Oil majors spending 'sweet spot' to last to 2020: BlackRock

LONDON (Reuters) – Big Oil is today in a spending sweet spot as years of cost cuts and rising oil prices converge but investments will need to rise after 2020 to boost output, BlackRock, the world’s largest asset manager, said on Tuesday.

Oil and gas giants such as Royal Dutch Shell (RDSa.AS), Chevron (CVX.N) and BP (BP.L) are generating as much cash at today’s oil prices of around $70 a barrel as they did in 2014, before crude spiraled down from over $100 a barrel to lows of below $30 a barrel.

As they emerge from the deepest downturn in decades, boards have vowed to remain thrifty and stick to lower spending targets in order to return value to shareholders after years of pain.

Alastair Bishop, director and portfolio manager in BlackRock’s natural resources team, which has major holdings in the world’s five largest oil and gas companies, said he did not expect capital expenditure, or capex, to rise in the near term.

“It is a sweet spot for IOCs (international oil companies) where they have relatively low cost inflation, a reasonable oil price and at these levels they can generate significant cashflow to go toward paying down debt (and share) buybacks,” Bishop told Reuters in an interview.

BlackRock is the largest investor in Shell and BP and among the top five in Total (TOTF.PA), Exxon (XOM.N) and Chevron, Eikon Refinitiv data shows.

Unlike earlier in the decade, when oil companies raced to grow production to meet soaring demand in China, boards are today focused on returns from investments, Bishop said.

“I am not sure investors are wanting large IOCs to be chasing growth. There is much greater interest in generating returns and free cash flow.”

But given the nature of the business where fields naturally decline as they age and take years to develop, investments will have to grow after 2020 to avoid a dip in production.

“Would I be surprised if beyond 2020 capex budgets start to move higher? No, I wouldn’t. There will be a little cost inflation and they will need to start thinking about their production profile into the 2020s,” Bishop said.

The appetite for huge multi-billion-dollar projects such as deepwater oil fields and large gas processing facilities that became the trademark for Big Oil has however weakened, Bishop said.

Instead, companies should opt for smaller-scale and phased projects where spending is better controlled such as shale oil and offshore field expansions as well as non-oil and gas projects such as chemical plants and power generation, he added.

“There seems to be less appetite for just ploughing money straight back into the ground,” according to Bishop.

“From our side, unless you have new opportunities right at the bottom of the cost curve we are not that desperate for you to drive volume growth in terms of oil.”

GRAPHIC: Big Oil cashflow – tmsnrt.rs/2Pn84xn

RENEWABLES

BlackRock sees the transition away from fossil fuels to cleaner low-carbon energy happening faster than many oil companies expect, with oil demand peaking in the early 2030s, Bishop said, around a decade earlier than most other forecasts.

But what role oil majors will play in the transition remains unclear.

Europe’s energy giants have stepped up investments in low-carbon energies following the landmark U.N.-backed 2015 Paris Climate Agreement, in contrast with their U.S. rivals.

“Levels the Europeans are spending in that area look entirely reasonable to me,” Bishop said. “If they can prove the business model works then it would make sense for them to start allocating more.”

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European shares recover after U.S. tech rout; dollar gains

LONDON (Reuters) – European shares recovered on Tuesday after feeling the strain of a tech rout on Wall Street, while political risks in Europe helped the dollar as investors dumped riskier assets.

Fears of a peak in corporate earnings growth, softening global demand and rising interest rates in the United States have put investors on edge in the past month.

So has the Sino-U.S. trade war and the twin risks from Brexit and Italy’s budget row with the European Union. Volatility is on the rise again.

Monday’s equity sell-off in the U.S. was led by tech stocks, and Apple and Amazon were the major culprits, with the latter’s stock slumping over 5 percent.

But fears about a long-term slump in technology stocks faded on Monday as investors turned to efforts to wind down the Sino-U.S. tariff war. The pan-European STOXX 600 gained 0.5 percent by 0930 GMT.

