Market Snapshot* DJIA Nasdaq

Monday, April 11, 2016

2041.99

-5.6

1.7238%

-1/32

30-Year

2.5621%

-3/32

Euro

$1.14065

+0.0006

$40.36

+0.64

Canadian Pacific Drops Norfolk Southern Merger Bid

Treasurys Government bonds in the U.S., Germany and the U.K. pulled back Monday as higher stock and oil prices sapped demand for relatively safer debt securities. Looming new debt sales also weighed on the bond market. The U.S. Treasury is scheduled to sell $24 billion of three-year notes Tuesday, $20 billion of 10-year notes Wednesday and $12 billion of 30-year bonds Thursday.

Commodities The U.S. oil benchmark settled above $40 a barrel for the first time in nearly three weeks and the global Brent contract touched a four-month high Monday, as the dollar faded and hopes rose for a coming agreement among sovereign producers that would begin to reduce the global crude glut.

*preliminary values subject to adjustments

Tomorrow’s Headlines

U.S. stocks turned lower in the final minutes of Monday's session as investors looked ahead to the start of the firstquarter earnings season.

The dollar fell against most rivals Monday and was flat against the yen despite renewed verbal warnings from Japanese officials aimed at blunting the yen's recent bout of strength. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, fell 0.5% to 85.79 as the dollar fell against the pound and euro.

-17.28

10-Year

Source: SIX Telekurs, ICAP plc

Forex

-20.54

4833.4

S&P 500

Nymex Crude

Stocks

17556.41

Canadian Pacific Railway Ltd. abandoned its nearly $30 billion pursuit of Norfolk Southern Corp. on Monday after it was unable to overcome a wall of opposition from rival railroads, shippers and U.S. politicians warning the merger would diminish competition. Canadian Pacific also has no plans to initiate merger talks with other competitors, Chief Executive Hunter Harrison said in an interview. “I doubt very much we will be reaching out to anyone else. We fought the good fight; we tried to educate the public. But the political and economic environment was against us,” he said. He said the Calgary, Alberta-based company’s board decided to withdraw from the takeover field over the weekend as it became clear that political and industry opposition was too great. William Ackman, CEO of Pershing Square Capital Management LP and a major Canadian Pacific shareholder who actively backed the railway’s merger ambitions, approved the retreat, Mr. Harrison said. continued on page 2

Tomorrow’s Calendar 6:00 a.m.

Mar NFIB Index of Small Business Optimism Small Business Idx (expected 93.6)

7:45 a.m.

04/08 The Retail Economist/Goldman Sachs Weekly Chain Store Sales Index Chain Store Sales, W/W%(previous +0.1%), M/M% (previous +1.7%)

8:30 a.m.

Mar Import & Export Price Indexes Import Prices (expected +1.0%), Non-Petroleum Prices (previous -0.1%), Petroleum Prices (previous -4.0%)

8:55 a.m.

04/08 Johnson Redbook Retail Sales Index Ret Sales Mo-to-Date, M/M% (previous +3.1%), Ret Sales Mo-to-Date, Y/Y% (previous +0.8%), Latest Wk, Y/Y% (previous +0.6%)

9:00 a.m.

FRB Philadelphia President Patrick Harker speaks at Region on the Rise: A Construction and Development Summit

9:00 a.m.

IMF World Economic Outlook forecast chapters published

12:00 p.m.

World Agricultural Supply & Demand Estimates (WASDE) Corn, End Stocks (Bushels), Soybeans, End Stocks (Bushels), Wheat, End Stocks (Bushels)

2:00 p.m.

Mar Monthly Treasury Statement of Receipts & Outlays of the U.S. Govt

4:00 p.m.

FRB Richmond President Jeffrey Lacker speaks in Wilmington, NC

4:30 p.m.

04/07 API Weekly Statistical Bulletin Crude Stocks, Net Chg (Bbls) (previous -4.3M), Gasoline Stocks, Net Chg (Bbls) (previous -0.1M), Distillate Stocks, Net Chg (Bbls) (previous +2.7M), Refinery Runs

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Monday, April 11, 2016 4 p.m. ET

Tomorrow’s Headlines

expected February. The public’s expectation of inflation three years from now also fell to 2.5% in March from 2.62% in the February survey

continued

Abu Dhabi Fund Says It Never Received 1MDB Payments An Abu Dhabi state fund said publicly for the first time on Monday that it hadn’t received billions of dollars in payments that a controversial Malaysian fund set up by Prime Minister Najib Razak claims it sent. The International Petroleum Investment Co., or IPIC, an Abu Dhabi government fund, said in a statement to the London Stock Exchange that it was aware of media reports that 1Malaysia Development Bhd., or 1MDB, had sent money to a company called “Aabar Investments PJS Ltd.” IPIC said in the statement that it has a subsidiary called Aabar Investments PJS, but that the similarly named company “was not an entity within either corporate group.” The payments owed by 1MDB came under the terms of a 2012 agreement with IPIC. In that agreement, IPIC guaranteed 1MDB bonds valued at $3.5 billion and, in return, the Malaysian fund was to make collateral and other payments to Aabar, IPIC’s subsidiary. The Wall Street Journal, citing people familiar with the matter and bank-transfer documents, earlier reported how the 1MDB fund sent $2.4 billion to the imitation Aabar, which was set up in the British Virgin Islands and later closed.

