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Market Snapshot*
DJIA
18010.81
-115.3
5070.03
-27.94
S&P 500
2107.39
-13.39
10-Year
2.0918%
11/32
Nasdaq
Friday, May 29, 2015
30-Year
2.8488%
25/32
Euro
$1.09835
+0.004
$60.3
+2.62
Nymex Crude
Source: SIX Telekurs, ICAP plc
Stocks
U.S. stocks fell Friday, weighed down by
fresh worries about Greece and its likelihood to secure a deal with its international creditors and data that showed continued weakness in the U.S. economy.
Despite the declines, stocks are poised
to finish May with gains. The U.S. stock
market has been fairly placid over the
past month, with stocks inching higher
and touching fresh records on muted
trading volumes.
Treasurys
U.S. Treasury bonds rallied Friday as a
weak reading on regional factory activity
added fuel to typical month-end demand.
In early New York trading, benchmark
10-year notes gained 6/32 in price to
yield 2.109%, according to Tradeweb,
dragging the yield to its lowest in three
weeks. The 30-year bond rose 17/32 to
yield 2.859%. Bond yields decline when
prices rise.
Forex
The dollar gained against rivals in May
after data showed that the U.S. economy
has begun to emerge from a weak start
of the year, which has moved forward
market expectations for higher borrowing
costs. The dollar's slim gains in Friday's
session leave it on track to close out a
strong month that saw the greenback
rise 2.5% against rival currencies, including a 4% jump against the yen that has
pushed the buck to a 12-year-high.
Tomorrow’s Headlines
Humana Considers Sale of Company
Health insurer Humana Inc. is considering selling the company, a move that
could trigger a widely anticipated wave of consolidation in the industry.
Humana has received indications of takeover interest and is working with
advisers at Goldman Sachs Group Inc., according to people familiar with the
matter. Aetna Inc. and Cigna Corp. are among those that have held preliminary discussions with the company, some of the people said.
It is possible there will be no deal for the company, which had a market value
Friday afternoon of about $27 billion before The Wall Street Journal reported
the talks.
First-Quarter GDP Swings to Contraction
The U.S. economy contracted early this year as harsh weather and a strong
dollar sapped demand for American goods, underscoring the choppiness of
an expansion that has struggled to lift off.
Gross domestic product, the broadest sum of goods and services produced
across the economy, shrank at a 0.7% seasonally adjusted annual rate in the
first quarter, the Commerce Department said Friday. The agency previously
estimated output grew 0.2% from January through March.
The revision, near economists’ expectation of a 1% contraction, showed how
the world’s largest economy remains vulnerable to shocks as it struggles to
regain its vigor. The dip, expected to be short-lived, marked the third quarterly
contraction since the economy emerged from recession in mid-2009.
continued on page 2
Monday’s Calendar
8:00 a.m.
FRB Boston President Eric Rosengren speech at Capital
Workforce Partners Workforce Stars Breakfast
8:30 a.m.
Apr Personal Income & Outlays Personal Income (previous +0%),
Personal Spending (previous +0.4%), PCE Price Index Monthly
(previous +0.2%), Yearly (previous +0.3%), PCE Core Price Index
Monthly (previous +0.1%), Yearly (previous +1.3%)
9:45 a.m.
May US Manufacturing PMI (previous 54.1)
10:00 a.m.
May ISM Manufacturing Report on Business Manufacturing PMI
(previous 51.5), Prices Index (previous 40.5), Employment Index
(previous 48.3), Inventories (previous 49.5), New Orders Index
(previous 53.5), Production Index (previous 56)
10:00 a.m.
Apr Construction Spending - Construction Put in Place New
Construction Residential Construction (previous -0.6%)
11:00 a.m.
May Global Manufacturing PMI (previous 51)
1:00 p.m.