Markets in Asia also recouped some losses after a report that China’s top trade negotiator was preparing to visit the United States before a meeting between the leaders of the world’s two largest economies.

The Shanghai composite index .SSEC rose 0.9 percent but Japan’s Nikkei .N225 lost more than 2 percent.

“Though there have been some efforts to resolve the (trade war) tensions in recent days, in my opinion, things are likely to get worse before they get better,” said Sergio Ermotti, CEO UBS.

Some reckon that U.S. President Donald Trump will turn up the heat over trade. His administration is broadening its trade battle with a plan to use export controls, indictments and other tools to counter alleged Chinese the theft of intellectual property, the Wall Street Journal reported.

Riskier assets including Asian equities have been hurt by rising U.S. interest rates. The Federal Reserve is expected to tighten policy further in December.

In Europe, sterling jumped half a percent to as high as $1.2917 GBP=D3 after a British cabinet office minister said a Brexit agreement with the EU was still possible in the next 24 o 48 hours.

A growing rift over Italy’s budget has hit the euro recently but the currency drifted up from a 16-month low to $1.1234 EUR=EBS, up 0.1 percent.

The Italian government faces a Tuesday deadline to submit a revised budget to the EU. Its refusal so far to cut the draft deficit sets the stage for a collision with Brussels.

The political malaise in Europe continued to aid the dollar .DXY against a basket of currencies. At 0900GMT it was flat at 97.6. It had hit 97.70 on Monday, its highest since June 2017.

“King dollar has staged a return,” said Valentin Marinov, head of G10 FX strategy at Credit Agricole. “After the Fed’s hawkish policy outlook last week, investors are pretty happy to reload on long dollar positions. The European currencies look most vulnerable.”

Oil prices hovered near multi-month lows after declining for a record 11th consecutive session as Trump said he hoped there would be no oil output reductions.

U.S. crude CLc1 skidded 83 cents to $59.1 a barrel. Brent crude futures LCOc1 fell 74 cents to $69.38.

Saudi Arabia’s energy minister jolted Brent crude futures around 2 percent higher on Monday with comments that Riyadh could reduce supply to world markets by 500,000 barrels per day in December.

Spot gold XAU= was 0.2 percent firmer at $1,203.58 per ounce.

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Dunnes sells site for €32m to group of investors after council row

Dunnes Stores has sold a 1.26 acre site near its Cornelscourt store in Dublin for around €32m, the Irish Independent understands.

The site, off the old Bray Road at Foxrock, is likely to be used for housing. It has the potential for high-end houses or apartments, subject to planning permission.

The buyer is a group of private investors.

The purchase price – some €25.4m an acre – comes after the site was offered to a targeted list of potential buyers, it is understood. Dunnes Stores did not respond to a request for comment.

The site was the subject of a row between Dunnes and Dún Laoghaire-Rathdown County Council, with the council having placed the land on the vacant sites register.

The register was introduced to disincentivise landowners from sitting on land that could be used for housing, by putting a levy on the land.

Dunnes appealed the decision by the council, but the appeal was rejected by An Bord Pleanála.

The supermarket had previously applied for an extension of permission for a temporary car park at the site.

Last month, Dunnes reclaimed top spot among Irish supermarkets by market share for the first time since February. Dunnes had a share of 22.1pc in the 12 weeks ending October 7, according to market research firm Kantar Worldpanel.

“While it is too soon to assess the full impact of its new Everyday Savers offer, which prices many own brand everyday items at a euro or less, Dunnes’s continued focus on shopper campaigns has helped to attract an extra 14,000 shoppers this period,” said Kantar’s consumer insight director Douglas Faughnan.

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Exclusive: Juul sounds out Indonesia for expansion, other Asian countries in its sights

JAKARTA/LOS ANGELES (Reuters) – Juul Labs Inc is exploring selling its compact vaping devices in Asia and has sounded out government officials in Indonesia, one of the world’s most smoker-friendly countries, although gaining approval there could face significant hurdles.

