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Ignatius Bose

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  1. PayPal Holding Inc.’s (NASDAQ:PYPL) strategic investments in Latin American e-commerce company, MercadoLibre Inc. is expected to advance the online payment firm’s second-quarter earnings, due to be announced later this month. According to PayPal’s filing with the US Securities and Exchange Commission (SEC), the company stated that its strategic investments would boost its Q2 earnings by $218m or 14 cents a share. For the first quarter, PayPal reported non-GAAP earnings of 78 cents a share, including 8 cents from its strategic investment of $750m in MercadoLibre Inc. However, in the second quarter, the company’s earnings per share (EPS) projection is expected to slow down to 68-70 cents a share, more or less in line with FactSet consensus of 69 cents a share. Shares of PayPal have surged more than 40% this year: From $84.09 at the end of December last year to $118.37 on 9th July 2019. The online payment giant is likely to announce its interim second-quarter earnings on 20th July.
  2. Toni Sacconaghi, one of the most renowned analysts in the tech sector is warning investors of the mounting risks in tech stocks, especially the high-priced ones. According to the AB Bernstein analyst, the tech sector is trading at a valuation of over 21 times forward earnings, which is the highest level in 15 years, even as he forecasts earnings to decline over the next 12 months. The US tax reform has negatively impacted the tech sector which is expected to grow 0.5% in the next 12 months, sharply lower than the 4.7% growth in the broader market. Likewise, earnings during the corresponding period are expected to tumble by 990 basis points on an equal-weighted basis, way below his projected 130 basis points decline for the broader markets. Sacconaghi expects some of the firms in the semiconductor and tech business to report negative double-digit earnings and anticipates about seven of the seventeen large-cap tech giants to announce a flat to negative outlook on their forward earnings growth. On the contrary, Sacconaghi is bullish on Dell Technologies Inc. (NYSE:DELL), Applied Materials Inc. (NASDAQ:AMAT), and Lam Research Corp. (FRA:LRC).
  3. The GBPUSD pair fell to its lowest price since the flash crash on 3rd January this year amid rising fears that Britain would exit the European Union without a deal. In addition, the country’s worsening economic outlook and a rebound in the US dollar are pushing Britain's currency to within striking distance of the April 2017 lows of $1.2409, although the sterling briefly fell to 1.2373 during the flash crash on 3rd January this year. The pound was also weak against Europe’s single currency, slipping to 0.8988, the lowest since 11th January and is on target for the tenth straight weekly loss. Analysts are of the view that the sterling has already priced in a no-deal Brexit with a 95% chance that the Eurosceptic Boris Johnson would head the Conservative Party to become the next Prime Minister and lead Britain towards a no-deal Brexit. The fear is reflected in the currency derivative markets where the spread between the three and six-month implied volatility on sterling has widened to the highest in two months while the open interest on options contracts is also pointing to a weaker UK currency. UK’s economic growth data for May is due to be announced on Wednesday. Analysts expect the economy to have expanded by 0.3% from -0.4% in April. If the economic growth figures come in line or better than analysts’ expectations, the sterling could see a pullback to $1.2650. If, on the other hand, the data points to another slowdown, sterling could come in for some fresh selling.
  4. PepsiCo Inc. (NASDAQ:PEP) announced fiscal second-quarter earnings after US market hours on Monday in which the company’s profit and revenue not only topped Street expectations, but the beverage and snack giant also affirmed its outlook for full-year 2019. PepsiCo’s net income for the three months to 15th June 2019 rose to $2.04bn or $1.44 a share compared with $1.82bn or $1.28 a share a year earlier. Core earnings that exclude non-recurring items came in at $1.54 a share, beating FactSet consensus of $1.50 apiece. Quarterly revenues likewise edged 2.2% higher to $16.45bn, surging past FactSet consensus of $16.43bn. For fiscal 2019, PepsiCo expects core EPS to come in at $5.50 a share on the back of organic revenue growth of about 4%, in line with its earlier estimates. PepsiCo’s stock has gained about 20% in the year to date while the NASDAQ has soared around 22% during the corresponding period. With markets cheering PepsiCo’s results, the stock is expected to open about a per cent higher from Monday’s closing of $132.56.
