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CEO Daily: Tuesday, 13th September

Good morning.


I’m in Guangzhou, China, today to announce that this city, which is China’s Southern gateway to the world, will be the site of the 2017 Fortune Global Forum.

We’ve been convening CEOs of the Fortune Global 500 every couple of years since 1995 – including four previous times in China. The purpose of these sessions, which bring together an unparalleled gathering of the world’s business leaders, is to take stock of how the two great trends of our time – globalization and digitization – are changing the fundamental nature of business. Guangzhou, the third largest city in China, is perfectly suited for next year’s gathering. It has more than 2000 years of history in global trade, and already serves as a home for investments from more than half the Global 500.

With today’s announcement, the Fortune Global Forum becomes an annual event. We believe the pace of business change, now faster than ever before, demands it. Following our successful Forum in San Francisco last November, we recently announced plans for a special Fortune/Time Global Forum at the Vatican this December, focused on what the private sector can do to ensure the benefits of globalization and digitization are spread more evenly. The Guangzhou Forum will be held in late November or early December of 2017 – exact dates to come.

At a time when a backlash to globalization is building in the U.S. and elsewhere, Fortune believes these gatherings are more important than ever. The two trends – globalization and digitization – are deeply entwined; they are irreversible; and if properly guided, they are still the best routes to prosperity for the broadest number of people. Large companies must either master them or expect to be overcome by them. Our hope is that these annual gatherings will shine a bright light on the best way forward.

Attendance at the Forum is generally limited to CEOs of the Fortune Global 500, but we make some exceptions. If you are interested in attending, please let me know.

More news below. But first, a correction to yesterday’s newsletter, which mistakenly said that Air Liquide had merged with Air Products Inc. It had, of course, merged with Airgas. Apologies for any confusion caused.


Alan Murray

Top News

…Aaaaand Breathe Out, Says Brainard

Stock and bond markets recovered after the Federal Reserve’s Lael Brainard said the central bank shouldn’t rush to raise interest rates. Analysts said the speech by Brainard, a key swing member of the Fed’s Open Market Committee, virtually removed the chance of a rate increase at next week’s meeting, after a sharp slowdown in jobs growth in August. The Business Roundtable’s quarterly survey of CEOs published Monday showed more CEOs were inclined to cut jobs than add them in the next few months, against a background of uncertainty as Barack Obama makes way for a new president. Sluggish inflation, a trend likely to be extended in the short term by the recent softening in oil prices, is also helping to stay the Fed’s hand. The recovery in global markets has been curiously muted, despite better-than-expected Chinese data overnight on investment and industrial output. Donald Trump, meanwhile, accused Janet Yellen of holding down rates for political reasons, in a market sharpening of his rhetoric towards the Fed. He also renewed his criticisms of a “false” stock market created by free money. Fortune

Clinton To Release More Medical Records

Hillary Clinton, recovering from a bout of pneumonia, promised to release more of her medical records, but failed to end criticism over her handling of the incident, which drew inevitable parallels with her handling of the whole furore over her use of a private e-mail server while Secretary of State. Former adviser to President Obama David Axelrod put his finger on the essence of the problem, tweeting: “Antibiotics can take care of pneumonia. What’s the cure for an unhealthy penchant for privacy that repeatedly creates unnecessary problems?” Donald Trump has also indicated he’ll disclose some of his medical records. So far, all the American people have to go on is a four-paragraph note drafted by his physician in December asserting that he was in “astonishingly excellent” health and would be “unequivocally…the healthiest individual ever elected to the presidency.” That’s as maybe, but if it were possible to organize a race between JFK, Teddy Roosevelt (1901 vintage) and Trump, we’re not sure the bookies would make Trump favorite. Either way, the voters deserve more than a “trust me” from either of the current candidates. WSJ, subscription required

An  $8 Billion IPO to Test Market Confidence in China’s Banks

China’s Postal Savings Bank is set to come to market in Hong Kong in what will likely be the world’s biggest IPO since that of Alibaba in 2014. PSBC, at it is also known, will be listing at a time when its biggest rivals in the Chinese banking sector haven’t traded above the book value of their assets in a year or more, reflecting widespread mistrust of a system distorted by a host of explicit and implicit state subsidies and by opaque accounting to obscure the country’s bad loan problem. PSBC may well have fewer bad loans than most—its overall loan-to-deposit ratio is only 39%–but its profitability is also falling sharply, from around 28% in 2012 to 15% last year, according to the Financial Times. The bank is targeting proceeds of between $8 billion and $10 billion. The FT argues that the offering should be judged on the quality of investors that it attracts: it’s clearly too big to be allowed to fail, but it will look a lot different after listing if its outside shareholders are the likes of JPMorgan and the Canada Pension Plan Investment Board, rather than units of other institutions more or less closely affiliated with Beijing. FT, metered access