Expansion into Asia would provide the fast-growing firm with new markets at a time when it faces increased regulatory scrutiny in the United States and Israel over the potential health risks of its products’ high nicotine content.

Juul representatives held discussions with the Indonesian government last month about introducing its vaping devices, the country’s finance ministry officials told Reuters.

Indonesia has one of the world’s highest rates of smoking among adults and teenage boys and imposes no penalties for selling cigarettes to minors. It also has a population of 260 million, making it a highly attractive market for tobacco and vaping firms.

A person familiar with Juul’s plans said executives for the San Francisco-based company are concerned authorities may be reluctant to grant approval due to likely opposition from the traditional tobacco industry, which provides much of Indonesia’s tax revenue.

Tobacco taxes accounted for nearly 150 trillion rupiah ($10.2 billion) or about 11 percent of national tax revenue in 2017, government data showed. Each province also imposes taxes on cigarettes.

Juul is also worried its argument that vaping is healthier than smoking will not hold much sway in Indonesia, which is not as concerned as other countries about health issues, said the person, declining to be identified as the discussions were not public.

Juul representatives reached out to the finance ministry to discuss how it would be taxed on any sales of devices there, the Indonesian officials said.

The government needs to examine the domestic e-cigarette market to determine how a foreign player such as Juul could hurt local small and labour-intensive e-cigarette firms, said Sunaryo, a senior official in Indonesia’s customs and excise office, who like many Indonesians uses only one name.

“We will need it to study it,” he said, adding he wasn’t sure Juul would comply with a regulation that requires e-cigarette devices and liquids to be sold separately.

Juul also would need approval from Indonesia’s Food and Drug Agency. Officials at the agency said Juul had yet to be in touch.

Other Asian countries the three-year old firm is actively considering for expansion include India, South Korea and the Philippines, the person familiar with Juul’s plans said.

In addition to Indonesia, Juul filed trademark applications for those countries between April and October 2018, as well as in Malaysia and Singapore, according to a Reuters review of government filings. It opened its first Asia office in Singapore in July.

So far Juul, currently valued at $16 billion, is available only in the United States, Canada, the UK and Israel. It has plans to enter Russia later this year.

Juul said in a statement to Reuters it is “proactively learning more” and engaging with local officials in Asia “to understand and hear their views.” It does not have immediate plans to launch in any Asian country, it said. Juul spokeswoman Victoria Davis declined to elaborate.

A TAXING QUESTION

Indonesia is one of only a handful of United Nations member states that has not signed on to the World Health Organization’s global treaty that sets standards for tobacco control.

Roughly two-thirds of Indonesian men smoke tobacco daily, and more than 21 percent of boys aged 13-15 smoked cigarettes regularly, according to a WHO report last year.

E-cigarettes, available in Indonesia since at least 2013, are a small but growing market. The customs office estimated there are about 300 unsupervised liquid makers known as brewers in Indonesia, producing various liquid products to more than 4,000 vape stores and 900,000 smokers.

Philip Morris International Inc (PM.N), maker of Marlboro cigarettes, which now controls about a third of Indonesia’s market through its stake in Sampoerna, does not offer any of its non-combustible cigarette products in Indonesia.

That includes its IQOS device, a heat-not-burn tobacco product, according to a company spokesman, who declined to comment on why it has not introduced the product.

In October, the government imposed a 57 percent tax on electronic-cigarette liquids, on par with taxes on traditional cigarettes. But tax collection, particularly from smaller companies, is difficult in Indonesia and new rules are often ignored.

Juul now commands nearly 75 percent of U.S. e-cigarette market share, up from 13.6 percent in early 2017, according to a Wells Fargo analysis of Nielsen retail data.