  5. Shares of International Consolidated Airlines Group SA (LON:IAG), the parent of British Airways, are trading lower by about 1.9% at £447.90 on the London Stock Exchange on Monday. The drop in price comes after the UK’s Information Commissioner’s Office (ICO) proposed a penalty of £183.4m ($230m) on the airliner for breaching its stringent data-protection rules last year. The penalty, equivalent to 1.5% of British Airways’ worldwide turnover in 2017, comes in the backdrop of data theft of about 500,000 customers from the company’s website where info such as names, addresses, card details, and other sensitive information was stolen after the users were diverted to a fraudulent site. The tough new data protection rules, which came into force last year, allow regulators to penalise companies to the extent of 4% of their global turnover and while British Airways is planning to appeal against the fine, the proposed penalty is equal to a drop of about 9 pence on the IAG stock.
  6. Shares of Intra-Cellular Therapies Inc. (NASDAQ:ITCI) climbed close to 15% in US pre-market opening on Monday after the New York-based pharmaceutical company reported that the results of its two late-stage trials of lumateperone met its primary goal. Earlier, the trading of the company's shares was halted to await the outcome of its clinical trials. The study, conducted for the treatment of bipolar depression and schizophrenia was tested on 554 patients in the United States and although the initial trials failed to show significant improvement in the condition of the patients when compared to placebo, the second study comprising of 381 patients globally showed positive results and greater improvement over placebo. According to Bloomberg, Wall Street analysts were predicting a 50-60% chance of the study meeting its primary endpoint, even as they estimated that the shares of the pharma company could surge anywhere between one and a half to twice its value of $13.46 a share if the late-stage trials of its bipolar depression treatment showed positive results. At the moment, the drugs approved for treating bipolar depression include AstraZeneca’s Seroquel, Vraylar- co-developed by Gedeon Richter Plc., and Sumitomo Dainippon Pharma’s Latuda.
  7. Shares of Tesla (NASDAQ:TSLA) jumped more than 4.5% to reach their highest price in one and a half months on Wednesday after the leading electric carmaker announced record deliveries of 95,200 cars in Q2, beating the previous figure of 91,000 shipments. Since then, the firm’s shares have dropped more than a per cent and were last seen trading at $231.50 on Friday. Analysts aren’t convinced that the delivery numbers are an indication that Tesla is turning around as they believe the record deliveries to have come at the expense of profitability after the carmaker cut costs to boost sales, which is likely to be reflected in the company’s second quarter financial results in August. In addition, sales of the lower-priced Model 3 accounted for 81.5% of the total deliveries compared to 80.8% in the previous quarter and 69.6% in the fourth quarter. Although the company’s stock has surged about 30% since it had slumped to more than three-year lows of $178.97 on 3rd June, the shares are still down about 29% in the year to date. According to FactSet consensus, the company could report a loss of 48 cents a share on revenues of $6.23bn in Q2.
  8. Samsung Electronics anticipates its second-quarter operating profit to plunge by 56.3% year on year due to sluggish demand for memory chips, arising from the US-China trade conflict. The South Korean electronics giant said it expects operating profit to tumble to 6.5tr won ($5.56bn) from 14.87tr ($12.72bn) a year earlier. The company, however, estimates a smaller 4.2% drop in revenues to 56tr won, beating analysts’ expectations of a 6.01tr won operating profit on revenues of 54.6tr. According to analysts, the ongoing trade war between the United States and China, coupled with the US exerting pressure on allies from carrying out business with China’s Huawei Technologies has hurt demand for memory chips. Samsung is the world’s largest manufacturer of memory chips and counts Huawei as one of its clients, and while Washington and Beijing have called for a truce, the issue remains and is expected to negatively impact Samsung in the near-term. In addition, the tech giant is currently caught in a political wrangle between South Korea and Japan with the latter imposing export restrictions on three materials used in the production of semiconductors and displays, a key requirement in the company’s production of chips and displays. Last year, chip sales contributed to about three-quarters of Samsung’s operating profit. However, market experts predict a weak outlook for the company going forward as the falling demand in the consumer electronics industry is expected to last a few more quarters, driving down the tech firm’s revenues and profit.