Goldman Agrees To Resolve Mortgage Securities Claims Goldman Sachs Group Inc. completed an agreement to pay $5 billion to resolve U.S. and state claims that it misled investors about mortgage securities it sold them heading into the 2008 financial crisis, authorities said Monday. Under the agreement, the bank acknowledged it sold tens of billions of dollars in risky mortgage securities and didn’t screen out questionable loans from some of the bonds in the way it told investors it would, authorities said. The pact includes a $2.3 billion federal penalty levied by the Justice Department, $875 million to end claims by several other federal agencies and states including New York, and $1.8 billion in help to struggling borrowers. The agreement is the latest to stem from an effort by the Justice Department, New York and other states to penalize banks for allegedly fueling the housing bubble and its subsequent collapse by aggressively selling shaky mortgages.

Consumer Inflation Expectations Fall in March Consumer inflation expectations drifted down in March, reversing a rise in February, the Federal Reserve Bank of New York reported Monday. Consumers surveyed by the central bank expected inflation one year from now to be 2.5%, down from the 2.7% they

Inflation expectations have generally been declining for the past two years but a rise in expectations in February raised hopes that the trend had bottomed out. The Fed hasn’t hit its 2% inflation target for three and a half years, in part because of low oil prices. Inflation expectations are a key concern of Fed officials who consider them to be a driver of actual inflation. Falling expectations could suggest inflation will remain soft.

Verizon Workers Unions Call for Strike Unions representing about 40,000 employees of Verizon Communications Inc. said they will go on strike on Wednesday if a new contract isn’t reached. The employees, who work mostly on the company’s landline phone and Internet operations along the East Coast, have been working without a contract since August. The workers are represented by the Communications Workers of America and the International Brotherhood of Electrical Workers. In 2011, a strike lasted two weeks before a new contract was negotiated. Verizon, which has about 178,000 total employees, has trained thousands of nonunion employees to cover jobs from call centers to telephone-pole repairs. “We’ve tried to work with union leaders to reach a deal,” said Marc Reed, Verizon’s chief administrative officer. “Verizon has been moving the bargaining process forward, but now union leaders would rather make strike threats than constructively engage at the bargaining table.”

Tesla Recalls Model X SUVs Electric car maker Tesla Motors Inc. is recalling 2,700 Model X sport-utility vehicles to repair their third-row seats, which could fold forward and become unlatched in an accident. Tesla said it found the problem in its internal testing before the start of delivery of vehicles to Europe, and it has received no reports of seat failures or of any accidents due to the seat latch. The recall comes at a crucial time for Tesla as it tries to ramp up production of the $81,000 and up vehicle. Tesla has said production of the SUV had reached 750 vehicles a week at the end of March, after struggling with parts supply shortages earlier in the year. Palo Alto, Calif.-based Tesla plans to fix the vehicles over the next five weeks and asks that passengers temporarily refrain from sitting in the last row.

LVMH Sales Hurt by Terrorism in Paris A continued slowdown in tourism in France following the Nov. 13 terrorist attacks weighed on LVMH Moet Hennessy Louis Vuitton SE’s first-quarter sales in one of its most important markets, the luxury juggernaut said Monday.

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Monday, April 11, 2016 4 p.m. ET

Tomorrow’s Headlines

on the deal, which has passed the first round of bidding, the people said.

continued LVMH, which owns a multitude of brands including flagship fashion label Louis Vuitton, champagne house Moet & Chandon and cognac label Hennessy, said its sales rose just 4% to 8.62 billion euros ($9.85 billion) during the first three months of 2016, and it blamed weak sales in France for the tepid result. “The U.S. market is strong and Europe remains well oriented except for France which is affected by a fall in tourism,” the company said in its quarterly update. The company’s sales figure is below the average forecast of 8.73 billion euros by 37 analysts polled by FactSet. LVMH doesn’t release quarterly profit figures. LVMH is often regarded as a bellwether for the entire luxury sector. Its portfolio includes brands that span fashion, accessories, liquor, jewelry and watches as well as the DFS duty-free chain and the Sephora cosmetics label. While luxury’s largest player has remained resilient to global economic volatility in recent years, the latest results show that it remains vulnerable to the effects of terrorist attacks.