Its products, like most electronic cigarettes, vaporize a liquid containing nicotine. One Juul pod contains as much nicotine as a traditional pack of 20 cigarettes, according to the company’s U.S. marketing.

Juul liquid in the U.S. has a nicotine concentration of 59 milligrams per milliliter, much higher than the liquids typically sold in earlier versions of e-cigarettes and nearly three times the allowable limit in the European Union.

In August, Israel banned Juul devices with nicotine concentration of more than 20 mg/mL, citing “a grave risk to public health.” Juul is appealing that decision and currently offers a lower nicotine-strength electronic cigarette in Israel.

In September, the U.S. Food and Drug Administration opened an investigation into Juul and other electronic cigarette companies, citing the rising number of teens who appear to be using Juul and other vaping devices. This week it is expected to issue a ban on fruit and candy-flavoured e-cigarettes sold in convenience stores and gas stations.

In its statement to Reuters, Juul said its products are intended for adult use only, and that it aims to “improve the lives of the world’s one billion adult smokers” by providing an alternative to cigarettes.

($1 = 14,665 rupiah)

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Condo resale prices dip 0.4% in October, making for 1% drop since July cooling measures: SRX index

SINGAPORE – Resale prices of private non-landed homes in Singapore declined for the third straight month in October after the latest round of property cooling measures, flash estimates by real estate portal SRX Property on Tuesday showed.

Condominiums and private apartment resale prices weakened by 0.4 per cent last month from September. This follows the 0.5 per cent drop in September, a figure revised up from an earlier estimated decline of 0.2 per cent. Resale prices also dipped 0.2 per cent in August.

Before August, resale prices had an unbroken 12-month run to new highs. Now, year on year, they are still up by 8.7 per cent from October 2017 but have fallen 1.0 per cent in the last three months since hitting their peak in July when the additional property curbs were announced.

Buying activity in the resale market remained lacklustre. While the 703 units that were resold in October was 3.7 per cent more than the 678 units for September, resale volume compared to a year ago was 53 per cent lower than the 1,497 units moved in October 2017.

SRX data also showed that the premium that buyers were prepared to pay over market value continued to inch up in October after tumbling following the July property curbs.

SRX’s overall median transaction over X-value (TOX) rose to $4,000 last month, up from $1,000 in September and zero in August. The TOX had sunk to $4,000 in July from $17,000 in June.

TOX measures how much a buyer is overpaying or underpaying on a property based on SRX Property’s computer-generated market value.

District 4’s Telok Blangah and Harbourfront posted the highest median TOX of $50,000, followed by District 28’s Seletar with $44,000, among districts with more than 10 resale transactions.

District 12’s Balestier, Toa Payoh and Serangoon posted the lowest median TOX of negative $49,000, followed by District 20’s Bishan and Ang Mo Kio at negative $20,000.

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Asian shares sell-off on Wall Street tech rout, oil slides

SYDNEY (Reuters) – Asian shares skidded on Tuesday after a rout in tech stocks put Wall Street to the sword, while a sharp drop in oil prices and political risks in Europe pushed the dollar to 16-month highs as

investors dumped riskier assets.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS dropped 1.7 percent to a 1-1/2 week trough, with Australian shares sinking 1.6 percent.

Japan’s Nikkei .N225 dived 3.1 percent led by losses in electric machinery makers and suppliers of Apple’s (AAPL.O) iphone parts.

Overnight in Wall Street, major U.S. stock indexes skidded more than 1 percent, with the tech-heavy Nasdaq slumping over 2 percent. Indexes were weighed down by losses in heavyweight Apple after three iPhone parts suppliers issued warning on results.

The grim outlook triggered a steep selloff in Asian tech firms, with shares in Japan Display (6740.T) plummeting over 11 percent while Murata Manufacturing (6981.T) and TDK Corp (6762.T) dived as much as 8.9 percent and 8.4 percent respectively.

