Brazil cuts rates for first time in four years to bolster recovery

Brazil cut interest rates for the first time in four years on Wednesday, opting for a modest 25 basis-point reduction to launch an easing cycle aimed at pulling Latin America's biggest economy out of its worst recession in over a century.

The central bank's nine-member monetary policy committee, known as Copom, voted unanimously to cut its benchmark Selic rate to 14 percent, signaling it will proceed with a "moderate and gradual" easing cycle.

However, the bank said in its post-decision statement that it could opt for steeper cuts in the future if the pace of disinflation accelerates and Congress presses ahead with the approval of austerity measures.

"The magnitude of monetary easing and a possible speeding up of its pace will depend on a favorable evolution of factors that allow greater confidence on meeting the inflation targets at the relevant horizon for the conduct of monetary policy," the bank said.

Lower rates will help President Michel Temer in his effort to strengthen a recovery that remains elusive with high unemployment as well as dwindling industrial and service activity frustrating hopes of a rebound later this year.

For some analysts, the central bank is signaling a longer and more aggressive rate-cutting cycle is on the horizon.

"We believe the central bank will have enough elements to step up the pace of easing to 50 basis points at its next meeting despite the caution expressed today," economists with Sao Paulo-based Haitong said in a research note.

An overwhelming majority of analysts expected a rate cut, with many of them betting on a more aggressive 50-basis-point move.

In its statement, the bank said it forecast inflation at 4.3 percent in 2017 and 3.9 percent in 2018, but acknowledged private estimates remain above the 4.5 percent center of the official target for both years. Annual inflation currently stands at 8.48 percent.

Stubbornly high inflation forced the central bank to hold the Selic steady for the past year at one of the highest rates among the group of G20 industrialized economies.

However, a recent slowdown in inflation and the initial approval of a key austerity proposal in Congress gave the central bank's new governor Ilan Goldfajn enough arguments to cut borrowing costs.

The easing cycle could take the Selic below 10 percent by as early as late 2017, some analysts said. The last time Brazil had a single-digit benchmark rate was in 2013.

CONFIDENCE ON THE RISE

That prospect could lift the spirits of investors in an economy battered by months of political upheaval that led to the ouster of Temer's leftist predecessor Dilma Rousseff earlier this year.

For over a year businesses and politicians have demanded a rate cut to avoid stifling recovery during a second year of recession.

Lower borrowing costs could further lift confidence that has climbed steadily since Temer took office in May with a pro-business agenda.

The recovery, however, remains tentative with high unemployment and falling activity.

Service activity dropped by 3.9 percent in August from the same month last year, official data showed on Wednesday, a sharper fall than expected in the latest sign the recovery could be slow.

Economists in a global Reuters poll on Tuesday projected Brazil's economy would only resume growth on a year-on-year basis in the first quarter of 2017.

Although the Selic is the financial sector benchmark rate, Brazil's new administration is calling on private banks to reduce the rate differential that they charge their clients. Some banks demand rates of up to 40 percent more than the Selic.

Source: Reuters

Yahoo profit beats Wall St., some analysts worry over effect of hack

Yahoo Inc reported better-than-expected quarterly adjusted profit on Tuesday, a boost for the beleaguered company whose deal to sell its core business to Verizon Communications Inc has been shaken by a massive data breach.

Verizon's general counsel said last week that the hack, which affected at least 500 million email accounts in 2014, could have a material impact, possibly allowing Verizon to withdraw from the $4.83 billion deal.

Tuesday's results provided at least an initial indication that the data breach has not led to a quick exodus of Yahoo customers, as some had feared. Customer trends showed growth in pageviews and email usage, Yahoo said.

Still, analysts were split on whether the results dispelled doubts about the deal going through. Yahoo said in a filing with securities regulators shortly before the breach was disclosed that it knew of no cyber risks, raising questions about whether Verizon was informed of the breach in a timely fashion.

JMP Securities analyst Ronald Josey said it was too early to tell if the breach would cause lasting damage, and called customer trends "encouraging."

"The message here is email and messaging is a very sticky product and people want to get to their messages," said Josey.

But Fatemeh Khatibloo, a security analyst with Forrester Research, said the uptick in pageviews and email usage could be the result of "500 million people trying to figure out if they're exposed."

Any loss of users in the future, lawsuits related to the breach and a pending Federal Communications Commission vote that could limit how telecommunications companies can use customer data may encourage Verizon to try and back out of the deal, said Khatibloo.

However, Scott Kessler, an analyst with CFRA Research, said the fact that Yahoo did not see an immediate decline in users was a sign the breach may not be a material adverse change that would affect the Verizon deal.

"The bottom line here is from a fundamental operational and financial perspective, it doesn't seem like much has changed at the company over the last quarter," he said.

Legal experts have said Verizon would have to clear a high hurdle to prove that the breach amounted to a material adverse change that would allow it to pull out of the deal.

REVENUE CHALLENGES

Another positive sign for Yahoo was that revenue from Mavens - the mobile, video, native and social advertising units that Chief Executive Marissa Mayer touts as its emerging businesses - rose 24.2 percent to $524 million.

Still, the business showed continuing declines in major revenue categories. Gross search revenue fell 14.1 percent to $752.5 million.