  9. The US Department of Labor is expected to announce the June non-farm payroll data on Friday with markets anticipating the creation of 160,000 new jobs during the month, more than double the 75,000 generated in May. Meanwhile, the unemployment rate is expected to remain unchanged at multi-decade lows of 3.6%, while wages are expected to edge higher by 0.3% for the month and 3.2% year on year. According to a survey by ADP, job creation in the private sector is estimated to come in at 102,000, sharply below the 140,000 expected by economists. In addition, the four-week moving average of jobless claims for the week ending 29th June was revised higher by a further 500 to 222,250 from the previous week’s average. Analysts will be keenly watching the data, not only to keep an eye on the unemployment rate but to get a first-hand view of the wage growth, one of the key barometers for inflation which the Federal Reserve is likely to consider when it meets later this month for its fifth MPC meeting this year.
  10. With the automobile industry accelerating investments in electric and self-driving technology, German engineering group, Bosch is overhauling its portfolio to focus on technology that would drive the future of the sector. According to the Wall Street Journal, the car parts maker is said to be in advanced talks with London-based CVC Capital Partners to sell its packaging machinery business. The deal, which is expected to value the company at close to a billion dollars, including debt, is expected to be announced in the coming days. The German giant’s packaging business makes machines for the pharmaceutical and food packaging industries, competes with Italy’s IMA, has an employee count of more than 6,000, and generates annual revenues of about $1.5bn. Bosch had invited bids to sell its business last year and the buyout firm is expected to have beaten competition from Italian engineering group Coesia, PE firms KKR and Bain, and German industrial holding firm, Koerber.
  11. A bitter trade war is brewing between South Korea and Japan, which could disrupt the global supply of memory chips and smartphones after the latter imposed export limits on certain high-tech materials. The flashpoint of the dispute is Japan’s 1910-1945 colonisation of Korea during which Korean women were forced to work in wartime brothels. While the row between the two countries has been going on for a while, the dispute exploded last year after South Korean courts ordered Japan’s Nippon Steel, Sumitomo Metal Corp. and Mitsubishi Heavy Industries Ltd. to compensate plaintiffs to the tune of hundreds of thousands of dollars, which Japan rejected outright. The focus of the trade dispute is the curbs on three materials; resists, hydrogen fluoride, and fluorinated polyimide, mostly used in South Korean chips and smartphone displays. Japanese semiconductor companies account for about 70-90% of their total production and the export control will not only hit South Korean memory chip-making giants Samsung Electronics Co. and SK Hynix Inc. hard, but will also delay supplies to some of their large clients including Apple Inc. and Huawei Technologies.
  12. Germany’s benchmark 10-year bond yield dropped below the European Central Bank’s deposit rate on Thursday, signalling that markets are bracing for some more easing by the central bank. The yield on the German bund dived to -0.409%, tumbling over 65 basis points this year to slip below the ECB’s deposit rate of -0.40% for the first time in history on mounting expectations that the ECB will slash rates in a bid to support economic growth and falling inflation in the Eurozone. German bonds are triple-A rated and are used as collateral by banks. With growing demand and a supply squeeze, the downward pressure on this benchmark debt instrument is pushing the yield lower. At the current rate, the cost of holding longer duration German government bonds by banks is higher than depositing cash at the central bank, which only banks have access to. However, with a massive shortfall of AAA-rated assets and the ECB’s deposit rate at -0.40% since March 2016, it wouldn’t be long before we see another rate cut by the European Central Bank.
  13. Managing Director of the International Monetary Fund, Christine Lagarde will be appointed as the next President of the European Central Bank (ECB) after European leaders agreed to nominate her to the top post. Lagarde will replace current president Mario Draghi, whose term ends on 31st October. Although the formal approval is likely to be announced in the coming months, member states of the European Union have agreed to back the IMF’s managing director for the job. With the appointment of Lagarde, not only will the ECB be led by a president without any central banking or suitable academic experience, but one of the world’s most important central banks would be headed by two personalities from a political background; Lagarde and ECB vice president Luis de Guindos. With the ECB in the midst of an economic slowdown, markets have reason to worry that an inexperienced president may not be effective in taking quick decisions in times of a crisis like Mario Draghi did. In addition, by choosing a consensus candidate, the Eurozone governments are more than likely to wield influence on ECB’s policies, undermining the independence of the central bank. While Draghi was successful in keeping the monetary union together, there are serious doubts if the Eurozone will survive another financial shock under the new president.