South Korea’s KOSPI index .KS11 dropped 2.2 percent with Samsung Electronics (005930.KS) down 2.8 percent.

A toxic mix of negative factors have hammered risk assets in the past several weeks, with the October rout in equities leaving global markets in a state of nervous anxiety. Investors have become increasingly nervous recently about a likely peak in corporate earnings growth, softening global demand, faster rate hikes in the United States and a Sino-U.S. trade war.

The Asia ex-Japan index is now down nearly 17 percent this year, after a solid 33.5 percent gain in 2017, with October the worst month since mid-2015.

Concerns about a slowdown in China and the Asian region more broadly due to U.S. tariffs on Chinese goods have spooked investors, sparking the largest monthly foreign outflows from Asia last month since August 2011, said Khoon Goh, Singapore-based head of Asia research for ANZ Banking Group.

Funds returned over the early part of November on hopes that U.S.-China tensions would ease, Goh added, with the focus squarely on a meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping later this month.

“The outcome of the meeting will have an important influence on portfolio flows in Asia into the end of the year,” Goh added.

Worryingly, the Trump administration is broadening its China trade battle beyond tariffs with a plan to use export controls, indictments and other tools to counter the theft of intellectual property, the Wall Street Journal reported citing sources.

Asian markets have also been hammered as risk assets have been hurt by rising U.S. interest rates. The Federal Reserve is expected to tighten policy further in December.

The Fed’s San Francisco President Mary Daly said on Monday the U.S. central bank should continue to raise rates gradually with her “modal” forecast showing two to three rate hikes over the next period of time.

In Europe, fears about a no-deal Brexit and a growing rift over Italy’s budget hit the euro and the pound, pushing the dollar’s index .DXY to 97.693 against a basket of currencies, a level not seen since mid 2017.

It was last at 97.542.

The euro EUR= was last at $1.1225 after breaking below important chart support of $1.13.

Sterling GBP= fell to $1.286 after three straight sessions of losses took it to the lowest since Nov.1 as there were still considerable unresolved issues with the European Union over Brexit, British Prime Minister Theresa May said on Monday.

Oil prices hovered near multi-month lows after declining for a record 11th consecutive session amid softening demand and as Trump said he hoped there would be no oil output reductions.

U.S. crude CLc1 skidded 88 cents to $59.05 a barrel. Brent crude futures LCOc1 stumbled 83 cents to $69.29.

Spot gold was 0.2 percent firmer at $1,202.9 XAU=.

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Trump’s Tax Cut Was Supposed to Change Corporate Behavior. Here’s What Happened.

The $1.5 trillion tax overhaul that President Trump signed into law late last year has already given the American economy a jolt, at least temporarily. It has fattened the paychecks of most American workers, padded the profits of large corporations and sped economic growth.

Those results weren’t a surprise. Economists across the ideological spectrum predicted the new law would fuel consumer spending, in classic fashion: When the government borrows money and dumps it into the economy, growth tends to accelerate. But Republicans did not sell the law as a sugar-high stimulus. They sold it as a refashioning of the incentives in the American economy — one that would unleash more investment, better efficiency and higher wages, along with enough growth to offset any revenue lost to the government from lower tax rates.

Ten months after the law took effect, that promised “supply-side” bump is harder to find than the sugar-high stimulus. It’s still early, but here’s what the numbers tell us so far:

The Investment Bump

Proponents of the tax overhaul said it would supercharge the recent lackluster pace of business spending on long-term investments like buildings, factories, equipment and technology.

Such spending is crucial to keeping economic growth strong. And strong growth is central to Republican claims that the tax cuts would ultimately pay for themselves.

Capital spending did pick up steam earlier this year. For companies in the S&P 500, capital expenditures rose roughly 20 percent in the first half of 2018. Much of that was concentrated: The spending of just five companies — Google’s parent, Alphabet, and Facebook, Intel, Exxon Mobil and Goldman Sachs — accounted for roughly a third of the entire rise. Much of that spending went toward technology, including increased investment in data centers and computing, server and networking capacity.