May Dow Jones Economic Sentiment Indicator DJ Economic
Sentiment Indicator (previous 53.7)
N/A
U.S: Jefferson Davis' Birthday holiday in Alabama
Commodities
Oil prices jumped Friday on an unexpectedly large drop in U.S. drilling activity. Oil
producers have cut back sharply on capital spending and new drilling after surging U.S. shale-oil output helped push the
global crude market into oversupply last
year. As the number of rigs drilling for oil
in the U.S. started falling in recent
months, prices rallied on the expectation
that U.S. oil output is due to slow.
*preliminary values subject to adjustments
Copyright © Dow Jones & Company, Inc. All Rights Reserved.
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page 1
Friday, May 29, 2015 4 p.m. ET
Tomorrow’s Headlines
continued
“When you’re this weak, little things can knock you off
course, whether it’s the Arab spring, the earthquake or
‘Snowmageddon,’ “ economist Dan Greenhaus of brokerage firm BTIG said. “We have an incredibly weak economy
that’s susceptible to momentary interruptions.”
Other economists said the report likely overstated the economy’s weakness because of what they suspect are flaws in
the government’s ability to adjust data for routine slowdowns in activity tied to the seasons. All three contractions
in the current expansion have occurred during the first
quarter of a year.
FIFA President Sepp Blatter
Wins Fifth Term
FIFA President Sepp Blatter won a fifth, consecutive term at
the helm of soccer’s top governing body when his only
opponent conceded defeat late Friday—but not before forcing a rare second-round of voting.
The vote took place just days after the disclosure of a
broad U.S. probe and more than a dozen indictments and
convictions related to alleged corruption at the organization.
Mr. Blatter wasn’t named in any of those, but he has
become a lightning rod for critics amid years of corruption
allegations at the organization he has led for 17 years.
Mr. Blatter was widely expected to win another four-year
term. But after Swiss police, acting on the U.S. indictments,
arrested several FIFA officials here earlier this week, the
balloting became a gauge for how much the scandal had
dented his long-cultivated support among many of FIFA’s
member associations.
Fiat Reached Out to Rivals
About Consolidation
Fiat Chrysler Automobiles NV Chairman John Elkann said
Friday the world’s seventh-largest car maker has made
contact with multiple rivals, including General Motors Co.,
to propose talks about industry consolidation.
The comments echo his outspoken chief executive Sergio
Marchionne, who has said publicly he has attempted to convince competitors of the logic of tying up. While Mr. Elkann
didn’t detail the scope or content of the outreach, the dialogue comes at a time of heightened focus on potential
deal-making, especially amid overcapacity across Europe.
in the auto industry, but until now his calls have fallen flat
with competitors including Ms. Barra. Mr. Marchionne argues
that the capital intensive nature of the car industry means
there must be consolidation to better allocate funds and
boost profitability.
Toyota’s New Share Plan Faces
Proxy Adviser Opposition
Toyota Motor Corp.’s plan to issue up to 500 billion yen ($4
billion) of a new kind of stock is facing a challenge by a
proxy adviser, though analysts say the plan likely will be
approved at a shareholders’ meeting next month.
Institutional Shareholder Services Inc. opposes issuance of
the new shares, which Toyota has said is aimed at attracting long-term individual investors. Such a move would
make the auto maker’s capital structure more complicated,
the proxy adviser said in a report this week.
IMF Economists Call for Simpler
Eurozone Budget Rules
The rules that govern fiscal policy in the eurozone should
be simplified to ensure that member governments cut their
debts, economists at the International Monetary Fund said
in a paper published Friday.
The rules, enshrined in the 1997 Stability and Growth Pact,
are intended to ensure that national governments don’t take
advantage of their membership of the eurozone to borrow
excessively, and thereby threaten the stability of the currency area.
But the rules have been regularly flouted since the euro
was launched in 1999 and failed to prevent surges in borrowing that contributed to the currency area’s debt crisis,
which began in 2010 and continues to this day as Greece
seeks an agreement with the rest of the eurozone and the
IMF that would enable it to repay its debts.
