case for this precious metal in Bernstein's portfolio.


8. High credit / balance sheet quality — With the quality of debt rapidly deteriorating, Bernstein thinks this allocation adds quality exposure and acts as a hedge against rising credit spreads.


9. Global low volatility — This provides protection against political uncertainty and high volatility, which are expected over the next six to 12 months.


10. US internal growth — This provides defensive exposure without a high valuation premium. Constructed as [1 - Dividend Payout] * 3 year trailing ROE.

11. Europe accounting quality — This factor performs especially well in times of earnings stress. Look for this trade to buoy returns in the late cycle.


Here is how the firm is weighting its tactical portfolio.


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India Commuters Train Crowded

  • Emerging markets are poised to lead developed markets on a growth basis for the rest of 2019, according to LPL Research.
  • There are positive growth opportunities in various countries from Brazil to India, and in industries such as technology.
  • Investors should also consider countries in emerging Europe. Russia was a top performer last year and is up more than 20% year-to-date. 
  • Read more on Markets Insider.

Investors looking for growth should consider often-overlooked markets outside the US — and even the developed world.

Emerging markets, which include countries such as Brazil, India, and China — as well as an array of others around the globe — are poised for growth as the US economy slows, according to one Wall Street firm.

"We still expect emerging markets to continue to lead developed markets in economic growth, given the challenges in developed markets," wrote a team of analysts from LPL Research for the firm's 2019 Midyear Outlook.

Emerging markets have lagged their peers in the developed world for some time as the economic recovery in the US has ramped up and boosted global growth. Now, however, the US economy is sending mixed signals that can be a good sign for emerging markets.

Developed countries outside the US are also dealing with barriers to growth; Brexit in Europe, the yellow vest protests in France, and budget problems in Italy have made emerging markets look increasingly appealing.

Increased urbanization and a rising middle class has boosted the potential for growth in countries outside of the US, said Rashmi Gupta, a money manager at JPMorgan Chase Bank. One example is India, a long-term overweight in her portfolio. India is a largely domestic economy, Gupta said, and thus tends to move differently from other countries.

In addition, since the country's election wrapped up in May, Prime Minister Modi has focused on economic growth in the country. "We expect India's GDP growth to outpace the rest of EM," wrote the team from LPL Research. 

Elsewhere, there are political reforms that could lead to growth such as in Brazil, which is up double-digits today. President Jair Bolsonaro campaigned on pension reform and it has remained a top priority of his in office. The bill's proposed overhaul of the social security system would leave more money to invest in economic growth, a huge opportunity if it passes, Gupta said.

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A number of Asian countries are also seeing positive earnings growth around technology, one particularly large area where EM countries have benefited because it has allowed them to leapfrog expensive infrastructure spending. A recent note from Lazard Asset Management points out that technology companies now make up nearly 30% of the MSCI Emerging Markets Index, up from 2.3% in 1995. They are now the biggest industry represented in the index. 

Of these technology firms, "some of the newer companies we're seeing in EM could potentially become global leaders," said Peter Gillespie, a portfolio manager at Lazard Asset Management, pointing out that there's been company growth in digital payments, online shopping, education, esports and 5G.

Most technology innovation is coming from China, Korea, Taiwan, and India, Gillespie said. But there are also opportunities to invest outside of Asia in countries such as Russia, Brazil and South Africa. 

This is not to say that all EM countries are immune to fears of slowing global growth or are not impacted by trade tensions — many are. However, given the current economic conditions in the US and globally, growth is harder to come by. EM can provide opportunities for growth and some protection from trade war fears if investors play their cards right and consider the entire EM landscape. 

For example, Gupta said that emerging Europe is often overlooked, especially Russia. This year, Russian equities are up more than 20%, and it was a top performer in EM last year. 

"We talk about emerging markets as one block one asset class but you have to remember that there are many different countries within emerging markets," Gupta said, with many different policy regimes, and many different drivers of growth.

He added: "I think that for managers it's one of the richest grounds for generating alpha or excess returns."

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