For the full year, Goldman Sachs analysts expect that capital expenditures for companies in the S&P 500 will be up about 14 percent, to $715 billion. Research and development spending, another component of business investment, was expected to be up 12 percent, to $340 billion.

For the economy as a whole, the surge in business investment was a bit less impressive. It’s true that business spending on fixed investment — such as machinery, buildings and equipment — rose, jumping 11.5 percent and 8.7 percent during the first and second quarters. The first-quarter jump was the fastest for investment since 2011.

But that pace fizzled during the third quarter. Recently data showed third-quarter business investment rose at an annual pace of 0.8 percent. The last quarter of the year — traditionally a big one for capital spending — will fill out the picture, but that data won’t be released until early 2019.

It will likely take years to get a better sense of whether the law fundamentally reshaped American corporate investment. But there’s little clear evidence that it is drastically reshaping the way in which most companies invest and spend.

The results of a survey published in late October by the National Association for Business Economics showed that 81 percent of the 116 companies surveyed said they had not changed plans for investment or hiring because of the tax bill.

The Buyback Binge

Cheerleaders for the tax cut argued that the heart of the law — cutting and restructuring taxes for corporations — would give the economy a positive bump, giving companies incentives to invest more, hire more workers and pay higher wages.

Skeptics said that the money companies saved through tax cuts would merely increase corporate profits, rather than trickling down to workers.

JPMorgan Chase analysts estimate that in the first half of 2018, about $270 billion in corporate profits previously held overseas were repatriated to the United States and spent as a result of changes to the tax code. Some 46 percent of that, JPMorgan Chase analysts said, was spent on $124 billion in stock buybacks.

The flow of repatriated corporate cash is just one tributary in what has become a flood of payouts to shareholders, both as buybacks and dividends. Such payouts are expected to hit almost $1.3 trillion this year, up 28 percent from 2017, according to estimates from Goldman Sachs analysts.

Debts and Deficits

Supporters of the tax cuts repeatedly claimed the bill would increase economic growth enough to offset the decline in tax receipts. “I'm totally convinced this is a revenue-neutral bill,” said Senator Mitch McConnell of Kentucky, the Republican leader, when a preliminary version of the bill was approved in the Senate in December 2017.

Despite a remarkably strong economy, the fiscal health of the United States is deteriorating fast, as revenues have declined sharply. The federal budget deficit — the gap between what the government collects in revenues and what it spends — rose to $779 billion in the 2018 fiscal year, which ended Sept. 30. That was a 17 percent increase from the prior year.

It’s highly unusual for deficits and borrowing needs to grow this much during periods of prosperity. A broad variety of analysts attribute the widening deficit to the tax cuts (along with increased military and other domestic spending ushered in through a bill Mr. Trump signed earlier this year).

Corporate tax revenues are down one-third from a year ago. Federal revenues as a whole ran $200 billion behind the Congressional Budget Office’s forecast for the 2018 fiscal year — even though economic growth was faster than the C.B.O. expected. The nonpartisan Committee for a Responsible Federal Budget reports that nominal federal revenues are down by at least 3.6 percent since the tax cuts took effect.

The growing budget gap means the Treasury must borrow more to keep the government running. The Treasury expects to borrow a total of $1.338 trillion from global investors this calendar year. That would be 145 percent higher than the $546 billion the federal government borrowed last year. That would be the highest level of borrowing since 2010, when the American economy was struggling to recover from the great recession.

Bonus Announcements

Shortly after the tax law passed, hundreds of companies — from large multinationals to small manufacturers — announced that they would be using some of their windfall from the law to give one-time bonuses to employees. Others said they would raise minimum wages across the company, or expand worker benefits.