A number of reforms to the rule book have followed in the
years since the crisis, increasing its complexity without
securing full compliance, the most recent changes coming
earlier this year.
In the paper published by the IMF, seven of its economists
said the very complexity has made it difficult to ensure governments pursue fiscal policies that will reduce their debt
levels over the medium term.
Snapchat Reveals $650M
Private Placement
Mr. Elkann was responding to a question about a report in
the New York Times that said Mr. Marchionne had written
an email to Mary Barra, his counterpart at GM, to propose
a tie-up of the two car makers
Snapchat Inc. disclosed it has offered to sell $650 million of
stock in a private placement, an opportunity for the company and insiders to profit from the messaging company’s
popularity.
“The email to General Motors wasn’t the only one,”
Mr. Elkann said at a news conference. “It isn’t a single
conversation.”
According to a filing Friday with the Securities and
Exchange Commission, more than $537.6 million was sold
from the offer and that $112.4 million remained available.
The filing doesn’t say how much the stock was sold for or
who the buyers and sellers were.
Mr. Marchionne, who has neither confirmed or denied writing
the email, has been championing the need for consolidation
Copyright © Dow Jones & Company, Inc. All Rights Reserved.
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continued on page 3
page 2
Friday, May 29, 2015 4 p.m. ET
FTC Sues to Block Steris,
Synergy Merger
Tomorrow’s Headlines
continued
The filing comes days after Chief Executive Evan Spiegel
said he has a plan for an initial public offering but offered
no details about its timing. Mr. Spiegel also said this week
that he has no desire to field any acquisition offers.
In March, The Wall Street Journal reported that Alibaba
Group Holding Ltd. invested $200 million in Snapchat, a
transaction that valued Snapchat then at $15 billion—marking a significant increase from previous investments.
in 2014, Snapchat raised funds from at least two investors,
Yahoo Inc. and venture-capital firm Kleiner Perkins Caufield &
Byers, in a round of funding that valued the messaging startup at $10 billion. Other investors include Benchmark, General
Catalyst Partners, Institutional Venture Partners, Lightspeed
Venture Partners, Coatue Management LLC and DST Global.
India’s Economic Growth
Hits Four-Year High
India’s output growth accelerated to 7.5% last quarter, putting it ahead of China as the world’s fastest-growing large
economy.
According to government data released Friday, gross domestic product in the South Asian nation grew by 7.3% for the full
fiscal year ended in March. That trumps the previous fiscal
year’s 6.9% expansion and is the country’s fastest annual
growth since 2011. China’s growth last quarter was 7%.
Investment-friendly policies initiated by Prime Minister
Narendra Modi kept the Indian economy on a buoyant path
of recovery last year, though not all sectors benefited
equally. Manufacturing activity roared ahead at 7.1%.
Services such as finance, insurance and real estate continued to perform strongly, growing by 11.5%. But with belowaverage rain hurting crops last year, agricultural growth was
barely positive, at 0.2%.
The latest output figures were helped by a controversial
recent update to India’s official GDP-estimation method that
boosted some recent growth readings by more than two percentage points. The revised numbers have confounded analysts and policy makers since they were announced in
January. A raft of other data, including exports and corporate
profits, still points to weakness in Asia’s third-largest economy.
“We’re all a little bit into the unknown,” said Faraz Syed, a
Sydney-based economist at Moody’s Analytics.
American Express
President Gilligan Dies
American Express Co. said President Edward Gilligan died
after becoming seriously ill on a flight home to New York on
Friday morning.
Mr. Gilligan, who was widely considered the heir apparent
to Chief Executive Kenneth Chenault, was named as the
company’s president two years ago. He had joined the
company in 1980 and had served as vice chairman beginning in 2007.
The Federal Trade Commission on Friday sued to block the
$1.9 billion merger of infection-prevention firm Steris Corp.
and U.K. peer Synergy Health PLC, with the companies
pledging to fight back in court.