  14. Reports that US semiconductor giant, Broadcom Inc. (NASDAQ:AVGO) is in talks to buy Symantec Corp. (NASDAQ:SYMC) has sent the latter’s stock soaring by 22% in after-market hours trading on the NASDAQ on Tuesday. According to Bloomberg citing sources, Broadcom is in advanced talks to acquire the cybersecurity software firm and could reach an agreement in weeks. While Broadcom fell 4% in after-market hours on Tuesday after settling 1.7% lower at $295.33 in regular hours, Symantec closed at $22.10 apiece on Tuesday. Although shares of Symantec are up about 12.5% this year (as of 30th June) after tumbling 33% last year, the world’s leading maker of cybersecurity software has been struggling over the past eighteen months with heightened competition, declining consumer interest, financial investigation into its earnings and the abrupt departure of its chief executive in May this year. With a client base of more than 350,000 organisations and 50 million individuals, Broadcom’s acquisition could support Symantec and propel it back to its glorious past.  
  15. California’s Public Utilities Commission has permitted Alphabet (NASDAQ:GOOGL) subsidiary Waymo’s self-driving cars to carry passengers in California as part of its Autonomous Vehicle Passenger Service pilot program. Although Waymo is the fourth autonomous vehicle firm to have received the permit along with AutoX Technologies Inc., Pony.ai Inc. and Zoox Inc., the licence is different from the one allowing companies to test their self-driving cars and is valid for three years. Though the permit comes with a clause that Waymo would not charge riders and a safety driver must be behind the wheel, the licence could open the door for the self-driving car company to offer autonomous taxi services like the one it operates in the Phoenix, Arizona area. Waymo has already partnered with Renault and Nissan in a bid to expand its autonomous technology worldwide, with plans to begin services in France and Japan, even as the company’s autonomous cars completed more than 1.3 million miles on public roads in California in 2018, more than all its competitors combined. Google is said to have pumped in billions of dollars into its self-driving car research over the last 10 years and is now expected to reap the benefits. While the company is currently trading at 25X earnings, Waymo is expected to transform the company not only from the revenues it is about to generate from its self-driven cars but from it's Light Detection and Ranging (LiDAR) technology that the company plans to sell worldwide. Shares of Alphabet are up about 6.4% year to date, settling at $1112.60 on Tuesday, 2nd July and while the tech giant’s core business is likely to lend support to the company’s share prices in the near-to-medium term, analysts predict Waymo and the LiDAR technology to drive the company’s stock beyond $2000 in the next couple of years.
  16. The Reserve Bank of Australia cut its official cash rate by 25 basis points to a record low of 1% from 1.25% on Tuesday in a bid to stem the country’s rising unemployment and a slowdown in economic growth. The RBA’s move, in line with market expectations, follows a 0.25% cut in its previous meeting in June, the first back to back interest rate cut since 2012. It comes even as central bank policymakers globally shift to a more dovish stance amid rising concerns on global economic growth following the year-long US-China trade conflict. While the bank's decision highlights the need to bolster Australia’s resource-rich economy and to drive job creation, RBA Governor Philip Lowe said that “the uncertainty generated by the trade and technology disputes is affecting investment and means that the risks to the global economy are tilted to the downside.” Australia’s unemployment rate has seen a steady upsurge in recent months with the jobless rate climbing to 5.2% in May, and economic growth slowing to 1.8% in the first quarter, the weakest in 10 years. The RBA, while not ruling out further cuts, expects lower rates to moderate unemployment and restore inflation back to the central bank’s goal of 2-3%.
  17. The Asia Pacific unit of Belgium brewing giant, Anheuser Busch InBev NV (EBR:ABI) is all set to list on the Hong Kong stock exchange in what would be the world’s largest initial public offering this year. Having a portfolio of more than 50 beer brands, Budweiser Brewing Company APAC Ltd, the brand name of its business in the Asia Pacific, is the world’s largest brewer with a market capitalisation of about $150bn. Following are some of the key takeaways of the public offering The book building for the IPO will be launched on Tuesday. InBev is looking to raise about $9.8bn by selling 1.6bn shares at HK$40-47 ($5.13-6.02) a share. The deal is expected to fetch $8.3bn-$9.8bn prior to any over-allocation option, bringing the post IPO market cap of Budweiser’s Asian business to around $63.7bn. Based on the term sheet, the IPO pricing would value Budweiser at 16-18 times its EV-EBITDA (enterprise value-earnings before interest, taxes, depreciation and amortisation) ratio. Budweiser is expected to debut in Hong Kong on 17th July 2019. The float will be jointly sponsored by JP Morgan and Morgan Stanley while Bank of America Merrill Lynch and Deutsche Bank will be the global coordinators for the public offering.