Mr. Trump and Republicans hailed those announcements as evidence that the law’s benefits were flowing substantially to workers. Americans for Tax Reform compiled a list of 750 companies, and growing, that said they would pass tax savings on to workers in some form.

Data from large public companies, however, suggest that most workers received relatively small shares of their employers’ corporate tax savings.

The nonprofit research group Just Capital, which is tracking 1,000 large public companies’ reports of how they are spending their tax cuts, calculates that the typical worker at one of those large companies has received about $225 this year in increased salary, a one-time bonus, or both, attributable to the new law.

Workers for those companies were more likely to see their wages rise if they lived in states where the minimum wage was relatively low — and where companies do not have to pay workers more to compensate for high housing costs. California workers at those companies saw an average benefit of about $160 each, which is less than half the average benefit for workers in Kentucky.

Many companies also said they would use tax savings to create jobs. But the Just Capital research finds that, since the tax cuts were passed, the 1,000 largest public companies have actually reduced employment, on balance. They have announced the elimination of nearly 140,000 jobs — which is almost double the 73,000 jobs they say they have created in that time. About half of those net losses came from companies in the restaurant and leisure industries, the analysis found.

The Wage Story

Nearly a year after the cuts were signed into law, wage growth has yet to pick up when accounting for inflation. In September, the Labor Department reported that inflation-adjusted wages had risen 0.5 percent from the year before. That’s a slower rate of growth than the economy itself experienced in September 2017, when it was 0.6 percent.

Growth has accelerated in nominal terms. Median wage growth was 3.5 percent in September, according to calculations by the Federal Reserve Bank of Atlanta, up from 3 percent in January, but still below its recent highs in 2016. Growth in the Employment Cost Index rose from 2.9 percent at the end of 2017 to 3 percent in the third quarter.

By Republicans’ own economic theories, it should take a while for corporate tax cuts to translate into higher worker pay. First, the cuts need to stimulate increased capital investments, which in turn raise worker productivity. More productive workers would then see their wages rise accordingly.

Productivity grew 3 percent in the second quarter of this year and 2.2 percent in the third — healthy numbers, which will need to continue apace to deliver the sort of long-term economic jolt Republicans promised.

Jim Tankersley covers economic and tax policy. Over more than a decade covering politics and economics in Washington, he has written extensively about the stagnation of the American middle class and the decline of economic opportunity. @jimtankersley

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Apple shares drop after iPhone supplier Lumentum cuts forecast

(Reuters) – Apple Inc (AAPL.O) shares fell to their lowest in more than three months on Monday as the main supplier for its Face ID technology, Lumentum Holdings Inc (LITE.O), slashed revenue and profit forecasts, citing reduced orders from a major customer.

Stoking fears among investors that demand for iPhones is waning, Lumentum said in its statement the customer was “one of our largest… for laser diodes for 3D sensing”, which analysts said could only be Apple.

Shares in the iPhone maker dropped 4 percent, wiping $40 billion off its market value. Those in Lumentum, which gave its original forecast just two weeks ago, fell 27 percent, dragging down shares of other Apple suppliers.

That also followed a separate warning from another Apple supplier, screen maker Japan Display Inc (6740.T), on Monday.

“Many suppliers have lowered numbers because of their unnamed ‘largest customer,’ which is Apple. Apple got cautious in their guidance and it’s hitting their suppliers,” Elazar Capital analyst Chaim Siegel said.

JP Morgan analysts weighed in by cutting their price target for Apple by $4 to $270 pointing to poor orders for the new iPhone XR.

Lumentum now expects net revenue of $335 million to $355 million, compared with its prior range of $405 million to $430 million, and earnings per share of $1.15 to $1.34, down from $1.60 to $1.75 estimated previously.

Three analysts told Reuters that Lumentum’s forecast points to a reduction of 18 million to 20 million iPhones on earlier estimates, based on the average selling price of 3D sensing parts. Apple accounted for 30 percent of the company’s revenue as of June 30.

