ZhongAn Plans IPO that Values Company at $10 Billion

ZhongAn Online Property & Casualty Insurance, China’s first online insurer, announced on September 17, 2017 that it plans to raise up to $1.5 billion in an initial public offering by tapping into investors interested in China’s financial-technology sector.  The company was co-founded in 2013 by Chinese billionaire Jack Ma and its biggest shareholders include Ant Financial Services Group and Tencent Holdings.

ZhongAn’s main revenue driver is selling insurance to merchants and buyers for products purchased on Taobao, Alibaba’s online shopping mall.  In addition, the company is one of the few technology companies owned by Ant Financial Services Group and Tencent Holdings.  The two companies were known as rivals for market dominance in China and abroad, but they have collaborated periodically in the past.  The company expects to begin taking investor orders on Monday, September 18th and its shares are expected to start trading on the Hong Kong Stock Exchange on September 28th.

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U.S. Economic Outlook Hampered by Declines in Consumer Spending

According to reports from the Commerce Department on Friday, spending at U.S. retailers fell 0.2% in August, along with lower than expected consumer spending data in July.  In addition, retail sales increased only 0.3% in July, compared to expectations of 0.6%, while sales fell in June, while expecting an increase for the month.  According to Scott Anderson, chief economist at Bank of the West, “It’s clear given this morning’s revised numbers consumer spending won’t be as buoyant in the third quarter as it was in the second despite high consumer confidence and record-high stock prices.”

Growth in consumer spending has remained flat, even though consumer sentiment continues to rise.  Weak automotive sales were also a culprit for the declines in overall retail sales with only a 0.2% in August.  Although retail sales in August fell, gasoline-station sales rose 2.5% in August from the prior month, reflecting higher prices from Hurricane Harvey’s devastation in Texas.  Sales from various categories were uneven with home furnishings and groceries rising slightly, while categories such as building materials and garden stores declined.  Even sales from online-shopping outlets fell 1.1% in August, the largest decline for the category since April 2014.

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Bank of England Hints at Rate Hike in ‘Coming Months’

The Bank of England hinted on September 14th that it may raise interest rates for the first time in a decade, possibly as soon as November.  The purpose for the rate hike is to control the country’s inflation which has continued to increase since the country’s decision to leave the European Union last year.  The bank warned that borrowing rates could soon rise ‘over the coming months,’ far sooner than many expected.  The country’s inflation is currently 2.9%, above the bank’s 2% target.  The announcement sparked a sharp increase in the value of the British pound to a one-year high against the dollar.  As of Friday afternoon, the pound has risen to $1.36, a good indication that investors are reassessing their rate hike predictions.

Minutes of the bank’s meeting showed that only two of the bank’s nine members within the Monetary Policy Committee voted to raise the rate to 0.50%.  The near unanimous decision was expected due to the slowdown in economic growth for the country this year.  The committee is now facing a true dilemma since inflation continues to rise quickly well above the bank’s target, while the country’s economy continues to slow.  Bank of England Governor Mark Carney agreed that the possibility of a rate hike has “definitely increased” but wouldn’t specify when that may take place.

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Alphabet Said to Be in Talks to Invest In Lyft

Google Parent, Alphabet has been in talks to invest about $1 Billion in Lyft to compete compete against their rival, Uber. The matters surrounding the deal is not yet clear. It is unknown whether this deal will actually be followed through or which division of Alphabet will make the investment. Alphabet’s venture capital arm, GV, invested $258 million in Uber in the year 2013. However, the companies became rivals as they began to develop self-driving cars.

The relationship between them further deteriorated in February when Alphabet filed a lawsuit against Uber for stealing information to start its own initiative for the driverless car program. In May, Alphabet and Lyft agreed to a deal to develop autonomous-vehicle technology. Furthermore, the Japanese tech investor SoftBank, is coming closer to a deal with Uber to buy $10 Billion in stock.

Lyft and Uber have take different approaches to self-driving vehicle program. Uber is investing cash into its robot cars and has been testing experimental products with customers while Lyft has signed contracts with General Motors and Tata Motors to develop their technology. Recently, Lyft has announced it is opening a lab for self-driving technology development in California.