Shale’s Resilience Slows the Oil Market’s Rebalancing

Crude prices are slumping again this morning after the International Energy Agency followed OPEC in warning in its latest regular update that the global market will stay oversupplied for longer than it thought. The Paris-based agency said world oil stockpiles will continue to accumulate through 2017, a fourth consecutive year of oversupply, and added that “Supply will continue to outpace demand at least through the first half of next year.” Demand growth in China and India has slowed recently, while both OPEC producers and Russia are all pumping as best they can. U.S. shale output will recover in the second half of next year, the IEA said, after declining by less than originally expected. Crude futures are trading around $45.20 a barrel, over 2% off the highs they hit Monday after Lael Brainard’s speech. Bloomberg


Around the Water Cooler

•  Cross-Fertilization in Canada

More upheaval in the agrichemicals sector, albeit from an issue that predates the wave of megamergers announced and mooted in recent months. Potash Corp. of Saskatchewan and Agrium, the biggest farm-facing retailer in North America, announced plans to merge to form a $36 billion company. Potash fertilizers have been in the doldrums since a producers’ cartel led by a Belarusian and a Russian company broke down three years ago. Prices have halved since then. Collapsing crop prices—corn and wheat are at seven- and 10-year lows, respectively—haven’t helped either. The new company would be dominant in North America, controlling nearly two-thirds of potash capacity, 30% of phosphate production capability and 29% of nitrate capacity, according to analysts quoted by Reuters—thus, another one for the DoJ’s antitrust team to get its teeth into. Fortune

Bezos Takes Aim at Musk With a New Rocket

In a timely boost to morale for believers in the new wave of privately-funded innovation in space technology, Jeff Bezos unveiled a heavy-lift reusable rocket that he expects to compete against Elon Musk’s SpaceX and other companies for commercial satellite launches before the end of the decade. Bezos’ Blue Origin space company, based in Kent, Oregon, is designing two versions of the rocket, named New Glenn–a nod to John Glenn, the first American to orbit Earth and the last surviving member of NASA’s original Mercury Seven astronauts. Both versions will use a first stage powered by seven methane-burning BE-4 engines. Ultimately, it intends to sell the BE-4 to United Launch Alliance, a joint venture of Lockheed Martin and Boeing. Blue Origin is also working on a smaller rocket, named New Shepard, to fly paying passengers to a level where they can experience microgravity and see the Earth’s curvature against the backdrop of space. The news came only a couple of days after Richard Branson’s Virgin Galactic project resumed test flights for the first time after a fatal accident in  2014. Fortune

The Merits of Strong Leadership (an Occasional Series)

One of Russia’s top anticorruption officials was arrested at the weekend and accused of abuse of power, obstruction of justice, and accepting bribes, after police found $120 million (sic) in cash at an apartment registered in his sister’s name. Dmitry Zakharchenko, the accused official, was deputy head of the federal interior ministry’s central directorate for economic security and anti-corruption (sic).  The stash weighed nearly 1 1/2 tons (sic), and filled nearly an entire room when it was transferred to a local police station in Southwest Moscow, according to local media reports. The head of the Federal Customs Service, Nikolay Belyaninov, was caught in a similar sting a couple of months ago, also covered in loving detail by state-owned broadcasters in prime-time news. The tireless efforts of police in crushing such parasitic behavior were a key factor in helping Vladimir Putin’s United Russia to another glorious and sweeping victory in parliamentary elections on Sunday. Oh–wait, no, my mistake!–the glorious sweeping victory is due this Sunday… RT

Move Over, Jarndyce vs. Jarndyce

Sixteen years after Eliot Spitzer hurled his first accusations of accounting fraud, former AIG chairman Hank Greenberg is set to stand trial Tuesday. Greenberg, now 91, is facing civil charges of orchestrating a $500 million transaction to conceal the insurer’s financial difficulties from shareholders. The case, which also names former AIG chief financial officer Howard Smith as a defendant, did not go to trial for more than a decade, thanks to legal wrangling that twice reached New York’s highest court. Spitzer’s successor Eric Schneiderman has said he continued to pursue the case to show “no one, no matter how rich or powerful, can evade responsibility for misconduct.” David Boies, Greenberg’s lawyer, plans to argue the lawsuit was politically motivated. Greenberg nearly settled in 2008 with a $100 million gift to charity, Boies said, but the market crash got in the way. Damages are now off the table after Greenberg, Smith and others reached a separate $115 million settlement with AIG shareholders, but the Court of Appeals has ruled that Schneiderman can seek to recoup bonuses paid while the alleged fraud took place.   Fortune