“Apple could have accumulated too much Lumentum inventory, and needs to work it off, in which case the unit shortfall is less, although it is still indicative of weak iPhone sales.” D.A. Davidson analyst Mark Kelleher said.

Apple warned in its fourth quarter results that sales for the crucial holiday quarter would likely miss Wall Street expectations, blamed by Chief Executive Tim Cook on weakness in emerging markets and foreign exchange costs.

Japan’s Nikkei reported earlier this month that Apple had told its smartphone assemblers Foxconn and Pegatron (4938.TW) to halt plans for additional production lines dedicated to the iPhone XR.

Japan Display Inc (6740.T) on Monday lowered its outlook for the full year, citing weaker demand from smartphone makers.

Longbow Research analysts said spot checks with Apple’s Taiwanese suppliers late last week highlighted 20 percent to 30 percent iPhone order cuts related mainly to iPhone XR and XS Max, and 20 percent to 25 percent order increases for older iPhone models.

Apple started selling iPhone XS and XS Max in September and XR model last month. Lumentum’s chips are not used in phones older than last year’s iPhone X.

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Tobacco giant shares burnt by menthol ban report

Shares in FTSE 100-listed BAT – valued at £76bn prior to Monday trading – fell by more than 9% on the report in the Wall Street Journal.

Rival Imperial Brands, which is worth £26bn and whose brands include Lambert & Butler and John Player Special, was down by more than 3%.

The Food and Drug Administration (FDA) was reported to be planning the ban on menthol cigarettes because they are harder to quit.

It has already announced plans to curb sales of flavoured e-cigarettes, seen as products that lure young people into smoking.

The menthol ban would impact BAT through its ownership of Newport cigarettes – one of the most popular menthol brands.

It acquired Newport as part of its $49bn purchase of RJ Reynolds last year.

Analysts at Barclays estimate that US sales of menthol cigarettes account for around 25% of BAT’s annual underlying earnings and 11% for Imperial.

But it is thought that a ban could take up to two years to come into force.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Along with cigarette volumes shrinking, regulation is the other inevitable fact of the tobacco industry.

“The acquisition of Reynolds gave BAT a dominant position in US menthol.

“That’s a segment that’s been in regulators’ sights for some time – thanks to its perceived status as a gateway for new smokers.

“The FDA are now said to considering banning them altogether.

“While many menthol smokers would likely move over to non-menthol products, it would still be a major blow.”

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Wall Street equity traders to get biggest bonuses in 2018: study

(Reuters) – Equity traders on Wall Street are expected to take home the biggest bonuses this year as a surge in volatility boosted client activity, but 2019 may not be as rosy, compensation firm Johnson Associates Inc said on Monday.

The firm listed a number of challenges, including geopolitical and business challenges, falling fees, and technology disruptions, that could have a major impact on compensation and headcount.

“While financial sector businesses are still inherently healthy, the business challenges are expected to catch-up with them,” Johnson Associates Managing Director Alan Johnson said in a statement.

Top Wall Street bank Goldman Sachs (GS.N) is already looking to cut costs to boost profit and recently promoted the smallest group as partners since the bank went public in 1999, according to an IFR News report.

For the current year, Johnson expects modest increases in incentives across all financial services, with the exception of investment banking advisory, which is expected to see a drop in bonuses.

Investment banking advisory was comparatively lower from a year earlier, which is why the business is not expected to pay out as much as it did (in bonuses) last year, the compensation firm told Reuters.

Bonuses of equity traders are expected to see a bump of as much as 20 percent, a big improvement from a flat to 5 percent fall that was estimated for 2017.

The boost in compensation has been backed by robust results from equity trading at major Wall Street banks, especially in the third quarter, as U.S.-China trade spat spurred volatility in the markets.

Although bond trading remained relatively sluggish, fixed income traders are still expected to get up to 5 percent more in incentives, compared with an estimated 5 to 10 percent drop in 2017.

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