Steris agreed to buy Synergy in October in a combination
that mirrors larger inversion deals, in which U.S. firms relocate to lower-tax jurisdictions. Originally slated for completion by March 31, the deal has been on hold since January,
when the FTC asked the companies for extra information.
Wells Fargo Open to
Financing Other GE Deals
Wells Fargo & Co. Chief John Stumpf said the bank may
finance other General Electric Co. deals as they unfold, but
he wouldn’t make any predictions at a financial conference
Friday about whether the bank would be a buyer.
Mr. Stumpf, chairman and chief executive of the bank, said
any deals could still be a “long way” off.
Wells Fargo recently announced its plans to purchase $9
billion in property loans from GE alongside Blackstone
Group LP, which is buying $14 billion of property loans and
real estate. Wells Fargo provided $4 billion of financing for
part of Blackstone’s purchase of the loans.
Chicago PMI Swings to
Contraction in May
A economic yardstick for the manufacturing-heavy U.S.
Midwest saw growth slip into contraction in May, casting
doubt on a widely expected bounceback for the U.S. economy in the second quarter.
The Chicago Business Barometer, commonly known as the
Chicago PMI, shrank to 46.2 this month from 52.3 in the
prior one. By moving below the 50-point threshhold, the
indicator signals that the economy shrank for the region.
EPA Proposes Three-Year Ethanol Rule
The Environmental Protection Agency proposed Friday to
ease annual requirements for ethanol in gasoline, citing
market restraints and other challenges that are preventing
the Obama administration from meeting the goals laid out
in a 2007 law.
The law requires refiners to blend an increasing amount of
biofuels into the U.S. gasoline supply each year, though the
EPA has been late in setting the quotas for 2014 and 2015.
As a result, Friday’s announcement included levels for
those two years and 2016, with 2014 numbers set retroactively and close to what was actually produced.
Under the proposal, the levels of ethanol in refiners’ fuel
mix will still increase, but less than it would have under the
2007 law. Biofuels represent about 10% of total gasoline
consumption in the U.S.
Copyright © Dow Jones & Company, Inc. All Rights Reserved.
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page 3
Friday, May 29, 2015 4 p.m. ET
Copyright Dow Jones & Co., Inc.
Equities Week Ahead
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Jobs Data Seen Mixed
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The calendar is full next week. Of key interest to economy-watchers will be data
covering May. Those reports include business surveys done by two private
organizations and the all-important employment report. It would be nice if the
numbers show the U.S. economy sped up in the middle month of the second
quarter but in general forecasters don’t expect much of a pick up.
The employment report on Friday is expected to show little change in the pace
of hiring this month after payrolls grew by a modest 223,000 jobs in April.
Economists surveyed by The Wall Street Journal think May payrolls increased by
220,000 new slots. The jobless rate is forecast to hold at 5.4%.
Just as important as the job numbers will be the change in May wages. The
Federal Reserve is looking for wage growth to accelerate well above 2% as a
sign that the labor markets are in good shape. The median forecast calls for the
average hourly wage to edge up 0.2% in May. That would put year-over-year
growth at 2.1%, still not a breakout pace.
Manufacturing, Services Sectors Seen Expanding
On Monday, data provider Markit and the Institute for Supply Management will
release their surveys of U.S. manufacturers. Economists think the older ISM survey will show the factory sector is expanding but at a fairly modest pace.
On Wednesday, Markit will release its survey of service providers, while the ISM
will release its non-manufacturing survey (which includes services, construction
and public administration). Economists expect the ISM top-line index slowed to
57.1 in May from 57.8 in April.
The New Face Of Immigration
Ahmed Hassan staggered through dense Panamanian jungle, crazy with thirst,
his rubber sandals sliding in the mud, fearing he would die thousands of miles
from his homeland in Somalia.
“I told my family I would go to the U.S., that was the plan,” said the 26-year-old
truck driver, who said he fled late last year when al-Shabaab militants took his
village. He flew to Brazil and made a cross-continental bus trip to Colombia.
