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CEO Daily: Friday 12th August

Good morning.


Remember last August? It was a year ago yesterday that the Chinese central bank engineered a surprise 2% devaluation of the yuan, ultimately leading to a late summer’s market panic. This columnist, along with others, suggested it could signal the beginning of a global economic slump.


But yesterday, all three U.S. market indices – the S&P, the Dow, and the Nasdaq – hit record highs – the first such trifecta since 1999. Even ‘Brexit’ woes have been forgotten, and The Wall Street Journal this morning is speculating about a market “melt-up.”


So should we conclude that all is now well with the world?


That’s one possibility. The other is that a continuing flood of easy cash – “Pokemoney,” as one investor is calling it – has distorted market signals beyond all recognition. Investors in desperate search of yield are responding like hyperactive dogs to every central bank whistle. And any relation that resulting market swings have to the underlying economy has become ever harder to discern.


But for those who want to take the optimistic view, the Journal has provided four reasons that economists think things might go better than expected in the coming months:


  • Consumers start to spend more: With unemployment dropping, and wages slowly rising, consumers are in good shape to spend this fall.
  • Business investment revives: The glut in oil was a big reason for investment to fall off, but that glut is now easing.
  • Record-low interest rates start to boost housing.
  • Political outcomes aren’t horrible: Both presidential campaigns are finally starting to pay attention to policies that boost the economy; perhaps some good can come of this circus?


More news below.


Alan Murray

Top News

Growth Slows in China and the Eurozone

Any remaining stock market bears may draw some consolation from the economic numbers out of China and Europe this morning. Eurozone GDP growth slowed from 0.6% in the first quarter to 0.3% in the second quarter, as expected, with a strong German and Spanish performance, almost inevitably, being offset by stagnation in Italy (banking crisis) and France (strikes). Spain’s 0.7% is all the more impressive for the country not having had a government since December and for having two straight years of negative inflation. In China, meanwhile, the monthly snapshot of the economy showed growth in fixed asset investment, industrial output and retail sales all slowing by more than expected. Domestic lending also fell sharply. China’s stock market neared a 2016 high on hopes that the data may persuade the authorities to open the spigots again, but European ones have been reluctant to push much higher this morning. Bloomberg

Saudi Headfake Squeezes Oil Shorts 

Crude oil prices leaped by the most in three months after Saudi Arabia’s Oil Minister hinted at coordinated action to support the market when OPEC ministers meet next month. “If there is a need to take any action to help the market rebalance, then we would, of course in cooperation with Opec and major Non-Opec exporters,” Khalid al-Falih said. Soothing words ahead of thorny meetings are a cheap currency though, and the IEA predicted yesterday that the market’s rebalancing would continue, giving Falih an easy out when the meeting comes. Neither Saudi, nor Iran nor Russia are in any mood to cut back. The real target of Falih’s comments appears to have been the sharp build-up in speculative short positions in the market, much of which evaporated in double-quick time after the comments. FT, metered access,

Fox Counts the Cost of Ailes’ Appetites

If 21st Century Fox thought it was going to draw a quick, clean line under Roger Ailes’ departure after allegations of sexual harassment, it was mistaken. The Wall Street Journal reports that the number of women to have come forward in the course of an internal probe is now into the double-digits, and that the company anticipates having to settle with at least some of them. The total damage could be contained by a three-year statute of limitations for such misconduct in New York state and city. But Fox News anchor Andrea Tantaros said earlier this week she had complained to management about Ailes’ behavior as recently as 2015. Ailes has denied the allegations, first aired by former anchor Gretchen Carlson. WSJ, subscription required

EU Antitrust Cops Target Dow-Dupont

The EU’s Competition Directorate has launched an in-depth investigation into the proposed merger of Dow Chemical and Dupont, to see whether it would limit competition for supplies of crucial products like seeds and fertilizers to European farmers. That adds to a review already underway of the planned deal between Swiss-based Syngenta and ChemChina. Given the relative strength of Syngenta and Germany’s BASF and Bayer in Europe, the management of Dow and Dupont could still be confirmed in their view that European concerns shouldn’t derail the merger. The news also raises the likelihood of the mooted Bayer-Monsanto deal facing tough regulatory scrutiny, if Monsanto ever agrees to it. FT, metered access

Around the Water Cooler

DEA Puts Pot Growers out of Joint

The Drug Enforcement Administration on Thursday denied requests to stop classifying marijuana as a dangerous drug with no medical use, leaving users and businesses in limbo after many states have legalized it for medical or recreational purposes. It did, however, relax certain restrictions on growing marijuana for research purposes. Twenty-five states have sanctioned some forms of marijuana use for medical purposes, leading to a boom in sales of the drug. Another eight state legislatures are slated to vote on proposals for either recreational or medical marijuana this year. Fortune

Toshiba Bounces Back (for now)

Toshiba posted its first quarterly profit in six attempts as it recovers from a $1.3 billion accounting scandal that cost its CEO his job. At 20.1 billion yen ($197 million), it was still barely half of what analysts forecast but the company kept its forecast for the fiscal year through March unchanged at 120 billion yen. The company may have turned a corner operationally but faces a new threat to its balance sheet in the shape of a $2 billion lawsuit from Chicago Bridge & Iron Co, which sold its nuclear construction business to Toshiba’s Westinghouse unit earlier this year. Reuters

Zika Cases Hit 25 as Congress Stalls

The Department of Health and Human Services has had to plunder other projects to finance the development of vaccines to counter the Zika virus, which claimed its first fatality in the U.S. earlier this week. Officials shifted $81 million in funds earmarked for fighting cancer, diabetes and other diseases to compensate for the the absence of any funding from Congress. On Thursday, Florida Governor Rick Scott confirmed another three cases of locall-transmitted Zika, bringing the total to 25. Elsewhere, Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, said he needs $33 million to prepare to move the first potential Zika vaccine to the second phase of human clinical trials. The first phase of that testing is expected to end in late November or December. Fortune

Biles, Manuel Put Even Phelps in the Shade

How do you overshadow someone who just won his 22nd Olympic gold? Well, gymnast Simone Biles managed it, winning the all-round individual title by the biggest margin in 40 years. The 19 year-old’s 2.1 point lead over her closest rival was bigger than the victory margin in all of the last nine Olympic games combined, according to the Wall Street Journal, which puts Biles’ success down to a relaxed training method that should give every budding Tiger Mother pause for thought. In the pool meanwhile, a new star emerged in the person of Simone Manuel, who became the first African-American to win a swimming medal at the Olympics. We’re guessing Phelps, who can now string over 13 pounds of Olympic gold around his neck, is OK with sharing the limelight. Fortune, WSJ, subscription required