Lyft operates in US only and was last valued at $7.5 Billion and raised $ 2.6 Billion from investors whereas Uber was last valued at $68 Billion. Investment in Lyft would give Google access to partner whose reputation hasn’t been smeared with scandals.

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U.S. Government Bonds Fall for Third Straight Session

US government bond prices dropped for the third consecutive day as investors demand for a safer asset declined. The yield on the 10 Year Treasury Bond closed at 2.194 % on Wednesday compared to 2.171% on Tuesday. As prices for bonds drop, the yield rises. As stock market performs well and as the major stock indexes hit all time highs investors generally tend to move away from what they consider ‘safe haven’ assets such as government bonds and gold. There was a reversal in stock market due to the tension between US and North Korea.

The early estimates suggesting damage from hurricane Irma is less severe than originally expected and the cool down of geopolitical threats and concerns led to rebound in the stock market. Previously, bond yields remained steady after Labor Department declared that the producer price index, which measures changes in prices that US companies receive for good and services they produce, increased to 0.2% in August from the prior month. However, economists were speculating an increase of about 0.3%. This could be an effect of inflation failing to reach its target even though unemployment has remained around a 16-year low.

Inflation has been under the 2% target, which is making many investors question about how quickly the Federal Reserve will be able to raise interest rates in the future to increase in the attractiveness of government bonds. Since inflation decreases the purchasing power of fixed returns, it weakens the demand for T-Bonds.

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Banks Lower Oil Price Expectations

Banks have decreased their projections for oil prices for the fourth consecutive month this year as analysts expect oil supply to increase next year. Members of the OPEC had renewed an agreement with ten other crude oil producers to hold back almost 2% of global oil supply. This deal is set to expire in March 2018 and has raised concerns among investors as that date comes closer. A survey of 14 investment banks, predicted that Brent Crude will reach an average $54 per barrel next year which is a dollar down from the July survey. Additionally, banks are predicting West Texas Intermediate to reach an average price of $51 a barrel next year, down $2 from the previous survey.

These surveys were conducted prior to tropical storm Harvey affecting refineries in US Gulf Coast. It is too early to speculate the long term effects of the storm but in the short term it could positively affect oil prices because it caused a slowdown in oil supply. Recent data for oil has been a bit bullish as oil inventory fell. The US Energy Information and Administration announced that US stockpiles decreased by 5.4 Million barrels excluding Strategic Petroleum Reserve. Moreover, the stockpiles held by Organization for Economic Cooperation and Development also declined in May.

Despite of this data, the price projections by analysts is still low for two main reasons. Without any limits on oil output, productions from OPEC and Russia will cause a huge surplus in oil supply eventually driving prices down. There hasn’t been an increase in demand for oil either, so in a market with an over supply of oil and weak demand the prices are likely to drop. Analysts are estimating the price to stay below $60 a barrel in 2019. However, analysts see shale oil as a major driver of oil price in the future.

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CEO and Former Chairman of JBS Arrested on Insider Trading Charges

Wesley Batista, CEO of JBS SA, and his brother, Joesley Batista, former Chairman of the company, were arrested Wednesday on insider trading charges. The Brazilian Federal Police announced that they believed the two men to have sold off company shares and purchased U.S. Dollars before it became public that they had reached a deal with prosecutors to help incriminate President Michel Temer on bribery accusations. This move made it possible for the brothers to profit millions of dollars upon the publication of bribery charges against President Temer and his party, which sent the Brazilian markets tumbling and caused the government to collapse.

This development led to calls of CEO Wesley Batista’s permanent removal. Especially vocal was the Brazilian State Development Bank, or BNDES, which has a 21.3% stake in the company. This also significantly sets back JBS’ plans for an IPO in the U.S. which was rumored to occur as early as 2018. JBS shares have fallen more than 20% since the bribery scandal became public.

JBS SA is the world’s largest meat processing company in the world by sales. It was founded in 1953 by Wesley and Joesley’s father, Jose Batista. In a single generation, it has grown from a rural ranch and slaughterhouse to a behemoth that has acquired processors globally, including Swift and Pilgrim’s pride in the United States.

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