  18. Shares of Amarin Corp. (NASDAQ:AMRN) soared close to 9% in US premarket on Tuesday after the pharma giant’s preliminary financial results for the second quarter and first half of this year beat Street expectations. The company said it has earned record revenues in the second quarter and the first half of this year respectively, largely on the sales of its primary anti-cholesterol drug, Vascepa. The company’s net revenue is expected to have come in the $97-101m range during the second quarter, a jump of around 90% year on year, while revenues for the first half are anticipated at $170-174m, surging by about 80% from the same time last year. In addition, the biopharmaceutical company raised its full-year revenue guidance from its January projections of $350m to $380-420m, beating FactSet consensus of $364.3m. According to Amarin, Vascepa is expected to generate billions of dollars in revenue over the next few years, even as it reiterated that it is unable to provide guidance beyond 2019 due to the variation in therapies for chronic health conditions. In a bid to commercialise its principle drug and accelerate the expansion of the supplemental new drug application (sNDA), Amarin said it’s doubling the size of its US workforce to 800 employees by October this year. Shares of Amarin have climbed more than 41% YTD while the S&P 500 has surged a little more than 18% during a similar period.
  19. The seasonally-adjusted unemployment rate in the Eurozone dropped to 7.5% in May from 7.6% the previous month, the lowest level since July 2008 and beating market expectations of a 7.6% jobless rate. Likewise, the number of unemployed fell by 103,000 to 12.348 million for the month while the number of unemployed personnel fell by 1.133 million year on year. The drop in the broad unemployment rate in the Eurozone was largely absorbed by Spain and Italy but, in spite of this, the jobless rates continue to remain at 13.6% and 9.9% respectively, which are among the highest of the member countries. A quick comparison of the unemployment rates in the member states shows that Czech Republic, Germany and the Netherlands have the lowest rate of unemployment, while the highest jobless rates were reported in Greece, Spain and Italy, despite the number of individuals finding employment rising in May. The unemployment rate in the Eurozone has been falling steadily from a peak of more than 12% in 2013, but analysts expect the job market to cool in the coming months, largely due to a slump in manufacturing activity across the region.
  20. The 14 member countries representing OPEC and the 10 non-OPEC countries led by Russia are meeting on 1st and 2nd July in Vienna in a bid to extend their deal to cut oil output amid slumping global demand. According to the Saudi energy minister, Khalid al-Falih, the summit will call upon member states to prolong production cuts for the next nine months, even as the Saudis and Russia agreed to slash output by 1.2 million barrels, in line with the earlier agreement. In the previous summit held in December, OPEC and its allies agreed to a six-month arrangement to cut oil output which led to a more than 20% surge in crude prices going into April this year. However, with the global economy slowing down on the back of the Sino-US trade tensions, oil prices have also fallen, largely ignoring the growing tensions in the Middle East following Iran’s downing of a US drone. WTI crude for August delivery (CLQ19) was up by 2.7% to $60.05 a barrel on Monday while Brent crude futures (BRNQ19) was mostly unchanged at $66.55 a barrel.
  21. Spot gold fell to its lowest value in seven trading sessions on Monday after the United States and China agreed to a tariff ceasefire and pledged to resume stalled talks during the G20 summit on Saturday. Spot gold fell to $1281.90 a troy ounce, dropping close to 2% in the morning session on Monday before reversing some of its losses during the European markets to trade in the $1290-1295 zone. The steep decline in the price of the precious metal comes on the back of a surge in global equities as buoyant investors returned to the markets following a compromise between Trump and Xi which had underpinned markets for most of last month, driving them to the safety of gold and government debt. Prices of spot gold climbed close to 10% in the last couple of months, to the highest since May 2013 and while the precious metal is on the verge of settling below $1400 an ounce for the first time since 21st June, analysts expect gold to bounce back once the market sentiment regarding the US-China trade truce dies down.