Interest Heats Up for Yah5oo The U.K.’s Daily Mail has emerged as a suitor for Yahoo Inc.’s assets, joining a wide group of interested companies said to include telecom giant Verizon Communications Inc. as an April 18 deadline for preliminary offers nears. Daily Mail, the British newspaper and global tabloid website, said on Monday that it is in preliminary talks with other investors to launch a bid for Yahoo, confirming a report on Sunday by The Wall Street Journal. “Given the success of DailyMail.com and Elite Daily, we have been in discussions with a number of parties who are potential bidders,” a spokesperson for DailyMail.com said. Discussions are at a very early stage and there is no certainty that any transaction will take place. “Further updates will be provided as appropriate,” the spokesperson said. Daily Mail & General Trust PLC, whose main interest is Yahoo’s news and media properties, is just one of some 40 players that have expressed interest in the Web portal. Yahoo has held meetings with Verizon, IAC/InterActiveCorp and CBS Corp., a person familiar with the situation said. The Mail hasn’t yet met with Yahoo executives. Verizon, which owns AOL and is looking to beef up its digital media and advertising businesses further, is considered a frontrunner for Yahoo, according to many executives and analysts following the sale process.

Primus, Brentwood Explore Sale of Pathology Provider Primus Capital and Brentwood Capital Partners hired an investment bank to explore a possible sale of clinical laboratory and anatomic pathology testing provider PathGroup Inc., said people familiar with the situation. Cleveland private-equity firm Primus hired New York financial services firm MTS Health Partners LP to advise

PathGroup, Brentwood, Tenn., recorded about $50 million in earnings before interest, taxes, depreciation and amortization for 2015, up from about $20 million in Ebitda when Primus invested in the company in 2010, according to the people. The people said a sale, based on the price multiple on recent sales, likely would value the company at about nine to 10 times its Ebitda, translating to a roughly $450 millionto-$500 million price tag. Founded in 1997, PathGroup provides diagnostic services covering all aspects of clinical and anatomic pathology to physician offices, hospitals, surgery centers and clinics in the midsouth and Southeast U.S.

Valeant Asks CEO to Cooperate With Senate Investigation Valeant Pharmaceuticals International Inc. requested that Michael Pearson, its outgoing chief executive, cooperate with a Senate committee investigating increases in the prices of certain prescription drugs after he didn’t appear for his deposition last week. Valeant said in prepared remarks Monday, “The board understands that Mr. Pearson is in dialogue with the Senate Committee on Aging regarding his deposition and that those discussions are ongoing.” The committee is holding an open hearing, scheduled for April 27, that will “examine how Valeant Pharmaceuticals dramatically increased the price of certain lifesaving drugs that it acquired.” Bruce Yannett, a lawyer representing Mr. Pearson, said in a letter dated April 7 that the chief executive would appear and testify at the open hearing but that they had “serious concerns about the basic fairness” of the deposition request.

PulteGroup Founder Calls To Oust Dugas As CEO The founder of home builder PulteGroup Inc. again called for the company’s chairman and chief executive to step down Monday. In a blistering letter to the company’s board members, PulteGroup founder William J. “Bill” Pulte said his decision to appoint Richard Dugas to chief executive more than a decade ago was “perhaps the biggest mistake of my career.” Allowing Mr. Dugas to remain in place for another year would put “the personal interests of Richard Dugas ahead of the interests of the company and works to the detriment of the shareholders, the employees, and our customers, who are watching a board protect a failed CEO.” PulteGroup, the nation’s third-largest home builder, announced last week that Mr. Dugas would step down next year, at the request of Mr. Pulte, 83 years old, the company’s largest shareholder. Since then, the two sides have been in a bitter standoff, with Mr. Pulte insisting that he be replaced immediately.

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Monday, April 11, 2016 4 p.m. ET Copyright Dow Jones & Co., Inc.

Talking Points

Tomorrow's News Today is made available as a complimentary service to Dow Jones News Service paying subscribers. No further redistribution is permitted without written permission from Dow Jones. Tomorrow’s News Today is intended to provide factual information, but its accuracy cannot be guaranteed. Dow Jones is not a registered investment adviser, and under no circumstances shall any of the information provided be construed as a buy or sell recommendation or investment advice of any kind.

Trump’s Promises May Prove Costly

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For perspective, the entire federal budget for nondefense discretionary spending—programs outside of entitlement programs and interest on the debt—now runs about $600 billion annually. You would have to eliminate every penny of that spending—on roads, education, law enforcement and scientific research — for 25 years to fill that hole. Or, alternately, as the bipartisan Committee for a Responsible Federal Budget estimated, you would have to cut all government spending outside of Social Security by 93%.