Total revenue rose 6.5 percent to $1.31 billion, just beating the average analyst estimate of $1.30 billion, according to Thomson Reuters I/B/E/S. But after deducting fees paid to partner websites, revenue fell to $857.7 million from $1 billion.

Yahoo said on Friday it would not hold a call or webcast after the release of the results, citing the Verizon deal.

Analysts at Needham & Co said in a note on Tuesday that decision troubled them, given doubts cast over the Verizon deal by the data hack, and they cut their rating on Yahoo to 'hold' from 'buy'.

Yahoo's shares were up about 1.3 percent in extended trading after the close on Tuesday.

For the third quarter ended Sept. 30, net income attributable to Yahoo rose to $162.8 million, or 17 cents per share, from $76.3 million, or 8 cents per share, a year earlier.

Excluding some items, the company earned 20 cents per share, beating analysts' average estimate of 14 cents.

Verizon plans to combine Yahoo's search, email and messenger assets as well as advertising technology tools with its AOL unit, which it bought last year for $4.4 billion.

The deal would transform Yahoo into a holding company, with a 15 percent stake in Chinese e-commerce company Alibaba Group Holding Ltd and a 35.5 percent interest in Yahoo Japan Corp as well as Yahoo's convertible notes, certain minority investments and its non-core patents.

The deal is expected to close in early 2017, after which Yahoo plans to change its name and become a publicly traded investment company.

Source: Reuters

At crisis-hit Samsung, nerves jangle as annual review looms

The next few weeks are traditionally a tense time at Samsung Electronics Co (005930.KS) as executives wait to see if their work over the year is rewarded with promotion at the South Korean firm's annual performance review.

This year, that tension has been ramped up several notches as the year-end ritual comes on the heels of the debacle over Samsung's flagship Galaxy Note 7 smartphone.

The world's top smartphone maker this month pulled the plug on the near-$900 device after phones overheated and caught fire. With some replacement phones suffering the same problem, Samsung has forecast a $5.4 billion hit to its operating profits. Some analysts predict the smartphone business may post a first quarterly loss for July-September.

"Everyone's afraid to be heard even breathing," said one Samsung employee. "There will be punitive measures; someone will have to take responsibility for this."

None of the Samsung employees Reuters talked to for this article wanted to be named as they were not authorized to speak to the media.

Samsung's annual personnel decisions - a common practice in South Korea around December - is a secret more closely guarded than even details of its new products. Executives are told about any changes only at the last minute.

Samsung insiders say there is more nervousness this year than normal, and talk internally of sweeping changes, with a cull both in the executive suite and on the ground level.

"There's a lot of talk there could be major turnover in the executive ranks on the hardware side," said an insider at the mobile division. "There's also a lot of concern among the working-level employees about a major restructuring."

Samsung told Reuters it was not considering any management changes or restructuring in response to the Note 7 crisis.

FRUSTRATION

The sense of frustration among Samsung staff has been heightened by the company's inability to find the cause of the fires in replacement Note 7s that began shipping last month with what Samsung said were safe batteries, insiders said.

"We are working around the clock to analyze the causes of the reported cases," Samsung said in a statement to Reuters, adding it is premature to speculate on what went wrong.

In an internal Oct. 11 email apologizing to staff, mobile chief Koh Dong-jin - who has been in the job for less than a year - wrote of the "big wound" the scrapping of the Note 7 would be for executives and employees. Samsung confirmed Koh wrote to staff, but did not comment on what he said.

Some Samsung workers said there were already rumors circulating internally about which executives might be ousted. Some investors and analysts have said top executives including Koh may be held responsible at the year-end review.

Others said they felt ashamed when people they know ditched the Note 7 for a rival product or when they heard news announcements about the phones being banned from aeroplanes.

Koh and other Samsung executives have been active on internal messaging boards, discussing with employees how to deal with the Note 7 crisis, insiders said.

About 70 percent of Samsung's more than 325,000 employees work outside South Korea. It is not clear how overseas jobs or those at subsidiaries might be affected by the Note 7 storm; Samsung said it has no plans to cut jobs this year in Vietnam, a major smartphone manufacturing base.

TAKING IT SLOW

Internally, the mobile business was criticized by some for changing product specifications without delaying launch schedules, putting staff and suppliers under pressure to deliver fast.

"Some people who work in other business divisions feel something like this was bound to happen," said a Samsung employee at the consumer electronics division, noting mounting pressure on the mobile business to overcome slowing growth amid strong competition from rivals including Apple Inc (AAPL.O) and Huawei Technologies Co Ltd [HWT.UL].

A person familiar with the development of the next Galaxy S smartphone, expected to launch early next year, said the process has now slowed as Samsung is anxious to avoid any repeat of the Note 7 problems in its future premium handsets.

"Depending on the cause (of the Note 7 problem), certain configurations may need to be altered," the person said. "So the specifics for the (next) phone have not been finalised."

Samsung is not likely to bring forward the launch of the next Galaxy S smartphone to make up for lost Note 7 sales, the person added.

Samsung told Reuters it will take "any and all necessary steps" to ensure product safety, but did not comment on whether the Note 7 fallout was affecting the next Galaxy S phone's development.

Source: Reuters