In March came his biggest test: crossing the Darien Gap that connects South
America with Panama and Mr. Hassan’s ultimate goal, the U.S.
“There was no water. There were snakes,” he said in a small holding center in
Meteti, north of the jungle, gashes and bites covering his legs under his traditional sarong. “I thought I might die in that jungle.”
Migrants go to extremes for new beginnings. Honduran families put children on
northbound trains. Hundreds of Africans recently drowned braving the
Mediterranean in an overcrowded boat. People cross the deadly Sonoran Desert
to get from Mexico to Arizona.
The untamed Darien Gap has become a new route for travelers from as near as
Cuba and as far as Nepal. The surge reflects the difficulty of entering the U.S. by
traditional paths like arriving on a visa and overstaying, said Marc Rosenblum, a
deputy director at the Migration Policy Institute, a Washington think tank.
“These people are willing to take this risky and complicated route,” he said, “and
they are lining up to take it.”
U.S. justice and immigration officials say they are working to combat human
smuggling on such routes. “We will continue using all of our investigative authorities to identify and dismantle these transnational criminal organizations,” said
Barbara Gonzalez, Senior Adviser to Latin America at the U.S. Immigration and
Customs Enforcement agency.
continued on page 5
Copyright © Dow Jones & Company, Inc. All Rights Reserved.
www.dowjones.com
page 4
Friday, May 29, 2015 4 p.m. ET
Equities Week Ahead
continued
The circuitous Panama route has become more attractive,
say migration experts, thanks to the easing of visa and asylum requirements in some South American countries and
an unwillingness by some governments on the route to
carry out mass deportations.
That has opened the door to migrants arriving in South
America by plane or cargo ship who head overland toward
the isthmus from Brazil. Then, facing miles of dense, roadless jungle, they have a choice: cross on foot or pay gangs
to ferry them around it on flimsy coastal-fishing boats.
Boats are quicker but more expensive. And while Panama
turns back anyone who disembarks without a passport, it
allows in those emerging from the jungle route without documentation because there isn’t a nearby Colombian outpost
to return them to. There also aren’t direct flights from
Panama to Africa and Asia.
There is still the journey through Central America and Mexico,
but migrants say the Darien is the hardest. “I want to get to
the U.S.,” said Hawa Bah, 20, who fled Guinea in West Africa.
She spoke as she lay weak on a cot in a Panamanian holding
center after getting lost in the Darien for more than 10 days.
“I was being forced into marriage, and I was worried
about Ebola,” she said. “I’d rather have died in the jungle
than go back.”
It isn’t clear how many make the journey, but the numbers
recorded by Panama police are rising. In all of 2014,
Panama processed 8,435 migrants, three-quarters of whom
boarded boats in Colombia and came via the choppy
waters along the isthmus, Panamanian authorities say.
In the first three months of 2015 alone, Panama detained
about 3,800 migrants on the route, roughly 1,000 of whom
came through the jungle.
Most migrants crossing through the jungle turn themselves in,
knowing they can receive temporary refuge and be sent on
their way if they pass criminal checks. Panama says it releases most, offering paperwork to apply for asylum or refugee
status. Most slip away and continue north, police say.
The journey for many begins by paying “agents,” as they
call members of international smuggling networks, sometimes thousands of dollars to arrange plane tickets, ground
transport and bribes to border guards. Others go alone.
African migrants interviewed in Panama said they head to
the U.S., rather than Europe, because they believe they are
more likely to get a job and refuge there.
Immigration authorities across the region and United
Nations aid workers say such travelers have flooded into
countries like Brazil and Ecuador. Asylum requests in Brazil
rose to 5,882 in 2013 from 566 in 2010, according to U.N.
data. In 2008, Ecuador lifted visa requirements for foreigners who arrive for tourist stays. It later modified its visa policy for some, but many Cubans who pass through Panama
still fly to Ecuador first.
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page 5