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As part of Donald Trump’s effort to move his presidential quest from insurrection into a more-conventional campaign, he is considering making some serious speeches that would put more meat on his skeletal policy proposals. One possibility to consider: Reconciling his wildly conflicting signals on the national debt. In a nutshell, here is the disconnect: Mr. Trump has said he can eliminate the $19 trillion federal debt in eight years. At the same time, he has proposed a giant tax-cut plan that the conservative Tax Foundation says would, even after accounting for the economic growth it would create, reduce government revenues by $10 trillion over the next decade. Taken together, that’s a hole of some $30 trillion to fill—and actually more, considering the debt would continue to climb in the interim. Add in promises not to touch Social Security and Medicare benefits and to build up the military, and the task is nearly impossible.

This disconnect is symptomatic of a broader failure of the 2016 campaign debate to seriously engage on questions of deficit and debt. Before going further, a bit of a primer is required. The federal deficit is the amount of money the federal government spends each year over and above its revenues. Borrowing makes up the difference. The debt is the total accumulated over years of such borrowing. To pay down the debt, you would need to not only balance the budget but create a surplus to buy up all the old debt—an idea that many economist say would create its own economic shocks. Mr. Trump’s main Republican rival, Sen. Ted Cruz, brings some of the same disconnects to this issue, simply on a smaller scale. While Mr. Cruz proposes passing a constitutional amendment requiring a balanced budget, the Committee for a Responsible Federal Budget estimates that Mr. Cruz’s economic proposals — which combine a big tax cut with increased military spending, the end of Obamacare taxes, and much smaller domestic spending cuts—actually would increase the national debt by $12.5 trillion over the next decade. To put that in perspective, the debt has risen about $9 trillion during the course of the Obama presidency. On the Democratic side, Sen. Bernie Sanders outbids everybody on both spending and tax increases — and would add to the debt. He proposes raising the rates in every personal tax bracket, establishing a top tax rate of 54.2% and boosting taxes on capital gains. While all that would pay for some of his expanded social spending, which would drive up federal spending by an estimated 33%, the Committee for a Responsible Federal Budget still estimates that his plan still would add somewhere between $2 trillion and $15 trillion to the federal debt, depending on how much his plan for national health insurance would end up costing. In terms of debt management, Ohio Gov. John Kasich and Hillary Clinton are the most responsible. Her programs would increase federal spending by an estimated 2%, and she proposes tax increases to pay for them. The Tax Foundation estimates that her proposals for tax increases would raise $498 billion in federal revenue over a decade — though it also estimates those tax increases would decrease the gross domestic product by 1% in the long run by suppressing economic activity. continued on page 5 Copyright © Dow Jones & Company, Inc. All Rights Reserved. www.dowjones.com

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Monday, April 11, 2016 4 p.m. ET

Talking Points continued

What If Protectionism Were Good For Business? Economists disagree on plenty, but they’re pretty much unanimous that free trade is good and protectionism is bad. Elite opinion among noneconomists concurs: Editorial pages have roundly condemned Republican presidential front-runner Donald Trump for threatening to tear up trade agreements and slap steep tariffs on Mexico and China. But the case for free trade and against protectionism is not absolute. If workers lose their jobs to imports and central banks can’t bolster domestic spending enough to re-employ them, a country may be worse off, and keeping those imports out can make it better off. This occurs only in certain conditions, says a new paper by Harvard University’s Larry Summers and two co-authors, but those conditions may now be present. Mr. Summers, a former Treasury secretary, is no protectionist and no fan of Mr. Trump, whose election, he warns, could lead to recession in the U.S. and financial crisis abroad. But he does worry that chronically weak demand could make protectionism both respectable and irresistible.

Others, such as New York Times columnist Paul Krugman and Michael Pettis at Peking University have already noted how in a world with too little demand, one country’s trade surplus inflicts unemployment on the country with a deficit. In fact, the arguments at stake go back to the 1700s. Governments once assumed trade surpluses were good because they made possible the acquisition of gold, the common measure of a country’s strength. Adam Smith discredited this doctrine, which he called mercantilism, in the “The Wealth of Nations.” The benefit of exports, he wrote, comes not from accumulating gold but greater labor specialization, which raises productivity and spending power. Prohibitions on imports, he wrote, force consumers to pay more for things they could more cheaply buy from abroad. In 1923, the economist John Maynard Keynes, fully indoctrinated in the classical case for free trade, wrote, “If there is one thing that Protection cannot do, it is to cure Unemployment.” But 12 years later, in the “General Theory of Employment, Interest and Money,” he realized that the mercantilists had a point. In a world where every country fixed its currency to gold, the only way to lower interest rates and reduce unemployment was to attract gold from abroad: “There is no orthodox means open to the authorities for countering unemployment at home except by struggling for an export surplus and an import of the monetary metal at the expense of their neighbors.”

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