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CEO Daily: Wednesday, 26th April

Good morning.

Whisper it quietly, but Europe’s crisis is over, at least for the immediate future.

By far the most important evidence for this extravagant claim is the French election result on Sunday. Barring a disaster, France will again commit itself to the EU’s institutions and aspirations in 11 days’ time, when Emmanuel Macron runs off against Marine Le Pen for the presidency. Not one of over 120 polls during the campaign has suggested Le Pen can win that run-off, and most show Macron winning by a margin of 2:1, well outside the margins of error experienced in 2016. France’s center-right politicians have rushed to endorse him, settling one of the most important variables in the contest.

More importantly, the French vote is part of a pattern of rejecting populism that is now firmly established. Austria and the Netherlands both turned down the chance to overturn the applecart in presidential and parliamentary elections too. Germany’s mainstream parties command well over 70% of the vote, making it all-but certain that populists on both wings will be easily marginalized in federal elections in September. The right-wing Alternative für Deutschland, which flourished in 2015/6, is imploding, having forced out Frauke Petry, the only one of its leadership half-way serious about trying to broaden its support.

The economy is also humming as the sense of crisis recedes. The Eurozone’s composite purchasing managers index hit its highest level in April since 2011. The EU Commission’s Economic Sentiment Indicator, which blends business and consumer confidence, is on a similar trajectory. The European Central Bank, which wrecked a nascent recovery back in 2011 with two ill-judged interest rate hikes, has avoided repeating its mistake: it has already committed to a program of quantitative easing running at least through the end of this year. While Mario Draghi may talk a little tougher after tomorrow’s council meeting, the reality is that monetary policy will continue to be extremely supportive.

All this is happening despite Brexit. Economic recovery, and the abatement (for now) of the migrant crisis, mean that the pressures that helped to trigger Brexit will be largely absent as the separation talks start. That will make it easier for the EU (and its key Franco-German axis) to defend its cohesion, and harder (albeit not impossible) for the U.K. to play off individual national interests against each other. Theresa May’s call for an unscheduled election shows very clearly who is under more pressure.

None of this is to say that problems of demographics, labor market sclerosis, migration and nativism, and the constant tension of national versus collective interests have gone away. They never can and never will. Nor is there room for complacency: the 13 million French votes for Le Pen and her leftist counterpart Jean-Luc Mélenchon are not so very far from the 18 million votes for Brexit last year.

But it is time for the Anglo-Saxon world to acknowledge that the Old Continent has mastered—however messily, however noisily and incompletely—a series of existential threats, and that the economic cycle is now giving it a chance to address those that remain. And it’s time for the prophets of doom, if not to give up their predictions of a collapse, then to be so good as to say exactly when and how it will be triggered. Because seven years of crying ‘Wolf!’ is more than enough and, pace Donald Trump, there is no stampede to follow Britain out of the door.

News below.

Geoffrey Smith

Top News

Officials Flesh Out Trump’s Tax Plan

White House officials indicated that President Donald Trump will propose cutting the standard rate of corporate income tax for public corporations to 15% from 35%. He’ll also tax the repatriated earnings of U.S. companies at 10%, as opposed to 35%. And he’ll call for a sharp cut in the top rate on pass-through businesses, including many small business partnerships and sole proprietorships, to 15% from 39.6%. There were no details on revenue-raising measures to offset the dramatic budgetary effects, such as the mooted ‘border adjustment tax’ on imports. Moody’s has estimated U.S. companies’ overseas cash pile at $1.8 trillion (others put it 30% higher). All other things being equal, the proposal translates into a tax bill on the overseas cash pile of $180 billion instead of $630 billion. Reuters

Nosebleed Time on Wall Street

The NASDAQ Composite closed above 6,000 for the first time ever. A strong day for earnings allowed some of the index’s dowdier industrials—at least for a day—to join in a rally that has recently owed more than ever to a small handful of technology stocks. Facebook, Apple, Netflix, Alphabet, and Amazon alone have accounted for over 40% of this year’s gains, according to analysts. Financials, by contrast, have failed to keep pace after the initial “Trump Bump.” Narrow rallies are traditionally not sustainable ones, but there are arguments to suggest that an eight-year rally still has some legs: the trailing price-earnings ratio is “only” 27.5 today, compared to over 72 during the 2000 bubble. And adjusted for inflation, the index is still over 1,000 points short of its 2000 peak. WSJ, subscription required

Verizon Outbids AT&T for 5G Frequency Owner

Verizon has reportedly outbid AT&T in a closely-watched battle for Straight Path Communications, whose holdings of frequency rights may give it a big advantage in rolling out 5G wireless networks. The thinking is that 5G will require Straight Path’s ultrahigh frequencies, which offer high capacity but only work over short ranges. Reuters and The Wall Street Journal reported that Verizon had offered $1.8 billion compared to AT&T’s $1.6 billion. That’s money that the two sides chose not to spend in a big government auction of airwaves earlier this month. Neither company confirmed the details. WSJ, subscription required

Credit Suisse to Raise Capital

Credit Suisse proposed a capital increase of up to 4 billion Swiss francs, having apparently decided that it would have to sell too much of its Swiss business if it wanted to fill the gap in its balance sheet that it identified last year. Restructuring the bloated investment bank left behind by Brady Dougan has proved more expensive than first thought. The announcement will add to tensions at an annual shareholder meeting Friday where shareholders were expected to press for deeper cuts to management and directors’ 2016 compensation. As with the Deutsche Bank capital increase last year, there is at the same time a sense of desperation that nothing other than more paid-up equity will do, and a hint of shifting priorities away from slimming down, and towards ensuring they can capture future growth opportunities.  Fortune

Around the Water Cooler

Google Uses the Human Factor to Brush Up Its Search

Google announced changes to its search function aimed at suppressing fake news and offensive content, responding to public concern at the spread of both. The biggest change is to Google’s auto-complete function: a link underneath the search box allows users to “report inappropriate predictions” and opens a box inviting you to detail how it’s inappropriate. In addition, Google says search results will also give more weight to more “authoritative” information, after tweaking its algorithm in response to input from human ‘quality raters’ and fact-checkers. Fortune

Jeter, Bush Close in on Miami Marlins

Former Yankees captain Derek Jeter and Jeb Bush are among a group of investors set to buy the Miami Marlins for some $1.3 billion, according to the New York Times and Bloomberg, after winning an auction arranged by current owner and New York art dealer Jeffrey Loria. Loria had bought the franchise for $158 million in 2002. The sale price, on a team that is toward the bottom end of the MLB’s game attendance figures, fits seamlessly into a pattern of exploding valuations worldwide for sports assets. The deal still needs the MLB’s approval but that is expected to be a formality. Fortune

Oh No, Not the Bunnies Too…

“Good morning, Mr. Munoz, here is today’s Incident Report. We killed a giant rabbit­­­ ordered by a celebrity buyer–“ Fortune

Wells Board Brazens It Out

Wells Fargo’s board scraped through the bank’s annual shareholder meeting, although none of the longer-serving members were able to muster more than 80% approval. Chairman Stephen Sanger received only 56%, and risk committee head Enrique Hernandez only 53%. Sanger, 71, repeated that there will be no resignations, but that six directors will step down when they hit the mandatory retirement age of 72. The three-hour meeting was punctuated by frequent angry outbursts and one forcible eviction. Sanger et al. can thank their lucky stars that no rabbits were harmed during the fake accounts scandal. Reuters

Summaries by Geoffrey Smith; @geoffreytsmith