  22. The US Food and Drug Administration (FDA) approved Pfizer Inc.’s (NYSE:PFE) oncology biosimilar Zirabev, the US pharma giant confirmed on Friday. The drug, first launched by Roche Holding AG under the name Avastin is used to treat five types of cancer including metastatic cervical cancer, metastatic renal cell carcinoma, cell lung cancer, recurrent glioblastoma, and metastatic colorectal cancer. Earlier this year, Pfizer received approval to sell its Avastin biosimilar in Europe while in the US, the FDA approved Amgen Inc.’s Mvasi as the first biosimilar to Roche’s blockbuster cancer treatment drug. Avastin has helped the Swiss pharma giant garner revenues of close to $7bn last year, but the company’s sales of its leading cancer drugs including Herceptin, Rituxan, and Avastin have been on a decline this year due to competition from biosimilars, affecting the drug maker’s profits and share prices respectively. Shares of Roche Holding AG (SWX:ROG) have gained about 3.6% year to date while Pfizer is down about half a per cent YTD.
  23. The recent rally in Snap Inc. (NYSE:SNAP) has caught short traders unawares, pushing paper trading losses in the stock to over a billion dollars this year. While a large number of traders rushed to cover their bearish positions in the wake of a surge in the social media company’s shares, the existing short trades continue to hover around the 75 million mark, contributing to about 8% of the company’s float. Shares of Snap Inc. started rebounding from December last year, and the company’s rollout of its redesigned Android app has furthered investor interest in its stock. With Snap adding to its customer base, the firm’s earnings expanded too, even as some analysts began to compare Snap’s turnaround to Twitter. Snap’s first-quarter results beat Street estimates on the back of mounting users, leading to J.P. Morgan and RBC raising their price target and ratings on the stock respectively, although analysts Laura Martin from Needham and Shyam Patil from Susquehanna Financial Group remain bearish on the stock. Snap’s stock has soared more than 160% year to date, and the short squeeze which started in February has fallen by about half. Even as traders exit bearish bets, the creator of Snapchat continues to be the fifth largest interactive media company in terms of short positions.
  24. The Federal Reserve’s mandate to conduct annual stress tests on banks is in line with the Dodd-Frank agreement under which the central bank determines if the largest banks operating in the country can survive an economic downturn or a sudden shock to the global financial markets if and when they occur. On Thursday, the Fed approved the capital plans of the country’s 18 largest banks after clearing this year’s health tests, saying they are sufficiently capitalised and could pay some of it to shareholders in addition to buying back equity. While most of the large banks received the Fed’s approval on shareholder distribution and buybacks, J.P. Morgan and Capital One were asked to lower the distribution while Credit Suisse was told to raise its capital adequacy by the end of October. Following the Fed’s announcement, Wells Fargo said it plans to buy back $23.1bn in stock and increase its dividend by 13.3% to 51c a share. J.P. Morgan is looking to buy back $29.4bn in shares and increase its dividend payout by 12.5% to 90c a share. Citigroup said it would repurchase $17.1bn in stock next year while raising its dividends by 13.3% to 51c a share. Capital One in the meanwhile is expected to leave its dividends at 40c a share but said it would raise its share buyback program from $1.2bn to $2.2bn.
  25. The US economy expanded at an annual pace of 3.1% in the first quarter, unchanged from the second estimate released last month and higher than the 2.2% growth in the previous quarter. The key takeaways from the first quarter GDP numbers are highlighted below- State and local Government spending surged to 4.6% from a 1.3% contraction in the previous quarter. Exports accelerated by 5.4% QoQ on sales of goods and services while imports fell by 1.9%. Business investment advanced 3%, revised from the previous reading of 1%. Core inflation increased to 1.2% YoY from 1% in the earlier estimate. Consumer spending slipped to 0.9% from 1.3%, the smallest increase in a year. While the US economy benefited from the significant rise in inventories and a better than expected trade balance, analysts’ do not anticipate a recurrence with most predicting growth to taper off in the second quarter. According to a MarketWatch survey, the US economy is expected to grow at 2.4% YoY in the second quarter, while some analysts’ are also of the view that the economy could moderate below the 2% mark for the first time since January-March 2017.
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